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ACCOUNTING, PURCHASING & COST CONTROL
Instructions to candidates:
a) Time allowed: Three hours (plus an extra ten minutes’
reading time at the start – do not write anything during time)
b) Answer Question 1 and any other THREE questions
c) Question 1 carries 40% of the marks, all other questions
carry 20% of the marks. Marks for each question are shown in [ ]
d) Non-programmable calculators are permitted in this
examination
1. You work as the accountant of a company called PMQ Ltd,
and have just taken out the trial balance as at
29 February 2016:
£dr £cr
Bank 2,000
Cash 1,000
£1 Ordinary share capital 100,000
5% Debentures 100,000
Profit and loss account (01 03 15) 158,000
Long-term bank loan 150,000
Sales 1,570,000
Purchases 995,000
Inventory 62,000
Accounts receivable 95,000
Accounts payable 43,000
Business rates 51,000
Insurance expenses 29,000
Energy costs 47,000
Marketing 55,000
Loan interest paid 6,000
Payroll costs 236,000
Communication expenses 22,000
Buildings at cost 460,000
Equipment at cost 100,000
Equip. depreciation (01 03 15) 40,000
------------ ------------
2,161,000 2,161,000
======= =======
Notes at 29 February 2016:
• Inventory was valued at £60,000
• Insurance expenses prepaid amounted to £3,000
• Payroll costs owing amounted to £7,000
• The debenture interest is due for payment on 1 March 2016
• The equipment is to be depreciated by 25% on cost
• The directors wish to provide £34,000 for taxation
• The directors have declared a dividend of 18p per share
Question 1 continues overleaf
TASKS
a) Prepare the income statement for the year ended 29
February 2016. [12]
b) Prepare the position statement as at 29 February 2016.
[12]
c) Calculate the following:
i Gross profit as a percentage of sales
ii Net profit after tax as a percentage of sales
iii The current ratio
iv The acid test ratio [2 each]
d) Comment on the financial performance of PMQ Ltd over the
financial year. [8]
Note: the equivalent ratios for the previous financial year
were as follows:
Gross profit percentage 34%, Net profit before tax
percentage 7.4%, Current ratio 1.9:1,
Acid test ratio 1.1:1
2. A restaurant compiled the following simplified profit and
loss account for the year ended 29 February 2016:
£
Sales (63,000 covers) 1,764,000
Cost of food and beverage (V) (819,000)
Employee costs (V) (252,000)
Advertising and marketing costs (F) (160,000)
Other expenses (inc. depreciation) (F) (210,000)
-------------
Profit before tax 323,000
Note: (V) = variable costs, and (F) = fixed costs.
TASKS
a) Calculate the following:
i The average receipt per cover (customer) [1]
ii The average employee cost per cover (customer) [1]
iii The average contribution per cover (customer) [2]
b) It is possible to enlarge the restaurant area. This would
increase the other expenses (F) by 20%, however, they would not spend more on
advertising. It is thought that such a move would increase the number of covers
to 75,000. Prepare a revised simplified profit and loss account based on this
scenario. [8]
c) Explain the term fixed costs, giving appropriate examples.
[4]
d) Explain the term variable costs, giving appropriate
examples. [4]
3. The Music Museum is a tourist attraction. The Music
Museum includes a café and a shop. The following are the receipts and payments
for the year ended 29 February 2016:
£ (payments) £
(receipts)
Entrance fees 465,000
Café sales 390,000
Shop sales 180,000
Café cost of sales 108,000
Shop cost of sales 52,000
Advertising 100,000
Business rates and insurance 60,000
General wages 250,000
Communication expenses 40,000
Other expenses 20,000
Depreciation 60,000
The business is divided into three profit centres: M – the
museum section, C – the café, and S – the shop.
The cost of advertising is wholly allocated to M whilst all
other overheads are to be apportioned 70% to M, 20% to C and 10% to S.
TASKS
a) Prepare an analysed profit statement. The profit
statement must show the gross profits of C (the café) and S (the shop), and
also the net profits of M (the museum section) and C and S. [12]
b) Explain the relevance of budgetary control. [8]
ontinued overleaf
4. You are thinking of buying a hotel. You have carried out
a great deal of research and have two possible
choices. C (The Chococo) and J (The Jelico). You have
established the following future cash flows:
C J
£ £
Initial cost 3,500,000 3,500,000
Net surplus returns:
Year 1 730,000 820,000
Year 2 760,000 850,000
Year 3 790,000 860,000
Year 4 970,000 900,000
Year 5 1,000,000 930,000
The average cost of borrowing is 8%.
NPV (DCF) factors at 8%:
Year 0 1.000
Year 1 .926
Year 2 .857
Year 3 .794
Year 4 .735
Year 5 .681
TASKS
a) Calculate the payback period for both C and J. [3]
b) Calculate the accounting rate of return for C and J. [3]
c) Calculate the NPV for C and J. [8]
d) Explain, with reasons, which of the hotels you would
invest in. [6]
5. Write notes on FOUR of the following:
a) Stock control systems
b) A payroll system
c) Standard costing
d) The reasons for recording all financial transactions
e) VAT
f) A limited company
g) Sources of business finance
h) Accounting concepts [5 each]