ACC201

Financial Accounting Sample Exam Question Paper (SEQ)

The questions are given as an illustration of some of the many general questions which one can use for exercise purposes, they should not be taken as an indication of the format and/or suggestion of the final examination questions. The Course Chair will announce the format of the final examination questions on the Blackboard (MyUniSIM). Please check the Blackboard for the announcement before your examination. INSTRUCTIONS TO STUDENTS: 1. This examination contains 4 questions. 2. You must answer all questions. 3. All answers must be written in the answer book. 4. Only non-programmable calculators are allowed and dictionaries are not allowed. At the end of the examination Make sure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. Put your answer books together with your signed desk record on top. Fix them all together with the paper fastener provided. This question paper must NOT be removed from the examination room. The University reserves the right not to mark your script if you fail to follow these instructions.

QUESTION 1 The Accounts Assistant of Focus 888 International Pte Ltd has just prepared the following trial balance for its financial year ended 31st December 2006.

$ Accounts Payables Accounts Receivables Accruals Accumulated Depreciation on: Equipment Furniture & Fittings Bad debts Capital at 1st January 2006 Cash at Bank Depreciation for Equipment Depreciation for Furniture/Fittings Drawings Equipment at cost Furniture & Fittings at cost Inventory on 1st January 2006 Premises at cost Prepaid Insurance Provision for doubtful debts Purchases Rental Deposit Sales Selling expenses Utilities Wages and salaries 66,000

$ 76,000 2,000 39,200 1,500

1,500 120,000 32300 2000 500 7,000 85,000 7,350 21,200 90,000 10,000 350 230,000 2,250 365,000 9,450 7,500 32,000

While the year-end stock-take confirmed that the inventory balance as at 31st December 2006 was $12,250, the following information was also uncovered during a routine check. (i) A client paid us $5,400 on 24th December 2006. The delivery will not take place till January 2007. The amount was credited as Sales by the Accounts Assistant. Provision for doubtful debts was provided at 1% of outstanding accounts receivables. An equipment (expected useful life of 5 years) costing $32,000 was purchased 4 years ago. It was sold at a loss of $3,000 at year-end as it was

(ii)

(iii)

badly damaged. The company uses straight-line method with zero residual value. (iv) During the physical stock-take carried out at year end, a number of item XYP costing $2,730 were not in the warehouse. It was later confirmed that $1,500 was taken out for delivery to customer Applet Pte Ltd. The others were not verified. While the sale to Applet Pte Ltd was recorded, none of the above information were taken into the accounts. The unexpired prepaid insurance at year end was $4,000. Overtime wages for year-end of $850 were omitted.

(v) (vi)

Required: (a) Prepare journal entries to incorporate the above transactions into the accounts of Focus 888 International Pte Ltd.

(b)

After incorporating the transactions in (a) and assume that the Profit was $57,540, prepare the Balance Sheet of Focus 888 International Pte Ltd for its financial year ended 31st December 2006

QUESTION 2 This question consists of three parts. a. Some accountants complain that applying accounting concepts is very subjective and requires judgment. They argue that the accounting profession will be better off to abandon accounting concepts entirely and, instead, rely on a very active accounting committee that develops detailed and specific guidance in response to requests from accountants and financial statement users. Critically evaluate the argument.

b. Producers of gold and silver argue that inventories of these commodities should be measured at selling price, even before they sell them, which means revenue or profit is recognized at production. In nearly all other industries, revenue or profit is recognized only when the inventories are sold to outside customers. Apply relevant accounting concepts/principles to evaluate the arguments by the producers of gold and silver.

c. You are one of the shareholders of an investment company. The company buys, holds, and sells shares of other listed companies. You want to use the financial statements of the investment company to assess its performance over the past year. What financial information about the investment companys holdings would be most relevant to you? How would reliability be affected if the investment company only buys shares of listed company versus if it invests in shares of private high-tech companies?

QUESTION 3 Daniel Peters is the owner of a company that distributes a single but unique product. His Accounts Assistant has just drafted the accounts for the period ended 30th April 2006. The followings are some of the items summarized by the Accounts Assistant: (i) (ii) The year ended with a net loss of $45,800. Ending inventory was not included in the statement. The company uses periodic inventory system. The assistant has determined that the beginning inventory of $57,600 was based on the stock-take for 480 units. The purchase records has the following information: (i) A total of 1,140 units were purchased at $145 per unit (ii) A total of 1,310 units were purchased at $150 per unit (iii) A total of 620 units were purchased at $155 per unit

(iii)

(iv)

(v)

Sales records for the year showed the following: (i) A total of 1,040 units were sold at $205 per unit (ii) A total of 1,840 units were sold at $220 per unit.

Required: (a) First-in, first out (FIFO) and Weighted-average (WA) methods are two of the generally accepted inventory valuation methods under International Financial Reporting Standards (IFRS) and Singapores Financial Reporting Standards (FRS). Evaluate the impact of using these two alternative methods on income and financial position. During a period of rising inventory prices, which inventory valuation methods (FIFO or WA) would you prefer? Explain.

(b)

Question 4 MB Manufacturing was one of the most profitable companies in Singapore. During a recent Board meeting, Alan (the Finance Director) presented the following Comparative Balance Sheet and Income Statement. Comparative Balance Sheet, Dec 31, Year 1 and Year 2 Year 2 Current assets: Cash $700 Accounts receivables 52,100 Inventories 94,300 Prepaid insurance 1,700 Long-term assets: Plants and equipment 169,600 Accumulated depreciation -30,600 Total assets $287,800 Current liabilities: Accounts payable Interest payable Tax payable Long-term liabilities: Notes payable Shareholders' equity: Share capital Retained earnings Total liabilities and shareholders' equity

Year 1 $15,600 44,000 89,900 2,200 119,000 -15,300 $255,400

$36,600 6,300 6,300 5,000 181,100 52,500 $287,800

$38,000 6,700 3,800 65,000 122,300 19,600 $255,400

Income Statement for Year 2 Revenues Expenses: Cost of goods sold Wages and salaries Depreciation Other operating expenses Interest Income tax Total expenses Net income $449,700 $205,200 76,400 15,300 49,700 24,600 16,900 $388,100 $61,600

Required: Use the Indirect Method to prepare a Cash-Flows Statement for Year 2. Your statement must show the cash flows from operating, investing and financing activities. You can assume that there were no sales of plants and equipment and no new issuance of notes payable in Year 2. Explain why the cash was reduced from $15,600 to $700 in year 2.

---- END OF PAPER ----