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NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
SEPTEMBER/OCTOBER 2016 EXAMINATION

COURSE CODE:   ACC316                                      

CREDIT UNIT: 3                            

COURSE TITLE:    ANALYSIS OF FINANCIAL STATEMENT

TIME ALLOWED: 2 Hours 30 Minutes

INSTRUCTION:   1. Attempt question Number one (1) and any other three (3).

2. Question number 1 is compulsory and carries 25 marks, while   the other questions carry 15 marks each.

3. Present all your points in coherent and orderly manner.

 

  1. (i) Explain briefly the following concepts in the analysis of financial statements: Capital maintenance, Comparability, Reliability, Relevance and understand ability 10 marks

 

(ii) Using the financial statement below, calculate the ratios below and express what each showcases: Total assets turnover, Times interest earned, Average collection periods in days, fixed charges coverage and Profit margin on sales.                                     15 marks

_______________________________________________________________

Statement-1 TETE Ltd -Balance Sheet as at December 31, 2010                                                    

Assets                                      N                     Liabilities                            N

Cash                                        70,000             Accounts payable                          150,000

Marketable securities             30,000             Note payable to bank (8%)    200,000

Accounts receivable, net        450,000           Accruals                           20,000

Inventories                              350,000           Income tax payable                 80,000

Total current assets                 900,000           Total current liabilities          450,000

                                                                        Mortgage Bonds (6%)           150,000

Gross plant and equipment     2,100,000                    Debenture (7%)          400,000

Allowance for depreciation    (500,000)                    Total liabilities     1,000,000

Net plant and equipment        1,600,000                                                                               

                                                                                                                                     Shareholder’s equity

       Ordinary Shares                                                                                       500,000

      Retain earnings                                                                                         1,000,000

       Shareholder’s equity                                                                                1,500,000

Total assets                              2,500,000        Liabilities plus equity                        2,500,000

 

The annual sinking fund contribution is N25,000

 

 

Statement-2 TETE. Ltd –Income Statement for the year ended December 31, 2010 =======================================================           

                                                N                     N                     N              N

Net Sales                                                                                             5,400,000

Cost of goods sold                                                                              4,400,000

Gross Margin on sales                                                                                    1,000,000

Operating expenses:

Selling                                                 400,000

General and Administrative               130,000

Lease payment                                       20,000         

Total operating expenses                                                                    550,000

  1. Operating income                                                                               450,000

Other revenues- Interest on Marketable Securities + royalties                         3,000

Operating income plus other revenues                                                           453,000

  Less other expenses:

            Interest on bank note                          16,000

            Interest on mortgage                             9,000

            Interest on debentures                        28,000

   Total interest                                                                                               53,000

Net income before taxes                                                                                 400,000

Income taxes (at 50%)                                                                                    200,000

Net after tax income available to ordinary shareholders (net profit)            200,000

Dividends                                                                                                          30,000

Increase in retained earnings                                                                          170,000

 

                                                                                                            (25 marks)

 

2.  Explain the usefulness of opportunity cost in decision making in business.  (15 marks)

3 Why is long range profit goal setting necessary for management of an organization? (15 marks)

4.  Explain activity ratio of an enterprise and identify different types of activity ratios used in an organization.  (15 marks)

5. State any five purposes the International Accounting Standard Board (IASB) and explain how they assist in the analysis of financial statements. (15 marks)

6. What are accounting policies? Highlight five of significant accounting policies that have to be in financial statements of a company (15 marks)


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