principally

TMA 03 is based on Units 1 to 6. This TMA will assess your knowledge of these units (principally Units 5 and 6)

Question 1 (50 marks)

Question 1 is based on B124 Book 5, Chapter 1. (Completing all the activities in Chapter 1 of Book 5 and the Self-assessed Question 1 (SAQ 1) at the end of Book 5 would be excellent preparation for this question.)

Below is the trial balance of Tom’s Tents at 5 April 2018.

The following information is relevant.

1. The closing inventory at 5 April 2018 is valued at £143,000.
2. On 5 January 2018 Tom sold a motor vehicle for £12,000. The customer was due to pay Tom’s Tents on 5 April 2018 but had not paid at the year end. This disposal has not been recorded in the accounts. This motor vehicle had been bought on 6 April 2015 for £25,000.
3. On 6 January 2018, Tom bought a new motor vehicle on credit for £30,000. At the year-end Tom had still not paid for this motor vehicle and the transaction had not been recorded in the accounts.
4. Depreciation on motor vehicles is provided at 20% per annum using the reducing balance basis on a monthly pro-rata basis. Depreciation on fixtures and fittings is provided at 10% per annum on the straight line basis, assuming no residual value. There were no purchases or disposals of fixtures and fittings during the year.
5. Tom estimates that £6,000 due from customers will be irrecoverable and must be written off.
6. The allowance for receivables is to be set at 5% of net receivables at 5 April 2018.
7. Rent includes a prepayment of £2,000.
8. Insurance includes a prepayment of £700.
9. The heating bill will arrive on 5 May 2018 and about £500 is expected to relate to the period until 5 April 2018.
10. The long-term loan is repayable in 5 years’ time. Interest payable on the loan is 6% and will be paid once per year.

Required:

a.Prepare the income statement for Tom’s Tents for the period ended 5 April 2018. Show your workings, including a full non-current assets note.

(25 marks)

b.Prepare the balance sheet for Tom’s Tents as at 5 April 2018. Show your workings.

(15 marks)

i.Explain with the use of a numerical example why any adjustment for the allowance for irrecoverable receivables at the year-end will either lead to a decrease or an increase in the allowance for irrecoverable receivables. How would both an increase and a decrease in the allowance for irrecoverable receivables be shown in the income statement? Use 175 words or less for your whole answer to this question.

(5 marks)

ii.While Question 1 (a) and (b) is similar to what you can expect in Question 1 in the exam, there are some differences. Outline these differences. Briefly discuss how you would prepare for Question 1 in the exam. Use 175 words or less for your whole answer to this question.

(5 marks)

Question 2 is based on B124 Book 6, Chapter 1. (Completing the Self-assessed Question 1 (SAQ 1) at the end of Book 6 would be excellent preparation for this question There are also a number of spreadsheet online activities that will help with your understanding for this question.  You can access these from the module website (week 18).

Greive is a sole trader business which only manufactures and sells a set of garden equipment which comprises a spade, a hose pipe and a trowel.

Given below are the sales revenue and profit for 2017.

In 2017 the business manufactured and sold 22,000 sets of garden equipment and had fixed costs of £124,000. All other costs were variable.

Required:

a.Calculate the average selling price, variable cost and contribution for a set of garden equipment for 2017.

(7 marks)

b.Calculate the average sales revenue level, both in numbers of sets of garden equipment and in money terms, at which the business broke even in 2017. (Your calculation should be rounded up to the nearest whole number.)

(4 marks)

c.Why does it make more sense for a break-even calculation to round up to the nearest whole number and not just to the nearest number?

(2 marks)

d.Calculate the number of sets of garden equipment needed to be sold to earn a profit of £200,000.

(3 marks)

e.Calculate the margin of safety for Greive for 2017.

(2 marks)

f.Even though the set is only sold together, why might it be useful for the business to work out, if only approximately, the individual contributions for the three items that make up the set? Use 100 words or less in your answer.

(3 marks)

g.The business decides that it is worth selling some of the sets for a short time to an overseas buyer at a small negative contribution. Discuss any possible advantages of doing that. Use 150 words or less in your answer.

(4 marks)

Total Question 2: 25 marks

Your total answer to Question 3 should be less than 800 words.)

Question 3 is based on B124 Book 6, Chapter 2. (Completing Activities 2.1 to 2.4 in Chapter 2 of Book 6 would be excellent preparation for this question.)

• a.Briefly discuss the essential differences for a business between short-term, day-to-day decisions, and long-term, year-to-year ones. Your answer should include an example of each relating to an organisation with which you are familiar.

(7 marks)

b.Explain the essential differences for a business between action, personnel and results controls. Discuss with reasons, which of these three controls would be most relevant for a particular organisational task for an organisation with which you are familiar.

(8 marks)

c.Explain, using an appropriate example, what is meant by ‘management by exception’.

(4 marks)

d.What is the ‘controllability principle’? Briefly discuss, the difficultly of applying such a principle in practice.

(6 marks)