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COMPANY ACCOUNTS AND COST & MANAGEMENT

ACCOUNTING

Time allowed : 3 hours Maximum marks : 100

NOTE : All working notes should be shown distinctly.

PARTA
(Answer Question No.l which is compulsory and
any two of the rest from this part.)

1. (a) On 31s1 December, 2002, Brightlight Industries Ltd. showed


in their accounts debenture redemption fund of Rs. 1,50,000
which was represented by Rs. 1,51,000, 5% municipal bonds
purchased for Rs. 1,50,000.
On 28t h February, 2003, the company had a balance of
Rs.28,000 at their bank and they paid into the bank account,
the proceeds of sale of foregoing investments for Rs. 1,50,500.
On 1st March, 2003, the debentures of the value of Rs. 1,50,000
were paid.
You are required to prepare debenture redemption fund account
and debenture redemption fund investments account in the
books of the company. Calculations are to be made to the
nearest rupee.
(4 marks)
(b) On the basis of the following information, calculate the value
of equity share :
RS.
5,000, 6% Preference shares of Rs. 100 each,
fully paid 5,00,000
30,000 Equity shares of Rs. 10 each, fully paid 3,00,000
Total tangible assets (other than goodwill) 9,49,000
Total outside liabilities 95,000
Average net profit after tax 62,560
Expected normal yield for equity shares is 7% of capital
employed. Goodwill is to be taken at 5 years' purchase of
super profits, if any.
(4 marks)
(c) What do you mean by 'accounting standards' ?
(4 marks)
(d) What are the statutory books prescribed under the Companies
Act, 1956 ?
(4 marks)
(e) What is the difference between 'accounting audit trail' and
'operations audit trail' ?
(4 marks)

2. (a) What are the restrictions imposed by the Banking Regulation


Act, 1949 on loans and advances in case of banking
companies ?
I

(3 marks)
(b) Can a company pay dividend out of current profits without
making good past losses ?
(3 marks)
(c) Precision Ltd. proposed to purchase the business carried on
by Fastners Pvt. Ltd. The goodwill for this purpose is agreed
to be valued at five years' purchase of the weighted average
profit for the past four years (Use appropriate weights). Profits
for the past four years are as follows :
Year Profit
(Rs.)
1999-2000 2,52,500
2000-2001 3,10,000
2001-2002 2,50,000
2002-2003 3,50,000

On scrutiny of the books of account, the following matters


were revealed :
(i) On Is ' December, 2001, a major repair was made in
respect of the plant incurring Rs.75,000 which was
charged to revenue. The said sum is agreed to be
capitalised for goodwill calculation subject to adjustment
of de preciation @ 10% on reducing balance method.
(ii) The closing stock for the year 2000-01 was overvalued
by Rs.30,000.
(iii) To cover management costs, an annual charge of
Rs.60,000 should be made for the purpose of valuation
of goodwill.
You are required to compute the value of goodwill.
(9 marks)

3. (a) Write a short note on 'preliminary expenses'.


(3 marks)
(b) Sukriti Ltd. forfeited 100 shares of Rs. 10 each for non-payment
of final call of Rs.2. Of these, 60 shares were re-issued @
Rs.9 per share as fully paid. Pass journal entries in the
books of Sukriti Ltd. clearly showing how much amount
was credited to shares forfeited account and what amount
was transferred to capital reserve account.
(3 marks)
(c) On 1st April, 2002, Broad Ltd. acquired 20 lakh fully paid
equity shares of Rs.10 each in Ways Ltd. for Rs.3.75 crore.
The balance sheets of two companies as on 31s1 March, 2003
are given below :
Liabilities (Rupees in Lakhs)
Broad Ltd. Ways Ltd.
Equity share capital of Rs.10 each,
fully paid 500 250
Securities premium 50
General reserve 60 140
Profit and loss account 230 75
Creditors 95 85
Proposed dividends 75 ---
1,010 550
Assets
Land and buildings 90 80
Plant and machinery 210 135
Furniture and fixtures 100 25
Shares in Ways Ltd. 375
Stock 110 145
Debtors 75 85
Cash at bank 50 70
Preliminary expenses 10
1,010 550
Additional information is as under :
(i) The balances of general reserve and profit and
loss account on the date of acquisition of shares
by Broad Ltd. were Rs.100 lakh and Rs.15 lakh
respectively,
(ii) In July, 2002, Ways Ltd. distributed 10% dividend
for the year 2000-01. Broad Ltd. credited the entire
amount of dividend received to its profit and loss
account.
(iii) On 31st March, 2003, Ways Ltd. owed Rs.30 lakh to
Broad Ltd. for goods purchased from it, which sold
goods at cost plus 25%. Goods costing Rs.15 lakh to
Ways Ltd. were still lying unsold with Ways Ltd. on
31s1 March, 2003.
(iv) No part of preliminary expenses has been written off
during the year.
You are required to prepare the consolidated balance sheet
of Broad Ltd. and its subsidiary Ways Ltd. as on 31s ' March,
2003.
(9 marks)

4. (a) Discuss the various characteristics of a sound financial reporting


system.
(6 marks)
(b) As on 31 SI March, 2003, the following is the balance sheet
of Agile Industries Ltd. : (Rs. In 000s)

Liabilities Assets
Share capital: Fixed assets 97.50
14% Preference share Investments 18.00
capital of Rs. 100 22.50 Current
each Assets 15.00
Equity shares of Rs.10
Each 45.00
General reserve 27.00
15% Debentures 21.00
Current liabilities 15.00
130.50 130.50
Ankit Industries Ltd. agreed to takeover the assets and liabilities
of Agile Industries Ltd. on the following terms and conditions :
(i) Discharge of 15% debentures at a premium of 10%
by issuing 15% debentures in Ankit Industries Ltd.
Fixed assets 10% above the book value.
Investments at par value.
Current assets at a discount of 10%.
Current liabilities at book value.
(ii) Discharge the debentureholders of Agile
Industries Ltd. at 10% premium by issuing 15%
debentures of Ankit Industries Ltd.
Preference shareholders are discharged at a premium
of 10% by issuing 15% preference shares of Rs.100.
Issue 3 equity shares of Rs.10 each for every 2
equity shares in Ankit Industries Ltd. and pay
cash @ Rs. 3 per equity shares.
Calculate purchase consideration under 'net assets method';
and 'net payment method'.
(5 marks)
(c) The following information is extracted from the books of
Reliable Electricity Co. Ltd. for the year ended 31sl March,
2003 :
Rs.
Net profit before charging debenture interest 22,50,050
10% Debentures interest paid during the year 3,75,000
Capital base arrived at by the company 1,03,63,000
Reasonable return calculated by the company 13,56,150
You are required to indicate the disposal of surplus of the
company.
(4 marks)

PARTB
(Answer Question No.5 which is compulsory
and any two of the rest from this part.)

(a) "Ordering costs and carrying costs are equal at EOQ level."
Comment.
(4 marks)
(b) A factory is currently working at 50% of its working capacity
and produces 10,000 units. At 60% working capacity, the
raw materials cost increases by 2% and selling price falls by 2%.
At 80% working capacity, raw material cost increases by 5%
and selling price falls by 5%.
At 50% working capacity, the product costs Rs.180 per unit
and sold at Rs.200 per unit. The cost of Rs.180 is made up
as follows :
Rs.
Materials 100
Labour 30
Factory overhead (40% fixed) 30
Administration overhead (50% fixed) 20
180
You are required to estimate the profits of the factory when
it works at 60% and 80% of its working capacity.
(4 marks)
(c) State any four objectives of financial statement analysis.
(4 marks)
(d) State, with reasons, whether the following statements are
correct or incorrect :
(i) Notional costs and imputed costs mean the same thing.
(ii) Conversion costs and overheads are interchangeable terms.
(4 marks)
(e) Find out the profit as per financial records, from the following
data :
Rs.
(i) Profit as per cost records 70,500
(ii) Undervaluation of closing stock in
cost records 10,500
(iii) Administration overheads under-
recovered in cost records 5,200
(iv) Bad debts and preliminary expenses
written off in financial accounts only 7,345
(v) Depreciation overcharged in cost records 3,445
(4 marks)
6. (a) An analysis of Matrix Ltd. reveals the following information
:
Variable Cost Fixed Cost
(% of Sales) (Rs.)
Direct materials 32.8
Direct labour 28.4
Factory overheads 12.6 1,89,900
Distribution overheads 4.1 58,400
General administration overheads 1.1 66,700

Budgeted sales are Rs. 18,50,000.

You are required to determine

(i) Break-even sales value,

(ii) Profit at the budgeted sales value.


(iii) Profit, if actual sales
(a) drop by 10%; and
(b) increase by 5% from the budgeted sales.
(5 marks)
(b) Following is the profit and loss account of Tradeways Ltd.
for the year ended 31 St March, 2003 :
Particulars (Rs. in '000) Particulars (Rs. in '000)
To Opening stock 10,000 By Sales 1,00,000
To Purchases 55,000 By Closing stock 15,000
To Gross profits c/d 50,000
1,15,000 1,15,000

To Office and By Gross profit b/d 50,000


admn. expenses 18,000
To Selling expenses 12,000
To Net profit 20,000

50,000 50,000
Balance Sheet as on 31s ' March, 2003 (Rs. in '000)
Liabilities Assets
(Rs. capital of
Share Land and buildings 50,000
Rs. 10 each 1,00,000 Plant and machinery 30,000
Profit and loss a/c 20,000 Stock 15,000
Creditors 25,000 Sundry debtors 15,000
Bills payable 15,000 Bills receivable 12,500
Cash and bank
balances 37,500
1,60,000 1,60,000

You are required to calculate the following :


(i) Stock turnover ratio;

(iii) Current ratio;

(iv) Liquid ratio;

(v) Operating ratio; and

(vi) Proprietary ratio.


(5 marks)
(c) A transport service company is running four buses between
two towns that are 50 kms. apart. The seating capacity of
each bus is 48 passengers. The following particulars were
obtained from its records for the month of June, 2003 :
Rs.
Wages of drivers, conductors and cleaners 4,800
Salaries of office and supervisory staff 2,000
Diesel oil and other oils 8,000
Repairs and maintenance 1,600
Tax, insurance, etc. 3,200
Depreciation 5,200
Interest and other charges 4,000
Actual passengers carried were 75% of the seating
capacity. All the four buses ran on all the days of the
month. Each bus made one round trip per day.
Ascertain the cost per passenger per kilometer.
(5 marks)

7. (a) Distinguish between 'costing' and 'cost accounting'.


;
(2 marks)
(b) From the following data, calculate
(i) expenditure overhead variance;
(ii) volume overhead variance; and
(iii) efficiency overhead variance :

Standard Actual
Number of units 4,000 3,800
Fixed overhead (Rs.) 40,000 39,000
Working days 20 21
(3 marks)

(c) Swastik Oils Ltd. has furnished the following


information for the year ended 31s1 March, 2003 :
(Rs. in Lakhs)
Net profit 37,500.00
Dividend (including interim dividend paid) 12,000.00
Provision for income-tax . 7,500.00
Income-tax paid during the year 6,372.00
Loss on sale of assets (net) 60.00
Book value of assets sold 277.50
Depreciation charged to P&L account. 30,000.00
Profit on sale of investments 150.00
Value of investments sold 41,647.50
Interest income on investments 3,759.00
Interest expenses 15,000.00
Interest paid during the year 15,780.00
Increase in working capital (excluding cash and
bank balance) 84,112.50

Purchase of fixed assets 21,840.00


Investments in joint venture 5,775.00
Expenditure on construction work-in-progress 69,480.00
Proceeds from long-term borrow ings 3 8,97 0.00
Proceeds from short-term borrowings 30,862.50
Opening cash and bank balances 11,032.50
Closing cash and bank balances 2,569.50
You are required to prepare the cash flow statement in
accordance with AS-3 for the year ended 31s1 March, 2003.
(Make assumptions wherever necessary.)
(10 marks)

8 (a) What are the objectives of 'inflation accounting' ?


(3 marks)
(b) Enumerate the steps in the implementation of a responsibility
accounting system.
(5 marks)
(c) Design Pens Ltd., manufactures only pens where the
marginal cost of each pen is Rs.3. It has fixed costs of
Rs.25,000 per annum. Present production and sales of pens
is 50,000 units and selling price per pen is Rs.5. Any sale
beyond 50,000 pens is possible only if the company reduces
20% of its current selling price.
However, the reduced price applies only to the additional
units. The company wants a target profit of Rs.1,00,000.
How many pens the company must produce and sell if the
target profit is to be achieved '?
(7 marks)