DO NOT TURN OVER UNTIL TOLD TO BEGIN

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Cecil Gordon
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1 THIS PAPER IS NOT TO BE REMOVED FROM THE EXAMINATION HALLS University of London BSc Examination 2012 BA1020 (BBA0020) Business Administration Accounting for Management Day, May 2012: Time DO NOT TURN OVER UNTIL TOLD TO BEGIN Time allowed: THREE hours All questions carry equal marks You are expected to answer FOUR questions in total You must answer one question from section A You must answer one question from section B You must then answer two further questions from either section A or B Please start each answer to each question on a separate page Electronic calculators may be used. These should be of a hand-held nonprogrammable (where relevant) type and the name and model should be stated CLEARLY on the front of your answer book. PLEASE TURN OVER University of London 2012 UL12/ Page 1 of 9

2 SECTION A Answer One (1) Question from Section A Question 1 Below is the trial balance of Westbury Services Ltd, year ending 31 st May 2012 : Dr Cr Sales Purchases Stock (01/06/11) Salaries Electricity Insurance Returns Out Returns In Bad Debts Bank Discounts Allowed Discounts Received Provision for Doubtful Debtors Debenture Interest Interim Dividend % Debenture Investment Income Fixed Assets at costs : Motor Vehicles Fixtures and Fittings Plant and Machinery Provision for Depreciation (01/06/11) : Motor Vehicles Fixtures and fittings Plant and Machinery Creditors Debtors Profit and Loss Account (31/05/11) (7 600) Capital Page 2 of 9

3 Additional Notes : i) Stock (31/05/12) ii) Insurance prepaid iii) Electricity owing iv) Provision for doubtful debtors to be 10 % of outstanding debtors (at 31/05/12) v) Depreciation : Motor Vehicles, Reducing Balance Method 25 % Fixtures and Fittings, Straight Line Method 10% Plant and Machinery, Reducing Balance 25 % vi) Investment income due vii) Auditors fees owing viii) ix) Tax on profit after interest to be paid in arrears Nominal value per share is 1.00 and the directors of the company have declared a final dividend of 0.10 per share 1) Prepare the following statements for Westbury Services Ltd : a) Income Statement for the year ending 31 st May 2012 (Formerly known as the profit and loss account) (11 marks) b) Position Statement as at 31 st May 2012 (Formerly known as the balance sheet) (11 marks) 2) Define and illustrate three (3) accounting concepts that you have used in the preparation of the financial statements for Westbury Services Ltd. (3 marks) Page 3 of 9

4 Question 2 Below are the balance sheets of Sunil s business, year ending 31 st of May : s 000 s Fixed Assets : Cost Cum. NBV Fixed Assets : Cost Cum.NBV Dep. Dep. Premises Premises Current Assets : Current Assets : Stock 57 Stock 41 Debtors 42 Debtors 65 Bank 0 99 Bank Current Liabilities : Current Liabilities : Creditors 29 Creditors 57 Bank 4 Bank 0 Tax Due 20 Tax Due 30 Dividend Due 3 56 Dividend Due 6 93 Net Current Assets 43 Net Current Assets Less Long Term Loan (150) Less Long Term Loan (50) NET ASSETS 293 NET ASSETS 572 Financed By : Financed By : Share Capital & Reserves 200 Share Capital and Reserves 420 Profit and Loss Account 93 Profit and Loss Account Page 4 of 9

5 Additional Note : i) Interest paid during the year Given the balance sheets of Sunil s business, prepare a Statement of Cashflows (IAS 7 revised edition for year ending 31 st May 2012 (formerly known as a cashflow statement). Use the indirect approach when deriving net cashflow from operating activities. (16 marks) 2. Make comments as to why Sunil started the year with an overdraft, however by the end of the year Sunil had successfully managed to now have money in the bank account. (5 marks) 3. If a company is profitable this does not necessarily imply that there will be an automatic increase in the cash position of the firm. Briefly discuss this statement and explain the why there is a difference between accounting profit and cash. (4 marks) Page 5 of 9

6 Question 3 Below are extracts from the income statement and the statement of financial position for Sukhi Services Limited, year ending 31 st May 2011 and 2012 : Sales Cost of Sales Gross Profit Expenses Net Profit Fixed Assets Stock Debtors Bank Creditors Less Long Term Loans Share Capital Reserves s s Additional Note : The stock figures given above are the average stock figures for the year in question. 1) Calculate the following set of accounting ratios for the company for both years : a) Gross profit ratio b) Mark up c) Net profit ratio d) Return on capital employed e) Current ratio f) Acid test g) Stock turnover h) Debtors collection period i) Creditors payment period j) Gearing (1 mark of each set of ratios, total 10 marks) Page 6 of 9

7 2) Comprehensively comment on the financial performance of the company over the last two years using the ratios you have generated in part 1) and also using the extracts from the financial statements given. (10 marks) 3) Briefly discuss the advantages and disadvantages of the use of accounting ratios as a means of analysis and interpretation of accounting data. (5 marks) END OF SECTION A SECTION B Answer One (1) Question from Section B Question 4 The following data relates to BP Limited, a manufacturer of a range of cycle component products : A B C D E Selling Price / unit Direct Materials / unit Direct labour / unit Fixed Overheads / unit Estimated Demand (units) All labour is charged at the same rate of 6 / hour and the cost of each kilogram of material is 4 per kilogram. 1) Based on the above information what is the ideal product mix and total contribution given : a) labour is limited to labour hours (9 marks) b) material is limited to kilograms (9 marks) Page 7 of 9

8 2) What other non financial (qualitative) factors should the company consider before coming to a final decision. (7 marks) Question 5 Xavier Products Ltd is preparing its annual budgets for the year ending 31 st December The company manufactures one product which currently sells for 60 per unit. The Sales Director believes that the price can be increased by 10 % with effect from 1 st July The sales volumes for each quarter are expected to be as follows : Sales Volume (units) Quarter Quarter Quarter Quarter Sales for the first quarter of the year 2013 are estimated to be units. Each unit of the finished product requires 5 kgs of material. The current price per kilogram of material is 6. The price however is expected to increase as of 1 st April 2012 by 10 %. Assembly of each unit requires 5 hours of direct labour. Labour is currently paid a rate of 7 per hour although the personnel department anticipate a wage rise of 10 % to take effect from 1 st July Stock at 31 st December 2011 is expected to be units. Closing stock at the end of each quarter is expected to be 25 % of next quarter s sales. 1) Prepare the following budgets for the company : a) sales budget (in s) b) production budget (in units) c) material usage budget (in kgs) d) material price budget (in s) e) labour usage budget (in hours) f) labour price budget (in s) (3 marks for each budget, total of 18 marks) Page 8 of 9

9 2) Discuss as fully as possible the importance of budgeting, by addressing the functions of budgeting within a managerial framework. (7 marks) Question 6 Monsoon Products Plc are investigating two possible investment projects, B20 and B21. The data regarding the two projects are as follows : B20 B21 Initial Investment ( ) Cash Inflows ( ) Year Year Year Year Year Residual Value Additional Notes : i) The cost of capital is at present 10 %. ii) The following is an extract from the discount tables : Year 10 % 20 % ) For both projects calculate the following : a) Net Present Value at cost of capital 10 % (6 marks) b) Internal Rate of Return (using the formula) (10 marks) 2) Under each method which project should the company adopt and why. (2 marks) 3) In relation to the two capital investment appraisal techniques used in part 1), outline the advantages and disadvantages of each method. (7 marks) END OF PAPER Page 9 of 9

DO NOT TURN OVER UNTIL TOLD TO BEGIN

DO NOT TURN OVER UNTIL TOLD TO BEGIN THIS PAPER IS NOT TO BE REMOVED FROM THE EXAMINATION HALLS University of London BSc Examination 2011 for External Students BBA0020 Business Administration Accounting for Management DATE DO NOT TURN OVER