May/June 2020

The proprietor of a business bought a camera to take some photographs of her family. She wants to show it as an asset in the financial statements of the business. Her accountant says that she must not do this. Which accounting principle is the accountant using?

Types of business entity

A business's draft financial statements show a profit for the year of $64000 before allowing for the following adjustments: 1. the provision for doubtful debts is reduced by $300 2. office stationery costing $2400 has been bought but not recorded in the books; by the year end, only one-sixth of this stationery had been used. What is the adjusted profit for the year?

Preparation of financial statements

A company earns rental income by leasing out two properties. For the year ended 31 December 2019, the total rental income received from these two properties was $55000. Additional details for the two properties were as follows. Rent received in advance at 1 January 2019: property 1 $1840, property 2 $0. Rent received in advance at 31 December 2019: property 1 $0, property 2 $720. Rent receivable in arrears at 1 January 2019: property 1 $0, property 2 $2120. Rent receivable in arrears at 31 December 2019: property 1 $1100, property 2 $0. What total amount of rental income would appear in the income statement for the year ended 31 December 2019?

Preparation of financial statements

Finn gave the information below. Capital at the beginning of the year $19800, profit for the year $24000, drawings (cash) $19500, drawings (goods for own use) $1100, private vehicle transferred to business use $6000. What was Finn’s capital at the end of the year?

Preparation of financial statements

What items would be shown in a partnership appropriation account?

Types of business entity

X and Y were partners and divided their profits equally. On 1 March 2019, Z joins as a partner. In future they will share profits in the ratio X:Y:Z = $3:2:1$. The net assets valued at $20000$ have fallen by $8000$ in value. Goodwill is valued at $9000$ but will not be kept in the books of account. What entries should be made in Y's capital account to record these changes?

Types of business entity

At 31 December 2019, the statement of financial position listed these balances. Capital accounts: L $20000, M $10000. Current accounts: L $1000 debit, M $2500 credit. Net assets on 1 January 2019 amounted to $14000. During the year ended 31 December 2019, property was revalued upwards by $12000. No drawings were taken during the year. What profit was made for the year ended 31 December 2019?

Types of business entity

“Shareholders receive a fixed annual dividend, and any dividends not paid are covered from future profits.” What does this statement refer to?

Types of business entity

Which statements regarding a bonus issue of ordinary shares are correct?

Types of business entity

For T Limited, the information below is provided. At 30 June 2018: retained earnings $94000, general reserve $50000, accrued loan interest $3000. At 30 June 2019: retained earnings $148000, general reserve $65000, accrued loan interest $1000. Over the year ended 30 June 2019, T Limited paid the following amounts: dividend $60000, loan interest $27000. Calculate the profit from operations for the year ended 30 June 2019?

Preparation of financial statements

Which ratio indicates to managers the length of time needed to collect payment for goods sold on credit?

Analysis and communication of accounting information

What features do non-current assets have?

Accounting for non-current assets

For G Limited, the information below relates to the year ending 31 December 2019. Share capital $275000, long-term bank loan $180000, current liabilities $120000, profit from operations $244000, bank loan interest $34000, retained earnings including profit for the year $400000. What was the return on capital employed?

Analysis and communication of accounting information

A company has been requested to quote for printing 100 leaflets for a customer. Its total direct materials, direct labour and allocated overheads amount to $820, and 25% profit on cost has been added. Which costing method does this illustrate?

Traditional costing methods

Which business expense could be classified as a stepped cost?

Costs and cost behaviour

The changes in a business’s inventory over a 3-month period are shown below. (date / units received / cost per unit / units issued) January: 100 units were received at $5; January: a further 200 units were received at $6; February: 50 units were issued; March: 200 units were issued. The business applies the first in first out (FIFO) method when valuing inventory. Calculate the value of inventory at the end of March.

Traditional costing methods

A company applies absorption costing using predetermined absorption rates. Which statement concerning absorption rates is correct?

Traditional costing methods

A business allocates fixed overheads on the basis of direct labour hours. The information below is given: (overheads: actual $525000, budgeted $525000; direct labour hours: actual 16300, budgeted 15000; indirect labour hours: actual 2700, budgeted 2500) Which statement is correct?

Traditional costing methods

The information concerns the manufacture of three products. (product X, product Y, and product Z) Contribution from each unit ($): 160 / 175 / 190 Fixed overhead for each unit ($): 125 / 130 / 160 Labour hours needed per unit: 1 / 1.25 / 0.75 The business has a shortage of labour. In what sequence should the products be arranged so that profit is maximised?

Costs and cost behaviour

A company has the following budgeted figures for May. Selling price (per unit): $120 Variable costs (per unit): $80 Total fixed costs: $56000 The company plans to purchase a new machine that will cut the variable costs by 20% and raise fixed costs by 20%. What is the change in break-even sales in units?

Costs and cost behaviour

What does cost-volume-profit analysis assume is the reason costs vary?

Costs and cost behaviour

A business records sales revenue of $400000 and total fixed cost of $140000. The contribution to sales ratio is 40%. What will the sales revenue be if profit for the year rises by $40000?

Costs and cost behaviour

The business’s financial year ends on 31 December. Its motor vehicles are depreciated over four years by the straight-line method. In the year of purchase, depreciation for a complete year is charged, while no depreciation is charged in the year of sale. A motor vehicle bought on 1 July 2016 for $18000 had an estimated residual value of $4000. It was sold on 31 December 2019 for $5000. What profit or loss resulted from the disposal?

Accounting for non-current assets

A company has only recently put budgetary control systems in place, but the employees have failed to meet their targets. The reasons stated for this are as follows:

Costs and cost behaviour

The information below relates to the purchase of a new machine. Machine cost $80000 Less 10% trade discount $8000 Cost after discount $72000 Delivery cost $1200 Installation cost $1800 Annual maintenance cost $4000 The business intends to keep the machine for 5 years. It is predicted to be sold for $5000. What will be the annual depreciation charge using the straight-line method?

Accounting for non-current assets

In a sales ledger control account, what is represented by the debit-side closing balance carried down and the credit-side opening balance brought down?

The accounting system

A business trial balance failed to agree, so a suspense account was opened. The errors below were subsequently found. 1. The sales journal total of $9150 had been posted as a credit in both the sales account and the sales ledger control account. 2. The purchases journal total of $3450 had been recorded correctly in the purchases account, but as $3350 in the purchases ledger control account. 3. Motor expenses of $6450 paid by cheque had been recorded only in the bank account. What opening balance should the suspense account have?

Reconciliation and verification

A bank statement indicated an overdraft of $750. Afterward, the following matters were found. 1. A cheque for $570, sent out to settle rent, had not yet been presented. 2. A cheque received for $624 did not appear on the bank statement. 3. The bank statement showed a bank charge of $50, but this had not been recorded in the cash book. What overdraft amount should be shown in the statement of financial position?

Reconciliation and verification

What is one aim of financial statements?

Analysis and communication of accounting information

When the trader’s income statement was prepared, an electricity accrual of $375 was entered as a prepayment. How did this affect the profit for the year?

Preparation of financial statements

A business charges depreciation on its non-current assets. It then records them in the statement of financial position at net book value. Which accounting concept is the business applying?

Accounting for non-current assets

On 1 March, a company has paid in advance $3600 for 12 months’ travel costs. It also owes $180 for a hotel bill. In March, it settles the outstanding hotel bill and pays a further $700 for airline tickets for the month. At 31 March, it still owes $220 for a hotel bill. What is the correct travel cost to show in the income statement for March?

Preparation of financial statements

At the end of his first year of trading, a business owner gave the information below. inventory at the end of the year $15000$ total payments made to suppliers $60000$ amount still owed to suppliers $5000$ total receipts from customers $85000$ amount still owed by customers $10000$ What was the gross profit for the year?

Preparation of financial statements

How ought interest charged on a partner’s drawings account to be dealt with?

Preparation of financial statements

X, Y and Z operated as partners and divided profits equally. After Z withdrew from the business, the assets were revalued. Goodwill was also measured, but it was not kept in the books of accounts. Which statement about Z’s retirement is correct?

Types of business entity

L and M are partners, and they divide profits and losses in the proportion $3:2$. Their current account balances are shown below. 31 March 2019: L $3000$ credit, M $4500$ debit 31 March 2020: L $14200$ credit, M $6200$ debit The balances at 31 March 2020 include the effect of the following items. interest on drawings: L $1000$, M $1500$ interest on capital: L $3000$, M $2000$ drawings: L $10000$, M $15000$ What was the residual profit available for sharing between L and M for the year ended 31 March 2020?

Preparation of financial statements

At the year end, how should unpaid debenture interest be presented in a company’s financial statements?

Preparation of financial statements

As at 1 December 2019, the statement of financial position for a company showed the following: ordinary shares of $5$ each $2500000$ share premium $850000$ retained earnings $710000$ During 2019: 15 December: an ordinary share interim dividend of $0.15$ per share was paid 23 December: a bonus issue of $25000$ ordinary shares was made The reserves were maintained in their most flexible form. What were the balances on the revenue reserves and capital reserves accounts after these transactions?

Preparation of financial statements

A business applies a uniform mark-up of $25\%$ to its goods. The information provided is as follows. sales revenue $120000$ opening inventory $18000$ purchases $95000$ returns outwards $2000$ What is the value of closing inventory?

Preparation of financial statements

The inventory turnover rate of a company has been worked out for two successive periods. in the current period $5.6$ times in the previous period $4.8$ times Several statements about this change are given below. Which statements could account for the change?

Analysis and communication of accounting information

The items listed below are included in a statement of financial position. inventory $20000$ cash and cash equivalents $3500$ trade payables $11000$ provision for doubtful debts $500$ The current ratio equals $3:1$. What amount do the trade receivables owe?

Analysis and communication of accounting information

Which one is capital income?

The accounting system

Which costs are classified as indirect?

Costs and cost behaviour

The business gave the following details. budgeted overheads $20\,000$ budgeted direct labour hours $2000$ direct labour rate $20$ per hour A job used materials costing $45$ and $6$ hours of direct labour. Overheads are allocated according to the number of direct labour hours worked. What was the cost of the job before any profit was included?

Traditional costing methods

A business has worked out the labour-cost estimates shown below for next month. number of units made: $600$, $800$, $1100$ labour cost in total: $5690$, $6170$, $6890$ What is the fixed labour cost for the month?

Costs and cost behaviour

For what reason are service centre costs allocated to production departments?

Traditional costing methods

For July, the following figures were available for a department. direct labour hours: budget $40\,000$, actual $41\,950$ machine hours: budget $60\,000$, actual $60\,900$ overheads: budget $480\,000$, actual $499\,200$ What amount of overheads was over or under absorbed for July?

Traditional costing methods

Which of the following statements concerning marginal costing are correct?

Costs and cost behaviour

A company has fixed costs of $50\,000$ and a contribution to sales ratio of $40\%$. It earns a profit of $30\,000$. What are the total costs?

Costs and cost behaviour

Which of the following is not one of the assumptions used in cost-volume-profit analysis?

Costs and cost behaviour

A business’s actual output is below the forecast. Which costs would usually remain unchanged from the forecast?

Costs and cost behaviour

A manufacturer makes one product only. The information below is given. selling price per unit $14$ variable costs per unit $8$ fixed costs per annum $96\,000$ Plans are in place to lower the selling price by $3$ per unit and to cut variable costs by $1$ per unit. Fixed costs will not change. What will the new break-even point be?

Costs and cost behaviour

On 1 April 2017, a company bought a machine for $25000. It was depreciated by $20\%$ each year using the straight-line method. Depreciation for a complete year is recorded in the year of purchase, but no depreciation is recorded in the year of sale. The machine was sold on 30 June 2019 for $12500. The company's year-end is 31 December. What was the profit or loss on disposal of the machine?

Accounting for non-current assets

A company has only recently put in place a system of budgetary control. Workers have stated the following reasons for not meeting the budget targets.

Costs and cost behaviour

Why do businesses apply depreciation to their non-current assets?

Accounting for non-current assets

At the close of the financial period, a trader’s trial balance failed to balance, so a suspense account was opened. The errors below were then found. 1. A purchase of inventory costing $650 had not been entered in the accounting records. 2. A vehicle bought by cheque had been credited to bank, but debited to motor expenses. 3. The discount received of $300 had been correctly posted to the purchases ledger control account and was debited to discount allowed account. 4. The purchases account for the year had been totalled incorrectly. Which errors would have an effect on the suspense account?

The accounting system

The business has the following financial information. Draft profit for the year: $12650 Closing capital: $52780 The following error has been found. Private fuel costs, $1930, were entered in the business motor expenses account. What should the corrected figures for the year be?

Reconciliation and verification

The sales ledger control account shows a closing balance of $21000. A contra entry of $700 with the purchases ledger control account was then found to have been posted to the incorrect side of the sales ledger control account. Calculate the correct balance on the sales ledger control account.

Reconciliation and verification

A sole trader does not maintain a full set of accounting records. He thinks that a member of staff has taken some cash. Which of the following items would not be required to work out the missing amount?

Reconciliation and verification

The information below has been given by a business. 31 December 2018: trade receivables $46200, provision for doubtful debts $1386 31 December 2019: trade receivables $48100, provision for doubtful debts $1924 Which statement has to be correct?

Reconciliation and verification

A business owner bought a camera for taking photographs of her family. She wants to record it as an asset in the business’s financial statements. Her accountant tells her that this should not be done. Which accounting principle is the accountant applying?

Types of business entity

A business's draft financial statements indicate a profit for the year of $64000 before the following items are considered. What is the adjusted profit for the year?

Preparation of financial statements

A company earns rental income by leasing out two properties. The total rental income received from these two properties for the year ended 31 December 2019 was $55\,000. Additional details for the two properties were given, including rent received in advance and rent receivable in arrears at 1 January 2019 and 31 December 2019 for property 1 and property 2. What total rental income should appear in the income statement for the year ended 31 December 2019?

Preparation of financial statements

Finn gave the following figures: opening capital for the year $19\,800$, profit earned during the year $24\,000$, cash drawings $19\,500$, goods drawings for personal use $1\,100$, and a private vehicle moved into the business $6\,000$. What was Finn’s capital at the end of the year?

The accounting system

What items would be entered in a partnership appropriation account?

Types of business entity

X and Y formed a partnership and divided the profits equally. On 1 March 2019, Z joins the partnership as a partner. In the future, profits are to be shared in the ratio X:Y:Z = $3:2:1$. The net assets, valued at $20\,000$, have fallen by $8\,000$ in value. Goodwill is valued at $9\,000$ but is not to be kept in the books of account. What entries should be made in Y's capital accounts to record these changes?

Types of business entity

The statement of financial position contained the balances at 31 December 2019 for partners L and M, with both capital accounts and current accounts included. Net assets on 1 January 2019 were $14\,000$. Property was revalued to a higher amount by $12\,000$ in the year ended 31 December 2019. No drawings were taken during the year. What profit was earned for the year ended 31 December 2019?

Reconciliation and verification

“Shareholders have the right to receive a fixed annual dividend, and any dividends not paid can be covered from later profits.” What does this statement refer to?

Types of business entity

Which statements concerning a bonus issue of ordinary shares are correct?

Types of business entity

For T Limited, the available figures are as follows: retained earnings at 30 June 2018 were $94\,000$ and at 30 June 2019 were $148\,000$; general reserve stood at $50\,000$ and $65\,000$; accrued loan interest was $3\,000$ and $1\,000$. In the year ended 30 June 2019, T Limited paid a dividend of $60\,000$ and loan interest of $27\,000$. Calculate the profit from operations for the year ended 30 June 2019.

Preparation of financial statements

Which ratio shows managers the length of time needed to collect payment for goods sold on credit?

Analysis and communication of accounting information

What characteristics do non-current assets have?

Accounting for non-current assets

The following figures are given for G Limited for the year ended 31 December 2019: share capital $275\,000$, long-term bank loan $180\,000$, current liabilities $120\,000$, profit from operations $244\,000$, bank loan interest $34\,000$, retained earnings including profit for the year $400\,000$. What was the return on capital employed?

Analysis and communication of accounting information

A company has been asked to quote for printing 100 leaflets for a customer. The total of direct materials, direct labour and a share of overheads comes to $820$ and $25\%$ profit on cost has been added. Which costing method does this represent?

Traditional costing methods

Which business expense might be classified as a stepped cost?

Costs and cost behaviour

The changes in a business's inventory over a three-month period are given below. Dates and receipts: - January: 100 units at $5 per unit - January: 200 units at $6 per unit - February: issues of 50 units - March: issues of 200 units The business applies the first in first out (FIFO) method for inventory valuation. What was the inventory value at the end of March?

Traditional costing methods

A company applies absorption costing using predetermined absorption rates. Which statement concerning absorption rates is correct?

Traditional costing methods

A business applies fixed overheads on the basis of direct labour hours. The information below is given: - Overheads: actual $525000, budgeted $525000 - Direct labour hours: actual 16300, budgeted 15000 - Indirect labour hours: actual 2700, budgeted 2500 Which statement is correct?

Traditional costing methods

These figures refer to the output of three products. Product details: - Product X: contribution per unit $160, fixed overhead per unit $125, labour hours per unit $1 - Product Y: contribution per unit $175, fixed overhead per unit $130, labour hours per unit $1.25 - Product Z: contribution per unit $190, fixed overhead per unit $160, labour hours per unit $0.75 The company is facing a shortage of labour. To maximise profit, in what order should the products be ranked?

Costs and cost behaviour

A company has the budgeted figures below for May: - Selling price per unit: $120 - Variable costs per unit: $80 - Total fixed costs: $56000 The company plans to purchase a new machine, which will cut variable costs by 20% while raising fixed costs by 20%. What change will there be in break-even sales in units?

Costs and cost behaviour

In cost-volume-profit analysis, what is assumed to make costs vary?

Costs and cost behaviour

A business records sales revenue of $400000 and total fixed cost of $140000. Its contribution to sales ratio stands at 40%. What will the sales revenue be if profit for the year rises by $40000?

Costs and cost behaviour

A business has a year end of 31 December. Its motor vehicles are depreciated over four years by the straight-line method. In the year of purchase, depreciation for a full year is charged, whereas no depreciation is charged in the year of sale. A motor vehicle bought on 1 July 2016 for $18000 had an estimated residual value of $4000. The motor vehicle was then sold for $5000 on 31 December 2019. What was the profit or loss on disposal?

Accounting for non-current assets

A company has only recently put budgetary control systems in place, yet employees have not reached their targets. The reasons stated are as follows:

Costs and cost behaviour

The details below relate to the purchase of a new machine. The business intends to retain the machine for 5 years. It is anticipated that it will be sold for $5000. What is the annual depreciation charge by using the straight-line method?

Accounting for non-current assets

In a sales ledger control account, what do the debit side closing balance carried down and the credit side opening balance brought down show?

Reconciliation and verification

A business trial balance failed to agree, so a suspense account was created. The errors below were then found. What was the starting balance in the suspense account?

Reconciliation and verification

The bank statement indicated an overdraft of $750. The following items were then found. What overdraft figure should be shown in the statement of financial position?

Reconciliation and verification

What is one purpose of financial statements?

Analysis and communication of accounting information

An electricity accrual of $375 was entered as a prepayment when the trader’s income statement was being prepared. How did this affect the profit for the year?

Preparation of financial statements

Hamza and Noor are partners in a service business. The information below has been taken from the partnership’s books of account for the year ended 31 December 2019.

Preparation of financial statements

Ayesha has supplied the following extracts from her business’s financial statements. All purchases are made on credit. Two-thirds of sales are on a credit basis.

Analysis and communication of accounting information

Jason is the person who looks after his business’s accounting records. He has found some mistakes in this year’s accounts.

Reconciliation and verification

G Limited makes celebration cakes. The business applies absorption costing.

Traditional costing methods

Tariq operates a retail business, although he does not keep complete accounting records. Every purchase is made on credit, whereas all sales are for cash. Tariq supplied information relating to the year ended 30 September 2019.

Preparation of financial statements

Q Limited is a small wholesale business. It applies the reducing balance method of depreciation to its delivery vehicles.

Accounting for non-current assets

Xu and Zoe had been partners for several years. They agreed to end their partnership on 1 October 2019.

Types of business entity

DL Limited is shortly going to introduce a system of budgetary control. The directors know that it ought to bring several benefits. Even so, they are unsure about the effect budgetary control will have on the company’s departmental managers.

Costs and cost behaviour

The directors of K Limited are getting the financial statements ready for the year ended 31 October 2019. The information below is provided.

Preparation of financial statements

Daniel, who is a retailer, gets rent from a tenant.

Preparation of financial statements

Balances in Reena’s purchases ledger control account on 29 February 2020, along with data from the books of prime entry for March 2020, are given, together with extra details about errors in a sales ledger control account.

Reconciliation and verification

Y Limited is a major manufacturing business with factories in several locations. The company operates a marginal costing system.

Costs and cost behaviour

Consult Source A1 in the Insert.

Preparation of financial statements

Study Source A2 in the Insert.

Preparation of financial statements

Use Source A3 in the Insert.

Business acquisition and merger

Read Source A4 from the Insert.

Preparation of financial statements

Consult Source B1 in the Insert.

Budgeting and budgetary control

Refer to Source B2 in the Insert.

Activity based costing (ABC)

Read Source A1 from the Insert.

Preparation of financial statements

Refer to Source A2 in the Insert.

Preparation of financial statements

Consult Source A3 in the Insert.

Preparation of financial statements

Consult Source A4 in the Insert.

Preparation of financial statements

Read the Source B1 in the Insert.

Budgeting and budgetary control

Refer to Source B2 in the Insert.

Budgeting and budgetary control

Refer to Source A1 in the Insert.

Preparation of financial statements

Read through Source A2 in the Insert.

Preparation of financial statements

Read Source A3 in the Insert booklet.

Business acquisition and merger

Refer to Source A4 in the Insert.

Preparation of financial statements

Read Source B1 in the Insert carefully.

Standard costing

Read Source B2 from the Insert.

Activity based costing (ABC)