CSS Accountancy & Auditing 2018






Q. No. 2. Following is the summary of closing balances (unadjusted trial balance) of Muddasar Co. for the year ended on December 31, 2016.

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                                       Capital                                                 165000

Plant & Machinery                   9000                Drawings                                               31000

Accounts Payable                     8500                Salaries Expenses                                   9500

Sales Revenue                          212980            Purchases                                              95000

Advertising Expenses               7000                Purchase Returns                                    6500

Wages                                      10 000             Opening Merchandise Inventory             45000

Sales Returns                           3000                Miscellaneous Expenses                           5000

Commercial Expenses              5460

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. No. 3. The Income Statement of the Abdul Rehman & Co for the year on December 31 (for each year 2015 & 2016) is given as under:

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

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The Balance sheet of the Company as on December 31 for each year is given as under:

2015                          2016

Assets                                                                              Rs.                             Rs.

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. No. 4. (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.

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". 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"





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Q. No. 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:

(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.

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(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.


(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. No. 6. (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:

Cost from preceding department                        Rs. 16400 Direct Material                                               2000

Direct Labour                                                          3625

Factory Overhead                                                   5075


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:

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?
















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Q. No. 7. XYZ Enterprises applies factory overhead @ 60% of direct labour cost. During the year 2016 following actual costs were recorded:


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


(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



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Q. No. 8. (a)                Ayesha & Co. Prepared following estimates for the year 2017: 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:

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













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  1. 8. (a) Explain the relationships among financial decisions, return, risk and the firm's value.


  • Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $150,000.

The company's board of directors has set a maximum 4-year payback requirement and has set its cost of capital at 9%. The cash inflows associated with the two projects are shown in the following table:

Cash inflows (CFt)
Year Project A Project B
1 $45,000 $75,000
2 45,000 60,000
3 45,000 30,000
4 45,000 30,000
5 45,000 30,000
6 45,000 30,000


  • Calculate the payback period for each
  • Calculate the NPV of each project at 10%
  • Calculate the NPV of each project at 9%.
  • Derive the IRR of each
  • Rank the projects by each of the techniques used. Make and justify a recommendation.