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CS Executive Programme Module - I
(Solution upto Dec. - 2012 and Question of June - 2013 Included) Paper - 2 : Company Accounts, Cost and Management Accounting Paper - 2A : Company Accounts Chapter - 2 : Accounting for Share Capital 2012 - Dec [2] (a) (i) Bank Dr. Profit & Loss a/c Dr. To Investment (Sale of Investment & Loss of ` 5,000/-) Equity share capital a/c Dr. To Calls in Arrears a/c To Equity Share Forfeited a/c (Forfeiture of 150 equity Shares for nonpayment of Calls-in-arrears) Bank To 14% Debentures a/c To Securities Premium a/c (Issue of 500, 14% debentures of ` 100 each at a premium of 5%) (a) Bank Dr. To Calls in Arrear (calls in arrears received from holders of 200, 11% preference shares) Amt in ` 40,000 5,000 Amt in `

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45,000 1,200 300 900

(ii)

(iii)

52,500 50,000 2,500

(iv)

4,000 4,000

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Appendix CS Executive Programme Module - I Paper - 2

(b) 11% Preference Share Capital a/c Dr. 5,000 To Calls in Arrears a/c To 11% Preference Share Forfeited a/c (Forfeiture of 50, 11% Preference Shares for non-payment of Calls-in-arrears) (v) (a) Bank Dr. 2,500 11% Preference Share Forfeited a/c Dr. 2,500 To 11% Preference Share Capital a/c (Re-issue of forfeited preference shares @ 50 per shares) (v) (b) Bank Dr. 1,800 To Equity Share Capital To Securities Premium a/c (Re-issue of Forfeited Preference Shares @ 50 per shares) (vi) 11% Preference Share Forfeited a/c Dr. 2,500 Equity Share Forfeited a/c Dr. 900 To Capital Reserve a/c (Balances of share forfeited a/c transferred to capital reserve a/c) (vii) General Reserve a/c Dr. 50,000 Profit and Loss a/c Dr. 50,000 To Capital Redemption Reserve a/c (Redemption of preference share out of free reserve) (viii) 11% Preference Share Capital a/c Dr. 1,00,000 To Bank (Amount due on redemption paid to preference shareholders) Chapter - 3 : Issue and Redemption of Debentures 2012 - Dec [3] (b) (i) Bank Dr. 73,500 Loss on issue of debentures Account Dr. 7,000 To 12% debentures Account To premium on issue of debentures account To premium on redemption of debentures account (Issue of ` 70,000, 12% debenture of ` 100 each at a premium of 5% and redeemable at a premium of 10%)

1,000 4,000

5,000

1,200 600

3,400

1,00,000

1,00,000

70,000 3,500 7,000

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(ii) I.

Appendix CS Executive Programme Module - I Paper - 2 Fortune Limited Balance Sheet Equities and Liabilities

Reserve and Surplus Amount in ` Securities premium 3,500 Less: Loss on issue of debentures (7,000) (3500) Non- Current Liabilities 12% debenture 70,000 Debenture redemption premium 7,000 Total 73,500 ASSETS Current Assets Balance with Bank 73,500 TOTAL 73,500 2012 - Dec [4] (c) Cum interest: The price quoted includes the interest for the expired period. Ex-interest: The price does not include the interest for the expired period. Chapter - 4 : Underwriting of Issues and Acquisition of Business 2012 - Dec [2] (b) Statement of Underwriters liability (Firm underwriting shares are treated as marked) Particulars X Gross Liability Less : Marked Applications Balance Less : Unmarked application in the ratio of gross liability Balance Particulars X Credit of Z in ration of Gross Liability Underwriters liability Add : Firm Applications Total liability (467) 4,333 5,000 9,333 30,000 21,000 9,000 4,200 4,800 Y (233) 667 2,000 2,667 Liability of underwriters Y 15,000 12,000 3,000 2,100 900 Z 5,000 5,000 Nil 700 (700) Z 700 0 1,000 1,000 Total 50,000 38,000 12,000 7,000 5,000 Total 5,000 8,000 13,000

Liability of underwriters

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Appendix CS Executive Programme Module - I Paper - 2 45,000 30,000 8,000 38,000 7,000 Amt in ` Dr. Dr. Dr. 5,59,980 1,60,020 60,000 6,50,000 1,30,000

Total Application Less : Marked Application Firm Underwriting Unmarked Application Journal Entries (i) X Y Z To Share Capital To Securities Premium (Shares allotted to underwriters in ratio of their liability) (ii) Underwriting Commission Account To X To Y To Z (Underwriting commission due to underwriters. Rate assumed as 5% of face value of shares) (iii) Bank Account To X To Y To Z (Balance payment received from underwriters)

Dr.

1,25,000 75,000 37,500 12,500

Dr.

6,55,000 4,84,980 1,22,520 47,500

Entries for commission that underwriting commission is 5% of the value at which shares are issued and premium is considered in calculation of underwriting commission, then journal entry would be: (iv) U n d e r w r i ti n g Account To X Commission Dr. 1,50,000 90,000

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To Y To Z

Appendix CS Executive Programme Module - I Paper - 2 45,000 15,000

(Underwriting commission due to underwriters. Rate assumed as 5% of face value of shares) Accordingly the value due from underwriters/payable to underwriter will change. Alternatively Calculation of liability of underwriters (Firm underwriting shares are treated as un-marked) Particulars X Gross liability Less: Marked Applications Balance Less: Unmarked application in the ratio of gross liability 30,000 16,000 14,000 9,000 5,000 (333) 4,667 5,000 9,667 45,000 30,000 15,000 Dr. Dr. Dr. 5,80,020 1,39,980 60,000 6,50,000 1,30,000 Liability of underwriters Y 15,000 10,000 5,000 4,500 500 (167) 333 2,000 2,333 Z 5,000 4,000 1,000 1,500 (500) 500 0 1,000 1,000 Total 50,000 30,000 20,000 15,000 5,000 500 5,000 8,000 13,000

Balance Credit of Z in ration of Gross Liability Underwriters liability Add Firm Applications Total liability Total application Less: Marked Application Unmarked Application (i) X Y Z To Share capital To Securities premium (Shares allotted to underwriters in ratio of their liability)

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Appendix CS Executive Programme Module - I Paper - 2 Dr. 1,25,000 75,000 37,500 12,500

(ii) Underwriting Commission Account To X To Y To Z (Underwriting commission due to underwriters. Rate assumed as 5% of face value of shares) (iii) Bank Account To X To Y To Z (Balance payment received from underwriters)

Dr.

6,55,000 5,05,020 1,02,480 47,500

Chapter - 5 : Final Accounts of Joint Stock Companies 2012 - Dec [4] (b) Please refer 2001- Dec [2] (a) on page no. 177 Chapter - 6 : Consolidation of Accounts 2012 - Dec [3] (a) Working notes: 1. Minority interest = 20% (as 80% Shares held by H Ltd.) Pre acquisition period i.e. from 1st April, 2011 to 30 th September, 2011 = 6 Months Post acquisition period i.e. from 1st October, 2011 to 31st March, 2012 = 6 Months Unsold goods in H limited which was purchased from S Ltd. = ` Unrealized profit = ` 5,000* 25/125 = ` 1,000 Distribution of Capital Profit General & reserve Profit & Loss (1 - 4 - 2011) Pre acquisition profit in current year profit (` 60,000 - ` 30,000) Total Share of H Limited (80%) = ` 1,25,000 Share of Minority shareholders = ` 1,25,000 = ` 1,00,000 = ` 25,000 = ` 5,000

2.

= = = =

` 80,000 ` 30,000 ` 15,000 ` 1,25,000

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3.

Appendix CS Executive Programme Module - I Paper - 2

4.

Cost of control/capital reserve Amount paid for 80% share = Less: Paid up value of shares held by H Ltd. = Shares in Capital Profit = Goodwill = Share of H Ltd in revenue profit of S Ltd. Profit from 01-4-2011 to 31st March, 2012 = ` 60,000 - ` 30,000 = ` 30,000 Profit from 01-10-2012 to 31st March, 2012 = ` 30,000 = ` 15,000 Share of H Limited = ` 15,000

` 3,40,000 ` 1,60,000 ` 1,00,000 ` 80,000

= ` 12,000 Share of Minority shareholders = ` 3,000 (` 15,000 - ` 12,000) 5. Minority Interest Share capital 20% of ` 20,000 = ` 40,000 Share in capital profit = ` 25,000 Share in revenue profit = ` 3,000 Total = ` 68,000 Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd as on 31 st March, 2012 EQUITY AND LIABILITIES Amount in ` (1) Shareholders funds (a) Share Capital; 60,000 Equity shares of ` 10 each 6,00,000 (b) Reserve and Surplus a. General reserve 3,40,000 b. Profit and Loss A/c 1,00,000 Share in S Ltd.s revenue profit 12,000 1,12,000 Less: Unrealized profit 1,000 1,11,000

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(2)

Appendix CS Executive Programme Module - I Paper - 2

Current Liabilities Trade payable a. H Ltd. b. S Ltd Less: Mutual Owings Minority Interest TOTAL ASSETS

70,000 35,000 1,05,000 10,000

95,000 68,000 12,14,000

1.

2.

Non-current assets a. Fixed Assets Tangible Assets: Machinery 1. H Ltd. 2. S Ltd. Furniture 3. H Ltd. 4. S Ltd. Non-Tangible Assets: Goodwill Current assets (a) Stock i. H Ltd. ii. S Ltd. Less: unrealized profit (b) Trade receivables i. H Ltd. ii. S Ltd. Less: Mutual Owings (c) Balance with bank i. H Ltd. ii. S Ltd. TOTAL

3,90,000 1,35,000 80,000 40,000

5,25,000

1,20,000

6,45,000 80,000

1,80,000 1,20,000 3,00,000 1,000 50,000 30,000 80,000 10,000 70,000 50,000

2,99,000

70,000

1,20,000 12,14,000

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Appendix CS Executive Programme Module - I Paper - 2

Chapter - 7 : Valuation of Shares and Intangible Assets 2012 - Dec [4] (a) (i) (A) Value of share as per net assets method (B) Calculation of net assets Goodwill Freehold property at market value Plant and machinery Stock Trade receivables Bank Balance Cash in hand Less: Current Liabilities Proposed divided Trade payables Income Tax payable Provision for tax Net Assets Intrinsic value per share = =` = ` 25.67 Ans. (C) Value of per share as per yield method: Average profit on weighted average basis year Profit 2010 1,38,000 2011 1,83,000 2012 1,97,000 Weighted average profit (Before tax)

` 1,00,000 1,80,000 80,000 3,10,000 2,13,000 1,07,000 1,700 9,91,700 34,000 93,700 11,500 82,500

2,21,700 7,70,000

Weight 1 2 3 6 = = = = = = `

Product 1,38,000 3,66,000 5,91,000 10,95,000

Less: Income tax @ 50% Profit after Tax (PAT) Less: transfer to general reserve @ 20% Expected profit available for equity Share holders

` 1,82,500 ` 91,250 ` 91,250 ` 18,250 ` 73,000

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Appendix CS Executive Programme Module - I Paper - 2

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Calculation of expected dividend yield Expected Yield Rate = = = ` 24.33 Calculation of Yield Value per Share Value Per Shares = =` 10 Paid up value per share

= ` 16.22 ans. (ii) Fair value Per Share = =` = ` 20.95 Chapter - 8 : Objective Questions 2012 - Dec [1] {C} (a) (a) (i) This Statement is false: When a company which has already issued shares wants to raise capital through the further issue of shares. it is under a legal obligation to first offer the fresh shares to its existing shareholders unless, the company has resolved otherwise by a special resolutions. So right share are not issued to promoter for their services. (ii) This Statement is false: Both underwriting commission i.e. brokerage can be paid to an individual as underwriting commission is paid to an underwriter in addition to brokerage for taking the responsibility to get full subscription to the shares and debentures of the company. (iii) This Statements is True: The company shall create debentures Redemption Reserve equivalent to at-least 50% of the amount of debentures before starting the redemption of debentures. (iv) This Statement is false: Preliminary expenses is an example of fictitious asset and not of an intangible assets (v) This Statement is false: interim Dividend thus paid is an appropriation of profit and not a charge against the profit. (b) (i) (c) 7 years. (ii) (c) The amount received on forfeited shares, (iii) (a) Compulsory,

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(iv) (v) (c) (i) (ii) (iii) (iv) (v)

Appendix CS Executive Programme Module - I Paper - 2

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(a) Issue of fresh equity shares (b) Capital reserve. Managerial remuneration For consideration other than cash. Impairment of assets International Accounting Standards Board. Non current assets. Paper - 2B : Cost and Management Accounts

Chapter - 1 : Introduction to Cost and Management Accounting 2012 - Dec [8] (c) Please refer 2005 - June [7 ] (a) on page no. 421 Chapter - 2 : Material Cost 2012 - Dec [7] (b) (b)(i) Optimum bearing batch size=

Annual Production = 24,000 bearings Cost per Production per set up = ` 324 Inventory holding cost per unit per annum = 10 12 = ` 1.20 per unit p.a. Optimum run size = = 3600 unit (ii) Calculation of inventory set up cost and holding cost at two different run size Run Size Annual set up costs 6000 units Amount in ` 1,296 3600 units Amount in `

Annual set up costs

2,160

Annual inventory holding cost

3,600

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Appendix CS Executive Programme Module - I Paper - 2

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Annual inventory holding cost

4,896 Extra cost incurred by company on using run size of 6000 per bearing = ` 4896 - 4320 = ` 576 (iii) Minimum Inventory Holding Cost: ` 2,160 i.e., carrying cost of EOQ. Chapter - 5 : Method of Costing 2012 - Dec [7] (a) Answer: (i) S V Construction Ltd. Contract Account For the year ended 30 th September, 2012
Particulars To Material To Wages paid: 3,40,000 Add: Accrued 2,800 To Direct Expenses paid 8,000 Add: Accrued 1,200 To Plant Purchased To General Materials To P&L Account To Work in Progress (Reserve) ` 3,36,000 3,42,800 9,200 60,000 32,000 19,200 16,800 8,16,000 Particulars By work in Progress Work Certified Work Uncertified By Plant at site By Materials at site

4,320

` 7,50,000 14,000

7,64,000 48,000 4,000

8,16,000

Working Notes: Calculation of work certified Cash received is ` 6,00,000 representing 80% of the work certified, hence the value of the work certified would be ` 7,50,000 (6,00,000 )

Calculation of Plant at site as on 30-09-2012 Value of Plant Purchased ` 60,000 Annual Depreciation ` 12,000 (Scrap value is given nil and working life 5 yrs) Value as on 30-09-2012 ` 48,000 (ii) Total profit made as on 30-09-2012 is ` 36,000. Since the contract value is ` 12 lakh and value of work certified is ` 7.5 lakhs which is more than of the contract

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Appendix CS Executive Programme Module - I Paper - 2

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price. So 2/3rd of profit made to date as reduced on cash basis shall been taken to the P&L Account. Profit to be taken to Profit and Loss Account = Profit made upto date

= ` 19,200 Chapter - 6 : Budgetary Control 2012 - Dec [6] (b) Please refer 2011 - Dec [7] (c) on page no. 500 Chapter - 7 : Marginal Costing 2012 - Dec [8] (b) Since in the given question, machine hours availability is a limiting factor so the priority of machine will depend on contribution per hour. Particular Calculation of contribution per machine hour Machine A (` ) 9 5 4 100 units Machine B (` ) 9 6 3 150 units

Selling price per unit Less: Marginal cost Contribution per unit Output per hour

Contribution per hour 400 450 Since per hour contribution is higher in case of machine B so machine B is to be used for the production of Product-X Chapter - 8 : Analysis & Interpretation of Financial Statements 2012 - Dec [6] (a) 1. Working Note No. 1 Current Ratio = 2 Working Capital = ` 4,00,000 Since Current Ratio 2 = =

2 Current Liabilities = Current Assets As Working Capital = Current Assets - Current Liabilities ` 4,00,000 = 2 Current Liabilities - Current Liabilities ` 4,00,000 = Current Liability Current Assets = 2 Current Liabilities = 2 ` 4,00,000 = ` 8,00,000

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2.

Appendix CS Executive Programme Module - I Paper - 2

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Working Note No. 2 Capital Block to Current Assets = 3.2 Capital Block = Share Capital + Debentures + N et Profit + Reserves Capital Block = = Current Assets ` 8,00,000

3.

= ` 12,00,000 = Capital Block + Current Liabilities = ` 12,00,000 + ` 4,00,000 = ` 16,00,000 Total Assets = Total Liabilities = ` 16,00,000 Fixed Assets = Total Assets - Current Assets = ` 16,00,000 - ` 8,00,000 = ` 8,00,000 Fixed Assets to turnover = 1:3 Hence, Sales = ` 8,00,000 3 = ` 24,00,000 Working Note No. 3 Stock Velocity = 2 months Inventory Turnover ratio = 12/2 = 6 Gross Profit Ratio = 25% on Sales Hence, Gross Profit = ` 24,00,000 25% = ` 6,00,000 Cost of Goods Sold = Sales - Gross Profit = ` 18,00,000 Total Liabilities Average Stock = = = ` ` 3,00,000 2 months Creditors Creditors

4.

Working Note No. 4 Creditors Velocity

Creditor Velocity in Months = 2 =

Since, opening stock is not given; cost of goods sold is taken as purchases and it is also assumed that purchases made at credit only

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Creditors = `

Appendix CS Executive Programme Module - I Paper - 2

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5.

= ` 3,00,000 Working Note No. 5 Ratio of cash sales to credit sales = 1:2 Total Sales = ` 24,00,000 (refer working note number 3) So Credit Sales Debtors Velocity = = = ` 24,00,000 ` 16,00,000 3 months

Debtors Velocity in months = Debtors 3 = Debtors Debtor = ` 16,00,000 = ` 4,00,000 Working Note No. 6 Net profit is 10% of Turnover Since sales are ` 24,00,000 net profit is ` 24,00,000 10% = ` 2,40,000 Reserve is 2 % of Turnover Reserve = ` 24,00,000 2.5% = ` 60,000 Working Note No. 7 Capital Block = Share Capital + Debentures + Net Profit + Reserves Or ` 12,00,000 = Share Capital + Debentures + ` 24,0000 + ` 60,000 Or Share Capital + Debentures = ` (12,00,000 - 2,40,000 - 60,000) = ` 9,00,000 Working Note No. 8 Debentures/Share Capital Ratio = 1:2 Hence, Debentures = 9,00,000 1/3 = ` 3,00,000 Share Capital = 9,00,000 2/3 = ` 6,00,000 Balance Sheet of Moon Ltd. EQUITIES AND LIABILITIES ` 1. Shareholders Funds (a) Share Capital 6,00,000 (b) Reserves and Surplus: I. Reserves 60,000 II. Profit & Loss Account 2,40,000 2. Non-Current Liabilities Debentures 3,00,000

6.

7.

8.

I.

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3.

Appendix CS Executive Programme Module - I Paper - 2

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Current Liabilities Creditors Others Liabilities TOTAL

3,00,000 1,00,000 16,00,000 ` 8,00,000 3,00,000 4,00,000 1,00,000 16,00,000

II.

ASSETS 1. Fixed Assets 2. Current Assets Stock Debtors Cash & Bank Balance (Balancing Figure) TOTAL

Chapter - 9 : Cash Flow Statement 2012 - Dec [8] (a) Working Note No. 1 Plant and Machinery Account
Particulars To Balance B/d To Profit and Loss A/c Profit on sale (` 35,000 - ` 20,000) To Bank (Balancing figure) (Purchase of machinery) Amount (` ) 5,00,000 15,000 3,45,000 8,60,000 Particulars By Depreciation (@ 25% on opening balance) By Bank (Sale) By Balance C/d Amount (` ) 1,25,000 35,000 7,00,000 8,60,000

Working Note No.2 Provision for Taxation Account


Particulars To Bank A/c (Tax payment during the current year) To Balance C/d Amount (`) 50,000 Particulars By Balance B/d By Profit & Loss A/c (Balancing figure) Amount (`) 70,000 80,000

1,00,000 1,50,000 1,50,000

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Appendix CS Executive Programme Module - I Paper - 2

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Working Note No. 3 Profit and loss A/c


Particulars To Depreciation A/c To Provision for Taxation A/c To Balance C/d Amount (`) 1,25,000 80,000 1,00,000 3,05,000 Particulars By Balance B/d By Plant and Machinery A/c (Profit on sale of machinery) By Operating Profit Amount (`) 60,000 15,000 2,30,000 3,05,000

Cash Flow Statement of Great Limited for the year ended 31st March, 2012 Particulars (i) Cash Flow from Operating Activities : Net Profit before Extraordinary items and appropriation of profit adjustment for : Transfer to General Reserve Proposed dividend Operating profits before working capital changes Increase in Stock (-) Decrease in Debtors (+) Decrease in creditors (-) Income-tax paid (-) (ii) Cash Flow from Investing Activities : Purchase of Fixed Assets Expenses on Building Increase in investments Sale of old machine (iii) Cash Flow from Financing Activities : Income in Share Capital (presumed fresh capital) Issue of Debentures Dividend paid 2,00,000 2,00,000 (1,00,000) 3,00,000 (3,45,000) (2,00,000) (1,00,000) 35,000 (6,10,000) 50,000 2,00,000 4,80,000 (2,00,000) 2,00,000 (1,20,000) 3,60,000 50,000 3,10,000 2,30,000 ` `

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Particulars

Appendix CS Executive Programme Module - I Paper - 2 (` )

18 (` ) NIL

Net Increase in cash or cash equivalent (I+II+III) Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year

2,00,000 2,00,000

Chapter - 10 : Objective Questions 2012 - Dec [5] {C} (a) (a) (i) This Statement is True. A statement of cash flow reports the inflows and outflows of cash and its equivalents only of an organisation during a particular period. Hence it is prepared on cash basis and not on accrual accounting concepts(ii) This Statement is True. For the determination of cost volume-profit relationship, marginal cost, break even point analysis, profit volume ratio and key factor are considered. Hence cost volume profit relationship is more comprehensive term. (iii) This Statement is False. Long term budgets are the budgets which are prepared for periods longer than a year. They are prepared for those activities, the trend in which is difficult to fore see over longer periods. (iv) This Statement is True. Direct costs are not necessarily the same as variable cost direct costs comprises of direct material cost ,direct labour and direct expenses, variable cost is made up of direct materials, direct wages, direct expenses and variable overheads. (v) This Statement is False. The ABC analysis is a selective inventory control which aims at concentrating control mainly on cost basis. (b) (i) (b) Transfer to costing profit and loss account, (ii) (b) Attained, (iii) (c) Absorption costing, (iv) (c) 12% (v) (c) Halsey premium plans (c) (i) Overheads, (ii) Technique (iii) Conventional Budgeting (iv) Decreases (v) LIFO

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Appendix CS Executive Programme Module - I Paper - 2 Question Paper of December - 2013 Paper - 2A : Company Accounts

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Chapter - 2 : Accounting for Share Capital 2013 - June [2] (c) Write a note on buy-back of shares. (4 marks) 2013 - June [3] (b) Shreya Ltd. had an issue of 1,000 12% redeemable preference shares of ` 100 each, repayable at a premium of 10%. These shares are to be redeemed now out of the accumulated reserves, which are more than the necessary sum required for redemption. Show the necessary entries in the books of the company, assuming that the premium on redemption of shares has to be written off against the companys securities premium reserve account. (6 marks) 2013 - June [4] (a) A limited company issued a prospectus inviting applications for 30,000 shares of ` 10 each at a premium of ` 2 per share. The amount was payable as follows: ` On application 2 On allotment 5 (including premium) On first call 3 On second and final call 2 Applications were received for 45,000 shares and allotment was made on pro-rata basis to the applicants of 36,000 shares. Money overpaid on applications was employed on account of sum due on allotment. Ramesh, to whom 600 shares were allotted, failed to pay the allotment money and on his subsequent failure to pay the first call, his shares were forfeited. Mohan, the holder of 900 shares failed to pay the two calls and his shares were forfeited after the second and final call. Of the shares forfeited, 1,200 shares were sold to Krishna credited as fully paid for ` 9 per share, the whole of Rameshs share being included. Show journal and cash book entries and prepare the balance sheet. (12 marks) Chapter - 4 : Underwriting of Issues and Acquisition of Business 2013 - June [2] (b) KBC Ltd. issued 50,000 equity shares. The whole of the issue was underwritten as follows: Underwriter K : 40% Underwriter B : 30% Underwriter C : 30% Applications for 40,000 shares were received in all, out of which applications for 10,000 shares had the stamp of Underwriter - K; those for 5,000 shares that of Underwriter- B; and those for 10,000 shares for Underwriter - C. The remaining applications for 15,000 shares did not bear any stamp. Determine the liability of the underwriters. (5 marks)

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Appendix CS Executive Programme Module - I Paper - 2

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2013 - June [4] (b) Explain the nature of profit or loss prior to incorporation. How is it treated in the books of accounts? (3 marks) Chapter - 6 : Consolidation of Accounts 2013 - June [3] (a) The following are the balance sheets of H Ltd. and its subsidiary S Ltd. as on 31st March, 2012: Equity and Liabilities H Ltd. S Ltd. (` ) (` ) Shareholders funds: Share capital Shares of ` 100 each fully paid 5,00,000 2,00,000 Reserves and surplus: General reserve 1,00,000 Profit and loss account 80,000 () 1,00,000 Non-current liabilities: 6% Debentures 1,00,000 Current liabilities: Trade payables 75,000 45,000 7,55,000 2,45,000 Assets Non-current assets: Fixed assets 3,50,000 1,50,000 Non-current investments: 6% Debentures in S Ltd. (acquired at cost) 60,000 1,500 Shares in S Ltd. at ` 80 each 1,20,000 Current assets: Inventories 90,000 40,000 Trade receivables 60,000 30,000 Cash 75,000 25,000 7,55,000 2,45,000 H Ltd. acquired the shares on 1st August, 2011. The profit and loss account of S Ltd. showed a debit balance of ` 1,50,000 on 1 st April, 2011. During June, 2011 goods of S Ltd. costing ` 6,000 were destroyed by fire against which insurer paid only ` 2,000. Trade payables of S Ltd. include ` 20,000 for goods supplied by H Ltd. on which H Ltd. made a profit of ` 2,000. Half of the goods were still in stock on 31st March, 2012. Prepare a consolidated balance sheet and show the complete working. (9 marks)

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Appendix CS Executive Programme Module - I Paper - 2

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Chapter - 7 : Valuation of Shares and Intangible Assets 2013 - June [2] (a) Calculate the value of one equity share from the following information: (i) 60,000 equity shares of ` 10 each, ` 7 paid-up. (ii) ` 2,00,000, 10% preference shares of ` 100 each, fully paid-up. (iii) Expected annual profits before tax ` 4,00,000. (iv) Tax rate 35%. (v) Transfer to general reserve 20% of profits every year. (vi) Normal rate of return 20%. (6 marks) Chapter - 8 : Objective Questions 2013 - June [1] {C} (a) State, with reasons in brief, whether the following statements are true or false: (i) The existing equity shareholders are necessarily to accept the rights offer. (2) (ii) Contingent liability in respect of a transaction between holding and wholly owned subsidiary companies will not appear in the footnote of the consolidated balance sheet. (6) (iii) In case of inter-company unrealised profits included in unsold goods, minority shareholders are not affected in any way. (6) (iv) In case of inadequacy of profits, dividend can be paid out of capital reserve. (5) (v) Redemption of preference shares amounts to reduction in the capital of the company. (2) (2 marks each) (b) Write the most appropriate answer from the given options in respect of the following: (i) Discount allowed on the re-issue of forfeited shares cannot exceed (a) 10% of paid-up capital (b) 10% of the capital re-issued (c) The amount received on forfeited shares (d) Capital reserve account. (2) (ii) Sections 349 and 350 of the Companies Act, 1956 contain the provisions relating to the manner of determination of net profit for the purpose of calculating the (a) Disposal of net profit (b) Managerial remuneration (c) Fair value of assets (d) Fair value of shares. (5) (iii) As per Accounting Standard-28, an impairment loss should be recognised whenever the recoverable amount of an asset is less than its (a) Original cost (b) Opportunity cost

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Appendix CS Executive Programme Module - I Paper - 2

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(c) Carrying amount (d) None of the above. (1) (iv) When a company issues debentures at par or at a discount which are redeemable at a premium, the premium payable on redemption of the debentures is to be treated as (a) Revenue loss (b) Capital loss (c) Deferred revenue expenditure (d) None of the above. (3) (v) Expenses incidental to the creation and floatation of a company are called (a) Underwriting expenses (b) Preliminary expenses (c) Trade expenses (d) Establishment expenses. (4) (1 mark each) (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) Section 81 of the Companies Act, 1956, provides that where a public company proposes to increase its subscribed capital at any time after the expiry of __________year(s) of its formation or at any time after the expiry of __________ year(s) from the first allotment of shares whichever is earlier, it should satisfy certain conditions. (2) (ii) Preliminary expenses being of capital nature may be written-off against_______. (4) (iii) Goodwill is an intangible asset, but is not a ________asset. (7) (iv) Accum ulated losses of the subsidiary company upto the date of acquisition of shares by the holding company are called _________ losses. (6) (v) International Accounting Standards are issued by the ________. (1) (1 mark each) Paper - 2B : Cost and Management Accounts Chapter - 5 : Method of Costing 2013 - June [7] (b) Distinguish between production account and cost sheet. (3 marks) Chapter - 6 : Budgetary Control 2013 - June [8] (a) The following data are available in a manufacturing company for a year period :

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(` in lakhs) Fixed expenses : Wages and salaries Rent, rates and taxes Depreciation Sundry administrative expenses Semi-variable expenses (at 50% capacity): Maintenance and repairs Indirect labour Sales department salaries, etc. Sundry administrative expenses Variable expenses (at 50% of capacity) Materials Labour Other expenses 9.50 6.60 7.40 6.50 3.50 7.90 3.80 2.80

21.70 20.40 7.90 98.00 Assume that fixed expenses remain constant for all levels of production, semi-variable expenses remain constant between 45% and 65% of capacity and increasing by 10% between 65% and 80% capacity and by 20% between 80% and 100% capacity. Sales at various levels are ! at 50% capacity : ` 100 lakh; at 60% capacity : ` 120 Lakh; at 75% capacity : ` 150 lakh; at 90% capacity : ` 180 lakh; and at 100% capacity : ` 200 Lakh. Prepare a flexible budget for the year and forecast the profits at 60%, 75%, 90% and 100% of capacity. (9 marks) Chapter - 7 Marginal Costing 2013 - June [6] (b) Marginal costing rewards sales whereas absorption costing rewards production. Comment. (3 marks) 2013 - June [8] (b) A company has fixed expenses of ` 90,000 with sales of ` 3,00,000 and a profit of ` 60,000 during the first half year. If in the next half year, the company suffered a loss of ` 30,000. Calculate ! (i) P/V ratio, break-even point and margin of safety for the first half year. (ii) Expected sales volume for next half year assuming that selling price and fixed expenses remain unchanged. (iii) The break-even point and margin of safety for the whole year. (6 marks) Chapter - 8 : Analysis & Interpretation of Financial Statements 2013 - June [6] (a) From the following particulars relating to Genius Ltd., prepare balance sheet as on 31st March, 2013:

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Appendix CS Executive Programme Module - I Paper - 2

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Fixed assets/turnover ratio (based on sale) 1 : 2 Debt collection period 2 months Gross profit 25% Consumption of raw materials 40% of cost of goods sold Stock of raw materials 4 months consumption Finished goods 20% of turnover at cost Fixed assets to current assets 1:1 Current ratio 2 Long-term loan to current liability 1:3 Capital to reserve 5:2 Cost of fixed assets ` 10,50,000 (12 marks) Chapter - 9 : Cash Flow Statement 2013 - June [7] (a) From the information given below prepare cash flow statement for Smile Ltd.: Balance Sheets As on As on 31-03-2012 31-03-2013 ( ` in 000) (` in 000) Equity and liabilities Shareholders funds: Share capital 1,800 2,000 Reserves and surplus: General reserve 50 30 Profit and loss account 140 160 Non-current liabilities: Loan on mortgage @ 8% (taken on 1st July, 2012) ! 50 Current liabilities: Bank overdraft 115 114 Trade payables 22 40 Short-term provisions: provision for final dividend 90 80 2,217 2,474 Assets Non-current assets: Freehold building 1,000 1,160 Machinery and plant 340 490 Furniture and fittings 7 6 Goodwill 150 130

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Appendix CS Executive Programme Module - I Paper - 2 100 15 440 160 4 1 2,217 120 5 422 134 5 2 2,474

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Investment in shares Preliminary expenses Current assets: Inventories Trade receivables Prepaid expenses Cash in hand

Additional information: (i) Depreciation on freehold building @ 2 % on cost ` 12,00,000; on machinery and plant @ 10% on cost ` 5,00,000; on furniture and fitting @ 5% on cost ` 10,000. (ii) Dividend received ` 6,000 was used in writing down the book value of investment in shares. (iii) Goodwill was written off out of general reserve. (iv) The proposed dividend for the year ended 31st March, 2012 was paid off and interim dividend of ` 60,000 was paid out of profit and loss account. (12 marks) Chapter - 10 : Objective Questions 2013 - June [5] {C} (a) State, with reasons in brief, whether the following statement are true or false: (i) Cost sheet is the same as statement of cost and profit. (5) (ii) Zero base budgeting is based on incremental approach. (6) (iii) When a factory operates at full capacity, fixed cost also becomes relevant for make or buy decisions. (7) (iv) Marginal costing is different from direct costing. (7) (v) Management accounting is based on double entry system. (1) (2 marks each) (b) Write the most appropriate answer from the given options in respect of the following: (i) The rate of change of labour force in an organisation during a specified period is called (a) Labour efficiency (b) Labour turnover (c) Labour productivity (d) None of the above. (3) (ii) Differential cost analysis is incorporated in the (a) Cost books (b) Financial books

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(c) Statutory books (d) None of the above. (1) (iii) Marginal costing is a very useful technique to management for (a) Cost control (b) Profit planning (c) Decision making (d) All of the above. (7) (iv) When prices of materials have a rising trend, then the suitable method for issuing the materials will be (a) FIFO (b) LIFO (c) HIFO (d) Standard cost price. (2) (v) Cash flow statement is required for the financial planning of (a) Short range (b) Long range (c) Medium range (d) Very long range. (9) (1 mark each) (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) A document which provides for assembly of different costs in respect of a cost centre or a cost unit is called _______. (5) (ii) Economic order quantity depends on _______ and _______ costs. (2) (iii) In case the amount of overheads recovered from production is more than the actual overheads, there is said to be _______ of overheads. (4) (iv) Abnormal idle time cost should be charged to _______. (3) (v) Bin card shows _______ at any moment of time. (2) (1 mark each)

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