Jun 03, 2017 Assignments

# Describe the money measurement concept and state its limitations.

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ACCOUNTING III

Instructions to candidates:

a) Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

b) Answer ALL questions in Part A and any ONE question in Part B

c) Part A carries 85% of the marks and Part B carries 15% of the marks. Marks for each question are shown in [ ]

d) Non-programmable calculators are permitted in this exam

PART A

1.     The following trial balance has been extracted from the books of Collumbo Ltd for the year ended 29 February 2016:

 DR CR £000 £000 Bank 100 Administration expenses 760 Distribution costs 600 5% Debentures 1,000 Interest paid 60 Non-current assets (net) 1,550 Retained earnings (01/03/15) 420 Purchases 1,800 Sales (all on credit) 4,200 Equity share capital (£1 ords.) 500 Inventory (stock) (01/03/15) 200 Accounts receivable (debtors) 1,400 Accounts payable (creditors) 150 -------- --------- 6,370 6,370 ===== =====

NOTES at 29 February 2016:

Stock (inventory) was valued at £220,000

Corporation tax is estimated to be £210,000

The directors have declared an ordinary dividend of 50p per share

The market price of a single equity (ordinary share) was £19.00

 TASKS a) Prepare the income statement (profit and loss account) for the year ended 29 February 2016. [3] b) Prepare the position statement (balance sheet) as at 29 February 2016. [5]

c) Calculate the following ratios:

i. The gearing percentage

ii. The operating profit (PBIT) as a percentage of sales

iii. The EPS

 iv The PE ratio [4] d) Comment on the financial performance of Collumbo Ltd. Mention any weaknesses. [8] 2. a) Describe the money measurement concept and state its limitations. [7]

b) Comment on the view that the prudence concept results in financial statements that understate

 Profits thereby understating the value for capital. [8]

Continued overleaf

2.     You are presented with the following information from the ABC group of companies for the year to 29 February 2016:

ABC plc

Odean plc

Empire plc

£000

£000

£000

Tangible fixed assets

850

500

350

Investments:

Shares in Odean plc

500

Shares in Empire plc

350

Current assets

850

Stocks

320

230

90

Debtors

400

200

150

Bank

20

10

20

Current liabilities

740

440

260

Creditors

(340)

(240)

(110)

Net current assets

400

200

150

Total net assets

2,100

700

500

Capital and reserves

=====

=====

=====

Ordinary shares (£1)

1,500

500

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