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(a) Cash flow statement for the year ended 31 October 2006
05
$000
10,889
6,784 1
(101) 05
1,749 05
(1,806) 1
17,515
3,015 05
3,034 05
(270) 05
23,294
101 05
(1,749) 05
(2,395) 2
19,251
(7,671)
5,667
4,231
(3,697)
(16,889)
$000
3
1
(2,004)
1
1
1
(16,355)
892
(4,806)
(3,914)
1
1
(b) Cash flow statements may be more useful than profit statements for the following reasons:
Cash flow statements help users understand where the company has generated its cash and how it
has been applied during the period.
1
Cash flow statements are more objective than profit statements as they cannot be manipulated by
choosing more favourable accounting policies.
1
Cash flow statements provide a useful insight into the changes in the structure of working
capital.
1
Cash flow statements enable users to establish whether the company is able to repay its debts. 1
(max
2)
(c) It is a requirement; it completes the financial picture i.e. profits, state of affairs, cash; shows
cash inflows and cash outflows important for survival; shows how efficiently or inefficiently
cash has been used throughout the year; shows clearly internal and external financing etc.
1 point identified plus 1 further mark for development
(d) Speed up collection
Delay payment
Delay capital expenditure
1 point identified
Question 2
(a)
(i)
(ii)
(iii
)
Expenses as % of sales
(iv) Stockturn
(v)
Rate of return
60 x 100
1,80
0
340
1,80
0
= 3.3%
x 100
= 15.2%
x 100
= 3.3%
x 100
= 11.9%
2 700
90
2,700
x 100 = 18.9%
320
2 700
1
400
(300 + 200) /
2
= 5.6
times
60
(240+230 / 2
= 25.5%
409
245
410
=
1.67
= 8.8
times
2 290
(280 + 240) / 2
90
(430+440) / 2
382
252
= 20.7%
= 1.52
(ii) Maybe less efficient use of mechanised means in the business by B. Note that assuming A
and B both use similar depreciation rates, B has more equipment and it is considerably newer
than As.
(iii) B did not have as much stock lying idle. B turned over stock 8.8 times in the year as
compared with 5.6. This could indicate inefficient purchasing by A and/or a likelihood of stock
outs and, so, loss of sales.
(iv) While A waited (on average) 1.37 months to be paid by customers. B managed to collect in
0.62 months on average. Money represented by debts is money lying idle. However, A took
longer (2.26 months) to pay its creditors than B (1.34 months). It appears that A was therefore
less efficient in controlling its debtors whereas B was less efficient in controlling its creditors
payments. Overall, these two results probably cancel each other out so far as explaining As
higher rate of return.
1 mark each, max 4
(c) Shares
Advantages
Owenership of the company
Possible future capital gain
Disadvantages
No fixed dividend
Ranked last when company is liquidated
Bond
Advantages
Fixed interest
Can get back capital
Disadvantages
No room for growth in income
No ownership of the company
Convertible bond
Advantages
Fixed interest
Possible to get ownership of the company
Disadvantages
Very low interest
Question 3
(a)
Consignment to Adams, Canada
2015
$
Jan 16 Goods sent on
consignment (a)
500
Feb 28 Bank: carriage (b)
50
Jul
31 Adams: Import duty (d)
25
Distribution (d)
30
,, 31 Adams: Commission (e)
45
, 31 Profit on consignment (transferred to
profit
and loss account)
100
2015
Jul 31 Sales (c)
750
$
750
750
2015
2015
Question 4
Success Fabrication
Manufacturing Accounts for the year ended 31 October 2014
$
Raw material
Opening inventory
Purchases
Carriage inwards
(-) Closing inventory
Cost of raw materials consumed
Direct labour
Prime cost
25,400 (1/2)
91,535 (1/2)
1,960 (1/2)
28,900 (1/2)
89,995
84,208 (1/2)
174,203
3,900 1
8,120 (1/2)
10,200 (1/2)
196,423
31,100 (1/2)
227,523 (1/2)
24,600 (1/2)
202,923
$
318,622 (1/2)
23,260 (1/2)
202,923 (1/2)
(28,840) (1/2) (197,343)
121,279
(33,419)
(1,300)
(4,420)
(2,300)
79,840
(1/2)
1
(1/2)
(1/2)
(b) (i) Receivables that were thought to be good at year end will not now be paid. Adjusting
event
(ii) Success Fabrication has announced a bid to take over another company. Non adjusting
event
(iii) Some material errors have been discovered which show the financial statements are
incorrect. Adjusting event
(iv) The factory workforce at Success Fabrication has started strike action for an indefinite length
of time. Non adjusting event
1 mark per point
(c)
Year
Discount factor
1
2
3
4
0.909
0.826
0.751
0.683
Cash Flow
$
9 681 (1)
9 080 (1)
8 122 (1)
6 589 (1)
(d) Fair value less cost to sell = $26 000 200 = $25 800
Value in use = $26,900 (higher = recoverable amount)
(e) Impairment loss = $30,000 - $26,900 = $3,100
Question 5
(a)
$
Revenue
working 1
1 715 610
purchase cost
salary
rent
air fare
(1000 5)
working 1
$
1 000 000 x 1.1 - 1000 000
(b)
year
dis factor
(200 000
+ 3600)
(100 000
0.893
58 402.20 (1of)
(210 000
36 000 4500
1000)
0.797
(331 000
0.712
(464 100
0.636
(610 510
62 208 1000)
0.507
N.P.V (1)
Question 6
(a)
Materials
Labour
Overheads
Total Cost
Margin
Selling Price
48.00 1
22.50 1
10.50 1
81.00 1
19.00
100.00 1OF
[5]
(b) (i) Sales price variance: $102.50 $100.00 1OF 5 100 = $12 750 F 2OF + 1OF
(ii) Sales volume variance = 100 $100 = $10 000F 2
(iii) Material price variance = $0.25 43 460 = $10 865 A 2
(iv) Material usage variance = 1 060 $6 = $6 360 A 2
(v) Labour rate variance = $0.25 15 500 = $3 875A 2
(vi) Labour efficiency variance = 400 $7.50 = $3 000F 2
[4]
[2]
[2]
[2]
[2]
[2]