Advanced Financial Accounting - Accounting · PDF fileAFA August 2016 2nd Year Paper Page 1 of 26 Adv Fin Acc(AFA) A2016 Advanced Financial Accounting 2nd Year Examination August 2016

AFA August 2016 2nd

Year Paper

Page 1 of 26 Adv Fin Acc(AFA) A2016

Advanced Financial Accounting 2

nd Year Examination

August 2016

Solutions & Marking Scheme & Examiner’s Comments

AFA August 2016 2nd

Year Paper


NOTES TO USERS ABOUT THESE SOLUTIONS

The solutions in this document are published by Accounting Technicians Ireland. They are intended to

provide guidance to students and their teachers regarding possible answers to questions in our

examinations.

Although they are published by us, we do not necessarily endorse these solutions or agree with the

views expressed by their authors.

There are often many possible approaches to the solution of questions in professional examinations. It

should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by

us. Alternative answers will be marked on their own merits.

This publication is intended to serve as an educational aid. For this reason, the published solutions will

often be significantly longer than would be expected of a candidate in an examination. This will be

particularly the case where discursive answers are involved.

This publication is copyright 2016 and may not be reproduced without permission of Accounting

Technicians Ireland.

© Accounting Technicians Ireland, 2016.

AFA August 2016 2nd

Year Paper


Accounting Technicians Ireland

2nd

Year Examination: Autumn 2016

Paper: Advanced Financial Accounting

NEW SYLLABUS

Monday 8 August 2016

2.30 p.m. to 5.30 p.m.

INSTRUCTIONS TO CANDIDATES

PLEASE READ CAREFULLY

Candidates must indicate clearly whether they are answering the paper in accordance with the

law and practice of Northern Ireland or the Republic of Ireland.

In this examination paper the €/£ symbol may be understood and used by candidates in

Northern Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland

to indicate the Euro.

Answer ALL THREE questions in Section A and TWO of the THREE questions in Section B. If

more than TWO questions are answered in Section B, then only the first TWO questions, in the

order filed, will be corrected.

Candidates should allocate their time carefully.

All workings should be shown.

All figures should be labelled, as appropriate, e.g. €/£’s, £’s, units etc.

Answers should be illustrated with examples, where appropriate.

Question 1 begins on Page 2 overleaf.

AFA August 2016 2nd

Year Paper


SECTION A

Answer ALL THREE Questions in this Section

QUESTION 1

(a) Outline with the use of relevant examples, your understanding of the differences between a rules

based approach and a principles based approach to “corporate governance and ethical behaviour”.

6 Marks (b) Increasingly it is recognised that companies have an obligation to the communities in which they

operate to behave in an ethical manner and not simply with the narrow goal of profit maximisation

for shareholders. This is commonly referred to as Corporate Social Responsibility (CSR). Give two

examples of activities which a company might engage in, to meet its CSR commitments.

6 Marks

(c) Explain why corporate governance has received more attention in recent years and discuss any new

requirements you are aware of, in this area. 4 Marks

(d) The US Government introduced the Sarbanes – Oxley Act 2002 in response to a number of

corporate failures which brought the issue of corporate governance and ethical behaviour by

companies to the fore. Outline three main provisions of this Act. 4 Marks

Total 20 Marks

QUESTION 2 (Compulsory)

The following multiple choice question consists of TEN parts, each of which is followed by FOUR

possible answers. There is ONLY ONE right answer in each part.

Each part carries 1 ½ Marks.

Requirement

Indicate the right answer to each of the following ten parts.

Total 15 Marks

Candidates should answer this question by ticking the appropriate boxes on the special answer sheet

which is contained within the answer booklet.

QUESTION 2

1. Which of the following items is not a category of non-current assets:

(a) Plant & Equipment

(b) Buildings

(c) Motor Vehicles

(d) Trade Receivables

2. A company has opening inventory of €/£10,000, closing inventory of €/£9,000, purchases of

€/£40,000, carriage inwards €/£800, carriage out of €/£500 and purchases returns €/£500.

What is its turnover value for the period if the company has a mark-up of 20% on the cost of

sales?

(a) €/£41,300

(b) €/£49,560

(c) €/£51,625

(d) €/£50,160

AFA August 2016 2nd

Year Paper


3. Payments to shareholders would be shown in the financial statements as:

(a) A dividend.

(b) An expense in the income statement.

(c) A current asset.

(d) Part of share capital.

4. Which of the following statements best explains the term “Liquidity”:

(a) The level of current assets compared to current liabilities.

(b) The level of non-current assets compared to non-current liabilities.

(c) The level of long term loans compared to equity plus long term loans.

(d) The level of share capital compared to share premium.

5. In accordance with FRS 102, section 20 “Leases” which of the following situations would

not lead to a lease being classified as a finance lease:

(a) The lease term is only for a major part of the assets useful life,

(b) The lease transfers ownership of the asset to the lessee at the end of the lease term.

(c) The present value of the minimum lease payments amounts to a relatively low amount

compared to the value of the asset.

(d) The lessee has an option to purchase the asset at a relatively low nominal value at the end

of the lease term.

6. Which of the following methods of allocating rental payments on a finance lease is not one of

the methods as stipulated according to FRS 102, section 20 “Leases”:

(a) The sum of digits method.

(b) The level spread method.

(c) The reducing balance method.

(d) The actuarial method.

7. R. Stubbs is a trader who sells all of his goods at 25% above cost. His books give the

following information:

€/£

Inventory at 1 January 9,872

Inventory at 31 December 12,620

Turnover 60,000

Cost of Goods Sold for the year was:

(a) 45,000.

(b) 50,000.

(c) 48,000.

(d) 60,000.

8. Which of the following must not be included in a calculation of the cost of inventories?

(a) Selling costs.

(b) Inventory transport costs.

(c) Allocation of variable production overheads.

(d) Allocation of fixed production overheads.

9. “A present obligation of the entity arising from past events, the settlement of which is

expected to result in an outflow from the entity of resources embodying economic benefits”

The above statement refers to which of the following?

(a) Income of the entity

(b) An asset of the entity.

(c) A lability of the entity.

(d) Retained earnings of the entity.

AFA August 2016 2nd

Year Paper


10. While preparing a cash flow statement for XYZ Ltd. for the year ended 31st December 2015,

you are given the following information;

The net book value of Equipment on 1st January 2015 was €/£800,000. During the year

Equipment with a net book value of €/£100,000 was sold for €/£150,000. The depreciation

charge on Equipment for the year ended 31st December 2015 was €/£80,000 and the net book

value of Equipment at the 31st December 2015 was €/£750,000.

The value of equipment additions to be included in the cash flow statement is:

(a) €/£100,000

(b) €/£120,000

(c) €/£130,000

(d) €/£180,000

QUESTION 3

You have been asked to help with the financial statements of Manu Ltd. for the year ended 31 March

2015. A trial balance as at 31st March 2015 is shown below.

€/£000 €/£000

Turnover 75,332

Purchases 54,778

PPE – cost 61,088

PPE – accumulated depreciation 25,486

Inventories 1st April 2014 7,865

Interest 200

Accruals 426

Deferred Grant 2,000

Distribution costs 8,985

Administrative expenses 7,039

Retained earnings 23,457

Trade receivables 9,045

Cash at bank 182

8% Bank loan repayable 2020 5,000

Share capital 10,000

Share premium 5,000

Trade payables 2,481

149,182 149,182

The following further information is available

1. The share capital of the company consists of ordinary shares with a nominal value of €/£1

each.

2. The directors propose a final dividend of €/£150,000 for the current year.

3. Depreciation of 10% straight line on Plant and Equipment is included in administration

expenses.

4. The deferred grant amount in the above Trial Balance balance is the unamortised portion of a

grant of €/£2,500,000 which was received in February 2013 in respect of the purchase of

equipment. Grant amortisation for the current year has yet to be calculated and credited

against administration expenses.

5. The inventories at the close of business on 31st March 2015 cost €/£8,407,000. Included in

this figure are inventories that cost €/£480,000, but which can be sold for only €/£180,000.

6. Inventory costing €/£8,000, purchased on credit on March 28, 2015, has not been accounted

for or included in the physical count on March 31 2015.

7. Transport costs of €/£157,000 relating to March 2015 are not included in the trial balance as

the invoice was received after the year-end.

AFA August 2016 2nd

Year Paper


8. Interest on the bank loan for the last six months of the year has not been included in the trial

balance.

9. The corporation tax charge for the year has been calculated as €/£235,000.

10. The directors have decided to transfer €/£1,000,000 from retained profit into a general reserve

sinking fund.

Required

Prepare the following financial statements for Manu Ltd. in accordance with the requirements of FRS

102:

(a) A Statement of Comprehensive Income for the year to 31st March 2015 8 Marks

(b) A Statement of Financial Position as at 31st March 2015. 7 Marks

(c) A Statement of Changes in Equity for the year to 31st March 2015. 4 Marks

(d) The Accounting Policy note in relation to Inventories . 4 Marks

Presentation 2 Marks

Total 25 Marks

SECTION B

Answer TWO of the THREE questions in this Section

QUESTION 4

Sword Ltd

Statement of Comprehensive Income for the year ended 30th June 2015

€/£ '000's Revenue 4,020

Less Cost of Sales 2,060

Gross Profit 1,960

Distribution Costs (816)

Administration &Selling Expenses (294)

Operating Profit 850

Profit on Sale of Plant 100

Loss on Sale of Equipment (20)

Interest Receivable & Similar Income 108

Interest Payable & Similar Charges (128)

Profit before tax 910

Taxation (70)

Profit after tax 840

Statement of Financial Position as at 30th June 2015

2015 2015 2014 2014

€/£’000 €/£ '000 €/£’000 €/£ '000

Non-Current Assets Plant at Cost 2,860 2,060

Accumulated depreciation (860) 2,000 (660) 1,400

Equipment at Cost 1,260 1,140

Accumulated depreciation (660) 600 (620) 520

2,600 1,920

Current Assets Inventory 370 410

Trade Receivables 590 290

Investments 1,000 0

Cash 610 2,570 300 1,000

Total Assets 5,170 2,920

AFA August 2016 2nd

Year Paper


Equity & Liabilities

Capital & Reserves Ordinary Share Capital 2,300 2,000

Share Premium 100 0

Retained Earnings 1,250 450

3,650 2,450

Non-Current Liabilities 12% Debentures 1,200 0

Current Liabilities Trade Payables 205 305

Bank Overdraft 0 100

Dividends Payable 30 10

Taxation 85 320 55 470

Total Equity & Liabilities 5,170 2,920

Additional Information: (i) Depreciation of non-current assets has been charged to distribution expenses.

(ii) Plant with a net book value of €/£600,000 which originally cost €/£1 million was sold during the

year.

(iii) Equipment with a net book value of €/£60,000 which had originally cost €/£200,000 was sold

during the year.

(iv) All additions to non-current assets were paid for in cash.

(v) Dividends of €/£40,000 were declared and approved before the year end.

Requirement

(a) Prepare a Statement of Cash Flows in accordance with FRS 102. 14 Marks

(b) Indicate in the context of a statement of cash flows whether each of the following have a positive

or negative impact on cash generation and why

Decreases in inventory and receivables 2 Marks

Repayment of loans and debentures 2 Marks


Total 20 Marks

QUESTION 5

The accounting records of Posh Ltd included the following balances at 31 December 2014:

Buildings

Cost €/£850,000

Accumulated Depreciation €/£102.000

Depreciation is calculated at 4% annually on a straight line basis

Plant and Machinery

Cost €/£340,000

Accumulated Depreciation €/£ 64,600

Depreciation is calculated at 10% annually on a reducing balance basis

During the year, the following transactions occurred;

AFA August 2016 2nd

Year Paper


1 July 2015

It was decided to revalue the office buildings to €/£810,000 with no change to the estimate of its

remaining useful life;

New plant costing €/£120,000 was purchased.

1 November 2015

Plant that had cost €/£40,000 and with accumulated depreciation of €/£7,600 was disposed of for

€/£35,000.

It is company policy to charge a full years’ depreciation in the year of acquisition and none in the year

of disposal.

Requirement.

(a) Prepare the appropriate ledger accounts to record the above balances and transactions in the

financial statements of Posh Ltd for the year ended 31 December 2015. 12 Marks

(b) Prepare the accounting policy note for non – current assets to be included in the financial

Statements of Posh Ltd for the year ended 31 December 2015 in accordance with FRS 102 Section

17, Property Plant and Equipment. 3 Marks

(c) Calculate the amount at which net Non-current Assets should be included in the Statement of

Financial Position as at 31 December 2015. 3 Marks


Total 20 Marks

QUESTION 6

On 1 January 2012, a company acquires an item of equipment on a finance lease. The fair value of the

equipment on 1 January 2012 is €/£20,000 and the company is required to make four lease payments

of €/£6,654 each. These payments fall due on 31st December 2012, 2013, 2014 and 2015. The rate of

interest implicit in the lease is 12.5% per annum. The equipment is expected to have a useful life of 5

years with no residual value.

Requirement;

Write a report to the Directors of the company detailing;

(a) the differences between a finance lease and an operating lease in the context of FRS102 Section

20, Leases

4 Marks

(b) the finance charge which should be shown in the company’s financial statements in respect of the

above finance lease, for the years ended 31/12/2012 and 31/12/2013.

5 Marks

AFA August 2016 2nd

Year Paper


(c) the company’s liability in relation to the finance lease at the end of each of the years 31/12/2012

and 31/12/2013 and how this liability should be shown in the Statement of Financial position for

each year in accordance with FRS 102 Section 20 Leases.

5 Marks

(d) the carrying amount of the equipment to be included within property, plant and equipment at the

end of each of the years, 31/12/2012 and 31/12/2013 in accordance with FRS102. The company

calculates depreciation on a straight line basis.

4 Marks


Total 20 Marks

AFA August 2016 2nd

Year Paper


2nd

Year Examination: August 2016

Adv. Financial Accounting

Suggested Solutions

and

Examiner’s Comments

Students please note: These are suggested solutions only; alternative answers may also be deemed to

be correct and will be marked on their own merits.

Statistical Analysis – By Question

Question

No. 1 2 3 4 5 6

Average

Mark (%)

37.09% 61.68% 55.84% 44.68% 32.34% 39.53%

Nos.

Attempting

104 111 111 93 80 43

Statistical Analysis - Overall

Pass Rate 49%

Average Mark 45.02

Range of Marks Nos. of Students

0-39 48

40-49 20

50-59 45

60-69 13

70 and over 6

Total No. Sitting Exam 132

Total Absent 28

Total Approved Absent 14

Total No. Applied for Exam 174

General Comments:

GENERAL COMMENTS ON THE PAPER AS A WHOLE:

The pass rate for this paper was poorer than previous repeat sittings. However taken together with the

particularly strong pass rate at the summer sitting, the overall pass rate for the year was still quite

strong. The majority of students failing this paper, failed because they did not attempt the required

number of questions. A number of students attempted 3 or less questions.

AFA August 2016 2nd

Year Paper


Examiners Comments on Question One

Solutions

Question 1

(a)

The “ rules based approach” to corporate governance and ethical behaviour is based on the premise

that the development of rules and standards and the enforcement of those rules, is necessary if

companies are to behave in an ethical manner. The view is that if there are no rules or rules which

cannot be enforced there can be no assurance that even a minimum level of ethical behaviour is being

observed. An example of a rules based approach is the Sarbanes – Oxley Act of 2002 in the USA. This

is a large volume of rules covering a wide range of areas which companies are obliged to follow in the

interest of good corporate governance and ethical behaviour.

3 marks

The “principles based approach” is based on the assumption that it is not possible to establish a set of

rules that are applicable to all companies in all situations and that it is more appropriate to establish a

code or set of principles, which companies would be encouraged to apply. Ireland and the UK favour

the principles based approach and the UK Corporate Governance Code which is a culmination of a

number of past reports sets out a standard of good practice and ethical behaviour encompassing,

director’s, auditor’s and shareholder behaviour. Public companies in Ireland and the UK are expected

to comply with the code though not legally obliged to do so.

3 marks

(b)

Examples of companies behaving in a socially responsible manner would include, Employing

members of the local community, buying local produce, sponsoring local activities,

3 marks

Promoting safe and healthy living, including health warnings where appropriate on their products,

monitoring sale of company products to the underage if sale is not appropriate, and responsible

advertising.

3 marks

(c) The Enron and Worldcom scandals in the US , the recent Financial crisis worldwide and

specifically the recent banking crisis in Ireland all raised concerns from a corporate governance

perspective and in particular whether light touch regulation is sufficient to ensure that companies

behave in an ethical manner. The US Government introduced the Sarbanes- Oxley Act in 2002 which

prescribes rules and regulations for good corporate governance and ethical behaviour by companies. In

the UK ,the UK Corporate Governance was which was issued in2011 has been revised a number of

times, most recently in 2014 One addition to the code at that stage was the emphasis placed on the

role of shareholders in monitoring the company and holding the directors to account. The code requires

all public companies to report to shareholders on how they have applied the code.

2 marks for reason and 2 marks for new requirements.

(d) Three of the provisions of the Sarbanes- Oxley Act 2002 are;

(i) The chief executive officer and the chief financial officer are required to take personal

responsibility for the accuracy of the financial statements.

(ii) A Company (other than a bank) cannot lend money to its directors or executives under any

circumstances.

(iii) Directors and senior executives cannot trade in the company shares during black- out periods.

These black-out periods run from 15 days prior to the announcement of results to two days after the

announcement of results. 4 marks

Students scored either quite well or quite poorly in this question. Students who scored quite poorly

seemed to have very little knowledge of the material covered in chapter 15 of the text.

AFA August 2016 2nd

Year Paper


Examiners Comments on Question Two

Total

Marks

Question

2

1.5 marks

per

question

Part

Solution

1

(d)

2

(b) 41300 =COS 8260 Profit 49560 Turnover

3

(a)

4

(a)

5

( c)

6

(b)

7

( c) 12000

= markup

(60000/5)

60000-12000

= 48000

8

( a)

9

( c)

10

(c )

750000- (800000-

100000-80000)

Fair overall result.

AFA August 2016 2nd

Year Paper


Examiners Comments on Question Three

Question 3

Presentation 2

(a)

Statement of Comprehensive

Income for the year ended

31st March 2015

Total

Marks

€ '000 € '000

Revenue

75,332 1

Cost of sales

54,536 2

Gross Profit

20,796

Distribution costs 9,142 1.5

Admin expenses 6,789

15,931 1.5

Profit from operations

4,865

Finance Costs

400 1

Profit before tax

4,465

Taxation

235 1

Profit for the year

4,230

This was the highest scoring question for most students and was in general well answered.

AFA August 2016 2nd

Year Paper


(b)

Statement of Financial Position as at 31st

March 2015

€ '000 € '000

Assets

Non-current assets

PPE

35,602 1

Current Assets

Inventories 8,115

1

Trade Receivables 9,045

1

Cash at bank 182 17,342 0.5

52,944

Equity

Ordinary share capital

10,000

Share premium account

5,000

General Reserve

1000

1 for all

4

numbers

Retained earnings

26,687

42,687

Liabilities

Non-current liabilities

Bank loans 5,000

0.5

Deferred Grant 1750 6,750 1

Current liabilities

Trade payables 2,489

Accruals 783

1 for all

three

numbers

Taxation 235 3,507

52,944

*Note that inventories are valued at the lower

of

Cost and NRV (FRS102)

AFA August 2016 2nd

Year Paper


(c)

Statement of changes in equity for the year to 31st

March 2015

Share

Share

Premium General Retained Total Marks

Cap Reserves Reserve Earnings Equity

Balance at 31st March 2014 10000 5000 0 23457 38457 1

Profit for the period

4,230

4,230 1

Reansfer to General Reserve 1000 -1000 1

Dividend paid

Balance at 31st March 2015 10000 5000 1000 26687 42687 1

(d)

Note to the Accounts

Accounting Policies

Inventories

4

marks

Inventories are stated at the lower of cost and net

realisable value.

Costs includes cost of purchase and all costs incurred

in bringing the inventory to

the company's business premises.

Net realisable value is the actual of estimated selling

price of the inventory less all costs incurred in

marketing, selling and distribution.

Workings

Note 1: Closing inventory

Closing inventories 8,407

Less reduction in value (480-180) 300

8,107

Add cut off error 8

8,115

Note 2

Purchases per trial balance 54778

Add cut off error 8

54786

Note 3: Cost of sales

Cost of sales

Opening inventory 7,865

Add purchases 54,786

Less closing inventory - 8,115

54,536

AFA August 2016 2nd

Year Paper


Note 4

Administration costs

Per Trial Balance 7039

Less grant amortisation -250

6789

Note 4: Distribution costs

Distribution costs per trial balance 8,985

Add closing accrual transport costs 157

9,142

Accruals per trial balance 426

Add transport accruals 157

583

Note 5: Loan interest

Loan interest per trial balance 200

Loan interest accrual 5000@8% - 200 200

Finance costs 400

Accruals per note 4 583

Add finance cost accrual 200

Total accruals 783

Note 6: Corporation Tax

Corporation tax 235

Expense in income statement and current liability in

statement of financial position

Note 7: Non curent assets

PPE cost 61,088

Accumulated depreciation 25,486

35,602

Note 8

Trade Payables 2481

Add cut off error 8

2489

AFA August 2016 2nd

Year Paper


Examiners Comments on Question Four

Question 4

Total

Marks

Allocated

Presentation 2

Sword Ltd

Statement of Cash Flows for the Year ended 30th June

2015

‘000 ‘000 ‘000

Cash Flow from Operating Activities

Operating Profit 850 1

Adjust for'

Depreciation of Plant (1b) 600 1

Depreciation of equipment (2b) 180 1

(Increase)/decrease in Inventories 40 0.5

(Increase)/decrease in trade receivables -300 0.5

Increase/(decrease) in trade payables -100 420 0.5

Interest paid -128 0.5

Taxation paid -40 1

Net cash flow from operating activities 1102

Cash Flow from Investing Activities

Payments to acquire plant -1,800 0.5

Payments to acquire equip. -320 0.5

Receipts from sale of plant 700 0.5

Receipts from sale of equip 40 0.5

Interest received 108 0.5

Dividends paid -20 1

Net cash flow from investing activities -1292

Cash Flow from Financing Activities

Issue of 12% debenture loan 1,200 1

Issue of ord. share cap. (incl share prem) 400 1,600 1

Net cash flow from financing activities

1410 0.5

Cash & Cash equivalents at the beginning of the period 200 1

Cash & Cash equivalents at the end of the period 1610 1

14

Students continue to find cash flows difficult. Some students who calculated the adjustments correctly

got the signs incorrect (e.g. added back rather than subtracted and vice versa), suggesting a lack of

understanding of the reason for the adjustment.

AFA August 2016 2nd

Year Paper


Working 1:Plant

Additions

Opening Balance 2,060

Disposal -1000

1060

Closing balance 2,860

Additions 1,800

Depreciation

Opening Balance 660

On disposal -400

260

Closing Balance 860

Charge for Yr (bal fig) 600

Disposal Account

Cost 1,000

Accum. Depreciation -400

NBV 600

Profit on sale 100

Cash Recd. 700

Working 2: Equipment

At Cost

Opening Balance 1,140

Disposal -200 (200)*

940

Closing Balance 1,260

Additions (bal fig) 320

Accumulated Depreciation

Opening Balance 620

On disposal* -140

480

Closing balance 660

Charge for yr (bal) 180

Cost – Dep = NBV 200,000-60,000=140,000

Disposal Account

AFA August 2016 2nd

Year Paper


Cost 200

Acc. Dep -140

60

Loss on disposal -20

Cash Recd. (bal) 40

Working 3: Dividends

Opening Balance 10

Dividends Declared 40

Closing balance -30

Paid 20

Working 4: Taxation

Opening balance 55

Income statement 70

Closing balance -85

Paid 40

(b) A decrease in inventory over the year would have a positive impact on cash balances

as it would suggest that less cash is being absorbed in maintaining inventory levels. 2 marks

Likewise a decrease over the year in receivables would have a positive impact on cash

balances

as it would suggest that receivables were being collected more efficiently, resulting

in greater and more timely cash generation.

Repayment of loans and debentures during the year would absorb cash and so would have 2 marks

a negative impact on cash balances.

AFA August 2016 2nd

Year Paper


Examiners Comments on Question Five

(a)

2 marks

Buildings A/c (at valuation)

Dr

Cr

01/01/2015 Bal.b/d 850000 31/12/2015 Revaluation surplus 40000

31/12/2015 Balance c/d 810000

850000

40000

01/01/2016 Bal b.d 810000

2 marks

Accumulated Depreciation - Buildings

Dr.

Cr

01/07/2015 Revaluation surplus 102000 01/01/2015 Bal. b/d 102000

31/12/2015 Balc/d 36818 31/12/2015 SOCI 36818 *

138818

138818

01/01/2016 Bal b/d 36818

* Depreciation based on revalued amount and remaining useful life

= 810000/22 = 36818

25 years useful life in total. At 1/1/2015 3 years depreciation already charged. 22 years remaining

2 marks

Revaluation Surplus - Buildings A/C

Dr.

Cr.

31/12/2015 Buildings a/c 40000 01/07/2015 Accumulated dep.Buildings 102000

31/12/2015 Balance c/d 62000

01/01/2016 Bal b/d 62000

Many students made very fundamental mistakes in the ledger accounts. Even the very basic information

such as the opening balances were presented on the wrong sides of the ledger accounts.

AFA August 2016 2nd

Year Paper


2 marks

Plant and Machinery A/C

Dr.

Cr.

01/01/2015 Bal.b/d 340000 01/11/2015 Disposal A/C 40000

01/07/2015 Bank 120000 31/12/2015 Bal c/d 420000

460000

01/01/2016 Bal b/d 420000

2 marks

Accumulated Depreciation - Plant and Machinery

Dr.

Cr.

01/11/2015 Disposal 7600 01/01/2015 Bal.b/d 64600

31/12/2015 Bal c/d 93300 31/12/2015 SOCI 36300

100900

100900

01/01/2016 Bal. b/d 93300

1 mark

Bank

A/C

Dr

Cr

01/11/2015 Plant & Machinery 35000 01/07/2015

Plant &

Machinery 120000

1 mark

Disposal A/C

Dr

Cr

01/11/2015

Plant &

Machinery 40000 01/11/2015 Depreciation 7600

31/12/2015 SOCI 2600 01/11/2015 Bank 35000

42600

42600

AFA August 2016 2nd

Year Paper


SOCI

Administration Expenses

Depreciation - blds

36818

Depreciation - plant and machinery 36300

Profit on sale of Plant

-2600

(b)

3 marks

Accounting Policies

Non - Current Assets

Buildings are stated at valuation

Other fixed assets are stated at cost less accumulated depreciation

Depreciation is calculated so as to write off the cost or valuation of non current assets

over their estimated useful on the following basis;

Buildings - 4% straight line

Plant and Machinery - 10% reducing balance

(c)

3 marks

Statement of Financial Position as at 31 December 2015

Non Current Assets

Buildings

773182

Plant and Machinery

326700

1099882

2 marks for Presentation

AFA August 2016 2nd

Year Paper


Examiners Comments on Question Six

Question 6

Workings

Total lease payments

is: €6,654 x 4 = €26,616

Fair value of equipment

€20,000

Finance charge

€6,616

Finance charge using actuarial method

Year Liability Finance

Lease

Liability

b/f charge @ 12.5%

payment

c/f

2012 20000 2,500

6,654

15,846

2013 15,846 1,981

6,654

11,173

2014 11,173 1,396

6,654

5,915

2015 5,915 739

6,654

0

6,616

26,616

Not a popular question. Many of the students who did answer this question did not provide the required

“Report” format, losing easy presentation marks.

AFA August 2016 2nd

Year Paper


Report

2 presentation marks

for report format

To: Directors of A Company Ltd

From : Auditors and Co

Re: Accounting Treatment of Finance

Leases

We are writing to outline the key information to be included in the Financial Statements of the company

in respect of the finance lease of equipment entered into on 1 January 2012

(a) A finance lease is a lease that transfers substantially all the risks and rewards of ownership of an asset from the lessor to the lessee.

2 marks

Legal title of the asset may or may not be eventually transferred. Typically in a finance lease arrangement the present value of the lease payments

2 marks

An operating lease is any lease other than a finance lease.

2 marks

2 marks

(b) The finance charges in respect of the lease, to be included in the financial statements for the years 31/12/2012 and 31/12/2013

are;

Finance charge to be shown in Financial Statements - year ended 31/12/2012 2,500

2.5 marks

Finance charge to be shown in Financial Statements - year ended 31/12/2013 1,981

2.5 marks

AFA August 2016 2nd

Year Paper


(c)

The liability in respect of Finance lease to be shown in Financial Statements for the years ended

31/12/2012 and 31/12/2013 are as follows;

Year Ended 31/12/2012

Current Liabilities

Capital element of finance lease 4,673

Non - current liabilities

2.5

marks


Year Ended 31 December 2013

Current Liabilities


Non - current liabilities

2.5

marks


(d)

FRS102 requires that depreciation be

calculated on the equipment by

reference to lower of useful life or lease

term.

Accordingly depreciated should be

calculated by reference to 4 years- the

lease term.

The annual depreciation assuming

straight line and no residual value is

5000 for each of the 4 years

The carry amount of the equipment to

be included within property plant and

equipment is as follows;

Year ended 31/12/2012

15000

2 marks

Year Ended 31/12/2013

10000

2 marks

Signed

Auditors & Co

Documents

Advanced Financial Accounting - Accounting · PDF fileAFA August 2016 2nd Year Paper Page 1 of 26 Adv Fin Acc(AFA) A2016 Advanced Financial Accounting 2nd Year Examination August 2016