Feb/March 2021

A business measures its inventory at whichever is lower: cost or net realisable value. Which accounting concept is being used?

The accounting system

A sole trader holds a provision for doubtful debts equal to $5\%$ of trade receivables. At the beginning of the year, the provision for doubtful debts stood at $2750. By the end of the year, the information given is as follows: trade receivables $37500; irrecoverable debts written off during the year $500. What is the effect on the profit for the year arising from the change in the provision for doubtful debts?

Preparation of financial statements

Esarba’s financial year ends on 31 December. On 31 March 2020, she introduced her private vehicle into the business at a value of $12000. Her profit for the year ended 31 December 2020 was $7800 and her cash drawings came to $8000. A depreciation charge of $900 had been made on the vehicle. She also withdrew goods for her own use, with a cost price of $1000 and a selling price of $2000. By how much did Esarba’s capital account balance rise in the year ended 31 December 2020?

The accounting system

At the close of his first year of trading, the trader’s entire inventory was destroyed in a fire. He knows the values of sales and purchases and wants to work out the value of the inventory that was lost. Which ratio should he use?

Analysis and communication of accounting information

X and Y were partners and divided profits and losses equally. Z joined the partnership, and the profit and loss sharing ratio for X, Y and Z will be $2:2:1$ respectively. On the admission date, the carrying value of non-current assets was raised by $48000$. Goodwill had a value of $30000$ but would not be kept in the books of account. What effect did this have on X’s capital account?

Types of business entity

Which items would be shown in a partnership’s appropriation account, if there is no partnership agreement?

Types of business entity

Annie and Bernie have been partners for several years, dividing profits and losses in the ratio $2:1$. From 1 January 2020, they agreed to add interest on drawings. For the year ending 31 December 2020, the annual interest on drawings was $1300$ for Annie and $800$ for Bernie. What effect did this have on Annie’s current account balance at 31 December 2020?

The accounting system

At 31 December 2019, the total shareholders’ equity stood at $45500$. In the year ending 31 December 2020, these events occurred. 1 An issue of $10000$ ordinary shares of $1$ each at a premium of $0.25$ was made. 2 A bonus issue of $5000$ shares of $1$ each was made. 3 Buildings were revalued from $250000$ to $265000$. 4 The profit for the year was $20400$. 5 There was a transfer to the general reserve of $6000$. 6 The directors proposed a final dividend of $8000$. Calculate the balance of the shareholders’ equity at 31 December 2020?

Preparation of financial statements

These figures apply to a limited company over a year. repayment of a debenture $200000$ receipt from issue of ordinary shares $500000$ non-current assets purchased by cheque $300000$ net book value of disposals $50000$ disposal proceeds $60000$ revaluation surplus $20000$ What was the total net cash inflow from these items?

Preparation of financial statements

Which items are part of the reserves of a limited company?

Preparation of financial statements

Which ratio can a business use to judge whether it is able to meet its immediate cash needs?

Analysis and communication of accounting information

On 1 May, Tom sold an old motor vehicle that had a net book value of $10000 to Arnold for $12000. Arnold paid $7500 by cheque and accepted that the remaining amount would be settled by instalments. What was the net effect of these transactions on Arnold’s accounting equation on 1 May?

Accounting for non-current assets

At the close of its financial year, the following details were available for a business. inventory $20000$ bank $8400$ credit trade receivables $35000$ trade payables $15000$ rent receivable in arrears $3000$ The business also had a 5-year bank loan of $20000$ to be repaid in equal annual instalments. What was the value of the current ratio?

Analysis and communication of accounting information

A manufacturing company pays its production workers a basic wage at the same hourly rate each week. In addition, they receive a bonus linked to meeting production targets. What type of cost does this illustrate?

Costs and cost behaviour

A firm adds the following quantities of raw material to inventory. 120 units at $38$ per unit, giving a total of $4560$ 100 units at $40$ per unit, giving a total of $4000$ 60 units at $44$ per unit, giving a total of $2640$ It then issued 240 units. Inventory is valued by the weighted average (AVCO) method. What was the closing value of inventory?

Traditional costing methods

The following budgeted figures relate to N Limited. production level 15000 units, total costs $406000$ production level 25000 units, total costs $546000$ What is the budgeted fixed cost?

Costs and cost behaviour

In March, a company had an overhead absorption rate of $2$ per machine hour. In April, this rate went up. What had risen in April and led to the change in the overhead absorption rate?

Traditional costing methods

A business allocates its overheads using machine hours. The information below is given. Overheads (actual): $564000$ Overheads (budgeted): $560000$ Machine hours (actual): $6700$ Machine hours (budgeted): $7000$ By how much are overheads under or over-absorbed?

Traditional costing methods

Which type of situation is generally unsuitable for using marginal costing?

Costs and cost behaviour

Budgeted data for $10000$ units are given below. Selling price for each unit: $53$ Direct materials and wages for each unit: $22$ Variable manufacturing overhead for each unit: $2$ Fixed manufacturing overhead for each unit: $21$ Variable selling expenses for each unit: $1$ Fixed selling expenses for each unit: $5$ What is the budgeted break-even point in units?

Costs and cost behaviour

The budgeted income statement for J Limited gives the figures below. Sales: $400000$ Variable costs: $240000$ Fixed costs: $132000$ Profit for the year: $28000$ What is the margin of safety in dollars?

Costs and cost behaviour

A business has given the budgeted figures below. Break-even sales revenue: $300000$ Fixed costs: $180000$ Target profit: $144000$ What sales revenue is needed to reach the target profit?

Costs and cost behaviour

Which item is excluded from the capital cost of a new machine?

Accounting for non-current assets

What factors should be taken into account when preparing a budget?

Costs and cost behaviour

For what reason does a business charge depreciation on its non-current assets?

Accounting for non-current assets

A company’s motor vehicles had a net book value of $312000 at the start of the year and $305000 at the year end. Over the year, an old vehicle was exchanged in part payment for a new vehicle. The part exchange value for the old vehicle was $8000. The balance of the purchase price of the new vehicle, $30000, was settled by cheque. What was the depreciation charge for the year?

Accounting for non-current assets

A business’s bank statement showed a credit balance of $4520, but this did not match the cash book. The following items were found: (1) Bank charges of $89 had not been recorded in the cash book. (2) Unpresented cheques paid to suppliers totalled $680. (3) A dishonoured cheque for $210 was listed on the bank statement, but had not been entered in the cash book. (4) Sales receipts of $750 had been entered in the cash book, but were absent from the bank statement. What bank balance should be reported in the statement of financial position?

Reconciliation and verification

What might assist a book-keeper in spotting errors in the accounting records of a business?

Reconciliation and verification

The balance at the end of a purchases ledger control account stands at $163762. The purchases journal has been undercast by $1000. What should the corrected closing balance on the purchases ledger control account be?

Reconciliation and verification

A business worked out its draft profit for the year to be $15000. It was then found that: (1) General expenses had been under-recorded by $600. (2) The sales journal total of $55690 had been posted into the sales account as $56590. (3) Repairs to vehicles costing $1100 had been entered in the vehicles (at cost) account. (4) The salaries account included travelling expenses of $2400 that had been paid to the salesmen. What should the correct profit for the year be?

Reconciliation and verification

Faraz, Javed and Leah formed a partnership. Their partnership deed allowed for interest on drawings, interest on capital, a partner's salary, and the ratios for sharing profits and losses. The information for the year ended 31 December 2020 is shown, including the balances, drawings, and profit before appropriation.

Preparation of financial statements

Myra runs a delivery business. The information below relates to her business’s delivery vehicles. Vehicles are depreciated by the straight-line method at $20\%$ per annum. Depreciation is calculated month by month. The business’s financial year end is 31 December.

Accounting for non-current assets

The directors of B Limited have supplied the information below.

Analysis and communication of accounting information

K Limited manufactures goods at two locations and applies marginal costing. At one of the locations, the company makes only one product.

Costs and cost behaviour

Read Source A1 from the insert.

Business acquisition and merger

Refer to Source A2 in the insert.

Preparation of financial statements

Read Source A3 in the insert provided.

Preparation of financial statements

Consult Source A4 in the insert.

Analysis and communication of accounting information

Refer to Source B1 in the insert.

Standard costing

Consult Source B2 in the insert.

Budgeting and budgetary control