CA (Chartered Accountancy) Intermediate: Cost and Management Accounting and Taxation Flashcards

24 sample cards from the Intermediate: Cost and Management Accounting and Taxation deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What are Equivalent Units of production and why are they used?

   Equivalent units express partly-completed (WIP) units in terms of fully-completed units. $$\text{Equivalent Units} = \text{Number of units} \times \% \text{ of completion}$$ They allow cost to be apportioned fairly between finished output and closing WIP.

2. Define Service (Operating) Costing and give two examples of composite cost units.

   Service costing ascertains the cost of services rendered rather than goods produced. Composite (two-factor) cost units include passenger-kilometre (transport), tonne-kilometre (goods transport), patient-day (hospital), and kilowatt-hour (power).

3. Distinguish between Joint Products and By-products.

   Joint products are two or more products of significant/comparable sales value produced simultaneously from common processing. By-products are incidental products of relatively low value arising during manufacture of the main product. The distinction rests on relative economic value.

4. Name common methods of apportioning joint costs up to the split-off point.

   (1) Physical units/quantity method, (2) Net Realisable Value (reverse cost / sales value at split-off) method, (3) Average unit cost method, (4) Survey/weighted-units (technical estimate) method.

5. What is Standard Costing?

   Standard costing is a technique of cost control that sets predetermined (standard) costs for products/operations, compares them with actual costs, computes variances, analyses their causes, and takes corrective action.

6. Write the formulas for Material Cost Variance, Material Price Variance and Material Usage Variance.

   $$\text{MCV} = (\text{SQ} \times \text{SP}) - (\text{AQ} \times \text{AP})$$ $$\text{MPV} = \text{AQ} \times (\text{SP} - \text{AP})$$ $$\text{MUV} = \text{SP} \times (\text{SQ} - \text{AQ})$$ where SQ/AQ = standard/actual quantity, SP/AP = standard/actual price.

7. Write the formulas for Labour Rate Variance and Labour Efficiency Variance.

   $$\text{Labour Rate Variance} = \text{AH} \times (\text{SR} - \text{AR})$$ $$\text{Labour Efficiency Variance} = \text{SR} \times (\text{SH} - \text{AH})$$ where AH/SH = actual/standard hours, SR/AR = standard/actual rate. (Standard hours are for actual output.)

8. What are the two sub-variances of Variable Overhead Cost Variance?

   (1) Variable Overhead Expenditure (Spending) Variance = Actual VOH − (Std VOH rate per hour × Actual Hours). (2) Variable Overhead Efficiency Variance = Std VOH rate per hour × (Standard Hours − Actual Hours).

9. Write the formula for Sales Value (Price) Variance and Sales Volume Variance.

   $$\text{Sales Price Variance} = \text{Actual Qty} \times (\text{Actual Price} - \text{Budgeted Price})$$ $$\text{Sales Volume Variance} = \text{Budgeted Price} \times (\text{Actual Qty} - \text{Budgeted Qty})$$

10. What is Marginal Costing?

    Marginal costing is a technique where only variable (marginal) costs are charged to cost units, while fixed costs are treated as period costs and written off against the contribution of the period. It is used for decision-making and CVP analysis.

11. Define Contribution and write its formula.

    Contribution is the excess of sales over variable cost; it contributes towards fixed costs and profit. $$\text{Contribution} = \text{Sales} - \text{Variable Cost} = \text{Fixed Cost} + \text{Profit}$$

12. Write the formula for P/V Ratio (Contribution/Sales ratio).

    $$\text{P/V Ratio} = \frac{\text{Contribution}}{\text{Sales}} \times 100 = \frac{\text{Change in Profit}}{\text{Change in Sales}} \times 100$$

13. Write the formula for Break-Even Point in units and in value.

    $$\text{BEP (units)} = \frac{\text{Fixed Cost}}{\text{Contribution per unit}}$$ $$\text{BEP (}\rupee\text{)} = \frac{\text{Fixed Cost}}{\text{P/V Ratio}}$$

14. Write the formula for Margin of Safety.

    $$\text{Margin of Safety} = \text{Actual Sales} - \text{Break-Even Sales} = \frac{\text{Profit}}{\text{P/V Ratio}}$$ As a ratio: $\text{MoS \%} = \dfrac{\text{Profit}}{\text{Contribution}} \times 100$.

15. How is the sales required to earn a desired profit computed under CVP analysis?

    $$\text{Required Sales (units)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{Contribution per unit}}$$ $$\text{Required Sales (}\rupee\text{)} = \frac{\text{Fixed Cost} + \text{Desired Profit}}{\text{P/V Ratio}}$$

16. What is a Budget and what is Budgetary Control?

    A budget is a quantitative/financial statement prepared before a defined period expressing the policy to be pursued to attain an objective. Budgetary control is the establishment of budgets, comparison of actuals with budgeted results, and taking corrective action on variances.

17. Distinguish between a Fixed Budget and a Flexible Budget.

    A fixed budget is prepared for a single level of activity and does not change with actual output. A flexible budget is designed to change with the level of activity, giving budgeted costs at different capacity levels by separating fixed and variable costs.

18. What is a Cash Budget and what is its purpose?

    A cash budget is a statement of estimated cash receipts and payments over a budget period, showing opening/closing balances. Its purpose is to ensure adequate liquidity, anticipate surpluses/deficits, and plan financing or investment of funds.

19. Under the Income-tax Act, what is the 'Previous Year' and the 'Assessment Year'?

    Previous Year is the financial year in which income is earned. Assessment Year is the financial year immediately following the previous year, in which that income is assessed to tax. Both run from 1st April to 31st March.

20. List the five heads of income under the Income-tax Act, 1961.

    (1) Salaries, (2) Income from House Property, (3) Profits and Gains of Business or Profession, (4) Capital Gains, and (5) Income from Other Sources.

21. How is the Residential Status of an individual determined (basic conditions under Section 6)?

    An individual is Resident if he satisfies any one basic condition: (a) in India for 182 days or more in the previous year, OR (b) in India for 60 days or more in the previous year AND 365 days or more in the 4 preceding years. Otherwise he is Non-Resident.

22. What are the additional conditions to be a Resident and Ordinarily Resident (ROR)?

    A resident individual is ROR only if he also satisfies BOTH: (a) Resident in India in at least 2 out of the 10 previous years preceding the relevant year, AND (b) in India for 730 days or more during the 7 years preceding the relevant previous year. If either is not met, he is Resident but Not Ordinarily Resident (RNOR).

23. How is the incidence of tax different for Resident, RNOR and Non-Resident?

    A Resident (ROR) is taxed on global income (income received/accrued in India and abroad). RNOR is taxed on Indian income plus foreign income derived from a business controlled/profession set up in India. A Non-Resident is taxed only on income received or accruing/arising (or deemed to) in India.

24. What is meant by 'Income deemed to accrue or arise in India' (scope of total income)?

    Certain incomes are deemed to accrue/arise in India regardless of where actually received—e.g., income from a business connection in India, property/asset/source in India, salary for services rendered in India, dividend paid by an Indian company, and interest/royalty/fees for technical services payable by the government or residents (subject to conditions). These are taxable for all assessees including non-residents.

What this deck covers

Intermediate: Cost and Management Accounting and Taxation flashcards FAQ