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Past papers › Taxation › May 2013

CA Inter Taxation — Suggested Answers — May 2013

This page contains all 14 questions from the CA Inter Taxation Suggested Answers for the May 2013 attempt cycle, sourced from VSI Jaipur.

Q2Balance Sheet Analysis / Financial Statements
10 marks very hard
The summarized Balance Sheets of MPS Limited as on 31-3-2012 and 31-3-2013 are as under: Liabilities | 31-3-2012 (₹) | 31-3-2013 (₹) | Assets | 31-3-2012 (₹) | 31-3-2013 (₹) Equity share capital | 40.00 | 50.00 | Land & Building | 27.00 | 23.00 Securities Premium | - | - | Plant & Machinery | 25.00 | 34.00 General | 8.00 | 11.00 | Investments (Long Term) | 3.00 | 4.00 Profit & Loss | 10.30 | 12.70 | Stock | 7.50 | 9.80 10% Debentures | 5.00 | 3.00 | Debtors | 0.25 | 1.15 Sundry Creditors | 4.90 | 6.20 | Cash & Bank Balance | 9.25 | 1.65 Provision for Tax | 5.00 | 7.00 | Preliminary Expenses | 0.80 | 0.62 Proposed Dividend | 4.80 | 6.00 Corporate Dividend Tax | 0.82 | 1.02 Total | 78.82 | 97.92 | Total | 78.82 | 97.92 Additional Information: (i) On 1-1-2012, the company redeemed debentures of ₹2,00,000 at par. (ii) During 2012-13 the company has issued equity shares for cash at a premium of 10%. (iii) Provision for tax made during the year 2012-13 for ₹6,80,000. (iv) Dividend received on investment ₹50,000 in July 2012. (v) A machinery valued ₹5,00,000 (WDV ₹3,50,000) was sold for ₹5,00,000 during the year 2012-13. (vi) Depreciation for 2012-13 charged on plant & machinery ₹3,30,000 and ₹2,00,000 on land & building. (vii) Proposed dividend on issued and full Corporate Dividend Tax (2011-12) paid during the year 2012-13.
Q3Process Costing
10 marks very hard
ABX Company Ltd. provides the following information relating to Process B: (i) Opening Work-in-progress - NIL (ii) Units introduced - 45000 units @ ₹10 per unit (iii) Expenses debited to the process: Direct material ₹65,500, Labour ₹90,800, Overhead ₹1,80,700 (iv) Normal loss in the process - 2% of Input
Q3bProcess costing - equivalent production and cost allocation
6 marks medium
You are required to prepare: (a) Statement of equivalent production; (b) Statement showing the cost of finished goods, abnormal loss and closing balance of work-in-progress; (c) Process B account and abnormal loss account.
Q3cFinancial leverage, operating leverage, and earnings per sha
8 marks hard
For XL Company Ltd. for the year ended 31st March, 2013 with Equity share capital ₹25 lakhs, 11% Bonds of ₹1000 each ₹18.5 lakhs, Sales ₹42 lakhs, Fixed cost (Excluding Interest) ₹3.48 lakhs, Financial leverage 1.39, Profit-Volume Ratio 25.55%, Income Tax Rate 30%, you are required to calculate: (i) Operating Leverage; (ii) Combined Leverage; and (iii) Earning Per Share.
Q4Working Capital Management
8 marks hard
The following information is provided by the DFS Limited for the year ending 31st March 2013: Raw material storage period: 55 days Work-in-progress conversion period: 18 days Finished Goods storage period: 22 days Debt collection period: 45 days Creditors payment period: 60 days Annual Operating cost: ₹ 21,00,000 (including depreciation of ₹ 2,10,000) (1 year = 365 days) You are required to calculate: (i) Operating Cycle period. (ii) Number of Operating Cycle in a year. (iii) Amount of working capital required for the company on a cash cost basis. (iv) The company is a market leader in its product, there is virtually no competition in the market. Based on a market research it is planning to discontinue sales on credit and deliver products based on pre-payments. Thereby, it can reduce its working capital requirement substantially. What would be the reduction in the working capital requirement due to such decision?
Q4aJoint cost allocation and by-product accounting
8 marks hard
A company manufactures one main product (M) and two by-products (B₁ and B₂). For the month of January 2013, Total Cost upto Separation point ₹2,12,400 with the following details: Product M - Cost after separation ₹55,000, Units produced 4,000, Selling price per unit ₹100, Estimated net profit 20%, Estimated selling expenses 20%; Product B₁ - Cost after separation ₹24,000, Units produced 1,800, Selling price per unit ₹40, Estimated net profit 20%, Estimated selling expenses 15%; Product B₂ - Units produced 3,000, Selling price per unit ₹50, Estimated net profit 20%, Estimated selling expenses 15%. Prepare statement showing: (i) Allocation of joint cost; and (ii) Profitability and overall profitability of the company for January 2013.
Q5Cost Accounting - Cost Units
4 marks medium
Cost of a product or service is required to be expressed in suitable cost unit. State the cost units for the following industries: (i) Steel (ii) Automobile (iii) Transport (iv) Power
Q6Budgeting and Cost Control
7 marks hard
Pentex Limited has prepared an expense budget for 20,000 units in its factory for the year 2013 as detailed below: Direct Materials: ₹ 50 per unit Direct Labour: ₹ 20 per unit Variable Overhead: ₹ 15 per unit Direct Expenses: ₹ 6 per unit Selling Expenses (20% fixed): ₹ 15 per unit Factory Expenses (100% fixed): ₹ 7 per unit Administration expenses (100% fixed): ₹ 8 per unit Distribution expenses (85% variable): ₹ 12 per unit Total: ₹ 129 per unit Prepare an expense budget for the production of 15,000 units and 18,000 units.
Q6(b)Capital budgeting, Machine selection, NPV, Discounted paybac
9 marks hard
PQR Company Ltd. is considering to select a machine out of two mutually exclusive machines. The company's cost of capital is 12 per cent and corporate tax rate is 30 per cent. Other information relating to both machines is as follows: Cost of Machine: Machine-I ₹ 15,00,000 | Machine-II ₹ 20,00,000 Expected Life: Machine-I 5 Yrs. | Machine-II 5 Yrs. Annual Income (Before Tax and Depreciation): Machine-I ₹ 6,25,000 | Machine-II ₹ 8,75,000 Depreciation is to be charged on straight line basis. You are required to calculate: (i) Discounted Pay Back Period (ii) Net Present Value (iii) Profitability Index