PRACTICE TEST PAPER - 1
INTERMEDIATE (IPC): GROUP – I
PAPER – 3: COST ACCOUNTING AND FINANCIAL MANAGEMENT
Question No. 1 is compulsory.
Attempt any five questions from the remaining six questions.
Working notes should form part of the answer.
Time Allowed – 3 Hours
Maximum Marks – 100
Solution 1(a): (i) Calculation of Economic Order Quantity:
EOQ = 2 x A x O = 2 x (60,000 packs x 12 months) x `240 = 3,893.3 packs or 3,893 packs
C
`228 x 10%
(ii) Number of orders per year
Annual requirements = 7,20,000 packs = 184.9 or 185 orders a year
EOQ
3,893 packs
(iii) Ordering and storage costs: 2 x A x O x C = 2 x 7,20,000 x `240 x `22.8 = `88,768
(iv) Timing of next order:
Average delivery period = Maximum lead time + Minimum lead time
2
= 6 Days + 4 Days = 5 Days
2
Average usage per day = Annual Requirement
360 Days
= 7,20,000 Packs = 2,000 Packs
360 Days
Days requirement covered by Present inventory =
Present Inventory
Average usage per unit
= 10,000 Packs = 5 Days
2000 Packs
Timing for the next order = Average Delivery Period – Days Requirement covered by Present Inventory
= 5 Days – 5 Days = 0 Days
This means that next order for the replenishment of supplies has to be placed immediately.
Solution 1(b):
Sales Volume (Units)
16,000
40,000
Sales Value (`)
4,80,000
12,00,000
Profit/Loss
(1,60,000)
3,20,000
P/V Ratio = Change in profit × 100 = `3,20,000 – (- `1,60,000) × 100
Change in sales value
`12,00,000 - `4,80,000
= `4,80,000 × 100 = 662/3%
`7,20,000
Sales Volume (Units)
16,000
40,000
Contribution (66 2/3% of Sales) (`) 3,20,000
8,00,000
+ loss/(-) Profit (`)
1,60,000
(3,20,000)
Fixed Cost (`)
4,80,000 4,80,000
(i) Break-even Point in Rupees
= Fixed Cost
P/V Ratio
= `4,80,000 = `7,20,000
662/3%
(ii) If sales volume is 50,000 units, then profit
= Sales Value × P/V Ratio – Fixed Cost
= (50,000 units × `30 × 662/3% - `4,80,000) = `5,20,000
(iii) Minimum level of production where the company needs not to close the production, if unavoidable fixed cost is `1,50,000
= Avoidable fixed cost
Contribution per unit
= Total fixed cost – Unavoidable fixed cost
Contribution per unit
= `4,80,000 - `1,50,000
`30 × 662/3%
= `3,30,000 = 16,500 units.
`20
Advise: At production level of > 16,500 units, company needs not to close the production.
.
.
.
Solution 1(c): (i) Computation of Costs of Different Components of Capital
Equity Shares
Ke = D1 + g = D0 (1 + g) + g
P0
P0
= `3.60 (1.09) + 0.09
`54
= 0.0727 + 0.09 = 16.27%
Preference Shares
Kp = D = `11 = 11.58%
NP `95
Debt
Post tax Kd = I (1 -t) = 12 (1 – 0.4) = 7.2%
P
100
(ii) Weighted Average Cost of Capital (WACC)
WACC = (Post tax Kd x Wd) + (Ke x We) + (Kp x Wp)
WACC = (7.2% x 0.25) + (16.27% x 0.60) + (11.58% x 0.15) = 13.30%
Solution 1(d): Computation of EPS
Particulars
Amount in `
Sales
20,000
Less: Variable Cost of Production
(14,000)
Contribution
6,000
Less: Fixed Cost
(1,000)
Earnings Before Tax and Interest (EBIT)
5,000
Less: Interest @10%
(1,000)
Earnings Before Tax (EBT)
4,000
Less: Tax (50%)
(2,000)
Earnings After Tax (EAT)
2,000
No. of Equity Shares
2,000
Earnings Per Share (EPS)
1
DCL = Contribution = `6,000 = 1.5 times
EBT
`4000
DCL = % change in EPS
% change in Sales
1.5 = % change in EP
20%
% change in EPS = 30%
EPS (revised) = `1 + (1 + 0.30) = `1.30.
Solution 2(a): (i) Statement of Equivalent Production
Equivalent Production
Consumables
Material - A
Labour & Overheads
Input
Particulars
Output
%
Units
%
Units
%
Units
Nil
Opening WIP
Nil
55,000 Put & Processed
51,000 100
51,000 100
51,000
100
51,000
Normal Loss (4% of 55,000)
2,200
Closing W-I-P
2,000 100
2,000
80
1,600
60
1,200
Abnormal Gain
(200) 100
(200) 100
(200)
100
(200)
55,000
52,8800
52,400
52,000
*Material A represent transferred – in units from process – I
(ii) Determination of Cost per Unit
Amount in (`)
Equivalent
Per Unit
Particulars
Units
(`)
(i) Direct Material (Consumables):
Value of units transferred from Process – I
3,27,800
Less: Vale of normal Loss (2,200 units x `5)
(11,000)
3,16,800
52,800
6.00
(ii) consumables added in Process – II
1,57,200
52,400
3.00
(iii) (a) Labour
1,04,000
52,000
2.00
(b) Overhead
52,000
52,000
1.00
Total Cost per equivalent unit
12.00
.
(iii) Determination of value of Work – in – Progress and units transferred to Process – III
Particulars
Equivalent Units
Rate (`)
Total Cost (`)
(1) Value of Closing W-I-P
2,000
6.00
12,000
Material from Process – I
1,600
3.00
4,800
Labour
1,200
2.00
2,400
Overhead
1,200
1.00
1,200
20,400
(2) Value of units transferred to Process - III
51,000
12.00
6,12,000
Solution 2(b): Statement showing Calculation of Existing Capital Employed
Particulars
Amount in `
Equity Share Capital (5,00,000 shares x `10)
50,00,000
Reserves & Surplus
20,00,000
8% Debentures (`80,000/8%)
10,00,000
11% Long Term Loan (`2,20,000/11%)
20,00,000
Existing Capital Employed
1,00,00,000
Return on Capital Employed (%) = EBIT or Net Operating Profit x 100
Existing Capital Employed
= `23,00,000 x 100 = 23%
`1,00,00,000
Expected Return on Capital Employed as a result of modernisation = 23% + 2% = 25%
Statement showing Computation of Expected EBIT Post modernisation
Particulars
Amount in `
Existing Capital Employed
1,00,00,000
Add: Additional Capital Raised
Less: Debentures @ 8% paid off
Revised Capital Employed
Revised Rate of Return (%)
Expected EBIT post modernisation
Alternative 1: Raise Entire amount as Term Loan:
Particulars
EBIT on Revised Capital Employed
30,00,000
(10,00,000)
1,20,00,000
25%
30,00,000
Amount in `
30,00,000
Less: Interest on Term Loan
Existing Term Loan
New Term Loan
(11% x `20,00,000)
(12% x `30,00,000)
EBT
Less: Income Tax (@ 50%)
EAT
No. of Equity Shares
EPS
P/E Ratio (Revised)
(2,20,000)
(3,60,000)
24,20,000
(12,10,000)
12,10,000
5,00,000
2.42
8 times
MPS (P/E Ratio x EPS)
`19.36
Alternative 2: Raising Part by Issue of Equity Shares and rest by Term Loan:
Particulars
Amount in `
EBIT on Revised Capital Employed
30,00,000
Less: Interest on Term Loan
Existing Term Loan (11% x `20,00,000)
(2,20,000)
New Term Loan [12% x (`30,00,000 – `20,00,000)]
(1,20,000)
EBT
26,60,000
Less: Income Tax (@ 50%)
(13,30,000)
EAT
13,30,000
No. of Equity Shares (5,00,000 + 1,00,000)
6,00,000
EPS
`2.217
P/E Ratio
10
MPS (P/E Ratio x EPS)
`22.17
(i) Advise: Alternative 2 should be chosen as it gives maximum MPS.
(ii) If P/E ratio remains constant at 10, Revised MPS (under alternative 1) = 10 x `2.42 = `24.20, then, Alternative 1
should be chosen as it will give higher MPS.
Solution 3(a): (i) Production Budget (in Litres)
Particulars
Budgeted sales for the month
June
6,000
July
7,500
Aug
8,500
Sept
7,000
Add: Closing stock (40% of next month’s sale)
Less: opening stock
750
(750)
850
(750)
700
(850)
650
(700)
Fruit Juices to be Produced
(ii) Preparation of fruits purchase budget
Particulars
Budgeted Production for the month (in Litres)
Add: Closing stock (50% of next month’s
Production) (in Litres)
(In Litres)
Fruits Required for Production (in Kg)
6,000
7,600
8,350
6,950
Less: Opening Stock (in kg)
June
6,000
3,800
(7,600 x 50%)
9,800
34,300
(9,800 x 3.5 kg)
(5,800)
July
7,600
4,175
(8,350 x 50%)
11,775
41,212.5
(11,775 x 3.5 kg)
(13,300)
(3,800 x 3.5 kg)
27,912.5
Fruits to be Purchased (in kg)
28,500
(iii) Budgeted Gross Profit for quarter June to August
Particulars
June
July
Budgeted sales (in Litres)
6,000
7,500
Selling price per unit (`)
105
105
Sales revenue (`)
6,30,000
7,87,500
Less: Cost of Sales (`)
4,50,000
5,62,500
(Sales unit x Cost Per Unit)
Gross Profit (`)
1,80,000
2,25,000
Solution 3(b): (i) Statement showing Evaluation of Buy Proposal:
Particulars
Cash Outflows:
Initial Cost
Add: Operating Cost
Less: Scrap Value at the end of life of machine
(See WN 1)
PVCO (Net)
EAPVCO =
PVCO
PVIFA(r,n)
Time
PVIFA/PVF
0
1–5
6 – 10
11 – 15
15
10
1
3.6048
2.0454
1.1606
0.1827
0.3220
Aug
8,500
105
8,92,500
23,10,000
6,37,500
16,50,000
2,55,000
Brand XYZ
Amount
PV
6,00,000
20,000
28,000
39,000
(64,000)
Aug
8,350
3,475
(6,950 x 50%)
11,825
41,387.5
(11,825 x 3.5 kg)
(14,612.5)
(4,175 x 3.5 kg)
26,.775
6,00,000
72,096
57,271
45,263
(11,693)
Total
6,60,000
(Amount in `)
Brand ABC
Amount
PV
4,50,000
31,000
53,000
NIL
4,50,000
1,11,749
1,08,406
(57,000)
(18,354)
7,62,937
6,51,801
7,62,937
6,51,801
6.811
5.6502
=
=
1,12,015
1,15,359
Statement showing Computation of Cash Outflows if machine of Brand ABC is taken on rent
Particulars
Time
PVF
Cash Outflows (`)
PVCO (`)
Annual Rent
0
1
1,02,000
1,02,000
1–4
3.0373
1,02,500
3,11,323
5–9
2.2909
1,09,950
2,51,884
PVCO
6,65,207
PVIFA (12%, 10 years)
5.6502
EAPVCO = PVCO
1,17,732
PVIFA
Advice: The Company should purchase machine of Brand XYZ as it gives the lowest Equivalent Annual Present Value of Cash
Outflows.
Working Notes:
(1) Scrap Value at the end of Machine’s Life:
XYZ = (`6,00,000 x 2/3) – (`6,00,000 x 4% x 14)
= `4,00,000 – `3,36,000 = `64,000
ABC = (4,50,000 x 2/3) – (`4,50,000 x 6% x 9)
= `3,00,000 – `2,43,000 = `57,000
.
.
(ii) If machine is used for only 5 Years
Statement showing Evaluation of Buy Proposal:
Particulars
Time
PVF
Brand XYZ
Amount
PV
(Amount in `)
Brand ABC
Amount
PV
Cash Outflows:
Initial Cost
0
1
6,00,000
6,00,000
4,50,000
Add: Operating Cost
1 – 5 3.6048
20,000
72,096
31,000
Less: Scrap Value at the end of 5 years (WN 2)
5
0.5674 (3,04,000) (1,72,489) (1,92,000)
PVCO
4,99,607
Statement showing Computation of Cash Outflow if machine ABC is taken on rent for 5 years
Particulars
Time
PVF
Cash Outflows (`)
Annual Rent
0
1
1,02,000
Penalty for Terminating Rent Agreement
1–4
3.0373
1,02,500
5
0.5674
50,000
4,50,000
1,11,749
(1,08,941)
4,52,808
PVCO (`)
1,02,000
3,11,323
28,370
4,41,693
Advice: The Company should take machine ABC on rent as it gives the lowest Present Value of Cash Outflows.
(2) Scrap Value at the end of 5 Years:
XYZ = (`6,00,000 x 2/3) – (`6,00,000 x 4% x 4) = `4,00,000 – `96,000 = `3,04,000
ABC = (`4,50,000 x 2/3) – (`4,50,000 x 60% x 4) = `3,00,000 – `1,08,000 = `1,92,000
Solution 4(a): Dr.
Contract Account for the year ended 31st March, 2014
Cr.
Particulars
HP-1 (`)
HP-2 (`) Particulars
HP-1 (`)
HP-2 (`)
To Balance b/d: W-I-P
7,80,000
2,80,000 Bu Closing material at site
47,000
52,000
To Material purchased
6,20,000
8,10,000 By W-I-P:
To Wages: (`85,000 + `12,000)
97,000
Value of work certified
20,50,000
16,10,000
(`62,000 + `8,400)
70,400 Cost of work not certified
1,90,000
1,40,000
To Donation to local club*
5,000
2,500
To Plant hire charges:
(`72,000 x 1/3)
24,000
(`57,000 x 1/3)
19,000
To Depreciation on concrete
mixture**:
(`8,20,000 x 15% x 180/365)
60,658
(`8,20,000 x 15% x 100/365)
33,699
To Notional profit (balance c/d)
7,00,342
5,86,401
22,87,000 18,02,000
22,87,000 18,02,000
To Costing P & L A/c (WN-2)
1,86,758
1,56,374 By Notional profit (balance
7,00,342
5,86,401
b/d)
To Costing P & L Reserve A/c.
5,13,584
4,30,027
7,00,342
5,86,401
7,00,342
5,86,401
* Assuming donation paid to local club was exclusively for the above projects, hence included in the contract account.
** Depreciation on concrete mixture machine is charged on the basis of number of days used for the projects, as it is clearly
mentioned in the question that this machine can be used for other projects also.
Working Notes:
1. Computation of Stage of completion of the projects:
Value of work certified x 100
Value of contract
HP – 1 = `20,50,000 x 100 = 42.71%
`48,00,000
HP – 2 = `16,10,000 x 100 = 44.72%
`36,00,000
2. Computation of profit to be recognized in the Costing profit & loss A/c.
1 x Notional profit x
Cash Received
3
Value of work certified
HP – 1 = 1 x `7,00,342 x 80% = `1,86,758
3
HP – 2 = 1 x `5,86,401 x 80% = `1,56,374
3
(Land purchased and brokerage and registration fee paid for this purpose cannot be charged to contract account, hence not
included in the contract account).
.
Solution 4(b): (a) Gross Profit = `4,00,000
25% of Sales = `4,00,000
Sales = `16,00,000
(b) Debtors Velocity = 3 months
(Sundry Debtors + Bills Receivable) x 12 = 3
Net Credit Sales
Sundry Debtors + `25,000 = 3
`16,00,000
12
Sundry Debtors = `4,00,000 – `25,000 = `3,75,000
(c) Stock Velocity = 8 months
Average Stock
x 12 months = 8 months
Cost of Goods Sold
Average Stock
=8
Sales – Gross Profit 12
Average Stock = 8 (`16,00,000 – `4,00,000) = `8,00,000
12
Average Stock = `8,00,000
Opening Stock + Closing Stock = `8,00,000
2
Opening Stock + (Opening Stock + `10,000) = `8,00,000
2
2 Opening Stock + `10,000 = `16,00,000
Opening Stock = `16,00,000 – `10,000
2
Opening Stock = `7,95,000
Closing Stock = `7,95,000 + `10,000
= `8,05,000
(d) Creditors Velocity = 2 months
(Sundry Creditors + Bills Payable) x 12 months = 2 months
Credit Purchases
Sundry Creditors + `10,000 = 2
`12,10,000*
12
* Purchases = Cost of Goods Sold + Closing Stock - Opening Stock
= `12,00,000 + `8,05,000 – `7,95,000
= `12,10,000
Sundry Creditors = `2,01,667 – `10,000 = `1,91,667
Note: It’s assumed that all sales given are credit sales and all purchases given are credit purchases.
Solution 5: (a) It is defined as a location, person or an item of equipment (or group of these) for which cost may be ascertained
and used for the purpose of Cost Control.
Cost Centres are of two types,

Personal Cost Centre: It consists of a person or group of persons e.g. Mr. X, supervisor, foreman, accountant, engineer,
process staffs, mining staffs, doctors etc.

Impersonal Cost Centre: It consists of a location or an item of equipment (or group of these) e.g. Ludhiana branch, boiler
house, cooling tower, weighing machine, canteen, and generator set etc.
In a manufacturing concern there are two types of cost centres viz., Production and Service cost centres.
(b) The main advantages of Integrated Accounting are as follows:

No need for Reconcilation: The question of reconciling costing profit and financial profit does not arise, as there is only
one figure of profit.

Less efforts: Due to use of one set of books, there is significant saving in efforts made.

Less time consuming: No delay is caused in obtaining information provided in books of original entry.

Economical Process: It is economical also as it is based on the concept of ‘Centralization of Accounting Function’
(c) Differentiation between Factoring and Bills Discounting
The differences between Factoring and Bills discounting are:
(i) Factoring is called as “Invoice Factoring’ whereas Bills discounting is known as ‘Invoice discounting.”
(ii) In Factoring, the parties are known as the client, factor and debtor whereas in Bills discounting, they are known as drawer,
drawee and payee.
(iii) Factoring is a sort of management of book debts whereas bills discounting is a sort of borrowing from commercial banks.
(iv) For factoring there is no specific Act, whereas in the case of bills discounting, the Negotiable Instruments Act is
applicable.
(d) Conflict in Profit versus Wealth Maximization Principle of the Firm: Profit maximisation is a short-term objective and
cannot be the sole objective of a company. It is at best a limited objective. If profit is given undue importance, a number of
problems can arise like the term profit is vague, profit maximisation has to be attempted with a realisation of risks involved,
it does not take into account the time pattern of returns and as an objective it is too narrow.
Whereas, on the other hand, wealth maximisation, as an objective, means that the company is using its resources in a good
manner. If the share value is to stay high, the company has to reduce its costs and use the resources properly. If the company
follows the goal of wealth maximisation, it means that the company will promote only those policies that will lead to an efficient
allocation of resources.
(e) Present Value: Present Value” is the current value of a “Future Amount”. It can also be defined as the amount to be
invested today (Present Value) at a given rate over specified period to equal the “Future Amount”.
Perpetuity: Perpetuity is an annuity in which the periodic payments or receipts begin on a fixed date and continue indefinitely
or perpetually. Fixed coupon payments on permanently invested (irredeemable) sums of money are prime examples of
perpetuities.
Solution 6(a):
Actual
Raw
SQ for Actual
SP per
SC for Actual
RSQ
AP per
Actual
Consumption
Materials
Output (tonnes)
tonne (`)
Output (`)
(tonnes)
tonnes (`)
Cost (`)
(tonnes)
13.32
A
12,000
1,59,840
13.18697
13.12
12,347.56
1,62,000
(18 tonnes x 0.74)
7.20
B
23,500
1,69,200
7.12809
7.10
23,267.606
1,65,200
(18 tonnes x 0.4)
11.52
C
18,000
2,07,360
11.40494
11.50
18,000
2,07,000
(18 tonnes x 0.64)
32.04
5,36,400
31.72
31.72
5,34,200
(i) Material Cost Variance = Standard Cost for Actual Output – Actual Cost
= `5,36,400 – `5,34,200 = `2,200 (F)
(ii) Material Price Variance = Actual Quantity (Std. Price – Actual Price)
A = 13.12 tonnes (`12,000 – `12,347.56)
= `4,560 (A)
B = 7.10 tonnes (`23,500 – `23,267.606)
= `1,650 (F)
C = 11.50 tonnes (`18,000 – `18,000)
= Nil
= `2,910 (A)
(iii) Material Usage Variance = Std Price (Std. Quantity for Actual Output – Actual Quantity)
A = `12,000 (13.32 tonnes – 13.12) tonnes
= `2,400 (F)
B = `23,500 (7.20 tonnes – 7.10) tonnes
= `2,350 (F)
C = `18,000 (11.52 tonnes – 11.50) tonnes
= `360 (F)
= `5,110 (F)
(iv) Material Mix Variance = Std. Price (Revised Std. Quantity – Actual Quantity)
A = `12,000 (13.18697 tonnes – 13.12) tonnes
= 803.64 (F)
B = `23,500 (7.12809 tonnes – 7.10) tonnes
= 660.12 (F)
C = `18,000 (11.40494 tonnes – 11.50) tonnes
= 1711.08 (A)
= 247.32 (A)
Standard Cost per unit of Output = `5,36,400
18 tonnes
= `29,800
Standard Output for Total Actual mix =
18 tonnes x 31.72 tonnes
32.04 tonnes
= 17.82022 tonnes
Material Yield Variance = (Actual Output – Standard Output for Total Actual mix) x Standard Cost per unit of Output
= (18 tonnes – 17.8202 tonnes) x `29,800 = `5,357.44 (F)
(v) Material Yield Variance = Std. Price (Std. Quantity for Actual Output – Revised Std. Quantity)
A = `12,000 (13.32 tonnes – 13.18697 tonnes) = `1,596.36 (F)
B = `23,500 (7.20 tonnes – 7.12809 tonnes)
= `1,689.89 (F)
C = `18,000 (11.52 tonnes – 11.40494 tonnes) = `2,071.08 (F)
= `5,357.33 (F)
Solution 6(b): Monthly Cash Budget for Six Months, January to June, 2013
(Amount in `)
Particulars
Jan
Feb
March
April
May
June
Opening Cash Balance
1,500
3,250
1,500
(11,912)
(15,024)
576
Receipts:
Collection From Debtors
One Month After Sale (40%)
6,000
6,000
7,500
9,000
12,000
11,400
Two Months After Sale (60%)
Proceeds from Sale of Freehold Properties
Total Cash Available (A)
Payments:
Payment to Suppliers
Payment for Overheads
Wages
Paid in month of Production (75%)
Paid one month later (25%)
Purchase of new machine
Corporation Tax paid
Total Payments (B)
Closing Cash Balance (A) – (B)
Working Notes: (1) Sale Receipts
Particulars
Nov
Forecast Sales
1,000
Sale Proceeds
15,000
Debtors Pay:
1 Month 40%
2 Month 60%
(2) Payment of Materials
Particulars
Quantity Produced
Materials (`)
Paid (2 Months after) (`)
(3) Variable Overheads
Particulars
Quantity Produced
Variable Overheads (Quantity x `2)
(Quantity x `2.50)
Paid one month Later (`)
(4) Wages Payable
Particulars
Quantity Produced
Wages (Quantity x `4)
(Quantity x `4.50)
Paid
75% this month(`)
25% Next month(`)
9,000
16,500
9,000
18,250
9,000
18,000
11,250
8,338
13,500
25,000
35,476
18,000
29,976
5,000
2,500
6,250
3,000
7,500
4,000
10,000
3,800
9,500
5,500
11,000
5,500
4,500
1,250
13,250
3,250
6,000
1,500
16,750
1,500
6,412
2,000
10,000
29,912
(11,912)
7,425
2,137
23,362
(15,024)
Dec
1,000
15,000
Jan
1,000
15,000
Feb
1,250
18,750
March
1,500
22,500
7,425
7,762
2,475
2,475
10,000
34,900
26,737
576
3,239
(Amount in `)
April
May
June
2,000
1,900
2,200
30,000
28,500
33,000
6,000
-
6,000
9,000
15,000
6,000
9,000
15,000
7,500
9,000
16,500
9,000
11,250
20,250
Nov
1,000
5,000
Nov
1,000
2,000
-
Dec
1,250
6,250
-
Jan
1,500
5,000
5,000
Dec
1,250
2,500
2,000
Feb
2,000
6,250
6,250
Jan
1,500
3,000
2,500
March
1,900
7,500
7,500
Feb
2,000
4,000
3,000
March
1,900
3,800
4,000
12,000
13,500
25,500
11,400
18,000
29,400
April
2,200
10,000
10,000
May
2,200
9,500
9,500
June
2,300
11,000
11,000
April
2,200
5,500
3,800
May
2,200
5,500
5,500
June
2,300
5,750
5,500
Dec
1,250
5,000
-
Jan
1,500
6,000
-
Feb
2,000
8,000
-
March
1,900
8,550
April
2,200
9,900
May
2,200
9,900
June
2,300
10,350
3,750
-
4,500
1,250
5,750
6,000
1,500
7,500
6,412
2,000
8,412
7,425
2,137
9,562
7,425
2,475
9,900
7,762
2,475
10,237
Solution 7: (a)
Sl. No.
Method of Costing
(i)
Job Costing
(ii)
Batch Costing
(iii)
Unit Costing or Single or Output Costing
(iv)
Multiple Costing
(b) Treatment of over and under absorption of overheads are:
(i) Writing off to Costing P&L A/c: Small difference between the actual and absorbed amount should simply be transferred
to costing P&L A/c, if difference is large then investingare the carses and after that avnormal loss/gain shall be transferred
to costing P&L A/c.
(ii) Use of supplementary Rate: Under the method the balance of under and over absorbed overheads may be charged to cost
of W.I.P., finished stock and cost of sales proportionately with the help of supplementary rate of overhead.
(iii) Carry Forward to Subsequent Year: Difference should be carried forward in the expectation that next year the position
will be automatically corrected.
(c) Four Kinds of Float with reference to Management of Cash
The four kinds of float are:
(i) Billing Float: The time between the sale and the mailing of the invoice is the billing float.
(ii) Mail Float: This is the time when a cheque is being processed by post office, messenger service or other means of delivery.
(iii) Cheque processing float: This is the time required for the seller to sort, record and deposit the cheque after it has been
received by the company.
(iv) Bank processing float: This is the time from the deposit of the cheque to the crediting of funds in the seller’s account.
(d) Difference between Financial Lease and Operating Lease
S.No. Financial Lease
Operating Lease
The risk and reward incident to ownership are passed on The lessee is only provided the use of the asset for a
1.
the lessee. The lessor only remains the legal owner of certain time. Risk incident to ownership belongs only to
the asset.
the lessor.
2.
The lessee bears the risk of obsolescence.
The lessor bears the risk of obsolescence.
3.
The lease is non-cancellable by either party under it.
The lease is kept cancellable by the lessor.
The lessor does not bear the cost of repairs, Usually, the lessor bears the cost of repairs,
4.
maintenance or operations.
maintenance or operations.
5.
The lease is usually full payout.
The lease is usually non-payout.
(Note: Students may answer any four of the above differences).