No.

101/1

Marker Code Student Personal

Identification Number (SPIN)

South Pacific Form Seven Certificate

ACCOUNTING
2009
QUESTION and ANSWER BOOKLET
Time allowed: Three hours

INSTRUCTIONS
Write your Student Personal Identification Number (SPIN) on the top right hand corner
of this booklet and on the fold-out flap on the last page.

Answer ALL QUESTIONS. Write your answers in the spaces provided in this booklet.

If you need more space for answers, ask the Supervisor for extra paper. Write your SPIN
on all extra sheets used and number the questions clearly. Attach the extra sheets at the
appropriate places in this booklet.

Time
Question One Conceptual Basis of Accounting 25 marks 20 mins.
Question Two Processing
- Partnerships 18 marks 15 mins.
- Companies 16 marks 15 mins.
- Manufacturing concerns 23 marks 20 mins.
- Job Cost Systems 18 marks 15 mins
Question Three Accounting Reports
- Partnerships 25 marks 20 mins.
- Companies 30 marks 30 mins.
Question Four Decision making
- Analysis and Interpretation 31 marks 30 mins.
- Decision making and budgets 14 marks 10 mins.
Total 200 marks

Check that this booklet contains pages 2-32 in the correct order and that none of these pages is
blank. Pages 33 and 34 are blank.

YOU MUST HAND THIS BOOKLET TO THE SUPERVISOR AT THE END OF THE
EXAMINATION.

TOTAL MARKS
200
 2

QUESTION ONE: CONCEPTUAL BASIS OF ACCOUNTING (25 marks)

PART A

Pacific Limited is a Reporting Entity. The Financial Statements for the year ended 31 December
2008 are included in the company’s Annual Report and presented to the shareholders at the
Annual General Meeting.

Answer the following questions related to the Financial Statements of the company:

(1) Name ONE objective of preparing Financial Statements.

(1 mark)

(2) Explain how the inclusion of a Statement of Accounting Policies in Pacific Ltd’s Annual Report
helps the financial statements meet the characteristic of understandability.

(1 mark)

(3) Give the purpose of the Statement of Financial Performance as it contributes to the objectives
of General Purpose Financial Reporting.

(1 mark)

(4) Explain why the financial statements are audited before being presented to the shareholders.
Your explanation needs to include a qualitative characteristic of good accounting information.

(2 marks)

(5) Explain why the financial statements are published as soon after balance date as possible.
Your explanation needs to include a qualitative characteristic of good accounting information.

(2 marks)
 3

PART B

In the preparation of the financial statements for Pacific Limited a number of policy decisions about
disclosure of information were made.

(1) Identify the accounting concept on which each of the following decisions was based.

Policy Decision Made Accounting Concept

(i) Land and Building have been valued at current

cost, while other Fixed Assets are shown at
Historical Cost.

(ii) Low value items of capital expenditure were

written off against revenue in the year of
purchase.

(iii) To exclude from the financial statements

details of the owner’s personal assets.

(iv) Revenue is recognised in the period it relates

to rather than when the cash changes hands.
(4 marks)

(2) Explain how Pacific Ltd’s accountants would have applied the going concern assumption
when preparing the company’s financial statements.

(1 mark)

(3) Explain how a term deposit reported in Pacific Ltd’s balance sheet as an asset will provide
future economic benefit for Pacific Ltd.

(2 marks)

(4) The Mortgage over Land and Buildings is recorded as a Liability in the Financial Statements.

(i) Give TWO reasons why Mortgage over Land and Buildings is regarded as a Liability.

(2 marks)
 4

(ii) The Mortgage is recorded in the Financial Statements as both a Current Liability and a
Long Term Liability.

Explain why this would be the case.

(1 mark)

PART C

Lia Mafi, Joe Semisi and Sione Lusipi are partners in Mafi and Associates Accountants. They are
interested in forming a company.

As their accountant they have asked you the following questions:

(1) State TWO advantages of forming a company.

(i)

(ii)

(2 marks)

(2) State TWO reasons why they should remain as a partnership.

(i)

(ii)

(2 marks)

(3) Mafi and Associates Accountants uses a job cost system for the purpose of charging out
completed work to customers.

(i) Suggest a suitable cost driver that Mafi and Associates Accountants could use for the
purpose of charging out overheads to clients. Give a reason for your answer.

(2 marks)
 5

(ii) Name and describe another cost driver a business could use to charge out overheads to
clients.

(2 marks)

Q1 25
 6

QUESTION TWO: PROCESSING (75 marks)

PART A: Partnerships (18 marks)

Sari Smith and David Jones formed the partnership Bigfoot Shoes on 1 January 2008. The
business makes and sells a popular range of shoes, with David being responsible for production
and Sari the sales outlet.

The partners agreed to the following:

David would contribute $20,000 cash and equipment worth $20,000 making the agreed value of
David’s contribution $40,000.

Sari’s agreed contribution would be $75,000 including Tangible Assets of $80,000 and Liabilities of
$15,000.

(1) Complete David’s Capital Account to record his contribution to the partnership.

Bigfoot Shoes
General Ledger
Capital Account – David Jones
DR CR Balance

(2 marks)

(2) (i) Calculate the amount of goodwill in Sari’s contribution to the partnership. Show workings.

Amount of goodwill: $ ________________

(ii) Explain the term Goodwill.

(2 marks)

Sari and David’s partnership agreement for Bigfoot Shoes has the following profit-sharing clauses:

• Salaries to partners – Sari $30,000, David $20,000.

• Interest on capital accounts – 10% per annum closing capital balances.
• Interest on drawings – 5% per annum of the amount above agreed salaries.
• Interest on current accounts – 5% per annum charged / credited on the opening balances.
• A bonus to Sari of 10% on total sales above $100,000.
• Residual profits and losses to be shared between Sari and David at a ratio of 2:1
respectively.
 7

For the year ended 31 December 2008 Bigfoot Shoes earned a profit for the year of $85,000.

(3) Complete the General Journal entries indicated by the narrations in the General Journal
below.

Bigfoot shoes
General Journal

To transfer partnership profit to Profit Distribution

To record Sari’s bonus on total sales of $150,000

To record the partners’ salaries

(6 marks)

Additional Information:
Bigfoot Shoes
Trial Balance (extract) as at 31 December 2008
Drawings – Sari 30,000 Capital – Sari 85,000
Drawings – David 30,000 Capital - David 40,000

On 1 July 2008 Sari contributed an extra $10,000 cash to the partnership.

The residual profit to be shared, after distributions and charges to partners, is $18,000.

(4) Calculate the amount that would be entered into David’s Current Account for interest on
drawings. Show workings.

Interest on drawings: $ _______________

(2 marks)
 8

(5) Use the information above and the partnership agreement to complete Sari’s Current Account
for the year 31 December 2008.

General Ledger
Current – Sari Smith

(5 marks)

(6) Explain why Sari and David have included the following profit sharing clause in their
partnership agreement:
“Interest on drawings: 5% per annum of the amount above agreed salaries”.

(1 mark)
 9

PART B: Companies (16 marks)

South Pacific Blue Ltd was registered on 1 January 2008 with the objective of producing bottled
water for the tourist trade. A prospectus, inviting the public to buy 250,000 ordinary shares at $2
each fully payable on application, was issued to the public on that date. By 31 March 2008,
applications for 270,000 shares had been received. The directors allotted the shares on a pro rata
basis on 30 April 2008 and any over-subscription was repaid.

On 1 May 2008, the directors entered into an agreement for the purchase of an existing bottling
business Cool Blue Co for $250,000.

The agreement between South Pacific Blue Ltd and Cool Blue Co states that all assets and
liabilities are to be valued at the book value as at 1 May 2008, apart from the following:

1. Accounts Receivable to be valued $20,000 after writing off bad debts of $3,000.
2. Land to be revalued to the current market value of $140,000.
3. Cool Blue Co will be responsible for the repayment of the bank overdraft and the taxation
owing.

The owners of Cool Blue Co are to be issued with 125,000 fully paid-up ordinary shares at $2 each
on 1 June 2008.

The Statement of Financial Position for Cool Blue Co on 1 May 2008 is shown below.

Cool Blue Co
Statement of Financial Position
as at 1 May 2008
$ $ $
Equity $150,000
These funds are represented by:
Assets
Accounts Receivable 25,000
Inventory 30,000
Land 130,000
Plant and Machinery 120,000
Less Accumulated Depreciation 50,000 70,000
255,000
Less Liabilities
Bank Overdraft 20,000
Accounts Payable 50,000
Taxation Payable 15,000
Mortgage over Land 20,000
105,000
$150,000
 10

Required
Prepare the General Journal entries (including cash entries) for the period 1 January 2008 to 1 May
2008 to record the:

1. share issue of South Pacific Blue Ltd

2. purchase of the assets and liabilities of Cool Blue Co

Note: Narrations for the journal entries are not required.

Date Particulars Debit Credit

(16 marks)
 11

PART C: Manufacturing Concerns (23 marks)

Trendy Fashions manufactures cotton T-Shirts and allocates factory overhead expenses using
machine hours.

Trendy Fashions recently completed the manufacture of 1,200 T-shirts for a local market.

A summary of Job #100 below shows the costs associated with this job.

Job Card Job #100

$
Direct materials 4,000
Direct labour 2,500
Overhead 2,000
Total cost $8,500

(1) Calculate the overhead allocation rate given that Job #100 took 20 machine hours to
complete.

Overhead allocation rate: $ per machine hour______________________

(2 marks)

(2) Show the General Journal entry to record the overhead allocation to Job #100.
A narration is not required.
Trendy Fashions
General Journal

(2 marks)

(3) A time sheet was used to record the direct labour cost for Job #100.

Name TWO pieces of important information that should be recorded on the time sheet.

(i) ______________________________________________________________________

(ii) ______________________________________________________________________
(2 marks)

(4) Prepare the General Journal entry to record the cost of Job #100 when sold. A narration is
not required.
Trendy Fashions
General Journal

(2 marks)
 12

(5) Explain how the management of Trendy Fashions will use pre-numbered material
requisition forms and job cost cards to determine that the total of all direct materials have
been correctly charged to all jobs.

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(3 marks)

The following information is available for Trendy Fashions for the year ended 31 December 2008.

Raw Materials
Jan 1 Balance 8,000 DR
Dec 31 Accounts Payable 120,000 128,000 DR
Work in Progress 98,000 30,000 DR
Factory Overheads 12,000 18,000 DR

Work in Progress
Balance 1 January 2008 $13,000
Balance 31 December 2008 $24,000

Selected actual expenses include:

Direct Factory Wages $200,000
Indirect Factory Wages $45,000
Factory Electricity $65,000
Depreciation Factory Equipment $35,000
Depreciation Office Equipment $16,000

Note from management: Overhead was under-applied by $12,000 for the year ended 31
December 2008.

(6) Calculate the total actual factory overheads for the year. Show your working.

Actual Factory Overheads $ _______________________

(2 marks)

(7) Calculate the total allocated factory overheads for the year. Show your working.

Allocated Factory Overheads $ ________________________________

(2 marks)
 13

(8) Explain how the under-applied factory overhead of $12,000 will be treated in the cost of
goods sold account of Trendy Fashions for the year ended 31 December 2008. Include
reasons for this treatment in your answer.

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(2 marks)

(9) Complete the work-in-progress control account for the year ended 31 December 2008.

Work in Progress Control Account

(6 marks)
 14

PART D: Job Cost Systems (18 marks)

Ocean Islands Ltd is a manufacturing company and uses a Job Costing system for its accounting
processes.

The accountant has prepared the following document flowchart for discussion of the system with
the department managers.
Ocean Islands Ltd
Job Cost Flowchart as at 1 January 2008

Customer Sales Production Stores Accounts

Enquiry Quote Time Sheet

Purchase Purchase
Order Order

Job Cost
Job Sheet Job Cost Sheet
Sheet

Overhead
Materials Materials
Calculated
Requisition Requisition

Materials
Material
Inventory
Record
Invoice and Invoice
Job Cost
Sheet

(1) Describe the purpose of each of the following in relation to the job cost system above.
Relate your answers to other aspects of the system.

(i) Purchase Order __________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(2 marks)
 15

(ii) Job Cost Sheet __________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(2 marks)

(iii) Invoice _________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(2 marks)

(iv)Material Inventory Record __________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(2 marks)

(2) Identify TWO situations in the job cost system where documents should be filed.

(i) _______________________________________________________________________

(ii) _______________________________________________________________________
(1 mark)

(3) Internal control measures include separation of duties, authorization, and verification.

Identify and describe THREE situations in the document flowchart that show clearly any of
the internal control measures.

(i) _______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(3 marks)

(ii) _______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(3 marks)
 16

(iii) _______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________
(3 marks)

Q2 75
 17

QUESTION THREE: ACCOUNTING REPORTS (55 marks)

PART A: Partnership Reporting (25 marks)

RESOURCE ONE

Steve and Lynn are the owners of Island Tours, a partnership that organises tours for visitors
around the major sights of the local area. Their office is located in the central area of the main town
and has a small retail shop located on the road front.

The following trial balance and additional information relate to Island Tours.

Island Tours
Trial Balance
as at 31 December 2008
Accounts Receivable 10,300 Accounts Payable 5,500
Bad Debts 750 Accumulated Depreciation
Bank 9,300 - Office furniture 8,000
Rent 25,000 - Shop Fittings 3,500
Current Account - Lynn 3,000 Allowance for doubtful Debts 150
Drawings - Steve 20,000 Capital - Steve 35,000
Drawings - Lynn 15,000 Capital - Lynn 25,000
Office Expenses 25,400 Current Account - Steve 4,000
Shop Expenses 9,700 Fees Received 120,000
Interest on Loan 1,800 Souvenir Sales 15,000
Loss on sale Office Furniture 1,000 Loan 5%pa due 2014 15,000
Office furniture 51,000
Office Wages 25,400
Shop fittings 30,000
Stock on Hand 1 January 2008 3,500
$231,150 $231,150

Additional information:
• Stock on Hand 31 December 2008 $4,000.
• Further bad debts of $300 are to be written off.
• Adjust the allowance for doubtful debts to 2% of accounts receivable.
• Office wages owing on 31 December 2008, are $2,300.
• General office expenses include $700 prepaid for office supplies.
• On 1 January 2008, old office furniture costing $4,000, with a book value of $2,000 was sold
for $1,000. New furniture was purchased for $7,000.
• Depreciation on office furniture is 4% per annum using the straight line method.
• Depreciation on shop fittings is 10% per annum using the diminishing value method.
• Rent was prepaid by $1,000. The rent is divided between the retail shop and office based on
cost per square metre. The retail shop is 50 square metres and the office is 150 square
metres.

(1) Complete a possible Accounting Policy Statement for Accounts Receivable and Stock on
Hand in the Statement of Accounting Policies.

Island Tours
Statement of Accounting Policies

Accounts Receivable_________________________________________________________

__________________________________________________________________________
 18

Stock on Hand______________________________________________________________

__________________________________________________________________________
(4 marks)

(2) Refer to the trial balance and the additional information for Island Tours in Resource One.
Complete the Income Statement (extract) below, after adjusting for the relevant information.
Show workings in the space provided where necessary.

Island Tours
Income Statement (extract)
for the year ended 31 December 2008
Administration Expenses

(4 marks)

Workings

(3) Refer to the trial balance and the additional information for Island Tours in Resource One.

(i) Complete the Balance Sheet (extract) below, after adjusting for the relevant information.

Island Tours
Balance Sheet (extract)
as at 31 December 2008
Note

Current Assets

(5 marks)
 19

(ii) Complete the notes for Accounts Receivable and Fixed Assets with appropriate terms of
figures. Do not write in the shaded areas.

Notes to the Financial Statements

Note 1: Accounts Receivable

(4 marks)

Notes to the Financial Statements

Note 2: Fixed Assets
Office Furniture Shop Fittings

For Year Ended 31 December 2008

Opening Balance - Book Value (1 January 2008)

Additions

Disposals

Closing Balance - Book Value (31 December 2008)

As At 31 December 2008

Cost

Closing Balance - Book Value (31 December 2008)

(8 marks)
 20

PART B: Company Reporting (Cash Flow) (20 marks)

RESOURCE TWO
The following information relates to Southern Islands Ltd, a company selling fashion clothing.

Southern Islands Ltd

Income Statement
for the year ended 31 December 2008
Notes $
Revenue 1 1,350,000
Other Income 2 11,000
1,361,000
Cost of Goods sold 650,000
Bad Debts 2,000
Depreciation: Property, Plant and Equipment 24,000
Discount Allowed 2,000
Other Expenses 540,000
Operating Profit 143,000
Less financial Expenses 3 15,000
Profit before Tax 128,000
Income Tax Expense 35,000
Profit for the period 93,000

Notes (extract) to the Income Statement

1. Revenue - Sales 1,350,000
2. Other Income
Interest Received 3,000
Discount Received 4,000
Gain on Sale – Delivery Van 4,000
3. Finance Costs
Interest on Loans 15,000

Southern Islands Ltd

Balance Sheet
as at 31 December 2008
2007 2008
Current Assets
Bank 5,000 13,000
Accounts Receivable 24,000 33,000
Accrued Interest Received 2,000 1,000
Inventory 30,000 45,000
Taxation Receivable 11,000 -------
Non-Current Assets
Investments 70,000 54,000
Term Deposit 95,000 50,000
Property, Plant and Equipment 410,000 615,000
Total Assets 647,000 811,000

Current and Non-Current Liabilities

Accounts Payable 12,000 24,000
Accrued Expenses 5,000 2,000
Taxation Payable ------- 3,000
Loan 140,000 200,000
Total Liabilities 157,000 229,000
Net Assets 490,000 582,000
 21

Equity
Share Capital 340,000 420,000
Land Revaluation 25,000 40,000
Retained Earnings 125,000 122,000
Total Equity 490,000 582,000

Additional Information:
Property, Plant and Equipment
Delivery
Buildings Land Total
Vans
As at 31 December 2007
Cost or Valuation 303,000 80,000 120,000 503,000
Accumulated Depreciation (69,000) (24,000) (93,000)
234,000 56,000 120,000 410,000
As at 31 December 2008
Cost or Valuation 490,000 100,000 135,000 725,000
Accumulated Depreciation (84,000) (26,000) (110,000)
406,000 74,000 135,000 615,000

Note: A Delivery Van that cost $15,000 with a book value of $8,000 was sold for cash during the
year.

Use Resource Two to answer this question.

Complete the Statement of Cash Flows showing cash flows from operating activities and cash
flows from investment activities, for Southern Islands Ltd.

Show your workings in the working box provided.

 22

Working Box
 23

Southern Islands Ltd

Statement of Cash flows (extract)
For year ended 31 December 2008
Cash Flows from Operating Activities

Cash was provided from

Cash was applied to

Net cash inflow / outflow from operating activities

Cash Flows from Investing Activities

Cash was provided from

Cash was applied to

Net cash inflow / outflow from operating activities

(20 marks)
 24

PART C: Company Reporting (10 marks)

RESOURCE THREE

The following information was extracted from the accounting records of Computer Oasis Ltd, a
computer retail store with a number of outlets.
.
Computer Oasis Ltd had the following account balances on 1 January 2008.

Debit Credit
Buildings 900,000
Accumulated Depreciation on Buildings 80,000
Government Stock (5% due 2015) 30,000
Share Capital 600,000
Retained Earnings 240,000
Buildings Revaluation Reserve 52,000
Other Asset Revaluation Reserve 4,000

At 1 January 2008, share capital comprised 250,000 fully paid shares.

The following information relates to the year ended 31 December 2008:

• A final dividend of 20c per share for the year ended 31 December 2007 was paid to
shareholders on 1 May 2008.
• On 17 August 2008, Computer Oasis Ltd issued 100,000 shares at a value of $2.00 per
share.
• On 31 October 2008 an interim dividend of 10 cents was paid after the company issued
new shares on 17 August 2008.
• On 31 December 2008, the current value of the government stock is $45,000.
• Profit after tax for the year ended 31 December 2008 amounted to $215,000.
• On 31 December 2008, the company’s buildings were revalued to be $1,120,000.
Depreciation on buildings is 2% per annum straight line.
• A final dividend of 15c per share was proposed for the year ended 31 December 2008.

(1) Complete the Distributions (Dividends) note shown below by completing the boxes with
appropriate terms or figures. Do not write in the shaded areas.

Note: Distributions (Dividends)

Cents per
$
share
Final dividends paid

Interim dividends paid

Total dividends paid

Total Distributions
(5 marks)
 25

(2) Complete the Statement of Changes in Equity.

Statement of Changes in Equity

For year ended December 2008

(5 marks)

Q3 55
 26

QUESTION FOUR: DECISION MAKING (45 marks)

PART A: Analysis and Interpretation of Financial Information (31 marks)

RESOURCE

The following financial information has been prepared for Your Computer Ltd a company
specialising in supplying electronic equipment and services.

Your Computer Ltd

Statement of Financial Position
as at 31 December 2008
$ $ $
Equity $310,000
These funds are represented by:
Assets
Accounts Receivable 80,000
Inventory 150,000
Land 100,000
Buildings 220,000
Less Accumulated Depreciation 80,000 140,000
Office Equipment 80,000
Less Accumulated Depreciation 30,000 50,000
Goodwill 40,000
560,000
Less Liabilities
Bank (Overdraft limit $40,000) 40,000
Accounts Payable 80,000
Taxation Payable 20,000
Dividend Payable 20,000
Mortgage over Land and Buildings 90,000
250,000
$310,000

Other Information

Sales (Credit) $600,000

Gross Profit $350,000
Inventory 1 January 2008 $100,000
Accounts Receivable 1 January 2008 $90,000

Information taken from last year’s Annual Report:

2004 2005 2006 2007
Current Ratio 2:1 1.6:1 1.5:1 1.5:1
Liquid Ratio 1.3:1 1.1:1 1:1 0.9:1
Inventory Turnover (Industry average: 3 times) 4.5 3.5 3 2.3
Accounts Receivable Collection Period (days) 30 35 40 45
Shareholder’s Equity Ratio 0.7:1 0.7:1 0.65:1 0.65:1
 27

(1) Complete the table by calculating the following and showing the appropriate formula.

Formula and workings Answer

Current Ratio

Liquid Ratio

Inventory Turnover

Accounts Receivable
Collection Period

Shareholders’ Equity
Ratio

(10 marks)

(2) You are an Accountant and have been asked to prepare a report on the financial position of
Your Computer Ltd.

In your report you are to include details on liquidity, financial stability, and management
effectiveness.

You are required to answer the following questions in preparation of your report.

(i) Explain the term liquidity and how it is measured.

__________________________________________________________________________

__________________________________________________________________________
(1 mark)

(ii) Using the information in the resource and your calculations in (a) describe the liquidity
position of Your Computer Ltd. Ensure to include the results from previous years and
comment on trends.

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________
(4 marks)
 28

(iii) Explain the term Financial Stability and how it is measured.

__________________________________________________________________________

__________________________________________________________________________
(1 mark)

(iv) Using the information in the resource and your calculations in (a) describe the financial
stability of Your Computer Ltd. Ensure to include the results from previous years and
comment on trends.

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________
(4 marks)

(v) Explain the term management effectiveness and how it could be measured.

__________________________________________________________________________

__________________________________________________________________________
(1 mark)

(vi) Using the information in the resource and your calculations in (a) describe the
management effectiveness of Your Computer Ltd. Ensure to include the results from
previous years and comment on trends.

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________
(4 marks)
 29

(vii)Using your answers above, describe THREE strategies that could be used to improve the
liquidity, financial stability, and /or management effectiveness of Your Computer Ltd. Your
answer needs to relate how the measures improve the situation.

(a) _____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

(b) _____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

(c) _____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________
(6 marks)
 30

PART B: Cost-Volume-Profit Analysis and Cash Budgets (14 marks)

COST-VOLUME-PROFIT ANALYSIS

(1) Complete the Cost-volume-profit graph for the production/sales of radios by naming the lines
and area indicated:

Cost-volume-profit C
Production/Sales of Radios

$$
D B

Quantity

Line A _____________________________________________________________________

Line B _____________________________________________________________________

Line C _____________________________________________________________________

Area D _____________________________________________________________________
(4 marks)

(2) Explain why Cost-volume-profit analysis is so important to the owner of a business.

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________
(2 marks)
 31

CASH BUDGET

Peter’s Bike Hire is a small business which rents out bikes to tourists. They wish to expand their
business in a new area and intend to apply to the bank for a loan.

The business is expected to have a balance in the bank account of $10,000 on 1 January 2008.
The owners wish to apply for a loan of $12,000 to be available on 1 February 2008.

The terms of the loan will be:

• The loan to be repaid at the end of 6 months.

• Interest rate 8% per annum payable at the end of each month.

The operating results of the business are generally consistent from one month to the next
throughout the year. The operating results for a typical month are as follows:

Peter’s Bike Hire

Operating Results a typical Month
$
Rental for cash 25,000
Less Expenses
Wages 5,000
Advertising 3,000
Other operating expenses 9,000
Depreciation on equipment 3,000
20,000
Net Profit for a typical month $5,000

Plans for the business expansion from February onwards are:

• Purchase new bikes in February $8,500. These will be paid for in the month following the
purchase.
• Purchase a van on 1 March for $15,000 to deliver bikes to tourist hotels and cruise ships.
Depreciation will be 12% per annum straight line method.
• Increase the advertising expenditure to $5,000 a month for February only.
• Hires are expected to increase by 10% a month in February and March and remain at that
level from then on.
• In the past old stock was given away. From March it is intended to sell old bikes which are
expected to generate $200 per month.
• It is intended not to increase staff members and wages will remain the same. It is expected
that operating expenses will increase by 10% in February and then remain constant.
Expenses are paid in the month they occur.
• Interest after tax (5% per annum) will be generated on the opening Bank balance payable at
the end of each month.
 32

Required
Prepare a cash budget for January, February and March.

Peter’s Bike Hire

Cash Budgets
January February March
$ $ $
Opening Cash Balance

Receipts

Payments

Closing Cash Balance

(8 marks)

Q4 45
 33

This page is left blank deliberately.

 34

This page is left blank deliberately.

 35

Student Personal
Identification Number (SPIN)

South Pacific
Form Seven Certificate
2009

ACCOUNTING

Marker’s Use Only

Question Marker Check

Marker

1
25

2
75

3
55

4
45

TOTAL
200