9706_w20_qp_21 - revisedeck

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Ismail opened a retail business on 1 January 2019 with the following assets and liabilities. $ Bank 7 500 Debit Non-current assets 18 500 Bank loan (repayable 2022) 4 200 Ismail prepared a draft income statement for the year ended 31 December 2019. However, this contained errors. Draft income statement for the year ended 31 December 2019 $ $ Revenue 274 500 Cost of sales (182 360) 92 140 Add discounts received Gross profit 92 960 Add bank loan 4 200 97 160 Less expenses Carriage inwards 1 020 Drawings 18 740 General expenses 22 280 Insurance 1 730 Rent 20 250 Loan interest (64 230) Profit for the year 32 930 The following had not been accounted for. Ismail had taken goods for his own use. These goods cost $420 and had a selling price of $630. Carriage inwards included capital expenditure of $400 on non-current assets which had been paid on 18 January 2019. Depreciation on all non-current assets is to be provided at 20% per annum on cost. A full year’s depreciation is charged in the year of purchase. The amount shown for insurance included $720 for the six-month period ending 30 April 2020. At 31 December 2019 trade receivables totalled $14 800. A customer who owed $600 had been declared bankrupt. Ismail decided to write off this account. He also decided to create a provision for doubtful debts of 5% of trade receivables at the year end. Interest on the bank loan is charged at 10% per annum. REQUIRED Prepare the corrected income statement for the year ended 31 December 2019. Ismail Income statement for the year ended 31 December 2019 Workings: Calculate the balance on Ismail’s capital account at 31 December 2019. Additional information Ismail would like to expand his business. He will need additional finance of $25 000. He is considering two options to raise this amount: option 1: apply for a bank loan option 2: form a partnership with Seema, a friend. Seema would expect profits and losses to be shared equally. REQUIRED Advise Ismail which of these options he should choose. Justify your answer. Additional information Ismail sees benefits in keeping a full set of accounting records. REQUIRED State four benefits to a business of keeping a full set of accounting records.

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

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

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

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Noor, a sole trader, prepares bank reconciliation statements at the end of each month. REQUIRED State four benefits to a business of preparing a bank reconciliation statement. State two differences between a bank standing order and a direct debit. Additional information On 31 October 2019 Noor received the following bank statement for her business account. Date Details Dr Cr Balance $ $ $ 1 Oct Balance b/d 292.22 Cr 3 Oct Credit 927.40 1 219.62 Cr 6 Oct Direct debit: P Ltd 334.80 884.82 Cr 7 Oct Cheque 626344 118.48 766.34 Cr 9 Oct Cheque 626346 723.21 43.13 Cr 18 Oct Credit transfer: Tahir 184.95 228.08 Cr 21 Oct Bank charges 59.60 168.48 Cr 22 Oct Direct debit: Ayesha 172.80 4.32 Dr 24 Oct Credit 841.67 837.35 Cr 27 Oct Cheque 626347 1 206.22 368.87 Dr 29 Oct Credit transfer: H Ltd 229.48 139.39 Dr Noor’s cash book (bank columns) for October 2019 was as follows. Cash Book (bank columns) $ $ Oct Oct Z Ltd (cheque 626344) 118.48 Balance b/d 292.22 J Ltd (cheque 626345) 276.93 Sales 927.40 Ayan (cheque 626346) 723.21 Tahir (credit transfer) 184.95 P Ltd (direct debit) 334.80 Sales 841.67 Huma (cheque 626347) 1206.22 Sales 773.25 Usman (cheque 626348) 985.33 Balance c/d 625.48 3644.97 3644.97 Nov 1 Balance b/d 625.48 REQUIRED Prepare Noor’s updated cash book. Cash Book (bank columns) $ $ Balance b/d 625.48 Prepare a bank reconciliation statement at 31 October 2019. Start with the balance per the bank statement. Bank reconciliation statement at 31 October 2019 $ Balance per bank statement

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

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M Limited was formed five years ago. On 1 January 2019 the company’s statement of financial position included the following details. $000 Equity Share capital – ordinary shares of $0.25 each Share premium Retained earnings On 1 July 2019 shareholders were paid a dividend of $0.05 per share. REQUIRED Calculate the total dividend paid. Additional information On 1 September 2019 the directors made a rights issue of two ordinary shares for every three shares held at a price of $0.40 per share. The issue was fully subscribed. REQUIRED Describe one way in which a shareholder can benefit from taking up a rights issue. Calculate the amount raised by the rights issue. Additional information The company made a profit for the year ended 31 December 2019 of $324 000. REQUIRED Prepare the statement of changes in equity for the year ended 31 December 2019. M Limited Statement of changes in equity for the year ended 31 December 2019 Share capital $000 Share premium $000 Retained earnings $000 Total $000 Describe two factors directors should take into account when deciding on a dividend to be paid to the shareholders.

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

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Y Limited is a furniture manufacturer. One of the company’s factories operates a system of absorption costing. REQUIRED State two limitations of absorption costing. Additional information The factory makes kitchen tables. There are two production departments: cutting and assembly. The following forecast information is available for the year: Cutting department Assembly department Overheads $68 400 $49 200 Total labour hours 13 720 15 820 Total machine hours 24 810 7 290 REQUIRED Calculate, to two decimal places, appropriate overhead absorption rates for each department. Cutting department Assembly department Additional information Each kitchen table requires the following. Materials 4.2 kg at $4.90 per kg Labour hours: cutting department assembly department 3.8 hours 2.2 hours Machine hours: cutting department assembly department 2.1 hours 1.3 hours All direct labour is paid at the rate of $10.50 per hour. The selling price of a table is calculated to achieve a gross margin of 40%. REQUIRED Calculate the selling price of a kitchen table. Additional information At the end of the year on 31 December 2019 it was discovered that overheads had been over absorbed. REQUIRED State two reasons why overheads may be over absorbed in a business. Additional information At another factory the company manufactures bookcases. The following information is available. Selling price per unit $55 Materials per unit $10 Direct labour per unit $21 Fixed costs per month $54 000 Factory capacity per month 3800 units Recently demand for the product has fallen due to increased competition and the target profit of $12 500 per month has not been met. The directors are considering the following options. Option A Reduce the selling price of each bookcase by $3 per unit. Introduce a sales commission of 5% of selling price. It is expected that demand will be 3800 units. Option B Change the design to improve quality resulting in an increase of 20% in the material cost per unit. Labour hours per unit will increase by 10%. The revised selling price of each bookcase will be $59. Start an advertising campaign at a cost of $24 000 per annum. It is expected that demand will be 3040 units. REQUIRED Calculate the forecast profit per month for: Option A Option B Recommend which option the directors should choose. Justify your answer.

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

4. Cost and management accounting (A Level) → 4.1. Activity based costing (ABC)

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