Accountancy & Auditing, Paper I

100 marks · 3 hours · 3 questions

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Accountancy & Auditing · all years Q. 2 · Following is the summary of…Q. 3 · The Income Statement of the…Q. 31 · Dec 2016 Cost of Goods…With this paper← 2017 2018 →

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SECTION–A

Q. 2

Following is the summary of closing balances (unadjusted trial balance) of Muddasar Co. for the year ended on December 31, 2016.

(a)Accounts Amount (Rs.) Accounts Amount (Rs.) Cash 80000 Accounts Receivable 35200 Store Supplies 5000 Prepaid Rent 11240 Furniture 7600 Accumulated Depreciation on Furniture 1520 Insurance 8500 Plant & Machinery 45000 Accumulated Dep. on Plant & Machinery 9000 Capital 165000 Accounts Payable 8500 Drawings 31000 Sales Revenue 212980 Salaries Expenses 9500 Advertising Expenses 7000 Purchases 95000 Wages 10 000 Purchase Returns 6500 Sales Returns 3000 Opening Merchandise Inventory 45000 Commercial Expenses 5460 Miscellaneous Expenses 5000 Additional Information (adjustments) needs settlements at the end of period to show the true picture of the financial performance of Co. i. Closing Merchandise Inventory valued at Rs. 35 000 ii. Store supplies on hand at the end of year is Rs. 1500 iii. It is noticed that Prepaid Rent amounting Rs. 9240 was expired during the period iv. Prepaid Insurance is valued Rs. 1500 at the end of the period v. Outstanding salaries are Rs. 3000 vi. Depreciation is charged @ 10% for Plant & Machinery and @ 7% for Furniture Required: Based upon above information, prepare Adjusting Entries, Adjusted Trail Balance and Income Statement & Balance Sheet. [20]

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Q. 3

The Income Statement of the Abdul Rehman & Co for the year on December 31 (for each year 2015 & 2016) is given as under:

(a)2016 2015 Rs. Rs. Sales 900,000 800,000 Cost of goods sold Beginning inventory 43,000 40,000 Purchases 637,000 483,000 Goods available for sale 680,000 523,000 Ending inventory 70,000 43,000 Cost of goods sold 610,000 480,000 Gross margin 290,000 320,000 Operating expenses 248,000 280,000 Income before taxes 42,000 40,000 Income taxes 17,000 18,000 Net income 25,000 22,000 Plus: Retained earnings, beginning balance 137,000 130,000 Less: Dividends 0 15,000 Retained earnings, ending balance 162,000 137,000 The Balance Sheet of the Company as on December 31 for each year is given as under: Item 2015 (Rs.) 2016 (Rs.) Assets Cash 20,000 17,000 Marketable securities 20,000 22,000 Notes receivable 4,000 3,000 Accounts receivable 50,000 56,000 Merchandise inventory 70,000 43,000 Prepaid expenses 4,000 4,000 Property, plant & equipment (net) 3,40,000 3,10,000 Total Assets 5,08,000 4,55,000 Liabilities and Stockholders' Equity Accounts payable 40,000 38,000 Salaries payable 2,000 3,000 Taxes payable 4,000 2,000 Bonds payable, 8% 1,00,000 1,00,000 Preferred stock, 6%, Rs100 par, cumulative 50,000 50,000 Common stock, Rs 10 par 1,50,000 1,25,000 Retained earnings 1,62,000 1,37,000 Total Liabilities and Stockholders' Equity 5,08,000 4,55,000 Required: Horizontal Analysis and Vertical Analysis for the above given financial statements (Income Statement & Balance Sheet) of Abdul Rehman & Co. and comment on the results. [20]

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Section B

Q. 31

Dec 2016 Cost of Goods Sold (Expense) 80,000 Factory Overhead Applied 348,000 Factory Overhead Control 428,000 (To close FOH Applied and FOH Control accounts and record the under-applied variance) ( iii ) Pass general journal entries to dispose off under applied or over applied factory overhead in the following cases: (a) The variance is considered as a significant amount (b) The variance is considered as an insignificant amount (c) The variance is considered as cause by poor scheduling of production and excessive spending Calculation of Overhead Variance Applied Overhead: 580 , 000 × 60 % = Rs. 348 , 000 580,000 \times 60\% = \text{Rs. } 348,000 580 , 000 × 60% = Rs. 348 , 000 Actual Overhead: $\text{Rs. } 428,000$ Under-applied Overhead: 428 , 000 − 348 , 000 = $428,000 - 348,000 = \text{Rs. } 80,000$ (a) Significant Variance (Allocation Method) When variance is significant, it must be prorated across the relevant accounts (WIP, Finished Goods, and COGS) based on their balances (Total: 1 , 750 , 000 + 500 , 000 + 250 , 000 = 2 , 500 , 000 1,750,000 + 500,000 + 250,000 = 2,500,000 1 , 750 , 000 + 500 , 000 + 250 , 000 = 2 , 500 , 000 ). WIP: ( 250 , 000 / 2 , 500 , 000 ) $(250,000/2,500,000) \times 80,000 = 8,000$ Finished Goods: ( 500 , 000 / 2 , 500 , 000 ) $(500,000/2,500,000) \times 80,000 = 16,000$ COGS: ( 1 , 750 , 000 / 2 , 500 , 000 ) $(1,750,000/2,500,000) \times 80,000 = 56,000$ Entry: Dr. Work in Process Control: 8,000 Dr. Finished Goods Control: 16,000 Dr. Cost of Goods Sold: 56,000 Cr. Factory Overhead Control: 80,000 (b) Insignificant Variance (Direct Write-off) When variance is immaterial, it is closed directly to the Cost of Goods Sold. Entry: Dr. Cost of Goods Sold: 80,000 Cr. Factory Overhead Control: 80,000 (c) Variance caused by Poor Scheduling/Excessive Spending When variance results from managerial inefficiency or abnormal operational factors, the amount is charged as a period loss rather than an inventory cost. Entry: Dr. Loss from Abnormal Inefficiency (Income Statement): 80,000 Cr. Factory Overhead Control: 80,000 8

(a)Ayesha & Co. — Cost Estimates vs Actual Results for the Year 2017: Item Estimated (Rs.) Actual (Rs.) Fixed Factory Overhead 4,50,000 4,50,000 Variable Factory Overhead 6,00,000 6,80,000 Direct Labour Hours 2,00,000 2,20,000 Required: Based upon the above given information, calculate: (i) Total Factory Overhead Variance (ii) Capacity Variance (iii) Budget Variance [10]
(b)Calculate the total fixed cost of the shipping department of Areeba & Co. based upon the following information for the year 2016: Cost Element Amount (Rs.) Nature/Condition Salaries 8,00,000 75% of employees on guaranteed contracts Packaging 4,00,000 Depending on size of item(s) shipped Postage 5,00,000 Depending on weight of item(s) shipped Rent of warehouse space 2,50,000 Annual lease [10]

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