9706_w19_qp_23 - revisedeck

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S Limited is a private limited company. The directors have extracted the following information at 30 September 2019. $ $ 6% debentures (2021 – 2022) 68 000 Accrued expenses 2 480 Administrative expenses 63 810 Bank overdraft 12 770 Carriage inwards 3 600 Distribution costs 49 330 Interest paid 8 160 Inventory at 1 October 2018 62 500 Freehold property 220 000 Motor vehicles Cost 84 600 Provision for depreciation at 1 October 2018 38 760 Office equipment Cost 68 700 Provision for depreciation at 1 October 2018 32 300 Prepaid expenses 4 400 Purchases 392 340 Retained earnings 69 700 Returns inwards 3 470 Revenue 764 570 Share capital (ordinary shares of $1 each) 50 000 Share premium 15 000 Trade payables 48 730 Trade receivables 86 500 Wages and salaries 54 900 The following information is also available: The value of inventory at 30 September 2019 was $73 100 at cost. The directors now wish to write off $2000 in respect of damaged items. Purchase of new office equipment of $6000 had been posted to distribution costs in error. Motor vehicles are to be depreciated at 20% per annum using the straight-line method. The estimated residual value of the motor vehicles is $20 000. Depreciation is to be charged to distribution costs. Office equipment is to be depreciated at 15% per annum using the reducing balance method. Depreciation is to be charged to administrative expenses. At 30 September 2019 there was an additional accrual for wages and salaries of $1700. Wages and salaries are to be charged as 70% to administrative expenses and 30% to distribution costs. Interest paid included debenture interest paid to 30 June 2019. At 30 September 2019 there was an additional prepayment of $4800 for administrative expenses. The directors wish to create a provision for doubtful debts equal to 2% of trade receivables at 30 September 2019 and include it in administrative expenses. REQUIRED Prepare the income statement for the year ended 30 September 2019. Use the space on the next page to show your workings. S Limited Income statement for the year ended 30 September 2019 $ $ Revenue Cost of sales Gross profit Administrative expenses Distribution costs Profit from operations Finance costs Profit for the year Prepare the statement of financial position at 30 September 2019. Use the space provided on the next page for your workings. Workings: Explain the term ‘6% debentures (2021 – 2022)’, which appears in S Limited’s financial statements. Additional information Despite having made substantial profit for the year, the directors are concerned that the shareholders have not received any dividends. They are considering two options: option 1: paying the shareholders a dividend of $0.50 per share option 2: making a bonus issue of 1 ordinary share for every 2 shares held. REQUIRED Advise the directors on which option they should choose. Justify your answer.

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

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Moser has provided the following information about his non-current assets for the year ended 30 November 2018. Motor vehicles $ Cost at 1 December 2017 185 000 Accumulated depreciation at 1 December 2017 64 750 Purchased during the year 27 745 A motor vehicle was sold during the year for $12 450. It had originally cost $18 500 and had a net book value of $13 875. The motor vehicles depreciation policy is as follows: Motor vehicles are depreciated at a rate of 25% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase and no depreciation is charged in the year of disposal. REQUIRED State how a disposal of a non-current asset would affect the income statement and the statement of financial position. Calculations are not required. Income statement Statement of financial position Prepare the non-current assets section of Moser’s statement of financial position at 30 November 2018. Cost $ Accumulated depreciation $ Net book value $ Workings: Explain why the reducing balance method of depreciation is more appropriate than the straight-line method for assets such as computer equipment. Explain why the revaluation method of depreciation is appropriate for assets such as loose tools.

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

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Maria is a sole trader. Her financial statements for the year ended 31 December 2018 included the following: $ Revenue 163 000 Gross profit 42 700 Profit for the year 16 500 Inventory 1 January 2018 17 800 Inventory 31 December 2018 19 600 Trade receivables 15 900 Cash and cash equivalents 2 700 Trade payables 10 700 Capital 130 000 REQUIRED Calculate the following ratios to two decimal places: gross margin profit margin rate of inventory turnover (in times) current ratio liquid (acid test) ratio return on capital employed (ROCE). Additional information Maria’s ratios for 2017 were as follows: Gross margin 23.63% Profit margin 12.05% Rate of inventory turnover 7.36 times Current ratio 3.85 : 1 Liquid (acid test) ratio 2.04 : 1 ROCE 14.65% REQUIRED Suggest possible reasons for the changes in Maria’s business between 2017 and 2018 in respect of: profitability liquidity. Identify two external stakeholders. Explain why they may be interested in the financial statements of a business. Stakeholder 1 Interest Stakeholder 2 Interest

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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D Limited manufactures a single product. The company has two production departments: machining and finishing. There are two service departments: stores and maintenance. The accountant has allocated and apportioned total factory overheads to the four departments. REQUIRED Explain the difference between allocation and apportionment of overheads. Additional information The directors of D Limited have provided the following information: Machining Finishing Stores Maintenance Issues from stores 60% 30% - 10% Maintenance 75% 25% - – Budgeted direct labour hours 22 000 52 000 - – Budgeted machine hours 84 000 12 000 - – REQUIRED Re-apportion the service departments’ costs to the production departments. Machining $ Finishing $ Stores $ Maintenance $ Total apportioned overheads 177 255 101 150 26 585 33 010 Re-apportionment of stores Subtotal Re-apportionment of maintenance Total Calculate a suitable overhead absorption rate to two decimal places for each production department. Explain why a business calculates separate overhead absorption rates for each production department rather than a single rate for the whole factory. Additional information The company accountant has been asked to provide a quotation for a customer who requires 200 units of the company’s product. The directors wish to quote a selling price which will achieve a 25% gross margin. Budgeted cost per unit of product Direct material $16.00 Direct labour hours Machining 10 minutes at $9.60 per hour Finishing 45 minutes at $10.80 per hour Machine hours Machining 90 minutes Finishing 20 minutes REQUIRED Prepare a statement to show the quoted selling price of one unit of the product. Calculate the total amount the company would receive if the customer accepted the quoted price and then took a cash discount of 7 ½ %. Additional information Although the business is successful and expanding, the directors feel that the four departments do not always appear to be working well together. The directors are planning to introduce a system of budgetary control which would initially reduce annual profits by 5%. REQUIRED Advise the directors whether or not they should proceed with their plans. Justify your answer.

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

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