SECTION A FINANCIAL ACCOUNTING

Q.1 The balance sheet of JINJI Limited for the years ended 30th September 2006 and 2007 show:2006
000s

2007
000s

18,451
3,329

27,401
8,636

15,122

18,765

34,214
32,987
1,543
9,818

36,544
63,147
1,988
7,434

78,562

109,113

93,684

127,878

50,000
23,554

62,000
39,322

73,554

101,322

9,650

11,235

9,650

11,235

7,182
1,111
2,187

8,762
1,124
5,435

10,480

15,321

93,684

127,878

ASSETS
NON-CURRENT ASSETS
At cost
Less:- Depreciation

CURRENT ASSETS
Stocks
Trade Debtors
Interest Receivable
Cash at bank

Total Assets
EQUITY & LIABILITIES
Ordinary Share Capital
Profit & Loss Account

Liabilties falling due after more than one year

HSBC Loans

Liabilities falling due within one year

Trade Creditors
Interest Payable
Taxation

Total Equity and Liabilities

SECTION A FINANCIAL ACCOUNTING

(continued)

and the profit and loss account for the respective years disclosed the following results:

2006
000s

2007
000s

Sales
Cost of Sales

121,575
(86,926)

145,975
(97,073)

Gross Profit
Administrative expenses
Selling & Distribution expenses

34,649
(15,805)
(9,726)

48,902
(18,977)
(11,678)

9,118
1,564
(726)

18,247
1,876
(921)

9,956
(1,724)
8,232

19,202
(3,434)
15,768

Operating Profit
Interest Income
Interest Charges
Profit before taxation
Taxation
Profit after taxation

You are required to prepare a Cash Flow Statement for the year ended 30th September 2007 in accordance
with IAS 7 - Cash Flow Statements

(20 Marks)

SECTION A FINANCIAL ACCOUNTING

(continued)

Q.2 Using the same information given in Question (1) you are required to calculate the following
profitability, liquidity and efficiency ratios for both 2006 and 2007:(1) Gross Profit Margin
(2) Operating Profit Margin
(3) ROCE (owners' perspective)
(4) Working Capital Ratio
(5) Acid Test Ratio
(6) Gearing Ratio (Total Financial Debt)
(7) Debtor Days
(8) Creditor Days - you are to assume that the opening stock figure during 2006 was 32,564
N.B. with the exception of (7) and (8), above, present your answers up to two decimal places.

(16 Marks)
You are also required to comment on the ratios calculated indicating what type of comparison
is involved here.

(4 Marks)

SECTION A FINANCIAL ACCOUNTING

(continued)

Choose either 3(a) or 3(b)

Q 3(a) Many are of the opinion that "CASH IS KING". Indeed, a set of financial statements would not be
complete without the presentation of a cash flow statement (CFS). Identify the three main
components of a CFS as per IAS 7 and explain to a non-accountant what each of the components
portrays.

Q.3(b) Paragraph 9 of the IASB framework for the Preparation and Presentation of Financial Statements,
identifies different external users of financial statements. Select three of them and discuss what particular
information they would look for in a typical set of financial statements.
(10 marks)

ar

SECTION B - FINANCIAL CONTROL

Q.4 MARIORIANISA Co. Limited is going to set up a new business on 1st July 2008. The directors have
submitted the following details to you as their management accountant.
a. 375,000 shares having a nominal value of 1 will be issued on 1st July 2008 at a premium of 50c
and will be fully paid up. The funds will be deposited into the business's bank account on the following day.
b. On 15th July 2008 the company will invest in new office premises costing 450,000 by issuing a cheque
immediately out of the business bank account. On the same day the company will invest in new shelving
costing 85,000.
c. Fees and expenses on the deed of contract will amount to 15,550. These are to be written off immediately.
in the profit and loss account.
d. All purchases will be on credit. The company will initially buy stock costing 150,250. These will be paid for
in August. From then on the company will effect the following purchases paying for them after availing itself
of 60 days credit.

Month
August
155,500
September
125,200
October
145,800
November
165,900
December
195,600
e. Given the nature of the business being a super-market, 95% of sales will be cash sales. However, the company
envisages that the remaining 5% of sales will be on credit to corporate clients. Such clients will pay within 30 days
The budgeted sales figures for the months August - December are as follows:
Month
August
September
October
November
December

186,600
150,240
174,960
199,080
234,720

f. Stock-in-trade on 31st December 2008 will be 250,000

g. Wages and salaries will be 25,500 per month and will be paid on the last day of each month.
h. General expenses will be 12,500 per month, payable in the month following that in which they were
incurred.
i. Insurance covering the 12 months up to June 2009 will be paid for by cheque on 1st July 2008, 35,000
j. Depreciate premises 1% per annum, shelving 10% per annum.
You are required to prepare:
(I) a cash budget for the six months July - December 2008 showing also the total column.

(15 Marks)
(ii) the budgeted profit & loss account for the six months ending 31st December 2008

(5 Marks)

(continued)

SECTION B - FINANCIAL CONTROL

Q.5A

LEENLOR Holdings has decided to abandon its present costing system and change to one using
absorption costing techniques. The company manufactures a soft toy called SAM-EL . Each SAM-EL
has to pass through three production departments namely Machining, Assembly and Trimming.
Within the factory setup, LEENLOR operates two service departments, namely, Engineering and
Stores.
The budgeted overheads for the financial year ending October 2008 are as follows:

25,500
28,200
17,500
50,000
46,000
54,600
59,500
13,500
10,500
31,500

Indirect Material
Indirect Labour
Repairs to factory equipment
Rates
Lighting and heating
Supervisory staff costs
Factory power
Health Insurance
Factory Equipment Insurance
Factory Equipment Depreciation

336,800
The following is data upon which an appropriate basis of apportionment can be determined:
Production Departments

Indirect Material
Indirect Labour
Direct Labour Hours
Machine Hours
Machine Values
Kilowatt hours
Area in square metres
Number of employees
Supervisory Staff
Requisitions received

Machining

Assembly

Trimming

12,500
6,000
1,500
1,000
10,000
2,500
3,000
12
2
1,200

6,500
12,200
800
1,200
18,000
3,000
2,000
16
5
1,000

6,500
10,000
300
700
7,000
1,500
2,200
8
3
800

Service Departments
Engineering

600
6

Stores

200
8

The Engineering department provides services to all the production departments as well as the Stores
in the following proportion
`
Production Departments
Service Departments
Machining

Assembly

Trimming

Engineering

Stores

30%

25%

20%

25%

It has also been established that the total stores department overhead should be apportioned in
proportion to the number of requisitions received from each production department:
You are required to prepare:
(a) an Overhead Absorption Schedule so as to identify the total overhead to be absorbed
by each production department
(ii) Calculate for each production department a pre-determined Overhead Absorption
using both direct labour hours as well as machine hours

(14 Marks)

Your answers should be presented up to two decimal places.

(6 Marks)

SECTION B FINANCIAL CONTROL

(continued)

Choose either Q.6(a) or Q.6(b)

Q.6(a) Any budget exercise involves the production of a master budget. Identify what the master
budget consists of and explain how the implementation of a budget can help to better
motivate an organisation's employees.
Q.6(b) Standard costing is closely related to budgeting. Define what standard costing is and describe
the advantages and disadvantages of implementing such a system.

(10 marks)

LEENLOR Holdings
OVERHEAD ABSORPTION SCHEDULE

Basis

Indirect Material
Indirect Labour
Repairs to factory equipment
Rates
Lighting and heating
Supervisory staff costs
Factory power
Health Insurance
Factory Equipment Insurance
Factory Equipment Depreciation

Apportionment of Engineering CC
Apportionment of Stores CC

Allocated
Allocated
Machine Value
Area
Area
Supervisory Staff
Kilowatt hrs
No. of employees
Machine Value
Machine Value

Engineering

25,500
28,200
17,500
50,000
46,000
54,600
59,500
13,500
10,500
31,500

Trimming

6,500
10,000
3,500
13,750
12,650
16,380
12,750
2,160
2,100
6,300

336,800

106,910

130,420

2,646
2,706
112,262

DLH - OAR

Direct Labour Hours

Machine Hours

Service Departments

Assembly

6,500
12,200
9,000
12,500
11,500
27,300
25,500
4,320
5,400
16,200

336,800

OVERHEAD ABSORPTION RATES

Production Departments
Machining

12,500
6,000
5,000
18,750
17,250
10,920
21,250
3,240
3,000
9,000

%
No. of requistions

Total

OAR/DLH
OAR/MH

Total

Stores

3,750
3,450

1,250
1,150

1,620

2,160

86,090

8,820

4,560

2,205
2,255

1,764
1,804

(8,820)
-

2,205
(6,765)

134,880

89,658

MH - OAR

DLH - OAR

1,500
1,000

800
1,200

300
700

74.84
112.26

168.60
112.40

298.86
128.08