9706_s22_qp_21 - revisedeck

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Khin is a retailer. The following balances have been extracted from his books of account at 31 January 2022. $ Advertising 4 900 Carriage inwards 2 140 Carriage outwards 1 730 Furniture and equipment at cost 18 900 Furniture and equipment provision for depreciation at 1 February 2021 7 300 General expenses 13 450 Inventory at 1 February 2021 12 310 Irrecoverable debts Loss on disposal of delivery vehicle 1 350 Premises at cost 360 000 Premises provision for depreciation at 1 February 2021 21 600 Provision for doubtful debts at 1 February 2021 Purchases 118 220 Rent receivable 7 000 Revenue 197 300 Trade receivables 15 580 Wages and salaries 34 640 The following information is also available at 31 January 2022. Closing inventory was valued at $13 480. No record had been made of goods taken for own use by Khin, $910. An irrecoverable debt of $380 is to be written off. The provision for doubtful debts is to be maintained at 5% of trade receivables. Advertising includes a payment of $3250 for a campaign which will last from 1 December 2021 to 30 April 2022. Rent receivable is $500 per month. Wages, $1440, are outstanding. Khin sold his business’s only delivery vehicle in January 2022 resulting in the loss of $1350 shown in the balances at 31 January 2022. The business’s depreciation policy is as follows: i Premises to be depreciated by 2% per annum using the straight-line method. ii Furniture and equipment to be depreciated by 15% using the reducing balance method. REQUIRED Prepare the income statement for the year ended 31 January 2022. Use the space provided on page 4 for your workings. Khin Income statement for the year ended 31 January 2022 Workings: Additional information There was no opening balance on the rent receivable account at 1 February 2021. REQUIRED Prepare the rent receivable account for the year ended 31 January 2022. Rent receivable account $ $ Prepare a journal entry to record the adjustment to the provision for doubtful debts account at 31 January 2022. A narrative is not required. Journal Dr $ Cr $ Additional information Khin intends to purchase a new delivery vehicle. He is not sure whether the delivery vehicle should be depreciated using the straight-line method or reducing balance method of depreciation. REQUIRED Explain the reason for recording depreciation in a business’s income statement. State one benefit of using each of the following methods of depreciation. Straight-line Reducing balance Additional information Khin is concerned about a decline in the business’s profitability. He is considering two options. Option 1: decrease the amount spent on advertising whilst also reducing the selling price by a small amount. Option 2: purchase goods from cheaper suppliers. REQUIRED Advise Khin which option he should choose. Justify your advice by discussing both options.

1. Financial accounting (AS Level) → 1.3. Accounting for non-current assets

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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Yasmin is a sole trader. She has prepared a trial balance. Some errors are not revealed by a trial balance. REQUIRED Describe each of the following errors. Examples are not required. Error of commission Error of original entry Error of principle Additional information When Yasmin prepared a trial balance for her business at the year-end, 31 December 2021, the totals did not agree. The difference was entered in a suspense account. The following errors were discovered which accounted for the difference. Goods for own use, $430, had been debited to the drawings account but no other entry had been made. Returns inwards of $740 had been credited to the returns outwards account. An irrecoverable debt of $260 had been correctly recorded in the journal and in the account of the customer, but had been posted to the wrong side of the irrecoverable debts account. REQUIRED Prepare the suspense account clearly identifying the original difference in the trial balance totals. Suspense account $ $ Additional information The business’s draft profit before correcting the errors was $28 750 for the year ended 31 December 2021. REQUIRED Complete the following table to calculate the corrected profit for the year ended 31 December 2021. $ Draft profit 28 750 Error 1 Error 2 Error 3 Corrected profit

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

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Maria and Rio have been in partnership for a number of years. They are considering admitting a new partner. REQUIRED State three disadvantages to the existing partners when a new partner is admitted. Additional information The partnership year end is 31 December. For the period 1 January to 30 September 2021, Maria and Rio did not have a partnership agreement. The following information is available for the year ended 31 December 2021. The balances on the partners’ accounts on 1 January 2021 were: $ Capital accounts Maria 52 000 Rio 38 000 Loan account: Rio 6 000 On 1 October 2021 they admitted Sarah as a partner. Sarah introduced capital of $45 000 from her personal savings. The partners agreed to make no adjustments for goodwill or the revaluation of the partnership assets. From 1 October 2021 a formal partnership agreement was prepared as follows: Rio to be given interest on his loan at 8% per annum. Interest to be given at 6% per annum on fixed capitals. Rio to be given a partnership salary of $15 000 per annum. Profits to be shared in the ratio Maria : Rio : Sarah, 2 : 1 : 2 respectively. During the year ended 31 December 2021, the partnership made a profit of $82 500 before taking into account interest on Rio’s loan. It was assumed that the profit before interest on Rio’s loan had accrued evenly throughout the year. REQUIRED Prepare the appropriation account for the year ended 31 December 2021. Maria, Rio and Sarah Appropriation account for the year ended 31 December 2021 Maria and Rio Maria, Rio and Sarah 1 Jan–30 Sept 1 Oct–31 Dec $ $ Additional information Before Sarah had been admitted as a partner, she had been earning a salary of $18 000 per annum. She had also received interest of 8% per annum on her personal savings. REQUIRED Compare Sarah’s income as a partner with the total income she would have otherwise received in the three months ended 31 December 2021. Support your answer with calculations.

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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N Limited manufactures a single product at one of its factories. The company uses marginal costing. REQUIRED State two benefits of using break-even analysis. Define the term ‘fixed costs’. Additional information The following details are available for one month’s production: Fixed costs $70 000 Break-even point 8 000 units Selling price per unit $20 Margin of safety $80 000 REQUIRED Calculate the variable cost per unit. Additional information The directors have decided to increase output by 20%. All the output can be sold. New machinery will be purchased at a cost of $72 000. The new machinery will have a useful life of 5 years. The directors also plan the following: Variable costs will remain unchanged. Selling prices will be reduced by 5% to ensure that all production can be sold. The cost of the new machinery will be financed by the issue of 10% debentures. REQUIRED Calculate the monthly revenue based on this plan. Prepare a budgeted marginal costing statement for one month based on this plan for total production. Additional information At another factory the company manufactures two products: X and Y. Both products use the same material. The following information is available for one month’s output. X Y $ $ Selling price per unit Direct material per unit Direct labour per unit Output 5000 units 4000 units This factory’s fixed costs are $58 000 per month. In April 2022 the supplier of direct materials informed the company that it would only be able to supply 75% of the normal monthly requirement in June 2022. REQUIRED Prepare a budgeted production plan for June 2022 to show the maximum profit available. Additional information A director has suggested an alternative plan that the factory should produce extra units in May 2022 to make up for the shortfall of either Product X or Product Y in June 2022. Any additional production will require overtime to be worked. The following information is available: All material requirements can be met in May 2022 but the material has to be converted into finished product immediately as purchased. Overtime is paid at 1.5 times the normal rate. The extra units will be stored at a cost of $4000. REQUIRED Calculate the profit or loss to be made on the extra units if this plan is implemented in May 2022. Advise the directors whether they should use the original budgeted production plan in or whether they should increase production in May 2022 as suggested by the director in his alternative plan. Justify your advice.

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

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

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