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Auditing and Cost Accounting
Time: 3 Hours
March – 2005
Marks: 100
 
N.B. : (1) Question NO.1 and 6 are compulsory and answer any two questions each from the rest from each section.  
  (2) Figures to the right indicate full marks.  
  (3) Working notes should form part of your answer.  
  (4) Answers of both the sections should be written in the same answer book.  
    Section I --- (Auditing)  
       
Q. 1. a) What are the advantages & Limitations of Auditing? 10
  b) What is Interim Audit? What are its advantages & disadvantages? 8
       
Q. 2. a) What are the rights of an Auditor under Companies Act, 1956? 8
  b) How would you vouch the following ? (i)       Income Tax Refund (ii)      Custom Duty Paid 8
       
Q. 3. a) What is an Audit Programme? What are its advantages & disadvantages? 8
  b) Explain the term “Internal Control”. What are its objectives? 8
       
Q. 4. a) Distinguish between Audit of Accounts of a partnership firm & a Limited Company. 8
  b) Scrutinize & give your comments as an Auditor on the following Ledger Account.
In the books of M/s Acharya
Dr.                                             Mrs. Vyas Account                                      Cr.
Date 2004 Particulars Rs. Date 2004 Particulars Rs.
14th January To Bank 10,000 1st January By Bal b/f. 10,000
22nd January To Purchase Returns 3,000 21st January By Purchase 28,000
22nd January To Bills Payable 20,000 1st February By Purchase 14,000
23rd January To Bank A/c 4,950 25th February By Bills Payable 20,000
23rd January To Discount A/c 50 25th February By Interest 100
2nd February To Bank A/c 13,860 1st March By Purchase 21,000
2nd February To Discount A/c 140 31st March By Balance c/fd. 25,000
26th February To Bills Payable 20,100      
30th March To Vaishya A/c 21,000      
31st March To Bank 25,000      
Total 1,18,100 Total 1,18,100
8
       
Q. 5.   Write short notes on any four :­ 16
   
(i) Auditing in Depth (iv) Essentials of a Good Audit Report
(ii) Appointment of first Auditor of a Limited Company (v) True & Fair view
(iii) Window Dressing (vi) Audit Note Book
 
    Section II --- (Costing)  
       
Q. 6.   A Company took up a contract of Rs. 10 crore and as per the agreement, it would receive 75% of the work certified each year. The contract was commenced on 1st April, 2000 and was completed on 1st October, 2003. Further details are as follows : -
Particulars 2000-2001 2001-2002 2002-2003 2003-2004
Machinery Purchased 50,00,000 -- -- --
Materials Purchased 20,00,000 50,00,000 1,00,00,000 2,00,00,000
Labour 10,00,000 30,00,000 50,00,000 1,40,00,000
Other Expenses 5,00,000 12,18,000 40,00,000 90,00,000
Stock of materials at year end 1,00,000 2,00,000 3,20,000 5,50,000
Work Certified (Cumulative) 20,00,000 2,00,00,000 5,00,00,000 10,00,00,000
Work Uncertified 8,00,000 10,00,000 60,00,000 --
During 2000-2001, materials costing Rs. 20,000 were returned to stores. During 2002-2003 certain materials costing Rs. 30,000 were found unsuitable & sold at a loss of Rs. 4,000. Materials worth Rs. 8,000 were stolen from site. During 2003-2004 there was an accident site due to which a worker had to be paid Rs. 50,000 as compensation. This amount is included in wages. On completion of contract the machinery was sold for Rs. 25,00,000. The company provides depreciation at 20% p.a. on Machinery on diminishing balance method. The company closes its accounts on 31st March every year. Prepare Contract Account for each of the above years. Also show Contractee’s Account.
16
       
Q. 7.   A product passes through three processes and 40,000 units were introduced in Process A at cost of Rs. 30,000. The following further information is available :-
Particulars Process A Process B Process C
Sundry Materials Rs. 20,000 Rs. 4,000 Rs. 2,000
Direct labour Rs. 6,000 Rs. 3,000 Rs. 1,500
Direct Expenses Rs. 1,920 Rs. 5,600 Rs. 4,200
Output (Units) 38,000 37,000 34,000
Opening Stock (Units) 6,000 3,000 4,000
Closing Stock (Units) 4,000 5,000 9,500
Opening Stock Valuation (Per Unit) Rs. 1.40 Rs. 1.80 Rs. 2.50
% of Normal Wastage 4% 5% 10%
Scrap Sale Price (per unit) Rs. 0.20 Rs. 0.30 Rs. 0.40
The Closing Stock in each process is valued at respective Process Cost.. Prepare Process A/cs & Process Stock A/cs.
15
       
Q. 8. a) The following details are available for the year ending 2004.
  Rs.
Direct wages 60,000
Purchase of Material 72,000
Indirect Materials 3,600
Indirect Wages 5,400
Office Salaries 7,200
Employer’s Contribution to Employees State Insurance 600
Printing & Stationary 1,200
Power & Fuel 5,400
Legal Charges 864
Office Rent 1,200
Sales (9000 units) 1,80,000
Opening Stock :      Raw Materials      Work in Progress      Finished Goods (600 units at the rate of Rs. 16.25 per unit) 12,000 2,880 ----
Closing Stock :      Raw Materials      Work in Progress      Finished Goods (1200 units) 13,344 9,600 ?
sValue the Finished Stock at Cost of Production. Prepare a Cost Sheet showing different elements of Cost.
10
  b) For Producing 80 units of a Product 30 kg of Material X and 20 kg of Material Y is the standard requirement. Standard Price is Rs. 6 per kg of X and Rs. 10 per kg of Y. 80 units were actually produced using 50 kg of Materials X purchased for Rs. 200 and 10 kg of Material Y purchased at Rs. 8 per kg. Compute :– (1)         Material Cost Variance (2)         Material Price Variance and (3)         Material Usage Variance. 5
       
Q. 9.  a) A Product is sold at Rs. 80 per unit, its variable cost is Rs. 60. Fixed cost is Rs. 6,00,000. Compute the following – (i)P/v Ratio (ii)                    Break Even Point (iii)                   Margin of Safety at a sale of 50,000 units. (iv)                  At what sales a producer will earn o profit of 15% on sales? 8
  b) From the following particulars, prepare Reconciliation Statement and Ascertain Costing Profit/ Loss. Net Profit as per Financial P/L A/c. Rs. 50,000. Opening Stock was overvalued by Rs. 2,000. In Cost Accounts as compared to Financial Accounts. Administrative overheads charged in Financial Books Rs. 20,000 but recovered in Rs. Cost Rs. 40,000.       Income Tax Provision Rs. 1,200       Notional Salary of Proprietor in Cost Rs. 20,000.       Interest received Rs. 12,000       Closing Stock as per Financial Books  Rs. 16,200       Whereas in Cost Books it was Rs. 19,000. 7
       
Q.10. a) What are the objectives of Cost Accounting? 8
  b) Define Overheads & how would you classify them? 7
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