1.5. Preparation of financial statements
A subsection of Accounting, 9706, through 1. Financial accounting (AS Level)
Listing 10 of 637 questions
Klix Limited’s book-keeper prepared the following details about the firm’s outstanding trade receivables at 31 December 2010. Age of debt Trade Receivables $ Up to 30 days 16 800 31 to 60 days 12 600 61 to 90 days 7 100 Over 90 days 1 300 The following rates are applied for the estimation of doubtful debts. Age of debt % Up to 30 days 31 to 60 days 61 to 90 days Over 90 days A provision for doubtful debts account is maintained. This had a balance of $800 on 1 January 2010. The bad debts written off for the year ended 31 December 2009 amounted to $1420. Debbie, a customer who owed the company $700, has recently been declared bankrupt. This amount had been included in the details above as ‘outstanding for 61 to 90 days’. It has been decided to write off the debt immediately. On 2 October 2010, Harvey, a credit customer, ceased trading and Klix Limited received payment of $0.25 in the dollar in final settlement of the debt of $600. The remainder had been written off as a bad debt. Other bad debts written off during the year ended 31 December 2010 totalled $350. These had been taken into account when drawing up the list of trade receivables above. REQUIRED Calculate the amount which should be provided as a provision for doubtful debts at 31 December 2010. Show your workings. Prepare the following ledger accounts for the year ended 31 December 2010, showing the closing entry to the final accounts at the end of the year. Provision for doubtful debts account Bad debts account Harvey account Prepare an extract from the statement of financial position (balance sheet) at 31 December 2010 showing the net amount of trade receivables. Klix Limited’s directors are reviewing the existing policy for calculating the provision for doubtful debts. They are considering applying a 4% rate to all debts as the basis for calculation. REQUIRED Calculate the effect of this change on the provision for doubtful debts. Explain how this change would affect the company’s income statement and statement of financial position. Explain why this change might be necessary. State three factors that the directors should consider when creating a provision for doubtful debts. [Total 30]
9706_w11_qp_21
THEORY
2011
Paper 2, Variant 1
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Kirsty, a sole trader, prepared the following trial balance at 30 April 2011. $ $ Rent 4 000 General expenses 6 000 Insurance 3 300 Salaries 14 000 Electricity 2 000 Capital 44 000 Motor expenses 4 900 Bad debts Drawings 6 000 Trade receivables 6 200 Trade payables 3 800 Cash and cash equivalents 2 600 Inventory 3 600 10% Loan 15 000 Loan interest 1 250 Carriage outwards Commission received Ordinary goods purchased 56 000 Revenue 108 000 Purchases returns 2 500 Sales returns 4 800 Discounts allowed Discounts received Provision for doubtful debts Equipment 48 000 Provision for depreciation of equipment 14 400 Motor vehicles 36 000 Provision for depreciation of motor vehicles 10 800 200 150 200 150 The following information is also available: The closing inventory at 30 April 2011 was valued at $4200. Included in the general expenses is an item of equipment purchased during the year for $1200. This item has not yet been included in the equipment account. A cheque for $800 received from a credit customer has not yet been entered in the accounts. At 30 April 2011: loan interest owing amounted to $250 electricity owing was $380 insurance was prepaid by $460 During the year Kirsty had withdrawn, for her personal use, goods costing $1800. This has not been recorded in the accounts. Commission receivable of $150 was owing to Kirsty at 30 April 2011. The provision for doubtful debts is to be provided for a specific debt of $200, plus 2% of the remaining debtors. One half of the 10% loan is repayable during the year ending 30 April 2012, and the balance is repayable after that date. Depreciation is to be provided as follows: Equipment 10% per annum on cost. A full year’s depreciation is provided on all equipment held at 30 April 2011, regardless of the date of purchase. Motor vehicles 25% by the reducing balance method. There were no additions or disposals during the year. REQUIRED Prepare the income statement (trading and profit and loss account) for Kirsty for the year ended 30 April 2011. Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011. During May 2011 Kirsty purchased new machinery with the following pricing details. $ List price 60 000 10% trade discount 6 000 Delivery costs 1 000 Installation costs 2 000 The machinery maintenance costs are estimated to be $5000 per annum. Kirsty plans to keep the machinery for 5 years and then dispose of it for an estimated residual value of $4000. REQUIRED Calculate the cost figure which should be used as the basis for depreciation. Calculate the annual depreciation charge using the straight line method. Prepare the Disposal of Machinery Account if the machinery is sold for $12 000 at the end of four years.
9706_w11_qp_22
THEORY
2011
Paper 2, Variant 2
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On 31 March 2012 the following balances were extracted from the books of YCAT. $ Inventory – 1 April 2011 Raw materials 53 000 Work in progress 80 000 Finished goods 76 000 Raw materials purchased 800 000 Revenue 2 500 000 Direct wages 450 000 Carriage inwards on raw materials 6 000 Indirect wages 68 000 Returns outwards on raw materials 18 500 Trade receivables 83 000 Revenue returns 22 000 Rates and insurance 38 000 General factory overheads 93 000 Loan interest paid 5 000 Office salaries 80 000 General office expenses 100 000 Premises 600 000 Factory machinery at cost 220 000 Provision for depreciation of factory machinery 40 000 10% Long term loan 100 000 Provision for doubtful debts 3 800 . Additional information $ Inventory – 31 March 2012 Raw materials 47 000 Work in progress 92 000 Finished goods 68 000 The provision for doubtful debts is to be 5% of trade receivables. At 31 March 2012 rates and insurance owing amounted to $950. Rates and insurance are apportioned between the factory and general office in the ratio of 4:1 respectively. Depreciation is to be provided on premises at 5% per annum straight line. This is apportioned between the factory and general office in the ratio of 4:1 respectively. Depreciation on factory machinery is to be provided at 15% using the reducing balance method. For Examiner's Use REQUIRED Prepare the manufacturing account for the year ended 31 March 2012. For Examiner's Use Prepare the income statement for the year ended 31 March 2012. For Examiner's Use Define the prudence concept. State three examples of how this has been applied in the financial statements.
9706_w12_qp_23
THEORY
2012
Paper 2, Variant 3
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Questions Discovered
637