9706_s19_qp_22 - revisedeck

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Lee, a sole trader, provided the following information from his books of account on 30 April 2019. $ Bank overdraft 11 240 Capital 50 000 Carriage inwards Drawings 24 060 Inventory at 1 May 2018 12 500 3% Loan 20 000 Loan interest Motor vehicles Cost Provision for depreciation 32 000 8 000 Office equipment Cost Provision for depreciation 4 600 2 400 Other operating costs 61 990 Provision for doubtful debts at 1 May 2018 2 850 Purchases 97 370 Revenue 165 000 Trade receivables 47 890 Trade payables 21 640 The following information is also available. An invoice from a supplier dated 28 April 2019 for goods costing $940 had not been recorded in the books of account. These goods were unsold at the year-end. Inventory was counted at 30 April 2019 and was valued at cost, $21 340. Revenue included goods sold in April 2019 to a credit customer for $3200 on a sale or return basis. These goods were invoiced with a mark-up of 60% and were returned by customer on 5 May 2019. During the year, Lee took goods with a cost of $250 for his own use. The 3% loan was taken out on 1 August 2018 and is repayable in 5 annual instalments starting on 1 August 2019. A debt of $690 was considered to be irrecoverable and was to be written off. The provision for doubtful debts was to be maintained at 5% of the trade receivables. A computer for office use bought on credit on 1 July 2018 costing $1200 had been debited to the purchases account. Depreciation is to be provided as follows: Motor vehicles 25% per annum using the reducing balance method Office equipment 10% per annum using the straight-line method A full year’s depreciation is charged in the year of purchase. REQUIRED Prepare Lee’s income statement for the year ended 30 April 2019. Use the space on the next page for your workings. Workings: Prepare the following as they would appear in Lee’s statement of financial position at 30 April 2019. Current assets Current liabilities State two benefits and two drawbacks of operating as a sole trader. Benefit 1 Benefit 2 Drawback 1 Drawback 2 Additional information Lee’s friend Marvin has offered to contribute $50 000 to repay Lee’s business loan and to provide additional working capital. Marvin has suggested two options. Option 1: Form a limited company Lee would issue 125 000 ordinary shares of $1 each. Marvin would subscribe for 50 000 of these shares. Lee and Marvin will become directors of the company and will be paid an annual salary. They plan to declare dividends of 6% per annum. Option 2: Form a partnership Marvin would introduce capital of $50 000 on which he would receive annual interest of 6%. He would require a 30% share of the future profits for the year. REQUIRED Advise Lee which option he should choose. Justify your answer.

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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Sofia has provided the following information relating to her trade receivables at 31 December 2018: Analysis of trade receivables 0-60 days 61-90 days Over 90 days Percentage of total trade receivables 68% 20% 12% At 31 December 2018 total trade receivables were $54 500. Dixie, who had been declared bankrupt, owed $1500. This debt was 110 days old at 31 December 2018 and was to be written off. Sofia’s policy is to make a provision for doubtful debts as follows: 5% for debts aged between 61 and 90 days old 7.5% for debts aged over 90 days old. The balance on the provision for doubtful debts at 1 January 2018 was $1100. REQUIRED State the journal entry to write off an irrecoverable debt. Calculate the amount of provision for doubtful debts at 31 December 2018. Prepare the provision for doubtful debts account for the year ended 31 December 2018. Dates are required. Explain one accounting concept which is applied when making a provision for doubtful debts. Additional information Sofia is considering changing the basis of the provision for doubtful debts to a general provision of 2.5% on all trade receivables. She has calculated her profit for the year ended 31 December 2018 as $4300 after writing off Dixie’s debt but before making any adjustment for the provision for doubtful debts. REQUIRED Describe how this change will affect Sofia’s profit. Support your answer with relevant calculations.

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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Financial statements provide information to enable users to evaluate the financial performance of a business. State three reasons why it might be difficult to compare financial ratios between businesses in the same industry. X Limited is a wholesaler of sports goods. The directors of the company have provided the following information for the year ended 30 April 2019. $ Revenue 742 630 Cost of sales (459 991) For the year ended 30 April 2019 the rate of inventory turnover was 7.5 times. The value of inventory at 1 May 2018 was $57 682. At 30 April 2019 the trade receivables turnover was 35 days and the trade payables turnover was 32 days. All sales are made on credit. Credit purchases amounted to 80% of the value of cost of sales. REQUIRED Calculate at 30 April 2019: closing inventory trade receivables trade payables. Additional information X Limited has an operating expenses to revenue ratio of 30%. Distribution costs are twice as much as administrative expenses. Finance costs are 5% of the profit for the year. REQUIRED Prepare the income statement for X Limited for the year ended 30 April 2019. Additional information On 1 October 2018 X Limited paid a dividend of $25 000 on the basis of $0.08 per ordinary share of $1 each. On 1 February 2019 X Limited made a rights issue of 1 ordinary share for every 5 held at a premium of $0.50. This was the first time that X Limited had issued new shares. The rights issue was fully subscribed. REQUIRED Calculate the proceeds received by X Limited from the rights issue.

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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Jessie is a manufacturer and uses a single raw material to make her product. The following table shows inventory transactions for the month of March 2019. Date Kilos Per kilo $ March 1 Opening balance 1.90 Receipts 1.92 Receipts 1.95 Receipts 2.00 Jessie uses the First In First Out (FIFO) method to value her inventory. The following issues to production took place. Date Kilos March 5 REQUIRED Calculate the following in dollars: the value of issues to production on 5 March the value of issues to production on 23 March the value of closing inventory at 31 March. State two advantages to a business of using the FIFO method of inventory valuation. Additional information The business has two production cost centres: machining and assembly, and one service cost centre: stores. The following budgeted information is available for the year ending 31 December 2019. Budgeted overheads $ Basis of apportionment Depreciation 9 760 Non-current asset at cost Heat and light 13 850 Kilowatt hours Machinery maintenance 6 500 Machine hours The following budgeted information is also available. Production cost centres Service cost centre Machining Assembly Stores Kilowatt hours 4 200 2 100 Non-current assets at cost ($) 91 000 28 000 21 000 Stores requisitions Direct labour hours 2 700 6 300 Machine hours 13 400 3 350 REQUIRED Complete the following table to show the apportionment of budgeted overhead costs for the year ending 31 December 2019. Total $ Production cost centres Service cost centre Machining $ Assembly $ Stores $ Depreciation Heat and light Machinery maintenance Total overheads apportioned Re-apportionment of stores Total overheads cost Calculate, to two decimal places, an overhead absorption rate for each production cost centre, using a suitable basis. Question 4 is on the next page. Additional information On 1 April 2019 a customer asked Jessie to quote for an order of 200 units of her product. Each unit requires the following: Direct labour 2.5 hours at $4 per hour Direct material 3 kilos Overheads Machining department 1.5 machine hours 0.8 direct labour hours Assembly department 1.0 machine hour 2.0 direct labour hours Jessie marks up all orders by 25%. REQUIRED Prepare a statement to show the total selling price that Jessie will quote to the customer. Additional information The same customer offers to pay Jessie the quoted price less a 10% discount. Jessie’s factory has spare capacity. REQUIRED Advise Jessie whether or not she should accept the offer. Justify your answer.

2. Cost and management accounting (AS Level) → 2.1. Costs and cost behaviour

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

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