MANAGEMENT ACCOUNTING FOR FINANCIAL SERVICES Stage-III

ISQ Examination (Summer-2008)

Q.1

Please write the alphabate of selected choice in the answer column:

Q.2

(A)

Classify the following costs as fixed (F) , variable (V) or semi-variable

(SV).
(05)

Q.2

(B)

Standard cost for Wahab Corporation are listed below:

direct materials price
direct material efficiency
direct labor price
direct labor efficiency
variable factory overhead
fixed factory overhead application rate

(25)

(02)

Rs. 10 per pound

3 pounds per unit
Rs. 12 per direct labor hour
4 direct labor hours
Rs. 2.20 per direct labor hour
Rs. 5 per direct labor hour

What is the total standard cost per unit?

A)
C)

Q.3

Rs. 106.80
Rs. 122.60

B)
D)

Rs. 114.40
Rs. 128.20

The United Corporation currently earns Rs.10,000,000 before interest and taxes.
The Corporations management is planning an expansion for its production
facilities at an estimated cost of Rs.25,000,000 which would increase its earning
before interest and taxes to Rs.13,750,000.
The necessary finance can be raised either by issuing Term Finance Certificates
with a interest rate of 9% or by issuing 781,250 shares. The Corporations
shares currently has a P/E ratio of 15 which would persist if additional shares
were sold. The Term Finance Certificates would reduce the P/E to 13. The
Corporations current balance sheet and income statement are as follows:
Fixed assets
Current assets
Less: Current liabilities
Net Current assets

Rs.20,000,000
Rs.30,000,000
5,000,000
25,000,000
Rs.45,000,000

Represented by:
Locally manufactured machinery loan
(interest payable at 6%)
Shareholders equity
Share capital
1,500,000 ordinary shares
of Rs.10 each
Revenue reserves

Sales
Less: Cost of goods sold
Selling & Administration
Depreciation

Earning before interest and taxes

Interest
Earning before taxes
Taxes-50%
Net profit%

Rs.25,000,000

15,000,000
5,000,000
20,000,000
Rs. 45,000,000
Rs.150,000,000
105,000,000
33,000,000
2,000,000
140,000,000
10,000,000
1,500,000
8,500,000
4,250,000
4,250,000

The Corporation is retiring its locally manufactured machinery loan at the

installment rate of Rs.1,250,000 annually. The new assets would be depreciated
by Rs.1,250,000 a year and if the term finance certificates are issued they would
be retired at Rs.2,500,000 per annum.

Required:
Calculate the following under the current conditions and the future under each
of the alternative sources of financing:
(A)
(B)
(C)
(D)
(E)

return on investment
per share earning
market price of ordinary share
return on equity
cost of each source of new financing

(02)
(02)
(02)
(02)
(07)

Q.4

XYZ Ltd. has the following balance sheet as at 31 December 2007

(Rs)
Fixed assets
Current assets less current liabilities

3,500,000
500,000

4,000,000
Share capital

500,000

Reserves

1,600,000

Long-term 10% debt

1,900,000

4,000,000
The companys strategic planners have formulated the following policies.
(A)

By the end of the year ended 31 December 2008, gearing will not exceed
100% - ie long term debt will not exceed the total of share capital and
reserves.

(B)

The company will pay 50% of its profits as dividend to shareholders.

The following estimates have been made.

(A)

Each Rs.10,000 of assets generates profits of Rs.2,000 P.A. before interest.

(B)

The current market cost of debt capital is 10% P.A.

The company would like to invest further Rs.500,000 but does not intend to
make a share issue to raise the finance. Advise its management as whether it
should borrow the money and still achieve its strategic targets by the end of year
2008? (Ignore taxation and fixed asset depreciation).
(05)

Q.5

ABC Limited has forecasted its working capital requirements for the next year as
follows:

Month

Amount

Month

Amount

January

24,000,000

July

160,000,000

February

24,000,000

August

144,000,000

March

32,000,000

September

88,000,000

April

48,000,000

October

56,000,000

May

80,000,000

November

32,000,000

June

120,000,000

December

16,000,000

Companys short term and long term cost of financing are 15% and 20% respectively.
Required:
Determine the cost of financing using:
(i)
(ii)
(iii)

Q.6

Hedging approach
Conservative approach
Trade off approach

(04)
(04)
(04)

Luqman Corporation uses a job order cost system and has two production
departments, M and A. Budgeted manufacturing costs for 2007 are as follows: (05)

Direct materials
Direct labor
Manufacturing overhead

Department A
Rs.
100,000
Rs.
800,000
Rs.
400,000

Department M
Rs.
700,000
Rs.
200,000
Rs.
600,000

The actual materials and labor costs charged to job 432 during 2007 were as
follows:
Direct materials
Direct labor:
Department M
Department A

Rs.
Rs.

25,000
8,000
12,000

20,000

Luqman applies manufacturing overhead to production orders on the basis of direct

labor cost using departmental rates predetermined at the beginning of the year on the
basis of annual budget. The manufacturing cost associated with job 432 for 2007 should
be:
A)
Rs.50,000
C)
Rs.65,000
B)
Rs.55,000
D)
Rs.75,000

Q.7

The following information relates to the two question below:

(06)

Momin Company had a cost of goods sold budget for the quarter of Rs.210,000.
The following data are also based on the quarterly cost of goods sold budget:
Finished goods inventory- beginning
Finished goods inventory- ending
Factory overhead
1.

Rs. 207,000
Rs. 234,000

B)
D)

Rs. 213,000
Rs. 276,000

Assuming that the direct labor for the quarter was Rs.58,000, what is the direct
materials purchase budget for the quarter:
A)
C)

Q.8

38,000
41,000
63,000

What is the total cost of goods manufactured for the quarter:

A)
C)

2.

Rs.
Rs.
Rs.

Rs. 86,000
Rs. 98,000

B)
D)

Rs. 92,000
it cannot be determined from
the information

Latif Company employees a process cost system for its manufacturing operations.
All direct materials are added at the beginning of the process and conversion
costs are added proportionately. Latif's production quantity schedule for
November is produced below:
(05)
Work-in-process, Nov 1
(60% complete as to conversion costs)
Units started in during November

Units
1,000
5,000
------6,000
====

Total units accounted for

Units completed and transferred out from beginning inventory

Units started and completed during November
Work-in-process on Nov 30
Total units accounted for

1,000
3,000
2,000
-----6,000
====

Using FIFO method, the equivalent unit for direct materials for November are
A)
C)

5,000 units
4,400 units

B)
D)

6,000 units
3,800 units

Q.9

A customer has borrowed Rs. 2 million from National Commercial Bank to buy a
home. The loan carries an interest rate of 12% and it is for 10 years. The
borrower is required to make annual payments towards the principal and
interest.

Required:
(05)
Calculate the amount the borrower will have to pay every year to National
Commercial Bank.
Q.10

(15)
Kardar Company
Balance Sheet
December 31, 2007 and 2006

Assets
Assets
Current Assets
Cash
Accounts receivable
Merchandise inventory
Prepaid expense
Total current assets
Long term assets
Plant assets
Less accumulated depreciation
Total assets

17,000
60,000
84,000
6,000
167,000
250,000
(60,000)

Liabilities
Current liabilities
Accounts payable
Interest payable
Income tax payable
Total current liabilities
Long term liabilities
Bonds payable
Stockholders' Equity
Paid in capital
Common stock Rs. 5 par value
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity

2006

2007

190,000
357,000

12,000
40,000
70,000
4,000
126,000
210,000
(48,000)

162,000
288,000

35,000
3,000
22,000
60,000

40,000
4,000
12,000
56,000

90,000
150,000

64,000
120,000

95,000
112,000

80,000
88,000
207,000
357,000

168,000
288,000

Kardar Company
Income Statement
For the Year Ended December 31, 2007
Sales
Cost of goods sold
Wages and other operating expenses
Interest expense
Income tax expense
Depreciation expense
Loss on sale of plant assets
Gain on retirement of debt
Net income

590,000
300,000
216,000
7,000
15,000
24,000

(562,000)
(6,000)
16,000
38,000

Additional Information:

1. Kardar Company sold plant that cost Rs. 30,000 when they had accumulated
depreciation of Rs. 12,000.They received Rs. 12,000 cash and they had a loss of
Rs. 6,000.
2. Kardar Company purchased plant that cost Rs. 70,000 by issuing Rs. 60,000 bonds
and paying Rs. 10,000 cash.
3. Kardar Company retired bonds with a face value of Rs. 34,000 by paying Rs. 18,000
cash.
4. They paid Rs. 14,000 dividend to their stockholders in 2007.
Required:
Prepare a cash flow statement for Kardar Company for the year 2007 using direct
method.

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