ACCOUNTING

June 2019

Time allowed
Three hours

Instructions
• Write the question number next to each answer in your answer booklet.
• You are not required to rewrite the question in your answer booklet.
• Ensure that you pay particular attention to words in bold.

Information
• Different questions may carry a different number of marks.
• Marks for each question are shown in [ ].

Advice
• Read each question carefully before you start to answer it.
• Use the full time permitted and check all your answers.

Materials
• No other computer equipment, notes or books are permitted.
• For those exams in which numeracy skills are required:
a) Non-programmable calculators are permitted.
b) All data tables are included at the back of the paper.

© INSTITUTE OF COMMERCIAL MANAGEMENT

 ANSWER QUESTION 1 AND ANY THREE OTHER QUESTIONS
Q1 CARRIES 40% OF THE MARKS, ALL OTHER QUESTIONS CARRY 20% OF THE MARKS.

1. You work as an accountant for NASS Limited and have extracted the trial balance as
at 31 March 2019:

£dr £cr
Sales (revenue) 1840000
Purchases 1280000
Stock (inventory) (01.04.2018) 44000
Payroll 245000
Advertising 74000
Insurance 37000
Business rates 49000
Energy 58000
Loan interest paid 6000
Accounts payable 35000
Accounts receivable 80000
5% debentures 100000
Buildings at cost 400000
Equipment at cost 200000
Depreciation of equipment (01.04.2018) 40000
Ordinary share capital £1 100000
Profit and loss a/c bal. (01.04.2018) 271000
Long-term loan payable 90000
Cash 1000
Bank 2000 -
2476000 2476000

Notes as at 31 March 2019:

• Wages owing amounted to £6000
• Advertising expenses prepaid amounted to £4000
• Business rates expenses prepaid amounted to £3000
• Debenture interest of £5000 is due for payment on 01.04.2019
• Inventory was valued at £42000
• Equipment is to be depreciated at 25% on cost
• A bad debt of £2000 is to be written off
• No dividend is to be paid
• The directors wish to provide £8000 for taxation
• Revenue of £14000 due but not yet invoiced (accrued income)

Question 1 continues overleaf

 (a) Prepare the income statement (profit and loss account) for the year ended
31 March 2019. [12 marks]
(b) Prepare the position statement (balance sheet) as at 31 March 2019. [12 marks]
(c) Calculate the following:
(i) Gross profit as a percentage of sales [2 marks]
(ii) Net profit before tax as a percentage of sales [2 marks]
(iii) The current ratio [2 marks]
(iv) The acid test ratio [2 marks]
(d) Analyse the financial performance of NASS Limited over the financial year. [8 marks]
Note: the equivalent ratios for the previous year were:
Gross profit 24%
Net profit before tax as a percentage of sales 8%
Current ratio 2.9:1
Acid test ratio 2.1:1

2. The following fixed asset transactions took place during the period 1 Jan 2016 to
31 Dec 2018
01 01 2016 Machine A was purchased for £210000
01 08 2016 Machine B was purchased for £170000
06 03 2017 Machine C was purchased for £120000
29 11 2018 Machine A sold for £65000
Notes:
Machinery is depreciated at 25% per year using the straight line method
In the year of purchase a full year of depreciation is charged to the income statement
In the year of disposal no depreciation is to be provided
(a) Write up the machinery at cost account for the period ended 31 Dec 2018. [4 marks]
(b) Write up the provision for depreciation account for the period ended
31 Dec 2018. [7 marks]
(c) Write up the machine disposal account for the period ended 31 Dec 2018. [4 marks]
(d) Outline the need for a business to maintain a fixed asset register. [5 marks]

continued overleaf
3. Jarrod started a business in July and has provided you with the following forecast
information:

Sales Forecast
Jul Aug Sep Oct Nov Dec
Sales on credit 8500 20000 26000 31000 38000 40000
Cash sales 1800 2100 3000 3500 4000 4000
Total sales 10300 22100 29000 34500 42000 44000

• Jarrod will invest £30000 of his own money on 1 July

• A bank loan of £30000 receivable on 1 July has been agreed in principle. The
loan term is five years on an interest only basis, interest of 10% pa payable
quarterly in arrears
• All sales on credit are payable to Jarrod the month following sale
• Payroll costs are payable in the month and will be £2500 for the first two months
then increase to £5000pm when an additional employee will be taken on
• Advertising to cost £6000pm for the first three months then reduced to
£2000pm. Jarrod has negotiated one month credit terms
• General overheads are expected to be £2000pm payable in the month
• Jarrod has found premises to rent and has a three-year lease. A security deposit
of £22500 is to be paid on 1 July which is repayable at the end of the lease term.
Rent is paid quarterly in arrears at £22500 per quarter
• Jarrod has ordered a vehicle costing £30000 that is due for delivery 1 November,
he is to pay a 10% deposit in July and the balance on delivery
• Computer equipment is due to be installed on 1 July at a total cost of £20000.
£10000 is due on installation with the balance being paid in equal instalments
over the following four months
• Jarrod will take £1500pm as drawings
(a) Prepare the cash budget (cashflow forecast) for the six months July to December. [14 marks]
(b) Explain the difference between a cash budget and an operating (profit and
loss) budget. [6 marks]

continued overleaf
4. Pukka Transport is a small business and you work for their accountants and have
been provided the following information:
Vida, the office manager, receives a fixed salary of £800 per week.
Veronica, the driver, is paid hourly. She receives £12.00 per hour for a standard
week of 40 hours, additional hours are paid at a premium rate of £15.00 per hour.
This week Veronica worked 48 hours.
Jose, the sales representative, receives a basic salary of £400 per week. In addition
to this, earns a bonus of 5% on total sales. This week total sales were £16000.
All employees pay a basic tax rate on gross pay of 20%.
All employees pay a pension contribution of 5% of gross salary.
The employer (Pukka Transport) makes a pension contribution of 8% of gross salary.
(a) Calculate the following in respect of wages for the week:
(i) Gross pay for each employee [3 marks]
(ii) Tax deduction for each employee [3 marks]
(iii) Pension contribution for each employee [3 marks]
(iv) Net pay for each employee [3 marks]
(v) Total payroll and pension cost for the business [2 marks]
(b) The owner of Pukka Transport would like to expand the business but does not
have the funds in the bank to purchase the additional premises required.
Provide two options available to Pukka Transport for the additional premises,
with a brief description of each. [6 marks]

5. Describe what is meant by four of the following terms, giving examples if

appropriate:
(a) Current assets
(b) Current liabilities
(c) Working capital (net current asset)
(d) Preference shares
(e) Depreciation [20 marks]

END OF QUESTIONS