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ACFI290

JANUARY EXAMINATIONS 2021

Financial Reporting and Finance (Non-Specialist)

PART A:  Short Answer Questions (5 marks each); [Total mark 40]

Question A1

Explain three internal short-term sources of financing a business. Discuss advantages and disadvantages of one of these three sources of financing.

Question A2

A liability to capital gains arises when a “chargeable person” makes a “chargeable disposal” of a “chargeable asset”.   Explain what is meant by each of the terms underlined.

Question A3

Explain the accounting conventions influencing the statement of financial position.

Question A4

Outline and explain three different methods a company can use to issue shares.

Question A5

The cost of a company’s non-current assets is £24,000.  The directors have to choose between charging depreciation at 10% per annum by the straight-line method and charging depreciation at 10% per annum by the reducing balance method.

How much greater will the profits of the business be over three years if the reducing balance rather than the straight-line method is adopted?

Question A6

A company has 5 million ordinary shares in issue with a market price of £3.00 per share. The company is about to make a rights issue that will give the right to buy one new share for £1.50 for every five shares held.

What is the theoretical ex-rights price of the company’s shares?

Question A7

A taxpayer has taxable income for 2017/18 (after deducting personal allowance) of £187,500.  None of the income is derived from savings or dividends.  Calculate the income tax liability of the tax payer.

Question A8

PART B:  Long Answer Questions (20 marks each)

Question B1

You are an investment analyst working for a pension fund with a significant investment in Vital Trade Plc, a company whose shares are listed on the London Stock Exchange.  You have recently received Vital Trade Plc’s income statement and statement of financial position for the financial year ended 30 December 2019. You also have its income statement and statement of financial position for 2018. All the statements are below:

Vital Trade Plc Income Statements 2018and 2019

Vital Trade Plc Statements of Financial Position 2018 and 2019

Required:

a) Calculate financial ratios for 2018 and 2019 for the following:

(1) Gross profit margin;

(2) Return on Capital Employed;

(3) Inventory days;

(4) Receivables days;

(5) Payables days

(6) Gearing;

You are required to show formula used and workings for each ratio. (12 marks)

b) Prepare a report containing comments upon the ratios that you have calculated

with reference to the company’s profitability, efficiency and financial position.

(8 marks)

[ Total 20 marks]