3. Financial accounting (A Level)
A section of Accounting, 9706
Listing 10 of 734 questions
Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively. The partners decided to admit Liam as a partner with effect from 1 July 2018. The partnership’s statement of financial position immediately prior to Liam’s admission was as follows. Jack and Kelly Summarised statement of financial position at 30 June 2018 $ Assets Non-current assets 91 400 Current assets 21 700 Total assets 113 100 Capital and liabilities Capital accounts Jack 33 000 Kelly 71 000 Current liabilities 9 100 Total capital and liabilities 113 100 The partners do not maintain separate current accounts. The following was agreed. Assets were revalued upwards by $21 000. Goodwill was valued at $52 500. No goodwill account was to be maintained in the partnership’s books of account. In the future profits and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3 respectively. The balances of the partners’ capital accounts immediately after Liam’s admission should total $120 000 and be in the same ratio as the profit sharing ratio. Each partner would either pay funds into, or withdraw funds from, the business bank account in order to achieve this requirement. REQUIRED Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next page. State what is meant by the term ‘goodwill’. Explain why a partnership may make an adjustment for goodwill when they admit a new partner. Explain why partners may agree not to maintain a goodwill account in the books of the partnership on the admission of a new partner. Additional information The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an increase of 25% on the current year’s profit. The partners believe that Liam’s admission will result in an improved return on capital employed. REQUIRED Advise the partners whether or not they are correct in believing that Liam’s admission will result in an improved return on capital employed in the year ending 30 June 2019. Support your answer with calculations.
9706_w18_qp_22
THEORY
2018
Paper 2, Variant 2
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From time to time M Limited issues shares. REQUIRED State the double entry required to record a rights issue of shares at a premium. Additional information The directors of M Limited have a policy of not paying interim dividends. The statement of changes in equity of the company for the year ended 31 December 2016 was as follows. M Limited Statement of changes in equity for the year ended 31 December 2016 Ordinary share capital Share premium General reserve Retained earnings Total $ $ $ $ $ Jan 1 Balance 400 000 150 000 – 120 000 670 000 Feb 10 ? 100 000 (100 000) – Jun 25 Dividend (60 000) (60 000) Dec 31 Transfer 50 000 (50 000) – Dec 31 Profit for the year 90 000 90 000 Dec 31 Balance 500 000 50 000 50 000 100 000 700 000 REQUIRED State which event was recorded by the entry on 10 February 2016. Explain why the entry made on 10 February 2016 was made to the share premium account rather than the retained earnings account. State which dividend was recorded by the entry on 25 June 2016. State why the directors decided to create a general reserve. Explain why a long-term bank loan received by the company on 1 July 2016 was not recorded in the statement of changes in equity. Additional information Balances at 1 January 2017 included the following. $ Buildings cost 400 000 provision for depreciation 38 000 Equipment cost 256 000 provision for depreciation 61 000 Motor vehicles cost 188 000 provision for depreciation 81 000 During the year ended 31 December 2017 the following took place: new equipment costing $37 000 was bought a motor vehicle with an original cost of $10 000, bought during 2016, was sold. The company’s depreciation policy is as follows: buildings at a rate of 2% per annum using the straight-line method equipment at a rate of 10% per annum using the straight-line method motor vehicles at a rate of 20% per annum using the reducing balance method. A full year’s depreciation is charged in the year of acquisition and none in the year of disposal. On 31 December 2017 the buildings were revalued at $650 000. REQUIRED Calculate the net book value of non-current assets which will appear in the statement of financial position at 31 December 2017. Additional information The following information is also available. $ At 1 January 2017 10% Bank loan (2025) 100 000 During the year ended 31 December 2017 Dividend paid 66 000 Profit for the year before charging depreciation and loan interest 163 000 There was no change to issued share capital At 31 December 2017 Current assets 290 300 Current liabilities (including accrued loan interest) 96 300 REQUIRED Prepare the statement of financial position at 31 December 2017. Use the space on the next page for your workings. Use this space for your workings. Additional information The directors are considering the rates of depreciation applied to the company’s non-current assets. REQUIRED Advise the directors whether or not they should decrease the depreciation rates. Justify your answer.
9706_w18_qp_23
THEORY
2018
Paper 2, Variant 3
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Angela, Beena and Cai were in partnership sharing profits and losses in the ratio of 4 : 3 : 1. They dissolved their partnership on 30 September 2017. The following information is available. At that date their statement of financial position was as follows: Assets $ $ $ $ Non-current assets Land and buildings 150 000 Motor vehicles 40 000 Machinery 60 000 250 000 Current assets Inventory 35 000 Trade receivables 45 000 Bank 4 500 84 500 Total assets 334 500 Capital and liabilities Angela Beena Cai Capital account 100 000 75 000 25 000 200 000 Current account 5 000 4 000 (1 000) 8 000 Total 105 000 79 000 24 000 208 000 Non-current liabilities 10% loan from Beena 100 000 Current liabilities Trade payables 26 500 Total liabilities 126 500 Total capital and liabilities 334 500 The following assets were sold for cash. $ Land and buildings 200 000 Machinery 55 150 Inventory 33 750 Angela took a motor vehicle at an agreed valuation of $20 000. Beena took the remaining motor vehicle at an agreed valuation of $13 000. An amount of $40 500 was received from trade receivables in full settlement of their accounts. An amount of $25 000 was paid to trade payables in full settlement of their accounts. Dissolution costs of $2300 were paid from the bank. REQUIRED Prepare the realisation account on dissolution of the partnership. Realisation account $ $ Calculate the amount to be paid to Beena on dissolution of the partnership. State two items which may be included in a partnership agreement. Explain why partners may each have a separate capital account and current account.
9706_w18_qp_23
THEORY
2018
Paper 2, Variant 3
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X and Y are in partnership. Z was admitted to the partnership on 1 July 2018. It was also agreed that at that date: Assets of the partnership would be valued upwards by $48 000. Value of goodwill would be $20 000, but no goodwill account would be retained in the books of account. Z would introduce $80 000 cash. Profit and loss sharing ratio would be X, Y and Z, 2 : 1 : 1 respectively. What was Z’s capital account balance immediately after the admission?
9706_w19_qp_11
MCQ
2019
Paper 1, Variant 1
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P and Q are in partnership. R was admitted as a partner on 1 July 2018, and the profit and loss sharing ratio among P, Q and R was 2 : 2 : 1 respectively. For the purpose of R’s admission, the partners agreed: goodwill would be valued at $20 000, but not retained in the books of account R would introduce cash, $40 000, and motor vehicle, $10 000 R would be entitled to an annual salary, $5000. What was R’s capital account balance immediately after his admission?
9706_w19_qp_12
MCQ
2019
Paper 1, Variant 2
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Adam, Bilal and Chan operate a partnership providing secretarial services. The partners have no formal partnership agreement. The following balances are extracted from the trial balance at 31 December 2018. Debit Credit $ $ Fees revenue received 152 000 Business operating costs 76 000 Capital accounts Adam 30 000 Bilal 20 000 Chan 10 000 Current accounts Adam 36 000 Bilal 4 000 Chan 12 000 Trade receivables 27 000 Loan account: Bilal 80 000 Motor vehicles at net book value 96 000 REQUIRED Calculate the profit for the year ended 31 December 2018 before appropriation. Calculate the share of profit appropriated to Bilal for the year ended 31 December 2018. Additional information On 1 January 2019, Bilal decided to retire from the partnership. The partners agreed the following. Bilal was to retain one motor vehicle. The net book value of the motor vehicle was $36 000 but it was agreed to transfer it to Bilal at a value of $30 000. The remaining motor vehicles were to be revalued upwards by 5%. An irrecoverable debt of $2000 was to be written off and a provision for doubtful debts of 4% was to be made. Goodwill was to be valued at $24 000. Bilal agreed to leave $45 000 in the partnership as a loan at 8% per annum interest. The remaining balance due to Bilal was to be paid from the partnership bank account. REQUIRED Prepare the revaluation account at 1 January 2019. Prepare a statement showing the amount to be paid to Bilal from the partnership bank account on his retirement. Additional information Adam and Chan are to continue in partnership after Bilal’s retirement and plan to draw up a formal partnership agreement to include the following: profit-sharing ratio rate of interest on capital rate of interest on drawings. REQUIRED State two reasons why partners may agree to provide interest on capital. State two reasons why partners may agree to charge interest on drawings. State two further terms that may appear in a partnership agreement.
9706_w19_qp_21
THEORY
2019
Paper 2, Variant 1
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L, M and N were in partnership sharing profits and losses in the ratio 3 : 2 : 1. The partnership was dissolved on 31 December 2019. After all assets had been realised and all liabilities paid, the following balances remained in the books of account. L ($) M ($) N ($) total ($) partners’ capital accounts 30 000 20 000 10 000 60 000 partners’ current accounts 4 000 8 000 (3 000) 9 000 cash at bank 60 000 realisation account 9 000 How much cash did N receive when the dissolution was complete?
9706_w20_qp_11
MCQ
2020
Paper 1, Variant 1
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Adil and Bashir were in partnership sharing profits and losses in the ratio 2 : 1. Chandra joins the partnership and profits and losses are now to be shared between Adil, Bashir and Chandra in the ratio 3 : 2 : 1. The balances of the partners’ capital accounts prior to Chandra joining the partnership are as follows: $ Adil 20 000 Bashir 10 000 Goodwill is to be valued at $36 000 and is not to be retained in the books of account. What is the balance on Adil’s capital account after Chandra joined the partnership?
9706_w20_qp_12
MCQ
2020
Paper 1, Variant 2
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734