ACF5903 PAPER 1 Past exam 2
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Past exam 2
Examination Period
Faculty ofBusiness and Economics
ACF5903
PAPER 1
Question 1
Briefly answer any six (6) of the following eight (8) parts to Question 1.
(a) Explain the meaning of accrual accounting and discuss why accountants use this
approach to measure profit.
(b) Predator Ltd acquired Prey Ltd at a cost of $3,900,000. The fair value of Prey Ltd’s
assets is assessed at $4,100,000 and the fair value of its liabilities at $500,000. Calculate the amount of goodwill to be recorded in the balance sheet of Predator Ltd. Describe how goodwill is classified in the balance sheet.
(c) “It is always best to maintain a level of working capital that is as high as possible” . Evaluate this statement and explain your answer.
(d) The balance sheet is a financial report that details the entity’s assets, liabilities and equity at reporting date.
(i) Outline the definition and recognition criteria for assets. Provide an example to illustrate your answer.
(ii) The Conceptual Frameworkfor the Preparation and Presentation of Financial
Statements (Framework) defines equity as a ‘residual’ . Explain how this amount is a residual.
(e) “Numerous measurement systems can be used to measure elements on the balance
sheet”. Discuss this statement making reference to how property, plant and equipment is measured.
(f) Discuss the problems involved in classifying costs as either fixed or variable in cost ‐
volume ‐profit analysis. Discuss the assumptions used in this technique.
(g) Explain the advantages and disadvantages of using factoring as a source of short‐
term finance.
(h) Explain what the balanced scorecard is and suggest three (3) performance measures
that are relevant from an innovation and improvement perspective.
(6 x 4 = 24 marks)
Question 2
a) Sam and Sandra Partnership provide property management services to its clients. The following information relates to the year just ended.
Balance Sheet (extract) |
|
|
As at 30 June 2014 |
|
|
|
2014 |
2013 |
Cash |
$59,000 |
$37,000 |
Accounts Receivable |
$46,000 |
$34,000 |
Prepaid Expenses |
$8,000 |
$5,000 |
Accounts Payable |
$28,000 |
$33,000 |
Income Statement |
|
|
For year ending 30 June 2014 |
|
|
Sales Revenues |
|
$183,000 |
Operating Expenses |
|
132,000 |
Profit |
|
51,000 |
Operating expenses include depreciation of $5,000 |
|
|
Required:
For the period ending 30 June, 2014, calculate receipts from customers and payments to
suppliers and prepare the operating activities section of the Statement of Cash Flows.
7 marks
Questions 2 b) and c) refer to the following Statement of Cash Flows for Tabourine
Ltd:
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Income taxes paid
Net cash provided from operating activities
Cash from Investing Activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment Net cash from Investing Activities
Cash from financing activities
Proceeds from equity
Proceeds from borrowings
Repayment of borrowings
Distributions Paid
Net cash flow from financing
activities
Net increase/decrease in cash for
the year
Cash at beginning of the financial
year
Cash at the end of the financial year
$199,000 ($201,000) $14,000 ($8,000) ($3,000) $1,000
($30,000) $80,000 $50,000
$20,000 $20,000 $0 ($50,000)
($10,000)
$41,000
$100,000 $141,000
Required:
b) Explain the meaning of the three different types of activity reported in the Statement of Cash Flows. 6 marks
c) As a user of this report, identify three issues that are significant in your assessment of this company’s performance. Justify your choices by explaining why they are significant. 9 marks (7 + 6 + 9 = 22 marks)
Question 3
Farmers Ltd is a manufacturer which manufactures equipment for agricultural purpose. The following information is provided by Farmers Ltd.
FARMERS LTD
Income Statement
for the year ended 30 Dec 2014
|
|
180 000 |
Rent Revenue |
|
15 000 |
Total Income |
|
195 000 |
Expenses |
|
|
Salaries Expense |
120 000 |
|
Supplies Expense |
22 000 |
|
Rent Expense |
34 000 |
|
Insurance Expense |
3 800 |
179 800 |
EBITDA |
|
15 200 |
Depreciation Expense |
|
3 600 |
Profit |
|
$11,600 |
FARMERS LTD
Balance Sheet (extract)
As at 30 Dec 2014
Non ‐current Assets
Plant & Equipment
Accumulated depreciation
Carrying value
$180,000
$3,600
$176,400
Required:
a) The Plant & Equipment was purchased on 1st January 2014. The Notes to the Accounts show the method of depreciation of Plant & Equipment is straight‐line and the residual value is estimated to be $0. What is the estimated useful life of these assets? Comment on the reasonableness of the estimate you calculate. 4 marks
b) Auditors were engaged to review the financial statements prior to their release and they requested the assets be depreciated over a ten year period. Calculate the profit that would result in the period ended 30 Dec 2014 from this adjustment. 3 marks
c) Interpret the significance of this adjustment for users who rely on financial statements generally for the purpose of their decision ‐making. Explain another situation (not related to depreciation) where critical interpretation of financial statements may be required. 4 marks
d) In the specific case of Farmers Ltd, interpret the significance of the adjustment in (b) for both cash flow from operations, and reported profit. (Note: this question does not require
calculation of cash flow from operations). 4 marks (4+3+4+4=15 marks)
Question 4
The accountant for Fast Freight Services is preparing its cash budget for November and December 2015. The accountant, Fred, has collected the following information regarding expected credit sales:
September October November December
Credit sales $140 000 $160 000 $200 000 $230 000
Fred has analysed the accounts receivable records for the past few years and has determined that customers normally pay 60 per cent in the month of sale, 30 per cent in the month following the sale, and 8 per cent in the second month following sale. The remaining 2 per cent is considered a bad debt and uncollectable.
Required
a) Prepare a Schedule of Expected Receipts from Accounts Receivable for November and December 6 marks
Questions (b) and (c) refer to the Cash Budget below.
Toorak Travel Services
Cash budget for quarter ended September 30 2015.
|
July $ |
Aug $ |
Sept $ |
TOTAL $ |
ANTICIPATED RECEIPTS Initial capital Fees received
Total receipts ANTICIPATED PAYMENTS advertising and marketing cash withdrawals computer equipment administration Rent
Total Payments Excess (Deficit) receipts over payments Bank balance at beginning of month Bank Balance at End of Month |
10000 8200 |
6900 |
15200 |
10000 30300 |
$18,20 0 |
$6,900 |
$15,200 |
$40,300 |
|
3000 1500 8000 1300 1800 |
2400 1500
1300 1800 |
2000 1500
1300 1800 |
7400 4500 8000 3900 5400 0 |
|
$15,60 0 |
$7,000 |
$6,600 |
$29,200 |
|
$2,600 |
($100) |
|
2023-02-14