MARCH 2011 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 FOB Ltd, and have just taken out the trial balance as at 28 February 2011: dr cr Retained profits at 01 03 10 305,000 Long-term bank loan 160,000 Sales 1,880,000 Purchases 1,340,000 Inventory (stock at 01 03 10) 45,000 Accounts payable (debtors) 88,000 Prov. for doubtful debts (01 03 10) 2,000 Accounts payable (creditors) 65,000 Business rates 53,000 Insurances 41,000 Energy costs 55,000 Communication expenses 39,000 Wages and salaries 178,000 Advertising 52,000 Loan interest paid 8,000 Buildings at cost 500,000 Equipment at cost 200,000 Equipment depreciation (01 03 10) 90,000 Bank 2,000 Cash 1,000 Equity shares (1 ordinary) 100,000 ----------------------2,602,000 2,602,000 ======= ======= Notes at 28 February 2011: Inventory (stock) was valued at 47,000. Business rates prepaid amounted to 2,000. Communication expenses owing amounted to 4,000. The directors have decided to write off a bad debt of 4,000. The directors have decided to adjust the provision for doubtful debts to 3,000. The equipment is to be depreciated by 20% on cost. The directors wish to provide 11,000 for taxation. TASKS a) Prepare the income statement (trading and profit and loss account) for the year ended 28 February 2011. [13] b) Prepare the position statement (balance sheet) as at 28 February 2011. [12] c) Explain the principal features of the following sources of finance: i share capital [10] ii long-term loans [5]

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continued overleaf Justine is to open a gift shop in a large tourist venue. On 1 April 2011 Justine will deposit 90,000 in a business bank account. Her plans are as follows: On 1 April to pay rent of 24,000. On 1 April to buy equipment etc. costing 90,000. Half of the 90,000 is to be paid in April, and there will be two further payments (each amounting to 22,500) in May and June. Goods for resale will be purchased according to the following schedule: April and May 7,000 June and July 9,000 August and September 10,000 Suppliers will give one months credit. Sales are expected to be 16,000 in each of the first three months, and will rise to 21,000 a month in July. All sales are on a cash basis. Monthly wages of 2,200 are payable in each month. Justine will take 1,000 per month in drawings. Justine will spend 1,000 per month on marketing. Half of the 1,000 is payable in the same month, and the other half is payable in the following month. Other expenses of 2,900 per month are expected payable in the same month. Justine will depreciate the equipment at 25% pa on cost. TASKS a) Prepare a cash budget for the period 1 April to 30 September 2011. [10] b) Comment on the potential performance of the business. [5] c) Explain the benefits of cash budgeting. [5] 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) 4,900 8,700 Cost of sales for the year 2,600 4,300 Total expenses for the year 1,100 1,900 --------------Opening inventory (stock) value 160 300 Closing inventory (stock) value 180 320 Closing debtors (accounts rec.) 350 510 Closing total current assets 560 880 Closing total current liabilities 290 550 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 [2 each] b) Comment on the financial performance of the two companies. [6] a) Explain the benefits of including an element of payment by results in a factory wages system. [6] b) Virinda Ltd expect to be able to sell 75,000 items of a product at 120 per unit. The cost data is as follows: Direct material per unit 25 Direct labour per unit 40 Variable cost per unit 30 Fixed costs allocated to the product 950,000 Maximum possible production without incurring extra fixed costs is 105,000 units. TASKS i Calculate the budgeted profit. [3] ii Calculate the breakeven point in units. [2] iii Sketch a breakeven chart/graph based on the original budget. [5] c) Virinda Ltd have carried out market research, and think that if they increased the price to 140 per unit AND spent a further 940,000 on advertising they could make and sell 70,000 units.

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TASK Calculate the profit.

[4]

continued overleaf 5. Write notes on FOUR of the following: a) accounting standards b) day books c) the use of cost centres d) an auditor e) depreciation f) FIFO g) overhead absorption h) the sources of finance available to a sole trader

[5 each]

 INSTITUTE OF COMMERCIAL MANAGEMENT