9706_s23_qp_22 - revisedeck

1

J Limited’s financial year ended on 30 September 2022. The following balances were available on this date. $ 8% Debentures (2025) 100 000 Administrative expenses 28 000 Distribution costs 57 000 Dividends paid 21 000 Finance costs 4 000 Inventory at 1 October 2021 54 000 Issued share capital: shares of $0.50 each at 1 October 2021 420 000 Non-current assets at 1 October 2021 Cost 1 300 000 Provision for depreciation 260 000 Purchases 460 000 Retained earnings at 1 October 2021 125 000 Revenue 869 000 Share premium at 1 October 2021 210 000 Trade receivables 83 000 The following additional information is available. Inventory at 30 September 2022 was valued at $57 000. The balance of the account of a credit customer, $3000, should be written off as irrecoverable and charged to administrative expenses. The directors have agreed to create an allowance for irrecoverable debts of 5% of trade receivables. The allowance should be charged to administrative expenses. Debenture interest for the second half of the year is outstanding. Non-current assets should be depreciated at 20% per annum using the straight-line method. Depreciation should be allocated as follows: Administrative expenses 60% Distribution costs 40% REQUIRED Prepare the statement of profit or loss for the year ended 30 September 2022. Use the space provided to show your workings. J Limited Statement of profit or loss for the year ended 30 September 2022 $ Workings: Administrative expenses Distribution costs Additional information The directors found that the following transaction had not been recorded in the books of account: On 30 September 2022 the directors had made a bonus issue of 2 ordinary shares for every 3 shares held. The directors had decided to maintain reserves in their most flexible form. REQUIRED Calculate the balance of retained earnings at 30 September 2022 following the bonus issue. State one reason why the directors of a company might decide to make a bonus issue. Explain one reason why trade payables and potential lenders might approve of a company making a bonus issue. Identify three points the directors should consider when deciding whether to pay a dividend. Additional information The directors of J Limited wish to improve the company’s liquidity. They will choose one of the following options. Option 1: allow trade receivables a cash discount of 5% for payment within 20 days. Option 2: make all purchases on credit from a different supplier who is prepared to offer a trade discount. REQUIRED Advise the directors which option they should choose. Justify your choice by discussing both options.

1. Financial accounting (AS Level) → 1.5. Preparation of financial statements

Open

2

Rudra prepares bank reconciliation statements for his business at the end of each month. REQUIRED State three reasons why it is important to a business to prepare bank reconciliation statements at regular intervals. Additional information On 31 March 2022 the balance shown in the business’s cash book (bank columns) was $3060 overdrawn. This did not agree with the balance shown on the business’s bank statement on this date. The difference in the two balances was accounted for by the following: Rudra had omitted to record a direct debit for water charges of $442. There were unpresented cheques: TK Stores $482, RH Supplies $1043. Bank charges, $85, appeared on the bank statement but had not yet been recorded in the cash book. Rudra had debited the cash book with cash takings, $893, but this had not yet been recorded by the bank. A cheque payment to Peter, $320, had been correctly recorded in the bank statement, but had been entered in the cash book as $230. The bank statement included an entry for a dishonoured cheque for $582 received by Rudra from Jamia. No entries had been made in the cash book to record the dishonoured cheque. An error had been made in the cash book. Interest received, $225, had been correctly recorded in the bank statement, but had been credited in the cash book. REQUIRED Prepare the cash book to show the updated balance at 31 March 2022. Dates are not required. Cash book (bank columns) $ $ Prepare a bank reconciliation statement to show the bank statement balance at 31 March 2022. Rudra Bank reconciliation statement at 31 March 2022 $ $ Balance as per updated cash book Define each of the following terms: unpresented cheque dishonoured cheque.

1. Financial accounting (AS Level) → 1.4. Reconciliation and verification

Open

3

Khaled opened his business on 1 January 2021 with a capital of $41 000. He did not maintain a full set of accounting records. Khaled wishes to know his profit or loss for the year ended 31 December 2021. He has provided the following information. Assets and liabilities at 31 December 2021 $ Bank overdraft 3 470 Bank loan 8 500 Inventory 18 450 Non-current assets (carrying value) 27 500 Trade payables 9 940 Trade receivables 7 230 Non-current assets include a motor vehicle. This vehicle had been privately owned by Khaled but during 2021 it was transferred to the business at a valuation of $9000. During 2021 Khaled’s drawings were $14 870. REQUIRED Calculate the business’s profit or loss for the year ended 31 December 2021. Additional information During 2022 Khaled kept more detailed records but could not provide a figure for revenue. The following information is available at 31 December 2022. $ Inventory at 31 December 2022 16 250 Purchases 148 300 Khaled’s policy is to mark-up all goods by 50%. REQUIRED Calculate revenue for the year ended 31 December 2022. State two advantages to a business of maintaining a full set of accounting records. State two disadvantages to a business of maintaining a full set of accounting records.

3. Financial accounting (A Level) → 3.1. Preparation of financial statements

1. Financial accounting (AS Level) → 1.5. Preparation of financial statements

1. Financial accounting (AS Level) → 1.2. The accounting system

Open

4

K Limited is a manufacturing company which has two production departments and one service department at one of its factories. At this factory absorption costing is used. REQUIRED Define each of the following terms: cost centre allocation of overheads apportionment of overheads. Additional information The following budgeted information is available for the year ended 31 August 2022. Production departments Cutting $ Finishing $ Service department $ Factory overheads 273 820 189 240 31 350 The service department’s overheads are reapportioned on the basis of the number of employees in each production department. Cutting department Finishing department Number of employees REQUIRED Reapportion the service department’s overheads to the production departments. Cutting department $ Finishing department $ Service department $ Factory overheads 273 820 189 240 31 350 Reapportionment Total overheads Additional information The following forecast information is available for the year ended 31 August 2022. Cutting department Finishing department Direct labour hours per annum 9 400 7 420 Machine hours per annum 17 900 3 840 REQUIRED Calculate an appropriate overhead absorption rate, correct to two decimal places, for each production department: Cutting department Finishing department. Additional information The actual results for the year ended 31 August 2022 were as follows: Cutting department Finishing department Factory overheads $312 600 $193 400 Direct labour hours 9 800 7 210 Machine hours 17 200 4 220 Calculate the under-absorption or over-absorption of factory overheads for each production department for the year ended 31 August 2022. Cutting department Finishing department Additional information At a second factory marginal costing is used. A single product, Product X, is manufactured. However, demand for this product has fallen recently due to increased competition. The following information is available for Product X. Per unit $ Direct materials Direct labour Contribution Normal capacity is 14 000 units per month. The factory is currently operating at 75% of normal capacity. All the units produced are sold. Fixed costs per month are $56 000. Calculate the profit for one month. Additional information The directors are considering two options to increase profits. Option A: Reduce the selling price per unit by 5%. Run a six-month advertising campaign at a cost of $1100 per month. Monthly sales are forecast to increase by 25% on current levels. Option B Discontinue manufacture of Product X. Produce a different product, Product Y, with a selling price of $58 per unit. It is forecast that demand will be such that the factory can operate at 110% normal capacity. Direct material cost will increase by 10% per unit. Direct labour costs will remain unchanged. However, workers will be paid an overtime premium of 50% for all work over normal capacity. Machinery will need some alterations which will cost $54 000. Non-current assets are depreciated by 25% per annum. The company will need to borrow $30 000 to finance the cost of the machinery alterations. Interest at 6% per annum will be charged on this loan. REQUIRED Calculate the profit to be made on each option in the first month of production. Option A Option B Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors.

2. Cost and management accounting (AS Level) → 2.2. Traditional costing methods

Open