May/June 2018

A book-keeper records a sales order in the sales journal. Which accounting concept is being ignored?

The accounting system

An inward returns item of $\$180$ has been entered incorrectly as carriage inwards. What effect will the correction of this error have on profit?

Reconciliation and verification

In the last month, a business had some stock stolen. The table gives the trading figures for that month. Opening inventory, at cost: $50\,000$ Purchases: $220\,000$ Sales: $300\,000$ Closing inventory, at cost: $16\,000$ The mark-up was $25\%$. What was the cost price of the stolen inventory?

Reconciliation and verification

Which error, when corrected, needs an entry in the suspense account?

Reconciliation and verification

The partnership made a profit of $60\,000$, and this was earned evenly across the year ended 31 December 2017. Jim joined as the third partner on 31 March 2017, after which the three partners shared profits equally. An irrecoverable debt of $12\,000$ shown in the financial statements would not be included when working out Jim’s share of the profit. What amount of profit did Jim receive for the year ended 31 December 2017?

Types of business entity

X and Y are partners and they reassess their assets as shown below. Freehold property: book value $50\,000$, revalued amount $71\,000$ Fixtures and fittings: book value $20\,000$, revalued amount $16\,000$ Inventory: book value $15\,000$, revalued amount $13\,000$ X and Y divide profits and losses in the ratio $2:1$. What is X’s share of the revaluation profit?

Preparation of financial statements

The statements below are about a revaluation account. 1. A credit-side entry in the revaluation account indicates that a non-current asset has decreased in value. 2. If a credit entry is needed to balance the revaluation account, there is a profit on revaluation. Which row is correct about these statements?

Accounting for non-current assets

Which item remains unchanged when shares are issued at a premium?

The accounting system

A company shows the following capital and reserves. Ordinary shares of $1$ each, fully paid: $1\,250\,000$ Share premium account: $100\,000$ Revaluation reserve: $200\,000$ General reserve: $150\,000$ Retained earnings: $210\,000$ The company policy is to keep reserves in the form that is most flexible. The company carries out a $1$-for-$5$ bonus issue. What is the highest amount of distributable reserves remaining after the bonus issue?

Preparation of financial statements

P Limited possesses an ordinary share capital of $100\,000$ shares of $1$ each. The market value for each share is $\$1.20$. Which journal entries could be used to record a $1$-for-$10$ bonus issue of ordinary shares?

The accounting system

The information below has been taken from a business's financial statements. Income statement: Profit from operations: $48\,000$ Debenture interest: $(4\,550)$ Loss on disposal of non-current asset: $(3\,250)$ Profit for the year: $40\,200$ Statement of financial position: $7\%$ debenture: $65\,000$ Ordinary share capital: $95\,000$ Share premium: $7\,500$ Retained earnings: $35\,000$ Calculate the return on capital employed (ROCE).

Analysis and communication of accounting information

A company bought a new machine for $\$110000$ and expected it to last for 10 years. The machine was assumed to have a residual value of $\$10000$. The company applies the straight-line method of depreciation and charges depreciation in full in the year of purchase and sale. At the end of its life, the machine was sold for $\$20000$. Which statement is correct?

Accounting for non-current assets

What factors would influence the current ratio of a business?

Analysis and communication of accounting information

A restaurant has the following costs during a period. 1. wages of the kitchen staff 2. depreciation of kitchen equipment 3. costs of ingredients for meals 4. rent paid for the restaurant building Which of these are indirect costs for a single meal?

Costs and cost behaviour

A business has 20 production workers. Each worker is employed for 40 hours per week and is paid at $7.80 per hour. Piece rate is worked out as 20% of the basic hourly rate for every item made beyond 120 units per employee. During one week, each employee made 145 units. What were the total wages for the week?

Costs and cost behaviour

A business recorded the following inventory transactions. 1 March opening inventory: 20 items at $7.50 each 3 March sales of inventory: 12 items at $9 each 6 March purchases of inventory: 18 items at $8.20 each What is the cost per unit of closing inventory on 7 March by using the AVCO (perpetual) method?

Traditional costing methods

Which of the following statements about marginal costing are correct?

Costs and cost behaviour

How do you calculate an overhead absorption rate per machine hour?

Traditional costing methods

What changes would lead to a reduction in the margin of safety?

Costs and cost behaviour

The details for a business are given below. fixed costs in total: $12000 break-even point: 1500 units unit variable costs: $12 Calculate the contribution to sales ratio.

Costs and cost behaviour

A business supplies the following details for one of its products. selling price: $100 variable cost per unit: $40 fixed costs: $21600 break-even point: 360 units If the business changes its production method, contribution will rise by 10% and fixed costs will rise by 5%. What effect would this have on the break-even point?

Costs and cost behaviour

The graph illustrates how a cost rises as the business activity level changes. Which type of cost has this pattern?

Costs and cost behaviour

A new business has a number of building-related costs. Which of these costs count as revenue expenditure?

Accounting for non-current assets

Why would a business draw up budgets?

The accounting system

It is discovered that opening inventory has been overstated by $\$8000$ and closing inventory has been overstated by $\$6500$. What effect will correcting these errors have on profit for the year?

Reconciliation and verification

A business has given the following details: provision for doubtful debts at 1 January 2017 $\$2950$; trade receivables on 31 December 2017 $\$75000$. The provision for doubtful debts is to be kept at $5\%$ of trade receivables. Which journal entries are required on 31 December 2017?

Reconciliation and verification

What purpose does a sales ledger control account serve?

The accounting system

A business begins on 1 January with $\$800$ prepaid for four months’ motor insurance. It also has fuel payable on an unpaid invoice of $\$140$. In January, the business settles the fuel invoice and pays another $\$600$ for fuel. By 31 January, there is still an unpaid fuel invoice of $\$160$. What amount should be shown for motor expenses in the income statement for January?

The accounting system

A business supplied the following figures for one month: credit sales $\$16810$; sales returns $\$1150$; discounts allowed $\$276$; irrecoverable debts written off $\$100$; increase in provision for doubtful debts $\$600$; increase in trade receivables $\$406$. What amount of cash was received from trade receivables during the month?

Reconciliation and verification

By year-end, the debit balance on a sales ledger control account stood at $\$15000$. It was subsequently found that, when a customer owing the business $\$500$ made payment, she deducted a cash discount of $\$20$. This had been entered correctly in the discount column of the cash book, and the full $\$500$ was recorded in the bank column. Which value for trade receivables ought to be shown in the statement of financial position?

Reconciliation and verification

The owner of a business has been informed that work done for a customer ought to be entered in the books of account even though the invoice has not yet been issued to the customer. Which accounting concepts are being applied?

The accounting system

Which of the following would not lead to goodwill?

Accounting for non-current assets

At the start of the financial year, inventory had a value of $15000$. Over the course of the year, sales amounting to $21000$ and purchases amounting to $18000$ took place. Sadly, every item of inventory was stolen on the final day of the financial year. Goods are marked up by $50\%$ when the selling price is worked out. What is the cost of the stolen inventory?

Reconciliation and verification

The business does not maintain complete accounting records. Every transaction is settled in cash. Which item will not be needed in order to calculate the owner’s cash drawings?

Reconciliation and verification

The summary below has been extracted from a partnership statement of financial position. non-current assets $42000$ capital accounts $36000$ current accounts (debit) $6000$ current liabilities $8000$ non-current liabilities $15000$ What is the amount of current assets?

Preparation of financial statements

X and Y had already been partners for several years when Z joined the partnership as a partner. On that date, after a revaluation, the premises account was debited with $120000$. Profits were divided equally both before Z joined and after Z’s admission. What were the credit entries used to record the revaluation?

Accounting for non-current assets

Which company reserves are not permitted to be used to pay dividends?

Types of business entity

A company allotted $50000$ ordinary shares, each with a nominal value of $0.50$, at an issue price of $0.60$ per share. What accounting entries should be made for this issue?

The accounting system

What source of finance could be used to pay for a bonus issue of shares?

Preparation of financial statements

The extract below comes from an income statement. revenue $180000$ cost of goods sold $(75000)$ distribution costs $(8000)$ administrative expenses $(22000)$ profit from operations $75000$ debenture interest $(2500)$ profit for the year $72500$ What was the ratio between operating expenses and revenue?

Analysis and communication of accounting information

The information below relates to the year ending 31 December 2017. revenue $640$ cost of sales $350$ machinery at net book value $120$ land and buildings at net book value $90$ motor vehicles at net book value $20$ current assets $50$ equity $210$ Calculate the non-current assets turnover.

Analysis and communication of accounting information

Adam’s financial year finishes on 31 December 2017. At 1 January 2017, the machinery had a net book value of $20000. On 30 June 2017, he bought a new machine for $6000. He paid 50% of the cost in cash and the remainder by part exchange of an old machine, whose net book value on that date was $2500. He charges depreciation on machinery at 20% per annum on the net book value, using a time basis. What is the net book value of the machinery shown in the statement of financial position on 31 December 2017?

Accounting for non-current assets

A baker gets a single order for $350$ loaves of bread. Which costing method should the baker use?

Traditional costing methods

A business gives a sales representative a basic wage, with commission added according to the amount sold. Which category of cost does the sales representative’s total pay fall into?

Costs and cost behaviour

Which cost is regarded as a variable cost for a motor transport company?

Costs and cost behaviour

Adam receives $4 per hour, and his expected output is 500 units per week. He is also given a bonus of $1 for every 20 perfect units produced above 500. In one week he worked for 40 hours and produced 880 units, but 40 were faulty and were scrapped. How much was Adam paid for the week?

Costs and cost behaviour

A business values its inventory by using the AVCO method. On 1 June 2017, the inventory consisted of 100 units, each worth $2.40. The following events occurred. June 5: 40 units were purchased at $2.50 per unit June 7: 60 units were sold at $3.50 per unit What was the value of the inventory on 8 June 2017, correct to the nearest dollar?

Traditional costing methods

The budgeted figures below are available for a hotel in the next financial year. fixed overheads: $192000 direct costs: $240000 number of guests: 2400 average length of stay per guest: 4 nights What is the overhead absorption rate for each guest night?

Traditional costing methods

The production costs for 1000 units of a product are listed below. direct materials: $20000 direct labour: $10500 direct expenses: $1600 variable overheads: $11300 fixed overheads: $7500 Each unit is sold for $60, and 1000 units are sold. Calculate the contribution to sales ratio.

Costs and cost behaviour

One firm makes only a single product. The information for one month is shown below. budgeted sales quantity: 200 units selling price per unit: $40 variable cost per unit: $24 budgeted monthly fixed costs: $800 The business intends to hire a machine, which would raise monthly fixed costs by $1200 to $2000 and lower variable costs to $20 per unit. How would this affect the margin of safety?

Costs and cost behaviour

A business rents machinery at a rate of $700 per machine each month. One machine is able to make 1000 units in a month. At most 10 machines can be housed in the factory. The monthly rent for the factory is $4900. Other expenses are $2 per unit. What is the unit cost if 8500 units are produced in a month?

Costs and cost behaviour

For 20000 units, the direct material cost is $8000. Direct labour takes 400 hours and costs $6000. Overheads are absorbed at 150% of the cost of direct labour. What is the cost per unit?

Traditional costing methods

A business’s accounting year-end falls on 31 March. It bought a car on 1 April 2014 for $15000. The car was then sold on 30 September 2017 for $5000. Depreciation is applied at 20% per annum. In the year of purchase, a full year’s depreciation is charged. No depreciation is charged in the year of sale. What was the profit or loss on disposal?

Accounting for non-current assets

Why would a business draw up a budget?

The accounting system

A company has an accounting year-end of 31 October. The table below gives the telephone invoice that the company received on 2 December for the 3 months ending 30 November. telephone calls to 30 November: $1041 rental of equipment for the period from 1 September to 30 November: $156 Which accrual should the company recognise in the financial statements for the financial year ending 31 October?

The accounting system

A business set up a provision for doubtful debts on 31 December 2016. The provision was worked out as a percentage of trade receivables at each year end, as shown below. 31 December 2016: trade receivables $32500, provision for doubtful debts 10% 31 December 2017: trade receivables $34300, provision for doubtful debts 5% Which entry was needed in the provision for doubtful debts account for the year ended 31 December 2017?

The accounting system

Errors may occur when preparing both the sales ledger and the sales ledger control account. Which error would need an adjustment in the sales ledger control account alone to put it right?

Reconciliation and verification

A business’s trial balance failed to agree. The errors listed below were discovered. What was the suspense account’s opening balance?

Reconciliation and verification

The bank column in a cash book had a credit balance of $5000. Unpresented cheques totalled $1500. The bank statement included bank charges of $700 that had not been entered in the cash book. What balance appears on the bank statement?

Reconciliation and verification

Across the financial year, a business settled $295000 with its trade payables, after receiving a cash discount of $15000. The opening balance for trade payables was $25000, and at the close of the year $32000 remained owing to trade payables. What amount of credit purchases were made during the year?

The accounting system

According to the prudence concept, how ought inventory to be valued?

Preparation of financial statements

In the course of the month, a company suffered a burglary and a quantity of inventory was stolen. The table gives the company’s figures for the month: opening inventory, at cost $30000$; purchases $210000$; revenue $330000$; closing inventory, at cost $4000$. A gross profit of $30\%$ on all sales had been made. What was the cost of the inventory lost in the burglary?

Reconciliation and verification

At the beginning of the year, a business had trade payables of $13000$. By the end of the year, the amount it owed to trade payables had risen to $15000$. Over the year, it settled $190000$, after receiving a cash discount of $10000$. What was the amount of the credit purchases for the year?

Reconciliation and verification

X and Y were partners and shared profit and loss equally. Z joined the partnership, and it was agreed that profit and loss would still be shared equally. Goodwill was to be assessed on the date of admission, but it was not kept in the books of account. In what way did the goodwill adjustment affect the partners’ capital accounts?

The accounting system

L, M and N were partners, with profits and losses shared in the ratio $3:2:1$. M retired on 31 December 2017. On that date, the balance on M’s capital account stood at $37000$. There were no current accounts. The terms for M’s retirement were as follows. Goodwill was assessed at $24000$. Freehold property was increased in value by $30000$. M accepted a motor vehicle at a valuation of $7000$. What amount was ultimately payable to M for his retirement?

Types of business entity

During the year, a company paid an ordinary share dividend of $15000$. In which financial statement would this be shown?

Preparation of financial statements

On 1 January 2017, a company had total equity of $400000$. The information below relates to the year ending 31 December 2017. 1. In June 2017, there was a rights issue of $20000$ ordinary shares of $1$ each at $1.50$. Every one of these shares was subscribed. 2. Profit for the year amounted to $45000$. 3. Dividends paid during the year came to $8000$ and dividends proposed at the year end were $15000$. 4. A transfer of $10000$ was made to the general reserve. What was the total equity at 31 December 2017?

Preparation of financial statements

A company carries out a bonus issue of shares. What is the correct impact on the statement of financial position?

Preparation of financial statements

A company obtains finance by issuing debentures. What effect does this have on net current assets and short-term profits?

Analysis and communication of accounting information

Why could employees be interested in the financial statements of their employer?

Analysis and communication of accounting information

The information below has been supplied by a business. Cost of sales $240000$. Gross margin $25\%$. Profit for the year $16000$. What was the expenses to revenue ratio, correct to the nearest whole percent?

Analysis and communication of accounting information

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

Accounting for non-current assets

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

Traditional costing methods

A hotel supplies the following data for a 30 day period. Rooms containing two beds: letting bedrooms 180, average number of rooms occupied each day 150. One-bed rooms: letting bedrooms 60, average number of rooms occupied each day 50. Number of guests during the period 5250. Mean length of stay 2 days. Payroll and cleaning expenses 300000. Calculate the average cost per occupied bed per day.

Costs and cost behaviour

The information below is given for a manufacturing business. What might result in under-absorption of overheads?

Traditional costing methods

A business makes two products during January. Overheads are absorbed by means of the direct labour hour rate. The production information is shown below. Product P: units manufactured and sold $5000$, direct labour hours for each unit $1.5$. Product Q: units manufactured and sold $2000$, direct labour hours for each unit $1$. Direct costs for the month totalled $23750$. The fixed overheads amounted to $6500$. What was the overhead absorption rate?

Traditional costing methods

The data below are for one business over a year. Unit selling price $100$. Variable cost per unit $60$. Overall fixed costs $90000$. Annual profit $15000$. How many units were sold during the year?

Costs and cost behaviour

What would lead to a larger margin of safety for a business?

Costs and cost behaviour

A chemical plant manufactures a batch of 50 000 units. Direct materials cost $400 000. Direct labour amounts to 1000 hours at a cost of $60 000, and overheads are absorbed at $60 per direct labour hour. What is the cost of one unit?

Traditional costing methods

A business incurred the following telephone expenses. Month 1: customer enquiries = 250 000, total cost = $425 000. Month 2: customer enquiries = 350 000, total cost = $575 000. Telephone costs are a semi-variable cost. What would the total telephone costs be for 305 000 enquiries?

Costs and cost behaviour

A business’s output is restricted because there is a shortage of direct material. What needs to be calculated in order to draw up the most profitable production plan?

Costs and cost behaviour

A company applies a direct labour rate of $5.40 per hour for absorbing production overhead. Each unit of product made needs four direct labour hours. The information below is given for one period: Actual production overhead = $518 400. Under absorbed production overhead = $32 400. What was the actual output during the period?

Traditional costing methods

The net book values of a company’s non-current assets were as follows. On 1 January 2017, they stood at $20000$. By 31 December 2017, they had reduced to $15000$. Throughout 2017, non-current assets costing $7000$ were purchased. Non-current assets were disposed of, giving rise to a profit of $1000$. The depreciation charge for 2017 amounted to $8000$. What were the disposal proceeds of the assets sold?

Accounting for non-current assets

What is not a reason for carrying out business planning?

The accounting system

Which expenditures can be capitalised as land and buildings?

Accounting for non-current assets

Fred wants to identify the unpresented cheques of his business. Which side of the cash book and which column in the bank statement should he compare?

Reconciliation and verification

By what method is a reduction in the provision for doubtful debts recorded?

Reconciliation and verification

The company’s financial year ends on 30 June, yet the inventory was not able to be counted until 6 July. On that date, the inventory was valued at $86500$. The table lists the inventory changes between 30 June and 6 July: sales (at cost) $1750$; purchases $1550$; returns inwards at cost $310$; returns outwards $190$. What was the inventory value on 30 June?

Reconciliation and verification

A purchases ledger control account has these figures: opening balance $1200$; closing balance $1300$; purchases $18400$; payments made $17800$; discount received $300$. Which item is entered in the control account to show the contra with the sales ledger control account?

Reconciliation and verification

What type of error would lead to the creation of a suspense account?

The accounting system

Ashir, Bo and Chan are in partnership. Their partnership agreement sets out the following terms and financial details as at 31 December 2016.

Preparation of financial statements

FA Limited's accounting records at 1 January 2016, along with further information on the purchase, depreciation and disposal of motor vehicles.

Accounting for non-current assets

At 31 December 2016, Anna has collected the following information about Ravi, who may become a new customer.

Analysis and communication of accounting information

Zinan manufactures one product only and currently applies marginal costing. The budgeted figures below cover two years.

Traditional costing methods

Cherie and Harry operate as partners in a partnership.

Preparation of financial statements

M Limited has supplied an extract from the statement of financial position dated 31 August 2016.

Preparation of financial statements

Butler runs a small business and has supplied information about non-current assets.

Accounting for non-current assets

SP Limited owns a hotel and leisure centre. The business is organised into three operating divisions: Accommodation, Leisure and Conferences, plus one service centre: Support. Budgeted cost and cost centre information for the year ended 31 March 2018 is provided.

Traditional costing methods

Carlos and Erika have been partners for several years and prepare financial statements up to 31 July. Details about non-current assets and the partnership terms are given.

Preparation of financial statements

Warren operates as a sole trader. Trading began on 1 February 2016. For the year ended 31 January 2017, he did not maintain detailed accounting records, although he has supplied the information below. Warren uses a 50% mark-up on cost.

Preparation of financial statements

David, who is a sole trader, had drawn up a trial balance at 31 December 2017 that was out of balance. He placed the difference in a suspense account.

The accounting system

DP Limited is a large manufacturing and retailing company. The following data are provided: Current selling price per unit $3.60; Current weekly sales 2000 units; Contribution margin 45%. The directors intend to run a four week price promotion on its most popular product. They plan to cut the selling price of the product by 20% for the entire four weeks of the promotion. They predict that extra sales of the product will reach 150% of the current sales. The company will face additional fixed costs of $6000 to carry out the promotion. The directors expect unit variable costs to stay unchanged from their present level.

Costs and cost behaviour

Source A1 is about JH Limited, a manufacturing business that produces only one product. The finished-goods transfer price shown in the income statement is cost plus a fixed percentage for factory profit.

Preparation of financial statements

Source A2 is about drawing up end-of-year financial statements, together with notes to the accounts, for D plc.

Preparation of financial statements

The directors of K Limited gave information about the following balances as at 31 December 2017.

Preparation of financial statements

A Social Club offers activities for elderly people. It also supplies meals for them and arranges coach trips.

Preparation of financial statements

C Limited is a small manufacturing firm that uses budgetary control.

Budgeting and budgetary control

B Limited makes two products, Alpha and Omega. The budgeted data are shown below.

Activity based costing (ABC)

YGP Traders Limited has been operating for several years and its year end falls on 31 December. It trades in one product only and all of its transactions are carried out on credit. The business has a large bank overdraft, and the directors are worried about the firm’s working capital position.

Analysis and communication of accounting information

At 31 December 2017, the trial balance for N plc was as follows.

Preparation of financial statements

Y Limited despatched goods on consignment to Mahood on agreed terms, which included an advance payment and a commission of $5\%$ on sales after commission deductions.

Preparation of financial statements

Ephraim and Fikriyah are sole traders. They agreed to combine their two businesses into a partnership on 1 October 2017, with profits and losses shared equally.

Business acquisition and merger

Jason is thinking about putting money into constructing a property so that he can earn rental income.

Investment appraisal

C Limited makes tables. Every table needs the following:

Standard costing

JH Limited is a manufacturing business that makes one product. The transfer price of finished goods to the income statement equals cost plus a fixed percentage for factory profit.

Preparation of financial statements

The directors of D plc are getting ready to produce the year-end financial statements, together with the notes to the accounts.

Preparation of financial statements

At 31 December 2017, the directors of K Limited supplied balance information, and the external auditor gathered further information during the year-end audit.

Preparation of financial statements

A Social Club organises activities for elderly people. It also serves meals for them and arranges coach trips. The club’s ledger accounts for the year ended 31 December 2017 included the following:

Preparation of financial statements

C Limited is a small manufacturing company operating a budgetary control system. The information below is available:

Budgeting and budgetary control

B Limited produces two products: Alpha and Omega.

Activity based costing (ABC)