S A IPCC MAY-2011-GR-1
Transcript of S A IPCC MAY-2011-GR-1
-
8/13/2019 S A IPCC MAY-2011-GR-1
1/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
2/100
SUGGESTED ANSWERS TO QUESTIONS SET AT THE
COMMONFOR
INTEGRATED PROFESSIONAL COMPETENCE
EXAMINATION
GROUP I
&
ACCOUNTING TECHNICIAN EXAMINATION
MAY,2011
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
-
8/13/2019 S A IPCC MAY-2011-GR-1
3/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
4/100
Contents
Page Nos.
Paper 1. Accounting .................... ...................... ....................... ....................... ... 1 24
Paper 2. Business Laws, Ethics and Communication .........................................25 39
Paper 3. Cost Accounting and Financial Management .......................................40 63
Paper 4 Taxation ..................... ...................... ...................... ...................... .......64 89
Summary of Examiners comments on the performance of the candidates
-
8/13/2019 S A IPCC MAY-2011-GR-1
5/100
PAPER 1 : ACCOUNTING
Question No. 1 is compulsory
Answer any fivequestions from the remaining sixquestions.
Wherever necessary suitable assumptions should be made by the candidates.
Working Notes should form part of the answer.
Question 1
Answer the following quest ion:
(a) The abstract of the Balance Sheet of the AXE Ltd. as at 31stMarch 2011, are as follows:
Liabilities `
Equity share capital ( 100 each) 15,00,000
12% Preference share capital ( 100 each) 8,00,000
13% Debentures 3,00,000
On 31stMarch, 2011, BXE Ltd. agreed to take over AXE Ltd. on the following terms:
(1) For each preference share in AXE Ltd., ` 10 in cash and one 9% preference shareof ` 100 in BXE Ltd.
(2) For each equity share AXE Ltd. ` 20 in cash and one equity share in BXE Ltd. of` 100 each. It was decided that the share in BXE Ltd. will be issued at market price
` 140 per share.
(3) Liquidation expenses of AXE Ltd. are to be reimbursed by BXE Ltd. to the extent of
` 10,000. Actual expenses amounted to ` 12,500.You are required to compute the amount of purchase consideration.
(b) On 30thMarch, 2011 fire occurred in the premises of M/s Suraj Brothers. The concernhad taken an insurance policy of ` 60,000 which was subject to the average clause.
From the books of accounts, the following particulars are available relating to the period
1stJanuary to 30thMarch 2011.
(1) Stock as per Balance Sheet at 31stDecember, 2010, ` 95,600.
(2) Purchases (including purchase of machinery costing `30,000) ` 1,70,000
(3) Wages (including wages ` 3,000 for installation of machinery) ` 50,000.(4) Sales (including goods sold on approval basis amounting to ` 49,500) ` 2,75,000.
No approval has been received in respect of 2/3rdof the goods sold on approval.
(5) The average rate of gross profit is 20% of sales.
(6) The value of the salvaged goods was ` 12,300.
-
8/13/2019 S A IPCC MAY-2011-GR-1
6/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
2
You are required to compute the amount of the claim to be lodged to the insurance
company.
(c) Shiv and Mohan are partners in a firm sharing profits and losses equally. On 31stMarch,2011, the balances of their capital accounts were ` 3,00,000 and ` 2,00,000
respectively. The average profits of the firm are ` 1,36,000 and the rate of normal profitis 20%.
On 1stApril, 2011 they agreed to admit Hari as a partner for one fourth share. Hari will
bring ` 1,00,000 as capital.
You are required to compute the value of the goodwill of the firm on admission of Hari, if
goodwill is to be calculated on the basis of:
(1) 5 years purchase of super profit
(2) Capitalization method
(3) 3 years purchase of average profit.
(d) On 1stApril, 2010, Rajat has 50,000 equity shares of P Ltd. at a book value of ` 15 pershare (face value ` 10 each). He provides you the further information:
(1) On 20th June, 2010, he purchased another 10,000 shares of P Ltd. at ` 16 pershare.
(2) On 1stAugust, 2010, P Ltd. issued one equity bonus share for every six shares held
by the shareholders.
(3) On 31stOctober, 2010, the directors of P Ltd. announced a right issue which entitle
the holders to subscribe three shares for every seven shares at ` 15 per share.
Shareholders can transfer their rights in full or in part.Rajat sold 1/3rd of entitlement to Umang for a consideration of ` 2 per share and
subscribe the rest on 5thNovember, 2010.
You are required to prepare Investment A/c in the books of Rajat for the year ending
31stMarch, 2011. (4 5 = 20 Marks)
Answer
(a) Calculation of purchase consideration
`
I Payment made to shareholders of 8,000preference sharesof AXE Ltd. :
Cash @ ` 10 per share (8,000 preference shares x ` 10) 80,000
8,00,000
100
= 8,000 preference shares
-
8/13/2019 S A IPCC MAY-2011-GR-1
7/100
PAPER 1 : ACCOUNTING
3
9% Preference shares in BXE Ltd. @ ` 100 each 8,00,000 8,80,000
II Payment made to Equity shareholders of 15,000 equityshares of AXE Ltd. :
Cash @ ` 20 per share (15,000 shares x ` 20) 3,00,000
Equity shares in BXE Ltd. issued at market price ` 140each (15,000 shares x ` 140) 21,00,000 24,00,000
Total purchase consideration 32,80,000
Note: Re-imbursement of liquidation expenses of AXE Ltd. to the extent of ` 10,000, will
not be included in the calculation of purchase consideration.
(b) Computation of claim for loss of stock
`
Stock on the date of fire i.e. on 30 thMarch, 2011 (W.N.1) 62,600
Less: Value of salvaged stock (12,300)
Loss of stock 50,300
Amount of claim =Insured value
Total cost of stock on the date of firex Loss of stock
=60,000
50,30062,600
48,211 (approx.)
A claim of ` 48,211 (approx.) should be lodged by M/s Suraj Brothers to the insurance
company.Working Notes:
1. Calculation of closing stock as on 30thMarch, 2011
Memorandum Trading Account for
(from 1stJanuary, 2011 to 30thMarch, 2011)
Particulars Amount()
Particulars Amount()
To Opening stock 95,600 By Sales (W.N.3) 2,42,000
To Purchases (1,70,000- 30,000) 1,40,000
By Goods with customers(for approval) (W.N.2) 26,400
To Wages (50,000 By Closing stock (Bal. fig.) 62,600
15,00,000
100
= 15,000 equity shares
-
8/13/2019 S A IPCC MAY-2011-GR-1
8/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
3,000) 47,000
To Gross profit (20% onsales) 48,400
3,31,000 3,31,000
2. Calculation of goods with customersSince no approval for sale has been received for the goods of ` 33,000 (i.e. 2/3 of
` 49,500) hence, these should be valued at cost i.e. ` 33,000 20% of ` 33,000 =
` 26,400.
3. Calculation of actual sales
Total sales Sale of goods on approval = ` 2,75,000 ` 33,000 = ` 2,42,000.
(c) Valuation of goodwill
(1) 5 years purchase of super profit
`
Average profit 1,36,000
Less: Normal profit @ 20% of (` 3,00,000+ ` 2,00,000) (1,00,000)
Super profit 36,000
Value of goodwill = 5 Super profit
= 5 ` 36,000
= ` 1,80,000
Value of goodwill of the firm will be ` 1,80,000.
(2) Capitalisation method
Normal value of business =Average profit
Normal rate of profit
=1,36,000
20%= ` 6,80,000
`
Normal value of business 6,80,000
Less: Actual capital employed Shiv
Mohan
3,00,000
2,00,000 (5,00,000)
Value of goodwill of the firm will be 1,80,000
(3) 3 years purchase of average profits
Goodwill = 3 Average profit
4
-
8/13/2019 S A IPCC MAY-2011-GR-1
9/100
PAPER 1 : ACCOUNTING
= 3 ` 1,36,000
= ` 4,08,000
Value of goodwill of the firm will be ` 4,08,000.
(d) In the books of Rajat
Investment Account
(Equity shares in P Ltd. )
Date Particulars No. ofshares
Amount( )
Date Particulars No. ofshares
Amount( )
1.4.10
20.6.10
To Balance b/d
To Bank A/c
50,000
10,000
7,50,000
1,60,000
5.11.10 By Bank A/c (sale of rights)
(W.N.3) - 20,000
1.8.10 To Bonusissue (W.N.1)
10,000 - 31.3.11 By Balance c/d(Bal. fig.)
90,000 11,90,000
5.11.10 To Bank A/c(right shares)
(W.N.4) 20,000 3,00,000
90,000 12,10,000 90,000 12,10,000
Working Notes:
(1) Bonus shares =50,000 + 10,000
6= 10,000 shares
(2) Right shares =50,000 + 10,000 + 10,000
7
3 = 30,000 shares
(3) Sale of rights =1
30,000 shares 3
` 2= ` 20,000
(4) Rights subscribed = `2
30,000 shares 153
= ` 3,00,000
Question 2
Amit and Sumit are partners sharing prof its and losses in the ratio of 3:2. Their Balance Sheet
as on 31stMarch 2011 is given below:
Liabilities Amount
`
Assets Amount
`
Capital Accounts: Land & building 3,20,000
Amit 1,76,000 Investments (Market value `55,000) 50,000
Sumit 2,54,000 Debtors 3,00,000
Loan from Puneet 3,00,000 Less: Provision for doubtful debts 10,000 2,90,000
5
-
8/13/2019 S A IPCC MAY-2011-GR-1
10/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
General Reserve 30,000 Stock 1,10,000
Employers provident fund 10,000 Cash at bank 50,000
Creditors 50,000
8,20,000 8,20,000
They decided to admit Puneet as a new partner from 1st
April, 2011 on the following terms:(1) Amit will give 1/3rdof his share and Sumit will give 1/4thof his share to Puneet.
(2) Puneets loan account will be converted into his capital.
(3) The Goodwill of the firm is valued at `3,00,000. Puneet will bring his share of goodwill in
cash and the same was immediately withdrawn by the partners.
(4) Land and building was found undervalued by ` 1,00,000.
(5) Stock was found overvalued by ` 60,000.
(6) Provision for doubtful debts will be made equal to 5% of debtors.
(7) Investments are to be valued at their market price.
It was decided that the total capital of the firm after admission of new partner would be
` 10,00,000. Capital accounts of partners will be readjusted on the basis of their profit sharing
ratio and excess or deficiency will be adjusted in cash.
You are required to prepare:
(a) Revaluation A/c
(b) Partners capital A/cs
(c) Balance Sheet of the firm after admission of a new partner (16 Marks)
Answer
Revaluation A/c
Particulars ` Particulars `
To Stock 60,000 By Land & building 1,00,000
To Provision for doubtful debts 5,000 By Investments 5,000
To Profit transferred to
Amits capital A/c 24,000
Sumits capital A/c 16,000
1,05,000 1,05,000
6
-
8/13/2019 S A IPCC MAY-2011-GR-1
11/100
PAPER 1 : ACCOUNTING
Partners Capital Accounts
Particulars Amit Sumit Puneet Particulars Amit Sumit Puneet
` ` ` ` ` `
To Amits
capital A/c - - 60,000
By Balance b/d
By Puneets' Loan A/c
1,76,000
-
2,54,000
-
-
3,00,000
To Puneetscapital A/c
- - 30,000 By Puneetscapital A/c 60,000 30,000 -
To Bank A/c 60,000 30,000 - By Bank A/c (W.N.2) - - 90,000
To Balancec/d 4,00,000 3,00,000 3,00,000
By RevaluationA/c
24,000 16,000 -
By Generalreserve 18,000 12,000 -
By Bank 1,82,000 18,000 -
4,60,000 3,30,000 3,90,000 4,60,000 3,30,000 3,90,000
Balance Sheet as on 1stApril, 2011
(After admission of a new partner - Puneet)
Liabilities Amount Assets Amount
` `
Capital accounts Land and building (3,20,000 + 1,00,000) 4,20,000
Amit 4,00,000 Investments 55,000
Sumit 3,00,000 Debtors 3,00,000Puneet 3,00,000 Less: Provision for doubtful debts (15,000) 2,85,000
Creditors 50,000 Stock (1,10,000 60,000) 50,000
Employers provident
fund 10,000Cash at bank (W.N. 3) 2,50,000
10,60,000 10,60,000
Working Notes:
(1) Calculation of incoming partners share, new profit sharing ratio and sacrificing
ratioAmit Sumit
Old profit sharing ratio 3/5 2/5
It is assumed that Employers Provident Fund represents employers contribution to provident fund which isyet to be deposited. Hence, the same represents a current liability.
7
-
8/13/2019 S A IPCC MAY-2011-GR-1
12/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Surrendered by old partners 3/5 x 1/3 = 1/5 2/5 x 1/4 = 1/10
Remaining share 3/5 1/5 = 2/5 2/5 1/10 = 3/10
Puneets total share in profits = 1/5 + 1/10 = 3/10New profit sharing ratio of Amit : Sumit : Puneet =2/5 : 3/10 : 3/10 = 4:3:3
Sacrificing ratio of Amit : Sumit is 1/5 : 1/10 : or 2:1
(2) Calculation of share of goodwill by old partners
Goodwill of the firm was ` 3,00,000
Share of Puneet in goodwill = ` 3,00,0003
10 = ` 90,000
Goodwill will be distributed among the old partners in their sacrificing ratio of 2:1 i.e.` 60,000 by Amit and ` 30,000 by Sumit.
(3) Calculation of closing balance of bank account after admission
Bank A/c
Particulars Amount Particulars Amount
( ) ( )
To Balance b/d 50,000 By Amits capital A/c 60,000
To Puneets capital A/c 90,000 By Sumits capital A/c 30,000
To Sumits capital A/c 18,000 By Balance c/d 2,50,000To Amits capital A/c 1,82,000
3,40,000 3,40,000
Question 3
The Balance Sheet of Mars Limited as on 31stMarch, 2011 was as follow:
Liabilities ` Assets `
Share Capital: Fixed Assets:
1,00,000 Equity shares of ` 10each fully paid up 10,00,000 Land and buildingCurrent Assets 7,64,0007,75,000
Reserve and surplus Stock
Capital reserve 42,000 Sundry debtors 1,60,000
Contingency reserve
Profit and loss A/c
2,70,000
2,52,000
Less : Provision for
doubtful debts 8,000
1,52,000
8
-
8/13/2019 S A IPCC MAY-2011-GR-1
13/100
PAPER 1 : ACCOUNTING
Current Liabilities & Provisions Bill receivable 30,000
Bills payable 40,000 Cash at bank 3,29,000
Sundry creditors 2,26,000
Provisions for income tax 2,20,000
20,50,000 20,50,000
On 1stApril, 2011, Jupiter Limited agreed to absorb Mars Limited on the following terms and
conditions:
(1) Jupiter Limited will take over the assets at the following values:
`
Land and building 10,80,000
Stock 7,70,000
Bills receivable 30,000(2) Purchase consideration will be settled by Jupiter Ltd. as under:
4,100 fully paid 10% preference shares of `100 will be issued and the balance will besettled by issuing equity shares of `10 each at `8 paid up.
(3) Liquidation expenses are to be reimbursed by Jupiter Ltd. to the extent of ` 5,000.
(4) Sundry debtors realized` 1,50,000. Bills payable were settled for ` 38,000. Income taxauthorities fixed the taxation liability at ` 2,22,000 and the same was paid.
(5) Creditors were finally settled with cash remaining after meeting liquidation expenses
amounting to `8,000
You are required to:
(i) Calculate the number of equity shares and preference shares to be allotted by Jupiter
Limited in discharge of purchase consideration
(ii) Prepare the Realisation account, Bank account, Equity shareholders account and Jupiter
Limiteds account in the books of Mars Ltd. (16 Marks)
Answer
(i) Calculation of number of shares to be allotted
Particulars Amount ( )
Land and building 10,80,000
Stock 7,70,000
Bills receivable 30,000
Total 18,80,000
9
-
8/13/2019 S A IPCC MAY-2011-GR-1
14/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Amount discharged by issue of preference shares 4,10,000
Number of preference shares to be issued (4,10,000/100) 4,100 shares
Amount discharged by issue of equity shares (` 18,80,000 4,10,000) 14,70,000
Number of equity shares to be issued (` 14,70,000 / 8) 1,83,750 Shares
(ii) Ledger Accounts in the books of Mars Limited
Realization Account
Particulars ` Particulars `
To Land and building 7,64,000 By Provision for doubtful debts 8,000
To Stock 7,75,000 By Bills payable 40,000
To Sundry debtors 1,60,000 By Sundry creditors 2,26,000
To Bills receivable 30,000 By Provision for taxation 2,20,000
To Bank A/c liquidationexpenses
3,000 By Jupiter Ltd. (purchaseconsideration) 18,80,000
To Bank A/c- bills payable 38,000 By Bank A/c- sundry debtors 1,50,000
To Bank A/c income tax 2,22,000
To Bank A/c sundry creditors 2,16,000
To Profit transferred to equity shareholders A/c 3,16,000
25,24,000 25,24,000
Bank Account
Particulars ` Particulars `
To Balance b/dTo Realisation A/c (payment received
3,29,000 By Realisation A/c(liquidation expenses)
3,000
from debtors) 1,50,000 By Jupiter Ltd. 5,000
To Jupiter Ltd. (liquidation expenses) 5,000 By Bills payable 38,000
By Income tax 2,22,000
By Sundry creditors
(Bal.fig.) 2,16,0004,84,000 4,84,000
Equity Shareholders Account
Particulars ` Particulars `
To 10% Preference shares 4,10,000 By Equity share capital A/c 10,00,000
10
-
8/13/2019 S A IPCC MAY-2011-GR-1
15/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
16/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Additional information:
(1) Depreciation written off on land and building ` 20,000.
(2) The company sold some investment at a profit of ` 10,000, which was credited to CapitalReserve.
(3) Income-tax provided during the year ` 55,000.
(4) During the year, the company purchased a machinery for ` 2,25,000. They paid
`1,25,000 in cash and issued 10,000 equity shares of `10 each at par.
You are required to prepare a cash flow statement for the year ended 31 stMarch 2011 as per
AS 3 by using indirect method. (16 Marks)
Answer
In the books of Lotus Ltd.
Cash Flow Statement for the year ending 31stMarch, 2011
` `
I Cash flow from Operating Activities
Net Profit before tax for the year (W.N.1) 1,35,000
Add: Depreciation on machinery (W.N.2) 55,000
Depreciation on land & building 20,000
Operating profit before change in working capital 2,10,000
Add: Decrease in stock 20,000
Less: Increase in sundry debtors (20,000)Less: Decrease in sundry creditors (1,00,000)
Cash generated from Operations 1,10,000
Less: Income tax paid (W.N.3) (45,000)
Net cash generated from operating activities 65,000
II Cash flow from Investing activities
Purchase of machinery (2,25,000 1,00,000) (1,25,000)
Sale of investment (W.N. 4) 60,000
Net cash used in investing activities (65,000)III Cash flow from financing activities
Issue of equity shares (2,50,000-1,00,000) 1,50,000
Repayment of long term loan (1,00,000)
Net cash generated from financing activities 50,000
Net increase in cash and cash equivalents 50,000
12
-
8/13/2019 S A IPCC MAY-2011-GR-1
17/100
PAPER 1 : ACCOUNTING
Cash and cash equivalents at the beginning of the year(2,00,000 + 3,00,000) 5,00,000
Cash and cash equivalents at the end of the year(1,40,000+4,10,000)
5,50,000
Working Notes:
1. Calculation of Net Profit before tax
`
Increase in Profit & Loss (Cr.) balance 80,000
Add: Provision for taxation made during the year 55,000
1,35,000
2. Calculation of Depreciation charged during the year on Machinery account
Particulars Amount ( ) Particulars Amount ( )To Balance b/d 7,50,000 By Depreciation (Bal.fig.) 55,000
To Bank 1,25,000 By Balance c/d 9,20,000
To Equity share capital 1,00,000
9,75,000 9,75,000
3. Calculation of tax paid during the year
Provision for Taxation A/c
Particulars Amount ( ) Particulars Amount ( )
To Cash (Bal.fig.) 45,000 By Balance b/d 50,000
To Balance c/d 60,000 By Profit and Loss A/c 55,000
1,05,000 1,05,000
4. Calculation of sales value of investment sold
Investment A/c
Particulars Amount ( ) Particulars Amount ( )
To Balance b/d 1,00,000 By Bank A/c (Bal.fig.) 60,000
To Capital reserve (Profiton sale of investments) 10,000
By Balance c/d 50,000
1,10,000 1,10,000
13
-
8/13/2019 S A IPCC MAY-2011-GR-1
18/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
19/100
PAPER 1 : ACCOUNTING
Answer
Park View Club
Income and Expenditure Account
for the year ending on 31st
March 2011Expenditure Amount
( )Income Amount
( )
To Salaries 2,08,000 By Subscriptions (W.N. 2) 2,25,000
To Stationery consumed (W.N.3) 36,000 By Profit on sports meet 1,55,000
To Rent 60,000 By Income on investments 1,00,000
To Telephone expenses 10,000
Add: Outstanding on 31.3.11 3,500 13,500
Add: Income accrued 3,750 1,03,750
To Sundry expenses 92,500
Less: Outstanding on 31.3.10 (7,000) 85,500
To Depreciation of building 50,000
To Surplus (excess of income overexpenditure) 30,750
4,83,750 4,83,750
Balance Sheet as at 31stMarch 2011
Liabilities Amount( )
Assets Amount ( )
Capital fund (W.N.1) 31,05,500 Outstanding subscriptions 14,500Add: Surplus 30,750
Subscriptions received in advance
Outstanding telephone bills
31,36,250
7,500
3,500
Investment
(20,00,000+1,25,000) 21,25,000
Add: Interest accrued oninvestments 3,750
Building 10,00,000
21,28,750
Less: Depreciation (50,000) 9,50,000
Stock of stationery 9,000
Cash balance 45,000
31,47,250 31,47,250
Working Notes:
(1) Balance Sheet as at 31stMarch 2010
Liabilities Amount ( ) Assets Amount ( )
Outstanding sundry expenses 7,000 Building 10,00,000
15
-
8/13/2019 S A IPCC MAY-2011-GR-1
20/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Capital fund (Bal.fig.) 31,05,500 Investments 20,00,000
Stock of stationery 5,000
Cash balance 1,02,500
Outstanding subscriptions 5,000
31,12,500 31,12,500
(2) Calculation of subscriptions accrued during the year
Subscription A/c
Particulars Amount( )
Particulars Amount( )
To Outstanding Subscriptions(as on 1.4.10)
5,000 By Cash A/cBy Outstanding subscriptions
2,23,000
To Income & Expenditure A/c 2,25,000 (as on 31.3.11) (Bal.fig.) 14,500
To Subscriptions received inadvance for 2011-12 7,500
2,37,500 2,37,500
(3) Calculation of stationery consumed during the year
`
Stock of stationery as on 31 March, 2010 5,000
Add: Purchased during the year 2010-11 40,000
45,000Less: Stock of stationery as on 31stMarch, 2011 (9,000)
Stationery consumed 36,000
Question 6
Mr A runs a business of readymade garments. He closes the books of accounts on 31stMarch,
2010. The Balance Sheet as on 31stMarch, 2010 was as follows:
Liabilities ` Assets `
As capital a/c 4,04,000 Furniture 40,000
Creditors 82,000 Stock 2,80,000
Debtors 1,00,000
Cash in hand 28,000
Cash at bank 38,000
4,86,000 4,86,000
16
-
8/13/2019 S A IPCC MAY-2011-GR-1
21/100
PAPER 1 : ACCOUNTING
You are furnished with the following information:
(1) His sales, for the year ended 31st March, 2011 were 20% higher than the sales of
previous year, out of which 20% sales was cash sales.
Total sales during the year 2009-10 were ` 5,00,000.
(2) Payments for all the purchases were made by cheques only.
(3) Goods were sold for cash and credit both. Credit customers pay be cheques only.
(4) Deprecition on furniture is to be charged 10% p.a.
(5) Mr A sent to the bank the collection of the month at the last date of the each month after
paying salary of ` 2,000 to the clerk, office expenses `1,200 and personal expenses
`500.
Analysis of bank pass book for the year ending 31stMarch 2011 disclosed the following:
`
Payment to creditors 3,00,000
Payment of rent up to 31stMarch, 2011 16,000
Cash deposited into the bank during the year 80,000
The following are the balances on 31stMarch, 2011:
`
Stock 1,60,000
Debtors 1,20,000
Creditors for goods 1,46,000On the evening of 31stMarch 2011, the cashier absconded with the available cash in the cash book.
You are required to prepare Trading and Profit and Loss A/c for the year ended 31 stMarch,
2011 and Balance Sheet as on that date. All the workings should form part of the answer.
(16 Marks)
Answer
Trading and Profit and Loss Account for the year ending 31st March 2011
Particulars ` Particulars `
To Opening stock 2,80,000 By Sales (W.N. 3)
To Purchases (W.N. 1) 3,64,000 Credit 4,80,000
To Gross profit 1,16,000 Cash 1,20,000 6,00,000
By Closing stock 1,60,000
7,60,000 7,60,000
17
-
8/13/2019 S A IPCC MAY-2011-GR-1
22/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
To Salary 24,000 By Gross profit 1,16,000
To Rent 16,000
To Office expenses 14,400
To Loss ofcash (W.N. 6) 23,600
To Depreciation on furniture 4,000
To Net Profit 34,000
1,16,000 1,16,000
Balance Sheet as on 31stMarch, 2011
Liabilities ` Assets `
As Capital 4,04,000 Furniture 40,000
Add: Net Profit 34,000 Less: Depreciation (4,000) 36,000
Less: Drawings (6,000) 4,32,000 Stock 1,60,000Debtors 1,20,000
Creditors 1,46,000 Cash at bank 2,62,000
5,78,000 5,78,000
Working Notes:
(1) Calculation of purchases
Creditors Account
Particulars ` Particulars `
To Bank A/c 3,00,000 By Balance b/d 82,000
To Balance c/d 1,46,000 By Purchases (Bal.fig.) 3,64,000
4,46,000 4,46,000
(2) Calculation of total sales
`
Sales for the year 2009-10 5,00,000
Add: 20% increase 1,00,000
Total sales for the year 2010-11 6,00,000
(3) Calculation of credit sales
`
Total sales 6,00,000
18
-
8/13/2019 S A IPCC MAY-2011-GR-1
23/100
PAPER 1 : ACCOUNTING
Less: Cash sales (20% of total sales) (1,20,000)
4,80,000
(4) Calculation of cash collected from debtors
Debtors Account
Particulars ` Particulars `
To Balance b/d 1,00,000 By Bank A/c (Bal. fig.) 4,60,000
To Sales A/c 4,80,000 By Balance c/d 1,20,000
5,80,000 5,80,000
(5) Calculation of closing balance of cash at bank
Bank Account
Particulars ` Particulars `
To Balance b/d 38,000 By Creditors A/c 3,00,000
To Debtors A/c 4,60,000 By Rent A/c 16,000
To Cash A/c 80,000 By Balance c/d 2,62,000
5,78,000 5,78,000
(6) Calculation of the amount of cash defalcated by the cashier
`
Cash balance as on 1stApril 2010 28,000
Add: Cash sales during the year 1,20,000
1,48,000
Less: Salary (`2,000x12) 24,000
Office expenses (`1,200 x 12) 14,400
Drawings of A (`500x12) 6,000
Cash deposited into bank during the year
Cash balance as on 31stMarch 2011(defalcated by the cashier) 23,600
Question 7Answer any four of the following:
(a) A and B are partners in a firm and share profits and losses equally. A has withdrawn the
following sum during the half year ending 30thJune 2010:
19
80,000 (1,24,400)
-
8/13/2019 S A IPCC MAY-2011-GR-1
24/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Date Amount
`
January 15 5,000
February 10 4,000
April 5 8,000
May 20 10,000
June 18 9,000
Interest on drawings is charged @ 10% per annum. Find out the average due date and
calculate the interest on drawings to be charged on 30thJune 2010.
(b) Best Ltd. deals in five products, P, Q, R, S, and T which are neither similar nor
interchangeable. At the time of closing of its accounts for the year ending 31 st March2011, the historical cost and net realizable value of the items of the closing stock are
determined as follows:
Items Historical cost
`
Net realizable value
`
P 5,70,000 4,75,000
Q 9,80,000 10,32,000
R 3,16,000 2,89,000
S 4,25,000 4,25,000
T 1,60,000 2,15,000
What will be the value of closing stock for the year ending 31st
March, 2011 as per AS 2Valuation of Inventories?
(c) X,Y and Z are partners sharing profits an losses in the ratio of 4:3:2 respectively. On 31st
March, 2011 Y retires and X and Z decide to share profits and losses in the ratio of 5:3.
Then immediately, W is admitted for 3/10thshares in profits, 2/3rdof which was given by
X and rest was taken by W from Z . Goodwill of the firm is valued at`2,16,000 W brings
required amount of goodwill.
Give necessary Journal Entries to adjust goodwill on retirement of Y and admission of W
if they do not want to raise goodwill in the books of accounts.
(d) In business today, the accounts which were earlier maintained in a manual form, arereplaced with computerized accounts. Explain the significance of computerized
accounting system in modern time.
(e) On 1stOctober, 2010, the debit balances of debtors account is ` 77,500 in the books ofM/s Zee Ltd. Transactions during the 6 months ended on 31st March 2011 were as
follows:
20
-
8/13/2019 S A IPCC MAY-2011-GR-1
25/100
PAPER 1 : ACCOUNTING
`
Total sales (including cash sales `14,000) 84,000
Payment received from debtors in cash 38,000
Bills receivable received 26,000
Discount allowed to customers for prompt payment 1,000
Goods rejected and returned back by the customer 2,550
Bad debts recovered (written off in 2009) 900
Interest debited for delay in payment 1,250
You are required to prepare a Debtors Account for the period ending 31stMarch in the
General of M/s Zee Ltd. (4 4 = 16 Marks)
Answer
(a) Calculation of Average due date
(Base Date 15thJan, 2010)
Date Amount
`
No. of days Product
`
January 15 5,000 0 0
February 10 4,000 26 1,04,000
April 5 8,000 80 6,40,000
May 20 10,000 125 12,50,000
June 18 9,000 154 13,86,000
36,000 33,80,000
Average due date = Base date +Total product
daysTotal amount
= 15 thJan +33,80,000
36,000days
= 15 thJan + 94 days (approx.)= 19 thApril, 2010
Number of days from 19thApril, 2010 to 30thJune, 2010 = 72 days
Interest on drawings from 19thApril to 30thJune @10%:
21
-
8/13/2019 S A IPCC MAY-2011-GR-1
26/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
= ` 36,00072 10
365 100
= ` 710
Hence, interest on drawings ` 710 will be charged from A on 30thJune, 2010.
(b) As per para 5 of AS 2 Valuation of Inventories, inventories should be valued at the lowerof cost and net relizable value. Inventories should be written down to net realizable
value on an item-by-item basis.
Valuation of inventory (item wise) for the year ending 31stMarch 2011
Item Historical Cost Net realizable value Valuation of closingstock
` ` `
P 5,70,000 4,75,000 4,75,000
Q 9,80,000 10,32,000 9,80,000R 3,16,000 2,89,000 2,89,000
S 4,25,000 4,25,000 4,25,000
T 1,60,000 2,15,000 1,60,000
23,29,000
The value of inventory for the year ending 31stMarch 2011= `23,29,000.(c) Journal Entries
Date Particulars L.F. Dr. ( ) Cr.( )
31.3.11 Xs capital A/c Dr. 39,000
Zs capital A/c Dr. 33,000
To Ys capital A/c (3/9 ` 2,16,000) 72,000
(Being Ys share of goodwill adjusted in the capitalaccounts of gaining partners in their gaining ratio13:11 Refer Working Note.)
Cash A/c Dr. 64,800
To Ws capital A/c (3/10 ` 2,16,000) 64,800
(Being the amount of goodwill brought in by W)
Ws capital A/c Dr. 64,800
To Xs capital A/c 43,200
To Zs capital A/c 21,600
(Being the goodwill credited to sacrificing partners intheir sacrificing ratio 2:1)
22
-
8/13/2019 S A IPCC MAY-2011-GR-1
27/100
PAPER 1 : ACCOUNTING
Working Note:
Calculation of gaining ratio of X and Z
Gaining ratio = New ratio Old ratio
For X = 5/8-4/9
= 13/72
Z = 3/8-2/9
= 11/72
Gaining ratio = 13:11
(d) In modern time, computerized accounting systems are used in various areas. The
significance of the computerized accounting system is as follows:
(1) Increase speed, accuracy and security - In computerized accountingsystem, the
speed with which accounts can be maintained is several fold higher. Besides speed,level of accuracy is also high in computerized accounting system.
(2) Reduce errors - In computerized accounting, the possibilities of errors are alsovery less unless some mistake is made while recording the data.
(3) Immediate information - In this system, with an entry of a transaction,corresponding ledger posting is done automatically. Hence, trial balance will also be
automatically tallied and the user will get the information immediately.
(4) Avoid duplication of work - Computerized accounting systems also remove the
duplication of the work.
(e) Total Debtors account in the General Ledger of M/s Zee Ltd.
Date Particulars Amount Date Particulars Amount
` `
1.10.10 To Balance c/d 77,500 1.10.10 to31.3.11
By General LedgerAdjustment A/c:
1.10.10to31.3.11
To General LedgerAdjustment A/c:
Cash collected 38,000
Sales (84,000-14,000) 70,000 Bills Receivable A/c 26,000
Bills receivable Discount allowed 1,000
(Bill dishonored) 8,500 Sales return 2,550
Bank (Noting charges) 250 31.3.11 By Balance c/d 89,950
Interest 1,250
1,57,500 1,57,500
23
-
8/13/2019 S A IPCC MAY-2011-GR-1
28/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Working Note:
1. Bad debts of the year 2008-09 recovered in 2010-11 will not appear in the Total
Debtors account. It will be credited to profit & loss account.
2. Bills receivables of ` 5,000 endorsed to the supplier will not be shown in the Total
Debtors account because at the time of endorsement Suppliers account will bedebited and Bills receivable account will be credited.
24
-
8/13/2019 S A IPCC MAY-2011-GR-1
29/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
Question No. 1is compulsory.
Attempt anyfivequestions from the remaining six questions.
Question 1(a) What is the law relating to determination of compensation, on breach of contract,
contained in section 73 of the Indian Contract Act, 1872 ? (5 Marks)
(b) (I) State whether the following statements are correct or incorrect.: (2 1= 2 Marks)
(i) An agreement with a minor may be ratified on his attaining majority.
(ii) A cheque marked Not-Negotiable is not transferable.
(II) Choose the correct answer from the following : (3 1= 3 Marks)
(i) Which one of the following statements is not true about minors position in the
firm:
(a) He can not become a partner in the firm.
(b) A minor and a major can enter into an agreement of partnership.
(c) He can be admitted to the benefits in the firm.
(d) He can become a partner on becoming a major.
(ii) The delivery of goods by one person to another for some specific purpose and
time is known as:
(a) Mortage
(b) Pledge
(c) Bailment
(d) Charge
(iii) An agency in which the agent himself has interest in the subject matter of
agency is called:
(a) Agency by estoppel
(b) Agency by holding out
(c) Agency by necessity
(d) Agency coupled with interest
(c) Explain clearly the concept of perpetual-succession and common-seal in relation to a
company incorporated under the Companies Act, 1956. (5 Marks)
(d) What is the law and procedure relating to registration of a non-profit organization as a
company under the Companies Act, 1956 ? (5 Marks)
-
8/13/2019 S A IPCC MAY-2011-GR-1
30/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Answer
(a) Compensation on Breach of Contract: Section 73 of the Indian Contract Act, 1872
provides that when a contract has been broken, the party who suffers by such breach is
entitled to receive from the party who has broken the contract, compensation for any loss
or damage caused to him thereby which naturally arose in the usual course of thingsfrom such breach or which the parties knew when they made the contract, to be likely to
result from the breach of it. Such compensation is not given for any remote and indirect
loss or damage sustained by reason of the breach. The explanation to the section furtherprovides that in estimating the loss or damage from a breach of contract, the means
which existed of remedying the inconvenience caused by the non-performance of the
contract must be taken into account.
(b) (I) (i) Incorrect
(ii) Incorrect
(II) (i) (b) A minor and a major can enter into an agreement of partnership.(ii) (c) Bailment.
(iii) (d) Agency coupled with interest
(c) Perpetual Succession and Common Seal: A company is a juristic person with a
perpetual succession. It never dies nor does its life depends upon the life of its
members. It is not in any manner affected by insolvency, mental disorder or retirement of
any of its members. It is created by a process of law and can be put to an end only bythe process of law. Members may come and go but the company can go on forever (until
dissolved). It continues to exist even if all its human members are dead.
Since a company had independent existence and since all acts of the company are donein the name of the company, it enjoys a Seal known as common seal. Common seal is
equivalent to signature of the company and is affixed on all documents issued by the
company. Common seal of the company is kept in safe custody by a responsible officer
of the company.
(d) Registration of Non-Profit Organisation: An association of persons set up for
promoting commerce, art, science, religion, charity or any other useful object and intends
to apply its profits or other income in promotion of its objects can be registered as a
company under the Companies Act, 1956. However, it has to prohibit payment of any
dividend to its members.
The association has to apply to the Central Government for issuing a licence. Through
this licence the Central Government shall direct the Registrar of Companies to register
the association as a company with limited liability without the addition of words limited
or private limited to its name. Therefore, the association may be registered
accordingly.
26
-
8/13/2019 S A IPCC MAY-2011-GR-1
31/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
32/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
wrongful act of making a difference in treatment or favour on a basis other than individual
merit. Such discrimination may also be related in employment in business organization.
The elements which create discrimination may be summarized as follows:
(i) If the decision against one or more employees is taken which is not based on
individual merit, such as the ability to perform a given job, seniority or other morally
legitimate qualification.
(ii) If the decision has been derived solely from racial or sexual prejudice, false
stereotypes other kind of morally unjustified attitude against members of which the
employee belongs.
(iii) If the decision has a harmful or negative impact on the interests of the employees,
perhaps costing them jobs, promotions or better pay.
Discrimination in employment is wrong because it violates the basic principle of justice by
differentiating between people on the basis of characteristics (race or sex) that are not
relevant to the tasks they must perform. Looking to these aspects law has also beenchanged to conform to these moral requirements and to minimize the discrimination in
employment in this respect.
Question 3
(a) How is the amount of gratuity, payable to employees in a seasonal as well as other
establishments, calculated under the provisions of the Payment of Gratuity Act, 1972?
What is the maximums amount of gratuity payable under the said Act ? (8 Marks)
(b) What are the tips for improving inter-personal skills in a business organization ?(8 Marks)
Answer
(a) Payment of Gratuity:
Section 4 of the Payment of Gratuity Act, 1972 stipulates the manner in which the
amount of gratuity payable to an employee will be calculated.
In the case of establishments other than seasonal establishments, the employer shall pay
the gratuity to an employee at the rate of 15 days wages based on the rate of wages last
drawn by the employee concerned for every completed year of service or part thereof in
excess of 6 months. In the case of piece rated employees, daily wages shall be
computed on the average of the total wages received by him for a period of 3 months
immediately preceding the termination of his employment and for this purpose the wagespaid for any overtime work shall not be taken into account.
In the case of a monthly rated employee 15 days wages shall be calculated by dividing
the monthly rate of wages last drawn by 26 and by multiplying the quotient by 15.
In the case of seasonal establishment the employees can be classified into two groups
(i) Those who work throughout the year and
28
-
8/13/2019 S A IPCC MAY-2011-GR-1
33/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
(ii) Those who work only during the season.
The former are entitled to get the gratuity at the rate of 15 days wages for every
completed year of service or part thereof in excess of 6 months. The latter are entitled to
receive gratuity at the rate of 7 days for each season.
As per the Payment of Gratuity (Amendment) Act, 2010, the ceiling on the gratuityamount ` 3,50,000 has been increased to `10 lakhs.
(b) Tips for improving interpersonal skills:
Lines of communication must be open between people who rely on one another to get
work done. Poor interpersonal communication skills, which include active listening, result
in low productivity simply because one does not have the tools needed to influence,
persuade and negotiate which are necessary for workplace success. To get this success
the following tips are suggested:
(i) Congruency in communication elements:If the words used are incongruent with
the other interpersonal communication dynamics interpersonal communication isadversely affected. Since communication is shared meaning, words must send the
same message as the other interpersonal communication dynamics body
language, facial expression, posture, movement, tone of voice to help emphasize
the truth, sincerity and reliability of the communication. A consistent message
ensures effective communication.
(ii) Listening effectively:Effective or active listening is very important skill to enhance
interpersonal communication. Listening helps to build strong personal relationships.
The process of communication completes when the message as intended by the
sender is understood by the receiver. Most of the persons assume that listening is
natural trait, but practically very few of us listen properly. One needs to give the
communicator of the message sufficient attention and make an effort to understand
his view point.
Question 4
(a) Whether shares at premiums can be issued by a company ? What are the purposes for
which the share premium account can be used under the provisions of the Companies
Act, 1956 ? (8 Marks)
(b) What are the fundamental principles of ethics applicable to the persons of finance and
accounting profession ? (4 Marks)(c) Explain the merits and limitations of oral communication. (4 Marks)
Answer
(a) Share at Premium:
If the market exists, a company may issue its shares at premium i.e. the price higher than
their normal value. There is no restriction contained in the Companies Act, 1956 on the
29
-
8/13/2019 S A IPCC MAY-2011-GR-1
34/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
sale of shares at a premium. But SEBI (ICDR) Regulations, 2009 have to be observed
as they indicate when an issue has to be at par and when premium is chargeable.Premium may be received in cash or kind, where the value of assets received by a
company as a consideration for allotment is greater than the normal value of shares, it is
in essence an allotment at a premium. An amount equal to extra value of the assets
would have to be carried to the Securities Premium Account. The amount to the credit ofshare premium account has to be maintained with the same sanctity as share capital and
can be reduced only in the manner of share capital. The act does regulate the
disbursement of the amount collected as premium.
Such account be used in the following ways by the company
(a) It may be applied to issue to the members as fully paid by way of bonus the
unissued shares of the company.
(b) It may be used to write off preliminary expenses.
(c) It may be used to write off commission or discount account.(d) It may be spent in providing for the premium payable on the redemption of
preference shares or debentures of the company.
(b) Principles of Ethics
The fundamental principles relating to ethics as applicable to accounting and finance
professionals are as follows:
(i) The principle of integrity: Integrity means veracity. The principle requires all
accounting and finance personnel to be honest and straight-forward in discharging
their respective professional duties.
(ii) The principle of objectivity: The principle requires accounting and financialprofessionals to stick to their professional and financial judgement without bias,
conflicting interests, or under influence of others.
(iii) The principle of confidentiality: The principle requires accounting and financial
professionals to refrain from disclosing confidential information related to their work.
(iv) The principle of professional competence and due care: The financial and
accounting professional need to update their professional skill in the modern
competitive environment.
(v) The principle of professional behavior: The principle requires accounting andfinancial professional to comply with relevant laws and regulations and avoid such
action which may result into discrediting the profession.
(c) Oral Communication its merits and limitations- Communication through the spoken
word is known as oral communication. Some of the merits of oral communication are as
under:
(i) saves time and money;
30
-
8/13/2019 S A IPCC MAY-2011-GR-1
35/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
(ii) immediate feed back;
(iii) saves paper work;
(iv) an effective tool for exhortation;
(v) builds a healthy climate;
(vi) best tool during emergency.
Some of the limitations of Oral Communication are:
(i) Greater chances of misunderstanding;
(ii) Bad speaker;
(iii) Ineffective for lengthy communication;
(iv) Lower retention rate;
(v) No legal validity;
(vi) Difficult to fix responsibility.
Question 5
(a) Point out the differences between a Cheque and a Bill of Exchange under the
Negotiable Instruments Act, 1881. (8 Marks)
(b) State with reasons whether the following statements are correct or incorrect:
(2 2 = 4 Marks)
(i) The responsibility of the corporate management lies towards shareholders only.
(ii) Creation of proper ethical environment requires a proper understanding of thereasons which lead to an unethical behavior.
(c) Importance of communication is increasing day-by-day in the business organizations.
State the reasons for this increasing importance. (4 Marks)
Answer
(a) Cheque and Bill of Exchange
Following are the difference between a cheque and a bill of exchange:-
1. In cheque, the drawee is always a bank, whereas in a bill of exchange, the drawee
may be a bank or any other person.2. In cheque, days of grace are not allowed, whereas in a bill of exchange, 3 days of
grace are allowed for payment.
3. Notice of dishonour is not needed in a cheque, whereas notice of dishonour is
usually required in case of a bill of exchange.
31
-
8/13/2019 S A IPCC MAY-2011-GR-1
36/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
4. A cheque can be drawn to bearer and made payable on demand, whereas a bill of
exchange cannot be drawn to bearer, if it is made payable on demand.
5. Cheque does not require presentment for acceptance. It needs presentment forpayment. Bill of Exchange, sometimes, requires presentment for acceptance and it
is advisable to present them for acceptance even when it is not essential to do so.
6. Cheque does not require to be stamped in India, whereas bill of exchange must be
stamped according to Law.
7. A cheque may be crossed whereas a bill of exchange cannot be crossed.
8. A cheque being a revocable mandate, the authority may be revoked by counter
manding payment, and is determined by notice of the customers death or
insolvency. This is not so in a bill.
9. The drawer of a bill of exchange is discharged from liability, if it is not duly
presented for payment but the drawer of a cheque is not discharged by delay of the
holder in presenting the cheque for payment unless the drawer has suffered someloss due to delay.
(b) (i) Incorrect:The traditional governance model positions management is accountable
solely to the shareholders only. But a growing number of corporations accept theconstituents other than shareholders are affected by corporate activity and that the
corporations must, therefore, be responsible to them. These may be enumerated as
follows:
(a) Employees
(b) Trade Unions
(c) Customers
(d) Shareholders and investors
(e) Suppliers
(f) Local Communities
(g) Government
(h) Competitors.
(ii) Correct:A creation of a proper ethical environment requires a proper understanding
of the reasons which lead to an unethical behavior. The reasons may besummarized as follows:
(a) Emphasis on short term results
(b) Ignoring small unethical issues
(c) Economic Cycles
(d) Change in accounting rules.
32
-
8/13/2019 S A IPCC MAY-2011-GR-1
37/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
38/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
Answer
(a) Conversion of a private company into a public company:
The procedure for conversion of a private company into a public company is as follows:
(1) Take necessary decision in its board meeting and fix up time, place and agenda for
convening Annual General Meeting.
(2) Amend Memorandum of Association to change its name by removing the word
Private by a special resolution. Approval of the Central Government is not
necessary.
(3) Pass a Special Resolution deleting from its articles the requirement of a private
company under Section 3(1). A copy of the Special Resolution must be filed with the
Register of Companies within 30 days. It becomes a public company on the date of
alteration. [Section 44(1)].
(4) Increase the number of shareholders/members to at least 7 and number of directorsto atleast 3.
(5) Within 30 days from the passing of Special Resolution, a prospectus or a statement
in lieu of prospectus in the prescribed form must be filed with the Registrar (Section
44).
(6) The aforesaid prospectus or the statement in lieu of prospectus must be in
conformity with Part I and II of Scheduled II or with Part I and II of Schedule IV
respectively.
(7) The company has to apply to the Registrar of Companies for the issue of a fresh
Certificate of Incorporation, for the changed name, namely, the existing name withthe work Private deleted.
(b) Managing ethics and preventing whistle-blowing:
The focus on core values and sound ethics, the hall mark of ethical management, is
being recognized as an important way to ensure the long term effectiveness of
governance structures and procedures and to avoid the need for whistle blowing.
Employers, who understand the importance of work place ethics, provide their work force
with an effective framework and guiding principles of identity and address ethical issues
as they arise. These guidelines for managing ethics and to avoid the need for whistle-
blowing in the work place may be summarized as follows:-(a) Have a Code of Conduct and ethics.
(b) Establishment of open communication.
(c) Make ethical decisions in group and make decision public whenever appropriate.
(d) Integrate ethics with other management practices.
34
-
8/13/2019 S A IPCC MAY-2011-GR-1
39/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
(e) Use of cross functional teams when developing and implementing the ethics
management programme.
(f) Appointing an ombudsman.
(g) Creating an atmosphere of trust.
(h) Regularly updating of policies and procedures
(i) Include a grievance policy for employees
(j) Set an example from the top.
(c) Characteristics of group personality
Following are the characteristics of group personality:
(a) Spirit of conformity: Individual member soon come to realize that in order to gainrecognition, admiration and respect from others they have to achieve a spirit of
conformity. Our beliefs, opinions and actions are influenced more by group opinion
than by an individuals opinion even if it is an expert opinion.
(b) Respect for group values: Any working group is likely to maintain certain values
and ideals which make it different from others. In order to deal effectively with a
group we must understand its values which will guide us in foreseeing its
programmes and actions.
(c) Resistance to change: It has been observed that a group generally does not take
kindly to social change. On the other hand the group may bring about its own
changes, whether by dictation of its leader or by consensus. The degree to which a
group resists change serves as an important index of its personality. It helps us in
dealing with it efficiently.(d) Group prejudice: Just as hardly any individual is free from prejudice, groups have
their own clearly evident prejudice. It is a different matter that the individual
members may not admit their prejudiced attitude to others race, religion, nationalityetc. But the fact is that the individuals prejudices get their intensified while coming
in contact with other members of the group holding similar prejudices.
(e) Collective power: Groups are always more powerful than individuals, how so ever
influential the individual may be. That is why individuals may find it difficult to speak
out their minds in groups. There is always the risk of the one-against many
situations cropping up.Question 7
(a) Write a short note on the composition and functions of the Central Board of Trustees
under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. (4 Marks)
(b) Which documents are required to be filed with the Registrar of Companies at the time of
registration of a company under the provisions of the Companies Act, 1956 ? (4 Marks)
35
-
8/13/2019 S A IPCC MAY-2011-GR-1
40/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
41/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
(3) The agreement, if any, which the company proposed to enter into with any individual
for appointment as its Managing or Whole Time Director or Manager [Section
33(1)(c)].
(4) A declaration that the requirements of the Act and the rules framed there under
have been complied with. This declaration is required to be signed by an advocate
of the Supreme Court or High Court or an attorney or a pleader having the right to
appear before High Court or a Company Secretary or a Chartered Accountant in
whole time practice in India who is engaged in the formation of a company, or by
person named in the Articles as a Director, Manager or Secretary of the company
[Section 33(2)].
(5) In the case of a public company having share capital, where the Articles name a
person as director/directors, the list of the directors and their written consent in
prescribed form to act as directors and take up qualification shares.(Section 266).
(6) Apart from the above, the company must give a notice regarding the situation of its
registered office under Section 146 within 30 days of registration.
(OR)
(b) Non-issuing of Prospectus:
As per Section 56 of the Companies Act, 1956, the issue of prospectus is not necessary
in the following cases -
(1) Where shares or debentures are offered to existing holders of shares or debentures.
(2) When the issue relates to shares or debentures uniform in all respects, with shares
or debentures previously issued and dealt in or quoted in a recognized stock
exchange.
(3) Where a person is bona-fide invited to enter into an underwriting agreement.
(4) Where shares are not offered to the public.
(c) Pressures faced by finance and accounting professionals:
The finance and accounting professionals are supposed to support the legitimate and
ethical objectives established by the employer. As they are having responsibilities to an
employing organization, may be under pressure to act or behave in ways that could
directly or indirectly threaten compliance with the fundamental principles. Such pressures
may be explicit or implicit which may come from supervisor, manager, director or anotherindividuals. Such pressures which are being faced by finance and accounting
professionals may be stated as follows:
(a) To act contrary to Law or Regulation.
(b) To act contrary to technical a professional standards.
(c) To facilitate unethical or illegal earnings management strategies.
37
-
8/13/2019 S A IPCC MAY-2011-GR-1
42/100
INTEGRATED PROFESSIONAL COMPETENCE EXAMINATION : MAY, 2011
(d) Lie to, or otherwise intentionally mislead other, in particular the auditors of the
employing organization or Regulators.
(e) To issue or otherwise be associated with, a financial or non financial report thatmaterially misrepresents the facts, including statements, in connection with. For
example:
(i) Thefinancial statements
(ii) Tax compliance
(iii) Legal compliance, or
(iv) Reports required by securities regulators.
OR
(c) Note on Ecological Ethics: The problem of pollution and other environmental issues
can best be framed in terms of our duty to recognize and preserve the ecological
systems within which we live. An ecological system is an interrelated and interdependentset of organisms and environments, such as a lake, in which the fish depend on small
aquatic organisms, which in turn live off decaying plant and fish waste products. Since
the various parts of an ecological system are interrelated, the activities of one of its parts
will affect all other parts. Business and all social firms are parts of a larger ecological
system.
Business firms depend on the natural environment for their energy, material resources,
waste disposal and that environment in turn is affected by the commercial activities of
business firms. Unless business recognize the interrelationship and interdependencies
of the ecological systems within which they operate and unless they ensure that their
activities will not seriously injure these systems one cannot hope to deal with the problemof pollution.
Ecological ethics is based on the idea that the environment should be protected not only
for the sake of human being but also for its own sake. The issue of environmental ethicsgoes beyond the problem relating to protection of environment or nature in terms of
pollution, resource utilization or waste disposal. It is the issue of exploitive human nature
and attitudes that should be addressed in a rational way. Problems like global warming,ozone depletion and disposal of hazardous waste that concern the entire world. They
require international co-operation and have to be tackled at the global level.
(d) Noise as barrier to communication:Noise is the first and foremost barrier to communication. It means interference that
occurs in a signal and prevents you from hearing sounds properly. In a factory the
continuous noise made by machines makes oral communication difficult. In the same
way, same technical problems in a public address system or a static in a telephone or
television cable will distort the sound signal and affect communication. Adverse weather
38
-
8/13/2019 S A IPCC MAY-2011-GR-1
43/100
PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION
conditions or some fault in the ultramodern telecommunications systems may also spoil
the effect.
Further, the sender may resort to ambiguous or confusing signals. The receiver maymess up the message owing to inattention or may spoil decoding because of wrong or
unexpected interpretation. The receivers prejudices may also come in the way of his
understanding the message in the right spirit. Thus the communication is always likely to
affected by noise that stands for so many things. Some of the factors contributing
towards noise factors are as follows:
(a) Poor Listening: A last moment communication with deadline may put too much
pressure on the receiver and may result in resentment.
(b) In appropriate Channel: Poor choice of channel of communication can also be
contributory to them in understanding of the message.
(c) Network breakdown: Some time staff may forget to forward a letter or there may
be professional jealousy resulting in closed channel.OR
(d) Negotiation: Negotiation occurs when two or more parties either individuals or
groups discuss specific proposals in order to find a mutually acceptable agreement.
Whether it is with an employer, family member or business associate, we all
negotiate for things each day like higher salary, letter service or solving a disputewith a co worker or family member. Negotiation is a common way of settling
conflicts in business. When handled skillfully, negotiation can improve the position
of one or even both but when poorly handled; it can leave a problem still unsolved
and perhaps worse than before.
Techniques for Negotiation:
(a) Spiraling agreements: Begin by reaching a minimums agreement even
though it is not related to the objectives and build, hit by hit, on this first
agreement.
(b) Changing of position: Formulate the proposals in a different way, without
changing the final result.
(c) Gathering information:Ask for information from the other party to clarify their
position
(d) Making the cake bigger:Offer alternatives that may be agreeable to the otherparty, without changing the terms.
(e) Commitments:Formalize agreements orally and in writing before ending the
negotiation.
39
-
8/13/2019 S A IPCC MAY-2011-GR-1
44/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
45/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
(ix) Bonus : 40% of time saved
(x) Worker X worked 9 hours a day.
You are required to calculate the remuneration of the worker on the following basis:
(i) Halsey plan and
(ii) Rowan plan
(c) Prepare a Store Ledger Account from the following transactions of XY Company Ltd.
April, 2011
1 Opening balance 200 units @ ` 10 per unit.
5 Receipt 250 units costing ` 2,000
8 Receipt 150 units costing ` 1,275
10 Issue 100 units
15 Receipt 50 units costing ` 500
20 Shortage 10 units
21 Receipt 60 units costing ` 540
22 Issue 400 units
The issues upto 10-4-11 will be priced at LIFO and from 11-4-11 issues will be priced at
FIFO.
Shortage will be charged as overhead.
(d) What is factoring? Enumerate the main advantages of factoring. (4
5 = 20 Marks)Answer
(a) Computation of Operating and Financial Leverage
Actual Production and Sales: 60% of 10,000 = 6,000 units
Contribution per unit: ` 30 ` 20 = ` 10
Total Contribution: 6,000 ` 10 = ` 60,000
Financial Plan XY XM
Situation A B A B
` ` ` `
Contribution (C) 60,000 60,000 60,000 60,000
Less: Fixed Cost 20,000 25,000 20,000 25,000
Operating Profit or EBIT 40,000 35,000 40,000 35,000
Less: Interest 4,800 4,800 1,200 1,200
41
-
8/13/2019 S A IPCC MAY-2011-GR-1
46/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
Earnings before tax (EBT) 35,200 30,200 38,800 33,800
Operating Leverage
=EBIT
C 000,40
000,60
000,35
000,60
000,40
000,60
000,35
000,60
= 1.5 = 1.71 = 1.5 = 1.71
Financial Leverage =EBT
EBIT
200,35
000,40
200,30
000,35
800,38
000,40
800,33
000,35
= 1.14 = 1.16 = 1.03 = 1.04
(b) No. of units produced and approved = 2,000
Standard time = 40 units per hour
Hourly Wage Rate = ` 25
Time allowed = 40 units per hour
Time allowed for 2,000 units hours5040
2,000=
(i) Calculation of Remuneration under Halsey Plan:
Standard time allowed for 2,000 units : 50 hours
Actual time taken for 2,000 units : 40 hours
Time saved 10 hours
Basic wages for time taken 40 hours @`
25 =`
1,000
Bonus: 40% of time saved 2510100
40 =
` 100
Total ` 1,100
(ii) Calculation of Remuneration Under Rowan Plan:
Wages for time taken 40 hours @ ` 25 = ` 1,000
allowedTime
savedTimeBonus = x (Time Taken x Hourly Rate)
50
251040
= = ` 200
Total ` 1,200
42
-
8/13/2019 S A IPCC MAY-2011-GR-1
47/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
(c)
Store Ledger AccountName :- Max. Stock Level - Bin No.-
Code No. :- Min. Stock Level - Location Code-
Description:- Re-order level
Re-order quantity-
Date Receipts Issues Balance
Qty.
Units
Rate Amount Qty.
Units
Rate Amount Qty. Rate Amount
` ` ` ` ` `
April 1 200 10 2,000
5 250 8 2,000 200 10 4,000
250 8
8 150 8.50 1,275 200 10 5,275
250 8150 8.50
10 100 8.50 8.50 200 10 4,425
250 8
50 8.50
15 50 10 500 200 10 4,925
250 8
50 8.50
50 10
20 10(shortage)
10 100 190 10 4,825
250 8
50 8.50
50 10
21 60 9 540 190 10 5,365
250 8
50 8.50
50 10
60 9
22 190 103,580
40 81,785
(Closing
Stock)
210 8 50 8.50
50 10
60 9
43
-
8/13/2019 S A IPCC MAY-2011-GR-1
48/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
49/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
Annual interest on capital outlay 50,000 20,000 20,000 10,000
Monthly charge for rent and rates 10,000
Salary of foreman (per month) 20,000
Salary of Attendant (per month) 5,000
(The foreman and the attendant control all the three machines and spend equal time onthem.)
The following additional information is also available:
Machines
A B C
Estimated Direct Labour Hours 1,00,000 1,50,000 1,50,000
Ratio of K.W. Rating 3 2 3
Floor space (sq. ft.) 40,000 40,000 20,000
There are 12 holidays besides Sundays in the year, of which two were on Saturdays.
The manufacturing department works 8 hours in a day but Saturdays are half days. All
machines work at 90% capacity throughout the year and 2% is reasonable for
breakdown.
You are required to :
Calculate predetermined machine hour rates for the above machines after taking into
consideration the following factors:
An increase of 15% in the price of spare parts. An increase of 25% in the consumption of spare parts for machine B & C only. 20% general increase in wages rates.
(b) The Marketing Manager of XY Ltd. is giving a proposal to the Board of Directors of the
company that an increase in credit period allowed to customers from the present one
month to two months will bring a 25% increase in sales volume in the next year.
The following operational data of the company for the current year are taken from the
records of the company:
`
Selling price 21 p.u.
Variable cost 14 p.u.
Total cost 18 p.u.
Sales value 18,90,000
45
-
8/13/2019 S A IPCC MAY-2011-GR-1
50/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
The Board, by forwarding the above proposal and data requests you to give your expert
opinion on the adoption of the new credit policy in next year subject to a condition that
the companys required rate of return on investments is 40%. (8 + 8 = 16 Marks)
Answer
(a) Computation of Machine Hour Rate
Basis ofapportionment
TotalMachines
A B C
` ` ` `
(A) StandingCharges
Insurance DepreciationBasis
8,000 3,000 3,000 2,000
Indirect Labour Direct Labour 24,000 6,000 9,000 9,000
BuildingMaintenanceexpenses
Floor Space 20,000 8,000 8,000 4,000
Rent and Rates Floor Space 1,20,000 48,000 48,000 24,000
Salary offoreman
Equal 2,40,000 80,000 80,000 80,000
Salary ofattendant
Equal 60,000 20,000 20,000 20,000
Total standingcharges
4,72,000 1,65,000 1,68,000 1,39,000
Hourly rate forstandingcharges
84.75 86.29 71.40
(B) MachineExpenses:
Depreciation Direct 20,000 7,500 7,500 5,000
Spare parts Finalestimates 13,225 4,600 5,750 2,875
Power K.W. rating 40,000 15,000 10,000 15,000
ConsumableStores
Direct 8,000 3,000 2,500 2,500
46
-
8/13/2019 S A IPCC MAY-2011-GR-1
51/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
Total Machineexpenses
81,225 30,100 25,750 25,375
Hourly Rate forMachineexpenses
15.46 13.23 13.03
Total (A + B) 553,225 1,95,100 1,93,750 1,64,375
Machine Hourrate
100.21 99.52 84.43
Working Notes:
(i) Calculation of effective working hours:
No. of holidays 52 (Sundays) + 12 (other holidays) = 64
Saturday (52 2) = 50
No. of days (Work full time) = 365 64 50 = 251
Hours
Full days work 251 8 = 2,008
Half days work 50 4 = 200
2,208
Hours
Effective capacity 90% of 2,208 1,987 (Rounded off)
Less: Normal loss of time (Breakdown) 2% 40 (Rounded off)
Effective running hour 1,947
(ii) Amount of spare parts is calculated as under:
A B C
Preliminary estimates 4,000 4,000 2,000
Add: Increase in price @ 15% 600 600 300
4,600 4,600 2,300Add: Increase in consumption @ 25% 1,150 575
Estimated cost 4,600 5,750 2,875
47
-
8/13/2019 S A IPCC MAY-2011-GR-1
52/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
(iii) Amount of Indirect Labour is calculated as under:
Preliminary estimates 20,000
Add: Increase in wages @ 20% 4,000
24,000
(iv) Interest on capital outlay is a financial matter and, therefore it has been excluded
from the cost accounts.
(b) Advise regarding Change in Credit Policy
Working Notes:
(1) Present Sales Value ` 18,90,000
Present Selling Price per unit ` 21
Present Sales Volumeunits90,000
21
18,90,000
Expected increase in Sales Volume = 25%
Expected Sales Volume in next year = 90,000 + 25%
= 90,000 + 22,500
= 1,12,500 units
(2) `
Present total cost (90,000 18) 16,20,000Add: Variable cost on additional Sales
(22,500 14)
3,15,000
Total cost of future sales 19,35,000
Average cost per unit
500,12,1
000,35,19= ` 17.2
(3) `
Cost of Sale (1,12,500 17.2) 19,35,000
Average collection period = 2 months
Average Investment in receivables in theproposed credit policy
3,22,500212
19,35,000
48
-
8/13/2019 S A IPCC MAY-2011-GR-1
53/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
(4) `
Additional Investment in receivables
12
1890,000-3,22,500
= 3,22,5001,35,000
= ` 1,87,500
(5) Contribution from additional sales = (21 14) 22,500
= ` 1,57,500
(6) Return on additional investments inreceivables 1001,87,500
1,57,500
= 84%
Advise: Since the expected rate of return on additional investment in receivables (84%)is more than the required rate of return (40%), the proposed increase in credit period
from one month to two months should be accepted and implemented in the next year.
Question 3
The management of MNP Company Ltd. is planning to expand its business and consults you
to prepare an estimated working capital statement. The records of the company reveal the
following annual information:
`
Sales Domestic at one months credit 24,00,000
Export at three months credit (sales price 10% below domestic price) 10,80,000Materials used (suppliers extend two months credit) 9,00,000
Lag in payment of wages month 7,20,000
Lag in payment of manufacturing expenses (cash) 1 month 10,80,000
Lag in payment of Adm. Expenses 1 month 2,40,000
Sales promotion expenses payable quarterly in advance 1,50,000
Income tax payable in four instalments of which one falls in the next financial year 2,25,000
Rate of gross profit is 20%.
Ignore work-in-progress and depreciation.The company keeps one months stock of raw materials and finished goods (each) and
believes in keeping ` 2,50,000 available to it including the overdraft limit of ` 75,000 not yet
utilized by the company.
The management is also of the opinion to make 12% margin for contingencies on computed figure.
You are required to prepare the estimated working capital statement for the next year. (16 Marks)
49
-
8/13/2019 S A IPCC MAY-2011-GR-1
54/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
Answer
Preparation of Statement of Working Capital Requirement for MNP Company Ltd.
Estimated Working Capital Statement
(A) Current Assets in terms of Cash Costs `
Debtors: Domestic Sales 19,20,00012
1 1,60,000
Export Sales 9,60,00012
3 2,40,000Prepaid Sales promotion expenses 37,500
Stock of Raw materials 9,00,00012
1 75,000
Stock of finished goods 28,80,000121 2,40,000
Cash at Bank and in Hand 1,75,000
Total Current Assets 9,27,500
(B) Current Liabilities in terms of Cash Costs `
Creditors for:
Material 9,00,00012
2 1,50,000
Wages 7,20,00024
1 30,000
Manufacturing expenses 10,80,00012
1 90,000
Administrative expenses 2,40,00012
1 20,000Income Tax Payable 56,250
Total Current Liabilities 3,46,250
(C) `
Net Current Assets (A B) 5,81,250
Add:12% margin for contingencies 69,750
Required Working Capital 6,51,000
50
-
8/13/2019 S A IPCC MAY-2011-GR-1
55/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
Working Notes:
Cash cost of sales is calculated as under: ` `
Domestic Sales 24,00,000
Less:Gross profit @ 20% 4,80,000 19,20,000
Export Sales 10,80,000
10,80,000 10012,00,000@10%
90
=` 1,20,000 9,60,000
28,80,000
Question 4
The summarized Balance Sheets of XYZ Limited as at 31stMarch, 2010 and 2011 are given
below:
Liabilities 2010 2011 Assets 2010 2011
( ) ( ) ( ) ( )
Preference sharecapital
4,00,000 2,00,000 Plant andMachinery
7,00,000 8,20,000
Equity share capital 4,00,000 6,60,000 Long terminvestment
3,20,000 4,00,000
Share premium A/c 40,000 30,000 Goodwill - 30,000
Capital redemptionreserve
- 1,00,000 Current Assets 9,10,000 11,41,000
General reserve 2,00,000 1,20,000 Short terminvestment (lessthan 2 months)
50,000 84,000
P & L A/c 1,30,000 1,75,000 Cash and Bank 1,00,000 80,000
Current liabilities 6,40,000 9,00,000 Preliminaryexpenses
40,000 20,000
Proposed dividend 1,60,000 2,10,000
Provision for tax 1,50,000 1,80,000
21,20,000 25,75,000 21,20,000 25,75,000Additional information:
During the year 2011 the company:
(i) Preference share capital was redeemed at a premium of 10% partly out of proceeds
issue of 10,000 equity shares of ` 10 each issued at 10% premium and partly out of
profits otherwise available for dividends.
51
-
8/13/2019 S A IPCC MAY-2011-GR-1
56/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
(ii) The company purchased plant and machinery for ` 95,000. It also acquired another
company stock ` 25,000 and plant and machinery ` 1,05,000 and paid ` 1,60,000 in
Equity share capital for the acquisition.
(iii) Foreign exchange loss of ` 1,600 represents loss in value of short-term investment.
(iv) The company paid tax of ` 1,40,000.You are required to prepare cash flow statement. (16 Marks)
Answer
Preparation of Statement of Cash Flow for XYZ Limited
Cash flow statement as per AS 3 for the year ending 31stMarch, 2011
(a) Cash flow from Operating Activities ` `
Profit before tax (2,75,000 + 1,70,000) 4,45,000
Add: Depreciation on machinery 80,000Foreign exchange loss 1,600
Preliminary expenses written off 20,000
Cash flow before working capital adjustment 5,46,600
Add: Stock obtained on acquire 25,000
Increase in Current Liabilities 2,60,000
Less:Increase in current assets (2,31,000)
Cash flow before tax paid 6,00,600
Less:Tax paid (1,40,000)Cash flow from operating activities 4,60,600
(b) Cash flow from Investing Activities
Purchase of Machinery (95,000)
Purchase of investment (80,000) (1,75,000)
(c) Cash flow from Financing Activities
Issue of shares at premium 1,10,000
Payment of dividend (1,60,000)
Redemption of preference shares at premium (2,20,000) (2,70,000)Net increase/decrease in cash and cash equivalent(a+b+c)
15,600
Cash and cash equivalent at the beginning of the year 1,50,000
Cash and cash equivalent at the end of the year 1,65,600
52
-
8/13/2019 S A IPCC MAY-2011-GR-1
57/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
58/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
Transfer from work-in-progress 33,60,000
Issue to work-in-progress 67,20,000
Issue to repairs and maintenance 8,40,000
Shortage found in stock taking 2,52,000
Work-in-progress:
Opening Balance 25,20,000
Direct wages applied 25,20,000
Overhead applied 90,08,000
Closing Balance 15,20,000
Finished products:
Entire output is sold at a profit of 12% on actual cost from work-in-progress.
Other information:
`
Wages incurred 29,40,000
Overhead incurred 95,50,000
Income from Investment 4,00,000
Loss on sale of fixed assets 8,40,000
Shortage in stock taking is treated as normal loss.
You are require to prepare:
(i) Stores control account;
(ii) Work-in-progress control account;
(iii) Costing Profit and Loss account;
(iv) Profit and Loss account and
(v) Reconciliation statement
(b) What is debt securitization? Explain the basic debt securitization process.
(12 + 4 = 16 Marks)
Answer(a) Stores Leger Control Account
Dr. Cr.
` `
To Balance b/d 12,60,000 By Work-in-progress control A/c 67,20,000
54
-
8/13/2019 S A IPCC MAY-2011-GR-1
59/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
To General ledgeradjustment A/C
67,20,000 By Overhead control A/c 8,40,000
To Work-in progressControl A/c
33,60,000 By Overhead control A/c(Shortage)
2,52,000
By Balance c/d 35,28,0001,13,40,000 1,13,40,000
W.I.P Control A/c
Dr. Cr.
` `
To Balance b/d 25,20,000 By Stores ledger control A/c 33,60,000
To Stores ledger control A/c 67,20,000 By Costing P&L A/c (Cost ofSales) (Balancing figure)
1,58,88,000
To Direct wages Control A/c 25,20,000
To Overhead control A/c 90,08,000 BY Balance c/d 15,20,000
2,07,68,000 2,07,68,000
Costing Profit and Loss A/c
Dr. Cr.
` ` `
To W.I.P Control A/c 1,58,88,000 By General LedgerAdj. A/c
Cost of salesAdd 12%Profit
To General ledger Adj.
A/c (Profit)
19,06,560
1,58,88,00019,06,560 1,77,94,560
1,77,94,560 1,77,94,560
Financial Profit and Loss A/c
Dr. Cr.
` ` ` `
To opening stock :Stores
12,60,000 By Sales 1,77,94,560
W.I.P 25,20,000 37,80,000 By Income frominvestment
4,00,000
To Purchases 67,20,000 By Closingstock:
To Wages 29,40,000 Stores 35,28,000
W.I.P 15,20,000 50,48,000
55
-
8/13/2019 S A IPCC MAY-2011-GR-1
60/100
-
8/13/2019 S A IPCC MAY-2011-GR-1
61/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
(ii) The Pooling Function: Similar loans or receivables are clubbed together to create
an underlying pool of assets. The pool is transferred in favour of special purpose
vehicle (SPV), which acts as a trustee for investors.
(iii) The Securitization Function:SPV will structure and issue securities on the basis
of assets pool. The securities carry a coupon and expected maturity, which can beasset based/mortgage based. These are generally sold to investors through
merchant bankers. Investors are pension funds, mutual funds and insurance funds.
The process of securitization is without resource i.e. investors bear the credit risk or riskof default. Credit enhancement facilities like insurance, letter of credit and guarantees
are provided.
Question 6
(a) The management of Z Company Ltd. wants to raise its funds from market to meet out the
financial demands of its long-term projects. The company has various combination of
proposals to raise i ts funds. You are given the following proposals of the company:
(i) Proposals % of Equity % of Debts % of Preference shares
P 100 - -
Q 50 50 -
R 50 - 50
(ii) Cost of debt 10%
Cost of preference shares 10%
(iii) Tax rate 50%(iv) Equity shares of the face value of ` 10 each will be issued at a premium of ` 10 per
share.
(v) Total investment to be raised ` 40,00,000.
(vi) Expected earnings before interest and tax ` 18,00,000.
From the above proposals the management wants to take advice from you for
appropriate plan after computing the following:
Earnings per share Financial break-even-point Compute the EBIT range among the plans for indifference. Also indicate if any of the
plans dominate.
(b) Distinguish between cost units and cost centres. (12 + 4 = 16 Marks)
57
-
8/13/2019 S A IPCC MAY-2011-GR-1
62/100
INTEGRATED PROFESSIONALCOMPETENCEEXAMINATION:MAY,2011
Answer
(a) (i) Computation of Earnings per Share (EPS)
Plans P Q R
` ` `
Earnings before interest & tax (EBIT) 18,00,000 18,00,000 18,00,000
Less: Interest charges - 2,00,000 -
Earnings before tax (EBT) 18,00,000 16,00,000 18,00,000
Less: Tax @ 50% 9,00,000 8,00,000 9,00,000
Earnings after tax (EAT) 9,00,000 8,00,000 9,00,000
Less : Preference share dividend - - 2,00,000
Earnings available for equity shareholders 9,00,000 8,00,000 7,00,000
No. of shares 2,00,000 1,00,000 1,00,000E.P.S (Rs.) 4.5 8 7
(ii) Computation of Financial Break-even Points
Proposal P = 0
Proposal Q = ` 2,00,000 (Interest charges)
Proposal R = Earnings required for payment of preference share dividend i.e.
` 2,00,000 0.5 (Tax Rate) = ` 4,00,000
(iii) Computation of Indifference Point between the ProposalsThe indifference point
=
1
1
E
)T1)(1EBIT(
2
2
E
)T1)(1EBIT(
Where,
EBIT = Earnings before interest and tax
1 1 = Fixed Charges (Interest) under Proposal P
1 2 = Fixed charges (Interest) under Proposal Q
T = Tax Rate
E1 = Number of Equity shares in Proposal P
E2 = Number of Equity shares in Proposal Q
58
-
8/13/2019 S A IPCC MAY-2011-GR-1
63/100
PAPER 3 : COST ACCOUNTING AND FINANCIAL MANAGEMENT
Combination of Proposals
Indifference point where EBIT of proposal P and proposal Q is equal
000,00,2
)5.1)(0EBIT( =
000,00,1
)5.01)(000,00,2EBIT(
.5 EBIT (1,00,000) = (.5 EBIT -1,00,000) 2,00,000
.5 EBIT = EBIT 2,00,000
EBIT = ` 4,00,000
(b) Indifference point where EBIT of proposal P and Proposal R is equal:
1E
)T1)(1EBIT( =
2E
)T1)(12EBIT - Preference share dividend
000,00,2)5.1)(0EBIT( =
000,00,1000,00,2)5.1)(0EBIT(
000,00,2
EBIT5.=
000,00,1
000,00,2EBIT5.
.25 EBIT = 0.5 EBIT -2,00,000
EBIT = 2,00,000 0.25
= ` 8,00,000
(c) Indifference point where EBIT of proposal Q and proposal R are equal
000,00,1
)5.01)(000,00,2EBIT( =
000,00,1
000,00,2)5.01)(0EBIT(
.5 EBIT -1,00,000 = .5 EBIT 2,00,000
There is no indifference point between proposal Q and proposal R
Analysis: It can be seen that Financial proposal Q dominates proposal R, since
the financial break-even-point of the former is only ` 2,00,000 but in case of latter, i