CSS Accountancy and Auditing Paper I Past Paper 2018

CSS Accountancy and Auditing Paper I 2018 carries 100 marks over 3 hours. It has 7 questions.

Marks: 100
Time: 3 hours
Questions: 7

Years

How to attempt: Attempt ONLY FOUR questions from PART-II by selecting TWO questions from EACH SECTION. ALL questions carry EQUAL marks.

Questions

Question 1 (Part I) is the paper's MCQs, which are not reproduced here.

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.

(20)

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.

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:

(20)

	2016	2015
Sales	Rs. 900,000	Rs. 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:

	2015	2016
	Rs.	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)	340,000	310,000
Total assets	508,000	455,000
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%	100,000	100,000
Preferred stock, 6%, Rs100 par, cumulative	50,000	50,000
Common stock, Rs 10 par	150,000	125,000
Retained earnings	162,000	137,000
Total liabilities and stockholders’ equity	508,000	455,000

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.

Q. 4
(20)
- (a)
  The XYZ Co. purchased a large machine 5 years ago at a total cost of Rs. 400,000. The accumulated depreciation on this machine is Rs. 290,000. The corporation sold the machine at Rs.10, 000 gain.
  (10)
  Required: Calculate the amount would be reported as cash flow from this sale.
- (b)
  On April 1, 1993 Ayesha Industries purchased new equipment at a cost of Rs. 325000. Useful life of this equipment was estimated at 5 years, with a residual value of Rs. 25000. For tax purposes, however, this equipment is classified as “3- year property”.
  (10)
  Required: Compute the annual depreciation expense for each year until this equipment becomes fully depreciated under each depreciation methods listed below (Because you will record depreciation for only a fraction of a year in 1993, depreciation will extend through in all methods except MACRS) and show supporting computations.
  - (i)
    Straight –line, with depreciation for fractional years rounded to the nearest whole month.
  - (ii)
    20%-declining-balance method, with the half-year convention. Limit depreciation in 1998 to an amount which reduces the undepreciated cost to the estimated residual value.
  - (iii)
    Sum-of-the-years’-digits, with the half-year convention
  - (iv)
    MACRS accelerated rates for “3-year property”

SECTION-B

Q. 5

Proprietor (Owner) of ABC Industries has limited knowledge of Cost & Managerial Accounting who prepared Income Statement for his business for the year ended on December 31, 2016 that is given as under:

(20)

	(Rs.)	(Rs.)
Sales		675000
Less: Expenses
Direct Labour	137500
Indirect Labour	18000
Selling & Administrative Salaries	48000
Raw materials purchased	248500
Electricity bill	22500
Insurance expired	6000
Depreciation of factory equipments	33000
Depreciation of sales equipments	4500
Rent of Premises	75000
Advertising	81500	674500
Net Profit		500

The Owner has some doubts about the accuracy of the above statement and has requested you (as Professional Accountant) to check over the statement and make necessary corrections based upon following additional information.

(i) 80% of the electricity bill, 75% of insurance expired and 70% of Rent of Premises associated to Factory operations and the remaining amounts are applicable to Selling and Administrative activities.

(ii) Beginning Inventory (January 1, 2016) and Ending Inventory (December 31, 2016) in Rs. were:

Finished Goods	50000	60000
Work in Progress	42500	30000
Raw Material	7500	18000

(iii) Factory overhead is applied @ Rs. 5 per machine hour. The total machine hours are 26400 during the year. Factory overhead variance is charged to cost of goods sold, finished goods and work in process ending inventories.

Required:

(a)
Prepare cost of goods manufactured and cost of goods sold statement indicating cost of goods sold at normal and at actual.
(b)
Prepare revised income statement
(c)
Explain the reason for difference between net profit as per Owner’s Income statement and revised statement (prepared by you).

Q. 6
(20)
- (a)
  Delight Food Products produces Squash Cubes by continuous processing in three departments i.e. A, B and C. During November 2017 Department B received 8000 cubes from the Department A (preceding department) and transferred 5500 cubes to Department C (next department). During the month there was a normal loss of 400 cubes at the end of process. Moreover, 600 cubes, 75% completed, were lost due to negligence of a worker in the B department. There was no work in process beginning inventory, the ending inventory was estimated as 60% completed. Following product costs were charged to the department during the month of November:
  (10)
  Cost from preceding department Rs. 16400
  Direct Material 2000
  Direct Labour 3625
  Factory Overhead 5075
  27100
  It is noticed that all materials are added at the start of process in Department B.
  Required: Prepare the Cost of Production Report for the month of November, 2017(for Department B).
- (b)
  Ahmad Enterprises produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2017 for its Elite Quality golf club sets:
  (10)
  Revenues (400 sets sold @ Rs. 600 per set) Rs. 240,000
  Variable costs Rs. 160,000
  Fixed costs Rs. 50,000
  Required: How many sets of clubs (unit) must be sold for Ahmad Enterprises to reach their breakeven point?
Q. 7
XYZ Enterprises applies factory overhead @ 60% of direct labour cost. During the year 2016 following actual costs were recorded:
(20)
(Rs.)
Direct Labour cost 580000
Factory Overhead cost 428000
At the end of the year following balances appear in the some of the Control Accounts:
Cost of Goods Sold 1750000
Finished Goods 500000
Work in Progress 250000
Required:
- (i)
  Based upon above given information, determine under-applied or over-applied factory overhead.
- (ii)
  Pass general journal entry to close factory overhead applied account at the end of year.
- (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

	(Rs.)
Direct Labour cost	580000
Factory Overhead cost	428000

Q. 8

(20)

(a)
Ayesha & Co. Prepared following estimates for the year 2017:
(10)
Fixed factory overhead (in Rs) 450 000
Variable factory overhead (in Rs) 600 000
Direct labour hours 200 000
However, actual results for the cost for the year 2017 were recorded as follows:
Fixed Factory overhead (in Rs) 450 000
Variable Factory overhead (in Rs) 680 000
Direct labour hours 220 000
Required: based upon above given information, Calculate:
- (i)
  Total Factory overhead variance
- (ii)
  Capacity variance
- (iii)
  Budget variance

(b)

Calculate the total fixed cost of the shipping department of Areeba & Co. based upon the following information for the year 2016:

(10)

Salaries	Rs.800,000 75 percent of employees on guaranteed contracts
Packaging	Rs.400,000 depending on size of item(s) shipped
Postage	Rs.500,000 depending on weight of item(s) shipped
Rent of warehouse space	Rs.250,000 annual lease

Part-II is to be attempted on the separate Answer Book.
Attempt ONLY FOUR questions from PART-II by selecting TWO questions from EACH SECTION. ALL questions carry EQUAL marks.
All the parts (if any) of each Question must be attempted at one place instead of at different places.
Candidate must write Q. No. in the Answer Book in accordance with Q. No. in the Q.Paper.
No Page/Space be left blank between the answers. All the blank pages of Answer Book must be crossed.
Extra attempt of any question or any part of the attempted question will not be considered.
Use of Calculator is allowed.

Cost from preceding department	Rs. 16400
Direct Material	2000
Direct Labour	3625
Factory Overhead	5075
	27100

Revenues (400 sets sold @ Rs. 600 per set)	Rs. 240,000
Variable costs	Rs. 160,000
Fixed costs	Rs. 50,000

Cost of Goods Sold	1750000
Finished Goods	500000
Work in Progress	250000

Fixed factory overhead (in Rs)	450 000
Variable factory overhead (in Rs)	600 000
Direct labour hours	200 000