Download 1999 - School of Business and Social Sciences

The Aarhus School of Business
Bachelor of Science in Business, Udvekslingsstuderende, HA(int.) studiet 2. del
Summerexamination 1999, Sommereksamen 1999
Written examination in 6264 Man. and Fin. Accounting test 2, 6187 Financial Accounting, 6360
Accounting test 2.
Duration: 2 Hours – Varighed: 2 timer.
Supplementary material allowed at the examination: All
Hjælpemidler: Alle
This exam paper in financial accounting includes two assignments. Each of them weighs
approximately 50% in the final mark for this financial accounting exam. These weights are only
intended as a guide.
Summerexamination 1999
6264 Man. and Fin. Accounting test 2, 6187 Financial Accounting, 6360 Accounting test 2.
Assignment 1.
In the following you will find a number of multiple choice questions or statements. Three possible
answers a, b and c is cited to every question or statement. You should only give one answer to every
question. If you for example think that the correct answer to question 3 is option c, then you should
clearly state 3c in your paper. Your answer will be considered to be wrong, if there is any doubt as
to what you have answered or if you have stated more than one answer to any question.
Question 1.
The book value of a tangible fixed asset is 200 in the financial statements on December 31, 1997.
The tax value is 80 on the same date. The fixed asset was entered on both statements at the same
value at the date of aquisition. No write ups or write downs of the book value has been made since
the date of aquisition. The tax rate is 40.
a:
A credit balance of 48 can be calculated for the provisions for deferred tax account due to the
fixed asset.
b: A debit balance of 48 can be calculated for the provisions for derred tax account due to the
fixed asset.
c: We don´t know what the balance of the provisions for deferred tax account is. Further
information is needed.
Question 2.
Same information as in question 1 applies to this question plus the following: The book value of the
tangible fixed asset from question 1 is 180 in the financial statements on December 31, 1998. The
tax value is 60 on December 31, 1998.
a:
The balance of the provisions for deferred tax account is unchanged from December 31, 1997
to December 31, 1998.
b: The balance of the provisions for deferred tax account has been reduced by 8 from December
31, 1997 to December 31, 1998.
c: The balance of the provisions for deferred tax account has been increased by 8 from December
31, 1997 to December 31, 1998.
Question 3.
The financial ratio ”Return on Equity” is calculated using the numbers in the financial statements as
the fraction: Net income after interest /Owners equity at end of the financial year. A company that
writes up its assets will – all other things being equal - have a Return on equity ratio that is:
a: higher than the ratio calculated for a company that doesn´t write up its assets.
b: lower than the ratio calculated for a company that doesn´t write up its assets.
c: equal to the ratio calculated for a company that doesn´t write up its assets.
Question 4.
The book value of a polishing machine is 80.000 kroner in a company´s financial statements. The
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company has invited price offers for the machine from ten different sellers of similar assets. They
are all willing to buy the polishing machine for 100.000 kroner. The company wants to buy a new
machine through a barter where the old polishing machine is part of the payment for the new
machine. The company is offered a new machine on the following terms: pay 500.000 in cash plus
the old machine. The market price of the new machine is 630.000 kroner. At what amount ought the
new machine be measured in the financial statements at the time of acquisition:
a: 630.000 kroner
b: 600.000 kroner
c: 580.000 kroner
Question 5.
A company uses the weighed average cost method as its method of assigning cost to inventory.
The company has the following records in a financial year which is equal to the calendar year:
Bought during the year:
Inventory at beginning of the year Jan. 1.:
Sales during the year:
Net realizable value on Dec. 31:
600 kilos for a total value of kroner 342.000
100 kilos for a total value of kroner 56.000
500 kilos for a total value of kroner 350.000
566 kroner per kilo.
At what amount would the inventory be measured in the financial statements on Dec. 31:
a: 113.714 kroner
b: 113.000 kroner
c: 113.200 kroner
Question 6.
A company has exactly the same records as in question 5 except that it uses the FIFO method as its
method of assigning cost to inventory and cost of goods sold and that net realizable value on Dec.
31 is 580. The company has bought all the goods it has aquired during the year at one single point
of time. In the financial statements on Dec. 31 the inventory will be measured at a value which is:
a: higher than the value using the weighed average method.
b: lower than the value using the weighed average method.
c: the same as the value using the weighed average method.
Question 7.
a:
The split up of income method will give a higher net income for the selling company in the
year it is providing the warranty service than the cost reservation method.
b: The cost reservation method will give a higher net income for the selling company in the year it
is providing the warranty service than the split up of income method.
c: We don´t know whether the split up of income method or the cost reservation method will give
the highest net income for the selling company in the year it is providing the warranty service.
The result depends on other things.
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Question 8.
On Jan 1, 1998 a company (M) aquired all shares in another company (D) and thus attained 100%
control of that company. The aquisition price was 3.460 t.kroner. The book value of the owners
equity account in D´s financial statements was 3.000 t.kroner on the aquisition date. The M
company estimates that D has a piece of land measured 140 t.kroner too low and an investment in
bonds measured 320 t.kroner too low in its financial statements at the time of aquisition.
Will the group at the aquisition date get:
a:
the highest owners equity in the consolidated financial statements if it enters goodwill as an
asset on the balance sheet.
b: the highest owners equity in the consolidated financial statements if it enters goodwill as an
expense in the income statement.
c: the same owners equity in the consolidated financial statements whether it enters goodwill as
an asset on the balance sheet or as an expense in the income statement.
Question 9.
Same information as in question 8 applies to this question plus the following: the net income of D
for 1998 was 150 t.kroner. The D company has declared a dividend of 40 t.kroner for the year
which is entered in its balance sheet. There are no intercompany sales between M and D.
Using the equity method the M company will in its own financial statements on Dec 31:
a: measure the shares in D at 3.570 t.kroner.
b: measure the shares in D at 3.150 t.kroner.
c: measure the shares in D at 3.610 t.kroner.
Question 10.
A company has tax on income (”computed tax”) as a line in its income statement of 220 kroner. The
company has taxes payable in its financial statements at the beginning of the financial year of 140
and 160 at the end of the financial year. Further the company has deferred taxes in its financial
statements of 200 at the beginning of the financial year and 260 at the end of the financial year. The
total amount of deferred taxes in the balance sheet is due to timing differences. There are no other
transactions affecting income tax for the year.
What net amount for taxes will be included in the company´s cash flow statement for the year:
a: 300 kr.
b: 140 kr.
c: 160 kr.
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Assignment 2.
The Danish-South African Friendship Company Ltd. (DSAF) produces and sells a very special
machine. The machine is able to wash, waterproof and inflate rugby balls in one single process. The
company has just started its business. The customers are small rugby clubs around Johannesburg,
where the company has hired a local sales agent – Dave Kool. Most small rugby clubs are not able
to pay the price of the machine in cash on delivery or on ordinary credit terms. Therefore DSAF has
decided to sell the machine on the following terms:
A downpayment at the time of delivery of 52 kroner. Further 600 kroner should be paid at the end
of each year for the next five years.
DSAF´s annual opportunity rate of interest is 10%. Therefore the company is willing to sell the
machine for 2.326 kroner in cash on delivery.
The cost price of each machine to DSAF is 1.052 kroner.
The agent Dave does all he can to sell only to rugby clubs that are able to pay for the machine.
However experience from competitors shows that quite a lot of customers will default on their
payments at some time during the contract. Dave is however not able to make a reasonable
dependable estimate of the numbers of customers who will default. Therefore the management of
DSAF decides to recognise income in the financial statements according the installment sales
method. At the same time the management wants to allocate a portion of the sales price that is
related to the financing service that DSAF offers. The management wants to recognise this
financing service as income over the contract period based on a return on DSAF´s receivable from
the sale of the machine alone on the different balance sheet dates.
DSAF has just sold a machine to the ”Golden Cats” rugby club.
Question a.
At the time of sale calculate the portion of the sales price that can be allocated to the machine alone
and the financing service respectively.
Question b.
Calculate the total net profit from the transaction and show how this amount can be allocated to the
profit from the sale of the machine alone and the revenue from the financing service respectively.
Question c.
At the time of sale calculate DSAF´s net receivable from sale of the machine alone after receipt of
the downpayment.
Question d.
At the time of sale calculate the amount DSAF is able to recognise as income from sale of the
machine alone using the installment sales method.
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Question e.
Use a financial position worksheet based on the accounting equation and show the entries at the
time of sale for all items in the financial statements directly affected by the sale using the
accounting practice required by the management.
Question f.
Use the same financial position worksheet based on the accounting equation from question e above
and show the entries for the first accounting period following the time of sale for all items in the
financial statements directly affected by the sale using the accounting practice required by the
management.
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