Company Accounts and Cost & Management Accounting

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222
Roll No..........................

Time allowed : 3 hours Maximum marks : 100

Total number of questions : 8 Total number of printed pages : 9

NOTE : All working notes should be shown distinctly.

PART—A
(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 :
(i) The Accounting Standards are formulated by the Institute of Chartered
Accountants of India.
(ii) In case the minimum subscription is not received, the company must return
the amount so realised within 120 days from the date of issue of prospectus.
(iii) In internal reconstruction, the share capital is refunded to the shareholders.
(iv) In the event of amalgamation of companies, the existence of the amalgamating
companies continue.
(v) In firm underwriting, the underwriter has a right to get the shares allotted
to it as per underwriting agreement, even if the issue has been oversubscribed.
(2 marks each)
(b) Choose the most appropriate answer from the given options in respect of the
following :
(i) Called-up capital of company is ––
(a) Amount stated in the memorandum of association
(b) Amount of shares issued to public for subscription
(c) Amount of shares issued otherwise than cash
(d) Portion of subscribed capital which the applicants are required to pay on
subscription.
(ii) Preference shares are those ––
(a) Which have preference in voting right
(b) Can claim the dividend even if there is loss in the company
(c) Entitled to receive the dividend at a fixed rate prior to equity shares
(d) Entitled to receive the arrears of dividend in the absence of any provision
in articles of association.

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(iii) Issue of shares can be done at a discount by the public company if ––

(a) At least one year has elapsed since the date of its incorporation
(b) At least one year has elapsed since the date of commencement of its
business
(c) It is by a new company
(d) New class of shares are issued by old company.
(iv) Debentures of a company are also considered as ––
(a) A loan capital of a company on interest
(b) Short-term borrowings
(c) Non-refundable deposits
(d) Amount refundable at the time of winding-up.
(v) Profit prior to incorporation is ––
(a) Capital profit
(b) Distributable profit amount to shareholders
(c) To be credited to profit and loss account
(d) Amount payable to vendor.
(1 mark each)
(c) Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s) :
(i) The subscription list for public issue should not be kept open for more than
_____ days.
(ii) The accounts of a company shall be presented in general meeting at the end
of every financial year but not exceeding fifteen months, which may be extended
to _____ months with special permission of the Registrar of Companies.
(iii) After nationalisation of Life Insurance Corporation of India, the policy holders
get ________ percentage of the profit of LIC by way of bonus.
(iv) In case of marine insurance ________ of net profit is to be kept as reserve for
unexpired risk.
(v) No banking company can pay directly or indirectly commission, brokerage,
discount or remuneration in any form on issue of shares in excess of _______
of the paid-up value of shares.
(1 mark each)

2. (a) On 1st January, 2008, Manish Ltd. had outstanding in its books 1,000, 12% debentures
of Rs.500 each. In accordance with the agreement, the directors purchased debentures
in the open market for immediate cancellation as follows :
1st March, 2008 : Rs.50,000 at Rs.490 (cum-interest)

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1st August, 2008 : Rs.1,00,000 at Rs.501.25 (cum-interest)
15th December, 2008 : Rs.25,000 at Rs.492.50 (ex-interest)
Debentures interest is payable on 30th June and 31st December each year. Pass
necessary journal entries for the above transaction.
(6 marks)
(b) What are the basic features of ‘accounting software’ ?
(3 marks)
st
(c) Laxmi Udyog Ltd., incorporated on 1 May, 2008, received certificate to commence
business on 31st May, 2008. They had acquired the business from Mittal & Co.
with effect from 1st January, 2008. The purchase consideration was Rs.15,00,000
of which Rs.3,00,000 was to be paid in cash and Rs.12,00,000 in the form of fully
paid-up shares. The company also issued shares for Rs.12,00,000 for cash. Machinery
costing Rs.7,50,000 was then installed. Assets acquired from Mittal & Co. were
–– Machinery : Rs.9,00,000; Stock : Rs.1,80,000; and Patents : Rs.1,20,000. During
the year 2008, the total sales were Rs.54,00,000. The sales per month in the first
half-year were one-half of what they were in the later half-year. The net profit
of the company after charging the following expenses was Rs.3,00,000. Depreciation :
Rs.1,62,000; Audit fees : Rs.22,500; Directors’ fees : Rs.75,000; Preliminary expenses :
Rs.18,000; Office expenses : Rs.1,17,000; Selling expenses : Rs.1,08,000; and Interest
to vendor upto 31st May, 2008 : Rs.7,500.
Ascertain the pre-incorporation and post-incorporation amount of profit.
(6 marks)

3. (a) What are the desirable conditions for internal re-construction ?

(3 marks)
(b) Under section 209(6) of the Companies Act, 1956, who are the persons responsible
for keeping the books of account of the company ?
(3 marks)
(c) The following particulars are available of Sorabji Ltd. :

(i) Capital : 45,000, 6% preference shares of Rs.100 each fully paid-up; and
45,000 equity shares of Rs.10 each fully paid-up.

(ii) External liabilities : Rs.7,50,000.

(iii) Reserves and surplus : Rs.3,50,000.

(iv) Annual average profit after tax : Rs.8,50,500.

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(v) The normal profit earned on the market value of equity shares, fully paid, on
the same type of company is 9%.
(vi) Company transfers every year Rs.1,00,000 to reserves.
Calculate the fair value of shares assuming that out of the total assets, assets
worth Rs.35,000 are fictitious.
(9 marks)

4. (a) What are ‘bonus shares’ ? In what circumstances, bonus shares can be issued ?
(3 marks)
(b) What is the role of ‘merchant bankers’ in the capital market ?
(3 marks)
(c) From the following balance sheets, prepare a consolidated balance sheet of Ram
Ltd., and its subsidiary Shyam Ltd. Shares were acquired on 1st October, 2007 :
Balance Sheets as on 31st March, 2008
Ram Ltd. Shyam Ltd.
Liabilities (Rs.) (Rs.)
Share capital 30,00,000 6,00,000
General reserves 4,00,000 ––
Profit and loss account 6,00,000 2,10,000
Sundry creditors 5,00,000 1,90,000

45,00,000 10,00,000

Assets
Land and building 24,00,000 4,00,000
Plant and machinery 4,00,000 4,00,000
Current assets 11,60,000 2,00,000
Investments (5,400 shares of Rs.100
each in Shyam Ltd.) 5,40,000 ––

45,00,000 10,00,000

The profit and loss account of Shyam Ltd. has a credit balance of Rs.90,000 on
1st April, 2007.
(9 marks)

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

5. (a) State, with reasons in brief, whether the following statements are true or false :
(i) Time and motion study determines the time spent on each job by an efficient
worker.
(ii) Per unit cost remains constant in variable overheads.
(iii) Abnormal loss or profit does not affect the cost of production in process costing.
(iv) The formula for operating profit ratio is ––
Operating profit × 100
Net profit
(v) The decision for minimum stock level is based on economic order quality.
(2 marks each)
(b) Choose the most appropriate answer from the given options in respect of the
following :
(i) Cost accounting is part of ––
(a) Financial accounting
(b) Responsibility accounting
(c) Inflation accounting
(d) Management accounting.
(ii) Batch costing is a part of ––
(a) Process costing
(b) Operating costing
(c) Marginal costing
(d) Specific costing.
(iii) The standard price of material is based on ––
(a) First-in-first-out method
(b) Average price method
(c) Notional price method
(d) Last-in-first-out method.
(iv) If a worker saves the time more than 50% of standard time, he earns more
bonus ––
(a) Under Halsey plan
(b) Under Rowan plan
(c) Taylor’s differential piece rate plan
(d) Emerson’s efficiency plan.

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(v) In unit costing, amount realised from the sale of scrap during production is
deducted from —
(a) Prime cost
(b) Works cost
(c) Cost of production
(d) Selling cost.
(1 mark each)
(c) Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s) :
(i) The difference between the selling price and variable cost is known as ________
in marginal costing.
(ii) The cost incurred to keep the worker satisfied and to discourage from leaving
the job is known as _______ cost.
(iii) A budget which is related to specific activities of business, such as production,
sales, etc., is known as ________ budget.
(iv) Cost accounting and financial accounting both are not similar but they are
________ to each other.
(v) The allotment of proportion of items/expenses to the cost centre or cost unit
is called as _________ items/expenses.
(1 mark each)

6. (a) The following cost information relate to a production department of Solar Ltd. for
a particular period for an output of 4,000 units :
Rs.
Direct material 36,000
Direct wages 48,000
Direct expenses 6,000
Selling overheads (50% fixed and 50% variable) 3,200
Works overheads (60% variable and 40% fixed) 12,000
Administration overheads (100% fixed) 8,800
Distribution overheads (50% fixed and 50% variable) 1,600
It has estimated to manufacture 10,000 units next year. An increase of 10% in
material price and 5% in wages rate is expected next year, otherwise no change
is anticipated. Profits desired on sales is 20% on selling price. Find out the total
cost of production and estimated selling price per unit.
(6 marks)
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(b) The following are the ratios extracted from the balance sheet of a company as on
31st March, 2008 :
Current ratio 2.50
Liquidity ratio 1.50
Stock turnover ratio (based on cost of goods sold) 6
Fixed assets turnover (based on sales) 2
Gross profit as percentage of sales 20%
Debt collection period 2 months
Working capital Rs.3,00,000
Shareholders capital Rs.5,00,000
Reserves and surplus Rs.2,50,000

Draw up the balance sheet of the company.

(9 marks)

7 (a) The following particulars of Soni & Co. relate to the year ending 31st March, 2008
for 30 workers :
Rs.
Basic wages 50,000
Dearness allowance 25,000
Night shift allowance 9,600
Overtime allowance 7,000
PF deposit 12,000
ESI contribution 2,808
Recovery towards house rent 10,200
Recoveries against supply of goods 16,000
Expenditure for employees’ amenities 4,730
PF is paid in equal share by the employer and employee. Contribution to ESI is
in proportion of 7:5 by the employer and employee respectively. The workers are
entitled to 5% of the total days worked as leave on full pay. The number of days
worked in a year are 300. Normal idle time is 5%. Assuming that all the items
are evenly spread over all the days in a year, find out total wages, total cash
payment to workers and per hour per labour wages. The daily working hours
are 8.
(6 marks)
(b) Fleet Company has a maximum capacity of 2,20,000 units per year. Normal
capacity is regarded as 1,80,000 units per year. Variable manufacturing costs are
Rs.11 per unit. Fixed factory overheads are Rs.5,40,000 per year. Variable selling

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costs are Rs.3 per unit, while fixed selling costs are Rs.2,52,000 per year. Sale
price is Rs.20 per unit.
(i) What is the break-even point expressed in rupee sale ?
(ii) Calculate the number of sales units required to earn a target net profit of
Rs.42,000 after income-tax, assuming income-tax rate to be 30%.
(iii) How many units must be sold to earn a net income of 10% of sales ?
(6 marks)
(c) “Master budget is a summary budget in which all functional budgets are summed
up.” Elucidate the statement.
(3 marks)

8. (a) Manohar Ltd. has the following balances as on 1st January, 2008 :
Rs.
Fixed assets Rs.12,00,000
Less : Depreciation Rs. 4,20,000 7,80,000
Bank balances 70,000
Current assets (except bank balances) 5,00,000
Current liabilities 2,00,000
Capital (shares of Rs.100 each) 6,00,000

The company made the following estimates for 2008 :

(i) The profit would be Rs.1,10,000 after depreciation of Rs.1,20,000.

(ii) The company will acquire fixed assets costing Rs.2,00,000 after selling one
machine for Rs.40,000, costing Rs.1,00,000 on which depreciation provided
amounted to Rs.70,000.

(iii) Current assets and current liabilities other than bank balance at the end of
the year 2008 are expected to be Rs.5,90,000 and Rs.2,60,000 respectively.

The company will pay dividend (tax-free) of 10%. The rates of tax being 25%.

Ascertain the bank balance/overdraft of Manohar Ltd. at the end of the year 2008.
(6 marks)

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(b) Delight Ltd. undertook a contract for Rs.2,50,000 on 1st April, 2008. On
31st March, 2009 when the accounts were closed the following details about the
contract were gathered :
Rs.
Material purchased 50,000
General expenses 5,000
st
Material in hand (as on 31 March, 2009) 12,500
Work certified 1,00,000
Cash received 75,000
Wages paid 22,500
Plant purchased 25,000
st
Wages outstanding (as on 31 March, 2009) 2,500
Work uncertified 7,500
Depreciation on plant 2,500

The contract contained escalation clause which is as follows :

“In the event of price of material and rates of wages increase by more than 5%,
then the contract price would be increased accordingly by 25% of the rise in the
cost of material and wages beyond 5% in each case.” It was found that since the
date of signing the agreement, the price of material and wages rates increased by
25%. The effect of above clause was not considered at the time of valuing the
work certified. Prepare the contract account after considering the above escalation
clause.
(6 marks)
(c) What are the limitations of ‘responsibility accounting’ ?
(3 marks)

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