Master of Business Administration

Cardiff Metropolitan University

Accounting for Decision Makers (MBA7001) Examination
Duration 3 hours

MOCK EXAM

Type: Closed Book Examination

Total 100% weight on the final grading

Instructions to candidates

You are allowed three hours to answer this question paper.

You are strongly advised to carefully read ALL the question requirements before
attempting the question concerned (that is all parts and/or sub-questions).

This is a closed book examination and you are not allowed to keep any
unauthorized materials with you.

ALL answers must be written in the answer book. Answers or notes written on
the question paper will not be submitted for marking.

The Question paper is of 14 PAGES comprising THREE SECTIONS.

Answer all questions in Section A (10 multiple choice questions), all questions in
Section B and two questions in Section C (out of three questions).

This Examination Carries 100% weight from the total marks for the module.

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 Master of Business Administration

Cardiff Metropolitan University

Accounting for Decision Makers (MBA7001) Examination
Duration 3 hours

SECTION A (20 Marks)

Answer All Questions in this Section

Question 01

Select the one most appropriate accurate response by placing a cross (X) in the cell
in the table provided separately for questions 1.1 to 1.10. Each question carries two
marks. You may do the working on the answer paper.

1.1 Which of the following is not a correct expression of the accounting equation?

A) Assets - Liabilities = Equity

B) Assets = Liabilities + Equity

C) Net Assets = Equity

D) Net Assets = Liabilities + Equity

1.2 Collection of account receivable will;

A) Increase assets and decrease assets

B) Increase assets and decrease liabilities

C) Increase assets and increase capital

D) Increase assets and increase cash

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1.3 Which of the following account will be debited, if a company sold goods on
credit?

A) Sales account

B) Creditors account

C) Cash account

D) Debtors account

1.4 The going concern concept refers to a presumption that;

A) The entity will be profitable in the coming year.

B) The entity will not be involved in a merger within a year.

C) The entity will continue to operate in the foreseeable future.

D) Top management of the entity will not change in the coming year.

1.5 Using "lower of cost and net realizable value" for the purpose of inventory valuation
is the implementation of;

A) The going concern concept

B) The separate entity concept

C) The prudence concept

D) The Matching concept

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1.6 Which of the following statements can be considered to be an advantage of a

bottom-up budget?

A) The cheapest method of producing a budget

B) Uses the knowledge of all staff to build a fair budget

C) Reduces the level of budget negotiation between staff

D) Prevents slack being built into budgets

1.7 Which of the following would be consistent with an aggressive approach to

financing working capital?

A) Financing short-term needs with short-term funds.

B) Financing some long-term needs with short-term funds.

C) Financing permanent inventory buildup with long-term debt.

D) Financing seasonal needs with short-term funds.

1.8 The estimated sales volume for Saman Traders for the year 2017 is 2,500 units.
There are 600 units of opening stock while the closing stock is planned to be 800
units. What production is needed to satisfy sales?

A) 2500 units

B) 2300 units

C) 2700 units

D) 3900 units

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1.9 Which of the following would be classified as a non-current asset?

A) Cash of a trading company

B) Motor vehicles acquired for sale by a car seller

C) Trade receivables of a manufacturing company

D) Land acquired to construct office building by Real Estate Company

1.10 A firm has the option of producing nothing. In order to start the production, the
essential requirement is;

A) Selling price per unit should be more than the total fixed cost

B) Selling price per unit should be more than the average fixed cost

C) Selling price per unit should be more than the average variable cost

D) Sales revenue should be more than the total fixed cost

(End of Question 01)

(Total – 20 marks)

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SECTION B (30 Marks)

Answer All Questions in this Section

Question 02

i) Costs are different from expenses. Costs are resources sacrificed to achieve an
objective. Expenses are the costs charged against revenue in a particular
accounting period.
Distinguish between relevant costs and irrelevant costs. Explain the importance
of identifying relevant and irrelevant costs in business decision making giving
examples for each category. (6 marks)

ii) Critically explain what do you understand by depreciation of PPE? Your answer
should be supported by an example. Why is depreciation on the income statement
different from the depreciation on the balance sheet? (5 marks)

iii) A budget will be useful only if it is continuously monitored. Critically explain this
statement highlighting the main advantages that can be obtained from monitoring.
(6 marks)

iv) Record the following transactions of Prosperous PLC, based on the double entry
principle.
a) Company obtained a bank loan amounting to Rs. 10 Mn.
b) Goods valued at Rs.2.5 Mn was sold on credit (cost of the goods Rs. 2.2 Mn).
c) Company acquired a Motor vehicle valued at Rs. 5 Mn to be used in the
business.
d) Salaries for the month amounting to Rs.1 Mn was paid in cash.
(4 marks)
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v) The following information was extracted from the books of Kapila Traders for the
year ended 31.03.2016.
 Overpayment of Rent as at 01.04.2015 was Rs. 45,000
 Rs. 225,000 had been paid as rent during the financial year 2015/2016
 Rent up to 30.09.2015 was Rs. 90,000. Monthly rent has been increased by
Rs. 5,000 thereafter.
Prepare the Rent Account of Kapila Traders for the year ended 31.03.2016
clearly highlighting the rent expense for the financial year 2015/2016.
(3 marks)

vi) “Working Capital Management (WCM) can make a significant influence on the
profitability of an organization”. Critically explain this statement highlighting the
meaning of WCM and the different approaches a company can use in the
management of working capital. (6 marks)

(End of Question 02)

(Total – 30 marks)

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SECTION C (50 Marks)

Answer Any Two Questions in this Section (Questions 3 to 5)

Each question carries 25 marks

Question 03

i) Synergy PLC is one of the leading manufacturing companies in Sri Lanka,

providing direct employment to almost 1000 people and positively impacting the
livelihoods of over 10,000 distributors, suppliers, farmers and their families.

Statement of financial position (balance sheet) and income statement (Profit &
Loss account) are given below.

Income Statement
For the Year Ended 31st December 2016 2015
Rs. Rs.

Sales 91,582,219 86,706,426

Cost of Sales (66,191,331) (62,711,967)
Gross Profit 25,390,888 23,994,459

Other Operating Income 3,076,893 2,491,700

Selling and Distribution Expenses (3,212,685) (3,062,125)

Administrative Expenses (10,088,749) (10,128,389)

Other Operating Expenses (3,091,162) (3,055,439)
Operating Profit 12,075,185 10,240,206

Finance Expenses (1,999,872) (1,919,763)

Net Profit before Tax 10,075,313 8,320,443
Income Tax Expense (3,022,594) (2,496,133)
Net Profit after Tax 7,052,719 5,824,310

Basic Earnings per Share 14.44 12.61

Dividend per Share 3.50 3.50

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Balance Sheet
As at 31st December 2016 2015
Rs. Rs.
Assets
Non-Current Assets
Property Plant & Equipment 49,562,595 47,406,292
Intangible Assets 2,719,457 2,472,254
Other Non-current assets 75,310,766 69,496,256
127,592,818 119,374,802
Current Assets
Inventories 5,588,916 6,966,020
Trade & Other Receivables 10,269,689 12,146,573
Amount due from Related Parties 67,540,668 54,359,578
Cash & Cash Equivalents 7,093,753 8,734,240
90,493,026 82,206,411
Total Assets 218,085,844 201,581,213
Equity
Stated Capital 50,702,701 49,748,814
Revenue Reserves 99,374,109 84,569,276
150,076,810 134,318,090
Non-Current Liabilities
Employee Benefits 23,931,966 20,273,009
Deferred Tax Liability 8,904,945 13,281,430
32,836,911 33,554,439
Current Liabilities
Trade & Other Payables 11,267,339 14,236,381
Amount due to Related Parties 12,622,740 9,751,976
Income Tax Payable 9,329,661 6,966,790
Bank Overdraft 1,952,383 2,753,537
35,172,123 33,708,684
Total Equity & Liabilities 218,085,844 201,581,213

a. Calculate liquidity, profitability, efficiency and solvency ratios and write a brief
report to the board on the status of financial position and financial performance
of the company. (15 marks)

b. How can a company have a profit but not have cash? (3 marks)

c. What is the difference between income and profit? (4 marks)

d. State three stake holders of a business organization and explain why each of
them is interested in affairs of a business organization? (3 marks)

(End of Question 03)

(Total – 25 marks)

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Question 04

i) Briefly discuss with the use of graphs, the concept of Break Even Point (BEP)
under CVP analysis and economic analysis. Explain how can a company
reduce the break-even point? (5 marks)

ii) What is the meaning of margin of safety? Explain briefly the importance of
margin of safety for an organization. (3 marks)

iii) NEXT MOVE PLC (NMP) has been in the business of manufacturing and sales
of the floor tile “STYLISH”. The following cost structure of the tile “STYLISH
“produced by the company is available for your information.
Rs./Unit
Material 50
Direct labor 40
Variable Overhead 10

Other costs incurred by NMP per year are as follows.

Factory fixed overhead Rs. 2.0 Mn
Selling and distribution fixed overhead Rs. 1.4 Mn
Fixed administration overhead Rs. 2.0 Mn

Selling price of a unit of STYLISH is Rs.250. During the year 2017 the company
budgeted to produce and sell 500,000 units. You are required to compute,

a. Breakeven point in units and margin of safety (3 marks)

b. Number of units to be sold to earn profit of Rs. 20 Mn. (2 marks)

c. If selling and distribution fixed costs are increased by Rs. 1,000,000 and
material cost are also increased by 10% while the selling price is reduced by
Rs.50, compute the number of units to be produced and sold to earn the
presently budgeted profit by the company. (4 marks)

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iv) Rich Plc is currently preparing its budget for the year ended 31 st December
2017. The company manufactures and sells three products, ”BIG”, “SMALL”
and “MEDIUM”.
The unit selling price and variable cost of each product is as follows.

BIG SMALL MEDIUM

Rs. Rs. Rs.
Selling Price 100 150 200
Variable Cost
Labour 30 54 60
Material 20 50 80

Cost of Direct labour hour will be Rs. 6/= while cost of 1 Kg of material will be
Rs.10. For the next year ending 31st December 2017, 850,000 direct labour
hours and 500,000 kg of material will be available. The fixed cost will be Rs. 5
Mn for the year.

Estimated maximum demand for the products will be as follows.

BIG SMALL MEDIUM

24,000 12,000 60,000

a. You are required to compute the product mix that would earn maximum profit
for the company. (6 marks)

b. Briefly explain other factors that should be considered in determining the

optimum production mix under limiting factor decision situation. (2 marks)

(End of Question 04)

(Total – 25 marks)

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Question 05

i) Following are the ratios prepared by the Management Accountant for the
financial years 2016 and 2015 for New Look Ltd, and presented to the
Management committee meeting.

2016 2015
Current ratio 1.61 1.27
Quick ratio 0.70 0.55
Inventory turnover ratio 4 4.5
Debtors turnover ratio 7 8
Inventory holding period (days) 92 80
Debtors collection period (days) 51 43
Creditors settlement period (days) 81 94
Increase in turnover 40% 10%
Total current assets ($ 000) 800 300

The Management Accountant has commented that the working capital position
of the company has deteriorated from 2015 to 2016. Do you agree with this
statement? Explain your answer with relevant information.
(7 marks)

ii) What are the methods a company can adopt to improve its cash cycle? Is there
an impact from cash cycle on profitability of an organization? Critically explain
your answer. (5 marks)

iii) Various organizations use different approaches for the preparation of budgets.
These various approaches are based on the criteria such as the parties
involved in budgeting, the basis of developing the budgets etc. critically explain
the various approaches used for budgeting highlighting their main
characteristics. (6 marks)

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iv) The following information relates to XY Limited.

Month Wages Materials

incurred purchases Overhead Sales
£000 £000 £000 £000
February 6 20 10 30
March 8 30 12 40
April 10 25 16 60
May 9 35 14 50
June 12 30 18 70
July 10 25 16 60
August 9 25 14 50
September 9 30 14 50

Other information;
 It is expected that the cash balance on 31 May will be £22,000.
 The wages may be assumed to be paid within the month they are incurred.
 It is company policy to pay creditors for materials three months after receipt.
 Debtors are expected to pay two months after delivery.
 Included in the overhead figure is £2,000 per month which represents
depreciation of two cars and one delivery van.
 There is one month delay in paying the overhead expenses.
 20% of the monthly sales are for cash and 80% are sold on credit.
 It is intended to repay a loan of £20,000 on 30 June.
 Delivery is expected in July of a new machine costing £30,000 of which £10,000
will be paid on delivery and £10,000 in each of the following two months.

Prepare a cash budget for each of June, July and August. (7 marks)

(End of Question 05)

(Total – 25 marks)

(End of the Paper)

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