Principles of Accounting

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UNIVERSITY OF LONDON

279 0025 ZA
996 D025 ZA

BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diploma in Economics and Access Route for Students in the External Programme

Principles of Accounting

Wednesday, 5 May 2010 : 10.00am to 1.15pm

Candidates should answer FOUR of the following SEVEN questions: QUESTION 1 of Section A, QUESTION 2 of Section B, ONE question from Section C and ONE further question from either Section B or C. All questions carry equal marks. Workings should be submitted for all questions requiring calculations. Any necessary assumptions introduced in answering a question are to be stated. Extracts from compound interest tables are given after the final question on this paper. 8-column accounting paper is provided at the end of this question paper. If used, it must be detached and fastened securely inside the answer book.

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 book.

© University of London 2010
UL10/0013
D01

PLEASE TURN OVER
Page 1 of 13

SECTION A
Answer question 1 from this section.

1.

(a)

Accounting standards are prepared by regulators in order to assist both preparers and users of financial statements.
REQUIRED: Explain the advantages and disadvantages of compulsory accounting standards.
(6 marks)

(b)

Calando plc operates a perpetual inventory system. The following transactions relate to one line of goods for resale during the period from 1st January to 31st March 2010. Units
1,000

5.00

3,750
2,500
1,500

6.30
6.50
13.00

4,500
2,600

Opening stock
1st January
Purchases
10th January
25th January
15th March
Sales
5th February
31st March

Price per unit

20.00
21.00

REQUIRED:
i.

Calculate the gross profit for the three months to 31st March 2010 using the first-in, first-out (FIFO) method.

ii.

Calculate the gross profit for the three months to 31st March 2010 using the last-in, firstout (LIFO) method.

iii.

Show how your answer to i. would differ if 50% of the goods purchased on 15th March were damaged and had a net realisable value of £7.00 per unit. (6 marks)

(question continues on next page)

UL10/0013
D01

Page 2 of 13

(c)

Pavlova plc manufactures a range of decorative china ware. The marketing manager has proposed that they launch a new product, a commemorative mug, at the time of the football World Cup. Sales of the mug would only occur in the three months surrounding the competition in 2010.

If mugs are sold at £10 each, the marketing manager predicts sales of 20,000 but admits that they could range from 15,000 to 25,000 depending on how the football teams progress. The following cost data has been prepared:

Materials (Note 1)
Skilled labour (Note 2)
Unskilled labour (Note 3)
Lease of machine (Note 4)
Development cost to date

£3.50 per mug
£50,000 per annum
£1.50 per mug
£33,000
£15,000

Notes:
(1)
(2)
(3)
(4)

The materials used are those usually purchased and used by the company. The skilled workers would only be employed if the mug is made and would be guaranteed employment for one year.
Unskilled labour can be hired easily as required.
The machine would be needed only for the mugs and the minimum lease is one year.

REQUIRED:
i.

Define ‘break-even point’.

ii.

Calculate the break-even volume of sales for the commemorative mug.

iii.

Calculate the margin of safety at the marketing director’s predicted sales level.

iv.

Briefly explain the limitations of cost volume profit analysis.

(question continues on next page)

UL10/0013
D01

Page 3 of 13

(6 marks)

(d)

Bannock plc manufactures satellite navigation systems. The manufacturing facility has three departments. Departments A...
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