Feb/March 2020

A trader sells goods for $6600 to a customer on 31 March 2019, which is the final day of his financial year. An invoice is not issued until three days afterwards. He is told that the sales of $6600 ought to be recorded in the financial statements for the year ended 31 March 2019. Which accounting concepts are being applied?

The accounting system

On 1 May 2018 Trevor showed a debit balance of $3000 in his rent receivable account. Rent received over the year was: 28 May 2018: $18{,}000 30 November 2018: $16{,}000 By 30 April 2019, Trevor was owed $4000 in respect of rent for the period ending 30 April 2019. Which entry ought to be recorded in the income statement for rent receivable for the year ended 30 April 2019?

Preparation of financial statements

A sole trader records a profit for the year of $31{,}000 after allowing for the following items: carriage inwards $2600 decrease in provision for doubtful debts $1500 discount received $2000 other expenses $28{,}000 profit on disposal of non-current asset $300 What was the gross profit for the year?

Preparation of financial statements

X and Y are partners and divide profits and losses equally. Y began with a current account balance of $1350 debit. The profit remaining for the year was $23{,}500. Y was entitled to: interest on capital $1200 salary $14{,}500 Y withdrew $25{,}000 during the year. What was the closing balance on Y’s current account at the end of the year?

The accounting system

F and P are carrying on a business and sharing profits and losses in the ratio $3:1$. Their capital account balances stand at: F $90{,}000 P $60{,}000 B joins as a new partner and contributes $50{,}000 as capital. Goodwill is assessed at $20{,}000 and is not to remain in the books of account. The revised profit sharing ratio will be $2:2:1$ for F, P and B respectively. What will be the new capital account balance of F after B’s admission?

Types of business entity

L and M are partners, and their profits and losses are shared in proportion to the capital each has put into the business. The information below is given: capital: L $68{,}000, M $102{,}000 profit for the year before appropriation $28{,}900 drawings: L $8000, M $12{,}000 No interest is payable on drawings of up to $10{,}000 for each partner. Any drawings above $10{,}000 are charged interest at $5\%$. How much of the residual profit belonged to L?

Preparation of financial statements

Which item is included in the statement of changes in equity?

Preparation of financial statements

Which of the following statements about bonus shares is correct?

Types of business entity

On 1 January 2019, the equity of P Limited stood at $668{,}000$. For the year ended 31 December 2019, profit amounted to $120{,}000$. The following events also occurred during the year ended 31 December 2019: 1 April: an interim dividend of $40{,}000$ was paid 1 July: $50{,}000$ was transferred from retained earnings into general reserve 1 October: $5\%$ debentures worth $200{,}000$ were issued 31 December: a final dividend of $30{,}000$ was proposed What total equity did P Limited have at 31 December 2019?

Preparation of financial statements

A business added a mark-up of $25\%$. Which statement is true?

Traditional costing methods

A company’s annual results showed credit sales of $500{,}000. The trade receivables collection period was $73$ days. In the following year, credit sales were forecast to be $550{,}000 and the collection period was expected to remain unchanged. What percentage change is expected in trade receivables?

Analysis and communication of accounting information

The costs listed below for a business are connected to a machine that has just been bought. Which of these costs would count as capital expenditure?

Accounting for non-current assets

A business has these current assets and current liabilities. trade receivables $6000$ bank overdraft $1500$ cash in hand $50$ trade payables $5050$ Inventory is the only other item included in working capital. The current ratio is $2:1$. What is the value of the inventory?

Analysis and communication of accounting information

A mechanic undertakes routine maintenance on factory machines. He earns an annual salary of $20000$. What type of cost is this?

Costs and cost behaviour

A manufacturer applies the weighted average cost (AVCO) method to value inventory. The opening inventory amounted to $10$ units at $50$ each. Over the month: $30$ units were bought for $70$ each. $20$ units were sold for $80$ each. What was the inventory value at month end?

Traditional costing methods

Which statement is correct as production rises?

Costs and cost behaviour

Why could absorption costing be used?

Traditional costing methods

The following details are given for a business. Budgeted fixed overheads $180000$ for $10000$ hours. Actual fixed overheads $190000$ for $11000$ hours. What was the over-absorption or under-absorption of fixed overheads?

Traditional costing methods

A business intends to sell every one of the $10000$ units it will make next year at this year's price. Direct costs are expected to fall by $2$ per unit, and total fixed costs are expected to rise by $40000$. What effect will this have?

Costs and cost behaviour

The business has the following data. Sales revenue $600000$ Variable cost $180000$ Break-even sales revenue $400000$ What profit is earned for the period?

Costs and cost behaviour

Which of the following statements about cost-volume-profit analysis are correct?

Costs and cost behaviour

A business is predicting its profits at two different activity levels. When $5000$ units are sold: Combined fixed and variable costs are $20000$ Profit is $15000$ Sales revenue is $35000$ When $8000$ units are sold: Combined fixed and variable costs are $26000$ Profit is $30000$ Sales revenue is $56000$ Within the range of activity above, fixed costs and selling prices stay unchanged. What forecast profit would there be if sales were $7000$ units?

Costs and cost behaviour

The data given is: Freehold premises, cost: $125000 Provision for depreciation of freehold premises: $50000 After revaluation, the premises were valued at $180000. Which journal entries are needed to record the revaluation?

Accounting for non-current assets

Why does a business draw up budgets?

Analysis and communication of accounting information

A business has a year end date of 31 December. It bought a motor vehicle on 1 January 2017 for $15000. The motor vehicle was then sold on 31 March 2019 for $8000. Depreciation is worked out at 20% each year by the reducing balance method on a month by month basis. What is the accumulated depreciation and profit or loss on disposal of the motor vehicle?

Accounting for non-current assets

The trial balance fails to agree, so a suspense account is created. Later, the following errors are discovered and the suspense account is cleared. What was the opening balance on the suspense account?

Reconciliation and verification

The sales ledger control account contained the following entries. Which of these entries should be amended?

The accounting system

The company’s bank statement displayed a credit balance of $2000. These errors were identified. What was the cash book balance before the errors were corrected?

Reconciliation and verification

A business sets up a provision for doubtful debts equal to 10% of trade receivables. The provision at 31 March 2018 stood at $8300. The trade receivables after deducting the provision on 31 March 2019 were $55800. By how much did the provision change over the year?

Preparation of financial statements

A trader dispatched goods to a customer on a sale or return basis. By the close of the trader’s year end, no information had been received about whether the customer had accepted the goods. In the trader’s books of account, where ought the value of the goods to be shown at the year end?

Reconciliation and verification

The information below is provided for S Limited for the year ended 31 December 2019.

Preparation of financial statements

A business makes provision for depreciation when it accounts for non-current assets.

Accounting for non-current assets

Eden operates a small business and has supplied information for the year ending 31 December 2019.

Reconciliation and verification

Cuthbert owns a manufacturing business with two production departments and one service department. The business allocates and apportions overhead expenditure across the production and service departments.

Traditional costing methods

Consult Source A1 in the Insert.

Preparation of financial statements

Consult Source A2 in the Insert.

Preparation of financial statements

Refer to Source A3 in the Insert.

Preparation of financial statements

Consult Source A4 in the Insert.

Regulatory and ethical considerations

Use Source B1 in the Insert.

Budgeting and budgetary control

Consult Source B2 in the Insert.

Investment appraisal