Advanced Diploma in Banking Examination

INSTITUTE OF BANKERS IN MALAWI

ADVANCED DIPLOMA IN BANKING EXAMINATION

SUBJECT: FINANCIAL AND MANAGEMENT ACCOUNTING (IOBM – AD307)

Date: Thursday, 3rd May 2012

Time Allocated: 3 hours (08:00 – 11:00 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 30 questions, each question carries 2 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the examination, when you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used. Answer books without examination number will not be marked.

7 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

1. A company has calculated a K10, 000 adverse direct material variance by subtracting its flexed budget direct material cost from its actual direct material cost for the period.

Which of the following could have caused the variance?

1. An increase in direct material prices

2. An increase in raw material usage per unit

3. Units produced being greater than budgeted

4. Units sold being greater than budgeted.

(a) 2 and 3 only

(b) 3 and 4 only

(d) 1 and 4 only

2. An organization has the following total costs at two activity levels;

Activity level ( units) 16,000 22,000

Total costs (mwk) 135,000 170,000

Variable costs per unit is constant within this range of activity but there is a step up of K5,000 in the total fixed costs when the activity exceeds 17,500 units

What is the total cost at an activity level of 20,000 units?

(a) K163,320

(b) K158,320

(d) K154,545

3. A company uses an overhead absorption rate of K3.50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to K108,875 and 30,000 machine hours were recorded on actual production.

By how much was the total overhead under or over absorbed for the period?

(a) Under absorbed by K3,875

(b) Under absorbed by K7,000

(d) Over absorbed by K7,000

4. John purchased a machine on 1 March 2009 for K12,000. He incurred additional costs for transportation of K1,300 and installation of K2,000. Shortly after he started to use the machine, it broke down and the repairs of the machine cost K600. John charges depreciation at 10% per annum on straight line basis with a full year’s charge in the year of acquisition.

What is the correct net book value of the machine at the end of the year of 31 December 2009?

(a) K10,800

(b) K13,770

(d) K15,300

5. A company wishes to evaluate a division which has the following extras from income statement and statement of financial position.

Income statement

MWK 000

Sales 500

Gross profit 200

Net profit 120

Statement of financial position

MWK 000

Noncurrent assets 750

Current assets 350

Current liabilities (450)

Net assets 650

What is the residual income for the division if the company has a cost of capital of 18%?

(a) K117,000

(b) K21,600

(d) K3,000

6. After Tione prepared her draft accounts she discovered that she had incorrectly classified an item of revenue expenditure as capital expenditure.

When the error is corrected, how will her net profit and capital be affected?

Net profit Capital

(a) increased reduced

(b) reduced increased

(d) reduced reduced

7. Jimmy sold a machine which originally cost K14,900. At the date of the sale the accumulated depreciation on the machine was K8, 940. The sale proceeds were K7, 455.

What is the profit or loss on the sale of the machine?

(a) a profit of K1,485

(b) a loss of K1,485

(d) a profit of K1,495

8. During May 2011, Sarah’s purchases were K126, 500 and her sales were K150, 000. Sarah’s gross profit is 20% of sales. The value of her inventory at 1 May 2011 was K12,500.

What is the value of Sarah’s inventory at 31 May 2011?

(a) K6,000

(b) K11,000

(d) K19,000

9. Which of the following are suitable measures of performance at the strategic level?

(1) Return on investment

(2) Market share

(3) Number of customer complaints

(a) 1 and 2

(b) 2 only

(d) 1 and 3

10. ABIC Co. has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows:

Capacity 60% 100%

Total production costs K11, 280 K15, 120

What is the budgeted total production cost if it operates at 85% capacity?

(a) K13,680

(b) K12, 852

(d) K12,340

11. Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as K50. If the interest rate is increased by 1% the NPV of the project falls by K20.

What is the internal rate of return (IRR) of the project?

(a) 7.5%

(b) 11.7%

(d) 20.0%

12. Which of the following best describes a principle budget factor?

(a) A factor that affects all budget centres

(b) A factor that is controllable by a budget centre manager

(d) A factor which limits the activities of an organization

13. A company which operates a process costing system had work-in-progress at the start of last month of 300 units (valued at K1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were completed and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month was K10. The company uses the FIFO method of cost allocation.

What was the total value of the 2,000 units transferred to the finished goods warehouse last month?

(a) K19,910

(b) K20,000

(d) K21,710

14. Which of the following would not be expected to appear in an organization’s mission statement?

(a) The organization’s values and beliefs

(b) The products or services offered by the organization

(d) The organization’s major stakeholders

15. Which of the following statements relating to management information are true?

(i) It is produced for parties external to the organization

(ii) There is usually a legal requirement for the information to be produced

(iii) No strict rules govern the way in which the information is presented

(iv) It may be presented in monetary or non monetary terms

(a) 1 and 2

(b) 3 and 4

(d) 2 and 4

16. Under which of the following labour remuneration methods will direct labor cost always be a variable cost?

(a) Day rate

(b) Piece rate

(d) Group bonus scheme

17. A firm uses marginal costing. The following table shows the variances for a period when the actual net profit was K30,000.

Materials K300 adverse

Labour K800 favourable

Overheads K550 adverse

Sales price variance K400 favourable

Sales volume contribution variance K800 favourable

What was the budgeted net profit for the period?

(a) K28,850

(b) K31,150

(d) K28,800

18. A company operates a process in which no losses are incurred. The process account for last month, when there was no opening work-in-progress, was as follows:

Process Account

MWK MWK

Costs arising 624,000 Finished output (10,000units) 480,000

- Closing work-in-progress (400units) 144,000

______ _______

624,000 624,000

______ _______

The closing work in progress was complete to the same degree for all elements of cost.

What was the percentage degree of completion of the closing work-in-progress?

(a) 12%

(b) 30%

(d) 75%

19. The purchase price of an item of inventory is K25 per unit. In each three month period the usage of the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for the item is K20.

What is the Economic Order Quantity (EOQ) for the inventory item?

(a) 730

(b) 894

(d) 1,633

20. The following statements relate to responsibility centres:

1. Return on capital employed is a suitable measure of performance in both profit and investment centers.

2. Cost centres are found in manufacturing organizations but not in service

organizations.

3. The manager of a revenue centre is responsible for both sales and costs in a

part of an organization.

Which of the statement is true?

(a) 1 only

(b) 2 only

(d) None of them

21. A company has recorded the following variances for a period:

Sales volume variance K10, 000 adverse

Sales price variance K5, 000 favourable

Total cost variance K12, 000 adverse

Standard profit on actual sales for the period was K120, 000

What was the fixed budget profit for the period?

(a) K137,000

(b) K103,000

(d) K130,000

22. A company manufactures and sells one product which requires 8kg of raw material in its manufacture. The budgeted data related to the next period are as follows:

Units

Sales 19,000

Opening inventory of finished goods 4,000

Closing inventory of finished goods 3,000

Opening inventory of raw materials 50,000

Closing inventory of raw materials 53,000

What is the budgeted raw material purchases for next period(in kg)

(a) 141,000

(b) 147,000

(d) 163,000

23. The following statements relate to performance evaluation methods:

1. Residual income is not a relative measure

2. The return on investment figure is a relative measure

3. Residual income cannot be calculated for an individual project

Which of the above are correct?

(a) 1 and 2 only

(b) 1 and 3 only

(d) 1,2 and 3

24. A company has a budget for two products A and B as follows:

Product A Product B

Sales (units) 2,000 4,500

Production (units) 1,750 5,000

Skilled labour at K10/hour 2hours/unit 2hours/unit

Unskilled labour at K7/hour 3hours/unit 4hours/unit

What is the budgeted cost of unskilled labour for the period?

(a) K105,000

(b) K135,000

(d) K252,500

25. Which two of the following are most likely to influence the motivation of budget holders?

i. The contents of the budget manual

ii. The extent of participation in budget setting

iii. The level of difficulty at which budgets are set

iv. The structure of the budget committee

(a) 1 and 2

(b) 2 and 3

(d) 1 and 4

26. A trial balance is made up of a list of debit balances and credit balances.

Which of the following statement is correct?

(a) Every debit balance represents an expense

(b) Assets are represented by debit balances

(d) Income is included in the list of debit balances

27. Which method of inventory valuation is used when issues are assumed to be taken from inventory in the order in which they were received?

(a) Net realisable value

(b) First in first out

(d) Continuous weighted average

28. Information relating to two processes (f and G) was as follows:

Process Normal loss as Input Output

% of input (litres) (litres)

F 8 65,000 58,900

G 5 37,500 35,700

For each process, was there an abnormal loss or an abnormal gain?

Process F Process G

(a) Abnormal gain Abnormal gain

(b) Abnormal gain Abnormal loss

(d) Abnormal loss Abnormal loss

29. The following budgeted information relates to a manufacturing company for next

period:

Units K

Production 14,000 Fixed production costs 63,000

Sales 12,000 Fixed selling costs 12,000

The normal level of activity is 14,000 units per period.

Using absorption costing the profit for next period has been calculated as K36, 000.

What would be the profit for next period using marginal costing?

(a) K25,000

(b) K27,000

(d) K47,000

30.The following statements refer to spreadsheets:

(1) A spreadsheet is the most suitable software for the storage of

large volume of data

(2) A spreadsheet could be used to produce a flexible budget

(3) Most spreadsheets contain a facility to display the data within

them in a graphical form.

Which of these statements are correct?

(a) 1 and 2 only

(b) 1 and 3 only

(d) 1,2 and 3

SECTION B (40 MARKS)

Answer ANY TWO questions from this section.

QUESTION 1

The following are the financial statements relating to Mapeto Limited and its subsidiary company Oyamba.

Income statements for the year ended 31 October 2009

Mapeto Oyamba

(MWK000) (MWK000)

Sales revenue 245,000 95,000

Cost of Sales (140,000) (52,000)

Gross profit 105,000 43,000

Distribution costs (12,000) (10,000)

Administrative expenses (55,000) (13,000)

Profit from operations 38,000 20,000

Dividend from oyamba 7,000 ----------

Profit before Tax 45,000 20,000

Tax (13,250) ( 5,000)

Net profit for the period 31,750 15,000

Balance sheet as at 31 October 2009

Mapeto Oyamba

Assets

Non current assets

Property, plant, and equipment 110,000 40,000

Investments

21,000,000 K1 ordinary shares in Tayamba at cost 24,000 -----

134,000 40,000

Current assets

Inventory, at cost 13,360 3,890

Trade receivables and dividend 14,640 6,280

Bank 3,500 31500 2,570 12,740

Total Assets 165,500 52,740

Equity and liabilities

Capital and reserves

K1 Ordinary shares 100,000 30,000

General reserve 9,200 1,000

Accumulated profits 27,300 9,280

136,500 40,280

Current liabilities

Payables 9,000 2,460

Dividend 20,000 29,000 10,000 12,460

Total equity and liabilities 165,500 52,740

The following information is also available.

(a) Mapeto purchased K1 ordinary shares in Oyamba on 1 November, 2004. At that date the balance on Oyamba reserve was K0.5 Million and the balance of accumulated profits was K1.5 Million.

(b) At 1 November 2008 the goodwill arising from the acquisition of Oyamba was valued at K960,000.Mapeto’s impairment review of this goodwill at 31 October, 2009 valued it at K800,000

(c) During the year ended 31 October 2009 Mapeto sold goods which originally costed K12 Million to Oyamba. Mapeto invoiced Oyamba at cost plus 40%. Oyamba still has 30% of these goods in inventory at 31 October 2009.

(d) Oyamba owed Mapeto K1.5 Million at 31 October 2009 for some of the goods Mapeto supplied during the year.

Required:

a. Calculate the goodwill arising on the acquisition of Oyamba (3 marks)

b. Prepare the following financial statements for Mapeto:

i. The consolidated income statement for the year ended 31 October 2009

(8 marks)

ii. The consolidated balance sheet as at 31 October 2009. (9 marks)

(Total 20 Marks)

QUESTION 2

Ben is thinking of investing in a limited liability company called Tafika. He has asked for your help to calculate some of the ratios he needs to decide whether or not to invest. He has given you the summarized financial statements of Tafika as follows:

TAFIKA

Income statement for the year ended 31 October 2010