Download - Examinations for 2010 - 2011 Semester II / 2011 Semester I2).pdf · Examinations for 2010 - 2011 Semester II / 2011 Semester I ... $000 $000 Bank 50 Inventory ... The expenses listed

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Programme Cohort

BSc (Hons) Management BMAN/11/FT Jan

Diploma in Financial Management

with Public Finance

DFM/11/FT-Jan

Examinations for 2010 - 2011 Semester II /

2011 Semester I

MODULE: ACCOUNTING FOR DECISION MAKING

MODULE CODE: ACCF 1101

Duration: 2 Hours Reading time: 15 Minutes

Instructions to Candidates: 1. This paper consists of Sections A and B.

2. Section A is compulsory.

3. Answer any two questions from Section B.

4. Always start a new question on a fresh page.

5. Total marks: 100.

This question paper contains 4 questions and 9 pages.

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SECTION A: COMPULSORY

QUESTION 1: (40 MARKS) You have been provided with the following trial balance as at 31 May 2010 for a

limited liability company called Gasprom.

Dr Cr

$000 $000

Bank 50

Inventory at 1 June 2009 1,200

General Expenses 600

Heating and lighting 90

Marketing and advertising expenses 248

Wages 490

Buildings at cost 5,000

Motor vehicles at cost 160

Plant and equipment at cost 700

Accumulated profits at 1 June 2009 280

Trade receivables 438

Purchases 2,200

Loan interest paid 30

5% Loan 600

Revenue 5,876

Discounts received 150

Trade payables 500

$1 Ordinary Shares 1,500

Accumulated depreciation at 1 June 2009

Buildings 2,000

Motor Vehicles 60

Plant and Equipment 240

11,206 11,206

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The following notes are relevant:

1. Inventory at 31 May 2010 was valued at $800,000.

2. Marketing and advertising expenses include $6,000 paid in advance for a

marketing campaign which will begin in June 2010. Marketing and advertising

expenses should be allocated to administrative expenses.

3. There are wages outstanding of $10,000 for the year ended 31 May 2010.

4. A customer ceased trading owing the company $38,000; the debt is not

expected to be recovered.

5. An allowance for doubtful debts is to be established amounting to 5% of trade

receivables.

6. Depreciation is to be provided for as follows:

(i) Buildings at 5% per annum on their original cost, allocated 50% to cost

of sales, 20% to distribution costs and 30% to administrative expenses.

(ii) Motor vehicles at 25% per annum of their written down value, allocated

to distribution costs.

(iii) Plant and equipment at 20% per annum of their written down value,

allocated to cost of sales.

7. No dividends have been paid or declared.

8. Income tax of $250,000 is to be provided for the year.

9. The audit fee is estimated to be $20,000.

10. The expenses listed below should be apportioned as follows:

Cost of Distribution Administrative

Sales Costs Expenses

General expenses 10% 40% 50%

Heating and lighting 50% 30% 20%

Wages and salaries 60% 30% 10%

4J–GIRLAA Paper 6IRL

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Required: (a) Prepare the following financial statements for the year ended 31 May 2010 for

Gasprom in accordance with IAS 1 Presentation of Financial Statements:

(i) Profit and Loss Account (20 marks)

(ii) A balance sheet (15 marks)

You are advised to show workings where appropriate. (b) Briefly explain the difference between Capital and Revenue Expenditure and

illustrate each of the expenditure by two examples. (5 marks)

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SECTION B: ANSWER ANY TWO QUESTIONS

QUESTION 2: (30 MARKS) PART A At 31 December 2010, the balance on the creditors control account in Tania’s

nominal ledger was $80,130 and the total of the list of balances on the suppliers’

personal accounts was $80,441. Investigation of the reasons for the difference

indicated the following:

(i) a credit note received from a supplier for $438 was omitted from the

accounting records;

(ii) an invoice for $385 was correctly recorded in the purchase day book, but

when posting to the supplier’s personal account the value was entered

as $358;

(iii) a payment of $1,000 was made to settle a balance of $1,012, but the

discount was not recorded on the supplier’s personal account;

(iv) a contra with the debtors ledger of $700 had been recorded in the

supplier’s personal account, but no entry was made in the control

account;

(v) a debit balance of $63 on a supplier’s personal account was treated as a

credit balance;

(vi) the purchase day book was under-cast by $900; and

(vii) a payment to a supplier for $320 was incorrectly recorded as drawings.

Required: (a) Prepare the creditors control account in the nominal ledger, including the

necessary adjusting entries and the corrected balance. (8 marks)

(b) Prepare the reconciliation of the list of balances to the corrected balance on

the creditors control account in the nominal ledger. (8 marks)

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(c) For each of the adjusting entries in the creditors control account in the

nominal ledger, indicate which nominal ledger account will be used to

complete the double entry. (4 marks)

PART B Depreciation has been described as the measure of the wearing out, consumption

or other reduction in the useful economic life of a fixed asset.

(a) Give three causes of depreciation, and for each give the type of fixed asset

for which that cause is appropriate. (6 marks)

(b) What factors should be taken into account when determining the amount of

depreciation and its allocation between different accounting periods?

(4 marks)

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QUESTION 3: (30 MARKS)

Your organisation, Parkside Ltd, runs a chain of small shops and you have just

received the following extracts from the audited accounts for the period ended 30

September 2010.

Profit and loss account for the period ended 30 Sept 2010

$’000 $’000

Sales 460

Less Cost of Sales (220)

Gross Profit 240

Wages 50

Other expenses 30 (80)

Net Profit 160

Balance sheet as at 30 Sept 2010

$’000 $’000

Non Current Assets 400

Current Assets

Stock 80

Debtors 120

Bank 400

600

Current Liabilities

Creditors (300) 300

Net Assets 700

Financed by:

Share Capital 600

Retained Earnings 100

Shareholders’ Funds 700

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Notes:

1. The purchases figure included in the cost of goods sold is $ 255,000.

2. No dividend has been declared at year end.

Required:

(a) Calculate the following accounting ratios for Parkside Ltd:

(i) Current ratio

(ii) Acid test ratio

(iii) Stock turnover (in days)

(iv) Debtors turnover (in days)

(v) Creditors turnover (in days)

(vi) Return on capital employed (ROCE)

(vii) Gross profit percentage

(viii) Net profit percentage (16 marks)

(b) List three reasons why financial accounting, using traditional actual costs,

might have an effect on the validity of accounting ratios. (8 marks)

(c) Briefly explain the fundamental behind the accounting equation.

(6 marks)

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QUESTION 4: (30 MARKS)

Green Ltd manufactures and sells a single product. The initial budget for the

forthcoming period is:

$

Material 20,000

Labour ( 1/3 Fixed) 18,000

Variable Production Overheads 8,000

Fixed Production Overheads 8,000

Sales Overheads ( 50% Fixed) 4,000

Total 58,000

Notes:

1. The standard selling price is $90 per unit.

2. Sales for the period are budgeted to be 800 units.

3. The maximum manufacturing capacity for the period is 1,500 units.

Two proposals have been put forward by management:

• Reduce the selling price to $80, which will enable 1,000 units to be sold.

• Increase the selling price to $95, which will enable 750 units to be sold.

Required:

(a) Calculate, for the initial budget and each of the two proposals:

(i) Profit (6 marks)

(ii) Break-even point in units (10 marks)

(iii) The amount of sales units required in order to earn a profit of $18,000

for the period. (Work to the nearest whole unit.) (10 marks)

(b) Advise management as to the best course of action. (4 marks)

***END OF QUESTION PAPER***

Download - Examinations for 2010 - 2011 Semester II / 2011 Semester I2).pdf · Examinations for 2010 - 2011 Semester II / 2011 Semester I ... $000 $000 Bank 50 Inventory ... The expenses listed

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