Professional Issues in Information Practice Questions

7/29/2019 Professional Issues in Information Practice Questions

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Professional Issues in

Information Practice

Financial Accounting & Management

Accounting


2/20

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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2009


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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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2006

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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2010

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


15/20

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)


16/20

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

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Professional Issues in Information Practice Questions