Binder 1

ICMA.
MODEL PAPER
RISK MANAGEMENT AND
AUDIT (BAF-502)
Pakistan
Time Allowed: 3 hours
SEMESTER-5
Maximum Marks: 100
Roll No.:
(i)
Attempt all questions.
(ii)
Answers must be neat, relevant and brief.
(iii)
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv)
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v)
Use of non-programmable scientific calculators of any model is allowed.
(vi)
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(vii)
Question Paper must be returned to invigilator before leaving the examination hall.
Marks
Q. 1
(a)
Milestone-dot-com is an online retailer, offers various electronic products including

mobiles phones, televisions, refrigerators and microwave ovens on its website.
Customers select their desired products and pay via credit cards. The system of
revenue recording is complex as it involves information technology and companys
interface/ interlink for comprehensive operations.
Required:
(b)
Q. 2
(a)
On the basis of the information mentioned above, identify any six (06) risks which may
be associated with the revenue and general operations of Milestone-dot-com and also
describe the measures which can be taken to mitigate such risks.
12
Risk identification is a continuous process so that new risks and changes affecting
existing risks may be identified before they can cause unacceptable losses. Discuss
various means of identifying conditions leading to risks (potential sources of loss).
07
Recent worldwide events of fraud have raised several questions over the role of external
auditors in relation to identification of fraud.
Required:
(i)
(ii)
(b)
Q. 3
RMA-MP
(a)
Define the term fraud and describe any two major categories of fraud.
10
There are certain conditions that are generally present when fraud exists.
Identify such conditions.
03
As per the International Standards on Auditing, the assertions used by the auditor to
consider different types of potential misstatements that may occur, are divided into three
categories. Briefly discuss the assertions about classes of transactions and events for
the period under audit.
05
Auditors are regulated by professional bodies and should follow recognized auditing
standards such as International Standards on Auditing (ISAs). Explain why it is
important that audit is to be conducted in accordance with auditing standards that are
common to all audits?
05
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(Note: The number of questions and their marks may vary in the examination paper)
PTO
Marks
(b)
M/s. Farooq Enterprises, a trading company, has recently engaged M/s. APNG & Co.,
Chartered Accountants to audit its accounts for the year ended December 31, 2013.
You are working as an Auditor of the firm and your Engagement Manager has given you
a task to prepare the audit procedures for M/s. Farooq Enterprise for the test of control.
Required:
Discuss any six (06) audit procedures for M/s. Farooq Enterprise for the test of control of
the following:
Q. 4
(a)
(b)
(c)
Q. 5
(i)
Cash payment
06
(ii)
Payroll
06
Under ISA 501, when and how does the auditor design and perform audit procedures in
order to identify litigation and financial claims against the company?
04
State the circumstances that necessitate direct communication of an external auditor

with the entitys external legal counsel in respect of litigation and financial claims.
Further, describe the matters which should be discussed in such a communication.
09
State the situations where the auditor shall modify the opinion in the auditors report
during the course of performing audit procedures regarding litigation and claims of the
entity.
05
ABC and Co., manufactures and sells consumer goods in local markets and it has in-house
internal audit function led by a professional accountant. The company has appointed a CMA
Firm as its external auditors. The management advised the Firm of external auditors to
cooperate with the internal auditors to complete their audit in efficient manner and rely on
certain work already performed by the internal audit function.
It was informed that the internal auditors provide the following services to the company:
(i) A periodic audit of the operation of internal controls in the companys major functions
(operations, finance, customer support and information services);
(ii) Annual review of the structure of internal controls in each major function of the company;
(iii) An annual review of the effectiveness of measures put in place by the management to
minimize the major risks facing the company.
During the current year, the company has gone through a major internal restructuring in its
information services function and the internal auditors have been closely involved in the
preparation of plans for restructuring, and in the related post-implementation review.
Required:
(a) Describe the information that external auditors will seek from the internal auditors of
ABC and Co., in order to determine the extent of their reliance.
(b)
Q.6
(a)
(b)
Under what circumstances and in which major areas would it be necessary for the
external auditor to perform his own work in addition to relying on the work performed by
internal auditor of the company?
07
Describe the key aspects that a cost auditor should consider at the planning stage while
employing the personnel for cost audit.
08
Briefly narrate the criteria laid down for ineligibility in relation to appointment of the cost
auditor under Rule 3(4) of the Companies (Audit of Cost Accounts) Rules, 1998.
07
THE END
RMA-MP
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SUGGESTED ANSWERS MODEL PAPER

RISK MANAGEMENT AND AUDIT SEMESTER-5
Q.1 (a)
Risk Associated with Revenue and General Operations: (Any six @ 1 mark each)
1 of 7
MARKS
06
(i)
The system may get hang and the payment made might not reflect in
Milestonedotcom Account.
(ii)
The banks system may not be able to reconcile the total transactions against the
revenue generated by Milestonedotcom.
(iii)
The collection staff may not claim on timely basis the funds from the relevant Bank.
(iv)
The revenue earned by Milestonedotcom could be from the credit card hacked by the
User.
(v)
Available inventory for sale may not be updated on timely basis.
(vi)
The web-link may remain down without timely intimation/knowledge of the

management.
(vii)
Item bought on the net, may not be delivered timely on customers given address.
(viii) I.T protocols for the operation may not be adhered, hence resulting in any sort of
virus/hacking of the System.
Measures to Manage the Risk of Revenue and General Operations: (Any six @ 1 mark
each):
06
Revenue:
(i)
An automated alert system should be installed in the system which confirms the
receipt of funds from credit card.
(ii)
Daily reconciliation with the Bank should be obtained & monitored.
(iii)
All funds receipt should be checked against on-line sales on daily basis.
(iv)
CNIC &/or PIN based verification of customer system should be installed in the
System.
(v)
Inventory should be updated on line against the placed orders on real time basis.
(vi)
A real time system needs to be installed which should automatically triggers any alert
relating to system downtime.
(vii)
On daily basis the customers receipt note should be cross matched/checked against
the deliveries made.
(viii) A recommended anti virus should be installed that could have features to safe guard
the system.
(b)
Risk Conditions: (1 mark each)

Means of identifying conditions leading to risks (potential sources of loss) include:
(a) Physical inspection, which will show up risks such as poor housekeeping (for example
rubbish left on floors, for people to slip on and to sustain fires)
(b) Enquiries, from which the frequency and extent of product quality controls and checks
on new employees reference, for example, can be ascertained.
(c) Checking a copy of every letter and memo issued in the organization for early
indications of major changes and new projects.
(d) Brainstorming with representatives of different departments.
(e) Checklists ensuring risk areas are not missed.
(f) Benchmarking against other sections within the organization or external experiences.
(g) Human reliability analysis, reviewing decision points within operational processes.
DISCLAIMER: The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute
for professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the
suggested answers. Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
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MARKS
Q.2
(a) (i)
Fraud:
An intentional act by one or more individuals among management, those charged with
governance, employees, or third parties, involving the use of deception to obtain an
unjust or illegal advantage.
02
There are two types of fraud relevant to auditors consideration: i) Misappropriation of

assets and ii) fraudulent financial reporting.
Misappropriation of assets:
Misappropriation of assets involves the theft of an entity's assets and is often
perpetrated by employees in relatively small and immaterial amounts. However, it can
also involve management who are usually more able to disguise or conceal
misappropriations in ways that are difficult to detect. Misappropriation of assets can
be accomplished in a variety of ways including:
a) Embezzling receipts (for example, misappropriating collections on accounts
receivable or diverting receipts in respect of written-off accounts to personal
bank accounts).
b) Stealing physical assets or intellectual property (for example, stealing inventory
for personal use or for sale, stealing scrap for resale, colluding with a competitor
by disclosing technological data in return for payment).
c) Causing an entity to pay for goods and services not received (for example,
payments to fictitious vendors, kickbacks paid by vendors to the entity's
purchasing agents in return for inflating prices, payments to fictitious
employees).
d) Using an entity's assets for personal use (for example, using the entity's assets
as collateral for a personal loan or a loan to a related party).
Misappropriation of assets is often accompanied by false or misleading records or
documents in order to conceal the fact that the assets are missing or have been
pledged without proper authorization.
04
Fraudulent financial reporting:

Fraudulent financial reporting involves intentional misstatements including omissions
of amounts or disclosures in financial statements to deceive financial statement users.
It can be caused by the efforts of management to manage earnings in order to deceive
financial statement users by influencing their perceptions as to the entity's
performance and profitability. Such earnings management may start out with small
actions or inappropriate adjustment of assumptions and changes in judgments by
management. Pressures and incentives may lead these actions to increase to the
extent that they result in fraudulent financial reporting. Such a situation could occur
when, due to pressures to meet market expectations or a desire to maximize
compensation based on performance, management intentionally takes positions that
lead to fraudulent financial reporting by materially misstating the financial statements.
In some entities, management may be motivated to reduce earnings by a material
amount to minimize tax or to inflate earnings to secure bank financing.
Fraudulent financial reporting may be accomplished by the following:
a) Manipulation, falsification (including forgery), or alteration of accounting records
or supporting documentation from which the financial statements are prepared.
b) Misrepresentation in, or intentional omission from, the financial statements of
events, transactions or other significant information.
c) Intentional misapplication of accounting principles relating to amounts,
classification, manner of presentation, or disclosure.
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Fraudulent financial reporting often involves management override of controls that
otherwise may appear to be operating effectively.
(ii)
The risk factor related to fraudulent financial reporting and misappropriation of assets are
classified based on the three conditions that are generally present when fraud exists:
(b)
Q.3
(a)
An incentive or pressure to commit fraud
01
A perceived opportunity to commit fraud and
01
An ability to rationalize the fraudulent action.
01
Assertions used by the auditor to consider the different types of potential misstatements
that may occur fall into the following three categories and may take the following forms:
(a) Assertions about classes of transactions and events for the period under audit:
a. Occurrence: transactions and events that have been recorded have occurred and
pertain to the entity.
01
b. Completeness: all transactions and events that should have been recorded have
been recorded.
01
c. Accuracy: amounts and other data relating to recorded transactions and events have
been recorded appropriately.
01
d. Cutoff: transactions and events have been recorded in the correct accounting period.
01
e. Classification: transactions and events have been recorded in the proper accounts.
01
Importance of Auditing Standards:

A variety of stakeholders might read a companys financial statements. Some of these
readers will not just be reading a single companys financial statements, but will also be
looking at those of a large number of companies and making comparisons, and making
comparisons between them.
05
It is important that the audit profession is regulated and that auditors follow the same
standards because many of these readers want assurance that when making
comparisons, the reliability of the financial statements does not vary from company to
company.
The assurance will be obtained not just from knowing that each set of financial statements
has been audited, but from knowing that this has been done in accordance with common
standards.
(b)
(i) Tests of Controls Cash Payments: (Any six @ 1 mark each)

1. Compare payments with paid cheques.
2. Verify that cheques signatories are authorized.
3. Check payments with suppliers invoices and other supporting.
4. Test sequence of cheque numbers.
5. On a test basis, reper form reconciliation.
6. Verify that reconciliations are prepared and reviewed independently, throughout
the period.
7. Inspect reconciliations for long outstanding items.
8. Check petty cash payment with supporting documents.
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9. Check that supporting documents have been marked paid to avoid misuse.
10. Observe security arrangements for cheque books.
(ii)Tests of Controls-Payroll: (Any six @ 1 mark each)
06
1. Check that payroll summary is approved.

2. Check that controls over payments to joiners and leavers are independently
applied.
3. Test accuracy of computation of wages and salaries.
4. Check authorization of rates of pay.
5. Check hours with production records, time sheets and other evidence for hours
worked.
6. Observe pay out of wages to ensure that control procedures are being followed.
7. Examine receipt given by the employee.
8. Check reconciliation of payroll with previous months records, clock cards, time
sheets and job cards.
9. Check additions of the payroll summary.
10. Check that payments to tax authorities are accurate.
Q.4
(a)
Designing and Performing Audit Procedures to Identify Litigation and Claims:
04
The auditor shall design and perform audit procedures in order to identify litigation and
claims involving the entity when such matters give rise to a risk of material misstatement.
This exercise is carried out by:
(i) Inquiry of management and, where applicable, others within the entity, including inhouse legal counsel;
(ii) Reviewing minutes of meetings of those charged with governance
correspondence between the entity and its external legal counsel; and
and
(iii) Reviewing legal expense accounts.

(b)
Direct Communication with the Entitys External Legal Counsel:

If the auditor assesses a risk of material misstatement regarding litigation or claims that
have been identified, or when audit procedures performed indicate that other material
litigation or claims may exist, the auditor shall, in addition to the procedures required by
other International Standards on Auditing, seek direct communication with the entitys
external legal counsel.
The auditor shall do so through a letter of enquiry, prepared by management and sent by
the auditor, requesting the entitys external legal counsel to communicate directly with the
auditor. If law, regulation or the respective legal professional body prohibits the entitys
external legal counsel from communicating directly with the auditor, the auditor shall
perform alternative audit procedures.
The matters which should be discussed in a letter to the legal counsel should include.
1-
Legal cases in progress.
2-
Current status of each significant legal case.
3-
The legal counsel assessment of the possible outcome of each legal case.
4-
Incase of a possibility of a company loosing a case, the potential financial impact.
5-
Any penalty / fines/ damages imposed on the company which the legal counsel is
aware of.
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(c)
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Modification of the Opinion in the Auditors Report Regarding Litigation and 05
Claims:
The auditor shall modify the opinion in the auditors report in accordance with ISA 705
when:
(i) The management of the entity refuses to give the auditor permission to communicate
or meet with the entitys external legal counsel, or the entitys external legal counsel
refuses to respond appropriately to the letter of enquiry, or is prohibited from
responding; and
(ii) The auditor is unable to obtain sufficient appropriate audit evidence by performing
alternative audit procedures.
Q.5
(a)
Information that External Auditors Seek from the Internal Auditors in order to
Determine the Extent of their Reliance: (any six points)
06
Records detailing the qualifications and experience of internal audit staff:
Procedure manuals setting out the organizations quality control standards for internal
audit and evidence that this is monitored and reviewed.
For the periodic audit of the operation of internal controls working papers showing:
That the work is adequately planned, executed and reviewed
The results of tests of controls particularly in respect of financial and information
systems.
For the restructuring of the information services function:
Documentation showing the way in which the restructure was planned and the
basis on which decisions were made.
The results of the post-implementation review.
Any documents relating to this function prior to the changes (as part of the year
would have been based on the old system).
For the review of the structure of internal controls the most recent report produced to
determine how up-to-date the information is.
For the annual review of risk management measures working papers showing:
Planning of this work
Results of key tests performed (controls, substantive)
Key conclusions
Management responses.
(b)
Circumstances and major areas where it is necessary for the external auditor to
perform his own work in addition to relying on the work performed by internal
auditor:
It will be necessary for the external auditor to perform his own work in the following
circumstances:
Where balances are material to the financial statements: This is because the external
auditor cannot delegate responsibility for the audit opinion. The external auditor needs
sufficient appropriate evidence on which to form his opinion and auditor generated
evidence is the most reliable.
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In areas of increased risks: this will include areas where complex accounting
treatments are involved or where judgment is required. In this instance inventory
valuation is likely to be a risk area, as well as being material. Leasing transactions may
also be complex and will therefore require independent appraisal by the external
auditor.
Where the objectives of the internal audit work differ from those of the external auditor:
The roles of the internal and external auditor are very different. In some instances
while the internal auditor may have done some work on a particular area the approach
taken may not be adequate for the purposes of expressing an opinion on truth and
fairness. This particularly the case where the internal audit department concentrates
on operational aspects rather than matters which affect the financial statement.
As regards particular areas where the External Auditor may perform his own work rather
than solely rely on the Internal Auditor, this would vary from entity to entity. Below are
some examples that highlight when an External Auditor may perform his own work in
addition to considering the tasks performed by the Internal Auditor.:
In a manufacturing concern, inventory is likely to always be an area of high risk of
material misstatement. In such an instance, whilst the external auditor may rely to
some extent on the stock count exercise attended by the internal auditor as regards
Existence Assertion, they may still want to review the Valuation Assertion of the
inventory themselves by obtaining and critically analyzing the aged stock movement.
Further, in case of an audit of financial institutions, the external auditor may rely on the
internal auditors work regarding Existence Assertion of loans and advances, they
would nevertheless want to evaluate the recoverability of each significant/ material
loan advanced to major customers to assess whether it has been valued appropriately
in the statement of financial position.
In service sector organizations, the percentage completion method is sometimes
used to determine Revenue. The external auditor is almost always going to consider
risk of improper revenue recognition on the higher side and therefore it is likely that he
would perform cut-off procedures on revenue himself rather than rely on the work
performed by the Internal Auditor.
Q.6
(a)
Key Aspects for a Cost Auditor for Employing Personnel: (2 marks each)
(i) Qualification:
Cost audit work is to be assigned to personnel who have the degree of technical
training and proficiency required in the circumstances. The personnel needs should
be planned, keeping in view the staffing and timing requirements of specific cost
audit.
Qualifications of personnel as to experience, position, background and special
expertise should be evaluated. Care should be exercised not to assign any staff who
may have any disqualifying relationship. The following aspects of personnel are also
to be considered:
(ii) Experience:
Experience and training of cost audit personnel should be considered, particularly
keeping the relevant industry in view, as the cost and management accounting
procedures and techniques considerably differ on the basis of the nature and type of
industry. Earlier cost audit or other practical experience of the industry helps in
carrying out cost audit of a unit of that industry.
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MARKS
(iii) Directions:
Assistants to whom work is to be delegated need appropriate direction and supervision.
Direction involves informing assistants of their responsibilities and the objective of the
procedures they are to perform.
It includes informing them about the nature of the industry, possible cost accounting
and auditing problems that may affect the cost audit routine and the procedures that
they are to perform. The cost audit program, in providing the time budget and the
overall audit plan, should also prove helpful in providing necessary audit directions.
(iv) Supervision:
Supervision involves both direction and review of audit work. Personnel carrying out
supervisory responsibilities generally perform functions like monitoring the progress
during the cost audit, assessing the level of competence and skill of the audit
personnel, execution of cost audit in accordance with the overall cost audit plan.
(b)
Criteria for Ineligibility of Cost Auditor:

The persons ineligible for appointment as Cost Auditor have been specified in sub-rule 4 of
Rule 3 of the Companies (Audit of Cost Accounts) Rules, 1998. Following persons are
ineligible for appointment as cost auditor:
(i) The same accountant or accounting firm, who has been appointed as an auditor of the
Company, under Section 252 of the Companies Ordinance 1984 shall not be appointed
as a cost auditor. A financial or corporate auditor of a company, therefore, shall not be
appointed as a cost auditor of the same company at the same time. Accountants who
are already acting as auditors of financial statements of a company shall not be
appointed as cost auditors of the same company.
(ii) A person who is, or has been at any time during the preceding three years, a director,
officer or employee of the company shall not be appointed as cost auditor.
(iii) A person who is a partner of a director, officer or employee of the company; or an
employee of a director, officer or employee of the company shall not be appointed as a
cost auditor. The cost auditor cannot be a partner or an employee of any director,
officer or employee of the company.
(iv) A spouse of a director of the company shall not be appointed as a cost auditor of that
company.
(v) A person who is indebted to the company for any amount at the relevant time.
(vi) A corporate body shall not be appointed as a cost auditor. A cost auditor, therefore, has
to be an individual or a firm, and not a corporate body.
THE END
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ICMA.
Pakistan
Time Allowed: 02 Hours 30 Minutes
MODEL PAPER
CORPORATE LAWS AND
SECRETARIAL PRACTICES (BLE-403)
SEMESTER-4
Maximum Marks: 70
Roll No.:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Marks
Q.1
The first question printed separately comprises 30 MCQs of one (1) mark
each having allowed time of 30 minutes is an integral part of this question
paper.
Q.2
You have been working as a Corporate Consultant for M/s. Carlton Limited which is a public
limited company, established in 1983. The Board of Directors is seeking your advice in
respect of the following matter:
The financial year of the company ended on June 30, 2013 and its annual general meeting
was scheduled to be held on 25th October, 2013 at 12:30 p.m. There were 8 ordinary
shareholders present including 3 joint shareholders, Mr. Waqar, Mr. Saleem and
Mr. Shafique (all ordinary shareholders representing 25% voting power including joint
shareholders) and two preference shareholders holding 10% preference shares capital. The
number of shareholders turned up in the next 10 minutes and the meeting started at 12:45
p.m., after meeting quorum requirements.
The matter relating to increase in authorized capital was debated threadbare and it was
decided to carry out a voting by show of hands. Shareholders raised a number of objections
during the meeting and the Board of Directors of the company request you to explain the legal
provisions to the shareholders for the following objections:
Required:
(a)
(b)
(c)
CLSP-MP
Some of the shareholders said that since the meeting was not started on scheduled time
therefore this is invalid. The shareholders who were present in time objected that they
were present in time and should have been considered as quorum. Explain the legal
position with respect to shareholders objection and also mention the Law relating to
adjournment of AGM and quorum requirements with particular reference to presence of
preference shareholders and joint holders.
07
Mr. Waqar, Mr. Saleem and Mr. Shafique, three brothers and joint shareholders of the
company were also present in the meeting. Mr. Saleem objected that why the notice of
the meeting was sent to only one of them i.e., Mr. Waqar only and not to all three
brothers including himself, Mr. Waqar and Mr. Shafique?
02
There was a conflict between Mr. Waqar, Mr. Saleem and Mr. Shafique as to whose
vote would be considered for show of hand. Would your answer be different, if a poll
was demanded instead of voting by show of hands?
03
1 of 3
PTO
Marks
Q.3
(a)
M/s. Hilton Petroleum Limited is a public limited company, listed on all three stock
exchanges Karachi, Lahore and Islamabad. The annual general meeting of the
company was scheduled to be held on 30th September, 2013 at its Head Office situated
in Karachi. After conclusion of the meeting some of the shareholders appear to be
dissatisfied. Four of them, each holding 1% of the ordinary share capital gathered at a
corner and started a discussion. One of the employees working in the companys legal
department over heard them saying that they were planning to go to the court
challenging AGMs proceedings on the following grounds:
The lunch arrangements made by the company were not proper.
There was some defect in the appointment of one of the directors and therefore
his decision at the BOD meeting was not valid.
The Chairman called Mr. Ahmed, a Company Secretary to explain the following:
Required:
(b)
Q. 4
(i)
Legal provisions relating to, challenge of AGMs proceeding in the court.
05
(ii)
Validity of the act of the Director, if the defect in the appointment is discovered.
03
As per the Single Member Companies Rules, 2008 briefly state the rule for transfer of
shares of a single member. Under what circumstances these shares can be transferred
to two or more persons?
03
As per provisions contained in the Companies (Issue of Capital) Rules, 1996 answer the
following:
Required:
(a)
(b)
Q.5
List down any five items which are not included in computation of free reserves.
06
Specify any five conditions to be complied with by a listed company for issuing right
shares.
10
A listed company intends to purchase its own shares and therefore considering the relevant
provisions of the Companies Ordinance, 1984 and the Companies (Buy-Back of Shares)
Rules, 1999. Briefly describe the legal provisions for the following in respect of the above:
Required:
(a)
(b)
Q. 6
(a)
(b)
CLSP-MP
Enumerate the contents of statement accompanied with notice of the shareholders

meeting for passing special resolution for purchase of its own shares by the company.
05
List down any seven contents to be included in the offer by a shareholder interested to
sell his shares to the company in response to the tender.
07
Define the term Housing Finance Services as per the Non-Banking Finance
Companies (Establishment and Regulation) Rules, 2003.
Explain the legal provisions under the Non-banking Finance Companies
(Establishment and Regulations) Rules, 2003 for opening or closure of bank
accounts and account with a broker or branches of NBFC.
2 of 3
03
04
Marks
Q. 7
(a)
Ms. Ambreen is the Secretary of Moon-Light Company Limited which is a listed

company. The Chief Executive has asked you to draft Statement of Compliance with
the Code of Corporate Governance for inclusion in the annual report, 2012.
Required:
(b)
(i)
Draft the opening paragraph for inclusion in the above statement.
02
(ii)
Draft any four statements relating to directors/board of directors for inclusion in

the above statement.
08
When a listed company is required to determine a closed period as per the Code of
Corporate Governance? Discuss the restrictions imposed on the director and chief
executive officer regarding dealing in the shares of the listed company during closed
period.
02
THE END
CLSP-MP
3 of 3
PTO
CORPORATE LAWS AND SECRETARIAL PRACTICES SEMESTER-4
1 of 5
Marks
Q.2
(a)
Quorum of the AGM:

The AGM held at 12:45 p.m. is valid, as per the Ordinance, if within half an hour
07
from the time appointed for the meeting, a quorum is not present, the meeting
may either be dissolved or adjourned. Since the quorum was present within 30
minutes, the meeting is valid.
Regarding quorum of public listed company, 10 members present personally
representing not less than twenty-five per cent of the total voting power either of their
own account or as proxies or higher number provided in Articles of Association, form
quorum.
In the given situations there were ten shareholders present eight ordinary shareholders
including three joint shareholders and two preference shareholders.
Preference shareholders cannot be counted for determining the quorum except in
respect of items of business where they have a right to vote under the Ordinance.
Further three joint shareholders would be treated as one for the purpose of the quorum.
Therefore the quorum requirement of ten members was not met at appointed time
despite the fact that the requirement relating to 25% of the voting power was met.
(b)
Notice to Joint Holder:

The contention of Mr. Saleem is not valid as in case of Joint holder of shares the notice
02
may be given to one of the joint holder who named first in the register in
respect of the shares.
(c)
Vote for Show of Hands or Poll:

The joint holders are individually entitled to be present and take part in the
03
debate at such meetings and vote on resolutions decided on a show of hands

but on a poll the voting right can be exercised only by all of them acting together. Joint
shareholders must concur in voting unless the articles provide to the contrary.
Q.3
(a)
(i)
Legal Provisions relating to Challenge Of AGMs Proceeding in the Court:

The Court may, on a petition by members having not less than ten per cent
of the voting power
in
the
company
that
the proceedings of a general
meeting be declared invalid by reason of any material defect or omission in

the notice or
prevented
proceedings
irregularity
members
or
part
from
in
the
using
thereof
proceedings of
effectively
invalid
their
the
rights,
meeting which
declare
such
Provided that the petition shall be
made within thirty days of the impugned meeting.

In the given situation the members planning to challenge the proceeding did not
have
the
required voting power of
10%.
Further unsatisfactory lunch
arrangement cannot be a reason for making AGM invalid.

05
2 of 5
Marks
(ii)
Validity of the Act of the Director if the Defect in the Appointment is

Discovered:
The defect in the appointment of any director does not make his act or act of
03
board of director invalid.

The director is restrained to exercise his right if defect in his appointment comes
into his notice.
Defect is required to be rectified as soon as the defect comes to the notice of the
directors.
(b)
Rule for Transfer of Shares of a Single Member and Circumstances Where

Shares can be Transferred to Two or More Persons:
The Single member may transfer all of his shares to a single person under
03
the authority of an ordinary resolution whereby the company shall remain a

single member company as it was before such transfer.
The company can transfer all of the shares of a single member to two or more
persons under the authority of a special resolution for change of status from
single member company to private company and to alter its articles accordingly.
Q.4
(a)
Items not Included in Free Reserves: (Any six)

Free Reserves do not include 1. reserves created as a result of re-valuation of fixed assets;
06
2. goodwill reserve;
3. depreciation reserve to the extent of ordinary depreciation including
allowance for extra shifts admissible under the Income Tax Ordinance,
1979;
4. development allowance reserve created under the provisions of the
Income Tax Ordinance, 1979;
5. workers welfare fund;
6. provisions for taxation to the extent of the deferred or current liability of the
company and;
7. capital redemption reserve.
(b)
Issue of Right Shares By a Listed Company: (Any five conditions)

A listed company may issue right shares subject to following conditions, namely:1. The company shall not make a right issue within one year of the first issue
of capital to the public or further issue of capital through right issue;
2. The company, while announcing right issue, shall clearly state the purpose
of the right issue, benefits to the company, use of funds and financial
projections for three years. The financial plan and projections shall be
signed by all the directors who were present in the meeting in which the
right issue was approved;
10
3 of 5
Marks
3. The decision of the company to issue right shares shall be communicated
to the Commission and the respective stock exchange on the day of the
decision;
4. The company may charge premium on right shares up to the free reserves
per share as certified by the companys auditors and the certificate of the
auditors shall be furnished to the Commission and the respective stock
exchange along with intimation of the proposed right issue:
Provided that where a company proposes to charge premium on right issue above
the free reserves per share it shall be required to fulfill the following requirements,
namely:-
At least forty per cent of all the shareholders undertake to subscribe

their portion of right issue; and
The remaining right issue shall be fully underwritten and the
underwriters, not being associated companies, shall include at least two
financial institutions including commercial banks and investment banks
and the underwriters shall give full justification of the amount of
premium in their independent due diligence reports;
5. right issue of a loss making company or a company whose market share

price during the preceding six months has remained below par value shall
be fully and firmly underwritten;
6. book closure shall be made within forty-five days of the announcement of
the right issue and the payment and renunciation date once announced for
the letter of right shall not be extended except with the permission of the
respective stock exchange under special circumstances; and
7. if the announcement of bonus and right issue is made simultaneously,
resolution of the board of directors shall specify whether the bonus shares
covered by the announcement quality for right entitlement.
4 of 5
Marks
Q.5
(a)
Contents Of Statement Accompanied with Notice of the Shareholders Meeting for

Passing Special Resolution for Purchase of its Own Shares by the Company:
05
The notice of the meeting in which the special resolution authorizing the purchase
of shares is proposed to be moved, shall be accompanied by an explanatory
statement containing all material facts including the following:1. justification for the purchase;
2. source of funding;
3. effect on the financial position of the company; and
4. nature and extent of the interest, if any, of every director, whether directly or
indirectly.
(b)
Information required to be provided by Shareholder, Interested to Sell His Shares

to the Company in Response to the Tender Notice: (Any seven contents)
A Shareholder, interested to sell his shares to the company in response to the
07
tender notice, shall make the offer in writing through the designated branches of
an authorized bank, providing the following information in the offer, namely:1. Name of the shareholder;
2. His fathers name and in the case of a married woman or a widow, her
husbands name;
3. National Identity Card No;
4. Address of the shareholder registered with the company;
5. number of shares offered for repurchase by the company;
6. Distinctive numbers of share certificates (if not in the Central Depository);
7. Folio No. (if not in the Central Depository); and
8. Sub-account number with the Central Depository, if any.
Q.6
(a)
Housing Finance Services:

Housing
finance
purchase of
services
means
residential house
the
loan
or apartment
provided
to
individuals
for
the
03
or land including the facilities
availed for the purpose of making improvements in house or apartment or land.

(b)
Opening or Closure of Bank Accounts and Account with a Broker or Branches of

NBFC.
Opening or closure of any bank accounts, account with a broker or branches of an
NBFC shall be approved in a board meeting by the board of directors of the NBFC after
carefully analyzing its merits and financial impact and the reasons must be recorded in
the minutes of board meeting. Such decisions and minutes of the board meeting
shall be communicated to the Commission within fourteen days of the said meeting.
04
5 of 5
Marks
Q.7
(a)
(i)
Opening Paragraph for Inclusion in the Statement of Compliance:

This statement is being presented to comply with the Code of Corporate
02
Governance (CCG) contained in Regulation No. 35 of Listing Regulations of

Islamabad, Karachi and Lahore Stock Exchanges for the purpose of establishing a
framework of good governance, whereby a listed company is managed in
compliance with the best practices of corporate governance.
(ii)
Statements Relating To Directors/Board Of Directors For Inclusion In The

Statement of Compliance: (Any four)
The directors have confirmed that none of them is serving as director on more
08
than seven listed companies, including this company (excluding the listed
subsidiaries of listed holding companies where applicable).
All the resident directors of the Company are registered as taxpayers and none of
them has defaulted in payment of any loan to a banking company, a Development
Finance Institution (DFI) or an NBFI or, being a member of stock exchange, has
been declared as a defaulter by that stock exchange.
The Board had developed a vision/mission statement, overall corporate strategy
and significant policies of the Company. A complete record of particulars of
significant policies along with the dates on which they were approved or amended
has been maintained.
All the powers of the Board have been duly exercised and decisions on material
transactions, including appointment and determination of remuneration and terms
and conditions of employment of the CEO, other executive and non-executive
directors, have been taken by the Board / shareholders.
All the directors on the Board are fully conversant with their duties and
responsibilities as directors of corporate bodies. The directors were apprised of
their duties and responsibilities through orientation courses.
The directors, CEO and executives do not hold any interest in the shares of the
Company other than that disclosed in the pattern of shareholding.
(b)
Closed Period:
Each listed company shall determine a closed period prior to the announcement
of interim/ final results and any business decision, which may materially affect
the market price of its shares. No director, CEO or executive shall, directly or
indirectly, deal in the shares of the listed company in any manner during the
closed period.
THE END
02
ICMA.
MODEL PAPER
MANAGEMENT
ACCOUNTING (BAF-401)
Pakistan
Extra Reading Time:

Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
15 Minutes
02 Hours 30 Minutes
SEMESTER-4
Maximum Marks: 80
Roll No.:

Use of non-programmable scientific calculators of any model is allowed.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).
Marks
Q. 1
The first question printed separately comprises 20 MCQs of one (1) mark
each having allowed time of 30 minutes is an integral part of this question
paper.
Q. 2
(a)
Following data have been taken from Naseem & Sons' records:
Production Total Cost Price Level Index
(Units)
(Rupees)
(Average)
Year-0
65,600
145,000
100
Year-1
79,800
179,200
112
Year-2
90,000
213,000
125
Year-3
60,000
196,560
140
Year-4
75,400
244,900
157
Expected in Year-5
91,200
?
175
Required:
(b)
Workout the following:

(i) Variable cost per unit at 100 average price level index.
04
(ii) Fixed cost per annum at 100 average price level index.
02
(iii) Total cost for Year-5.
03
Javed Associates have following data for May 2013:
Production / Sales Quantity

Sales
Variable costs
Labour
Material
Contribution
Fixed cost
Profit
Budget
Unit
Rupees
250
75,000
Actual
Unit
Rupees
225
70,000
35,000
13,000
48,000
27,000
19,000
8,000
30,000
15,000
45,000
25,000
15,000
10,000
Required:
MA-MP
Report showing actual, flexible budget and variances.

1 of 4
06
PTO
Marks
Q. 3
(a)
Delight Textile has received an offer from local Power Generation firm to provide
breakdown free power supply for longer term. The equipment and installations of
transmission line would cost Rs. 5,000,000. Management believes that the power supply
would provide substantial annual reductions in costs, as shown below:
Electricity cost
Power breakdown cost
Rupees
695,000
555,000
The new power system would require considerable maintenance work to keep it in
proper adjustment. The company engineers estimate that maintenance cost would
increase by Rs. 16,000 per annum if new system operates. The transmission system
needs an overhaul at the end of every 2 years amounting to Rs. 200,000 per overhaul.
The contract period would be 10 years with salvage value (of installations) of
Rs. 70,000. After 10 years company will be able to purchase a new power generation
system from an international supplier amounting to Rs. 30 million.
Delight Textile requires a rate of return before tax of at least 18% on investment and
uses straight-line deprecation method.
Required:
(i)
Should Delight Textile accept the offer or not? Ignore taxation.
08
(ii) Should Delight Textile accept the offer or not, if taxation rate is 35%?
08
(Support your answers with proper working)

(b)
Alaska Ltd., wants to buy a new item of equipment. Two models of equipment are
available, one with a slightly higher capacity and greater reliability than the other. The
expected costs and profits of each item are as follows:
Rupees
Equipment item
Capital cost
Life (years)
Profit before depreciation:
Year-1
Year-2
Year-3
Year-4
Year-5
Disposal value
A
80,000
5
B
150,000
5
50,000
50,000
30,000
20,000
10,000
50,000
50,000
60,000
60,000
60,000
Required:
Which equipment should be selected using accounting rate of return (ARR) method?
Q. 4
ChemHouse, operates a standard marginal costing system. It makes a single product using a
single raw material. Standard data has been worked-out per bag of product as under:
Rupees/ Bag
Selling price
11,000
Direct material
50 kgs@ Rs. 150 per kg 7,500
Direct labour
40 hrs @ Rs. 40 per hr
1,600
Variable production overhead 40 hrs @ Rs. 20 per hr
800
9,900
Contribution margin
1,100
MA-MP
2 of 4
04
Marks
Budgeted production is 1,020 bags per month and budgeted fixed overhead are Rs. 800,000
per month.
During March 1,000 bags were produced and sold @ Rs. 12,000 per bag. Relevant details of
this production are as under:
Rs. '000'
Direct material, (MS), bought and used 45,000 kgs costing
6,100
Direct labour, worked 30,000 hours, total wages for the month were 1,350
Actual variable production overhead for the month was
550
8,000
Actual fixed overheads for the month were
1,000
Total production cost
9,000
Required:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Q. 5
Selling price variance.

Sales volume contribution variance.
Direct material cost variance, analysed into price and usage variances.
Direct labour cost variance, analysed into rate and efficiency variances.
Variable production overhead variance, analysed into expenditure and efficiency
variances.
Total variable production cost variance.
Fixed production overhead expenditure variance.
Budgeted and actual net profit for the month.
Reconciliation of budgeted and actual profit.
01
01
03
03
02
01
01
02
01
Brilliant Tech produces and sells desktop and laptop computers having sales units mix of
3 : 4. Its Income Statement for the year is:
Brilliant Tech
Income Statement
For the year Ended June 30, 2012
Sales
Production costs:
Materials
Direct labour
Variable factory overhead
Fixed factory overhead
Total production cost
Desktops
Total
Per Unit
(Rs. in million) (Rs. '000')
30
2,250
675
450
225
75
9
6
3
1
1,500
700
700
200
15
7
7
2
2,175
1,150
925
275
1,425
19
3,100
31
4,525
11
1,400
14
2,225
(825)
825
Gross profit
Fixed marketing and administrative expenses
Income before tax
Income tax @ 50.0%
Net Income
MA-MP
Laptops
Total
Total
Per Unit
(Rs. in million) (Rs. '000') (Rs. in million)
4,500
45
6,750
1,400
(700)
700
Due to saturation of desktop market, management has decided to reduce laptop price to
rupees 40,000, effective July 01, 2012, and to spend an additional amount of Rs. 25 million in
2012-13 for advertising. As a result Brilliant Tech estimates that 80% of its 2012-13 revenue
will be from laptop sales. The sales unit mix for desktops and laptops are expected to be 1 : 3
in 2012-13 at all volume levels. Material costs are expected to drop 20% and 14% for
desktops and laptops, respectively: however, all direct labour costs are to increase 30%.
3 of 4
PTO
Marks
Required:
Q. 6
(a)
Break-even units of desktops and laptops for 2011-12.
05
(b)
Sales (Rupee) required to earn profit of 7.5% on sales in 2012-13.
07
(c)
Break-even units of desktops and laptops for 2012-13.
03
(a)
Differentiate between conventional cost accounting and throughput accounting.
04
(b)
Following data of M/s. Perfect Confectioners is available for latest period:

Machine Hours per Unit
Alpha
Beta
Gama
1
2
3
2
4
2
3
3
3
2,000 1,500
2,400
Machine hours required:

Blending machine
Baking oven
Packing machine
Sales demand (units)
Maximum capacity is as follows:
Hours Available
14,000
15,400
14,000
Blending machine
Baking oven
Packing machine
Required:
(i)
Calculate the machine utilisation rate for each machine.
(ii) Identify which machine is the bottleneck resource.

(c)
04
01
Data extracted from records of M/s. Burhan & Co., is tabulated below:
(Rs./ Hour)
Sales price
Material cost
Product
Simplex
Delux
150
200
70
110
Conversion cost for both product is Rs. 60 per hour.

Required:
(i)
(d)
Calculate TA ratio for both products.
(ii) Rank products.
01
Define backflush accounting.
02
THE END
MA-MP
03
4 of 4
1 of 6
MANAGEMENT ACCOUNTING SEMESTER-4
Marks
Q. 2 (a)
(i)
Variable Cost per Unit:
High level
Low level
Variable cost
(i)
(ii)
(iii)
Production
(Units)
Total Cost
(Rupees)
Price Level Index

(Average)
90,000
60,000
30,000
213,000
196,560
125
140
(iv)
Total Cost (rupees)
at Price Index 100
(ii) x 100 (iii)
170,400
140,400
30,000
1
1
1
The variable cost per unit is (30,000 30,000) = Rs.1 per unit
(ii) Fixed Cost per Annum:

Rupees
Total cost of 90,000 (index 100)
Variable cost of 90,000 at Rs.1 per unit
Fixed costs (index 100)
170,400
90,000
80,400
(iii) Total Cost for Year-5:
Rupees
Variable costs (index 100)

Fixed costs (index 100)
Total costs (index 100)
Total costs (index 175) (171,600 x 175 100)
(b)
91,200
80,400
171,600
300,300
Actual, Flexible Budget and Variances:
Sales
Variable costs
Labour
Material
Contribution
Determine
which of
alternative is
preferred.
Profit
Budget/
Unit
300
Flexed budget
225 units
67,500
35,000
13,000
48,000
27,000
140
52
192
108
31,500
11,700
43,200
24,300
Actual
225 Units
70,000
30,000
15,000
45,000
25,000
19,000
5,300
15,000
10,000
19,000
8,000
DISCLAIMER:
1
1
1
Rupees
Budget
250 Units
75,000
OR
1
1
+ `
Variance
2,500
(F)
1,500 (F)
(3,300) (A)
1
1
700
(F)
4,000
4,700
(F)
(F)
1
1
The suggested answers provided on and made available through the Institutes website may only be referred, relied upon or treated as a guide and substitute for
professional advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers.
Therefore, the Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
2 of 6
Marks
Q. 3 (a)
(i)
Decision to Accept the Offer or not, Ignoring Taxation:
Year Cash outflow

0
(5,000,000)
1
(16,000)
2
(216,000)
3
(16,000)
4
(216,000)
5
(16,000)
6
(216,000)
7
(16,000)
8
(216,000)
9
(16,000)
10
(16,000)
2
Cash Saving
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,320,000
Net CF
(5,000,000)
1,234,000
1,034,000
1,234,000
1,034,000
1,234,000
1,034,000
1,234,000
1,034,000
1,234,000
1,304,000
1
PV Factory at 18%
1.0000
0.8475
0.7182
0.6086
0.5158
0.4371
0.3704
0.3139
0.2660
0.2255
0.1911
NPV
PV
(5,000,000)
1,045,763
742,603
751,050
533,326
539,393
383,026
387,383
275,083
278,213
249,148
184,988
2
1
1
= 7
Decision: Accept the offer.
(ii) Decision to Accept the Offer or not, With 35% Taxation:
Cash
Outflow
B
Cash
Saving
C
0
1
2
3
4
5
6
7
8
9
10
(5,000,000)
(16,000)
(216,000)
(16,000)
(216,000)
(16,000)
(216,000)
(16,000)
(216,000)
(16,000)
(16,000)
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,250,000
1,320,000
Year
AddPAT
Profit
E
F
(C-B-D) (E x 65%)
Deprecation
D
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
(493,000)
741,000
541,000
741,000
541,000
741,000
541,000
741,000
541,000
741,000
811,000
481,650
351,650
481,650
351,650
481,650
351,650
481,650
351,650
481,650
527,150
Net CF
G
(F + D)
(5,000,000)
974,650
844,650
974,650
844,650
974,650
844,650
974,650
844,650
974,650
1,020,150
PV Factory
at 11.70%
H
1.0000
0.8953
0.8015
0.7175
0.6424
0.5751
0.5149
0.4609
0.4126
0.3694
0.3307
NPV
PV
I
(G x H)
(5,000,000)
872,560
676,972
699,341
542,580
560,509
434,868
449,238
348,539
360,056
337,390
282,054
1 =
Decision: Accept the offer.

(b)
Calculation of Accounting Rate of Return (ARR):
1
Rupees
Item A
Item B
Total profit over life of equipment
Before depreciation
160,000
280,000
After depreciation
80,000
130,000
Average annual profit after depreciation
16,000
26,000
Average investment {(capital cost + disposal value) 2}
40,000
75,000
ARR
40.0%
34.7%
2
+
2
=
Both projects would earn a return of 30%, but since item A would earn a bigger ARR, it
would be preferred to item B, even though the profits from B would be higher by an
average of Rs.10,000 a year.
DISCLAIMER:
1
1
7
3 of 6
Marks
Q. 4 (a)
Selling Price Variance:

Budgeted sale of 1,000 bags at standard price of
Rs.11,000/ bag
Actual sale of 1,000 bags at actual price of Rs.12,000/
bag
11,000
12,000
1,000
(b)
(F)
Sales Volume Contribution Variance:

Budgeted Sales
Actual Sales
Sales volume variance in bags
x stand contribution margin (Rs.)
1,020 bags
1,000 bags
(20) bags
1,100
(22)
(A)
(F)
650
(F)
750
(F)
(F)
1
1
(150)
(A)
400
(F)
(F)
1
1
50
(F)
200
(F)
(F)
(F)
978
(c)
Direct Material Cost Variance:

45,000 Kgs. should cost (x Rs.150 per kg)
Actual cost
Price variance
1,000 bags should use (x Rs.50 Kgs)
50,000 kgs
but did use
45,000 kgs
5,000 kgs
x standard cost per Kg. (Rs.)
150
Usage variance
Direct material cost variance
(d)
6,750
6,100
1,400
Direct Labour Cost Variance:

30,000 hours should cost (x Rs.40 per Hr)
Actual cost
Rate variance
1,000 bags should take (x Rs.40 Hrs)
40,000 Hrs.
but did take
30,000 Hrs.
Efficiency variance in hours
10,000 Hrs.
x standard rate per hour (Rs.)
40
Determine which of alternative is preferred.
Efficiency variance
Direct labour cost variance
(e)
Variable Production Overhead Variance:
(f)
30,000 hours incurring o/head should cost

(x Rs.20 per Hr)
Actual cost
Expenditure variance
Efficiency variance in hours [from (iv)] 10,000 Hrs
x standard rate per hour (Rs.)
20
Efficiency variance
Variable production overhead variance
Total Variable Production Cost Variance: [Sum (iii) to (v)]
DISCLAIMER:
1,200
1,350
250
600
550
250
1,900
4 of 6
Marks
(g)
Fixed Production Overhead Expenditure Variance:

Budgeted expenditure
Actual expenditure
800
1,000
(200)
(h)
1,122
(800)
Actual sales (1,020 x 12,000)

Actual production cost
Actual profit
322
3,000
12,000
9,000
Reconciliation of Budgeted and Actual Profit:

Budgeted profit
Selling price variance
Sales volume contribution variance
322
1,000
(22)
(F)
(A)
978
1,900
(200)
Total variable production cost variance

Fixed production overhead expenditure variance
2,678
3,000
Actual profit
Q. 5 (a)
Budgeted and Actual Net Profit for the Month:

Budgeted contribution (1,020 x 1,100 )
Budgeted fixed overhead
Budgeted profit
(i)
(F)
(F)
(F)
(F)
Break-even Units of Desktops and Laptops for 2011-12:

Let:
3x
= Number of desktops to breakeven
4x
= Number of laptops to breakeven
At breakeven:
Sales = Variable costs + Fixed costs
3(30000x) + 4 (45,000x) =
90000x +
3(18,000x) +
180,000x =
54,000x
270,000x =
170,000x
4(29,000x) + 1,100,000,000
116,000x + 1,100,000,000
+ 1,100,000,000
100,000x = 1,100,000,000
1-
x =
11,000
units
4x =
44,000
units
3x =
33,000
units
Fixed Costs:
Rs. in million
Factory overhead
Marketing and administrative
DISCLAIMER:
275
825
1,100
5 of 6
Marks
(b)
Sales (Rupee) Required to Earn Profit of 7.5% on Sales in 2012-13:

Let: S
= Sales Volume (rupees) required
VC(S) = Variable costs as a %age of S
FC
= Fixed costs
P(S)
= Targeted profit as %age of S
T
= Income Tax Rate
Then:
P(S)
1-T
S = VC(S) + FC +
Determine which of
alternative is preferred.
S = 0.70S1 + 1,125,000,000 2 +
0.075(S)
(1 - .50)
S = 0.70S + 1,125,000,000 + 0.15S

0.15 S =
1,125,000,000
S = Rs.
1-
Desktops
Laptops
Per Unit
Per Unit
%age
%age
Rupees
Rupees
30,000 100.0%
40,000 100.0%
7,200
7,800
3,000
18,000
X
OR
12,900
9,100
7,000
29,000
X
+
60.0%
20.0%
(0.12
1
Fixed Costs:
Total
%age
1
72.5%
80.0%
0.58)
= 0.70
1
1
1
1
3
Rs. in million
Factory overhead
Marketing and administrative
Additional advertising
(c)
Variable costs as a %age of S:
Sales
Production costs:
Materials
Direct labour
Variable factory overhead
Total variable cost
Revenue ratio
VC(S) =
2-
7,500,000,000
275
825
25
1,125
Break-even Units of Desktops and Laptops for 2012-13:

Let:
x = Number of desktops to breakeven
3 x = Number of laptops to breakeven
At breakeven:
Sales = Variable costs + Fixed costs
30,000x + 3 (40,000x) =
18,000x
30,000x + 120,000x =
18,000x
150,000x =
105,000x
45,000x = 1,125,000,000
x =
25,000
3x =
75,000
DISCLAIMER:
+
3(29,000x) + 1,125,000,000
+
87,000x + 1,125,000,000
+ 1,125,000,000
units
units
1
1
6 of 6
Marks
Q. 6 (a)
Difference between Conventional Cost Accounting and Throughput Accounting:

Conventional Cost Accounting
Inventory is not an asset.
Cost can be classified as either direct or
indirect.
Product profitability can be determined by

deducting a product from selling price.
Profit is a function of costs.
(b)
(i)
Throughput Accounting
Inventory is not an asset. It is a result
of unsynchronised manufacturing and
is a barrier to making profit.
Such classifications are no longer

useful.
Profitability is determined by the rate at
which money is earned.
Profit is a function of throughput as

well as cost.
1
1
1
1
Machine Utilisation Rate:

Number of machine hours required to fulfill sales demand:
Blending machine
Baking machine
Packing machine
Machine Hours Required to Meet

Sales Demand
Alpha
Beta
Gama
Total
2,000
3,000
7,200 12,200
4,000
6,000
4,800 14,800
6,000
4,500
7,200 17,700
*Machine utilization rate =
Machine
Hours
Available
Machine*
Utilization
14,000
15,400
14,000
87.1%
96.1%
126.4%
Machine hours required to meet sales demand

Machine hours available
(ii) Packing machine is bottleneck resource:

(c)
1
1
1
1
1
(i) & (ii) TA Ratio for both Products and their Ranks:
Product
(Rupees/ Hour)
Sales price
Martial cost
Throughput
Conversion cost
Profit
Determine which of alternative is preferred.
(d)
TA ratio
TA ratio
Rank
=
=
Simplex
150
70
80
60
20
Delux
200
110
90
60
30
80
60
20
2
90
60
30
1
1
1
1
Backflush Accounting:
Backflush accounting is a method of accounting that can be used with just-in time (JIT)
production system. It saves a considerable amount of time as it avoids having to make a
number of accounting entries that are required by a traditional system
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ICMA.

Time Allowed: 3 hours

Maximum Marks: 100

Attempt all questions.

Answers must be neat, relevant and brief.

Use of non-programmable scientific calculators of any model is allowed.

Milestone-dot-com is an online retailer, offers various electronic products including

State the circumstances that necessitate direct communication of an external auditor

SUGGESTED ANSWERS MODEL PAPER

Available inventory for sale may not be updated on timely basis.

The web-link may remain down without timely intimation/knowledge of the

Daily reconciliation with the Bank should be obtained & monitored.

Risk Conditions: (1 mark each)

SUGGESTED ANSWERS MODEL PAPER

There are two types of fraud relevant to auditors consideration: i) Misappropriation of

Fraudulent financial reporting:

SUGGESTED ANSWERS MODEL PAPER

An incentive or pressure to commit fraud

A perceived opportunity to commit fraud and

An ability to rationalize the fraudulent action.

Importance of Auditing Standards:

(i) Tests of Controls Cash Payments: (Any six @ 1 mark each)

SUGGESTED ANSWERS MODEL PAPER

1. Check that payroll summary is approved.

Designing and Performing Audit Procedures to Identify Litigation and Claims:

(iii) Reviewing legal expense accounts.

Direct Communication with the Entitys External Legal Counsel:

Legal cases in progress.

Current status of each significant legal case.

Incase of a possibility of a company loosing a case, the potential financial impact.

SUGGESTED ANSWERS MODEL PAPER

Records detailing the qualifications and experience of internal audit staff:

SUGGESTED ANSWERS MODEL PAPER

SUGGESTED ANSWERS MODEL PAPER

Criteria for Ineligibility of Cost Auditor:

Time Allowed: 02 Hours 30 Minutes

Attempt all questions.

Answers must be neat, relevant and brief.

Legal provisions relating to, challenge of AGMs proceeding in the court.

Enumerate the contents of statement accompanied with notice of the shareholders

Ms. Ambreen is the Secretary of Moon-Light Company Limited which is a listed

Draft the opening paragraph for inclusion in the above statement.

Draft any four statements relating to directors/board of directors for inclusion in

SUGGESTED ANSWERS MODEL PAPER

CORPORATE LAWS AND SECRETARIAL PRACTICES SEMESTER-4

Quorum of the AGM:

Notice to Joint Holder:

Vote for Show of Hands or Poll:

debate at such meetings and vote on resolutions decided on a show of hands

Legal Provisions relating to Challenge Of AGMs Proceeding in the Court:

the proceedings of a general

meeting be declared invalid by reason of any material defect or omission in

Provided that the petition shall be

made within thirty days of the impugned meeting.

required voting power of

Further unsatisfactory lunch

arrangement cannot be a reason for making AGM invalid.

SUGGESTED ANSWERS MODEL PAPER

CORPORATE LAWS AND SECRETARIAL PRACTICES SEMESTER-4

Validity of the Act of the Director if the Defect in the Appointment is

board of director invalid.

Rule for Transfer of Shares of a Single Member and Circumstances Where

the authority of an ordinary resolution whereby the company shall remain a

Items not Included in Free Reserves: (Any six)