3.1. Preparation of financial statements
A subsection of Accounting, 9706, through 3. Financial accounting (A Level)
Listing 10 of 678 questions
The following is the draft statement of financial position of George Grosz, a sole trader, at 30 June 2012. Statement of Financial Position at 30 June 2012 $ $ $ Non-current assets Buildings at valuation 108 000 Equipment at net book value 7 000 Motor vehicles at net book value 35 000 150 000 Current assets Inventory 21 000 Trade receivables 18 000 Cash and cash equivalents 8 000 Other receivables 13 000 60 000 Current liabilities Trade payables 42 000 18 000 168 000 Non-current liabilities Loan 50 000 118 000 Capital at 1 July 2011 90 000 Add Draft profit for the year 30 000 120 000 Less Drawings 2 000 118 000 Additional information: Provision for depreciation on motor vehicles for the year ended 30 June 2012 had not yet been charged. Depreciation is charged at 10% on the net book value at the year end. Items included in inventory and valued at their cost price of $9500 were damaged and had an estimated net realisable value of $2000. A purchase invoice for goods valued at $2000 had been omitted from the books. Sales invoices for goods valued at $4000 had been omitted from the books. The loan was received at 1 March 2012. Loan interest of 6% due at the year end had not yet been paid. For Examiner's Use REQUIRED Prepare a statement to show the corrected profit for the year ended 30 June 2012. Calculate Grosz’s capital at 30 June 2012. For Examiner's Use Grosz decided to form a partnership with Omar Kayal with effect from 1 July 2012, sharing the profits and losses in the ratio of 3:2 respectively. Goodwill was to be valued at double the amount of the corrected profit for the year. Kayal was to contribute cash of $30 000, inventory of $24 000 and equipment of $60 000. State two reasons why goodwill has arisen. Prepare the capital accounts of Grosz and Kayal immediately after the formation of the partnership. For Examiner's Use The following conditions were included in the partnership agreement: A partnership salary of $10 500 is payable to Kayal. Maximum drawings permitted each year – Grosz $20 000; Kayal $10 000. Interest is to be charged on drawings at 10% per annum. Interest on capital is payable at the rate of 5% per annum. The first 40% of any residual profits is to be shared equally and transferred to the partners’ capital accounts. In the first year of the partnership the profit for the year was $88 600. Grosz and Kayal both withdrew the maximum amount allowable during the year. REQUIRED Prepare the appropriation account for the year ended 30 June 2013.
9706_s13_qp_22
THEORY
2013
Paper 2, Variant 2
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SMC Limited is a wholesale business. An extract from their statement of financial position at 31 December 2012 showed: Non-current Assets $ $ $ Fittings and fixtures 240 000 96 000 144 000 Equipment 60 000 18 000 42 000 SMC Ltd has a policy to depreciate fittings and fixtures at 20% per annum on cost (straight line method) and equipment at 10% per annum on cost. Depreciation is charged for each month of ownership. No allowance is made for any residual value. All fittings and fixtures held by the company at the end of the financial year had been purchased within the previous four years. All equipment had been purchased within the previous seven years. During the year ended 31 December 2013 the following transactions took place: Purchases 1 January 2013 fittings and fixtures $16 000, purchased on credit from Walker. 1 July 2013 equipment $14 000, purchased on credit from Arcadia Limited. Disposals 31 March 2013 equipment (original cost $8 000, bought on 1 January 2010) was sold for $6 000. Disposal proceeds were received in full by cheque. REQUIRED Prepare journal entries to record the following (narratives are not required). The purchase of the equipment. Account Debit $ Credit $ The depreciation charge for fittings and fixtures for the year ended 31 December 2013. Account Debit $ Credit $ The depreciation charge for equipment for the year ended 31 December 2013. Account Debit $ Credit $ The disposal of equipment. Account Debit $ Credit $ Explain the purposes of the journal. State two examples of transactions which would be recorded in the journal, other than the purchase of non-current assets on credit. Additional information SMC is considering changing the depreciation method for equipment to reducing balance method. REQUIRED State an accounting concept which is applied when depreciation is provided. Explain the possible reasons why the business is considering this change. [Total 30]
9706_s14_qp_22
THEORY
2014
Paper 2, Variant 2
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Kim, a sole trader, provided the following statement. Statement of financial position at 30 September 2014 $ Non-current assets Motor vehicles 100 000 Equipment 80 000 Fixtures and fittings 172 000 352 000 Current assets Inventory 105 000 Trade receivables 343 000 448 000 Total assets 800 000 Capital and liabilities Opening capital 600 000 Add profit for the year 80 000 680 000 Less Drawings 88 000 592 000 Current liabilities Trade payables 192 000 Bank overdraft 16 000 208 000 Total capital and liabilities 800 000 Additional information On 1 October 2014 Kim admitted Chan as a partner. Goodwill was valued at $120 000 but will not remain in the books of the partnership. The profit sharing ratio was agreed at Kim 60% and Chan 40%. Chan agreed to pay a cheque of $160 000 to the partnership. In addition he introduced equipment valued at $325 000 and inventory valued at $26 000. REQUIRED Prepare the capital accounts of Kim and Chan at 1 October 2014. Prepare a statement of financial position for the partnership at 1 October 2014. State three advantages to Kim of forming a partnership. Additional information Kim has provided for doubtful debts at a rate of 2%. Chan would like to change the existing rate of the provision to 5%. REQUIRED Explain why this change might be necessary. Calculate the difference in the provision for doubtful debts if the existing rate had changed to 5%. State how this change would affect the partnership’s income statement and statement of financial position.
9706_s15_qp_22
THEORY
2015
Paper 2, Variant 2
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Wang and Yuan, who share profits and losses in the ratio 2 : 1, decided to dissolve their partnership. Their summarised statement of financial position at 30 September 2015 was as follows: $ Non-current assets Land and buildings 60 000 Motor vehicles 10 000 70 000 Current assets Inventory 14 000 Trade receivables 16 000 30 000 Total assets 100 000 Capital and liabilities Capital accounts Wang 40 000 Yuan 25 000 65 000 Current accounts Wang (10 000) Yuan 13 000 3 000 Current liabilities Trade payables 26 000 Bank 6 000 32 000 Total capital and liabilities 100 000 Additional information Land and buildings were sold for $70 000. Yuan took one vehicle at an agreed value of $3000 and the remaining vehicle was sold for $3500. Trade receivables realised $15 000. Trade payables were paid after taking a discount of $1500. The inventory was sold for $12 000. The expenses of dissolution were $1700. REQUIRED Prepare the partnership realisation account. Calculate the amount due to each partner when the bank account is closed on dissolution. State two reasons why a partner may have an overdrawn current account. State why partnerships maintain separate capital accounts for each partner. Rahel manufactures a single product X and wishes to know the break-even point. REQUIRED State what is meant by break-even point. Additional information The following budgeted information is available for product X. Selling price per unit $2.00 Contribution to sales ratio 62.5% Fixed costs $50 000 Production and sales 100 000 units REQUIRED Calculate the break-even point in units and $ revenue. in units in revenue Prepare a break-even chart for product X. Calculate the margin of safety. in units as a percentage Additional information Rahel is considering opening another factory to produce two new products: Y and Z. The following information is available. Y Z $ per unit $ per unit Direct material Direct labour ($5 per hour) Variable overhead 1.5 1.5 Selling price Forecast demand for April is 4000 units of Y and 6000 units of Z. REQUIRED Calculate the contribution per unit of each product Y and Z. Additional information During April, fixed costs are forecast to be $60 000. REQUIRED Calculate the forecast profit for the new factory for the month of April. Additional information During April, direct labour hours are expected to be limited to 10 000 hours. REQUIRED Calculate the revised profit taking into account the limited direct labour hours. Additional information Rahel has to meet the forecast demand in April as she has contracts with her customers. In order to achieve this she has two alternatives. Ask the workers to work overtime. Buy in the products from another supplier. REQUIRED Advise Rahel which option she should choose. Justify your answer. State one advantage and one disadvantage of marginal costing. Advantage Disadvantage
9706_s16_qp_21
THEORY
2016
Paper 2, Variant 1
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Colin, Darim and Emran are in partnership sharing profits and losses in the ratio 3 : 2 : 1. Their statement of financial position at 30 November 2015 was as follows: Additional information Darim retired on 1 December 2015. Colin and Emran continued in partnership sharing profits and losses in the ratio 2 : 1. Goodwill was valued at $48 000. It does not appear in the partnership’s financial statements. Darim took over one of the partnership motor vehicles at a net book value of $8000. The partners agreed to revalue some of the remaining assets as follows: $ Premises 180 000 Motor vehicles 25 000 Inventory 52 000 Trade receivables 46 000 Darim agreed to receive $50 000 as part of the amount owing to him on his retirement. The balance owing to him was to remain in the partnership as a loan to be repaid in 2018. $ Non-current assets (at net book value) Premises 135 000 Machinery 84 000 Motor vehicles 36 000 255 000 Current assets Inventory 56 000 Trade receivables 48 000 Bank 21 000 125 000 Total assets 380 000 Capital and liabilities Capital accounts Colin 120 000 Darim 80 000 Emran 40 000 240 000 Current accounts Colin 56 000 Darim 16 000 Emran 36 000 108 000 Current liabilities Trade payables 32 000 Total capital and liabilities 380 000 REQUIRED Prepare the revaluation account on Darim’s retirement on 1 December 2015. Revaluation account Additional information To help fund the payment to Darim on his retirement, Emran paid additional capital into the partnership bank account. After this payment had been made the balance on Emran’s capital account was $65 000. REQUIRED Prepare a statement to show how much cash Emran paid into the partnership bank account. State three advantages to a sole trader of forming a partnership. State three reasons why partnerships maintain separate capital accounts and current accounts for each partner.
9706_s16_qp_22
THEORY
2016
Paper 2, Variant 2
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Wang and Yuan, who share profits and losses in the ratio 2 : 1, decided to dissolve their partnership. Their summarised statement of financial position at 30 September 2015 was as follows: $ Non-current assets Land and buildings 60 000 Motor vehicles 10 000 70 000 Current assets Inventory 14 000 Trade receivables 16 000 30 000 Total assets 100 000 Capital and liabilities Capital accounts Wang 40 000 Yuan 25 000 65 000 Current accounts Wang (10 000) Yuan 13 000 3 000 Current liabilities Trade payables 26 000 Bank 6 000 32 000 Total capital and liabilities 100 000 Additional information Land and buildings were sold for $70 000. Yuan took one vehicle at an agreed value of $3000 and the remaining vehicle was sold for $3500. Trade receivables realised $15 000. Trade payables were paid after taking a discount of $1500. The inventory was sold for $12 000. The expenses of dissolution were $1700. REQUIRED Prepare the partnership realisation account. Calculate the amount due to each partner when the bank account is closed on dissolution. State two reasons why a partner may have an overdrawn current account. State why partnerships maintain separate capital accounts for each partner. Rahel manufactures a single product X and wishes to know the break-even point. REQUIRED State what is meant by break-even point. Additional information The following budgeted information is available for product X. Selling price per unit $2.00 Contribution to sales ratio 62.5% Fixed costs $50 000 Production and sales 100 000 units REQUIRED Calculate the break-even point in units and $ revenue. in units in revenue Prepare a break-even chart for product X. Calculate the margin of safety. in units as a percentage Additional information Rahel is considering opening another factory to produce two new products: Y and Z. The following information is available. Y Z $ per unit $ per unit Direct material Direct labour ($5 per hour) Variable overhead 1.5 1.5 Selling price Forecast demand for April is 4000 units of Y and 6000 units of Z. REQUIRED Calculate the contribution per unit of each product Y and Z. Additional information During April, fixed costs are forecast to be $60 000. REQUIRED Calculate the forecast profit for the new factory for the month of April. Additional information During April, direct labour hours are expected to be limited to 10 000 hours. REQUIRED Calculate the revised profit taking into account the limited direct labour hours. Additional information Rahel has to meet the forecast demand in April as she has contracts with her customers. In order to achieve this she has two alternatives. Ask the workers to work overtime. Buy in the products from another supplier. REQUIRED Advise Rahel which option she should choose. Justify your answer. State one advantage and one disadvantage of marginal costing. Advantage Disadvantage
9706_s16_qp_23
THEORY
2016
Paper 2, Variant 3
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