9706_s19_qp_23 - revisedeck

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D Limited is a retailer of sports equipment. The following balances have been extracted from the books of account at 31 December 2018. Debit $000 Credit $000 8% Debentures (2021–23) 10% Bank loan Administrative expenses Bank overdraft Carriage inwards Carriage outwards Distribution costs Dividends paid Land and buildings at 1 January 2018 Cost 2 100 Provision for depreciation Fixtures and fittings at 1 January 2018 Cost Provision for depreciation Motor vehicles at 1 January 2018 Cost Provision for depreciation Interest paid Inventory at 1 January 2018 Property costs Purchases 2 502 Retained earnings Returns outwards Revenue 5 120 Share capital – ordinary shares of $0.50 each 1 200 Share premium Trade payables Trade receivables The following information is also available. Revenue included goods that had been sold to a customer on a sale or return basis on 28 December 2018. The selling price of the goods was $40 000 and they were sold at a mark-up of 25%. The directors were unsure whether or not the goods would be returned. Inventory on D Limited’s premises at 31 December 2018 had been counted and valued at a cost of $585 000. Included in distribution costs is $24 000 in respect of delivery van licenses for the year ended 31 March 2019. REQUIRED Prepare the income statement for the year ended 31 December 2018. Use the space on the next page for your workings. D Limited Income statement for the year ended 31 December 2018 $000 Revenue Cost of sales Gross profit Administrative expenses Distribution costs Property costs Profit from operations Finance costs Profit for the year Prepare an extract showing the current assets section only of the statement of financial position at 31 December 2018. D Limited Extract from the statement of financial position at 31 December 2018 Current assets Prepare a statement for the directors to show the total value of equity at 31 December 2018. Additional information The directors wish to raise additional finance for expansion. They are considering two options. Issue 5% preference shares of $1 each to raise $300 000. Obtain an 8% bank loan to raise $300 000. REQUIRED Advise the directors which option they should choose. Justify your answer. Explain two differences between a bonus issue of shares and a rights issue of shares.

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

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John, Kathy and Liz have been in partnership sharing profits and losses in the ratio 4 : 3 : 3. They have agreed to dissolve the partnership. REQUIRED State three reasons why a partnership may be dissolved. Additional information At the time of the dissolution the partnership’s statement of financial position was as follows: Statement of financial position at 31 March 2018 $ $ Assets Non-current assets at net book value Motor vehicles 29 400 Furniture and equipment 15 600 45 000 Current assets Inventory 14 920 Trade receivables 11 540 26 460 Total assets 71 460 Capital and liabilities Capital accounts John 28 000 Kathy 21 000 Liz 19 000 68 000 Current accounts John (2 200) Kathy 1 400 Liz (1 800) (2 600) Current liabilities Bank overdraft 6 060 Total capital and liabilities 71 460 The following information is also available. At dissolution John took over the furniture and equipment at an agreed valuation of $9500 and the inventory at a valuation of $11 000. Liz took over a motor vehicle at an agreed valuation of $16 600; the other motor vehicle was sold for $8450. The balance of one credit customer who owed $740 was written off as irrecoverable. The remaining trade receivables settled their accounts in full less a cash discount of 5%. Cost of dissolution, $2350, was paid from the bank account. REQUIRED Prepare the partnership realisation account. Calculate the amount to be paid to, or to be received from, John on dissolution.

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

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

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Cheng, a sole trader, maintains control accounts. REQUIRED Explain two benefits to a business of maintaining control accounts. Additional information At 31 December 2018, Cheng’s bookkeeper prepared a purchases ledger control account and a sales ledger control account. However, the balances of the control accounts did not agree with the total of the individual balances recorded in the relevant ledgers. The details were as follows: $ Purchases ledger Total of ledger accounts 18 496 Control account balance 18 981 Sales ledger Total of ledger accounts 11 117 Control account balance 12 385 Cheng’s bookkeeper has discovered the following: Cash sales of $480 had been recorded in the sales ledger control account. A credit note for $228 had been recorded as $282 in both the purchases returns journal and the supplier’s account. The account of a customer with a balance of $485 had been set off against his account in the purchases ledger. No record of this transaction had been made in the purchases ledger control account. Interest of $67 charged by a trade supplier on an overdue account had not been recorded in the books of account. A dishonoured cheque of $394 had been correctly recorded in the cash book but had been posted to the credit side of the customer’s account. REQUIRED Prepare a corrected: Purchases ledger control account $ $ Balance b/d 18 981 Sales ledger control account $ $ Balance b/d 12 385 Calculate amended totals for the: purchases ledger accounts sales ledger accounts.

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

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

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Ethan owns a factory which produces hand-painted pots. The factory employees receive piecework payments. REQUIRED State what is meant by ‘piecework payments’. Explain what is meant by ‘production overheads’. Additional information The following budgeted information is available for the year ending 30 June 2020. Sales ($12 per unit) $ 1 July – 30 Sept 2019 171 000 1 Oct – 31 Dec 2019 171 000 1 Jan – 31 Mar 2020 186 000 1 Apr – 30 June 2020 192 000 Costs for the year $ Advertising 24 000 Direct labour 270 000 Direct material C 48 000 Direct material D 90 000 Fixed production overheads 30 000 The salesperson receives a basic salary plus commission payment. Basic salary $51 000 per annum Commission 3.5% of sales revenue REQUIRED Calculate for the year ending 30 June 2020: the total budgeted fixed selling expenses the total budgeted variable selling expenses the total budgeted contribution the total budgeted profit. REQUIRED Calculate the additional profit or loss made on this order. Advise Ethan whether or not he should accept the order. Justify your answer taking into account both financial and non-financial factors. State two benefits and three limitations to a business of using cost–volume–profit analysis. Benefit 1 Benefit 2 Limitation 1 Limitation 2 Limitation 3

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

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