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The Institute of Chartered Financial Analysts of India University 2007 PE- II Costing and Financial Management - Question Paper

Thursday, 31 January 2013 02:30Web


CAPE - II:: Cost Accounting and Financial Management: May 2007

(a) Following details are related to the work done in Process 'A' of XYZ Company during the month of March, 2007:

Opening work in progress (2,000 units)    Rs.

Materials    80,000

Labour    15,000

Overheads    45,000 Materials introduced in Process 'A' (38,000 14,80,000

units)    3,59,000

Direct labour    10,77,000 Overheads

Units scrapped : 3,000 units Degree of completion:

Materials    100%

Labour and overheads    80%

Closing work-in-progress : 2,000 units Degree of completion

Materials    100%

Labour and overheads    80%

Units finished and transferred to Process 'B' : 35,000 Normal Loss:

5% of total input including opening work-in-progress

Scrapped units fetch Rs. 20 per piece.

You are required to prepare:

(i)    Statement of equivalent production;

(ii)    Statement of cost;

(iii)    Statement of distribution cost; and

(iv)    Process 'A' Account, Normal and Abnormal Loss Accounts.

(b) Explain briefly each of the following categories in Activity based Costing by giving at least two examples:

(i)    Unit level activities

(ii)    Batch level activities

(iii)    Product level activities

(iv)    Facility level activities


2.    (a) What is 'Integrated Accounting System'? State its advantages.

(b) A Club runs a library for its members. As part of club policy, an annual subsidy of upto Rs. 5 per member including cost of books may be given from the general funds of the club. The management of the club has provided the following figures for its library department:

Number of Club members Number of Library members Library fee per member per month Fine for late return of books Average No. of books returned late per month Average No. of days each book is returned late


1.000 Rs. 100

Re. 1 per book per day 500 5 days

50,000 books Rs. 300 per book 1,200 books Rs. 10

Number of available old books Cost of new books

Number of books purchased per year Cost of maintenance per old book per year

Staff details    No. Per Employee

Salary per month (Rs.)

Librarian    01    10,000

Assistant Librarian 03    7,000

Clerk    01    4,000

You are required to calculate:

The cost of maintaining the library per year excluding the cost of new books;

The cost incurred per member per month on the library excluding cost of new books; and

The net, income from the library per year.




If the club follows a policy that all new books must be purchased out of library revenue (a) What is the maximum number of books that can be purchased per year and (b) How many excess books are being purchased by the library per year?

Also, comment on the subsidy policy of the club.

3.    (a) Raw materials 'AXE' costing Rs. 150 per kg and 'BXE' costing Rs. 90 per

kg are mixed in equal proportions for making product 'A'. The loss of material in processing works out to 25% of the product. The production expenses are allocated at 40% of direct material cost. The end product is priced with a margin of 20% over the total cost.

Material 'BXE' is not easily available and substitute raw material 'CXE' had been found for 'BXE' costing Rs. 75 per kg. It is required to keep the proportion of the substitute material in the maxture as low as possible and at the same time maintain the selling price of the end product at existing level and ensure the same quantum of profit as at present.

You are required to compute the ratio of the mix of the raw materials 'AXE' and 'CXE'.

(b) Answer any three of the following:    2x3=6

(i)    Explicit and Implicit Costs

(ii)    Period Costs and Discretionary Costs

(iii)    Efficiency Audit and Proprietary Audit

(iv)    Bin Cards and stock Control Cards.


(a) A company runs a holiday home, For this purpose, it has hired a building at 10 a rent of Rs. 10,000 per month alongwith 5% of total talking. It has three types of suites for its customers, viz., single room, double rooms and triple rooms.

Following information is given:

Type of suite    Number    Occupancy percentage

Single room    100    100%

Double rooms    50    80%

Triple rooms    30    60%

The rent of double rooms suite is to be fixed at 2.6 times of the single room suite and that of triple rooms suite as twice of the double rooms suite.

The other expenses for the year 2006 are as follows:


Staff salaries    14,25,000

Room attendante' wages    4,50,000

Lighting, heating and power    2,15,000

Repairs and renevation    1,23,500

Laundy charges    80,500

Interior decoration    74,000

Provide profit @ 20% on total taking and assume 360 days in a year.

You are required to calculate the rent to be charged for each type of suite.

(b) 'Under the Rowan Premium Bonus system, a less efficient worker can obtain same bonus as a highly efficient worker.' Discuss with suitable examples.

(a) ABC Ltd. has furnished the following information from the financial books for the year ended 31st March, 2007:

Profit & Loss Account Rs.

To Opening stock (500 units at Rs. 140 each)

Materials consumed Wages

Gross profit c/d






By Sales (10,250 units)

By Closing stock (250 units at Rs. 200 each)


10.40.000 6,00,000



To Factory overheads    3,79,000

Administration    4,24,000

overheads    2,20,000

Selling expenses    16,000

Bad debts    20,000

Preliminary expenses    1,92,000

Net Profit

By Gross profit b/d 12,10,000 Interest    1,000

Rent received 40,000



The cost sheet shows the cost of materials at Rs. 104 per unit and the labour cost at Rs. 80 per unit. The factory overheads are absorbed at 60% of labour cost and administration overheads at 20% of factory cost. Selling expenses are charged at Rs. 24 per unit. The opening stock of finished goods is valued at Rs. 180 per unit.

You are required to prepare:

(i)    A statement showing profit as per Cost accounts for the year ended 31st March, 2007; and

(ii)    A statement showing the reconciliation of profit as disclosed in Cost accounts with the profit shown in Financial accounts.

(b) Explain any two of the following:

(i)    National profit in Contract costing.

(ii)    Retention money in Contract costing.

AT    P.T.O.


AT    Marks

6. (a) The following accounting information and financial ratios of PQR Ltd. relate 12 to the year ended 31st December, 2006:


15% of sales 8% of sales 20% of works cost 10% of works cost 3 months' usage 6% of works cost 60 days


1    : 3 13 : 11

2    : 1 2 : 1 1 : 4

Accounting Information Gross Profit Net profit

Raw materials consumed Direct wages Stock of raw materials Stock of finished goods

Debt collection period

All sales are on credit Financial Rations:

Fixed assets to sales Fixed assets to Current assets Current ratio

Long-term loans to current liabilities Capital to Reserves and Surplus

If value of fixed assets as on 31st December, 2005 amounted to Rs. 26 lakhs, prepare a summarised Profit and Loss account of the company for the year ended 31st December, 2006 and also the Balance Sheet as on 31st December, 2006.

(b) What is Debt securitisation? State the basic debt securitisation process.

7. (a)

JKL Ltd. is considering the revision of its credit policy with a view to increasing its sales and profit. Currently all its sales are on credit and the customers are given one month's time to settle the dues. It has a contribution of 40% on sales and it can raise additional funds at a cost of 20% per annum. The marketing manager of the company has given the following options along with estimates for considerations:


Sales in (Rs. lakhs)























Credit period (in months)

Bad debts (1% of sales)

Cost of Credit administration (Rs. lakhs)

You are required to advise the company for the best option.

(b) What do you mean by factoring? Describe the benefits of factoring.    4

AT    Contind...


AT    Marks

(a) You are required to determine the weighted average cost of capital of a firm 9 using (i) book-value weights and (ii) market value weights. The following information is available for your perusal:

Present book value of the firm's capital structure is:


Debentures of Rs. 100 each    8,00,000

Preference shares of Rs. 100 each 2,00,000 Equity shares of Rs. 10 each 10,00,000


All these securities are traded in the capital markets. Recent prices are: Debentures @ Rs. 110, Preference shares @ Rs. 120 and Equity shares @ Rs. 22.

Anticipated external financing opportunities are as follows:

(i)    Rs. 100 per debenture redeemable at par : 20 years maturity 8% coupon rate, 4% floatation costs, sale price Rs. 100.

(ii)    Rs. 100 preference share redeemable at par : 15 years maturity, 10% dividend rate, 5% floatation costs, sale price Rs. 100.

(iii)    Equity shares : Rs. 2 per share floatation costs, sale price Rs. 22.

In addition, the dividend expected on the equity share at the end of the year is Rs. 2 per share; the anticipated growth rate in dividends is 5% and the firm has the practice of paying all its earnings in the form of dividend. The corporate tax rate is 50%.

(b) Explain briefly the propositions made in Modigliani and Miller approach on cost of capital.

(a) A company is considering the proposal of taking up a new project which requires an investment of Rs. 400 lakh on machinery and other assets. The project is expected to yield the following earnings (before depreciation and taxes) over the next five years:

Year    Earnings (in Rs. lakh)

1    160

2    160

3    180

4    180

5    150

The cost of raising the additional capital is 12% and assets have to be depreciated at 20% on 'Written Down Value' basis. The scrap value at the end of the five years's period may be taken as zero. Income-tax applicable to the company is 50%.

You are required to calculate the net present value of the project and advise the management to the appropriate decision. Also calcuate the Internal Rate of Return of the Project.

Note: Present value of Re. 1 at different rates of interest are as follows:































(b) State the differences between Global Depository Receipts and Americal Depository Receipts.



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