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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 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 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. University of London 2011 UL11/ PLEASE TURN OVER 1 of 13

SECTION A Answer One (1) Question from Section A Question 1 Below is the trial balance of Maine Services Ltd, year ending 31 st May 2011 : Dr Cr Sales 326 000 Purchases 223 000 Stock (01/06/10) 125 000 Salaries 24 000 Electricity 13 000 Insurance 8 000 Returns Out 3 000 Returns In 6 000 Bad Debts 1 500 Bank 8 400 Discounts Allowed 3 000 Discounts Received 4 500 Provision for Doubtful Debtors 500 Debenture Interest 4 000 Interim Dividend 5 000 10 % Debenture 80 000 Investment Income 6 500 Fixed Assets at costs : Motor Vehicles 20 000 Fixtures and Fittings 15 000 Plant and Machinery 40 000 Provision for Depreciation (01/06/10) : Motor Vehicles 5 000 Fixtures and Fittings 1 500 Plant and Machinery 10 000 Creditors 26 000 Debtors 30 000 Profit and Loss Account (31/05/10) 2 900 Capital 60 000 525 900 525 900 2 of 13

Additional Notes : i) Stock (31/05/11) 145 000 ii) Insurance prepaid 2 000 iii) Electricity owing 7 000 iv) Provision for doubtful debtors to be 5 % of outstanding debtors (at 31/05/11) 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 9 000 vii) Auditors fees owing 1 750 viii) ix) Tax on profit after interest 12 000 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 Required : 1) Prepare the following statements for Maine Services Ltd : a) The Profit and Loss Account for the year ending 31 st May 2011 (11 marks) b) Balance Sheet as at 31 st May 2011 (11 marks) 2) Define and illustrate three (3) accounting concepts that you have used in the preparation of the financial statements for Maine Services Ltd. (3 marks) TOTAL 25 MARKS PLEASE TURNOVER 3 of 13

Question 2 Below are the balance sheets of Shimla Saint s business, year ending 31 st of May : 2010 2011 Fixed Assets : Cost Cum. NBV Fixed Assets : Cost Cum. NBV Dep. Dep. Premises 70 800 9300 61 500 Premises 96 000 13350 82 650 Current Assets : Current Assets : Stock 10 500 Stock 16 500 Debtors 7 500 Debtors 5 550 Bank 1 500 19 500 Bank 750 22 800 Current Liabilities : Current Liabilities : Creditors 5 250 Creditors 7 200 Tax Due 1 500 Tax Due 2 250 Dividend Due 3 000 9 750 Dividend Due 3 750 13 200 Net Current Assets 9 750 Net Current Assets 9 600 71 250 92 250 Less Long Term Loan (7 500) Less Long Term Loan (4 500) NET ASSETS 63 750 NET ASSETS 87 750 Financed By : Financed By : Share Capital & Reserves 47 250 Share Capital & Reserves 63 750 Profit and Loss Account 16 500 Profit and Loss Account 24 000 63 750 87 750 4 of 13

Additional Note : i) Interest paid during the year 2 000 Required : 1) Given the balance sheets of Shimla s business, prepare a cashflow statement (FRS 1) revised addition for year ending 31 st May 2011. Use the indirect approach when deriving net cashflow from operating activities. (16 marks) 2) Make comments as to why the business started the year with 1 500 in the bank, however by the end of the year Shimla has now only 750 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 why there is a difference between accounting profit and cash. (4 marks) TOTAL 25 MARKS PLEASE TURNOVER 5 of 13

Question 3 Below are extracts from the profit and loss account and the balance sheet for Glen Sevices Limited, year ending 31 st May 2010 and 2011 : 2010 2011 Sales 350 000 700 000 Cost of Sales 175 000 300 000 Gross Profit 175 000 400 000 Expenses 140 000 295 000 Net Profit 35 000 105 000 Fixed Assets 200 000 300 000 Stock 30 000 60 000 Debtors 45 000 30 000 Bank 3 000 13 000 Creditors 37 000 32 000 Less Long Term Loans 10 000 nil Share Capital and Reserves 50 000 70 000 Additional Note : The stock figures given above are the average stock figures for the year in question. 6 of 13

Required : 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) 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) TOTAL 25 MARKS PLEASE TURNOVER 7 of 13

SECTION B Answer One (1) Question from Section B Question 4 Lomo Limited are manufacturers of bathroom sinks and the following information has become available for the forth-coming financial year: Expected demand (sinks) 20 000 Average selling price per sink 50 Unit Costs : Direct material costs 10 Direct labour costs 6 Variable overheads 4 Fixed overheads 300 000 The company is interested to see how certain changes to the above figures will have an impact on the profits of the firm. The following options are available to the company : 1) Increase selling price by 20 %, expected demand is likely to fall by 10 % 2) Decrease selling price by 20 %, expected demand is likely to increase by 10 % 3) Improve the quality of the material used by 5 per unit and promote the added feature by way of an advertising campaign costing 200 000, demand is expected to rise by 10 % 8 of 13

Required : Given the original data : 1) Calculate the following : a) Calculate the break even point (units) b) Given the expected demand what profit would the company make, if any. c) Calculate margin of safety (%), given the expected demand (3 marks) Given the new options available to the firm, for each proposal : 2) Calculate the following : a) Break even point b) New profit / loss generated by changes in level of expected output c) Margin of safety (%), given the expected output (12 marks) 3) Given the original data and the three new options, which proposal should the company adopt and why (2 marks) 4) There are a number of reservations (limitations) about break even analysis. Explain briefly the limitations behind the use of break even analysis. (8 marks) TOTAL 25 MARKS PLEASE TURNOVER 9 of 13

Question 5 Leesmore Ltd is preparing its annual budgets for the year ending 31 st December 2011. The company manufactures one product which currently sells for 50 per unit. The Sales Director believes that the price can be increased by 10 % with effect from 1 st July 2011. The sales volumes for each quarter are expected to be as follows : Quarter 1 7 000 Quarter 2 9 000 Quarter 3 10 000 Quarter 4 11 000 Sales Volume (units) Sales for the first quarter of the year 2012 are estimated to be 6 000 units. Each unit of the finished product requires 6 kgs of material. The current price per kilogram of material is 5. The price however is expected to increase as of 1 st April 2011 by 20 %. Assembly of each unit requires 4 hours of direct labour. Labour is currently paid a rate of 8 per hour although the personnel department anticipate a wage rise of 10 % to take effect from 1 st July 2011. Stock at 31 st December 2010 is expected to be 2 000 units. Closing stock at the end of each quarter is expected to be 25 % of next quarter s sales. 10 of 13

Required : 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) 2) Discuss as fully as possible the importance of budgeting, by addressing the functions of budgeting within a managerial framework. (7 marks) TOTAL 25 MARKS PLEASE TURNOVER 11 of 13

Question 6 Lasoon Products Plc are investigating two possible investment projects, A20 and A21. The data regarding the two projects are as follows : A20 A21 Initial Investment ( ) 170 000 180 000 Cash Inflows ( ) Year 1 40 000 22 000 Year 2 35 000 44 000 Year 3 65 000 68 000 Year 4 52 000 80 000 Year 5 37 000 35 000 Residual Value 15 000 35 000 Additional Notes : i) The cost of capital is at present 10 %. ii) The following is an extract from the discount tables : Year 10 % 20 % 1 0.909 0.833 2 0.826 0.694 3 0.751 0.578 4 0.683 0.482 5 0.621 0.402 12 of 13

Required : 1) For both projects calculate the following : a) Net Present Value at cost of capital 10 % (6 marks) b) Internal Rate of Return (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) TOTAL 25 MARKS END OF PAPER 13 of 13