Reference no: EM132433857

Section A

Provide formula/example for each answer

Question 1. If the initial investment is $55,000, and the repayments are as follows: by the end of year 1 $15,000, year 2 $25,000 and year 3 $20,000. What is the payback period (PP)

a) 2.5
b) 3
c) 2.75
d) 2.25

Question 2. Which of the following is an advantage of using the Accounting Rate of Return (ARR) measure.

a) Simple to calculate
b) Easy to understand
c) Consistent with return on assets (ROA) measure
d) All of the above

Question 3. If sales total $20,000, fixed costs are $4,000 and variable costs are $12,000, what is the contribution margin?

a) 8,000
b) 4,000
c) 16,000
d) 12,000

Question 4. An entity has Liabilities totalling $85 000 on their balance sheet. Their Assets are measured at $160,000, of which $100,000 is Plant and Equipment. Determine the entity's net assets.

a) $15,000
b) $125,000
c) $60,000
d) $75,000

Question 5. Which of the following is an essential characteristic of a liability

a) Provides future economic benefits
b) Present obligation arising from past events
c) Resource controlled by the entity
d) All of the above

Question 6. A retailer invests $20 million in capital expenditure projects to open 15 new stores. In which category of investment is this capital expenditure most likely to fit?

a) New technology to decrease costs.
b) The capital investment projects do not fit any of the categories.
c) New investments to increase revenue.
d) Replacement of old assets as they wear out.

Question 7. All of the following are key categories of the Balanced Score Card, except:

a) Financial
b) Customer
c) Internal Business
d) Environmental

Question 8. If the interest rate is 6%, receiving $150 in 2 years time is equivalent to receiving what amount today?

a) 133.50
b) 131.00
c) 128.00
d) 135.92

Question 9. Which of the following is not one of the 9 principles of business sustainability

a) Protection of the environment
b) Financial return
c) Transparency
d) Exchange policy

Question 10. A supplier sold inventory to Bizzy Bees Pty Ltd valued at $10,000. Bizzy Bees Pty Ltd paid cash of $2000 and received 30 days credit for the balance owing. The debit and credit entries for Bizzy Bees Pty Ltd are:

a) Debit accounts payable $8,000, debit cash $2000; credit inventory $10,000.
b) Debit cash $2,000, debit accounts receivable $8,000; credit inventory $10,000.
c) Debit cash $2,000; credit accounts receivable $8,000, credit sales $10,000
d) Debit inventory $10,000; credit accounts payable $8,000, credit cash $2000

Question 11. When reporting on divisional performance, the format generally used is:

a) a contribution margin format.
b) a gross profit format.
c) a net profit format.
d) none of the options give the format generally used when reporting on divisional performance

Question 12. A company is evaluating an investment proposal using the payback period method. Cash inflows are expected to be $16 000 in year 1, $12 000 in year 2 and $8000 in year 3. The initial investment required is $32 000. Assuming even cash inflows within each year, the payback period is:

a) 2 years
b) 2.25 years
c) 2.5 years
d) 2.6 years

Question 13. An increase in the level of production, within the relevant range, has what effect on fixed costs per unit?

a) They rise
b) They fall
c) They usually rise
d) They usually fall

Question 14. If the tax rate is 30% and after-tax profit is $80 000, before-tax profit is:

a) $114 286
b) $56 000
c) $104 000
d) $266,667

Question 15. A master budget is a set of different types of related budgets. The starting point is what type of budget?

a) Profit
b) Capital purchases
c) Cash Flow
d) Sales and Revenue

SECTION B

Question 1:
Presented below are financial statement items for Carrie's Consulting (a sole trader) for the period ended 30 June 2016.

Using the information produce an Income Statement for the period ended 30 June 2016.

Cash at bank                                     $ 25,000

Accounting Fees                               $  1,500

Service Revenue                               $ 45,000

Advertising                                        $    660

Plant & Equipment                           $110,000

Rent Expense                                    $  8,000

Interest                                               $  4,160

Business Loan                                  $ 90,000

Insurance                                           $   880

Question 2:

Three friends formed a partnership to sell beauty products made from organic ingredients. They have been operating for one year. The bank balance at the end of the year is $41 000. A summary of business transactions is as follows:

Sales to customers                                                                           256 000
Receipts from customers                                                                199 000
Payments for inventory                                                                   103 000
Payments for electricity, telephone, rent and insurance                 5 000
Purchase of a motor vehicle                                                           30 000
Drawings                                                                                             50 000
Payment of interest                                                                              8 000
Loan proceeds                                                                                    20 000
Interest received                                                                                   1 000
Income taxes paid                                                                                 3 000
Equity Injection                                                                                   20 000

Required

Prepare a statement of cash flows

Question 3:

Parker Enterprises has provided the following estimates relating to the June
quarter of 2016.
                                                                                                          $

Cash sales Credit sales Depreciation on office furniture Receipts from accounts receivable Wages Office furniture purchased Light and power expense Accounting expense Receipt of loan Credit purchases Payments to accounts payable

51 000 27 600 630 69 500                   45 000 15 600 3 800 750 15 000 65 600 44 800

The cash balance at 1 April 2016 was $14 200.

Required

Prepare a cash budget for the quarter ending 30 June 2016.

Question 4:

We Squeeze ‘em Juice Shop sells bottles of freshly squeezed juice to small convenience stores throughout Brisbane. Its latest income statement for the last 12 months is as follows:

We Squeeze 'em Juice Shop Income statement
Sales (100 000 bottles × $5)		500 000
Less: Cost of sales (100 000 bottles × $3)*		300 000
Gross profit		$200 000
Less: Other expenses
Advertising	10 000
Manager's salary	50 000
Occupancy and admin	20 000	80 000#
Profit		$120 000

Required

a. Calculate the contribution margin per juice bottle.

b. Calculate the number of juice bottles to break even in both units and sales dollars.

c. The company expects to sell 115 000 units in the coming year.

(i) What is the margin of safety at this level of activity?

(ii) How much profit will the business make for the year if its estimated level of activity is accurate?

d. We Squeeze ‘em Juice Shop is introducing a new product, ‘exotic juice'. The exotic juice will sell for $5.50. The only additional variable cost is the additional of the ‘special exotic' supplement at $0.50 per bottle. Other variable costs are as per the original cost scenario for the regular fresh juice bottle. Fixed costs will increase by $15 000 per year due to both administrative and production changes.

Question 5:

Chang De Silva an Australian entity is offered two projects for which the cash flows are as follows (in thousands). The directors work on 14 per cent as their required rate of return (RRR). Assume all cash flows occur at the end of the relevant years. No scrap values are expected for either of the projects.

Project	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Y	-$310	80	100	140	150	80
Z	-$250	130	70	60	40	30

Required:

a. Calculate the Accounting Rate of Return (ARR) and Payback Period (PP) for both projects.

b. Advise Chang De Silva which project/s, if any, to accept. Give your reasons.

SECTION 3 -

SHORT ANSWER QUESTIONS -

Question 1:

a) Explain the difference between cash accounting and accrual accounting when determining profit or loss for a reporting period.

a) Describe 3 users of financial statements who would be interested in the financial performance and position of an entity, and explain why they would be interested.

Question 2:

a) State the calculation required for the following three ratios and explain what information is revealed about an entity from each ratio.

- Profit margin
- Current ratio
- Debt to equity ratio

b) Discuss one limitation of ratio analysis.

Question 3:

Your friend Heather is thinking about starting a business to sell her handmade quilts.

Advise Heather on the four factors that should be considered before deciding on what form of business structure to operate under.

Question 4:

Your friend has $5000 to invest in the stock market and is deciding between an investment in Great Group Ltd or Totally! Ltd. In the most recent reporting period, Totally! Ltd made a profit after tax of $1 000 000, compared to Great Group's after-tax profit of $500 000. On this basis, your friend believes Totally! Ltd is the superior investment. Discuss your friend's investment choice. In doing so, suggest other financial data that should be considered. Identify the non-financial data may be of interest to inform your friend's investment decision?

Question 5
There are four financial statements - balance sheet, income statement, statement of cash flows, and statement of changes in equity. Describe the information shown in each of these reports.