Beruflich Dokumente
Kultur Dokumente
(MBA)
QUESTION BANK
Copyright © 2011
REGENT Business School
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Financial and Managerial Accounting: Question Bank MBA
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Financial and Managerial Accounting: Question Bank MBA
TABLE OF CONTENTS
Topic Page
Chapter 1 Introduction to Financial Accounting 5
Chapter 2 Profit Measurement and Year-end Adjustments 25
Chapter 3 Inventory Valuation 31
Chapter 4 Cash Flow Statements 37
Chapter 5 Analysis and Interpretation of Financial
Statements 47
Chapter 6 Working Capital Management 59
Chapter 7 Capital Budgeting (Long-term Planning) 65
Chapter 8 Budgeting and Costings 69
Chapter 9 Cost-Volume-Profit Analysis 79
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Chapter 1
Introduction to Financial
Accounting
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Financial and Managerial Accounting: Question Bank MBA
Question 1.1
On 1 January 2011, R Keane, an accountant, had the following assets and liabilities:
R
Furniture and office equipment 2 000
Office supplies (stationery, stamps, pencils, ink, etc.) 500
Accounts receivable (debtors) 6 000
Cash at bank 4 000
Accounts payable 3 000
Capital – R Keane 9 500
His transactions for the month of January were:
Documentary evidence
(a) Jan 2 Purchased office supplies costing R160 credit. Supplier‟s invoice
(b) 11 Purchased additional equipment for R1400, Supplier‟s
paying R800 by cheque with the balance on invoice/cheque
account.
(c) 13 Received R3 500 from debtors and banked this Duplicate receipt and
sum. deposit slip
(d) 17 P Keane paid R500 which he had won at the Duplicate receipt and
races into his business bank account. deposit slip
(e) 19 Paid accounts payable by cheque R1 600. Cheque counterfoil
(f) 24 R Keane cashed a cheque for R300 for his Cheque counterfoil
personal use.
(g) 25 Charged clients with amounts owing for Duplicate invoice
accounting fees R1 200.
(h) 29 Paid January rent by cheque R200. Landlord‟s
invoice/cheque
(i) 31 Paid wages for the month by cheque R150. Signatures of
employees and
cheque counterfoil
(j) 31 Depreciation on furniture and office equipment is
estimated to be R50.
(k) 31 Determined by taking inventory that the cost of
the office supplies used was R280.
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REQUIRED:
(a) Record the above transactions in the schedule provided. (Accounting
equation)
(b) Using only the accounts and account titles given:
(i) Enter the opening balances and record the above transactions
in the ledger accounts.
(ii) Prepare a trial balance at the end of January 2011.
(iii) Prepare R Keane‟s balance sheet at 31 January 2011.
(iv) Balance the ledger accounts.
Note:
At this stage all income and expense items are directly entered into. The capital
account purely to indicate that income will increase owners‟ equity while
expenses and drawings will decrease owners‟ equity. However, in the next
activity separate accounts will be opened for income and expense items and a
separate account for drawings.
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Solution to 1.1
(a)
ASSETS = LIABILITIES + CAPITAL
Furniture & Office Accounts Bank = Accounts + Capital
Equipment supplies receivable payable R Keane
2 000 500 6 000 4 000 3 000 9 500
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
ACCOUNTS PAYABLE
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OFFICE SUPPLIES
ACCOUNTS RECEIVABLE
BANK
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(b)(ii)
R KEANE
TRIAL BALANCE AT 31 JANUARY 2011
DR CR
R R
Capital
Accounts payable
Furniture and equipment
Office supplies
Accounts receivable
Bank
(a)
ASSETS = LIABILITIES + CAPITAL
Furniture & Office Accounts Bank = Accounts + Capital
Equipment Supplies receivable payable R Keane
2 000 500 6 000 4 000 3 000 9 500
(a) +160 +R 160
(b) +1 400 -800 +R 600
(c) -3 500 +3 500
(d) +500 +500
(e) -1 600 -1 600
(f) -300 -300
(g) +1 200 +1 200
(h) -200 -200
(i) -R150 -R150
(j) -R50 -R50
(k) -R280 -R280
R3 350 R380 R3 700 R4 950 R2 160 R10 220
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OFFICE SUPPLIES
1 Balance 500 Capital (Office 280
Supplies Expense)
1 Accounts Payable 160 Balance c/d 380
660 660
Balance b/d 380
ACCOUNTS RECEIVABLE
1 Balance 6 000 13 Bank 3 500
25 Capital (Fee Income) 1 200 Balance c/d 3 700
7 200 7 200
Balance b/d 3 700
BANK
1 Balance 4 000 11 Furniture and 800
Equipment
13 Accounts Receivable 3 500 19 Accounts Payable 1 600
17 Capital 500 24 Drawings/Capital 300
29 Capital (Rent Expense) 200
31 Capital (Wages 150
Expense)
Balance c/d 4 950
8 000 8 000
Balance b/d 4 950
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(b)(ii)
R KEANE TRIAL BALANCE AT 31 JANUARY 2011
DR CR
R R
10 Capital 10 220
20 Accounts payable 2 160
30 Furniture and equipment 3 350
31 Office supplies 380
41 Accounts receivable 3 700
42 Bank 4 950
12 380 12 380
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R R
CAPITAL NON-CURRENT ASSETS
R Keane (see note) 10 220 Furniture and equipment, at cost
less depreciation 3 350
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Question 1.2
NOMINAL ACCOUNTS
Rent expense
Wages expense
Depreciation expense
Office supplies expense
Bookkeeping fees revenue
Profit and loss summary
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REQUIRED:
(i) Enter the opening balances and record the transactions in the appropriate
titled ledger accounts.
(ii) Prepare a trial balance at the end of January 2011.
(iii) Prepare the income statement for the month ended 31 January 2011 and
the balance sheet on that date.
(iv) Record closing entries to the profit and loss summary and capital
accounts in the ledger accounts provided.
(v) Balance the real accounts.
Solution to 1.2
DRAWINGS
ACCOUNTS PAYABLE
OFFICE SUPPLIES
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ACCOUNTS RECEIVABLE
BANK
WAGES EXPENSE
DEPRECIATION EXPENSE
FEE INCOME
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REAL ACCOUNTS
Capital
Drawings
Accounts payable
Furniture and equipment
Office supplies
Accounts receivable
Bank
Accumulated Depreciation on Furniture and equipment
NOMINAL ACCOUNTS
Rent expense
Wages expense
Depreciation expense
Office supplies expense
Fee income
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SOLUTION TO 1.2
ACCOUNTS PAYABLE
Jan 19 Bank 32 1 600 Jan 1 Balance b/d 3 000
1 Office Supplies 30 160
Balance c/d 2 160 11 Furniture and
Equipment 20 600
3 760 3 760
Feb 1 Balance b/d 2 160
OFFICE SUPPLIES
Jan 1 Balance b/d 500 Office Supplies Exp 43 280
11 Accounts Payable 12 160 Balance c/d 380
660 660
Feb 1 Balance b/d 380
ACCOUNTS RECEIVABLE
Jan 1 Balance b/d 6 000 Jan 13 Bank 32 3 500
25 Fee Income 50 1 200 Balance c/d 3 700
7 200 7 200
Feb 1 Balance b/d 3 700
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BANK
Jan 1 Balance b/d 4 000 Jan 11 Furniture and Equip 20 800
13 Accounts Receivable 31 3 500 19 Accounts Payable 12 1 600
17 Capital 10 500 24 Drawings 11 300
29 Rent Expense 40 200
31 Wages Expense 41 150
Balance c/d 4 950
8 000 8 000
Feb 1 Balance b/d 4 950
ACCUMULATED DEPRECIATION ON FURNITURE AND EQUIPMENT
Jan 31 Depreciation 42 50
WAGES EXPENSE
Jan 29 Bank 32 150 Jan 31 Profit and Loss 60 150
DEPRECIATION EXPENSE
Jan 31 Accum Depreciation 33 50 Jan 31 Profit and Loss 60 50
FEE INCOME
Profit and Loss 60 1 200 Jan 25 Accounts Receivable 31 1 200
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(ii)
R KEANE
TRIAL BALANCE AT 31 JANUARY 2011
DR CR
R R
REAL ACCOUNTS
Capital 10 000
Drawings 300
Accounts payable 2 160
Furniture and equipment 3 400
Office supplies 380
Accounts receivable 3 700
Bank 4 950
Accumulated Depreciation on Furniture and equipment 50
NOMINAL ACCOUNTS
Rent expense 200
Wages expense 150
Depreciation expense 50
Office supplies expense 280
Fee income 1 200
13 410 13 410
Note
The trial balance above is prepared after all external transactions for the period
have been recorded and before the financial statements are prepared. If the
accountant is satisfied that all the balances are „normal‟, that transactions have not
been omitted or incorrectly classified; he will use this trial balance to prepare the end
of period financial statements.
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R KEANE
BALANCE SHEET AT 31 JANUARY 2011
R R
CAPITAL NON-CURRENT ASSETS
R Keane (see note) 10 220 Furniture and equipment, at cost
less depreciation 3 350
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Less: Expenses
Rent 200
Wages 150
Depreciation – furniture and equipment 50
Office supplies 280
680
NET PROFIT R520
=====
NOTE
Closing entries are commonly referred to as internal transactions as they
merely move the balances arising from external transactions from individual
expense and income accounts to the profit and loss summary account. The
balance of the profit and loss account (net profit or loss) is then transferred
(the profit and loss account is closed) to the capital account. In other words
income and expenses are returned to the capital account in summarised form
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(net profit or loss). This is why the nominal accounts are sometimes called
„temporary capital accounts‟ – income and expenses are taken out of the
capital account „temporarily‟ so that they can be summarised to arrive at net
profit but then the net profit is returned to the capital account.
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Chapter 2
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Question 2.1
2. The following is a list of balances extracted from the financial records of Xero
Ltd on 30 November 20.12.
R
Debtors 185 000
Land and buildings 320 000
Inventories 153 000
Bank overdraft 116 000
Equipment 207 000
Loan from Kia Bank 260 000
Motor vehicles 38 000
Creditors 86 000
REQUIRED:
2.1.1 Prepare the balance sheet of Xero Ltd at 30 November 20.12.
Solution to 2.1
2.1.1
Xero Ltd
Balance Sheet at 30 November 20.12
ASSETS
Non-current assets 565 000
Land and buildings 320 000
Plant and equipment 207 000
Motor vehicles 38 000
Current assets 338 000
Inventories 153 000
Accounts receivable 185 000
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Question 2.2 Dolphins Ltd presented the income statement below for its most
recent financial year.
R
Sales 743 000
Cost of sales 402 000
Gross profit 341 000
Operating expenses 145 000
Income from operations 196 000
Other income 1 100
Other expenses 26 000
Profit before tax 171 100
Income tax 60 000
Net profit 111 100
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Solution to 2.2
2. Dolphins Ltd
2.2.1 Sales reflect the amount an enterprise earns by selling its products. It is
revenue generated through the enterprise‟s primary operating activities.
Other income is not directly related to the enterprise‟s primary operating
activities. They are considered non-operating items and are reported
separately on the income statement, example interest on investment.
2.2.2 Competition is one factor that will prevent it from doing so.
The products must be also be priced at amounts that customers are willing
to pay.
2.2.3 Cost of sales refers to the cost to the enterprise of goods sold to customers.
It is an expense linked directly with the revenue generated through sales.
Operating expenses are costs of resources incurred as part of operating
activities that are not directly associated with specific goods.
Other expenses are expenses not directly related to the enterprise‟s
primary operating activities. They are considered non-operating items.
2.2.5 The income statement of the previous year is not provided to enable one to
make a comparison of the performance of the enterprise over the past year.
Income statements of the previous years will enable users to do a trend
analysis.
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Chapter 3
Inventory Valuation
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Question 3
The following are the assumed inventory transactions for Shavers Hardware for the
month of January 2012:
REQUIRED:
Use the perpetual inventory records provided below and over the page to determine
the cost of goods sold during January and the cost of inventory on hand at
31 January 2012 for each of the following methods:
(i) FIFO (first-in-first-out)
(ii) LIFO (Last-in-first-out)
(iii) Moving average
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Solution to Q3
19 50
22 100 R4 R400
30 35
25
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19 40
5
5
22 100 R4 R400
30 60
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40 R5
19 40 R5 R200 20 R2 R205
5 R4 20 55 R3
5 R3 15
R235
22 100 R4 R400 20 R2 R605
55 R3
100 R4
30 60 R4 R240 20 R2 R365
55 R3
40 R4
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Chapter 4
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Question 4.1
Torrent Ltd’s income statement for the year ended 31 December 2011 and the
balance sheet as at 31 December 2010 and 2011 are as follows:
Income statement
R million (m)
Revenue 623
Less Cost of sales (353)
Gross profit 270
Less Distribution costs 71
Administrative expenses 30 (101)
169
Rental income 27
Operating profit 196
Less Interest payable (26)
Profit on ordinary activities before taxation 170
Less Tax on profit on ordinary activities (36)
Profit on ordinary activities after taxation 134
Retained profit brought forward from last year 123
257
Less Dividend paid on ordinary shares (60)
Retained profit carried forward 197
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Current liabilities
Bank overdraft 56 89
Trade creditors 54 41
Corporation tax 23 18
133 148
Net current assets 47 32
Total assets less current liabilities 682 656
Less Non-current liabilities
Debenture loans 250 150
432 506
Equity
Ordinary share capital 200 300
Share premium account 40 -
Revaluation reserve 69 9
Retained profit 123 197
432 506
During 2011, the business spent R67 million on additional plants and machinery.
There were no other non-current asset acquisitions or disposals. There was no share
issue for cash during the year. The interest payable expense was equal in amount to
the cash outflow.
Required:
Prepare the cash flow statement for Torrent Ltd for the year ended 31 December
2011.
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To see how this relates to the cash of the business at the beginning and end of the
year it can be useful to provide a reconciliation as shown below:
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Analysis of cash and cash equivalents during the year ended 31 December 2011
Rm
Cash and cash equivalents at 1 January 2011 (56)
Net cash outflow (33)
Cash and cash equivalents at 31 December 2011 (89)
Notes:
1 This is simply taken from the profit and loss account for the year.
2 Since there were no disposals, the depreciation charges must be the
difference between the start and end of the year‟s plant and machinery
values, adjusted by the cost of any additions.
Rm
Book value, at 1 January 2011 325
Add Additions 67
392
Less Depreciation (balancing figure) 78
Book value, at 31 December 2011 314
3 Interest payable expense must be taken out, by adding it back to the profit
figure. We subsequently deduct the cash paid for the interest payable during
the year. In this case the figures are identical.
4 Companies pay 50% tax during their accounting year and 50% in the following
year.
Thus the 2011 payment would have been half the tax on the 2010 profit (that is,
the figure that would have appeared in the current liabilities at the end of 2010),
plus half of the 2011 tax charge (that is, 23 + (½ x 36) = 41).
5 It is assumed that the cash payment to redeem the debentures was simply
the difference between the two balance sheet figures.
It seems that there was a bonus issue of ordinary shares during the year.
These increased by R100m.
At the same time, the share premium account balance reduced by R40m (to
zero) and the revaluation reserve balance fell by R60m.
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Question 4.2
You are presented with the following balance sheet and income statement of
Velocity Limited:
30.06.2011 30.06.2010
R R
Gross Revenue 110 000 90 000
Less: Cost of Sales 60 000 55 000
Gross Profit 50 000 35 000
Add: Dividends received 3 600 3 600
Rent received - 300
Gross Income 53 600 38 900
Less: Expenses 21 600 20 900
Salaries and Wages 16 000 15 000
Interest paid 2 500 1 800
Depreciation 1 000 1 000
Insurance 600 500
Other Administrative expenses 1 500 2 600
Net income before taxation 32 000 18 000
Less: S A Normal Tax 10 000 8 000
Net income after tax 22 000 10 000
Less: Dividends declared 12 000 (10 000)
Retained income for the year 10 000 0
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VELOCITY LIMITED
BALANCE SHEET AS AT 28 FEBRUARY 2011
30.06.2011 30.06.2010
R R
Capital Employed
Share Capital 80 000 60 000
Distributable Reserves (Retained Earnings) 10 000 -
Shareholders Equity 90 000 60 000
Long term Loan 5 000 12 000
95 000 72 000
====== ======
Employment of Capital
Fixed Assets 46 000 39 000
Land and Buildings at cost 40 000 32 000
Machinery at book value (carrying value) 6 000 7 000
Investment at cost 33 000 22 000
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Note:
No machinery was purchased or sold during the period.
All purchases and sales were made on credit whereas the
amounts of all other expenses were paid for in cash.
Cash received from customers amounted to R108 600 and cash
paid to suppliers R80 900
REQUIRED:
Draw up the Cash Flow Statement of Velocity Limited for the year ended
30 June 2011.
Solution to 4.2
VELOCITY LIMITED
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2011
Notes 2011
R
Cash receipts from investments 108 600
Cash paid to suppliers 80 900
Cash generated from operations 1 27 700
Interest paid (2 500)
Dividends received 3 600
Dividend paid (12 000)
Taxation paid (10 000)
Cash inflows from operating activities 6 800
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Question 4.3
Required
Study the extracts of the Cash flow statement of Siya Limited for the year ended
30 November 2012 and state your observations.
Extracts of Cash Flow Statement for the year ended 30 November 2012 R
Cash generated from operations 270 000
Cash flow from investing activities (750 000)
Additions to plant and equipment (Property and machinery) (1 000 000)
Sale of investments 250 000
Cash flow from financing activities 800 000
Proceeds from issue of ordinary shares 750 000
Increase in Long-term borrowings 50 000
Net increase in cash and cash equivalents 320 000
Cash and cash equivalents at beginning of year 180 000
Cash and cash equivalents at end of year 500 000
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Solution to 4.3
Siya Limited‟s operations appear to be quite profitable (Cash
generated from operations is R270 000). The company appears to be
on an expansion spree. The company‟s expansion is most likely funded
by the issue of shares (R750 000) and the divestment of non-current
investment (R250 000) although funds were available from operations
(R270 000) and long term borrowings (R50 000). The company seems
to be building up a large cash balance. One needs to explore the
reasons for increasing the cash balance.
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Chapter 5
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Question 5.1
SYNON LIMITED
ABRIDGED BALANCE SHEET AT 30 JUNE
Note 2011 2010
R R
ASSETS
Non-current assets 173 000 180 000
1*
Property, plant and equipment 158 000 165 000
Investments at cost 15 000 15 000
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SYNON LIMITED
INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE
2011 2010
R R
Revenue* 300 000 284 000
Cost of sales (233 000) (225 000)
Inventory (opening) 60 000 50 000
Purchases* 240 000 235 000
300 000 285 000
Inventory (closing) (67 000) (60 000)
__________ __________
Gross Profit 67 000 59 000
Selling, administrative and general expenses (30 200) (28 800)
Administrative expenses 23 200 20 800
Depreciation 7 000 8 000
__________ __________
Profit from operations 36 800 30 200
Investment income 1 500 1 000
Financing costs – interest (6 000) (6 000)
__________ __________
Profit before tax 32 300 25 200
Income tax expenses (14 000) (11 000)
__________ __________
Net profit for the year 18 300 14 200
========== ==========
* All purchases and sales were on credit.
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REQUIRED:
Calculate the following ratios:
Profitability
(1) Return on ordinary equity (ROE)
(2) Return on assets (ROA)
(3) Net profit percentage
(4) Gross profit percentage
Liquidity
(5) Current ratio
(6) Acid test ratio
(7) Debtors‟ collection period
(8) Creditors‟ payment period
(9) Inventory turnover rate
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Solution to 5.1
(1) Return on ordinary equity (ROE)
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2010 2011
R 56 800 x 365 days R 71 900 x 365 days
284 000 300 000
= 73 days = 87.5 days
There was an increase in the collection period from 2010 to 2011. The
collection period must be improved- try to encourage early payment from
customers/debtors
2010 2011
R 61 000 x 365 days R 50 000 x 365 days
235 000 240 000
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Cost of sales
Inventory
2010 2011
R225 000 R233 000_____
R60 000 R67 000
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Question 5.2
In addition, the press report indicated that MAC LTD is a large retailer with stores
situated around the country. The report concluded that MAC LTD is a desirable
company in which to invest although the company has had some problems in the
past, these have been largely rectified by a restructure of operations which took
place in 2007. The report however did not give any basis for the conclusion as to
why the share would make a good investment.
REQUIRED:
Prepare a review of the ratios‟ in respect of MAC LTD that are presented in
Appendix A below. Your review should highlight the points of strength or
weakness and the likely reasons for such strengths and weaknesses.
APPENDIX A
MAC LTD
Financial ratio’s extracted from the financial statements for the year ending
31 December:
2005 2006 2007 2008 2009
1. Turnover (R000‟s) 210 915 233 190 282 195 312 435 341 865
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Solution to 5.2
REVIEW OF FINANCIAL RATIOS
(1) Turnover and sales growth
Turnover has shown a continuous increase of approximately a turnover of
10% p.a. with 2005 showing a very high increase of 21%. This ratio
would indicate that the company is maintaining its market share and
possibly increasing this market share. The inflationary index would be
considered in order to establish if there has been a real increase in
market share. The fact that the company could only show a large
increase in turnover for only one year indicates a very competitive
industry in which the company operates.
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Chapter 6
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Question 6.1
Ayoba Limited
The financial manager was presented with the following information:
2011 2012
R R
Stock: Raw materials 145 800 180 000
Work in process 97 200 93 360
Finished goods 129 600 142 875
Purchase of raw materials 702 600 720 000
Cost of goods sold 972 000 1 098 360
Sales 1 080 000 1 188 000
Debtors 259 200 297 000
Trade Creditors 105 300 126 000
In planning for the year 2013, it is estimated that if the period of credit allowed to
customers were reduced to 60 days, this would result in a 25% reduction in
sales, but would probably eliminate about R30 000 per annum in bad debts. It
would be necessary to spend an additional R20 000 per annum on credit control.
The company presently relies heavily on overdraft finance with an after tax cost
of 9%.
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REQUIRED:
a. Calculate the length of the working capital cycle for the past two years.
b. State the possible actions and disadvantages.
Solution to 6.1
Ayoba Limited
a.
2011 2012
Days Days
Raw Materials Stockholding
(Raw Materials Stock Purchases) x 365 76 91
Hint: (2012) 180 000/720 000 x 365
Production Time 37 31
(W.I.P. Cost of Sales) x 365
Finished Goods Stockholding
49 47
(Finished Goods Cost of Sales) x 365
Credit given to customers
88 91
(Debtors Sales) x 365
250 260
2.2 Obtain more finance form suppliers by delaying payments. This could
result in deterioration in commercial relationships or even loss of
reliable sources of supply, discounts may also be lost.
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Question 6.2
The working capital (or cash to cash) cycle which requires financing, is the length
of time between payment for material entering into stock and receipt of the
proceeds of sales. The following data was extracted from company statements
for the previous year:
REQUIRED:
a. Calculate the length of the working capital cycle by making use of the
ratios, days stock on hand; debtors collection period and creditors
settlement period (365 days in a year)
c. List possible actions that might be taken to reduce the length of the
working capital cycle, and the possible disadvantages of each.
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REGENT Business School 62
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Solution to 6.2
a. Debtors collection period
172 800 x 365 = 73 days
864 000
Days stock
170 000 x 365 = 100 days
564 090*
* Calculation of cost of goods sold
Opening stock 215 690
+ Purchases 518 400
- Closing stock 170 000
564 090
Creditors settlement period
89 480 x 365 = 63 days
518 400
Cycle 73 + 110 – 63 = 120 days
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REGENT Business School 63
Financial and Managerial Accounting: Question Bank MBA
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Financial and Managerial Accounting: Question Bank MBA
Chapter 7
Capital Budgeting
(Long-term Planning)
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Financial and Managerial Accounting: Question Bank MBA
Question 7.1
Debbie Ltd has the opportunity to invest in a project with the following estimated
future cash flows:
Year 1 R 2 400 000
2 3 000 000
3 4 000 000
4 3 200 000
5 1 800 000
The cost of the project is R 8 million. Ignore taxation. The company‟s required
rate of return (cost of capital) is 14%. The project has a zero residual value.
REQUIRED:
Calculate the following for the project:
1. The payback period
2. The discounted payback period
3. Net present value
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Financial and Managerial Accounting: Question Bank MBA
Solution to 7.1
1. The Payback Period
Cost (R8 000 000)
Inflow Year 1 2 400 000
R 5 600 000
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REGENT Business School 67
Financial and Managerial Accounting: Question Bank MBA
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Chapter 8
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REGENT Business School 69
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BUDGETING
8.1 “Budgets are half used if they serve only as a planning device”.
Comment on this statement.
8.3 The following is the sales forecast (in units) of NMC Ltd that
manufactures two products viz. product X and product Y:
The selling price per unit of product X is R20 and the selling price of
product Y is R30.
Required:
Prepare a sales budget for the period 1 November 20.11 to 31 January
20.12.
8.4 Byte Solutions makes and sells computers. On 31 March 20.11, the
entity had 60 computers in inventory. The company‟s policy is to
maintain a computer inventory of 5% of the following month‟s sales.
The sales forecast for the second quarter of the year is:
April 1 200 computers
May 1 000 computers
June 900 computers
Required:
Draw up a production budget for April and May 20.11.
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Financial and Managerial Accounting: Question Bank MBA
BUDGETING
Solution to 8.1- 8.4
8.1 A budget is a planning device as it guides executives to anticipate the
influence and impact of a given set of events on the firm‟s business and
its resources. A budget also serves as an effective tool for managerial
control by providing a proper yardstick for the evaluation of actual
performance.
8.4
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Financial and Managerial Accounting: Question Bank MBA
Question 8.5
The members of Mumbai Kings Ltd decide to prepare a cash budget for
November and December 2011. The following information is available:
Actual Budgeted
August September October November December
R R R R R
Sales:
Cash 194 500 235 700 275 000 250 500 368 000
Credit 287 300 350 000 410 000 400 400 697 000
Purchases 510 000 490 000 495 000 520 000 680 000
Salaries & 72 600 72 600 72 600 72 600 72 600
Wages
Sundry 17 800 18 400 22 000 22 600 25 700
Expenses
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Additional information
1. Cash in respect of credit sales is collected as follows:
50% within 30 days
30% within 60 days
15% within 90 days
The balance is written off as irrecoverable.
5. Seventy-five (75%) of all purchases are on credit and paid within 30 days.
The balance is paid in cash.
REQUIRED:
Prepare a cash budget for the period 1 November and 31 December
2011.
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REGENT Business School 73
Financial and Managerial Accounting: Question Bank MBA
Solution to 8.5
CASH BUDGET
November December
Opening Balance 21 500 (7 580)
Cash Receipts: 563 170 691 885
Sales after discount 225 450 331 200
Cash from debtors* (Note 1) 337 720 360 685
Total cash available 584 670 684 305
Less: Cash payments 592 250 674 100
Cash paid to creditors 371 250 390 000
Cash purchases 130 000 170 000
Salaries and wages 72 600 92 600
Sundry expenses 18 400 21 500
Closing Balance (7 580) 10 205
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REGENT Business School 74
Financial and Managerial Accounting: Question Bank MBA
Question 8.6
COSTINGS
The following data have been extracted from the budgets and standard cost of
ABC Ltd., a company which manufactures and sells a single product.
R
Selling price (per unit) 45.00
Direct material cost (per unit) 10.00
Direct wages per unit 4.00
Variable overhead 2.50
Fixed production overhead costs are budgeted at R100 000 per quarter.
Normal production levels are thought to be 320 000 units per annum.
Budgeted selling and distribution costs are as follows:
Variable R1,50 per unit sold
Fixed R20 000 per quarter
Budgeted administration costs are R30 000 per quarter. The following pattern
of sales and production is expected during the first three months (quarter) of
2012:
January – March
Sales (units) 60 000
Production (units) 70 000
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Financial and Managerial Accounting: Question Bank MBA
REQUIRED:
Prepare profit statements for the quarter using:
8.6.1 Marginal costing
8.6.2 Absorption costing
8.6.3 Reconcile the profits reported for the quarter January – March 2012 in
your answer to (1) above.
Solution to 8.6
Profit Statement
8.6.1 Marginal Costing R
Production costs: Variable 1 155 000 (70 000 x R16.50)
Less: Closing stock (165 000) (10 000 x R16.50)
990 000
Selling and distribution costs: Variable 90 000
Total variable costs 1 080 000
Revenue from sales 2 700 000
Contribution 1 620 000
Fixed production costs (100 000)
Fixed selling & distribution costs (20 000)
Fixed administration costs (30 000)
Budgeted profit 1 470 000
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8.6.3 The difference in profits of R12 500 is due to the fact that part of the
fixed production overheads (10 000 x R1.25 per unit) are included in the
closing stock valuation – not recorded as expense marginal costing system –
fixed manufacturing costs – recorded as expense.
Question 8.7
Tringer Toys has developed a new toy called Brainbuster. The company has
a standard cost system to help control costs and has established the following
standards for the Brainbuster toy:
Direct Materials 8 diodes per toy @ 30c per diode
Direct Labour 1,2 hours per toy @ R7,00 per hour
Variable manufacturing overhead 1,2 hours @ R3 per hour
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REGENT Business School 77
Financial and Managerial Accounting: Question Bank MBA
REQUIRED:
Compute the following variances:
a. Material price variance
b. Materials quantity variance
c. Labour rate variance
d. Labour efficiency variance
e. Variable overhead spending variance
f. Variable overhead efficiency variance
Solution to 8.7
a. Material price variance
70 000 (.28 - .30) = 1 400 Favourable (F)
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REGENT Business School 78
Financial and Managerial Accounting: Question Bank MBA
Chapter 9
Cost-Volume-Profit Analysis
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Financial and Managerial Accounting: Question Bank MBA
Question 9.1
Sharp Ltd produces a single product that sells for R30 per unit. Variable costs
to manufacture and sell are R16 per unit. Fixed costs and expenses are
budgeted at a total of R 54 600 per period.
REQUIRED:
Answer the following independent questions:
1. Calculate the break even point in Rands.
2. Calculate the income to be expected on sales of R 240 000.
3. Calculate the sales revenue required to produce net income of R7 000.
4. If fixed costs were to be increased by R 25 760, calculate the increase
in sales revenue that would be required to cover the increase.
5. If the selling price is decreased by 20%, what percentage increase in
the number of units sold is necessary to offset this decrease in sales
price.
Solution to 9.1
1. Break Even Point (Rands) = 54 600
46.67%
= R117 000
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Financial and Managerial Accounting: Question Bank MBA
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Question 9.2
The budget of Zebra Ltd for 2007 includes the following information:
Expected sales for the year 20 000 units
Variable cost per unit R 6.00
Fixed overheads for the year R 25 000
REQUIRED:
a. The average total investment in the company is R150 000, and the
expected return on that investment is 20%. Calculate the selling price
per unit if the shareholders are to obtain the expected return on
investment (before tax.).
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Financial and Managerial Accounting: Question Bank MBA
Solution to 9.2
a. Total investment R150 000 x 20% = R30 000. Therefore net profit required
is R30 000.
Sales = FC + VC + Profit
= 25 000 + (6 x 20 000) + 30 000
20 000 units = 175 000
Selling price = 175 000/20 000 = R8.75
= 25 000
40%
= R62 500
= 13 750 units
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REGENT Business School 83
Financial and Managerial Accounting: Question Bank MBA
= R302,500
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Question 9.3
Lishke Sales Company is the exclusive distributor for a new product. The
product sells for R60 per unit and has a CM ratio of 40%. The company‟s
fixed expenses are R360 000 per year.
REQUIRED:
1. What are the variable expenses per unit?
2. What is the break-even point in units and in sales (Rand)?
3. What sales level in units and in sales (Rand) is required to earn an
annual profit of R90 000?
4. Assume that through negotiation with the manufacturer the Lishke
Sales Company is able to reduce its variable expenses by R3 per unit.
What is the company‟s new break even point in units and in sales
(Rand).
Solution to 9.3
Item Total Per Unit %
Sales 60 100
Variable Expense 36 60
Contribution Margin 24 40
Fixed Expense 360 000
Net Income
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