Summer 2009 examination

AC100
Elements of Accounting and Finance

Numerical Solutions Only

 LSE 2009/AC100 Page 1 of 12

 Numerical Solutions to Section A

Question 2:
a) and b):

1930/210
a) Real change in sales= -1 = 4.30%
1780/202
Alternatively
Nominal change Inflation rate Real change
1930/1780–1= 110/102–1=
8.43% 3.96% r=(1+n)/(1+r) –1 =4.30%

b) Ratios: 2007 2008

285/1780= 340/1930=
Operating profit margin 0.16 0.18

1780/855= 1930/940=
ATO 2.08 2.05
1780/980= 1930/1,120
or ATO 1.86 =1.72
285/855= 340/940=
ROCE 0.33 0.36
285/980= 340/1120=
or ROCE 0.29 0.30

Question 4: Calculate Goodwill arising on consolidation and the Minority Interest to be

included in the consolidated balance sheet of Euphoria Ltd at 31 December
2008.

Purchase consideration (150*80%*4/3*3) 480

Share capital acquired (150*80%) 120
Share premium acquired (50*80%) 40
Retained earnings acquired (270*80%) 216
Revaluation adjustment (30*80%) 24
Goodwill 80

Share capital acquired (150*20%) 30

Share premium acquired (50*20%) 10
Retained earnings acquired (275*20%) 55
Revaluation adjustment (30*20%) 6
Minority interest 101

 LSE 2009/AC100 Page 2 of 12

Question 6:
Required:
a) Prepare the appropriation of profit for the financial year to 30 September 2008.
b) Prepare the capital accounts of David and John that will be included in the
balance sheet of Finance Track at 30 September 2008.

Appropriation of profit
David John TOTAL
£000 £000 £000
Interest on capital (5% x 50
5% x70) 2.5 3.5 6
Salary (as stated in agreement) 26 36 62
Residual (1/3 x 12 - 2/3 x 12) 4 8 12
Total profit 32.5 47.5 80

Partners’ capital accounts David Ross Total

Opening balance (per TB) 50 70 120
Profits for year ended 30.09.08 32.5 47.5 80
82.5 117.5 200
Drawings for the year (per TB) 45 55 100

Balance at 30 September 2008 37.5 62.5 100

Question 8:
(a) Let P  charges per patient-day.
(4,600 * P)  (£182.80 * 4,600)  £182,160 = 0
(4,600 * P) – £840,880 – £182,160 = 0
P = £1,023,040/4,600 = £222.4

(b) Let X = the average number of patient-days per month necessary to

generate a target profit of £60,000 per month.
Revenue – Costs = Income
(Price * Quantity) – Variable costs – Fixed costs = Income
£250X – £182.80X – £182,160 = £60,000
£67.2X = £182,160 + £60,000 = £242,160
X = 3,604 patient-days (rounded)

 LSE 2009/AC100 Page 3 of 12

Question 9: Direct Materials:
Price variance: (150,000 * £915,000/150,000) – (150,000 * £6.00) = £15,000 U
Efficiency variance: (135,758 * £6.00) – (13,750 * £60.00) = £814,548 –
£825,000 = £10,452 F

Direct manufacturing labour:

Price variance: £270,175 – (8,800 * £30.00) = £270,175 – £264,000 = £6,175 U
Efficiency variance: (8,800 * £30.00) – (13,750 * 0.75 * £30.00) = £264,000 –
£309,375 = £45,375 F

Question 11: (a)

Materials Conversion
Completed units 12,000 * 100% 12,000 12,000
Closing stock 6000 * 40%; 6,000 * 25% 2,400 1,500
Total accounted for 14,400 13,500

Materials Conversion Total

Costs, beginning of March £1,575 £4,860 £6,435
Added during March £12,300 £33,930 £46,230
To be accounted for £13,875 £38,790 £52,665
Equivalent Units of production 14,400 13,500
Cost per equivalent unit completed £0.96 £2.87 £3.83
and transferred out during March (rounded) (rounded) (rounded)

 LSE 2009/AC100 Page 4 of 12

 Numerical Solutions to Section B

a)
Walnut Plc Income statement for the year 31 March 2008
£ £
Revenue 1,432
Cost of sales W2 476
Gross profit 956
Other income 30
Expenses
Directors fees 150
Wages and salaries 270
Administrative expenses W6 172
Distribution costs W5 94
Depreciation W3 118
Bad debt write off W4 8
Bad debt release W4 −1
Audit fee W7 9
820
Operating profit 166
Finance costs W6 9
Loss on disposal of assets W3 1
Profit before tax 156
Taxation W8 36
Profit for the year 120

 LSE 2009/AC100 Page 5 of 12

 Walnut Plc Balance Sheet at 31 March 2008

£ £ £
Non-current assets Cost Acc.Dep. NBV
Land W3 300 - 300
Buildings W3 250 100 150
Equipment W3 196 124 72
Vehicles W3 240 159 81
Goodwill 300
903
Current assets
Inventory W2 119
Trade receivables W4 175
Less provision for doubtful 7 168
debts W4
Prepayments W5 12
Cash and cash equivalent W9 39
338
Current liabilities
Trade payables 124
Accrued expenses W6&W7 19
Corporate tax liability W8 30
173
Net current assets 165
Net assets 1,068

Equity
Ordinary shares of £1 W9 250
Share premium account W9 35
Revaluation reserve W1 180
Retained earnings W10 603
1,068

 LSE 2009/AC100 Page 6 of 12

 Workings
W1 £000
Land 300+180 = 180
Revaluation Reserve 180

W2
Closing inventory
Stock count at cost 162.5*100/130 = 125
Tables cost 16
Tables NRV 10
Inventory write down −6
Closing inventory 119

Cost of sales
Opening inventory 107
Purchases 488
Closing inventory 119
476
W3
Depreciation
Buildings 250x 4% = 10
Equipment (196−76)x40% = 48
Vehicles (284−44)x25% = 60
118
Profit and loss on disposal of NCA
NBV of asset sold 44−(44*25%*3) = 11
Proceeds 10
Loss on disposal 1

NBV non-current assets

Buildings 250−100 (90+10) = 150
Equipment 196−124 (76+48) = 72
284−44−(132+60−33
Vehicles ) =240−159 81

W4
Bad debt write off 8
Provisions for doubtful debts (183−8)=175*4% 7
Bad debt release 1

W5
Distribution costs 100+6−12 = 94
Prepayments 12

 LSE 2009/AC100 Page 7 of 12

 W6
Administrative expenses (inc.
Heat and light costs) 180−9+10−9 = 172
Accrued expenses 10
Interest expense 9

W7
Audit fee 9
Accrued expenses 9

W8
Taxation charge 30+6 = 36
Corporate tax liability 30

W9
Capital and cash after shares Issue
Share capital 200+50 = 250
Share premium 85−50 = 35
Cash and cash equivalent 85−46 = 39

W10
Retained earnings (opening) 503
Profit for the year 120
Dividends paid (20)
Retained earning closing 603

 LSE 2009/AC100 Page 8 of 12

 Numerical Solutions to Section C

Question 1:

Cash flow statement of Snow Plc for 31 December 2008

£000 £000
Cash flow from operating activities
Profit before taxation 328
Adjustments for:
Depreciation 234
Loss on disposal 13
Interest expense 5

Decrease in inventories 32
Increase in trade receivables −60
Decrease in trade payables W1 −11
−39
Operating cash flows 541
Interest paid W2 −4
Taxation paid −163
Net cash flow from operating activities 374

Cash flows from investing activities

Purchase of equipment W3 −384
Proceeds from sale of
equipment W4 60
Net cash used in investing activities −324

Cash flows from financing activities:

Proceeds from issue of share capital W5 40
Proceeds of long-term borrowings 31
Repayment of long-term borrowings −47
Dividends paid −40
Net cash used in financing activities −16

Net increase in cash 34

Cash at beginning of period 19
Cash at the end of the period 53

 LSE 2009/AC100 Page 9 of 12

Workings

W1
Decrease in trade payables 209−2−(219−1) = 11

W2
Interest paid 5+1−2 = 4

W3
Purchase of equipment 312+234+73−235 = 384
Equipment (NBV)
B/f 235 Depreciation 234
Disposal 73
Purchases 384 C/f 312
619 619
W4
Proceeds from disposal of assets 73−13 = 60

W5
53−34(SC)
Proceeds from issue of shares +30−9 (SP) = 40

 LSE 2009/AC100 Page 10 of 12

Question 2:

a)
Monthly
Activity Estimated Costs Activity Cost Drivers Planned Activity
Cost Driver Rate
Quantity
Processing No. of deposits
deposits £44,445 processed 49,875 £0.89

Processing No. of withdrawals

withdrawals 39,120 processed 34,125 1.15

Answering No. of
inquiries 37,290 inquiries 67,500 0.55

Selling negotiable No. of

instruments 7,290 instruments sold 1,650 4.42

Balancing cash No. of registers

registers 6,435 balanced 1,950 3.30
£134,580

Average Activity Cost Driver Total Support Costs

Activity Monthly Rate Rate
Processing deposits 3.5 £0.89 £3.12

Processing withdrawals 6.5 1.15 7.48

Answering customer
inquiries 3.1 0.55 1.71

Selling negotiable
instruments 1.0 4.42 4.42
£16.73

 LSE 2009/AC100 Page 11 of 12

Question 4:

Calculations:
WITH WITHOUT INCREMENTAL
Sunk cost £6000 0 0 0
Initial cost of the new
machine -410,000 0 -410000
Insurance -1,025 0 -1025
Skilled labour -35,000 0 -35000
Fringe skilled labour -2,900 0 -2900
Maintenance expenses -1,000 0 -1000
Warehouse 0 0 0

Waste -2,500 -5,000 2500

labour cost 0 -90,000 90000
Labour fringe benefits 0 -7,500 7500
Tax benefit of depreciation 22,960 0 22960

Revenue 40,000 20,000 20,000

Net yearly incremental cash

flow 103,035

Number of years 5
Corporate tax rate 0.28

Discount rates
Bank of England Jan 08 0.055
Bank of England Dec 08 0.020
Rate above Bank of
England Jan 0.050
Rate above Bank of
England Dec 0.045

Discount rate Jan 08 0.105

New discount rate Dec 08 0.065

Net present value Jan 08 -£24,354.60

Net present value Dec 08 £18,180.43

 LSE 2009/AC100 Page 12 of 12