S6 BAFS Practice Paper: Company Accounts, Ratio Analysis, Capital Budgeting, Standard Costing And Inventory Valuation

S6 BAFS Practice Paper: Company Accounts, Ratio Analysis, Capital Budgeting, Standard Costing and Inventory Valuation

2026-11-12

S6 BAFS – Business, Accounting and Financial Studies

S6 BAFS practice paper with model answers on company accounts, ratio analysis, NPV, standard costing variances, marginal costing and inventory valuation.

Download　Question paper PDF　|　Answer key PDF

Paper details　S6 BAFS practice paper with answers on company accounts, ratios, NPV and variances.

Part 1: Limited company share capital, premium and dividends (20 marks)

Alpha Ltd had 400,000 ordinary shares in issue at the start of the year, par value 2.50 dollars each. During the year it issued 100,000 more ordinary shares at 3.20 dollars each. It also has preference shares of 1,000,000 dollars carrying a 6 per cent dividend. Profit before tax was 1,480,000 dollars and the tax rate is 16.5 per cent.

#	Question	Answer and marking notes
1	Calculate total ordinary share capital at the year end.	Answer: Share capital = 400,000 shares x 2.50 = 1,000,000 dollars. New shares enter share capital at par; the excess goes to share premium.
2	Calculate the total share premium arising from the new issue.	Answer: Premium = 100,000 shares x (3.20 – 2.50) = 70,000 dollars, credited to the share premium account.
3	Calculate profit after tax for the year.	Answer: Tax = 1,480,000 x 16.5% = 244,200 dollars; profit after tax = 1,235,800 dollars.
4	Calculate the amount added to retained profits for the year.	Answer: Preference dividend = 1,000,000 x 6% = 60,000 dollars; addition to retained profits = 1,235,800 – 60,000 = 1,175,800 dollars. No ordinary dividend has yet been paid.

Part 2: Financial ratio analysis (20 marks)

Beta Ltd recorded sales of 6,000,000 dollars and cost of goods sold of 4,200,000 dollars. Average inventory was 700,000 dollars. Trade receivables were 900,000 dollars at the start and 1,100,000 dollars at the end of the year. Current assets are 1,800,000 dollars and current liabilities 900,000 dollars. Profit after tax is 480,000 dollars. Use 365 days in a year.

#	Question	Answer and marking notes
5	Calculate the gross profit margin.	Answer: Gross profit = 6,000,000 – 4,200,000 = 1,800,000 dollars; gross profit margin = 1,800,000 / 6,000,000 = 30.0 per cent.
6	Calculate the inventory turnover ratio and the inventory turnover period.	Answer: Turnover = 4,200,000 / 700,000 = 6.0 times; period = 365 / 6.0 = 60.8 days.
7	Calculate the receivables turnover ratio and the collection period.	Answer: Average receivables = (900,000 + 1,100,000) / 2 = 1,000,000 dollars; turnover = 6,000,000 / 1,000,000 = 6.0 times; collection period = 365 / 6.0 = 60.8 days.
8	Calculate the current ratio and the net profit margin.	Answer: Current ratio = 1,800,000 / 900,000 = 2.0; net profit margin = 480,000 / 6,000,000 = 8.0 per cent. A current ratio of 2.0 indicates comfortable short-term liquidity.

Part 3: Capital budgeting (20 marks)

Gamma Ltd is considering a machine costing 400,000 dollars. It is expected to generate net cash inflows of 130,000 dollars a year for four years with no residual value. The cost of capital is 10 per cent. Annuity factors: 10 per cent for four years 3.1699; 12 per cent for four years 3.0373.

#	Question	Answer and marking notes
9	Calculate the payback period in years, to one decimal place.	Answer: Payback = 400,000 / 130,000 = 3.1 years, shorter than the four-year life, so the outlay is recovered within the project.
10	Calculate the present value of the four years of cash inflows at 10 per cent.	Answer: Present value = 130,000 x 3.1699 = 412,087 dollars (412,087 dollars before rounding).
11	Calculate the net present value and decide whether to accept the project.	Answer: NPV = 412,087 – 400,000 = 12,087 dollars, positive, so the project should be accepted.
12	If the cost of capital rises to 12 per cent, recalculate the NPV and explain how the decision changes.	Answer: Present value = 130,000 x 3.0373 = 394,849 dollars; NPV = 394,849 – 400,000 = -5151 dollars, now negative, so the project should be rejected.

Part 4: Standard costing variances (16 marks)

Standard cost: 3 kg of material per unit at a standard price of 8.00 dollars per kg; 2 standard hours per unit at a standard rate of 45.00 dollars per hour. Actual output was 1,000 units. Actual material used was 3,150 kg costing 24,570 dollars. Actual hours worked were 1,950 and wages were 90,675 dollars.

#	Question	Answer and marking notes
13	Calculate the material price variance and state whether it is favourable.	Answer: Actual price = 24,570 / 3,150 = 7.80; variance = (7.80 – 8.00) x 3,150 = -630 dollars, a favourable variance of 630 dollars.
14	Calculate the material usage variance and state whether it is favourable.	Answer: Standard quantity = 1,000 x 3 = 3,000 kg; variance = (3,150 – 3,000) x 8.00 = +1,200 dollars, an adverse variance of 1,200 dollars.
15	Calculate the labour rate variance and state whether it is favourable.	Answer: Actual rate = 90,675 / 1,950 = 46.50; variance = (46.50 – 45.00) x 1,950 = +2,925 dollars, an adverse variance.
16	Calculate the labour efficiency variance and state whether it is favourable.	Answer: Standard hours = 1,000 x 2 = 2,000; variance = (1,950 – 2,000) x 45.00 = -2,250 dollars, a favourable variance.

Part 5: Marginal costing and short-term decisions (12 marks)

Delta Ltd sells its product at 120 dollars per unit. Variable cost is 72 dollars per unit and fixed cost is 288,000 dollars a year. Output and sales are 8,000 units and spare capacity is 2,000 units. A customer offers a one-off order of 1,500 units at 85 dollars each.

#	Question	Answer and marking notes
17	Calculate the unit contribution, total contribution and current profit.	Answer: Unit contribution = 120 – 72 = 48 dollars; total contribution = 48 x 8,000 = 384,000 dollars; profit = 384,000 – 288,000 = 96,000 dollars.
18	Calculate the break-even sales volume.	Answer: Break-even volume = 288,000 / 48 = 6,000 units.
19	Calculate the margin of safety in units and as a percentage.	Answer: Margin of safety = 8,000 – 6,000 = 2,000 units, or 25.0 per cent of current sales.
20	Calculate the incremental contribution of the special order and advise whether to accept it.	Answer: Incremental contribution = 1,500 x (85 – 72) = 19,500 dollars. The order fits spare capacity and does not disturb normal prices, so accept; profit rises by 19,500 dollars.

Part 6: Inventory valuation and depreciation (12 marks)

Epsilon Ltd held 200 units of opening inventory at 25.00 dollars each. During the year it bought 400 units at 28.00 dollars each and 300 units at 31.00 dollars each, and sold 600 units. It also owns a machine costing 360,000 dollars with an estimated residual value of 40,000 dollars and a useful life of five years.

#	Question	Answer and marking notes
21	Calculate the weighted average unit cost to two decimal places.	Answer: Total cost = 5,000 + 11,200 + 9,300 = 25,500 dollars over 900 units; unit cost = 28.33 dollars.
22	Calculate the closing inventory value under first-in first-out.	Answer: Closing inventory is 300 units, all from the last purchase: 31.00 x 300 = 9,300 dollars.
23	Calculate the closing inventory value under the weighted average method.	Answer: Closing inventory = 25,500 / 3 = 8,500 dollars (300 units x 28.33 dollars).
24	Calculate first-year depreciation under the straight-line method and the reducing-balance method at 40 per cent a year.	Answer: Straight line = (360,000 – 40,000) / 5 = 64,000 dollars; reducing balance = 360,000 x 40% = 144,000 dollars.

Find a tutor — free Tutor Registration →

A TutorZone practice paper; original questions and passages, not publisher material.