9706_w19_qp_21 - revisedeck

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AB Limited is a wholesaler of household goods. The following information has been extracted from the books of account at 31 December 2018. $ 6% debenture (2023–25) 80 000 Administrative expenses 111 700 Buildings Cost 80 000 Provision for depreciation at 1 January 2018 28 800 Land at cost 65 000 Motor vehicles Cost 46 000 Provision for depreciation at 1 January 2018 9 200 Warehouse fixtures and fittings Cost 12 900 Provision for depreciation at 1 January 2018 8 900 Carriage inwards 1 200 Cash and cash equivalents (credit balance) 5 300 Distribution costs 184 800 Finance costs 2 200 Inventory at 1 January 2018 56 500 Ordinary share dividend paid 1 700 Purchases 310 600 Retained earnings 19 100 Returns inwards 8 300 Revenue 670 400 Share capital ordinary shares of $1 each 80 000 Share premium 35 000 Trade and other payables 36 600 Trade and other receivables 92 400 REQUIRED Prepare the income statement for the year ended 31 December 2018. AB Limited Income Statement for the year ended 31 December 2018 $ Revenue Cost of sales Gross profit for the year Administrative expenses Distribution costs Profit from operations Finance costs Profit for the year Workings: Prepare the statement of financial position at 31 December 2018. Use the space provided on the next page for your workings. AB Limited Statement of financial position at 31 December 2018 Workings: Additional information The directors of AB Limited wish to raise an additional $100 000 capital for expansion. They are considering either a rights issue of ordinary shares or an issue of a further debenture. REQUIRED Advise the directors which option they should choose. Give reasons for your answer. Identify two internal stakeholders with an interest in the financial statements of a limited company. Additional information The directors of AB Limited use ratio analysis to assess the performance of the business. REQUIRED Name two ratios that a business may use to assess: profitability liquidity.

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

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

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Jacques is a sole trader. On 31 January 2019, the balance on the bank statement was $1875 debit. This did not agree with Jacques’s cash book balance of $4327 credit. The following transactions were included only on the bank statement. A payment for wages of $850. A transfer of $3500 from Smith, a credit customer. The following transactions were included only in the cash book. A cheque payment to a supplier for $340. A receipt of $560 from a customer. The following errors have also been identified. A direct debit payment for insurance of $180 had been incorrectly recorded on the bank statement as $108. A standing order for electricity of $175 had been incorrectly recorded in the cash book as $275. Bank interest paid of $75 had been recorded as interest received in the cash book. REQUIRED Prepare the updated cash book at 31January 2019. Dates are not required. Prepare the bank reconciliation statement at 31 January 2019. State two reasons why a business would prepare a bank reconciliation statement. Additional information Jacques calculated a draft profit for the year ended 31 January 2019 of $10 340. He has identified the following. An item of inventory had been included at cost, $800. It was found to be damaged. It could be sold for $900 if repairs costing $150 were carried out. On 25 January 2019 Jacques had sent goods to a customer on a sale or return basis. These had been invoiced to the customer at $2800. Jacques marks up his goods at 40%. The customer had not decided whether to keep the goods. On 4 February 2019 Jacques received an invoice for $3600 relating to rental of storage space for three months ending 31 March 2019. REQUIRED Prepare a statement to show the revised profit for the year ended 31 January 2019, after adjusting for items 1, 2 and 3.

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

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Adam, Bilal and Chan operate a partnership providing secretarial services. The partners have no formal partnership agreement. The following balances are extracted from the trial balance at 31 December 2018. Debit Credit $ $ Fees revenue received 152 000 Business operating costs 76 000 Capital accounts Adam 30 000 Bilal 20 000 Chan 10 000 Current accounts Adam 36 000 Bilal 4 000 Chan 12 000 Trade receivables 27 000 Loan account: Bilal 80 000 Motor vehicles at net book value 96 000 REQUIRED Calculate the profit for the year ended 31 December 2018 before appropriation. Calculate the share of profit appropriated to Bilal for the year ended 31 December 2018. Additional information On 1 January 2019, Bilal decided to retire from the partnership. The partners agreed the following. Bilal was to retain one motor vehicle. The net book value of the motor vehicle was $36 000 but it was agreed to transfer it to Bilal at a value of $30 000. The remaining motor vehicles were to be revalued upwards by 5%. An irrecoverable debt of $2000 was to be written off and a provision for doubtful debts of 4% was to be made. Goodwill was to be valued at $24 000. Bilal agreed to leave $45 000 in the partnership as a loan at 8% per annum interest. The remaining balance due to Bilal was to be paid from the partnership bank account. REQUIRED Prepare the revaluation account at 1 January 2019. Prepare a statement showing the amount to be paid to Bilal from the partnership bank account on his retirement. Additional information Adam and Chan are to continue in partnership after Bilal’s retirement and plan to draw up a formal partnership agreement to include the following: profit-sharing ratio rate of interest on capital rate of interest on drawings. REQUIRED State two reasons why partners may agree to provide interest on capital. State two reasons why partners may agree to charge interest on drawings. State two further terms that may appear in a partnership agreement.

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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D Limited is a large company and operates from several sites. It uses different systems of costing for its different sites. REQUIRED State three advantages to a business of using a system of absorption costing. Additional information At one of its sites the company specialises in printing brochures and leaflets for local organisations. At this site it uses a system of absorption costing. There are two production departments: Assembly and Printing and two service departments: Technical support and Personnel. The following information is available. Production departments Service departments Assembly Printing Technical support Personnel Floor area (square metres) Power (kilowatt-hours) Replacement cost of machinery and equipment ($) 105 000 30 000 12 000 3 000 Number of employees Technical support hours The following budgeted overhead costs for August 2019 are still to be apportioned. $ Electricity 20 500 Insurance of machinery 7 500 Insurance of buildings 11 880 REQUIRED Complete the following table to show the apportionment of budgeted overhead costs for August 2019. Apportionment of overheads Production departments Service departments Total Assembly Printing Technical support Personnel $ $ $ $ $ Overheads already apportioned 40 210 17 530 11 360 Electricity Insurance of machinery Insurance of buildings Total overheads apportioned Reapportionment of personnel overheads Reapportionment of technical support overheads Additional information The following budgeted information is also available for August 2019. Assembly Printing Direct labour hours Direct machine hours REQUIRED Calculate an overhead absorption rate for each production department using an appropriate basis. Additional information The company received an order for a set of brochures to be produced in August 2019. It was budgeted that this order would require the following: Direct material and labour cost $1330 Direct labour hours Assembly department 12.5 hours Printing department 7.2 hours Machine hours Assembly department 5.5 hours Printing department 6.0 hours The company requires a profit margin of 25% on all orders. REQUIRED Calculate the budgeted profit on this order. Additional information The actual time taken in each production department for this order was as follows: Assembly department Printing department Direct labour hours 6.5 Machine hours REQUIRED Calculate the total over or under-absorption of overheads for this order. Clearly show in your workings over-absorption or under-absorption of overheads in each department. Additional information At a second site, D Limited manufactures garden chairs and uses a system of marginal costing. There are three models: basic, super and deluxe. Total budgeted fixed costs per annum are $234 000. Budgeted direct labour hours are 156 000 per annum. Fixed overhead costs are absorbed on the basis of direct labour hours. The following forecast figures are available for September 2018. Basic Super Deluxe Contribution per chair $3 $9 $12 Direct labour hours per chair 4.5 5.5 A director has suggested that production of the model which provides the least profit should be discontinued and resources switched to the production of the other models. REQUIRED Recommend whether or not production of the model which provides the least profit should be discontinued. Justify your answer using both financial and non-financial factors.

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

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