9706_w21_qp_23 - revisedeck

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The following information has been extracted from the accounting records of T Limited at 30 June 2021. Inventory at 1 July 2020 was valued at $46 800. Inventory at 30 June 2021 was valued at $54 200. The rate of inventory turnover was 8.8 times. The gross profit margin was 45%. REQUIRED Calculate for the year ended 30 June 2021: cost of sales revenue. REQUIRED Calculate the balance of the provision for doubtful debts at 30 June 2021. Prepare the income statement for the year ended 30 June 2021. Use the space on the next page for your workings. T Limited Income Statement for the year ended 30 June 2021 $ Revenue Cost of sales Gross profit Administrative expenses Distribution costs Profit from operations Finance costs Profit for the year Additional information The following transactions had also taken place during the year ended 30 June 2021. Date Transaction 1 July 2020 Freehold property was revalued downwards by $10 000. 1 July 2020 Made a rights issue of one ordinary share of $2 each for every two shares held. This was offered at a premium of $0.75. The issue was fully subscribed. 1 March 2021 Made a bonus issue of one ordinary share of $2 each for every ten shares held. Reserves were left in the most flexible form. 31 March 2021 Paid a dividend of $0.05 per share on all shares in issue at that date. REQUIRED Prepare the statement of changes in equity for the year ended 30 June 2021. T Limited Statement of Changes in Equity for the year ended 30 June 2021 Ordinary share capital $ Share premium $ Revaluation reserve $ Retained earnings $ Total $ At 1 July 2020 440 000 – 86 320 533 820 At 30 June 2021 Additional information The directors make use of accounting ratios to interpret the information contained within the financial statements. REQUIRED State the formula for calculating the non-current asset turnover. State what information the directors would obtain from calculating the non-current asset turnover. State three limitations of ratio analysis when comparing the performance of businesses in the same industry.

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

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

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Abbie, Ben and Cain have been in partnership for many years sharing profits and losses in the ratio 3 : 2 : 1. The partnership’s draft statement of financial position at 30 June 2021 is shown below. Abbie, Ben and Cain Statement of financial position at 30 June 2021 $ Non-current assets Property 65 000 Motor vehicles 52 000 117 000 Current assets Inventory 18 200 Trade receivables 13 700 Bank 32 700 Total assets 149 700 Capital and liabilities Capital accounts Abbie 60 000 Ben 40 000 Cain 20 000 120 000 Current accounts Abbie 18 520 Ben (3 250) Cain 6 230 21 500 Current liabilities Trade payables 8 200 Total capital and liabilities 149 700 Ben retired from the partnership on 30 June 2021 and the following was agreed. Ben should retain one of the motor vehicles at the net book value $14 500. The remaining motor vehicles should be revalued at $33 000. Property should be revalued at $77 000. Inventory should be revalued at $17 000. The value of goodwill was $39 000 and it was not to be retained in the books of account. Any amounts due to Ben were to be transferred to a short-term loan to be repaid from the partnership bank account within one month. Abbie and Cain decided to continue in partnership sharing profits and losses in the ratio 3 : 2. Cain agreed to pay sufficient funds into the partnership bank account so that the partners’ capital account balances reflected the new profit-sharing ratio. REQUIRED State one reason why a partnership may revalue assets on the retirement of a partner. Prepare the revaluation account at 30 June 2021. Revaluation Account $ $ Prepare the partners’ capital accounts at 30 June 2021 on the next page. Additional information Ben has indicated that he may be willing to leave $10 000 as an interest-free loan, but he requires any other amount due to be paid within one month. In order to maintain sufficient working capital, Abbie and Cain are considering two options to finance the settlement due to Ben. Option 1: Request an overdraft facility from the bank. Option 2: Ask Ben to consider leaving the whole amount due as a 5% loan repayable over ten years in equal annual instalments. REQUIRED Advise Abbie and Cain which option they should choose to finance the amount due to Ben.

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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Petra owns a small manufacturing business. Her depreciation policy is as follows: Non-current asset Depreciation policy Plant and machinery 20% per annum reducing balance method A full year’s depreciation is charged in the year of purchase but none in the year of sale. The following information in respect of plant and machinery has been extracted from the books of account for the year ended 31 July 2021. Date Details 1 August 2020 Cost, $26 800; Provision for Depreciation, $12 200. 1 January 2021 Purchased new machinery, cost $4200. This was settled by a cheque payment of $2450 and part exchange of machinery that had originally cost $2500 in September 2018. 31 July 2021 Machinery with an original cost of $850 and a net book value of $60 was scrapped with no proceeds. REQUIRED Prepare the provision for depreciation account for plant and machinery for the year ended 31 July 2021. Provision for Depreciation – Plant and Machinery Date Details $ Date Details $ Aug 1 Balance b/d 12 200 Workings: Prepare the disposal account for the year ended 31 July 2021. Disposal Account Date Details $ Date Details $ Discuss the reasons why a business may choose to depreciate plant and machinery using the reducing balance method.

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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EMM is a manufacturing business producing one product, a wooden desk. The business is contracted to supply 220 desks each week to H Co, a large retailer, at a selling price of $44 per unit. The costs incurred by EMM are as follows: $ Direct material 36.00 per unit Production labour Salaries Bonus 410.00 per week 0.50 per unit Finishing labour Salaries Bonus 180.00 per week 0.30 per unit Machine hire 120.00 per week Administration costs 400.00 per week Rent and rates 240.00 per week REQUIRED Calculate the weekly break-even point in units. Define the term ‘margin of safety’. Explain the usefulness of the margin of safety to a business. Prepare a weekly profit statement using marginal cost principles. Additional information EMM is concerned about future prospects. It has spare direct labour capacity and the machinery is not being fully utilised. EMM has been approached by K Limited, a large furniture company, requesting a quotation to supply 80 desks each week. K Limited would require a small design change to the desks, and this would add $5.40 to the direct material cost. Workers on these desks would receive an additional finishing labour bonus of $0.20 per unit. REQUIRED Calculate the selling price per unit that EMM should quote to K Limited in order to achieve a 20% contribution to sales ratio. Additional information It has been decided to quote a price of $48 per unit to K Limited. This work would involve employing extra finishing labour at a weekly salary of $120 and hiring an additional machine at $30 per week. The contract with H Co to produce 220 desks each week would still be continued at a price of $44 per unit. EMM has decided to set an annual target profit of $17 000. REQUIRED Prepare a profit statement for EMM to show the total weekly contribution and total weekly profit if K Limited accepts the quotation. Additional information K Limited have advised EMM that they will only proceed with the order if they are given 5% settlement discount for paying the account within seven days. REQUIRED Calculate the total weekly profit of EMM if EMM agrees to giving the settlement discount. Advise EMM whether or not the terms proposed by K Limited should be accepted. Justify your answer using both financial and non-financial factors. State two advantages of cost–volume–profit analysis to management. State three limitations of cost–volume–profit analysis.

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

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