Accounting for Business: Online Exam with Ratio Analysis

This document presents solutions to an online Accounting for Business exam. It includes a detailed income statement for the year ended 31st March 2020, featuring sales, cost of sales, gross profit, various expenses, profit before and after tax, and retained profits, alongside a balance sheet outlining assets and liabilities. Section B addresses questions related to payback period calculation for System A, net present value (NPV) analysis, and internal rate of return (IRR). It also includes a comparative ratio analysis of companies A Ltd and B Ltd, assessing gross profit ratio, net profit ratio, current ratio, quick ratio, receivables ratio, and inventory days in ratio, ultimately concluding on the better performance of A Ltd. Desklib offers a wide array of solved assignments and past papers to aid students in their studies.

ONLINE EXAM -
ACCOUNTING FOR
BUSINESS

Table of Contents
QUESTION 1........................................................................................................................................3
SECTION B..........................................................................................................................................5
Question 2.........................................................................................................................................5
Question 4.........................................................................................................................................7

QUESTION 1
a. Income Statement for the year ended 31st March 2020
Sales 20,000
Cost of sales
Opening inventory 2000
Purchases 16000
Less: Closing inventory [3000] [15000]
Gross Profit 5000
Expenses
Administration expenses 900
Salaries & wages [600 + 10] 610
Selling and distribution expenses [1000 - 100] 900
Depreciation on machinery 625
Depreciation of Building 100
Debenture interest [20 + 10] 30
Audit fee [100 + 40] 140
Bad debt 20
Directors’ remuneration 200
[3525]
Profit Before Tax 1475
Provision for taxation [200]
Profit After Tax 1275
Dividends – interim paid
-- final proposed [8000 x £0.10]
50
800 [850]
Retained profit for the year 425
Retained profit b/f 1610

Retained profit c/f 2035
Depreciation on machinery = machine at cost – accumulated depreciation * 25%
Depreciation on machinery = 3000 – 500 = 2500 * 25% = 625
Depreciation on building = Building at cost * 5% = 2000 * 5% = 100
Debenture interest = 600 * 5% = 30
Outstanding interest = 30 – 20 = 10
Balance sheet
Assets
Receivables 1200
Closing stock 3000
Prepaid selling expense 100
Cash 50
Land 5000
Building 2000
Machinery 3000
14350
Liability
Bank overdraft 30
Payable 700
Bad debt 20
Accrue salary 10
Audit fee 40
Accumulated depreciation of machine 625
Accumulated depreciation on building 100

£1 Ordinary share capital 8000
Retained profit 2035
Share premium 300
5% Debenture 600
Dividend payable 800
14350
SECTION B
Question 2
(a)
Year Cash flows of System A Cumulative cash flows
1 600 600
2 700 1300
3 800 2100
4 600 2700
5 100 2800
Payback period 2
0.9
Payback period 2 year and 9 months
(b)
year cash inflows depreciation EBIT
net
acsh
inflow
1 600 390000 -389400 600
2 700 390000 -389300 700
3 800 390000 -389200 800
4 600 390000 -389400 600
5 100 390000 -389900 100

year cash inflows
PV factor @
10%
Discounted
cash flows
1 600 0.909 545
2 700 0.826 579
3 800 0.751 601
4 600 0.683 410
5 100 0.621 62
Total discounted cash
inflow 2197
Initial investment 2000
NPV (Total
discounted cash
inflows - initial
investment) 197
( c )
The project is feasible
at the financial level
( d)
 Leadership
 Management
approach
 Political
stability
 Future plan
 Alternatives
(e)
year cash inflows
0 -2000
1 600
2 700

3 800
4 600
5 100
6
IRR 14%
Question 4
Gross profit ratio
Particular Formula A ltd B ltd
gross profit ratio gross profit/ sales * 100 35.00 33.33
gross profit 350 200
sales 1000 600
Net profit ratio
Particular Formula A ltd B ltd
net profit ratio net profit/ sales * 100 19.00 19.17
net profit 190 115
sales 1000 600
Current ratio
Particular Formula A ltd B ltd
current ratio current asset/ current liabilities 1.88 2.64
current asset 375 330
current liabilities 200 125

Quick ratio
Particular Formula A ltd B ltd
quick ratio
(current asset - inventory) / current
liabilities 1.10 1.52
current asset 375 330
inventory 155 140
current
liabilities 200 125
Receivables ratio
A ltd B ltd
account
receivable
average account receivable/ total sales *
365 62 88
account
receivable 170 145
sales 1000 600
Inventory days in ratio
A ltd B ltd
Inventory
days Inventory/ cost of sales *365 87 128
Inventory 155 140
Cost of sales 650 400
As per the above calculated ratios it is clear that all the performance of A ltd is better in
comparison to B ltd.