BUSFF026-E1

University of Nottingham Malaysia

CENTRE FOR ENGLISH LANGUAGE & FOUNDATION EDUCATION

FOUNDATION IN BUSINESS & MANAGEMENT

SEMESTER SPRING EXAMINATION 2019-2020

BUSINESS ACCOUNTING

Time allowed THREE Days

Answer ALL questions in Section A and Section B

Answer ANY ONE question in Section C

ADDITIONAL MATERIAL: Present Value and Future Value Tables

Instructions

• Prepare your answers using Microsoft Word Verdana font size 11 point with single
spacing in black colour. All pages must be numbered. State your ID number on the first
page.

• Word limit: Maximum 1,500 words. Indicate the word-count at the end of your
answers.

• Submit your answers in one Word file electronically through Moodle. Include your ID
number in the file name.

• Submission deadline: 13 April 2020 (before 3:30 pm, Malaysia time)

Your answers will be voided if found to be contributed by others

or shared with others before the submission deadline.

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SECTION A
(40 marks)
Answer ALL questions. Show the relevant workings.

1. £400 paid for a printer is written off as an expense rather than capitalised as the
company does not capitalise items that cost less than £500.

Identify the underlying accounting concept for this practice and support your answer
with explanation. (3 marks)

2. On 31 March 2020, a proprietorship paid cleaning charges for March 2020 by Internet
transfer from bank account £320.

(a) Describe the effect of the transaction on the accounting equation. (2 marks)

(b) Prepare journal entry to record the transaction. Omit the narrative. (2 marks)

3. By reference to IAS 2 Inventories, determine whether the following costs should be

treated as inventory costs:

(i) Indirect labour

(ii) Sales commission
(4 marks)

4. (a) What is the present value of £20,000 to be received at the end of each of the
next 16 years, discounted at 5%? (2 marks)

(b) If you deposit £10,000 in a bank account that pays 4% interest compounded
annually, how much money will be in your account after 6 years? (2 marks)

5. Holding all other factors constant, explain whether each of the following changes
generally signals good or bad news for a company.

(i) Decrease in acid test ratio

(ii) Increase in return on assets ratio
(iii) Decrease in debt to assets ratio
(6 marks)

6. Provide an example for each type of inventory listed below in a bakery:

(i) Raw materials inventory

(ii) Work in process inventory
(iii) Finished good inventory
(3 marks)

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7. A manufacturer allocates manufacturing overhead to jobs on the basis of direct labour

hour. Job CV19 required 4 units of direct materials at a cost of £25 per unit and 12
direct labour hours at £16 per hour. Estimated total manufacturing overhead for the
year was £56,000 and estimated total direct labour hours were 7,000.

(a) Compute the predetermined overhead rate. (2 marks)

(b) Compute the total cost of job CV19. (4 marks)

8. A company is considering purchase of a piece of equipment that costs £23,000.

Projected net annual cash flows over the project’s life are:

Year Net Cash Flows

£
1 4,000
2 7,000
3 15,000
4 10,000

(a) Calculate the payback period for the project. (3 marks)

(b) Calculate the net present value for the project, assuming a cost of capital of 11%.
(4 marks)

(c) Determine the internal rate of return for the project. (3 marks)

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BUSFF026-E1
SECTION B
(50 marks)
Answer ALL questions.

9. The following trial balance has been extracted from the ledger of P. Jim, a sole trader.

Trial Balance as at 31 December 2019

Dr Cr
£ £
Sales 141,180
Purchases 82,320
Carriage outwards 2,300
Drawings 10,000
Rent and rates 6,570
Insurance 340
Postage and stationery 670
Salaries 25,000
Sundry expenses 310
Accounts payable 3,200
Allowance for doubtful debts 170
Accounts receivable 12,900
Cash at bank 5,620
Cash in hand 1,300
Inventory as at 1 January 2019 6,400
Office equipment
at cost 25,440
accumulated depreciation 9,158
Capital 25,462
179,170 179,170

The following additional information as at 31 December 2019 is available:

(i) Rent has been prepaid by £600.

(ii) Accrued salaries were £1,000.

(iii) The allowance for doubtful debts to be increased by £70.

(iv) Office equipment is to be depreciated at 20% per annum using the reducing
balance method.

(v) Inventory at the close of business was valued at £7,200.

Required:

(a) Prepare a statement of profit or loss for the year ended 31 December 2019.
(15 marks)

(b) Prepare a statement of financial position as at 31 December 2019. (15 marks)

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10. K. Rosli is a sole trader who prepares financial statements annually to 30 June. His
summarised statements of financial position for the last two years are shown below.

2019 2018

£ £ £ £
Non-current assets
Fixtures less depreciation 21,000 24,000
Equipment less depreciation 13,700 12,000
34,700 36,000
Current assets
Inventory 35,400 31,250
Trade accounts receivable 18,200 15,230
Bank 3,200 2,800
Cash 1,400 58,200 600 49,880
Total assets 92,900 85,880

Current liabilities
Trade accounts payable (12,150) (16,200)
Net assets 80,750 69,680

Capital
Opening balance 69,680 53,380
Add: Net profit for the year 6,070 6,300
Cash introduced 10,000 20,000
85,750 79,680
Less: Drawings (5,000) (10,000)
Total capital 80,750 69,680

Additional information:

Equipment costing £6,000 was purchased during the year ended 30 June 2019.

Required:

Prepare a statement of cash flows for the year ended 30 June 2019, using the indirect
method. (20 marks)

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SECTION C
(10 marks)
Answer ANY ONE question.

11. Ratio analysis is frequently used to analyse financial statements. Using appropriate
examples, explain several limitations of using ratio analysis to assess the financial
performance and position of companies. (10 marks)

12. Net present value, internal rate of return and payback period could be used in capital
budgeting. Explain the merits and drawbacks of the three investment appraisal
methods. (10 marks)

BUSFF026-E1 END