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Paper-3 2
Paper-3 2
Paper-3 2
IPCC Gr. I
Paper 3
Cost Accounting and Financial Management
Part I (Cost)
Question No.1 is compulsory.
Answer any five questions from remaining six questions.
1. (a) X executes a piece of work in 120 hours as against 150 hours allowed to him. His
hourly rate is ` 10 and he gets a dearness allowance @ ` 30 per day of 8 hours worked in
addition to his wages. You are required to calculate total wages received by X under the
following incentive schemes :
(i) Rowan Premium Plan, and
(ii) Emerson’s Efficiency Plan (5 marks)
Hint: Rowan Plan : ` 1,890
: Emerson’s Plan : ` 2,190
(b) A machine costing ` 10 lacs was purchased on 142011. The expected life of the
machine is 10 years. At the end of this period its scrap value is likely to be ` 10,000.
The total cost of all the machines including new one was ` 90 lacs.
The other information is given as follows:
(i) Working hours of the machine for the year was 4,200 including 200 non
productive hours.
(ii) Repairs and maintenance for the new machine during the year was ` 5,000.
(iii) Insurance Premium was paid for all the machine ` 9,000.
(iv) New machine consumes 8 units of electricity per hour, the rate per unit being
` 3.75.
(v) The new machine occupies area of the department. Rent of the department is
` 2,400 per month.
(vi) Depreciation is charged on straight line basis.
Compute machine hour rate for the new machine. (5 marks)
Hint: ` 56.97
(c) Diagrammatically present the DU PONT CHART to calculate return on equity. (5
marks)
(d) JKL Limited has the following Balance Sheets as on March 31, 2006 and March
31, 2005:
Balance Sheet
` in Lakhs
March 31, 2005 March 31, 2006
Source of Funds
Shareholders Funds 2,377 1,472
Loan Funds 3,570 3,083
5,947 4,555
Applications of Funds
Fixed Assets 3,466 2,900
Cash and bank 489 470
Debtors 1,495 1,168
Stock 2,867 2,407
Other Current Assets 1,567 1,404
Less: Current Liabilities (3,937)
(3,794)
5,947 4,555
The Income Statement of the JKL Ltd. for the year ended is as follows :
` in Lakhs
March 31, 2006 March 31, 2005
Sales 22,165 13,882
Less: Cost of Goods sold 20,860
12,544
Gross Profit 1,305 1,338
Less: Selling, General and
Administrative expenses 1,135
752
Earning before Interest and Tax (EBIT) 170 586
Interest Expenses 113
105
Profits before Tax 57 481
Tax 23
192
Profits after Tax (PAT) 34 289
Required :
(i) Calculate for the year 200506 :
(a) Inventory turnover ratio
(b) Financial Leverage
(c) Return on Investment (ROI)
(d) Return on Equity (ROE)
(e) Average Collection period.
(ii) Give a brief comment on the Financial Position of JKL Limited.
(5 marks)
Hint: (a) 7.910
(b) 2.98, 1.22
(c) 0.65%
(d) 1.77%
(e) 22 days.
2. (a) Journalise the following transactions assuming cost and financial accounts are
integrated:
`
(i) Materials issued:
Direct 3,25,000
Indirect 1,15,000
(ii) Allocation of wages (25% indirect) 6,50,000
(iii) Under/Over absorbed overheads:
Factory (Over) 2,50,000
Administration (Under) 1,75,000
(iv) Payment to Sundry Creditors 1,50,000
(v) Collection from Sundry Debtors 2,00,000
(8 marks)
(ix) Value of closing stock :
In Cost Accounts 1,25,500
In Financial Accounts 1,32,000
(x) Goodwill writtenoff in Financial Accounts 25,000
(xi) Notional rent of own premises charged in Cost Accounts 60,000
(xii) Provision for doubtful debts in Financial Accounts 15,000
Prepare a reconciliation statement by taking costing net loss as base.
(8 marks)
(b) ABC Ltd. wishes to raise additional finance of ` 20 lakhs for meeting its investment
plans. The company has ` 4,00,000 in the form of retained earnings available for
investment purposes. The following are the further details :
∙ Debt equity ratio 25 : 75.
∙ Cost of debt at the rate of 10 per cent (before tax) upto ` 2,00,000 and 13%
(before tax) beyond that.
∙ Earning per share, ` 12.
∙ Dividend payout 50% of earnings.
∙ Expected growth rate in dividend 10%.
∙ Current market price per share, ` 60.
∙ Company’s tax rate is 30% and shareholder’s personal tax rate is 20%.
Required :
(i) Calculate the post tax average cost of additional debt.
(ii) Calculate the cost of retained earnings and cost of equity.
(iii) Calculate the overall weighted average (after tax) cost of additional finance.
(2 + 3 +3 = 8 marks)
Hint: (i) 8.26% (ii) 21% (iii) 17.82%
5. (a) M/s ABID Constructions undertook a contract at a price of ` 171.00 lacs. The
relevant data for the year ended 31 st March, 2014 are as under :
(` ‘000)
Material issued at site 7,700
Direct Wages paid 3,300
Site office cost 550
Material return to store 175
Work certified 12,650
Work uncertified 225
Progress Payment Received 10,120
Prepaid site office cost as on 50
31.03.2014
Direct wages outstanding as on 100
31.03.2014
Material at site as on 31.03.2014 110
Additional Information:
(a) A plant was purchased for the contract at ` 8,00,000 on 01.12.2013.
(b) Depreciation @ 15% per annum is to be charged.
(c) Material which cost ` 1,30,000 was destroyed by fire.
Prepare :
(i) Contract Account for the year ended 31 st March, 2014 and compute the profit
to be taken to the Profit & Loss Account.
(ii) Account of Contractee.
(iii) Profit & Loss Account showing the relevant items.
(iv) Balance Sheet showing the relevant items. (8 marks)
Hint: Net Profit : ` 750
(b) Discuss basic assumptions of Cost Volume Profit analysis.
(4 marks)
(c) Explain and illustrate cash break even chart. (4 marks)
6. (a) The following information relates to a bus operator:
Cost of the bus ` 18,00,000
Insurance charges 3% p.a.
Managercum accountant’s salary ` 8,000 p.m.
Annual Tax ` 50,000
Garage Rent ` 2,500 p.m.
Annual repair & maintenance ` 1,50,000
Expected life of the bus 15 years
Scrap value at the end of 15 years ` 1,20,000
Driver’s salary ` 15,000 p.m.
Conductor’s salary ` 12,000 p.m.
Stationery ` 500 p.m.
Engine oil, lubricants (for 1200 kms.) ` 2,500
Diesel and oil (for 10 kms.) ` 52
Commission to driver and conductor (shared equally)10% of
collections
Route distance 20 km long
The bus will make 3 round trips for carrying on the average 40 passengers in each
trip. Assume 15% profit on collections. The bus will work on the average 25 days
in a month.
Calculate fare for passengerkm. (8 marks)
Hint: Fare/Passenger : ` 1.00
(b) ABC Limited manufactures a product 'ZX' by using the process namely RT. For
the month of May, 2007, the following datas are available :
Process RT
Material introduced (units) 16,000
Transfer to next process (units) 14,400
Work in process:
At the beginning of the month (units) 4,000
(4/5 completed)
At the end of the month (units) 3,000
(2/3 completed)
Cost records:
Work in process at the beginning of the month
Material ` 30,000
Conversion cost ` 29,200
Cost during the month : materials ` 1,20,000
Conversion cost ` 1,60,800
Normal spoiled units are 10% of goods finished output transferred to next process.
Defects in these units are identified in their finished state. Material for the
product is put in the process at the beginning of the cycle of operation, whereas
labour and other indirect cost flow evenly over the year. It has no realisable value
for spoiled units.
Required :
(i) Statement of equivalent production (Average cost method);
(ii) Statement of cost and distribution of cost;
(iii) Process accounts. (2+5+1 = 8 marks)
Hint: Closing WIP : ` 42,500
7. Write Short Note on any four:
(a) Essential factors for installing a Cost Accounting system.
(4 marks)
(b) Write a short note on Deep Discount Bonds. (4 marks)