Oct/Nov 2018

Which accounting concept is being applied when goods that an owner takes for personal use are recorded as drawings?

The accounting system

X launched a business 3 years ago and currently has capital of $\$175\,000$. During that time, profits totalled $\$73\,000$ and drawings came to $\$52\,000$. In year 2 he added cash of $\$35\,000$, and in year 3 he withdrew, for his own use, a non-current asset with a net book value of $\$4\,000$. What amount of capital did he have when the business began?

The accounting system

At what point is a revaluation account drawn up?

Accounting for non-current assets

P and Q operate as partners, dividing profits and losses equally. The information given for P is as follows. Opening current account credit balance: $\$20\,150$ Share of asset revaluation: $\$10\,000$ Drawings: $\$10\,200$ The partnership’s total profit for the year amounted to $\$130\,000$. Partnership salaries were: P $\$20\,000$, Q $\$30\,000$. What is the year-end balance on P’s current account?

Preparation of financial statements

Dele and Iyabo are business partners who divide profits in the ratio of $3:1$. Their profit for the year amounts to $80\,000$. The information below is given. Capital interest: Dele $3000$, Iyabo $2500$. Interest on drawings: Dele $500$, Iyabo $1000$. What amount of the residual profit is to be shared by each partner?

Types of business entity

Which items are posted only to the credit side of a partner’s capital account?

Types of business entity

Which statements concerning limited companies are correct?

Types of business entity

A company’s capital and reserves are as follows: ordinary shares of $1$ each $400\,000$, share premium account $60\,000$, revaluation reserve $120\,000$, general reserve $300\,000$, retained earnings $90\,000$. The company intends to carry out a bonus issue of one share for every four held. What is the greatest amount of distributable reserves that the company can have after the bonus issue?

Preparation of financial statements

A business gave the following figures: total assets $160\,000$, non-current assets $124\,000$, equity $92\,000$, non-current liabilities $45\,000$. What was the working capital amount?

Analysis and communication of accounting information

Which of the following items would not be shown in the income statement?

Preparation of financial statements

A business gives this extract from its income statement: opening inventory $15\,000$, purchases $180\,000$, closing inventory $(18\,750)$, and cost of sales $176\,250$. What is the rate of inventory turnover?

Analysis and communication of accounting information

For what reason is depreciation expense shown in the financial statements?

Accounting for non-current assets

Which actions would, in general, raise a business's liquid (acid test) ratio in the short term?

Analysis and communication of accounting information

Why is inventory left out when calculating the quick ratio?

Analysis and communication of accounting information

A business applies absorption costing and bases its overhead absorption rate on direct labour hours. Why does the business make a distinction between direct and indirect labour?

Traditional costing methods

A business values its inventory by the FIFO method. The transactions below occurred: April opening inventory $700$ at $190$ each; May purchases $500$ at $220$ each; June sales $400$ at $400$ each. What was the closing inventory value at the end of June?

Preparation of financial statements

The unit cost of a product is made up of the following items: direct materials $30$, direct labour $25$, variable manufacturing overhead $20$, fixed manufacturing overhead $18$, sales commission ($1.5\%$ of sales) $4$, and administrative staff salaries $15$. What is the total variable cost per unit for the product?

Costs and cost behaviour

A business allocates overheads on the basis of machine hours. In the previous month, it recorded the following figures: actual overheads $158\,200$, actual machine hours $7310$, budgeted overheads $168\,200$, budgeted machine hours $8410$. Which of the following statements is correct?

Traditional costing methods

The diagram illustrates a break-even chart. What does the margin of safety mean?

Costs and cost behaviour

The data below refers to a business. Output in units: 375, Sales: $750000, Profits: $100000 Output in units: 500, Sales: $1000000, Profits: $250000 What is the ratio of contribution to sales?

Costs and cost behaviour

What information does the diagram provide about costs?

Costs and cost behaviour

A company produces and sells three products: X, Y and Z. A maximum of 3000 hours of labour time will be available in January. The information below is given for the three products: Contribution per unit: X $50, Y $60, Z $70 Maximum demand per month (units): X 1000, Y 500, Z 800 Labour time per unit: X 1 hour, Y $1.5$ hours, Z 2 hours Which sales mix of products will be optimal in January?

Costs and cost behaviour

A company had the following spending on a motor van. Year 1: buying the motor van, $\$80\,000$ Year 2: buying new tyres, $\$2\,000$ Year 2: buying a trailer to be attached to the motor van, $\$10\,000$ Depreciation for all vehicles is $20\%$ on cost. In the year of purchase, a full year’s depreciation is charged. How much depreciation was charged on vehicles in year 2?

Accounting for non-current assets

How can a budget be used to help the management of a company?

The accounting system

Which items are entered on the debit side of accounts in the purchases ledger?

The accounting system

A business maintains a separate sales ledger. Its nominal ledger contains a sales ledger control account. Which entry would correct the nominal ledger if the sales journal is undercast?

Reconciliation and verification

Which of the statements is correct?

Analysis and communication of accounting information

What would cause money to enter a business?

The accounting system

A sole trader has the following details for rent and rates for one year. Opening accrual: $\$750$ Bank payments made during the year: $\$2\,650$ Closing prepayment: $\$850$ What amount of rent and rates expense should be entered in the income statement for the year?

The accounting system

A company sells goods with a mark-up of $25\%$. The information below was available at the end of the financial year. Goods in warehouse: $\$300\,000$ (cost) Goods sent on sale or return: $\$200\,000$ (at invoice price) What value should closing inventory have in the financial statements?

Preparation of financial statements

A company does not record, in the financial statements, the value of skills that employees gain from training programmes. Which accounting concept is being applied?

The accounting system

How are purchases worked out when proper accounting records have not been maintained?

Reconciliation and verification

The draft financial statements for a business showed inventory with a value of $550000. This figure included damaged items that had originally cost $50000. They could be sold for $15000 if $5000 is spent on repairs. What is the correct value for inventory?

Preparation of financial statements

On 1 November 2017, a trader arranged a bank loan for $30\,000 at 6%, with repayment in full due after 10 years. The interest is payable each year. By 30 April 2018, no interest had yet been paid. How should this be shown in the statement of financial position at 30 April 2018?

Preparation of financial statements

Which items would not be included in a partnership appropriation account?

Preparation of financial statements

X and Y were partners, dividing profits and losses in the ratio 1 : 2 respectively. Z was then admitted into the partnership. The goodwill was agreed to be valued at $120\,000. No goodwill account was to remain in the books of account. Profits and losses were to be shared by X, Y and Z in the ratio 2 : 1 : 1 respectively. What effect did the goodwill adjustment have on X’s capital account?

The accounting system

J and K divided profits in equal shares. Their capital account balances stood at J $400\,000 and K $160\,000. L was taken in as a partner. The three partners then divided profits equally. When L became a partner, assets rose in value by $210\,000. L contributed capital equal to the average of the revised capital balances of J and K. What amount of capital did L contribute?

Types of business entity

At 31 December 2017, a business’s statement of financial position reported the figures below: retained earnings $136\,000 general reserves $28\,000 share premium $55\,000 Over the year ending 31 December 2017, the business recorded a profit for the year of $25\,000 and transferred $10\,000 to the general reserve. What was the total of revenue reserves on 1 January 2017?

Preparation of financial statements

The company gives the following data: ordinary shares of $0.50 each $84\,000 retained earnings $50\,000 total $134\,000 The following transactions then occur. 1 The company carries out a rights issue of one new ordinary share for every two held, at $1.30. The issue was fully subscribed. 2 A bonus issue of two new ordinary shares for every three held was then carried out. What is the maximum possible balance of the retained earnings after these transactions?

Preparation of financial statements

The financial information concerns two businesses. trade receivable turnover (days): X 90, Y 40 trade payable turnover (days): X 50, Y 70 liquid (acid test) ratio: X 3 : 1, Y 1 : 1 current ratio: X 4.5 : 1, Y 6.2 : 1 Which statement about how the two businesses’ performance compares is correct?

Analysis and communication of accounting information

A company’s financial statements present these figures: profit before interest comes to $125\,378 profit for the year is $120\,426 200\,000 ordinary shares at $1 each total $200\,000 retained earnings stand at $191\,982 debentures amount to $150\,000 Calculate the return on capital employed (ROCE).

Analysis and communication of accounting information

Which type of non-current asset would most likely be depreciated using the revaluation method?

Accounting for non-current assets

The following figures are shown in a company’s income statement: revenue $460\,000 cost of sales $120\,000 administration expenses $54\,000 distribution costs $47\,000 finance charges $7\,000 What is the ratio of operating expenses to revenue?

Analysis and communication of accounting information

To produce one unit of output, a business needs material that costs $1\,000. If 20 items are made, the overall material cost is $20\,000. Which term best identifies this cost?

Costs and cost behaviour

A business reports the following total overheads at two different output levels: total overheads $200\,000 when output is 20\,000 units total overheads $216\,000 when output is 30\,000 units What is the total fixed overhead cost?

Costs and cost behaviour

A retailer applies the FIFO method to inventory valuation. The information given is: 1 June opening inventory 300 units at $12 per unit 10 June bought 1\,000 units at $12.50 per unit 21 June sold 1\,200 units for $16 each 28 June bought 700 units at $13 per unit What was the inventory value at 30 June?

Traditional costing methods

A business produces 175 units of a product each month. The details for that month are given below. Per unit ($): revenue $580$, variable costs $230$, fixed overheads $90$. What is the break-even point in units?

Costs and cost behaviour

In what situation is marginal costing less useful than absorption costing?

Traditional costing methods

A firm makes one product, and its unit selling price is $75$. The table lists the costs for sales and a production output of $8000$ units: direct costs $158\,000$, variable manufacturing overheads $74\,000$, fixed manufacturing overheads $80\,000$, variable selling overheads $20\,000$, and fixed administration overheads $100\,000$. If absorption costing is used, what is the gross profit per unit sold?

Traditional costing methods

A company recorded the following revenue figures for one month: actual revenue $510\,000$, break-even revenue $555\,000$, budgeted revenue $570\,000$. What was the margin of safety for that month?

Costs and cost behaviour

A business gives the following figures: budgeted overhead costs $280\,000$, budgeted labour hours $25\,000$, budgeted machine hours $20\,000$, actual overhead cost $336\,000$, actual labour hours $35\,000$, and actual machine hours $30\,000$. What is the over-absorption or under-absorption of overheads?

Traditional costing methods

A business has these budgeted figures: contribution to sales ratio $60\%$, budgeted sales $240\,000$, and budgeted production units $40\,000$. Calculate the contribution per unit.

Costs and cost behaviour

A trader bought a motor vehicle for $36000 on 1 July 2016. The motor vehicle had an estimated useful life of five years and an estimated residual value of $6000. Depreciation is charged each month using the straight-line method. The motor vehicle was sold on 31 March 2018 for $22500. What was the profit or loss on disposal of the motor vehicle?

Accounting for non-current assets

Which statement shows an advantage of financial planning for a business?

The accounting system

The extract below is taken from the statement of financial position of a company at 31 December 2016. Non-current assets: cost $250000, accumulated depreciation $95000, net book value $155000. These assets have a residual scrap value of $12500. The company’s policy is to calculate depreciation using the reducing balance method at a rate of $25\% per annum. Calculate the depreciation charge for the year ended 31 December 2017?

Accounting for non-current assets

A business disposes of a non-current asset for cash. The disposal account records both the asset’s cost and the cash received from the sale. Which books of prime entry are involved?

The accounting system

A trader has taken the following figures from his books of account as at 31 March 2018. Purchases ledger balances on 1 March 2018: $32100 Credit purchases during March: $26400 Cheques paid to credit suppliers in March: $29700 Contra with sales ledger: $600 Discount received: $400 What was the closing balance on the purchases ledger control account on 31 March 2018?

The accounting system

The table presents selected details from a business’s bank reconciliation. Balance per cash book at 31 December: $2075 debit Balance per bank statement at 31 December: $2250 credit Bank charges per bank statement not entered in cash book: $150 Outstanding cheques not presented at the year end: $325 What bank balance should be reported in the financial statements?

Reconciliation and verification

Bank interest income, $1800, was entered correctly in the bank account but was posted as interest expense. Which ledger entries would correct this error?

Reconciliation and verification

A company has the following balances. Trade receivables at 31 December 2017: $125400 Provision for doubtful debts at 1 January 2017: $1800 In the year ended 31 December 2017, debts of $20500 were written off. The company makes a provision for doubtful debts at a rate of $5\% of trade receivables at each year end. What amount for doubtful debts expense was shown in the income statement for the year ended 31 December 2017?

Reconciliation and verification

An item is identified as being affected by a material error in a company’s financial statements. What is meant by ‘material’?

Reconciliation and verification

A purchases ledger control account shows a closing balance of $163762$. The purchases journal is undercast by $1000$. What should the correct closing balance on the purchases ledger control account be?

Reconciliation and verification

A business gave the following details for two years: Year 1: non-current assets $9000$, net current assets $1000$ Year 2: non-current assets $12000$, net current assets $2000$ There were no non-current liabilities. Drawings were $5000$ in year 1 and $3000$ in year 2. What profit was made in year 2?

Reconciliation and verification

For what reason is the profit made on revaluation credited to the capital accounts instead of the current accounts of the existing partners?

Types of business entity

X and Y operated in partnership, with profits and losses divided equally. After Z joined as a partner, profits still remained equally shared, and partnership goodwill was valued at $120000. Goodwill was not recorded in the partnership books of account. How is this shown in the partners’ capital accounts?

Types of business entity

A book-keeper with little experience has drawn up the following appropriation account for the partnership of P and Q. What ought to be the correct share of residual profit payable to P?

Types of business entity

L and M operate as partners. The information below refers to the year ended 31 December 2017. What was the profit for the year ended 31 December 2017?

Preparation of financial statements

The following information was supplied by a limited company. Calculate the profit or loss from operations.

Preparation of financial statements

What happens when a company issues bonus shares?

Types of business entity

What might cause financial statements to be less reliable for users?

Analysis and communication of accounting information

The business has the following information for the year. What is the ratio of operating expenses to revenue for the year?

Analysis and communication of accounting information

Why would a business record depreciation?

Accounting for non-current assets

The following are included in a company’s financial statements. What is the return on capital employed?

Analysis and communication of accounting information

Which expenses would count as manufacturing overheads in a computer assembly plant?

Costs and cost behaviour

The inventory records for a business indicate the following details for product X. What is the value of the inventory issued on 8 January using the FIFO method?

Traditional costing methods

The budgeted figures for a company are shown below. What is the amount of overheads absorbed by each unit?

Traditional costing methods

A producer manufactures one product only. It is sold at $240 for each batch. Variable cost comes to $80 per batch. Fixed costs have been absorbed using a normal activity level of 1000 batches at $60 per batch. What profit will the business earn if it produces and sells 1250 batches?

Traditional costing methods

Which statements are not correct when a break-even chart is used?

Costs and cost behaviour

A manufacturer reports the following overheads at two different production levels. The total overheads and output levels are: - total overheads $\$400\,000$ when production is $40\,000$ units - total overheads $\$432\,000$ when production is $60\,000$ units What is the total fixed overhead cost?

Costs and cost behaviour

A business manufactures and sells four products. When there are not enough labour hours to make all four products, which product should be made first?

Costs and cost behaviour

Why does management use cost-volume-profit analysis?

Costs and cost behaviour

A business has a margin of safety of $\$10\,000$. What is the implication of this?

Costs and cost behaviour

Which of the following count as revenue expenditure?

Accounting for non-current assets

Which statement concerning budgeting is incorrect?

Costs and cost behaviour

The information below concerns non-current assets: net book value at 31 December 2016: $42000$ net book value at 31 December 2017: $34000$ assets purchased: $8700$ cash received from assets sold: $7900$ depreciation charge for 2017: $9500$ What was the profit or loss on the disposal of non-current assets sold during the year?

Accounting for non-current assets

In the course of the year, a business disposes of a non-current asset. The details given are: original cost: $500$ accumulated depreciation on the date of sale: $240$ profit on sale: $70$ What are the proceeds from the sale of the non-current asset?

Accounting for non-current assets

A customer paid a deposit before the goods were delivered at a later date. How ought this entry to be shown in the seller’s books?

The accounting system

A business has $4800$ in its bank balance. It pays for materials with an invoice amount of $3000$ before a trade discount of $30\%$ and a cash discount of $10\%$ are deducted. The business also receives a cheque from a customer for $450$. What will the bank balance be after these transactions?

The accounting system

As part of double entry, a business keeps control accounts. The business’s trial balance was out of balance, so the discrepancy was entered in a suspense account. When the figures were checked, these errors were discovered: The purchases journal had been overcast by $300$. Discounts allowed of $100$ had been entered on the credit side of the discounts received account. What was the balance on the suspense account before these errors were corrected?

Reconciliation and verification

A business has trade receivables of $52000$ at the year-end. The current provision for doubtful debts is $3000$. The provision for doubtful debts is to be kept at $5\%$ of trade receivables. What effect will adjusting the provision have?

Preparation of financial statements

Francesco is a sole trader operating a small bicycle distribution business, and he keeps no complete accounting records.

Preparation of financial statements

A business reduces the carrying amount of its non-current assets through depreciation.

Accounting for non-current assets

For a number of years, Aisha, Bilal and Cao have operated as partners, dividing profits and losses in the ratio $2:2:1$. Bilal chose to leave the partnership on 31 January 2018.

Types of business entity

DH Limited manufactures one product only.

Costs and cost behaviour

Finn started his business on 1 January 2017, but he did not maintain complete accounting records.

Preparation of financial statements

Jack and Kelly are partners in a business. They divide profits and losses in the ratio of $2:5$ respectively. The partners agreed to take Liam on as a partner from 1 July 2018.

Types of business entity

The equity of a limited company includes ordinary shares.

Preparation of financial statements

G Limited makes one product and applies break-even analysis.

Costs and cost behaviour

M Limited issues shares from time to time.

Preparation of financial statements

Angela, Beena and Cai formed a partnership and shared profits and losses in the ratio of $4 : 3 : 1$. The partnership was dissolved on 30 September 2017. The information below is available.

The accounting system

H Limited supplied the following data for its latest trading year.

Analysis and communication of accounting information

J Limited manufactures and sells one product. The company’s budgeted operating statement for the year ending 31 March 2019 is shown below:

Costs and cost behaviour

A Sports Club was founded several years ago, and membership has risen every year. The annual membership fee for the year ended 31 December 2017 was $120 per member.

Preparation of financial statements

Alfie and Bob had been operating as partners, sharing profits and losses in the ratio of $3:2$. On 1 January 2018, G Limited acquired the partnership business.

Business acquisition and merger

The external auditor of Z Limited has highlighted several concerns about the non-current assets.

Preparation of financial statements

H Limited uses a manual accounting system. The directors are eager to adopt a computerised accounting system.

Computerised accounting systems

Marie is weighing up a project to make a new product. To produce it, she must purchase a new machine costing $250 000, and the machine is expected to last for 4 years.

Investment appraisal

Tareq produces one product and operates a standard costing system. The July budget is based on standard data, and the actual results are given.

Standard costing

Keeping every manufacturing cost in a separate manufacturing account is usually regarded as helpful for a business. HT Limited is a manufacturing business that makes a single product.

Preparation of financial statements

R plc has a year end of 30 September. Before the financial statements are prepared, the directors have supplied the following information.

Preparation of financial statements

Alice and Belinda set up a joint venture to produce and market greeting cards. They decided to split the profit equally. A separate set of books of account was kept.

Preparation of financial statements

At 31 December 2017, the equity and reserves of J plc were shown together with extra information.

Analysis and communication of accounting information

Source B1: F Limited is intending to launch two new products, Product X and Product Y.

Activity based costing (ABC)

Stanley has been trading as a sole trader for a number of years, and his year end falls on 31 December. He is putting together a cash budget and supplies information for the three-month stretch from July 2019 through September 2019.

Budgeting and budgetary control

CL plc operates as a manufacturing business. Goods are moved out of the factory at a fixed percentage profit, and this rate has stayed unchanged for several years. The directors supplied the information below for the year ended 31 December 2017.

Preparation of financial statements

Under IAS 1 Presentation of financial statements, notes to the accounts are expected to form part of the financial statements.

Preparation of financial statements

Kia and Zarina formed a joint venture, with profits and losses shared in the ratio $3:2$ respectively. Each one entered her own transactions in her own books of account.

Preparation of financial statements

AH Limited has completed its trial balance for the year ending 30 September 2017.

Preparation of financial statements

Kuldeep has drawn up an annual expenditure budget using several different activity levels.

Budgeting and budgetary control

Asif is weighing up a farming business that would grow soya beans. He could hire land for $800 per field each year.

Investment appraisal