May/June 2024

Jamie is establishing a business. Three details matter to Jamie. 1 Jamie wants to receive a salary for the work he does in managing the business. 2 Jamie wants complete ownership of the business. 3 Jamie wants to avoid the danger of losing personal assets. Which type of business should Jamie choose?

Types of business entity

Which of the following statements is not correct?

Analysis and communication of accounting information

A business keeps an allowance for irrecoverable debts equal to $5\%$ of trade receivables. By the close of the current financial year, trade receivables amounted to $8000$, which was $20\%$ lower than in the previous year. What effect will the change in the allowance for irrecoverable debts have on the profit for the current financial year?

Preparation of financial statements

A trader does not maintain complete records but gives the following details. Bank (debit): 1 January $4240, 31 December $6320 Cash balance: 1 January $264, 31 December $271 Cheques issued in the year amounted to $19\,950. All receipts from sales were paid into the bank, except that cash of $5400 was taken for drawings and $7200 was paid out for wages. Also, $3000 was paid into the bank from the sale of a motor vehicle. What was the total value of sales in the year?

Reconciliation and verification

Which statement(s) about drawings are correct?

The accounting system

Vikram is one of the partners in a business. Partners do not earn salaries or interest on capital, but they are charged $5\%$ interest on the amount in their drawings account. During the year, Vikram withdrew $40\,000$, and his share of profits came to $47\,500$. Once the relevant entries had been posted at the end of the financial year, his current account had a credit balance of $4500$. What was the opening debit balance on Vikram’s current account at the start of the financial year?

The accounting system

A partnership is running without a partnership agreement. Which set of rules will govern the partnership?

Types of business entity

L and M are partners, and profits and losses are divided in the ratio of $3:2$ respectively. At the end of the year, the following details were available: Capital: L $200\,000$, M $150\,000$, with interest on capital at $8\%$ Drawings: L $30\,000$, M $20\,000$, with interest on drawings at $5\%$ Partners’ salaries: L $22\,000$, M $17\,000 The residual profit credited to L was $24\,000$. Calculate the profit for the year before appropriation.

Preparation of financial statements

Which statements concerning debenture interest are correct?

Preparation of financial statements

A company has these reserves: Share premium $60\,000 Revaluation reserve $75\,000 General reserve $10\,000 Retained earnings $21\,500 The directors want to carry out a bonus issue of ordinary shares of $1 each. What is the greatest number of bonus shares that the company could issue?

Preparation of financial statements

For one period, a business supplied the figures shown below. Sales revenue $1\,500\,000 Purchases $1\,000\,000 Inventory at end of the period $50\,000 During the period, the rate of inventory turnover was $12$ times and the business achieved a gross profit margin of $40\%$. The business also recorded some purchase returns and paid an amount for carriage inwards. What value of inventory was held at the start of the period?

Analysis and communication of accounting information

The proprietor of a business used her own money to pay for business stationery. Which ledger account should be credited?

The accounting system

In a comparison with the previous year, a trader discovers that his gross profit margin has risen while his trade receivables turnover has fallen. Which statement would account for this?

Analysis and communication of accounting information

B Limited recorded credit sales of $\$3\,285\,000$ during the year and had trade receivables of $\$405\,000$ at the year end. The sales director thought that, if cash discounts had been offered, trade receivables would have been $\$351\,000$. The allowance for irrecoverable debts would also have been reduced by $\$9\,000$. What impact would the discounts have had on trade receivables turnover?

Analysis and communication of accounting information

A company produces wedding dresses. Every machinist receives $\$30$ per day, while each supervisor is paid $\$40$ per day. One supervisor may oversee up to $10$ machinists, and each machinist is able to make one wedding dress per day. If $95$ wedding dresses are made in a day, what is the total daily labour cost?

Costs and cost behaviour

Which statement gives the best description of variable costs?

Costs and cost behaviour

P Limited manufactures wooden chairs at a unit cost of $\$70$ per chair. It has been asked to make a run of $1000$ wooden chairs with padded seats. For this, an extra $\$6000$ of materials is needed, together with another $500$ labour hours at $\$15$ per hour, and overheads rise by $\$2000$. Calculate the cost of the batch.

Costs and cost behaviour

What could cause overheads to be over absorbed?

Traditional costing methods

A company produces a single product that is sold for $\$384$ per unit. Its costs are given below: Direct materials: $4$ kilos at $\$8$ per kilo Direct labour: $8$ hours at $\$12$ per hour Selling and distribution: $\$40$ The mark-up is $50\%$. Calculate the factory overhead absorption rate per labour hour.

Traditional costing methods

Which of the following statements about marginal costing are correct?

Costs and cost behaviour

A business manufactures and markets just one kind of product. The budgeted figures for $6000$ units are given below: Variable manufacturing costs: $\$90\,000$ Variable selling expenses: $\$6\,000$ Fixed manufacturing overheads: $\$54\,000$ Fixed administrative overheads: $\$21\,000$ The selling price per unit is $\$40$. How many units does the company need to produce and sell in order to earn a target profit of $\$45\,000$?

Costs and cost behaviour

The diagram illustrates a break-even chart. What does the line $XY$ show?

Costs and cost behaviour

Why is depreciation charged by a business? 1 to allow an asset to be replaced when its useful life ends 2 to allocate the cost of an asset to each period that benefits from its use 3 to deal with each asset in accordance with the concept of consistency

Accounting for non-current assets

Which statement is not an assumption of cost-volume-profit analysis?

Costs and cost behaviour

The details below concern the non-current assets of a business established three years ago. Cost at the beginning of year 1: $10000$ Accumulated depreciation at the end of year 3: $6000$ Draft profit for year 3: $18000$ While working out the draft profit for year 3, depreciation was applied consistently by the straight-line method. Before the accounts were completed, the business chose to alter the depreciation method for year 3 to the reducing balance method at a rate of $25\%$ per annum. What was the adjusted profit for year 3?

Accounting for non-current assets

For what reason does a business keep a sales ledger control account?

The accounting system

Iga is concerned that her book-keeper may have left some credit notes received unrecorded. How can she check? 1 compare purchases ledger balances with statements of account 2 extract a trial balance listing individual purchases ledger accounts 3 prepare a control account for the purchases ledger

Reconciliation and verification

A trial balance fails to balance, so a suspense account is opened. After checking, the following mistakes are discovered. 1 The debit balance of $450$ in the carriage outwards account has been carried down as $540$. 2 The purchases returns journal has been totalled too high by $100$. 3 A cheque for $50$ received from Alan Green was entered in the credit account of Brian Green. 4 Rent received of $350$ was entered on the debit side of the rent paid account. What opening balance should the suspense account have?

Reconciliation and verification

The table below gives extracts from a business’s bank reconciliation. Cash book balance at 31 December: $2075$ debit Bank statement balance at 31 December: $2250$ credit Bank charges shown on the bank statement but not recorded in the cash book: $150$ Cheques outstanding at the year end that have not yet been presented: $325$ What bank balance should be reported in the financial statements?

Reconciliation and verification

Konrad’s purchases ledger showed a combined trade payables balance of $57400$. The errors below were subsequently found. Discount allowed overcast in cash book: $2000$ Returns outwards omitted from a supplier’s account: $350$ Payments to trade payables undercast in cash book: $137$ Purchases journal overcast: $500$ What should the corrected total of trade payables balances be?

Reconciliation and verification

Which of the following statements apply to a sole trader?

Types of business entity

A trade payable of $720 brought across from the purchases ledger has been recorded on the wrong side of the sales ledger control account. Before this transfer is corrected, the sales ledger control account shows a closing balance of $92 460. An allowance for irrecoverable debts of $1000 is to be entered. Calculate the correct balance on the sales ledger control account.

Reconciliation and verification

Once the draft statement of profit or loss had been prepared, it was found that the purchase of an office computer had been recorded wrongly in the purchases account. What effect will correcting this error have on cost of sales and profit for the year?

Accounting for non-current assets

Before these items were considered, the business had a draft profit of $64\,000$. The allowance for irrecoverable debts remained at $2\%$ of trade receivables. Trade receivables totalled $150\,000$ at the start of the period and $220\,000$ at the end of the period. At the end of the period, $4\,000$ was received from a trade receivable that had earlier been written off as irrecoverable. Calculate the revised profit for the period.

Preparation of financial statements

A sole trader does not maintain a full set of accounting records. He thinks that a member of staff has taken some cash. Which items are not required when calculating the amount that is missing?

Reconciliation and verification

A trader sells goods with a constant mark-up of $20\%$. The information below refers to the year ended 31 December. Inventory at 1 January $1\,780$ Inventory at 31 December $2\,100$ Purchases $23\,400$ Carriage inwards $700$ Carriage outwards $450$ Goods taken for own use (at selling price) $1\,800$ What was the value of cost of sales for the year ended 31 December?

Preparation of financial statements

Both partners in the business show a credit balance on their current account. What effect does including interest on drawings have on the partnership’s financial statements?

Preparation of financial statements

Vicram and Walter are partners, but no partnership agreement has been drawn up. At the close of a financial period, the partnership’s net assets amounted to $180\,000$. The partners keep capital accounts and current accounts. The opening balances on the current accounts were: Vicram $3\,200$ debit Walter $6\,800$ credit The partnership profit for the period, before appropriation, was $85\,000$. Vicram had lent $20\,000$ to the business. What is the balance on Vicram’s capital account at the end of the period?

Types of business entity

Which row correctly gives one example of a capital reserve and one example of a revenue reserve?

Preparation of financial statements

On 1 January, a company issues a bonus issue of $10\,000$ ordinary shares at $\$0.50$ each. Later in the year, it carries out a rights issue of $15\,000$ ordinary shares at $\$0.60$ each. What effect do these have on the statement of financial position?

Preparation of financial statements

An accounting student put forward the following statements about what different users need from a company’s accounting information. Which of the statements are correct?

Analysis and communication of accounting information

Which item fails to apply the matching concept correctly?

The accounting system

How could a sole trader improve the current ratio?

Analysis and communication of accounting information

Which ratios will show the largest profit for the year for a business?

Analysis and communication of accounting information

On 31 March, the following details were given for a business. Inventories $225\,000$ Trade receivables $785\,000$ Cash and cash equivalents $15\,000$ Trade payables $365\,000$ Other payables $85\,000$ Calculate the acid test ratio.

Analysis and communication of accounting information

A firm pays staff $\$6.80$ for each hour in a standard $40$-hour week. Overtime is paid at a premium of $50\%$, and there is also a production bonus of $\$0.25$ for every unit made above $350$. Staff are assured of a weekly wage of $\$330$. One employee worked for $45$ hours in the previous week and made $410$ units. Calculate the employee’s gross pay for that week.

Costs and cost behaviour

In what situations are unit costing and job costing principles used?

Traditional costing methods

A hotel supplied the information below for a 30-day period. Number of letting bedrooms: - rooms with two beds: 180 - rooms with one bed: 60 Mean number of rooms occupied each day: - rooms with two beds: 150 - rooms with one bed: 50 Number of guests during the period: 5250 Mean length of stay: 2 days Payroll and cleaning costs: $\$300\,000$ What are the average payroll and cleaning costs per occupied bed per day?

Costs and cost behaviour

Which two factors would indicate that fixed overheads are under-absorbed?

Traditional costing methods

A company has a positive margin of safety. What caused this to happen?

Costs and cost behaviour

A firm produces three products X, Y and Z, and the figures for each unit are given below: Selling price: - X: $\$18$ - Y: $\$35$ - Z: $\$50$ Direct material costs: - X: $\$4$ - Y: $\$5$ - Z: $\$5$ Direct labour hours: - X: $0.5$ - Y: $2$ - Z: $2.5$ The direct labour rate is $\$8.00$ per hour. Direct labour hours are in short supply. In what sequence should the products be ranked so that the greatest profit is made from the labour hours available?

Costs and cost behaviour

The information for a proposed college course is given below: Fee charged per student: $\$100$ Variable cost for each student: $\$20$ Overall fixed cost for the course: $\$480$ The expected number of students is 10. However, if the fee is lower, 20 students are expected to join the course. By how much must the course fee of $\$100$ be lowered in order to make the total profit from 10 students the same as the total profit from 20 students?

Costs and cost behaviour

Items that were bought on credit have now been sent back to the supplier. In the buyer’s books of account, how should this be entered?

The accounting system

Which statement is applicable to cost-volume-profit analysis?

Costs and cost behaviour

Jason disposed of a non-current asset that had a carrying value of $8000. He incorrectly entered the transaction by debiting the bank account and crediting the sales account with proceeds of $6500. By what amount was the profit for the year overstated?

Accounting for non-current assets

Adam's accounting year finishes on 31 December. At the start of the year, on 1 January, the carrying value of machinery stood at $20 000. In the course of the year, on 30 June, he bought a new machine costing $6000. He settled 50% of the cost in cash and the remaining amount by part exchange of an old machine with a carrying value of $2500 on that date. He charges depreciation on machinery at 20% per annum, based on carrying value and using a time basis. What carrying value for the machinery should appear in the statement of financial position at the end of the year on 31 December?

Accounting for non-current assets

Which statement explains a limitation of reconciliation and verification procedures?

Reconciliation and verification

The following mistakes in the accounting records have been discovered and corrected. 1 A purchase invoice worth $250 was not entered in the books of account. 2 A sale of $120 to X was posted to Y’s account instead. 3 The sales journal was overstated by $100. Before these errors were corrected, the gross profit for the year was $60 200. What should the gross profit for the year be after the correction?

Reconciliation and verification

A business’s bank statement displayed a credit balance of $3421, but this was not the same as the figure in the cash book. On checking further, it was found that a receipt of $125 recorded in the cash book and a payment of $455 had not yet been shown on the bank statement. The bank statement also included bank charges of $64 and a credit transfer of $177 that had not been entered in the cash book. What balance was recorded in the cash book before the required adjustments were made and a reconciliation statement was prepared?

Reconciliation and verification

Which statements set out the benefits of preparing control accounts?

The accounting system

What benefits come from being a sole trader?

Types of business entity

At the close of a business’s financial year, the details below are given. Debit balance on the bank statement: $1000$ Unpresented cheques: $300$ Lodgements not yet credited by the bank: $600$ Bank charges and interest charged not yet entered in the cash book: $150$ What is the current balance in the cash book?

Reconciliation and verification

In a sales ledger control account, what is represented by the closing balance carried down on the debit side and the opening balance brought down on the credit side?

Reconciliation and verification

A business’s purchases ledger control account has a closing balance of $7640. The items below were then found. 1. A purchase invoice for $250 had been recorded in the purchases ledger, but not in the purchases journal. 2. A sales ledger contra of $630 had not been recorded. 3. A supplier’s account showing a debit balance of $70 had been left out of the control account. 4. Returns inwards of $540 had been entered on the debit side of the control account. What was the credit balance to carry down after the adjustments for these items?

Reconciliation and verification

In a draft statement of profit or loss, two mistakes were identified. 1. The $6000 profit made on disposing of equipment was recorded as a loss. 2. The $18\,000 depreciation charge for a motor vehicle was not included. What effect did these mistakes have on the draft profit for the year?

Accounting for non-current assets

At the start of the financial year on 1 July, a business has an accrual on the rent account of $600. Over the financial year, rent payments were made as shown below: 26 July: paid 3 months' rent to 31 July: $900 11 November: paid 4 months' rent to 30 November: $1200 15 March: paid 4 months' rent to 31 March: $1200 What amount should be shown as a prepayment or accrual for rent at the end of the financial year on 30 June?

Preparation of financial statements

A sole trader made a $50\%$ mark-up on his goods. In the year, he took goods for personal use. The drawings account was debited, and the sales account was credited with goods valued at the selling price of $5400. What effect did these errors have on the profit for the year?

Reconciliation and verification

X and Y are partners in a partnership. They have no partnership agreement. Which statement is correct?

Types of business entity

Yasmin and Zara are partners, and they divide profits and losses in the ratio $3:2$ respectively, after Zara has been paid a partnership salary of $8000 per annum. In the partnership's first year of trading, Yasmin withdrew $11\,500 in drawings, and the business earned a profit of $7000 before appropriation. What was the closing debit balance on Yasmin's current account?

Preparation of financial statements

A company intends to put money into a project. Interest rates are currently high, and the company wants to prevent any alteration in shareholder control. Which method should the company use to finance the project?

Types of business entity

A company’s statement of financial position at the start of the financial year on 1 January is given below: issued share capital $2\,000\,000 share premium $500\,000 revaluation reserve $300\,000 general reserve $150\,000 retained earnings $1\,600\,000 The profit for the year ended 31 December amounted to $680\,000. Over the course of the year, these transactions occurred: • $500\,000 of ordinary shares of $1 each were issued at $2.50 each • non-current assets were revalued upwards by $250\,000 • $100\,000 was transferred from retained earnings to general reserve • ordinary dividends of $125\,000 were paid By how much did the company’s equity and reserves increase over the financial year ended 31 December?

Preparation of financial statements

Which is not a purpose of ledger accounts?

The accounting system

Which people are internal users of accounting information?

The accounting system

Which actions would cause the acid test ratio to deteriorate?

Analysis and communication of accounting information

During its most recent financial period, the business recorded the following figures: sales revenue $1\,020\,000 purchases $700\,000 carriage inwards $80\,000 carriage outwards $180\,000 opening inventory $170\,000 closing inventory $210\,000 Calculate the inventory turnover rate (times) for the period.

Analysis and communication of accounting information

If a business’s actual output is above the budgeted output, which costs would stay unchanged from the budgeted figures?

Costs and cost behaviour

For inventory valuation, a business applies the first in first out (FIFO) method. In July, there was no opening inventory. The business bought direct materials in July as shown below: 3 July purchases: 2000 kg at $25 per kg; 15 July purchases: 3000 kg at $28 per kg. Every unit needed 4 kg of direct materials. The labour cost per unit was $42. Fixed overhead in July amounted to $85 000. During July, 1000 units were produced and 800 units were sold. Determine the average direct cost for each unit.

Traditional costing methods

A business offers accounting services to its clients. One of its employees needs 30 hours to finish a job. The employee’s hourly rate is $25. The business absorbs its overheads at a rate of $10 per labour hour. It adds 20% profit to the total cost of the job. What is the total price of the job charged to the client?

Traditional costing methods

A business runs a staff cafeteria that costs $12 000. Which basis is the most suitable for apportioning this overhead cost?

Traditional costing methods

For one month, a business recorded these budgeted and actual figures: budgeted fixed overheads $354 000; actual fixed overheads $360 000; under-absorption of overheads $3 000. Fixed overheads are absorbed on a per-unit basis. The budgeted number of units is 118 000. Calculate the actual activity level, measured in units?

Traditional costing methods

Which of these statements about break-even charts is correct?

Costs and cost behaviour

A business gives the information below: break-even point 4500 units; unit selling price $50; contribution to sales ratio 40%. How will the break-even point change if the unit selling price rises by 10%?

Costs and cost behaviour

An item is shown in a financial statement because it influences how the financial statements are interpreted. Which accounting concept is being used?

The accounting system

In what circumstances may the use of cost-volume-profit (CVP) analysis be of little use?

Costs and cost behaviour

The business purchased new factory machinery for $120\,000$. This figure was entered under non-current assets, and depreciation of $10\%$ of cost was charged in the draft statement of profit or loss for the period. Moreover, the business paid $14\,000$ to install the machinery and $6000$ to insure it. These amounts were treated as revenue expenditure for the period. The draft statement of profit or loss for the period reported a profit of $50\,000$. What is the revised profit for the period?

Accounting for non-current assets

Jake disposed of a non-current asset that had not yet been fully depreciated. He entered this wrongly by debiting the bank account and crediting the sales account with the proceeds. What effect did this error have?

Accounting for non-current assets

Sara purchased a non-current asset. Depreciation was charged at $10\%$ per annum during years 1 and 2. It was then sold at a profit in year 3. The business does not charge depreciation in the year an asset is disposed of. How would profits change if the rate had been $15\%$ per annum?

Accounting for non-current assets

A business purchases a vehicle for $10\,000$ on 1 January Year 1 and later sells it for $6500$ on 1 January Year 3. The business has charged depreciation on the vehicle at $10\%$ each year, using the straight-line method. A complete year’s depreciation is recorded in the year of purchase, and no depreciation is charged in the year of disposal. Which profit or loss amount will be entered in the disposal account, and on which side of the disposal account will it appear?

Accounting for non-current assets

Which mistakes would be revealed by preparing a trial balance?

Reconciliation and verification

A suspense account was created to record the difference in a trial balance. The errors below were then found.

Reconciliation and verification

Haroon and Rakesh are partners who supply cleaning services to local businesses. Their business began on 1 January 2023, when the partners brought in assets. They have not kept complete accounting records. Figures for the year ended 31 December 2023, together with extra information, are given.

Preparation of financial statements

Sana keeps complete accounting records. She has drawn up a trial balance, but the two totals do not match.

Reconciliation and verification

J Limited’s financial year finished on 31 March 2024. The information below is available.

Preparation of financial statements

K Limited is a manufacturing business that has only recently switched from absorption costing to marginal costing.

Costs and cost behaviour

Zahid runs a small retail business. He has not kept a complete set of accounting records. Zahid provided the following information for the year ended 31 December 2023.

Preparation of financial statements

J Limited’s financial year finished on 31 December 2023. The balances had stayed recorded in the books of account from which the statement of financial position will be drawn up, and mistakes were found later.

Preparation of financial statements

Suki uses ratios to judge how efficiently her business is running. The information below is given.

Analysis and communication of accounting information

D Limited operates as a manufacturing business.

Traditional costing methods

K Limited supplied an extract from the draft statement of profit or loss for the year ended 31 December 2023. Some amounts need adjusting and further information is given.

Preparation of financial statements

Nadiya keeps control accounts within the double-entry framework of her business. The purchases ledger and sales ledger include memorandum accounts only.

The accounting system

Usman started selling goods on credit on 1 January 2021. He keeps an allowance for irrecoverable debts at every financial year-end.

The accounting system

J Limited is a manufacturing business. The directors chose to change the costing system from marginal costing to absorption costing.

Traditional costing methods

Consult Source A in the insert.

Preparation of financial statements

Refer to Source B in the insert.

Analysis and communication of accounting information

Use Source C from the insert.

Preparation of financial statements

Study Source A in the insert.

Preparation of financial statements

Refer to Source B in the insert.

Preparation of financial statements

Refer to Source C in the insert.

Business acquisition and merger

Refer to Source A in the insert.

Preparation of financial statements

Consult Source B in the insert.

Analysis and communication of accounting information

Refer to Source C in the insert.

Preparation of financial statements

Look at Source A in the insert.

Activity based costing (ABC)

Refer to Source B in the insert.

Standard costing

Refer to Source A in the insert.

Budgeting and budgetary control

Look at Source B in the insert.

Activity based costing (ABC)

Look at Source A in the insert. The directors are thinking about ways to cut the costs of Product A so that its selling price can be lowered. They are weighing up two possibilities.

Activity based costing (ABC)

Please read Source B in the accompanying insert.

Standard costing