Bachelor of Arts in European Management

 

Financial Accounting 2

1st year students, 2nd semester 2003 - 2004

Midterm Exam

21 april 2004

 

 

 

 

Next page are shown the balance sheets of a firm F for the end of the years Yn-1 and Yn, and the Income statement for Yn.

 

 

1) What are the funds employed (also called capital employed) of firm F at the end of Yn-1 and at the end of Yn ?

 

 

 

 

 

 

 

 

 

 

2) What is the working capital of firm F at the end of Yn-1 and at the end of Yn ? (Capital employed minus Fixed assets.)

 

 

 

 

 

 

 

 

 

 


 

3) On average, how long do the stocks remain in the firm ? (Explain the formula you choose to use.)

 

 

 

 

 

 

 

 

4) What is the ROCE for year Yn ? (Explain the formula you choose to use.)

 

 

 

 

 

 

 

5) Explain several differences between General Accounting and Cost Accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6) What is a cost center ? And what is a profit center ?

 

 

 

 

 

 

 

 

 

 

 

 

 

7) Why is there a problem of stock evaluation in accounting ?

 

 

 

 

 

 

 

 

 

 

 

 

8) Calculations of stocks and gross profits. (This exercise is worth 5 questions).

Iron limited is a small manufacturing company. During the year to 31 December 2003 it has received into stock and issued to production the following quantities of raw material, known as XY1 :

 

Receipts into stocks

Issues to production

Quantity (litres)

 

Quantity (litres)

Price per unit (£)

Total value (£)

 

January

200

2.80

560

 

February

 

 

 

100

April

500

3.00

1500

 

May

 

 

 

300

June

800

3.50

2800

 

July

 

 

 

400

October

700

3.80

2660

 

December

 

 

 

1200

Notes :
1. There were no opening stocks of raw materials XY1
2. The other costs involved in converting raw material XY1 into finished product (marketed as Carcleen) amounted to £7000
3. Sales of Carcleen for the year to 31 December 2003 amounted to £20000
4. For the purpose of this question, an accounting period is defined as the calendar year.

 

Required :

a) Illustrate the following methods of pricing the issue of materials to production:
1 FIFO
2 LIFO
3 Periodic weighted average
4 Continuous weighted average

b) Calculate the gross profit for the year using each of the above methods of pricing the issue of materials to production

 

Sheets to present your calculations and results to exercise 8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9) In the absorption costing technique, what is the objective in reallocating service centres OH to “production departments” ?

 

 

 

 

 

 

 

 

 

 

 

10) Suppose in firm F, we have the following five department OH figures (in millions of euros) and allocation keys :

 

                                   Initial OH           Key for G&A     Key for W. Study

 

Processing :                    15                           20%                       40%

Assembling :                   40                           40%                       30%

Finishing :                       20                           30%                       30%

Work study :                  10                           10%                             -

G&A :                            15                                 -                             -

 

Compute the OH fully reallocated only to the production departments, after having re-dispatched the other OH (present clearly your calculations).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) Draw the classical graph that can be used to determine the break-even point of level of activity for a firm.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12) Back to firm F of page 2. We also have the following income statement figures for the year Yn-1 :

 

 


You are the banker of F. Comment upon the performance of F during the year Yn. Which questions would you ask to the management of F ?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13) Joe sells flowers to Mary on cash terms. Which accounts are debited and credited in Mary’s general accounting system ? (Joe is a flower wholesaler, Mary is a flower shop)

 

 

 

 

 

 

 

 

 

 

 

14) Joe invests into a new refrigerator on credit. Which accounts are debited and credited in Joe’s general accounting system ?

 

 

 

 

 

 

 

 

 

 

15) Will this investment of Joe’s decrease his yearly profit ? Discuss.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16) What is the difference between a consumption and an investment ?