CA Question Paper Cost Accounting and Financial Management June 09

 

This Paper has 26 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) ABC Ltd. manufactures and sells three types of products P, Q and R. The company has been following conventional method of costing and wishes to shift to Activity Based Costing system. Following data are given for a month:
Products P Q R
Sales – No. of units
Selling price – Rs. per unit
Prime cost – Rs. per unit
Gross production units/production run
No. of defective units/production run
Set up cost/production run – Rs.
Inspection hours/production run
Machine hours/production run 50,000
18.00
12.00
5,040
40
400
6
40 1,12,000
14.00
9.00
5,620
20
600
8
24 54,000
12.00
8.00
6,020
20
500
8
60
Overhead costs : Rs.
Set–up
Inspection
Machines
Selling 20,500
1,46,000
2,84,000
3,24,000
The following additional information is given:

(i) No accumulation of inventory is considered. All good units produced are sold.
(ii) Included in the total selling overhead is advertisement cost of Rs.1,66,000. This cost is incurred only for products Q and R. However product P needs no advertisement.
(iii) Product Q needs special packing and Rs.1,08,000 is the amount on packing which is included in the total selling overhead cost given above.
You are required to present:
(i) Product wise profitability statement under the conventional system assuming all manufacturing and selling overheads are allocated on the basis of unit sold.
(ii) Product wise profitability statement as per Activity Based Costing system.
12 (0)
(b) What is Cost reduction? Explain its scope. 3 (0)
(c) Distinguish between: 3
(i) Batch costing and Uniform costing. (0)
(ii) Normal process loss and Abnormal process loss. ——— (0)
2. (a) Bright Shoe–Polish Company manufacturing black and brown polish in one standard size of tin retailing at Rs.12.00 and Rs.13.30 respectively. Following information is supplied to you:
Opening Stock:
Black polish
Brown polish 2,400 tins
8,000 tins
Closing Stock:
Black polish
Brown polish 5,400 tins
3,000 tins
Sales:
Black polish
Brown polish 72,000 tins
30,000 tins
Direct materials:
Polish
Tins
Direct wages
Production overhead
Administration and selling overhead Rs.2,46,000
Rs.1,20,000
Rs.2,04,000
Rs.3,06,000
Rs.1,02,000
The opening stock of black and brown polish was valued at its production cost. The cost of raw materials for brown polish is 10 per cent higher than that for black, but there is no difference in the cost of tins. Direct wages for brown polish are 8 per cent higher than those of black polish and production overheads are considered to very with direct wages. Administration and selling overhead is absorbed at a uniform rate per tin of polish sold.
Prepare a statement to show the cost and profit per tin of polish.

10 (0)
(b) State ‘essentials of Good Cost Accounting system’. 4 (0)
3. (a) The following details are available from the books of accounts of a contractor with respect to a particular construction work for the year ended 31st March, 2009:
Rs.
Contract price
Cash received from contractee (90% of work certified)
Material sent to site
Planning and estimation cost
Direct wages paid
Cost of plant installed at site
Direct expenses
Establishment expenses
Material returned to store
Head office expenses apportioned
Cost of work uncertified 91,00,000
71,91,000
35,82,600
3,50,000
32,62,700
7,00,000
1,68,000
2,03,000
14,840
2,50,000
3,17,000
On 31st March, 2009:
Material at site
Accrued direct wages
Accrued direct expenses
Value of plant (as revalued) 85,400
78,120
9,310
6,16,000
Required:

(i)
(ii) Prepare the Contract account for the year ended 31st March, 2009.
Show the relevant Balance Sheet entries.
9 (0)
(b) What are the essential requisites for the installation of uniform costing system ? 5 (0)
4. (a) ABC Pvt. Ltd. has furnished its Profit and Loss account for the year ended 31st March, 2009 and also given a statement showing reconciliation between the profit as per financial records and cost records. The Profit and Loss account is given below:
Profit and Loss account for the year ended 31st March, 2009 (Rs.)
Particulars Amount Particulars Amount
To

To
To
To
To
To
To
To
To
To Opening Stock:
Raw Materials
W.I.P.
Finished goods
Purchases
Direct wages
Factory overheads
Administrative exp.
Selling exp.
Goodwill written off
Interest on loans
Legal charges
Net profit
95,500
45,000
78,000
6,42,000
2,22,000
2,45,000
1,98,500
3,42,000
80,000
50,000
42,000
1,42,000 By
By

By Sales
Closing Stock:
Raw Materials
W.I.P.
Finished goods
Dividend received on
shares 17,80,000

99,000
58,000
80,000

1,65,000
Total 21,82,000 Total 21,82,000
Reconciliation Statement as at 31st March, 2009 is given below: (Rs.)
Amount Amount
Profits as per financial records Add:
Raw Material – Closing stock
W.I.P. – Opening Stock
Finished goods – Operating Stock
Finished goods – Closing Stock
Goodwill written off
Interest on loans
1,500
2,000
3,000
1,000
80,000
50,000 1,42,000
Legal charges 42,000 1,79,500

Less:
Raw Material – Opening Stock
W.I.P. – Closing Stock
Dividend received on shares

2,500
3,500
1,65,000 3,21,500

1,71,000
Profits as per cost records 1,50,500
You are required to draw up the following accounts in the cost ledger of ABC Pvt. Ltd.:

(i) Material control account
(ii) W.I.P. control account
(iii) Finished goods control account
(iv) Cost of sales account
(v) Costing profit and loss account
6 (0)
(b) X Ltd. is reviewing its stock policy, and has the following alternatives available for the evaluation of stock:
(i) Purchase stock twice in a month, 400 units.
(ii) Purchase monthly, 800 units
(iii) Purchase every three months, 2,400 units
(iv) Purchase six monthly, 4,800 units
(v) Purchase annually, 9,600 units
It is ascertained that the purchase price per unit is Rs.40 for deliveries upto 2,000 units. A 5% discount is offered by the supplier on the whole order where deliveries are 2,001 to 4,000 units and 10% reduction on the total order for deliveries in excess of 4,000 units. Each purchase order incurs administration costs of Rs.250. Interest on capital and other storage costs are Rs.12.50 per unit of average stock quantity held.

Calculate the optimum order size.

5 (0)
(c) State the areas of activity for which accounting records are to be maintained under Cost Accounting records rules. 3 (0)
5. (a) Explain the following: 6
(i) Opportunity cost and out–of–pocket cost (0)
(ii) High points and low points method of segregating semi–variable costs (0)
(iii) Efficiency audit and propriety audit. (0)
(b) Enumerate the important objectives of Cost accounting. 3 (0)
(c) The standard time for a job is 50 hours. The hourly rate of guaranteed wages is Rs.9. Because of saving in time, a worker X gets an hourly wages of Rs.10.80 under Rowan premium bonus system. For the same saving in time, calculate the hourly rate of wages a worker Y will get under Halsey premium bonus system assuming 50 per cent Bonus to worker. 5 (0)
6. (a) The following are the summarised Balance Sheet of XYZ Ltd. as on 31st March, 2008 and 2009:
(Rs. in 000’)
Liabilities 31.3.08 31.3.09 Assets 31.3.08 31.3.09
Share capital
Reserve and surplus
12% debenture
Sundry creditors
Outstanding rent
Income–tax payable 3,900
1,690
–
936
52
520 5,200
2,600
1,300
1,222
65
195 Plant & machinery
Land & building
Investment
Inventories
Sundry debtors
Prepaid selling expenses
Cash at bank
Cash in hand 3,978
1,040
130
676
728
26
494
26 5,525
1,040
130
975
1,131
52
1,677
52
7,098 10,582 7,098 10,582
Profit & Loss account for the year ended 31st March, 2009
(Rs. in 000’)
Rs. Rs.
To Opening stock
To Purchases
To Wages
To Gross profit C/d 806
2,080
650
3,900
7,436 By Sales
By Closing stock 6,331
1,105

7,436
To Depreciation
To Office expensesM
To Rent
To Selling & distribution expenses
To Income – tax
To Net profit C/d 390
390
130
780
1,040
1,560
4,290 By Gross profit B/d
By Discount
By Commission
By Dividend 3,900
39
91
260

4,290
To Dividend
To Balance C/d 650
2,600
3,250 By Balance B/d
By Net profit B/d 1,690
1,560
3,250
You are required to prepare a Cash flow statement as per AS-3 (revised).

12 (0)
(b) Discuss the proposition made in Modigliani and Miller approach in capital structure theory. 4 (0)
7. (a) Given below are the data on a capital project ‘M’:
Annual cost saving
Useful life
Internal rate of return
Profitability index
Salvage value Rs. 60,000
4 years
15 %
1.064
0
You are required to calculate for this project M:

(i) Cost of project
(ii) Payback period
(iii) Cost of capital
(iv) Not present value.
Given the following table of discount factors:

Discount factor 15% 14% 13% 12%
1 year
2 years
3 years
4 years 0.869
0.756
0.658
0.572
2.855 0.877
0.769
0.675
0.592
2.913 0.885
0.783
0.693
0.613
2.974 0.893
0.797
0.712
0.636
3.038
8 (0)
(b) Explain the role of Finance Manager in the changing scenario of financial management in India. 4 (0)
8. (a) A company currently has an annual turnover of Rs. 50 lakhs and an average collection period of 30 days. The company wants to experiment with a more liberal credit policy on the ground that increase in collection period will generate additional sales.
From the following information, kindly indicate which policy the company should adopt:
Credit policy Average collection period Annual sales (Rs. lakhs)
A
B
C
D 45 days
60 days
75 days
90 days 56
60
62
63
Costs : Variable cost : 80% of sales
Fixed cost : Rs. 6 lakhs per annum
Required (pre–tax) return on investment : 20%
A year may be taken to comprise of 360 days.

8 (0)
(b) (i) What is meant by Venture capital financing? 4 (0)
(ii) Name the various financial instruments dealt with in the International market. (0)
9. (a) The capital structure of a company as on 31st March, 2009 is as follows:
Rs.
Equity capital : 6,00,000 equity shares of Rs. 100 each
Reserve and surplus
12% debenture of Rs. 100 each 6 crore
1.20 crore
1.80 crore
For the year ended 31st March, 2009 the company has paid equity dividend @24%. Dividend is likely to grow by 5% every year. The market price of equity share is Rs. 600 per share. Income-tax rate applicable to the company is 30%.

Required:

(i) Compute the current weighted average cost of capital.
(ii) The company has plan to raise a further Rs. 3 crore by way of long–term loan at 18% interest. If loan is raised, the market price of equity share is expected to fall to Rs. 500 per share. What will be the new weighted average cost of capital of the company?
6 (0)
(b) A company operates at a production level of 5,000 units. The contribution is Rs. 60 per unit, operating leverage is 6, combined leverage is 24. If tax rate is 30%, what would be its earnings after tax? 4 (0)
(c) Discuss the advantages of raising funds by issue of equity shares. 2 (0)