EXAM JAN 08 Section A 1 Critically evaluate the following business: Balance Sheet at 31/12 2005 Fixed Assets 000

Land & Buildings 200 Plant and Equipment 45 Current Assets Stock Debtors Bank Current Liabilities Creditors Bank Tax Dividends Long Term Liabilities Total net assets Financed by Capital Profit and Loss Account Retained Profit P&L Sales Cost of Sales Gross Profit Expenses Depreciation Net operating profit less interest Net profit after interest less tax Earnings

2006 000 300 58

2007 000 300 47

176 212 98 68 20 16 200 427 25 270 132 427 2005 838 (441) 397 (180) (5) 212 (24) 188 (40) 148

182 309 2 98 39 18 300 396 25 402 -31 396 2006 763 (499) 264 (233) (9) 22 (35) (13) 0 (13)

198 368

179 12 25 300 397 25 371 1 397 2007 803 (423) 380 (307) (11) 62 (36) 26 0 26

Dividends Retained Profit

(16) 132

(18) (31)

(25) 1

Q2 Below is summary information of a company which is facing funding constraints and is concerned that unless extra working capital can be secured for the following 3 years that the business may fail. Year 7 Sales Gross Profit Intangible Fixed Assets Fixed Assets Land & Buildings Plant & Equipment Vehicles Current Assets Stock Debtors Cash in hand Current Liabilities Creditors Overdraft (Bank Base + 3.5%) Working Capital Fixed + Net Current Assets Long Term Liabilities-6 % fixed Total net assets Financed by Capital Authorised Issued Net profit Carried forward 2007 000 49,945 23,974 20,000

2,250 1,500 750 42,458 17,321 3 8,359 9,132

4,500

59,782

17,491 42,291 66,791 -20,000 46,791

20,000

100 25

25 41,950

Retained profit for year

4,816 46,791

The directors have approached an Investment Bank (IB) to raise 10,000,000 of extra funding to strengthen the balance sheet. The directors wish to sell 20% of the shares into the market. The bankers feel that given market conditions this will prove eminently possible providing the directors will commit to a dividend yield of 4.5 % for the first two years. The IB has requested that the share capital be adjusted to show share capital of 50,000,000 shares of 10p nominal value and that the shares be sold at a discount of 15%. Their fee is 250,000. a) Show two versions of how the balance sheet might look after a successful placement? (20 marks) b) What might be the cost saving (or otherwise) be in the first two years after flotation? (10 marks) c) What other considerations should the directors bear in mind? (10 marks) d) Discuss the role of institutional investors as share holders in public limited companies (10 marks)

Q3 The research and development department of P&Q plc has produced prototypes for two designs of garden furniture: the spring model and the autumn model. Management has decided that the company has the facilities to support production and sales of only one of the two models in the foreseeable future. The development costs incurred, and already paid; in getting the models to design stage are as follows 000s Spring model 90 Autumn model 80 The spring model will require an investment in machinery with an estimated useful life of seven years. The machinery will cost 2,000,000 and possess a disposal value of 200,000 if resold during the first three years of ownership, and 80,000 thereafter. For the autumn model, the machinery would cost 2,200,000, have a useful economic life of five years and a disposable value of 150,000 at any time after initial installation The marketing department has estimated the annual demand for each model for the five years commencing 1 January 2009, which is the expected time period over which either

model would be sold. The financial planning department have produced the following estimated annual operating cash flows:

2008 2009 2010 2011 2012

Spring model Autumn model 000 000 420 1,600 420 1,200 1,000 550 2,400 550 1,200 500

It may be assumed that the annual operating cash flows will arise on the 31 of December in each year. The spring model will require an initial investment in working capital of 550,000, which, it may be assumed, will take place on 1 January 2008. The corresponding investment required for the autumn version would be 700,000. The annual operating profit is to be calculated as the annual operating cash flow, after making adjustments for the depreciation of machinery and the amortisation of development expenditure. The companys money cost of capital is 12%. a) Advise the directors as to which type of garden furniture should be produced. Show all relevant calculations and justify any assumptions you make. (40 marks) There are several methods you may choose to use in arriving at this advice and you must also clearly detail the reasons for your chosen methodology and give reasons why alternative approaches have been ignored / rejected. (10 marks)

b)

Section B Q4 There are many different forms of accounting. Critically discuss four of these and give reasons to support the conclusion the most interesting of these aspects of accounting is because .. Q5 The annual accounts of major companies contain both qualitative and quantitative information. Which is most the most important element of each of these and which is most important overall all? Q6

ABC and Full Costing are both outdated To what extent and why do you agree with this statement and why?

Exam January 2009

THREE QUESTIONS. MUST ATTEMPT AT LEAST ONE QUESTION FROM EACH QUESTION SECTION A Question 1 Xylo plc incurs the following indirect costs in year ended 31st October 2008 Rent Supervisors salaries Canteen Costs Cleaning Rates Insurance Electricity Building Maintenance Machine Maintenance Depreciation machines Depreciation of canteen equipment Three Departments A B C A Floor Area Usage 6000 B 3000 C 2000 11000 64970 58720 125440 8000 12125 8760 15482 24940 3423 12220 1792 335872

For several years the indirect costs have been allocated on the basis of floor usage You are the new manager of Unit B and suggest the following apportionment Cost Dep Machines Canteen costs Machine Apportionment Machine value Number employees Number of call outs

Maintenance Salaries Everything else Floor Area Number employees Machine Value Call Outs

Number employees Floor Area A B C 6000 3000 2000 17 6 5 103000 8400 10800 6 0 1

11000 28 122200 7

Show the comparison figures of the two apportionment methodologies ( 25 marks) Question 2 Below is the 2007 and 2008 Trading and Profit & Loss Account for Tesco Plc for the year ended 23rd February, together with the Balance Sheet as at the same date. You have had sight of these since March 31st. In appendix one of the exam paper are the 2009 results. Critically evaluate the last 3 years for this major company. ( 25 Marks) Question 2 Consolidated Income and Expenditure Tesco PLC for year ended 23rd February 2008 2008 2007 Millions millions Revenue (continuing Operations) Cost of Sales Pension Adjustment Extraordinary item GROSS PROFIT Admin expenses Profit on property sales OPERATING PROFIT Finance costs Finance Income Other NPAIBT Tax NPAIT profit from discontinued ops EARNINGS EPS 47298 42641 -43668 -39401 258 -35 3630 3463 -1027 -907 188 92 2791 2648 -250 -216 187 90 75 131 2803 2653 -673 -772 2130 1881 18 2130 1899 26.95 23.84

Group Balance Sheet Tesco Plc as at 23rd February 2008 Fixed Asset 2008 2007 Goodwill and Intangible 2336 2045 Property Plant & Equipment 19787 16976 Investment Property 1112 856 Investment in Joint Ventures 305 314 Other Investments 4 8 Derivatives 216 Deferred Tax 104 32 23864 20231 Current Assets Stock 2430 1931 Debtors (inc tax) 1317 1088 Derivatives 97 108 Short term investments 360 Cash 1788 1042 Non CA held for sale 308 408 6300 4576 Current Liabilities Creditors 7277 6046 Overdraft 2084 1554 Derivatives 443 87 Current Tax 455 461 Provisions 4 4 10263 8152 Long Term Liabilities Borrowing 5972 4146 Derivatives 322 399 Pension Obligations 838 950 Deferred Tax & Other 844 564 Provisions 23 25 7999 6084 TOTAL NET ASSETS 11902 10571 FINANCED BY Share Capital 393 397 Share Premium Account 4511 4376 Other reserves 40 40 Retained Earnings 6871 5693 Minority Interest 87 65

TOTAL SHAREHOLDERS FUNDS

11902

10571

Critically evaluate the companys performance. Section B Answer a maximum of two questions from section B Question 4 Critically evaluate the role of Management Accountants in a modern business. Illustrate your answer with appropriate numerical examples. (25 marks) Question 5 A profitable business may well fail if the cash cycle is poorly managed. How may a business efficiently managed its cash cycle? Illustrate your answer with appropriate numerical examples. (25 marks) Question 6 Critically evaluate the use of different investment appraisal methodologies. Illustrate your answer with appropriate numerical examples. (25 marks)

SUMMER 2009 THREE QUESTIONS. MUST ATTEMPT AT LEAST ONE QUESTION FROM EACH QUESTION Question 1. You are given the following information regarding a start up companys income and expenditure for the first 6 months trading.

Sales Mix %

Cash Credit 1m Credit 2m Credit 3m

Discount Given Purchases as % Sales Purchase Mix

Cash Credit 1m Credit 2m Credit 3m Years SALES 200000 300000 330000 400000 400000 400000

Discount Received Initial Shares Sold Purchase Fixed Assets Residual Value Economic Life time Fixtures and Fittings Initial stock M1 M2 M3 M4 M5 M6
a)

50 20 20 10 5 60 10 50 30 10 10 50000 90000 0 5 15000 100000 OVERHEADS 15000 20000 20000 25000 25000 25000

Construct the cash budget for the business for the first 6 months (30 marks)

b) c)

Calculate the cash operating cycle for this business Comment briefly on the management of the business

(14 marks) ( 6 marks)

Closing stock is 100, 000

Question 2 a) Critically evaluate the three projects and advise on which project should be undertaken. All workings should be shown (25 marks)

Project

Capital expenditure Additional working capital Project life max Residual value Cash flows 1 2 3 4 5 6

1000000 250000 6 70000 250000 250000 250000 250000 250000 250000

1250000 100000 5 60000 200000 275000 350000 400000 400000

750000 350000 5 0 175000 205000 300000 150000 100000

The company has a cost of capital of 8% and a believes that interest rates will remain stable over the next 6 years. b) Defend the statement Despite solid theoretical underpinnings for the alternatives payback is still a valid investment appraisal technique (25 marks)

Question 3 Trial Balance as on 30th August 2009 Dr Capital Creditors Discounts Received Bank Business Rates Carriage In Purchase Returns Prov for Depn - Furniture Machinery Heat & Light Accrued General Expenses Furniture Drawings Debtors Cleaning Cash Insurance Opening Stock Heat & Light Premises Professional Subscriptions Sales Prov for Depn - Machinery Purchases Sales Returns Telephone Bill Travel Expenses Salaries Interest 160,000 54,871 45,000 78,000 19,000 5,000 2,450 56,000 12,000 555,000 5,090 1,254,12 1 29,75 0 658,794 3,090 22,225 5,245 450,000 25,000 Cr 1,500,00 0 712,35 1 12,54 3 1,364,267 45,263 10,800 2,53 0 10,80 0

55,00 Long Term Loan Notes 1. Closing Stock 55,000 2. Machinery depreciation at 12 % 3. Furniture to be depreciated 14 % 4. 176 is accrued for Heating & Lighting 5. Proposed Dividend is 20,000 6. Tax rate is 25 % Required Draw up a Trading and Profit & Loss Account and a Balance Sheet in the Vertical format. % % 3,577,095 0 3,577,095 55,00 0 1 2 1 4 17 6 20,00 0

50 marks

Section B Question 4 Departmental managers are often faced with allocations of expenses from head office. Critically evaluate the principles behind this. (50 marks) Question 5 Understanding a companys performance is a best achieved through a mix of qualitative and quantitative analysis. Critically evaluate this statement. (50 marks) Question 6 You have been asked to produce a price for a new product. Show how you would do this and fully define all accounting terms used.