1. Financial accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 1775 questions
Sofia has provided the following information relating to her trade receivables at 31 December 2018: Analysis of trade receivables 0-60 days 61-90 days Over 90 days Percentage of total trade receivables 68% 20% 12% At 31 December 2018 total trade receivables were $54 500. Dixie, who had been declared bankrupt, owed $1500. This debt was 110 days old at 31 December 2018 and was to be written off. Sofia’s policy is to make a provision for doubtful debts as follows: 5% for debts aged between 61 and 90 days old 7.5% for debts aged over 90 days old. The balance on the provision for doubtful debts at 1 January 2018 was $1100. REQUIRED State the journal entry to write off an irrecoverable debt. Calculate the amount of provision for doubtful debts at 31 December 2018. Prepare the provision for doubtful debts account for the year ended 31 December 2018. Dates are required. Explain one accounting concept which is applied when making a provision for doubtful debts. Additional information Sofia is considering changing the basis of the provision for doubtful debts to a general provision of 2.5% on all trade receivables. She has calculated her profit for the year ended 31 December 2018 as $4300 after writing off Dixie’s debt but before making any adjustment for the provision for doubtful debts. REQUIRED Describe how this change will affect Sofia’s profit. Support your answer with relevant calculations.
9706_s19_qp_22
THEORY
2019
Paper 2, Variant 2
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Daniel, a retailer, receives rent from a tenant. The balance on the rent receivable account on 1 January 2019 was $700. This represented rent received in advance at the beginning of the year. During the year ended 31 December 2019 Daniel received total rent of $4800 covering the 12-month period beginning 1 March 2019. REQUIRED Prepare the rent receivable account for the year ended 31 December 2019. Rent receivable account $ $ State in which section of the income statement for the year ended 31 December 2019 Daniel’s rent receivable should appear. State in which section of the statement of financial position at 31 December 2019 the balance of the rent receivable account should appear. Additional information Daniel had created a provision for doubtful debts of $672 on 31 December 2018. At this date trade receivables appeared on the statement on financial position with a net value of $16 128. At 31 December 2019 Daniel decided to maintain the provision for doubtful debts at the same rate as in the previous year. Total trade receivables at 31 December 2019 were $15 300 before making any adjustment for provision for doubtful debts. REQUIRED Calculate the increase or decrease in the provision for doubtful debts at 31 December 2019. State two accounting concepts which are applied when creating a provision for doubtful debts. State two factors that a business could consider when setting a rate for provision for doubtful debts.
9706_s20_qp_23
THEORY
2020
Paper 2, Variant 3
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N Limited is a trading business. Sales are made on the credit basis only. The following information was available at 31 December 2020. Debit $000 Credit $000 8% Debentures (2025) Administrative expenses Cash and cash equivalents Cost of sales Debenture interest Distribution costs Dividends paid Inventory at 31 December 2020 Issued capital: Ordinary shares of $0.25 each at 31 December 2020 Non-current assets Cost Provision for depreciation at 1 January 2020 Retained earnings at 1 January 2020 Revenue Share premium at 31 December 2020 Trade payables Trade receivables The following information is also available at 31 December 2020. Administrative expenses included insurance of $16 000 for four months ended 31 January 2021. Depreciation should be provided on non-current assets at 25% per annum using the reducing balance method. Depreciation charges should be allocated 20% to distribution costs and 80% to administrative expenses. The account of a credit customer, $3000, should be written off to administrative expenses as an irrecoverable debt. Debenture interest was outstanding for the second half of the year. The directors had issued additional debentures of $50 000 on 1 October 2020. REQUIRED Prepare the company’s income statement for the year ended 31 December 2020. N Limited Income statement for the year ended 31 December 2020 $000 Workings: Distribution costs Administrative expenses Finance costs Additional information On 1 July 2020 the directors had decided to make a rights issue of two ordinary shares for every three shares held at a price of $0.30 per share. The rights issue was fully subscribed. REQUIRED Explain two reasons why a company may make a rights issue of shares rather than an issue of debentures. Calculate the amount raised by the rights issue. Prepare a statement of changes in equity for the year ended 31 December 2020. N Limited Statement of changes in equity for the year ended 31 December 2020 Ordinary share capital $000 Share premium $000 Retained earnings $000 Total $000 Balance at 1 January 2020 Additional information The directors are concerned about the company’s credit control and wish to improve the company’s liquidity position. They are considering a proposal to offer a 5% cash discount to customers for settlement within 30 days on all invoices of more than $2000. REQUIRED Identify two ratios which can be used to assess the liquidity of a business. Advise the directors whether or not they should go ahead with this proposal. Justify your answer.
9706_s21_qp_22
THEORY
2021
Paper 2, Variant 2
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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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Questions Discovered
1775