Mock End-of-Term Module Practice

Examination

Questions
Module Title: Accounting & Finance

Module Code: PMP AFi Semester 1 (January)

Date: 25/03/2022

Week Week 10

Total marks 100 Marks

(2.5 Hours) - 2 hour and 30 minutes to

Time:
answer.

Venue Online Turnitin

Instructions to students
1. Read all the instructions and exam questions carefully before you begin to write.
2. Cross out any mistakes.
3. You may use only an approved calculator for this examination.
4. If you have questions at any time during the examination, you must contact Dr. Mustabsar Awais,
email: [email protected]. Give details and a screenshot of the issue / question.
5. Follow the Guidelines for End of Module Examination Turnitin Submission

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 ANSWER ALL QUESTIONS
Question1 - (Total Marks 25)

Use following information to answer question 1a) and 1b).

Jeff Ltd in Sheffield started its business in February 2020 and the following transactions were reported during
the month.
(i) Jeff the owner deposit £90,000 in the business bank account on 1st February 2020
(ii)Bought a motor vehicle for £10,000 for cash on 2nd February 2020
(iii) Bought goods for £6,550 cash on 4th February 2020.
(iv) Sold goods for £3,000 on credit to a customer in Chesterfield on 8th February 2020.

a) Prepare journal entries to record the above transactions. (5 marks)

Date Accounts Dr (£) Cr (£)

(i)

(ii)

(iii)

(iv)

b) Prepare ‘Cash and Bank account’ and ‘Capital account’ using your answers to question 2 above and
balance off the account. (5 mark)
Cash and Bank A/c
Date Account £ Date Account £

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 Capital A/c
Date Account £ Date Account £

c) Based on the information provided below to calculate the amount of cash received in the year 2024. Show
your calculation process. (7.5 mark)

The budgeted sales for the next four years are:

2021 2022 2023 2024
￡168,000 ￡246,000 ￡266,000 ￡388,000
It is estimated that sales will be paid in cash for as follows:
 45% of the total will be paid in the year that the sales were made.
 Of the balance 60% will be paid in the year after the sales were made.
 The remaining 40% will be paid in the year after this.

d) Bookmark Limited makes high quality wooden bookmark. The selling price is ￡26 per unit and the total
variable cost is ￡16 per unit. The company estimates that the fixed costs per month associated with this
product are ￡8,000. You are required to:
 Calculate the break-even point, in units per month
 Calculate the break-even sales revenue per month
 Calculate the estimated profit per month if Bookmark Limited makes and sells 3,500 units of
product
 If Bookmark Limited increases the selling prices by ￡1, what will be the impact on the break-
even point, assuming non change in the number of units sold?
(Marks 7.5)

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 Question 2 – (Total 25 marks)

Laundry Ltd manufactures wash machines and dryers, which are sold to retailers. The abbreviated
financial statements for 2019 and 2020 are as follows:
Income statements for the year ended 30 April 2020
2019 2020
￡000 ￡000
Revenue 5,600 10,800
Cost of sales (3,640) (7,992)
Gross profit 1,960 2,808
Administration expenses (813) (1,202)
Distribution expenses (65) (120)
Operating profit 1,082 1,486
Interest (18) (190)
Profit before tax 1,064 1,296
Tax (210) (260)
Profit for the year 854 1,036

Statements of financial position as at 30 April

2019 2020
￡000 ￡000
Non-current assets
Property, plant and equipment 1,100 1,050
Current assets
Inventories 652 654
Trade receivables 950 2,850
Cash 780 -
2,382 3,504
Total assets 3,482 4,554

Current liabilities
Trade payables 430 1,750
Bank overdraft - 690
Tax liability 210 260
640 2,700
Non-current liabilities
Bank loan 805 498

Equity
Ordinary share capital of ￡1 (fully paid) 1,200 1,200
Retained earnings 837 156
2,037 1,356
Total equity and liabilities 3,482 4,554

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Required:
i. Calculate the following financial ratios for the year 2020, show your calculation
process. The ratios for 2019 have been provided in the table below (10 marks):
 Gross profit margin
 Net profit margin
 Return on capital employed
 Current ratio
 Quick ratio
 Inventory holding period (using year-end figures as the average inventory)
 Receivable’s collection period
 Payable’s payment period
 Gearing ratio
 Interest coverage

2019 2020
Gross profit margin 35%

Net profit margin 15.25%

Return on capital employed 38.07%

Current ratio 3.72:1

Quick ratio 2.7：1
Inventory holding period 66 days

Receivables collection period 62 days

Payables payment period 44 days

Gearing ratio 28.33%

Interest coverage 60.11 imes

ii. Comment on the performance of Laundry Ltd from the viewpoint of a business
considering supplying a substantial amount of goods to Laundry Ltd on usual trade
credit terms. (11 marks)

iii. Discuss Two disadvantages of ratio analysis (4 marks)

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Question 3 – (Total 25 marks)
John Wick, managing director of Wick Limited, has been in business for two years. He is puzzled
by the company’s financial statements because, although they show a profit for each year, the bank
balance has fallen and is now an overdraft. He asks for your assistance to explain what has
happened. The statements of financial position of Wick Limited are as follows:

Statement of Financial Position as at 31 December

2018 2019
￡ ￡ ￡ ￡ ￡ ￡
Cost Dep’n Carrying Cost Dep’n Carrying
amount amount
Non-current Assets
Property, plant and 3,000 600 2,400 5,000 1,600 3,400
equipment
Current Assets
Inventory 5,500 9,000
Trade receivables 1,750 2,300
Bank (cash and cash 850
equivalents)
8,100 11,300
Total Assets 10,500 14,700

Current Liabilities
Trade payables 2,500 2,750
Bank overdraft 1,200
Tax liability 1,000 1,750
3,500 5,700

Equity
Share capital 5,000 5,000
Retained earnings 2,000 4,000
Total Equity 7,000 9,000
Total Liabilities and 105,000 14,700
Equity
Additional information
 Additional property, plant and equipment (PPE) was purchased.
 There were no other revaluations, purchases or disposals of non-current assets.
 Taxation paid totaled ￡1,000
 Dividends paid totaled ￡9,000
 The income statement for the year ended 31 December 2019 include:
‒ Depreciation charges, ￡1,000
‒ Finance costs, ￡250
‒ Taxation of ￡1,750
You are required to:
i. Prepare a statement of cash flows for the year ended 31 December 2019 (19 marks)
ii. Explain to John Wick about what happened, and provide two recommendations (6
marks)

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Question 4 – (Total 25 marks)

Crispy Limited produces toasters at its factory in London. It has three toaster ranges – the ‘Single’,
the ‘Double’, and the ‘Wide Double’. The expected monthly costs and sales information for each
range is as follows:
Single Double Wide
Double
Sales and production units 2,500 6,000 400
Machine hours per month 1,250 2,400 300
Total sales revenue ￡90,000 ￡270,000 ￡26,000
Total direct materials ￡25,000 ￡72,000 ￡8,000
Total direct labour ￡12,500 ￡48,000 ￡4,800
Total variable overheads ￡5,000 ￡18,000 ￡1,000
Total fixed costs relating to the production of all toasters are ￡98,670 per month

You are required to:

a) Complete the table below to show for each product range the expected contribution per unit (6
marks).
Single Double Wide Double
￡ ￡ ￡
Sales revenue per
unit
minus: Variable
costs per unit
Direct materials
Direct labour
Variable costs per
unit

Contribution per
unit

b) If the company only produces the ‘Double’ range, calculate the number of units it would need to
make and sell each month to cover the fixed costs of ￡98,670 (2 marks)
c) The breakdown of a machine used in the production of toaster has reduced available machine
time from 3,950 to 2,800 hours. The manager asks you to calculate the contribution of each unit
per machine hour (6 marks)
d) Using the information from (c), calculate how many units of each of product ranges the
company should make and sell in order to maximise its profits using 2,800 machine hours (6
marks)
e) List Three limitations of break-even analysis, and to explain any Two of them (5 marks)

End of Mock Exam

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