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10 Which of the following costs should be included in valuing inventories of finished goods held by a manufacturing

company, according to IAS2 Inventories?

1 Carriage inwards.

2 Carriage outwards.

3 Depreciation of factory plant.

4 Accounts department costs relating to wages for production employees.

A All four items

B 2 and 3 only

C 1, 3 and 4 only

D 1 and 4 only

15 A trader who fixes her prices by adding 50% to cost actually achieved a mark-up of 45%.

Which of the following factors could account for the shortfall?

1 Sales were lower than expected.

2 The opening inventories had been overstated.

3 The closing inventories of the business were higher than the opening inventories.

4 Goods taken from inventories by the proprietor were recorded by debiting drawings and crediting purchases with

the cost of the goods.

A All four factors

B 1, 2 and 4 only

C 2 only

D 3 and 4 only

(a) The following figures have been calculated from the financial statements (including comparatives) of Barstead for

the year ended 30 September 2009:

increase in profit after taxation 80%

increase in (basic) earnings per share 5%

increase in diluted earnings per share 2%

Required:

Explain why the three measures of earnings (profit) growth for the same company over the same period can

give apparently differing impressions. (4 marks)

(b) The profit after tax for Barstead for the year ended 30 September 2009 was $15 million. At 1 October 2008 the company had in issue 36 million equity shares and a $10 million 8% convertible loan note. The loan note will mature in 2010 and will be redeemed at par or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan-note holders’ option. On 1 January 2009 Barstead made a fully subscribed rights issue of one new share for every four shares held at a price of $2·80 each. The market price of the equity shares of Barstead immediately before the issue was $3·80. The earnings per share (EPS) reported for the year ended 30 September 2008 was 35 cents.

Barstead’s income tax rate is 25%.

Required:

Calculate the (basic) EPS figure for Barstead (including comparatives) and the diluted EPS (comparatives not required) that would be disclosed for the year ended 30 September 2009. (6 marks)

16 Which of the following statements about accounting concepts and conventions are correct?

(1) The entity concept requires that a business is treated as being separate from its owners.

(2) The use of historical cost accounting tends to understate assets and profit when prices are rising.

(3) The prudence concept means that the lowest possible values should be applied to income and assets and the

highest possible values to expenses and liabilities.

(4) The money measurement concept means that only assets capable of being reliably measured in monetary terms

can be included in the balance sheet of a business.

A 1 and 2

B 2 and 3

C 3 and 4

D 1 and 4