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B.Com II Advanced and Cost Accounting

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

SECTION “A” – (Advanced Accounting)

Q.1. (a) Following are the some of the transactions complete by Asif Corporation Ltd. The corporation has an authorized capital of Rs. 50,00,000 divided into 5,00,000 shares of Rs. 10 each.
Accrued office equipment costing Rs. 5,00,000 and in payment issued sufficient number of shares of Rs. 10 each fully paid up to the vendor. The market pair of the share is Rs. 12.50 each.
Issued 2,000; 6% Debentures of Rs. 100 each at Rs. 103, redeemable at Rs. 105 each.
The company issued 40,000 shares to capitalize profit of Rs. 5,00,000.
Building extension reserve was increased by Rs. 3,00,000. Restriction imposed on Retained Earnings in the form of ‘Contingencies’ was removed Rs. 6,00,000.

Required: Give entries in the General Journal to record the above transactions.

Q.1. (b)

Decent Company Limited
Income Statement
For the year ended June 30, 2007

Net Sales ……………………………………………… ?
Cost of goods sold …………………………………… ?
Gross Profit (30% of Net Sales) ……………………. ?
Operating Expenses ………………………………….. ?
Operating Income (10% of Net Sales) …………….. ?
Interest Expense …………………………………….. Rs. 20,000
Income before income tax ………………………….. ?
Income tax – 25% of income before income tax …. Rs. 25,000
Net Income ……………………………………………. Rs. 75,000

Required: Complete the income statement using only the information available.

Q.2. Two companies A and B carrying on similar business decided to amalgamate and a new company called AB Company Ltd. Being formed to take over the assets and liabilities of each. The followings are the respective Balance Sheets, showing the values of assets as greed in the contract and it is provided that fully paid up Rs. 100 shares will be issued by the new company to the value of net assets of each of the old companies:

Assets ……………………………….. A. Co. Ltd …………….. B. Co. Ltd
Cash …………………………………… 16,500 ………………… 52,500
Accounts Receivable ………………… —— …………………. 52,500
Merchandise Inventory …………….. 1,12,000 ……………….. 67,500
Retained Earnings …………………… 30,000 ………………….. ——
Building ………………………………. 1,42,000 ………………… 1,12,000
Machinery …………………………… 1,35,000 ………………… 1,50,000
TOTAL ASSETS ……………………… 4,36,500 ……………….. 4,35,000

Liabilities and Capital ………………. A. Co. Ltd ………………. B.Co. Ltd
Accounts Payable …………………… 61,500 ……………………. 45,000
Share Capital ………………………… 3,75,000 ………………… 3,00,000
Reserve Fund …………………………. ——- …………………. 75,000
Retained Earnings …………………….. ——- …………………. 15,000
TOTAL Liabilities and CapitalRs. 4,36,500 …………. Rs. 4,35,000

Required:
i. Compute purchase consideration for each liquidating Co.
ii. State what shares the liquidator of each company will receive in the new company.
iii. Give entries in the books of new company.

Q.3. The comparative financial data of Brothers Limited for the last two years are:

Assets ……………………………… 31-12-2005 ……………. 31-12-2006
Cash ………………………………….. 20,000 ………………….. 20,000
Accounts Receivable ……………….. 50,000 …………………. 1,60,000
Merchandise Inventory …………….. 1,00,000 ……………….. 75,000
Land and Building ……………………. 80,000 ………………….. 1,20,000
Plant and Machinery ………………… 5,00,000 ………………… 8,00,000
TOTAL ASSETS ……………………… 7,50,000 ……………….. 11,75,000

Liabilities and Capital ………………. 31-12-2005 ………….. 31-12-2006
Accounts Payable …………………… 53,000 ………………….. 1,90,000
Bills Payable ………………………….. 40,000 ………………….. 50,000
Outstanding Expenses ……………….. 7,000 …………………… 5,000
Share Capital ………………………… 5,00,000 ………………… 7,00,000
Retained Earnings …………………… 1,00,000 ………………… 1,60,000
General Reserve ……………………… 50,000 ………………….. 70,000
Liabilities and Capital ………. Rs. 7,50,000 ………….. Rs. 11,75,000

Additional Information
i. 10% Depreciation has been charged on Plant and Machinery during this year 2006.
ii. A piece of machinery was sold for Rs. 8,000 during the year 2006. It had cost Rs. 12,000. Depreciation of Rs. 7,000 had been provided it.

Required: Prepare a schedule of changes in working capital and a statement showing the sources and application of fund for the year 2006.

Q.4. The X.Y. Company Ltd. completed the following transaction during the year:

i. Sold on account inventory costing Rs. 72,000 for Rs. 65,000.
ii. Issued additional shares of capital for Rs. 5,00,000 cash.
iii. Sold temporary investment costing Rs. 80,000 for Rs. 1,00,000.
iv. Acquired temporary investments for Rs. 2,00,000 cash.
v. Wrote off uncollectible accounts Rs. 18,000.
vi. Declared a cash dividend Rs. 2,50,000.
vii. Declared a 10% stock dividend.
viii. Sold on account inventory costing Rs. 75,000 for Rs. 90,000.
ix. Paid accounts payable Rs. 1,50,000.
x. Borrowed cash from a bank by issuing a long-term note Rs. 3,00,000.

Required: Indicate the effect (increase, decrease and no effect) of each independent transaction listed above on the current ratio, quick ratio, working capital and net cash flow from operating activities. Use the following four-column format:

EFFECT UPON
Transaction | Current Ratio | Working Capital | Quick | Net Cash flow
……………………………………………………….from operating activities

Q.5. (a) Irfan and company sells refrigerators at 20% above cost and keeps accounts for sales by the installment method. In 2007, repossessions were made on unpaid installment contract balances of Rs. 60,000, repossessed units had a total resale value of Rs. 54,000. The company records such repossessions at a value that will permit the normal margin on sales.

Required: Give the entry to summarize the repossessions for 2007.

Q.5. (b) The Head Office of Zubair and Company carries all branch Plant Assets in its own ledger. Give entries that would appear in the books of head office and the branch as a result of the following transactions:

i. The Head Office purchases branch equipment for cash Rs. 80,000.
ii. The Branch pays Rs. 6000 for installation of the equipment.
iii. The Branch pays Rs. 4000 for insurance of the equipment.
iv. The Head Office records depreciation on equipment Rs. 4000.

SECTION “B” – (Cost Accounting)

Q.6. (a) The following information is taken from the financial statement of M/S. Adnan Brothers Ltd at the end of the year 06.

Goods in process inventory ………………….. Rs. 6,00,000
Cost of raw materials used ………………….. Rs. 31,20,000
Cost of goods manufactured ………………… Rs. 74,44,000
Factory overhead, 75% of direct labor …….. Rs. 18,00,000

Required: Compute the cost of goods in process inventory at January 01, 2006.

Q.6. (b) From the following information compute the Net Cost of raw materials purchased during the year:
Factory overhead is 30% of cost of goods manufactured. Direct labor is 20% of sales and 40% of cost of goods manufactured. Ending raw materials inventory is Rs. 40,000 more than beginning raw materials inventory. Sales totaled Rs. 10,00,000 for the year.

Q.7. Given below are the production data for Department No. 1 for the first month of operation:

Inputs to Department
Material 1,000 units …………………… Rs. 1,00,000
Direct Labor ……………………………. Rs. 1,90,000
Factory Overhead …………………….. Rs. 1,42,500

During the first month 800 units were completed and the remaining 200 units were 100% completed as to material and 75% completed as to conversion cost.

Required: Compute the following
i. Unit cost of material used.
ii. Equivalent units of production for direct labor and factory overhead.
iii. Unit cost of factory overhead.
iv. Total cost of 800 units completed
v. Total cost of 200 units in process at the end of the month.

Q.8. (a) The standard for materials in manufacturing item Y is one pound at Rs. 40. During the current month 5,000 units of item Y were produced and 5100 pounds of materials costing Rs. 2,14,200 were used. Analyze the variance between actual cost and standard in such a way as to show how much of it was attributable to price change and how much the excess quantity of materials used. Indicated whether the variances are favorable or unfavorable.

Q.8. (b) The standard cost and variances for direct materials, direct labor and factory overhead for the month of Nov. are give below:

VARIANCE

……………………… Standard Cost …….. Unfavorable ……… Favorable
Direct Materials ……… 60,000
Price Variance ………………………………………………………. 3,000
Quantity Variance ………………………………………………….. 1,800

Direct Labor …………. 1,20,000
Rate Variance …………………………………. 1,200
Usage Variance …………………………………………………….. 5,400

Factory Overhead …… 1,80,000
Controllable Variance…………………………. 2,400
Volume Variance ……………………………… 3,600

Required: Determine the actual cost increased during the month of Nov. for direct materials, direct labor and factory overhead.

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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