PART A: FINANCIAL ACCOUNTING [50 MARKS] SECTION A: Multiple choice questions (20 Marks)

1. Which of the following events is not a transaction that would be recorded in a company's accounting records? 1 The purchase of equipment for cash. 2 The purchase of equipment on account. 3 The investment of additional cash in the business by the owner. 4 The death of a key executive.

2. Which of the following are considered "external" users of financial statements? 1 Owners. 2 Creditors. 3 Labour unions. 4 All three are external users.

3. A strong statement of cash flows shows that significant cash is being generated by: 1 Operating activities. 2 Financing activities. 3 Investing activities. 4 Effective tax planning.

Use the following to answer questions 4 5: At December 31, 2015, the accounting records of Sklar Corporation contain the following items: Accounts payable R 16 000 Accounts receivable R 40 000 Land R 240 000 Cash ? Equity Shares ? Equipment R 120 000 Building R 180 000 Short term loans R 190 000 Retained Earnings R 160 000 4. Refer to the above data. If Equity Shares is R260,000, the amount of Cash owned by Sklar Corporation at December 31, 2015, is: 1 R 86 000 2 R 94 000 3 R 46 000 4 R 686 000

5. Refer to the above data. If Equity Shares is R320,000, total assets of Sklar Corporation at December 31, 2015, amount to: 1 R 686 000 2 R 926 000 3 R 726 000 4 R 106 000

6. Collection of an accounts receivable: 1 Increases the total assets of a company. 2 Decreases the total assets of a company. 3 Does not change the total assets of a company. 4 Reduces a company's total liabilities.

7. Hancock prepares monthly financial statements. Which of the following violates the matching principle? 1 A portion of the salary payments made this month are not recognized as expense because some of the work was done by employees last month. 2 The premium on a six-month insurance policy is charged immediately to expense 3 Expenses for the period exceed revenue. 4 The cost of advertising done during the month is charged to expense even though no payment is due for 60 days.

8. A journal entry which records revenue must include: 1 A debit to Cash. 2 A credit to a revenue account. 3 A credit to the owners' equity account. 4 A debit to the owners' equity account.

9. The measures most often used in evaluating solvency--the current ratio, quick ratio, and amount of working capital are developed from amounts appearing in the: 1 Balance sheet. 2 Income statement. 3 Statement of retained earnings. 4 Statement of cash flows.

10. The current ratio: 1 Is computed by dividing current assets by current liabilities. 2 Is computed by subtracting current liabilities from current assets. 3 Remains unchanged throughout the operating cycle. 4 Is a measure of short-term profitability.

11. Which method will yield higher cash flows from operating activities? 1 The indirect method. 2 The direct method. 3 Both direct and indirect methods will yield the same amount. 4 Depends upon the situation.

12. Limousine Conversion Company purchases ordinary Cadillacs, cuts them in half, and then adds a middle section to the vehicles to create stretch limousines. With respect to the number of cars converted, the cost of the Cadillacs purchased for conversion by Limousine Conversion Company would best be described as a: 1 fixed cost 2 mixed cost 3 step-variable cost 4 variable cost

The following refers to questions 13 15: Shown below are selected data from the balance sheet of Megabyte, a small electronics store (dollar amounts are in thousands): R Cash 50 Accounts Receivable 90 Inventory 160 Total Assets 600 Current Liabilities 200 Non Current Liabilities 250

13. Refer to the above data. The quick ratio is: 1 1.5 to 1. 2 .7 to 1. 3 .45 to 1. 4 Some other amount. 14. Refer to the above data. The current ratio is: 1 5.0 to 1. 2 1.5 to 1. 3 .7 to 1. 4 Some other amount.

15. Refer to the above data. Working capital amounts to: 1 R150,000. 2 R250,000. 3 R100,000. 4 Some other amount.

16. Which of the following relationships cannot be derived from the accounting equation? 1 Assets - Liabilities = Shareholder's Equity. 2 Shareholder's Equity + Liabilities = Assets. 3 Assets - Shareholders Equity = Liabilities. 4 Liabilities + Assets = Shareholders Equity.

17. An income statement communicates information regarding revenues and expenses: 1 For a period of time. 2 At a given point in time. 3 For some point of time in the future. 4 At the beginning of the fiscal year

18. In a statement of cash flows, cash transactions are classified into three major categories. Which of the following is not one of these three categories? 1 Collecting activities. 2 Operating activities. 3 Financing activities. 4 Investing activities.

19. The measurement which best reflects investors' expectations about future earnings is: 1 Earnings per share. 2 Return on assets. 3 The price/earnings ratio. 4 Return on equity.

20. A journal entry to recognize expense could include each of the following, except: 1 A debit to an expense account. 2 A credit to Accounts Payable. 3 A debit to a liability account. 4 A credit to Cash.

SECTION B: Long Questions (30 Marks) Rush & Reddy Pty Ltd The balance sheet taken from the companys year- end financials is provided below: Dec-31 Assets: 2015 2014 2013 Current Assets: Cash R122 200 R108 000 Accounts Receivable R45 000 R35 000 R37 000 Inventory R17 000 R14 000 R13 000 Other Current Assets R13 000 R11 000 Total Current Assets R197 200 R168 000 Long-term Assets: Property, Plant & Equipment, net R1 489 800 R50 000 Intangible Assets R422 500 R450 000 Total Assets R2 109 500 R668 000 R650 000 Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable R11 000 R9 000 Interest Payable R1 000 R1 000 Current Portion of Long-Term Debt R30 000 R0 Income Tax Payable R37 000 R46 000 Total Current Liabilities R79 000 R56 000 Long-term Liabilities: Notes Payable R492 500 R30 000 Total Liabilities R571 500 R86 000 Stockholders' Equity Common Stock R120 000 R70 000 Additional Paid-in Capital R1 308 000 R372 000 Retained Earnings R185 000 R140 000 Treasury Stock -R75 000 R0 Total Stockholders' Equity R1 538 000 R582 000 R575 000 Total Liabilities and Stockholders' Equity R2 109 500 R668 000

Required: 1) Prepare a common size balance sheet to be used in vertical analysis (20) 2) Calculate the following short-term liquidity ratios for 2015 and 2014: Current Ratio,2 Quick Ratio,2 Cash Ratio,2 Operating Cash Flow Ratio,2 Cash flows from operations were R151,000. and R101,000. for 2015 and 2014, respectively. Round your answers to two decimal places. Comment on the companys short-term liquidity." 2 (10)

PART B: MANAGEMENT ACCOUNTING [50 MARKS]

SECTION A: Multiple choice questions (20 Marks) 1. Within the relevant range, as the number of units produced increases: 1 the variable cost per unit remains the same. 2 fixed costs in total remain the same. 3 variable costs increase in total. 4 all of the above.

2. For an automobile manufacturer, the cost of a driver's side air bag purchased from a supplier and installed in every automobile would best be described as a: 1 fixed cost. 2 mixed cost. 3 step-variable cost. 4 variable cost.

3. Contribution margin can be defined as: 1 the amount of sales revenue necessary to cover variable expenses. 2 sales revenue minus fixed expenses. 3 the amount of sales revenue necessary to cover fixed and variable expenses

4 sales revenue minus variable expenses. Use the following to answer questions 4 6: A manufacturer of cedar shingles has supplied the following data: Bundles of cedar shakes produced and sold 360,000 Sales revenue R2,412,000 Variable manufacturing expense R1,170,000 Fixed manufacturing expense R714,000 Variable selling and administrative expense R414,000 Fixed selling and administrative expense R82,000 Net operating income R32,000

4. The company's break-even in unit sales is closest to: 1 118,806 2 206,957 3 346,087 4 14,775

5. The company's contribution margin ratio is closest to: 1 72.60% 2 65.70% 3 34.30% 4 27.40%

6. The company's degree of operating leverage is closest to: 1 11.25 2 25.88 3 1.99 4 75.38

7. The margin of safety can be calculated by: 1 Sales (Fixed expenses/Contribution margin ratio). 2 Sales (Fixed expenses/Variable expense per unit). 3 Sales (Fixed expenses + Variable expenses). 4 Sales Net operating income.

8. (Ignore income taxes in this problem.) Suddeth Corporation has entered a 6-year lease for a building it will use as a warehouse. The annual payment under the lease will be R2,468. The first payment will be at the end of the current year and all subsequent payments will be made at year-ends. What is the present value of the lease payments if the discount rate is 5%? 1 R12,528 2 R14,103 3 R14,808 4 R11,050

9. Conversion costs consist of: 1 direct and indirect labour. 2 direct labour and direct materials. 3 direct labour and manufacturing overhead. 4 prime costs and manufacturing overhead.

10. Kray Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced 3,000 Variable costs per unit: Direct materials R 91 Direct labour R 13 Variable manufacturing overhead R 7 Variable selling and administrative expense R 6 Fixed costs: Fixed manufacturing overhead R237,000 Fixed selling and administrative expense R165,000 There were no beginning or ending inventories. The unit product cost under variable costing was: 1 R 111 2 R 190 3 R 117 4 R 110

11. With respect to a fixed cost, an increase in the activity level within the relevant range results in: 1 an increase in fixed cost per unit. 2 a proportionate increase in total fixed costs. 3 an unchanged fixed cost per unit. 4 a decrease in fixed cost per unit.

12. The management of Bushovisky Corporation, a manufacturing company, has provided the following financial data for January: Sales R230,000 Variable production expense R31,000 Fixed production expense R47,000 Variable selling expense R19,000 Fixed selling expense R27,000 Variable administrative expense R26,000 Fixed administrative expense R65,000 The contribution margin for January was: 1 R15,000 2 R152,000 3 R91,000 4 R154,000

13. At the break-even point: 1 sales would be equal to contribution margin. 2 contribution margin would be equal to fixed expenses. 3 contribution margin would be equal to net operating income. 4 sales would be equal to fixed expenses.

14. Pitkins Company collects 20% of a month's sales in the month of sale, 70% in the month following sale, and 6% in the second month following sale. The remainder is uncollectible. Budgeted sales for the next four months are: January February March April Budgeted sales R200,000 R300,000 R350,000 R250,000 Cash collections in April are budgeted to be: 1 R321,000 2 R313,000 3 R320,000 4 R292,000

15. Menlove Company had the following income statement for the most recent year: Sales (17,000 units) R 357 000 Less: Variable expenses 225 000 Contribution margin 102 000 Less: Fixed expenses 68 000 Net Income R 34 000 Given this data, the unit contribution margin was: 1 R 2.00 2 R 15.00 3 R 6.00 4 R 4.00

SECTION B: Long Questions (30 Marks) Question 1 (20) Malmane (Pty) Limited is considering a project that would require an initial investment of R 462 000 and would have a useful life of 8 years. The annual cash receipts would be R 300 000 and the annual cash expenses would be R 120 000. The salvage value of the assets used in the project would be R 69 000. The company uses a discount rate of 15%. Ignore taxes for this question. Additional Working Capital of R 400 000 will be required for the project. Required: Compute the net present value of the project. 15 Compute the payback period 3 Would you recommend the investment 2

Use the following template as a guideline Template No Transaction Time Period Value Factor PV 1Working Capital Investment 2Initial investment 3Cash flows in 4Cash flows out 5Salvage value 6Woking Capital Recovery NPV Question 2 (15) The following information pertains to Mandela projects, manufacturers of pots and pans Total Per Unit Sales units 20 000 1 000 000 Direct materials 200 000 Direct labour (variable) 50 000 Factory overhead: Variable 70 000 Fixed 80 000 Selling and administrative: Variable 100 000 Fixed 30 000 Total Expenses 530 000 470 000 Required: Prepare a detailed contribution format income statement 15