Professional Documents
Culture Documents
July 2013
ICSA, 2013
Page 1 of 15
Section A
Answer all parts of Question 1. Select only one of the options A, B, C or D for each part.
1.
(i)
(ii)
(iii)
(iv)
B.
C.
D.
The decision by a retailer to value his closing stock of 1,000 bags of flour at
the current market price of 5 per kg rather than its original cost price of
7.50 per kg is an example of which one of the following accounting
concepts?
A.
Consistency
B.
Prudence
C.
Materiality
D.
Money measurement
B.
C.
D.
When the correct amount from a transaction is posted in the ledger but it
has been posted to the wrong account, this is an error of which one of the
following?
A.
Commission
B.
Principle
C.
Original entry
D.
Compensation
Page 2 of 15
ICSA, 2013
Parts (v) to (x) relate to the magazine publishing business of Simon Gee for the
accounting year 1 July 2012 to 30 June 2013.
(v)
Simon uses a petty cash float of 500 for his business. On 31 May 2013, the
petty cash balance was 75.
What is the correct accounting entry required to restore the petty cash
float?
(vi)
A.
Dr Petty Cash
Cr Cash
500
500
B.
Dr Cash
Cr Petty Cash
500
500
C.
Dr Petty Cash
Cr Cash
425
425
D.
Dr Cash
Cr Petty Cash
425
425
At the year ended 30 June 2012, Simon Gee had a rent account debit
balance of 4,800. On 1 October 2012, Simon paid 81,000 for the year
ended 30 September 2013.
What should be the entry in Simons Profit & Loss account for the year
ended 30 June 2013?
A.
65,550
B.
76,200
C.
81,000
D.
85,800
(vii) On 1 September 2010, Simon Gee bought a new printing press for his
magazine publishing business at a cost of 16,000. Simons depreciation
policy is 20% per annum reducing balance. Simon charges a full years
depreciation in the year of acquisition.
What was the depreciation charge to Simons Profit & Loss account for the
year ended 30 June 2013?
A.
2,048
B.
2,560
C.
3,200
D.
8,192
Page 3 of 15
ICSA, 2013
(viii) An extract from Simons book of accounts as at 30 June 2013 produced the
following:
Current Assets
Inventories
Debtors
Bank
Total
8,000
75,000
12,750
95,750
Current Liabilities
Trade Creditors
Total
75,650
75,650
(ix)
A.
0.79:1
B.
1.10:1
C.
1.16:1
D.
1.27:1
Simons debtors at 30 June 2012 were 68,000 and his provision for doubtful debt
was 2,720. At 30 June 2013, Simons debtors had risen to 75,000 and Simon
estimated he should make a 3% provision for doubtful debts.
What is the correct journal entry to account for the change in the provision?
(x)
A.
Debit
Profit and loss account 2,250
Credit
Provision for doubtful debt 2,250
B.
C.
D.
B.
C.
D.
ICSA, 2013
Page 4 of 15
Suggested answers
(i)
C.
(ii)
B.
Prudence
(iii)
D.
(iv)
A.
Commission
(v)
C.
Dr Petty Cash
Cr Cash
425
425
Examiners explanation:
Workings
The petty cash float requires an increase in cash of 425 from the business cash. An
increase in the petty cash float is a debit transaction and the financing from the cash is a
credit transaction. This gives us the following:
Dr Petty Cash
Cr Cash
(vi)
A.
425
425
65,550
Examiners explanation:
Workings
Date
30-Jun-12
01-Oct-12
30-Jun-13
30-Jun-13
(vii) A.
2,048
(viii) C.
1.16:1
(ix)
Description
Prepayment
Bank
Prepayment
Profit & Loss Account
Cr
20,250
65,550
Balance
4,800
85,800
65,550
0
D.
Debit
Provision for doubtful debt 470
(x)
Dr
4,800
81,000
C.
Credit
Profit and loss account 470
Examiners comments
Section A was generally well answered. However, it is noteworthy that, for this session, many
candidates did not rely on Section A to provide a solid base for performances because Section B
and C were equally answered well by many candidates.
ICSA, 2013
Page 5 of 15
Section B
Answer all five questions.
2.
Identify and explain three classes of items shown in the upper section of a statement of
financial position.
(6 marks)
Suggested answer
Any three of the following.
Item identified
Explanation
Non-Current Assets
Current Assets
Current Liabilities
Non-Current Liabilities
Examiners comments
Many candidates produced a good set of answers. However, a small number of candidates were
unable to provide appropriate items and/or suitable examples.
3.
(a)
(b)
Suggested answer
(a)
An accrual is a cost that has been incurred during the accounting period but remains unpaid at
the end of the period and is unbilled. Alternatively, in terms of benefits, it is a benefit received
during the period but remains unpaid at the end of the period.
ICSA, 2013
Page 6 of 15
(b)
An accrual is charged to the profit and loss account because the expense was incurred during
the accounting period.
The accrual is shown within the current liability on the balance sheet because it remains unpaid
at the end of the accounting period.
Examiners comments
Part (a) of the question was generally answered well. However, some candidates wrote
excessively and repeatedly on accruals. It is advised that the mark allocation should be used as
a guide in answering questions.
The answers for part (b) were mixed. Some candidates produced excellent answers. However,
other candidates were unable to state the exact treatment in the profit and loss account and
balance sheet.
4.
Try Sports had a sales ledger account balance of 157,050 on 31 May 2013. During the
month of June 2013, the following transactions occurred:
8,100
402,180
11,520
788,220
Prepare the sales ledger control account of Try Sports as at 30 June 2013.
(6 marks)
Suggested answer
Date
31 May 2013
30 June 2013
30 June 2013
30 June 2013
30 June 2013
Balance
157,050
945,270
933,750
531,570
523,470
523,470
Examiners comments
This question was generally poorly answered.
The question required the production of a sales ledger control account from the information in
the question. However, many candidates did not assign dates to transactions, or show details, or
show debit and credit columns in the control account.
It must be noted that this topic is central to Accounting Fundamentals.
ICSA, 2013
Page 7 of 15
5.
Describe the six source documents relating to the purchases and sales cycles found in
an accounting system.
(6 marks)
Suggested answer
Sales order a customer provides a written order detailing the goods or services they wish
to buy.
Purchase order a business sends a written order to a supplier for the purchase of goods
or materials.
Invoice from suppliers a business buys goods or services from a supplier and
receives an invoice from the supplier. Note: the goods or services received should
correspond to the details on the purchase order.
Credit notes credit notes are sent out when goods or services are returned to the
supplier by the customer.
Goods received note these are sent with goods as they are shipped to the
customer.
Examiners comments
Some candidates in their attempt to answer the question appeared to ignore the requirement of
six source documents, and included cashbook and journals which were not required.
6.
A summary of balances extracted from Mo Speeds accounting records for the year-end
30 June 2013 is shown below:
Capital
Purchases
Sales
Carriage in
Plant & machinery
262,500
60,500
54,000
5,000
87,500
Produce a trial balance for Mo Speed for the year ended 30 June 2013, and determine his
bank balance.
(6 marks)
ICSA, 2013
Page 8 of 15
Suggested answer
Mo Speed
Trial Balance
As at 30 June 2013
Dr
Capital
Bank
Purchases
Sales
Carriage in
Plant & Machinery
Cr
262,500
163,500
60,500
54,000
5,000
87,500
316,500
316,500
The missing bank balance required to ensure the trial balance is in equilibrium, debits equals
credits is 163,500.
Examiners comments
Many candidates answered the question well and were able to determine the missing bank
balance. However, some candidates demonstrated an inability to post ledger balances on the
correct side of a trial balance.
ICSA, 2013
Page 9 of 15
Section C
Answer two questions only.
7.
(a)
(b)
Explain the different types of fixed assets found on a balance sheet, giving an
example of each.
(9 marks)
(c)
Explain the difference between a bad debt and a provision for doubtful debt, giving
an example of each.
(8 marks)
(d)
Explain the impact a bad debt and a provision for doubtful debt have upon the
financial statements.
(5 marks)
(Total: 25 marks)
Suggested answer
(a)
Assets purchased by an entity with an expected life span over one year.
The cost of the asset is not charged to the profit and loss account in the year of
acquisition.
Example: Plant/Machinery/Goodwill/investment
Examiners comments
Part (a) of the question was generally answered well.
(b)
Description
Example
Tangible fixed
assets
Investments
Physical assets
that can be seen
or touched and are
useful as result of
application in an
entity.
Plant/Machinery/
Vehicle
Examiners comments
Part (b) was answered fairly well.
ICSA, 2013
Page 10 of 15
(c)
Bad Debt
Description
Example
Examiners comments
Many candidates demonstrated that they understood the difference between bad debt and
the provision for doubtful debt.
(d)
Profit and Loss Account
A bad debt and a provision for a
doubtful debt are expenses that are
charged to the profit and loss
account, and thus reduce the annual
profit.
Balance Sheet
A bad debt and a provision for a doubtful
debt both reduce the debtors balance on
the balance sheet.
The bad debt is written off first to enable
the provision for doubtful debt to be based
on the actual collectable debtors balance.
Examiners comments
Part (d) was generally answered well.
ICSA, 2013
Page 11 of 15
8.
Sales
Cost of sales
Gross profit
Operating expenses
Profit before interest and
taxation
Interest
Pre-tax profit
1,820,000
1,314,300
505,700
387,015
118,685
11,050
107,635
128,400
85,750
17,060
Current Liabilities
Payables
116,575
2,039,100
231,210
114,635
1,000,000
1,153,735
1,028,000
125,735
1,153,735
Required
(a)
Using Mexy Limiteds financial statements for the year ended 30 June 2013, identify
and calculate the following:
(i)
(ii)
(b)
ICSA, 2013
Page 12 of 15
Suggested answer
(a)
Ratios
Profit Margins
Gross profit margin
Operating profit
margin
Management of
working capital
Inventory holding
days
Collection of
receivables
Payment of payables
505,700 x 100
1,820,000
27.79%
118,685 x 100
1,820,000
6.52%
Inventories x 365
Cost of sales
Receivables x 365
Sales
Payables x 365
Cost of sales
128,400 x 365
1,314,300
85,750
x 365
1,820,000
116,575 x 365
1,314,300
35.66 days
17.20 days
32.37 days
Examiners comments
Candidates generally produced an excellent set of answers to the profit margins and the
management of working capital ratios. The clarity of the layout of many answers was noted.
Other appropriate ratios were given credit.
(b)
Changes in ratios may be closely associated with another ratio and produce a similar
conclusion e.g. a decline in current and liquidity ratios.
Company financial statements are based on historic events. Therefore, ratios provide
an understanding of past events.
Accounting policies such as depreciation may affect the annual financial statements,
and, as such, the resulting accounting ratios.
Accounting ratios do not provide a holistic understanding of an entity because they are
solely financial measures.
Examiners comments
Many candidates further demonstrated their competence in financial ratios by producing another
set of good answers that addressed the limitations of accounting ratios.
ICSA, 2013
Page 13 of 15
9.
(a)
(b)
Identify and explain the two additional concepts identified by the IFRS.
(9 marks)
(Total: 25 marks)
Suggested answer
(a)
Bedrock Concepts
Explanation
Going concern
Accruals or matching
Desirable Concepts
Explanation
Prudence
The principle that:
income is included in the
financial statements only
when realised, whereas,
likely losses are included
as soon as possible.
Consistency
The principle that there is
uniformity of accounting
treatment of like items:
within each accounting
period and,
from one period to the
next.
Examiners comments
Part (a) of Question 9 was generally answered well. However, a small number of candidates
appeared to confuse bedrock and desirable concepts.
ICSA, 2013
Page 14 of 15
(b)
IFRS
Explanation
Examiners comments
Some candidates were unable to name the two concepts and provide a suitable explanation.
The scenarios included here, except where expressly identified, are entirely fictional. Any
resemblance of the information in the scenarios to real persons or organisations, actual or
perceived, is purely coincidental.
ICSA, 2013
Page 15 of 15