UNIVERSITY OF SURREY
UNIVERSITY OF SURREY
Faculty of Arts & Social Sciences
Surrey Business School
Postgraduate Programmes in ManagementMANM297: Accounting & Finance for Business
FHEQ Level 7 Examination
This is an online exam available for 2 hour within 4 hour window.
Time allowed:
2 hours within a 4 hour period
Semester 2 2022/3
Answer ALL THREE questions
Where appropriate the mark carried by an individualpart of a question is indicated in square brackets [ ].
Calculators are permitted
Additional materials: Open book
Please note that this exam paper is copyright of the University of Surrey and may not be reproduced, republished or redistributed without written permission
Question 1:
a)
Statements of financial position for Angel Ltd at 31st December 2022 and 31st December 2021 together with extracts from the statement of profit or loss for the year ended 31st December 2022 and relevant notes are presented below.
2022 2021
000 000
Assets Non-current assets Property, plant, and equipment 15,755 10,249
Investments 940 780
16,695 11,029
Current assets Inventory 3,145 2,768
Trade and other receivables 5,668 5,786
Cash and cash equivalents 1,172 994
9,985 9,548
Total assets 26,680 20,577
Current liabilities Borrowings 500
Trade and other payables 4,789 4,125
Current taxation 1,475 1,256
6,764 5,381
Non-current liabilities Borrowings 4,500 2,000
Provisions 900 1,200
5,400 3,200
Total liabilities 12,164 8,581
Net assets 14,516 11,996
Equity Share capital 2,500 2,000
Share premium 4,000 3,000
Retained earnings 8,016 6,996
14,516 11,996
Angel Limited: statement of profit or loss (extract) for the year ended 31st December 2022
000
Operating profit 7,698
Finance income 15
Finance expense 188
Profit before tax 7,525
Income tax 1,505
Profit for the year 6,020
Notes to the financial statements
On 31st December 2022, Angel Limited paid a dividend of 5,000,000.
The shares issued during the year were issued directly to the supplier of property, plant and equipment in part payment for the new non-current assets acquired. No cash was raised from the issue of these shares. The remainder of the property, plant and equipment acquired during the year was paid for in cash.
The total acquisition cost of property, plant and equipment acquired during the year was 8,406,000.
Property, plant and equipment that had cost 800,000 and on which 450,000 depreciation had been charged up to the date of disposal was sold during the year. The profit on disposal of this property, plant and equipment was 125,000.
Depreciation charged on property, plant and equipment during the year amounted to 2,550,000.
The company made a taxation payment of 1,286,000 during the year ended 31st December 2022.
Required:
Prepare the statement of cash flows for Angel Limited for the year ended 31st December 2022 using the indirect method.
[20 marks]
b)
Minerva Limited has developed a branded bag and is looking for recommendations to include the brand as an asset on the companys statement of financial position. The branded bag generated 100,000 in the past year and with the increase in the advertisement, the company is expecting the sales to grow at the rate of 5% each year for the foreseeable future. Does the brand meet the criteria for recognizing an asset? Give reasons for your answer.
[5 marks]
c)
Silicon Limiteds machinery requires major repairs. The company would like to include the repair cost as a liability on the companys statement of financial position, but the total cost has not yet been determined. In this situation, do the major repairs meet the criteria for recognizing a liability? Give reasons for your answer.
[5 marks]
[Total: 30 marks]
Question 2:
Flexi Limited is a manufacturer of ceramic casserole dishes. The company expects to be operating at 80% capacity for the foreseeable future. The companys budgeted sales and costs for the next financial year are as follows:
000 Sales: 200,000 casserole dishes @ 195 each 39,000 Costs: % Variable
Materials 12,000 100
Direct labour 10,000 100
Factory overhead 8,000 35
Administration and selling costs 2,000 10
All costs that are not variable are fixed.
The directors of Flexi Limited frequently receive one-off orders for their products. The prices offered by buyers in these one-off orders are always below the 195 regular budgeted selling price. Currently, the directors are considering the following one-off orders from four potential customers for the next financial year:
40,000 casserole dishes at 105 each.
30,000 casserole dishes at 125 each.
25,000 casserole dishes at 140 each.
20,000 casserole dishes at 150 each.
Required
Calculate the break-even point and the margin of safety in units based on the budgeted sales and costs for the next financial year.
[12 marks]
Evaluate the one-off orders and determine whether the directors of Flexi should accept one or more of these orders. Your evaluation should include consideration of non-financial as well as financial factors.
[18 marks]
Identify at least two different ways in which organizations allocate overheads to products and services with their advantages and disadvantages.
[10 marks]
[Total: 40 marks]
Question 3:
Aero Limited runs transport services in cities in both the UK and Europe. The companys financial statements for the years ended 31 December 2022 and 31 December 2021 are presented below:
Statements of Financial Position
2022
m 2021
m
Non-current assets Intangible assets 735 700
Property, plant and equipment 435 415
1,170 1,115
Current assets Inventories 12 11
Trade and other receivables 160 134
Cash and cash equivalents 143 145
315 290
Total assets 1.485 1,405
Current liabilities Borrowings 75 200
Trade and other payables 300 270
Current taxation 45 30
420 500
Non-current liabilities: Borrowings 475 370
Total liabilities 895 870
Net assets 590 535
Equity Share capital (0.20 shares) 100 100
Share premium 240 240
Retained earnings 250 195
Total equity 590 535
Statements of profit or loss for the years ended 31st December
2022 2021
m m
Revenue 1,044 987
Cost of sales 724 717
Gross profit 320 270
Distribution costs 17 16
Administrative expenses 54 46
Operating profit 249 208
Finance income 5 5
Finance expense 35 37
Profit before tax 219 176
Income tax 44 36
Profit for the year 175 140
Additional Information:
Trade and other payables include dividends payable of 120m at 31st December 2022 and dividends payable of 100m at 31st December 2021.
Depreciation of 35m was provided on property, plant, and equipment and amortisation of 25m was charged on the intangible non-current asset during the year ended 31st December 2022.
Required:
Calculate the following ratios for 2022 and 2021 for Aero Limited:
Current ratio
Quick ratio
Debt ratio
Gearing ratio
Interest cover
Inventory days
Receivable days
Trade payables days
Cash conversion cycle
Your ratio calculations should be made to two decimal places.
[18 Marks]
Abraj Limited has 800,000 to invest. There are two potential projects A and B, but the company has sufficient cash to invest in only one project. Abraj Limited has a cost of capital of 9%.
A B
Cash flows 000 000
Initial investment (800) (800)
Cash inflows year 1 250 150
Cash inflows year 2 300 200
Cash inflows year 3 200 200
Cash inflows year 4 200 250
Cash inflows year 5 150 300
Cash inflow from the sale of the investment at the end of year 5 100 200
Required
Calculate the Net Present Value (NPV) for both projects.
[7 marks]
Based on the NPV values of both projects and any other relevant factors, briefly discuss which project should be selected
[5 marks]
[Total: 30 marks]
Abraj Limited has 800,000 to invest. There are two potential projects A and B, but the company has sufficient cash to invest in only one project. Abraj Limited has a cost of capital of 9%.
A B
Cash flows 000 000
Initial investment (800) (800)
Cash inflows year 1 250 150
Cash inflows year 2 300 200
Cash inflows year 3 200 200
Cash inflows year 4 200 250
Cash inflows year 5 150 300
Cash inflow from the sale of the investment at the end of year 5 100 200
Required
Calculate the Net Present Value (NPV) for both projects.
[7 marks]
Based on the NPV values of both projects and any other relevant factors, briefly discuss which project should be selected
[5 marks]
[Total: 30 marks]
[END OF EXAM]
