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Certificate in Advanced
Business Calculations
Level 3
Model Answers
Series 3 2009 (3003)
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(3)
Questions
Model Answers
Helpful Hints
Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.
EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.
Page 1 of 16
QUESTION 1
Zheng deposited money into three different accounts, as follows:
Sum invested
Type of interest
Rate of interest
per annum
Time invested (years)
Interest earned
Final amount
(Principle + Interest)
Calculate the missing figures.
Account A
80,000
Simple interest
4.5%
Account B
140,000
Compound interest
4.2%
Account C
?
Compound interest
?
?
18,000
?
5
?
?
6
23,610.35
115,110.35
(Total 12 marks)
Sum invested
Type of interest
Rate of interest
per annum
Time invested (years)
Interest earned
Final amount
(Principle + Interest)
Account A
80,000
Simple interest
4.5%
Account B
140,000
Compound interest
4.2%
Account C
91,500
Compound interest
3.9%
5
18,000
98,000
5
31,975.52
171,975.52
6
23,610.35
115,110.35
Account A:
Time invested = 18,000 / (80,000 x 4.5%) = 5 years
Final amount = 80,000 + 18,000 = 98,000
Account B:
Final amount = 140,000 x (1 + 0.042)5 = 171,975.52
Interest = 171,975.52 - 140,000 = 31,975.52
Account C:
Sum invested = 115,110.35 - 23,610.35 = 91,500
Proportional increase = 115,110.35 / 91,500 = 1.258
Let R = rate of compound interest
(1 + R)6 = 1.258
1 + R = 1.03899
Rate (R) = 3.9%
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Page 2 of 16
QUESTION 2
Chelsey bought 75,000 (nominal value) of 3% debenture stock with each 100 (nominal value)
of stock costing 90.
(a) Calculate the amount paid for the stock.
She held the stock for 3 years.
(2 marks)
(b) Calculate
(i) the total interest earned
(2 marks)
(2 marks)
Chelsey purchased 15,000 5% preference shares and received 1,260 dividend in the first year.
(c) Calculate the nominal value of one share.
(2 marks)
She received the same dividend in the second year. She then sold the shares for 122,100 and
calculated that this was exactly 10% more than she paid for them.
(d) Calculate the purchase price of one share.
(2 marks)
(e) Calculate the percentage profit per annum, based on purchase, sale and dividends.
(4 marks)
(Total 14 marks)
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Page 3 of 16
3003/3/09/MA
Page 4 of 16
QUESTION 3
An industrial product may be manufactured by two methods of production.
Using Method X, fixed costs are 1,750,000 per period and variable costs are 295 per unit of
product.
Using Method Y, fixed costs are 1,050,000 per period and variable costs are 335 per unit of
product.
The manufacturer plans to sell the product at 435 per unit.
(a) Calculate:
(i) the level of output per period for which the total costs are the same
(3 marks)
(ii) the break even point in units per period for method X
(3 marks)
(iii) the total cost per period at break even for method Y.
(4 marks)
(1 mark)
(c) Calculate the expected profit per period using this method.
(3 marks)
(Total 14 marks)
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Page 5 of 16
3003/3/09/MA
Page 6 of 16
QUESTION 4
Part of the Balance Sheet of Retailer A at the end of the first year of trading is shown below:
Fixed Assets
Current Assets
Figure omitted
stock
debtors
bank
cash
Amounts due within 12 months
8,899
9,330
2,420
385
21,034
trade creditors
Net current assets
8,090
12,944
251,134
(88,300)
162,834
(a) Using the above figures from the Balance Sheet, calculate:
(i)
(ii)
Current ratio
Borrowing ratio (capital gearing ratio)
(2 marks)
(2 marks)
(2 marks)
500,000
377,700
15,500
18,500
69,900
Calculate:
(i) gross profit
(2 marks)
(ii)
(2 marks)
net purchases
(3 marks)
(Total 13 marks)
3003/3/09/MA
16
Page 7 of
21,034
= 2.6
Current liabilities
8,090
Borrowing ratio = Total borrowings = 88,300
= 0.54
Net worth
Total borrowings
162,834
=
88,300 = 0.35
251,134
3003/3/09/MA
Page 8 of 16
QUESTION 5
Ashok calculates the expected average rate of return of investment project X as 28%, using the
formula:
Average revenue return per annum net of repair and maintenance costs
Initial cost of Project
He uses estimated figures as follows:
Initial cost of the project
850,000
50,000
5 years
He further estimates that the revenue return before deducting the cost of repairs and maintenance will
be 300,000 for each of the first 4 years.
(a) Using Ashoks formula, calculate the average revenue return per annum net of repair and
maintenance costs, and hence find the estimated revenue return before deducting the cost of
repairs and maintenance for year 5.
(6 marks)
(b) Bettany estimates the net present value of investment project Y at two discount rates, with the
following results
Discount rate 10%
Discount rate 13%
(i)
(ii)
Given that the investor requires the project to earn at least 13.5% per annum, advise the
investor whether to proceed with the investment.
(2 marks)
(Total 11 marks)
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Page 9 of 16
3003/3/09/MA
Page 10 of 16
QUESTION 6
A bankrupt trader owed a total of 87,600, of which 35,500 is secured against the traders assets and
the rest is unsecured.
The assets of the business realised 66,760.
(a) Express the assets as a percentage of the liabilities.
(2 marks)
(b) Calculate how much in the will be paid to the unsecured creditors. State the units of your
answer clearly.
(4 marks)
The trader owed Dinara 17,000, of which 25% is secured against assets.
(c) Calculate how much Dinara received.
(5 marks)
(Total 11 marks)
3003/3/09/MA
Page 11 of 16
3003/3/09/MA
Page 12 of 16
QUESTION 7
Machine M has an initial cost of 180,000 and is depreciated by the equal instalment method, at the
rate of 25,000 per year until the book value is less than 25,000.
(a) Prepare a depreciation schedule for the first 3 years that shows, for each year, the yearly
depreciation, the accumulated depreciation and the book value at the end of the year.
(4 marks)
(b) Calculate the anticipated life of the machine in a whole number of years, and the residual value at
the end of that period.
(3 marks)
Machine N is depreciated by the diminishing balance method. It has an initial cost of 250,000 and a
book value after one year of 190,000.
(c) Calculate
(i)
(ii)
(3 marks)
(2 marks)
(2 marks)
(Total 14 marks)
3003/3/09/MA
16
Page 13 of
Annual
Accumulated
Book value
depreciation
depreciation
180,000
1
2
3
25,000
25,000
25,000
25,000
50,000
75,000
155,000
130,000
105,000
(i) Proportion of value remaining after one year = 190,000 / 250,000 = 0.76
Rate of depreciation = 1 0.76 = 0.24 = 24%
(ii)
3003/3/09/MA
16
Page 14 of
QUESTION 8
A company sold 540 spectroscopes in year 2007 and 756 spectroscopes in year 2008.
(a) Calculate the quantity relative for year 2008 with 2007 as the base year.
(2 marks)
The price of the spectroscopes fell by 12.5% from year 2006 to year 2007.
(b) Express this change as a price relative.
(1 mark)
In year 2008 the company cut the price of its spectroscopes by 10% of the year 2007 price.
(c) Calculate the index of prices for the years 2006 to 2008
(i) as a chain base index
(2 marks)
(ii) with the prices for 2007 and 2008 based on 2006 as 100.
(3 marks)
(d) Calculate the percentage increase in receipts from sales of spectroscopes from 2007 to 2008.
(3 marks)
(Total 11 marks)
3003/3/09/MA
Page 15 of 16
2007
87.5
2008
90
2007
87.5
2008
78.75
3003/3/09/MA
Page 16 of 16
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