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THIS PAPER IS NOT TO BE REMOVED FROM THE EXAMINATION HALLS University of London BSc Examination 2010 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 2010 UL10/ PLEASE TURN OVER 1 of 12

SECTION A Answer One (1) Question from Section A Question 1 Below is the trial balance of Jaste Products Ltd, year ending 31 st May 2010: Dr Cr Sales 310 000 Purchases 125 000 Stock (01/06/09) 55 000 Salaries 35 000 Telephone 17 400 Electricity 18 000 Insurance 22 000 Returns Out 5 000 Returns In 10 000 Bad Debts 1 000 Bank 10 000 Discounts Allowed 4 000 Discounts Received 10 000 Provision for Doubtful Debtors 1 000 Debenture Interest 3 000 Interim Dividend 8 000 10 % Debenture 50 000 Investment Income 15 000 Fixed Assets at cost: Motor Vehicles 15 000 Fixtures and Fittings 10 000 Premises 100 000 Long Term Investments 20 000 Provision for Depreciation (01/06/09) Motor Vehicles 6 000 Fixtures and Fittings 2 000 Creditors 11 000 Debtors 18 000 Profit and Loss Account (01/06/09) (38 600) Capital 100 000 471 400 471 400 2 of 12

Additional Notes : i) Stock (31/05/10) 45 000 ii) Insurance prepaid 2 000 iii) Electricity owing 4 000 iv) Provision for doubtful debtors to be 10 % of outstanding debtors at 31/05/10 v) Depreciation: Motor Vehicles, Reducing Balance Method 20 % Fixtures and Fittings, Straight Line Method 10% vi) Investment income due 15 000 vii) Auditors fees owing 2 000 viii) ix) Tax on profit after interest to be charged at 20 % and is 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 Jaste Products Ltd: a) The Profit and Loss Account for the year ended 31 May 2010 (11 marks) b) The Balance Sheet as at May 2010 (11 marks) 2) Define and illustrate three (3) accounting concepts that you have used in the preparation of the financial statements for Jaste Products Ltd. (3 marks) TOTAL 25 MARKS PLEASE TURNOVER 3 of 12

Question 2 Below are the balance sheets of Sheila Scott s business, year ending 31 st of May: 2009 2010 000 s 000 s Fixed Assets : Cost Cum. NBV Fixed Assets : Cost Cum. NBV Dep. Dep. Premises 1000 200 800 Premises 1600 400 1200 Current Assets: Current Assets: Stock 114 Stock 82 Debtors 84 Debtors 130 Bank 0 198 Bank 18 230 Current Liabilities: Current Liabilities: Creditors 58 Creditors 114 Bank 8 Bank 0 Tax Due 40 Tax Due 60 Dividend Due 6 112 Dividend Due 12 186 Net Current Assets 86 Net Current Assets 44 886 1244 Less Long Term Loan (300) Less Long Term Loan (100) 586 1144 Financed By : Financed By : Share Capital & Reserves 400 Share Capital and Reserves 840 Profit and Loss Account 186 Profit and Loss Account 304 586 1144 4 of 12

Additional Note : i) Interest paid during the year 20 000. Required : 1) Given the balance sheets of Sheila Scotts s business, prepare a cashflow statement (FRS 1 revised addition) for year ending 31 st May 2010. 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 an overdraft, however by the end of the year Sheila has successfully managed to now have money in the bank account. (5 marks) 2) 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 5 of 12

PLEASE TURNOVER Question 3 Below are figures which have been abstracted from the financial statements of two companies, Maxtec and Balco Ltd, year ending May 2004. Both companies operate in the same market sector, that of retailing women s clothing. Profit and Loss Account for : Profit and Loss Account for : Maxtec Balco Sales 680 000 Sales 510 000 Less Cost of Sales 408 000 Less Cost of Sales 318 750 Gross Profit 272 000 Gross Profit 191 250 Less Expenses 238 000 Less Expenses 140 250 Net Profit 34 000 Net Profit 51 000 Balance Sheet of : Balance Sheet of : Maxtec Balco Fixed Assets Fixed Assets Premises 170 000 Premises 85 000 Current Assets Current Assets Stock 242 250 Stock 127 500 Debtors 93 500 Debtors 85 000 Bank 46 750 Bank 42 500 Current Liabilities Current Liabilities Creditors 127 500 Creditors 127 500 Long Term Loans 21 250 Long Term Loans 21 250 Financed By Financed By Share Capital 300 000 Share Capital 150 000 Reserves 103 750 Reserves 41 250 6 of 12

Required : 1) Calculate the following accounting ratios for both companies. a) Gross Profit Margin b) Mark Up c) Net Profit Margin 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 for each pair of ratios, total 10 marks) 2) Comment on the financial performance of both companies using the ratios calculated above and making use of the financial data given in the profit and loss accounts and balance sheets. Make comments as to the profitability, liquidity, management of working capital and the financial structure of both companies. (10 marks) 3) According to J R Dyson, accounting ratios are only as good as the data on which they are based. Briefly discuss this statement as regards to the advantages and disadvantages of the use of accounting ratios. (5 marks) TOTAL 25 MARKS PLEASE TURNOVER 7 of 12

SECTION B Answer One (1) Question from Section B Question 4 Lamplite Limited manufactures a single product and operates a standard costing system. The following data is available: Budgeted Data (per unit) : Materials 9 kgs Material cost per kg 11.25 Labour 7.5 hours Labour cost per hour 12.00 Budgeted production for May was expected to reach 15 000 units, however 13 500 units were actually produced. The actual costs incurred were as follows: Materials Labour 122 000 kgs at 11.00 per kg 101 000 hrs at 13.00 per hr Required: 1) Calculate the following variances : a) material price b) material usage c) total material variance d) labour rate e) labour efficiency f) total labour variance g) total variance (2 marks for a-f, 1 mark for g, total 13 marks) 2) Suggest possible reasons for the material and labour variances calculated. (5 marks) 3) What are the limitations of a standard costing system? (4 marks) 4) Standard costing is a system of budgetary control and so is one function of budgeting. Briefly define three other functions of why businesses prepare budgets. (3 marks) TOTAL 25 MARKS PLEASE TURNOVER 8 of 12

Question 5 Clashcom Ltd is preparing its annual budgets for the year ending 31 st December 2010. The company manufactures one product which currently sells for 70 per unit. The Sales Director believes that the price can be increased by 10 % with effect from 1 st July 2010. The sales volumes for each quarter are expected to be as follows : Quarter 1 7 000 Quarter 2 8 000 Quarter 3 9 000 Quarter 4 11 000 Sales Volume (units) Sales for the first quarter of the year 2011 are estimated to be 8 000 units. Each unit of the finished product requires 4 kgs of material. The current price per kilogram of material is 6. The price however is expected to increase as of 1 st April 2010 by 10 %. Assembly of each unit requires 3 hours of direct labour. Labour is currently paid a rate of 8 per hour although the personnel department anticipates a wage rise of 10 % to take effect from 1 st July 2010. Stock at 31 st December 2009 is expected to be 5 000 units. Closing stock at the end of each quarter is expected to be 25 % of next quarter s sales. 9 of 12

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 10 of 12

Question 6 Page 10 of 12 Lambas Products Plc are investigating two possible investment projects, MAY 100 and the MAY 101. The data regarding the two projects are as follows : MAY 100 MAY 101 Initial Investment ( ) 100 000 200 000 Cash Outflows ( ) Year 1 30 000 20 000 Year 2 40 000 60 000 Year 3 60 000 120 000 Year 4 70 000 110 000 Year 5 70 000 70 000 Residual Value 20 000 30 000 Additional Notes: i) The cost of capital is at present 10 %. ii) The following is an extract from the discount tables: Year 10 % 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 11 of 12

Required : 1) For both projects calculate the following: a) Payback Period (5 marks) b) Discounted Payback (5 marks) c) Net Present Value (5 marks) 2) Under each method which project should the company adopt and why? (3 marks) 3) Discuss the advantages and disadvantages of payback, discounted payback and the net present value method. (7 marks) TOTAL 25 MARKS END OF PAPER 12 of 12