B.COM – II – ADVANCED AND COST...

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2012

Compiled and Solved by:

Sameer Hussain

B.COM – II – ADVANCED AND COST ACCOUNTING

PRIVATE

Compiled & Solved by: Sameer Hussain www.a4accounting.weebly.com

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B . C o m – I I – A d v a n c e d a n d C o s t A c c o u n t i n g – 2 0 1 2 ( P r i v a t e )

ADVANCED AND COST

ACCOUNTING – 2012

PRIVATE Instructions: (1) Attempt any FIVE questions in all, THREE questions from Section – A and TWO

questions from Section – B. (2) All questions carry equal marks. (3) Answers without necessary computations will not be accepted.

SECTION “A” (ADVANCED ACCOUNTING)

Q.No.1 ACCOUNTING FOR COMPANY – ABSORPTION The balance sheet data of Mustafa Ltd. was as under: Authorized capital Rs.1,000,000 Paid up capital 400,000 Share premium 50,000 Retained earnings 100,000 Reserve 50,000 Bonds payable 100,000 Accounts payable 60,000 Goodwill 100,000 Mustafa Ltd. was absorbed by Raza Ltd. on the following terms:

a) All the assets and accounts payable were taken over by the absorbing company at book values. b) Mustafa Ltd. received 50,000 shares of Rs.10 each @ Rs.12 per share and cash payment of

Rs.60,000 from the absorbing company. c) The bondholders received 11,000 shares of Rs.10 @ Rs.12 each from absorbing company. d) Raza Ltd. paid the liquidation expenses of Rs.10,000 to Mustafa Ltd.

REQUIRED (i) Compute the purchase consideration. (ii) Give necessary journal entries on the books of (a) Mustafa Ltd. (b) Raza Ltd.

SOLUTION 1 (i) Computation of Purchase Consideration: To Shareholders: 50,000 Ordinary shares @ Rs.12 each 600,000 Cash 60,000 To Bondholders: 11,000 Ordinary shares @ Rs.12 each 132,000 Liquidation Expense: Cash 10,000

Purchase consideration 802,000


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Computation of Other Assets: Paid up capital 400,000 Share premium 50,000 Retained earnings 100,000 Reserve 50,000 Bonds payable 100,000 Accounts payable 60,000

Total assets 760,000 Less: Goodwill (100,000)

Other assets 660,000

SOLUTION 1 (ii)

MUSTAFA LTD. GENERAL JOURNAL

Date Particulars P/R Debit Credit

1 Receivable from Raza Ltd. 802,000 Realization 802,000 (To record the purchase consideration)

2 Shares – in 732,000 Cash 70,000 Receivable from Raza Ltd. 802,000 (To record the shares and cash received from Raza Ltd.)

3 Realization 660,000 Other assets 660,000 (To record the closing of assets accounts)

4 Accounts payable 60,000 Realization 60,000 (To record the closing of liability account)

5 Bonds payable 100,000 Realization 32,000 Shares – in 132,000 (To record the shares issued in settlement bonds payable)

6 Realization 10,000 Cash 10,000 (To record the payment of liquidation expense)

7 Ordinary share capital 400,000 Share premium 50,000 Retained earnings 100,000 Reserve 50,000 Goodwill 100,000 Payable to shareholders 500,000 (To record the closing of shareholders’ equity)

8 Realization 160,000 Payable to shareholders 160,000 (To record the closing of realization account)

9 Payable to shareholders 660,000 Cash 60,000 Shares – in 600,000 (To record the cash & shares issued to the shareholders)


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Realization

3 Assets 660,000 1 Receivable 802,000 5 Bonds payable 32,000 4 Accounts payable 60,000 6 Liquidation expense 10,000

702,000 8 Payable to shareholders 160,000

862,000 862,000

RAZA LTD.

GENERAL JOURNAL


1 Other assets 660,000 Goodwill 202,000 Accounts payable 60,000 Payable to Mustafa Ltd. 802,000 (To record the assets and liabilities taken over from

Mustafa Ltd.)

2 Payable to Mustafa Ltd. 802,000 Ordinary shares capital (61,000 x 10) 610,000 Ordinary shares premium (61,000 x 2) 122,000 Cash 70,000 (To record the cash shares issued to Mustafa Ltd.)

Q.No.2 FUND / CASH FLOW STATEMENT The following are balance sheet data of Jannat Company Ltd.:

Debit Balances 2011 2010 Credit Balances 2011 2010

Cash 12,000 4,000 Allowance for bad debts 4,000 5,000

Accounts receivable 40,000 50,000 All. For depreciation Building 30,000 27,000

Merchandise inventory 95,000 130,000 All. For depreciation Equipment 3,000 5,000

Prepaid expenses 7,000 3,000 Accounts payable 50,000 63,000

Land 65,000 75,000 Accrued expenses 10,000 7,000

Building 200,000 125,000 Long term loan 100,000 80,000

Equipment 18,000 10,000 Capital stock Rs.10 par 250,000 200,000

Retained earnings 10,000 Retained earnings 10,000

Additional Data: During the year land costing Rs.10,000 was sold at a gain of Rs.5,000 for cash and the old equipment costing Rs.10,000 was sold for Rs.2,000 on credit. REQUIRED Prepare a Cash Flow Statement using Indirect Method for the year ended Dec. 31, 2011.


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SOLUTION 2 Computation of Net Income/Loss: Retained earnings (2011) (10,000) Less: Retained earnings (2010) (10,000)

Net loss (20,000)

JANNAT COMPANY LTD. CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 DECEMBER 2011 Cash Flow from Operating Activities: Net loss (20,000) Adjustments: Add: Depreciation expense (Building) 3,000 Less: Gain on sale of land (5,000) Add: Loss on sale of equipment 6,000

Loss before changes in working capital (16,000) Add: Decrease in accounts receivable (Net) 11,000 Add: Decrease in merchandise inventory 35,000 Less: Increase in prepaid expenses (4,000) Less: Decrease in accounts payable (13,000) Add: Increase in accrued expenses 3,000

Net cash flow from operating activities 16,000 Cash Flow from Investing Activities: Sale of land 15,000 Purchase of equipment (18,000) Purchase of building (75,000)

Net cash flow from investing activities (78,000) Cash Flow from Financing Activities: Issue of shares 50,000 Issue of long term loans 20,000

Net cash flow from financing activities 70,000

Net increase in cash and cash equivalents 8,000 Add: Opening cash and cash equivalents balance 4,000

Closing cash and cash equivalents balance 12,000

Q.No.3 FINANCIAL STATEMENT ANALYSIS

(i) Find current liabilities when current ratio is 4:1 and current assets Rs.80,000. (ii) Find current assets when current ratio is 3:1 and current liabilities Rs.40,000. (iii) Find quick assets when quick ratio is 3:1 and current liabilities Rs.60,000. (iv) Find total liabilities when debt ratio is 1:3 and total assets Rs.600,000. (v) Find total capital when equity ratio is 5:8 and total assets Rs.800,000. (vi) Find cost of goods sold when inventory turnover is 20 times and average inventory is Rs.60,000. (vii) Find net credit sales when accounts receivable turnover is 10 times and average accounts

receivable Rs.80,000. (viii) Find net sales when gross profit ratio is 1:3 and gross profit Rs.5,000 (Show computation). (ix) Which of the above ratios measure liquidity?


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SOLUTION 3 (i) Current Liabilities:

Current ratio = Total current assets

Total current liabilities 4:1 = 80,000

Total current liabilities Total current liabilities = 80,000

4 Total current liabilities = Rs.20,000

(ii) Current Assets: Current ratio = Total current assets

Total current liabilities 3:1 = Total current assets

40,000 Total current assets = 40,000 x 3 Total current assets = Rs.120,000

(iii) Quick Assets: Quick ratio = Total quick assets

Total current liabilities 3:1 = Total quick assets

60,000 Total quick assets = 60,000 x 3 Total quick assets = Rs.180,000

(iv) Total Liabilities: Debt ratio = Total liabilities

Total assets 1:3 = Total liabilities

600,000 Total liabilities = 600,000

3 Total liabilities = Rs.200,000

(v) Total Capital: Equity ratio = Total capital

Total assets 5:8 = Total capital

800,000 Total capital = 800,000 x 5

8 Total capital = Rs.500,000


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(vi) Cost of Goods Sold: Inventory turnover in times = Cost of goods sold

Average inventory 20 = Cost of goods sold

60,000 Cost of goods sold = 60,000 x 20 Cost of goods sold = Rs.1,200,000

(vii) Net Credit Sales: Receivable turnover in times = Net credit sales

Average receivable 10 = Net credit sales

80,000 Net credit sales = 80,000 x 10 Net credit sales = Rs.800,000

(viii) Net Sales: Gross profit ratio = Gross profit

Net sales 1:3 = 5,000

Net sales Net sales = 5,000 x 3 Net sales = Rs.15,000

(ix) Liquidity Ratios:

Current ratio.

Quick ratio.

Q.No.4 BRANCH ACCOUNTING On March 1, 2011 Tooba Company of Karachi opened a branch at Lahore. The information for the month is as under:

a) Goods shipped to the branch at billed price of Rs.165,000. b) During the month additional shipment was made at billed price of Rs.67,000. c) Goods returned by the branch at billed price of Rs.5,050. d) Merchandise inventory at branch on March 31, 2011 was valued at Rs.54,000. e) The head office follows the practice of billing the branch at 20% above cost.

REQUIRED Give General Journal entries in the books of head office to record the above transactions and an adjusting entry to record profit from allowance for overvaluation.


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SOLUTION 4 TOOBA COMPANY

HEAD OFFICE GENERAL JOURNAL

FOR THE MONTH OF MARCH 2011


1 Lahore branch 165,000 Merchandise supplied 137,500 Allowance for overvaluation 27,500 (To record the merchandise supplied to Lahore branch)

2 Lahore branch 67,000 Merchandise supplied 55,833 Allowance for overvaluation 11,167 (To record the merchandise supplied to Lahore branch)

3 Merchandise supplied returned 4,208 Allowance for overvaluation 842 Lahore branch 5,050 (To record the merchandise returned by branch)

4 Allowance for overvaluation 28,825 Profit and loss account 28,825 (To adjust the allowance for overvaluation)

Computation of Allowance for Overvaluation:

Particulars Billed Cost Allowance for over valuation

Merchandise supplied (165,000 x 20/120) 165,000 137,500 27,500 Add: Merchandise supplied (67,000 x 20/120) 67,000 55,833 11,167

232,000 193,333 38,667 Less: Merchandise returned (5,050 x 20/120) (5,050) (4,208) (842)

Unadjusted allowance for overvaluation 226,950 189,125 37,825 Less: Merchandise inventory ending (54,000 x 20/120) (54,000) (45,000) (9,000)

Adjusted allowance for overvaluation 172,950 144,125 28,825

Q.No.5 INSTALLMENT SALES Sana Company Ltd. sells merchandise on installment basis. The transactions for the year ended December 31, 2011 are as under:-

(a) Merchandise inventory Jan. 1, 2011 Rs.150,000. (b) Purchased merchandise on account 400,000. (c) Purchased merchandise for cash 200,000. (d) Sold merchandise on installment basis 800,000. (e) Collection of installment accounts receivable (2011) 300,000. (f) Collection of installment accounts receivable (2009) 50,000. (g) Collection of installment accounts receivable (2010) 100,000. (h) Payment made to creditors 250,000. (i) Installment accounts receivable of 2009 in the amount of Rs.8,000 was

cancelled because of default but the merchandise could not be repossessed. (j) Expenses paid 25,000. (k) Merchandise inventory Dec. 31, 2011 270,000.

Note: Gross profit rate 2009 – 42%, 2010 – 44%.


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REQUIRED Record the above transactions in the general journal and also give adjusting and closing entries at December 31, 2011 assuming the company follows the perpetual inventory system. SOLUTION 5 Computation of Cost of Installment Sales: Merchandise inventory beginning 150,000 Add: Credit purchases 400,000 Add: Cash purchases 200,000

Merchandise available for sales 750,000 Less: Merchandise inventory ending (270,000)

Cost of installment sales 480,000

Computation of Unrealized Gross Profit (2001): Unrealized gross profit (2001) = Installment sales – Cost of installment sales Unrealized gross profit (2001) = 800,000 – 480,000 Unrealized gross profit (2001) = 320,000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate (2001) = Unrealized gross profit x 100

Installment sales Unrealized gross profit rate (2001) = 320,000 x 100

800,000 Unrealized gross profit rate (2001) = 40% Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit (2001) = 300,000 x 40% 120,000 Realized gross profit (2000) = 100,000 x 44% 44,000 Realized gross profit (1999) = 50,000 x 42% 21,000

Total realized gross profit = 185,000

Computation of Loss on Default: Installment accounts receivable cancelled (1999) 8,000 Less: Unrealized gross profit (8,000 x 42%) (3,360)

Loss on default 4,640

SANA COMPANY LTD.

GENERAL JOURNAL


1 Purchases 400,000 Accounts payable 400,000 (To record the goods purchased on account)

2 Purchases 200,000 Cash 200,000 (To record the merchandise purchased for cash)

3 Installment accounts receivable (2011) 800,000 Installment sales 800,000 (To record the goods sold on installment basis)


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4 Cash 450,000 Installment accounts receivable (2011) 300,000 Installment accounts receivable (2010) 100,000 Installment accounts receivable (2009) 50,000 (To record the cash collected on installment basis)

5 Accounts payable 250,000 Cash 250,000 (To record the cash paid to supplier)

6 Expenses 25,000 Cash 25,000 (To record the expenses paid)

SANA COMPANY LTD. ADJUSTING ENTRIES


1 Installment sales 800,000 Merchandise inventory (end) 270,000 Purchases 600,000 Merchandise inventory (beg) 150,000 Unrealized gross profit (2011) 320,000 (To adjust the unrealized gross profit)

3 Unrealized gross profit (2011) 120,000 Unrealized gross profit (2010) 44,000 Unrealized gross profit (2009) 21,000 Realized gross profit 185,000 (To adjust the realized gross profit)

4 Unrealized gross profit (20099) 3,360 Loss on default 4,640 Installment accounts receivable (2009) 8,000 (To adjust the default of merchandise)

SANA COMPANY LTD.

CLOSING ENTRIES


1 Expense and revenue summary 29,640 Expenses 25,000 Loss on default 4,640 (To close the various expense accounts)

2 Realized gross profit 185,000 Expense and revenue summary 185,000 (To close the income accounts)

3 Expense and revenue summary 155,360 Retained earnings 155,360 (To close the expense and revenue summary account)


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SECTION “B” (COST ACCOUNTING) Q.No.6 ACCOUNTING FOR MANUFACTURING The following data have been taken from the books of Mehmood Manufacturing Ltd. for the year 2010 – 2011: Inventories July 1st June 30th Raw material 16,000 20% more than the beginning inventory Goods in process 24,000 10% less than the beginning inventory Finished goods 12,000 26,000 Data for the Year: Sales Rs.480,000 Purchased raw material 110,000 Purchases discount 2,000 Direct labour 90,000 Factory overhead 98,000 Operating expenses 70,000 REQUIRED Prepare: (a) Statement of Cost Of Goods Manufactured (b) An Income Statement (c) Closing Entries SOLUTION 6 (a)

MEHMOOD MANUFACTURING LTD. STATEMENT OF COST OF GOODS MANUFACTURED

FOR THE PERIOD ENDED 30 JUNE 2011 Direct Material Used: Raw material (beg) 16,000 Add: Net Purchased of Raw Materials: Purchases of raw materials 110,000 Less: Purchase discount (2,000)

Net purchases of raw materials 108,000

Raw materials available for use 124,000 Less: Raw materials (end) {16,000 + (16,000 x 20%)} (19,200)

Direct materials used 104,800 Add: Direct labour 90,000

Prime cost 194,800 Add: Factory overheads 98,000

Total manufacturing cost 292,800 Add: Goods – in – process (opening) 24,000

Total goods – in – process during the period 316,800 Less: Goods – in – process (ending) {24,000 – (24,000x10%)} (21,600)

Cost of goods manufactured 295,200


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SOLUTION 6 (b) MEHMOOD MANUFACTURING LTD.

INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2011

Sales 480,000 Less: Cost of Goods Sold: Finished goods (beginning) 12,000 Add: Cost of goods manufactured 295,200

Goods available for sale 307,200 Less: Finished goods (ending) (26,000)

Cost of goods sold (281,200)

Gross profit 198,800 Less: Operating expenses (70,000)

Net profit 128,800

MEHMOOD MANUFACTURING LTD.

CLOSING ENTRIES FOR THE PERIOD ENDED 30 JUNE 2011


1 Manufacturing account 338,000 Raw material (beginning) 16,000 Purchases of raw material 110,000 Direct labour 90,000 Factory overhead 98,000 Goods – in – process (beginning) 24,000 (To close the various manufacturing account)

2 Raw materials (ending) 19,200 Purchase discount 2,000 Goods – in – process (ending) 21,600 Manufacturing account 42,800 (To close the various manufacturing accounts)

3 Cost of goods manufactured 295,200 Manufacturing account 295,200 (To close the manufacturing account)

Q.No.7 PROCESS COSTING Given below is November units and cost data for a manufacturing firm that uses FIFO costing: Beginning units in process (50% direct material 15%, conversion cost) 135,000 units Work in process inventory beginning Rs.472,500 Units transferred in during the period 420,000 which cost Rs.588,000 Cost added during this period: Direct material Rs.812,700 Direct labour Rs.676,260 Factory overhead Rs.487,305 Units transferred out to finished goods inventory 430,000 units Ending units in process (75% direct material, 25% conversion cost) 125,000 units


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REQUIRED (a) Calculate the equivalent production in units. (b) Per unit cost of product. (c) Cost of units transferred to finished goods inventory. (d) The cost of units in process at end.

SOLUTION 7 (a)

M/S. ______________ EQUIVALENT PRODUCTION UNITS

FOR THE PERIOD ENDED NOVEMBER

Particulars Material Equivalent Units

Labour Equivalent Units

Overhead Equivalent Units

Units completed & transferred to finished goods

430,000 430,000 430,000

Add: Work in process (ending): (WIP ending units x % of completion) Direct material (125,000 x 75%) 93,750 Direct labour (125,000 x 25%) 31,250 Factory overhead (125,000 x 25%) 31,250

Work in process during the period 523,750 461,250 461,250 Less: Work in process (opening): Direct material (135,000 x 50%) (67,500) Direct labour (135,000 x 15%) (20,250) Factory overhead (135,000 x 15%) (20,250)

Equivalent production in units 456,250 441,000 441,000

SOLUTION 7 (b)

M/S. ______________ PER UNIT COST

FOR THE PERIOD ENDED NOVEMBER

Particular Cost Equivalent Units Per Unit Cost

Units transferred in during the month 588,000 420,000 1.400 Direct material 812,700 456,250 1.782 Direct labour 676,260 441,000 1.533 Factory overhead 487,305 441,000 1.105

Total per unit cost 2,564,265 5.82

SOLUTION 7 (c)

M/S. ______________ STATEMENT OF UNITS COMPLETED AND TRANSFERRED TO FINISHED GOODS

FOR THE PERIOD ENDED NOVEMBER Cost of Work in Process Opening Inventory: Cost b/d from last month 472,500 Add: Cost Applied During This Month From Work in Process Beginning Inventory: (WIP opening units x % of completion x unit cost of element) Direct material (135,000 x 50% x 1.782) 120,285 Direct labour (135,000 x 85% x 1.533) 175,912 Factory overhead (135,000 x 85% x 1.105) 126,798

Total cost applied during this month from work in process beginning inventory 422,995


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Total cost of work in process beginning inventory 895,495 Add: Remaining Units Completed During This Month: (Units completed – WIP opening units) x Unit cost Total cost of remaining units completed (295,000 x 5.82) 1,716,900

Total cost of units completed and transferred to finished goods 2,612,395

SOLUTION 7 (d)

M/S. ______________ STATEMENT OF WORK IN PROCESS ENDING INVENTORY

FOR THE PERIOD ENDED NOVEMBER Cost transferred in during the period (125,000 x 1.4) 175,000 (WIP ending units x % of completion) x unit cost of element Direct material (125,000 x 75% x 1.782) 167,063 Direct labour (125,000 x 25% x 1.533) 47,906 Factory overhead (125,000 x 25% x 1.105) 34,531

Cost of work in process ending inventory 424,500

Q.No.8 STANDARD COSTS The standard cost and variances for July 2012 are as follows::

Standard Cost Variances

Unfavourable Favourable Direct materials Rs.900,000 Price variance Rs.48,000 Quantity variance Rs.30,000 Direct labour Rs.180,000 Rate variance Rs.18,000 Efficiency variance Rs.54,000 Factory overhead Rs.2,700,000 Spending variance Rs.36,000 Volume variance Rs.24,000 REQUIRED Find out the following:

(a) Actual costs for: (i) Direct materials (ii) Direct labour (iii) Factory overhead

(b) Entries in general journal: (i) To record the above information. (ii) To close the variance accounts.

SOLUTION 8 (a) Computation of Actual Cost of Direct Materials: Actual cost of direct material = Standard cost – Total material variance Actual cost of direct material = 900,000 – (30,000 + 48,000) Actual cost of direct material = 900,000 + 18,000 Actual cost of direct material = 918,000


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Computation of Actual Cost of Direct Labour: Actual cost of direct labour = Standard cost – Total labour variance Actual cost of direct labour = 180,000 – (18,000 + 54,000) Actual cost of direct labour = 180,000 + 36,000 Actual cost of direct labour = 216,000 Computation of Actual Cost of Factory Overhead: Actual cost of factory overhead = Standard cost – Total factory overhead variance Actual cost of factory overhead = 2,700,000 + (36,000 – 24,000) Actual cost of factory overhead = 2,700,000 – 60,000 Actual cost of factory overhead = 2,640,000 SOLUTION 8 (b)

M/S. ____________ GENERAL JOURNAL


1 Work in process 900,000 Material price variance 48,000 Material quantity variance 30,000 Raw material 918,000 (To record the material price and quantity variance)

2 Work in process 180,000 Labour efficiency variance 54,000 Labour rate variance 18,000 Accrued payroll 216,000 (To record the labour rate and efficiency variance)

3 Work in process 2,700,000 Factory overhead spending variance 36,000 Factory overhead volume variance 24,000 Factory overhead 2,640,000 (To record the FOH spending and volume variance)

M/S. ____________

CLOSING ENTRIES


1 Material quantity variance 30,000 Labour rate variance 18,000 Factory overhead spending variance 36,000 Factory overhead volume variance 24,000 Material price variance 48,000 Labour efficiency variance 54,000 Cost of goods sold 6,000 (To close the all variances)

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