MTP_Final_Syllabus 2012_Dec2016_Set 2

Paper 19: Cost and Management Audit

Academics Department, The Institute of Cost Accountants of India (Statutory Body under an Act of Parliament) Page 1
 MTP_Final_Syllabus 2012_Dec2016_Set 2

Paper 19 - Cost and Management Audit

Full Marks : 100 Time allowed: 3 hours

Answer Question No. 1 which is compulsory and carries 20 marks and any five from Question
No. 2 to 8.

I. Answer the following:

1. (a) Fill in the blanks: [51=5]

(i) Abnormal loss of material is charged to __________.

(ii) Form A of XBRL is used for ___________ Report of a company.
(iii) Systematic examination, analysis and appraisal of managements overall
performance is done in _________ audit.
(iv) Any casual vacancy in the office of a cost auditor, shall be filled by the Board of
Directors within _______________ days of occurrence of such vacancy.
(v) The Companies are required to maintain Cost Records if turnover exceeds ____________
crores or more during immediately preceding Financial Year in respect of the products
and services specified.

(b) State whether the following statements are true or false: [51=5]

(i) In case of utilities generated for the purpose of inter unit transfers, the distribution cost
incurred for such transfers need not be added to the cost of utilities.
(ii) XBRL is a language based on XML family of languages.
(iii) Interest and finance charges are considered to be part of cost of production.
(iv) Cost Audit is to be conducted only when the shareholders of the Company direct such
an audit at the Annual General Meeting.
(v) Maximum amount of penalty payable by the Cost Auditor for non-compliance with the
provisions of Companies [Cost Audit Report] Rules 2014 is ` 5,000.

(c) Answer any five of the following in one or two sentences: [51=5]

(i) How would you compute the cost of utilities as per CAS 8 when the utilities are
generated for the purpose of Inter Unit Transfer?
(ii) Define Energy Audit
(iii) Define Corporate Branding.
(iv) Explain Sun Set Clause in one or two sentences.
(v) What means 4-digit CETA Code as explained in the Companies [Cost Records and
Audit] Rules, 2014?
(vi) Whether the Companies (Cost Records and Audit) Rules, 2014 is applicable to a
company which is classified as a micro enterprise or a small enterprise including as per
the turnover criteria under section 7(9) of the Micro, Small and Medium Enterprises
Development Act, 2006?

II. Answer any FIVE from Question No. 2 to 8. Each question carries 16 marks.

2. (a) What are the duties and liabilities of a Cost Auditor relating to reporting of frauds
identified during audit? [6]
(b) The Cost Audit report contains significant information which would help to access and
improve operational efficiency of a concern. Discuss the statement with reference to
the matters to be reported by a Cost Auditor in his report? [10]

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 MTP_Final_Syllabus 2012_Dec2016_Set 2

3. (a) As a part of management strategy SEASENA LTD. manufacturing soaps, purchased a

popular soap brand SUNFLOWER from a smaller company. What will be treatment of
such costs and the disclosure to be made in the Cost Statements as per relevant Cost
Accounting Standard. [10]

(b) Operational Auditing is an extension of Internal Audit in operational areas but with
different approach. Examine this statement in the light of the objectives of operational
audit. [6]

4. (a) Basic pay ` 5,00,000; Lease rent paid for accommodation provided to an employee
` 2,00,000, amount recovered from employee ` 40,000. Employers Contribution to P.F.
` 75,000, Employees Contribution to P.F. ` 75,000; Reimbursement of Medical expenses
` 67,000; Hospitalisation expenses of employees family member borne by the employer
` 19,000, Festival Bonus ` 20,000; Festival Advance ` 30,000. Compute the Employee
Cost. [6]

(b) PARTHAN CO. LTD. a single product manufacturing company, has following four
operations undergone by a product under Cost Audit. The Processwise Input, Output, Direct
Employee Costs and Direct Material Costs for the year ended March 31,2016 are given
below: [10]
Process Input Units Output Units Direct Direct Material
Employee Costs Cost (Amt in `)
(Amt in `)
MP-1 312000 280800 8,42,400 11,23,200
MP-2 330000 297500 11,90,000 13,38,750
MP-3 414000 397500 19,87,500 16,89,375
MP-4 390000 361000 28,88,000 23,82,600

You are required to calculate:

a) Direct Employee Cost per unit of the product b) Direct Material Cost per unit of the
product, -- under reference as required in (PART-B, PARA-2) of the Annexure to Cost Audit
Report under the Companies (Cost Records and Audit) Rules,2014.

5. The following is the abridged Balance Sheet of Apple Ltd., a single product
manufacturing Company:
Year ended 31st March, 2016 2015

Liabilities: (Amount in ` lakhs)

Share Capital 600 600

Reserves & Surplus:

Debenture Redemption Reserve 50 60

Capital Subsidy from State Government 60 60

Revaluation Reserve 250 280

General Reserve 320 240

Profit & Loss A/c 96 64

Secured Loans: 550 590

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 MTP_Final_Syllabus 2012_Dec2016_Set 2

Unsecured Loans: 246 234

Total: 2172 2128

Assets:

Gross Block 1450 1360

Accumulated Depreciation (630) (580)

Net Block 820 780

Capital Work-in-Progress 86 74

Investments: 30 30

Current Assets: Loans & Advances:

Inventories 934 882

Sundry Debtors 364 390

Advances for Equipments 48 34

Other Loans & Advances 288 274

Cash and Bank Balances 42 38

Current Liabilities & Provisions:

Sundry Creditors for Capital expenses (34) (42)

Sundry Creditors for Others (370) (394)

Provision for Taxes (128) (142)

Miscellaneous Expenditure 192 204

Total: 2172 2128

Additional information is available:

i) Term Loans repayable in 12 months included under Secured Loans are ` 192 lakh
(previous year `168 lakh)
ii) Profit before Tax (PBT) for the year ended March 31 st, 2016 is ` 160 lakh (previous year `
174 lakh)
You are required to compute the following figures/ratios as Annexure to Cost Audit to Cost
Audit Report under Companies (Cost Audit Report) Rules 2014, for the year ended March, 31,
2016:

(i) Capital Employed

(ii) Net Worth
(iii) Debt Equity Ratio
(iv) PBT to Capital Employed
(v) PBT to Net Worth [16]

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 MTP_Final_Syllabus 2012_Dec2016_Set 2

6. (a) The Financial profit and loss account for the year 2015-16 of a company shows a net
profit of ` 26,28,000. During the course of cost audit, it was noticed that

i) The company was engaged in trading activity by purchasing goods at `4,00,000

and selling it for `5,00,000 after incurring an expenditure of `25,000
ii) Some old assets sold off at the end and fetching a profit of ` 80,000
iii) A major overhaul of machinery was carried out at a cost of `4,00,000. And the next
such overhaul will be done only after four years.
iv) Interest was received amounting to `1,50,000 from outside investments.
v) Work-in-progress valuation for financial accounts does not as a practice take into
account factory overhead. Factory overhead was ` 1,85,000 in opening WIP and `
3,15,000 in closing WIP.
Compute profit as per Cost Accounts and briefly explain the adjustment, if any, carried
out. [6]

(b) From the following figures extracted from the accounting records, you are required to
compute the Valued Added by the company:

` Lakhs
Net Sales excluding excise duty 21,000
Increase in stock of finished goods 250
Expenses:
Raw materials consumed 2,600
Packing materials consumed 1,200
Stores and spares consumed 550
Power and fuel 4,600
Repairs and maintenance 200
Insurance 120
Direct Salaries and wages 480
Depreciation 885
Interest paid 1,398
Factory overheads:
Salaries and wages 240
Others 250
Selling and distribution overheads:
Salaries and wages 120
Additional sales tax 457
Others 1,700
Administration overheads:
Salaries & wages 120
Others 80
[10]

7. (a) The following data were extracted from the departmental data of Cost centre
where A and B were employed and performing the job X, Y and Z.

1 Basic wages ` 150 ` 210

2 Dearness Allowances 80% 80%
3 Contribution to Provident fund on Basic wages 10% 10%
4 Contribution to ESI on Basic wages 4% 4%
5 Overtime 18 hours Nil

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 MTP_Final_Syllabus 2012_Dec2016_Set 2

The normal working hours per month is 200 hours. Overtime is paid at double the rate of
normal wages ad dearness allowance. Employers contribution to Provident fund and ESI
are at equal the rate of employees contribution. The two workers are employed on jobs
X, Y and Z in the following proportion:

Jobs X Z
Worker A 30% 40%
Worker B 20% 50%

Overtime was done by A for job Y.

From the above
a) Calculate the earnings of A and B for a month to show labour rate per hour
b) Allocate the labour cost to each job X, Y and Z. [10]

(b) A company has units in SEZ and in non-SEZ areas. The Companies (Cost Records and
Audit) Rules 2014 has exempted companies operating in special economic zones from cost
audit.What would be applicability of the Companies (Cost Records and Audit) Rules 2014 on
such a company in respect of maintenance of cost accounting records and cost audit?
[6]

8.(a) Analyze the role of Internal Auditor in the internal control system of the organization. [6]
(b) The Companies (Cost Records and Audit) Rules, 2014 requires submission of a Single Cost
Audit Report at the company level. What is the procedure of certifying and submission of
Cost Audit Report of a company where more than one Cost Auditor is appointed? [5]
(c) Explain the features of a good internal control system. [5]

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