ACCT1101 FINAL EXAMINATION

SEMESTER 2, 2020

Full Name:
Student ID:

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Question 1 (16 marks)

The following financial information relates to Bunney Ltd. All sales and purchases of inventory at
Bunney are on credit. There were no non-current asset disposals in 2019 or 2020. Other expenses
include depreciation expense of $48 000.
Bunney Ltd
Comparative Statements of Financial Position
as at 30 June
2019 2020
Assets
Cash at bank $  31 000 $  45 000
Accounts receivable 78 000 69 000
Inventory 120 000 180 000
Property, plant and equipment (net) 170 000 162 000
Total Assets 399 000 456 000
Liabilities 
Accounts payable 73 000 71 000
Other accrued expenses - 2 24 000 19 000
Total Liabilities  97 000 90 000
Net Assets 302 000 366 000
Equity
Share capital 200 000 200 000
Retained earnings     102 000     166 000
Total Equity $ 302 000 $ 366 000

Bunney Ltd
Income Statement
For the year ended 30 June 2020
Sales $ 950 000
Cost of sales    ( 630 000)
GROSS PROFIT 320 000
Expenses:
Other expenses (188 000)
PROFIT $ 132 000

Required:
(a) Calculate the amount of “Cash paid to suppliers, employees and others” that would be
disclosed in the Statement of Cash Flows for the year ended 30 June 2020. Show full
workings. (12 marks)
(b) Calculate the net cash flow from investing actitivites, clearly indicate whether the net result is a
cash inflow or cash outflow. Show full workings. (4 marks)

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
ng AP –
- Ending AP
= 630,000 + 120,000 – 180,000 + 73,000 – 71,000 = $572,000
Cash Paid to employeed = Wages Expense + Begingin Wages payble – Ending Wages
payable

= (188,000-48,000) + 24,000 – 19,000 = $ 145,000

Payment of Other Expenses = Other Expense + beginning Expeneses – ending expenses

= 188,000 + 24,000 – 19,000 = $193,000

Cash flow form Investing Activity

Sale of property, plant and equipment = 170,000 – 162,000 = $8000

There is inflow of $8000 due to decrease in PPE

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Question 2 (20 marks)

Ben’s Bargain has the following information that relates to the entity’s inventory record for the
month of April.
April Units Unit cost Total cost
1 Beginning inventory 300 $ 3.00 $ 900
12 Purchases 600 2.80  1 680
24 Purchases 700 2.70 1 890

Ben’s Bargain uses the periodic inventory system. A physical inventory count on 30 April showed
that 600 units were on hand.

Required
(a) Calculate the cost of April’s ending inventory using the following methods:
i. FIFO
ii. LIFO
iii. Weighted average cost (round to the second decimal place).
(11 marks)
(b) Which method resulted in the highest cost of ending inventory. (2 marks)
(c) Which method resulted in the highest gross profit – state the method only; you are not required
to perform any calculations. (2 marks)
(d) Discuss your answer to (c). Why did this method result in the highest gross profit? (5 marks)

(i) FIFO ENDING Inventory = 600 * 2.7 = $1620

(ii) LIFO = 300*3 + 300*2.8 = 900+ 840 = $1740

(iii) Weighted Average = (300*3+600*2.8+700*2.7)/300+600+700 * 600 = $1676.25

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Is

profit
s 3,

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Question 3 (26 marks)
Part 1 (18 marks)
The following information relates to Securitie Ltd.

2019 2020
Current ratio 1.3:1 1.1:1
Acid test ratio 0.7:1  0.5:1
Receivables turnover period 45 days 30 days
Inventory turnover period 92 days 122 days
Profit margin 7% 10%

The industry averages for current ratio and acid test ratio are 1.5:1 and 0.9:1 respectively.

Required
(a) State whether each of the following ratios/turnover period has improved or worsened during the
period 2019 - 2020:
I. Acid test ratio
II. Inventory turnover period
III. Profit margin (3 marks)
(b) Interpret the liquidity ratios and critically evaluate the company’s liquidity. (7 marks)
(c) For each ratio/turnover period that you identified to have worsened in Part (a), provide two
possible reasons for why it has worsened. (4 marks)
(d) Discuss the possible reasons that explain the change in profit margin from 2019 to 2020.
(4 marks)

SOLUTION

(i) Worsened

(ii) worsened

(iii) improved

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
the

atio

om
we
nt

(i) It may be possible that the current asset decreased due to low
It may be possible that Current liability increase, bought inventory on account
(ii) It may be possible company cash and cash equivalent decreases
It may be possible that current liability increases
(iii) The profit margin may be improved becouse of low cost of goods sold
It may be possible that the operating expenses is less than previous year

The profit margin is calculated as profit/ Sales revenue

There are four possible reason of increase in profit margin

1 Decrease in Cost of good sold, due to use of cheap material

2 Decrease in operating expenses, avoid the avoidable expenes
3, Tax exemption or change in tax rates
4. Income from other sources

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Part 2 (8 marks)
Securitie Ltd’s common size statements of financial performance for 2017 and 2018 are presented
below. All amounts are expressed as percentage of revenue.

2017 2018
Revenue (all sales) 100.0 100.0
Cost of sales 73.6 65.0
Gross profit 26.4 35.0
Expenses (including tax) 17.6 19.8
Profit 8.8 15.2

Required
(a) Critically evaluate the company’s profitability. Hint: you are expected to discuss all items as
well as their relationships where appropriate. (8 marks)

SOLUTION

Cost of Good sold: The cost of good sold is 73.6% of revenue in 2017 while in 2018 it will
become 65%, it is the reason for the increase in profit margin, plus gross profit margin also
increases due to this. The possible reason that company has chnaged their supplier and now they
are getting material in low rates or possibly company has achieved economies of scale.

Gross Profit : The gross profit ratio is increased by 8.6%, the only possible reason for this is
decrease in cost of goods sold becouse the gross profit is the difference of revenue and COGS

Expenses: The expenses ratio is increased by 2.2%, This also affect the profit margin ratio. Due to
this profit margin ratio is decreased by 2.2%. the possible reason for this may be increase tax
rates, increase utility expenses due increase in sales revenue.

Profit Margin: The profit margin is depended on two factors, cost of goods sold and expenses. In
this case the reason for the increase profit margin is decrease cost of goods sold while profit
margin decrease due to increase in expenses the net overall effect is profit margin increase by
6.4% increase.

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
Question 4 (18 marks)

Consider the following statements:

1. Gearing ratio measures the efficiency in the use of assets.
2. Return on equity measures the efficiency in the use of total available funds.
3. Common size analysis is not useful when making comparisons between companies that are
very different in their scales of operation.
4. In the earlier years of a non-current asset’s useful life, the depreciation expense recognised
using the straight-line method will be lower than that recognised using the reducing balance
method.
5. Cash flow from operating activities will always be the same as the profit.
6. All depreciation methods recoginise the reduction in an non-current asset’s value in relation to
the passing of time.
7. The starting point of the budgeting process is the forecast of purchases of inventory.
8. A company’s budgetary system is made of various inter-related budgets.
9. Budgets are generally used as a long-term planning tool.

Required
State whether each of the above statements is True (T) or False (F), and provide reasonable
explanation(s) to support your response, i.e. explain why the statement is true or false. (18 marks)

1. False, Gearing ratio only tell us finacial leverage of company, The efficiency of asset
is calculated by asset asset turnover ratio

2. False, Return on equity only tell us the efficiency of fund which is contributed by
owner or shareholder. Available funds may include may include liability

3. True, When company has different scale of operation, it cost might different
therefore less cost and high revenue. There will be different average cost

4. True, In first year in double declining method we double the rate hence in earlier year
depreciation expense is high in ddb and low in straight line

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
 5. False, The cash flow from operating activities is not equal to profit beocouse add
back depreciation and adjust the current assset and liability changes

6. False, Not all method use time factor, the unit of production method use machine
hour or other measure to depreciate the asset

7. False, The sales forcast is the starting point

8. True, The budgetary system based on different interelated budget

9. False, Strategic budget are the budget for long term planning while operating budget
are short term planing

Question 5 (20 marks)

Part 1 (12 marks)

Mattress World is a retailing business that sells mattresses. The expected sales volume (i.e. units
of product to be sold) for the first four months in 2020 are as follows:

Month Sales (unit)

January 100
February 140
March 130
April 120

The following additional information is available:

 Budgeted purchase price for mattresses is $100.
 30 units were in the inventory at the end of December 2019.
 Mattress world maintain an ending inventory balance of 30% of the next month’s expected
sales.

Required
Prepare the Inventory and Purchase Budget for the first three months in 2020. (12 marks)

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
 MATRESS WORLD
Inventory Budget
  January February March April
Expected sales 100 140 130 120
Desired Ending Inventory 42 39 36  
Total Invenotry Needed 142 179 166  
Deduct beging inventory 30 42 39  

MATRESS WORLD
Purchase Budget
  January February March
Total Budgeted Invenotry 112 137 127
Price per Matress 100 100 100
Total budgeted purchase $ 11,200 $ 13,700 $ 12,700

Part 2 (8 marks)

The following information pertains to Moon Ltd in 2020:

Month Sales Purchases

January $ 62 000 $ 33 000
February 84 000 42 000
March 101 000 61 000

 Cash is collected from customers in the following pattern:

Month of sale 40%
Month following the sale 60%
 45% of purchases are paid for in cash in the month of purchase, and the balance is paid the
following month.
 Employee’s wages are 30% of sales. Other operating costs are $38 000 per month (including
$10 000 of depreciation). Both of these are paid in the month incurred.

Required
Calculate the budgeted total cash payment in March 2020. (8 marks)

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
 March 2020 payment  
  55% of feb purchase
  45% of March Purchase
  Emplyees wages
  Other cost
  Total Payment

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ACCT1101 Accounting for Decision Making. Semester 2, 2020
 END OF EXAMINATION

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ACCT1101 Accounting for Decision Making. Semester 2, 2020