Revision Questions (Please also study past papers – the questions in this document

will help, but are not ‘everything’ you need))

TO BE READ IN CONJUNCTION WITH ‘WARNING’ ON ACCOMPANYING SLIDES

1.

Explain THREE ways in which financial statements for a company differ from those for a
sole trader.

2.
3.

4.

D Ltd is currently showing trade receivables of £928,000 in its trial balance as at 29 th

February 2020. One of the company’s customers has just gone bankrupt, owing the
company £28,000. Recovery of this debt is not expected and an adjustment should be
made.

D Ltd has not previously had an allowance for receivables, but based upon past
experience now wishes to set up an allowance for receivables of 5% against unknown
bad and doubtful debts.

(a) Calculate D Ltd’s bad debt expense charge for the year ended 29 th February
2020.

(b) State, and briefly explain, the accounting concept demonstrated by the
treatment of bad and doubtful debts in part (a).
5.

E Ltd is currently showing trade receivables of £457,000 in its trial balance as at 29 th

February 2020. One of the company’s customers has just gone bankrupt, owing the
company £47,000. Recovery of this debt is not expected and an adjustment should be
made.

E Ltd previously had an allowance for receivables of £30,000, but based upon past
experience now wishes to set up an allowance for receivables of 10% against unknown
bad and doubtful debts.

Calculate E Ltd’s bad debt expense charge for the year ended 29th February 2020.

6.
F Ltd is currently showing trade receivables of £283,000 in its trial balance as at 29 th
February 2020. One of the company’s customers has just gone bankrupt, owing the
company £28,000. Recovery of this debt is not expected and an adjustment should be
made.

F Ltd previously had an allowance for receivables of £40,000, but based upon recent
experience now wishes to set up an allowance for receivables of 5% against unknown
bad and doubtful debts.

Calculate F Ltd’s bad debt expense charge for the year ended 29th February 2020.

7.

Explain what is meant by the Balanced Scorecard, including an explanation of each of

the FOUR perspectives.

8.

Differentiate between a fixed budget and a flexed budget, giving examples of when
each may be appropriate.
9

The Success Education Centre (SEC), which commenced trading in 20X3, provides tuition
for students preparing for accountancy examinations in Homeland. In 20X5, SEC
established a similar semi-autonomous operation in the neighbouring country of
Awayland. Divisional managers have no control over acquisition and financing policy
with regard to operations under their control.

Financial data (all stated on an actual basis) in respect of the two divisions for the two
years ended 30 November 20X6 and 20X7 are as follows:

Income statement 20X6 20X7

Summary Statements of Financial Position

20X6 20X7

Required:

Provide an assessment of the financial performance of SEC and of the respective

contributions of the operations in Homeland and Awayland during the two years ended
30 November 20X7.
10

A Co has provided you with the attached summary statements from the company’s
budget for the forthcoming year.

Forecast Statement of Financial Position as at 31 October 20X7

$000 $000
3,07
Non-current assets 2

Current assets
8
Inventory 04
7
Trade receivables 68
3
Bank 48
1,9
20
4,99
2

3,31
Capital and reserves 2
Non-current liabilities 888
Trade payables 672
12
Other short-term liabilities 0
4,99
2
Forecast Statement of Profit or Loss for the year ended 31 October 20X7
$000
11,7
Revenue 20
10,3
Cost of sales 00
1,4
Gross profit 20
Selling, distribution and administrative costs 700
Net profit 720

The directors intend to appraise the budget using the following key metrics.

Target

Return on capital employed % 18.0

Profit/sales ratio % 7.0
Net asset turnover times 5.0
Non-current asset turnover times 5.5
Current ratio times 2.0
Quick or acid test ratio times 1.5

Required:

(a) Calculate the six key metrics and whether or not they will be acceptable to the
directors of A Co.

(b) For each key metric suggest one action that might be taken to help to achieve
the target.

FURTHER QUESTIONS ON RATIOS CAN BE FOUND AMONGST THE PAST PAPERS ON

BLACKBOARD
11

Brisbane Brilliance Ltd set up a production unit to manufacture and sell ‘Broncho’, a new
consumer product.

The first year’s budgeted production and sales were 1,000 units.

The budgeted sales price and standard costs for ‘Broncho’ were:

£ £
Standard sales price (per unit) 30
Standard costs (per unit):
Raw materials (10 kg at £1) 10
Labour (2 hours at £7) 14
(24)
Standard contribution (per unit) 6

Actual results for the first year were:

£ £
Sales (1,000 units) 32,600
Production costs (1,000 units):
Raw materials (10,400 kg purchased and used) 10,800
Labour (2,800 hours) 21,000
(31,800)
Actual contribution (1,000 units) 800

The managing director, Mr Kasper, made the following observations on the results:

‘I’m disappointed. Performance is down significantly on budget. I really can’t understand

this as we’ve made and sold exactly what we intended to.’

‘Sales were made at what was felt to be the highest feasible price, but we now feel that
we could have sold for £34 with no adverse effect on volume.’

‘Labour costs went up significantly over the year due to a resurgence in the power of the
industry’s trade union. Consequently, the going rate for the specialist skills required to
produce the product was £8.50 per hour, although we always paid below the general
market rate whenever possible.’

‘The raw material cost which was expected at the time the budget was prepared was £1
per kilogram. However, the market price relating to purchases of the material during the
year was £1.20 per kilogram.’
‘I’m starting to wonder whether using standards as a basis for a budget is just a waste of
time.’

Required

(a) Calculate the planning variances necessary as a result of the information

supplied by the Managing Director.
(6 marks)

(b) Use the revised standards to calculate the operational variances and use them,
together with the planning variances calculated in (a), to reconcile budget and
actual contribution.
(7 marks)

(c) Explain why it is necessary in performance management to differentiate

between planning and operational variances.
(6 marks)
12

Whitland Whitewash Co. (WW) is a paint manufacturer that produces a range of paints
which it sells to trade and retail outlets.

During April, WW produced 7,800 litres of white paint.

WW uses skilled staff to operate the machinery that converts the raw materials for the
paint into the finished product. The standard direct labour hours for each 100 litres of
white paint produced are as follows:

8 direct labour hours at $14 per hour

During April, 640 direct labour hours were worked at a total cost of $10,100.

It has now been realised that a new wage rate of $16 per hour had been agreed with the
workers.

Required

(a) (i) Calculate the labour rate planning variance for April
(2 marks)

(ii) Calculate the operational labour rate variance and the operational labour
efficiency variance for April.
(3 marks)

(b) State THREE reasons why it is important to separate variances into their planning
and operational components. You may use the figures calculated in part (a) to
illustrate your answer.
(3 marks)
13 Target Costing

You have recently been appointed as the management accountant of a company that
manufactures furniture for commercial premises. The company’s design department
have developed a more ergonomic computer desk for which the marketing department
believes there would be much demand over the next three years. The company’s
financial manager has provided you with the following information:

i. £400,000 would need to be invested in new plant and equipment, which would have
a scrap value of £80,000 at the end of the three years
ii. Average working capital per year is expected to be £75,000
iii. Forecast unit sales are: year 1 – 20,000, year 2 – 60,000, year 3 – 30,000
iv. The forecast selling price per unit is £250
v. Fixed costs are estimated at £2,000,000 per annum
vi. The company’s required return on capital employed is 12%.

Required:

Using a target costing approach, establish the average target variable cost per unit of
production.

14

A budget smartphone manufacturer is planning to produce a new model. The potential

market over the next year is 1,000,000 units. J Ltd has the capacity to produce 400,000
units and wishes to sell 400,000 units.

It could sell 100,000 units at a price of $50. Demand would double for each $5 fall in the
selling price.

A minimum margin on sales of 20% is required.

Calculate the company’s target cost per unit to the nearest $.