May/June 2017

A business has a year end of 31 March. On 31 March 2016, the business took an order from a credit customer. The goods were not delivered to the customer until 5 April 2016. This sale was left out of the financial statements for the year ended 31 March 2016. Which accounting concept(s) are being used?

The accounting system

The financial data provided is as follows: inventory at 1 January 2016: $800$ inventory at 31 December 2016: $1010$ purchases: $9260$ carriage inwards: $130$ revenue: $18000$ discount received: $700$ other costs: $3880$ What are the amounts of gross profit and profit for the year?

Preparation of financial statements

The information below has been taken from a business’s records: At 1 January 2016, rent paid in advance: $4000$. Over the year ended 31 December 2016, rent paid: $41000$. At 31 December 2016, rent paid in advance: $7000$. What amount of rent will be shown in the income statement for the year ended 31 December 2016?

The accounting system

When a partner retires and the partnership assets are revalued, what ratio is used to apportion the surplus or deficit on revaluation?

Types of business entity

X and Y are partners and divide profits and losses in the ratio $2 : 1$ respectively. The capital account balances are X $80000$ and Y $50000$. Z joins as a new partner and brings in capital of $30000$. Goodwill is valued at $18000$. Goodwill is not to remain in the books of account. The profit sharing ratio after Z joins will be $5 : 3 : 2$ respectively. What will be the balance on X’s capital account following the introduction of Z?

Types of business entity

L, M and N operated as partners, dividing profit and losses in the ratio $4 : 3 : 1$ respectively. N left the partnership on 31 October 2016, at which time the balance on her capital account stood at $142000$. Goodwill had been assessed at $54000$ and was not to be kept in the books of account. Non-current assets were reassessed and changed from $180000$ to $144000$. N received every amount owing to her from the business bank account. What amount did N receive on leaving the partnership?

Types of business entity

A company carries out a $1$ for $4$ bonus issue of ordinary shares. What effect does this have on share capital and total equity?

Preparation of financial statements

A company has these items: $12000$ ordinary shares of $1$ each. $10\%$ debenture $10000$. For the year ended 31 December 2016, it recorded a loss of $15000$. On 30 September 2016, an interim ordinary dividend of $0.20$ per ordinary share was paid. At 31 December 2016, an ordinary dividend of $0.40$ per ordinary share was proposed. The retained earnings figure in the statement of changes in equity at 31 December 2016 was $20000$. What was the retained earnings balance at 1 January 2016?

Preparation of financial statements

On 1 May, a trader had all of his inventory destroyed in a fire. He knows the values for sales and purchases and wants to calculate the value of the inventory that was lost. Which ratio should he use?

Analysis and communication of accounting information

A business had the following figures available: equity: $90625$ non-current liabilities: $36250$ profit from operations: $24375$ profit for the year: $18125$ Calculate the return on capital employed.

Analysis and communication of accounting information

A business gave the following figures: cost of non-current assets: $525000$ net book value of non-current assets: $350000$ revenue: $800000$ profit for the year: $160000$ What is the non-current asset turnover?

Analysis and communication of accounting information

Why does a business record depreciation on its non-current assets?

Accounting for non-current assets

The sales for a company over a 365-day year are listed below: cash sales: $179580$ credit sales: $927100$ total sales: $1106680$ The trade receivables turnover stood at $42$ days. What was the amount of trade receivables at the end of the year?

Analysis and communication of accounting information

The inventory information for a company is given below: Inventory on 1 January 2016: $100$ kilos at $100$ per kilo (total cost $10000$). Purchases in January 2016: $200$ kilos at $105$ per kilo (total cost $21000$). Purchases on 1 February 2016: $300$ kilos at $110$ per kilo (total cost $33000$). $400$ kilos were still held as inventory at the end of February 2016. The company applied FIFO when valuing its inventory. What was the inventory value at the end of February?

Traditional costing methods

Which item counts as a direct cost?

Costs and cost behaviour

The following data are available for a business. selling price per unit $35$ direct labour per unit $9$ direct material per unit $6$ budgeted sales 8000 units margin of safety 2000 units What are the fixed costs worth?

Costs and cost behaviour

A company has divided its costs among different departments, as set out below. Allocated costs: Production department 1: $80\,000$ Production department 2: $60\,000$ Maintenance department: $10\,000$ Distribution of maintenance department costs: Production department 1: $60\%$ Production department 2: $40\%$ Direct labour hours: Production department 1: 20\,000 hours Production department 2: 8000 hours What is the overhead absorption rate per labour hour for production department 1?

Traditional costing methods

Vikram earns $10$ per hour for a 40-hour week and receives time and a half for any overtime. He is meant to make four units each hour. If he makes above this amount, he is paid a bonus of $2$ for every extra unit. In the previous week, Vikram worked 41 hours and made 161 units. How much money was Vikram paid?

Costs and cost behaviour

A business ran a staff canteen, and the overhead cost was $12\,000$. Which apportionment basis would be the most suitable for this overhead cost?

Traditional costing methods

A business allocates some of its overhead expenses to its production departments. Why might building maintenance costs be left out of the other overheads that are being allocated?

Traditional costing methods

The data for a business are shown below. Budgeted manufacturing overhead $234\,000$ Budgeted direct labour hours 45,000 Actual manufacturing overhead $243\,600$ Actual direct labour hours 42,000 Calculate the amount by which overhead was under- or over-absorbed.

Traditional costing methods

A business produces and sells 10\,000 units. The revenue and cost figures are given below. Sales revenue $200\,000$ Variable costs $80\,000$ Fixed costs $90\,000$ Profit $30\,000$ What is the break-even point in units?

Costs and cost behaviour

How do you calculate depreciation by using the straight-line method?

Accounting for non-current assets

The figures in the table are for a business. Sales $6000$ Variable costs $4500$ Fixed costs $900$ Profit for the year $600$ Calculate the contribution to sales ratio.

Costs and cost behaviour

A business writes off its machinery at 10% per annum by the straight-line method, working on a month-by-month basis. The business’s financial year end falls on 30 June. Machinery that cost $6600 on 1 April 2014 was disposed of on 30 November 2015. The profit on sale was $350. What was the sale proceeds?

Accounting for non-current assets

The table below gives details of a business’s non-current assets: net book value at beginning of year: $28000 net book value at end of year: $25000 depreciation charge for the year: $4000 disposals at net book value: $9000 Calculate the cost of the additions in the year.

Accounting for non-current assets

At the end of the year, the cash book records a credit balance of $4800. The bank statement showed bank charges of $25 that were missing from the cash book. Cheque payments of $250 recorded in the cash book before the year end had still not been presented to the bank. How should the bank balance be presented in the statement of financial position?

Reconciliation and verification

A purchases ledger control account has been matched against the balances in the purchases ledger as shown below: control account balance: $70000 a page total from the purchases journal that has not been posted to the general ledger: $2000 discount allowed by trade payables that has not been posted to the purchases ledger: $1500 total of balances in the purchases ledger: $73500 What amount for trade payables ought to appear in the statement of financial position?

Reconciliation and verification

At the beginning of a period, trade receivable balances stood at $30000 and by the end they had reached $38000. Over the same period: credit sales: $60000 irrecoverable debt written off: $1000 customer discounts allowed: $2000 What amount did the company collect from its customers during the period?

The accounting system

At the beginning of the year, the provision for doubtful debts stood at $19600. Over the year, irrecoverable debts of $12300 were written off. By the end of the year, the provision for doubtful debts had fallen to $15500. What was the overall effect of these items on the profit for the year?

Preparation of financial statements

When a businessman contributes capital to his business, the entry is debited in the cash book and credited to his capital account. This is an example of which accounting concept?

The accounting system

A business gives the following data. Year 1: profit for the year $30000$, cost of goods sold $240000$. Year 2: profit for the year $40000$, cost of goods sold $320000$. The owner later finds that, at the close of year 1, inventory had been overstated by $2000$. What are the adjusted profits for the year and cost of goods sold figures?

Reconciliation and verification

Sam could not carry out a physical stock count on 31 December 2016. On 3 January 2017, some inventory was sold to Abdul for $11950$. Its cost price had been $9560$. On 4 January 2017, inventory was returned by Sita. It had originally been sold for $2390$. The cost price of this inventory was $1912$. Sam priced his inventory on 5 January 2017 at cost, $59750$. What was the inventory value on 31 December 2016?

Reconciliation and verification

Which item is not considered when a partner joins a partnership?

Types of business entity

Ali, Bharti and Chan were partners, and they shared profits and losses in the ratio $3:2:1$. Bharti left the partnership on 30 June 2016. The balances shown at 30 June 2016 were as follows: Capital account balances: Ali $60000$ Cr, Bharti $40000$ Cr, Chan $20000$ Cr. Current account balances: Ali $18650$ Cr, Bharti $6100$ Dr, Chan $8950$ Cr. When she retired, Bharti took over a partnership motor vehicle at an agreed value of $4000$. Goodwill had a valuation of $39000$. What amount was payable to Bharti on her retirement?

Types of business entity

A partnership keeps both capital accounts and current accounts for its partners. Which accounting entry is correct for recording interest on capital for partner X?

The accounting system

Which statement explains how purchased goodwill is treated in the accounts of a limited company?

Accounting for non-current assets

The company’s equity is composed as follows. $100000$ ordinary shares of $\$0.25$ each: $25000$. Share premium: $3000$. Retained earnings: $8000$. These events then occurred: 1 A bonus issue of one ordinary share for every five held was made. 2 Six months later a rights issue of one ordinary share for every four held was made. The shares were issued at $\$0.30$ each. By what amount did the company’s equity rise as a result of these transactions?

Preparation of financial statements

Which statement concerning ordinary shares is correct?

Types of business entity

Which people count as internal users of accounting information?

The accounting system

A company gives the information below. Profit from operations $16000$. Finance costs $4000$. Ordinary share capital ($\$1$ shares) $50000$. Non-current liabilities $4000$. Retained earnings $20000$. Calculate the return on capital employed.

Analysis and communication of accounting information

Which of the following is an example of the accounting equation?

The accounting system

A business has the following financial data. Every purchase and sale is carried out on credit. Purchases $121980$. Revenue $209980$. Trade payables $45448$. Trade receivables $28765$. What is the average collection period?

Analysis and communication of accounting information

In what way can stepped costs be best described?

Costs and cost behaviour

Jamal values his inventory using the AVCO system. He gives the information below: March 1: there was no opening inventory March 6: 60 units were bought at $120 per unit March 17: 100 units were bought at $116 per unit March 23: 110 units were sold for $150 per unit What was the cost of sales for March?

Traditional costing methods

A business produces wedding dresses. Every machinist receives $30 per day and every supervisor receives $40 per day. One supervisor is able to oversee up to 10 machinists, and each machinist is capable of making one wedding dress per day. If 95 wedding dresses are produced in a day, what is the daily labour cost?

Costs and cost behaviour

Which statement most accurately describes variable costs?

Costs and cost behaviour

A company produces and sells chairs. The per-unit data below are given: selling price: $25 direct material and labour: $12 other variable production costs: $3 variable selling costs: $2 fixed costs: $4 The company could choose to purchase the chairs for resale rather than manufacture them. At what purchase price would the company's profit remain unchanged?

Costs and cost behaviour

J Limited’s budgeted income statement is presented below: sales revenue: $400000 variable costs: $240000 fixed costs: $132000 profit for the year: $28000 How much is the margin of safety in dollars?

Costs and cost behaviour

A company provides the following figures for August: budgeted machine hours: 36000 budgeted overheads: $162000 actual machine hours: 36500 actual overheads: $155000 Calculate the under or over absorption of the overheads?

Traditional costing methods

A company has fixed costs amounting to $40000 each month. The following details were given: Production: March units: 30000 April units: 15000 The total production costs in March came to $90000. What was the total production cost for April?

Costs and cost behaviour

The company’s profits, when calculated using marginal costing and absorption costing principles, were the same. Which statement is correct regarding the company’s production units?

Traditional costing methods

Amitav bought a van for $20000. As part exchange, he gave an old van whose net book value was $8000. The profit on disposal was $1500. What was the cash outflow from the purchase?

Accounting for non-current assets

Which statement is not a reason why a business creates budgets?

The accounting system

On 1 January 2016, a company’s non-current assets had a net book value of $100000, and this reduced to $80000 by 31 December 2016. In 2016, assets with a book value of $20000 were sold and a profit on disposal of $5000 was earned. Depreciation charged in 2016 totalled $8000. What was the expenditure on new assets in 2016?

Accounting for non-current assets

The following errors were identified after a suspense account had been created.

Reconciliation and verification

Which entries are recorded in a sales ledger control account?

The accounting system

The data below have been taken from a business statement of financial position at 31 December 2016: bank loan (repayable 2025) $16200, other payables $1880, bank overdraft $11600, capital $20710, drawings $19100, inventory $14610, other receivables $1420, trade payables $14110, trade receivables $9050. Calculate the value of the net current liabilities.

Preparation of financial statements

The business cash book includes the following entries that have not yet appeared on the bank statement: cheques drawn $3000 and amounts banked $250. In the cash book, the bank balance is shown as $2600 credit. What balance is shown on the bank statement?

Reconciliation and verification

Finn gives these figures: capital at the beginning of the year $19800, profit for the year $24000, cash drawings $19500, drawings of goods for own use $1100, and a private vehicle transferred to business use $6000. What was Finn’s capital at the end of the year?

Preparation of financial statements

A company chose not to capitalise the purchase of a stapler intended for use in its office. Which accounting concept was the company using?

The accounting system

If a business leaves out a prepayment for rent receivables from its financial statements at the year end, what effects does this have?

The accounting system

The extract below is taken from a business’s trial balance as at 31 May 2017. trade receivables: $72000$ provision for doubtful debts: $3250$ One customer, who owes $5000$, has been made bankrupt. The provision for doubtful debts is to be kept at $5\%$ of trade receivables. Which figure should be shown in the financial statements at 31 May 2017?

Preparation of financial statements

In which account should a partner’s drawings be entered?

The accounting system

L and M are in a partnership. The figures below are taken from their profit and loss appropriation account. Interest on capital: L $1600$, M $1800$, giving a total of $3400$ Interest charged on drawings: L $500$, M $400$, making $900$ in all Partners’ salaries: L $2000$, M $3000$, giving a combined figure of $5000$ Share of profit: L $8000$, M $12000$, with a total of $20000$ What was the profit for the year prior to appropriations?

Preparation of financial statements

X and Y had been in partnership and divided profits equally. Z joined as a partner, after which the three partners divided profits equally. Goodwill was valued at $90000$. No goodwill account is to remain in the books of account. Which statement explains the effect on capital accounts when Z was admitted?

Types of business entity

A company holds a debenture (2020). Which statement about this is correct at 31 December 2016?

Preparation of financial statements

The following share issues were carried out by a limited company. Bonus issue of $20000$ ordinary shares of $0.50$ each. Rights issue of $10000$ ordinary shares of $0.50$ each at a price of $0.75$ each. By what amount did these issues raise the equity of the company?

Types of business entity

Which item would not appear in the statement of changes in equity for a limited company?

Preparation of financial statements

The following items are shown in a statement of financial position. Inventory: $20000$ Balance at bank: $2000$ Cash in hand: $1500$ Trade payables: $11000$ Provision for doubtful debts: $500$ The current ratio is $3:1$. What amount do the trade receivables owe?

Analysis and communication of accounting information

The financial statements of a company give the figures below. Sales: $570000$ Cost of goods sold: $210000$ Operating expenses: $65000$ Non-current assets: $250000$ Capital employed: $310000$ What is the non-current asset turnover?

Analysis and communication of accounting information

A trader recorded the following transactions in March 2017. cash sales for the month: $\$6900$ credit sales invoiced in March: $\$46200$ credit sales in March not yet invoiced: $\$800$ customer orders received on 31 March: $\$1200$ goods sent to a customer on 1 March on sale or return: $\$1400$ What revenue figure should be shown in the income statement for March 2017?

Preparation of financial statements

The production of product X involves a particular cost. The information for this is given below. Units produced: $6000$, $9000$ Cost per unit: $3$, $2$ This cost is an example of which type of cost?

Costs and cost behaviour

A business values inventory by using the AVCO method. The information given is as follows. August 1: inventory of $6$ units at $14.40$ each August 4: bought $9$ units at $18.40$ each August 6: sold $5$ units at $20.20$ each What was the cost of the goods sold?

Traditional costing methods

A company’s labour costs are calculated from hours worked together with a bonus scheme. Every production worker receives the same hourly pay rate and the same bonus. The daily pay rate is $6$ per hour for an $8$-hour day, over $5$ days each week. The bonus depends on the number of units made above $2000$ units in a week, at a rate of $2$ for each $100$ units. During one week, each worker makes $2600$ units. Every worker completes all the hours. Calculate the gross weekly wage for one worker.

Costs and cost behaviour

Actual production falls short of forecast production. Which cost is greater than forecast?

Costs and cost behaviour

The data below are provided for a business. Planned sales each month: $500$ units Selling price for each unit: $\$30$ Variable cost for each unit: $\$24$ Planned fixed costs per month: $\$600$ The business intends to hire a machine that would raise monthly fixed costs to $\$2400$ and lower variable costs to $\$18$ per unit. What effect would this have on the business’s margin of safety?

Costs and cost behaviour

The data below relate to one product. Selling price: $\$10.00$ per unit Variable labour costs: $\$3.50$ per unit Production material costs: $\$2.50$ per unit Break-even point: $2500$ units Calculate the total fixed cost.

Costs and cost behaviour

The figures below present the budget for a small manufacturing company. Sales in units: $6000$ and $12000$ Direct materials: $\$18000$ and $\$36000$ Direct labour: $\$6000$ and $\$12000$ Production overheads: $\$33000$ and $\$45000$ Administrative overheads: $\$27000$ and $\$27000$ Each unit is sold at $\$16$. What is the break-even point in units?

Costs and cost behaviour

A company uses direct labour hours to determine the overhead absorption rate. What causes over-absorption?

Traditional costing methods

A company’s limiting factor is production materials, and it makes three different products. Which product should it produce first to maximise profits?

Costs and cost behaviour

For the year, the figures below have been given. Sales: $\$400000$ Variable costs: $\$240000$ Total contribution: $\$160000$ Fixed administrative expenses: $\$90000$ Fixed selling expenses: $\$50000$ Profit for the year: $\$20000$ The company intends to raise the selling price by $10\%$. By how much will profit for the year rise?

Costs and cost behaviour

Which statements give reasons for charging depreciation on a non-current asset?

Accounting for non-current assets

Which of the following is not a purpose of a budget?

The accounting system

A trader purchased a machine on 1 January 2015. He charged depreciation on it at $10\%$ per annum by the straight-line method, and he disposed of it on 1 January 2017 for $\$4000$. The profit on disposal was $\$200$. What was the machine's cost on 1 January 2015?

Accounting for non-current assets

The data below refer to non-current assets. net book value at 1 January 2016: $\$20000$ net book value at 31 December 2016: $\$18000$ receipts from disposals: $\$3500$ assets bought: $\$9700$ loss on disposal: $\$650$ Calculate the depreciation charge for the year.

Accounting for non-current assets

The purchases ledger control account showed a closing balance of $\$20000$. Purchases returns of $\$1500$ were recorded on the incorrect side of the control account. What is the corrected balance?

Reconciliation and verification

At 30 April, the cash book for a business has a debit balance of $\$4200$. On the bank statement, a direct debit of $\$200$ for insurance has been shown, although it has not yet been recorded in the cash book. In addition, a cheque paid to a supplier was entered correctly in the cash book as $\$650$, but the bank statement shows it as $\$690$. What is the bank amount to be reported in the statement of financial position at 30 April?

Reconciliation and verification

A bookkeeper drew up a sales ledger control account. The errors below were then found. Which of these errors would cause the closing balance of the control account not to match the total of the customers’ account balances?

Reconciliation and verification

A business applies a mark-up of $40\%$. The information for the year was as follows. revenue: $\$280000$ inventory at start: $\$44000$ purchases: $\$175000$ What was the closing inventory value?

Preparation of financial statements

The directors of AB Limited have supplied the financial details below.

Analysis and communication of accounting information

Amit and Binu are partners, with profits and losses shared in the ratio $3:2$ respectively. A partnership statement of financial position as at 30 June 2016 is given, together with details of the partnership’s dissolution.

Types of business entity

Meena did not maintain complete accounting records. She was told to keep her books of account by using the double entry system.

The accounting system

Ken makes components for mobile telephones. The following budgeted figures are provided for the year ending 31 December 2018.

Costs and cost behaviour

B Limited is a private limited company operating as a wholesaler of garden equipment. The draft trial balance dated 30 June 2016 has been taken from the books of account.

Preparation of financial statements

Wiggins has supplied the following summary financial information for the year ending 30 April 2017.

Analysis and communication of accounting information

Amit, Wang and Susi have been operating as partners for several years, and they draw up their financial statements each year to 31 March. They have never entered into a partnership agreement.

Types of business entity

FPL Limited makes a single product type. Its sales staff are paid $10\%$ commission on the selling price.

Costs and cost behaviour

On 1 January 2016, Ramadhin, Statham and Trueman set up a partnership. Before appropriation, the draft profit for the year ended 31 December 2016 was $232000$, although some items had been omitted.

Types of business entity

The excerpt below is taken from the statement of financial position of WX Limited as at 1 March 2016.

Preparation of financial statements

Stapleton gave the information below for the year ended 30 April 2016.

Analysis and communication of accounting information

Y Limited produces three products, Exe, Wye and Zed. The budgeted data for July 2017 is given below.

Costs and cost behaviour

The balances below were taken from the records of XY plc on 31 January 2017.

Preparation of financial statements

G Limited’s directors drew up the following draft statement of financial position at 31 December 2016.

Preparation of financial statements

Greaves and Hurst entered into a joint venture and shared profits and losses in the ratio $2:1$.

Business acquisition and merger

James has only just retired and wants to place cash in either LM plc or AB plc.

Analysis and communication of accounting information

EF plc makes just one product. No inventories are held for materials or for finished goods.

Budgeting and budgetary control

Ahmed makes two products and applies Activity Based Costing (ABC) to spread overhead costs.

Activity based costing (ABC)

Richard Ang is a sole proprietor who manufactures one model of sofa bed, and the balances below have been taken from his accounting records at 31 July 2016.

Preparation of financial statements

The summarised statement of financial position for M plc at 31 December 2016 was shown as follows:

Analysis and communication of accounting information

Lushan and Samson serve as the directors of Z Limited, which was formed on 1 January 2016, and they are drawing up financial statements in line with International Accounting Standards.

Preparation of financial statements

Alex and Brown were partners, and they shared profits and losses in the ratio of $3:2$ respectively. C Limited bought the partnership business on 1 November 2016.

Business acquisition and merger

SM Limited manufactures a single product. In a typical month, 1000 units are produced and sold at $150 each. Standard costs are provided.

Standard costing

Tisha is thinking about buying a new machine for her factory. The machine would cost $125000. At the end of Year 5, it will be sold for $65000. It will be used to make one of Tisha’s current products.

Investment appraisal

The balances below were taken from the books of XY plc on 31 January 2017.

Preparation of financial statements

At 31 December 2016, the directors of G Limited drew up the following draft statement of financial position.

Preparation of financial statements

Greaves and Hurst took part in a joint venture, and the profits and losses were divided in the ratio $2:1$.

Business acquisition and merger

James has only recently stopped working and wants to place money in either LM plc or AB plc.

Analysis and communication of accounting information

EF plc produces only one product, and it holds no inventories of materials or finished goods.

Standard costing

Ahmed produces two products and has begun applying Activity Based Costing (ABC).

Activity based costing (ABC)