Feb/March 2022

What is done to the totals of a three-column cash book at the close of an accounting period?

The accounting system

A business reported a provisional profit for the year of $250000$. The following errors were later found. 1. Depreciation charged amounted to $25000$. It ought to have been $40000$. 2. Closing inventory for the period was undervalued by $10000$. Calculate the correct profit for the year.

Preparation of financial statements

A sole trader’s capital account included three postings, as well as the opening balance and the closing balance. What did those postings show?

The accounting system

The business’s year end falls on 31 December 2021. Inventory was counted on 5 January 2022 and, at cost, was valued at $30000$. The following matters were then found. 1. Goods bought and received after the year end, with a cost of $1500$, had been included in the valuation. 2. Goods returned by a customer after the year end were also included. Their selling price was $900$ and this price contained a mark-up of $25\%$ during the year. 3. Some inventory items included at cost $500$ were damaged. After repairs costing $100$, they could be sold for $300$. Which inventory figure should be shown in the financial statements at 31 December 2021?

Reconciliation and verification

A sole trader was given the information below for the year to 31 December. Non-current assets rose by $25\,000. Current assets rose by $10\,000. Current liabilities rose by $12\,500. Extra capital added during the year was $20\,000. Drawings taken for the year were $13\,000. What was the profit for the year ended 31 December?

Reconciliation and verification

Which rule does not apply when there is no partnership agreement?

Types of business entity

P and Q are partners and divide profits and losses equally. On 1 January 2021, the partnership’s net assets amounted to $410\,000. On that date, R joined the business under the following conditions: 1. The net assets were to be restated at $480\,000. 2. Goodwill had a value of $50\,000, but it would not be kept in the books of account. 3. Future profits and losses would be shared as follows: P $40\%$, Q $40\%$ and R $20\%$. How much did Q’s capital alter immediately after R joined the partnership?

Types of business entity

X and Y are partners, and the residual profits and losses are divided equally between them. A $2\%$ interest charge applies to the partners’ drawings. Y receives a salary of $10\,000. The partners’ drawings during the year were: X: $12\,000 Y: $8\,000 The profit for the year amounted to $52\,000. Calculate the amount of residual profit that each partner was allocated.

Types of business entity

Which of these statements are correct?

Analysis and communication of accounting information

A limited company showed these balances on 1 January 2021: Revaluation reserve: $20\,000. Retained earnings: $142\,000. Profit for the year ended 31 December 2021 amounted to $105\,000. The $20\,000 revaluation reserve had been set up two years earlier from a revaluation of a property. That same property was revalued again on 31 December 2021, resulting in a revaluation loss of $35\,000. An interim dividend of $40\,000 was paid on 1 August 2021. A final dividend of $55\,000 was proposed on 31 December 2021. What was the amount of retained earnings at 31 December 2021?

Accounting for non-current assets

Before the following transactions, the bank balance of a limited company was $390\,000$: 1. 500,000 new shares of $0.50$ each were issued at a premium of $0.25$ per share. 2. A debenture of $100\,000$ was repaid. 3. A bonus issue involving $100\,000$ shares of $0.50$ each was made. What was the balance in the bank after all these transactions?

The accounting system

Which item is an instance of capital expenditure?

Accounting for non-current assets

What could lead to a fall in a company’s non-current asset turnover?

Analysis and communication of accounting information

The following data for a limited company as at 31 December 2021 are available: Ordinary share capital: $300\,000. Retained earnings: $110\,000. $8\%$ debenture: $100\,000. Retained earnings on 1 January 2021 amounted to $82\,000. An interim dividend of $45\,000 was paid on 1 May 2021. Calculate the return on capital employed for the year ended 31 December 2021.

Analysis and communication of accounting information

Which of the following statements about stepped costs are correct?

Costs and cost behaviour

A production worker receives $15$ per hour for an $8$-hour day. Overtime is paid at the rate of time and a fifth, which means basic pay plus $20\%$. There is also a productivity bonus of $21$ per unit for every unit made above $12$ units per day. Last Friday, the production worker was at work for $12$ hours and put together $14$ units. Calculate how much he earned on Friday?

Costs and cost behaviour

During October, a retailer bought inventory as follows: 5 Oct: $50$ units costing $500$ each. 12 Oct: $50$ units costing $500$ each. 23 Oct: $150$ units costing $525$ each. At the start of October, there was no opening inventory. The business values inventory using the first-in first-out (FIFO) method. In October, $200$ units were sold at $900$ each. What gross profit was earned in October?

Preparation of financial statements

A company operates two departments in its factory. The information is given below: Machining department: budgeted fixed overheads $180\,000$, budgeted hours $6\,000$. Assembly department: budgeted fixed overheads $90\,000$, budgeted hours $10\,000$. Determine the fixed overhead absorption rate per hour in the machining department?

Traditional costing methods

What situation would lead to overheads being over-absorbed?

Traditional costing methods

For the production of 2000 units of a product, a company has the following data. Sales revenue: 85 000 Direct materials: 30 000 Direct labour: 14 000 Direct expenses: 2 500 Other variable overheads: 10 200 Fixed overheads: 8 000 Calculate the contribution to sales ratio.

Costs and cost behaviour

Data for two products are given below. Per unit for Product 1 / Per unit for Product 2 Material X: 2 kilos / 4 kilos Material Y: 3 kilos / 1 kilo Direct labour: 3 hours / 6 hours Output is planned at 100 units for each product. 700 kilos of material X and 400 kilos of material Y are available. In total, 800 direct labour hours can be worked. Which factors are limiting?

Costs and cost behaviour

A firm gives the following details for one of its products. Selling price: $100 Variable cost per unit: $40 Fixed costs: $21 600 Break-even point: 360 units If the firm alters its production method, contribution will rise by 10% and fixed costs will rise by 5%. What effect would this have on the break-even point?

Costs and cost behaviour

On 1 July 2021, Tim purchased a delivery van for $10000. In addition, he spent $900 to install racks inside it, and $800 on insurance for one year. Tim charges depreciation at a rate of $10\%$ per annum. The year of purchase includes a full year's depreciation. What was the total amount of expenses shown in Tim’s income statement for the van for the year ended 30 September 2021?

Accounting for non-current assets

What possible limitations can a budgetary control system have?

The accounting system

A business's year end is 31 December. It bought a non-current asset on 1 January 2020 for $100000. The asset was depreciated by the reducing balance method at $20\%$ per annum. It was then sold for $40000 on 1 January 2022. What was the loss on disposal?

Accounting for non-current assets

What entries are made in the sales ledger control account?

The accounting system

A trial balance contained a suspense account. The bank balance of $28142$ had been entered wrongly as an overdraft and shown on the credit side as $28142$. In addition, an addition error occurred and the debit side of the trial balance had been undercast by $450$. Which entry in the suspense account would rectify these errors?

Reconciliation and verification

Which one of the statements is correct?

Analysis and communication of accounting information

The information below relates to a business at 31 December 2021. General expenses outstanding at 1 January: $420$ General expenses prepaid at 1 January: $240$ General expenses outstanding at 31 December: $720$ General expenses prepaid at 31 December: $120$ The total cash paid in the year ended 31 December 2021 was $11500$. What figure should be shown in the income statement for general expenses for the year ended 31 December 2021?

Preparation of financial statements

When does the year end value of inventory have to be adjusted?

Preparation of financial statements

Rafiq owns a retail business. When the business was launched a few years ago, Rafiq kept only very limited accounting records.

The accounting system

In more recent times, Rafiq has been able to supply more detailed financial information.

Preparation of financial statements

Bipin, Feroz and Neeru have operated as partners for many years, sharing profits and losses in the ratio $3:1:2$ respectively. Feroz chose to retire from the partnership with effect from 1 January 2022. A statement of financial position was available on this date.

Types of business entity

R Limited applies absorption costing at one of its factories. The factory contains two production departments, Machining and Assembly, together with two service departments, Support and Canteen. Certain budgeted overheads have already been apportioned for April 2022. The outstanding budgeted overheads are Depreciation of machinery $25000 and Production departments’ supervisor’s wages $19800.

Traditional costing methods

Read Source A1 in the insert booklet.

Preparation of financial statements

Consult Source A2 in the insert. Additional information: The $30000 repair and maintenance cost for the 5-year contract on the new machine was settled on 1 March 2021.

Preparation of financial statements

This question is about how to prepare a statement of cash flows and how to use it.

Preparation of financial statements

Read Source A4 in the insert provided.

Preparation of financial statements

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

Budgeting and budgetary control

Consult Source B2 in the insert.

Investment appraisal