May/June 2016

In the statement of financial position, inventories are shown at the lower figure of cost and net realisable value. Which accounting concept is being used?

Preparation of financial statements

Once the company’s financial statements had been prepared, the trial balance at 31 December 2015 showed the balance below. Stationery: $8000$ debit What did this mean?

Preparation of financial statements

On 31 December, the following information was available. The decision was made to lower the provision for doubtful debts to $800. What effects will this adjustment have on profit for the year and on net assets?

Preparation of financial statements

The table presents details about closing inventory. What is the value of the closing inventory?

Preparation of financial statements

A business gives the information shown below. What total amount should be shown under current liabilities?

Preparation of financial statements

The statement of financial position set out the following balances at 31 December 2015. Net assets on 1 January 2015 were $14000. During the year ended 31 December 2015, property was revalued upwards by $12000. No drawings were taken out in the year. What profit was earned for the year ended 31 December 2015?

Preparation of financial statements

Smith and Jones are in partnership and divide profits and losses in the ratio $3:2$ respectively. The profit for the year was $152000$. Smith was charged interest on drawings of $1650$, and Jones received a partnership salary of $40000$. What was Smith’s share of the residual profit?

Preparation of financial statements

X, Y and Z have been operating a business with profits shared in the ratio $3:2:1$. Y chose to retire at the end of the year, when the balance on his capital account was $39400. On that date, the assets were revalued upwards by $57000. The partnership does not account for goodwill. Y took a car valued at $4800 as part of the amount owed to him. How much cash did Y receive?

Types of business entity

A company has a bank balance of $20000. The company’s equity and reserves are shown. The directors want to pay the maximum dividend possible. What amount of the bank balance will be needed to pay the dividend?

Analysis and communication of accounting information

Which statement is correct about rights issues?

Types of business entity

The financial statements of a limited company include the following items: 1 bonus issue of ordinary shares; 2 debenture interest; 3 profit for the year; 4 profit on disposal of non-current assets. Which of these items are included in the statement of changes in equity?

Preparation of financial statements

The table sets out selected figures taken from a business's statements of financial position. Non-current assets (at cost): 2014 $190000$, 2015 $245000$ Less accumulated depreciation: 2014 $75000$, 2015 $90000$ Net book value: 2014 $115000$, 2015 $155000$ Additional information for the financial year 2015 is given below: Depreciation charged: $40000$ New non-current assets bought (at cost): $105000$ Loss on sale of non-current assets: $10000$ What amount was received from the sale of the non-current assets?

Accounting for non-current assets

A company issued 25000 ordinary shares of $0.50 each at a premium of $25\%$. The market price was $1.50 per share. What amount of ordinary share capital should appear in the statement of financial position?

Preparation of financial statements

The company supplies the following information. What is the return on capital employed?

Analysis and communication of accounting information

When a business buys inventory with cash, how will liquidity ratios be affected?

Analysis and communication of accounting information

X sells goods on credit. To decide whether he wanted to do business with them, he examined the financial statements of two other businesses. X trades only with businesses whose trade payables turnover is 42 days or less. With which business(es) did X choose to trade?

Analysis and communication of accounting information

A business gives its employees $2 for every unit of X assembled and $3.20 for every unit of Y assembled. Each month, output is 1800 units of X and 1000 units of Y. The factory supervisor receives $1000 per month. What is the direct labour cost per month?

Costs and cost behaviour

A garage owner incurred the costs listed below. 1 mechanics’ wages 2 repairs to garage equipment 3 spare parts used in vehicle repairs 4 rent for the garage premises Which of these are direct costs?

Costs and cost behaviour

A business has the following costs. 1 direct material and direct labour costs 2 indirect factory production overheads 3 administrative expenses 4 distribution costs Which of these costs are included when calculating cost per unit by using absorption costing?

Traditional costing methods

A company allocates overheads on the basis of machine hours. The information below is provided. Budgeted: overheads $200000; machine hours 40000 hours Actual: overheads $240000; machine hours 60000 hours What amount of over- or under-absorption of overheads occurred?

Traditional costing methods

How is the margin of safety worked out?

Costs and cost behaviour

A company has total costs of $2200 when 100 units are produced and $4600 when 300 units are produced. Each unit sells for $20. At an output level of 200 units, what is the overall profit or loss?

Costs and cost behaviour

What items would count as part of the capital cost when a building is purchased?

Accounting for non-current assets

A company gives the following data about its carriage costs. Units transported and total cost ($): 2000 units: 6000 5000 units: 13500 If more than 5000 units are transported, the cost will raise the fixed charge by another $2000. What would the cost be to transport 6000 units?

Costs and cost behaviour

Konrad’s purchases ledger showed trade payables balances adding up to $57400$. The following mistakes were then identified: Discount allowed recorded too high in the cash book: $2000$ Returns outwards left out of a supplier’s account: $350$ Payments to trade payables recorded too low in the cash book: $137$ Purchases journal recorded too high: $500$ What is the corrected total of trade payables balances?

Reconciliation and verification

A company’s sales ledger control account showed a debit balance of $125000$. The following errors were then found: 1. A bad debt of $800$ had not been recorded in the sales ledger control account. 2. An increase of $500$ was needed in the provision for doubtful debts. 3. The sales journal had been overcast by $1000$. What was the total of the balances in the sales ledger?

Reconciliation and verification

The suspense account for a business is shown below. Discount allowed: $150$ Opening balance: $100$ Sales: $50$ Which statements are correct?

Reconciliation and verification

A bank statement shows a credit balance of $1500$. A payment of $500$ and a receipt of $1250$ were entered in the cash book, but they do not yet appear on the bank statement. Bank interest payable of $1100$ was recorded correctly in the cash book, but because of a bank error it was shown on the bank statement as $1000$. What is the balance in the cash book?

Reconciliation and verification

A company works out a draft profit for the year of $88000$. Included within this figure is a profit margin of $3000$ on goods sold on credit that have not yet been paid for. It also contains $500$ profit from goods sold to a customer under a sale or return arrangement. What is the correct gross profit?

Preparation of financial statements

The draft profit for the year of a sole trader was $108000$ before the following items were considered. 1. The provision for doubtful debts carried forward was $1850$. The provision that should be carried forward is $2250$. 2. Depreciation of non-current assets had been undercharged by $2000$. 3. An accrual of $600$ for repairs had been recorded as a prepayment. What was the correct profit for the year?

Preparation of financial statements

What could prevent financial statements from giving a true and fair view?

Preparation of financial statements

Katrina started trading on 1 January 2015. For the year ending 31 December 2015, the information provided is: drawings $53500, profit for the year $62700, revenue $1500000, expenses $875000. What was the cost of sales for the year?

Preparation of financial statements

The following data are given for rent and rates: prepaid rent at the start of the year $1250, accrued rates at the start of the year $1380, rent and rates income statement amount $8750, prepaid rent at the end of the year $1104, and accrued rates at the end of the year $1000. Calculate the amount paid for rent and rates during the year.

Reconciliation and verification

The directors of a company are preparing the financial statements for the year ended 30 April 2016. They find that the inventory at 1 May 2015 had been overstated by $50000. What effects would correcting this error have?

Reconciliation and verification

X and Y were partners and divided profit and losses equally. They then brought Z into the partnership, and the profit and loss sharing remained equal. The following transactions occurred: 1 Z contributed capital of $50000. 2 Goodwill had a valuation of $30000. No goodwill account is maintained in the books of account. 3 X withdrew a computer from the business valued at $3000. After these transactions had been completed, X’s capital account had a balance of $60000. What was the original balance on X’s capital account?

The accounting system

A and B were partners, dividing profits and losses equally, when they chose to retire. The details of the realisation are shown in the table. On realisation, what amount of profit was each partner entitled to?

Types of business entity

During a year, a company’s profit from operations increased by $10\%$, while its gross profit rose by only $5\%$. Which factors might explain this?

Analysis and communication of accounting information

A company has $1000000 ordinary shares of $1 that were issued at $2.50. It also holds a $5\%$ debenture worth $300000$. Profit from operations for the year was $465000$. During the year, the directors paid an $8\%$ ordinary share dividend. By what amount did retained earnings rise during the year?

Preparation of financial statements

A company allocates $100000$ new $1 ordinary shares at a premium of $0.20 per share. What impact does this have on the statement of financial position?

Preparation of financial statements

The trial balance at 31 December 2015 contained the following figures: ordinary share capital ($1 shares) $500000; retained earnings $300000. On 1 January 2016, the directors set up the general reserve of $70000. At the same time, $200000 ordinary shares were issued for $300000. By what amount did total reserves rise on 1 January 2016?

Preparation of financial statements

A company aims to raise its return on capital employed in the short term. Which action would make this happen?

Analysis and communication of accounting information

The company’s financial year finishes on 31 December. On 1 April 2015, these payments connected with a new machine were made: purchase cost $50000 and installation $10000. Machinery is depreciated at 20% on cost per annum, with the calculation starting from the date of purchase. Calculate the depreciation of the new machine for the year ended 31 December 2015?

Accounting for non-current assets

Which item is counted in the current ratio but excluded from the liquid (acid test) ratio?

Analysis and communication of accounting information

A business has compiled the information below for the year ended 30 April 2015. What was the inventory turnover?

Analysis and communication of accounting information

An employee has a normal $40$-hour week. During this period, he is expected to produce $200$ complete units. He receives a bonus of $10$ for each hour saved in production. In week $25$ he worked $44$ hours and made $250$ units. What was his bonus payment for week $25$?

Costs and cost behaviour

A business began trading on 1 January. Its inventory purchases and sales during January were as follows. The business valued inventory using the first in first out (FIFO) method. What was the gross profit for January?

Preparation of financial statements

A manager is drawing up a quotation for Job 88. A specialised technician is employed to carry out only this job. He will operate machinery already owned by the company. Which statement about the expenses for Job 88 is correct?

Costs and cost behaviour

Budgeted overhead expenditure stood at $180000$ and budgeted labour hours came to $12000$. In reality, overheads totalled $196000$ and labour hours were $12200$. What was the under or over absorption of overheads?

Traditional costing methods

Why could a business choose to use marginal costing?

Costs and cost behaviour

A business gave the information below for the last two months. February: labour hours totalled 64 000, and total overheads were $918 000. March: labour hours totalled 76 000, and total overheads were $1 062 000. Calculate the monthly fixed overhead cost.

Costs and cost behaviour

A company applies marginal costing. Which costs are counted in its inventory valuation?

Costs and cost behaviour

A company’s break-even sales level is 1000 units, with variable costs of $30 000 and fixed costs of $20 000. What profit will be earned if sales are 70 units above the break-even level?

Costs and cost behaviour

On 1 January 2012, a business bought a motor vehicle for $24000. Its expected useful life was four years, and its estimated residual value after four years was $8000. The business charges depreciation on motor vehicles at 25% per annum by the reducing balance method. No depreciation is charged during the year of disposal. The motor vehicle was sold on 31 July 2015 for $12000. What was the profit made on the sale of the motor vehicle?

Accounting for non-current assets

Who ought to be included on the budget committee?

The accounting system

A building was bought for $500000. In addition, the following expenses were incurred: $50000 for adapting the new building, $5000 in legal fees for the purchase of the building, $4000 to clean the building, and $20000 for the building manager’s salary. What was the capital cost of the building?

Accounting for non-current assets

Which statement concerning the sales ledger control account is correct?

The accounting system

In which book of prime entry is the contra entry between the sales ledger control account and the purchase ledger control account entered?

The accounting system

A business left out discounts allowed of $700 from its trial balance. In the year, a machine was sold for cash for $500, but the only accounting entry recorded was a debit to the bank account. What is the balance on the suspense account before these errors are corrected?

Reconciliation and verification

In an income statement, carriage outwards of $5000 has been entered as carriage inwards. Carriage inwards of $3000 has been entered as carriage outwards. What are the effect(s) of these errors on the profit?

Reconciliation and verification

A company received interest of $8800 during the financial year. At the start of the year, interest of $700 was due, and by the end of the year, $850 was due. Which entry would appear in the interest received account to transfer the figure to the income statement?

Preparation of financial statements

In the statement of financial position, inventories are measured at whichever is lower: cost or net realisable value. Which accounting concept is being applied here?

The accounting system

The balance shown below was included in a trial balance at 31 December 2015, following the preparation of the company’s financial statements. What did this show?

The accounting system

The information available on 31 December was as follows: non-current assets with a net book value of $10000$, current assets of $5000$, provision for doubtful debts $(1500)$ and current liabilities of $(3000)$. It was then decided to lower the provision for doubtful debts to $800$. Which effects will this adjustment have on the profit for the year and on net assets?

Preparation of financial statements

The table presents data for closing inventory: cost $50000$, realisable value $45000$, costs of realisation $5000$, replacement cost $35000$. What amount should the closing inventory be valued at?

Preparation of financial statements

A business supplies the following figures: accrued expenses $9350$, accrued income $24750$, prepaid expenses $14250$, prepaid income $32650$. What is the total amount that should be shown under current liabilities?

Preparation of financial statements

The statement of financial position listed these balances on 31 December 2015: capital accounts X $20000$, Y $10000$; current accounts X $1000$ debit and Y $2500$ credit. Net assets on 1 January 2015 were $14000$. During the year ended 31 December 2015, property was revalued upwards by $12000$. There were no drawings in the year. Calculate the profit for the year ended 31 December 2015.

Preparation of financial statements

Smith and Jones are partners, dividing profits and losses in the ratio $3:2$ respectively. The profit for the year amounted to $152000$. Smith was charged interest on drawings of $1650$. Jones received a partnership salary of $40000$. What was Smith’s share of residual profit?

Preparation of financial statements

X, Y and Z have been trading as partners, with profits divided in the ratio $3:2:1$. Y chose to retire at the end of the year, when the balance on his capital account stood at $39400$. At that moment, the assets were revalued upwards by $57000$. Goodwill is not recorded by the partnership. Y accepted a car worth $4800$ as part of what was owed to him. How much cash did Y receive?

Types of business entity

A company holds a bank balance of $20000$. Its equity and reserves comprise: ordinary shares of $0.50$ each $10000$, capital reserves $5000$, revenue reserves $3000$. The directors want to pay the largest dividend that can be paid. How much of the bank balance will be used to fund the dividend?

Preparation of financial statements

Which of the following statements about rights issues is correct?

Types of business entity

The financial statements of a limited company include the following items: 1 bonus issue of ordinary shares, 2 debenture interest, 3 profit for the year, 4 profit on disposal of non-current assets. Which of these items would appear in the statement of changes in equity?

Preparation of financial statements

The table presents selected figures taken from a business's statements of financial position. Additional information for the financial year 2015 is given below. What amount was received from selling the non-current assets?

Accounting for non-current assets

A company issued $25000$ ordinary shares of $0.50$ each with a premium of $25\%$. Their market value was $1.50$ per share. What is the ordinary share capital value in the statement of financial position?

Preparation of financial statements

The following data relate to a company: ordinary share capital $50000$, retained earnings at the end of the year $11000$, $8\%$ debentures $(2020-2022)$ $15000$, bank overdraft $8000$, profit from operations $17700$, profit for the year $16500$. Calculate the return on capital employed.

Analysis and communication of accounting information

A business buys inventory with cash. What effect will this have on liquidity ratios?

Analysis and communication of accounting information

X sells goods on credit. To decide whether to trade with them, he studied the financial statements of two other businesses. He discovered the following details. Business G recorded credit purchases of $21800 and trade payables of $2320. Business H recorded credit purchases of $49500 and trade payables of $5750. X trades only with businesses whose trade payables turnover is 42 days or less. Which business(es) did X choose to trade with?

Analysis and communication of accounting information

A business pays employees $2 for every unit of X assembled and $3.20 for every unit of Y assembled. The monthly production level is 1800 units of X and 1000 units of Y. The factory supervisor receives $1000 each month. What is the direct labour cost per month?

Costs and cost behaviour

A garage owner incurred the costs listed below. 1 wages of mechanics 2 repairs to garage equipment 3 spare parts used in vehicle repairs 4 rent for the garage premises Which of these count as direct costs?

Costs and cost behaviour

A business has the following costs. 1 direct material and direct labour costs 2 indirect factory production overheads 3 administrative expenses 4 distribution costs When absorption costing is used, which of these costs are included in the cost per unit?

Traditional costing methods

A company applies overheads on the basis of machine hours. The information below is provided. Budgeted overheads are $200000 for 40000 machine hours. Actual overheads are $240000 for 60000 machine hours. Calculate the over or under absorption of overheads.

Traditional costing methods

By what method is margin of safety calculated?

Costs and cost behaviour

A company has total costs of $2200 when it makes 100 units and $4600 when it makes 300 units. Each unit is sold for $20. What is the overall profit or loss when the output level is 200 units?

Costs and cost behaviour

Which of the following would be counted as part of the capital cost of buying a building?

Accounting for non-current assets

A company gives the following details about its carriage costs. If 2000 units are transported, the total cost is $6000. If 5000 units are transported, the total cost is $13500. For quantities above 5000 units, the cost will raise the fixed charge by another $2000. What is the cost of transporting 6000 units?

Costs and cost behaviour

The sum of the trade payables balances in Konrad’s purchases ledger was $57400. These errors were then found. What is the corrected total of the trade payables balances?

Reconciliation and verification

A company's sales ledger control account showed a debit balance of $125000. The errors below were then found. What was the combined total of the balances in the sales ledger?

Reconciliation and verification

The suspense account for a business is shown below. Which of the statements are right?

Reconciliation and verification

The bank statement displays a credit balance of $1500. A payment for $500 and a receipt for $1250 have been entered in the cash book, but they do not yet appear on the bank statement. Bank interest payable of $1100 was entered correctly in the cash book, but because of a bank error it was shown on the bank statement as $1000. What is the resulting cash book balance?

Reconciliation and verification

A company works out a draft profit for the year of $88000. This total includes a profit margin of $3000 on goods sold on credit that have not yet been paid for. It also contains $500 profit made on goods sold to a customer on a sale or return basis. What should the correct gross profit be?

Preparation of financial statements

Before the items below were considered, the sole trader’s draft profit for the year was $108000. What should the profit for the year be?

Preparation of financial statements

Bayliss Limited operates as a retailer of ladies’ fashion material. The trial balance that follows was taken from the accounting records on 31 December 2015.

Preparation of financial statements

The information below has been taken from the financial statements of Thaw Limited at 31 December 2015.

Analysis and communication of accounting information

Wang and Yuan, who share profits and losses in the ratio 2:1, chose to end their partnership. Their summarised statement of financial position at 30 September 2015 was as follows:

Types of business entity

Rahel produces only product X and wants to find the break-even point.

Costs and cost behaviour

Jing operates as a sole trader. He does not keep complete accounting records. Every sale and purchase is made on credit. He supplied the information below for the year ended 30 April 2015.

Preparation of financial statements

Colin, Darim and Emran are partners who share profits and losses in the ratio $3:2:1$. Their statement of financial position at 30 November 2015 is given, together with extra details about Darim’s retirement.

Types of business entity

Miu is a sole trader and draws up her financial statements to 31 May each year. She charges depreciation on her motor vehicles by the reducing balance method at a rate of $20\%$ per annum. Depreciation is recorded each month.

Accounting for non-current assets

Bruna Limited is a manufacturing firm. It runs three production departments and two service departments.

Traditional costing methods

Bayliss Limited trades as a retailer of ladies’ fashion material. The trial balance shown below was taken from the books of account on 31 December 2015.

Preparation of financial statements

The data below have been taken from Thaw Limited’s financial statements as at 31 December 2015.

Analysis and communication of accounting information

Wang and Yuan, who divide profits and losses in the ratio $2:1$, agreed to end their partnership. Their condensed statement of financial position on $30$ September $2015$ was as follows:

The accounting system

Rahel makes one product, X, and wants to determine the break-even point.

Costs and cost behaviour

The Pavey Sports and Social Club operates as a not for profit organisation. Its accounts are drawn up every year to 31 March. For several years, membership has stayed constant at 350 members, each paying an annual subscription of $100. To increase membership, a life membership scheme was introduced. On 1 April 2015, 25 new members joined under this scheme, paying $750 each. The life membership fund is to be transferred to the income and expenditure account over 15 years.

Preparation of financial statements

Ahmed and Bashmir run separate garage businesses and decide to set up a joint venture to buy and sell second hand cars. Any profits and losses are divided two thirds to Ahmed and one third to Bashmir.

Preparation of financial statements

ACM plc supplied the following details about its non-current assets.

Preparation of financial statements

Winterbottom plc and Ramsey plc are two comparable trading companies. Their financial statements for internal use are presented below.

Analysis and communication of accounting information

Chetna operates a business that prints logos onto sweatshirts. The sweatshirts are produced in two categories, Standard and Superior. Selling price is fixed at cost plus $30\%$.

Activity based costing (ABC)

At Artem Limited, one of the assembly machines is due for replacement.

Investment appraisal

The Seagulls Boating Club is a small not for profit organisation that earns income from members’ subscriptions and a café.

Preparation of financial statements

Kempes Limited is a company that produces one product. Completed goods are moved out of the factory at production cost plus 15%. Any goods not sold are kept in the warehouse.

Preparation of financial statements

Anjali and Bailey operate as partners, sharing profits and losses in the ratio $3:2$. On 30 April 2016, the partnership statement of financial position was as follows.

Business acquisition and merger

The directors of Corim plc are employing accounting ratios to evaluate the company’s performance.

Analysis and communication of accounting information

Explorer Limited makes two products, Y and Z, and is thinking about adopting activity based costing (ABC).

Activity based costing (ABC)

Khalid runs a blanket-making business, and he is now using a standard costing system.

Standard costing

The Pavey Sports and Social Club operates on a not for profit basis. Accounts are drawn up every year to 31 March. For a number of years, membership has stayed unchanged at 350 members, each paying an annual subscription of $100. A life membership scheme was introduced in an effort to increase membership. On 1 April 2015, 25 new members joined through this scheme, paying $750 each. It was agreed that the life membership fund would be released to the income and expenditure account over 15 years.

Preparation of financial statements

Ahmed and Bashmir each run their own garage businesses and have agreed to establish a joint venture for buying and selling second-hand cars. Any profit or loss is divided two thirds to Ahmed and one third to Bashmir.

Preparation of financial statements

ACM plc gave the following data on its non-current assets.

Preparation of financial statements

Winterbottom plc and Ramsey plc are two broadly similar trading businesses that have been trading successfully for many years.

Analysis and communication of accounting information

Chetna operates a business that prints logos onto sweatshirts. The sweatshirts are sold in two categories, Standard and Superior. The selling price is fixed at cost plus 30%.

Activity based costing (ABC)

At Artem Limited, one of the assembly machines has to be replaced. Financial data, operating data and discount factors are supplied.

Investment appraisal