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BSC EXAMINATION 2022/23

N1092 Introduction to Accounting, Finance

Assessment Period: May 2023 (A2)

QUESTION 1. This question addresses Learning Outcome 2: Evaluate the risks and rewards of a business, business operation or business proposal, making use of appropriate accounting data.

You are a financial analyst reviewing the draft financial statements of Speedy Coaches Ltd with a view to purchasing the company and have been given the following information.

Required (show your workings, you may refer to the formulae sheet at the end of the paper)

a) Complete the financial statements by preparing the Statement of Cashflows for 2022. (10 marks)

b) Calculate at least five ratios covering profitability, efficiency, liquidity and gearing. (5 marks)

c) Comment on the financial health of Speedy Coaches Ltd. Summarise your findings from b), including a recommendation about whether or not to make the purchase. (5 marks)

d) Discuss the limitations of ratio analysis and identify any further information that may be useful.   (5 marks)        [25 marks in total]       

QUESTION 2. This question addresses Learning Outcome 1: Prepare plans for businesses and business operations, making use of appropriate accounting data.

Your events management company is planning a party and you have been asked to prepare a report for your manager. You have identified the following costs which you think are relevant.

The venue can hold up to 500 people and you think you can sell tickets for £36 each.

Required (show your workings)

Prepare your report addressing the following questions;

a) How many tickets do you have to sell to breakeven?  (3 marks)

b) If you expect to sell 175 tickets, what is the margin of safety?  (3 marks)

c) If your target profit is £500, how many tickets will you need to sell?  (3 marks)

d) How much profit/(loss) will you make if you sell 160 tickets?  (3 marks) [12 marks in total]

QUESTION 3. This question addresses Learning Outcome 1: Prepare plans for businesses and business operations, making use of appropriate accounting data.

Sparkly Shoes Ltd are considering a new shop in Brighton from 1 July 2023.  

· The landlord, Landowners Ltd would pay Sparkly Shoes £10,000 to help fund the shop fit.  

· The shop fit is expected to cost £15,000 excluding Landowners Ltd’s contribution.  

· Rent of £12,000 per year would be payable from 1 July for the duration of the 5 year lease.  

· Additional overheads as a result of opening the shop are expected to be £500 per month.  

· Sparkly Shoes Ltd has already undertaken some market research for which they paid £2,500.  

· Sparkly Shoes Ltd expects the shop to generate contribution each month of £1,000 for the first year and £2,500 per month thereafter.

Required (show your workings and the results):

a) What are the total net costs to Sparkly Shoes Ltd if the shop opens?  (3 marks)

b) What are the total net costs to Sparkly Shoes Ltd if the shop does not open?  (2 marks)

c) Which of the costs are relevant for making this decision?  (3 marks)

d) How much profit or loss would Sparkly Shoes Ltd expect to make in the first year if the shop opens?  (3 marks)  

e) What other considerations should Sparkly Shoes Ltd take into account when making their decision?  (3 marks)   [14 marks in total]

QUESTION 4. This question addresses Learning Outcome 1: Prepare plans for businesses and business operations, making use of appropriate accounting data.

You have recently started working as a temp in the finance department of South Downs Ltd.  You have been given the cash budget for the next four months which was prepared by your predecessor.

South Downs Ltd does not currently have an overdraft facility.

Required:

a) Write a short commentary on the cashflow identifying any problems which you think should be brought to management’s attention.  (3 marks)

b) Make three suggestions which would improve the cash position. (3 marks)

c) What is budgeting for?  Include reference to at least three different budgeting techniques in your explanation and outline both advantages and disadvantages of each.  Support your answer with academic research.  (10 marks)    [16 marks in total]  

QUESTION 5. This question addresses Learning Outcome 4: Effectively communicate a business case, assisted by the use of appropriate accounting information.

Happy Printers Ltd is evaluating four mutually exclusive projects which are competing for the same investment capital.  The company’s main objective is maximising shareholder value.

Some analysis has been performed and you have been given the results by your manager who is not familiar with investment appraisal techniques.

Required

a) Recommend which one of the projects should be undertaken explaining why you have chosen that one.  (4 marks)

b) Discuss the limitation of the investment appraisal techniques used for the benefit of your manager including reference to academic sources to support your explanations.  (12 marks) [16 marks in total]  

QUESTION 6.  This question addresses Learning Outcome 3: Explain how a project or business could be financed.

Plants Ltd operates garden centres but would like to raise some finance to fund their expansion plans.  Plants Ltd has run profitably for many years and has no overdraft.  

Plants Ltd is currently financed by equity and has 100,000 £1 in issue.  Each year the company pays an interim dividend of 0.5p and final dividend of 1.5p per share.  The payment of this dividend means that most of the profits are paid out to shareholders each year with little being transferred to reserves.

Required

a) Calculate the interim and final dividend due for the current year.  (2 marks).

b) Explain the ways a business can internally and externally finance its activities and suggest a course of action for Plants Ltd.  (15 marks)      [17 marks in total]