Section 1: Multiple Choice Questions (15marks)

1. B

2. A

3. C

4. B

5. B

6. A

7. D

8. C

9. A

11. Complete balance sheet of the business at April 30, 2007.

10. C

3 marks

1,700
6,500
900
12,800

Cash at bank
Accounts receivable
Inventory
Equipment

21,900

Accounts payable
Loan payable

5,400
4,100
9,500

12,400

David Peters equity

12. The income statement of the limited company for the year ended June 30, 2008.
Sales revenue
Cost of sales

Depreciation expense
Directors salaries
Salaries expense
Office expenses
Utilities expense
Rent expense

29,700
5,720
23,980

625
1,275
1,250
350
540
500
4,540
19,440

2 marks

Section 2: Balance Sheet and Income Statement (10 marks)

FINAL ANSWER TO SECTION 2
Income statement for the year ended 30 September 2006 (revised)
Sales
Cost of sales
Gross Profit
Less expenses
Salary
Depreciation
Other operating cost

1,474
768
706
220
261
137
618
88
30
58
18
40
25
15

Operating Profit
Interest expenses
Profit before tax
Tax 30%
Profit after tax
Dividends payable
Profit generated for the year

Balance Sheet for the year ended 30 September 2006

Current assets
Cash at bank
Trade debtors
Inventory

21
196
207
424

Non-current assets
Cost
Accumulated Depreciation
Total assets
Current liabilities
Bank overdraft
Tax payable
Trade creditors
dividends payable
accounts payable
Other creditors

1,600
(702)
898
1,322
105
18
118
25
17
20
303

Non-current liabilities
10% Debentures - Repayable 2009
Total liabilities
Shareholders equity
Share capital
Retained profit

300
603
600
119
719
1,322

Total liabilities and shareholders equity

HES 5380 Engineering Management 2

Semester 2, 2014

Class Test 2

2 of 9

FINAL ANSWER TO
SECTION 2
Current Assets
Cash
Debtors
Inventory
Non Current Assets
NCA
fixture & fitting
Depreciation

Total asset
Current Liabilities
Bank Overdraft
Tax payable
Dividend payable
Trade creditors
other creditor
Accruals electricity
Tax payable
Non Current Liablities
Secured Loan
Total Liabilities
Owner's Equity
Share Capital
Retained Profit
Adjustment for revised tax
(add to profit)

Beginning
$'000

1
$'000

2
$'000

3
$'000

21
182
207
410

5
$'000

6
$'000

18

1,570
(690)
880

4
$'000

7
$'000

Ending
$'000
21
196
207
424

(4)

30

1,600
0
(702)
898

(12)

1,322

1,290
105
22

235

105
18
25
118
20
2
15
303

300

300

535

603

600
155

600
115

25
88
20

30
2
15

(12)

18

(25)

(15)

(4)

(2)

755

4
719

1,290

1,322

Income Statement
Sales
Cost of sales
Gross Profit
Salary
Depreciation
Doubtful Debt
electricity
Other operating cost

1,456
768
688
220
249

18

12
4
2

131
600
88

Net profit before interest

interest expenses
(debenture)
15
net profit before tax
73
tax expense 30%
22
net profit after tax
51
Dividend Declared
0
Retained Profit for the year
51
Retained Profit at the start
104
Retained Profit carried
forward
155
i) Depreciation on office equipment $100,000*12% = $12,000
ii) Doubtful debts $200*2% = $4
* Always remember to included retained profit brought forward from the previous year.

HES 5380 Engineering Management 2

Semester 2, 2014

Class Test 2

15

25

1,474
768
706
220
261
4
2
131
618
88
30
58
18
40
25
15
104
119

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Section 3: Answer any one of the two questions detailed below:

FINAL ANSWER TO SECTION 3 (any one of the problems)
Answer 1: NPV Value

NPV
cost
residual value
depreciable value
plant life
Annual maintenance
annual depreciation

Project 1
Project 2
200,000
300,000
0
150,000
4
20,000
50,000

Project 1
net profit
depreciation
capital cost
residual value
Maintenance cost
net cash flow
Discount value @ 15%
Present value (PV)
net present value (NPV)

year 0

Project 2

year 0

net profit
depreciation
capital cost
residual value
Maintenance cost
net cash flow
Discount value @ 15%
Present value (PV)
net present value (NPV)

4
30,000
37,500

year 1
year 2
year 3
year 4
89,000
89,000
89,000
89,000
50,000
50,000
50,000
50,000

200,000
-20,000
-20,000
-20,000
-200,000
119,000
119,000
119,000
1
0.86957
0.75614
0.65752
-200,000 103,478.8 89,980.7 78,244.9
139,742
year 1
111,000
37,500

year 2
111,000
37,500

year 3

0
-20,000
119,000
0.57175

68,038.3

year 4

111,000
37,500

111,000
37,500

-30,000
118,500

150,000
-30,000
268,500

-300,000

-300,000
1
-300,000
124,077

-30,000
-30,000
118,500
118,500
0.86957

0.75614

0.65752

0.57175

103,044 89,602.6 77,916.1 153,514.9

Project 1 should be selected as it gives higher NPV.

Answer 2: IRR of Project 1

IRR
For project 1, IRR lies above 15%; try 20%
net cash flow
200,000
119,000 119,000
119,000
119,000
Discount value @ 20%
1
0.83333
0.69444
0.57870
0.48225
200,000 99,166.3 82,638.4 68,865.3 57,387.8
Present value (PV)
net present value (NPV)
108,057

Discount rate (%)

15
20
5
IRR = 20+5(108057/31685) = 37.05% or
46.6%
OR
IRR = 46.6% (by using polynomial formula)

NPV
139,742
108,057
difference

Answer 3: Payback Period

Payback period (PP)

Project 1
Cumulative cash flow
PP = 1year +(81/119)mths
PP = 1year + 8.1mths

200,000 -81,000

38,000 157,000 276,000

Answer 4: Advantage of using Payback Period

Quick and easy to calculate, emphasises the short term

HES 5380 Engineering Management 2

Semester 2, 2014

Class Test 2

2 of 9

OR CASH FLOW STATEMENT ANSWER Answer 1:

(a) Direct Method
i) Opening balance of account receivable
plus sales for the period
equal to the expected amount of receipts
less closing balance
cash receipts from the customers

95
591
686
72
614

ii) Opening Inventory

plus purchase of inventory for the period
equals the amount available for sale
less closing balance
equals cost of sale (cost of amount sold)

103
x
103 + x
-81
382
103 + x - 81 = 382
x = 360

iii) Opening balance of account payable

plus purchase of inventory for the period
equals the expected amount to pay
less closing balance of account payable
equals the cash paid

84
360
444
-57
387

iv) Opening balance of interest payable

plus interest expense for the period
equals the expected amount to pay
less closing balance of interest payable (amount unpaid)
equals the interest paid
Cash receipts from customer
Cash paid to suppliers and employees
Interest Paid
other expenses (excluding depreciation)
Net Cash provided by operating activities

7
13
20
-3
17
614
-387
-17
-109
101

Answer 2: (b) Indirect Method (Reconciliation)

Net operating profit
Adjustment for
Plus: Non-Cash Expenses (Depreciation)
Plus: Accounts Receivable (decrease)
Plus: Inventories (decrease)
Minus: Accounts Payable (decrease)
Minus: Interest Payable (decrease)

32
23
22
-27
-4

Cash flow from operating activities

101

HES 5380 Engineering Management 2

Semester 2, 2014

55

Class Test 2

3 of 9

3. Distinguish between an accrual and a deferral. (1% marks)

An accrual represents the situation where expenses have been incurred but not paid (eg accrued wages) or
revenues earned but not received (eg interest receivable).
A deferral represents the situation where payments have been made in advance of the expense being
recognised (eg prepaid insurance) or monies received in advance of the revenue being earned (eg
subscriptions received).

Section 4: Answer any one of the two questions detailed below:

FINAL ASNWER TO SECTION 4
(a) Return on common stockholders
equity. (Equity on 12/31/08 was $900.)

ROSF
PAIT/Ave. Equ.

2009

2010

88/970 =
9.1%

252/1035 =
24.3%

ROCE
240/1420 =
PBIT/LTL+Equity 16.9%

430/1440 =
29.9%

(b) Return on assets.

(Assets on 12/31/08 were $1,900.)

PBIT/Ave. TA

240/2055 =
11.7%

430/2275 =
18.9%

(c) Profit margin ratio (net or gross).

GrossProfit/Sales

2570/3460 =
74.3%

2830/3800 =
74.5%

PBIT/Sales

240/3460 =
6.9%

430/3800 =
11.3%

(d) Inventory turnover period.

(Inventory on 12/31/08 was $340.)

Ave. Inv./COS
x365

365/890 =
149.7 days

425/970 =
159.9 days

(e) Asset turnover period.

(Assets on 12/31/08 were $1,900.)

Ave. TA/Sales
x365

2055/3460 =
216.8 days

2275/3800 =
218.5 days

(f) Current ratio.

CA/CL

1310/790 = 1.7 1380/900 = 1.5

(g) Acid Test ratio.

CA (excl)/CL

760/790 = 0.96 800/900 = 0.89

(h) Gearing ratio.

LTL/LTL+Equity

380/1420 =
26.8%

410/1440 =
28.5%

(i) Interest cover ratio.

PBIT/Interest
expense

240/20 = 12

430/10= 43

HES 5380 Engineering Management 2

Semester 2, 2014

Class Test 2

4 of 9

OR FULL COSTING ANSWERS

a)

b)

= Production overhead Direct labour cost

= $140,000 $400,000
= 0.35 (35%)

= Production overhead Machine hours

= $300,000 20,000 hrs
= $15/hour

= Production overhead Machine hours

= $140,000 2,000
= $70/machine hour

= Production overhead Direct labour hours

= $300,000 7,000
= $42.86/labour hour

d)
Direct Materials
Direct Labour costs
A Overhead (labour cost)
$660 x 0.35
B Overhead (machine hours)
80 x $15

Direct Materials
Direct Labour costs
A Overhead (machine hours)
40 x $70
B Overhead (labour hours)
10 x $42.86

A
$
800
660

B
$
600
200

Total
$
1,400
860

231

A
$
800
660

231
1,200

1,200
3,691

B
$
600
200

Total
$
1,400
860

2,800

2,800
429

429
5,489

e) The overhead should be allocated based on a) as the cost center B uses most of the machine hours and the cost
center A uses most of the labour costs. Hence the job should be quoted as minimum $3,691 to the client.
f) Should the Company make or buy the item:
Cost to buy 12000 x $ 38.60
Unavoidable fixed costs*
Total cost to buy
* (12000 x $7.80 x 0.55)
Total cost to make (12000 x $40.50)
Decision

= $ 463,200
51,480
514,680

=$ 486000
Make

g) What is the most they would be willing to pay an outside supplier?

Total cost to make per unit
Unavoidable costs per unit
Maximum cost per unit to buy

HES 5380 Engineering Management 2

Semester 2, 2014

= $40.50
( 4.29)
= $36.21

Class Test 2

( 0.55 * $7.80 )

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