Oct/Nov 2019

Which accounting concept states that revenue should be entered in a business’s books of account only when receipt is certain?

The accounting system

A trader arranges a training course for employees at a cost of $100 per person. $10$ staff members attended in April and $4$ attended in May. Half of the overall amount was payable at the beginning of April, with the remaining amount due at the end of May. Which entry for training was shown in the statement of financial position on $30$ April?

Preparation of financial statements

Joe is a sole trader. Which of the following statements about his business are incorrect?

Types of business entity

If partners do not make a partnership agreement, the provisions of the Partnership Act are applied. Which statement is correct as a provision of the Partnership Act?

Types of business entity

The financial statements for a partnership provide the following details: profit from operations $160000$ interest on bank loan $14000$ interest credited to capital accounts $15000$ drawings $70000$ partnership salaries $24000$ What amount of profit is left to be appropriated among the partners?

Preparation of financial statements

X and Y run a partnership. Z joined the partnership on 1 July 2018. It was further agreed that, on that date: 1 The assets of the partnership would be revalued upward by $48000$. 2 Goodwill would be valued at $20000$, but no goodwill account would be kept in the books of account. 3 Z would contribute $80000$ cash. 4 The profit and loss sharing ratio would be X, Y and Z, $2:1:1$ respectively. What was the balance on Z’s capital account immediately after the admission?

The accounting system

Which statement is incorrect?

Analysis and communication of accounting information

For the year ending 31 December 2018, the business earned a profit of $31000$. A dividend of $8\%$ was distributed on the $200000$ ordinary shares of $0.50$ each, and a further $12000$ was moved into general reserve. On 31 December 2018, the retained earnings of the business were $68000$. What was the retained earnings balance on 1 January 2018?

Preparation of financial statements

A company’s issued share capital stood at $400000$, consisting of ordinary shares of $0.50$ each that were fully paid. The transactions below then occurred. 1 A bonus shares issue was made at the rate of one ordinary share for every four ordinary shares already held. 2 Afterwards, a rights issue of ordinary shares was made at the rate of one new share for every two already held, at a premium of $0.15$ per share. The issue was fully subscribed. What amount will be added to the company’s bank account?

The accounting system

A fall in which item would increase a business’s profit margin?

Costs and cost behaviour

The financial statements for a company gave these figures: revenue $250$ cost of sales $(60)$ distribution costs $(45)$ administrative expenses $(10)$ income from investments $5$ finance costs $(20)$ Calculate the operating expenses to revenue ratio.

Analysis and communication of accounting information

A non-current asset that has already been depreciated is then revalued to a higher amount. What effect does this have?

Accounting for non-current assets

The following figures are given for a company: ordinary share capital $50000$ retained earnings at the end of the year $11000$ $8\%$ debentures (2023-2025) $15000$ bank overdraft $8000$ profit from operations $17700$ profit for the year $16500$ What is the return on capital employed?

Analysis and communication of accounting information

A company’s production team consists of four employees. Each employee receives a basic wage of $20$ per hour. The team also divides a bonus among its members according to output. If production goes beyond $200$ units, the team earns a bonus of $8$ for each extra unit. This bonus is then shared equally. During last week, every team member worked $35$ hours, and the team produced $250$ units altogether. What pay did each member of the team receive last week?

Costs and cost behaviour

During May, a business acquired these quantities of inventory: 4 May: $1000$ units at $12.00$ 20 May: $1000$ units at $14.00$ 28 May: $800$ units at $14.75$ On 22 May, $1200$ units were sold at $20$ each. The inventory’s net realisable value on 31 May was $24$ per unit. Opening inventory was nil. What would be the value of closing inventory when the AVCO method of valuing inventory is used?

Traditional costing methods

A company’s profit reported for the year is identical under marginal costing and absorption costing. Which statement is correct?

Traditional costing methods

A business calculates its overhead absorption rate on the basis of direct labour hours. For the previous year, the information below is given: overheads: actual $120000$, budgeted $100000$ direct labour hours: actual $10000$, budgeted $8000$ indirect labour hours: actual $2000$, budgeted $4500$ Which statement about overheads is correct?

Traditional costing methods

A business has supplied the following details for one product: unit contribution $6$ total fixed costs $16800$ It plans to raise the unit selling price from $18$ to $20$. What effect would this have on the break-even quantity?

Costs and cost behaviour

Which cost decreases when production is cut back?

Costs and cost behaviour

The data for a company are given below. Sales and production: $20000$ units Total sales: $600000$ Total costs: $200000$ Total fixed costs: $80000$ Calculate the company’s contribution to sales ratio.

Costs and cost behaviour

A company predicts that, in July, its sales volume will be 10\% lower and its contribution per unit will be 5\% lower than in June. During June, it produced and sold $50000$ units. The total contribution amounted to $80000$. Its fixed costs were $2000$ and they remained the same in July. What is the decrease in its profit in July compared with June?

Costs and cost behaviour

Which of the following statements concerning a negative margin of safety is correct?

Costs and cost behaviour

At the beginning of the year, the net book value of motor vehicles stood at $150000. In the course of the year, one motor vehicle was disposed of for $26000. The disposal produced a profit of $2000. Depreciation is worked out at $10\%$ of the opening net book value. By the end of the year, the net book value had fallen to $145000. Calculate the cost of motor vehicles purchased during the year.

Accounting for non-current assets

A business is putting together this year’s budget by adding a percentage onto last year’s budget. Which statements are correct?

The accounting system

The accounting year-end for a company is $30$ June. A machine was acquired on $1$ October $2016$ for $16000$ and later sold on $31$ March $2019$ for $7000$. The company charges depreciation on machinery at $15\%$ per annum on cost, with depreciation worked out on a month-by-month basis. What was the profit or loss on disposal?

Accounting for non-current assets

A company drew up its purchases ledger control account, and the balance shown was $15960. The following matters were later found. 1 Discounts received amounting to $450 had been recorded in the purchases ledger control account as $540. 2 A payment of $720 made to a supplier had not been recorded in his account. 3 The purchases ledger debit balances carried down, with a total of $110, had been left out of the control account. 4 A contra of $170 had been entered in the purchases ledger but had not been entered in the purchases ledger control account. What should the correct total of the trade payables be?

Reconciliation and verification

An accountant drew up a bank reconciliation statement. He then found the following discrepancies between the bank statement and the cash book. 1 a sum received from a customer by credit transfer 2 bank service charges 3 cheques not yet presented Which of these differences must be entered in the cash book to bring it up to date?

Reconciliation and verification

The following data are provided for a business. Trade receivables on $1$ January $2018$: $63000 Provision for doubtful debts on $1$ January $2018$: $1890 Total credit sales for the year: $327000 Cash collected from credit customers in the year, after $4\%$ cash discount: $324000 A provision for doubtful debts of $2\%$ is to be created. Which amount is shown in the income statement for the year ended $31$ December $2018$?

Reconciliation and verification

Which items will not be shown on an income statement?

Preparation of financial statements

The information below is given for the end of a sole trader’s financial year. Non-current assets: $41000 Trade receivables: $12500 Trade payables: $4500 Bank: $3900 credit Long-term bank loan (due $2025$): $6000 Drawings: $2500 Profit for the year: $4200 What was the closing balance on the capital account?

Preparation of financial statements

Which accounting concept requires profits to be calculated by matching revenues with the expenses connected to them for a particular accounting period?

The accounting system

A business possessed the following assets and liabilities at the beginning of the year. a motor car worth $2500$ inventory that cost $4000$ and had a sales value of $5800$ a bank overdraft amounting to $500$ a loan of $1000$ made to a friend from the business bank account What was the capital account balance at the beginning of the year?

The accounting system

A sole trader recorded these transactions. Returns outwards $2750$ Carriage inwards $4820$ Goods for own use $1460$ What is the overall effect of these transactions on the cost of sales?

Preparation of financial statements

The sole trader’s private expenses were paid from the business bank account and shown in his income statement. What effect did this have on profit and capital?

Types of business entity

A warehouse was hit by fire on 31 March, and part of the inventory was destroyed. The information below has been provided. Inventory at cost on 1 January $6000$ Inventory at cost on 31 March after fire $3200$ Sales during the period $14700$ Purchases during the period $9500$ The business applies a mark-up of $33.33\%$. What was the value of the inventory destroyed?

Preparation of financial statements

P and Q are partners in a partnership. R was taken on as a partner on 1 July 2018, and the ratio for sharing profit and loss among P, Q and R was $2:2:1$ respectively. When admitting R, the partners decided: - goodwill was to be valued at $20000$, but was not to be kept in the books of account - R was to contribute cash of $40000$, together with a motor vehicle valued at $10000$ - R was to receive an annual salary of $5000$ What was the balance on R’s capital account immediately after admission?

The accounting system

Hilary and Lee began a partnership on 1 January 2018, and no partnership agreement was in place. The information below was given. Capital contributions: Hilary $5000$, Lee $6000$ Loan to partnership: Hilary $0$, Lee $1000$ Profit for the year ended 31 December 2018 before loan interest amounted to $8850$. What was Lee’s share of the profit?

Types of business entity

L, M and N were partners, with profits and losses shared equally. When L retired, the credit balances on her capital and current accounts were $100000$ and $40000$. The partnership's assets were revalued upwards by $60000$. On retirement, L took half of the amount owed to her. The other half was left in the business as a loan. How much did L receive from the partnership bank account when she retired?

Types of business entity

The directors of a limited company have recently carried out a rights issue of one ordinary share for every three already held, at a premium of $0.50$ per share. All of the rights issue was taken up. After the rights issue, the statement of financial position showed the following figures. Issued share capital (shares of $1$ each): $1200000$ Share premium: $300000$ What amount was entered on the debit side of the company’s bank account when the rights issue was made?

The accounting system

The company’s financial year ends on 31 December. In the year ended 31 December 2018, it made the following dividend payments: Final dividend for the year ended 31 December 2017: $15000$ Interim dividend for the year ended 31 December 2018: $8000$ On 1 February 2019, a final dividend of $10000$ was declared for the year ended 31 December 2018. What amount should be shown for dividends in the statement of changes in equity for the year ended 31 December 2018?

Preparation of financial statements

What information could an investor obtain by examining a business’s financial statements?

Analysis and communication of accounting information

A business purchases a non-current asset and chooses to use the straight-line method of depreciation. The accountant fails to allow for an estimated scrap value when doing the calculation. Which statements are correct?

Accounting for non-current assets

The following data refer to a limited company. Profit from operations $40475$ Profit for the year $26380$ $10\%$ debenture (2025) $75000$ $100000$ shares ($1$ each) $100000$ Retained earnings at the end of the year $135679$ What was the return on capital employed?

Analysis and communication of accounting information

A manufacturing firm has given the following data for a product. Output quantity $8000$, overall cost $37000$ Output quantity $14000$, overall cost $53500$ Calculate the variable cost per unit.

Costs and cost behaviour

The information below concerns a business’s inventory. 2 June: buys $1000$ units at $12$ each 12 June: buys $1000$ units at $13$ each 18 June: sells $800$ units at $18$ each 28 June: buys $1000$ units at $14$ each The estimated unit selling price on 30 June is $20$. There was no inventory at the start. Using FIFO, what was the value of closing inventory on 30 June?

Traditional costing methods

A business is facing increasing inventory cost prices. Instead of FIFO, the company values its inventory using AVCO. What impact does using AVCO rather than FIFO have on inventory valuation and profit?

Traditional costing methods

A company works out its monthly profit by marginal costing as $90000$. The opening inventory is $4000$ units, while the closing inventory is $6000$ units. The fixed production overhead absorption rate equals $20$ per unit. What is the profit under absorption costing?

Costs and cost behaviour

A manufacturing business has supplied the following figures: budgeted labour hours $12000$, budgeted overhead absorption rate $7.50$ per labour hour, actual overhead cost $101250$, actual labour hours $15000$. Calculate the over or under absorption of overheads.

Traditional costing methods

A business has the following data for its only product: selling price per unit $30$, variable cost per unit $14$, and total cost per unit $24$. What is its contribution to sales ratio?

Costs and cost behaviour

A company manufactures three products, and the details are shown below. Unit selling price: product X $40$, product Y $48$, product Z $72$. Direct material used per unit: product X $18$, product Y $24$, product Z $30$. Direct labour per unit: product X $10$, product Y $6$, product Z $18$. The same material is used in producing all three products, and it costs $2.00$ per kilo. There is a shortage of material. In what sequence should the products be produced in order to obtain maximum profit?

Costs and cost behaviour

In the previous month, a company produced and sold $10000$ units and generated a contribution of $20$ for each unit. After total fixed costs were deducted, its net profit was $120000$. In this month, sales volume has risen by $20\%$, contribution per unit has risen by $5\%$ and total fixed costs have risen by $15\%$. Calculate its profit this month.

Costs and cost behaviour

Which statements concerning cost-volume-profit analysis are accurate?

Costs and cost behaviour

The table provides details about the non-current assets of a business. Net book value at the end of the year: $25000$ Net book value at the beginning of the year: $16000$ Depreciation charge for the year: $5000$ Additions at cost during the year: $22000$ What is the net book value of disposals during the year?

Accounting for non-current assets

Why do businesses draw up budgets?

The accounting system

A company’s accounting year finishes on 31 December. On 1 January 2013, it bought a warehouse for $100000$. The warehouse was expected to have an economic useful life of $25$ years. The company’s accounting policy is to depreciate the warehouse by the straight-line method. On 1 January 2018, the warehouse was revalued to $120000$. What was the depreciation charge for the year ended 31 December 2018?

Accounting for non-current assets

A company drew up a sales ledger control account, but its balance failed to match the total of the sales ledger balances, which were $42650$. The following errors were found. 1. An irrecoverable debt of $500$ shown in the general journal has not been entered in the sales ledger. 2. The sales journal has been added up wrongly and must be decreased by $750$. 3. The sales ledger control account includes the discount received of $400$. It ought to have been discount allowed, $600$. 4. Sales to J Brown, $640$, have not been posted in his account. What should the correct total of the sales ledger balances have been?

Reconciliation and verification

Which error would need to be corrected by making an entry in the suspense account?

Reconciliation and verification

The table presents details about a business on 31 March 2019. Inventory: $16100$ Trade payables: $5200$ Other payables: $2000$ The figures do not include the purchase of $3700$ of goods. Although these goods were delivered on 31 March 2019, the invoice says that legal title to the goods passes only when payment is received. Which amounts should be shown in the statement of financial position on 31 March 2019?

Reconciliation and verification

A company has measured some closing inventories at cost, even though their net realisable value is below cost. How does this mistake affect the financial statements?

Preparation of financial statements

The balances below were taken from a trial balance on 31 March 2019. Total trade receivables: $84600$ Provision for doubtful debts at 1 April 2018: $2835$ Irrecoverable debt: $1600$ For the year ended 31 March 2019, the provision for doubtful debts fell by $280$. What was the net trade receivables figure at 31 March 2019?

Reconciliation and verification

The workforce of a company is skilled and efficient. Even though they are treated as a human asset of the company, no figure for them has been entered in the financial statements. Which accounting concept has been applied?

The accounting system

A sole trader gave the following financial information for the year ended 31 December 2018: purchases: $95000$ inward returns: $3300$ outward returns: $2100$ inventory taken for personal use: $5000$ Inventory on 31 December 2018 was valued at $1000$ more than inventory on 1 January 2018. What was the cost of sales?

Preparation of financial statements

A trader has incurred inventory losses from theft during the year. What is needed to work out the value of the inventory stolen?

Reconciliation and verification

A business has taken the following data from its books of account at 31 December 2018, which was its first year of trading. The amounts (in $000) are: carriage inwards $12$, carriage outwards $15$, closing inventory $86$, purchases $286$, returns inwards $10$, returns outwards $2$, revenue $524$. What is the gross profit for the year ended 31 December 2018?

Preparation of financial statements

Alice and Bharti have operated as partners, dividing profits and losses in the ratio of $3:2$. On 31 December 2018, the balances on the partners’ capital accounts were Alice $32\,000$ and Bharti $18\,000$. From 1 January 2019, they agreed to divide profits and losses equally. No goodwill account existed in the books. Goodwill is estimated at $30\,000$ and will not be kept in the accounting records. What will be the balance on Alice’s capital account after goodwill has been adjusted?

Types of business entity

X, Y and Z are in partnership. What item would be recorded in the partnership appropriation account?

Preparation of financial statements

Which of the following items are capital reserves?

Preparation of financial statements

On 1 July 2018, a company's statement of financial position recorded total equity of $300\,000$. During the year that finished on 30 June 2019, the following events occurred.

Preparation of financial statements

The table presents an extract from the financial statements of a limited company: ordinary share capital ($1$ shares) $500\,000$, share premium $150\,000$, revaluation reserve $200\,000$, retained earnings $250\,000$. What is the largest dividend per share that may be paid?

Preparation of financial statements

An investor is examining the financial statements of a company in which he may choose to invest. Which item supports his reliance on the financial statements?

Reconciliation and verification

A company gives the following data for the year ended 31 May 2019: total purchases $175\,000$, cash purchases $35\,000$, inventory 1 June 2018 $12\,000$, inventory 31 May 2019 $15\,000$. What is the rate of inventory turnover (rounded to the nearest whole number)?

Analysis and communication of accounting information

When buying a new machine, which costs are not included in capital expenditure?

Accounting for non-current assets

During 2017, a company was financed entirely from its equity and reserves, and these combined to $1\,000\,000$. Its return on capital employed (ROCE) stood at $28\%$. On 1 January 2018, the company issued a $10\%$ debenture worth $300\,000$. Over 2018, operating profit rose by $20\%$. No dividends were distributed. What was the ROCE in 2018?

Analysis and communication of accounting information

Production workers at a company receive basic pay of $16$ an hour for a $7$-hour working day. Overtime is paid at one and a quarter times the basic rate (basic pay plus $25\%$). There is also a bonus of $4$ for each unit produced above $20$ units per day. On Monday, one employee worked $10$ hours and made $25$ units. What was the employee’s pay for Monday?

Costs and cost behaviour

The inventory record for a business over a three-month span is shown. Inwards: January $200$ units at $10$ per unit, January $400$ units at $12$ per unit. Outwards: February $100$ units, March $400$ units. The business applies the AVCO method of inventory valuation. Calculate the value of inventory at the end of March.

Traditional costing methods

At the close of its first year of operation, a manufacturer has inventory. What effect will this have on profit if the manufacturer is deciding between marginal costing and absorption costing?

Costs and cost behaviour

A business has given the following costing figures for its production departments. Machining: total production overheads $180\,000$, machine hours $65\,000$, labour hours $42\,000$. Assembly: total production overheads $260\,000$, machine hours $38\,000$, labour hours $76\,000$. What overhead absorption rate would be appropriate for each department?

Traditional costing methods

A company applies a machine hour basis when absorbing its overheads. The information below relates to its most recent period. Overheads: actual $299000$, budgeted $350000$. Machine hours: actual $46000$, budgeted $50000$. Which statement about overheads is correct?

Traditional costing methods

A company gave the information below for one product. For each unit ($): selling price $15.00$, variable cost $9.00$, fixed cost $4.20$. Planned output and sales amounted to $1200$ units. Calculate the profit earned if actual output and sales were $1500$ units?

Costs and cost behaviour

A manufacturer has a limited number of labour hours available to make three different product types. Which factor should be taken into account in order to maximise profit?

Costs and cost behaviour

A business gave the following details for a product. For each unit ($): selling price $20.00$, variable cost $12.50$, fixed cost $3.50$. What is the contribution to sales ratio?

Costs and cost behaviour

A company has fixed costs amounting to $8000$, and these will rise only once production goes above $40000$ units. It produces and sells $20000$ units of one product. Each unit sells for $10$ and has a contribution to sales ratio of $40\%$. By what amount does profit rise if it produces and sells $30000$ units?

Costs and cost behaviour

On 31 December 2018, a business had a non-current asset with a net book value of $18000$. It had been bought in the year ended 31 December 2017. Depreciation is applied at a rate of $25\%$ per annum by the reducing balance method. In the year when it is purchased, a full year’s depreciation is charged. What was the original cost of the non-current asset?

Accounting for non-current assets

Which statements show the benefits to a business of using a budgetary control system?

The accounting system

The details below refer to the disposal of a non-current asset: profit on disposal: $5200$ cost of non-current asset sold: $14400$ sales proceeds: $6800$ What amount of accumulated depreciation was recorded for the non-current asset that was sold?

Accounting for non-current assets

Which statement is not correct about the advantage to a business of keeping control accounts?

Reconciliation and verification

The sales ledger control account for a business had a balance of $14320$. A customer, who is owed $1000$, has also provided the business with goods worth $400$. This amount was set off against the sum owed by the customer. What was the balance on the sales ledger control account after the set-off?

Reconciliation and verification

What impact does an overvaluation of closing inventory have on the financial statements?

Preparation of financial statements

A company had these assets and liabilities at 31 December 2018: trade receivables: $30000$ trade payables: $12600$ short-term bank deposit: $8800$ bank loan repayable on 1 May 2019: $20000$ bank loan interest unpaid: $500$ motor vehicle: $9400$ What amount of working capital was there?

Preparation of financial statements

For what reason does a trader include accrued income in the accounts?

The accounting system

AB Limited trades as a wholesaler of household goods. The information below has been taken from the accounting records at 31 December 2018.

Preparation of financial statements

Jacques operates as a sole trader. On 31 January 2019, the bank statement showed a debit balance of $1875. This was different from Jacques’s cash book balance of $4327 credit.

Reconciliation and verification

Adam, Bilal and Chan run a partnership that provides secretarial services. There is no formal partnership agreement between the partners.

Types of business entity

D Limited is a large company that runs operations across several sites. It applies different costing systems to its various sites.

Traditional costing methods

R Limited supplied information and summaries after its accounting records were lost because of a computer virus.

Preparation of financial statements

Nibali has supplied the following details for the year ending 31 July 2019.

Analysis and communication of accounting information

Miguel and Bernard are partners, and they share profits and losses in the ratio $2:3$ respectively. The business’s statement of financial position at 31 May 2018 has been supplied.

Types of business entity

Aramis runs a manufacturing business. He has been told that absorption costing should be used in his factory.

Traditional costing methods

S Limited is a private limited company. The directors have prepared the following information at 30 September 2019.

Preparation of financial statements

Moser has supplied details of his non-current assets for the year ended 30 November 2018.

Accounting for non-current assets

Maria operates as a sole trader. Her financial statements for the year ended 31 December 2018 showed the following:

Analysis and communication of accounting information

D Limited produces just one product. Its factory has two production departments, machining and finishing, plus two service departments, stores and maintenance. The accountant has then allocated and apportioned the total factory overheads across the four departments.

Traditional costing methods

On 1 April 2018, a Social Club displayed the following assets and liabilities.

Preparation of financial statements

A new director of R Limited has expressed some concerns about the director’s own role in the company and about the role of the company’s auditors.

Preparation of financial statements

J plc started trading on 1 January 2016.

Analysis and communication of accounting information

On 1 January 2018, X Limited took over the partnership business of Amy and Beth.

Business acquisition and merger

The directors at P Limited are planning to introduce a new product and are weighing up whether to purchase Machine X.

Investment appraisal

Oscar manages a manufacturing business that uses a standard costing system.

Standard costing

Liam is a trader located in Ireland. His draft income statement for the year ended 31 December 2018 is shown below.

Preparation of financial statements

Jack and Paul were two sole traders. On 1 July 2018, they chose to combine their businesses and set up a partnership. Their statements of financial position on 30 June 2018 were as follows.

Business acquisition and merger

Source A4 on R Limited, which carries no inventory.

Preparation of financial statements

Source B1 concerns Young, who makes two products, Product X and Product Y.

Activity based costing (ABC)

Abida makes a product whose demand reaches a seasonal peak in particular months.

Budgeting and budgetary control

T plc is a manufacturing business. It has used the same rate to account for factory profit for several years. The summarised figures below are taken from its statements of financial position at 31 December 2018 and 31 December 2017.

Preparation of financial statements

Amit and Bonnie set up a joint venture to sell street food from a market stall during the holiday season, with profits and losses divided equally between them. The information below is provided.

Preparation of financial statements

Alice and Bruno chose to transfer their partnership business to D Limited on 31 December 2018.

Business acquisition and merger

A key characteristic of large limited companies such as M plc is stewardship.

Preparation of financial statements

Mohindra uses a standard costing system.

Standard costing

Ronaldo is thinking about launching a new product, which means he must buy a new machine. Two options are available, Machine A and Machine B, yet only one can be chosen. Each machine will be sold for scrap after five years and has no residual value.

Investment appraisal