New Answer Book Practice Questions

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ADVANCED LEVEL ACCOUNTING S.M.AULLYBUX & D.HARRISON

Answer key for multiple choice questions

NO C H A P T E R S

1 2 3 4 5 6 7 8 9 10 11 12 13 14

1 A A D A B A D C A A B D

2 A D C C C C B B D D B A

3 A A D C C A C A D B C C

4 B B A C D D A C A C B A

5 B C B D B B B D D A B B

6 B D A B A D B B B A D C

7 A A A B B D C B B A B D

8 C D B D B D B C A C C A

9 B B C D D D B D C C B C

10 B C B A D A B C C B C

11 A C D B D A A C

12 A A D B D C A B

13 C B C C B D D A

14 C D A B B B D

15 C D C C C A D

16 C C C B A

17 B C B

18 A C

19 C

20 D

21 B

22 A

23 C

24 D

25 A

26

27

28

29

30

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NO C H A P T E R S

15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

1 B C A C C A A D C B B B D C B

2 A B D C B B D D C C A A B C C

3 D C A C D A A D B B D A A D C

4 D A B A B B C A D D C D D C

5 D C D A A C B B C D B D B D

6 A C C A B A D D D D D C A B

7 B B B C A A D D D B D A A B

8 C D A B D D A B C D C A D D

9 B D C A D D D D A B C D D

10 D C D C D C

C

C D C B B D

11 C C A B B C

C

B C B A A C

12 D C A C C C A B C C C B

13 D C C D C C C C

14 B C B A A B C

15 B C C D D

16 B B D C

17 A B B

18 D C C

19 B A

20 D D

21 D

22 A

23 B

24 C

25 A

26 A

27

28

29

30

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Chapter 1 Bad debts and Provision for doubtful debts

Question 3 Paula Aniston

ai) Pfdd at 31 Dec 2006 = 3 % x 160 000 = 4800 aii) Pfdd at 31 Dec 2007 = 3 % x (182 000 5000 2300 1700) + 1700 = 6890 c) Extract of IS Less Expenses Increase in Pfdd 2090 Bad debts 6 900 d) Extract of Balance sheet Current assets Trade receivables 174 700 (182 000 5 000 2300) Less Pfdd 6 890 (e) Provision for doubtful debts is an estimate of the amounts owed by credit customers who might be unable to pay their debt. The amount is not known with certainty. It is an application of the prudence concept in that profit is not overstated in the income statement, and trade receivables are not overstated in the balance sheet. (f) Past experience looking at previous trade receivables and the proportion that turn into bad debts. Looking at the credit record of existing customers. Specific knowledge of customers that are known to have financial problems. State of the economy for example in a recession the proportion of bad debts may increase

Question 3 Klix a) 16 800 1% = 168

12 600 2% = 252 (7 100 700) 3% = 192 1 300 10% = 130

742 (c) Balance Sheet (extract) at 31 December 2010

$ Trade receivables 37 100 Less provision for doubtful debts 742

36 358 d) Revised Pfdd = 4 % x (16800 + 12600 + 7100 + 1300 700) = 1484 Hence Pfdd increases by $742 (1484 742) e) Reduce profit for the year

Reduce trade receivables/current assets/balance sheet total f) Prudence concept Current provision $742 is 2% of the trade receivables; Actual bad debts are $1500, this

may suggest the provision is insufficient. g) Past experience

Specific knowledge about a customer The state of the economy Consistency concept Industry average Length of time Size of trade receivables Comparing with previous years or with competitors.

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Chapter 2: Accounting for non-current assets

Question 1 Alcom Ltd

b(1) Dep: 2003 $130, 2004 $130, 2005 $310 b(2) Dep: 2003 $85, 2004 $130, 2005 $220 b(3) Dep: 2003 $130, 2004 $117 2005 $286 b(4) Dep: 2003 $85, 2004 $122, 2005 $200 Question 2 Mocota Ltd

a) Machinery a\c Bal b\d $41 000; Megaton $11800; Disposal $12 000; Bal c\d $40 800 Provision for depreciation Bal b\d $14 400; depreciation for the year $7 344; Bal c\d $15 264 b) Loss on disposal $1 520 Question 3 Lea Croft a) Bal b\d $82 500; Bal c\d $92 500

b) Bal b\d $49 200 (19 600+ 17 600 + 12 000); Depreciation for the year $25 160 (3 960+7 200+14 000); Disposal $19 600; Bal c\d $54 760

c) Loss on disposal $4 200 Question 4 Berton Ltd a) Rates of depreciation: Equipment 10 %; Vehicles 25 %

b) Loss on disposal of equipment $6000; Profit on disposal of vehicles $2500

c) Cost at 31 Oct 2010 Equipment $1 070 000; Vehicles $690 000

Provision for depreciation at 31 Oct 2010 Equipment $356 000; Vehicles $415 000

Question 5 Laser Ltd Property A\c (using method 1 of revaluation) Bal b\d 200 000 Disposal 80 000 R.Reserve 172 700 Prov for dep 22 700 Bal c\d 270 000 372 700 372 700 NBV of property 1 April 2008 164 000 (200 000 36 000) Less NBV of property disposed (66 700) (80 000 13 300) NBV of property being revalued 97 300

Calcualtion of revaluation gain: Revalued amount 270 000 NBV 97 300 R.Gain 172 700

Property A\c (using method 2 of revaluation) Bal b\d 200 000 Disposal 80 000 R.Reserve 150 000 Bal c\d 270 000 350 000 350 000 Calculation of difference between cost of property and revalued amount = 270 000 120 000 = 150 000 Cost being less than revalued amount, property account should be debited.

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Motor vehicle a\c Bal b\d 40 000 Disposal 8000 Acquisition 10 000 Bal c\d 42 000 50 000 50 000 b) Pfd (property) using method 1 of revaluation Disposal 13 300 Bal b\d 36 000 Property 22 700 Income statement 5 400 Bal c\d 5 400 41 400 41 400 Depreciation for the year = 0.02 x 270 000 = 5 400

Pfd (property) using method 2 of revaluation Disposal 13 300 Bal b\d 36 000 R.reserve 22 700 Income statement 5 400 Bal c\d 5 400 41 400 41 400

Pfd (M.vehicle) Disposal 3 904 Bal b\d 24 000 Bal c\d 24 477 Income statement 4 381 28 381 28 381 Calculation of accumulated depreciation on M.vehicle disposed May 2006 0.2 x 8000 = 1600 May 2007 0.2 x (8000 1600)= 1280 May 2008 0.2 x (8000 1600 1280) 1024 3904 NBV of vehicle at start = 40 000 24 000 = 16 000 NBV of vehicle disposed = 8 000 3904 = 4096 Depreciation of vehicle for the year = 0.2 x (16 000 4096 + 10 000) = 4381 Depreciation on Plant and Machinery = 0.15 x (250 000 + 120 000 69375) = 45 094 c) Property Motor Vehicle Plant and Machinery Cost 1 April 2008 200 000 40 000 250 000 Additions - 10 000 120 000 Disposal (80 000) (8 000) - Revaluation 150 000 - - Cost\Revalued amount at 31 March 2009 270 000 42 000 370 000 Total depreciation 1 April 2008 36 000 24 000 69 375

Depreciation for the year 5400 4381 45094 Disposals (13 300) (3904) - Revaluation 22 700 - - Total depreciation at 31 March 2009 5 400 24 477 114 469 Net book value 31 March 2009 264 600 17 523 255 531

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Question 6 Poka ai) Bal b\d $460 000; Acquisition $80 000; Disposal $60 000; Bal c\d $480 000 aii) Bal b\d $150 000; Income Statement $114 750;Disposal $33 750; Bal c\d $231 000 aiii) Loss on disposal $2250 b) Cost $480 000; Acc dep $231 000; NBV $249 000 Question 7 a) Rates of depreciation: Machinery 10 %; Vehicles 25 %

b) Loss on disposal of Machinery $40 000; Profit on disposal of vehicles (part exchanged) $20 000; loss on disposal of vehicles (accident) $60 000

c) Cost at 30 April 2010 Machinery $5 200 000; Vehicles $3 080 000

Provision for depreciation at 30 April 2010 Machinery $1 870 000; Vehicles $1 170 000

Question 8 CBL ai) Motor vehicle A\c: Bal c\d $366 000 aii) Prov for depreciation A\c Disposal (AM 5) 3900 Bal b\d 105000 Disposal (DM 2) 3600 Income statement 73 200 Disposal (CT 18) 4800 Bal c\d 165 900 178 200 178 200 Calculation of accumulated depreciation of vehicle disposed AM 5 June 2007 = 0.2 x 6500 = 1300 June 2008 = 0.2 x 6500 = 1300 June 2009 = 0.2 x 6500 = 1300 Total 3 900 DM 2 June 2008 = 0.2 x 9000 = 1800 June 2009 = 0.2 x 9000 = 1800 Total 3 600 CT 18 June 2008 = 0.2 x 12000 = 2400 June 2009 = 0.2 x 12000 = 2400 Total 4800 Depreciation for the year ended 30 june 2010 = 0.2 x 366 000 aiii) Disposal a\c Vehicle: AM 5 6500 Prov for dep: AM 5 3900 DM 2 9000 DM 2 3600 CT 18 12000 CT 18 4800 Sales proceeds AM 5 1500 DM 2 1100 CT 18 8500 Incom statement 4100 27500 27500 b) Balance sheet extract Cost Acc dep NBV Motor Vehicle 366 000 165 900 200 100

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Question 9 Tokyo Ltd a) Plant and Machinery A\c 2004 $ 2004 $ Jan 1 Bal b\d 100 000 Mar 31 Disposal 2 500 July 1 Acquisition 1 200 July 1 Disposal 1 000 Oct 1 Transfer from inventory 9 000 Dec 31 Bal c\d 106 700 110 200 110 200 Cost of machine taken from inventory = 15 000 40 % x 15 000

NBV of Machinery disposed on 31 March is 2000. This had been bought on 1 Jan 2002 since those bought on 1 July 2003 was still held by the company at 31 Dec 2004. Hence this machine has been depreciated for 2 complete years 2000 = 80 % 100 % = 2500

b) Provision for depreciation A\c 2004 $ 2004 $ Mar 31 Disposal 562.5 Jan 1 Bal b\d 17 000 July 1 Disposal 250 Dec 31 I.Statement 10 047.5 Dec 31 Bal c\d 26 235 27 047.5 27 047.5 Calculation of depreciation for the year 10 % x (100 000 2500 1000) = 9650 10 % x 2500 x 3\12 = 62.5 machine sold on 31 March 10 % x 1000 x 6\12 =50 machine sold on 1 July 10 % x 1200 x 6\12 =60 machine bought on 1 July 10 % x 9 000 x 3\12 =225 machine transferred from inventory on 1 Oct Total = 10 047.5 Acc dep of machine sold on 31 March = (2500 -2000) + 62.5 = 562.5 Acc dep of machine sold on 1 July = 200 + 50 = 250 c) Balance sheet extract Cost Acc dep NBV Plant and Machinery 106 700 26 235 80 465 Question 10 AB Ltd

Eratum: 4th line delete A full years depreciation .. of sale and ignore information about vehicle

a) Calculation of depreciation 31 Dec 2005 Machine 101 : Dep = 18 % x 20 000 x 10/12 = 3000 31 Dec 2006 Machine 101 : Dep = 18 % x 20 000 = 3600 Machine 102 : Dep = 18 % x 30 000 x 9/12 = 4050 7650 31 Dec 2007 Machine 101 : Dep = 18 % x 20 000 = 3600 Machine 102 : Dep = 18 % x 30 000 = 2250 Machine 102 : Dep = 18 % x 7200 x 4/12 = 432 6282

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b) Provision for depreciation A\c 2005 2005 31 dec Bal c\d 3000 Income statement 3000 2006 2006 Balc\d 10650 Bal b\d 3000 Income statement 7650 10650 10650 2007 Disposal (4050 + 2250) 6300 Bal b\d 10650 Bal c\d 10632 Income statement 6282 16 932 16 932 c) Loss on disposal $7400 Question 11 Tana Ltd Schedule of Fixed Assets for year ended 31 December 2009

Land and buildings Machinery Office equipment Cost at 1 Jan 680,000 320,000 210,000 Additions 18,000 20,000 Disposals (15,000) Revaluations 120,000 Cost at 31 Dec 800,000 338,000 215,000 Total depreciation 1 Jan 72,000 160,000 85,000 Disposals (4,500) Depreciation for the year 8,000 26,700 30,750 Total depreciation 31 Dec 80,000 186,700 111,250 Net book value 31 Dec 720,000 151,300 103,750 Dep on land and buildings = 2 % x 400 000 = 8000 Dep on Machinery = 15 % x (320 000 + 18 000 160 000) = 26 700 Dep on office equipment = (15 % x 210 000 15 000 10 000 + 20 000) Note the equipment bought in 2000 has already been fully depreciated and therefore should not be depreciated in 2009 Question 12 Austen Ltd

Schedule of non-current assets at 30 April 2011 Property plant and equipment

Land and buildings Plant and machinery Fixtures and fittings Cost As at 1 May 2010 150 000 90 000 40 000 Additions at cost 35 000 24 000 Disposals (15 000) Revaluation 130 000 As at 30 April 2011 280 000 125 000 49 000

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Depreciation As at 1 May 2010 45 000 39 375 10 800 Charge for the year 5 600 17 125 4 900 Eliminated on disposal (4 500) Eliminated on re valuation (45 000) As at 30 April 2011 5 600 56 500 11 200 Net book value at 30 April 2011 274 400 68 500 37 800 Land and buildings depreciation charge: 280 000 x 2% = 5 600 Plant and machinery depreciation charge: 50 625 + 35 000 = 85 625 x 20% = 17 125 Fixtures and fittings depreciation charge: 40 000 15 000 + 24 000 x 10% = 4 900 Fixtures and fittings eliminated depreciation: 15 000 x 10% x 3 = 4 500

Chapter 3: Correction of Errors

Question 1: Samir Khan Eratum Adj 5 change Ismail to Samir

a) Total trial balance $146 700 and balance suspense $1100. b) 1. Dr suspense $2000, Cr sales $2000 2. Dr Drawings $400, Cr suspense $400 3. Dr Cash $500, Cr Suspense $500 4. Dr Machinery $5000, Cr Purchases $5000 5. Dr Drawings $1000, Cr Purchases $1000 c) Revenue $127000 Purchases $70000 Machinery $14000 Drawings $9400 All other figures unchanged Question2: Malcom Dsouza a) 1. Dr Stationery $50, Cr suspense $50 2. Dr Suspense $1000, Cr Sales $1000 3. Dr Abdullah $240, Cr Abdul $240 4. Dr Suspense $28, Cr Discount allowed $14, Cr Discount received $14 5. Dr Joe Jones $190, Cr Suspense $190 B) Corrected profit $16178(+1000 + 14 +14 50) Question 3: Gavin Corrected profit $4 900 (7300 + 6000 -2300+ 1000- 800 + 600 1700 + 1900 + 300 -4800 -1200 -1400) Question 4: Tinbin Eratum Adj 6 change Kathleen to Tinbin a) 1. Dr suspense $192, Cr other payables $192 2. Dr wages $40, Cr suspense $40 3. Dr shelving $320, Cr purchases $320 4. Dr suspense $160, Cr sales $160 5. Dr suspenses $18, Cr Telephone $18 6. Dr suspense $20, Cr discount allowed $10, Cr discount received $10 b) Bal b\d credit side $350 c) Corrected profit $3578 (+320 +160 +18 + 10 + 10 40)

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Question 5: Watson $348 000 loss (+35 000 + 60 000 10 000 96000 14 000 120 000 47 000 + 25 000 + 21 000 + 14500 + 14 500 - 81 000) Question 6: Patsun a) 1. Dr sales $300, Cr suspense $300 2. Dr wages $450, Cr suspense $450 3. Dr Income Statement (depreciation) $6000, Cr provision for depreciation $6000 4. Dr suspense $3666, Cr Bank $3666 5. Dr suspense $200, Cr Smith $200 6. Dr suspense $80, Cr James $80 7. Dr Suspense $40, Cr David $40 b) Corrected profit $12470( - 300 450 6000) Question 7: Shellix a) 1. Dr suspense $1000, Cr sales $1000 2. Dr Plant $240, Cr Expenses $240 3. Dr Discount received $150, Cr Cathy $150 4. Dr other receivables $240, Cr insurance $240. 5. Dr suspense $500, Cr purchases $500 6. Dr Return outwards $230, Dr Return inwards $230, Cr suspense $460 b) Corrected profit $19870 (18 500 + 1000 + 240 + 240 + 500 230 230 150) Question 8: T Jackman a) Suspense account: Dr side: Janet $30,Skyrays $66 and Bimbo $540 Cr side: Bal b\d $391, Equipment $60 and Bank charges $185 b) Corrected profit $15315 Question 9: Clara a) 1. Dr Cash\Bank $700, Cr suspense $700 2. Dr Pfdd $700, Income statement $700 3. Dr supplier (trade payables) $420, Cr suspense $420 4. Dr suspense $4500, Cr sales $4500 5. Dr equipment $2250, Cr maintenance exp $2250 6. Dr suspense $80, Cr trade payables $80 7. Dr repairs $350, Cr other payables $350 8. Dr Green (trade receivables) $1000, Cr suspense $1000 b) Corrected profit $27800 c) Total NBV of NCA $141250 (NBV of Equipment $23 250) Total CA $48 910 or $48 210 (trade receivables $24 900; Pfdd $2900) Total CL $31 960 or $31 260 (trade payables $9460; Other payables $350) Question 10: Alex a) 1. Dr Interest (profit) $1200; Cr Other payables $1200 2. Dr sales (profit) $2500; Cr Trade receivables $2500 3. Dr Drawings $450; Cr Maintenance (profit) $450 4. Dr Machinery $3500; Cr Wages (profit) $3500 Dr Depreciation (profit) $700; Cr Provision for depreciation $700 5.Dr Bank $420; Cr Trade receivables $420 Dr Bad debts (profit) $280; Cr Trade receivables $280 6. Dr Disposal $7500; Cr Vehicle $7500 Dr Provision for depreciation $4500; Cr Disposal $4500 Dr Bank $3000; Cr Disposal $3000 b) Corrected profit $13 770 (14 500 - 1200 2500 + 450 + 3500 700 280)

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Question 11: Lucyna Suspense A\c: Dr Side - Bank $200; Purchases $90; Trade payables $67 Cr Side Bal B\d $330; Rooney $27 b) Trial balance: Trade receivables $10 337; Trade payables $3527; Purchases $94 05; F& Fittings $4470 Question 12: Jack Sparrow a)

1. Dr Suspense $81 000; Cr Sales $81 000 2. Dr Drawings $11 000; Cr Suspense $11 000 3. Dr Sales $15 500; Cr Suspense $15 500 4. Dr Willis $7 800; Dr Walls $7 800; Cr Suspense $15 600 5. Dr Return inwards $10 500; Cr Return Outwards $10 500 6. Dr Suspense $4 000; Cr Valentine $4 000

b) Corrected Profit $106 500 (+81 000 15 500 10 500 + 10 500) c) Trade receivables $21 000; Trade Payables $18 900; Drawings $56 000

Chapter 4: Control Account

Question 1 Spam

a) Bal c\d: SLC (normal) $9820 PLC (normal) $3270

Question 2 Popo Ltd

a) Bal c\d: SLC $12390 PLC $4140

Question 3 Ryan Bond

a) Bal c\d: SLC $1456 PLC $2005

Question 4 Sunny

a) Bal c\d $19540 Dr side Bal b\d $19 900; sales undercast $200; interest $40 Cr side B.debts $260; Set off $340

b) $19 540 (Add $40;Less $140;Less $60;Add $1600) Question 5 Brenda

a) Bal c\d $22550 b) $22 550 (Less $60;Add $1150;Add $150)

Question 6 Dream Beds

a) Bal c\d $58730 Dr side Bal b\d $63 530; Interest $30 Cr side B.debts $850; Set off $1980; Sales $400; R.Inwards $1600

b) $58 730 (Add $180;Less $240;Less $1980;Add $30;Less $400)

Question 7 a) Dr side- Bal b\d $26 153; D.cheque $2000; Sales undercast $1800; Bal c\d $250 (minority) Cr side - Bal b\d $150; B.debts $1250; Set off $420; R.inwards $800 b) $27 583 (28503 120 - 800)

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Question 8 Electra

Eratum change year 1999 (2 places) and 1997 to 2000

a) $157 000 b) Balance adjusted control a\c $153 300 (dr side $157 000; Cr side $1000,$700, $2000) Adjusted ledger balance $153 300 (156 125 1000 425 2000 + 600) Question 9 Jackson a) Bal c\d Sales ledger control $54409; Bal c\d purchases ledger control $40653

b) Bal c\d Adjusted Sales ledger control $54052; Bal c\d Adjusted purchases ledger control $40831

c) Statement adjusting sales ledger balance original sales ledger bal $54204 (Add $27; Less $54;Less $125) Statement adjusting purchases ledger balance original purchases ledger bal $39997 (Add $244; Add $590) Question 10 Lio Limited a) Bal c\d $43 400 b) Bal c\d $41 000 [Dr 43 400; Cr 700; Cr 1700] c) $41 000 (-900-1700) Question 11 Jean a) Bal c\d adjusted PLC $19800 b) Add $850; Less $40; Add $90; Less $60 Question 12 Janet a) Bal c\d $17500 (Dr side interest $30,credit sale $10) (Credit side B.debts $200, Set off $310, R.inwards $90) b) $17 500 (Add $750; Less $60; Less $90; Less $140) Question 13 Supreme Ltd Original SLC balance c\d $169 400; Original PLC balance c\d $143 200 Adjusted SLC bal c\d $183 300 [dr side $400, $6500, $7000] Statement adjusting ledger balances $183 300 [ +3400+7000-2250] Question 14: Harvey Rabbit a) SLC Bal c\d $24 969 bi) Adjusted SLC $28 595 bii) Less $840; Add $998; Add $2102; Less $896; Less $630; Add $816; Add 200 Question 15

a) Bal c\d $16126 (Dr side bal b\d $16 351;bal c\d $3049 [2699+350]) [Cr side bal b\d $2699; sales overcast $300; Reecipts $275]

b) $16 126 [Add $894; Less $514;Less $275] Question 16 Bamma Ltd SLC bal c\d $92 660; PLC bal c\d $68 875

Chapter 5: Incomplete Records

Question 1: Mike Thomson

a) Sales $226 450; Purchases $162 420

b) Cost of sales $153 770; Gross profit $72 680; Total expenses $55 215; Profit for the year $17 465

c) Total NBV of NCA $30 765; Total CA $68 850; Total CL $30 670; Total NCL $10 000; Capital $47 280 (13500 + 9600

+21 000 +32900 +180 -17 700 12200)

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Question 2: Paul Lander

a) Revenue $87 700; Cost of sales $32 400; Gross profit $55 300; Total expenses $38 620; Profit for the year $18 180

Total NBV of NCA $6800; Total CA $28 000; Total CL $6920; Total NCL $8 000; Capital $16 700

(3000+8000+6000+3500-500+1000-4300)

Question 3: Salman

b) Revenue $63 680; Purchases $41 085; Cost of sales $39 800; Gross profit $23 880;Drawing of goods $755; Cash

stolen $2190; Total expenses $20 220; Profit for the year $3 660

c) Total NBV of NCA $17 505; Total CA $9 550; Total CL $4560; Capital $26 290;Drawings $7455

Question 4: Tan Boon

Receipts from customers Payment to suppliers

Drawings

Cost of sales Gross Profit

Total expenses Profit for the Year

593 000 515 000

19 000(B.F)

458 500 196 500 131 000 65 500

Total NBV of Non-Current Assets Total Current Assets

Total Current Liabilities Capital at start

45 000 183 000 26 500

155 000

Question 5: Melina Jackson Question 6: Jessica Brooks Question 7: Patricia Large

Credit Sales Cash Sales Total Sales Total Purchases Gross Profit Cost of Sales Goods stolen Total Expenses Profit

49 070 12 930 62 000 40 650 12 400 49 600 7 350

12 170 230

Total NBV of Non-Current assets Bank Balance Total Current Assets Total Current Liabilities Capital at Start Drawings Capital Introduced

4 700 11 730 12 500 2 950

22 510 10 300 1 810

Question 8: John Brown

a) Revenue $90 000 (25 000 + 65 000); Purchases $34 700;Cost of sales $34 700; Gross profit $55 300; Total expenses

$38 600; Profit for the year $17 400

Total NBV of NCA $8000; Total CA $47200; Total CL $23900; Capital $27100; Drawings $21 200

Question 9: Jack Bowman

Eratum Adj 2 change Jane Newbury to Jack Bowman

a) Revenue $140 400; Purchases $109 400; Cost of sales $108 000; Gross profit $32 400;Total expenses $18 360;

Profit $14 040

b) Total NBV of NCA $32 192; Total CA $26 400; Cash and cash equivalent $ 6 100; Total CL $13 200

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Question 10: Shaista

Total Purchases 49 500 Total Sales 62 850 Cost of Sales 52 750 Gross profit 10 100 (5/105 x 2100 + 7.5/107.5 x 1290 + 20/120 x 59 460) Goods Stolen 250 Question 11: Wong Li Keng

Closing inventory $19400; Cost of sales $294300; Gross profit $196 200; Pfdd $1845; Dep f& Fittings $5300; Dep

vehicles $3072; Interest on loan $1900; total exp $193367; Profit $2833.

NBV of F&F $35 700; NBV of vehicles $12 288; Rent prepaid $11 250; Total CA $90305; Interset owing $1100; Total

CL $40850; Total NCL $44 000; Capital at start $80 610.

Question 12 P.Line

Revenue $178 200; Purchases $156 600; Cost of sales $148 500; Gross profit $29 700; Total expense $28 100; Profit

for the year $1 600.

Total NBV of NCA $32 500; Total CA $45 500; Total CL $15 700; Total NCL $10 000; Capital $58 300

Question 13 Ray Damson

a) $155 000 ( 170 000 10 000 + 49 000 17 000 +45 600 + 38 500 72 200 1400 47 500)

b) Balance at 30 September 2011 $50800 overdraft

Dr (17 000; 173 500)

Cr (47 500; 16 200; 12 500; 165 100;

c) Goods damaged in fire $24 400; Cost of sales $147 200; Gross profit $36 800; Total expenses $62 000 (15 900 +

24 400 + 1700 + 500 + 20 000); Loss for the year $25 200

Total NBV of NCA $170 300 (158 300 + 11 500); Total CA $49 000(17000 + 32 000); Total CL $102 000 (50 100 +

1100+ 50 800)

Question 14 Phillip Bust

Cash Account

Bal b\d 330 Trade payables 52180

Capital 14000 Expenses 7215

Receipts 67900 Drawings 6250

M.Van 5800

Wages 5330

Loan 3500

Additional drawings 1490 (balancing figure)

Bal c\d 465

82230 82230

Revenue $68160; Purchases $52720; Cost of sales $51120; Gross profit $17040; Total expense $13910; Profit for the

year $3130.

Total NBV of NCA $6300; Total CA $11330; Total CL $3890; Capital $4350; Additional capital introduced $14000;

Drawings $7740

Question 15 A Lee Quinn

ai) $15 610

aii) $140 500

aiii) $126690

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b) G.Profit $99 000; Total expenditure $47 790; Profit for the year $54 020

c) NCA $96 400 (70 000 + 12 000 + 14 400); CA $103 218 (19 500 +12 000 + 71 718 bank is b.Figure); CL $11 000;

Capital at start $150 000; Drawings $15 402

Question 16 John White

Revenue $320 000; Purchases $220 000; Closing inventory $28 000 (B.Figure); Cost of sales $192 000; G.P $128 000;

Total expenses $100 500; Profit for the year $27 500

Total NCA $12 000; Trade receivables $89 100; Other receivables (F.overhead prepaid) $6260;

Trade payables $50 000; Variable overheads owing $6 700; Overdraft $15 660; drawings $4500

Fixed overhead prepaid = 5760 + 15 700 + 3600 18800 = 6260

Variable overhead owing = (0.24 x 320 000) 22700 26300 21100 = 6700

Trade receivables = 320 000 29000 25000 67000 40000 54000 15000 900 = 89100

Question 17 Jimmy Chang

a) Bank balance $12400

b) Revenue $51 000; Purchases $32 800; Cost of sales $29 000; Gross profit $20900; Total expenses $19300;

Profit for the year $2500

Total NCA $10 000; Total CA $27500; Total CL $23000; Capital at start $22100

Question 18 Sherlock Moriarty

a) Revenue $471 570 ; Purchases $315 120; Cost of sales $314 380; Gross profit $157 190;Total expenses $103 505;

Profit for the year $63 185

Total NBV of NCA $120 250; Total current assets $104 400; Total CL $35 700; Capital at start $140 000

Question 19 Ousman Sagna

Revenue $301 800 (Cash sales $100 255; credit sales $201 545); Purchases $222 600; Cost of sales $225 300; Gross

profit $75 100; Total expenses $49 030; Profit for the year $26 070

Total NBV of NCA $103 100; Total CA $52 950; Total CL $18 480

Question 20 Marcel

ai) Credit purchases $95 600

aii) Credit sales $128 900

b) $9 700 (33 000+95600-29700-8600[10750 x 100\125] -60000 [2\3 x 128900-9200-29700]-20600)

Chapter 6: Non-Profit Organisation

Question 1: Texas Billard Club

Purchases Cost of sales Caf Profit Income: Subscription Ordinary Total Income Total expenditure Surplus

44 700 43 700 27 120

30 800 63690 50 320 13 370

Total NBV of Non-Current assets = $145 400

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Total Current Assets =$135 350 Total Current Liabilities =$11 250 Accumulated fund at start =$246 630 Question 2 : Malaga Sports club

a) Total income $ 5734 (4314 + 120 + 1300); Total expenditure $5662; Surplus $72

Total NCA $14800 (12000 + 2800); Total CA $1549 (110 + 1439); Total CL $308 (168 + 100 + 40); Acc Fund $15 489;

Life subscription $480

Question 3: Schubert Music Club

a) Subscription Account Balance b/d 400 balance b/d 300 Income and expenditure 2800 Receipts 2500 Write Off 100 Balance c/d 300

b) Purchases 7600 Cost of Sales 9600 Caf Profit 850

c) Life Subscription 350 Total Income 4000 Total expenditure 11600 Deficit 7600

Question 4: Adsburry sports and social club

Purchases Cost of Sales Bar Profit Subscription Ordinary Total Income Total expenditure Surplus

23 300 25 100 16 600

23 950 42 300 19 625 22 675

Total NBV of Non Current Assets Cash and Cash equivalent Total Current Assets Total Current liabilities Accumulated Fund at Start

47 275 31 200 37 750 5 350

51 000

Question 5 Disney Sports club a) Total income $2986 (1875 + 631 + 100 + 60 + 320); Total expenditure $2520 (140 + 230 + 800 + 215 + 185 + 500 + 450); Surplus 466 b) Total NCA $31 750 (24 500 + 7250); Total CA $5739 (75 + 110 + 5554); Total CL $195; Acc Fund $36 828

Question 6 Racket Sport Club

Eratum Restaurant supplies should be on credit side in Receipt and payment a|c

a) Acc Fund $14505 b) Purchases $36050; Cost of sales $34920; Restaurant profit $16730 c) Total income $34080 (17350 + 16730); Total expenditure $34165 (15600 + 4320 + 3825 + 3320 + 2800+ 3000 + 1300); Deficit $85 Total NCA $73750 (63700 + 10050); Total CA $9030 (7520 + 650 + 860); Total CL $8360 (4785 + 125 + 450 + 3000); NCL $60 000. Question 7 Picasso Art Club

a) Profit on art material $1530 b) Subscription written off $25; Subscription in income and expenditure $1410; Total income $3550; Total

expenditure $3310; Surplus $240 c) Non-current assets $4600; Current assets $1725; current liabilities $385

17

Question 8 Seletar social club a) Inventory loss $1 920; Cost of sales $19 180; Bar profit $300 b) Total income $21 600; Total expense $19 760; Surplus $1 840 Total NBV of NCA $88 000; Total CA $22 280; Total CL $860; Acc Fund $107 580 Question 9 : Orchard Social club a) Bar profit $5200 b) Total income $20 310 (5200 + 13480 + 420 + 1210); Total expenditure $14 160 (7950 + 1720 + 4490); Surplus $6150 Total CA $13 980 (1850+620+6400+4600+30+480); Total CL $2280 (1150+310+820); Acc Fund $3550; Legacy $2000 Question 10 Avenal Social club a) Inventory stolen $3550; Cost of sales $36 450; Bar profit $12 150 b) Subscription $32 600; Disco profit $6 900; Total expenditure $43 900; Surplus $7750 Total NBV of NCA $120 200; Total CA $37 400; Total CL $2350; Acc Fund $147 500 Question 11 : Vacoas Tennis club ai) Receipt and payment A\c Bal b\d 1200 Purchases 1850 Subscription 4000 Sundry expenses 1170 Sales 3500 Electricity 257 Donation 50 Maintenance and wages 4500 Sale of tickets for annual dance 2640 Dinner dance expense 1900 Equipment 600 Bal c\d 1113 aii) Cost of sales $2000; Refreshment profit $1500 aiii) Total income $6410; total expenditure $6660; Deficit $250 Question 12 : Carlos Snooker Club a) Bar sales $18 000; Cost of sales $14 400; Bar profit $3600 b)Bal $3750 Dr c) Subscription transferred to income and expenditure A\c $16 800 d) surplus $3776 e) $100 846 (97 070 + 3776) Question 13: Top Hat Sports club a) Annual Subscription $39 750; Life Subscription $240; Caf loss $3560; Depn $3000; Total exp $42 930; Deficit $2940 b) Non-current assets $19 500; C.Assets $5330 (800 + 750 +3780) C.Liabilities $1820 (760 + 910 +3780); Acc Fund $21 390; Lifemembership $4560 Not-for-profit organisation Public limited company Has balance sheet Has statement of financial position Shows accumulated fund Shows share capital and reserves Has income and expenditure account Has income statement Shows surplus or deficit Shows profit or loss Limited access to financial statements General access to financial statements Has receipts and payments account Has statement of cash flow

18

Chapter 7: Inventory Valuation-IAS 2 Question 1: Janet

i) FIFO: Perpetual $2 670 Periodic $2 670

ii) AVCO: Perpetual $2 531 Periodic $2 473

Question 2: Jenifer

i) FIFO: Perpetual $8 280 Periodic $ 8 280


Question 3: Mike



Question 4: Margaret



iii) Revenue $11 770

Cost of sales $5 575

Gross Profit $6 195

Profit for the year $1 445

Question 5 Rosedale

a) Closing inventory FIFO $5100; Gross profit $21 080; Trade receivables $59 380; Trade payables $43 400;

Alternatively instead of Trade receivables and Trade payables can put Cash $15 980

b) Closing inventory AVCO $4760 Question 6 Alan Balwin ai) $172.5 (75 x $2.3)

aii) $163.5 (75 x $2.18)

aiii $162.35 (75 x $2.165)

Question 7: Pear Ltd

FIFO periodic $112 859; AVCO perpetual $108 997

Question 8 Monica Celest

$197 790 (234 500 84 000 + 48 500 4 050 + 3470 7600 600 + 5000 + 2570 )

Question 9 Genelia

Eratum change Krishna to Genelia

$27 957 (26 870 1940 +2625 +360 -30 +72)

19

Question 10: Mustapha Deoff

Inventory= $22 596 (24 500 + 6744 -7950 +80 -88 +200 -400 -240 -250) Question 11 Alan Smith $156 320 (162 500 + 144 000 150 000 6160 + 8500 4600 5600 + 7680)

Question 12: Harold Green

Inventory= $16 743 (43 400 2100 10000 -2000 +280 000 -4200 -290 000 + 2143 500)

Question 13 Dolly Ltd

Eratum Adj 8 change 4 to 3,Thomas Strong to Dick Paulsen and Square Deals to Dolly

a) $38 790 (17 800 + 165 000 8500 118300 +2340 10000 3700 5850)

b) Selling price of goods sold by Dick = $9 000 (5850 65 x 100)

Commission = 10 % x 9 000 = $900

Question 14 Joy Locke

a) Engine 7.00 + 0.80 + 10/2 = 12.80 Carriage 5.00 + 0.50 + 10/5 = 7.50 Track 2.00 + 0.25 + 10/10 = 3.25

b)

Plain engines Painted engines

Units of Inventory on 31 Jan 12 (balancing figure) 39 (Balancing figure)

Received from toymaker 20 -

Plain engines taken for painting (18) 18

Sales of painted engines - (21)

Engines sent on sale or return basis - (10)

Units of inventory at 4 Feb 14 26

Value of inventory : Plain engines 84 (12 x 7)

Good painted engines 486.4 (38 x $12.8)

Faulty painted engine 4 (1 x $4)

Total value 574.4

Question 15 Bettina

Eratum Inventory figure missing on 7 April 2011, it should be $10 500

$17 130 (10 500 + 780 9400 + 2500 + 5400 + 7350)

Chapter 8: Departmental Accounts

Question 1-(Bridge Ltd) a)

Rent and Rates Heat and Light Insurance of inventory Depreciation- Fittings General Administration- Salaries

Wood 5460 1080 500

4800 5600

Metal 3640 720 750

2800 8200

20

b)

Cost of Sales Gross Profit Total expenditure excluding bonus Bonus Profit for the year

Wood 106 000 64 000 40 090 1 139

22 771

Metal 161 000

82 000 44 110 1 804

36 086

c) Total NBV of Non-Current Assets=$223 400; Total Current Assets=$79 800; Total Current liabilities=$24 543 Question 2( Dellow and Coucom)

Cost of Sales Gross Profit Total Expenditure Profit/ Loss

Television 111 000 103 000 117 065

(14 065) loss

Computing 199 000 229 000 175 280 53 720

Telephones 38 000 69 000 46 145 22 855

Question 3 Krabtree a)

Revenue\Income from repairs Cost of Sales Gross Profit Total expenses Profit for the year

Spares 116 450 27 930 88 520 67 300 21 220

Electical 98 700

- -

83 950 14 750

Chapter 9: Manufacturing Account

Question 1: Gary Nevin

Cost of Raw Materials Prime Cost Total Overheads Factory Profit Cost of Production at Transfer Value Cost of Sales Gross Profit Increase in Provision for Unrealized profit Total Expenses Profit for the year

36 000 67 000 28 000 23 000

115 000 111 550 80 450

690 52 880 49 880

Total NBV of Non-Current Assets Total Current Assets Total Current Liabilities

23 000 71 880 8 500

Question 2: Carlton Plc

Cost of Raw Materials Prime Cost Total Overheads Factory Profit Cost of Production at Transfer Value Net Revenue Cost of Sales Gross Profit Decrease in Provision for Unrealised \profit

105 000 245 000 59 000

101 000 404 000 555 000 422 180 132 820

4 545

21

Total expenses Profit for the year

12 290 226 075

Question 3: Janice Brook

Cost of Raw Materials Prime cost Total overheads Factory profit Cost of production at Transfer Value Cost of sales Gross Profit Provision for Unrealised Profit Total Expenses Profit for the year

36 000 75 000 40 550 20 650

123 900 111 900 58 100 2 000

68 350 8 400

Total NBV of Non-Current Assets Total current assets Total current liabilities Net assets

81 500 55 100 12 200

124 400

Question 4: Pakenham Ltd

a) Opening Inventory of Finished Goods at Transfer Value 34 500 Closing Inventory of Finished Goods at Transfer Value 36 800

Cost of Sales 480 700 Gross Profit 121 300 Total Expenses 87 000 Profit for the year 97 000

b) Value of Inventory : Raw Materials 18 000 Finished Goods 32 000

Question 5 Luke and Bryan

Cost of Raw Materials Prime Cost Factory Profit Cost of Production at Transfer Value Cost of Sales Gross Profit Increase in Provision for Unrealised profit Total expenses Profit for the year Share of residual profit: Luke Bryan

126 000 207 000 29 200

321 200 313 170 106 830

730 75 170 60 130 23 478 15 652

c) Balance current account: Luke $22 652 Cr Bryan $44 978 Cr

Question 6 Excel Ltd

Eratum change variable factory overheads to $14 700 and Inventory of finished goods to $4 000 (cost price)

Prime cost 32 000 Factory Indirect cost Factory overheads: Fixed 19 100 Variable 14 700 Depreciation P& machinery 6 200 40 000 Cost of production at cost 72 000 Factory profit 18 000 (balancing figure)

22

COP at transfer value (90 x 1000) 90 000 Income statement Revenue 138 000 Less cost of sales Opening inventory at transfer value 4 000 + (18 000 72 000 x 4 000) 5 000 COP at transfer value 90 000 Less closing inventory (5 + 90 92) x $1000 (3 000) Cost of sales 92 000 G.Profit 46 000 Factory profit 18 000 Add decrease in PFUP (1 000 600) 400 18 400 64 400 Less expenses Admin exp (18 700 2300) 16 400 S & Distribution cost 26 300 42 700 Profit for the year 21 700 c) NCA $53 400 (43 400 + 10 000) CA $18 800 (2400 + 2100 +7500 + 2300 +4500) CL $3100

O.Shares $45 000 (40 000 + 5000) Share premium nil (4 000 4000) G.Reserve $11 000 (7000 1000 + 5000) R.Profit $13 100 (4400 + 21700 5000 8000) Note bonus issue = $5 000

Question 7 Merton Ltd a) Cost of raw materials $148 100; Prime cost $253 500; Total overheads $75 500; Factory profit $27 000; COP at transfer value $345 000 b) Increase in Pfup $740 c) Cost of sales $338 100; Gross profit $86 900; Total expenses $67 000; Profit $46 160

Total NBV of NCA $413 500; Total CA $137 760; Total CL $143 900; Retained profit $107 360

Question 8 Nutt and Bolt

a) Cost of raw materials $223 000; Prime cost $633 000; Total overheads $134 000; cost of completed production at cost $756 000; Factory profit $151 200.

b) Cost of sales $832 800; Gross profit $117 200; Total expenses $57 800; Profit $198 200; Share of profit Nutt $ 63 600 Bolt $63 600.

Current account balance Nutt $65 600, Bolt $44 600

Total NBV of NCA $266 000; Total CA $388 000; Total CL $93 800

Question 9 David

Eratum change amount of direct labour to $28 200 and Trade receivable to $41 600

Manufacturing A\c Raw Materials Opening inventory 2800 Purchases 16 400 Less closing inventory - Cost of raw material consumed 19 200

23

Other direct costs Direct labour 28 200 Prime costs 47 400 Indirect costs Factory overheads: Variable 9600 Fixed 43 000 52 600 Cost of production at cost 100 000 Factory profit 20 000 COP at transfer value (800 x $150) 120 000 Income statement Revenue 155 800 Less cost of sales Opening inventory at transfer value (110 x $150) 16 500 COP at transfer value 120 000 Less closing inventory (90 x $150) (13 500) Cost of sales (123 000) G.Profit 32 800 Factory profit 20 000 Add decrease in PFUP (2750 - 2250) 500 20 500 53 300 Less expenses Admin and selling exp (18 700 2300) 28 500 Profit for the year 24 800 NCA $25 000 (16 000 + 9000) CA $93 950 (11 250 + 41 600 +41 100) CL $18 100 Question 10 Macheda

Manufacturing A\c Raw Materials Opening inventory 28 000 Purchases 50 000 Less closing inventory 32 000 Cost of raw material consumed 46 000 Other direct costs Direct labour (50 000 + 2000) 52 000 Direct expense 12 000 64 000 Prime costs 110 000 Indirect costs Factory overheads: Variable 18 000 Fixed 22 000 Depreciation of property (0.02 x 200 000 x ) 3000 Depreciation of P & M 0.25 x (100 000 36 000) 16 000 59 000 169 000 Add opening work in progress 72 000 Less closing work in progress 80 000 Cost of production at cost 161 000 Factory profit (balancing figure) 48300 COP at transfer value (800 x $150) 209 300 b) PFUP A\c Bal b\d 7500 Bal cd 12 000 I.Statement 4500 12 000 12 000

24

Pfup at start = 48 300 161 000 x 25 000 = 7500 Pfup at end = 48 300 161 000 x 40 000 = 12000 Note: The opening balance of pfup does not appear in the trial balance this means that opening inventory of finished goods in the trial balance is at cost price. When pfup appears in the trial balance then inventory of finished goods must be at transfer price for the trial balance to agree. Income statement Revenue 300 000 Less cost of sales Opening inventory at transfer value (25 000 + 7500) 32 500 COP at transfer value 209 300 Less closing inventory (40 000 + 12 000) (52 000) Cost of sales (189 800) G.Profit 110 200 Factory profit 48 300 Less increase in PFUP (12 000 - 7500) 4 500 43 800 154 000 Less expenses Marketing exp (20 000 1000) 19 000

Admin overheads 34 000 Dep property (0.02 x20 000 x 1\4) 1 000 Dep office machinery (0.1 x 36 000) 3 600 57 600

Profit for the year 96 400 Question 11 Stam

Manufacturing A\c Raw Materials Opening inventory 26 740 Purchases 278 630 Less closing inventory 24 390 Cost of raw material consumed 280 980 Other direct costs Direct wages 372 560 Royalties 6 500 379 060 Prime costs 660 040 Indirect costs Indirect wages 74 280 Heat and light 2\3 x (26 650 + 800) 18 300 General factory expenses 47 080 Insurance 2\3 x (15 010 760) 9 500 Depreciation of P & M 0.1 x 210 000 21 000 170 160 830 200 Add opening work in progress 23 170 Less closing work in progress 24 640 Cost of production at cost 828 730 Factory profit (0.2 x 828 730) 165 746 COP at transfer value (800 x $150) 994 476 PFUP A\c Bal b\d 6 240 Bal cd 7 344 I.Statement 1 104 7 344 7 344 Note : the opening inventory of finished goods is at transfer price. Used the rate of factory profit to check. 20 /120 x 37 440 = 6 240 (if you take 20 % of 37 440 you dont get 6 240)

25

The closing inventory can be either cost or transfer value, I have taken it as cost. Pfup at end 20 % x 36 720 = 7344

Income statement Revenue 1 163 750 Less cost of sales Opening inventory at transfer value 37 440 COP at transfer value 994 476 Less closing inventory (36 720 + 7 344) (44 064) Cost of sales (987 852) G.Profit 175 898 Factory profit 165 746 Less increase in PFUP (7 344 6 240) 1104 164 642 340 540 Less expenses Heat and light 9 150

Insurance 4 750 General office exp 36 740 50 640

Profit for the year 289 900 Question 12 Helen Tong (a) Manufacturing account for the year ended 31 December 2007

$ Purchases of raw materials 230 400 Direct wages 359 500 Manufacturing royalties 17 100 Prime cost 607 000 Factory overheads 215 000 Total production cost 822 000 Manufacturing profit 304 140 Transfer price 1 126 140

Income statement for the year ended 31 December 2007(1)

$ $ Revenue 1 750 000 Inventory of finished goods (12 300 129%) 15 867 Transfer price 1 126 140 Inventory 18 769 Cost of sales 1 123 238 Gross profit 626 762

(b) Provision for unrealised profit

$ $ Balance b/d 3567 W1

Balance c/d 5069 Income statement 1502 5069 5069

Balance b/d 5069 W2 W1 15867 12 300(1) = 3567 W2 30 4140 822 000 100 = 37% 37 137 18769 = 5069 (c) W1 1 126 140 4000 = $281.535 (transfer price per unit ie selling price of the factory)

W2 (607 000 + 43 000) 4000 = $162.50 (variable cost per unit) Contribution per unit = $119.035 (281.535 162.5)

26

Fixed costs = 80 % x 215 000 = 172 000 Break even = $172 000 $119.035 = 1445 units Margin of safety = 4000 1445 = 2555 units (d) 1445 $281.535 = $406 818

Chapter 10 Accounting Concepts

Question 1 Donald

(a) (i) Donald should include a proportion of this amount in the current years Income statement as $7,200 covers a 6 month period of which 5 months are in the next accounting period. He should therefore include $1,200, which is equivalent of one months rent should be included in the income statement for the year ended 31 December 2007. The remaining $6,000 should be included in the current assets on the Balance Sheet as a prepayment. This is an example of the accruals (matching) concept which states that expenses should be matched against the period that they are incurred.

(ii) Donald should not include the $2,500 for a private holiday in the general expenses. This should be included in Donalds drawings as it is for personal use. This is an example of the business entity concept which states that the financial transactions of the business should be treated separate from those of the owner. Therefore personal transactions should not be confused with business transactions.

(iii) Donald should not include the sales of $10,000 as the customer has not yet signed the contract. Profit should not be recognised until the exchange of goods or services. This is an example of the realisation concept which states that profit should not be recognised until the goods or service pass to the customer.

(iv) Donald should not include the management as an asset of $50,000 in the Balance Sheet, as no monetary

amount has exchanged hands. This is an example of the money measurement concept which states that only assets that have a true

monetary value can be included in the balance sheet. This helps to ensure that amounts on the balance sheet are objective not subjective.

Question 2

1. Business entity concept: The business dealings of the owner should be kept separate from his private affairs. 2. Money measurement concept: No monetary amount has exchanged hands, only assets that have a true

monetary value can be included in the balance sheet 3. Materiality concept: The door mats are small items of insignificant value and therefore it is allowed to treat

them as a revenue expenditure instead of a capital expenditure 4. Matching concept\Accrual concept: Although the invoices have not been received by the end of the financial

year , the purchases have been made in the current financial year and therefore should be included in the current years purchases.

Question 3 Polska Item Effect on profit Concept

(1) Audit and tax fees (5000) Accruals (2) Golf clubs on sale or return (10000) Realisation / prudence (3) Rent 2000 Accruals/Matching (4) Fixtures and fittings 750 Cost

(75) (5) Inventory (500) Prudence

Chapter 11: Financial Statements of Partnerships

Question1: Brown and White Total expenditure $14 700

27

Profit for the year $10 000 Share of Profit: Brown $2 250 White $1 500 Current Account: Brown $4 250(cr) White $7 750(cr) Question 2: James and Gemma Jan-June July-Dec Cost of sales 60 000 100 000 Gross Profit 30 000 50 000 Closing Inventory 16 300 20 300 Depreciation 5 100 5 725 Interest 1 350 1 350 Remaining expense 6 000 6 000 Profit 17 550 36 925 share of Residual Profit: James 4 275 13 462.5 Gemma 4 275 13 462.5 Current A/c: Bal c/d- James 22 737.5 Cr

- Gemma 19 237.5 Cr Question 3: Hook, Line and Sinker

a) i) Loss on disposal 2 360

Total Interest on loan 6 500 Corrected profit for the year 36 140 Share of Residual Profit- H $10 445

L $6 267 S $4 178

ii) Current A/c balance Capital A/c balance H= $12 445 Cr $40 000 L= $11 517 Cr $15 000 S= $4 478 Cr $10 000 d) Total NBV of NCA = $141 440 Total Current Assets = $22 000 Total Current Liabilities = $5 000 Total Non-Current Liabilities =$65 000 Question: 4 Short and Tall Revenue 600 000 Less cost of sales Opening inventory 60 000 O.G.Purchased 420 000 Less Closing inventory 90 000 Cost of sales 390 000 Gross profit 210 000 Jan Aug Sept Dec Gross profit (apportioned in proportion to revenue) 112 000 98 000 Less expenses Rent and rates (time basis) 4 000 2 000 Heat and light (time basis) 8 400 4 200 Staff salaries: Long as employee 10 000 - Other staff (time basis) 20 000 10 000 Selling expenses (proportion of revenue) 11 200 9 800

28

Distribution expenses (proportion revenue) 4 960 4 340 Interest (time basis) 5 000 2 500 Bad debts (proportion revenue) 4 640 4 060 Profit for the year 43 800 61 100 Less Appropriation Salaries: S 6667 4 000 T 6667 4 000 L - 13 334 4 000 12 000 Residual profit 30 466 49 100 Share of residual profit S 20 311 24 550 T 10 155 16 367 L - 8 183 Question: 5 Archer and Bowman a) Corrected profit $15 520 (+ 30 -1400 -2000 + 420 -20) b) Share of residual profit: Archer $2010; Bowman $2010 Question: 6 Lee Kim and Michael Total capital on 1 Oct 2005 = 240 000 + 210 000 +150 000 + 190 000 + 50 000 +80 000 = 920 000 Total capital on 30 Sept 200 = 750 000 +660 000 + 390 000 346 000 285 000 = 1 169 000 Total capital on 30 Sept 2007 = 870 000 + 690 000 + 420 000 404 000 255 000 = 1 321 000 Total capital on 30 Sept 2008 = 1 200 000 + 825 000 +495 000 448 000 375 000 = 1 697 000 Total drawings 2006 = 45 000 + 42 000 + 36 000 + 45 000 = 168 000 Total drawings 2007 = 70 000 + 48 000 + 30 000 +60 000 = 208 000 Total drawings 2008 = 105 000 + 105 000 + 8 000 + 65 000 = 283 000 Calculation of profit 2006 2007 2008 Capital at end of year 1 169 000 1 321 000 1 697 000 Add drawings 168 000 208 000 283 000 Less capital introduced - - (180 000 Less capital at start (920 000) (1 169 000) (1 321 000) Profit for the year 417 000 360 000 479 000 Closing balance capital account of Michael: 2006 $150 000; 2007 $150 000; 2008 $210 000 Share of residual profit for Michael: 2006 = 1/6 x (417 000 45 000) = 62 000 2007 = 1/6 x (360 000 60 000) = 50 000 2007 = 1/6 x (479 000 65 000) = 69 000 Closing balance current account of Michael: 2006 $106 000; 2007 $126 000; 2007 $187 000 Question: 7 Rahul and Shivam a) Rahul $80 000; Shivam $40 000 b) Cost of sales $603 000; Gross profit $213 000; Profit for the year $101500. c) Share of profit Rahul $23 000; Shivam $11 500 Balance current account Rahul $46 500 Question 8 Boris and Cheong

Boris Cheong $ $

Closing balances 9 908 22 092 Int. on drawings 1 320 1 200 Drawings 22 000 20 000

33 228 43 292 Int. on capital (8 000) (7 200)

29

Profit (23 728) (35 592) Opening balances 1 500 Cr 500 Cr (b) $ Original net profit 72 000 Depreciation (14 400) Loss on disposal (500) Sales 10 500 Discount received 600 Drawings 3 400 Bad debt (500) Recovery bad debt 210 Provision for doubtful debts (945) Corrected net profit 70 365 c) Share of residual profits B $37 558; C $25 039 d Balance current account B $17 626 Cr; Cheong $9 339 Cr Question 9 Carl and Daniel Revenue $376 382; Purchases $196 202; Cost of sales $196 734; Gross profit $179 648; Total expenses $138 958; Profit for the year $46 690; Share or residual profit for Carl $20 292 and Daniel $13 528 Balance current account for Carl $6388 Dr and Daniel $4548 Dr Question 10 Alice and Nancy NCA at 30 Sept 99 = (132 000 6000 + 48 000) x 87.5 % = 152 250 Total capital = Assets liabilities = 152 250 + 258 000 + 50400 70 000 13 000 27 000 72 000 = 278 650 Profit = Capital at end + drawings capital at start = 278 650 +50 400 223 000 = 106 050

b) Share of residual profit Alice $36 250; Nancy $50 000 ( she should get a minimum of $ 50 000, if the residual profit is shared equally she will get less) Balance current account $Alice $54 850; Nancy $43 800

c) NCA $152 250; CA $308 400 (258 000 + 50400); CL $134 000 (70 000 + 13000 + 27000 + 24 000); NCL $48 000;

Chapter 12: Dissolution of Partnership

Question 1: Thomas, Dickson and Harry Share of realisation loss Thomas $4000; Dickson $2000; Harry $1000 To close capital account business has to pay Thomas $31 000, Dickson $11 000 and Harry $5000 Question 2 Paul, Stuart and Dev a) Share of realisation loss: Paul $1839; Stuart $1226; Dave $1226 b)

Capital account P S D P S D Current a\c - 5257 - Bal b\d 51 000 34 000 34 000 Loss on realisation 1839 1226 1226 Current a\c 18390 - 6233 Realisation: Vehicle 19750 - - Loan - - 7160 Inventory - 4640 - Interest - - 537 Bank 47801 22877 46704 69390 34000 47930 69390 34000 47930 c) Bank account Bal b\d 3070 T.Payables and expenses 9005 Realisation: NCA 110000 Dissolution cost 7050

30

Inventory 8895 Capital: Paul 47801 T.Receivables 11472 Stuart 22 877 Dave 46704 133437 133437

Interest on loan = 5 % x 7160 x 18/12= 537 Cost of inventory taken by Stuart 0.8 x 5800 = 4640 Cash received from sale of remaining inventory = 75 % x (16 500 4640) = 8895 Question 3 Kevin, Dev and Dick Share of realisation loss Kevin $13 737; Dev $9158; Dick $4579 Capital account Kevin Dev Dick Kevin Dev Dick Realisation 15000 - - Bal b\d 13000 1900 12000 Loss on realization 13737 9158 4579 Loan - - 30000 Capital Dev 3774 - 3484 Capital Kevin - 3774 - Bank - - 33937 Capital Dick - 3884 - Bank 19511 - - 32511 9158 42000 32511 9158 42000 Amount owing to business by Dev = 9158 -1900 = 7258 Since he is insolvent this sum will have to be contributed by Kevin and Dick in proportion of their capital account balances. Amount to be contributed by Kevin = 13 000 25 000 x 7258 = 3774 Amount to be contributed by Dick = 12 000 25 000 x 7258 = 3484 Bank account Bal b\d 800 trade payables 7274 Realisation (property) 25000 Realisation (dissolution exp) 8300 Realisation (T.Receivables) 4200 Capital Dick 33937 Capital Kevin 19511 49511 49511 Question 4 Paul and Sandeep Share of realisation loss Paul $ 2400; Sandeep $2400 To close capital account, business has to pay $53 000 to Paul and $4 300 to Sandeep. Question 5: Angela, Belinda, Cindy Assume shares are divided between partners using PSR Selling price of Business =$330 000 Profit on Realisation A =$30 000 B =$20 000 C =$10 000 Question 6: Chang,Foo and Seet Profit on Realisation C =$12 000 F =$8 000 S = $4 000 Capital A\c : Chang to pay business $89 500 Business to pay Foo =$55 000 Seet = $37 000 Question 7 Dough, Ray and Mee Loss on Realisation D =$8400

31

R =$5600 M = $2800 Capital A\c : Mee to pay business $25800 Business to pay Dough=$48600 Ray = $4400 Question 8 Anton, Bassini and Cartwright a) Share of loss on realisation A $27 700; B $13 850; C $13 850

To close capital account business has to pay A $85 832; B $39 273; C $33 995 (b) Option 1 200 000 6% = 12 000

Option 2 80 000 0.15 = 12 000 (c) Both options give the same annual return.

Option 1 is fixed. Option 2 may fluctuate (depending on profit). Option 2 gives ownership rights and voting rights. Debentures are safer investment.

Question 9 Akram, Bhupesh and Chuck a) Total expenses $349 000; Profit for the year $34 000; Share of residual loss A $1320; B $880; Share of

residual profit C $7200 (minimum share of resisual profit) b) Current account balances A $9720 Dr; B $680 Dr; C $1400 Cr c) To close capital account business has to pay Chuck $9400 whereas Akram and Bhupesh has to pay the

business $3520 and $9880 respectively. Question 10 Joel and Pooja Profit on realisation Joel $16 000; Pooja $16 000 To close bank account, business to pay Joel $49 500 and Pooja $46 000 Question 11 Nursultan Katia and Avtandil Eratum balance current account for Nursultan should be $5 350 Dr instead of $350 Dr (a) A debit balance on a current account arises when a partner has withdrawn more money than he is entitled to and is therefore in debt to the partnership. (b) A partnership may be dissolved as the partners are constantly in disagreement and can no longer work together. as the partnership is no longer liquid and further trading would increase the debt. as the partnership is no longer profitable as a partner wishes to set up on his own, or a partner dies or retires. c) Share of Loss on realisation Nursultan $8940; Katia $5960; Avtandil $2980 To close capital account, business has to pay Katia $20290 and Avtandil $40 000 whereas Nursultan has to pay business $4290 d) Capital brought by Avtandil = 17 000 + 19120 = 36120 Capital brought by Damir = 36120 3 x 2 = 24 080 Number of shares Avtandil = $36 120 $0.5 = 72 240 Number of shares Damir = $24 080 $0.5 = 48 160

Chapter 13: Structural Change in Partnerships Question 1: Nelson and Aliya a) Bal c\d: Nelson $55 000, Aliya $50 000, Betty $35 000 Total Non-current assets $110 000; total Current Assets $41 350; Total current liabilities $2790

32

b) Bal c\d: Nelson $41 000, Aliya $36 000, Betty $28 000 Total Non-current assets $75 000; total Current Assets $41 350; Total current liabilities $2790 Question 2: Melina and Audrey a) Capital account M A C M A C Bal b\d 13000 14000 - Bank - - 22500 Bal c\d 23400 16600 22500 Revaluation gain 10400 2600 - 23400 16600 22500 10400 2600 22500 Total goodwill at the time of structural change = Carlas share of goodwill x her PSR = 2500 x 6 = 15 000 Revaluation gain = 9000 7000 600 - 400 + 12 000 = 13 000 NCA $70 000; CA $26 000; CL $2500; NCL $31 000 b) Capital account M A C M A C Goodwill cancel 7500 5000 2500 Bal b\d 13000 14000 - Bank - - 22500

Bal c\d 15900 11600 20000 Revaluation gain 10400 2600 - 23400 16600 22500 10400 2600 22500 Question 3: George, Smith and Tom a) Revaluation gain = 143 000 13 000 9000 1000 = 120 000 Capital A/c Balance c\d

G- $145 333 S- $139 333

T- $65 344 Total NBV of NCA= $291 000 Total Current Assets =$81 100 Total Current Liabilities=$ 22 100 b) Capital account G S T G S T Revaluation cancel 60000 40000 20000 Bal b\d 95000 80000 55000 Goodwill cancel 27000 18000 9000 Revaluation gain 53333 53333 13334 Bal c\d 85333 99333 45334 Goodwill 24000 24000 6000 172333 157333 74334 172333 157333 74334 Total NBV of NCA= $170 000 Total Current Assets =$82 100 Total Current Liabilities=$22 100 Question 4: Gerard, Bert and John Balance Capital A/c G 30 500 B 22 000 Paid to John 26 500 Share of Residual Profit Jan-Sep Oct-Dec G 31 387.5 11 655 B 20 925 7 770 J 10 462.5 -

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Balance Current A/c G =$41 482.5

B =$29 080 Paid to John =$10 437.5 Question 5: Pascal, Jane and Michel a) Balance capital account Pascal $62 000; Michel $4000 Amount transferred to loan account for Jane $68 000 b) Total NBV of NCA $130 000

Total Current Assets $28 000 (1000 + 27 000) Total Current Liabilities $92 000 (24 000 + 68 000)

Question 6: James and Susan Mokobi

a) Balance on current account at 30 April 2005 James $5600 Cr; Suzan $3650 Dr b) Balance on capital account on 1 Nov 2005 James $41 000; Suzan $32 000; Anna $24 000

Profit and loss Appropriation account for the year ended 30 April 2006

May Oct Nov April Profit for the year 37500 37500 Less Appropriation Interest on Capital: James 525 2050 Suzan 300 1600 Anna - 1200 Salary suzan 3500 4325 - 4850 Residual profit 33175 32650

Share of Residual profit James 16 587.5 21766 Suzan 16587.5 5442 Anna - 5442

Note: Rate of interest on drawings for old partnership = 300 6000 x 100 = 3 % (since there is no drawings given for the year ended 30 April 2006, this means that there is no drawings for the year and there will be no interest in appropriation account) Rate of interest on capital for old partnership= 1050 35 000 x 100 = 3 %

Question 7: Frank and Ernest b)Balance Capital A/c F- $76 800 E - $118 400 D- $188 500

a) Total NBV of NCA $327 300 Total Current Assets $127 800 Total Current Liabilities $22 400

Question 8:Ryan and Lam

a) Capital account balances Ryan $370 000; Lam $380 000; Cinderella $200 000 b) Share of residual profit Jan June July Dec

Ryan 80 000 22 500 Lam 80 000 22 500 Cinderella - 22 500

c) Current account balances Ryan $96 400 Cr; Lam $109 900 Cr; Cinderella $23 500 Cr Question 9: Anna and Dora

a) Balance capital account Anna $52 500; Dora $77 500 b) Share of residual profit Oct Dec Jan Sept

Anna 1125 1860 Dora 1125 7440

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c) Current account balances Anna $18 960 Cr; Dora $19 040 Cr Question 10: Ben and Josie a) Capital account balances Ben $63 000; Josie $45 000; Melvyn $24 000 b) Capital account balances Ben $17 100; Josie $51 300; Melvyn $34 200 Ben should withdraw $37 228 whereas Josie and and Melvyn should introduced $17 914 and $19 314 respectively (c) Current accounts

B J M B J M Balance b/d 1 000 Balance b/d 4 000 Drawings 18 000 17 000 16 000 Profit 12 300 8 200 8 200

Salary 4 000 Interest on capital 684 2 052 1 368 Interest on loan 1 500 Profit 699 2 098 1 399

850 Balance c/d 5 317 1 033 19 000 17 850 16 000 19 000 17 850 16 000

Question 11: Eleni and Gianna ai) Share or residual profit: Eleni $12 000; Gianna $6 000 aii) Bal on Current account: Eleni $500 Cr; Gianna $900 Cr bi) Dr Vehicle $8000,Dr Inventory $7500, Dr Bank $9500, Cr Capital $25 000 Dr Capital Gianna $4000, Dr Capital Michalis $12 000, Cr Capital Eleni $16 000 Bii) Total NBV of NCA= $62 000; Total Current Assets =$72800; Total Current Liabilities=$58400; Capital Eleni $46 000; Capital Gianna $16 000; Capital Michalis $13 000 Question 12: Alan, Brian and Clive

a) Capital account Balances A $75 500 9transferred to current a\c); B $38 000; C $6000; D $17 000 Share of residual profit July Dec Jan June A 5963 - B 3975 8585 C 1987 4292.5 D - 4292.5

b) Current a\c balances A $93590 (paid through bank account); B $12 822 Dr; C $9042.5 Cr; D $4802.5 Cr Question 13: Ahmed, Bola and Chaudhry

a) Capital accont Balances Ahmed $65 000; Bola $62 000; Chaudhry $77 000 b) Profit for the year $144 000 (38 500 x3 - 1340 + 5040 + 4800 + 6000 + 14000)

Share of residual profit April to September 2007 Ahmed $15 193; Bola $15 193; Chaudhry $15 194 Share of residual profit October 2007 to March 2008 Ahmed $35 360; Bola $23 573; Chaudhry $11 787

c) Current account balances Ahmed $33 839 Cr; Bola $1217 Cr; Chaudhry $14 444 Question 14: Brad and Rob

a) Share of revaluation gain (including increase in value of goodwill) Brad $39 400; Rob $19 700 Balances on capital account Brad $121 400; Rob $67 700; Buzz $25 000

b) Balances on capital account Brad $91 400; Rob $52 700; Buzz $10 000 c) Balance sheet under (a) NCA $215 000; CA $32 760; CL $4660; NCL $29 000

Balance sheet under (b) NCA $155 000; CA $32 760; CL $4660; NCL $29 000

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Question 15: Ali and Ben Revenue $320 000; Opening inventory $32 000; Purchases $210 000; Closing inventory $34 000; COS $208 000; GP $ 112 000 April Dec Jan Mar G.Profit 84 000 28 000 Rent and rates 7650 2550 Salaries 10950 3650 Gen expenses 10500 3500 Depreciation 9000 3000 Profit for the year 45 900 15 300 Interest on capital A 5625 1975 B 2250 800 C - 375 Salary Carl - 2500 Residual profit 38 025 9650 Share of profit\ losss A 25350 (10370) B 12675 2895 C - 17125 Carls share of residual profit should be $17 125 (20 000 375 2500) minimum share of total profit $20 000 Bens share of residual profit for Jan to Mar = 3/10 x 9650 = 2895 Alis share of residual loss for Jan to Mar = 9650 2895 17125 = 10370 Capital account A B C A B C B\d 75000 30000 - C\d 79000 32000 15000 Bank - - 15000 Goodwill 4000 2000 - 79000 32000 15000 79000 32000 15000

Current account A B C A B C Interest on cap 7600 3050 375 Drawings 30000 20000 4000 Salary - - 2500 Salary paid 2500 Share or R.profit 14980 15570 17125 Bal c\d 13500 Bal c\d 7420 1380 30000 20000 20000 30000 20000 20000

c) NCA $24 000; CA $133700 (34 000 + 27000 +800 +71900); CL $27 000 Question 16: Kevin and Aniel a) Share of residual profit Kevin $22 250; Aniel $11 125 b) Current account balances at 31 Oct 2007 Kevin $2490 Cr; Aniel $1135 Cr transferred to capital account c) Revaluation gain = $51 000 (53 000 1300 500 200)

200 is the loss on disposal of vehicle taken over by Aniel Closing balances in capital account should reflect PSR: Kevin 3/5 x120 000 = 72 000 Adam 1/5 x 120 000 = 24 000 Carl 1/5 x 120 000 = 24 000

Capital account Kevin Aniel Adam Carl Kevin Aniel Adam Carl Vehicle - 4800 - - Bal b\d 40000 25000 - -

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Goodwill 27000 - 9000 9000 Goodwill 30000 15000 - - Bank 5000 53335 - - Revaluation gain 34 000 17000 - - Bal c\d 72000 - 24000 24000 Current a\c - 1135 - - Bank - - 33000 33000

d) Share of residual profit Kevin $17910; Adam $5970; Carl $5970 e) Current account balances at 30 April 2008 Kevin $650 Cr; Adam $1540 Cr; Carl $30 Dr Question 17: Alex and Brian

a) Balances on capital account Alex $104 000; Brian $58 000; Cindy $3 000 b) Income statement and Appropriation account

Oct May June Sept Gross profit 100 000 50 000 Admin exp Salary cindy 12 000 - Other 26 000 13 000 Depreciation 4 500 2 000 Profit for the year 57 500 35 000 Share of residual profit: Alex 34 500 10 160 Brian 23 000 10 160 Cindy - 5080

c) Balances on current account Alex $17 820; Brian $12 480; Cindy $3 200 d) NCA $183 500 (150 000 + 33 500); CA $74 000; CL $59 000

Question 18: Poppy and Rose

a) Capital account balances P $182 500; R $127500 b) Total current account balances at end 32 900 (26 350 + 6550)

Add Total drawings 39500 (9000 + 12000 + 7500 +11 000) Less Total (Net) current account balances at start 6400 (8500 -2100)

c) Share of residual profit Jan June July Dec P 7770 (180) R 7770 (120)

d) Corrected current account balances P $26195; R $6705 Question 19: Ong and Tan 1 Dr Bank A\c $200 000, Cr Capital A\c Kaw $200 000 2 Dr Goodwill $180 000, Cr Capital A\c Ong $108 000, Cr Capital A\c Tan $72 000 (record goodwill) Dr Capital A\c Ong $60 000, Dr Capital A\c Tan $60 000, Dr Capital A\c Kaw $60 000, Cr Goodwill A\c $180 000 (cancel goodwill) 3 Dr capital A\c Ong $188 000, Dr Capital A\c an $42 000 Cr Bank A\c $230 000 b) Jan to June share of residual profit Ong $28 500, Tan $19 000 July to Dec share of residual profit Ong $17 167, Tan $17167, Kaw $17166 Question 20: Bryan and Celina a) Capital at end 60000 Add drawings 40000 (17 000 + 23 000) Less capital at start (50000) (20 000 + 30 000) Profit for the year 50 000 b) Closing balance on capital account Bryan $50 000; Celina $63 000; Diksha $40 000 c) Jan to June share of residual profit Bryan $22 500; Celina $22 500 July to Dec share of residual profit Bryan $19 200; Celina $12 800; Diksha $6400 d) Closing balances on current account Bryan $1950 Cr; Celina $2110 Cr; Diksha $2060 Dr

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Chapter 14 Company internal use Question 1 Babylon SOCIE Bal at end: O.Share $1 200 000; S.Premium $190 000; R.Profit $1 554 000 Question 2 Peter Jordan a) Profit for the year $558 860 b) SOCIE Balance at end: O.Share $1 500 000; P.Share $200 000; S.Premium $150 000;

G.Reserve $50 000; R.Profit $567 460. c) Total NBV of NCA $2 396 500; Total C.Assets $341 760; Total C.Liabilities $170 800;

Total NCL $100 000 Question 3 IBX a) 1. Dr Bank $90 000, Dr S.Premium $10 000, Cr Debentures $100 000. 2. Dr Prov For dep (property) $120 000, Cr Property $50 000, Cr R.Reserve $70 000. Dr Prov for dep (plant and equipment) $40 000, Dr Income statement $15 000,

Cr Plant and Equipment $55 000. 3. Dr Bank $165 000, Cr O.S capital $75 000, Cr S.Premium $90 000. 4. Dr R.Reserve $70 000, Dr S.Premium $80 000, Cr O.S capital $150 000. 5. Dr Ordinary dividend $18 750, Dr Preference dividend $12 000, Cr Bank $30 750.

b) SOCIE Bal at end; O.Share $525 000; P.Share $150 000; S.Premium $50 000; R.Reserve nil;

R.Profit $39 250 Question 4 Worrifree a) Cost of sales $270 000; Gross profit $700 000; Profit for the year $106 000 SOCIE Bal at end; O.Share $400 000; G.Reserve $10 000; R.Profit $92 000 b) Total NBV of NCA $628 000; Total C.Assets $314 000; Total C.Liabilities $95 000;

Total NCL $345 000 Question 5 Don Ltd a) Cost of sales $177 000; Gross profit $217 000; Profit for the year $75 200 SOCIE Bal at end; O.Share $50 000; P.Share $200 000; G.Reserve $60 000; R.Profit $32 500 b) Total NBV of NCA $306 000; Total C.Assets $126 800; Total C.Liabilities $40 300;

Total NCL $50 000 Question 6 Piriton Ltd a) Cost of sales $1 438 000; Gross profit $1 554 000; Profit for the year $525 800 SOCIE Bal at end; O.Share $400 000; Share premium $80 000; G.Reserve $320 000; R.Profit $265 800

Total NBV of NCA $1 184 000; Total C.Assets $146 800; Total C.Liabilities $265 000; Question 7 Central Retailers Ltd a) Cost of sales $2 635 000; Gross profit $565 000; total expenses $502 000; Profit before interest $ 75 000 Interest $15 000; Profit for the year $60 000 SOCIE Bal at end: O.Share $275 000; P.Share $100 000; Revaluation Reserve $120 000; G.Reserve $90 000; R.Profit $59 000; Total $644 000 b) NBV of Property $343 000; NBV of P& Equipment $240 000; Total C.Assets $441 000; Total C.Liabilities $230 000; Total NCL $150 000

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Question 8 Benylin O.Share S.Premium R.Reserve G.Reserve R.Earnings Bal on 1 Jan 2007 1 600 000 250 000 140 000 - 240 000 Revaluation gain - - 60 000 - - Bonus issue 400 000 (200 000) (200 000) - - Expenses on B.issue - (25 000) - - - Rights issue 250 000 125 000 - - - Profit for the year - - - - 130 000 O.Dividend paid - - - - (125 000) Transfer to G.Reserve - - - 40 000 (40 000) Bal on 31 Dec 2007 2 250 000 150 000 0 40 000 205 000

Chapter 15 Company Publication

Question 1 Travic Ltd a) Cost of sales $192 000; Gross profit $153 000; Distribution cost $41 950; Administrative expenses $13 000; Other operating income $5 000; Loss on disposal $2 000; Profit on discontinued operations $7 000; Operating profit $108 050; Investment income $19 000; Finance charge $15 000; Tax $22 000; Profit for the year $90 050 b) SOCIE balance at end: O.Share $525 000; P.share $100 000; S.Premium $5 000; R.Reserve $95 000; G.Reserve $60 000; R.Profit $93 050; Total $878 050 c) Total NBV of NCA $935 050; Total CA $138 000; Total CL $45 000; Total NCL $150 000 Question 2 Ashbourne plc a) Cost of sales $4 291 000; Gross profit $2 925 000; Distribution cost $1 485 000; Administrative expenses $1 098 000; Operating profit $342 000; Finance cost $160 000; Profit for the year $182 000 b) SOCIE balance at end: O.Share $5 000 000; S.Premium $2 500 000; R.Reserve $1 000 000; R.Profit $189 000; Total $8 689 000 Total NBV of NCA $8 122 000; Total CA $2 966 000; Total CL $399 000; Total NCL $2 000 000 Question 3 Hamilton Ltd a) Gross profit $781 000; Operating profit $94 000; Finance cost $12 000; Profit for the year $80 000 SOCIE Balance at end: O.Share capital $300 000; P.Share $100 000; General reserve $10 000; R.Profit $130 000; Total $460 000 bi) Income gearing 2005 9.23 % and 2006 10 % ii) EPS 2005 $0.14 and 2006 $0.16 iii) P\E ratio 2005 9.64 times and 2006 10 times iv) DPS 2005 $0.0333 and 2006 $0.025 v) Dividend yield 2005 2.47% and 2006 1.56 % vi) Dividend cover 4.15 times and 2006 5 times Question 4 United Ltd a) Revenue $1 192 000; Cost of sales $450 000; Gross profit $742 000; Distribution cost $284 700; Administrative expenses $248 100; Other operating income $30 200; Profit for the year $109 400 b) SOCIE balance at end: O.Share $600 000; S.Premium $150 000; G.Reserve $219 000; R.Profit $32 400

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c) Total NBV of NCA $896 800; Total CA $292 600; Total CL $188 000 Question 5 Kitz Ltd a) Revenue $1 186 000;Cost of sales $358 000; Gross profit $828 000; Distribution cost $292 100 (190 000+ 5000 + 72 500 + 15 600 + 9000); Administrative expenses $223 500 (150 000 6800 + 12 000 14 000 + 800 + 72 500 + 9000); Other operating income $33 400; Operating profit $345 800; Tax $120 000; Profit for the year $225 800 b) SOCIE balance at end: O.Share $500 000; S.Premium $100 000; G.Reserve $180 000; R.Profit $132 800 c) Total NBV of NCA $840 600; Total CA $245 200; Total CL $173 000 Question 6 Busby Ltd a) Revenue $1 494 700; Cost of sales $298 500; Gross profit $1 196 200; Distribution cost $273 800 (76 000+ 8400+115 000+ 62 000+12400); Administrative expenses $205 400 (84 000 - 10 200 +115 000 + 12 400 + 4200 - 2300 + 2300); Other operating income $16 200; Operating profit $733 200; Tax $148 000; Profit for the year $585 200 b) SOCIE balance at end Ordinary share capital $1 200 000; Share Premium $600 000; Revaluation Reserve $200 000; General Reserve $150 000; Retained Profit $338 200 c) Total NBV of NCA $2 456 200 (2 100 000 + 223 200 + 133 000); Total CA $220 400; Total CL $188 400 Question 7 Poland Ltd

a) Revenue $620 000;Cost of sales $430 000; Gross profit $190 000; Distribution cost $55 950 (6000+11200+4000+28000+2000+1750+3000); Administrative expenses $54 650 (40 000 +600+1000+6300+2000+1750+3000);Operating profit $69 400; Investment income $18 000; profit before interest $87 400; Finance charge $9600; Tax $5500;Profit for the year $72 300

b) b) SOCIE balance at end Ordinary share capital $100 000;Non Redeemable Preference share capital $30 000; Share Premium $7 500; Revaluation Reserve $40 000; General Reserve $23 000; Retained Profit $97 300

c) Total NBV of NCA $273 500; Total CA $171 200; Total CL $51 900; Total NCL $95 000 Question 8: LDH Ltd $ Gross Profit 16 032 Operating Profit 4 368 Profit for the year 2 617 Total NBV of NCA 12 046 Total C.Assets 12 031 Total C.Liabilities 3 860 Total NCL 9 200 Ordinary share Capital 5 000 10% non-redeemable P.share 200 Reserves 5 817 Question 9 Togo Ltd

a) Revenue 3 150 000 Cost of Sales 1 958 700 Distribution cost 439 600 Administration cost 484 100 Non- recurring: Revaluation loss 19 000 Loss on disposal 55 000 Operating Profit 193 600

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Investment Income 15 000 Finance cost: Interest on loan 7 200 Redeemable Preference dividend 15 000 Profit for the year 186 400

b) sOCIE Balance at end Ordinary share 450 000 Preference share 100 000 Share Premium 412 500 CRR 30 000 Retained profit 331 700

General Reserve 60 000

c) Total NBV of NCA 1 057 600 Total Current Assets 669 000 Total Current Liabilities 182 400 Total NCL 160 000 Net assets 1 384 200

Question 10 Vivic Ltd

a) Revenue 12 550 000 Cost of Sales 6 650 000 Distribution cost 3 210 700 (2800 000 + 389 700 + 21 000) Administration cost 2 545 300 (2 260 000 + 259 800 +14 000 + 11 500) Other operating income 590 000 Non- recurring

Inpairment 170 000 Profit on disposal 150 000 Loss on discontinued operations 1 980 000

Operating loss 1 266 000 Investment Income 460 000 Finance cost: Interest 60 000 Tax 57 000 Loss for the year 923 000

b) SOCIE Balance at end Ordinary share 800 000

Share Premium 300 000

Revaluation Reserve 640 000

Retained earnings (223 000) Losses

c) Total NBV of NCA 1 795 500 (1000 000 + 665 000 + 30 500 + 100 000)

Total Current Assets 1 348 500 (440 000 + 598 500 +310 000)

Total Current Liabilities 1 127 000 (720 000 + 10 000 + 57 000 + 340 000)

Total NCL 500 000

Net assets 1 517 000

Chapter 16 International Accounting Standards Question 1 OReally Ltd a) 1 IFRS 3; 2 IAS 36; 3 IAS 2; 4 IAS 16; % IAS 37 b) $301 880 (367 500 50 000 220 15 000 400) depreciation has not been provided on property at all this is because the NBV at 1 May 2006 and at 30 April 2007 is the same $500 000 c) Property $735 000; Other tangible assets $710 000; Goodwill $130 000; Inventory $59 780;

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trade receivables $7 600 (8000 400); Cash and cash equivalent $14 000; Current liabilities $42 000; O.share capital $750 000; P.Share capital $250 000; S.Premium $62 500; R.Reserve $250 000; Retained Profit $301 880 d) Ordianry share capital $850 000; P.Share capital $50 000; S.Premium $102 500; R.Reserve $250 000; CRR $50 000; Retained profit $241 880. Question 2 Megrand Ltd a) IAS 38; IAS 36; IAS 16; IAS 37; IAS 2. b) $1 190 795 (1 280 000 15000 73 700 480 -25) c) Property, Plant and Equipment $3 635 000 (3 200 000 15 000 + 500 000 73 700); Inventory $119 975; Trade receivables $15 520; Cash and cash equivalent $28 000; T.payables $84 000; O.Share capital $2 000 000; R.reserve $500 000. Question 3 Cobra Item 1: IAS 2 Inventories Item 2: IAS 38 Intangible assets Item 3: IAS 10 Events after the reporting period (balance sheet date) Item 1: IAS 2 states that inventories should be valued at the lower of cost and net realisable value. The net realisable value would be the selling price of $62 400 less the cost to convert the inventory of $12 500 = $49 900. As the NRV is lower than cost then $2100 ($52 000 $49 900) would be deducted from inventories in current assets and also deducted from retained earnings. This is an application of prudence Item 2: IAS 38 states that the patent cost of $62 000 represents a purchased intangible asset which is recognised in the financial statements at cost price. It is capitalised in the balance sheet if this cost can be reliably measured and if there are probable future economic benefits. If the patent has a finite life then it can be written down via amortisation . If instead it has an indefinite life then it is not amortised. Item 3: IAS 10 states that if material events exist at the balance sheet date and if the outcome is known before the accounts have been approved then the impact can be adjusted in the financial statements. $35 000 would be deducted from trade receivables in current assets and also deducted from retained earnings Question 4 Wiles Ltd Situation 1: IAS 8 Accounting policies, changes in accounting estimates and errors. A change in the depreciation method would usually be against the concept of consistency and so would not be recommended. However, if the change would lead to more reliable and relevant information, then the change would be appropriate in this circumstance. The previous years figures and this years figures in the financial statements would need to be restated to assist with comparability. This would affect the depreciation charge both in the income statement and the statement of financial position (balance sheet). Situation 2: IAS 10 Events after the reporting period. The flood happened after the year end date and so would be classified as a non-adjusting event even though the financial statements may not have been approved by the board of directors. No adjustment is therefore made to the financial statements for the year end. However, if the impact of the event is deemed to be material then the event details will be disclosed in the notes to the financial statements. In this case, the event nature and an estimate of the financial impact will be shown Situation 3: IAS 37 Provisions, contingent liabilities and contingent assets. The restructuring represents a current obligation as a result of a past event. Provided that a reliable estimate can be made of the probable outflow of economic benefits then the change needs to be recognised in the financial statements as a liability , due to the fact that there is more than a 50% likelihood of the event occurring . The cost of

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the restructuring would therefore be shown as a cost in the income statement and also as a liability in the statement of financial position (balance sheet). Situation 4: IAS 36 Impairment of assets. A fall in the market value of the land and buildings is due to an external indication that impairment has occurred. If the market value, which is the recoverable amount, is less than the carrying amount or net book value then an impairment loss exists. The non-current assets are reduced to this recoverable amount in the statement of financial position (balance sheet) and is also recognised as an expense in the income statement.

Chapter 17 Business financing Question 1 Allion Ltd Option 1 Interest payable p.a. 25 000 Option 2 Debenture interest p.a. 56 000 Option 3 Dividends paid p.a 54 000 These figures may be incorporated in the analysis. Option 1 is the cheapest and the loan will be paid off in only 4 years. It will deplete cash by $250 000 each year but can the company afford to pay this; risk of default plus development; evaluation of effect on cash flows ; evaluation of effect on profits . Option 2 is the most expensive from the interest point of view but the interest payable will reduce in real terms over the years. The interest must be paid whether profits are made or not. Capital sum repayable in 2035 but until then no repayments of capital; risk of non payment of interest plus development; evaluation of effect on cash flows evaluation of effect on profits. Option 3 provides permanent capital and although dividends of 2.7 cents per share will be paid, the Directors have the choice not to pay if the profits are insufficient to warrant non payment or they may wish to pay less than the current rate. This option will keep ownership in the hands of current shareholders unless a significant number of existing shareholders sell their rights to the shares. Risk of non payment of dividend plus development; evaluation of effect on cash flows evaluation of effect on profits

Chapter 18 Financial analysis Question 1 Candy Ltd a) 1- 66.67 %; 2- 40 %; 3- 13.33% ; 4- 10.14 % ; 5- 12.59 % ; 6- 9.59 % ; 7- 3.83:1 ; 8- 2.85:1 ; 9- 4 % ; 10- 2.33 times ; 11- $0.175 ; 12- 10.29 times ; 13- $0.075 ; 14- 4.17 % ; 15- 26.45 % ; 16- 300 % or 3 times Question 2 Manny Kyoor a) 1- 30 %; 2- 15.16 % using NPBI or 13.1 Using NPAI ; 3- 1.87:1 ; 4- 0.456:1; 5- 5 times or 73 days ; 6- 218.75 % ; 7- 21.4 % ; 8- 43.9 % using NPBI; 9- 22.42 days ; 10- 27.38 days Question 3 Ferdi Nand Purchases $344000; Closing inventory $64000; Cost of sales $360000; Gross profit $120000; Profit for the year $72000 Cost of NCA $400000, Acc dep $160000; Cash and cash equivalent $6000; Trade payables $110000; Capital $242000; Drawings $24000 Question 4 Sania

Gearing 57.57%

Earnings per share (EPS) $0.15

Dividend per share $0.04

Dividend yield 5 %

Dividend cover 3.75 times

Price/earnings ratio 5.33 times

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Question 5 Lucky and Sad

i) Gross profit margin 66.67 % ii) Net profit margin 20.515 % iii) Return on capital employed 12.07 % iv) Current ratio 1.9:1 v) Acid test ratio 1.4:1 vi) Trade receivables collection period 74.606 days vii) Trade payables payment period 131.08 days viii) Inventory turnover 65.518 days ix) Working capital cycle 9.044 days x) Expense to sales ratio 46.15 % xi) Income Gearing 12.59 % xii) Gearing 15.19 % xiii) Return on Equity 11.28 %

Question 6 M Porter a) Revenue $262800; Purchases $184690; Cost of sales $210240; Gross profit $52560; Fixed Expenses $31536; Variable expenses $7884 Total NBV of NCA $100000; Inventory $22265; Trade receivables $28800; Cash and cash equivalent $1307; Trade payables $8602; Capital $140000. b) Trade payables $15180; Cash and cash equivalent $24330; Capital $156445. Question 7 Wayne

i) Dividend per share $0.08 per share ii) Dividend yield 5 % iii) Dividend cover 2.5 times iv) Earnings per share $0.2 per share v) Price/earnings 8 times

bi) Bayern higher DPS bii) Topaz Higher P\E ratio Question 8 Phoenicia Ltd a) Revenue $381538; Purchases $254000; Cost of sales $248000; Gross profit $133538; Distribution cost $29251; Administrative expenses $58502; NPBI $45785; Interest $18314; Profit for the year $27471 SOCIE Balance at end O.S capital $125000; R.Profit $14971. b) Ratio for Algebra: 1 64.52 %; 2 - $0.52; 3 4

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