Section A
Answer ALL questions in this section
Question 1. Tattoo Ltd has gathered the following information at 30 June 2015.
|
Net sales
|
37,000 |
|
Cost of sales
|
23,000 |
|
Expenses (including $1,300 depreciation)
|
8,000 |
|
Profit
|
6,000 |
|
|
Beginning Balance
$
|
Ending Balance
$
|
|
Accounts receivable
|
5,000
|
4,000
|
|
Inventory
|
7,000
|
9,000
|
|
Accounts payable
|
4,000
|
7,000
|
|
Prepaid expenses
|
2,000
|
1,500
|
|
Accrued salaries
|
5,000
|
5,300
|
Required:
Using the indirect method, calculate the net cash used in operating activities.
Question 2. The Managing Director of a private limited company asks for your assistance in arriving at a decision as to whether to continue manufacturing component X or to buy it from an outside supplier.
Component X is used in the finished products of the company. The following data are supplied:
1. The annual requirements of component X is 10,000 units, the quotation from the outside supplier is $8 per unit.
2. The total expenses of the machine shop for the year 2015 where component X is made, are as follows:
|
Materials
|
135,000 |
|
Labour
|
100,000 |
|
Indirect labour
|
40,000 |
|
Power and fuel
|
4,000 |
|
Repairs
|
11,000 |
|
Rates and taxes
|
16,000 |
|
Depreciation
|
20,000 |
|
Other overheads
|
29,600 |
3. The following expenses of the machine shop apply to the manufacture of component X:
Materials 35,000
Direct labour 56,000
Indirect labour 12,000
Power and fuel 600
Repairs 1,000
The sale of the machinery used for the manufacture of component X would reduce the annual depreciation by $4,000 and insurance by $2,000.
If component X is purchased, the following additional expenses would be incurred: freight $1 per unit, inspection $10,000 per annum.
Required:
Prepare a report to the Managing Director showing the comparison of expenses to the company:
(a) Of producing the component.
(b) Of purchasing it from the outside supplier.
(C) And recommending the most advantageous course of action to the company, justifying your decision.
Question 3. PT Corporation is to launch a new product and the initial findings are as follows:
1. The cost per unit will be:
Material 25
Labour 10
Overheads 12
47
2. The no stock holding periods are:
Raw materials 6 weeks
Finished goods 4 weeks
3. 2 weeks are required for the production process.
4. Credit terms:
Material 8 weeks
Wages 1 week
Overheads 4 weeks
Debtors 8 weeks
5. It is planned to produce 50 units per week.
6. The selling price per unit will be $55.
Required:
Calculate the amount of working capital required for the new product, showing all the workings.
Section B
Answer ANY TWO questions in this section.
Question 1
Molly Ltd's trial balance at 30 April 2015 was as follows:
|
|
$000 |
$000 |
|
Revenue
|
|
300 |
|
Inventory at 1 May 2014
|
20 |
|
|
Purchases
|
113 |
|
|
Sales office salaries
|
57 |
|
|
Selling expenses
|
39 |
|
|
General office wages
|
32 |
|
|
Other general expenses
|
35 |
|
|
Warehouse machinery at cost
|
70 |
|
|
Provision for depreciation of warehouse machinery
|
|
30 |
|
Office machinery at cost
|
42 |
|
|
Provision for depreciation of office machinery
|
|
20 |
|
Trade receivables
|
38 |
|
|
Balance at bank
|
28 |
|
|
Trade payables
|
|
11 |
|
10% debentures 2021/22
|
|
5 |
|
50,000 ordinary shares of $1
|
|
50 |
|
10,000 6% non-redeemable preference shares of $1
|
|
10 |
|
Share premium account
|
|
15 |
|
General reserve
|
|
25 |
|
Retained earnings
|
|
8 |
|
|
474 |
474 |
Further information:
1. Inventory at 30 April 2015 was valued at $31,000.
2. Depreciation for the year is to be provided as followed:
Warehouse machinery $8,000.
Office machinery $10,000.
3. $10,000 is to be transferred to the general reserve.
Required:
(a) Prepare Molly Ltd's income statement for the year ended 30 April 2015.
(b) Prepare Molly Ltd's statement of changes in equity for the year ended 30 April 2015.
(c) Prepare Molly Ltd's statement of financial position at 30 April 2015.
Question 2.
A company's management accountant has prepared the following budget for the five months November to March.
|
Nov |
Dec |
Jan |
Feb |
Mar |
| Raw materials consumed |
50 |
60 |
69 |
77 |
60 |
| Wages |
40 |
40 |
40 |
48 |
40 |
| Depreciation |
9 |
9 |
9 |
9 |
9 |
| Factory expenses |
6 |
6 |
6 |
6 |
6 |
| Rent |
4 |
4 |
4 |
4 |
4 |
| Advertising |
15 |
14 |
12 |
16 |
12 |
| Administrative expenses |
20 |
20 |
20 |
20 |
20 |
| Sales |
150 |
160 |
170 |
190 |
170 |
| Profit |
6 |
7 |
10 |
10 |
19 |
| Raw materials stock (month end) |
60 |
70 |
80 |
70 |
50 |
The following information is also available:
1. The bank balance at 1 January will be $10,000.
2. Suppliers are paid one month after delivery.
3. Factory and administrative expenses are paid during the month incurred.
4. Wages are paid one quarter of a month in arrears.
5. On average, debtors take two month's credit.
6. During January a corporation tax liability of $15,000 will be settled.
7. Rent is paid quarterly in arrears on the last day of December, March, June and September.
8. Two months credit is allowed by the advertising agency.
Required:
(a) Prepare a purchase budget for the four month period December - March.
(b) Prepare a cash budget for the three month period January - March.
Note: Show all relevant workings.
Question 3
Expel Plc uses a variety of machines to produce aluminum sheets. One of these machines is to be replaced. The management is considering two alternative models. Each model has an estimated life of 5 years. Details of the two models are given below:
|
Models
|
A
|
B
|
|
|
$
|
$
|
|
Cost
|
75,000
|
90,000
|
|
Expected net cash flows:
|
|
|
| Year 1 |
12,000
|
18,000
|
| 2 |
24,000
|
36,000
|
| 3 |
30,000
|
30,000
|
| 4 |
15,000
|
18,000
|
| 5 |
12,000
|
12,000
|
|
Trade in value (end of year 5)
|
9,000 |
15,000
|
Present Value of $1
Year 1 2 3 4 5
|
10%
|
0.9091
|
0.8264
|
0.7513
|
0.6830
|
0.6209
|
|
15%
|
0.8696
|
0.7561
|
0.6575
|
0.5718
|
0.4972
|
Required:
(a) Compute which of the two models is likely to yield the better return (based on net present value (NPV) method) using as the required rate:
(b) (i) Describe, illustrating with figures from part (a), how you would apply the internal rate of return (IRR) method.
(ii) Explain why your conclusions using this method might differ from the NPV approach, and which is the recommended method.