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Appendix
CS Executive Programme M-I (New Syllabus)
(Solution upto Question of Dec - 2010) Paper - 2A : Company Accounts Chapter - 5 : Final Accounts of Joint Stock Companies 2010 - Dec [2] (b) The balance sheet of Zed Ltd. as on 31st March, 2010 was as follows: Liabilities Rs. Assets Rs. Issued and paid-up capital : Freehold property 2,00,000 20,000 Equity shares of Stock 1,20,000 Rs. 10 each 2,00,000 Sundry debtors 1,00,000 Profit and loss account 1,80,000 Cash at bank 1,80,000 10% Debentures 1,20,000 Sundry creditors 1,00,000 6,00,000 6,00,000 It was resolved at the annual general meeting : (i) To pay a dividend of 10% and corporate dividend tax @ 12.5% and surcharge of 10% and 2% education cess. (ii) To issue one bonus share for every four shares held. (iii) To give existing shareholders the option to buy one share of Rs.10 @ Rs. 14 for every four shares held prior to the bonus issue. (iv) To redeem the debentures at a premium of 5%. All the debenture holders took up the option. Pass necessary journal entries. (9 marks)

Answer :

Appendix CS Executive Programme M-I Paper 2 Journal Entries Particulars Profit and Loss Appropriation A/c To Proposed Equity Dividend A/c To Corporate Dividend Tax A/c (Being dividend proposed and tax payable on it) Proposed Equity Dividend A/c To Equity Dividend Payable A/c (Being Dividend Declared) Equity Dividend Bank A/c To Bank A/c (Being amount transferred to dividend Bank A/c) Equity Dividend Payable A/c To Equity Dividend Bank A/c (Being Dividend Paid) Corporate Dividend Tax A/c To Bank A/c (Being corporate dividend tax paid) Profit and Loss Appreciation A/c To Bonus to Shareholders A/c (Being bonus declared for shareholders) Bonus to Shareholders A/c To Equity Share Capital A/c (Being 5000 equity shares allotted to shareholders) Bank A/c To Equity Share Capital A/c To Securities Premium A/c (Being 5,000 shares issued at premium) Securities Premium A/c To Premium on Redemption of Debentures A/c (Being premium on redemption provided) Dr. Dr. (Rs.) 22,805 20,000 2,805 Dr 20,000 20,000 Dr 20,000 20,000 Dr 20,000 20,000 Dr. 2805 2805 Dr 50,000 50,000 Dr. 50,000 50,000 Dr. 70,000 50,000 20,000 Dr. 6,000 6,000 Cr. (Rs.)

Appendix CS Executive Programme M-I Paper 2 10% Debentures A/c Premium on Redemption of Debentures A/c To Bank A/c (Being debentures redeemed) Dr. 1,20000 6,000 1,26,000

2010 - Dec [3] The authorised capital of Moon Ltd. is Rs. 5,00,000 consisting of 2,000, 6% preference shares of Rs. 100 each and 30,000 equity shares of Rs. 10 each. The following was the trial balance of Moon Ltd. as on 31st March, 2010 : Debit Balances Rs. Investment in shares at cost 50,000 Purchases 4,90,500 Selling expenses 79,100 1,45,200 Stock on 1st April, 2009 Salaries and wages 52,000 Cash in hand 12,000 Interim preference dividend for the half year ended 6,000 30th September, 2009 Discount on issue of debentures 2,000 Preliminary expenses 1,000 Bills receivable 41,500 Interest on bank overdraft 7,800 3,750 Interest on debentures upto 30th September, 2009 Sundry debtors 50,100 Freehold property at cost 3,50,000 Furniture at cost less depreciation of Rs. 15,000 35,000 Income-tax paid in advance for 2009-10 10,000 Technical know-how fees at cost, paid during the year 1,50,000 Audit fees 5,000 14,90,950 Credit Balances Sundry creditors 87,850 6% Preference share capital 2,00,000 Equity share capital fully paid-up 2,00,000 5% Mortgage debentures secured on freehold properties 1,50,000 Dividends 4,250 28,500 Profit and loss account (1st April, 2009) Sales (Net) 6,70,350 Bank overdraft secured by hypothecation of stocks and receivables 1,50,000 14,90,950 You are required to prepare profit and loss account for the year ended 31st March, 2010 and the balance sheet as on that date after taking into account the following :

Appendix CS Executive Programme M-I Paper 2 (i) (ii)

Closing stock was valued at Rs. 1,42,500. Purchases include Rs. 5,000 worth of goods and articles distributed among valued customers. (iii) Salaries and wages include Rs. 2000 being wages incurred for installation of electrical fittings which were recorded under furniture. (iv) Bills receivable include Rs. 1,500 being dishonoured bills, 50% of which had been considered irrecoverable. (v) Bills receivable of Rs. 2,000 maturing after 31st March, 2010 were discounted. (vi) Depreciation on furniture to be charged @ 10% on written down value. (vii) Rs. 1,000 discount on issue of debentures to be written off. (viii) Interest on debentures for the half year ended on 31st March, 2010 was due on that date. (ix) Provide provision for taxation Rs. 4,000. (x) Technical know-how fees is to be written off over a period of 10 years. (xi) Rs. 500 of preliminary expenses are to be written off. (xii) Salaries and wages include Rs. 10,000 being directors remuneration. (xiii) Sundry debtors include Rs. 6,000 debts due for more than 6 months. (xiv) Rate of corporate dividend tax is 12 1 2 % and surcharge of 10% and 2% education cess. Keeping in mind the requirements of Part-I and Part-II of Schedule VI of the Companies Act, 1956, prepare the profit and loss account for the year ended 31st March, 2010 and balance sheet as on that date of Moon Ltd. as close thereto as possible. Figures for the previous year can be ignored. (15 marks) Answer : Moon Ltd. Dr. Profit and Loss Account for the year ended 31 st March, 2010 Cr. Particulars Rs. Particulars Rs. To Opening stock To Purchases Less : Cost of articles issued as sample treated as advertisement expenditure To Gross Profit c/d 4,90,500 1,45,200 By Sales (net) By Closing stock 6,70,350 1,42,500

5,000

4,85,500 1,82,150 8,12,850

8,12,850

Appendix CS Executive Programme M-I Paper 2 To Salaries and wages Less Director's remuneration 52,000 10,000 42,000 By Gross profit b/d

5 1,82,150

By Dividend

4,250

Less : Capitalisation of Wages incurred for installation of electrical fitings 2,000 To Directors remuneration To Selling expenses To Discount on issue of debentures To Interest on bank overdraft To Interest on debentures 3,750 Add: Outstanding 3,750 To Audit fees To Technical know-how written off To Preliminary expenses written off To Provisions for bad debts To Depreciation on furniture To Advertisement (sample goods) To Provision for taxation To Net profit To Interim dividend on preference shares paid Corporate dividend tax(750+75+17) To Balance c/d

40,000 10,000 79,100 1,000 7,800 7,500 5,000 15,000 500 750 3,700 5,000 4,000 7,050 1,86,400 By Balance b/d 6,000 By Net profit 842 28,708 35,550

1,86,400 28,500 7,050

35,550

Liabilities

Balance Sheet of Moon Ltd. as at 31.3.2010 Rs. Assets Fixed Assets Freehold property at cost Furniture at cost 52,000 2,00,000 (35,000+15,000+ 2,000) Less : Depreciation to date 18,700 3,00,000 Technical knowhow :

Rs. 3,50,000

Share Capital Authorised : 2,000 - 6% Preference shares of Rs.100 each 30,000 Equity shares of Rs. 10 each

33,300 1,35,000

Appendix CS Executive Programme M-I Paper 2 Issued and subscribed 2,000 6% Preference shares of Rs. 100 each fully paid 20,000 Equity shares of Rs. 10 each fully paid Reserves & Surplus Profit and loss account Secured loans 5% Mortgage debentures (secured on freehold property) Interest Outstanding Bank overdraft (secured by hypothecation of stock and receivable) Unsecured Loans Current Liabilities and Provision. (A) Current Liabilities Sundry creditors (B) Provisions : Provision for taxation corporate dividend tax Investments Investments in shares at cost 2,00,000 Current Assets, loans and 2,00,000 advances (A) Current Assets : 28,708 Stock in trade Sundry debtors : 1,50,000 (a) 3,750 (b) 1,50,000 (B) --Dabts outstanding for a period exceeding 6 months Other Debts Cash in hand Loans and Advances Bills Receivable Advance tax for 2009-10

50,000

1,42,500

6,000 44,850 12,000 40,000 10,000

Miscellaneous Expenditure (to the extent not written off) 87,850 Preliminary expanses Discount on issue of debentures 4,000 842 8,25,150

500 1,000

8,25,150

Notes: (i) A contingent liability for bills discounted Rs.2,000 which will mature after 31.3.2010. (ii) Half year Preference dividend of Rs. 6,000 is not provided for in the account. Working Notes: (i) Depreciation on furniture Rs. Furniture at cost less depreciation 35,000 Add: Installation charge of electric fittings wrongly included in salaries and wages 2,000 37,000 Depreciation at 10% 3,700 Gross value of furniture (35,000+ 15,000+ 2,000) 52,000 Less: Accumulated Depreciation (15,000 + 3,700) 18,700 33,300

(ii)

Sundry debtors

Appendix CS Executive Programme M-I Paper 2 As per trial balance Less: Debts due for more than 6 months Add: Bills dishonoured Less: Provision for bad debts (iii) Bills receivable Balance as per trial balance Less: Bills dishonoured' 50,100 6,000 44,100 1,500 45,600 750 44,850 41,500 1,500 40,000

(iv)

Provision for taxation and advance tax Advance tax has been shown as a separate item pending the final assessment when the company might get refund in due course.

Chapter - 6 : Consolidation of Accounts 2010 - Dec [4] On 1st October, 2009, Poddar Ltd. acquired 12,000 equity shares of Bhansali Ltd. of the face value of Rs. 10 each at a price of Rs. 1,70,000. The balance sheets of two companies as on 31st March, 2010 are as follows: Liabilities Poddar Ltd. Bhansali (Rs.) (Rs.) Equity shares of Rs. 10 each 10,00,000 2,00,000 4,20,000 1,00,000 General reserve (1st April, 2009) 90,000 40,000 Profit and loss account (1st April, 2009) Profit for the year 1,70,000 45,000 Creditors 2,40,000 92,000 60,000 Bills payable 80,000 20,00,000 5,37,000 Assets Goodwill 3,00,000 70,000 Land and building 4,00,000 1,00,000 Plant and machinery 5,00,000 1,00,000 Stock 2,00,000 40,500 Debtors 3,00,000 1,34,500 Investments 2,00,000 Bills receivable 20,000 30,000 Bank 60,000 50,000 12,000 Cash 20,000 20,00,000 5,37,000 Out of the debtors and bills receivable of Poddar Ltd. Rs. 50,000 and Rs. 16,000 respectively represented those due from Bhansali Ltd. The stock in the hands of Bhansali Ltd. includes goods purchased from Poddar Ltd. at Rs. 20,000 which includes profit charged by latter

Appendix CS Executive Programme M-I Paper 2

company @ 25% at cost. Prepare a consolidated balance sheet as on 31st March, 2010 and also show your workings. (15 marks) Answer : Consolidated Balance Sheet of Poddar Ltd. and its Subsidiary Bhansali Ltd. as on 31.3. 2010 Liabilities Rs. Assets Rs. Share Capital Equity Shares of Rs. 10 each Minority Interest Reserves & Surplus: General Reserve Profit & Loss Account Current Liabilities: Creditors Poddar Ltd. 2,40,000 Bhansali Ltd. 92,000 3,32,000 Less:: Inter Co.Debts 50,000 Bills Payable Poddar Ltd. 80,000 Bhansali Ltd. 60,000 1,40,000 Less: Inter Co. Debts 16,000 Goodwill 10,00,000 Land and Building 1,54,000 Poddar Ltd. Bhansali Ltd. 4,20,000 Plant and Machinery Poddar Ltd. 2,69,500 Bhansali Ltd. Investments Stock : Poddar Ltd. Bhansali Ltd. 2,82,000 Less: Stock Reserve Debtors : Poddar Ltd. 1,24,000 Bhansali Ltd. Less : Inter Co.Debts Bills Recelvables : Poddar Ltd. Bhansali Ltd. Less: Inter Co. Debts Bank : Poddar Ltd. Bhansali Ltd. Cash : Poddar Ltd. Bhansali Ltd. 22,49,500 Working Notes: 3,22,500 Rs. 4,00,000 1,00,000 5,00,000 1,00,000

5,00,000

6,00,000 30,000

2,00,000 40,500 2,40,500 4,000 3,00,000 1,34,500 4,34,500 50,000 20,000 30,000 50,000 16,000 60,000 50,000 20,000 12,000 34,000 3,84,500 2,36,500

1,10,000

32,000 22,49,500

Appendix CS Executive Programme M-I Paper 2 (1) Statement showing the allocation of Profits of Bhansali Ltd. Particulars Total Profit Minority Share Share of Holding Company (Rs.) Pre acquisition : General Reserve 1.4.09 Profit & Loss A/c 1.4.09 Profit & Loss A/c 1.4.09 to 30.9.09 Post Acquiaition: Profit & Loss A/c 1.10.09 to 31.3.10 1,00,000 40,000 22,500 (Rs.) 40,000 16,000 9,000 22,500 1,85,000 9,000 74,000 Capital Profits (Rs.) 60,000 Revenue Profits (Rs.)

24,000 13,500 97,500 13,500

(2) Calculation of Cost of Control / Goodwill: Cost of shares Less: Face value of shares Cost of Control / Goodwill (3) Calculation of Minority Interest: Paid-up value of capital Share of profits (4) Calculation of Final Profit & Loss A/c balance of Poddar Ltd. Rs Profit & Loss A/c-: Balance on 01.04.2009 90,000 Current year profit 1,70,000 Shares in Bhansali Ltd. Less : Stock Reserve (5) Calculation of value of Goodwill for Balance Sheet: Cost of Control Goodwill - Poddar Ltd. Goodwill - Bhansali Ltd. Less: Capital Profit (as above) Rs, 80,000 74,000 1,54,000 Rs. 1,70,000 1,20,000 50,000

2,60,000 13,500 2,73,500 4,000 2,69,500 50,000 3,00,000 70,000 4,20,000 97,500

Appendix CS Executive Programme M-I Paper 2 Goodwill 3,22,500

10

Chapter - 7 : Valuation of Shares and Intangible Assets 2010 - Dec [2] (a) Following are the information of two companies for the year ended 31st March, 2010 : Company-A Company-B (Rs.) (Rs.) Equity shares of Rs. 10 each 8,00,000 10,00,000 10% Preference shares of Rs.10 each 6,00,000 4,00,000 Profit after tax 3,00,000 3,00,000 Assuming that the market expectation is 18% and 80% of the profits are distributed, what is the price per share you would pay for the equity shares of each company !! (i) if you are buying a small lot; and (ii) if you are buying controlling interest shares ? (6 marks) Answer : Calculation of earning per share and dividend per share Particulars Company A Company B Profit after tax (Rs.) 3,00,000 3,00,000 40,000 Less: Preference Dividend (Rs.) 60,000 Profit for Equity Shareholders (Rs.) 2,40,000 2,60,000 No. of Equity shares issued 80,000 1,00,000 Distributable Profit as Dividend 2,08,000 (80% of profit for Equjty Shareholders) 1,92,000 Earning per share (Rs.) 3.00 2.60 Dividend per share (Rs.) 2.40 2.08 Earning per share = Profit available for equity shareholders / Number of equity shares Dividend per share = Distributable Profits / Number of Equity Shares Value per share for buying a small lot Value per share = Dividend per share / Market capitalization rate x 100 Company A = Rs. 2.40/18 x 100 = Rs.13.33 Company B = Rs. 2.08 /18 x 100 = Rs.11.56 Value Per Share for Controlling Interest Value per share = Earning per share / Market capitalization rate x 100 Company A = Rs.3.00/18 x 100 = Rs.16.67 Company B = Rs.2.60/18 x 100 = Rs. 14.44 Chapter - 8 : Objective Questions 2010 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements are true or false : (i) Accounting Standard-15 deals with earnings per share. (ii) Premium on issue of debentures shall be credited to debentures account along with nominal value of debentures.

Appendix CS Executive Programme M-I Paper 2 (iii)

11

As per Accounting Standard-26, intangible asset arising from research should not be recognised as an asset. (iv) No buy-back of partly-paid shares is allowed. (v) An underwriter while entering into a contract for issue of shares should be a registered company. (2 marks each) (b) Choose the most appropriate answer from the given options in respect of the following : (i) In case of part redemption of debentures, the balance in sinking fund is equal to ! (a) 50% of the amount of debentures issued till that date (b) 75% of the amount of debentures issued till that date (c) In proportion to the issue of debentures till that date (d) No limit. (ii) The International Financial Reporting Standard-4 deals with ! (a) Share based payments (b) Financial investments (c) Insurance contracts (d) Evaluation of mineral resources. (iii) Which one is not a statistical book ! (a) Shares calls book (b) Register of share warrants (c) Register of power of attorneys (d) Register of directors shareholdings. (iv) Securities premium account is shown on the liability side under the heading ! (a) Share capital (b) Reserves and surplus (c) Current liabilities and provisions (d) None of the above. (v) Loss suffered from the date of acquisition of business to the date of incorporation should be debited to ! (a) Goodwill account (b) Profit and loss account (c) Capital reserve account (d) Capital reduction account (1 mark each) (c) Re-write the following sentences after filling-in the blank spaces with appropriate word (s)/figure(s) : (i) The applications bearing the stamp of the respective underwriters are called____. (ii) The debentures issued as collateral security has to be mentioned by way of a note in the balance sheet under__________. (iii) The International Financial Reporting Standard-8 deals with _______. (iv) _________ advises the Central Government on the formulation and implementation of Accounting Standards in India.

Appendix CS Executive Programme M-I Paper 2

12

(v) The voluntary return of shares by a shareholder to the company for cancellation is . (1 mark each) called Answer 1(a) (i) False : Accounting Standard (AS) - 15 deals with Employee Benefits while Accounting Standard (AS) - 20 deals with Earning Per Share (ii) False: Premium on issue of debentures shall be credited to Securities Premium Account. (iii) True : Intangible assets arising from research is recognized as an expense when it is incurred as per Accounting Standard (AS) -26, hence it is not an intangible asset. (iv) True : Buy-back of shares is allowed only in case of fully paid-up existing shares in accordance with Section 77 of the Companies Act, 1956. (v) False: The underwriter need not be a registered company, it can be an individual or partnership firm also. Answer 1(b) (i) (a) 50% of the debentures issued till date. (ii) (c) Insurance contracts (iii) (d) Register of directors' shareholdings (iv) (b) Reserve and surplus (v) (a) Goodwill account.

Answer 1(c) (i) The applications bearing the stamp of the respective underwriters are called marked applications. (ii) The debentures issued as collateral security has to be mentioned by way of a note in the balance sheet under specific loan account. (iii) The International Financial Reporting Standard-8 deals with Operating Segments, (iv) National Advisory Committee on Accounting Standards (NACAS) advises the Central Government on the formulation and implementation of Accounting Standards in India. (v) The voluntary return of shares by a shareholder to the company for cancellation is called surrender of shares . Paper - 2B : Cost and Management Accounting Chapter - 1 : Introduction to Cost and Management Accounting 2010 - Dec [7] (a) Explain briefly the role of a management accountant in a business enterprise. (5 marks) Answer :

Appendix CS Executive Programme M-I Paper 2

13

For efficient and effective management of an enterprise management needs financial information in understandable form. The management accountant being principal officer in charge of accounts of the company plays a significant role in providing relevant financial information needed for day to day as well as strategic decisions. The role of management accountant in this direction includes : (i) Management accountant establishes, coordinates and administers plans to facilitate the forecasting of sales, preparation of budgets and development of cost standards that facilitates profit planning, capital budgeting and financing. (ii) He formulates accounting policy and procedures to facilitate analysis and interpretation of financial data for the use of management. (iii) He also assists in tax planning and implementing control schemes for enhancing profit for owners of the business. (iv) He keeps up to date information on economic and social matters which may affect the interest of his employer. (v) He prepares reports for the use of mangers at different layers of management for their rational decision making.

Chapter - 2 : Material Cost 2010 - Dec [7] (b) Pooja Pipes Ltd. uses about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valve costs Rs. 1.50 per unit when bought in large quantities; and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is Rs. 18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3,250 valves is desired. You are required to determine (i) The most economical order quantity and frequency of orders; (ii) the re-order point; and (iii) the most economical order quantity if the valves cost Rs. 4.50 each instead of Rs.1.50 each. (5 marks) Answer : (i) Economic Order Quantity (EOQ) Where! U = Annual Requirement = 75,000 units P = Ordering Cost = Rs. 18 per order S = Carrying Cost per unit per annum = 20% of average inventory

= 3,000 units Working note : Total carrying cost Carrying cost per unit = Rs. 22,500/75,000 = Rs. 0.30 Frequency of orders :

Appendix CS Executive Programme M-I Paper 2 Number of order per year = 75,000/3000 = 25 orders Or Orders may be placed in every 14.6 days, i.e. 365/25 = 14.6 days Re order point = (Lead time Normal usage) + 3,250 units = 12,625 units = (1.5 months 6,250 units per month) + 3,250 units = 12,625 units EOQ when the cost per value is Rs. 4.50

14

(i) (ii)

Total carrying cost Carrying cost per unit = Rs. 67,500/75,000 = Rs. 0.90 Chapter - 4 : Direct Expenses and Overheads 2010 - Dec [8] (a) Write a short note on pre-determined overheads rate. (3 marks) Answer : Pre-determined overhead rate Pre-determined overhead rate is determined in advance of the actual production and is computed by dividing the budgeted overhead expenses for the accounting period by the budgeted base for the period i.e. Pre-determined overhead rate = The computation of a pre-determined overhead rate has the following advantages : (i) Pre-determined overehead rate facilitates products cost determination immediately after production is completed. (ii) In those concerns where the budgetary control system is in operation, all the data for the purpose of calculation of pre-determined overhead rate is available without any extra clerical cost. (iii) It is useful when cost plus contracts are undertaken. (iv) Cost estimating and competitive pricing, offer ideal situations for use of predetermined overhead rates. Chapter - 5 : Method of Costing 2010 - Dec [8] (b) The cost of sale of Product-A is made up as follows : Materials used in manufacturing Materials used in packing Materials used in selling the product Materials used in the factory Materials used in the office Labour required in production Labour required for supervision of the management for factory Direct expenses ! factory Rs. 5,500 1,000 150 75 125 1,000 200 500

Appendix CS Executive Programme M-I Paper 2

15

Indirect expenses ! factory 100 Office expenses 125 Depreciation ! office building and equipment 75 Depreciation ! factory 175 Selling expenses 350 Freight on materials 500 Advertising 125 Assuming that all products manufactured are sold. what should be the selling price to obtain a profit of 25% on selling price ? (6 marks)

Appendix CS Executive Programme M-I Paper 2

Answer : Cost Sheet Particulars Direct Material : Materials used in manufacturing Materials used in packing materials Freight on materials Direct Labour : Labour required on production Direct Expenses : Direct Factory Expenses Prime Cost Add : Factory Overheads : Indirect Material : Material used in factory Indirect Labour : Labour required for supervision of the management for factory Indirect Expenses : Indirect factory expenses 100 175 Depreciation!factory Factory Cost or Work Cost Add : Office and administrative overheads : Indirect Material : Material used in office Indirect Expenses : Office expenses 125 Depreciation 75 Total Cost of Production Rs. 5,500 1,000 500

16

Rs.

7,000 1,000 500 8,500

75 200 275 125 550 9,050

200

325 9,375

Particulars

Rs.

Rs.

Add : Selling and distribution overheads : Indirect Material : Material used in selling the product 150 Indirect Expenses : Selling 350 625 Advertising 125 475 Cost of Sales 10,000 Profit [33 1/2% on cost (25% on sale) 3,333 Sales 13,333 Treated as primary packing material. Otherwise may be treated as selling expenses. Chapter - 6 : Budgetary Control 2010 - Dec [8] (c) The Finance Manager of Jay Electrical Ltd. is preparing a flexible budget for the accounting year commencing from 1st April, 2011. The company produces Component-K of a product. Direct material costs Rs. 7 per unit. Direct labour averages Rs. 2.50 per hour and requires 1.60 hours to produce one unit of Component-K Salesmen are paid a commission of Re. 1 per unit sold. Fixed selling and administration expenses amount to Rs. 85,000 per year. Manufacturing overheads has been estimated in the following amounts under specified conditions of volume : Volume of production (in units) 1,20,000 1,50,000 Rs. Rs.

Appendix CS Executive Programme M-I Paper 2 Expenses : Indirect material 2,64,000 Indirect labour 1,50,000 Inspection 90,000 Maintenance 84,000 Supervision 1,98,000 Depreciation ! Plant and equipment 90,000 Engineering services 94,000 Total manufacturing overheads 9,70,000 Normal capacity of production of company is 1,25,000 units. Prepare a budget of total cost at 1,40,000 units of output. Answer : Jay Electricals Ltd. Budget for the year commencing from 1st April, 2011 Particulars Variable Costs : Direct Material Direct Labour Salesman Commission Indirect Material Indirect Labour Inspection Total Variable Costs Semi-Variable Cost Maintenances (WN:1) ! Fixed ! Variable Supervision (WN : 2) ! Fixed ! Variable Rate per unit (Rs.) 7.00 4.00 1.00 2.20 1.25 0.75 (1)

17

3,30,000 1,87,500 1,12,500 1,02,000 2,34,000 90,000 94,000 11,50,000 (6 marks)

Output 1,40,000 units (Rs.) 9,80,000 5,60,000 1,40,000 3,08,000 1,75,000 1,05,000 2268000

0.60 1.20

12,000 84,000 54,000 1,68,000

Appendix CS Executive Programme M-I Paper 2 Total Semi-Variable Costs (2) Fixed Costs Selling and Administration Expenses Depreciation : Plant and Equipment Engineering Services Total Fixed Costs (3) Total Costs=(1)+(2)+(3) Working Notes : 1. Maintenance Cost - Variable cost per unit = = Total Variable Cost for 1,20,000 units = Total Fixed Costs = 2. Supervision Cost Variable Cost per unit = = Total Variable Cost for 1,20,000 units = Total Fixed Costs =

18 3,18,000 85,000 90,000 94,000 2,69,000 28,55,000

= Change in Cost/Change in Output 18,000/30,000 Rs. 0.60 per unit 1,20,0000.60=Rs. 72,000 84,000!72,000= Rs. 12,000 Change in Cost/Change in Output 36,000/30,000=Rs. 1.20 per unit 1,20,0001.20= Rs. 1,44,000 1,98,000-1,44,000=Rs. 54,000

Chapter - 7 : Marginal Costing 2010 - Dec [7] (c) A factory produces 300 units of a product per month. The selling price is Rs. 120 per unit and variable cost is Rs. 80 per unit. The fixed expenses of the factory amount to Rs. 8,000 per month. Calculate ! (i) The estimated profit in a month wherein 240 units are produced. (ii) The break-even sales quantity. (iii) The sales to be made to earn a profit of Rs. 7,000 per month. (5 marks) Answer : Selling price per unit Rs. 120 Less : Variable cost per unit Rs. 80 Contribution per unit Rs. 40 P/V ratio = (i) Profit on sale 240 units Sale of 240 units at Rs. 120 each Contribution from above at Rs. 28,800 Rs. 9,600

Less : Fixed cost of one month

Appendix CS Executive Programme M-I Paper 2 Rs. 8,000 Rs. 1,600 (ii) Break Even Sales Quantity = Fixed Cost/Contribution per unit Rs. 8,000/40=200 Units (iii) Sales required to earn a profit of Rs. 7,000 Profit required to be earned Rs. 7,000 Add : Fixed cost per month Rs. 8,000 Total contribution to be earned Rs. 15,000 P/V Ratio i.e. Sales required to earn Rs. Sales required to earn Rs. 15,000 = = Rs. 100 Profit

19

Chapter - 9 : Cash Flow Statement 2010 - Dec [6] From the following balance sheets and information, prepare a cash flow statement of Rajat Ltd. for the year ended 31 March, 2010 as per Accounting Standard-3 (revised): Balance Sheets Liabilities As on As on 31st March, 2009 31st March, 2010 (Rs.) (Rs.) Equity share capital 6,00,000 5,00,000 10% Redeemable preference capital 2,00,000 Capital redemption reserve 1,00,000 Capital reserve 1,00,000 General reserve 1,00,000 2,50,000 Profit and loss account 70,000 50,000 9% Debentures 2,00,000 Sundry creditors 95,000 80,000 Bills payable 20,000 30,000 Liabilities for expenses 30,000 20,000 Provision for taxation 95,000 60,000 60,000 Proposed dividend 90,000 15,00,000 12,50,000 Assets As on 31st March, 2010 As on 31st March, 2009

Appendix CS Executive Programme M-I Paper 2 (Rs.) 1,50,000 7,65,000 50,000 90,000 65,000 1,75,000 65,000 10,000 1,25,000 15,00,000

20 (Rs.) 2,00,000 5,00,000 80,000 95,000 70,000 1,30,000 90,000 25,000 65,000 12,50,000

Land and building Plant and machinery Investments Inventory Bills receivable Sundry debtors Cash and bank Preliminary expenses Voluntary separation payments

Additional information : (i) A piece of land being sold out for Rs. 1,50,000 (cost Rs.1,20,000) and the balance land was revalued. Capital reserve consisted of profit on sale and profit on revaluation of land and building. (ii) On 1st April, 2004, a plant was sold for Rs. 90,000 (original cost Rs. 70,000 and written down value Rs. 50,000) and debentures worth Rs. 1 lakh were issued at par as part consideration for plant of Rs. 4.5 lakh acquired. (iii) Part of the investments (cost Rs. 50,000) was sold for Rs. 70,000. (iv) Pre-acquisition dividend received Rs. 5,000 was adjusted against cost of investment. (v) Directors have proposed 15% dividend for the current year. (vi) Voluntary separation cost of Rs. 50,000 was adjusted against general reserve. (vii) Income-tax liability for the current year was estimated at Rs.1,35,000. (viii) Depreciation @ 15% has been written off from plant account, but no depreciation has been charged on land and building. (15 marks) Answer : Cash Flow Statement of Rajat Limited for the year ended 31st March, 2010 Rs. Particulars Rs. (A) Cash Flow from Operating Activities : 2,45,000 Net Profit before taxation Adjustment for: 1,35,000 Depreciation 15,000 Preliminary expenses (40,000) Profit on sale of plant (20,000) Profit on sale of investments 18,000 Interest on debentures 3,53,000 Operating profits before working capital changes

Appendix CS Executive Programme M-I Paper 2 Increase in inventory (5,000) Decrease in bills receivable 5,000 Increase in debtors (45,000) Increase in creditors 15,000 increase in bills payable (10,000) Increase in accrued liabilitiesCash generated from operations 10,000 3,23,000 Income-tax paid (1,00,000) 2,23,000 Voluntary separation payments Net cash from operating (1,10,000) activities (B) Cash Flow from Investing Activities : Proceeds from sale of land Proceeds from sale of plant Proceeds from sale of investments Purchase of plant Purchase of investment Pre-acquisition dividend received Net cash used in investing activities (C) Cash Flow from Financing Activities: Proceeds from issue of equity shares Proceeds from issue of Debentures Redemption of preference shares Dividend paid Interest paid on debentures Net cash used in financing activities Net decrease in cash and cash equivalents [(A) + (B) + (C) ] . Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 1,50,000 90,000 70,000 (3,50,000) (25,000) 5,000

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1,13,000

(60,000) 1,00,000 1,00,000 (2,00,000) (60,000) (18,000) (78,000) (25,000) 90,000 65,000

Appendix CS Executive Programme M-I Paper 2 Working Notes Net profit before taxation Retained profit Less: Balance as on 31.3.2009 Add: Provision for taxation Proposed dividend

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Dr. Particulars

Land and Building Account Rs. 2,00,000 30,000 Particulars By Cash (sale) By Balance c/d

Rs. 70,000 50,000 20,000 1,35,000 90,000 2,45,000 Cr. Rs. 1,50,000 1,50,000

To Balance b/d To Capital reserve (profit on sale) To Capital reserve (revaluation profit)

70,000 ________ 3,00,000 Plan : and Machinery Account Rs. Particulars

________ 3,00,000 Rs. 90,000 1,35,000 7,65,000 ________ 9,90,000 Rs. 70,000 5,000 50,000 ________ 1,25,000

Particulars To Balance b/d To Profit and loss account To Debentures To Bank

5,00,000 By Cash (sale) 40,000 By Depreciation 1,00,000 By Balance c/d 3,50,000 ________ 9,90,000 Investment Account Rs. 80,000 20,000 25,000 ________ 1,25,000 Particulars By Cash (sale) By Dividend (pre-acquistion) By Balance c/d

Particulars To Balance b/d To Profit and loss account To Bank (balancing figure)

Appendix CS Executive Programme M-I Paper 2 Capital Reserve Account Particulars To Balance b/d Rs. 1,00,000 Particulars By Land A/c (profit on sale) Rs.

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30,000 70,000 ________ 1,00,000 Rs. 2,50,000

By Land A/c (profit on revaluation) ________ 1,00,000 General Reserve Account Particulars To Voluntary separation cost To Capital redemption reserve To Balance c/d Rs. Particulars

50,000 By Land b/d 1,00,000 1,00,000 ________ 2,50,000 Proposed Dividend Account Rs. 60,000 90,000 ________ 1,50,000 Particulars By Balance b/d By Profit and loss account

________ 2,50,000 Rs. 60,000 90,000 ________ 1,50,000

Particulars To Bank (balancing figure) To Balance c/d

Provision For Taxation Account Particulars To Bank (balancing figure) To Balance c/d Rs. 1,00,000 95,000 ________ 1,95,000 Particulars By Balance b/d By Profit and loss account Rs. 60,000 1,35,000 ________ 1,95,000

Chapter - 10 : Objective Questions 2010 - Dec [5] {C} (a) State, with reasons in brief, whether the follower statements are true or false : (i) If a worker saves half of time of the standard time, the incentive under Halsey Plan and Rowan Plan will be the same. (ii) The method of costing used in a refinery is operating costing. (iii) Fixed budgets are budgets of fixed assets. (iv) Opportunity cost is recorded in the books of account.

Appendix CS Executive Programme M-I Paper 2

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(v) Margin of safety is the difference of actual sale and standard sale. (2 marks each) Answer : (i) True : The incentives under Halsey and Rowan plan would be same because half of standard time is saved due to operational efficiency of labour. Since, time saved and the time taken being the same, the incentives calculated as per the formula resulted to the same amount. (ii) False : The suitable method of costing to be used for a refinery is process costing because refining is done in different consecutive processes. (iii) False : Fixed budgets are used for estimating costs of a product or a service over a period of time in which the budget is designed to remain unchanged irrespective of the level of activity attained. Hence it is not the budget of fixed assets.. (iv) False: Opportunity cost is not recorded in the books of account, even though it is considered for decision making. Opportunity cost is the benefit foregone which would have been received had it been used for second best use. (v) False: Margin of safety is the total sales less break-even sales, i.e. the excess of actual sales over break-even sales. 2010 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (i) In element-wise classification of overheads, which one of the following is not included(a) Fixed overheads (b) Indirect labour (c) Indirect materials (d) Indirect expenditure. (ii) Obsolete stocks are those having ! (a) Low turnover rate (b) No demand for technological change (c) No present demand, but may be in future (d) None of the above. (iii) Holiday pay is treated as ! (a) Fringe benefits cost (b) Direct labour cost (c) Overheads (d) Abnormal loss charged to profit and loss account. (iv) Incentive schemes include ! (a) Piece rate wage plan (b) Time rate wage plan (c) Differential piece rate wage plan (d) None of the above. (v) The management accounting is an extension of ! (a) Financial accounting

Appendix CS Executive Programme M-I Paper 2 (b) Responsibility accounting (c) Cost accounting (d) All of the above. Answer : (i) (a) Fixed overheads (ii) (b) No demand for technological change (iii) (c) Overheads or (b) Direct labour cost (iv) (c) Differential piece rate wage plan (v) (d) All of the above.

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(1 mark each)

2010 - Dec [5] {C} (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) The three categories of inventory for a manufacturer are raw material, work-in-process and_________. . (ii) The time lost by workers who are paid on time basis, is known as __________. position of an enterprise. (iii) Quick ratio is the indicator of (iv) ________costs are not useful for decision making as all past costs are irrelevant. (v) When there is no__________,the profit figures revealed under marginal and absorption costing are identical. (1 mark each) Answer :
(i) (ii) (iii) (iv) (v) The three categories of inventory for a manufacturer are raw material, work-in- process and finished goods. The time lost by workers who are paid on time basis, is known as idle time . Quick ratio is the indicator of liquidity position of an enterprise. Sunk costs are not useful for decision making as all past costs are irrelevant. When there is no inventories, profit figures revealed under marginal and absorption costing are identical.

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