MARCH 2010 ACCOUNTING & FINANCIAL REPORTING (ACCOUNTING III) 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 ALL questions in Part A and any ONE question in Part B c) Part A carries 85% of the marks and Part B carries 15% of the marks. Marks for each question are shown in [ ] d) Non-programmable calculators are permitted in this exam PART A 1. You are presented with the following information from the Asharvin group of companies for the year to 28 February 2010: Asharvin Booh Camber plc plc plc 000 000 000 Tangible fixed assets 400 250 240 ------------Investments: Shares in Booh plc 480 Shares in Camber plc 220 ----700 ----Current assets Stocks (inventories) 340 210 140 Debtors 260 180 90 Bank 30 10 20 ------------630 400 250 ------------Current Liabilities Creditors (290) (190) (90) ------------Net current assets 340 210 160 ------------Total net assets 1,440 460 400 ===== ===== ===== Capital and reserves: Ordinary shares (1) 750 200 100 Profit and loss account 690 260 300 ------------1,440 460 400 ===== ===== ===== Additional information: A Asharvin plc purchased 150,000 shares in Booh plc on 21 March 2005, when Boohs profit and loss account balance stood at 200,000. B Asharvin plc purchased 80,000 shares in Camber plc on 10 July 2006, when Cambers profit and loss account balance stood at 80,000. C During the year ended 28 February 2010 Asharvin plc had sold goods to Cloe plc for 14,000. These goods had cost Asharvin plc 9,000. As at 28 February 2010 60% of these goods were unsold. Minority interests are not charged with their share of unrealised stock profits. D Included in the respective creditor balances were the following inter-company debts: Booh plc owed Camber plc 4,000 Camber plc owed Asharvin plc 3,000 Booh plc owed Asharvin plc 5,000. E Asharvin plc writes off any goodwill arising on consolidation to reserves. Question 1 continues overleaf

TASK Prepare the Asharvin plcs group balance sheet (Position Statement) as at 28 February 2010. Your workings should be included. [25] 2. The following are the recent final accounts of Redbus plc: Profit and Loss (Income Statement) extract year to 28 February: 2009 2010 000 000 Turnover (all on credit) 6,900 8,700 ==== ==== Operating profit 460 610 Interest paid (70) ------------Profit before tax 460 540 Provision for tax (110) (120) ------------Profit after tax 360 420 Proposed dividend (150) (200) ------------Retained profit 210 220 ==== ==== Summarised Balance Sheet (Position Statement) as at 28 February: 2009 2010 Fixed assets at cost 2,500 3,900 Cumulative depreciation (750) (1,300) ------------1,750 2,600 ------------Current assets Stock (inventory) 390 1,310 Debtors 580 1,100 Bank 20 ------------990 2,410 ------------Current liabilities Creditors (230) (340) Bank overdraft (180) Tax owing (110) (120) Dividends (150) (200) ------------(490) (840) ------------Long-term loan (900) -----------2,250 3,270 ----------------Capital and reserves: Ordinary share capital (1) 1,000 1,800 Retained profit 1,250 1,470 -----------------2,250 3,270 ===== ===== TASKS a) Prepare a cash flow statement for the year ended 28 February 2010. b) Calculate the profit before tax as a percentage of turnover for both years. c) Calculate the EPS for both years. d) Calculate the debtor collection period for both years. e) Comment on the financial situation of Redbus plc.

[10] [3] [3] [3] [6]

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3.

The following trial balance has been extracted from the books of Bramble Ltd for the year ended 28 February 2010: dr cr 000 000 Bank 110 Commission paid 30 Misc. income 5 Dividends received 30 Interest paid 25 Fixed assets at cost 1,900 Fixed asset depreciation (01/03/09) 550 Long-term investments 180 Office overheads 520 Office rent, rates and insurance 220 Profit and loss account (01/03/09) 530 Purchases 1,720 Sales 3,950 1 Ordinary share capital 1,200 Stock (inventory) (01/03/09) 180 Distribution costs 690 Debtors 910 Creditors 220 ------------------6,485 6,485 ======== ======== NOTES at 28 February 2010: Stock (inventory) was valued at 195,000. Office overheads owing amounted to 8,000. Rates prepaid amounted to 4,000. Depreciation of fixed assets is to be provided at 25% on cost. Corporation tax is estimated to be 90,000. The directors have declared an ordinary dividend of 14p per share. TASKS a) Prepare the profit and loss account (income statement) for the year ended 28 February 2010. [8] b) Prepare the balance sheet (position statement) as at 28 February 2010. [7] c) Calculate the following ratios: i the gross profit percentage ii the operating profit (PBIT) as a percentage of sales iii the profit before tax as a percentage of the total shareholders funds. iv the current ratio v the acid test [5] d) Comment briefly on the financial performance of Bramble Ltd. [5] Explain the importance of Financial Reporting Standards. [10]

4.

PART B 5. During the year to 28 February 2010 Luminouse plc made a new offer of shares. The details of the offer were as follows: 600,000 1 ordinary shares were issued on the following terms: 01 September 2009 on application 70 pence per share. 01 October 2009 on allotment 90 pence per share (this includes the share premium). 14 December 2009 first and final call 40 pence per share. Applications for 800,000 were received, and were allotted on a 3 for 4 basis. On the first and final call, one applicant who had been allotted 4,000 shares failed to pay the due amount, and the shares were duly declared forfeited. They were then reissued on 20 February 2010 at a price of 1.90 per share. The number of ordinary shares in issue as on 1 September 2009 was 2,300,000 all issued at par. TASKS Record the above transactions in the following ledger accounts: a) application and allotment account b) ordinary share capital account c) share premium account d) first and final call account e) forfeited shares account

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6.

Write notes on THREE of the following: a) bills of exchange b) social accounting c) segmental reporting d) capital instruments e) FRS 18 f) company taxation

[5 each]

INSTITUTE OF COMMERCIAL MANAGEMENT