1.5. Preparation of financial statements
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
Listing 10 of 637 questions
Rafiq owns a retail business. When the business was opened a few years ago, Rafiq maintained only minimal accounting records. REQUIRED State two reasons why the owner of a business might maintain minimal accounting records. Identify four benefits of maintaining full accounting records. Additional information More recently Rafiq has been able to provide more detailed financial information. On 1 January 2021, the business’s assets and liabilities were as follows: $ Cash in hand Bank overdraft 1 390 Furniture and fittings at valuation 22 710 Trade payables 11 870 Inventory 14 430 Rent prepaid 1 250 The following summary of receipts and payments for the year ended 31 December 2021 has been prepared from the business’s bank statements. Receipts $ $ Cash sales banked 132 200 Disposal of furniture and fittings 3 480 Total receipts 135 680 Payments Drawings 18 390 Trade payables 93 100 Rent 14 750 Additional furniture and fittings 8 000 Installation costs for new fittings General expenses 5 940 Total payments 140 560 Rafiq purchases all goods for resale on a credit basis. All sales are on a cash basis. A cash discount of 5% was received when Rafiq settled debts with trade payables during the year ended 31 December 2021. At 31 December 2021 trade payables totalled $9230. REQUIRED Calculate the total purchases for the year ended 31 December 2021. Additional information During the year ended 31 December 2021: Some cash takings were not banked but were used to pay wages, $21 540, and drawings, $2580. Rafiq took goods costing $480 for private use. Furniture and fittings with a value of $2950 were sold. At 31 December 2021: Cash takings of $1200 had not yet been banked. The balance of cash in hand was $920. Inventory was valued at $11 920. Furniture and fittings were valued at $23 400. Rent of $1440 was prepaid. REQUIRED Prepare the income statement for the year ended 31 December 2021. Workings: Additional information Rafiq would like to expand his business but requires additional finance to carry out this plan. He is considering two options. Option 1: Invite a friend, Khaled, to become a partner in the business. Khaled would introduce capital of $10 000. Option 2: Apply for a bank loan of $10 000. REQUIRED Advise Rafiq which option he should choose. Justify your answer by discussing both financial and non-financial issues of each option.
9706_m22_qp_22
THEORY
2022
Paper 2, Variant 2
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Nibras and Raif are in partnership. They own a car hire business. The following balances were available at 31 December 2022. Debit Credit $ $ Allowance for irrecoverable debts Cash at bank 7 370 Capital accounts Nibras 180 000 Raif 120 000 Current accounts Nibras 5 950 Raif 4 760 Drawings Nibras 19 200 Raif 12 140 Insurance 15 400 Interest on loan from Raif Loan from Raif 9 000 Motor vehicle expenses 12 420 Motor vehicles Cost 144 000 Provision for depreciation 1 January 2022 33 200 Premises Cost 220 000 Provision for depreciation 1 January 2022 44 000 Rent receivable 6 050 Repairs and maintenance 8 270 Revenue from car hire 88 300 Trade receivables 21 730 Wages and salaries 18 460 Totals 485 690 485 690 The following additional information is available. Interest at 10% per annum on the loan from Raif is accrued for the last two months of the year. Insurance payments covered the period 1 January 2022 to 28 February 2023. Monthly insurance costs have remained unchanged during this period. The partners have agreed that the allowance for irrecoverable debts is no longer required. Rent receivable by the partnership is $550 per month. Part of the premises have been rented for the full year. Motor vehicles are to be depreciated at 25% per annum using the reducing balance method. Premises are to be depreciated by 2% per annum using the straight-line method. REQUIRED Prepare the statement of profit or loss for the year ended 31 December 2022. Use the space on page 4 to show your workings. Nibras and Raif Statement of profit or loss for the year ended 31 December 2022 $ $ Additional information Nibras and Raif agreed the following terms for the appropriation of profits and losses. Interest on capital to be 10% per annum. Nibras to receive a partnership salary of $6000 per annum. Remaining profits and losses to be shared in the ratio Nibras:Raif, 3:2. REQUIRED Prepare the appropriation account for the year ended 31 December 2022. Nibras and Raif Appropriation account for the year ended 31 December 2022 Additional information The partners would like to know what difference it would have made if they had operated without a partnership agreement during the year ended 31 December 2022. REQUIRED Calculate by how much Nibras’ current account balance at 31 December 2022 would have been different if there had been no partnership agreement during the year ended 31 December 2022. Additional information The partners had considered charging interest on drawings as part of their agreement. REQUIRED State one reason for including interest on drawings in a partnership agreement. State the double entry for recording interest on drawings. Debit Credit Additional information Nibras and Raif would like to expand their business but they require additional finance. They have considered two options: Option 1: Nibras to introduce additional capital by selling some personal investments Option 2: Arrange a bank loan REQUIRED Advise the partners which option they should choose. Justify your answer by discussing both options.
9706_m23_qp_22
THEORY
2023
Paper 2, Variant 2
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Examiner's Use After completion of the Trading Account, the following balances were extracted from the books of Peter Jordan plc on 30 April 2006. $ Authorised and issued share capital Ordinary shares of $1 each fully paid 1 500 000 7 % Preference shares of $1 each fully paid 200 000 Premises 2 300 000 Motor vehicles 500 000 Fixtures and fittings 170 000 Provision for depreciation on motor vehicles 375 000 Provision for depreciation on fixtures and fittings 102 000 Gross profit 1 620 000 Stock 204 000 Office expenses 460 000 Selling and distribution expenses 486 000 6 % debentures – 2011 (issued in 2001) 100 000 Debenture interest paid 3 000 Profit on sale of motor vehicle 2 000 Profit and loss account balance – 1 May 2005 143 600 Cr Debtors 132 000 Creditors 116 000 Bank 26 800 Cr Cash Share premium 150 000 Interim dividend paid – ordinary shares 75 000 preference shares 8 000 Provision for doubtful debts 3 000 Additional information at 30 April 2006: Office expenses prepaid $8000 Selling and distribution expenses accrued $23 000 Provision for doubtful debts to be maintained at 2 % of debtors Depreciation to be provided as follows: Motor vehicles 50 % per annum reducing balance Fixtures and fittings 20 % per annum on cost The following are proposed: Final dividend of $0.10 per share to be paid to ordinary shareholders Remaining dividend due is to be paid to preference shareholders. For Examiner's Use REQUIRED Prepare Peter Jordan plc’s Profit and Loss and Appropriation Account for the year ended 30 April 2006. For Examiner's Use Prepare Peter Jordan plc’s Balance Sheet at 30 April 2006. For Examiner's Use Calculate the current ratio at 30 April 2006 to two decimal places. Calculate the acid test ratio at 30 April 2006 to two decimal places. Explain the uses of these two ratios, using Peter Jordan plc as an example.
9706_s06_qp_2
THEORY
2006
Paper 2, Variant 0
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The following is the draft balance sheet of Marshall Klingsman, a sole trader, at 30 April 2011. Balance Sheet at 30 April 2011 $ $ $ Non-current assets Buildings at valuation 300 000 Equipment at book value 540 000 Motor vehicles at book value 330 000 1 170 000 Current assets Inventories 70 000 Trade receivables 19 000 Other receivables 2 000 Cash and cash equivalents 4 000 95 000 Current liabilities Trade payables 57 000 Other payables 3 000 60 000 Net current assets 35 000 1 205 000 Non-current liabilities Loan 200 000 Net assets 1 005 000 Financed by: Capital at start 1 000 000 Add Profit for the year (net profit) 80 000 1 080 000 Less Drawings 75 000 Capital at end 1 005 000 Additional information: After preparation of the draft balance sheet the following errors were found. Goods in inventory at 30 April 2011, valued at cost $15 000, were found to be damaged. The estimated net realisable value is $8 000. Loan interest of 4% per annum had been omitted from the accounts. No provision for depreciation on equipment had been made for the year. Depreciation should have been provided at 5% per annum using the reducing balance method. Motor vehicles are depreciated by 10% per annum. During the year vehicle repairs of $10 000 had been incorrectly debited to the motor vehicles account. On 28 April 2011 a credit customer, who owed $3600, was declared bankrupt. It was decided to write off this amount in full. No record of this has been made in the accounts. REQUIRED Prepare a statement to show the corrected profit for the year (net profit) ended 30 April 2011. Prepare the corrected balance sheet at 30 April 2011. Explain two differences between cost and net realisable value. Discuss the accounting treatment of the damaged inventory in item 1. Using your answers to and calculate the following ratios to two decimal places: current ratio liquid ratio (acid test). State four ways in which Klingsman could improve his working capital. Explain why the liquid ratio (acid test) is a more reliable indicator of liquidity than the current ratio.
9706_s11_qp_23
THEORY
2011
Paper 2, Variant 3
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Questions Discovered
637