3.1. Preparation of financial statements
A subsection of Accounting, 9706, through 3. Financial accounting (A Level)
Listing 10 of 678 questions
Karen and Lee are in partnership sharing profits and losses in the ratio 2 : 3 respectively. The following balances were available at 28 February 2022. Trial balance at 28 February 2022 Debit Credit $ $ Administrative expenses 6 020 Bank interest charges Bank overdraft 5 910 Capital accounts Karen 40 000 Lee 50 000 Carriage inwards 3 880 Current accounts, 1 March 2021 Karen 1 220 Lee 1 880 Drawings Karen 17 500 Lee 19 900 Insurance 7 740 Inventory, 1 March 2021 8 250 Loan from Lee 10 000 Non-current assets At cost 160 000 Provision for depreciation, 1 March 2021 56 000 Provision for doubtful debts, 1 March 2021 Purchases 151 440 Returns 2 200 3 930 Revenue 229 250 Trade payables 14 450 Trade receivables 31 210 Suspense account 411 020 411 020 The following information is also available. On 28 February 2022, inventory had been valued at cost, $21 220. This figure included some damaged items which had cost $1320 and had a sales value of $2480. The damaged items could be repaired at a cost of $1300. In January 2022, an error had been made recording returns inwards, $410. This amount had been credited to the returns outwards account. Insurance includes $1410 paid for the three months ended 30 April 2022. The loan from Lee had been arranged on 1 November 2021. It was agreed that Lee should be entitled to interest at 6% per annum on the loan. No entries have been made for interest on the loan. The provision for doubtful debts should be increased to $310. Non-current assets are to be depreciated by 20% per annum using the reducing balance method. REQUIRED Prepare the income statement for the year ended 28 February 2022. Use the space provided on the next page for your workings. Karen and Lee Income statement for the year ended 28 February 2022 Workings: Prepare Lee’s current account for the year ended 28 February 2022. Lee Current Account $ $ Additional information The partners have been considering making a more detailed partnership agreement to include the following terms. Interest to be charged on all drawings at 10%. Karen to receive a salary of $8400 per annum. Profits and losses would continue to be shared in the ratio Karen : Lee, 2 : 3 respectively. REQUIRED Calculate the increase or decrease in Lee’s current account balance at 28 February 2022 assuming the new agreement had been in use from 1 March 2021. Additional information Karen and Lee had also considered operating as a limited company. REQUIRED Explain one advantage of operating as a partnership rather than a limited company. Explain two advantages of operating as a limited company rather than a partnership. Additional information The partners are concerned about the business’s liquidity position. Karen believes the problem arises because the business holds too much inventory. She suggests that credit purchases should be reduced for the next three months to ensure inventory levels are lowered. REQUIRED Advise Lee whether or not he should accept Karen’s suggestion. Justify your advice.
9706_s22_qp_22
THEORY
2022
Paper 2, Variant 2
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Examiner's Use Frank and Ernest have been in partnership for some years, sharing profits and losses in the ratio 2 : 1. The partnership Balance Sheet at 31 January 2006 was as follows: Balance Sheet at 31 January 2006 $ $ $ Fixed Assets at Net Book Value Motor vehicles 58 200 Equipment 35 400 Fixtures and fittings 39 000 132 600 Goodwill 10 000 142 600 Current Assets Stock 64 000 Trade debtors 45 600 Bank 19 200 128 800 Amounts due within 1 year Trade creditors 22 400 Net current assets 106 400 249 000 Capital accounts Frank 80 000 Ernest 120 000 200 000 Current accounts Frank 35 400 Ernest 13 600 49 000 249 000 Frank and Ernest, who had been renting business premises, accepted an offer by Devious to move to his premises on 1 February 2006 on condition that he would be accepted into the partnership on that date. Additional information: The new partnership commenced on 1 February 2006 with Frank, Ernest and Devious sharing profits and losses in the ratio 2 : 1 : 1. The new partnership took ownership of Devious’s premises on 1 February 2006 at a valuation of $196 000. Goodwill was revalued at 1 February 2006 at $30 000 but would not be shown in the balance sheet in the future. Equipment was revalued at $34 100 on 1 February 2006. Stock at 1 February 2006 was valued at $63 000. Current Accounts will remain separate. For Examiner's Use REQUIRED Prepare the partnership Goodwill account at 1 February 2006 following the amendments. Prepare the partnership Revaluation account at 1 February 2006 following the amendments. For Examiner's Use Prepare Capital accounts for Frank, Ernest and Devious, in columnar format. For Examiner's Use Prepare the Balance Sheet of Frank, Ernest and Devious at 1 February 2006. For Examiner's Use Discuss the treatment of Goodwill in partnership accounts, with particular reference to retiring and incoming partners.
9706_w06_qp_2
THEORY
2006
Paper 2, Variant 0
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For Examiner's Use Amina and Nizam are in partnership sharing profits and losses in the ratio of 3:5. Their accounting year ended on 31 December 2011. The partnership agreement also states that: Amina receives a salary of $24 450 annually; Interest on drawings is charged at 5% on annual drawings; Interest on capital is payable at the rate of 4% per annum. The following balances were extracted from the books on 1 January 2011. Capital account Current account Amina $140 000 $8 400 Dr Nizam $240 000 $3 200 Dr On 1 July 2011, Amina paid an additional $20 000 capital into the business bank account. Drawings for the year were Amina $26 000, Nizam $35 000. Profit for the year before appropriations was $120 000. REQUIRED Prepare the appropriation account for Amina and Nizam for the year ended 31 December 2011. For Examiner's Use Prepare the current accounts for Amina and Nizam for the year ended 31 December 2011. For Examiner's Use On 1 January 2012, Amina and Nizam agree to admit Sarah as a partner. At that date goodwill was valued at $40 000. The following were also agreed about the new partnership: Goodwill would not remain in the books; Amina, Nizam and Sarah would share profits and losses in the ratio 3:5:2 respectively; Sarah would put $70 000 cash into the business; Sarah would bring into the partnership inventory at a value of $30 000 and a motor vehicle valued at $20 000. REQUIRED Prepare the capital accounts for Amina, Nizam and Sarah at 1 January 2012. For Examiner's Use In July 2012, Amina, Nizam and Sarah discovered several errors that had been made in their accounts. Their trial balance failed to agree and the difference was entered into a suspense account. The revenue account had been overcast by $18 200. Discounts received of $9 600 had been entered on the debit side of the discounts allowed account. Simon, a debtor, had paid a cheque for $9 400 to clear his account. His account had been credited for this amount but no entry had been made in the cash book. REQUIRED Prepare journal entries to correct each of the errors which had been discovered (narratives are not required). For Examiner's Use Prepare the suspense account, clearly showing the balance brought forward.
9706_w12_qp_22
THEORY
2012
Paper 2, Variant 2
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Questions Discovered
678