91 The following balances have been extracted from the books of Millom Co Ltd, as at 31 December 2005. Creditors Sales Land at cost Buildings at cost Bank (overdrawn) Furniture/fittings at cost Depreciation - buildings Depreciation - furniture/fittings Discounts received Profit b/d 1 Jan 2005 Provision for doubtful debts Cash in hand Stock - 1 Jan 2005 Rates Wages and salaries Insurance Returns inwards General expenses Purchases 5% debentures Ordinary shares General reserve Debtors 18.900 240,000 54.000 114,000 18.000 66.000 18,000 30.000 5.292 6.000 2,448 696 42,744 6.372 24,000 5,688 1.116 1,308 131,568 48.000 120.000 30,000 89,148 You are provided with the following additional information: (a) Stock at 31 Dec 2005 was 46,638. (b) Insurance paid in advance at 31 Dec 2005 was 300. (c) Wages and salaries owing at 31 Dec 2005 was 840. (d) Depreciation is to be provided for buildings and furniture and fittings at 10% on cost. (e) Debenture interest of 2,400 was outstanding at 31 Dec 2005. (1) The corporation tax charge for the year (which has not been paid at 31 Dec 2005) is 20,000. (g) The directors propose to pay a 5% ordinary share dividend and transfer 24,000 to the general reserve. 2 Answer question 1 in Section A (compulsory) and any THREE questions from Section B. 3 Question 1 carries 31 marks. All other questions carry 23 marks. Marks for subdivisions of questions are shown in brackets. 4 No books, dictionaries, notes or any other written materials are allowed in this examination. 5 Calculators are allowed providing they are not programmable and cannot store or recall information. Electronic dictionaries and personal organisers are NOT allowed. All workings should be shown. 6 Candidates who break ABE regulations, or commit any misconduct, will be disqualified from the examinations. (a) Prepare the trial balance for Millom Co Ltd as at 31 Dec 2005. (6 marks) be (b) Prepare, for Millom Co Ltd, the trading and profit and loss account for the year ended 31 December 2005 and a balance sheet as at that date. (25 marks) Total 21 marks) 92 (a) Thomas Ltd makes a product which has a variable production cost of 8 and a variable sales cost of 2 per unit. Fixed costs are 40,000 per annum and the selling price is 18 per unit. The current volume of output and sales is 6.000 units. Required: (1) What is the break-even number of units that Thomas Ltd must sell? (11) How many units must Thomas Ltd sell to achieve a profit of 5,000? (6 marks) (7 marks) (b) The directors of Thomas Ltd are considering the purchase of an improved machine for production. The additional cost of the new machine is 10,000 and this machine, if bought, would reduce the variable costs of production to 5 per unit. Required: (1) If the new machine is purchased, how many units must Thomas Ltd sell to achieve a profit of 5,000? (ii) Given the current volume of sales and output, would you advise Thomas Ltd to buy the additional machine or not? Briefly explain your answer. (8 marks) (2 marks)