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B.Com II Advanced and Cost Accounting

Instruction: Attempt FIVE questions, THREE from Section “A” and TWO from Section “B”.

SECTION “A” – (Advanced Accounting)

Q.1. Accounting for Companies-Absorption.

The following balances relate to the business of Ashar Company Ltd. as on June 30, 2009.
Cash Rs. 3,50,000; Other assets Rs. 3,15,000 and Accounts Payables Rs. 30,000 which is 1/3 of long term liabilities, Ordinary share capital (Par value Rs. 10 per share) Rs. 5,00,000, Retained earning Rs. 45,000.

Ashar Company was absorbed by Absar Company Limited under the following terms and conditions:
i. Absar Company Ltd. to take over all the business assets except cash and to assume accounts payable at book value.
ii. The Share holders of Ashar Company Ltd. to receive 5 shares in Absar Company Ltd. against 4 shares of Rs. 10 per share.
iii. Long term liabilities of Ashar Company Ltd. settled by issuing 9500 Ordinary shares in Absar Company Ltd. of Rs. 10.
iv. Absar Company Ltd. to pay liquidation expenses of Rs. 18,000 cash to Ashar Company Ltd..

Required:
(a) Compute the amount of Purchase Consideration.
(b) Prepare journal entries in the books of liquidating company.

Q.2. Cash Flow Statement

The accounting staff of NASR and Company has presents the following information:

…………………………………………………… 31-12-08 …………. 31-12-07
Cash ……………………………………………… 42,000 …………. 50,200
Accounts Receivables ………………………….. 50,000 …………. 62,000
Office Supplies ………………………………….. 25,000 …………. 16,000
Accrued Income ………………………………… 42,000 …………. 20,000
Plant and Equipment …………………………. 3,00,000 ……….. 2,60,000
Accumulated Depreciation (Plant and Eq)…… (38,000) ………. (26,000)
Land and Building …………………………….. 2,00,000 ……….. 2,63,000
Investment in Bonds …………………………. 3,70,000 ………. 3,40,000

Accounts Payables ……………………………. 18,000 ………….. 23,000
Accrued Utilities ……………………………….. 24,000 ………….. 20,000
Long term loans ……………………………… 1,70,000 ………… 2,42,200
Share Capital ………………………………… 5,50,000 ………… 5,00,000
Retained Earning …………………………….. 2,29,000 ………… 2,00,000

During the year 2008 the Company declared Cash Dividend Rs. 32,000.

Required:
(a) Compute the Net Income from operation.
(b) Cash generated from operation.
(c) Prepare Cash Flow Statement

Q.3. Financial Ratio Analysis

Following comparative data has been taken from the records of Nuzhat and Company.

NUZAT and COMPANY
Comparative Income Statement
For the year ended December 31, 2007 and 2008

…………………………………………………………… 2008 …………… 2007
Net Sales ……………………………………………. 12,00,000 … 8,50,000
Cost of Sales ……………………………………….(6,90,000) .. (5,10,000)
Gross Profit …………………………………………. 5,10,000 …. 3,40,000

OPERATING EXPENSES
Selling Expense …………………………………… (1,20,000) … (95,000)
General and Administrative Overheads ……….. (1,60,000) … (1,30,000)
Income before interest and taxes (IBIT) ……… 2,30,000 ….. 1,15,000
Financial Charges ………………………………… (32,000) …… (24,000)
Income before tax ……………………………….. 1,98,000 …… 91,000
Income Tax ………………………………………… 29,700 …….. (13,650)
Net Income ……………………………………….. 1,68,300 ……. 77,350

ASSETS
NON-CURRENT ASSETS
Property Plant and Equipment ………………… 3,82,000 …….. 1,70,000
Intangible Assets ………………………………. 1,50,000 ……… 1,20,000

CURRENT ASSETS
Inventories ……………………………………….. 70,000 ………. 70,000
Prepaid Expenses ………………………………… 90,000 ………. 30,000
Accrued Financial Income ………………………. 70,000 ………. 60,000
Accounts Receivables …………………………. 1,90,000 …….. 1,10,000
Marketable Securities …………………………. 1,80,000 ……… 1,70,000
Cash and Bank …………………………………. 1,20,000 ……… 1,98,000

AUTHORIZED CAPITAL
50,000 Ordinary Shares @ Rs. 10 …………… 5,00,000 ………. 5,00,000

SHARE CAPITAL
Ordinary Share Capital @ Rs. 10 ……………. 4,50,000 ……….. 4,10,000
Retained Earning ……………………………… 3,68,300 ……….. 2,00,000

LONG TERM LIABILITIES
Bond Payable ………………………………….. 1,35,000 ………. 1,25,000
Deferred Income ………………………………. 20,000 …………. ——–

CURRENT LIABILITIES
Accounts Payable …………………………….. 2,00,000 ……… 1,23,000
Accrued Expenses …………………………….. 75,000 …………. 70,000
Current maturity of deferred income …………. 4,000 …………. ——-

Required:
Compute the following ratios

i. Current ratio for 2007
ii. Quick ratio for 2008
iii. Earning per share for 2007
iv. Book value per share for 2008
v. Inventory Turnover for 2007 and 2008
vi. Receivable Turnover for 2007 and 2008
vii. Return on Assets for 2007 and 2008

Q.4. Installment Sales

Mifta Installment Company purchased 15 computers from Alam and Bilal Traders @ Rs. 33,600 each on credit. The company sold 7 computers on installment @ Rs. 42,000 each on September 01, 2008. The terms of installment sales were to pay 25% on each computer as a down payment and the remaining amount is to be collected in 15 monthly installments starting from October 01, 2008.
All installments collected on first day of each month. Three of the computer holders defaulted to pay the installments after the payment of 5th installment and company repossessed the computers which have the fair market value of Rs. 17,000 each computer.
Mifta installment company closes its accounting year on June 30 each year.

Required:
Compute the following

i. Amount of installment sales.
ii. Amount of down payment received.
iii. Monthly installment amount of each computer.
iv. Unrealized (Deferred) Gross Profit.
v. Rate of Unrealized (Deferred) Gross Profit.
vi. Total amount of installment account receivable cancelled.
vii. Book Value of repossessed merchandise.
viii. Gain or loss on repossession.
ix. Total amount collected during the period.
x. Amount of Realized Gross Profit.

Q.5. Head Office and Branch Accounting

Following are some of the items extracted from the books of Khursheed and Hassan Company Karachi and its Lahore Branch

…………………………………………………. Head Office ………… Branch
Cash …………………………………………….. 40,000 ……….. 18,000
Inventory (Opening) ………………………….. 15,000 ……….. 20,000
Purchases ……………………………………… 18,000 ………… 6,000
Sales Revenue ………………………………… 32,100 ………… 30,000
Goods sent to Branch ………………………… 6,000 …………. ——-
Goods received from Head Office …………… —– ………….. 7,500
Salaries Expense ……………………………… 2,000 ………….. 1,000
Prepaid Rent …………………………………… 1,200 …………. 800
Allowance for Overvaluation …………………. 2,000 …………. ——

On December 31, 2008 data for adjustment:

Head Office: Inventory valued Rs. 3,000, Prepaid salaries Rs. 1,200 and Prepaid rent Rs. 800.
Branch: Inventory with respect of Head Office Rs. 1,500 and of local purchases Rs. 1,200. Accrued salaries Rs. 1,500 and rent expired during the period Rs. 200.

Required:
(a) Allowance for overvaluation in opening inventory.
(b) Rate of Allowance for overvaluation.
(c) Adjusting entry of Allowance for overvaluation.
(d) Prepare Consolidated Income Statement for the year ended December 31, 2008.

SECTION “B” – Cost Accounting

Q.6. Accounting for Manufacturing

The following extract of costing information relates to commodity ‘A’ manufactured by RIBBI ENGINEERING COMPANY for the half year ending 31st December 2008.

Purchase of Raw Material …………………………….. 2,50,000
Sales (all on account) ………………………………… 3,00,000
Factory overhead (20% of Direct Labour) ………….. 25,000
Carriage on Purchases …………………………………. 3,000

STOCK (July 01, 2008)
Raw Material ……………………………………………. 28,000
Finished Goods (1200 Units) ………………………….. 3,000
Work in Process ………………………………………… 45,000

STOCK (December 31, 2008)
Raw Material ……………………………………………. 17,000
Finished Goods (1000 units) ………………………….. ?
Work in Process…………………………………………. 91,500

Selling and distribution overhead are Rs. 3 per unit sold. During the period 29800 units were produced.

REQUIRED:
(a) Compute cost of material used.
(b) Calculates the amount of direct labour used.
(c) Prepare statement of cost of goods manufactured.
(d) Prepare statement of cost of goods sold.

Q.7. Job Order Cost System

On March 01, 2009 Azfar Engineering Works had two jobs in process as follows.

……………………………………………… Job No. 18 ……….. Job No. 19
Direct Material …………………………….. 50,000 ………………. 18,000
Direct Labour ………………………………. 36,000 ………………. 12,000
Direct Labour Hours ………………………. 10,000 ……………….. 8,000
Direct Machine Hours …………………….. 3,000 …………………. 2,500
Applied Factory Overhead ……….. Rs. 3 per direct …… Rs. 5 per direct
……………………………………… (Machine Hour) …….. (Labour Hour)

During March Job No. 20, 21, 22 and 23 were started. Direct materials of Rs. 37,500 and direct labour of 1800 hours at an average rate of Rs. 15 per hour used during the month. Pre determined FOH applied rate is Rs. 10 per direct labour hour on all jobs starting in March.
Job No. 23 was the only incomplete job at the end of March. Direct material of Rs. 15,000 and direct labour of Rs. 9,000 were charged to job. At the end of month job No. 22 was the only finished job on hand. It has accumulated total cost of Rs. 27,250.
There was no beginning inventory in finished goods. Jobs completed were sold on account at a profit of 20% on cost.

Required:
i. Prepare following T-Account.
(a) Work in Process
(b) Finished Goods
(c) Cost of Goods Sold
ii. Prepare journal entries to record
(a) Cost incurred on jobs started in the month of March
(b) Cost of goods manufactured
(c) Sales
(d) Cost of Sales.

Q.8. Process Costing

IYRA PHARMA COMPANY processes a product through three distinct stages. The product of one process is being passed on to the next process and so on to the finished product intact. Details of the cost incurred in process No. 1 is give below for the month of November 2009.

Cost of units in process on November 01, 2009. …………. 1,80,000
Cost of material placed in production ………………………. 1,20,000
Direct labour used (125% of Factory Overhead) ………….. 2,00,000
Factory overhead applied ……………………………………… ?

The data extracted from the production report relating to above processes are as follows:

Units in process on November 01, 2009 | 15000 Units
(60% completed as to material and 80% as to conversion cost)

Units placed in production | 40000 Units

Units in process on November 30, 2009 | 10,000 Units
(40% completed as to material and 50% as to conversion cost)

Required:
i. Equivalent production units
ii. Per Unit Cost
iii. Total cost of units completed and transfered to next process (Process No. 2)
iv. Total cost of units in process on November 30, 2009.

Fahim Patel

By Fahim Patel

Fahim Patel is the Content Manager of guesspapers.net. A graduate from Karachi University, he has intensive experience in content production.

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