University of Bedfordshire Business School

Department of Accounting and Finance

INTRODUCTION TO ACCOUNTING AND FINANCE

UNIT CODE AAF005-1
MAIN EXAM
SEMESTER 3
2020/21

Date of Exam: Tuesday 21st September 2021

Start Time: 09:00
Time Allowed: 2 hours
Unit Coordinator: Dr Ghayda Nawres

INSTRUCTIONS TO CANDIDATES
• Students must answer all questions in this exam and show detailed workings.
• This is a closed book examination.
• No material, including dictionaries, is allowed in the examination room, but a
non-programmable calculator may be used.
• Calculations should be made to the nearest month and pound.
• This question paper is divided into two sections with total marks of 100, you
must complete all questions in each section:
Section A (50 marks): Question 1 (30 marks) and Question 2 (20 marks).
Section B (50 marks): Question 3 (25 marks) and Question 4 (25 marks).
• Please start each question on a new page.

DO NOT OPEN THIS PAPER UNTIL INSTRUCTED TO DO SO BY THE SENIOR

INVIGILATOR

Page 1 of 7
Section A – Accounting
Answer ALL questions in this Section (Total 50 marks)

Question (1)
Anlan Chan is in business as a sole trader. On 30 June 2019, the following trial
balance has been extracted from his books:

Debit Credit
£ £
Capital at 1 July 2018 71,220
Drawings 5,461
Cash at bank 4,465
Plant and machinery at cost 31,625
Office furniture and fittings at cost 20,780
Motor van at cost 2,650
Trade receivables 16,100
Trade payables 10,200
Inventory at 1 July 2018 1,850
Purchases 90,000
Sales revenue 121,000
Rent 920
Discount allowed 1,440
Wages and salaries 15,264
Light and heat 940
Returns inwards 5,000
General expenses 5,520
Insurance 405
202,420 202,420

Additional information:
1) The inventory at 30 June 2019 was valued at £11,500.

Page 2 of 7
2) Plant and machinery to be depreciated by 10% on cost.

Required (show your detailed workings):

(a) Prepare the Statement of Profit or Loss for Anlan Chan for the year ended 30
June 2019.
(13 marks)

(b) Prepare the Statement of Financial Position for Anlan Chan for the year ended
30 June 2019.
(17 marks)

(Total: 30 marks)

Page 3 of 7
Question 2
Napoli Ltd. bought a pizza oven for £5,000. Its useful life is estimated at 3 years.
The residual value is expected to be £500 after the 3 years.

Required (show your detailed workings):

(a) Calculate the depreciation charge for each of the three years using the straight-
line method.
(4 marks)

(b) Calculate the depreciation charge for each of the three years using the sum of
digits method.
(8 marks)

(c) Briefly discuss the main arguments made for and against each of the two
methods.
(8 marks)

(Total: 20 marks)

Page 4 of 7
Section B – Finance
Answer ALL questions in this Section (Total 50 marks)

Question 3
Below are extracts from recent financial statements for Acorn company for the years
2019 and 2020:

Income Statement
2020 2019
Sales Revenue 20,000 16,350
Cost of sales 8,400 6,950
Total expenses 7,100 5,670

Balance sheet
2020 2019

Current Assets
Cash and cash equivalents 2,708 3,560
Trade Receivables 1,879 1,746
Total Inventory 5,767 4,812
Total Current Assets 10,354 10,118

Shareholders’ Equity
Share capital 7,000 5,830
Retained earnings 3,870 3,000
Other equity components 2,000 2,530
Total Equity 12,870 11,360

Total Current Liabilities 3,615 5,420

Total Non-Current Liabilities 6,400 7,000

Required (show your detailed workings):

Page 5 of 7
(a) Calculate the current ratio for 2019 and 2020. Explain what this ratio
measures and interpret your results.
(6 marks)

(b) Calculate the gross profit margin for 2019 and 2020. Explain what this ratio
measures and interpret your results.
(6 marks)

(c) Calculate the return on equity (ROE) ratio for 2019 and 2020. Explain what
this ratio measures and interpret your results.
(6 marks)

(d) Identify three users of published financial statements, briefly explaining each
user’s information needs from those statements.
(7 marks)

(Total 25 marks)

Page 6 of 7
Question 4
Oranges Ltd has an estimated cost of capital of 20% and the company is considering
two mutually exclusive projects with the following information:

Project 1 Project 2
Year (£) (£)
0 -350,000 -320,000
1 175,000 202,000
2 175,000 100,000
3 175,000 116,000

Required (show your detailed workings):

(a) Make use of the following to assess the two projects:

i. Payback period method
ii. NPV method
(15 Marks)

(b) Advise the directors as to which of the two projects they should invest and
why.
(4 Marks)

(c) Briefly discuss the advantages and limitations of the two methods in
comparison.
(6 Marks)

(Total 25 marks)

*** End of Questions ***

Page 7 of 7