The Claude Littner Business School

Business Accounting

A2 Main Paper 2022 Resit Solution

Module Code: AC40037E

Date:
Time Allowed: 1 hour plus145minutes reading
time
Start Time:

Instructions to candidates:

Answer ALL questions.

.

TOTAL Marks 100

Closed book examination.

Calculators must be used.

Students must NOT have mobile phones or other electronic devices on their person.
1) A business makes 2,000 units of a particular product. It spent £24,000 on material
and it paid operating cost £40,000. Other costs of running the factory were
£50,000. The sales force was also paid £18,000 and the head office costs were
£100,000. In order to break even the selling price per unit will have to be:
a) £66 sp must cover all the cost
b) £84
c) £32 24,000+40,000+50,000+18,000+100,000= 232,000/2000= £116
d) £116

2) Creditors of a business may want to use the financial statements to:

a) Check that they are likely to be paid when due
b) Be sure that after-sales service will continue
c) Check that the business has a bank account
d) Be sure of an increasing share of the market

3) Darlene Limited manufactures heaters. The selling price of a heater is £95.

Variable costs of manufacture are £38. During the 2020 financial year, the
company expects to incur fixed production costs of £60 000 and other operating
cost of £22 000.
How many heaters will the company have to sell in order to break even

a) 1439
b) 2158 fc/contribution 60,000+22,000 = 1,439 units
c) 863 57 (95-38)
d) 1053

4) Which of the following is not a conventional assumption of marginal costing?

a) Costs can easily be divided into their fixed and variable elements
b) Variable costs change in direct proportion to activity
c) Cost and revenue functions follow a curvilinear pattern
d) Fixed costs are stable over the relevant range of activity

5) Which one of the following events will increase the cash balances of a business?

a) Sale of inventory on credit

b) Bank granting it an overdraft facility
c) Loan repayment to banks
d) Debtors paying amounts owed
6) A company has trade receivables in its statement of financial position of £218,
603. Revenue for the year was £1,703,698. 70% of the revenue was in respect of
sales made on credit. Trade receivable turnover in days is:
a. 46.8days
b. 32.7days
c. 66.9days
d. 18.3days
credit sales =£1,703,698 x70%=1, 192,589 Trade receivables turnover=
Trade receivables 218,603 x 365days= 66.9. days
Credit Revenue 1,192,589

7) A business has the following details extracted from it's statements of financial
position:

£,000
Inventory 18,370
Receivables 24,100
Cash in hand 70
Bank overdraft 6,400
Payables 15,450

Based on the following information, calculate the company’s current ratio

a) 1.11.1
b) 1.95:1 current assets 18,370+24,100+70
c) 0.51:1 current liabilities 6,400+15,450
d) 0.90:1

8) Tom Ltd generated sales of £55,000. He made a gross profit of £22,000, and his
operating profit was £8,000. His capital employed was £80,000. Calculate Tom's
return on capital employed?
a) 10%
b) 27.5%
c) 68.8%
d) 14.6%
8,000/80,000 x 100 = 10%.

9) A business has fixed costs of £90,000 and charges a selling price of £31.25per unit.
If the variable cost is £25. The breakeven point in units would be:
 a. 2,880 90,000
b. 14,400
c. 22,500 31.25-25
d. 3,600

10) John has made the following predictions for his business for the first six months
of trading to 30 June 2019:
Sales in Jan, Feb and March = £20,000 per month
Sales in Apr, May and June = £25,000 per month
Sales will be on one month's credit
The trade receivables figure as at 30 June 2020 will be?

a) 20,000
b) 25,000
c) 40,000 Good sold in may will be paid for in June
d) 45,000

11) The following information is available for M. Parkin for the year ended 31 March
202. Opening Inventory£16,492, Purchases £36,905, Sales £54,600 and Closing
inventory £18,504. What is the gross profit for the year?

a) £17,795
b) £19,707
c) £34,893
d) None of the above

54,600-(16,492+36,905-18,504) =19,707

12) Which of the following statements is correct about a sole trader?

a) Pays corporation tax on business profits
b) Must register his/her business as a separate legal entity
c) Must provide a profit share to employees
d) Is liable personally for the consequences of any legal action against
the business
13) Chandra's bakery business has the following account balances at 30 September
2020: ovens £38,000, inventories £4,100, trade payables £2,650, loan of £5,000 and
a bank overdraft of £1,090. Chandra's capital account as at 30 September 2020 is?

a) £35,540
b) £38,660
c) £38,360 Assets- liabilities= capital
d) £33,360 (38,000+4,100-2,650-5,000-1,090)=£33,360

14) Lu's statement of profit or loss for his first year of trading to 30 September 2020
showed a charge for insurance of £9,000. Lu actually paid £13,000 for insurance
during that financial year. Which of the following statements is true?

a) Insurance had been prepaid by £4,000 at the year end.

b) Insurance of £4,000 had been accrued for at the year end.
c) Insurance of £9,000 had been accrued for at the year end.
d) Insurance of £9,000 had been prepaid at the year end.

15) Sean has prepared his financial statements for the year ended 31October 2020,
which show a net profit of £30,000, current assets of £234,400 and a total assets
figure of £710,500. He has since discovered that the closing inventory figure he
used was understated by £12,000 .

Which of the following statements is true?

a) The revised current assets figure will be £222,400.

b) The revised total assets figure will be £740,500.

c) The value of closing inventory figure does affect the profit for the year or the net
assets.

d) The revised profit for the year should be £42,000. (understating closing inventory
will understate the gross profit and both current and total assets

16) Roti's budgeted year end account as at 31 December 2020 includes a figure for
receivables of £23,600. This represents:

20% of November sales of £28,000 5,600

60% of December sales of £30,000 18,000
 23,600
Roti's normal pattern of receipts is 40% of sales on credit are paid for within the
same month, and 40% paid in the following month, with the remaining 20% paid for
in the month after that. In January 2021, sales are budgeted at £28,000, how much
will be included in the receipts cash flow in January 2021?

Show your workings

Answer

Roti

Sales receipts in January 2021 will be as follows:

40% x January sales: 40% x £28 000 11 200

40% x December sales: 40% x £30 000 12 000

20% x November sales: 20% x £28 000 5 600

28 800 4marks

17) Wyman Limited produces golf bags which sell for £107 each. The direct
materials cost per bag is £21.50 and direct labour costs per bag are £13.50. In
February 2020 the company has budgeted to sell 270 golf bags. Fixed
production overheads for the month are expected to total £16 270.

Calculate the company’s

a) budgeted contribution for February 2020

b) budgeted net profit for February 2020

Answer

Wyman

Contribution per golf bag = £107 – 21.50 – 13.50 = £72

budgeted contribution for the month = 270 x £72 = £19 440 5marks

budgeted net profit for the month = contribution – fixed costs

£19 440 – 16 270 = £3170 5marks

18. Gardeners has the following information balances from as at 31 March 2020.:

  £
Inventory 2,600
Capital 28,000
Trade payables 5,320
Cash in bank account 290
Purchases 78,900
Premises 50,000
Trade receivables 4,500
Sales 120,000
Rental expenses 3,400
Sundry expenses 13,900
Bank interest 270

The following notes is available:

Rent of £200 was prepaid

Closing stock at the end of the period is £1,900

Depreciation of 10% on non-current asset

Required: Prepare Gardeners income statement and statement of financial position

as at 31March 2020. 10marks

Gardener's income statement as at 31 March 2020

Mark
s
120,00
Sales 0 0.5
Less cost of goods sold:
Inventory 2,600
7890
add: Purchases 0
81,50
0
less closing stock 1,900 79,600 2

Gross profit 40,400 1

Bank Interest received 270 0.5
Less: expenses
rental expenses (3,400-
200) 3,200 1
depreciation 5,000 1
 (50,000x10%)
13,90
Sundry expenses 0 22,100
Net profit 18,570

Gardener's statement of financial position as at 31 March 2020

Non-current Assets- 50,00
Premises 0
-
less depreciation 5,000 45,000 1

Inventory 1,900
Trade receivables 4,500
Prepayment-Rent 200
Cash in bank account 290 6,890 1

Current liabilities
Trade payables 5,320
5,320 0.5

Net Assets 46,570 0.5

Capital 28,000 0.5

profit 18,570 0.5
46,570

19) Wilma runs a wedding car service. Business is expanding and she is planning to
buy a new vehicle. The basic list price of a new car is £24, 400, but Wilma must
pay an additional £800 for it to be sprayed white. She purchased the car on 1
March in time for the main summer wedding season. Her year end is 28
February. Wilma depreciated cars on a reducing balance basis, at 15% per
annum.

What will the depreciation charge for the first of ownership of the new car?

a) £3,660
b) £3,780 15% (24,400+800)= 3,780
c) £3,540
d) £4,460

20) A motor vehicle which cost £30,000 is depreciated at 20% per annum using the
reducing balance method. The depreciation charge for the second year would be:
 a) £13,800    
b) £8,000
c) £4,800           20%x (30,000-6,000)
d) £7,200

21. TB Wallis started trading on I January 2019, he has the following figures for the
first year of trading: Carriage inwards£3,470, Returns outwards£1,390, Return
inwards£7,470, Sales £249,000, Purchases £168,300 and Inventory as at
31December 2019£25,630.
Calculate his gross profit for the first year of trading:
a) £104,250
b) £100,250
c) £96,780
d) £116,380
249,000-7470= £241,530 -144,750(168,300+3,470-1,390-25,630) = 96,780
Answer is c
22. A business buys equipment costing £28,000 and depreciates it using the reducing
balance method at 20% per annum. Three years later it was sold for £15,000. The
profit or loss on the transaction was:
a) Neither a profit or a loss
b) A profit of £8,784
c) A profit of £664
d) A loss of £664
28,000-(28,000X20%)- (22,400X20%)-(17,920- 20%)=14,336. 15,000-14,336= £664profit

Answer is C. Selling price more than NBV. Hence profit of £664