May/June 2021

During the financial period, the skill and efficiency of a business’s workforce have risen. The business owner wishes to show a value for this in the financial statements. His accountant recommends that he should not do this. Which accounting concept is being applied by the accountant?

The accounting system

Which items are recorded only on the credit side of a partner’s capital account? 1 goodwill shared in the agreed ratio 2 opening balance figures 3 gain from revaluation of assets 4 amounts transferred from current accounts

The accounting system

A sole trader’s draft profit for the year comes to $47500. No accounting entries have been recorded for the following items. 1 By the year end, trade receivables were $5600 higher than in the previous year. However, an irrecoverable debt of $360 had still not been written off. The trader keeps a provision for doubtful debts at $5%. 2 A machine was disposed of for $4000. Its net book value was $3500. What is the correct profit for the year?

Preparation of financial statements

At the start of the year, a sole trader had trade receivables of $21650. Over the year, irrecoverable debts of $450 were written off. Cash collected from customers totalled $42670. At the end of the year, the statement of financial position showed trade receivables of $25745 after a provision for doubtful debts of $5% had been deducted. How much were the sales for the year?

Reconciliation and verification

L, M and N are partners, and they divide profits and losses in equal shares. N retired on 31 December 2020. On that date: 1 N had a capital account balance of $30000 and a current account debit balance of $5400. 2 The profit for the year was $21000 before L’s salary of $6000 was paid. 3 Goodwill was assessed at $18000, but it will not be kept in the accounting records. 4 The remaining assets are to be increased in value by $6000. How much will N be entitled to on his retirement?

Types of business entity

Charlie and Daphne are partners, and profits and losses are divided in the ratio $2:1$. On 31 December 2019, their fixed capital account balances stood at $20000 and $13000 respectively. On 1 January 2020, they revised the partnership terms so that interest on capital would be paid at the rate of $10\%$ per annum. What effect did this revision have on Charlie’s total share of profit for the year ended 31 December 2020?

Types of business entity

Which of the following would be entered as a debit in the appropriation account of a partnership? 1 interest charged on partners’ drawings 2 interest on the partner’s loan 3 partners’ salaries 4 the partners’ share of goodwill written off

Preparation of financial statements

A company carried out a rights issue of ordinary shares at a premium. How should this be recorded in the financial statements? 1 as equity in the statement of financial position 2 as a movement in the statement of changes in equity 3 as a non-current liability in the statement of financial position

Preparation of financial statements

The income statement of X Limited for 2020 reported the wrong profit figure because $10000 of goods had been counted twice when closing inventory was valued. This wrong inventory valuation was then brought forward and used as the opening inventory for 2021. In February 2021 the directors paid a dividend equal to $40\%$ of the profit for 2020. What were the consequences of the error in inventory valuation?

Reconciliation and verification

The statement of financial position of a company lists the following items. ordinary shares at $0.50$ each $900000 retained earnings balance $450000 long-term bank loan $30000 The company then distributes $100000$ bonus shares of $0.50$ each to its shareholders. What is the total equity after the bonus shares have been issued?

Preparation of financial statements

Which ratios are typically calculated to assess how efficiently a business operates? 1 current ratio 2 gross margin ratio 3 inventory turnover ratio 4 trade receivables turnover ratio

Analysis and communication of accounting information

Marek purchased some machinery on 1 January 2020. The total amount he paid was $50000. A sum of $6000 of this amount was for maintenance of the machinery up to 31 December 2022. Marek charges depreciation on his machinery at $10\%$ per annum. In Marek’s financial statements for the year ended 31 December 2020, how should the expenditure be shown?

Accounting for non-current assets

The details below relate to a limited company at the end of its financial year. ordinary shares of $1$ each $400000 retained earnings (including profit for the year $94500$) $250000 $8\%$ debenture (2028) $100000 bank overdraft $20000 What is the return on capital employed?

Analysis and communication of accounting information

What does the term stepped cost mean?

Costs and cost behaviour

Which business would be likely to use a batch costing system?

Traditional costing methods

The information for a company’s fixed overhead in one period was: budgeted direct labour hours $5000$ actual direct labour hours $5500$ The total budgeted fixed overhead amounted to $50000$. Overheads over-absorbed during the period were $4000$. What was the actual fixed overhead incurred in the period?

Traditional costing methods

In what ways could under-absorption of overheads occur?

Traditional costing methods

Which statements show why a business needs to know the contribution per unit of its production?

Costs and cost behaviour

The information below applies to a month. Sales revenue: 150000 Direct materials: 45000 Direct labour: 28000 Variable overheads: 7000 Fixed overheads: 21000 Calculate the contribution to sales ratio.

Costs and cost behaviour

A company recorded the following results. Sales revenue amounted to 230000 Variable costs came to 92000 Fixed costs were 60000 Profit equalled 78000 What was the margin of safety in dollars?

Costs and cost behaviour

A company’s total fixed costs are $400000. It produces and sells one product at $25 per unit, and its contribution to sales ratio is 80%. How many units must it produce and sell in order to earn a profit of $200000?

Costs and cost behaviour

A trader manufactures and sells one product only. The selling price is $90 and the contribution per unit is $30. If 800 units are sold, the profit is $9600. What will the profit be if 1000 units are produced and sold?

Costs and cost behaviour

Which of the following statements about depreciation are correct?

Accounting for non-current assets

For what reason might a business draw up a budget?

The accounting system

An item of revenue expenditure is misclassified as capital expenditure. What effect does this error have?

Accounting for non-current assets

The information below is given for the preparation of a bank reconciliation statement. cash book bank balance: $20000 debit$ unpresented cheques: $2500$ uncleared bankings: $1400$ standing order on the bank statement that has not been recorded in the cash book: $300$ What balance appears on the bank statement?

Reconciliation and verification

Why does a business keep both a sales ledger control account and separate sales ledger accounts for customers buying on credit?

The accounting system

A businessman thinks that some of his inventory may have been stolen. The information given is as follows. sales revenue: $45600$ purchases: $33600$ inventory at 1 May 2020: $8300$ inventory at 30 April 2021: $4500$ Every item is marked up by $33\frac{1}{3}\%$. What was the value of inventory stolen?

Reconciliation and verification

By the end of the year, Barack’s draft accounts indicated a capital account balance of $4300. His drawings account contained a debit entry of $150 for goods taken for his own use. Barack found that this item had been entered incorrectly at selling price instead of cost price. He sells goods with a mark-up of $50\%$. What should the corrected closing capital account balance be?

The accounting system

The information below relates to a sole trader on 31 December 2020. goods removed by the owner for personal use: $1000$ inventories on 1 January 2020: $10000$ inventories on 31 December 2020: $12000$ purchases: $75000$ returns: debit balance $3000$, credit balance $4000$ What was the cost of sales?

Preparation of financial statements

Which of these items need entries to be recorded in the general journal? 1. purchase of a non-current asset on credit 2. sale of inventory to a customer on credit 3. the owner withdrawing drawings from the business in cash 4. writing off an irrecoverable debt

The accounting system

A sole trader supplied the information shown below. Sales revenue $200000 Inventory at the start $50000 Inventory at the end $75000 Gross margin 25% What was the value of purchases for the year?

Preparation of financial statements

Which item would not be included in the financial statements of a sole trader?

Types of business entity

L and M are partners who divide profits and losses equally. In this year, M’s profit share is $18000. For next year, they intend to revise the partnership agreement so that L gets an annual salary of $10000 and a one-third share of any profits or losses. What must the total partnership profit be for next year so that M receives the same profit amount as in this year?

Types of business entity

V and E are partners, with profits and losses divided equally. Their capital accounts had the following credit balances on 31 March 2021. V: $80000$ E: $40000$ Z joined the partnership as a partner on 1 April 2021. On that date, the following matters were considered. 1. Non-current assets were revalued downward by $20000$. 2. Goodwill was valued at $80000$, but it will not remain in the books of account once Z has been admitted. The revised profit-sharing ratio will be V 40%, E 30% and Z 30%. What balance was on E’s capital account after Z had been admitted?

Types of business entity

Which account is used to work out the profit or loss arising on the dissolution of a partnership?

Types of business entity

Which statements are true when a company makes a bonus issue of ordinary shares?

Preparation of financial statements

At the beginning of the year, a limited company’s equity consisted of the following. Ordinary shares of $1$ each: $200000$ Retained earnings: $120000$ Over the course of the year, these events occurred. 1. Non-current assets were revalued upwards by $70000$. 2. An interim dividend of $30000$ was paid. 3. A 10% debenture (2030) of $10000$ was issued. The profit for the year was $80000$. What did the total equity amount to at the end of the year?

Preparation of financial statements

A limited company’s financial year finishes on 30 June. The information below concerns ordinary dividends. For the year ended 30 June 2019: dividend proposed $12000$ For the year ended 30 June 2020: dividend proposed $19000$ In the year ended 30 June 2020, the company paid the previous year’s proposed dividend in full, as well as an interim dividend of $4300$. What amount of dividends is reported in the financial statements for the year ended 30 June 2020?

Preparation of financial statements

The trade receivables turnover ratio results for two companies are given below. Company X: $45$ days Company Y: $55$ days What can be inferred about Company Y?

Analysis and communication of accounting information

In 2019, a company’s non-current asset turnover ratio was $\frac{20200}{5100} = 3.96$ times. The following changes occurred during 2020. 1. Net revenue remained the same. 2. Discount allowed rose by $400$. 3. Depreciation was $1000$. 4. Purchases of non-current assets came to $1300$. What was the non-current asset turnover ratio in 2020?

Analysis and communication of accounting information

Which statement about depreciation is not correct?

Accounting for non-current assets

Which of the following statements are correct?

Analysis and communication of accounting information

An employee receives basic pay of $20$ per hour for a seven-hour working day. Any overtime is paid at time and a quarter (basic pay plus $25\%$). In addition, for every unit made above eight units per day, a bonus is paid at time and a half (basic pay plus $50\%$). On Monday, the employee worked $10$ hours and made $10$ units. What were the employee's total earnings on Monday?

Costs and cost behaviour

A business applies absorption costing. What items are included in cost of sales?

Traditional costing methods

A business allocates its overheads using machine hours as the basis. The information given is as follows. Overheads: actual $960000$, budgeted $900000$ Machine hours: actual $6200$, budgeted $6000$ By how much were overheads under-absorbed or over-absorbed?

Traditional costing methods

The details below relate to one unit of a product. Selling price: $100$ Contribution: $40$ Profit: $10$ The selling price is forecast to rise by $10$. Costs are forecast to stay the same. What change will there be in the contribution to sales ratio?

Costs and cost behaviour

Use the information below. Selling price per unit: $36$ Direct cost for each unit: $18$ Selling commission per unit: $2$ Overall fixed costs: $180\,000$ Total units produced and sold: $18\,000$ Calculate the margin of safety.

Costs and cost behaviour

How do you calculate break-even revenue?

Costs and cost behaviour

One business produces three products. The information below was given for each unit: Product X - selling price $450$, direct material $160$, direct labour $115$, contribution $175$, fixed overheads $135$, profit $40$ Product Y - selling price $350$, direct material $100$, direct labour $95$, contribution $155$, fixed overheads $110$, profit $45$ Product Z - selling price $400$, direct material $150$, direct labour $190$, contribution $60$, fixed overheads $10$, profit $50$ Direct labour is scarce. Every unit of direct labour is paid at the same hourly rate. In what order should production take place to maximise profit?

Costs and cost behaviour

The information below relates to one month. Selling price per unit: $100$ Contribution per unit: $30$ Total fixed costs were $100\,000$, and budgeted sales amounted to $5000$ units. The directors believe that if the unit selling price is cut to $95$, monthly sales will rise to $6500$ units. What increase in profit would result from this?

Costs and cost behaviour

A business manufactures and sells one product only. Its selling price is $100 and the contribution per unit is $40. At an output level of $500$ units, the business earns a profit of $2000. The direct material price is forecast to increase by $4$ per unit. How many units must be manufactured and sold for the profit to stay the same?

Costs and cost behaviour

Arnaud had a vehicle that was first purchased for $20000. In the year ending 31 May 2021, he spent $3700 on repairs and recorded depreciation of $4000. At 31 May 2021, the vehicle’s net book value stood at $12000. Arnaud disposed of the vehicle on that date, and the loss on disposal was $2500. What were the cash inflows and outflows associated with the vehicle in the course of the year?

Accounting for non-current assets

Which of the following is not an advantage for a business of preparing budgets?

The accounting system

Two years earlier, a business bought two machines at a price of $25000 each. In the third year, one machine, which had a net book value of $16000, was sold. Another machine costing $30000 was bought. Depreciation is charged at 20% per annum by the reducing balance method on all assets owned at the end of the accounting period. What was the depreciation charge for the third year?

Accounting for non-current assets

Which of the following statements about an unpresented cheque are correct? 1. It occurs because of an error of omission. 2. It results from a timing difference. 3. It is included when preparing a bank reconciliation statement.

Reconciliation and verification

The balance on the purchases ledger control account was not the same as the total of the balances in the purchases ledger accounts. The errors below were then found. 1. Contra entries had been omitted from the general journal. 2. Debit balances on the purchases ledger had not been brought into the control account. 3. The total for discount allowed had been entered in the control account. 4. Goods returned to a supplier had not been entered in the purchases returns journal. Which of these errors will need entries to be made in the purchases ledger?

Reconciliation and verification

Which error must be corrected by making an entry in the suspense account?

Reconciliation and verification

A business showed a draft profit for the year of $200000. The following points were later found. 1. Depreciation charges had been overstated by $20000. 2. The value of closing inventory had been overstated by $15000. 3. A year-end accrual for wages was needed, $8000. 4. A year-end adjustment for prepaid insurance, $2500, was required. What was the adjusted profit for the year?

Preparation of financial statements

A trader bought fixtures and fittings on credit from a supplier. They were defective and were sent back to the supplier. Which entry in the trader’s books of account showed the return?

Accounting for non-current assets

A business bought a pocket calculator for the book-keeper to use. The accountant recorded it as an expense in the income statement. Which accounting concept is applied?

Accounting for non-current assets

Marianna lets Paul use a section of her premises. On 1 April 2020, the rent receivable account carried a balance of $800, because Paul still owed rent for the final month of the financial year that ended on 31 March 2020. With effect from 1 April 2020, the annual rent rose by $5\%$. During the year ending 31 March 2021, Marianna received a total of $10\,040 from Paul. Which amounts ought to be entered in Marianna’s financial statements for the year ended 31 March 2021?

Preparation of financial statements

X operates as a sole trader. Which statement about X is correct?

Types of business entity

John withdrew goods from the business for his own personal use. They had cost $125$, and $20$ had been paid to deliver them to the business premises. How was this entered in John’s books of account?

The accounting system

P and Q carried on a partnership and divided profits and losses equally. R was then admitted into the partnership. The conditions for R’s admission were these. 1. R brought in capital of $20\,000$ in cash together with a vehicle worth $6\,000$. 2. Non-current assets were revalued to give an increase of $14\,000$. 3. Goodwill was assessed at $10\,000$, but it will not be kept in the books of account. 4. The revised future profit-sharing ratio will be P, Q, R $2 : 2 : 1$. What opening balance should be shown on R’s capital account?

The accounting system

H and D are partners in a partnership. They are charged $5\%$ interest on their annual drawings. For the year ending 30 April 2021, their appropriation account gave the following figures: Interest on drawings: H $2\,080$, D $1\,520$ Interest on capital: H $2\,000$, D $1\,000$ Salaries: H $20\,000$, D $15\,000$ Share of profits: H $63\,000$, D $42\,000$ At 1 May 2020, H’s current account had a debit balance of $3\,300$. What credit balance was shown on H’s current account at 30 April 2021?

The accounting system

L and M are in partnership. The following information for the partnership concerns 2020: Profit before appropriation $88\,000$ Interest on drawings: L $1\,000$, M $1\,000$ Interest on capital: L $3\,000$, M $1\,000$ The profits are divided in the same proportion as the balances on the partners’ capital accounts. How much of the residual profit goes to L?

Preparation of financial statements

A company’s statement of financial position lists these balances: Ordinary shares of $1$ each: $100\,000$ Share premium: $10\,000$ Retained earnings: $48\,000$ Bank (debit): $50\,000$ A bonus issue of one ordinary share for every four ordinary shares held is made. The reserves are maintained in their most flexible form. What will the revised account balances be?

The accounting system

What information is presented in the statement of changes in equity?

Preparation of financial statements

The details below are given for a limited company on 31 December 2020: Non-current assets $200\,000$ Shareholders’ equity $170\,000$ $5\%$ debentures (2028) $40\,000$ Bank loan $150\,000$ The bank loan is to be repaid in five equal annual instalments, with the first instalment due on 1 June 2021. What was the total working capital on 31 December 2020?

Preparation of financial statements

A trader has kept a provision for irrecoverable debts for several years. He is now thinking about lowering the percentage rate used for that provision. Which ratios would be affected by this change?

Analysis and communication of accounting information

Which of the following is not a reason for a business to keep a purchases journal?

The accounting system

The data below are provided for a business for the year ending 31 December 2020: Rate of inventory turnover $20$ times Opening inventory $40\,000$ Closing inventory $20\,000$ Gross margin $25\%$ What was the revenue for the year ending 31 December 2020?

Analysis and communication of accounting information

The details below relate to direct materials for one month: Opening inventory: $1\,000$ kg at $20$ per kg Purchases: $20\,000$ kg at $22$ per kg Closing inventory: $3\,500$ kg Inventory is measured by the first in, first out (FIFO) method. What was the cost of materials issued to production during the month?

Traditional costing methods

Alice carries out her business from home, making and selling greetings cards. Every cost in her business is variable. Alice intends to double her output. To achieve this, she will need to rent a small workshop. Which costs will rise?

Costs and cost behaviour

In absorption costing, which costs are taken into account when working out cost of sales?

Traditional costing methods

A company has planned the following factory overheads for the next financial year. Machining and assembly are the production departments, while stores is the service department. The two production departments sent requisitions to stores as shown below: machining: 120 assembly: 80 overall: 200 What was the budgeted overhead absorption rate for the machining department, based on 4300 budgeted machine hours?

Traditional costing methods

Which per-unit figures are not enough to allow the calculation of the contribution to sales ratio?

Costs and cost behaviour

Which of the following statements about the break-even point is correct?

Costs and cost behaviour

Which assumptions used in cost-volume-profit analysis are correct?

Costs and cost behaviour

In April, a business produced $4000$ units and sold $3600$ units. The total costs shown below were incurred. Opening inventory was nil. The business values inventory by marginal costing. What is the closing inventory value?

Costs and cost behaviour

A producer has fixed costs of $\$300\,000$. It produces and sells one product at $\$80$ for each unit. The contribution to sales ratio is $60\%$. How many units must it sell to earn a profit of $\$600\,000$?

Costs and cost behaviour

A business bought a machine and made these payments: machine cost $7500; alterations to improve efficiency $1200; insurance for $12$ months $400; installation costs $800. What amount should be recorded as the machine’s cost in non-current assets?

Accounting for non-current assets

Which statements relating to the use of a budgetary control system are correct?

The accounting system

A business ended its financial year on $31$ December $2020$. On $1$ September $2020$, it disposed of an old motor vehicle and acquired a replacement. How were these entries shown in the provision for depreciation account on $1$ September $2020$?

Accounting for non-current assets

In the year ending $31$ December $2017$, a business bought a vehicle costing $23500$. It was then sold on $30$ September $2020$ for $3500$. Depreciation was recorded at $20\%$ per annum by the straight-line method. A full year’s depreciation was charged in both the year of purchase and the year of disposal. What was the profit or loss on disposal of the vehicle?

Accounting for non-current assets

X sold Y goods on credit at a list price of $5000$. When X drew up the invoice, he failed to allow Y $10\%$ trade discount. What effect did this mistake have on X’s books of account?

The accounting system

At the close of a financial year, the debit balance shown in a trader’s sales ledger control account was $26800$. On the same date, the balances in the sales ledger added up to $30000$. He later found the following errors: 1. A dishonoured cheque for $1000$ had not been entered in the sales ledger control account. 2. A sales ledger credit balance of $500$ had been recorded as a debit balance. 3. The sales journal had been undercast by $1200$. Determine the amount of trade receivables that should be shown in the statement of financial position.

Reconciliation and verification

From his books of account at $31$ March $2021$, a trader noted the following figures: purchases ledger balances at $1$ March $2021$ $32100$; credit purchases made during March $26400$; cheques paid to credit suppliers in March $29700$; contra with sales ledger $600$; discount received $400$. What was the closing balance on the purchases ledger control account at $31$ March $2021$?

The accounting system

Certain closing inventory items have been entered in the financial statements at cost prices instead of net realisable values. What effect did this mistake have?

Preparation of financial statements

Suyin runs a small retail enterprise, and she has not kept complete accounting records.

Preparation of financial statements

Karis and Lara operate a partnership.

Types of business entity

The statement of financial position for C Limited at 31 December 2020 is presented together with comparative figures for 31 December 2019.

Preparation of financial statements

P Limited operates as a manufacturing business.

Costs and cost behaviour

N Limited is a trading business that sells only on credit. The information below was available on 31 December 2020.

Preparation of financial statements

Zak operates a wholesale business and sells on credit.

Reconciliation and verification

Jason drew up the statement of financial position below, but it included errors.

Reconciliation and verification

T Limited produces goods in two factories, Factory A and Factory B. Factory A contains two production departments, Assembly and Finishing, as well as two service departments, Administration and Canteen. Absorption costing is used in this factory. The budgeted overheads for February 2021 have already been apportioned. The basis to use for reapportioning the service department overheads is as follows:

Traditional costing methods

Adam runs a retail business. He knows that, when drawing up the financial statements for his business, he has to observe certain accounting concepts. He has finished the trading section of the income statement for the year ended 31 December 2020, but some mistakes were made.

Preparation of financial statements

Hamid keeps control accounts so he can check how accurate the purchases ledger and sales ledger are in his business.

Reconciliation and verification

Cherry, Winston and Yupar formed a partnership and split profits and losses in the ratio $3:5:2$. They agreed to dissolve the partnership on 1 December 2020. On that date, the partnership’s statement of financial position was as follows.

Types of business entity

T Limited makes just one product. The budgeted figures below are provided. The selling price per unit is $36. Budgeted monthly output and sales are 1200 units.

Costs and cost behaviour

Consult Source A1 in the insert.

Preparation of financial statements

Read Source A2 from the insert.

Analysis and communication of accounting information

Look at Source A3 in the insert.

Business acquisition and merger

Refer to Source A4 in the insert.

Preparation of financial statements

Refer to Source B1 in the insert.

Budgeting and budgetary control

Consult Source B2 in the insert.

Investment appraisal

Please read Source A1 in the insert.

Business acquisition and merger

Use 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.

Preparation of financial statements

Section B: Cost and Management Accounting. Refer to Source B1 in the insert.

Activity based costing (ABC)

Refer to Source B2 in the insert.

Budgeting and budgetary control

Use Source A1 in the insert.

Preparation of financial statements

Read Source A2 in the insert first.

Analysis and communication of accounting information

Refer to Source A3 in the insert.

Business acquisition and merger

Consult Source A4 in the insert.

Preparation of financial statements

Section B: Cost and Management Accounting. Consult Source B1 in the insert.

Budgeting and budgetary control

Read Source B2 from the insert.

Investment appraisal