MARCH 2010 ACCOUNTING IN DECISION MAKING (ACCOUNTING II) 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 any FIVE questions c) All questions carry equal marks. Marks for each question are shown in [ ] d) Non-programmable calculators are permitted in this examination 1. The following list of balances as at 28 February 2010 of ALZ Ltd has been taken from the books AFTER the trading account has been completed: 000 000 Dr Cr Gross profit for the year 410 Equipment at cost 300 Equipment depreciation (01 03 09) 120 Ordinary share capital (1) 200 Distribution costs 140 Administration expenses 90 Interim dividend paid 10 Stock (inventories) at 28 02 10 210 Trade debtors 250 Trade creditors 70 Cash and bank 10 5% Debentures (redeemable 2016) 100 Profit and loss account (01 03 09) 110 --------1,010 1,010 === === Notes: Equipment is to be depreciated at 25% on cost. Interest on debentures is still unpaid. Corporation tax of 15,000 is to be provided. The directors have declared a final dividend of 9 pence per share. TASKS a) Prepare the profit and loss account (income statement) for the year ended 28 February 2010. b) Prepare the balance sheet (position statement) as at 28 February 2010. c) Calculate the EPS. d) Calculate the profit before tax as a percentage of shareholders total capital. The following details have been obtained from the final accounts of ROM plc for the last three years: 2007 2008 2009 000 000 000 Sales all on credit 250 310 440 Cost of sales 120 140 180 Total expenses 50 70 90 Closing debtors 30 40 45 Average stock 31 39 44 TASKS a) Calculate for EACH of the three years: i the gross profit percentage ii the net profit percentage iii the expenses to sales percentage iv the debtor collection period in days v the stock turnover in days b) Comment on the trends as revealed by your answer to a) above.

[8] [8] [2] [2]

2.

[15] [5]

3.

continued overleaf The following are the records of the Keepfit sports club which has not kept a full set of accounts: Assets and liabilities 01 03 09 28 02 10 Fixed assets (book value) 160,000 ? Investments (long term) 20,000 25,000 Debtors 600 800 Creditors 1,000 1,200 Bar stock 5,000 6,000 Wages owing 600 900 Prepaid insurance 300 400 Balance at bank 2,000 ? Subscriptions outstanding 300 390 Summary of the bank transactions in the year: Payments Receipts Purchase of new fixed assets 25,000 Investments made 5,000 Wages (bar staff) 26,000 Insurance 9,000 Rent and rates 8,000 Communication expenses 5,000 Payments to suppliers (bar) 73,000 Sundry expenses 1,900 Bar sales 181,000 Subscriptions received 12,800 Interest paid 1,200 It has been decided to depreciate tangible fixed assets by 25%. TASKS a) Calculate the accumulated fund as at 01 03 09. [2] b) Calculate the bank balance as at 28 February 2010. [2] c) Prepare the bar trading account for the year ended 28 February 2010. [4] d) Prepare the income and expenditure account for the year ended 28 February 2010. [6] e) Prepare the balance sheet (position statement) as at 28 February 2010. [5] The summarised financial statements of Rowig Ltd for 2008 and 2009 were as follows: Rowig Ltd balance sheets (position statements) as at 31 December 2008 2009 000 000 000 000 Fixed assets at cost 19,000 29,000 Depreciation (8,000) 11,000 (9,000) 20,000 Current assets Stock (inventories) 11,000 24,000 Debtors 6,000 5,000 Bank 2,000 --------------19,000 29,000 --------------Current liabilities Overdraft 3,000 Creditors 6,000 1,500 Taxation 2,500 3,500 Dividends 4,000 6,500 --------------12,500 14,500 --------------Working capital 6,500 14,500 Long-term loans (2,000) -------15,500 -------9,000 6,500 -------15,500 -------(6,000) -------28,500 -------14,000 14,500 -------28,500 --------

4.

Capital and reserves: Ordinary shares (1) Profit and loss account

Question 4 continues overleaf Rowig Ltd Profit and loss account (income statement) for the year ended 31 December 2009: 000 Operating profit 19,000 Interest paid (1,000) --------Profit before tax 18,000 Taxation (3,500) -------Profit after tax 14,500 Dividend (6,500) -------Retained profit 8,000 -------TASKS a) Prepare a cash flow statement for Rowig Ltd for the year ended 28 February 2010. [10] b) Calculate the following for both years: i the current ratio ii the acid test [3 each] c) Comment briefly on the financial performance during the year ending 28 February 2010. [4] 5. Explain the following: a) the reasons for accounting standards b) accounting for depreciation c) the purposes of an extended trial balance (ETB) d) the principal purpose of double entry bookkeeping

[5 each]

6.

Abibitu, Biye and Cindy are in an accounting partnership and have agreed to share profits and losses in equal proportions. The following trial balance was taken from the firms books at 28 February 2010: Dr Cr Fee income 890,000 Premises at cost 500,000 Office equipment at cost 60,000 Vehicles at cost 70,000 Depreciation accounts 01 03 09: Office equipment 30,000 Vehicles 25,000 Rates, rent and insurance 115,000 Communication expenses 46,000 Staff salaries 230,000 Energy costs 58,000 Stationery 39,000 Sundry expenses 36,000 Bad debts written off in the year 4,000 Prov. for doubtful debts 01 03 09 3,000 Debtors 87,000 Creditors 52,000 Cash and bank 9,000 Capital accounts 01 03 09: Abibitu 110,000 Biye 110,000 Cindy 100,000 Current accounts 01 03 09: Abibitu 5,000 Biye 5,000 Cindy 4,000 Drawings in year: A 30,000 B 25,000 C 25,000 ----------------------1,334,000 1,334,000 ======= =======

Question 6 continues overleaf Notes at 28 February 2010: Staff salaries owing amounted to 9,000. Rates prepaid amounted to 3,000. Office equipment is depreciated at 10% pa on cost. Vehicles are depreciated at 25% pa on cost. The provision for doubtful debts is to be increased to 5,500. The partners are to be credited with the following salaries: Abibitu 18,000 Biye 13,000 Cindy 9,000 TASKS a) Prepare the partnership profit and loss account (income statement), including an appropriation section for the year ended 28 February 2010. [8] b) Prepare the partners current accounts for the year ended 28 February 2010. [4] c) Prepare the partnership balance sheet (position statement) as at 28 February 2010. [8] 7. Write notes on FOUR of the following: a) Financial gearing (or leverage) b) The sources of finance available to a limited company c) Intangible fixed assets d) The purposes of an audit trail e) The matching (or accruals) concept f) Fixed assets g) Day books (or journals)

[5 each]

 INSTITUTE OF COMMERCIAL MANAGEMENT