9706_w18_qp_21 - revisedeck

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Francesco is a sole trader who runs a small bicycle distribution business. He does not keep full accounting records. REQUIRED State two benefits to a sole trader of keeping full accounting records. Explain the accounting treatment at the year-end in the income statement and statement of financial position of: Prepayments Accruals Additional information Francesco provided the following information for the year ended 30 April 2017. $ Opening inventory 16 250 Total sales 82 500 Total purchases 62 750 Mark-up is 25%. The normal rate of inventory turnover is 5 times. However, it was discovered at the year-end that some inventory had been stolen. No insurance claim has yet been made for this loss. REQUIRED Prepare an extract from the income statement to show gross profit for the year ended 30 April 2017. Show clearly the value of inventory stolen. Workings: REQUIRED Prepare the bank account for the year ended 30 April 2017. Clearly show the opening balance. Bank account $ $ Workings: Calculate the charge for total expenses which appeared in the income statement for the year ended 30 April 2017. Additional information Francesco’s brother, Marco, runs a similar business. He has calculated the following ratios for his own business: 30 April 30 April Current ratio 2.6 : 1 1.2 : 1 Liquid (acid test) ratio 1.4 : 1 0.8 : 1 REQUIRED Discuss the liquidity position of Marco’s business using only the current and liquid (acid test) ratios. Advise a potential new supplier whether or not to sell goods to Marco on a credit basis. Justify your answer.

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

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

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A business depreciates its non-current assets. REQUIRED Explain why a business should comply with the following concepts when accounting for non-current assets. Prudence Accruals Additional information T Limited prepares accounts to 30 June. The following balances are available at 30 June 2017: $ Plant and machinery at cost 174 300 Provision for depreciation 48 700 On 1 July 2017 the company disposed of a machine which had a net book value of $20 000. The machine had been purchased on 1 July 2015. On 1 October 2017 a new machine was purchased for $68 600 paid by cheque. The company depreciates plant and machinery at 20% using the reducing balance method calculated on a month-by-month basis. No depreciation is charged in the year of disposal. REQUIRED Prepare the provision for depreciation on plant and machinery account for the year ended 30 June 2018. Dates are required. Provision for depreciation on plant and machinery $ $ Workings: Additional information Rather than paying immediately, the company had the option to pay in full for the new machine 15 months from the date of purchase. REQUIRED Explain the impact on the financial statements for the year ended 30 June 2018 of paying for the new machine 15 months from the date of purchase.

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

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Aisha, Bilal and Cao have been in partnership for many years sharing profits and losses in the ratio 2 : 2 : 1. Bilal decided to retire from the partnership at 31 January 2018. Their statement of financial position at 31 January 2018 before any adjustments was as follows: Aisha, Bilal and Cao Statement of financial position at 31 January 2018 $ $ Assets Non-current assets Premises 85 000 Motor vehicles 32 000 Fixtures and fittings 7 500 124 500 Current assets Inventory 16 200 Trade and other receivables 4 800 21 000 Total assets 145 500 Capital and liabilities Capital accounts Aisha 48 000 Bilal 48 000 Cao 24 000 120 000 Current accounts Aisha 8 400 Bilal (1 200) Cao 6 400 13 600 Current liabilities Trade and other payables 5 600 Bank overdraft 6 300 11 900 Total capital and liabilities 145 500 The following information is available. The partners agreed that the value of goodwill at that date was $85 000. It was also agreed that certain assets should be revalued to the following amounts. $ Premises 114 000 Inventory 15 000 As part of the final settlement, Bilal was entitled to retain one of the motor vehicles at its net book value of $11 400. It was agreed that of the final settlement due to Bilal, $20 000 would be paid immediately by cheque and the balance would remain in the business as a loan. REQUIRED Prepare a statement to calculate the profit or loss on revaluation at 31 January 2018. Prepare Bilal’s capital account on his retirement from the partnership. Identify three ways, other than using bank finance, in which a partnership could raise funds to purchase a non-current asset. State three items that may be included in the appropriation account before the division of residual profit.

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

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

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

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DH Limited manufactures a single product. The following information is available for one unit of that product: $ Selling price Direct material Direct labour Variable overhead Fixed overhead Budgeted production is 200 000 units per annum. REQUIRED Calculate the annual break-even point in units. Calculate the total budgeted annual contribution and total budgeted annual profit. Additional information The directors are considering reducing the selling price of the product by 10%. The new selling price would be lower than that of competitors. The directors are confident that as a result of this, sales volume would increase by 50%. In order to produce the budgeted units, the company’s labour force is currently working at 80% capacity. Workers will be paid an overtime premium of 25% for all production over 100% capacity. The additional production would enable the company to qualify for 12.5% discount on all direct materials. The revised production would result in the fixed overhead cost per unit reducing by 30% for all units produced. REQUIRED Calculate the total budgeted annual profit if the directors proceed with their plans. Calculate the revised break-even point in units if the directors proceed with their plans. Calculate the margin of safety in units and as a percentage if the directors proceed with their plans. Advise the directors whether or not they should proceed with their plans to reduce the selling price. Give reasons for your answer. Additional information The company has used the same direct material supplier for many years, but the directors have now been informed that there will possibly be a shortfall of available material in the next six months. They have sourced an alternative material from a new supplier at the same price. REQUIRED State three issues the directors should consider before changing a supplier. Additional information The directors of DH Limited also use absorption costing. REQUIRED State the meaning of each of the following terms. Allocation Apportionment Absorption

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

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