9706_s20_qp_23 - revisedeck

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The directors of K Limited are preparing the financial statements for the year ended 31 October 2019. The following information is available. Expense payments made during the year ended 31 October 2019. $ Administrative expenses 8 490 Directors’ fees 41 200 Distribution costs 16 500 Finance costs Staff wages and salaries 140 790 Distribution costs include a payment of $7200 for a six-month advertising campaign which will end on 31 March 2020. Directors’ fees are allocated between distribution costs and administrative expenses in the ratio 1 : 4. Staff wages and salaries are allocated between distribution costs and administrative expenses in the ratio 3 : 2. Non-current assets At 1 November 2018 Depreciation policy Allocation Cost $ Provision for depreciation $ Motor vehicles 160 000 32 600 20% per annum using reducing balance method 100% to distribution costs Furniture and equipment 45 000 5 500 15% per annum using straight-line method 80% to administrative expenses 20% to distribution costs In 2017 the company had issued 8% debentures (2025) for $20 000. Half of these were repaid on 1 August 2019. Debenture interest was paid up to 30 April 2019. REQUIRED Complete the income statement for the year ended 31 October 2019. Use the space on the next page for your workings. K Limited Income statement for the year ended 31 October 2019 $ Revenue 542 370 Cost of sales 259 240 Gross profit 283 130 Administrative expenses Distribution costs Profit from operations Finance costs Profit for the year Additional information At 1 November 2018 the equity section of the company’s statement of financial position was as follows. $ Ordinary shares of $0.50 each 90 000 Share premium 36 000 Retained earnings 65 600 On 30 June 2019 the company paid a dividend of $0.10 per ordinary share. At 31 October 2019 the company made a bonus issue of two ordinary shares for every three ordinary shares held. Reserves were maintained in their most flexible form. REQUIRED Prepare the statement of changes in equity for the year ended 31 October 2019. K Limited Statement of changes in equity for the year ended 31 October 2019 Share capital $ Share premium $ Retained earnings $ Total $ Workings: Additional information K Limited was formed several years ago by the partners in a business. REQUIRED State three advantages to the shareholders of trading as a limited company. Additional information The directors of a rival company, Q plc, are concerned about their company’s performance. The following information about Q plc is available. Year ended 31 October Industry averages for Non-current asset turnover 7 times 6 times 5 times 4 times Return on capital employed (%) REQUIRED Assess the performance of Q plc based on these ratios. Additional information Q plc’s liabilities include 8% debentures of $50 000. A director has suggested repaying the debentures to improve the company’s return on capital employed. REQUIRED Advise the director whether or not the company should go ahead with this suggestion. Justify your answer.

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

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Daniel, a retailer, receives rent from a tenant. The balance on the rent receivable account on 1 January 2019 was $700. This represented rent received in advance at the beginning of the year. During the year ended 31 December 2019 Daniel received total rent of $4800 covering the 12-month period beginning 1 March 2019. REQUIRED Prepare the rent receivable account for the year ended 31 December 2019. Rent receivable account $ $ State in which section of the income statement for the year ended 31 December 2019 Daniel’s rent receivable should appear. State in which section of the statement of financial position at 31 December 2019 the balance of the rent receivable account should appear. Additional information Daniel had created a provision for doubtful debts of $672 on 31 December 2018. At this date trade receivables appeared on the statement on financial position with a net value of $16 128. At 31 December 2019 Daniel decided to maintain the provision for doubtful debts at the same rate as in the previous year. Total trade receivables at 31 December 2019 were $15 300 before making any adjustment for provision for doubtful debts. REQUIRED Calculate the increase or decrease in the provision for doubtful debts at 31 December 2019. State two accounting concepts which are applied when creating a provision for doubtful debts. State two factors that a business could consider when setting a rate for provision for doubtful debts.

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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The following balances appear in Reena’s purchases ledger control account at 29 February 2020. $ Total of amounts due to credit suppliers 27 450 Total of a credit supplier’s account which had been overpaid The bookkeeper extracted the following information from the books of prime entry for March 2020. $ Purchases journal 32 480 Purchases returns journal 1 430 Cash book: cash purchases 7 290 Cash book: payments to credit suppliers 26 980 Cash book: totals of discounts columns Debit column in cash book 1 780 Credit column in cash book 1 060 General journal Contra entries sales ledger to purchases ledger Interest charged by credit suppliers on overdue accounts At 31 March 2020 there were no overpaid suppliers’ accounts. REQUIRED Prepare the purchases ledger control account for March 2020. Purchases ledger control account $ $ State three reasons why a business may prepare a purchases ledger control account. Additional information The bookkeeper also prepared a sales ledger control account for March 2020. However, the balance of the control account did not agree with the total of balances of accounts in the sales ledger. The following errors were discovered which accounted for the difference. The total of the sales returns journal had been overcast by $160. The balance of a sales ledger account had been undercast by $150. An entry in the sales journal for Susan Baker, $370, had been posted as a debit entry in the sales ledger account of Sarah Barker. The bank statement for 31 March 2020 recorded the return of a cheque for $420 received from a credit customer. This transaction had not yet been recorded in the books of account. An entry in the general journal to write off the balance of the account of J Limited, $230, as irrecoverable had been posted to the debit side of the customer’s account. REQUIRED Complete the following table to reconcile the sales ledger control account balance with the total of the sales ledger balances. Error 1 has been completed for you as an example. sales ledger control account balance total of sales ledger balances $ $ Incorrect figures 14 850 15 320 Error 1 – Error 2 Error 3 Error 4 Error 5 Corrected figures

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

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

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Y Limited is a large manufacturing company with factories at several locations. The company uses a marginal costing system. REQUIRED State three benefits to a business of break-even analysis. Additional information At one factory a single product is manufactured which sells for $75 per unit. The budgeted costs of manufacture for one unit are as follows: $ Direct materials 2 kg at $12.50 per kg Direct labour 3.5 hrs at $10 per labour hour Fixed costs are budgeted to be $66 000 per month. It is possible to produce 7500 units in normal working conditions. Currently 5800 units are made and sold each month. REQUIRED Calculate the monthly break-even point: in units in sales revenue Calculate the forecast profit per month based on 5800 units. Define the term ‘margin of safety’. Additional information The directors of Y Limited believe they can increase demand for their product by making some changes to the design. This would result in the following. A $7 increase in the selling price per unit A 10% increase in direct materials usage A 20% increase per kg in direct materials cost A forecast 40% increase in demand. Overtime working is available if required. This will be paid at a 25% premium. Additional machinery will be required at a cost of $24 000. The company’s policy is to depreciate machinery over a 5-year period. REQUIRED Prepare a marginal cost statement showing the monthly profit based on these changes. Additional information At a different factory the company manufactures two products: Product A and Product B. The following budgeted information is available. Product A Product B Monthly demand 300 units 200 units Selling price per unit ($) Direct materials per unit ($) Direct labour hours per unit 0.75 0.5 Each product uses the same direct labour, but requires different direct materials. Direct labour is paid at $12 per hour. The production manager is aware that only 285 hours of direct labour will be available in August 2020. REQUIRED Prepare the optimum production plan. Additional information The marketing director does not think that the optimum production plan should be implemented. REQUIRED Advise the directors whether or not the company should implement the optimum production plan. Justify your answer referring to both financial and non-financial factors.

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

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