DECEMBER 2010 ACCOUNTING TECHNIQUES (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 of a company called Turay Ltd, and have just taken out the trial balance as at 30 November 2010: dr cr 1 Ordinary share capital 200,000 6% Debentures 60,000 Profit and loss account (1/12/09) 248,000 Long-term bank loan 100,000 Sales 1,880,000 Purchases 1,380,000 Stock (inventory)(1/12/09) 90,000 Debtors (accounts receivable) 80,000 Prov. for doubtful debts (1/12/09) 3,000 Creditors (accounts payable) 55,000 Business rates 54,000 Insurances 39,000 Energy costs 82,000 Marketing expenses 45,000 Audit fee 10,000 Communication expenses 60,000 Loan interest paid 4,000 Premises 450,000 Equipment at cost 120,000 Equipment depreciation (1/12/09) 45,000 Salaries 170,000 Bank 6,000 Cash 1,000 ----------------------2,591,000 2,591,000 ======= ======= Notes at 30 November 2010: Stock (inventory) was valued at 92,000. Insurance prepaid amounted to 2,000. Salaries owing amounted to 8,000. The debenture interest is still outstanding. The directors have decided to adjust the provision for doubtful debts to 5,000. The equipment is to be depreciated by 20% using the REDUCING BALANCE method. The directors wish to provide 2,400 for taxation. The directors have declared a dividend of 18p per share.

Question 1 continues overleaf

TASKS a) Prepare the trading and profit and loss account (income statement) for the year ended 30 November 2010. [13] b) Prepare the balance sheet (position statement) as at 30 November 2010. [12] c) Explain the following terms: i sales ledger control account ii statutory deductions from wages iii ordinary share capital [5 each] 2. A business makes a single product. The business plans to make and sell 120,000 units in the next budget year. It has the capacity to make up to 160,000 units without incurring additional fixed cost expenditure. Details of budgeted costs and revenues are as follows: Direct material cost per unit 40 Direct wage cost per unit 30 Variable overhead cost per unit 40 Selling price per unit 170 Total fixed cost 3,500,000 TASKS a) Calculate the existing budgeted profit. [3] b) Calculate the existing budgeted break-even point. [2] c) Calculate the profit if the selling price was set at 185, and 101,500 units made and sold. [3] d) Calculate the profit if the selling price was set at 155, and 154,000 units made and sold. [3] e) Calculate the profit if the design and quality of the product was improved by spending 12 more per unit on material; and spending 85,000 more on advertising; and then making and selling 125,000 units at a price of 180 each. [5] f) Sketch a break-even chart based on the original budgeted data. [4] The following data relates to two different companies, which operate in the same business sector: A B 000 000 Sales in year (all on credit) 4,300 7,900 Cost of sales for the year 2,550 3,750 Total expenses for the year 1,250 1,850 --------------Opening stock value 190 230 Closing stock value 200 240 Closing debtors 380 500 Closing total current assets 630 770 Closing total current liabilities 320 520 TASKS a) For EACH company calculate the following: i gross profit to sales percentage ii net profit to sales percentage iii expenses to sales percentage iv stock turnover in days v debtor collection period vi current ratio vii acid test ratio b) Compare the financial performance of the two companies. a) b) Explain the principal purposes of budgetary control. Explain the principal sources of funds available to a large publicly quoted company.

3.

[2 each] [6] [10] [10]

4. 5.

Write notes on FOUR of the following: a) a cash budget b) an income and expenditure account c) the role of a bookkeeper d) the purposes of a trial balance e) accounting standards f) the major contents of a partnership agreement g) users of financial statements h) depreciation

[5 each]

INSTITUTE OF COMMERCIAL MANAGEMENT