DECEMBER 2014 ACCOUNTING Instructions to candidates: a

DECEMBER 2014 ACCOUNTING Instructions to candidates: a

DECEMBER 2014
ACCOUNTING
Instructions to candidates:
a)
Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything
during this time)
b)
Answer Question 1 and any THREE other questions
c)
Question 1 carries 40% of the marks, all other questions carry 20% of the marks. Marks for each question are
shown in [ ]
d)
Non-programmable calculators are permitted in this examination
1.
You work as the accountant for a client named Elwaera, and have just taken out the trial balance as at
30 November 2014:
£dr
£cr
Capital as at 01 12 13
217,000
Long-term loan
50,000
Sales
1,920,000
Purchases
1,080,000
Inventory (stock) as at 01 12 13
56,000
Accounts receivable (debtors)
79,000
Prov. for doubtful debts
3,000
Accounts payable (creditors)
61,000
Business rates
44,000
Insurances
46,000
Energy costs
76,000
Motor expenses
29,000
Advertising expenses
73,000
Communication costs
39,000
Loan interest
3,000
Payroll costs
201,000
Buildings at cost
410,000
Vehicles at cost
100,000
Vehicle depreciation 01 12 13
30,000
Bank
4,000
Cash
1,000
Drawings
40,000
----------------------2,281,000
2,281,000
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Notes at 30 November 2014:
• Inventory was valued at £59,000.
• Business rates prepaid amounted to £2,000.
• Payroll costs owing amounted to £4,000.
• The accountant/auditor’s fee outstanding is estimated to be £5,000.
• You have reviewed the debtors (accounts receivable) outstanding and suggest that Elwaera writes off
£2,000.
• After writing off the bad debt you suggest that the provision for doubtful debts should be increased to
£4,000.
• The vehicles are to be depreciated by 25% on cost.
TASKS
a) Prepare Elwaera’s income statement (trading and profit and loss account) for the year ended
30 November 2014.
b) Prepare Elwaera’s position statement (balance sheet) as at 30 November 2014.
c) Calculate TWO profit ratios.
d) Calculate TWO liquidity ratios.
e) Outline the potential sources of finance available to a limited company.
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continued overleaf
2.
Chavinda plans to open a retail outlet on 1 January 2015. He will put £140,000 in the bank as capital. His plans
are as follows:
• On 1 January to buy and pay for premises £90,000, shop fixtures £20,000, and a vehicle £15,000.
• To employ two staff EACH to get a salary of £1,500 per month, paid on the 28th of each month, (ignore tax
and NI).
• To buy the following quantity of garments:
Jan. – March inclusive
300
April – June inclusive
400
• To sell the following quantity of garments:
Jan. – March inclusive
280
April – June inclusive
390
• The average cost per garment will be £10 and the suppliers will be paid in the same month.
• The average selling price per garment will be £40. 80% of the sales will be on a cash basis. The other 20%
will be on one month’s credit.
• Chavinda will draw £1,300 per month as drawings.
• Chavinda expects to spend £3,000 on advertising in January, and then a further £500 per month in
February and March.
• Other expenses are estimated to be £2,000 per month, payable one month in arrears.
• Chavinda plans to depreciate the fixtures at the rate of 20% pa, and the vehicle at the rate of 25% pa.
TASKS
a) Prepare a cash-flow budget for the period 1 January 2015 to 30 June 2015.
b) Comment briefly on the budgeted cash-flow position of Chavinda’s proposed business.
c) Outline the importance of an efficient stock control system being maintained by Chavinda.
3.
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You have obtained the following data in respect of two similar businesses:
A
B
£000
£000
Sales (all on credit)
540
970
Cost of sales
230
390
Total expenses
160
230
Closing debtors
35
40
Average value of stock
20
25
TASKS
a) For both companies calculate the total expenses to sales ratio.
b) For both companies calculate the debtor collection period.
c) For both companies calculate the rate of stock turn.
d) Comment on the efficiency of both firms.
e) Explain why these ratios are of assistance to the management of the two businesses.
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4.
a)
b)
Explain the benefits of the use of an efficient budgetary control system.
Describe the payroll process.
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5.
a)
b)
Explain fully the importance of the bookkeeping system.
The following data relates to a proposed business venture:
£
Selling price per unit
80
Variable cost per unit
50
Fixed costs (total)
300,000
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Budgeted production and sales 25,000 units
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TASKS
i
Calculate the budgeted profit.
ii
Calculate the break-even number of units.
iii
SKETCH a break-even graph/chart.
© INSTITUTE OF COMMERCIAL MANAGEMENT
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