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Financial Statement Analysis Question Paper
Financial Statement Analysis
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2010
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 407: FINANCIAL STATEMENT ANALYSIS
DATE: MONDAY, 15TH FEBRUARY 2010 TIME: 2.00 P.M. - 4.00 P.M.
INSTRUCTIONS: Answer ALL questions.
1.
From the following information prepare a statement of resources provided and applied.
Net income for the year was Sh8,000,000. Dividends paid were Sh7,000,000.
Year 2
Year 1
Cash
Sh 4,000,000
Sh 4,000,000
Accounts receivable
28,000,000
30,000,000
Patents
2,000,000
Equipment
30,000,000
Accumulated depreciation
7,500,000
5,000,0000
Accounts payable
7,000,000
3,000,000
Accrued wages
1,500,000
2,000,000
Bonds payable
15,000,000
20,000,000
Share capital
20,000,000
20,000,000
Retained earnings
13,000,000
12,000,000
(17 marks)
2.
Downtown company expects sales of Sh2.4 million next year. Sales are spread
evenly throughout the year. Given the following data, prepare a pro-forma balance
sheet and income statement for the year end.
Page 1 of 3
Cash = minimum of 4% of sales
Accounts receivable = 60 day collection period
Inventory = turnover of 8 times a year.
Net fixed assets = Sh500,000 now. Capital expenditure equals depreciation.
Accounts payable = one months purchases
Accruals = 3% of sales
Bank loan = Sh50,000 now. Can borrow up to Sh250,000.
Long term debt = Sh300,000 now; 75,000 payable at year end.
Common stock = Sh100,000. No additions planned.
Retained earnings = Sh500,000 now.
Net profit margin = 8% of sales
Dividends = None
Cost of goods sold = 60% of sales
Purchases = 50% of cost of goods sold.
Income taxes = 50% of before tax profits
(18 marks)
3.
Assume that the consumer price index was 100 at the beginning of year 1;
110 at end of year 1 and averaged 105 during the year. Given data is:
Beginning inventory (historical cost Sh6,000) at current cost Sh7,000
Ending inventory (historical cost Sh9,000) at current cost Sh12,000
Purchase
Sh20,000
Cost of goods sold at current cost
Sh19,000
Required:
Determine the increase in current cost of inventory for the year; the effect
of general inflation; and the increase in current cost net of the general inflation
with the last 2 accounts expressed in average shillings for the year.
(17 marks)
Page 2 of 3
4.
A company has 100,000 shares of common stock outstanding with a market price of
Sh60/per share. It also has Sh2,000,000 in 6 percent bonds. The company needs
Sh3,000,000 for expansion that it can finance with Either:
1)
All straight bonds at 8 percent interest.
2)
All preferred stock at 7 percent.
Required:
a)
Construct an Earnings Before Interest and Taxes (EBIT) - Earnings Per Share
(EPS) chart.
b)
What are the indifference points between financing alternatives?
c)
Recommend a financing plan.
(18 marks)
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