9706_s18_qp_23 - revisedeck

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Carlos and Erika have been in partnership for several years and prepare their financial statements to 31 July. At 1 August 2016 the following information related to non-current assets was available. $ Plant and machinery Cost 65 000 Provision for depreciation 5 000 Motor vehicles Cost 18 000 Provision for depreciation 3 600 During the year ended 31 July 2017 the following took place. On 1 November 2016, the partnership purchased a new machine for $7500. On 1 December 2016 a machine was sold for $6800. The machine had been purchased for $10 000 on 1 May 2015. On 1 February 2017 a new motor vehicle was purchased for $14 000. The accounting policies in respect of depreciation are: Plant and machinery is depreciated using the straight-line method at 10% per annum. Motor vehicles are depreciated using the reducing balance method at 20% per annum. A full year’s depreciation is charged in the year of purchase and none in the year of disposal. No adjustments have yet been made for depreciation or disposal of the machine. The profit for the year ended 31 July 2017 before any adjustments was $37 490. REQUIRED Calculate the revised profit before appropriation for the year ended 31 July 2017. Workings: REQUIRED Prepare the partnership appropriation account for the year ended 31 July 2017. Carlos and Erika Appropriation account for the year ended 31 July 2017 Additional information On 31 July 2016 the balances on the partners’ current accounts were: $ Carlos 1 300 credit Erika 250 debit REQUIRED Prepare the current accounts for the year ended 31 July 2017. Carlos and Erika Current accounts Carlos Erika Carlos Erika $ $ $ $ Additional information The following information is also available: Credit sales 31 July 2017 $ 385 000 31 July 2016 $ 327 500 Credit purchases 172 000 153 000 Inventory 6 535 10 800 Bank overdraft 16 100 1 200 Other receivables Other payables Trade receivables collection period 46 days 31 days Trade payables payment period 36 days 39 days REQUIRED Calculate the following at 31 July 2017: Trade receivables Trade payables Assess the working capital position of the partnership at 31 July 2017. Advise the partners of three ways in which they could improve the cash position of the business. Additional information Carlos and Erika are considering converting the partnership into a limited company. REQUIRED Advise the partners whether or not they should take this course of action. Justify your answer.

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

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Warren is a sole trader. He started trading on 1 February 2016. During the year ended 31 January 2017 he did not keep detailed accounting records but he has provided the following information: $ Revenue 248 758 Carriage inwards 12 371 Carriage outwards 5 873 Returns inwards 6 250 Returns outwards 11 875 Goods taken for own use 2 246 Inventory at 31 January 2017 27 450 Warren applies a 50% mark-up on cost. REQUIRED Prepare the trading section of the income statement for the year ended 31 January 2017. Explain two advantages of maintaining control accounts. Additional information Whilst preparing his accounts, Warren discovered the following: Goods costing Warren $2400 had been sent to a customer on a sale or return basis on 29 January 2017. The goods had been invoiced with the usual mark-up, but the customer had not yet decided to keep them. Trade receivables were shown as $49 532, but irrecoverable debts of $572 had not been written off and a provision for irrecoverable debts of 5% was required. REQUIRED Explain how these transactions would affect the financial statements for the year ended 31 January 2017.

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

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

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

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David, a sole trader, has prepared a trial balance at 31 December 2017 which did not balance. He entered the difference in a suspense account. REQUIRED State two other uses of a suspense account. State four types of error that will not be revealed by the trial balance. Additional information On checking the financial records, David discovered the following errors. The credit balance on the bank current account of $1650 had been entered in the trial balance as a debit balance. The total of the purchases returns journal of $960 had been debited to the returns inwards account. A prepayment of $450 for telephone charges at 1 January 2017 had not been brought down as an opening balance. The balance on sales ledger control account at 31 December 2017 of $13 625 had been carried down as $13 652. REQUIRED Prepare the suspense account at 31 December 2017 clearly showing the opening balance on the account. Suspense account $ $ REQUIRED State three benefits to a business of preparing annual financial statements.

1. Financial accounting (AS Level) → 1.4. Reconciliation and verification

1. Financial accounting (AS Level) → 1.2. The accounting system

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DP Limited is a large manufacturing and retailing company. The following information is available. Current selling price per unit $3.60 Current weekly sales 2 000 units Contribution margin 45% REQUIRED Calculate the total contribution that the company would earn over the four-week period. Additional information The directors are planning to hold a four week price promotion on its most popular product. The directors plan to reduce the selling price of the product by 20% over the whole four weeks of the promotion. They forecast that additional sales of the product will be 150% of the current sales. The company will incur additional fixed costs of $6000 to run the promotion. The directors forecast that unit variable costs will remain as they currently are. REQUIRED Calculate the total forecast units to be sold if the directors proceed with the promotion. Calculate the additional profit or loss if the company proceeds with the promotion. Calculate the percentage by which current unit sales must increase for the promotion to break even. Advise the directors whether or not they should proceed with the promotion. Justify your answer using both financial and non-financial factors. Explain the purpose of costvolumeprofit analysis. State four assumptions of costvolumeprofit analysis. Additional information The directors provide the following information for the manufacturing part of the business: Budgeted labour hours 26 400 hours Budgeted machine hours 10 500 hours Actual labour hours 22 300 hours Actual machine hours 11 400 hours Budgeted overheads $445 000 Actual overheads $420 000 REQUIRED Calculate an appropriate overhead absorption rate for the business. Explain one limitation of absorption costing.

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

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