Advanced Business Calculation: Professional and Business Academy

Professional and Business Academy
ADVANCED BUSINESS CALCULATION
CONTENTS
Chapter Pages
1. Interest 1–5
2. Stock Exchanges 6 – 11
3. Business Ownership 12 – 17
4. Profitability & Liquidity 18 – 25
5. Investment Apprarisal 26 – 36
6. Bankruptcy 37 – 45
7. Depreciation of Business Assets 46 – 50
8. Index Number 51 – 56
Internal Notes for WTA’s Students Only 1 LCCI Level – 3 Advanced Business Calculations
Chapter (1)
Interest
Simple Interest
Example (1)
Calculate the simple interest over 5 years, if £ 12,500 is loaned at a rate of 8 1/2 percent per annum. Calculate
also the amount owing at the end of the period.
Example (2)
A woman borrowed £ 7,400 for four-and-a-half years. The amount owing at the end of the period was £ 9,731.
What was the rate of simple interest on the loan?
Example (3)
A investor buys a bill of exchange for £ 95,000 and six months later it matures for £ 100,000. Calculate the rate
of interest per annum.
Example (4)
A woman deposits £ 1500 in a bank account for 94 days at 3.5 per cent per annum simple interest. Calculate the
interest earned.
Compound Interest
Example (5)
A man invests £ 5,600 at 8 per cent compound interest. How much is the investment worth after two years?
Example (6)
A coupk borrow £ 85,000 at a fixed rate of 4.25 per cent per annum, to be repaid in full after 25 years. Find the
amount of the final repayment.
Example (7)
A business invested a sum of money for 8 years at 5 per cent per annum compound interest. At the end of the
period the investment was worth £ 26594.20. What was the original investment?
Example (8)
A man invests £ 9500 for 7 years. Find the rate of compound interest that results in a total interest of £ 3690.24
over this period.
Example (9)
Laura invests £ 12500 at 4.65 per cent per annum compound interest. At the end of the investment period she
receives a total of £ 18817.55, which includes all the interest and the original investment. For how many
complete years was the sum invested?
Example (10)
Solomon wishes to invest £ 50,000 for 4 years. Should he choose an account offering 4 per cent per annum
simple interest, or one offering 31/2 per cent compound interest?
If Solomon were to invest for 10 years instead of 4, which account would give the greater interest?
EXERCISE
Question (1)
S Jones has a bank account on which simple interest is earned at 5 1/2% per annum on credit balances.
Simple interest is charged by the bank at 12% per annum on debit balances.
Interest is calculated daily on all balances and paid/earned at the end of the month.
The account for October is shown below.
Date Details Debit Credit Balance

£ £ £
1 Oct Balance b/f 2796.00 Cr
10 Oct Deposit 1540.00 4336.00 Cr
17 Oct Cheque 4550.50 214.50 Dr
23 Oct Deposit 350.75 136.25 Cr
31 Oct Balance c/f 136.25 Cr
Giving your answer to the nearest cent, calculate:

(a) the interest payable to or by, S Jones on 31 October
(b) the fund balance figure.
Question (2)
On S Shaw Ltd’s bank account, simple interest is paid at 5.5% per annum on credit on credit balances.
Simple interest on debit balances is paid by S shaw Ltd at the same rate. Interest on balances is
calculated daily and paid/charged at the end of the month.
The account for January is shown below.

£ £ £
1 Jan Balance b/f 5500.00 Cr
12 Jan Cheque 2500.00 3000.00 Cr
18 Jan Deposit 1961.50 4961.50 Cr
22 Jan Cheque 5297.50 336.00 Dr
31 Jan Balance c/f 336.00 Dr
Giving your answer to the nearest penny, calculate;

(a) the interest payable to, or by, S Shaw Ltd on 31 Jan.
(b) the final balance figure.
Question (3)
Miss Clarke has a bank account on which simple interest is earned at 31/2% per annum on credit
balances. Simple interest is charged by the bank at 11% per annum on debit balances.
Interest is calculated daily on all balances and paid/earned at the end of the month.
The account for August is shown below:

£ £ £
1 Aug Balance b/f 1403.64 Cr
2 Aug Cheque 350.00 1053.64 Cr
19 Aug Cheque 1195.00 141.36 Dr
29 Aug Deposit 2130.83 1981.47 Cr
The balance at the end of August, before interest and charges, is 1981.47 in credit.
(a) Giving your answer to the nearest cent, calculate the interest payable to, or by, Miss
Clarke on 31 August.
The bank charges £ 20 for a letter to Miss Clarke telling her she is more than £ 100 overdrawn.
(b) Calculate the final balance figures.
Question (4)
(a) A bank customer deposits £ 1350 at 6.75% per annum compound interest payable annually for
4 years. Giving your answer to the nearest penny, calculate:
(i) how much will be in the account at the end of 4 years.
(ii) the amount of extra income if compound interest had been added half- yearly.
(b) A factory manager wishes to replace machinery in 3 years time when the cost is estimated to
be £ 53,000.
Giving your answer to the nearest pound, state the minimum sum that must be invested to
ensure that at least £ 53,000 is available in 3 years time. The assumed rate of interest is 7%
compounded annually.
Question (5)
In 1995 a private house was worth £ 67,000. Over the next 4 years it increased in value at a constant
rate of 5% of its value at the beginning of each year.
(a) Calculate the value of the house after 4 years.
(b) Giving your answer correct at the nearest pound, calculate the value of the house after
31/2 years.
The value of a second house increased at the same constand rate over the same 4 year period. At the
end of the 4 years its value was £ 95,000.
(c) Giving your answer correct to the nearest thousand pounds, calculate the value of the
house at the start of the period.
Question (6) (Series 4/2007)
(a) Calculate the amount (principle plus interest) when a sum of £ 150,000 is invested at 4% per
annum simple interest for three-and-three-quarter years. (2 marks)
(b) At the start of the year 2000 a house was worth £ 150,000. Each year for the next 6 years the
house increased in value at a rate of 3.5% per annum of its value at the start of the years.
Treating in increase in values as compound interest, calculate

(i) the value of the house after 3 years (2 marks)
(ii) the value of the house after 21/2 years (2 marks)
(iii) the value of the house after the first year (2 marks)
(c) The value of second house increased at the same rate of 3.5% per annum compound interest
over the same 6-year period. At the end of the 6 years its value was £ 220,000.
Giving your answer correct to the nearest £1,000, calculate the value of the house at the start of the
period. (3 marks)
(Total 12 marks)
Chu has a number of investments. Each one is for a whole number of years. Each one earns
compound interest. He makes a table of his investments as follows, rounding figures to the nearest £.
Investment A Investment B Investment C Investment D

Sum invested £ 150,000 £ 110,000 ? ?
Rate of interest 3% 3.5% 4.5% 4%
per annum
Time invested 5 6 ? 6
(years)
Final amount £ 173,891 ? £ 105,925 £ 54,725
(Principle+Interest)
Interest earned £ 23.891 ? £ 20,925 ?
Copy the table into your answer book and complete the table. (Total 13 marks)
Zheng deposited money into three different accounts, as follows:
Account A Account B Account C

Sum invested £ 80,000 £ 140,000 ?
Type of interest Simple interest Compound interest Compound interest
Rate of interest 4.5 % 4.2% ?
Per annum
Time invested (years) ? 5 6
Interest earned £ 18,000 ? £ 23,610.35
Final amount ? ? £ 115,110.35
(Principle + Interest)
Calculate the missing figures.

(Total 12 marks)
Chapter (2)
Stock Exchanges
Example (1) Dividend on Ordinary Shares
David owns 1500 ordinary shares in the company in ABC. This company issued 5,000,000 ordinary
shares.
(a) What percentage of the company does David own?
(b) The company dectares a dividend of 13 pence per share.
(i) How much does David receive in dividend?
(ii) How much dividend does the company pay out in total?
Example (2) Interest only yield on ordinary shares
David bought his 1500 shares at 320 pence. He received £ 195 dividend. Calculate the interest only
yield on David’s investment.
Example (3) Nominal value of preference shares
A company issues 100,000 preference shares at a price of 115 pence per share,with a nominal value of
40 pence each.
(a) Calculate the company’s income from the shares.
(b) Calculate the total nominal value of the shares.
Example (4) Dividend on preference shares
The 100,000 shares in example 2.5 were issued as 6.5 per cent preference shares’. Rebecca buys
1200 shares (nominal value 40 pence) at 115 pence. Calculate the divided she receives and the
interest only yield.
Example (5) (Series 4/2008)
Amanda buys shares in three companies and later receives a dividend from each. She tabulates and
figure as follows:
Company A Company B Company C

Number of shares 3,000 12,000 ?
Nominal value of one share £5 ? £5
Buying price per share £ 11.72 £ 3.71 232 p
Broker’s commission £ 30 ? £ 40
Total cost of shares,including ? £ 44,545 £ 58,040
commission
Dividend (percentage of nominal 6% 9.8% ?
value)
Dividend (£) ? £ 588 £ 1,750
Supply the missing figures.
Example (6) Stocks
An invester buys £ 1000 of government stock at £ 88. How much does she pay?
Example (7)
£ 100 of 51/2 per cent government stock can be bought for £ 833/4. A bank invested £ 60970 in the stock
and held the stock for 4 years.
(a) Calculate the nominal value of stock bought by the bank.
(b) Calculate the total interest received and the interest only percentage Yield.
Example (8)
Nicholas bought two blocks of government stock at different rates and values. He tabulated his results
as shown in Table 2.1.
Table 2.1 Purchase of government stock

Rate of interest (on nominal value of stock) 5% 51/2%
£ 100 of stock bought at £ 84 £ 82
Amount invested £ 25200 ?
Nominal value of stock purchased ? £ 15000
Stock held for 4 years ?
Total interest earned ? £ 371250
Percentage yield on amount invested ? ?
Complete the table.
Example (9)
Faroog buys 2200 units in a unit trust at £ 5 a unit flow much does this cost him?
Example (10)
Maria buys 1400 distribution units at £ 5 each. In the first year she receives 3.2 per cent interest, and in
the second year receives interest amounting to 15 pence per unit. At the end of 2 years her units are
still valued at £ 5.
Example (11)
Edina bought 2000 accumulation units at £ 5 and sold them 4 years later for £ 6.68 each. Calculate the
profit made and express this as a percentage of the investment.
EXERCISE
Question (1)
An investor with £ 85,000 invested £ 34,000 in 7 1/2%. Preference shares at £ 0.85 per share (£
1 par) and £ 11,000 in Ordinary shares at £ 1.25 per share (£ 1 par).The remainder was
invested in a unit trust with on offer price of £ 5.00 per unit.
At the end of 3 years, the total investment was sold when the market price were as follows:
Preference shares £ 1.05
Ordinary shares £ 1.20
Units £ 5.60
Ordinary share dividends were paid as follows:

Years 1 2 3
9% 5% 2%
Calculate the investor’s total profit or loss on the original total investment.
Question (2)
An investor with £ 55,000 invested £ 30,000 in 7 1/2%. Preference shares at £ 0.80 per share (£
1 par) and £ 11,000 in ordinary shares at £ 1.25 per share (£ 1 par). The remainder was
invested in a unit trust with an offer price of £ 4 per unit.
At the end of 3 years, the total investment was sold when the market prices were as follows:
Preference shares £ 1.15
Ordinary shares £ 1.10
Units £ 5.60
Ordinary share dividends were paid as follows:
Year 1 2 3
Rate of interest 6.5% 3% 2.25%
Calculate the investor’s total profit or loss, including dividend, on the original investment.
Question (3)
Jan bought two blocks of Government Stock at different rates and values. She tabulated her results as
follows:
Rate of interest (on nominal value of stock) 31/2% ?
£ 100 of stock bought at £ 86 /4
3 ?
Amount invested £ 43,375 £ 29,750
Nominal value of stock purchased ? £ 35,000
Stock held for 4 /2 years
1 4 years
Total interest ? ?
Percentage yield ? 20%
Question (4)
John bought two blocks of Government stock at different rates and values.He tabulated his results as
follows:

£ 100 of stock bought at £ 87 ?
Amount invested £ 21750 £ 51300
Nominal value of stock purchased ? ?
Stock held for 3 years 41/2 years
Total interest earned ? ?
Percentage yield on amount invested ? 25%
Copy and complete the above table.
Ernestine bought two blocks of debenture stock at different rates and values. She tabulated her result
as follows:
Block A Block B
£ 100 of stock bought at £ 891/2 £ 90
Amount invested ? £ 85,500
Nominal value of stock purchased £ 200,000 ?
Stock held for 4 years ?
Total interest earned ? ?
Total percentage yield on amount invested ? 12.5%
Copy the above table into your answer book and complete the table
(Total 13 marks)
(a) £ 100 of 41/4% debenture stock can be bought for £ 76.50. A bank invested £ 30,600 in the
stock. The bank held the stock for 5 years.
Calculate:
(i) the amount value of the stock bought by the bank. (2 marks)
(ii) the total interest reveived over this period. (2 marks)
(iii) the interest only percentage yield over this period. (2 marks)
(b) The bank invested £ 33,945 in 31/2% Government stock, and received £ 1,750 in interest in the
first year.
Calculate the cost of £ 100 of the stock. (3 marks)
(c) The bank also invested £ 60,000 in a unit trust with an offer price of £ 250 per unit, and sold the
units after 5 years at £ 338 per unit. Assume that the units are accumulative, ie that the price
includes the dividend.
Calculate:
(i) the number of units purchased. (2 marks)
(ii) the average annual percentage increase in the value of the units.
(3 marks)
(Total 14 marks)
£ 100 of 21/4% Government Stock can be bought for £ 88. Interest is paid half yearly. A bank invested £
308,000 in the stock.
(a) Calculate the nominal value of the stock bought by the bank. (2 marks)
The bank held the stock for 31/2 years.
(b) Calculate the total interest received over this period. (2 marks)
The bank purchased 120,000 5 /2% preference shares (nominal value £ 5) at £ 7.34.
1
(c) Calculate the cost of the shares. (2 marks)

(d) Calculate the dividend received each year. (2 marks)
The bank also purchased units in a unit trust with an offer price of £ 450 per unit, and sold the units
after 21/2 years at £ 495 per unit.
(e) Express the increase in price of the units as a percentage increase per annum (simple interest).
(3 marks)
(Total 11 marks)
£ 100 of 31/4% government stock can be bought for £ 102. A bank invested £ 193,800 in the stock.
(a) Calculate the nominal value of the stock bought by the bank (2 marks)
The bank held the stock for 4 years.
(b) Calculate the interest received over this period. (2 marks)
The bank could have purchased £ 204,000 of debenture stock for the £ 193,800.
(c) Calculate the cost of £ 100 of the debenture stock. (2 marks)
The bank could have invested the £ 193,800 instead in a unit trust with an offer price of £ 200 per unit,
and sold it after 4 years at £ 225 per unit.
(d) Calculate the number of units that could have been purchasd. (2 marks)
(e) Compare the increase in value of the units with the interest on the government stock and calculate
how much more or less the bank would have received if it had invested in the unit trusts instead
of government stock. (4 marks)
(Total 12 marks)
An investor bought 15,000 Ordinary Shares (nominal value £ 4.50) at 480 pence each.She paid a
broker’s commission of 0.25% of the nominal value.
(a) Calculate the total cost of the shares including commission. Give your answer in pounds.
(3 marks)
After 5 years, the shares are sold for 912 pence.
(b) Calculate the income from the sale, before commission. (2 marks)
For the sale, the investor pays a flat-rate broker’s commission of £ 80.
No dividend was paid for the first two years.
For the next two years, the dividends declared were:
Year 3 Year 4
3p per share 6.0 per share
For the fifth year the dividend amounted to 2% of the nominal value of the shares.
(c) Calculate the total profit made by the investor, including purchases, sale, dividends and
commissions. (5 marks)
(d) Express the total profit per annum as a percentage of the total cost of the shares.
(2 marks)
(Total 12 marks)
Chapter (3)
Business Ownership
EXERCISES
Question (1)
A manufacturer’s product is sold to customers at £ 80 each. Manufacturing costs are as follows:
Fixed costs £ 50,000
Variable costs £ 60 per product
(a) the output at which the manufacturer would break-even
(b) the total manufacturing cost at this level of output
(c) the loss for an output of 2000 units
(d) the output for a profit of £ 8000
Question (2)
An industrial product can be manufactured by two different methods of production.
Using method X, fixed costs are £ 160,000 and variable costs are £ 113 per product.
Using method Y, fixed costs are £ 250,000 and variable costs are £ 89 per product.
(a) Calculate the level of output for which the total costs are the same.
(b) Calculate the total cost at this output.
(c) Calculate the difference between the costs of Method X and Method Y for an output of
3700 units.
(d) For what anticipated levels of output should Method X be preferred to Method Y?
Question (3)

Using Method X, fixed costs are £ 3,500,000 and variable costs are £ 13 per product.
Using Method Y, fixed costs are £ 4,500,000 and variable costs are £ 9 per product.
(a) Calculate the level of output for which the total costs are the same.
(b) Calculate the total cost at this output.
(c) Calculate the difference between the costs of Method X and Method Y for an output of
300,000 units.
(d) For what anticipated levels of output should Method X be preferred to Method Y?
Question (4)
Using Method X, fixed costs are £ 750,000 and variable costs are £ 17 per product.
Using Method Y, fixed costs are £ 680,000.
At an output of 200,000 units, the total costs for Method Y are the same as for Method X.
(a) Calculate the variable costs per product for Method Y.
The manufacturer chooses Method X and sets a selling price so that he will break even
on production and sales of 150,000.
(b) Calculate the selling price.
Question (5)
A factory manufactures two main products.
Product X has everage unit costs of production during a trading year as follows:
£
Components 84
Labour 125
Production overheads 105
Distribution expenses 60
The production overheads to not vary irrespective of how many units are produced. 55% of the
distribution expenses vary directly with the number of units produced. 80% of the labour costs vary
directly with the number of units produced.
All the cost of the components varies directly with the number of units produced.
(a) Calculate:
(i) the variable cost per unit
(ii) the fixed cost per units for the trading year
Manufacturer A sells a particular product for £ 210 per unit. Production costs are as follows:
Fixed costs per period £ 630,000

Variable costs per unit £ 175
(a) Calculate the break-even point. (3 marks)
Manufacturer B sells a similar product for £ 200 per unit. The production costs for Manufacturer B are
as follows:
Fixed costs per period £ 800,000
Variable costs per unit £ 155
(b) Compare the profits of the two manufacturers for an output and sales of 20,000 units in a
period. (4 marks)
Another product, Product P, has unit costs of production during a period as follows:
£
Components figure omitted
Labour 40
The cost of components varies directly with the number of units product. 70% of the labour costs vary
directly with the number of units produced. The remainder are fixed costs. The production overhead do
not vary irrespective of how many units are produced. 60% of the distribution expenses vary directly
with the number of units produced. The remainder are fixed costs.
For the period the variable cost per unit was the same as the fixed cost per unit.
(c) Calculate the cost of components per unit for Product P. (4 marks)
(Total 11 marks)
Manufacturer A sells a particular product for £ 330 per unit. Production costs are as follows:
Fixed costs £ 5,500,000
Variable costs £ 286 per unit
(a) Calculate the break-even point. (3 marks)
Manufacturer B sells a similar product for £ 309 per unit. By investing in newer machinery, production
costs are as follows:
This product is sold for £ 309 per unit.
(b) Calculate the level of production for which the two methods have the same total costs.
(3 marks)
(c) Compare the profits of the two manufactures for production and sales of 200,000 units.
(5 marks)
(d) Calculate the level of production and sales for which the two methods produce the same profit
or loss. (3 marks)
(Total 14 marks)
Manufacturer A sells a particular product for £ 440. Production costs are as follows:
(a) Calculate the number of units to be produced and sold for break-even.
(3 marks)
Manufacturer B sells a similar product. By investing in newer machinery, production costs are as
follows:
This product is sold for £ 357 per unit.
(b) Calculate the level of production for which the two methods have the same total costs.
(3 marks)
(c) Compare the profits of the two manufactures for production and sales of 200,000 units.
(5 marks)
(d) Calculate the level of production and sales for which the two methods produce the same profit
or loss. (3 marks)
(Total 14 marks)

Four companies calculate their fixed costs per period of production, and their variable costs per unit of
product during the period. Each company sets a selling price and calculates the number of units of
product that must be manufactured and sold in order to break even.
They tabulate their results, as follows:
Company A Company B Company C Company D

Fixed costs per period 1,200,000 1,170,000 ? 2,960,000
Variable costs per unit of product 720 210 925 ?
Selling price 780 249 1,099 349
Number of units for break even 20,000 ? 22,250 80,000
Company A has fixed costs per period of £ 1,120,000, variable costs per unit of £ 720, and sets a
selling price of £ 780. They calculate the number of units for break even as 20,000 units.
Calculate:
(a) The profit made by company A on production and sales of 28,000 units per period.
(3 marks)
(b) The number of units for break even for company B. (3 marks)
(c) The fixed costs per period of company C. (3 marks)
(d) The variable costs per unit of product of company D. (3 marks)
(Total 12 marks)
An industrial product may be manufactured by two methods of production.

Using Method X, fixed costs are £ 1,750,000 per period and variable costs are £ 295 per unit of
product.
Using Method Y, fixed costs are £ 1,050,000 per period and variable costs are £ 335 per unit of
product.
The manufacturer plans to sell the product at £ 435 per unit.
(a) Calculate:
(i) the level of output per period for which the total costs are the same
(3 marks)
(ii) the break even point in units per period for method X (3 marks)
(iii) the total cost per period at break even for method Y. (4 marks)
The manufacturer predicts sales of 20,000 units per period.
(b) State wich method should be used. (1 mark)
(c) Calculate the expected profit per period using this method. (3 marks)
(Total 14 marks)
Product P has variable costs per unit of product of £150, and fixed costs of £ 1,952,000 per period. Unit
costs of production during a trading period are as follows:
£
Components 57
Labour 80
The cost of components varies with the number of units produced. 60% of the labour costs vary directly
with the number of units producted. The production overheads do not vary irresepective of how many
units are produced.
(a) Calculate the percentage of distribution expenses that vary directly with the number of units
produced. (4 marks)
(b) Calculate the fixed costs per unit. (2 marks)
(c) Calculate the number of units produced in the trading period. (2 marks)
Product P breaks even on production and sales of 12,800 units per period.
(d) Calculate the selling price of product P. (3 marks)
(e) Calculate the total cost of production at break even. (2 marks)
(Total 13 marks)
Chapter (4)
Profitability & Liquidity
(A) Ratio to assess profitability
(1) Gross profit to sales (margin) = Gross profit x 100 = Ó%

Net sales
(2) Gross profit to cost of sales (mark up)= Gross profit x 100 = Ó %
Cost of sales
(3) Net profit to sales = Net profit x 100 = Ó %

Net-sales
(4) Expenses as a percentage of sales = overhead expenses x 100= Ó %

Net – sales
(5) Return on capital employed = Net profit x 100 = Ó %

Average capital employed
(6) Rate of stock turnover = Cost of goods sold

Average stock
(7) Average time in stock = days (or) weeks (or) months

Rate of stock turn
(B) Ratio to assess liquidity
(1) working capital ratio = Current Assets =Ó:Ó

(or) Current Liabilities
Current ratio
(2) Acid test (or) Liquid Assets = Current Asset – stock = Ó : Ó

(or) Current Liabilities
Quick ratio
(3) Borrowing ratio = Total borrowing

Net – worth
(4) Average credit given = Average debtor x 365

(or) Sales
Debtor collection period
(5) Average credit taken = Average Creditors x 365

(or) Credit Purchases
Creditors payment period
EXERCISE
Question (1)
Each of businesses A and B wishes to borrow from a bank.

The following information is available:
Overheads Net Turnover Capital Gross Profit
£ £ £ £
Business A 35,450 204,990 233,000 170,500
Business B 73,800 162,650 205,000 140,300
For each business, calculate:

(a) net profit
(b) gross profit percentage on net turnover
(c) net profit percentage on net turnover
(d) percentage return on capital
Both businesses apply for a bank loan.
(e) To which business is the bank most likely to lend? Give three reasons.
Question (2)
A retailer’s Balance Sheet at the end of the first year of trading is shown below:
Balance Sheet as at 31 December Year 1
£ £ £
Fixed assets
Premises 34,000
Equipment 5,100
Furniture 2,810
Transport 4,200
46,110
Current assets
stock 6,500
debtors 1,945
bank 1,850
cash 315 10,610
Amounts due within 12 months
trade creditors 1,795
Net current assets 8,815
54,925
Amounts due after 12 months
Mortage on premises (17,500)
37,425
Financed by
Capital 35,000
Add net profit 5,500
Less drawings (3,075) 37,425
(a) State the formulae for determining:
(i) Current ratio
(ii) Acid test ratio (quick-asset ratio ; liquid capital ratio)
(iii) Borrowing ratio
(b) Using the above Balance Sheet, calculate:
(i) the current ratio
(ii) the acid test ratio
giving your answer in each case as a decimal correct to two significant figures.
(c) Give a brief interpretation of the current ratio. Your interpretation should include a brief
explanation of the ratio, together with a judgement of the value obtained.

The following information relates to a retailer’s business during a trading year.
£
Net sales 390,000
Cost of Goods sold 241,800
Initial stock value 20,000
Final stock value 20,300
Overhead expenses 91,650
Calculate:
(a) the overhead expenses as a percentage of net sales (2 marks)
(b) gross profit as a percentage of net sales (3 marks)
(c) net profit as a percentage of net sales (3 marks)
(d) net purchases (2 marks)
(e) rate of stockturn per annum (3 marks)
(Total 13 marks)

The following information applies to a retail business at the end of the first year of
trading.
£ £ £
Fixed assets (total) 387,000
Current assets
Stock 68,250
Cash + back + debtors 47,250 115,500
Amounts due within 12 months
450,000
Amount due after 12 months
Average mortage on premises during the year (162,000)
(a) Calculate:
(i) the current ratio (2 marks)
(ii) the acid test ratio (3 marks)
(b) Calculate:
(i) the net worth (1 mark)
(ii) the borrowing ratio(capital gearing ratio). (2 marks)
(c) Briefy explain the figures for the following, and what they mean for the retailer:
(i) current ratio (2 marks)
(ii) acit test ratio (2 marks)
(Total 12 marks)

(a) At the end of the year 2006 the current ratio for Company X was 3.55:1 and its current liabilities
were £ 4,200,000. Calculate the current assets for Company X at that time.
(2 marks)
(b) Also at the end of the year 2006, the same company, Company X, had an acid test ratio of
2.85:1. Calculate the stock held by Company X at that time.
(3 marks)
(c) State whether your think the liquidity of Company X was healthy or not. Explain your answer.
(4 marks)
(d) The rate of stockturn for Company Y in the year 2006 was 11. At the start of that year the
company held stock to the value of £ 84,000, and at the end of that year the value of stock held
was £ 77,000. Calculate the net purchases of Company Y for that year.
(4 marks)
(Total 13 marks)

The following information relates to a retailer’s business for a trading year.
£
Sales 505,000
Purchases 316,250
Sales returns 15,000
Purchases returns 25,050
(a) Calculate:
(i) the cost of goods sold (3 marks)
(ii) the gross profit (2 marks)
(b) Calculate the average number of days the stock is held. (3 marks)
The overhead expenses for the business in the trading years were 19% of net sales.
(c) Calculate:
(i) the overhead expenses (2 marks)
(ii) the net profit as a percentage of net sales. (3 marks)
(d) Give a briefy explanation of the difference between gross and net profit.
(2 marks)
(Total 15 marks)

The following information relates to a retailer’s business for one year:
£
Annual sales 463,000
Annual purchases 329,600
Sales returns 11,200
Purchases returns 12,050
Stock at start of year 20,901
Stock at end of year 21,631
Average money owed by debtors 23,750
Average money owed by creditors 15,399
Postage, telephone, internet 4,033
Heating, Lighting 12,101
Rent 42,600
(a) Calculate the ratios for:
(i) overhead expenses to net sales (4 marks)
(ii) average credit taken by the retailer,in days (3 marks)
(iii) average credit given by the retailer, in days (2 marks)
(b) Give a brief interpretation of the average credit given by the retailer to his debtors.
(2 marks)
(c) Calculate the average number of days for which stock is held. (4 marks)
(Total 15 marks)

At the end of the year 2007 the current ratio for Company P was 3.2:1.Its current liabilities were £
4,750,000.
(a) Calculate the current assets for Company P at that time. (2 marks)
At the end of the same year, 2007, Company P had an acid test ratio of 3.0:1.
(b) Calculate the stock held by Company P at that time. (3 marks)
(c) State whether you think the liquidity of Company P was healthy or not. Explain your answer.
(3 marks)
In the previous year, 2006, the rate of stockturn for Company P was 12. At the start of that year the
company held stock to the value of £ 180,000, and at the end of that year the value of stock held was £
150,000.
(d) Calculate the net purchases of Company P for that year. (4 marks)
The actual purchases for Company P during 2006 was £ 2,175,000.
(e) Calculate the difference between this and your answer to (d), and say what this difference
represents. (3 marks)
(Total 15 marks)

The following information relates to the business of Retailer R during a trading year.
£
Net sales 1,305,000
Cost of good sold 646,000
Calculate:
(a) net profit as a percentage of net sales (4 marks)
(b) net purchases (2 marks)
(c) rate of stockturn per annum (3 marks)
(d) the average number of days items are held in stock. (2 marks)
In the same year, the cost of goods sold by Retailer S were £ 850,000. During the year the retailer
reduced stock by £ 20,000, and kept items in stock for an average of 14.6 days.
(e) Calculate the value of stock at the end of the year. (4 marks)
(Total 15 marks)

Part of the Balance Sheet of Retailer A at the end of the first year of trading is shown below:
Balance Sheet as at 31 December Year 1
£ £ £
Fixed Assets Figure omitted
Current Assets
Stock 8,899
debtors 9,330
bank 2,420
cash 385 21,034
Amount due within 12 months
251,134
Amount due after 12 months
Mortage on permises (88,300)
162,834
(a) Using the above figures from the Balance Sheet, calculate:
(i) Current ratio (2 marks)
(ii) Borrowing ratio (capital gearing ratio) (2 marks)
(iii) Fixed assets. (2 marks)
(b) During 2008 the following information relates to Retailer B.
£
Net sales 500,000
Cost of good sold 377,700
Calculate:
(i) gross profit (2 marks)
(ii) net purchases (2 marks)
(iii) the rate of stock turnover (stockturn) per annum. (3 marks)
(Total 13 marks)

A retailer’s balance sheet at the end of a trading year shows current assets of £ 35,260 and
current liabilities of £ 17,200. The current assets include stock of £ 12,040, bank account of £
7,700, cash of £ 532 and an amount owed by debtors.
(a) Calculate:
(i) the amount owed by debtors (2 marks)
(ii) the acid test ratio. (3 marks)
(b) State whether or not you would judge the liquidity of the business to be healthy.
(c) Give a reason for your answer to (b). (1 mark)
The stock held at the start of the trading year was £ 10,750, and the net purchases during the year was
£ 138,030.
(d) Calculate:
(i) the average stock held (2 marks)
(ii) the cost of good sold (2 marks)
(iii) the rate of stockturn (2 marks)
(Total 13 marks)
Chapter (5)
Investment Appraisal
Example (1) Payback period

A business invests £ 200,000 in an investment project. Returns are expected as follows. All Figures are
in pounds. Calculate the payback period.
Year 1 10,000
Year 2 30,000
Year 3 70,000
Year 4 90,000
Year 5 55,000
Example (2) Payback period appraisal

A business owner has a choice of two investment projects. The estimated costs and returns are
as follows:
Project Y Project Z
£ £
Cost 220,000 170,000
Year 1 Cash inflow 130,000 - 20,000 (loss)
Year 2 Cash inflow 70,000 30,000
(a) Calculation separately for each project the payback Period.
(b) Advise the business owner which project is the better investment.
Example (3) Net present value – NPV

A project requiring an initial investment of £ 275,000 is expected to have a life of 5 years and
returns are anticipated to be as follows. Using the tables of discounting factors provided, evaluate the
project at a discount factor of 12 per cent and at a discount factor of 16 per cent.
Return (£)
Year 1 20,000
Year 2 50,000
Year 3 120,000
Year 4 200,000
Year 5 100,000
Discounting factor 12% 16%

Year 1 0.893 0.862
Year 2 0.797 0.743
Year 3 0.712 0.641
Year 4 0.636 0.552
Year 5 0.567 0.476
Example (4) (Internal Rate of Return) (IRR)

An investment project is anticipated to have a net present value of £ 20,400 at a discount rate
of 11 per cent and a negative NPV of (£ 15600)at a discount rate of 14 per cent. Calculate the IRR.
EXERCISE
Question (1)
The directors of a company are considering the purchase of a machine for improving efficiency of
production. The following data are available:
New machine
Purchase price £ 175,000
Annual cost savings £ 50,000
Estimated useful life 5 years
(a) Calculate for the new machine the net present value corresponding to each of the two discount
rates 12% and 16%, given the table of discount factors below:
Discount factors
Year 12% 16%
1 0.893 0.862
2 0.797 0.743
3 0.712 0.641
4 0.636 0.552
5 0.567 0.476
(b) Estimate the initial rate of return to three signification. The new machine must earn a return of
at least 13%.
(c) Interpret your answer to (b) and advise the directors.
Question (2)
An investor is examining an investment proposal with an anticipated life of four years. An
investment of £ 300,000 is to be made immediately, with the following returns expected in the figure:
Year £
1 net cash inflow 60,000
Using the following tables, calculate the Net Present value of the project at discount factors of
15% and 16%, and hence calculate the Internal Rate of Return correct to four significant figures:
Discount factor 15% 16%

Year 1 0.870 0.862
2 0.756 0.743
3 0.658 0.641
4 0.572 0.552
Question (3)
A business owner has a choice of two investment projects. The estimated costs and returns are
as follows:
Project One Project Two
£ £
cost 390,000 147,500
Year 1 Net cash inflow 90,000 - 15,000 (loss)
2 Net cash inflow 150,000 100,000
3 Net cash inflow 200,000 150,000
4 Net cash inflow 50,000 75,000
(a) For Project Two calculate the pay back period. Give your answer in years and months.
(b) The payback period for Project one is 2 year 9 months. Advise the business owner which
project is the better investment. Give a reason.
A third project has a negative net present value of (£ 1500) at a discount factour of 11% and a
negative net present value of (£ 18,700) at a discount factor of 13%.
(c) Calculate the internal rate of return of the project, correct to four significant figures.
Question (4) Investment Appraisal
A business owner is considering the purchase of equipment to improve efficiency. The following data
are available:
Net Equipment
Purchase price £
(payable in 2 equal instalments
in Year 1 and Year 2) 28,000
Estimated cost savings: Year 1 Nil
Year 2 6,500
Year 3 8,000
Year 4 9,500
Year 5 10,000
Year 6 10,500
The owner requires the investment project to earn at least 12% per annum.
Calculate,for the new equipment, the net present value of the project and advise the owner.
A table of discount factors is available below:
Discount Year Discount at 12%

1 0.893
2 0.797
3 0.712
4 0.636
5 0.567
6 0.507
Question (5) Investment Appraisal
A manufacturer is considering the purchase of new machinery to improve efficiency. The following data
are available:
New Machinery
Purchase price £ 36,000
Estimated cost savings: Year 2 £ 5,500
Year 3 £ 7,000
Year 4 £ 9,500
Year 5 £ 11,000
Year 6 £ 13,000
The purchase price is payable is 3 equal instalments in Years 1,2 and 3.

The owner requires the investment project to earn at least 15% per annum.
Calculate, for the new equipment, the net present value of the project and advise the owner.
A table of discount factors is available below:
Discount Table
Year Discount at 15%
1 0.870
2 0.756
3 0.658
4 0.572
5 0.497
6 0.432

A business owner has a choice of two investment projects. The initial cost of Project X is £ 350,000 and
that for Project Y is £ 550,000. The estimated life for each Project is 4 years. Repair and maintenance
costs are expected to average £ 12,000 per annum for Project X and £ 16,500 per annum for Project Y.
Estimated revenue returns (in £) are as follows:
Year Project X Project Y

1 120,000 200,000
2 120,000 250,000
3 100,000 200,000
4 100,000 120,000
The owner uses the average rate of return method of investment appraisal and the following formula to
calculate that the average rate of return for Project X is 28%.
Average rate of return = Average revenue return per annum net of repair and maintenance costs
Initial cost of Project
(a) Calculate the average rate of return for Project Y and advise the business owner.
(7 marks)
Another investment project has a net present value at three discounting factors as follows.
Discounting factor 12% 14% 15%
Net present value (£) 312,000 116,000 (29,000)
The net present value at a discounting factor of 15% is negative, while the net present values at 12%
and at 14% are both positive.
(b) Calculate the internal rate of return of the project correct to 3 significant figures.
(4 marks)
(c) Give one reason why your choice of discounting factors for your calculation in (b) was the best
choice. (1 mark)
(Total 12 marks)
A business owner is considering an investment project. The capital cost of the project is £ 1,150,000.
Including the initial cost, the estimated costs and returns are as follows:
£
Year 0 cash outflow 1,150,000
Year 1 cash inflow 250,000
The project chosen must earn a return of at least 12%.

(a) Using a discount factor of 12%, and the following table, calculate the net present value for the
project.
Discounting factor 12%
Year 1 0.893
Year 2 0.797
Year 3 0.712
Year 4 0.636 (4 marks)
(b) Assuming the owner requires the project to earn at least 12%, advise the owner whether or not
to proceed with the project. (2 marks)
The owner discovers that £ 150,000 of the initial cost can be paid in year 1 instead of year 0.
(c) Calculate the new net present value and advise the owner. (6 marks)
(Total 12 marks)
A business owner is considering an investment project. The initial cost of the venture and the estimated
costs and returns are as follows:
£
Cost 2,400,000
Year 1 Net cash inflow 600,000
Year 2 Net cash inflow 1,000,000
Year 3 Net cash inflow 1,000,000
Year 4 Net cash inflow 700,000
The owner calculates the net present value at two discount rates, with the following results
Discount rate 11% Net present value = £ 144,900
(a) Use these figures to calculate the internal rate of return. Give your answer correct to four
significant figures.
(4 marks)
(b) Calculate the net present value of the project at a discount rate of 14%, using the following
figures:
Year Discount factor
1 0.877
2 0.769
3 0.675
4 0.592 (4 marks)
(c) Using the net present value figures for discount rates of 13% and 14% calculate the internal
rate of return. (3 marks)
(d) Give two reasons why the internal rate of return calculated in part (c) is expected to be more
accurate than the value calculated in part (a). (2 marks)
(Total 13 marks)
An investor estimates the following figures for investment project P:

Initial cost of project £ 5,500,000
Expected life of project 5 years
Total return before allowing for repairs and maintenance £ 7,000,000
Average cost per annum of repairs and maintenance £ 245,000
(a) Estimate the average rate of return (accounting gross rate of return) of project P.
(4 marks)
The investor estimates the costs and returns for investment project Q is follows:
£
Initial costs 6,250,000
Year 1 net cash inflow 2,500,000
(b) Using a discount rate of 12%, and the following table, calculate the net present value for
Project Q.
Year Discount factor (12%)
Year 1 0.893
Year 2 0.797
The investor believes that project Q can provide cash inflow also in year 4. She now estimates that the
NPV will be positive with a value of £ 73,000. The discount factor for year 4 is 0.636.
(c) Calculate the estimated net cash inflow for Project Q for year 4. (3 marks)
(Total 11 marks)

A business owner has a choice of 2 investment projects. The estimated costs and returns are as
follows:
Project P Project Q
£ £
Cost 720,000 980,000
Year 1 cash inflow 120,000 (95,000)
Year 2 cash inflow 250,000 400,000
(a) For Project P calculate the payback period. (3 marks)
The project choses must earn a return of at least 15%.
(b) Using a discount factor of 15%, and the following table, calculate the net present value for
Project Q.
Year 1 0.870
Year 2 0.756
Year 3 0.658
Using the same discount factor, the net present value for Project P is £ 45,400 (positive). The payback
period for Project Q is approximately 2 years 10 months.
(c) Advise the business owner. Refer to your answers to both (a) and (b)
(3 marks)
(Total 11 marks)

A business owner has a choice of 2 investment project. The estimated costs and returns are as follows:
Project One Project Two
£ £
Cost 2,500,000 2,000,000
Year 1 Net cash inflow/(outflow) 500,000 (250,000)
Year 2 Net cash inflow 1,200,000 1,500,000
Year 3 Net cash inflow 1,200,000 1,500,000
Year 4 Net cash inflow 600,000 150,000
(a) For Project Two calculate the payback period. Give your answer in years and months.
(3 marks)
The payback period for Project One is 2 years 8 months.
(b) On the basis of payback, advise the business owner which project is the better investment.
Give a reason. (2 marks)
The business owner requires that the project chosen must earn a return of at least 15%.
(c) Using a discount factor of 15%, and the following table, calculate the net present value for
Project Two.
Year 1 0.870
Year 2 0.756
Year 3 0.658
Using the same discount factor, Project One has a negative net present value of £ 25,000.
(d) Advise the business owner further, with reasons. (2 marks)
(e) A business advisor calculates that the internal rate of return for Project One is 15.2%. Without
carrying out further calculations,comment on the advisor’s figure.
(2 marks)
(Total 14 marks)

Investor A uses the following formula to calculate the average rate of return (ARR):
ARR = Average return per annum net of repair and maintenance
Initial cost of project
She estimates the following figures for investment project X:
Initial cost of project £ 6,400,000
Expected life of project 5 years
Total return before allowing repairs and maintenance £ 10,000,000
Average cost per annum of repairs and maintenance £ 208,000
(a) Estimate the average rate of return of project X. (4 marks)
Investor B uses the same formula and estimates that project Y has an initial cost of £ 5,000,000, an
expected life of 6 years, a total return before allowing for repairs and maintenance of £ 9,000,000, and
an average rate of return of 23%.
(b) Calculate the estimated average cost per annum of repairs and maintenance.
(4 marks)
Investor C estimates that the cost of project Z is £ 8,800,000, and that it will earn a return of £
2,400,000 per annum.
(c) Calculate the expected payback period of project Z in years and months.
(3 marks)
(Total 11 marks)
Ashok calculates the expected average rate of return of investment project X as 28%, using the
formula:
Average revenue return per annum net of repair and maintenance costs
Initial cost of Project
He uses estimated figures as follows:
Initial cost of the project £ 850,000
Average cost of repairs and minitenance per annum £ 50,000
Life of the project 5 years
He further estimates that the revenue return before deducting the cost of repairs and maintenance will
be £ 300,000 for each of the first 4 years.
(a) Using Ashok’s formula, calculate the average revenue return per annum net of repair and
maintenance costs, and hence find the estimated revenue return before deducting the cost of
repairs and maintenance for year 5. (6 marks)
(b) Bettany estimates the net present value of investment project Y at two discount rates, with the
following results
(i) Use these figures to calculate the internal rate of return (3 marks)
(ii) Given that the investor requires the project to earn at least 13.5% per annum, advise
the investor whether to process with the investment.
(2 marks)
(Total 11 marks)

Colin is considering whether to invest in an investment project with an initial cost of £ 550,000 and an
estimated revenue return of £ 150,000 per annum for 5 years.
He uses the following table of discounting factors.
Discounting factor
Year 1 0.901
Year 2 0.812
Year 3 0.731
Year 4 0.659
Year 5 0.593
(a) Calculate the net present value of the project. (4 marks)
(b) Advise Colin whether the project is a worthwhile investment at the discount rate used.
(1 marks)
(c) Calculate the discount rate used. (2 marks)
(d) Explain what the net present value calculaed in (a) represents. (1 mark)
At a discount rate of 10% the project has a net present value of £ 18,500.
(e) Calculate the internal rate of return of the period. (3 marks)
(Total 11 marks)
Chapter (6)
Bankruptcy
Example (1)
Company A has assets of £ 80,000 and owes £ 20,000 to secured creditors and £ 80,000 to unsecured
creditors.
(a) How much will be paid to secured creditors who is owed £ 7000?
(b) How much will be paid to unsecured creditors who is owed £ 7000?
Example (2)
Company A has assets of £ 80000 and owes £ 20000 to secured creditors and £ 80,000 to unsecured
creditors. John was one of the unsecured creditors and received £ 5.10. How much was he owed.
Example (3)
Company B goes into liquidation. I pays £ 890 to an unsecured creditors who was owed £ 2225. What
rate of dividend was paid to unsecured creditors.
Example (4)
Company W goes into receivership, with the following information

Owed to secured creditors £ 30,000
Owed to unsecured creditors £ 42,000
Winding up expenses £ 3500
Rate of dividend 0.40
Calculate the assets of the company at receivership.
EXERCISE
Question (1)
A bankrupt trader owed £ 71988 to secured creditors and £ 78937 to unsecured creditors. After taking
account of the £ 2500 expenses of winding up the business, a dividend of £ 0.23 in the £ was
decleared.
Giving your answer to the nearest £,calculate:
(a) the value of the business assets
(b) the amount received by a creditors who is owed £ 7775
(c) the amount owed to a creditors who receives £ 4600.
Question (2)
A bankrupt trader has the following assets:
£
Machinery 9350
Stock 3247
Van 5650
Cash 493
Liabilities amount to £ 29344, of which £ 3845 must be paid first and in full.
Calculate, giving all answer to the nearest cent:
(a) the rate in the £ which a creditors will receive
(b) the amount received by a creditors who is owed £ 4734
(c) the amount owed to a creditor who receives £ 1452.
Question (3)
Jo is owed £ 5000 by a company called Dodgy, Inc. When the company is declared bankrupt, Jo finds
she is an unsecured creditor and eventually receives only £ 3000 in payment.
(a) Calculate the rate in the £ which is payable to unsecured creditors.
The total owed to unsecured creditors by Dodgy, Inc is £ 98,000.
The company also owed £ 20500 to secured creditors.
The expenses of winding up the business were £ 7800
(b) Calculate the value of the assets of the business.
(c) Express the assets as a fraction of the liabilities.
(d) Express the assets as a percentage of the liabilities.
Give your answer as a whole number per cent.
Question (4)
The following information ralates to the business of a bankrupt trader
£
Mortage 5,240
Cash in hand 105
Trade creditors 17,460
Machinery 6,500
Bankoverdraft 11,300
Trade debtors 3,200
Stock 1,500
Office equipment 2,250
Vehicles 3,925
(a) Calculate the trader’s assets and liabilities.
(b) £ 4500 of the liabilities must be paid first and in full.
calculate:
(i) the rate in the £ that an unsecured creditors will receive
(ii) the amount owed to an unsecured creditors who receives £ 1,100
Question (5)
The following tables summaries the bankruptcy of two businesses:

A B
Company
£ £
Assets
Assets available for creditors 25,000 ?
Liabilities
Owed to secured creditors 8000 6300
Owed to unsecured creditors 68000 ?
Total liabilities ? ?
Distribution of Assets
Assets available for unsecured creditors ? 31,027
Rate in the £ paid to unsecured creditors ? ?
Paid to unsecured creditors who is owed £ 5000 ? 3550
Question (6)
The following information relates to the business of a bankrupt trader:
£
Mortage 8,560
Cash in hand 160
Machinery 7,500
Bank-overdraft 15,000
Trade debtors 2,300
Stock 2,100
Vehicles 1,800
(a) Calculate the trader’s assets and liabilities.
(b) £ 1,100 of the liabilities must be paid first and in full. Calculate:
(i) the rate in the £ that an unsecured creditor will receive.
(ii) the amount owed to an unsecured creditor who receives £ 962.
Question (7)
The following tables summaries the bankruptcy of two businesses:

A B
Company
£ £
Assets
Total assets available for creditors 2000 1880
Liabilities
Total owed to secured creditors 590 201

Total owed to unsecured creditors ? ?
Total liabilities 3590 ?
Distribution of Assets
Assets available for unsecured creditors ? ?
Rate in £ paid to unsecured creditors ? ?
Owed to an unsecured creditor who is paid ? 940
£ 686.20
Question (8)
Jo is owed £ 25000 by a failed company. When the company is declared bankrupt, Joe finds he is an
unsecured creditor and eventually receives only £ 7000 in payment.
(a) Calculate the rate in the £ which is payable to unsecured creditors.
The total owed to unsecured creditors by the failed company is £ 55,000
The company owes £ 20,000 to secured creditors.
The expenses of winding up the business are £ 13,500
(b) Calculate the total amount paid to unsecured creditors.
(c) Calculate the value of the assets of the business prior to incurring winding up epenses.
(d) Express the assets as a fraction of the total amount owed to creditors.Give the fraction in
its simplest terms.
Question (9)
In each of the following three bankruptices, calculate the amount received by an unsecured creditors
who is owed £ 5000:
(a) Bankruptcy A : The bankrupt trader pays £ 0.41 in the pound to
unsecured creditors.
(b) Bankruptcy B : The bankrupt trader has assets of £ 15880, owes
£ 4000 to secured creditors and £ 18000 to
unsecured creditor,
(c) Bankruptcy C : An unsecured creditor who is owed £ 6,600 receives
£ 4554. How much does an unsecured creditor
Receive who is owed £ 5000?
(d) Calculae the amount owed in Bankruptcy A to an unsecured creditor who is paid £
1517.
In the bankruptcy of Company A, 49.1 p in the £ was paid to unsecured creditors.

(a) Calculate the amount owed to an unsecured creditor who was paid £ 18,658.
(2 marks)
The following figures apply to the bankruptcy of Company B.
£
Total assets 141,000
Total liabilities 198,000
Owed to secured creditors 103,000
(b) Calculate the amount paid to an unsecured creditor who was owed £ 12,400.
(4 marks)
In the bankruptcy of Company C,an unsecured creditor who was owed £ 8,700 was paid £ 2871.
(c) Calculate:
(i) the rate in the £ paid to unsecured creditors. (2 marks)
(ii) how much was owed to an unsecured creditor who was paid £ 132.
(2 marks)
(iii) how much was paid to an unsecured creditor who was owed £ 37,000.
(2 marks)
(Total 12 marks)
In each one of the following three bankruptcies calculate the rate in the pound paid to unsecured
creditors and the amount received by an unsecured creditor who is owed £ 25,000,
(a) Bankruptcy A : The amount owed to unsecured creditors is £ 76,500, and the amount
available for unsecured creditors is £ 38,250. (3 marks)
(b) Bankruptcy B : An unsecured creditor who is owed £ 28,500 is paid £ 12,825.

(4 marks)
(c) Bankruptcy C : The total liabilities are £ 360,000 of which £ 190,000 is owed to secured
creditors. The total assets available for creditors are £ 258,000.
(6 marks)
(Total 13 marks)

The following information relates to the business of a bankrupt trader.
£
Mortage 114,600
Cash in hand 200
Machinery ?
Bank overdraft ?
Trade debtors 12,000
Stock 76,000
Vehicles 7,400
Total assets 148,700
(a) Calculate the value of the machinery and the amount of the bank overdraft. (4 marks)
£ 32,600 of the liabilities must be paid first and in full.
Calculate:
(b) the rate in the £ that an unsecured creditor will receive. (4 marks)
(c) the amount owed to an unsecured creditor who receives £ 13,500. (2 marks)
(d) the amount paid to an unsecured creditor who is owed £ 35,400. (2 marks)
(Total 12 marks)

(a) In each of the following two bankruptcies calculate the rate in the pound paid to unsecured
creditors and the amount received by an unsecured creditor who is owed £ 12,000.
(i) Bankruptcy A : An unsecured creditor who is owed £ 25,500 is paid £ 3,443.50.(4 marks)
(ii) Bankruptcy B : The total liabilities are £ 140,700, of which £ 88,700 is owed to secured
creditors. The total assets available for creditors are £ 111,060. (6 marks)
(b) In another bankruptcy, Bankruptcy C, an unsecured creditor who was owed £ 37,000 received
£ 5,550. The company owed a total of £ 99,400 to unsecured creditors and £ 8,540 to secured
creditors.
Calculate the assets available for creditors. (4 marks)
(Total 14 marks)
(a) The following information relates to the bankruptcy of Company P:

Total assets available for creditors £ 52,184
Total owed to secured creditors £ 11,110
Total liabilities £ 85,790
Calculate:
(i) How much is owed to unsecured creditors (2 marks)
(ii) The assets available for unsecured creditors (2 marks)
(iii) The rate in the pound paid to unsecured creditors. (2 marks)
(b) The following information relates to the bankruptcy of Company Q:
Total liabilities £ 64,950
Assets available for unsecured creditors £ 23,310
Rate in the pound paid to unsecured creditors 60 p
Calculate:
(i) How much is owed to unsecured creditors (2 marks)
(ii) How much is owed to secured creditors (2 marks)
(iii) The total assets available for creditors. (2 marks)
(Total 12 marks)
The following information relates to the business of a bankrupt trader.
£
Cash in hand 105
Creditors ?
Machinery 11,500
Bank overdraft 25,300
Trade debtors 6,090
Stock 16,420
Office equipment ?
Vehicles 17,000
Total assets 59,140

(a) Calculate the value of her office equipment and the amount owed to creditors. (4 marks)
The assets were realised in full at their book value, listed above
‘Creditors’ include £ 3,700, which, together with the bank overdraft, are secured. Hence, £
29,000 of the liabilities, made up of the bank overdraft and other secured creditors, must be
paid first and in full.
Calculate:
(b) the rate in the £ that an unsecured creditor will receive. (4 marks)
(c) the amount owed to an unsecured creditor who receives £ 13,420. (2 marks)
(Total 10 marks)
A bankrupt trader owed £ 29,750 to fully secured creditors and £ 171,500 to unsecured creditors. The
assets of the business realised £ 73,500.
Calculate
(a) the ratio of business assets to total liabilities, giving your answer in its lowest terms
(3 marks)
(b) how much was paid to the fully secured creditors (1 mark)
(c) how much was paid to the unsecured creditors (2 marks)
(d) how much in the £ was paid to the unsecured creditors, giving your answer correct to three
figures (3 marks)
(e) how much was paid to an unsecured creditor who was owed £4,400. (2marks)
(f) how much was owed to an unsecured creditor who was paid £ 51. (2 marks)
(Total 13 marks)
A bankrupt trader owed a total of £ 87,600, of which £ 35,500 is secured against the trader’s assets and
the rest is unsecured.
The assets of the business realised £ 66,760.
(a) Express the assets as a percentage of the liabilities. (2 marks)
(b) Calculate how much in the £ will be paid to the unsecured creditors. State the unit of your
answer clearly. (4 marks)
The trader owed Dinara £ 17,000, of which 25% is secured against assets.
(c) Calculate how much Dinara received. (5 marks) (Total 11 marks)
Chapter (7)
Depreciation of Business Assets
EXERCISE
Question (1)
A machine which costs £ 36,000 is estimated to have a life of 5 years and a scrap value of £
2250.
(a) Using the dimishing balance method, calculate the annual rate of depreciation.
(b) Prepare a depreciation schedule which shows:
(i) the annual amount of depreciation
(ii) the accmulated depreciation
(iii) the book value at the end of each year.
Question (2)
A factory machine which cost £ 450,000 is depreciated by 24.5% of its value each year,using the
diminishing balance method
(a) Giving your answer to the nearest cent, prepare a depreciation schedule for the first 3
years to show yearly depreciation, accumulated depreciation and the book value at the
year end.
(b) Calculate, giving your answer to the nearest cent:
(i) the book value at the end of 8 years.
(ii) the amount of depreciation for the 9th year.
Question (3)
A machine which costs £ 72,000 is estimated to have a life of 4 years and a scrap value of £ 4,500.
(a) Using the diminishing balance method, calculate the annual rate of depreciation.
(b) Prepare a depreciation schedule which shows:
(i) the annual amount of depreciation.
(ii) the accumulated depreciation.
(iii) the book value at the end of each year.
Question (4)
A factory machine that costs £ 58,000 is estimated to have a life of 4 years and a scrap value of £
2000.
Using the equal instalment method:
(a) Calculate
(i) the percentage of the cost which must be written off in 4 years.
(ii) the percentage of the cost to be written off each year.
(b) Prepare a depreciation schedule which shows
(i) the annual depreciation.
(ii) the net book value at the end of each year.
Using the diminishing balance method:
(c) Calculate the annual rate of depreciation.
Question (5)
A machine which costs £ 180,000 is estimated to have a life of four years and a scrap value of £
25,000.
(a) Using the diminishing balance method, show that the rate of depreciation is
approximately 39%. Show all your workings.
(b) Using a rate of depreciation of 39%, copy and complete the following depreciation
schedule:
Yearly Cumulative Net Book Value
Year
Depreciation Depreciation at Year End
0 180,000
1 70,200 70,200 109,800
2 42,822
3 139,143
4 24,923
Question (6)
A factory buys two machines. Machine A costs £ 85,000 and is estimated to have a life of 4 years and a
scrap value of £ 9000. Using the equal instalment method:
(a) Calculate
(i) the percentage of the cost which must be written off in 4 years.
(ii) the percentage of the cost to be written off each year.
(b) Prepare a depreciation schedule that shows:
(i) the annual depreciation for each year
(ii) the accumulated depreciation for each year
(iii) the book value at the end of each year
Machine B is depreciated by the equal instalment method over only 3 years. It has the same scrap
value as machine A. It also has the same book value at the end of one year as machine A.
(c) Calculate the orginal cost of machine B.

A factory machine that cost £ 8,500,000 is depreciated by 40% of its value each year using the
diminishing balance method.
(a) Prepare a depreciation schedule for the first 3 years that shows, for each year, the yearly
depreciation, the accumulated depreciation and the book value at the end of the year.
(5 marks)
(b) Calculate
(i) the book value at the end of year 6 (3 marks)
(ii) the amount of depreciation that occurs during year 7. (2 marks)
(iii) the total depreciation from the end of year 1 to the end of year 6.
(2 marks)
(Total 12 marks)

The following is an extract from a depreciation table based on the equal instalment method of
depreciation.
Annual Cumulative Book value at
drpreciation (£) depreciation (£) end of year (£)
Initial cost ?
Year 1 ? ? ?
Year 2 ? 480,000 ?
Year 3 ? ? ?
Year 4 ? 960,000 ?
Year 5 ? ? ?
Year 6 ? ? 60,000
(a) Copy and complete the table.
The following is an extract from a depreciation table based on the diminishing balance method of
depreciation.
Annual Cumulative Book value at
depreciation (£) depreciation (£) end of year (£)
Initial cost ?
Year 1 70,000 70,000 ?
Year 2 ? 120,400 ?
Year 3 ? ? ?
Year 4 26,127.36 ? 67,184.64
(b) Calculate:
(i) The depreciation during year 2 (2 marks)
(ii) The book value at the end of year 3 (2 marks)
(iii) The annual rate of depreciation (2 marks)
(Total 12 marks)

10,000.
(a) Using the equal instalment method, prepare a depreciation schedule that shows, for each year,
the annual depreciation, the accumulated depreciation and the book value at the end of each
year. (5 marks)
(b) Using the equal installment method, calculate the percentage of the cost that is written off over
the first 4 years. (3 marks)
(c) Using the diminishing balance method of depreciation, calculate the rate of depreciation.
(14 marks)
(Total 12 marks)
5,000.
Using the equal instalment method
(a) Calculate the percentage of the cost that must be written off in total(3 marks)
(ii) the accumulated depreciation for each year
(iii) the book value at the end of each year. (6 marks)
(Total 13 marks)
A factory owner buys two machines. Machine A costs £ 1,060,000 and is estimated to have a life of 4
years and a scrap value of £ 20,000.
Using the equal instalment method:
(a) Calculate the percentage of the cost to be written off each year. Give your answer correct to 3
significant figures. (3 marks)
(ii) the accumulated deprecitation for each year
(iii) the book value at the end of each year. (6 marks)
Machine B is depreciated by the equal instalment method over 6 years. It has the same scrap value as
machine A. It also has the same book value at the end of year one as machine A.
(c) Calculate the original cost of machine B. (5 marks)
(Total 14 marks)

A factory machine that cost £ 350,000 is estimated to have a life of 5 years and a scrap value of £
25,000.
(a) Using the equal instalment method, prepare a depreciation schedule that shows, for each year,
the annual depreciation, the accumulated depreciation and the book value at the end of each
year.
(b) Using the diminishing balance method of depreciation, calculate:
(i) the annual rate of depreciation (4 marks)
(ii) the depreciation in the first year (2 marks)
(iii) the accumulated depreciation after 3 years. (1 mark)
(Total 15 marks)

A factory machine that cost £ 750,000 is depreciated by 55% of its value each year using the
diminishing balance method.
(a) Prepare a depreciation schedule for the first 2 years that shows, for each year, the yearly
depreciation, the accumulated depreciation and the net book value at the end of the year.
(5 marks)
(b) Calculate the amount of depreciation that occurs during year 6. (4 marks)
A second machine also costs £ 750,000, and is depreciated by the equal instalment method with a
lifetime of 5 years and a scrap value of £ 10,000.
(c) Calculate the net book value at the end of year 3. (4 marks)
(Total 13 marks)
Chapter (8)
Index Number
Example (1) Price Index
The price of a certain commodity increase from £ 3.50 in 2000 to £ 3.71 in 2001. Calculate the price
index for a commodity for 2001 with 2000 as the base year.
Example (2)
The price of a certain commodity decreases from £ 3.50 in 2000 to £ 3.36 in 2001.
(a) Calculate the price index number for a commodity for 2001 with 2000 as the base year.
(b) Calculate price index.
Example (3) Quantity index

The number of a certain commodity produced increases from 44,300 in 2000 to 53160 in 2001.
(a) Calculate the quantity index number for the commodity for 2001 with 2000 as the base year.
(b) Calculate quantity relative for 2001 with 2000 as the base year.
Example (4) Composite index number

The index of price for clothing is 150, compared to a given base year. The index for footwear is
190. Given that the average family spends three times as much on clothing as a footwear, produce a
composite index for clothing and footwear.
Example (5)
An index of retail price at December 1997 is shown below.
Group Weight Index (Jan 1988=100)
Food 277 114.0
Housing 145 244.7
Fuel and light 64 176.9
Durable household goods 72 150.1
Clothing and foowear 90 112.8
Trasport 158 179.9
Miscellenous goods 73 145.4
Services 65 148.5
Food bought and consumed 56 166.2
Outside the home
Answering to the nearest whole number.
(a) Calculate the general index of retail price for
(i) all items
(ii) non-food items.
(b) Give a brief interpretation of your answer.
EXERCISES
Question (1)
An index of retail prices at January 1998 is shown below:
Index
Group Weight
(Jan 1998=100)
Food 143 146.5
Housing 190 165.8
Fuel and light 43 125.1
Durable household goods 72 132.2
Clothing and footwear 54 124.5
Transport 124 151.8
Miscellaneous goods 98 148.4
Services 110 144.7
Food bought and consumed outside the home 66 156.2
Leisure goods and services 100 155.7
(a) Answering to the nearest whole number, calculate the general index of retail prices for:
(i) all items
(ii) non-food items.
(b) Give a brief interpretation of your answers.
Question (2)
An index of retail prices is shown below:
Index 1966 1997 1998 1999
1980=100 164 175 185 193
(a) Calculate a revised index with a new base year of 1996=100.

(b) Give a brief interpretation of the new 1999 index number.
An index of industrial production is shown below:
1996 (1990=100) 1999 (1996=100)
125 96
(c) Calculate the index of industrial production for 1999 with 1990 as the base year.
Question (3)
The table shows the prices and quantities of two products sold by a manufacturer in 2 years:
Product 1999 1999 2000 2000

Price (£) Quantity sold Price (£) Quantity sold
A 25 22,000 23 23,100
B 67 3,850 75 5,150
(a) Show that the price relative for product B is approximately 112. Show all your workings.
(b) Calculate the price relative for product A.
(c) Calculate the quantity relatives for each of the two products.
(d) Calculate the total income from each product in year 2000, and hence calculate the average
(mean) price of the two products combined in year 2000.
Question (4)
The table shows the prices and quantities of two products sold a manufacturer in two years:
Year 2000 2000 2001 2001
Price (£) Quantity sold Price (£) Quantity sold
Product A 105 7,300 99 7850
Product B 259 13,050 275 18,100
(a) Show that the price relative for Product B 2001 with year 2000 as 100 is 106.
Show all your working.
(b) Calculate the price relative for Product A for year 2001 with year 2000 as 100.
(c) Calculate the quantity relative for each of the two products for year 2001 with year 2000 as
100.
(d) Calculate the weighted average (mean) price of the two products combined in the year 2001.
Question (5)
A company sold 150,980 spanners in 2000 and 169,050 spanners in year 2001.
(a) Calculate the quantity relative for year 2001 with 2000 as the base year. The price of the
spanners rose by 3.7% from 1999 to 2000.
(b) Express this increase as a price relative.
In 2001 the company cut the price of its spanners by 10% of the year 2000 price.
(c) Calculate the price relative for 2001 with 1999 as the base year.
(d) (i) Calculate the total income from the sale of spanners in 2001 as a
proportion of the total income from the sale of spanners in 2000.
(ii) Express this as a percentage increase or decrease correct to two
Significant figures.

An index of retail sales at January 2007 is shown below:
Group Weight Index (Jan 2005=100)
Item V 950 138.0
Item X 980 124.5
Item Y 1175 91.2
Item Z 1895 131.4
(a) Calculate the composite weighted index of retail sales, at January 2007 with January
2005=100, for all items together. (5 marks)
Company A sold 80,500 units in 2005 and 90,160 units in 2006.
(b) Calculate the quantity relative for units for Company A for 2006 with 2005 as the base year.
(2 marks)
Company B sold units at £ 2.60 in 2000 and at £ 3.51 in 2005.
(c) Calculate the price relative for units for Company B for 2005 with 2000 as the base year.
(2 marks)
The price relative for units for Company B for 2006 with 2000 as the base year was 1.62.
(d) Calculate the price relative for units for Company B for 2006 with 2005 as the base year.
(2 marks)
(Total 11 marks)

A company sold 70,700 printers in year 2005 and 106,050 printers in year 2006.
(a) Calculate the quantity relative for year 2006 with 2005 as the base year.
(2 marks)
The price of the printers rose by 12.5% from year 2004 to year 2005.
(b) Express this increase as a price relative. (1 mark)
In year 2006 the company cut the price of its printers by 0.8% of the year 2005 price.
(c) Calculate the price relative for year 2006 with 2004 as the base year. (3marks)
(d) Calculate the total income from the sale of printers in year 2006 as a proportion of the total
income from the sale of printers in year 2005.(3marks)
(e) Express this as a percentage increase or decrease. (2 marks)
(Total 11 marks)

In index of industrial productivity has the following values over the period 2003 to 2006, will 2002 as the
base year.
2002 2003 2004 2005 2006
100 105.5 108.3 120.1 127.1
(a) Calculate these indices as a chain base index. Give each answer correct to one decimal place.
(6 marks)
(b) Calculate the percentages increase in industrial productivity between 2004 and 2006.
(2 marks)
An index of average earnings is shown below
2002 (2000=100) 2006 (2002=100)
105.7 112.9
(c) Calculate the index of average earnings for 2006 with 2000 as the base year.
(2 marks)
(d) Give a brief interpretation of your answer to (c) as a percentage change, stating clearly what
has changed. (2 marks)
(Total 12 marks)
Company X sells Product P with the following price:

Year 2004 2005 2006 2007
Price (£) 26.00 31.20 35.10 38.61
(a) Calculate the price of Prodcut P for years 2005 to 2007 as a chain base index.
(4 marks)
The price relative for Product P for year 2004 with 2003 as the base year is 1.30.
(b) Calculate the selling price of Product P in year 2003. (2 marks)
In 2007, company X sells a second product, Product Q, at a price of £ 26.10.
(c) Using a weighting of 200 for Product P and 250 for Product Q, calculate the weighted average
for prices for Product P and Product Q combined in 2007.
(5 marks)
(Total 11 marks)
Company X sells Product A with the following prices and sales:

Year 2004 2005 2006
Price (£) 12.50 11.25 10.50
Sales 240,000 276,000 345,000
(a) Calculate the price relative for Product A for year 2006 with year 2005 as the base year.
(2 marks)
(b) Calculate the index of prices for Product A for the years 2004 to 2006 with year 2004 as the
base year. (3 marks)
(c) Calculate a chain base index for the sales of Product A for the figures shown. (3 marks)
The quantity relative for Product A for year 2007 with year 2006 as the base year was 1.08, while the
price decreased by £ 0.51 from year 2006 to year 2007.
(d) Calculate the increase in total income from the sales of Product A in year 2007 as a percentage
of the total income from sales of Product A in year 2006. Give your answer correct to 3
significant figures. (3 marks)
(Total 11 marks)
An index of industrial productivity has the following values over the period 2004 to 2008, with 2004 as
the base year.
2004 2005 2006 2007 2008
100 105.4 109.2 120.7 115.3
(a) Express these figures as chain base index. (5 marks)
(b) State the percentage change in industrial productivity from 2007 to 2008. (2 marks)
(c) Calculate the quantity relative for 2008 with 2006 as the base year. (2 marks)
(d) Write your answer to (c) as an index. (1 mark)
The industrial productivity for 2004 was an increase of 8% on the previous year.
(e) Calculate the index figure for 2006 with 2003 as the base year. (2 marks)
(Total 12 marks)

Advanced Business Calculation: Professional and Business Academy

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ADVANCED BUSINESS CALCULATION

4. Profitability & Liquidity 18 – 25

7. Depreciation of Business Assets 46 – 50

Date Details Debit Credit Balance

Giving your answer to the nearest cent, calculate:

The account for January is shown below.

Giving your answer to the nearest penny, calculate;

Date Details Debit Credit Balance

Question (6) (Series 4/2007)

Treating in increase in values as compound interest, calculate

Question (7) (Series 3/2008)

Investment A Investment B Investment C Investment D

Question (8) (Series 3/2009)

Zheng deposited money into three different accounts, as follows:

Account A Account B Account C

Calculate the missing figures.

Example (1) Dividend on Ordinary Shares

Example (2) Interest only yield on ordinary shares

Example (3) Nominal value of preference shares

Example (4) Dividend on preference shares

Example (5) (Series 4/2008)

Company A Company B Company C

Supply the missing figures.

Example (6) Stocks

Table 2.1 Purchase of government stock

Ordinary share dividends were paid as follows:

Rate of interest (on nominal value of stock) 4% 43/4%

Question (5) (Series 2/2007)

Question (7) (Series 4/2007)

(c) Calculate the cost of the shares. (2 marks)

Question (8) (Series 2/2008)

Question (9) (Series 3/2008)

An industrial product can be manufactured by two different methods of production.

Question (6) (Series 2/2007)

Fixed costs per period £ 630,000

Question (7) (Series 3/2007)

Question (8) (Series 2/2008)

Question (9) (Series 3/2008)

Company A Company B Company C Company D

Question (10) (Series 3/2009)

An industrial product may be manufactured by two methods of production.

Question (11) (Series 4/2009)

(A) Ratio to assess profitability

(1) Gross profit to sales (margin) = Gross profit x 100 = Ó%

(3) Net profit to sales = Net profit x 100 = Ó %

(4) Expenses as a percentage of sales = overhead expenses x 100= Ó %

(5) Return on capital employed = Net profit x 100 = Ó %

(6) Rate of stock turnover = Cost of goods sold

(7) Average time in stock = days (or) weeks (or) months

(B) Ratio to assess liquidity

(1) working capital ratio = Current Assets =Ó:Ó

(2) Acid test (or) Liquid Assets = Current Asset – stock = Ó : Ó

(3) Borrowing ratio = Total borrowing

(4) Average credit given = Average debtor x 365

(5) Average credit taken = Average Creditors x 365

Each of businesses A and B wishes to borrow from a bank.

For each business, calculate:

Question (3) (Series 2/2007)

Question (4) (Series 3/2007)

Question (5) (Series 4/2007)

Question (6) (Series 2/2008)