9706_m20_qp_22
A paper of Accounting, 9706
Questions:
4
Year:
2020
Paper:
2
Variant:
2
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1
The following information is available for S Limited for the year ended 31 December 2019. Balances at 1 January 2019 $ Inventory 122 000 Administrative expenses accrued 3 875 Amounts paid during the year ended 31 December 2019 Distribution costs 84 475 Administrative expenses 298 875 Purchases 435 000 Amounts received during the year ended 31 December 2019 Revenue 998 400 Balances at 31 December 2019 Inventory 134 200 Administrative expenses prepaid 7 500 6% debenture (2024) 100 000 The following information is also available. Inventory at 31 December 2019 included some damaged goods which had cost $5000. These goods can only be sold for $3000 after repairs costing $700 have been carried out. The 6% debenture (2024) was issued on 1 September 2019. REQUIRED Prepare the income statement for the year ended 31 December 2019. S Limited Income statement for the year ended 31 December 2019 Workings: Additional information The following additional balances were also available at 1 January 2019. $ Ordinary shares of $1 each 100 000 Share premium 20 000 Retained earnings 126 230 An interim dividend of $0.08 per share was paid on 30 June 2019. A bonus issue of one ordinary share for every four shares held was made on 31 October 2019. Reserves were maintained in their most flexible form. A final dividend of $0.09 per ordinary share was proposed on 31 December 2019. REQUIRED Explain what is meant by ‘Reserves were maintained in their most flexible form’. Prepare the ordinary share capital account for the year ended 31 December 2019. Ordinary share capital account $ $ Prepare the statement of changes in equity for the year ended 31 December 2019. S Limited Statement of changes in equity for the year ended 31 December 2019 Share capital $ Share premium $ Retained earnings $ Total $ Additional information The directors are planning to acquire more machinery in the following year and require a further investment of $50 000. They are considering two options: option 1: issue an additional 6% debenture for $50 000 option 2: make a rights issue of one ordinary share for every five shares held at a premium of $1 per share. REQUIRED Advise the directors on which option they should choose. Justify your answer.
1. Financial accounting (AS Level)  →  1.5. Preparation of financial statements
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2
Depreciation is provided for by a business when accounting for non-current assets. State three possible causes of depreciation. Explain two accounting concepts which are applied when providing for depreciation. 1 Concept Explanation 2 Concept Explanation The directors of K Limited prepare financial statements to 31 December. They have provided the following information. Balances at 1 January 2019 $ Motor vehicles cost 180 000 Motor vehicles provision for depreciation 105 000 During the year ended 31 December 2019 A new motor vehicle was acquired for $50 000. A motor vehicle which had cost $40 000 and been depreciated by $17 500 was sold for $16 500. The company policy is to depreciate motor vehicles at 25% per annum using the reducing balance method. A full year’s depreciation is charged in the year of acquisition and none in the year of disposal. REQUIRED Prepare for the year ended 31 December 2019: motor vehicles provision for depreciation account Motor vehicles provision for depreciation account $ $ disposal account Disposal account $ $
1. Financial accounting (AS Level)  →  1.3. Accounting for non-current assets
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3
Eden runs a small business and has provided the following information for the year ended 31 December 2019. $ Trade receivables at 1 January 2019 45 000 Contra sales ledger to purchases ledger Discounts allowed 1 025 Discounts received Interest charged on a customer’s overdue account Irrecoverable debt Receipts from trade receivables 128 600 Returns inwards 2 500 Returns outwards 1 800 Total sales 190 000 20% of total sales are cash sales; the remainder are credit sales. REQUIRED Explain three advantages to a business of preparing control accounts. Prepare the sales ledger control account for the year ended 31 December 2019. Sales ledger control account $ $
1. Financial accounting (AS Level)  →  1.2. The accounting system
1. Financial accounting (AS Level)  →  1.4. Reconciliation and verification
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4
Cuthbert runs a manufacturing business which has two production departments and one service department. The business allocates and apportions overhead expenditure between production and service departments. REQUIRED Explain one difference between overhead allocation and overhead apportionment. State what is meant by: a production department a service department Additional information The following budgeted information has been provided. $ Rent 18 000 Heating and lighting 12 500 Depreciation 11 200 Employee overheads 8 300 50 000 Production department 1 Production department 2 Service department Area (Square metres) 4 500 3 000 1 500 Electricity used (Kilowatt hours) 60 000 30 000 10 000 Non-current assets at net book value ($) 75 000 45 000 Number of employees Direct labour hours 4 000 1 200 Machine hours 1 500 2 000 Service department costs are re-apportioned on the basis of electricity used. REQUIRED Complete the table to apportion the budgeted overheads to each department. Re-apportion the service department costs to the two production departments. Overhead Production department 1 $ Production department 2 $ Service department $ Total $ Rent Heating and lighting Depreciation Employee overheads Service department re-apportionment Calculate the overhead absorption rate for both production departments using an appropriate basis. Give your answers to two decimal places. Production department 1 Production department 2 Explain the reason for the re-apportionment of the service department costs. State three limitations of using absorption costing. Additional information A customer made a request for a special order. The manufacture of this order would require direct materials of $2 800 and direct labour of $3 200. Production department 1 Production department 2 Direct labour hours Machine hours Cuthbert wishes to achieve a profit margin of 35% on this order. REQUIRED Calculate the price to quote for this special order. Additional information The customer offered $9 000 for this order. REQUIRED Advise Cuthbert whether or not he should accept the order. Justify your answer.
2. Cost and management accounting (AS Level)  →  2.2. Traditional costing methods
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