9706_m16_qp_22
A paper of Accounting, 9706
Questions:
4
Year:
2016
Paper:
2
Variant:
2
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1
The trial balance of Seema Limited for the year ended 30 June 2015 shows these figures: Debit Credit $ $ Revenue 526 000 Purchases 342 000 Inventory at 1 July 2014 37 500 Selling and distribution expenses 37 510 Administrative expenses 36 130 Provision for doubtful debts Interest paid Non-current assets at cost Warehouse buildings 300 000 Motor vehicles 70 000 Office equipment 25 000 Provision for depreciation Warehouse buildings 12 000 Motor vehicles 12 500 Office equipment 1 500 Trade receivables 5 020 Trade payables 6 270 Cash and cash equivalents 27 200 140 000 Ordinary shares of $1 each 140 000 5% Debentures (2021 – 2025) 25 000 General reserve 25 000 Retained earnings 140 990 Interim ordinary dividends paid 8 400 889 385 889 385 Additional information Inventory on 30 June 2015 was valued at $29 400. Depreciation is to be charged as follows: Warehouse buildings 4% using straight line method Motor vehicles 25% using straight line method Office equipment 10% using reducing balance method. The provision for doubtful debts is to be maintained at 5% of the trade receivables. An irrecoverable debt of $200 should be written off. The directors have decided to transfer $25 000 to the general reserve. The directors have proposed a final dividend of $0.07 per share. The debentures were issued in 2011. The motor vehicles were used by the sales team. REQUIRED Prepare the income statement for the year ended 30 June 2015. Prepare the statement of financial position at 30 June 2015. Explain the importance to a business of the current ratio. Additional information The directors of Seema Limited have calculated the current ratio to be 8.87 : 1. They regard the ratio calculated to be too high and are considering repaying the debentures. REQUIRED Discuss the effect of this course of action on: working capital the return on capital employed Advise the directors on whether they should repay the debentures early. Justify your answer.
1. Financial accounting (AS Level)  →  1.5. Preparation of financial statements
3. Financial accounting (A Level)  →  3.1. Preparation of financial statements
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2
James and Lewis have been in partnership for some years sharing profits and losses equally. They had no partnership agreement. Their statement of financial position at 30 September 2015 showed the following information. $ Non-current assets 230 000 Net current assets 60 000 290 000 Capital accounts James 200 000 Lewis 70 000 270 000 Current accounts James Lewis $ $ Opening balance 31 000 17 000 Share of profit 15 000 15 000 Drawings (21 000) (37 000) Closing balance 25 000 (5 000) 20 000 290 000 Additional information On 1 October 2015 Ahmed joined the partnership. A partnership agreement was drawn up. The terms set out in the agreement were: Profits and losses are to be shared equally. Interest is to be charged at 5% on drawings. Interest is to be allowed at 10% on capital. The following also took place: Ahmed introduced capital of $80 000, which he paid into the business bank account. Goodwill was valued at $60 000 but no goodwill account is to be maintained in the books of account. Non-current assets were revalued at $270 000. The inventory value was to be reduced by $4000. REQUIRED Prepare the revaluation account. Prepare the capital accounts of the partners to record the admission of Ahmed. State the advantages of interest on capital and interest on drawings. Advantage of interest on capital to the partners to the partnership Advantage of interest on drawings to the partners to the partnership Explain how the terms of the partnership agreement will affect James and Lewis. James Lewis
1. Financial accounting (AS Level)  →  1.5. Preparation of financial statements
3. Financial accounting (A Level)  →  3.1. Preparation of financial statements
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3
The equity and reserves section of Howard Limited’s statement of financial position at 31 December 2014 was as follows: $000 Ordinary shares of $0.50 each Share premium Retained earnings During the year ended 31 December 2015, the following transactions took place: February 1 Issued 200 000 ordinary shares at $0.70 each. May 1 Paid final dividend of $0.04 per ordinary share on all shares in issue at 31 December 2014. June 1 Made a bonus issue of ordinary shares on the basis of two ordinary shares for every fifteen ordinary shares held at that date. REQUIRED State the double entry to record each of these transactions. Dates and narratives are not required. Name of the account Dr $000 Cr $000 Additional information On 1 August 2015, Howard Limited also made a rights issue of one ordinary share for every ten ordinary shares held at a price of $0.60. All shareholders took up their rights. REQUIRED Prepare a schedule showing the movement in the share premium account during the year ended 31 December 2015. State three reasons why a company may make a bonus issue of shares. State three differences between ordinary shares and preference shares.
1. Financial accounting (AS Level)  →  1.5. Preparation of financial statements
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4
Lin, a manufacturer, makes three products: X, Y and Z. He uses cost-volume-profit (CVP) analysis in his business. He has prepared the following profit/volume (P / chart for product X for the year ending 31 December 2016. $ 000s units 000s Sales – – – A B – REQUIRED Identify from the P / V chart for the year ending 31 December 2016: what point A 20 000 represents what point B ($60 000) represents State what is meant by P / V ratio. State two benefits and two drawbacks of CVP analysis. Benefits Drawbacks Additional information Lin has provided you with the following budgeted information for the year ending 31 December 2016. X Y Z Annual sales 15 000 5 000 8 000 $ $ $ Selling price (per unit) Variable cost (per unit) Annual allocated fixed costs 60 000 25 000 30 000 Lin is considering stopping production of X. REQUIRED Calculate for the year ending 31 December 2016: the total contribution for each product the total profit or loss for each product Discuss whether or not Lin should continue to produce all three products. Justify your answer. Additional information Since preparing his budget, Lin has received two separate orders. For order 1 the customer has offered an amount in total of $10 000. For order 2 the customer has offered a price per unit for each separate product. The details are as follows: Order 1 Order 2 units units proposed price per unit $ X X Y Y Z Z Proposed total order price $10 000 Lin has spare production capacity and the fixed costs will not be affected by the orders. REQUIRED Calculate the contribution gained or lost on each order. Advise Lin whether or not each of the orders should be accepted. Justify your decision. Explain, giving two reasons, why a business needs to plan for the future.
2. Cost and management accounting (AS Level)  →  2.2. Traditional costing methods
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