9706_w18_qp_22 - revisedeck

1

Finn started business on 1 January 2017. He did not keep full accounting records. A summary of his bank statements for the year ended 31 December 2017 was as follows. Receipts $ Capital introduced 15 000 From credit customers 98 600 Loan taken out 4 000 117 600 Payments To credit suppliers 65 100 Rent 12 000 Cash 35 600 Purchase of fixtures and fittings 14 000 126 700 The following information was available. Receipts from customers paid into the bank but not yet showing on the bank statement were $1800. Cheques paid to suppliers not yet presented to the bank amounted to $1600. REQUIRED Calculate the balance at bank which would appear in the statement of financial position at 31 December 2017. Additional information All sales were made on a credit basis. There were no sales returns during the year. The total value of sales invoices issued during the year was $144 200. Finn had allowed one customer to pay $100 less than the invoice amount because he had paid promptly. REQUIRED Prepare a total trade receivables account for the year ended 31 December 2017 to show the amount owed to Finn at the year end. Total trade receivables account $ $ Additional information All purchases were made on a credit basis. There were no purchases returns during the year. The total value of purchases invoices received was $79 300. Of these, $12 100 had not been paid by the year end. Finn knew that he had sometimes taken a cash discount but had kept no record of the amounts involved. REQUIRED Prepare a total trade payables account for the year ended 31 December 2017 to show the total discount Finn had taken. Total trade payables account $ $ Additional information Finn paid wages of $1200 in cash each month. He also took cash drawings of $500 every month. Other operating expenses were all paid in cash. Cash in hand was $100 at the year end. REQUIRED Prepare a cash account for the year ended 31 December 2017 to show the amount paid for other operating expenses. Cash account $ $ Additional information The loan carried an interest rate of 10%. The loan had been received on 1 July 2017 and no interest had been paid by the year end. The fixtures and fittings were expected to last for 10 years and have no scrap value. They are to be depreciated using the straight-line method. The policy is to provide for a full year’s depreciation in the year of purchase. At the year end other operating expenses, $1000, were accrued. At the year end inventory was valued at cost, $6200. REQUIRED Prepare the income statement for the year ended 31 December 2017. Advise Finn whether or not he should employ a book-keeper at a cost of $500 a month. Justify your answer. State two reasons why a trader might maintain a provision for doubtful debts.

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

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

Open

2

Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively. The partners decided to admit Liam as a partner with effect from 1 July 2018. The partnership’s statement of financial position immediately prior to Liam’s admission was as follows. Jack and Kelly Summarised statement of financial position at 30 June 2018 $ Assets Non-current assets 91 400 Current assets 21 700 Total assets 113 100 Capital and liabilities Capital accounts Jack 33 000 Kelly 71 000 Current liabilities 9 100 Total capital and liabilities 113 100 The partners do not maintain separate current accounts. The following was agreed. Assets were revalued upwards by $21 000. Goodwill was valued at $52 500. No goodwill account was to be maintained in the partnership’s books of account. In the future profits and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3 respectively. The balances of the partners’ capital accounts immediately after Liam’s admission should total $120 000 and be in the same ratio as the profit sharing ratio. Each partner would either pay funds into, or withdraw funds from, the business bank account in order to achieve this requirement. REQUIRED Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next page. State what is meant by the term ‘goodwill’. Explain why a partnership may make an adjustment for goodwill when they admit a new partner. Explain why partners may agree not to maintain a goodwill account in the books of the partnership on the admission of a new partner. Additional information The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an increase of 25% on the current year’s profit. The partners believe that Liam’s admission will result in an improved return on capital employed. REQUIRED Advise the partners whether or not they are correct in believing that Liam’s admission will result in an improved return on capital employed in the year ending 30 June 2019. 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

Open

3

Part of the equity of a limited company consists of ordinary shares. REQUIRED Explain two reasons why a company may make a bonus share issue. State three uses of the share premium account, other than the issue of bonus shares. Additional information On 1 January 2017 the issued share capital of S Limited consists of ordinary shares of $0.40 each. The following information is available for the year ended 31 December 2017: On 1 April 2017 the company issued a 6% debenture of $300 000. On 1 May 2017 the company paid a final dividend of $0.04 per ordinary share. On 1 October 2017 the company made a rights issue of 1 ordinary share for every 4 held. The shares were offered at a 20% discount on the market price of $1.45. The rights issue was fully subscribed. On 15 October 2017 the company paid an interim dividend of $0.015 per share to the shareholders who were on the share register at 1 August 2017. The company’s profit from operations for the year was $268 500. REQUIRED Prepare the statement of changes in equity for the year ended 31 December 2017. S Limited Statement of changes in equity for the year ended 31 December 2017 Ordinary share capital $ Share premium $ General reserve $ Retained earnings $ Total $ Brought forward at 1 January 2017 1 250 000 – 130 000 65 000 1 445 000 Workings: State the journal entry required to record a revaluation increase in the value of a non-current asset.

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

Open

4

G Limited produces a single product and uses break-even analysis. REQUIRED State what is meant by the term ‘break-even point’. State three uses of marginal costing. Additional information The company’s factory is operating at full capacity and produces 5000 units a year. All units produced are sold. Its break-even point has been calculated as 2400 units. Budgeted information for current production is as follows. Per unit direct materials 4 kilos at $6 per kilo direct labour 8 hours at $10 per hour variable overheads $12 per unit $ Annual revenue 1 000 000 Total annual fixed costs 201 600 Profit for the year 218 400 The company has the opportunity to buy some land so that the factory could be extended. The directors believe the company could sell 8000 units a year if the selling price was reduced. If the factory was extended and production increased, the directors estimate the following changes would take place. The selling price would be reduced by $5 per unit. The price of direct materials would fall to $5.80 per kilo. The direct labour rate would rise to $10.80 per hour. Total fixed costs would increase by 50%. REQUIRED Suggest a reason for: the decrease in the direct material price the increase in the direct labour rate. Explain why fixed costs might increase by 50%. Calculate: the profit for the year if the expansion went ahead the profit per unit if the expansion went ahead the contribution to sales ratio if the expansion went ahead. Calculate the revised break-even point. Express your answer in terms of both revenue and units. Additional information The purchase of land and site development would be financed with a long-term loan. REQUIRED Explain how the proposed expansion of the factory might affect the shareholders’ view of the safety of their investment. Advise the directors whether or not they should proceed with the expansion of the factory. Justify your answer.

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

Open