9706_s22_qp_22 - revisedeck

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Karen and Lee are in partnership sharing profits and losses in the ratio 2 : 3 respectively. The following balances were available at 28 February 2022. Trial balance at 28 February 2022 Debit Credit $ $ Administrative expenses 6 020 Bank interest charges Bank overdraft 5 910 Capital accounts Karen 40 000 Lee 50 000 Carriage inwards 3 880 Current accounts, 1 March 2021 Karen 1 220 Lee 1 880 Drawings Karen 17 500 Lee 19 900 Insurance 7 740 Inventory, 1 March 2021 8 250 Loan from Lee 10 000 Non-current assets At cost 160 000 Provision for depreciation, 1 March 2021 56 000 Provision for doubtful debts, 1 March 2021 Purchases 151 440 Returns 2 200 3 930 Revenue 229 250 Trade payables 14 450 Trade receivables 31 210 Suspense account 411 020 411 020 The following information is also available. On 28 February 2022, inventory had been valued at cost, $21 220. This figure included some damaged items which had cost $1320 and had a sales value of $2480. The damaged items could be repaired at a cost of $1300. In January 2022, an error had been made recording returns inwards, $410. This amount had been credited to the returns outwards account. Insurance includes $1410 paid for the three months ended 30 April 2022. The loan from Lee had been arranged on 1 November 2021. It was agreed that Lee should be entitled to interest at 6% per annum on the loan. No entries have been made for interest on the loan. The provision for doubtful debts should be increased to $310. Non-current assets are to be depreciated by 20% per annum using the reducing balance method. REQUIRED Prepare the income statement for the year ended 28 February 2022. Use the space provided on the next page for your workings. Karen and Lee Income statement for the year ended 28 February 2022 Workings: Prepare Lee’s current account for the year ended 28 February 2022. Lee Current Account $ $ Additional information The partners have been considering making a more detailed partnership agreement to include the following terms. Interest to be charged on all drawings at 10%. Karen to receive a salary of $8400 per annum. Profits and losses would continue to be shared in the ratio Karen : Lee, 2 : 3 respectively. REQUIRED Calculate the increase or decrease in Lee’s current account balance at 28 February 2022 assuming the new agreement had been in use from 1 March 2021. Additional information Karen and Lee had also considered operating as a limited company. REQUIRED Explain one advantage of operating as a partnership rather than a limited company. Explain two advantages of operating as a limited company rather than a partnership. Additional information The partners are concerned about the business’s liquidity position. Karen believes the problem arises because the business holds too much inventory. She suggests that credit purchases should be reduced for the next three months to ensure inventory levels are lowered. REQUIRED Advise Lee whether or not he should accept Karen’s suggestion. Justify your advice.

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

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V Limited owns various non-current assets. Non-current assets depreciate due to a number of factors including wear and tear. REQUIRED State two reasons, other than wear and tear, why non-current assets depreciate. Additional information Businesses must apply the consistency concept when accounting for depreciation. REQUIRED Describe the consistency concept. Additional information The company’s financial year ends on 31 December. Property was purchased on 1 January 2019 at a cost of $850 000. Property is depreciated at 5% per annum on cost. On 1 January 2021 the directors decided to revalue the property at $1 200 000. REQUIRED Prepare the journal entry to record the revaluation of the property. A narrative is not required. Journal Dr $ Cr $ Additional information Furniture and equipment was purchased on 1 January 2019 at a cost of $140 000. Furniture and equipment is depreciated at 10% per annum using the reducing balance method. On 1 September 2021, the directors sold furniture and equipment which had cost $21 000 on 1 January 2019. A full year’s depreciation is charged in the year of purchase but none in the year of disposal. REQUIRED Calculate the charge for depreciation of furniture and equipment for the year ended 31 December 2021. Additional information Motor vehicles were purchased on 1 January 2020 at a cost of $84 000. Motor vehicles are depreciated at 20% per annum using the reducing balance method. On 1 November 2021, a new motor vehicle was purchased at a cost of $44 000. A cheque for $17 000 was paid for the vehicle and the balance was covered by the part-exchange of a vehicle which had cost $40 000 on 1 January 2020. A full year’s depreciation is charged in the year of purchase but none in the year of disposal. REQUIRED Prepare the motor vehicle disposal account for the year ended 31 December 2021. Motor vehicle disposal account $ $

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

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N Limited is a trading company. The statement of financial position at 31 December 2021 is as follows. $000 Assets Non-current assets at net book value Current assets Inventory Trade receivables Total assets Equity and liabilities Equity Share capital Share premium Retained earnings Total equity Liabilities Non-current liabilities 8% Debentures (2026) Current liabilities Trade payables Bank overdraft Total liabilities Total equity and liabilities The following information is also available. Purchases for the year were $600 000 of which 80% were on credit. Credit sales were 30% of all sales. The company had a gross profit margin of 40%. The company’s gross profit for the year ended 31 December 2021 was $420 000. The company’s profit for the year was $182 000. No interest was charged on the bank overdraft. REQUIRED Calculate the following ratios for the year ended 31 December 2021 stating the formula used. Trade payables turnover Formula Calculation Trade receivables turnover Formula Calculation Return on capital employed (to two decimal places) Formula Calculation Non-current asset turnover (to two decimal places) Formula Calculation Explain the importance of this non-current asset turnover to the directors of N Limited. Explain one reason why shareholders will be interested in the financial statements of a company.

1. Financial accounting (AS Level) → 1.6. Analysis and communication of accounting information

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

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F Limited is a manufacturing company which uses absorption costing at one of its factories. This factory has two production departments and two service departments. Budgeted costs have already been allocated and apportioned. REQUIRED Explain the meaning of each of the following terms: Allocation Apportionment State one benefit of using absorption costing. State one limitation of using absorption costing. Additional information The budgeted costs for April 2022 before reapportionment of the service departments’ overheads are as follows. Production departments Service departments Assembly department Finishing department Stores department Maintenance department $ $ $ $ Total overhead costs 275 000 103 200 19 200 26 700 The service department overheads are apportioned to the production departments on the following basis. Assembly department Finishing department Stores department Maintenance department Maintenance 60% 30% 10% – Stores 75% 25% – – REQUIRED Calculate the total overheads for each production department by reapportioning the service department overheads. Production departments Service departments Assembly department Finishing department Stores department Maintenance department $ $ $ $ Total overhead costs 275 000 103 200 19 200 26 700 Subtotal Total Additional information The following additional monthly budgeted information is available about the production departments. Labour hours Machine hours Assembly department 1 430 Finishing department REQUIRED Calculate the overhead absorption rate for each department to two decimal places. Assembly department Finishing department Additional information In April 2022, production was less than the forecast figure. The Assembly department’s actual overheads were $285 400, actual labour hours were 820 and actual machine hours were 1310. REQUIRED Calculate the under-absorption or over-absorption of overheads for April 2022 for the Assembly department. REQUIRED Calculate the profit to be made in May 2022 for each of the options. Option A Option B Advise the directors which option they should choose. Justify your answer by discussing both financial and non-financial factors.

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

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