THIS PAPER IS NOT TO BE REMOVED FROM THE EXAMINATION HALL

BA1540
BSc Examination 2020

Business Administration (New Regulations)

International business and accounting

[Day, date, year: start time – end time]

Time allowed: TWO hours

DO NOT TURN OVER UNTIL TOLD TO BEGIN

Answer ALL questions

Write legibly and in pen

Electronic calculators may be used. These should be of a hand-held non-

programmable (where relevant) type and the name and model should be stated
CLEARLY on the front of your answer book.

© University of London 2020

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SECTION A (20 MARKS)
Answer ALL questions from this section in the ANSWER BOOKLET by selecting the
correct response (either A, B, C, or D)
There is only ONE correct response to each question in this section

1. Which of the following investment appraisal techniques does NOT recognise the
time value of money?
a. Accounting rate of return
b. Net present value
c. Internal rate of return
d. Discounted Payback method (2 marks)

2. Which one of the following will NOT affect the calculation of profit of a limited
company?
a. Depreciation expenses
b. Motor vehicle expenses
c. Motor vehicles at cost
d. Purchases of goods for resale (2 marks)

3. Which one of the following would NOT appear on the Statement of Financial
Position of a limited company?
a. Drawings
b. Inventories
c. Trade receivables
d. Debentures (2 marks)

4. Hyatt Enterprises purchased a new motor vehicle. The following information has
been provided by the company’s directors:
List price of the motor vehicle £82,124
Estimated Residual value £6,000
Estimated useful life: 4 years

Calculate the depreciation expense for the second full year of ownership
using the straight- line method
a. £19,502
b. £22,031
c. £19,031
d. £20,531 (2 marks)

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5. Which of the following does not involve a movement of cash?
a. Issue of additional debentures
b. Depreciation of office buildings
c. Payment of rent expense
d. Purchase of office furniture (2 marks)

6. Which of the following is not a current liability?

a. Accrued expenses
b. Bank overdraft
c. Trade payables
d. Trademark (2 marks)

7. Owner’s Equity may be calculated as:

a. Current assets less current liabilities
b. Total assets less liabilities
c. Opening capital plus net profit plus trade payables
d. Opening capital plus drawings minus net profit (2 marks)

8. Qualitative characteristics of financial reporting information are:

a. Irrelevant
b. Difficult to identify and should be ignored
c. The attributes that make the information in Financial Statements useful
d. Conventions which hold that each business should be regarded as
having a separate legal existence from its owners (2 marks)

9. A company has the following non-current asset transactions. Non-current assets

were sold for £25,000. Non-current assets purchased cost £600,000, part of these
costs (£300,000) are unpaid at the year end. Depreciation for the period is
£75,000. Calculate the net ‘Investment' cash flow for the year.
a. Inflow of £200,000
b. Outflow of £275,000
c. Inflow of £275,000
d. Outflow of £200,000 (2 marks)

10. An entity can have a profit for the year but still experience a reduction in its cash.
Which of the following might cause this to happen?
a. A reduction in the number of days it takes to convert trade receivables
into cash
b. Depreciation
c. A reduction in the number of days it takes to pay suppliers
d. Sale of non-current assets at a loss (2 marks)

(Total: 20 marks)

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SECTION B (80 MARKS)
Answer ALL questions from this section in the ANSWER BOOKLET.

11. A business produces three main financial statements, one of which is the
Statement of Cash Flows.

Required:
a. Briefly explain the nature and purpose of the Statement of Cash Flows.
(8 marks)
b. Consider the following transactions:

i. Purchased Office furniture for £200,000 cash.

ii. Issued 10,000 equity shares at a premium of £3 each (par value of
£1).
iii. Received cash from the sale of non-current assets in the amount
of £55,000.
iv. Interest paid on existing debentures £47,000.
v. Depreciation on office equipment for the year was £84,000.
vi. Trade receivables increased by £10,000 during the year.
vii. Issued £530,000 in additional debentures.

Required:
Identify the category of the Statement of Cash Flows in which each transaction
would be reported. You are only required to state one category per transaction.
(14 marks)
(Total: 22 marks)

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12. The following are the summarized financial statements of Philly and Prussia, two
companies that operate in the same industry:
Statement of financial position as at December 31, 2018
Philly Prussia
£m £m
ASSETS
Non-current assets 790 1,000
Current assets
Inventories 1,200 1,800
Trade receivables 720 1,200
Bank 190 –
2,110 3,000
Total assets 2,900 4,000
EQUITY AND LIABILITIES
Equity
Capital 1,160 1,756
Retained earnings 340 404
Total equity 1,500 2,160
Non-current liabilities
Loan 500 –
Current liabilities
Trade payables 900 1,040
Bank overdraft – 800
Total current liabilities 900 1,840
Total liabilities 1,400 1,840
Total equity and liabilities 2,900 4,000

(QUESTION CONTINUES ON NEXT PAGE)

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Income Statement for the period ending October 31, 2018
Philly Prussia
£m £m £m £m
Sales Revenue 6,000 7,200
Less: Cost of goods sold
Opening inventory 1,000 1,500
Add: purchases 4,760 5,916
5,760 7,416
Less: closing inventory (1,200) 4,560 (1,800) 5,616
Gross profit 1,440 1,584
Expenses (1,100) (1,180)
Profit for the year 340 404

Required:
a. Calculate the following ratios for the two companies:
i. Gross margin percentage
ii. Long-term debt to equity ratio
iii. Asset turnover ratio

Show all formula, ratios and workings clearly. (12 marks)

b. Using the gross margin and asset turnover ratios you have calculated for
the two companies, explain which of the two companies is performing
more efficiently and is more profitable. (6 marks)
(Total: 18 marks)

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13. The following balances have been extracted from the accounts of Radnor
plc on 31 December 2019:
£’000 £’000

Ordinary Shares (£1 nominal value) 4,200

10% Debentures 1800
Share premium account 290
Dividends on Equity Shares 280
Retained Earnings 850
Freehold Buildings at cost 1,600
Delivery Vans 1,500
Accumulated depreciation Delivery Vans (at 1/01/2019) 225
Plant & equipment at cost 1,000
Accumulated depreciation Plant & equipment (at 1/01/2019) 220
Allowance for Irrecoverable Receivables 40
Purchases 960
Sales Revenue 2,450
Administrative salaries 500
Selling & Distribution Expenses 480
Inventory (at 1/01/2019) 170
Trade receivables 1500
Trade payables 180
Bank Balance 2200
Interest expense 65
10,25 10,25
5 5

Additional Notes:

1. Closing Inventory at 31 December 2019 was valued at £450,000.

2. The allowance for irrecoverable receivables is to be increased to £120,000 for
year ended 31 December 2019.
3. Included in administration expenses, above, is an amount prepaid of £105,000.
4. Administration expenses of £35,000 used in December 2019 is to be accrued.
5. Debenture interest of £115,000 for the year is to be accrued.

(QUESTION CONTINUES ON NEXT PAGE)

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6. Depreciation is to be allocated to distribution expenses and charged as follows:
 Plant and equipment: Straight-line method over 10 years with no residual
value.
 Delivery vans: 15% per annum straight line method with no residual value.
 Freehold Buildings: no depreciation.
7. Corporation tax of £30,000 will be payable on the current year’s profits.

Required:
From the table and additional notes:
a. Prepare the Statement of Profit or Loss for Radnor plc for the year ended
31 December 2019. (26 marks)

c. Prepare an extract of only the asset section of the Statement of financial

position for the year 31 December 2019. (14 marks)

You ARE required to show all workings clearly. (Total 40 marks)

END OF PAPER

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