CS EP - Module I : Company Accounts Cost and Management Accounting - June2012

CS EP - Module I • Company Accounts Cost and Management Accounting • June 2012

This Paper has 45 answerable questions with 0 answered.

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

NOTE : All working notes should be shown distinctly.

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 true or false:

(i)

A company can issue debentures with voting rights.

(0)

(ii)

The apportionment of profit or loss of the business between pre–incorporation and post–incorporation periods can be done on time basis only.

(0)

(iii)

Contingent liability in respect of a transaction between holding and subsidiary companies must be shown by way of a footnote in the consolidated balance sheet.

(0)

(iv)

Debenture holders are not the members of the company.

(0)

(v)

No dividend is paid on calls–in–advance.

(0)

(2 marks each)

(b)

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

(i)

Interest on debentures is a ___________ against the profits of the company.

(0)

(ii)

The market value of a share is the product of price-earnings ratio and _____________.

(0)

(iii)

Partly paid–up preference shares cannot be ___________ .

(0)

(iv)

International Financial Reporting Standards are issued by ___________ .

(0)

(v)

Bonus shares are issued by a company free of charge to its existing shareholders on ___________ basis.

(0)

(1 mark each)

(c)

Write the most appropriate answer from the given options in respect of the following :

(i)

A company cannot issue redeemable preference shares for a period exceeding –

(a)	5 Years
(b)	10 Years
(c)	15 Years
(d)	20 Years.

(0)

(ii)

Which one of the following should be deducted from the share capital to find out paid–up share capital –

(a)	Share forfeiture
(b)	Discount on issue of shares
(c)	Calls–in–arrears
(d)	Calls–in–advance.

(0)

(iii)

At the time of conversion of debentures redeemable at par into equity shares to be issued at discount, the amount to be credited in the equity share capital account shall be –

(a)	Nominal value of debentures only
(b)	Nominal value of debentures plus discount on issue of shares
(c)	Nominal value of debentures minus discount on issue of shares
(d)	None of the above.

(0)

(iv)

In case a company intends to declare dividend @ 20%, it is required to transfer an amount to general reserve –

(a)	Not less than 10% of current profit
(b)	Not less than 7½% of current profit
(c)	Not less than 5% of current profit
(d)	Not less than 2½% of current profit

(0)

(v)

Accounting Standards –

(a)	Harmonise accounting policies
(b)	Eliminate the non–comparability of financial statements
(c)	Improve the reliability of financial statements
(d)	All of the above.

(0)

(1 mark each)

(a)

The following are the balance sheets of X Ltd. and its subsidiary Y Ltd. as on 31^st March, 2011 :

Liabilities	X Ltd. (Rs.)	Y Ltd. (Rs.)	Assets	X Ltd. (Rs.)	Y Ltd. (Rs.)
Equity share of Rs.10 each Profit and loss account External liabilities	4,00,000 50,000 7,50,000	1,00,000 20,000 4,80,000	Equipments Investment(9,000 equity shares in Y Ltd. on 1^stApril, 2010) Other assets	2,50,000 1,40,000 8,10,000	95,000 – 5,05,000
	12,00,000	6,00,000		12,00,000	6,00,000

On 1^st April, 2010, profit and loss account of Y Ltd. showed a credit balance of Rs. 8,000 and equipments of Y Ltd. were revalued by X Ltd. at 20% above its book value of Rs.1,00,000 (but no such adjustment affected in the books of Y Ltd.).
Prepare the consolidated balance sheet as on 31^st March, 2011.

(0)

(6 marks)

(b)

The Underwriters Ltd. agreed to underwrite the new issue of 50,000 equity shares of Rs. 100 each of A Ltd. The agreed commission was 5% payable as 40% in cash and rest in fully paid-up equity shares. The public subscribed for 30,000 shares and the rest had to be taken by the underwriters. These shares were subsequently quoted in the market at 10% discount.
Pass the necessary journal entries in the books of A Ltd.

(0)

(6 marks)

(c)

Write a brief note on ‘buy–back of shares’.

(0)

(3 marks)

(a)

Moon Ltd. was incorporated on 30^th September, 2009 to takeover the business of Star Ltd. from 1^st April, 2009. The financial accounts for the business for the year ended 31^st March, 2010 disclosed the following information :

	Rs.
Sales from 1–04–2009 to 30–09–2009 Sales from 1–10–2009 to 31–03–2010 Cost of sales Salaries Other administrative expenses (rent and rates) Selling expenses Directors’ remuneration Depreciation of fixed assets Interest on debentures	1,20,00,000 1,80,00,000 1,95,00,000 15,00,000 4,50,000 3,00,000 75,000 1,50,000 9,000

You are required to prepare the profit and loss account for the year ended 31^st March, 2010 showing computation of profit between the periods prior to and after incorporation.

(0)

(6 marks)

(b)

The balance sheet of Do Well Ltd. as on 31^st March, 2010 was as follows :

Liabilities	Rs.	Assets	Rs.
Share capital in Rs.10 per share Profit and loss account 6% Debentures Creditors Proposed dividend	2,00,000 1,20,000 1,20,000 60,000 20,000	Freehold property Stock Debtors Balance at bank	1,00,000 1,20,000 80,000 2,20,000
	5,20,000		5,20,000

At the annual general meeting held on 18^th April, 2010 it was resolved :

(i)	To declare dividend of 10% for the accounting year ended on 31^st March, 2010.
(ii)	To issue one bonus share for every 4 shares held out of profit and loss account.
(iii)	To give existing shareholders the option to purchase for cash one share for Rs.15 for every 4 shares held prior to the bonus distribution. This option was accepted by all the shareholders. (On this no bonus share will be given).
(iv)	To redeem the debentures at a premium of 3%.

Assuming that the authorised share capital is enough and dividends have been paid in full, pass necessary journal entries and prepare the balance sheet after these transactions are completed. Ignore dividend distribution tax.

(0)

(9 marks)

(a)

Following was the balance sheet of Raman Ltd. as on 31^st March, 2011 :

Liabilities	Rs.	Assets	Rs.
4,000 Equity shares of Rs.100 each Reserve fund Profit and loss account (including Rs.3,00,000 before tax for 2010–11) Depreciation fund : Building15,000 Investment30,000 6% Debentures Creditors Provision for doubtful debts	4,00,000 1,00,000 4,00,000 45,000 1,00,000 45,000 10,000	Building at cost Furniture Stock (market value) 5% Investments (at cost) Debtors Bank	60,000 5,000 4,00,000 3,00,000 3,00,000 35,000
	11,00,000		11,00,000

The present value of building is worth Rs.1,10,000.
Public companies doing similar business show a profit earning capacity of 12% on capital employed on the business. The real value of goodwill may be taken at Rs.2,00,000. You are required to calculate the yield value of the shares of the company assuming that the tax rate is 35%.

(0)

(9 marks)

(b)

A company issued 12% debentures of the face value of Rs. 2,00,000 at 10% discount on 1^st January, 2010. Debenture interest after deducting tax at source @ 10% was payable on 30^th June and 31^st December every year. All the debentures were to be redeemed after the expiry of 5 years period at 5% premium.
Pass the necessary journal entries.

(0)

(6 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)

Issue of shares against the purchase of fixed assets is considered under financing activities in cash flow statement.

(0)

(ii)

In cost plus contracts, the contractor runs a risk of incurring loss.

(0)

(iii)

ABC analysis is based on the principle of management by exception.

(0)

(iv)

A firm with a very high current ratio and very low liquid ratio has very low level of inventory.

(0)

(v)

When a factory operates at full capacity, fixed cost also becomes relevant for make or buy decisions.

(0)

(2 marks each)

(b)

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

(i)

Variable cost per unit does not remain ___________ .

(0)

(ii)

Quantitative records of receipts, issue and balance items of material in stores are entered in ___________ .

(0)

(iii)

Abnormal losses on account of idle time should be written off by being directly debited to ___________ .

(0)

(iv)

Two important opposing factors in fixing the economic order quantity are ___________ and carrying cost.

(0)

(v)

Zero base budgeting overcomes the weaknesses of ___________ .

(0)

(1 mark each)

(c)

Write the most appropriate answer from the given options in respect of the following :

(i)

The annual demand is 1,000 units. The unit price is Rs.10 per unit. The carrying cost of inventory is 10% and the ordering cost is Rs.5 per order. The economic order lot to be ordered is —

(a)	100 units
(b)	800 units
(c)	200 units
(d)	400 units

(0)

(ii)

The nature of ratio analysis is —

(a)	Quantitative analysis
(b)	Qualitative analysis
(c)	Both quantitative and qualitative analysis
(d)	None of the above.

(0)

(iii)

When prices fluctuate widely, the method that will smooth out the effect of fluctuations is —

(a)	FIFO
(b)	LIFO
(c)	Simple average
(d)	Weighted average.

(0)

(iv)

When the amount of overheads absorbed is less than the amount of overheads incurred, it is called —

(a)	Under–absorption of overheads
(b)	Over–absorption of overheads
(c)	Proper absorption of overheads
(d)	Normal absorption of overheads.

(0)

(v)

Product cost under marginal costing include —

(a)	Prime cost only
(b)	Prime cost and fixed overheads
(c)	Prime cost and variable overheads
(d)	Material cost and variable overheads.

(0)

(1 mark each)

(a)

A company manufacturers 5,000 units of a product per month. The cost of placing an order is Rs.100. The purchase price of the raw material is Rs.10 per kg. The re–order period is 4 to 8 weeks. The consumption of raw materials varies from 100 kg. to 450 kg. per week. The average weekly consumption being 275 kg. The carrying cost of inventory is 20% per annum. Assuming 52 weeks in a year, you are required to calculate —

(i)	Re–order quantity;

(ii)	Maximum level;

(iii)

Minimum level; and

(iv)	Average level.

(0)

(6 marks)

(b)

The following are the particulars relating to a contract which has begun on 1^st April, 2010 :

	Rs.
Contract price Machinery Material Wages Direct expenses Outstanding wages Uncertified work Overheads Material returned Machinery as on 31^st March, 2011 Material in hand on 31^st March, 2011 Value of work certified Cash received	5,00,000 30,000 1,70,600 1,48,750 6,330 5,380 9,000 8,240 1,600 22,000 3,700 3,90,000 3,51,000

Prepare the contract account for the financial year 2010–11 showing the amount of profit that may be taken to the credit of profit and loss account for the year.

(0)

(6 marks)

(c)

"Normal labour turnover is advantageous and excessive labour turnover is not desirable." Comment.

(0)

(3 marks)

(a)

Surya Ltd. provides you the following information for the year ended 31^st March, 2011 :

(i)	Sales for the year amounted to Rs.1,20,00,000, the company sells goods for cash only
(ii)	Cost of goods sold was 60% of sales. Closing inventory was higher than opening inventory by Rs.53,750. Trade creditors on 31^st March, 2011 exceeds those on 31^st March, 2010 by Rs.28,750.
(iii)	Net profit before tax was Rs.17,25,000. Tax paid amounted to Rs. 8,75,000. Depreciation on fixed assets for the year was Rs. 3,93,750. Whereas other expenses totalled Rs.26,81,250. Outstanding expenses on 31^st March, 2010 and on 31^st March, 2011 totalled to Rs. 1,02,500 and Rs. 1,13,750 respectively.
(iv)	New machinery and furniture costing Rs. 12,84,375 in all were purchased.
(v)	A rights issue was made of 2,500 equity shares of Rs. 250 each at a premium of Rs.75. The entire money was received with applications.
(vi)	Dividends and dividend distribution tax totaling Rs. 5,08,750 were paid.
(vii)	Cash in hand and at bank as on 31^st March, 2010 totalled Rs.2,67,250.

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

(0)

(9 marks)

(b)

Metro Service Ltd. is operating at 70% capacity and presents the following information:

Break–even point
P/V ratio
Margin of safety

:
:
:

Rs. 200 crore
40%
Rs. 50 crore.

Metro management has decided to increase production to 95% capacity level with the following modifications —

–	Selling price will be reduced by 8%
–	The variable cost will be reduced to 55% on sales
–	The fixed cost will increase by Rs.27 crore including depreciation on additions, but excluding interest on additional capital.
–	Additional capital of Rs.50 crore will be needed for capital expenditure and working capital

You are required to calculate —

(i)	Sales required to earn Rs.7 crore over and above the present profit and also to meet 20% interest on additional capital;

(ii)	Revised break–even point;

(iii)

Revised P/V ratio; and

(iv)	Revised margin of safety

(0)

(6 marks)

(a)

From the following particulars, prepare the balance sheet of Dhan Dhanya Ltd. :

Current ratio
Working capital
Capital block (employed) to current assets
Fixed assets to turnover
Cash sales/credit sales
Debentures/share capital
Stock velocity
Creditors velocity
Debtors velocity
Gross profit ratio
Net profit
Reserve

2
Rs. 4,00,000
3:2
1:3
1:2
1:2
2 months
2 months
3 months
25% (to sales)
10% of turnover
2.5% 0f turn over

(0)

(9 marks)

(b)

Flexible budgets are more realistic and useful than fixed budgets. Do you agree ? Explain.

(0)

(3 marks)

(c)

"Budget is an aid to management and not a substitute for management". Comment.

(0)

(3 marks)

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