Company Accounts , Cost and Management Accounting

(June 2013) C.S. Executive (G-1) Paper : Company Accounts, Cost and Management Accounting

Disclaimer Clause : These solutions are prepared by expert faculty team of Resonance. Views and answers provided may differ from that would be given by ICSI due to difference in assumptions taken in support of the answers. In such case answers as provided by ICSI will be deemed as final.

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Company Accounts , Cost and Management Accounting 1(a). (i) False : Section 81 of the Companies Act provides that such further issue of shares should first be offerred to the existing shareholders of the company in proportion to the shares which they already hold. Thus the company is under legal obligation to offer first the further issue of shares to its existing shareholde` But the share holders have the option either to accept it or to reject it or to renounce it. In other words, the existing shareholders have the right to be offered further issue of shares to them. (ii) True : The treatment of the contingent liability on consolidation depends on its nature. If the contingent liability is in respect of a transaction between the company in the group and outside third party (external contingent liability), it will appear as a note to the consolidated balance sheet. But if the contingent liability is in respect of transaction between holding and subsidiary companies (internal contigent liability), it will disappear from the foot note of individual companys balance sheet, as it appears as actual liability in the consolidated balance sheet. (iii) True : If goods are sold by one company to the other (i.e., by the holding company to its subsidiary or vice versa) at a profit and a part of it remains unsold at the end of the year, the unrealised and such goods remaining unsold must be provided for. But it is important to note here that the minority shareholders will not be affected in any way. Such unrealised profit has to be eliminated from the consolidated balance sheet in the following manner. (i) The unrealised profits should be deducted from the current revenue profits of the company which sold the goods. (ii) Again, the same should be deducted from the value of stock-in-trade of the company concerned. (iv) False : In case of inadequacy of profits or absence of profits in any year, any company proposes to declare out of the accumulated profits earned by the company in previous years and transferred by it to the reserves, such declaration dividend sall not be made except in accordance with such rules as may be made by the central government in this behalf and where any such declaration is not accordance with such rules, such declaration shall not be made except with the previous approval of the central government. For the purpose of this rule, Profits earned by a company in previous year and transferred by it to the reserves shall mean the total amount of the net profits after the tax, transferred to reserves as at the biginning of the year for which the dividend is to be declared ; and in computing the said amount, all items of the capital reserves including reserves created by revaluation of assets shall be excluded. (v) False : Redemption of preference shares amounts to reduction in the capital of the company. This statement is false because such shares can be redeemed either out of the profits of the company which would otherwise available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of redemption. That means the Shareholders fund maintain as it is & no capital reduction is made. 1(b). (i) (ii) (iii) (iv) (v) 1(c). (c) The amount received on forfeited shares (b) Managerial remuneration (c) Carrying amount (b) Capital Loss (b) Preliminary expenses

Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) Section 81 of Companies Act, 1956, provides that where a public company proposes to increase its subscribed at any time after the expiry of ....2.... year(s) of its formation or at any time after the expiry of ...1... year(s) from the first allotment of shares whichever is earlier, it should satisfy certain conditions. (ii) Preliminary expenses being of capital nature may be written off against ...Capital Profits... (iii) Goodwill is an intangible asset, but is not a ...Fictitious... asset. (iv) Accumulated losses of the subsidiary company upto the date of acquisition of shares by the holding company are called ....Pre acquisition... losses. (v) International Accounting Standards are issued by the ...International Accouting Standard Board ...

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Company Accounts , Cost and Management Accounting 2(a). Valuation of Shares as Per Yield Basis (i) Calculation of Profit available for Equity Shareholders Expected Profits (Before Tax) Less : Tax Rate (35%) Profit after Tax Less : Transfer to General Reserve (20%) Less : Preference Share Dividend (2,00,000 10%) Profit available for Equity Shareholders (ii) Calculation of Expected Rate of Profit (`) 4,00,000 1,40,000 2,60,000 52,000 2,08,000 20,000 1,88,000

Profit For Equity Share Holders Expected Rate of Profit = Paid Up Equity Share Capital 100
=

1,88,000 100 4,20,000

= 44.76%

ExpectedRate of Profit (iii) Yield Value Per Share = NormalRate of Return Paid up Value per share
44.76 7 20 = ` 15.67

2(b).

Net Liability of Underwriters K (40%) Shares Gross Liability in agreed ratio of (40 : 30 : 30) Less : Marked Applications Balance Left Less Unmarked applications in the ratio of Gross Liability i.e. (40 : 30 : 30) Net Liability 20,000 10,000 10,000 B (30%) Shares 15,000 5,000 10,000 C (30%) Shares 15,000 10,000 5,000

6,000 4,000

4,500 5,500

4,500 500

2(c).

When a company has substantial cash resources, it may like to buy its own shares from the market particularly when the prevailing rate of its shares in the market is much lower than the book value or what the company perceives to be its true value. Buy back of shares enables the company to go back to its shareholdrs and offers to purchase from them the shares they hold. Through the introduction of Section 77A in the Companies Act, 1956 by te Companies (Amendment) Act, 1999, the Central Government has allowed indian companies to buy-back their shares from the open market. Section 77A of the Companies (Amendment) Act, 1999 states that a company may purchase its own shares or other specified securities subject to sub section (2) of this section & 77 B (e.g. employees stock option or other securities as may be notified by the Central Government from time to time) out of: (i) its free reserves (i.e. reserves which are free for distribution as dividend) and includes balance of securities primium account ; or/and (ii) The proceeds of any sharesor other specified securities. However, no buy-back of any kind of shares or other specified securities shall be made out of proceeds of the earlier issue of same kind shares or same kind of other securities. Thus for example, if equity shares are to be bought back, preference shares or debentures may be issued for the purpose.

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Company Accounts , Cost and Management Accounting 3(a). (1) Ratio of Share Capital held by H Ltd. and Minority Interest in Subsidiary 3 : 1 (2) Share of H Ltd. in Pre-acquisition (Capital) Loss of S Ltd. (` ) Total Pre-acquisition loss 1,50,000 H Ltd.s share-3/4 of ` 1,50,000 1,12,500 (To be added to the cost of control (or goodwill) or deducted from capital reserve) (3) Share of H Ltd. in Additional Pre-acquisition Proft Accumulated loss as on 31-3-11 Less : Accumulated balance on 31-3-12 Profit made in 2012-13 Add : Loss of stock by fire (6,000 2,000) Adjusted Profit Profits for pre-acquisition period, that is, from 1.4.2011 to 1-8-2011 (4 months) : 54,000 Less : Loss of stock by fire H Ltd.s share 3/4 of 14,000 (4) Share of H Ltd. in Post-acquisition Profit Total profits for post-acquisition period : (From 1.8.2011 to 31.3.2012 i.e., 8 Months) 54,000 H Ltd.s share i.e., 3/4 or ` 36,000 (5) Minority Interest Paid up equity capital held Less : 1/4 of ` 1,00,000 (accumulated loss) (6) Cost of Control Cost of shares in S Ltd. : Less : Paid up equity held Share in pre-acquisition loss () Pre-acquisition profit Goodwill

1,50,000 1,00,000 50,000 4,000 54,000

4 12

18,000 4,000 14,000 10,500

8 12

36,000 27,000

50,000 25,000 25,000 1,20,000 1,50,000 1,12,500 10,500 1,02,000 48,000 72,000

(7) Calculation of Unrealised Profit Profit on ` 20,000 goods supplied is ` 2,000 (or 10%) Profit on stock of ` 10,000 :
2,000 10,000 1,000 (10 % of Rs.10,000 ) 20,000

Unrealised profit on stock = ` 1,000.

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Company Accounts , Cost and Management Accounting Consolidated Balance Sheet of H.Ltd. and its subsidiary S. Ltd. as on 31 March 2012 Particulars Note Figures related Figures related No. to Current to Previous Reporting Reporting Period Period (` ) (` ) 1 2 3 4 5 5,00,000 2,06,000 40,000 25,000 1,00,000 8,71,000

I.

Equity & Liabilities 1. Share holders fund (a) Share Capital (b) Reserve & Surplus 2. Non Current Liabilities (a) Long term borrowings (b) Other Non Current Liabilities 3. Current Liabilities (a) Trade Payable Total II. Assets 1. Non Current Assets (a) Fixed Assets (i) Tangible (ii) Intangible 2. Current Assets (a) Inventories (b) Trade Receivables (c) Cash & Cash equivalents Total Notes to Accounts: 1. Share Capital 10,000, Equity Shares of `10 each fully paid up 2. Reserve & Surplus General Reserves Profit and loss A/c : H. Ltd. Share in S Ltd. Less : Unrealised Profit

6 7 8 9 10

5,00,000 72,000 1,29,000 70,000 1,00,000 8,71,000 (` ) 5,00,000 5,00,000 1,00,000

80,000 27,000 1,07,000 1,000

1,06,000 2,06,000

3. Long Term Borrowings 6% Debentures Less : Held by H. Ltd.

1,00,000 60,000

40,000 40,000

4. Other Non Current Liabilities Minority Interest 5. Trade Payable Creditors : H. Ltd. S. Ltd. Less : Inter-Company owing

25,000 25,000

75,000 45,000 1,20,000 20,000

1,00,000 1,00,000

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Company Accounts , Cost and Management Accounting 6. Tangible Fixed Assets Others : H. Ltd. S. Ltd.

3,50,000 1,50,000

5,00,000 5,00,000

7. Intagible Fixed Assets Goodwill

72,000 72,000

8. Inventories Stock : H Ltd. S Ltd. Less : Unrealised Profit 9. Trade Receivables Debtors : H. Ltd. S. Ltd. Less : Inter-company owings 10. Cash & Cash equivalents Cash : H. Ltd. S. Ltd. 3(b).

90,000 40,000 1,30,000 1,000

1,29,000

60,000 30,000 90,000 20,000

70,000

75,000 25,000

1,00,000

Journal Entries Date (i) Particulers 12% Red. Preference Share Capital A/c Premium on Red. of Pre. Shares A/c To Pre. Shareholders A/c (Being Redemption of Pre. Share were due) Reserves A/c. To Capital Redemption Reserve A/c (Being Acc. Reserves were trans. to CRR A/c) Securities Premium Reserve A/c To Premium on Red. of Pre. Shares A/c (Being Premium on redemption of pre. shares were written off.) Pre. Shareholders A/c To Bank A/c. (Being Pre. Shares were paid off) Dr. Dr. L.F. Dr. Amounts In (`) 1,00,000 10,000 Cr. Amounts In (`) 1,10,000

(ii)

Dr.

1,00,000 1,00,000

(iii)

Dr.

10,000 10,000

(iv)

Dr.

1,10,000 1,10,000

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Company Accounts , Cost and Management Accounting 4(a). Date (i) Particulers Journal of A Company ltd. L.F. Dr. Amounts In (`) 60,000 Cr. Amounts In (`) 60,000

Share Application A/c Dr. To Share Capital A/c (Being Transfer of Share application money to Share Capital account at the time of allotment) Share Allotment A/c. Dr. To Share Capital A/c To Securities Premium Reserve A/c. (Being Allotment money on account of share capital due on Allotment) Share Application A/c To Share Allotment A/c (Being Surplus Money On Application adjusted towards allotment) Share I call A/c. To Share Capital A/c (Being Amount due on first call of 30,000 shares @ ` 3 per share) Dr.

(ii)

1,50,000 90,000 60,000

(iii)

12,000 12,000

(iv)

Dr.

90,000 90,000

(v)

Share Capital A/c (600 8) Dr. Securities Premium Reserve A/c. (600 2) Dr. To Share Allotment A/c To Share I Call A/c To Share Forfeiture A/c (B/F) (Being 600 Shares were forfeited of Ramesh) Share II & Final Call A/c. To Share Capital A/c. (Being Amount Due on 29,400 Shares @ `2 Per share on II & Final Call) Dr.

4,800 1,200 2,760 1,800 1,440

(vi)

58,800 58,800

(vii)

Share Capital A/c (900 10) Dr. To Share I Call A/c To Share II & Final Call A/c To Share Forfeiture A/c (B/F) (Being 900 Shares were Forfeited of Mohan) Share Forfeiture A/c. To Share Capital A/c. To Capital Reserve A/c. (Discount allaved on reissued charged to share forfeiture a/c and Balance transfer to Capital Reserve A/c.) Dr.

9,000 2,700 1,800 4,500

(viii)

4,440 1,200 3,240

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Company Accounts , Cost and Management Accounting Dr. Particulars To Share Application (45,000 2) To Share Allotment To Share I Call A/c To Share II and Final Call A/c To Share Capital A/c CASH BOOK (Bank Column) Amounts Particulars (in `) 90,000 By Share Application A/c (9000 2) 1,35,240 By Balance C/d (Bal./Fig.) 85,500 57,000 10,800 3,78,540 Cr. Amounts (in `) 18,000 3,60,540

3,78,540

Balance Sheet of A Company Ltd. As on ............ Particulars Note Figures related Figures related No. to Current to Previous Reporting Reporting Period Period ` ` 1 2 2,98,500 62,040 3,60,540

I.

Equity & Liabilities 1. Shareholders fund (a) Share Capital (b) Reserve & Surplus Total II. Assets 1. Current Assets (c) Cash & Cash equivalents Total Notes to Accounts: 1. Share Capital 29,700 Equity Shares of `10 each fully paid up Share forfeiture A/c. 2. Reserve & Surplus Capital Reserve Securities Premium Reserve 3. Cash & Cash Equivalents Bank

3,60,540 3,60,540

2,97,000 1500 2,98,500 3,240 58,800 62,040 3,60,540

Working Notes : (i) Calculation of excess application money received From Ramesh Allotment of 600 Prorata basis to Ramesh Then he must have applied For :
600 36,000 720 Shares 30,000

` 1440 1200 240

So, he paid application money on 720 Shars @ ` 2/- Share Less : Application money on alloted Shares (600 2) Excess application money adjusted towards allofment (ii) Allofment due from Ramesh Allofment money Payable on 600 Shares Including Premium (600 5) Less : Excess application money adjusted towards allofment (i) Allotment money not paid by Rqmesh

3000 240 2760

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Company Accounts , Cost and Management Accounting (iii) Calculation of the total amount received as allotment money Total amount Payable as alotment (Includiry Premium) on 30000 share @ ` 5 Per Share 1,50,000 Less : Received along with application money 12,000 138000 Less : Not Paid by Ramesh (ii) 2760 Allotment money received on 29400 Shares 135240 (iv) Capital reserve has been calculated as under : Total forfeited money relating to 1200 shares re-issued [` 1440 (Ramesh) + ` 3000 (Mohan)] Less : Discaunt on reissue of Shares Amount to be transferred to Capital Reserve 4(b).

4440 1200 3240

MEANING OF PROFIT OR LOSS PRIOR TO INCORPORATION When a running business is taken over by the promoters of a company as at a date prior to the date of incorporation of company, the profit or toss of such a business for the period from the date of purchase of the business to the date of incorporation of the company, is called Profit or Loss prior to incorporation. NATURE OF PROFIT OR LOSS PRIOR TO INCORPORATION The profit or loss prior to incorporation is regarded as of capital nature because a company can not do any business before its incorporation. ACCOUNTING TREATMENT OF PROFIT OR LOSS PRIOR TO INCORPORATION The accounting treatment of profit or loss prior to incorporation is summarised as follows: Profit or Loss Accounting Treatment (a) Profit Prior to Incorporation it is credited to Capital Reserve A/c and the balance of Capital Reserve A/c is shown on liabilities side of the Balance Sheet under the Sub heading Reserves and Surplus. or It is credited to Goodwill A/c (if Good will has been debited as an asset at the time of acquisition of business) (b) Loss Prior to Incorporation It is debited to Goodwill A/c or It is debited to Capital Reserve A/c (if Capital Reserve has been credited at the time of acquisition of business) It is debited to Loss Prior to Incorporation A/c and is written off out of the profits of the company over a period of number of years say 3 to 5 yea` Untill such loss is completely written off, the unwritten off amount of such loss is shown on the Assets side of the Balance Sheet under the Subheading of Other Non Current Assets.

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Company Accounts , Cost and Management Accounting Q.5 (a) (i) True : Cost sheet is details presentation of various element of cost & profit . It is same as statement of cost & Profit. (ii) False: ZBB is not based on incremental approach. In ZBB method budgets are prepare from zero. (iii) True : At full capacity, fixed cost is also relevant for make & buy decision as time to increase in production extra fixed cost will be incurred. (iv) True : Marginal costing is different from direct costing as in marginal costing only variable cost are charged to production but in direct costing only fixed cost is charged to production. (v) False : Management accounting does not have set rules and regulation and not baesd on double entry system. (b) (i) (b) Labour turnover (ii) (d) None of the above (iii) (d) All of the above (iv) (a) LIFO (v) (a) Short range (c) (i) Cost Sheet (ii) Ordering and Carrying Cost (iii) Overabsorption (iv) Profit & Loss A/c (v) Quantity of Material

6.(a) Balance Sheet of Genius Ltd. Particulars Note Figures related Figures related No. to Current to Previous Reporting Reporting Period Period (` ) (` )

I.

Equity & Liabilities 1. Share holders fund (a) Share Capital (b) Reserve & Surplus 2. Non Current Liabilities (a) Long term borrowings 3. Current Liabilities (a) Current Liabilities Total II. Assets 1. Non Current Assets (a) Fixed Assets (i) Tangible 2. Current Assets (a) Inventories (b) Trade Receivables (c) Cash & Cash equivalents Bank Total Notes to Accounts: 1. Inventories Stock - Raw Material Stock - Finished Goods

10,00,000 4,00,000 1,75,000 5,25,000 21,00,000

10,50,000 5,25,000 3,50,000 1,75,000 21,00,000

2,10,000 3,15,000 5,25,000

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Company Accounts , Cost and Management Accounting Working Notes : i. Fixed Assets to Current Assets = 1 : 1

Fixed Assets 1 Current Assets 1 10,50,000 1 Current Assets 1

Current Assets = ` 10,50,000 ii. Fixed Assets/Turnover ratio = 1 : 2

Fixed Assets 1 Turnover 2

10,50,000 1 Turnover 2 Turnover = 10,50,000 2 Turnover (Sales) = `21,00,000

iii. Current Ratio 2

Current Assets 2 Current Liabilitie s 1 10,50,000 2 Current Liabilitie s 1

Current Liabilities = 10,50,000 / 2 Current Liabilities = ` 5,25,000 iv. Long terms Loan to Current Liabilities = 1 : 3

Long term Loan 1 Current Liabilitie s 3

Long term Loan 1 5,25,000 3

Long term Loan = 5,25,000 / 3 Long term Loan = ` 1,75,000 v. Gross Profit Ratio = 25%
Gross Pr ofit Sales Gross Pr ofit 100 25 100

Gross Pr ofit 21,00,000

Gross Profit = ` 5,25,000 vi. Cost of Goods Sold = Sales Gross Profit 21,00,000 5,25,000 ` 15,75,000 vii. Consumption of Raw Material = 40% of COGS 15,75,000 40/100 ` 6,30,000 viii. Stock of Raw Material = Consumption of Raw Material 4/12 6,30,000 4/12 ` 2,10,000
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Company Accounts , Cost and Management Accounting

ix. Finished Goods = 20% of Turnover at Cost (COGS) 15,75,000 20/100 ` 3,15,000 x. Debt Collection Period = 2 Months Debt Collection Period Debtors Sales 12 2 Debtors 21,00,000 12 Debtors = ` 3,50,000 xi. Share Capital to Reserve = 5 : 2 Share Capital 5 Re serve 2 2 Share Capital = 5 Reserve Share Capital = 5/2 Reserve Share Capital = 2.5 Reserve xii. Share Capital + Reserve + Long Term Loan + Current Liabilities = Fixed Assets + Current Assets Share Capital + Reserve + 1,75,000 + 5,25,000 = 10,50,000 + 10,50,000 Share Capital + Reserve = 21,00,000 1,75,000 5,25,000 Share Capital + Reserve = ` 14,00,000 xiii.By help of working note no. xi & xii Share Capital + Reserve = 14,00,000 2.5 Reserve + Reserve = 14,00,000 3.5 Reserve = 14,00,000 Reserve = 14,00,000/3.5 Reserve = ` 4,00,000 xiv. Share Capital = 2.5 Reserve Share Capital = 2.5 4,00,000 Share Capital = 10,00,000 xv. Current Assets = Stock RM + Stock FG + Debtors + Bank 10,50,000 = 2,10,000 + 3,15,000 + 3,50,000 + Bank Bank = ` 1,75,000 6. (b) Under marginal costing only factory overheads costs that tend to vary with volume are changed to product cost in addition to prime cost. While evaluating inventory only direct materials, direct labour and variable factory overhead are included and are considered as product costs. Fixed factory overhead under direct or marginal costing is not included in inventory. It is treated as a period cost and charged against revenue when incurred. Under absorption costing, sometimes called full or conventional costing, all manufacturing costs, both fixed and variable are charged in product costs. Thus Absorption costing is a principle whereby fixed as well as variable costs are alloted to cost units . It means a system under which cost per unit includes fixed expenses, especially fixed production overheads in addition to the variable cost. Profit emerges only after charging all costs minus fixed and variable. In marginal costing also this is true, only profit is ascertained by charging the fixed expenses costs to contribution. Thus we can say marginal costing rewards sales where as absorption cost rewards production.

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Company Accounts , Cost and Management Accounting 7.(a) Cash Flow Statatement for the year ended 31/3/2013 Particulars (A) Cash Flow From Operating Activities Net profit during the year Adjustments : Depreciation on Freehold Building Depreciation on Machinery & Plant Depreciation on Furniture & Fittings Interim Dividend Charged Dividend Proposed Interest Charged Preliminary expenses written off Operating Profit before changes in working capital Increases in Trade Payable Decreases in Inventories Decreases in Trade Receivables Increases in Prepaid Expenses Cash generated from operating activities Less : Taxes Paid (A) Net Cash From Operating Activities (B) Cash Flow From Investing Activities Purchase of Freehold Building Purchase of Machinery & Plant Sale of Furniture & Fittings Dividend Received Purchase of Investment in Shares (B) Net Cash Used in Investing Activities (C) Cash Flow From Financing Activities Interim dividend paid Dividend paid Issue of Share Capital Loan Taken Interest paid on loan (C) Net Cash From Financing Activities (A + B + C) Changes in Cash & Cash Equivalents Add : Opening Balances of Cash & Cash Equivalents Closing Balances of Cash & Cash Equivalents Amounts (in `000) 20 30 50 0.5 60 80 3 10 253.5 18 18 26 (1) 314.5 (Nil) 314.5 (190) (200) 0.5 6 (26) (409.5) (60) (90) 200 50 (3) 97 2 (114) (112) Amounts (in `000)

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Company Accounts , Cost and Management Accounting Working Notes : Dr. Particulars To Goodwill A/c. To Balance C/d Dr. Particulars To Balance B/d General Reserve Account Amounts Particulars (in `000) 20 By Balance B/d 30 50 Goodwill Account Amounts Particulars (in `000) 150 By General Reserve A/c. By Balance C/d 150 Cr. Amounts (in `000) 50 50 Cr. Amounts (in `000) 20 130 150

Dr. Particulars To Balance B/d To Cash A/c. (Bal./Fig)

Freehold Building Account Cr. Amounts Particulars Amounts (in `000) (in `000) 1,000 By Dep. A/c. (12,00,000 2.5%) 30 190 By Balance C/d. 1,160 1,190 1,190 Machinery & Plant Account Amounts Particulars (in `000) 340 By Dep. A/c (5,00,000 10%) 200 By Balance C/d. 540 Furniture & Fittings Account Amounts Particulars (in `000) 7 By Dep. A/c (10,000 5%) By Cash A/c. (Bal./Fig) By Balance C/d 7 Dividend Received Account Amounts Particulars (in `000) 6 By Cash A/c. 6 Cr. Amounts (in `000) 50 490 540 Cr. Amounts (in `000) .5 .5 6 7 Cr. Amounts (in `000) 6 6 Cr. Amounts (in `000) 6 120 126 Cr. Amounts (in `000) 60 60 Cr. Amounts (in `000) 90 80 170

Dr. Particulars To Balance B/d To Cash A/c. (Bal./Fig) Dr. Particulars To Balance B/d

Dr. Particulars To Investment in Shares A/c. Dr. Particulars To Balance B/d To Cash (Bal./Fig.) Dr. Particulars To Cash A/c. Dr. Particulars To Cash A/c. To Balance C/d.

Investment in Shares A/c. Account Amounts Particulars (in `000) 100 By Dividend Received 26 By Balance C/d 126 Interim Dividend Account Amounts Particulars (in `000) 60 By P&L A/c. 60 Provision for Final Dividend Account Amounts Particulars (in `000) 90 By Balance B/d. 80 By P&L A/c. 170

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Company Accounts , Cost and Management Accounting In this question Cash & Cash equivalents are : Opening Balance (in `000) Cash 1 Bank Overdraft (115) (114) 7. (b)

Closing Balance (in `000) 2 (114) (112)

Cost Sheet and Production Account The following are the points of distinction between cost sheet and production account: Cost sheet (1) It is prepared as a statement. (2) Expenses are classified to ascertain prime cost, factory cost, total cost, etc. (3) To enable comparison, figures of previous period are provided. (4) It is based on actual and estimated figures of expenses. (5) It is prepared for each job and sometimes for the whole factory. Production Account It is prepared as an account. Expenses are not classified.

No figures of previous period are provided. Hence no comparison is possible. It is based on actual figures. It is prepared for each production department.

Q.8(a)

FLEXIBLE BUDGET 60% (i) Fixded Expenses Wages & Salaries Rent, Rate & Takes Depreciation Sundry Administration Expenses Total (A) 9.50 6.60 7.40 6.50 30 CAPACITY (` in lakh) 75% 90% 9.50 6.60 7.40 6.50 30 9.50 6.60 7.40 6.50 30 100% 9.50 6.60 7.40 6.50 30

(ii) SEMI VARIABLE EXPENSES Mantenance & Repairs Intirect cabour Sales Dept. Salaries etc. Sundry Administration Expenses Total (B)

3.50 7.90 3.80 2.80 18

3.85 8.69 4.18 3.08 19.8

4.2 9.48 4.56 3.36 21.6

4.2 9.48 4.56 3.36 21.6

(iii) VARIABLE EXPENSES Material Labour Other Expenses Total (C) SALES Total Cost (A + B + C) PROFIT

26.04 24.48 9.48 60 120 108 12

32.55 30.6 11.85 75 150 124.8 25.2

39.06 36.72 142.2 95 180 146.6 33.4

43.4 40.8 158 100 200 151.6 48.4

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Company Accounts , Cost and Management Accounting

Q.8(b)

First Half Year Sales Fixed Expenses Profit/(Loss) 3,00,000 90,000 60,000

Second Half Year ? 90,000 (30,000)

(i)

For fist half year Profit Volume Ratio =

F P 90,000 60,000 100 100 50% Sales 300,000

F 90,000 100 100 = ` 180,000 P/v Ratio 50
Actual Sales BEP Sales = 300,000 180,000 = ` 120,000

Break Even Point (Value) = Margin of Safety (Value) (ii) =

Sales for second half year Sales =

Contributi on 90,000 (30,000 ) 100 100 = ` 1,20,000 P / v Ratio 50

(iii)

For Whole year Break Even Point (Value) = Margin of Safety (Value) =

F 100 = 1,80,000 100 = ` 3,60,000 P / v Ratio 50 420,000 360,000 = ` 60,000

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