AFB Exam: Income Statement, Financial Position, Investment Analysis, Ratios and Performance Evaluation

AFB EXAM

Table of Contents
SECTION A.....................................................................................................................................3
QUESTION 1..................................................................................................................................3
a. Income Statement for the year ended 31st December 2021......................................................3
b. Statement of financial position as at 31st December 2021 for ST plc......................................4
SECTION B.....................................................................................................................................5
QUESTION 2..................................................................................................................................5
a) Calculating payback period and net present value..................................................................5
b) Advising K plc on the investment........................................................................................7
c) Explaining the 5 non-financial factors affecting such decisions...........................................7
d) Explaining internal rate of return and its 3 advantages...........................................................7
QUESTION 4..................................................................................................................................7
a) Calculating ratios:....................................................................................................................7
b) Commenting on the performance of NS plc...........................................................................9
REFERENCES................................................................................................................................1

SECTION A
QUESTION 1
a. Income Statement for the year ended 31st December 2021
Particulars Amount in ‘000 Amount in ‘000
Sales 25000
Cost of Sales
Opening Inventory 4000
Purchases 19000
Closing Inventory [6000] [17000]
Gross profit 8000
Expenses
Administration expenses 1000
Selling and distribution expenses [980 + 20
(Outstanding)]
1000
Advertising [500 – 200 (Prepaid)] 300
Audit fee 100
Bad debt 40
Director’s remuneration 200
Salaries & wages [480 + 70 (Accrued)] 550
Miscellaneous expenses 20
Debenture interest [120 + 140 (Outstanding)] 260
Depreciation on fittings 200
Depreciation on machinery 680 [4350]
Profit before tax 3650
Provision for taxation [650]
Profit after tax 3000
Dividends – Interim paid
- Final Proposed [11000 * 0.1]
990
1100
[2090]
Retained profit for the year 910
Brought forward retained profit 2360

Retained profit carried forward 3270
Working notes:
Debenture interest to be paid for the year = 2600 * 10% = 260
Outstanding debenture = Debenture to be paid – Debenture paid = 260 – 120 = 140
2. Depreciation on fittings = 2000 * 10% = 200
3. Depreciation on machinery
Reduced balance = Cost – accumulated depreciation = 4000 – 600 = 3400
Depreciation = 3400 * 20% = 680
b. Statement of financial position as at 31st December 2021 for ST plc
Particulars Amount in ‘000
Non – current assets Cost Accumulated
depreciation
Net Book Value
Land and building 8000 - 8000
Fittings 2000 400 + 200 = 600 1400
Machinery 4000 600 + 680 = 1280 2720
14000 1880 12120
Current assets
Inventory 6000
Receivables 1210
Prepayments 200
Bank 30
Cash 10 7450
Total assets 19570
Share capital
£1 Ordinary share 11000
Reserves