TEST PAPERS
Final
Group IV
QUESTION PAPERS FOR POSTAL STUDENTS ONLY
(REVISED/ JULY 2009)
THE INSTITUTE OF COST AND WORKS
ACCOUNTANTS OF INDIA
DIRECTORATE OF STUDIES
Test Papers — Final Group IV
PAPER 15
MANAGEMENT ACCOUNTING-ENTERPRISE PERFORMANCE
MANAGEMENT
TEST PAPER — IV/15/EPM/2008/T-1
Time Allowed : 3 hours Full Marks : 100
(Answer Question No. 1 and any four questions from the rest)
All Questions carry equal marks.
1. Jetking Ltd. has the following activities and associated cost behaviours :
Activities Cost Behaviour
Labour Rs. 10.00 per direct labour hour
Set-up Rs. 100 per set-up variable
Step-fixed, Rs. 30,000 per step,
Step = 10 set-ups
Receiving Step-fixed, Rs. 40,000 per step
Step = 2,000 hours
Activities with step cost behaviour are being fully utilized by existing products. Thus,
any new product demands will increase resource spending on these activities.
Two designs are being considered for a new product-Design I & II. The following
information is provided about each design (1000 units of products will be produced):
Cost Driver Design I Design II
Direct labour hours 3,000 2,000
Number of set-up 10 20
Receiving Hours 2,000 4,000
The company has recently developed a cost equation for manufacturing costs using
direct labour hours as the driver. The equation has R² = 0.60 and is given below :
Y= Rs. 1,50,000 + $ 20 X
Test Papers — Final Group IV 3
You are required to :
(i) Compute the cost of each design (based on the direct labour cost equation) if the
design engineering is told that only direct labour hours drive manufacturing costs.
Which design will now be chosen based on this unit-based cost assumption?
(ii) Now compute the cost of each design using all driver and activity information.
Which design will now be chosen? Are there any other implications associated
with the use of the more complex activity information set?
(iii) Consider the following statement: “Strategic cost analysis should exploit internal
linkages.” What does this mean? Explain using the results of requirements (a)
and (b),
(iv) What other information would be useful to have concerning the two designs? (20)
2. Falling in the guideline of Joseph Juran, explain the differences between; Quality
Planning, Quality Control & Quality Improvement. (20)
3. (a) State Deming’s Fourteen Points for Top Management.
(b) You are given the data of S S Ltd. For the year ended 31st March, 2008 :
Sales 1,00,000 units of Rs. 10 each,
Variable Cost per unit Rs. 6,
Fixed Cost p.a. Rs. 300,000
Calculate the Margin of Safety. (20)
4. Write in brief :
(a) Target Costing,
(b) Quality Circle,
(c) Matrix Organisation,
(d) Kaizen,
(e) JIT Technology. (20)
5. What is meant by Quality Function Deployment (QFD ) process? State in brief the
utilities in using QFD. (20)
6. (a) State the difference between Manufacturing Resources Planning & Distribution
Resources Planning.
(b) TIL Ltd., have an installed capacity of 5000 tractors p.a. They are presently
operating at about 35 percent of installed capacity. For the coming year, they
have budgeted as follows :
Production / Sales 4000 Units
Costs Rs (Crores)
Direct Materials 8.00
Direct Wages 0.60
Factory Expenses 0.80
Administrative Expenses 0.20
Selling Expenses 0.20
Profit 1.00
Factory expenses as well as selling expenses are variable to the extent of 20 per
cent.
Calculate the Break Even capacity utilization percentage. (20)
7. What do you mean by Operations Strategy? What are the components of the
Operations Strategy? State the criteria for evaluating an Operations Strategy.
(20)
8. (a) Does Benchmarking tantamount to Industrial Espionage?
(b) State the differences between Benchmarking & Benchtrending. (20)
PAPER 15
MANAGEMENT ACCOUNTING-ENTERPRISE PERFORMANCE
MANAGEMENT
TEST PAPER — IV/15/EPM/2008/T-2
Time : 3 Hours Full Marks : 100
(Answer Question No 1 and any four questions from the rest)
All Questions carry equal marks.
1. Searock Ltd. builds pleasure boats made of fibre glass. The firm has now launched a
new type of boat for the use of children. The cost data and selling price of the first
boat built by the firm are given below :
Rs.
Direct Materials 5,000
Direct Labour (800 hrs. @ Rs 5) 4,000
Overheads (150% of direct labour) 6,000
15,000
Profit mark-up(20%) 3,000
Selling Price 18,000
An 80% learning curve is expected to apply to this type of production. The C0’s
Policy is to fix selling price at cost plus 20%.
A customer has expressed interest in buying the boat but thinks that Rs 18,000 Is too
high a price to pay. He might want to buy two or even four of these boats.
During the next six months. He has asked the co. to clarify the following:
(i) If he pays Rs 18,000 for the first boat, what price would he have to pay for the
second boat?
(ii) Can the co. quote the same unit price for two boats, if he orders two at the same
time?
(iii) If he buys two boats now, at the same unit price, what would be the price for
the third and fourth boats, if he orders them separately later on/
(iv) Can the co. quote a single unit price for :
(a) four boats,
(b) eight boats, if they are all ordered now?
Assuming there is no other customer now, what replies will the co. give? (20)
2. (a) What do you mean by Total Quality Management (TQM)? What are the principles
of TQM?
(b) What according to you are the challenges before Performance Management
System? (20)
3. Write Short Notes on :
(a) Balanced Score Card,
(b) Material Requirement Planning,
(c) Master Production Schedule,
(d) Global Benchmarking,
(e) Drum Buffer Rope (20)
4. “Some executive believe that Enterprise Risk Management (ERM) will save companies
from any number of current and future ills while providing significant competitive
advantages along the way.”
Do you believe that the statement is correct ? If so, explain in detail your opinion
about ERM. (20)
5. (a) Is there any differences between Value Engineering & Value Analysis?
(b) State the benefits of Value Analysis. (20)
6. (a) What do you mean by Manufacturing Resources Planning?
(b) State the differences between Manufacturing Resources Planning & Distribution
Resources Planning. (20)
7. (a) Titagarh Paper Ltd. Has provided the following information :
Sales 20,000 units @ Rs 5per unit
Variable Cost @ Rs 3 per unit
Fixed Costs Rs 8,000 p.a.
Calculate the PV ratio and the Break Even Sales of the co.
(b) “Intranet is the private version of Internet”, Justify the statement. (20)
8. (a) What is Life Cycle Costing? Why is it important?
(b) What does an Enterprise Resource Planning (ERP) package contain? (20)
PAPER 16
ADVANCED FINANCIAL ACCOUNTING & REPORTING
TEST PAPER — IV/16/AFA/2008/T-1
Time : 3 Hours Full Marks: 100
Answer any five questions
1. (a) Mr. Pradip an employee of CCL Ltd.went on leave with a pay for 9 months on
1.1.2008 upto 30.9.2008. His monthly pay was Rs.25,000. While preparing the
financial statement on 30.6.2002 for the year ended 31.3.08, the expense of salary
of Mr.Pradip for 3 months (1.1.08 to 31.3.08) was not provided due to omission.
When Mr.Pradip joined on 1.10.08, the whole salary for 9 months was duly
paid to him.
(b) B Ltd. Purchased certain plant and machinery for Rs.50 lakhs. 20% of the cost
net of CENVAT credit is the subsidy component to be realized from a State
Government for establishing industry in a backward district. Cost includes excise
Rs. 8 lakhs against which CENVAT credit can be claimed. Compute depreciable
amount.
2. (a) X Ltd. having a share capital of Rs.20 lakhs and Y Ltd.having a share capital of
Rs.30 lakhs. Z Ltd. was formed to take over the business of X Ltd and Y Ltd. at
a purchase consideration of Rs. 25 lakhs and Rs.28 lakhs, payable in shares of Z
Ltd. The assets and liabilities were taken at their carrying amounts.
(b) H Ltd. sold machinery having WDV of Rs. 400 Lakhs to B Ltd. for Rs. 500 Lakhs
and the same machinery was leased back by B Ltd. to H Ltd. The Lease back is
operating lease.
Comment if –
(i) Sale price of Rs. 500 lakhs is equal to fair value
(ii) Fair value is Rs. 600 lakhs
(iii) Fair value is Rs. 450 lakhs and sale price is Rs. 380 lakhs
(iv) Fair value is Rs. 400 lakhs and sale price is Rs. 500 lakhs
(v) Fair value is Rs. 460 lakhs and sale price is Rs. 500 lakhs
(vi) Fair value is Rs. 350 lakhs and sale price is Rs. 390 lakhs
(c) Z Ltd. acquired a machine on 1.4.2006 costing US $ 1,00,000. The suppliers
agreed to the follwing terms of payment :
1.4.2006 : down payment 50%
1.4.2007 : 25%
1.4.2008 : 25%
The company depreciates machinery @ 10% on the Straight Line Method. The
rate of exchange is steady at US $ 1= Rs.40 upto 30.9.2007. On 1.10.07, due to
an official revaluation of rates, the exchange rate is adjusted to US $ 1= Rs.48.
Show the extracts of the relevant entries in the Profit and Loss Account for the
year ending 31st March,2008 and the Balance Sheet as on that date, showing
such workings as necessary.
3(a) MAGIC Bank has classified its total investment on 31.3.2008 into three
categories : (a) held to maturity (b) available for sale (c) held for trading.
Held to maturity investment is carried at acquisition cost less amortised amount.
Available for sale are carried at marked to market. Held for trading investments
are valued at weekly intervals at market rates or as per the prices declared by
FIMMDA. Net depreciation, if any, is charged to revenue and net appreciation,
if any, is ignored. Comment on the policy of the bank in accordance with AS-13.
(b) From the following information for R Ltd. for the year ended 31st March,2008,
calculate the deferred tax asset/liability as per AS-22
Accounting Profit Rs.10,00,000
Book Profit as per MAT(Minimum Alternate Tax) Rs.9,00,000
Profit as per Income Tax Act Rs.1,00,000
Tax Rate 30%
MAT Rate 10%
4. A Ltd. and B Ltd. amalgamated on and from 1st January 2009. A new Company X
Ltd. was formed to take over the businesses of the existing companies.
Balance Sheet as on 31.12.2008
Rs. in ’000
Liabilities A Ltd. B Ltd. Assets A Ltd. B Ltd.
Sahare capital : Sundary fixed assets 8,500 7,500
Equity Shares of R. 10 each 6,000 7,000 Investment 1,050 550
General reserve 1,500 2,000 Stock 1,250 2,750
Profit and Loss A/c 1,000 500 Debtors 1,800 4,000
Investment allowance Cash and Bank 450 400
Reserve 500 100
Export profit reserve 50 100
12% Debentures 3,000 4,000
Sundry creditors 1,000 1,500
13,050 15,200 13,050 15,200
X Ltd. issued requisite number of equity shares to discharge the claims of the equity
shareholders of the transferor companies; The total shares issued as consideration
is to be aggregate of paid up capital of A Ltd. and B Ltd.
Compute the Purchase Consideration and mode of discharge thereof and draft the
Balance Sheet of X Ltd. after amalgamation on the following assumptions.
a. Amalgamation is the nature of MERGER
b. Amalgamation is the nature of PURCHASE
5. The Balance Sheets of A Ltd. and B Ltd.as at 31.3.09
Liabilities A Ltd B Ltd Assets A Ltd B Ltd
Eq.Sh.Capital 5,00,000 2,00,000 Land & Building 1,50,000 1,80,000
@ Rs.100 each
Capital Reserve 1,20,000 Plant & Machinery 2,40,000 1,09,000
General Reserve 2,40,000 — Investments :
(1.4.08) in B Ltd (at cost) 3,40,000
Profit & Loss A/c 57,200 36,000 Stock 1,20,000 36,000
Bank O/D 80,000 — Debtors 44,000 40,000
Creditors 47,100 9,000 Cash at Bank 14,500 8,000
Bills Payable 8,400 Bills Receivable 15,800 —
(includidng Rs.4,000 (including Rs. 3,000
due to A Ltd.) from A Ltd.)
9,24,300 3,73,400 9,24,300 3,73,400
A Ltd. acquired 1,600 equity shares of B ltd. of Rs.100 each on 31st March, 09.
B Ltd. made a bonus issue on that date of one equity share for every two shares held by
its shareholders. Effect has not yet been given in the accounts for this issue.
The Directors are advised that Land and Buildings of B Ltd.are under valued by Rs.20,000
and Plant and Machinery of B Ltd. over valued by Rs.10,000. these assets have to be
adjusted accordingly.
Sundry Creditors of A Ltd. includes Rs.12,000 due to B Ltd.
Prepare Consolidated Balance Sheet as on 31st March, 2009.
6. From the following Profit and Loss Account of Kalyani Ltd., prepare a Gross Value
Added Statement. Show also the reconciliation between Gross Value Added and
Profit before Taxation.
Test Papers — Final Group IV 11
Profit and Loss Account for the year ended 31st March, 2009
Income Notes Amount
(Rs. in lakhs) (Rs. in lakhs)
Sales 206.42
Other Income 10.20
216.62
Expenditure
Production and Operational Expenses 1 166.57
Administration Expenses 2 6.12
Interest and Other Charges 3 8.00
Depreciation 5.69 186.38
Profit before Taxes 30.24
Provision for taxes 3.00
27.24
Investment Allowance Reserve Written Back 0.46
Balance as per Last Balance Sheet 1.35
29.05
Transferred to:
General Reserve 24.30
Proposed Dividend 3.00 27.30
Surplus Carried to Balance Sheet 1.75
29.05
Notes :
(1) Production and Operational Expenses (Rs. in lakhs)
Increase in Stock 30.50
Consumption of Raw Materials 80.57
Consumption of Stores 5.30
Salaries, Wages, Bonus and Other Benefits 12.80
Cess and Local Taxes 3.20
Other Manufacturing Expenses 34.20
166.57
(2) Administration expenses include inter-alia Audit fees of Rs. 1 lakh, Salaries and
commission to directors Rs. 2.20 lakhs and Provision for doubtful debts Rs. 2.50
lakhs.
(3) Interest and Other Charges : (Rs. in lakhs)
On Fixed Loans from Financial Institutions 3.90
Debentures 1.80
On Working Capital Loans from Bank 2.30
8.00
(20)
PAPER 16
ADVANCED FINANCIAL ACCOUNTING & REPORTING
TEST PAPER — IV/16/AFA/2008/T-2
Time : 3 Hours Full Marks : 100
Answer any five questions
1. (a) A FMCG company is manufacturing two brands of soap. Cinthol and Breeze.
Company has gradually planned to shift all the manufacturing operation
engaged in two soaps to manufacture only ‘Breeze Soap’ without closing the
factory/plant producing the ‘Cinthol Soap’, rather utilizing the production
facilities of ‘Cinthol Soap’ for producing the ‘Breeze Soap’. Can we consider the
operation to have been discontinued ?
(b) On February 2008, J Ltd.bought a trademark from I Ltd. for Rs.50 lakhs. J Ltd.
retained an independent consultant, who estimated the trademark’s remaining
life to be 14 years. Its unamortized cost on I ltd. records was Rs.35 lakhs. J
Ltd.decided to amortize the trademark over the maximum period allowed. In J
Ltd.’s Balance Sheet as on 31st December 2008, what amount should be reported
as accumulated amortization?
(c) C Ltd.acquired a machine for Rs.3.2 crores on 1.1.2005. It has a life of 5 years
with a salvage value of Rs.40 lakhs. Apply the test of impairment on 31.3.2008:
(i) Present value of future cash flow Rs. 1.3 crores
(ii) Net selling price Rs. 1.2crores
State the disclosure requirement.
(d) A company follows a policy of refunding money to the dissatisfied customers if
they claim within 15 days from the date of purchase and return the goods. It
appears from the past experience that in a month only 0.10% of the customers
claim refunds. The company sold goods amounting to Rs.20 lakhs during the
last month of the financial year. Is there any contingency? (5×4 = 20)
2. XYZ Ltd. has the following capital structure on of 31st March 2009.
Particulars Rs. in Crores
a. Equity Share capital (Shares of Rs. 10 each) 300
b. Reserves :
General reserve 270
Security Premium 100
Profit and Loss A/c 50
Export Reserve (Statutory reserve) 80
c. Loan Funds 800
(i) The shareholders have on recommendation of Board of Directors approved vide
special resolution at their meeting on 10th April 2009 a proposal to buy back
maximum permissible equity shares considering the huge cash surplus following
A/c of one of its divisions.
(ii) The market price was hovering in the range of Rs. 25/- and in order to induce
existing shareholders to offer their shares for buy back, it was decided to offer a
price of 20% above market.
(iii) Advice the company on maximum number of shares that can be bought back
and record journal entries for the same assuming the buy back has been completed
in full within the next 3 months.
(iv) If borrowed funds were Rs. 1200 Lakhs, and 1500 Lakhs respectively would
your answer change? (20)
3. The following are the Balance sheets of AB Ltd. and XY Ltd. as on 31.12.2008.
Liabilities AB Ltd. XY Ltd. Assets AB Ltd. XY Ltd.
Rs. Rs. Rs. Rs.
Sahare capital : Fixed assets
Equity Shares of Rs.1 00 2,000 1,000 (net of depreciation) 2,700 850
each fully paid up Investments 700 –
Reserves and surplus 800 – Sundry Debtors 400 150
10% debentures 500 – Cash and Bank 250 –
Loan from Financial Profit and Loss A/c – 800
Institutions 250 400
Bank Overdraft – 100
Sundry creditors 300 300
Proposed Dividend 200 –
Total 4,050 1,800 Total 4,050 1,800
Test Papers — Final Group IV 15
It was decided that XY Ltd. will acquire the business of AB Ltd. for enjoying the
benefit of carry forward of business loss. After acquisition, XY Ltd. will be renamed
as Z Ltd. The following scheme has been approved for the merger.
(i) XY Ltd. will reduce its shares to Rs. 10 and then consolidate 10 such shares into
one share of Rs. 100 each (New Share).
(ii) Financial institutions agreed to waive 15% of the loan of XY Ltd.
(iii) Shareholders of AB Ltd. will be given one new share of XY Ltd. in exchange of
every share held in AB Ltd.
(iv) AB Ltd. will cancel 20% holdings of XY Ltd. Investments were held at Rs. 250
thousands.
(v) After merger, the proposed dividend of AB Ltd. will be paid to the shareholders
of AB Ltd.
(vi) Authorised Capital of XY Ltd. will be raised accordingly to carry out the scheme.
vii. Sundry creditors of XY Ltd. includes payables to AB Ltd. Rs. 1,00,000.
Pass the necessary entries to implement the scheme in the books of AB Ltd. and XY
Ltd. and prepare a Balance Sheet of Z Ltd. (20)
4. The Balance Sheets of Holding Ltd. and Subsidiary Ltd.as at 31.3.09
Liabilities M Ltd D Ltd Assets M Ltd D Ltd
Eq.Sh.Capital @ Rs.10 each 10,00,000 4,20,000 Goodwill
General Reserve (1.4.07) 2,40,000 80,000 Land & Building
Creditors 90,000 Plant & Machinery
Bills Payable 1,70,000 Investments
Profit & Loss A/c(1.4.07) Stock
Profit for the year 31.3.08 Debtors
Bills Receivable
Cash at Bank
20,00,000 5,37,000 20,00,000 5,37,000
Out of the Debtors and Bills Receivable M Ltd. Rs.50,000 and Rs.16,000 respectively
represented those due from D Ltd.includes goods purchased from M Ltd. at Rs.20,000
which includes profit charged by the latter company at 25% on cost. Both the companies
have proposed dividend @10% for 2008-09.
Prepare a Consolidated Balance Sheet of M Ltd. and its subsidiary s Ltd. as at 31st
March,2009. (20)
5. (a) Briefly indicate the items, which are included in the expression “borrowing cost”
as explained in AS 16. (6)
(b) Define Embedded Derivative (4)
(c) Define Held to Maturity (4)
(d) Write short note on Effect of Uncertainties on Revenue Recognition. (6)
6. (a) A Ltd. acquired 25% of shares in B Ltd. as on 31.3.2008 for Rs. 3 lakhs. The
Balance Sheet of B Ltd. as on 31.3.2008 is given below :
Rs.
Share Capital 5,00,000 Fixed Assets 5,00,000
Reserves and Surplus 5,00,000 Investments 2,00,000
Current Assets 3,00,000
10,00,000 10,00,000
During the year ended 31.3.2009 the following are the additional information available :
(i) A Ltd. received dividend from B Ltd., for the year ended 31.3.2008 at 40% from
the Reserves.
(ii) B Ltd., made a profit after tax of Rs. 7 lakhs for the year ended 31.3.2009.
(iii) B Ltd., declared a dividend @ 50% for the year ended 31.3.2009 on 30.4.2009.
A Ltd. is preparing Consolidated Financial Statements in accordance with AS –
21 for its various subsidiaries. Calculate:
(i) Goodwill if any on acquisition of B Ltd.’s shares.
(ii) How A Ltd., will reflect the value of investment in B Ltd., in the Consolidated
Financial Statements?
(iii) How the dividend received from B Ltd. will be shown in the Consolidated
Financial Statements? (10)
(b) On 1st December, 2008, Vishwakarma Construction Co. Ltd. undertook a
contract to construct a building for Rs. 85 lakhs. On 31st March, 2009 the
company found that it had already spent Rs. 64,99,000 on the construction.
Prudent estimate of additional cost for completion was Rs. 32,01,000. What
amount should be charged to revenue in the final accounts for the year ended
31st March, 2009 as per provisions of Accounting Standard 7 (Revised)? (5)
(c) While preparing its final accounts for the year ended 31st March, 2009 a company
made a provision for bad debts @ 5% of its total debtors. In the last week of
February, 2003 a debtor for Rs. 2 lakhs had suffered heavy loss due to an
earthquake; the loss was not covered by any insurance policy. In April, 2009
the debtor became a bankrupt. Can the company provide for the full loss arising
out of insolvency of the debtor in the final accounts for the year ended 31st
March, 2009? (5)
PAPER 17
COST AUDIT & OPERATIONAL AUDIT
TEST PAPER — IV/17/COA/2008/T-1
Time Allowed : 3 hours Full Marks : 100
(Answer Question No. 1 and any five Questions from the rest)
1. (a) State whether the following statements are “True” of “False”. No reasons or
explanations need be given :
i) Under the existing regulations, a Cost Accountant in practice can take as his
partner a practicing Company Secretary.
ii) Non-moving stock of raw materials and components are those stocks which
have not moved for more than 24 months.
iii) Operational audit is termed as micro level management audit.
iv) The cost auditor is a member of the audit committee of the company.
v) The secretariat of the WTO will be headed by a Secretary.
vi) A large scale footwear unit in the co-operative sector need not maintain cost
accounting records.
vii) The managing director of the company can be appointed as the Chairman
of the Audit Committee.
viii) “Export Performance” of a company is beyond the scope and coverage of
cost audit.
ix) Under Para 27, Cost Auditor gives reconciliation only of two years.
x) At present cost audit report should be filed by e-filing.
Test Papers — Final Group IV 19
(b) Fill in the blanks.
i) The audit committee shall meet at least ……………….. a year.
ii) The audit of Cenvat availed can be ordered only by the ………………..
iii) Corporate image implies the ……………………. Of a corporate body in all
its field of business.
iv) The cost accounting records u/s 209 (1) (d) are to be made available to the
Cost Auditor within …………………… days from the close of the financial
year.
v) Non-moving stocks of stores and spares are those stocks which have not
i. moved for more than ……………….. months.
(c) Expand the abbreviation
i. MCA
ii. GAAP
iii. CAB
iv. MTA
v. MFN
2. Answer the following :
(a) What is meant by True and Fair Cost of Production?
(b) Reconciliation of cost and financial accounts
(c) Write short note on - Advantages of Cost Audit to Government
3. A manufacturing company furnishes the following particulars. You are required to
calculate the following from the given information :
a. Value added
b. Ratio of operating profit to Net sales
c. Ratio of operating profit to value added
20 Test Papers — Final Group IV
Rs. In lakhs
Net sales 1680
Increase in stock of finished goods 200
Expenses :
Raw material consumed 2080
Packing material consumed 960
Stores and spares consumed 448
Power and fuel 3680
Repairs and maintenances 160
Salaries and wages 384
Depreciation 708
Interest paid 1118
Factory O/H
Salaries and wages 192
Others 200
Selling and distribution O/H
Salaries and wages 96
Addl sales tax 366
Others 1360
Administration O/H
Salaries and wages 96
Others 64
4. Short Notes :
a. Energy audit
b. Audit committee
c. Corporate governance
d. SWOT analysis
5. (a) Give the definition of the following as per CAS 1
i. Sunk Cost,
ii. Unavoidable cost
iii. Abnormal cost
iv. Process cost
(b) What is the disclosure requirement of CAS 2 ?
6. What is the objective of Anti Dumping Duty ? What are the different provisions in
the Cost Accounting Records Rules and Cost Audit Report Rules 2001 on Anti
Dumping Duty?
7. As a management auditor what are the various points you have to consider while
doing the audit of a medium scale engineering unit ?
PAPER 17
COST AUDIT & OPERATIONAL AUDIT
TEST PAPER — IV/17/COA/2008/T-2
Time Allowed : 3 hours Full Marks : 100
(Answer Question No. 1 and any five Questions from the rest)
1. (a) State whether the following statements are “True” of “False”. No reasons or
explanations need be given :
i) In the operation of Responsibility Accounting System, the concept of an
“Activity Centre” is very important.
ii) UK is the first country in the world in introducing the provisions of
compulsory maintenance of Cost Accounting Records.
iii) Capital employed under Para 24 means average of Share capital plus reserves.
iv) Main objective of internal audit is to prevent errors and frauds.
v) Royalty is an item of cost of production under the Cost Accounting Records
Rules.
vi) Management audit in certain specified companies may be ordered by the
Government by a special notification.
vii) Goodwill included in Fixed Assets is to be excluded in computing Capital
Employed.
viii) Excisable clearance means only sales of goods from factory.
ix) New cost auditor is authorized to submit a supplementary report, if he
considers it as necessary.
x) A practicing Cost Accountant needs to file “Service Tax Returns” annually.
(b) Fill in the blanks.
i) Activity based costing is the extended application of …………………… to
activity centers.
ii) ………………………… is the evaluation of every resources declared in
industry.
iii) The concept of Management Audit was developed by ……………………..
iv) Audit committee which shall consist of not less than ……………… directors
and such number of other directors as the board may determine.
v) The maximum amount of penalty payable by a cost auditor for noncompliance
with the provisions of the Cost Audit (Report) Rules, is Rs.
………………………….
(c) Expand the abbreviation :
i. CII
ii. EIA
iii. TRIPS
iv. CEGAT
v. CERA
2. (a) There was a strike from 15.7.2008 to 22.9.2008 in a manufacturing company of
which you were the Cost Auditor for the year ending 31.3.2009. Although the
company began working from 23.9.2008, production could effectively began
only from 13.10.2008. the expenses incurred during the year ended 31.3.2009
were :
Rs. In lakhs
Salaries & Wages (Direct) 3325
Salaries & Wages (Indirect) 2375
Power (Variable) 1140
Depreciation 1710
Other fixed expenses 2280
Test Papers — Final Group IV 23
Detailed examination of the records revealed that of the above the following relate
to the period 15.7.2008 to 22.9.2008 :
Rs. In lakhs
Salaries & Wages (Indirect) 675
Depreciation 656
Other fixed expenses 760
Calculate the amount which, in your opinion, should be treated as abnormal for
exclusion from the product cost.
(b) What are the objectives of Cost Accounting Standard Board?
3. (a) Highlight the provisions relating to corporate responsibility under Sarbanes Oxley
Act of 2002.
(b) What type of manufacturing organizations are exempt from the maintenance
of cost accounting records they are engaged in the industries in respect of which
Section 209 (1) (d) Rules have been prescribed ?
4. Calculate Installed Capacity, Available Capacity, Normal Capacity, Actual Capacity,
Idle Capacity, Abnormal Idle Capacity from the following data as per CAS 2.
Manufacturers specification capacity per hour = 720
Number of shifts (each shift 8 hours) = 3 shifts
Holidays in a year (365 days) :
Sundays – 52 days
Other holidays – 15 days
Annual maintenance is done within 15 holidays
Preventive weekly maintenance for the machine on Sunday.
Normal idle capacity for batch change over, lunch, personal need etc. = 1.5 hour
per shift
Production bases on sales expectancy in past five years = 43.34, 38.74, 42.77, 35.14
and 43.49 lakh units
Actual production for the year = 43.34 lakh units
(b) How are the cost accounting standards different from cost accounting record
rules?
5. The following figures are taken from the account of a company :
(Rupees in lakhs)
31.3.2009 31.3.2008 31.3.2007
Gross fixed assets 3692 3370 3076
Cumulative depreciation 1050 1010 980
Capital work-in-progress 218 180 255
Investments in shares and Debentures 580 570 555
Inventories 500 465 410
Sundry debtors 265 255 235
Advances for purchase of
Capital equipment 20 50 40
Other loans and advances 52 45 40
Other current assets 25 25 20
Sundry creditors 170 150 140
Provision for expenses 23 27 22
Net sales 3140 2570 2345
Depreciation 43 38 35
Interest 490 400 332
Profit before taxes 185 116 160
Compute the following ratios as defined in the Cost Audit Report Rules, 2001, for the
year ended 31.3.2009 and 31.3.2008.
a. Profit as a percentage of capital employed
b. Profit as a percentage of net sales.
6. a) Why is Cost Audit Report not made public ? “Parliament members also cannot
have access the Cost Audit Report”. Is it true ?
b) State the important aspects to be considered by the External auditor in the
evaluation of Internal Audit Function.
7. What information should be included in the report of a Cost Accountant ?
PAPER 18
BUSINESS VALUATION MANAGEMENT
TEST PAPER — IV/18/BVM/2008/T-1
Time Allowed : 3 hours Full Marks : 100
(Answer Question No. 1 and any five Questions from the rest)
1. (a) A man has purchased for Rs 3,47,000 a leasehold property which produces a
net income of Rs 30,000. The lease has 30 years to run. What sum should be
placed annually in a sinking fund which will accumulate at 3.5% compound
interest so that he can redeem his purchase money at the termination of his
lease?
(b) What are the various adjustments that you will make to financial statements
before valuation and why? (12+8)
2. (a) Why do Companies want to measure Intellectual Capital?
(b) Do you think Tobin’s Q can be a useful measure of intellectual capital? If so,
Explain the utilities of it. (8+8)
3. XYZ Ltd. is considering merger with ABC Ltd. Shares of ABC Ltd. is currently
traded at Rs 20. It has 2,50,000 shares outstanding and its earnings after taxes
(EAT) amount to Rs 500,000. ABC Ltd. Has 1,25,000 shares outstanding, its current
market price is Rs 10 and its EAT are Rs. 1,25,000. The merger will be effected by
means of a stock swap (exchange). ABC Ltd. Has agreed to a plan under which
XYZ Ltd. Will offer the current market value of ABC Ltd.’s shares :
(i) What is the pre-merger earnings per share (EPS) and P/E Ratios of both the
Companies?
(ii) If ABC Ltd.’s P/E ratio is 6.4, what is its current market price? What is the
exchange ratio? What will XYZ Ltd.’s post-merger EPS be?
(iii) What should be the exchange ratio, if XYZ Ltd.’s pre-merger & post–merger
EPS are to be the same ! (16)
4. (a) What is meant by Economic Value Added (EVA)?
(b) What are the usage of EVA method? How EVA is related to valuation? (8+8)
5. (a) Explain the concept of efficient market hypothesis and its relevance to valuation.
(b) Differentiate between absolute & relative methods of valuation. (8+8)
6. (a) State the differences between Human capital, Structural Capital & Relational
Capital.
(b) The following information is given:
Risk free rate of return 8%
Expected rate of return on market portfolio 16%
b of a security 0.7
(i) Find out the expected rate of return of the security.
(ii) If another security has an expected return of 20%, what should be its beta?
(6+10)
7. (a) Explain the real options basis of valuation of intellectual capital with an example.
(b) How is valuation of real estates different from other assets? Explain. (8+8)
8. (a) What do you understand by “Comparable companies approach” to valuation?
(b) In the context of Restructuring, what do you mean by ‘Financial Engineering’?
(8+8)
PAPER 18
BUSINESS VALUATION MANAGEMENT
TEST PAPER — IV/18/BVM/2008/T-2
Time Allowed : 3 hours Full Marks : 100
(Answer Question No. 1 and any five Questions from the rest)
1. How is value different from cost & price? What are the value drivers? What do you
mean by relative valuation? (20)
2. (a) How will you determine the discount factor in an Merger & Amalgamation deal
valuation, under the Discounted Cash Flow (DCF) method?
(b) Canon (I) Ltd., is foreseeing a growth rate of 12% p.a. in the next two years.
The growth rate is likely to fall to 10% for the third year and the fourth year.
After that the growth rate is expected to stabilize at 8% p.a.. If the last dividend
was Rs 1.50 per share and the investor’s required rate of return is 16%, determine
the current value of its equity share. The PV factors at 16% are :
Year 1 2 3 4
P.V.Factor 0.862 0.743 0.641 0.552
(8+8)
3. (a) What are the take-over defenses available for the target company? What do you
mean by Balanced Score Card?
(b) The following data relate to particular stock item:
Normal Usage 110 units per day
Minimum Usage 50 units per day
Maximum Usage 140 units per day
Lead Time 25-30 days
EOQ previously calculated 5000 units
Using the above data, calculate stock levels (6+10)
4. (a) Calculate EVA with the help of the following information of i-Flex Ltd.:
Financial Leverage : 1.4 times
Capital Structure : Equity Capital Rs 170 Lakhs
Reserve & Surplus Rs 130 Lakhs
10% Debentures Rs 400 Lakhs
Cost of Equity : 17.5%
Income Tax Rate : 30%
(b) How is Human Resource Accounting related to human capital valuation? (10+6)
5. (a) Explain Skandia Navigator Methodology.
(b) What do you mean by performance prism?
(c ) How will you develop an intangible asset score sheet? (5+5+6)
6. Firm A is planning to acquire Firm B. The relevant financial details of the two firms
prior to merger announcement are as follows :
Particulars Firm A Firm B
Market price per share (Rs) 75 30
Number of Shares 10,00,000 5,00,000
Market value of the firm (Rs) 7,50,00,000 1,50,00,000
The merger is expected to bring gains which have present value of Rs 1.50 crore.
Firm A offers 2,50,000 shares in exchange for 5 lakh shares to the shareholders of
Firm B.
You are required to calculate:
(i) True cost of Firm A for acquiring Firm B, &
(ii) Net present value of the merger to Firm B. (16)
7. (a) Discuss in detail the various multiples used in relative valuation method.
(b) Select any company of your choice and work out the value of the company
using various approaches. (8+8)
8. Write in brief (any two) :
(a) Intangible Asset Monitor,
(b) Human Resource Accounting,
(c) Efficient Market Hypothesis. (8+8)
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