Basis of Accruals Accounting - Introduction to Accounting - Exam, Exams of Accounting

Download Basis of Accruals Accounting - Introduction to Accounting - Exam and more Exams Accounting in PDF only on Docsity! Ollscoil na hÉireann, Gaillimh National University of Ireland, Galway Autumn Examinations, 2009/2010 Exam Code(s) 1CDE1 Exam(s) Part Time Bachelor of Commerce – First Year Module Code(s) AY100.1 Module(s) Accounting Paper No. - Repeat Paper Yes External Examiner(s) Dr. L.Oats Internal Examiner(s) Dr. B. Sweeney Ms D. Ruddy Instructions: Answer TWO questions from Section A and TWO questions from Section B All questions carry equal marks Duration 3 Hrs. No. of Answer books 1 Requirements: Handout MCQ Statistical Tables Graph Paper Log Graph Paper Other Material No. of Pages 12 Department(s) Accountancy and Finance SECTION A (Answer TWO questions from this Section) Question 1 Newstalk Ltd distributes books and magazines to retail stores in Ireland. The following trial balance was extracted from the books of the company on 30 June 2010: €’000 €’000 Bad debts 60 Bank 1,800 Bank interest 200 Trade payables 2,200 Trade receivables 1,200 Discounts 400 600 Fixtures and fittings (at cost) 1,200 Fixtures and fittings – accumulated depreciation 200 General office expenses 5,000 Land (at cost) 7,500 Motor expenses 1,000 Motor vehicles (at cost) 2,000 Motor vehicles – accumulated depreciation 400 Rent 300 Long term loan 2,000 Retained Earnings 30 June 2009 200 Purchases 9,100 Purchases returns 400 Sales 18,700 Sales returns 820 Share capital (€1 shares) 5,600 Share premium 800 Inventory (at 1 July 2010) 520 31,100 31,100 The following information is also available in respect of the year ended 30 June 2010: (1) A stock count in the company's warehouse at the end of the financial year indicated that closing inventory amounted to €600,000. (2) Depreciation for the year has yet to be recorded. Depreciation is based on the following annual rates: Fixtures and fittings - 25% per annum (straight line) Motor vehicles - 30% per annum (reducing balance) (4) The loan was taken out in January 2010 and is repayable in 10 equal annual instalments, beginning on 1 January 2015. Loan interest, at a rate of 9% per annum, has not yet been provided for in the accounts. / … Question 1 continues on the next page … … Question 2 continued Equity & Liabilities Healthsteps Good Living Equity Share Capital 8,000 6,000 Retained Earnings 10,000 18,000 15,000 21,000 Non-Current liabilities Long Term Loan 24,000 23,000 Current Liabilities Trade payables 5,000 10,000 Total Equity & Liabilities 47,000 54,000 Required: Using ratio analysis, compare and discuss the performance of the two companies under the following headings and advise Claire on which business is preferable for investment: (i) Profitability (ii) Efficiency (iii) Liquidity Total: 25 marks Question 3 The balance sheets of Brompton Ltd. For 31st March 2009 and 31st March 2010 were as shown below: Assets: Y/E 31/3/2010 Y/E 31/3/2009 Non-Current Assets €'000 €'000 €'000 €'000 Land & Buildings 301 261 Plant & Equipment 240 200 541 461 Long Term investments 132 100 Current Assets: Inventory 310 280 Trade Receivables 260 300 Bank & Cash 40 10 610 590 1,283 1,151 Capital and Liabilities: Capital: Issued Share capital 20 15 Share Premium 200 185 Retained profits 156 68 376 268 Non-Current Liabilities: 9% Long term debt 460 510 Current Liabilities: Trade Payables 396 346 Bank overdraft 20 5 Taxation 31 22 447 373 1,283 1,151 Income Statement for the year ended 31st March 2010 €'000 Net Profit before Tax 166 Tax 52 Profit after Tax 114 Continued… … Question 3 continued The following information is available for the year ended 31st March 2010. 1 Profit before tax is after recording an interest expense of €44,000 and interest received of €2,000 A dividend of €26,000 was paid during the year. The retained earnings increased by the €114,000 profit for the period and decreased by the amount of the dividend. 2 In arriving at net profit before tax the following depreciation has been charged: Buildings €15,000 Plant & Equipment €62,000 €77,000 In addition a profit of €10,000 on disposal of buildings and a loss of €14,000 on the on the disposal of plant and equipment have been recorded. The sale proceeds were €18,000 in respect of the buildings disposed of and €12,000 in respect of the plant & equipment disposed of. 3 During the year Brompton Ltd invested an additional €32,000 in long term financial investments. Required: a) Prepare a Cash Flow Statement for the year ended 31st March 2010 in accordance with accounting standards. (20 Marks) b) Comment briefly on the cash flow of Brompton Ltd for the year. (5 Marks) (Total: 25 marks) Question 5 KBC Limited manufactures a range of gardening products. Among the products manufactured are five main compost products which are identified by the numbers V100, W105, X110, Y115 and Z120. The main raw material in each compost product is Soiltex which costs €2 per kilogram. During the manufacturing process, Soiltex is mixed with a variety of minerals and other additives to make each individual compost product. One bag of compost equates to one finished good unit. You have been provided with the following information for each product for the forthcoming month of September 2009: Product Sales demand for September 2009 Selling price per bag of compost Cost of Soiltex per finished bag of compost Cost of other materials e.g. cost of minerals per finished bag V100 2,150 €14.99 €10 €1.25 W105 3,450 €15.50 €10 €1.10 X110 1,650 €13.75 €8 €1.50 Y115 2,690 €15.98 €12 €0.75 Z120 4,530 €12.99 €6 €2.00 In addition to the materials costs, the other resources required to make one bag of compost include labour of €1.75 and variable overhead of €0.65. Annual fixed overheads are estimated to be €240,000 and are expected to accrue evenly over the year. Due to the weather conditions experienced over the summer, the supplier of Soiltex has just informed the company’s purchasing officer that they will only be able to supply 45,000 kilograms of Soiltex in September 2009. The company has an exclusive agreement with this supplier and therefore cannot source this product elsewhere. All other resources can be obtained in the desired quantities. Required: (a) Calculate the profit that KBC Ltd could expect to make in September 2009 if there was no scarcity of the raw material Soiltex. (8 marks) (b) Taking into account the scarcity of Soiltex, devise a production plan for September 2009 that will ensure KBC Ltd will maximise their financial performance. (10 marks) (c) Explain the main differences between information prepared for financial accounting purposes and management accounting purposes. (7 marks) (Total: 25 marks) Question 6 Maria Liston is planning to commence operations of a new business on 1st January 2010, producing a seaweed-based bath oil. Initial market research has indicated that sales would be good for seaweed-based products. Maria has decided to test the market by producing just one product in the first few months of the business before developing the range. She has assembled the following information to help her assess the likely cash position throughout the three months to the end of March: (1) She plans to borrow €500,000 and invest €500,000 of her own capital which she will deposit in her business bank account. A machine (which will extract the oil from the seaweed) will be purchased immediately for €560,000. (2) The volume of sales of the single product to be manufactured is expected to be as follows: January 1,000 units February 1,000 units March 1,200 units April 1,500 units May 1,500 units (3) Stocks of finished goods at the end of each month will be equal to the planned sales for the following month. (4) The product will require just one type of raw material (seaweed) which is expected to cost €5 per kilogram. This will be purchased from a supplier who will harvest it from the sea under licence. Raw material will be paid for in the month following purchase. Each unit of product will require 2 kilograms of raw material. Stocks of raw material at the end of each month will be sufficient to cover the following month’s expected production. An opening stock of 2,000 kgs will have been purchased at the end of December; payment for this will be as per the normal credit terms. (5) Each unit of production will require 2 hours of labour at €12 per hour. (6) Fixed overheads are expected to amount to €5,000 per month, an amount that includes monthly depreciation of €3,000. Rent of a building amounts to €24,000 per annum and is payable in advance for the full year on 1st January. (7) The sales price will be €15 per unit. Maria intends to sell the product through distributors such as health shops and chemists. Customers are expected to pay 25% of sales value in the month of sale and 73% in the following month. Bad debts are expected to account for the remaining 2%. / … Question 6, continues on next page … / … Question 6 continued from the previous page … Required: (a) Prepare a cash budget for Maria Liston showing expected cash receipts and cash payments for the months of January, February and March. (You will need to prepare a sales budget, a production budget, a purchases budget and a labour budget as part of the overall process). (20 marks) (b) Describe briefly the advantages of budgeting for an organisation. (5 marks) (Total: 25 marks)