CODE: MBA 1003

ACCOUNTING AND FINANCE

WONG CHIN YIK

940117-10-5616

201679

JANUARY 2018

Page 1 of 34
1.0 CONTENT

NO TOPIC PAGES

1.0 CONTENT 2

2.0 TASK 1 3-6

3.0 TASK 2 7 - 11

4.0 TASK 3 12 - 19

5.0 TASK 4 20 - 24

6.0 TASK 5 25 - 28

7.0 TASK 6 29 - 33

8.0 REFERENCE 34

Page 2 of 34
2.0 TASK 1

Extract a profit and loss account for the year ended 30 June 2017 and drawing up

balance sheet as at 30 June 2017 for G Graham. The trial balance as at 30 June 2017

after his first year of trading was as follows:

Dr Cr

$ $

Equipment rental 940

Insurance 1,804

Lightning and hearing expenses 1,990

Motor expenses 2,350

Salaries and wages 48,580

Sales 382,420

Purchase 245,950

Sundry expenses 624

Lorry 19,400

Creditors 23,408

Debtors 44,516

Fixtures 4,600

Page 3 of 34
Shop 174,000

Cash at bank 11,346

Drawings 44,000

Capital 194,272

600,100 600,100

Stock at 30 June 2014 was £29,304.

Page 4 of 34
ANSWER:

G Graham

Income Statement for the year ending 30 June 2017

Sales 382,420

Less Cost of goods sold: 245,950

Purchase 29,304 216,646

Less Closing

Inventory 165,774

Gross profit

Less Expenses:

Salaries and wages 48,580

Equipment rental 940

Insurance 1,804

Lightning and heating 1,990

Motor expenses 2,350

Sundry expenses 624 56,288

Net profit 109,486

Page 5 of 34
 G Graham

Balance sheet as at 30 June 2017

Non-current assets

Shop 174, 000

Fixtures 4, 600

Lorry 19, 400 198, 000

Current assets

Inventory 29, 304

Accounts receivable 44, 516

Bank 11, 346

85, 166

283, 166

Current liabilities

Accounts payable 23, 408

259, 758

Capital

Balance at 1.7.2007 194, 272

Add Net profit 109, 486

303, 758

Less Drawings 44, 000 259, 758

Page 6 of 34
3.0 TASK 2

F Brown drew up the following trial balance as at 30 September 2017. You are required

to draft the trading and profit and loss account for the year ended 30 September

2017and a balance sheet as at that date.

Dr Cr

$ $

Capital 49,675

Drawings 28,600

Cash at bank 4,420

Cash in hand 112

Debtors 38,100

Creditors 26,300

Stock 30 September 2013 72,410

Van 5,650

Office equipment 7,470

Sales 391,400

Purchases 254,810

Return inwards 2,110

Carriage inwards 760

Page 7 of 34
Return outwards 1,240

Carriage outwards 2,850

Motor expenses 1,490

Rent 8,200

Telephone charges 680

Wages and salaries 39,600

Insurances 745

Office expenses 392

Sundry expenses 216

468,615 468,615

Page 8 of 34
ANSWER:

F Brown

Income Statement for the year ending 30 September 2014

Sales 391, 400

Less Returned in 2110 389, 290

Less Cost of goods sold:

Opening inventory 72, 410

Add Purchases 254, 810

Less Returns out 1240 253, 570

Carriage inwards 760

326, 740

Less Closing inventory 89, 404 237, 336

Gross Profit 151, 954

Less Expenses:

Wages and salaries 39, 600

Carriage out 2850

Motor expenses 1490

Rent and rates 8200

Telephone charges 680

Page 9 of 34
Insurance 754

Office expenses 392

Sundry expenses 216 54, 173

97, 781

Page 10 of 34
 Balance Sheet as at 30 September 2014

Non-current assets

Van 5650

Office equipment 7470 13, 120

Current assets 84, 404

Inventory 38, 100

Account receivable 4420

Bank 112 132, 120

Cash 145, 156

Current liabilities 26, 300

Account payable 118, 856

Capital balance as at 1.10.2007 49, 675

Add Net Profit 97, 781

147, 456

Less Drawings 28, 600 118, 856

Page 11 of 34
4.0 TASK 3

Study the following financial statements of two companies and then answer the

questions which follow. Both companies are stores selling carpets and other floor

coverings. The values shown are in £000s.

Spreadlight Ltd Easylawn Ltd

£000 £000 £000 £000

Profit and loss accounts

Sales 2,500 1,600

Less Cost of good sold

Opening stock 190 110

Add Purchases 2,100 1,220

2,290 1,330

Less Closing stock ( 220 ) ( 160 )

( 2,070 ) ( 1,170 )

Gross profit 430 430

Less Expenses

Wages and salaries 180 130

Directors’ remuneration 70 120

Other expenses 14 10

Page 12 of 34
 ( 264 ) ( 260 )

Net profit 166 170

Add balance from last year 104 60

270 230

Less Appropriations

General reserve 30 30

Dividend 140 112

( 170 ) ( 142 )

Balance carried forward to next year 100 88

Balance sheets

Fixed assets

Equipment at cost 200 50

Less Depreciation to date ( 80 ) ( 20 )

120 30

Vans 64 48

Less Depreciation to date ( 26 ) ( 16 )

38 32

158 62

Current assets

Page 13 of 34
Stock 220 160

Debtors 104 29

Bank 75 10

399 199

Less Current Liabilities

Creditors ( 189 ) ( 38 )

210 161

368 223

Financed by:

Issued share capital 200 100

Reserves

General reserve 68 35

Profit and loss 100 88

168 123

368 223

Required:

(a) Calculate the following ratios for both Spreadlight Ltd and Easylawn Ltd:

(i) gross profit as percentage of sales

(ii) net profit as percentage of sales

Page 14 of 34
(iii) expenses as percentage of sales

(iv) stock turnover

(v) rate of return of net profit on capital employed (for the purpose of this question only,

take capital as being total of share capitals + reserves at the balance sheet date)

(vi) current ratio

(vii) acid test ratio

(viii) debtor / sales ratio

(ix) creditor / purchase ratio

(b) Comment briefly on the comparison of each ratio as between the two companies.

State which company appears to be most efficient, giving what you consider to be

possible reasons.

Page 15 of 34
ANSWER:

Formula Spreadlight Ltd Easylawn Ltd

i) Gross profit as =𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 x 100 =

𝐺𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡
x 100
𝑆𝑎𝑙𝑒𝑠 𝑆𝑎𝑙𝑒𝑠

percentage of sales
430 430
=2500 x 100 =1600 x 100

=17.2% =26.9%

ii) Net profit as percentage =𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 x 100 =

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
x 100
𝑆𝑎𝑙𝑒𝑠 𝑆𝑎𝑙𝑒𝑠

of sales
166 170
=2500 x 100 =1600 x 100

=6.6% =10.63%

iii) Expenses as percentage =𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 x 100 =

𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
x 100
𝑆𝑎𝑙𝑒𝑠 𝑆𝑎𝑙𝑒𝑠

of sales
264 260
=2500 x 100 =1600 x 100

=10.56% =16.25%

iv) Stock turnover 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑎𝑙𝑒𝑠

=𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘ℎ𝑒𝑙𝑑 =𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘ℎ𝑒𝑙𝑑

2070 1170
=(190+220)÷2 =(110+60)÷2

Page 16 of 34
 =10.1 times =8.7 times

v) Rate of return of net = 𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 x 100

𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
=𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 x 100
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑

profit on capital
166 170
employed =368 x 100 =223 x 100

=45.1% =76.2%

vi) Current ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠

=𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 =𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

399 199
=189 x 100 = 38 x 100

=2.11:1 =5.24:1

vii) Acid test ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝑆𝑡𝑜𝑐𝑘 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝑆𝑡𝑜𝑐𝑘

= =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

179 39
=189 =38

=0.95:1 =1.03:1

viii) Debtor/sales ratio 𝐷𝑒𝑏𝑡𝑜𝑟 𝐷𝑒𝑏𝑡𝑜𝑟

= 𝑆𝑎𝑙𝑒𝑠 = 𝑆𝑎𝑙𝑒𝑠

104 29
=2500 =1600

=0.04 =0.02

Page 17 of 34
ix) Creditor/purchases ratio 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟 𝐶𝑟𝑒𝑑𝑖𝑡𝑜𝑟
=𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠 =𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠

189 38
=2100 =1220

=0.09 =0.03

(b) Comment briefly on the comparison of each ratio as between the two companies.

State which company appears to be most efficient, giving what you consider to be

possible reasons?

ANSWER:

Easylawn is the more efficient company. It has made ₤1700, 000 profits as

compared with ₤166, 000 profit and has achieved a return on capital employed of 76.2%

per cent, almost 70% higher than that of Spendlight, with 45.1%. Easylawn has a better

gross profit margin compared to Spendlight, almost 26.9% higher than 17.2%. For Net

profit as percentage of sales, it shows that Easylawn Ltd with 10.63% is higher than

Page 18 of 34
Spendlight Ltd with 6.6%. Expenses as percentage of sales also show that Easylawn Ltd

with 16.25% is higher than Spendlight Ltd with 10.56%.

Moreover, Stock turnover show that Spendlight Ltd with 10.1 times is higher

than Easylawn Ltd with 8.7 times. When compared between both companies’ ratios on

rate of return of net profit on capital employed, with 76.2% on Easylawn Ltd is better

than 45.1% on Spendlight Ltd. The ratio that is involved in this is current ratio and acid

test ratio. When compared between both companies’ ratios on current ratio and acid test

ratio, Easylawn Ltd has the highest figure compared to Spendlight Ltd.

This shows that Easylawn Ltd is good and well efficient in managing their

liabilities. In conclusion, I consider Easylawn Ltd appears to be the most efficient

company either in managing their sales, profits, assets and liabilities.

Page 19 of 34
 5.0 TASK 4

The balance sheets of F Black, a sole trader, for two successive years are shown below.

You are required to draw up a cash flow statement for the year ended 31 December

20X6.

Balance Sheets as at 31 December

20X5 20X6

£ £ £ £ £ £

Fixed assets 44,000 40,000

Land and premises

(cost £52,000)

Plant and machinery

(cost £19,000) 14,250 -

(cost £25,000) _ 19,600

58,250 59,600

Current Assets

Stocks 6,600 6,300

Trade debtors 17,800 12,600

Bank _ 7,100

Page 20 of 34
 24,400 2,600

Current Liabilities

Trade creditors 22,000 11,600

Bank overdraft 13,650 _

(35,650) (11,600)

(11,250) 14,400

47,000 74,000

Loan (repayable - (20,000)

December 20X8)

47,000 54,000

Represented by

Capital account:

Balance at 1 January 42,000 47,000

Add Net profit for 18,000 22,000

the year

60,000 69,000

Less Drawings (13,000) (15,000)

47,000 54,000

Page 21 of 34
ANSWER:

F Black

Cash Flow Statement for the year ended 31 December 20x6

£ £

Cash flow from operating activities

Profit for the year 22,000

Depreciation 9,400

31,400

Working capital adjustment:

Decrease in stock (6,600 – 6,300) 300

Decrease in TD (17,800 – 12,600) 5,200

Decrease in TC (11,600 – 22,000) (10,400) (4,900)

Net cash generated from operating activities 26,500

Cash flow from investing activities

Purchase of property, plant and equipment (W1) (25,000)

Proceed from PPE 14,250

Net cash used in investing activities (10,750)

Page 22 of 34
Cash flow from financing activities

Proceeds from loan 20,000

Drawings (15,000)

Net cash generated from financing activities 5,000

Net increase in cash & cash equivalents 20,750

Cash & cash equivalents at beginning of period (13,650)

Cash & cash equivalents at end of period 7,100

Working:

(W1) Depreciation

Cost b/f for land & premises 44,000

(-) Cost c/f for L&P (40,000)

Depreciation for L&P 4,000

Cost of new purchase of plant & machinery 25,000

(-) cost c/f for P&M (19,600)

Depreciation for P&M 5,400

Page 23 of 34
*Total Depreciation = £4,000 + £5,400

= £9,400

Page 24 of 34
6.0 TASK 5

Categorize each of the following costs into one of these six categories:

i. Direct materials

ii. Direct labour

iii. Indirect manufacturing costs

iv. Administration expenses

v. Selling and distribution expenses

a) Wages for staff maintaining machines in factory

b) Wages for staff maintaining accounting machinery

c) Expenses of canteen run exclusively for factory workers

d) Expenses of canteen run exclusively for administrative workers

e) Grease used for factory

f) Cost of raw materials

g) Carriage inwards on fuel used in factory boiler

h) Carriage inwards on raw material

i) Wages of managing director’s chauffeur

j) Wages of cleaners in factory

k) Discounts allowed

l) Rent of salesroom

m) Wages of lathe operation in factory

Page 25 of 34
n) Wages of security guards; the area of the factory buildings is four times as great as
the other buildings

o) Debenture interest

p) Rent of annexe used by accounting staff

q) Managing director’s remuneration

r) Sales staff salaries

s) Running costs of sales staff cars

t) Repairs to factory buildings

u) Audit fees

v) Power for machines in factory

w) Business rates: 3/4 for factory buildings and 1/4 for other buildings

x) Rent of internal telephone system in factory

y) Bank charges

z) Costs of advertising products on television

ANSWER:

a. Wages for staff maintaining machines in factory – direct labour

b. Wages for staff maintaining accounting machinery – direct labour

c. Expenses of canteen run exclusively for factory workers – indirect manufacturing

costs

Page 26 of 34
d. Expenses of canteen run exclusively for administrative workers – administration

expenses

e. Grease used for factory – indirect manufacturing costs

f. Cost of raw materials – direct materials

g. Carriage inwards on fuel used in factory boiler – indirect manufacturing costs

h. Carriage inwards on raw material – direct materials

i. Wages of managing director’s chauffeur – administration expenses

j. Wages of cleaners in factory – indirect manufacturing costs

k. Discounts allowed – selling and distribution expenses

l. Rent of salesroom – selling and distribution expenses

m. Wages of lathe operation in factory – direct labour

n. Wages of security guards; the area of the factory buildings is four times as great as

the other buildings – 80% indirect manufacturing costs, 20% administration

expenses

o. Debenture interest – finance expenses

p. Rent of annexe used by accounting staff – administration expenses

Page 27 of 34
q. Managing director’s remuneration – administration expenses

r. Sales staff salaries – selling and distribution expenses

s. Running costs of sales staff cars – selling and distribution expenses

t. Repairs to factory buildings – indirect manufacturing costs

u. Audit fees – administration expenses

v. Power for machines in factory – indirect manufacturing costs

w. Business rates: 3/4 for factory buildings and 1/4 for other buildings – 80% indirect

manufacturing costs, 20% administration expenses

x. Rent of internal telephone system in factory – indirect manufacturing costs

y. Bank charges – administration expenses

z. Costs of advertising products on television – selling and distribution expenses

Page 28 of 34
7.0 TASK 6

From the following information, calculate:

(a) Prime cost

(b) Production cost

(c) Total cost

£ £

Wages and salaries of employees:

In factory (70 per cent is directly concerned with unis 220,000

being manufactured)

Salaries: Sales staff 8,000

Commission on sales paid to sales staff 1,400

Salaries of administrative staff 72,000

Traveling expenses:

Sales staff 2,900

Factory workers not directly concerned with 100

production

Administrative staff 200

3,200

Page 29 of 34
Haulage costs on raw material bought 4,000

Carriage costs on goods sold 7,800

Depreciation:

Factory machinery 38,000

Accounting and office machinery 2,000

Motor vehicles:

Sales staff cars 3,800

Administrative staff 1,600

Sales display equipment 300

Royalties payable per unit of production 45,700

Canteen costs used by all the workers, 2/3 work in the 1,600

factory, 1/3 in others parts of the firm

Raw materials:

Stock at start of period 120,000

Stock at close of period 160,000

Bought in the period 400,000

Interest on loans and overdrafts 3,800

Other indirect manufacturing costs 58,000

Page 30 of 34
Other administrative expenses 42,000

Other selling expenses 65,000

ANSWER:

a) Prime cost = £360,000 + £154

= £514,000

Direct Material: £ (’000)

Stock at start of period 120

Bought in the period 400

520

(-) Stock at close of period (160)

360

Direct labour:

Wages and salaries of employees (220 x 70%) 154

b) Production cost = Prime cost + indirect cost

= £514,000 + £260,900

= £774,900

Page 31 of 34
Indirect cost: £

Wages and salaries of employees (220 x 30%) 66,000

Salaries (sales staff) 8,000

Commission on sales paid to sales staff 1,400

Travelling expenses:

Sales staff 2,900

Factory workers not directly concerned with production 100

Haulage costs on raw material bought 4,000

Carriage costs on goods sold 7,800

Depreciation:

Factory machinery 38,000

Motor vehicles:

Sales staff cars 3,800

Sales display equipment 300

Royalties payable per unit of production 1,600

Canteen costs (6,000 x 2/3) 4,000

Other indirect manufacturing costs 58,000

Other selling expenses 65,000

260,900

Page 32 of 34
c) Total cost = Production cost + Operating cost + Finance cost

= £774,900 + £119,800 + £3,800

= £898,500

Operating cost: £

Salaries of administrative staff 72,000

Travelling expenses:

Administrative staff 200

Depreciation:

Accounting and office machinery 2,000

Motor vehicles:

Administrative staff 1,600

Canteen cost (6,000 x 1/3) 2,000

Other administrative expenses 42,000

119,800

Finance cost: £

Interest on loans and overdrafts 3,800

Page 33 of 34
8.0 REFERENCE

1. Text Book MBA 1003

2. https://www.investopedia.com/ask/answers/041415/what-are-different-types-

costs-cost-accounting.asp

3. https://www.accountingtools.com/articles/total-cost-formula.html

4. Online searching

5. Discussion with others

Page 34 of 34