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GCE JAN 2010 : (A2 7) Finance

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Centre Number 71 Candidate Number ADVANCED General Certificate of Education January 2010 GCE Applied Business assessing Finance A6B11 Assessment Unit A2 7 [A6B11] THURSDAY 21 JANUARY, AFTERNOON TIME 1 hour 30 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number in the spaces provided at the top of this page. Write your answers in the spaces provided in this question paper. Answer all three questions. INFORMATION FOR CANDIDATES The total mark for this paper is 80. Quality of written communication will be assessed in all questions. Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. ADVICE FOR CANDIDATES You are advised to take account of the marks for each part question in allocating the available examination time. If you do not have sufficient space to complete your answers, you may use the additional pages at the back of the booklet. For Examiner s use only Question Number 1 2 3 Total Marks 5199 Marks Study the information below and answer the questions that follow. 1 The following are two public limited companies that operate within the transport sector of the Northern Ireland economy. Aer Lingus plc Ryanair Holdings plc Aer Lingus plc, the national airline of the Republic of Ireland, was founded in 1936 facilitating air transport between Ireland and the United Kingdom. Between 1950 and 1970 it expanded its operations to include destinations such as New York and Boston. During 2007, Aer Lingus plc commenced flights from Belfast International Airport to destinations such as London and Amsterdam. Ryanair Holdings plc is a budget airline operating from two of Northern Ireland s key airports (including George Best Belfast City Airport and City of Derry Airport), offering a no frills service to a variety of European destinations. In 1985 Ryanair began scheduled flights between Waterford and Gatwick and by 1997, passenger numbers had reached over 3.1 million. In the 1970s Aer Lingus plc diversified into computer processing, hotels, personnel management, airframe maintenance and engine overhaul. Aer Lingus plc disposed of most of its ancillary business due to the pressures of the downturn of the global aviation industry during the 1990s. Aer Lingus plc has an issued share capital of 26.45 m. A recent comment by stock-market analysts stated: . . . company struggling to match 2001 sales and profits performance. Management should concentrate on making assets work . Ryanair Holdings plc, under new management, embarked on a strategy of offering low fares and closing unprofitable routes. This led to Ryanair increasing its fleet of aircraft and offering an even greater choice of destinations for passengers. In July 1998, Ryanair announced that it was increasing its fleet of aircraft, by placing an order for 25 Boeing aircraft. Ryanair Holdings plc has an issued share capital of 9.8 m. A recent comment by stock-market analysts stated: . . . the dividend is uncovered [from earnings] in the last three years. Profits graph is a little up and down in this industry sector . The company is quoted on the London and Dublin Stock Exchanges. The company is quoted on the London and Dublin Stock Exchanges. 5199 2 [Turn over Table 1 2006 Results Aer Lingus plc 31 December 2006 m Financial Year ended: Ryanair Holdings plc 31 December 2006 Company m 1115.8) 1692.5 (79.3) 338.9 0.0) 0.0 Retained Earnings (profit/loss) (69.9) 306.7 Fixed Assets 526.1) 2884.0 1135.0) 2354.3 Current Liabilities 645.9) 1117.7 Long Term Debt 462.5) 2033.7 Share Capital 26.45) 9.8 Reserves 789.75) 2530.0 Capital Employed 816.20) 2539.8 Sales Profit/(Loss) Before Tax (Operating Profit/(Loss)) Dividends Current Assets Source: adapted from (i) Stock Market Annual 2008 (p.7); and (ii) Stock Market Anual 2008 (p.125); Published by Page 7 Media, Dublin 18, Ireland 5199 3 [Turn over (a) You are required to calculate the following accounting ratios, based on the formulae provided: 1. Return on Capital Employed: Aer Lingus plc Examiner Only Marks Remark Ryanair Holdings plc Profit/(loss) Before Tax 100% 100% 100% Capital Employed Return on Capital Employed: % % [2] Use this box for your calculations 2. Net Profit Margin: Aer Lingus plc Ryanair Holdings plc Profit/(loss) Before Tax 100% 100% 100% Sales Net Profit Margin: % % [2] Use this box for your calculations 5199 4 [Turn over 3. Current Ratio: Current Assets Current Liabilities Aer Lingus plc Ryanair Holdings plc Current Ratio: times Examiner Only Marks Remark times [2] Use this box for your calculations 4. Gearing: Long Term Debt 100% Capital Employed Aer Lingus plc Ryanair Holdings plc 100% 100% Gearing: % % [2] Use this box for your calculations 5199 5 [Turn over (b) Using the information and the ratios calculated in part (a), discuss the financial position of Aer Lingus plc and Ryanair Holdings plc with respect to the following ratios: Examiner Only Marks Remark 1. Return on Capital Employed Ratio _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _______________________________________________________ [3] 2. Net Profit Margin Ratio _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _______________________________________________________ [3] 3. Current Ratio _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _______________________________________________________ [3] 5199 6 [Turn over 4. Gearing Ratio Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _______________________________________________________ [3] 5199 7 [Turn over (c) Evaluate the usefulness to investors of using accounting ratios to assess the financial position of companies such as Aer Lingus plc and Ryanair Holdings plc. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ 5199 8 [Turn over Examiner Only ____________________________________________________________ Marks Remark ____________________________________________________________ _________________________________________________________ [12] 5199 9 [Turn over Study the information below and answer the questions that follow. 2 Lisa has been operating as a sole trader for the last 5 years, trading as Sandwiches Delicious , selling fresh and made-to-order sandwiches from the shop in Strabane. The following is a trial balance for the financial year ended 31 December 2009. DR Debtors CR 1 550 Creditors 2 340 Sales 95 000 Purchases 59 600 Bank Overdraft 9 000 Heat and Light Expenses 3 100 Telephone Expenses 2 900 Advertising 1 750 Wages 20 000 Fixed Assets 44 000 Capital 42 619 Returns Inwards 1 000 Returns Outwards 1 575 Rent 2 300 Drawings 12 000 Stock (1 January 2009) 2 334 150 534 150 534 Notes at 31 December 2009: Stock was valued at 2340 Heat and light owing amounted to 6400 Rent prepaid totalled 400 Lisa is satisfied with the financial performance of the business to date. However, Lisa is beginning to feel the strain of operating as a sole trader and thinks that it would be wise to reconsider the structure of the business. 5199 10 [Turn over (a) Using the information from the trial balance, fully complete the Trading, Profit and Loss Account of Sandwiches Delicious for the year ended 31 December 2009. Clearly show the financial results of trading activities. [12] Examiner Only Marks Remark Trading, Profit and Loss Account of Sandwiches Delicious for the year ended 31 December 2009. 95 000 Sales Less: Returns .......... Opening Stock Purchases 2 334 59 600 Less: Returns .......... Less: Closing Stock 2 340 Cost of Goods Sold Gross Profit Less: Expenses: Heating and Light Expenses 3 100 ......... Amount Owing 6 400 Telephone Expenses 2 900 Advertising 1 750 Rent ......... Rent Prepaid 2 300 400 Wages 20 000 Net 5199 11 [Turn over (b) Using the information from the Trial Balance, complete the Balance Sheet of Sandwiches Delicious for the year ended 31 December 2009. Clearly show the relevant information. [9] Examiner Only Marks Remark Balance Sheet of Sandwiches Delicious as at 31 December 2009. Fixed Assets 44 000 Current Assets Debtors 1 550 Stock as at 31 December Prepaid 400 Current Liabilities Creditors 2 340 Amount Owing Bank Overdraft 9 000 Working Capital Net Assets Financed by: Opening Capital 42 619 Net .......... Less: Drawings 12 000 ___________ Capital Employed 5199 12 [Turn over (c) Lisa is thinking about expanding the business and changing the business from a sole trader to a private limited company. To do this she will have to issue shares. Explain to Lisa the following types of shares: Examiner Only Marks Remark (i) Ordinary Shares _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___________________________________________________ [2] (ii) Preference Shares _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ _____________________________________________________ ___________________________________________________ [2] 5199 13 [Turn over Study the information below and answer the questions that follow. 3 Ashbrook Fun Farm Limited is a newly established business owned by Tom and Gemma Fields, providing guided tours on part of their 1320-acre farm. The aim of the business is to provide families with an opportunity to see and feed farm animals as well as making farming fun. Within the UK, government funding is available to encourage development of new businesses such as this and to create employment in rural communities. Admission charges are 5 per person. In addition, the farm generates income from the sale of produce in the Farm Shop. The company proposes to purchase a total of three Round Balers (equipment for making hay bales) for the budgeting period, at the rate of one Round Baler per month. Table A Ashbrook Fun Farm Limited (Forecasted 3rd Quarter Operating Statement (2010)) July Aug Sept Sales Revenues Ticket Sales 45 000 45 000 35 000 Sales Revenues Farm Shop Sales 11 500 12 400 10 000 0 0 15 000 22 000 22 000 22 000 5 000 5 000 5 000 23 500 23 500 23 500 Animal Feedstuff 5 600 5 600 5 600 Vet Bills 2 150 2 750 2 300 Overheads 1 200 1 200 1 200 Telephone 0 0 500 900 750 750 400 400 400 Receipts Government Grant Cash Expenses/Payments Purchase of Round Balers Loan Repayments Wages Advertising Non-Cash Expenses Depreciation Note: The forecasted cash balance as at 1 July 2010 is ( 5500). 5199 14 [Turn over (a) Luke, the company s accountant, had started to prepare the cash budget, but had to leave to attend a board meeting in another location. You are required to assist Luke, by completing the cash budget for the 3rd Quarter of 2010, by completing the relevant information in Table B, to show the projected closing cash balance at the end of each month. [11] Examiner Only Marks Remark Table B Cash Budget 3rd Quarter (2010) July Aug Sept 56 500 57 400 45 000 Government Grants 0 0 Total Cashflows In 56 500 57 400 22 000 22 000 5 000 5 000 23 500 23 500 23 500 Animal Feedstuff 5 600 5 600 Vet Bills 2 150 5 600 2 300 Overheads 1 200 1 200 1 200 Telephone 0 0 500 900 750 750 Opening Balance Cashflows In: Total Sales Revenues Cashflows Out: Purchase of Round Balers Loan Repayments Wages Advertising 22 000 Total Cashflows Out Closing Balance 5199 15 [Turn over (b) Using the information in the Forecasted Operating Statement and the Cash Budget (Tables A and B respectively), evaluate the various options open to Ashbrook Fun Farm Limited in order to avoid a potential cash deficit. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ 5199 16 [Turn over Examiner Only _________________________________________________________ Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [12] THIS IS THE END OF THE QUESTION PAPER 5199 17 [Turn over Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright holders may have been unsuccessful and CCEA will be happy to rectify any omissions of acknowledgement in future if notified. 1312-013-1

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Additional Info : Gce Applied Business January 2010 Assessment Unit A2 7 - Finance
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