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Exam May 2015, Questions
Accounting and Financial Management (4SSMN135)
King's College London
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King’s College London
This paper is part of an examination of the College counting towards the award of a degree. Examinations are governed by the College Regulations under the authority of the Academic Board.
BSC BUSINESS MANAGEMENT / BSC ECONOMICS & MANAGEMENT / BA FRENCH & MANAGEMENT EXAMINATION
4SSMN135 ACCOUNTING & FINANCIAL MANAGEMENT
EXAMINATION PERIOD 2 (May 2015)
TIME ALLOWED: THREE HOURS
INSTRUCTIONS TO CANDIDATES:
- Answer SIX questions in total.
- Candidates must answer THREE questions from SECTION A and THREE questions from SECTION B.
- Please number the questions answered in the booklet provided.
Section A: Financial Accounting 49 marks Section B: Management Accounting and Financial Management 49 marks Overall exam paper presentation 1 mark
CALCULATORS MAY BE USED. ONLY THE FOLLOWING MODELS ARE PERMITTED: Casio fx Casio fx85.
DO NOT REMOVE THIS EXAM PAPER FROM THE EXAMINATION ROOM
TURN OVER WHEN INSTRUCTED
2015 © King’s College London
Answer THREE questions from Section A (there are multiple parts to each question; you must attempt all parts).
SECTION A: FINANCIAL ACCOUNTING
1 bookshop ordered 2000 copies of a text book from a publisher on 5 th January 2015. The books were delivered on 10th February at which time an invoice was sent requesting payment of EUR 41. per book. However a 4% cash discount was allowed if the publisher received payment by 26th February. The bookshop made the payment on 25th February and on 3rd March it returned 100 books to the publisher.
a) Analyse the impact of the above transactions on the accounting equation from the point of view of the publisher. (11 marks)
b) Prepare the revenue section of the income statement and clearly state at which date revenue will be recognised. (3 marks)
c) What is the difference between a cash discount and a trade discount? (2 marks)
Total marks for question 1 (16 marks)
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3 2014 the following transactions took place for HCT Co. Ltd: Premises were rented at an annual rental of £36,000 for 2014; during the year rent of £27,000 was paid to the owner of the premises. Wages totaling £40,000 were paid during the year. The company’s employees earn £3,000 per month as wages. Machinery was bought for cash on 1st January 2014. The cost of the machine was £49,000. The training costs were £2,000, installation was £3,000 and repairs were £1,000. The useful life of the machine was estimated to be 8 years and the expected residual value was £4,000. The company uses straight line deprecation method. The company sold the machine for cash on 31st December 2014 for £40,000 as it proved to be unsatisfactory.
a) Show the analysis of each transaction using the accounting equation. (Please note you do not need to prepare an income statement or balance sheet). (14 marks)
b) ‘Deprecation is a process of allocation and not valuation of the asset’. Explain this statement briefly. (2 marks)
Total marks for question 3 (16 marks)
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- The following are the summarised financial statements of Cordoba Ltd for the past two years.
Income statement for the year ended 30th December 2013 2014 £000 £ Revenue 4,940 6, Cost of sales (3,020) (4,550) Gross profit 1,920 2, Operating expenses (1,460) (1,850) Operating profit 460 450
Statement of financial position as at 30th December 2013 2014 £000 £ ASSETS Non-current assets 2,600 3, Current assets Inventories 930 1, Trade receivables 820 1, Bank 20 10
Total assets 4,370 6,
EQUITY AND LIABILITIES Equity Ordinary shares 1,000 2, Long term liabilities 2,810 3, Current liabilities 560 840 Total equity and liabilities 4,370 6,
a) Comment on the liquidity, profitability, efficiency and leverage of the company using ratio analysis. (Use any 1 ratio for each category). (12 marks)
b) Discuss any limitations of the ratio analysis above. (4 marks)
Total marks for question 4 (16 marks)
TOTAL MARKS FOR SECTION A (49 MARKS)
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(Question 5 continued)
The following table provides further information on ‘cost drivers’:
Product A B C D Total (per unit) Production runs 12 10 8 12 42 Requisitions raised 20 20 20 20 80 Orders executed 24 20 16 24 84
a)Calculate the cost per unit for each product if all overhead costs are allocated using activity-based costing (show your workings as fully as possible). (12 marks)
b)Explain the principles underlying the activity-based costing approach, and discuss its differences with traditional absorption costing. (4 marks)
Total marks for question 5 (16 marks)
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- The management of Franklin Plc is in the process of preparing the production and purchases budget for next year. The company produces Products X and Y. Product X includes a special component, 3A. The company is planning to produce 3,000 units of Product X next year. The costs of manufacturing component 3A are as follows:
Component 3A: cost statement on per unit basis Direct material £ Direct labour (4 hours at £3 per hour) 12 Variable overhead (4 hours at £2 per hour) 8 Fixed overhead (4 hours at £5 per hour) 20 Total cost 54
At the present time, direct labour hours are limited. If Franklin Plc decides to buy Component 3A, then the direct labour hours released will be transferred to the production of Product Y. Product Y sells for £130 per unit. Costs of manufacturing Product Y are as follows:
Product Y: cost statement on per unit basis Direct materials £ Direct labour (8 hours at £3 per hour) 24 Variable overhead (8 hours at £2 per hour) 16 Fixed overhead (8 hours at £5 per hour) 40 90
a) A supplier has offered to supply Component 3A at a guaranteed price of £50 per unit. Advise management whether or not to accept this offer. You should show your calculations as fully as possible, and explain any assumptions you make.
(12 marks)
b) Explain the terms “limiting factor” and “opportunity cost”, and further illustrate them using your calculations in part a) as examples. (4 marks)
Total marks for question 6 (16 marks)
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- The profit statements for two different companies in the same industry are as follows:
Company A (£000)
Company B (£000) Sales 10,000 10, Less: Variable costs 8,000 4, Contribution margin 2,000 6, Less: Fixed Costs 1,000 5, Profit 1,000 1,
a)Calculate the degree of operating leverage for each company. (4 marks)
b)Calculate the break-even point in sales for each company. Explain why the break-even point for Company B is higher. (4 marks)
c) Assume both companies experience a 50 percent increase in sales revenues. Calculate the percentage increase in profit for each company and explain why the percentage increase in Company B’s profits is significantly larger than that of Company A.
(5 marks)
d) Explain the following terms: (i) Operating Leverage; (ii) Margin of safety; (iii) Indirect cost (3 marks)
Total marks for question 8 (16 marks)
TOTAL MARKS FOR SECTION B (49 MARKS)
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Final Page
Exam May 2015, Questions
Module: Accounting and Financial Management (4SSMN135)
University: King's College London
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