Oct/Nov 2021

A trader maintains a complete set of accounting records. Which of the following statements is accurate?

The accounting system

The following figures have been taken from the statement of financial position of a sole trader at 31 March 2021: Non-current assets $\$130000$ Current assets $\$32000$ Current liabilities $\$18000$ Non-current liabilities $\$25000$ Profit for the year ended 31 March 2021 $\$20000$ Drawings $\$15000$ What is the balance on the capital account at 31 March 2021?

Preparation of financial statements

At the beginning of the year, a sole trader’s capital account showed a balance of $183000. The following events occurred during the year. 1. The owner brought a motor vehicle into the business. Its cost was $90000 and its market value was $74000. 2. The owner withdrew cash drawings of $15000. 3. The owner removed inventory for personal use. This had a cost of $24000 and a selling price of $32000. Once these items and the profit for the year had been recorded, the closing balance on the capital account was $265000. What was the profit for the year?

The accounting system

Why would a sole trader choose to form a partnership?

Types of business entity

X and Y are partners in a partnership. The information below is about the partnership. Current account balances: - X: opening balance $12000 credit, closing balance $17500 credit - Y: opening balance $6000 credit, closing balance $4000 debit These transactions occurred during the year. Drawings: - X: $13000 - Y: $19000 X was paid a salary of $5000. Calculate the profit for the year before appropriation.

Preparation of financial statements

L, M and N were partners who shared profits and losses equally. N’s capital account was shown as follows: - Motor vehicle $7000 - Bank $8000 Grand total $15000 Closing balance brought down $14000 Current account $1000 Grand total $15000 What accounts for the figures shown in the capital account?

Types of business entity

A shareholder disposes of some ordinary shares at a price higher than the amount he originally paid. What is the effect on the company's statement of financial position?

Types of business entity

The equity of X Limited on 30 June 2021 was made up of the following: - Share capital $600000 - Share premium $100000 - Revaluation reserve $90000 - General reserve $50000 - Retained earnings $80000 What is the largest total dividend that could be distributed to shareholders?

Preparation of financial statements

At 31 May 2020, the inventory figure for a limited company had been overstated by $20000. What effect did this mistake have on retained earnings?

Preparation of financial statements

What drawbacks arise when accounting ratios are used to compare firms within the same industry?

Analysis and communication of accounting information

Abdul is evaluating how profitable and efficient his business is, using these figures taken from the financial statements: - Non-current assets at cost $70000 - Net book value of assets $53000 - Revenue $340000 - Profit from operations $84000 Calculate the non-current asset turnover.

Analysis and communication of accounting information

In a three-column cash book, the discount column totals were $\$320$ on the debit side and $\$140$ on the credit side. What entries are recorded when these totals are posted to the nominal ledger?

The accounting system

The information below was given for a business for the year ending 31 December: - Annual sales $400000 - Gross margin $20\% - Rate of inventory turnover 4 times - Opening inventory $60000 What was the closing inventory value?

Analysis and communication of accounting information

A manufacturing business is presently working at full capacity. As part of an expansion plan to raise production capacity, the business plans to hire an extra factory supervisor. How are total supervisory salaries classified?

Costs and cost behaviour

The budgeted figures below are given: - Output of 20000 units, total costs of $240000 - Output of 32000 units, total costs of $326400 What are the fixed costs?

Costs and cost behaviour

A business applies its overheads using direct labour hours as the absorption basis. The information given is: - Overheads: actual $560000, budgeted $546000 - Direct labour hours: actual 19300, budgeted 18200 What is the amount of under- or over-absorption of overheads?

Traditional costing methods

Which would be a suitable basis for allocating depreciation to production departments? 1 machine operating hours 2 machinery net book value 3 the number of machines 4 machinery's original cost

Traditional costing methods

The details provided are as follows. Per unit: Selling price $10$ Variable costs $4$ The budgeted break-even sales volume is 15000 units. The budgeted sales volume is 20000 units. What were the fixed costs?

Costs and cost behaviour

A business raised its profits by switching from marginal costing to absorption costing. Which statement is correct?

Traditional costing methods

A company manufactures and sells one product. The budgeted figures below relate to one month. Selling price per unit $750$ Variable costs per unit $550$ Total monthly sales 600 units Total fixed costs $80000$ The directors can cut the variable costs to $500$ per unit. By how many units may budgeted sales fall in order to make the same monthly profit?

Costs and cost behaviour

Which assumption used in cost-volume-profit analysis is incorrect?

Costs and cost behaviour

A business makes four products: A, B, C and D. The information for these products is displayed below. During the next month, the labour hours available for production are restricted and just one product may be made. Which product should be produced to maximise profit?

Costs and cost behaviour

After being used for two years, a company disposed of one of its delivery vehicles for $\$2800$. The vehicle had originally cost $\$6500$. The company writes down its vehicles by $30\%$ per annum using the reducing balance method. What was the profit or loss on disposal?

Accounting for non-current assets

Why would a business make use of budgets? 1 to work out the demand level for its product 2 to provide a yardstick for judging actual performance 3 to find out how much raw material suppliers will be able to provide

Analysis and communication of accounting information

A trader uses the revaluation method to depreciate loose tools. At the end of the year, which account is credited to record depreciation on loose tools?

Accounting for non-current assets

A business disposed of one of its non-current assets. The details for this asset are shown below: Purchase price was $\$50000$ Depreciation charged up to the date of sale was $\$20000$ The asset was sold for $\$60000$ What was the effect of this transaction on the net assets in the year in which the asset was sold?

Accounting for non-current assets

Which entries appear on the credit side of a sales ledger control account? 1 allowance made for irrecoverable debts 2 contra entry with purchases ledger control account 3 debts written off as irrecoverable 4 refunds to customers who overpaid

The accounting system

A business left out discounts allowed of $\$700$ from its trial balance. Over the year, a machine was sold for cash, $\$500$, but the only accounting record entered was a debit to the bank account. What is the balance on the suspense account before these errors are corrected?

Reconciliation and verification

Felix withdrew $\$200$ from his business bank account to increase his petty cash float. When he entered this in his cash book, he swapped the debit and credit postings. Even so, the bank balance shown in his cash book matched the balance on his bank statement on that same date. How could this happen?

Reconciliation and verification

A business has worked out a draft profit for the year. The following matters have been identified. 1 A customer has been made bankrupt and cannot settle the amount owing. 2 Unsold goods sold on a sale or return basis have been entered in inventory. 3 Rent paid in advance has not been recorded. 4 The owner's cash drawings have been posted to the owner's capital account. Which of these must be adjusted in order to work out the correct profit for the period?

Preparation of financial statements

A trader has drawn up financial statements that include wages owed to her employees but not yet paid. Which accounting concept is being used?

The accounting system

Frieda’s doubtful debts account for the year included a debit entry to show the alteration in the amount provided. The provision rate for doubtful debts has stayed the same. What could have occurred during the year to make this entry needed?

The accounting system

A trader’s income statement showed sales of $10000$ and cost of sales of $7070$. During the year, the trader withdrew goods for personal use, with a cost of $280$ and a selling price of $410$, but this had not been entered. What impact did the omission have on gross margin?

Preparation of financial statements

William purchases radios at $10 each and sells them at $15 each. In his draft statement of financial position, inventory was shown at $1500. The way he calculated inventory was correct. Afterwards, he discovered that 12 radios could be sold only at $8 each and that 4 radios had been stolen. By what amount should William reduce his inventory valuation?

Preparation of financial statements

This sole trader has not maintained a complete set of double-entry records. The information below refers to the business for the year ending 31 March 2021. Every item is marked up by 25%. What were the purchases and the profit for the year?

Reconciliation and verification

In the absence of a partnership agreement, which statement is correct?

Types of business entity

X and Y are partners who share profit and loss in equal proportions. Their capital account balances together amount to $200000. Z has been brought in as a new partner. Non-current assets were increased in value by $30000. Goodwill had a valuation of $20000, but it was not to remain in the books of account. After Z joined, the partners’ capital accounts had a combined total of $270000. What amount of capital was introduced by Z?

Types of business entity

A company’s statement of financial position on 1 January 2020 showed these figures. During the year ending 31 December 2020, the following transactions occurred. 1 The company issued an additional 50000 ordinary shares at a premium of $1 per share. 2 The company’s land was revalued upwards by $130000. 3 The company paid a final dividend of $60000. What were the total revenue reserves and capital reserves at 31 December 2020 after these three transactions?

Preparation of financial statements

A company reassessed its premises to a higher value. Which statement about this increase in value is correct?

Accounting for non-current assets

The table sets out a company’s equity and liabilities as at 31 December 2020. What is the total amount of non-current liabilities shown in the statement of financial position on 31 December 2020?

Preparation of financial statements

A business’s non-current asset turnover increased from 2020 to 2021, although net revenue remained unchanged in the two years. What led to the improvement in the ratio?

Accounting for non-current assets

If the business is no longer a going concern, on what valuation basis are non-current assets measured?

Accounting for non-current assets

A business has given the following information. What is the trade payables turnover?

Analysis and communication of accounting information

If a company makes 5000 units of a product, it needs one supervisor. If output rises above 5000 units, then two supervisors are needed. Which type of cost does this illustrate?

Costs and cost behaviour

A business has 20 workers employed as production staff. Each worker works 40 hours per week, earning $7.80 per hour. The bonus equals 20% of basic rate pay per hour for every product made above 120 units for each employee. During one week, each employee made 145 units. What was the total wage bill for the week?

Costs and cost behaviour

A business applies absorption costing when determining its selling prices. Which overheads are included through the overhead absorption rate?

Traditional costing methods

A business uses absorption costing and sets its selling prices by adding a mark-up of 50%. For each unit of product X, the direct cost is $60 and the selling price is $150, and two hours of machine time are needed. What is the overhead absorption rate per machine hour?

Traditional costing methods

The business started with no opening inventory. During one month, it made $4000$ units and sold $3500$ units. The information below is given: Selling price per unit $= 70$. Variable cost per unit $= 30$. Fixed cost per unit $= 15$. How would inventory value and profit differ under absorption costing and marginal costing?

Traditional costing methods

Which costs are included in the marginal cost of a product?

Costs and cost behaviour

The following information was supplied by a company: Variable costs $= 540000$. Contribution $= 360000$. Fixed production costs $= 100000$. Fixed selling and distribution costs $= 320000$. Calculate the budgeted break-even sales revenue.

Costs and cost behaviour

The information about two products produced by a company is shown below. Product X: selling price per unit $= 13$, variable cost per unit $= 11$. Product Y: selling price per unit $= 8$, variable cost per unit $= 4$. The company can sell at most $11000$ units of X and $9000$ units of Y. However, because of production limits, it cannot make more than $10000$ units of X and Y in total. Which production combination will maximise profits?

Costs and cost behaviour

A manufacturer aims for a profit of $80000$ per annum. In the previous year, the business earned a profit of $60000$ when $10000$ units were made and sold. The contribution was $10$ per unit. To reach the target profit, the plan is to raise advertising by $10000$ per annum. The variable cost per unit and the selling price per unit will stay the same. What would the total fixed cost be if this plan is implemented?

Costs and cost behaviour

The financial year of a business finishes on 31 December. Its machinery is depreciated on a monthly basis. The straight-line method is applied at $10\%$ per annum. A machine with a cost of $12000$ was purchased on 1 January 2019 and disposed of on 31 March 2020. Which entries for this machine were entered in the provision for depreciation of machinery account for the year ended 31 December 2020?

Accounting for non-current assets

What benefits does a budgetary control system provide?

The accounting system

A business acquired a non-current asset costing $500000$ and expected it to remain in use for $20$ years. At the end of that period, it was forecast to have a residual value of $100000$. Depreciation was calculated using the straight-line method. The non-current asset was sold after $10$ years for $120000$, and the selling costs amounted to $10000$. What was the loss on disposal?

Accounting for non-current assets

Which items count as capital expenditure?

Accounting for non-current assets

A sales ledger control account displayed a debit balance of $15000$. The errors below were then found. 1. Returns outwards, $200$, had been entered on the credit side of the sales ledger control account. 2. A contra entry with the purchases ledger control account, $400$, had been posted on the debit side of the sales ledger control account. 3. A customer balance of $300$ had been written off in the sales ledger control account, but no entry had been made in the sales ledger. What figure for trade receivables ought to be shown in the statement of financial position?

Reconciliation and verification

At 31 May, the cash book showed a debit balance of $5760$ on the bank account. During the reconciliation of the bank account against the bank statement, these items were noted: amount not yet credited by bank $900$ bank charges $120$ dishonoured cheque $340$ unpresented cheque $740$ What amount appeared on the bank statement at 31 May?

Reconciliation and verification

A trader keeps a complete set of accounting records. Every month she sends out many sales invoices. In which book of account does she enter one sales invoice?

The accounting system

Brian ran a service business that kept no inventory. On 1 April, his current assets and current liabilities were: trade receivables $10000$ trade payables $6100$ bank overdraft $1900$ On that date, he offset a sales ledger balance of $600$ against a purchases ledger balance and then made a provision for doubtful debts of $5\%$. What is the value of his working capital after these adjustments?

The accounting system

A company does not record the value of the skills its employees acquire from training programmes in its financial statements. Which accounting concept is being used?

Accounting for non-current assets

In a business's financial statements, one item of capital expenditure has been classified as revenue expenditure when it should not have been. What effect does this mistake have on the financial statements?

Accounting for non-current assets

The information below relates to a business. At the beginning of the year: - non-current assets: $45000 - current assets: $17800 - current liabilities: $11300 During the year: - drawings: $5000 - profit for the year: $6950 What is the capital account closing balance at year end?

Preparation of financial statements

A trader did not maintain complete accounting records. The following details were available for 2020: - trade payables at 1 January: $32785 - trade payables at 31 December: $43630 - payments made to suppliers during the year: $72830 - discounts received in the year: $3450 What was the purchases value?

Reconciliation and verification

In what way would each of the following transactions change the owner’s equity of a sole trader? - paying the owner’s private motoring expenses from the business bank account - taking out a long-term loan to pay for the purchase of new business machinery

The accounting system

A partner is leaving a partnership business. How should goodwill be accounted for if no goodwill remains recorded in the books of account?

Types of business entity

X, Y and Z are partners, and they share profits and losses equally. At 31 December 2020, the balance on X’s capital account was $100000 and the credit balance on X’s current account was $80000. X retired on 1 January 2021. Non-current assets and goodwill were revalued upwards by a combined total of $60000. On retirement, X left half of the amount owing to her as a loan to the partnership. The remaining amount was settled by cheque. What amount was paid to X?

Accounting for non-current assets

At the beginning of its financial year, a company had share capital consisting of 100000 ordinary shares of $1 each. The following transactions occurred during the year: 1. The company issued 50000 ordinary shares at $1.40 each. 2. It then made a bonus issue of 15000 ordinary shares of $1 each. 3. A 12% debenture of $100000 was issued. 4. A bank loan of $75000 was repaid. What was the net cash inflow arising from these transactions?

The accounting system

A company paid an ordinary share dividend of $15000 during the year. In which part of the financial statements would this be shown?

Preparation of financial statements

The statement of equity for a limited company is shown below. Beginning of the year / End of the year: - ordinary shares of $1 each: $200000 / $250000 - retained earnings: $77000 / $112000 - total equity: $277000 / $362000 The following transactions occurred during the year: 1. A bonus issue of one ordinary share for every four ordinary shares held was issued. 2. Debenture interest of $18000 was paid. 3. An interim dividend of $22000 was paid. What was the profit for the year?

Preparation of financial statements

The data given are: - sales: $250000 - purchases: $120000 - average inventory: $20000 - mark-up: 25% What is the inventory turnover rate?

Analysis and communication of accounting information

The transactions below occurred. 1. owner’s taking of inventory for personal use 2. acquisition of new shop fixtures on credit 3. the writing off of an irrecoverable debt Which of these transactions would be entered in the general journal?

The accounting system

A business’s trade receivables turnover has been worked out for two years. - this year: 60 days - last year: 50 days What could explain the difference?

Analysis and communication of accounting information

A manufacturing company has 20 workers, each paid a basic wage of $30 per hour for a 40-hour week. In order to complete a special order, each worker put in 50 hours and received overtime pay at a premium of 40% above the basic rate. What was the total amount of wages paid to fulfil the special order?

Costs and cost behaviour

A company recorded the following telephone expenses. Month 1: 250000 customer enquiries, total cost $425000 Month 2: 350000 customer enquiries, total cost $575000 Telephone costs are a semi-variable cost. What would be the total telephone costs for 305000 enquiries?

Costs and cost behaviour

Which of the following statements are correct?

Analysis and communication of accounting information

The details of a company’s fixed overheads were given as follows. Budgeted hours: 10 000, fixed overheads $150 000. Actual hours: 11 000, fixed overheads $170 000. What was the over or under absorption of fixed overheads?

Traditional costing methods

The budgeted figures for July 2021 are as follows: Direct labour ($20 per hour): $80 000 Indirect labour: $12 000 Factory expenses: $36 000 Depreciation on machinery: $30 000 Depreciation on office equipment: $18 000 Administrative expenses: $44 000 What is the budgeted overhead absorption rate per direct labour hour?

Traditional costing methods

A business has the following budgeted figures: Revenue: $650 000 Variable costs: $390 000 Fixed non-production cost: $150 000 Fixed selling and distribution costs: $90 000 What is the budgeted break-even sales revenue?

Costs and cost behaviour

Which of the following statements about marginal costing are correct?

Costs and cost behaviour

A business manufactures and sells four products A, B, C and D. Which product should be made first when there are not enough labour hours to produce all four products? Product A: selling price $10, variable costs $15, labour hours 1. Product B: selling price $35, variable costs $10, labour hours 5. Product C: selling price $50, variable costs $30, labour hours 2. Product D: selling price $75, variable costs $57, labour hours 3.

Costs and cost behaviour

At what point does cost-volume-profit analysis inform users about cost behaviour?

Costs and cost behaviour

A company’s accounting year ends on 31 December. On 1 January 2020, the company bought a motor vehicle and the following costs were incurred. 1. purchase price, $30000, of which one half was settled by cheque. The remaining amount was financed by a bank loan. Interest on the loan for the year ended 31 December 2020 amounted to $2500 2. delivery charge, $2000 3. cost of improving the engine, $4000 4. repair and maintenance expenses for three years, $5000 The motor vehicle was to be depreciated at $20\%$ per annum by the straight-line method. What is the depreciation charge for the year ended 31 December 2020?

Accounting for non-current assets

Which of the following budget statements is correct?

The accounting system

A business disposed of a non-current asset. The asset had originally cost $15000 and was expected to last for 10 years, with no residual value. Depreciation was charged by the straight-line method. The asset was sold after six years. Disposal costs came to $1000 and the profit on disposal was $3000. What was the sale price?

Accounting for non-current assets

Which statements concerning a depreciation charge for the year are correct?

Accounting for non-current assets

A business’s sales ledger control account showed a debit balance of $26400. This was not the same as the total of the sales ledger balances. The following entries had been recorded in the sales ledger accounts, but were missing from the sales ledger control account. 1. a contra item, $340 2. discount allowed, $56 3. dishonoured cheque, $62 4. irrecoverable debt written off, $438 What was the correct balance on the sales ledger control account?

Reconciliation and verification

Which of the following are reasons why a trial balance is prepared?

Reconciliation and verification

The information below relates to the telephone account for the year ended 31 December 2020. A table gives accruals, prepayments, payments made and amount refunded at 1 January 2020 and 31 December 2020. What was the telephone expense for 2020?

Preparation of financial statements

A trader worked out his draft profit for the year to be $16000. The following items were still unadjusted. 1. decrease in prepaid insurance, $400 2. increase in closing inventory, $1200 3. decrease in provision for doubtful debts, $120 4. increase in accrued rent receivable, $300 What was the profit for the year after these items had been adjusted?

Preparation of financial statements

Eleni runs a business that sells computers. She does not keep complete accounting records. The information below is given.

Preparation of financial statements

At 1 October 2020, the balances below were taken from the accounting records of G Limited.

Preparation of financial statements

Martina has drawn up the sales ledger control account shown below for August 2021. All sales are made on credit. Martina then compiled a list of all customer account balances at 31 August 2021 amounting to $10020$. She found that the records contained the following mistakes.

Reconciliation and verification

B Limited is a manufacturing business that applies marginal costing techniques and produces three products, Ess, Tee and Ewe. The budgeted monthly data below are available.

Costs and cost behaviour

The balances shown below were taken from the accounting records of P Limited on 31 August 2021.

Accounting for non-current assets

Shamal keeps a complete set of accounting records. He drew up a trial balance at 30 September 2021 which failed to balance, so he opened a suspense account for the difference. He has now pinpointed the following six errors. There were no other errors.

Reconciliation and verification

The figures below have been taken from D Limited’s financial statements as at 30 June 2020.

The accounting system

Hayden makes two products, Aye and Bee. The enterprise has two production departments, Machining and Finishing, together with two service departments, Stores and Maintenance.

Traditional costing methods

The information below has been taken from the accounting records of T Limited at 30 June 2021.

Preparation of financial statements

Abbie, Ben and Cain have worked together in partnership for several years, sharing profits and losses in the ratio $3:2:1$. The partnership’s draft statement of financial position as at 30 June 2021 is displayed below.

Types of business entity

Petra runs a small manufacturing business, and the depreciation policy together with details of plant and machinery are given.

Accounting for non-current assets

EMM is a manufacturing business that makes one product, a desk made of wood. It has a contract to provide 220 desks a week to H Co, a large retailer, at a selling price of $44 per unit. The costs faced by EMM are direct material costing $36.00 per unit; production labour salaries of $410.00 per week plus a bonus of $0.50 per unit; finishing labour salaries of $180.00 per week plus a bonus of $0.30 per unit; machine hire costing $120.00 per week; administration costs of $400.00 per week; and rent and rates of $240.00 per week.

Costs and cost behaviour

Refer to Source A1 in the insert.

Preparation of financial statements

Refer to Source A2 in the insert.

Computerised accounting systems

Read Source A3 from the insert.

Business acquisition and merger

Use Source A4 in the insert.

Preparation of financial statements

Look at Source B1 in the insert.

Budgeting and budgetary control

Look at Source B2 in the insert.

Activity based costing (ABC)

Refer to Source A1 in the insert.

Preparation of financial statements

Consult Source A2 in the insert.

Preparation of financial statements

Consult Source A3 in the insert.

Analysis and communication of accounting information

Please read Source A4 in the insert.

Preparation of financial statements

Read Source B1 from the insert.

Activity based costing (ABC)

Consult Source B2 in the insert. Kurt is weighing up two possibilities for buying machinery to make a new product.

Investment appraisal

Refer to Source A1 in the insert.

Preparation of financial statements

Read Source A2 in the insert.

Analysis and communication of accounting information

Refer to Source A3 in the insert.

Preparation of financial statements

Consult Source A4 in the insert.

Preparation of financial statements

Consult Source B1 in the insert.

Budgeting and budgetary control

This question tests investment appraisal with net present value.

Investment appraisal