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COST & MANAGEMENT AUDIT HANDBOOK
Updated With Companies (Cost Records and Audit) Amendment Rules, 2017
CMA FINAL
PAPER – 19
SYLLABUS - 2016
By Global CMA
Disclaimer :- The booklet has been prepared by team of Global CMA. The objective of the Booklet is to provide teaching material to the students to enable them to obtain knowledge in the subject. All rights reserved. No part of this book may be reproduced, print, stores in retrieval system, or transmitted in any form or by means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission in writing from the GLOBAL CMA and CMA Sandeep Bhatt. Through all the efforts have been made to ensure that there is no error in the book but if you come across any mistake, kindly bring it into the notice of the Global CMA or write directly to us. Neither the author nor the publisher shall be responsible for any mistake that might have crept in the book.
Second Edition : January, 2019
Email Support: [email protected] / [email protected]
Website: www.globalcma.in
PREFACE
“If you want to achieve something extraordinary, you have to go through a lot of pain and sacrifice many things in day to day life” It is indeed a privilege to present before you "COST AUDIT HANDBOOK" - a guidance to facilitate your study of Cost Audit subject in CMA Final to achieve success in your examination and to accomplish to a greater height. This "COST AUDIT HANDBOOK" which is prepared by the Global CMA Team, which aims strengthen the skills, developing in-depth knowledge and confidence of a student in the subject through handbook and this handbook shall be a road map for your all-round success. In the Cost Audit subject, student should gain enough knowledge about various components of Cost Records, Cost Audit, Management Audit, Internal Audit etc. with a view to strike all points, this book is written considering practical approach and is meant to cater to the needs of CMA Students.
Prepared by CMA professionals and
students under my guidance. 167 fully solved problems interspersed
in the text to reinforce concepts and aid comprehension.
Short notes with 100% coverage of
Study Material.
In any project, the first and most important contribution is obviously made by the team of the project. This book reflects the efforts of many people. It would be remiss of me not to acknowledge and thank for the assistance given to me by members of Global CMA team who supported me to made this handbook.
It is my hope and expectation that this book will provide an “Effective Learning Experience” and referenced resource for all CMA Final students in Paper-19 “Cost and Management Audit”. Any further improvement in the contents of this handbook by making corrections and inclusions is a keen to be achieved based on suggestions from the readers for which the author shall be obliged. I wish you great success and glorious future.
CMA Sandeep Bhatt CMA Vibhu Rustagi
(Authors)
SECTIONS
COMPANIES (COST RECORDS & AUDIT) RULES, 2014
BASICS OF COST AUDIT
COST ACCOUNTING/AUDITING STANDARDS - CAS, GACAP
PERFORMANCE ANALYSIS
4
1
2
3
5
MANAGEMENT AUDIT, INTERNAL AUDIT, OPERATIONAL AUDIT
INDEX
No. PARTICULARS PAGES
1 BASICS OF COST AUDIT 1-8
2 COMPANIES (COST RECORDS & AUDIT) RULES, 2014 9-31
3 FILLING OF COST AUDIT REPORT TO MCA IN XBRL 32-34
4 QUESTION & ANSWERS – CRA, 2014 35-116
5 COST ACCOUNTING/AUDITING STANDARDS - CAS, GACAP 117-186
6 QUESTION & ANSWERS – CAS 187-221
7 MANAGEMENT AUDIT 222-228
8 MANAGEMENT AUDIT IN DIFFERENT FUNCTIONS 229-240
9 INTERNAL AUDIT 241-256
10 INTERNAL AUDIT IN DIFFERENT SECTOR 257-267
11 PERFORMANCE ANALYSIS 268-324
S. No Chapters Revision-1 Revision-2 Revision-3
1 BASICS OF COST AUDIT
2 COMPANIES (COST RECORDS & AUDIT) RULES, 2014
3 FILLING OF COST AUDIT REPORT TO MCA IN XBRL
4 QUESTION & ANSWERS – CRA, 2014
5 COST ACCOUNTING/AUDITING STANDARDS - CAS and GACAP
6 QUESTION & ANSWERS – CAS
7 MANAGEMENT AUDIT
8 MANAGEMENT AUDIT IN DIFFERENT FUNCTIONS
9 INTERNAL AUDIT
10 INTERNAL AUDIT IN DIFFERENT SECTOR
11 PERFORMANCE ANALYSIS
10
10
Domestic or Foreign Company
Regulated
Listed in Table of Rule 3 (Pg.-16)
Overall turnover from all of its products and services ≥ ₹ 35 crores (preceding financial year)
Engaged in Production of goods or providing services
Non-regulated
Rule-3: Application of
Cost Records Companies engaged in the production of the goods or providing
services, mentioned in table of Rule-3 (pg-16), having an overall
turnover from ALL its products and services of ₹ 35 crores or more
during the immediately preceding financial year, shall include Cost
Records for such products or services in their books of accounts.
11
11
6 Tanks and other armoured fighting vehicles, motorised, whether
or not fitted with weapons and parts of such vehicles, that are
funded (investment made in the company) to the extent of ninety
per cent. or more by the Government or Government agencies;
8710
7. Port services of stevedoring, pilotage, hauling, mooring,
re-mooring, hooking, measuring, loading and unloading services
rendered by a Port in relation to a vessel or goods regulated by
the Tariff Authority for Major Ports under section 111 of the Major
Port Trusts Act, 1963 (38 of 1963);
Not applicable.
8. Aeronautical services of air traffic management, aircraft operations,
ground safety services, ground handling, cargo facilities and
supplying fuel rendered by airports and regulated by the Airports
Economic Regulatory Authority under the Airports Economic
Regulatory Authority of India Act, 2008 (27 of 2008);
Not applicable.
9. Iron and Steel; 7201 to 7229; 7301 to
7326
10. Roads and other infrastructure projects corresponding to para No.
(1) (a) as specified in Schedule VI of the Companies Act, 2013;
Not applicable.
11. Rubber and allied products being regulated by the Rubber Board
constituted under the Rubber Act, 1947 (XXIV of 1947).
4001 to 4017
12. Coffee and tea; 0901 to 0902
13. Railway or tramway locomotives, rolling stock, railway or tramway
fixtures and fittings, mechanical (including electro mechanical)
traffic signalling equipment's of all kind;
8601 to 8608.
14. Cement; 2523; 6811 to 6812
15. Ores and Mineral products; 2502 to 2522; 2524 to
2526; 2528 to 2530;
2601 to 2617
16. Mineral fuels (other than Petroleum), mineral oils etc.; 2701 to 2708
17. Base metals; 7401 to 7403; 7405 to
to
7614;
7801 7804; 7806; 7901 to 7905;
7907; 8001; 8003; 8007;
8101 to 8113
18. Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals;
2801 to 2853; 2901 to 3807; 3402
to 3403; 3809 to 3824
12
12
Name of Service
Service Code (if applicable)
Unit of Measure
Particulars Services Provided
Captive Consumption
Other Adjustm
ent
Services rendered
Current year
Previous year
S No.
Particular
Current year Previous Year
Amount (Rs.)
Rate Per Unit (Rs.)
Amount (Rs.)
Rate Per Unit (Rs.)
1 Materials Consumed (specify details as per Para 2A)
2 Utilities (specify details as per 2B)
3 Direct Employees Cost
4 Direct Expenses
5 Consumable Stores and Spares
6 Repairs and Maintenance
7 Quality Control Expenses
8 Research and Development Expenses
9 Technical know-how Fee / Royalty
10 Depreciation/ Amortization
11 Other Overheads
12 Industry Specific Operating Expenses( specify details as per Para 2C)
13 Total (1 to 12)
14 Less:- Credits for Recoveries, if any
15 Cost of Services provided (13-14)
16 Cost of Outsourced/ Contractual Services
17 Total Services available
18 Less:- Self/ Captive Consumption
19 Other Adjustments (if any)
20 Cost of Services Sold (17-18+19)
21 Administrative Overheads
22 Selling and Distribution Overheads
23 Cost of Sales before Interest (20+21+22)
24 Finance Cost
25 Cost of Sales (23+24 )
26 Net Sales Realization (Net of Taxes and Duties)
27 Margin [Profit/(Loss) as per Cost Accounts] (26-25)
2. ABRIDGED COST STATEMENT (for each service separately)
15
15
Question-39 : MENZ (IND) LTD., a manufacturing Company is engaged in manufacturing of multiple products. Some of the products are covered under the Companies (Cost Records and Audit) Rules, 2014 and some are not. Part-A, Para 4 of the Annexure to the Cost Audit Report (product/Service Details for the company as a whole) requires Net Operational Revenue to be reported for each CTA Heading for both the current year and the previous year. Can the Net Operational Revenue of all the Products that are not covered under the Rules be reported in this Para as a single line item? Solution: Part-A, Para 4 of the Annexure to the Cost Audit Report of the Companies (Cost Records and Audit) Rules, 2014 require reporting of Net Operational Revenue of every CTA Heading separately comprised in the Total Operational Revenue as per Financial Accounts. Hence, the company would be required to report Net Revenue of every CTA Heading irrespective of whether the same is covered under maintenance of cost accounting records and cost audit or not. In case some of the Products are under the same CTA Heading but having different units of measurement (UOM), then Net Revenue is to be reported for separate UOMs. It may be noted that the number of quantitative details and abridged cost statements will have to be provided for each unique combination of CTA Heading and UOM of the Products which are covered under cost audit. If the company is engaged in manufacturing of products as well as providing of services and/or trading, such services which are covered under the Companies (Cost Records and Audit) Rules, 2014 will be required to be reported separately according to the definition provided in the Rules classified under different types of services within the same class of service. It may be noted that the number of quantitative details and abridged cost statements will have to be provided for each classification of service covered under cost audit. Other services that are not covered under the Rules and Revenue from Trading Activity may be reported under suitable heads denoting the service/activity. The New Taxonomy has introduced a separate line item in this para to report "Other Operating Incomes" which will form part of the Total Operating Revenue. Question-40 : The Companies Act, 2013 has introduced provision regarding rotation of Auditors. Is the provision of rotation of Auditors applicable to Cost Auditors also? Solution: The provisions for maintenance of cost accounting records and cost audit are governed by Section 148 of the Companies Act, 2013. The provisions of Section 148 clearly states that no person appointed under Section 139 as an auditor of the company shall be appointed for conducting audit of Cost Records of the company. Section 148 also provides that qualifications, disqualifications, rights, duties and obligations applicable to auditors (financial) shall apply to a cost auditor appointed under this section. The eligibility, qualifications and disqualifications are provided in Section 141 of the Act and powers and duties are provided in Section 143. Section 143 (14) specifically states that the provisions of Section 143 shall mutatis mutandis apply to a cost auditor appointed under Section 148. There are no other provisions governing the appointment of a cost auditor. Section 139 (3) of the Act, applicable to appointment of auditors (financial), and Rule 6 of Companies (Audit and Auditors) Rules, 2014 deals with the provision of rotation of auditors and these provisions are applicable only to appointment of auditors (Financial). The Act does not provide for rotation in case of appointment of cost auditors and the same is not applicable to a cost auditor. It may, however, be noted that though there is no statutory provision for rotation of cost auditors, individual companies may do so as a part of their policy, as is the practice with Public Sector Undertakings.
16
16
Question-51 : Whether each and every transactions with Related Parties is to be disclosed under Para D-5 of Annexure to the Cost Audit Report? Solution: Details of related Party Transaction are required to be provided in respect of each Related Party and each Product/Service for the year as a whole and not transaction-wise. Question-52 : The Companies (Cost Records and Audit) Rules, 2014 requires submission of a single cost audit report at company level. What is the procedure of certifying and submission of cost audit report of a company where more than one cost auditor is appointed? Solution: In case of a company having more than one cost auditor, it would be necessary for the company to appoint/designate one cost auditor as the lead cost auditor for consolidation of the report. The individual cost auditors appointed for specific units/products would be required to audit and provide Para numbers A-4, B-1, B-2, B-2A, B-2B, B-2C, C-1, C-2, C-2A, C-2B, C-2C (as applicable), D-1 in respect of the products/services coming under the purview of their respective audits. The individual auditors would also be required to submit to the Board of Directors the individual cost audit report as per Form of the Cost Audit Report given in CRA-3. Question-53 : As a Cost Auditor of a company how would you dealt with treat the head office expenses of a company? Solution: A company may have a number of factories w ith a head office. In a multi -locational/ multi-product company, there are common activities carried out at Head Office like purchase, inventory management, finance, personnel, R & D, Quality Assurance, security etc. These activities sometimes, are centralized at one place i.e. Head Office for business convenience and scale of economy and booked as head office expenses along with other activities like secretarial, project, treasury, investment, trading, etc. They do not form part of the Administration overheads. For example: Industrial Relation Department; Material management; Operation/ production Planning Department; Human Resources, System Design & Development Set Up and the like are production related activities. Nomenclature or place where the activity takes place is not relevant. In such a situation, activities at Head Office/Corporate level are to be clearly demarcated and segregated so as to distinguish activities that contribute clearly and directly to production activities from general management and administration activities. It is necessary to properly analyze the expenses of such activities of head office and allocate these to plants/products on rational basis. Question-54 : A company is engaged in manufacturing of multiple products. Some of the products are covered under the Companies (Cost Records and Audit) Rules, 2014 and some are not. Part-A, Para 4 of the Annexure to the Cost Audit Report (Product/Service Details for the company as a whole) requires Net Operational Revenue to be reported for each CTA Heading for both the current year and the previous year. Can the Net Operational Revenue of all the Products that are not covered under the Rules be reported in this Para as a single line item? Solution: Part-A, Para 4 of the Annexure to the Cost Audit Report of Companies (Cost Records and Audit) Rules, 2014 require reporting of Net Operational Revenue of every CTA Heading separately comprised in the Total Operational Revenue as per Financial Accounts. Hence, the company would be required to report Net Revenue of every CTA Heading irrespective of whether the same is covered under maintenance of cost accounting records and cost audit or not. In case some of the Products are under the same CTA Heading but having different units of measurement (UOM), then Net Revenue is to be reported for separate UOMs. It may be noted that the number of quantitative details and abridged cost statements will have to be provided for each unique combination of CTA Heading and UOM of the Products which are covered under cost audit. If the company is engaged in manufacturing of products as well as providing of services and/or trading, such services which are covered under the Companies (Cost Records and Audit) Rules, 2014 will be required to be reported separately according to the definition provided in the Rules classified under different types of services within the same class of service. It may be noted that the number of quantitative details and abridged cost statements will have to be provided for each classification of service covered under cost audit.
17
17
Solution: Computation of Operating Profits (Value in Lacs)
Computation of Value Addition (Para 9 of the Rules)
Particulars 31.03.2009 31.03.2008 31.03.2007
Net Sales (exclusive of excise duty) (A) 1,745 1,705 1,610
Less : Raw Material 1,140 1,060 975
Less : Direct Wages 35 32 27
Less : Power and fuel 30 27 24
Less : Stores and spares 6 5 4
Less : Factory O/h (excluding dep.) 12 10 8
Less : Admin O/h (excluding dep.) 174 165 158
Less : Sell & distribution (excluding dep.) 137 130 118
Less : Bonus and gratuity 12 10 9
Total of Expenses (B) 1,546 1,439 1,323
Total Operating Profit (A-B) 199 266 287
Particulars 31.03.2009 31.03.2008 31.03.2007
Net Sales (exclusive of excise duty) 1745 1705 1610
Less : Cost of bought out material and stores & spares
1146 1065 979
Less : Bought out power and fuel 30 27 24
Less : Overheads (excl. salary and wages, rates & taxes and depreciation)
298 283 265
Value added 271 330 342
Operating Profits as a percentage to Value Addition
73.43%
(199/271)
80.60%
(266/330)
83.90%
(287/342)
Value Addition as a % of net sales
15.53%
(271/1745)
19.35%
(330/1705)
21.24%
(342/1610)
18
18
Solution :
Particulars 31.3.2007 31.3.2006 31.3.2005
Gross Fixed Assets 4,615 4,212 3,845
Less : Cumulative Depreciation 1,312 1,263 1,224
Net Fixed Assets (A) 3,303 2,949 2,621
Gross Current assets:
Inventory 625 580 511
Sundry Debtors 334 317 292
Other loans and advances 65 58 53
Other current assets 32 29 26
Total current assets (B) 1056 984 882
Gross Current liabilities:
Sundry creditors 214 187 174
Provisions for expenses 29 34 28
Total current liabilities (C) 243 221 202
Total Capital Employed (A+B-C) 4,116 3,712 3,301
Average Capital Employed 3,912 (3,712+4,116)/2
3,506 (3,301+3,712)/2
Profit before taxes 232 145
Add: Interest 614 497
Operating profits 846 642
Net Sales 3,924 3,212
Profit as a percentage of : Capital employed Net sales
21.61% 21.56%
18.31% 19.99%
19
19
Profit and Loss Account for the year ended March 31, 2014 You are required to compute the following figures/ratios as stipulated in PARA-9 of the Annexure to Cost Audit Report under Companies (Cost Audit Report) Rules 2011 for the year ended March 31, 2013 and 2014. a. Capital Employed b. Net Worth c. Net Sales d. PBT to Capital Employed e. PBT to Net Worth f. PBT to Net Sales g. Current Assets to Current liabilities h. Debt-Equity Ratio
Particulars 2014 2013
(Amount in ₹ lakhs)
Sales (including Excise duty) 14,520 12,255
Expenditure:
Material Consumed 5,670 4,504
Excise duty on dispatches 3,345 3,426
Employee Costs 825 690
Other Manufacturing expenses 550 480
Selling and distribution expenses 1,551 1,401
Administration expenses 250 230
Interest on:
Term Loans 346 201
Debentures 120 120
Others 80 100
Depreciation 302 200
Difference in stock 826 268
Total Expenditures 13865 11620
Profit Before Taxation (PBT) 655 635
Provisions for Taxation 100 230
Profit After Taxation (PAT) Transferred to Balance Sheet
555 405
20
20
Question-82: Grand Manufacture Ltd. received an enquiry for 250000 numbers of special type of machine parts. Capacity of the company exists for manufacturing the said parts but a fixed investment of ₹ 95,000/- and working capital (to the extent of 35% of sales value) will be required to undertake the job. The cost estimates are as follows:
Raw materials 40000 kg at ₹3. 00 per kg.
Labour hours 12000 of which 800 would be overtime payable at double the normal rate
Normal labour rate- ₹ 3. 00 per hour
Factory overheads - ₹ 2.50 per direct labour hour
Selling and Distribution Overheads - ₹ 45,400/-
Materials expected to be recovered at the end of the operation- ₹12,000/-(estimated)
The company expects a net return of 15% on Capital Employed. As a Management Accountant of the company, you are required to prepare a Cost and Price Statement, indicating the price to be quoted by the company to the customer and the Working Capital required to undertake the job. Solution: Statement of Estimated Cost and Price Cost unit—2,50,000
Working Notes: Calculation of Total Sales Let Sales be S S =Total cost + 15% of Capital Employed S = 2,21,800 + 15/100 ×(95,000 + 0.35 of S) S =2,21,800 + 0.15 (95,000 + 0.355) S =2,21,800 + 95,000 × 0.15 + 0.35 × 0.15 S S = 2,21,800 + 14,250 + 0.05 S S - 0.05S = 2,36,050 0.95S = 2,36,050 S = 2,36,050 / 0.95 = 2,48,474 / Sales = ₹2,48,474 Working Capital required = 35% Sales = 35/ 100 × 2,48,474 = ₹ 86,966
Cost Items Amount (₹) Amount(₹)
Direct Material(40000*3) 120000
Less : Material expected to be recovered at the end of the op-eration
12000 108000
Direct Labour (normal)[12000-800]*3 33600
Overtime : 800*6 4800 38400
Prime Cost 146400
Add: Factory Overheads: 12000*2.50 30000
Factory Cost 176400
Add: Selling and Distribution Overheads 45400
Cost of Goods Sold 221800
Profit (balancing figure) 26674
Sales( As per working notes) 248474
Selling price per unit ₹ ( the price to be quoted) 0.9939
21
21
Question-90 : As a part of management strategy SEASENA LTD. manufacturing soaps, purchased a popular soap brand “SUNFLOWER‟ from a smaller company. What will be treatment of such costs and the disclosure to be made in the Cost Statements as per relevant Cost Accounting Standard? Solution: The expenses paid or incurred for purchase of a brand is lump-sum in nature and purchased for the increase in revenue income over a long period of time. As per Cost Accounting Standard 10, expenses which are in the nature of 'one - time' payment, shall be amortized on the basis of the estimated output or benefit to be derived from such direct expenses. The expenses for which the benefit is ensued in the future period shall be equated with the estimated production/service volumes for the effective period and based on volume achieved during the Cost Accounting period. Accordingly, the charge for amortization shall be determined. In the given situation, the company is likely to be benefitted from the brand image of the product and the costs so amortized be treated as Selling Expenses over the estimated life of the brand image. As per cas-10, the cost statements on direct expenses shall normally disclose the following: a. The basis of distribution of Direct Expenses to the cost objects/cost units. b. Quantity and rates of items of Direct Expenses, as applicable. c. Where Direct Expenses are accounted at standard cost, the price and usage variances. d. Direct expenses paid/payable to related parties. e. Direct Expenses incurred in foreign exchange. f. Any subsidy/Grant/incentive/credit/recoveries and any such payment be reduced from Direct
Expenses. Disclosure shall be made only where expenses are material, significant and quantifiable and be made in the body of the Cost Statement or as a foot note or as a separate schedule. Question-91: In the Financial Accounts of CHEMICALS & FERTILIZERS LTD. for the year ended March 31,2016 the profit was ₹898,07,500. The profit as per Cost Accounting records for the same period was less. The following details are extracted from the accounting schedules and Cost Accounting records of the company.
You are required to prepare a Reconciliation Statement and arrive at the Profit as per Cost Records for the year ended March 31, 2016.
Particulars Financial Accounts
₹ ‘000 Cost Accounts
₹ ‘000
Opening : Semi Finished Goods 31700 35210
: Finished Goods 83220 78590
Closing : Semi Finished Goods 35260 39420
: Finished Goods 89320 80450
Urea & Transport subsidy 348
Expenses on CSR 56
Profit on sale of Fixed Assets 150
Chemical used internally 382 365
Favorable Exch. Rate variation 294
Post-retirement Medical grant 584
Purchase Tax Refund 453
Litigation Recovery-Prior year 125
22
22
Question-102: TEXTILE MILLS LTD. has been having low profit. The Company appointed a special task force to review performance and prospect of improving the profitability of the Company. The task force submitted the following report to the company.
a. The company has 1440 looms working in two shifts per day. There are 30 sections of 24 looms each working in two shifts. Each such section has 25 weaver and a jobber. Thus there are 1560 direct labourers other than indirect labours
b. The working time is between 7 a.m. and 12 mid night comprising 2 shifts of 8 hrs each with a half hour interval between shifts.
c. The production cloth is 21.60 lakh metres per month and the realisation is ₹ 4.30 per metre.
d. The average wage of direct labourers is ₹ 1200 per month and the fixed cost amounting to ₹ 2,90,000 per month. The product cost is ₹ 2.75 per metre in addition to direct wages.
The following suggestions/advised are to be considered for improvement:
a. Labour productivity can be improved by changing lay out of the machines.
b. Given the space available with proposed change in layout only 1008 looms can be re-installed with 48 looms in each section.
c. Technically a section of 48 looms can run with 13 weavers, a helper and a jobber. It will be necessary to increase the wages of direct labourers for such sections by ₹ 140 per head per month. The company is not going to retrench the labour at present.
d. The company can run a third shift between 12 mid night to 7 a.m. in the morning with a half hour interval. However eight hours wages are to be paid for six and half hour for the night shift.
e. As an initial step the company can switch to three shift workings with 11 sections having 26 direct labourers each shift and 10 sections having 15 direct labourers each shift. Excess hands can be planned for retirement or may leave the job voluntarily. The production for three shift workings will be 26.10 lakh metres. Additional fixed cost will be ₹ 50,000 per month for third shift.
f. Only 21.60 lakh metres can be sold at present price of ₹ 4.30 per metre and additional cloth of 4.50 lakh metres can be exported at ₹ 3.80 per metre, as there is an export offer.
Examine the implications of the proposals for company's profit and give your advice to the company. Solution: Statement showing the comparative profitability (per month)
(*1008/48)
(A) Particulars Present Proposed
No. of Looms 1,440 1,008
No. of Shifts 2 3
No. of Sections 30 21*
No. of Sections (with 26 hands in each section @ 1200 p.m.) 30 11
No. of sections (with 15 hands in each section @ ₹1340 per head p.m.)
- 10
Total number of direct labourers employed 1,560 1,308
Expected production (lakh metres p.m.) 21.60 26.10
118
CAS No. Title Effective from
CAS 1 Classification of Costs 1 April 2010
CAS 2 Capacity Determination 1 April 2010
CAS 3 Overheads 1 April 2010
CAS 4 Cost of Production for Captive Consumption 1 April 2010
CAS 5 Determination of Average (Equalized) Cost of Transportation 1 April 2010
CAS 6 Material Cost 1 April 2010
CAS 7 Employee Cost 1 April 2010
CAS 8 Cost of Utilities 1 April 2010
CAS 9 Packing Material Cost 1 April 2010
CAS 10 Direct Expenses 1 April 2010
CAS 11 Administrative Overheads 1 April 2010
CAS 12 Repairs And Maintenance Cost 1 April 2010
CAS 13 Cost of Service Cost Centre 1 April 2011
CAS 14 Pollution Control Cost 1 April 2012
CAS 15 Selling and Distribution Overheads 1 April 2013
CAS 16 Depreciation And Amortization 1 April 2014
CAS 17 Interest And Financing Charges 1 April 2014
CAS 18 Research and Development Cost 1 April 2014
CAS 19 Joint Cost 1 April 2014
CAS 20 Royalty and Technical Know-How Fee 1 April 2014
CAS 21 Quality Control 1 April 2014
CAS 22 Manufacturing Cost 1 April 2014
CAS 23 Overburden Removal Cost 1 April 2015
CAS 24 Treatment Of Revenue In Cost Statement 1 April 2015
119
SPOILAGE
Production that does not meet with dimensional or quality standards in such a way that it cannot be rectified economically and is sold for a disposal value. Net Spoilage is the difference between costs accumulated up to the point of rejection and the salvage value.
NET CURRENT ASSET
Net current asset is the excess of current assets over current liabilities. * Current Liabilities shall include short term borrowings and that part of long term borrowings which are classified as current liabilities. * Short term borrowing is the borrowing which is repayable within one year from the date of disbursal as per Loan Agreement. * Long term borrowing is the borrowing which is repayable after one year from the date of disbursal as per Loan Agreement.
PRODUCTION OVERHEADS
Indirect cost involved in the production process or in rendering service. The terms Production Overheads, Factory Overheads, Works Overheads and Manufacturing Overheads denote the same meaning and are used interchangeably. Production overheads shall include administration cost relating to production, factory, works or manufacturing.
PROPOERTY, PLANT AND EQUIPMENT
Property, plant and equipment are tangible assets that:-
are held for use in the production of goods or supply of services, for rental to others, for administrative, selling or distribution purposes; and
are expected to be used during more than one accounting period.
120
PRINCIPLE OF MEASUREMENT:-
1. Abnormal and non-recurring cost arising due to unusual or unexpected occurrence of
events, such as heavy break down of plants, accident, abnormal idle capacity, abnormal process
loss, abnormal scrap and wastage, etc. shall not form the part of cost of production.
2. Normal loss or spoilage of material prior to receipt in the factory shall be absorbed in the
cost of balance materials net of amounts recoverable from suppliers, insurers, or recoveries from
disposal.
3. Any fines, penalties, damages, detention charges, demurrage paid to statutory authority
or other third party shall not form part of cost.
4. Borrowing cost and other financial charges including foreign exchange fluctuations w ill
not form part of cost.
5. Subsidy, grant or incentives received or receivable shall be reduced from cost.
6. Any change in the cost accounting principles applied for the measurement of cost should
be made only if, it is required by law or for compliance with a cost accounting standard, or a change
would result in a more appropriate preparation or presentation of cost statements.
7. The forex component of importing anything, cost shall be converted at the rate on the
date of the transaction.
8. Any credit recoveries from employees/ suppliers/ Other parties towards cost incurred by
an entity for a resource will be settled against such cost.
9. Cost reported under various elements of cost w ill not include Imputed Cost.
DISCLOSURES :-
i. Any change in the cost accounting principles and methods applied for the determination of the
material cost during the period covered by the cost statement which has a material effect on
the cost of the material shall be disclosed. Where the effect of such change is not
ascertainable wholly or partly, the fact shall be indicated.
ii. Disclosures shall be made only where it is significant, material and quantifiable.
iii. Disclosures may be made in the body of the cost statement or as a footnote or as a separate
schedule.
iv. Any subsidy/grant/incentives or any amount of similar nature received/receivable reduced
from (Such) cost.
v. Any credit/recoveries relating to the (Such) cost.
vi. Penalties & damages excluded from the (Such) cost.
vii. Any abnormal portion of the (Such) cost.
VARIANCE :-
Price Variance - Part of Cost
Usage Variance - Not form part of Cost
121
Expenses Mentioned In Mentioned Under
a. Corporate Social Responsibility Expenses (CSR)
Profit Reconciliation
Expenses Not Considered in Cost Records*
b. Profit/Loss on Foreign Exchange
Profit Reconciliation
Profit—Income Not Considered in Cost Records Loss - Expense Not Considered in Cost Records
c. Profit/Loss on sale of Fixed Asset
Profit Reconciliation
Profit—Income Not Considered in Cost Records Loss - Expense Not Considered in Cost Records
d. Any Adjustment Profit Reconciliation
Depends on type of adjustment
e. Assets written off/ Write Back
Profit Reconciliation
Write Off - Expense Not Considered in Cost Records
Write Back - Income Not Considered in Cost Records
Note: *
CSR expense is an expense not related to the business; it does not have any direct impact on cost of
production/operations. Even the assets created out of CSR expenditure are not recognized as 'asset' in
the company's books but charged as an expense to the statement of profit and loss.
All CSR expenses are incurred in activities that are in the nature of philanthropic activities whose present
or future economic benefits do not flow to the company or any surplus/profits arising from such activities
cannot be recognized as business profits of the company. Hence, CSR expenses are not included in the
cost of sales.
They are presented in the Profit Reconciliation Statement. Similarly, any incomes generated or surplus
arising from CSR activities shall not be so recognized and to be exhibited in the Profit Reconciliation
Statement.
122
Cost of material of any nature used for the purpose of production of a product . Includes :-
cost of procurement,
freight inwards,
taxes & duties,
insurance etc. directly attributable to the acquisition.
Material Cost
The payment made to the employees, whether permanent or temporary, for their services. Like salaries and wages paid to the permanent and temporary Employees. Includes :-
All fringe benefits like Provident Fund contribution,
gratuity,
ESI,
overtime,
incentives & bonus,
ex-gratia,
leave encashment.
Labour Cost
Expenses other than material cost or labour cost which are involved in an activity. Includes :-
utilities
payment for bought out services
job processing charges etc.
Expenses
By Nature of Expense
Cost for undertaking
research to improve
quality of a present
product or improve
process of
manufacture,
develop a new
product, market
research etc. and
commercialization
thereof.
Research & Development
By Functions / Activities
Cost incurred in
handling a
product from the
time it is
completed in the
works until it
reaches the
ultimate
consumer.
Distribution Costs
Costs related to
selling of products
or services and
include all indirect
cost in sales
management for
the organization.
Selling Cost
Expenses incurred
for general
management of an
organization and
also termed as
Administrative
overhead.
Administration Cost
Cost of all items
involved in the
production of a
product or service.
It includes all direct
costs and all indirect
costs related to the
production.
Production Cost
123
Cost which does not vary with the
change in the volume of activity in
the short run & not affected by
temporary fluctuation in activity of
an enterprise & also known as
period costs.
Fixed Cost
Cost of elements which tends to
directly vary with the volume of
activity & also termed as Variable
overhead.
Variable Cost
Costs contain both fixed
and variable elements.
They are partly affected
by fluctuation in the level
of activity.
Semi—Variable cost
By Behaviour
By Relation to Cost Centre
Cost of
material which
can be directly
allocated to a
cost center or a
cost object in
an
economically
feasible way.
Material
Cost of wages
of those
workers who
are readily
identified or
linked with a
cost center or
cost object.
Labour
Expenses other
than direct
material or
direct labour
which can be
identified or
linked with the
cost center or
cost object.
Expenses
Direct
Not be directly
allocable to a
particular cost
center or cost
Object.
Material
Wages of the
employees
which are not
directly
allocable to a
particular cost
center.
Labour
Expenses other
than of the
nature of
material or
labour and
cannot be
directly
allocable to
particular cost
centers.
Expenses
Indirect
124
OBJECTIVE &
SCOPE
Objective of this standard is to bring uniformity and consistency in the
principles and methods of determining the overheads with reasonable accuracy.
Overheads Overheads comprise costs of indirect materials, indirect employees and indirect expenses which are not directly identifiable or allocable to a cost object in an economically feasible manner.
Absorption of Overheads
Absorption of overheads is charging of overheads to cost objects by means of appropriate absorption rate. Overhead Absorption Rate = Overheads of the cost object / quantum of base.
Distribution of Overheads
Distribution overheads, also known as Distribution Cost, are the cost incurred in handling a product from the time it is ready for dispatch until it reaches the ultimate consumer.
DEFIN
ITIO
NS
A. The cost which can be traced directly to a cost object shall be directly assigned.
B. Assignment of overhead to the cost objects shall be based on either of the
following two principles;
I. Cause and Effect: Cause is the process or operation or activity and effect is the
incurrence of cost.
II. Benefits received: Overheads are to be apportioned to the various cost objects
in proportion to the benefits received by them.
C. Absorption of production or Operation Overheads
Variable Overheads = Absorbed to product or services based on ACTUAL PRODUCTION
Fixed Overheads = Absorbed to product or services based on NORMAL CAPACITY
A. Overheads shall be presented as separate cost heads like production, administration
and marketing.
B. Element wise and behavior wise details of the overheads shall be presented, if material.
C. Any under-absorption or over-absorption of overheads shall be presented in the
reconciliation
D. The cost statements shall disclose the following:
1. The basis of assignment of overheads to the cost objects.
2. Overheads incurred in foreign exchange.
3. Overheads relating to resources received from or supplied to related parties.
4. Any Subsidy / Grant / Incentive or any amount of similar nature received /
receivable reduced from overheads.
5. Credits / recoveries relating to the overheads.
6. Any abnormal cost not forming part of the overheads.
AS
SIG
NM
EN
T
OF C
OS
T
PR
ES
EN
TA
TIO
N &
D
IS
CLO
SU
RES
125
Treatment of
Joint Products
And By-Products
A production process may result in more than one product being
produced simultaneously.
In case joint products are produced, joint costs are allocated between the
products on a rational and consistent basis. In case by-products are
produced, the net realizable value of by-products is credited to the cost
of production of the main product.
For allocation of joint cost to joint products, the sales values of products
at the split off point i.e. when the products become separately
identifiable may become the basis. Some other basis may be adopted.
For example, in case of petroleum products, each product is assigned
certain value based on its certain properties, may be calorific value and these
values become the basis of apportionment of joint cost among petroleum
products.
Treatment of
Scrap and Waste
The production process may generate scrap or waste. Realized or
realizable value of scrap or waste shall be credited to the cost of
production.
In case, scrap or waste does not have ready market and it is used for
reprocessing, the scrap or waste value is taken at a rate of input cost
depending upon the stage at which such scrap or waste is recycled. The
expenses incurred for making the scrap suitable for reprocessing shall be
deducted from value of scrap or waste.
Miscellaneous
Income
Miscellaneous income relating to production shall be adjusted in the calculation
of cost of production, for example, income from sale of empty containers used
for dispatch of the captively consumed goods produced under reference.
Inputs received
free of cost
In case any input material, whether of direct or indirect nature, including
packing material is supplied free of cost by the user of the captive
product, the landed cost of such material shall be included in the cost of
production.
Moulds, Tools, Dies & Patterns etc received free of cost. The amortization
cost of such items shall be included in the cost of production.
Interest &
financial charges
Interest and financial charges being a financial charge shall not be considered
to be a part of cost of production.
Abnormal and
non-recurring
cost
Abnormal and non-recurring cost arising due to unusual or unexpected
occurrence of events, such as heavy break down of plants, accident, market
condition restricting sales below normal level, abnormal idle capacity,
abnormal process loss, abnormal scrap and wastage, payments like VRS,
retrenchment compensation, lay-off wages etc. The abnormal cost shall not
form the part of cost of production.
126
Objective
To prescribe the system to be followed for maintenance of records for collection of cost
of transportation, its allocation/apportionment to cost centres, locations or products.
For example, transportation cost needs to be apportioned among excisable,
exempted, non-and other goods for arriving at the average of transportation
cost of each class of goods.
This standard can be used for :
a) Determination of average transportation cost for claiming the deduction for
arriving at the assessable value of goods.
b) Insurance claim valuation
c) Working out claim for freight subsidy under Fertilizer Industry Coordination
Committee
d) Administered price mechanism of freight cost element
e) Determination of inward freight costs included or to be included in the cost of
purchases attributable to the acquisition.
f) Computation of freight included in the value of inventory for accounting on
inventory or valuation of stock hypothecated with Banks / Financial Institution,
etc.
Cost of Transportation of the cost of freight, cartage, transit insurance and cost of
operating fleet and other incidental charges whether incurred internally or paid to an
outside agency for transportation of goods but does not include detention and
demurrage charges.
Co
st
of
Tran
sp
orta
tio
n
Cost of transportation
Inward Transportation Cost
Cost incurred in connection with materials /goods received at factory or place of use or sale/removal.
Outward Transportation cost
Cost incurred in connection with the sale or delivery of materials or goods from factory or depot or other place from where goods are sold /removed.
DEFIN
ITIO
NS
127
Obj.
The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the Employee cost with reasonable accuracy.
Abnormal Idle Time
An unusual or atypical employee idle time occurrence of which is usually irregular and unexpected or due to some abnormal situations. E.g. : Idle time due to a strike, lockout or an accident.
Overtime Premium
Overtime is the time spent beyond the normal working hours which is usually paid at a higher rate than the normal time rate. The extra amount beyond the normal wages and salaries paid is called overtime premium.
Employee Cost
Employee Benefits paid or payable in all forms of consideration given for the service rendered by employees (including temporary, part time and contract employees) of an entity. Explanation: 1. Contract employees include employees directly engaged by the
employer on contract basis but does not include employees of any contractor engaged in the organisation.
2. Compensation paid to employees for the past period on account of any dispute court orders shall not form part of Employee Cost.
3. Short provisions of prior period made up in current period shall not form part of the employee cost in the current period. Employee cost includes payment made in cash or kind.
For example: A. Employee cost
Salaries, wages, allowances and bonus/ incentives.
Contribution to provident and other funds.
Employee welfare
Other benefits B. Employee cost – Future benefits Gratuity.
Leave encashment.
Other retirement/separation benefits.
VRS/ other deferred Employee cost.
Other future benefits Benefits generally include
Paid holidays.
Leave with pay.
Statutory provisions for insurance against accident or health scheme.
Statutory provisions for workman’s compensation.
Medical benefits to the Employees and dependents.
Free or subsidised food.
Free or subsidised housing.
Free or subsidised education to children.
Free or subsidised canteen, crèches and recreational facilities.
Free or subsidised conveyance.
Leave travel concession.
Interest Free or subsidised Loans
Any other free or subsidised facility.
Cost of Employees’ stock option.
DEFIN
ITIO
NS
128
IT (Information Technology) Environment and Control
The cost auditor shall evaluate and assess:
IT Architecture, Systems and programmes in use in the entity;
Controls on access to data;
Controls on changes to data in master files, systems or programmes;
An Integrity of information and security of the data
Identifying and Assessing the Risks of Material Misstatement
The cost auditor shall identify and assess the risks of material misstatement at the cost statement level; and at the assertion level including items of cost, cost heads and disclosures thereof. For this purpose, the cost auditor shall:
Identify risks including relevant controls that relate to the risk of material misstatements or a risk of fraud;
Assess whether the risk is related to recent significant economic, accounting or other developments and, therefore, requires specific attention;
Assess whether the risk involves significant transactions with related parties;
Assess the degree of subjectivity in the measurement of information related to the risk.
Assess whether there arises a need for revising the assessment of risk based on additional audit evidence obtained.
Documentation
The auditor shall document:
Key elements of the understanding obtained regarding each of the aspects of the entity and its environment and of each of the internal control components; the sources of information from which the understanding was obtained; and the risk assessment procedures performed;
The identified and assessed risks of material misstatement at the cost statement level and at the assertion level including items of cost, cost heads and disclosure thereof as required; and
The risks identified, and related controls about which the auditor has obtained an understanding.
130
Kilometers-kgs Outward: 26,40,000 kgs x 20 kms = 5,28,00,000 Inward: 29,70,000 kgs x 40 kms = 11 88,00,000 Total: 17,16,00,000 Computation of cost Running cost (₹ 240 x 10 X 48) = ₹ 1,15,200 Depreciation of fleets = ₹ 54,60,000 Depreciation of batteries and tyres = ₹ 5,85,000 Total common cost of transportation = ₹ 61,60,200 Cost per kms = ₹ 0.0358 Inward cost = ₹ 4264754 Outward cost = ₹ 1895446 Question-124 : A manufacturing organization has imported four types of material. The invoice reveals the following data. Quantitative details:
Details of duty and taxes: Import duty 23% of invoice value Insurance 2% of invoice value Freight and clearance ₹ 30,000 Exchange rate US $1 Foreign exchange rates: Date of documents dispatched by supplier $1= ₹ 16 Date of documents and goods received at custom port $1 = ₹ 17 Date of payments $1 = ₹ 15.90 Scrap of imported material Scrap of material - normal in transshipment of imports 5% Abnormal scrap of material in Type C and D is 2% Other charges Containers charges ₹ 50 per 100 kgs Inspection cost of material at gate ₹ 2 per kg Benefits received aver material Duty drawback is subject to 50% of duty assessed on Imports Subsidy recovered from government over the import material exclusive for type B is ₹ 1,000. Obsolete and scrap in stores 50% of the material imported is issued to production centers While determining the value of closing stock 5% allowance is provided to cover up storage loss. Requirements: Determine the value of closing stock of each type of material.
Material type Quantity (Kgs) Rate (US $ per Kg)
A 1000 1.50
B 2000 1.25
C 1500 2.00
D 3000 1.00
269 269
Performance Area KPI Measurement
Manufacturing Performance
Operating Cycle
Material turnover
WIP turnover
Finished goods turnover
Complaints
% of customer complaints to total orders
Response time to resolve a complaint
Customer-wise number of complaints
Number of complaints repeated
Risks
Payment defaults
Delinquencies
Payment delays
Retention and Satisfaction
Customer retained over 3 years
Customer satisfaction index
On time order execution %
Correct documentation %
Customer orders delivered in full %
Average time spent on customer relation
271 271
Particular
1 Application of ratios for assessment of performance
2 Waste multiplier
3 Utilities consumption
4 Capacity determination and utilization
5 Inventory Valuation
6 Abnormal events such as Strike, lock-out and other factors
7 Profitability Analysis
8 Reconciliations of financial and cost records
RATIOS FOR ASSESSMENT OF PERFORMANCE
Profitability Ratios 1
(a) In relation to Sales 1. Gross profit Ratio 2. Operating Ratio 3. Operating Profit Ratio 4. Net Profit Ratio 5. Expense Ratio (b) In relation to investment 1. Return on investment 2. Return on equity shareholders
Fund 3. Return on total Resources
Solvency ratios 3
(a) Long term Solvency ratios 1. Debt equity Ratio 2. Proprietary Ratio 3. Fixed assets Ratio 4. Capital gearing Ratio (b) Short term Solvency ratios 1. Current Ratio 2. Liquidity Ratio 3. Interest coverage Ratio 4. Absolute Liquid Ratio
Activity ratios 2
1. Inventory turnover Ratio 2. Debtors turnover Ratio 3. Creditors turnover Ratio 4. Fixed assets turnover Ratio 5. Working capital turnover Ratio 6. Capital turnover Ratio
272 272
A. PROFITABILITY RATIOS: Measures the profitability or the operational efficiency of the firm.
Gross Profit Ratio = Gross Profit / Net Sales
Operating Profit Ratio = Operating Profit / Net Sales
Net Profit Ratio = Net Profit / Net Sales
Contribution Sales ratio (PV ratio) = Contribution / Net Sales
PE Ratio = Market price per share / EPS
Dividend Yield Ratio (%) = Dividend / Market price per share
Book Value per share = Net Worth / No. of Equity Shares
ROI or ROCE = EBIT / Capital Employed or Profitability Ratio x Capital turnover ratio
Return on Assets = Net Profit after taxes / Average Total or Tangible or Fixed Assets
Return on Equity = Net Profit after taxes / Equity
Equity Multiplier = Assets / Shareholders Equity
EPS = PAT / No. of Equity shareholders
DPS = Total equity dividend / Number of Equity Shareholders
Operating Profit = (Sales Less Cost of Sales) or
(Net Profit + Non Operating Exp. less non operating Income)
B. ACTIVITY RATIOS:
Capital Turnover Ratio = Net Sales / Capital Employed. Ability to generate sales per rupee
of long term investment .
Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets . Ability to generate sales per
rupee of Fixed Assets.
Total Assets Turnover Ratio = Net Sales / Average Total Assets
Working Capital Turnover Ratio = Net Sales / Net working Capital
Inventory Turnover Ratio = Cost of Sales / Average Inventory
Raw Material Turnover Ratio = Cost of Raw Material Consumed / Average Stock of RM
WIP Turnover Ratio = Factory Cost / Average Stock of WIP
Finished Goods or Stock Turnover Ratio = Cost of Goods Sold / Average Stock of FG
Debtors Turnover Ratio = Net Credit Sales / Average Accounts Receivables. Indicates the
speed of collection of credit sales/ debtors
Creditor Turnover Ratio = Annual Net Credit Purchase/ Average Accounts Payable. Indicates
speed/Velocity of payment to creditors
273 273
C. SOLVENCY RATIOS: Ability of the business to pay its short term liabilities , short term lenders and creditors of a business are very much interested to know its state of liquidity because of their financial state.
Current Ratio = Current Assets / Current liabilities *
Quick Ratio or Acid test ratio = Ideal ratio is 1:1 = Quick Assets ** / Current liabilities
Debt Equity Ratio = Total Liabilities or Long term liabilities / Equity**** Ideal ratio is 2:1.
Debt to Total Assets ratio = Total Liabilities / Total Assets
Proprietary Ratio = proprietary Fund (Equity) / Total Assets
Capital gearing Ratio = (Preference Capital + Debt)/ Equity Shareholders fund
Interest Coverage Ratio = EBIT / Interest
* Current Assets = Inventories + Sundry Debtors + Cash and Bank Balances + Receivables/
Accruals + loan Advances + Disposables investors
* Current Liabilities = Creditors for goods Services + Short term loans + Bank Overdraft +
Cash credit + Outstanding Expenses + Provision for taxation + proposed Divided + Unclaimed Divided
** Quick Assets = Current Assets—( Inventories + Prepaid Expenses )
*** Total Debt = Debentures + Lon term loans etc. (Long term liabilities)
**** Equity = ( Equity Share Capital + Preference share capital + Reserve & Surplus) -
Miscellanies expenditure and accumulated losses
274 274
Average capital employed = (2,196 + 2,220)/2 = 2,208 Total Earning = Profit after tax + Interest on debt funds + Non-Operating Adjustments
= (900 – 144 – 360) + 144 = 540 ∴ Return on capital employed = / average capital employed = 540/2208*100 =24.46 % Alternative method of computation of capital employed Capital Employed means average of net fixed assets (excluding effect of revaluation of fixed assets) plus non-current investments and net current assets existing at the beginning and close of the financial year.
Notes to the computation of capital employed
1. Current assets includes stock, debtors, cash and other current assets 2. Assumed that the investments in Balance sheet are non-current investments 3. Refer Financial statements of 2014-15 for the ‘ Information not available’
It is normally expressed as a percentage. It indicates the rate of return earned by an enterprise from its total Capital Employed in the business. It is also an indicator of the profit earning capacity of an enterprise. A higher return reveals a better profitability on the total Capital Employed in the business. B. Stock turnover Ratio = Net sales excluding excise duty & sales tax / average stock = 3600 / (720+600)/2 = 5.45 times This ratio indicates the movement of stock during a particular period. In other words, it indicates how fast goods are sold out from the stock of those goods. Higher ratio indicates a faster movement of stock.
Particulars 2016 2015 Opening Net Fixed assets 1200 Info. not available Closing Net Fixed assets 1,560 1200
Average Net Fixed assets (1) 1,380
Particulars 2016 2015 Opening non-current investments 0 0 Closing non-current investments 0 0 Average non-current investments (2) 0 0
Particulars 2016 2015
Opening net-current assets 1,020 Info. not available
Closing net-current assets 636 1,170
Average net-current assets (3) 828
Capital employed (1+2+3) 2,208
275 275
Question- 139 : From the follow ing figures extracted from the financial and cost accounting records, you are required to compute: A. Value added. B. Ratio of Operating Profit to Sales. C. Ratio of Operating Profit to Value Added.
Solution :
Particulars ₹ in lakhs
Net sales excluding excise duty 42,000
Increase in Stock of finished goods 500
Expenses:
Raw materials consumed 8,600
Packing materials consumed 2,560
Stores and spares consumed 1,120
Power and fuel 9,200
Insurance 240
Direct salaries and wages 960
Depreciation 1,770
Interest paid 2,796
Factory overhead:
Salaries and wages 480
Others 500
Selling and distribution expenses:
Salaries and wages 240
Additional sales tax 914
Administration overheads:
Salaries and wages 240
Computation of Value added ₹ in lakhs ₹ in lakhs
Net sales+ increase in stock of Finished goods 42,500
Less: Cost of bought out materials and services:
Raw materials 8,600
Packing materials 2,560
Stores and spares 1,120
Power and fuel 9,200
Insurance 240
Other factory overhead 500 22,220
Value added 20,280
Composition of Value Added:
Depreciation (company as retained funds) 1,770
Interest 2,796
Additional sales tax 914
Salaries and wages (960 + 480 + 240 + 240) 1,920 7,400
Profit before tax (balancing figure) (Company as retained funds) 12,880
Operating Profit: (Company as retained funds) - PBT + Interest Paid 15,676
276 276
Question-142 : The Balance Sheets of S Ltd for the last 3 years read as follows:
A. Calculate & analyse for the year 2014-15 and 2015-16:
i. Fixed asset turnover Ratio ii. Stock turnover Ratio iii. Debtors’ ‘turnover Ratio in terms of number of days’ iv. Debt-equity Ratio v. Current assets to current liability
B. Briefly comment on the performance of the company. Solution: Calculation of ration for the year 2014-15& 2015-16
Particulars 2014 2015 2016
Sources of Fund:
Share capital [share of ₹10 each] 2,200 2,200 3,200 Securities Premium 1,900 2,000 700 Reserves [after 10% dividend] 1,900 2,100 1,900 Long-term Loan 1,750 1,550 2,600
Total Funds 7,750 7,850 8,400
Represented by:
Fixed assets 2,800 3,200 3,500
Less: Depreciation 800 1,050 1,300
2,000 2,150 2,200
Capital WIP [work-in-progress] 1,000 1,100 1,200 Investment 600 700 650
A. 3,600 3,950 4,050
Net Current Assets:
Current Assets:
Debtors 1,800 1,950 2,150 Stock 1,900 2,050 2,700
Cash & Bank 800 800 800 Others 550 750 1,800
5,050 5,550 7,450
Less: Current Liabilities 900 1,650 3,100
B. 4,150 3,900 4,350
Total assets [A+B] 7,750 7,850 8,400
Sales [excluding excise duty and sales tax @ 20%] 4,050 4,200 5,400
Particulars 2014-15 2015-16
A. Fixed asset turnover Ratio = net sales excluding excise duty & sales tax / average Fixed asset
4200/2075 = 2.02 times
5400/2175= 2.48 Times
B. Stock turnover Ratio = Net sales excluding excise duty & sales tax / average stock
4200/1975= 2.13 times
5400/2375= 2.27 times
C. Debtors turnover ratio = Average receivables X No of days in the yr Credit sales including excise duty and sales tax
1875/5040 X 365 = 136 Days
2050/6480X 365= 115 Days
D. Debt Equity Ratio = Debt / Equity 1550/6300 = 0.25 2600/5800 = 0.45
E. Current Ratio = Current Assets / Current liability 5550/1650 = 3.36 7450/3100 = 2.40
277 277
In the costing records, Factory overhead is charged at 100% of Wages, administration overhead 10%
factory cost and selling and distribution overhead at the rate of ₹ 20 per unit sold. Prepare a statement reconciling the profit as per Cost Records with the profit as per Financial Records. Solution: :
Cost Profit & Loss Statement (For the year ended 31st march, 2016)
Particulars ₹ in lakhs
Materials 20,00,000
Wages 10,00,000
Prime cost 30,00,000
Add: Factory overhead @ 100% of wages 10,00,000
40,00,000
Less: Closing Work-in-progress 1,40,000
Factory cost (20,000 + 1,230) units 38,60,000
Administrative overheads @ 10% of Factory cost 3,86,000
42,46,000
Less: Closing stock of Finished goods 1,230 units (See Note) 2,46,000
Cost of Production (20,000 units) 40,00,000
Selling & distribution overhead @ ₹20 per unit 4,00,000
Cost of sales (20,000 units) 44,00,000
Sales Revenue (20,000 units) 50,00,000
Profit 6,00,000
BSI ltd.
Profit & Loss Account
(For the year ended 31st march, 2016)
Dr. Cr.
Particulars ₹ in
Lakhs Particulars ₹ in Lakhs
To Opening stock Nil By Sales (20,000 units) 50,00,000
To Materials 20,000 By Closing stock (1,230 units) 3,00,000
To Wages 10,00,000 By Work-in-progress 1,40,000
To Factory overheads 9,00,000
To Administrative overheads 5,20,000
To Selling & distribution over-heads
3,60,000
To Goodwill written off 4,00,000
To Interest on capital 40,000
To Net Profit 2,20,000
Total 54,40,000 Total 54,40,000