ICSI Syllabus For Company Accounts Cost and Management Accounting

ICSI Syllabus For Company Accounts Cost and Management Accounting

Company Accounts, Cost and Management Accounting

Time allowed : 3 hours                                                                                                                                                               Maximum marks : 100
Total number of questions : 8

Total number of printed pages : 10

NOTE : All working notes should be shown distinctly.
P A R T — A
(Answer Question No.1 which is compulsory
and any two of the rest from this part.)
1. (a) State, with reasons in brief, whether the following statements are correct or
incorrect :
(i) Accounting Standards (AS) are formulated by International Accounting Standard
(ii) A joint stock company cannot purchase its own shares.
(iii) If the rate of dividend declared by a company is 22%, then under the Companies
(Transfer of Profits to Reserves) Rules, 1975 the percentage of profits to be
transferred to reserves should be 10%.
(iv) The law limits the commission in case of issue of shares to 10% of the issue
price of shares and in case of debentures to 5% or such lower rate as is
provided in the articles of association.
(v) Contingent liabilities relating to outsiders must be shown on the liability side
of the consolidated balance sheet.
(2 marks each)
(b) Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s) :
(i) According to the provisions of section 198 of the Companies Act, 1956, maximum
limit on the total managerial remuneration payable by public company is
________ of net profits.
(ii) A company must pay the dividends within ________ days of its declaration.
(iii) Preliminary expense is a ________ asset.
(iv) Discount on the issue of debenture is a ________ loss.
(v) If the purchase price of the debenture includes the interest for the expired
period, it is known as ________.
(1 mark each)

Company Accounts, Cost and Management Accounting

(c) Gaurav Ltd. had issued 12%, Rs.10,00,000 debentures @ Rs. 100 each in the past.
For the purpose of redemption, it maintains a debenture redemption fund with an
annual contribution of Rs.90,000. On 1st April, 2008, the fund stood at Rs.4,50,000
represented by 6%, Rs.5,00,000 government loan.
On 31st March, 2009, Rs.2,00,000 government loan was sold @ Rs.93.50 and the
proceeds were utilised to purchase debentures for cancellation @ Rs.85 each. Assume
that Rs.20,000 debentures have been redeemed out of capital and the balance with
face value of Rs.1,80,000 has been redeemed out of debenture redemption fund
Prepare debenture account, debenture redemption fund account and debenture
redemption fund investment account.
(5 marks)
2. (a) Write short notes on any two of the following :
(i) Accounting Standard-10 : Accounting for fixed assets
(ii) Issue of shares at a discount
(iii) Taxation on distributed profits.
(3 marks each)
(b) Following are the abridged balance sheets of Harry Ltd. and Say Ltd. as on
31st March, 2009 :
Liabilities Hary Ltd. Say Ltd.
(Rs.) (Rs.)
Equity share capital (Rs.100 each) 10,00,000 5,00,000
General reserve 1,00,000 1,70,000
Profit and loss account 1,60,000 1,30,000
Current liabilities 4,40,000 2,00,000
17,00,000 10,00,000
Fixed assets 4,80,000 2,50,000
Investment in shares of Say Ltd. 5,00,000 —
Current assets 7,20,000 7,50,000
17,00,000 10,00,000
1/2009/CACMA (NS) P. T. O.
: 3 : 262
Additional information :
(i) On 1st July, 2008, Hary Ltd. acquired 3,000 shares in Say Ltd. The reserves
and surplus position of Say Ltd. as on 1st April, 2008 was as under :
General reserve Rs.2,50,000
Profit and loss a/c (Cr.) Rs.1,20,000
(ii) On 1st October, 2008, Say Ltd. issued one equity share for every four shares
held as bonus shares out of general reserve. No entry has been made in the
books of Say Ltd. for issue of bonus shares.
(iii) On 30th September, 2008, Say Ltd. declared a dividend out of
pre-acquisition profits @ 25% on Rs.4,00,000, its capital on that date. Hary
Ltd. credited the dividend to its profit and loss account.
(iv) Say Ltd. owed Hary Ltd. Rs.50,000 for purchase of stock from Hary Ltd. The
entire stock is held by Say Ltd. on 31st March, 2009. Hary Ltd. made a profit
of 25% on cost.
Prepare a consolidated balance sheet of Hary Ltd. and its subsidiary Say Ltd. as
on 31st March, 2009.
(9 marks)
3. (a) Abridged balance sheet of Rama Ltd. as on 31st March, 2009 is as follows :
Liabilities Rs.
Share capital 6,00,000
Reserves and surplus 50,000
Bank overdraft 10,000
Creditors 60,000
Provision for taxation 1,10,000
Proposed dividend 60,000
Fixed assets 3,70,000
Current assets 5,20,000
The net profits of the company after deducting working expenses but before providing
for taxation were as under :
Year Rs.
2006-07 3,18,000
2007-08 3,40,000
2008-09 3,12,000
: 4 :
1/2009/CACMA (NS) Contd…
On 31st March, 2009, fixed assets were at Rs.4,50,000. Sundry debtors on the
same date included Rs.10,000 which is irrecoverable. Having regard to the type
of business, a 10% return on average capital employed is considered as reasonable.
Ascertain the value of goodwill on the basis of three years purchase of annual
super profits. Also calculate goodwill by capitalisation of average maintainable
profits. Depreciation on fixed assets is charged @ 10% per annum and the rate
of tax is 30%.
(6 marks)
(b) Following is the profit and loss account of Azad Ltd. for the year ended
31st March, 2009 :
To Office and administrative expenses 3,10,000
To Selling and distribution expenses 1,92,000
To Directors’ fees 39,500
To Managerial remuneration 1,70,000
To Interest on debentures 18,500
To Donation to charitable trust 15,000
To Compensation for breach of contract 27,000
To Depreciation on fixed assets 3,12,000
To Investment revaluation reserve 12,500
To Provision for taxation 7,40,000
To General reserve 2,50,000
To Balance c/d 8,46,500
By Balance b/d 3,43,200
By Gross profit b/d 24,15,000
By Subsidies 1,39,300
By Interest on investment 9,500
By Transfer fees 1,000
By Profit on sale of machinery (W.D.V. Rs.30,000) 25,000

Additional information :
— Original cost of the machinery sold was Rs.40,000.
— Depreciation on fixed assets as per Schedule XIV of the Companies Act, 1956
was Rs.3,42,000.
You are required to calculate managerial remuneration in the following situations :
(i) when there is only whole-time director;
(ii) when there are two whole-time directors; and
(iii) when there are two whole-time directors, a managing director and a
part-time director.
(6 marks)
(c) Differentiate between ‘shares’ and ‘debentures’.
(3 marks)
4. (a) Jolly Ltd. has the following balance sheet as on 31st March, 2008 :
Liabilities Rs.
Share capital :
Issued, subscribed and fully paid-up (10,000 equity shares of
Rs.100 each) 10,00,000
5,000 Preference shares of Rs.100 each 5,00,000
Capital reserve 1,00,000
Securities premium account 1,00,000
General reserve 2,00,000
Profit and loss account 1,00,000
Current liabilities 10,00,000
Fixed assets 22,00,000
Current assets 8,00,000
The preference shares are to be redeemed at 10% premium. Fresh issue of equity
shares is to be made to the extent it is required under the Companies Act, 1956
for the purpose of this redemption. The shortfall in funds for the purpose of the
redemption after utilising the proceeds of the fresh issue are to be met by taking
a bank loan. Show journal entries.
(6 marks)

(b) Silver Ore Co. Ltd. was formed on 1st April, 2007 with an authorised capital of
Rs.6,00,000 in shares of Rs.10 each. Of these, 52,000 shares had been issued and
subscribed but there were calls-in-arrears on 100 shares. From the following trial
balance as on 31st March, 2008, prepare the trading and profit and loss account
and the balance sheet :
Rs. Rs.
Cash at bank 1,05,500 —
Share capital — 5,19,750
Plant 40,000 —
Sale of silver — 1,79,500
Mines 2,20,000 —
Promotional expenses 6,000 —
Interest on fixed deposit upto 31st December — 3,900
Dividend on investment less 22% tax — 3,200
Royalties paid 10,000 —
Railway track and wagons 17,000 —
Wages of miners 74,220 —
Advertising 5,000 —
Carriage on plant 1,800 —
Furniture and buildings 20,900 —
Administrative expenses 28,000 —
Repairs 900 —
Coal and oil 6,500 —
Cash 530 —
Investments in shares of Tin Mines 80,000 —
Brokerage on Tin Mines 1,000 —
6% Fixed deposit in Syndicate Bank 89,000 —
7,06,350 7,06,350
Depreciate plant and railway track and wagons by 10%, furniture and building by
5%. Write off one-third of the promotional expenses. Value of silver on
31st March, 2008 was Rs.15,000. On 10th December, 2007, the directors forfeited
100 shares of which only Rs.7.50 per share had been paid. Ignore corporate
dividend tax.
(9 marks)

P A R T — B

(Answer Question No.5 which is compulsory
and any two of the rest from this part.)
5. (a) State, with reasons in brief, whether the following statements are
true or false :
(i) At break-even point, the company earns only marginal profit.
(ii) Fixed cost per unit remains fixed.
(iii) Liquidity ratios measure long-term solvency of a concern.
(iv) Rent on owned building is included in cost accounts.
(v) Job costing can be used in industries using standard costing.
(2 marks each)
(b) Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s) :
(i) Inflated price method of valuing material issue is suited when __________.
(ii) Abnormal wastage __________ part of cost of production.
(iii) __________ in a contract provides that the contract price would be suitably
enhanced on the happening of a specified contingency.
(iv) Direct material + direct labour + factory overheads = ______.
(1 mark each)
(c) Distinguish between any two of the following :
(i) ‘Bin card’ and ‘stores ledger’.
(ii) ‘Fixed cost’ and ‘variable cost’.
(iii) ‘Absorption costing’ and ‘marginal costing’.
(3 marks each)
6. (a) A company has provided you the following details :
Liabilities 31.12.2007 31.12.2008
(Rs.) (Rs.)
Share capital 70,000 74,000
Debentures 12,000 6,000
Reserve for doubtful debts 700 800
Trade creditors 10,360 11,840
Profit and loss a/c 10,040 10,560

Assets 31.12.2007 31.12.2008
(Rs.) (Rs.)
Cash 9,000 7,800
Debtors 14,900 17,700
Stock 49,200 42,700
Land 20,000 30,000
Goodwill 10,000 5,000
1,03,100 1,03,200
Additional information —
— Dividend paid Rs.3,500; and
— Land was purchased for Rs.10,000.
Prepare a cash flow statement as per Accounting Standard-3 (Revised).
(6 marks)
(b) Lookahead Ltd. produces and sells a single product. Sales budget for the calendar
year 2009 for each quarter is as under :
Quarter No. of Units to be Sold
I 12,000
II 15,000
III 16,500
IV 18,000
The year 2009 is expected to open with an inventory of 4,000 units of finished
product and close with an inventory of 6,500 units.
Production is customarily scheduled to provide for two-thirds of the current quarter’s
demand plus one-third of the following quarter’s demand. Thus production anticipates
sales volume by about one month. The standard cost details for one unit of the
product is as follows :
— Direct materials 10 Kgs. @ 50 paise per kg.
— Direct labour 1 hour 30 minutes @ Rs.4 per hour.
— Variable overheads 1 hour 30 minutes @ Re.1 per hour.
— Fixed overheads 1 hour 30 minutes @ Rs.2 per hour based on a budgeted
production volume of 90,000 direct labour hours for the year.
Answer the following —
(i) Prepare a production budget for the year 2009 by quarters, showing the
number of units to be produced.
(3 marks)
1/2009/CACMA (NS) P. T. O.
: 9 : 262
(ii) If the budgeted selling price per unit is Rs.17, what would be the budgeted
profit for the year as a whole ?
(3 marks)
(iii) In which quarter of the year the company is expected to break-even ?
(3 marks)
7. (a) Material-A is used as follows :
Minimum usage – 500 units per week
Maximum usage – 1,500 units per week
Normal usage – 1,000 units per week
Ordering quantities – 1,600 units
Delivery period – 4-6 weeks
Calculate —
(i) Maximum level.
(2 marks)
(ii) Minimum level.
(2 marks)
(iii) Ordering level.
(2 marks)
(b) On 1st July, 2007, Delux Ltd. undertook a contract for Rs.5,00,000. On 30th June,
2008 when the accounts were closed, the following details about the contract were
gathered :
Material purchased 1,00,000
Wages paid 45,000
General expenses 10,000
Plant purchased 50,000
Materials on hand (30.6.2007) 25,000
Wages accrued (30.6.2008) 5,000
Work certified 2,00,000
Cash received 1,50,000
Work uncertified 15,000
Depreciation of plant 5,000
The above contract has an escalation clause which reads as follows :
“In the event of prices of materials and rates of wages increase by more than 5%,
the contract price would be increased accordingly by 25% of the rise in the cost
of materials and wages beyond 5% in each case.”

It was found that since the date of signing the agreement, the prices of materials
and wage rates increased by 25%. The value of the work certified does not take
into account the effect of the above clause.
Prepare the contract account.
(6 marks)
(c) Differentiate between ‘Halsey wage plan’ and ‘Rowan wage plan’.
(3 marks)
8. From the following information, prepare the projected trading and profit and loss
account for the next financial year ending 31st March, 2009 and the projected balance
sheet as on that date :
Gross profit ratio 25%
Net profit to equity capital 10%
Stock turnover ratio 5 times
Average debt collection period 2 months
Creditors velocity 3 months
Current ratio 2
Proprietary ratio (Fixed assets to capital employed) 80%
Capital gearing ratio (Preference shares and debentures
to total long-term funds) 30%
General reserve and profit and loss to equity
shareholders’ fund 20%
Preference share capital to debentures 2
Cost of sales consists of 40% for materials and balance for wages and overheads. Gross
profit is Rs.6,00,000.
(15 marks)

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