9706_s21_qp_21 - revisedeck

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Suyin owns a small retail business. She has not maintained full accounting records. REQUIRED State two reasons why the owner of a small business may decide not to maintain full accounting records. Additional information Suyin has been informed that the accounting concepts of matching and prudence must be followed when preparing financial statements. REQUIRED Explain how these accounting concepts are applied when a business prepares financial statements. Matching Prudence REQUIRED Calculate total purchases for the year ended 31 July 2020. Prepare the income statement for the year ended 31 July 2020. Workings: Additional information Suyin has the opportunity to move her business to a busier location. The following information is available. The rent of the new shop premises will be three times the current annual charge. Annual sales could be increased by 10% on the figure for the year ended 31 July 2020. She intends to achieve a gross margin of 60%. She will need to apply for a bank loan of $16 000 at 8% per annum interest to cover the costs of changing location. The loan will be repayable over a two-year period. Discounts received will no longer be available. All other expenses will remain unchanged and there will be no sources of additional income. REQUIRED Calculate how much profit per annum will be made if Suyin moves her business to the new location. $ Revised gross profit Revised profit for the year Advise Suyin whether or not she should change her business’s location. Justify your answer considering both financial and non-financial factors.

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

4. Cost and management accounting (A Level) → 4.3. Budgeting and budgetary control

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

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Karis and Lara are in partnership. State two reasons why partners may each have a separate capital account and current account. Additional information Karis and Lara share profits and losses in the ratio 3:2 respectively. They decided to admit Megan as a partner on 1 February 2021. On that date the statement of financial position was as follows. Assets $ $ Non-current assets at net book value Motor vehicles 43 500 Furniture and equipment 16 200 59 700 Current assets Trade receivables 18 410 Total assets 78 110 Capital and liabilities Capital accounts Karis 35 700 Lara 24 500 60 200 Current accounts Karis 3 110 Lara (540) 2 570 Current liabilities Trade payables 11 230 Bank overdraft 4 110 15 340 Total capital and liabilities 78 110 The partners agreed the following on Megan’s admission. Current accounts would no longer be used. Karis took over a motor vehicle for private use with a net book value of $18 400 at an agreed value of $15 000. Goodwill was valued at $48 000. No goodwill account was to be maintained in the partnership’s books of account. Profits and losses are to be shared in the ratio Karis : Lara : Megan 7 : 5 : 3 respectively. Megan introduced a motor vehicle valued at $23 000 as part of her capital contribution. After making the adjustments, it was agreed that Megan should pay sufficient cash into the business bank account to make her total capital equal to that of Lara. REQUIRED Prepare, on the next page, the capital accounts of the partners to record the admission of Megan as a partner. Additional information In the new partnership agreement Lara is to receive a salary of $12 000 per annum. Megan is hoping to achieve a 25% return on her capital employed (ROCE). REQUIRED Calculate the minimum profit the partnership must make in order for Megan to achieve this ROCE. State two possible disadvantages to existing partners of admitting a new partner.

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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C Limited’s statement of financial position at 31 December 2020 is shown with comparative figures at 31 December 2019. At 31 December $000 $000 Assets Non-current assets Current assets Inventory Trade and other receivables Cash and cash equivalents Total assets Equity and liabilities Equity Ordinary shares Share premium - Retained earnings Revaluation reserve - Total equity Non-current liabilities 8% Debentures (2025) Current liabilities Trade and other payables Total equity and liabilities The following information is also available. The company’s issued capital consists of ordinary shares of $0.25 each. On 1 January 2020 the directors revalued the property upwards by $300 000. There were no purchases or disposals of non-current assets during the year. On 1 July 2020 the directors made a bonus issue of ordinary shares. There were no other changes in share capital during the year. REQUIRED Explain two reasons for making a bonus issue of shares. Calculate the number of bonus shares issued on 1 July 2020. Prepare the journal entry recording the bonus issue on 1 July 2020. A narrative is required. Journal Dr Cr $000 $000 Identify three factors that directors of a company should consider when deciding on the amount of a proposed dividend. Additional information The directors of C Limited wish to propose a dividend of $0.01 per share on all shares in issue at 31 December 2020. REQUIRED Calculate the amount of the proposed dividend.

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

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P Limited is a manufacturing business. REQUIRED Define the following terms: Direct costs Stepped costs State the formula for finding the margin of safety in units. Explain the term ‘limiting factor’ when using marginal costing. Additional information P Limited manufactures a single product. The factory has the capacity to make 40 000 units per month. All production is sold. The following budgeted information is available for December 2021. Sales 30 000 units at $48 per unit Direct materials per unit 4.5 m at $4 per metre Direct labour per unit 3 hours at $8.50 per labour hour Fixed costs $112 000 The company has a target profit of $40 000 per month. REQUIRED Calculate the number of units to be sold for the company to achieve its target profit for December 2021. Prepare a budgeted marginal cost statement for December 2021. Budgeted marginal cost statement for December 2021 Additional information The directors have been told that demand for their product is likely to fall in future months. They are considering two proposals: Proposal A and Proposal B. Proposal A Produce a superior version of the product. Sales 27 000 units per month at $57 per unit. Direct materials The same quantity of material per unit as currently used, but the price per metre would increase by 7.5%. Direct labour The rate would increase to $9.25 per hour and each unit would take 3.4 hours to make. Additional fixed costs Extra machinery costing $75 000 will be required. Machinery is depreciated at 20% per annum using the straight-line method. A loan would be required to finance the full cost of the machinery. Interest rates are currently 8% per annum. REQUIRED Calculate the monthly profit to be made from proposal A. Additional information Proposal B The directors are also considering a proposal to produce a simpler version of the product with a selling price of $37 per unit. This proposal would require 76 000 labour hours per month. They estimate that 38 000 units per month could be sold. This will produce a monthly profit of $49 500. REQUIRED Advise the directors which proposal they should choose. Justify your choice by considering both financial and non-financial factors.

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

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

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