MSHOWE HIGH SCHOOL

“A” LEVEL ACCOUNTING

TERM 2: 2019

TESTS & EXERCISES RECORDS

UPPER 6

1|Page
 STANDARD COSTING
CLASS DISCUSSION
QUESTION 1

Musendo Power Limited manufactures garden furniture. One of the lines it produces is a bird
table and the contribution made by the bird tables to the overall company results for the year
ended 30 June 2017 was as follow :
Contribution statement for the bird tables for the year to 30 June 2017.
$ $
Sales 162 000
Less: Variable costs
Raw materials 53 280
Direct labour 47 680 100 960
61 040

Additional information

1) No opening or closing stocks of bird tables.

2) Budget and standard costs for the year ended 30 June 2017.
i) Budgeted sales of bird tables: 15 000@ $10 each.
ii) Each bird table would require 4kg of materials at a cost of 80cents per kg
iii) Three bird tables should be made per hour of direct labour.
iv) The direct labour rate is $7.20 per hour.

3) The additional results for the year ended 30 June 2017 revealed the following:
i) 18 000 bird tables were sold.
ii) 74 000 kg of raw material was used.
iii) Direct labour amounted to 6 400 hours.
Required
a) i) Sales volume variance {2}
ii) Sales price variance {2}
iii) Total sales variance {2}
iv) Raw material usage variance {2}
v) Raw materials price variance {2}
vi) Total raw materials variance {2}
vii) Direct labour efficiency variance {2}
viii) Direct labour rate variance {2}
h) Total direct labour variance {2}

b) Prepare a statement that shows the budgeted contribution for the year ended 30 June
2017. {4}

2|Page
 INCLASS EXERCISE [30 MINUTES]

QUESTION 1

Karoi Tailors manufactures school uniforms. The following are the

budgeted and actual data for 2016.
Budgeted data:
i. Sales 20 000 jackets at $100
each
ii. Direct materials 40 000 m2at $10 per m2
iii. Direct labour 5 hours per jacket at
$6 per hour

Actual results

i. Sales 25 000 jackets at $95

each
ii. Direct materials 55 000 m2 at $9,60 perm2
iii. Direct labour 130 000 hours at
$5,50 per hour

Required

a. Marginal costing statement showing the calculation of budgeted

contribution. [7]
b. Calculate the following variances to two decimal places:

i. Sales volume variance

[3]
ii. Sales price variance
[3]
iii. Material price variance
[3]
iv. Material usage variance
[3]
v. Labour rate variance
[3]
vi. Labour efficiency variance
[3]
vii. Suggest two reasons for the material usage variance calculated
in (b) (iv)
above.
[4]

3|Page
 GROUPWORK

QUESTION 3

Lourien Ltd operates a standard costing system. Its budget for the month was
$ $
Sales (22 000 units at $21) 462 000
Direct materials (28 600 kilos at $2) 57 200
Direct labour (48 400 hours at $6) 290 400 347 600
Contribution 114 400

Actual results for the month were $ $

Sales (21 400 units at $20.80) 445 120
Direct materials (28 400 kilos at $2.05) 58 220
Direct labour (47 200 hours at $5.90) 278 480 336 700
Contribution 108 420

REQUIRED
(a) Calculate the following variances
(i) sales volume [2]
(ii) sales price [2]
(iii) total sales [2]
(iv) direct materials usage [2]
(v) direct materials price [2]
(vi) total direct materials [2]
(vii) labour efficiency [2]
(viii) labour rate [2]
(ix) total labour [2]

(b) A company operates a standard costing system. State with reasons what
effects might be observed if:
(i) raw material is of a higher quality than usual. [3]
(ii) direct labour has a lower skill level than usual. [3]

4|Page
 (c) State which costing method is best suited to the following situations:
(i) a company wishes to calculate a break even point. [1]
(ii) a customer requires a quote for the manufacture of a large, one-off item.[1]
(iii) goods are produced in a sequence of continuous manufacturing
operations. [1]
(iv) production costs need to contain an element of the costs of support or
service departments. [1]
(v) a price is needed for one item out of a set of identical items. [1]

CAPITAL EXPENDITURE APPRAISAL

CLASS DISCUSSION

QUESTION 1

Randal Ltd is considering expanding its business and has to decide between taking on Project
A or Project B. Both projects have a life of four years. Equipment is expected to have no
scrap value.

Other information about the projects is as follows:

Project A Project B
$ $
Initial cost $150 000 $ 140 000
Annual sales $100 000 $ 120 000
Annual purchases $40 000 $65 000
Other costs as a percentage of sales 8% 5%
Increase in working capital $10 000 $18 000

Randal Ltd uses a cost of capital of 10%. Discounting factors at 10% are as follows :

Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683

Using a cost of capital of 10% Project B has a net present value of $15 281.

REQUIRED
a. For each of the two projects calculate the following :
i. The annual net cash flow
ii. The Accounting Rate of Return
iii. The Payback period
b. Calculate the Net Present Value for Project A only.
c. State two benefits and two drawbacks of each of the following.
5|Page
 i. Accounting Rate of Return.
ii. The Payback period.
iii. The Net Present Value.
d. State which of the two projects Randal Ltd should select. Give reasons for your
answer.

PAIRWORK EXERCISE [1 HOUR]

QUESTION 2
Two years ago Sandstone Ltd conducted market research at a cost of $16 000 to investigate
the potential market for new products. They are now considering two new products
developments, only one of which will be undertaken. The anticipated profitabilities of these
two separate projects are given below.
Project A Project B
$ $ $ $
Annual sales 80 000 100 000
Cost of sales 40 000 50 000
Administration costs 15 000 10 000
Depreciation 5 000 10 000
60 000 70 000
20 000 30 000

It is expected that the above will continue for each year of each project’s forecast life. The
capital cost for project A is $45 000 and for project B is $53 000.
The expected economic lives are
Project A 8 years
Project B 5 years
Depreciation has been calculated on a straight line basis, and assumes estimated scrap values
of $5 000 for Project A at the end of year 8, and $3 000 for Project B at the end of year 5.
All costs and revenue take place at the end of each year
The cost of capital is 12%
Extract from present value tables $1 @ 12%
Year 1 0,893 Year 5 0,567

6|Page
 Year 2 0,797 Year 6 0,507
Year 3 0,712 Year 7 0,452
Year 4 0,636 Year 8 0,404
REQUIRED

a. Calculate the payback period and net present value of each project (14 marks)
b. State, with reasoning, which of the two projects you would recommend (3 marks)
c. Briefly explain why net present value is considered a more meaningful technique
compared to payback when making capital expenditure decisions (4 marks)
d. Explain how you have treated the original market research costs in relation to the
evaluation of the projects. (2 marks)
( Total 23 marks)

BUDGETS
CLASS DISCUSSION

QUESTION 1

Herbert Limited makes a single product, whose unit budget details are as follows:
$ $
Selling price 30
Less costs
Direct material 9
Direct labour 4
Direct production expenses 6
Variable selling expenses 4 23
Contribution 7

Additional information
1. Unit sales are expected to be:
June July August September October
1 000 800 400 600 900
2. Credit sales will account for 60% of total sales. Debtors are expected to pay in the
month following sale for which there will be a cash discount of 2%.
3. Stock levels will be arranged so that production in one month will meet the next
month’s sales demand.
4. The purchases of direct materials in one month will just meet the next month’s
production requirements.
5. Suppliers of direct materials will be paid in the month following purchase.
6. Labour costs will be paid in the month in which they are incurred. All other
expenses will be paid in the month following that in which they are incurred.
7. Fixed expenses are $2 000 per month and include $180 for depreciation.
8. The bank balance at 1 July 19-9 is $3 900 favourable to the business.
7|Page
Required
a) A cash budget for Herbert Limited for the three month period ending on 30 September
1999 showing the balance of cash at the end of each month. [19]

b) List and explain three ways in which the preparation of a cash flow budget could be of
advantage to the management of Herbert Limited. [6]

CLASS DISCUSSION

QUESTION 2

MW Limited manufactures a single product, a Tu. The finance director prepares monthly
budgets.
The following budgeted information is available for the first three months of 2015.

1 The selling price will be fixed at $60 per unit. In January 2015 sales are expected to be
24 000 units. It is anticipated that there will be a 5% increase in sales volume in every
subsequent month up to April 2015.

2 The finished goods inventory level at the end of each month will be maintained at one-third
of the expected sales volume in the following month. The inventory of finished goods at
31 December 2014 is expected to be 7 500 units with a value of $242 000. The finished
goods inventory value at 31 March 2015 is expected to be $298 000.

3 Each unit of Tu requires 10 kilos of raw material. The closing inventory of raw materials
each month is expected to meet 20% of the production requirement of the following month.
The inventory of raw materials at 31 December 2014 is expected to be 48 000 kilos. The
purchase price will remain at $1.50 per kilo.

4 Direct labour for the first three months of 2015 is expected to be $850 000. Manufacturing
overhead is expected to be 50% of direct labour.

REQUIRED

(a) Prepare the sales budget for the period January to March 2015. State the units and revenue
for each month. [6]

(b) Prepare the production budget for the period January to March 2015. State the units for
each month. [9]

(c) Prepare the purchases budgets for the period January to March 2015. State the units and

8|Page
 cost for each month. [15]

REVISION WORK
INCLASS EXERCISE

QUESTION 1

Alvin, Bertram and Chana are in partnership preparing accounts to 30 June. They share
profits and losses in the ratio 4:3:1. On 30 June 2013, the partners decided to convert the
business to a new limited company, Albech Ltd.

Statement of Financial Position at 30 June 2013

$ $
Assets
Non-current assets (NBV) 250 000

Current assets
Inventories 89 345
Trade receivables 53 485
Cash and cash equivalents 9 250 152 080
Total assets 402 080

Equity
Capital account
Alvin 75 000
Bertram 90 000
Chana 60 000 225 000
Current accounts
Alvin 24 840
Bertram 44 950
Chana 18 555 88 345
Total equity 313 345

9|Page
 Liabilities
Non-current liabilities
Alvin 8% loan account 40 000
Current liabilities
Trade payables 48 735
Total liabilities 88 375

Total equity and liabilities 402 080

The terms of the transfer were as follows:

i. The agreed valuation of the business was $475 000.

ii. Consideration was to be satisfied as follows.
- 200 000 ordinary shares of $1 each.
- 200 000 8% non-redeemable preference shares of $0.50 each.
- Sufficient 10% long term debentures to enable Alvin to receive the same
amount of annual interest he currently receives on his loan.
- The balance to be cash in the form of a long term bank loan.
iii. The ordinary shares and cash were allocated in the profit sharing ratio whilst the
preference shares were allocated in the ratio of the capital account balances at 30
June 2013.
iv. All assets and liabilities were transferred to the new company with the exception
of trade receivables, trade payables and the cash and cash equivalents.
v. A bad debt of $720 was written off.
vi. Discounts of $3060 were agreed with the suppliers.
vii. All other assets were transferred at their book value.
viii. The loan from Alvin was repaid to him.

REQUIRED

a. Prepare the partnership realisation account. [8]

b. Prepare the bank account. [8]
c. Prepare the partners’ capital accounts to close the partnership. [8]
d. Prepare the opening statement of financial position of Albech Ltd at 1 July 2013. [10]
[Total: 34]

10 | P a g e
 INCLASS EXERCISE [1 HOUR 10 MINUTES]
QUESTION 1

The following is the Receipts and Payments account of the Outerspace Sports and Social
Club for the year ended 31 October 2005.

$ $
Balance b/d 5 950 Clubhouse 65 000
Subscriptions 17 600 Equipment 7 400
Restaurant sales 62 100 Wages 23 400
Loan from members 60 000 Equipment repairs 4 320
Restaurant supplies 35 500
Annual dance 3 750
General expenses 5 420
Balance c/d 860
145 650 145 650
Additional information
31 Oct 2004 31 Oct 2005
$ $
Subscriptions in arrears 550 650
Subscriptions in advance 100 450
Restaurant stock 6 390 7 520
Restaurant creditors 4 235 4 785
Annual dance costs owing 50 125
Clubhouse at cost - 65 000
Equipment at cost 8 000 15 400
Loan from members - 60 000
Provision for depreciation on equipment 2 000 ?

The original equipment was purchased on 1 November 2003, the date the club opened.
Depreciation is charged at 2% straight-line on the clubhouse and 25% reducing balance on
equipment. Depreciation is charged for a complete year in the year of purchase. Repairs were
to original equipment.

11 | P a g e
All subscriptions owing in the year ended 31 October 2004 were paid during the year ended
31 October 2005. Interest on the loan from members ,which was received on 1 November
2004,is payable at the rate of 5% per annum.
$2 200 of the new equipment is for use in the restaurant. The general expenses include $2 100
which should be charged to the restaurant. One third of the wages are paid to restaurant staff.
Required
a) Calculate the Club’s accumulated fund at 1 November 2004. [4]
b) Prepare the restaurant Trading account for the year ended 31 October 2005. [4]
c) Prepare the club’s Income and Expenditure account for the year 31 October 2005. [10]

QUESTION 2

Murare Glen Ltd provides the following information:

Statements of financial position at
30 April 2012 30 April 2011
$000 $000 $000 $000
Non-current asset
Plant and machinery 82 500 64 900
Office equipment 34 519 38 355
117 019 103 255
Current assets
Inventory 18 758 16 521
Trade receivables 17 623 12 517
Cash and cash equivalents 27 754 6 459
64 135 35 497
181 154 138 752
Current liabilities
Trade payables 22 758 18 654
Taxation 5 350 4 200
28 108 22 854
Non-current liabilities
4 % Debentures 2025 30 000 50 000
Net assets 123 046 65 898

Equity
Ordinary share capitals 60 000 40 000
Share premium 18 000 8 000
Retained earnings 45 046 17 898
123 046 65 898

Income statement for the year ended 30 April 2012

$
Revenue 396 672
Cost of sales 259 329
12 | P a g e
Gross profit 137 343
Distribution costs 32 357
Administrative expenses 70 438
Profit from operations 34 548
Finance charges 1 600
Profit before taxation 32 948
Taxation 5 800
Profit for the year attributable to equity holders 27 148

Additional information

1. The debentures were redeemed at par.

2. Plant and machinery costing $27 500 was sold during the year for $10 000. It had been
depreciated by $19 600.

3. Additional machinery was purchased at a cost of $35 000. There is no depreciation charge
in the year of acquisition.

4. There were no acquisitions or disposals of office equipment during the year.

REQUIRED

Prepare a statement of cash flows for the year ended 30 April 2012 in accordance with
the provisions of IAS 7

13 | P a g e
 INCLASS EXERCISE [1 HOUR]
QUESTION 1

On 31 March 1992 the following balances were extracted from the books of Musendo Power Ltd.

$ $
Inventory at 1 April 1991
Raw materials 30,600
Work in progress 53,119
Finished goods 59,565
Purchases: Raw materials 973,350
Direct wages 289,320
Indirect wages 51,915
Sales 1,608,525
Trade receivables 171,400
Trade payables 155,735
Debenture interest 1,000
Rates and insurance 6,080
General office expenses 53,200
Rent receivable 3,200
Premises at cost 230,000
Provision for depreciation of premises 23,000
Plant and machinery at cost 170,000
Provision for depreciation for plant and machinery 38,750
Provision for unrealised profit on goods manufactured 5,415
Provision for bad debts 3,100
Bank 80,536
10% debentures 1994 20,000
General reserves 70,000
Ordinary share capital ($1 ordinary shares) 250,000
Profit and loss account balance 7,640
2,177,725 2,177,725

Additional information

14 | P a g e
 i. Inventory at 31 march 1992;
Raw materials $26,300
Work in progress $41,340

The company transfers finished goods from the factory to the Income Statement at a cost of
$627 per unit , this being factory cost plus 10% manufacturing profit . This price has been
unchanged for the past two years

Provision has to be made for unrealised profit on the stock of finished goods at 31 March1992

ii. Sales have been at a constant price throughout the year with 2,383 units sold
iii. Rates and insurance are apportioned between the Factory and General administration on the
basis 70:30 , and include a prepayment of $100 .
iv. Provision for bad debts is to be provided at 2% of debtors
v. Rent receivable of $300 is outstanding for the year

vi. Provision is to be made for depreciation as follow :

Premises: 2% p.a. on cost to be apportioned 70:30 between the factory
and general administration.

Plant and machinery: 10%p.a.on cost (exclusive to the factory).The balance

includes new machinery purchased for $15,000
on 1 October 1991. No disposal took place during the year.

vii. An ordinary dividend of $0.10 per share was recommended and a transfer of $50 000 was
transferred to the General Reserve.

viii. The debentures were issued in 1989 and are repayable after five years.

ix. Corporation tax for the year is estimated at $67 140.

Required

a. Manufacturing , Income Statement and Profit and Loss and Appropriation

Account for the year ended 31 March 1992. [18]

b. Statement of financial position for the year ended 31 March 1992. [12]

15 | P a g e
 CLASS DISCUSSION
QUESTION 1

The Statement of Financial Position of Fictitious Ltd on 31 December 2012 appeared as

follows:
$
Non current assets 2 000 000
Current assets 600 000
2 600 000
Equity
Ordinary shares of $0.50 each 1 400 000
10% $1 Redeemable preference shares 200 000
Share premium 300 000
Retained earnings 500 000
2 400 000
Current liabilities 200 000
2 600 000
On 1 January 2013,it was decided to redeem all preference shares at $1.15 each. The shares
had originally been issued at $1.10 each. In order to provide funds for the redemption,
Fictitious Ltd issued a further 250 000 ordinary shares at 60 cents each.

Required
a. Prepare journal entries to record the above transactions. {8}
b. Prepare the Statement of Financial position of James immediately after the above
transactions are completed. {12}

16 | P a g e
 INCLASS EXERCISE [30 MINUTES]

QUESTION 11

Digits Ltd’s Statement of financial position at 30 April 2010 was as follows:

$000
Non-current assets 1 300
Net current assets 740
2 040

Ordinary shares of $1$ 1 200

10% preference shares of $1 300
Share premium account 200
Profit and Loss Account 340
2040

On 1 May 2010, before any further transactions had taken place, it was decided to redeem all
the preference shares at a premium of $0.30. The shares had been originally been issued at
$1.20 per share. In order to provide funds for the redemption, the company issued a further
100 000 ordinary shares at a premium of $0.25.

REQUIRED

Prepare Digits Ltd’s Statement of financial position as it will appear immediately after the
issue of additional ordinary shares and the redemption of the preference share capital. [18]

17 | P a g e
CANDIDATE NAME

ACCOUNTING EXAMINATION PANEL

FORM 6
ACCOUNTING 6001/2
PAPER 2 STRUCTURED QUESTIONS

1 HOUR 45 MINUTES

Candidates answer on the question paper

Additional materials

No additional materials are required

INSTRUCTIONS TO CANDIDATES

Write your name in the spaces at the top of this page.

Answer all questions.

Write your answers in the spaces provided on the question paper.

18 | P a g e
INFORMATION FOR CANDIDATES

The number of marks is given in brackets [ ] at the end of each question or part question.

You may use a calculator.

FOR EXAMINER’S USE

TOTAL

QUESTION 1

The following balances have been extracted from the books of Zama ltd at 31 May 2009.
$
Inventories at 1 April 2008:
Raw materials 14000
Finished goods (at $750 each) 82500
Raw materials purchased 82000
Direct labour 194000
Factory overheads:
Variables 48000
Fixed 215000
Revenue (Sales) 779000
Provision for unrealised profit at 1 April 2008 13750
Administrative and selling expenses 142500
Additional information:
(i) Unit product costs to be used for inventory (stock) valuation purposes are as follows:
$
Raw materials 108, 00
Direct labour 242, 00

19 | P a g e
 Overheads: Variable 60, 00
Fixed 215, 00
625, 00
(ii The unit fixed overhead cost is based on a budgeted annual production of 1000 units.
(iii) 800 units were manufactured during the year ended 31 March 2009 whilst 820 units
were sold.
(iv) Finished goods are transferred from the Manufacturing account to the statement of
comprehensive income (Profit and loss account) at $750 each.
(v) There was no opening and closing work in progress.

(a) For the year ended 31 March 2009, draw up for Zama Ltd the Manufacturing Account:
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

20 | P a g e
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------[11]

(ii) Statement of Comprehensive Income ( Profit and Loss Account)

----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

21 | P a g e
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------[7]

(b) Draw up a Statement of Financial Position (Balance Sheet) extract showing inventories
(stocks) at 31 March 2009
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------[3]

(c) Explain the usefulness of determining profit or loss on manufacture.

----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
.----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

22 | P a g e
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------[4]

QUESTION 2
2 Musiki Ltd purchased the business of Creation, a sole trader on 30 June 2011.
The Statements of Financial Position (Balance Sheets) of both businesses at that date
were as follows .
Creation Musiki
Non- current assets $000 $000 $000 $000
Freehold property 200 500
Plant and machinery 75 300
Vehicles 85 150
Office equipment - 70
Office furniture 30 -
390 1020
Current assets
Inventory 20 50
Trade receivables 30 35
Bank 5 125
55 210
Current liabilities
Trade payables (15) 40 (30) 180
430 1200

Capital 430
Share capital and reserves
Ordinary shares of $1 each 750
Share premium 100
General reserve 150
Retained profit 200
430 1200

23 | P a g e
(i) It was agreed that Creation’s assets should be valued as follows:
$
Freehold property 350 000
Plant and machinery 60 000
Vehicles see item (ii)
Office furniture 20 000
Inventories 12 500
Trade receivables 27 500

(ii) Creation should take over one of the motor vehicles which had a book value of $24 000 at
agreed valuation of $16000.
The remaining vehicles were to be taken over at their book values.
(iii) Musiki Ltd would not acquire Creation’s bank account. All other assets and liabilities
were to be transferred to the company.
(iv)The purchase consideration of $630000 would be settled by the issue of 400 000 ordinary
of $1 each and$130 000 cash.

(a) Prepare Musiki Ltd’s Statement of Financial Position (Balance Sheet) immediately after
the acquisition of Creation’s business

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

24 | P a g e
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------[21]

(b) Calculate the agreed value of an ordinary share in Musiki Ltd and explain why it may be
different from the nominal value.

---------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[2]

(c) Give two reasons why Creation may have accepted shares in Musiki Ltd rather insisting
on a full cash payment.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

25 | P a g e
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[2]

QUESTION 3

Given below are figures taken from the accounts of a small manufacturing company for the
past three years
Year 1 Year 2 Year 3
$ $ $
Finished goods at year end 425 000 429 800 790 800
Purchases for the year 5 400 000 5 600 000 5 800 000
Cost of goods sold 7 500 000 7 800 000 8 920 000
Revenue 8 400 000 8 640 000 9 500 000
Trade receivables at year end 893 700 1 000 000 1 342 000
Trade payables at year end 400 550 520 000 540 000

All purchases and sales are on credit basis.

There are 365 days in the year.

(a) For years 2 and 3, calculate

(i) gross profit percentage,

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

26 | P a g e
----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[4]

(ii) debtors collection period,

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------[4]
(iii) creditors payment period,
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[4]

(iv) stock turnover period,

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

27 | P a g e
------------------------------------------------------------------------------------------------------------[4]

(v) working capital cycle.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[4]

( b) Suggest five ways of improving the working capital cycle.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[5]

28 | P a g e
 QUESTION 4

(a) The following are results of the last two months’ trading at Carribea Tech.

Revenue Total costs Profit

$000 $000 $000

Month 1 770 700 70

Month 2 980 857, 5 122,5

Calculate

(i) the monthly fixed costs

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

29 | P a g e
----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[3]

(ii) the contribution to sales ratio

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[3]

(iii) the break -even sales revenue

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[3]

(iv) the increase in sales revenue, over that in Month 2, necessary to yield a profit of $175000
in Month 3.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

30 | P a g e
----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[3]

(b) Carribea Tech budgeted for Month 3 as follows:

$000 $000
Revenue (400000 units at $90) 3 600
Manufacturing cost of 40000:
Variable material costs 1 440
Variable labour costs 720
Variable production overheads 480
Fixed production overheads 360 (3000)
Profit 600

Carribea Tech is working at 60% of its capacity. It has been asked to supply an additional
12000 units as a one-off special order at a unit cost of $70, 00

(i) Based on relevant workings, should Carribea Tech accept the special order? Justify your
answer.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

31 | P a g e
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------[6]

(ii) Calculate the price necessary to achieve a profit of $90 000 on this special order.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[2]

(iii) State two other factors that Carribea Tech should consider.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

32 | P a g e
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[2]

(iv) State three assumptions which underlie the break-even analysis.

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------[3]

33 | P a g e
 REVISION OF PAPER 1 QUESTIONS

ZIMSEC NOVEMBER 2012/1

ZIMSEC NOVEMBER 2017/1

ZIMSEC NOVEMBER 2014/1

ZIMSEC NOVEMBER 2018/1

REVISION OF PAPER 3 QUESTIONS

ZIMSEC NOVEMBER 2010/1

ZIMSEC NOVEMBER 2013/1

34 | P a g e
 ZIMSEC NOVEMBER 2011/1

ZIMSEC NOVEMBER 2017/1

MID YEAR EXAMINATIONS

35 | P a g e