Ffa12efmq a Low Res

FFFA12 EFM Questions This examination has been prepared for examinations from February 2013 to January 2014

FIA FFA / ACCA PAPER F3 Financial Accounting

Final Mock Examination

Question Paper

Time allowed 2 hours

ALL 50 questions are compulsory and MUST be attempted.

Instructions: Please attempt this exam under test conditions.

Take a few moments to review the notes on the inside of this page titled, Tackling Multiple Choice Questions before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

FFA/F3 FINANCIAL ACCOUNTING

QUESTIONS

1 FFFA12 EFM Questions This examination has been prepared for examinations from February 2013 to January 2014

Tackling Multiple Choice Questions

MCQs are part of all FIA exams and Papers F1 F3 of the ACCA qualification. The questions in the paper based exams are all MCQ and a large proportion of questions in the CBE are also MCQ.

The MCQs in your exam contain four possible answers. You have to choose the option that best answers the question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam.

You may wish to follow the approach outlined below, or you may prefer to adapt it.

Step 1 Skim read all the MCQs and identify what appear to be the easier questions.

Step 2 Attempt each question starting with the easier questions identified in Step 1. Read the question thoroughly. You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning. Adopt the method that works best for you.

Step 3 Read the four options and see if one matches your own answer. Be careful with numerical questions as the distracters are designed to match answers that incorporate common errors. Check that your calculation is correct. Have you followed the requirement exactly? Have you included every stage of the calculation?

Step 4 You may find that none of the options matches your answer.

Re-read the question to ensure that you understand it and are answering the requirement

Eliminate any obviously wrong answers Consider which of the remaining answers is the most likely to be correct and select the

option

Step 5 If you are still unsure make a note and continue to the next question

Step 6 Revisit unanswered questions. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect answers, so never leave a question unanswered!

After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the requirement and options carefully do not assume that it is identical.


2 2 FFFA12 EFM Questions This examination has been prepared for examinations from February 2013 to January 2014

Answer all questions - Use the answer sheet at the end of this exam to record your answers

1 Bill, a sole trader, set up business on 1 October 20X8 with $30,000 of his own money. During the year to 30 September 20X9 he won $50,000 on the lottery and paid $30,000 of this into his business. He took cash drawings of $5,000 during the year and at 30 September 20X9 the net assets of the business totalled $59,000.

What was the profit or loss of the business for the year ended 30 September 20X9?

A $4,000 profit

B $6,000 profit

C $16,000 loss

D $6,000 loss (2 marks)

2 Which of the following statements about associates is correct?

(1) Associates are accounted for in consolidated financial statements using the equity method.

(2) A company must hold 20% or less of the voting rights of another company for it to be classed as an associate.

(3) An associate is an entity in which the investor has significant influence.

(4) When an associate is accounted for in group accounts, only the groups share of the associates profit before tax is added to the group profit.

A 1, 3 and 4

B 2, 3 and 4

C 1 and 3

D 3 and 4 (2 marks)

3 A business has sales of $100,000 during a year. Opening inventory was $15,000 and purchases were $75,000. If the gross profit was $15,000, what was closing inventory?

A $5,000

B $10,000

C $25,000

D $55,000 (2 marks)

4 The total of the balances in a company's trade receivables ledger is $800 more than the debit balance on its trade receivables control account. Which one of the following errors could by itself account for the discrepancy?

A One receivables ledger account with a credit balance of $800 has been treated as a debit balance.

B Settlement discounts totalling $800 have been omitted from the nominal ledger.

C The sales day book has been undercast by $800.

D The cash receipts book has been undercast by $800. (2 marks)

QUESTIONS


5 When reviewing the nominal ledger, the trade receivables account was as follows:

RECEIVABLES LEDGER CONTROL ACCOUNT

$ $ Balance b/d 150 ??? 75 Sales 2,000 Cash received 1,875 Balance c/d 200

The narration for the $75 entry was illegible. What could the entry have been?

(1) Contra (2) Irrecoverable debt write off (3) Doubtful debt allowance (4) Returns outwards

A 1 only

B 1 or 2 only

C 2 or 3 only

D Any of them (2 marks)

6 Steves working capital ratios are as follows:

20X1 20X2

Quick ratio 1.0 0.8

Payables days 29 37

Receivables days 63 42

Inventory turnover 28 20

Which of the following statements is correct?

A The cash operating cycle has lengthened in 20X2.

B Steve has taken advantage of early settlement discounts offered by suppliers in 20X2.

C Steve is taking longer to sell his inventory in 20X2.

D Steve has offered early settlement discounts to customers in 20X2. (2 marks)

7 Which of the following statements about non-controlling interests is correct?

(1) Non-controlling interest is the equity in a subsidiary which is not attributable to the parent company.

(2) Non-controlling interest is accounted for using the equity method.

(3) Non-controlling interest is shown in the statement of financial position at its fair value at acquisition plus the non-controlling interests share of pre-acquisition retained earnings and other reserves.

A 1 and 3

B 2 and 3

C 1 only

D 2 only (2 marks)



8 On 1 December 20X8 Gilbert's payables ledger control account had a balance of $3,200 (credit).

During the month the following transactions occurred:

$ Payments to suppliers 2,500 Cash purchases 300 Purchases on credit 3,300 Returns outwards 750

What is the balance on the control account as at 31 December 20X8?

A $1,850

B $3,250

C $3,350

D $4,750 (2 marks)

9 A company has prepared draft accounts for the year ended 31 March 20X9 incorporating the managing director's bonus of 4% of net profit.

It has now been discovered that the draft accounts omitted trade discounts allowed to customers of $100, cash discounts allowed from suppliers of $400 and a rent prepayment of $200.

What is the adjustment required to the income statement in respect of these errors?

A $480 Cr

B $680 Cr

C $500 Cr

D $630 Cr (2 marks)

10 A trader has budgeted sales for the coming year of $275,000. He achieves a constant mark-up of 25%. He plans to reduce his inventory level by $14,000 over the year.

What will his purchases for the year be?

A $192,250

B $206,000

C $206,250

D $220,000 (2 marks)

11 Harry has been unable to calculate his business' profit or loss for the year ended 31 December 20X8 as fire destroyed most of his accounting records. He has, however, been able to provide the following information.

(1) Net assets at 31 December 20X7 were $23,000 and $32,500 at 31 December 20X8.

(2) He introduced capital during the year of $4,000 cash.

(3) He took cash drawings of $2,500 and goods with a selling price of $800; the cost of the goods was $750.

What was Harry's profit or loss for the year ended 31 December 20X8?

A $8,750 profit

B $1,750 loss

C $9,800 profit

D $2,750 loss (2 marks)

QUESTIONS


12 The following information is available for the year ended 31 December 20X8 for Ski, a well-run company: $ Opening cash 1,000 Closing cash 2,000 Opening balance on the trade payables control account 8,000 Closing balance on the trade payables control account 10,000 Opening balance on the trade receivables control account 12,000 Closing balance on the trade receivables control account 14,000 Cash paid to trade accounts payable in the period 9,000 Opening inventory 6,000 Closing inventory 7,000

Mark-up of 10%

Assuming the information above is complete, what was the sales figure for the period?

A $6,600

B $10,000

C $11,000

D $13,200 (2 marks)

13 Which of the following errors could result in a suspense account being required to 'balance' the trial balance?

A Cash received from credit customers treated as a cash sale.

B A supplier's invoice for $32 recorded as $23 in the purchases account.

C Payments to suppliers of $647 recorded as $674 in the payables ledger.

D One page omitted from the purchase day book. (2 marks)

14 Jennas receivables collection period has changed from 54 days to 41 days. Which of the following reasons could explain this?

A Jenna has taken advantage of early settlement discounts offered by suppliers.

B Some key suppliers have decreased their payment terms from 60 days to 30 days.

C Jennas payment terms for customers have been increased from 30 days to 60 days.

D Early settlement discounts have been offered to customers. (2 marks)

15 A car has a list price of $23,500 but the garage gives the company a trade discount of $2,350. In settlement the garage accepts a cheque for $18,000, together with an old company car on which it grants a trade-in allowance of $3,150. How much should the company capitalise?

A $21,150

B $23,500

C $18,000

D $20,350 (2 marks)



16 Which of the following errors would result in a trial balance imbalance?

(1) The discounts allowed balance was listed as a credit on the trial balance.

(2) Drawings for the last month of the year had been posted to the sundry expenses account.

(3) A contra settlement had been recorded only in the receivables and payables ledgers.

A (3) only

B (1) only

C (1) and (2)

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

17 During the year ended 30 June 20X9 Joy purchased $84,300 of inventory for resale. Over the year, inventory held fell by $4,100. She used a mark up of 25%.

What was the gross profit for the year?

A $26,734

B $29,467

C $22,100

D $20,050 (2 marks)

18 Orange acquired 75% of the voting shares of Green. Green had the following equity at the date of acquisition:

$

Ordinary shares 750,000

Retained earnings 325,000

The cost of the investment was $975,000 and the fair value of the non-controlling interest at acquisition was $225,000.

What was the goodwill on acquisition of Orange?

A $100,000

B $125,000

C 312,500

D $393,750 (2 marks)

QUESTIONS


19 Extracts from a company's statements of financial position show the following non-current assets.

30 June 20X8 20X9 $ $ Intangible assets Development expenditure 60,000 95,000 Property, plant and equipment Freehold property 750,000 1,230,000 Plant and machinery 320,000 370,000 Fixtures and fittings 105,000 90,000

The expenditure for the year on development projects had been $55,000. The building element of the freehold property was depreciated by $6,000 and then revalued on 30 June 20X9 by $95,000. Plant and machinery with a carrying amount of $14,000 was disposed of in November 20X8 for $8,000. Depreciation on the other plant and machinery for the year amounted to $37,000. Depreciation of $35,000 has been charged on fixtures and fittings.

What is the total figure relating to non-current assets included in the reconciliation of profit before tax to cash flows from operating activities?

A $84,000

B $92,000

C $98,000

D $104,000 (2 marks)

20 There is $100 in the cash till at the year-end for Demon, but the accountant had discovered that some cash has been stolen. At the beginning of the year there was $50 in the cash till and receivables were $2,000. Total sales for the year were $230,000. Receivables at the end of the year were $3,000. Cheques banked from credit sales were $155,000, and cash sales of $50,000 have been banked.

How much cash was stolen during the year?

A $23,950

B $24,050

C $24,150

D $30,040 (2 marks)

21 An extract from a business' income statement is:

$ $ Sales 115,200 Opening inventory 21,000 Purchases 80,000 101,000 Closing inventory 5,000 96,000 19,200

What is the mark up achieved?

A 16.6%

B 20%

C 24%

D 69.4% (2 marks)



22 The current liabilities of A include the following: 20X8 20X7 Taxation payable $25,000 $20,000

The tax charge in the income statement for the year ended 20X8 is $27,000.

What figure would the statement of cash flows for the year ended 20X8 show for taxation paid?

A $32,000

B $22,000

C $27,000

D $25,000 (2 marks)

23 Which of the following would feature in the statement of changes in equity?

(1) Share premium

(2) Warranty provision

(3) Revaluation surplus

(4) Retained earnings

A All of them

B 1, 2 & 3 only

C 1, 3 & 4 only

D 2, 3 and 4 only (2 marks)

24 The trial balance of Z failed to agree, the totals being: debit $836,200

credit $819,700

A suspense account was opened for the amount of the difference and the following errors were found and corrected:

(1) The totals of the cash discount columns in the cash book had not been posted to the discount accounts. The figures were discount allowed $3,900 and discount received $5,100.

(2) A cheque for $19,000 received from a customer was correctly entered in the cash book but was posted to the receivables ledger control account as $9,100.

What will be the remaining balance on the suspense be after the correction of these errors?

A $25,300 credit

B $7,700 credit

C $27,700 debit

D $5,400 credit (2 marks)

25 Which of the following statements about discounts is correct?

(1) Trade discounts received should be deducted from the gross sales price.

(2) Settlement discounts received are deducted from the cost of purchases.

A 1 only

B 2 only

C 1 and 2

D Neither (2 marks)

QUESTIONS


26 Which of the following can be included in the cost price of inventories? (1) Distribution costs incurred when selling the finished inventories (2) Directly attributable handling costs incurred when purchasing the raw materials (3) Salesmens wages incurred when selling the finished inventories (4) Fixed production overheads incurred when manufacturing the inventories

A 1, 2 and 4

B 2 and 4

C 1 and 3

D 1, 3 and 4 (2 marks)

27 Which of the following would be classified as cash and cash equivalents in accordance with IAS 7 Statement of cash flows?

(1) Petty cash held in the petty cash tin

(2) Bonds redeemable in three weeks time

(3) Current account balance at the bank

(4) Ordinary shares held in another company

A 1 and 3

B 1, 2 and 3

C 2 and 4


28 Which of the following statements about material errors is correct?

(1) Material errors relating to prior periods should be corrected through net profit or loss of the current period.

(2) IAS 8 Accounting policies, changes in accounting estimates and errors requires various disclosures to be made in respect of material prior period errors, including the nature of the error and the amount of the correction for the current period and the prior period.

A 1 only

B 2 only

C 1 and 2

D Neither (2 marks)

29 Which of the following is a correct representation of the business equation?

A Opening net assets = Closing net assets + drawings profit capital introduced

B Closing net assets = Opening net assets + capital introduced profit + drawings

C Capital introduced = Closing net assets + drawings + profit opening net assets

D Profit = Closing net assets + drawings + capital introduced opening net assets

(2 marks)



30 Marigold purchased 80% of the 100,000 $1 ordinary shares in Amber for $162,000 when Ambers retained earnings were $28,000. The fair value of the non-controlling interest was $35,000. What is the value of goodwill arising on acquisition of Amber?

A $19,000

B $54,000

C $69,000

D $89,000 (2 marks)

31 Sam owns a business selling timber to trade customers only. During the year ended 30 June 20X6, a salesman from one of Sams biggest trade customers tripped over some unstacked timber and fell on the warehouse floor. Shortly before the year-end, Sam received a letter from the solicitor of the customer, stating that it was going to take Sam to court as a result of the accident. The letter stated that if Sam wanted to come to an arrangement out of court, the customer was willing to settle for $25,000; otherwise the customer would be claiming $50,000. Sams solicitor has advised him to settle out of court as there is a good chance of the case coming to court and Sam losing.

How much should Sam include as a provision in the accounts for the year ended 30 June 20X6?

A Nil

B $25,000

C $50,000

D $75,000 (2 marks)

32 Which of the following statements about share capital is correct?

(1) Authorised share capital is the maximum amount of share capital that a company is empowered to issue.

(2) The amount of authorised share capital cannot be changed.

(3) The amount of issued capital cannot exceed the amount of authorised capital.

A 1, 2 and 3

B 1 and 3

C 2 and 3

D 1 and 2 (2 marks)

33 Which of the following must be disclosed for a revalued tangible non-current asset?

(1) Whether an independent valuer was used

(2) The qualifications and experience of the valuer

(3) The basis used to revalue the assets

(4) A comparison of the depreciation charge based on revalued amount and cost.

A 1, 2 and 3

B 2, 3 and 4

C 1 and 3

D 2 and 4 (2 marks)

QUESTIONS


34 Purple Co has the following amounts on its statement of financial position at the year-end. $ Tangible non-current assets 133,750 Intangible assets 15,800 Inventory 27,400 Receivables 17,430 Cash at bank and in hand 3,200 Bank overdraft 1,500 Trade payables 34,340 Five year bank loan 50,000 Provisions 5,700

What is Purple Cos debt ratio?

A 18.1%

B 45.9%

C 46.3%

D 74.6% (2 marks)

35 Pink Co acquired 80% of the ordinary share capital of Turquoise Co some years ago. The following information relates to Turquoise Co for the year ended 31 December 20X1.

$

Sales revenue 265,000

Cost of sales 88,000

Administration expenses 45,000

Taxation 12,000

What is the profit attributable to the non-controlling interest in the consolidated income statement?

A $24,000

B $26,400

C $96,000

D $105,600 (2 marks)

36 Simran has two business bank accounts for her companys use: one is a current account and the other is a high-interest deposit account. At the year-end, the current account shows a balance of $2,750 overdrawn and her deposit account shows a balance of $4,780. How will these balances be disclosed in the companys statement of financial position at the year-end?

A Current asset $4,780 Current liability $2,750

B Current asset $2,030 Current liability nil

C Current asset nil Current liability $2,030

D Current asset $7,530 Current liability nil

(2 marks)



37 Which of the following events does not require adjustment in the year-end financial statements?

A A customer owing $45,000 at the year-end becomes bankrupt shortly after the year-end.

B A fire three days after the year-end has destroyed all the companys financial records.

C The tax rate for the previous tax year has been amended.

D A material amount of inventory held at the year-end has become obsolescent due to technological changes just after the year-end.

(2 marks)

38 Lilac acquired 80% of Magenta three years ago. During the current financial year, Magenta sold goods to Lilac for $63,000. The profit on this sale was 10% of selling price. At the year-end, 30% of these goods remain unsold in the inventories of Lilac. What is the provision for unrealised profit?

A $1,512

B $1,890

C $3,528

D $4,410

(2 marks)

39 Which of the following is the correct definition of cash equivalents in accordance with IAS 7 Statement of cash flows?

A Cash equivalents are cash on hand and demand deposits.

B Cash equivalents are cash on hand and short-term, highly liquid investments readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

C Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

D Cash equivalents are demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(2 marks)

QUESTIONS


40 The following extracts are from Daljits financial statements: $

Profit before interest and tax 24,500

Interest (875)

Profit before tax 23,625

Tax (1,270)

Profit after tax 22,355

Share capital 50,000

Reserves 33,200

83,200

Loan liability 4,750

Bank overdraft 2,000

89,950

What is Daljits return on capital employed?

A 24.8%

B 26.9%

C 27.9%

D 29.4% (2 marks)

41 The following information relates to Brown Co:

Brown Co owns 51% of the ordinary shares of Yellow Co.

Brown Co owns 25% of Red Co and has the power to appoint and remove a majority of the members of the board of directors.

Brown Co owns 21% of Blue Co and has representation on Blue Cos board of directors.

Which of the companies are subsidiaries of Brown Co?

A Yellow Co

B Yellow Co, Red Co and Blue Co

C Red Co and Blue Co

D Yellow Co and Red Co (2 marks)



42 Extracts from the financial statements of Hamilton are set out below:

INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 20X8 $'000 $'000 Revenue 300 Cost of sales (150) Gross profit 150 Profit on sale of non-current assets 75 225 Expenses 15 Depreciation 30 (45) Net profit 180 Balances at 31 December 20X1 20X0 $'000 $'000 Net current assets 70 50

What is the figure in the statement of cash flows of Hamilton for the year ended 31 December 20X8 in respect of net cash flow from operating activities?

A $95,000

B $115,000

C $245,000

D $265,000

(2 marks)

43 Raj produces his accounts to 30 June each year. His business premises are rented and he has to pay rent quarterly in arrears on 1 February, 1 May, 1 August and 1 November each year.The quarterly rent payments are $2,250. Raj pays an annual insurance charge on the premises of $1,800 at the start of each calendar year. What amounts will be shown in Rajs statement of financial position for the year ended 30 June 20X1?

A Current assets $1,500 Current liabilities $900

B Current assets $900 Current liabilities $1,500

C Current assets $2,400 Current liabilities nil

D Current assets nil Current liabilities $2,400

(2 marks)

44 Which of the following would be classified within non-current assets on the statement of financial position?

(1) Property held for resale by a property development business

(2) Research costs in a pharmaceutical business

(3) Offices owned and used by a business

(4) Laptops that are usually sold off to staff when they are five years old

A 1 and 4

B 3 and 4

C 2 and 3

D 1 and 2

(2 marks)

QUESTIONS


45 Jack is a sole trader and had assets of $223,700 and liabilities of $52,500 on 1 January 20X1. During the year ended 31 December 20X1 he paid himself wages of $640 per month. At 31 December 20X1, Jack had assets of $264,230 and liabilities of $69,750, and had made a profit of $13,490. How much capital did Jack introduce into his business in the year ended 31 December 20X1?

A $7,890

B $17,470

C $29,090

D $44,450

(2 marks)

46 Which of the following are assumptions under which financial statements are produced?

(1) Going concern

(2) Faithful representation

(3) Accruals

(4) Consistency

A 1 and 2

B 1 and 3

C 2 and 4

D 3 and 4 (2 marks)

47 The carrying amount of Mikes property, plant and equipment is $112,000 at 1 January 20X8. During the financial year, a delivery van costing $18,000 was purchased and a plot of land was sold for $55,000. The depreciation charge for the year was $17,540.

What is the carrying amount at 31 December 20X8?

A $21,460

B $57,460

C $92,540

D $166,540

(2 marks)

48 Which of the following statements about partnerships is/are true?

(1) A partnership is an arrangement between individuals to carry on business in common with a view to profit.

(2) If a partnership wants to raise more funds, it can issue shares.

(3) A partnership does not have a separate legal identity from its owners, the partners.

A 1 only

B 1 and 2 only

C 1 and 3 only

D All three statements are true (2 marks)



49 Which of the following actions can improve a businesss cash flow?

(1) Improving debt collection

(2) Paying suppliers early to take account of early settlement discounts

(3) Increasing selling prices to customers buying on credit by 5%

(4) Offering early settlement discounts to customers

A 1, 2 and 4

B 2 and 3

C 1 and 4


50 Which of the following statements about ordinary and preference shares is correct?

A Preference shares have priority over ordinary shares in the event of a liquidation.

B Both preference and ordinary shares carry voting rights.

C Ordinary shares carry a right to a fixed dividend.

D Preference shares may be cumulative, and are always redeemable, unlike ordinary shares.

(2 marks)

End of question paper

QUESTIONS


FINANCIAL ACCOUNTING FINAL MOCK EXAM

ANSWER SHEET

Question Options (circle one option only)

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QUESTIONS


35 A B C D

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B C D

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50 A B C D



Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning Did you finish too early? Y/N Go back and check your answers.

Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind, move on to the next question.

Content Did you struggle with:

Interpreting the questions? Y/N Learn subject jargon (interactive text index). Read questions carefully noting all the parts. Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Contact FIA queries for help.

Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject.

Note here any thoughts on your performance which could help you on the big day.

QUESTIONS




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FFFA12 EFM Solutions This examination has been prepared for examinations from February 2013 to January 2014

FIA FFA / ACCA PAPER F3 Financial Accounting

Final Mock Examination

Marking scheme and solutions


Commentary The questions in this exam are of exam standard and cover the whole syllabus.

Marking scheme 2 marks for each correct answer Total marks 100

ANSWERS

1 FFFA12 EFM Solutions This examination has been prepared for examinations from February 2013 to January 2014

1 A $ Net assets 1.10.X8 30,000 Capital introduced 30,000 Drawings (5,000) profit 4,000 59,000

2 C An associate is an entity in which the investor has significant influence. Associates are accounted for using the equity method of accounting. A company must hold 20% or more of the voting rights of another company for it to be classed as an associate. When an associate is accounted for in group accounts, only the groups share of the associates profit after tax is added to the group profit.

3 A Sales are $100,000 and gross profit $15,000. So cost of sales is $85,000. Opening inventory plus purchases total $90,000. So closing inventory must be $5,000 ($90,000 $5,000 = $85,000).

4 C The total of sales invoices in the day book is debited to the control account. If the total is understated by $800, the debits in the control account will also be understated by $800. Options B and D would have the opposite effect: credit entries in the control account would be understated. Option A would lead to a discrepancy of 2 800 = $1,600.

5 B A doubtful debt allowance is not entered in the receivables ledger control account. Returns outwards are returns to suppliers and are shown in the payables ledger control account, not the receivables ledger control account.

6 D Steve has offered early settlement discounts to customers in 20X2 and this has reduced the receivables days significantly.

7 C Associates are accounted for using the equity method. Non-controlling interest is shown at its fair value plus the non-controlling interests share of post-acquisition retained earnings and other reserves.

8 B

PAYABLES LEDGER CONTROL ACCOUNT

$ $ Cash 2,500 Bal b/d 3,200 Returns outwards 750 Purchases 3,300 Bal c/d 3,250 6,500 6,500

9 A

$ Profit adjustment Discounts allowed (100) Discounts from suppliers 400 Rent prepayment 200 Increase in profit 500 $500 @ 4% (20) 480 Cr

10 B $

Cost of sales = 275,000 125100

220,000 Less reduction in inventory (14,000) 206,000


2 FFFA12 EFM Solutions This examination has been prepared for examinations from February 2013 to January 2014 2210222

11 A Using the accounting equation

$ Net assets at 31.12.X8 32,500 $ Opening capital 23,000 (= opening net assets) Capital introduced 4,000 Profit (balancing figure) 8,750 Drawings (2,500 + 750) (3,250) 32,500

Goods drawn by proprietor are taken at cost

12 C

Purchases $ Cash paid 9,000 Trade payables b/f (8,000) Trade payables c/f 10,000 Purchases 11,000 Cost of sales Opening inventory 6,000 Purchases 11,000 17,000 Closing inventory (7,000) 10,000

Sales 100110

10,000 11,000 13 B C will only affect the payables ledger and A and D will not cause an imbalance.

14 D Receivables collection period relates to the receivables balance and therefore to credit sales, so A and B are incorrect. C is incorrect, because if Jenna increased the payment terms from 30 to 60 days, the receivables collection period would also have increased.

15 A

$ Price paid 18,000 Trade in allowance 3,150 21,150

16 B

17 C $

Purchases for the year 84,300 Plus fall in held inventory 4,100 Cost of sales 88,400

125% = Sales $110,500 Profit $110,500 $88,400 = $22,100

ANSWERS


18 B Goodwill on acquisition of Orange:

$ Consideration 975,000 Non-controlling interest 225,000 Less fair value of net assets:

Ordinary shares (750,000)

Retained earnings at acqn (325,000)

Goodwill 125,000

19 D

INTANGIBLE ASSETS FREEHOLD PROPERTY

b/f 60 b/f 750 Amort 20 Reval 95 Depn 6 Addn 55 Addn 391 c/f 95 c/f 1,230 115 115 1,236 1,236

PLANT & MACHINERY FIXTURES AND FITTINGS

b/f 320 b/f 105 Depn 35 Disposals 14 Depn 37 Addn 20 c/f 90 Addn 101 c/f 370 421 421 125 125

Items which would be shown in the reconciliation

$'000 Depreciation/amortisation (20 + 6 + 37 + 35) 98 Loss on disposal of plant and machinery (8 - 14) 6 104

20 A CASH

$ $ B/d 50 Bank 50,000 Cash sales 74,000 Theft 23,950 C/d 100 74,050 74,050

RECEIVABLES

$ $ B/d 2,000 Bank 155,000 Credit sales () 156,000 C/d 3,000 158,000 158,000

Total sales 230,000 Credit sales (156,000)

Cash sales 74,000

21 B 000,96200,19

100 = 20%



22 B TAXATION PAYABLE

$ $ tax paid 22,000 Balance b/d 20,000 Balance c/d 25,000 Income statement 27,000 47,000 47,000

23 C A provision is a liability and does not feature in the equity section of the statement of financial position, and so cannot feature in the statement of changes in equity.

24 D

$ Suspense account 16,500 Discount allowed 3,900 Discount received (5,100) Transposition of cash received (9,900) 5,400

25 D Trade discounts received should be deducted from the cost of purchases. Settlement discounts received are included as other income of the period.

26 B Selling costs (eg salesmens wages and distribution costs) are specifically excluded by IAS 2 from the cost of inventories.

27 B The bonds redeemable in three weeks time are classified as a cash equivalent.

28 B A material error relating to a prior period should be corrected by adjusting the opening balance of retained earnings and restating comparatives.

29 A Closing net assets = opening net assets + profit + capital introduced - drawings

30 C $

Consideration 162,000

Fair value of NCI 35,000

Less fair value of net assets:

Share capital (100,000)

Retained earnings at acqn (28,000)

Goodwill 69,000

31 B Sam should recognise a provision of $25,000 as this is the amount he will most likely have to pay as a result of the incident.

32 B

33 C

34 C The debt ratio is calculated as total debts over total assets. All debts are included, even those payable over more than one year. The bank overdraft must not be netted off against the cash at bank and in hand balance.

Purples debt ratio = (1,500 + 34,340 + 50,000 + 5,700)/(133,750 + 15,800 + 27,400 + 17,430 + 3,200) = 91,540/197,580 = 46.3%

35 A Profit attributable to non-controlling interest = 20% (265,000 88,000 45,000 12,000) = $24,000

36 A Bank balances must not be netted off. The overdraft must be shown as a current liability in the statement of financial position, whereas the positive balance in the deposit account will be shown as a current asset.

37 B

ANSWERS


38 B Profit on sale of goods to Lilac = 63,000 10% = $6,300 PUP = 6,300 30% = $1,890

39 C

40 C Return on capital employed (ROCE) = profit before interest and tax/ capital employed 100% ROCE = 24,500/87,950 100% = 27.9% The capital employed figure does not include the bank overdraft (only long-term liabilities).

41 D Yellow Co and Red Co are subsidiaries of Brown Co. Yellow Co is a subsidiary because Brown Co owns 51% of the ordinary shares of Yellow Co. Red Co is a subsidiary of Brown Co because even though Brown Co only owns 25% of the voting rights of Red Co, it has control because it can appoint or remove a majority of the members of the board of directors of Red Co. Blue Co is not a subsidiary of Brown Co it would be treated as an associate of Brown Co.

42 B

$'000 PBT 180 Profit on sale of non-current asset (75) Depreciation 30 Movement in net current assets (20) 115

43 B As rent is paid in arrears, an accrual for the last two months of the financial year must be made of $1,500 (2,250/3 2). The insurance has been prepaid for six months ($900) so there will be a prepayment of $900 at the year-end.

44 B Property held for resale by a property development business would be treated as inventory as it is for re-sale. Research costs cannot be capitalised in accordance with IAS 38 and so would be expensed. Offices owned and used by a business would be capitalised. Laptops usually sold to staff when they reach five years old would be capitalised as non-current assets as they are not held for resale, they are just sold at the end of their useful lives.

45 B Since closing net assets = opening net assets + capital introduced + profit drawings, then capital introduced = closing net assets opening net assets profit + drawings.

$

Closing net assets 194,480

Opening net assets (171,200)

Profit (13,490)

Drawings 7,680

Capital introduced 17,470

46 B

47 B

$

Opening carrying amount 112,000

Additions (van) 18,000

Disposals (land) (55,000)

Depreciation charge (17,540)

Closing carrying amount 57,460

48 C Partnerships cannot issue shares, only companies can.



49 C Improving debt collection and offering customers early settlement discounts will improve cash flow. Paying suppliers early rather than using the full extent of their payment terms will not improve cash flow, neither will increasing selling prices to customers buying on credit by 5%.

50 A

ANSWERS




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