The Institute of Company Secretaries of India 2010 Company Secretary Company Accounts, Cost & Management Accounting Executive-Group1 (New Syllabus) - Question Paper
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Company Accounts, Cost & Management Accounting
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Time allowed : 3 hours
Maximum marks : 100
Total number of printed pages : 11
Total number of questions : 8
NOTE : All working notes should be shown distinctly.
(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 :
0 Accounting policies vary from enterprise to enterprise.
(i In the absence of declaration of dividend, there is no need to provide for depreciation in the accounts of companies.
ii) Securities premium money can be distributed as dividend.
(i) For calculating minority interest, there is a need to distinguish between capital and revenue profits of the subsidiary.
(v) While preparing the consolidated balance sheet, a contingent liability in respect of a transaction between the holding and the subsidiary companies is disappeared from the foot note.
(2 marks each)
b) Choose the most appropriate answer from the given options in respect of the
following :
fi) Indian accounting standards are formulated under the authority of the
a) Council of the Institute of Chartered Accountants of India
b) National Advisory Committee on Accounting Standards
0 International Accounting Standard Board
d Accounting Standard Board.
(i) As per section 79 of the Companies Act, 1956 from the date of receiving the sanction of the Central Government, a company must issue shares at discount within a period of
a One month
b) Two months
0 Three months
d Six months.
iii) As per section 387 of the Companies Act, 1956, total remuneration to manager should not exceed the rate of net profit of the company except with approval of the Central Government
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(a) |
5 % |
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(b) |
2 % |
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(c) |
11% |
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(d) |
10%. |
(iv) Profit on cancellation of own debentures should be transferred to
a) Profit and loss account
b) Profit and loss appropriation account fc) Capital reserve account
(d Reserve capital account.
M Profit prior to incorporation is transferred to
a) General reserve
b) Capital reserve fc) Goodwill account
(d Profit and less account.
(1 mark each)
0 Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) :
i Goodwill is _asset.
(i) Preliminary expenses being of capital nature may be written-off against
iii) Collateral security implies_ security given for a loan.
i Interim dividend is a dividend declared at any time between the _
where the final dividend is declared.
(v Stock reserve for unrealised profit in respect of inter-company transactions
should be created by debiting_and crediting_while preparing
consolidated profit and loss account.
(1 mark each)
2. a Write short notes on any two of the following :
Non-acceptability of International Accounting Standards
(i) Capitalisation of profits and reserves
iii) Phases of generation of intangible assets.
b Following are balance sheets of H Ltd.
Liabilities
H Ltd. (Rs.).
5.00.000
1.40.000
80,000
8.20.000
40.000
2.40.000 1,00,000
20.000 60,000
8.20.000
S Ltd (Rs.)
2,00,000
60,000
90.000
40.000
50.000
4.40.000
30.000
2.20.000
90.000
75.000
25.000
4,40,000
Share capital (Shares of Rs.100 each) General reserve as on 1st April, 2008 Profit and loss account Bills payable Creditors
Assets
Goodwill
Other fixed assets
1,500 Shares in S Ltd. at cost
Stock
Debtors
Cash at bank
The profit and loss account of S Ltd. showed a balance of Rs.50,000 on 1st April,
2008. A dividend of 15% was paid on 15th October, 2008 for the year 2007-08. The dividend was credited by H Ltd.. to its profit and loss account. H Ltd.. acquired shares on 1st October, 2008. The bills payable of S Ltd. were all issued in favour of H Ltd. and the same were got discounted by H Ltd. Included in the creditors of S Ltd. are Rs.20,000 for goods supplied by H Ltd. The stock of S Ltd. includes goods to the value of Rs.8,000 which were supplied by H Ltd. at a profit of 33.33% on cost. Prepare consolidated balance sheet of H Ltd. and S Ltd. as on 31st March,
2009.
(9 marks)
3. The following balances have been extracted from the books of Pioneer Traders Ltd. as
on 30th September, 2009
(Fs. '000) Cr.
1,50,000
4,000
2,500
Dr.
4,800
Share capital (Authorised and issued) : Equity (15,00,000 Shares of Rs.100 each) 8% Redeemable preference (40,000 shares) Securities premium Preference share redemption
General reserve Land (cost)
(Rs. '000) Cr. 10,000
Dr.
30.000
70.000 2,000 3,500
25.000 1,200
Buildings (cost less depreciation)
Furniture (cost less depreciation)
Motor vehicle (cost less depreciation)
Trading account - gross profit
90,000
500
800
Establishment charges
Rate, taxes and insurance
Commission
Discount received
Interest on investments
Depreciation
Sundry office expenses
Payment to auditors
Sundry debtors and creditors
Profit and loss account (as on 30.9.2008)
Unpaid dividend Cash in hand
1,000
20,000
35,300
10,000
22,000
2,69,160
Cash at bank in current account Security deposit Outstanding expenses Investments in G.P. Notes Stock in trade (at or below cost)
600
7,000
2,69,160
Provision for taxation (year ended 30.9.2008) Income-tax paid under dispute (year ended 30.9.2008) Advance payment of income-tax
The following further details are available :
i The preference shares were redeemed on 1st October, 2008 at a premium of 20% but no entries were passed for giving effect thereto, except payment standing to the debit of preference share redemption account.
fe) Building - Rs.2,10,00,000.
(b Furniture - Rs.20,00,000.
C Mbtor vehicles - Rs.60,00,000.
iii) Establishment charges include Rs.18,00,000 paid to managing director as remuneration in terms of agreement which provides for a remuneration of 5% of annual net profits.
(iv) Payment to auditors includes Rs.1,00,000 for taxation work in addition to audit fees.
V) Market value of investments on 30th September, 2009 is Rs.1,80,00,000.
(V) Sundry debtors include Rs.40,00,000 due for a period exceeding six months.
(ii) All receivables and deposits are considered good for realisation.
(iii) Income-tax demand for the year ended 30 th September, 2008 Rs.1,00,00,000 has not been provided for against which appeal is pending.
(ix) Income-tax is to be provided @ 34%. Also provide for tax cn divisible profit @ 16%.
(x) Directors recommended payment of dividend on equity shares at the rate of 12%.
(i) Ignore previous year's figures.
You are required to prepare the profit and loss account for the year ended 30th September, 2009 and a balance sheet as at that date.
(15 marks)
4. fe) Balance sheet of Diamond Ltd. as at 30th June, 2009 is given below :
Liabilities Rs.
Share capital : 40,000 Shares of Rs.10 each 4,00,000
General reserve 80,000
Profit and loss account 64,000
Sundry creditors 2,56,000
Income-tax reserve 1,20,000
Assets
Land and buildings 2,20,000
Plant and machinery 2,60,000
Patents and trade marks 40,000
Preliminary expenses 24,000
Stock 96,000
Debtors 1,76,000
Bank balance 1,04,000
9,20,000
The expert valuer valued the land and buildings at Rs.4,80,000, goodwill at Rs.3,20,000 and plant and machinery at Rs.2,40,000. Out of the total debtors, it is found that debtors of Rs.16,000 are bad. The profits of the company have been as follows :
31st March, 2007 : Rs.1,84,000
31st March, 2008 31st March, 2009
Rs.1,76,000
Rs.1,92,000
The company follows the practice of transferring 25% of profits to general reserve. Similar type of companies earn at 10% of the value of their shares. Plant and machinery, and land and buildings have been depreciated at 15% and 10% respectively. Ascertain the value of shares of the company by using
i Intrinsic value method;
(i) Yield value method; and
ii) Fair value method.
(6 narks)
b) Rax Ltd.. invited applications from public for 1,00,000 equity shares of Rs.10 each at a premium of Rs.5 per share. The entire issue is underwritten by the underwriters A, B, C, and D to the extent of 30%, 30%, 20%, and 20% respectively with the provision of firm underwriting of 3,000, 2,000, 1,000 and 1,000 shares respectively. Underwriters are entitled to maximum commission as per law. The company has received applications for 70,000 shares from public out of which applications for
19,000, 10,000, 21,000 and 8,000 shares were marked in favour of A, B, C and D respectively. Calculate the liability of each underwriter treating firm underwriting on par with marked applications. Also ascertain the underwriting commission @ 2.5% payable to each underwriter.
(6 narks)
0 "Buy-back nay be misused by the corporate entities at the cost of innocent investors." Give your comments.
(3 narks)
PART-B
(Answer Question No.5 which is compulsory and any two of the rest from this part.)
5. fe) State, with reasons in brief, whether the following statements are correct or incorrect :
i Under Flux Method, labour turnover is calculated by number of workers left divided by average number of workers.
(i) In cost plus contracts, the contractor runs a risk of incurring a loss.
iii) There is no need to record attendance of piece rate workers since attendance is not relevant for ascertaining the amount of wages to be paid.
(i) A profit centre whose performance is measured by its return cn investment (ROI) is known as investment centre.
V) Contribution is not only the criterion for deciding profitability.
(2 marks each)
(b) Choose the most appropriate answer from the given options in respect of the following :
i The rate of change of labour force in an organisation during a specified period is called
fe) Labour efficiency
b) Labour turnover
(c) Labour productivity
(d None of the above.
(i) When a contract is not complete at the end of the year, profit on incomplete contract
fe) Is not considered
b Is considered for inclusion in the profit for the year
fc) Is considered for the inclusion of a part of the year
(d None of the above.
ii) When prices fluctuate widely, the method that will avoid the effect of fluctuations is
a FIFO b LIFO
0 Simple average (d Weighted average.
(i) Fixed costs remain fixed
(a) Over a short period
b Over a long period and within relevant range
t) Over a short period and within a relevant range
(d Over a long period.
(v) When the under or over absorbed overheads amount is significant, it should be disposed off by
a Transferring to costing profit and loss account b Using a supplementary rate
(c) Carry over to next year (d None of the above.
(1 mark each)
0 Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) :
i _expenses are excluded from cost.
(i) An account giving details of cost of production, cost of sales and profit made during a particular period is called_.
iii) The process of apportionment of factory overheads among production and service department is called_of factory overheads.
(iv) The time for which the employer pays remuneration to workers but obtains no direct benefit is called_.
(v) A system that keeps a running and continuous record that tracks inventories and cost of goods sold on day-to-day basis is called_.
(1 mark each)
6. Summarised income statement and balance sheet of Progressive Ltd. are given below :
Income Statement for the Year ended 31st December, 2009
(Rs. '000)
Sales 1,600
Less: Cost of goods sold 1,310
Gross margin 290
Less: Selling and administration expenses 40
Net operating income (EBIT) 250
Less: Interest 45
Earnings before tax 205
Less : Tax paid 82
Net income after tax 123
Earnings per share (EPS) is Rs. 3.075.
Balance Sheet as at 31st December, 2009
Liabilities (Rs. '000)
Paid-up capital (40,000 shares of Rs. 10 each fully paid) 400
Retained earnings 12 0
Debentures 700
Creditors 180
Bills payable 2 0
Other current liabilities 80
1,500
Assets (Fs. '000)
Net fixed assets 800
Inventory 400
Debtors 175
Marketable securities 75
Cash 50
1,500
Price per share is Rs.15.
Industry's average ratios are :
Current ratio ....................2.4
Quick ratio ....................1.5
Sales to inventory ....................8.0
Average collection period ....................36 days
Price per share/book value of share ....................1.6
Debts to assets ....................4 0%
Times interest earned ....................6
Profit margin ....................7 %
Price to earnings ratio ....................15
Return to total assets ....................11%
0 Progresssive Ltd. would like to borrow Rs.5,00,000 from a bank for less than a year. Evaluate the firm's current financial position by calculating ratios that you feel would be useful for the bank's evaluation.
(i) What problem areas are suggested by your ratio analysis ? What are the possible reasons for them ?
(iii) Do you think that the bank should give the loan ?
(iv) If Progressive Ltd.'s inventory utilisation ratio (sales to inventory) and average collection period were reduced to industry average, what amount of funds would be generated ?
(15 marks)
(a) Write short notes on any two of the following :
7.
i Superiority of zero base budgeting (ZBB) to traditional budgeting
(i) Activity based costing Gii) Cash, cash equivalents and cash flows.
(b Two manufacturing companies which have the following operating details decided to merge :
Company-I Company-II
Capacity utilisation (%) 90 60
Sales (Rs. in lakhs) 540 300
Variable costs (Rs. in lakhs) 396 225
Fixed costs (Rs. in lakhs) 80 50
Assuming that the proposal is implemented, calculate
i Break-even sales of the merged plant and the capacity utilisation at that stage.
(i) Profitability of the merged plant at 80% capacity utilisation.
ii) Sales turnover of the merged plant to earn a profit of Rs.75 lakh.
is) When the merged plant is working at a capacity to earn a profit of Rs.75 lakh, what percentage increase in selling price is required to sustain an increase of 5% in fixed overheads ?
(9 marks)
fe) A company manufactures 5,000 units of a product per month.. The cost of placing an order is Rs.100. The purchase price of the raw material is Rs.10 per kg. The re-order period is 4 to 8 weeks. The consumption of raw materials varies from 100 kgs. to 450 kgs. per week, the average consumption being 275 kgs. The carrying cost of inventory is 20% per annum. You are required to calculate
i Re-order quantity
(i) Re-order level
iii) Maximum level
(iv) Minimum level
() Average stock level.
Assume 52 weeks in a year.
(6 marks)
(b Following information is available for a factory for the year 2008 :
Direct material ....................3,00,000
Direct wages ....................2,50,000
Factory overheads ....................1,50,000
Administrative overheads ....................1,68,000
Selling overheads ....................1,12,000
Distribution overheads ....................70,000
Profit ....................2,10,000
A work order has been executed in the year 2008 and the expenses incurred were materials Rs.4,000; and wages Rs.2,500.
Assuming that in the year 2009 the rate of factory overheads has increased by 20%, distribution overheads have gone down by 10% and selling and administration overheads have each gone up by 12.5%, at what price should the product be sold so as to earn the same rate of profit on the selling price as in the year 2008 ? Factory overheads are based on direct wages while other overheads are based on factory cost.
(9 marks)
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1/2010/CACMA
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