9706_s17_qp_22 - revisedeck

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B Limited is a private limited company trading as a wholesaler of garden equipment. The draft trial balance at 30 June 2016 has been extracted from the books of account and is shown below. Debit Credit $ $ Bank loan 26 400 Bank 14 040 Cash Directors’ remuneration 53 200 Fixtures and fittings Cost 18 110 Provision for depreciation at 1 July 2015 5 310 Land and buildings Cost 135 000 Provision for depreciation at 1 July 2015 21 840 Motor vehicles Cost 41 600 Provision for depreciation at 1 July 2015 19 200 Interest paid 5 920 Inventory at 1 July 2015 62 400 Office costs 18 330 Property costs 21 940 Purchases 268 200 Retained earnings 30 570 Revenue 563 800 Selling and distribution costs 36 120 Share capital (ordinary shares of $1 each) 60 000 Trade payables 39 810 Trade receivables 71 000 Wages and salaries 48 500 780 970 780 970 Additional information The value of inventory at 30 June 2016 was $70 300 at cost. Land and buildings at 30 June 2016 were as follows: $ Land 70 000 Buildings 65 000 Depreciation is to be provided as follows: Asset Annual Rate Method Charge to Fixtures and fittings 15% Reducing balance Office costs Buildings 2% Straight-line Property costs Motor vehicles 25% Reducing balance Selling and distribution costs Wages and salaries are to be charged as follows: Selling and distribution costs 60% Office costs 40% B Limited took out a 5% debenture (repayable between 2021 and 2025) for $50 000 on 30 June 2016 and repaid the bank loan in full. Neither of these transactions has yet been recorded in the books of account. A prepayment of $1240 is to be accounted for on property costs at 30 June 2016. An accrual of $2680 is to be accounted for on selling and distribution costs at 30 June 2016. The directors require a provision for doubtful debts to be created representing 2% of trade receivables at 30 June 2016, to be charged to office costs. REQUIRED Prepare the income statement for the year ended 30 June 2016. Use the space on the next page for your workings. B Limited Income Statement for the year ended 30 June 2016 $ $ Revenue Cost of sales Opening inventory Purchases Closing inventory Gross profit Deduct: expenses Directors’ remuneration Office costs Property costs Selling and distribution costs Profit from operations Finance costs Profit for the year Use this space for your workings. Prepare an extract showing the current assets section of the statement of financial position at 30 June 2016. B Limited Extract from Statement of Financial Position at 30 June 2016 Explain why a company should provide for depreciation on its non-current assets. Explain two differences between ordinary shares and preference shares.

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

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

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Wiggins has provided the following summary financial information for the year ended 30 April 2017: $ Bank overdraft 19 000 Cash in hand 1 725 Inventory at 1 May 2016 ? Inventory at 30 April 2017 152 000 Purchases 860 000 Revenue 1 042 500 Trade receivables 31 275 Additional information 40% of sales are on a cash basis. All remaining sales are on a credit basis. All purchases are on credit. The gross margin on all sales was 20%. The trade payables turnover for the year ended 30 April 2017 was 54.75 days (to two decimal places). REQUIRED State two limitations of using ratio analysis to analyse the performance of a business. Calculate the current ratio to two decimal places. Calculate the liquid (acid test) ratio to two decimal places. Calculate the rate of inventory turnover . Additional information Wiggins wishes to expand his business by taking a bank loan of $30 000 repayable over five years. REQUIRED Advise Wiggins whether or not he should take the loan. Justify your answer.

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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Amit, Wang and Susi have been trading in partnership for several years and prepare their financial statements annually to 31 March. They have never had a partnership agreement. REQUIRED State four provisions which would apply in the absence of a partnership agreement. Question 3is on the next page. REQUIRED Prepare the partners’ capital accounts to record the retirement of Amit from the partnership. Amit, Wang and Susi Capital accounts Additional information Amit has recently advised the partners that he is having financial difficulties. He has asked Wang and Susi for the payment of the balance on his loan account as soon as possible. REQUIRED Advise Wang and Susi whether or not they should agree to Amit’s request. 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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FPL Limited manufactures one type of product. Their sales staff receive 10% commission on the selling price. The following information was available for the quarter ended 30 September 2016: $ Sales (58 000 units) 203 000 Direct materials 48 140 Direct labour 38 860 Variable production overheads 23 200 Fixed production overheads 20 450 Fixed administration overheads 32 250 Selling expenses 35 900 Selling expenses include the sales commission, but all other selling expenses are fixed. REQUIRED Prepare a marginal cost income statement for the quarter ended 30 September 2016. Calculate the break-even point in units for the quarter. Additional information The directors’ target profit is $20 000 per quarter. They were concerned that the profit for the quarter ended 30 September 2016 was below the target profit. The directors realised that action must be taken in order to increase the profit. In order to improve the profits they are considering two proposals. Proposal A Retain the current selling price. Reduce the number of employees in administrative staff, saving $48 000 per annum. Source less expensive materials to reduce direct material cost by $0.10 per unit. Reduce the sales commission by 2%. Proposal B Improve the product and increase the selling price by 10%. This will increase the direct material cost by $0.15 per unit. Spend $5000 per quarter on advertising to raise awareness of the improved product. Reduce the numbers of administrative staff, saving $48 000 per annum. Retain the sales commission at 10%. REQUIRED Calculate the number of units required to be sold per quarter to achieve a profit of $20 000 for: Proposal A Proposal B Recommend to the directors which proposal they should adopt. Justify your answer by discussing the benefits and drawbacks of each proposal. Recommendation Proposal A Benefits Drawbacks Proposal B Benefits Drawbacks State three advantages and three disadvantages of a system of budget preparation. Advantages Disadvantages

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

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