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 WGG Ltd and have just taken out the trial balance as at 31 August 2016: £dr £cr £1 Ordinary share capital 200,000 5% Preference shares 100,000 Profit and loss account (01 09 15) 102,000 Long-term bank loan 60,000 Sales 1,840,000 Purchases 1,210,000 Inventory (01 09 15) 83,000 Accounts receivable 76,000 Prov. for doubtful debts (01 09 15) 5,000 Accounts payable 53,000 Business rates 46,000 Insurances 44,000 Energy costs 47,000 Advertising 38,000 Audit fee 8,000 Payroll costs 173,000 Loan interest paid 5,000 Communication expenses 22,000 Buildings at cost 500,000 Equipment at cost 150,000 Equipment depreciation (01 09 15) 50,000 Bank 6,000 Cash 2,000 ———— ———— 2,410,000 2,410,000 Notes at 31 August 2016: ======= ======= • Inventory was valued at £88,000 • Advertising prepaid amounted to £2,000 • Payroll costs owing amounted to £8,000 • Energy costs owing amounted to £5,000 • The directors have decided to adjust the provision for doubtful debts to £7,000 • The equipment is to be depreciated by 25% pa on cost • The directors wish to provide £36,500 for taxation • The directors have declared the preference dividend • The ordinary share dividend will be 10 pence per share Question 1 continues overleaf TASKS a) Prepare the income statement (trading and profit and loss account) for the year ended 31 August 2016. [13] b) Prepare the position statement (balance sheet) as at 31 August 2016. [12] c) Explain the following terms: i Trial balance ii Accounting standards iii Ordinary share capital [5 each] 2. A business makes a single product. The business plans to make and sell 100,000 units in the next budget year. It has the capacity to make up to 135,000 units without incurring additional fixed cost expenditure. Details of budgeted costs and revenues are as follows: £ Direct material cost per unit 35 Direct wage cost per unit 20 Variable overhead cost per unit 50 Selling price per unit 175 Total fixed cost 3,000,000 TASKS a) Calculate the existing budgeted profit. [3] b) Calculate the existing budgeted break-even point. [2] c) Calculate the profit if the selling price was set at £190 and 92,500 units made and sold. [3] d) Calculate the profit if the selling price was set at £170 and 120,000 units made and sold. [3] e) Calculate the profit if the quality and look of the product was improved by spending £10 more per unit, and spending £75,000 more on advertising; and then making and selling 125,000 units at a price of £195 each. [5] f)Sketch a break-even chart based on the original budgeted data. [4] 3. The following information relates to the time sheet of Brita: Basic time Overtime Monday 7 hours 2.0 hours Tuesday 7 hours 2.0 hours Wednesday 7 hours 2.0 hours Thursday 7 hours 1.5 hours Friday 7 hours nil Saturday nil 3.0 hours Brita earns a basic rate of £12 per hour and is paid overtime at time and a half (i.e. 50% more per hour than the basic rate). Total statutory deductions amount to 30% of gross pay. TASKS a) Calculate Brita’s gross pay. [3] b) Calculate Brita’s net pay. [2] c) Explain the principal (inventory) stock levels used in a stock control system. [9] d) Explain the importance of the bookkeeping system. [6] 4. 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) 4,800 7,900 Cost of sales for the year 2,800 3,400 Total expenses for the year 1,300 1,600 ——– ——– Opening inventory (stock) value 200 220 Closing inventory (stock) value 220 240 Closing debtors (accounts receivable) 360 500 Closing total current assets 690 750 Closing total current liabilities 360 500 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) Compare the financial performance of the two companies. [6] 5. Write notes on FOUR of the following: a) A cash budget b) The benefits of using financial ratios c) The sources of finance available to a sole trader d) Depreciation of fixed assets e) The payroll process f) The prudence concept g) ‘Users’ of financial statements [5 each]