Feb/March 2024

Which statement concerning sole traders is correct?

Types of business entity

Amit carried out a reconciliation between his cash book and his bank statement. What action did Amit take regarding the items that this reconciliation uncovered?

Reconciliation and verification

At 31 December, the bank statement for a business shows a credit balance of $\$1570$. When the cash book was checked against the bank statement, the following items were found: - unpresented cheques: $\$1250$ - uncredited bankings: $\$1800$ A direct debit of $\$230$ had been entered in the cash book as $\$320$. What is the revised cash book balance at 31 December?

Reconciliation and verification

What advantages come from preparing a sales ledger control account?

Reconciliation and verification

A company had drawn up its purchases ledger control account, and the balance shown was $\$15\,960$. The following discrepancies were then found: 1 Discounts received of $\$450$ had been recorded in the purchases ledger control account as $\$540$. 2 A payment of $\$720$ made to a supplier had not been posted to his account. 3 The purchases ledger debit balances carried down, with a total of $\$110$, had been left out of the control account. 4 A contra entry of $\$170$ had been entered in the purchases ledger but not in the purchases ledger control account. What should the correct total of the trade payables be?

Reconciliation and verification

Deepak gave the following details. - allowance for irrecoverable debts: end of year 1 $\$600$, end of year 2 $\$800$ - rate of allowance: end of year 1 $3\%$, end of year 2 $5\%$ What was the difference in the total of trade receivables between the end of year 1 and the end of year 2?

Preparation of financial statements

A sole trader set up a business on 1 January with capital of $\$50\,000$. As the year progressed, she brought into the business her own private vehicle. It had originally cost $\$22\,000$, but when it was introduced into the business its value was $\$16\,000$. Drawings made throughout the year were $\$20\,000$. By 31 December, the closing balance on the capital account stood at $\$105\,000$. Calculate the profit for the year.

The accounting system

Which clause of the Partnership Act 1890 is applied when no partnership agreement exists?

Types of business entity

A partnership gave the following figures for the year: - gross profit $\$76\,000$ - operating costs $\$30\,000$ - bank interest $\$1\,300$ - interest on partner’s loan $\$600$ - interest on capital $\$5\,600$ - interest on drawings $\$2\,000$ What were the profit for the year and the residual profit shared by the partners?

Types of business entity

For what purpose is a statement of changes in equity prepared?

Preparation of financial statements

At 31 December, at the close of year 1, the company’s trial balance showed these figures: - ordinary share capital ($\$0.50$ shares) of $\$800\,000$ - share premium of $\$200\,000$ - retained earnings of $\$1\,000\,000$ On 1 January in year 2, the company carried out a rights issue of $400\,000$ shares at a premium of $\$0.70$ per share. All of the issue was subscribed. On 1 July in year 2, the company issued bonus shares at the rate of one new share for every four held. The policy is to keep reserves in their most flexible form possible. What balance remains in the share premium account after these transactions?

The accounting system

Which source of finance could a public limited company obtain that a partnership could not?

Types of business entity

Jim is a manager in a limited company. He also holds a small number of its shares. Why has he been examining its latest financial statements?

Analysis and communication of accounting information

H Limited’s cost of sales over the latest two years (Year 2 and Year 1) is shown below: average inventory: Year 2 = 100 000, Year 1 = 65 000 credit purchases: Year 2 = 910 000, Year 1 = 760 000 cost of sales: Year 2 = 850 000, Year 1 = 750 000 Which statement about the efficiency of inventory turnover is the correct one?

Analysis and communication of accounting information

Which cost item for a business could be described as a stepped cost?

Costs and cost behaviour

Which statements describe just in time (JIT) management of inventory?

Costs and cost behaviour

A production run of soft drinks has a direct materials cost of $10 000 for 50 000 cans. It needs 60 direct labour hours, with direct labour costing $40 per labour hour. Overheads are absorbed at 250% of the direct labour cost. Calculate the cost per soft drink can, to the nearest dollar.

Traditional costing methods

What is one benefit of absorption costing?

Traditional costing methods

The following figures are predicted for the coming month: opening inventory: 20 300 units closing inventory: 22 500 units marginal cost profit: $90 600 absorption cost profit: $100 400 What is the overhead absorption rate for each unit?

Traditional costing methods

X Limited has forecast monthly overheads of $125 000. Its overhead absorption rate is $5 per machine hour. In July, overheads were under-absorbed by $1000. Which differences from the budgeted figures caused this outcome?

Traditional costing methods

Which changes would lead to a reduction in the margin of safety?

Costs and cost behaviour

A company has these budgeted figures for each unit: selling price = $25 variable costs = $10 Fixed costs amount to $72 000. What is the extra break-even sales if fixed costs increase by $33\frac{1}{3}\%$?

Costs and cost behaviour

Which items are posted on the debit side of accounts in the purchases ledger?

The accounting system

Which statements concerning cost-volume-profit analysis are correct?

Costs and cost behaviour

Tom purchased goods on credit from Sam for $100. He sent back faulty goods worth $20. After taking off a cash discount, he settled the balance by cheque for $76 in full. Which amounts were entered in Tom’s books of prime entry?

The accounting system

What features do non-current assets have?

Accounting for non-current assets

At the start of the financial year on 1 January, a business bought a new motor vehicle for $34\,000. By mistake, it was entered in the motor expenses account. Motor vehicles are depreciated by the reducing balance method at $30\%$ per annum. The motor vehicle is expected to have a residual value of $4\,000 at the end of its useful life. If this mistake is left uncorrected, what impact will it have on the profit for the year ended 31 December?

Accounting for non-current assets

A company bought a machine on 1 April 2021 for $25\,000. It was depreciated at $20\%$ per annum by the straight-line method. A full year’s depreciation is charged in the year of purchase, but none is charged in the year of sale. The machine was sold for $12\,500 on 30 June 2023. The company’s year end is 31 December. What was the profit or loss on disposal of the machine?

Accounting for non-current assets

Which error would prevent a trial balance from balancing?

Reconciliation and verification

A business drew up a trial balance that contained a suspense account. Draft financial statements were then produced, and these showed a profit for the year of $85\,000. The following mistakes were later found. 1 Discounts allowed of $1\,000 had been debited to the discounts received account. 2 Motoring expenses of $4\,000 had been debited to the purchases account. 3 A payment for purchases of $5\,000 had been entered correctly in the cash book but credited to the drawings account. Once these errors had been corrected, the balance on the suspense account was cleared. What was the revised profit for the year?

Reconciliation and verification

The trial balance below was taken from the records of V Limited on 31 December 2023.

Preparation of financial statements

Zainab applies the straight-line depreciation method to business vehicles. The business’s non-current assets consist of two vehicles. Vehicles lose 20% per annum through depreciation. In the year of acquisition, depreciation is worked out on a month-by-month basis. No depreciation is charged in the year of sale/disposal. The financial year finishes on 31 December.

Accounting for non-current assets

Rahul runs a retail business and has not kept complete accounting records. He can provide the following details for the financial year finishing on 31 January 2024.

The accounting system

K Limited applies absorption costing at one of its factories. The product made there passes through two production departments: the cutting department and the finishing department.

Traditional costing methods

Consult Source A in the insert.

Business acquisition and merger

Explain one reason why the details in a business’s statement of cash flows are important to its shareholders.

Preparation of financial statements

Read Source C in the insert.

Preparation of financial statements

Refer to Source A in the insert. The directors of RP plc are thinking about paying $100000 to obtain a licence, which would give the company the right to manufacture and sell a product for the next four years.

Investment appraisal

Refer to Source B in the insert.

Budgeting and budgetary control