@USP THE UNIVERSITY OF THE AF101: INTRODUCTION TO ACCOUNTING AND FINANCIAL MANAGEMENT PART 1 SCHOOL OF ACCOUNTING AND FINANCE Final Examination Semester 1 2016 FACE TO FACE & PRINT Mode Duration of Exam: 3 hours + 10 minutes Reading Tme: 10 minutes Weng Time: 3 hours Instructions: This paper hot 2sections. All ques ‘Answer ol your questions in the tions ce computor wor bootlet provided. This exam covers 50% of overcil mark Total no. of pages: 12 This exam i closed book. Materials slowed: Only a colcviatexSECTION A MULTIPLE CHOICE QUESTIONS 10 Marks 1. Which of these are contingent libilites? L.A oan rom financial insaton 1 Amunresoved lawsuit brought aginst a newspaper fr defamation TUL Amagreemeat to act as guarantor for borrowings a tka % Lim 6 Li aout 2. The classification of liabilities on the bass of timing of setement, i. cument and on cament, is useful as it helps decision-makers assess the inns ability 10 meet all of the following excep: vides, b profil © commiments which are par of the operating cycle 4 capital payments 3. Which ofthese are sources of financial information about companies? | Published financial statements (annual reports) 1, The Intemet UL. The Stock Exchange 1V. Financial newspapers and journals 'V. Financial advisory services IV, V U,V, V LV HIV, V 1, i 1 144. Lodoni Company Lid desided to issue 200000 onnary shares for $210 each, payable in instalments 4c on application, Son allosment andthe balance payable at the discretion ofthe company. Applications were recsved for 20.000 shares. The shes were alloted by the directors ata meeting held a week afer the close of applications and refunds were made {or 20 000 shares. The joural etry to record the all eet ofthe allotment insalment is ‘which ofthe following? Debit bank asount $200 000; eet allotment $200 000, Debit hank account $220 00; credit allotment $220 000 Debit alloment $220 000; credit share pital $220.0 Debit share capital $200 000; credit hank account S200 000 5. On January 2014 Hobbies Lu decided issue 40 000 shares to the publi, payable as Fallows: 50 cents nil on appliction 20-cents payable within one month of allotment 530 cents payable in calls due 30 September 2015. “Assuming the issue was fully subscribed and all rpouns due were received by 30 June 2014, The balance ofthe Share Capital acount on tha date was $2000. sin 00. © 28000. 4 si2000. 6. Atyear-end, the Boar of Directors of Mega Motors Ld declared ial dividend of 4 per shure on 80 000 ordinary shares. Early inthe next year, the dividend was paid. Which of the following isthe general oumal entry to record the payment ofthe dividend?” Debit tained earings $3200; credit Final dividend payable $3200 Debit retained earings $3200, credit bank $3200 Debit inal dividend payable $3200; credit bank $3200 Debit bank $3200; credit final dividend payable $3200 7. On what bass would the oss of several items of propery, plant and equipment, acquired fora lump-sum payment, normally be allocated? 4. Netrealsable value at soquiston date 1b, Replacement cost st aoguisition date & Independent valuation at cquison date 8 Fairvalu t acquisition date8. Which statement concerning the iminishing-balance method of depreciation is true? 4 Itcharges the same smount of depreciation each perio. b. Ieapplesa dectinng percentage factor to the asset's orignal cost © Itisalso known asthe unto production method, 4 Ihisan appropriate method when proprionaely moe of the asset's benefits are consumed inthe early years ofits its 49, When an asset is sold the gain or loss on disposi is the diffrence between the: proceeds of sale and she original cost of the asset. proceeds of sale and the carrying amount ofthe asset Proceods of sale and the fit vale ofthe asst ‘original cost and the accumulated depreciation of the asset 10 In elation othe direct write-off method of acounting for bad debt, itis not te that bad debts recharged as an expense athe time an account is determined tobe uncollectable. b. the enty o write off bad debts is debit bad debts expense, debit GST collected, credit accounts receivable there isn conta asset account fr estimated dou debs. 4d. debts expenses recorded in the sume period in which is related sles revenue is included as income. ~ continue to Section 8~SECTION B PROBLEM SOLVING QUESTIONS 90 Marks Question 11 RECEIVABLES 20 MARKS Prince King commenced business on | July 2015. On 30 June 2016, he found it necessary to create an allowance for doubifl debs of $3 030, In addition, he fund that he had writen off debts amounting 1o 1 875. During the year to 30 June 2017, debts toullng $2400 proved 1 be bad and wore writen of, and $330 was recovered in respect of bad debs previously writen off ‘The total of accounts receivables balances at 30 June 2017 was $84 300 afer the bad debs had been writen off) and it was decided to increase the allowance for doubifl debts to 6% ofthis Sigur. Ignore GST. REQUIRED (show a workings} No nations ruired 4) Prepare the general jours] entes to create the allowance for doubful debs nd to write off the had debts on 30 June, 2016 [6 marks} 1b) Prepare the general journal entries to write-off further bad debts and the bad debts that ‘were later recovered during the yea to 30 June, 2017 [6 marks} ©) Prepare the general journal entry to bring the allowance for dovbtful debts to the appropriate amount t 30 Jun, 2017, [4 marks] 8) Show how accounts receivable and the allowance for doubtful debts would appear on the balance sheet t 30 une, 2017 [4 marks}QUESTION 12 NON-CURRENT ASSETS 28 MARKS, Part [Nomern Motors Limited purchased track fr cash for $2,000 plas 10% GST on Januar 1, 2008, At the time of purchase it was estimated thatthe useful life of the vehicle would be 100,000, [loners adit was expected tat it would tavel that distance over five yeas. At the end of four ‘yeas it was calculated tht te track could he sold fr $12,000. ‘The actual distance covered by the tucks a follows: Year ending 30 June: 2008 10,000 kilometers 2009 25,000 klometers 2010 30,00 kilometers 2o1t 22,000 kilometers 2012 8000 kilometers, REQUIRED [show ol workings] 1 Calculate depreciation forthe years ending 30" June 2008 to 30 June 2012 using the “Unite of Prodstion” method (7 mks) 4i Prepare the appropriate gener jun entis forthe dates 1 January and 310 June 208, (Narrtions are na required) [S marks} Par A130 June 2015, the financial statements of MeMastr Ld showed a building with a cost (net of GST) of $300 000 and aeeumulated depeviation of $152 000, The business uses the straight-line method to depreciate the building, When acquired, the building's useful life was estimated at 30 years ad is residual value at $60 000, (On | January 2016, MeMaster Ltd made structural improvements to the building costing $94 000 (oet of GST). Although the capacity of the building was unchangod, i is estimated that the improvements will extend the useful life of the building to 40 years, rather than the 30 years ‘riginally estimated. No change is expected inthe residual value.REQUIRED [show al workings} Prepare the appropriate general oumal entries on 1 January 2016 as indicated below. [Round off to the nearest dollar} i) Any unrecorded deprecation prior to the st sural improvements {3 marks] Ai) Write back accumulated depreciation on the existing building. [3 marks] ii) Reco the cost ofthe structural improvements (7 marks]QUESTION 13. ANALYSIS OF FINANCIAL STATEMENTS 20 MARKS ‘The fellowing information has Ben extracted fom the financial statements and nots thereto of Best and Low Le 30 ami = $580 0 $7500 25000 265007 00. 55000 [Profit (air) 52500 $6100 Preference dividends 2x0 2800 “Tosa arte a0 00 355 000 “Ti ab 300 00 330000 Preference sare api 162.00 62000 ‘Ondnay share ea Tio woo cor ‘Resuned ea ‘65000 5000 REQUIRED [show oll workings] 8) Caleulate the following ratios for 2017 (use average figures where appropriate) ‘ret on assets ) stun on ordinary equity 1b) Calculate the following ratios for 2016 and 2017: 1 profit margin ii) debt ratio i times inerest eared marks] ( marks] [B marks} (3 marks] marks} ©) I one paragraph, comment on the company's profitability and financial stability position. Include the results of the ratio analysis (rom (a) and (b) in your discussion [sma]QUESTION 14 CASH FLOW STATEMENT 22 MARKS KYGO LIMITED. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER, 2017 s Sales Cost of Goods Sold Gross Profit ‘Other income: Gain on sle of land Less: Operating Expenses Salaries expenses Other operating expenses (inc. insurance) 10000 Baa debt expense 2.000 Interest expense 2 500 Depreciation 11000 Loss onsale of Property, Plant & Equipment 4.000 56.500 Net operating profit before tax 21 500 Income ax expense 000 Net operating profit after tax 18500KYGO LIMITED (COMPARATIVE BALANCE SHEETS AS AT 31 DECEMBER 2016 & 2017 2017 2016 s s CURRENT ASSETS (Cash at bank 42000 15000 ‘Accounts Receivable 37500 40,000 Allowance for doubtful debs (4500) 000) Inventory 43000 25.000 Prepaid Insurance 6 000 3.000 Property, Plant & Equipment 236.000 215000 Less: Accumulated depreciation (32.000) (60.000) ‘TOTAL ASSETS 278.00 218000 LIABILITIES. ‘Accounts Payable 31.000 23.000 Salaries Payable 9.000 2.000 Interest Payable 1800 2.000 Income Taxes Payable 5500 1500 Dividends Payable 8000 ° Loans Payable 1s000 25.000 ‘TOTAL LIABILITIES. 70.000 53 500 NET ASSETS 208 000 161500 SHAREHOLDER’S EQUITY Iesuod Capital 145.000 100 000 Retained Earnings 63.000 61500 TOTAL SHARFHOLDER'S EQUITY 208 00 161 500 ADDITIONAL INFORMATION {Wrote off 50 accounts receivable as uncollectiblc Sold operational assets for $4,000 cash that had cost $17,000 and had a book value of $8,000, Declared a cash dividend of $13,000. iv. Soi land for $30,000 that had been acquired fr $10,000, Paid $10,000 towards long-term loan vi. Purchase plan, propety & equipment for $48,000 cash ‘il, Issued shares for $45,000 cash a0REQUIRED [show oll workings] Calculate the following 4. Cash receipts fom customers Ji, Cash paid for inventory ii, Cash pid to employees iv. Cash pad for ather operating expenses ¥. Cash paid for interest vis Cash paid for taxes. Vii, Cash pad for dividends mars) marks) Gimaris) G mats) G marks) @ marks) G marks)‘Selected Ratio Formulae: Profit Average Toll ass 2) Return on total asset soft Preference dividends ‘Average ondary equity 2) Return on ordinary eau 3) Profit Ma Profit Revenue 4) Debt ratio = Total iailies “Total assets 5) Times interest earned = Profit income tx + Finance cost Finance costs “THE END