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YEARLY/SECOND SEMESTER
EXAMINATIONS
DATE
FRIDAY
19 MAY 2006
SERIES
MODULE
TIME
MAY 2006
ACCOUNTING AND
FINANCIAL ANALYSIS
[DFA 1020Y(1)]
INSTRUCTIONS TO CANDIDATES
TIME ALLOWED: 3 HOURS
NO. OF QUESTIONS SET:
FIVE (5)
Current Assets
Inventories
Accounts receivables
Cash and bank balances
2005
Rs
2004
Rs
3
4
835,165
108,400
943,565
636,376
108,400
744,776
5
6
396,973
5,195,285
398,776
5,991,034
627,373
4,326,063
20,475
4,973,911
6,934,599
5,718,687
40,000
5,000
284,608
329,608
30,000
50,374
80,374
1,165,611
1,000,000
9
10
124,880
4,419,133
795,367
100,000
5,439,380
6,934,599
10,558
3,173,580
1,354,175
100,000
4,638,313
5,718,687
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE
Notes
Turnover
Cost of sales
Gross Profit
Distribution Costs
Administrative Expenses
Depreciation
Profit from operations
Net interest Costs
Profit before Taxation
Taxation
Profit before Dividends
Dividends
Profit for the year
11
12
2005
Rs
10,794,915
(7,120,410)
3,674,505
(1,378,509)
(1,268,792)
(274,445)
752,759
(143,645)
609,114
(149,880)
459,234
(225,000)
234,234
2004
Rs
5,286,615
(3,152,687)
2,133,928
(795,861)
(761,177)
(195,552)
381,338
(109,789)
271,549
(10,558)
260,991
(100,000)
160,991
Additional Information:
Inventory at 30th June 2003 was Rs 476,875.
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 30TH
JUNE 2005
Share
Capital
Rs
30,000
10,000
40,000
Share
Premium
Rs
5,000
5,000
Retained
Earnings
Rs
50,374
234,234
284,608
Total
Rs
80,374
15,000
234,234
329,608
2.
ACCOUNTING POLICIES
The principal accounting policies adopted by the company are as
follows:
(a)
Basis of Accounting
The financial statements are prepared under the historical cost
convention and in accordance with International Accounting
Standards.
(b)
Revenue Recognition
Turnover is based on the invoiced value of goods sold less
trade discounts, allowances and Value Added Tax. Sale of
goods are recognized upon delivery of products and
customers acceptance.
(c)
10%
20%
20%
20%
(d)
Stocks
Stocks are valued at the lower of cost and net realizable value.
In general cost is determined on a weighted average basis. Net
realizable value is estimated selling price in the ordinary
course of business less selling expenses.
ACCOUNTING POLICIES
(e)
Financial Instruments
Financial assets and financial liabilities are recognized in the
Balance Sheet when the company has become a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables are stated at their nominal value as
reduced by appropriate allowances for estimated
irrecoverable amounts.
Cash and cash equivalents
Cash comprises cash balances on hand and cash deposited
with banks. Cash equivalents are short-term highly liquid
investments that are readily convertible to known amounts of
cash and which are subject to an insignificant risk of change
in value.
Trade payables
Trade payables are stated at their nominal value.
Borrowings
Interest-bearing bank loans and overdrafts are recorded at
amortised cost.
3.
TANGIBLE ASSETS
Furniture
Office
Equipment
Computer
Motor
Vehicles
Rs
Rs
Rs
Rs
67,826
67,826
61,708
89,768
151,476
26,087
67,585
93,672
856,060
434,036
(196,925)
1,093,171
1,011,681
591,389
(196,925)
1,406,145
13,564
6,782
-
15,987
30,295
-
10,434
18,734
-
335,320
218,634
(78,770)
375,305
274,445
(78,770)
20,346
46,282
29,168
475,184
570,980
47,480
105,194
64,504
617,987
835,165
At 30 June 2005
54,262
45,721
15,653
520,740
636,376
Cost
At 1 July 2004
Additions
Disposal
At 30 June 2005
Depreciation
At 1 July 2004
Charge for the year
Disposal
Adjustment
At 30 June 2005
Total
Note: One of the motor vehicles was sold during the current year for Rs140,000.
4.
INTANGIBLE ASSETS
Formation Costs
5.
STOCKS
Goods for resale
6.
ACCOUNTS RECEIVABLE
Trade receivables
Other receivables
2005
Rs
2004
Rs
108,400
108,400
2005
Rs
2004
Rs
396,973
627,373
2005
Rs
2004
Rs
4,166,598
1,028,687
5,195,285
3,875,070
450,993
4,326,063
7.
8.
SHARE CAPITAL
2005
Rs
2004
Rs
50,000
50,000
40,000
30,000
LOAN
Additional loan was raised during the year ended 30th June 2005.
9.
TAXATION
Income tax provision is calculated at the rate of 25% on
the adjusted profit for the year.
10.
ACCOUNTS PAYABLE
2004
Rs
124,880
10,558
2005
Rs
Trade payables
Other payables
11.
2005
Rs
2004
Rs
4,015,640
403,493
4,419,133
2,776,954
396,626
3,173,580
2005
Rs
2004
Rs
Depreciation
Directors Emoluments
Auditors remuneration
Staff Costs
195,552
40,000
10,000
38,475
12.
DIVIDENDS
Dividends proposed
Dividend paid
2005
Rs
2004
Rs
100,000
125,000
225,000
100,000
100,000
Required:
(a) Compute the following ratios for the years ended 30th June 2004 and
2005:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
[1 mark]
SECTION B
ANSWER ONLY ONE (1) QUESTION FROM THIS SECTION. EACH
QUESTION CARRIES 30 MARKS.
Question 2
The Directors of M&S Ltd have prepared functional budgets for the four
months ending 30 April 2005. To discover the effect that the budgets will
have on the company at the end of the four months, they require the
accountant to prepare master budgets. The accountant is provided with
the following data.
M & S Ltd Balance sheet at 31 December 2004
Fixed assets
Cost
Rs
Freehold premises
Plant and Machinery
50,000
37,500
87,500
Current assets
Stock
Trade Debtors
Balance at Bank
Depreciation
Rs
10,000
22,500
32,500
Net
Rs
40,000
15,000
55,000
30,000
42,500
20,750
93,250
Current liabilities
22,500
70,750
125,750
25,000
100,750
65,000
30,000
5,750
100,750
Further information:
1. Sales and purchases for the four months from January to April 2005 are
budgeted as follows:
Sales (Rs)
Purchases (Rs)
January
February
March
April
62,500
25,000
70,000
20,000
75,000
30,000
82,500
37,500
2. 40% of sales are to cash customers; one months credit is allowed on the
remainder.
3. The company pays for its purchases in the month following purchase.
4. Selling and distribution expenses amount to 10% of sales and are paid
in the month in which they are incurred.
5. Administration expenses amount to Rs 20,000 per month and are paid
in the month in which they are incurred
6. Stock at the end of April 2005 is estimated to be valued at Rs 22,500.
7. Additional plant and machinery costing Rs 60,000 will be purchased on
1 March 2005.
8. Plant and machinery which cost Rs 20,000 and has a written down
value of Rs 8,000 at 31 December 2004 will be sold for Rs 6,000 on 1
March 2005.
9. Annual depreciation of fixed assets is based on cost as follows: Freehold
premises 3%; plant and machinery 20%. 50% of all depreciation is to be
charged to selling and distribution expenses and the balance to
administration expenses.
10. A subscription fee of Rs 15,000 for 6 months to 30 June 2006 will be paid
on 1 January 2005.
11. Debenture interest is payable half-yearly on 30 June and 31 December.
12. A dividend of Rs 0.10 per share will be paid on the ordinary shares on
30 April 2005
Required:
(a) (i)
Prepare a Cash budget for the four months from January 2005 to
April 2005.
[10 marks]
(ii)
Prepare a budgeted Profit and Loss account for the four months
ending 30 April 2005.
[8 marks]
[8 marks]
(b)
What are principal budget factors and how do they affect the
preparation of budgets?
[4 marks]
[Total: 30 marks]
Question 3
(a)
2,500
1,400
Gross margin
Deduct selling and administrative expenses
1,100
400
Operating income
700
For simplicity, assume that the actual variable costs per unit and the
total fixed costs were exactly as budgeted.
Required:
(a)
(b)
(b)
Total costs
Rs
January
1,400
112,000
February
1,500
119,980
March
1,700
129,100
Calculate the:
Variable cost per unit;
Total fixed costs for the period;
Contribution to Sales ratio;
Breakeven point in units and value
[8 marks]
(ii)
(c)
Daylight Ltd makes one kind of sanitary fitment, and has provided
you with the following data:
Rs
Rs
Sales
Direct materials
Direct labour
Other variable costs
300,000
60,000
40,000
50,000
150,000
150,000
120,000
Contribution
Fixed costs
Net profit
30,000
12
Required:
Prepare a Profit/Volume chart from the above data, and determine
the breakeven point and margin of safety. Explain your results
briefly.
[8 marks]
[Total: 30 marks]
13
SECTION C
ANSWER ONLY ONE (1) QUESTION FROM THIS SECTION. EACH
QUESTION CARRIES 20 MARKS.
Question 4
Predicting corporate failure: how useful are multi-discriminant analysis
models? Discuss.
S R Letza, Leeds Metropolitan University, L Kalupa & T Kowalski, Poznan University of Economics
[20 marks]
Question 5
Discuss the extent to which earnings management can be detected and
prevented.
[20 marks]
14