13163989 ACCA F3 Financial Accounting INT Solved Past Papers 0107(1)

8/2/2019 13163989 ACCA F3 Financial Accounting INT Solved Past Papers 0107(1)

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Fundamentals Pilot Paper Knowledge module

Financial Accounting

(International)

Timeallowed:

2hours

ALL FIFTY questions are compulsory and MUST beattempted.

Do NOT open this paper until instructed by the

supervisor.This question paper must not be removed from the

examination hall.

The Association of Chartered Certified Accountants

FORFREE ACCARESOURCES VISIT: http://kaka-pakistani.blogspot.com


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ALL 50 questions are compulsory and MUST be

attemptedPlease use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choicequestion.

1 Shoulddetails of material adjusting or material non-adjusting events after the balancesheet date

bedisclosed inthe notes to financial statements according to

IAS10

Events After the Balance Sheet

Date

?

A Adjusting events

BNon-Adjusting events

(1 mark)

2At 30 June 2005 a companys allowance for receivables was $39,000. At 30 June 2006 trade receivables

totalled$517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivablesto theequivalent of 5 per cent of the trade receivables based on pastevents.

What figure should appear in the income statement for the year ended 30 June 2006 forthese items?A $61,000

B$22,000

C$24,000

D$23,850

(2 marks)

3 In times of rising prices, what effect does the use of the historical cost concept have on a companys

asset valuesand

profit?A Asset values and profit both

understatedBAsset values and profit both

overstatedCAsset values understated and profit

overstatedDAsset values overstated and profit

understated. (2 marks)

4The IASBs Framework for the preparation and presentation of financialstatements

gives qualitativecharacteristicsthat make financial information

reliable.Which of the following are examples of those qualitativecharacteristics?A Faithful Representation, neutrality and

prudenceB Neutrality, comparability and true and fair

viewC Prudence, comparability and

accrualsD Neutrality, accruals and going concern

(2 marks)(



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5The following bank reconciliation statement has been prepared by a trainee

accountant:$

Overdraft per bank statement3,860less: Outstanding cheques9,1605,300

add: Deposits credited after date16,690Cash at bank as calculated above21,990

What should be the correct balanceper the cash

book?A $21,990 balance at bank as

statedB$3,670 balance atbank

C$11,390 balance atbank

D$3,670 overdrawn.

(2 marks)

6 Which of the following calculates a traders net profit for a

period?A Closing net assets + drawings capital introduced opening net

assetsBClosing net assets drawings + capital introduced opening net

assetsCClosing net assets drawings capital introduced opening net

assetsDClosing net assets + drawings + capital introduced opening net

assets. (2 marks)

7A sole trader took some goods costing $800from inventory for his own use. The normal selling price of the goodsis $1,600.

Which of the following journal entries would correctly

record this?Dr Cr

$$ ADrawings account 800

Inventory account800

BDrawings account 800

Purchases account800CSalesaccount 1,600

Drawings account 1,600

(1 mark)

8The debit side of a companystrial balancetotals $800more than the creditside.

Which one of the following errors would fully account for the

difference?A$400 paid for plant maintenance has been correctly entered in the cash book and credited to theplant assetaccount.

BDiscount received $400 has been debited to discount allowedaccount

CA receipt of $800 for commission receivable has been omitted from therecords

DThe petty cash balance of $800 has been omitted from the trialbalance. (2 marks)

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9Acompanysincomestatement for the year ended 31December2005 showed anetprofit of $83,600. It was

laterfoundthat $18,000 paid for the purchase of a motorvan had beendebited tothe motorexpenses account.Itis thecompanys policy to depreciate motor vans at 25 per cent per year on the straight line basis, with a full yearschargei n t he y ea r o f

acquisition.What would the net profit be after adjusting for this

error?A $106,100

B$70,100

C$97,100

D$101,600

(2 marks)

10 Should dividends paid appear on the face of a companys income

statement?A Yes

B No

(1 mark)

11 The following control account has been prepared by a traineeaccountant:

Receivables ledger controlaccount

$ $

Opening balance 308,600 Cash received from credit customers147,200Credit sales 154,200 Discounts allowed to credit customers1,400Cash sales 88,100 Interest charged on overdue accounts2,400Contras against credit balances in payables ledger 4,600 Bad debts written off

4,900 Allowance for receivables 2,800

C lo si ng b al an ce396,800

555,500 555,500

What should the closing balance be when all the errors made in preparing the receivables ledgercontrol accounthave been

corrected?A $395,200

B$304,300

C$309,500

D$307,100

(2 marks)(



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12 At 31 December 2004 Q, a limited liability company, owned a building that cost $800,000 on 1 January

1995. Itwas being depreciated at two per cent peryear.

On 1 January 2005 a revaluation to $1,000,000 was recognised. At this date the building had a remaining usefullife of 40 years.

What is the depreciation charge for the year ended 31 December 2005 and the revaluation reservebalanceasat1 J an ua ry

2005?Depreciation charge Revaluationreservefor year ended 31December2005 as at 1January 2005

$$ A25,000 200,000

B25,000 360,000

C20,000 200,000

D20,000 360,000

(2 marks)

13 P and Q are in partnership, sharing profitsequally.

On 30 June 2005, R joined the partnership and it was agreed that from that date all three partnersshould shareequally in the

profit.In the year ended 31 December 2005 the profit amounted to $300,000, accruing evenly over the year, aftercharginga bad debt of $30,000 which it was agreed should be borne equally by P and Q

only.What should Ps total profit share be for the year ended 31

December 2005?A $ 95,000

B$122,500

C$125,000

D$110,000

(2 marks)

14 A company has made a material change to an accounting policy in preparing its current financialstatements.

Which of the following disclosures are required by

IAS8

Accounting policies, changes in accounting estimates

anderrorsi n t he f in an ci al

statements?1 The reasons for thechange.2 The amount of the adjustment in the current period and in comparative infor mation for prior

periods.3 An estimate of the effect of the change on the next five accounting

periods.A1and2 only

B1and3 only

C2and3 only

D1, 2and3

(2 marks)(



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15 According to IAS

2

Inventories, which of the following costs should be included in valuing the

inventories of amanufacturing

company?(1) Carriage inwards

(2) Carriage outwards

(3) Depreciation of factory

plant(4) General administrativeoverheads

AA ll f ou r items

B1, 2and4only

C2and3 only

D1and3 only

(2 marks)

16 Part of a companys cash flow statement is shownbelow:

$000

Ope ra ti ng p ro fi t8,640Depreciation charges (2,160)

Increase in inventory(330)Increase in accounts payable440The following criticisms of the extract have beenmade:(1) Depreciation charges should have been added, notdeducted.(2) Increase in inventory should have been added, notdeducted.(3) Increase in accounts payable should have been deducted, notadded.Which of the criticisms arevalid?A 2and 3only

B 1only

C 1and 3only

D 2only

(2 marks)

17 Which of the following explains the imprest system of operating petty

cash?A Weekly expenditure cannot exceed a set

amount.B The exact amount of expenditure is reimbursed at intervals to maintain a

fixed float.C All expenditure out of the petty cash must be properly

authorised.D Regular equal amounts of cash are transferred into petty cash at

intervals. (2 marks)(



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18 Which of the following are differences between sole traders and limited liability

companies?(1) A sole traders financial statements are private; a companys financial statements are sent to shareholdersand maybe publicly

filed(2) Only companies have capital invested into thebusiness(3) A sole trader is fully and personally liable for any losses that the business might make; a companys

shareholdersare not personally liable for any losses that the company mightmake.

A 1and2 only

B 2and3 only

C 1and3 only

D 1, 2and3

(2 marks)

19 Which of the following documents should accompany a payment made to asupplier?A Supplier

statementB Remittance

adviceC Purchase invoice

(1 mark)

20 Goodwill should never be shown on the balance sheet of apartnership.

Is this statement true orfalse?AFalse

BTrue

(1 mark)

21 Which of the following journal entries are correct, according to their

narratives? DrCR$$1 Suspense account 18,000

Rentreceived account 18,000

Correction of error in posting $24,000cash received for rent tothe rent received accountas $42,000

2 Share premium account 400,000

Share capital account 400,000

1for 3 bonusissue on share capital of 1,200,000 50c shares

3 Trade investment in X750,000Share capital account 250,000

Share premium account 500,000

500,000 50c shares issued at $1.50per share in exchange for shares in X

A1and2

B2and3

C1only

D3only

(2 marks)(



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22 The plant and machinery account (at cost) of a business for the year ended 31 December 2005 was as

follows:Plant and machinery cost2005 2005

$$1 Jan Balance 240,000 31 March Transfer disposal account60,00030 June Cash purchase of plant 160,000 31 Dec Balance340,000400,000 400,000

The companys policy is to charge depreciation at 20% per year on the straight line basis, with proportionatedepreciationin the years of purchase and

disposal.What should be the depreciation charge for the year ended 31

December 2005?A $68,000

B$64,000

C$61,000

D$55,000

(2 marks)

23 Which of the following should appearin a companys statement of changes in

equity?1 Profit for the financialyear2 Amortisation of capitalised developmentcosts3 Surplus on revaluation of non-current

assetsAAll t hr ee

itemsB2and3 only

C1and3 only

D1and2 only

(2 marks)

24 Which of the following statements are

correct?(1) Ca pitalised development expenditure must beamortis ed over a period not exceeding fiveyears.

(2) C apitalised development costs are shown in the balance sheet under the heading of Non-currentAssets(3) If certain criteria are met, research expenditure must be recognised as anintangibleasset.

A2only

B2and3

C1only

D1and3

(2 marks)(



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25 A fire on 30 September destroyed some of a companys inventory and its inventory

records.The following information isavailable: $

Inventory 1September 318,000

Salesfor September 612,000

Purchases for September 412,000

Inventory ingood condition at 30September 214,000

Standard gross profit percentage on sales is 25%

Based on this information, what is the value of the

inventory lost?A $96,000

B$271,000

C$26,400

D$57,000

(2 marks)

26 At 31 December 2004 a companys capital structure was asfollows:

$

Ordinary sha re

capital(500,000 shares of25c each) 125,000

Share premium account 100,000

In the year ended 31December 2005 the company made a rights issue of 1 share for every 2 held at $1 per

shareand this was taken upin full. Later in the year the company made a bonusissue of 1 share for every 5 held,using theshare premium account for thepurpose.

What was the companys capital structure at 31 December2005?Ordinary share capital Share premiumaccount$$ A450,000 125,000

B225,000 250,000

C225,000 325,000

D212,500 262,500

(2 marks)

27 The inventory valuefor the financial statements of Q for the year ended 31 May2006 was based on an inventorycounton 4June 2006, which gave atotal inventory valueof $836,200.

Between 31 May and 4 June 2006, the following transactions tookplace:

$

Purchases ofgoods 8,600

Salesof goods (profit margin 30% onsales) 14,000

Goods returned by Q to supplier700What adjusted figure should be included in the financial statements for inventories at

31May 2006?A $838,100

B $853,900

C $818,500

D $834,300

(2 marks)(



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28 In preparing a companys bank reconciliation statement at March 2006, the following items are causing the

differencebetween the cash book balance and the bank statementbalance:

(1) Bank charges$380(2) Error by bank $1,000 (cheque incorrectly debited to theaccount)(3) Lodgements not credited

$4,580(4) Outstanding cheques$1,475(5) Direct debit$350(6) Cheque paid in by the company and dishonoured$400.Which of these items will require anentry in the cash

book?A 2,4 and 6

B1, 5and6

C3, 4and5

D1, 2and3

(2 marks)

29 At 31 December 2005 the following require inclusion in a companys financialstatements:

(1) On 1 January 2005 the company made a loan of $12,000 to an employee, repayable on 1 January2006,charging interest at 2per cent per year. On theduedate she repaid the loan and paid the whole of the

interestdue on the loan to thatdate.

(2) The companyhaspaid insurance$9,000in 2005, covering theyear ending 31August 2006.

(3) In January 2006 the company received rent from a tenant $4,000 covering the six months to 31December2005.

For these items, what total figures should be included in the companys balance sheet at 31

December 2005?Current assets Currentliabilities$ $

A10,000 12,240

B22,240 nil

C10,240 nil

D16,240 6,000

(2 marks)

30 How should acontingent liability beincluded in a companys financial statements if the likelihood of

atransferofeconomic benefits to settle it is

remote?A Disclosed by note with no provision being

madeBNo disclosure or provision is required

(1 mark)

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31 Which of the following material events after the balance sheet date and before the financial

statements areapproved are adjusting

events?(1) Avaluation of property providing evidence of impairment in valueat thebalancesheetdate.(2) Sale of inventory held at the balance sheet date for less thancost.(3) Discovery of fraud or error affecting the financial

statements.(4) The insolvency of a customer with a debt owing at the balance sheet date which is stilloutstanding.A 1, 2 ,3and4

B 1, 2and4only

C 3 a nd 4

onlyD 1, 2and3 only.

(2 marks)

32 Alpha received a statement of account from a supplier Beta, showing a balance to be paid of $8,950. Alphaspayablesledger account for Beta shows a balance due to Beta of

$4,140.Investiga t ion revea ls thefollowing:(1) Cash paid to Beta $4,080 has not been allowed for byBeta(2) Alphas ledger account has not been adjusted for $40 of cash discount disallowed byBeta.What discrepancy remains between Alphas andBetas records after allowing for these

items?A $690

B $770

C $9,850

D $9,930

(2 marks)

33 The business entity concept requires that a business is treated as being separate from itsowners.Is this statement true or

false?ATrue

BFalse

(1 mark)

34 Theta prepares its financial statements for the year to 30 April each year. The company pays rent for itspremisesquarterly in advance on1 January, 1April, 1 July and 1 October each year. The annual rent was $84,000 per

yearuntil 30 June 2005. It was increased from that date to $96,000 per

year.What rent expense and end of year prepayment should be included in the financial statements for

the year ended3 0 A pr il2006?

Expense Prepayment

A$93,000 $8,000

B$93,000 $16,000

C$94,000 $8,000

D$94,000 $16,000

(2 marks)

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35 Which of the following items could appear in a companys cash flow

statement?(1) Surplus on revaluation of non-currentassets(2) Proceeds of issueofshares

(3) Proposeddividend(4) DividendsreceivedA 1and 2

B 3 and4

C 1and 3

D 2and4

(2 marks)

36 What is the role of the International Financial Reporting Interpretations

Committee?A To create a set of global accounting

standardsBTo issue guidance on the application of International Financial Reporting

Standards (1 mark)

37 Qs trial balance failed to agree and a suspense account was opened for the difference. Q does not keepreceivablesand payables control accounts. The following errors were found in Qs accounting

records:(1) In recording an issue of shares at par, cash received of $333,000 was credited to the ordinary sharecapitalaccountas$330,000

(2) Cash $2,800 paid for plant repairs was correctlyaccounted for in the cash bookbutwas credited to the plant

assetaccount

(3) The petty cash book balance $500 had been omitted from the trialbalance(4) A cheque for $78,400 paid for the purchase of a motor car was debited to the motor vehiclesaccount as$87,400.

Which of the errors will require an entry to the suspense account to

correct them?A 1, 2and4only

B 1, 2,3 and 4

C 1and4 only

D 2and3 only

(2 marks)

38 Mountain sells goods on credit to Hill. Hill receives a 10% trade discount from Mountain and a further 5%settlementdiscount if goods are paid for within 14 days. Hill bought goods with a list price of $200, 000 from Mountain.

Salesta x is at17.5%.

What amount should be included in Mountains receivables ledger for this

transaction?A $235,000

B$211,500

C$200,925

D$209,925

(2 marks)

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39 A computerised accounting system operates using the principle of double entry

accounting.Is this statement true orfalse?A False

BTrue

(1 mark)

40 A companyreceives rent from a large numberof properties. Thetotal received in the year ended 30 April 2006was$481,200.

The following were the amounts of rent in advance and in arrears at 30 April 2005 and2006:30 April 2005 30 April 2006

$$Rent received in advance 28,700 31,200

Rent in arrears (all subsequently received) 21,200 18,400

What amount of rental income should appear in the companys income statement for the year

ended 30April2006?

A $486,500

B$460,900

C$501,500

D$475,900

(2 marks)

41 Annie is a sole trader who does not keep full accounting records. The following details relate to hertransactions withcredit customers and suppliers for the year ended 30 June

2006: $

Trade receivables, 1July 2005 130,000

Trade payables, 1 July2005 60,000

Cash received from customers686,400Cash pa id to suppliers302,800Discounts allowed 1,400

Discounts rece ived2,960Contra between payables and receivables ledgers

2,000Trade receivables, 30 June2006 181,000

Trade payables, 30June2006 84,000

What figure should appear in Annies income statement for the year ended 30 June 2006 for

purchases?A $331,760

B$740,800

C$283,760

D$330,200

(2 marks)

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42 The bookkeeper of Field made the following

mistakes:Discounts allowed $3,840 was credited to the discounts receivedaccountDiscounts received $2,960 was debited to the discounts allowedaccountWhich journal entry will correct the

errors?DRCRA Discounts a l lowed

$7,680Discounts received $5,920

S uspe nse a cc ou nt$1,760

BDiscounts a l lowed$880Discounts rece ived

$880S uspe nse a cc ou nt$1,760

CDiscounts a l lowed$6,800Discounts rece ived

$6,800DDiscounts a l lowed

$3,840Disco un ts r ec ei ve d$2,960Suspense account$880 (2 marks)


correct?(1) Materiality means that only items having a physical existence may be recognised asassets.(2) The substance over form convention means that the legal form of a transaction must always be shown in

financialstatements even if this differs from the commercialeffect.

(3) The money measurement concept is that only items capable of being measured in monetaryterms can berecognised in financial

statements.A 2only

B 1, 2and3

C 1only

D 3only

(2 marks)

44 The total ofthe list ofbalances in Valleyspayables ledger was $438,900at 30 June2006. Thisbalancedid notagreewith Valleys payables ledger control account balance. The following errors were

discovered:1 A contra entry of $980 was recorded in the payables ledger control account, but not in the payables

ledger.2 The total of the purchase returns daybook was undercast by$1,000.3 An invoice for $4,344 was posted to the suppliers account as$4,434.What amount should Valley report in its balance sheet as accounts payable at 30June2006?A $436,830

B$438,010

C$439,790

D$437,830

(2 marks)

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correct?(1) A cash flow statement prepared using the direct method produces a different figure for operating cashflow fromthat produced if the indirect method is

used.(2) Rights issues of shares do not feature in cash flowstatements.(3) A surplus on revaluation of a non-current asset will not appear as an item in a cash flow

statement(4) A profit on the sale of a non-current asset will appear as an item under Cash Flows from InvestingActivities in aca sh f low

statement.A 1and4

B 2and3

C 3only

D 2and4

(2 marks)

46 Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computershowedthe following costs related to thepurchase:

$

Computer890Additional memory95Delivery 10

Installation20Maintenance (1 year) 25

1,040

Salestax (17.5%) 182

Total 1,222

Howmuch should Gareth capitalise asa non-current assetin relation tothe

purchase?A $1,222

B$1,040

C$890

D$1,015

(2 marks)

47 Aand Bare in partnership sharing profits and losses in the ratio 3:2 respectively. Profit for the year was $86,500.Thepartners capital and current account balances at the beginning of the year were as

follows:A B

$

$Current accounts 5,750CR 1,200CR

Capital accounts 10,000CR 8, 000CR

As drawings during the year were $4,300, and Bs were $2,430.

What should As current account balance be at the end of

the year?A $57,650

B$51,900

C$61,950

D$53,350

(2 marks)

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48 What is the correct double entry to record the depreciation chargefor

aperiod?A DR Depreciation

expenseCR Accumulateddepreciation

BDR AccumulateddepreciationCR Depreciation

expense (1 mark)

49 A company values its inventory using the first in, first out (FIFO) method. At 1 May 2005 the company had700engines in inventory, valued at $190

each.During the year ended 30 April 2006 the following transactions tookplace:2005

1 Ju ly P urc ha sed 500 engines a t $ 220 ea ch

1November Sold 400engines for $160,000

2006

1 F eb ru ar y P ur ch ased 3 00 e ng in es a t $ 23 0 ea ch

15 April Sold 250engines for $125,000

What is thevalue of thecompanys closing inventory of engines at30 April

2006?A $188,500

B$195,500

C$166,000

D$106,000

(2 marks)

50 A companys motor vehicles at cost account at 30 June 2006 is asfollows:

Motor vehicles cost

$$Balance b/f 35,800 Disposal12,000Additions 12,950 Balance c/f36,75048,750 48,750

What opening balance should be included in the following periods trial balance for motor vehicles cost at1July2006?

A $36,750DR

B$48,750DR

C$36,750CR

D$48,750CR

(2 marks)

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Answers

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Pi lo t Paper F3

(INT)

Answers

Financia l Account ing

(International)

1B

2B 37,000+ ((517,000 37,000)*5%) 39,000)= 22,000

3C

4A

5B -3,860 9,160+ 16,690 = 3,670

6A

7B

8B

9C 83,600 +18,000 (18,000*25%) = 97,100

10 B

11 D Receivables ledger controlaccount

$ $

Opening balance 308,600 Contras4,600Credit sales 154,200 Cash received147,200Interest charged 2,400 Discounts allowed1,400Bad debts 4,900

C lo si ng b al an ce307,100465,200 465,200

12 B 1,000,000/40years = 25,000; 1,000,000 (800,000 (800,000*2%*10years))= 360,000

13 B ((300,000+ 30,000)/2 * )+ (300,000+ 30,000)/ 2 * 1/3) (30,000* )= 122,500

14 A

15 D

16 B

17 B

18 C

19 B

20 A

21 D

22 D (240,000*20%) + (6/12*160,000*20%) (9/12*60,000*20%) =55,00023 C

24 A

25 D (318,000 + 412,000 214,000) (612,000*75%) = 57,000

26 B 125,000 + (500,000*1/2*25c) + (750,000*1/5*25c) = 225,000; 100,000+ (500,000*1/2*75c) (750,000*1/5*25c) = 250,000

27 A 836,200 8,600 + (14,000*70%)+ 700= 838,100

28 B

29 B 12,000 + (12,000*2%)+ (9,000*8/12) + 4,000= 22,240

30 B

31 A

32 A (8,950 4,080) (4,140 + 40) = 69033 A

34 D (84,000*2/12) + (96,000*10/12)= 94,000; 96,000*2/12 = 16,000

35 D

36 B

37 B

38 D ListPrice 200,000

Trade discount (20,000)

180,000

Sales tax(17.5%*95%*180,000) 29,925

209,925

39 B

40 D Rent receivable

$ $

O/Balance 21,200 O/Balance28,700Income statement 475,900 Disposal481,200C/Balance 31,200 C/Balance18,400528,300 528,300

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41 A Payables ledger

$ $

Cash paid 302,800 O/balance 60,000

Discounts received 2,960 Purchases331,760Contra 2,000

C/balance84,000391,760 391,760

42 B

43 D

44 D 438,900 980-90 = 437,830

45 C

46 D 890 + 95 + 10 + 20 =1,01547 D 5,750 + (86,500*3/5) 4,300 = 53,350

48 A

49 A (300@230) + (500@220) + (50@190)= 188,500

50 A

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PreparingFinancia

lStatements(International Stream)

PART 1

THURSDAY 6 DECEMBER 2001

QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A ALL 25 questions are compulsory and MUST be

answered

Section B ALL FIVE questions are compulsory and MUST be

answered



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Section A ALL TWENTY-FIVE questions are compulsory and MUST beattemptedPlease use the answer sheet provided to indicate your choice in

eachquestionEach question within this section is worth 2

marks

1 The trial balance totals of Gamma at 30 September 2001are:Debit$992,640Credit $1,026,480

Which TWO of the following possible errors could, when corrected, cause the trial balanceto agree?1. An item in the cash book $6,160 for payment of rent has not been entered in the rent payable

account.2.The balanceonthe motor expenses account$27,680 has incorrectly beenlisted in the trial balance as acredit.3. $6,160 proceeds of sale of a motor vehicle has been posted to the debit of motor vehicles assetaccount.4. The balance of $21,520 on the rent receivable account has been omitted from the trialbalance.A 1 and

2B 2 and

3C 2 and

4D 3 and

4

2 The trial balance of Delta, a limited liability company, did not agree and a suspense account wasopened for thedifference. The following errors were subsequentlyfound:1. A cash refund due to customer A was correctly treated in the cash book and then credited to the accounts

receivableledger account of customer

B.2. The sale of goods to a director for $300 was recorded by debiting sales revenue account and crediting thedirector scurrent

account.3. The total of the discount received columnin the cash book had been credited in error to the discountallowedaccount.

4. Some of the cash received from customers had been used to pay sundry expenses before banking themoney.5. $5,800 paid for plant repairs was correctly treated in the cash book and then credited to plant andequipment assetaccount.

Which of the above errors would require an entry to the suspense account as part of the process ofcorrecting them?A1,3 and5

B 1, 2 and5C 1 and5D 3 and

4

3 Beta purchased some plant and equipment on 1 July 2001 for $40,000. The estimated scrap value of theplant in tenyears time is estimated to be $4,000. Beta s policy is to charge depreciation on the straight line basis,with aproportionate charge in the period of

acquisition.

What should the depreciation charge for the plant be in Beta s accounting period of

twelve months to30 September2001?A$720

B$600C

$900D $675

2



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4 Theta prepares its financial statements for the year to 30 April each year. The company pays rent for its

premisesquarterly in advance on 1 January, 1April, 1 Julyand 1 October each year. Theannual rent was $84,000 per year

until30 June 2000. It was increased from that date to $96,000 peryear.

What rent expense and end of year prepayment should be included in the financial statements for the

year ended30April 2001?

Expense Prepayment

A $ 93 ,0 00$8,000B $ 93 ,0 00$16,000C $ 94 ,0 00

$8,000D $ 94 ,0 00

$16,000

5 At 30 September 2000, the following balances existed in the records ofLambda:

$

Plant and equipment: Cost860,000 Accumulated depreciation

397,000During the year ended 30 September 2001, plant with a written down value of $37,000 was sold for $49,000.Theplant had originally cost $80,000. Plant purchased during the year cost $180,000. It is the company s policy tochargea full year s depreciation inthe year of acquisition ofan asset and none in the year of sale, using a rate of10%on thestra ight l inebasis.

Whatnet amount should appearin Lambdas balancesheet at30 September 2001 forplant and

equipment?A$563,000

B

$467,000C

$510,000D$606,000

6 At 30 September 2000, Z Ltd had a provision for doubtful debts of $37,000. During the year ended 30September2001thecompanywrote off debts totalling $18,000, and at the end of the year it is decided that the provisionfordoubtful debts should be$20,000.

What should be included in the income statement for bad and

doubtfuldebts?

A $35 ,000debitB $ 1, 00 0

debitC $38,000

debitD $ 1, 00 0

credit

7 Which of the following best explains the imprest system of petty cash

control?A Weekly expenditure cannot exceed a set

amount.B The exact amount of expenditure is reimbursed atintervals to maintain a

fixedfloat.C All expenditure out of the petty cash must be properly

authorised.D Regular equal amounts of cash are transferred into petty cash atintervals.

3 [P.T.O.



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8 In reconciling a business cash book with the bank statement, which of the following itemscould require asubsequent entry in the cash

book?1. Cheques presented after

date.2. A cheque from a customer which wasdishonoured.3. An error by thebank.4. Bank charges.5. Deposits credited afterdate.6. Standing order entered in bankstatement.A 2, 3, 4 and

6B 1, 2, 5 and

6C 2, 4 and

6D 1, 3 and

5

9 The following bank reconciliation statement has been prepared for Omega by a juniorclerk:

$

Overdraft per bank statement68,100Add: Deposits not credited 141,200

209,300

Less outstanding cheques 41,800

Overdraft per cash book 167,500

Which of the following should be the correct balance per the

cashbook?A $167,500 overdrawn as

stated.B $31,300

overdrawnC $31,300 cash at

bankD $11 4, 900

overdrawn

10 X and Y are inpartnership, sharing profits equallyand preparing their accounts to 31 December eachyear. On

1July2000, Z joined the partnership, and from that date profits are shared X 40%, Y 40% and Z20%.In the year ended 31 December 2000, profitswere: $

6months to31 June2000200,0006months to31December2000300,000

Itwas agreed that X and Y only shouldbearequally the expense for abad debt of $40,000 written off inthe sixmonthsto 31December2000 in arriving atthe $300,000profit.

Which of the following correctly states Xs profit share for the

year?Profit share

X

$

A216,000

B

200,000C

220,000D

224,000

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11 S and T are in partnership and prepare their accounts to 31 December each year. On 1 July 2000, U

joined thepartnership

.Profit sharing arrangements are:

6 months to 30 June 2000 6 months to 31December

2000Salary S $15,000 $25,000

Share of balance of profit S 60%40% T40% 40%

U 20%

The partnership profit for the year ended 31December2000was $350,000 accruingevenlyover the year.

What are the partners total profit shares for the year ended 31

December 2000?STU

$000$000$000

A 196 124

30B 217 108

25C 15513065

D 17514535

12 Which of the following four statements about accounting concepts or principles

arecorrect?1. The money measurement concept is that items in accounts are initially measured at theirhistorical cost.2. In order to achieve comparability it may sometimes be necessary to override the prudenceconcept.3. To facilitate comparisons between different entities it is helpful if accounting policies and changes

in them aredisclosed.

4. To comply with the law, the legal form of a transaction must always be reflected in financialstatements.A 1 and

3B 1 and

4C 3

onlyD 2 and

3

13 The closing inventory of Epsilon amounted to $284,000 at 30 September 2001, the balance sheet date. Thistotalincludes two inventory lines about which the inventory taker is

uncertain.1. 500items which had cost $15 each andwhich were includedat $7,500.These items were found tohavebeendefective at the balance sheet date. Remedial work after the balance sheet date cost $1,800 and they

were thensold for $20 each. Selling expenses were

$400.2. 100 items which had cost $10 each. After the balance sheet date they were sold for $8 each, withsellingexpenses of$150.

What figure should appear in Epsilon s balance sheet for

inventory?A$283,650

B

$283,800C

$292,150D

$283,950

5 [P.T.O.



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14Which of these statements aboutresearch anddevelopment expenditure arecorrect?

1. If certain conditions are satisfied, research and development expenditure must becapitalised.2.One of theconditions tobesatisfied if developmentexpenditure is to be capitalised is that the technical

feasibilityof the project is reasonablyassured.3. If capitalised, development expenditure mustbeamortised over a period notexceeding five

years.4. The amount of capitalised development expenditure for each project should be reviewed eachyear. Ifcircumstances no longer justify the capitalisation, the balance should be written off over a period not

exceeding fiveyears.

5. Development expenditure may only be capitalised if it can be shown that adequate resources will beavailabletofinance the completion of the

project.A 2 and

5B 3, 4 and

5C 2, 3 and

5D 1, 2 and3

15 On 30 September 2001 part of the inventory of a company wa s completely destroyed byfire.The following information isavailable:Inventory at 1 September2001 at cost$49,800

Purchases for September2001$88,600

Sales for September 2001$130,000

Inventory at 30September2001 undamageditems $32,000

Standard gross profit percentage on sales30%

Based on this information, what is the cost of the inventory

destroyed?A$17,800

B

$47,400C $15,400

D

$6,400

16 At 1 July 2000 the share capital and share premium account of a company were asfollows:

$

Share capital 300,000 ordinary shares of 25ceach 75,000

Share premiumaccount

200,000

During the year ended 30 June 2001 the following events took

place:1. On 1 January 2001 the company made a rights issue of one share for every five held, at $120 pershare.2. On 1 April 2001 the company made a bonus (capitalisation) issue of one share for every three in issue at that

time,using the share premium account to doso.

Whatare the correct balanceson the companys share capital andshare premium accountsat 30

June2001?Share capital Share premiumaccountA $ 46 0, 00 0

$287,000B $ 48 0, 00 0

$137,000C $1 20 ,0 00

$137,000D $1 20 ,0 00

$227,000

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17 In relation to cash flow statements, which, if any, of the following arecorrect?

1. The direct method of calculating net cash from operating activities leads to a different figure from thatproducedbythe indirect method, but this is balanced elsewhere in the cash flow

statement.2. A company making high profits must necessarily have a net cash inflow from operatingactivities.3. Profits and losses on disposals of non-current assets appear as items under cash flows from investingactivities inthe cash flow statement or anote to

it.AItem 1only

B I te m 2

onlyC I te m 3

onlyD None of the

items.

18 Acash flow statement prepared in accordancewith IAS7 Cash Flow Statements opens with the calculation of cashflowsfrom operating activities from the net profit beforetaxation.

Which of the following lists of items consists only of items that would be ADDED to net profit before

taxation inthatcalculation

?A Decrease in inventories, depreciation, profit on sale of non-

current assets.B Increase in trade payables, decrease in trade receivables, profit on sale of non-current assets.C Loss on sale of non-current assets, depreciation, increase in tradereceivables.D Decrease in trade receivables, increase in trade payables, loss on sale of non-

current assets.

19 IAS 10 Events after the Balance Sheet Date defines the extent to which events after the balance sheet dateshouldbereflected in financial statements. Five such events are listedbelow.1Merger with another company.

2Insolvency of a customer.

3 Destruction of a major non-currentasset.4 Sale of inventory heldat the balance sheet date for less thancost.5Discovery offraud.

Which three of the listed items are, according to IAS 10, normally to be classified as

adjusting?A 1, 2 and

3B 2, 4 and5C 1, 2 and5D 1, 4 and5

20 In preparing the financial statements of a company, the following items have to beconsidered:1. Thecompanyoffers a one year warranty topurchasers, undertaking toreplace anitem if a defect occurs.Past experience suggests that claims under the warranty will probably

arise.2.The companyhas an action pending against it for damages for wrongful dismissal of a director. Thecompanys

legaladvisor considers it improbable that the action will besuccessful.3. The company has guaranteed the overdraft of a subsidiary. The subsidiary is trading profitably and the

probabilityof a liability arising isremote.

How should these items be reflected in the financial statements,

if atall?A All three should be disclosed by

note.B A provision should be created for the best estimate of the liability in 1, and items 2 and 3

should be disclosedbynote.C A provision should be created for the best estimate of the liability in 1, item 2 should be

disclosed by note anditem 3 not disclosed at

all.D A provision should be created for the best estimate of the liabilities in 1 and 2 and item 3

should be disclosedby

note.

7 [P.T.O.



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21 The analysis of a company s financial statements revealed that the number of days sales in inventory was 80

days. Theaverage for companies in the same industry was 35

days.

Which one of the following isLEAST likely to accountfor the highlevel of 80

days?A The company s trade is

seasonalB Poor inventory

controlC A large purchase was made just before the balance

sheet dateD An increase in the companys sales in the three months before the balancesheet date.

The following data relates to Questions 22 and23.Extracts from a company s financial statements for the year ended 30 September 2001 are givenbelow.Balance sheet Incomestatement

$000$000

Issued share capital 500 Operating profit300Reserves 200Finance cost100

Accumulated profit 800 Profit before tax200Non-currentliabilities:10% loan notes 1,000

22 What is the return on shareholders equity as a percentage, based on

these figures?A40%

B20%

C

133%D 12%

23What is thereturn ontotal capital employed asa percentage, basedon these

figures?A12%

B8%

C133%D 20%

24 Which of the following correctly states items which should be disclosed in the statement of

changes inequityrequired by IAS 1 Presentation of Financial

Statements?ANet profit for theperiod, surpluson revaluation of non-current assets, dividends paid, proceeds

of issue ofshares.

B Proceeds of issue of shares, loan notes issued or repaid, retained profit for the period, surplus onrevaluation ofnon-current

assets.C Profit on ordinary activities, income tax expense, extraordinary

items.D Accumulated profits, reserves, issued share

capital.

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25 Which of the following statements about financial statements are in accordancewith IAS1?

1. Extraordinary items must be disclosed on the face of the income statement as additions to or deductionsfrom profitbefore

tax.2. The authorised share capital of the company must be disclosed by note or on the face of thebalancesheet.3. The total of staff costs for the period must be disclosed by note or on the face of the incomestatement.4. The accounting policies adopted by the company must be disclosed but only if they do not comply withaccountingstandards.

5. Proposed ordinary dividends should not be recognised as liabilities unless they have been proposed ordeclaredbefore the balance sheet

date.A 1, 2, 3 and

4B 1, 2, 3 and

5C 2, 3 and

5D 1, 4 and

5

(50 marks)

9 [P.T.O.



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Section B ALL FIVE questions are compulsory and MUST beattempted

1 The following is anextract from the trial balance ofTafford, a limited liability company, at 30September2001:

$000$000

Warehousemachinery:Cost: 3,000

Accumulateddepreciation at 1 October 20001,700

Motor vehicles:

Cost 1,180

Accumulateddepreciation at 1 October 2000500

Inventory at 1October 200013,000

Sales revenue 41,600

Purchases 22,600

Distribution costs 6,000

Administrative expenses 5,000

Allowance for doubtful debts, 1 October 20001,300

Bad debts written off60010% loan notes (issued 1999) 10,000

Interest paid on loan notes500Suspenseaccount

100

Notes:

(1) Closing inventory at 30 September2001 was $15,600,000.

(2) Bad debts written off and the movement on the allowance for doubtful debts are to be included inadministrativecosts. The allowance for doubtful debts is to be reduced to

$500,000.(3) The balance ont he suspense account is the proceeds of sale of motor vehicles, entered to the suspenseaccountpending correct treatment in the

records.The vehicles sold had cost $180,000 and had a written down value at 1 October 2000 of $60,000. It isthecompany s policy to provide for a full year s depreciation in the year of purchase of vehicles and none in theyear ofsale. The vehicles sold were all used in the distribution of the company s

sales.(4) Depreciation is to be provided for on the straight line basis as

follows:Warehouse machinery 10 percentMotor vehicles25 percent

Depreciation of motor vehicles is to be divided equally between distribution costs and administrativeexpenses, anddepreciation of warehouse machinery charged wholly to distributioncosts.

(5) Prepayments and accruals at 30 September 2001were:

Prepayments Accruals

$000$000

Distribution costs 200100

Administrative expenses 100 60

(6) The estimated income tax expense for the year is$3,000,000.

Required:

Prepare Tafford s income statement, complying as far as possible with the requirements of IAS 1

Presentation ofFinancial

Statements.

(10 marks)

10



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2 You are preparing an income statement and balance sheet for Lamorgan, a sole trader who does not keep

adequateaccounting records.

The following information is available to you to compute the figures for inclusion in the accounts for sales

revenue,purchases and closing inventory for the year ended 30 June2001:

(a) Sales revenue

$

Cash received from credit customers218,500

Cash sales receipts paid into bank114,700Expenses paid out of cash sales before banking9,600Trade receivables: 30 June200041,600

30 June200144,200

R efu nds tocustomers

800

Discountsallowed

2,600

Bad debts writtenoff

1,500

Amount due from credit customer deducted by Lamorgan inpayings up pl ie r saccount

700

Required:Compute the sales revenue figure from thisinformation.

(5 marks)

(b) Purchases

$

P ay me nt s t osuppliers

114,400

Trade payables: 30June200022,900

30 June 2001 24,800

Cost of items taken from inventory by Lamorgan for personal use

400Amount due from credit customer deducted by Lamorgan in

settlings up pl ie r saccount

700

Required

:Compute the purchases figure from thisinformation.

(3marks)

(c) Closing inventory

$

Cost of inventory obtained from physical count on 30 June 200177,700This figure does NOT include any amounts for the two itemsbelow.(i) An inventory line which had cost $1,800 was found to be damaged. Remedial work costing $300 isneededto enable the itemsto be sold for $1,700. Selling expenses of $100 wouldalso beincurred in selling

theseitems

.(ii) Goods sent toa customer on approval inMay 2001were not included in the inventory. Thesale priceof

the goods was $4,000 and the cost $3,000. The customer notified his acceptance of the goods in J uly2001.Note: No adjustment to the sales figure in (a) above is required for thisitem.

Required

:Compute the adjusted closing inventory figure from thisinformation.

(2 marks)

(10 marks)

11 [P.T.O.



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3 On 1 April 1998, Evon Limited acquired 75% ofthe ordinary share capital ofOrset Limited for $180,000. At that

datethe balance sheet of Orset Limited was as

follows:$

Sundry net assets 160,000

Sharecapital100,000 Ordinary shares of $1each 100,000

Accumulatedprofit

60,000

160,000

At 31 March 2001, the balance sheets of the two companies were asfollows:

EvonLtdOrset Ltd

$$

Sundrynet assets 560,000 230,000

Investment in Orset 180,000

740,000 230,000

SharecapitalShares of $1each 500,000 100,000

Accumulatedprofit 240,000130,000

740,000 230,000

Goodwill arising on consolidation is to be amortised over fiveyears.

Required

:Prepare the consolidated balance sheet of Evon Limited and its subsidiary as at 31

March2001.

(10 marks)

4 The IASC s Framework for the Preparation and Presentation of Financial Statements, and IAS 1 Presentation ofFinancialStatements, together present concepts important in the preparation of financial statements, includingmateriality,prudence and comparability amongothers.

Required

:

(a) Explain the meaning of the following terms, giving one example of the application of eachof them:

(i)

Materiality;(ii)

Prudence.

(6marks)

(b) Explain how international accounting standards and the Framework promotecomparability.

(4marks)(10 marks)

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5 The term overtrading is used to describe the condition of an enterprise which is increasing its sales

revenue withinsufficient working capital to support the

increase.

Required

:(a)State FOUR movements in items infinancial statements or inaccounting ratios thatcould indicate

overtrading.(4marks)

(b) State THREE actions a company suffering from overtrading could take to rectify its position, andexplain thelikely effect of the actions you

propose.(6marks)

(10 marks)

End of Question

Paper

13



33/283

Answers



34/283

Part 1 Examination Paper

1.1(INT)Preparing Financial Statements (International

Stream)

Answers

Section

A

1 C Effect oferrors: 2 increased debit 55,360

4 increased credi t21,520

33,840

2 C Items 2, 3 and 4donot affect balancing, items 1 and 5 do.

3 C / x 10%x $36,000= $900312

4 D C ha rg e / x $8 4, 00 0 + / x $ 9 6, 00 0 = $ 9 4, 00 02 1012 12

Prepayment / x $96,000= $16,000212

5 C Cost: $860,000 $80,000+ $180,000 = $960,000

Depreciation:$397,000 $43,000+ 96,000= $450,000

$510,000

6 B $37,000= $18,000+ $20,000= $1,000debit

7 B

8 C Items 1, 3 and 5 would appear in the bank reconciliationstatement,items 2, 4and 6in thecash book.

9 C $68,100+ $41,800 $141,200= $31,300cash atbank

10 A X

$000

6 months to 30 June 20001006 months to 31 December 2000136

236

Less : forbad debt 20

216

11 A ST U

$000$000$000

6 months to 30 June2000:Salaries 15

Profitshare60:40 96 64

6 months to 31 December2000 Salaries 25

Profitshare40:40:20 606030

196124 30

12 C

13 A $

284,000I tem 1 NochangeItem 2 (350) Reduce to net realisablevalue

283,650

14 A

15 C $

Theoretical gross profit30% x $130,00039,000

Actual gross profit

$130,000 $49,800 $88,600+ $32,00023,600

Shortfall missing inventor y 15,400

17



35/283

16 D Sharecapital $75,000+ $15,000+ $30,000= $120,000

Sharepremium $200,000+ $57,000 $30,000= $227,000

17 D 1 , 2 a n d 3 a r e a llincorrect.

18 D

19 B

20C

21D

22 C 200/1 ,500 iscorrect

23A 300/2 ,500 iscorrect

24A

25C

18



36/283

Section

B

1

Tafford Limited

Income statement for the year ended 30 September2001 $000

Revenue 41,600

Cost of sales (20,000)

Gross profit 21,600

Distributioncosts

(6,285)

Administrative expenses (4,885)

Profit from operations 10,430

Financecost

1,000

Profit before tax 9,430

Income tax expense 3,000

Net profitfor theperiod 6,430

Working1

Cost of sa les Dist r ibutionAdministrative costs expenses

$000$000$000

Opening inventor y 13,000

Purchases 22,600

Distributioncosts

6,000

Administrative expenses 5,000

Bad debts 600

Reduction in allowance for doubtfuldebts

(800)

Depreciation: warehouse machinery300 motor vehicles 125

125Profit on sale of vehicles (40)

Prepayments (200) (100)

Accruals

10060

Closing inventory (15,600)

20,0006,285 4,885

2 (a) Sales revenue

Sales revenue to ta laccount

$ $

Opening receivables 41,600 Cash received from customers

218,500Refunds to customers 800Discounts allowed 2,600Baddebts written off1,500

Sales 225,100 Contra purchases700 Closing receivables 44,200

267,500 267,500

$

Credit sales as above 225,100

Cash sales $114,700 + $9,600 124,300

349,400

19



37/283

(b) Purchases

Purchases to ta laccount

$ $

Payments to suppliers 114,400 Opening payables 22,900

Contra sales 700 Lamorgan goods taken400Closingpayables 24,800Purchases 116,600

139,900139,900

(c) Inventory

$

Per inventorycount

77,700

Damaged item: $1,700 $300 $1001,300

Goods on approval 3,000

82,000

3

C os t o f control

$ $

Shares in Orset 180,00075% sharecapital 75,000

75% pre-acquisition profits45,000Accumulated

profitGoodwill written off

3/5 x $60,000 36,000

Balance to CBS24,000

180,000180,000

Minority Interest

$ $

Balance to CBS 57,500 25% share capital25,000 25% accumulated profit

32,50057,500 57,500

Accumulatedprofit

$ $

Minority interest 25% x 130,00032,500 Evon 240,000

Cost of control: 75% x 60,000 45,000 Orset130,000Cost of control: Goodwill written off36,000Balance to CBS

256,500 370,000370,000

Evon LimitedGroup

Balance sheet as at 31 March2001

$ $

Goodwill 60,000

Less:Amortisation 36,00024,000

Sundry net assets 790,000

814,000

Sharecapital500,000 shares of $1 each 500,000

Accumulatedprofit

256,500

756,500

Minority interest 57,500

814,000

20



38/283

4 (a)

(i)Materiality

Information is material to the financialstatements if its misstatement oromission mightreasonably be expectedtoinfluence the economic decisions of users taken on the basis of financialstatements.Example: the amount of an inventory write-down through obsolescence will only be disclosed in financialstatements ifmaterial.

(ii)Prudence

Prudence in accounting means that a degree of caution is necessary when making estimates required underconditions ofuncertainty, so that assets or income are not overstated and liabilities or expenses are notunderstated.Example: In deciding whether to makean allowance foradebt, an allowanceshould be madewhenever there is doubtasto the eventual receipt of thecash.

(b) Comparability is promoted by two mainmeans:(i)The requirement to treat similar items in the same way within each accountingperiod and from one period to thenext, subject to the need to change treatments if,for example, anew accounting standard requires a change. There is also

arequirement when there is a change to disclose full details of itseffect.

(ii) The requirement to disclose accounting policies and changes in them. This makes comparisons with other entitieseasier.

5 (a) Four from:

(i) Longer payment period forsuppliers( ii ) I nc re as in goverdraft( ii i) I n cr ea si nginventories(iv) Deterioration in quick ratio (acidtest)(v) Rapidincrease in sales revenues andtrade receivables.

(b) Three from:

(i) Raise additional long-term capital (equity or loan) this would introduce more cash into the current assetswithoutincreasing the current liabilities, thus improving the working capital

position.(ii) Negotiate an increased overdraftfacility.(iii)Attempt to clear inventories by sales atreduced prices this would generate more cash to pay suppliers and speed upthe working capital

cycle.(iv) Offer cash discounts tocustomers to encourageprompt payment this too would generatemore cash to pay suppliersand speed up the working capital

cycle.(v) Negotiate longer payment periods from suppliers this would ease the pressure on the enterpriseand allow itto

pay suppliers from the proceeds of profitable sales in duecourse.

(vi) Sell non-essential assets this would realise cash to increase workingcapital.Other items marked on their

merits.

21



39/283



Stream)

Marking

SchemeSection

B

AvailableMaximum1 Cost of sales 1

Distributioncosts

3

Administrative expenses 3

Interest 1

Income tax expense 1

Layout 2

1110

2 (a) mark peritem 9 x + layout5(b) mark peritem 5 x + layout3(c) (i) 2

(ii) 2

1010

3 Goodwillcalculation

3

amortisation 1 4 3

M in or i ty i nt er es tcalculation

3 2

Accumulatedprofit:Initial profit figures 1

Minority interest 1

C os t o f control

1

Goodwill written off 1 4 3

Consolidated balance sheetformat

2 2

13 10

4 (a) (i)Explanation 2

Example 1

3

(ii)Explanation 2

Example 1

3 66

(b) Consistency of treatment of items2Disclosure of policies 2

4 4

1010

5 (a) 1 mark per item 4 x1

4

(b) 1 mark per item 3 x1

3

1 markper explanation ofeffect 3 6

1010

23



40/283

Preparing

FinancialStatements

(International Stream)

PART 1

THURSDAY 13 JUNE 2002

QUESTION PAPER




answered

Section B ALL FIVE questions are compulsor y and MUST be

answered



41/283

Section B ALL FIVE questions are compulsory and MUST beattempted

1 Thefollowing information is availableabout the transactions of Marmot, alimitedliability company, for theyearended31December2001.

$000

Depreciation

880

C ash p ai d f or expenses

2,270

I ncr ea se ininventories

370

C as h p ai d t oemployees

2,820

D ec rea se inreceivables

280

C ash p ai d t osuppliers

4,940

D ec re as e i npayables

390

Cashreceived from customers12,800

Net profit beforetaxation*

2,370

*Marmot has no interest payable or investmentincome.Required:Compute Marmots net cash flow from operating activities for the companys cash flow statement for

the yearended 31 December 2001using:(a) the direct

method;(b) the indirect

method.(10 marks)

2 Thefollowing balances appeared inthe balancesheet of Addax, alimited liability company, at 31 March2001.

$

Plant and equipment cost840,000Accumulated depreciation370,000In the year ended 31 March 2002 the following transactions tookplace:(1) Plant which had cost$100,000 with awritten down valueof $40,000was soldfor $45,000on 10December.

(2) New plantwas purchased for $180,000on 1October 2001.

It is the policy of the company to charge depreciation at 10% per year on the straight line basis with a

proportionatecharge in the year of acquisition and no charge in the year of sale. None of the plant was over ten yearsold at31March 2001.

Required

:(a) Prepare ledger accounts recording the above transactions. A cash account is

NOTrequired.

(5 marks)

(b) List the items which should appearin Addaxscashflow statement for the yearended 31 March

2002basedon these transactions and using the indirect method, including the headings under which they

should appear.Note. The headings from IAS 7 are to be

used.

(4marks)(9 marks)

2



42/283

3 The following information is available about the balances and transactions of Alpaca, a limited liability

company.Balancesat 30April 2001$

Non-current assets cost 1,000,000

Non-current assets accumulateddepreciation 230,000

Inventories 410,000

Receivables 380,000

C ash a tbank

87,000

Payables 219,000

Issued share capital ordinary shares of $1 each400,000

Accumulatedprofits 818,000

10% Loan notes 200,000

Loannote interest owing 10,000

Transactions during year ended 30 April 2002: $

Salesrevenue 4,006,000

Purchases 2,120,000

Expenses 1,640,000

Interest on loannotes paid during year 20,000

Issueof 100,000 $1ordinary shares at a premium of 50c per share

There were no purchases or sales of non-current assets during theyear.Adjustments at 30April 2002

(1) Depreciation of $100,000 is tobeallowed for.

(2) Receivables totalling $20,000 are to bewritten off.

Balancesat 30April 2002

$

(1) Inventory 450,000

(2) Receivables (before writing off debts shown above) 690,000

(3) Cash a tbank

114,000

( 4) Tr adepayables

180,000

Required

:Prepare the balance sheet of Alpaca as at 30 April 2002 using the format in IAS 1 Presentation

of FinancialStatements as far as the information available

allows.Note: No formal income statement is required, but your answer should include a workingshowing yourcomputation of the accumulated profit figure in the balancesheet. This working carries 4 of the11marksavailable inall.

(11 marks)

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4 Financial statements must be prepared according to established accounting concepts, many of which may

befoundinthe IASBs Framework for the Preparation and Presentation of FinancialStatements

.

Define and explain the relevance of the following accounting

concepts:( a) G oi ng

concern

(3marks)

(b)

Accruals

(2 marks)

(c) Substance overform

(3marks)

(d) Historical

cost(2 marks)

(10 marks)

5 The summarised financial statements of Weden, a limited liability company engaged in manufacturing,are shownbelow:

Incomestatement Year

ended31 March200131 March2002

$000$000$000$000

Sales revenue 3,200 4,000

Cost of sales

Opening inventory 800 300

Purchases 1,800 3,200

2,600 3,500

less : Closing inventory 300500

(2,300) (3,000)

Gross profit 900 1,000

Expenses (400) (450)

Interestpaid

(100) (200)

Net profit 400 350

Balancesheets31 March200131 March2002

$000$000$000 $000

Non-current assets 1,9704,000

Current assetsInventory 300 500

Receivables trade 600 800

Prepayments 60 70

Cash5010

1,0101,380

2,9805,380

Issued share capital 600600 Share premium account 200 200

Accumulatedprofits 7501,100

1,5501,900

Non-currentliabilities10% loannotes 1,0002,000

CurrentliabilitiesPayables trade 380 1,400

Accruals50430 80 1,480

2,9805,380

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Required:(a) Compute the following five ratios for each of the two

years:(i ) return on capital

employed(ii) return on owners

equity(iii) currentratio(iv) inventory turnover (use closing

figures)(v) number of days purchases in trade

payables

(5 marks)

(b) Comment briefly on the changes in the companys results and position between the two years,

mentioningpossible causes for the

changes.

(5 marks)

(10 marks)

End of Question

Paper

5



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Answers



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Stream)

Answers

SectionB1 (a) Net cash flow from operating activities direct

method $000$000

Cash receipts f romcustomers

12,800

Cashpaid tosuppliers 4,940

Cashpaid toemployees 2,820

Cashpaid forexpenses 2,270

10,030

Net cash flow from operatingactivities

2,770

(b) Net cash flow from operating activities indirectmethodNet profitbefore taxation 2,370

Adjustment for:

Depreciation

880

Operating profit before working capitalchanges

3,250

I nc re as e i ninventories

(370)

Decrease in receivables 280

Decrease in payables (390)

Net cash from operatingactivities

2,770

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2 (a) Plantand equipment cost

2001$ 2001 $

1 April Balance 840,000 10 Dec Transfer disposal100,000 2002

1 Oct Cash 180,000 31 Mar Balance920,000

1,020,0001,020,000

Plant and equipment depreciation

2001$ 2001 $

10 Dec Transfer disposal 60,000 1 April Balance370,00020022002

31 Mar Balance 393,000 31 March Income statement83,000 (74,000 + 9,000)

453,000 453,000

Plant and equipment disposal

2001$ 2001 $

10DecTransfer cost100,00010DecTransfer

depreciation 60,000

2002Cash 45,000

31 MarIncome statement 5,000

105,000 105,000

(b) Addax

Cash flow statement for the year ended 31 March 2002(extracts) $

Cash flow from operatingactivitiesNet profitbefore taxation

Adjustments for:

Depreciation

83,000

Profit on sale of plant (5,000)

Cash flows from investingactivities

Purchase of plant (180,000)

Proceeds ofsaleofplant45,000

3 Alpaca

Balance Sheet as at 30 April2002 $$

ASSETS

Non-current assets:cost 1,000,000accumulateddepreciation

330,000670,000

Current assets:

Stocks 450,000

Receivables 670,000

Cash at bank 114,000

1,234,000

1,904,000

EQUITY AND LIABILITIES

Capitaland reserves

Issued capital 500,000

Sharepremium

50,000

Accumulated prof i ts(working)

964,000

1,514,000

Non-currentliabilities10% Loan notes 200,000

CurrentliabilitiesPayables 180,000

Interestaccrued

10,000190,000

1,904,000

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Working for accumulated

profits $$

Balance at 30 April2001

818,000

Sales revenue 4,006,000

Purchases 2,120,000

Expenses 1,640,000

Opening inventories 410,000

Closinginventories

450,000

Interest payable 20,000

Depreciation

100,000

Bad debts written off 20,000

4,310,0005,274,000

4,310,000

Balance at 30 April2002

964,000

4 (a) GoingconcernThe going concern assumption means that financial statements are prepared on the basis that the business will continuefortheforeseeable future.

The application of the concept is relevant to many items in the financialstatements.(i)Inventoryis valuedonthe basis thatitwillbedisposed ofin sales in thenormal course ofbusiness ratherthanina forced bulk sale.

(ii) Non-current assets are valued at cost less depreciation rather than their immediate salevalue.(iii) Non-current liabilities are distinguished from current liabilities in assessing a companys liquidity

position.

(b) AccrualsThe accruals concept is that income and expenses are recognised in the period to which they relate and not in the

periodinwhich they arepaid.The relevance of the concept is that profit or loss figures would be meaningless if the inclusion of items of income orexpensedepended on whether they had been received or

paid.

(c) Substance overformSubstance over form means thatif the real nature and effect of a transaction differ from its legal form, the real natureandeffect should berecognised insteadof thelegal form, unless legislation prohibits this.

The relevance of the concept is that its application improves the usefulness of the financial statements by preventingcertaincrea t ive account ing

practices.

(d) HistoricalcostThehistorical costconvention is thatassets are recorded attheirinitial cost and arenot subsequently revalued upwards,

andliabilities valued at the amount initially received in exchange for theobligation.The relevance of the convention is that figures remain objectively based on verifiable figures, but in times of highinflationhistorical cost can become a dubious convention tofollow.

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5 (a)

Yearended

31 March 2001 31 March2002( i ) Return on capi tal

employed 500/2,550 196%

550/3,900 141%

(ii) Return on ownersequity 400/1,550 258%

350/1,900 184%

(iii) Currentratio 1,010/430 235:1

1,380/1,480 093:1

( iv) Inventoryturnover 2,300/300 767 times

3,000/500 60 times

(full credit given for correct answer indays)

(v) Payablesdays

1,380/1,800 x 365 77 days

1,400/3,200 x 365 160 days

(b) CommentAll ratios show a marked deterioration in 2002 compared with2001.Return on capital employed (ROCE) and return on owners equity (ROOE) are at reasonable levels in 2002, butareconsiderably below the levels in 2001. A possible cause is the decline in the gross profit percentage caused by reducing

pricestoincreasesales.

ROOE shows areturn in excess ofROCE in both years, andwell in excess ofthe interest payable on theloan, showing that

the shareholders are continuing to benefit from the gearing effect of theloan.The current ratio is seriously reduced to a potentially dangerous level. The consequence is the slowness in payingsuppliers,which must beeroding suppliers goodwill, evidenced bythe increase in creditors days from 77 days to160.In effect, suppliers money is being used to finance the very heavy purchasing of non-currentassets.Theinventory turnover ratio has declined, indicating a possibleslowing ofactivity. The decline could be caused simply

by alargepurchase of goods just before the balance sheet date.

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Stream)

Marking

scheme

Availableand Maximum

1 (a) 1 m ar k p e r item

4

(b) 1 m ar k p e r item

5

Agreement of totals 1

10

AvailableMaximum

2 (a) / mark per entry 12x

/ 651 12 2

(b) 1 mark per item 4 x1

4 4

10 9

3 Accumulateddepreciation

1 1

Receivables 11

Issued capital 11

Sharepremium

1 1

Interestaccrued

1 1

55

Layout and style 2 2

77

Accumulated prof i tsworking/ m ar k p er

item4 / 41 1 22

11 / 1112

4 1(a) Definition 2

Relevance 1 3

1(b) Definition 1

Relevance 1 2

1(c) Definition 2

Relevance 1 3

1 (d ) H is to ri ca lDefinition

1Relevance 1 2

10

5 (a) 1 mark per ratio 5 x1

5

(b) 1 mark per comment 5 x1

5

10

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Preparing

FinancialStatements

(International Stream)

PART 1

THURSDAY 5 DECEMBER 2002

QUESTION PAPER




answered

Section B ALL FIVE questions are compulsor y and MUST be

answered



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Section A ALL 25 questions are compulsory and MUST beattemptedPlease use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple

choice question.Each question within this section is worth 2

marks.

1 Thedebit side ofa trial balancetotals $800morethan thecreditside.Which one of the following errors would fully account for the

difference?A$400 paidfor plantmaintenance hasbeen correctly entered inthe cashbook andcredited to

the plantassetaccoun

t.B Discount received $400 has been debited to discount

allowed account.CA receipt of $800 for commission receivable has been omitted from therecords.D The petty cashbalanceof $800 hasbeen omitted from the trial

balance.

2 A company receives rent from a large number of properties. The total recei ved in the year ended 31 October2002was $481,200.

The following were the amounts of rent in advance and in arrears at 31 October 2001 and2002:

31 October 200131 October 2002

$$

Rent received in advance 28,700 31,200

Rent in arrears (all subsequently received) 21, 200 18,400

What amount of rental income should appearin the companys income statement for the year ended

31October2002?

A$486,500

B

$460,900C $501,500

D$475,900

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3 A company receives rent for subletting part of its office

block.Rent, receivable quarterly in advance, is received asfollows:Date of receipt Period covered$1 October 2001 3 months to 31 December 2001 7,500 -

30 December200131March 2002 7,500

4April 2002 30 June20029,000

1July 200230September 2002 9,000

1October2002 31 December20029,000

What figures, based on these receipts, should appear in the companys financial statements for the

year ended30 November2002?

Income statement Balance

sheetA $34,000 Debit Prepayment (Dr)

$3,000B $34,500 Credit Accrual (Cr)

$6,000C $34,000 Credit Accrual (Cr)$3,000D $34,000 Credit Prepayment (Dr)

$3,000

4 A companys plant and machinery ledger account for the year ended 30 September 2002 was asfollows:

Plant and machinery cost

2001$ 2002 $

1OctoberBalance 381,2001 JuneDisposal accountcost of asset sold36,000

1 December Cash addition 18,000 30 September Balance

363,200399,200 399,200

The companys policy is to charge depreciation at 20% per year on the straight line basis, withproportionatedepreciation in years of purchase andsale.What is the depreciation charge for the year ended 30

September 2002?A$74,440

B

$84,040C$72,640D

$76,840

3 [P.T.O.



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5 The following bank reconciliation statement has been prepared by a trainee

accountant:Bank reconciliation 30 September2002 $

Balance per bank statement (overdrawn)36,840add: Lodgements credited after date51,240

88,080

less: Outstandingcheques

43,620

Balance per cash book

(credit)

44,460

Assuming the amounts stated for items other thanthe cash book balance are correct, what shouldthe cashbookbalance

be?A $44,460 credit as

statedB $60 ,020creditC $29 ,220

debitD $29 ,220

credit

6 Listed below are some possible causes of difference between the cash book balance and the bankstatement balancewhe n p re pa ri ng a b an k reconciliation:(1) Cheque paid in, subsequentlydishonoured.(2) Error bybank

( 3) Ba nk

charges(4) Lodgements credited afterdate(5) Outstanding cheques not yetpresented.Which of these items require an entry in the cash

book?A (1) and (3)

onlyB (1), (2), (3), (4) and

(5)C (2), (4), and (5)

only

D (1), (2) and (3)only

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7Which of the following items could appearon the

credit

side of a receivables ledger controlaccount?

(1) Cash rece ived fromcustomers(2) Bad debts writtenoff(3) Increase in allowance for doubtfuldebts( 4) Disco un tsallowed(5) Sales

(6) Credits for goods returned bycustomers(7) Cash refunds tocustomers

A (1), (2), (4) and

(6)B (1), (2), (4) and

(7)C (3), (4), (5) and

(6)D (5) and

(7)

8 A business has compiled the following information for the year ended 31 October2002:

$

Opening inventory 386,200

Purchases 989,000

Closing inventory 422,700

The gross profit asa percentage of sales is always 40%

Based on these figures, what is the sales revenue for the

year?A$1,333,500

B$1,587,500

C $2,381,250

D The sales revenue figure cannot be calculated from this

information

5 [P.T.O.



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9 Afire on 30 September 2002 destroyed someof acompanysinventory and its inventory records.

The following information isavailable:

$

Inventory 1September2002318,000

Salesfor September2002612,000

Purchases for September2002 412,000

Inventory in good condition at 30September2002214,000

Standard gross profit percentage on sales is 25%

Based on this information, what is the value of the

inventory lost?A$96,000

B

$271,000C$26,400D$57,000

10 Which of the following inventory valuation methods is likely to lead to the lowest figure for closing

inventory atatime when prices are

rising?AAverage cost

BFirst in, first out

(FIFO)C Last in, first out

(LIFO)DReplacement

cost

11Which of the following costs may be included when arriving at the cost of finished goods inventory

forinclusionin the financial statements of a manufacturingcompany?(1) Carriage inwards

(2) Carriage outwards

(3) Depreciation of factory

plant(4) Finished goods storage costs

(5) Factory supervisors wages

A (1) and (5)only

B (2), (4) and (5)

only

C (1), (3) and (5)

only

D (1), (2), (3) and (4)

only

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12 Listed below are some characteristics of financial

information.(1) Neutrality

(2) Prudence

(3)Completeness(4)TimelinessWhich of these characteristics contribute to reliability, according to the IASCs Framework for the

Preparation andPresentation of Financial

Statements?A (1), (2) and (3)

onlyB (1), (2) and (4)

onlyC (1), (3) and (4)onlyD (2), (3) and (4)

only

13Which of the following statements about accounting concepts are

correct?(1) Themoneymeasurement concept is that onlyitems capableof being measured in monetary termscanberecognised in financial

statements.(2) The prudence concept means that understating of assets and overstating of liabilities is desirable inpreparingfinancial

statements.(3) The historical cost concept is that assets are initially recognised at their transactioncost.(4) The substance over form convention is that, whenever legally possible, the economic substance of atransactionshould be reflected in financial statements rather than simply its

legal form.A(1), (2) and

(3)B(1), (2) and

(4)C(1), (3) and

(4)D(2), (3) and

(4)

14 P and Q are in partnership, sharing profits in the ratio 3:2 and compiling their accounts to 30 Juneeachyear.On 1 January 2002 R joined the partnership, and from that date the profit-sharing ratio becameP 50%, Q 25%andR25%, after providing for salaries for Q and Ras follows:

Q$20,000per year

R$12,000per year

The partnership profit for the year ended 30June 2002was $480,000, accruing evenly over the year.

What are the partners total profit shares for the year ended 30

June2002?

PQR

$$$

A 256,000 162,000

62,000B 248,000 168,00064,000C 264,000 166,000

66,000D 264,000 156,000

60,000

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15 The issued share capital of Alpha, a limited liability company, is as

follows:$

Ordinary shares of 10c each1,000,000

8%Preference shares of50ceach500,000

In the year ended 31 October 2002, the company has paid the prefer ence dividend for the year and an

interimdividend of 2c per share on the ordinary shares. A final ordina

13163989 ACCA F3 Financial Accounting INT Solved Past Papers 0107(1)

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