Refer to Appendix 1 and other information. Calculate the gearing ratio after the takeover of VantoU.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [1] (a) Gearing ratio = non-current liabilities/non-current liabilities + shareholders' equity or non-current liabilities/capital employed
2. [2] (a) New LT loans and equity + retained earnings = 500 (300 + 200) and 1800 (600 + 800 + 400)
3. [1] (a) 500/2300
4. [0] (a) New gearing ratio = 21.74 or 21.74%
5. [1] (a) Some attempt
6. [0] (a) Other possibilities e.g. assets/equity 264 / 1000 = 26.4% or assets/non-current liabilities = 264 / 500 = 52.8%
7. [1] (b) Formula = purchase value – residual value/years
8. [1] (b) Original depreciation 20 – 5 / 5 = 3p.a.
9. [1] (b) New depreciation 20 – 8 / 3 = 4p.a.
10. [1] (b) Change is $1m
11. (c) Data is extracts form published accounts. Accounts reflect the market position, costs and revenues, inventory and assets – they are the financial equivalent of physical/service inputs and outputs
12. (c) Accounts must be a true and fair reflection of the financial situation – auditors check this
13. (c) Accounts must enable accurate assessment and payment of taxes
14. (c) As a p.l.c. accounts are open to public scrutiny so must be accurate
15. (c) Directors need to know situation to take strategic decisions on e.g. take over (need accurate value of KKS), marketing (need to know if 20% rise in promotion can be funded), overseas expansion (financing decisions depend on accurate knowledge)
16. (c) Shareholders need accurate figures to decide whether to sell shares
17. (c) Employees may find accurate accounts help decide on their career plans
18. (c) Managers decisions on how to achieve objectives will be better if informed by accurate financial information
19. (c) possible takeover plans
20. (c) KKS is a plc
21. (c) plans for overseas expansion
22. (c) cost effect of HRM changes
23. (c) Evaluation may contain material relating to the most important/essential of these or to the importance of published accounts compared to unpublished accounts used regularly for day to day decision making