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Semester II Examinations 2008/ 2009 Exam Code(s) 1BC1, 1BC2, 1BC3, 1BC4, 1BC5, 1CL1, 1IF1, 1BF1, 1BCM Exam(s) Bachelor of Commerce – First Year Bachelor of Commerce International – First Year Bachelor of Corporate Law – First Year Bachelor of Information Technology – First Year Bachelor of Science (Business Information Systems) – First Year Bachelor of Science (Project and Construction Management) – First Year Module Code(s) AY Module(s) Accounting Repeat Paper - External Examiner(s) Professor B. O’Dwyer Internal Examiner(s) Professor J. F. Collins Ms. M. Barrett Ms. C. McGarry Dr. B. Sweeney Ms. P. Martyn Ms. D. Ruddy Instructions: Answer two questions from Section A And two questions from Section B Use a separate answer book for each Section All questions carry equal marks Duration 3 Hours No. of Pages 12 Department(s) Accountancy & Finance Requirements : MCQ - Log Graph Paper - Other Material -
SECTION A
(Answer any TWO questions from this Section) Question 1 Crawford Ltd has provided you with the following list of balances for the year ended 31 December 2008. € € Cash in hand 3, Share Capital 125, Share premium account 40, Trade payables 39, Sales 934, Wages and salaries 245, Trade receivables 70, Advertising 10, Insurance 4, Motor vehicles - cost 300, Motor vehicles – accumulated depreciation 80, Plant and machinery - cost 150, Plant and machinery – accumulated depreciation
Inventory 40, Purchases 439, Dividends paid 12, Directors’ salaries 100, Bank overdraft 20, Long term loan 10% (repayable 2015) 50, Interest 3, Retained earnings 31 December 2007 45, Provision for bad debts 31 December 2007 3, Administration costs 10, 1,386,000 1,386, Additional information:
- Inventory at 31 December 2008 is valued at €55,000. Included in this figure is a stock item valued at €5,000 which has a resale vale of €3,000. The resale values of all other stock items are higher than cost.
- Taxation in respect of the year to 31 December 2008 of €45,000 is to be provided in the accounts.
- A debtor who owes the company €3,000 has gone into liquidation. It is expected that the company will receive 50 cent for every €1 owed. The provision for bad debts is to be adjusted to 5% of trade receivables at 31 December 2008.
- The following amounts of depreciation are yet to be provided for year ended 31 December 2008: Plant and machinery €15, Motor vehicles €44, Question 1 continued on next page…
… Question 2 continued II. Calculate the value of machinery to be shown in the balance sheet as at 31 December 2008 (the cost and accumulated depreciation amounts must be shown clearly in your workings). (4 marks) III. Briefly explain, without numerical illustration, how the straight line and reducing balance methods of depreciation work. What different assumptions does each make? (5 marks) Part (b) Three of the accounts in the ledgers of Barry Smith indicated the following balances at 1 January 2008: Insurance paid in advance €2,860; Wages outstanding €12,500; Rent receivable, received in advance €1,750. During the year ended 31 December 2008 Barry: Paid for insurance €32,850, by bank standing order; Paid €155,500 wages, in cash; Received €18,050 rent, by cheque, from the tenant. At 31 December 2008, insurance prepaid was €2,650. On the same day rent receivable in arrears was €1,860 and wages accrued amounted to €13,600. Required: I. Show the amount of expense or income to be recorded in the income statement for insurance, wages and rent for the year ended 31 December 2008 and show the amount of any accrued or prepaid expenses or income to be recorded in the balance sheet on that date. (7 marks) II. Explain the effects on the financial statements of accounting for (a) accrued expenses and (b) income received in advance at year end. (3 marks) Total: 25 marks
Question 3 Moyvalley Ltd is a family owned private company that owns a number of hotels in the West of Ireland. The balance sheets of the company for the years ending 31 December 2008 and 31 December 2007, along with the income statements of the company for both years are shown below. Balance sheets Year ended Year ended Assets: 31/12/2008 31/12/ €'000 €'000 €'000 €' Non-Current Assets Property, plant and equipment 15,712 8, Current Assets: Inventory 1,424 3, Trade Receivables 205 137 Cash at bank 0 106 Cash on hand 3 1,632 17 4, Total Assets 17,344 12, Equity and Liabilities: Capital and Reserves: Issued Share capital 50 50 Retained earnings 7,998 7, 8,048 7, Non-Current Liabilities: 9% Long Term Loan 4,800 5, 7% Long term Loan 4,014 8,814 0 5, Current Liabilities: Trade Payables 352 252 Taxation 28 82 Bank Overdraft 102 0 482 334 Total Equity & Liabilities 17,344 12, Question 3 continued on the next page …
SECTION B
(Answer TWO questions from this Section) Question 4 Hendrix Ltd is preparing its budgets for the quarter ended 30 th June 2009 and they have asked for your assistance. They have provided you with the following information:
- Account balances for the quarter ended 31 st March 2009: Receivables - from February sales €6,
- from March sales €6, Payables - for March materials €2, Bank balance €7,
- Sales information: Selling price per unit is €90, with 25% of sales being for cash and the remaining 75% on credit. Credit customers normally pay 50% of debts in the month following sale, and the balance one month after this. The anticipated sales demand has been estimated as follows: Month Sales Units April 220 May 220 June 190 July 230 August 230 Question 4 continued on the next page …
… Question 4 continued
- Production information: It is company policy to maintain finished goods inventory at 80% of the following month’s sales units. The company likes to keep a raw material inventory of 50% of the following month’s production requirement. It takes one kilogram of raw material to make one unit of finished product and each kilogram of material costs €13. Purchases of raw materials are paid for one month after purchase. Fixed production overheads are €880 per month, including depreciation. The annual depreciation charge on the company’s production equipment is €6,000. Where applicable, fixed overheads are paid in the month incurred. Direct labour and variable overhead are also paid in the month incurred and have been estimated as follows: Labour: €8.00 per unit of production Variable overhead: €2.50 per unit of production Required: (a) Prepare monthly cash budgets (with all necessary supporting budgets) for the three months from 1st^ April 2009 to 30th^ June 2009 inclusive. (20 marks) (b) Explain three significant benefits to an organisation of the budgeting process. (5 marks) Total: 25 marks
… Question 5 continued The conference fee charged to delegates covers admission to conference, accommodation, meals and conference folder. Last year, the conference fee was €400. This year’s conference fee has yet to be decided. Required: (a) Assuming that the conference fee will be the same as last year, calculate: The number of delegates required for the conference to breakeven. The breakeven point in conference fee revenue terms. The expected total surplus (profit) or deficit (loss) that the conference will generate if 60 delegates attend. (10 marks) (b) Assuming that the conference fee will be the same as last year, construct a breakeven chart clearly indicating each of the following (the use of graph paper is not required): Total conference fixed costs. Breakeven point. Total conference revenue. Total conference costs (7 marks) (c) Aoife has recently attended the European Tax Network committee meeting where committee members have agreed in principle that, while the purpose of the conference is not to earn a profit, the organisation nevertheless hopes to generate a surplus (profit) from the conference that will fund two planned activities later in 2009. The first of these is the publication of their annual journal anticipated to cost €1,500 and the second is a scholarship fund of €500 for a tax research student. Calculate the number of delegates required to generate the required surplus, assuming that the conference fee will be the same as last year. Aoife is considering increasing the conference fee by 10% which she thinks will be broadly acceptable to the committee and should not have any impact on delegate numbers. At her request you have also examined ways of reducing costs. To this end, you have negotiated a €5 discount on the hotel rate and a 10% reduction in the cost of lunches and teas and coffees. Calculate a revised estimate of the total surplus (profit) or deficit (loss) that the conference will generate and indicate whether it will be sufficient to fund the planned activities. (8 marks) Total: 25 marks
Question 6 Dawson Ltd. has been contracted by ToneWise Gym Ltd. to construct some specialised gym equipment. The managing director of Dawson Ltd. has recently been informed however that the gym has gone into liquidation and there is no prospect that any money will be obtained from the winding up of the company. Costs incurred to date have been the design plans of €5,000 and manufacturing costs to date of €30,000. Progress payments of €15,000 had been received from the gym prior to the liquidation. The sales department has spent €1,000 in finding an alternative customer for the gym equipment and this customer is willing to buy the new equipment for €40,000 once it has been completed. To complete the work the following costs would be incurred:
1. Materials: Steel sheets : These have been bought at a cost of €8,000. They have no other use, and if the equipment is not finished they would be sold for scrap for €3,000. Reinforced handles : These are regularly used by the company. The stock on hand (50 units) was bought at a price of €25 per handle. However, the price has now increased by €5 per handle. It is estimated that 100 handles would be required to complete the equipment. Steel rods : 150 rods have been purchased for the new equipment at a cost of €5 each. If not used for the contract, they would be adjusted at a cost of €2 each and then sold for €6 each. 2. Labour: Skilled labour costs : Further skilled labour costs would be €8,000. Non-skilled labour : Completion of the equipment would cost €3,000. This labour type is in short supply and if the equipment is not finished the work force would be switched to another job which would earn €30,000 in revenue and incur direct costs (including the cost of the non-skilled labour) of €12, and absorb fixed overhead of €1,000. 3. Overheads: Variable overheads of €5,000 would be incurred by completing the gym equipment and an allocation of fixed overheads of the business would be €2,000 which includes depreciation of €300. 4. Fees: Design consultant fees of €4,000. Question 6 continued on the next page …
