b.com – ii – advanced and cost accounting 292,000 (to record the goods sold for cash) compiled...

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2013

Compiled and Solved by:

Sameer Hussain

B.COM – II – ADVANCED AND COST ACCOUNTING

PRIVATE

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

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B . C o m – I I – A d v a n c e d a n d C o s t A c c o u n t i n g – 2 0 1 3 ( P r i v a t e )

ADVANCED AND COST

ACCOUNTING – 2013

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

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

SECTION “A” (ADVANCED ACCOUNTING)

Q.No.1 ACCOUNTING FOR COMPANIES - AMALGAMATION Two companies carrying on similar business enter into a contract to amalgamation. A new company called Al-Falah Ltd. being formed to take over the assets and liabilities of both the companies. The agreed balances in the balance sheet of each company are as under:

AMBER LTD.

Share capital 1,250,000 Building 480,000

Accounts payable 200,000 Machinery 450,000

Merchandise 370,000

Bank 50,000

Profit & loss 100,000

Total 1,450,000 Total 1,450,000

RANIA LTD.

Share capital 1,000,000 Building 375,000

General reserve 250,000 Machinery 500,000

Accounts payable 150,000 Merchandise 225,000

Profit & loss 50,000 Accounts receivable 175,000

Bank 175,000

Total 1,450,000 Total 1,450,000

In the contract, it was provided that fully paid Rs.100 shares shall be issued by Al-Falah Ltd. to the value of net assets of each of the old companies. REQUIRED

(i) Calculate the amount of purchase consideration of the two companies. (ii) Record journal entries in the books of Al-Falah Ltd. and also prepare its balance sheet.

SOLUTION 1 (i) Computation of Purchase Consideration:

Amber Ltd. Rania Ltd. Building 480,000 375,000 Machinery 450,000 500,000 Merchandise 370,000 225,000 Accounts receivable --- 175,000 Bank 50,000 175,000

Total assets 1,350,000 1,450,000 Less: Liabilities: Accounts payable (200,000) (150,000)

Purchase consideration 1,150,000 1,300,000


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Computation of Number of Shares: Amber Ltd. Rania Ltd.

Purchase consideration 1,150,000 1,300,000 Par value per share 100 100

Number of shares 11,500 13,000

SOLUTION 1 (ii)

AL-FALAH LTD. GENERAL JOURNAL

Date Particulars P/R Debit Credit

1 Building 480,000 Machinery 450,000 Merchandise 370,000 Bank 50,000 Accounts payable 200,000 Payable to Amber Ltd. 1,150,000 (To record the net assets taken over from Amber Ltd.)

2 Payable to Amber Ltd. 1,150,000 Ordinary shares capital (11,500 x 100) 1,150,000 (To record the shares issued to Amber Ltd.)

3 Building 375,000 Machinery 500,000 Merchandise 225,000 Accounts receivable 175,000 Bank 175,000 Accounts payable 150,000 Payable to Rania Ltd. 1,300,000 (To record the net assets taken over from Rania Ltd.)

4 Payable to Rania Ltd. 1,300,000 Ordinary shares capital (13,000 x 100) 1,300,000 (To record the shares issued to Rania Ltd)

AL-FALAH LTD.

BALANCE SHEET AS ON _________

Equities Assets

Shareholder’s Equity: Fixed Assets: Issued & Paid-up Capital: Building 855,000 24,500 ordinary shares Machinery 950,000

@ Rs.100/- each 2,450,000 Total fixed assets 1,805,000

Total shareholder’s equity 2,450,000 Current Assets: Liabilities: Merchandise 595,000 Accounts payable 350,000 Accounts receivable 175,000

Total liabilities 350,000 Bank 225,000

Total current assets 995,000

Total equities 2,800,000 Total assets 2,800,000


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Q.No.2 BRANCH ACCOUNTING Karachi head office has a branch at Multan. Decentralized accounting is followed. The head office supplies goods to branch at 20% above cost. Data relating to branch for 2012 are summarized below:

a) Goods supplied to branch billed price Rs.240,000. b) Cash remitted to branch Rs.30,000. c) Branch purchased goods from local market on account Rs.60,000. d) Operating expenses paid by branch Rs.8,400. e) Head office paid branch operating expenses Rs.400. f) Cash remitted to head office Rs.90,000. g) Branch sold merchandise for cash Rs.292,000.

Data for Adjustments on 31 – 12 – 2012: (i) Accrued operating expenses Rs.1,200. (ii) Prepaid operating expenses Rs.900. (iii) Ending inventory valued at Rs.8,000 of purchases from local market and Rs.75,000 of goods

supplied by head office (Branch had beginning inventory of Rs.50,000 which includes 40% of local purchases).

REQUIRED (1) General Journal entries including adjusting and closing entries in the books of the branch. (2) Journal entries in the books of the head office to record branch net income or loss and for

adjustment of over-valuation. (Show the necessary computation). Also pass closing entry. SOLUTION 2 (a)

BRANCH BOOK GENERAL JOURNAL


1 Merchandise received from head office 240,000 Head office 240,000 (To record the merchandise received from head office)

2 Cash 30,000 Head office 30,000 (To record the cash remitted by head office)

3 Purchases 60,000 Accounts payable 60,000 (To record the goods purchased on account)

4 Operating expenses 8,400 Cash 8,400 (To record the operating expenses paid)

5 Operating expenses 400 Head office 400 (To record the operating expenses paid by head office)

6 Head office 90,000 Cash 90,000 (To record the cash remitted to head office)

7 Cash 292,000 Sales 292,000 (To record the goods sold for cash)


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BRANCH BOOK ADJUSTING ENTRIES


1 Operating expenses 1,200 Operating expenses payable 1,200 (To adjust the unpaid operating expenses)

2 Prepaid operating expenses 900 Operating expenses 900 (To adjust the prepaid operating expenses)

BRANCH BOOK

CLOSING ENTRIES


1 Expense and revenue summary 359,100 Merchandise received from head office 240,000 Purchases 60,000 Merchandise inventory beginning 50,000 Operating expenses 9,100 (To close the various expense accounts)

2 Sales 292,000 Merchandise inventory ending 83,000 Expense and revenue summary 375,000 (To close the various income accounts)

3 Expense and revenue summary 15,900 Head office 15,900 (To record the transfer of net income to head office)

SOLUTION 2 (b) Computation of Allowance for Overvaluation:

Particulars Billed Cost Allowance for over valuation

Merchandise inventory opening (branch) 30,000 25,000 5,000 Merchandise sent to branch 240,000 200,000 40,000

Merchandise available for sale 270,000 225,000 45,000 Less: Merchandise inventory ending (branch) (75,000) (62,500) (12,500)

Realized allowance for over valuation 195,000 162,500 32,500

Allowance for overvaluation = Billed price x Allowance for over valuation percentage (%) Billed percentage (%) Allowance for overvaluation = 30,000 x 20% / 120% = 5,000 Allowance for overvaluation = 240,000 x 20% / 120% = 40,000 Allowance for overvaluation = 75,000 x 20% / 120% = 12,500


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HEAD OFFICE BOOK GENERAL JOURNAL


1 Branch 15,900 Profit and loss account 15,900 (To record the net profit of branch)

2 Allowance for overvaluation 32,500 Profit and loss account 32,500 (To adjust the realized allowance for overvaluation)

3 Profit and loss account 48,400 Retained earnings 48,400 (To close the profit and loss account)

Q.No.3 INSTALLMENT SALES a) A merchant sells merchandise on installment basis, at a gross profit of 42%. The invoice price of merchandise is Rs.8,000. One customer defaults and the amount receivable from him is Rs.6,600. The merchandise was repossessed and given an inventory of Rs.3,250. REQUIRED Give necessary entries in General Journal on repossession. b) Pak Traders sell merchandise in installment basis. The following data relate to their operations for the year 2012: Merchandise inventory (1 – 1 – 2012) Rs. 16,250 Purchases on account 44,250 Installment sales 75,000 Cash collection from customers 25,000 Merchandise inventory (31 – 12 – 2012) 15,500 REQUIRED

(i) Find out the cost of installment sales. (ii) Give journal entries under installment method including adjusting entry/entries, using perpetual

system. SOLUTION 3 (a) Computation of Gain or Loss on Repossession: Installment accounts receivable cancelled 6,600 Less: Unrealized gross profit (6,600 x 42/100) (2,772)

Book value 3,828 Less: Merchandise repossessed at fair market value (3,250)

Loss on repossession 578

M/S. ___________ GENERAL JOURNAL


1 Merchandise repossessed 3,250 Unrealized gross profit 2,772 Loss on repossession 578 Installment accounts receivable 6,600 (To adjust the repossession of merchandise)


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SOLUTION 3 (b) Computation of Cost of Installment Sales: Merchandise inventory beginning 16,250 Add: Purchases 44,250

Merchandise available for sales 60,500 Less: Merchandise inventory ending (15,500)

Cost of installment sales 45,000

Computation of Unrealized Gross Profit: Unrealized gross profit = Installment sales – Cost of installment sales Unrealized gross profit = 75,000 – 45,000 Unrealized gross profit = 30,000 Computation of Unrealized Gross Profit Rate (DGP%): Unrealized gross profit rate = Unrealized gross profit x 100

Installment sales Unrealized gross profit rate = 30,000 x 100

75,000 Unrealized gross profit rate = 40% Computation of Realized Gross Profit: Realized gross profit = Cash collection X DGP% Realized gross profit = 25,000 x 40% Realized gross profit = 10,000

PAK TRADERS GENERAL JOURNAL


1 Merchandise 44,250 Accounts payable 44,250 (To record the goods purchased on account)

2 Installment accounts receivable 75,000 Installment sales 75,000 (To record the goods sold on installment basis)

3 Cash 25,000 Installment accounts receivable 25,000 (To record the cash collected on installment basis)

4 Cost of installment sales 45,000 Merchandise 45,000 (To record the cost of installment sales)

5 Installment sales 75,000 Cost of installment sales 45,000 Unrealized gross profit 30,000 (To adjust the unrealized gross profit)

6 Unrealized gross profit 10,000 Realized gross profit 10,000 (To adjust the realized gross profit)


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Q.No.4 CASH FLOW Comparative balance sheet of Decent Products Ltd. on December 31, 2012 and 2013 follows:

2013 2012

Cash Rs.40,000 Rs.15,000

Accounts receivable 80,000 60,000

Allowance for bad debts (8,000) (6,000)

Inventories 150,000 120,000

Machinery 100,000 80,000

Accumulated depreciation (20,000) (16,000)

Accounts payable 75,000 95,000

5% Debentures payable 20,000 ---

Ordinary share capital 200,000 160,000

Ordinary share premium 20,000 10,000

Retained earnings 17,000 (12,000)

General reserve 10,000 ---

During the year cash dividend was declared and paid Rs.18,000 and a machine costing Rs.10,000 with accumulate depreciation of Rs.1,000 was sold at a loss of Rs.2,000. REQUIRED Statement of cash flow showing cash flow from operating, inventing and financing activities. SOLUTION 4

DECENT PRODUCTS LTD. CASH FLOW STATEMENT

FOR THE PERIOD ENDED 31 DECEMBER 2013 Cash Flow from Operating Activities: Net income 57,000 Adjustments: Add: Depreciation expense 5,000 Add: Bad debts expense 2,000 Add: Loss on sale of machine 2,000

Income before changes in working capital 66,000 Less: Increase in accounts receivable (20,000) Less: Increase in inventories (30,000) Less: Decrease in accounts payable (20,000)

Net cash flow from operating activities (4,000) Cash Flow from Investing Activities: Sales of machinery 7,000 Purchase of machinery (30,000)

Net cash flow from investing activities (23,000) Cash Flow from Financing Activities: Issue of shares with premium 50,000 Issue of debentures payable 20,000 Cash dividend paid (18,000)

Net cash flow from financing activities 52,000

Net increase in cash and cash equivalents 25,000 Add: Opening cash and cash equivalents balance 15,000

Closing cash and cash equivalents balance 40,000


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Computation of Net Income/Loss: Retained earnings (2013) 17,000 Add: Retained earnings (2012) 12,000

29,000 Add: Reserves and Dividends: General reserve 10,000 Cash dividend 18,000

Net income 57,000

Q.No.5 FINANCIAL STATEMENT ANALYSIS Following information have been taken from the financial records of a limited company:

Inventory – beginning Rs.3,000

Purchases 9,000

Inventory – ending 2,000

Accounts receivable – beginning 3,500

Accounts receivable – ending 2,500

Sales (credit) 15,000

Net profit 2,000

Total liquid assets 8,100

Total current assets 18,000

Total current liabilities 9,000

REQUIRED Compute the following:

(1) Working capital (2) Acid test ratio (3) Current ratio (4) Inventory turnover (times and days) (5) Receivable turnover (times and days) (6) Days of operating cycle

SOLUTION 5 Computation of Cost of Goods Sold: Merchandise inventory beginning 3,000 Add: Purchases 9,000

Merchandise available for sale 12,000 Less: Merchandise inventory ending (2,000)

Cost of goods sold 10,000

(i) Working Capital:

Current assets 18,000 Less: Current liabilities (9,000)

Working capital 9,000

(ii) Acid Test Ratio:

Acid test ratio = Total quick assets

Total current liabilities Acid test ratio = 8,100

9,000 Acid test ratio = 0.9 : 1


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(iii) Current Ratio: Current ratio = Total current assets

Total current liabilities Current ratio = 18,000

9,000 Current ratio = 1 : 1

(iv) Inventory Turnover: Inventory turnover in times = Cost of goods sold

Average inventory Inventory turnover in times = 10,000

(3,000 + 2,000)/2 Inventory turnover in times = 4 times Inventory turnover in days = 365

Inventory turnover in times Inventory turnover in days = 365

4 Inventory turnover in days = 91.25 days

(v) Receivable Turnover: Receivable turnover in times = Net credit sales

Average receivable Receivable turnover in times = 15,000

(3,500 + 2,500)/2 Receivable turnover in times = 5 times Receivable turnover in days = 365

Receivable turnover in times Receivable turnover in days = 365

5 Receivable turnover in days = 73 days

(vi) days of Operating Cycle: Days of operating cycle = Receivable turnover in days + inventory turnover in days Days of operating cycle = 73 + 91.25 Days of operating cycle = 164.25 days

SECTION “B” (COST ACCOUNTING) Q.No.6 ACCOUNTING FOR MANUFACTURING The information below is taken from the financial statement of Craftsman Products at the end of the year 2012: Goods in process inventory – ending Rs.50,000 Cost of raw material used 260,000 Direct labour ? Factory overhead (250% of direct labour cost) 250,000 Cost of goods manufactured 602,000 REQUIRED

(a) Compute the cost of goods in process at the beginning of the year 2012. (b) Prepare statement of cost of goods manufactured.


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SOLUTION 6 (a) Computation of Cost of Goods In Process Beginning: Cost of goods manufactured 602,000 Add: Goods in process ending 50,000

Total goods in process 652,000 Less: Total Manufacturing Cost: Direct material used 260,000 Direct labour (250,000 x 100/250) 100,000 Factory overhead 250,000

Total manufacturing cost (610,000)

Goods in process beginning 42,000

SOLUTION 6 (b)

CRAFTSMAN PRODUCTS STATEMENT OF COST OF GOODS MANUFACTURED

FOR THE PERIOD ENDED 2012 Direct material used 260,000 Add: Direct labour (250,000 x 100/250) 100,000

Prime cost 360,000 Add: Factory overhead 250,000

Total manufacturing cost 610,000 Add: Goods in process beginning 42,000

Total goods in process 652,000 Less: Goods in process ending (50,000)

Cost of goods manufactured 602,000

Q.No.7 PROCESS COSTING Ali Industries Ltd. experienced the following activity in its finishing department during December: Units: Work in process, November 30, (60% complete as to direct materials, 80% complete as to conversion work) 8,000 units Transferred in from heating department during December 31,000 units Completed during December 26,000 units Work in process, December 31, (60% complete as to direct materials, 80% complete as to conversion work) 13,000 units Costs: Work in process, November 30 Rs.59,000 Transferred in from heating department during December 102,300 Direct material added during December 72,500 Conversion cost added during December 102,000 REQUIRED

(1) Compute the number of equivalent units produced by the finishing department during December. Use the FIFO method.

(2) Compute unit costs, and apply total cost to: (a) Units completed and transferred to finished goods. (b) Units in December 31 work in process inventory.


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SOLUTION 7 (i) ALI INDUSTRIES LTD.

EQUIVALENT PRODUCTION UNITS FINISHING DEPARTMENT

FOR THE PERIOD DECEMBER

Particulars Material Equivalent Units

Conversion Equivalent Units

Units completed & transferred out 26,000 26,000 Add: Work in process (ending): (WIP ending units x % of completion) Direct material (13,000 x 60%) 7,800 Conversion (13,000 x 80%) 10,400

Work in process during the period 33,800 36,400 Less: Work in process (opening): Direct material (8,000 x 60%) (4,800) Conversion (8,000 x 80%) (6,400)

Equivalent production in units 29,000 30,000

SOLUTION 7 (ii)

ALI INDUSTRIES LTD. PER UNIT COST

FINISHING DEPARTMENT FOR THE PERIOD DECEMBER

Particular Cost Equivalent Units Per Unit Cost

Cost from heating department 102,300 31,000 3.3 Direct material 72,500 29,000 2.5 Conversion cost 102,000 30,000 3.4

Total per unit cost 276,800 9.2

ALI INDUSTRIES LTD.

STATEMENT OF UNITS COMPLETED AND TRANSFERRED TO FINISHED GOODS FINISHING DEPARTMENT

FOR THE PERIOD DECEMBER Cost of Work in Process Opening Inventory: Cost b/d from last month 59,000 Add: Cost Applied During This Month From Work in Process Beginning Inventory: (WIP opening units x % of completion x unit cost of element) Direct material (8,000 x 40% x 2.5) 8,000 Conversion cost (8,000 x 20% x 3.4) 5,440

Total cost applied during this month from work in process beginning inventory 13,440

Total cost of work in process beginning inventory 72,440 Add: Remaining Units Completed During This Month: (Units completed – WIP opening units) x Unit cost Total cost of remaining units completed (18,000 x 9.2) 165,600

Total cost of units completed and transferred to finished goods 238,040


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ALI INDUSTRIES LTD. STATEMENT OF WORK IN PROCESS ENDING INVENTORY

FINISHING DEPARTMENT FOR THE PERIOD DECEMBER

(WIP ending units x % of completion) x unit cost of element Cost from heating department (13,000 x 3.3) 42,900 Direct material (13,000 x 60% x 2.5) 19,500 Conversion cost (13,000 x 80% x 3.4) 35,360

Cost of work in process ending inventory 97,760

Q.No.8 JOB ORDER COSTING A manufacturing company job cost records yielded the following information. The company has a perpetual inventory system:

Job No. Date Total Costs of Job at June 30

Total Manufacturing

Costs Added in July Started Finished Sold

1 May 26 June 07 June 09 Rs.700 ---

2 June 03 June 12 June 13 1,700 ---

3 June 03 June 30 July 01 2,400 ---

4 June 17 July 24 July 27 200 Rs.500

5 June 29 July 29 August 03 400 1,600

6 July 08 July 12 July 14 --- 800

7 July 23 August 06 August 09 --- 300

8 July 30 August 22 August 26 --- 2,900

REQUIRED (1) Compute cost of:

(a) Work in process inventory at June 30 and July 31. (b) Finished goods inventory at June 30 and July 31. (c) Cost of goods sold for June and July.

(2) Make summary journal entries to record the transfer of completed units from work in process to finished goods for June and July.

(3) Record the sale of Job 4 for Rs.850. SOLUTION 8 (i) Computation of Work in Process Inventory:

June 30 July 31

Job No. 4 200 Job No. 7 300 Job No. 5 400 Job No. 8 2,900

Total work in process 600 Total work in process 3,200 Computation of Finished Goods Inventory:

June 30 July 31

Job No. 3 2,400 Job No. 5 2,000

Finished goods inventory 2,400 Finished goods inventory 2,000


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Computation of Cost of Goods Sold: June 30 July 31

Job No. 1 700 Job No. 3 2,400 Job No. 2 1,700 Job No. 4 700

Cost of goods sold 2,400 Job No. 4 800

Cost of goods sold 3,900 SOLUTION 8 (ii & iii)

M/S. ____________ GENERAL JOURNAL


June 30 Finished goods 4,800 Goods in process 4,800 (To record the cost of finished goods)

July 31 Finished goods 3,500 Goods in process 3,500 (To record the cost of finished goods)

July 27 Cost of goods sold 700 Finished goods 700 (To record the cost of goods sold for Job No. 4)

July 27 Accounts receivable 850 Sales 850 (To record the goods sold)

Computation of Cost of Finished Goods:

June 30 July 31

Job No. 1 700 Job No. 4 700 Job No. 2 1,700 Job No. 5 2,000 Job No. 3 2,400 Job No. 6 800

Cost of finished goods 4,800 Cost of finished goods 3,500

b.com – ii – advanced and cost accounting 292,000 (to record the goods sold for cash) compiled...

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