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Department of Accounting
and Finance
M.Sc.
Finance
M.Sc. International Banking
and Finance
An
d
M.Sc. International Accounting
and Finance
40906: Accounting for
Finance
Wednesday 21 st January 2009 10.30am – 12.00pm (1½
hours)
Instructions for
Candidates
Answer THREE Questions (in the answer
book provided) [Failure to comply will
result in papers not being marked]
Calculators must not be used to store text and/or formulae nor be capable of communication. Invigilators may require calculators to be reset. All answers are to be written in the exam paper provided in ink.^ Please write clearly as illegible writing cannot be marked. Failure to follow these requirements will lead to a deduction of marks.
To Be Issued: Accounting
Ratios
Family Name:
Other Name:
Course (please indicate by ticking appropriate box)
Finance Int. Banking & Fin Int. Accounting & Fin
Please Note: This question paper is to be
returned along with your
examination answer booklet, you should
complete the above and slip this paper into your
answer booklet. Under no circumstances is a
copy of this paper to leave the exam room.
depreciation) £95, 00
Administration overheads (fixed cost) £19, 00
Interest 10.5% on borrowing
Big Shop Proposal
Selling price per garment £5. 0
Annual order 85, garments
Additional fixed manufacturing overhead 30, 0
Cost of expansion to fixed assets £400, 00
Note: The unit variable costs of making the additional units would be unchanged, as would the administration overheads. The funds required for the expansion of fixed assets would be borrowed at a rate of 10.5 per cent.
a) Calculate the following figures from Sew It Ltd’s present position, as presented above
(ignoring the Big Shop proposal):
i. Total fixed costs
ii.
Total contribution iii.
Net profit
iv. Breakeven point expressed in terms of annual £ sales.
(12 marks)
Equity
Share capital 50
Retained earnings 390
440
Non current liabilities
Long term loan 400
Current liabilities
Trade payables 300
1,
Summarised income statement for the year ended 31 March 2008
£000 £
Revenue 1,
Cost of sales
Materials (602) Wages (70) Manufacturing overheads (109)
Gross profit 619
Administrative expenses (19)
Operating profit 600
Interest (42)
Net Profit 558
a) A report on the working capital position of Performance Ltd. has been commissioned.
You have been asked to analyse the company’s working capital as shown in the balance sheet as at 31 March 2008. Calculate the following ratios for Performance Ltd:
Q4. Draft a memorandum from yourself to the directors of a company explaining:
a) The importance of effective budgetary control.
(16 marks)
b) Discuss the behavioural problems of budgeting that may be encountered by in practice.
(17 1/ marks) (TOTAL 33 1/3 MARKS)
[Please Turn Over]
Q5. The directors of R Ltd are concerned that the company is getting close to its overdraft limit.
They have asked you to prepare a cash flow forecast and to advise on any action that they might have to take. The current bank overdraft (as at the end of December 2008) is £10,000. The bank has imposed an overdraft limit of £15,000. The sales manager has provided you with the following information:
Credit Sales
Actual (£000) Forecast (£000)
Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 120 13 0
In addition to the above, the company expects to win a special order worth £120,000 in January 2009. This will be filled in March 2009 and paid for in May 2009. Customers tend to pay 20 per cent of the value of sales in the month following delivery and 80% in the month after that. The company buys goods a month in advance of expected sales. Stock costs 60 per cent of the final selling price. All purchases are paid for in the month following the month of delivery. The goods for the special order will cost £80,000. Half will be purchased in January and the other half in February. These large orders will have to be paid for immediately. Wages and overhead costs will amount to £15,000 per month, regardless of the level of sales activity. The company is due to settle a corporation tax liability of £40,000 in March
- The company is due to take delivery of new office furnishings costing £30,000 in January 2009. These will be paid for in February. The company pays interest on its overdraft at a rate of 2 per cent of the amount outstanding at the end of the previous month.
a) Prepare a cash flow forecast for the period from January 2009 to June 2009. Your forecast should be in £000, but work to one decimal place.
(20 marks)
b) Describe the problems which the company is likely to face during the period of your forecast and explain how these might be overcome.
(13 1/ marks) (TOTAL
