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FP0008
International Foundation Programme
Accounting and Finance
Monday 13 May 2024: 09:00 UK time
Submission for this examination remains open for 3 hours.
Candidates should answer ALL questions.
Answer ALL required parts of Question 1 (30 marks), Question 2 (25 marks),
ALL required parts of Question 3 (25 marks), ONE part of Question 4 (20
marks).
Candidates are strongly advised to divide their time accordingly.
Extracts from compound interest tables are given after the final question on this
paper.
A calculator may be used when answering questions on this paper and it must
comply in all respects with the specification given with your Admission Notice.
The make and type of machine must be clearly stated on the front cover of the
answer document.
All calculations and workings supporting your answers must be shown in order
to gain full marks. Written answers must be in your own words. Do not use
quotations from your study materials.
© University of London 2024
Page 1 of 7
Question 1 (Total 30 marks)
a) Show all double entry in journal format.
i) Agnes is a sole trader. Agnes buys and sells goods for cash and credit.
Show the double entry for recording the following transactions:
• On 2 December 2023, Agnes sold goods on credit for £885.
• On 3 December 2023, Agnes paid £375 for goods that were
purchased 30 days ago on credit.
• On 4 December 2023, Agnes paid cash of £2,000 for a non-current
asset. 3 marks
ii) Agnes’ financial year end is 31 December 2023, at this date, Agnes’ trial
balance showed:
Account Debit Credit
£ £
Provision for bad debts 450.00
Trade receivables 8,900.00
You have been asked to calculate the necessary year-end
adjustments and show the required double entry, given that:
• The Trade receivables amount of £8,900 includes an amount of
£900 which is to be written off, as the customer is insolvent.
• Agnes wants the provision for bad debts to be 5% of Trade
receivables at 31 December 2023.
5 marks
b) Babet has prepared the following budget for the production and sales of 24,000
units of a product.
Annual Monthly
Units 24,000 2,000
£ £
Revenue 222,000 18,500
Variable costs: production 84,000 7,000
Fixed costs: production 96,000 8,000
Variable costs : marketing 24,000 2,000
Total costs 204,000 17,000
Net profit 18,000 1,500
i) Calculate the break-even point in units for annual sales. 2 marks
ii) Calculate the break-even point in units for annual sales if Variable costs:
production increase by 20%. 2 marks
Page 2 of 7
iii) Prepare an absorption costing statement for the first month of the year.
Units produced will be as budgeted in the table above but sales are
expected to be 1,600 units, leaving 400 units as closing inventory. There is
no opening inventory at the start of the month. 4 marks
c) Ciaran’s business prices its jobs on a ‘cost plus’ basis. All its jobs must
achieve a gross profit margin of 20%. The budgeted costs for Ciaran’s
business for 2023 are as follows:
£
Direct materials 40,000
Direct labour at £12/ hour 36,000
Indirect costs: production 12,000
A customer has asked for a quotation for a new job. Ciaran estimates that,
for this new job, materials will cost £1,700 and it will take 40 labour hours to
complete.
Required
i) Prepare a price quotation for Ciaran to send to the customer. The price
quotation is to be based on the allocation of indirect costs on a materials
basis. 4 marks
ii) Ciaran has been told that using a 20% mark-up to price jobs is preferable.
Is it? Show your calculation. 2 marks
d) Debi’s trial balance at the financial year end of 31 December 2023 shows
the following balances:
£ £
Dr Cr
Fixtures and fittings at cost 97,000
Fixtures and fittings: 50,242
accumulated depreciation
During the financial year ended 31 December 2023, an item of furniture was sold
for cash of £8,600. The item of furniture sold had been bought for £12,000 in the
year ending 31 December 2020.
Debi’s depreciation policy is to provide depreciation at 10% on a reducing
balance basis.
A full year’s depreciation is provided in the year of acquisition while no
depreciation is to be provided in the year of disposal.
i) Calculate the gain or loss for the item of furniture sold. 3 marks
ii) Calculate the depreciation charge for Fixtures and fittings for the year ended
31 December 2023 and state the net book value for Fixtures and fittings at
31 December 2023. 5 marks
Page 3 of 7
Question 2 (Total 25 marks)
The balances below have been extracted from the accounting records of Elin
Limited at 31 December 2023:
Dr Cr
£ £
Equipment at cost 395,000
Equipment: accumulated depreciation at 1.1.2023 142,000
Inventory at 1.1.2023 75,000
Trade receivables 120,000
Sales 875,000
Purchases 410,000
General expenses 215,000
Freehold land at cost 735,000
Buildings at cost 1,500,000
Buildings: accumulated depreciation at 1.1.2023 100,000
Trade payables 81,000
Bank account 19,000
6% Bank loan: 2038 250,000
Share capital: 800,000 shares of £0.50 400,000
Retained profits at 1.1.2023 1,541,000
Dividend paid 120,000
Share premium 200,000
3,589,000 3,589,000
You are given the following information:
• Inventory at 31 December 2023 at cost is £80,000.
• Insurance expenses are included in General expenses in the trial balance
above. Insurance paid in the year is for the period to 30 June 2024 and a
prepayment adjustment is required of £5,000
Depreciation is to be provided as follows:
• Freehold land: no depreciation to be provided
• Buildings: 5% per year on a straight-line basis
• Equipment: 9% per year on a straight-line basis.
Freehold land is to be revalued to £825,000.
The bank loan started on 1 October 2023. Interest is to be paid quarterly and no
interest has been paid at 31 December 2023.
Corporation tax of £48,000 on the current year’s profits is to be provided.
Required:
Prepare an income statement and a statement of movements in equity for the
year ended 31 December 2023 and a statement of financial position at 31
December 2023 for Elin Limited.
Page 4 of 7
Question 3 (Total 25 marks)
You have been asked to prepare a monthly cash flow forecast for Fergus Ltd.
You have established the following:
June July August September October
£000 £000 £000 £000 £000
Credit sales 210 210 275 275 300
Cash sales 24 26 28 30 32
Total sales 234 236 303 305 332
Cost of sales 170 170 220 220 240
Other costs 40 40 40 44 44
Fixed costs 10 10 10 10 10
Depreciation 12 12 12 12.6 12.6
Total costs 232 232 282 286.6 306.6
Net profit 2 4 21 18.4 25.4
Credit sales are as follows: 25% of receivables pay in the month after sales, 75%
pay in the second month after sales.
Suppliers (cost of sales) are paid in the month following production.
Fixed costs are £10,000 per month and are paid three monthly in arrears at the end
of March, June, September and December.
In September, other costs have been increased by 10%. The majority of other costs
is contractual and must be paid in the month of production.
Depreciation is calculated at a rate of 25% on the straight-line basis.
A new machine is contracted to be acquired in August. The cost will be £36,000 and
Fergus will take up the offer of deferring payment until the following month.
At the 1st August, the company is expected to have a cash balance of £2,000.
Required:
a) Prepare a monthly cash flow forecast in column format for the three months
August to October. 16 marks
b) Using your cash flow forecast in a) above:
Comment on the statement from the sales director: “The investment in new
equipment will increase production, sales and cash flow. It’s a ‘win-win’ for
Fergus.”
5 marks
c) Using your cash flow forecast in a) above, recommend cash flow management
actions that Fergus can undertake. State two distinct actions. 4 marks
Page 5 of 7
Question 4 (Total 20 marks)
Answer either a) OR b).
a)
For a company listed on a stock exchange, explain each of the following
financial performance ratios:
• Operating profit percentage
• Trade payables period
• Gearing
• Earnings per share.
In your explanation, for each of the above ratios, identify a stakeholder
who will use the ratio and explain how they will use the ratio.
20 marks
b)
Gerrit plc, a manufacturing business, plans to invest £150,000 in
improving their manufacturing assets. The improvement is expected to
last for five years and increase profit by £15,000 a year after
depreciation. £150,000 can be borrowed for 5 years at 10%.
The management accountant has calculated the Accounting Rate of
Return of the investment for the five-year period as 20%.
As the ARR of 20% exceeds the current Return on Capital Employed
(ROCE) by 5%, the project has been recommended to the board of
directors.
The management accountant calculated the ARR, correctly, as follows:
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑝𝑟𝑜𝑓𝑖𝑡 15,000
= = 20%
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 (150,000+0)/2
Required:
There is no requirement to provide any further calculations but your
answer must refer to the Gerrit scenario.
i) State and explain two alternative investment appraisal methods, other
than the ARR, that Gerrit can use in deciding whether to invest or not.
10 marks
ii) Explain the advantages and disadvantages of each of the two
methods in i) when compared to using the ARR. 10 marks
END OF PAPER
Page 6 of 7
Present value of £1
% 1 2 3 4 5 6 7 8 9 10
Period
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621
% 11 12 13 14 15 16 17 18 19 20
Period
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
Annuity of £1
% 1 2 3 4 5 6 7 8 9 10
Period
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
% 11 12 13 14 15 16 17 18 19 20
Period
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
Page 7 of 7
