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Level 3

Model Answers

Series 4 2005 (Code 3003)

International House Siskin Parkway East Middlemarch Business Park Coventry CV3 4PE Telephone: +44 (0) 8707 202909 Facsimile: + 44 (0) 24 7651 6566 Email: customerservice@ediplc.Vision Statement Our vision is to contribute to the achievements of learners around the world by providing integrated assessment and learning services. Reproduction either in whole or in part is forbidden without written permission from Education Development International plc. This publication in its entirety is the copyright of Education Development International plc.com . adapted to meet both local market and wider occupational needs and delivered to international standards. © Education Development International plc 2005 Company Registration No: 3914767 All rights reserved.

teachers and candidates as they prepare for LCCI International Qualifications.Advanced Business Calculations Level 3 Series 4 2005 How to use this booklet Model Answers have been developed by Education Development International plc (EDI) to offer additional information and guidance to Centres. electronic. additional guidance relating to individual questions or to examination technique (3) Helpful Hints Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. recording or otherwise without prior written permission of the Publisher. without the prior consent of the Publisher. resold. The contents of this booklet are divided into 3 elements: (1) (2) Questions Model Answers – reproduced from the printed examination paper – summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper. photocopying. 1 . EDI provides Model Answers to help candidates gain a general understanding of the standard required. stored in a retrieval system or transmitted in any form or by any means. The general standard of model answers is one that would achieve a Distinction grade. The book may not be lent. plus a fully worked example or sample answer (where applicable) – where appropriate. other than that in which it is published. no part of this publication may be reproduced. hired out or otherwise disposed of by way of trade in any form of binding or cover. © Education Development International plc 2005 All rights reserved. mechanical. EDI accepts that candidates may offer other answers that could be equally valid.

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56 731. Simple interest is charged by the bank at 9.500.84 20.00 1. before interest and charges.03 in credit.Advanced Business Calculations Level 3 Series 4 2005 QUESTION 1 Karim Shah has a bank account on which simple interest is earned at 3¼ % per annum on credit balances.03 Cr The balance at the end of May. is £568.44 Dr 568. The account for May is shown below: Date 30 Apr 2 May 15 May 26 May Details Balance c/f Cheque Cheque Deposit Debit £ 3.56 Cr 731.700.813.652.536.231.5% per annum on debit balances.12 10.231.56 Cr 968.56 ------------------Credit or Debit Credit Debit Credit ------------------Number of Days 2 13 5 Total Debit = Total Credit = Product 8.47 Credit £ Balance £ 4. Interest is calculated daily on all balances and earned/charged at the end of the month.55 (7 marks) (b) Giving your answer to the nearest penny.00 1. calculate the net interest payable by Karim Shah on 31 May. (4 marks) (Total 11 marks) 3002/4/05/MA 3 . Karim Shah uses the 'products method' to check the interest he receives from the bank.463. (a) Copy and complete the following table: Products method: Balance £ 4.

652.12 9.28 10.2) (a) Balance £ 4.84 20.44 568.77 .5% ÷ 365 = £2.03 ----------------------------------(b) Interest payable to Karim Shah Interest payable by Karim Shah Net interest payable by Karim Shah = 20.55 x 3¼% ÷ 365 = £1.£1.510.85 = 10.55 3002/4/05/MA 4 .77 = £2.85 = £0.652.56 731.813.84 2.92 Credit or Debit Credit Credit A1 Debit Credit ------------------------------Number of Days 2 13 11 5 Total Debit = Total Credit = Product 8.56 968.231.813.15 10.463.840.MODEL ANSWER TO QUESTION 1 Syllabus Topic 1: Simple and compound interest (1.84 x 9.652.

Dividends declared on the Ordinary Shares were: Year 1 Year 2 (d) Calculate: (i) (ii) the total dividends received by the investor on the Ordinary Shares the total dividends received by the investor on the Preference Shares (6 marks) (Total 14 marks) 16p per share 21p per share (iii) the total income from dividends and sales of the shares.500 + 600 x 362p = £3. net of commission MODEL ANSWER TO QUESTION 2 Syllabus Topic 2: Stock exchanges (2. (a) Calculate the total cost of the shares. before commission. (3 marks) After two years the Preference Shares were sold for a total of £3.50) at 270 pence each.QUESTION 2 An investor bought 1.85% = £15.500 and the Ordinary Shares sold for 362p per share.720 (b) Broker’s commission = (1.672 + £222 + £255 .500 x 1 + 600 x 0. (2 marks) The commission on the sales totalled £25. and 600 Ordinary Shares (nominal value £0.500 8½% Preference Shares (nominal value £1) at 140 pence each. (3 marks) Broker's commission is 0.85% of the nominal value of the shares.500 = £255 (iii) Total net income = £5.2) (a) Cost of the shares = (1.100 + £1.£25 = £6. (b) Calculate the commission paid on the shares.672 (d) (i) (ii) Dividends on Ordinary Shares = 600 x (16 + 21)p = £222 Dividends on Preference Shares = 2 x 8.500 + £2.172 = £5.124 3002/4/05/MA 5 . (c) Calculate the total proceeds from the sale.620 = £3.5% x 1.30 (c) Proceeds from sale = £3.5) x 0.500 x 140p) + (600 x 270p) = £2.

35 + £15.460.500.10 = £12.10 per unit of product. Using Method Y. fixed costs are £8.500.10 = £15.500.£22.000 Total costs per period = £6.3) (c) Contribution per unit = £38.00 + £7.35 15.000 Q = 350.50Q 5.65 + £3.6Q = 1.00 7. Using Method X.35 .QUESTION 3 An industrial product may be manufactured by two methods of production.000 ÷ £16.35 per unit of product.25 Break even (number of units) = £6.500. (a) Calculate the level of output for which the total costs are the same.60 = £34.500.10Q = £8.25 = 400.50 Number of units produced in the trading period = £6.50Q Total costs are equal when Cost X = Cost Y 6.65 3.000 + £22.460. (4 marks) Produced by Method X the product has unit costs of production during a trading period as follows (the figures include variable costs and apportioned fixed costs): Components Labour Production overheads Distribution expenses £ 8.000 x £22.340.60 Total fixed cost per unit in the trading period = £34.50 per unit of product.60 .5000. Calculate the output for break-even and the total costs of production for this output.000 + £16.000 3002/4/05/MA 6 .000 Output for which the total costs are the same is 350.000 per trading period and variable costs are £22.000 + 400.2) (a) For an output of Q units Cost for Method X Cost for Method Y = £6.60 (4 marks) (b) Calculate the number of units produced in that trading period.000 per trading period and variable costs are £16.000 + 16.000 ÷ £12.000 units (b) Total cost per unit = £8. fixed costs are £6.960. (5 marks) (Total 13 marks) QUESTION 3 Syllabus Topic 3: Business ownership (3.1Q = 8.10 = £16.50 = 520.000 + 22. (c) A company produces the product by Method X and sells it for £38.000 Syllabus Topic 3: Business ownership (3.460.£22.

250 .700 12.100 = £91.400 = 6 times 3002/4/05/MA 7 .400/£155.100 15.000 .250 95.000 x 100% = 28% (b) Gross profit is calculated before taking account of expenses.000) = £15. (b) Give a brief explanation of the difference between gross and net profit.600 Net profit = Gross profit – Overhead expenses = £62. (3 marks) (Total 14 marks) £ 167.£4.£92.700 .400/£15.400 (iii) the overhead expenses as a percentage of the net sales.200 (iii) Overhead expenses as a percentage of net sales = £43.QUESTION 4 The following information relates to an internet trader's business at the end of the first year of trading. Annual sales Annual purchases Sales returns Purchases returns Initial stock value Final stock value Overhead expenses (a) Calculate: (i) (ii) the cost of goods sold the net profit (3 marks) (4 marks) (2 marks) (2 marks) (c) Calculate the rate of stockturn.3) (c) Average stock at cost = ½ (£15.800 . net profit is after deduction of overhead expenses Syllabus Topic 4: Profitability and liquidity (4.600 .£43.000 43.600 + £15.400 = £19.800 15.250 = £155.250 4.000 Gross profit = Net sales – COGS = £155.000 = £92.£12.£15.2) (a) (i) Net purchases = Purchases – Purchase returns = £95.800 + £15.600 COGS (Cost of Goods Sold) = Net purchases + Stock at start – Stock at end = £91.400 = £62.400 (ii) Net sales = Sales – Sales returns = £167.400 Rate of stockturn = COGS/Average stock = £92. MODEL ANSWER TO QUESTION 4 Syllabus Topic 4: Profitability and liquidity (4.

Discounting factor Year 1 Year 2 Year 3 Year 4 12% 0.636 (4 marks) (b) Assuming the owner requires the project to earn at least 12%. (6 marks) (Total 12 marks) 3003/4/05MA 8 . advise the owner whether or not to proceed with the project.000 The project chosen must earn a return of at least 12%.000 250.000 50.000. Including the initial cost.000 400. (c) Calculate the new net present value and advise the owner.797 0. The capital cost of the project is £625.000 of the capital cost of £625.893 0. the estimated costs and returns are as follows: Year 0 cash outflow Year 1 cash inflow Year 2 cash inflow Year 3 cash inflow Year 4 cash inflow £ 625.712 0.QUESTION 5 A business owner is considering an investment project.000 can be paid after one year. (2 marks) The owner discovers that £50. (a) Using a discount factor of 12% and the following table.000 150. calculate the net present value for the project.

650 199.000 Discounting factor 1 0.000 250.4) (a) Year 0 Year 1 Year 2 Year 3 Year 4 Net Inflow (£) (625.636 Net present value = NPV (£) (575.800 95.MODEL ANSWER TO QUESTION 5 Syllabus Topic 5: Investment appraisal (5.000) NIL 250.800 95.000) 50.400 (900) Syllabus Topic 5: Investment appraisal (5.000 Discounting factor 1 0.000 400.712 0.000 400.797 0.000) 0 199.636 Net present value = NPV (£) (625.400 4.712 0. 3003/4/05MA 9 . (c) Year 0 Year 1 Year 2 Year 3 Year 4 Net Inflow (£) (575. the owner is advised not to proceed with the investment project.000 150.000) 44.450 The project now is predicted to show a positive net present value and the owner is advised to proceed with the project.250 284.000 150.250 284.893 0.893 0.797 0. If a return of 12% is required.4) (b) At the required discount factor of 12% the net present value is negative.

115 Assets available for unsecured creditors = £20. (i) (ii) Bankruptcy A: The bankrupt trader pays £0. calculate the amount received by an unsecured creditor who is owed £4.700 ÷ £11.500 = £2.43 in the £ Unsecured creditor receives 0.QUESTION 6 (a) In each of the following three bankruptcies. (6.250 3003/4/05MA 10 .75 in the £ Unsecured creditor receives 0. (2 marks) (Total 11 marks) (iii) Bankruptcy C: An unsecured creditor who is owed £3. MODEL ANSWER TO QUESTION 6 Syllabus Topic 6: Bankruptcy (6.50.000 to secured creditors and £11.000 = £8.700 .4 (3)) (a) (i) (ii) Unsecured creditor receives 0. (6.£12.548 ÷ £3.548. (4 marks) (3 marks) (b) Calculate the amount owed by Bankrupt A to an unsecured creditor who is paid £1.500 = £1.43 x £4.600 to unsecured creditors.935 (b) Amount owed = £1.500 = £3.47 in the pound to unsecured creditors.600) x £1 = £0.75 x £4.700.47 = £3.3 (1)). (2 marks) Bankruptcy B: The bankrupt trader has assets of £20.600 receives £1.50 ÷ 0.375 (iii) Rate paid to unsecured creditors = (£1.2(7)).600) x £1 = £0.527. owes £12.500.527.47 x £4.700 Rate paid to unsecured creditors = (£8.

with a rate of depreciation of 20% per annum. (d) What whole number percentage should the factory owner use to get a scrap value close to £12.QUESTION 7 A factory machine that costs £250.000 is estimated to have a life of 4 years and a scrap value of £12. (b) What will the value of the machine be after 4 years? (2 marks) (c) After how many years will the machine's value be less than £12. (a) Using the equal instalment method. (2 marks) (2 marks) The factory owner decided to use the diminishing balance method. calculate: (i) (ii) the percentage of the cost which must be written off in total the percentage of the cost to be written off each year.000.000? (3 marks) The owner decides that 20% is too low for this method.000 after 4 years? (4 marks) (Total 13 marks) 3003/4/05MA 11 .

000 = 0.2% ÷ 4 = 23.000 = £250.468 = 0.00 … … Value after 13 years = £13.000 Value after 2 years = £200.2) (a) (i) Percentage of cost to be written off over 4 years £250.000 Hence.MODEL ANSWER TO QUESTION 7 Syllabus Topic 7: Depreciation of Business Assets (7.84 = £250.000 (ii) £238.000 x 0.000 . it takes 14 years before the value of the machine is less than £12.8 = £200.000 = £250. (d) Annual rate of depreciation (diminishing balance) = d = 1 − Amount ÷ Principle = £12.000.995 less than £12.532 = 53% 3003/4/05MA 12 .8 = £160.000 x 0.4096 = £102.000 Value after 1 year = £250.8% Syllabus Topic 7: Depreciation of Business Assets (7.400 (c) Initial value = £250.744 Value after 14 years = £10.000 x 100% = 95.2% Percentage to be written off each year = 95.048 = 0.3) (b) Value after 4 years = £250. at a depreciation of 20% per annum.000 x 0.£12.048 £250 4 T A/P 0.000 x 0.468 d = 1 − 0.

9 2004 (2002 = 100) 104.9/100 = 110.77 = 110.1 112.6 (2 marks) (d) Give a brief interpretation of your answer.7 2002 115.5 2003 130.8 (d) From 2000 to 2004 average earnings increased by approximately 10. MODEL ANSWER TO QUESTION 8 Syllabus Topic 8: Index numbers (8.7 = 120.8% 3003/4/05MA 13 .8 = 112. Give each answer correct to one decimal place.3 2000 100 Chain base index 2001 107.2 110.7 107.6 x 105.2 (a) Calculate these indices as a chain base index.5) (a) Example calculation: chain base index for 2003 = 100 x 130.7 2002 115. (2 marks) An index of average earnings is shown below. with 2000 as the base year.1/115.8% (c) Index for 2004 with 2000 as the base year = 104. 2002 (2000 = 100) 105. (2 marks) (Total 12 marks) (c) Calculate the index of average earnings for 2004 with 2000 as the base year.3 2004 144.1 2004 144.QUESTION 8 An index of industrial productivity has the following values over the period 2001 to 2004.8 (b) Index for 2003 with 2001 as the base year = 100 x 130. 2000 100 2001 107. (6 marks) (b) Calculate the percentage increase in industrial productivity between 2001 and 2003.8 2003 130.8 Percentage increase in industrial productivity between 2001 and 2003 = 20.8 107.1 ÷ 107.

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