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FINANCE AND BUSINESS PERFORMANCE

MOCK REFERRAL TEST 2021

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

(d) Debit Bank, Credit Van

(1 mark)

1.2

True or False?

The purchase of the van is capital expenditure. TRUE

The purchase of fuel is revenue expenditure TRUE

(2 marks)

1.3

True or False?

Preference Shareholders can vote at the AGM FALSE

(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

The Measurement Rule

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

Accruals Concept

(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.

Realisation

(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.

Prudence

(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

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

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

Workings:

First write off the bad debt £4,000

Net receivables now £60,000

5% of £60,000 = £3,000

(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

Workings:

Depreciation on Furniture:

Cost = £40,000

15% = £6,000 = charge to Income Statement

New accumulated Depreciation in SoFP = £24,000

Depreciation on Vehicles:

Cost = £80,000

25% = £20,000 = charge to Income Statement

New accumulated Depreciation in SoFP = £40,000

Tax = £50,000

Show on IS and show as accrual in SoFP

Dividend of 40p

Number of Shares = £140,000 £1 shares = 140,000

Dividend = £56,000

Show on IS and show as accrual in SoFP

ANSWER

INCOME STATEMENT for X for the Year Ended
SALES		540
OPENING INVENTORY	32
+ PURCHASES	248
- CLOSING INVENTORY	28
COST OF SALES:		252
GROSS PROFIT		288
LESS EXPENSES:
ADVERTISING	6
DIRECTORS’ FEES	12
RENT	20
TELEPHONE	10
TRAVEL EXPENSES	4
SALARIES	48
DEPRECIATION(FURNITURE)	6
DEPRECIATION(VEHICLES)	20
		126
NET PROFIT BEFORE TAX		162
-TAX		50
NET PROFIT AFTER TAX		112
+RETAINED PROFIT BROUGHT FORWARD		16
-PROPOSED ORDINARY DIVIDEND		56
RETAINED PROFIT CARRIED FORWARD		72

STATEMENT OF FINANCIAL POSITION AS AT ……
	£	£	£
NON-CURRENT ASSETS	Cost	Depreciation	Net Book Value
Furniture	40	24	16
Vehicles	80	40	40
			56
CURRENT ASSETS
Inventory	28
Receivables	236
Bank	22
Total	286		286
TOTAL ASSETS			342
CURRENT LIABILITIES
Payables	24
Taxation	50
Proposed dividend	56
TOTAL LIABILITIES	130
NET ASSETS			212
CAPITAL
Issued ordinary share capital	140
+Retained Profit	72
TOTAL CAPITAL	212

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

(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

(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 Fixed

· The cost of raw materials Variable

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

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:

Contribution = Selling Price less Variable Costs

= £15 - £9

= £6 per Unit

2 marks

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

Break-Even Point = Fixed Costs divided by Contribution per Unit

= £300 / £6

= 50 units

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	16,000	12,000	12,000	(8,000)
2,000	32,000	24,000	12,000	(4,000)
3,000	48,000	36,000	12,000	0
4,000	64,000	48,000	12,000	4,000
5,000	80,000	60,000	12,000	8,000
6,000	96,000	72,000	12,000	12,000
7,000	112,000	84,000	12,000	16,000
8,000	128,000	96,000	12,000	20,000

Contribution = Selling Price less Variable Costs

= £16 - £12

= £4 per Unit

Break-Even Point = Fixed Costs divided by Contribution per Unit

= £12,000 / £4

= 3,000 units

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.