MBB7008M – ACCOUNTING AND FINANCE FOR DECISION MAKING

ASSESSMENT I (RESIT)
PART A – MULTIPLE CHOICE QUESTIONS (2 MARKS EACH)
1. What is the best definition that properly describes the accruals convention for profit?

a) Profit is the excess of cash receipts over cash payments.

b) Profit is mainly the gains in excess of the losses for a particular period.
c) Profit is the amount of revenues that is above and beyond expenses over a
particular period.
d) All of the above.
e) None of the above.

2. Profit for the period (assuming that none of it is distributed as dividends) usually ends
up in which account?

a) Capital portion of equity account.

b) Current asset account.
c) Non-current asset account.
d) Reserved portion of the equity account.
e) Current liability account.

3. For the following 2 problems, use the following scenario to answer the questions:
YSJ Ltd is a printing company that is founded on 3 January 2021 with an initial
investment of £40,000 cash. The promoters also purchase printing equipment worth
£50,000 by borrowing funds from a bank. The company also buys a printing warehouse
on credit for £100,000. On 10 February 2021, the company buys £8,000 worth of
inventory on credit and pays back £10,000 out of the £50,000 loan via check. On the
very last day in March, another investor joins the company contributing £10,000 cash.
On this day, the company sells half of its inventory in exchange for a £6,000 check.
As of 3 January 2021, what is the value of YSJ’s current assets?
a) £40,000.
b) £190,000.
c) £100,000.
d) £150,000.
e) None of the above.

4. What is the total amount in the equity account as of 31 March 2021?

a) £50,000.
b) £188,000.
c) £190,000.
d) £48,000.

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 e) £52,000.

5. Which one of the following is NOT included in the calculation of operating profit?

a) Depreciation.
b) Interest payable.
c) Rent.
d) Insurance.
e) Salaries and wages.

[TOTAL MARKS: 10 MARKS]

PART B – SHORT ANSWER QUESTIONS (5 MARKS EACH) – SHOW YOUR WORK

6. Calculate EBIT and EBITDA for the following business.

In addition, the following information is obtained from the company’s footnotes:

• Depreciation and amortization in the CFS is 66,773
• Research and development is 2,300
• There is a legal claim provision of 31,900 with regard to a failed product in SG&A
• The marginal tax rate is 36%

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 7. Calculate the ETR and the normalized ETR for Easy Ltd.

In the footnotes, there is embedded COGS of a non-recurring charge of 42,988. You

also know that the marginal tax rate is 32%.
8. Calculate the cleaned net income for Notsoeasy Ltd using the information given
below.

In addition, the following information is obtained from the company’s footnotes:

• The MTR is 37%
• There is a non-recurring gain of 1,300 in SG&A
[TOTAL MARKS: 15 MARKS]

PART C – MEDIUM TO LONG PROBLEMS (25 MARKS EACH)

9. The company Mobile-a-go-go plc started on 1 January 2021 with an initial invested
capital of £50,000. The following transactions occur in the month of January as follows:

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 • 3 January – bought inventories costing £8,000 on credit
• 5 January – sold inventories costing £3,000 for £6,000 on credit
• 12 January – received £3,000 cash from trade receivable
• 15 January – purchased an office desk for £500 cash
• 27 January – paid wages by checks for the month of January totaling £10,000

i. As of 1 January 2021, what is the amount in the equity account? Is it an increase

or a decrease? (5 marks)

ii. What would be the ending balance for Mobile-a-go-go’s inventory account as
of 5 January? Is it an increase or a decrease? (5 marks)

iii. The ending balance for Mobile-a-go-go’s trade receivable account as of 12

January should be? Is it an increase or a decrease? (5 marks)

iv. The ending balance for Mobile-a-go-go’s office furniture account as of 15

January should be? Is it an increase or a decrease? (5 marks)

v. What would be the ending balance for Mobile-a-go-go’s cash account as of 27

January? Is it an increase or a decrease? (5 marks)

10. Given the following balance sheet and income statement for brb plc:

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 i. What would the CFO, CFI and CFF look like for brb plc? (15 marks)

ii. What is the OWC of the company in years XY and XZ? (5 marks)

iii. Demonstrate at least one of the ‘BASE’ computations that you need to do to
construct the company’s cash flow. (5 marks)

11. Paul Grimes has recenty been made redundant from his job as a computer engineer with
a multinational company. He received redundancy pay of £30,000, and he has decided
to use this, together with his savings of £10,000, to set up business as a sole trader,
offering computer sales and services to the local community where he lives. He has
been in business for three months now, and things seem to be going well, but he is very
confused by the concepts of capital, assets, liabilities, revenue and expenses and how
these affect the way in which the various day to day activities of his business are
recorded.
He comes to you, his friend, for help, knowing that you are studying an accounting and
finance module at York St John. He gives you the following list of transactions and

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asks you to explain to him how each of the items listed will be classified, and why, and
where each will appear in the financial statements. He understands the basic ideas
underlying an income statement and a balance sheet but does not understand how
transactions end up in one statement or the other.
Below are 7 transactions listed:
• Putting £40,000 in a business bank account on 1 September 2020.
• Renting a small shop/workshop in the high street of the village in which he lives
for £12,000 per annum, initially for a three-year period, with a penalty of £2,000
if he ends the lease before the three-year period is over. The $12,000 was paid
by check on 1 October 2020, a month after Paul set up business. He managed
without business premises initially, but his wife became annoyed at constantly
finding computer bits all over the lounge carpet, so he decided to rent
somewhere near to home. The rent includes a charge for heating, lightning,
business rates and property maintenance and Paul thinks the lease agreement is
a good deal.
• Purchasing a computer on 2 September 2020 for use in his business for £1,500
on credit. Paul estimates that the computer will have a useful life of three years,
after which it will be scrapped, as Paul thinks he will be unable to sell it. Paul
thus plans to charge £500 per annum (pro-rated as necessary) as an expense for
depreciation in his income statement.
• Purchasing five computers on 10 September 2020 on credit for inventory, each
costing £1,000 which he can customize to specific clients’ requirements.
• Purchasing computer components for £3,000 cash on 11 September 2020.
• Selling three of the five computers above, for £2,000 each, to three different
clients, one for cash and two on credit, in November 2020. He used components,
which had cost £500 in total, to customize these computers to clients’
requirements (The unsold computers and unused computer components should
be included as closing inventory items when any income statement is prepared).
• Purchasing a van for business use for £12,000 cash on 2 September 2020. He
thinks this will last for five years, and then will be scrapped for £2,000. Paul
thinks that an annual charge for depreciation (an expense) should be £2,000
(pro-rated as necessary). His van running expenses for the first three months are
£400.

Paul decided to have 31 August each year as his accounting date.

i. For each of the seven items listed above, explain to Paul how these
transactions will be treated in his financial statements for the year ended 31
August 2021, that is, as capital, assets, liabilities, revenue or expenses, and
state whether they will appear in the income statement and/or balance
sheeet. You can make reasonable accounting assumptions if necessary. (21
marks)

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ii. Paul thinks his business is going reasonably well. Is it? Work out whether
Paul has made a profit or loss for this first three months of trading and
comment on your findings. (4 marks)

[TOTAL MARKS: 75 MARKS]

END OF EXAM