1.5. Preparation of financial statements
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
Listing 10 of 637 questions
J Limited’s financial year ended on 30 September 2022. The following balances were available on this date. $ 8% Debentures (2025) 100 000 Administrative expenses 28 000 Distribution costs 57 000 Dividends paid 21 000 Finance costs 4 000 Inventory at 1 October 2021 54 000 Issued share capital: shares of $0.50 each at 1 October 2021 420 000 Non-current assets at 1 October 2021 Cost 1 300 000 Provision for depreciation 260 000 Purchases 460 000 Retained earnings at 1 October 2021 125 000 Revenue 869 000 Share premium at 1 October 2021 210 000 Trade receivables 83 000 The following additional information is available. Inventory at 30 September 2022 was valued at $57 000. The balance of the account of a credit customer, $3000, should be written off as irrecoverable and charged to administrative expenses. The directors have agreed to create an allowance for irrecoverable debts of 5% of trade receivables. The allowance should be charged to administrative expenses. Debenture interest for the second half of the year is outstanding. Non-current assets should be depreciated at 20% per annum using the straight-line method. Depreciation should be allocated as follows: Administrative expenses 60% Distribution costs 40% REQUIRED Prepare the statement of profit or loss for the year ended 30 September 2022. Use the space provided to show your workings. J Limited Statement of profit or loss for the year ended 30 September 2022 $ Workings: Administrative expenses Distribution costs Additional information The directors found that the following transaction had not been recorded in the books of account: On 30 September 2022 the directors had made a bonus issue of 2 ordinary shares for every 3 shares held. The directors had decided to maintain reserves in their most flexible form. REQUIRED Calculate the balance of retained earnings at 30 September 2022 following the bonus issue. State one reason why the directors of a company might decide to make a bonus issue. Explain one reason why trade payables and potential lenders might approve of a company making a bonus issue. Identify three points the directors should consider when deciding whether to pay a dividend. Additional information The directors of J Limited wish to improve the company’s liquidity. They will choose one of the following options. Option 1: allow trade receivables a cash discount of 5% for payment within 20 days. Option 2: make all purchases on credit from a different supplier who is prepared to offer a trade discount. REQUIRED Advise the directors which option they should choose. Justify your choice by discussing both options.
9706_s23_qp_22
THEORY
2023
Paper 2, Variant 2
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The draft profit for a business was $64 000 before the following information was taken into account. • An allowance for irrecoverable debts was maintained at 2% of trade receivables. The total of trade receivables was $150 000 at the beginning of the period and $220 000 at the end of the period. • On the last day of the period $4000 was recovered from a trade receivable that had been written off as irrecoverable. D $66 600 C $63 600 What is the revised profit for the period?
9706_s24_qp_12
MCQ
2024
Paper 1, Variant 2
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J Limited’s financial year ended on 31 December 2023. At this date the following balances remained in the books of account from which the statement of financial position is to be prepared. $ 8% Debentures (2024) 90 000 Cash and cash equivalents (debit balance) 28 900 Furniture and equipment at carrying value 180 000 Inventory 84 000 Issued share capital: shares of $0.50 each 750 000 Property at valuation 1 060 000 Retained earnings 242 400 Revaluation reserve 70 000 Share premium 220 000 Trade and other payables 19 700 Trade and other receivables 39 200 The following errors have been discovered in the information shown. Inventory at 31 December 2023 had been undervalued by $3600. Furniture and equipment had been depreciated by 25% instead of 20%, using the reducing balance method of depreciation. Sales returns of $1100 had been recorded in the books of prime entry as purchases returns. The error affected the general ledger and the personal accounts of credit customers and credit suppliers. Calculate the corrected balance of retained earnings at 31 December 2023. Prepare the statement of financial position at 31 December 2023. J Limited Statement of financial position at 31 December 2023
9706_s24_qp_22
THEORY
2024
Paper 2, Variant 2
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Usman began selling goods on credit on 1 January 2021. He maintains an allowance for irrecoverable debts at each financial year end. Explain two accounting concepts which are applied when making an allowance for irrecoverable debts. State two factors which should be considered when deciding the percentage that should be used for an allowance for irrecoverable debts. Additional information The following information is available about total trade receivables at the financial years ended 31 December: $ 18 200 17 300 19 600 The allowance for irrecoverable debts has been maintained at 4% each year. Prepare the allowance for irrecoverable debts account for the years 2022 and 2023. Allowance for irrecoverable debts account $ $ Additional information On 5 January 2024 it was decided to write off $3470 as irrecoverable, being the balance on the account of a credit customer, T Limited. However, on 29 March 2024 a cheque was received in full settlement of the amount owed by T Limited. State the double-entry necessary to record the following transactions: Writing off the account on 5 January 2024 The settlement of the amount due on 29 March 2024 ,  ,
9706_s24_qp_23
THEORY
2024
Paper 2, Variant 3
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Questions Discovered
637