Certificate in Purchasing and Supply Management Examinations For 2005

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Certificate in Purchasing and Supply Management

Cohort: ROD/CPSM/ 05 – Year 1

Examinations for 2005

MODULE: ACCOUNTING FOR DECISION MAKING


MODULE CODE: ACCF1101

Duration: 2 Hours 30 minutes (including reading time)

Instructions to Candidates:

1. This paper consists of Sections A and B.


2. Section A is compulsory.
3. Answer any two questions from Section B.
4. Calculators may be used, but all relevant working must be
shown clearly.
5. Total marks 100.

This question paper contains 4 questions and 10 pages.

Page 1 of 10
SECTION A: COMPULSORY

QUESTION 1: (40 MARKS)

Arnold Baker – Trial Balance as at 30 June 2005

Dr Cr
Rs Rs
Sales 422,656
Returns Inward 2,248
Purchases 271,538
Returns Outward 922
st
Stock at 1 July 2004 11,669
Wages 37,010
Rent 11,800
Machinery repairs 1,249
Advertising 7,228
Electricity and Telephone 7,385
Stationery and postage 1,256
Motor Expenses 5,576
Insurance 4,285
Web site costs 1,870
Fixed Assets at Cost :
Machinery 210,500
Motor Vehicles 105,000
Provision for Depreciation at 1st July 2004
Machinery 83,270
Motor Vehicles 51,450
Trade Debtors 47,825
st
Provision for Doubtful Debts at 1 July 2004 2,200
Bank Account 2,278
Trade Creditors 51,742
st
Capital Account as at 1 July 2004 138,477
Drawings 22,000

750,717 750,717
(Continued)…
Page 2 of 10
Question 1 (continued)

The following adjustments should be taken into considerations:

(1) Depreciate Machinery at the rate of 10% per annum on cost and Motor
Vehicles at 20% per annum on the reducing balance basis.

(2) Closing stock amounted to Rs21,140.

(3) Debts of Rs825 are to be written off, and the provision for doubtful debts is to
be adjusted to 5% of trade debtors.

(4) During 2005 the owner withdrew goods at Rs1,350 from the business stock
for his own use. No entry had been made in the books for the withdrawal of
these goods.

(5) Insurance includes a payment of Rs500 for the half year ended
30th September 2005.
(6) One quarter of the wage costs was for staff repackaging the goods for sale.

(7) The telephone bill of Rs385 for the month of June was received in July and
paid in August 2005.

Required:
(a) Prepare the trading and profit and loss account for the year ended 31 March
2003. (15 marks)

(b) A balance sheet as at 31 March 2003. (15 marks)

(c) Identify four external users of accounts who might be interested in the
accounts of Arnold Baker and briefly explain their information needs.
(10 marks)

Page 3 of 10
SECTION B: ANSWER ANY TWO QUESTIONS

QUESTION 2: (30 MARKS)

(i) State with reasons whether the following statements are true or false:

(a) Heavy expenditure incurred on renovating showroom at the time of


introducing a new product is a revenue expenditure;

(b) Expenses incurred to keep the machine in working condition is a capital


expenditure;

(c) Legal costs incurred for the acquisition of Land and Building is a revenue
expenditure;

(d) Amounts written off from the cost of the fixed assets is capital expenditure;

(e) Expenditure which results in acquisition of a permanent asset is a capital


expenditure; (7 marks)

(ii) At a seminar, a cost accountant spoke on identification of different kinds of


cost behaviour. Sharlotte, a purchasing officer who heard the lecture,
identified several operational costs of concern to her. She has classified the
costs into variable, fixed, semi-variable and stepped costs.

Required:
Explain briefly the above four terms of costs, giving an appropriate example for each
term. You may use diagram to support your answer. (8 marks)

(Continued)…

Page 4 of 10
Question 2 (continued)

(iii) The details below relate to the level of activity for the quarter ended
31 March 2005 at the General stores of the Ministry of Health

Issue Notes Total costs


Rs
January 14,000 112,000
February 15,000 119,980
March 17,000 129,100

The charge out rate for the services provided is Rs 10 per issue note raised.

Required:
a) Calculate the:
ƒ Variable cost per unit; (2 marks)
ƒ Fixed costs for the period; (2 marks)
ƒ Contribution/Sales ratio; (2 marks)
ƒ Breakeven point in units and value (3 marks)

(iv) Your departmental head has asked your views as to the contracting out of the
services presently carried out by the maintenance department.

Required:
List some of the qualitative factors that may influence the decision. (6 marks)

Page 5 of 10
QUESTION 3: (30 MARKS)

PART A

The treasurer of Rodrigues College is involved in the reconciliation of the balance


shown in the cash book with that on the bank statement. The cash book balance at
31 May 2005 was Rs15,440 (Debit), whilst the bank statement showed an
overdrawn balance of Rs85,420. Upon investigation, the treasurer found the
following discrepancies:

(i) A cheque paid to CEB for Rs7,500 had been entered in the cash book as
Rs7,050.

(ii) A receipt of Rs1,760 shown in the bank statement had not been entered in
the cash book.

(iii) Cheques for the amount of Rs195,520 had not been paid into the bank.

(iv) The credit side of the cash book for the month of May 2005 had been
overstated by Rs10,000.

(v) Bank charges and interest of Rs7,000 do not appear in the cash book.

(vi) Receipts of Rs53,500 paid into the bank on 30 May 2005 do not appear in
the bank statement until 2 June 2005.

(vii) A direct debit payment of Rs23,910 for telephone charges had not been
entered in the cash book.

(viii) A credit transfer of Rs15,520 received from the Commission of Education


relating to sports grants have not yet been entered in the cash book.

(ix) Cheques amounting to Rs152,240 have not yet presented for payment.

Required:
(a) Prepare the amended cash book for the month of May 2005. (7 marks)

(b) Prepare a statement to reconcile the bank statement balance with the
amended cash book balance. (5 marks)

(c) Distinguish between a direct debit and a standing order payment. (6 marks)
(Continued)…
Page 6 of 10
Question 3 (continued)

PART B
Mr Jean Jacques, the owner of a Sport Shop, is disturbed to observe that the draft
final accounts you have prepared for the year ended 30th September 2005 show a
net loss of Rs150,000, which is in sharp contrast to a long record of stable profits.
After a thorough examination of the accounts, the owner suggests the following
amendments:

(i) “There is no doubt that we have over-depreciated in the past as both the
premises and equipment are worth a lot more to us than the book values
in the balance sheet. I suggest we don’t charge any depreciation this
year”.

(ii) “I have been looking into the repairs and maintenance item (Rs60,000)
and find that Rs40,000 relates to the painting of premises and replacement
of tyres for the car. Let’s treat this as capital expenditure and remove it
from the profit and loss account”.

(iii) “I noticed that an amount of Rs50,000 relating to an increase in the


provision for bad debts has been debited to the profit and loss account,
along with bad debts written off amounting to Rs15,000. I think we should
deduct the bad debts from the provision, thus charging only Rs35,000 to
the profit and loss account”.

(iv) “We have a team of very competent managers and a skilled and highly
dedicated workforce. Why not include the monetary value as part of the
assets and in any way they contribute to the bottom line results”.

Required:

Comment on Mr Jean Jacques’s statements and the validity of his proposals,


making reference to relevant accounting concepts. (12 marks)
(each part carries 4 marks)

Page 7 of 10
QUESTION 4: (30 MARKS)

Pit and Zap each carry on business as wholesalers of the same product. Their
respective accounts for the year ended 31 December 1994 are as follows:

Profit and Loss Accounts for the year ended 31 December 2004

Pit Zap

Rs000 Rs000

Sales 144,000 140,000

Cost of sales* 120,000 120,000

Gross profit 24,000 20,000

Expenses 15,360 12,300

Profit before tax 8,640 7,700

Tax on profit 640 700

Profit after tax 8000 7,000

* Cost of Sales is calculated as:

Opening stock 28,000 3,200


Add Purchases 124,000 121,600
Less Closing stock 32,000 4,800

120,000 120,000

(Continued)…

Page 8 of 10
Question 4 (continued)

Balance Sheets as at 31 December 2004

PIT ZAP
Fixed assets 53,750 33,840

Current assets

Stock 32,000 4,800

Debtors 28,800 11,200

Bank 8,950 11,360

69,750 27,360

Current liabilities

Creditors 15,500 30,400

Accruals 500 600

Tax 640 700

16,640 31,700

Net current assets 53,110 (4,340)

106,860 29,500

Financed by:
Capital 105,000 28,500

Loan from Mutual Aid 1,860 1,000

106,860 29,500

(Continued)…

Page 9 of 10
Question 4 (continued)

Required:

(a) Calculate the following ratios for the two businesses

Gross profit margin

Net profit margin

Return on capital employed

Return on equity

Current ratio

Quick asset ratio

Stock turnover

Debtors’ collection period

Creditors’ payment period

Assets turnover

(20 marks)

(b) Comment briefly on the performance of the two companies as indicated by the
ratios you have calculated in part (a). (10 marks)

***END OF QUESTION PAPER***

Page 10 of 10

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