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FIRST NAME OF CANDIDATE:

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1
SCHOOL OF ACCOUNTING

2
3

ACCT 1511:

Accounting and Financial Management 1B

FINAL EXAMINATION
JUNE 2009
Time Allowed:
Reading Time:
Total Number of Questions:
Total Number of Pages

Total
(/40)

2 Hours
10 minutes
6
34

Answer ALL questions.

The questions are NOT of equal value.

Answers to Questions 1 to 5 must be written in ink on the lines or in boxes

provided in this Booklet.

Question 6 (multiple choice questions) must be answered on the separate

Generalised Answer Sheet provided using a 2B pencil.

This is a Closed Book examination.

Candidates may bring their own UNSW-approved calculator.

This paper is NOT to be retained by the candidate.

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED BY THE EXAM

SUPERVISOR

QUESTION 1 (10 MARKS): CASH FLOW STATEMENT

The following information is extracted from the annual report of JNT Ltd.:
JNT Ltd.
Comparative Balance Sheet
As at 30 June
Cash
Accounts receivable
Allowance for doubtful debts
Inventory
Prepaid insurance
Long-term investments
Land
Buildings
Accumulated depreciation - buildings
Equipment
Accumulated depreciation - equipment
Total assets

2008
$183,000
520,000
(10,000)
175,000
11,000
214,000
231,000
184,000
(65,000)
46,000
(33,000)
$1,456,000

2007
$38,000
430,000
(21,000)
325,000
5,000
203,000
168,000
225,000
(81,000)
103,000
(67,000)
$1,328,000

Accounts payable
Accrued expenses
Interest payable
Income tax payable
Final dividends payable
Short-term loan
Bonds payable
Share capital
Asset revaluation reserve
General reserve
Retained earnings
Total liabilities & shareholders' equity

$287,000
26,000
19,000
30,000
18,000
12,000
100,000
403,000
42,000
120,000
399,000
$1,456,000

$302,000
28,000
19,000
32,000
15,000
20,000
165,000
416,000
39,000
25,000
267,000
$1,328,000

Page 2 of 21

QUESTION 1 (CONT.): CASH FLOW STATEMENT

JNT Ltd.
Income Statement
For Year Ended 30 June 2008
Sales
Gain on sale of equipment
Dividends received
Total income
COGS
Bad debt expense
Insurance expense
Interest expense
Other expenses
Income tax expense
Loss on disposal of buildings
Total expenses
Net profit

$1,485,000
16,000
3,000
$1,504,000
$(986,000)
(76,000)
(12,000)
(27,000)
(53,000)
(74,000)
(19,000)
(1,247,000)
$257,000

Additional information during the year:

a) Buildings with original cost of $74,000 and accumulated depreciation of $45,000
were sold.
b) A piece of equipment with an original cost of $57,000 and accumulated
depreciation of $43,000 was disposed of.
c) A parcel of land with unknown original cost was revalued upward by $38,000.
d) A bonus share issue of $35,000 was declared out of Asset Revaluation Reserve.
e) JNT conducted a share buy-back during the year. Information reveals that the
average price of the buy-back is the same as the original issue price of those shares.

Page 3 of 21

QUESTION 1 (CONT.):
1. Calculate the amount of depreciation expense that is included in the Other Expenses
account by using relevant T-accounts. (3 marks)

DO NOT WRITE OUTSIDE THE BOX

Page 4 of 21

QUESTION 1 (CONT.):
2. Prepare the operating cash flow section of the statement of cash flows for JNT Ltd.
for 2008 by using the indirect method. (7 marks)

DO NOT WRITE OUTSIDE THE BOX

Page 5 of 21

QUESTION 2 (8 MARKS):
FINANCIAL STATEMENT ANALYSIS & ACCOUNTING POLICY CHOICE
The following information relate to JP Morgan Chase & Co (JPM).
JP Morgan Chase & Co.
Selected balance sheet data December 31 (in millions)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale
agreements
Securities borrowed
Trading assets:
Debt and equity instruments
Derivative receivables
Securities
Loans
Allowance for loan losses

2008
$

Loans, net of allowance for loan losses

Accrued interest and accounts receivable
Goodwill
Other intangible assets
Other assets
Total assets

Liabilities
Deposits
Federal funds purchased and securities loaned or sold under
repurchase agreements
Commercial paper and other borrowed funds
Trading liabilities:
Debt and equity instruments
Derivative payables
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIEs
Long-term debt and trust preferred capital debt securities

40,144
11,466

203,115
124,000

170,897
84,184

347,357
162,626
205,943
744,898
(23,164)

414,273
77,136
85,450
519,374
(9,234)

721,734
60,987
48,027
14,984
121,245

510,140
24,823
45,270
14,731
83,633

$2,175,052 $1,562,147

$1,009,277 $ 740,728

Total liabilities
Stockholders equity

Total liabilities and stockholders equity

26,895 $
138,139

2007

192,546
170,245

154,398
78,431

45,274
121,604
187,978
10,561
270,683

89,162
68,705
94,476
14,016
199,010

2,008,168
166,884

1,438,926
123,221

$2,175,052 $1,562,147

(Extracted from JPMs Annual Report on 10-K filing with SEC)

Page 6 of 21

QUESTION 2 (CONT.):

Note: Firm-wide Level 3 assets are expected to be approximately 6% of total firm assets at 12/31/08.
(Extracted from JPMs presentation to analysts for financial year ended 31 December 2008).

Level 3 assets, also known as mark to make believe, are those in which there are no clearly
definable market prices banks can define the prices based on unobservable inputs that reflect
managements own assumptions . (Tracy Alloway, ft.com 16 January 2009)
Accounting rulemakers now want banks to bring some of those (off-balance sheet) assets back
onto their books. They are trying to crack down on transactions that banks used to sidestep rules
inspired by the off-balance-sheet antics that led to Enron Corp.s collapse. In its annual filing,
JPMorgan said the rules change (SFAS140/FIN46R) might lead it to bring back about $160 billion
in assets. Citigroup estimated it may have to reclaim $179 billion. That would equal about 9
percent of year-end 2008 assets at Citigroup, and about 7 percent at JPMorgan. (David Reilly,
Bloomberg.com, 25 March 2009)
Page 7 of 21

QUESTION 2 (CONT.):

(Extracted from Office of Comptroller of Currency Quarterly Report on Bank Trading

and Derivatives Activities, Fourth Quarter 2008.)
Five of America's largest banks, most of which have received $145 billion in taxpayer
bailout dollars, still face potentially catastrophic losses from exotic investments if
economic conditions substantially worsen, their latest financial reports show. ...
Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. Morgan
Chase reported that their "current" net loss risks from derivatives insurance-like bets
tied to a loan or other underlying asset surged to $587 billion as of Dec. 31 2008
J.P. Morgan is credited with launching the credit-default market and is one of the most
sophisticated players. It remains highly profitable, even after acquiring the remains of
failed investment banker dealer Bear Stearns , and says it has limited its exposure. The
New York -based bank, however, also has received $25 billion in federal bailout
money. (Greg Gordon and Kevin G. Hall, McClatchy Newspapers, news.yahoo.com,
9 March 2009)

Page 8 of 21

QUESTION 2 (CONT.):
Required:
(1) With reference to the information on JP Morgan Chase & Co (JPM) above, analyse
the balance sheet of JPM and discuss THREE (3) limitations of the balance sheet as
presented. (6 marks):
1.

2.

3.

DO NOT WRITE OUTSIDE THE BOX

(2) As an investor analysing the information on JPM above, what could be your opinion
as to the possible going-concern (solvency) situation of JPM? (2 marks)

DO NOT WRITE OUTSIDE THE BOX

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Note: If required, please use the following formulae to calculate ratios for
Question 2.
Performance Ratios
Return on Equity (ROE) = Net Profit After Tax / Shareholders Equity
Return on Assets (ROA) = Earnings before Interest & Tax (EBIT) / Total Assets
Profit Margin = Net Profit After Tax / Sales Revenue
Gross Margin = Gross Profit / Sales Revenue
Activity Ratios
Asset Turnover = Sales Revenue / Total Assets
Inventory Turnover = COGS / Average Inventory
Days Inventory on Hand = 365 / Inventory Turnover
Debtors (receivables) Turnover = Credit Sales / Average Trade Debtors
Days in Debtors = 365 / Debtors turnover
Creditors Turnover = Purchases (or COGS) / Average Accounts Payable
Days in Creditors = 365 / Creditors Turnover
Cash Flow Cycle = Days in Inventory + Days in Receivables Days in Creditors
Liquidity and Financial Structure Ratios
Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Current Assets Inventories) / Current Liabilities
Interest Coverage = EBIT / Interest Expense (net)
Debt to Equity Ratio = Total Liabilities / Total Equity
Debt to Assets = Total Liabilities / Total Assets
Leverage = Total Assets / Shareholders Equity

Page 10 of 21

QUESTION 3 (6 MARKS): CORPORATE GOVERNANCE

Note: 1B no longer covers the topic of corporate governance therefore, this question
is removed.

QUESTION 4 (6 MARKS): COSTING SYSTEMS

Kang Company provided the following data for the year 2008:
Labor:
Direct labour cost (25,000 hours)
Indirect labour
Materials:
Direct materials:
Inventory, January 1, 1998 $
Purchases on accoun
Direct materials issued
Indirect materials issued
Other factory overhead costs:
Depreciation
Maintenance
Miscellaneous
Work in Progress:
Beginning inventory
Ending inventory

$175,000
35,000
25,000
t 200,000
190,000
10,000
55,000
25,000
15,500
110,000
80,250

The company uses a normal costing system with predetermined overhead rate based on
direct labour hours. The rate for 2008 was $5.20 per direct labour hour.
Required:

Prepare a statement of cost of goods sold.

Page 11 of 21

QUESTION 4 (CONT.): COSTING SYSTEMS

Statement of cost of goods sold (6 marks):

DO NOT WRITE OUTSIDE THE BOX

Page 12 of 21

QUESTION 5 (10 MARKS): BUDGETING FOR PLANNING AND

CONTROL
Echo Systems manufactures high-quality loudspeakers that are sold to manufacturers of
stereo equipment. Assume the following:
a) Budgeted sales for the first 4 months of the year are:
January
February
March
April

60,000 speakers
80,000 speakers
100,000 speakers
80,000 speakers

b) The company sells its loudspeakers for $70 per unit and expects one-half of
each months sales revenue to be received in the month of sale and the other
half to be received in the month following sale.
c) On 1 January, 15,000 speakers are in finished goods inventory. The company
wants the number of speakers in its beginning finished goods inventory each
month to equal 25% of the months budgeted sales (in units).
d) The Accounts Receivable account has a balance of $4,000,000 on 1 January.
e) Eight feet of expensive audio cable is used in the manufacture of each speaker.
On 1 January, the company has 104,000 feet of this cable in its raw materials
inventory. The amount of cable in inventory at the beginning of each month
should be 20% of the months usage requirement.
f) The company pays $.40 per foot for audio cable in the month following
purchase. Decembers purchases were 900,000 feet at $.40 per foot.
Required:
1. Prepare a sales budget for the first 4 months of the year.
2. Prepare a cash receipts budget for the first 4 months of the year. Deleted as no
longer examinable.
3. Prepare a production budget for the first 3 months of the year.
4. Prepare a raw materials purchases budget for audio cable for the months of
January and February.

Page 13 of 21

QUESTION 5 (CONT.):
1. Sales budget (2 marks):

DO NOT WRITE OUTSIDE THE BOX

2. Cash receipts budget (2 marks):

NOT EXAMINABLE in the current 1B

DO NOT WRITE OUTSIDE THE BOX

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QUESTION 5 (CONT.):
3. Production budget (2 marks):

DO NOT WRITE OUTSIDE THE BOX

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4. Raw materials purchases budget (4 marks):

DO NOT WRITE OUTSIDE THE BOX

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QUESTION 6 (20 MARKS): MULTIPLE CHOICE QUESTIONS

There are twenty (20) Multiple Choice Questions. Choose one (1) best answer per
question. Answers are to be recorded on the separate Generalised Answer Sheet
provided using a 2B pencil by blackening appropriate boxes. You must record your
student number and name on the provided answer sheet.

1.

Which of the following statements about prepaid expenses is NOT true?

They are expenses which should be recognised in the income statement as soon as
they are paid.
They are usually classified as current assets.
They are expenses which have not yet been incurred but have been paid for during
the current period.
They are usually associated with cash outflows.
Both A and C are NOT true.

B
C
D
E

2.
A
B
C
D
E

3.

A
B
C
D
E

Which of the following items would be recognised in the balance sheet as a

liability?
Advances from customers for goods and services to be provided next year.
Payment in advance to suppliers for raw materials to be delivered next year.
Allowances made for potential bad debts in the current period.
Contingent liabilities.
A and D.

ProVice Ltd issued 10,000 ordinary shares for $2.50 each, payable $1 on
application, 50 cents on allotment and $1 in calls as required. The journal entries
to record the allotment of 10,000 shares would include a:
Credit to Cash, $5,000
Credit to Allotment, $10,000
Credit to Share Capital, $25,000
Credit to Share Capital, $5,000
Credit to Allotment, $5,000

Page 17 of 21

4.
A
B
C
D
E

5.
A
B
C
D
E
6.
A
B
C
D
E

7.
A
B
C
D
E

What is the usual journal entry to create a General Reserve account?

Dr Asset Revaluation Reserve
Cr General Reserve
Dr General Expenses
Cr General Reserve
Dr Profit and Loss Summary
Cr General Reserve
Dr Retained Profits
Cr General Reserve
Dr General Reserve
Cr Cash

Which of the following can NOT be an example of an investing cash flow?

Purchase of land.
Payment to acquire shares of other companies.
Sale of shares previously purchased.
Dividend paid.
Shares issued.
Which of the following could NOT explain an increase in the Return On Equity
(ROE)?
Creating a general reserve account.
Payment of an interim dividend.
Increase in net profits.
Declaring a final dividend.
Share buyback.

Which of the following ratios may indicate the efficiency with which the resources
of the company are being utilised to generate profit?
Current ratio
Debt to assets ratio
Quick ratio
Return on assets
B and D.

Page 18 of 21

8.
A
B
C
D
E

9.
A
B
C
D
E

Which of the following statements about the current ratio is true?

It indicates whether the company has enough short-term assets to cover its shortterm liabilities.
An extremely high ratio always is a favourable sign.
A ratio above 1 indicates that working capital is negative.
It will increase when cash is collected from debtors.
A and D.

Which of the following transactions may decrease the current ratio?

Slow cash collection from debtors.
Sale of a major non-current asset.
A large prepayment.
Existence of a large obsolescent inventory stock.
Increasing the allowance for doubtful debts.

10.

Which of the following is NOT an area in which companies typically make

accounting policy choices?

A
B
C
D
E

How to calculate amortisation of development costs.

How to calculate depreciation on land.
How to value inventories.
Whether to capitalise development costs.
None of the above: that is, all are accounting policy choices available to
companies.

11.

Which of the following is an accounting method that could be chosen by a

company to decrease reported profits?

A
B

Overstating allowance for doubtful debts

Increasing the useful life of plant and equipment which is being depreciated using
straight line method.
Classifying longer-term debts as current liabilities
Creating a general reserve account using the companys retained profits account.
A and D.

C
D
E

Page 19 of 21

Questions 12 14 are based on the following information.

Turnaround Ltd, which has been in business one year, has an income tax rate of 40%.
The company makes it a practice to capitalise its advertising costs as a deferred asset
and to amortise it at 25% per annum. The accountant has suggested to the general
manager that the policy of capitalising advertising should be ended because the
economic benefit of such expenditure is not clearly determinable. The amount of
advertising capitalised this year was $150,000.
12.
A
B
C
D
E

13.
A
B
C
D
E

14.
A
B
C
D
E

What effect would such a policy change have on Net Profit After Tax this year?
$112,500 reduction
$45,000 reduction
$60,000 reduction
$67,500 reduction
$25,000 reduction

What effect would such a policy change have on total assets this year?
$150,000 reduction
$67,500 reduction
$112,500 reduction
$45,000 reduction
No effect

What effect would such a policy change have on cash flows from operations this
year?
$150,000 reduction
$67,500 reduction
$45,000 increase
$45,000 reduction
No effect

15.

Which of the following statements is true regarding manufacturing overhead

costs?

A
B
C
D

They consist of direct material and direct labour costs.

They are easily traced to jobs.
They include all selling costs.
They should not be assigned to individual jobs because they bear no obvious
relationship to them.
They are a diverse pool of indirect production costs that can include gas and
electricity costs and depreciation associated with manufacturing.

Page 20 of 21

16.

Which of the following statements is NOT correct regarding Work In Process?

A
B
C
D
E

Work In Process is partially completed inventory.

Work In Process consists of direct labour, direct material and manufacturing
overhead.
Work In Process is debited as product costs are incurred.
Work In Process is credited when goods are sold.
A and C

17.

Process costing is normally used when:

A
B
C
D
E

Small numbers of distinctly different products are manufactured.

Large numbers of different products are manufactured.
Large numbers of nearly identical products are manufactured.
Small numbers of nearly identical products are manufactured.
The fixed costs of manufacturing exceed the variable cost of manufacturing.

18.

Which of the following statements is true regarding cost?

A
B
C
D
E

A cost is always an expense.

A cost is always an asset.
A cost is something quite different from either an expense or an asset.
It can be either an expense or an asset.
It is always a liability.

19.

Which of the following is a manufacturing cost?

A
B
C
D
E

Marketing costs.
Administrative costs.
Research and development costs.
Indirect material costs.
Sales personnel salaries.

20.

Which of the following statements is true?

A
B
C
D

Budgets are usually available as part of the companys annual report.

Budgets are part of the organisations planning and control processes.
Budgets ensure that accounting records comply with GAAP.
Budgets are not always used to aid in setting up of the short-term goals of the
company.
All of the above: that is, all statements are true.

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