ADVANCE & COST ACCOUNTING - …cityofcommercepk.weebly.com/uploads/5/6/7/6/56761669/advance___cost...Compiled & Solved By: JAHANGEER KHAN ADVANCE & COST ACCOUNTING – 2015 (OLD SYLLABUS)

ADVANCE & COST ACCOUNTING

B.com-2 Regular Annual Examination 2015 (Old SYLLABUS)

Compiled & Solved By: JAHANGEER KHAN

B.com-2


ADVANCE & COST ACCOUNTING – 2015 (OLD SYLLABUS) B.com-2 Regular Annual Examination 2015

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(SECTION – A) Q.1: ACCOUNTING FOR COMPANY – RECONSTRUCTION: The following is the Balance Sheet of RAZA Co. Ltd. as on December 31, 2014.

EQUATIES ASSETS A/ Payable 87000 Cash 1000 Interest on Debenture payable 13000 A/ Receivable 120000 Bank Loan 20000 Inventory 214000 5% debenture Payable 130000 Patents 115000 7 ½% Preference Shares of Rs.100 each 500000 Machinery 570000 8000 Ordinary Shares of Rs.100 Each 800000 Building 400000 Profit & Loss 130000 1550000 1550000

The company was authorized to issue 5000, 7 ½% Preference Shares of Rs.100 each and 10000 Ordinary Shares of Rs.100 each. During the past year company sustained huge losses and therefore a scheme of Reconstruction is prepared and approved by Shareholders. A summary of the scheme is as follows. a) The Preference Shareholders forego the errors of dividend of Rs.75000. b) The 7 ½% Preference Shares are to be converted into 5% Preference Shares. c) Every ordinary shareholder should surrender 50% of their holdings to the company. d) The debenture holders have agreed to forego the outstanding interest and to accept

1000 ordinary shares of Rs.100 each in exchange of debentures and the balance of Rs.30000 to be paid in cash.

e) The surrendered ordinary shares are to be utilized as under: (i) To write of deficit. (ii) To bring down the value of Patents to Rs.75000 (iii) Inventory is valued at Rs.150000 (iv) To write off Rs.10000 from Account Receivable. (v) The balance of surrendered shares to be utilized in writing down the value of

Machinery. f) The remaining 1,000 Ordinary Shares are issued against cash. The cash so received is

used in paying bank loan and the balance of debenture. REQUIRED:

(a) Entries in General Journal of RAZA Co. Ltd. to give effect of the above scheme. (b) Revised Balance Sheet of RAZA Company Ltd. on Jan. 1st, 2015.

SOLUTION 1 (a):

RAZA Co. LTD GENERAL JOURNAL

S. no Particulars P/R Debit Credit 1. 7 ½% Preference Shares Capital 500,000 5% Preference Shares Capital 500,000 (To record 7 ½% preference shares converted into

5% preference shares)

2. Ordinary Share Capital (800,000 x 50%) 400,000 Capital Reduction 400,000 (To record surrender of 50% holdings by ordinary

shareholders)



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S. no Particulars P/R Debit Credit 3. Interest on Debenture payable 13,000 Capital Reduction 13,000 (To record outstanding interest foregone by

debenture holders)

4. 5% Debenture Payable 130,000 Ordinary Share Capital (1,000 x 100) 100,000 Payable to Debenture Holders 30,000 (To record settlement of debenture holders)

5. Capital Reduction 413,000 Profit and Loss 130,000 Patents 40,000 Inventory 64,000 Allowance for Bad Debts 10,000 Machinery 169,000 (To record writing of various assets)

6. Cash 100,000 Ordinary Share Capital (1,000 x 100) 100,000 (To record issued shares against cash)

7. Bank Loan 20,000 Payable to Debenture Holders 30,000 Cash 50,000 (To record cash payment to debenture holders and

bank loan)

SOLUTION 1 (b):



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pg. 4

Q.2: CASH FLOW STATMENT:

The accounting record of MUSTAFA Ltd. showed the following balances at the end of the year 2014 and 2015. 2015 2014 ASSETS: Cash 93000 120000 Account Receivable 165000 105000 Merchandise Inventory 285000 450000 Equipment 1215000 675000 Land 240000 105000

TOTAL ASSETS 1998000 1998000 EQUATIES: Accumulated Depreciation -- Equipment 240000 180000 Accounts Payable 131000 55000 Accrued Liabilities 15000 90000 Long term bonds Payable 300000 240000 Premium on bond Payable 4000 5000 Capital stock Rs.10 par 600000 450000 Premium on Capital stock 240000 150000 Retained Earning 468000 285000

TOTAL EQUITIES 1998000 1998000 Additional Information:

(a) Cash dividend of Rs.75000 were declared and paid during the year 2015. (b) Equipment costing Rs.75000 was sold at Rs.40000. At the time of sale book value of

Equipment was Rs.50000. REQUIRED:

(a) Cash Flow from Operating Activities. (b) Cash Flow from Investing Activities. (c) Cash Flow from Financing Activities.

SOLUTION 2:

COMPUTATIONS 1) NET INCOME:

Retained Earnings (2015) 468,000 Less: Retained Earnings (2014) (285,000) 183,000 Cash Dividend 75,000

Net Income 258,000

2) DEPRECIATION EXPENSE ON FURNITURE

Accumulated Depreciation (2015) 240,000 Accumulated Depreciation (2014) (180,000) 60,000 Add: Accumulated Depreciation on Equipment Sold (75,000 – 50,000) 25,000 Depreciation Expense Charged on Equipment During the Period 85,000



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3) PURCHASE OF EQUIPMENT:

Equipment (2015) 1,215,000 Equipment (2014) (675,000) 540,000 Add: Cost of Equipment Sold 75,000 Purchase of Equipment During the Period 615,000

4) ISSUANCE OF SHARES:

Capital Stock (2015) 600,000 Capital Stock (2014) (450,000) 150,000 Add: Premium on Capital Stock (240,000 – 150,000) 90,000 Issuance of Shares 240,000

MUSTAFA LTD.

CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2015

Cash Flow from Operating Activities: Net Income 258,000 Depreciation Expense (Equipment) 85,000 Loss on Sale of Equipment 10,000 Increase in Accounts Receivable (60,000) Decrease in Merchandise Inventory 165,000 Increase in Accounts Payable 76,000 Decrease in Accrued Liabilities (75,000) Decrease in Premium on Bond Payable (1,000)

Net Cash Flow from Operating Activities 458,000 Cash Flow from Investing Activities: Sale of Equipment 40,000 Purchase of Equipment (615,000) Purchase of Land (135,000)

Net Cash Flow from Investing Activities (710,000) Cash Flow from Financing Activities: Issuance of Long Term Bonds 60,000 Issuance of Shares 240,000 Cash Dividend (75,000)

Net Cash Flow from Investing Activities 225,000 Decrease in Cash during the year (27,000) Add: Cash Balance (2014) 120,000

Cash Balance (2015) 93,000

Q.3 (a): FINANCIAL STATEMENT ANALYSIS:

The following information has been taken from the Balance Sheet of SANA Ltd. Account Payable

Account Receivable

Accrued Expenses

Cash Income Tax Payable

Inventory Marketable Securities

Notes Payable

Prepaid Expenses

100000 80000 5000 50000 7000 130000 200000 68000 14000 REQUIRED: (i) Working Capital (ii) Current Ratio (iii) Acid Test Ratio



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SOLUTION 3 (a) (i):

COMPUTATIONS FOR WORKING CAPITAL Account Receivable 80,000 Cash 50,000 Marketable Securities 200,000

Quick Assets 330,000 Inventory 130,000 Prepaid Expenses 14,000

Total Current Assets 474,000 Less: Current liabilities Account Payable 100,000 Accrued Expenses 5,000 Income Tax Payable 7,000 Notes Payable 68,000 Total Current Liabilities 180,000

Working Capital 294,000

SOLUTION 3 (a) (ii):

COMPUTATIONS FOR CURRENT RATIO

SOLUTION 3 (a) (iii):

COMPUTATIONS FOR ACID TEST RATIO

Q.3 (b): The following data have been extracted from the financial statement of Green Grocers. Net Sales (70%

Credit Sales) Cost of Goods

Sold Average Monthly

Inventory Inventory End

of the Year Account Receivable

150% of Average Inventory

2015 2048000 1048000 203000 243000 ? 2014 2335000 1397000 190000 205000 ? REQUIRED: Determine for each year;

(i) Inventory Turnover in time (ii) Receivable Turnover in time (iii) Inventory Turnover in days (iv) Receivable Turnover in days (v) Days of Operating Cycle

SOLUTION 3 (b) (i):

COPUTATION FOR INVENTORY TURNOVER IN TIME

7.35



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5.16

SOLUTION 3 (b) (ii): COPUTATION FOR RECEIVABLE TURNOVER IN TIME

Net Credit Sales 2014 (2,335,000 x 70%) 1,634,500 Net Credit Sales 2015 (2,048,000 x 70%) 1,433,600 Average Receivable 2014 (190,000 x 150%) 285,000 Average Receivable 2015 (203,000 x 150%) 304,500

5.74

4.71

SOLUTION 3 (b) (iii): COPUTATION FOR INVENTORY TURNOVER IN DAYS

49.66 ̃

70.74 ̃

SOLUTION 3 (b) (iv):

COPUTATION FOR RECEIVABLE TURNOVER IN DAYS

63.59 ̃

77.49 ̃

SOLUTION 3 (b) (v): COPUTATION FOR DAYS OFOPERATING CYCLE



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Q.4: BRANCH ACCOUNTING:

Trial Balance for TOOBA Sales Company Branch No. A – 1 shows balances as on Dec 31, 2015 as listed below. The head office bills the branch for Merchandize at Cost Plus 20%.

Cash 2290 Notes Payable 1500 Merchandize 16200 Head Office 30,000 Store Equipment 8000 Sales 28500 Allowance for Depreciation (S. Equipment) 400 Purchases 4500 Store Supplies 600 Merchandise Supplied from Head Office 15750 Account Payable 5000 Selling Expense 4500 Land 9000 General Expense 4600

The following data are available on Dec. 31, 2015. (a) Store Supplies inventory Rs.240. (b) Accrued Selling expense Rs.80. (c) Depreciation of Equipment 1% a month. (d) Prepaid Selling expense Rs.250 Merchandize Inventory Dec. 1, 2015 Dec. 31, 2015 Amount received from Head Office at billed price 12000 13800 Amount purchased from outsider at cost 4200 3900

Total 16200 17700 REQUIRED: (a) Prepare Adjusting and Closing Entries in the Books of Branch No. A – 1.

(b) Give General Entries on the books of Head Office summarizing branch operations for the month.

SOLUTION 4 (a):

TOOBA SALES COMPANY ADJUSTING & CLOSING ENTRIES

BRANCH NO. A – 1 S. no Particulars P/R Debit Credit

1. Store Supplies Expense 360 Store Supplies 360 (to record store supplies consumed)

2. Selling Expense 80 Accrued Selling Expense 80 (To record accrued selling expense)

3. Depreciation Expense (8,000 x 1%) 80 Allowance for Depreciation (Store Equip.) 80 (To record depreciation expense)

4. Prepaid Selling Expense 250 Selling Expense 250 (To record prepaid selling expense)

5. Income Summary 45,820 Merchandise Inventory (Opening) 16,200 Purchases 4,500 Merchandise Supplied from Head Office 15,750 Selling Expense (4,500+80-250) 4,330 General Expense 4,600 Store Supplies Expense 360 Depreciation Expense 80 (To close various expenses into income summary

account)



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S. no Particulars P/R Debit Credit

6. Sales 28,500 Merchandise Inventory (Ending) 17,700 Income Summary 46,200 (To close revenues into income summary account)

7. Income Summary 380 Head Office 380 (To close income summary into head office

account)

SOLUTION 4 (b):

COMPUTATION FOR ALLOWANCE FOR OVERVALUATION

Particulars Allowance for overvaluation

Overvaluation in Opening Merchandise Inventory (12,000 x 20/120) 2,000 Overvaluation in Shipments (15,750 x 20/120) 2,625 Total Overvaluation 4,625 Less: Overvaluation in ending inventory (13,800 x 20/120) (2,300)

Adjusted Allowance for overvaluation 2,325

TOOBA SALES COMPANY GENERAL JOURNAL HEAD OFFICE BOOK

S. no Particulars P/R Debit Credit 1. Branch No. A – 1 380 Income Summary 380 (To record transfer of branch profit to head office)

2. Allowance for overvaluation 2,325 Income Summary 2,325 (To adjust allowance for overvaluation account)

3. Income Summary 2,705 Retained Earnings 2,705 (To close income summary into retained earnings

account)

Q.5: INSTALLMENT SALES:

JADID Homes sells Bedroom Furniture on installment basis. Following information pertains to the accounting records for three year operations. Year – 1 Year – 2 Year – 3 Installment sales 150000 200000 250000 Cost of Installment Sales 100000 150000 200000 Selling & Administrative Exp. 50000 60000 80000 Collection from Customers Installment Sales Year – 1 80000 40000 20000 Installment Sales Year – 2 ----- 100000 80000 Installment Sales Year – 3 ----- ----- 150000 The firm follows perpetual inventory system.



pg. 10

REQUIRED: (a) Compute the following for each year.

(i) Deferred Gross Profit (ii) Rate of Deferred Gross Profit (iii) Realized gross profit (iv) Net Profit or Loss

(b) Record collection of cash and realized gross profit for each year separately in the General Journal of JADID HOMES.

SOLUTION 5 (a) (i):

COMPUTATION FOR DEFERRED GROSS PROFIT Particulars Year – 1 Year – 2 Year – 3

Installment sales 150000 200000 250000 Less: Cost of Installment Sales (100000) (150000) (200000)

Deferred Gross Profit 50,000 50,000 50,000

SOLUTION 5 (a) (ii): COMPUTATION FOR RATE OF DEFERRED GROSS PROFIT

X 100


COMPUTATION FOR REALIZED GROSS PROFIT Realized Gross Profit of Year – 1 (800,000 x 33.33%) 26,664

Realized Gross Profit Year – 1 (40,000 x 33.33%) 13,332 Realized Gross Profit Year – 2 (100,000 x 25%) 25,000 Total Realized Gross Profit Of Year – 2 38,332

Realized gross Profit Year – 1 (20,000 x 33.33%) 6,666 Realized Gross Profit Year – 2 (80,000 x 25%) 20,000 Realized Gross Profit Year – 3 (150,000 x 20%) 30,000 Total Realized Gross Profit Of Year – 3 56,666


COMPUTATION FOR NET PROFIT OR LOSS Particulars Year – 1 Year – 2 Year – 3

Realized Gross Profit 26,664 38,332 56,666 Less: Selling & Administrative Exp. (50000) (60000) (80000)

Net Loss (23,336) (21,668) (23,334)



pg. 11

SOLUTION 5 (b):

N. KHALID LTD. GENERAL JOURNAL

Year Particulars P/R Debit Credit Year – 1 Cash 80,000

Installment Account Receivable (Year – 1) 80,000 (To record cash collection in year – 1)

Year – 1 Deferred Gross profit (Year – 1) 26,664 Realized Gross Profit 26,664 (To realized gross profit of year – 1)

Year – 2 Cash 140,000 Installment Account Receivable (Year – 1) 40000 Installment Account Receivable (Year – 2) 100000 (To record cash collection in year – 2)

Year – 2 Deferred Gross profit (Year – 1) 13,332 Deferred Gross profit (Year – 2) 25,000 Realized Gross Profit 38,332 (To realized gross profit of year – 2)

Year – 3 Cash Installment Account Receivable (Year – 1) 20000 Installment Account Receivable (Year – 2) 80000 Installment Account Receivable (Year – 3) 150000 (To record cash collection in year – 3)

Year – 3 Deferred Gross profit (Year – 1) 6,666 Deferred Gross profit (Year – 2) 20,000 Deferred Gross profit (Year – 3) 30,000 Realized Gross Profit 56,666 (To realized gross profit of year –3)

(SECTION – B) Q.6: ACCOUNTING FOR MANUFACTURING:

The cost department of the MUQEEM Corporation prepared the following data and cost for the year 2015. Inventories: Jan. 2015 Dec. 31, 2015 Finished Goods 48600 ? Work in Process 81500 42350 Raw Material 34200 49300 Other Information: Depreciation on Factory Equipment 21350 Interest earned 6300 Raw material purchased 364000 Direct Labour Cost 162500 Indirect Labour Cost 83400 Freight in 8600 Miscellaneous Factory Overhead 47900 Purchase Discount 5200 Operating Expenses 72000



pg. 12

Finished Goods Inventory Jan. 1st 2015 300 Units and Dec. 31st, 2015 420 Units. Sales during the year 2015 3880 Units at Rs.220 Per Unit

REQUIRED: (a) Statement of Cost of Goods Manufactured. (b) Income Statement

SOLUTION 6 (a): MUQEEM CORPORATION

STATEMENT OF COST OF GOODS MANUFACTURED FOR THE YEAR ENDED DECEMBER 31, 2015

Direct Material Used: Raw Material opening 34,200 Add: Net Raw material Purchased Raw Material Purchased 364,000 Add: Freight in 8,600 Delivered Cost of Raw Material Purchased 372,600 Less: Purchase Discount (5,200) Net Raw Material Purchased 367,400 Raw Material Available for Use 401,600 Less: Raw Material Ending (49,300) Direct Material Used 352,300 Add: Direct Labour Cost 162,500

Prime Cost 514,800 Add: Factory Overhead Cost Depreciation on Factory Equipment 21,350 Indirect Labour Cost 83,400 Miscellaneous Factory Overhead 47,900

Total Factory Overhead Cost 152,650 Total Work in Process 667,450 Add: Work in Process Opening 81,500

Total Work in Process 748,950 Less: Work in Process Ending (42,350)

Cost of Goods Manufactured 706,600

SOLUTION 6 (a):

COMPUTATIONS FOR FINISHED GOODS ENDING Units in Ending Finished Goods 420 Add: Units Sold 3,880 Units Available for Sale 4,300 Less: Units in Opening Finished goods (300) Units Manufactured During the Period 4,000



pg. 13

MUQEEM CORPORATION

INCOME STATMENT FOR THE YEAR ENDED DECEMBER 31, 2015

Sales (3,880 x 220) 853,600 Less: Cost of goods Sold Finished Goods Opening 48,600 Add: Cost of Goods Manufactured 706,600 Goods Available for Sale 755,200 Less: Finished Goods Ending (74,193) Cost of Goods Sold (681,007) Gross Profit 172,593 Less Operating Expenses (72,000) Operating Income 100,593 Interest Earned 6,300 Net Income 106,893

Q.7: PROCESS COSTING:

Take the data as given in Question No. 6. REQUIRED: Closing Entries in general journal. SOLUTION 7:

MUQEEM CORPORATION CLOSING ENTRIES

S. no Particulars P/R Debit Credit 1. Manufacturing Cost 803,450 Work in Process (Opening) 81,500 Raw material (Opening) 34,200 Raw Material Purchased 364,000 Freight in 8,600 Direct Labour 162,500 Factory Overhead 152,650 (To record manufacturing cost)

2. Work in Process (Ending) 42,350 Raw material (Ending) 49300 Purchase Discount 5,200 Manufacturing Cost 96,850 (To record contra manufacturing costs)

3. Income Summary 827,200 Finished Goods (Opening) 48,600 Manufacturing Cost 706,600 Operating Expenses 72,000 (to close various expenses into income summary

account)

4. Sales 853,600 Finished Goods (Ending) 74,193 Interest Earned 6,300 Income Summary 934,093 (To close various revenues into income summary

account)

106,893



pg. 14

S. no Particulars P/R Debit Credit

5. Income Summary 106,893 Retained Earnings 106,893 (To close income summary account into retained

earnings account)

Q.8(a): STANDARD COSTING AND VARIANCES:

The Standard and Actual Cost data of BABER Co. are as follows; STANDARD ACTUAL Direct Material 20000 Units @ Rs.4 per unit 19600 Units @ Rs.3.50 per unit Direct Labour 10000 hours @ Rs.10 per hour 11000 hours @ Rs.10.50 per hour

REQUIRED:

(i) Material Price Variance (ii) Material Quantity Variance (iii) Labour Rate Variance (iv) Labour Time Variance (v) Journal Entries including Closing Entries.

SOLUTION 8 (a) (i):

COMPUTATION FOR MATERIAL PRICE VARIANCE

SOLUTION 8 (a) (ii): COMPUTATION FOR MATERIAL QUANTITY VARIANCE

SOLUTION 8 (a) (iii): COMPUTATION FOR LABOUR RATE VARIANCE

SOLUTION 7 (a) (iv):

COMPUTATION FOR LABOUR TIME VARIANCE



pg. 15

SOLUTION 8 (a) (v):

BABER CO. GENERAL JOURNAL

S. no Particulars P/R Debit Credit 1. Work in Process (20,000 x 4) 80,000 Material Price Variance 9,800 Material Quantity Variance 1,600 Raw Material (19,600 x 3.50) 68,600 (To record actual and standard cost of material and

its variances)

2. Work in Process (10,000 x 10) 100,000 Labour Rate Variance 5,500 Labour Time Variance 10,000 Accrued Payroll (11,000 x 10.50) 115,500 (To record actual and standard cost of labour and

its variances)

3. Material Price Variance 9,800 Material Quantity Variance 1,600 Cost of Goods Sold 9100 Labour Rate Variance 5,500 Labour Time Variance 15,000 (To close material and labour variances into cost of

goods sold)

Q.8(a): STANDARD COSTING AND VARIANCES:

STANDARD COST FOH Variance (Favorable) Factory Overhead Rs.96000 Rs.6000

REQUIRED: (i) Determine the Actual Factory Overhead. (ii) Record the Factory Overhead Cost and its Variances.

SOLUTION 8 (b) (i):

COMPUTATION FOR ACTUAL FACTORY OVERHEAD Standard Factory overhead 96,000 Less: Factory Overhead Variance (Favorable) (6,000) Actual Factory Overhead 90,000

SOLUTION 8 (b) (ii):

M/S______________ GENERAL JOURNAL

S. no Particulars P/R Debit Credit 1. Work in Process 96,000 Factory Overhead Variance 6,000 Factory Overhead 90,000 (To record actual and standard cost of factory

overhead and its variance)

Documents

ADVANCE & COST ACCOUNTING - …cityofcommercepk.weebly.com/uploads/5/6/7/6/56761669/advance___cost...Compiled & Solved By: JAHANGEER KHAN ADVANCE & COST ACCOUNTING – 2015 (OLD SYLLABUS)