1. Financial accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 1775 questions
James and Lewis have been in partnership for some years sharing profits and losses equally. They had no partnership agreement. Their statement of financial position at 30 September 2015 showed the following information. $ Non-current assets 230 000 Net current assets 60 000 290 000 Capital accounts James 200 000 Lewis 70 000 270 000 Current accounts James Lewis $ $ Opening balance 31 000 17 000 Share of profit 15 000 15 000 Drawings (21 000) (37 000) Closing balance 25 000 (5 000) 20 000 290 000 Additional information On 1 October 2015 Ahmed joined the partnership. A partnership agreement was drawn up. The terms set out in the agreement were: Profits and losses are to be shared equally. Interest is to be charged at 5% on drawings. Interest is to be allowed at 10% on capital. The following also took place: Ahmed introduced capital of $80 000, which he paid into the business bank account. Goodwill was valued at $60 000 but no goodwill account is to be maintained in the books of account. Non-current assets were revalued at $270 000. The inventory value was to be reduced by $4000. REQUIRED Prepare the revaluation account. Prepare the capital accounts of the partners to record the admission of Ahmed. State the advantages of interest on capital and interest on drawings. Advantage of interest on capital to the partners to the partnership Advantage of interest on drawings to the partners to the partnership Explain how the terms of the partnership agreement will affect James and Lewis. James Lewis
9706_m16_qp_22
THEORY
2016
Paper 2, Variant 2
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The following is an extract from the statement of financial position of X Limited at 31 December 2016. $ Equity Share capital ($1 ordinary shares) 400 000 Share premium 20 000 Retained earnings 190 000 Total equity 610 000 Non-current liabilities 8% debentures (201920) 80 000 Current liabilities Trade and other payables 20 000 Cash and cash equivalents 60 000 80 000 Total liabilities 160 000 Total equity and liabilities 770 000 During the year ended 31 December 2017 the following transactions took place. 1 January 2017 Issue of 80 000 ordinary shares at $1.25 each. 30 June 2017 Rights issue of 3 ordinary shares for every 8 shares held on this date at an issue price of $1.30. This was fully subscribed. 30 September 2017 Bonus issue of 1 ordinary share for every 6 shares held on this date. REQUIRED Prepare journal entries to record each of these transactions in the books of account. Dates and narratives are not required. Debit $ Credit $ Prepare a statement to show the effect that the transactions had on the total equity. State three uses of a share premium account. State three reasons why a company may make a bonus issue of shares.
9706_m18_qp_22
THEORY
2018
Paper 2, Variant 2
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The directors of B Limited have provided the following information. Statement of financial position at 31 December 2020 Assets $ Non-current assets 656 000 Current assets Inventory 34 000 Trade receivables 31 000 65 000 Total assets 721 000 Equity and liabilities Equity Issued share capital 500 000 Share premium 67 000 Retained earnings 68 000 Total equity 635 000 Non-current liabilities 8% Debenture (2025) 50 000 50 000 Current liabilities Trade payables 19 000 Cash and cash equivalents 17 000 36 000 Total liabilities 86 000 Total equity and liabilities 721 000 The company’s revenue for the year ended 31 December 2020 was $540 000 of which 60% was on credit. The company’s profit for the year was $80 000. REQUIRED Calculate the following ratios at 31 December 2020. Current ratio (to two decimal places) Trade receivables turnover Return on capital employed (to two decimal places) Additional information The following ratios are available for 2019 along with comparative ratios for 2018. At 31 December At 31 December Current ratio 2.20 : 1 2.10 : 1 Trade receivables turnover 37 days 38 days Return on capital employed 15.57% 14.32% REQUIRED Compare the company’s position at 31 December 2020 with that of the previous two years in regard to the following ratios: Current ratio Trade receivables turnover Return on capital employed State two ways in which a company could improve its current ratio. Additional information Companies compare their financial performance with that of different businesses. REQUIRED State three limitations of comparing the financial performance of different businesses.
9706_m21_qp_22
THEORY
2021
Paper 2, Variant 2
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Questions Discovered
1775