9706_w13_qp_21 - revisedeck

1

Booksellers Limited prepared the following trial balance for the year ended 31 December 2012: $000 $000 Gross profit for the year Wages and salaries Rent Heating and lighting Motor expenses Office expenses Insurance Discount allowed Other expenses Inventory at 31 December 2012 Trade receivables Provision for doubtful receivables Bank Trade payables Goodwill Motor vehicles at cost Shop fittings at cost Office fittings at cost Provision for depreciation on motor vehicles Provision for depreciation on shop fittings Provision for depreciation on office fittings 5% Debentures Ordinary share capital Retained earnings ___ Additional information: Wages owing amounted to $23 000 at 31 December 2012. Debenture interest for the year had not been paid. Bad debts of $5000 were to be written off. The provision for doubtful receivables was to be 5% of trade receivables. Depreciation was provided on motor vehicles at 12½% on cost and on shop fittings at 10% on net book value. Office fittings had been revalued at $19 000. Rent paid in advance was $8000. For Examiner's Use REQUIRED Prepare an income statement for the year ended 31 December 2012. For Examiner's Use Calculate the retained earnings of Booksellers Limited at 31 December 2012. Prepare, in as much detail as possible, a statement of financial position at 31 December 2012. For Examiner's Use The directors wish to raise funds to expand the business. State two sources of finance they could use. State the advantages and disadvantages to the company of the two sources of finance you have chosen.

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

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For Examiner's Use Complete the following table stating the formula used to calculate the ratio, what the ratio measures and reasons why it may change. Ratio Formula What the ratio measures Why the ratio may change Gross profit ratio Inventory turnover Quick (acid test) ratio Return on capital employed Trade receivables turnover For Examiner's Use State and explain five limitations of using ratio analysis as an indicator of business performance.

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

3. Financial accounting (A Level) → 3.5. Analysis and communication of accounting information

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3

For Examiner's Use 3 Shostakovich Limited is a wholesale business selling three products: Preludes, Fugues and Sonatas. At present they use the FIFO method of inventory valuation but are considering a change. At 31 March 2013, Shostakovich Limited provisionally calculated its profit for the year at $86 300 using closing inventory valued at $10 200 under the FIFO method. The following information is also available at 31 March 2013: Different methods of inventory valuation for the three products provide the following closing inventory values: FIFO AVCO $ $ Preludes Fugues Sonatas Owing to a flood during the financial year it has been found that the total inventory of Sonatas has been damaged. It is estimated that the inventory could be sold by Shostakovich Limited at a selling price of $1200. This adjustment has not been accounted for in the inventory calculated above. REQUIRED Calculate the revised inventory valuation at 31 March 2013 using FIFO and AVCO. For Examiner's Use Calculate the revised profit for the year at 31 March 2013 using FIFO and AVCO. Explain three reasons why a business cannot normally use the latest selling price of its products to value the inventory. For Examiner's Use Advise Shostakovich Limited on why the distinction between capital and revenue expenditure is important when preparing financial statements. Shostakovich Limited’s statement of financial position at 31 March 2013 showed the following: $ Property 200 000 Accumulated depreciation 14 000 The value of the property is split equally between land and buildings. They had been owned for 7 years. On 1 April 2013 its property was revalued at $315 000. REQUIRED Prepare the journal entry to record this revaluation. A narrative is not required. Name the section in Shostakovich Limited’s financial statements where the surplus will appear. For Examiner's Use Shostakovich Limited will continue to use the same rate of straight line depreciation for its buildings. Calculate the depreciation charge for the year on buildings after the revaluation.

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

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

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

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