Diploma in Financial Management - (Rodrigues) Cohort: DFM/10/FT RESIT/SPECIAL Examinations for 2010 Semester II MODULE: MANAGEMENT ACCOUNTING FOR DECISION MAKING MODULE CODE: ACCF2118 Duration: 2 Hours Reading time: 15 Minutes Instructions to Candidates: 1. This question paper consists of Section A and Section 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 5 questions and 9 pages. Page 1 of 9
SECTION A: COMPULSORY QUESTION 1: (40 MARKS) The year-end Trial Balance of Noon a retailer is shown below: Trial balance as at 30 June 2010 Dr Cr Rs 000 Rs 000 Motor vehicles 50 Furniture 40 Provision for depreciation on motor vehicles 10 Provision for depreciation on Furniture 8 Purchases 348 Sales 490 Salaries 70 Rent 40 Loan interest 4 Trade Receivables and Payables 50 27 Stocks -1 July 2009 42 Stationery 12 Carriage inwards 14 Postage 7 Capital account 115 Motor vehicles running expenses 12 Telephone 9 Loan 60 Allowance for doubtful debts 1 Returns 15 8 Discounts 4 9 Electricity 5 Cash 2 Bank 6 Commission received 2 730 730 Additional information: (i) Stocks at 30 June 2010 was valued at Rs45,000. (ii) A debt of Rs2,000 is to be written off and the allowance for doubtful debts is to maintained at 5% of remaining trade receivables. (iii) Rent has been agreed at Rs2,500 per month. A third of the premises is used personally by the owner of the shop. (iv) The loan was obtained on 1 July 2009 and carries interest at 10%p.a. and is repayable in three equal installments, starting on 1 July 2010. Page 2 of 9
(v) An amount of Rs2,000 is still due for servicing of motor vehicles. (vi) Motor vehicles are to be depreciated at 10%p.a. using the reducing balance method and furniture at 10%p.a. on cost with time apportionment for assets acquired during the year. (vii) Goods costing Rs3,000 were taken by the retailer for his own use. No records were made for this transaction. (a) Prepare the Income Statement for the year ended 30 June 2010 and a Statement of Financial Position (Balance sheet) as at that date. Both Statements need to comply with IAS 1. (30 marks) (b) Provide a reasoned explanation based on your knowledge of accounting concepts to the following three persons. (i) Mrs Shah owns a hotel. She regularly incurs repairs and maintenance expenses to keep the hotel up to client s expectations. Consequently she claims that there is no need to provide for the depreciation of the premises. (3 marks) (ii) (iii) Devi manufactures handicraft products for sale to the hotel industry. She fails to understand why her accountant has valued the stock of unsold goods at the year end at cost while she could sell them at a price well above the cost price. (3 marks) Stephano paid rent Rs5,000 during an accounting period but is surprised to find a different amount included in the income statement that his accountant has prepared. He believes the accountant has made a mistake. (4 marks) Page 3 of 9
SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) PART A On 31 December 2010 Mr Mallac s cash book showed a balance in hand of Rs 3,120 compared with a credit balance of Rs 8,040 shown on the bank statement. On investigations he discovered the following : (i) Cheques drawn by him during the month amounting to Rs 21,360, Rs 99,870 and Rs 11,760 respectively, had been entered in the cash book but had not yet been presented to the bank by the end of the month; (ii) Mr Mallac had forgotten to enter in the cash book a standing order of Rs 3,000 for rental of premises; (iii) The bank had incorrectly credited Mr Mallac s account with a dividend receipt of Rs 1,500 relating to another customer; (iv) Bank charges of Rs 2,250 shown on the bank statement had not been entered in the cashbook; (v) Cheques received from customers amounting to Rs 72,660 were entered in the cash book on 30 December but were not credited on the bank statement until 9 January 2011; (vi) Payments by customers amounting to Rs 12,660 had been effected directly into the bank, but no entry had been made in the cash book; (vii) A cheque drawn for Rs 30,000 has been entered in error as a receipt; (viii) The statement shows an item return cheque of Rs 4,320.This has not yet been accounted for in the cashbook. Required : (a) Prepare the adjusted Cashbook for the month of December 2010. (8 marks) (b) Prepare a Bank Reconciliation statement for the month of December 2010. (6 marks) (c) Briefly explain what do you understand by the following terms: (i) Standing order; (ii) Dishonoured cheque; (iii) Direct debit. (6 marks) Page 4 of 9
PART B A new supplier of General stores items has approached you for future orders that your department is presently procuring from the existing list of suppliers. As part of the screening exercise you have computed some liquidity and activity ratios (as shown below) for the new supplier which you intend to compare with the Industry average. Ratio New Supplier Industry Average Current Ratio 2.5:1 4:1 Quick ratio 0.85:1 2:1 Stock Turnover (times) 6.0 10.5 Debtors collection period 45 days 30 days Asset turnover 3:1 2.5:1 (a) Give the formula for the above five ratios. (5 marks) (b) Comment on the liquidity and efficiency ratios of the new supplier, making reference to the Industry average ratios. (5 marks) Page 5 of 9
QUESTION 3: (30 MARKS) PART A At a seminar, a cost accountant spoke on identification of different kinds of cost behaviour. Carl Ting, a hospital administrator who heard the lecture, identified several hospital costs of concern to her. She has classified the costs into variable, semivariable, step and committed fixed costs. (a) Explain briefly the above four terms of costs, giving an appropriate example for each term. (10 marks) (b) Distinguish between financial accounting and managerial accounting? (5 marks) PART B The following cost and activity data were recorded for Bank One Training Unit for two consecutive periods: Participants Period 1 Period 2 400 650 Lecturers fees 337,500 560,000 Materials 30,000 52,500 Administrative salaries 500,000 800,000 Depreciation 100,000 100,000 Cleaning 75,000 150,000 (a) Classify each type of cost and where appropriate separate the fixed and variable elements of each cost. (10 marks) (b) Assuming that the pattern of cost behaviour remains the same calculate the expected cost for each item for 800 participants. (5 marks) Page 6 of 9
QUESTION 4: (30 MARKS) PART A Clip Top had the following balances on 1 January 2010. Sales ledger Rs 80,580 (Dr), Rs 1,050 (Cr) Purchases ledger Rs 58,050 (Cr), Rs 825 (Dr) All Clip Top purchases and sales are on credit terms and the following summarised transactions took place during the year ended 31 December 2010. Rs Purchases Journal 53,760 Receipts from customers 81,060 Discount received 1,440 Discount allowed 1,510 Payments to suppliers 51,450 Sales Journal 92,450 Return Outwards Journal 1,525 Cash sales 6,250 Return Inwards Journal 1,370 Bad debts written off 2,200 Increase in provision for bad debts 2,800 Cash purchases 5,520 Customers cheque dishonoured 4,180 Carriage inwards 1,880 Settlements by contra 1,730 Cash at bank 5,250 Refunds to customers for overpayment of account 450 Debit balances on suppliers account 31 December 2010 930 Credit balances on customers account at 31 December 2010 710 (a) Prepare the following in respect of the year ended 31 December 2010. (i) Sales ledger control account (9 marks) (ii) Purchases ledger control account (7 marks) (b) Explain the ways in which control account can be of use to the management of a business. (6 marks) Page 7 of 9
PART B State with reasons whether the following statements are TRUE or FALSE: (a) Expenditure incurred to bring the machine in operational use is a capital expenditure; (b) Legal costs incurred for the acquisition of Land and Building is a revenue expenditure; (c) Amounts written off from the cost of the fixed assets is capital expenditure; (d) Expenditure incurred to maintain the motor vehicles in good working condition is a capital expenditure; (8 marks) QUESTION 5: (30 MARKS) PART A Pride Ceramics Limited has two production departments A and B and two service departments X and Y. Some of the budgeted overheads for the year ending 30 June 2011 have already been allocated to the departments as shown below: Production Production Service Service Total Dept. A Dept. B Dept. X Dept. Y Allocated overheads 280,000 141,345 82,655 32,000 24,000 However, the remaining overheads, as detailed below still have to be apportioned to each of the departments: Rs Electricity 24,000 Indirect labour 36,000 Rent 64,000 Machine maintenance 12,000 The following information is also available: Dept. A Dept. B Dept. X Dept. Y Machine operating hours 12,000 10,000 1,500 500 No of indirect employees 2 2 1 1 Floor area (m2) 21,000 19,500 4,500 3,000 Page 8 of 9
The service departments are expected to spend their time as follows: Dept. A Dept. B Dept. X Dept. Y Department X 40% 60% Nil Nil Department Y 50% 30% 20% Nil (a) Prepare an overhead apportionment schedule. The schedule should include the overheads already allocated and the overheads that still require apportionment. (10 marks) (b) Re-apportion the service department overheads to the other departments. (4 marks) (c) Calculate the overhead absorption rates for the two production departments. (3 marks) PART B The MAC College offers training session in stores management to officers of the Ministry of Finance. The College s fixed costs are Rs164,000 per month. Students are provided with course materials and lunch. The average fee per student is Rs2000 for a week s session. The average variable costs are Rs1200 per student. (a) What is the College s break-even point in number of students per week? (3 marks) (b) How many students must attend the training session to attain a weekly profit of Rs60,000? (2 marks) (c) Suppose that the College s fixed costs and the unit variable costs rise by 10%. What would MAC have to do to maintain the existing unit contribution margin ratio? (4 marks) (d) List the Four assumptions of the break-even analysis. (4 marks) ***END OF QUESTION PAPER*** Page 9 of 9