Accounting Test
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IHMMockExam2019-20.docx
ACCOUNTING
Instructions
SECTION A 40 marks - answer all sections
SECTION B 30 marks - answer all 10 multiple choice questions (no negative marking)
SECTION C 30 marks - choose one from 2 questions
Please include the instructions below:
Answer only the number of questions required as specified above. If additional questions are answered, questions will be marked in the order attempted unless a question attempt is clearly crossed out.
回答以下所有问题Answer all parts of the question
QUESTION 1 (Total 40 marks)
The following trial balance has been extracted from the books of Kwon Ltd. The company runs a national chain of retail outlets across the United Kingdom, facing intense competition from online businesses
|
Trial Balance of Kwon Ltd as at 31 July 2017 |
||
|
|
DR. |
CR. |
|
|
£m |
£m |
|
Retained Earnings |
|
2,597 |
|
Sales |
|
10,318 |
|
Purchases |
9,476 |
|
|
Insurance |
12 |
|
|
Rent |
15 |
|
|
Electricity |
16 |
|
|
Telephone |
1 |
|
|
Wages & Salaries |
57 |
|
|
Interest |
59 |
|
|
Land & Buildings |
4,868 |
|
|
Machinery |
1,638 |
|
|
Accumulated Depreciation – Land & Buildings |
|
1,251 |
|
Accumulated Depreciation – Machinery |
|
931 |
|
Opening Stock |
358 |
|
|
Debtors |
806 |
|
|
Bank |
1,220 |
|
|
Creditors |
|
1,339 |
|
Dividends |
28 |
|
|
Ordinary Shares |
|
142 |
|
Other Operating Income |
|
103 |
|
Loan |
|
1,801 |
|
Share Premium |
|
72 |
|
|
18,554 |
18,554 |
Additional information:
1. Closing stock has been valued at £524m
3. Bad debts amount to £9m.
4. Of the insurance expense, £7m relates to payments made in advance for next year. Telephone expense of £6m is still unpaid from this year.
5. Depreciation of £59m is to be charged on Land & Buildings with £99m charged on Machinery
6. The tax charge for the year is to be £4m
Required:
(a) Prepare Kwon Ltd’s income statement for the year to 31 July 2017 and a statement of financial position as at that date.
20 marks
(b) Your assistant has managed to gather information relating to the average level of performance within the industry. Using this information provided, analyse the performance and position of Kwon Ltd in 2017, calculating 5 ratios for 2017 to help in your analysis.
20 marks
Industry Averages for 2017
|
GP margin |
= |
11% |
|
Operating Profit margin |
= |
7% |
|
Asset Turnover |
= |
2.1 |
|
CA ratio |
= |
2.2 |
|
Acid-test ratio |
= |
0.8 |
|
Debtor days |
= |
34 |
|
Creditor days |
= |
56 |
|
Stock period |
= |
14 |
|
Gearing |
= |
36.7% |
|
Interest Cover |
= |
8.3 |
Go to next page for SECTION B
SECTION B (Total 30 marks)
Answer all 10 multiple choice questions
Present Value Tables are supplied at the end of the paper
|
2. |
Which of the following is not categorised as a cash flow from a financial activity under IAS 7? A. Dividend payments B. Loan repayments C. Proceeds from the issue of debentures (debt) D. The sale by an investor of company shares held. E. Proceeds from the issue of shares |
|
3. |
Alexander Company reported an increase of $185,000 in its accounts receivable (debtors) during the year. The company's statement of cash flows reported $500,000 of cash received from customers. What amount of net sales must Alexander have recorded?
|
|
4. |
During the current year, Atkins, Inc. sold a parcel of land for $840,000 cash. The land had a book value of $410,000. Atkins, Inc. uses the indirect method to prepare its statement of cash flows. In order to reconcile operating profit to net cash flow from operating activities, profit must be:
|
|
5. |
A company purchased plant and machinery for £500,000 on 1 April 2008. The company uses the straight-line method of depreciation. The company estimates that the plant and machinery will have a useful life of 5 years, when it will be sold for an estimated £100,000. The accounting year end is 31 July
The net book value of the asset on 1 April 2011 will be:
|
The following information relates to Question 6
Hooper Corporation produces and sells two models of vacuum cleaners, Standard and Deluxe. The company records show the following monthly data relating to these two products:
|
|
Standard |
Deluxe |
|
Selling price per unit ($) |
150 |
165 |
|
Variable production costs ($) |
120 |
126 |
|
Variable selling expense per unit ($) |
16 |
13 |
|
Expected monthly sales in units |
600 |
1,200 |
The company's total monthly fixed cost is $15,000.
6. The break-even in sales dollars for the expected sales mix is closest to:
A. $160,772
B. $95,178
C. $109,091
D. $175,644
E. $75,322
The following information relates to Question 7
Brecket Corporation uses activity-based costing to determine product costs for external financial reports. Activity rates computed at the beginning of the year are used to apply manufacturing overhead costs to products. The company has provided the following data concerning its activity-based costing system.
The data used to develop activity rates were:
|
|
Estimated |
Expected |
|
|
Overhead |
Activity |
|
|
Cost |
|
|
Activity Cost Pools |
|
|
|
Machine related (machine-hours) |
$395,200 |
16,000 MHs |
|
Batch setup (setups) |
$790,000 |
20,000 setups |
|
General factory (direct labor-hours) |
$556,800 |
24,000 DLHs |
The actual activity for the year was:
|
Pool |
Product X |
Product Y |
Total |
|
Machine related (machine hours) |
6,000 |
10,000 |
16,000 |
|
Batch setup (setups) |
13,000 |
5,000 |
18,000 |
|
General factory (direct labour hours) |
14,000 |
11,000 |
25,000 |
7. The activity rate computed at the beginning of the year for the batch setup activity cost pool is closest to:
A. $60.80
B. $96.80
C. $158.00
D. $16.50
E. $39.50
|
|
|
|
|
|
|
8. |
The materials purchase budget:
|
9. The Tanner Corporation produces three products with the following relevant information:
|
Product |
A |
B |
C |
|
|
£ |
£ |
£ |
|
Selling Price |
50 |
40 |
30 |
|
Variable Cost |
(25) |
(17) |
(20) |
|
|
|
|
|
|
Labour Hours |
2 |
5 |
3 |
|
Machine Hours |
3 |
2 |
1 |
If Tanner has a limit of 8,000 machine hours but no limit on labour hours, then the ranking of the products from the most profitable to the least profitable use of the constrained resource is:
A. A, B, C
B. B, C, A
C. C, B, A
D. B, A, C
E. C, A, B
10. Olinick Corporation is considering a project that would require an investment of $343,000 and would last for 8 years. The incremental annual revenues and expenses generated by the project during those 8 years would be as follows:
|
|
$ |
|
Sales |
227,000 |
|
Variable expenses |
(52,000) |
|
Contribution margin |
175,000 |
|
Fixed expenses: |
|
|
Salaries |
(27,000) |
|
Rents |
(41,000) |
|
Operating Cash flows |
107,000 |
The scrap value of the project's assets at the end of the project would be $23,000. The payback period of the project is closest to:
A. 3.0 years
B. 5.1 years
C. 3.2 years
D. 4.8 years
E 6.3 years
End of Section B
Go to next page for SECTION C
SECTION C (Total 30 marks)
Answer any 1 out of 2 questions (30 marks each)
Question 1
You are required to construct a monthly cash budget for Serene Ltd. You have been supplied with the following information.
It is estimated that the following sales will be made in the next 4 months in 2006.
|
Jul |
Aug |
Sep |
Oct |
|
£69,000 |
£76,000 |
£90,000 |
£202,000 |
· In line with previous years, it is expected that 60% of sales will be cash sales, with the remainder (credit sales) paid for in the next month. Sales in June 2006 amounted to £185,000. Cash sales are entitled to a 5% discount.
· Purchases are estimated at 50 per cent of total sales revenue made in each month. 30% of purchases are paid for immediately with the remainder made in the month following purchase.
· Direct labour costs are 15% of total sales revenue and annual overheads (excluding depreciation) are £84,000 with costs spread evenly throughout the year.
· Tax is estimated at £6,000 for the year and is paid for in August.
· Annual selling and administrative costs are £36,000 spread evenly throughout the year.
· Annual depreciation charges for all 12 months are £150,000 spread evenly over each month.
· Expenditure on fixed assets is £65,000 in September. Some old fixed assets are to be sold in October for £23,800.
· Serene Plc had a cash balance of £9,500 at the beginning of July.
REQUIRED
(a) Construct a monthly cash budget for Serene Ltd for the 4 months ending 30 October 2006, showing the cash balance at the end of each month.
(18 marks)
(b) What policies might you adopt to even out cash flow for Serene Ltd?
(12 marks)
(Total 30 marks)
Continued…
Question 2
Callaghan Lighting Ltd manufactures and sells 2 smart lightbulbs which adjust their brightness to the time of day, mimicking natural light in order to encourage more productive work and natural sleep patterns. Budgeted sales by product and in total for the coming month are shown below:
|
|
Brider |
Sena |
Total |
|
Percentage of total sales |
40% |
60% |
100% |
|
Sales volume (units) |
48,000 |
72,000 |
120,000 |
|
|
£ |
£ |
£ |
|
Sales |
576,000 |
720,000 |
1,296,000 |
|
Less variable expenses |
(288,000) |
(576,000) |
(864,000) |
|
Contribution |
288,000 |
144,000 |
432,000 |
|
Less fixed expenses |
|
|
(280,000) |
|
Profit |
|
|
152,000 |
While the business is still trying to establish itself, the budgeted sales figures have been based on the least optimistic market forecasts, although it is known that a profit of £200,000 is the aim for the year.
The company are trying to automate production further by investing in additional machinery. This investment will reduce labour costs, which will lead to a reduction of variable costs on both products by 12.5%. The cost of the machinery will be £100,000.
REQUIRED
(a) Calculate the budgeted break even point in units sold and the margin of safety in %.
(6 marks)
(b) Calculate the total number of sales required (in units) to achieve the target level of profit
(4 marks)
(c) Calculate the revised profit based on the proposed changes.
(5 marks)
(d) Advise the Managing Director as to whether the proposed change to production will be beneficial to the company. In addition to the profit calculation in (c), use other supporting calculations to justify your answer. Are there any non-financial factors that should be taken into account in making the decision?
(15 marks)
(Total 30 marks)
END OF EXAM
Present Value Tables Attached
Present Value Tables
Page 1 of 1
Accounting
Author: JF
©Imperial College London 2019/2020
Year11%12%13%14%15%16%17%18%19%20%
1
0.9010.8930.8850.8770.8700.8620.8550.8470.8400.833
2
0.8120.7970.7830.7690.7560.7430.7310.7180.7060.694
3
0.7310.7120.6930.6750.6580.6410.6240.6090.5930.579
4
0.6590.6360.6130.5920.5720.5520.5340.5160.4990.482
5
0.5930.5670.5430.5190.4970.4760.4560.4370.4190.402
6
0.5350.5070.4800.4560.4320.4100.3900.3700.3520.335
7
0.4820.4520.4250.4000.3760.3540.3330.3140.2960.279
8
0.4340.4040.3760.3510.3270.3050.2850.2660.2490.233
9
0.3910.3610.3330.3080.2840.2630.2430.2250.2090.194
10
0.3520.3220.2950.2700.2470.2270.2080.1910.1760.162
Discount Factor
Sheet1
| Discount Factor | |||||||||||
| Year | 11% | 12% | 13% | 14% | 15% | 16% | 17% | 18% | 19% | 20% | 21% |
| 0 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 |
| 1 | 0.901 | 0.893 | 0.885 | 0.877 | 0.870 | 0.862 | 0.855 | 0.847 | 0.840 | 0.833 | 0.826 |
| 2 | 0.812 | 0.797 | 0.783 | 0.769 | 0.756 | 0.743 | 0.731 | 0.718 | 0.706 | 0.694 | 0.683 |
| 3 | 0.731 | 0.712 | 0.693 | 0.675 | 0.658 | 0.641 | 0.624 | 0.609 | 0.593 | 0.579 | 0.564 |
| 4 | 0.659 | 0.636 | 0.613 | 0.592 | 0.572 | 0.552 | 0.534 | 0.516 | 0.499 | 0.482 | 0.467 |
| 5 | 0.593 | 0.567 | 0.543 | 0.519 | 0.497 | 0.476 | 0.456 | 0.437 | 0.419 | 0.402 | 0.386 |
| 6 | 0.535 | 0.507 | 0.480 | 0.456 | 0.432 | 0.410 | 0.390 | 0.370 | 0.352 | 0.335 | 0.319 |
| 7 | 0.482 | 0.452 | 0.425 | 0.400 | 0.376 | 0.354 | 0.333 | 0.314 | 0.296 | 0.279 | 0.263 |
| 8 | 0.434 | 0.404 | 0.376 | 0.351 | 0.327 | 0.305 | 0.285 | 0.266 | 0.249 | 0.233 | 0.218 |
| 9 | 0.391 | 0.361 | 0.333 | 0.308 | 0.284 | 0.263 | 0.243 | 0.225 | 0.209 | 0.194 | 0.180 |
| 10 | 0.352 | 0.322 | 0.295 | 0.270 | 0.247 | 0.227 | 0.208 | 0.191 | 0.176 | 0.162 | 0.149 |
Year1%2%3%4%5%6%7%8%9%10%
1
0.9900.9800.9710.9620.9520.9430.9350.9260.9170.909
2
0.9800.9610.9430.9250.9070.8900.8730.8570.8420.826
3
0.9710.9420.9150.8890.8640.8400.8160.7940.7720.751
4
0.9610.9240.8880.8550.8230.7920.7630.7350.7080.683
5
0.9510.9060.8630.8220.7840.7470.7130.6810.6500.621
6
0.9420.8880.8370.7900.7460.7050.6660.6300.5960.564
7
0.9330.8710.8130.7600.7110.6650.6230.5830.5470.513
8
0.9230.8530.7890.7310.6770.6270.5820.5400.5020.467
9
0.9140.8370.7660.7030.6450.5920.5440.5000.4600.424
10
0.9050.8200.7440.6760.6140.5580.5080.4630.4220.386
Discount Factor
Sheet1
| Discount Factor | |||||||||||
| Year | 1% | 2% | 3% | 4% | 5% | 6% | 7% | 8% | 9% | 10% | 11% |
| 0 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 | 1.000 |
| 1 | 0.990 | 0.980 | 0.971 | 0.962 | 0.952 | 0.943 | 0.935 | 0.926 | 0.917 | 0.909 | 0.901 |
| 2 | 0.980 | 0.961 | 0.943 | 0.925 | 0.907 | 0.890 | 0.873 | 0.857 | 0.842 | 0.826 | 0.812 |
| 3 | 0.971 | 0.942 | 0.915 | 0.889 | 0.864 | 0.840 | 0.816 | 0.794 | 0.772 | 0.751 | 0.731 |
| 4 | 0.961 | 0.924 | 0.888 | 0.855 | 0.823 | 0.792 | 0.763 | 0.735 | 0.708 | 0.683 | 0.659 |
| 5 | 0.951 | 0.906 | 0.863 | 0.822 | 0.784 | 0.747 | 0.713 | 0.681 | 0.650 | 0.621 | 0.593 |
| 6 | 0.942 | 0.888 | 0.837 | 0.790 | 0.746 | 0.705 | 0.666 | 0.630 | 0.596 | 0.564 | 0.535 |
| 7 | 0.933 | 0.871 | 0.813 | 0.760 | 0.711 | 0.665 | 0.623 | 0.583 | 0.547 | 0.513 | 0.482 |
| 8 | 0.923 | 0.853 | 0.789 | 0.731 | 0.677 | 0.627 | 0.582 | 0.540 | 0.502 | 0.467 | 0.434 |
| 9 | 0.914 | 0.837 | 0.766 | 0.703 | 0.645 | 0.592 | 0.544 | 0.500 | 0.460 | 0.424 | 0.391 |
| 10 | 0.905 | 0.820 | 0.744 | 0.676 | 0.614 | 0.558 | 0.508 | 0.463 | 0.422 | 0.386 | 0.352 |
