BMAN10621B FUNDAMENTALS OF FINANCIAL REPORTING 2021
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BMAN10621B
FUNDAMENTALS OF FINANCIAL REPORTING
2021
SECTION A (COMPULSORY) – Answer BOTH questions
Question 1 (40 marks)
The following trial balance has been extracted from Mary’s books:
The following information is also available:
1. Inventory as at 31st December 2019 was £200,000.
2. On 21st December 2019 it was discovered that a debtor owing £20,000 had gone into liquidation.
3. It is the policy of Mary’s to make an allowance for trade receivables of 5% of trade receivables.
4. The depreciation methods used are:
i. Plant and machinery – 40% reducing balance
ii. Office equipment – 20% straight line
5. 20% of the rent paid this year is for the period January-March 2020.
6. An electricity bill for £20,000 arrived on 12th January, covering the period November- December 2019.
7. Taxation for the year is estimated to be £60,000 .
Required:
a) Prepare an income statement for the year ended 31st December 2019 (14 marks)
b) Prepare a statement of financial position as at that date (11 marks)
c) Outline the relative purpose and value of the following three primary statements:
i) Statement of financial position
ii) Income statement
iii) Cash flow statement (6 marks)
d) What are the main criteria for recognising revenue from the sale of goods?
(3 marks)
e) Book value and market value are often different. Provide 3 reasons why this is the case. (6 marks)
Total: 40 Marks
Question 2 (35 marks)
The extract of the statements of financial position of Axis plc as at 31 December is below:
Additional information:
The company reports profit before taxation of £100,000 and depreciation expense of £20,000 for the year ending 31 December 2019.
Interest expense for the year to 31 December 2019 is £10,000. Interest of £7,000 was paid during the year.
Required:
a) Using the indirect method, calculate Axis plc’s cash flow from operating activities part of the Cash Flow Statement for the year to 31 December 2019. (15 marks)
b) Give five reasons why the profit made during an accounting period is different from the cash generated during the same period. (10 marks)
Question 2 continued
c) You have obtained the following summarised cashflows for Axis plc shown below: £
Net cash flow from Operating activities 45,000
Net cash flow from Investing activities (217,000)
Net cash flow from Financing activities 130,000
How would you explain this information to your friend who has no accounting knowledge? (10 marks)
Total: 35 Marks
SECTION B – Answer ONE question
If you answer two questions in Section B, the question which first appears on your script will
be marked and the other will be disregarded.
Question 3 (25 marks)
The following balances have been extracted from the Income Statement for the year ending 31 December and the Statement of Financial Position as at 31 December for a clothes manufacturer Genesis Ltd:
Required
a) Calculate for each year, the following ratios for Genesis Ltd:
i. Return on capital employed ratio
ii. Acid test ratio
iii. Trade receivables settlement period ratio (in months)
iv. Interest cover ratio
v. Gearing ratio (use capital employed in the denominator) (10 marks)
b) Comment on ratios calculated in part (a) (10 marks)
c) What are the primary benefits and limitations of financial ratio analysis? (5 marks)
Total: 25 Marks
Question 4 (25 marks)
Answer all parts below
a) What are the characteristics which need to be met before an asset can be included on the Statement of Financial Position? (4 marks)
b) Explain what you understand by the term ‘corporate governance’ and give two examples of good corporate governance practices that large companies are expected to follow in the UK. (4 marks)
c) Financial statements are affected by choices and judgements. To what extent do you think there is a need for rules and regulation in accounting? Your answer should make reference to any areas where you think there is still a substantial level of choice and
judgement available in the preparation of corporate financial statements. (7 marks)
d) Below is an extract from Tesco Annual Report 2019 (p. 102).
Required:
i) From the extract from Tesco above, identify the accounting conventions which have been used as a basis for the preparation of Tesco’s group accounts. (2 marks)
ii) Explain the significance of accounting conventions in the preparation of the finaicial statements in terms of how these conventions help enhance the qualities of accounting informaton (8 marks)
Total 25 marks
2022-01-20