Introduction to Finance. 24 November Examination Paper. Time: 3 hours

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1 Introduction to Finance 24 November 2015 Examination Paper Answer any FOUR (4) questions. Clearly cross out surplus answers. Failure to do this will result in only the first FOUR (4) answers being marked. Time: 3 hours The maximum mark for this paper is 100. Any reference material brought into the examination room must be handed to the invigilator before the start of the examination. Candidates are allowed to use a scientific calculator during this examination.

2 Answer any FOUR (4) questions Question 1 a) There are many differences between a partnership and a limited company. Marks 6 Complete the table below, outlining the different aspects of a partnership and a limited company. The first row has been completed as an example. Aspect of Business Formation Running the business Accounting Information Liability Partnership By agreement but not necessarily in writing Limited Company Registering the company under the Companies Act b For each of the following forms of financial information, identify whether it would be used primarily within management accounting or financial accounting. Give reasons for your choice. I. Income Statement II. Break-even analysis III. Cash Flow Forecast IV. Cash Flow Statement V. Company budget. 15 c) Define with examples, the term overheads. 4 Page 2 of 8

3 Question 2 a) There are two departments in a retail company. A summary of their financial performance is provided below. Department A is making a loss. If the department is closed fixed costs of 30,000 would be saved. Marks 3 Should the department be closed? Justify your answer. 000s Dept A Dept B Company Total Sales Variable costs Share of fixed costs Profit(loss) (15) b) Zero based budgeting was developed as a reaction to the traditional approach to budgeting. i) Define zero budgeting. 2 ii) Discuss TWO (2) advantages and TWO (2) disadvantages of zero-based budgeting. 8 c) Identify TWO (2) methods of setting budgets other than zero-based. 2 d) Explain the need and use of budget profiling. 3 Page 3 of 8

4 Marks e) A small retail business sells all products for cash. A cash flow forecast has been 7 partially completed. All figures are (000s). January February March April Receipts/Cash 12 15? 25 In Payments/Cash Out Wages 3? 3 4 Stock Building maintenance Other Costs 4 4 5? Total Outflow Net Cash Flow (2) (7) (7) 0 Opening 6? (3) (10) Balance Closing balance?? (10)? Complete the cash flow forecast. Page 4 of 8

5 Marks Question 3 a) The value of a piece of machinery purchased for 12,000 is being depreciated using a reducing balance basis. The depreciation rate is 50%. Calculate the annual depreciation rate for each year and also the net book value at the end of each year. b) Explain the impact on the balance sheet if the asset is sold for 2000 at the end of year 5. c) If the machinery in (a) was depreciated using a straight line method with an estimated scrap value of 375. Calculate the annual depreciation rate and the total depreciation on the asset. Comment briefly how this compares to the reducing balance method d) Identify the THREE categories of accounting and briefly explain their main focus. 6 Page 5 of 8

6 Marks Question 4 a) The following trial balance has been extracted from Amazing Books ledgers as at 31st December Amazing Books operates as a sole trader. Dr Cr Bank 5000 Capital at 1st January Cash 1000 Drawings 8000 Motor vehicle at cost 6000 Motor vehicle expenses 3000 Office Expenses 2000 Purchases Trade Payables 4000 Trade receivables Sales There is no opening or closing stocks i) Prepare an Income Statement for the year ended 31 December ii) Prepare a Statement of Financial Position (Balance Sheet) for the year ended 31 December Page 6 of 8

7 Question 5 a) Explain why inventory is NOT valued at its expected selling price on the statement of financial position (balance sheet) and how it is valued in practice. Marks 3 b) A stock record card detailing the purchases and issues to production is detailed below. Date Received Unit price Price paid Issued to production Units Units 1 June June June June June June 250 i) Calculate (showing workings) the value of the stock issued to production using the First In First Out (FIFO) method. 3 ii) Calculate (showing workings) the value of the stock issued to production using the Last In First Out (LIFO) method. 4 iii) Calculate (showing workings) the value of the stock issued to production using the average cost method. 4 Page 7 of 8

8 c) There are several methods to classify costs. Marks i) Define product costs and period costs. 2 ii) Define stepped costs and provide an example. 2 iii) Identify THREE (3) purposes of classifying costs. 3 d) Outline the possible composition of the master budget and the subordinate budgets for a manufacturing company. 4 End of paper Page 8 of 8

National Quali cations 2015

N5 National Quali cations 2015 X700/75/11 Accounting MONDAY, 18 MAY 9:00 AM 10:30 AM Total marks 100 Section 1 60 marks Attempt BOTH questions. Section 2 40 marks Attempt ALL questions. Write your answers