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Tuesday, May 27, 2008

Accounting Standard 3

AS - 3

CASH FLOW STATEMENTS

n Cash flow statement is additional information to user of financial statement

n This statement exhibits the flow of incoming and outgoing cash

n This statement assesses the ability of the enterprise to generate cash and cash equivalents

n It also assesses the needs of the enterprise to utilise the cash and cash equivalents generated

n It also assesses the liquidity and solvency of the enterprise.

n This standard applies to the enterprises:

q Having turnover more than Rs. 50 Crores in a financial year;

q Listed companies;

n Cash flow statement of listed companies shall be presented only under the indirect method as prescribed in AS 3

n CASH comprises cash on hand and demand deposits with banks.

n CASH EQUIVALENTS are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

n CASH FLOWS are inflows and outflows of cash and cash equivalents.

n Cash Equivalents

q Held for meeting short term commitments

q It is readily convertible into known amounts of cash

q It has a very insignificant risk

q Short maturity (say 3 months maximum)

n Cash flows exclude

q Movements between cash and cash equivalents

n The cash flow statement should report cash flows during the period classified by

q Operating,

q Investing and

q Financing activities.

OPERATING ACTIVITIES

n These are principal revenue producing activities of the enterprise.

n Examples:

q Cash receipts from sale of goods / rendering services;

q Cash receipts from royalties, fees, commissions and other revenue;

q Cash payments to suppliers of goods and service;

q Cash payments to and on behalf of employees.

INVESTMENT ACTIVITIES

n The activities of acquisition and disposal of long term assets and other investments not included in cash equivalent are investing activities.

n It includes making and collecting loans, acquiring and disposal of debt and equity instruments, property and fixed assets etc.

n Examples of cash flows arising from investing activities are as follows:

q Cash payments to acquire fixed assets

q Cash receipts from disposal of fixed assets

q Cash payments to acquire shares, warrants or debt instruments of other enterprises and interest in joint ventures

q Cash receipt from disposal of above investments

FINANCING ACTIVITIES

n Those activities that result in changes in size and composition of owner's capital and borrowing of the organization.

n It includes receipts from issuing shares, debentures, bonds, borrowing and payment of borrowed amount, loan etc.

q Sale of share

q Buy back of shares

q Redemption of preference shares

q Issue / redemption of debentures

q Long term loan / payment thereof

q Dividend / interest paid

q DIRECT METHOD:

n In this method, gross receipts and gross payments of cash are disclosed

q INDIRECT METHOD:

n In this method, profit and loss account is adjusted for the effects of transaction of non-cash nature.

n Interest Received

q Received from investment – it is in investment activities

q Received from short term investment classified, as cash equivalents should be considered as cash inflows from operating activities.

q Received on trade advances and operating receivables should be in operating activities

n Interest Paid

q On loans / debts are in financing activities

q On working capital loan and any other loan taken to finance operating activities are in operating activities

n Cash flow from interest should be separately disclosed.

n Dividend Received

q For financial enterprises – in operating activities

q For other than financial enterprises – in investing activities

n Dividend Paid

q Always classified as financing activities

n Cash flow from dividend should be separately disclosed

n The effect of change in exchange rate in cash and cash equivalents held in foreign currency should be reported as separate part of the reconciliation of cash and cash equivalents.

n Unrealized gain and losses arising from changes in foreign exchanges rates are not cash flows

n The cash flows associated with extraordinary items should be classified as arising from:

n Operating

n Investing or

n Financing activities

as appropriate and separately disclosed.

Investments in subsidiaries, associates and joint ventures

n Only the cash flow between itself and the investee is required to be reported

n Example:

q Cash flow relating to dividends and advances

Acquisitions and disposals of subsidiaries and other business units

n Cash flow on acquisition and disposal of subsidiaries and other business units should be :

q Presented separately

q Classified as investing activities

q Total purchase and disposal should be disclosed separately

q The position of the purchase / disposal consideration discharged by means of cash and cash equivalents should be disclosed

Non-cash transactions

n These should be excluded from the cash flow statement

n These transactions should be disclosed in the financial statements.

n Examples

q Acquisition of assets by assuming directly related liabilities

q Acquisition of an enterprise by means of issue of equity shares

q Conversion of debt to equity

Disclosures of cash and cash equivalents

n The components of cash and cash equivalents should be disclosed

n Reconciliation of the amount in the cash flow statement with the equivalent items reported in the balance sheet

n The amount of cash and cash equivalent balance held by the enterprises that are not available for use (with explanation by management)

Friday, May 23, 2008

CA CLASSES

            CLASSES FOR CA - PCC EXAMINATION

SUBJECT

FACULTY

Costing & Fin.Mgt.

CA K.Hariharan ACA

Advanced Accounting

CMA. Mohd.Rafi AICWA

Class Venue

 

 

 

 

PROFESSIONAL STUDY CENTRE

2nd Floor
(Next to Aptech Computer Centre)

66, Cathedral Road

Gopalapuram, Chennai - 86

Registration at

 

 (Pre registration is must)

 

 

CA K.HARIHARAN

10/7, 2nd Floor, Rainbow Apartments

Norton 1st Street

Mandaveli, Chennai - 600 028

Ph: 98416 61405     98409 41653

FEATURES

    a Individual Attention

    aFree Materials

    aModel Exam

    aTeaching from Basics

    aAssignment Work

 

 

Thursday, May 22, 2008

CA PCC-COSTING & FM-MODEL QUESTION PAPER

PAPER – 4 : COST ACCOUNTING AND FINANCIAL MANAGEMENT

All Question are compulsory.

Working notes should form part of the answer.

 

Question 1

 

Answer any five of the following:

 

                                             i.      Explain Opportunity cost

                                           ii.      Escalation clause

                                          iii.      Equivalent units

                                         iv.      Idle capacity

                                           v.      Disposition of variance

                                         vi.      Blanket overhead rate.

(5*2=10 Marks)

Question 2

 

(a) Gowri Ltd has two production departments P-1 and P-2 and two service dept. S-1 and

     S-2.  The data relating to a period are as under:-

      

Particulars

P-1

P-2

S-1

S-2

Direct materials

80,000

40,000

10,000

20,000

Direct wages

95,000

50,000

20,000

10,000

OH

80,000

50,000

30,000

20,000

Power required at normal capacity operations (kwh)

20,000

25,000

12,500

17,500

Actual power consumption during the period (kwh)

13,000

23,000

10,250

10,000

A power generation plant meets the power requirement of these departments.  The said plant incurred an expenditure, which is not included above of Rs.1,21,875 out of which a sum of Rs.84,375 was variable and the rest fixed.

 

After apportionment of power generation plant costs to the four dept. the service dept. OH are to be redistributed on the following basis:

Dept.

P-1

P-2

S-1

S-2

S-1

50%

40%

--

10%

S-2

60%

20%

20%

--

 

You are required to:

·        Apportion the power generation plant costs to the four dept.

·        Re-apportion service dept. costs to production dept.

Calculate the OH rates per direct labour hour of production dept. given that the direct wage rates of P1 and P2 are Rs.5 and Rs.4 per hour respectively

 

(b)         If the minimum stock level and average stock level of raw-material 'X' are 4000 and 9000 units respectively, find out its re-order quantity

                                                                                                                  (12+3=15 marks)

Question 3

 

(a)     Shree Mithai Pvt. Ltd gives following information

·        Annual requirement of sugar for making sweets 50 tons 

·        Cost of purchase order  Rs.10

·        Stock holding cost Re.1 per container per annum.

Supplier of sugar offer quantity discounts as laid out below –

No. of tons

1-9

10-49

50-99

100 & above

Discount per unit ( Rs.)

Nil

0.50

1.00

1.20

Compute EOQ in the above situation

 

(b) TP ltd. manufactures product A, which yields 2 by products B and C.  The actual joint expenses of manufacture for a period were Rs.8,000.  It was estimated that the profit on each products as a % of sales would 30%, 25% and 15%. Subsequently expenses were incurred as under:

Particulars

A (Rs.)

B   (Rs.)

C    (Rs.)

Materials

100

75

25

Wages

200

125

50

OH

150

125

75

                Total

450

325

150

Sales

6,000

4,000

2,500

Prepare a statement showing the apportionment of the joint expenses of manufacture over the different products.  Also presume that selling expenses are apportioned over the products as a % to sales.

(8+8=16 marks)

 

Question 4

 

Answer any three of the following:

(i)      Pre requisite for installing cost accounting system

(ii)    Explain the assumptions under BEP

(iii)   Define labour turnover

(iv)   Short notes Non integrated accounting system

  (3*3=9 marks)

 

Question 5

Answer any five of the following:

(i)                   Explain Commercial paper

(ii)                 Short notes on  Bridge finance

(iii)                Short notes on Deep Discount Bonds.

(iv)               Short notes on packing credit facility

(v)     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                                           ?

(vi)Aaha Ltd & Ooho Ltd having the same sales and variable cost of Rs.1,50,000 and Rs.60,000 respectively. Fixed cost of Aaha Ltd is Rs36,000 and for Ooho Ltd is Rs.63,000. Find DOL

 

(5*2=10 marks)

 Question 6

 

On 1st January, the Managing Director of A Ltd. Wishes to know the amount of working capital that will; be required during the year. From the following information prepare the working capital requirements forecast.

 

Production during the previous year was 60,000 units. It is planned that this level of activity would be maintained during the present year. The expected ratios of the cost to selling prices are Raw Materials 60%, Direct Wages 10% and Overheads 20%. Raw Materials are expected to remain in store for an average of 2 months before issue to production. Each unit is expected to be in process for 1 month, the raw materials being fed into the pipeline immediately and the labour and overhead costs an average of ½ month. Finished goods will stay in the warehouse awaiting dispatch to customers for approximately 3 months. Credit allowed by creditors is 2 months from the date of purchase of raw materials. Credit allowed to debtors is 3 months from the date of dispatch. Selling price is Rs.5 per unit. There is a regular production and sales cycle. Wages and overheads are paid on the 1st of each month for the previous month. The company normally keeps cash in hand to the extent of Rs.20,000.

(15 marks)

Question 7

 

(a) 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.

(b) Calculate the average collection period from the following details by adopting 360  days to a year:

Average inventory                                 Rs.360,000

Debtors                                                Rs.230,000

Inventory Turnover Ratio                      6

Gross profit Ratio                                 10%

           Credit sales to total sales                        20%

 

(c ) THIS OR THAT'S cost of debt is 6% (after tax) and the cost of equity is 14%. Find WACC if the capital structure of the company is –

 

ü      Debt : Equity = 60:40,

ü      Debt : Equity = 10:90,

ü      Debt : Equity = 40:60, and

ü         Debt : Equity = 90:10

(8+4+4 = 16)

 

Question 8

 

From the information as contained in the income statement and the balance sheet  of A ltd., you are required to prepare a cash flow from operating activity using Direct method

A.  Income statement and reconciliation of earnings for the year ended 31.03.2005

                                                                                                Rs.

Net sals                                                                                    25,,20,000

Less: Cost of sales                                            19,80,000

          Depreciation                                           60,000

          Salaries and wages                                 2,40,000

          Operating expenses                                80,000

          Provision for taxation                              88,000             24,48,000

Net operating profit                                                                  72,000

Non-recurring income: Profit on sale of equipment                     12,000

                                                                                                84,000

Retained earning (balance in P&L account b/f)              1,51,800

                                                                                                2,35,800

Dividend declared and paid during the year                               72,000

Profit and loss account balance as on 31.03.2005                     1,63,800

B. COMPARATIVE BALANCE SHEETS:

PARTICULARS

As at 31.03.2004

Rs.

As at 31.03.2005

Rs.

Fixed assets:

    Land

    Building and equipments

Current assets:

    Cash

    Debtors

    Stock

    Advances

 

48,000

3,60,000

 

60,000

1,68,000

2,64,000

7,800

 

96,000

5,76,000

 

72,000

1,86,000

96,000

9,000

Total

9,07,800

10,35,000

Capital

Surplus in P & L A/c

Sundry creditors

Outstanding expenses

Income tax payable

Accumulated depreciation on building and equipment.

3,60,000

1,51,800

2,40,000

24,000

12,000

1,20,000

4,44,000

1,63,800

2,34,000

48,000

13,200

1,32,000

Total

9,07,800

10,35,00

Cost of equipment sold was Rs.72,000.

 

                                                                                                                        (9 marks)
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