Introduction to Finance 1 March 2016 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.
Answer any FOUR (4) questions Question 1 a) Break even analysis is an important management accounting technique. i) Explain with the aid of a suitable labelled chart, the concept of break-even. 6 Provide a suitable formula for the calculation of the break-even point and identify all terms. 2 i What is cost volume profit analysis and how is it useful in decision making? 4 b) Costs can be very important when making pricing decisions. i) Explain what is meant by the term full cost pricing. 3 Explain TWO limitations of full cost pricing. 2 i Explain the term marginal cost pricing. 2 c) i) Explain how inventory is valued on a balance sheet (statement of financial position). 2 Identify THREE (3) methods for calculating the value of stock issued to production. 3 i Suggest ONE reason for the use for any of those methods identified in (. 1 Page 2 of 5 Introduction to Finance NCC Education Limited 2016
Question 2 a) Define the following accounting terms or concepts: i) Management Accounting 3 Business Entity 3 i Accruals concept 3 iv) Trial balance 3 b) Identify FIVE tasks that involve management accounting. 6 c) On 1 June 2015, a business paid rent of 2,400 for the period to 30 May 2016. The year end for the business is 31st December 2015. What are the charges to the income statement and the entry in the statement for the year ended 31st December 2015? 3 d) For a trading business explain with examples how net profit is calculated. 4 Question 3 a) i) Explain, with examples, the difference between a forecast and a budget. 6 Distinguish between zero based budgeting and flexible budgeting. 4 b) Explain FOUR (4) purposes and associated benefits of budgeting. 8 Page 3 of 5
c) The following cost statement has been prepared for the last accounting period for Company Z. Description Budget Actual Variance Adverse or favourable 000 000 000 Sales revenue 500 605 Raw materials 200 214 Direct Labour 100 111 Costs Advertising 50 45 i) Calculate the variances and identify whether they are adverse or favourable. 3 Explain and justify which of the variances would cause the most concern for the management of company Z. 4 Question 4 a) Using examples as appropriate, explain the difference between direct costs and indirect costs. 6 b) In relation to accounting for indirect costs/overheads explain with examples the following terms: i) Allocation 2 Apportionment 2 i Absorption 2 c) Suggest TWO examples of production overheads for both a manufacturing company and a service business. 4 d) Marginal costing is an alternative to absorption costing. i) Explain the term marginal costing. 4 Suggest FIVE benefits of using marginal costing. 5 Page 4 of 5
Question 5 a) ABC has produced a draft income statement for year ended 31st December 2015. Revenue 1250,000 Cost of sales 700,000 Gross profit 550,000 Rent 10,000 560,000 Operating Expenses 170,000 Director s pay 150,000 Depreciation 40,000 360,000 Operating profit 200,000 20 Since the preparation of the income statement the following information has now been provided. 1. Goods sold during the year were returned for credit on the 20 December 2015. These goods have been included as revenue at their selling price of 10,000. The goods originally cost 5,000. 2. The rent receivable relates to the rental of a warehouse; the annual rental income is 9 000. However, the customer paid 10,000. 3. Included in the operating expenses of 170,000 was the provision for doubtful debts at 31st December 2015 of 5000. However, the trade receivables at year end were 120,000 and it is the company s policy to maintain a provision for doubtful debts of 5%. 4. Included in the directors remuneration is the provision for Corporation tax for the year ended 31 December 2015. The provision was estimated to be 50,000. 5. A machine was sold during the year. The disposal had been correctly recorded in the books of account. However, the profit or loss on disposal has not been included in the draft income statement. The machine was purchased on 1 January 2012 for 18 000 and was sold on 30 November 2015 for 5000. The depreciation on the vehicle at 30 November 2014 was 10 000. 6. On 30th June 2015, the directors issued 1,000,000 of 6% debentures repayable in 2026. The interest on the debentures is paid yearly to investors on 30th June. Prepare a corrected income statement for the year ended 31st December 2015 to show the profit after tax. b) Outline the purpose and requirements of segmental reporting. 5 End of paper Page 5 of 5