MN5111/MN5111R – May 2014 Page 1 of 5 2013-14 UNIVERSITY OF LONDON MSc EXAMINATION 2014 For Internal Students of Royal Holloway DO NOT TURN OVER UNTIL TOLD TO BEGIN MN5111: INTERNATIONAL ACCOUNTING & FINANCE MN5111R: INTERNATIONAL ACCOUNTING & FINANCE – PAPER FOR RESIT CANDIDATES PAPER A Time Allowed: TWO hours The paper is divided into two sections: Section A and Section B The question in Section A is compulsory You should attempt TWO questions from Section B No credit will be given for attempting any further questions. MN Calculators are permitted © Royal Holloway, University of London 2014 Important Copyright Notice This exam paper has been made available in electronic form strictly for the educational benefit of current Royal Holloway students on the course of study in question. No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions. MN5111/MN5111R – May 2014 Page 2 of 5 2013-14 SECTION A You must answer Question 1 QUESTION 1: Financial Analysis The directors of the firm of McLeod-Cullinane Plc – a company operating in the clothing industry – have received the Balance Sheets and the Profit or Loss parts of the income statement for the two years to 31st December 2013 for one of the Group’s wholly owned subsidiary companies. One of the directors knows you. Like many company directors he is financially illiterate. As he knows you have studied accounting and finance at Royal Holloway he asks you to analyse the financial data he has given you. He knows that he has provided you with limited information but he requests that you do the best you can with what he has given you. Specifically he asks your views on: a) Pricing of goods b) Control of operating expenses c) Use of fixed assets d) Control of inventory e) Control of debtors f) The ability of the company to pay short term debt g) The profitability of the firm from the perspective of that firm as a whole h) The profitability for the shareholders (i.e. McLeod-Cullinane) INCOME STATEMENT 2012 2013 ‘000 ‘000 £ £ Sales 140,000 50,000 Cost of Sales (112,000) (37,500) Gross Profit 28,000 12,500 Operating Expenses (19,600) (8,100) Trading Profit 8,400 4,400 Interest (1,400) (440) Corporation Tax – – Profit after Interest and Tax 7,000 3,960 NEXT PAGE No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions. MN5111/MN5111R – May 2014 Page 3 of 5 2013-14 STATEMENT OF FINANCIAL POSITION 2012 2013 ‘000 ‘000 £ £ Fixed Assets Premises at cost 20,000 18,000 Equipment at cost 16,000 22,000 Depreciation (4,000) (6,000) 32,000 34,000 Current Assets Inventory 14,000 12,500 Debtors 20,000 5,000 Cash 4,000 500 70,000 52,000 Financed by Share Capital 42,000 42,000 Reserves 3,000 2,000 45,000 44,000 Long-term loans 15,000 – Creditors 10,000 8,000 70,000 52,000 Required: Write a report for the director which addresses the issues he raised with you (above). (40 marks) NEXT PAGE No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions. MN5111/MN5111R – May 2014 Page 4 of 5 2013-14 SECTION B Answer 2 questions from Section B QUESTION 2: Costing The factory machinery in Spain of Zara, a major designer, manufacturer, and retailer of fashionable clothing is reported to operate at only about 50% of its productive capability. Required: Explain the possible financial disadvantages and advantages for Zara of investment in productive capacity it does not usually fully utilize. (30 marks) QUESTION 3: Asset Recognition Encouraged by the report you sent him, the Director of McLeodCullinane Plc (Question 1, above) examines the Group’s balance sheet. He notices that none of the company’s brands (Tinker; Sailor; Fairy; Teddy Bear; Choklad, and others) are included in the balance sheet. Some of the brands were bought by McLeod-Cullinane Plc, others were developed within the Group. He asks what are the advantages and disadvantages of including brands in balance sheets. Required: Write a report on this matter to the Director. (30 marks) QUESTION 4: Explaining Accounting Assume that you are asked to explain the following terms to potential investors in a listed company that has prepared financial statements using International Financial Reporting Standards (IFRS). Required: Answer FIVE of the following questions: (a) Financial assets. Explain what they are (giving examples), and how the various types are measured by accountants. (b) Inventories. Explain the various types of inventories that a company might have, and how they are measured in balance sheets. (c) Current assets. Explain what these are (giving examples), and why it is useful to show them separately from other assets. NEXT PAGE No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions. MN5111/MN5111R – May 2014 Page 5 of 5 2013-14 (d) A subsidiary. Explain what this is, and how it is treated in the financial statements of the group of which it is a part. (e) Operating cash flow. Explain how it is calculated (starting from the figure for net profit before tax). Give examples of the adjustments made to calculate the operating cash flow. (f) Financing cash flow. Explain what this is, giving several examples of inflows and outflows which are found under this heading. (6 marks for each part) (total: 30 marks) QUESTION 5: Liabilities Under IFRS, explain what liabilities are, and when they are included in balance sheets. Give several examples of different types of liabilities and how each type is measured by accountants. (30 marks) QUESTION 6: Accruals Accounting The following are the incomes and expenses of Company X for the year ended 31 December 2013: * Sales 1000 * Cost of sales (550) Gross profit 450 * Other income 25 * Research and development (60) * Administrative expenses (35) * Selling expenses (20) Operating profit 360 * Interest expense (90) Net profit before tax 270 * Tax (120) Net profit after tax 150 Required: For all eight of the items with asterisks above, explain (with examples) how the number shown might be different from the amount of cash received or paid out during 2013. (30 marks) END No further copying, distribution or publication of this exam paper is permitted. By printing or downloading this exam paper, you are consenting to these restrictions.
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