ROYAL INSTITUTE OF MANAGEMENT

TERM EXAMINATION PAPER

RIM ID Card No.______________________ UC ID No. (for Masters) ___________

Unit : Financial management

Time allowed : 150 minutes
Marks for this paper : 40
Course : MBA/MBM
Term : I

Instructions for students

1. Do not open this question paper until you are told to do so.
2. Write your RIM ID Card No. and Secret Code in the above spaces.
3. Read the instructions carefully before answering the questions.
4. Write your answers in the answer booklet.
5. At the end of the exam, hand over the question paper and answer booklet.
6. This exam paper contains 4 pages. Please make sure your copy is not missing any pages.
7. If necessary, make assumptions to solve problems. State your assumptions clearly.
8. Make sure your mobile phones and other electronics (except for your calculator) are switched off.
9. You will be awarded zero marks for this unit if you attempt to get help or help your friends while you
are in the examination hall.
SECTION A (18 marks)

1. Why do you think ethical consideration should influence all areas of accounting and
business? (2 marks)
2. What are the differences and similarities in the basic financial reports for the different
business structure? (2 marks)
3. Will the profit for the period be different depending on whether a cash-or accrual-based
accounting system is used? Which system is more accurate? Why? (2 marks)
4. Knowing that you have some accounting experience, a friend has sought your advice
regarding a business that he intends purchasing. The balance sheet for the business shows
total assets of $150,000 and liabilities of $50,000. The selling business has provided no
notes to accompany the balance sheet. On the basis of the information provided, your
friend believes the business is worth $100,000. Advise your friend as to the accuracy of
his assessment and what questions regarding the balance sheet he should ask the seller. (2
marks)
5. We made a profit of $130,000, so why is there only $3000 in the bank?; exclaimed Mr.
Smith, the owner of medley pty ltd. Explain to Mr. Smith the relationship between profit
and cash flow, to help him understand the reason why there is such a big difference
between profit and cash in the bank. (2 marks).
6. Explain what is meant by ‘manufacturing overhead’ and give three examples of typical
costs in a large manufacturing business that could be included in it. Why do you think it
is important to allocate indirect cost?(2 marks)
7. What are the nature and scope of investment decisions? What are some of the
project/investment evaluation tools used by managers for investment decision? Which
tool is considered to as most efficient? Why? (3 marks).
8. Differentiate between working capital and net working capital. What are the various
sources of working capital for entities and how do entities manage net working capital?(3
marks).

SECTION B (22 marks)

1. Fit and fantastic ltd. Produces and sells a range of fitness equipment. Its capital expenditure for the
current year for new plant was $130,000, and dividends paid were $20,000. Current liabilities and non-
current liabilities were $43,000 and $560,000 respectively. Sales for the current year were $205,000 and
cash flows from operations totaled $52,000. Compute any two cash flow ratios. (2 marks)

2. Complete the following transaction analysis table (You can chose to write your answer to this question
in the space given below) (3 marks):

Transaction Account affected How effected

(increase/decrease)
The business paid rents of $500.

The business paid wages of $1800.

The business sold goods for $4000.

3. Interport pty ltd, a manufacturing company, reports the following information:

Total assets $ 950

Net profit after tax 30
Current liabilities 285
Non-current liabilities 405
Interest revenue 50
Interest expense 80
Tax expense 20

Current assets = 50% of total assets.

From the information given above, calculate and interpret the following ratios (7 marks);
a. Liquidity ratio (2 marks)

b. Return on equity ratio (2 marks)

c. Return on assets (1.5 marks)

d. Debt ratio (1.5 marks)

4. Prepare a cash budget for the month of February 2008 using the information provided by Hawkins
Distributors for the month of February 2008 (5 marks):

Cash sales $42,000

Credit sales 68,400
Receipts from debtors 62,000
Wages incurred (90% paid) 42,000
Administration expenses (all paid) 29,000
Depreciation on equipment 8,200
Receipt of loan 15,000
Credit purchases 59,200
Payments to creditors 48,600
Loan payment-principal 2,300
Interest charge (not paid) 420
Equipment purchased on credit 9,500
The cash balance at 31 January was $8,600.

5. Using the information of Sinker Enterprises as follows (5 marks):

Fixed costs $175 000 p.a.

Variable costs $55 per unit

Selling price $90 per unit

a. Calculate the contribution margin (1 mark).

b. Calculate the break-even point in units and sales dollars (1 mark).
c. If management wishes to make a profit of $49 000 before tax, how many units need to be
sold?(1 mark)
d. Management are considering purchasing a new item of plant that will increase variable costs
by $5 per unit, however fixed costs will fall by $10 000. Calculate the new break-even point
and recommend if management should go ahead with the new item of plant.(2 marks)

GOOD LUCK