ACC201

Examination July Semester 2007

Financial Accounting
Friday, 23 November 2007 7:30 pm 9:30 pm
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Time allowed: 2 hours

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INSTRUCTIONS TO STUDENTS: 1. This examination contains FOUR (4) questions and comprises SEVEN (7) printed pages (including cover page). 2. You must answer ALL questions. 3. All answers must be written in the answer book.

At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided.

THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS.

ACC201 Copyright 2007 SIM University Examination July Semester 2007

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You must answer all the questions. (Total 100 marks) Question 1 Albert Lum is the owner of Wall Finishing Pte. Ltd. He kept the accounts himself and has the following account information for you to finalise his year-end income for the year ended 31st December, 2006. Debit Account Title Cash Account receivables Motor van - at cost Machinery - at cost Motor van - Accumulated depreciation Machinery - Accumulated depreciation Insurance prepaid Account payables Accruals Long term loan Retained earnings Share capital Revenue Salary Company CPF Rental expense Insurance expenses Transport expenses Depreciation expense Telephone expenses Audit fees Freight expenses Purchase Inventory $ 444,040 132,600 480,000 82,960 Credit $

33,760 2,400 24,000 80,500 8,600 240,000 223,600 394,000 1,080,200 250,000 31,000 133,400 57,540 20,200 24,360 22,100 12,000 36,860 290,000 22,000 2,063,060 2,063,060

The following additional information is for your considerations: (i) A credit note of $1,200 had been issued to Wall Finishing for goods returned to a supplier but no entry had been made in Wall Finishing's accounts. The company bought another motor van for $50,000. 20% was paid in cash with the rest on a 5-year bank loan at 5% interest per year, effective from 1st Oct 2006.
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(ii)

ACC201 Copyright 2007 SIM University Examination July Semester 2007

(iii) A sale of $4,200 was concluded and delivered on 12th November but was not included in the accounts. The accounts assistant has forgotten to bill the client. (iv) The Employer CPF of $3,000 was not recorded in the account. (v) A customer paid $1,900 for wall finishing materials which will be delivered in January 2007.

(vi) On 23rd December, the company signed an agreement to buy a new machine costing $30,000 to be delivered in March 2007. No down-payment was given. A stock count revealed that the inventory is $32,700.

(a) Prepare the necessary 31st December 2006 adjusting journal entries. (10 marks) (b) After incorporating the transactions in (a), prepare the income statement of Wall Finishing Pte. Ltd. for the year ending 31st December 2006. (15 marks)

ACC201 Copyright 2007 SIM University Examination July Semester 2007

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Question 2 Mantec Pte. Ltd. purchased a new truck on 1st January 2004 for $48,000. The useful life of the truck is estimated to be 7 years with a residual value of $6,000. The usage of the truck was more than what the company had estimated and the company decided on 1st January 2006 to revise the total useful life of the truck to 5 years and the estimated residual value to be $3,000.

(a) Compute the annual depreciation expense, accumulated depreciation and net book value of the truck for the year 2004, 2005 and 2006 using the straight-line method. (12 marks) (b) Compute the annual depreciation expense, accumulated depreciation and net book value of the truck for the year 2004 and 2005 using the double-declining balance method. (8 marks) (c) What are the arguments in favour of using the double-declining balance method? (5 marks)

ACC201 Copyright 2007 SIM University Examination July Semester 2007

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Question 3 Aqua Solution Pte. Ltd. is a distributor of water dispensers. The following information revealed the transactions for Model X, one of its dispensers, for the year 20X6: 3rd Feb 22nd Mar 17th Apr 18th Jul 4th Aug 10th Nov 6th Dec Balance Purchase Sale Purchase Sale Purchase Sale 400 800 500 1,200 1,000 1,100 1,400 units @ units @ units units @ units units @ units $200 $220 $196 $252

(a) Using the perpetual system, compute the costs of goods sold and ending inventory under the following methods: (i) (ii) LIFO FIFO (18 marks) (b) Explain the accounting principles that relate specifically to inventories. (7 marks)

ACC201 Copyright 2007 SIM University Examination July Semester 2007

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Question 4 Cresto Pte. Ltd. recorded a sales of $450,000 for the year ended 31st December 2006. The following Comparative Balance Sheet and Income Statement (extract) were presented by the accountant: Cresto Pte. Ltd. Comparative Balance Sheet as at Dec 31, 2005 and 2006 Current assets: Cash Accounts receivables Inventories Long-term assets: Plants and equipment Accumulated depreciation 2005 $'000 458 1,052 165 1,675 600 (420) 180 1,855 2006 $'000 432 1,013 235 1,680 700 (460) 240 1,920

Total assets

Current liabilities: Accounts payable Dividends payable

1,000 15 1,015

870 16 886

Shareholders' equity: Share capital Retained earnings

560 280 840 1,855

720 314 1,034 1,920

Total liabilities and shareholders' equity

Cresto Pte. Ltd. Profit & Loss Statement for the year ended 31 Dec 2006 (extract) $'000 Gross Profit 196 Trading expenses 95 Depreciation 51 Net Profit 50 Dividends 16 Retained profit for the year 34

ACC201 Copyright 2007 SIM University Examination July Semester 2007

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During the year ended 31st December 2006, fixed assets which cost $46,000 were sold for cash of $29,000. The loss on this disposal had been included in trading expenses in the profit and loss account. The accumulated depreciation on the asset sold was $11,000. (a) Prepare a cash flow statement for Cresto for the year ended 31st December 2006 using the indirect method. (20 marks) (b) Explain why despite a net profit of $50,000, the cash position reduces from $458,000 to $432,000. (5 marks)

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ACC201 Copyright 2007 SIM University Examination July Semester 2007

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