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Saturday, October 23, 2010

IPCC ICAI Model exam Question Paper - Nov.10

PCC

PROFESSIONAL COACHING CENTRE


PAPER – 4: COST ACCOUNTING AND FINANCIAL MANAGEMENT

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( Max. Time = 3hrs) (Max. Mks=100)

Question No. 1 is compulsory. Answer any five questions from the rest.

Working notes should form part of the answer.

1. a. Vignesh Auto Ltd is in the business of selling cars. It also sells insurance and Finance as part of its overall business strategy .The following information is available for the company.

Line of Business

Physical units

Sales units

Earnings before expenses

Sales of cars

10,000 cars

Rs.30,000 lacs

3% of sales value

Sales of insurance

6,000 policies

Rs.1,500 lacs

20% of sales value

Sales of finance

8,000 loans

Rs.19,200 lacs

2% of sales value

The expenses of the company are as follows:

Salesman salaries Rs.200 lacs

Rent Rs.100 lacs

Electricity Rs.100 lacs

Advertising Rs.200 lacs

Documentation cost per insurance policy Rs.100

Documentation cost for each loan Rs.200

Direct sales expense per car Rs.5,000

Indirect costs have to be allocated in the ratio of physical units sold.

Required:

Ø Make a cost sheet for each product allocating the direct and indirect

Ø Costs and also showing the product wise profit and total profit.

Ø Calculate the percentage of profit to revenue earned from each line of business.

b. Discuss the concept of under/ over recovery of overheads.

c. Define the concept of labour turnover. How can it be controlled?

(12 + 3 + 5= 20 marks)

2. a. A Company supplies plastic crockery to fast food restaurants in metropolitan city. One of its products is a special bowl, disposable after initial use, for serving soups to its customers. Bowls are sold in pack 10 pieces at a price of Rs.50 per pack.

The demand for plastic bowl has been forecasted at a fairly steady rate of 40,000 packs every year. The company purchases the bowl direct from manufacturer at Rs.40 per pack within a three days lead time. The ordering and related cost is Rs.8 per order. The storage cost is 10% per cent per annum of average inventory investment.

Required:

(i) Calculate Economic Order Quantity.

(ii) Calculate number of orders needed every year.

(iii) Calculate the total cost of ordering and storage bowls for the year.

(iv) Determine when the next order to be placed should. (Assuming that the company does maintain a safety stock and that the present inventory level is 333 packs with a year of 360 working days. (MAT COMP PG 2)

b. Mention the main advantage of cost plus contracts.

c. 1. Distinguish between product and period cost.

2. List the financial expenses not included in the cost.

(10+3 + 3 = 16 marks)

3. a. Explain and illustrate break – even chart.

b. XYZ Ltd furnishes the following information with respect to its process II. Prepare:

· Statement of Equivalent production.

· Process II account and abnormal Loss account.

· Opening WIP – NIL

· Units introduced 42,000 units at Rs.12

· Expenses debited to process:

- Direct material – Rs.61,530

- Labour – Rs.88,820

- Overheads – Rs.1,76,400

· Finished output = 39,500 units

· Normal loss in the process = 2% of input.

· Closing WIP = 1,200 units, Degree of completion :

Material – 100%, labour- 50% and Overhead- 40%

· Degree of completion of abnormal loss:

Material – 100%, labour – 80% and overhead – 60%

· Units scrapped as normal loss were sold at Rs.4.50/unit.

· All the units of abnormal loss were sold at Rs.9 per unit.

c. Discuss the concept of operating costing and list down few industries to which it is suited.

(4+9+3 =16 marks)

4. a. The management of Bina and Rina Ltd. are worried about their increasing labour turnover in the factory and before analyzing the causes and taking remedial steps; they want to have an idea of the profit foregone as a result of labour turnover in the last year.

Last year sales amounted to Rs. 83, 03, 300 and P/V ratio was 20 per cent. The total number of actual hours worked by the Direct Labour force was 4.45 Lakhs. As a result of the delays by the Personnel Department in filling vacancies due to labour turnover, 1, 00,000 potentially productive hours were lost. The actual direct labour hours included 30,000 hours attributable to training new recruits, out of which half of the hours were unproductive.

The costs incurred consequent on labour turnover revealed, on analysis, the following

Settlement cost due to leaving Rs. 43,820

Recruitment costs Rs. 26,740

Selection costs Rs. 12,750

Training costs Rs. 30,490

Assuming that the potential production lost as a consequence of labour turnover could have been sold at prevailing prices, find the profit foregone last year on account of labour turnover.

b. The standard and actual figures of product 'Z' are as under:

Standard Actual

Material quantity 50 units 45 units

Material price per unit Re. 1.00 Re. 0.80

Calculate material price variance

c. Discuss the treatment with respect normal and abnormal loss in cost accounting.

(9+3+4 = 16 marks)

5 a. 1. What is optimum capital structure?

b. PR Engineering Ltd is considering the purchase of a new machine which will carry out some operations which are at present performed by manual labour. The following information related to the two alternatives Models – 'MX' and ' MY' are available:

Particulars

'MX'

' MY'

Cost of Machine

Expected life

Scrap value

Rs.8,00,000

6 years

Rs.20,000

Rs.10,20,000

6 years

Rs.30,000

Estimated Net Income before Depreciation and Tax are as under:

Year 1

Year 2

Year3

Year4

Year5

Year6

Machine MX\

Machine MY

2,50,000

2,70,000

2,30,000

3,60,000

1,80,000

3,80,000

2,00,000

2,80,000

1,80,000

2,60,000

1,60,000

1,85,000

Corporate tax rate for this company is 30% and company's required rate of return on investment proposals is 10%. Depreciation will be charged on straight line basis. You are required to :

1. Calculate the payback period of each proposal.

2. calculate the net present value of each proposal, if PV factor at 10% is 0.909,0.826,0.751,0.683,0.621 and 0.564

3. Which proposal would you recommend and why?

c. Differentiate between on American depository receipts and Global depository receipts.

(3+10+3= 16 marks)

6. a. The following data relate to Vishnu Ltd:

Rs.

Earning before interest and tax (EBIT) 10,00,000

Fixed cost 20,00,000

Earning Before Tax (EBT) 8,00,000

Required: Calculate combined leverage.

b. The following is the capital structure of a Company:

Source of capital

Book Value (Rs.)

Market Value (Rs.)

Equity Share @Rs.100 each

80,00,000

1,60,00,000

9% cumulative preference Shares @ Rs.100 each

20,00,000

24,00,000

11% debentures

60,00,000

66,00,000

Retained earnings

40,00,000

---

The current market price of the company's equity share is Rs.200. for the last year the company had paid equity dividend at 25 per cent and its dividend is likely to grow 5 per cent every year. The corporate tax rate is 30 per cent and share holders personal income tax rate is 20 per cent.

You are required to calculate:

(i) Cost of capital for each source of capital.

(ii) Weighted average cost of capital on the basis of book value weights.

c. Name the various financial instruments dealt with in the international market.

(5+9+2 = 16 marks)

7. a The following are the summarised Balance Sheets of Zeta Limited as on 31st March,

2008 and 2009:

(Rs. in 000')

Liabilities 31.3.08 31.3.09 Assets 31.3.08 31.3.09

Share Capital 3,900 5,200 plant & Machinery 3,978 5,525

Reserve and Surplus 1,690 2,600 Land & Building 1,040 1,040

12% Debentures - 1,300 Investment 130 130

Sundry Creditors 936 1,222 Inventories 676 975

Outstanding Rent 52 65 Sundry Debtors 728 1,131

Income-tax Payable 520 195 Prepaid Selling Expenses 26 52

Cash at Bank 494 1,677

Cash in Hand 26 52

7,098 10,582 7,098 10,582

Profit & Loss Account for the year ended 31st March, 2009

(Rs. in 000')

Rs. Rs.

To Opening stock 806 By Sales 6,331

To Purchases 2,080 By Closing Stock 1,105

To Wages 650

To Gross Profit c/d 3,900








7,436 7,436

To Depreciation 390 By Gross Profit b/d 3,900

To Office Expenses 390 By Discount 39

To Rent 130 By Commission 91

To Selling & Distribution Expenses 780 By Dividend 260

To Income Tax 1,040

To Net Profit c/d 1,560









4,290 4,290

To Dividend 650 By Balance b/d 1,690

To Balance c/d 2,600 By Net Profit b/d 1,560








3,250 3,250

You are required to prepare a Cash flow statement as per AS 3 (revised).

b. A company operates at a production level of 5,000 units. The contribution is 60 per unit, operating leverage is 24. If the tax rate is 30 %, what would be its earnings after tax?

c. Write short notes on the following:

· Debt Securitisation

· Factoring

· Venture capital financing.

(10+3+3 = 16 marks)

**** **** ****

Monday, October 11, 2010

Article on Ratio Analysis - by GAYATHRI.K (IPCC)

                                                                 
                                       Ratio analysis  
 
                        

Ratio analysis was pioneered by Alexander wall in 1909.A ratio is a mathematical relationship between two items expressed in quantitative form.

                       
CLASSIFICATION OF RATIOS:
 
                                                      Different approaches are used to classify ratios.
 
                                      CLASSIFICATION BY STATEMENTS      
 
BALANCE SHEET RATIOS               PROFIT &LOSS A/C RATIOS           B/S &P&L A/C RATIOS
 

Liquidity ratio                                                   gross profit ratio                                       return on investment

Current ratio                                                     operating ratio                                          return on shareholder funds

Proprietary ratio                                               operating profit ratio                               stock turnover

Debt equity ratio                                               expenses ratio                                           debtor turn over ratio

Fixed assets ratio                                                net profit ratio                                        creditor turnover ratio

Capital gearing ratio                                                                                                            fixed asset turnover

                                                                                                                                               Earnings per share

                                                CLASSIFICATION BY PURPOSE /FUNCTION

PROFITABILITY RATIO                     TURNOVER RATIO                                        SOLVENCY RATIO

Return on investment                                     stock turnover                                           short term solvency       long term solvency

Net profit                                                         debtor turn over ratio                                Liquidity ratio               Proprietary ratio

Gross profit                                                     creditor turnover ratio                              Current ratio                 fixed asset ratio                                                

Expenses ratio                                                 working capital turnover                          cash position ratio         capital gearing

Operating profit ratio                                    fixed asset turnover                                                                             ratio

                                              

 
SUMMARY OF FORMULAE FOR COMPUTING RATIOS
 

PROFITABILITY RATIOS

·          Return on investment                   =       operating profit/capital employed*100

·          return on shareholder funds         =       np after interest&tax/shareholder fund*100

·          return on total asset                      =       np ater tax+interest/total asset-fictitious asset

·          gross profit ratio                           =       gp/sales*100

·          operating ratio                              =       cost of goods sold+operating exp/net sales*100

·          operating profit ratio                    =       operating profit/sales*100

·          expenses ratio                              =       specific expenses/sales *100

·          net profit ratio                              =       np/sales*100

·          earnings per share                       =       np after tax and preference dividend/no. of equity shares

·          price earnings ratio                     =       market per equity share/earnings per equity share

·          pay out ratio                               =        dividend per equity share/earnings per equity share

·          interest cover ratio or

       fixed charges cover ratio             =       profit before interest and tax/fixed interest charges

 

TURNOVER RATIO  

·          Inventory turn over ratio or

        stock velocity                                     =      COGS/avg. inventory

·          Debtors turnover ratio                       =      net credit sales /avg. receivables

·          Creditor turn over ratio                     =      net credit purchase/avg. accounts payable

·          Working capital turnover ratio          =     cost of sales/net working capital

·          fixed asset turnover                           =     cost of sales/net fixed asset

·          capital turnover ratio                         =     cost of sales/capital employed

 

 SOLVENCY RATIO

   short term solvency      

·          Liquidity ratio  or

                  Quick ratio

         or acid test ratio                                   =   liquid asset/current liability                 

·          Current ratio                                        =   current asset/current liability

·          Cash position ratio or

         super quick ratio  or

         absolute liquidity ratio                         =   cash and bank balance+marketable securities/current liabilities

 

     long term solvency           

·          Proprietary ratio                            =       shareholders fund/total tangible asset                                             

·          fixed asset ratio                             =       fixed asset /long term fund                                        

·          capital gearing ratio                       =       long term loans + debentures+pref.capital/ equity shareholders fund

·          debt equity ratio                             =       long term debts/shareholders fund

                                                                                                                                                

 

 BY:     GAYATHRI.K

            IPCC Student

Thursday, October 7, 2010

FREE MODEL EXAM

PCC

 

PROFESSIONAL COACHING CENTRE

 

CA – IPCC / PCC / FINAL

 

FREE MODEL EXAM

 

Subject

Marks

Time

Date

Costing -IPCC

100

4 – 7pm

10/10/2010

Cost Mgt - Final

100

4 -7pm

10/10/2010

 

Venue :

PROFESSIONAL COACHING CENTRE

MMH Complex, 3rd Floor, Natesan street,

(Behind Siva Vishnu Temple)

T.Nagar, Chennai – 17

 

 

ALL ARE WELCOME…..

 

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