CS EP Module I : Company Accounts Cost and Management Accounting - June 2009

CS EP - Module I • Company Accounts Cost and Management Accounting • June 2009

This Paper has 38 answerable questions with 0 answered.

Roll No………
Time allowed : 3 hours	Maximum marks : 100
Total number of questions : 8	Total number of printed pages : 5

PART — A
(Answer Question No. 1 which is COMPULSORY and any two of the rest from this part)

PART — A

(Answer Question No. 1 which is COMPULSORY and
any two of the rest from this part)

(a)

State, with reasons in brief, whether the following statements are correct or incorrect :

(i)

Accounting Standards (AS) are formulated by International Accounting Standard Board.

(0)

(ii)

A joint stock company cannot purchase its own shares.

(0)

(iii)

If the rate of dividend declared by a company is 22%, then under the Companies (Transfer of Profits to Reserves) Rules, 1975 the percentage of profits to be transferred to reserves should be 10%.

(0)

(iv)

The law limits the commission in case of issue of shares to 10% of the issue price of shares and in case of debentures to 5% or such lower rate as is provided in the articles of association.

(0)

(v)

Contingent liabilities relating to outsiders must be shown on the liability side of the consolidated balance sheet.

(0)

(2 marks each)

(b)

Re–write the following sentences after filling–in the blank spaces with appropriate word(s)/figure(s):

(i)

According to the provisions of section 198 of the Companies Act, 1956, maximum limit on the total managerial remuneration payable by public company is ________ of net profits.

(0)

(ii)

A company must pay the dividends within ________ days of its declaration.

(0)

(iii)

Preliminary expense is a ________ asset.

(0)

(iv)

Discount on the issue of debenture is a ________ loss.

(0)

(v)

If the purchase price of the debenture includes the interest for the expired period, it is known as ________.

(0)

(1 mark each)

(c)

Gaurav Ltd. had issued 12%, Rs.10,00,000 debentures @ Rs. 100 each in the past. For the purpose of redemption, it maintains a debenture redemption fund with an annual contribution of Rs.90,000. On 1st April, 2008, the fund stood at Rs.4,50,000 represented by 6%, Rs.5,00,000 government loan.

On 31st March, 2009, Rs.2,00,000 government loan was sold @ Rs.93.50 and the proceeds were utilised to purchase debentures for cancellation @ Rs.85 each. Assume that Rs.20,000 debentures have been redeemed out of capital and the balance with face value of Rs.1,80,000 has been redeemed out of debenture redemption fund account.

Prepare debenture account, debenture redemption fund account and debenture redemption fund investment account.

(0)

(a)

Write short notes on any two of the following :

(i)

Accounting Standard–10 : Accounting for fixed assets

(0)

(ii)

Issue of shares at a discount

(0)

(iii)

Taxation on distributed profits.

(0)

(3 marks each)

(b)

Following are the abridged balance sheets of Harry Ltd. and Say Ltd. as on 31^st March, 2009 :

Liabilities	Hary Ltd. (Rs.)	Say Ltd. (Rs.)
Equity share capital (Rs.100 each) General reserve Profit and loss account Current liabilities	10,00,000 1,00,000 1,60,000 4,40,000 17,00,000	5,00,000 1,70,000 1,30,000 2,00,000 10,00,000
Assets
Fixed assets Investment in shares of Say Ltd. Current assets	4,80,000 5,00,000 7,20,000 17,00,000	2,50,000 — 7,50,000 10,00,000

Additional information :

(i)

On 1^st July, 2008, Hary Ltd. acquired 3,000 shares in Say Ltd. The reserves and surplus position of Say Ltd. as on 1^st April, 2008 was as under:

General reserve
Profit and loss a/c (Cr.)

Rs.2,50,000
Rs.1,20,000

(ii)

On 1^st October, 2008, Say Ltd. issued one equity share for every four shares held as bonus shares out of general reserve. No entry has been made in the books of Say Ltd. for issue of bonus shares.

(iii)

On 30^th September, 2008, Say Ltd. declared a dividend out of pre–acquisition profits @ 25% on Rs.4,00,000, its capital on that date. Hary Ltd. credited the dividend to its profit and loss account.

(iv)

Say Ltd. owed Hary Ltd. Rs.50,000 for purchase of stock from Hary Ltd. The entire stock is held by Say Ltd. on 31^st March, 2009. Hary Ltd. made a profit of 25% on cost.

Prepare a consolidated balance sheet of Hary Ltd. and its subsidiary Say Ltd. as on 31^st March, 2009.

(0)

(9 marks)

(a)

Abridged balance sheet of Rama Ltd. as on 31^st March, 2009 is as follows :

Liabilities	Rs.
Share capital Reserves and surplus Bank overdraft Creditors Provision for taxation Proposed dividend	6,00,000 50,000 10,000 60,000 1,10,000 60,000 8,90,000
Assets Fixed assets Current assets	3,70,000 5,20,000 8,90,000

The net profits of the company after deducting working expenses but before providing for taxation were as under :

Year
2006–07
2007–08
2008–09

Rs.
3,18,000
3,40,000
3,12,000

On 31^st March, 2009, fixed assets were at Rs.4,50,000. Sundry debtors on the same date included Rs.10,000 which is irrecoverable. Having regard to the type of business, a 10% return on average capital employed is considered as reasonable. Ascertain the value of goodwill on the basis of three years purchase of annual super profits. Also calculate goodwill by capitalisation of average maintainable profits. Depreciation on fixed assets is charged @ 10% per annum and the rate of tax is 30%.

(0)

(6 marks)

(b)

Following is the profit and loss account of Azad Ltd. for the year ended 31^st March, 2009 :

	Rs.
To Office and administrative expenses To Selling and distribution expenses To Directors’ fees To Managerial remuneration To Interest on debentures To Donation to charitable trust To Compensation for breach of contract To Depreciation on fixed assets To Investment revaluation reserve To Provision for taxation To General reserve To Balance c/d	3,10,000 1,92,000 39,500 1,70,000 18,500 15,000 27,000 3,12,000 12,500 7,40,000 2,50,000 8,46,500 29,33,000
By Balance b/d By Gross profit b/d By Subsidies By Interest on investment By Transfer fees By Profit on sale of machinery (W.D.V. Rs.30,000)	3,43,200 24,15,000 1,39,300 9,500 1,000 25,000 29,33,000

Additional information :

—	Original cost of the machinery sold was Rs.40,000.
—	Depreciation on fixed assets as per Schedule XIV of the Companies Act, 1956 was Rs.3,42,000.

You are required to calculate managerial remuneration in the following situations :

(i)	when there is only whole–time director;
(ii)	when there are two whole–time directors; and
(iii)	when there are two whole–time directors, a managing director and a part–time director.

(0)

(6 marks)

(c)

Differentiate between ‘shares’ and ‘debentures’.

(0)

(3 marks)

(a)

Jolly Ltd. has the following balance sheet as on 31^st March, 2008 :

Liabilities	Rs.
Share capital : Issued, subscribed and fully paid–up (10,000 equity shares of Rs.100 each) 5,000 Preference shares of Rs.100 each Capital reserve Securities premium account General reserve Profit and loss account Current liabilities	10,00,000 5,00,000 1,00,000 1,00,000 2,00,000 1,00,000 10,00,000 30,00,000
Assets Fixed assets Current assets	22,00,000 8,00,000 30,00,000

The preference shares are to be redeemed at 10% premium. Fresh issue of equity shares is to be made to the extent it is required under the Companies Act, 1956 for the purpose of this redemption. The shortfall in funds for the purpose of the redemption after utilising the proceeds of the fresh issue are to be met by taking a bank loan. Show journal entries.

(0)

(6 marks)

(b)

Silver Ore Co. Ltd. was formed on 1^st April, 2007 with an authorised capital of Rs.6,00,000 in shares of Rs.10 each. of these, 52,000 shares had been issued and subscribed but there were calls–in–arrears on 100 shares. From the following trial balance as on 31^st March, 2008, prepare the trading and profit and loss account and the balance sheet :

	Rs.	Rs.
Cash at bank Share capital Plant Sale of silver Mines Promotional expenses Interest on fixed deposit upto 31^st December Dividend on investment less 22% tax Royalties paid Railway track and wagons Wages of miners Advertising Carriage on plant Furniture and buildings Administrative expenses Repairs Coal and oil Cash Investments in shares of Tin Mines Brokerage on Tin Mines 6% Fixed deposit in Syndicate Bank	1,05,500 — 40,000 — 2,20,000 6,000 — — 10,000 17,000 74,220 5,000 1,800 20,900 28,000 900 6,500 530 80,000 1,000 89,000 7,06,350	— 5,19,750 — 1,79,500 — — 3,900 3,200 — — — — — — — — — — — — — 7,06,350

Depreciate plant and railway track and wagons by 10%, furniture and building by 5%. Write off one–third of the promotional expenses. Value of silver on 31^st March, 2008 was Rs.15,000. On 10^th December, 2007, the directors forfeited 100 shares of which only Rs.7.50 per share had been paid. Ignore corporate dividend tax.

(0)

(9 marks)

PART — B
(Answer Question No.5 which is compulsory and any two of the rest from this part.)

PART — B

(Answer Question No.5 which is compulsory and
any two of the rest from this part.)

(a)

State, with reasons in brief, whether the following statements are true or false :

(i)

At break–even point, the company earns only marginal profit.

(0)

(ii)

Fixed cost per unit remains fixed.

(0)

(iii)

Liquidity ratios measure long-term solvency of a concern.

(0)

(iv)

Rent on owned building is included in cost accounts.

(0)

(v)

Job costing can be used in industries using standard costing.

(0)

(2 marks each)

(b)

Re–write the following sentences after filling–in the blank spaces with appropriate word(s)/figure(s) :

(i)

Inflated price method of valuing material issue is suited when __________.

(0)

(ii)

Abnormal wastage __________ part of cost of production.

(0)

(iii)

__________ in a contract provides that the contract price would be suitably enhanced on the happening of a specified contingency.

(0)

(iv)

Direct material + direct labour + factory overheads = ______.

(0)

(1 mark each)

(c)

Distinguish between any two of the following :

(i)

‘Bin card’ and ‘stores ledger’.

(0)

(ii)

‘Fixed cost’ and ‘variable cost’.

(0)

(iii)

‘Absorption costing’ and ‘marginal costing’.

(0)

(3 marks each)

(a)

A company has provided you the following details :

Liabilities	31.12.2007 (Rs.)	31.12.2008 (Rs.)
Share capital Debentures Reserve for doubtful debts Trade creditors Profit and loss a/c	70,000 12,000 700 10,360 10,040 1,03,100	74,000 6,000 800 11,840 10,560 1,03,200
Assets
Cash Debtors Stock Land Goodwill	9,000 14,900 49,200 20,000 10,000 1,03,100	7,800 17,700 42,700 30,000 5,000 1,03,200

Additional information —

—	Dividend paid Rs.3,500; and
—	Land was purchased for Rs.10,000.

Prepare a cash flow statement as per Accounting Standard–3 (Revised).

(0)

(6 marks)

(b)

Look a head Ltd. produces and sells a single product. Sales budget for the calendar year 2009 for each quarter is as under :

Quarter
I
II
III
IV

No. of Units to be Sold
12,000
15,000
16,500
18,000

The year 2009 is expected to open with an inventory of 4,000 units of finished product and close with an inventory of 6,500 units.

Production is customarily scheduled to provide for two–thirds of the current quarter’s demand plus one–third of the following quarter’s demand. Thus production anticipates sales volume by about one month. The standard cost details for one unit of the product is as follows:

—	Direct materials 10 Kgs. @ 50 paise per kg.
—	Direct labour 1 hour 30 minutes @ Rs.4 per hour.
—	Variable overheads 1 hour 30 minutes @ Re.1 per hour.
—	Fixed overheads 1 hour 30 minutes @ Rs.2 per hour based on a budgeted production volume of 90,000 direct labour hours for the year.

Answer the following —

(i)	Prepare a production budget for the year 2009 by quarters, showing the number of units to be produced.
(ii)	If the budgeted selling price per unit is Rs.17, what would be the budgeted profit for the year as a whole ?
(iii)	In which quarter of the year the company is expected to break–even ?

(0)

(3 marks each)

(a)

Material-A is used as follows :

Minimum usage
Maximum usage
Normal usage
Ordering quantities
Delivery period

—
—
—
—
—

500 units per week
1,500 units per week
1,000 units per week
1,600 units
4–6 weeks

Calculate —

(i)	Maximum level.

(2 marks)

(ii)	Minimum level.

(2 marks)

(iii)

Ordering level

(2 marks)

(0)

(b)

On 1^st July, 2007, Delux Ltd. under took a contract for Rs.5,00,000. On 30^th June, 2008 when the accounts were closed, the following details about the contract were gathered :

	Rs.
Material purchased Wages paid General expenses Plant purchased Materials on hand (30.6.2007) Wages accrued (30.6.2008) Work certified Cash received Work uncertified Depreciation of plant	1,00,000 45,000 10,000 50,000 25,000 5,000 2,00,000 1,50,000 15,000 5,000

The above contract has an escalation clause which reads as follows :

"In the event of prices of materials and rates of wages increase by more than 5%, the contract price would be increased accordingly by 25% of the rise in the cost of materials and wages beyond 5% in each case."

It was found that since the date of signing the agreement, the prices of materials and wage rates increased by 25%. The value of the work certified does not take into account the effect of the above clause.

Prepare the contract account.

(0)

(6 marks)

(c)

Differentiate between ‘Halsey wage plan’ and ‘Rowan wage plan’.

(0)

(3 marks)

From the following information, prepare the projected trading and profit and loss account for the next financial year ending 31^st March, 2009 and the projected balance sheet as on that date :

Gross profit ratio
Net profit to equity capital
Stock turnover ratio
Average debt collection period
Creditors velocity
Current ratio
Proprietary ratio (Fixed assets to capital employed)
Capital gearing ratio (Preference shares and debentures
to total long-term funds)
General reserve and profit and loss to equity
shareholders’ fund
Preference share capital to debentures

25%
10%
5 times
2 months
3 months
2
80%

30%

20%
2

Cost of sales consists of 40% for materials and balance for wages and overheads. Gross profit is Rs.6,00,000.

(0)

(15 marks)

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