B.COM – II – ADVANCED AND COST...

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2014

Compiled and Solved by:

Sameer Hussain

B.COM – II – ADVANCED AND COST ACCOUNTING

REGULAR

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

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B . C o m – I I – A d v a n c e d a n d C o s t A c c o u n t i n g – 2 0 1 4 ( R e g u l a r )

ADVANCED AND COST

ACCOUNTING – 2014

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

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

SECTION “A” (ADVANCED ACCOUNTING)

Q.No.1 FINANCIAL STATEMENTS Karachi Manufacturing Company Ltd. has an authorized capital of Rs.2,000,000 divided into ordinary shares of Rs.20 each. On 31-12-2014 following balances were extracted from company’s accounts: Paid – up capital Rs.1,200,000; Plant and machinery Rs.1,500,000; Inventory (1st January) Rs.150,000; Accounts receivable Rs.235,000; General reserve Rs.62,500; Wages Rs.216,000; Bank Rs.195,750; Salaries Rs.46,280; Sales Rs.975,030; Allowance for doubtful debts Rs.8,750; Preliminary expense Rs.20,000; General expense Rs.20,000; Purchases Rs.485,500; Interim dividend Rs.18,750; Interest on debentures Rs.13,000; Retained earnings (Credit balance) Rs.33,500; Cash Rs.24,000; Commission expense Rs.18,000; 6% Debentures Rs.750,000; 4% Government securities Rs.150,000; Accounts payable Rs.125,000; Goodwill Rs.62,500. Adjustment:

(i) Inventory on 31-12-2014 Rs.262,000. (ii) Final dividend 5% to be paid. (iii) Depreciation 10% on fixed assets to be charged. (iv) Preliminary expenses to be written off 20%. (v) Reserve for doubtful debts to be maintained 5% on accounts receivable. (vi) Rs.30,000 of retained earnings were to be transferred to general reserve and provision for

income tax to be Rs.62,500. REQUIRED (a) Income statement and statement of retained earnings. (b) Balance sheet on 31-12-2014. SOLUTION 1 (a)

KARACHI MANUFACTURING COMPANY LTD. INCOME STATEMENT

FOR THE PERIOD ENDED 31 DECEMBER 2014 Sales 975,030 Less: Cost of Goods Sold: Merchandise inventory (beg) 150,000 Add: Net Purchases: Purchases 485,500 Add: Wages 216,000

Net purchases 701,500

Merchandise available for sale 851,500 Less: Merchandise inventory (end) (262,000)

Cost of goods sold (589,500)

Gross profit 385,530 Less: Operating Expenses: Salaries expense 46,280


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General expense 20,000 Interest on debentures 13,000 Commission expense 18,000 Depreciation expense – Plant and machinery (1,500,000 x 10%) 150,000 Amortization of preliminary expense (20,000 x 20%) 4,000 Bad debts expense (235,000 x 5% - 8,750) 3,000

Total operating expenses (254,280)

Net income Rs.131,250

KARACHI MANUFACTURING COMPANY LTD.

STATEMENT OF RETAINED EARNINGS FOR THE PERIOD ENDED 31 DECEMBER 2014

Retained earnings (opening balance) 33,500 Add: Net income for the period 131,250

Total retained earning 164,750 Less: Dividends and Reserves: Reserve for income tax (36,000 x 10%) 62,500 General reserve 30,000 Cash dividend (1,200,000 x 5%) 60,000

Total dividend and reserves (152,500)

Retained earnings (ending balance) Rs.12,250

SOLUTION 1 (b)

KARACHI MANUFACTURING COMPANY LTD. BALANCE SHEET

AS ON 31 DECEMBER 2014

Equities Assets

Shareholder’s Equity: Fixed Assets: Authorized Capital: Goodwill 62,500 100,000 ordinary shares @ Rs.20 each 2,000,000 Preliminary expenses 16,000

Plant and machinery 1,500,000 Issued & Paid-up Capital: Less: All for dep. (150,000) 1,350,000

60,000 ordinary shares @ Rs.20 each 1,200,000 Total fixed assets 1,428,500 Retained earnings 12,250 Reserve for income tax 62,500 Current Assets: General reserve 92,500 Merchandise inv. 262,000

Total shareholder’s equity 1,367,250 A/c. rec. 235,000 Less:All for b/d (11,750) 223,250 Liabilities: 4% Govt. securities 150,000 Long – Term Liabilities: Bank 195,750 6% Debentures payable 750,000 Cash 24,000

Total current assets 855,000 Current Liabilities: Accounts payable 125,000 Cash dividend payable 41,250

Total liabilities 916,250

Total equities 2,283,500 Total assets 2,283,500


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Q.No.2 INSTALLMENT SALES M/s. Karim Ltd. Co. uses perpetual inventory system for recording merchandise and installment system method for recognizing profit. The transactions for the year ended 31-12-2014 were as under:

1) Purchase merchandise for cash Rs.600,000 and on account Rs.100,000. 2) Sold merchandise on installment basis Rs.550,000. 3) Paid to creditor Rs.280,000 and paid expenses Rs.16,000. 4) Cost of installment sales Rs.400,000. 5) Collection on installment Rs.220,000. 6) Installment accounts receivable cancelled Rs.40,000. 7) Repossessed merchandise was valued Rs.26,000.

REQUIRED Record the above transactions in properly, drawn General Journal including adjusting and closing entries showing computations. SOLUTION 2 Computation of Unrealized Gross Profit: Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 550,000 – 400,000 Unrealized gross profit = Rs.150,000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate = Unrealized gross profit x 100

Installment sales Unrealized gross profit rate = 150,000 x 100

550,000 Unrealized gross profit rate = 27.27% Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit = 220,000 x 27.27% Realized gross profit = Rs.60,000 Computation of Gain or Loss on Repossession: Installment accounts receivable cancelled 40,000 Less: Unrealized gross profit (40,000 x 27.27%) (10,909)

Book value 29,091 Less: Merchandise repossessed at fair market value (26,000)

Loss on repossession Rs.3,091

M/S. KARIM LTD. CO. GENERAL JOURNAL

Date Particulars P/R Debit Credit

1 Merchandise 700,000 Cash 600,000 Accounts payable 100,000 (To record the merchandise purchased)

2 Installment accounts receivable 550,000 Installment sales 550,000 (To record the good sold on installment basis)


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3 Cost of installment sales 400,000 Merchandise 400,000 (To record the cost of installment sales)

4 Accounts payable 280,000 Expenses 16,000 Cash 296,000 (To record the payment to suppliers and expenses)

5 Cash 220,000 Installment accounts receivable 220,000 (To record the cash collected on installment basis)

6 Merchandise repossessed 26,000 Unrealized gross profit 10,909 Loss on repossession 3,091 Installment accounts receivable 40,000 (To adjust the repossession of merchandise)

M/S. KARIM LTD. CO. ADJUSTING ENTRIES


1 Installment sales 550,000 Cost of installment sales 400,000 Unrealized gross profit 150,000 (To adjust the unrealized gross profit)

2 Unrealized gross profit 60,000 Realized gross profit 60,000 (To adjust the realized gross profit)

M/S. KARIM LTD. CO.

CLOSING ENTRIES


1 Expense and revenue summary 19,091 Expenses 16,000 Loss on repossession 3,091 (To close the all expense accounts)

2 Realized gross profit 60,000 Expense and revenue summary 60,000 (To close the all income accounts)

3 Expense and revenue summary 40,909 Capital 40,909 (To close the expense and revenue summary account)

Q.No.3 ACCOUNTING FOR BRANCH M/S. Fahim Traders bills merchandise to its branch at 20% above cost. The following are transactions for November 2014:

(i) Head office sent merchandise costing Rs.240,000 to the branch. (ii) Branch returned merchandise at billed price Rs.12,000 to the head office. (iii) Branch paid head office accounts payable Rs.90,000.


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(iv) Head office collected branch accounts receivable Rs.40,000. (v) Branch sold merchandise for cash Rs.100,000 of which remitted to remitted to head office

Rs.70,000. (vi) Head office paid branch expenses Rs.30,000.

REQUIRED (a) Entries in the General Journal of head office. (b) Head office account in the ledger of branch.

SOLUTION 3 (a) Computation of Allowance for Overvaluation:

Particulars Billed Cost Allowance for over valuation

Merchandise supplied (240,000 x 20/100) 288,000 240,000 48,000 Less: Merchandise returned (12,000 x 20/120) (12,000) (10,000) (2,000)

Unadjusted allowance for overvaluation 276,000 230,000 46,000

M/S. FAHIM TRADERS

HEAD OFFICE BOOK GENERAL JOURNAL

FOR THE MONTH OF NOVEMBER 2014


1 Branch 288,000 Merchandise supplied 240,000 Allowance for overvaluation 48,000 (To record the goods supplied to branch at above cost)

2 Merchandise supplied returned 10,000 Allowance for overvaluation 2,000 Branch 12,000 (To record the goods returned by branch)

3 Accounts payable 90,000 Branch 90,000 (To record the liability paid by branch)

4 Cash 40,000 Branch 40,000 (To record the cash collected from branch customer)

5 Cash 70,000 Branch 70,000 (To record the cash remitted by branch)

6 Branch 30,000 Cash 30,000 (To record the payment of branch expenses)


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SOLUTION 3 (b) M/S. FAHIM TRADERS

BRANCH BOOK HEAD OFFICE ACCOUNT

2 Merchandise returned 12,000 1 Merchandise supplied 288,000 3 Cash 90,000 6 Expenses 30,000 4 Accounts receivable 40,000 5 Cash 70,000 Nov. 30 Balance c/d 106,000

318,000 318,000

Dec. 1 Balance b/d 106,000

Q.No.4 CASH FLOW STATEMENT Balance sheet data of Al – Basit Ltd. on 31-12-2014 and 2013 are given below:

2014 2013 2014 2013

Cash 30,000 37,000 Accounts payable 52,000 40,000

Accounts receivable 75,000 68,000 Bonds payable 20,000 ---

Merchandise Inventories 35,000 24,000 Allowance for depreciation 28,000 20,000

Plant 160,000 100,000 Ordinary share capital 135,000 100,000

Retained earnings 65,000 69,000

300,000 229,000 300,000 229,000

Cash dividend of Rs.8,000 and stock dividend of Rs.20,000 were declared, during the year. REQUIRED Cash flow statement, showing cash from operating, investing and financing activities. SOLUTION 4

AL – BASIT LTD. CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 DECEMBER 2014 Cash Flow from Operating Activities: Net income 24,000 Adjustments: Add: Depreciation expense 8,000

income before changes in working capital 32,000 Less: Increase in accounts receivable (7,000) Less: Increase in merchandise inventory (11,000) Add: Increase in accounts payable 12,000

Net cash flow from operating activities 26,000 Cash Flow from Investing Activities: Purchase of plant (60,000)

Net cash flow from investing activities (60,000) Cash Flow from Financing Activities: Issue of shares 15,000 Issue of bonds payable 20,000 Cash dividend paid (8,000)

Net cash flow from financing activities 27,000

Net decrease in cash and cash equivalents (7,000) Add: Opening cash and cash equivalents balance 37,000

Closing cash and cash equivalents balance Rs.30,000


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Computation of Net Income: Retained earnings (2014) 65,000 Less: Retained earnings (2013) (69,000)

Retained earnings for the period (4,000) Add: Dividend: Cash dividend 8,000 Stock dividend 20,000

Total dividends 28,000

Net income Rs.24,000

Q.No.5 COMPANY ACCOUNTING – ABSORPTION Following are the balance sheets of Mirza Ltd. and Baig Ltd. as on 31-12-2014:

Assets Mirza Ltd.

Baig Ltd.

Equities Mirza Ltd.

Baig Ltd.

Cash 120,000 12,000 Accounts payable 35,000 25,000

Accounts receivable 75,000 52,000 Notes payable 50,500 29,800

Merchandise Inventories 50,000 45,000 Reserves 30,000 ---

Land 90,000 63,000 Ordinary share capital 300,000 200,000

Building 180,000 160,000 Allowance for bad debts 7,500 5,200

Goodwill 48,000 --- Allowance for depreciation 60,000 40,000

Preliminary expense --- 18,000 Retained earnings 20,000 30,000

Share premium 60,000 20,000

Total 563,000 350,000 Total 563,000 350,000

Baig Ltd. is absorbed by Mirza Ltd. Current assets (except cash) and liabilities to be taken over at book value and land and building to be taken over at Rs.75,000 and Rs.200,000 respectively. Purchase consideration of Rs.400,000 to be paid in cash Rs.120,000 and balance by issue of ordinary shares @ Rs.12.50 per share including premium of Rs.2.50 per share. REQUIRED

(a) Goodwill of absorbed company. (b) Entries in General Journal of absorbing company. (c) Balance sheet after absorption.

SOLUTION 5 (a) Computation of Goodwill: Accounts receivable 52,000 Merchandise inventory 45,000 Land 75,000 Building 200,000

Total assets 372,000 Less: Liabilities: Accounts payable 25,000 Notes payable 29,800 Allowance for bad debts 5,200

Total liabilities (60,000)

Net asset/net worth 312,000 Less: Purchase consideration (400,000)

Goodwill Rs.88,000


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Computation of Purchase Consideration: Cash 120,000 Ordinary shares (22,400 x 12.50) 280,000

Purchase consideration Rs.400,000

SOLUTION 5 (b)

MIRZA LTD. GENERAL JOURNAL


1 Accounts receivable 52,000 Merchandise inventory 45,000 Land 75,000 Building 200,000 Goodwill 88,000 Allowance for bad debts 5,200 Accounts payable 25,000 Notes payable 29,800 Payable to Baig Ltd. 400,000 (To record the assets and liabilities taken over)

2 Payable to Baig Ltd. 400,000 Ordinary shares capital (22,400 x 10) 224,000 Ordinary shares premium (22,400 x 2.50) 56,000 Cash 120,000 (To record the shares and cash issued)

SOLUTION 5 (c)

MIRZA LRD. BALANCE SHEET

AS ON 31 DECEMBER 2014

Equities Assets

Shareholder’s Equity: Fixed Assets: Issued & Paid-up Capital: Goodwill 136,000 52,400 ordinary shares @ Rs.10 each 524,000 Land 165,000 Share premium 116,000 Building 380,000 Reserves 30,000 Less: All for depreciation (60,000) 320,000

Retained earnings 20,000 Total fixed assets 621,000

Total shareholder’s equity 690,000 Current Assets: Liabilities: Merchandise inventory 95,000 Accounts payable 60,000 A/c receivable 127,000 Notes payable 80,300 Less: All for b/d (12,700) 114,300

Total liabilities 140,300 Total current assets 209,300

Total equities 830,300 Total assets 830,300


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SECTION “B” (COST ACCOUNTING) Q.No.6 MANUFACTURING CONCERN Following data are taken from the books of Data Manufacturing Company for the quarter ended September 30, 2014:

Inventory Opening Ending

Material 200,000 80,000

Factory supplies 18,000 8,000

Work – in – process 85,000 35,000

Finished goods 165,000 65,000

Direct labour 80,000 Indirect labour 10% of direct labour Motive power 7,000 Heat and light 18,000 Superintendence 50,000 Factory insurance 20,000 Miscellaneous manufacturing expense 10,000 Factory rent 60,000 Raw material purchased 280,000 Factory supplies purchases 3,000 Depreciation on plant and machinery 15,000 Tools expenditure 12,000 Selling expenses 10% of sales Sales revenue 895,000 Administrative expense 8% of gross profit REQUIRED Cost of goods manufactured statement and income statement. SOLUTION 6

DATA MANUFACTURING COMPANY STATEMENT OF COST OF GOODS MANUFACTURED

FOR THE PERIOD ENDED SEPTEMBER 30, 2014 Direct Materials: Raw materials (opening) 200,000 Add: Net purchase of raw material 280,000

Raw materials available for use 480,000 Less: Raw materials (ending) (80,000)

Raw materials used 400,000 Add: Direct labour 80,000

Prime cost 480,000 Add: Factory Overheads: Motive power 7,000 Superintendence 50,000 Miscellaneous manufacturing expense 10,000 Depreciation on plant and machinery 15,000 Indirect labour (80,000 x 10%) 8,000 Heat and light 18,000 Factory insurance 20,000 Factory rent 60,000 Factory supplies expense (18,000 + 3,000 – 8,000) 13,000 Tools expenditure 12,000

Total factory overhead 213,000

Total manufacturing cost 693,000 Add: Work – in – process (opening) 85,000

Total work – in – process during the period 778,000 Less: Work – in – process (ending) (35,000)

Cost of goods manufactured Rs.743,000


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DATA MANUFACTURING COMPANY INCOME STATEMENT

FOR THE PERIOD ENDED SEPTEMBER 30, 2014 Sales revenue 895,000 Less: Cost of Goods Sold: Finished goods beginning inventory 165,000 Add: Cost of goods manufactured 743,000

Finished goods available for sale 908,000 Less: Finished goods ending inventory (65,000)

Cost of goods sold (843,000)

Gross profit 52,000 Less: Operating Expenses: Selling expenses (895,000 x 10%) 89,500 Administrative expenses (52,000 x 8%) 4,160

Total operating expenses (93,660)

Net loss (41,660)

Q.No.7 STANDARD COSTING M/S. Noman Company provides following data for the month June, 2014: Standard Cost Actual Cost Materials 1,100 units @ Rs.7.50 per unit 1,200 units @ Rs.8.00 per unit Labour 2,000 hours @ Rs.5.00 per hour 2,200 hours @ Rs.5.50 per hour REQUIRED (a) (i) Material price variance (ii) Material quantity variance (iii) Labour rate variance (iv) Labour efficiency variance (b) General Journal entries including closing entries. SOLUTION 7 (a) Computation of Material Price Variance: Material price variance = (Standard price – Actual price) x Actual quantity Material price variance = (7.50 – 8.00) x 1,200 Material price variance = (600) (Unfavourable) Computation of Material Quantity Variance: Material quantity variance = (Standard quantity – Actual quantity) x Standard price Material quantity variance = (1,100 – 1,200) x 7.50 Material quantity variance = (750) (Unfavourable) Computation of Labour Rate Variance: Labour rate variance = (Standard price – Actual price) x Actual hours Labour rate variance = (5.00 – 5.50) x 2,200 Labour rate variance = (1,100) (Unfavourable) Computation of Labour Efficiency Variance: Labour efficiency variance = (Standard hours – Actual hours) x Standard price Labour efficiency variance = (2,000 – 2,200) x 5.00 Labour efficiency variance = (1,000) (Unfavourable)


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SOLUTION 7 (b) M/S. NOMAN COMPANY

GENERAL JOURNAL


1 Work in process (1,100 x 7.50) 8,250 Material price variance 600 Material quantity variance 750 Raw material (1,200 x 8.00) 9,600 (To record the material price and quantity variance)

2 Work in process (2,000 x 5.00) 10,000 Labour rate variance 1,100 Labour efficiency variance 1,000 Accrued payroll (2,200 x 5.50) 12,100 (To record the labour rate and efficiency variance)

M/S. NOMAN COMPANY

CLOSING ENTRIES


Cost of goods sold 3,450 Material price variance 600 Material quantity variance 750 Labour rate variance 1,100 Labour efficiency variance 1,000 (To close the all variances)

Q.No.8 JOB ORDER COSTING Following data related to M/S. Alam & Co. for the month of October, 2014:

1) Material purchased on account Rs.280,000. 2) Factory overhead cost incurred Rs.68,800. 3) Depreciation on machinery and equipment Rs.20,500. 4) Factory overhead rate is 105% of direct labour. 5) Jobs completed 302, 303, 304 and 305. 6) Job No. 302 and 305 were consigned to customer and billed Rs.100,000 and Rs.80,000. 7) Material and factory labour used as under:

Job No. Material Labour 302 Rs.31,000 Rs.25,000 303 19,000 25,500 304 42,400 14,800 305 27,600 20,800

For general factory use 9,500 17,800 REQUIRED

(a) Entries in General Journal. (b) Work – in – process account. (c) Computation of cost of jobs completed and sold.


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SOLUTION 8 (a) M/S. ALAM & CO.

GENERAL JOURNAL FOR THE MONTH OF OCTOBER 2014


1 Raw material 280,000 Accounts payable 280,000 (To record the purchase of raw material on account)

2 Factory overhead 68,800 Accounts payable 68,800 (To record the actual factory overhead cost incurred)

3 Factory overhead 20,500 Allowance for depreciation – Machinery & equip. 20,500 (To record the depreciation on machinery & equipment)

4 Work in process 90,405 Factory overhead applied 90,405 (To record the applied factory overhead)

5 Finished goods 296,505 Work in process 296,505 (To record the cost of finished goods)

6 Cost of goods sold 152,490 Finished goods 152,490 (To record the cost of goods sold)

7 Accounts receivable 180,000 Sales 180,000 (To record the goods sold to customers on account)

8 Work – in – process 120,000 Factory overhead 9,500 Raw material 129,500 (To record the material used during production)

9 Work – in – process 86,100 Factory overhead 17,800 Accrued payroll 103,900 (To record the labour assigned to production)

10 Cost of goods sold 26,195 Under – applied factory overhead 26,195 (To close the factory overhead account)

SOLUTION 8 (b)

Work in Process

4 Factory overhead 90,405 5 Finished goods 296,505 8 Raw material 120,000 9 Accrued payroll 86,100

296,505 296,505


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Factory Overhead

2 Accounts payable 68,800 4 Work in process 90,405 3 Allowance for depreciation 20,500 10 Cost of goods sold 26,195 8 Raw material 9,500 9 Accrued payroll 17,800

116,600 116,600

SOLUTION 8 (c)

Particulars 302 303 304 305 Total

Direct material 31,000 19,000 42,400 27,600 120,000

Direct labour 25,000 25,500 14,800 20,800 86,100

Factory overhead applied 26,250 26,775 15,540 21,840 90,405

Total work – in – process 82,250 71,275 72,740 70,240 296,505

Finished goods 82,250 71,275 72,740 70,240 296,505

Cost of goods sold 82,250 --- --- 70,240 152,490

Sales 100,000 --- --- 80,000 180,000

B.COM – II – ADVANCED AND COST...

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