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 ALL questions in Part A and any ONE question in Part B c) Part A carries 85% of the marks and Part B carries 15% of the marks. Marks for each question are shown in [ ] d) Non-programmable calculators are permitted in this exam PART A 1. The following trial balance has been extracted from the books of Joules Ltd for the year ended 31 August 2016: DR CR £000 £000 Bank 10 Administration expenses 820 Distribution costs 760 5% Debentures 1,500 Interest paid 75 Non-current assets (net) 3,500 Retained earnings (01/09/15) 590 Purchases 3,150 Sales (all on credit) 6,125 Equity share capital (£1 ords.) 1,000 Inventory (stock) (01/09/15) 350 Accounts receivable (debtors) 870 Accounts payable (creditors) 300 ———- ———- 9,525 9,525 ===== ===== NOTES at 31 August 2016: • Stock (inventory) was valued at £290,000 • Corporation tax is estimated to be £250,000 • The directors have declared an ordinary dividend of 30p per share • The market price of a single equity (ordinary share) was £15.00 TASKS a) Prepare the income statement (profit and loss account) for the year ended 31 August 2016. [3] b) Prepare the position statement (balance sheet) as at 31 August 2016. [6] c) Calculate the following ratios: i The gearing percentage ii The operating profit (PBIT) as a percentage of sales iii The EPS iv The PE ratio [4] d) Comment on the financial performance of Joules Ltd. Mention any weaknesses. [9] e) Explain the importance of using a range of ratios to monitor the financial performance of a company. [3] 2. You are presented with the following information from the Becker group of companies for the year to 31 August 2016: Becker plc Feder plc Murray plc £000 £000 £000 Tangible non-current assets 1,000 600 500 Investments: Shares in Feder plc 800 Shares in Murray plc 600 Current assets 1,400 Inventory 450 340 150 Accounts receivable 460 290 130 Bank 20 10 20 Current liabilities 930 640 300 Accounts payable (540) (220) (120) Net current assets 390 420 180 Total net assets 2,790 1,020 680 Capital and reserves: ===== ===== ==== Ordinary shares (£1) 1,000 750 500 Profit and loss account 1,790 270 180 2,790 1,020 680 ===== ===== ==== Additional information: A Becker plc purchased 500,000 shares in Feder plc on 23 April 2013, when Feder’s profit and loss account balance stood at £150,000. B Becker plc purchased 400,000 shares in Murray plc on 5 November 2014, when Murray’s profit and loss account balance stood at £120,000. C During the year ended 31 August 2016 Becker plc had sold goods to Feder plc for £12,000. These goods had cost Becker plc £8,000. Half these goods are still in stock. Minority interests are not charged with their share of unrealised stock profits. D Included in the respective creditor balances were the following inter-company debts: • Becker plc owed Feder plc £4,000 • Murray plc owed Feder plc £7,000 • Feder plc owed Murray plc £3,000 E Becker plc writes off any goodwill arising on consolidation to reserves. TASK Prepare the Becker plc’s group position statement (balance sheet) as at 31 August 2016. Your workings MUST be included. [25] 3. In order to prepare current cost financial statements, a number of adjustments to the historical cost figures must be made. Specify items requiring adjustments. [10] 4. The balance sheets of Bloomberg Ltd at 31 Aug 2015 and 31 Aug 2016 were as follows: NON-CURRENT ASSETS 2015 (£000) 2016 (£000) Buildings 1,000 1,200 Equipment 700 800 Less depn. (400) 300 (550) 250 Vehicles 200 300 Less depn. (130) 70 (190) 110 CURRENT ASSETS 1,370 1,560 Inventory 400 430 Accounts Receivable 480 460 Bank/cash 10 890 — 890 CURRENT LIABILITIES Accounts Payable (270) (260) Overdraft (20) Dividend owing (60) (70) Tax owing (40) (370) (50) (400) 1,890 2,050 LONG-TERM LOAN (100) 2,050 1,790 CAPITAL AND RESERVES ==== ==== £1 Shares 1,000 1,000 Retained profit 790 1,050 1,790 2,050 Note – Interest on the loan paid in year ended 31 August 2016 was £3,000. TASKS a) Calculate the profit (before tax) for the year ended 31 August 2016. [3] b) Prepare the cash flow statement for the year ended 31 August 2016. [9] c) Explain the principal cash movements in the past year. [8] d) IAS7 also allows the statement of cash flows to be prepared using the ‘direct method’. Explain the differences between the ‘indirect’ and ‘direct’ methods, and why companies usually prefer to use the ‘indirect’ method. [5] PART B 5. During the year to 31 August 2016 Austin plc made a new offer of shares. The details of the offer were as follows: 800,000 £1 ordinary shares were issued on the following terms: 01 February 2016 on application 70 pence per share. 01 March 2016 on allotment 100 pence per share (this includes share premium). 26 June 2016 first and final call 100 pence per share. Applications for 1,200,000 were received, and were allotted on a 2 for 3 basis. On the first and final call, one applicant who had been allotted 2,000 shares failed to pay the due amount, and the shares were duly declared forfeited. They were then reissued on 31 July 2016 at a price of £2.50 per share. The number of ordinary shares in issue as on 1 September 2015 was 2,000,000 – all issued at par. TASKS Record the above transactions in the following ledger accounts: a) Application and allotment account b) Ordinary share capital account c) Share premium account d) First and final call account e) Forfeited shares account [15] 6. Write notes on the following: a) Accounting for Joint Ventures b) Consignment Accounts c) The principal contents of an annual report and accounts [5 each]
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