BSc (Hons) Financial Services (General)

Cohort: BFSG/08/FT Year 1

Examinations for 2008 2009 Semester II

MODULE: ACCOUNTING FOR FINANCE

MODULE CODE: ACCF 1117

Duration: 2 Hours

Reading time: 15 Minutes

Instructions to Candidates:

1. This question paper consists of Section A and Section B.

2. Section A is compulsory.
3. Answer any two questions from Section B.
4. Always start a new question on a fresh page.
5. Total Marks: 100

This question paper contains 4 questions and 8 pages.

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 SECTION A: COMPULSORY

QUESTION 1: (40 MARKS)

The Trial Balance of Seiko plc on 30 June 2008 was as follows
Rs000 Rs000
Sales 18,550
Purchases 10,225
General distribution cost 2,755
General administration expenses 495
Land 5,000
Buildings 2,000
Equipment at cost 3,100
Motor vehicles at cost 1,100
Provision for depreciation as at 1 July 2001
- Buildings 110
- Equipment 1,250
- Motor vehicles 100
Stock at 1 July 2001 1,150
Cash in hand 95
Motor expenses 90
Bank 100
Interest on debenture stock 20
Debenture 10% 400
Interim dividend paid 120
Trade debtors 1,350
Creditors 260
Rent receivable 132
Directors remuneration 360
Insurance 192
Ordinary share of Rs0.5 each fully paid 3,000
8 % Preference shares of Rs 1 each 500
Share premium 1,000
General Reserves 1,100
Profit and Loss account at 1 July 2001 1,750
28,152 28,152

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Notes:
1. Closing stock was Rs1,035,000.

2. Audit fees due Rs 45,000

3. Depreciation should be provided as follows:

- Land Nil

- Buildings 2% per annum on cost

- Equipment 15% per annum on cost

- Motor vehicles 25 % on written down values

All depreciation is to be divided equally between distribution costs and

administrative expenses.

4. All expenses are to be divided equally between distribution costs and

administrative expenses.

5. Interest is payable on 10 % debenture, for the half year ended 30 June 2008.

6. It has been decided to make a provision for bad debts of 4% of Debtors at 30 June
2008.

7. There was a payment of Rs8,000 on 31 March 2008 to cover 12 months insurance.

8. The corporation tax amounted to Rs30 000.

9. No entries have been made in the companys book for a bonus issue of one
ordinary share for every five ordinary shares already held at 30 June 2008. It is the
companys policy to maintain retained earnings at the highest possible level.

10. The directors propose to pay the dividends due on preference shares, a dividend of
2 cts per share on the ordinary shares (inclusive of the bonus issue) and to transfer
Rs110 000 to general reserves.

Required:

(a) Profit and Loss Account of Seiko plc for the year ended 30 June 2008; and
(b) A Balance Sheet as at that date.
Both statements are to be prepared in accordance with IAS 1
(32 marks)
(c) Briefly justify the rationale for a regulatory financial reporting framework.
(8 marks)

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 SECTION B: ANSWER ANY TWO QUESTIONS

QUESTION 2: (30 MARKS)

The balance sheets of Mount Limited at 30 September 2006 and 30 September 2007 are
as follows:

30 September
Ref.
to 2006 2007
notes
Rs000 Rs000 Rs000 Rs000
Fixed Assets
Cost/revaluation 2,740 4,995
Accumulated depreciation 1 (700) 2,040 (1,000) 3,995
Current Assets
Stock 380 490
Debtors 410 380
Cash 10 15
800 885
Current Liabilities
Creditors 200 250
Bank overdraft 80 70
Proposed dividend 2 60 80
340 400
Net Current Assets 460 485
2,500 4,480
12% Debentures 3 (500) (1,000)
2,000 3,480
Capital and Reserves
Ordinary shares of 50 cents each 5 1,000 1,500
Share premium account 600 800
Revaluation reserve - 400
Profit & Loss Account 400 780
2,000 3,480

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Notes:

1. Fixed Assets
During the year, land carried in the accounts at cost Rs 800,000 was revalued to Rs
1,200,000. No depreciation had been provided on this land. Also, fixed assets which
had cost Rs 200,000 were sold for Rs 55,000. Their book value at the time of sales
was Rs 40,000.

2. Dividends
An Interim dividend of 2 cents per share was paid on 12 May 2007.
3. Debentures
Rs 500,000 of debentures were issued on 1 October 2006.
4. Bank Overdraft interest
Interest on the bank overdraft for the year was Rs 8,000.
5. Share Issue
1,000,000 ordinary shares were issued on 1 July 2007 at a price of 70 cents per
share.

Required:

(a) Prepare a cash flow statement for the year ended 30 September 2007, using the
indirect method and complying as far as possible with IAS 7

Your answer should include the reconciliation of operating profits to net cash flow.
(22 marks)
(b) Explain briefly the extent to which a cash flow statement may be useful to users
of accounts. (8 marks)

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QUESTION 3: (30 MARKS)

PART A: (13 Marks)

Given below are four separate statements, dealing with accounting concepts.

(a) The charge makes against profit for depreciation is in line with the matching
concept. Explain why is this so? (3 marks)

(b) In what way do you think the concept of consistency applies to depreciation?
(3 marks)

(c) Some assets increase in value, but normal accounting procedure would be to
ignore any such appreciation. Explain why bringing appreciation into account
would go against the prudence concept. (3 marks)

(d) The straight line depreciation method is favoured by most enterprises.

So why bother using different methods of depreciation. (4 marks)

PART B: (17 Marks)

A new supplier of General stores items has approached you for future orders that your
department is presently procuring from the existing list of suppliers. As part of the
screening exercise you have computed some liquidity and activity ratios (as shown below)
for the new supplier which you intend to compare with the Industry average.

Ratio New Supplier Industry Average

Current Ratio 2.5:1 4:1

Quick ratio 0.85:1 2:1

Stock Turnover (times) 6.0 10.5

Debtors collection period 45 days 30 days

Asset turnover 3:1 2.5:1

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Required:

(a) Give the formula for the above five ratios. (5 marks)

(b) Comment on the liquidity and efficiency ratios of the new supplier, making reference
to the Industry average ratios. (8 marks)

(c) What could be the possible reasons for the new suppliers low stock turnover as
compared to the Industry average? (4 marks)

QUESTION 4: (30 MARKS)

Slavat Limited has produced an overhead budget for the third quarter of 2009 based on two
levels of activity, 10,000 units and 12,000 units. It needs to calculate budgeted figures
based on an activity level of 15,000 units. The budgeted figures for activity levels of 10,000
units and 12,000 units are shown below:
Budgeted overheads for the quarter ending 30 September 2009

Production (units) 10,000 12,000

Rs. Rs.

Factory rent 5,000 5,000

Stock insurance 9,500 11,000

Indirect materials 12,000 14,400

Indirect labour 20,000 24,000

Electricity 8,000 9,000

Machine insurance 7,500 15,000

Required:

(a) Using the High Low method, calculate the budgeted cost for each of the six types
of overheads at an activity level of 15,000 units, analyzing the overheads into fixed
costs, variable costs and other types of costs.
(14 marks)
(b) Give a brief explanatory of the costs classification, used in your answer to part (a).
(6 marks

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PART B

The Tax Training School has 10 lecture rooms, with fixed cost of Rs.60,000 per month. The
charge out rate for lecture room rates average Rs.1, 000 per day with variable costs of
Rs.400 per rented room per day. Assume a 25-day month.

Required:
(a) Calculate the number of rooms that must be occupied per day to break even.
(4 marks)

(b) Calculate the number of rooms that must be occupied per month to make a monthly
profit of Rs100,000. (2 marks)

(c) Briefly comment on Four assumptions of Break-even Analysis. (4 marks)

***END OF QUESTION PAPER***

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