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Tuesday, September 22, 2009

CA-PCC / IPCC - MODEL EXAM QUESTION PAPER

 
PAPER – 4 : COST ACCOUNTING AND FINANCIAL MANAGEMENT

All Question are compulsory.

Working notes should form part of the answer.

 

Question 1

 

a. Explain the concept of "ABC Analysis" as a technique of Inventory control.

b. Distinguish between Job costing and Batch costing

c. A Company manufactures radios, which are sold at Rs.1,600 p.u. The total cost is composed of 30% for direct material, 40% for direct wages and 30% for OH. An increase in material price by 30% and in wage rates by 10% is expected in the forthcoming year, as a result of which the profit at current selling price may decrease by 40% of the present profit p.u. You are required to prepare a statement showing current and future profit at present selling.

How much selling price should be increased to maintain the present rate of profit?

 

 

 (3+3+6=12 Marks)

Question 2

(a) Akash Ltd. Gives you the following information.

 

Emergency stock is 32000 units.

Usually it takes atleast 4 weeks to obtain fresh supply

A cushion of 75% is added to minimum usage rate to determine average stock usage rate.

Materials consignments have always been received within 8 weeks from the date of the purchase order.

EOQ 50,000 units.

 

Compute the stock levels. State your assumptions clearly.

 

( b )  The standard labour time required for the production of a certain component has been fixed as 4 hours.  An incentive scheme was introduced recently to raise labour productivity.  The relevant details of the scheme are ;

 

Efficiency                                            Incentive as a % of basic wages

 

Below 100%                                        No incentive

100%                                                   10%

Above 100%                                        1% additional incentive for every 1%

                                                            Increase in efficiency above 100%.

 Four workers A,B,C and D produced 16,12,14 and 10 units respectively in a particular week of 48 hours.  The basic wages of all the workers is Rs.15 p.h

Calculate the efficiency, incentive bonus, total earnings and labour cost p.u in respect of each of the above four workers.

 

(c ) If labour turnover under Flux Method, Replacement Method  and Separation Method are 10%, 5% and 3% respectively and the number of workers replaced is 30.

      find:

i. Number of workers recruited and joined

ii. Number of workers left and discharged.

 

(d ) In a factory department there are three machines to which the following expenses have been allocated : A- Rs.639: B-Rs.607 and C-Rs.951.

 

In addition there is an OH crane to bring materials to the machines as necessary.  The expenses allocated to this crane are Rs.570.

During the period of this expenditure, the machines were used as follows:

Particulars

Machine A (in Hrs.)

Machine B (in Hrs.)

Machine C (in Hrs.)

With use of crane

160

130

480

Without use of crane

428

577

--

Total

588

707

480

Calculate a machine rate for each machine, distinguishing between the hours in which the crane is used and those in which it is not.

 

                                                                                                             (4+4+3+4=15 marks)

Question 3

 

 (a) ABC Ltd. Manufactures a single product and absorbs the production OH at a predetermined rate of Rs.10 per machine hour.  At the end of a financial year, it has been found that actual production OH incurred were Rs.6,00,000.  It included Rs.45000 on account of 'written off' obsolete stores and Rs.30,000 being the wages paid for the strike period under an award.  The production and sales data for the year is as under:

 

Production: Finished goods-20,000Units; WIP (50% complete in all respects) – 8000 Units.  Sales: Finished goods-18000 Units.

 

The actual machine hours worked during the period were 48,000.  It has been found that 1/3 of the under absorption of production OH was due to lack of production planning and the rest was attributable to normal increase in costs.

 

1        Calculate the amount of under absorption of production OH during the year; and

2        Show the accounting treatment of under-absorption of  POH.

 

 

(b) Show the journal entries for the following transactions in the integrated books of accouts.                                                                                            Rs.

i. Credit purchase                                                245,000

ii. Materials issued to production               325,000

iii.            Wages paid to workers                         139,612

iv.            Finished goods transferred from production 629,775

v.            Administrative OH allocable to production        78,900

vi.            Works expenses outstanding                 225,000

vii.           Good sold during the month                  765,000

.

 

(c ) Explain the methods of costing.

(6+5+4=15 marks)

 

Question 4

 

i). A contractor undertook a building contract on 1.1.2004.  Data relating to the contract for the year ended 31.3.2005 are as under:

Rs. lacs

As on 1.4.2004

            Work not certified                                                        10

            Materials at site                                                            2

1.4.2004 to 31.3.2005

            Materials issued                                                            60

            Wages paid                                                                  36

            Materials returned                                                         5

            Work certified                                                  165

            Plant hire                                                                      7

            Direct expenses                                                            9

            Plant issued on 1.4.2004                                               50

            Payment received                                                         150

As on 31.3.2005

            Materials at site                                                            5

            Work not certified                                                        16

The plant is expected to have a scrap value of Rs.10 lacs at the end of its life of 10 years.  The contract price is Rs.200 lacs.

Required:

1        Prepare contract account for the year ended 31st march, 2005.

2        Show the calculation of profit to be taken to profit and loss accounts.  &                 Show the relevant balance sheet entries as at 31st march, 2005.

(ii) The company sales its product at Rs.60 p.u. ; Margin of Safety 40% Fixed Cost Rs.36,000; VC ratio to sale 80%.  It is estimated that VC will go up by 10% and FC will go up by 5%.

Find the Selling Price required to fix in 2005 to earn P/V ratio in 2004.  Assume the Selling Price of Rs.60p.u in 2005.  Find out number of units required to be produced & sold to earn a same profit in 2004.

(iii) From the following particulars, compute sales variances.

Product

Budgeted

Actual

A

500 units at Rs.6

600 units at Rs.4

B

800 units at Rs.5

750 units at Rs.8

 (4+3+2=9 marks)

 

Question 5

Answer any three of the following:

(i)                What is Modified Internal Rate of Return?

(ii)              Explain the types of ADRs.

(iii)            Differentiate between Deep Discount Bonds and Zero Coupon Bonds.

(iv)              Discuss the major considerations in capital structure planning

(3*3=9 marks)

Question 6

a. Following particulars relating to Benford Ltd, you are required to: (a) compute Turnover ratios for each component of working capital and (b) Determine the Operating cycle.(year = 360 days)

                                                                              

( Rs. in'000)                                                                

 

PARTICULARS

 

YEAR 1

 

YEAR 2

 Stock of Raw Materials

18

22

Stock of finished goods

20

23

Purchases

90

100

Cost of goods sold

160

175

Sales

150

190

Debtors

28

45

Creditors

15

18

 

b.

Particulars

JJ Ltd

KD Ltd

Equity share capital of Rs.10/- each

16,00,000

6,00,000

12% Debentures

1,00,000

11,00,000

Net Capital employed

17,00,000

17,00,000

Return on investment

30%

30%

Tax Rate

35%

35%

 

 

 

 

 

 

 

Find out which company is the best one.

 

c. Calculate the operating leverage, financial leverage and combined leverage from the following data under situations I and II and Financial Plan A and B:

   Installed capacity                                               4,000 units

  Actual Production and sales                               75% of the capacity

  Selling Price                                                       Rs.30 per unit

 Variable cost                                                       Rs.15 per unit

Fixed cost:

       ---- Under situation I                                                Rs. 15,000

       ---- Under situation II                                               Rs. 20,000

                                                                                                   Financial Plan   

                                                                                      A                                      B

                                                                                    Rs.                                     Rs.

Equity                                                                    10,000                                 15,000

Debt (Rate of Interest at 20%)                              10,000                                   5,000

                                                                              20,000                                 20,000

 

(3+3+4=10 marks)

Question 7

 

a. Find

Earnings per share                                     80

Dividend payout ratio                                 35%                                   

Expected growth on dividend                     3% 

Face Value per share                            Rs.100

 

Market price                                           290

Cost of equity                                          ?

b. Calculate the level of Earnings Before Interest and Tax (EBIT) at which the EPS

indifference point between the following financing alternatives will occur.

 

            (a) Equity share capital of Rs.6,00,000 and 12% debenture of Rs.4,00,000

                                                            or

(b) Equity share capital of Rs.4,00,000, 14% preference share capital of  Rs.200,000 and 12% debenture of Rs.400,000.

 

Assume the corporate tax rate is 35% and par value of equity share is Rs.10 in each case.

 

(2+5=7 marks)

Question 8

 

(a) Initial investment                                                           = 490,000

    Salvage value                                                                =  nil

    Life                                                                              = 7 years

    CFAT p.a.    

                     Year 1                                                         =   88,000

                     Year 2                                                         = 1,25,000

                     Year 3                                                         =  1,89,000

                     Year 4                                                         = 2,43,000

                     Year 5                                                         = 1,20,500

                     Year 6                                                         = 95,000

                      Year 7                                                        = 75000                  

Calculate Average rate of return

.

(b) The cash flow of two mutually exclusive projects are as under:-

 

Year

Project X

Project Y

0

(40,000)

(20,000)

1

13,000

7,000

2

8,000

13,000

3

14,000

12,000

4

12,000

-

5

11,000

-

6

15,000

-

 

·            Estimate the net present value (NPV) of the projects X & J using 15% as the hurdle rate.

·            Estimate the IRR of the projects.

·            Why is there a conflict in the project choice by using NPV and IRR criteria?

·            Make a Project choice.

 

PV factors are as under

Discount rate

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

15%

1

0.8696

0.7561

0.6575

0.5718

0.4972

0.4323

18%

1

0.8475

0.7182

0.6086

0.5158

0.4371

0.3904

20%

1

0.8333

0.6944

0.5787

0.4823

0.4019

0.3349

24%

1

0.8065

0.6504

0.5245

0.4230

0.3411

0.2751

26%

1

0.7937

0.6299

0.4999

0.3968

0.3149

0.2499

(5+9 = 14)

 

Question 9

a.        You are given the following figures relating to M/s Well Ltd. for the year ended 31.12.2004:

            Current  ratio                                                                2.5

            Liquidity ratio                                                               1.5

            Net working capital                                                      Rs.300,000

            Stock turnover ratio (cost of sales/closing stock)           6 times

            Gross profit ratio                                                          20%

            Average debt collection period                          2 months

            Fixed assets/shareholders net worth                              0.80

            Reserves and surplus/capital                                          0.50

You are required to draw up the balance sheet of the company as on 31.12.2004 based on the above information

b. What is capital rationing? Describe various ways of implementing it.

                                                                                                                        (6+3=9 marks)

= = = = **** = = = =

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