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Certificate in Advanced
Business Calculations
Level 3
Model Answers
Series 3 2009 (3003)
Model Answers have been developed by EDI to offer additional information and guidance to Centres,
teachers and candidates as they prepare for LCCI International Qualifications. The contents of this
booklet are divided into 3 elements:
(2) Model Answers – summary of the main points that the Chief Examiner expected to
see in the answers to each question in the examination paper,
plus a fully worked example or sample answer (where applicable)
Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.
EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.
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Page 1 of 16
QUESTION 1
Account A:
Account B:
5
Final amount = £140,000 x (1 + 0.042) = £171,975.52
Account C:
1 + R = 1.03899
3003/3/09/MA Page 2 of 16
QUESTION 2
Chelsey bought £75,000 (nominal value) of 3¾% debenture stock with each £100 (nominal value) of
stock costing £90.
(b) Calculate
Chelsey purchased 15,000 5¼% preference shares and received £1,260 dividend in the first year.
She received the same dividend in the second year. She then sold the shares for £122,100 and
calculated that this was exactly 10% more than she paid for them.
(e) Calculate the percentage profit per annum, based on purchase, sale and dividends. (4 marks)
(Total 14 marks)
3003/3/09/MA Page 3 of 16
MODEL ANSWER TO QUESTION 2
3003/3/09/MA Page 4 of 16
QUESTION 3
Using Method X, fixed costs are £1,750,000 per period and variable costs are £295 per unit of
product.
Using Method Y, fixed costs are £1,050,000 per period and variable costs are £335 per unit of
product.
(a) Calculate:
(i) the level of output per period for which the total costs are the same (3 marks)
(ii) the break even point in units per period for method X (3 marks)
(iii) the total cost per period at break even for method Y. (4 marks)
(c) Calculate the expected profit per period using this method. (3 marks)
(Total 14 marks)
3003/3/09/MA Page 5 of 16
MODEL ANSWER TO QUESTION 3
(a) (i) Let the level of output be Q. Costs will be equal when:
(b) The expected sales are more than the figure calculated in (a)(i), so the manufacturer should
choose the method with the lower cost per unit, that is method X.
(c) Excess of units over break even = 20,000 - 12,500 = 7,500 units per period
3003/3/09/MA Page 6 of 16
QUESTION 4
Part of the Balance Sheet of Retailer A at the end of the first year of trading is shown below:
Current Assets
stock 8,899
debtors 9,330
bank 2,420
cash 385 21,034
(a) Using the above figures from the Balance Sheet, calculate:
£
Net sales 500,000
Cost of goods sold 377,700
Initial stock value 15,500
Final stock value 18,500
Overhead expenses 69,900
Calculate:
(Total 13 marks)
3003/3/09/MA Page 7 of 16
MODEL ANSWER TO QUESTION 4
(b) (i) Gross profit = Net sales – COGS = £500,000 – £377,700 = £122,300
3003/3/09/MA Page 8 of 16
QUESTION 5
Ashok calculates the expected average rate of return of investment project X as 28%, using the
formula:
Average revenue return per annum net of repair and maintenance costs
Initial cost of Project
He further estimates that the revenue return before deducting the cost of repairs and maintenance will
be £300,000 for each of the first 4 years.
(a) Using Ashok’s formula, calculate the average revenue return per annum net of repair and
maintenance costs, and hence find the estimated revenue return before deducting the cost of
repairs and maintenance for year 5.
(6 marks)
(b) Bettany estimates the net present value of investment project Y at two discount rates, with the
following results
(ii) Given that the investor requires the project to earn at least 13.5% per annum, advise the
investor whether to proceed with the investment.
(2 marks)
(Total 11 marks)
3003/3/09/MA Page 9 of 16
MODEL ANSWER TO QUESTION 5
(a) Average net revenue return per annum = 28% x £850,000 = £238,000
(c) The internal rate of return of the project is higher than the required return, so the investor is
recommended to proceed.
3003/3/09/MA Page 10 of 16
QUESTION 6
A bankrupt trader owed a total of £87,600, of which £35,500 is secured against the trader’s assets and
the rest is unsecured.
(b) Calculate how much in the £ will be paid to the unsecured creditors. State the units of your
answer clearly.
(4 marks)
The trader owed Dinara £17,000, of which 25% is secured against assets.
(Total 11 marks)
3003/3/09/MA Page 11 of 16
MODEL ANSWER TO QUESTION 6
3003/3/09/MA Page 12 of 16
QUESTION 7
Machine M has an initial cost of £180,000 and is depreciated by the equal instalment method, at the
rate of £25,000 per year until the book value is less than £25,000.
(a) Prepare a depreciation schedule for the first 3 years that shows, for each year, the yearly
depreciation, the accumulated depreciation and the book value at the end of the year.
(4 marks)
(b) Calculate the anticipated life of the machine in a whole number of years, and the residual value at
the end of that period.
(3 marks)
Machine N is depreciated by the diminishing balance method. It has an initial cost of £250,000 and a
book value after one year of £190,000.
(c) Calculate
(Total 14 marks)
3003/3/09/MA Page 13 of 16
MODEL ANSWER TO QUESTION 7
(c) (i) Proportion of value remaining after one year = £190,000 / £250,000 = 0.76
3003/3/09/MA Page 14 of 16
QUESTION 8
A company sold 540 spectroscopes in year 2007 and 756 spectroscopes in year 2008.
(a) Calculate the quantity relative for year 2008 with 2007 as the base year. (2 marks)
The price of the spectroscopes fell by 12.5% from year 2006 to year 2007.
In year 2008 the company cut the price of its spectroscopes by 10% of the year 2007 price.
(c) Calculate the index of prices for the years 2006 to 2008
(ii) with the prices for 2007 and 2008 based on 2006 as 100. (3 marks)
(d) Calculate the percentage increase in receipts from sales of spectroscopes from 2007 to 2008.
(3 marks)
(Total 11 marks)
3003/3/09/MA Page 15 of 16
MODEL ANSWER TO QUESTION 8
100 87.5 90
3003/3/09/MA Page 16 of 16
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