MN1405 Accounting Exam Alternative Assessment

This assignment consists of two parts: Part 1 requires preparation of an income statement for CC Ltd. as at 31 December 2015, and a statement of financial position. In Part 2, various financial ratios are calculated using data from the prepared statements, including acid test ratio, current ratio, gearing ratio, and ROCE. Additionally, the assignment asks for justification of which ratio is most helpful in assessing long-term sustainability, explanation of why certain ratios are reliable or unreliable, and suggestions on how to improve the usefulness of the ratios.

MN1405 Accounting
Exam Alternative Assessment
Answer ALL questions.
QUESTION 1
The accountant of CC Ltd., a business that makes and sells cooling equipment, provided the
following balances as at 31 December 2015.
Account
£ 000
Administrative expenses
514
Auditor’s fees
20
Cash at bank
10
Debentures (12%)
200
Debenture interest paid
12
Directors’ remuneration
120
Dividends paid: Ordinary interim
40
Preference
10
Furniture and equipment: at cost
400
Accumulated depreciation (at 1 Jan, 2013)
96
Inventories (at 1 Jan 2013)
310
Land
670
Ordinary share capital (£1 per share)
800
5% Preference share capital
400
Retained profit (at 1 Jan 2013)
34

Purchases
800
Sales
1,644
Share premium
100
Trade payables
170
Trade receivables
450
Wages and salaries
88
Additional information:
• Inventories at 31 December 2015 were valued at £390,000.
• Administrative expenses owing at 31 December 2015 amounted to
£26,000.
• There is no depreciation charged on land. Depreciation is to be charged
on the furniture and equipment at a rate of 12.5 per cent on cost.
• Salaries paid in advance amounted to £8,000.
• Corporation tax owing at 31 December 2015 is estimated to be
£16,000.
• A proposal has been made for a final ordinary dividend of 1.25p per
share to be paid in May 2016.
Required:
• Prepare an income statement for the year ended 31 December 2015.
(25 marks)
• Prepare a statement of financial position as at 31 December 2015.
(25 marks)
(Total: 50
Marks)
QUESTION 2
The accountant of CC Ltd prepares financial ratios using the income statement and the
statement of financial position for the year ended 31 December 2015.
Required:
• Calculate the following financial ratios using data from the income
statement and the statement of financial position that you prepared:
• Acid test ratio,
• Current ratio,

• Gearing ratio,
• ROCE.
(16 marks)
• Which of the above ratios would provide the most helpful information
for assessing the long-term sustainability of the company? Justify your answer.
(6 marks)
• Which of the above ratios is usually considered the most reliable for
assessing liquidity and why? Why is it difficult to find an ‘ideal’ liquidity ratio for
businesses in general?
(6
marks)
• What other information could the accountant gather to improve the
usefulness of the ratios above for assessing the performance of the company?
(10 marks)
• In general, financial ratios have a number of limitations for assessing
performance. Describe and analyse three possible limitations using examples.
(12 marks)
(Total 50
marks)
END
General Guidance on Resit
Please refer to material on the MN1405 Moodle Archive – such as the course outline and
lecture notes – to help complete your resit assessment. You can access Moodle Archive via
the Moodle Homepage.
School Guidelines: The assignment should be submitted in accordance with the School of
Management hand in process. Please consult the School of Management Student Handbook
which provides full regulations and guidance on submitting coursework, citing sources
correctly and avoiding plagiarism.