CA PE II Question Papers Group II Cost Accounting And Financial Management

CA PE II Question Papers Group II

Cost Accounting and Financial Management May 2007

This Paper has 23 answerable questions with 0 answered.

Total No. of Questions— 9]
Time Allowed : 3 Hours

Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued.
Question Nos.1 and 6 are compulsory.
Attempt three questions out of the remaining question numbers 2, 3, 4 and 5 and attempt two questions from the remaining Questions Nos. 7, 8 and 9.
Working notes should form part of the answer.
Marks
1. (a) Following details are related to the work done in Process ’A‘ of XYZ Company during the month of March, 2007:
Opening work in progress (2,000 units) Rs.
Materials
Labour
Overheads
Materials introduced in Process ’A‘ (38,000 units)
Direct labour
Overhead 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. 2+3
+2+3=10 (0)
(b) Explain briefly each of the following categories in Activity based Costing by giving at least two examples:
(i) Unit level activities
(ii) Batch level activities
(iii) Product level activities
(iv) Facility level activities
2+2+2+2 (0)
2. (a) What is ‘Integrated Accounting System’? State its advantages. 4 (0)
(b) A Club runs a library for its members. As part of club policy, an annual subsidy of upto Rs. 5 per member including cost of books may be given from the general funds of the club. The management of the club has provided the following figures for its library department:
Number of Club members
Number of Library members
Library fee per member per month
Fine for late return of books
Average No. of books returned late per month
Average No. of days each book is returned late
Number of available old books
Cost of new books
Number of books purchased per year
Cost of maintenance per old book per year 5,000
1,000
Rs. 100
Re. 1 per book per day
500
5 days
50,000 books
Rs. 300 per book
1,200 books
Rs. 10
Staff details No. Per Employee
Salary per month (Rs.)
Librarian
Assistant Librarian
Clerk 01
03
01 10,000
7,000
4,000
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.

10 (0)
3. (a) Raw materials ‘AXE’ costing Rs. 150 per kg and ‘BXE’ costing Rs. 90 per kg are mixed in equal proportions for making product ‘A’. The loss of material in processing works out to 25% of the product. The production expenses are allocated at 40% of direct material cost. The end product is priced with a margin of 20% over the total cost.
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’.

8 (0)
(b) Answer any three of the following: 2×3=6
(i) Explicit and Implicit Costs (0)
(ii) Period Costs and Discretionary Costs (0)
(iii) Efficiency Audit and Propretary Audit (0)
(iv) Bin Cards and Stock Control Cards (0)
4. (a) A company runs a holiday home, For this purpose, it has hired a building at a rent of Rs. 10,000 per month alongwith 5% of total talking. It has three types of suites for its customers, viz., single room, double rooms and triple rooms.
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.

10 (0)
(b) ‘Under the Rowan Premium Bonus system, a less efficient worker can obtain same bonus as a highly efficient worker.’ Discuss with suitable examples. 4 (0)
5. (a) ABC Ltd. has furnished the following information from the financial books for the year ended 31st March, 2007:
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. 5+5=10 (0)
(b) Explain any two of the following: 2×2=4
(i) National profit in Contract costing. (0)
(ii) Retention money in Contract costing. (0)
(iii) Economic Batch Quantity in Batch Costing. (0)
6. (a) The following accounting information and financial ratios of PQR Ltd. relate to the year ended 31st December, 2006:
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.

12 (0)
(b) What is Debt securitisation? State the basic debt securitisation process. 4 (0)
7. (a) JKL Ltd. is considering the revision of its credit policy with a view to increasing its sales and profit. Currently all its sales are on credit and the customers are given one month’s time to settle the dues. It has a contribution of 40% on sales and it can raise additional funds at a cost of 20% per annum. The marketing manager of the company has given the following options along with estimates for considerations:
Particulars Current
Position I
Option II
Option III
Option
Sales in (Rs. lakhs)
Credit period (in months)
Bad debts (1% of sales)
Cost of Credit administration (Rs. lakhs) 200
1
2
1,20 210
1½
2½
1,30 220
2
3
1,50 250
3
5
3,00
You are required to advise the company for the best option.

8 (0)
(b) What do you mean by factoring? Describe the benefits of factoring. 4 (0)
8. (a) You are required to determine the weighted average cost of capital of a firm using (i) book–value weights and (ii) market value weights. The following information is available for your perusal:
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%.

9 (0)
(b) Explain briefly the propositions made in Modigliani and Miller approach on cost of capital. 3 (0)
9. (a) A company is considering the proposal of taking up a new project which requires an investment of Rs. 400 lakh on machinery and other assets. The project is expected to yield the following earnings (before depreciation and taxes) over the next five years:
Year Earnings (in Rs. lakh)
1
2
3
4
5 160
160
180
180
150
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 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 calculate 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
8 (0)
(b) State the differences between Global Depository Receipts and American Depository Receipts. 4 (0