Feb/March 2019

An item is shown in the financial statements because it affects the way they are interpreted. Which accounting concept is being used?

The accounting system

By the year-end, a business holds some damaged goods in inventory. The information given is as follows: (1) The goods were bought for $8500. (2) If the goods are repaired, they may be sold for $10400. The business would need to pay $2000 for repairs and $300 to a salesman. (3) The same quantity of damaged goods may be bought from the supplier for $8200. What is the value of the damaged goods at the year-end?

Preparation of financial statements

A company recorded the closing inventory for its current accounting period at too low a value. What effect did this have on gross profit?

Preparation of financial statements

Over the year to 31 December 2018, Sim’s net assets rose by $1210. The following transactions occurred during 2018. 1 Payments from Sim’s personal bank account: rent for business office $3600, rent for personal residence $2000. 2 Goods taken for personal use: with a cost $6200 and sales value $7700. 3 Cash withdrawn: $9750. What profit was made for the year ended 31 December 2018?

Reconciliation and verification

Meena operated as a sole trader. On 1 July 2018, Hanna joined her in a partnership, with profits divided equally. For the year ended 31 December 2018, profit was $168000 and this arose evenly throughout the year. During March 2018, an irrecoverable debt of $8000 was incurred, and it was agreed that Meena would settle this amount. What is Hanna’s share of profit?

Types of business entity

Z joins the partnership formed by X and Y as a new partner. He contributes the following items to the business. Cash $20000 Inventory $6000 Vehicle $11000 Interest on capital is calculated at $10\%$ per annum. No goodwill arises on Z’s admission. What is Z’s interest on capital per annum?

Types of business entity

L and M are partners and divide profits equally. The accounts do not include a goodwill account. N becomes a partner and contributes $30000 cash for his share of the goodwill. Profits will now be shared equally by L, M and N. What increases are made to the capital accounts when N is admitted to the partnership?

Types of business entity

Over the year, a business issued $1 ordinary shares at $1.20$ per share. At the close of the year, the directors recommended a final dividend. Which balances in the statement of changes in equity were changed by these transactions?

Preparation of financial statements

A company has ordinary share capital of $250000$. Each ordinary share has a nominal value of $0.25$. The rights issue is offered on the basis of 2 shares for every 5 shares held, at a premium of $0.15$. What total amount of capital is raised by the rights issue?

The accounting system

A shareholder disposes of some shares at a price lower than the amount he originally paid. What effect does this have on the company’s share capital?

Types of business entity

Which item would cause the expenses to revenue ratio to fall?

Analysis and communication of accounting information

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

Accounting for non-current assets

The following information was supplied by a company. Operating profit $109000 Interest charges paid $12000 Issued share capital $250000 Overall reserves $129000 $5\%$ debentures amounting to $60000 Calculate the return on capital employed (ROCE) to two decimal places.

Analysis and communication of accounting information

The following information was given for a business. Budgeted overheads $127000 Budgeted machine hours $10450 Actual overheads $149000 Actual machine hours $9300 What was the absorption rate per machine hour?

Traditional costing methods

Which of the following are stepped costs?

Costs and cost behaviour

A worker completed a standard 35-hour week at $15$ per hour. On top of that, he did 5 hours of overtime, which was paid at $20$ per hour, and he was awarded a bonus of $50$. How much total pay did he receive for the week?

Costs and cost behaviour

A company allocates its overheads using machine hours. The information below refers to one month. Overheads: actual $237010$, budgeted $253450$ Machine hours: actual $12460$, budgeted $13700$ Which statement about overheads is correct?

Traditional costing methods

Which line indicates total variable cost?

Costs and cost behaviour

The information below applies to a product. Data per unit: Selling price = $\$25$ Variable costs = $\$15$ Contribution per unit = $\$10$ Output is $50\,000$ units. Fixed costs amount to $\$300\,000$. Margin of safety = $20\,000$ units. The directors plan to raise the unit selling price by $10\%$. What is the percentage increase in the margin of safety?

Costs and cost behaviour

A business produces one item and charges $\$12$ for each batch. Its variable cost comes to $\$4$ per batch. Fixed costs are absorbed using a normal output level of $1000$ batches at $\$3$ per batch. What is the profit under marginal costing if the business produces and sells $1500$ batches?

Costs and cost behaviour

The information below applies to one unit of a product. Per-unit details: Selling price = $\$20$ Marginal cost = $\$8$ Fixed costs = $\$5$ What is the contribution to sales ratio?

Costs and cost behaviour

The budgeted figures for one month are presented below. Units sold = $20\,000$ Selling price per unit = $\$12$ Variable cost per unit = $\$3$ Fixed costs = $\$50\,000$ The quantity of units sold is expected to rise by $10\%$. Fixed costs are expected to rise by $5\%$. What increase in profit will result from these changes?

Costs and cost behaviour

A company bought an asset for $100000. Its useful life was five years and its estimated residual value was $20000. The company applies straight-line depreciation. At the end of the five-year period, the asset was sold for $5000. What is the combined impact on year five profits of both the depreciation charge and the sale of the asset?

Accounting for non-current assets

What disadvantages are associated with budgetary control systems?

The accounting system

A business gives the following figures: cheque paid in 2018 for equipment bought in 2017 $15000; equipment bought on credit in 2018 $42000; net book value of equipment at 1 January 2018 $83000; net book value of equipment at 31 December 2018 $67000. What was the depreciation charge in the income statement for the year ended 31 December 2018?

Accounting for non-current assets

Daphne purchases a non-current asset for $10000. Its estimated useful life is two years, and its scrap value is $2000. She is deciding whether to depreciate it by the straight-line method or to apply the reducing balance method at a rate of 60% per annum. Which statements are correct?

Accounting for non-current assets

Which of the following is not one of the purposes of control accounts?

Reconciliation and verification

The sales ledger control account showed a balance of $21500. This was not consistent with the combined balances of the sales ledger accounts. It was then found that a credit note worth $200 issued to a credit customer had been entered on the debit side of that customer’s account. What was the total of the balances in the business’s sales ledger before the error was corrected?

Reconciliation and verification

In June, a business noted the following figures: payments made to credit suppliers in June $16380; credit purchases for June $21650; discount received $850; purchases ledger balances at the beginning of June $5730; purchases returns in June $1200. What was the balance on the purchases ledger control account at the end of June?

The accounting system

A business made an annual rent payment of $24000. On 1 January 2018, accrued rent was $4000. The rent payments were made as follows: 1 January 2018 $12000; 1 July 2018 $10000; 1 September 2018 $13000. How was rent shown in the financial statements at 31 December 2018?

Preparation of financial statements

The balances listed below were taken from the books of K Limited at 30 September 2018.

Analysis and communication of accounting information

Mira, Sasha and Peta were operating as a partnership. Profits and losses were divided among them in the ratio $2:2:1$ respectively. The partnership stopped trading on 31 January 2019.

The accounting system

Noor, who traded on her own account, was getting her business’s financial statements ready for the year ending 31 December 2018. The information below is provided.

Preparation of financial statements

W Limited uses marginal costing and manufactures two items, Product A and Product B.

Costs and cost behaviour

Consult Source A1 in the Insert.

Preparation of financial statements

Use Source A2 from the Insert.

Analysis and communication of accounting information

Consult Source A3 in the Insert.

Preparation of financial statements

Consult Source A4 in the Insert.

Preparation of financial statements

Read Source B1 from the Insert.

Activity based costing (ABC)

Refer to Source B2 in the Insert.

Standard costing