Advanced Business Calculations

Level 3

Model Answers
Series 3 2013 (ASE3003)

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Level 3 Advanced Business Calculations

Series 3 2013

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Model Answers have been developed to offer additional information and guidance to Centres,
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booklet are divided into 3 elements:
(1)

Questions

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(2)

Model Answers

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see in the answers to each question in the examination paper,
plus a fully worked example or sample answer (where applicable)

(3)

Helpful Hints

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LCCI IQ SERIES 3 EXAMINATION 2013

ADVANCED BUSINESS CALCULATIONS
LEVEL 3
MARKING SCHEME
_____________________________________________________________________________
DISTINCTION MARK 75%
CREDIT MARK 60%
PASS MARK 50%
TOTAL 100 MARKS
QUESTION 1
Syllabus Topic 1: Simple and compound interest (1.2) and (1.3)
(a)

Rate of interest = 1.75%

A1

(b)

1.035 = 1.0173495

M1

Rate of interest = 1.735%

A1

(c)

Interest on 5,000 = 1.735% X 5,000 = 86.75

M1 A1

(d)

Interest added = 4% x 10,000 = 400

M1 A1

(e)

(i)

Amount in account = 10,000 + 400 + (5% x 10,000) = 10,900

M1 A1

(ii)

At start of third year = 10,900 + 10,900 x (4% + 5%) = 11,881

At start of fourth year = 11,881 x (1 + 9%) = 12,950.29

M1
M1 A1

(iii)

Equivalent increase (compound) per annum = 9%

A1
(Total 13 marks)

QUESTION 2
Syllabus Topic 2: Stock exchanges (2.2)

Number of shares
Nominal value of one share
Buying price per share
Brokers commission
Total cost of shares, including commission
Dividend (percentage of nominal value)
Dividend ()

Company A
4,000
5.00
9.36
50
37,490
4.5%
900

Company B
2,500
2.00
13.02
75
32,625
5.2%
260

Company C
12,000
0.50
1.44
60
17,340
2.3%
138

Company A
Total cost of shares = 4,000 x 9.36 + 50 = 37,490
Dividend = 4,000 x 5 x 4.5% = 900

M1 A1
M1 A1

Company B
Nominal value of one share = 260 / (2,500 x 5.2%) = 2.00
Brokers commission = 32,625 (2,500 x 13.02) = 75

M1 A1
M1 A1

Company C
Number of shares = (17,340 - 60) / 1.44 = 12,000
Dividend (%) = 138 / (12,000 x 0.50) = 0.023 = 2.3%

M1 A1
M1 A1
(Total 12 marks)

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QUESTION 3
Syllabus Topic 3: Business ownership (3.2) and (3.3)
(a)

Difference in fixed costs (Y > X) = 200,000

M1

Difference in variable costs (X > Y) = 25

M1

Total costs of production are the same at 200,000 / 25 = 8,000 units

A1

(b)

Total cost of production for Method Y = 2,500,000 + 8,000 x 190 = 4,020,000

(c)

Total cost of production = 2,500,000 + 12,000 x 190 = 4,780,000

M1

Income from sales = 12,000 x 399 = 4,788,000

M1

Profit = 8,000
(d)

M1 A1

A1 A1

Total cost of production = 2,500,000 + 15,000 x 190 = 5,350,000

M1

Income from sales = 13,500 x 399 = 5,386,500

M1

Profit = 36,500

A1 A1
(Total 13 marks)

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QUESTION 4
Syllabus Topic 4: Profitability and liquidity (4.2) and (4.3)
(a)

(i)

Overheads = Postage & telephone + Heating & lighting + Rent

M1

= 1,700 + 5,310 + 11,605 = 18,615

Turnover = Net sales = Annual sales Sales returns

M1

= 65,000 - 2,950 = 62,050

Overhead expenses ratio = Overhead / Turnover
= 18,615 / 62,050 = 0.3 = 30%
(ii)

A1

Current assets = Cash + bank + debtors + stock

M1

= 177 + 1,070 + 2,890 + 2,100 = 6,237

Current liabilities = Creditors = 2,310

M1

Working capital ratio = Current assets / Current liabilities

= 6,237 / 2,310 = 2.7 : 1
(b)

A1

(i)

Net purchases = Purchases - Purchase returns = 42,400 - 2,250 = 40,150

M1

(ii)

Average credit taken = Owed to creditors x 365 = 2,310 x 365 = 21 days

Net purchases
40,150
Net sales = 62,050

M1 A1
M1

Average credit given = Owed by debtors x 365 = 2,890 x 365 = 17 days

Net sales
62,050

M1 A1

(iii)

Average credit taken is the average time it takes Amelia to pay her creditors

A1

(iv)

Neither of these is the maximum time for receiving payments

A1
(Total 14 marks)

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QUESTION 5
Syllabus Topic 5: Investment appraisal (5.2), (5.4)
(a)

For Project Two, payback required:

After year 1: 950,000

After year 2: 450,000

M1

Payback occurs in year 3 after: 12 x 450,000 / 500,000 months

M1

Payback period = 2 years 10.8 months

A1 A1

(b)

Project One is preferred as it has a shorter payback period

However, the difference is small and possibly insignificant given that the figures are estimated

(c)

(i)

Present value for Project One in year 4 = 0.683 x 200,000 = 136,600

(ii)

Present value for Project two for years 1 and 2 combined

M1 A1

= (0.909 x -200,000) + (0.826 x 500,000) = 231,200

(d)

A1
A1

M1 A1

New payback period for Project One

= 2 years + 12 x (700,000 - 200,000 - 300,000) / 300,000

M1

= 2 years 8 months

A1 A1
(Total 13 marks)

QUESTION 6
Syllabus Topic 6: Bankruptcy (6.2), (6.3) and (6.4)
(a)

Assets : liabilities = 52,500 : 87,500 = 3 : 5

M1 A1

(b)

(i)

Available for unsecured creditors = 52,500 - 4,204 - 28,100 = 20,196

M1 A1

(ii)

Owed to unsecured creditors = 87,500 - 28,100 = 59,400

(iii)
(c)

M1

Rate payable to unsecured creditors = 1 x 20,196 / 59,400 = 0.34

M1 A1

Amount paid = 5,500 x 0.34 = 1,870

M1 A1

Stock realised = 52,500 (72 + 8,500 + 18,300 + 3,060 + 11,950) = 10,618

M1 A1

(Total 11 marks)

QUESTION 7
Syllabus Topic 7: Depreciation of Business Assets (7.2) and (7.3)
(a)

Book value after one year = 290,000 - 35,000 = 255,000

M1 A1

(b)

8 x 35,000 = 280,000, so anticipated life = 8 years

M1 A1

(c)

Residual value after 8 years = 290,000 (8 x 35,000) = 10,000

M1 A1

(d)

Rate of depreciation = 1 - 270,000 / 450,000 = 0.4 = 40%

M1 A1

(e)

Book value after 2 years = 0.6 x 270,000 = 162,000

M1 A1

(f)

Depreciation expected in year 3 = 0.4 x 162,000 = 64,800

M1 A1
(Total 12 marks)

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QUESTION 8
Syllabus Topic 8: Index numbers (8.4)
(a)

Food weighting = 1,000 (299 + 121 + 152 + 61 + 187) = 180

(b)

Weight x Index = 201,798.0 (66,079.0 + 27,914.7 + 25,232.0 + 9,064.6 + 38,353.7)

= 35,154.0

(c)

Food Index = 35,154.0 / 180 = 195.3

(d)

Without Food:

M1
A1
M1 A1

Total weight = 1,000 180 = 820

M1

Total W x I = 201,798.0 - 35,154.0 = 166,644.0

M1

Weighted index = 166,644.0 / 820 = 203.2

(e)

M1 A1

Percentage increase = 100% x (203.2 201.8) / 201.8 = 0.7%

M1 A1
M1 A1
(Total 12 marks)

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