3.1. Preparation of financial statements
A subsection of Accounting, 9706, through 3. Financial accounting (A Level)
Listing 10 of 678 questions
Ashir, Bo and Chan are in partnership. The partnership agreement includes the following terms: Profits and losses are shared in the ratio of the partners’ capital accounts. Interest on capital is 6% per annum. Interest on drawings is 5% calculated on each partner’s total annual drawings. Partners’ loan interest is 12% per annum. Chan receives a salary of $1000 per month. The following information is available at 31 December 2016: $ Capital accounts Ashir 40 000 Bo 30 000 Chan 10 000 Current accounts Ashir 12 300 Bo 8 200 Chan 2 600 debit Drawings Ashir 15 400 Bo 12 200 Chan 16 400 Fixtures and fittings Cost 32 400 Provision for depreciation 21 400 Motor vehicles Cost 80 000 Provision for depreciation 48 000 Loan account  Ashir 10 000 Gross profit 171 620 Operating expenses 54 960 Staff wages 32 500 Additional information Operating expenses include a payment of $600 for insurance covering the 12-month period to 31 August 2017. Staff wages owing at 31 December 2016 were $860. Depreciation is to be charged as follows: Fixtures and fittings 10% per annum using the reducing balance method Motor vehicles 20% per annum using the straight-line method REQUIRED Prepare the income statement for the partnership for the year ended 31 December 2016. Start with the given gross profit of $171 620. Prepare the profit and loss appropriation account for the partnership for the year ended 31 December 2016. Prepare the partners’ current accounts for the year ended 31 December 2016 on the next page. Additional information On 1 January 2017, Chan decided that he wished to retire with immediate effect. The partners agreed that as part of his settlement, he could keep one of the motor vehicles at the net book value of $18 000. At that date it was agreed that the total value of goodwill was $124 000. REQUIRED Prepare a statement to calculate the bank settlement due to, or from, Chan on his retirement. Additional information Following Chan’s retirement, Ashir and Bo are considering converting their business to a limited company to continue the business. REQUIRED State two advantages to a partnership of converting to a limited company. Additional information Ashir’s brother Bilal, a sole trader with three employees, has been running his business for four years. Turnover has doubled over the past year and the business is gradually becoming very profitable. Bilal does not maintain a full set of accounting records, but his friend has recommended that he should. REQUIRED Advise Bilal whether or not he should maintain a full set of accounting records. Give reasons for your answer. State two reasons for maintaining a sales ledger control account.
9706_s18_qp_21
THEORY
2018
Paper 2, Variant 1
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Carlos and Erika have been in partnership for several years and prepare their financial statements to 31 July. At 1 August 2016 the following information related to non-current assets was available. $ Plant and machinery Cost 65 000 Provision for depreciation 5 000 Motor vehicles Cost 18 000 Provision for depreciation 3 600 During the year ended 31 July 2017 the following took place. On 1 November 2016, the partnership purchased a new machine for $7500. On 1 December 2016 a machine was sold for $6800. The machine had been purchased for $10 000 on 1 May 2015. On 1 February 2017 a new motor vehicle was purchased for $14 000. The accounting policies in respect of depreciation are: Plant and machinery is depreciated using the straight-line method at 10% per annum. Motor vehicles are depreciated using the reducing balance method at 20% per annum. A full year’s depreciation is charged in the year of purchase and none in the year of disposal. No adjustments have yet been made for depreciation or disposal of the machine. The profit for the year ended 31 July 2017 before any adjustments was $37 490. REQUIRED Calculate the revised profit before appropriation for the year ended 31 July 2017. Workings: REQUIRED Prepare the partnership appropriation account for the year ended 31 July 2017. Carlos and Erika Appropriation account for the year ended 31 July 2017 Additional information On 31 July 2016 the balances on the partners’ current accounts were: $ Carlos 1 300 credit Erika 250 debit REQUIRED Prepare the current accounts for the year ended 31 July 2017. Carlos and Erika Current accounts Carlos Erika Carlos Erika $ $ $ $ Additional information The following information is also available: Credit sales 31 July 2017 $ 385 000 31 July 2016 $ 327 500 Credit purchases 172 000 153 000 Inventory 6 535 10 800 Bank overdraft 16 100 1 200 Other receivables Other payables Trade receivables collection period 46 days 31 days Trade payables payment period 36 days 39 days REQUIRED Calculate the following at 31 July 2017: Trade receivables Trade payables Assess the working capital position of the partnership at 31 July 2017. Advise the partners of three ways in which they could improve the cash position of the business. Additional information Carlos and Erika are considering converting the partnership into a limited company. REQUIRED Advise the partners whether or not they should take this course of action. Justify your answer.
9706_s18_qp_23
THEORY
2018
Paper 2, Variant 3
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X, Y and Z were in partnership sharing profits and losses in the ratio 5 : 3 : 2 respectively. The capital account balances before any adjustments were $40 000, $30 000 and $20 000 respectively. Z retired from the partnership. X and Y continued in partnership, sharing the profits and losses in the ratio 3 : 2 respectively. Net assets were to be revalued upwards by $10 000. What was the capital account balance for partner X following Z’s retirement?
9706_s19_qp_13
MCQ
2019
Paper 1, Variant 3
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