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FINANCE AND BUSINESS PERFORMANCE

MOCK REFERRAL TEST 2021

PLEASE SHOW ALL WORKINGS CLEARLY

QUESTION 1 – Objective Test Questions

1.1

A sole trader buys a van for use in his business. He pays the full amount of £3,500 in cash.

The double entry is:

(a) Debit Cash, Credit Van

(b) Debit Van, Credit Cash

(c) Debit Purchases, Credit Cash

(d) Debit Bank, Credit Van

(1 mark)

1.2

True or False?

The purchase of the van is capital expenditure.

The purchase of fuel is revenue expenditure

(2 marks)

1.3

True or False?

Preference Shareholders can vote at the AGM

(1 marks)

1.4

For each of the four statements below, identify which rule it is trying to explain.

You will have unmatched answers!

Select from the following:

· Prudence

· Materiality

· Accruals Concept

· Realisation

· The Measurement Rule

· Consistency

(i) The idea that only items with a monetary value can be accounted for

(ii) A business must account for unpaid items / items which are paid for but not used at the end of the period

(iii) You cannot account for revenue transactions until they have actually happened - for example if a customer phones to say they will come and buy £1,000 tomorrow, you cannot account for this until the sale has taken place.

(iv) Whilst revenue cannot be reported until it is certain, losses must be reported as soon as they are discovered. For example writing down the value of stock that was purchased for £100 and is now worth only £10.

(4 marks)

1.5

A company has receivables of £64,000 at the year end.

There is a specific bad debt of £4,000 to be written off.

There is to be a provision for bad debts of 5% of year end receivables.

Which of the following statements is correct?

(a) The provision for bad debts needs to be £3,200

(b) The provision for bad debts needs to be £3,400

(c) The provision for bad debts needs to be £6,000

(d) The provision for bad debts needs to be £3,000

(e) The provision for bad debts needs to be £32,000

(2 marks)

Total for Q1 = 10 marks

QUESTION 2

The following balances have been extracted from the books of Parr Ltd on 31.12.19

Using this information, produce an Income Statement and Statement of Financial Position.

	£’000s	£’000s
Advertising	6
Bank	22
Payables		24
Receivables	236
Furniture at cost	40
Depreciation on furniture		18
Directors’ fees	12
Retained Profit 1.1.19		16
Purchases	248
Rent	20
Sales		540
Share capital (issued and fully paid)		140
Inventory 1.1.19	32
Telephone	10
Travel expenses	4
Vehicles at cost	80
Depreciation on vehicles		20
Salaries	48
	758	758

NOTES

1. Inventory 31.12.19 was valued at £28,000

1. Furniture is to be depreciated at 15% per annum straight line

1. Vehicles are to be depreciated at 25% per annum straight line

1. Corporation tax is estimated to be £50,000

1. A dividend of 40p per share is proposed

1. The company has authorised share capital of £200,000 of £1 ordinary shares.

Marks are awarded as follows:

Income Statement = 21 marks

Statement of Financial Position = 24 marks

Total for Q2 = 45 marks

QUESTION 3 – Objective Test Questions

3.1

A supervisor’s salary of £1,300 per month is an example of which type of cost?

(a) Fixed cost

(b) Variable cost

(c) Stepped cost

(d) Semi-Variable cost

1 mark

3.2

Which of the following in an example of a direct cost in the production of bread?

(a) Rent

(b) Salary

(c) Ingredients

(d) Research & Development

1 mark

3.3

For each of the following descriptions of costs, match them with the most appropriate classification of cost behaviour. You will have an unmatched answer:

Costs

· Monthly rent on a factory

· The cost of raw materials

· Electricity – when there is a fixed charge for connection and an additional charge per unit of electricity used

Behaviour types:

· Fixed cost

· Variable cost

· Stepped cost

· Semi-Variable cost

3 marks

3.4

Penny Production Company had the following projected information for 2020:

Selling price per unit	£15
Variable cost per unit	£9
Total fixed costs	£300

(i) The Contribution per unit is:

2 marks

(ii) The Break Even Point, in Units is:

3 marks

Total for Q3 = 10 marks

QUESTION 4

a) Bolt Ltd manufactures components for the motor industry. The fixed costs for their factory are £12,000. Each component sells for £16 per unit and has variable costs per unit of £12.

Given the following levels of production, calculate the level of profit or loss and indicate the break-even point by inserting the number 0 in the profit column.

Indicate losses by putting the figure in brackets.

Output	Sales Revenue (Total)	Variable cost (Total)	Fixed Cost (Total)	Profit/loss
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000

20 marks total

b) A retail shop has three departments in the same premises. These departments occupy roughly equal –sized areas of the premises.

Results for the past year show the following results:

	Sports equipment	Sports clothes	General clothes	Total
	£000	£000	£000	£000
Sales	254	183	97	534
Variable cost	167	117	60	344
Fixed cost	46	46	46	138
Profit/Loss	41	20	(9)	52

The Managing Director wants to close the General Clothes department because it is making a loss.

Use whatever figures you feel are appropriate to support his argument or disagree with it.

State any circumstances in which you would change your decision.

Total marks available: 15

5 marks for calculations

10 marks for written work

Total for Q4 = 35 marks

Sensitivity: Internal