CWA ICWA Exam Papers Foundation
Accounting December 2010
This Paper has 69 answerable questions with 2 answered.
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory and any two
questions from the rest of Section I.
1. (a) In each of the following one is correct, indicate the correct answer. 1×9=9
(i) Opening Capital Rs.30,000, Closing Capital Rs.15,000, Loss during the year Rs.8,000. Drawings Rs.7,000, Additional Capital introduced will be:
(A) Nil (B) 8,000
(C) 16,000 (D) 23,000
(ii) On purchase of goods of the list price of Rs.10,000 from Ram who allowed 10% trade discount and charged 10% Value Added Tax (VAT), Purchases Account to be debited with:
(A) Rs.10,000 (B) Rs.9,000
(C) Rs.9,900 (D) None of these
(iii) Goods costing Rs.1,000 (Sale Price Rs.1,200) used in making furniture should be credited to:
(A) Sales Account with Rs.1,200 (B) Sales Account with Rs.1,000
(C) Purchases Account with Rs.1,000 (D) Furniture A/c with Rs.1,000
(iv) In Cash Book Debit balance of Rs.112 was brought forward as credit balance of Rs.121. While preparing a Bank Reconciliation Statement taking the balance as per Cash Book as the starting point:
(A) Rs.112 to be added (B) Rs.233 to be added
(C) Rs.121 to be added (D) Rs.112 to be subtracted
(v) Sales Rs.3,00,000, Profit =l/3rd on cost, Cost of goods available for sale Rs.5,00,000, Purchases Rs.1,00,000, Closing Inventory is:
(A) Rs.2,00,000 (B) Rs.3,00,000
(C) Rs.2,75,000 (D) None of these
(vi) Date of purchase 1.7.2009, Purchase Price of an old Machine Rs.80,000, Repairs Rs.15,000, Installation Charges Rs.5,000, Residual Value Rs.20,000, Useful life 4 years, Accounting year–financial year. Date when Machine was put to use – 1.10.2009. Depreciation for the year 2009–2010 will be:
(A) Rs.20,000 (B) Rs.15,000
(C) Rs.10,000 (D) None of these
(vii) H’s Trial Balance contains the following information:
Provision for discount on debtors
Provision for Doubtful debts
Sundry Debtors 3,000
At the end of the year, it is desired to maintain a provision for Doubtful debts at 10% and provision for discount on debtors at 4%. Sundry Debtors will appear in the Balance Sheet at a figure of:
(A) Rs.43,200 (B) Rs.39,744
(C) Rs.44,700 (D) None of these
(viii) 2000 kg of apples are consigned to a wholesaler, the cost being Rs.3 per kg plus Rs.400 of freight, it is known that a loss of 15% is unavoidable. The effective cost per kg will be:
(A) Rs.2.50 (B) 3.76
(c) 1.70 (D) 1.50
(ix) On 1.4.09 X drew a bill of Rs.1,00,000 after sight for 3 months on Y who accepted the bill on 1.5.09. On 4.6.09, the bill was discounted at 12% p.a. At maturity, the bill returned dishonoured, due to Y’s insolvency, noting charges Rs.500 and 40 paisa in a rupee is recovered from Y’s estate. The amount of , deficiency in Y’s books will be:
(A) 60,000 (B) 40,000
(c) 60,300 (D) 40,200
(b) Fill in the blanks : 1×5=5
(i) Reserve for discount on creditors has a ____________ balance. (0)
(ii) WDV Rate of Depreciation =_____________________ (0)
(iii) Discount charges on discounting a bill receivable accepted by consignee are debited to _________ account. (0)
(iv) Only ___________ property may be the subject matter of consignment and joint venture. (0)
(v) The term of bill after sight commences from the date of ______________ . (0)
(c) State the reasons whether the following statements are True or False:
(No marks shall be awarded if reason is not given) 2×8=16
(i) Prudence is a concept to recognize realized losses and not profits. (0)
(ii) Straight Line Method of Depreciation is followed to have a uniform charge for depreciation and repairs together. (0)
(iii) Net Profit is reflected in higher cash balances. (0)
(iv) The relationship between a Consignee and a Consignor is that of a principal and an agent. (0)
(v) Deferred Revenue Expenditure is current year’s revenue expenditure to be paid in later years. (0)
(vi) Fixed assets are valued at cost or net realizable value, whichever is lower. (0)
(vii) Contingent liability is an unascertained liability but its amount and due date are determinate. (0)
(viii) Discount columns of the cash book may show either debit balance or credit balance. (0)
2. (a) Give one word or phrase that describe the following: ½x10=5
(i) Making provision for doubtful debts is an application of which Accounting Principle? (0)
(ii) Accounting of a small calculator as an expense and not as an asset is an application of which Accounting Principle? (0)
(iii) Appending notes to the financial statements is an application of which Accounting Principle? (0)
(iv) An entry of which credit and debit aspects are simultaneously recorded in the cash book? (0)
(v) The source document used for recording entries in the Returns Outward Book. (0)
(vi) The error which arises when the transaction is recorded ignoring the distinction between the Capital item and Revenue item. (0)
(vii) The order in which the least liquid asset is shown first and the most urgent payment to be made is shown last. (0)
(viii) Nature of Provision for Depreciation Account. (0)
(ix) Nature of Provision for Doubtful Debts Account. (0)
(x) The type of accounts which are never balanced but are closed. (0)
(b) State the basic object of: 1×5=5
(i) Preparing Bank Reconciliation Statement. (0)
(ii) Preparing the Trial Balance. (0)
(iii) Opening a Suspense Account. (0)
(iv) Using Profit and Loss Adjustment Account in the rectification of errors. (0)
(v) Preparing Income Statement. (0)
3. (a) Show the Accounting equation for the following transactions of Rakesh Bihari Mittal:
(i) Sold goods costing Rs.30,000 for Rs.50,000 to Shyam.
(ii) Purchased household goods for Rs.15,000 giving Rs.5,000 in cash and the balance through a loan.
(iii) Received Rs.49,500 from Shyam in full settlement of an account of Rs.50,000.
(iv) Paid Salary Rs.500 and Salary still outstanding Rs.100.
(v) Paid Rent–in–advance Rs.200.
(vi) Withdrew goods for personal use (Cost Rs.500, Sale Price Rs.600).
(b) Journalize the following transactions in the books of Anju Mittal:
(i) Received Rs.975 from Shyam on his account of Rs.1,000.
(ii) Sold goods costing Rs.40,000 to Anil at a profit of 20% on sales less 20% trade discount and charged 10% Value Added Tax.
(iii) Vishal Pandey paid Rs.975 towards a debt of Rs.1,000 which was written off as bad in the previous year.
(c) Pass the necessary rectifying entry for the following errors in the subsidiary books of Prarthana Mittal, a dealer in cloth:
(i) A cash sale of Goods to X Rs.17 posted as Rs.71.
(ii) A credit sale of Goods to Y Rs.17 posted as Rs.71.
(iii) A credit sale of Furniture to Z Rs.17 posted as Rs.71.
(iv) A credit sale of Goods of Rs.423 to Krishan passed through the Purchase Book as Rs.432 and posted therefrom to the credit of Kishan as Rs.423.
4. Answer any four of the following: 2.5×4=10
(a) X draws on Y a bill for Rs.2,00,000 on 1.4.09 for 3 months. Y accepts the bill and sends it to X who gets it discounted for Rs.1,95,000. X immediately remits Rs.97,500 to Y. On due date, X being unable to remit the amount due accepts a bill for Rs.1,20,000 for 2 months which is discounted by Y for Rs.1,17,600. Y sends Rs.7,800 to X out of the same. How much discount will be borne by X at the time of remittance of Rs.7,800? (0)
(b) Bharat Tushar Ltd. which depreciates its machinery at 10% p.a. on diminishing balance method, had on 1st April, 2009 Rs.29,160, to the debit of Machinery Account. On 31st March, 2010, the company decided to change the method of depreciation to straight line method with effect from 1st April, 2006, the rate of depreciation remaining the same. Pass the necessary journal entry on account of change in method of depreciation. (0)
(c) On 1.7.2009, Nikita Mittal commenced her business with Rs.5,00,000. On 1.10.2009 she sold her private investments (Cost Rs.50,000, Face value Rs.40,000) at 125% of face value and brought the proceeds into her business. Her drawings were Rs.1,000 p.m. Goods costing Rs.11,000 were taken by her for personal use. On 31.3.2010, Capital before the following adjustments is Rs.7,00,000, Outstanding Expenses Rs.21,000 and Prepaid Expenses Rs.4,000. Provide Interest on Capital @ 12% p.a. and for group incentive to staff @ 5% on Net Profit after charging such incentive and interest on capital. Calculate the Profit/Loss for the year ended 31st March, 2010. (0)
(d) Himanshu Gupta sent out goods costing Rs.80,000 to Navin Joshi as to show 20% profit on invoice price. 40% goods were lost in transit. 60% of the goods received were sold half at invoice price and the balance at 25% above the invoice price. Rate of Commission is 10% on sales at invoice price plus 50% of gross sales less all commission exceeds sales at invoice price. Calculate the amount of commission. (0)
(e) A and B enter into a joint venture sharing profit and losses in the ratio 3 : 2. A purchased goods costing Rs.2,00,000. B sold 95% goods for Rs.2,50,000. A is entitled to get 1% commission on purchase and B is entitled to get 5% commission on sales. A drew a bill on B for an amount equivalent to 80% of original cost of goods. A got it discounted at Rs.1,50,000. Calculate B’s share of profit. (0)
(f) How will you deal with the following items while preparing the Income and Expenditure Account for the year ending on 31st December, 2009 and the Balance Sheet as on that date?
Subscription outstanding as on 31.12.2008 : Rs.9,500 (including Rs.500 for 2007)
Subscription received in advance as on 31.12.,2008: Rs.3,000 (including Rs.200 for 2010)
Subscription received during 2009 for 2007 Rs.400, for 2008 Rs.8,900, for 2009 Rs.1,34,400, for 2010 Rs.4,000, for 2011 Rs.1,200.
Subscription outstanding as on 31.12.2009 : Rs.7,000.
Answer Question No. 5 which is compulsory and any two
questions from the rest of Section II
5. (a) In each of the following, one is correct, indicate the correct answer: 1×10=10
(i) Which of the following is False?
(A) Three basic objectives of Cost Accounting are to ascertain cost, to control cost and to provide information for decision making.
(B) In Cost Sheet net realizable value of normal scrap of direct materials is deducted from the cost of materials.
(C) In a Cost Sheet, Selling and Distribution Overheads are divided by the total number of units produced to arrive at selling and distribution overheads per unit.
(D) Conversion Cost is equal to direct labour cost plus production overheads.
(ii) Which of the following is False?
(A) Waste does not have any realizable value but scrap has small realization value.
(B) Spoilage cannot be rectified but defectives can be rectified by incurring additional materials labour and overheads costs.
(C) Scrap involves only loss of materials but spoilage involves not only the loss of materials but also of labour and overheads incurred up to stage of spoilage.
(D) In ABC analysis, ‘A’ group of items consists of those materials, the value of which is not high but which are used in large quantities.
(iii) Which of the following is False?
(A) Perpetual Inventory System is a system of recording stores balances after every receipt and issue to facilitate regular checking and to obviate closing down for stock-taking but Continuous Stock Taking is regular physical verification of materials throughout the year.
(B) Bin Card shows only the quantity of materials received, issued and in hand at any point of time but Stores Ledger shows both the quantity and money value of materials received, issued and in hand at any point of time.
(C) Closing Stock is close to current economic Value under FIFO method of pricing.
(D) LIFO method of pricing results in higher profits during the period of rising prices.
(iv) Which of the following is False?
(A) Cost of normal Waste, Scrap, Spoilage, Defectives, Idle Time and Fringe Benefits should be treated as part of cost of production.
(B) Overtime Premium due to seasonal pressure of work and Preventive Labour Turnover Costs should be treated production overheads.
(C) In Production Department Idle Time Wages and Overtime Premium due to break down of machinery should be charged to Costing Profit & Loss Account.
(D) Amount of bonus under Halsey Plan and Rowan Plan is same when time saved is exactly 50% of standard time.
(E) The total earnings are same under Taylor’s Differential Piece Rate, Merrick’s Differential Piece Rate and Gantt Task System when efficiency is exactly 100%.
(v) Which of the following is False?
(A) Allocation of overheads is the process of charging the full amount of overheads to a particular cost centre.
(B) Apportionment of overheads is the process of charging a proportion of common item of overheads to different cost centres.
(C) Absorption of overheads is the process of charging overheads to products or services.
(D) Re–apportionment of overheads is the Apportionment of overheads of Production Departments over the Service Departments.
(vi) Which of the following is False?
(A) Blanket Overhead Rate is a single rate of overhead absorption computed for the entire factory but Departmental Overhead Rates are the separate rates of overhead absorption computed for each individual department/cost centre
(B) Actual overhead rate is calculated by dividing the actual overheads by the actual base but Pre–determined overhead rate is calculated in advance by dividing the budgeted overheads by the budgeted base.
(C) Time Booking is a system of recording the arrival and departure time of each worker but Time Keeping is a system of recording the time spent by each worker on various jobs, orders or processes.
(D) Job Costing is that form of specific order costing under which each job is treated as a cost unit and costs are accumulated and ascertained separately for each job but Process Costing is a method of costing under which all costs are accumulated for each stage of production (also called process of production) and the cost per unit of product is ascertained at each stage of production by dividing the total cost of each process by the normal output of that process.
(vii) Which of the following is False?
(A) Marginal Costing is the practice of charging all variable costs to operations, processes or products and writing off all fixed costs against profits in the period in which they arise but Absorption Costing is the practice of changing all variable manufacturing costs and fixed production overheads to operations, processes or products and writing off administration, selling and distribution overheads against profits in the period in which they arise.
(B) While valuing Stock of Work in Progress and Finished Goods fixed production overheads are included under Absorption Costing and not under Marginal Costing.
(C) Relevant costs are those future costs which differ under different alternatives. These can be changed by the decision of the management.
(D) All irrelevant costs are not sunk costs because some future costs under both the alternatives are irrelevant costs for decision making but are not sunk costs.
(E) Book value of old machine in replacement decision is a relevant cost in decision making.
(viii) Cost per unit Rs.200, Cost of an order Rs.100, Semi–annual carrying cost per unit 5%, Total carrying and Ordering Cost at Economic Order Quantity Rs.4,000. EOQ is:
(A) 100 units (B) 200 units
(C) 300 units (D) None of these
(ix) Piyush & Pranav Ltd. provides you the following information:
Activity level 10,000 hours 20,000 hours 30,000 hours
Overheads (Rs.) 3,00,000 4,20,000 5,40,000
Activity Level at which the standard overhead Rate of Rs. 15 per hour has been fixed is:
(A) 30,000 hours (B) 40,000 hours
(C) 50,000 hours (D) 60,000 hours
(x) P/V ratio 40%, Margin of Safety 60%, Sales Rs.1,50,000, Fixed Costs are:
(A) Rs.60,000 (B) Rs.36,000
(C) Rs.24,000 (D) None of these
(b) State the reasons whether the following statements are True or False:
(No marks shall be awarded if reason is not given) 2×5=5
(i) Fixed Cost per unit remains fixed but variable cost per unit vary with variation in output. (0)
(ii) Economic order quantity is that order size at which each of he Ordering Cost and Carrying Cost is minimum. (0)
(iii) When time saved is more than 50% of standard time Rowan Plan allows more earnings to workers than Halsey Plan. (0)
(iv) Under/over absorption of overheads arises only when actual overhead rates are used. (0)
(v) Marginal Costing does not differ from Direct Costing at all. (0)
(c) Suggest the suitable Method of Costing and Cost Unit for the following industries:
(i) Oil Refinery
(ii) Bicycle Manufacturing
(iii) Interior Decoration
6. Attempt any two of the following: 2×5=10
(a) Average usage 50 units per week, Minimum re-order period 4 weeks, Maximum usage 75 units per week, Average re–order period 5 weeks, Average stock level 375 units. Calculate Re–order quantity. (0)
(b) The cost accountant of Y Ltd. has computed labour turnover rates for the quarter ended 31st March, 2010 as 10%, 5% and 3% respectively under ‘Flux Method’, ‘Replacement Method’ and ‘Separation Method’. If the number of workers replaced during that quarter is 30, find out the number of (a) workers left and discharged and (b) workers recruited and joined. (0)
(c) Two workmen, ‘A’ and ‘B’, produce the same product using the same material. Their normal wage rate is also the same. ‘A’ is paid bonus according to the Rowan system, while ‘B’ is paid bonus according to the Halsey system. The time allowed to make the product is 50 hours. ‘A’ takes 30 hours while ‘B’ takes 40 hours to complete the product. The factory overhead rate is Rs.5 per man hour actually worked. The factory cost for the product for ‘A’ is Rs.3,490 and for ‘B’ it is Rs.3,600. Compute the normal rate of wages. (0)
(d) There are 12 holidays on account of festivals and national holidays not falling on Sundays and Saturdays. The factory works 8 hours a day and 4 hours on Saturday. Maintenance hours 200, Machine room normally works on 90% capacity throughout the year. Setting up time 10% (out of which 50% unproductive). Power consumption of machine 20 units per hour. Rate of power per 100 units Rs.570. Calculate the Cost of Power per machine hour for the purposes of computing Machine hour rate (a) if Power is used during setting up (b) if no Power is used during setting up. (0)
(e) Margin of Safety Rs.64,000, Break even Sales 1,600 units, Total Cost Rs.41,600, Margin of Safety 6,400 units. Calculate the Fixed Costs. (0)
7. Bharat Jhunjhunwala Ltd. provides you the following figures for he year 2009–10:
Production Overheads (25% variable)
Administration overheads (75% Fixed)
Selling and Distribution Overheads (2/3rd Fixed)
Sales @ Rs.125 per unit
For the year 2010–2011, it is estimated that:
1. Output and sales quantity will increase by 20% by incurring additional Advertisement Expenses of Rs.45,200.
2. Material Prices will go up 10%.
3. Wage Rate will go up by 5% along with, increase in overall direct labour efficiency by 12%.
4. Variable overheads will increase by 5%.
5. Fixed production overheads will increase by 331/3%.
(a) Calculate the Cost of Sales for the year 2009–2010 and 2010–2011.
(b) Find out the new selling price for the year 2010–2011
(i) if the same amount of profit is to be earned as in 2009–2010
(ii) if the same percentage of profit to sales is to be earned as in 2009–2010.
(iii) if the existing percentage of profit to sales is to be increased by 25%.
(iv) if profit per unit Rs. 10 is to be earned.
8. Shri Rani Sati Ltd. provides you the following information:
Year 2009 Year 2010
Total Profit Rs.15,00,000
Total Cost Rs.5,00,000
During the next year 2011, the Selling Price and Variable Cost are expected to be reduced by 20% and 33–l/3% respectively and Fixed Costs are expected to increase by 25%.
(i) Estimate the Profit if Sales Units are expected to increase by 100%.
(ii) Estimate the Sales in order to increase Profit by Rs.2,40,000 per year.
(iii) Estimate the Sales so as to earn a return of 25% on sales.
(iv) Estimate the Sales so as to earn a return of 30% on Capital Employed. Working Capital is 25% of Sales and 20% of Capital employed.
(v) Estimate the BEP for the next year 2011.