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THE ASSOCIATION OF ACCOUNTING TECHNICIANS OF SRI LANKA

FOUNDATION EXAMINATION - JULY 2011

(50) BASIC ACCOUNTING

Time: 03 hours Instructions to candidates (1) (2) This paper consists of three (03) Sections A, B & C. Five (05) questions should be answered as follows: Question No.01 of Section A Both questions of Section B Any two (02) questions from Section C
No. of Pages: 10 No. of Questions: 06 16-07-2011 Morning 9.00 12.00

(3) (4) (5) (6)

Answers should be in one language, in the medium applied for, in the booklets provided. Submit all workings and calculations. State clearly assumptions made by you, if any. Use of calculators is permitted. 100 Marks.

SECTION - A
Multiple Choice Questions All questions of this Section should be answered. 30 marks 01. Select from (1), (2), (3), (4) the most correct answer to each of the following questions. Write the number of the selected answer in your answer booklet with the English letter assigned to the question. (A) Select from the following, the most correct statement: (1) Financial accounting provides information to both internal and external parties, whereas cost & management accounting provides information only to the management. Only annual accounts are prepared in financial accounting, whereas accounts at frequent intervals are prepared in cost & management accounting. (3) Preparation of financial accounts is for both profit making and non-profit making entities, whereas preparation of cost accounts is only for profit making entities. (4) Both statements (2) and (3) above are correct.

(2)

(B) The sales day book is best described as: (1) (3) A list of sales. A collection of customer accounts. (2) (4) A list of credit sales. A part of double entry system.

(C)

The cashier of Candy limited had a cash in hand balance of Rs.3,000/-, and following petty cash payments details at the end of a particular day: Rs. Stationery bill Drinks for visitors (bill available) I.O.U. (chits) 500 500 500

As per above information, what should be the petty cash imprest allocated to the cashier out of the following: (1) Rs.4,500/-. (2) Rs.5,500/-. (3) Rs.1,500/-. (4) Rs.5,000/-.

(D)

Star Company owns a land which costs Rs.100,000/-. The market value of the land is only Rs.80,000/-. The company continues to record the asset in the balance sheet at Rs.100,000/-. Out of the following this is justified under the concepts of: (1) (2) (3) (4) The historical-cost principle and prudence. The historical-cost principle and reliability. Verifiability and comparability. Relevance and reliability.

(E)

When the seller agrees to take back goods already sold to a customer, the source document that has to be raised by the seller to record that transaction is:. (1) (3) Debit Note. Goods Received Note. (2) (4) Credit Note. Advice of Dispatch.

(F)

A company purchased 10 printers on a credit basis at Rs.15,000/- each, less trade discount of 10%. Cash discount of 5%, offered if the debt is settled within the credit period. If the company wishes to settle the debt within the credit period, the value of the cheque that should be drawn is : (1) (3) Rs.142,500/-. Rs.128,250/-. (2) (4) Rs.135,000/-. Rs.127,500/-.

(G)

The Accountant of Disney Computers states that the impact of a certain transaction to the accounting equation is as given below: Assets: Inventories increased by Rs.2,000/Assets: Office equipment decreased by Rs.2,000/If the Accountants statement is correct, which one of the following best sets out the above mentioned transaction? (1) (2) (3) (4) A credit purchase of trading items for Rs.2,000/-, and depreciation of office equipment by Rs.2,000/-. Classification of an office equipment item of Rs.2,000/-, as an item for sale. Re-classification of office equipment recorded incorrectly in the stocks account. Goods worth Rs.2,000/- returned by customers, and disposal of office equipment of Rs.2,000/-.

(H)

A cheque for Rs.20,000/- issued on account of building rent has been dishonoured by the bank. The double entry to record the dishonoured cheque in the books of the issuer of the cheque is: Debit account with Rs.20,000/(1) (2) (3) (4) Bank Bank Dishonoured Cheque Bank Credit account with Rs.20,000/Rent Expense Dishonoured Cheque Rent payable Rent payable

(I)

Which of the following graphs describe the behaviour of variable cost? A

Unit Cost Cost

B
Cost

Activity level

Activity level

Activity level

(1)

A only.

(2)

A and B only.

(3)

C only.

(4)

B and C only.

(J)

The following information related to the business Neluwa Saloon: Rs.000 Capital introduced when the Saloon was started on 01 January 2010 Total assets as at 31 December 2010 Total liabilities as at 31 December 2010 Total Cash Drawings during the year Total Income (receipts) during the year Total of recorded expenses for the year
st st st

300 320 30 150 170 20

According to the above information, the total of unrecorded expenses for the year is: (1) (3) Rs.150,000/-. Zero. (2) (4) Rs.10,000/-. Rs.140,000/-.

(K) Business Bakery Garment factory Tuition class Car manufacturer Cost Centre / Cost Unit Bread (i) Canteen (ii) Student (iii) Car (iv)

Which of the following correctly identifies in sequential order the classification for (i), (ii), (iii) and (iv) above of the table given above? (1) (2) (3) (4) Cost center, cost unit, cost center, cost center. Cost unit, cost center, cost center, cost unit. Cost unit, cost center, cost center, cost center. Cost unit, cost center, cost unit, cost unit.

(L)

Cost of labour turnover includes: (1) (2) (3) (4) Costs of interviews, training and replacements. Costs of salaries, EPF and ETF. Costs of staff welfare and bonus. All types of costs given in (1), (2) and (3) above.

(M)

Of the following what is the most correct statement in relation to overheads: (1) (2) (3) (4) Overhead costs do not add any value to the end product. Overhead cost is an element of prime cost. Overhead costs comprise of cost of indirect material, indirect labour and indirect expenses. All kinds of overhead costs vary with the level of production.

(N)

The following information is related to a Manufacturing company for a period of 3 months: Rs. Raw materials consumed Prime cost Royalty (paid on units produced) Direct labour Factory overhead Work-in-progress at the beginning of the period (valued at manufacturing cost) Work-in-Progress at the end of the period Number of units transferred to the sales division 2,000. Based on the above information, the manufacturing cost of a unit is: (1) (3) Rs.2.80. Rs.4.40. (2) (4) Rs.3.00. None of these. 1,200 3,000 200 1,200 2,000 1,000 Nil

(O) A mattress manufacturer has provided the following cost data.

The cost of

fabric, foam, springs, and timber is Rs.68,000/-. The cost of indirect materials is Rs.21,000/-. Labour cost of manufacturing workers is Rs.52,000/- and Rs.14,000/- paid to production supervisors as wages. Of the above data total indirect cost of production is: (1) (3) Rs.21,000/-. Rs.89,000/-. (2) (4) Rs.35,000/-. Rs.103,000/-. (02 marks each, Total 30 marks)

SECTION - B
Compulsory Questions Answer both questions of this Section 50 marks 02. Ananda started a vehicle paint shop on 01st April 2011. On this date he opened bank account with Rs.25,000/-. He has analyzed the bank statements on 30th June 2011, and a summary of it is given below: Debits Rs.000 Service Revenue Loan from Kumari Hardware Stores (re-payable in 10 equal monthly instalments) Sale of Van (sold on 01st April 2011) Paint, Metal Filler and Thinner, etc. New double cab acquired on 01st June 2011 Electricity and water bills Rent paid 01st April 2011 (8,000 per month) Vehicle Insurance Standing order savings account of Ranidu Welding plant acquired on 01st April 2011 New compressor acquired on 01st April 2011 Spare parts for repair work Stationery Total The following additional information is provided: (1) The value of equipment he brought to the paint shop on 01st April 2011 was Rs.120,000/-. A five(05) year life is expected for the double cab with a residual value of Rs.28,000/-, and a minimum of 10 years life is expected for all other depreciable assets. (3) The cost of paint, filler and other materials available in the workshop as at 30th June 2011 was Rs.24,000/-. (4) Ananda has obtained an interest free loan from a related party, Kumari Hardware Stores on 30th May 2011. He paid the first instalment on 30th June 2011. (5) The bank has been instructed to transfer Rs.1,000/- every month to the savings account of Ranidu, Anandas daughter. As at 30th June 2011, Rs.64,000/- was payable to the paint suppliers and the balance due from customers stood at Rs.60,000/-. The records revealed the following payments made out of daily receipts before banking them. Salaries and wages Lottery tickets bought by Ananda Cash drawings Tea and lunch for employees Fuel Sundry expenses Rs. 90,000 8,000 80,000 6,000 32,000 21,000 30 Credits Rs.000 990 300 405 680 628 7 96 10 2 120 40 140 3 1,756 1,695

(2)

(6)

(7)

(8)

The cash in hand balance as at 30th June 2011 was Rs.3,000/-.

You are required to prepare, for Ananda Paint Shop: (a) Trading, Profit / Loss account for the three months period ended 30th June 2011. (15 marks) Balance Sheet as at 30th June 2011. (10 marks) (Total 25 marks)

(b)

03.

(A)

Hub & Company maintains current accounts with two banks, Development National Bank (DNB) and Samara Bank (SB), the balances of two bank accounts as at 31st March 2011, were as follows: As per Cash book Rs. Overdraft Favourable 3,000 15,000 As per Bank statement Rs. Favourable Overdraft 3,000 14,200

Bank SB DNB

The following facts were discovered later: (1) A deposit of Rs.2,000/- made at SB on 23rd March 2011 has been entered in the DNB column in the cash book. (2) An ATM cash withdrawal of Rs.4,000/- made on 27th March 2011 from SB has not been accounted in the cash book. A SB cheque issued on 10th February 2011 for Rs.3,700/- has not been presented for payment so far. This cheque also appears in the bank reconciliation statement prepared at the end of February. (4) Cheques issued during March 2011 at SB and DNB were Rs.4,000/- and Rs.2,900/- respectively and those have not been cashed till 31st march 2011. (5) A deposit of Rs.21,000/- to SB has been recorded as Rs.2,100/- in DNB column in the cash book. Bank charges of Rs.360/- appears in the bank statement of SB. This has not yet been recorded in the cash book. A cheque issued for Rs.4,200/- at DNB has been recorded in both SB and DNB columns in the cash book. SB debited account with Rs.4,200/- by a mistake. A dividend of Rs.14,200/- remitted by a company to SB has not been credited to the account till the end of March 2011. However, this has been recorded in the cash book correctly. (10) A cheque deposited to SB account on 28th March 2011 amounting to Rs.3,000/- has been returned. This has not been recorded in the cash book.

(3)

(6)

(7)

(8) (9)

(11) The following deposits have not been realized as at 31st March 2011: Received from Ediriweera Sarath Chandra You are required to: (a) Calculate the cash book bank balances that have to be taken to the balance sheet as at 31st March 2011. Prepare the bank reconciliation for the SB account for the month of March 2011. (10 marks) Deposited with SB SB DNB Amount Rs. 2,000 1,140 18,000

(b)

(B)

The annual accounts of 6 to 6 Electronics prepared for the period ending 31st March 2011 reported a net profit of Rs.230,000/-. However, a suspense account balance of Rs.2,000/- appears under current liabilities, in the balance sheet as at 31st March 2011. The following were revealed later. (1) The following expenses which were related to the period have not been accounted: Bank charges Salaries (2) Rs. 2,000 12,000

A customer has returned goods sent to him and a full refund of Rs.34,000/- has been made. This had been debited to the suspense account & credited to cash account.

(3)

A Donation of Rs.5,000/- made to a charity had been recorded as Rs.500/in the donations account, crediting cash correctly. A credit sale of Rs.24,000/- had been omitted from the accounts. A direct deposit of Rs.16,000/- made to the bank account by Ruwan, a customer, had been debited to the bank account crediting suspense account.

(4) (5)

(6) (7)

The sales journal has been undercast by Rs.20,000/-. A cheque of Rs.4,500/- received from Silva had been correctly recorded in the cash book, but no entry has been made in Silvas account.

(8)

A sale of Rs.91,000/- to Vishaka Perera had been entered as Rs.19,000/, both in Vishwa & Co. as well as in sales accounts.

Based on the above information, You are required to: (a) (b) (c) Clear the Suspense Account. (04 marks)

Calculate the adjusted profit after making appropriate adjustments. (06 marks) Write journal entries to correct the items that have no impact on the suspense account. (05 marks) (Total 25 marks)

SECTION - C
Answer any two (02) questions from this Section 20 marks 04. No. 1. (A) The following transactions are related to Maped Book Shop: Date 02nd June 07th June 15th June 20th June 21st June 25th June Description Credit purchases from RS Ltd. 200 pens Trade discount is 10% 100 paper packets (for both items) Cash purchases from PQ Ltd. 60 books Discount received is 5% Credit purchases from Karolis 4 chairs Furnishing 80 ink bottles 20 ink bottles 20 paper packets Credit purchases from KM Ltd. Purchases returned to KM Ltd. Credit sales to HK Ltd. Cash discount 5%, for settlement within one month. Quantity Price Rs.15/- per pen Rs.200/- per packet Rs.20/- per book Rs.1,000/- per chair Rs.30/- per bottle Rs.30/- per bottle Rs.210/- per packet

2. 3. 4. 5. 6.

You are required to: (a) (b) State the appropriate prime entry book for each transaction. Prepare the Purchase day book for Maped Book Shop. (07 marks)

(B)

Some of the cost items of Gajini Steel Manufacturers are given below: (1) (2) (3) (4) (5) Steel consumption for the production of chairs. Depreciation of steel cutting machine. Security staff salaries. Wages for welders. Royalty payments for production.

You are required to, state under which of the following items should each of the above expenses items be classified: (a) (b) (c) (d) (e) (f) Direct material Direct wages Direct expenses Indirect materials Indirect wages Indirect expenses. (02 marks) (Total 10 marks)

05.

(A)

ALFA ltd. has the following assets: Cost Rs. 210,000 400,000 240,000 Depreciation as at 31.12.2009 Rs. 98,000 45,000 138,750 Residual value Rs. Nil 40,000 24,000

Asset Machinery Motor vehicle Equipment

The motor vehicle has been acquired on 01st July 2009. Equipment are to be depreciated on the reducing balance method at 25% per annum. An equipment acquired on 01st January 2009 for Rs.20,000/(assume that there is no residual value) has been disposed on 30th June 2010 for Rs.8,000/The company has purchased a machine on 01st

January 2008 for

Rs.210,000/-. The effective life of the machine was estimated at 30,000 production hours. The actual production hours of the machine were as follows: 2008 2009 2010 You are required to: (a) Calculate the depreciation expense for each of the asset the year ended 31st December 2010. Prepare the disposal of equipment account. (07 marks) 06,000 hours 08,000 hours 10,000 hours

(b) (B)

An employee worked 50 hours in a week instead of the standard of 40 hours, and he is entitled for an efficiency bonus of Rs.1,000/- per week. Normal rate per hour is Rs.88/-. Overtime is paid at time and a half. Calculate the total wages earned by the employee for the week. (02 marks) (Total 10 marks)

06.

(A)

You are given the following information relating to item X of BETA Ltd. for the month of June 2011. 01st 07th 08th 09th 18th 20th 21st 25th 28th June June June June June June June June June Opening stock 4,000 units @ Rs.2/- per unit Purchase of 4,000 units @ Rs. 3/- per unit Sale of 8,000 units @ Rs.4/- per unit Purchase of 4,000 units @ Rs.3/- each Sale of 2,000 units @ Rs.4/- per unit Sale of 500 units @ Rs.4/- per unit Purchase of 2,000 units @ Rs.5/- each Purchase of 1,000 units @ Rs.6/- each Sale of 3,500 units @ Rs.7/- per unit

You are required to prepare, the stores ledger for item X using the Weighted Average Method for pricing. (B) (07 marks)

A transport company runs a bus between Nugegoda and Dehiwala, a 10 km journey. Seating capacity of a bus is 50 passengers. During June 2011: (1) (2) (3) (4) (5) Wages paid for driver and conductor Rs.24,000/-. Paid for fuel Rs.35,000/-. Other operating costs were Rs.18,000/-. Passengers carried were 75% of the seating capacity, for 30 days. The bus made only one round trip per day. (02 marks) (Total 10 marks)

Calculate the cost per passenger kilometer. - o0o -

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