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A: COMPULSORY ANSWER ALL THE QUESTION QUESTION ONE The Trial balance of Dunus Lid as at 31 December 2015 was as follows: DI Cr K'000 K'000 Sales 600 Purchases 200 Inventory at 1 January, 2015 80 Distribution costs 80 Administration expenses 155 Receivables 100 Payables 29 Cash at bank 85 Ordinary shares 50 ngwee per share 80 10% irredeemable preference shares K1 90 10% loan notes 80 Non-current assets 350 Accumulated depreciation 1 January, 2015 140 Share premium 30 Accumulated profits at 1 January, 2015 30 Loan note Interest Preference dividend Ordinary dividend 16 1.079 1.079 The following is to be taken into account. i) The depreciation is charged on non-current assets at the rate of 20% on cost (straight line method) per year. Corporate tax payable is at the rate of 30% per year. ii) Closing inventory is K30, 000.Required: a) Prepare the following financial statements for the year ended 31 December 2015: I. statement of comprehensive income II. statement of financial position (30 marks) b) State any five fundamental accounting principles that underpin the preparation of financial statements. (5 marks) c) The following Financial information relates to Verse Ltd. 2014 2015 K'000 K'000 Net profit 200 310 Sales 700 850 Capital employed 500 700 Purchases 300 400 Payables 80 50 Receivable 50 60 Inventory 20 10 Current assets 100 90 Current liabilities 85 75 Required Calculate the following ratios and briefly comment on the results. 1) Net profit margin ii) Return on Capital Employed (ROCE) iii ) Receivables period iv) Payables period V) Current ratio vi) Quick ratio (15 marks (Total: 50 marks)SECTION B: CHOOSE ANY TWO UESTIONS W a) Explain the following pricing approaches: i) Customer based pricing ii) Cost based pricing iii) Competition based pricing (9 marks) b) Explain one advantage and disadvantage of each of the pricing approach in (a) above. (6 marks) c) Product VX has variable costs of K4 per unit, and selling price of K9 per unit. The xed costs are Kl.3million per year 1. If budgeted sales and production are 500,000 units, What is the budgeted prot (or loss) for the year? What is the breakeven point (in units)? What is the breakeven revenue? How many units need to be sold to achieve a target prot of K0.5million per year? What is the margin of safety? WH'WP (10 marks) (Total: 25marks) UESTION THREE a) Explain the concept of time value of money. (4 marks) b) Malbo Co. is considering a project requiring investment of K110, 000 in equipment with a d) life of ve years and a residual value of K15, 000. Annual net cash flows will be K25, 000, K37, 000, K25, 000, K21, 000 and K10, 000 for the five years respectively. According to the company policy, a project with the payback period of 2.5 years or less is acceptable. The company has a target accounting rate of return (ARR) of 10%. Required i) Calculate the AR based on average investment and advise whether the investment is financially acceptable. (4 marks) ii) Calculate the payback period and advise whether the investment is financially acceptable. (4 marks) Musonda & Sons has a 15% cost of capital and is considering a project requiring initial investment of K350, 000. Annual net cash inow will be K75, 000 for the next 6 years. Required i) Calculate the NPV of the project and advise whether the investment is nancially acceptable. (4 marks) ii) Calculate the [RR of the project and advise whether the investment is financially acceptable. (5 marks) Briey explain the objective of working capital management. (4 marks) (Total: 25 marks) QUESTION FOUR A company has prepared the following fixed budget for the coming year. Sales 11,000 units Production 11,000 units ZMW Direct materials 50,000 Direct labour 25,000 Variable overheads 12,500 Fixed overheads 10,000 Total 97,500 Budgeted selling price K10 per unit. At the end of the year, the following costs had been incurred for the actual production of 13,000 units. ZMW Direct materials 60,000 Direct labour 28,500 Variable overheads 15,000 Fixed overheads 11,000 1 14,500 The actual sales were 13,000 units for K136, 500 Required a) Explain the difference between flexible budget and fixed budget. (4 marks) b) Prepare a flexed budget for the actual activity for the year. (9 marks) c) Calculate the variances between actual and flexed budget (Use a marginal costing approach). (6 marks) d) Identify six users of financial information contained in the financial statements. State their respective interests. (6 marks) (Total: 25 marks)QUESTION FIVE a) Explain the following types of dividend policy that a company many adopt: i) Stable dividend policy ii) Constant ratio dividend policy iii) Zero dividend policy iv) Residual dividend policy (8 marks) b) Briey explain four (4) factors that can affect the dividend policy of a company. (8 marks) c) Distinguish between the interest rate risk and exchange rate risk. (4 marks) d) State three (3) methods that can be used to hedge foreign exchange rate risk and two (2) methods for hedging interest rate risk. (5 marks) (Total: 25 marks) THE END OF PAPER

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