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7/29/2019 Professional Issues in Information Practice Questions
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Professional Issues in
Information Practice
Financial Accounting & Management
Accounting
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2010
Question 3
A new start-up organisation, M-Web, has been
established by two software professionals. They
are developing a mobile phone application for
searching the web informed by the current
location of the user.
a) Discuss whether the organisation should beformed as a partnership or a limited company.
(13 marks)
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b) The application will be given away free but businesses will be
charged for advertising their products or services as a preferred site. The
company is developing a business plan based on two options.
The first option has the application working on only a limited range ofmobile phones; the development cost and the investment in marketing
would be lower than for the second option, but so would be the number
of users. The second option is to develop an enhanced application that
will work on a wide range of mobile phones. The development cost
would be higher and so would the marketing cost but there would be
more users than for option 1.
The initial cost of developing the software for option 1 will be 85,000,
with a maintenance cost estimated at 5,000 per year. For option 2,
the development cost will be 120,000, with maintenance at 10,000per year. The marketing costs are approximately 2 per user per year.
Income is estimated to be 4 per user per year.
Develop a simple cash flow projection for four years using the following
data and, ignoring the time value of money, calculate the paybackperiod for each option assessing which would be better. (12 marks)
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2008
Question 1
a) What are the main difference between a
public limited company (Plc) and a private
limited company (Ltd)? (4 marks)
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2007Question 1
A new company has been established to develop a technological innovation
exploiting the
next generation of Radio Frequency Identification (RFID) chips for automated
distribution
of goods in retail companies.
a) The estimated initial cost of developing the technology is 1 million. The net
income is initially anticipated to be 200,000 per annum rising by 100,000
per year. Develop a simple cash flow projection and calculate the payback
period, ignoring the time value of money. (5 marks)
Without doing any further calculations, explain how a discounted cash flow
projection would differ from your simple projection and why it is generally
preferred. (4 marks)
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Question 2
2. a) For a limited company to be registered, itmust have a constitution. Part of the
constitution includes the memorandum ofassociation. Briefly describe FOUR importantelements you would expect to find in amemorandum of association. (8 marks)
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b) You are about to set up a software development
company with yourself as the sole employee. In the
first year of trading you expect a modest income
not exceeding 20,000. Explain why you might
think it best to operate your business as a sole
trader rather than a limited company. (8 marks)
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c) Briefly describe the THREE principles that are fundamentalto the concept of a limited company. (9 marks)
Answer Pointers & Examiners Comments
The company has a corporate legal identity (3 marks).The ownership of the company is divided into a number of
shares. The shares can be bought and sold (3 marks).
In the event that the company incurs legal liabilities, theshareholders have no legal obligation to
pay these (3 marks).
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a) With reference to the example above,
explain the following terms and how they are
evaluated:
i) fixed assets
ii) working capital
iii) gearing (12 marks)
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b) Using the following information produce a cash flow forecast for the first sixmonths of the following year.
The company has been selling 50 machines a month. Each unit is sold at
1,000. As a result of a recent Government initiative in schools the company isexpecting to increase sales by 5 machines a month for the coming year.Additional office space will be rented at a cost of 50,000 payable in June.The tax is due to be paid in March. Debtors
are currently running at 3 months sales and are expected to continue at thislevel. Part suppliers allow one month credit; the cost of these parts isapproximately 20% of the unit price. ABC expects to hold back enough stock atthe end of each month to fulfill the expected demand from customers in thefollowing month. Operating costs, including 3,000 depreciation, will rise tocope with this extra business as follows:
Jan Feb Mar Apr May Jun
31,000 33,000 33,000 35,000 35,000 37,000
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Describe the purpose of each of the following
financial documents. Briefly explain the
content of each document and give an
example from an imaginary IT company.
a) balance sheet (13 marks)
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2009
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2008
Question 1
The majority of candidates answered this question. On the whole they answered it
well. Some answers, however, were far too brief or failed to show a clear
understanding of each point.
Write short notes on EACH of the following:
a) balance sheet
b) depreciation
c) business plan
d) gearinge) cash flow statement.
(5 5 marks)
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2007
Question 1
a) Explain the three principles that are
fundamental to the idea of a limited liability
company.(9 marks)
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b) Setanta Software Ltd is a small but successful bespoke softwarecompany. It now wishes to set up a subsidiary, in the UK, todevelop a pensions administration package. The UK governmentprovides grants to encourage the growth of such companies in
areas of high unemployment. As managing director, you areresponsible for raising the capital required to get the new subsidiaryup and running. You have three sources of finance available, i.e.
UK government grant
loan
sale of equity in Setanta Software.Explain the characteristics of each of these possible sources andoutline the issues to be considered in each case. (16 marks)
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2006
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Capital Gearing
The degree to which a company acquires
assets or to which it funds its ongoing
operations with long- or short-term debt.
Capital gearing will differ between companies
and industries, and will often change over
time.Capital gearing is also known as
"financial leverage".
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Working Capital
What Does Working CapitalMean?
A measure of both a company's efficiency and its short-term financial
health. The working capital ratio is calculated as:
Positive working capital means that the company is able to pay off its
short-term liabilities. Negative working capital means that a company
currently is unable to meet its short-term liabilities with its current assets
(cash, accounts receivable and inventory).
Also known as "net working capital", or the "working capital ratio