May/June 2019

At the end of the year, a business does not carry out a physical count of stationery that has not been used. Which accounting concept has been used for this practice?

The accounting system

The following details have been supplied by a business about its inventory. Cost price: $18750 Repair costs needed to make the inventory suitable for sale: $3750 Selling price once the repairs have been completed: $21000 Which valuation should be applied to the inventory in the financial statements?

Preparation of financial statements

For the year ended 31 December 2018, a business supplied the following details for telephone expenses. prepaid at 1 January 2018: $975$ accrued at 1 January 2018: $650$ bank payments during the year: $4875$ prepaid at 31 December 2018: $1175$ accrued at 31 December 2018: $545$ What amount of telephone expense should be entered in the income statement for the year ended 31 December 2018?

Preparation of financial statements

L and M operate as partners. Which item ought to be shown in the partnership appropriation account?

Preparation of financial statements

X and Y had already been in partnership, with profits and losses divided equally between them. On 1 July 2018, Z joined as a partner and the three partners then shared profits and losses equally. On that date, the assets were revalued and a revaluation profit of $36000$ arose. What accounting entries were required to record the revaluation profit?

Accounting for non-current assets

P, Q and R are partners in a partnership. Q is leaving the partnership, and the following conditions have been accepted. Goodwill is valued at $35000$ but will not be kept in the books of account. Net assets are written down. Which items in Q’s capital account show these adjustments?

Types of business entity

A company sold $1$ ordinary shares at $1.20$ each. The total cash received was entered in the ordinary share capital account. Which journal entry completes the records for the share issue?

The accounting system

An extract taken from a company’s statement of financial position gave the details below. issued share capital: $2$ million ordinary shares of $0.50$ each: $1000$ share premium balance: $600$ retained earnings balance: $2400$ The directors have decided to make a bonus issue of $3$ ordinary shares for $4$ shares held. They want the reserves to remain in their most flexible form. Which debit entry ought to be recorded in the retained earnings account?

The accounting system

A company sells $500000$ $1$ ordinary shares at $3$ per share and $250000$ debentures at $6\%$. By how much will the company’s net assets increase?

Preparation of financial statements

Which ratio is used to work out the average length of time a business needs to pay its trade creditors?

Analysis and communication of accounting information

A company’s financial statements show the figures below: profit for the year: $245000$ finance costs: $120000$ preference share capital: $220000$ ordinary share capital: $850000$ general reserves: $140000$ retained earnings: $260000$ Calculate the return on capital employed (ROCE).

Analysis and communication of accounting information

Why is depreciation charged on non-current assets?

Accounting for non-current assets

A business has compiled the following figures for the year ended 30 April 2019. revenue: $220000$ inventory at the beginning: $25000$ purchases: $120000$ inventory at the end: $(31000)$ cost of goods sold: $114000$ gross profit: $106000$ What was the turnover of inventory?

Analysis and communication of accounting information

There are eight employees in one team. Every employee earns $16$ per hour, and the team also divides a group bonus among themselves according to their output of product. If production goes above $500$ units, the team receives a bonus of $8$ for each extra unit produced. This bonus is split equally and is paid weekly. In the previous week, each team member worked for $40$ hours, and the team altogether produced $560$ units. What is the pay of each member of the team?

Costs and cost behaviour

A company values its inventory using the weighted average cost (AVCO) method. The details below are given for one inventory item. February 1: Opening balance, $20$ units at $4$ each February 14: Bought, $40$ units at $5$ each April 1: Bought, $40$ units at $8$ each May 22: Issued, $55$ units What was the overall cost of the units that were issued?

Traditional costing methods

A factory has a large workforce who pack a range of products for various customers. What would be the most suitable basis for absorbing the packing department overheads?

Traditional costing methods

Use the information below. Budgeted overhead cost = $60000$ Actual overhead cost = $66000$ Budgeted direct labour hours = $30000$ Actual direct labour hours = $35000$ Overheads are absorbed using direct labour hours. Calculate the amount of over absorption or under absorption of overheads?

Traditional costing methods

A business uses machinists to produce a single product. As demand rises, more machinists are taken on. Each time eight additional machinists are employed, one extra supervisor is required. How would total labour costs be best described?

Costs and cost behaviour

A business produces two products. Product X: selling price $10$, variable costs per unit $4$, maximum sales $4000$ units. Product Y: selling price $12$, variable costs per unit $8$, maximum sales $14000$ units. The total fixed costs amount to $44700$. $4000$ units of X are sold. How many units of Y need to be sold for the business to break even?

Costs and cost behaviour

A company’s fixed costs are $30000$. It achieves sales of $10000$ units of one product at $20$ per unit, and its contribution to sales ratio is $75\%$. By how much will profit increase if total sales rise to $15000$ units?

Costs and cost behaviour

A company budget gives the cost and sales figures for the month ending 31 March 2019. Variable cost per unit $20$ Selling price per unit $35$ Sales volume $2000$ units Fixed costs $10000$ In March, the actual sales volume was $10\%$ below the budgeted level. How much less was actual profit than budgeted profit?

Costs and cost behaviour

A business switched from using absorption costing to marginal costing. This made no difference to profit for the month. What had occurred during the month?

Costs and cost behaviour

A business reported the net book value of motor vehicles as shown below: 31 December 2017: $238000 31 December 2018: $243000 In the year ending 31 December 2018, one new motor vehicle was bought for $47000. Another motor vehicle, which had cost $53000 and had accumulated depreciation of $31000, was sold for $7000. What was the depreciation charge for motor vehicles for the year ending 31 December 2018?

Accounting for non-current assets

Why would a business draw up budgets?

Analysis and communication of accounting information

A business whose year-end is 31 December bought a motor vehicle on 1 January 2015 at a cost of $24000. The motor vehicle had an estimated useful life of four years, and its estimated residual value after four years was $8000. The business writes off motor vehicles at 25% per annum by means of the reducing balance method. In the year of disposal, no depreciation is charged. The motor vehicle was disposed of on 31 July 2018 for $12000. What was the profit on the sale of the motor vehicle?

Accounting for non-current assets

A bank statement has a credit balance of $1500. A payment of $500 and a receipt of $1250 were entered in the cash book, but they have not yet been shown on the bank statement. Bank interest payable of $1100 was recorded correctly in the cash book, but because of a bank mistake it was entered on the bank statement as $1000. What is the cash book balance?

Reconciliation and verification

A sales invoice issued to Jane has not been entered in the books of prime entry. Which ledger accounts are impacted by this error?

The accounting system

A business’s suspense account is shown below. Discount allowed: $150 Opening balance: $100 Sales: $50 Which statements are correct?

The accounting system

A business has the following information. The balance in its purchases ledger control account stood at $5900. The combined balances in the purchases ledger were $5510. These errors were then found. 1 The total in the purchases journal had been overstated by $250. 2 A sales ledger contra of $340 was not included in the purchases ledger control account. 3 A supplier received $400, which was entered correctly in the cash book, but only $200 was posted to the supplier’s account. What is the correct value of trade payables?

Reconciliation and verification

Brian dispatched goods to Ravi on a sale or return basis with a selling price of $5000. This selling price was calculated using a 25% mark-up. Ravi sent back goods with a selling price of $1000 and bought the rest. What was the net effect on Brian’s inventory value?

The accounting system

Which accounting concept is represented by the equation assets = capital + liabilities?

The accounting system

Which item would not be shown in the income statement of a sole trader?

Preparation of financial statements

X and Y are operating as partners, dividing profits and losses in the ratio $2:1$. Z is to be admitted under the following revised terms. The profit and loss sharing ratio will then be $2:1:2$ respectively. Goodwill has been valued at $90\,000$. Z will compensate the partners for his share of the goodwill. How much must Z pay X?

Types of business entity

D, E and F form a partnership and divide profits in the ratio $2:2:1$. D receives an annual salary of $10\,000$. E has advanced a loan to the partnership, and the partnership pays interest of $5000$ per year on it. The profit for the year before appropriation amounted to $150\,000$. What was E’s total share of the profit for the year?

Types of business entity

L and M had been operating as partners, with profits and losses divided equally. P joined the partnership, and the partners then continued to divide profits and losses equally. Goodwill was valued at $48000, but the partners decided that no goodwill account should be left in the accounting records. State the accounting entries needed to record the goodwill.

Types of business entity

Which items are omitted from a statement of changes in equity?

Preparation of financial statements

At 1 January, the company’s equity consisted of 100000 $1 ordinary shares. The directors then carried out these actions: 1 March: A rights issue of 20000 ordinary shares was made at $1.25 per share. The rights issue was fully subscribed. 1 June: A bonus issue of 5000 ordinary shares was made. 1 July: An interim dividend of $0.10 was paid on every share in issue on that date. Calculate the amount by which the bank account increased because of these transactions.

The accounting system

The balances below have been taken from J Limited’s records. Ordinary shares of $0.50 each stood at $700000 on 30 April 2019 and at $500000 on 30 April 2018. Share premium was $90000 on 30 April 2019 and $50000 on 30 April 2018. How many ordinary shares were issued during the year ended 30 April 2019?

The accounting system

Which action would raise a company’s current ratio?

Analysis and communication of accounting information

A trader wants to decide on a selling price. How is a mark-up applied?

Traditional costing methods

The data below relate to the year ending 31 December 2018. Revenue $800000; cost of sales $175000; gross profit $625000; distribution costs $95000; administrative expenses $35000; profit from operations $495000; finance costs $5000; profit for the year $490000. What was the ratio of operating expenses to revenue?

Analysis and communication of accounting information

What factors lead to depreciation in non-current assets?

Accounting for non-current assets

On 1 January 2018, a business forecast sales for the year ending 31 December 2018 of $450000. At that date, its non-current assets amounted to $306000. On 1 July 2018, it bought new machinery costing $180000 so that its sales would rise by a further $20000 each month. What was the rate of non-current asset turnover in 2018? (Ignore depreciation.)

Analysis and communication of accounting information

A business values its inventory using the First In First Out (FIFO) method. The inventory movements listed below occurred over one month, and there was no opening balance. 1 July: 100 units were received at $15.50; 6 July: 100 units were received at $15.60; 10 July: 80 units were issued; 20 July: 50 units were received at $15.80; 25 July: 100 units were issued. What was the inventory value at the end of the month?

Traditional costing methods

A business operates two production departments: assembly and machinery. The budgeted figures below are provided. Assembly: labour hours 5600; machine hours 1200; overheads $75000. Machinery: labour hours 1350; machine hours 6900; overheads $80000. Calculate the overhead absorption rate for the assembly department?

Traditional costing methods

A shortage led a business to pay more for its raw material purchases. What effect would this have?

Costs and cost behaviour

Which statement most accurately describes a stepped fixed cost?

Costs and cost behaviour

A company manufactures less than it sells during a given period. Which statement is correct?

Costs and cost behaviour

Which statements about preparing a break-even chart are correct?

Costs and cost behaviour

When a company recorded sales revenue of $600 000, variable costs came to $300 000. At the break-even point, sales totalled $400 000. How much profit was earned when sales reached $600 000?

Costs and cost behaviour

The following details were supplied by a company. Total sales: $400 000 Production and sales (units): 10 000 Total costs: $250 000 Total fixed costs: $60 000 What was the contribution to sales ratio?

Costs and cost behaviour

In the previous year, a company sold 2000 units and earned a contribution of $50 per unit. After total fixed costs had been deducted, the profit was $60 000. This year: - sales volume rose by 10% - contribution per unit fell by 5% - total fixed costs rose by 25%. What was the company's profit this year?

Costs and cost behaviour

June bought a new machine. She charged depreciation on it at a rate of $40\%$ per annum by the reducing balance method. At the end of two years, its net book value was $3600. What was the purchase price of the machine?

Accounting for non-current assets

Why do businesses draw up budgets?

The accounting system

The data below concern the motor vehicles of a business. Net book value on 1 January 2018 stood at $398\,000, and on 31 December 2018 it stood at $480\,000. The following took place during 2018. 1. Extra motor vehicles with a cost of $195\,000 were bought. 2. A motor vehicle (original cost $80\,000) was disposed of for $24\,000, making a profit of $2000. What was the depreciation charge for 2018?

Accounting for non-current assets

A book-keeper cross-checked the business bank statement against the cash book. After that, he brought the cash book up to date and, in the end, drew up a bank reconciliation statement. For what reason was the bank reconciliation statement prepared?

Reconciliation and verification

As at 31 December 2018, the business showed these balances. Sales ledger: $12\,800 Sales ledger control account: $15\,200 Which error accounts for the gap between the two amounts?

Reconciliation and verification

At 1 January 2018, the provision for doubtful debts stood at $1580. Trade receivables on 31 December 2018 amounted to $44\,750. This figure included a debt of $12\,500 that was judged to be irrecoverable. The provision for doubtful debts was required to be kept at $5\%$. Which doubtful debts entry was shown in the income statement for the year ended 31 December 2018?

Preparation of financial statements

Which statements concerning inventory valuation are correct?

Preparation of financial statements

A sole trader worked out a draft profit for the year of $56\,750. He later found that discounts received of $580 and discounts allowed of $665 had been entered on the wrong sides of their own accounts. What should the correct profit for the year be?

The accounting system

When inventory is valued for inclusion in the financial statements, any selling price above its cost price is disregarded. Which concept is being used in this case?

The accounting system

The following information is given for a business. What is the total of current liabilities?

Preparation of financial statements

A company has given the details below about one item of inventory. What is the correct inventory valuation?

Preparation of financial statements

Goodwill is adjusted in partners’ accounts when the profit sharing ratio changes. In what way is this recorded?

Types of business entity

X, Y and Z formed a partnership and divided profits and losses in the ratio $5:3:2$ respectively. Before any adjustments, the capital account balances were $40000$, $30000$ and $20000$ respectively. Z then retired from the partnership. X and Y carried on as partners, sharing profits and losses in the ratio $3:2$ respectively. The net assets were to be increased in value by $10000$. What was the capital account balance for partner X after Z’s retirement?

Types of business entity

L and M are business partners who divide profits and losses in the ratio $2:1$. At 31 December 2018, the credit balances on their capital and current accounts were as follows. On 1 January 2019, M brought his private motor vehicle into the partnership. The motor vehicle had originally cost $15000$. Its present market value is $8000$. Each partner withdrew $20000$ in drawings. What was the combined total on each partner’s capital and current accounts after these adjustments?

Types of business entity

Which items can be included in a Statement of Changes in Equity?

Preparation of financial statements

A company’s equity comprised the following items: ordinary shares of $1 each totalling $1500000, as well as a share premium account of $600000. One share had a market price of $1.50. The company carried out a fully subscribed rights issue of 500000 ordinary shares at $1.20 per share. What was the balance of the ordinary share capital account and the share premium account after the issue?

Preparation of financial statements

At the close of the financial year, a company gives the following financial details: retained earnings at the beginning of the year $50000; profit earned during the year $120000; ordinary dividends paid in the year $70000; ordinary dividends proposed for payment in the following financial year $30000; transfer to general reserve $20000. What amount of retained earnings is shown at the end of the financial year?

Preparation of financial statements

Which accounting ratio would not be suitable for judging a business’s capacity to settle its trade payables?

Analysis and communication of accounting information

A sole trader has given the following details: annual revenue $240000; average inventory $25000; mark-up $50\%$. What was the inventory turnover rate?

Analysis and communication of accounting information

Why is depreciation charged on a non-current asset?

Accounting for non-current assets

For a business, the following details were given: gross margin $20\%$; sales $275325; opening inventory $25450; closing inventory $55975. What were the total purchases?

Preparation of financial statements

An employee receives basic pay of $20 per hour for an 8-hour day. Overtime is paid at time and a half. A bonus of $40 is also paid for each unit produced above 10 units a day. Yesterday, the employee worked 10 hours and produced 11 units. What was the employee’s pay for the day?

Costs and cost behaviour

The details below apply to one accounting period. Opening inventory: 40 000 units; closing inventory: 44 000 units; absorption cost profit: $284 000; marginal cost profit: $250 000. What was the overhead absorption rate per unit during the accounting period?

Traditional costing methods

A business applies the weighted average cost (AVCO) method to value inventory. On 1 September, 50 units were bought for $4.00 per unit. Then, on 10 September, a further 30 units were bought for $4.80 per unit. On 21 September, 15 units were sold. What was the cost per unit of the units sold?

Traditional costing methods

What could lead to the under absorption of overheads?

Traditional costing methods

Which changes would cause profit to fall?

Analysis and communication of accounting information

In the previous month, a business sold 10 000 units and achieved a total contribution of $60 000. Fixed costs were $10 000. Over this month, the sales volume decreased by 20% and the contribution per unit decreased by 10%. Fixed costs remained the same. By what amount will its profit fall this month compared with last month?

Costs and cost behaviour

A business has given the following figures: total fixed costs are $12 500, the selling price per unit is $10, and the variable cost per unit is $6. It is expected that both fixed costs and unit selling prices will stay unchanged. Which percentage rise in variable costs would lead to a break-even output of 5000 units?

Costs and cost behaviour

For one product, the available data are as follows: the selling price per unit is $25, total fixed costs amount to $30 000, and the break-even point is 5000 units. What is the contribution to sales (C/S) ratio?

Costs and cost behaviour

As production falls, which cost rises?

Costs and cost behaviour

A business has an accounting year that finishes on 31 December. An office building with a useful life of 40 years was bought on 1 January 2010 for $400\,000$. Its residual value is expected to be nil. Depreciation is calculated by the straight-line method. On 1 January 2018, the office building was revalued to $480\,000$. What is the net book value of the office building on 31 December 2019?

Accounting for non-current assets

Which of the following statements about a budget are correct?

The accounting system

A new machine is bought for $75\,000$. On top of this, delivery and installation costs are $2\,500$. The business charges depreciation on all non-current assets at $20\%$ per annum by the straight-line method. What amount would depreciation reduce the profit for the year by?

Accounting for non-current assets

A business’s sales ledger control account showed a closing balance of $21\,650$. This figure did not match the total of the sales ledger balances. The following mistakes were found. Discount allowed of $1\,460$ was recorded on the debit side of the sales ledger control account. A sales invoice for $1\,200$ sent to J Ravi had been entered in J Rajid’s account. A contra to the purchase ledger had been entered correctly in the sales ledger as $600$ but was shown in the sales ledger control account as $900$. What is the correct balance of the sales ledger control account?

Reconciliation and verification

In a bank reconciliation statement, the cash book shows a credit balance of $400$ and the bank statements show a balance in hand of $100$. The bank reconciliation statement also contains unpresented cheques of $700$ together with cheques banked and not yet credited in the bank statements. What is the total value of cheques banked and not yet credited?

Reconciliation and verification

When a trial balance did not agree, a suspense account was opened. It was later found that returns of $200$ had been entered correctly in the supplier’s account but were debited to the sales returns account. No other errors existed. What was the balance on the suspense account before this error was corrected?

Reconciliation and verification

At the close of its financial year, a business had trade receivables of $16\,000$ and a provision for doubtful debts of $640$. The provision must be kept at $5\%$. Which amount is reported in the income statement?

Reconciliation and verification

A business supplied the following details of general expenses for the year ending 31 March 2019.

Preparation of financial statements

Ahmed and Raji trade as partners in a retail business, yet they have not kept complete accounting records. They have been advised to adopt a double entry system of book-keeping.

Preparation of financial statements

At $30$ November $2018$, Lawrence gave the details below. The balances in the purchases ledger control account and the sales ledger control account did not match the respective listings of balances extracted from the purchases ledger and sales ledger. The following items were found.

Reconciliation and verification

K Limited finalises annual accounts to 30 September. For the year ended 30 September 2018, the directors worked out profit from operations of $44\,500. On 31 January 2018, they redeemed a 6\% debenture of $100\,000, together with interest accrued up to that date.

Preparation of financial statements

Ravi makes two products, Exe and Wye. Both products have fixed costs allocated to them. The chart displays budgeted data for Exe.

Costs and cost behaviour

Lee, who is a sole trader, gave the following details taken from his books of account on 30 April 2019. More information is also provided.

Preparation of financial statements

At 31 December 2018, Sofia has given the following details about her trade receivables.

The accounting system

Financial statements supply users with information that helps them assess a business’s financial performance.

Analysis and communication of accounting information

X Limited is a wholesaler of sports goods. The company's directors have supplied information for the year ended 30 April 2019.

Preparation of financial statements

D Limited sells sports equipment. The balances below were taken from the books of account at 31 December 2018.

Preparation of financial statements

John, Kathy and Liz have been in partnership, sharing profits and losses in the ratio $4:3:3$. They have decided to dissolve the partnership.

Types of business entity

Cheng is a sole trader who keeps control accounts.

Reconciliation and verification

Ethan runs a factory that makes hand-painted pots, and the factory employees are paid by piecework payments.

Costs and cost behaviour

K Limited's directors supplied the information as at 31 December 2018.

Preparation of financial statements

Jenny and Thomas, both sole traders, agreed to combine their businesses by forming a partnership with effect from 1 April 2019.

Business acquisition and merger

Ahmed operates a manufacturing business in Singapore that makes computer screens. The information relates to consignments sent to India.

Preparation of financial statements

For M plc, financial data are given for the year to 30 June 2018, alongside comparative figures for its competitor V plc.

Analysis and communication of accounting information

G Limited makes just one product. The budgeted and actual production data for March 2019 are given.

Standard costing

The directors of T Limited are weighing up an investment in Machine A to make a new product.

Investment appraisal

L plc is a manufacturing enterprise. For the year ended 31 December 2017, the overall prime cost was $350000. A selection of balances and further details is given for use in preparing manufacturing accounts.

Preparation of financial statements

V plc had share capital comprising 450000 ordinary shares of $1$ each. Market and accounting data are given.

Preparation of financial statements

W Limited's financial statements for the year ended 31 December 2018 are prepared for audit, and asset balances together with extra details on accounting treatments are given.

Preparation of financial statements

Roberto and Sasha set up a joint venture to sell sports equipment, and they shared both profits and losses equally.

Preparation of financial statements

Gerry produces a product with Machine B and is thinking about replacing it with Machine X. Budgeted figures and extra financial data are provided.

Investment appraisal

Ella uses flexible budgets within her budgetary control system. The following information is provided for the year ended 31 March 2019.

Budgeting and budgetary control

At 31 December 2018, the directors of K Limited have supplied the information below.

Preparation of financial statements

Jenny and Thomas are both sole traders, and their statements of financial position at 31 March 2019 were these.

Preparation of financial statements

Ahmed operates a manufacturing business in Singapore that produces computer screens.

Analysis and communication of accounting information

The directors of M plc have supplied figures from the financial statements for the year ended 30 June 2018.

Analysis and communication of accounting information

G Limited produces only one product. The budgeted data for March 2019 is given.

Standard costing

The directors at T Limited are thinking about investing in Machine A so that a new product can be manufactured.

Investment appraisal