CWA/ICWA Final :: Cost Audit and Management Audit : December 2006

*F—19(CAM)* *Revised Syllabus*
Time Allowed : 3 Hours		Full Marks : 100
The figures in the margin on the right side indicate full marks
Answer Question Nos. 1 and 5, which are compulsory and two each from the remaining questions of Sections I & II.
Section — I(50 marks)
Marks

(a)

State whether the following statements are "True" or "False" justify with reasons:

(i)	Cost Audit Firm is appointed as Internal Auditor of Textile Unit and Cost Auditor of Fertilizer Unit of the same company.
(ii)	A Cost Accountant gives a Certificate of Cost for a product manufactured by an SSI unit owned entirely by his son.
(iii)	Under the present day scenario of "liberalized economy", the importance of Cost Audit has diminished.
(iv)	Amortisation of deferred expenses will always be same in Financial Accounts and Cost Accounts.
(v)	The excise Officers, Excise Auditors and Auditors appointed by C & AG (CERA Auditors) have the powers to demand the Cost Audit Report.

2x5=10

(b)

Which of the following is correct?

(i)

The financial year of Detergent Company is from 1.1.2005 to 31.12.2005. When does the Cost Audit Report to be submitted?

(1)	31st March, 2006
(2)	30th September, 2006
(3)	30th June, 2006.

(ii)

Draft for appointment of Cost Auditor for paid up Capital of Rs. 30 lakh sent to Department of Company Affairs

(1)	Rs. 500/-
(2)	Rs. 10,000/-
(3)	Rs. 1,000/-

(iii)

Mandays available for one worker for a year of Total days = 365, Weekly off = 50, Absent for sick etc = 20, Lay off = 5 and Paid holidays = 10

(1)	300 days
(2)	280 days
(3)	310 days

(iv)

Under Para 23, Cost of bought out services includes

(1)	Raw Materials
(2)	Cost of Utilities
(3)	Indirect Materials

(v)

Under Para 4, third party on job work means

(1)	The company has manufactured goods for others
(2)	The company gets manufactured goods from outside parties
(3)	The company has manufactured and gets goods manufactured from outside parties

1x5=5

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( 2 )

F—19(CAM)
Revised syllabus

Marks

(c)

Fill in the blanks with appropriate word/words:

(i)	_______ is the verification of the correctness of Cost Accounts and adherence to Cost Accounting principles.
(ii)	Two of the basic principles governing an audit are ______ and ________.
(iii)	Value addition is the difference between ______ and the cost of bought materials and services.
(iv)	Form No. _______ is used for seeking the approval of the Central Government for appointment of a Cost Auditor.
(v)	_______ is defined as Share Capital plus reserves and surplus less accmulated losses and intangible assets.

1x5=5

The following figures are extracted from the Annual Report of Eastern Industries Ltd:

31.3.2006
(Rs. in lakhs) 31.3.2005
(Rs. in lakhs)

SOURCES:
Share Capital
Reserves and Surplus:
General Reserves
Debenture Redemption Reserve
Revaluation Reserve
Profit & Loss Account
Secured Loans:
Debentures
Term Loans
Cash Credit
Unsecured Loans:
Fixed Deposits
Interest Free Sales Tax Loan
TOTAL
APPLICATION OF FUNDS:
Net Block
Capital Work-in-Progress
Investments
Current Assets, Loans and Advances
Current Liabilities and Provisions
Miscellaneous Expenditure
TOTAL

21,000
11,300
6,200
200

48,000
5,300
7,800

2,000
9,000

24,900
11,800
2,400

38,700

61,100

11,000
1,13,200

86,650
8,250
5,050

13,100
150
1,13,200

22,200
5,700
7,400
2,200

22,000
14,100
7,150

2,250
7,250

21,850
9,050
2,400

37,500

43,250

9,500
92,650

72,350
1,800
5,600

12,800
100
92,650

Notes:

(1)	Debentures are redeemable as follows: Rs. 120 crores at the end of the 5th, 6th and 7th years in equal instalments. The earliest date of redemption is 30.9.2006. Rs. 100 crores in five semi annual instalments from 30.6.2006. Rs. 260 crores in five semi-annual instalments of Rs. 40 crores and one final instalment of Rs. 60 crores commencing from 30.6.2010
(2)	Term Loans and Fixed Deposits payable before 31.3.2007 - Rs. 1,150 (previous year — Rs. 4,050 lakhs).
(3)	Rs. 3,000 lakhs of Interest Free Sales Tax Loan is repayable on 30.11.2006.
(4)	Net Block includes Value of Brand Equity (brands purchased) Rs. 1250 lakhs (previous year — Rs. 1,450 lakhs).

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F—19(CAM)
Revised syllabus

Marks

You are required to calculate:

(a)	Capital employed as defined in the Annexure to the Cost Audit Report.

(b)	Debt-equity Ratio as on 31.3.2006.

The following data have been collected by you as Cost Auditor of a company:

2003-04 2004-05 2005-06

Installed Capacity (lakh in MT)
Production (lakh in MT)
Cost per MT of the Production (Rs.) 2.5
2.4
1,000 205
2.3
1,077 2.5
1.25
1,660

The poor capacity utilisation in 2005-06 was due to abnormal power cut. The escalation in costs were 5% in 2004-05 and 7% over 2004-05 in 2005-06.

(a)	Calculate the abnormal cost due to pwer cut.
(b)	How would you treat these abnormal costs?
(c)	What suggession can you make to reduce/avoid the abnormal costs?

8+3+4

(a)

The financial profit and loss account for the last year ended of a company shows a net profit of Rs. 26,28,000. During the course of cost audit, it was noticed that:

(i)	The company was engaged in trading activity by purchasing goods at Rs. 4,00,000 and selling it for Rs. 5,00,000 after incurring an expenditure of Rs. 25,000.
(ii)	Some old assets sold off at the year end fetching a profit of Rs. 80,000.
(iii)	A major overhaul of machinery was carried out at a cost of Rs. 4,00,000 and the next such overhaul will be done only after your years.
(iv)	Interest was received amounting to Rs. 1,50,000 from outside investments.
(v)	Depreciation to the extent of Rs. 2,25,000 was provided on the revaluation value of assets.
(vi)	Work-in-Progress valuation for financial accounts does not as a practice take into account factory overhead. This amount was Rs. 1,85,000 in opening WIP and Rs. 3,15,000 in closing WIP.
Work out the profit as per cost accounts and briefly explain the adjustment, if any carried out.

(b)

What information has to be provided by a Cost Auditor for "Written Off Stock" during the year under Para 18(B)?

SECTION II (50 Marks)

(a)

State whether the following statements are "True" or "False" justify with reasons:

(i)	Energy Audit means monitoring the energy efficiency of different equipment and process.
(ii)	Productivity Audit is basically the analysis of the productivity of the resources.
(iii)	The goods are improved and stored in warehouse under bond and can be re-exported without duty within five years from date of import.
(iv)	Cost of production of goods cleared for captive consumption should be certified as per CAS-4 only by a practicing Cost Accountant.
(v)	Management Audit extends beyond Operations Audit.

2x5=10

Please turn over

( 4 )

F—19(CAM)
Revised syllabus

Marks

(b)

Indicate the functional area you will take up for Management Audit for verification of the following transactions.

(i)	Consumption of fuel in the Captive Power Plant.
(ii)	Control of travelling expenses of sales representatives.
(iii)	Excessive idle time in one of the production departments.
(iv)	Credit allowed to customers.
(v)	Cost of training of employees.

1x5=5

(c)

Explain in brief the basic differences between any two out of the following:

(i)	Corporate Image and Brand Equity;
(ii)	Sales Tax and Excise;
(iii)	Valuation Audit and Cenvat Audit.

2½x2=5

A company suffered heavy damages of Plant and Machinery by tsunami tidal waves and had to close the factory for two months. A claim was lodged with the insurance company for loss of machinery as well as loss of profits. A Cost Accountant was appointed as insurance surveyor and he made an exhaustive study of the damages and discussed the draft report with the concerned claimant company (insured). Is this ethical? State the legal position in this regard and explain the ethics of the profession.

What is Corporate Governance? State the key aspects which should be shared by the Board.

5+10=15

Write short notes on (any three):

(a)	VAT;
(b)	Service Tax;
(c)	Desk Review of EA-2000 Audit;
(d)	Management Audit Programme.

5x3=15

__________