9706_s21_qp_22 - revisedeck

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N Limited is a trading business. Sales are made on the credit basis only. The following information was available at 31 December 2020. Debit $000 Credit $000 8% Debentures (2025) Administrative expenses Cash and cash equivalents Cost of sales Debenture interest Distribution costs Dividends paid Inventory at 31 December 2020 Issued capital: Ordinary shares of $0.25 each at 31 December 2020 Non-current assets Cost Provision for depreciation at 1 January 2020 Retained earnings at 1 January 2020 Revenue Share premium at 31 December 2020 Trade payables Trade receivables The following information is also available at 31 December 2020. Administrative expenses included insurance of $16 000 for four months ended 31 January 2021. Depreciation should be provided on non-current assets at 25% per annum using the reducing balance method. Depreciation charges should be allocated 20% to distribution costs and 80% to administrative expenses. The account of a credit customer, $3000, should be written off to administrative expenses as an irrecoverable debt. Debenture interest was outstanding for the second half of the year. The directors had issued additional debentures of $50 000 on 1 October 2020. REQUIRED Prepare the company’s income statement for the year ended 31 December 2020. N Limited Income statement for the year ended 31 December 2020 $000 Workings: Distribution costs Administrative expenses Finance costs Additional information On 1 July 2020 the directors had decided to make a rights issue of two ordinary shares for every three shares held at a price of $0.30 per share. The rights issue was fully subscribed. REQUIRED Explain two reasons why a company may make a rights issue of shares rather than an issue of debentures. Calculate the amount raised by the rights issue. Prepare a statement of changes in equity for the year ended 31 December 2020. N Limited Statement of changes in equity for the year ended 31 December 2020 Ordinary share capital $000 Share premium $000 Retained earnings $000 Total $000 Balance at 1 January 2020 Additional information The directors are concerned about the company’s credit control and wish to improve the company’s liquidity position. They are considering a proposal to offer a 5% cash discount to customers for settlement within 30 days on all invoices of more than $2000. REQUIRED Identify two ratios which can be used to assess the liquidity of a business. Advise the directors whether or not they should go ahead with this proposal. Justify your answer.

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

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Zak owns a wholesale business. He makes sales on credit. REQUIRED Explain why it may be important for a business to maintain a provision for doubtful debts. Additional information Zak has prepared an aged schedule of trade receivables at 31 December 2020. Period outstanding Amount $ Estimated irrecoverable debts Less than 1 month 34 200 1% Between 1 month and 3 months 6 680 5% Between 4 and 6 months 2 130 10% In addition, two accounts had been outstanding for over 6 months. $ P Limited Q Limited Zak’s policy is to write off as irrecoverable any amounts outstanding for more than 6 months. Zak updates the provision for doubtful debts at each financial year end based on the estimated percentage of irrecoverable debts. REQUIRED Prepare a journal entry to write off the irrecoverable debts. A narrative is not required. Journal Dr Cr $ $ State two ways in which the risk of irrecoverable debts may be reduced. Additional information At 1 January 2020 the business had a provision for doubtful debts of $980. REQUIRED Calculate the adjustment required to the provision for doubtful debts at 31 December 2020. Prepare the provision for doubtful debts account for the year ended 31 December 2020. Provision for doubtful debts account $ $ State two factors that should be taken into account when setting a 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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Jason prepared the following statement of financial position which contained errors. Statement of financial position at 31 December 2020 $ $ Non-current assets Cost 65 000 Provision for depreciation 31 000 34 000 Current assets Inventory 17 390 Trade receivables 14 800 Other payables Bank overdraft 33 380 67 380 Capital Opening balance 56 950 Profit for the year 11 270 Drawings (18 450) 49 770 Non-current liabilities Bank loan (repayable March 2021) 4 900 Current liabilities Provision for doubtful debts Other receivables Trade payables 11 360 12 330 67 000 In addition to some items being recorded in the incorrect sections of the statement of financial position, the following errors have also been discovered. Closing inventory had been overvalued by $510. The balance of the rent receivable account, debit $220, had been included in other payables in the statement of financial position. Depreciation at 20% per annum had been charged using the straight-line method instead of the reducing balance method at 20% per annum. The balance of the drawings account had been understated by $580. REQUIRED Calculate the revised profit for the year ended 31 December 2020. Prepare the corrected statement of financial position at 31 December 2020. Corrected statement of financial position at 31 December 2020 $ $ Identify three types of error which do not affect the balancing of the trial balance.

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

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T Limited manufactures goods at two factories: Factory A and Factory B. Factory A Factory A has two production departments, Assembly and Finishing; and two service departments, Administration and Canteen. Absorption costing is used at this factory. Budgeted overheads for February 2021 have already been apportioned. The basis for reapportioning the service department overheads is as follows: Production departments Service departments Assembly Finishing Administration Canteen Canteen 50% 40% 10% - Administration 75% 25% - - REQUIRED Prepare a statement showing the reapportionment of service department overheads for February 2021. Production departments Service departments Assembly Finishing Administration Canteen $ $ $ $ Overheads 83 500 70 100 28 300 15 400 Reapportionment of canteen Subtotal Reapportionment of administration Total overheads Additional information Assembly Finishing Direct labour hours per month Machine hours per month Direct labour rate per hour $8.40 $8.20 REQUIRED Calculate the overhead absorption rate for each production department to two decimal places. Assembly department Finishing department Additional information The company received an order from a customer. The following details are available: Direct materials $1880 Direct labour: Assembly department 11.5 hours Finishing department 6.1 hours Machine hours: Assembly department 5.7 hours Finishing department 2.4 hours The company’s policy is to achieve a profit of 40% on selling price. REQUIRED Prepare a statement to show the total selling price that T Limited will quote to the customer. State two possible causes of under absorption of overheads. State what is meant by allocation of overheads apportionment of overheads REQUIRED Calculate the maximum profit per month that can be made if materials were obtained from the overseas supplier and production limited to 7600 units. Advise the directors whether or not they should change the supplier. Justify your advice by considering both financial and non-financial factors.

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

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