BA1540

BSc Examination 2021

Business Administration (New Regulations)

International business and accounting

Release date: Tuesday 18 May 2021, 10 am British Summer Time

Time allowed: 24 hours

Submission date: Wednesday 19 May 2021, 10 am British Summer Time

Answer ALL questions

The total permissible word count for this paper is 2500 words

All work must be submitted and uploaded as a single Word document or PDF file.
Any diagrams or calculations including tables may be drawn electronically and then
either copied/pasted or inserted as a screenshot into the Word document.
Alternatively, diagrams or calculations including tables can be drawn by hand on
paper and then scanned or photographed and included within the Word document.

Work submitted must be your own. Where you have quoted or made use of material
written by others in the online exams you must reference this appropriately using in-
text references (a bibliography/reference list is not required for the online exams).

© University of London 2021

UL21/0396 Page 1 of 6
SECTION A (20 MARKS)
Answer ALL questions from this section

1. Each of the scenarios set out below is concerned with an accounting topic which
has been covered on BA1540. You are to identify the accounting topic and provide
advice on the issues presented.

Scenario 1
The manager of the FG division of the British Glass Company has the opportunity of
investing in new plant and equipment. The cost of the investment will be £60 million,
and the anticipated profit before tax arising from the investment is £9.6 million per
year for the lifetime of the new plant and equipment.

Using the concepts covered on BA1540, explain to the FG division manager how he
should evaluate the potential investment. In your discussion, you should outline the
merits and demerits of each method and identify any additional information that will
be required for making a decision about this potential investment.
8 marks

Scenario 2
Jenny Kitty Ltd. (JKL) is a private company which manufactures and sells bottled
green juices. The company prides itself on its ability to contribute to the health of
communities and its corporate customers. At the beginning of the accounting period,
as usual, JKL paid rent, insurance and rates in advance.

However, as a result of the ongoing pandemic, JKL has experienced problems with
collecting monies from its customers to whom it sold on credit. In fact, it is expecting
to write off an additional 10% of its receivables. JKL is worried that its cash position
will make it difficult for it to pay its suppliers on time.

Briefly explain the implications of JKL’s current position on its financial statements. In
your discussion, suggest one way that JKL can address its anticipated inability to
meet its obligations to its suppliers.
6 marks

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Scenario 3
BCT Ltd has been offered the sum of £25 million for one of its manufacturing
equipment. The equipment was bought at the beginning of the accounting period on
Jan 1, 20X4 and was estimated to have a salvage value of zero at the end of its 5-
year useful life. The annual depreciation charge on the equipment was £24 million.
The sale is expected to take place on July 1, 20X7 if BCT Ltd accepts the offer.

Advise BCT on whether to accept the offer. You should use appropriate calculations
to support your answer. You should also identify any other financial and non-financial
considerations that BCT must make in arriving at its decision.
6 marks
Total marks: 20

SECTION B STARTS ON NEXT PAGE

UL21/0396 Page 3 of 6
SECTION B (80 MARKS)
Answer ALL questions from this section

2. For each of the following items below, discuss their treatment in and linkages
between the income statement and the statement of financial position.
a. Closing inventory
b. Profit for the year
c. Annual depreciation on non-current assets
d. Provision for irrecoverable receivables
e. Gain on disposal of non-current assets
f. Credit sales
g. Tax payable
Total marks: 21

3. Biggy Ltd manufactures shoes. Below are the company's sales and purchases
transactions for the year 2020.
January 1, 2020 Opening inventory £0
February 5, 2020 Purchases 16,000 units at £3 per unit
April 8, 2020 Purchases 8,000 units at £4 per unit
May 11, 2020 Sold 20,000 units at £8 per unit
July 15, 2020 Purchases 16,000 units at £5 per unit
August 20, 2020 Sold 12,000 units at £8 per unit
September 30, 2020 Sold 5,000 units at £8 per unit

Required:
a. Using the LIFO inventory-costing method calculate closing inventory in units
and £ (pounds) for each of the dates given (you should show workings
clearly).
22 marks
b. You have been told that when the FIFO method was applied to the same data
given in question a. above, the closing inventory value was about 15% higher.
Briefly explain why there are differences in the two closing inventory values for
the two methods and why LIFO is not allowed under IFRS.
7 marks
Total marks: 29

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4. The following are extracts from the financial statements of Fave Ltd:
Statement of financial position at 30 June 2020 2019
ASSETS £ £
Non-current assets
Land 950,000 950,000
Property, plant and equipment 3,937,920 2,803,200

Current assets
Inventories 1,283,760 856,650
Trade receivables and other receivables 1,028,100 672,450
Treasury bills and bonds 190,000 130,000
Cash and cash equivalents 242,410 111,400

Total assets 7,632,190 5,523,700

EQUITY AND LIABILITIES

Equity share capital (£1 shares) 1,262,200 898,400

Non-current liabilities
Debentures (10%) 1,802,200 1,369,000

Current liabilities
Tax payable 628,290 614,610
Trade and other payables 1,040,500 742,390

Total equity and liabilities 7,632,190 5,523,700

(QUESTION CONTINUES ON NEXT PAGE)

UL21/0396 Page 5 of 6
 Income statement for year ended 30 June 2020
£
Operating profit 2,799,360
Finance costs (interest expense) (180,220)
Profit before tax 2,619,140
Income tax (628,290)
Profit for the year 1,990,850

Additional Notes:

1. The company made significant additions to plant, property and equipment

2. During the year, non-current assets with a net book value of £355,600 were
sold for £382,020. The gain on disposal was included in operating profit.

3. Depreciation charged for the current year was £698,700.

4. During the year, Fave made an issue of ordinary shares for cash; the shares
were issued at a premium.

5. During the year, Fave Ltd made an issue of debentures.

6. The treasury bills and bonds are highly liquid and are treated as cash
equivalents in the company.

7. The company does not accrue any interest expense.

8. Tax paid in the current year was £614, 610.

9. Fave Ltd declared and paid dividends of £1,232,750 during the year.

Required:

Prepare the statement of cash flows for Fave Ltd for the year ended 2020 in
accordance with the IAS 7 prescribed format.

Total marks: 30

END OF PAPER

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