CA PE - II :: Cost Accounting and Financial Management : May 2007

Opening work in progress (2,000 units)	Rs.
Materials Labour Overheads Materials introduced in Process 'A' (38,000 units) Direct labour Overheads	80,000 15,000 45,000 14,80,000 3,59,000 10,77,000
Units scrapped : 3,000 units Degree of completion:
Materials Labour and overheads	100% 80%
Closing work–in–progress : 2,000 units Degree of completion
Materials Labour and overheads	100% 80%
Units finished and transferred to Process 'B' : 35,000 Normal Loss:
5% of total input including opening work–in–progress Scrapped units fetch Rs. 20 per piece.

You are required to prepare:

(i)	Statement of equivalent production;
(ii)	Statement of cost;
(iii)	Statement of distribution cost; and
(iv)	Process 'A' Account, Normal and Abnormal Loss Accounts.

You are required to calculate:

(i)	The cost of maintaining the library per year excluding the cost of new books;
(ii)	The cost incurred per member per month on the library excluding cost of new books; and
(iii)	The net, income from the library per year.

If the club follows a policy that all new books must be purchased out of library revenue (a) What is the maximum number of books that can be purchased per year and (b) How many excess books are being purchased by the library per year?

Also, comment on the subsidy policy of the club.

Material 'BXE' is not easily available and substitute raw material 'CXE' had been found for 'BXE' costing Rs. 75 per kg. It is required to keep the proportion of the substitute material in the maxture as low as possible and at the same time maintain the selling price of the end product at existing level and ensure the same quantum of profit as at present.

You are required to compute the ratio of the mix of the raw materials 'AXE' and 'CXE'.

Following information is given:

Type of suite	Number	Occupancy percentage
Single room Double rooms Triple rooms	100 50 30	100% 80% 60%

The rent of double rooms suite is to be fixed at 2.6 times of the single room suite and that of triple rooms suite as twice of the double rooms suite.

The other expenses for the year 2006 are as follows:

	Rs.
Staff salaries Room attendante' wages Lighting, heating and power Repairs and renevation Laundy charges Interior decoration Sandries	14,25,000 4,50,000 2,15,000 1,23,500 80,500 74,000 1,58,000

Provide profit @ 20% on total taking and assume 360 days in a year.

You are required to calculate the rent to be charged for each type of suite.

Profit & Loss Account
	Rs.		Rs.
To Opening stock (500 units at Rs. 140 each) Materials consumed Wages Gross profit c/d	70,000 10,40,000 6,00,000 12,10,000	By Sales (10,250 units) By Closing stock (250 units at Rs. 200 each)	28,70,000 50,000
	29,20,000		29,20,000
To Factory overheads Administration overheads Selling expenses Bad debts Preliminary expenses Net Profit	3,79,000 4,24,000 2,20,000 16,000 20,000 1,92,000	By Gross profit b/d Interest Rent received	12,10,000 1,000 40,000
	12,51,000		12,51,000

The cost sheet shows the cost of materials at Rs. 104 per unit and the labour cost at Rs. 80 per unit. The factory overheads are absorbed at 60% of labour cost and administration overheads at 20% of factory cost. Selling expenses are charged at Rs. 24 per unit. The opening stock of finished goods is valued at Rs. 180 per unit.

You are required to prepare:

(i)	A statement showing profit as per Cost accounts for the year ended 31st March, 2007; and
(ii)	A statement showing the reconciliation of profit as disclosed in Cost accounts with the profit shown in Financial accounts.

2006

I	Accounting Information Gross Profit Net profit Raw materials consumed Direct wages Stock of raw materials Stock of finished goods Debt collection period All sales are on credit	15% of sales 8% of sales 20% of works cost 10% of works cost 3 months' usage 6% of works cost 60 days
II	Financial Rations: Fixed assets to sales Fixed assets to Current assets Current ratio Long–term loans to current liabilities Capital to Reserves and Surplus	1 : 3 13 : 11 2 : 1 2 : 1 1 : 4

If value of fixed assets as on 31st December, 2005 amounted to Rs. 26 lakhs, prepare a summarised Profit and Loss account of the company for the year ended 31st December, 2006 and also the Balance Sheet as on 31st December, 2006.

You are required to advise the company for the best option.

Present book value of the firm's capital structure is:

	Rs.
Debentures of Rs. 100 each Preference shares of Rs. 100 each Equity shares of Rs. 10 each	8,00,000 2,00,000 10,00,000 20,00,000

All these securities are traded in the capital markets. Recent prices are: Debentures @ Rs. 110, Preference shares @ Rs. 120 and Equity shares @ Rs. 22.

Anticipated external financing opportunities are as follows:

(i)	Rs. 100 per debenture redeemable at par : 20 years maturity 8% coupon rate, 4% floatation costs, sale price Rs. 100.
(ii)	Rs. 100 preference share redeemable at par : 15 years maturity, 10% dividend rate, 5% floatation costs, sale price Rs. 100.
(iii)	Equity shares : Rs. 2 per share floatation costs, sale price Rs. 22.

In addition, the dividend expected on the equity share at the end of the year is Rs. 2 per share; the anticipated growth rate in dividends is 5% and the firm has the practice of paying all its earnings in the form of dividend. The corporate tax rate is 50%.

The cost of raising the additional capital is 12% and assets have to be depreciated at 20% on 'Written Down Value' basis. The scrap value at the end of the five years's period may be taken as zero. Income–tax applicable to the company is 50%.

You are required to calculate the net present value of the project and advise the management to the appropriate decision. Also calcuate the Internal Rate of Return of the Project.

Note: Present value of Re. 1 at different rates of interest are as follows:

Year	10%	12%	14%	16%
1 2 3 4 5	0.91 0.83 0.75 0.68 0.62	0.89 0.80 0.71 0.64 0.57	0.88 0.77 0.67 0.59 0.52	0.86 0.74 0.64 0.55 0.48