Feb/March 2016

A business is held in high regard. The owner wants goodwill shown in the financial statements. An accountant recommends that this should not be done. Which accounting concept is the accountant applying?

The accounting system

A computer that was used as a demonstration item for customers was classified as capital expenditure. By the year end, a customer had bought the computer as part of the normal trading activities of the business. Which accounting entries are required to adjust the cost of sales?

Accounting for non-current assets

A business prepares its financial statements to 30 April each year. The ledger account balances on 1 May 2014 included insurance (debit) $800. On 31 October 2014, an insurance premium of $2100 was paid for the year ending 31 October 2015. Which amount was included as insurance expense in the income statement for the year ended 30 April 2015?

Preparation of financial statements

Goh’s business statements of financial position reported these net assets: 30 June 2014: $152000; 30 June 2015: $184000. In the year ended 30 June 2015, Goh introduced his private motor car into the business at a value of $14000. By 30 June 2015, the net book value of this motor car was $13200. He also took $7900 cash out of the business bank account. Calculate the profit for the year ended 30 June 2015.

Reconciliation and verification

P entered the partnership of G and H. The assets he contributed to the business were as follows: non-current assets cost $25000, valued at $38000; inventory cost $6000, valued at $4500; cash $20000. No goodwill arose when P joined the partnership. What was the balance on P’s capital account?

Types of business entity

X and Y each have capital accounts of $50000 and divide profits equally. They intend to bring Z into the partnership. After admission, the profit-sharing ratio will become $2:2:1$. The capital account balances are also to be kept in this ratio. Goodwill has been assessed at $20000 and will not be carried in the books of account. How much cash must Z contribute to become a partner?

Types of business entity

David and Jane have traded together for several years, sharing profits in the ratio of $2:1$. Jane now wants to retire. Her capital account stands at $15800$ and her current account has a debit balance of $3500$. Goodwill is valued at $6600$. The book values of certain tangible assets are to be increased by $3000$. What amount is payable to Jane on her retirement from the business?

Types of business entity

Which option is not an appropriation of partnership profit?

Preparation of financial statements

A limited company plans to issue shares at a price higher than the nominal value. Which items, other than the bank balance, will be affected by the share issue?

Preparation of financial statements

A company sells one million ordinary shares of $1$ each at $1.30$ per share. It also issues a debenture for $500000$. By how much does the company's equity increase?

The accounting system

What does the return on capital employed ratio measure?

Analysis and communication of accounting information

For what reason is depreciation charged on non-current assets?

Accounting for non-current assets

These ratios were worked out for two businesses, each with revenue of $100000$. Gross margin: X $20\%$, Y $25\%$. Profit margin: X $10\%$, Y $10\%$. In what way do the cost of sales and expenses of X compare with those of Y?

Analysis and communication of accounting information

A business gives the following figures: gross margin $20\%$; sales $275325$; opening inventory $25450$; closing inventory $55975$. What is the amount of purchases?

Preparation of financial statements

A company gave the information below: opening inventory $100$ units at $\$2.00$ per unit; a further receipt of inventory of $400$ units at $\$2.10$ per unit; and $200$ units issued to production. The company uses the first in first out (FIFO) method for valuing inventory. What is the material cost of the units issued to production?

Traditional costing methods

Each month, a production centre uses $20000$ machine hours and $17000$ labour hours. Which formula is applied to work out the overhead absorption rate?

Traditional costing methods

The data given are as follows: overheads budgeted $60000$, actual $66000$; direct labour budgeted $30000$ hours, actual $35000$ hours. The overhead absorption rate is calculated using direct labour hours. What amount of overhead is over-absorbed or under-absorbed?

Traditional costing methods

A certain cost is described as ‘semi-variable’. What effect will a $20\%$ fall in activity have on the unit cost?

Costs and cost behaviour

A business makes and sells watches. During 2015, 4000 watches were produced and 3600 watches were sold. Further details for the year were as follows: direct materials $\$60$ per unit; direct labour $\$80$ per unit; variable selling expenses $\$15$ per unit; fixed manufacturing overheads $\$45$ per unit; fixed administrative costs $\$50$ per unit. What is the cost of goods sold for 2015 if the business uses absorption costing?

Traditional costing methods

Which items are part of the marginal cost of producing one unit?

Costs and cost behaviour

Which of the following statements about cost-volume-profit analysis are correct?

Costs and cost behaviour

For one period, a business recorded the following budgeted and actual figures. Budgeted fixed overheads are $\$354\,000$, actual fixed overheads are $\$360\,000$, and under-absorption of overheads amounts to $\$3\,000$. The fixed overheads are absorbed per unit. The budgeted number of units were 118000. What is the actual level of activity in units?

Traditional costing methods

The details below refer to the disposal of a non-current asset: profit on disposal: $5200 cost of non-current asset sold: $14400 sales proceeds: $6800 What was the accumulated depreciation for the non-current asset sold?

Accounting for non-current assets

What are the principal purposes of budgeting?

Costs and cost behaviour

Omar wants to become a trader. He chooses to purchase an existing business in a favourable location. The price he pays for the business is greater than its net asset value. In the records of the new business, how is the additional amount paid shown?

Accounting for non-current assets

A sales ledger control account had been drawn up. An irrecoverable debt of $40 had been left out, and a discount allowed of $68 was recorded as $86. What overall effect did these mistakes have on the closing balance of the sales ledger control account?

Reconciliation and verification

The totals on the trial balance are shown below: debit $500150 credit $500000 What error could be responsible for this difference?

Reconciliation and verification

A business keeps a provision for doubtful debts at 5% per annum. Its trade receivables balance is $560000 at the beginning and $468000 at the end of the financial year. Which of the following statements are correct?

Reconciliation and verification

The statement of financial position for a company lists the following items: tangible non-current assets: $20600 intangible non-current assets: $5700 trade receivables: $8600 trade payables: $3200 loan repayable in three years: $4000 bank balance: credit $5200 inventory: $6900 What is the total working capital?

Preparation of financial statements

A bookkeeper with little experience worked out a draft profit for the year ended 31 December 2015 of $578500. He had omitted the following items: Provision for doubtful debts: $12800 on 1 January 2015 and $11300 on 31 December 2015. Provision for depreciation: $95000 on 1 January 2015 and $126200 on 31 December 2015. What was the adjusted profit for the year?

Preparation of financial statements

The trial balance for Seema Limited for the year ended 30 June 2015 contains the following figures.

Analysis and communication of accounting information

James and Lewis have been partners for several years, dividing profits and losses equally. No partnership agreement was in place. Their statement of financial position at 30 September 2015 contained the following details.

Types of business entity

At $31$ December $2014$, Howard Limited’s statement of financial position showed the equity and reserves section as follows.

Types of business entity

Lin is a manufacturer who produces three products: X, Y and Z. In his business, he applies cost-volume-profit (CVP) analysis.

Costs and cost behaviour

Kelang Limited produces one product only. Items are moved from the production department to the sales department with a mark up of 20%. The balances below have been taken from the books of Kelang Limited at 31 December 2015.

Preparation of financial statements

Chin launched a business in Hong Kong on 1 January 2015, dealing in specialist radios.

Preparation of financial statements

Johnson plc started trading on 1 January 2010.

Analysis and communication of accounting information

Fernando and Gurdip have operated as sole traders for several years and have chosen to combine their businesses into a partnership.

Preparation of financial statements

Alfa makes a single product. Budgeted production and sales in March were 8000 units. The per-unit budgeted figures are provided alongside the actual March results.

Standard costing