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CMA (CWA) Final Gr.IV(Solution upto June - 2013 & Questions of Dec - 2013 Included)

Paper - 17:::: Cost Audit & Operational Audit and Ethics

Chapter - 2: Cost Audit Report Rules, 2011

2013 - June [2] (a)

Note –

In simple words Capital Employed is defined in Para – 9 as

Fixed Asset

less Intangibles

less Revaluation of fixed assets

less CWIP

plus Net Current Assets

Average of last two years (Net FA + Net Current Assets)/2

Net Worth = Share Capital + Reserves and Surplus (excluding Revaluation reserve) –

accumulated losses – intangible assets.

Statement Showing Calculation of Capital Employed

Particulars Amount

31-03-13 31-03-12

Net Fixed Assets

Gross Block 1,450 1,360

Less Depreciation 630 580

Less Revalutaion Reserve 250 280

(A) 570 500

Working Capital

Inventories 834 882

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Sundry Debtors 364 390

Loans and Advances 288 274

Cash and Bank 42 38

Current Assets 1,528 1,584

Creditors 370 394

Provision for Taxes 128 142

Loans due in 12 months 192 168

Current Liabilities 690 704

Working Capital Employed (i.e net current assets

under Para -9) (B) 838 880

( = C Assets - C Liabilities)

Capital Employed (A+B) 1,408 1,380

Average Capital Employed 1,394

Loans due within 12 months are classified as current liabilities

Statement Showing Calculation of Net Worth

Particulars Amount

Share Capital 600

Debenture Redemption Reserve 50

Capital Subsidy 60

General Reserve 320

P&L Acount 96

Capital Employed (Equity) 1,126

Less- Miscellaneous Expenditure 192

Net Worth 934

Total Debt Employed

Secured Loans 550

Unsecured Loans 246

796

Less due in 12 months 192

604

Debt - Equity Ratio

(604/1126) = 0.5364:1

PBT to Capital Employed


(= 160/1394)* 100 = 11.48%

PBT to Net Worth

(= 160/ 934)* 100 = 17.13%

2013 - June [3] (a)

XBRL is a language based on XML. It is an open standards – based system. It uses

internet as a medium for preparation and exchange of business reports. It is specifically

built to meet the business and finance’s regulatory requirements. It allows application

of identifying tags to accounting data. These tags help classify the information into

monetary item, fraction or percentage. It allows addition of accounting references or

subsidiary information to tags.

In India XBRL is used in the following areas:

• Reporting to Regulatory Authorities – used by IT Department for filing returns,

Central Bank (RBI) and Government

• Exchange of information between banks, government department etc

• Filing of reports

• Filing of costing information.

Chapter - 3: Cost Accounting Record Rules

2013 - June [3] (b), (c) (i), (ii)

(b) Rule 5 of the Companies (Cost Accounting Record) Rules 2011 requires that the

compliance report and the annexure thereto are required to be certified by a Cost

Accountant. It means a Cost Accountant is holding COP (practicing for full time)

and who is not employed somewhere else for the whole time. If the membership

fees are in arrears then he cannot be appointed. Members of ICMA who are

included as members in ICWAI (due to reciprocal agreement) cannot be

appointed.

(c)(i) Waste multiplier is that quantity of output from any process, which will be

needed to get one unit of final output. Section 209(1)(d) provides for

maintenance of Cost Accounting Records as per Cost Accounting Record Rules

for the textile industry. The Processing cost/kg of output is worked out first.

In the textile industry there will be some wastage at each individual process

level. The output at this level is then used as input in next process. It means that

the final output will be substantially less than the input.

Now waste multiplier is that level of input which is required at each stage to get

a unit of output at the final stage. This will be very easy to calculate. First

calculate the stage wise inputs and outputs. The output at any stage can be

divided by the final output to get the waste multiplier. It is as simple as that.

We will calculate it now. Please show calculations also as a part of your

answer in exam.


(ii) Statement showing Calculation of Stage wise Waste multiplier for textile industry.

Note 1 Note 2 Note 3

Stage of Process Input Output Loss % Output % Waste

Multiplier

Blow Room 46,72,560 42,58,270 8.87 (100- 8.87) = 91.13 1.1994

Carding 42,74,360 39,76,400 6.97 (91.13 -6.35) = 84.78 1.1158

Draw Frames 39,48,240 39,01,800 1.18 (84.78 - 1) = 83.78 1.1027

Roving 38,74,120 38,31,500 1.10 (83.78 - 0.92) = 82.86 1.0906

Ring Frames 39,11,640 36,41,740 6.90 (82.86 - 5.72) = 77.14 1.0153

Reeling and Winding 36,35,400 35,80,880 1.50 (77.14 - 1.16) = 75.98 1

Note:

(1) Loss Percentage = (Input-output)/input* 100

(2) The output in stage one will be input in next stage and there will be loss of 6.97%

on output of 91.13. That means actual loss will be 91.13 being output at stage one

multiplied by loss percent 6.97. It comes to 6.35. And the output at this level is

84.78 and it will be multiplied with loss of next stage 1.18 to get the actual loss.

Please work on the loss of subsequent stages yourself.

(3) Waste Multiplier is that level of input required at any stage to get a unit of output

at final stage. This can be calculated easily by dividing the output at any stage by

the output at the final stage. For example for Blow room the waste multiplier will be

output at that stage 91.13 / output at final stage 75.98 = 1.1994 and so on. At the

second stage the output is 84.78/final output 75.98; the waste multiplier will be

1.1158... Calculate the next yourself.

2013 - June [4] (a), (b)(a) Statement Showing Reconciliation of Profits

Particulars Amount

Profit as per Cost Records 73,24,150

Add income not considered in cost records

Profit on sale of fixed assets 61,500

Previous year insurance claim 14,29,000

Profit from retail trade industry 7,12,300

Interest income (FD) 6,15,000 28,17,800

Less Expense not considered in Cost records

Loss on sale of investments 11,200

VRS included in wages 16,75,000

Donation 25,000


Repairs and maintenance 7,17,580 (-24,28,780)

Difference in Valuation of Stock (1,31,04,220 -

1,28,21,995)

2,82,225

Profit as per Financial 79,95,395

(b) (i) As per the clarification issued for the General Circular no 67/2011, The

Companies (Cost Accounting Records) rules 2011 is not applicable to

1. Wholesale and retail trading, banking, financial, leasing, investment,

insurance, education, healthcare, tourism, travel, hospitality, recreation,

transport services business / professional Consultancy, IT and IT enabled

Services, research and development & Postal / Courier Services.

2. Further it will also not apply to a company which is yet to commence its

business.

3. It is also not applicable to ancillary products if the sale from such ancillary

products do not exceed

• 2% of total turnover of the company or

• 20 Crore Rupees (whichever is less)

Provided the details of such ancillary products are maintained by the

company.

However if the above industries are specifically covered under some other

rules then the provisions will apply.

(ii) Note: The list is not exhaustive and will depend on the needs of the company.

Proper books of accounts are required to be maintained under Companies

Act, but that term is not defined by the Act. It will differ from company to

company and from case to case.

Cost Records under Rule 2(e) includes:

1. Books of accounts related to,

• Utilization of Materials

• Utilization of Labour

• Other cost included in Cost of Production

2. It also includes,

• Information related to cost of sales & margin for each products.

• Activities of the company can be prepared on monthly/ quarterly/ half

yearly or annual basis.

• Statistical and quantitative details should be maintained.

The records are usually maintained for all the stages of production. (Right

from initiation of first process till completion of last process)

Yes, the abridged cost statement can be used as Cost Statement. Thecompany may suitably modify this statement to suit their needs.


Chapter - 4: Cost Accounting Standards

2013 - June [2] (b)

(i) Leased Assets ö if Operating lease ö Full lease rent is included in

Administrative overheads

ö if finance lease ö Finance cost is segregated by

applying implicit rate of return and

the cost component of the asset

is charged to Administrative

Overheads.

(ii) Cost of Services procured from outside are valued at

Invoice / Agreed Price

+ Duties and Taxes

+ Other Direct Expenses attributable

Less Duties / Taxes/ Rebate/ Discount Refundable

(iii) The cost of Software/ up-gradation cost are amortized over its estimated useful

life. The above treatment is applicable irrespective of whether the software is

developed in-house/ Purchased/ Licensed or Customized as per needs.

2013 - June [4] (c)

(i) As per CAS-14 on Cost of Pollution Control, activity carried out by outside

contractors inside the entity includes:

• Charges payable to the contractor.

• Plus: Cost of materials, consumable stores & spares, manpower,

equipments, utilities.

• Plus: Other costs incurred by entity for such jobs.

(ii) As per CAS-14 on Cost of Pollution Control, activity carried out by contractor at

its premises shall include:

• Invoice or agreed price (include duties and taxes)

• Plus: Other direct expenditure

• Less: Discounts (other than cash discount),

• Less: Taxes and duties refundable or to be credited

This cost shall also include the cost of other resources provided to the

contractors.

Chapter - 5: Internal Audit, Operational Audit & Management Audit

2013 - June [6] (a)

The term image means a picture of a person or an idea of a person in our mind.

Corporate companies, individuals etc are usually considered with the image they will

create in the minds of the public at large. They will over the years build an image in the

mind of consumers to gain their loyalty. This good image is an outcome of,


(a) Delivery of quality goods

(b) Management of Employee/ Customer relationship

(c) After sale services

(d) Regularity of services

(e) Commitment to the customers with regard to time frame

(f) Proper timely payments

(g) Maintaining good rate of growth

(h) Compliances with laws and regulations

(i) Financial performance

(j) Corporate Social responsibility

Building a good image in the eyes of the public at large is an outcome of years of goodservice, honesty and a good code of ethics followed by the Companies. The TATA’S areone of those few corporate houses who have build an image beyond once imaginationin India. When all other companies are stuck in 2G and 3G spectrum scam it was theTata’s led by Sir Ratan Tata who secured a clean chit in the auction of spectrum scam.Till date all the companies which are listed have added enormous wealth to the kittiesof both the Tata’s and the share holders. Their products & services stand out and speakout because of their impeccable qualities. Westside, Croma, Tata Steel, Tata Motors,TCS, Tata Global Beverages etc are the companies which have made a mark in theIndian history.

This successful and honest image of Tata’s has created a Brand for them in the

market. Over the last 200 years they have created and maintained a good reputationof the companies which are into business. This image has helped the Tata’s to createa Brand Image not just in India but also all over the world. Let it be the Corus or theTetley or the Jaguar Land Rover deal they have shown to the world that they arecommitted to serve the public at large. Nano Car concept which flopped terribly becauseof delay in project is nothing but a Brand which wants the public even the lower middleclass to enjoy the benefits of owning a vehicle. Due to delay in project the cost of thecar increased terribly but the Tata’s gave the car at the price which was promised. Thewords of Sir Ratan Tata were “a promise is a promise”. Swach water purifier is onceagain a product that only Sir Ratan Tata and his company could think of for the ruralpopulation of the India. (A water purifier machine at low cost) All these things automatically add to the image of the company’s business.

Relationship between Corporate Image and Brand

It can be clearly said that a good corporate image and Corporate Branding are

interrelated. When a corporate image is sustained for years together it leads to aCorporate Brand. No one in India can even think of coming close to the Tata’s in thisrespect. The Tata’s have sustained their corporate image for years and today it’s amighty brand. It is outcome of years of quality service, honesty and integrity of Tata’swhich has created a brand for them.


The purpose of corporate branding is to:

(1) Create trust and long lasting relationship.

(2) Reap benefits from customer loyalty in the long run.

(3) Make the organisation creditable and distinct in the minds of the consumer.

Evaluation of Corporate Image (CI)

It is very difficult to evaluate the corporate image of a Group/ Company because image

is a mental projection for a person. It cannot be measured by a yardstick (something

used to measure). Can you measure feelings like love, heartedness, jealousy etc?

Same analogy can be applied here. However it can be measured in terms of Excellent,

Good, Medium and Poor etc.

Steps in CI

(1) The first step in measuring CI will be to fix some attributes. (Like quality, after sale

service, Corporate Social responsibility, honesty, integrity, growth etc.). Attributes

will include matters related to company and public both;

(2) Weights can be given to the above attributes.

(3) Appoint an independent rating firm like CRISIL to rate the attributes based on facts

and cases.

(4) Summarize the findings and prepare a report.

2013 - June [7] (b)

Details Management Audit Operational Audit

Meaning It seeks to appraise the

efficiency of management at all

levels in the organization i.e.

top, middle and bottom levels of

management.

Operational Audit is review of the

performance of only the middle

and bottom levels of management.

Top managements performance is

outside the scope of operational

audit.

Coverage It covers goals and objective of

management.

It covers all the operations of the

business.

Scope It is generally unrestricted. Scope may be restricted.

Period The time period may be as

determined by management.

Usually operational audit is carried

out continuously in large

organizations.

Appointment Appointment is made by

Management.

Appointment is made by

Management.

Reporting To management. To management.

Remuneration Fixed by management. Fixed by management.


2013 - June [8] (b), (c)(b) The following consumer services are usually expected from an organization:

• To provide goods of proper quality & quantity at proper place and time atreasonable rates

• To ensure that the product is also complemented by proper product mix (ifrequired)

• To ensure that the goods serve the purpose for which they are made• To ensure that proper after sales service is provided by the organization.The verification of consumer services provided by an organization is referred to asconsumer service audit. It seeks to examine whether company has satisfactorilyprovided the consumer services?Thus it can be said that it is an audit primarily undertaken and meant for consumerwelfare. Now a day’s many companies are undertaking this audit voluntarily. Thesuccess of any business depends on the quality of services provided to theconsumer. Therefore this audit helps the companies to assess its main ethos ofbusiness. This will help the companies with feedback related to businessdevelopment and expansion.

(c)

Particulars Operational Audit Financial Audit

Meaning It concentrates on seekingareas of operations in whichwaste, inefficiency andexcessive costs can bereduced by the introduction ofoperating controls. It is audit ofthe performance at mainlyoperating level.

It involves expression of opinion byauditor regarding the truth andfairness of the financial statements.The auditor is supposed to expressan opinion whether the financialstatements depict a true and fairview.

Scope &Objectives

The operational auditor scopeis restricted to the operationsand his objective is tocomment on the operations ofthe company.

The scope of auditor is unrestrictedand is provided by statute. Theobjective is to express an opinionwhether the books give a true andfair view.

Appointment Management Shareholders

Reporting Management (report may

include suggestions for

improvement)

Shareholders (report will not include

matter relating to what company

should do.

Remuneration Fixed by management Fixed by shareholders

Whether

Compulsory

No. Yes, for all companies.


Chapter - 6: Various Types of Audit2013 - June [7] (a)Due diligence audit is an audit which is undertaken when one company wants topurchase another company. In such cases auditor has to report on historical informationand facts which he has verified during the course of audit. A due diligence audit reportis a confidential report and is not circulated amongst the public. The copies of this reportare circulated amongst the person whose accounts are verified and the person who hasrequested to carry on the due diligence audit.It is an audit wherein all the details of the company (which is crucial to determine thepurchase price) are provided in the form of a report. This is where the question ofhidden liabilities and hidden assets arises. Therefore the auditor should in particularverify the following:(a) Matters which are Contingent: It includes matters the outcome of which is not

known on Balance Sheet date. In such cases there is possibility that the companymay either win the case or lose the case. In both the cases there will be somefinancial implication. That has to be pointed out by the due diligence auditor.

(b) Notices issued under law/ Matters Pending in court of Law: It includesverification of matters where in a notice is issued and the company has appealedagainst the notice and the matters is pending in Court of Law.For Example:- Show Cause Notices issued under Excise/ Customs/ SalesTax/ Service Tax/ VAT; Orders issued by Income Tax Officers; Other LegalPending Cases.

(c) Payment related to Warranty/ Guarantee: In many cases there are claims madeby customers for warranty or guarantee. In such cases the auditor has to verify thetotal amount which may be required to be reimbursed to satisfy the claims of thecustomers.

(d) Other Statutory Dues and Claims: It includes payments required to be madeunder labour laws like PF/ ESI/ Gratuity / Bonus etc. In all of the above cases theauditor will have to verify compliance with law and if there is any non compliancethen the same has to be reported in his report. The liability which may arise due tosuch non compliance is of essence in the instant case.

(e) Apart from this there can be some Accounting errors also: Overvaluation ofassets/ stock; undervaluation of liabilities; this is usually done to get a better deal.Therefore due diligence auditor has to verify the valuation of assets as well asliabilities in the instant case.

(f) Assets which are old and obsolete: In many cases there are assets which arescrapped or assets which are old and obsolete which are not usable but they arestill included in balance sheet at historical cost or NRV. In such cases the auditorshould make sure that he discloses such assets which are not worthpurchasing. Such disclosures ensures that the auditor secures a good deal for hisclient.


(g) Fictitious Assets/ Expenses or Income: The auditor has to verify this possibility.

In many cases fictitious assets are made part of the company to get a good deal.

(h) Payments which arises due to Commitments made by management.

2013 - June [8] (d)

Environmental Pollution:

Pollution is caused in air, water, soil, noise etc. when there is some contamination in the

nature due to smoke, waste effluents, liquid resins etc. which are not recyclable. Often

industries pollute the nature due to effluents from chemical plants, smoke and gases

from industries, noise of running factories, garbage dumps, radioactive waste etc.

Environmental pollution is a major threat faced by all developed and developing

countries. Such pollution is caused mainly due to improper disposal of waste. It affects

the flora, fauna and also the marine life. Consider the pollution caused due to the failure

of the cooling plant in Fukushima nuclear plant of Japan.

As a part of good corporate governance system the industry is liable not only to share

holders but also to the public at large. Due consideration is given to the environment

when a large industry is set up. Companies now a day’s try to compensate the

deforestation by planting new trees somewhere.

This aspect is often overlooked by many companies as the step to prevent pollution

usually involves cost. To make the industry profitable the industries often dump the

waste without any treatment.

Chapter - 7: Fields for Cost Accountants

2013 - June [6] (b)

Under Section 64 UM of the Insurance Act a Cost Accountant is recognized as a

qualified person to assess the losses caused to party who is insured. Cost Accountants

are qualified under “Additional Technical Qualification” for the said purpose. Insurance

can be taken with respect to cover the following risks:

Risk caused due to a natural Catastrophe/ Calamity: It covers losses caused due

to natural catastrophe/ calamity like floods, famines, tsunami, earthquakes, volcanic

eruptions, hurricanes etc to name a few.

Risk due to Fire: Fire Insurance (covers losses caused due to fire; It includes plant

and machinery, building, stock and any other item which is insured); the insurance

company indemnifies losses caused due to fire.

Risk due to Accident: (covers losses caused due to accident in factory or otherwise);

the insurance company undertakes to indemnify losses caused due to accident; this is

also referred to as accidental policy.

Risk in transportation: Marine Insurance (Covers Roadways/ Railways and transport

by ships etc); the insurance company indemnifies losses caused due to pilferage, loss

in transit, leakage, accidents, riots etc.


In all of the above cases there can be loss of profits;

Risk arising from loss of profits: This insurance covers loss caused due to loss of

profits. The insurance company indemnifies the losses which the company could have

earned otherwise if the operations were carried out normally.

Loss arising due to misappropriation of Cash: It covers losses caused due to

misappropriation of cash; it includes thefts, burglary and misappropriation amongst

others causes.

Damages: This policy covers losses which are caused due to damage; whether willful

or otherwise;

In all of the above cases there is an need to assess the losses to ensure that the

amount claimed as recoverable is just and equitable. Therefore there is an appointment

of assessor of losses. Cost Accountants can be appointed to assess losses by

insurance companies. In all of the above cases the insured party will file a application

for indemnification. This will be followed by assessment of losses by the insurance

companies and then the claim is finally settled.

2013 - June [8] (e)

Safeguard Duty:

This duty is usually levied by the Central Government where imports from other

countries harm the local manufacturers. Harm is usually caused when goods are

imported in large quantities.

This duty is usually levied under the Customs Act after conducting an enquiry. The total

period for which such duty is levied cannot exceed the prescribed period.

Is it Valid?

Yes, WTO agreement provides levy of such duty without any discrimination. Once

levied it will be applicable to all countries including all MFN (most favored nations).

Chapter - 8: Professional Ethics

2013 - June [7] (c)

(i) As per Clause 4 of Part-I of the Second Schedule to the Cost and Works

Accountants Act, 1959 expressing an opinion on cost and pricing of any

business/ enterprise in which the auditor or his firm or a partner in his firm has

a substantial interest would constitute misconduct, unless he discloses the

interest also in his report.

In the instant case the firm is appointed to evaluate the cost of goods

manufactured. They will be squarely covered in the above clause. Therefore the

firm will be guilty of professional misconduct unless they disclose the fact that

they are interested in their report.


(ii) Clause 10 of Part-I of the First Schedule to the CWA Act, 1959 prohibits a

member in practice to engage in any business or occupation other than the

profession of Cost Accountant unless permitted by the council so to engage. In

the instant case CMA Debosmita will be held guilty of professional misconduct

as she has not obtained approval of Council of CWA.

Chapter - 9: Auditing & Assurance Standards

2013 - June [8] (a)

International Auditing and Assurance Standard Board:

It is an international body which is formed to promulgate (circulate and publicize) the

international standards on auditing. The main purpose of this board is to harmonize the

national auditing standards and the international standards. India is one of the countries

which have adopted the international auditing standards subject to changes in Indian

laws. The result being the auditing practices in the world will be more or less very

similar. This will help the investors who also invest abroad to get audit information which

will be easily understood.

The Board is responsible to,

• Develop the Auditing Standards

• To help in implementation and adoption of the standards.

The board sets auditing standards for the following areas:

• Auditing Practices – Audit of Historical Financial Information

• Quality Control and Peer Review Engagements

• Other related Assurance Standards

Advantages:

• Public interest is served and protected.

• Common auditing language across the world.

• The difference in auditing practices are nullified.

Chapter - 10: Objective Questions

2013 - June [1] {C} (a), (b)

(a) (i) A - 180 days from the close of the company’s financial year

(ii) A - Cost of service cost centre

(iii) B - Para 7 of the annexure to cost audit report under Companies (Cost Audit

Report) Rules 2011

(iv) C - Compliance report of the company

(v) A - Every rupee invested gives optimum returns

(vi) C - Related party transactions for the company as a whole.

(vii) C - 1965

(viii) A - Equalized cost of transportation


(b) (i) False: XBRL is a language based on XML language.(ii) True: Cost audit is quite similar to efficiency audit.(iii) False: As per CAS-12 issued by ICWAI payments under the head fines,

penalties and damages etc. do not form part of repairs and maintenance cost.(Iv) False: Concurrent auditor cannot be appointed as Cost Auditor. There are two

reasons; firstly, this amounts to office or place of profit and secondly, there willbe some overlapping of interest as the matters required to be reported may besame.

(v) False: Performance appraisal report is a part of Cost Audit Report.(vi) False: “Performance Appraisal Report” is a part of cost Audit Report and

submitted to the company stating the performance of the company and it is notuploaded for XBRL.

2013 - June [5] {C} (a), (b), (c)(a) (i) False: The Consumer Service Audit examines and appraises the manag-

ement’s responsibility for providing consumers with goods at right time, at rightplace, at right price and in right quantity.

(ii) False: Provisions of GATT and its agreement are provisional. (iii) False: Sarbanes-Oxley Act of 2002 (Called as SOX) is a US Federal Law

enacted on July 30, 2002. (iv) False: Interest cost is excluded from valuation of inventories under bank audit.

(Since it is finance cost and not part of cost of inventory)(v) False: Management Audit Report is submitted to the Management of the

concern and not to the Cost Audit Branch constituted by CG.(b) (i) Inter/ Multi – disciplinary

(ii) 1st December 1999 (iii) Audit Committee(iv) Quantitative restrictions (v) Dumping (vi) Comptroller and Auditor General of India

(c) (i) OECD: Organisation for Economic Co-operation and Development (ii) CEGAT: Central Excise & Gold Control Appellate Tribunal (iii) TPRM: Trace Policy Review Mechanism.

Question Paper of Dec - 2013

Chapter - 1: Basics of Cost Audit2013 - Dec [4] (a) VINTEX LTD. having turnover above ` 100 Crore undertakes workcontracts for pipe line execution for drinking, sewerage and irrigation purpose. Therequired pipes for the projects falling under Chapter 68 of CETA are manufactured bythe Company itself. A part of the production is also sold outside.Whether Cost Audit is applicable for Pipe manufacture. (4 marks)


Chapter - 2: Cost Audit Report Rules, 20112013 - Dec [2] (b) The following figures are extracted from the Cost Accounting recordsof ADRIJA LTD., a single product manufacturing company:

Year ended 31st March 2013 2012

(Amount in ` lakh)

Gross Sales including Excise duty:

Excise duty

Other Income

Increase in Value of Stock of Finished Goods

Raw materials Consumed

Direct wages, Salaries, Bonus, Gratuity etc.

Power & Fuel

Stores and Spares

Cess and local Taxes

Other manufacturing Overheads

Administrative Overheads:

Audit fees

Salaries & Commission to Directors

Other overheads

Selling and Distribution Overheads:

Salaries & Wages

Packing and forwarding

Other overheads

Total Depreciation

Interest Charges:

On Working Capital Loans from Bank

On Fixed Loans from IDBI

On Debentures

Provision for Taxes

Proposed Dividends

2,600

200

150

10

880

220

120

80

60

215

18

24

130

18

10

125

60

30

45

15

158

210

2,080

160

100

5

720

176

96

70

50

185

15

20

110

15

8

100

60

25

35

15

100

115

You are required to Calculate the following Parameters as Stipulated in PARA—8 of the

Annexure to Cost Audit Report under the Companies (Cost Audit Report) Rules 2011

for the year ended March 31, 2013 and 2012:

(i) Value Addition

(ii) Earnings available for Distribution

(iii) Distribution of Earnings to the different claimants. (5+1+6= 12 marks)


2013 - Dec [3] (a) KOOTCHAR SUGAR MILLS LTD. a Sugar manufacturing Company

located at Maharashtra has a boiler which uses its own by-product, bagasse as fuel.

The steam generated is first used for generation of power and the exhaust steam is

used in the process of Sugar manufacture. The following details are extracted from the

Financial Accounts and Cost Accounting records of Kootchar Sugar Mills Ltd:

Sugar Produced 19,60,000 Quintals

Steam generated and Consumed 9,96,000 Tonnes

Fuel (Bagasse) Consumed for production of steam 4,98,760 Tonnes

Cost of generation of steam including cost of water (other than

fuel cost)` 4,60,32,000

Steam used for generation of Power 4,60,000 Tonnes

Power purchased from Electricity Board @ ` 5.75 per KWH 38,80,000 KWH

Power generated from Steam Turbine 3,85,72,000 KWH

Variable Conversion Cost for generation of Power (excluding

Cost of Steam)` 3,09,71,200

Notes: (1)The Sales Value of bagasse, if sold in the open market is ̀ 1750 per tonne.

(2)The exhaust steam (after generation of power) transferred to Sugar

manufacturing process is valued at 85% of the cost of production of steam.

Required:

(i) Prepare Two Separate Cost Sheets for steam and power as per the

Companies (Cost Accounting Records) Rules.

(ii) Compute the average cost of Power as per PARA — 5 of the Annexure to the

Cost Audit Report under the Companies (Cost Audit Report) Rules 2011.

((5+4)+3=12 marks)

(c) What is the benefit of having cost related data in XBRL format? (2 marks)

2013 - Dec [4] (b) Answer the following questions with respect to the Companies (Cost

Audit Report) Rules—2011.

(i) Who will certify XBRL filing for Cost Audit Report?

(ii) Is Performance Appraisal Report required to be filed with the Central

Government as a part of the Cost Audit Report? (2 × 2 = 4 marks)

Chapter - 3: Cost Accounting Record Rules

2013 - Dec [3] (b) The Companies (Cost Accounting Records) Rules—2011 have not

prescribed any specific formats for the cost statements.

In what manner and format would the cost statements be kept under these Rules?

(4 marks)


2013 - Dec [4] (c) The following figures are extracted from the Financial Accounts of

SIMON LTD. for the year ended March 31, 2013.

(`) (`)

Sales (20000 units) 50,00,000

Materials 20,00,000

Wages 10,00,000

Factory Overheads 9,00,000

Administrative Overheads 5,20,000

Selling and Distribution Overheads 3,60,000

Finished Goods (1230 units) (closing) 3,00,000

Work-in-Progress:

Materials 60,000

Labour 40,000

Factory Overheads 40,000 1,40,000

Goodwill Written off 4,00,000

Interest paid on Capital 40,000

In the Costing records, Factory overheads is charged at 100% of Wages, Administrative

overheads 10% of Factory Cost and Selling and Distribution overheads at the rate of

` 20 per unit sold.

Required:

Prepare a Statement Reconciling the Profit as per Cost Records with the Profit as per

Financial Records. (10 marks)

Chapter - 4: Cost Accounting Standards

2013 - Dec [2] (a) How would you treat the following as per CAS—7 related to

Employee Cost?

(i) Recruitment Costs

(ii) Overtime Premium

(iii) Separation Cost due to Voluntary Retirement, retrenchment, termination etc.

(iv) Bonus (1+1+2+2=6 marks)

Chapter - 5: Internal Audit, Operational Audit & Management Audit

2013 - Dec [6] (a) ARITHI LTD. engaged in manufacturing of chemicals is consistently

recording higher sales turnover, but declining net profits since the last 5 years.

As a Management Auditor appointed to find out the reasons for the same, what are the

points you would investigate? (8 marks)

(c) State briefly the salient features of the traditional form of Internal Audit and

Operational Audit. (4 marks)


2013 - Dec [7] (b) Explain the Constitution and functions of AUDIT Committee under

Section 292A of the Companies Act 1956. (6 marks)

Chapter - 6: Various Types of Audit

2013 - Dec [6] (b) Enumerate the main areas to be covered by the Auditor in the case

of Environment Audit of an Industrial Unit. (6 marks)

2013 - Dec [7] (a) The Chief Commissioner of Customs has appointed you to carry out

a Special Audit of Accounts of ANUKRITA LTD. which manufactures goods in Customs

Bonded Warehouse.

What are the points you will cover in your report? (6 marks)

2013 - Dec [8] Write short notes on the following:

(d) Due Diligence Audit. (6 marks)

Chapter - 7: Fields for Cost Accountants


(a) Ministerial Conference; (6 marks)

Chapter - 8: Professional Ethics

2013 - Dec [7] (c) Explain whether the following activities amount to professional

misconduct on the part of a Cost Accountant.

(i) CMA K. Kumar a practicing Cost Accountant certified the cost statements of

SARATHI LTD. in which his wife is a Director holding substantial interest.

(ii) CMA ARTHITA BASU a practicing Cost Accountant had accepted appointment

as an Cost Auditor of VENTEX LTD. without ascertaining from the Company

whether the requirement of Section 224 and 225 of the Companies Act had been

complied with. She realized this defect only after acceptance.

(iii) CMA AINDRIL a practicing Cost Account has sent letters under Certificate of

Posting to the previous auditor informing him his appointment as an Cost Auditor

before the commencement of Audit by him. (6 marks)


(b) Professional Behaviour in Relation to an Accountant; (6 marks)

Chapter - 9: Auditing & Assurance Standards


(c) Assurance Services; (6 marks)


Chapter - 10: Objective Questions

2013 - Dec [1] {C} (a) In each of the cases/statements given below, one out of Fouralternatives is correct. Indicate the correct answer (only indicate A or B or C or D as youthink correct)

(i) PARA — 2 of the annexure to Cost Audit Report under the Companies (CostAudit Report) Rules 2011 deals with(a) Cost accounting policy(b) Product group details(c) Related Party transactions(d) Quantitative information of each product group separately.

(ii) Form—1 XBRL is used for filing:(a) Cost Audit Report of a Company(b) Annual Report of a Company(c) Annual Accounts of a Company(d) None of the above.

(iii) Excisable clearance means:(a) Only sale of goods from factory(b) Removal from godown(c) Despatches from bonded warehouse(d) Total clearance from factory.

(iv) CAS—14 deals with(a) Cost of Utilities(b) Pollution Control Cost(c) Employee Cost(d) Packing Material Cost.

(v) Cost Accounting Record Rules were first made for(a) Jute Industry(b) Cement Industry(c) Chemical Industry(d) Sugar Industry.

(vi) The Compliance Report is to be issued by the Certifying Cost Accountant in:(a) Form—A of the Companies (Cost Accounting Records) Rules—2011(b) Form—B of the Companies (Cost Accounting Records) Rules—2011(c) Form—C of the Companies (Cost Accounting Records) Rules—2011(d) None of the above.

(vii) Soda Ash is Covered by(a) Cost Accounting Records (Chemical Industries) Rules — 2004(b) Cost Accounting Records (Formulations) Rules — 1988(c) Cost Accounting Records (Bulk Drugs) Rules — 1974(d) Cost Accounting Records (Industrial Alcohol) Rules — 1997.


(viii) According to ________ on Cost of utilities, the Cost of maintaining stand-by

utilities shall be the Committed Cost. (Fill in the Gap from the below)

(a) CAS—5

(b) CAS—6

(c) CAS—8

(d) CAS—10. (1×8=8 marks)

(b) State whether the following statements based on the quoted terms are TRUE or

FALSE with justifications for your answer. No credit will be given for any answer

without justifications:

(i) The responsibility of creating XBRL document lie with the Cost Auditor

(ii) As per CAS—5 Warranty Costs and after sales service cost are part of selling

overheads

(iii) Abridged Cost Statement (for each product group separately) is being dealt

in PARA-6 of the annexure to Cost Audit Report under the Companies (Cost

Audit Report) Rules—2011.

(iv) In view of e-filing of Cost Audit Report, only one hard copy is required to be

submitted to the Cost Audit Branch.

(v) CAS—6 deals with determination of Cost of Production for Captive

Consumption.

(vi) Acetate yarn/fibre is covered by the Cost Accounting Records (Textiles) Rules

1977. (1×6=6 marks)

2013 - Dec [5] {C} (a) State whether the following statements based on the quoted

terms are “TRUE” or “FALSE” with justifications for your answer. No credit will be given

for any answer without justifications.

(i) Corporate image of a Company is built up exclusively by its product quality but

is not affected by its attitude towards its other stakeholders.

(ii) Operational Audit is merely extention of internal Auditing in operational areas.

(iii) Dumping is an ‘illegal’ practice.

(iv) For stock hypothecation to the Bank, Insurance Coverage is required for

seventy five percent of stock as margin money.

(v) Three-fourths of the members of the Audit Committee shall be independent

directors.

(vi) The Consumer Service Audit critically examines the outstanding payment of

Consumers. (1×6=6 marks)

(b) Fill in the blanks in the following sentences by using appropriate

word(s)/Phrase(s)/number(s):

(i) Corporate objectives represent the _________ for the organization as laid

down by itself.


(ii) _________ is transfer of goods to an alien market at a price which is less than

the marginal cost of its production in the home country.

(iii) The main emphasis of Management Audit is problem _________ rather than

problem solving.

(iv) _________ is the highest body of the structure of the WTO.

(v) _________ is needed to creat corporate culture of transparency.

(vi) The origin of the term “Due Diligence” owes to _________.

(vii) _________ Pollution affects pedestrians and motorists due to the presence of

dust, fumes and smoke in the atmosphere.

(viii) The Audit Committee shall meet at least _________ a year as per the SEBI

listing agreement. (1×8=8 marks)

Shuchita Prakashan (P) Ltd.25/19, L.I.C. Colony, Tagore Town,

Allahabad - 211002Visit us: www.shuchita.com

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Documents

CMA (CWA) Final Gr - sauda.comsauda.com/companion/pdf/cma/Appendix/Paper-17.pdf · CMA (CWA) Final Gr.IV ... Paper - 17: Cost Audit & Operational Audit and Ethics Chapter - 2: Cost