9706_s18_qp_22 - revisedeck

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Cherie and Harry are in partnership. REQUIRED Explain three disadvantages of operating as a partnership rather than being in business as a sole trader. Additional information The following information was available for the partnership on 30 June 2017. $ Bank overdraft 1 680 Capital accounts Cherie 42 000 Harry 28 000 Current accounts balances at 1 July 2016 Cherie 1 470 credit Harry 2 430 debit Drawings Cherie 18 300 Harry 16 820 Gross profit for the year 40 960 Inventory at 30 June 2017 25 540 Loan Account Cherie 8 000 Non-current assets Cost 64 000 Provision for depreciation 22 000 Operating expenses 28 390 Trade payables 1 170 The following information is also available. Operating expenses included a payment for rent, $3450, for three months ended 31 August 2017. Non-current assets are to be depreciated at 20% per annum using the reducing balance method. Inventory at 30 June 2017 was overvalued by $380. Cherie is to receive interest at 8% per annum on her loan to the partnership. No entries have been made to record the interest for the year ended 30 June 2017. The balance of her loan account has remained unchanged throughout the year. REQUIRED Prepare the income statement for the year ended 30 June 2017. Start the statement with gross profit for the year of $40 960. Additional information Interest on drawings has been calculated as follows: $ Cherie Harry The partners are to receive interest on their fixed capital account balances at 10% per annum. Residual profits and losses are to be shared in proportion to their capital account balances. REQUIRED Prepare the appropriation account for the year ended 30 June 2017. Prepare the partners’ current accounts for the year ended 30 June 2017. Current Accounts Cherie $ Harry $ Cherie $ Harry $ Additional information Cherie and Harry are concerned about some aspects of the business’s efficiency and provide the following information. Ratio Year ended 30 June 2017 Year ended 30 June 2016 Industry Average Non-current asset turnover 1.68 times 1.11 times 1.34 times Trade payables turnover 28 days 33 days 31 days REQUIRED Analyse the efficiency of the business using these ratios. Additional information The partners are also concerned that the rate of inventory turnover has fallen below the industry average. Cherie has suggested that this could be improved by reducing inventory levels. Harry disagreed and suggested instead that an advertising campaign should be organised. REQUIRED Advise which course of action the partners should take in order to improve the rate of inventory turnover. Justify your advice by discussing both of the suggested options.

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

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M Limited has provided the following extract from the statement of financial position at 31 August 2016. $ Equity Capital and reserves Ordinary shares of $0.25 each 200 000 Share premium 80 000 Revaluation reserve 40 000 Retained earnings 37 500 357 500 The following information is available. On 1 January 2017 a rights issue was made on the basis of two ordinary shares for every five ordinary shares held at a price of $0.40 per share. The rights issue was fully subscribed. On 30 June 2017 an interim dividend of $0.04 per share was paid on all shares in issue at that date. At 31 August 2017 non-current assets were re-valued downwards by $48 000. Profit for the year ended 31 August 2017 was $22 500. REQUIRED Prepare the statement of changes in equity for the year ended 31 August 2017. A total column is not required. State two reasons why capital reserves may be used before revenue reserves to fund a bonus issue of shares for a limited company. State two benefits to a limited company of making a rights issue. State one limitation to a limited company of making a rights issue. Additional information Directors of M Limited are considering obtaining a long-term bank loan to raise additional capital. REQUIRED Explain two advantages to the company of this course of action.

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

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Butler operates a small business. He has provided the following information for non-current assets at 31 July 2016. $ Plant and machinery Cost 195 000 Provision for depreciation 68 250 During the year ended 31 July 2017, the following transactions took place. A machine was sold for $25 000. There was a loss on disposal of $3000. The machine had been purchased on 28 May 2016. A machine was purchased by cheque at a cost of $37 500. The following costs were also incurred for the new machine: $ Annual insurance Installation expenses Plant and machinery is depreciated using the reducing balance method at a rate of 20% per annum. A full year’s depreciation is charged in the year of purchase. No depreciation is charged in the year of disposal. REQUIRED Prepare the following ledger accounts for the year ended 31 July 2017. Dates are not required. Plant and machinery at cost $ $ Provision for depreciation on plant and machinery $ $ REQUIRED Explain why a business may use reducing balance method of depreciation for plant and machinery. Additional information Butler also purchases loose tools for use in the business. Explain two accounting treatments for loose tools. Explain one fundamental accounting concept relating to depreciation.

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

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SP Limited owns a hotel and a leisure centre. The business is split into three working divisions: Accommodation, Leisure and Conferences. The business also has one service centre: Support. Labour, food and materials are allocated direct to the relevant division. The remaining overheads cannot be directly allocated. The following budgeted information for the year ended 31 March 2018 is available: $ Rent and rates 86 000 Light and heat 48 000 Advertising 40 000 Equipment depreciation 60 000 Office costs 150 000 The following cost centre information is available. Accommodation Leisure Conferences Support Floor space (m2) 25 000 4 000 10 000 1 000 Equipment value ($) 10 000 45 000 5 000 – Number of employees Kilowatt hours 7 000 4 000 3 000 1 000 Budgeted guest days 12 000 3 000 5 000 – Advertising and office costs are apportioned on the basis of budgeted guest days. REQUIRED Apportion the budgeted overheads to the four divisions using a suitable basis for each. Re-apportion the support costs to the three working divisions on the basis of guest days. Total $ Accommodation $ Leisure $ Conferences $ Support $ Labour cost 345 000 194 000 86 000 60 000 5 000 Food and materials 81 000 42 000 11 000 26 000 2 000 Rent and rates 86 000 Light and heat 48 000 Advertising 40 000 Equipment depreciation 60 000 Office costs 150 000 Total apportioned overheads Reapportionment of Support Total Calculate an overhead absorption rate to two decimal places, for each of the three working divisions based on budgeted guest days. Accommodation $ Leisure $ Conferences $ Additional information The actual results for the year ended 31 March 2018 were as follows: Total cost ($) Guest days Accommodation 522 000 13 200 Leisure 215 000 3 600 Conferences 196 000 5 800 REQUIRED Calculate the under-absorption or over-absorption of overheads for each division. Accommodation $ Leisure $ Conferences $ Additional information The company’s policy is to charge customers a price to achieve a profit margin of 60%. A business customer wishes to register five employees for a three day conference to include four days’ accommodation, one day’s leisure and three days' conference facilities for each employee. REQUIRED Prepare a statement to calculate the price to be quoted to the customer. Additional information The directors have been informed that a competitor has quoted a price $600 more for the same conference. They are considering revising their own pricing policy to increase accommodation prices by 20%. REQUIRED Advise the directors whether or not they should increase their accommodation prices. Give reasons for your answer. Additional information A company has recently employed a new assistant accountant with only limited knowledge of budgetary control procedures. REQUIRED State two benefits to a company of operating a system of budgetary control. State two limitations to a company of operating a system of budgetary control.

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

4. Cost and management accounting (A Level) → 4.1. Activity based costing (ABC)

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