Series 2 Examination 2012

CERTIFICATE IN ADVANCED BUSINESS CALCULATIONS

Level 3
Tuesday 10 April
Subject code: 3003
Time allowed: 3 hours

INSTRUCTIONS FOR CANDIDATES

Answer all 8 questions.

Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams, etc.

All answers must be correctly numbered but need not be in numerical order.

You must show all calculations, where applicable, on the answer paper provided.

You may use mathematical and statistical tables.

Your work should be accurate and neat.

Your may use a calculator provided the calculator gives no printout, has no word display facilities, is silent and cordless.
The provision of batteries and their condition is your responsibility.

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ASE 3003 2 12 1

QUESTION 1
(a)

(b)

Calculate the principle that will earn a total of 62,156.25 simple interest in 6 years
at 4% per annum.

(3 marks)

An investment account of 120,000 attracts 3.6% compound interest per annum.

(i)

If the interest is compounded annually, calculate how much will be in the account
after 5 years.

(ii)

Calculate how much more interest would have been earned if the interest had
been compounded six-monthly at a rate of 1.8% per period.

(iii)

Calculate the true annual rate of compound interest if interest of 1.8% is

added half-yearly.

(3 marks)
(3 marks)
(2 marks)

(Total 11 marks)
QUESTION 2
Chloe bought two blocks of government stock at different rates and values. She tabulated her results as
follows:
Stock A

Stock B

Rate of interest (on nominal value of stock)

3%

100 of stock bought at

87

65,250

93,500

Nominal value of stock purchased

110,000

Stock held for

3 year

9,000

17.5%

Amount invested

Total interest earned

Total percentage yield on amount invested
Copy and complete the above table.

(Total 13 marks)

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QUESTION 3
An industrial product may be manufactured by two methods of production.
Using Method X, fixed costs per period are 600,000 and variable costs are 295 per unit of product.
Using Method Y, fixed costs per period are 765,000 and variable costs are 240 per unit of product.

(a)

Calculate the level of output for which the total costs are the same.
(3 marks)

(b)

(c)

The total cost for Method X at this output is 1,485,000. State the total cost for
Method Y at this output.

(1 mark)

State, with a reason, when Method X should be used rather than Method Y.
(2 marks)

Method Y is chosen for production, and the manufacturer sets a selling price of 300 per unit.
Calculate:
(d)

the number of units for break-even

(3 marks)

(e)

the profit or loss at production and sales of 10,000 units per period.
(3 marks)
(Total 12 marks)

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Page 3 of

QUESTION 4
Balance Sheet at 31 December Year 1

Fixed assets
premises
equipment
furniture
transport

140,000
17,000
10,600
34,500
202,100

Current assets
stock
30,500
debtors
5,905
bank
2,900
cash
620
Amounts due within 12 months

39,925

trade creditors
Net current assets

9,780
30,145
232,245

Amounts due after 12 months

mortgage on premises
Financed by
capital
Add net profit
Less drawings
(a)

( 92,500)
139,745

135,000
14,445
( 9,700)

139,745

State the formulae for:

(i)

Current ratio

(ii)

Acid test ratio

(iii)

Borrowing ratio.

(1 mark)
(1 mark)
(1 mark)

(b)

Using the above Balance Sheet, calculate:

(i)

the current ratio

(ii)

the acid test ratio.

(2 marks)
(2 marks)

At the end of the second year of trading, the stock held had reduced from 30,500 to 27,000. During the
second year, the average length of time that items remained in stock was 25 days.
(c)

Calculate:
(i)

the average stock held during the year

(ii)

the cost of goods sold during the year

(iii)

the net purchases.

(2 marks)
(2 marks)
(2 marks)

(Total 13 marks)

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QUESTION 5
A business owner is considering an investment project. The capital cost of the project is 1,000,000,
considered to occur in year 0. The estimated returns are as follows:
Year 1 net cash inflow
Year 2 net cash inflow
Year 3 net cash inflow
Year 4 net cash inflow
(a)

250,000
400,000
400,000
225,000

Calculate the payback period of the project in years and months.

(3 marks)

The project is required to pay back within 3 years and earn a return of at least 8.5%.
(b)

Using a rate of return of 8.5%, and the following table, calculate the net present value for
the project.
Year
Year 1
Year 2
Year 3
Year 4

Discount factor
0.922
0.849
0.783
0.722
(3 marks)

(c)

Advise the business owner, with reasons. Your reasons should refer to both figures
calculated so far in this question, and explain the figure for net present value.

(3 marks)

The net present value of the project at a rate of return of 10% is 11,725, and the internal rate of return is
10.55%.
(d)

Assuming a straight-line relationship between net present value and rate of return, use
these figures to calculate the net present value of the project at a rate of return of 8.5%.

(4 marks)

(Total 13 marks)

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QUESTION 6
(a)

In bankruptcy A, unsecured creditors receive 0.45 in the pound.

A lender is owed 120,000, of which 20% is secured against assets.
Calculate the amount received by the lender.
(4 marks)

(b)

In bankruptcy B:
the total liabilities are 560,000
the amount owed to unsecured creditors is 375,500, and
an unsecured creditor who is owed 50,000 receives 18,000
the expenses of winding up the business are 4,500.

Calculate:
(i)

the rate payable to unsecured creditors

(ii)

the total assets realised.

(2 marks)
(4 marks)
(c)

Sebastian is owed money in two bankruptcies, C and D. He is owed 28,500 as an unsecured

creditor in bankruptcy C that pays 0.29 in the pound to unsecured creditors. He is also owed
40,000 in bankruptcy D, as the sole secured creditor. The total assets of D, after winding up
expenses, realised 36,000.
Calculate how much Sebastian receives in total.
(3 marks)
(Total 13 marks)

QUESTION 7
A factory machine cost 9,500,000. It is depreciated by the equal instalment method. After 3 years, its
book value is 5,600,000.
Calculate:
(a)

the amount of depreciation in each of the first 3 years

(2 marks)

(b)

the percentage of the original cost depreciated in each of the first 3 years
(2 marks)

(c)

the depreciation in the third year as a percentage of the book value after 2 years
(3 marks)

(d)

the expected life of the machine at this rate of depreciation

(2 marks)

(e)

the rate of depreciation by the diminishing balance method over the first 3 years
that would achieve the same book value at the end of 3 years.

(4 marks)

(Total 13 marks)

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QUESTION 8
An index of production has the following values, based on year 2008 = 100.
Year
Index
(a)

2008
100

2009
115.0

2010
92.0

2011
96.6

Explain the percentage change that occurred between 2008 and 2011
(3 marks)

(b)

Calculate the indices for 2010 and 2011 as a chain base index
(3 marks)

(c)

Calculate the percentage change in production from 2009 to 2011

(3 marks)

The production in 2007 was 15% lower than in 2008.

(d)

State the index for 2007, with 2008 as the base year
(1 mark)

(e)

Calculate the index for 2008, with 2007 as the base year.
(2 marks)

(Total 12 marks)

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