CA PCC Exam Papers Group II Cost Accounting and Financial Management November 2010

CA PCC Exam Papers Group II

Cost Accounting and Financial Management

November 2010

Maximum Marks : 100
Q.No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
Working notes should form part of the answer.

1. Answer the following: 4×5=20
(a) Compute the sales variances (total, price and volume) from the following figures:
Product Budgeted
quantity Budgeted
Price per
Unit(Rs.) Actual
quantity Actual
Price per
unit (Rs.)
P 4000 25 4800 4800
Q 3000 50 2800 45
R 2000 75 2400 70
S 1000 100 800 105
(0)
(b) ABC Limited has received an offer of quantity discounts on its order of materials as under:
Price per tonnee
Rs. Tonnes
Nos.
4,800
4,680
4,560
4,440
4,320 Less than 50
50 and less than 100
100 and less than 200
200 and less than 300
300 and above
The annual requirement for the material is 500 tonnes. The ordering cost per order is Rs.6,250 and the stock holding cost is estimated at 25% of the material cost per annum.

Required:

(i) Compute the most economical purchase level.
(ii) Compute E.O.Q. if there are no quantity discounts and the price per tonne is Rs.5,250.
(0)
(c) MNP Limited has made plans for the next year 2010–11. It is estimated that he company will employ total assets of Rs.25,00,000; 30% of assets being financed by debt at an interest cost of 9% p.a. The direct costs for the year are estimated at Rs.15,00,000 and all other operating expenses are estimated to be 40%.
Required to calculate:

(i) Net profit margin (ii) Return on Assets
(iii) Asset turnover (iv) Return on equity
(0)
(d) PQR Ltd. has the following capital structure on October 31, 2010:
Rs.
Equity Share Capital
(2,00,000 Shares of Rs.10 each)
Reserves & Surplus
12% Preference Shares
9% Debentures 20,00,000

20,00,000
10,00,000
30,00,000
80,00,000
The market price of equity share is Rs.30. It is expected that the company will pay next year a dividend of Rs.3 per share, which will grow at 7% forever. Assume 40% income taxrate.

You are required to compute weighted average cost of capital using market value weights.

(0)
2. (a) PQR Construction Ltd. commenced a contract on April 1, 2009. The total contract was for Rs.27,12,500. It was decided to estimate the total profit and to take to the credit of P/L A/c the proportion of estimated profit on cash basis which work completed bear to the total contract. Actual expenditure in 2009–10 and estimated expenditure in 2010–11 are given below:
2009–10
Actuals (Rs.) 2010–11
Estimated(Rs.)
Materials issued
Labour: Paid
: Outstanding at end
Plant purchased
Expenses : Paid
: Outstanding at the end
: Prepaid at the end
Plant returned to stores (at historical cost)

Material at site
Work–in–progress certified
Work–in–progress uncertified
Cash received 4,56,000
3,05,000
24,000
2,25,000
1,00,000

22,500
75,000

30,000
12,75,000
40,000
10,00,000 8,14,000
3,80,000
37,500

1,75,000
25,000

1,50,000
(on Dec. 31, 2010)
75,000
Full

Full
The plant is subject to annual depreciation @ 20% of WDV cost. The contract is likely to be completed on December 31, 2010.

Required:

(i) Prepare the Contract A/c for the year 2009–10.
(ii) Estimate the profit on the contract for the year 2009–10 on prudent basis which has to be credited to P/L A/c.
8 (0)
(b) RST Limited is considering relaxing its present credit policy and is in the process of evaluating two proposed policies. Currently, the firm has annual credit sales of Rs.225 lakhs and accounts receivable turnover ratio of 5 times a year. The current level of loss due to bad debts is Rs.7,50,000. The firm is required to give a return of 20% on the investment in new accounts receivables. The company’s variable costs are 60% of the selling price. Given the following information, which is better option?
Present
Policy Policy
Option I Policy
Option II
Annual credit sales (Rs.)
Accounts receivable turnover ratio
Bad debt losses (Rs.) 225
5
7.5 275
4
22.5 350
3
47.5
8 (0)
3. (a) Following information is available regarding Process A for the month of October 2010:
Production Record:

 

  1.  Opening work–in–progress
  2. (Material : 100% complete, 25% complete for
  3. (labour & overheads)
  4. Units Introduced
  5. Units Completed
  6. Units in–process on 31.10.2010
  7. (Material : 100% complete, 50% complete for
  8. labour & overheads

40,000 Units

1,80,000 Units
1,50,000 Units
70,000 Units
Cost Record:
Opening Work–in–Progress:
Material
Labour
Overheads
cost incurred during the month:
Material
Labour
Overheads

Rs.1,00,000
Rs.25,000
Rs.45,000

Rs.6,60,000
Rs.5,55,000
Rs.9,25,000
Assume that FIFO method is used for W.I.P. inventory valuation.

Required:

(i) Statement of Equivalent Production
(ii) Statement showing Cost for each element
(iii) Statement of apportionment of Cost
(iv) Process A Account.
8 (0)
(b) (i) Calculate the degree of operating leverage, degree of financial leverage and the degree of combined leverage for following firms and interpret the results:
P Q R
Output (Units) 2,50,000 1,25,000 7,50,000
Fixed Cost (Rs.) 5,00,000 2,50,000 10,00,000
Unit Variable Cost (Rs.) 5 2 7.50
Unit Selling Price (Rs.) 7.50 7 10.0
Interest Expense (Rs.) 75,000 25,000 –
4+4=8 (0)
(ii) Discuss the liquidity vs. profitability issue in management of working capital. (0)
4. (a) Balance Sheets of ABC Limited as on March 31, 2009 and March 31, 2010 are as under:
Liabilities 31.3.2009
Rs. 31.3.2010
Rs. Assets 31.3.2009
Rs. 31.3.2010
Rs.
Share Capital 40,00,000 40,00,000 Land and Building 30,00,000 28,00,000
General Reserve 8,00,000 9,00,000 Plant and Machinery 36,00,000 35,00,000
Profit and Loss A/c 5,00,000 7,20,000 Investments (long-term) 8,00,000 7,44,000
10% Debentures 20,00,000 16,00,000 Stock 9,60,000 17,00,000
Bank Loan (longterm) 10,00,000 12,00,000 Debtors 12,00,000 15,96,000
Creditors 8,00,000 11,60,000 Prepaid Expenses 1,00,000 80,000
Outstanding Expenses 40,000 50,000 Cash and Bank 2,80,000 1,70,000
Proposed Dividend 6,00,000 7,20,000
Provision for Taxation 2,00,000 2,40,000
99,40,000 1,05,90,000 99,40,000 1,05,90,000
Additional Information:

(i) New machinery for Rs.6,00,000 was purchased but an old machinery costing Rs.2,90,000 was sold for Rs.1,00,000 and accumulated depreciation thereon was Rs.1,50,000
(ii) 10% debentures were redeemed at 20% premium.
(iii) Investments (long term) were sold for Rs.90,000 and its profit was transferred to general reserve.
(iv) Income–tax paid during the year 2009–10 was Rs.1,60,000.
(v) An interim dividend of Rs.2,40,000 has been paid during the year 2009–10.
(vi) Assume the provision for taxation as current liability and proposed dividend as non–current liability.
(vii) Investments (long term) are non–trade investments.
Required:

(i) Schedule of changes in working capital.
(ii) Funds flow from operations for the year ended March 31, 2010.
8 (0)
(b) MNP Ltd sold 2,75,000 units of its product at Rs.37.50 per unit. Variable costs are Rs.17.50 per unit (manufacturing costs of Rs.14 and selling cost of Rs.3.50 per unit). Fixed costs are incurred uniformly throughout the year and amount to Rs.35,00,000 (including depreciation of Rs.15,00,000). There are no beginning or ending inventories.
Required:

(i) Estimate breakeven sales level quantity and cash breakeven sales level quantity.
(ii) Estimate the P/V ratio.
(iii) Estimate the number of units that must be sold to earn an income (EBIT) of Rs.2,50,000.
(iv) Estimate the sales level to achieve an after–tax income (PAT) of Rs.2,50,000. Assume 40% corporate Income Tax rate.
8 (0)
5. (a) A manufacturing company has disclosed a net loss of Rs.8,75,000 as per their costaccounting records for the year ended March 31, 2010. However, their financial accountingrecords disclosed a net loss of Rs.7,91,250 for the same period. A scrutiny of the data of both the sets of books of accounts revealed the following information:
Rs.
(i) Factory overheads over–absorbed 47,500
(ii) Administration overheads under–absorbed 32,750
(iii) Depreciation charged in Financial Accounts 2,25,000
(iv) Depreciation charged in Cost Accounts 2,42,250
(v) Interest on investments not included in Cost Accounts 62,750
(vi) Income Tax provided in Financial Accounts 7,250
(vii) Transfer fees (credit in Financial Accounts) 12,500
(viii) Preliminary expenses written off 27,500
(ix) Under–valuation of opening stock in Cost Accounts 6,250
(x) Under valuation of closing stock in Cost Accounts 17,500
Required:

Prepare a Memorandum Reconciliation A/c.

8 (0)
(b) Distinguish between the following: 2×4=8
(i) Profit maximization vs. Wealth maximization objective of the firm. (0)
(ii) Global Depository Receipts and American Depository Receipts (0)
6. (a) A company has to make a choice between two machines X and Y. The two machines are designed differently, but have identical capacity and do exactly the same job. Machine ‘X’ cost Rs.5,50,000 and will last for three years. It costs Rs.1,25,000 per year to run. Machine ‘Y’ is an economy model costing Rs.4,00,000, but will last for two years and costs Rs.1,50,000 per year to run. These are real cash flows. The costs are forecasted in Rupees of constant purchasing power. Opportunity cost of capital is 12%. Ignore Taxes. Which machine company should buy?
t=1 t=2 t=3
PVIF0.12, t 0.8929 0.7972 0.7118
PVIF0.12, 2
PVIF0.12, 3 = 1.6901
= 2.4019
8 (0)
(b) Write short notes on the following : 2×4=8
(i) Essential factors for installing a Cost Accounting system. (0)
(ii) Treatment of under–absorbed and over–absorbed overheads in Cost Accounting. (0)
7. Answer any four of the following: 4×4=16
(a) What are the methods of re–apportionment of service department expenses over the production departments? Discuss. (0)
(b) How apportionment of joint costs upto the point of separation amongst the joint products using market value at the point of separation and net realizable value method is done? Discuss. (0)
(c) Discuss the estimation of working capital need based on operating cycle process. (0)
(d) Discuss financial break–even and EBIT–EPS indifference analysis. (0)
(e) Discuss the three different methods of calculating labour turnover. (0)

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