Ms Accounting
Ms Accounting
Ms Accounting
WAC02/01
Pearson Edexcel
International Advanced Level
Accounting (Modular Syllabus)
Unit 2 – Corporate and
Management Accounting
Tuesday 21 January 2014 – Afternoon
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SECTION A
1. Tsevo Farms Limited has won a four-year contract to supply a major supermarket chain with salads
and sandwiches. The initial costs involved in obtaining the contract were £700 000.
• In the first year, 13 500 products a week will be supplied, at an average selling price of £0.73
each.
• In years two and three, 14 000 products a week will be supplied, at an average selling price of
£0.75 each.
• In year four, 14 500 products a week will be supplied, at an average selling price of £0.77 each.
• In years one and two, the running costs (including depreciation) are expected to be £8 500 a
week.
• In years three and four, the running costs (including depreciation) are expected to be £8 800 a
week.
• Depreciation is expected to be £164 000 per annum for the first four years.
• Assume 52 weeks in a year.
• The cost of capital for the company is 9%.
Required:
(a) Calculate the net present value of the contract at the end of year 4.
(18)
Year 9%
1 0.917
2 0.842
3 0.772
4 0.708
(c) Evaluate the project for the company, using the calculations made in (a) and (b) above and
considering any other relevant factors.
(12)
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The Chief Accountant for the company is also appraising the project using the Internal Rate of
Return method. She has calculated the following figures:
Required:
(d) (i) Complete the calculation, clearly stating any formula used, to find the exact Internal Rate
of Return, accurate to two decimal places.
(10)
(ii) Using your answer for the exact Internal Rate of Return calculated in (d)(i), decide whether
Tsevo Farms should invest in the project, giving a reason for your answer.
(4)
(Total 52 marks)
2. The Statements of Financial Position of Zonqor Minerals plc as at 31 December 2012 and
31 December 2013 were as follows:
Current assets
Inventories 718 000 756 000
Trade and other receivables 112 000 119 000
Cash and cash equivalents 404 000 494 000
1 234 000 1 369 000
Non-current liabilities
7% Debenture 2018 ------------ 250 000
Bank loan 175 000 ------------
175 000 250 000
Current liabilities
Trade and other payables 323 000 347 000
Current tax payable 121 000 101 000
444 000 448 000
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Additional information:
1. Machinery costing £258 000 was sold for £54 000 on 1 April 2013. The book value of the
machinery was £41 000.
3. An issue of 200 000 £1 Ordinary shares at a premium of 50 pence per share was made on
31 March 2013.
6. On 1 January 2013 the bank loan of £175 000 was paid off.
7. On 1 May 2013 a £250 000 7% debenture was issued, with interest to be paid in two equal
half-yearly payments.
8. Operating profit before tax for the year ended 31 December 2013 was £222 000.
Required:
(a) Prepare a cash flow statement for the year ended 31 December 2013 for Zonqor Minerals plc
in accordance with International Accounting Standard (IAS) 7 Cash Flow Statements (revised).
(40)
(b) Evaluate the raising of capital for a plc by issuing a debenture instead of taking out a bank loan.
(12)
(Total 52 marks)
3. Kelontan Power plc supplies electricity. The company has an Authorised Share Capital of
40 000 000 £1 Ordinary Shares and 15 000 000 4% Redeemable Preference Shares of £1 each.
On 1 January 2013, at the start of the financial year, the following balances were in the books:
£
Ordinary Share Capital 30 000 000
Share Premium Reserve 7 500 000
4% Redeemable Preference Share Capital 10 000 000
Revaluation Reserve 1 000 000
Retained Earnings Reserve 12 850 000
General Reserve 3 000 000
7% Debenture 2018 5 000 000
The profit after interest, for the year ended 31 December 2013, before adjustments, was
£4 572 000.
1. provide a final dividend to Ordinary shareholders of 3 pence per share. The dividend was paid
on 2 December 2013.
5. revalue the company head office property from a present value of £4 000 000, to a market value
of £5 000 000.
6. pay the final half-yearly interest instalment due to the debenture holders for the year on
29 December 2013.
Required:
(a) Journal entries to show the items 1–6 above as recorded in the books of Kelontan Power
plc. Dates and narratives are not required.
(18)
(b) The Equity section from the Statement of Financial Position after the above items have been
entered into the books.
(14)
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At a Board of Directors meeting at the start of the year, a director stated:
“I know that Redeemable Preference shares should be treated as Debt, but Preference shares should
be treated as Equity. Is it a good idea that the Preference shares we have issued are redeemable?”
Required:
(i) two advantages to Kolatun Power plc of redeeming some of the 4% Redeemable Preference
shares.
(4)
(ii) two disadvantages to Kolatun Power plc of redeeming some of the 4% Redeemable
Preference shares.
(4)
(Total 52 marks)
4. Auto Albion Motors plc are developing a new car, the Zeus.
£ million
Research and development 80
Purchase of land for factory 31
Building new factory 42
Machinery and equipment for new factory 28
Marketing 39
Capital for the new car project is to be funded in the following ways:
Required:
(a) Prepare a Capital Budget to finance the launch of the new Zeus car.
(6)
Additional information:
If a sales order cannot be met in the same week, the factory will produce the car in the next week,
or as soon as possible.
In the first four weeks sales of Zeus cars are expected to be:
Required:
(b) Prepare a Production Budget, in units of cars produced, for each week of the first four weeks
of production of Zeus cars.
(6)
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Additional information:
The Zeus car will be sold to customers at a selling price of £11 750.
• Option 1 – 60% of customers are expected to pay for their new car in cash in full on the day
of the sales order.
• Option 2 – Buy the new car on the terms “nothing to pay for 12 months”, with payment being
made in full 12 months after the date of the sales order.
25% of customers are expected to select this option.
• Option 3 – Buy the new car on the terms “10% deposit, then 24 monthly payments of £450,
starting one month after the sales order.
The remaining customers are expected to select this option.
Required:
(c) Prepare a Cash Budget to show the amount received from customers for each of the first four
weeks of sales of Zeus cars.
(12)
(d) Evaluate the three payment options from the point of view of Auto Albion Motors plc.
(8)
(Total 32 marks)
5. Saidpur Household Appliances Limited produces kettles at its factory. For the 6 months ended
31 December 2013, the following information is available.
Required:
(a) Calculate for Saidpur Household Appliances Limited for the 6-month period ended
31 December 2013 the:
The 6 months ended 30 June 2014 are expected to see difficult trading conditions. The directors’
policy is to break even, hoping to survive for the future. Output will be maintained at the present
level, but selling price will be reduced as much as possible to arrive at break-even point.
Required:
(b) Calculate the selling price Saidpur Household Appliances Limited should charge in order to
arrive at break-even point for a production of 8 500 units.
(6)
A management consultant has been asked his opinion on the intended policy of maintaining output
levels and reducing selling prices in the next six months. The management consultant says Saidpur
Household Appliances Limited should maintain selling prices and reduce output instead.
Saidpur Household Appliances Limited must choose between two possible policies for the future.
(c) Evaluate the two possible future policies for Saidpur Household Appliances Limited to follow
for the next 6 months.
(8)
(Total 32 marks)
Answer space for question 5 is on pages 27 to 31 of the question paper.
P43183A 10
SOURCE MATERIAL FOR USE WITH QUESTION 6
6. You are the accountant for Southern Gas plc, which supplies gas to households. You will have to
report on the financial statements of the company at the Board of Directors’ meeting. Information
concerning the performance of the company for the financial year ended 31 December 2013 is as
follows:
Authorised share capital 40 million (40 000 000) £0.50 Ordinary shares
Issued share capital 30 million (30 000 000) £0.50 Ordinary shares
Net profit before interest and tax £1 575 000
Net profit after interest and tax £818 000
Total Equity £22 850 000
Non-current liabilities £12 625 000
Total ordinary dividend paid for year £616 000
Share price £0.53
Required:
(a) Calculate the gearing ratio, stating clearly the formula used.
(6)
Information for Northern Gas plc for the financial year ended 31 December 2013 is given below.
Required:
(c) Evaluate the performance and position of Southern Gas plc as a business compared to Northern
Gas plc for the financial year ended 31 December 2013.
(8)
(Total 32 marks)
P43183A 12
SOURCE MATERIAL FOR USE WITH QUESTION 7
7. Sheung Wan Construction plc purchased Ngau Builders plc on 1 January 2014. The directors of
Sheung Wan Construction plc agreed to take over all of the assets and to settle all the liabilities of
Ngau Builders plc. The purchase price was agreed at 1.5 times the net book value of Ngau Builders
plc, after any revaluations.
The purchase was settled on the following terms. For every one share held in Ngau Builders plc, a
shareholder received:
• four ordinary shares in Sheung Wan Construction plc of £0.50 each at a premium of £0.22 per
share
• the balance settled in cash.
The Statements of Financial Position of the two companies on 31 December 2013, before any
revaluations, were as follows:
Non-current liabilities
6.5% Debenture 2017 25 000 000 --------
Bank loan 50 000 000 6 000 000
75 000 000 6 000 000
Current liabilities
Trade and other payables 11 650 000 2 410 000
Current tax payable 2 721 000 1 707 000
Short-term provisions -------- 3 000 000
14 371 000 7 117 000
Total Equity and Liabilities 834 326 000 60 371 400
• Property with a book value of £7 860 000 to a current market value of £9 120 000
• Plant with a book value of £3 010 000 reduced by £943 000
• Trade Receivables reduced by 5%
• Current tax payable reduced to a figure of £1 240 000.
Required:
(b) Calculate the goodwill paid by Sheung Wan Construction plc in the purchase of Ngau Builders plc.
(2)
(c) Calculate the amount of cash a shareholder in Ngau Builders plc would receive for each share held.
(4)
(d) Prepare the Statement of Financial Position of Sheung Wan Construction plc as at
1 January 2014 after the purchase of Ngau Builders plc.
(12)
Shares in Sheung Wan Construction plc were trading on the market at £0.72 per share. Shares in
Ngau Builders plc were trading at £2.30 a share on the market.
(e) From the point of view of a shareholder in Ngau Builders plc, evaluate the purchase of the
company by Sheung Wan Construction plc.
(8)
(Total 32 marks)
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