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. Accounting for Companies – Absorption

On January 01, 2007 Halance Sheet of Zeeshan Ltd. Appeared as follows:

Cash ……………………….. 70,000 | All. for Dep. Building …… 1,00,000
A/C Receivable …………… 70,000 | A/C Payable …………….. 1,00,000
Merchandise Inventory ….. 50,000 | Bonds Payable ………….. 50,000
Equipment ………………… 50,000 | Share Capital Rs. 10 …… 5,50,000
Building …………………… 6,00,000 | Retained Earning ………. 40,000
TOTAL …………………… 8,40,000 | …………………………… 8,40,000

Zeeshan Ltd. is absorbed on January 01, 2007 by Furqan Ltd on the following terms

i. All the assets and liabilities were taken over at book values except cash.
ii. Share holders will get 60,000 shares of Rs. 10 each in Furqan Ltd.
iii. Liquidation expenses paid by Zeeshan Ltd. amounted to Rs. 20,000.

Required: Compute purchase consideration.
Journal entries in the books of Zeeshan Ltd.
Journal entries in the books of Furqan Ltd.

Q.2. Analysis of Financial Statement

The data given below were taken from the financial statements of Hamza Corporation for years 2005 and 2006.

…………………………………………… 2005 ………………….. 2006
Current Assets ……………………… 2,20,000 ……………… 2,64,000
Current Liabilities …………………… 1,65,000 ……………… 1,40,000
Cash Sales ………………………….. 2,00,000 ……………… 3,00,000
Credit Sales ………………………… 4,50,000 ………………. 5,60,000
Cost of Goods Sold ………………… 4,50,000 ………………. 5,00,000
Merchandise Inventory …………….. 95,000 ………………… 75,000
Quick Assets ………………………… 70,000 ………………… 75,000
Accounts Receivable ……………….. 60,000 ………………… 66,000

Required: Compute the following for 2005 and 2006.
i. Amount of Working Capital
ii. Current Ratio
iii. Days to Inventory Turnover
iv. Quick Ratio
v. Days to Receivable Turnover
vi. Rate of Gross Profit on Sales
vii. Days to Operating Cycle in 2006 only.

Q.3. Accounting for Installment Sales

The following transaction relate to Al-Abid Co. for 2006. Which follows the perpetual inventory system and FIFO method for valuation of inventory.
Opening inventory consist of 50 machines @ Rs. 560 per machine. They completed the following transactions.

1. Purchase 350 machines @ Rs. 600 per machine on account.
2. Sold 250 machines @ Rs. 1,000 each on installments.
3. Received down payment @ Rs. 200 per machine on all the sold machines.
4. Received 996 installments @ Rs. 100 per installment.
5. Repossessed one machine from a customer who had paid only down payment having market value of Rs. 500.

Required: Journal Entries including adjusting and closing entries. Show all computations.

Q.4. Cash Flow Statement

Muzammil Ltd. Balance Sheet as on Dec 31, 2005 and 2006 are given below:

Assets ………………………………. 31-12-2006 …………… 31-12-2005
Cash ………………………………….. 35,000 …………………… 37,000
Accounts Receivable ……………….. 70,000 …………………… 68,000
Merchandise Inventory …………….. 35,000 ……………………. 24,000
Plant …………………………………. 1,60,000 …………………. 1,00,000
Total Assets …………………………. 3,00,000 …………………. 2,29,000

Equities ……………………………… 31-12-2006 …………… 31-12-2005
Accounts Payable …………………….. 42,000 …………………. 40,000
Bonds Receivable ……………………… 30,000 …………………. ——-
Allowance for Depreciation ………….. 28,000 ………………….. 20,000
Ordinary Share Capital………………. 1,35,000 ………………… 1,00,000
Retained Earning …………………….. 65,000 …………………… 69,000
Total Equities ………………………… 3,00,000 …………………. 2,29,000

Cash dividend of Rs. 10,000 and stock dividend of Rs. 20,000 were declared during 2006.

Required:
i. Compute Net Income or Loss of 2006.
ii. Cash flow statement, showing cash flows from operating, investing and financing activities.

Q.5. Accounting for Branch

On January 01, 2006 Bilal Co. of Karachi opened a branch at Multan. Following is the information for the month of January 2006.

i. Sent merchandise to branch at billed price of Rs. 96,000.
ii. During the month additional shipment was made at billed price of Rs. 60,000.
iii. Branch returned merchandise of billed price of Rs. 4,800 during January.
iv. At the end of January the inventory (at billed price) held by branch amounted to Rs. 30,000.
v. Branch reported net profit of Rs. 4,000 for the month.
The head office followed the practice of billing the branch at 20% above cost of merchandise.

Required:
i. Give journal entries in the books of head office including adjustment of over valuation.
ii. Give journal entries in the books of Multan branch.
NOTE: Where computation of over valuation is required entries without computation will not be accepted.

SECTION “B” – (Cost Accounting)

Q.6. (a) Danish Corporation produces special product as to customer specifications and uses the Job Order Cost System. The following data relates to its operations of December 2006.

1. Purchased raw material on account Rs. 60,000.
2. Raw material issued to factory Rs. 43,000 of which Rs. 4,000 was used indirectly.
3. Factor labour used direct Rs. 65,000 and indirect Rs. 5,500.
4. Factory Overhead cost incurred on account Rs. 44,000.
5. Factory Overhead applied at 100% of Direct Labour Cost.
6. Jobs were completed to the extent of 80%.
7. Goods sold on account Rs. 2,00,000.
8. Finished Goods inventory on Dec 31, 2006 Rs. 18,400.

Required:
i. Record the above transactions in journal also close over or under applied factory overhead at the end of month.
ii. The following information is taken from the financial statements of Abdul Rehman Co. at the end of 2006.

Cost of raw materials used ………………………….. Rs. 1,60,000
Cost of goods manufactured ………………………… Rs. 3,80,000
Factory overhead, 75% of direct labor …………….. Rs. 90,000
Goods in process inventory on Dec 31, 2005 ……… Rs. 36,000

Q.7. Process Cost System

The following information’s was taken from the records of Faisal Manufacturing Co. for the month of January 2006.

1. Cost of units in process on Jan 01, 2006 Rs. 30,000.
2. Cost of raw material used Rs. 81,400.
3. Direct Labour Cost incurred Rs. 64,800.
4. Factory Overhead cost incurred Rs. 43,200.

The data extracted from the production report relating to above process is as for follows.
1. Units in process at end of January 2006. 3,000 Units (60% complete as to Material and 80% complete as to conversion cost)
2. Units placed in production during the month. 13,000 Units.
3. Units in process on January 01, 2006. 5,000 Units (40% complete as to material and 60% complete as to conversion cost)

Required:
i. Equivalent production during the month.
ii. Unit Cost
iii. Cost of units completed
iv. Cost of ending inventory of Goods in Process.
v. Journal entries to records cost allocated to production and cost of goods completed during the month.

Q.8. Standard Cost and Variances

(a). The Standard and actual cost data of Arif Co. are as follows:

………………………………………… Standard ……………….. Actual
Direct Material …………………. 20,000 units @ ……….. 19,600 units @
……………………………………. Rs. 4 per unit ………. Rs. 3.50 per unit
Direct Labour ………………….. 10,000 hours @ ………. 11,000 hours @
…………………………………… Rs. 10 per hour ………… 10.50 per hour

Required:
i. Material Price Variance
ii. Material Quantity Variance
iii. Labour Rate Variance
iv. Labour Time Variance
v. Journal Entries for recording of variances with Actual and Standard Cost.

(b) ………………. Standard Cost …. F. Overhead Variance (Favourable)
Factor Overhead ….. Rs. 96,000 …………….. Rs. 6,000

Required:
i. Determine the Actual Factory Overhead.
ii. Record the factory overhead costs and its variance.