attacher is past exam papers, plz give me the answers as much as possible

lOMoARcPSD Exam 2014, questions Financial Accounting and Analysis (RMIT) Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD QUESTION ONE You are a loan officer at OCBD Bank. In evaluating a loan application lodged by HBD Group to expand its operations, you have come across the following facts about the entity: 2012 2.2 :1 1.5:1 2.3 0.2 $2.60 Current ratio Quick ratio Asset turnover 2013 3.2 :1 0.8:1 2.8 0.1 $3.60 Cash debt coverage Earnings per share REQUIRED: a) Discuss the implications of the ratios above for the lending decision you are to make. b) What other information might help you make the lending decision? c) What are the limitations of ratio analysis for credit and investing decisions? (5 + 2 + 2 = 9 marks) QUESTION TWO The Statements of Financial Position of Relax Ltd as at 31 December 2010 and 31 December 2011 are provided below: Relax Ltd Statements of Financial Position as at 31 December 2010 2011 Assets Cash at Bank 49,000 105,000 Accounts Receivable 74,000 96,000 Prepaid Rent 9,000 Page 7 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) 3,000 lOMoARcPSD Inventory Land 88,000 123,000 2,000,000 2,600,000 Equipment - Cost 254,000 470,000 Accumulated Depreciation - Equipment (105,000) (220,000) Total Assets 2,369,000 3,177,000 Accounts Payable 28,000 37,000 Dividend Payable 40,000 55,000 Liabilities Interest Payable Loan Total Liabilities Owners' Equity Share Capital 6,000 12,000 200,000 300,000 274,000 404,000 1,900,000 2,400,000 Retained Earnings 45,000 223,000 Reserves 150,000 150,000 Total Owners' Equity Total Liabilities and Owners' Equity 2,095,000 2,369,000 2,773,000 3,177,000 The Income Statement of Relax Ltd for the financial year ended 31 December 2011 is provided below: Relax Ltd Income Statement for the year ended 31 December 2011 Sales Revenue 1,936,000 Cost of Goods Sold 908,000 Gross Profit Profit on Sale of Equipment Rent Expense Interest Expense Depreciation Expense Other Expenses Net Profit 1,028,000 33,000 15,000 165,000 559,000 772,000 268,000 Question two continued on the next page Page 2 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD QUESTION TWO (CONTINUED) Additional Information: During the financial year ended 31 December 2011: Interim dividends of $35,000 were declared and paid. A final dividend of $55,000 was declared. The original cost of the equipment sold during the year was $80,000. Accumulated depreciation of the equipment sold was $50,000 at the time of sale. REQUIRED: (a) Prepare a fully classified Statement of Cash Flows for Relax Ltd for the year ended 31 December 2011 using the direct method to present cash flows. [Show all workings necessary to derive your answer] (b) Is it possible for a company to suffer a net loss for a given year but produce a positive net cash flow from operating activities? Justify your answer. (11 + 3 = 14 marks) Page 7 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD QUESTION THREE On 1 January 2010, Singbase Ltd purchased new equipment for $600,000 cash. The estimated residual value at the end of its useful life is $55,000. The equipment is depreciated using the reducing balance method. The annual depreciation rate is 10%. On 1 January 2012, the equipment was sold for $450,000 cash. The financial year of Singbase Ltd ends on 31 December. REQUIRED: (a) Prepare the general journal entries to record all the above transactions and events relating to the equipment for Singbase Ltd. [Narrations are not required]. (b) Identify and briefly explain the four bases of measurement used in financial statements as outlined by the conceptual framework. (6 + 4 = 10 marks) Page 4 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD QUESTION FOUR Bruce Enterprises Ltd was registered on 1 August 2011 and invited public to subscribe to the issue of 550,000 ordinary shares for $12 per share, $5 due on application and the balance due on allotment. The following events and transactions occurred for the years ended 30 June 2012 and 30 June 2013: Issued a prospectus on 03/08/2011 Application closed on August 15, 2011. Applications for 550,000 shares were received by this date. The directors allotted 550,000 shares to the applicants on August, 25, 2011. The share issue was complete on August 25, 2011 (i.e. 550,000 shares were issued at $12 per share). Profit for the year ended 30 June 2012 was $1,500,000. The directors resolved to transfer $250,000 from Retained Earnings to the General Reserve on 15 July 2012. On 30 July 2012, Bruce Enterprises Ltd effected a 2-for-1 share split Profit for the year ended 30 June 2013 was $1,200,000. A final dividend of 15 cents per share was declared on 30 June 2013. REQUIRED: (a) Prepare the equity section of the Statement of Financial Position of Bruce Enterprises Ltd as at 30 June 2013. (b) Identify the two reasons why companies might issue share dividends. (5 + 2 = 7 marks) Page 7 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD QUESTION FIVE The following information is available for Best Price Store as at 31 July, 2012: The bank statement balance is $4,786 Cr. The Cash at Bank account balance in the general ledger is $5,330 Dr. Unpresented cheques totalled $855. Deposits in transit are $1,815. A cheque for $196 for supplies was recorded as $169 in the ledger Cash receipt of $202 was recorded twice in the ledger The following information appeared in Best Price Store's bank statement, but has not been recorded in the general ledger: Bank service charge, $20. Collection of note by the bank, $650. Interest paid by the bank to Best Price Store on funds held, $15. REQUIRED: (a) Prepare the revised/adjusted Cash at Bank ledger account of Best Price Store as at July 31, 2012. [You can use either T format ledger account or a running balance (columnar) ledger account.] (b) Prepare a bank reconciliation statement for Best Price Store as at July 31, 2012. (c) Two of the five principles of internal control are 'segregation of duties' and 'independent internal verification'. Briefly explain the differences between the two. Page 6 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD (4 + 3 + 2 = 9 marks) QUESTION SIX (a) Identify and explain the four enhancing qualitative characteristics of financial information. (b) Bina Merchandising Ltd made a credit sale to Mr Cool, the customer, on 31 March 2013 for $1200. Bina Merchandising Ltd offers 3% discount to customers if the customers make the payment within 7 days. Mr Cool settled the payment on 5 April receiving a discount of $36. Bina Merchandising Ltd recorded the discount amount of $36 as an expense item on the income statement for the year ending 30 June, 2013. Discuss whether Bina Merchandising Ltd's accounting treatment of the discount allowed of $36 is consistent with the expense definition and recognition criteria in the Conceptual Framework for financial reporting. (c) \"The only responsibility of a business entity is to generate economic returns on behalf of its shareholders and lenders/creditors. Therefore business entities only have a responsibility to report financial information on their economic performance and risk to shareholders and creditors/lenders. There is no need for business entities to report social and environmental information\". REQUIRED: Critically discuss the above statement: Explain the arguments for and against social and environmental reporting by business entities. (4 + 3 + 4 = 11 marks) Page 7 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD FORMULAE SHEET Current ratio Current assets Current liabilities Quick ratio or acid test Cash + marketable securities + net receivables Current liabilities Current cash debt coverage Net cash provided by operating activities Average current liabilities Receivables turnover Net credit sales Average net trade receivables Average collection period 365 days Receivables turnover Inventory turnover Cost of goods sold Average inventory Average days in inventory 365 days Inventory turnover Debt to total asset Total liabilities Total assets Times interest earned Profit before income tax + interest expense Interest expense Cash debt coverage Net cash provided by operating activities Average total liabilities Free cash flow Net cash provided by operating activities - Capital expenditures Return on ordinary shareholders' equity Profits available to ordinary shareholders Average ordinary shareholders equity Return on assets Profit*1 Average total assets Page 8 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD Profit margin Profit*1 Net sales Asset turnover Net sales Average total assets Gross profit margin Gross profit Net sales Formulae Sheet continued on next page Operating expenses Net sales Operating expenses to sales Cash return on sales Earnings per share (EPS) Net cash provided by operating activities Net sales Profit available to ordinary shareholders Weighted average number of ordinary shares Share price Earnings per share Price-earnings Cash dividends Profit Payout Capital expenditure Depreciation-straight line method Depreciation- diminishing balance (reducing balance) method Depreciation-units of production (units of use) method Net cash provided by operating activities Capital expenditure Cost - residual value of asset Estimated useful life Carrying amount of asset x depreciation rate Depreciation cost per unit x units of production *1 Page 7 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au) lOMoARcPSD Note that various interpretations are used for profit e.g. earnings before interest and tax (EBIT), earnings before tax, abnormals, net interest (interest revenue - interest expenses), depreciation and amortization (EBITDA). Page 10 of 9 Distributing prohibited | Downloaded by Chuan Yang (s3362692@student.rmit.edu.au)