QUESTIONS

F A/FF A: F INAN C IALACCO UNTING

MULTIPLECHOICEQUESTIONS
REGULATORYFRAMEWORK
1

Which of the following explanations of prudence most closely follows that in IASBs
FrameworkforthePreparationandPresentationofFinancialStatements?
A

The application of a degree of caution in exercising judgement under conditions of

uncertainty

Revenue and profits are not recognised until realised, and provision is made for all
knownliabilities

Alllegislationandaccountingstandardshavebeencompliedwith

Understatementofassetsorgainsandoverstatementofliabilitiesorlosses

Theaccountingbasisorconventionwhich,intimesofrisingprices,tendstounderstateasset
valuesandoverstateprofitisthe:
A

goingconcernbasis

prudenceconvention

realisationconvention

historicalcostconvention

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

DOUBLEENTRYBOOKKEEPING
3

Whichofthefollowingitemsappearonthesamesideofthetrialbalance?
A

CapitalandSales

Purchasesanddiscountsreceived

MotorexpensesandLoanaccount

Accruedincomeandaccumulateddepreciation

Andyhasstartedabusinessandtransferredhiscomputer,worth$1,500intothebusiness.
Whataretheaccountingentriestorecordthis?

DrCapital

DrComputerequipment CrCapital

DrComputerequipment CrDrawings

DrDrawings

CrComputerequipment

CrComputerequipment

Sarahasthefollowinginformationregardinghercreditsalesfromthesalesdaybook.
Totalsalesincludingsalestax$54,000
Salesexcludingsalestax$45,000
Salestax$9,000
Howwouldsherecordtheentriesintheledgeraccounts?
A

DrSalestax$9,000
DrSales$54,000
CrReceivablescontrolaccount$45,000

DrReceivablescontrolaccount$54,000
DrSalestax$9,000
CrSales$45,000

DrSalestax$54,000

DrSales$45,000

CrReceivablescontrolaccount$9,000

DrReceivablescontrolaccount$54,000

CrSalestax$9,000

CrSales$45,000

Thecorrectentryforrecordingdiscountsgiventocustomers,inthemainledgeris:
A

DrDiscountsallowed

DrReceivablescontrolaccount

CrDiscountsallowed

DrReceivablescontrolaccount

CrDiscountsreceived

DrDiscountsreceived

CrReceivablescontrolaccount

KA PLAN PUBLISHING

CrReceivablescontrolaccount

F A/FF A: F INAN C IALACCO UNTING

Farah started the month with an overdrawn balance of $1,750 per the bank statement.
WhatisthebalanceperthebankaccountafterthefollowingtransactionsinNovember?
1

Farahwithdraws$225permonthtocoverlivingexpenses.

Asettlementdiscountof$20istakenbyFarahonapurchaseof$650.

Anamountof$500isreceivedfromacreditcustomer.

Bankingsof$1,300frompettycash.

$805credit

$805debit

$2,695credit

$825debit

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

SALESTAX
8

Donnaisregisteredforsalestax.DuringJune,shesellsgoodswithataxexclusivepriceof$750
toKayoncredit.AsKayisbuyingalargequantityofgoods,Donnareducesthepriceby5%.
Shealsooffersadiscountofanother2%ifKaypayswithin10days.Kaydoesnotpaywithin
the10days.
Ifsalestaxischargedat20%,whatamountshouldDonnachargeonthistransaction?

$142.50

$150.00

$147.15

$139.65

At 1 March 20X5 Lauren owed the tax authorities $27,338. During the month of March, she
recordedthefollowingtransactions:

Salesof$750,000inclusiveof20%salestax.

Purchasesof$450,000exclusiveofsalestax.

WhatisthebalanceonLaurenssalestaxaccountattheendofMarch?

10

11

$60,000

$62,338

$35,000

$7,662

If sales (including sales tax) amounted to $26,612.50, and purchases (excluding sales tax)
amounted to $15,000, what would be the balance on the sales tax account, assuming all
itemsaresubjecttotaxat20%?
A

$1,435.42

$2,822.50

$2,322.50

$3,887.08

Inthequarterended30June20X2,Chandlerhadtaxablesales,netofsalestax,of$90,000and
taxablepurchases,netofsalestax,of$72,000.
Iftherateofsalestaxis10%,howmuchsalestaxisdue?
A

$3,000

$10,800

$1,800

$7,200

KA PLAN PUBLISHING

F A/FF A: F INAN C IALACCO UNTING

12

A summary of the transactions of Bilko, who is registered for sales tax at 10%, shows the
followingforthemonthofJanuary20X9.

Outputs

$60,000(exclusiveoftax)

Inputs

$40,500(inclusiveoftax)

AtthebeginningoftheperiodBilkoowed$3,500tothetaxauthorities,andduringtheperiod
hehaspaid$2,200tothem.
Attheendoftheperiodtheamountowingtothetaxauthoritiesis:

$3,618

$3,186

$5,450

$3,250

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

INVENTORY
13

TheclosinginventoryofEpsilonamountedto$284,000at30September20X4,thestatement
of financial position date. This total includes two inventory lines about which the inventory
takerisuncertain.
(1)

500 items which had cost $15 each and which were included at $7,500. These items
werefoundtohavebeendefectiveatthestatementoffinancialpositiondate.Remedial
workafterthestatementoffinancialpositiondatecost$1,800andtheywerethensold
for$20each.Sellingexpenseswere$400.

(2)

100itemswhichhadcost$10each.Afterthestatementoffinancialpositiondatethey
weresoldfor$8each,withsellingexpensesof$150.

WhatfigureshouldappearinEpsilon'sstatementoffinancialpositionforinventory?

14

15

$283,650

$283,800

$292,150

$283,950

AccordingtoIAS2Inventories,whichofthefollowingcostsshouldbeincludedinvaluingthe
inventoriesofamanufacturingentity?
(1)

Carriageinwards

(2)

Carriageoutwards

(3)

Depreciationoffactoryplant

(4)

Generaladministrativeoverheads

Allfouritems

(1),(2)and(4)only

(2)and(3)only

(1)and(3)only

On31December20X3theinventoryofVwascompletelydestroyedbyfire.
Thefollowinginformationisavailable:
(1)

Inventoryat1December20X3atcost

$28,400

(2)

PurchasesforDecember20X3

$49,600

(3)

SalesforDecember20X3

$64,800

(4)

Standardgrossprofitpercentageonsalesrevenue

30%

Basedonthisinformation,whichofthefollowingistheamountofinventorydestroyed?
A

$45,360

$32,640

$40,971

$19,440

KA PLAN PUBLISHING

F A/FF A: F INAN C IALACCO UNTING

16

MJsellsthreeproductsSmall,MediumandLarge.Thefollowinginformationwasavailableat
theyearend:

Originalcost
Estimatedsellingprice
Sellinganddistributioncosts

Unitsininventory

Small
$perunit
5
8
2
units
250

Medium
$perunit
10
13
4
units
100

Large
$perunit
15
18
6
units
150

Whatisthevalueofinventoryattheendoftheyear?

$4,500

$3,950

$4,200

$2,700

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

NONCURRENTASSETS
17

A noncurrent asset was disposed of for $2,200 during the last accounting year. It had been
purchasedexactlythreeyearsearlierfor$5,000,withanexpectedresidualvalueof$500,and
hadbeendepreciatedusingthereducingbalancebasis,at20%perannum.
Whatwastheprofitorlossondisposal?

18

$360loss

$150loss

$104loss

$200profit

Betapurchasedsomeplantandequipmenton1July20X3for$40,000.Thescrapvalueofthe
plantintenyears'timewasestimatedtobe$4,000.Beta'spolicyistochargedepreciationon
thestraightlinebasis,withaproportionatechargeintheyearofacquisition.
WhatshouldbethedepreciationchargefortheplantinBeta'saccountingperiodoftwelve
monthsto30September20X3?

19

$720

$600

$900

$675

AcarwaspurchasedbyTfor$12,000on1April20X1andhasbeendepreciatedat20%each
yearstraightline,assumingnoresidualvalue.
The accounting policy is to charge a full years depreciation in the year of purchase and no
depreciationintheyearofsale.Thecarwastradedinforareplacementvehicleon1August
20X4foranagreedtradeinvalueof$5,000.
Whatwastheprofitorlossonthedisposalofthevehiclefortheyearended31December
20X4?
A

Loss$2,200

Loss$1,400

Loss$200

Profit$200

KA PLAN PUBLISHING

F A/FF A: F INAN C IALACCO UNTING

20

Anentitysplantandmachineryledgeraccountfortheyearended30September20X2wasas
follows:
20X1
1October:Balance
1December:Cashaddition

Plantandmachinerycost
$
20X2

381,200 1 June: Disposal account cost

ofassetsold
18,000

399,200

30September:Balance

36,000
363,200

399,200

The entitys policy is to charge depreciation at 20% per year on the straight line basis, with
proportionatedepreciationinyearsofpurchaseandsale.
Whatwasthedepreciationchargefortheyearended30September20X2?

21

$74,440

$84,040

$72,640

$76,840

Biancaboughtanasseton1stJanuary20X6for$335,000.Shehasdepreciateditat25%using
thestraightlinemethod.On1stJanuary20X9,Biancarevaluedtheassetto$450,000.
WhatdoubleentryshouldBiancaposttorecordtherevaluation?
A
B
C
D

DrNoncurrentassetscost $115,000 CrRevaluationsurplus

$366,250
DrAccumulateddepreciation $251,250
DrNoncurrentassetscost $450,000 CrRevaluationsurplus
$701,250
DrAccumulateddepreciation $251,250
DrRevaluationsurplus
$586,250 CrNoncurrentassetscost
$335,000
CrAccumulateddepreciation $251,250
DrRevaluationsurplus
$450,000 CrNoncurrentassetscost $335,000
CrAccumulateddepreciation $115,000

10

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

ACCRUALSANDPREPAYMENTS
22

Intheyearto31December20X8Hhadcashreceiptsinrespectofrentalincomeof$49,200.
Theamountsofrentreceivedinadvanceanddueinarrearswereasfollows:

Rentreceivedinadvance
Rentdueinarrears

31Dec20X8
$
2,400
1,800

31Dec20X7
$
2,600
1,400

Whatfigureforrentalincomeshouldberecordedinthestatementofprofitorlossforthe
yearended31December20X8?

23

$48,600

$49,000

$49,400

$49,800

Rentpaidon1October20X2fortheyearto30September20X3was$12,000,andrentpaidon
1October20X3fortheyearto30September20X4was$16,000.
Whatfigureforrentexpenseshouldbeshowninthestatementofprofitorlossfortheyear
ended31December20X3?

24

$12,000

$16,000

$13,000

$15,000

A business sublet part of its offices and in the year ended 30 November 20X3 the rent
receivablewas:
Until30June20X3

$8,400peryear

From1July20X3

$12,000peryear

Rentwaspaidquarterlyinadvanceon1January,April,July,andOctobereachyear.
Whatamountsshould appearinthefinancialstatementsfor theyear ended30November
20X3?

Statementofprofitorloss
rentreceivable

Statementof
FinancialPosition

$9,900

$2,000insundrypayables

$9,900

$1,000insundrypayables

$10,200

$1,000insundrypayables

$9,900

$2,000insundryreceivables

KA PLAN PUBLISHING

11

F A/FF A: F INAN C IALACCO UNTING

25

Abusinesscompilingitsaccountsfortheyearto31Januaryeachyearpaysrentquarterlyin
advanceon1January,1April,1Julyand1Octobereachyear.
Afterremainingunchangedforsomeyears,therentwasincreasedfrom$24,000peryearto
$30,000peryearasfrom1July20X3.
Which of the following figures is the rent expense which should appear in the statement of
profitorlossfortheyearended31January20X4?

12

$27,500

$29,500

$28,000

$29,000

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

RECEIVABLES
26

Thefollowingreceivablesledgercontrolaccounthasbeenpreparedbyatraineeaccountant:
20X3
1Jan
31Dec

Balance
Creditsales
Discountsallowed
Irrecoverabledebts
writtenoff
Salesreturns

$
284,680
189,120
3,660
1,800

20X3
31Dec

Cashreceivedfrom
creditcustomers
Contras*

$
179,790

800

4,920

484,180

Balance

303,590

484,180

*=Contrasagainstamountsowingbythebusinessinpayablesledger
Whatshouldtheclosingbalanceontheaccountbewhentheerrorsinitarecorrected?

27

$290,150

$286,430

$282,830

$284,430

Thefollowingcontrolaccounthasbeenpreparedbyatraineeaccountant:
Receivablesledgercontrolaccount

Openingbalance
Creditsales
Cashsales

Contras against credit balances

inpurchaseledger

308,600 Cashreceivedfromcredit
customers
154,200 Discountsallowedtocredit
customers
88,100 Interestchargedonoverdue
accounts
Irrecoverabledebtswrittenoff
Allowanceforreceivables
4,600
Closingbalance

555,500

$
147,200
1,400
2,400
4,900
2,800
396,800

555,500

What should the closing balance be when all the errors made in preparing the receivables
ledgercontrolaccounthavebeencorrected?
A

$395,200

$304,300

$307,100

$309,500

KA PLAN PUBLISHING

13

F A/FF A: F INAN C IALACCO UNTING

28

At 30 September 20X2 a business had an allowance for receivables of $38,000, which

representedfivepercentofreceivablesatthatdate.
At 30 September 20X3 receivables totalled $868,500. It was decided to write off $28,500 of
debtsasirrecoverableand,basedonpastexperience,tokeeptheallowanceforreceivablesat
fivepercentofreceivables.
Whatisthechargeinthestatementofprofitorlossfortheyearended30September20X3
inrespectofthetotalofIrrecoverabledebtsandtheallowanceforreceivables?

29

$42,000

$33,925

$70,500

$32,500

TheallowanceforreceivablesintheaccountsofBat31October20X1was$9,000.Duringthe
yearended31October20X2,Irrecoverabledebtsof$5,000werewrittenoff.
Receivables balances at 31 October 20X2 were $120,000 and B wishes to set the specific
allowanceat$6,000.
WhatwasthetotalchargeforIrrecoverabledebtsandtheallowanceforreceivablesinthe
statementofprofitorlossfortheyearended31October20X2?

14

$2,000

$3,000

$5,000

$8,000

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

PAYABLES
30

Allys payables ledger control account has a balance carried down at 31 October 20X8 of
$36,900debit.
During October, credit purchases were $74,800, payments made to suppliers were $68,900,
purchasereturnswere$4,700andcontraswiththereceivablesledgercontrolaccountwere
$520.
Whatwastheopeningbalanceonthepayablesledgercontrolaccount?

31

$54,020

$36,220

$52,980

$34,240

Duringanaccountingperiod,theentriesinapayablesledgercontrolaccountwere:
Purchases
Bank
Returns
Contrareceivablesledgeraccount
Debitbalances
Balanceb/d

$215,000
$235,000
$2,200
$3,000
$800
$65,000

Whatwasthebalanceonthepayablesledgercontrolaccountattheendoftheaccounting
period?

32

$79,000

$76,000

$39,000

$43,400

Whichofthefollowingbestdescribestheentriesthataremadeusingthepurchasedaybook
totalsattheendofeachmonth?
A

Debitpurchaseswithtotalnetpurchases,creditpayablesledgercontrolwithtotalgross
purchasesanddebitsalestaxaccountwithtotalsalestax

Debitpurchaseswithtotalgrosspurchases,creditpayablesledgercontrolwithtotalnet
purchasesandcreditsalestaxaccountwithtotalsalestax

Debitpayablesledgercontrolwithtotalnetpurchases,debitsalestaxaccountwithtotal
salestaxandcreditpurchaseswithtotalgrosspurchases

Debitpayablesledgercontrolwithtotalgrosspurchases,creditpurchaseswithtotalnet
purchasesandcreditsalestaxaccountwithtotalsalestax

KA PLAN PUBLISHING

15

F A/FF A: F INAN C IALACCO UNTING

CAPITALSTRUCTURE
33

At30June20X2GCoscapitalstructurewasasfollows:

Ordinarysharecapital
500,000sharesof25ceach
Sharepremiumaccount

125,000
100,000

Intheyearended30June20X3GComadearightsissueof1shareforevery2heldat$1per
shareandthiswastakenupinfull.LaterintheyearGComadeabonusissueof1sharefor
every5held,usingthesharepremiumaccountforthepurpose.
WhatwasGCoscapitalstructureat30June20X3?

A
B
C
D
34

16

Ordinarysharecapital
$
450,000
225,000
225,000
212,500

Sharepremiumaccount
$
25,000
250,000
325,000
262,500

What are the correct ledger account entries to record the issue of 200,000 $1 shares at a
premiumof30c,andpaidforbycheque,infull?
A

Debitsharecapitalaccount

$200,000

Creditsharepremiumaccount

Creditbankaccount

$140,000

Debitbankaccount

$260,000

Creditsharecapitalaccount

$200,000

Creditsharepremiumaccount

Debitsharecapitalaccount

Debitsharepremiumaccount

Creditbankaccount

$260,000

Debitbankaccount

$200,000

Debitsharepremiumaccount

Creditsharecapitalaccount

$60,000

$60,000
$200,000
$60,000

$60,000
$260,000

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

35

At1November20X6OllieCohadthefollowingcapitalstructure:

Ordinarysharesof50c
Sharepremium

$
100,000
30,000

On10January20X7,inordertoraisefinanceforexpansion,therewasa1for4rightsissueat
$1.20.Theissuewasfullytakenup.
WhatisthebalanceonOllieCossharepremiumaccountaftertheabovetransaction?

36

$10,000

$65,000

$20,000

$35,000

HollyCohasanunderprovisionof$4,300onitstaxliabilityaccountat31October20X8before
accountingforthatyearstaxcharge.
Itestimatestaxonprofitsfortheyeartobe$69,780.
What amounts should be shown in Holly Cos financial statements for the year ended
31October20X8inrespectoftax?

Statementofprofitorloss

Statementoffinancialposition

$69,780taxcharge

$74,080taxpayable

$69,780taxcharge

$64,480taxpayable

$74,080taxcharge

$69,780taxpayable

$64,480taxcharge

$69,780taxpayable

KA PLAN PUBLISHING

17

F A/FF A: F INAN C IALACCO UNTING

BANKRECONCILIATIONS
37

38

Inreconcilingabusiness'cashbookwiththebankstatement,whichofthefollowingitems
couldrequireasubsequententryinthecashbook?
(1)

Chequespresentedafterthedateofthebankstatement.

(2)

Achequefromacustomerwhichwasdishonoured.

(3)

Anerrorbythebank.

(4)

Bankcharges.

(5)

Depositscreditedafterthedateofthebankstatement.

(6)

Standingorderpaymententeredinthebankstatement.

(2),(3),(4)and(6)only

(1),(2),(5)and(6)only

(2),(4)and(6)only

(1),(3)and(5)only

ThefollowingbankreconciliationstatementhasbeenpreparedforOmegabyajuniorclerk:

Overdraftperbankstatement
Add:Depositsnotcredited

Less:Outstandingcheques

Overdraftpercashbook

$
68,100
141,200

209,300
41,800

167,500

Whichofthefollowingshouldbethecorrectbalanceperthecashbook?

18

$167,500overdrawnasstated

$31,300overdrawn

$31,300cashatbank

$114,900overdrawn

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

39

Thefollowingdifferenceshavebeenidentifiedwhencomparingthecashbookwiththebank
statementsofabusiness:
(i)

Bankinterestreceived$40,hadnotbeenenteredinthecashbook

(ii)

A BACS receipt of $6,200 and $460 from two customers has not been entered in the
cashbook

(iii)

Areceiptfor$650hasbeenrecordedinthecashbookas$750

(iv)

Cheques drawn for $3,940 entered in the cashbook are not showing on the bank
statement.

Whichofthefollowingneedtobeadjustedinthecashbook?

40

(i)and(ii)only

(iv)only

(I),(ii),(iii)

Alloftheabove

The bank statement has been compared with the cash book and the following differences
identified:
1

Chequestotalling$1,629paidintothebankattheendofthemontharenotshowingon
thebankstatement.

Bankinterestpaidof$106wasnotenteredinthecashbook.

Achequefor$350writtenon2Junehasbeenincorrectlyenteredinthecashbookat
2May

Areceiptfromacustomerof$1,645hasclearedthebankbuthasnotbeenenteredin
thecashbook.

Whichofthefollowingneedtobeadjustedinthecashbook?
A

2,3and4

1only

1and2

Alloftheabove

KA PLAN PUBLISHING

19

F A/FF A: F INAN C IALACCO UNTING

THETRIALBALANCEANDERRORS
41

Atrialbalancehasbeenextractedand asuspenseaccountopened.Oneerrorrelatestothe
mispostingofanamountof$200,beingdiscountsreceivedfromsuppliers.Thiswasrecorded
onthewrongsideofthediscountsaccount.
Whatwillbethecorrectingjournalentry?

42

DebitDiscountsaccount$200,CreditSuspenseaccount$200

DebitSuspenseaccount$200,CreditDiscountsaccount$200

DebitDiscountsaccount$400,CreditSuspenseaccount$400

DebitSuspenseaccount$400,CreditDiscountsaccount$400

Collinhasextractedthefollowingbalancesfromtheledgeraccountsforhisbusiness:

Plantandmachinery
Property
Inventory
Payables
Receivables
Bankoverdraft
Loan
Capital
Drawings
Sales
Purchases
Purchasereturns
Discountsallowed
Discountsreceived
Sundryexpenses

$
95,000
135,000
6,400
3,600
2,850
970
45,000
100,000
32,000
362,000
156,000
2,200
?
3,500
82,500

He has forgotten to extract the balance from the discounts allowed account. What is the
valueofthemissingbalance?

20

$4,020

$7,520

$5,580

$3,120

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

43

44

LizCorecordedabankspaymentof$880forrepairstoitsbusinessvan.Thecorrectentrywas
made to the bank account but no other entries were made. What would be the journal to
correctthiserror?
A

DrVanaccount

CrRepairsaccount

DrRepairsaccount

CrBankaccount

DrRepairsaccount

CrSuspenseaccount

DrRepairsaccount

CrVanaccount

Dizzierecordedanamountof$3,175forrentandrates.Boththerentandratesaccountand
thebankaccountweredebited.
Whatwouldbethejournaltocorrectthiserror?

45

DrSuspense$3,175

CrBank$3,175

DrSuspense$6,350

CrBank$6,350

DrBank$3,175

CrRentandrates$3,175

DrRentandrates$6,350

CrBank$6,350

Weedenstrialbalanceat31October20X9doesnotagree,withthecreditsidetotalling$1,610
lessthanthedebitside.DuringNovember,thefollowingerrorswerediscovered:

ThedebitsideofthepurchasesaccountforOctoberhadbeenovercastby$150.

Rentpayableof$240hadbeendebitedtotherentreceivableaccount.

The allowance for receivables, which increased by $240, had been recorded in the
allowanceforreceivablesaccountasadecrease.

Followingthecorrectionoftheseerrors,whatwillbethebalanceonthesuspenseaccount?
A

$260

$740

$980

$320

KA PLAN PUBLISHING

21

F A/FF A: F INAN C IALACCO UNTING

PREPARINGBASICFINANCIALSTATEMENTS
46

Abusinesshascompiledthefollowinginformationfortheyearended31October20X2:

Openinginventory
Purchases
Closinginventory

$
386,200
989,000
422,700

Thegrossprofitasapercentageofsalesisalways40%
Basedonthesefigures,whatwasthesalesrevenuefortheyear?

47

$1,333,500

$1,587,500

$2,381,250

Thesalesrevenuefigurecannotbecalculatedfromthisinformation

Baseduponthefollowinginformation,whatwasthevalueofpurchasesfortheaccounting
period?

Openingpayables
Cashpaidtosuppliers
Discountsreceived
Goodsreturned
Closingpayables

48

$302,600

$506,400

$523,200

$578,200

$
142,600
542,300
13,200
27,500
137,800

ThefollowinginformationisrelevanttoWimbledon:

Openinginventory
Closinginventory
Purchases
Expenses
Carriagein
Carriageout
Depreciation

$
13,500
18,160
299,000
114,400
3,500
7,700
40,000

Whatwasthecostofsalesfortheaccountingperiod?

22

$297,840

$294,340

$298,540

$302,040

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

INCOMPLETERECORDS
49

Lukesellsofficeequipment.Hebuysaphotocopierfor$900.
(a)

Whatwouldthesellingpricebe,excludingsalestax,ifa40%markupwasapplied?
$

(b)

Whatwouldthesellingpricebe,excludingsalestax,ifthesalesmarginwas40%?
$

50

You are given the following information about a sole trader called Chiron as at 31 January
20X5:
Thevalueofassetsandliabilitieswere

Noncurrentassetsatcost

$10,000

Tradereceivables

$2,000

Loan

$7,500

Closingcapital(at31January20X5)

$3,500

Therewerenootherassetsorliabilities
(a)

Calculatetheamountofaccumulateddepreciationattheyearend31January20X5
$

(b)

Chiron sells goods at a mark up of 25%. What would be the gross profit on a sales
priceof$11,000?
$

51

YouaregiventhefollowinginformationaboutasoletradercalledPercyasat31March20X2:
Thevalueofassetsandliabilitieswere

Noncurrentassetsatcarryingvalue

$14,000

Bank

$2,500

Tradepayables

$10,300

Openingcapital(at1April20X1)

$3,700

Drawingsfortheyear

$1,500

Therewerenootherassetsorliabilities.
Calculatetheprofitfortheyearended31March20X2.
$

KA PLAN PUBLISHING

23

F A/FF A: F INAN C IALACCO UNTING

52

The following information is available about the transactions of Rascal, a sole trader who
doesnotkeepproperaccountingrecords:

Openinginventory
Closinginventory
Purchases
Grossprofitmargin

$
75,000
86,000
840,000
30%

Basedonthisinformation,whatisRascalssalesrevenuefortheyear?

53

$580,300

$255,300

$1,106,300

$248,700

Youaregiventhefollowingincompleteandincorrectextractfromthestatementofprofitor
lossofabusinessthattradesatamarkupof25%oncost:

Sales
Less: Costofgoodssold
Openinginventory
Purchases
Closinginventory

Grossprofit

15,785
147,058
X

$
185,250

(X)

Havingdiscoveredthatthesalesfigureshouldhavebeen$195,230andthatcarriageinwards
of$1,500andsalesreturnsof$1,230havebeenomitted,whatshouldbethevalueofclosing
inventory?

24

$38,800

$6,143

$46,305

$9,143

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

GROUPACCOUNTS
DataforQuestions
Pike Co acquired 75% of the ordinary share capital of Neal on 1 January 20X9 when Neal Co had
retained earnings of $1,000,000. Also on 1 January 20X9, Pike Co purchased a 30% interest in the
ordinarysharecapitalofWhittingtonCowhenWhittingtonCohadretainedearningsof$296,000.It
isPikeCospolicytocalculateandaccountforgoodwillusingthefullgoodwillmethod.Atthedateof
acquisition of Neal Co, the fair value of the noncontrolling interest in Neal Co was $500,000. The
summarisedstatementsoffinancialpositionforeachentityfortheyearended31December20X9
wereasfollows:

Noncurrentassets
Propertyplantandequipment
InvestmentinNeal
InvestmentinWhittington

Currentassets
Inventory
Receivables
Cash
Totalassets
Equityandliabilities
$1ordinaryshares
Retainedearnings

Currentliabilities
Payables
Taxation

Pike
$000

Neal
$000

Whittington
$000

1,918
2,610
448
4,976

1,960

1,960

1,680

1,680

760
380
70
6,186

1,280
620
116
3,976

380
200
92
2,352

2,240
2,946
5,186

1,000
1,884
2,884

1,120
896
2,016

800
200
6,186

960
132
3,976

272
64
2,352

AnimpairmenttestattheyearendidentifiedthatgoodwillforNealwasunimpaired.
54

55

What is the total tangible noncurrent assets amount to be shown in the consolidated
statementoffinancialposition?
A

$3,878,000

$5,558,000

$4,382,000

$4,326,000

Whatistheamounttobeshownintheconsolidatedstatementoffinancialpositionforthe
investmentintheassociate?
A

$448,000

$180,000

$628,000

$604,800

KA PLAN PUBLISHING

25

F A/FF A: F INAN C IALACCO UNTING

56

57

58

26

What is the goodwill amount to be shown in the consolidated statement of financial

position?
A

$Nil

$1,110,000

$1,610,000

$610,000

What is the total assets amount to be shown in the consolidated statement of financial
position?
A

$8,214,000

$8,842,000

$7,732,000

$8,662,000

What is the total group retained earnings amount to be shown in the consolidated
statementoffinancialposition?
A

$3,789,000

$3,609,000

$2,946,000

$3,740,800

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

STATEMENTSOFCASHFLOWS
59

60

In relation to statements of cash flows, which, if any, of the following statements are
correct?
1

Thedirectmethodofcalculatingnetcashfromoperatingactivitiesleadstoadifferent
figurefromthatproducedbytheindirectmethod,butthisisbalancedelsewhereinthe
cashflowstatement.

An entity making high profits must necessarily have a net cash inflow from operating
activities.

Profitsandlossesondisposalsofnoncurrentassetsappearasitemsundercashflows
frominvestingactivitiesinthecashflowstatementoranotetoit.

Statement1only

Statement2only

Statement3only

Noneofthestatements

TheprofitsofGLwere$63,400.Thiswasafterchargingdepreciationof$2,700.
During the year, receivables decreased by $600, inventories increased by $2,500 and trade
payables increased by $900. Noncurrent asset purchases during the year amounted to
$17,300andtherewasalossondisposalofnoncurrentassetsof$3,000.
Whatwastheincreaseincashbalancesduringtheyear?

61

$40,800

$46,800

$50,800

$52,800

Whichofthefollowingisnotshowninthestatementofcashflows?
A

Cashflowsfrominvestingactivities

Cashflowsfromfinancingactivities

Cashflowsfromprofitsofthebusiness

Cashflowsfromoperatingactivities

KA PLAN PUBLISHING

27

F A/FF A: F INAN C IALACCO UNTING

62

Adraftstatementofcashflowscontainsthefollowing:

Profitbeforetax
ProceedsfromadisposalofaNCA
Decreaseininventories
Increaseinreceivables
Increaseinpayables

Netcashinflowfromoperatingactivities

$m
279
80
(26)
65
15

413

Whichofthefollowingcorrectionsneedstobemadetothecalculations?

63

ProceedsfromadisposalofaNCAneedstoberemovedfromthissection.

Decreaseininventoriesshouldbeadded,notdeducted.

Increaseinreceivablesshouldbededucted,notadded.

Increaseinpayablesshouldbeadded,notdeducted.

1,2and3

1and4

1only

2and3

Logic is producing its statement of cash flows for the year ended 31 December 20X8. The
accountanthasidentifiedthefollowingbalancesinthefinancialstatements:

Loansredeemed
Dividendspaid
Increaseinsharecapital
Bonusissuemade

$
82,000
185,000
55,000
25,000

Whatisthenetcashflowfrominvestingactivities?

28

($133,000)

($212,000)

($187,000)

$80,000

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

INTERPRETATIONOFFINANCIALSTATEMENTS
64

ACoscapitalemployedat31December20X2isasfollows:

Ordinarysharecapital
Retainedearnings

8%Loannotes

$m
380
120

500
100

600

ACosstatementofprofitorlosstheyearended31December20X2isasfollows:

Operatingprofit
Interestpaid

Taxation

$m
40
(8)

32
(10)

22

Dividendsdeclaredintheyearwere$10million,leavingaretainedprofitwas$12million.
WhatisACosreturnonequityshareholderscapitalemployed,usingclosingcapitalfigures?

65

4.4%

2.4%

3.7%

5.8%

BCohasthefollowingcurrentassetsandliabilitiesat31October20X8:

Currentassets:

Currentliabilities:

Inventory
Receivables
Bank

Payables

$000
970
380
40

1,390

420

Whenmeasuredagainstacceptednorms,BCocanbesaidtohave:
A

ahighcurrentratioandanidealacidtestratio

anidealcurrentratioandalowacidtestratio

ahighcurrentratioandalowacidtestratio

idealcurrentandacidtestratios

KA PLAN PUBLISHING

29

F A/FF A: F INAN C IALACCO UNTING

66

CCohasthefollowingcapitalandlongtermliabilities:

12%loannotes
Issuedsharecapital
Sharepremium
Retainedprofits

31.10.X8
$m
20
15
3
22

31.10.X9
$m
40
30
18
12

At31October20X9,CCosgearingratio,comparedtothatat31October20X8,has:

67

risen,resultingingreaterriskforshareholders

risen,resultingingreatersecurityforshareholders

fallen,resultingingreatersecurityforshareholders

remainedthesame

Theannualsalesrevenueofanenterpriseis$235,000includingsalestaxat17.5percent.Half
of the sales are on credit terms; half are cash sales. The receivables in the statement of
financialpositionare$23,500.
Whatistheaveragereceivablescollectionperiod(tothenearestday)?

30

37days

43days

73days

86days

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

68

ThedraftstatementoffinancialpositionofDCoat31March20X3issetoutbelow.

Noncurrentassets
Currentassets
Inventory
Receivables
Prepayments

Totalassets

Capitalandreserves
Issuedcapital
Retainedearnings

Noncurrentliabilities
Loan
Currentliabilities
Payables
Shorttermborrowings(note1)

$000

65
110
30

30
50

$000
450

205

655

400
100

500

75

80

655

Note1:Theshorttermborrowingswereraisedon30September20X2.
WhatisthegearingofDCo?
A

13percent

16percent

20percent

24percent

KA PLAN PUBLISHING

31

F A/FF A: F INAN C IALACCO UNTING

69

Anenterprisehasthefollowingtradingaccountfortheyearending31May20X8:

Salesrevenue
Openinginventory
Purchases

Less:Closinginventory

Grossprofit

$
45,000

24,500

20,500

4,000
26,500

30,500
(6,000)

Whatwastheinventoryturnoverfortheyear?

70

32

4.9times

5.3times

7.5times

9times

Howisthegearingrationormallycalculated?
A

Longtermloansasapercentageoftotalsharecapitalandreserves

Currentandlongtermdebtasapercentageoftotalassetslesscurrentliabilities

Totalsharecapitalandreservesasapercentageoflongtermloans

Totalsharecapitalandreservesasapercentageoftotalequityplustotalliabilities

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

RECORDING,HANDLINGANDSUMMARISINGACCOUNTINGDATA
BOOKKEEPING
71

JANEGRIGSON
JaneGrigsonisasoletraderwhokeepsherownaccountingrecords.Sherecordsinvoicessent
outtocustomersinasalesjournal,anyreturnsfromcustomersinareturnsinwardsbookand
cashtransactionsincashreceivedandcashpaidbooks.
BelowaretheentriesinJanesbooksofprimeentryfortheweekcommencing8June20X2.
SalesJournal
Date

8June
9June
9June
12June

Customer

PK
HS
RDContractors
HS

Customer

PK

Total
$
423
1,410
893
940

$3,666

Total
$
141

ReturnsJournal
Date

12June

Cashreceivedbook
Date

8June
9June
10June
11June
11June

Narrative

Cashsale
HS
Cashsale
RDContractors
HS

Total

$
250
140
90
475
680

1,635

Discounts Receivables
Allowed
Ledger
$
$

20
140

475
48
680

1,295
68

Other
$
250
90

340

Required:
(a)

Posttheentriesinthejournalsshowntotherelevantaccountsinthegeneralledger
andthereceivablesledger(donotbalanceofftheaccounts);
(8marks)

(b)

Explain why the discounts allowed column, receivables ledger column and other
columndonotcrosscasttoequalthetotalcolumninthecashreceivedbook.(2marks)
(Total:10marks)

KA PLAN PUBLISHING

33

F A/FF A: F INAN C IALACCO UNTING

72

RBD
TheledgerofRBDincludedthefollowingledgerbalances:

Rentsreceivable:
paymentsinadvance
Rentpayable:

prepayments

accruals
Payables

Allowancefordiscountsonpayables

1June
20X1
$
463
1,246
315
5,258
106

31May
20X2
$
517
1,509
382
4,720
94

Duringtheyearended31May20X2thefollowingtransactionshadbeencarriedout:

Rentsreceivedbycheque
Rentpaidbycheque

Accountspayablepaidbycheque
Discountsreceivedfrompayables
Purchasesoncredit

$
4,058
10,296
75,181
1,043
tobederived

Required:
Post and balance the appropriate accounts for the year ended 31 May 20X2, deriving the
transferentriestothestatementofprofitorlosswhereapplicable.
(10marks)

34

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

73

MICHAELROBERTSON
MichaelRobertsonisasoletraderwhoseaccountsyouhavepreparedforthelasttwoyears.
MichaelhasrecentlyattendedatwodaycourseentitledFinancefornonaccountantswhere
hebegantolearnthefundamentalsofdoubleentrybookkeepingaswellastogainagreater
understandingofhisfinancialstatements.
SincehisreturnfromthiscourseMichaelhasspentsometimelookingatlastyearsaccounts
andheisratherconfusedaboutsomeareas.
Michaelsqueriesareasfollows:
(1)

On the course that I have just attended two types of expenditure were mentioned,
capital expenditure and revenue expenditure. If revenue is income how can it also be
usedtodescribeatypeofexpenditure?

(2)

LookingatthetrialbalanceIamconcernedthattradepayables,whicharebadnews,
andprofit,whichisgoodnews,arebothcreditbalances.Howcanthisbeso?

(3)

I notice that some of my expense accounts have opening balances on them, some
debitsandsomecredits.Surelytheseshouldhavebeenwrittenofftoprofitorlosslast
yearsothattheaccountcanbestartedafreshthisyear.

(4)

One of the credit entries in the statement of profit or loss is entitled Allowance for
receivables.Thismustsurelybeamistakeascreditsinthestatementofprofitorloss
areincomeorprofits.

(5)

I have come across entries in both customer and supplier accounts called contras.
Whatarethese,expenseorincome?

Required:
AnswereachofthesequestionsintermsthatMichaelwillbeabletounderstand. (10marks)

KA PLAN PUBLISHING

35

F A/FF A: F INAN C IALACCO UNTING

ERRORCORRECTIONANDSUSPENSEACCOUNTS
74

UPRIGHT
ThedraftfinalaccountsofUprightfortheyearended31October20X5showanetprofitof
$48,200.
The list of account balances still has a difference for which a suspense account has been
opened.ThesuspenseaccountappearsinUprightsstatementoffinancialpositionasadebit
balanceof$1,175.
Inthecourseofsubsequentchecking,thefollowingerrorsandomissionswerefound:
(i)

At1November20X4insuranceof$1,305hasbeenprepaid,butthefigurehadnotbeen
broughtdownontheinsuranceaccountasanopeningbalance.

(ii)

A vehicle held as a noncurrent asset, which had originally cost $22,000, was sold for
$6,000.At1November20X4,depreciationof$17,600hadbeenchargedonthevehicle.
The $6,000 proceeds of sale had been credited to the revenue account, and no other
entrieshadbeenmade.

(iii)

Depreciationonvehicleshadbeencalculatedat20%(straightlinebasis)onthebalance
onthevehiclescostaccount.Thechargefortheyearnowneedstobeadjustedforthe
effectofitem(ii)above.

(iv)

At 31 October 20X5, insurance of $1,500 paid in advance had not been allowed for in
theinsuranceaccount.

(v)

Thecreditsideoftherentreceivableaccounthadbeenundercastby$400.

(vi)

Acreditpurchaseof$360hadbeencorrectlyenteredintothepurchasesdaybook(list
ofpurchaseinvoices)buthadbeenenteredas$630onthecreditsideofthesuppliers
accountintheaccountspayableledger.Uprightdoesnotmaintainanaccountspayable
ledgercontrolaccountinthegeneralledger.

Whentheseerrorshadbeencorrected,thesuspenseaccountbalanced.
Required:

36

(a)

PrepareastatementshowingtheeffectonUprightsprofitofthecorrectionofthese
errors.
(12marks)

(b)

ShowthesuspenseaccountasitwouldappearinUprightsrecords.

(6marks)
(Total:18marks)

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

75

VBCO
VB Co, a chemical business, extracted a trial balance from its ledgers on 30 April 20X0 and
found that the sum of the debit balances did not equal the sum of the credit balances. A
suspense account was opened and used to record the difference. VB does not use control
accountsforitscustomerandsupplieraccounts.
VBCocarriedoutaninvestigationintothecauseofthedifferenceandfoundthefollowing:
(1)

Cashsalesof$246hadbeendebitedtothesalesreturnsaccountandthecashbook.

(2)

An invoice to a customer for $1,249 had been posted to the customers account as
$1,294.

(3)

Bankchargesof$37hadnotbeenenteredinthecashbook.

(4)

Atranspositionerroroccurredsuchthatanadditional$45hadbeenincludedinthesum
postedtothepurchasesaccountfromasuppliersinvoice.

(5)

Acontraentryof$129hadbeendebitedtothecustomeraccountandcreditedtothe
supplieraccount.

(6)

An invoice for rent for the six month period ending 30 September 20X0 amounting to
$13,500hadnotbeenenteredintheledgersandremainedunpaidon30April20X0.

(7)

A carriage invoice of $52 had been debited to carriage outwards but it related to the
purchaseofgoodsfromoneofVBCossuppliers.

(8)

A irrecoverable of $40 which should have been written off had been forgotten and
remainedasabalanceonthecustomersaccount.

Required:
Showthejournalentriesnecessarytocorrecteachoftheabove(includinganarrative).

(10marks)

KA PLAN PUBLISHING

37

F A/FF A: F INAN C IALACCO UNTING

76

YTZ
WhenthetrialbalanceofYTZwasextractedon30June20X2itshowedthefollowingtotals:

Dr
$
103,457

Cr
$
102,113

Atthetimeasuspenseaccountwasopenedtorecordthedifferencebutinvestigationhasnow
followedandthefollowingfactshaveemerged:
(1)

An invoice for travel expenses of $132 was entered in the travel expenses account as
$123,althoughcorrectlyenteredinthecreditorsaccount.

(2)

Thereturnsoutwardsbookwasundercastononepageby$100.

(3)

Anelectricitybillfor$154thathadnotbeenrecordedoraccruedforwasdiscovered.

(4)

Discounts received of $1,870 had not been entered in the payables ledger control
account.

(5)

Thebankstatementthathasrecentlybeenreceivedshowedanamountofintereston
theoverdraftof$28whichhasnotbeenrecordedintheledgers.

(6)

A small item of machinery costing $1,450 was charged to the repairs account.
Depreciationischargedonmachineryattherateof20%perannumoncost.

(7)

Discountsallowedof$30werenotrecordedinthecashreceivedbook.

(8)

Asettlementbycontraentryof$3,200wasonlyrecordedinthepayablesledgercontrol
account.

(9)

Bankchargesof$23hadbeencorrectlyenteredintheexpenseaccountbutnotinthe
cashbook.

Required:

38

(a)

Clear the suspense account balance by correcting each of the errors detailed above;

(5marks)

(b)

Prepareastatementofadjustedprofitshowingtheoriginalprofitof$97,499andthe
netprofitaftercorrectingtheitemsabove.
(5marks)

(Total:10marks)

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

77

WT
The trial balance for WT was extracted at 30 June 20X2. After preparation of the draft
statement of profit or loss, it was found that the debit balances did not equal the credit
balancesandasuspenseaccountwassetupuntilthedifferencescouldbeinvestigated.
Sincethatdateanumberoferrorshavebeenfoundintheledgersandanumberofitemsare
stilltobeaccountedfor:
(1)

ApieceofmachinerywaspurchasedoncreditattheendofJune20X2for$2,000butno
detailshaveyetbeenenteredintotheledgeraccounts.Machineryisdepreciatedat20%
oncostwithafullyearsdepreciationintheyearofpurchase.

(2)

AvehicleusedinthebusinesswasdisposedofduringJunefor$1,400.Itoriginallycost
$8,000andthedepreciationaccumulated up tothedateofsalewas$5,000.Theonly
entriestohavebeenmaderegardingthisdisposalweretodebitthebankaccountand
credittherevenueaccountwiththesaleproceeds.

(3)

DuringJune$200wasreceivedfromanoldcustomerofWT.Allofthiscustomersdebts
hadbeenwrittenoffinthepreviousyearwhenhisbusinessfolded.

(4)

Ithasbeendiscoveredthatitemsworth$4,278havebeencompletelyomittedfromthe
closinginventoryfigureintheaccounts.

(5)

Ithasbeendiscoveredthatrentof$125thathadbeenprepaidat30June20X1wasnot
broughtdownastheopeningbalanceontherentaccount.

(6)

Purchases on credit totalling $3,261 have been correctly debited to the purchases
account,butthecreditentrytothepayablesledgercontrolaccountwas$3,621.

(7)

Astandingorderforprofessionalfeesof$140inJunehasbeenomittedfromthecash
bookasitwasonlydiscoveredwhencheckingthebankstatement.

(8)

Acashsaleof$175hasbeenincludedinthesalesaccounttwice.

Required:
Preparejournalentries,withnarratives,tocorrecttheseerrorsandomissions.

KA PLAN PUBLISHING

(10marks)

39

F A/FF A: F INAN C IALACCO UNTING

INVENTORYVALUATION
78

MRG
On1JanuaryMrGstartedasmallbusinessbuyingandsellingaspecialyarn.Heinvestedhis
savingsof$40,000inthebusinessand,duringthenextsixmonths,thefollowingtransactions
occurred:

Dateof
receipt

13January
8February
11March
12April
15June

Yarnpurchases

Quantity

Boxes

200

400

600

400

500

Total
cost
$
7,200
15,200
24,000
14,000
14,000

Dateof
despatch

10February

20April

25June

Yarnsales

Quantity
Boxes
500

Total
value
$
25,000

600

27,000

400

15,200

TheyarnisstoredinpremisesMrGhasrentedandtheclosinginventoryofyarn,countedon
30June,was500boxes.
Required:
Calculatethevalueofthematerialissuesduringthesixmonthperiod,andthevalueofthe
closinginventoryattheendofJune,usingthefollowingmethodsofpricing:

40

(a)

firstinfirstout;

(10marks)

(b)

weightedaverage(calculationtotwodecimalplacesonly).

(10marks)

(Total:20marks)

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

RECEIVABLES
79

ALLOWANCEFORRECEIVABLES
Youaregiventhefollowingbalancesat1January20X1:
Receivables
Allowanceforreceivables

$10,000
$400

Youascertainthefollowinginformation:

Salesfortheyear20X1(alloncredit)
Salesreturnsfortheyear20X1
Receiptsfromcustomersduring20X1
Irrecoverabledebtswrittenoffduring20X1
Discountsallowedduring20X1

$
100,000
1,000
90,000
500
400

Attheendof20X1thespecificallowanceforreceivablesequatedto5%ofreceivables.

Salesfortheyear20X2(90%oncredit)
Salesreturnsfortheyear20X2(90%relatingtocreditcustomers)
Receiptsfromcreditcustomersduring20X2
Receivablesbalancessettledbycontraagainstpayablebalancesduring20X2
Irrecoverabledebtswrittenoffduring20X2(including50%ofthedebtduefrom
the customer who had gone bankrupt, the other 50% having been received in
cashduring20X2)
Discountsallowedduring20X2

$
100,000
2,000
95,000
3,000

1,500
500

Attheendof20X2thespecificallowanceforreceivableswasequivalentto5%receivablesat
thatdate.
Required:
Writeupthereceivablesandallowanceforreceivablesaccountsfor20X1and20X2,bringing
downthebalancesattheendofeachyearandshowinginthoseaccountsthedoubleentry
foreachitem.
(10marks)

KA PLAN PUBLISHING

41

F A/FF A: F INAN C IALACCO UNTING

APPLICATIONSOFACCOUNTINGCONVENTIONS
80

STATEMENTOFFINANCIALPOSITIONVALUES
Themanagingdirectorofanentityhasrecentlyreturnedfromaconferenceonthetechniques
ofbusinessvaluation.
She has now realised that the accounts prepared by the entity for publication probably
understatethevalueoftheentityby
(1)

theexclusionofgoodwill

(2)

thevaluationofnoncurrentassetsatcost,and

(3)

thetreatmentofthecostsofresearch.

She has asked you to draft a report stating why the accounting treatment of these items
understatesthevalueoftheentity.
Required:
Draftanappropriatereport,makingreferencetoaccountingconceptswhereapplicable.

(10marks)

42

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

81

ACCOUNTINGTERMS
Explain clearly the following accounting terms in a manner which an intelligent non
accountantcouldunderstandinthecontextofaprofitorientatedorganisation:
(a)

expense

(b)

asset

(c)

prudence

(d)

objectivity.

KA PLAN PUBLISHING

(10marks)

43

F A/FF A: F INAN C IALACCO UNTING

82

MARKETINGSERVICES
Yourclienthasreceivedthefollowinginvoice,andhascometoyouforadvice.
From:MarketingServices
Dueforourservicesforthethreemonths1Octoberto31December20X2.

Agreedmonthlyfeeforgeneraladvice
threemonthsat$1,000permonth

Supplyofnewcolourphotocopieron1.10.X2with
fiveyearguarantee,forusebyyourmarketingdepartment
Depositpaidbyusonyourbehalffortelevisionadvertising
timeinFebruary20X3

Fullcostofadvertisingcampaigninnewspaper,from
1Novemberto30November20X2

3,000

10,000

5,000

50,000

Payableintotalby31.1.X3.
Required:
Writealettertoyourclientsettingouthoweachofthefouritemsontheinvoicewillaffect
the expenses figure for the accounting year ended 31 December 20X2. You should explain
yourtreatment,andjustifyitbyreferencetoaccountingconventions.
(10marks)

44

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

83

CAPITALMAINTENANCE
Explainthefollowingterms,illustratingyouranswer,whereverpossible,withexamples:
(a)

capitalmaintenance

(b)

goodwill

(c)

fairvalue

(d)

researchanddevelopmentcosts.

(10marks)

KA PLAN PUBLISHING

45

F A/FF A: F INAN C IALACCO UNTING

PREPARINGFINANCIALSTATEMENTS
INCOMPLETERECORDS
84

ERNIE
Ernieisabuildingcontractor,doingrepairworkforlocalhouseholders.Hiswifekeepssome
accountingrecordsbutnotonadoubleentrybasis.
Theassetsandliabilitiesofthebusinessat30June20X7wereasfollows:

Assets
Plantandequipment:cost
Depreciationtodate
Motorvehicle:cost
Depreciationtodate
Inventoryofmaterials
Receivables
Onequarter'srentofpremisespaidinadvanceto30September20X7
Insurancepaidinadvanceto31December20X7
Bankbalance
Cashinhand
Liabilities
Tradepayables
Telephoneaccountpayable
Electricitypayable

12,600
5,800
9,000
6,500
14,160
9,490
750
700
1,860
230

3,460
210
180

46

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

Hiscashandbanktransactionsfortheyearfrom1July20X7to30June20X8wereasfollows:
CashandBanksummary
Receipts

Openingbalances
Receiptsfromcustomers
Loanreceived
Proceedsofsaleof
vehicleheldatbeginning
ofyear
Cashpaidintobank
Cashwithdrawnfrom
bank
Closingbalance

Cash
$
230
52,640

48,260

Bank
$
1,860
150,880
10,000

Payments

Suppliers
Rentofpremises
Insurance(to31.12.X8)
Purchaseofplantand
equipment

Cash
$

3,000
24,040 Purchaseofnewvehicle
Telephone
2,100 Electricity
Wagesofrepairstaff
Miscellaneousexpenses
AmountsdrawnbyErnie
forpersonaluse
Refundtocustomer
Cashpaidintobank
Cashwithdrawnfrom
bank
Closingbalance

101,130 191,880

Bank
$
83,990
3,600
1,600
8,400

12,800

68,200

8,000

860
890

1,280

24,040

29,800
400

890

48,260

101,130 191,880

Thefollowingfurtherinformationisavailable.
(1)

Plant and equipment is to be depreciated at 25% per annum on the reducing balance
withafullyear'schargeintheyearofpurchase.

(2)

Thenewmotorvehiclewaspurchasedon1January20X8.Ernie'spolicyforvehiclesis
tochargedepreciationat25%perannumonthestraightlinebasis,withaproportionate
chargeintheyearofpurchasebutnoneintheyearofsale.

(3)

Therentofthepremiseswasincreasedby20%from1October20X7.

(4)

The loan of $10,000 was obtained from Ernie's brother on 1 April 20X8. It carries
interestat10%perannum,payableon30Septemberand31March.

(5)

At30June20X8,Ernieowedthefollowingamounts:

Suppliers
Telephone
Electricity
Miscellaneousexpenses

$
4,090
240
220
490

KA PLAN PUBLISHING

47

F A/FF A: F INAN C IALACCO UNTING

(6)

At30June20X8,amountsduefromcustomerstotalled$10,860.Ofthisamount,Ernie
consideredthatdebtstotalling$1,280wereirrecoverableandshouldbewrittenoff.

(7)

Inventoryofmaterialsat30Junewas$12,170.

(8)

Ernie agreed to pay his wife $5,000 for her assistance with his office work during the
year.ThisamountwasactuallypaidinAugust20X8.

Required:
Prepare Ernie's statement of profit or loss for the year ended 30 June 20X8 and his
statementoffinancialpositionasatthatdate.
(24marks)

48

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

85

CART
Carthasjustcompletedhisfirstyearoftrading,forwhichhedidnotkeepproperaccounting
records.Thefollowinginformationisavailable.
(1)

Asummaryofhisbankstatementsreveals:

Capitalintroduced
Cashbanked
Motorvehicle
Computer
Telephone
Stationery
Personalexpenses
Purchases

Receipts
$
20,000
26,250

Payments
$

18,000
2,000
800
2,500
850
19,500

(2)

Hebankedhistakingsperiodicallyafterpayingforwagesof$700andsundryexpenses
of$850.

(3)

Depreciationistobeprovidedonthemotorvehicleat20%straightlinebasisandonthe
computerat25%straightlinebasis.

(4)

At31December20X2,otherassetsandliabilitieswereasfollows:
Inventory
Receivables
Payables
Accrualfortelephoneexpense
Cashinhand

(5)

$400
$970
$1,095
$40
$80

Carthasestimatedthathisgrossprofitpercentagewas30%ofsalesrevenue.

Required:
Prepare the statement of profit or loss for the year ended 31 December 20X2 and the
statementoffinancialpositionstatementoffinancialpositionasatthatdate.Allworkings
mustbeclearlyshown.
(10marks)

KA PLAN PUBLISHING

49

F A/FF A: F INAN C IALACCO UNTING

COMPANYFINANCIALSTATEMENTS
86

RULERSCO
On31December20X2theaccountingrecordsofRulersCocontainedthefollowingbalances.

$1ordinaryshares

$110%irredeemablepreferenceshares

Sharepremium

Retainedearnings1January20X2

Land

Plantandmachinery
cost

depreciation1January20X2
Revenue

Costofsales

Inventory

Receivables

Bank(debitbalance)

Operatingexpenses

Managementexpenses

Sellingexpenses

10%Loannotes

Payables

Irrecoverabledebts

Allowanceforreceivables1January20X2

Interestreceived

Discountsallowed

Ordinarysharesdividend

$000
500
100
200
455
200
550
250
3,500
2,100
600
550
350
400
280
220
100
200
5
6
7
8
55

Thefollowingnotesneedadditionallytobetakenintoaccount.
(a)

Bank charges $2,000 and a standing order receipt of $50,000 from a customer have
beenomitted.

(b)

The specific allowance for receivables is required to be the equivalent of 1% of

receivables.

(c)

Loannoteinterestneedstobeprovidedfor.

(d)

ThepreferencedividendwasdeclaredinDecember20X2.

(e)

Theordinarysharesdividendof$55,000wasproposedinDecember20X1,declaredin
February 20X2 and paid in March 20X2. A final ordinary dividend of 14c per share is
proposed.

(f)

Depreciationonplantandmachineryistobeallowedat20%onthereducingbalance
method.10%ofthisdepreciationrelatestogeneralmanagementand5%toselling.

(g)

Thelandistoberevaluedupwardsby$30,000.

(h)

Ataxprovisionof$150,000isrequired.

Required:
Prepareastatementofprofitorloss,astatementofchangesinequityandastatementof
financial position to comply with the requirements of IAS 1 Presentation of Financial
Statements.
(20marks)

50

(ACCAAccountingDec90adapted)
KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

87

ELLISISLANDCO
The trial balance extract of Ellis Island Co for the year ended 31December 20X3 was as
follows.

Revenue
Purchases
Advertisingexpenses
Auditfee
Irrecoverabledebtexpenses
Inventoryat1January20X3
Administrationsalaries
Salespersonssalaries
Manufacturingwages
Hireofplant
Interimdividenddeclaredandpaid
Premisesdepreciationexpense
Plantdepreciationexpense
Motorvehiclesdepreciationexpense
10%loannotes
Loannoteinterestpaid

$000

1,152
73
9
21
25
76
44
87
15
14
33
66
22

10

$000
1,920

200

Additionalinformation:
(i)

Inventoryasat31December20X3wasvaluedat$29,000.

(ii)

Theincometaxexpensefortheyearwasestimatedtobe$57,000.

(iii)

Afinaldividendof$28,000hasbeenproposedbutnotyetrecordedintheaccounts.

Required:
PrepareastatementofprofitorlossforEllisIslandfortheyearended31December20X3,
classifyingexpensesbyfunction(the'costofsales'method),whichmeetstherequirements
ofIAS1.Showanyadditionalinformationthatmustbedisclosed.
Allworkingsmustbeclearlyshown.

(15marks)

KA PLAN PUBLISHING

51

F A/FF A: F INAN C IALACCO UNTING

88

MOORFOOTCO
Moorfoot Co operates a chain of wholesale grocery outlets. Its first account balances at
30June20X8wasasfollows:

Revenue
Purchases
Inventory1July20X7
Distributioncosts
Administrativeexpenses
Interestonloannotes
Dividendsdeclaredandpaid:
Finalforyearended30June20X7
Interimforyearended30June20X8
Landatcost
Buildings
Cost
Accumulateddepreciationat30June20X7
Warehouseandofficeequipment
Cost
Accumulateddepreciationat30June20X7
Motorvehicles
Cost
Accumulateddepreciationat30June20X7
Tradereceivables
Allowanceforreceivables
Cashatbank
Tradepayables
10%loannotes(issued20W5andtoberedeemed20Y0)
CalledupsharecapitalOrdinarysharesof25ceach
Sharepremiumaccount
Retainedearnings30June20X7

$000

8,100
1,530
1,460
1,590
50

480
360
1,510

8,300

1,800

1,680

810

140

27,810

$000
13,600

1,020

290

620

18

820
1,000
1,200
2,470
6,772

27,810

Thefollowingadditionalinformationisavailable:

52

(1)

Closinginventorywas$1,660,000.

(2)

Trade balances totalling $6,000 are to be written off and the specific allowance for
receivables increased to $30,000. It is the entitys practice to include the charge for
Irrecoverabledebtsandtheallowanceforreceivablesinadministrativeexpensesinthe
statementofprofitorloss.

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

(3)

Accrualsandprepaymentsattheyearendwere:

Distributioncosts
Administrativeexpenses
Interestonloannotes

(4)

Prepayments
$000
60
70

Accruals
$000
120
190
50

InearlyJuly20X8MoorfootCoreceivedinvoicesforcreditpurchasestotalling$18,000
for goods delivered before 30 June. These invoices have not been included in the
accountspayableat30June20X8.
It was also found that credit sales invoices totalling $7,000 for goods delivered to
customers before 30 June 20X8 had mistakenly been dated in July 20X8 and thus
excludedfromsalesfortheyearandfromaccountsreceivableattheyearend.
The goods received had been included in the yearend inventory figure given at (1)
above,andthegoodssoldhadbeenexcludedfromit.Noadjustmenttotheinventory
figureisthereforerequired.

(5)

Depreciationshouldbeprovidedasfollows:
Land

Nil

Buildings

2percentperyearoncost

Warehouseandofficeequipment

15percentperyearoncost

Motorvehicles

25percentperyearoncost

All depreciation is to be divided equally between distribution costs and administrative

expenses.

Required:
Prepare Moorfoot Cos statement of profit or loss for the year ended 30 June 20X8, and
statement of financial position as at that date, complying as far as possible with the
requirementsofIAS1PresentationofFinancialStatements.Ignoretaxation.Notestothe
financialstatementsarenotrequired.
(24marks)

KA PLAN PUBLISHING

53

F A/FF A: F INAN C IALACCO UNTING

89

LOMONDCO
Lomond Co is engaged in a number of research and development projects. Its accounting
policy as regards research and development complies with the requirements of IAS 38
Intangibleassets.At30June20X8,thefollowinginformationisavailable:
ProjectA

Development completed 30 June 20X5. Total expenditure $200,000, being

amortised over five years on the straight line basis in accordance with Lomond
Cos standard policy. The balance on the project account at 30 June 20X7 was
$120,000.

ProjectB

Adevelopmentprojectcommenced1July20X5.Expenditureintheyearsended
30 June 20X6 and 30 June 20X7 totalled $175,000, which was recognised as an
assetat30June20X7.Duringtheyearended30June20X8,itbecameclearthat
a competitor had launched a superior product and the project was abandoned.
Furtherdevelopmentexpenditureintheyearended30June20X8amounted to
$55,000.

ProjectC

Development commenced 1 October 20X6 and not yet completed. Expenditure

todate:
Yearended

30June20X7:$85,000

Yearended

30June20X8:$170,000

AllexpenditureonProjectCmeetsthecriteriaforcapitalisationinIAS38.

ProjectD

Inaddition,researchprojectDcommencedon1July20X7.Expendituretodate
(allresearch):

Yearended30June20X8:$80,000

Required:
(a)

State the conditions which must be met if development expenditure is to be

recognisedasanintangibleasset.
(6marks)

(b)

CalculatetheamountswhichshouldappearintheLomondCosstatementofprofitor
lossstatementandstatementoffinancialpositionforresearchanddevelopmentfor
theyearended30June20X8.
(7marks)

(c)

ShowthenoteswhichIAS38requiresinthefinancialstatementsfortheyeargiving
supporting figures for the items in the statement of profit or loss and statement of
financialposition.
(7marks)
(Total:20marks)

54

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

90

IAS10EVENTSAFTERTHEREPORTINGPERIOD
IAS 10 Events after the reporting period defines the treatment to be given to events arising
afterthereportingdate butbeforethefinancialstatementsare authorisedforissueoutside
theenterprise.
Required:
(a)

HowdoesIAS10distinguishbetweeneventsafterthereportingperiodwhichshould
beadjustedinfinancialstatementsandthosewhichshouldbedisclosedbynoteonly?

(4marks)

(b)

Considereachofthefollowingfoureventsafterthereportingdate.
(i)

Anentitymadeanissueof100,000shareswhichraised$180,000shortlyafter
thestatementoffinancialpositiondate.

(ii)

Judgement was issued shortly after the reporting date in respect of a legal
action brought against the entity for breach of contract. As a result the entity
wasorderedtopaycostsanddamagestotalling$50,000.Noprovisionhadbeen
made for this possible expense. The breach of contract occurred before the
statementoffinancialpositiondate.

(iii) Inventory items included in the accounts at cost $28,000 were subsequently
soldfor$18,000.
(iv)

A factory in use at the reporting date and valued at $250,000 was completely
destroyedbyfire.Onlyhalfofthevaluewascoveredbyinsurance.Theinsurer
hasagreedtopay$125,000undertheentityspolicy.

If you think the event requires adjustment, show exactly how items in the accounts
shouldbechangedtoallowfortheevent.
Ifyouthinktheeventdoesnotrequireadjustment,writeasuitabledisclosurenote,
includingsuchdetailsasyouthinkfit.
(16marks)
(Total:20marks)

KA PLAN PUBLISHING

55

F A/FF A: F INAN C IALACCO UNTING

CONSOLIDATEDACCOUNTS
91

PIXIECOANDDIXIECO
On 1 October 20X9, Pixie Co acquired 37,500 ordinary shares in Dixie Co. At the date of
acquisition,theretainedearningsofDixieCoamountedto$30,000.Theacquisitionofshares
wasfinancedbytheimmediatepaymentof$10,000cashtogetherwiththeissuebyPixieCoof
one share for each Dixie Co share acquired. At 1 October 20X9, the fair value of a Pixie Co
sharewas$2.At31December20X9,onlythepaymentofcashhadbeenaccountedfor.
At the date of acquisition, the fair value of the noncontrolling interest in Dixie Co was
$20,000.
Thestatementsoffinancialpositionofthetwoentitiesat31December20X9wereasfollows:

Noncurrentassets
Currentassets
InvestmentinDixie

Ordinarysharecapital@$1
Retainedearnings
Sundrypayables

Pixie
$
210,000
113,100
10,000

333,100

100,000
157,000
76,100

333,100

Dixie
$
110,600
43,400

154,000

50,000
38,000
66,000

154,000

Required:
PreparetheconsolidatedstatementoffinancialpositionofPixieCoanditssubsidiaryasat
31December20X9.
(15marks)

56

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

INTERPRETING/USINGFINANCIALSTATEMENTS
STATEMENTSOFCASHFLOWS
92

SHCO
YouarepresentedwiththefollowinginformationrelatingtoSHCo:
StatementofprofitorlossfortheyearendedJune20X6

$000
Grossprofit
980
Tradingexpenses
475
Depreciation
255

Netprofit
250

Dividendsdeclaredandpaidduringtheyear
80

Statementoffinancialpositionat30June20X6

Noncurrentassetsatcost
Less:Accumulateddepreciation

Netbookvalue
Currentassets
Inventories
Receivables
Bankandcash

Capitalandreserves
Ordinarysharesof$1each
Sharepremium
Retainedearnings

Currentliabilities
Payables

KA PLAN PUBLISHING

20X5
$000
$000
3,000

2,100

900

825

5,200

2,350

8,375

9,275

2,800

1,400

4,200

5,075

9,275

20X6
$000
3,500
2,300

1,175
5,065
2,160

$000

1,200

8,400

9,600

3,200
400
1,570

5,170

4,430

9,600

57

F A/FF A: F INAN C IALACCO UNTING

Duringtheyearended30June20X6,noncurrentassetswhichhadcost$230,000weresold
for$145,000.Thelossonthisdisposalhasbeenincludedintradingexpensesinthestatement
ofprofitorloss.
Required:
Produce a statement of cash flows using the indirect method of presentation for the year
ended30June20X6.
(15marks)

58

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

93

AMSCO
AMSComadeagrossprofitof$239,000intheyearto31August20X8.Expensesamountedto
$159,000 which included interest of $30,000 payable on a longterm loan, depreciation on
plant of $50,000, and depreciation on premises of $25,000. Income tax in profit or loss was
$10,000anddividendspaidintheyearwere$45,000.
ThestatementsoffinancialpositionofAMSat31August20X8and20X7wereasfollows:

Noncurrentassets
Premises
Plantandmachinery

Currentassets
Inventory
Receivables
Bankandcash

Capitalandreserves
Ordinarysharesof$1each
Sharepremium
Retainedearnings

Noncurrentliabilities
Loannotes
Currentliabilities
Payables
Incometax
Bankoverdraft

20X8
$000

450
700
300

648
10

$000

1,200
800

2,000

1,450

3,450

1,800
400
392

2,592

200

658

3,450

20X7
$000
$000

1,170

700

1,870

550

680

1,230

3,100

1,300

300

367

1,967

400

681

12

40
733

3,100

During the year ended 31 August 20X8, plant which had cost $85,000 was sold at a loss of
$10,000.Thesaleproceedswere$50,000.Thelosswasrecognisedinprofitorlossaspartof
expenses$159,000.
Required:
Prepare a statement of cash flows for the year ended 31 August 20X8, using the indirect
methodofpresentation.
(15marks)

KA PLAN PUBLISHING

59

F A/FF A: F INAN C IALACCO UNTING

94

ADDAXCO
The following balances appeared in the statement of financial position of Addax Co at
31March20X2.

Plantandequipmentcost
Accumulateddepreciation

$
840,000
370,000

Intheyearended31March20X3thefollowingtransactionstookplace:
(1)

Plant which had cost $100,000 with a written down value of $40,000 was sold for
$45,000on10December.

(2)

Newplantwaspurchasedfor$180,000on1October20X2.

It is the Addax Cos policy to charge depreciation at 10% per year on the straight line
basiswithaproportionatechargeintheyearofacquisitionandnochargeintheyearof
sale.Noneoftheplantwasovertenyearsoldat31March20X2.

Required:

60

(a)

Prepare ledger accounts recording the above transactions. A cash account is NOT
required.
(5marks)

(b)

List the items which should appear in Addax Cos cash flow statement for the year
ended 31 March 20X3 based on these transactions and using the indirect method,
includingtheheadingsunderwhichtheyshouldappear.

Note:TheheadingsfromIAS7aretobeused.

(4marks)
(Total:9marks)

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

RATIOANALYSIS
95

MBCCO
The following figures have been extracted from the published accounts of MBC Co at
31October20X5.

Ordinarysharecapital
Sharepremium
Reserves

6%loannotes

$m
30
3
5

38
10

48

Thenetprofit(aftertaxof$1m)fortheyearto31October20X5,was$4manddividendspaid
amountedto$0.5m.MBCCoisconsideringraisingafurther$10minthenextfinancialyearto
financeresearchanddevelopment.
Required:
(a)

State the formula for, and calculate, MBC Cos gearing ratio at 31 October 20X5.

(2marks)

(b)

Statetheformulafor,andcalculate,MBCCosreturnoncapitalemployed(ROCE)at
31October20X5.
(3marks)

(c)

DiscussthedifferenteffectsongearingandROCEofraisingtheadditional$10mbythe
issueofsharesorbytheissueofloannotes.
(5marks)

(Total:10marks)

KA PLAN PUBLISHING

61

F A/FF A: F INAN C IALACCO UNTING

96

PETERJACKSON
Peter Jackson is a sole trader who has recently prepared his accounts for the year ended
31May 20X2. Peter also prepared some ratios and statistics in order to analyse those
accounts.
UnfortunatelyPeterhasnowmislaidtheaccountsandallthatisremainingisthescheduleof
ratios.
Grossprofitmarkuponcost
Netprofit/capitalemployed
Netprofitmargin
Openinginventoryatsellingprice
Closinginventoryatsellingprice
Currentassets:currentliabilities
Receivablespaymentperiod
Payablespaymentperiod

50%
30%
10%ofrevenue
73days,basedonrevenue
109.5days,basedonrevenue
2.9:1
45days
60days

Petercanrememberthathisrevenuefortheyeartotalled$300,000.
Required:
Prepare Peters statement of profit or loss for the year ended 31 May 20X2 and his
statementoffinancialpositionatthatdateinasmuchdetailasispossiblefromtheabove
information.
(15marks)

62

KA PLAN PUBLISHING

LECTURER RESO UR CE PAC K Q U ESTIO NS

COMPREHENSIVEEXAMPLE
97

TYRCO
TYRCoproducedthefollowingtrialbalanceat31October20X7:

Sharecapital
Reserves
12%Loannotes,repayable20X0
Landatvaluation
Premisesatcost

depreciationto1November20X6
Plantandmachineryatcost

depreciationto1November20X6
Patentsandtrademarks
Inventoryat1November20X6
Receivables
Cashinhand
Payables
Bank
Administrationexpenses
Sellinganddistributionexpenses
Dividendspaid
Loannoteinterest
Revenue
Purchases
Carriageinwards
Carriageoutwards
Returnsoutwards

Dr
$000

495
350

220

200
210
875
12

264
292
20
15

1,745
15
18

4,731

Cr
$000
1,000
425
250

20

30

318
85

2,569

34

4,731

Thefollowingadditionalinformationat31October20X7isavailable:
(1)

Aphysicalinventorycheckrevealsinventoryatcostof$194,000.

(2)

Prepaid administration expenses amount to $12,000 and prepaid selling and delivery
expensesamountto$28,000.Accruedadministrationexpensesamountto$17,000.

(3)

DuringOctober20X7goodsweresoldonasaleorreturnbasis,withthefinaldatefor
return being 25 November. The sale has been recorded as normal in the sales journal
andcustomersaccountsandthegoodshavebeenexcludedfromtheinventorycount.
Thegoodscost$7,000andhadasellingpriceof$12,000.

(4)

Thelandistoberevaluedat$550,000.

(5)

The share capital account comprises 200,000 5% irredeemable preference shares of

$1eachwiththebalancemadeupof50cordinaryshares.

KA PLAN PUBLISHING

63

F A/FF A: F INAN C IALACCO UNTING

(6)

Thereservesaccountcomprisesofsharepremium of$100,000,revaluationreserveof
$135,000withthebalancerepresentingretainedearnings.

(7)

Thepremisesaretobedepreciatedat4%perannumstraightline.
Theplantmachineryistobedepreciatedat10%perannumstraightline.

(8)

Incometaxof$40,000istobeprovidedfortheyear.

(9)

Thedividendsaccountrepresentspaymentinrespectofthecurrentyearofahalfyears
preferencedividendandaninterimordinarydividend.Afinaldividendof5cpershareis
proposedforthecurrentyear.

Required:
(a)

Prepareastatementofprofitorlossfortheyearended31October20X7. (10marks)

(b)

Prepareastatementoffinancialpositionat31October20X7.

(c)

Given the following ratios for the previous year, calculate the comparable ratios for
thecurrentyearandcommentonyourresults.Suggestreasonsforanychangesinthe
ratiosbetweenthetwoyears.

(10marks)

(i)

Grossprofitmarkup

50%

(ii)

Netprofitpercentage

3%(usingnetprofitbeforetax)

(iii) Currentratio

2.4:1

(iv)

1.8:1

Acidtestratio

(10marks)

(Total:30marks)

64

KA PLAN PUBLISHING