Prepare written answers for ALL THREE of the questions in the paper.
Show your workings clearly.
Combining business, marketing and HRM knowledge from her university degree, Emma Davidson recently set up her own business as a recruitment agent for senior executives seeking employment with multinational companies. Upforajob Ltd was formed on April 1st 2013, and the financial transactions for the first six months are noted below.
Emma receives 20% commission based on the first year starting salary of any new recruit that she places in a full-time job. This commission is payable two months after the agreed starting date. In addition, she receives a flat fee of £5,000 for every new contract renegotiated for an executive, payable in cash on the day of the negotiation.
During the six month period, Emma renegotiated seven contracts and was involved in recruiting the following executives
Date Executive New Company Starting Salary
June 2013 Ashwini Kumar HSBC £5,000,000
August 2013 Katy Gilroy KPMG £2,000,000
September 2013 Andy Moff ENU £10,000
£80,000 was paid on 1st April 2013 to lease an office until 31st March 2015.
To create the correct impression for senior executive recruitment, office furniture and equipment worth £120,000 was also purchased and paid for in April 2013. The furniture and equipment was expected to last ten years with no residual value.
In early July 2013, Emma paid Ã¢â‚¬ËœHighlife MagazineÃ¢â‚¬â„¢ £9,000. This guaranteed her an advert in each monthÃ¢â‚¬â„¢s magazine up to, and including the December 2012 edition.
Travel/hotel costs of £75,000 have been paid during the trading period. There is still an unpaid invoice of £6,000 for a September 2013 visit to the Hyatt Hotel in Hyderabad.
Ordinary shares, with a nominal value of £2, were issued to finance the company. Emma bought 50,000 shares whilst her three brothers each bought £60,000 worth.
The tax authorities have advised Upforajob Ltd to provide for a £600,000 tax bill for the six month period
For the loyal support of her shareholders, Emma paid a 20p dividend per share in September 2013.
a) Prepare an income statement for Upforajob Ltd for the period 1st April 2013 Ã¢â‚¬â€œ 30th September 2013 (13 marks)
b) Prepare a balance sheet for Upforajob Ltd as at 30th September 2013 (12 marks)
The importance of understanding cost behaviour had been extremely helpful to Melanie South when she was preparing the 2015 budget information for her newest business, CV Counts Ltd.
Budget details were as follows:
Annual rent £25,000
Binding costs per CV £2
Depreciation on equipment £8,000
Labour costs per CV £30
Typing costs per CV £5
Other annual fixed costs £7,000
a) If Melanie charges a selling price of £150 per CV, how many CVÃ¢â‚¬â„¢s will she need to produce in order to breakeven in 2015? (6 marks)
b) If Melanie wants to earn a profit of £30,000 in 2015 and maintains a selling price of £150 per CV, then how many CVÃ¢â‚¬â„¢s will she need to produce?
c) Melanie thinks she can produce 800 CVÃ¢â‚¬â„¢s throughout the period.
If the annual rent goes up 5% but the labour costs per CV go down 10%, what selling price would she need to charge per CV if she wants a profit of £20,000? (8 marks)
d) Melanie would like to reward the shareholders next year with an annual dividend of 10p per share. The company had been set up with shares at a nominal value of 25p. Her sister Kelly had bought £5,000 of shares and each of her twin brothers had bought £8,000 of shares, which was the same amount as Melanie had invested. What total dividend should CV Counts Ltd expect to pay in 2015? (7 marks)
You are a management accountant who provides financial planning advice to a range of individual and corporate clients. One of your clients, Mr Foggo, owns 1,000 shares in Drilldown plc, an international mining company. Extracts from the consolidated financial statements of Drilldown plc for the year ended 31st March 2014 are given below. Mr Foggo has read these extracts and is dissatisfied with the company performance because profits have fallen even though revenue has increased.
Group Income Statement for the year ended 31st March 2014
Revenue 1,300 1,000
Cost of sales (700) (450)
Gross profit 600 550
Operating costs (350) (270)
Operating profit 250 280
Finance costs (90) (75)
Profit before taxation 160 205
Taxation (50) (60)
Profit for the year 110 145
Revenue by geographical segment
£m £m £m £m
UK 480 465
New Zealand 380 190
USA 440 1,300 345 1,000
Operating profit by geographical segment
£m £m £m £m
UK 65 140
New Zealand 95 50
USA 90 250 90 280
a) Calculate the following ratios for both years
Gross profit %
Operating profit margin %
Interest Cover (12 marks)
b) Write a report, making full use of the numerical data available, to Mr Foggo which explains why profit has declined whilst revenues increased. (13 marks)