Oct/Nov 2017

The owner’s private spending is not treated as a business expense. Which accounting concept is being used?

Types of business entity

A business draws up its financial statements on 31 December. Insurance premiums paid were as follows. January 2015: 1 July 2014 to 31 December 2014, $940$ July 2015: 1 January 2015 to 30 June 2015, $1120$ January 2016: 1 July 2015 to 31 December 2015, $1245$ March 2016: 1 January 2016 to 30 June 2016, $1880$ Which amount should be recorded in the income statement for the year ended 31 December 2015?

Preparation of financial statements

What is the reason for revaluing non-current assets when one partner leaves and another partner joins the business?

Accounting for non-current assets

Closing inventory has been recorded at too high a value. What effect does this have on the financial statements?

Preparation of financial statements

The data below relate to a partnership as at 31 December 2016. Residual loss: $3000$ Aggregate salaries paid to partners: $5000$ Aggregate interest on capital: $27000$ Aggregate drawings: $14000$ Aggregate interest on drawings: $700$ What is the profit for the year?

Types of business entity

The table presents details about four partners in a partnership. Which partner receives the highest net reward from interest on capital and interest on drawings?

Types of business entity

By 31 December, the capital employed of a company comprised ordinary shares of $1$ each and retained earnings of $50000$. The information below applies to the year ended on that date. Profit from operations: $47000$ Finance costs: $3000$ Profit for the year: $44000$ Return on capital employed was $10\%$. How many ordinary shares had been issued?

Analysis and communication of accounting information

At what point is a share premium account opened?

Types of business entity

A company’s ordinary share capital is $80000$. The nominal value of each share is $0.25$. A dividend of $0.06$ is paid for each share. What is the overall dividend paid?

Types of business entity

At the start of 2016, on 1 January 2016, the company’s total equity stood at $56000$. During the year, the company earned a profit of $13000$, and it paid out a dividend of $2000$. By the end of the year, $5000$ had been moved to the general reserve, and the directors recommended a final dividend of $4000$. What was the total equity on 31 December 2016?

Preparation of financial statements

Which step would raise a company’s current ratio?

Analysis and communication of accounting information

A business bought a shop and had these costs: purchase price of the shop $\$680000$; legal fees incurred in the purchase of the shop $\$7200$; cost of initial inventory $\$12500$; cost of installing air conditioning $\$47300$. Which amount should be treated as capital expenditure?

Accounting for non-current assets

The data below about a business’s motor vehicles is provided. All motor vehicles were bought $10$ years ago for a combined cost of $500000$. Their present total net book value is $100000$. No motor vehicles were sold during the period. How has depreciation been worked out for these motor vehicles?

Accounting for non-current assets

The information below is given for a business’s inventory. July $1$: opening inventory of $60$ units at $4.50$ per unit July $15$: $40$ units issued July $23$: $120$ units purchased at $5.20$ per unit July $29$: $65$ units issued What is the inventory value on $31$ July using AVCO?

Traditional costing methods

A company produces one product only. Which cost may be assigned to its production departments?

Traditional costing methods

The budget information for N Limited is shown below. Production level $15000$ units: total costs $406000$ Production level $25000$ units: total costs $546000$ What is the budgeted fixed cost?

Costs and cost behaviour

A company pays its staff on a time-rate basis of $8$ for each hour worked. It also gives a weekly bonus of $1.20$ for every unit of production above $100$ units, and an extra $0.80$ for every unit of production above $120$ units. Staff are assured a minimum weekly wage of $335$. One employee worked $37.5$ hours last week and produced $129$ units. Calculate the employee’s wage for that week.

Costs and cost behaviour

A business allocates overheads on the basis of machine hours. In the most recent quarter, its budgeted and actual figures were: - actual overheads: $127346$ - actual machine hours: $5490$ - budgeted overheads: $129375$ - budgeted machine hours: $5625$ Calculate the amount by which overheads were under-absorbed or over-absorbed.

Traditional costing methods

Which of the following statements about marginal costing are correct?

Costs and cost behaviour

For April, a business has this budget: - sales revenue: $1000000$ - contribution: $550000$ - fixed production costs: $275000$ - fixed selling costs: $55000$ What is the break-even sales revenue for April?

Costs and cost behaviour

A company’s fixed costs in a quarter are $300000$. Its only product is sold at $25$ per unit, and its contribution to sales ratio is $40\%$. How many units of the product must it sell in order to earn a profit of $100000$?

Costs and cost behaviour

The details below are given for two products: - material X used in each unit: product 1 requires $2$ kilos, product 2 requires $4$ kilos - material Y used in each unit: product 1 requires $3$ kilos, product 2 requires $1$ kilo - direct labour needed for each unit: product 1 requires $3$ hours, product 2 requires $6$ hours It is intended to make $100$ units of each product. $700$ kilos of material X and $400$ kilos of material Y are available. In total, $800$ direct labour hours can be worked. What is / are the limiting factor(s)?

Costs and cost behaviour

Why does a non-current asset lose value over time?

Accounting for non-current assets

Which of the following is not a reason why a business prepares its budgets?

The accounting system

The details below relate to a trader’s non-current assets: accumulated depreciation on 31 May 2015 $\$40000$; depreciation charge for the year to 31 May 2016 $\$9000$; accumulated depreciation on 31 May 2016 $\$46000$. In the year to 31 May 2016, one non-current asset with a cost of $\$10000$ was disposed of. The disposal resulted in a loss of $\$1200$. What sale proceeds were received for the non-current asset that was sold?

Accounting for non-current assets

The owner of a transport business bought a motor vehicle, and it was recorded in the motor expenses account. How would this affect the end-of-year statement of financial position?

Accounting for non-current assets

For the year ending 31 December, a company has compiled the following data: opening balance on sales ledger control account $\$31000$; closing balance on sales ledger control account $\$35000$; discount allowed $\$2300$; credit sales $\$125400$. What amount of cash was received from the customers?

Reconciliation and verification

X supplied goods to Y on a sale or return basis, yet recorded them as a sale of $\$1200$. The goods were costed at $\$750$. After a trial balance had been taken from the ledger, the following balances were shown: revenue $\$31250$; trade receivables $\$14100$. Inventory was valued at $\$2300$. What ought the correct values to be?

Reconciliation and verification

A business owner thinks that cash may have gone missing. He gives the figures below: cash balance at the beginning of the month $\$150$; cash balance at the end of the month $\$100$; cash banked $\$10200$; cash sales for the month $\$10500$. What amount of cash has been lost?

Reconciliation and verification

A supplier sent Henry a credit note. He wrongly recorded it as an invoice received in his purchases journal. At what point was the mistake discovered?

The accounting system

Which item is regarded as revenue expenditure?

Accounting for non-current assets

The business does not maintain full accounting records. The information below is available for the year. Capital at start: $52\,000$ Capital at end: $55\,000$ Drawings: $13\,000$ Capital introduced: $25\,000$ What is the profit or loss for the year?

The accounting system

A business holds $500$ units of inventory, each bought for $3$. A mark-up of $20\%$ is used to set the selling price per unit. Prior to being sold, the units must be repaired, and this costs $400$ in total. What is the net realisable value of the inventory?

Reconciliation and verification

For the year that ended on 31 December 2016, the following figures are given: revenue $75\,000$; purchases $32\,000$; carriage inwards $5\,400$; carriage outwards $4\,500$; inventory at 1 January 2016 $6\,300$; inventory at 31 December 2016 $7\,600$. What was the gross profit for the year ended 31 December 2016?

Preparation of financial statements

A partnership keeps capital accounts and current accounts. Which statements are correct?

Types of business entity

X, Y and Z were partners, and profits and losses were divided in the ratio $2:2:1$. On 1 January 2017, Y retired. The balances on his capital and current accounts were as follows: capital account $50\,000$; current account $6\,400$ debit. Y assumed responsibility for a motor van at an agreed figure of $3\,800$. The net book value of the motor van was $4\,800$. Goodwill had a valuation of $30\,000$. The valuation of every other asset at 1 January 2017 was to stay the same. How much cash was Y due to receive when he retired?

Types of business entity

S and T are operating as partners, with profits and losses shared in the proportion $2:1$. The capital account balances at 31 March 2017 were as follows: capital account S $40\,000$; capital account T $20\,000$. On 1 April 2017, the partners agree to alter the profit-sharing ratio to $3:2$. Goodwill is to be assessed at $30\,000$ and is not to remain in the books of account. What is the revised balance on T’s capital account?

Types of business entity

For the partnership, the financial details for the year ended 30 June 2017 are: profit from operations $240\,000$; bank interest payable $21\,000$; interest on capital $15\,000$; drawings $50\,000$; partnership salaries $45\,000$. What is the remaining profit balance to be appropriated between the partners?

Preparation of financial statements

Which accounting entry might be used to record the issue of bonus shares?

The accounting system

Which accounts may a company use to pay dividends?

Preparation of financial statements

On 1 January 2016, a company gives the following figures: $10\%$ debentures (2020) $200\,000$; bank loan (2017) $130\,000$; bank loan (2018) $10\,000$; bank overdraft $24\,000$. What is the total amount of non-current liabilities at 31 December 2016?

Preparation of financial statements

What is the purpose of depreciation?

Accounting for non-current assets

Which ratio is calculated without using revenue?

Analysis and communication of accounting information

Bradshaw does not maintain proper accounting records. The data below are provided for the year: cost of sales $750\,000$; mark-up $20\%$; cash sales $300\,000$; trade receivables $46\,000$. What are total sales and trade receivables turnover?

Analysis and communication of accounting information

A company’s financial statements gave the following figures: current liabilities $15\,000$; non-current liabilities $40\,000$; ordinary shares $120\,000$; general reserve $10\,000$; retained earnings $46\,000$; interest paid $11\,000$. Profit for the year was $23\,000$. Calculate the return on capital employed.

Analysis and communication of accounting information

Which item counts as an indirect cost?

Costs and cost behaviour

The information below is predicted for the next period. opening inventory: $54\,275$ units closing inventory: $60\,120$ units profit using marginal costing: $300\,600$ profit using absorption costing: $390\,780$ Calculate the overhead absorption rate per unit.

Traditional costing methods

A business has total fixed costs of $240\,000$. Each product is sold at a unit price of $25$, and the unit variable cost is $15$. How many units must be sold for the business to break even?

Costs and cost behaviour

The table shows data supplied by a company. budgeted direct labour hours: $8000$ actual direct labour hours worked: $7500$ budgeted overhead expenditure: $104\,000$ actual overhead expenditure: $112\,500$ Calculate the over or under recovery of overheads?

Traditional costing methods

The diagram shows how the cost of a typical telephone invoice changes. Which term most accurately describes this cost pattern?

Costs and cost behaviour

Which of the following statements about the limitations of marginal costing are correct?

Costs and cost behaviour

Each unit of a product incurs a variable cost of $31.32$. The total fixed costs come to $93\,600$. If output is $13\,000$ units, the margin of safety is $5000$ units. What selling price per unit does this imply?

Costs and cost behaviour

A company ends its financial year on 30 April. It buys a factory in May 2014 for $200\,000$. The factory is to be depreciated over $20$ years. A full year’s depreciation is charged in the year of acquisition. In May 2017 the factory is revalued to $300\,000$. How much should be transferred to the revaluation reserve account?

Accounting for non-current assets

What makes planning important for a business?

The accounting system

A business’s financial year ends on 31 December. On 1 January 2014, it bought a non-current asset for $100\,000$. The asset was depreciated by the reducing balance method at $20\%$ per annum. It was sold for $40\,000$ on 1 January 2016. Calculate the loss on disposal.

Accounting for non-current assets

Why does a company maintain a sales ledger control account?

Reconciliation and verification

A sales ledger control account showed a debit balance of $38\,600$. The combined total of the individual sales ledger debit balances was $36\,500$. The only mistakes identified were these. An irrecoverable debt had been entered in the ledger of Smith, but it had not been posted to the control account. The sales journal had been undercast by $1\,500$. A contra of $1\,750$ had been entered correctly in the control account, but only $1\,250$ had been entered in the ledgers. What was the amount of the irrecoverable debt?

Reconciliation and verification

The information below is given. Opening provision for doubtful debts: $6\,250$ Closing trade receivables: $93\,750$ The provision for doubtful debts must be kept at $6\%$ of trade receivables. What effect will the provision for doubtful debts have on profit for the year in the income statement?

Preparation of financial statements

As at 31 December, the following details are given for a company’s banking transactions. Balance at bank according to the bank statement: $22\,650$ Deposits not yet cleared: $3\,110$ Cheques not yet presented: $6\,290$ Bank credit entered twice by the bank in error: $650$ What amount for bank should be shown in the statement of financial position at 31 December?

Reconciliation and verification

Hedley keeps $100$ items of inventory in his warehouse, and a further five are held by a customer on a sale or return basis. He gives the following details. Historic cost paid per unit: $60$ Selling price per unit: $85$ Current replacement cost per unit: $65$ Which figure should be shown for inventory in the statement of financial position?

Preparation of financial statements

Which statements concerning the prudence concept are correct?

The accounting system

On 31 December, a business gives the following figures. Cash book balance: $790$ credit Bank statement balance: $800$ debit Unpresented cheques: $30$ Apart from these items, the only difference between the cash book and the bank statement is bank charges shown on the bank statement but omitted from the cash book. What is the amount of the bank charges?

Reconciliation and verification

Which mistakes would not be detected when a sales ledger control account is reconciled with the sales ledger balances?

Reconciliation and verification

X and Y form a partnership and divide profits and losses equally. They decide to bring Z in as an equal partner. Z is to contribute $100\,000$ as capital and his share of goodwill. The partnership goodwill is $60\,000$ and all adjustments must be recorded in the capital accounts. What will be the balance on Z’s capital account after his admission to the partnership?

Types of business entity

There were three partners in the partnership. The combined balance on their current accounts at the beginning of the year was $18\,000$ and at the close of the year it was $32\,000$. Drawings during the year totalled $22\,000$ and the partners’ salaries came to $13\,000$. What profit was made for the year?

Preparation of financial statements

Which items would be shown in a partnership’s appropriation account if there is no partnership agreement?

Types of business entity

Which event does not need to be recorded in a company’s ledger accounts?

The accounting system

An excerpt from a statement of changes in equity for the year ended 31 December 2016 is presented below. Opening balance at the beginning of the year: ordinary share capital $50\,000$, share premium $3000$, retained earnings $35\,000$. Profit for the year: retained earnings $9000$. Over the course of 2016 the following transactions took place, although they had not yet been recorded. 1. $10\,000$ ordinary shares of $1$ each were issued at $1.50$. 2. An interim dividend of $2000$ was paid. 3. A final dividend of $3000$ was proposed. What are the closing balances at 31 December 2016?

Preparation of financial statements

The data below have been taken from the statement of financial position for a limited company. 6% debenture (2020-2022): $20\,000$ 400 000 ordinary shares of $1$ each: $400\,000$ 5-year bank loan: $200\,000$ Share premium account: $50\,000$ Retained earnings: $75\,000$ What is the amount of total equity?

Preparation of financial statements

The business had an opening inventory of $60\,000$. Its closing inventory was $80\,000$. Inventory turnover for the year came to $10$ times. Gross margin stood at $30\%$. Calculate the sales for the year.

Analysis and communication of accounting information

A company made a profit after interest of $25\,000$. The interest charged came to $5000$. The company’s statement of financial position included the following figures. Ordinary share capital $100\,000$ Non-redeemable preference shares $50\,000$ Reserves $75\,000$ Debentures (2021-2023) $15\,000$ Bank overdraft $10\,000$ What was the return on capital employed?

Analysis and communication of accounting information

A business’s accounting year finishes on 31 December. In September 2013, it bought a machine for $20000. The machine was then sold on 30 November 2016 for $7500. The company depreciated machinery by $15\%$ with the straight-line method. It recorded a full year’s depreciation in the year of purchase and no depreciation in the year of sale. What is the profit or loss on disposal?

Accounting for non-current assets

Which statement correctly describes the limitations of comparing accounting ratios between similar businesses and across different time periods?

Analysis and communication of accounting information

Which cost does not vary?

Costs and cost behaviour

The total production wages paid during the year were $\$257\,000$. Indirect wages accounted for $30\%$ of the total. Direct workers were scheduled to complete $15\,000$ hours, but they actually completed only $13\,000$ hours. There were no overtime payments or bonus payments. What is the hourly rate of pay for direct labour?

Costs and cost behaviour

Which of the following would lead to a high valuation of closing inventory?

Preparation of financial statements

The data for a manufacturing business are shown below. Budgeted factory overheads: $\$144\,000$ Budgeted machine hours: $40\,000$ Actual factory overheads: $\$147\,600$ Actual machine hours: $36\,000$ Calculate the overhead absorption rate per machine hour.

Traditional costing methods

Which values can be worked out when absorption costing is used?

Traditional costing methods

The wages of which worker would be classified as an indirect cost?

Costs and cost behaviour

A company has the following data for the cost of water used in its factory. Period 1: $222\,000$ units produced, water cost $\$166\,600$ Period 2: $173\,000$ units produced, water cost $\$151\,900$ Water costs are treated as a semi-variable cost. What would the water cost be when output is $185\,000$ units?

Costs and cost behaviour

What calculation is used to find margin of safety?

Costs and cost behaviour

For one month, a business has fixed costs of $\$150\,000$. Its only product is sold at $\$20$ per unit, and the contribution to sales ratio is $75\%$. It wants to earn a profit of $\$300\,000$ in that month. How many units must the business sell?

Costs and cost behaviour

The table below summarises the way a property was shown in the statement of financial position. Land and buildings: $100000$ Accumulated depreciation: $(40000)$ Net book value: $60000$ At a later date, the land and buildings were revalued to $150000$. What journal entry should be made to record the revaluation?

Accounting for non-current assets

The data below relate to a product. The budgeted selling price for each unit is $\$250$. The break-even quantity comes to $800$ units. The contribution to sales ratio equals $60\%$. What are the values of both fixed and variable costs?

Costs and cost behaviour

A company bought a machine for $50000$. Its estimated residual value after five years was $5000$. At the end of its five-year working life, the machine was sold for $6000$. Which statement is correct?

Accounting for non-current assets

The following mistakes in the accounting records have been discovered and adjusted: 1. A purchase invoice for $250$ was left out of the books of account. 2. A sale for $120$ to X was entered to the debit of Y's account. 3. The sales journal was extended by $100$ too much. The gross profit for the year before the errors were corrected was $60200$. What is the gross profit for the year after correction?

Reconciliation and verification

A trial balance fails to agree, and the book-keeper discovers the following mistakes. 1. A bank overdraft of $100$ appeared on the debit side of the trial balance. 2. A telephone invoice for $400$ was posted to the insurance account on the debit side. 3. A cash purchase of $160$ was recorded in the purchases account as $150$; the cash account entry was made correctly. The book-keeper opens a suspense account so that the errors can be corrected. What is the opening entry in the suspense account?

Reconciliation and verification

For which of the following purposes may the purchases ledger control account be used?

Reconciliation and verification

A trader's records reported gross profit of $32500$ for the year. Once the draft financial statements had been drawn up, it was discovered that opening inventory had been overstated by $2400$ and closing inventory had been understated by $3400$. What is the revised gross profit for the year?

Preparation of financial statements

At 1 January 2016, a company’s trade receivables amounted to $45\,000$. By 31 December 2016, after irrecoverable debts had been written off, the trade receivables figure was $32\,800$. The company policy is to keep a provision for doubtful debts at 5%. On 1 March 2016, the company was owed $7750$ by a customer. The customer was able to pay only 40% of the debt. The rest of the amount was written off as irrecoverable. What was the net expense in the income statement for the year ended 31 December 2016 for irrecoverable and doubtful debts?

Reconciliation and verification

Huan runs a business that sells electrical goods. He could not count his inventory at the year end of 31 March 2016. He carried out a full inventory count on 6 April 2016 and, valued at cost, it came to $57760. The extra information is provided below.

Preparation of financial statements

The directors of W Limited have supplied the balances at 1 August 2016, together with details of motor vehicle depreciation and the transactions for the year ended 31 July 2017.

Accounting for non-current assets

P Limited was incorporated on 1 June 2015, and its share capital consisted of ordinary shares.

Types of business entity

Anna runs a manufacturing business with two production departments and two service departments. She produces circuit boards for electronic games by using batch costing.

Traditional costing methods

Ross, who is a sole trader, runs a business that sells computer equipment. He has already prepared the income statement below for the year ended 31 March 2017, and it contains errors.

Preparation of financial statements

Trott supplied information for the year ending 30 April 2017, and a number of errors were found.

Reconciliation and verification

K Limited has been operating for many years and prepares financial statements every year to 30 April. On 1 May 2016, plant and equipment were recorded at a cost of $84\,695 and the provision for depreciation stood at $32\,855. Further details about acquisitions, disposals and the depreciation policy are provided.

Accounting for non-current assets

J Limited makes only one product, a leather suitcase. The forecast figures supplied cover unit costs, fixed costs per month, pricing policy, and capacity utilisation.

Costs and cost behaviour

F Limited is a major retail business. On 1 February 2016, it asked for applications for 50 000 ordinary shares of $1$ each at an issue price of $1.20$. Demand came in for 65 000 shares. Every payment received was first entered in the bank account and in a share issue holding account until allotment took place.

Preparation of financial statements

Rowsell does not maintain complete accounting records. Nevertheless, the information below is available for the year ended 31 May 2017:

Preparation of financial statements

Rahman, Silva and Thierry have worked together in partnership for several years, sharing profits and losses in the ratio $3:2:1$ respectively. The draft statement of financial position below was prepared at $30$ June $2017$.

Types of business entity

S Limited makes three distinct products. The budgeted data below are provided.

Costs and cost behaviour

The GT Boating Club is a not-for-profit organisation that raises money through annual subscription payments.

Preparation of financial statements

FS plc’s statement of financial position at 1 January 2016 was shown below.

Preparation of financial statements

LS Limited has now finished its first year of trading. The company has four directors, and two of them are not shareholders.

Preparation of financial statements

The condensed financial information for E Limited for the year ended 31 August 2016 is presented below.

Analysis and communication of accounting information

Wong Ho runs a small factory and is thinking about replacing a machine that breaks down often.

Investment appraisal

J Limited sells one product and applies a 25% mark-up.

Budgeting and budgetary control

RS Rowing Club is a not-for-profit organisation. A summary of the club’s receipts and payments account for the year ended 31 March 2017 is given, together with extra information.

Preparation of financial statements

Wembo and Bob form a partnership and divide profits and losses in the ratio $3 : 2$. A separate business, C Limited, has been operating for many years. Summarised statements of financial position for 31 March 2017 are given.

Business acquisition and merger

Aleksander trades in goods and his financial year ends on 30 June. He purchases containers of sunflower seeds for $100 per container. He sends some of them to his agent Benji in northern Europe and pays Benji commission equal to $10\%$ of sales value.

Preparation of financial statements

W Limited has been operating for a number of years and is now planning to enlarge its activities and start trading overseas by buying a new warehouse priced at $550\,000$.

Preparation of financial statements

S Limited manufactures perfume. Budgeted and actual production together with cost data for July are shown.

Standard costing

Luke’s business will begin on 1 April 2018 and will sell one product sourced from a sole supplier.

Budgeting and budgetary control