Home / Accounting Model Question Solution Class 12

28919 Views

Estimated reading time : 531 Minutes

Accounting Model Question Solution | NEB Accounting Class 12

Arjun EP

Published on: March 3, 2022

Accounting Model Question and Solution

Grade XII

Code: Acc.104

Time: 3 Hours

Full Marks: 75

The candidates are required to give their answers in their own words as far as practicable.

The figures in the margin indicate full marks.

Group A: Very Short Answer Questions

Attempt All Questions [11 × 1 mark = 11 marks]

Q1: Write any two features of public company.

Answer:

Major two features of public company:

1. Company is an artificial person

2. It has separate legal entity.

Q2: What do you mean by authorized capital?

Answer:

The maximum authorized capital is mentioned in “Memorandum of Association.”

Authorized capital is divided by number of shares to find out value of one share.

Q3: Write the meaning of financial statement.

Answer:

The summary of detailed information about financial position and performances of a business firm is known as the financial statement.

The financial statements are prepared at the end of accounting period.

Q4: What is process costing?

Answer:

Process costing is applied where production is carried on through different stages of processes before a finished product.

It this method, cost of product is ascertained at the stage of every process.

Q5: Write the meaning of allocation of overhead.

Answer:

Allocation of overheads is the process of identification the overhead of a particular cost center, job or department.

In other words, whole or undivided expenses are written to a particular cost center, job or department.

Q6: List out any two duties of store-keeper.

Answer:

The major two duties of store-keeper:

To prepare purchase requisition note when materials reaches to re-order level.

To received purchased materials from receiving department.

Q7: What is time rate wage system?

Answer:

Under time rate wage system, wages are paid to workers on a time basis.

Time may be an hourly, daily, weekly or monthly basis.

Q8: State-any two limitations of computer system in accounting.

Answer:

Major two limitations of computer system in accounting:

(1) Heavy cost of installation, software and training.

(2) System failure and breaches of security.

Q9: Prepare adjustment entry of prepaid insurance expired Rs 2,000

SOLUTION:

Date	Particulars		LF	Amount Dr	Amount Cr
	Prepaid insurance expired account	Dr		2,000
	To Prepaid insurance account				2,000
	(Being: prepaid insurance expired)

Q10: From the following information, calculate net cash flow from operating activities under indirect method:

Net income Rs 40,000

Increase in current assets Rs 5,000

Non-operating expenses Rs 10,000

SOLUTION:

Cash Flow Statement

Under indirect method

Particulars	Amount Dr	Amount Cr
Cash from operating activities:
Net income		40,000
Add: Non-operating expenses		10,000
Less: Increase in current assets		(5,000)
net cash flow from operating activities		45,000

Q11: If annual requirements is 1,00,000 units and economic order quantity is 20,000 units then find out number of order.

SOLUTION:

Given and working note:

Annual requirements (A) = 100,000 units

EOQ = 20,000 units

Now,

EOQ in order = A ÷ EOQ

= 100,000 ÷ 20,000 units

= 5 times

Click on the photo for FREE eBooks

Group B: Short Answer Questions

Attempt All Questions [8 × 5 marks = 40 marks]

Q12: ABC Company Ltd issued 6,000 shares of Rs 100 each at 5% premium. The money was payable as follows:

On application Rs 30

On allotment Rs 50

On first and final call Rs 25

Applications were received for 10,000 shares. Shares were allotted on pro rata basis. Excess application money were utilized towards the money due on allotment. All calls were duly made and received

Required: Journal entries for share application; share allotment; share first and final call [1.5 + 2 + 1.5 = 5]

SOLUTION:

Shares Issued	Issued Price	Installation		Arrears and Advance	Share Applied	Shares Allotted
6,000	100 + 5P	Application	30		10,000	6,000
		Allotment	50 (45C + 5P)
		First and final call	25
					10,000	6,000

Excess money

= Difference in pro-rata shares × Always application money

= (10,000 – 6,000 shares) × Rs 30

= 4,000 × Rs 30

= Rs 120,000

Journal Entries

In the book of ABC Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
Received	Amount received on application
	Bank account	Dr		300,000
	To Equity share application account				300,000
	(Being- amount received on 10,000 shares @ Rs 30)

Transfer	Amount transfer of application
	Equity share application account	Dr		300,000
	To Equity share capital account				180,000
	To Equity share allotment account (excess)				120,000
	(Being- amount transfer of application to capital account and
	Excess money adjusted

Due	Amount due/receivable on allotment
	Equity share allotment account	Dr		330,000
	To Share premium (security premium)				30,000
	To Equity share capital account				300,000
	(Being- amount due/receivable on allotment)

Received	Amount received on allotment
	Bank account	Dr		210,000
	To Equity share allotment account				210,000
	(Being- amount received on 6,000 shares @ Rs 45, and excess amount adjusted Rs 330,000 – Rs 120,000)

Due	Amount due/receivable on first and call
	Equity share first and call account	Dr		150,000
	To Equity share capital account				150,000
	(Being- amount due/ receivable on first and call)

Received	Amount received on first and final call
	Bank account	Dr		150,000
	To Equity share first and final call account				150,000
	(Being- amount received on 6,000 shares @ Rs 25)

#####

A shareholder holding 250 shares of Rs 100 each issued at 5% discount fails to pay final call money Rs 35. His shares were forfeited; the company reissued those forfeited shares @ Rs 110 as fully paid.

Required: Journal entries for final call; share forfeiture; share re-issue; transfer [1.5 + 1.5 + 1 + 1 = 5]

SOLUTION:

Note: final call is NOT possible

Given and working note:

Shares Issued	Issued Price	Installation		Arrears and Advance	Share Applied	Shares Allotted
	100–5D	App + Allot	60 [65C–5D]
		First and final call	35	–250

Journal Entries

In the book of ABC Corporation Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Final call
	Bank account	Dr		?
	Calls in arrear account [250 × Rs 35]	Dr		8,750
	To Equity share first and final call account				?
	(Being- amount received on ? shares @ Rs 35 and arrear adjusted)

	Shares forfeiture
	Equity shares capital A/c [250 shares × Rs 100]	Dr		25,000
	To Calls in arrears (on first and final call) [250 × Rs 35]				8,750
	To Share discount account [250 × Rs 5]				1,250
	To Share forfeiture account (paid or b/f)				15,000
	(Being- 250 shares of Rs 100 each forfeited for non-payment)

	Reissued
	Bank account [250 shares × Rs 110]	Dr		27,500
	Share forfeiture account	Dr		Nil
	To Equity shares capital A/c [250 × Rs 100]				25,000
	To shares premium account [250 shares × Rs 10]				2,500
	(Being- 250 shares of Rs 100 each, reissued @ Rs 110)

	Transfer
	Share forfeiture account	Dr		15,000
	To Capital reserve account				15,000
	(Being- share forfeiture amount transferred to capital reserve)

Given and working note:

Share forfeiture Cr	= capital profit	15,000
Share forfeiture Dr	= capital loss	Nil
Share forfeiture Cr	= capital reserve	15,000

Q13 (A): Ayansh Company Ltd took over the following assets of Aarab Company Ltd:

Machinery Rs 2,00,000

Furniture Rs 50,000

Stock Rs 1,00,000

The company paid the purchase consideration by issuing 5,000 shares of Rs 100 each at 10% discount.

Required: journal entries for purchase of assets and issue of share [1+1 = 2]

SOLUTION:

Purchase consideration

= 5,000 shares × (Rs 100 – 10D)

= Rs 450,000

Journal Entries

In the book of Ayansh Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Assets and liabilities taken
	Machinery account	Dr		200,000
	Furniture account	Dr		50,000
	Stock account	Dr		100,000
	Goodwill account (b/f)	Dr		100,000
	To Sundry liabilities				Nil
	To Aarab Company Ltd account				450,000
	(Being- assets and liabilities taken over, balance as goodwill)

	Purchase consideration paid
	Aarab Company Ltd account	Dr		450,000
	Discount on shares account	Dr		50,000
	To Share capital account				500,000
	(Being: payment made by issuing 5,000 shares of Rs 100 at Rs 90)

(B): A Company Ltd issued 200; 8% debentures of Rs 1,000 each at par and redeemable at 10% premium after 10 years.

Required: Journal entries for issue and redemption of debentures [1+2 = 3]

SOLUTION:

Journal Entries

In the book of A Company Ltd

Date	Particulars		LF	Amount Dr	Amount Cr
	Issued at par, redeemable at 10% premium
Year 1	Bank account Loss on issue of debenture	Dr Dr		200,000 20,000
	To 8% Debentures account To Premium on redemption of debenture				200,000 20,000
	(Being- 200; 8% debentures of Rs 1,000 each issued at par
	, redeemable at 10% premium)

	Debenture transfer to debenture holders at 10% premium
Year 10	8% Debenture account	Dr		200,000
	Premium on redemption of debenture account	Dr		20,000
	To Debentures holder account				220,000
	(Being- debenture transferred to debenture holders with premium)

	Redeemed of debentures
Year 10	Debenture holders account	Dr		220,000
	To Bank account				220,000
	(Being- payment made to debenture holders)

Q 14: The following financial transaction of AB Company is provided:

Sales revenue	500,000	Advertising	15,000
Opening stock	40,000	Rent received	10,000
Purchase	300,000	Commission paid	4,000
Insurance	15,000	Return outward	12,000
Salary	70,000	Carriage	8,000
Interest on investment	100,000	Return inward	3,000
Interest on loan	5,000

Additional information:

(a) Closing stock Rs 30,000

(b) Salary outstanding Rs 5,000

Required: Trading account; Profit & Loss account [2+3 = 5]

SOLUTION:

Trading, Profit & Loss Account

In the book of AB Company

Particulars		Amount	Particulars		Amount
To Opening stock		40,000	By Sales	500,000
To Purchase	300,000		Less: Return inward	(3,000)	497,000
Less: Return outward	(12,000)	288,000	By Closing stock		30,000
To Carriage		8,000
To Gross profit		191,000
		527,000			527,000
To Salary	70,000		By Gross profit		191,000
Add: Outstanding	+ 5,000	75,000	By Interest on investment		100,000
To Insurance		15,000	By Rent received		10,000
To Interest on loan		5,000
To Advertisement		15,000
To Commission paid		4,000
To Net profit		187,000
		301,000			301,000

Q15: An unadjusted trial balance of AD Company is given below:

Particulars	Amount Dr	Particulars	Amount Cr
Machinery	145,000	Share capital	100,000
Cash balance	60,000	Creditors	50,000
Salary	35,000	Bank loan	40,000
Prepaid rent	15,000	Sales	250,000
Purchase	190,000	Discount	5,000
	445,000		445,000

Additional information:

a. Prepaid rent of Rs 3,000 was expired

b. Depreciate machinery by 10%

Required: Work sheet [5]

SOLUTION:

Journal Entries

Date	Particulars		LF	Amount Dr	Amount Cr
	Prepaid rent expired account	Dr		3,000
	To Prepaid rent account				3,000
	(Being: prepaid rent expired)

	Depreciation account	Dr		14,500
	To Machinery account				14,500
	(Being: depreciation charged on machinery 145,000 @ 10%

Ten Column Worksheet

Particulars	Part 1		Part 2		Part 3		Part 4		Part 5
	Trial balance		Adjustments		Adjusted TB		Income statement		Balance sheet
	Dr	Cr	Dr	Cr	Dr	Cr	Dr	Cr	Assets	Liabilities
Machinery	145,000			14,500	130,500				130,500
Cash balance	60,000				60,000				60,000
Salary	35,000				35,000		35,000
Prepaid rent	15,000			3,000	12,000				12,000
Purchase	190,000				190,000		190,000
Share capital		100,000				100,000				100,000
Creditors		50,000				50,000				50,000
Bank loan		40,000				40,000				40,000
Sales		250,000				250,000		250,000
Discount		5,000				5,000		5,000
	445,000	445,000
Prepaid ins. expired			3,000		3,000		3,000
Depn on machinery			14,500		14,500		14,500
Net profit							12,500			12,500
Total			17,500	17,500	445,000	445,000	255,000	255,000	202,500	202,500

Q16: Mention the objectives of cost accounting with its definition. [2+3 = 5]

Answer:

Definitions of cost accounting

According to Professor R. N. Carter, “Cost accounting is a system of recording an account about manufacturing of a certain commodity (goods) or a particular job.”

Objectives of cost accounting | Advantages of cost account | Functions of cost account

The major objectives of cost accounting are as follows:

Cost comparison

Cost accounting helps to compare total cost or unit cost at different level of production in different departments, jobs and process.

Price fixation

It helps to fixation the selling price.

It also helps for tender price.

Cost control

It helps to control the cost at different levels.

These costs may be about materials, labour and overhead.

Helpful in planning and decision making

It helps to management to plan and take decision.

Like manufacturing or buy, operate or shut down, select the profitable method, fixation the selling price etc

Check the accuracy

It helps to check or reconcile the differences between cost accounting and financial accounting.

Q17 (A): Differentiate between centralized purchase and decentralized purchase. [2]

Answer:

Centralized purchase means single purchase department.

Decentralized purchase means all the department and branches purchase materials independently.

Bases	Centralized purchase	Decentralized purchase
Meaning	Under centralized purchasing, all materials are purchased by central purchase department.	Under decentralized purchasing, all materials are purchased by each departments or branches.
Suitable	It is suitable for small sized organization	It is suitable for large sized organization

(B): The following are the store transactions for the month of Jun:

Jun 1: Opening stock 200 units @ Rs 3

Jun 5: Purchase 400 units @ Rs 2.5

Jun 10: Purchase 300 units @ Rs 2

Total sales during the month of Jun 750 units

Calculate: FIFO cost of ending inventory and cost of goods sold using FIFO method under periodic inventory system [3]

SOLUTION:

Given and working note:

Opening stock plus purchase units = 200 + 400 + 300 = 900 units

Out of 900 units, 750 units were sold; remaining 900 – 750 = 150 units.

In FIFO, 150 units remain closing stock from last purchase viz Jun 10

FIFO under Periodic Inventory System

Date	Particulars	Cost of goods purchased			Cost of goods sold			Closing stock
Jun 1	Opening stock	200 × Rs 3	=	600	200 × Rs 3	=	600	0	=	0
Jun 5	Purchase	400 × Rs 2.5	=	1,000	400 × Rs 2.5	=	1,000	0	=	0
Jun 10	Purchase	300 × Rs 2	=	600	150 × Rs 2	=	300	150 × Rs 2	=	300
		900 units	=	Rs 2,200	750 units	=	Rs 1,900	150 units	=	Rs 300

Therefore,

Closing stock 150 units; Rs 300

Cost of goods sold 750 units; Rs 1,900

Q18 (A): The standard output per hour is 5 units. The wage rate per unit is Rs 30 and total working hour in a month is 150 hours.

Calculate: Total wages for the month under piece rate system. [2]

SOLUTION:

Given and working note:

Units produced in a month = 150 hours × 5 units per hour = 750 units

Now,

Total wage = Units produced × Wage rate per unit

= 750 units × Rs 30

= Rs 22,500

(B): The following information are provided:

Net profit shown by financial accounting Rs 45,000

Depreciation overcharged in cost accounting Rs 10,000

Undervalued of opening stock in financial accounting Rs 8,000

Interest on investment credited in financial accounting Rs 11,000

Required: Cost reconciliation statement [3]

SOLUTION:

Given and working note:

Given and working note:

Activities	FA	–	CA	=	Add or less
Depreciation	10,000	–	20,000	=	-10,000
Opening stock	8,000	–	16,000	=	-8,000
Interest on investment	11,000	–	Nil	=	10,000 but income

Cost Reconciliation Statement

For the month of …

Particulars	Amount	Amount
Net profit as per financial account		45,000
Add:
		Nil
Less:		45,000
Depreciation overcharged in cost accounting Opening stock undervalued in financial accounting	10,000 8,000
Interest on investment credited only in financial accounting	10,000	(28,000)
Net profit as per cost account		17,000

Q19: What is computerized accounting system? Explain the elements of computerized accounting system. [2+3 = 5]

Answer:

What is computerized accounting system?

A computerized accounting system is an accounting information system that processes the financial transactions as per GAAP.

Generally Accepted Accounting Principles (GAAP) to produce reports as per user requirements.

There are two types of accounting systems; they are manual and computerized.

Every accounting system has two aspects.

First, it has to work under a set of well-defined concepts called accounting principles.

Another, that there is a user-defined framework for maintenance of records and generation of reports.

Elements of computerized accounting system | Components of computerized accounting system

Computerized accounting system (CAS) refers to the processing of accounting transaction through the use of hardware and software of the computer.

CAS takes accounting transactions as inputs that are processed through Accounting Software to generate the following reports:

Day books/journals

Ledger

Trial balance

Position statement (balance sheet)

Statement of profit and loss (profit and loss account)

Cash flow statement etc.

Financial statements are the end products of the accounting process.

They are prepared according to Generally Accepted Accounting Principles (GAAP).

The accounting cycle means the processes involved in identifying, measuring and communicating the information.

The basic phases of the cycle are as follows:

Business transactions are analysed.

The transactions are recorded in the journal.

Journal entries are posted to the ledger accounts.

A trial balance is prepared from balances of accounts.

Accounts are reviewed and the necessary adjustments made.

Adjustments are posted in the ledger to prepare adjusted trial balance.

Adjusted trial balance is used to prepare the balance sheet and profit and loss account.

Financial Statements are prepared from the finally adjusted ledger and balancing the accounts.

The above accounting cycle can be processed through the use of computers.

###########

Click on the link for YouTube videos:
Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance & Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Final Accounts: Class 11	http://tiny.cc/y89jkz
Adjustment in Final Accounts	http://tiny.cc/keakkz
Capital and Revenue	http://tiny.cc/peakkz
Single Entry System	http://tiny.cc/n19jkz
Non-Trading Concern	http://tiny.cc/j09jkz
Government Accounting	http://tiny.cc/hcakkz
Goswara Voucher (Journal Voucher)	http://tiny.cc/hcakkz

###########

Group C: Long Answer Questions

Attempt All Questions [3 × 8 marks = 24 marks]

Q20: The trial balance of Api Company Ltd is given on 31^st March:

Particulars	Amount	Particulars	Amount
Opening stock	15,000	Sales revenue	465,000
Purchase	285,000	Share capital	150,000
Audit fee	12,000	Accounts payable	22,000
Printing and stationery	18,000	Loan	180,000
Salaries expenses	60,000	Interest and dividend	8,000
Goodwill	10,000	Service revenue	35,000
Promotion expenses	9,000
Interest expenses	12,000
Repair and maintenance	8,000
Plant and equipment	200,000
Bank balance	42,000
Account receivable	65,000
Investment	100,000
Rent expenses	20,000
Other selling expenses	4,000
	860,000		860,000

Additional information:

a. Closing stock Rs 20,000

b. Depreciate on plant and equipment 10%

c. Income tax @20%

d. Rent payable 1,000

Required: (a) Profit or loss statement based NFRS; (b) Statement of Financial Position based on NFRS [5+3 = 8]

SOLUTION:

Profit or Loss Statement under NFRS

Api Company Ltd

For the year ended 31^st March

Particulars		Notes	Amount	Amount
Net sales revenue				465,000
Less:	Cost of goods sold	1		(280,000)
	Gross profit			185,000
Add:	Other income	4		43,000
Less:	Operating expenses:
	Administrative expenses	2	119,000
	Selling and distribution	3	13,000
	Depreciation on PPE	5	20,000	(152,000)
	Profit from operation			76,000
Less:	Financial expenses:
	Interest expenses			(12,000)
	Profit before tax			64,000
Less:	Income tax expenses (64,000 @ 20%)			(12,800)
	Profit from continuing operations			51,200
Add:	Profit from discontinued operation after tax			Nil
	Net profit after tax			51,200

Statement of Financial Position as per NFRS

Api Company Ltd

For the year ended 31^st March

Particulars		Notes	Year 2021
ASSETS
Non-Current Assets:
	Property, plant and equipment	5	180,000
	Investment		100,000
	Goodwill		10,000
	Total non-current assets (A)		290,000
Current Assets:
	Cash and bank		42,000
	Account receivable		65,000
	Inventories (closing stock)		20,000
	Total current assets (B)		127,000
	TOTAL ASSETS (A+B)		417,000
EQUITY
	Common stock (share capital)		150,000
	Additional paid in capital (share premium)		Nil
	Retained earnings (net profit after tax)		51,200
	Total Equity		201,200
LIABILITIES
Non-Current Liabilities:
	Loan		180,000
	Other non-current liabilities		Nil
	Total non-current liabilities (a)		180,000
Current Liabilities:
	Rent payable		1,000
	Account payable		22,000
	Income tax payable		12,800
	Total current liabilities (b)		35,800
	Total Liabilities (a+b)		215,800
	TOTAL EQUITY AND LIABILITIES		417,000

The trial balance of Arya Company Ltd is given on 31^st December:

Particulars	Amount	Particulars	Amount
Opening stock	40,000	Share capital	150,000
Salary	32,000	Bank loan	50,000
Purchase	250,000	Sundry creditors	40,000
Advertisement	14,000	Sales	390,000
Bank balance	35,000	Purchase return	5,000
Sundry debtors	50,000	Interest received	14,000
Investment	50,000	Commission received	2,000
Machinery	120,000
Interest paid	5,000
Administrative expenses	35,000
Prepaid insurance	20,000
	651,000		651,000

Additional information:

a. Closing stock Rs 55,000

b. Depreciate machinery by 10%

c. Prepaid insurance expired Rs 3,000

d. Income tax @25%

Required: (i) Multi step income statement; (ii) Balance sheet [4+4 = 8]

SOLUTION:

Multi Step Income Statement

Arya Company Ltd

For the year ended 31^st December

Particulars		Notes	Amount	Amount
Net sales revenue				390,000
Less:	Cost of goods sold	1		(230,000)
	Gross profit			160,000
Less:	Administrative expenses:
	Salaries		32,000
	Administrative expenses		35,000
	Prepaid insurance expired		3,000
	Depreciation on machinery		12,000	(82,000)
	Selling and distribution expenses:
	Advertisement		14,000	(14,000)

Less:	Non-operating expenses:
	Interest paid			(5,000)
	Operating profit			59,000
Add:	Non-operating incomes
	Interest received		14,000
	Commission received		2,000	16,000
	Profit before tax			75,000
Less:	Income tax expense (76,000 @ 25%)			(18,750)
	Net profit after tax			56,250

Given and working note:

*1. Cost of goods sold:*		2. Prepaid insurance:
Opening stock	40,000	Prepaid insurance	20,000
Add: Purchase	250,000	Less: Expired	(3,000)
Less: Purchase return	(5,000)		17,000
Less: Closing stock	(55,000)
	230,000


3. Machinery	120,000
Less: Depreciation	(12,000)
	108,000

Balance Sheet

Arya Company Ltd

For the year ended 31^st December

Particulars	Notes	Amount	Amount
Sources of fund:
Owners’ equity fund (insiders):
Share capital		150,000
General reserve		Nil
Retained earnings (net income after tax)		56,250	206,250
Loan fund (outsiders):
Bank loan			50,000
Total liabilities			256,250
Application of funds:
Fixed or non-current assets:
Machinery		108,000
Investment		50,000
Intangible assets		Nil	158,000
Add: Current assets:
Bank balance		35,000
Sundry debtors		50,000
Prepaid insurance	2	17,000
Closing stock		55,000	157,000
Less: Current liabilities and provisions:
Sundry creditors		40,000
Income tax payable		18,750	(58,750)
Total assets			256,250

Q21: The following comparative balance sheet of AD Company Ltd is given for two years:

Liabilities	2077 (2021)	2078 (2022)	Assets	2077 (2021)	2078 (2022)
Share capital	250,000	300,000	Machinery	180,000	300,000
Debenture	50,000	80,000	Goodwill	40,000	20,000
Creditors	30,000	65,000	Debtors	70,000	120,000
Outstanding expenses	10,000	5,000	Stock	30,000	50,000
Retained earnings	40,000	60,000	Cash balance	60,000	20,000
	380,000	510,000		380,000	510,000

Additional information for the current year:

(i) Sales Rs 550,000

(ii) Cost of goods sold Rs 350,000

(iii) Operating expenses including depreciation Rs 30,000 is Rs 100,000

(iv) Interest expenses Rs 10,000

(v) Sales of machinery Rs 40,000 and purchase of machinery Rs 185,000

(vi) Dividend paid Rs 55,000

Required: Cash flow statement by using direct method [4+1+2+1 = 8]

SOLUTION:

Cash Flow Statement

AD Company Limited

Particulars	Amount	Amount
Cash from operating activities:
Cash collection from debtors:
Sales revenue	550,000
Less: Increase in account receivable debtors	(50,000)	500,000
Cash paid to suppliers:
Cost of goods sold	(350,000)
Add: Increase in stock	(20,000)
Less: Decrease in creditors	35,000	(335,000)
Cash paid to operating expenses:
Operating expenses (100,000 – 30,000 depreciation)	(70,000)
Add: Decrease in outstanding expenses	(5,000)	(75,000)
Cash paid for interest and insurance:
Interest and insurance		(10,000)
Cash paid to tax:
Tax paid		Nil
Net cash from operating activities (A)		80,000
Cash from investing activities:
Sales of machinery		40,000
Purchase of machinery		(185,000)
Net cash from investing activities (B)		(145,000)
Cash from financing activities:
Issue of shares		50,000
Issue of debentures		30,000
Dividend paid		(55,000)
Net cash from investing activities (C)		25,000
Change in cash and cash equivalent (A+B+C)		(40,000)
Add: beginning cash and cash equivalent		60,000
Ending cash and cash equivalent		20,000

Q22: The following cost information were extracted from the last month:

Direct materials: Rs 250,000

Direct wage: Rs 150,000

Factory overhead: Rs 45,000

Administrative overhead: Rs 44,500

Overheads are allocated as under:

Factory overhead on the basis of prime cost

Administrative overhead on the basis of factory cost

The following costs were estimated for submitting a tender:

Material cost Rs 100,000

Labour cost Rs 60,000

The factory is expected to earn 20% profit on tender price.

Required: (a) Cost sheet; (b) Tender sheet [3+5 = 8]

SOLUTION:

Cost Sheet

Particulars	Amount
Direct materials	250,000
Direct wages	150,000
Prime cost	400,000
Add: Factory overhead	45,000
Factory cost	445,000
Add: Administrative overhead	44,500
Cost of production	489,500
Add: Selling and distribution expenses	Nil
Total cost	489,500

Given and working note:

% of factory expenses on prime cost

= (Factory overhead ÷ Prime cost) x 100

= (45,000 ÷ 400,000) x 100

= 11.25%

% of administrative expenses on factory cost

= (Administrative overhead ÷ Factory cost) x 100

= (45,500 ÷ 445,000) x 100

= 10%

Quotation Statement (Tender Sheet)

Particulars	Amount
Raw materials	100,000
Direct wage	60,000
Prime cost	160,000
Add: Factory expenses [11.25% of prime cost = 160,000 @ 11.25%]	18,000
Factory cost	178,000
Add: Administrative expenses [10% of factory cost = 178,000 @10%]	17,800
Cost of production	195,800
Add: Selling and distribution expenses	Nil
Total cost	195,800
Profit (195,800 @ 20/80)	48,950
Tender price	244,750