9706_m21_qp_22 - revisedeck

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Faraz, Javed and Leah were in partnership. Their agreement included the following terms: Interest on drawings to be charged at 5% on total drawings for the year. Interest at 12% per annum to be provided on fixed capitals. Javed to receive a salary of $9000 per annum. Remaining profits and losses to be shared in the ratio Faraz, Javed and Leah, 4 : 3 : 3 respectively. The following information was available for the year ended 31 December 2020. Faraz $ Javed $ Leah $ Balances at 1 January 2020 Capital accounts Current accounts 80 000 3 400 credit 60 000 2 900 debit 50 000 1 700 debit For the year ended 31 December 2020 Drawings 22 400 17 200 20 200 The profit for the year ended 31 December 2020, before appropriation, was $31 500. REQUIRED State two reasons why partnership agreements sometimes include a provision to charge interest on drawings. Prepare the appropriation account for the year ended 31 December 2020. Faraz, Javed and Leah Appropriation account for the year ended 31 December 2020 $ $ Prepare Javed’s current account for the year ended 31 December 2020. Javed Current account $ $ Additional information On 1 January 2021, Javed retired from the partnership. It was agreed that on this date: Javed would keep some equipment for personal use. The equipment had a net book value of $15 400 and was to be transferred to Javed at a value of $13 000. Other non-current assets were to be revalued upwards by $24 000. Goodwill was valued at $50 000. A goodwill account was not to be maintained in the partnership’s books. REQUIRED Explain the meaning of goodwill. Explain why a valuation of goodwill could be made when a partner retires. Prepare a statement to show the amount due to Javed on his retirement from the partnership. Additional information Faraz and Leah continued in partnership sharing profits and losses equally. They discussed how best to finance the amount due to Javed on his retirement from the partnership. They are considering two options. Option 1: Take out a bank loan to cover the amount due. Option 2: Admit a new partner whose capital contribution would cover the amount due. REQUIRED Advise the partners which option they should choose. Justify your answer by discussing both options.

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

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Myra owns a delivery business. The following information is available about her business’s delivery vehicles. Vehicle Date of purchase Cost $ A 1 August 2017 30 000 B 1 February 2018 36 000 C 1 June 2019 39 000 Vehicles are depreciated using the straight-line method at 20% per annum. Depreciation is charged on a month-by-month basis. The business’s financial year end is 31 December. REQUIRED Calculate the balance on the provision for depreciation of vehicles account at 31 December 2019. Additional information On 1 March 2020, Vehicle A was sold in part exchange for Vehicle D. Vehicle D cost $42 000 of which $29 200 was paid by cheque. REQUIRED Prepare the vehicle disposal account. Vehicle disposal account $ $ Prepare the provision for depreciation of vehicles account for the year ended 31 December 2020. Provision for depreciation of vehicles account $ $ Additional information Businesses may use the revaluation method of depreciation for some of their non-current assets. REQUIRED Explain one reason why some businesses may use the revaluation method of depreciation. State how an annual depreciation charge is calculated using the revaluation method.

1. Financial accounting (AS Level) → 1.3. Accounting for non-current assets

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

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The directors of B Limited have provided the following information. Statement of financial position at 31 December 2020 Assets $ Non-current assets 656 000 Current assets Inventory 34 000 Trade receivables 31 000 65 000 Total assets 721 000 Equity and liabilities Equity Issued share capital 500 000 Share premium 67 000 Retained earnings 68 000 Total equity 635 000 Non-current liabilities 8% Debenture (2025) 50 000 50 000 Current liabilities Trade payables 19 000 Cash and cash equivalents 17 000 36 000 Total liabilities 86 000 Total equity and liabilities 721 000 The company’s revenue for the year ended 31 December 2020 was $540 000 of which 60% was on credit. The company’s profit for the year was $80 000. REQUIRED Calculate the following ratios at 31 December 2020. Current ratio (to two decimal places) Trade receivables turnover Return on capital employed (to two decimal places) Additional information The following ratios are available for 2019 along with comparative ratios for 2018. At 31 December At 31 December Current ratio 2.20 : 1 2.10 : 1 Trade receivables turnover 37 days 38 days Return on capital employed 15.57% 14.32% REQUIRED Compare the company’s position at 31 December 2020 with that of the previous two years in regard to the following ratios: Current ratio Trade receivables turnover Return on capital employed State two ways in which a company could improve its current ratio. Additional information Companies compare their financial performance with that of different businesses. REQUIRED State three limitations of comparing the financial performance of different businesses.

1. Financial accounting (AS Level) → 1.6. Analysis and communication of accounting information

3. Financial accounting (A Level) → 3.5. Analysis and communication of accounting information

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K Limited produces goods at two sites and uses marginal costing. At one site the company makes a single product. The following details are available. Maximum capacity 14 500 units per month Fixed costs $216 000 per month $ Unit selling price Costs per unit: Direct materials Direct labour Other variable costs REQUIRED Calculate the break-even point per month in units. Define the term ‘margin of safety’. Additional information The directors have decided to make the following changes: Reduce selling price by 2%. Introduce a sales commission of $2 per unit on every unit sold in excess of 5000 units per month. Purchase direct materials in bulk and obtain a trade discount of 20%. Buying direct materials in bulk will increase storage costs by $4000 per month. Demand will be 98% of factory capacity. REQUIRED Prepare a marginal costing statement to show the monthly profit based on these changes. Explain two advantages of using a system of marginal costing. Additional information At its other site the company makes three products: Product X, Product Y and Product Z. The following details are available. Product X Product Y Product Z Contribution per unit $15 $20 $27 Machine hours per unit 1.5 2.5 Maximum monthly output in units Fixed costs per month are $14 100. Each month the company plans to work to full capacity producing the maximum output of each product. In August 2021 only two-thirds of the month’s machine hours will be available. REQUIRED Calculate the machine hours available in August 2021. Additional information The company has a regular order to supply one major customer with 50% of the output of each product per month. Two options are being considered to deal with the shortage of machine hours. Option 1: The finance director has recommended the company makes the maximum profit possible in August 2021 and if necessary not complete all of the major customer’s order. Option 2: The sales director has recommended that the company should ensure it fulfils the major customer’s order. REQUIRED Calculate the profit or loss for August 2021 based on: Option 1 Option 2 Advise which option the company should choose. Justify your advice by discussing both options. (Consider both financial and non-financial factors.)

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

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