MACQUARIE CITY CAMPUS. TABLE NO FAMILY NAME FIRST NAME: ‘STUDENT ID Final Examination Session 1 2013 ACCG106 Accounting Information for Decii ion Making Examination Time: 3 Hours Reading Time: 10 mins. 3 Hours 10 mins Instructions: 4, Carefuly complete your name and Student ID in the spaces provided on this {question paper. 2. You are allowed to use a non-programmable calculator. 3. Do notwrite during reading time. 4. You must show all workings. Marks may be allocated for workings. 55. Write your answer on this exemination paper. Answer ALL questions, “SECTION | Question | Marks a 15 75, 5 7 TAT r z 70) z B a 7 r 5 73 6 3] Toil | 780 NO PART OF THIS EXAMINATION PAPER IS TO BE TAKEN FROM THE EXAMINATION ROOM. DO NOT START UNTIL INSTRUCTED TO DO So This examination consists of 15 pages, including this cover pageSection A - Multiple Choice Questions 15 marks This part consists of 15 multiple choice questions worth 1 mark each. Please cirle the letter next to the most appropriate enswer for each question. There is only one ‘answer for each question. 4. Which ofthe following financial report descristions ls incorrect? 2) The balance sheet shows the financial postion at a point in ime b) The income statement shows the financial performance over a period of time ©} The cash flow statement shows the cash receipts and cash payments at a point in time 4) The statement of changes in equlty shows the change in capital over a period of time ©} Allof the above statements are correct 2. A financial ratio that would provide an indication of the firm's ability to meet its shor term obligations would be: @) Debt ratio b) Asset turnover ratio ©) Daye inventory 4) Current ratio ) Return on equity 3. Which of the folowing would NOT be shown under operating activites in the cash flow statement? a) cash received from customers ) cash paid to purchase land ©) cash paid for interest and taxes @) cash paid to employees €) cash paid to suppliersSole traders, compared with companies, can be characterised as being 4) Easier to form, less risky to be an onner of, and easier to raise large ‘amounts of capita b) Easier to form, more risky to be an owner of, and easier to raise large ‘amounts of capital ©) Harder to form, less risky to be an omner of, and harder to raise large ‘amounts of capital 4) Easier to form, more risky to be an owner of, and harder to raise large amounts of capital €) Harder to form, more risky to be an owner of, and harder to raise large amounts of capital ‘Which of the following transactions resultec in a $25,000 increase In assets, ‘and a $25,000 increase in abilities? 2) collected accounts receivable of $25,000, ) paid accounts payable of $25,000 ©) used $25,000 worth of ofice supplies 4) provided services to @ customer on account for $25,000 @) purchased equipment costing $40,000 paying $15,000 in cash and the balance is owing as a loan payable Which of the folowing items are NOT included in the calculation of gross profit? 2) Not aales revenue ) Cost of goods sold ). General operating expenses 4) Allof the above are inciuded 2). None ofthe above would be used Under accrual accounting, income should be recorded ay the business when: 2) the service or product is provided to the customer b) the cash is actually received from the customer ©) the cash is actually paid by the business 4) the expense is incurred fe) none of the above are corect8, Networking capital includes all ofthe following except: a) Land and bulidings b) Accounts payable ©) Cash 4) Accounts receivable ) Inventory 8. Which statements tue? 8) If the equity ratio is less than 50% then the entity is more reliant on equity funding than debt funding b) The sum of the debt ratio and the equity ratio equals 100% ©) The debt rato indicates how many dollars of debt exist per dollar of equity financing 4) I the equity ratio is 80% the debt to equity ratio is 200% @) None of the statements is true 410, The key variable which is normally the starting point forthe budget process and upon which most other budgets ara based is: 2) working hours of employees b) sales ©) factory capacity 4) production ©) owner's equity 114. With the following data, how many units must be sold to generate an operating profit of $12,000? Fixed costs $28,000 Seling price $580 per unit Contribution margin ratio 20% 2) 700 units ) 500 units ©) 1,000 units 3) 2,500 units ) 3,500 units12. 3. 1“ ‘A change inthe inventory tumover period from 52 days to 46 days indicates: 2. Inventory is being sold faster b: tis taking longer to sel inventory . The inventory turnover ratio is too high 4d. The inventory turnover ratio is too low ©. Inventory is ikely to have been stolen ‘The decision rule forthe accounting rate of return (ARR)is: 2) The lower the better ') Above a required minimum rate of return ©) Below a required minimum rate of return 4) Invest as long as the project has a positive ARR, €) Quicker is better Which of the following is NOT @ common source of shert term finance for & business? a) Accrued wages b) Trade crecit ) Corporate bonds 6) Commercial bills €) Inventory loans Which of the following is NOT a common source of org term finance for a company? 42) Debentures ) Ordinary shares ©) Bank overarant 4) Preference shares e) lnstaiment loans. END OF SECTION A PLEASE TURN OVER TO SECTION BSection B 65 marks Question 1 17 marks Extracts of the financial statements of Bronze Lid. are shown below: ~ Bronze Lid Balance Sheet as al 0 June 2012 $ $s Current assets cw i Cash at bank 15,000 | Accounts payable 30,000 ‘Accounts receivable 13,200 | Accruals & other creditors 3,000 Inventories -40,000_| Bank overdraft 2,000 Total current assots '58,200__| Tolal current ibilties 35,000 assets ‘Non-current labios ‘Computing equipment ‘Morigage loan 55,000 Furniture and fitings Total non-current labios 85,000. Motor vehicles Office equipment ‘Shareholders! equity Total ron-current assets Pais-up capital 100,000 Retained profits 30,000 Total shareholders’ equity 130,000 Total liabilttes and Total assets "Z20,000_| Shareholders’ equity 220,000, Bronze Lid. Income Statement for year ended 30 June 2012 s Sales 705,000 Less: CoGs 65,000 Gross proft (000 Less: Operating expenses 30,000, Profit before interest and tax 0,000 Less: Interest +1000 9,000 Less: Taxation 3,000 [Net profit after interest and taxes 6,000,‘The closest competitor, Copper Lid. has achieved the fallowing resuits Retumon Equity 3% elu on Assets “2% Curent catio 20, ‘Accounts receivable Wumover 30 da, Inventory turnover 100 days, Required: (@) Calculate he above ratios. Compare each with the competitors results and ‘Comment on the profitably, iquidity and asset efficiency of Bronze Lid. (ia marks)(u) i 3 i 4 a g g 3 3 ; 3 : 5 i ‘account problems you have identified in Part A. (2 marke)Question 2 10 marks ‘Legal action has been brought against Moonbeam Lid. by a customer who was burnt by an exploding toaster manufactured by the entity. The managing director of ‘Moonbeam Lid has suggested that this should not be reported as a liabilly because the entity might win the case, and any mention of this in the financial statements could encourage more law sults from other customers, Required 2) Do you agree with the managing director? Why or why not? In your answer, consider three parties who would be affected by this decision. (& marks) 'b) With reference to definion and recognition criteria of a labiity discuss whether or nota iabilly could be recognised on the balence sheet. (6 marks)Question 3 marks Captain Ltd manufactures and sells a single product. Data relating to this product for 2012 are as follows: [Annual volume 36,000 units ‘Selling price per unit a ‘$70 Variable manufacturing costs par unit 38 ‘Annual xed manufacturing costs [$440,000 ‘Vafable marketing and dstibuton costs perunt | ___$19] | Annual fixed non-manufacturing soste | $130,000 '&. Calculate the total fixed costs, (1 mark) 9. Calculate the contribution margin per unit. (t-mark) - Calculate the break-even point for Captain Lid in units (1 mark) Calculate the break-even point for Captain Lid in sales dollars. (1 mark) What is meant by ‘the margin ot safety"? (2marcs) f. State two benefits for management of calculating break-even data. (2 marks) 0Quastion 4 44 marks, + Explain the difference belween strategie planing and budgeting, providing examples. (2 marks) be, Thora ara two main management etylee in the budget process, an authoritarian siyle and a participative style. Explain these two styles of management and give an advantage and disadvantage of each. (6 marks) PLEASE TURN OVER n€. Sweet Pty Lid has provided the folowing estimates relating to the month of April 2013. Cash sales $31,000 Payments to orediors $5,700 Great sales $16,250 [Receipts fromdabios —=—=~*~“‘*r;C*#*#*#«S@ AGO Depreciation on office Furiture $5,500 Credit purchases $12,850 Receipt of lean $10,000 Saleries and wages paid 22,400 Payments for utes (electricity, telephone, gas) $3,100 Payments for admin expenses 34600 ‘Cash Balance att Apri 2013 35,200 Prepare a cash budget for the month ending 20 Apri 2013. (4 marks) 2Question 5 13 marks Ine tral balance of Platnum Lid. appears below. Ine Income Statement forthe year ending 31 December shows a profit of $5,500. ‘You are to prepare forthe year ending 31 December 2012: a. a statement of changes in equity (4 marks) ». a classified balance sheet (7 marks) Platinum Ltd Trial Balance ‘As at 31 December 2012 Debit Cash cern Soma $70,400 Accounts Recsivable 2,200 Office Supplies 1/800 Office Equipment 18,000 Accumulated Depreciation Office Equipment ‘Accounts Payable Uneamed Service Revere .. Share capital Retained earnings _ Dividends paid 2,500 Service Revenue ae ae Office Supplies Expense 600 Depreciation Expense .... ae 2,500 Rent Expense 41900 350.000 ‘Answer to part a: | eI $ 4,000 4.000 5,000 12,000 4,400 10,500Answer to part b: ‘What factor must be taken info account when valuing accounts receivable? (2 marks) 1“Aueston 6 marke ‘company consiang he ‘lowing investment Int cost pat: $100 000 fom oie a: i900| —“ssn000| —$850001—‘sn001 The cost of funds is 10%. The salvage value of he project is zero. Net ca Ye ‘a. Using the information above, calculate the accounting rate of return (ARR) ‘over the life ofthe project. (2 marks) 'b. What is the payback perio for the above investment? (11 mark) . Calctiate the Net Present Value forthe above investment (3 marks) END OF EXAMINATION PAPER