Cass Undergraduate School

BSc (Hons) Degree in Business Studies

BSc (Hons) Degree in Management

BS1209 Introduction to Financial and Management

Accounting
Stage 1 Examination

15 May 2018 14:30 – 16:45

Instructions to students:

Candidates MUST answer BOTH QUESTIONS in Section A, and ANY ONE from the
remaining two questions in Section B.

Candidates must start each question on a separate page. State clearly any
assumptions that you make.

Section A carries 80 marks, Section B carries 20 marks.

This examination paper consists of 8 printed pages including the title page.

Materials:

Number of answer books to be provided: 1

Only the Casio calculators FX-83 (MS, ES or GT+) or FX-85 (MS, ES or GT+) are
permitted for use in this exam.
Dictionaries are not permitted.
This examination paper may NOT be removed from the examination room.

External Examiner: Ms Catherine Gregory

Internal Examiner: Mr Bijan Hesni

Page 1 of 8
Section A – Both questions in this section are compulsory

Question 1 - Pluto Ltd

This question is compulsory

The following is the trial balance of Pluto Ltd on 31st March 2018:

£ £
Sales 721,000
Purchases 363,000
Land & buildings (cost) 210,000
Land & buildings (Accumulated Depreciation) 12,600
Fixtures and fittings (cost) 75,000
Fixtures and fittings (Accumulated
22,500
Depreciation)
Ordinary share capital (shares £1 each) 120,000
Long term bank loan 55,000
Finance costs (interest on bank loan) 2,750
Administration expenses 72,000
Distribution costs 18,400
Inventory on 1st April 2017 108,700
Retained earnings on 1 April 2017 39,740
Share premium account 26,400
Trade payables 27,975
Trade receivables 135,000
Provision for doubtful debts 1,940
Cash at bank and in hand 42,305
1,027,155 1,027,155

Additional Information:
(a) Closing inventory at 31st March 2018 was valued at £153,800.
(b) Corporation tax on profits at 31st March 2018 is estimated to be £51,330.
(c) Fixtures and fittings are depreciated at an annual rate of 18% using reducing
balance method.
(d) Land and buildings are depreciated at an annual rate of 5% using straight line
method.
(e) The figure for admin expenses includes a prepayment of £310 for insurance.
(f) Salaries still outstanding at the year-end amount to £2,100.
(g) £960 of trade receivables is regarded as bad debt and needs to be written off.
(h) Directors also wish to make a provision for doubtful debts of 3% of trade
receivables.
(e) A total dividend of £78,000 has been declared and to be paid next year.

[QUESTION 1 IS CONTINUED ON NEXT PAGE]

Page 2 of 8
Required:

a) Prepare an Income statement for the year to 31st March 2018; and
(20 marks)
b) A statement of Financial Position as at 31st March 2018.
(20 marks)
(Total: 40 marks)

Page 3 of 8
Question 2 – Innovation Ltd
This question is compulsory

Innovation Ltd is a young innovative company that has developed a lightweight

foldable bicycle that is believed to become very popular with city commuters. The
company has secured production with a manufacturer in China with a maximum
capacity to produce 50,000 bicycles per year. The bicycles will be sold in the UK
using an on-line marketing platform.

The production cost of each bicycle is £160. Variable costs are £14 for transporting
each bicycle into the UK and £32 import duty. The total annual fixed costs of
Innovation Ltd are estimated at £595,000.

Demand for these bicycles in the coming year is expected to be 9,000 units at a
selling price of £295.

Required:

a) Calculate the company’s expected profit for the year.

(5 marks)

b) Calculate the company’s break-even point in number of bicycles and in sales

value. Explain what break-even point indicates.
(5 marks)

c) Calculate the margin of safety as a percentage of expected level of sales and

briefly explain what this figure means.
(5 marks)

d) Suggest, with supporting calculations, which of the following two strategies (if
any) that the company is currently considering should be adopted:

I. Spending an additional £46,000 on an on-line marketing campaign to boost

sales by 8% in the next year
II. Reduce the current selling price by 10%. This is expected to increase the
units of bicycles sold by 15%
(9 marks)

e) Cycles-R-Us, a large UK bicycle retailing chain has approached Innovation Ltd to

buy 3,000 of these bicycles at £235 each in order to sell them under its own
name at a lower price than the price charged by Innovation Ltd. Using supporting
calculations, suggest whether this proposal should be accepted.

What would be the company’s total profit for the year if this order from Cycles-R-
Us is accepted?
(6 marks)

[QUESTION 2 IS CONTINUED ON NEXT PAGE]

Page 4 of 8
f) Outline four of the main assumptions of cost-volume-profit analysis.
(10 marks)
(Total: 40 marks)

Page 5 of 8
Section B – Answer either question 3 or question 4

Question 3 – Swan Ltd

You are presented with the following information:

Statements of financial position as at 31st December:

2017 2016
ASSETS £ £
Non-current assets
Plant and machinery at cost 168,750 196,875
Accumulated depreciation (48,125) (47,875)
------------- -------------
120,625 149,000
Current Assets
Inventories 37,700 48,165
Trade receivables 32,300 33,160
Cash 18,825 13,500
------------- -------------
Total assets 209,450 243,825
------------- -------------
EQUITY AND LIABILITIES
Equity
Share capital 140,625 140,625
Retained earnings 29,450 22,725
------------- -------------
170,075 163,350
Non-current liabilities
Long term bank loan 0 40,000
Current liabilities
Trade payables 7,500 9,375
Taxation 5,625 8,200
Proposed dividends 26,250 22,900
------------- -------------
Total equity and liabilities 209,450 243,825
======= =======

[Question 3 is continued on next page]

Page 6 of 8
Income statement for the year ended 31st December 2017
£
Sales 207,500
Cost of sales (112,500)
---------------
Gross profit 95,000
Loss on disposal of asset (3,900)
Administrative expenses (28,120)
Distribution costs (20,630)
---------------
Operating profit 42,350
Loan interest (3,750)
---------------
Profit before taxation 38,600
Taxation (5,625)
---------------
Profit for the year 32,975
=========

Notes:
(i) Non-current assets with accumulated depreciation of £19,100 were sold during
the year to 30th December 2017.
(ii) The directors have proposed a total dividend of £26,250 to be paid in December
2017.

Required:
Prepare a statement of cash flow for the year ending 30th December 2017.
(20 marks)

Page 7 of 8
Answer either question 3 or question 4

Question 4

Angle Ltd is a small company which manufactures furniture. The production process
is divided into two production departments, Assembly and Finishing. There is also a
Store, which is used by both the Assembly and the Finishing departments for the
parts and material they need. The following budgeted information relates to the
coming year:

The total indirect overhead costs for all three departments for the year are as follows:

Plant & machinery repair & maintenance £115,200

Factory Supervisors’ salaries £152,240
Rent & rates & insurance £163,800
Depreciation on plant & machinery £220,800

The following information relates to each department:

Cost item Assembly Finishing Store

Floor space (square meters) 180 m2 90 m2 45 m2

Value of plant & machinery (£) 630,000 240,000 30,000
Number of employees 7 3 1
Labour hours 36,200 19,700
Plant & machinery usage hours 18,300 5,700
Number of parts requisitions from the Store 640 160

Required:
1. Allocate and apportion the indirect costs to Assembly, Finishing and Store using
a suitable method.
(12 marks)

2. Re-allocate the overhead costs from the Store to Assembly and Finishing
departments.
(2 marks)

3. Calculate the overhead recovery rate for both the Assembly & Finishing
departments based on labour hours.
(2 marks)

4. Calculate the selling price of a table if it uses £96 of direct material and requires 2
hours of labour in the Assembly department and 1 hour of labour in the finishing
department. Labour is paid £9.50 an hour. The company adds 40% mark up to
the total costs to determine the selling price.
(4 marks)
(Total: 20 marks)

[END OF EXAMINATION QUESTIONS]

Page 8 of 8