Examinations for 2010 - 2011 Semester II / 2011 Semester I 2).pdf Examinations for 2010 - 2011 Semester

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Page 1 of 9 SBMF26 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. Page 2 of 9 SBMF26 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 Page 3 of 9 SBMF26 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% 4JGIRLAA Paper 6IRL Page 4 of 9 SBMF26 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) Page 5 of 9 SBMF26 SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) PART A At 31 December 2010, the balance on the creditors control account in Tanias 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 suppliers 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 suppliers personal account; (iv) a contra with the debtors ledger of $700 had been recorded in the suppliers personal account, but no entry was made in the control account; (v) a debit balance of $63 on a suppliers 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) Page 6 of 9 SBMF26 (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) Page 7 of 9 SBMF26 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 Page 8 of 9 SBMF26 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) Page 9 of 9 SBMF26 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***


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