Topic Number
1a
1b
1c
2a
2b
3
4
5a
5b
6a
6b
6c
7a
7b
7c
7d
7e
8a
8b
8c
9a
9b
10a
10b
11a
11b
11c
12a
12b
12c
13a
13b
14a
14b
15
16a
16b
16c
Topic Name
COST CLASSIFACTIONS &MARGINAL COSTING THEORY
MARGINAL COSTING WORKSHEET
MARGINAL COSTING - LIMITING FACTOR WORKSHEET
ABSORPTION COSTING THEORY
ABSORPTION COSTING WORKSHEET
COSTING PROFIT STATEMENTS
BUSINESS PLANNING THEORY
O LEVEL REVISION THEORY
O LEVEL REVISION WORKSHEET
DEPRECIATION THEORY
DEPRECIATION WORKSHEET
DEPRECIATION PAST PAPERS
PARTNERSHIP THEORY
PARTNERSHIP FINAL ACCOUNTS WORKSHEET
CHANGES IN PARTNERSHIP WORKSHEET
CHANGES IN PARTNERSHIP PAST PAPERS
DISSOLUTION OF PARTNERSHIP
LIMITED COMPANIES THEORY
LIMITED COMPANIES WORKSHEET
LIMITED COMPANIES (SHARES ISSUE WITH APPLICATION)
INCOMPLETE RECORDS THEORY
INCOMPLETE RECORDS WORKSHEET
RATIOS THEORY
RATIOS WORKSHEET
CONTROL ACCOUNTS THEORY
CONTROL ACCOUNTS WORKSHEET
CONTROL ACCOUNTS PAST PAPERS
ERROR AND SUSPENSE THEORY
CORRECTION OF ERRORS WORKSHEET
CORRECTION OF ERRORS PAST PAPERS
BANK RECONCILIATION THEORY
BANK RECONCILIATION WORKSHEET
INVENTORY VALUATION THEORY
INVENTORY VALUATION WORKSHEET
ACCOUNTING CONCEPTS (THEORY)
FINANCIAL ACCOUNTING KEYPOINTS
FORMATS
EXAM TIPS
OMAIR MASOOD
CEDAR COLLEGE
Page Number
2-14
15-30
31-39
40-44
45-75
76-85
86-87
88-93
94-125
126-128
129-155
156-160
161-163
164-173
174-190
191-200
201-213
214-219
220-237
238-242
243-244
245-267
268-273
274-286
287
288-308
309-314
315
316-322
323-330
331
332-338
339
340-343
344-346
347-349
350-355
356
1
(
COST!ACCOUNTING!
(
What!is!Cost!Accounting?!
!
Cost(accounting(is(basically(the(determination(of(cost(whether(for(a(specified(thing(or(activity.(To(
determine(cost,(we(need(to(apply(accounting(and(costing(principles(and(techniques.(The(cost(accounting(
information(is(used(within(the(business(for(planning,(controlling(and(decision(making.(
(
What!is!a!Cost!Centre?!
!
Cost(centre(is(the(area(or(a(department(in(a(business(for(which(cost(are(accumulated.(There(are(two(
main(types(of(Cost(Centres(
• Production(Cost(Centre:(Departments(which(are(involved(directly(in(production(of(a(product.(For(
example,(Moulding,(Cutting(or(Assemble(Department.(
• Service(Cost(Centre:(Departments(in(which(production(doesn’t(take(place(but(they(provide(
service(to(the(production(departments.(For(example:(store(Department(or(Maintenance(
Department.(
What!is!a!Cost!Unit?!
Costs(are(always(related(to(some(object(or(function(or(service.(For(example,(the(cost(of(a(car,(a(haircut,(a(
ton(of(coal(etc.(Such(units(are(known(as(cost(units(and(can(be(defined(as(
(
‘A(unit(of(product(or(service(in(relation(to(which(costs(are(determined’.(
(
Cost(unit(may(be(units(of(production,(e.g.(kilos(of(cement,(gallons(of(beer(OR(may(be(units(of(service,(
e.g.(consulting(hours,(Patient(nights,(Kilowatt(hour.(
(
How!is!cost!classified?!
!
There(are(three(possible(classifications(
(
• Type!1:!Direct!and!Indirect!Cost!(classification!as!per!traceability!of!cost)!
(
Direct(cost:(This(includes(all(such(cost(which(can(easily(be(traced(to(the(item(being(manufactured.(E.g.(
Direct(Material,(Direct(Labour(and(Direct(Expenses((royalties(or(artwork).(There(can(also(be(Direct(Selling(
Cost(like(Installation(or(Sales(Commission.(
(
Indirect(Cost:(All(the(cost(which(cannot(be(easily(traced(to(the(item(is(the(Indirect(Cost.(These(are(widely(
known(as(Overheads.(Overheads(can(be(production(or(non5production((selling(and(administration).(
(
(
OMAIR MASOOD
CEDAR COLLEGE
2
• Type!2:!Production!and!NonAProduction!Cost!(classification!as!per!function)!
Any(cost(which(is(incurred(in(manufacturing(the(item(is(referred(as(Production(Cost.(All(the(other(cost(is(
Non(production((Selling()(,(Non(production(((Administration()(,(Non(Production(((Financial(charges).(((
!
• Type!3:!Variable!and!Fixed!Cost!(!classification!as!per!behavior!of!cost)!
Variable(Cost:(Those(cost(that(change(in(total(in(direct(proportion(to(changes(in(level(of(activity.(An(
increase/decrease(in(activity(brings(proportional(increase/decrease(in(total(variable(cost.(E.g.(Direct(
Material,(Direct(Labor.(Always(remember(Variable(Cost(per(Unit(will(remain(constant.(
(
Fixed(cost:(Those(cost(that(DOES(NOT(change(regardless(of(changes(in(activity(level.(E.g.(Rent,(
Depreciation(etc.(Fixed(Cost(does(not(change(in(Total(but(Fixed(Cost(per(unit(will(decrease(as(more(units(
are(produced.(
(
Semi(Variable((Mixed)(Cost:(Include(both(fixed(and(variable(elements.(For(example(Repairs,(
Maintenance(and(Electricity.(
((
(
(
For(example(the(cost(of(a(service:($2(per(unit(produced(up(to(a(maximum(of($5(000(per(year(will(show(
the(following(pattern(on(a(graph:(
(
(
OMAIR MASOOD
CEDAR COLLEGE
3
Another(example(of(semi5variable(costs(in(the(form(of(standing(charge(of($2(500(for(maintenance(
charges(for(a(specific(level(plus(a(charge(of($(5(per(unit(to(a(maximum(of($10(000(per(year,(will(show(the(
following(outline(on(a(graph:(
(
(
The(graphs(for(the(fixed(cost(per(unit(and(variable(cost(per(unit(look(exactly(opposite(to(total(fixed(costs(
and(total(variable(costs(graphs.(Although(total(fixed(costs(are(constant,(the(fixed(cost(per(unit(changes(
with(the(number(of(units.(The(variable(cost(per(unit(is(constant.(
(
(((((((((((((((
(
(
What!is!the!difference!between!direct!cost!and!variable!cost?!
!
The(direct(cost(is(directly(related(to(a(product(and(it(can(be(easily(traced(to(the(item(being(manufactured(
but(it(does(not(include(any(type(of(variable(overheads.(The(variable(cost(includes(all(direct(cost(and(
variable(overheads(as(well.(For(e.g.(the(variable(part(of(the(electricity.(
(
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
4
What!is!a!Sunk!Cost?!
!
This(is(an(expenditure(which(has(already(been(incurred(and(it(has(no(importance(in(future(decision(
making(since(the(cost(has(already(been(spent.(For(example,(a(business(conducts(a(feasibility(study(of(
buying(a(new(machine(and(incurs(an(expense(of($5(000.(Now(whether(the(machine(is(brought(or(not,!
$5,000(has(already(been(spent(and(cannot(be(recovered,(so(we(should(not(consider(them(in(decision(
making.(This(cost(is(treated(as(an(expense(in(the(profit(and(loss(account(for(the(year.(Other(example(
would(be(cost(incurred(on(market(research(before(launching(a(new(product.(
(
What!is!the!effect!on!variable!cost!line!for!bulk!purchase!discount!on!purchase!of!raw!materials?!
!
Sometimes,(suppliers(offer(bulk(purchase(discount(to(a(manufacturing(business.(For(example,(if(a(
business(purchases(1(000(units,(a(price(of($5(may(be(charged(per(unit.(On(additional(1(000(units,(the(
price(may(be(reduced(to($4.50(per(units(and(so(on.(It(will(reflect(the(following(image(on(the(graph(paper(
and(it(is(known(as(saw@tooth$curve.(
(
(
(
(
(
(
(
What!is!Stepped!Cost?!
This(is(type(of(cost(which(is(constant(till(a(certain(level(of(Activity((Relevant(Range)(but(it(will(increase(
significantly(as(the(activity(level(increases.(For(example(Rent(is(constant(till(the(factory(maximum(
capacity(is(reached(but(then(we(need(another(factory(to(increase(production(so(the(rent(will(double.((If(
we(plot(this(on(a(graph(it(will(look(like.(
(
(
(
( OMAIR
(
(
(
(
MASOOD
CEDAR COLLEGE
5
((((((((((((((((((((((((((((((((
(
(
(
Marginal!Costing!
MARGINAL COSTING
THEORY
(
It(is(a(costing(technique(for(decision(making,(which(is(based(on(marginal((variable)(cost(of(a(product.(It(
emphasizes(on(cost(behavior(and(clearly(distinguishes(between(variable(cost(and(fixed(cost.(It(is(based(
on(the(principle(that(due(to(change(in(level(of(activity(only(the(variable(cost(change(and(the(fixed(cost(
remain(constant.(
(
What!is!a!marginal!cost?!
This(is(all(the(variable(cost(to(produce(and(sell(a(unit.(It(may(be(described(as(the(additional(cost(to(
produce(and(sell(each(additional(unit.(This(includes(Direct(Material((DM),(Direct(Labor((DL),(Direct(
Expenses,(Variable(Production(Overheads(and(Variable(Admin(Overheads(and(Variable(Selling(
Overheads.(Basically(the(entire(possible(variable(cost.(
(
Contribution/(unit(=(Total(Contribution/(number(of(units(
What!is!Contribution?!
(
This(is(amount(left(to(cover(for(fixed(cost(and(profit.(
Note:(Sales(–(Variable(Cost(=(Contribution(–(Fixed(Cost(=(Profit(
(
(
So(Contribution(=(Fixed(Cost(+(Profit(
Total(Contribution(=(Sales(–(Variable(Cost((Marginal(Cost)(
(
(As(mentioned(above(the(amount(for(fixed(cost(and(profit.(
Contribution/(unit(=(Selling(Price/(unit(–(Variable(Cost(
(
((
(
(
Or(
(( Contribution/(unit(=(Total(Contribution/(number(of(units(
((
(
Note:(Sales(–(Variable(Cost(=(Contribution(–(Fixed(Cost(=(Profit(
(
(
So(Contribution(=(Fixed(Cost(+(Profit(
(
(
(
( As(mentioned(above(the(amount(for(fixed(cost(and(profit.(
(
USES!OF!MARGINAL!COSTING!(INCLUDES!THE!RULES!FOR!DECISION!
(
MAKING)!
(
((
Marginal(costing(is(widely(used(by(the(managers(in(making(various(business(decisions.(The(concept(is(
(
that,(it(is(assumed(that(the(fixed(cost(will(not(change(so(all(decisions(are(based(keeping(this(fact(in(mind.(
(
(
(
• Provides(quick(calculation(of(total(cost.(As(the(fixed(cost(remains(constant(and(only(the(variable(
(
cost(changes(
(
(
(
Total(Cost(=((variable(cost/(unit(x(no.(of(units)(+(Fixed(cost(
(
• Provides(quick(calculation(of(profit(at(different(levels((
(
(
((((((Profit(=((Contribution/(unit(x(no.(of(units)(–(Fixed(Cost(
( • Used(in(break5even(analysis((see(below)(
(
Marginal(costing(is(widely(used(by(the(managers(in(making(various(business(decisions.(The(concept(is(
• Helps(in(making(decision(on(whether(to(make(a(product(or(buy(from(outside.(
that,(it(is(assumed(that(the(fixed(cost(will(not(change(so(all(decisions(are(based(keeping(this(fact(in(mind.(
(
(
(
Rule:!Only(buy(from(outside(if(his(price(is(lower(than(our(variable(cost(to(produce(
• Provides(quick(calculation(of(total(cost.(As(the(fixed(cost(remains(constant(and(only(the(variable(
(
(variable(cost(to(producer(does(not(include(variable(selling(overheads)(
cost(changes(
(
(
(
Total(Cost(=((variable(cost/(unit(x(no.(of(units)(+(Fixed(cost(
• Helps(in(decision(making(on(acceptance(or(rejection(of(special(orders(under(idle(capacity.(
((
• (Provides(quick(calculation(of(profit(at(different(levels((
Rule:!Accept(all(orders(under(idle(capacity(as(long(as(it(covers(the(variable(cost.(
(
((((((Profit(=((Contribution/(unit(x(no.(of(units)(–(Fixed(Cost(
((
In(other(words,(it(gives(a(positive(contribution.(
• (Used(in(break5even(analysis((see(below)(
• Helps(in(making(decision(on(whether(to(continue(or(discontinue(a(product.(
(
USES!OF!MARGINAL!COSTING!(INCLUDES!THE!RULES!FOR!DECISION!
MAKING)!
•
Helps(in(making(decision(on(whether(to(make(a(product(or(buy(from(outside.(
CEDAR COLLEGE
(
(
Rule:!Only(buy(from(outside(if(his(price(is(lower(than(our(variable(cost(to(produce(
(
(variable(cost(to(producer(does(not(include(variable(selling(overheads)(
(
OMAIR MASOOD
6
(
(
(
(
(
(
(
(
(
MARGINAL(COSTING(
Breakeven!Analysis!
(
(
(
(
(
ABSORPTION(COSTING(
1. ( It(is(based(on(total(production(cost(including(
It(is(based(only(on(variable(cost.(
variable(and(fixed(costs.(
2. ( It(divides(cost(into(production(and(non(
It(divides(cost(between(variable(and(fixed.(
production(
3. ( Stocks(include(the(total(production(cost((DM,( Stocks(include(only(the(variable(production(
Rule:!Continue(products(giving(positive(contribution(unless(a(replacement(product(can(
DL,(VPOH(and(FPOH)(
cost((DM,(DL(and(VPOH)(
4. ( generate(more(positive(contribution.(Discontinue(the(product(giving(negative(
It(is(more(suitable(for(external(use(as(the(
It(is(more(suitable(for(internal(use(as(
profit(and(loss(is(based(on(this.(
decisions(are(based(on(this(
contribution.(This(is(because(the(fixed(cost(should(be(ignored(as(it(doesn’t(changes(with(
5. ( decision(to(continue(or(discontinue.(Hence(a(product(which(is(making(a(loss((negative(
Treats(fixed(cost(as(a(product(cost.(
Treats(Fixed(cost(as(a(period(cost.(
6. ( Gives(Gross(Profit(
Gives(Contribution.(
net(profit)(but(is(giving(a(positive(contribution(should(not(be(discontinued.(
7. ( Required(adjustment(for(Over(and(Under(
No(adjustment(is(required(as(actual(fixed(cost(
Absorbed.(
is(taken.(
Similarly(a(product(which(might(give(a(positive(contribution(should(be(added(to(current(product(
(
range.((
(
Formulas:!
Contribution!to!Sales!Ratio!=!Contribution!per!unit/!Selling!price!per!unit!Or!
!!!!!!!!!!(csratio)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Total!Contribution/Total!Sales!
(
COMPARISON!OF!ABSORPTION!AND!MARGINAL!COSTING!
Breakeven(in(Units(=(
Fixed(Cost(/(Contribution(per(unit(
(
Breakeven(in(value((Sales(Revenue)(=(Breakeven(in(Units(x(Selling(Price(/(Unit(or((Fixed(Cost/Cs(Ratio(
Margin!of!Safety:!!!
ABSORPTION(COSTING(
MARGINAL(COSTING(
1. ( It(is(based(on(total(production(cost(including(
It(is(based(only(on(variable(cost.(
This(represents(the(difference(between(the(actual((or(budgeted)(level(of(activity(and(the(breakeven(level(
variable(and(fixed(costs.(
of(activity.(For(e.g.(if(a(factory(produces((or(plans(or(produce)(6(000(units(and(the(breakeven(is(at(2(000(
2. ( It(divides(cost(into(production(and(non(
It(divides(cost(between(variable(and(fixed.(
units,(this(means(4(000(units(are(in(margin(of(safety.(
production(
Margin(of(safety(provides(an(assessment(of(risk((by(indicating(the(extent(to(which(expected(output(can(
3. ( Stocks(include(the(total(production(cost((DM,(
Stocks(include(only(the(variable(production(
fall((before(a(loss(is(made(.(It(shows(the(ability(to(withstand(adverse(trading(conditions((
DL,(VPOH(and(FPOH)(
cost((DM,(DL(and(VPOH)(
4. ( It(is(more(suitable(for(external(use(as(the(
It(is(more(suitable(for(internal(use(as(
(
profit(and(loss(is(based(on(this.(
decisions(are(based(on(this(
Margin(of(Safety(in(Units:(=(Sales((Units)(–(Breakeven(Units(
5. ( Treats(fixed(cost(as(a(product(cost.(
Treats(Fixed(cost(as(a(period(cost.(
(
6. ( Gives(Gross(Profit(
Gives(Contribution.(
Margin(of(Safety(in(Value:(=(Margin(of(Safety(in(Units(x(Selling(Price(per(Unit(
7. ( Required(adjustment(for(Over(and(Under(
No(adjustment(is(required(as(actual(fixed(cost(
(
Absorbed.(
is(taken.(
Margin(of(Safety(as(a(%(=(Margin(of(Safety(units(/(Sales((Units)(x(1(000(
(
Sales(for(Target(Profit(=(Fixed(Cost(+(Target(Profit(
(
(
(
(
(C(S(Ratio(
(
Assumption!
Limitations!
Formulas:!(
1.
(
Fixed(Cost(remains(constant.(
Fixed(cost(might(change(at(some(level(
Contribution!to!Sales!Ratio!=!Contribution!per!unit/!Selling!price!per!unit!Or!
2. ( Total(cost(are(divided(into(variable(and( It(is(difficult(to(perfectly(do(that.((
!!!!!!!!!!(csratio)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Total!Contribution/Total!Sales!
fixed.(
Majority(of(cost(are(semi5variable.(
(
3. ( Variable(cost(per(unit(remains(constant( Economies(of(scale(and(bulk(discounts(
Breakeven(in(Units(=(
Fixed(Cost(/(Contribution(per(unit(
and(is(perfectly(proportional(
will(affect(this.(
Breakeven(in(value((Sales(Revenue)(=(Breakeven(in(Units(x(Selling(Price(/(Unit(or((Fixed(Cost/Cs(Ratio(
4. ( Selling(Price(unit(remains(constant.(
Increase(in(sales(volume(may(require(a(
price(reduction(
Margin!of!Safety:!!!
5. ( Technology(and(efficiency(remain(
Changes(in(them(will(definitely(take(
unchanged(
place.(
6. ( There(are(no(stock(levels(
Every(business(will(have(stock(levels(
(
Note:(due(to(the(assumptions,(the(usefulness(of(breakeven(analysis(is(limited.(
(
Breakeven!Analysis!
OMAIR
MASOOD
(
(
(
CEDAR COLLEGE
7
(
(
(
(
(
Example:(
(Through(Diagram(
(
(
Fixed(Cost(
(
(=(
$20(000(
(
(
Variable(Cost(/(Unit(( =(
$6(
(
(
Selling(Price(/(Unit(
=(
$10(
(
(
Units( (
(
=(
10(000(Units(
(
(
How!is!breakAeven!found!on!the!graph?!
(
Continuing(the(above(example,(the(following(steps(are(illustrated(to(draw((break5even(graph:(
(
Step(1:(
The(horizontal(line(is(knows(as(X5axis.(Draw(X5axis(for(number(of(units(at(the(distance(of(
1(000(each(and(up(to(10(000(units.(The(vertical(line(is(known(as(Y5axis.(Draw(Y5axis(for(
cost(and(revenue(up(to($100(000(at(the(distance(of($10(000(each(on(the(graph(paper.(
’
(
(
(
Where(the(two(axes(meet(is(called(the(origin(and(it(denotes(zero(for(both(axes.(
(
(
(
(
(
(
( Where(the(two(axes(meet(is(called(the(origin(and(it(denotes(zero(for(both(axes.(
(
Step(2:( (
Draw(fixed(cost(line(parallel(to(x5axis(for($20(000(as(follows:(
(
(
(
(
(
(
(
Step(2:( ( OMAIR
Draw(fixed(cost(line(parallel(to(x5axis(for($20(000(as(follows:(
MASOOD
CEDAR COLLEGE
8
p(3:(
(
(
(
(
(
(
(
(
(
(
(
(
(
Step(3:(
(
(
Draw(total(cost(line.(It(will(begin(from($20(000(on(Y5axis.(The(total(costs(are(equal(to(
fixed(cost(plus(variable(cost(that(is($20(000(+(($6(x(10(000(=($60(000)(=($80(000,(as(
follows:(
Draw(total(cost(line.(It(will(begin(from($20(000(on(Y5axis.(The(total(costs(are(equal(to(
fixed(cost(plus(variable(cost(that(is($20(000(+(($6(x(10(000(=($60(000)(=($80(000,(as(
follows:(
Step(4:(
(
Draw(sales(revenue(line,(it(will(begin(from(origin.(The(total(sales(revenue(is($100(000(
(i.e.($10(x(10(000)(
OMAIR MASOOD
CEDAR COLLEGE
9
Step(4:(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
Step(5:(
Draw(sales(revenue(line,(it(will(begin(from(origin.(The(total(sales(revenue(is($100(000(
(i.e.($10(x(10(000)(
(
Mark(the(Break5Even(point.(The(break5even(point(is(the(interaction(of(total(sales(line(
and(total(cost(line,(as(follows:(
(
(
(
(
(
(
(
(
OMAIR
MASOOD
(
(
(
(
CEDAR COLLEGE
10
((
(
(
(
(
Step(6:(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
E!=!Margin(of(
(Safety(ratio(
Mark(the(following(point(on(the(break5even(chart:(
A(=(Profit(
C!=!Margin(of(
Safety(in(value(
B(=(Loss(
C(=(Margin(of(safety(in(value(
D(=(Margin(of(safety(in(units(
E(=(Margin(of(safety(percentage.(
B!=!Loss!
A!=!Profit!
D!=!Margin(of(
safety(in(units(
E!=!Margin(of(
(Safety(ratio(
(
(
(
(
(
(
(
(
(
(
(
(
(
What!is!profitAvolume!chart?!
C!=!Margin(of(
Safety(in(value(
(
A!=!Profit!
B!=!Loss!
D!=!Margin(of(
safety(in(units(
(
!
(
The(profit5volume(chart(is(the(alternate(graphical(method(used(for(breakeven(analysis.(It(shows(the(
(
relationship(between(costs(and(revenues(and(it(basically(focuses(on(profits(and(losses(at(different(level(
(
of(activities.(It(shows(break5even(point(when(the(profit(and(loss(line(intersects(the(sales(line.(The(sales(
( line(may(be(based(on(sales(units(or(sales(revenue.(The(profit5volume(chart(is(very(useful(to(show(the(
( breakeven(point(for(range(of(products.(
((
( How!is!profitAvolume!chart!drawn?!
(!
( The(following(steps(are(involved(to(draw(the(profit5volume(chart:(
((
( Step(1:(
The(vertical(line(is(known(as(Y5axis(and(has(origin(at(the(central(point(because(the(X5axis(
(
begins(from(the(central(point.(Draw(Y5axis(for(profits(and(losses(at(the(distance(of(
(
$10,000(each.(All(the(points(above(the(origin(represent(amounts(of(profit(at(different(
What!is!profitAvolume!chart?!
level(of(sale(an(all(the(points(below(origin(represent(amounts(of(loss(at(different(level(of(
sale.(The(horizontal(line(is(known(as(X5axis,(which(may(be(used(for(sale(in(units(or(value.(
OMAIR MASOOD
CEDAR COLLEGE
Draw(X5axis(for(number(of(units(at(the(distance(of(1(000(each(and(up(to(10(000(units.(
The(X5axis(begins(from(the(center(of(Y5axis.(
11
breakeven(point(for(range(of(products.(
(
How!is!profitAvolume!chart!drawn?!
!
The(following(steps(are(involved(to(draw(the(profit5volume(chart:(
(
Step(1:(
The(vertical(line(is(known(as(Y5axis(and(has(origin(at(the(central(point(because(the(X5axis(
begins(from(the(central(point.(Draw(Y5axis(for(profits(and(losses(at(the(distance(of(
$10,000(each.(All(the(points(above(the(origin(represent(amounts(of(profit(at(different(
level(of(sale(an(all(the(points(below(origin(represent(amounts(of(loss(at(different(level(of(
sale.(The(horizontal(line(is(known(as(X5axis,(which(may(be(used(for(sale(in(units(or(value.(
Draw(X5axis(for(number(of(units(at(the(distance(of(1(000(each(and(up(to(10(000(units.(
The(X5axis(begins(from(the(center(of(Y5axis.(
(
(
(
(
(
(
(
(
Step(3:( (
(
(
(
Step(2:( (
Draw(the(profit(and(Loss(points,(as(follows:(
(For(example,(if(the(business(sells(10(000(units,(as(budgeted,(it(is(it(is(expected(to(earn(an(
amount(of(profit(of($20(000(I.e.(10(000(x(($10(–($6(=($4)(=($40(000(contribution(minus((
fixed(cost($20(000(=profit($20(000.(If(no(unit(is(produced(or(sold,(business(will(earn(no((
contribution(and(the(fixed(cost(will(result(into(a(loss(of(the(business.(
(
OMAIR
MASOOD
CEDAR COLLEGE
Connect(the(profit(and(loss(points(as(drawn(in(step(2(above.(The(point(at(which(the((
profit(and(loss(line(intersects(the(sale(line,(it(is(known(as(break5even(point.(
12
Step(3:( (
(
(
(
Connect(the(profit(and(loss(points(as(drawn(in(step(2(above.(The(point(at(which(the((
profit(and(loss(line(intersects(the(sale(line,(it(is(known(as(break5even(point.(
Step(4:( (
(
(
(
The(profit5volume(chart(may(be(used(to(find(out(the(amount(of(profit(and(loss(at((
different(level(of(output.(
(
(
(
(
For(example,(the(amount(of(profit(at(8(000(units(or(loss(at(3(000(units(can(be((
determined(on(the(chart(as(follows:(
(
(
!
!
Note:!if!there!is!more!than!one!product!then!Profit!is!plotted!against!Sales.!
What!is!cash!breakAeven?!
13
OMAIR
MASOOD
CEDAR COLLEGE
Cash(break5even(determines(the(level(of(sales(at(which(the(business(generates(enough(cash(to(meet(its(
operating(cash(requirements.(The(cash(break5even(does(not(consider(the(non5cash(expense,(like(
depreciation,(which(is(excluded(from(total(fixed(costs.(
Example:(
(
!
!
Note:!if!there!is!more!than!one!product!then!Profit!is!plotted!against!Sales.!
What!is!cash!breakAeven?!
Cash(break5even(determines(the(level(of(sales(at(which(the(business(generates(enough(cash(to(meet(its(
operating(cash(requirements.(The(cash(break5even(does(not(consider(the(non5cash(expense,(like(
depreciation,(which(is(excluded(from(total(fixed(costs.(
Example:(
The(following(information(is(taken(from(the(foregoing(example:(
(
(
(
Selling(Price( $10(per(unit(
(
(
(
Variable(costs( $6(per(unit(
(
(
(
Fixed(costs(
$20(000(per(annum((including(depreciation(of($4(000)(
Illustration:(
Cash(Break5even(
Total(fixed(costs(–(Depreciation((=($20(000(–($4(000((=(((4(000(units(((
In(units((
((((((=( (((((((((Contribution(per(Unit(
(
((($4(
(
To(convert(in(value(simply(multiply(the(units(with(selling(price(
(
(
Business!Planning!(!This!is!only!important!for!theory!)!
OMAIR MASOOD
CEDAR COLLEGE
14
MARGINAL COSTING WORKSHEET
MARGINAL COSTING ( WORKSHEET 1)
Q1. Following data is available for ABC Manufacturing Company for production &
sale of 4000 units.
$
Sale
80000
Direct Material (DM)
40000
Direct Labor (DL)
16000
Variable Overheads (VOH) 4000
Fixed Overheads
10000
REQUIRED:
Calculate Profit if
o 2000 units are produced and sold
o 6000 units are produced and sold
Q2. Following Data is available for Target Ltd for production & sale of 1200 units
Sale
Direct Material (DM)
Direct Labor (DL)
Overheads (60% Fixed)
REQUIRED:
Calculate Profit if
$
96000
24000
18000
30000
o 2000 units are produced and sold
o 500 units are produced and sold
Q3. Sindh manufacturing Co has the following cost information
Selling Price / Unit
DM/Unit
DL/Unit
VOH/Unit
Fixed Overheads
$45
2kgs/Unit @$5/kg
3 hours/unit @$8/hour
$2
$20000
REQUIRED:
Calculate Profit if
o 10000 units are produced and sold
o 2500 units are produced and sold
OMAIR MASOOD
CEDAR COLLEGE
15
Q4. Punjab manufacturing Co has the following cost information.
Selling Price / Unit
DM/Unit
DL/Unit
VOH/Unit
Fixed Overheads
$25
3kgs/Unit @$2/kg
45 mins/unit @$10/hour
$3
$5000
REQUIRED:
Calculate Profit if
o 10000 units are produced and sold
o 5000 units are produced and sold
Q5. Jackson Ltd manufactures a single product which sells at £30 per unit.
The costs per unit are expected to be:
Direct materials: 3 metres at £5 per metre
Direct labour: 15 minutes at £12 per hour
Variable manufacturing overheads at £3 per unit
The total fixed overheads are expected to be £52500 per year.
REQUIRED:
Calculate Profit if
o 10000 units are produced and sold
o 20000 units are produced and sold
Q6.
Selling Price / Unit
DM/Unit
$ 13
DL/Unit
$8
VOH/Unit
$2
Fixed Overheads $5
REQUIRED:
Calculate Profit at
$ 30
(assuming 5000 units)
o 5000 Units
o 10000 Units
Q7.
Selling Price / Unit
$56
DM/Unit
0.5 kg per unit each Kg is $30
DL/Unit
2 hours per unit at the rate of $5 per hour
VOH/Unit
$8
Fixed Overheads $5
(assuming 8000 units)
o Calculate profit at 5000 units, 10000 units, and 8000 units.
OMAIR MASOOD
CEDAR COLLEGE
16
Q8. Following information is available for two levels of activity.
Sales
DM
DL
Production Overheads
4000 Units
$
64000
12000
18000
20000
10000 Units
$
160000
30000
45000
38000
REQUIRED:
Calculate:
(i)
(ii)
(iii)
Variable Cost / Units
Fixed Cost
Profit if 7000 units are produced and Profit if 15000 units are produced.
Q9. Following information is available for two level of activity
Sales
DM
DL
Production Overheads
2000 Units
$
30000
10000
8000
5000
10000 Units
$
150000
50000
40000
21000
REQUIRED:
Calculate:
I.
II.
III.
Variable Cost / Unit
Fixed Cost
Profit if 7000 units are produced Profit if 9000 units are produced
OMAIR MASOOD
CEDAR COLLEGE
17
Q10.
Following information is available for two level of activity
Sales
DM
DL
Production Overheads
Marketing Overheads
5000 Units
$
100000
12000
18000
40000
10000
10000 Units
$
200000
24000
36000
60000
10000
REQUIRED:
Calculate:
o Variable Cost / Unit
o Fixed Cost (total)
o Profit if 7000 units are produced and Profit if 15000 units are produced
Q11.
Following information is available for two level of activity
5000 Units
$
110000
15000
18000
5000
30000
10000
15000
10000 Units
$
220000
30000
36000
10000
40000
10000
18000
Sales
DM
DL
Royalties (Direct Expenses)
Production Overheads
Marketing Overheads
Administration
REQUIRED:
Calculate:
o Variable Cost / Unit
o Fixed Cost (total)
o Profit if 5000 units are produced and Profit if 20000 units are produced
OMAIR MASOOD
CEDAR COLLEGE
18
5000 Units
10000 Units
$
$
Sales
110000
220000
DM
15000
30000
DL
18000
36000
Royalties (Direct Expenses)
5000
10000
Productioninformation
Overheads is available for30000
40000
Q12. Following
two level of activity
Marketing Overheads
10000
10000
5000
Units
10000
Units
Administration
15000
15000
$
$
REQUIRED:
110000
220000
Calculate:Sales
o Variable
Cost
/
Unit
DM
15000
30000
o Fixed
DL Cost (total)
18000
36000
o Profit
if
7000
units
are
produced
Profit
if
15000
units
are
produced
Royalties (Direct Expenses)
5000
10000
Production Overheads
30000
40000
Marketing Overheads
10000
10000
Administration
15000
15000
REQUIRED:
Calculate:
o Variable Cost / Unit
o Fixed Cost (total)
o Profit if 7000 units are produced Profit if 15000 units are produced
Q13.Nadeem manufacturing manufactures one product which sells for $32 per unit.
The company plans to manufacture 40000 units. Annual cost are expected to be.
Variable Cost
Semi Variable Cost ($80000 are fixed)
Other Fixed Cost
$360000
$280000
$340000
In the year ended 31st March 2003, 46000 units were produced and sold.
Q13.Nadeem manufacturing manufactures one product which sells for $32 per unit.
REQUIRED:
The company plans to manufacture 40000 units. Annual cost are expected to be.
(i)
Calculate the planned profit for the$360000
year ended 31st March 2003
Variable
Cost
(ii)Variable
Calculate
the actualare
profit
for the year
ended 31st March 2003
Semi
Cost ($80000
fixed)
$280000
Other Fixed Cost
$340000
Q14.
In themanufacturing
year ended 31sthas
March
2003, 46000
units were
and sold.
ABC
the following
information
forproduced
6000 units
$
REQUIRED:
Sale 180000
(i)
Calculate the planned profit for the year ended 31st March 2003
DM(ii) 72000
Calculate the actual profit for the year ended 31st March 2003
DL
48000
VOH 15000
FOH
10000
If Selling Price is reduced by 10% the units will increase to 8000 units. Additionally
supplier will allow a 2% discount on all material. Labor will demand a 5% increase.
Calculate profit at 6000 units and 8000 units.
OMAIR MASOOD
Q15.
CEDAR COLLEGE
Zaloum Ltd manufactures baseball caps which sell for $9 each.
19
If Selling Price is reduced by 10% the units will increase to 8000 units. Additionally
supplier will allow a 2% discount on all material. Labor will demand a 5% increase.
Calculate profit at 6000 units and 8000 units.
Q15.
Zaloum Ltd manufactures baseball caps which sell for $9 each.
The material used to make the caps costs $16 per meter. Each cap uses 0.125 meters.
The craftsmen working at the factory ware paid $8 per hour. Each cap takes 15
minutes to Make. The monthly fixed costs are $60000.
o Calculate the contribution per cap. State the formula used.
o Explain why the calculation of contribution per cap is useful to the
management
The price of raw materials has increased by 40%. At the same time, a wage increase
of 5% has been agreed and fixed costs have increased by $3100. Calculate the new
contribution per cap.
Q16.
Mr. John produces a product called ‘Shaly’. It takes 4 kgs of material to make one
shaly and each kg cost $3. The labor takes 30 minutes to make it and is paid $12 per
hour. Fixed Production Overheads amount to $20000 per month. Additionally John
also pays his salesman a commission of $2 for every unit sold. In the month of
September 5000 shalys were produced and sold.
(a)
Calculate the total cost of 5000 shark for the month of September. Make a
statement in a good format. Also show total cost / unit.
At the start of October it was decided with the sales staff that their commission will
be as follows:
Until 5000 units: $1.75 / Unit
Over 5000 units: $2.5 / Unit
It was also agreed that if sales fall to the level of 3000 units, no commission will be
paid
Calculate the total cost for the month of October if
(i)
4000 shalys were sold
(ii)
7000 shalys were sold
(iii)
3001 shalys were sold
(iv)
3000 shalys were sold
(v)
2900 shalys were sold
Q17
Mr. X produces a product called ‘X-Phone’. It takes 0.25 kgs of material to make one
X-Phone and each kg cost $13. The labor takes 90 minutes to make it and is paid $12
per hour. Fixed Production Overheads amount to $10000 per month. Additionally
John also pays his salesman a commission of $2 for every unit sold. In the month of
September
5000 X-Phones were produced
andCOLLEGE
sold.
OMAIR
MASOOD
CEDAR
(a)
Calculate the total cost of 5000 X-Phones for the month of September.
Make a statement in a good format. Also show total cost / unit.
20
(ii)
(iii)
(iv)
(v)
7000 shalys were sold
3001 shalys were sold
3000 shalys were sold
2900 shalys were sold
Q17
Mr. X produces a product called ‘X-Phone’. It takes 0.25 kgs of material to make one
X-Phone and each kg cost $13. The labor takes 90 minutes to make it and is paid $12
per hour. Fixed Production Overheads amount to $10000 per month. Additionally
John also pays his salesman a commission of $2 for every unit sold. In the month of
September 5000 X-Phones were produced and sold.
(a)
Calculate the total cost of 5000 X-Phones for the month of September.
Make a statement in a good format. Also show total cost / unit.
At the start of October it was decided with the sales staff that their commission will
$2 for every X-Phone. If sales exceed 6000 X-Phones the commission will increase
by $0.5 on every X-Phone sold. If sales drop below 4000 X-Phones the commission
will be $1 for every X-Phone sold.
It was also agreed that if sales fall to the level of 3000 units, no commission will be
paid.
REQUIRED:
Calculate the total cost for the month of October if
I.
II.
III.
IV.
V.
7000 X-Phones were sold
4000X-Phones were sold
3001 X-Phones were sold
3000 X-Phones were sold
6000 X-Phones were sold
Q18.
Selling Price / Unit $25
DM/Unit
$8
DL/Unit
$10
VOH/Unit
$2
Fixed Overheads
$25000
Production Capacity = 8000 units
Calculate:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Breakeven point in units
Contribution to sales ratio (CS ratio)
Breakeven point in value
How many units should be produced in order to make a profit of $3000
The Margin of safety in units
The Margin of safety in value
The Margin of safety as a percentage
Q19.
The following budget is based on the full production capacity of 12000 units
OMAIR MASOOD
CEDAR COLLEGE
Sales
DM
$
240000
96000
21
(iv)
(v)
(vi)
(vii)
How many units should be produced in order to make a profit of $3000
The Margin of safety in units
The Margin of safety in value
The Margin of safety as a percentage
Q19.
The following budget is based on the full production capacity of 12000 units
Sales
DM
DL
Production Overheads (20% fixed)
Sales overheads (50%)
$
240000
96000
36000
20000
24000
Calculate:
I.
II.
III.
IV.
V.
VI.
VII.
Breakeven point in units
Contribution to sales ratio (CS ratio)
Breakeven point in value
How many units should be produced in order to make a profit of $20000
The Margin of safety in units
The Margin of safety in value
The Margin of safety as a percentage
Q20.
Mr. Change is considering buying a new machine for a new product line there are two
options available. The cost and revenue details associated with both the options are as
follows:
OPTION A
Production Capacity = 5000 units
Selling Price / Unit = $15
DM /Unit = $3
DL / Unit = $5
VOH / Unit = $2
Fixed Cost = $10000
OPTION B
Production Capacity = 5000 units
Selling Price / Unit = $16
DM /Unit = $3
DL / Unit = $3
VOH / Unit = $1
Fixed Cost = $27000
For both options, A and B
Calculate:
OMAIR
MASOOD
I.
II.
CEDAR COLLEGE
Breakeven point in units
Contribution to sales ratio (CS ratio)
22
DM /Unit = $3
DL / Unit = $3
VOH / Unit = $1
Fixed Cost = $27000
For both options, A and B
Calculate:
I.
II.
III.
IV.
V.
VI.
Breakeven point in units
Contribution to sales ratio (CS ratio)
Breakeven point in value
The Margin of safety in units
The Margin of safety in value
The Margin of safety as a percentage
Calculate at which level of output both option 1 and option 2 will give the same
profit?
Q21. Tracey Kent owns a photographer’s studio. Each portrait sells for $38 and costs
$12 to produce. Unfortunately, for the year ending 30 November 2004 her fixed
overheads are expected to rise from the previous year’s figure of $42250 to $52000.
REQUIRED:
(a)
State the formula used to calculate the number of portraits required to
break even
(b)
Calculate the number of portraits required to break even for:
(c)
(i)
the year ended 30 November 2003
(ii)
the year ending 30 November 2004
Calculate the required change in selling price for the year ending 30
November 2004, if Tracey wishes to maintain the same level of break –
even as that for the year ended 30 November 2003.
Q22. Ranjeev Ali has decided to open his own business making leather jackets. He
is not sure whether to produce high quality jackets or low quality jackets. If
Ranjeev produces high quality jackets, he will use good quality material, each
jacket will take longer to complete, and he will have to employ higher quality
skilled labour. He will also have higher fixed costs Ranjeev will be able to
sell each high quality jacket at a higher price, but he would sell more jackets if
he produced low quality jackets.
Ranjeev has prepared some estimated figures, shown below:
High Quality
Jacket
Material costs per square metre
$11
Material required per jacket (sq metres)
3
Labour
costs per hour
$15
OMAIR
MASOOD
CEDAR COLLEGE
Labour time per jacket (hours)
4
Fixed Costs per month
$2300
Selling Price per jacket
$149
Low Quality
Jacket
$8
3
$13
3
$2000
$99
23
(c)
Calculate the required change in selling price for the year ending 30
November 2004, if Tracey wishes to maintain the same level of break –
even as that for the year ended 30 November 2003.
Q22. Ranjeev Ali has decided to open his own business making leather jackets. He
is not sure whether to produce high quality jackets or low quality jackets. If
Ranjeev produces high quality jackets, he will use good quality material, each
jacket will take longer to complete, and he will have to employ higher quality
skilled labour. He will also have higher fixed costs Ranjeev will be able to
sell each high quality jacket at a higher price, but he would sell more jackets if
he produced low quality jackets.
Ranjeev has prepared some estimated figures, shown below:
Material costs per square metre
Material required per jacket (sq metres)
Labour costs per hour
Labour time per jacket (hours)
Fixed Costs per month
Selling Price per jacket
Estimated number of sales per month (units)
High Quality
Jacket
$11
3
$15
4
$2300
$149
160
Low Quality
Jacket
$8
3
$13
3
$2000
$99
210
REQUIRED:
(a)
(b)
(c)
(d)
Calculate the expected break even point in units for a month, for both
the high quality jacket and the low quality jacket.
Calculate the margin of safety in units for one month, for both the high
quality jacket and the low quality jacket.
Calculate the expected profit for a month, for both the high quality
jacket and the low quality jacket.
Evaluate which type of jacket Ranjeev should produce.
OMAIR MASOOD
CEDAR COLLEGE
24
Q23.
Bodger Ltd has been in the business of buying and selling washing machines for some
year, but has decided to look at the possibility of manufacturing its own brand. At
present, under Option 1, machines are bought in for $280 and sold for $400. You have
been asked to compare this with the two new options under assessment. Under Option
1 fixed costs are minimal and are not taken into account. The figures are as follows:
Unit costs
Direct Materials
Direct Labour
Variable Overheads
Fixed Costs
Unit Selling Price
Option 2
$
50
70
30
$30000000
$370
Option 3
$
50
30
20
$50000000
$420
All costs relating to the wasting machines are included in the above. The
directors expected to sell at least 200000 machines per annum.
REQUIRED:
(a)
Calculate, to the nearest whole number, the break-even point in units
and in value for option 2 and 3.
(b)
Calculate which the three options is most profitable at the following
levels.
(i)
(ii)
(iii)
190000 units
240000 units
290000 units
(c)
Calculate the level in units at which option 2 and 3 show the same net
profit.
(d)
Calculate the minimum level of production at which it is better to
manufacture rather than buy in inventory.
OMAIR MASOOD
CEDAR COLLEGE
25
MARGINAL COSTING ( Worksheet 2)
Q1
Q24.
Fernando manufactures 3 types of refrigerator for Household, Business and Factory
use.
The following data apply to the year ended 30 April 2007.
Sales (units)
Total sales value ($)
Total costs
Direct material
Direct labour
Variable overheads
Fixed overheads
Profit (loss)
Household
Business
Factory
Total
2400
240000
$
96000
72000
24000
_57600
249600
(9600)
900
108000
$
45000
28800
13500
_27000
114300
(6300)
2250
360000
$
112500
94500
45000
_67500
319500
40500
5550
708000
$
253500
195300
82500
_152100
683400
24600
REQUIRED:
(a)
For the year ended 30 April 2007 calculate for each type of refrigerator:
(i) the contribution per unit;
(ii) the contribution as a percentage of sales.
Give answers to a maximum of two decimal places. Working must be shown.
(b)
(c)
Calculate the break-even point for each type of refrigerator in both units and
dollars.
Give your answers to the nearest whole number. Working must be shown
The table at the beginning of the question shows that both the Household and
the Business models appear to be making a loss.
Explain why Fernando should not cease production of these two types of
refrigerator.
OMAIR MASOOD
CEDAR COLLEGE
26
manufacture of all three products.
Data for the year ended 30 April 2005 was as follows:
four
three
two
drawer 12
drawer
drawer
$
$
$
Q2.
Q25.
Total sales
410 400
123 900
427 500
3 Hoi Poloi plc makes 3 types of filing cabinet, four-drawer, three-drawer and two-drawer. The
Total variable costs
304 000
88 500
285 000
business uses general purpose machines which are equally suitable to be used in the
Allocated fixed costs
98 000
48 000
135 000
manufacture of all three products.
Profit (Loss)
8 400
(12 600)
7 500
For
Examiner's
Use
Data for the year ended 30 April 2005 was as follows:
It had been proposed that the three-drawer cabinet be discontinued, as it was making a
loss.
four
three
two
drawer
drawer
drawer
$
$
$
REQUIRED
Total sales
410 400
123 900
427 500
Total variable costs
304 000
88 500
285 000
(a) State whether this proposal should have been agreed, giving your reasons.
Allocated fixed costs
98 000
48 000
135 000
Profit (Loss)
8 400
(12 600)
7 500
It had been proposed that the three-drawer cabinet be discontinued, as it was making a
loss.
REQUIRED
(a) State whether this proposal should have been agreed, giving your reasons.
[5]
Sales and cost data for the year ended 30 April 2006 were as follows:
four
drawer
REQUIRED
Sales in units
13
15 000
three
drawer
two
drawer
6 000
30 000
For
Examiner's
Use
[5]
(b)
unit for each product.$8
RawCalculate
materials the selling price per$12
Variable overheads
$3
$2
Unit contribution
$7
$6
Sales and cost data for the year ended 30 April 2006 were as follows:
Machine hours per unit
0.5
0.5
Machine operators are paid $10 per hour.
four
three
Allocation of fixed costs
$98 000
$48 000
drawer
13 drawer
Sales
in units
REQUIRED
15 000
6 000
$4
$2
$5
0.4
two
$135 000
drawer
For
Examiner's
Use
30 000
[3]
Raw materials
$12
$8
$4
(b) Calculate
the selling price $3
per unit for each product.
Variable
overheads
$2
$2
Unit contribution
$7
$6
$5
(c) Calculate
forunit
each product the
point in
value.
14
Machine
hours per
0.5 break-even
0.5both units and sales0.4
Machine operators are paid $10 per hour.
(d)
Calculate
for each
profit
year000
ended 30 April 2006.
Allocation
of fixed
costs product the
$98
000or loss for the $48
$135 000
15
© UCLES 2006
9706/02/M/J/06
To try to improve profits for the year ending 30 April 2007, it has been suggested that a
better quality, more easily worked, raw material be purchased. This would increase the cost
of raw materials by five percent (5 %) but would offer savings of ten percent (10 %) on
labour. Sales and other costs would remain unchanged.
For
Examiner's
Use
For
Examiner's
Use
[3]
(c) Calculate for each product the break-even point in both units and sales value.
REQUIRED
(e) Calculate for each product and in total the profit or loss if this suggestion is put into
effect.
© UCLES 2006
OMAIR MASOOD
9706/02/M/J/06
CEDAR COLLEGE
27
Break-even point
16 000 units
16
REQUIRED
(ii) budgeted contribution to sales (C / S) ratio (to two decimal places)
(a) Calculate the budgeted fixed costs for the year ending 31 December 2018.
15
Q26.
4
16 following budgeted data is available for the
Ken produces components for mobile telephones. The
year ending 31 December 2018:
(ii) budgeted contribution to sales (C / S) ratio (to two decimal places)
Selling price
Direct materials
Direct labour
Direct expenses
Break-even point
Per unit
$
5.25
0.50
0.75
0.25
16 000 units
[2]
REQUIRED
(a) Calculate the budgeted fixed costs for the year ending 31 December 2018.
[3]
(c) State the meaning of C / S ratio.
Additional information
[2]
The budgeted profit for the year ending 31 December 2018 is $75 000.
(c) State the meaning of C / S ratio.
REQUIRED
[1]
(b) Calculate for the year ending 31 December 2018:
16
[2]
(i) budgeted number of units to be sold
(d) (ii)
(i) budgeted
State thecontribution
name given
the(Cdifference
between
the budgeted
total sales[1]
units and the
to to
sales
/ S) ratio (to
two decimal
places)
budgeted break-even sales units.
(c) State the meaning of C / S ratio.
[3]
(d) (i) State the name given to the difference14between the budgeted total sales units and the
[1]
4
budgeted
break-even sales units.
Additional
information
17wishes to know the break-even point.
Rahel manufactures a single product X and
(ii) Explain the significance of this difference to a business.
The budgeted profit for the year ending 31 December 2018 is $75 000.
[1]
(e) Prepare the break-even chart for Ken based on
18the relevant data. Clearly identify the area of
REQUIRED
profit, the area of loss and the break-even point.
REQUIRED
(ii) Explain the significance of this difference to a business.
(a) State what
meant by of
break-even
point.analysis.
14
(f)
threeislimitations
a break-even
(b) Calculate for the year ending 31 December 2018:
[1]
(Jun17/P21/Q4a-f)
(i) budgeted number of units to be sold
1 manufactures a single product X and wishes to know the break-even point.
Rahel
(d) (i) State the name given to the difference14
between the budgeted total sales units and the
budgeted
break-even
sales
units.
[1]
Q27.
REQUIRED
4 Rahel manufactures a single product X and wishes to know the break-even point.
[1]
Additional
information
(a)
State what
is meant by break-even point.
REQUIRED
The(ii)
following
budgeted
informationofisthis
available
for product
X.
Explain
the significance
difference
to a business.
[2]
2
(a) State what is meant by break-even point.
16
Selling price per unit
$2.00
[2]
[2] over[1]
© UCLES
2017
9706/21/M/J/17
[Turn
Contribution
to sales ratio
62.5%
4
(d)
Calculate
Fixed
costs the margin of safety.
$50 000
Production and
sales
100 000 units
Additional
information
in units
(c) (i)
State
the meaning of C / S ratio.
REQUIRED
The 3following budgeted information is available for product X.
[2]
15
Additional information
(b) Calculate the break-even point in units and $ 16
revenue.
Selling price per unit
$2.00
[2]
16
(c) 2017
Prepare
break-even
chart62.5%
for product
X.
© UCLES
9706/21/M/J/17
The
followingatobudgeted
information
is available
for product X.
Contribution
sales
ratio
(d) 2017
Calculate
(i) in unitsthe margin of safety. 9706/21/M/J/17
© UCLES
© UCLES
9706/21/M/J/17
[Turn over
Fixed
costs the margin of safety.
$50 000
(d) 2017
Calculate
[1]
Selling
priceand
persales
unit
$2.00
Production
100 000 units
[3]
(i) in units
[2]
Contribution
to sales ratio
62.5%
(i) in units
(ii)
as
a
percentage
Additional
information
Fixed
costs
$50
000
REQUIRED
(d) (i)
State
the name given to
the
difference between the budgeted total sales units and the
Production
and
sales
100
(Jun16/P21/Q2a-d)
(Jun16/P23/Q2a-d)
budgeted break-even sales 000
units.units
Ken Calculate
is considering
increasing the
selling
price and
to $6.00
per unit from 1 January 2019. He expects
(b)
the break-even
point
in units
$ revenue.
that all costs will remain unchanged.
REQUIRED
[1]
(i)
in
units
(ii) inMASOOD
revenue
OMAIR
CEDAR COLLEGE
REQUIRED
(b)
Calculate
the
break-even
indifference
units andto$ arevenue.
(ii) Explain
the
significancepoint
of this
business.
[4]
9706/21/M/J/17
the number of units Ken must
sell each month so the budgeted total contribution is
(ii)
a percentage
(i) as
in
units
(ii)
asinformation
a percentage
the same
as in 2018.
Additional
© UCLES
(g) 2017
Calculate
[1]
28
He has prepared the following
profit/volume (P / V) chart for product X for the year ending
80
14
31 December 2016.
4
60
Lin, a manufacturer, makes$three
000s products: X, Y and Z. He uses cost-volume-profit (CVP) analysis
in his business.
40
80
14 (P / V) chart for product X for the year ending
He has prepared the following
profit/volume
Q28.
31 December 2016.
20 products: X, Y and Z. He uses cost-volume-profit (CVP) analysis
4 Lin, a manufacturer, makes 60
three
A
in his business.
$ 000s
He has prepared the following
profit/volume
(P / V) chart for product X for the year ending
400
31 December 2016.
80
20
40
60
–20
20
$
000s
60
A
80
– 40
400
13
13
20
40
60
60
REQUIRED
B –– 60
20
20
REQUIRED
40
A
(b) Calculate for product–Wye:
80
–
40
0
(b) Calculate for product20Wye:
Sales units 000s
40
60
(i) the revised contribution per unit
A 20
B ––20
60
(i) the revised contribution
per unit
0
REQUIRED
20
40
60
Identify from the P –/––V
chart for the year ending 31 December 2016:
80
20
40
Sales units 000s
(i) what point A 20
000 represents
– 40
B – 60
REQUIRED
(a)
B – 60
[4]
– 80
Identify from the P / V chart for the year ending 31 December 2016:
Sales units 000s
– 80
(ii) the revised break-even point in units
(i) what point A 20 000 represents Sales units 000s
whatrevised
point Bbreak-even
($60 000) represents
(ii) the
point in units
REQUIRED
(a)
[4]
[1]
REQUIRED
(a)
(a)
Identify from the P / V chart for the year ending 31 December 2016:
Identify from the P / V chart for the year ending 31 December 2016:
[1]
[1]
[2]
(i) what point A 20 000 represents
(i) what point A 20 000 represents
(ii) what point B ($60 000) represents
15
the
revised
margin
(b) (iii)
State
what
is meant
by of
P /safety
V ratio.in units
revised
margin
of safety
in unitsof CVP analysis.
(c) (iii)
Statethe
two
benefits
and two
drawbacks
[2]
[1]
[1]
[1]
[1]
[1]
(ii)
whatpoint
point B
B ($60
Benefits
000)represents
represents
(ii)
what
($60000)
(Mar16/P22/Q4a-c)
1
Additional
information
(b)
State what
is meant by P / V ratio.
Q29.
Additional information
Another division of Hobbs Limited also manufactures one product, the Exe.
Another
Limited
alsoyear
manufactures
one product,
(b) following
Statedivision
whatdata
is of
meant
by P
/ V for
ratio.
The
isHobbs
available
the
ending 30 June
2016. the Exe.
(b) State what is meant by P / V ratio.
The selling
following
data is available for the$20
year ending 30 June 2016.
Unit
price
2
© UCLES
2016
Unit variable costs
$15 9706/22/F/M/16
Unit
selling
price
$20000
Budgeted fixed costs per annum
$30
Unit
variable
costs
$15 units
Budgeted sales
8000
Budgeted fixed costs per annum
$30 000
Budgeted sales
8000 units
REQUIRED
[1]
[1]
[1]
[1]
[1]
[1]
14
REQUIRED
Drawbacks
the monthly break-even point
in revenue.
9706/22/F/M/16
(d) Prepare a break-even chart for product Exe for the year ending 30 June 2016. Clearly
(c) indicate
Calculate
monthly
break-even
1
thethe
areas
of profit
and loss. point in revenue.
(c) 2016
Calculate
© UCLES
© UCLES 2016
OMAIR
© UCLES
2016
2
9706/22/F/M/16
MASOOD
CEDAR
COLLEGE
9706/22/F/M/16
[2]
29
[2]
Direct materials
Direct labour
Variable overheads
2.50
1.40
1.10
15
Total fixed costs
$120 000 per annum
Sales per annum (units)
200 000
(e) State three assumptions the accountant must make when preparing a break-even chart.
www.maxpapers.com
REQUIRED
1
(Nov15/P22/Q3c-e)
11
(a)(iii)
Using
the data
for the
product
D946 calculate
the following:
margin
of safety
in current
units and
as a percentage
of sales.
www.maxpapers.com
Q30.
For
Examiner’s
10
Use
(i)
break
–
even
point
in
units
and
sales
value;
..................................................................................................................................
2
3
Debussy currently produces one product for which the following information is available:
For
..................................................................................................................................
..................................................................................................................................
Examiner’s
Use
Product D946
$ per unit
..................................................................................................................................
..................................................................................................................................
3
Selling price
6.00
..................................................................................................................................
Direct..................................................................................................................................
materials
2.50
[3]
Direct labour
1.40
Variable
overheads
1.10
..................................................................................................................................
..................................................................................................................................
Additional
information
Total ..................................................................................................................................
fixed
costs
$120 000 per annum
..................................................................................................................................
The company
uses marginal costing in order to calculate its break-even point for its ‘make or buy’
Sales per annum (units)
200 000
decisions.
..................................................................................................................................
..................................................................................................................................
REQUIRED
REQUIRED
..................................................................................................................................
..................................................................................................................................
(a) Using the data for the current product D946 calculate the following:
(f) State three further reasons why a business might use a marginal costing system.
............................................................................................................................. [6]
..................................................................................................................................
(i) break – even point in units and sales value;
1
(ii) ..................................................................................................................................
profit for the year, showing the contribution
per unit;
11
..................................................................................................................................
www.maxpapers.com
(iii) .............................................................................................................................
margin of safety in units and as a percentage of sales.
[4]
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
(b) Prepare
the contribution to sales (profit/volume) graph, using the chart below, for the
..................................................................................................................................
..................................................................................................................................
2current product D946. Clearly show the profit at the current sales level.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
$000
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
3
For
Examiner’s
Use
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
(ii)
.............................................................................................................................
[6]
..................................................................................................................................
..................................................................................................................................
[6]
’000 units
profit
for the year, showing the contribution per unit;
..................................................................................................................................
............................................................................................................................. [4]
[Total: 30]
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
© UCLES
2010
(Nov10/P21/Q3a-b)
or (Nov10/P22/Q3a-b)9706/22/O/N/10
.................................................................................................................................. [4]
............................................................................................................................. [4]
..................................................................................................................................
(b) Prepare the contribution to sales (profit/volume) graph, using the chart below, for the
current
product D946. Clearly show the profit at the current sales level.
..................................................................................................................................
$000
..................................................................................................................................
.............................................................................................................................
[4]
OMAIR MASOOD
CEDAR COLLEGE
© UCLES 2015
9706/22/O/N/15
30
MARGINAL
COSTING LIMITING
(WORKSHEET
1)
MARGINAL
COSTINGFACTOR
LIMITING
FACTOR WORKSHEET
Q1.
Q1.
3
9
Blue Skies Ltd manufactures three types of tent: Beach, Explorer and Family.
For
Examiner's
Use
10
The company provides the following forecast
data for the year ending 30 April 2013:
(ii)
Calculate the total contribution and profit for the year based on forecast
Beach
Explorer
Family
demand.
Forecast demand (units)
Per Unit
Selling price
Raw materials
Direct labour
Variable overhead
30 000
40 000
24 000
$
70
30
8
6
$
130
36
20
26
$
200
54
38
48
For
Examiner's
Use
The same waterproof material is used in the manufacture of each tent.
The cost of material is estimated to be $6 per square metre.
Fixed costs for the year ending 30 April 2013 are estimated to be $3 500 000.
.
REQUIRED
(a)
Calculate the unit contribution for each product.
(i)
10
Calculate the total contribution and profit for the year based on forecast
demand.
(ii)
For
Examiner's
Use
[5]
There is only one supplier capable of producing waterproof tent material of the
required quality.
They have informed Blue Skies Ltd that the maximum amount they can supply in the
year will be 546 000 square metres.
REQUIRED
Calculate the contribution per square metre for each product produced.
(b)
11
(c)
Using the quantity of material that is available for production, calculate the
number of each type of tent that should be produced so that total profit is
maximised.
For
Examiner's
Use
[5]
[5]
[3]
There is only one supplier capable of producing waterproof tent material of the
required quality.
OMAIR MASOOD
© UCLES 2012
CEDAR COLLEGE
9706/21/M/J/12
They have informed Blue Skies Ltd that the maximum amount they can supply in the [Turn over
year will be 546 000 square metres.
© UCLES 2012
REQUIRED
9706/21/M/J/12
31
[7]
(d)
Using the quantity of material that is available, prepare a marginal cost profit
statement.
Clearly show the contribution made by each type of tent and the total profit
made in the year.
10
3
12 Apex. The following forecast information for
Clarke Limited manufactures one product, the
the Apex is available for the year ending 31 December 2014:
(e)
The directors determine that at least 27 000 units of the Beach tent have to be
produced inPer
theunit:
coming year.
Selling price
$45.50
material
($4 cost
per metre)
$14.00the contribution made by
Prepare a Direct
revised
marginal
statement to show
Direct
($12
per made
hour) in the year.
$18.00
tent labour
and total
profit
each type of
Variable production overhead
$ 3.00
4 000 units
10
Q2.
Fixed overheads are forecast to be $23 100 for the year.
3 Clarke Limited manufactures one product, the Apex. The following forecast information for
the
Apex is available for the year ending 31 December 2014:
REQUIRED
For
Examiner's
Use
For
Examiner's
Use
Sales demand
Perbreakeven
unit:
(a) Calculate the
point in units for the sales of the Apex.
Selling price
$45.50
Direct material ($4 per metre)
$14.00
Direct labour ($12 per hour)
$18.00
Variable production overhead
$ 3.00
Sales demand
© UCLES 2012
For
Examiner's
Use
[5]
4 000 units
9706/21/M/J/12
[Turn over
Fixed overheads are forecast to be $23 100 for the year.
REQUIRED
(a) Calculate the breakeven point in units for the sales of the Apex.
[4]
(b) Calculate the margin of safety for the Apex in terms of revenue.
[4]
(b) Calculate the margin of safety for the Apex in terms of revenue.
[3]
[5]
[Total: 30]
OMAIR MASOOD
CEDAR COLLEGE
[3]
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
© UCLES
2013
9706/22/M/J/13
University
of Cambridge
International Examinations is part of the Cambridge
Assessment Group. Cambridge Assessment is the brand name of University of
32
and overheads
the Cord.are
Both
products
use the
direct
material
and products.
the same grade of direct
Fixed
expected
to double
as asame
result of
producing
all three
labour as the Apex. The following forecast information is available for the year ending
31 December 2014:
REQUIRED
Examiner's
Use
(c) CalculatePer
the unit:
contribution per unit of the Bond and Bond
the Cord.
Cord
Selling price
$52.00
$67.50
11
Direct material ($4 per metre)
$16.00
$20.00
labour
($12 per
$24.00
$30.00
ClarkeDirect
Limited
has decided
to hour)
introduce two new
products in addition
to the Apex; the Bond
Variable
production
overhead
$ 4.00
5.00
and the
Cord. Both
products
use the same direct
material and$the
same grade of direct
labour as the Apex. The following forecast information is available for the year ending
Sales demand
6 000 units
2 000 units
31 December
2014:
For
Examiner's
Use
[2]
Perare
unit:
Fixed overheads
expected to double as a resultBond
of producing allCord
three products.
Selling price
$52.00
$67.50
Direct material ($4 per metre)
$16.00
$20.00
REQUIRED
(d)
Calculate the total quantity of direct material required by Clarke Limited for the year
Direct
labour
($12
per
hour)
$24.00
$30.00
ending 31 December 2014.
Variable
production
4.00
(c) Calculate the
contribution
peroverhead
unit of the Bond $and
the Cord. $ 5.00
Sales demand
6 000 units
2 000 units
Fixed overheads are expected to double as a result of producing all three products.
REQUIRED
(c) Calculate the contribution per unit of the Bond and the Cord.
[2]
(d) Calculate the total quantity of direct material required by Clarke Limited for the year
ending 31 December 2014.
[4]
[2]
(e) Clarke Limited has been told that due to a shortage of direct material, only 40 000
metres
will be available
for quantity
the year.ofCalculate
the maximum
forecast
profitLimited
for Clarke
(d) Calculate
the total
direct material
required
by Clarke
for the year
Limitedending
for the 31
year
ending 312014.
December 2014 using 40 000 metres of direct material.
December
Q3
Reed Ltd manufactures three products A, B and C. Budgeted costs and selling prices
© UCLES
2013 three months ending 30 September
9706/22/M/J/13
[Turn over
for the
1999 were as follows:
A
B
C
6000
8000
[4]5000
$
$
$
Selling price per unit
45
44
37
costsLimited has been told that due to a shortage of direct material, only 40 000
(e) Unit
Clarke
Direct
labour
6
9
metres
will be available for the year. Calculate
the maximum forecast
profit for Clarke 6
Direct
materials
20 using 40 000 metres
24 of direct material. 16
Limited
for the year ending 31 December 2014
[4] 2
Variable overheads
4
3
Sales (units per month)
The total fixed costs are $100000 per month, and are unavoidable.
(e) Clarke Limited has been told that due to a shortage of direct material, only 40 000
metres will be available for the year. Calculate the maximum forecast profit for Clarke
TheLimited
company
has year
been ending
advised31byDecember
its supplier
that,
due 40
to 000
a material
its material
for the
2014
using
metresshortage,
of direct material.
requirement for the month of September will be reduced by 15%. Material costs are $4 per
9706/22/M/J/13
[Turn over
kilo for all products.
REQUIRED:
© UCLES 2013
(a) A statement to show the net profit for July 1999, clearly showing the contribution per unit for
each product.
© UCLES 2013
9706/22/M/J/13
[Turn over
(b) A statement to show the maximum net profit for the three months ending 30th September
1998 taking into account the material shortage for the month of September 1998, clearly
showing the total contribution for each product.
OMAIR MASOOD
CEDAR COLLEGE
33
Q4.
Passabuck Ltd makes three products: Meenibuck, Teenibuck and Deluxibuck for
which the following details are given:
Product
Direct material (kilos per unit)
Direct labour (hours per unit)
Direct expenses (per unit)
Selling price per unit
Meenibuck
5
4
$7
$74
Teenibuck
7
6
$4
$85
Deluxibuck
10
8
$9
$115
Further information:
(i)
(ii)
(iii)
(iv)
(v)
All three products are made from material X.
Material X costs $3 per kilo.
All three products require the same type of labour which is paid at $7 per
hour.
Total fixed costs amount to $70000.
Budgeted production (based upon maximum demand) is:
Menibuck
2000 units
Teenibuck
2400 units
Deluxibuck 1800 units
It has now been discovered that the supply of material X is limited to 38000 kilos.
REQUIRED:
(a) Calculate the contribution per kilo of material X used for each product.
[12]
(b) Prepare a production budget based on your calculation in (a) to give maximum
profit from the material available
[11]
OMAIR MASOOD
CEDAR COLLEGE
34
Q5.
Simons Limited is a small manufacturing company currently making three different
types of chair. Each chair is made from the same raw materials by the same labour
force.
The managing director presents to you the following details of revenue and cost per
unit for the year ended 30 April 1990.
Type of Chair
Number of chair made and sold in the last year
Selling price
Raw material
Operating labour
Manufacturing overheads
Variable
Fixed
Standard
5000
Per unit
$
100
16
16
Deluxe
2000
Per unit
$
120
20
20
Super
3000
Per unit
$
150
28
28
4
8
7
10
9
14
Manufacturing fixed overheads are apportioned to the three products in proportion to
prime costs (i.e. materials and operating labour).
Selling costs are fixed at $160000.
All units produced can be sold as soon as they are made and no Inventory are kept.
The directors have been considering their plans for the year ending 30 April 1991.
The directors intend to introduce a new design of chair to be called the ‘Executive
Chair’. Raw material will cost $40 per unit. Operating labour costs $4 per hour
throughout the factory and it will take 9 hours to manufacture one ‘Executive’ Chair.
Because of labour shortages in the region, only 59300 hours of operating labour will
be available to the entire company in the coming year. Variable manufacturing
overhead will amount to $9 per unit for the ‘Executive Chair’.
In the coming year the price of the ‘Super’ Chair will be raised to $170. The price of
the ‘Standard’ and ‘Deluxe’ Chairs will not be increased. It is not thought that the unit
sales of each of the three existing chair models can be increased. The fixed selling
costs of the company will be increased to $175000 but other costs will not change.
REQUIRED:
(a) Prepare a statement to show the contribution made by each product during the
year ended 30 April 1990 and calculate the company’s total profit for the year.
(b) Calculate the selling price of the new ‘Executive’ chair if the company wishes
to make a contribution per ‘Executive’ chair of $165.
(c) The directors decide to go ahead and introduce the ‘Executive’ chair. Prepare
a budget for the year ended 30 April 1991 to produce the maximum profit on
the basis that market research indicates that 2500 ‘Executive’ chairs can be
made and sold.
OMAIR MASOOD
CEDAR COLLEGE
[9]
[5]
[11]
35
Machine hours
Variable overhead
Fixed overhead
Maximum monthly demand
1.00
$2.40
$10.00
100 units
2.50
$3.20
$25.00
120 units
5.00
$3.20
$50.00
60 units
Fixed overheads are forecast to be $7000 per month.
10
Y Limited has enough resources and capacity to meet the maximum monthly demand.
Q6.
4
Y Limited manufactures three products, Exe, Wye and Zed. The following budgeted information is
REQUIRED
available for the month of July 2017:
(a) Calculate the contribution per unit for each product.
Per unit
Exe
Wye
Selling price
$96.00
$128.00
Direct material at $4 per kilo
7 kilos
9 kilos
Direct labour at $8 per hour
3 hours
4 hours
Machine hours
1.00
2.50
Variable overhead
$2.40
$3.20
Fixed overhead
$10.00
$25.00
Maximum monthly demand
100 units
120 units
Zed
$140.00
15 kilos
4 hours
5.00
$3.20
$50.00
60 units
11 month.
Fixed overheads are forecast to be $7000 per
Y Limited has enough resources and capacity to meet the maximum monthly demand.
REQUIRED
(a) Calculate the contribution per unit for each product.
[3]
[3]
(b) Prepare a statement to show the maximum contribution and maximum profit that Y Limited
can earn for the month of July 2017.
(c) Calculate the total machine hours required to meet maximum demand for the month of
July 2017.
12
Additional information
Due to a machine breakdown, only 500 machine hours will be available for July 2017 production.
REQUIRED
(d) Calculate the maximum contribution and the maximum profit for the month of July 2017,
taking into account the limited machine hours available.
[3]
[1]
(b) Prepare a statement to show the maximum contribution and maximum profit that Y Limited
© UCLES 2017
can earn for the month of July 2017.9706/23/M/J/17
© UCLES 2017
OMAIR MASOOD
9706/23/M/J/17
CEDAR COLLEGE
36
16
Q7.
4
S Limited manufactures three different products.
The following budgeted information is available:
Products
Monthly sales revenue
Unit costs
Direct materials ($1 per kilo)
Direct labour
Variable overheads
A
$
72 000
B
$
27 000
C
$
165 000
6
2
17
1
9
7
2
3
8
1
(b) Selling
Prepareprice
a statement
budgeted
profit
per unit to show the maximum
18
27
33 the company will make in
December 2017 taking into account the shortage in materials but without the minimum
Total production
monthly fixed
overheads are expected to be $138 000.
requirement.
The directors of S Limited
have been
informed
thatforonly
$39 0002017
worth of direct materials would
Budgeted
profit
statement
December
be available in December 2017.
All products use the same type of direct material and no Contribution
price increase would occur due to the
per unit
Total
shortage. No changes are anticipated
in selling
prices, fixed overheads
or unit variable
costs.
Production
(units)
$
$
Due to an increased demand, the directors do not want to discontinue any of the products and
wish toProduct
produceAa minimum of 1000 units of each.
Product B
REQUIRED
(a) Prepare
ProductaCstatement to show the maximum budgeted profit the company will make in
December 2017 taking into account the shortage in materials and minimum production
requirement.
Total contribution
17
Product A
Product B
Product C
Less: Fixed overheads
(b) Prepare a statement to show the maximum budgeted profit the company will make in
Contribution
per /unit
December
taking
Budgeted2017
profit
loss($) into account the shortage in materials but without the minimum
production requirement.
[6]
Contribution per limiting factor ($)
Budgeted profit statement for December 2017
Ranking
(c) Advise the directors of S Limited whether or not they should produce a minimum of 1000
Contribution
units of each product. Justify your answer.
Budgeted profit statement for December
per2017
unit
Total
Production (units)
$
$
Contribution per
unit
Total
Product A
Production (units)
$
$
Product
Product B
A
Product
Product C
B
Total
contribution
Product
C
Less:
Fixed overheads
Total contribution
Budgeted
profit
/ loss
Less: Fixed
overheads
[6]
Budgeted profit / loss
[11]
(c) Advise the directors of S Limited whether or not they should produce a minimum of 1000
units of each product. Justify your answer.
© UCLES 2017
9706/23/O/N/17
[7]
OMAIR MASOOD
© UCLES 2017
37
CEDAR COLLEGE
9706/23/O/N/17
[Turn over
[4]
Q8.
Additional information
Rahel is considering opening another factory to produce two new products: Y and Z.
The following information is available.
Direct material
Direct labour ($5 per hour)
Variable overhead
Y
$ per unit
2
10
1.5
Z
$ per unit
4
5
1.5
Selling price
23
18
Forecast demand for April is 4000 units of Y and 6000 units of Z.
REQUIRED
(e) Calculate the contribution per unit of each product Y and Z.
17
Additional information
During April, fixed costs are forecast to be $60 000.
REQUIRED
[2]
(f) Calculate the forecast profit for the new factory for the month of April.
[1]
Additional information
During April, direct labour hours are expected to be limited to 10 000 hours.
REQUIRED
© UCLES 2016
9706/23/M/J/16
(g) Calculate the revised profit taking into account the limited direct labour hours.
OMAIR MASOOD
CEDAR COLLEGE
[5]
38
Q9.
Fairymead Pottery produces three ceramic products: mugs, plates and bowls. Each
product is produced and sold in sets.
Initial budget costs and selling prices for the next financial year as follows:
Product Costs
Variable costs per set
Direct wages:
Potters (£8 per hour)
Packers (£6 per hour)
Direct Materials:
China Clay (£2 per kilo)
Colouring
Glaze
Variable overheads
Selling price per set
Expected sales
Mugs
$
Plates
$
Bowls
$
12
2
12
1
8
1
8
1
1
6
4
1
2
10
4
2
1
6
43
38
36
No. of sets
4000
No. of sets
3000
No. of sets
2000
The total annual fixed costs for the business are $50000.
Changed circumstances:
Since drafting this budget, Fairymead Pottery has learnt that several China Clay pits
will cease production causing a shortage of China clay and an increase in its price.
The cost per kilo of China Clay will now rise by 50% and the maximum that can be
obtained Fairymead Pottery for its next financial year is estimated to be 25000 kilos.
No other changes in costs and selling prices are expected.
REQUIRED:
(a) Using the initial budgeted costs and sales, calculate:
(i)
The contribution for each product
(ii)
The total budgeted profit for the next financial year.
(b) Given the changed circumstances, calculate the contribution per unit for each
product and the maximum profit that Fairymead Pottery can now earn in the
next financial year.
(c) A business has two products which are not performing well. Explain what
action the business management should take in the case of a product:
(i)
which is providing a small positive contribution;
(ii)
which has a negative contribution.
OMAIR MASOOD
CEDAR COLLEGE
39
(
(
(
(
(
ABSORPTION
COSTING
((((((((((((((((((((((((((((((((((((((((((((((((((((
ABSORPTION!COSTING!
THEORY
(
What!is!Absorption!Costing?!
!
It(is(a(costing(method(in(which(the(overheads((estimated)(of(a(manufacturing(business(are(charged(first(
to(a(cost(centre((departments)(by(means(of(allocation(and(apportionment(and(then(a(predetermined(
overhead(absorption(rate(is(calculated(to(charge(the(amount(of(overheads(onto(a(job(or(a(product.(The(
overheads(may(be(absorbed(on(the(basis(of(activity(like(direct(labor(hours,(machine(hours(or(direct(labor(
cost(or(direct(material(cost.(The(basis(of(absorption(depends(upon(the(intensity(of(the(department.(E.g.(
a(machine(intensive(department(would(use(machine(hours.(
(
What!is!Overhead!Absorption!rate?!
(
A(manufacturer(needs(to(calculate(the(total(cost(of(the(product(before(he(actually(produces(it.(This(is(
because(once(the(total(cost(is(determined,(he(or(she(can(set(the(selling(price.(Since(the(Overhead(cost(is(
not(easy(to(trace,(a(rate(is(calculated(in(order(to(trace(the(overheads(as(per(the(level(of(activity.(For(
example,(if(the(overhead(Absorption(Rate(is($3(per(direct(labor(hour(and(a(particular(unit(requires(4(
hours(of(labour,(the(amount(of(Overheads(charged(will(be($3(x(4(hours(=($12.(
(
Formula(for(Overhead(Absorption(Rate((OAR)(=( (((((((((((((Budgeted(Overheads(((((((((((_(
(
(
(
(
(
(
Budgeted(Activity((e.g.(Labor(hours)(
(
!Why!do!we!use!Budgeted!figures?!
As(mentioned(above,(cost(has(to(be(determined(before(the(actual(production(takes(place.(The(actual(
overheads(and(activity(is(not(known(at(that(point.(This(would(make(it(impossible(to(quote(the(selling(
price(to(the(customer.(
(
How!are!Overheads!Allocated!and!Apportioned!to!the!departments?!
!
Firstly(all(the(overheads(are(split(amongst(the(department(by(using(suitable(basis.(For(some(overheads(
we(don’t(need(to(use(basis(because(they(are(pre(allocated,(e.g.(indirect(materials((they(are(usually(
divided(between(the(departments),(and(some(overheads(need(to(be(apportioned(using(suitable(basis,(
e.g.(rent(can(be(split(on(basis(of(floor(area.(Once(all(the(overheads(are(shared(to(departments((Primary(
Apportionment),(the(cost(of(service(departments(is(re5apportioned((Secondary(Apportionment)(to(the(
production(department(since(they(provide(service(to(the(production(departments.(
((
Some(factories(do(not(split(the(overheads(into(different(departments(and(just(calculate(a(single(
overhead(absorption(rate(for(the(whole(factory.(This(method(is(less(accurate(than(the(method(in(which(
separate(rates(are(calculated(for(each(department.(
(
(
What!is!Over!or!Under!absorption!of!overheads?!
(
The(Overhead(Absorption(Rate(is(calculated(using(budgeted(figures(but(the(actual(figures(of(overheads(
and(activity(are(always(different.(This(causes(a(difference(between(the(amount(of(overheads(absorbed(
and(the(actual(overheads(spend.(
(
OMAIR
MASOOD
CEDAR COLLEGE
Remember(Absorbed(Overheads(mean(the(amount(of(overheads(we(have(applied(to(our(cost(of(
production.(
(
Absorbed(Overheads(=(Budgeted(Overheads( x((((((Actual(Activity(
40
Some(factories(do(not(split(the(overheads(into(different(departments(and(just(calculate(a(single(
overhead(absorption(rate(for(the(whole(factory.(This(method(is(less(accurate(than(the(method(in(which(
separate(rates(are(calculated(for(each(department.(
(
(
What!is!Over!or!Under!absorption!of!overheads?!
(
The(Overhead(Absorption(Rate(is(calculated(using(budgeted(figures(but(the(actual(figures(of(overheads(
and(activity(are(always(different.(This(causes(a(difference(between(the(amount(of(overheads(absorbed(
and(the(actual(overheads(spend.(
(
Remember(Absorbed(Overheads(mean(the(amount(of(overheads(we(have(applied(to(our(cost(of(
production.(
(
Absorbed(Overheads(=(Budgeted(Overheads( x((((((Actual(Activity(
(
(
(
((Budgeted(Activity(
!
To(determine(the(amount(of(overhead(absorbed(and(under(absorbed(always(compare(the(Absorbed(
Overheads(with(Actual(Overheads.(
(
Over(Absorption(occurs(when(Absorbed(Overheads(are(more(that(the(Actual(Overheads((that’s(why(its(
called(Over(Absorbed,(Absorbed(is(more).(This(basically(means(we(have(over(charged(the(cost.((Should(
be(treated(as(a(gain(in(the(profit(statement(because(profit(is(understated).(
(
Under(Absorption(occurs(when(Absorbed(Overheads(are(less(than(the(Actual(Overheads((that’s(why(it’s(
called(Under(Absorbed,(Absorbed(is(less).(This(basically(means(we(have(under(charged(the(cost.((Should(
be(treated(as(a(loss(in(profit(statement(because(profit(is(overstated)(
(
Another!way!is!using!this!formula!
This(can(be(calculated(by(comparing(budgeted(OAR(with(the(Actual(OAR.((
Formula((((Budgeted(OAR(–ACTUAL(OAR()((*(Actual(Hours(
Positive(answer(would(give(over(absorbed(and(negative(will(give(under(absorbed.(
(
(
What!are!different!types!of!Overhead!Absorption!Rates!(OAR)!
!Overhead!absorption!rate!can!be!calculated!on!different!basis.!Remember!that!best!methods!to!use!
are!either!machine!hour!or!labor!hour!,!depending!upon!if!the!department!(or!the!factory)!is!machine!
intensive!or!labor!intensive.!But!following!OAR’S!are!used!by!different!businesses.!
1. Machine!Hours!
2. Labor!Hours!
3. Direct!Wages!(Direct!Labor!Cost)!!
4. Direct!Material!(Direct!Material!Cost)!
5. Prime!Cost!
6. Per!Unit!Rate!
!
!
!
!
Which!Rate!is!Most!Appropriate!?!
(Like(I(said(before(time(based(rates(like(machine(hour(and(labor(hour(are(the(most(appropriate(
depending(on(the(intensity(of(the(factory.(The(other(rates(are(useful(when(
!Per!Unit!Rate!:!(If(all(products(produced(are(very(similar(in(nature(((
OMAIR
MASOOD
CEDAR COLLEGE
!Direct!Labor!Cost!Rate!:!If(similar(products(and(labor(is(paid(uniformly(
Direct!Material!Cost!Rate!:!(Material(of(uniform(value(,(production(time(proportional(to(
material(usage(,similar(type(of(equipment(used(in(all(products(
41
6. Per!Unit!Rate!
!
!
!
!
Which!Rate!is!Most!Appropriate!?!
(Like(I(said(before(time(based(rates(like(machine(hour(and(labor(hour(are(the(most(appropriate(
depending(on(the(intensity(of(the(factory.(The(other(rates(are(useful(when(
!Per!Unit!Rate!:!(If(all(products(produced(are(very(similar(in(nature(((
!Direct!Labor!Cost!Rate!:!If(similar(products(and(labor(is(paid(uniformly(
Direct!Material!Cost!Rate!:!(Material(of(uniform(value(,(production(time(proportional(to(
material(usage(,similar(type(of(equipment(used(in(all(products(
(
However(the(machine(hour(rate(((if(capital(intensive()(and(labor(hour(rate(((if(labor(intensive()(
are(used(most(widely.(
!
What!are!the!problems!with!using!preAdetermined!(!Budgeted!OAR)!?!
!
Use(of(estimated(data(can(lead(to(inaccurate(costing(and(results(in(over(or(under(absorption(of(
overheads.(If(the(cost(absorbed(is(too(low(((under(absorbed)(this(will(lead(to(an(understated(cost(which(
will(effects(profit(of(the(business(((as(our(selling(price(based(on(budgeted(cost(will(be(low).(On(the(other(
hand(if(absorbed(cost(is(too(high(((over(absorbed)((this(will(overstate(cost(making(the(product(
uncompetitive(and(will(reduce(demand.(
((
(What!is!a!good!format!to!show!the!total!cost!of!any!order/job/unit/batch?!
(
Direct(Material(
Direct(Labor(
Direct(production(expense((if(any)(e.g.(royalties(or(artwork.(
Prime(Cost(
Factory(Overheads(
Department(A(
Department(B(
Cost(of(Production(
Selling(and(Admin(cost((if(any)(
Installation(or(Delivery(
General(Admin(Overheads(
Total(Cost(
+(
+(
=(
Add:(
+(
+(
=(
Add:(
(
(
=(
(
((((((((((((((((((((((((((((((((
(
(
(
Marginal!Costing!
(
It(is(a(costing(technique(for(decision(making,(which(is(based(on(marginal((variable)(cost(of(a(product.(It(
emphasizes(on(cost(behavior(and(clearly(distinguishes(between(variable(cost(and(fixed(cost.(It(is(based(
on(the(principle(that(due(to(change(in(level(of(activity(only(the(variable(cost(change(and(the(fixed(cost(
remain(constant.(
(
42
OMAIR
MASOOD
CEDAR COLLEGE
What!is!a!marginal!cost?!
This(is(all(the(variable(cost(to(produce(and(sell(a(unit.(It(may(be(described(as(the(additional(cost(to(
produce(and(sell(each(additional(unit.(This(includes(Direct(Material((DM),(Direct(Labor((DL),(Direct(
Expenses,(Variable(Production(Overheads(and(Variable(Admin(Overheads(and(Variable(Selling(
(
(
(
(
(
5
(
(5
5(
1.
5
5 2.
5
3.
5
5 4.
5
5 5.
6.
7.
(
(
In(most(question(they(don’t(mention(depreciation,(that(doesn’t(mean(there(is(no(depreciation,(
COMPARISON!OF!ABSORPTION!AND!MARGINAL!COSTING!
use(the(above(formula(to(determine.((Don’t(forget(the(depreciation(like(idiots).(
(
Cash(banked(will(come(on(the(debit(side(of(bank(and(credit(side(of(cash(account.(
Loan(is(as(long(term(liability(unless(payable(within(one(year.(If(nothing(is(written,(assume(long(
ABSORPTION(COSTING(
MARGINAL(COSTING(
term.(
( It(is(based(on(total(production(cost(including(
It(is(based(only(on(variable(cost.(
variable(and(fixed(costs.(
POOP(is(for(expenses.(
( It(divides(cost(into(production(and(non(
It(divides(cost(between(variable(and(fixed.(
OPPO(is(for(incomes.(
production(
Net(realizable(value(=(current(selling(price(–(any(expenses((repairs)(
( Stocks(include(the(total(production(cost((DM,( Stocks(include(only(the(variable(production(
We(always(ignore(replacement(cost(in(stock(valuation.(
DL,(VPOH(and(FPOH)(
cost((DM,(DL(and(VPOH)(
Perpetual(methods(are(those(where(we(make(a(table.(
( It(is(more(suitable(for(external(use(as(the(
It(is(more(suitable(for(internal(use(as(
Markup(is(on(cost((cost(is(100)(
profit(and(loss(is(based(on(this.(
decisions(are(based(on(this(
(
Treats(fixed(cost(as(a(product(cost.(
Treats(Fixed(cost(as(a(period(cost.(
Margin(is(on(sales((Sales(is(100)(
( Gives(Gross(Profit(
Gives(Contribution.(
( Required(adjustment(for(Over(and(Under(
No(adjustment(is(required(as(actual(fixed(cost(
Absorbed.(
is(taken.(
(
COST(ACCOUNTING(
(
(
SOME IMPORTANT KEYPOINTS FOR COSTING
5 Cost(centre(means(departments.(
Breakeven!Analysis!
5 If(a(business(doesn’t(split(overheads(into(different(departments,(they(will(only(have(one(
Formulas:!
Overhead(absorption(rate(for(the(whole(factory((also(called(blanket(OAR).(
Contribution!to!Sales!Ratio!=!Contribution!per!unit/!Selling!price!per!unit!Or!
5 Absorption(costing(means(total(costing.(It(is(used(to(calculate(total(cost.(
!!!!!!!!!!(csratio)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Total!Contribution/Total!Sales!
5 We(only(use(OAR(to(calculate(the(overheads(for(a(unit/job/order/batch.(
( 5 OAR(can(be(calculated(on(any(basis(like(machine(hours,(labour(hours,(unit,(labour(cost((direct(
Breakeven(in(Units(=(
Fixed(Cost(/(Contribution(per(unit(
wages),(material(cost(etc.(
Breakeven(in(value((Sales(Revenue)(=(Breakeven(in(Units(x(Selling(Price(/(Unit(or((Fixed(Cost/Cs(Ratio(
5 If(no(basis(are(given(use(either(labour(hours(or(machine(hours(depends(on(what(is(more(
Margin!of!Safety:!!!
(intensity).(
5 Absorbed(Overheads(=(OAR(x(Actual(Activity.(
5 Over(absorbed(means(Absorbed(are(more(than(actual(overheads(
5 Under(absorbed(means(Absorbed(are(less(than(actual(overheads.(
5 Usually(if(actual(activity(is(above(budget,(we(will(OVER(ABSORB(
5 If(actual(activity(is(below(budget,(we(will(UNDER(ABSORB(
5 Total(cost(is(cost(of(Production(+(the(non5production(cost.(
5 Stocks(can(only(include(production(cost.(In(absorption(costing,(we(use(total(production(cost(
whereas(in(marginal(we(use(only(variable(production(cost.(
5 Marginal(costing(is(about(decision(making.(
5 Decisions(are(based(on(contribution(not(profits.(It(is(assumed(that(fixed(cost(will(still(be(
incurred.(
5 (contribution/unit(x(#(of(units)(–(Fixed(Cost(=(Profit.(
5 Lower(breakeven(point(is(better.(Higher(margin(of(safety(is(better.(
5 Positive(contribution(product(or(department(should(never(be(closed(down.(
5 Positive(contribution(product(should(be(accepted(under(idle(capacity.(
OMAIR MASOOD
CEDAR COLLEGE
43
5
5
5
5
5
5
5
5
5
5
5
5
5
5
When(deciding(on(if(we(should(buy(from(outside(or(not,(we(only(consider(variable(production(
cost((ignore(Variable(Selling(cost)(
Only(change(the(fixed(cost(if(the(question(tells(you(to.(
Only(make(Profit(Statement(on(absorption(if(the(question(says(so.(Otherwise(always(marginal.(
Profit(+(Fixed(Cost(=(Total(Contribution.(
If(firm(makes(a(single(product,(profit(volume(chart(will(be(Profit(against(units.(
If(firm(makes(multiple(products,(Profit(Volume(chart(will(be(Profit(against(Sales(Revenue((Total(
Sales).(
Direct(Labour(per(hour(=(Wage(rate(per(hour.(
Normal(level(of(activity(is(budgeted(level(of(activity.(Fixed(production(Overheads/unit(is(
calculated(using(this.(
In(calculating(contribution(per(unit(we(need(direct(labour(per(unit.(
MARGINAL(COSTING(=(SALES(–(VARIABLE(COST(=(CONTRIBUTION(–(FIXED(COST(=(NET(PROFIT.(
In(marginal(costing,(we(always(take(the(total(fixed(cost.((We(never(calculate(it(on(per(unit(as(per(
normal(level(of(activity).(
ABSORPTION(COSTING(=(SALES(–(PRODUCTION(COST(=(GROSS(PROFIT(–(NON(PRODUCTION(
COST(=(NET(PROFIT.(
Under(absorbed(is(added(to(Cost(and(Over(absorbed(is(subtracted.(We(only(have(to(do(this(in(
(
absorption(statement.(
In(marginal(costing,(we(always(take(the(total(fixed(cost.((We(never(calculate(it(on(per(unit(as(per(
normal(level(of(activity).(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
44
ABSORPTION COSTING WORKSHEET
ABSORBTION)COSTING)()WORKSHEET)1))
)
Q1.
Xander Ltd. has three production departments – Moulding, Assembly and Finishing –
and two service departments – personnel and Maintenance.
Indirect overheads are apportioned as follows:
Overhead
Cost
Basis of apportionment
Rent and Rates
$55,200
Floor area
Depreciation
15%
Cost of machinery
Power
$43,650
Kilowatt hours
Indirect wages
$314,250
as shown
Moulding Assembly Finishing Personnel Maintenance
Number of employees
200
250
200
190
200
Floor area (sq. meters)
2,500
1,900
2,000
1,200
1,000
Direct labour hours
32,000
31,200
30,000
Direct machine hours
31,000
22,500
2,000
Power (kw hours)
6,000
6,550
600
650
750,
Indirect wages ($)
24,000
45,000
25,500
75,000
144,750
650,000
700,000
520,000
170,000
320,000
Cost of machinery ($)
Personnel costs are split amongst all the other departments on the basis of
number of employees. Maintenance costs are split amongst the three production
departments on the basis of floor area.
REQUIRED:
Prepare an Overhead Analysis Sheet
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
45
Q2.)
Duke plc had estimated the following factory indirect costs for its financial year
ended 30 November 2007.
$
2,120,000
Indirect wages
Repairs and maintenance
410,000
Rent and rates
53,000
Insurance of machinery
24,000
Insurance of premises
28,000
Electricity – power
48,000
Depreciation of machinery
14,000
Consumables
21,150
Additional Information
Production
Departments
Machining
Service Department
Assembly
Canteen Maintenance
Machine cost ($)
617,500
332,500
-
-
Direct machine hours
202,500
22,500
-
-
55,500
314,500
-
-
9,000
8,000
1,000
2,000
Power usage (%)
55
35
5
5
Number of employees
70
104
10
16
9,550
9,800
550
1,250
Direct labour hours
Floor area (sq. meters)
Consumables ($)
The proportion of work done by each service department was:
Machining
Assembly
Canteen Maintenance
Canteen (%)
35
60
-
5
Maintenance (%)
80
20
-
-
REQUIRED:
Overhead Analysis Sheet
OMAIR MASOOD
CEDAR COLLEGE
46
Q3.!Debbie, Harry and Co plc have three production departments, Cutting, Assembly and Painting,
and two service departments, Canteen and Maintenance.!
Indirect overheads for the year ended 31 October 1996 are estimated to be:
Basis of apportionment/allocation
Cost
Rent and rates
Depreciation
$20,000
Cost of machinery/equipment
12%
Inspection
$82,500
Welfare
$32,500
Administration
$57,000
Indirect wages
$122,000
Power
Floor area
$21,000
No. of employees – production departments only
Direct Labor Hours
Number of employees
Allocation as given
By a meter (KWH)
Data related to the departments is as follows:
Cutting
Assembly
Painting
Maintenance
14
12
7
2
120
110
190
100
$25,000
$18,000
$17,500
$17,500
3,000
2,500
1,000
200
Direct labour hours
20,000
30,000
15,000
Direct machine hours
25,000
10,000
15,000
$12,000
$15,000
$13,000
No. of employees
Floor space (sq. meters)
Cost of machinery/equipment
Power (Kw hour)
Indirect wages
$38,000
Canteen
3
280
$22,000
300
$44,000
Canteen costs are split amongst all other departments on the basis of the number of employees, and
maintenance costs are distributed among the production departments on the basis of floor area.
REQUIRED:
Overhead Analysis Sheet
!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
47
Q4.!The Clang Company manufactures parts for the car industry. The company has two productions
departments and a works canteen that provides meals and refreshments for the two production
departments !
The following information is available:
Department
Canteen
A
B
Floor area (m2)
13,000
10,000
Staff employed
30
70
Power used (Kwh)
1,200
300
Cost of machinery
$80,000
$20,000
2,000
10
100
$5,000
The following budgeted costs for the month of May have not been apportioned to a department.
$
10,000
Rent and rates
Insurance of machinery
Heating and lighting expenses
Supervisory wages
2,625
7,500
12,100
4,800
Power
Depreciation of machinery
9,030
REQUIRED:
(a) Prepare a statement showing the apportionment of overheads for the month of May
(Overhead Analysis Sheet)
!
OMAIR MASOOD
CEDAR COLLEGE
48
!
!
ABSORBTION
COSTING ( WORKSHEET 2)
Q5.
ABSORBTION COSTING ( WORKSHEET 2)
Q1. .Innisfail Enterprises Ltd had estimated the following factory indirect costs for the year ended 30 April
Q1. .Innisfail Enterprises Ltd had estimated the following factory indirect costs for the year ended 30 April
2007.
2007.
$
$
900,000
900,000
Indirect wages
Indirect wages
200,000
200,000
Machinery repairs
Machinery repairs
60,000
60,000
Machinery
insurance
Machinery
insurance
180,000
180,000
Machinery
depreciation
Machinery
depreciation
80,000
80,000
Premises
insurance
Premises
insurance
220,000
220,000
Heat Heat
and light
and light
19,000
19,000
Sundries
Sundries
The following
additional
information
is available.
The following
additional
information
is available.
Service
Department
Service
Department
Production
Departments
Production
Departments
A
Machine
cost (£)
Machine
cost (£)
DirectDirect
machine
hourshours
machine
DirectDirect
labour
hourshours
labour
DirectDirect
labour
cost (£)
labour
cost (£)
A
B
B
Catering
Catering
Repairs
Repairs
1,000,000
1,000,000
600,000
600,000
-
-
600,000
600,000
20,000
20,000
-
-
46,200
46,200
107,800
107,800
-
-
750,000
750,000 1,500,000
1,500,000
-
-
FloorFloor
area (sq.
areameters)
(sq. meters)
8,4008,400
7,0007,000
Number
of employees
Number
of employees
36 36
66 66
6
6,0706,070
930 930
8,000
8,000
Sundries
(£) (£)
Sundries
700 700
6
-
-
-
-
-
-
-
-
1,400
1,400
12 12
4,000
4,000
The proportion
of work
carried
outthe
byservice
the service
departments
The proportion
of work
carried
out by
departments
is: is:
Departments
Departments
A
A
B
B
Catering
Catering
Repairs
Repairs
Repairs
Repairs
(%) (%)
75 75
25 25
-
-
-
-
Catering
Catering
(%) (%)
29 29
65 65
6
6
-
-
The company
calculates
the overhead
absorption
for department
on basis
of machine
hours
The company
calculates
the overhead
absorption
rate rate
for department
A onA basis
of machine
hours
and and
for for
department
the basis
of labor
department
B on B
theonbasis
of labor
hourshours
REQUIRED:
REQUIRED:
(a) Overhead
Analysis
(a) Overhead
Analysis
SheetSheet
(b)
Overhead
Absorption
for both
department
A B.
and B.
(b) Overhead Absorption RatesRates
for both
department
A and
!
!
!
OMAIR MASOOD
!
CEDAR COLLEGE
49
Accounts+–+9706++
AS+–+Level++
+
+
+
+
+
+
++++++++++++OMAIR+MASOOD+
!
Q2!
Q6.
3
10
Highlander Limited has two production departments, Machining and Assembling, and one service
department, Maintenance.
The following estimates had been made for year 1.
Annual budgeted information
Machining
Number of employees
Assembling
Maintenance
Total
160
120
120
400
7 000
5 000
4 000
16 000
Power (kilowatt hours)
70 000
52 500
17 500
140 000
Direct machine hours
14 000
400
-
14 400
1 000
6 000
-
7 000
Floor area (square metres)
Direct labour hours
$
Indirect material
$
$
300
268
320
888
2 720
1 480
860
5 060
52 000
48 000
-
100 000
Indirect wages
Value of machinery
$
Annual budgeted overheads
Rent
Machinery depreciation
Power
Supervision of employees
Indirect materials
Indirect labour
Total overheads
$
12 800
10 000
7 200
6 400
888
5 060
42 348
!
!
11
REQUIRED
(a) Apportion the budgeted overheads to the three departments and re-apportion the
maintenance department costs to the two production departments on the basis of the value
of machinery.
!
Overhead Analysis Sheet
!
Overheads
Basis of
Apportionment
Additional information
12
Machining
Assembling
Maintenance
Totals
$
$
$
$
The Machining department overhead absorption rate is applied on a machine hour basis.
The Rent
Assembling department
overhead absorption rate is applied on a direct labour hour basis.
floor area
© UCLES 2015
9706/21/O/N/15
REQUIRED
Machinery
value of
depreciation
machinery
(b) Calculate overhead absorption rates for each of the two production departments.
Calculations should be to two decimal places.
Power
kw hours
!
(i) Machining department
Supervision of
number of
employees
employees
!
Indirect materials allocated
!
Indirect labour
allocated
OMAIR MASOOD
!
!
(ii)
Assembling department
re-apportionment
of maintenance
department
overheads
CEDAR COLLEGE
!
[3]
50
2!
Accounts+–+9706++
AS+–+Level++
+
+
+
+
+
+
++++++++++++OMAIR+MASOOD+
Q3!
Q7.
12
Kapoor Limited is a company which has two production departments, machining and finishing,
and two service departments, maintenance and canteen. The following information is available.
3
The forecast overheads for the year ending 31 March 2015 were as follows.
$
32 000
28 400
28 000
26 000
11 000
9 000
Power
Machine depreciation
Supervision
Rent and rates
Buildings insurance
Light and heat
The following additional information is available.
Number of employees
Floor area (square metres)
Net book value of machinery ($)
Kilowatt hours
Maintenance department hours
Machining
16
12 000
140 000
6 000
66%
Finishing
24
14 000
25 000
3 000
34%
Maintenance
8
3 000
13 000
2 000
–
Canteen
–
1 000
2 000
1 000
–
!
!
!
13
REQUIRED
(a) Apportion the forecast overheads to the four departments and re-apportion the service
departments’ costs to production departments using a suitable basis for each.
Basis
Total
$
Machining
14
$
Finishing
$
Maintenance
$
!
Canteen
$
Additional information
Power
The following information for the year is also provided.
Machine
Machining
Finishing
14
depreciation
8 000
Budgeted machine hours
58 000
000
42
000
Budgeted
direct
labour
hours
26
Additional
information
Supervision
Maintenance
4 000
12 000
Canteen
–
–
!
The following information for the year is also provided.
REQUIRED
! Rent and rates
Machining
Finishing
Maintenance
Canteen to two
(b) Calculate an appropriate overhead
absorption
rate for each
production department
8 000
4 000
–
Budgeted
58 000
decimalmachine
places. hours
!
42 000
12 000
–
Budgeted direct labour hours
26 000
Buildings insurance
REQUIRED
Light
heat an appropriate overhead absorption rate for each production department to two
(b) and
Calculate
decimal places.
!
Total apportioned
! overheads
© UCLES
2015
9706/22/M/J/15
Reapportionment
of canteen
Additional information
Subtotal
[4]
The actual results for the year ended 30 March 2015 were as follows.
Reapportionment
OMAIR
MASOOD
maintenance
! ofAdditional
information
Factory
overheads
! COLLEGE
Machining
Finishing
CEDAR
$56 980
$82 436
41 295
Direct labour hours
27 410
Total
The actual
results
for thehours
year ended 30 March 2015 were
as follows. 7 310
Direct
machine
56 120
REQUIRED
Machining
Finishing
[4]
3!
51
4
ABSORBTION)COSTING)(WORKSHEET)3))
)
)
12
Q1.)
Q8.
Bruna Limited is a manufacturing company. It operates three production departments and two
service departments. The costs are allocated to each department as follows:
Production departments
Machining
$
253 000
205 000
Indirect labour
Other indirect overhead costs
Assembly
$
290 000
90 000
Finishing
$
340 100
225 000
Service departments
Stores
$
52 000
88 000
Canteen
$
78 000
92 000
The service departments costs are allocated to the production departments as follows:
Stores in proportion to the number of stores requisitions
Canteen in proportion to number of employees.
The following information is available:
Machining
15 000
45 000
5
6 300
Direct labour hours
Machine hours
Number of employees
Number of stores requisitions
Assembly
60 000
30 000
6
4 500
13
!
!REQUIRED
Finishing
40 000
25 000
9
7 200
!
(a) Calculate, to two decimal places, a suitable overhead absorption rate for each of the three
production departments.
!
!
!
!
14
Additional information
Bruna Limited has been approached by a customer to quote for one of their products. This will
require the following:
Direct materials
Direct labour
20 kilos at $5 per kilo
10 hours at $9 per hour
Direct labour hours and machine hours required in each department will be:
Direct labour hours
Machine time
Machining
5
2 hours
Assembly
3
30 minutes
Finishing
2
20 minutes
It is the company’s practice to achieve a gross margin of 40% on all its products.
REQUIRED
(b) Calculate the total price to quote to the customer.
)
)
)
)
© UCLES 2016
OMAIR MASOOD
!
9706/22/M/J/16
CEDAR COLLEGE
52
Q2.
Q9.
A manufacturing business owned by Gui Boratto has three production departments: machining,
assembly and finishing.
The following are the expected expenses for the forthcoming year.
$
13,200
Rent and rates
60,000
Depreciation of machinery
30,000
Supervisors salary
15,000
Machinery insurance
The following departmental information is available:
Floor area (sq. m)
Value of machinery
Number of employees
Machining
Assembly
50
300
$600,000
$24,000
6
6
Finishing
400
$36,000
3
All employees work a 40 hour week for 45 weeks per year.
REQUIRED:
(a) Calculate the overhead absorption rate for each department, based on direct labour hours.
Gui Boratto has received an order from Y Ltd. The order will require following direct cost
Direct Material 60 kilograms @ $12 per Kilogram.
Direct Labor
Machining 3 hours @ $11 per hour
Assembly
5 hours @$13 per hour
Finishing
2 hours @$14 per hour
(b) Calculate the total cost of the order.
)
OMAIR MASOOD
CEDAR COLLEGE
53
ABSORBTION)COSTING)(WORKSHEET)4))
!
Q1.!
Q10.
!
3
PAGE 274
10
PAGE 275
Tattersall Ltd manufactures a single product.11They have two production and two service
departments.
For
Examiner’s
Use
For
Examiner’s
Use
(b) Calculate the overhead absorption rate for each production department.
The following information relates to a four-week period.
State the bases used.
Production Departments
Service Departments
Show your answer to two decimal
places.
Machining
Assembly Maintenance
Canteen
Overheads
$143 500
$154 700
$165 800 $176 900
..........................................................................................................................................
Direct machine hours
18 845
14 050
–
–
..........................................................................................................................................
Direct labour hours
6 065
20 350
–
–
..........................................................................................................................................
The service departments’ overheads are apportioned to the production departments on the
following
basis:
..........................................................................................................................................
Machining
Assembly Canteen
..........................................................................................................................................
Maintenance
60%
30%
10%
Canteen
40%
60%
–
..........................................................................................................................................
..........................................................................................................................................
REQUIRED
PAGE 275
..........................................................................................................................................
(a) Prepare
an overhead absorption apportionment table clearly showing the reapportionment
11
of the service departments’ overheads to the appropriate departments for one period.
.......................................................................................................................................... !
(b) Calculate the overhead absorption rate for each production department.
For
.......................................................................................................................................... Examiner’s
..........................................................................................................................................
Use
State the bases used.
..........................................................................................................................................
................................................................................................................................... [8]
Show your answer to two decimal places.
!
..........................................................................................................................................
The manager of Tattersall Ltd calculates selling price per unit based on full cost plus a 25%
..........................................................................................................................................
mark-up.
..........................................................................................................................................
..........................................................................................................................................
The costs per unit are:
..........................................................................................................................................
..........................................................................................................................................
Materials
3 metres at $4 per metre
..........................................................................................................................................
Labour
7 hours at $8 per hour
..........................................................................................................................................
..........................................................................................................................................
Each unit takes 3 hours in the machining department and 4 hours in the assembly
..........................................................................................................................................
department.
..........................................................................................................................................
All overheads are fixed.
..........................................................................................................................................
!
..........................................................................................................................................
..........................................................................................................................................
REQUIRED
PAGE 276
..........................................................................................................................................
12
..........................................................................................................................................
(c) Calculate the full cost per unit.
..........................................................................................................................................
(d) ..........................................................................................................................................
Calculate
the selling price per unit.
!
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
[8]
..........................................................................................................................................
..........................................................................................................................................
The manager
of Tattersall Ltd calculates selling price per unit based on full cost plus a 25%
..........................................................................................................................................
..........................................................................................................................................
mark-up.
..........................................................................................................................................
................................................................................................................................... [3]
..........................................................................................................................................
OMAIR
MASOOD
CEDAR COLLEGE
The
costs per unit are:
...................................................................................................................................
[8]
(e) Calculate
the
number
of
units
Tattersall Limited has to produce and sell in each period
..........................................................................................................................................
Materials
3
metres
at
$4
per
metre
to break-even.
© UCLES 2011
9706/21/O/N/11
Labour
7 hours at $8 per hour
................................................................................................................................... [5]
..........................................................................................................................................
!
For
Examiner’s
Use
54
Q2.
16
Q11.
4
Rajesh is a manufacturer with a trading year end of 31 December. He currently uses absorption
costing. The business operates two production cost centres and two service cost centres. Details
of these cost centres and the budgeted overhead costs for the whole business for the year ended
31 December 2015 are as follows:
Overhead
Depreciation
Machinery maintenance
Power
Rent of premises
$
8 750
27 000
15 370
63 510
Basis of apportionment
Non-current assets at cost
Machine hours
Kilowatt hours
Floor area
The following information is also available:
Floor area (square metres)
Kilowatt hours
Non-current asset at cost ($)
Stores requisitions
Staff
Direct labour hours
Machine hours
Production cost centres
Service cost centres
Machining
750
3 750
90 000
150
20
2 300
14 100
Stores
150
750
12 000
3
-
Assembly
500
2 500
30 000
75
30
13 900
2 650
Canteen
50
250
8 000
-
REQUIRED
(a) Apportion the overhead costs to the four cost centres and re-apportion the service cost
centres costs to production cost centres using a suitable basis.
Total
$
Production cost centres
Machining Assembly
$
$
Service cost centres
Stores
Canteen
$
$
Depreciation
Machinery maintenance
Power
Rent of premises
Re-apportionment of canteen
Re-apportionment of stores
Total overhead cost
17
[8]
!
9706/23/O/N/16 rates for each production cost centre correct to two
(b) Calculate suitable overhead absorption
decimal places.
© UCLES 2016
OMAIR MASOOD
CEDAR COLLEGE
!
55
Q3.
Q12.
Spurway manufactures two types of surfboard; ‘Winner’ and ‘Surf King’ whole selling prices are $300
and $900 respectively. Each surfboard passes through two manufacturing departments, Moulding and
Finishing. In Moulding, each ‘Winner’ requires 3 hours of labour and each ‘Surf King’ 9 hours. In
Finishing each ‘Winner’ requires 2 hours of labour and each ‘Surf King’ 5 hours. Labour in Moulding
is paid $4 per hour and in Finishing $5 per hour.
The surfboards are made from fiberglass, studs and cord. The quantities of materials used in
making one unit are as follows:
‘Winner’
Fiberglass
40 kilos
Studs
10
Cord
20 meters
‘Surf King’
90 kilos
240
75 meters
Material prices are $3 per kilo for fiberglass, $7.20 per dozen for studs and $0.60 per meter for
cording. (Note: one dozen = 12 studs)
Other annual costs are as follows:
Indirect wages –
Indirect materials –
$
Moulding Dept.
75,000
Finishing Dept.
120,000
Stores
60,000
Canteen
30,000
Moulding Dept.
154,530
Finishing Dept.
175,515
Stores
Canteen
$
285,000
4,025
25,150
359,220
450,000
Rent and rates
Depreciation on plant and machinery
420,000
150,000
Power
Building insurance & heat & light
25,500
1,969,720
OMAIR MASOOD
CEDAR COLLEGE
56
Other information is as follows;
Cost centre
Area in
sq.
meters
Book Value
of plant &
machinery
$000
Horsepower
of plant &
machinery
Direct
Labour
hours
Number of
employees
Moulding Dept.
10,000
1,000
70%
330,000 hours
200
Finishing Dept.
5,000
200
30%
210,000 hours
150
10,000
150
-
-
50
5,000
50
-
-
25
30,000
1,400
100%
540,000 hours
425
Stores
Canteen
Number of
Stores
notes issued
10,000
5,000
15,000
REQUIRED:
(a) A production overhead analysis and apportionment schedule, showing the bases of your
apportionment. Allocate the costs of the service departments to the production departments.
(b) Calculate overhead recovery rates for the Moulding and Finishing departments, on the basis
of direct labour hours.
(c) Calculate the full cost of making one unit of each product.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
57
(a) Explain what is meant by ‘batch costing’.
14
Q4.!
Q13.
4
Anna has a manufacturing business with two production departments and two service
[2]
departments. She makes circuit boards for electronic games using batch costing.
Additional
REQUIREDinformation
!
The
budgeted
annual
data for
Anna is available:
(a) following
Explain what
is meant
by ‘batch
costing’.
Production departments
Assembly
Machining
$36 000
$50 000
6 000
3 500
2 500
5 500
Overheads
Direct labour hours
Machine hours
Service departments
Stores
Canteen
$6 250
$2 500
–
–
–
–
The following information is also available:
[2]
Assembly
Machining
Additional information
Number of orders
800
1200
Use of canteen
65%
The following
budgeted annual data
for Anna is 25%
available:
Overheads
REQUIRED
REQUIRED
REQUIRED
Direct labour hours
!
(b)
Machine
hours
Re-apportion
the
15
Production departments
15
15
Assembly
Machining
$36 000
$50 000
!
6 000
3 500
2
500
5 500
service departments’
costs
Stores
–
10%
Service departments
Stores
Canteen
$6 250
$2 500
–
–
!
–
–
to the production departments using a suitable
(b)
using
a suitable
(b) Re-apportion
Re-apportionthe
theservice
servicedepartments’
departments’costs
coststotothe
theproduction
productiondepartments
departments
using
a suitable
basis
for
each.
basis
for
The
following
information is also available:
basis
foreach.
each.
Number of orders
Use of canteen
Assembly
Machining
Stores
Assembly
Assembly
Machining
Stores
Assembly
Machining Machining
Stores
–
800
1200
$$
!!
$!$!
$!
$! $!$!
65%
25%
Allocated
overheads
36
000
Allocated
overheads
36000
000 36 0005050
000
Allocated
overheads
10%
6250
6250
50 000
Stores
Canteen
Canteen
$! $! $!
Canteen
$!
2500
2500
6250
2500
Re-apportionment
ofof
Re-apportionment
Re-apportionment
of
canteen
canteen
canteen
Subtotal
Subtotal
Subtotal
Re-apportionment
Re-apportionmentofof
stores
stores
Total
Total
Re-apportionment of
stores
Total
© UCLES 2017
!
9706/21/O/N/17
[3] !
[3]
(c) Calculate a suitable overhead absorption rate for each production department to two
(c) Calculate a suitable overhead absorption rate for each production department to two
decimal places. !
decimal places. !
[3]
(c) Calculate a suitable overhead absorption rate for each production department
to two
!
decimal places. !
© UCLES 2017
9706/21/O/N/17
[4]
[4]
OMAIR MASOOD
CEDAR COLLEGE
58
[4]
Q14.
Hazydaze Limited has calculated following Overhead Absorption Rates for its two production departments.
Cutting : $7 per Machine Hour
Finishing : $12 per Labor Hour
During the year an order was received which will require the following.
Material: 60 Kgs of Plastic @ $10 per kg
10 Kgs of Steel @$16 per kg
Labor: 30 hours in cutting@$20 per hour
50 hours in Finishing@$18 per hour
Machine Hours: 80 hours in Cutting
5 hours in Finishing
Other Direct Production Cost : $320
Selling and Admin : 10 % of total cost of production
Required:
(a) Prepare a Job order cost sheet to show total cost of the order
(b) If a markup of 20% is required calculate the selling price of the order
OMAIR MASOOD
CEDAR COLLEGE
59
Q15.
Mr Lakha is into construction business. He has to quote the selling price for this new order
received from Mr Max. The order will require the following direct cost and timing
Direct Materials
Cement
Steel
Others
Direct Labor
Department A
Department B
Direct Production Expense
Machine hours
Department A
Department B
400 Kg @ $40 per Kg
800 Kg @ $250 per kg
$1700
600 hours @$20 per hour
700 hours @$30 per hour
$4000
1200 hours
200 hours
Mr Lakha has already calculated overhead absorbtion rates for two departments as follows .
Department A : $35 per machine hour
Department B : $50 per labor hour.
Mr lakha also absorbs the selling and admin overheads on the basis of 10 % of cost of
production.
A final 30% markup is added to total cost to arrive at the selling price.
Required:
(a) A Job order cost sheet in as much detail as possible clearly showing prime cost ,
cost of production and total cost
(b) Calculate the Selling price to be quoted to Mr Max
OMAIR MASOOD
CEDAR COLLEGE
60
&
PAPER&2&QUESTIONS!
!
&
Q1.&
& Q16.
4
&
Q1.&
&
&
PAPER&2&QUESTIONS!
5
Coalbrook Engineering has estimated the following factory indirect costs for its next financial year.
£5
Indirect wages
1 480 500
4 Coalbrook Engineering has estimated the following factory indirect costs for its next financial year.
Repairs and maintenance
241 400
Rent and rates
48£000
Insurance
ofwages
premises
23 400
Indirect
1 480
500
Insurance
of and
machinery
18 600
Repairs
maintenance
241
400
Rent andof
rates
48 000
000
Depreciation
machinery
12
Insurance
of premises
23 600
400
Heating
and lighting
31
Insurance of machinery
18 250
600
Sundries
20
Depreciation of machinery
12 000
Heating and lighting
31 600
The company
wishes to calculate a suitable overhead
Sundries
20 250 absorption rate for each of its two production
departments and the following information is available:
The company wishes to calculate a suitable overhead absorption rate for each of its two production
departments and the following
information
is available:
Production
Departments
Service Departments
Machining
Finishing
Production Departments
Machine cost (£)
240 000
120 000
Machining
Finishing
DirectMachine
machine
hours
209
000
8 800
cost (£)
240 000
120 000
DirectDirect
labour
hours hours
42
000
180
000
machine
209
000
8 800
Floor Direct
area (square
metres)
742
000
3 000
500
labour hours
000
180
Number
of area
employees
42
Floor
(square metres)
770
000
3 500
Number
70
42
Sundries
(£) of employees
6 110
3 564
Sundries (£)
6 110
3 564
Canteen
Stores
Service Maintenance
Departments
–
40 000
–
Canteen
Maintenance
Stores
–
2 200
–
–
40 000
–
–
– –
2 200–
–
1– 400
– 700
– 1 400
7
1 400 7
700 14
1 400
7
14
7 5 155
3 675
1 746
3 675
1 746
5 155
The proportion of work done by service departments is:
The proportion of work done by service departments is:
Canteen
(%) (%)
Canteen
Maintenance
(%) (%)
Maintenance
Stores
Stores
(%) (%)
Machining
Machining
5050
8080
6060
Finishing
Finishing
40
40
20
20
30
30
Canteen
Canteen
– –
– –
– –
Maintenance StoresStores
Maintenance
4
6 6
4
–
– –
–
10 10
–
–
REQUIRED
REQUIRED
(a)* For Coalbrook Engineering, calculate, using appropriate bases, the overhead absorption rate
(a)* For Coalbrook
calculate,
using appropriate bases, the overhead absorption
for each of Engineering,
the two production
departments.
[21] rate
for each of the two production departments.
[21]
(b) For Coalbrook Engineering, calculate the production cost of job 1912 (where appropriate to
two decimalEngineering,
places), using calculate
the following
(b) For Coalbrook
theinformation:
production cost of job 1912 (where appropriate to
two decimal places), using the following information:
Direct materials (£)
Direct labour (£)
DirectMachine
materials
(£)
hours
DirectLabour
labourhours
(£)
&
&
&
&
&
&
&
&
(c)
&
&
(d)
&
&
Machine hours
Labour hours
Machining
320
Machining
130
32010
130 5
10
5
Finishing
70
Finishing
50
70
4
50
8
4
8
[4]
(c) Explain why a business might recover less in overheads than the amount spent on overheads
during a period.
[4]
&
[4]
&
Explain why a business might recover less in overheads than the amount spent on overheads
(d) Activity based costing is sometimes used as an alternative to traditional methods of overhead
duringabsorption.
a period.Explain two limitations of activity based costing.
[4] [4]
Activity based costing is sometimes used as an alternative to traditional methods
of overhead
Total marks
[33]
absorption. Explain two limitations of activity
based costing.
[4]
F014/RB Jun10
© OCR 2010
Total marks [33]
© OCR 2010
!
F014/RB Jun10
!
OMAIR MASOOD
CEDAR COLLEGE
61
$60 Limited manufactures toy soldiers. The company has three
Cleary
1 B
$70
C
production departments (moulding, sanding and painting) and two
!D
$80 departments (canteen and maintenance).
service
Total: 7 marks
Required
a Explain the following terms:
Q2.&
Structured
questions
Q17.
& i cost centre
marks]
three
1 Cleary Limited manufactures toy soldiers. The company has[2
production
(moulding, sanding and painting) and two
unit.
ii cost departments
service departments (canteen and maintenance).
[1 marks]
Required
Additional
information
Explain the
following terms:
a
centre
cost
i
Estimated indirect overheads for the year ended 30 April 2016 are as
[2 marks]
follows:
unit.
ii costinformation
Relevant
on the five departments is as follows:
Relevant
information
on
the
five departments is as follows:
&
&
[1 marks]
Additional information
Estimated indirect overheads for the year ended 30 April 2016 are as
follows:
&
! & Canteen costs are shared among all the other departments on the
!
basiscosts
of number
of employees.
costs are shared
Canteen
are shared
among allMaintenance
the other departments
on the among
three production
departments
on thecosts
basisare
of floor
area.
basisthe
of number
of employees.
Maintenance
shared
among
the three
production
departments
on
the
basis
of
floor
area.
Required
ontable
the five
departments
as follows:
b Relevant
Completeinformation
the following
to show
the total is
overheads
Required
apportioned
to each
production
department.
Relevant
information
ontable
the
five
departments
as follows:
the following
to show
the total is
overheads
b Complete
apportioned to each production department.
Relevant information on the five departments is as follows:
!
Canteen costs are shared among all the other departments on the
basiscosts
of number
of employees.
costs are on
shared
Canteen
are shared
among allMaintenance
the other departments
the among
production
departments
on thecosts
basisare
of floor
area.
basisthe
of three
number
of employees.
Maintenance
shared
among
the
production departments on the basis of floor area.
& three
Required
& b Complete the following table to show the total overheads
Required
apportioned
to each
production
the following
table
to showdepartment.
the total overheads
b& Complete
[10 marks]
(a) Overheadto
Analysis
Sheet
apportioned
each
production
department.
& Canteen costs are shared among all the other departments
on the
[10 marks]
&
& Additional
basis of information
number of employees. Maintenance costs are shared among
the information
three production departments on the basis of floor area.
Additional
&
&
The following table shows the budgeted hours for each production
cost
centre
forshows
the year
30 April
2016:
The& following
table
theended
budgeted
hours
for each production
Required
cost& centre
for the yearthe
ended
30 April
2016:
following
table
to show the total overheads
b Complete
&
&!
&
&
apportioned to each production department.
Required
Required
(b) c Calculate to two decimal places a suitable overhead absorption
c Calculate
to two
places
a suitabledepartments
overhead absorption
rate for
eachdecimal
of the three
production
for the year
rate for
each 30
of the
production departments for the year
ending
Aprilthree
2016.
[10 marks]
ending 30 April 2016.
[6[10
marks]
marks]
&
[6 marks]
! Additional information
Additional
information
Additional
information
To make one toy soldier requires direct material of $50. This table
The
following
table
shows
budgeted
hours
each
production
To make
onethe
toyfollowing
soldier
requires
direct
material
offor
$50.
This
table
shows
timesthe
and
direct
costs
also
required:
costthe
centre
for the
yearand
ended
30 costs
April 2016:
shows
following
times
direct
also required:
OMAIR MASOOD
Required
CEDAR COLLEGE
[10 marks]
62
Required
c Calculate to two decimal places a suitable overhead absorption
rate for each of the three production departments for the year
ending 30 April 2016.
[6 marks]
Additional information
To make one toy soldier requires direct material of $50. This table
shows the following times and direct costs also required:
The company budgets to make a margin of 40% on each toy soldier.
The Company budgets to make a profit markup of 40%.
Required
d (b)
Calculate
the the
budgeted
selling
of soldier.
one toy soldier.
Calculate
selling price
of price
one toy
[6 marks]
&
&
&
!
OMAIR MASOOD
CEDAR COLLEGE
63
!
ABSORPTION*COSTING*(WORKSHEET*7)*
PAGE 506
ABSORBTION)WORKSHEET)6))
Q1.*
Q18
)
Q1.)
9
Argon is a manufacturing business divided into three separate departments, machining,
finishing and stores.
3
For
Examiner's
Use
The total estimated costs for the three months ending 31 October 2013 are as follows:
Depreciation of plant
Lighting and heating
Plant insurance
Rent
Supervision
$
6 000
4 500
4 800
18 000PAGE 507
25 000
10
The following information is available for
the 508
three departments:
PAGE
(ii) Re-apportion stores costs to each
production department on the basis of the
11
number of orders.
Machining
Finishing
Stores
Floor area (sq metres)
5000
4500
500
Actual figures for the three months ended 31 October 2013 are:
Number of employees
12
8
5
Value of plant ($000’s)
86
8
2
Machining
Finishing
Number of orders from Stores
3600
1480
Direct labour hours
1 430
5 000
BudgetedMachine
machinehours
hours
42506 000
820 805
BudgetedOverheads
direct labour
hours
1200
4950
incurred
$48 340
$22 780
REQUIRED
REQUIRED
For
Examiner's
Use
For
Examiner's
Use
PAGE 507
(i) Apportion
the costs
to the three
departments
using
the mostdepartment
suitable basis.
Clearly
(c)(a)Calculate
the amount
of overhead
absorbed
production
for the
10 for each
state the
basis31you
have used.
three months
ended
October
2013.
[5]
(ii) Re-apportion stores costs to each production department on the basis of the
number of orders.
!
(b) Calculate to two decimal places the forecast
overhead
absorption
rate
for
the
PAGE 508
machining and finishing departments for the three months ending 31 October 2013. !
11
!
For
Examiner's
Use
!!!
Actual figures for the three months ended 31 October 2013 are:
Direct labour hours
Machine hours
Overheads incurred
Machining
1 430
6 000
$48 340
For
Examiner's
Use
Finishing
5 000
805
$22 780
REQUIRED
[5]
(c) Calculate the amount of overhead absorbed for each production department for the
[6]
three months ended 31 October 2013.
!
(b) Calculate to two decimal places the forecast overhead absorption rate for the
machining and finishing departments for the three months ending 31 October 2013.
!!!!
509 for each production department.
(d) Calculate the amount of under or overPAGE
absorption
! [6]
12
!!!!
(e) Explain what is meant by over and under absorption of overheads and how each will
arise.
*
*
*
*
*
* © UCLES 2013
[5]
!
For
Examiner's
Use
*
[4]
[6]
[Turn over
9706/23/O/N/13
[6]
(d) Calculate the amount of under or over absorption for each production department.
OMAIR MASOOD
CEDAR COLLEGE
[4]
[Total: 30]
64
*
Q2.*
Q19
6
Q2.(
Q4.
4
JAR plc has estimated the following factory indirect costs for its next financial year.
£
Indirect wages
900 000
Repairs and maintenance of machinery
150 000
Canteen
62 000
Insurance of machinery
41 000
Insurance of premises
32 000
Depreciation of machinery
30 000
Heating and lighting
38 000
12 500
Consumables
1 265 500
The management accountant wishes to calculate a suitable overhead absorption rate for each of
the two production departments and the following information is available:
Production Departments
Service Departments
Machining
Assembly
Maintenance
Canteen
Machine cost (£)
300 000
100 000
–
–
Direct machine hours
380 000
20 000
–
–
Direct labour hours
50 000
250 000
–
–
Premises area (square metres)
10 800
9600
2400
1200
(b) Appropriate Overhead Absorption Rate for Each production department ( 4 Marks)
Number of employees
Consumables (£)
75
96
20
9
6200
3490
1600
1210
The proportion of work carried out by the service departments is:
Machining
Assembly
Maintenance
Canteen
Maintenance (%)
80
20
–
–
Canteen (%)
40
45
15
–
The actual results for the year were as follows:
Machining
Assembly
Factory indirect costs (£)
690 000
577 000
Direct machine hours
370 000
19 600
52 000
260 000
Direct labour hours
(
( REQUIRED
REQUIRED:(
© OCR 2013
(
7
F014/01/RB Jan13
(a) The overhead absorption rate for each of the production departments, using the machine hour
(a) Overhead
Sheetdepartment
showing both
and
Secondary
Apportionment
( 18 Marks) [20]
rate for Analysis
the machining
andPrimary
the labour
hour
rate for the
assembly department.
(
(
(b) Using the actual figures provided, calculate the amount of overhead which would be over or under
[6]
(b) Appropriate
Absorption
Rate for Each production department ( 4 Marks)
absorbedOverhead
by each production
department.
(
(c) Using
the actualhow
figures
calculate therate
amount
of over or under
absorption
both production
(c) Discuss
an , inaccurate
of overhead
absorption
caninadversely
affect the profits of a
departments.
business. ( 5 Marks)
[9]
(
(
(d) Discuss how an inaccurate overhead absorption can adversely affect the profits of the
business. ( 3 Marks)
(
(
*
*
*
*
*
OMAIR MASOOD
Total marks [35]
CEDAR COLLEGE
65
(
(
ABSORBTION(COSTING((
ABSORBTION(COSTING((
Q3.)
Q20.
Q1.(On
1 July
2001
Belo
Ltdacquires
acquires another
another factory
to to
expand
its its
Q1.(On
1 July
2001
Belo
Ltd
factoryininorder
order
expand
$
production
capacity.
This
factory
has
three
production
departments:
moulding,
production capacity. This factory has three production departments: moulding,
assembly
paint
shop.
Thereisisalso
also aa service
service department:
stores.
TheThe
accountant
assembly
and and
paint
shop.
There
department:
stores.
accountant
must
apportion
the
overheads
of
the
factory
to
the
three
production
departments.
must apportion the overheads of the factory to the three production departments.
Table gives details of the departments and the budgeted overhead expenses for the six
Table gives details of the departments and the budgeted overhead expenses for the six
months to 31 December 2001 together with data for Product Q.(
months to 31 December 2001 together with data for Product Q.(
Department statistics for six months ending 31 December 2001
Department statistics for six months ending 31 December 2001
Stores
Production Departments
Production Departments
Moulding
Moulding
Area in sq. meters
AreaMachinery
in sq. meters
at cost
Machinery
at cost
No. of workers
8000
6000
$80,000
8000
$40,000
700
30
Paint shop
Assembly
6000
$80,000
30
No.workers
of store requisitions
No. of
Assembly
Paint shop
5000
5000
$20,000
$40,000
40
$20,000
20
500
40
30020
Budgeted overheads for six months to 31 December 2001
No. of store requisitions
Stores
700
500 $
Budgeted overheads for six months to 31 December 2001
1000
- 1000
10
10
300
Rent
90,000
Lighting & heating
23,000
$
Rent
Insurance of premises
Lighting & heating
Canteen costs
Insurance of premises
90,000
6,000
23,000
54,000
6,000
Machinery is to be depreciated at 30% per annum on cost.
All workers will work
35 hours
per week and there will be
24 working weeks in the
54,000
Canteen
costs
six months to 31 December 2001.
Machinery is to be depreciated at 30% per annum on cost.
Product Q passes through all three departments in the course of manufacture and the
All workers
will
workdepartments
35 hours is:
per week and there will be 24 working weeks in the
time taken
in each
six months
to 31
2001.1¾ hours; paint shop 1½ hours.
Moulding
2¼ December
hours; Assembly
Product QREQUIRED:
passes through all three departments in the course of manufacture and the
time taken(a)in Prepare
each departments
is: the apportionment of the factory overheads to the
a table to show
Moulding 2¼production
hours; Assembly
1¾for
hours;
paint
shop
hours. 2001.
departments
the six
months
to 1½
31 December
(b) Calculate for each production department an hourly overhead rate. (Your
REQUIRED:
calculations should be to three decimal places.)
(a) Prepare
a table
to show
the to
apportionment
ofunit
theoffactory
to the
(c) Calculate
the total
overhead
be added to each
Productoverheads
Q.
production departments for the six months to 31 December 2001.
$ (b) Calculate for each production department an hourly overhead rate. (Your
$
calculations should be to three decimal places.)
$ (c) Calculate the total overhead to be added to each unit of Product Q.
$
$
$
OMAIR MASOOD
CEDAR COLLEGE
$
66
Required
! e Advise the directors whether or not they should change to a single
overhead absorption rate for the factory. Justify your answer.
[5 marks]
&
Q3.&
Q21.
Total: 30
2 Auckland (Manufacturers) Limited has two manufacturing
departments:
i machining
ii assembly.
It also has two service departments:
i maintenance
ii power house.
The budgeted information in the table below is available for the
coming year:
Further information is also available as follows:
&
Required
a Complete the following table to analyse the above indirect costs
between the four departments showing the bases of apportionment
you have used.
Required
a Complete the following table to analyse the above indirect costs
between the four departments showing the bases of apportionment
you have used.
[5 marks]
b Complete the following table to reapportion the costs of the service
departments over the two production departments using
appropriate bases.
&
&
[5 marks]
!
OMAIR MASOOD
CEDAR COLLEGE
b Complete the following table to reapportion the costs of the service
departments over the two production departments using
[3 marks]
appropriate bases.
c Calculate to two decimal places a suitable overhead absorption
&
&
67
!
[3 marks]
c Calculate to two decimal places a suitable overhead absorption
rate for each production department.
Explain the
the difference
overhead
[4
marks]
dd Explain
difference between
betweenoverhead
overheadallocation
allocationand
and
overhead
apportionment.
apportionment.
[4[4
marks]
&
marks]
Additional information
information
Additional
&
&
The actual data for Auckland (Manufacturers) Limited for the year
The actual data for Auckland (Manufacturers) Limited for the year
was:
was:
Required
Required
e Explain what is meant by over-absorption of overheads?
e Explain what is meant by over-absorption of overheads?[3 marks]
[3 marks]
f Calculate the over- or under-absorption of overheads for each
department.
the over- or under-absorption
of overheads for each
f Calculate
4
department.
[4 marks]
4
[4 marks]
Additional information
Total for this question: 54 marks
Q22.
Additional
information
Total for
54 marks
The company
manufactures a single product in batches
of this
100.question:
The
3
cost
of
manufacturing
a
batch
has
been
calculated
at
$9
500.
The
The company
manufactures
a singleThe
product
in batches
of 100.
The
Ltdnormally
manufactures
one the
product.
following
information
relates
to the two
3 Jameson
directors
mark-up
cost by 30%
to arrive
at a selling
price.
cost
of
manufacturing
a
batch
has
been
calculated
at
$9
500.
The
Jameson
Ltd
manufactures
one
product.
The
following
information
relates
to
the two
production and two service departments for one four-week period.
productionnormally
and two service
departments
forby
one30%
four-week
period.
Required
directors
mark-up
the cost
to arrive
at a selling price.
g Calculate the budgeted
selling
price
of
a
single
unit
of
product.
Production departments
Service
departments
Required
Production departments
Service departments
[2
marks]
Machining
Assembly
Maintenance
Canteen
selling price
of a single
unit
of product.Canteen
g Calculate the budgeted
&
Machining
Assembly
Maintenance
Overheads
£143
500
£154
700
£165
800
£176
Overheads information
£143 500
£154 700
£165 800 [2 marks]
£176 900 900
& Additional
machine
18
845
050
–
Direct
machinehours
hours
18 845
1414
050
– –
–
& Direct
A customer
is willing to place
an order for20300
units. However,
they
Additional
information
Direct
labour
hours
6
065
350
–
–
Direct labour hours
065
20 350
–
–
& want a discount of 20% on the usual selling price. The company has
Acapacity
customer
is willing to place
an order
fordirectors
300 units.
However,
they
todepartments’
manufacture
the order,
but
the
are
unhappy
& The
The
service
departments’
overheads
are
apportioned
to to
thethe
production
departments
on theon the
service
overheads
are
apportioned
production
departments
want
agiving
discount
of 20% on the usual selling price. The company has
about
a
discount.
following
basis:
& following
basis:
capacity to manufacture the order, but the directors are unhappy
Required
& about giving a discount.
Machining
Assembly
Advise the directorsMachining
whether or not
they shouldCanteen
accept
the order
Assembly
Canteen
& hMaintenance
60%
30%
10%
Required
60%
30%
10%
Canteen
40%
60%
–
& Maintenance
or not they
h Advise the directors whether
Canteen
40%
60%should accept
– the order
&
& REQUIRED
&
REQUIRED
& (a) Prepare an overhead apportionment schedule apportioning the service departments’
overheads
to the appropriate
departments
for one
period.
(8 marks)
(a)
an overhead
apportionment
schedule
apportioning
the service departments’
& Prepare
to the appropriate departments for one period.
(8 marks)
& (b)overheads
Calculate the overhead absorption rates for each production department. State the bases
used and give a reason for each choice.
(8 marks)
& Calculate
(b)
the overhead absorption rates for each production department. State the bases
!
used and give a reason for each choice.
OMAIR MASOOD
CEDAR COLLEGE
The manager of Jameson Ltd calculates selling price per unit based on full cost plus a
25% mark-up.
(8 marks) 68
The manager of Jameson Ltd calculates selling price per unit based on full cost plus a
Themark-up.
costs per unit are:
25%
overheads to the appropriate departments for one period.
(8 marks)
(b) Calculate the overhead absorption rates for each production department. State the bases
used and give a reason for each choice.
(8 marks)
The manager of Jameson Ltd calculates selling price per unit based on full cost plus a
25% mark-up.
The costs per unit are:
materials: 3 metres at £4 per metre;
labour:
7 hours at £8 per hour.
Each unit takes 3 hours in the machining department and 4 hours in the assembly
department. All overheads are fixed.
5
Task 3
REQUIRED
5
5
Total for this task: 21 marks
(c) Calculate the full cost per unit.
(5 marks)
Azhara Ltd produces a range of products.
Task 3
Total for this task: 21 marks
5
Task 3
Total for this task: 21 marks
(d) Calculate the selling price per unit.
(3 marks)
There are 2 production departments, assembly and finishing, and 1 service department,
Azhara
Ltd
produces
a range
of
products.
maintenance.
Azhara
Ltd
produces
a range
products.
(e)3 Calculate
theofnumber
of units Jameson Ltd has to produce and sell
in each
period
to 21 marks
Task
Total
for this
task:
Q23.
break
even.
(4
marks)
There
are
2 production
departments,
and
finishing,
and
1 service
department,
The are
following
budgeted
information assembly
isassembly
available
forfinishing,
the
departments
for thedepartment,
year
ending
There
2 production
departments,
and
and
1 service
Azhara
Ltd produces a range of products.
maintenance.
31 October
2010.
maintenance.
(f)
Explain two limitations of break-even analysis.
(4 marks)
There
are 2 production
departments,
assembly
and finishing,
and
1 year
service
department,
The
following
budgeted
information
available
for
the
departments
the
ending
The
following
budgeted
information
is is
available
for
the
departments
forfor
the
year
ending
Assembly
Finishing
Maintenance
maintenance.
October
2010.
3131
October
2010.
Overheads
£120 000
£340 000
£80 000
The following budgeted information is available for the departments for the year ending
G/C28652/Jun08/ACC7
Assembly
Finishing
Maintenance
Direct labour hours
36 000
62 000
–
Finishing
Maintenance
31 October 2010. Assembly
Direct machine hours
48
000
51
000
–000
Overheads
£120
000
£340
000
£80
Overheads
£120
000
£340
000
£80
000
Assembly6262
Finishing
Direct
labour
hours
000
000
–
Direct
labour
hours
3636
000
000
–Maintenance
The maintenance department overheads are apportioned to the production departments on the
Direct machine
hours
48
000£120 000 5151
000
Direct
000
– – £80 000
Overheads
£340
000 department.
basismachine
of 60%
tohours
the assembly 48
department
and 40%000
to the
finishing
Direct labour hours
36 000
62 000
–
The
maintenance
department
overheads
are
apportioned
the
production
departments
the
The
maintenance
department
overheads
are
apportioned
to to
the
production
departments
onon
the
Direct machine hours
48 000
51 000
–
basis
of
60%
to
the
assembly
department
and
40%
to
the
finishing
department.
basis
of
60%
to
the
assembly
department
and
40%
to
the
finishing
department.
REQUIRED
The maintenance department overheads are apportioned to the production departments on the
Calculate the overhead absorption rate for each production department. State the bases
0 8
REQUIREDbasis of 60% to the assembly department and 40% to the finishing department.
REQUIRED
used and give a reason for each choice.
(12 marks)
0088
Calculate
the
overhead
absorption
rate
forfor
each
production
department.
the
bases
Calculate
the
overhead
absorption
rate
each
production
department.State
State
the
bases
REQUIRED
used
and
give
a
reason
for
each
choice.
(12
marks)
used
and
give
a
reason
for
each
choice.
(12
marks)
The unit selling price of product Z is calculated at full cost plus 25%. Each unit has
costs
of £32
and
requiresabsorption
2 machinerate
hours
and 1.5
labour hours.
Calculate
the
overhead
for each
production
department. State the bases
0 direct
8
used
and
give
a
reason
each
choice.
The
unit
selling
price
of of
product
Zfor
is is
calculated
at at
fullfull
cost
plus
25%.
unit
has
The
unit
selling
price
product
Z
calculated
cost
plus
25%.Each
Each
unit
has (12 marks)
costs
of of
£32
and
requires
2 machine
hours
and
1.5
labour
hours.
direct
costs
£32
and
requires
2 machine
hours
and
1.5
labour
hours.
REQUIREDdirect
The unit selling price of product Z is calculated at full cost plus 25%. Each unit has
Calculate
the
selling
of and
one requires
unit of product
Z. hours and 1.5 labour hours. (5 marks)
0
9
direct
costsprice
of £32
2 machine
REQUIRED
REQUIRED
0099
Calculate
the
selling
price
of of
one
unit
of of
product
Z.Z.
(5 marks)
Calculate
the
selling
price
one
unit
product
marks)
REQUIRED
It has been
suggested
to the
financial
director
that he should base the selling (5
price
on the cost obtained through using Activity Based Costing (ABC).
Calculate
the selling
price of one
unit of
product
Z. base the selling price
(5 marks)
0It has
9 been
suggested
to to
the
financial
director
that
hehe
should
It has
been
suggested
the
financial
director
that
should
base the selling price
on the cost obtained through using Activity Based Costing (ABC).
REQUIRED on the cost obtained through using Activity Based Costing (ABC).
It has been suggested to the financial director that he should base the selling price
onbenefits
the costofobtained
through
using Activity
Based
REQUIRED
Explain two
using ABC
compared
with using
theCosting
current (ABC).
method to calculate
1 0
REQUIRED
1
1
0
0
the selling
price.
OMAIR
MASOOD
CEDAR COLLEGE
(4 marks)
69
Explain two benefits of using ABC compared with using the current method to calculate
REQUIRED
Explain two benefits of using ABC compared with using the current method to calculate
the selling price.
(4 marks)
the selling price.
(4 marks)
Explain two benefits of using ABC compared with using the current method to calculate
1 0
the selling price.Turn over for the next task
(4 marks)
PAGE 564
564
PAGE
12
PAGE
564
12
Q2.!
Q2.!
Q24.
!! Q2.!
Q3.*
33
12
!
Chester
manufactures clothing.
clothing. The
The work
work takes
takes place
place in
in three
three production
production departments
departments ––
Chester Limited
Limited manufactures
sewing
and
finishing. In
In clothing.
addition,The
the work
business
has
twoinservice
service
departments
stores and
3 cutting,
Chester
Limited
manufactures
takeshas
place
three production
departments
–and
cutting,
sewing
and
finishing.
addition,
the
business
two
departments
–– stores
maintenance.
cutting, sewing and finishing. In addition, the business has two service departments – stores and
maintenance.
maintenance.
The
overheads for
for the
the year
year ending
ending 31
31 March
March 2014
2014 were
were as
as follows:
follows:
The budgeted
budgeted overheads
The budgeted overheads for the year ending 31 March 2014 were as follows:
$$
$
Indirect wages
185 400
400
185
Indirect wages
185 400
Rent and rates
38 500
500
38
Rent and rates
38 500
Power
Power
32 600
600
32
32 600
Light and heat
Light and heat
18 800
800
18
18 800
Machine
depreciation
Machine
depreciation
73
700
73
73 700
700
Buildings
Buildingsinsurance
insurance
18
200
18
18 200
200
*
The
following
The
followinginformation
informationisisavailable.
available.
Cutting
Cutting
Cutting
Numberofofindirect
indirectemployees
employees
Number
Floor
space(square
(squaremetres)
metres)
Floor
space
Net
bookvalue
valueofofmachinery
machinery($)
($)
REQUIRED
Net
book
REQUIRED
Sewing
Sewing
Sewing
33PAGE 565 555
PAGE
PAGE 565
565
13
000 13
13 666 000
55 000
000
000
000
86 000
000
86
000
64
64
000
64 000
000
Finishing
Finishing
Finishing
Stores
Stores Maintenance
Maintenance
Stores
Maintenance
333
4 44
5 55
333000
000
000
333000
000
000
4 000
44000
000
12
12
000
12000
000
- --
5 000
55000
000
Machine
hours
40
000
50
000
000
- - a single overhead
- (a)
State
oneadvantage
advantageand
and one
one40
disadvantage
to
Chester44Limited
using
hours
000
50
000
Machine
000
50 000
000
000 ofof
- aa single
(a)
State
one
disadvantage
to
disadvantage
to Chester
Chester4Limited
Limited
of using
using
single overhead
overhead
absorption rate.
absorption
rate.
Direct labour hours
84 000
22 000
56 000
-
Direct labour hours
Raw Advantage
material issues
Raw Advantage
material issues
*
*
84 000
000
22
22 000
000
56
56 000
000
75%
75%
75%
17.5%
17.5%
17.5%
2.5%
2.5%
2.5%
--
--
--
5%
5%
5%
-
Chester Limited uses a single overhead rate to absorb all overheads on a direct labour hour basis.
Chester Limited uses a single overhead rate to
to absorb
absorb all
all overheads
overheads on
on aa direct
directlabour
labourhour
hourbasis.
basis.
!
! !
!
Disadvantage
Disadvantage
PAGE 565
PAGE
PAGE
565
13565
!
*
!!
13
13
REQUIRED
REQUIRED
REQUIRED
(a) State one advantage and one disadvantage to Chester Limited of using a single overhead
absorption
rate.
(a) State
State
one
and
(a)
one advantage
advantage
and one
one disadvantage
disadvantage to
to Chester
Chester Limited
Limited of
of using
using aa single
single overhead
overhead !
[4]
absorption rate.
absorption
rate.
!
[4]
Advantage
[4]! !
!! ! Advantage
Advantage
!!
(b) Calculate, correct to two decimal places, the overhead absorption rate for the year ending
31 Marchcorrect
2014. to
(b)
Calculate,
(b) Calculate,
correct
to two
two decimal
decimal places,
places, the
the overhead
overhead absorption
absorption rate
rate for
for the
the year
yearending
ending !
! 31 March 2014.
!!
31 March 2014.
!! !
Disadvantage
!
!!
[1]
Disadvantage
! 2014
©!UCLES
9706/23/M/J/14
Disadvantage
!
!
[1]
© UCLES
2014
9706/23/M/J/14
[1]
!! ! 2014
©
UCLES
9706/23/M/J/14
!!
* ! !
!
[4]
* !! !
[4]
!!
CEDAR COLLEGE
* OMAIR MASOOD
[4]
(b) Calculate, correct to two decimal places, the overhead absorption rate for the year ending
*
31 March 2014.
(b) Calculate,
Calculate, correct
* (b)
correct to
to two
two decimal
decimal places,
places, the
the overhead
overhead absorption
absorption rate
rate for
for the
the year
yearending
ending
31
March
2014.
31 March 2014.
*
*
70
PAGE 566
14
!
Additional information
The directors of Chester Limited are considering changing the basis for recovering overheads to
calculate a separate overhead absorption rate for each production department.
REQUIRED
(c) Apportion the costs to the five departments and re-apportion the service departments’ costs
to production departments using a suitable basis.
Total
$
Cutting
$
Sewing
$
Finishing
$
Stores
$
Maintenance
$
Indirect wages
Rent and rates
Power
Light and heat
Machine
depreciation
PAGE 567
15
Buildings
insurance
(d) Calculate, correct to two decimal places, appropriate overhead absorption rates for each
production department.
Reapportion
stores
Reapportion
maintenance
PAGE 567
[10]
!
15
(d) Calculate, correct to two decimal places, appropriate overhead absorption rates for each
production department.
[6]
!
!
Additional information
The actual results for the year were as follows:
Cutting
Sewing
Factory overheads
$168 180
$146 320
$51 870
© UCLES 2014
Direct
labour hours
9706/23/M/J/14
85 200
20 950
58 140
42 330
52 450
4 280
Direct machine hours
Finishing
[6]
REQUIRED
Additional information
(e) Calculate the under- or over-absorption of overheads for each production department.
! The actual
results for the year were asCEDAR
follows: COLLEGE
OMAIR
MASOOD
Cutting
Sewing
*!
$
$
!
*!
Cutting
Sewing
Finishing
* ! Factory overheads
$168 180
$146 320
$51 870
Finishing
$
!
71 *
ABSORBTION)COSTING)(WORKSHEET)7))
!
Q25.
Q1.)
Q2.!
The factory of Stamford Limited is organized into four cost centres. The company manufactures
different types of industrial valves.
At present, Stamford Limited uses a single production overhead absorption rate calculated by dividing
total budgeted production overheads by total budgeted Direct labour hours .
Given below are the budgeted costs and other data for the year ended 31 December 2000.
Machine
Production
Direct Labour
hours
Overheads
hours
$
Cost centre A
900000
25000
60000
Cost centre B
840000
50000
70000
Cost centre C
495000
45000
5000
Cost centre D
310000
62000
30000
Actual costs and actual times relating to Job XY32, which was completed during October 2000.
Machine
Direct
Direct Labour
Direct Wages
hours
Materials
hours
$
$
Cost centre A
1200
350
150
100
Cost centre B
260
680
110
25
Cost centre C
175
180
30
Nil
Cost centre D
290
240
35
30
Selling price are calculated by adding to price, cost production overheads based on the
predetermined absorption rate, and then adding a mark-up of 40% to the total production cost.
The newly appointed accountant at Stamford has suggested that if separate overhead absorption
rates were calculated for each cost centre, it would provide a more accurate basis for
determining job costs.
REQUIRED:
(a) Calculate the present overhead absorption rate based on the budgeted figures for the year
ended 31 December 2000.
(b) Using the rate calculated in (a) above, calculate the production overhead allocated to Job
XY32, together with the total production cost and selling price for the job.
(c) Comment on the proposal from the new accountant that calculating overhead production
rates separately for each cost centre would result in more accurate job costing.
(d) Assuming the accountant’s advice is followed; calculate suitable overhead absorption rates
for each cost entre, stating in each case the basis you have used.
(e) Using the rates calculated in (d) above, recalculate the total overhead to be applied to Job
XY32, and also recalculate the total production cost and selling price for the job.
!
!
!
OMAIR MASOOD
!
CEDAR COLLEGE
72
ABSORPTION
COSTING
WORKSHEET
10
ABSORPTION
COSTING
WORKSHEET
10 10
ABSORPTION
COSTING
WORKSHEET
ABSORPTION
COSTING
WORKSHEET
10
Q26.
Q1. Q1.
Innisfail
Enterprises
Ltd isLtd
a manufacturing
business.
It currently
absorbs
its overheads
usingusing
the following
Innisfail
Enterprises
is a manufacturing
business.
It currently
absorbs
its overheads
the following
methods.
methods.
Production
Department
A: Direct
machine
hourshours
for Department
A. A.
Production
Department
A: Direct
machine
for Department
Production
Department
B: Percentage
directdirect
labourlabour
cost for
B. B.
Production
Department
B: Percentage
costDepartment
for Department
Innisfail
Enterprises
Ltd had
the following
factory
indirect
costs costs
for the
30 April
Innisfail
Enterprises
Ltdestimated
had estimated
the following
factory
indirect
foryear
the ended
year ended
30 April
2007.2007.
$
$
900,000
900,000
Indirect
wageswages
Indirect
200,000
200,000
Machinery
repairs
Machinery
repairs
60,000
60,000
Machinery
insurance
Machinery
insurance
180,000
180,000
Machinery
depreciation
Machinery
depreciation
80,000
80,000
Premises
insurance
Premises
insurance
220,000
220,000
Heat Heat
and light
and light
150,000
150,000
Catering
Catering
19,000
19,000
Sundries
Sundries
The following
additional
information
is available.
The following
additional
information
is available.
Service
Department
Service
Department
Production
Departments
Production
Departments
A
Machine
cost (£)
Machine
cost (£)
DirectDirect
machine
hourshours
machine
DirectDirect
labourlabour
hourshours
DirectDirect
labourlabour
cost (£)
cost (£)
B
A
B
Catering
Catering
Repairs
Repairs
1,000,000
1,000,000
600,000
600,000
-
-
600,000
600,000
20,000
20,000
-
-
46,200
46,200
100,000
100,000
-
-
750,000
750,000 1,400,000
1,400,000
-
-
FloorFloor
area (sq.
areameters)
(sq. meters)
8,4008,400
Number
of employees
Number
of employees
36
Sundries
(£) (£)
Sundries
7,0007,000
66
36
6,0706,070
66
930 930
700 700
6
6
8,0008,000
-
-
-
-
-
-
-
-
1,4001,400
12
12
4,0004,000
The proportion
of work
carried
out byout
thebyservice
departments
is: is:
The proportion
of work
carried
the service
departments
Departments
Departments
A
B
A
B
Catering
Catering
Repairs
Repairs
Repairs
(%) (%)
Repairs
75
75
25
25
-
-
Catering
(%) (%)
Catering
29
29
65
65
6
6
OMAIR MASOOD
CEDAR COLLEGE
-
-
-
-
73
REQUIRED:
(a)Overhead analysis sheet
REQUIRED:
(b)Calculate the overhead recovery rate for each department.
(a)Overhead analysis sheet
(b)Calculate the overhead recovery rate for each department.
The Factory has recently received an order which will require the following
The Factory has recently received an order which will require the following
Direct Material : 40 kgs @10 per kg
Direct Labor :
Direct Material : 40 kgs @10 per kg
Dept A : 6 hours @12 per hour
Direct Labor :
Dept B : 8 hours @$14 per hour
Dept A : 6 hours @12 per hour
Machine Hours :
Dept B : 8 hours @$14 per hour
Dept A : 13 hours
Machine Hours :
Dept B : 2 hours
Dept A : 13 hours
Dept B : 2 hours
(c) Caclualte the total cost of the order
PAGE 358
(c) Caclualte the total cost of the order
ABSORBTION)COSTING)WORKSHEET)8))
ABSORPTION*COSTING*(WORSKHEET*8)*
11
PAGE 358
! ) ABSORPTION*COSTING*(WORSKHEET*8)*
Q2.
ABSORBTION)COSTING)WORKSHEET)8))
11
Q1))
Q27.
Q1.!
!
Q2.
Q1) Ltd uses one factory overhead recovery rate which
3 Wigmore
Q1.!
PAGE 359
For
Examiner's
Use For
is a percentage of total
direct labour costs. The rate is calculated from the following budgeted data.
3 Wigmore Ltd uses one factory overhead 12
recovery rate which is a percentage of total
PAGE
359
direct
labour
costs.
The
rate
is
calculated
from
budgeted
data.machine
Department
Factory
Direct labour the following
Direct labour
Direct
12
(b)
Prepare a detailed
cost statement
to calculate the selling
overheads
costs
hoursprice for job 787.
hours
Department
Factory
Direct
Direct labour
Direct machine
$
$ labour
(b)
Prepare a150
detailed
to calculate the
overheads
hours
hours
Production
000 cost statement
500 costs
000
120selling
000 price for job7787.
000
$
$
Assembly
450 000
1 000 000
225 000
10 000
Production
7–000
Packing
360150
000000
900500
000000
200120
000000
Assembly
450 000
1 000 000
225 000
10 000
000the following
900information.
000
200 000
–
ThePacking
cost sheet for job 787360
shows
The cost sheet for
job 787
shows the
following
Department
Direct
labour
Direct
labourinformation.
Direct machine
Direct material
costs
hours
hours
costs
Department
Direct
Direct labour
Direct machine
Direct
$ labour
$ material
costs
hours
costs
Production
2 400
400
80hours
180
Assembly
1 100$
700
90
150 $
Production
2 400
Packing
1 000
650400
– 80
170180
Assembly
1 100
700
90
150
PAGE
360
PAGE
360
)
Packing
1 000 of 20% are13
650 to the total factory
–
170
General
administration expenses
added
cost.
The
selling
13PAGE
360
) price
360
to the customer is based on a 25% PAGE
net profit
margin.
)
13
General
administration
expenses
are added to the total factory cost. The selling
Direct
labour
hour
rate of 20% 13
) price
(ii) (ii)
Direct
labour
hour
rate
to the customer is based on a 25% net profit margin.
REQUIRED
Direct
labour
hour
(ii) (ii)Direct
labour
hour
raterate
Production
Production
REQUIRED
(a)
Calculate
the current factory overhead rate for Wigmore Ltd.
Production
Production
PAGE 359
)
(a)
)
)
For
Examiner's
Use
For
Examiner's
Use
)
For
For
Examiner's
Examiner's
Use For
Use For
Examiner's
Examiner's
Use
Use
Calculate the current factory overhead
12 rate for Wigmore Ltd.
)
PAGE 359
12
(b)
Prepare
a detailed cost statement to calculate
the selling price for job 787.
Assembly
Assembly
(b)
Prepare
a detailed cost statement to calculate the selling price for job 787.
Assembly
Assembly
) (c)
Examiner's
Use
[6])
For
Examiner's
Use
For
[6]
Examiner's
Use
)
Calculate the overhead rate for each department using the following methods:
[3]
)
)! )
) ! (ii)
!)
the overhead
rate forcost
each department using the following methods:
(c) (i) Calculate
Percentage
of direct labour
PAGE
360
PAGE
360
Packing
13cost360
(i) Production
Percentage of direct labour
Packing
13PAGE
PAGE
360
Packing
Packing
1313
Production
(ii)
Direct labour
hour rate
Direct labour hour rate
Direct
labour
hour
(ii) (ii)Direct
labour
hour
raterate
Production
Production
!)
(d)
[3]
!
For
For
Examiner's
)[3] Examiner's
Use For
Use For
[3]
Examiner's
)[3] Examiner's
Use
Use
[3]
!
!
Assembly
Production
Production
Using
the direct labour hour rates calculated in (c) (ii), prepare a detailed cost
(d)
Using
the
direct
labour hour
rates
calculated
in job
(c) 787.
(ii), prepare a detailed cost
statement toAssembly
calculate
the new
selling
price for
)
statement
to calculate
new hour
selling
price
for job 787.
(d)
Using
the directthe
labour
rates
calculated
in (c) (ii), prepare a detailed cost
Using
the direct
labour hour
rates
calculated
in job
(c) 787.
(ii), prepare a detailed cost
statement
to calculate
the new
selling
price for
! ) (d)
)
statement to calculate the new selling price for job 787.
MASOOD
CEDAR COLLEGE
Assembly
! )OMAIR
)
Assembly
!
Packing
!) !)
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)
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74!
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[3]
5
Q28.
4
Coalbrook Engineering has estimated the following factory indirect costs for its next financial year.
£
1 480 500
241 400
48 000
23 400
18 600
12 000
31 600
20 250
Indirect wages
Repairs and maintenance
Rent and rates
Insurance of premises
Insurance of machinery
Depreciation of machinery
Heating and lighting
Sundries
The company wishes to calculate a suitable overhead absorption rate for each of its two production
departments and the following information is available:
Production Departments
Machine cost (£)
Direct machine hours
Direct labour hours
Floor area (square metres)
Number of employees
Sundries (£)
Machining
240 000
209 000
42 000
7 000
70
6 110
Finishing
120 000
8 800
180 000
3 500
42
3 564
Service Departments
Canteen
–
–
–
1 400
7
3 675
Maintenance
40 000
2 200
–
700
14
1 746
Stores
–
–
–
1 400
7
5 155
Canteen
–
–
–
Maintenance
6
–
10
Stores
4
–
–
The proportion of work done by service departments is:
Canteen (%)
Maintenance (%)
Stores (%)
Machining
50
80
60
Finishing
40
20
30
Coal Engineering budgets to consume 100,000 kilos of Direct Material at the rate of £39.36
REQUIRED
per Kilo in its Finishing department throughout the year.
(a)* For Coalbrook Engineering, calculate, using appropriate bases, the overhead absorption rate
REQUIRED
for each of the two production departments.
[21]
Calculate
theEngineering,
overhead absorption
rate
for Machining
usingappropriate
Direct
(b)a) For
Coalbrook
calculate the
production
cost ofdepartment
job 1912 (where
to
two
decimalhours
places),
the following
information:
Machine
andusing
for Finishing
Department
as a percentage of Direct Material
consumed.
Machining
Finishing
b) Direct
Calculate
the price
quoted for the70
job order 1920 using the following
materials
(£) to be 320
information.
Coal
Engineering
charges
a
Direct labour (£)
130
50profit margin of 40% on their orders
Machine hours
Labour hours
10
5
Machining
4
8
Finishing
[4]
Direct Materials (£)
320
70
Direct
Labor
(£)
130
(c) Explain why a business might recover less in 50
overheads than the amount spent on overheads
duringMachine
a period.Hours
[4]
10
4
Labor Hours
5
8
(d) Activity based costing is sometimes used as an alternative to traditional methods of overhead
absorption. Explain two limitations of activity based costing.
[4]
Total marks [33]
© OCR 2010
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$10000
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OH
$10000
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8000
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10000
Units
10000
Units
Units
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10000
Units
10000
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8000
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8000
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8000
9000
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$10000
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8000
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9000
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fixed
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$40000
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8000
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REQUIRED:
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Annual
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$40000
$40000
Annual
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Admin
OH OH
$10000
$14000
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10000 Units
10000 Units
Annual
Fixed Admin
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$10000
$14000
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OH
$10000
$14000
REQUIRED:
! • Units
10000
Units
10000
Units
REQUIRED:
Prepare
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the
costing
forboth
both
years.
• Produced
Prepare
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using
themarginal
marginal
costing format
format
for
years.
Units
Sold
8000
UnitsUnits
9000
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!!
Units
Produced
10000
10000
Units
REQUIRED:
REQUIRED:
! •!REQUIRED:
REQUIRED:
Units
Produced
10000
Units
10000
Units
Prepare
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profit
statement
using
the
marginal
costing
format
for
both
years.
•
Prepare
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profit
statement
using
the
marginal
costing
format
for
both
years.
Units
Sold
8000
Units
9000
Units
•
Prepare
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profit
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the
marginal
costing
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both
years.
!
•
Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years.
•
Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years.
•
Prepare
profit
statement
using
the
absorption
costing
format
for
both
years.
REQUIRED:
Units
Sold
8000marginal
Units
• ! Prepare
profit
statement
usingusing
the
absorption
costing
format
for9000
both
years.
Prepare
a profit
statement
the
costing
format
for
both
years.
• aaprofit
Prepare
astatement
profit
statement
using
the Units
marginal
costing
format
for
both
years.
Units
8000
Units
9000
Units
Prepare
statement
using
the
marginal
costing
format
for
both
years.
! •• •Prepare
• ••Prepare
Prepare
aSold
profit
using
the
absorption
costing
format
for
both
years.
REQUIRED:
a
profit
statement
using
the
absorption
costing
format
for
both
years.
•
Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years.
!
a
profit
statement
using
the
absorption
costing
format
for
both
years.
•
Prepare
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
•
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
• ! Prepare
a
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
•
Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years. !
•
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
•
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
REQUIRED:
• Prepare
a profit
profit
statement
using
the
marginal
costing
format
forboth
both
years.
Prepare
areconciliation
profit
statement
using
the
absorption
costing
format
for
both
years.
• • Prepare
a reconciliation
statement
toreconcile
reconcile
the
two
profits
for
years.
REQUIRED:
•!• •Prepare
statement
tousing
the
two
profits
for
both
years.
a
statement
the
absorption
costing
format
for
both
•aPrepare
Prepare
a reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
!
•Prepare
Prepare
a
reconciliation
statement
to
reconcile
two
profits
for
both
years.
a
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
REQUIRED:
Prepare
profit
statement
using
the
absorption
costing
format
foryears.
bothyears.
years.
•Prepare
Prepare
a areconciliation
statement
toreconcile
reconcile
theformat
two
for
both
!!
•• •Prepare
Prepare
a aprofit
statement
using
the
marginal
costing
format
forprofits
both
years.
•Following
statement
to
the
two
profits
for
both
years.
aareconciliation
profit
statement
using
the
absorption
costing
forfor
both
years.
• reconciliation
Prepare
profit
statement
using
the
marginal
costing
format
both
years.
Q2.
information
is
available
for
Empire
Manufacturing
•
Prepare
a
statement
to
reconcile
the
two
profits
for
both
years.
!
• Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years.
Q2. ! Following
information
is
available
for
Empire
Manufacturing
Prepare
a
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
!! ••• •Prepare
a profit
statement
using
the
absorption
costing
format
for
both
years.
Prepare
reconciliation
statement
to
reconcile
the format
two
profits
for
both years.
Prepare
aainformation
reconciliation
to
reconcile
the
two
profits
for
both
years.
Q2. Following
is available
for
Empire
Manufacturing
• information
Prepare
profit
statement
using
the
absorption
costing
for
both
years.
Q2. information
Following
isstatement
available
forEmpire
Empire
Manufacturing
Q2. ! Following
isaaavailable
for
Empire
Manufacturing
•information
Prepare
profit
statement
using
the
absorption
costingfor
format
for
both years.
!! Following
information
isavailable
available
for
Manufacturing
Q2.
Following
information
is
available
for
Empire
Manufacturing
Q2.!Q2.
Following
is
for
Empire
Manufacturing
•
Prepare
a
reconciliation
statement
to
reconcile
the
two
profits
both
years.
EXAMPLE
2
st
st
Q2. Following
information
is available
for ended
Empire
• Prepare
a reconciliation
statement
to reconcile
the
two
for both
For the
year
31stManufacturing
For
theprofits
year ended
31years.
Dec
st
• Prepare aisreconciliation
statement
to reconcile
the
for
both
years.
!Q2.
thefor
year
ended
31
Fortwo
theprofits
year
ended
Q2.! Following
information
available
Empire
Manufacturing
st
st 31 Dec
Following
information
isFor
available
for
Empire
Manufacturing
Q2.
Following
information
is
available
for
Empire
Manufacturing
st
st
!
Dec
2006
2007
For
theFor
yearthe
ended
31
For
the
year
ended
31
Dec
st
st
year
ended
31
For
the
year
ended
31
Q2.
Following
information
is
available
for
Empire
Manufacturing
stDec
st st the year ended
st
For
the
year
ended
31
For
31
Dec
Dec
2006
2007
For
the
year
ended
31
For
the
year
ended
31
Dec
Q2.Selling
Following
information
is
available
for
Empire
Manufacturing
For
the
year
ended
31
For
the
year
ended
31
Dec
st
st
stst
$30
$28
Dec
2006
2007
Q2.Price/Unit
Following information For
is available
for Empire
Manufacturing
Dec
2006
2007
For
the
year
ended
31
For
year
ended
31
Dec
the
year
ended
31
For
the
year
ended
31
Dec
Q2.
Following
information
is
available
for
Empire
Manufacturing
st
st
Dec
2006
2007
Selling
Price/Unit
$30
$28
Dec
2006
2007
Dec
2006
2007
st
st
For
the
year
ended
31
For
the
year
ended
31
Dec
Direct
material/Unit
$12
$13
Selling
Price/Unit
$30
$28
st
st
Selling
Price/Unit
$30
$28
Dec
2006ended
2007
For theFor
year
ended
31 st31For
year
ended
31
Dec
Dec
2006
2007
the
year
For
the
year
ended
31
st the
stDec
st
st
Direct
material/Unit
$12
$13
Selling
Price/Unit
$30
$28
Selling
Price/Unit
$30
$28
st
Dec
2006
2007
Selling
Price/Unit
$30
$28
Direct
Labour/Unit
$7
$4
For theFor
year
ended
31
For
the
year
ended
31
Dec
the
year
ended
31
For
the
year
ended
31
Dec
Direct
material/Unit
$12
$13
For
the
year
ended
31
For
the
year
ended
31
Dec
Direct
material/Unit
$12
$13
st
st
Selling
Price/Unit
$30
$28
Dec
2006
2007
Selling
Price/Unit
$30
$282007
For
the
year
ended 31
For2007
the
year
ended
31 Dec
Dec
2006
Direct
material/Unit
$12
$13
Selling
Price/Unit
$30
$28
Direct
Labour/Unit
$7
$42007
Direct
material/Unit
$12
$13
Dec
2006
Variable
Prod/OH/Unit
$2
$1.5
Direct
material/Unit
$12
$13
Direct
Labour/Unit
$7
$4
Dec
2006
Dec
2006
2007
Direct
Labour/Unit
$7
$4
Direct
material/Unit
$12
$13
Dec
2006
2007
Direct
material/Unit
$12
$13
Direct
Labour/Unit
$7
$4
Selling
Price/Unit
$30
$28
Direct
material/Unit
$12
$13$28
Variable
Prod/OH/Unit
$2
$1.5
Selling
Price/Unit
$30
Selling
Price/Unit
$30
$28
Direct
Labour/Unit
$7$2
$4
VariableSelling
OH/Unit
$3
$4
Variable
Prod/OH/Unit
$1.5
Selling
Price/Unit
$30
$28
Direct
Labour/Unit
$7$2
$4
Variable
Prod/OH/Unit
$1.5
Selling
Price/Unit
$30
$28
Selling
Price/Unit
$30
$28
Direct
Labour/Unit
$7
$4
Direct
Labour/Unit
$7
$4
Variable
Prod/OH/Unit
$2
$1.5
Direct
material/Unit
$12
$13
VariableSelling
OH/Unit
$3
Annual
fixed
Prod
OH
$20000
$20000
Direct
material/Unit
$12$7
$13
Direct
Labour/Unit
$4 $13
Variable
Prod/OH/Unit
$2$3
$1.5$4$13
Direct
material/Unit
$12
Direct
material/Unit
$12
VariableSelling
OH/Unit
$4
Variable
Prod/OH/Unit
$2
$1.5
VariableSelling
OH/Unit
$3
$4
Direct
material/Unit
$12
$13
Direct
material/Unit
$12
Variable
Prod/OH/Unit
$2 $2$3
$1.5 $4$4
Variable
Prod/OH/Unit
$1.5 $13
VariableSelling
OH/Unit
Direct
Labour/Unit
$7
$4
Annual
Fixed
Admin
OH
$14000
Annual
fixed
Prod
OH
$20000
$20000
Direct
Labour/Unit
VariableSelling
OH/Unit
$3$10000
$4 $20000
Annual
fixed
Prod
OH
$20000
$20000
Variable
Prod/OH/Unit
$2
$1.5 $4
Direct
Labour/Unit
$7$3
$4
VariableSelling
OH/Unit
$3$7
$4
Annual
fixed
Prod
OH
$20000
Direct
Labour/Unit
$7
Direct
Labour/Unit
$7
$4
VariableSelling
OH/Unit
$4
VariableSelling
OH/Unit
$3
$4 $4
Annual
fixed
Prod
OH
$20000
$20000
Direct
Labour/Unit
$7
Variable
Prod/OH/Unit
$2
$1.5
Units
Produced
10000
Units
8000
Units
Variable
Prod/OH/Unit
$2
$1.5
Annual
Fixed
Admin
OH
$10000
$14000
Annual
Fixed
Admin
OH
$10000
$14000
Annual
fixed
Prod
OH
$20000
$20000
Annual
Fixed
Admin
OH
$10000
$14000
Annual
fixed
Prod
OH
$20000
$20000
VariableSelling
OH/Unit
$3
$4 $1.5
Variable
Prod/OH/Unit
$2
$1.5
Variable
Prod/OH/Unit
$2
$1.5
Variable
Prod/OH/Unit
$2
Annual
fixed
Prod
OH
$20000
$20000
Annual
Fixed
Admin
OH
$10000
$14000
VariableSelling
OH/Unit
$3
$4
Annual
fixed
Prod
OH
$20000
$20000
Units
Sold
9500
Units
7500
Units
VariableSelling
OH/Unit
$3
$4Units$1.5
Variable
Prod/OH/Unit
$2
Units
Produced
10000
Units
8000
Units
Units
Produced
10000
Units
8000
Units
Units
Produced
10000
Units
8000
Annual
Fixed
Admin
OH
$10000
$14000
Annual
Fixed
Admin
OH
$10000
$14000
VariableSelling
OH/Unit
$3
$4
Annual
Fixed
Admin
OH
$10000
$14000
Annual
fixed
Prod
OH
$20000
$20000
VariableSelling
OH/Unit
$3
$4Units$4
VariableSelling
OH/Unit
$3
Units
Produced
10000
Units
8000
Annual
fixed
Prod
OH
$20000
$20000
REQUIRED:
Annual
Fixed
Admin
OH
$10000
$14000
Annual
fixed
Prod
OH
$20000
$20000
Units
Sold
9500
Units
7500
Units
Units
Sold
9500
Units
7500
Units
Units
Sold
9500
Units
7500
Units
VariableSelling
OH/Unit
$3
$4
Units
Produced
Units
8000
Units
Annual
fixed
Prod
OH 10000
$20000
$20000
Units
Produced
10000
Units
8000
Units
Units
Produced
10000
Units
8000
Units
Annual
Fixed
Admin
OH
$10000
$14000
Units
Sold
9500
Units
7500
Units
Annual
Fixed
Admin
OH
$10000
$14000
Annual
Fixed
Admin
OH
$10000
$14000
Annual
fixed
Prod
OH
$20000
$20000
Annual
fixed
Prod
OH
$20000
$20000
Units
Produced
10000
Units
8000
Units
REQUIRED:
REQUIRED:
REQUIRED:
Annual
Fixed
Admin
OH
$10000
$14000
Units
Sold
9500
Units
7500
Units
Annual
fixed
Prod
OH
$20000
$20000
Units
Sold
9500
Units
7500
Units
Units
Sold
9500
Units
7500
Units
REQUIRED:
Units
Produced
10000
Units
8000
Units
Produced
10000
Units
8000
Units
Units
Produced
10000
Units
8000
Units
Units
Units
7500
Units
Annual
Fixed
Admin
OH statement
$10000
$14000
Annual
Fixed
OH using
$10000
$14000
• Sold
Prepare
aAdmin
profit
the9500
marginal
costing format
for Units
both
years
REQUIRED:
Units
Produced
10000
Units
8000
Units
REQUIRED:
Annual
Fixed
Admin
OH
$10000
$14000
REQUIRED:
Units
Sold
9500
Units
7500
Units
Units
Sold
9500
Units
7500
Units
!
Units
Sold
9500
Units
7500
Units
REQUIRED:
9500
Units
7500
Units
Units
Produced
10000
Units
Units
•Prepare
Prepare
a profit
statement
using
the
absorption
costing
format
for8000
both
years.
Units
Produced
10000
Units
8000
•Prepare
aSold
profit
using
the
marginal
costing
format
for for
both
years
•Units
Prepare
astatement
profit
statement
using
the
marginal
costing
format
for
both
yearsUnits
a
profit
statement
using
the
marginal
costing
format
both
years
REQUIRED:
! •REQUIRED:
Units
Produced
10000
Units
8000
Units
• Prepare
a profit statement
using
the marginal
costing
format
for both
years
!
REQUIRED:
• REQUIRED:
Prepare
a reconciliation
statement
toUnits
reconcile
the two
profits
for
both
years.
Units• Units
Sold
9500
7500
Units
9500
Units
7500
Units !
•Sold
a profit
statement
using
the
marginal
costing
format
for
both
years
a profit
using
the
absorption
costing
format
for
both
years.
•aPrepare
Prepare
astatement
profit
statement
using
the
absorption
costing
format
for
both
years.
!
a
profit
statement
using
the
absorption
costing
format
for
both
years.
Units
Sold
9500
Units
7500
Units !
profit
statement
using
the
marginal
costing
format
for
both
years
• Prepare
Prepare
a
profit
statement
using
the
marginal
costing
format
for
both
years
! • Prepare
!•Prepare
•
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
•Prepare
Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
years.
a
profit
statement
using
the
marginal
costing
format
for
both
years
!• •• Prepare
REQUIRED:
REQUIRED:
• •aPrepare
a reconciliation
statement
to marginal
reconcile
the
two
profits
for
both
years.
aPrepare
reconciliation
statement
to
reconcile
thethe
two
profits
forboth
both
years.
astatement
profitstatement
statement
using
the
costing
format
for
both
years
Prepare
a profit
using
the
marginal
costing
format
for
years
• Prepare
Prepare
reconciliation
to
reconcile
two
profits
for
both
years.
• •Prepare
a statement
profit
using
the
absorption
costing
format
for
both
years.
• REQUIRED:
a•Prepare
profit
using
the
absorption
costing
format
for
both
years.
a reconciliation
statement
to marginal
reconcile
the
twoformat
profits
for
both
years.
• Prepare
Prepare
a statement
profit
statement
using
the
costing
for
both
years
aprofit
reconciliation
statement
to the
reconcile
the
two
profits
for
both
years.
!
statement
using
the
absorption
costing
format
for
both
years. !
• •Prepare
profit
statement
using
the
marginal
costing
format
for
both
years
• a Prepare
astatement
profit
statement
using
absorption
costing
format
for
both
years.
• Prepare
Prepare
a aprofit
using
the
absorption
costing
format
for
both
years.
!
• Prepare
a profit
statement
absorption
costing
format
for
both
• Prepare
a reconciliation
statement
tothe
reconcile
two profits
foryears.
bothyears.
years.
• Prepare
a reconciliation
statement
to using
reconcile
the twothe
profits
for both
•
Prepare
a
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
• profit
Prepare
a reconciliation
statement
to marginal
reconcile
the
two
profits
for
both
years.
a reconciliation
statement
tothe
reconcile
the
twocosting
profits
for
both
years.
Prepare
a
profit
statement
using
absorption
format
for
both
years.
•• Prepare
Prepare
a
profit
statement
using
the
costing
format
for
both
years
• • Prepare
a
statement
using
the
marginal
costing
format
for
both
years
• Prepare
a reconciliation
to marginal
reconcile the
two profits
for both
• Prepare
a profit
statementstatement
using the
costing
format
foryears.
both years
•
Prepare
a
reconciliation
statement
to
reconcile
the
two
profits
for
both
years.
• Prepare
a profit
statement
using
the absorption
costing
format
foryears.
both
years.
• Prepare
a
profit
statement
using
the
absorption
costing
format
for
both
• Prepare a profit statement using the absorption costing format for both years.
!
• Prepare
a reconciliation
statement
to reconcile
theprofits
two profits
foryears.
both years.
• ! Prepare
a reconciliation
statement
to reconcile
the two
for both
• Prepare
a reconciliation
statement
to reconcile
the two profits
for both years.
!
!
!
! !
!
!
!
!
! !
!
!
! ! !
!
!
!
! !
!! ! ! !
!
!
! !
!
! !
!
!
!
!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
76
COSTING(PROFIT(STATEMENTS((WORKSHEET(3)(
( Q1
COSTING PROFIT STATEMENTS ( WORKSHEET 5)
Q9
Q1.(
Cornucopia Limited manufactures a single product and has prepared the following
data for the years ended 30 September 1990 and 1991.
$
15.00
Selling price per unit
Variable cost per unit
Direct materials
4.00
Direct labour
5.00
Overhead expense 1.00
Fixed production overhead (budgeted and incurred)
Normal activity level
Fixed selling and administrative expenses
Inventory (in units)
Opening Inventory
Production
Sales
Closing Inventory
$150,000 per annum
150,000 units per annum
$180,000 per annum
Years ended 30 September
1990
1991
-
30,000
170,000
140,000
(140,000)
(160,000)
30,000
10,000
REQUIRED:
(a) Prepare Income statements for the years ended 30 September 1990 and 1991
using firstly the variable (or marginal) costing method and secondly, the
absorption costing method.
(b) Give figures to reconcile the differences in operating income for both years.
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
77
(
Q2
(
Q2.(
Q10.Nafferton
Limited
manufacturesa asingle
singleproduct
product the
the variable
of of
Q10.Nafferton
Limited
manufactures
variablecost
coststructure
structure
has changed
not changed
several
yearsand
andisisas
asfollows:
follows:
whichwhich
has not
for for
several
years
$$
(
20.00
Selling price unit
20.00
Selling price unit
$
$
$
$
Variable cost per unit
Direct
Variable
costmaterials
per unit
Direct
labour
Direct materials
Direct
production expenses
Direct
labour
Direct selling expenses
Direct production expenses
Direct selling expenses
3.00
8.00
3.00
3.00
8.00
1.00
3.00
1.00
Normal production level
180,000 units per annum
Fixed production overhead
$108,000 per annum
Normal
production
level
180,000
per annum
Fixed selling and administration expenses
$75,000 units
per annum
production
and sales for the past two years
have been:
FixedUnit
production
overhead
$108,000
per annum
Years ended
30 April
Fixed selling and administration expenses
$75,000
per annum
Unit production and sales for the past
two years have
been:
1994
1993
Years ended 30 April
units
Opening
Inventory
Production
Opening
Sales
Inventory
Closing
Production
1993
40,000
units
190,000
20,000
units
160,000
40,000
20,000
20,000
190,000
30,000
160,000
(210,000)
(150,000)
(210,000)
Inventory
Sales
units
1994
(150,000)
REQUIRED:
30,000
Closing
20,000
Inventory
(a) Prepare
profit and loss statements for the years ended 30 April 1993 and
1994 using firstly the variable (or marginal) costing method and secondly
absorption costing method to value Inventory.
REQUIRED:
(b) Give figures to reconcile the differences in operating income for both years
between to two methods.
(a)
(
(
(
(b)
(
(
(
(
Prepare profit and loss statements for the years ended 30 April 1993 and
1994 using firstly the variable (or marginal) costing method and secondly
absorption costing method to value Inventory.
Give figures to reconcile the differences in operating income for both years
between to two methods.
OMAIR MASOOD
CEDAR COLLEGE
(
78
Q3.(
Q3
( Q11.$
H2O manufactures and sells bottled water. Details are as follows:
$
$
50
Selling price(per case)
Direct cost (per case)
Material
1
Labour
15
16
Details for the months of September and October are as follows:
October
September
Production of bottled water
1,500 cases
2,000 cases
Sales of bottled water
1,200 cases
2,300 cases
$14,400
$14,400
Fixed production overheads
The normal level of activity for both sales and production is 1,800 cases per
month. Fixed production overheads are budgeted at $14,400 a month, and are
absorbed on a “per case” basis. The opening Inventory at 1 September was 500
cases.
REQUIRED:
(a) Prepare profit statements for September and October showing details of
inventory valuation using.
(i) Absorption (total) costing principles;
(ii) Marginal costing principles.
(b) Reconcile in figures the profits for each month shown under the two
methods of Inventory valuation. Explain why the profits differ under the two
methods.
!
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
79
Q5.(
Q4
Q13.$
(
9
Colebrook Limited manufactures one product. The following information is available.
3
Direct material
Direct labour
Selling price
Budgeted fixed overhead
Budgeted production
$3.20 per unit
$2.40 per unit
$14.00 per unit
$88 000 per month
16 000 units per month
The following information is available for February and March 2015.
Actual sales (units)
Actual production (units)
February
13 000
15 000
March
17 000
15 000
There was no inventory of finished units at 1 February 2015. The actual fixed overhead cost was
the same as the budgeted cost.
REQUIRED
(a) Calculate the contribution per unit.
$
10
11
(b) Prepare the income statement for each of the months February and March 2015 using marginal
Additional
costing. information
11
[2]
Colebrook Limited is considering changing to absorption costing.
$
Additional information
(c) Calculate the overhead absorption rate per unit produced.
Colebrook Limited is considering changing to absorption costing.
(c) Calculate the overhead absorption rate per unit produced.
[1]
$
(d) Prepare the income statement for each of the months February and March 2015 using
absorption costing.
[1]
$
12
3(b)for
is on
the next
page.
(d) Prepare the incomeQuestion
statement
each
of the
months February and March 2015 using
absorption costing.
(e) Prepare a statement reconciling the marginal costing profit with the absorption costing profit for
February only.
$
$
(
$
(
($
($
(
( $ (f) Explain why there is a difference in the profit between the two methods.
©(UCLES
2015
9706/23/M/J/15
$
(
($
($
(
(
(
!!
(
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(
(
OMAIR MASOOD
[3]
[Turn over
[4]
[Total: 30]
[9]
80
CEDAR COLLEGE
[11]
UCLES2015
2015
©©UCLES
9706/23/M/J/15
9706/23/M/J/15
[Turn over
Q5
Q14.$
Q6.(
Ken owns a manufacturing business which makes a single product. The following
figures apply for all relevant periods.
Per unit
Selling price
Direct material
Direct labour
Fixed manufacturing overheads
$
35
9
11
5
Fixed manufacturing overheads are absorbed into product costs at predetermined rates per unit of output. Under- or over-absorbed manufacturing
overheads are transferred to profit and loss in the period in which they occur.
Normal production is 80 000 units per accounting period.
The following information has been acquired for the last three accounting
periods.
Three months ended
Sales
Inventory at start of
period
Inventory at end of
period
28 February
31 May
31 August
Units
Units
Units
60,000
80,000
45,000
15,000
--
35,000
--
35,000
20,000
REQUIRED:
(a)Calculate the profit (or loss) arising in each of the three periods, using
absorption costing principles.
(b)Recalculate the profit (or loss) arising in each of the three periods using
marginal cost principles.
(c)Briefly reconcile your answer to part (b) with your answer to part (c) above.
(
(
(
(
(
(
(
(
(
(
(
(
(OMAIR MASOOD
(
CEDAR COLLEGE
81
Q6
Q7.(Q15
Averages Limited is a manufacturing company making a single product. Over
the last three financial periods the following information has been collected:
Period 1
Period 2
Period 3
Sales (in units)
50,000
70,000
40,000
Inventory in units at beginning of
period
10,000
30,000
-
Inventory in units at end of period
30,000
-
20,000
The selling price per unit is $20 and direct material and labour costs per unit
total $10 Manufacturing overheads are all fixed costs and are absorbed into
product costs at pre-determined rates per unit of output. Any under or overabsorbed manufacturing overheads are transferred to profit and loss account in
the period in which they arise. Manufacturing overheads total $300,000 per
period and normal production capacity is 60,000 units per period.
All prices remained constant over the three periods.
REQUIRED:
(a) Calculate the profit (or loss) arising in each of the three periods, using
absorption costing principles.
(b) Recalculate the profit (or loss) arising in each of the three periods using
marginal cost principles.
(c) Briefly reconcile your answer to part (b) with your answer to part (c) above.
(
(
$
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
82
12
Q7.
3
Gerry Hatrick Ltd manufactures and sells video cameras. The unit selling price and production
costs are as follows:
Selling price
$
800
Direct materials
Direct labour
Variable overheads
Fixed overheads
100
90
50
160
For
Examiner’s
Use
The fixed production overheads assume a monthly production of 2000 units.
The following monthly costs are also incurred:14
Fixed administrative
$80 000
(b) Explain
why the profitoverheads
found when using
absorption costing differs from the profit found
Variable
sales
overheads
10% of sales value
in
marginal
costing.
Fixed sales overheads
$120 000
..........................................................................................................................................
During the month of September 2005 a total of 2400 units were produced, of which 1800
were..........................................................................................................................................
sold. There was no stock on hand at the beginning of September.
13
..........................................................................................................................................
REQUIRED
For
Examiner’s
Use
For
Examiner’s
Use
..........................................................................................................................................
(a) Prepare profit statements for September 2005 using
..........................................................................................................................................
(i) Absorption costing
14
(ii)
Marginal costing
..........................................................................................................................................
(b) Explain
why the profit found when using absorption costing differs from the profit found
...................................................................................................................................
......................................................................................................................................[4]
in marginal costing.
For
Examiner’s
Use
...................................................................................................................................
(c) Calculate
the break-even point for September 2005 in sales volume.
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
......................................................................................................................................[4]
..........................................................................................................................................
...................................................................................................................................
(c) Calculate the break-even point for September 2005 in sales volume.
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
...................................................................................................................................
..........................................................................................................................................
......................................................................................................................................[8]
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OMAIR MASOOD
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© UCLES 2005
9706/02/O/N05
...................................................................................................................................
www.theallpapers.com
..........................................................................................................................................
83
COSTING(PROFIT(STATEMENTS(AND(ABSORBTION(COSTING((EXTRA(
QUESTIONS(FOR(PRACTISE()(
(
Q8PROFIT(STATEMENTS((
Q2.&
Q1.$
$Apex$Manufacturing$produces$wooden$boxes.$The$normal$production$level$has$
always$been$set$at$2500$units.$Following$data$is$available$for$the$year$ended$31st$
December$2017.$$
$
$
Inventory$at$start$
400$units$($see$note$below)$
Units$Sold$
2300$units$$
Units$Produced$
2600$units$
Inventory$at$End$
??$
$
Note:(In(the(year(ended(31st(December(2016,(the(total(production(cost(per(
unit(was($36(and(marginal(cost((per(unit(was($32(
(
Following$are$the$details$of$revenue$and$cost$for$the$year$ended$31st$December$
2017.$$
$
$
$
$$$$$
Selling$Price$per$unit$
60$
Direct$Material$per$unit$
10$
Direct$Labour$per$unit$
17$
Variable$Production$overheads$per$unit$
7$
Variable$Selling$Overheads$per$unit$
2$
Fixed$production$overheads$($total)$
$10000$
Fixed$Sales$overheads$($total)$
$8000$
$
(
Required:(
(
(a) Profit(statement(for(the(year(ended(31st(December(2017(using(marginal(
costing(format.(
(b) Profit(statement(for(the(year(ended(31st(December(2017(using(absorbtion(
costing(format.(
(c) Prepare(a(statement(to(reconcile(both(profit(statements.(
(
(
(
(
MASOOD
& OMAIR
(
&
(
& (
CEDAR COLLEGE
84
&
( Q9&
(
Q3.&
(
(
Q2.(Pumblechook$Ltd$is$a$manufacturing$company$which$uses$a$marginal$costing$
Q2.(Pumblechook$Ltd$is$a$manufacturing$company$which$uses$a$marginal$costing$
&
system$for$internal$management$reports.$The$company’s$annual$financial$statements$for$
system$for$internal$management$reports.$The$company’s$annual$financial$statements$for$
external$reporting$purposes$are$based$on$full$absorption$costing.$(
external$reporting$purposes$are$based$on$full$absorption$costing.$(
The$company$makes$one$single$product$which$sells$for$$100$per$unit.$The$following$data$
The$company$makes$one$single$product$which$sells$for$$100$per$unit.$The$following$data$
refers$to$the$years$ended$30th$June$2014$and$2015:$$
refers$to$the$years$ended$30th$June$2014$and$2015:$$
Per(unit(
Per(unit(
Direct$material$
Direct$material$
Direct$Labor$
Direct$Labor$
Variable$factory$overheads$
Variable$factory$overheads$
Variable$selling$and$
administration$expense$
Variable$selling$and$
2014(($)(
2015(($)(
21$
23$
19$
22$
2014(($)(
21$
2015(($)(
19$
8$
8$
2$
2$
administration$expense$
Fixed$Factory$overheads$per$ 132000$
23$
22$
10$
3$
10$
3$
132000$
annum$
Fixed$Factory$overheads$per$ 132000$
132000$
$
annum$
$
$
2014$(Units)$
2015$(Units)$
Opening$stock$
0$
3000$
$
2014$(Units)$
Closing$stock$
3000$
2015$(Units)$
1500$
Opening$stock$
0$
Closing$stock$
3000$
1500$
20000$
23000$
Sales$
20000$
3000$
23000$
The$normal$volume$used$for$the$purpose$of$absorption$costing$is$22,000$units$in$both$
years.$$$
Sales$
Required:($
The$normal$volume$used$for$the$purpose$of$absorption$costing$is$22,000$units$in$both$
years.$$$ a) Prepare$an$internal$management$profit$statement$for$the$year$ended$30th$June$
2014$and$30th$June$2015$using$marginal$costing.
b) Prepare$a$draft$income$statement$for$the$year$ended$30th$June$2014$and$30th$
Required:($
June$2015$using$full$absorption$costing.$
c) Prepare$a$reconciliation$statement$to$reconcile$Marginal$profit$with$Absorption$
a) Prepare$an$internal$management$profit$statement$for$the$year$ended$30th$June$
profit.$
2014$and$30th$June$2015$using$marginal$costing.
b) Prepare$a$draft$income$statement$for$the$year$ended$30th$June$2014$and$30th$
June$2015$using$full$absorption$costing.$
85
OMAIR
MASOOD
CEDAR COLLEGE
c) Prepare$a$reconciliation$statement$to$reconcile$Marginal$profit$with$Absorption$
&
&
profit.$
BUSINESS PLANNING THEORY (ONLY FOR THEORY)
The management of the business need to plan in advance in order to run a successful
business.
Planning can be broken down into two parts
Long term Planning : ( Strategic or Corporate Planning ): Management identifies the
current position of the business by looking at the accounting data. This is the
starting point for all future strategies. After analyzing the current position they
try to analyze the circumstances that the business is likely to encounter in the
period of the plan for e.g likely future demand of the product , influence of
competition etc.
Short Term Planning: ( Operational Planning )
Operational plans on short term
basis are called budgets . They show what management hope to achieve in a
future time period in terms of overall plans and individual departmental plans.
ADVANTAGES OF BUDGETS
The preparation of individual budgets means that planning must take place.
Plans need to be prepared in a coordinated way and this requires
communication throughout all levels of the business.
●
The budgeting process defines areas of responsibility and targets to be
achieved by different personnel.
●
Budgets can act as a motivating influence at all levels, although this is usually
only true when all staff are involved in the preparation of budgets. If budgets are
imposed on staff who have had little or no involvement in their development
they can have a negative effect on morale and lead to staff feeling demotivated.
●
Budgets are a major part of the overall strategic plan of the business and so
individual departmental and personal goals are more likely to be an integral part
of the ‘bigger picture’.
●
Budgets generally lead to a more efficient use of resources at the disposal of
the business – leading to a better control of costs.
●
OMAIR MASOOD
CEDAR COLLEGE
86
DISADVANTAGES OF BUDGETS
● Budgets
are only as good as the data being used. If data are inaccurate, the
DISADVANTAGES
BUDGETS
budget will beOF
of little
use. Should one departmental budget be too optimistic
or too pessimistic this will have a knock-on effect on other associated budgets.
● Budgets are only as good as the data being used. If data are inaccurate, the
budget
will bemight
of little
use. Should
one departmental
be too
● Budgets
become
an overriding
goal. This budget
could lead
to aoptimistic
misuse of
or too
pessimistic
this
will
have
a
knock-on
effect
on
other
associated
budgets.
resources or incorrect decisions being made.
Budgets
might
become
overriding goal.
Thisare
could
lead to
a misuse
● Budgets
might
act asan
a demotivator
if they
imposed
rather
thanof
resources
or incorrect decisions being made.
negotiated.
●
Budgets
might act as a demotivator if they are imposed rather than
● Budgets might be based on plans that can be easily achieved – so making
negotiated.
● Budgets might lead to departmental rivalry.
● Budgets might be based on plans that can be easily achieved – so making
● Smaller businesses may find that they experience only limited benefits from
● Budgets might lead to departmental rivalry.
what can be a lengthy, complicated procedure to implement.
●
Smaller businesses may find that they experience only limited benefits from
● While budgets are being prepared, any limiting factors need to be identified
what can be a lengthy, complicated procedure to implement.
and taken into account.
●
While budgets are being prepared, any limiting factors need to be identified
and taken into account.
●
What is Budgetary Control?
Controlling the organization by use of different budgets and evaluating actual
What is Budgetary Control?
performance using budgets is called Budgetary Control. The advantages and
disadvantages
of this system
areofsame
as Budgets
Above)
Controlling
the organization
by use
different
budgets( Mentioned
and evaluating
actual
performance using budgets is called Budgetary Control. The advantages and
disadvantages of this system are same as Budgets ( Mentioned Above)
!
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ALL!THE!SMALL!THINGS.!
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ALL!THE!SMALL!THINGS.!
OMAIR MASOOD
CEDAR COLLEGE
87
O’ LEVEL REVISION THEORY
ACCOUNTING!CYCLE!
!
The(Accounting(Cycle(is(a(series(of(steps,(which(are(repeated(every(reporting(period.(The(
process(starts(with(making(accounting(entries(for(each(transaction(and(goes(through(closing(the(
books.(This(Involves(recording(transactions(in(the(daybooks((books(of(original(entry),(posting(
them(to(ledger,(extracting(a(trial(balance(and(finally(drawing(up(financial(statements.(
(
Step!1:!!Recording!Transactions!in!Daybooks!(!DAYBOOKS!ARE!ALSO!REFFERED!AS!
JOURNALS)!
(
Each(transaction(is(recorded(first(in(one(of(the(following(daybook(((book(of(original(entry)(
according(to(the(nature(of(the(transaction.(
(
1.(All(goods(sold(on(Credit(((Credit(Sales)(((((….>(Sales(Daybook(
2.(All(goods(purchased(on(Credit((Credit(Purchases)(….>(Purchases(Daybook(
3.(All(goods(sold(on(credit(but(now(returned(by(costumers(..>(Sales(Return((Inwards)(Daybook(
4.(All(goods(purchased(on(credit(but(now(returned(to(suppliers…>(Purchases(Return(Daybook(
(
The(above(four(daybooks(only(record(credit(transactions(related(to(movement(in(inventory.(
There(are(no(accounts(maintained(inside(the(daybooks.(It(Just(contains(Date,(Name,(Source(
document(number(and(Amount.(
(
5.(All(transactions(which(relate(to(receipts(and(payments(through(cash(or(cheque(..>(Cashbook(
(
Cash(and(Bank(accounts(are(made(inside(the(cashbook(hence(it(also(serves(the(purpose(of(
ledger.(
(
6.(All(other(transactions(…..>(General(Journal(
(
(((In(this(we(actually(write(the(double(entry(of(only(those(transactions(which(cannot(be(recorded(
in(the(above(five(daybooks.(To(name(a(few(
5 Non(Current(Assets(Purchased(or(Sold(on(Credit(
5 Writing(off(Bad(debts(
5 Entries(for(Provisions(of(doubtful(debts(and(depreciation(
5 Adjustments(for(Prepaid(and(Owings(
5 Correction(of(Errors(
(
(
(
(
OMAIR MASOOD
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88
!
Step!2:!Posting!Transactions!In!Ledgers!
(
A(ledger(is(a(book(which(contains(accounts(((the(actual(T(Accounts(guys).(There(are(three(types(of(
Ledgers.(In(each(type(we(have(different(type(of(accounts.(
(
Sales!Ledger:(This(contains(accounts(of(credit(costumers(((people(to(who(we(sell(goods(on(credit)(–(
Trader(Receivables((
(
(At(the(end(of(the(year(all(the(account(balances(in(the(sales(ledger(are(listed(in(a(schedule(which(is(called(
list(of(Trade(receivables.(This(shows(the(individual(account(balances((closing)(and(also(the(total(debtors(
which(goes(into(the(trail(balance.(
(
((Purchase!Ledger:(This(contains(accounts(of(credit(suppliers(((people(from(whom(we(buy(goods(on(
credit)(–(Trader(Payables(
(
At(the(end(of(the(year(all(the(account(balances(in(the(purchase(ledger(are(listed(in(a(schedule(which(is(
called(list(of(Trade(Payables.(This(shows(the(individual(account(balances((closing)(and(also(the(total(
creditors(which(goes(into(the(trail(balance.(
(
((
General!Ledger:(This(contains(all(the(other(accounts.(Like(all((assets,(capital(,(liabilities(,expenses(
,incomes(,provisions((literally(all(other(accounts)(
(
Please(remember(Sales(and(Purchases(accounts(are(in(the(General(Ledger(cause(they(are(not(our(
costumers(or(suppliers((
(
Once(all(the(transactions(are(posted(all(the(accounts(are(balanced(via(inserting(a(balance(C/d(in(all(
accounts.(
(
Step!3:!Extracting!a!Trial!Balance!
(
All(the(closing(balances(in(the(General(Ledger(along(with(the(figure(of(total(trade(receivables(and(
payables(are(listed(in(a(trail(balance.(Debit(balances(and(Credit(Balances(are(listed(separately(side(by(
side.(The(Sum(of(all(Debits(should(be(equal(to(sum(of(all(credit(balances.(The(trail(balances(is(used(to(
check(the(completion(of(the(double(entry.(The(trail(balance(will(balance(because((
5 For(each(debit(entry(there(is(a(credit(entry(((vice(versa)(
5 The(sum(of(all(debit(entries(is(equal(to(the(sum(of(credit(entries((
(
(
(
OMAIR MASOOD
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89
!
Step!4:!Closing!Entries!with!Year!end!Adjustments!(Details!in!following!pages)!
(
After(making(the(trail(balance(we(also(have(to(adjust(for(certain(items.(Remember(only(Incomes(and(
Expenses(are(taken(into(account(while(calculating(profit.(These(accounts(are(closed(by(transferring(them(
to(the(income(statement(((the(Profit(and(Loss(Account).(This(process(is(called(Closing(Entries.(
Some(common(adjustments(are(
5 Expenses(and(Incomes(are(adjusted(for(prepaid((advance)(and(accruals(Owings)(
5 Non(Current(Assets(are(depreciated((
5 Provision(for(doubtful(debt(is(adjusted(
5 Closing(inventory(is(valued(by(physical(stock(take(and(it(is(adjusted(in(calculating(cost(of(
goods(sold(and(also(for(Balance(Sheet(
5 Adjustments(for(goods(withdrawn(by(owner(or(Stock(Losses(
(
Step!5:!Final!Accounts:!
An(income(statement(and(Statement(of(Financial(Position(((Balance(Sheet)(is(drawn(which(ends(the(
Accounting(Cycle.(Now(by(looking(at(Income(Statement(owner(can(check(his(Profit(and(by(looking(at(
statement(of(financial(position(he(can(check(his(worth(and(his(total(resources.(
(
!
WHAT!ARE!THE!BENEFITS!OF!KEEPING!FULL!DOUBLE!ENTRY!RECORDS!FOR!THE!BUSINESS?!
!
1.
2.
3.
4.
5.
Helps(in(preparation(of(Trial(Balance(
Helps(in(preparation(of(Financial(Statements(
Less(Chances(of(Errors(
Less(Chances(of(Frauds(
Improves(the(Accuracy(of(Accounting(Records((
!!
ADJUSTMENTS!IN!DETAIL!
ADJUSTMENTS!IN!DETAIL!
!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!
BAD!DEBTS!AND!PROVISION!FOR!DOUBTFUL(BAD)!DEBTS!
BAD!DEBTS!AND!PROVISION!FOR!DOUBTFUL(BAD)!DEBTS!
!
! !!
What!is!a!bad!debt?!
What!is!a!bad!debt?!
!
When(a(costumer(to(whom(goods(were(sold(on(credit(basis,(is(unable(to(pay(his(debt(then(it(results(into(
When(a(costumer(to(whom(goods(were(sold(on(credit(basis,(is(unable(to(pay(his(debt(then(it(results(into(
!
an(expense(for(the(business.(Selling(goods(on(credit(basis(involves(this(risk(of(bad(debt.(Any(amount(of(
an(expense(for(the(business.(Selling(goods(on(credit(basis(involves(this(risk(of(bad(debt.(Any(amount(of(
!
debt(which(becomes(irrecoverable(should(be(written(off(as(bad(debt.(
debt(which(becomes(irrecoverable(should(be(written(off(as(bad(debt.(
!
( (!
!!!!!Debit:!Bad!Debts!
!!!!!Debit:!Bad!Debts!
!
!!!!!!!!!!!Credit!:!Person!Who!is!Bad!:>/Trade!receivable!!
!!!!!!!!!!!Credit!:!Person!Who!is!Bad!:>/Trade!receivable!!
!
! !!
What!is!a!Provision!for!bad!debt?!
What!is!a!Provision!for!bad!debt?!
!
A(business(must(consider(that(some(costumers(might(not(pay(the(amount(owed(by(them;(these(debts(
A(business(must(consider(that(some(costumers(might(not(pay(the(amount(owed(by(them;(these(debts(
are(considered(to(be(doubtful.(Since(the(business(does(not(know(the(exact(amount(of(the(doubtful(
are(considered(to(be(doubtful.(Since(the(business(does(not(know(the(exact(amount(of(the(doubtful(
debts((and(also(which(costumer(might(not(pay),(an(estimate(for(such(amount(is(kept(in(a(provision(for(
debts((and(also(which(costumer(might(not(pay),(an(estimate(for(such(amount(is(kept(in(a(provision(for(
doubtful(debt(account(((this(account(is(not(an(expense(account,(it’s(a(reduction(in(asset(from(the(
doubtful(debt(account(((this(account(is(not(an(expense(account,(it’s(a(reduction(in(asset(from(the(
statement(of(financial(position).(Provision(is(created(to(reduce(profit(now(for(an(expense(which(might(
statement(of(financial(position).(Provision(is(created(to(reduce(profit(now(for(an(expense(which(might(
happen(in(future.(This(is(done(to(be(pessimistic,(in(Accounting(we(call(this(being(prudent(or(the(
happen(in(future.(This(is(done(to(be(pessimistic,(in(Accounting(we(call(this(being(prudent(or(the(
Prudence(Concept.(
Prudence(Concept.(
!!
A(business(usually(keeps(a(general(provision(((an(estimated(%(of(the(all(debtors),(but(it(is(also(possible(to(
OMAIR
MASOOD
CEDAR COLLEGE
A(business(usually(keeps(a(general(provision(((an(estimated(%(of(the(all(debtors),(but(it(is(also(possible(to(
make(a(specific(provision(against(a(highly(doubtful(debt.(Specific(provision(mean(the(whole(amount(due(
make(a(specific(provision(against(a(highly(doubtful(debt.(Specific(provision(mean(the(whole(amount(due(
by(a(particular(debtor(is(added(to(the(provision.!
by(a(particular(debtor(is(added(to(the(provision.!
!!
90
debts((and(also(which(costumer(might(not(pay),(an(estimate(for(such(amount(is(kept(in(a(provision(for(
doubtful(debt(account(((this(account(is(not(an(expense(account,(it’s(a(reduction(in(asset(from(the(
statement(of(financial(position).(Provision(is(created(to(reduce(profit(now(for(an(expense(which(might(
happen(in(future.(This(is(done(to(be(pessimistic,(in(Accounting(we(call(this(being(prudent(or(the(
Prudence(Concept.(
!
A(business(usually(keeps(a(general(provision(((an(estimated(%(of(the(all(debtors),(but(it(is(also(possible(to(
make(a(specific(provision(against(a(highly(doubtful(debt.(Specific(provision(mean(the(whole(amount(due(
by(a(particular(debtor(is(added(to(the(provision.!
!
For!example!!
Trade!Receivables!At!End=!60000!
!
Case!1:!Only!General!Provision!of!5%!..!>!provision!=!5%!of!60000!=!$3000!
!
Case!2:!A!specific!Provision!of!$2000!and!a!general!provision!of!4%!on!remaining!trade!receivables!
!!!!!!!!!Provision!=!2000!(Specific)!+!4%!of!58000!(!general!provision!on!remaining!debtors)!
!
!How!is!the!amount!of!provision!estimated?!(!Factors!effecting!it)!
!
5 Age(of(Debts(((Since(how(long(they(owe(us),(higher(the(age(more(likely(bad(debts(((so(high(
provision(is(kept(If(majority(of(the(debts(are(owed(for(long)(
5 Historical(percentage(of(actual(bad(debts(from(previous(years(
5 Reputation(of(people(who(us(money(in(the(market(
!
5 Nature(of(Business(
What!is!the!difference!between!accounting!treatment!of!Provision!for!doubtful!debts!and!the!actual!
5 Some(specific(debts(may(be(identified(and(full(amount(of(them(is(charged(in(provision.(
Bad!debts?!
!
!
What!is!the!difference!between!accounting!treatment!of!Provision!for!doubtful!debts!and!the!actual!
The!Journal!entry!for!provision:!
Bad!debts?!
!
!
To!create!/!Increase!
The!Journal!entry!for!provision:!
!!!!!!!!!Debit!:!Profit!and!Loss!!
!
!!!!!!!!!!!!!!Credit!:!Provision!for!doubtful!Debts!
! To!create!/!Increase!
!!!!!!!!!Debit!:!Profit!and!Loss!!
To!Decrease!
!!!!!!!!!!!!!!Credit!:!Provision!for!doubtful!Debts!
!!!!!!!!!!!!!Debit!:!Provision!for!doubtful!debts!
!
!!!!!!!!!!!!!!!!!!Credit!:!Profit!and!Loss!
( To!Decrease!
!!!!!!!!!!!!!Debit!:!Provision!for!doubtful!debts!
The(difference(in(accounting(treatment(is(that(the(whole(of(bad(debt(is(treated(as(an(expense(but(only(
!!!!!!!!!!!!!!!!!!Credit!:!Profit!and!Loss!
the(change(in(provision(is(treated(as(either(an(expense((if(increasing)(or(an(income(((if(decreasing).(When(
(
we(write(off(a(bad(debt,(we(remove(the(debtor(from(our(books(but(in(case(of(a(provision(we(don’t(adjust(
The(difference(in(accounting(treatment(is(that(the(whole(of(bad(debt(is(treated(as(an(expense(but(only(
the(debtor(account(as(a(separate(account(is(maintained.(
! the(change(in(provision(is(treated(as(either(an(expense((if(increasing)(or(an(income(((if(decreasing).(When(
! we(write(off(a(bad(debt,(we(remove(the(debtor(from(our(books(but(in(case(of(a(provision(we(don’t(adjust(
! the(debtor(account(as(a(separate(account(is(maintained.(
! !
!
What!is!Bad!Debt!Recovered?!
This(is(when(a(debtor(whose(debt(was(previously(written(off(,(pays(us(back.(This(is(treated(as(an(income(
!
in(the(year(in(which(the(debt(is(recovered(.(The(accounting(treatment(is(done(in(two(steps((
!
(( What!is!Bad!Debt!Recovered?!
5 Make(him(or(her(your(debtor((receivable()(as(the(debt(has(been(written(off(previously(and(
This(is(when(a(debtor(whose(debt(was(previously(written(off(,(pays(us(back.(This(is(treated(as(an(income(
the(account(of(that(costumer(doesn’t(exist(in(our(books(
in(the(year(in(which(the(debt(is(recovered(.(The(accounting(treatment(is(done(in(two(steps((
((((((((Debit(:(Name(of(Person(debtor)(
((
5(((((((((((((Credit:(Bad(debt(recovered(account(
Make(him(or(her(your(debtor((receivable()(as(the(debt(has(been(written(off(previously(and(
( the(account(of(that(costumer(doesn’t(exist(in(our(books(
5 Now(record(the(entry(to(receive(the(money(
((((((((Debit(:(Name(of(Person(debtor)(
((((((Debit:(Bank(
(((((((((((((Credit:(Bad(debt(recovered(account(
(((((((((((((Credit(:(Name(of(person((debtor)(
(
!5 Now(record(the(entry(to(receive(the(money(
OMAIR MASOOD
((((((Debit:(Bank(
!
!
CEDAR COLLEGE
(((((((((((((Credit(:(Name(of(person((debtor)(
!
91
Bank!!!!!!!!!!!!!!!!!31000!
!!!!!!31000!
!!!!!!!!!!!!!!!!!Asset!!!!!!!!!!!!!50000!
Prov!for!Depn!!20000!
pn!!20000!
!!!!!!!!!!!!!!!!!Gain!!!!!!!!!!!!!!1000!
!!!!!!!!!!!!!!!!!Asset!!!!!!!!!!!!!50000!
sset!!!!!!!!!!!!!50000!
!!!!!!!!!!!!!!!!!Gain!!!!!!!!!!!!!!1000!
ain!!!!!!!!!!!!!!1000!
!
!
!
Adjusting!Entries!
Adjusting!Entries! Adjusting!Entries!
!
!
To!Adjust!expenses!
!
!
To!Adjust!expenses!
t!expenses! Prepaid!:!!
!
Debit!:!Prepaid!Expense!!(!its!an!asset)!
Prepaid!:!!
!!!!!Credit!:!Expense!!!!!!!!!!!!(reduces!expense)!
Debit!:!Prepaid!Expense!!(!its!an!asset)!
paid!Expense!!(!its!an!asset)!
!
!!!!!Credit!:!Expense!!!!!!!!!!!!(reduces!expense)!
Expense!!!!!!!!!!!!(reduces!expense)!
Owing/Accrual!!
!
!
Owing/Accrual!!
crual!!
Debit!:!Expense!!!!!!!!!!!!!!!!!(increases!expense)!
!
!!!!!Credit!:!Owing!Expense!(!it!is!a!liability)!
Debit!:!Expense!!!!!!!!!!!!!!!!!(increases!expense)!
ense!!!!!!!!!!!!!!!!!(increases!expense)!
!!!!!Credit!:!Owing!Expense!(!it!is!a!liability)!
To!adjust!Incomes:!
Owing!Expense!(!it!is!a!liability)!
!To!adjust!Incomes:!
mes:!
Prepaid:!!
!
Prepaid:!
!
!
Debit:(Income( (
(
(as(the(income(reduces(because(it’s(prepaid)(
(
(!
(!
Credit:(Prepaid(Income(
Debit:(Income(
(
((because(it’s(a(current(liability)(
(as(the(income(reduces(because(it’s(prepaid)(
Debit:(Income(
(
(
(as(the(income(reduces(because(it’s(prepaid)(
(
(
(
(
Credit:(Prepaid(Income( (because(it’s(a(current(liability)(
(
Credit:(Prepaid(Income(
(because(it’s(a(current(liability)(
Owing/Due!
(
Owing/Due!
(!
e!
!
(!
Debit:(Owing(Income(( (
(because(it’s(an(asset)(
To!adjust!closing!stock!
(
(!
(
Credit:(Income(
(
(as(the(income(increases)(
Debit:(Owing(Income(( (
(because(it’s(an(asset)(
!
Debit:(Owing(Income((
(
(because(it’s(an(asset)(
(
(
(
Credit:(Income( (
(as(the(income(increases)(
(
Overstated:!(
(
Credit:(Income(
(as(the(income(increases)(
!To!adjust!closing!stock!
!
Debit:(Trading(account( (or(simply(Profit(and(Los)(
(!
(
(
Credit:(Closing(stock(
Overstated:!
(
!
!
Debit:(Trading(account( (or(simply(Profit(and(Los)(
Understated:!
(
Credit:(Closing(stock(
!(
!(
Debit:(Closing(sock(
((
(
(
Credit:(Trading(account((or(simply(Profit(and(Loss)(
Understated:!
(
!
Debit:(Closing(sock(
(!
(
(
Credit:(Trading(account((or(simply(Profit(and(Loss)(
((
(
To!adjust!Opening!stock!
(
(
(
Overstated:!
!To!adjust!Opening!stock!
!
Debit:(Opening(Capital(
((
(
(
Credit:(Trading(account((or(simply(Profit(and(Loss)(
(Overstated:!
!
!
Debit:(Opening(Capital(
Understated:!
(
Credit:(Trading(account((or(simply(Profit(and(Loss)(
!(
!(
Debit:(Trading(account((or(simply(Profit(and(Loss)(
((
(
(
Credit:(Opening(Capital(
(Understated:!
!
Debit:(Trading(account((or(simply(Profit(and(Loss)(
(!
OMAIR
MASOOD
CEDAR COLLEGE
(
(
(
Credit:(Opening(Capital(
This(is(because(opening(stock(has(opposite(relation(with(profits.(So(if(understated(profits(are(
(
overstated(and(we(need(to(reduce(them((debit:(Trading(account).(Also(opening(stock(of(this(year(
(
was(closing(stock(of(last(year(so(we(need(to(amend(the(opening(capital.(
92
Understated:!
!
!
Debit:(Trading(account((or(simply(Profit(and(Loss)(
(
(
(
Credit:(Opening(Capital(
(
(
This(is(because(opening(stock(has(opposite(relation(with(profits.(So(if(understated(profits(are(
overstated(and(we(need(to(reduce(them((debit:(Trading(account).(Also(opening(stock(of(this(year(
was(closing(stock(of(last(year(so(we(need(to(amend(the(opening(capital.(
Concept!of!Sale!or!Return!basis:!
!
If(we(send(goods(on(sale(or(return(basis(which(means(goods(can(be(returned(by(the(customer(if(not(sold.(
When(goods(are(send(nothing(is(recorded,(just(a(memorandum(is(kept.(These(goods(should(not(be(
included(in(sales(and(should(be(included(in(closing(stock((since(they(belong(to(us).(
(
If(this(is(recorded(as(sales(and(not(included(in(closing(stock,(then(we(need(to:(
• Correct(sales:(Cancel(them(
( (
Debit:(Sales(
( (
(
Credit:(Debtor(
(
• Correct(Closing(Stock(which(is(understated(
(
Note:( We(won’t(have(to(correct(the(stock(if(the(goods(were(included(in(closing(stock.(
OMAIR MASOOD
CEDAR COLLEGE
93
Accounts(9706As(level-
-
O LEVEL REVISION WORKSHEET
OMAIR-MASOOD-
OLEVEL REVISION
Q1. The following balances have been taken from the books of Wong Limited.
Insurance
Wages
Commission receivable
1 April 2005
$
700 prepaid
4300 owing
600 owing
31 March 2006
$
850 prepaid
4700 owing
920 owing
The following transactions relate to the year ended 31 March 2006. All the transactions
were through the bank account.
Insurance paid
Insurance refund
Wages
Commission receivable
$
5300
400
78700
6200
REQUIRED:
(a) Prepare the following ledger accounts. Include in each case, the transfer to the income
statement(Profit and Loss Account) for the year ended 31 March 2006, and the balance
carried down to the next financial year.
(i) Insurance
(ii) Wages
(iii) Commission receivable
(b) Prepare the Statement of Financial position(Balance Sheet) extracts as at 31 March
2006 for Insurance, wages and commission receivable.
(c)
(i) State the underlying concept involved in preparing the accounts listed in part (a).
(ii) Explain why this concept is important.
!
OMAIR MASOOD
CEDAR COLLEGE
94
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q2. The following information is available for Harry Potter
Commission received
Electricity
Rent
1 January 2006
$
1040 owing
900 owing
2400 prepaid
31 December 2006
$
2050 owing
600 owing
3000 prepaid
During the year ended 31 December 2006, the following transactions took place. All
transactions were carried out through the bank account.
Commission received
Electricity paid
Rent paid
$
3940
7600
29200
REQUIRED:
(a) Prepare the following ledger accounts for the year ended 31 December 2006, including
in each case the transfer to the income statement(Profit and Loss Account). Dates are
not required.
(i) Commission Received
(ii) Electricity
(iii) Rent
(b) Discuss the reasons for accounting for accruals and prepayments in the final accounts.
!
OMAIR MASOOD
CEDAR COLLEGE
95
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q3. The following balances appeared in the sheet of F. Dear, a trader on 30 April 2001:
Amounts prepaid by business
$
Insurance
110
Rates
200
Amounts accrued (due for payment)
Electricity
450
Salaries
600
Amount prepaid to business
Rent
400
The cash for the year to 30 April 2002 showed the following payments and receipts:
Payments:
$
Insurance
390
Rates
2000
Electricity
1540
Salaries
12580
Receipts
Rent
5800
On 30 April 2002 the Statement of Financial position included the following balances:
Amount prepaid by business
$
Insurance
130
Amounts accrued (due for payment)
Rates
220
Electricity
300
Salaries
790
Amount prepaid to business
Rent
600
F. Deer has four houses, which he rents out to college students at a total annual rent of
$6500
REQUIRED:
Prepare ledger accounts for the above items, showing clearly all dates, details and transfer
entries to the income statement(profit and loss account) for the year 30th April 2002.
!
OMAIR MASOOD
CEDAR COLLEGE
96
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q4. Allott’s expenditure on his business premises for the years 1996 and 1997 were as follows.
1996
1 January
1 January
3 June
30 December
1997
1 January
19 January
11 November
Ground rent
Rates
Repairs
Ground rent
$
1400
620
790
1500
Rates
Repairs
Repairs
680
220
540
The ground rent paid on 30 December 1996 was for the year 1997
The repairs paid on 19 January was for work completed during 1996
At 31 December 1997, there was a $190 bill for repairs, which had not been paid.
REQUIRED:
Open a Rent and Rates Account and a Repairs Account in Allott’s books. From the above
information, write up both accounts for the years ended 31 December 1996 and 1997.
Show clearly the amounts transferred to the income statement(Profit and Loss Account) in
each of the two years.
!
OMAIR MASOOD
CEDAR COLLEGE
97
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q5. On 1 January 2004, Nick Greenwood, a trader, had the following entries in his ledger.
Commission received
Stationery
Rates
$800 owing
$300 owing
$500 prepaid
The following information related to the financial year ended 31 December 2004. All
transactions were by cheques.
(i) Commission received was as follows
14 January
16 November
$800
$3000
On 31 December 2004 $700 wasstill owed in commission to Nick Greenwood for the
2004 financial year
(ii) Stationery was paid as follows.
19 January
13 November
$700
$4100
On 1 January 2004 there was no Inventory of stationery, while at 31 December 2004
Inventory of stationery was $100. There were no outstanding invoices for stationery at
31 December 2004.
(iii)Rates were paid as follows.
9 April
$2500
24 November
$2700
OMAIR-MASOODA refund for rates of $900 was received on 15 December 2004. At 31 December 2004
REQUIRED:rates were prepaid by $200.
Accounts(9706As(level-
(a) Prepare the following ledger accounts, including in each case the transfer to the Income
Statement (Profit and Loss Account), for the year ended 31 December 2004 and the
balance carried forward to the next financial year.
(i) Commission received
(ii) Stationery
(iii)Rates
(b) Explain the reasons for accounting for accruals and prepayments.
!
OMAIR MASOOD
CEDAR COLLEGE
98
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q6. Wholesome Foods Ltd provided the following Information for the year ended 31 May
2008. All receipts and payment are by cheques.
(i) At 1 June 2007, insurance of $1500 was paid in advance. The following payments were
made during the financial year ended 31 May 2008.
$
August 2007
March 2008
6000
6400
The payment made in March 2008 included a prepayment of $1600 for the year
commencing 1 June 2008.
(ii) Wholesome Foods Ltd rents out part of its premises to Healthy Lunches. At 1 June
2007. Healthy Lunches owed $550 for one month’s outstanding rent.
On the 1 June 2007, Wholesome Foods Ltd increased the annual rent to $7200 for the
year ended 31 May 2008.
During the year Healthy Lunches paid the following amounts to Wholesome Foods Ltd.
$
June 2007
1750
September 2007
1800
December 2007
1800
March 2008
1800
On 31 May 2008 Healthy Lunches owed Wholesome Foods Ltd one month’s rent.
(iii)At 1 June 2007, Wholesome Foods Ltd owed $800 for electricity. During the year
ended 31 May 2008, the following payments were made.
August 2007
November 2007
March 2008
$
2600
2800
3400
Accounts(9706-At 31 May 2008, Wholesome Foods Ltd owed $960 for electricity.
As(level-
OMAIR-MASOOD-
(iv) On 31 May 2008, Wholesome Foods Ltd reviewed its outstanding trade receivables
which amounted to $36000. The business does not maintain a provision for doubtful
debts. It was decided to write off the following as bad debts.
$
Peter Plant
600
Sian Leaf
400
!
Sven Baum
300
REQUIRED:
(a) Prepare
the following ledgerCEDAR
accounts COLLEGE
for the year ended 31 May 2008. Include in
OMAIR
MASOOD
each case the transfer to the Profit and Loss Account for the financial year and, where
appropriate, the balance carried down to the next financial year. Dates are not
required.
99
Peter Plant
Sian Leaf
Sven Baum
$
600
400
300
REQUIRED:
(a) Prepare the following ledger accounts for the year ended 31 May 2008. Include in
each case the transfer to the Profit and Loss Account for the financial year and, where
appropriate, the balance carried down to the next financial year. Dates are not
required.
(i)
(ii)
(iii)
(iv)
Insurance
Rent Receivable
Electricity
Bad Debts
(b) The Income statement (Profit and Loss Account) extract for the above accounts for
the year ended 31 May 2008.
(c) The Statement of Financial position(Balance Sheet) extract as at 31 May 2008 for
current assets and current liabilities, showing accounts receivable(debtors), insurance
prepaid, rent receivable and electricity owing.
(d) Evaluate the usefulness of a double entry book keeping system to Wholesome Foods
Ltd.
!
OMAIR MASOOD
CEDAR COLLEGE
100
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q7.The following information is available for Ali baba Traders for the year ended 31 December
2003. All receipts and payments are by cheques.
(i) At 1 January 2003 insurance of $300 was paid in advance. During 2003 payments for
insurance were made as follows:
$1700 on 26 February 2003
$1400 on 13 November 2003
The payment on 13 November 2003 included a prepayment of $400 for the year
commencing 1 January 2004.
(ii) At 1 January 2003 sales commission receivable of $500 was owed to the business.
During 2003 the following sales commission amounts were received.
$860 on 13 January 2003 (this included the $500 outstanding on 1 January 2003)
$1900 on 24 March 2003
$2100 on 16 October 2003
At 31 December 2003 sales commission of $640 was owed to the business.
(iii)Rent is paid quarterly in advance with due dates being 1 February, 1 May, 1 August and
1 November each year. As at 1 January 2003 rent was prepaid by $1000. A 5% price
increase in rent was effective from 1 September 2003 and this increase was included in
the quarterly payment made on 1st August 2003. The business always pays the exact
amount due for rent on the quarterly dates specified. All are treated as being of equal
length.
REQUIRED:
(a) Prepare the following ledger accounts for the year ended 31 December 2003. Include in
each case the transfer to the Profit and Loss Account for the year, and the balance
carried down to the next financial year. Dates are not required.
(i) Insurance
(ii) Sales Commission Receivable
(iii)Rent
(iv)
The Income Statement(Profit and Loss Account) extract for the year ended 31
December 2003, showing insurance, sales commission receivable and rent.
(v) The Statement of Financial position(Balance Sheet) extract as at 31 December
2003, showing insurance, sales commission receivable and rent.
(b) Discuss two benefits to Ali baba Traders of using a double entry book keeping system.
!
OMAIR MASOOD
CEDAR COLLEGE
101
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q8(i) During the year to 31 December 20X6, the following debts are found to be bad and are
written off on the dates shown:
9 March
30 May
25 June
10 October
T Wright, $86
S O’Connor, $111
C Smith, $75
S Proctor, $39
REQUIRED:
Show the bad debts account and the effect on the income statement(profit and loss
account) for the year ended 31 December 20X6.
(ii) The following are the total figures for accounts receivables at the end of each financial
year. The provision for doubtful debts is to be maintained at 4% of trade receivables at
the year-end.
Year ended 31 December
20X1
20X2
20X3
Value of Trade receivable
$12,000
$15,000
$14,000
REQUIRED:
Assuming no provision for doubtful debts had previously existed you are required to:
(a) Construct the provision for doubtful debts account for 20X1, 2 and 3.
(b) Show the relevant entries on the profit and loss account for the year ended 31
December 20X1, 2 and 3.
(c) Show the accounts receivable on the Statement of Financial position(balance sheet)
extracts as at 31 December 20X1, 2 and 3.
(iii)As at 1 April 20X8 we were owed $650 from Paul Evans. On 26 July Evans was
declared bankrupt. A payment of 35¢ in the $ was received in full settlement. The
remaining balance was written off as a bad debt.
REQUIRED:
Write up the account of Evans, as it would appear in the Sales Ledger.
!
OMAIR MASOOD
CEDAR COLLEGE
102
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q9Penny Case started business on 1 January 2006. At the end of the first year in business she
decided to set up a provision for doubtful debts calculated at 3% of Trade receivable.
Trade receivable as at 31 December 2006 amounted to $160000.
During the period 1 January 2007 to the 30 November 2007, Penny Case wrote off bad
debts totalling $1600. The accounts receivable as at 31 December 2007 amounted to
$182000; however, Penny Case has not yet processed the following transactions, which
need to be dealt with in the accounts of the business.
(i) S.Tapler, an account receivable who owed $5000, had been declared bankrupt in
December 2007. Penny Case received payment of $0.40 in the dollar in final
settlement. The remainder of the debt is to be written off as bad.
(ii) Penny Case has also decided to write off other bad debts totalling $2300.
On 31 December 2007 Penny also decided to adjust the provision for doubtful debts to
cover a specific debt of $1700, plus a general provision of 3% of the remaining trade
receivables.
REQUIRED:
(a) Calculate the amount which Penny Case should provide as a provision for doubtful
debts for the year’s ended:
(i) 31 December 2006
(ii) 31 December 2007
(b) The following ledger accounts for the year ended 31 December 2007, showing (where
appropriate) the transfer to the final accounts at the end of the year.
(i) Provision for Doubtful Debts
(ii) Bad Debts
(iii)S.Tapler
(c) The Income Statement (Profit and Loss Account) extract for the Provision for Doubtful
Debts and Bad Debts for the year ended 31 December 2007.
(d) The Statement of Financial position(balance sheet) extract as at the 31 December 2007
for trade receivables (net).
!
OMAIR MASOOD
CEDAR COLLEGE
103
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q-10Paul Cooper started in business on 1 January 1998. At the end of the first year in business his
accounts receivable(debtors) amounted to $38,000 and he decided to create a provision for
doubtful debts of $1,520.
During the years ended 31 December 1999 and 31 December 2000, the following
transactions relating to credit sales and accounts receivable(debtors) occurred.
Sales
Receipt from debtors
Sales Returns
Discount allowed
Bad debts
Year ended 31 December
1999
$
220,000
190,000
1,750
3,700
3,000
Year ended 31 December
2000
$
250,000
210,000
2,000
2,500
3,700
At 31 December 1999, Paul decided to maintain his provision for doubtful debts at the
same percentage as it was on 31 December 1998. At 31 December 2000 he decided that a
provision of 6% of his trade receivables would be made.
REQUIRED:
(a) Calculate the Provision for Doubtful Debts as at 31 December 1999 and 31 December
2000.
(b) Explain the purpose and accounting treatment of a business creating a provision for
doubtful debt. Make reference to the application of any relevant accounting concept.
!
OMAIR MASOOD
CEDAR COLLEGE
104
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q11
During the year ended 31 March 2007 Jeremiah lost money through customers not paying the
amounts due to him. On 1 April 2007 he set up a provision for doubtful debts account.
REQUIRED:
(a)
(i) Give one reason why Jeremiah decided to set up this account.
(ii) Describe two factors Jeremiah might consider when deciding the amount to be
provided for in the provision for doubtful debts account.
(iii)Explain the difference between the accounting treatment of a bad debt and a
doubtful debt.
On 1 April 2008, Jeremiah’s provision for doubtful debts account had a balance of
$8000. This consisted of an anticipated loss of $2500 which was the total owed by
anaccount receivable, Uriah, who had been declared bankrupt, and a general provision
of $5500 was created, which was 2½ % of all of his trade receivables.
On 31 May 2008 Liew, who owed Jeremiah $1200, paid Jeremiah only $0.40 for every
dollar owed. The remainder was written off as a bad debt.
On 30 June 2008, Uriah paid Jeremiah $0.35 for every dollar owed, in final settlement
of his account.
On 28 February 2009 Jeremiah wrote off $300 of overdue debts from various trade
receivables.
On 31 March 2009 Jeremiah’s total trade receivables amounted to $205 000 and he
adjusted his provision for doubtful debts account to 3 % of that amount.
REQUIRED:
(b) Prepare in Jeremiah’s ledgers the following accounts for the year ended 31 March
2009.
(i) Provision for doubtful debts account;
(ii) Bad debts account.
On 31 March 2009 Khalil, whose debt of $3000 had been written off in 2007, after he
unexpectedly left the country, returned and paid the amount due.
(iii)Prepare in Jeremiah’s ledgers the bad debts recovered account for the year ended 31
March 2009.
!
OMAIR MASOOD
CEDAR COLLEGE
105
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q12-
Matti Spicer prepared the following added accounts receivable(debtors) schedule for his
business on 31 March 2007.
Accounts
Receivables
S. Rosemary
U. Tyme
H. Ginger
V. Turmeric
C. Basil
D. Bay
T. Saffron
O. Mint
Amount
due
1
month
2
months
3
months
4–6
months
Over 6
months
$
$
$
$
$
$
300
2500
6350
90
1450
3200
60
2200
200
1900
1350
100
500
5000
100
16150
6100
90
1450
1200
1000
1000
1000
600
400
60
200
7600
1700
490
260
The provision for doubtful debts as at 1 April 2006 was $920.
Matti Spicer’s policy for dealing with outstanding accounts receivable(debtors) is to:
(i) Write off as bad debts all amounts outstanding for more than 6 months;
(ii) Write off as bad debts all amounts under $100 outstanding for 4 to 6 months;
(iii)Make specific provision for all other debts outstanding for 4 to 6 months;
(iv) Make a general provision of 2½ % on all other debts outstanding.
REQUIRED:
(a)
(b)
(c)
(d)
(e)
(i) The Bad Debts Accounts for the year ended 31 March 2007, showing the transfer to
the final accounts.
(ii) The provision for Doubtful Account for the year ended 31 March 2007, showing the
balance carried down.
The Statement of Financial position(Balance Sheet) extract for accounts
receivable(Debtors) as at 31 March 2007.
Identify two ways in which Matti Spicer could reduce bad debts.
Explain two reasons why it is important to monitor and control accounts
receivable(debtors).
Discuss the application of the prudence concept when creating a provision for doubtful
debts and the effect this may have on the final accounts.
-
!
OMAIR MASOOD
CEDAR COLLEGE
106
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q13.B. Birds, a sole trader, prepared the following aged debtors schedule at 31 December 2001.
Amount
1-2
Outstanding
4-6
Over 6
Debtor
1 month
Due
months
2-3 months months months
$
$
$
$
$
$
S. Kibble
2400
1200
1200
A. Brock
700
400
300
M. Sarich
3100
2800
300
P. Evans
900
300
150
450
R. Collins
50
50
J. Davies
155
155
C. Arnold
80
80
N. Evans
1970
500
520
950
P. Jones
1400
400
200
800
G. Hurley
850
250
600
I. Cole
595
595
K. Bartle
330
330
12530
4645
2655
2800
1050
1380
B. Bird’s policy for dealing with outstanding trade receivables is to:
(i) Write off, as bad debts, all amounts outstanding for more than six months.
(ii) Make specific provision on all debts outstanding for between four and six months.
(iii)Make a general provision for doubtful debts of 3% on all other debts outstanding.
The provision for doubtful at 1 January 2001 was $1150.
REQUIRED:
(a)
(i) The Bad Debts Accounts for the year 2001, showing the transfer to the final
accounts as at 31 December 2001.
(ii) The Provision for Doubtful Debts Accounts for the year 2001, showing the balance
carried down as at 31 December 2001.
(b) The Statement of Financial position(Balance sheet) extract for accounts
receivable(Debtors) as at 31 December 2001.
(c) Before making the adjustments for bad debts and provision for doubtful debts, B.Birds
has calculated the following for the year ended 31 December 2001:
Gross Profit
$43800
Expenses
$9400
Calculate the net profit for the year ended 31 December 2001, taking into account the
adjustments required.
(d) Advise B. Bird on three measures she could take to help prevent bad debts.
!
OMAIR MASOOD
CEDAR COLLEGE
107
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q14Niatax Limited has prepared the following agetrade receivables schedule as at 31 December
2005.
Trade
Receivables
$
up to 30 days
16800
31 to 60 days
12600
61 to 90 days
7100
Over 90 days
1300
Niatax Limited maintains a provision for doubtful debts account. On 1 January 2005, the account
Age of Debt
had a balance of $800. The bad debts for the year ended 31 December 2004 amounted to $1420.
Gillingham Limited, a debtor of $700, has recently been declared bankrupt. This amount
had been included in the aged debtors schedule above, as being outstanding for 61 to 90
days. It is to be written off in full immediately from the agedebtors’ schedule.
On 2 October 2005, Bay Limited, a trade receivable, ceased trading and Niatax Limited
received payment of $0.25 in the dollar in final settlement of the debt of $600. The
remainder of the debt was written off in full at that date.
Other bad debts written off during the year totalled $350.
The policy applied by Niatax Limited for the provision for doubtful debts is on a sliding scale
basis as follows.
Age of Debt
up to 30 days
31 to 60 days
61 to 90 days
Over 90 days
%
1
2
3
10
REQUIRED:
(a) Calculate the amount Niatax Limited should provide as a provision for doubtful debts
as at 31 December 2005.
(b) Prepare the following ledger accounts for the year ended 31 December 2005, showing
the closing entry to the final accounts at the end of the year.
(i) Provision for doubtful debts.
(ii) Bad debts.
(iii)Bay limited.
!
OMAIR MASOOD
CEDAR COLLEGE
108
Accounts(9706As(level-
-
OMAIR-MASOOD-
(c) Prepare the Statement of Financial position(Balance Sheet) extract as at 31 December
2005 for trade receivables (net).
(d) Rather than using its existing policy, Niatax Limited is considering applying a single
percentage to all debts as the basis for calculating its provision for doubtful debts. If a
change is made, it would use the average of 4% from its current rates. Evaluate:
• The existing policy
• The alternative policy --using figures to support your comments.
Q15.
4
4
2
The following information is available from the books of Ari Soteris.
2
The following information is available from the books of Ari Soteris.
1 April 2014
31 March 2015
1 April £2014
31 March
£ 2015
£
Commission received
850 £Accrued
920 Accrued
Commission
received
850
General expenses
4 100Accrued
Prepaid
2920
970 Accrued
Accrued
General
4 100NilPrepaid
2 970? Accrued
Rent expenses
balance
Rent
Nil balance
?
Provision for doubtful debts
2 700
Provision
260
700
?
Debtorsfor doubtful debts
000
65 000
Debtors
60 000
65 000
During the year ended 31 March 2015 the following amounts were received or paid (all transactions
werethe
through
the bank
During
year ended
31 account).
March 2015 the following amounts were received or paid (all transactions
were through the bank account).
£
Commission received
6£700
General expenses
240
Commission
receivedpaid
69700
Rent
paid
24
500
General expenses paid
9 240
Rent paid
24 500
The rent is due in equal monthly instalments. The payment for rent covered the period from 1 April
31 May
2015.monthly instalments. The payment for rent covered the period from 1 April
The2014
rent until
is due
in equal
2014 until 31 May 2015.
The provision for doubtful debts is to be set using the same percentage of debtors as in the previous
year.
The provision for doubtful debts is to be set using the same percentage of debtors as in the previous
year.
REQUIRED
REQUIRED
(a) The following ledger accounts, including in each case the transfer to the Profit and Loss
Account for the year ended 31 March 2015 and the balance carried down to the next financial
(a) Theyear.
following
(Dates ledger
are notaccounts,
required.) including in each case the transfer to the Profit and Loss
Account for the year ended 31 March 2015 and the balance carried down to the next financial
year.
are notReceived
required.)
(i) (Dates
Commission
[4]
!
(i) (ii)Commission
Received
General Expenses
[4]
[4]
Rent Expenses
(ii)(iii)General
[4]
[4]
Provision for Doubtful Debts
(iii)(iv)Rent
[4]
[4]
(b)*
Soteris for
is Doubtful
considering
producing the accounts without adjusting for accruals and
(iv) AriProvision
Debts
[4]
prepayments. Discuss three reasons why it is considered essential for a business to make
adjustments.
(b)* Ari these
Soteris
is considering producing the accounts without adjusting for accruals [11]
and
prepayments. Discuss three reasons why it is considered essential for a business to make
these adjustments.
[11]
Oxford Cambridge and RSA
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CEDAR COLLEGE
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109
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q16.
Following balances are available in the books of Omair Masood as at 1st June 2016.
$
600
1400
300
1200
Provision for doubtful debts
Rent Prepaid
Repair expense owing
Commission Income Owing
(i)
(ii)
(iii)
(iv)
The total Trade Recieveables at 31st May 2017 were $13000, it was decided to setup a
specific provision for a debt of $200 and a general provision of 4% on all other
Recieveables.
Omair has been paying rent quarterly in advance with due dates on 1st November , 1st
Febuary ,1st May and 1st August. The rent increased by 20% from 1st April 2017. The
business always pays the exact amount due for rent on the quarterly dates specified.
During the year ended 31st May 2017 payment made for repair expense was $6000
which included $400 for the year ended 31st May 2018.
Omair always receives commission one month in arrear. The commission earned has
been constant per month since the start of the business but increased by 20% on 1st
January 2017 and then remained at the same level for the rest of the year.
REQUIRED:
For the year ended 31st May 2017 .
(i)
(ii)
(iii)
(iv)
Provision for doubtful debt Account
Rent Account
Repair Expense Account
Commission Income Account
!
OMAIR MASOOD
CEDAR COLLEGE
110
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q17.On 30th April 2007 the following balance were taken from the books of AksharJaberi, a sole
trader.
Purchases
Sales
Sales returns and Purchase returns
Carriage inwards
Carriage outwards
Discounts allowed
Discounts received
Inventory
Trade Receivables and Trade Payables
Capital
Premises
Motor vehicles
Provision for depreciation of motor vehicles
Office equipment
Provision for depreciation of office equipment
6% Loan
Loan interest
Cash
Bank
Bad debts
Salaries
Insurance
Motor expenses
General expenses
Rent received
Drawings
Dr
$
557,000
8,200
2,250
3,250
4,800
Cr
$
952,000
9,600
2,750
36,700
80,150
47,200
805,300
900,000
160,000
40,000
76,000
30,500
100,000
5,500
2,300
12,900
500
62,000
10,500
18,200
32,100
10,000
25,000
1,997,350 1,997,350
The following information is also available.
(i) The closing Inventory as at 30th April 2007 was valued at $43,650.
(ii) A debt of $650 was considered irrecoverable. The full amount is to be treated as a bad
debt in the accounts for the year ended 30th April 2007.
(iii)A provision for doubtful debts is to be created at 2% on the remainder of the Trade
Receivables.
!
OMAIR MASOOD
CEDAR COLLEGE
111
Accounts(9706As(level-
-
OMAIR-MASOOD-
(iv) Rent receivable is $12,000 per annum, to date only 10 months’ rent has been received.
(v) One month’s loan interest is still due.
(vi) The loan commenced on 1st May 2002 and is repayable in full during 2010.
(vii) At 30 April 2007 salaries owing amounted to $1,200 while insurance was prepaid by
$1,860.
(viii) AksharJaberi received an invoice for $600 on 15th April 2007 for repairs to a motor
vehicle. To date, the invoice has not been paid.
(ix) AksharJaberi had taken goods from the business costing $7,000 for his own use. This
has not been recorded in the accounts.
(x) Depreciation is to be provided as follows:
Motor Vehicles
25% by the reducing balance method. There were no
additions or disposals during the year.
Equipment
10% by the straight line method. There were no additions or
disposals during the year.
Premises are not depreciated.
REQUIRED:
The Income Statement(Trading and Profit and Loss Account) for the year ended 30th April
2007, and the Statement of Financial position(Balance Sheet) as at 30th April 2007.
!
OMAIR MASOOD
CEDAR COLLEGE
112
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q18.On 31st March 2007 the following information was available from the books of Andy
Bowden, a sole trader.-
Purchases and Sales
Purchase returns
Inventory
Capital
Bank
Salaries
Discounts
Bank interest charges
Insurance
General expenses
12% Loan
Loan interest
Premises
Provision for depreciation of premises
Shop fittings
Provision for depreciation of shop fittings
Rent received
Carriage inwards
Trade Receivables and Trade Payables
Dr
$
226,000
Cr
$
479,000
600
29,200
104,000
2,000
85,000
1,400
600
8,800
126,000
3,000
60,000
6,000
160,000
9,600
56,000
33,600
4,200
1,400
14,900
715,300
19,300
715,300
The following information is also available.
(i) The closing Inventory as at 31st March 2007 was valued at $26,000.
(ii) General expenses include a prepayment of $400.
(iii)A debt of $700 was considered irrecoverable. The full amount is to be treated as a bad
debt in the accounts for the year ended 31st March 2007.
(iv) A provision for doubtful debts is to be created as $500 for a specific debt, plus 3% on
the remainder of Trade Receivables.
(v) The insurance included $300 covering a private insurance for Andy Bowden.
(vi) The loan was taken out in November 2004 and is repayable in full during the
financial year ended 31st March 2009.
(vii) All the shop fittings had been purchased for $56,000 on 1stApril 2003, and
depreciation has been charged using the straight line basis. The provision for the
depreciation of shop fittings for the year ended 31stMarch 2007 is to be charged using
the same method and rate.
(viii) Premises are depreciated by 2% per annum on cost using the straight line method.
REQUIRED:
The Income Statement (Trading and Profit and Loss Account) for the year ended
31st
st
March 2007, and the Statement of Financial position (Balance Sheet) as at 31 March 2007.
!
OMAIR MASOOD
CEDAR COLLEGE
113
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q19.On 31 March 2006 the following information was available from the books of Glenn
White, a sole trader.Dr
$
Trade Payables
Trade Receivables
Bank
Inventory
Sales
Purchases
Carriage inwards
Purchase returns
Rent and rates
Salaries
Discount allowed
General expenses
Bad debts
Provision for doubtful debts
8% Loan
Loan interest
Equipment
Provision for depreciation of equipment
Motor vehicles
Provision for depreciation of motor vehicles
Capital
Drawings
Cr
$
14,600
9,600
700
12,000
378,000
174,000
3,000
4,000
28,400
93,500
1,800
62,200
300
1,500
30,000
2,000
40,000
12,000
30,000
6,000
17,600
7,600
464,400
464,400
The following information is also available.
(i) The closing Inventory as t 31 March 2006 was valued at $15,000.
(ii) At 31st March 2006, general expenses prepaid amounted to $700.
(iii)Martin Griffiths, a debtor included in the Trade Receivables balance above, has
recently been declared bankrupt. His debt of $600 is to be written off as a bad debt in
the accounts for the year ended 31st March 2006.
(iv) A cheque of $500 received from a debtor has not yet been entered inthe accounts.
(v) The provision for doubtful debts is to be decreased by $300.
(vi) At 31st March 2006, two month’s interest is due on the loan. The loan is repayable in
full during the year ended 31st March 2007.
(vii) Glenn White acts as an agent for Stormy Limited and is owed commission of $3,700
for the year ended 31st March 2006.
(viii) A new motor vehicle was purchased for $18,000 on 1st August 2005. This was the
only fixed asset purchased during the year ended 31st March 2006. The full amount is
included in the balance shown for motor vehicles.
!
OMAIR MASOOD
CEDAR COLLEGE
114
Accounts(9706As(level-
-
OMAIR-MASOOD-
(ix) Depreciation is to be provided as follows:
Equipment
10% per annum on cost using the straight line method. No
residual value is allowed for.
Motor Vehicles 25% per annum by the reducing balance method.
Depreciation is calculated for each proportion of a year for
which motor vehicles are held.
There were no fixed asset disposals during the year ended 31st March 2006.
REQUIRED:
(a) The Income Statement(Trading and Profit and Loss Account) for the year ended 31st
March 2006.
(b) The Statement of Financial position(Balance sheet) as at 31st March 2006.
!
OMAIR MASOOD
CEDAR COLLEGE
115
Accounts(9706As(level-
-
OMAIR-MASOOD-
Q20.Laurence Keston, a trader, prepared the following Trial Balance from his accounts on 31st
December 2005.Dr
$
Sales
Purchases
Sales returns
Discount received
Capital
Drawings
Rates
Salaries
10% loan
Loan interest
Rent received
Loss on sale of delivery vehicle
Carriage outwards
General expenses
Insurance
Provision for doubtful debts
Buildings
Machinery
Provision for depreciation of machinery
Delivery vehicles
Provision for depreciation of delivery vehicles
Trade Receivables
Trade Payables
Bank
Inventory
Cr
$
620,000
270,000
10,000
1,900
231,000
3,400
12,000
130,000
60,000
6,000
5,300
900
3,700
67,846
7,000
2,000
290,000
50,000
18,250
30,000
11,000
57,500
64,600
27,704
48,000
1,014,050 1,014,050
The following information is also available.
(i) The closing Inventory as at 31st December 2005 was valued at $56,400.
(ii) At 31st December 2005, insurance owing amounted to $400.
(iii)During the year Laurence Keston had withdrawn, for his personal use, goods costing
$1,600. This had not been recorded in the accounts.
(iv) Rent receivable of $800 was owing to the business at 31st December 2005.
(v) The loan is repayable in full during 2009.
!
OMAIR MASOOD
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Accounts(9706As(level-
-
OMAIR-MASOOD-
(vi) The provision for doubtful debts is to be provided as $700 for a specific debt, plus 3%
on the remainder of Trade Receivables.
(vii) During the year the business purchased a building for $150,000 and this has been
included in the balance of $290,000 shown for buildings in the Trial Balance. In
addition to this amount, legal costs of $2,000 incurred in the purchase of the building
have been debited to general expenses.
(viii) Depreciation is to be provided on all machinery at 25% per annum on cost.
Machinery costing $12,000 was purchased on 1st August 2005 and this is included in
the balance shown for machinery. Depreciation is calculated for each proportion of
the year for which machinery is held. There were no disposals of machinery during
the year.
(ix) Delivery vehicles are to be depreciated by $6,000 for the year.
(x) Buildings are not depreciated.
REQUIRED:
(a) The Income Statement(Trading and Profit and Loss Account) for the year ended 31st
December 2005.
(b) The Statement of Financial position(Balance Sheet) as at 31st December 2005.
!
OMAIR MASOOD
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Accounts(9706As(level-
-
OMAIR-MASOOD-
Q21.Dave Newman, a trader, prepared the following Trial Balance from his accounts on 31stMarch 2005.Dr
$
Capital
Drawings
Inventory
Bank
Discounts
Purchases and sales
Trade Receivables and Trade Payables
General expenses
Salaries
Premises
Provision for depreciation of premises
Equipment
Provision for depreciation of equipment
Sales returns
Provision for doubtful debts
Carriage outwards
Carriage inwards
Repairs and extension to premises
Cr
$
110,000
1,800
11,200
1,500
137,600
24,700
37,400
68,300
80,000
8,200
1900
247,450
26,200
5,600
29,000
9,200
2,500
550
600
800
13,700
409,100
409,100
The following information is also available.
(i) The closing Inventory as at 31st March 2005 was valued at $16,300.
(ii) As at 31st March 2005, salaries owing amounted to $3,400, while general expenses were
prepaid by $550.
(iii) A debt of $1,400 was considered irrecoverable. The full amount is to be treated as a bad debt in
the accounts for the year ended 31st March 2005.
(iv) The provision for doubtful debts is to be adjusted to 2% of Trade Receivables.
(v) Of the repairs and extension to premises, $700 related to repairs and the remainder to an
extension.
(vi) Depreciation is to be provided as follows:
Equipment
10% by the reducing balance method. There were no additions or
disposals during the year.
Premises
2% by the straight line method. This rate applies to the cost value
at the year end, regardless of the date of any additions during the
year.
Bank charges of $600 are outstanding.
REQUIRED:
(a) The Income Statement (Trading and Profit and Loss Account) for the year ended 31st March
2005.
(b) The Statement of Financial position (Balance Sheet) as at 31st March 2005.
!
OMAIR MASOOD
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118
Accounts(9706As(level-
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OMAIR-MASOOD-
Q22.The following list of balances as at 30th September 1999 has been obtained from the
books of Patrick, a retailer:$
st
Freehold land, at 1 October 1998, at cost
34,000
Fixtures and fittings, at 1st October 1998
At cost
68,000
Provision for depreciation
19,200
Motor vehicles, at 1st October 1998
At cost
62,000
Provision for depreciation
37,200
st
Motor vehicles additions on 1 April 1999 16,000
Inventory, at cost, at 1st October 1998
70,000
Purchases
373,400
Purchases returns
1,200
Sales
564,000
Sales returns
9,600
Salaries
100,000
Rent and insurance
30,800
Electricity
10,400
Discount allowed
1,600
Discount received
900
Trade Receivables
34,000
Trade Payables
24,100
Balance at bank
7,600
Capital account, at 1 October 1998
202,800
Drawings
32,000
Additional information:
1. Inventory, at cost, on 30th September 1999 was $59,000.
2. It has been discovered that there were unrecorded credit sales of $5,600 on 30th
September 1999.
3. Patrick’s shop manager receives a commission of 2% of gross profit. This is paid three
months after the financial year.
4. The freehold land was let during the year. The rent received, $2,400 has been paid into
Patrick’s private bank account.
5. Depreciation is to be provided on the straight line method based on the period of use, at
the following annual rate;
Fixtures and fittings 2 ½%
Motor vehicles
20%
REQUIRED:
(a) Prepare the Income Statement(Trading and Profit and Loss Account) for the year ended
30th September 1999.
(b) Prepare the Statement of Financial position(balance Sheet) as at 30th September 1999.
!
OMAIR MASOOD
CEDAR COLLEGE
119
Accounts(9706As(level-
OMAIR-MASOOD-
2
Q23.
1
-
On 31 March 2015 the following information was available from the books of Bill Wylan, a sole
trader.
Dr
£
Sales
Purchases
Carriage inwards
Carriage outwards
Commission received
Discounts allowed
Discounts received
Electricity
General expenses
Debtors
Bad debts
Provision for doubtful debts
Creditors
Rent
Capital
Salaries
Insurance
Drawings
Motor expenses
Bank
Stock
10% Loan
Loan interest
Sales returns
Purchase returns
Equipment
Provision for depreciation of equipment
Motor vehicles
Provision for depreciation of motor vehicles
Cr
£
115 000
42 000
3 500
2 600
2 120
1 850
1 920
3 800
7 930
15 740
2 800
488
13 970
22 000
24 835
27 500
3 400
8 700
3 200
1 846
11 100
15 000
1 125
5 150
2 870
10 090
3 436
16 000
188 485
7 000
188 485
,!
!
© OCR 2015
OMAIR MASOOD
F011/01/RB May15
CEDAR COLLEGE
120
Accounts(9706As(level-
3 -
OMAIR-MASOOD-
The following information is also available.
(i) The closing stock as at 31 March 2015 was valued at £14 740.
(ii) During the year Bill Wylan took stock at a cost price of £1630 from the business for his
personal use. This transaction has not been recorded in the accounts.
(iii) Bill Wylan has now discovered that a debtor, who owed the business £540, has been
declared bankrupt. Bill Wylan has received a cheque to the value of 20p in the pound with the
remainder owing to be treated as a bad debt. These adjustments need to be included within
the final accounts for the year ended 31 March 2015.
(iv) A provision for doubtful debts of 4% of debtors remaining on the books at the end of the year
is to be made.
(v) Rent for the business premises has remained at £2000 per month throughout the last financial
year.
(vi) At 31 March 2015, the following amounts were owing: salaries £2500, motor expenses £150;
whilst insurance was prepaid £600.
(vii) Included in general expenses is the cost of Bill Wylan’s private holiday costing £2300.
(viii) The £15 000 loan was taken out in June 2013 and is repayable in full on 30 September 2015.
(ix) On 24 March 2015 a cheque for £1500 was received for the disposal of equipment on that
date. This transaction has not been recorded in the books. This equipment was purchased on
1 April 2011 at a cost of £2500.
(x) Depreciation is to be provided as follows.
Equipment:
Motor vehicles:
10% per annum using the straight line method.
25% per annum using the reducing balance method.
No depreciation is charged on fixed assets sold during the year.
REQUIRED
(a)* The Trading and Profit and Loss Account for the year ended 31 March 2015 and the Balance
Sheet as at 31 March 2015.
[44]
!
(b) Discuss three problems involved in accounting for depreciation.
!
[9]
!
!
OMAIR MASOOD
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121
Accounts(9706As(level!
-
OMAIR-MASOOD-
PAGE 29
Q24!
2
Amah Retto's ledger accounts for the year ended 30 April 2008 showed the following
balances:
1
Premises at cost
Machinery at cost
Provision for depreciation on machinery at 1 May 2007
Provision for doubtful debts at 1 May 2007
Sales
Purchases
Sales returns
Purchases returns
Carriage inwards
Carriage outwards
Rent received
Discount allowed
Discount received
Electricity
General expenses
Stock at 1 May 2007
Debtors
Creditors
Bank (Credit)
Cash
Drawings
Long-term loan at 11 % per annum
Capital
$
250 000
52 000
15 600
500
243 000
184 000
2 040
1 980
350
800
2 420
1 800
1 300
2 100
9 340
13 500
9 000
11 460
8 260
990
18 600
60 000
?
For
Examiner's
Use
!
Additional information at 30 April 2008
!
1
Stock was valued at $15 100.
2
No interest had been paid or provided for on the loan, which had been taken out on
1 November 2007.
3
Amah Retto's tenant had paid only eleven months' rent; one month's rent was due and
unpaid.
4
Electricity prepaid amounted to $40.
5
General expenses accrued amounted to $50.
6
Debts of $200 were to be written off.
OMAIR
MASOOD
COLLEGE
Depreciation
was to be providedCEDAR
on machinery
at 40 % using the reducing (diminishing) 122
balance method.
Doubtful debts provision was to be 3 % of debtors at the end of the year.
Creditors
Bank (Credit)
Cash
Drawings
Accounts(9706Long-term loan at 11 % per annum
Capital
As(level-
-
11 460
8 260
990
18 600
60 000
?
OMAIR-MASOOD-
Additional information at 30 April 2008
1
Stock was valued at $15 100.
2
No interest had been paid or provided for on the loan, which had been taken out on
1 November 2007.
3
Amah Retto's tenant had paid only eleven months' rent; one month's rent was due and
unpaid.
4
Electricity prepaid amounted to $40.
5
General expenses accrued amounted to $50.
6
Debts of $200 were to be written off.
Depreciation was to be provided on machinery at 40 % using the reducing (diminishing)
balance method.
Doubtful debts provision was to be 3 % of debtors at the end of the year.
!
REQUIRED!:!
For!the!year!ending!30!April!2008!
(!i)!Income!Statement!!
As!at!30!April!2008!!
© UCLES 2008
9706/02/M/J/08
(ii)!Statement!of!Financial!Position!!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
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Accounts(9706As(level-
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!
PAGE 282
Q25.!
1
2
Kirsty, a sole trader, prepared the following trial balance at 30 April 2011.
Rent
General expenses
Insurance
Salaries
Electricity
Capital
Motor expenses
Bad debts
Drawings
Trade receivables
Trade payables
Cash and cash equivalents
Inventory
10% Loan
Loan interest
Carriage outwards
Commission received
Ordinary goods purchased
Revenue
Purchases returns
Sales returns
Discounts allowed
Discounts received
Provision for doubtful debts
Equipment
Provision for depreciation of equipment
Motor vehicles
Provision for depreciation of motor vehicles
$
4 000
6 000
3 300
14 000
2 000
For
Examiner’s
Use
$
44 000
4 900
200
6 000
6 200
3 800
2 600
3 600
15 000
1 250
700
730
56 000
108 000
2 500
4 800
600
400
520
48 000
14 400
36 000
200 150
10 800
200 150
!
The following information is also available:
1
The closing inventory at 30 April 2011 was valued at $4200.
2
Included in the general expenses is an item of equipment purchased during the
year for $1200. This item has not yet been included in the equipment account.
3
A cheque for $800 received from a credit customer has not yet been entered in the
accounts.
4
At 30 April 2011:
loan interest owing amounted to $250
electricity owing was $380
insurance was prepaid by $460
5
During the year Kirsty had withdrawn, for her personal use, goods costing $1800.
This has not been recorded in the accounts.
!
OMAIR6 MASOOD
COLLEGE
Commission receivableCEDAR
of $150 was
owing to Kirsty at 30 April 2011.
7
124
The provision for doubtful debts is to be provided for a specific debt of $200, plus
2% of the remaining debtors.
Provision for depreciation of equipment
Equipment
Motor vehicles
Provision
for depreciation of equipment
Provision
for depreciation of motor vehicles
Motor
vehicles
Provision
for
Accounts(9706- depreciation of motor vehicles
As(level-
-
48 000
36 000
36 000
200 150
200 150
14 400
14 400
10 800
10
800
200
150
200 150 OMAIR-MASOOD-
The following information is also available:
The following information is also available:
1
The closing inventory at 30 April 2011 was valued at $4200.
1
The closing inventory at 30 April 2011 was valued at $4200.
2
Included in the general expenses is an item of equipment purchased during the
2
Included
the general
expenses
itemincluded
of equipment
purchasedaccount.
during the
year forin$1200.
This item
has not is
yetan
been
in the equipment
year for $1200. This item has not yet been included in the equipment account.
3
A cheque for $800 received from a credit customer has not yet been entered in the
3
A cheque
for $800 received from a credit customer has not yet been entered in the
accounts.
accounts.
4
At 30 April 2011:
4
At 30 April
loan2011:
interest owing amounted to $250
loan
interestowing
owingwas
amounted
electricity
$380 to $250
electricity
owing
$380by $460
insurance
waswas
prepaid
!
insurance was prepaid by $460
5
During the year Kirsty had withdrawn, for her personal use, goods costing $1800.
5
During
the not
yearbeen
Kirsty
had withdrawn,
for her personal use, goods costing $1800.
This has
recorded
in the accounts.
This has not been recorded in the accounts.
6
Commission receivable of $150 was owing to Kirsty at 30 April 2011.
6
Commission receivable of $150 was owing to Kirsty at 30 April 2011.
7
The provision for doubtful debts is to be provided for a specific debt of $200, plus
7
The
for doubtful
debts is to be provided for a specific debt of $200, plus
2%provision
of the remaining
debtors.
2% of the remaining debtors.
© UCLES 2011
9706/22/O/N/11
!
© UCLES 2011
9706/22/O/N/11
PAGE 283
!
3
8
One half of the 10% loan is repayable during the year ending 30 April 2012, and the
balance is repayable after that date.
9
Depreciation is to be provided as follows:
For
Examiner’s
Use
Equipment 10% per annum on cost.
A full year’s depreciation is provided on all equipment held at 30 April 2011,
regardless of the date of purchase.
Motor vehicles 25% by the reducing (diminishing) balance method. There were
no additions or disposals during the year.
REQUIRED
(a) Prepare the income statement (trading and profit and loss account) for Kirsty for the
PAGE 285
year ended 30 April 2011.
!
5
..........................................................................................................................................
(b) Prepare the statement of financial position (balance sheet) for Kirsty at 30 April 2011.
For
.......................................................................................................................................... !Examiner’s
Use
..........................................................................................................................................
!
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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!
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125
OMAIR MASOOD
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ACCOUNTING!FOR!NON!CURRENT!ASSETS!
ACCOUNTING
FOR NON CURRENT ASSETS (DEPRECIATION) THEORY
!
Whenever(we(spend(money(we(call(it(expenditure.(The(expenditure(can(be(divided(in(two((
(
Capital!Expenditure!!
Revenue!Expenditure!
Any(expenditure(incurred(on(buying(new(
Any(day(to(day(expense(to(run(the(business.(
non5current(asset.(We(take(this(to(balance(
We(take(this(to(income(statement(
Sheet(
Usually(one(off((doesn’t(happen(on(daily(
Its(recurring(in(nature(((we(have(to(do(it(
basis)(
again(and(again)(
Includes(initial(expenses(incurred(till(we(
Usually(occurs(after(we(start(using(the(asset(
start(using(the(asset(e.g.(Installation,(
delivery(charges(
Increases(the(value(of(earning(capability(of( Maintains(the(value(or(earning(capability(of(
the(asset(e.g.(Adding(a(Safety(device(
the(asset.(E.g.(Repainting(or(Repair(
!
In!the!same!way!we!can!have!Capital!receipts!and!Revenue!Receipts!.!
!
Capital(Receipts(would(include(money(received(from(capital(transactions(e.g.((taking(a(bank(loan(,(selling(
a(non(current(asset(or(additional(capital(introduced(by(the(owners(((note(this(money(coming(in(not(
earned(by(the(business(from(profits)((
Revenue(Receipts(are(incomes(generated(from(day(to(day(operations(of(a(business(((taken(to(income(
statement)(e.g.(Sale(of(goods(,(Interest(received(rent(received((
(
(
If(these(expenditures(and(receipts(are(treated(in(the(wrong(way(then(both(income(statement(and(
balance(sheet(will(be(wrong.(
!
!
!
!
!
This(is(an(expense(recorded(to(allocate(a(non(current(asset(cost(over(its(useful(life.(Deprecation(is(used(
!
in(accounting(to(try(to(match(the(expense(of(an(asset(to(the(income(that(the(asset(helps(the(business(to(
!
earn.(For(example(if(a(business(buys(a(piece(of(equipment(for($1(million(and(expects(to(use(it(over(a(life(
!
of(10(years,(it(will(be(depreciated(over(10(years(.((Every(accounting(year,(the(company(will(expense(
!
!$100000((assuming(straight(line(,(which(will(be(matched(with(the(money(that(the(equipment(helps(to(
!make(each(year.()(
!(
!The!Double!Entry!for!Depreciation!is!:!
!
!Debit!:!Profit!and!Loss!Account!(!Income!Statement)!
!!!!!!!!!Credit!:!Provision!for!Depreciation!!
Depreciation!
!
!
Methods!of!Depreciation:!
!
1. Straight!Line!:!!
!!!!!!!!!An(equal(amount(of(deprecation(is(charged(every(year.(It(is(always(calculated(on(cost(.(In(case(of(
OMAIR
MASOOD
CEDAR COLLEGE
scrap(value((residual(value)((and(life(given(use(:(Cost(–Scrap/Life((
!
2. Reducing!Balance!Method:!
In(this(deprecation(for(initial(years(in(always(higher(then(the(later(years.(It(is(simply(a(percentage(on(net(
126
!
Which!Method!is!best!to!use?!
It(depends(on(the(nature(of(Non(Current(Asset(
(
Straight!Line!method(is(appropriate(for(assets(like(office(furniture(and(fittings((which(are(used(evenly(
through(out(the(year(useful(life,(and(the(efficiency(of(them(doesn’t(fall(by(great(amount(in(initial(years)(
!
Reducing!Balance!Method(is(appropriate(for(assets(like(machinery(or(van.(Since(these(assets(are(more(
efficient(when(new,(more(depreciation(is(charged(in(initial(years.(As(the(asset(gets(old(it(looses(efficiency(
and(so(we(charge(less(deprecation.(Another(way(to(look(at(it(is(that(the(maintenance(and(repairs(of(
asset(will(increase(in(later(years(so(to(maintain(the(overall(expense(it(makes(sense(to(charge(more(
!!
depreciation(in(initial(years(when(maintenance(is(low(and(then(reduce(it(as(maintenance(increases.(
Which!Method!is!best!to!use?!
!Which!Method!is!best!to!use?!
(It(depends(on(the(nature(of(Non(Current(Asset(
It(depends(on(the(nature(of(Non(Current(Asset(
Which!Method!is!best!to!use?!
How!to!record!disposal!of!Asset:!
It(depends(on(the(nature(of(Non(Current(Asset(
((
Disposal(of(means(getting(ride(of(the(fixed(asset(.(it(can(be(sold(or(may(be(stolen(or(just(discarded.(
Straight!Line!method(is(appropriate(for(assets(like(office(furniture(and(fittings((which(are(used(evenly(
(Straight!Line!method(is(appropriate(for(assets(like(office(furniture(and(fittings((which(are(used(evenly(
Usually(there(are(4(entries(to(record(sale(of(asset(
through(out(the(year(useful(life,(and(the(efficiency(of(them(doesn’t(fall(by(great(amount(in(initial(years)(
Straight!Line!method(is(appropriate(for(assets(like(office(furniture(and(fittings((which(are(used(evenly(
through(out(the(year(useful(life,(and(the(efficiency(of(them(doesn’t(fall(by(great(amount(in(initial(years)(
!
through(out(the(year(useful(life,(and(the(efficiency(of(them(doesn’t(fall(by(great(amount(in(initial(years)(
!! 1. Remove!the!Cost!of!the!Asset!Sold!
!Reducing!Balance!Method(is(appropriate(for(assets(like(machinery(or(van.(Since(these(assets(are(more(
Reducing!Balance!Method(is(appropriate(for(assets(like(machinery(or(van.(Since(these(assets(are(more(
Debit!:!Disposal!!!!!!Credit:!Asset!!
Reducing!Balance!Method(is(appropriate(for(assets(like(machinery(or(van.(Since(these(assets(are(more(
efficient(when(new,(more(depreciation(is(charged(in(initial(years.(As(the(asset(gets(old(it(looses(efficiency(
efficient(when(new,(more(depreciation(is(charged(in(initial(years.(As(the(asset(gets(old(it(looses(efficiency(
!
efficient(when(new,(more(depreciation(is(charged(in(initial(years.(As(the(asset(gets(old(it(looses(efficiency(
and(so(we(charge(less(deprecation.(Another(way(to(look(at(it(is(that(the(maintenance(and(repairs(of(
and(so(we(charge(less(deprecation.(Another(way(to(look(at(it(is(that(the(maintenance(and(repairs(of(
2. !Remove!the!Total!Deprecation!!
and(so(we(charge(less(deprecation.(Another(way(to(look(at(it(is(that(the(maintenance(and(repairs(of(
asset(will(increase(in(later(years(so(to(maintain(the(overall(expense(it(makes(sense(to(charge(more(
asset(will(increase(in(later(years(so(to(maintain(the(overall(expense(it(makes(sense(to(charge(more(
Debit!:!Provision!for!Depreciation!!!!Credit!:!Disposal!
asset(will(increase(in(later(years(so(to(maintain(the(overall(expense(it(makes(sense(to(charge(more(
depreciation(in(initial(years(when(maintenance(is(low(and(then(reduce(it(as(maintenance(increases.(
depreciation(in(initial(years(when(maintenance(is(low(and(then(reduce(it(as(maintenance(increases.(
!
depreciation(in(initial(years(when(maintenance(is(low(and(then(reduce(it(as(maintenance(increases.(
(( 3. Record!the!Selling!Price!
(
Debit:!Bank!!!!!Credit!:!Disposal!
How!to!record!disposal!of!Asset:!
How!to!record!disposal!of!Asset:!
!
Disposal(of(means(getting(ride(of(the(fixed(asset(.(it(can(be(sold(or(may(be(stolen(or(just(discarded.(
Disposal(of(means(getting(ride(of(the(fixed(asset(.(it(can(be(sold(or(may(be(stolen(or(just(discarded.(
If!exchanged!then!!
Usually(there(are(4(entries(to(record(sale(of(asset(
Usually(there(are(4(entries(to(record(sale(of(asset(
!!!!!!!!Debit!:!Asset!!!Credit!Disposal!
!
!
!! 1. Remove!the!Cost!of!the!Asset!Sold!
1. Remove!the!Cost!of!the!Asset!Sold!
4. Close!the!Disposal!Account!
Debit!:!Disposal!!!!!!Credit:!Asset!!
Debit!:!Disposal!!!!!!Credit:!Asset!!
!!!!!Close!with!income!statement!.!!
!!
!
2. !Remove!the!Total!Deprecation!!
!Remove!the!Total!Deprecation!!
2.
All(of(this(can(be(done(in(one(single(entry(without(using(disposal(
Debit!:!Provision!for!Depreciation!!!!Credit!:!Disposal!
Debit!:!Provision!for!Depreciation!!!!Credit!:!Disposal!
(
!!
For(example((
3. Record!the!Selling!Price!
Record!the!Selling!Price!
3.
Cost(of(Asset(Sold(=(50000(
Debit:!Bank!!!!!Credit!:!Disposal!
Debit:!Bank!!!!!Credit!:!Disposal!
Net(book(Value((=(30000(
!!
(Sold(For(28000(
If!exchanged!then!!
( If!exchanged!then!!
!!!!!!!!Debit!:!Asset!!!Credit!Disposal!
!!!!!!!!Debit!:!Asset!!!Credit!Disposal!
Note(:(total(depreciation(is(20000(as(NBV(is(30000(
!!!!
!
4.
4. Close!the!Disposal!Account!
Close!the!Disposal!Account!
!!!!!Close!with!income!statement!.!!
!!!!!Close!with!income!statement!.!!
!
!
All(of(this(can(be(done(in(one(single(entry(without(using(disposal(
All(of(this(can(be(done(in(one(single(entry(without(using(disposal(
(
(
For(example((
For(example((
Cost(of(Asset(Sold(=(50000(
Cost(of(Asset(Sold(=(50000(
Net(book(Value((=(30000(
Net(book(Value((=(30000(
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(
Note(:(total(depreciation(is(20000(as(NBV(is(30000(
! Note(:(total(depreciation(is(20000(as(NBV(is(30000(
4. Close!the!Disposal!Account!
!!!!!Close!with!income!statement!.!!
!
All(of(this(can(be(done(in(one(single(entry(without(using(disposal(
(
For(example((
Cost(of(Asset(Sold(=(50000(
Net(book(Value((=(30000(
(Sold(For(28000(
(
Note(:(total(depreciation(is(20000(as(NBV(is(30000(
!!
We!can!do!
!
Bank!!!!!!!!!!!!!!!!!!!28000!
Prov!for!Depn!!!20000!
Loss!!!!!!!!!!!!!!!!!!!!!2000!
!!!!!!!!!!!!!!!!!!!!!!!!!!Asset!!!!!!!50000!
!
If!sold!for!$31000!then!
!
Bank!!!!!!!!!!!!!!!!!31000!
Prov!for!Depn!!20000!
!!!!!!!!!!!!!!!!!Asset!!!!!!!!!!!!!50000!
!!!!!!!!!!!!!!!!!Gain!!!!!!!!!!!!!!1000!
!
(
Adjusting!Entries!
Some(assets(do(appreciate(in(value,(e.g.(Land(and(companies(are(allowed(to(revalue(them.(
!
The(journal(entry(for(revaluation(is(
(
Revaluation!of!NON!CURRENT!ASSETS!(Only!in!companies)!
(
To!Adjust!expenses!
Debit:(( Asset((Cost)(
!
(
Provision(for(Depn.((Accumulated(Depreciation)(
Prepaid!:!!
(
(
Credit:( Revaluation(Reserve(
(Debit!:!Prepaid!Expense!!(!its!an!asset)!
!!!!!Credit!:!Expense!!!!!!!!!!!!(reduces!expense)!
For(example:(
!
An(asset(which(cost($60(000(and(has(provision(for(depreciation(of($8(000(is(now(revalued(at($75(000.(
In(order(to(handle(this,(we(should(just(
Owing/Accrual!!
(!
Debit:(
Asset( (
(
15(000((Cause(it(was(already(at(60(and(we(want(to(make(it(75)(
Debit!:!Expense!!!!!!!!!!!!!!!!!(increases!expense)!
(!!!!!Credit!:!Owing!Expense!(!it!is!a!liability)!
Provision(for(Depn.(
8(000((this(is(always(done(to(cancel(the(depreciation)(
(
(
Credit:( Revaluation(Reserve( 23(000(
To!adjust!Incomes:!
(
!
The(23(000(is(the(difference(between(the(old(Net(Book(Value((60(000(–(8(000)(52(000(and(the(new(value(
Prepaid:!
75(000.(
(!
!
!
Debit:(Income( (
(
(as(the(income(reduces(because(it’s(prepaid)(
A(relatively(simpler(case(would(be(where(there(is(no(provision(for(depreciation.(Like(e.g.(Land(at($60(000(
(
(
(
Credit:(Prepaid(Income( (because(it’s(a(current(liability)(
is(now(revalued(at($75(000.(
((
Owing/Due! 15(000(
Debit:(Land(
(!
Credit:(Revaluation(Reserve(
15(000(
!
(
!!!!!!!!!!!
!
Debit:(Owing(Income(( (
(because(it’s(an(asset)(
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(as(the(income(increases)(
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ACCOUNTING FOR NON CURRENT ASSETS
ACCOUNTING
FOR NON-CURRENT ASSETS (DEPRECIATION) WORKSHEET
!
!
Q1. Ken Read started business on 1 January 2004 and the following information is available
for the purchase of machinery.
1 January 2004
Purchased machine 1, costing $15000
1 September 2004
Purchased machine 2, costing $18000
1 April 2006
Purchased machine 3, costing $12000
Machine 2 was found to be unsuitable and was sold on 30 September 2005 for $15000.
The other two machines were still in use on 31 December2006; all transactions were by
cheques.
Depreciation Policy
Case 1 :
Machinery is depreciated at the rate of 10% per annum using the straight line method.A
full year’s depreciation is provided in the year that machinery is purchased. No
depreciation is provided in the year of disposal.
Case 2:
Machinery is depreciated at the rate of 10% per annum using the straight line method,
with rates being applied for each part of a year.
Case 3:
Machinery is depreciated at the rate of 10% per annum using the reducing balance
method.A full year’s depreciation is provided in the year that machinery is purchased.
No depreciation is provided in the year of disposal.
Case 4:
Machinery is depreciated
using the reducing balance
Accounts(–(9706((
(
( at the
( rate ( of 10%
( per annum
(
(((((((((((((OMAIR(MASOOD(
AS(–(Level((
method, with rates being applied for each part of a year.
REQUIRED:
For Each Case
(a) The following ledger accounts for each of the years ended 31 December 2004, 31
December 2005 and 31 December 2006.
(i) Machinery
(ii) Provision for Depreciation of Machinery
(b) The Disposal of Machinery Account for the year ended 31 December 2005.
!
!
(c) Discuss the choice of the depreciation method used by the business.
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Q2. Gemma Bay started business on 1 January 1998. The following information is available
for the purchases of machinery and office equipment.
Machinery
1 January 1998
The machines purchased M1 and M2 costing $15,000
each, and M3 costing $20,000
1 January 2000
Two machines purchased, M4 and M5, costing
$12,000 each
1 October 2000
Two machines purchased; M6 costing $15,000 and M7
costing $25,000
Office Equipment
1 January 1998
Office equipment purchased costing $25,000
Machinery is depreciated at the rate of 20% per annum by the reducing balance method.
Office equipment is depreciated by the straight line method over an estimated life of 10
years, taking into account a residual value of 10% on cost price.
Machine M2 was disposed of on 30 June 1999 for $10,200and Machine M3 was
disposed of on 30 September 2000 for $13,000. No office equipment was disposed of
during the period.
A full year’s depreciation is provided in the year that machinery is purchased. No
depreciation is provided in the year of disposal. The financial year end is 31 December.
REQUIRED:
(a) Prepare the following accounts for each of the years 1998, 1999 and 2000:
(i) Machinery Account;
(ii) Provision for Depreciation of machinery account.
(b) Prepare the machinery Disposals Account for each of the years 1999 and 2000.
(c) Prepare the statement of financial position(balance sheet) extract as at 31 December
2000 for Machinery and Office Equipment.
(d) Evaluate the choice of the depreciation methods used by the business for each type
of fixed asset.
!
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MASOOD
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Q3. Lucy Kim is in the luxury car hire business. The following information came from her
Non-Current Assets. Register on 1 June 1994:
Limousine Number
KVD392H
B123NHY
978GPLK
C149USH
Cost Price
$
31,250
25,000
27,500
30,000
Date of Purchase
1 June 1990
23 March 1991
26 August 1991
23 January 1993
On 18 May 1995, a new limousine, number MVD346J, was purchased on credit from
Archibald Ltd for $35,000. Archibald Ltd agreed a trade in price of $1,200 for
B123NHY, which the new limousine replaced.
All limousines are depreciated at 40% per annum using the reducing balance method.
They have a full year’s depreciation charged against them each financial year,
regardless of the date of purchase, except in the financial year of sale, when no
depreciation is charged.
REQUIRED:
(a) For the year ended 31 May 1995 draw up:
(i) the Limousines Account
(ii) the Provision for Depreciation of limousines Account
(iii) the Disposal of Limousine Account.
(b) Explain briefly, three methods of calculating depreciation.
(c) Give one advantage of using the reducing balance method for deprecating vehicles
and suggest with reasons, one other method which would be appropriate.
(d) Distinguish between a Provision and a Reserve.
!
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Accounts(–(9706((
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Q4. The Bass Rock Minibus company was formed on 1 November 1994.
The following details to minibuses purchased and sold during the five years to 31
October 1999.
Date of
Purchase
1994
1 November
1 November
1995
1 May
1996
1 November
1997
1 May
1999
1 May
1 May
Minibus
Registration
Number
Cost
Date of Disposal
Cash Received
M323ABC
M324ABC
$18,000
$18,000
31 March 1999
30 April 1999
$3,000
$2,800
M555ADR
$19,000
30 April 1999
$2,800
P186TTS
$21,000
P388VTS
$21,500
R234 UTS
R235 UTS
$22,500
$22,500
16 February 1999
See below
On 16 February 1999, minibus P388VTS was involved in an accident and was written
off that is, the insurance company decided that it was not worth repairing. They have
offered to pay 95% of Bass Rock’s book value of the minibus as at 31 October 1998,
and Bass Rock has agreed to accept this.
Depreciation is provided at 40% reducing (diminishing balance). A full year’s
depreciation is provided for in the financial year in which a minibus is purchased. No
depreciation applies in the final year in which a minibus is disposed of.
REQUIRED:
(i) Draw up the Minibus Provision for Depreciation Account for the year ended 31
October 1999.
(ii) Draw up the Asset Disposal Account for minibus P388 VTS. Payment as agreed
was received from the insurance company on 18 October 1999.
!
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Q5. Stampers Ltd is in the business of stamping out steel plates to various shapes and sizes,
to customers specifications.
On 1 January 1995, the company’s machine register contained the following
information:
Serial Number
11
12
13
14
15
Cost Price
$12,000
$13,500
$15,000
$14,000
$12,000
Net Book Value
$5,520
$6,210
$9,600
$11,480
$9,840
All machines are depreciated over 5 years using the straight line method of providing
for depreciation. A full year’s depreciation is charged on all machines owned by
Stampers at the end of the financial year, and none is charged at the end of the year in
which they are sold. Scrap (Net Residual) value is assumed to be 10% of cost price,
after 5 years.
On 1 March 1995, machine number 16 was purchased from Farrier & Co. at a cost price
of $11,800, less $4000 for machine number 11 which was traded in.
REQUIRED:
(a) Draw up the Machinery Account, the Sale of Machinery (Machinery Disposal)
Account and the Provision for Depreciation Account for the year ended 31
December 1995, showing the opening balances on 1 January 1996 where applicable.
(b) Calculate the difference in the profit or loss shown in the Machinery Disposal
Account in (a) if machine number 11 had been depreciated at 40% per annum on the
reducing balance method. A full year’s depreciation was charged in the year of
purchase, but none was charged in the year of sale.
(c) Explain why Non-Current Assets are depreciated.
!
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Q6. Betax Limited has recently purchased new machinery with the following pricing details.
Cost per price list
Less 10% trade discount
Delivery costs
Installation costs
$
60,000
6,000
54,000
1,000
2,000
The machinery maintenance costs are estimated to be $5000 per annum. The business
plans to keep the machinery for five years and then dispose it off for an estimated
residual value of $4,000.
REQUIRED:
(a) Calculate the cost figure which should be used as the basis for depreciation.
(b) Calculate the annual depreciation charge using the straight line method.
(c) Prepare the Disposal of Machinery Account if the machinery is sold for $12000 at
the end of four years.
(d) ‘Provision for depreciation is made to provide for the replacement of a fixed asset’.
Discuss this statement.
!
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Q7. Northernden Traders providers the following information for the year ended 31 May
2008.
(i) Non-Current Assets at cost as at 1 June 2007 were:
Office equipment
Motor Vehicles
$
160000
230000
(ii) Provision for depreciation as at 1 June 2007 was as follows:
Office equipment
Motor vehicles
$
40000
110000
(iii)On 30 November 2007, office equipment which originally cost $26000, with a
written down value of $10400, was sold at a loss of $3000.
(iv) A motor vehicle which cost $24000 on 1 June 2006 was sold for $14000 on 31 May
2008.
(v) Depreciation policy:
Office equipment
10% per annum on cost; straight line.
Motor vehicles
25% per annum on cost; straight line.
Depreciation is applied for each month an asset is owned.
There were no purchases of Non-Current Assets during the year ended 31 May
2008. All Non-Current Assets presentwith the business at that date, had been bought
within the last three years.
REQUIRED:
(a) The following ledger accounts for the year ended 31 May 2008. Show the
appropriate balances carried down to the next year.
(i) Office Equipment
(ii) Provision for Depreciation of Office Equipment
(iii)Disposal of Office Equipment
(iv) Motor Vehicles
(v) Provision for Depreciation of Motor Vehicles
(vi) Disposal of Motor Vehicles.
(b) Discuss two causes of depreciation.
!
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(((((((((((((OMAIR(MASOOD(
AS(–(Level((
Accounts(–(9706((
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(((((((((((((OMAIR(MASOOD(
Q8. An extract from Kenneth Bull Ltd.’sStatement of Financial position as at 31 December
AS(–(Level((
2005 showed the following:
Q8. An extract from Kenneth Bull Ltd.’sStatement of Financial position as at 31 December
2005 showed the following:
Cost
Depreciation Net Book
To date
Value
$
$
Cost
Depreciation
Net $Book
Motor vehicles
560000
250000
310000
To
date
Value
Office Equipment 140000
45000
95000
$
$
$
Motor vehicles
560000
250000
310000
Equipment
95000 transactions took
During the Office
financial
year (ended140000
31 December45000
2006) the following
place. All transactions were by cheques.
During the financial year (ended 31 December 2006) the following transactions took
place.
transactions were by cheques.
MotorAll
Vehicles
Motor Vehicles
DISPOSALS
Motor Vehicle
DISPOSALS
Reference
Motor
Vehicle
MV6
Reference
MV6
Purchase
Date
1Purchase
January
2003
Date
1 January
2003
Disposal
Date
30Disposal
September
2006
Date
30 September
2006
Original Cost
$
Original
19,200Cost
$
Sale Proceeds
$
Sale2,800
Proceeds
$
19,200
2,800
PURCHASES
Motor Vehicle
PURCHASES
Reference
Motor
MVVehicle
15
Reference
Purchase
Date
1Purchase
July 2006
Date
Cost
$
Cost
26,400
$
MV 15
1 July 2006
26,400
Motor vehicles are depreciated at 25% per annum using the straight line method, the
rate being charged for each proportion of the year the motor vehicles are owned.
Motor vehicles are depreciated at 25% per annum using the straight line method, the
No allowance is made for any residual value. All motor vehicles held by the company at
rate being charged for each proportion of the year the motor vehicles are owned.
31 December 2006 had been purchased within the previous four years.
No allowance is made for any residual value. All motor vehicles held by the company at
Office Equipment
31 December 2006 had been purchased within the previous four years.
DISPOSALS
Office Equipment
Office
DISPOSALS
Equipment
Reference
Office
Equipment
OE16
Reference
!
!
OE16
!
OMAIR
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Purchase
Date
Purchase
1 July
Date
2000
1 July
2000
Disposal
Date
Disposal
31
March
Date
2006
31 March
2006
Original Cost
$
Original Cost
12,000
$
Sale Proceeds
$
Sale Proceeds
3,200
$
12,000
3,200
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(((((((((((((OMAIR(MASOOD(
Office equipment is depreciated at 10% per annum using the straight line method, the
Office
equipment
depreciated
at 10%ofper
using
the equipment
straight lineis method,
the
rate
being
chargedisfor
each proportion
theannum
year the
office
owned. No
rate being charged
of the year
office
equipment
is owned.
No
allowance
is madeforforeach
anyproportion
residual value.
One the
item
of office
equipment
which
allowance cost
is made
residual
One1995.
itemAllofother
office
equipment
which
originally
$5000 for
was any
purchased
on value.
1 January
office
equipment
had
originally
cost
$5000
was
purchased
on
1
January
1995.
All
other
office
equipment
had
been purchased within the previous seven years. No items of office equipment have
been purchased
purchased during
withinthe
theyear
previous
years. No
items of office equipment have
been
ended seven
31 December
2006.
been purchased during the year ended 31 December 2006.
REQUIRED:
REQUIRED:
(a) The following ledger accounts for the year ended 31 December 2006, showing the
(a) balance
The following
accounts
the year
ended
31 are
December
2006, showing the
carried ledger
down to
the nextfor
financial
year.
Dates
not required.
balance
carried
down to the next financial year. Dates are not required.
(i)
Motor
Vehicles
(i) Provision
Motor Vehicles
(ii)
for Motor Vehicles
(ii)
Provision
MotorVehicles
Vehicles
(iii)Disposal offorMotor
(iii)Office
Disposal
of Motor Vehicles
(iv)
Equipment
(iv)
Office
Equipment
(v) Provision for Depreciation of Office Equipment
(v) Disposal
ProvisionofforOffice
Depreciation
of Office Equipment
(vi)
Equipment.
(vi) Disposal of Office Equipment.
(b) Evaluate Kenneth Bull Ltd.’s policy of using only the straight line method of
(b) depreciation.
Evaluate Kenneth Bull Ltd.’s policy of using only the straight line method of
depreciation.
(c) ‘Depreciation is to provide funds for the replacement of a fixed asset’
(c) Discuss
‘Depreciation
is to provide funds for the replacement of a fixed asset’
this statement.
Discuss this statement.
!
!
!
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Q9. The following Statement of Financial position extract has been taken from the accounts
of Watkins Ltd. as at 31 December 2005.
Non-Current
Assets
Cost
Office Equipment
$
163,400
Depreciation
To date
$
89,100
Net Book
Value
$
74,300
During the year ended 31 December 2006 the following transactions took place in lieu
of office equipment.
Disposals
Disposal Date
30 April 2006
30 June 2006
Purchase Date
Original Cost
$
1 January 2003
20,000
1 January 2002
28,000
Additions
Date
1 October 2006
Disposal Proceeds
$
3,800
4,920
Cost
$
30,000
Depreciation for office equipment is charged using the straight line method based on a
five year life and estimated residual value of 10% of the original cost. Depreciation is
applied from the date the piece of the office equipment is bought until it is sold. All
transactions were by cheques.
REQUIRED:
(a) The following ledger accounts for the year ended 31 December 2006. Dates are not
required.
(i) Office equipment
(ii) Disposal of office equipment
(b) Discuss Watkins Ltd.’s policy of using the straight line method of depreciation for
office equipment.
!
OMAIR
MASOOD
!
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Q10. An extract from Choco Machines’ Statement of Financial position as at 28 February
2006 showed the following:
$
Machinery at cost
460,000
Depreciation to date
150,000
310,000
During the year ended 28 February 2007, the following transactions took place.
On 1 March 2006 Choco Machines purchased machinery at a cost of $80,000.
On 1 September 2006 Choco Machines sold machinery for $24,000. This machinery
was originally purchased on 1 March 2004 at a cost price of $60,000.
All transactions are by cheques.
Depreciation is calculated on a straight line basis. For purposes of calculating
depreciation, the business assumes that machinery will have a four year life. It will then
be disposed of at an estimated residual value of 10% of its original cost. The rate is
charged for each proportion of the year the machinery is owned. All other items of
machinery have been purchased within the previous three years.
REQUIRED:
(a) The following ledger accounts for the year ended 28 February 2007. Include, where
appropriate, the balance carried down to the next financial year.
(i) Machinery
(ii) Provision for Depreciation of Machinery
(iii)Machinery Disposals
(b) The Statement of Financial position (Balance Sheet) extract as at 28 February 2007
for Machinery.
(c) Discuss the problems involved in accounting for depreciation.
(d) Advise Choco Machines on why the correct treatment of capital and revenue
expenditure is important.
!
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Q11. The following information relates to Jafri Holdings’ Non-Current Assets of computer
equipment.
(i) Account balances at 1 January 2005:
•
•
Computer equipment account
Computer equipment’s provision for depreciation account
$
120,000
40,000
(ii) Purchases and sales of computer equipment in 2005
• On 31 March 2005 computer equipment purchases on 1 January 2004 for
$16,000 was sold on credit for $11,500
• On 1 July 2005 new computer equipment was purchased on credit at a cost of
$10,000
(iii)The policy of Jafri Holdings is to charge depreciation at the rate of 25% on cost
using the straight line method. In the year of purchase a full year’s depreciation will
be charged. In the year of sale, depreciation will be charged on the proportion of the
year for which the asset has been owned.
REQUIRED:
(a) Prepare, for the year ended 31 December 2005, the:
(i) Computer equipment account;
(ii) Computer equipment provision for depreciation account;
(iii)Disposal account;
(iv) Income Statement (Profit and loss account) extract
(Clearly show all calculations and workings.)
(b)
(i) Distinguish between capital expenditure and revenue expenditure.
(ii) Explain how the accounting concept of materiality assists in determining
whether expenditure is classified as capital expenditure or revenue expenditure.
(iii)Evaluate whether it would be prudent to consider training costs for staff to use
new equipment as capital expenditure or revenue expenditure.
!
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MASOOD
!
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(
(
(
(
(
(
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Q12. On 1 April 1995 Northside Motors Limited commenced business as motor vehicle
dealers and servicing engineers.
During the following two years the company’s transactions included.
1 April 1995
1 August 1995
Purchase of workshop machinery at a cost of $34,000 from the
J.Stone.
Purchase of breakdown recovery vehicle, K356BMG at a cost of
$16,000 from L. Brown. The vehicle was bought in a damaged
condition and required major repairs in the company’s workshops.
1 October 1995 Breakdown recovery vehicle K356BMG was fully operational upon
leaving the company’s workshops. Workshop costs totalled $9,000.
1 January 1996
A fire in the workshop caused some damage to the company’s
machinery. The repairs were done by the company’s own staff at a
cost of $500. The company’s insurers agreed to pay $400 in
settlement of the repair claim. When undertaking the fire repairs,
additional safety devices were installed on the workshop machinery
at a cost of $2400.
1 April 1996
A car M936TTJ was transferred from the company’s showroom for
permanent use by the company’s workshop manager in the course of
his company duties. The vehicle had a sale price of $20,000 in the
company’s showroom. This would have produced a gross profit of
30% on the sale price.
1 July 1996
Breakdown recovery vehicle K356BMG was given in part exchange
for a new breakdown vehicle N466TLT whose list price was
$32,000. The deal was completed with a cheque payment of $13,000
to G. Gates.
The depreciation policy of the company requires depreciation to be provided on fixed
assets when fully operational as follows:
On Workshop Machinery – At 10% per annum on the reducing balance basis.
On Motor Vehicles – At 20% per annum on cost.
REQUIRED:
(a) Prepare the following ledger accounts in the books of Northside Motors Limited for
each of the years ended 31 March 1996 and 1997:
(i) Workshop Machinery – at cost
(ii) Workshop Machinery – provision for depreciation
(iii)Motor Vehicles – at cost
(iv) Motor Vehicles – provision for depreciation
(v) Motor Vehicles – disposal
(b) Prepare an extract of the statement of financial position (Balance Sheet) as at 31
March 1997 of Northside Motors Limited in respect to Workshop Machinery and
Motor Vehicles.
(c) Explain what is meant by a fixed asset.
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6
2
Answer Sections A and B.
Q13.
A
Sarah runs a wholesale business. An extract from her statement of financial position
(balance sheet) at 31 December 2009 shows:
Motor vehicles at cost
Motor vehicle accumulated depreciation
For
Examiner’s
Use
$371 000
$130 000
During the financial year ended 31 December 2010 the following transactions took place.
1
A motor vehicle purchased on 1 January 2006 for $9200 was sold on
30 June 2010 for $500.
2
A motor vehicle was purchased on 1 April 2010 for $15 000.
Depreciation is charged at 20% per annum on cost, with the rate being applied for each
part of the year. No allowance is made for any residual value.
All motor vehicles held by the company at 31 December 2010 had been purchased
within the previous five years.
All transactions are by cheque.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 31 December 2010.
(i)
Motor vehicles account
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
....................................................................................................................... [4]
(ii)
Provision for depreciation of motor vehicles account
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
(iii) Disposal Account
...........................................................................................................................
!
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Q14. Alex's fixed asset accounts and provision for depreciation on fixed asset accounts for
the year ended 30th April 2008 were as follows:
2007
1 May
3 June
Furniture and equipment account
$000
2007
Balance b/d
2 700 5 July
Disposal
Bank
720 2008
30 April
Balance c/d
3 420
$000
450
2 970
3 420
2008
1 May
Balance b/d
2 970
Provision for depreciation on furniture and equipment account
$000
$000
2007
2007
5 July
Disposal
345 1 May
Balance b/d
945
2008
2008
30 April
Balance c/d
897 30 April
Profit & loss
297
1 242
1242
1 May
Balance b/d
897
2007
1 May
3 Oct
Balance b/d
Bank
Motor vehicles account
$000
2007
1 560 3 Oct
570 2008
30 April
2 130
$000
Disposal
Balance c/d
330
1 800
2 130
2008
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1 May
Balance b/d
2007
3 Oct
2008
30 April
Provision for depreciation on motor vehicles account
$000
2007
Disposal
285 1 May
Balance b/d
2008
Balance c/d
840 30 April
Profit & loss
1 125
1 May
Balance b/d
OMAIR MASOOD
1 800
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$000
675
450
1 125
840
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ALTERNATIVE PRESENTATION USING RUNNING BALANCE
Furniture and equipment account
Dr
Cr
Balance
2007
$000
$000 $000
1 May
Balance b/d
2 700 Dr
3 June
Bank
720
3 420
5 July
Disposal
450
2 970
Provision for depreciation on furniture and equipment account
Dr
Cr
Balance
2007
$000
$000 $000
1 May
Balance b/d
945 Cr
5 July
Disposal
345
600
2008
30 April
Profit and loss
297 897
Motor vehicles account
Dr
Cr
Balance
2007
$000
$000 $000
1 May
Balance b/d
1 560 Dr
3 Oct
Disposal
330 1 230
Bank
570
1 800
Provision for depreciation on motor vehicles account
Dr
Cr
Balance
2007
$000
$000 $000
1 May
Balance b/d
675 Cr
3 Oct
Disposal
285
390
2008
30 Apr
Profit and loss
450 840
During the year ended 30th April 2009 the following transactions took place:
1. On 1st June 2008 new equipment was purchased for $540 000.
On 3 December 2008 new furniture was purchased for $80 000.
On 3 September 2008 equipment which had been purchased on 31stMarch 2006 for
$300 000 was sold for $132 000.
2. On 1stFebruary 2009 three new motor vehicles were purchased for $80 000 each.
On the same date a vehicle which had cost $56 000 on 15th May 2005 was sold for
$20,000.
A full year’s depreciation is provided for on all Non-Current Assets in use at the end of the
financial year but none is provided for in the year of disposal of a fixed asset.
The rates of depreciation applied on cost for the year ended 30thApril 2008 continue to
be applied for the year ended 30thApril 2009.
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REQUIRED:
(a) Prepare the following accounts for the year ended 30th April 2009:
(i)
Furniture and equipment
(ii)
Motor vehicles
(iii) Provision for depreciation on furniture and equipment
(iv)
Provision for depreciation on Motor vehicles
(v)
Disposal of furniture and equipment
(vi)
Disposal of motor vehicles
(b)Explain the term depreciation and give one example.
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Q15. Depreciation has been described as the measure of the wearing out, consumption or
other reduction in the useful economic life of a fixed asset.
(a) Give three causes of depreciation, and for each give an example of the type of fixed
asset for which that cause is appropriate.
(b) In the accounts of Clarkson Limited, the schedule of Non-Current Assets for the
year ended 31 March 1993 appeared as follows.
Plant &
Motor Total
Non-Current Assets
Machinery Vehicles
$000
$000
$000
Cost:
At beginning of year
1900
1100
3000
Additions during the year
600
400
1000
Disposals
(350)
(500)
(850)
Cost 31 March 1993
2150
1000
3150
Depreciation:
At beginning of year
780
420
1200
Charge for the year
215
250
465
On disposals
(260)
(400)
(660)
Depreciation, 31 March 1993
735
270
1005
Net book value at end of year
1415
730
2145
During the year ended 31 march 1994 the following charges took place in the NonCurrent Assets:
1. New plant and equipment costing $450,000 was purchased on 1 October 1993. Plant
which cost $200,000 on 1 June 1989 was sold for $100,000 in November 1993.
2. Three new motor vehicles were purchased on 1 March 1994 for $140,000 each. A
part exchange allowance of $30,000, per vehicle, was received for two vehicles
which each cost $100,000 on 1 February 1991.
3. A vehicle which cost $180,000 on 31 December 1992 was involved in an accident
on 2 November 1993, following which the insurance company declared it to be
irreparable and paid compensation in full settlement of $105,000.
4. The company’s policy is to depreciate the cost of all Non-Current Assets in use at
the end of the financial year using the straight line method. No depreciation is
provided on an asset in the year in which it is sold or otherwise disposed of. The
same rates of depreciation have been used for many years.
REQUIRED: for part (c)
(i) Calculate the profits or losses arising from the disposals of Non-Current Assets in
the year ended 31 March 1994.
(ii) Prepare a Schedule of Non-Current Assets fort the year ended 31 March 1994 as it
would appear in the Company’s accounts using the same format as shown in the
1993 accounts.
Q16. In the published accounts of Mechanical Pic the schedule of Non-Current Assets for the
year ended 31 May 1987 appeared as follows
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(
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8
Richard commenced business on 1 May 2011. At the end of the first year of trading an extract
from his statement of financial position showed:
2
Non-current assets
Freehold land and Buildings
Machinery
Motor vehicle
Cost
Accumulated
Depreciation
$
2 000
16 000
3 600
$
100 000
64 000
12 000
Net book value
$
98 000
48 000
8 400
Richard has a policy to depreciate non-current assets as follows:
9
• Buildings at 2% per annum on cost.
• (ii)Machinery
atfor
25%
per annum of
onmotor
cost. vehicles
Provision
depreciation
• Motor vehicles at 30% per annum using the reducing balance method.
• Depreciation is charged for each month of ownership.
On 1 August 2012 additional machinery, costing $18 000, was purchased.
On 1 January 2013 a new motor vehicle costing $24 000 was purchased. On the same date the
old motor vehicle was traded in. Richard received an allowance of $2 600 against the cost of the
new vehicle. The vehicle disposed had originally cost $12 000 and was purchased on
1 May 2011. All payments and receipts for purchases and disposals were in cash.
REQUIRED
(a) Prepare the following ledger accounts for the year ended 30 April 2013. Dates are not
required.
(i) Motor vehicles (at cost)
9
(ii) Provision for depreciation of motor vehicles
[5]
(iii) Disposal of motor vehicles
[5]
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[5]
(iii) Disposal of motor vehicles
[5]
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Q17.
(
(
(((((((((((((OMAIR(MASOOD(
6
SMC Limited is a wholesale business. An extract from their statement of financial position at
31 December 2012 showed:
2
Non-current Assets
Fittings and fixtures
Equipment
$
240 000
60 000
$
96 000
18 000
$
144 000
42 000
SMC Ltd has a policy to depreciate fittings and fixtures at 20% per annum on cost (straight line
method) and equipment at 10% per annum on cost. Depreciation is charged for each month of
ownership.
No allowance is made for any residual value.
7
All fittings and fixtures held by the company at the end of the financial year had been purchased
within the previous four years. All equipment had been purchased within the previous seven
REQUIRED
years.
(a)During
Prepare
journal
entries
to record 2013
the following
(narratives
are not
the year
ended
31 December
the following
transactions
tookrequired).
place:
(i) The purchase of the equipment.
Purchases
1 January
2013 fittings and fixtures $16 000, purchased on credit from Walker.
Account
Debit
1 July 2013 equipment $14 000, purchased on credit from Arcadia Limited. $
Credit
$
7
Disposals
REQUIRED
31 March 2013 equipment (original cost $8 000, bought on 1 January 2010) was sold for $6 000.
(a) Prepare journal entries to record the following (narratives are not required).
Disposal proceeds were received in full by cheque.
(i) The purchase of the equipment.
[2]
Debit
Credit
$
$
7
(ii) The depreciation charge for fittings and fixtures
for the year ended 31 December 2013.
Account
Account
REQUIRED
Debit
Credit
$
$
(a) Prepare journal entries to record the following (narratives are not required).
(i) The purchase of the equipment.
[2]
Account
Debit
Credit
(ii) The depreciation charge for fittings and fixtures for the year ended 31 December
2013. $
$
Account
Debit
Credit
$
$
(iii) The depreciation charge for equipment for the year ended 31 December 2013.
[4]
8
Account
(iv) The disposal of equipment.
Debit
$
Credit
$
[2]
Account
Debit
Credit
$
$ [4]2013.
(ii) The depreciation charge for fittings and fixtures for the year ended
31 December
(iii)2014
The
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for the year ended 31 December
9706/22/M/J/14
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Debit
$
Credit
$
Credit
[4]148
$
22
Net Book Value
Depreciation charge for the year
1880
1200
400
3480
40
400
100
540
Accounts(–(9706((
( is charged
(
( year( of purchase
(
(((((((((((((OMAIR(MASOOD(
A full year’s depreciation
in the
and( no depreciation
is charged in the
year of disposal.
AS(–(Level((
Buildings and machinery are depreciated using the straight line method.
Q18.
8
Motor vehicles are depreciated using the reducing (diminishing) balance method.
Helen Ossetia provides the following information for the year ended 31 May 2013.
REQUIRED
2
Non-current assets
Buildings
Machinery
Motor vehicles
(a) Explain why Helen needs to depreciate
her
assets.$000
9 non-current
$000
$000
Total
$000
(c)
used by Helen
at 31 May 2013 700
to depreciate each
CostCalculate the rate of depreciation
2000
2000
4700class of
non-current
asset.
Accumulated depreciation
(120)
(800)
(300)
(1220)
at 31 May 2013
Net Book Value
1880
1200
400
3480
Depreciation charge for the year
40
400
100
540
A full year’s depreciation is charged in the year of purchase and no depreciation is charged in the
year of disposal.
Buildings and machinery are depreciated using the straight line method.
Motor vehicles are depreciated using the reducing (diminishing) balance method.
REQUIRED
(a) Explain why Helen needs to depreciate her non-current assets.
[3]
(b) State three causes of depreciation of motor vehicles.
9
1
(c) Calculate the rate of depreciation used by Helen at 31 May 2013 to depreciate each class of
non-current asset.
[4]
2
(d) Explain why machinery is usually depreciated using the straight line method while motor
vehicles
are usually depreciated using the reducing balance method.
3
[3]
[3]
© UCLES 2014
9706/23/M/J/14
(b) State three causes of depreciation of motor vehicles.
1
2
3
[3]
[4]
[4]
(d) Explain why machinery is usually depreciated using the straight line method while motor
vehicles are usually depreciated using
the reducing balance method.
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10
10
Additional information
Additional information
During the year ended 31 May 2014:
During the year ended 31 May 2014:
1 Helen bought new machinery costing $720 000 and sold old machinery which had cost
000.
The old
machinery
hadcosting
been bought
on 1 and
December
2011.
sold old
machinery which had cost
1 $160
Helen
bought
new
machinery
$720 000
$160 000. The old machinery had been bought on 1 December 2011.
2 Helen bought a new motor vehicle. She traded in an old vehicle valued at $40 000 and paid
000,
by cheque.
balance
of $160
2 the
Helen
bought
a new
motor
vehicle. She traded in an old vehicle valued at $40 000 and paid
the balance of $160 000, by cheque.
The trade in vehicle had cost $100 000 and had a net book value of $60 000 at the date of
disposal.
The trade in vehicle had cost $100 000 and had a net book value of $60 000 at the date of
disposal.
3 A new building costing $1 000 000 was completed during the year.
3 A new building costing $1 000 000 was completed during the year.
REQUIRED
REQUIRED
(e) Complete the non-current asset schedule below for the year ended 31 May 2014.
(e) Complete the non-current asset schedule below for the year ended 31 May 2014.
Buildings
Buildings
$000
$000
COST
COST
Balance at 31 May 2013
Balance at 31 May 2013
Additions
Additions
Disposals
Disposals
Balance at 31 May 2014
Balance at 31 May 2014
Machinery
Motor vehicles
Machinery
Motor vehicles
$000
$000
$000
$000
2000
2000
2000
2000
120
800
Total
Total
$000
$000
700
700
4700
4700
300
1220
DEPRECIATION
DEPRECIATION
Balance at 31 May 2013
Balance at 31 May 2013
Charge for the year
120
800
300
1220
Charge for the year
Disposals
Disposals
Balance at 31 May 2014
Balance at 31 May 2014
NBV at 31 May 2014
NBV at 31 May 2014
NBV at 31 May 2013
NBV at 31 May 2013
1880
1200
1880
1200
400
400
3480
3480
[16]
[16]
[Total: 30]
[Total: 30]
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Accounts(–(9706((
( by depreciation
(
( of non-current
(
(
(
(a) State what is meant
9 assets.
AS(–(Level((
3
(((((((((((((OMAIR(MASOOD(
Miu is a sole trader and prepares her financial statements to 31 May each year. She depreciates
her motor vehicles using the reducing balance method at a rate of 20% per annum.[1]
Depreciation
is charged monthly.
9
Q19.
3
(b) isState
three
causes
of depreciation
of non-current
assets.
REQUIRED
Miu
a sole
trader
and prepares
her financial
statements
to 31 May each year. She depreciates
her motor vehicles using the reducing balance method at a rate of 20% per annum. Depreciation
1
is
monthly.
(a)charged
State
what is meant by depreciation of non-current assets.
REQUIRED
2 what is meant by depreciation of non-current assets.
(a) State
[1]
10
REQUIRED
[1]
3
(b) State
three causes of depreciation of non-current assets.
(c) (i) Prepare the motor vehicles at cost account for the year ended 31 May 2015.
[3]
1
(b) State three causes of depreciation of non-current assets.
Miu
Additional information
Motor vehicles at cost account
1
Miu purchased a motor vehicle on 1 June 2013 for $152 000.
2
On 1 March 2015, a new motor vehicle was purchased at a cost of $190 000.The old motor
vehicle was part-exchanged at a value of $84 000.
2
The balance was settled by a bank loan repayable over 3 years.
3
10
3
REQUIRED
[3]
[3]
(c) (i) Prepare
the motor vehicles at cost account for the year ended 31 May 2015.
Additional
information
Additional information
Miu purchased a motor vehicle on 1 JuneMiu
2013 for $152 000.
Motor
vehicles
at cost
Miu purchased a motor vehicle on
1 June
2013 for
$152account
000.
On 1 March 2015, a new motor vehicle was purchased at a cost of $190 000.The old motor
On 1 March 2015, a new motor vehicle was purchased at a cost of $190 000.The old motor
vehicle was part-exchanged at a value 11
of $84 000.
[2]
vehicle was part-exchanged at a value of $84 000.
(iii)balance
Calculate
thesettled
profit orby
loss
on disposal
of the motorover
vehicle
purchased on 1 June 2013.
The
was
a bank
loan
repayable
3 years.
The
was
settled
by a
bank
loan
repayable
(ii) balance
Prepare
the
depreciation
account
for the years ended
Accounts(–(9706((
( motor
(vehicle
( provision
( for over
( 3 years.
(
(((((((((((((OMAIR(MASOOD(
31
May
2014
and
31
May
2015.
AS(–(Level((
Miu
11 for depreciation account
Motor vehicles provision
(iii) Calculate the profit or loss on disposal of the motor vehicle purchased on 1 June 2013.
© UCLES 2016
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[Turn over
Additional information
Miu is considering the effect it would have on her financial statements if she sold motor vehicles
for cash rather than part-exchange them in the future.
[2]
(ii) Prepare the motor vehicle provision for depreciation account for the years ended
REQUIRED
[1]
31 May 2014 and 31 May 2015.
(d) Advise Miu of the effect on her financial statements if she had not part-exchanged the motor
Additional
information
Miu
vehicle
but had sold it for $80 000 cash.
Motor vehicles provision for depreciation account
Miu is considering the effect it would have on her financial statements if she sold motor vehicles
for cash rather than part-exchange them in the future.
!
REQUIRED
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(d) Advise Miu of the effect on her financial statements if she had not part-exchanged the motor 25 151
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vehicle
but had sold it for $80 000 cash.
Accounts(–(9706((
AS(–(Level((
(
(
(
(
(
(
(((((((((((((OMAIR(MASOOD(
Q20.
On 1 January 2012 Arpan had the following additional balances in his ledger:
£
Machine at cost
36 000
Machine – provision for depreciation
?
All machinery was purchased on 1 January 2010 and has a residual value of £2 000. Arpan has
depreciated his machinery over a five-year period using the straight line method.
He has decided to change his method of depreciation to 25% per annum reducing balance, backdated
to the date of machine purchase. The change and adjustment are to be recorded in the Statement of
Comprehensive Income for the year ended 31 December 2012.
On 1 April 2012 a new machine was purchased:
£
Cost
8 000
Installation
1 600
Staff training
2 000
Annual machine insurance
00 400
12 000
He charges a full year’s depreciation on machines in the year of purchase.
Required:
(c) State one accounting concept which:
(i) supports the change of depreciation method proposed by Arpan
(ii) does not support the change of depreciation method proposed by Arpan.
(4)
(d) Distinguish between capital expenditure and revenue expenditure.
(4)
(e) State, giving your reasons, whether each of the following is capital expenditure or
revenue expenditure:
!
!
!
!
"!
"!
#$%&'()!'(*+$,,$+'-(
.((/$,!0$%&'()!'(*/1$(%)2
(4)
(f) Calculate, showing clearly all workings, the:
(i) adjustment required to the provision for depreciation on the machines to
31 December 2011 to account for the change in depreciation method
(ii) depreciation charge on all the machines for the year ended 31 December 2012.
(g) Prepare, for the year ended 31 December 2012, the:
(i) Machinery account
(8)
(3)
(ii) Machinery – provision for depreciation account.
(h) Evaluate Arpan’s decision to change the basis of charging depreciation on machines
from the straight line method to reducing balance method.
(5)
(8)
(Total 52 marks)
Answer space for question 2 is on pages 8 to 16 of the question paper.
P42221A
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27 152
REQUIRED: for part (c)
(i) Calculate the profits or losses arising from the disposals of Non-Current Assets in
the year ended 31 March 1994.
(ii) Prepare a Schedule of Non-Current Assets fort the year ended 31 March 1994 as it
would appear in the Company’s accounts using the same format as shown in the
Q21.1993 accounts.
Accounts(–(9706((
(
( of Mechanical
(
( Pic the( schedule
( of Non-Current
(((((((((((((OMAIR(MASOOD(
Q16. In the published accounts
Assets for the
AS(–(Level((
year ended 31 May 1987 appeared as follows
!
!
Non-Current Assets
Equipment Vehicles
$000
$000
At cost at beginning of year
Additions during the year
Disposals
Total
$000
750
210
(130)
460
190
(80)
1,210
400
(210)
At cost end of year
830
570
1,400
Depreciation
At beginning of year
Charge for the year
Disposals
300
83
(91)
170
114
(64)
470
197
(155)
At end of year
292
220
512
Net Book Value at end of year
538
350
888
19
During the year ended 31 May 1988 the following changes in Non-Current Assets
occurred.
1. New equipment was purchased for $175,000 and $200,000 on 1st October 1987 and
1 December 1987 respectively. A machine purchased for $60,000 on 1 April 1984
was sold on 30th September 1987 for $32,000. A machine purchased on 1 October
1981 for $25,000 was sold for scrap on 1 May 1988 realizing $2,000.
2. On 1 January 1988 four new vehicles were purchased costing $20,000 each. A part
exchange allowance of $5,000 per vehicle was received for two vehicles which cost
$15,000 each on 1st January 1985. Following on accident in May 1988 a vehicle
which cost $10,000 on 1st April 1984 was declared a total loss by the insurers. A
claim for compensation of $3,000 has been agreed by the insurance company but
the money has not yet been received by Mechanical pic.
3. The company’s policy is to depreciate the cost of all Non-Current Assets in use at
the end of the financial year using the straight line method. No depreciation is
provided on an asset in the year in which it is sold or scrapped or otherwise
disposed of. The rates of depreciation used in the year ended 31st May 1987 are also
to be used in the year ended 31st May 1988.
REQUIRED:
Prepare
(a) A disposal account showing separately the profits or losses arising from the
disposals of equipment and vehicles.
(b) A schedule of Non-Current Assets for the year ended 31st May 1988 as it should
appear in the Company’s published accounts. This schedule should be in the same
format as that shown for 1987.
OMAIR MASOOD
!
CEDAR COLLEGE
153
(CALCULATION OF DEPRECIATION RATES)
DEPRECIATION+EXTRA+QUESTION+(FOR+CALCULATION+OF+RATES)+
! Q22.
Q1. In the published accounts of Cedar Plc the schedule of Non-Current Assets for
the year ended 31 May 2016 appeared as follows
Non-Current Assets
Equipment Vehicles
$000
$000
Cost
At beginning of year
Additions during the year
Disposals
2500
400
(200)
1504
400
(100)
At end of the year
2700
1804
Depreciation
At beginning of year
Charge for the year
Disposals
1100
540
(80)
800
208
(36)
At end of year
1560
972
Net Book Value at end of year
1140
832
During the year ended 31 May 2017 the following changes in Non-Current
Assets occurred.
1. New equipment was purchased for $875,000 on 1st October 2016. A
Equipment purchased for $260,000 on 1 April 2014 was sold on 31st Jan
2017 for $132,000.
2. On 1 January 2017 a new motor vehicle costing $496000 was purchased in
part exchange of a vehicle which cost $200000 on 1st July 2014. The trade
allowance on old vehicle was $120000.
3. The company’s policy is to depreciate the cost of all Non-Current Assets in
use at the end of the financial year using the straight line method for
Equipment and Reducing Balance method for Vehicles. No depreciation is
provided on an asset in the year in which it is sold or scrapped or otherwise
disposed of. The rates of depreciation used in the year ended 31st May 2016
are also to be used in the year ended 31st May 2017.
REQUIRED:
Prepare
(a) A disposal account showing separately the profits or losses arising from the
disposals of equipment and vehicle.
(b) A schedule of Non-Current Assets for the year ended 31st May 2017. This
schedule should be in the same format as that shown for 2016.
(c) What is the difference between capital expenditure and revenue expenditure
OMAIR MASOOD
154
CEDAR COLLEGE
28
Q2.
Q23.
Following Information is available for the year ending 30th June 2017 for Amazing
Ltd for its Computer Equipment
Computer+Equipment+Account++
!
Balance!b/d!
Bank!
!
Balance!b/d!
$!
130000!
65000!
195000+
165000!
!
Disposal!
Balance!c/d!
!
!
$!
30000!
165000!
195000+
!
!
!
Provision+for+Depreciation+on+Computer+Equipment+Account++
!
Disposal!
Balance!c/d!
!
!
$!
23520!
98688!
122208+
!
!
Balance!b/d!
Income!Statement!
!
Balance!b/d!
$!
78000!
44208!
122208+
98688!
!
!
!!!It!is!company’s!policy!to!use!reducing!balance!method!where!full!deprecation!is!
charged!in!the!year!of!purchase!and!none!is!charged!in!the!year!of!disposal.!
!
Required:+
+
(a)!Calculate!the!rate!of!depreciation!used!in!the!year!ended!30th!June!2017.!
!
Additional+Information+
+
The!same!rate!and!method!of!depreciation!is!continued!to!be!used!for!the!year!
ended!30th!June!2018.!Following!transactions!took!place!in!the!year!ended!30th!!
June!2018!
!
1. A!new!computer!equipment!was!purchased!on!12th!December!2017!
costing!$45000!,!payment!was!made!by!cheque!
2. A!computer!equipment!was!sold!on!1st!February!2018!for!$10000.!This!
was!bought!on!1st!March!2016!for!$20000.!
3. A!new!computer!costing!$50000!was!purchased!on!10th!February!2018,!
this!computer!will!replace!an!old!computer!which!was!part!exchanged.!
Old!computer!was!bought!for!$15000!on!1st!August!2015,!a!trade!in!
allowance!of!!$6000!was!given.!
!
Required+for+the+year+ended+30th+June+2018.+
!
(b)!Computer!Equipment!Account!
(c)!Disposal!Accounts!(!separate!for!each!asset!sold)!
(d)!Provision!For!Depreciation!on!Computer!Equipment!Account!
!
OMAIR MASOOD
155
CEDAR COLLEGE
29
2
A business depreciates its non-current assets.
REQUIRED
(a) Explain why a business should comply with the following concepts when accounting for
non-current assets.
ACCOUNTING
Prudence
FOR NON-CURRENT ASSETS PAST PAPERS
8
ACCOUNTING
ASSETS (PAST PAPERS)
Accruals (matching) FOR NON-CURRENT
8
2 AQ1.
business depreciates its non-current assets.
2 A business depreciates its non-current assets.
REQUIRED
REQUIRED
(a) Explain why a business should comply with the following concepts when accounting for
(a) non-current
Explain whyassets.
a business should comply with the following concepts when accounting for
non-current assets.
[4]
Prudence
Prudence
Accruals (matching)
Additional information
T Limited prepares accounts to 30 June.
The following balances are available at 30 June 2017:
$
Plant and machinery at cost
174 300
Provision for depreciation
48 700
Accruals
(matching)
Accruals (matching)
On 1 July 2017 the company disposed of a machine which had a net book value of $20 000. The
machine had
been purchased on 1 July 2015.
Additional
information
[4]
1 October
2017accounts
a new machine
was purchased for $68 600 paid by cheque.
T On
Limited
prepares
to 30 June.
9
Thefollowing
companybalances
depreciates
plant andatmachinery
at 20% using the reducing balance method
The
are available
30 June 2017:
calculated on a month-by-month basis. No depreciation is charged in the year of disposal.
REQUIRED
$10
[4] [4]
andthe
machinery
cost
174on
300
(b) Plant
Prepare
provisionatfor
depreciation
plant
and
machinery
account
for
the
year
ended
10
Additional
Provision
for depreciation
30 Juneinformation
2018.
Dates are required. 48 700
Additional
information
Additional
information
Additional
information
Provision
for depreciation
onthe
plant
andhad
machinery
Rather
than
paying
immediately,
the
company
had
option
to pay
in book
full forvalue
the new
machine
On
1 July
2017
the company
disposed
of a machine
which
a net
of $20
000. The
months
from
thepurchased
date of purchase.
TRather
Limited
prepares
accounts
to
30
June.
T15
Limited
prepares
accounts
to
30
June.
machine
had
been
on
1
July
2015.
than paying immediately, the company had the option to pay in full for the new machine
$
$
15 months from the date of purchase.
REQUIRED
The
following
balances
are
available
at
30
June
2017:
The1following
balances
aremachine
available
at 30
June 2017:
On
October 2017
a new
was
purchased
for $68 600 paid by cheque.
REQUIRED
(c) Explain the impact on the financial statements
for the year ended 30 June 2018 of paying for
$$
The company depreciates plant and machinery
at 20% using the reducing balance method
the
new
machine
15
months
from
the
date
of
purchase.
Plant
and
machinery
atat
cost
174
300
Plant
and
machinery
cost
174
300
(c)
Explain
the
impact
on
the
financial
statements
for
theisyear
endedin30the
June
2018
of paying for
calculated
on
a
month-by-month
basis.
No
depreciation
charged
year
of disposal.
© UCLES 2018
9706/21/O/N/18
Provision
for
48
700
700
Provision
for depreciation
depreciation
48
the new machine
15 months from the
date
of purchase.
(4+8+3)
(Nov18/P21/Q2)
On11 July
July 2017
2017 the
machine
which
hadhad
a net
book
value
of $20
The The
On
the company
companydisposed
disposedofofa a
machine
which
a net
book
value
of 000.
$20 000.
machine
had
been
purchased
on
1
July
2015.
8
machine had been purchased on 1 July 2015.
Q2.
On
October
aa new
was
purchased
forfor
$68
600
paidpaid
cheque.
2 On
The
following2017
information
has been
extracted
from
the
books
ofbyaccount
of FA Limited at
11October
2017
newmachine
machine
was
purchased
$68
600
by cheque.
1 January 2016.
The company depreciates plant and machinery at 20% using the reducing balance method
The company depreciates plant and machinery at 20% using the reducing balance method
calculated on a month-by-month basis. No depreciation
is charged in the year of disposal.
$
calculated on a month-by-month basis. No depreciation
is charged in the year of disposal.
Motor vehicles at cost
124 000
Motor vehicles provision for depreciation
54 250
The following information is also available.9706/21/O/N/18
© UCLES 2018
1
All the company’s motor vehicles had been purchased on 1 January 2014.
2
On 1 July 2016, a new motor vehicle was purchased for $48 000. The cost was settled by [3]
a
cheque payment of $28 000, the balance by the part exchange of an old motor vehicle.
[3]
OMAIR MASOOD
CEDAR COLLEGE
[Total: 15]
The vehicle that was part-exchanged had cost $36 000.
[Total: 15]
30
company policy is to depreciate motor vehicles at 25% per annum using the reducing
9706/21/O/N/18
balance method.
© UCLES 2018
3 The
© UCLES 2018
9706/21/O/N/18
156
54 250
on for depreciation
$
(b) Analyse the effect on the profit for the year ended 31 December 2016 if FA Limited had
Motor vehicles at cost
124 000
always used the straight-line method of depreciation at 20% per annum. Show your
ion is also available.
Motor vehicles provision for depreciation
54 250
workings.
motor vehicles had
on 1isJanuary
2014.
Thebeen
following
information
also available.
9purchased
a new motor
vehicle
purchased
$48 000.
Thehad
cost
waspurchased
settled by
1 was
All the
company’s
motor
vehicles
been
ona1 January 2014.
Motor
vehicles
provision
forfor
depreciation
of $28 000, the balance by the part exchange of an old motor vehicle.
2
On 1 July 2016, a new motor vehicle was purchased for $48 000. The cost was settled by a
$cheque
$ exchange of an old motor vehicle.
was part-exchanged had
cost payment
$36 000.of $28 000, the balance by the part
The vehicle that was part-exchanged had cost $36 000.
icy is to depreciate motor vehicles at 25% per annum using the reducing
3
The company policy is to depreciate motor vehicles at 25% per annum using the reducing
balance method.
eciation is charged in the year of purchase, but none in the year of sale.
A full year’s depreciation is charged in the year of purchase, but none in the year of sale.
REQUIRED
wing ledger accounts for the year ended 31 December 2016. (Dates are not
s
(a) Prepare the following ledger accounts for the year ended 31 December 2016. (Dates are not
required.)
9
Motor vehicles at cost
Motor vehicles at cost
Motor vehicles provision for depreciation
$
Disposal
of non-current assets
$
$
10
$
$
$
(b) Analyse the effect on the profit for the year ended 31 December 2016 if FA Limited had
always
used the straight-line method of depreciation
at 20% per annum. Show your [5]
$
$
workings.
(c) Explain two accounting concepts that apply to making the annual charge for depreciation.
(6+5+4)
1
(June18/P21/Q2)
10
Q3.
3
Butler operates a small business.
He has
2 provided the following information for non-current assets at 31 July 2016.
$
Plant and
machinery
Disposal of non-current assets
Cost
195 000
Provision for depreciation
68 250
$
[4]
$
During the year ended 31 July 2017, the following transactions took place.
[Total: 15]
1
A machine was sold for $25 000. There was a loss on disposal of $3000. The machine had
been purchased on 28 May 2016.
2
A machine was purchased by cheque at a cost of $37 500. The following costs were also
incurred for the new machine:
[5]
$ 9706/21/M/J/18
Annual insurance
2825
Installation expenses
4500
(c)9706/21/M/J/18
Explain two accounting concepts that apply to making the annual charge for depreciation.
Plant and machinery is depreciated using the reducing balance method at a rate of 20% per
1
annum.
© UCLES
2018
9706/21/M/J/18
© UCLES 2018
A full year’s depreciation is charged in the year of purchase. No depreciation is charged in the
year of disposal.
REQUIRED
2 MASOOD
OMAIR
CEDAR
(a) Prepare
the following ledger accounts
for COLLEGE
the year ended
[6] 31 July 2017. Dates are not
required.
9706/21/M/J/18
(i)
[Turn over
Plant and machinery
at cost
31
[4]
157
(b)
Explain why a business may use reducing balance method of depreciation for plant and
Plant and machinery is depreciated using the reducing balance method at a rate of 20% per
machinery.
annum.
epreciation is charged in the year of purchase. No depreciation is charged in the
al.
A full year’s depreciation is charged in the year of purchase. No depreciation is charged in the
year of disposal.
REQUIRED
he following ledger accounts for the year ended 31 July 2017. Dates are not
(a) Prepare the following ledger accounts for the year ended 31 July 2017. Dates are not
[3]
required.
11
Plant and machinery at cost
(ii)
(i)
REQUIRED
Plant and machinery at cost
Provision for depreciation on plant and machinery
$
$
$
$ and
(b) Explain why a business may use reducing balance method of depreciation for plant
$
$
machinery.
[3]
Additional information
Butler also purchases loose tools for use in the business.
9
12
(c) Explain two accounting treatments for loose tools.
(b) Prepare the provision for depreciation on motor vehicles account for W Limited for the year
(d) Explain
one
fundamental
concept relating to depreciation.
ended
31
July
2017 (datesaccounting
are not required).
1
(3+3+3+4+2)
(June18/P22/Q3)
8
8
2 The directors of W Limited have provided the following balances at 1 August 2016:
2 The directors of W Limited have provided the following balances at 1 August 2016:
Additional information
Accumulated
Net book
2
Accumulated
Net
book
Cost
depreciation
value
Butler also purchases loose
tools for use
in the business. value
Cost
depreciation
[3]
$
$
$
[3]
$
$
$
Motor vehicles
125 000
43loose
750 tools. 81 250
(c) Explain
two
accounting
treatments
for
Motor vehicles
125 000
43 750
81 250
Q4.
[3]
[3]
[2]
[4]
The company
policy is to provide depreciation on motor vehicles at 20% per annum using the
REQUIRED
The 1
company
policy
is to Depreciation
provide depreciation
onon
motor
vehicles at 20%
per annum using the
reducing
balance
method.
is charged
a month-by-month
basis.
[Total: 15]
reducing balance method. Depreciation is charged on a month-by-month basis.
© UCLES 2018
9706/22/M/J/18
[Turn over
© UCLES
2018
9706/22/M/J/18
b) Explain why
a business
may
use31reducing
balance
method
of depreciation
for plant and
During
the year
ended
July 2017,
the following
transactions
took place:
machinery. During the year ended 31 July 2017, the following transactions took place:
9706/22/M/J/18
1
1
A motor vehicle was purchased on 31 January 2017 at a cost of $28 230.
A motor vehicle was purchased on 31 January 2017 at a cost of $28 230.
2
2
A2motor vehicle was sold on 28 February 2017 for $14 600. It had originally been purchased
A motor vehicle was sold on 28 February 2017 for $14 600. It had originally been purchased
on 30 April 2015 at a cost of $19 500.
on 30 April 2015 at a cost of $19 500.
3
3
There were no other additions or disposals of motor vehicles during the year.
There were no other additions or disposals of motor vehicles during the year.
[4]
REQUIRED
REQUIRED
9706/22/M/J/18
[Turn
over
(a)
of a
a non-current
non-current asset
asset before
before
the profit
profit
(a) State
Statethe
thedouble
double entry
entry required
required to
to record
record the
the
disposal of
the
9 disposal
or
(amounts are
are not
not required).
required).
[3]
orloss
losson
ondisposal
disposal is
is transferred
transferred to
to the
the income
income statement
statement (amounts
(b) Prepare the provision for depreciation on motor vehicles account for W Limited for the year
ended 31 July
2017 to
(dates
are not required).
accounts
accounts to
to be
be credited
credited
accounts
to be
be debited
debited
accounts
© UCLES 2018
Additional information
(c) Calculate the effect on profit for the year of each of transactions 1 and 2.
[7]
(6+7+2)
Butler also purchases
loose tools for use in the business.
(Nov17/P21/Q2)
c) Explain two accounting treatments for loose tools.
1
2
OMAIR MASOOD
158
CEDAR COLLEGE
32
[6]
[6]
[4]
provision for depreciation
32 855
On 1 February 2017, the company bought new equipment, $12 785, and the cost of installing this
equipment was $1595.
On 31 December 2016 the company sold
8 a motor vehicle which had cost $14 850 on
Q5.
1 August 2015. The proceeds of $8900 were paid by cheque.
33
Limited has
has been
been trading
trading for many years and prepares financial
KK Limited
financial statements
statements annually
annually to
to 30
30April.
April.
hadcompany’s
the following
following
balances atpolicy
depreciation
is 2016:
as follows:
ItItThe
had
the
balances
1 May
9
$$
Plant and equipment
20% on cost per annum
Plant
and
equipment
Plant
and
equipment
Motor
vehicles
25% reducing balance per annum
at cost
cost
84
at
84 695
695
provision
for
depreciation
provision
for
depreciation
Depreciation is charged on a month-by-month basis.
$$
32
32855
855
On 11 February
February 2017,
2017, the
the company
company bought
bought new
new equipment,
On
equipment, $12
$12 785,
785, and
and the
the cost
cost of
of installing
installingthis
this
REQUIRED
equipment
was
$1595.
equipment was $1595.
(a) 31
(i) December
Calculate 2016
the depreciation
charge
plant and equipment
for the $14
year ended
On
the company
company
sold for
a
On
31 December
2016 the
sold
a motor
motor vehicle
vehicle which
which had
had cost
cost $14850
850 on
on
30
April
2017.
Workings
must
be
shown.
1
August
2015.
The
proceeds
of
$8900
were
paid
by
cheque.
[4]
1 August 2015. The proceeds of $8900 were paid by cheque.
The company’s
company’s depreciation
depreciation policy
policy is
is as
as follows:
follows:9
The
(b) Explain two accounting concepts which are being applied when depreciation is provided.
Plant and
and equipment
equipment
20% on
on cost
cost per
per annum
Plant
20%
annum
Motor
vehicles
25%
reducing
balance
per
Motor
vehicles
25%
reducing
balance
per annum
annum
1
Depreciation is
is charged
charged on
on aa month-by-month
month-by-month basis.
Depreciation
basis.
REQUIRED
REQUIRED
(a) (i)
(i) Calculate
Calculate the
the depreciation
depreciation charge
charge for
[2]
(a)
for plant
plant and
and equipment
equipment for
for the
the year
year ended
ended
2
30
April
2017.
Workings
must
be
shown.
30 April 2017. Workings must be shown.
(ii) Prepare the motor vehicle disposal account for the year ended 30 April 2017. Workings
must be shown.
[4]
[4]
(b) Explain two accounting concepts which are being applied when depreciation is provided.
Additional information
1
K Limited is considering purchasing additional plant and equipment costing $30 000. This could
be financed by one of the following:
[2]
[2]
Bank loan
Issue
of
ordinary
shares
(ii) Prepare the motor vehicle disposal account for the year ended 30 April 2017. Workings
(ii)
motor vehicle disposal account for the year ended 30 April 2017. Workings
2 Prepare
must bethe
shown.
REQUIRED
must be shown.
(c) Advise the directors which method of finance they should choose. Justify your answer.
(Nov17/P22/Q3)
(Nov17/P22/Q3)
[4]
Additional information
K Limited is considering purchasing additional plant and equipment costing $30 000. This could
be financed by one of the following:
© UCLES 2017
9706/22/O/N/17
Bank loan
Issue of ordinary shares
REQUIRED
(c) Advise the directors which method of finance they should choose. Justify your answer.
© UCLES 2017
© UCLES 2017
OMAIR MASOOD
9706/22/O/N/17
9706/22/O/N/17
CEDAR COLLEGE
[5]
[Total: 15]
33
© UCLES 2017
9706/22/O/N/17
[Turn over
159
3
King provided the following information for non-current assets at 1 April 2015.
$
Property plant and machinery
Land and buildings – cost
252 000
Plant and machinery – cost
123 000
10
Accumulated depreciation
Q6.
Buildings
21 000
3 King provided the following information for non-current assets at 1 April 2015.
Plant and machinery
49 000
$
During the year ended 31 March 2016, the following took place:
Property plant and machinery
Land and buildings – cost
252 000
1 Land was revalued to $202 500. It had originally cost $182 000.
Plant and machinery – cost
123 000
Accumulated depreciation
2 A machine was sold on 30 November 2015. It had a net book value on 1 April 2015 of $46 350
Buildings
21 000
and
an original cost of $76 200.
Plant and machinery
49 000
3 A machine was purchased on 1 December 2015 at a cost of $62 850.
During the year ended 31 March 2016, the following took place:
The depreciation policy for non-current assets is as follows:
1 Land was revalued to $202 500. It had originally cost $182 000.
2
Buildings 2% per annum using the straight-line method
A machine was sold on 30 November 2015. It had a net book value on 1 April 2015 of $46 350
and an
original
cost of
$76per
200.
Plant
and
machinery
20%
annum using the reducing balance method
3 A machine
was purchased
on 1 Decemberbasis.
2015 at a cost of $62 850.
Depreciation
is charged
on a month-by-month
The depreciation policy for non-current assets is as follows:
REQUIRED
Buildings the
2%total
per annum
using the
straight-line
method
(a) Calculate
depreciation
charge
for buildings
for the year ended 31 March 2016.
Plant and machinery 20% per annum using the reducing balance method
Depreciation is charged on a month-by-month basis.
REQUIRED
[1]
(a) Calculate the total depreciation charge for buildings for the year ended 31 March 2016.
11
(b) Calculate the total depreciation charge
11 for plant and machinery for the year ended
31 March 2016.
(c) Prepare an extract from the statement of financial position at 31 March 2016 for non-current
assets. (c) Prepare an extract from the statement of financial position at 31 March 2016 for non-current
assets.
King
King
Extract from Statement
of
Financial
atPosition
31 March
2016
Extract from Statement ofPosition
Financial
at 31
March 2016
[1]
(b) Calculate the total depreciation charge for plant and machinery for the year ended
Accumulated
Accumulated
31 March 2016.
Cost / Valuation
Depreciation
Value
Cost / Valuation
Depreciation Net BookNet
Book Value
$
$
$
$
$
$
12
(d) State three causes of depreciation.
(Mar17/P22/Q3)
1
© UCLES 2017
2
[3]
9706/22/F/M/17
[3]
3
© UCLES 2017
OMAIR MASOOD
Workings:
Workings:
(1+3+8+3)
9706/22/F/M/17
CEDAR COLLEGE
[3]
[Total: 160
15]
34
PARTNERSHIP!ACCOUNTS!
PARTNERSHIP THEORY
(
A(partnership(is(defined(by(the(Partnership(Act(1890(as(a(relationship,(which(exists(between(two$or(
more$persons(who(carry(business(with(a(view$of$profit.$
(
CHARACTERISTICS(OF(PARTNERSHIP(
•
•
•
•
Partners(are(jointly$and$severally$liable$for(the(debts(of(the(partnership.(They(have(
unlimited(liabilities(for(the(debts(of(the(partnership.(
The(minimum(number(of(partners(is(usually(two(and(maximum(number(is(twenty,(with(
exception(of(banks,(where(the(maximum(number(is(fixed(at(ten(and(some(professional(
practices(where(there(is(no(maximum(number.(
All(partners(usually(participate(in(the(running(of(their(business.(
There(is(usually(a(written(partnership(agreement.(
(
THE(PARTNERSHIP(AGREEMENT(
(
The(partnership(agreement(is(a(written(agreement(which(sets(up(the(terms(of(the(partnership,(
especially(the(financial(arrangements(between(the(partners.(
The(contents(of(the(partnership(agreement(can(vary(from(one(partnership(to(another.(A(standard(
Partnership(Agreement(may(include(the(following(items:(
1. The(name(of(the(firm,(business(type(and(duration(
2. Capital(contribution.(
3. Profit(sharing(ratios.(
4. Interest(on(Capital.(
5. Partners’(salaries.(
6. Drawings.(
7. Interest(on(drawings.(
8. Arrangements(in(case(of(dissolution,(death(or(retirement(of(partners.(
9. Arrangement(for(settling(disputes.(
!
In!absence!of!a!formal!agreement!between!the!partners,!certain!rules!laid!down!by!the!Partnership!
Act!1890!are!presumed!to!apply.!These!are:!
1. Residual(profits(are(shared(equally(between(the(partners.(
2. There(are(no(partners’(salaries.(
3. No(interest(is(charged(on(drawings(made(by(the(partners(
4. Partners(receive(no(interest(on(capital(invested(in(the(business.(
5. Partners(are(entitled(to(interest(of(5%(per(annum(on(any(loans(they(advance(to(the(business(in(
excess(of(their(agreed(capital.(
(
OMAIR MASOOD
CEDAR COLLEGE
161
CHANGES(IN(THE(PARTNERSHIP(
A(change(in(partnership(is(when(the(agreement(has(to(be(changed(between(the(partners(due(to(
(
5 Admission(of(a(new(partner(
5 Retirement(of(an(existing(partner(
5 Or(simply(change(in(profit(sharing(ratio.(
(
Whenever(there(is(a(change(in(a(partnership,(partners(are(allowed(to(revalue(their(assets.((This(is(done(
to(make(the(situation(fair(for(all(parties.(Since(the(values(on(the(statement(of(financial(position(might(be(
different(from(the(market(so(any(gain(or(loss(is(first(adjusted(between(the(old(partners(For(this(purpose,(
they(make(a(revaluation(account.((
(
In(revaluation(account(we(simply(record(the(gains(or(losses(on(each(asset(due(to(revaluation.((This(
account(is(then(closed(by(transferring(the(balance(to(partners’(capital(account(in(the(old!profit!sharing!
ratio.!
(
(
Goodwill!!
This(is(an(added(advantage(which(an(old(business(has(over(a(similar(new(business,(due(to(its(location,(
brand(value,(costumer(base(etc.(
(
Whenever(there(is(a(change(in(partnership(,we(need(to(adjust(for(goodwill,(so(that(the(old(partners(
benefit(and(get(the(credit(of(the(efforts(they(have(done(to(make(good(reputation(of(the(business.(The(
adjustment(is(done(in(the(capital(accounts(,(where(we(first(create(the(goodwill(in(the(old(profit(sharing(
ratio(((thus(giving(credit(to(the(old(partners),(and(then(we(right(it(off(((always()(in(the(new(ratio(((so(that(
the(partner(who(is(gaining(stake(in(the(business(actually(pays(for(it().(
(
ADVANTAGES!OF!PARTNERSHIP!OVER!SOLE!TRADER!
(
1.
2.
3.
4.
Additional(capital(from(other(partners,(and(also(easier(to(get(loans.(
Additional(expertise.(
Additional(management(time.(
Risk((losses)(is(shared.(
(
!
DISADVANTAGES!OF!PARTNERSHIOP!OVER!A!SOLE!TRADER!
(
1. Profit(are(shared(
2. Possibility(of(disputes(
3. Loss(of(control(
OMAIR MASOOD
CEDAR COLLEGE
162
!
!
What!is!a!current!account?!
!
Majority(of(partnership(keep(a(fixed(capital(account,(whenever(they(have(fixed(capital(accounts,(they(
will(have(to(maintain(a(current(account(for(each(partner.(By(fixed(capital(account,(we(mean(that(all(the(
appropriation(and(drawings(will(pass(through(a(temporary(capital(account((current(account),(only(
additional(investment(by(a(partner(will(be(recorded(in(the(capital(account.(This(gives(information(
relating(to(long(term(and(short(term(aspects(separately.(This(also(helps(to(determine(the(investment(
made(by(partner(in(the(business.(
Some(partnerships(also(maintain(a(fluctuating(capital(account;(in(this(case(they(will(not(maintain(a(
current(account.(All(the(transactions(will(pass(through(the(capital(account.(
(
What!is!total!share!of!profit?!
!
This(is(different(than(just(the(remaining(share(of(profit(which(we(get(at(the(end(of(appropriation(
account.(Total(share(of(profit(means(out(of(this(year’s(net(profit,(how(much(profit(goes(to(a(particular(
partner.(As(we(know(interest(on(capital(and(salary(etc(are(deducted(from(net(profit(only(so(they(also(
constitute(as(part(of(profit.(Hence,(total(share(of(profit(is:(
(
(
Interest(on(capital(+(Salary(+(Remaining(share(of(Profit(–(Interest(on(drawings(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
163
PARTNERSHIP FINAL ACCOUNTS WORKSHEET
PARNTERSHIP*FINAL*ACCOUNTS*(*WS*1)*
Q1.*
Q1.
Khabib*and*Habib*are*in*partnership.*The*following*balances*were*extracted*from*the*books*of*
the*partnership*on*31*October*1995:*
*
*
*
*
£"
Capital*Accounts*
Khabib*
**20*000*
Habib*
**14*000*
*
*
Current*Accounts*at*1*November*
Khabib*
*************600*Cr*
1994:*
Habib*
*************100*Dr*
*
*
Drawings:*
Khabib*
**14*000*
Habib*
**12*000*
Inventory*at*1*November*1994*
**15*500*
Purchases*
136*400*
Sales*
190*000*
Sales*Returns*
****2*000*
Rent*and*Insurance*
***5*400*
Selling*Expenses*
***8*800*
General*Expenses*
***9*000*
Provision*for*Doubtful*Debts*
******900*
Trade*Receivables*
*
**16*400*
Trade*Payables*
*
**12*500*
Cash*at*bank*
*
****7*400*
Equipment*and*Fittings*
*
21000*
Provision*for*Depreciation*on*
*
10000*
Equipment*and*Fittings*
The*additional*information*is*also*available:*
1.
Inventory*at*31*October*1995*was*valued*at*£16*300.*
2.
The*Rent*and*Insurance*Account*includes*an*insurance*premium*of*£200*paid*in*
advance.*
3.
Bad*Debts*of*£400*are*to*be*written*off.*
4.
The*Provision*for*Doubtful*Debts*is*to*be*adjusted*to*5%*of*the*outstanding*
receivables’*balances*at*31*October*1995.*
5.
Equipment*and*Fittings*are*to*be*depreciated*by*10%*on*reducing*balance*basis*
6.
The*bank*statement*was*received*on*3*November*1995.*It*included*an*entry*of*
£200*for*bank*charges.*This*matter*has*not*been*dealt*with*in*the*partnership’s*
books.*
7.
Khabib*invested*£6000*by*cheque*on*1st*May*1995*this*transaction*was*
completely*omitted*from*the*books.*
8.
The*partnership*agreement*provides*that:*
*
a. Interest*is*to*be*allowed*on*partners’*fixed*capital*at*the*rate*of*10%*per*
annum.*
b. Interest*is*charged*on*Drawings*at*5%*per*annum*
*
c. Habib*is*to*be*credited*with*an*annual*salary*of*£5*000.*
*
d. The*remaining*profit*is*to*be*shared*ratio*3:2*respectively.*
REQUIRED*
The*Income**Statement*for*the*year*ended*31*October*1995*
The*Appropriation*Account*for*the*year*ended*31*October*1995.* *
*
Partners*Current*Accounts*for*the*year*ended*31*October*1995*
*
*
A*Statement*of*Financial*Position*as*at*31*October*1995.* *
*******
*
*
OMAIR
MASOOD
CEDAR COLLEGE
*
164
*
*
*
Q2.
Q2.*
Gerard*and*Lampard*are*in*partnership*sharing*profits*in*their*fixed*capital*ratio.*The*following*
balances*were*extracted*from*the*partnership*books*on*31*May*1997.*
*
!
Dr."
Cr."
£"
£"
Capital*Accounts:*
Gerard*
*
12*000*
Lampard*
*
18*000*
Current*Account*
Gerard*
*****300*
*
Lampard*
*
*****700*
Drawings*
Gerard*
**6*000*
*
Lampard*
**2*500*
*
Purchases*and*Sales*
36*000*
65*000*
Sales*Returns*and*Purchases*Returns*
**1*400*
***1*800*
Staff*Salaries*and*Wages*
**5*600*
*
Rent*and*Rates*
**3*000*
*
Administration*Expenses*
**2*300*
*
Cash*at*Bank*
**4*000*
*
Receivables*and*Payables*
10*400*
**4*400*
Provision*for*Bad*Debts*–*(1*June*1996)*
*
*****300*
Inventory*–*1*June*1996*
10*700*
*
Motor*Vehicle*at*cost*
28*000*
*
Provision*for*Depreciation*on**
*
*
Motor*Vehicle*–*1*June*1996*
____**_*
***8*000*
*
110"200"
110"200"
Additional*Information:*
*
1.
Inventory*at*31*May*was*valued*at*£11*300."
2.
Rates*£300*have*been*paid*in*advance."
3.
Administration*expenses*totaling*£200*were*owing*at*31*May1997."
4.
The*Provision*for*Bad*Debts*to*be*carried*forward*to*the*year*1997/98*is*to*be*
£200."
5.
Motor*Vehicle*is*to*be*depreciated*at*20%*per*annum*on*cost."
6.
Lampard*uses*the*motor*vehicle*in*non*business*hours*for*personal*uses*,*it*was*
decided*that*one*quarter*of*depreciation*should*be*charged*to*him."
7.
Selling*expenses*of*£100*were*paid*from*Gerard’s*personal*bank*account"*
"
8.
The"partnership"agreement"provides"that:"
"
1.Interest*is*to*be*allowed*on*partners’*capital*at*5%*
*
2.*Gerard*is*to*receive*a*salary*of*£5*000*
*
*********************************3.*Interest*of*2%*is*charged*on*drawings*
*
*********************************4.*The*remaining*profit*or*loss*is*to*be*shared*by*the*partners*in*ratio*of*2:3*
*********REQUIRED*
*
(a)
Prepare*the*Partnership*Income*Statement*and*an*Appropriation*Account*for*
the*year*ended*31*May*1997.*
*
*
*
*
*
********
"
(b)
Draw*up*the*Current*Accounts*of*the*partners*and*balance*them*at*31*May*1997.
*
*********
"
(c)
Prepare*the*Partnership*Statement*of*Financial*Position*as*at*31*May*1997.***"
OMAIR MASOOD
CEDAR COLLEGE
165
PARTNERSHIP FINAL ACCOUNTS
Q1.
Q3.
X and Y are in partnership sharing profits and losses in the ratio 3:2. Interest is
allowed on capital at 5% per annum. Su is entitled to a salary of $15 000 per
annum.The following balances were extracted from the books on 30 April 2012:
Land and Buildings (cost)
Equipment (cost)
Fixtures and fittings (cost)
Provisions for depreciation:
Land and buildings
Equipment
Fixtures and fittings
Revenue
Inventory at 1 May 2011
Purchases
Sales Return
Purchases Returns
Carriage outwards
Administration expenses
Marketing expenses
Wages and salaries
Communication expenses
Loan interest paid
Building works
6% Loan repayable 31 December 2020
Trade receivables
Provision for doubtful debts
Trade payables
Bank
Capital accounts:
X
Y
Current accounts:
X
Y
Drawings:
X
Y
OMAIR MASOOD
CEDAR COLLEGE
$
200 000
48 000
35 000
14 000
12 000
26 000
380 000
53 750
175 000
11 100
8 900
6 290
25 720
17 800
69 530
8 900
3 600
24 000
80 000
58 000
2 500
20 340
9 150 Cr
120 000
100 000
500 Cr
2 700 Dr
20 000
14 000
166
Additional information:
1.
Inventory at 30 April 2012, $38 500.
2.
Building works consisted on an extension to the building, $20 000,
and repairs to the existing air conditioning, $4 000.
3.
Marketing Expenses of $200 were paid from Y’s Personal Bank
Account
4.
At 30 April 2012 communication expenses, $890, were prepaid
and marketing expenses, $4 000, were accrued.
5.
Depreciation is to be charged on all non-current assets owned at
the end of the year as follows:
(i)
Buildings at the rate of 2% per annum on cost.
(ii)
Equipment at the rate of 20% per annum using the
diminishing (reducing) balance method.
(iii) Fixtures and fittings at the rate of 10% using the straight
line method.
6.
Trade receivables contain a debt of $3 000 which is considered
irrecoverable.
7.
The provision for doubtful debts is to be maintained at 6% of
remaining trade receivables.
8.
X has withdrawn goods worth $1000 for personal use
REQUIRED
(a)
(b)
(c)
Prepare the Income Statement and Appropriation account of X and
Y for the year ended 30 April 2012.
Current Accounts for the year ended 31 March 2012
Prepare the Statement of Financial Position of X and Y at 31 March
2012.
OMAIR MASOOD
CEDAR COLLEGE
167
Q2.
Q4.
Paul and Mudi are partners in a retail business. The partnership agreement
states that they share profits and losses in the ratio 3:2, after allowing interest on
capital at the rate of 4% per annum and charging interest on drawings at 2%.
The following balances were extracted from the books on 30 September 2009.
$
Capital Accounts
Paul
Mudi
Current Accounts
Paul
Mudi
Drawings
Paul
Mudi
Purchases
Sales
Sales returns
Inventory at 1 October 2008
Staff wages
General expenses
Rent receivable
Advertising expenses
Rent
Fixtures and fittings (at cost)
Provision for depreciation of fixtures and fittings
Trade Payables
Trade Receivables
Provision for doubtful debts
Bank
30 000
20 000
2 300 Cr
650 Dr
11 000
10 000
139 750
210 000
4 500
12 650
18 000
9 650
6 000
10 000
17 500
24 000
12 600
8 900
16 000
550
16 650
Dr
Additional information:
1.
Inventory at 30 September 2009 was valued at $15 400.
2.
Paul withdrew goods, costing $4 000 from the partnership books.
3.
At 30 September 2009:
Advertising expenses, $2 850, were prepaid.
Rent receivable, $2 000, was due.
4.
Depreciation is charged on fixtures and fittings at 15% per annum
on cost using the straight line method.
5.
The provision for doubtful debts is to be maintained at 5% of
receivables.
REQUIRED
(a)
(b)
(c)
Prepare the Income Statement and Appropriation accounts of Paul
and mudi for the year ended 30 September 2009.
Current Accounts for the year ended 30 Sepetember 2009
Prepare the Statement of Financial Position of Paul and mudi at 30
September 2009.
OMAIR MASOOD
CEDAR COLLEGE
168
Accounts(–(9706((
AS(–(Level((
(
(
(
(
(
(
((((((((((((((((((OMAIR(MASOOD(
PARTNERSHIP
FINAL ACCOUNTS ( WORKSHEET 2)
Q5.
Q1. Killim and Jaro are in partnership sharing profits in the ration of 2:1 respectively.
Interest of 5% per annum is allowed on capital and 4% is charged on total drawings for
the year.
The following are the partnership balances at 30 September 2007, after completion of
the trading account.
$
Gross profit
61,400
General expenses
9,110
Rent, rates and insurance
1,215
Discount allowed
2,010
Discount received
1,910
Wages
14,150
Bank interest (Cr)
1,320
Premises at cost
73,500
Fixtures at valuation
13,100
Trade Receivables
20,200
Trade Payables
27,842
Bank deposit account
60,000
Bank current account (Cr)
1,400
Inventory at 30 September
51,200
2007
Drawings – Killim
12,200
Drawings – Jaro
14,100
Capital account – Killim
120,000
Capital account – Jaro
55,000
Current account – Killim (Cr)
3,050
Current account – Jaro (Dr)
1,147
Additional information at 30September 2007:
Depreciation on fixtures is provided for at 25% per annum using the reducing balance
method. Jaro is credited with a salary of $20,000 per annum.
Wages prepaid amounted to $450.
Insurance accrued amount $300.
REQUIRED:
(a) Prepare an Income Statement(profit and loss) and appropriation account for the year
ended 30 September 2007
(b) Prepare Jaro’s current account for the year ended 30 September 2007.
The partnership has recently purchased new premises and needs new equipment
costing over $100,000
(c) Identify two methods of raising extra finance and state one advantage and one
disadvantage of each method.
!
!
OMAIR MASOOD
CEDAR COLLEGE
169
Accounts(–(9706((
Accounts(–(9706((
AS(–(Level((
AS(–(Level((
(
(
(
(
(
(
(
(
(
(
(
(
((((((((((((((((((OMAIR(MASOOD(
((((((((((((((((((OMAIR(MASOOD(
Q6.
Q2. Harold and Kumar are in a partnership business. The partnership agreement allows for a
Q2. Harold and Kumar are in a partnership business. The partnership agreement allows for a
1 % per annum interest on cash drawings and a 10% per annum Interest on capital.
1 % per annum interest on cash drawings and a 10% per annum Interest on capital.
Partnership salary to Harold of $5000 per annum is also deducted before the profits are
Partnership salary to Harold of $5000 per annum is also deducted before the profits are
shared in the ratio of 5:3 respectively. The following trial balance is available for the
shared in the ratio
of 5:3 respectively. The following trial balance is available for the
year ended 31st Dec 2007.
year ended 31st Dec 2007.
Sales
Sales
Sales
Returns
Sales
Returns
Purchases
Purchases
Purchases
Returns
Purchases
Returns
Carriage
on
purchases
Carriage on purchases
Carriage
on Sales
Carriage
on Sales
Discount
received
Discount received
Discount
allowed
Discount
allowed
Rent
Rent
Office
stationary
Office
stationary
Machinery
Machinery
Provision
dep-machinery
Provision
for for
dep-machinery
Electricity
Electricity
Wags
Wags
Selling
expenses
Selling
expenses
Motor
Motor
vanvan
Provision
dep-motor
Provision for for
dep-motor
van van
Trade
Receivables
Trade
Receivables
Cash
in
hand
Cash in hand
st st
Inventory
1 Jan
2007
Inventory
1 Jan
2007
Cash
at bank
Cash
at bank
Trade
Payables
Trade
Payables
Capital
– Harold
Capital
– Harold
Capital
– Kumar
Capital
– Kumar
Drawings
– Harold
Drawings
– Harold
Drawing
–
Kumar
Drawing – Kumar
Current
account
– Harold
Current
account
– Harold
Current
Account
–
Kumar
Current Account – Kumar
Provision
for for
badbad
debts
Provision
debts
6%6%
loanloan
from
Kumar
from Kumar
Debit Credit
Credit
Debit
($)
($)
($) ($)
120000
120000
30003000
95000
95000
25002500
1500
1500
10001000
17501750
14001400
40004000
300 300
15000
15000
35003500
75007500
55005500
19501950
45000
45000
50005000
37500
37500
10700
10700
80008000
53400
53400
23000
23000
75000
75000
50000
50000
10000
10000
80008000
75007500
500 500
10001000
20000
20000
st st
• •Inventory
at 31
DecDec
2007
waswas
$40000
Inventory
at 31
2007
$40000
• •TheThe
provision
for
bad
debts
at
the
endend
of the
yearyear
is toisbe
afterafter
taking
into into
provision for bad debts at the
of the
to adjusted
be adjusted
taking
account
a specific
provision
of $500
and and
a general
provision
of 4%
of the
account
a specific
provision
of $500
a general
provision
of 4%
of remaining
the remaining
Trade
Receivables.
Trade Receivables.
• •Machinery
is depreciated
using
20%20%
reducing
balance
method.
Machinery
is depreciated
using
reducing
balance
method.
• • Motor
Van
is
to
be
depreciated
at
10%
on
cost.
Harold
usesuses
the van
in non-business
Motor Van is to be depreciated at 10% on cost. Harold
the van
in non-business
hours
and
30%
of
the
depreciation
must
be
charged
to
him.
hours and 30% of the depreciation must be charged to him.
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
170
Accounts(–(9706((
AS(–(Level((
•
•
•
•
(
(
(
(
(
(
((((((((((((((((((OMAIR(MASOOD(
Kumar has taken goods worth $1000 for his personal use.
$150 of selling expenses is still in arrears. Rent includes a payment of $600 paid for 3
months ending 31st Jan 2008.
On 1st July 2007 Harold bought some furniture costing $5000 in the business. The
transaction was ignored in the books. The furniture must be depreciated at 10% per
annum on cost
No account has been taken for full year’s interest due on loan from Kumar.
REQUIRED:
(a) Income Statement (Trading, Profit and Loss a/c) and the Appropriation Account
(b) Current Account for both partners
(c) Statement of Financial position (Balance sheet) as 31st Dec 2007
! OMAIR MASOOD
!
CEDAR COLLEGE
171
Accounts(–(9706((
AS(–(Level((
(
Q3. The following
balances
Accounts(–(9706((
(
(
(
Q7. 2004.
AS(–(Level((
(
(
(
(
(
((((((((((((((((((OMAIR(MASOOD(
were ( taken (from the
of the partnership on 31 August
( books
((((((((((((((((((OMAIR(MASOOD(
Q3. The following balances were taken from the books of
2004.
Capital A/c – Sara
Debit
Capital A/C – Zara
$
A/c – Sara
Capital Current
A/c – Sara
A/c – Zara
Capital Current
A/C – Zara
Drawings
Current A/c – Sara– Sara
CurrentDrawings
A/c – Zara– Zara
30
Drawings
– Sara at 1 September 7,500
Inventory
2003
Drawings
– Zara
5,000
Purchases
Inventory
at 1 September 2003
18,400
Sales
Purchases
61,100
Rent and Insurance
Sales Selling expenses
Rent and Insurance
3,800
Administrative expenses
Selling expenses
10,400
Furniture and fittings
Administrative expenses
9,700
Trade
Receivables
Furniture
and fittings
15,000
Trade Payables
Trade Receivables
19,500
Cash at Bank
Trade Payables
Cash at Bank
16,870
167,300
Debit
$
Credit
$
24,000
15,000
360
the partnership on 31 August
Credit
$
24,000
30
15,000
7,500
360
5,000
18,400
61,100
112,900
3,800
112,900
10,400
9,700
15,000
19,500
15,040
16,870
15,040
167,300
167,300
167,300
Additional information:
Additional information:
1.
2.
3.
4.
1. Inventory on 31 August 2004 was valued at $19,800.
Inventory on 31 August 2004 was valued at $19,800.
2. Insurance amounting to $220 had been paid in advance.
Insurance amounting to $220 had been paid in advance.
3.selling
The selling
expenses
itemforofcarriage
$300 for
on purchases.
The
expenses
includedincluded
an item ofan$300
oncarriage
purchases.
4. amounted
Rent amounted
$2400
perNo
annum.
Nohad
payment
had been
Rent
to $2400toper
annum.
payment
been made
for themade
monthforofthe month of
AugustAugust
2004. 2004.
5. Selling
expenses
of were
$1,000
paidfrom
by Sara
from her
personal
5. Selling
expenses
of $1,000
paidwere
by Sara
her personal
bank
accountbank
and account and
goods goods
$1,500 $1,500
were taken
fortaken
personal
by Zara
entries
been recorded
were
for use
personal
usebutbynoZara
buthave
no entries
have been recorded
in the books.
in the books.
6. Non-Current
Assets are
to beare
depreciated
by 10% perbyannum.
6. Non-Current
Assets
to be depreciated
10% per annum.
7. Zara
brought
her
personal
motor
van
in
the
business
1 Marchon2004
valuing2004 valuing
7. Zara brought her personal motor van in theonbusiness
1 March
$5,000 as his additional capital, which has not been recorded in the books.
$5,000 as his additional capital, which has not been recorded in the books.
8. The partnership agreement provides that:
8. The partnership agreement provides that:
(i) Interest is to be allowed at 8% per annum on capital.
(i) Interest is to be allowed at 8% per annum on capital.
(ii) Sara and Zara are entitled for monthly salary of $500 and $400 respectively.
(ii) Sara
and Zaraisare
entitled
forper
monthly
(iii)Interest
on drawings
charged
at 4%
annum salary of $500 and $400 respectively.
Interestprofits/losses
on drawingsare
is charged
at 4%
per annum
(iv) All(iii)
remaining
to be shared
by Sara
and Zara in the ratio of 3:2
(iv) All remaining profits/losses are to be shared by Sara and Zara in the ratio of 3:2
respectively.
respectively.
REQUIRED:
(a)REQUIRED:
The Income Statement and the appropriation a/c for the year.
(b) The
accountsStatement
for both the
partners
(a)current
The Income
and
the appropriation a/c for the year.
(c) Statement
of
financial
position
(b) The current accounts for both the partners
(c) Statement of financial position
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
172
Accounts(–(9706((
AS(–(Level((
(
(
(
(
(
(
((((((((((((((((((OMAIR(MASOOD(
Q8.
Q4. Hook, Line and Sinker are trading in partnership as Angler Traders. The following trial
Balance as at 31 October 1997 has been taken from the firm’s accounting records:
Non-Current Assets at cost
Provision for Depreciation on Non-Current
Assets
Inventory
Trade Receivables
Bank
Trade Payables
Capital Accounts: as at 1 November 1996
Hook
Line
Sinker
Current Accounts: as at 1 November 1996:
Hook
Line
Sinker
Drawing:
Hook
Line
Sinker
Net Profit for the year ended
31 October
$
184,000
$
40,000
13,000
7,000
2,000
5,000
80,000
30,000
20,000
12,000
3,000
7,000
16,000
12,000
8,000
242,000
45,000
242,000
Additional information:
1. Hook, Line and Sinker have an agreement which includes the following:
a. Partners re to be credited with interest on any loan accounts at the annual rate of
10%.
b. Line is to be credited with an annual salary of $12,000.
c. Partners are to be credited with interest on their Capital Account balances at the
annual rate of 5%
d. The balance of net profit is to be shared between Hook, Line and sinker in the
ratio of 5:3:2 respectively.
2. On 1 November 1996, all partner agreed to transfer half of their capital Account
balances to appropriate partners’ loan accounts. The accounts are now to be
corrected for this decision.
!
!
OMAIR MASOOD
CEDAR COLLEGE
173
CHANGES IN PARTNERSHIP ( WORKSHEET 1)
Q1.
CHANGES
WORKSHEET
CHANGES
IN( PARTNERSHIP
WORKSHEET
D and P wereIN
in PARTNERSHIP
partnership
sharing
profit in the ratio1)3:2.
They decided to admit Q as
a partner on this date that is willing to bring cash $12,000 as his capital. The profit
Q1.
sharing will become D 1/2, P 1/3 and Q 1/6. The Balance Sheet as on 1st January 2005
D and P were in partnership sharing profit in the ratio 3:2. They decided to admit Q as
before the admission of new partner is as follows:
a partner on this date that is willing to bring cash $12,000 as his capital. The profit
sharing will become D 1/2, P 1/3 and Q 1/6. The Balance Sheet as on 1st January 2005
Non-Current Assets
$
$
before the admission of new partner is as follows:
Buildings
10,000 Capital – D
15,000
Motor Van
6,000 Capital – P
10,000
Non-Current Assets
$
$
Office Furniture
4,000 Partnership Funds
25,000
Buildings
10,000 Capital – D
15,000
20,000
Motor Van
6,000 Capital – P
10,000
Office Furniture
4,000 Partnership Funds
25,000
Current Assets:
20,000
Inventory
2,000
Trade Receivables
1,200
Current Assets:
Bank
2,500
5,700 Current Liabilities
700
Inventory
2,000
25,700
25,700
Trade Receivables
1,200
Bank
2,500
5,700 Current Liabilities
700
25,700
25,700
It is agreed that the assets shall be revalued as follows:
It is agreed that the assets shall be revalued as follows:
Buildings
Motor Van
Office Furniture
Buildings
Inventory
Motor Van
Office Furniture
Goodwill is valued at $9,000 and will not remain in the books.
Inventory
$
25,000
4,000
$
7,000
25,000
1,800
4,000
7,000
1,800
REQUIRED:
Goodwill is valued at $9,000 and will not remain in the books.
REQUIRED:
(a) Draw a revaluation account.
(b) Draw capital accounts in columnar from to show the effect of revaluation and
(a) Draw a revaluation account.
goodwill in admission of new partner.
(b) Draw capital accounts in columnar from to show the effect of revaluation and
(c) Prepare a Balance Sheet after admission of new partner.
goodwill in admission of new partner.
(c) Prepare a Balance Sheet after admission of new partner.
OMAIR MASOOD
CEDAR COLLEGE
174
Q2 L and S were in partnership sharing profits equally. At 31st December 2005, their
balances sheet was as follows:
$
Non-Current
Freehold premises
40,000
Assets:
Plant and
15,000
machinery
Motor Van
16,000
71,000
Current Assets:
Inventory
14,000
Trade
12,000
Receivables
Bank
7,500
33,500
Less: Current Liabilities – Trade
7,500
26,000
Payables
Capital employed
97,000
Capital – L
Capital – S
Current A/c – L
Current A/c – S
40,000
40,000
80,000
9,000
8,000
17,000
97,000
st
L and S agreed to admit B as a partner on 1 January 2006 when the assets were
revalued as follows:
$
Freehold premises
70,000
Plant and machinery
10,000
Motor Vans
8,000
It was also agreed that Inventory that had cost $7,000 was now worth $3,000, and
Trade Receivables at 31st December 2005 included bad debts of $2,000
Goodwill of $ 25,000 is valued but no goodwill account will be kept in the books.
The adjustments for the foregoing were made in the books and new partner B was
duly admitted as a partner on 1st January 2006 who paid $25,000 in the business bank
account They will share profit and loss in future in the ratio 2:2:1 for L, S and B
respectively.
REQUIRED:
(a) Draw revaluation account.
(b) Draw partners’ capital accounts, in columnar form.
(c) Prepare the Statement of Financial position (Balance Sheet) as at 1st January
2006.
OMAIR MASOOD
CEDAR COLLEGE
175
CHANGES(IN(PARTNERSHIP(((WORKSHEET(2)(
PAGE 402
!
6
Q3.!
2
Maurice and Ravel had been in partnership for a number of years, sharing profits and
losses equally.
For
Examiner's
Use
On 1 July 2011, they decided to admit Bach as a partner. Bach paid $39 000 capital
into the partnership and also provided a motor van, valued at $8000, for partnership
use.
A new partnership agreement was drawn up, effective from 1 July 2011 which stated:
1
Profits and losses will be shared by Maurice, Ravel, and Bach in the ratio
2:2:1.
2
Interest on capital is payable at 10% per annum.
3
Interest on drawings is charged at 5% on annual drawings.
4
Ravel would receive an annual salary of $10 000 per annum.
Goodwill in the business was valued at $40 000 and the partners agreed that this
would not remain in the books.
Capital accounts before goodwill – 1 July 2011
Maurice
Ravel
$120 000
$ 80 000
REQUIRED
PAGE 403
(a)
!
Prepare the capital accounts for all three
7 partners at 1 July 2011.
The following additional information relates to the year ended 30 June 2012
Revenue
Revenue (sales) returns
Purchases
Inventory: 1 July 2011
Inventory: 30 June 2012
General expenses
Current accounts – 1 July 2011
Maurice
Ravel
Maurice
Ravel
Bach
Drawings
$
2 600 000
200 000
1 625 000
120 000
145 000
480 000
17 000
12 000
96 000
120 000
35 000
For
Examiner's
Use
Cr
Dr
REQUIRED
(b)
(i)
PAGE 404
Prepare the income statement for the year ended 30 June 2012
8
(ii)
!
!
PAGE 405
Prepare the appropriation account for the year ended 30 June 2012.
9
[5]
(c)
!
!
For
Examiner's
Use
Prepare the current accounts for all three partners at 30 June 2012.
© UCLES 2012
OMAIR MASOOD
9706/23/O/N/12
CEDAR COLLEGE
Fo
Exam
Us
!
!
!
176
PAGE 340
Q4.!
!
!
6
The following statement of financial position of Mhairi, a sole trader, was drawn up at
30 April 2012.
2
Statement of Financial Position at 30 April 2012
$
$
Non-current assets
Equipment
Fixtures and fittings
$
232 000
160 000
392 000
Current assets
Inventory
Trade receivables
86 000
16 000 102 000
Current liabilities
Trade payables
Bank
38 000
14 000
52 000
Net current assets
50 000
442 000
Financed by
Capital
Add Profit for the year
400 000
86 000
486 000
44 000
442 000
Less Drawings
.
Additional information:
1
On 1 May 2012 Mhairi admitted Aiden as a partner.
2
The profit sharing ratio between Mhairi and Aiden was agreed at 3:2.
3
Aiden agreed to pay a cheque to the partnership for $200 000 and bring in
vehicles valued at $94 000 and inventory valued at $26 000.
4
341
It was agreed that goodwillPAGE
be valued
at 2 times the average net profit earned
over the past 4 years. Goodwill7is not to be retained in the books.
REQUIRED
For
Examiner's
Use
The following figures were available:
(a) Year
Calculate
the30
value
of the goodwill.
ended
April
Net sales income
2009
2010
2011
2012
$
200 000
400 000
PAGE
500341
000
860
7 000
Net profit percentage
%
6
8
8
10
REQUIRED
!
[3]
! (a) Calculate the value of the goodwill.
!
!
PAGEand
342Aiden after the admission of Aiden
(b)
Prepare the capital accounts of Mhairi
!
as a partner.
8
!
!
PAGE
343
position of the new partnership at 1 May 2012.
© UCLES
2012 Prepare the statement of financial
9706/22/M/J/12
! (c)
!
9
!
(d)
Outline four advantages to Mhairi of forming a partnership with Aiden.
[3]
1
!
OMAIR
MASOOD
! (b)
CEDAR COLLEGE
Prepare the capital accounts of Mhairi and Aiden after the admission of Aiden
as a partner.
!
For
Examiner's
Use
!
For
Examiner's
Use
For
Examiner's
Use
177
PARTNERSHIP CHANGES ( WORKSHEET 3)
Q5.
Chan, Tan and Eric were in partnership sharing profits and losses in the ratio Chan
2/3, Tan ¼ and Eric 1/12. Their summarized Balance Sheet as at 31st October 2005
was as follows:
$
Non-Current Assets: (at Book Value):
Premises
Machinery
Motor Vehicles
Current Assets:
Inventory
Trade Receivables
Less: Provision for doubtful debts
Bank
$
120,000
60,000
9,000
$
189,000
14,200
18,000
360
Current Liabilities:
Trade Payables
17,640
16,160
48,000
(12,000)
Long-term Liabilities:
Loan from Chan
36,000
225,000
(9,000)
216,000
Capital Accounts:
Chan
Tan
Eric
100,000
70,000
46,000
216,000
The partnership did not maintain partners’ current accounts.
Chan left the partnership on 31 October 2005 to start his own business. Tan and Eric
continued the partnership, sharing profits in the ratio Tan ¾ and Eric ¼.
The following adjustments were made.
(i) Premises were revalued at $150,000.
(ii) Machinery was revalued at $50,000.
(iii)Inventory was reduced in value by $1,200.
(iv) Increase the Provision for doubtful debts by $800.
The value of Goodwill was agreed at $48,000 and the Goodwill account will not
remain in the partnership books. Chen agreed to take a machine valued at $20,000
and cash $50,000. The remaining balance of his capital account is to be transferred to
his loan account. Other partners introduced $25,000 each, as their additional capital.
REQUIRED:
(a) Draw up the revaluation account to show the above adjustments.
(b) Draw up the three partner’s Capital Accounts, in columnar form, after the
adjustments have taken place.
(c) Prepare the Statement of Financial position as at 1st November 2005 after the
retirement of Chan.
OMAIR MASOOD
CEDAR COLLEGE
178
Q6. Box, Cox and Gilbert were in partnership sharing profit or loss in the ratio 3:2:1
respectively. On 31st October 2005 the partnership Statement of Financial position
(Balance Sheet) was as follows:
$
$
NON-CURRENT ASSETS:
Land and Building at cost
Plant and Machinery at note book value
Motor Vehicles at Net Book Value
CURRENT ASSESTS:
Inventory
Trade Receivables
Bank and Cash
!
!
!
!
!
!
!
!
250,000
35,000
40,000
325,000
70,000
84,000
43,500
197,500
TRADE PAYABLES: Amount due within one year
Trade Payables
(51,300) 146,200
!
471,200
!
TRADE PAYABLES: Amount due after one year
!
Loan from Gilbert
(10,000)
!
461,200
!
CAPITAL ACCOUNTS
!
Box
204,500
!
Cox
119,600
!
Gilbert
137,100
!
461,200
st
Gilbert had decided to retire from the partnership in 1 ! November 2005 and it had
been agreed that assets would be revalued. Box and Cox will share profits equally
after Gilbert’s retirement.
After revaluation, the revalued balances were as follows: $
Land and Buildings
Plant and Machinery
Motor Vehicles
Inventory
Trade Receivables
290,000
32,000
36,000
67,900
81,000
A Bad Debts Provision of 3% of the new Trade Receivables’ figure was set up.
Goodwill was valued at $36,000, but no Goodwill account is kept .$20,000 was paid
to Gilbert out of his capital account. The balance of his Capital account transferred to
his Loan Account.
REQUIRED:
(a) Draw up the Revaluation account to show the above adjustments.
(b) Draw up the three partners’ Capital Accounts, in columnar form.
(c) Prepare the Statement of Financial position as at 1st November 2005 after
retirement of Gilbert.
OMAIR MASOOD
CEDAR COLLEGE
179
PARTNERSHIP CHANGES (WORKSHEET 4)
!
Q7.!
2
2
6
6
Colin, Darim and Emran are in partnership sharing
profits and losses in the ratio 3 : 2 : 1. Their
statement of financial position at 30 November 2015 was as follows:
Colin, Darim and Emran are in partnership sharing profits and losses in the ratio 3 : 2 : 1. Their
statement of financial position at 30 November 2015 was as follows:
$
Non-current assets (at net book value)
Premisesassets (at net book value)
Non-current
Machinery
Premises
Motor vehicles
Machinery
$
135 000
84 000
000
135
36
84 000
255
36 000
Motor vehicles
255 000
Current assets
Current
assets
Inventory
Inventory
Trade receivables
Trade
Bank receivables
56 000
56 000
000
48
48 000
000
21
21 000
000
125
125 000
380 000
Bank
Total assets
Total assets
380 000
Capital and
and liabilities
liabilities
Capital
Capital accounts
accounts
Capital
Colin
Colin
Darim
Darim
REQUIRED
Emran
Emran
7
120
120 000
000
80
80 000
000
40 000
240 000
(a)
Prepare the revaluation account on Darim’s retirement on 1 December 2015.
Current
Current accounts
accounts
56 000
000
Colin
56
Colin
Revaluation account
16 000
000
Darim
16
Darim
36 000
000
Emran
36
Emran
108 000
000
108
Current liabilities
Current liabilities
Trade payables
32 000
payables
32 000
TotalTrade
capital
and liabilities
380
000
Total capital and liabilities
380 000
Additional information
Additional information
1
Darim retired on 1 December 2015. Colin and Emran continued in partnership sharing profits
Darim
retired
on 1ratio
December
2015. Colin and Emran continued in partnership sharing profits
and
losses
in the
2 : 1.
2
Goodwill was valued at $48 000. It does not appear in the partnership’s financial statements.
1
2
3
3
and losses in the ratio 2 : 1.
Goodwill was valued at $48 000. It does not appear in the partnership’s financial statements.
Darim took over one of the partnership motor vehicles at a net book value of $8000.
Darim took over one of the partnership motor vehicles at a net book value of $8000.
4
The partners agreed to revalue some of the remaining assets as follows:
4
The partners agreed to revalue some of the remaining assets as follows:
Premises
Motor vehicles
Premises
Inventory
Motor receivables
vehicles
Trade
Inventory
5
!
$
180 000
25$000
180
000
52 000
25 000
000
46
52 000
Trade agreed
receivables
000as part of the amount owing to him on his retirement. The[5]
Darim
to receive $5046
000
balance owing to him was to remain in the partnership as a loan to be repaid in 2018.
5 Darim agreed
to receive $50 000 as part of the amount owing to him on his retirement. The
information
! Additional
balance owing to him was to remain in the partnership as a loan to be repaid in 2018.
To help fund the payment to Darim on his retirement, Emran paid additional capital into the
partnership bank account. After this payment had been made the balance on Emran’s capital
account was $65 000.
Required:!
REQUIRED
© UCLES 2016
9706/22/M/J/16
(b) (a)
Prepare
a statement to show how much cash Emran paid into the partnership bank account.
Revaluation!Account!
© UCLES 2016
9706/22/M/J/16
(b) Capital!Accounts!
(c) Statement!of!financial!position!
OMAIR MASOOD
CEDAR COLLEGE
180
Q8.!
2
10
Alice, Eve and Jean are in partnership sharing profits and losses in the ratio 5 : 3 : 2 respectively.
The partnership statement of financial position at 30 June 2016 was as follows:
$
162 000
Non-current assets at net book value
Current assets
Inventory
Trade receivables
17 208
11 376
28 584
190 584
Total assets
Capital accounts
Alice
Eve
Jean
76 500
63 000
27 000
166 500
Current accounts
Alice
Eve
Jean
14 112 Debit
8 226 Credit
18 982 Credit
13 096
Current liabilities
Trade payables
Bank overdraft
8 532
2 456
10 988
190 584
Total capital and liabilities
Additional information
On 1 July 2016
1
Alice retired from the partnership.
2
Monies due to Alice on her retirement were paid to her from the partnership bank account.
3
Non-current assets were revalued at 20% lower than the net book value.
4
Inventory had a net realisable value of $12 908.
5
An amount of $1990 was written off as an irrecoverable debt.
6
Goodwill was valued at $20 250 and was not to remain in the books of account.
7
Eve and Jean continued in partnership sharing profits and losses in the ratio 3 : 2
respectively.
REQUIRED
!
(a) (i) State what is meant by net realisable value.
(a) Revaluation!Account!
(b) Capital!Accounts!
(c) Statement!of!Financial!Position!
!
[1]
12
(c) Assess the impact of Alice’s retirement on the partnership’s statement of financial position.
!
© UCLES 2016
!
9706/23/O/N/16
!
!
OMAIR MASOOD
CEDAR COLLEGE
[4]
[Total: 15]
181
2
Q9.!
1
3
Alan and Jack have been in partnership for several years, sharing profits and losses equally.
They
their financial
annually to 30 September.
(b) (i) prepare
State what
is meantstatements
by goodwill.
On 30 September 2014 the balances on their capital accounts were Alan $139 800 and Jack $128 000.
On 1 October 2014 the following took place:
1
Max joined the partnership. He paid $27 000 into the partnership bank account and introduced
[1]
inventory valued at $5000.
2
AlanState
transferred
000which
from his
capital
a loan account. Interest on the loan is
(ii)
three $15
factors
affect
the account
value of into
goodwill.
to be paid at 10% per annum. The loan is repayable by 30 September 2020.
1
The partners agreed a value for goodwill of $40 000. No goodwill is to be recorded in the
books.
4
3
4
Alan, Jack and Max are to share profits and losses in the ratio 2 : 2 : 1 respectively.
2
REQUIRED
REQUIRED
(c) Prepare the partners’ current accounts for the year ended 30 September 2015.
!
(a) Prepare the capital accounts of the partners at 1 October 2014 taking the above into account.
3
Alan, Jack and Max
Alan, Jack and Max
Current accounts
Capital accounts at 1 October 2014
!
[3]
Additional information
The terms of the new partnership agreement included the following:
Interest on capital
7.5% per annum on capital account balances at the end of each financial
year
Interest on drawings
3% on total drawings for the year
Salary to Max
$10 000 per annum
The following information is also available for the year ended 30 September 2015:
Current account balances at 1 October 2014
Drawings for the year ended 30 September 2015
Alan
$
9 500 Credit
16 000
Jack
$
7 500 Credit
24 000
Max
$
Nil
8 000
The residual profit to be shared by the partners in the profit
4 sharing ratio is $90 000.
4
!
[6]
REQUIRED
REQUIRED
!
(c) Prepare the partners’ current accounts for the year ended 30 September 2015.
(c) Prepare the partners’ current accounts for the year ended 30 September 2015. [7]
!
and Max
Alan,Alan,
Jack Jack
and Max
Current
accounts
(d) Calculate the profit for the year ended
30
September
2015 transferred from the income
Current
accounts
statement to the appropriation account.
© UCLES 2016
!
9706/21/O/N/16
!
!
© UCLES 2016
9706/21/O/N/16
[Turn over
!
OMAIR MASOOD
CEDAR COLLEGE
182
!
Q10.!
10
11
Ben, Stan and Dan have been in partnership for many years sharing profits and losses equally.
Their summarised statement of financial position at 31 March 2015 is as follows:
3
REQUIRED
$
$
Assetstwo reasons why a partner’s current account may have a debit balance.
(a) State
Non-current assets
300 000
Current assets
140 000
440 000
Capital accounts
Ben
Dan
Stan
140 000
140 000
140 000
420 000
[2]
(b)
Current accounts
Ben
Dan
Stanwhy a
Explain
partner’s capital
assets when they retire.
12 000
14 000
(6 000)
account
000 goodwill and any revaluation of
is credited20with
440 000
On 1 April 2015 Stan retired from the partnership. Ben and Dan will share profits and losses
equally.
The terms of Stan’s retirement were as follows:
1
Goodwill was valued at $36 000. No goodwill account is to appear in the books of account.
2
Stan will take a motor vehicle in part settlement of the amount due to him. This was valued in
the books at $10 000. However, the partners agreed that it was only worth $7000.
3
The remaining non-current assets were revalued at $320 000.
All of these adjustments were recorded in the books of account on 1 April 2015.
!
[3]
REQUIRED:(
(c) Prepare the revaluation account for the partnership.
!
Prepare!the!Capital!Accounts!
!
!
!
!
!
!
© UCLES 2014
9706/02/SP/16
!
[3]
!
OMAIR MASOOD
CEDAR COLLEGE
183
Q11.!
2
6
Alex and Barry have been in partnership for many years. The terms of the partnership agreement
are as follows.
1
2
3
4
5
Interest is payable to the partners on their loan
7 accounts at 10% per annum.
Interest on capital is allowed at the rate of 5% per annum.
Barry is entitled to a salary of $6000 per annum.
Interest on drawings is charged at the rate of 4% on the annual drawings.
Profits and losses are shared in the ratio of 3:1.
The following balances were taken from their books of account at 31 May 2014.
Alex
$
90 000
14 000 Cr
15 000
Capital account
Current account
Loan account
Barry
$
60 000
12 500 Dr
16 000
During the year ended 31 May 2015, drawings for Alex totalled $5000 and for Barry $12 000.
8
After the deduction of loan interest, the draft profit for the year ended 31 May 2015 was $90 000.
Additional information
REQUIRED
The partners agreed that it would be beneficial to admit another partner and on 1 June 2015
(a) Prepare
partnership appropriation account for the year ended 31 May 2015.
Cesar
joined the partnership.
!
REQUIRED
(b) Prepare the current accounts of Alex and Barry for the year ended 31 May 2015.
[7]
!
(c) State two possible advantages to Alex and 8Barry of the admission of a new partner.
Current accounts
Additional information
Details
Alex
Barry
Details
Alex
Barry
The partners agreed that it would be beneficial to admit another partner and on 1 June 2015
$
$
$
$
Cesar joined the partnership.
REQUIRED
.. ...
.....
.....
..
..
..
..
..
...
.....
.....
..
(c) State two possible advantages to Alex and Barry of the admission of a new partner.
..
...
.....
..
..
..
.....
..
..
..
..
..
...
.....
.....
..
.. [2]
.. ! ..
... ..... .....
Additional.. information
..
..
..
..
..
...
.....
.....
..
..
..
..
..
..
.. the
... partnership
..... ..... on 1 June
.. 2015
..
.. into
... the.....
.....
.. account
..
and..paid.. $100 000
partnership
bank
Cesar joined
as his capital.
..
...
.....
.....
..
..
..
..
..
...
.....
.....
..
..
..
..
..
...
.....
.....
..
..
..
..
..
...
.....
.....
..
..
..
..
It was agreed that the goodwill was to be valued at $60 000 and that no goodwill account would
remain in the books of account.
The new profit sharing ratio for Alex, Barry and Cesar from 1 June 2015 was to be 3:2:1.
..
...
.....
.....
REQUIRED information
Additional
..
...
.....
.....
..
..
..
..
..
...
.....
.....
..
..
..
..
..
..
..
...
.....
.....
..
..
[2]
..
..
..
..
(d) Prepare
accounts
Alex,
Barry
Cesar
show
of bank
Cesaraccount
on
joined the
the capital
partnership
on 1 of
June
2015
andand
paid
$100to000
intothe
theadmission
partnership
Cesar
1 June
.. 2015.
... ..... .....
.. ..
.. ..
.. ... ..... .....
.. ..
.. ! ..
as his
capital.
accounts
be valued
at $60 000 and that no goodwill account would
! It was agreed that the goodwill was toCapital
remain in the books of account.
Details
Alex
Barry
Cesar
Details
Alex
Barry
[8]
Cesar
! The new profit sharing
$
$ Alex, Barry
$9706/21/O/N/15
ratio for
and Cesar from 1 June$ 2015 was $to be 3:2:1.$
© UCLES
2015
! REQUIRED
.. .. .
..
..
..
..
..
..
..
..
.
..
..
..
..
..
..
and
of ..Cesar
! (d) ..Prepare
.. . the capital
.. .. accounts
.. .. of Alex,
.. Barry
..
.. Cesar
.. . to show
.. ..the admission
.. ..
.. on
1 June 2015.
.. .. .
..
..
OMAIR MASOOD
.. .. .
Details
© UCLES 2015
..
..
..
..
..
..
.
..
Capital accounts
CEDAR
COLLEGE
.. ..
Alex
.. ..
Barry
.. ..
Cesar
.. .. .
Details
9706/21/O/N/15
..
..
..
..
..
.. ..
Alex
.. ..
Barry
.. ..
Cesar
[Turn over
..
..
.
..
$ ..
..$ ..
..$ ..
..
..
.
.. $ ..
.. $..
..
..
$
..
..
.
..
..
..
..
..
.
..
..
..
..
..
..
..
..
..
184
PAGE 488
Q12.!
5
Alec and Jean were in partnership with capitals of $90 000 and $60 000 respectively.
2
For
Examiner's
Use
PAGE
On 1 June 2012 Alec had a debit balance on
his 489
current account of $2900 and Jean had a
credit balance on her current account of $3100. 6
On
May 2013
had
credit
balance
current
of $3000 and Jean had a
(b) 31Calculate
theAlec
profit
fora the
year
endedon
31his
May
2013 account
before appropriation.
credit balance on her current account of $340.
For
Examiner's
Use
The partnership agreement stated:
1
Interest on capital is payable at 5% per annum.
2
Interest on drawings is charged at 8% per annum.
3
Annual partnership salaries were Alec $14 000 and Jean $12 000.
4
Profits and losses are to be shared in the ratio of capital invested.
Alec withdrew $20 000 and Jean $22 000 during the year.
REQUIRED
PAGE 489
(a) Prepare the current account of each partner for the year ended 31 May 2013.
!
6
(b) Calculate the profit for the year ended 31 May 2013 before appropriation.
[6]
!
(c) Explain the term goodwill.
For
Examiner's
Use
PAGE 490
PAGE 490
PAGE 490
!
7
On 1 June 2013 Alec and Jean agreed 7to
7 admit Chris as a new partner. !!It was agreed that
Chris would pay cash into the business for goodwill.
On 1 June 2013 Alec and Jean agreed to admit Chris as a new partner. It was agreed that
For
On 1 June 2013 Alec and Jean agreed to admit Chris as a new partner. It was agreed that
Chris!will!pay!$36000!cash!into!the!business!as!his!capital.!
For
Examiner's
Chris would pay cash into the business for goodwill.
Examiner's
Chris
would
pay
cash
into
the
business
for
goodwill.
Goodwill was valued at $36 000.
Use
Use
In
addition
Chris
also
introduced
a
motor
vehicle
valued
at
$12
150
and
inventory
of
$5850.
Goodwill was valued at $36 000.
Goodwill
was valued
at $36
partners
that000.
profits
andvehicle
lossesvalued
are toatbe
shared
between
Alec,
Jean and Chris
InThe
addition
Chris agreed
also introduced
a motor
$12
150 and
inventory
of $5850.
Ininaddition
Chris
also
introduced
a motor vehicle
valued
at $12 150 and
inventory
of $5850.
ratio agreed
of 3:2:1.
Noprofits
goodwill
to
beshared
maintained
on Alec,
the
books.
The the
partners
that
and account
losses areisto
be
between
Jean and Chris
The partners agreed that profits and losses are to be shared between Alec, Jean and Chris
in the ratio of 3:2:1. No goodwill account is to be maintained on the books.
in the ratio of 3:2:1. No goodwill account is to be maintained on the books.
!
REQUIRED
[4]
REQUIRED
REQUIRED
(d) Prepare the capital accounts of Alec, Jean and Chris after Chris’s admission to the
(d) Prepare
the capital accounts of Alec, Jean and Chris after Chris’s admission to the
partnership.
(d) Prepare
the capital accounts of Alec, Jean and Chris after Chris’s admission to the
partnership.
partnership.
[6]
!
!
!
(c) Explain the term goodwill.
!
!
[10]
!
© UCLES 2013
OMAIR MASOOD
9706/22/O/N/13
[Turn over
185
CEDAR COLLEGE
[4]
For
Examiner's
Use
PAGE 213
Q13.!
1
2
Henry and Robin are in partnership with capitals of $120 000 and $80 000 respectively.
On 1 June 2010 Henry had a debit balance on his current account of $6 600 and Robin had
a credit balance on his current account of $1 000.
For
Examiner’s
Use
On 31 May 2011 Henry had a credit balance on his current account of $10 400.
The partnership agreement stated:
1
Interest on capital is payable at 8% per annum.
2
The maximum drawings permitted in any one year is 10% of capital invested.
3
Interest on drawings is charged at 5% on total drawings for the year.
4
Annual partnership salaries were Henry: $5 000 and Robin: $4 000.
5
Profits and losses are to be shared in the ratio of capital invested.
Both partners withdrew the maximum amount permitted during the year.
REQUIRED
(a) Prepare the current account of each partner for the year ended 31 May 2011.
PAGE 214
!
3
..........................................................................................................................................
(b) Calculate
the profit for the year (net profit) made by the partnership for the year ended
..........................................................................................................................................
For
31 May 2011.
Examiner’s
!
!
!
..........................................................................................................................................
..........................................................................................................................................
Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
......................................................................................................................................[8]
..........................................................................................................................................
(c) Before
forming a partnership both Henry and Robin were sole traders.
..........................................................................................................................................
State
four advantages of a partnership compared to a sole trader.
..........................................................................................................................................
..........................................................................................................................................
....................................................................................................................................[14]
..........................................................................................................................................
© UCLES 2011
9706/21/M/J/11
OMAIR
MASOOD
CEDAR COLLEGE
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
186
!
Q14.!
!
3
12
Rahman, Silva and Thierry have been in partnership for a number of years sharing profits and
losses in the ratio 3 : 2 : 1 respectively. The following draft statement of financial position was drawn
up at 30 June 2017:
$
Non-current assets at net book value
Freehold property
Plant and machinery
Motor vehicles
Current assets
Inventory
Trade receivables
Cash and cash equivalents
Total assets
120 000
56 000
38 000
42 000
19 400
2 300
$
214 000
63 700
277 700
Capital and liabilities
Capital accounts
Rahman
90 000
Silva
60 000
Thierry
30 000
180 000
Current accounts
Rahman
42 300
Silva
18 600
Thierry
(4 400)
56 500
Non-current liabilities
Loan account - Thierry
30 000
Current liabilities
13
Trade payables
11 200
Total capital and liabilities
277 700
! REQUIRED
Thierry decided to retire from the partnership on 30 June 2017 and the following information was
(a) Prepare the revaluation account at 30 June 2017.
available:
!
1
Rahman and Silva were to continue in partnership sharing profits and losses in the ratio
3 : 2 respectively.
2
Goodwill was to be valued at $48 000. No goodwill account was to be maintained in the
books of account.
3
Thierry was to take over one of the motor vehicles at an agreed value of $12 000. The
remaining motor vehicles were to be valued at $22 000.
4
The value of inventory was to be written down by $3000.
5
An irrecoverable debt of $200 was to be written off.
6
Thierry agreed not to ask for repayment of his loan to the partnership when he retired.
13
!
REQUIRED
(a)
Prepare the revaluation account at 30 June 2017.
[4]
!
(b) Prepare the journal entry to account for goodwill at 30 June 2017. A narrative is not required.
14
9706/23/O/N/17
(c) Prepare a statement to show the total
amount due to Thierry on his retirement from the
partnership.
!
© UCLES 2017
!
OMAIR MASOOD
CEDAR COLLEGE
!
187
9
Q15.!
!
3
Amit, Wang and Susi have been trading in partnership for several years and prepare their
financial statements annually to 31 March. They have never had a partnership agreement.
REQUIRED
!
!
!
(a) State four provisions which would apply in the absence of a partnership agreement.
10
1
Additional information
!
The statement of financial position for the partnership at 31 March 2016 was as follows:
2
Amit, Wang and Susi
Statement of Financial Position at 31 March 2016
$
3
Assets
Non-current assets
Freehold premises
Fixtures and fittings
4
Current assets
Trade receivables
Bank account
!
!
!
!
!
!
!
!
!
!
!
!
!
Total assets
Capital and liabilities
Capital accounts
Amit
Wang
Susi
109 000
64 900
173 900
14 500
5 600
20 100
194 000
[4]
40 000
40 000
40 000
120 000
Current accounts
Amit
27 600
Wang
18 500
Question 3(b) is on the next page.
Susi
22 200
68 300
Current liabilities
Trade payables
5 100
Other payables
600
5 700
Total capital and liabilities
194 000
On 1 April 2016 Amit retired from the partnership and the following was agreed:
1
Goodwill was valued at $42 000. A goodwill account is not to be maintained in the books of
account.
2
Assets were revalued at the following amounts:
Freehold premises
Fixtures and fittings
Trade receivables
$
120 000
62 200
13 700
9706/22/M/J/17
[Turn
over!
received $15 000 from the partnership
bank account. The remaining balance
owed
to
him was left as an interest-free loan to the partnership to be repaid by 31 March 2021.
© UCLES
3 2017
Amit
4
Wang and Susi agreed to continue in partnership and to share profits and losses equally.
OMAIR MASOOD
© UCLES 2017
CEDAR COLLEGE
9706/22/M/J/17!
!
188
11
!
REQUIRED
(b) Prepare the partners’ capital accounts to record the retirement of Amit from the partnership.
!
Amit, Wang and Susi
Capital accounts
!
[6]
Additional information
Amit has recently advised the partners that he is having financial difficulties. He has asked Wang
and Susi for the payment of the balance on his loan account as soon as possible.
REQUIRED
(c) Advise Wang and Susi whether or not they should agree to Amit’s request. Justify your
answer.
!
!
Q16.&
&
1
!
2
Tom and Jerry are in partnership. They do not have a formal partnership agreement.
The following information is available for the partnership for the year ended 30 November 2015:
$
Capital account balances at 30 November 2015
Tom
90 000
[6]
Jerry
54 000
Current
account
balances at 1 December 2014
Additional
information
Tom
18 000 Credit
Amit
has recently advised the partners that he is having
financial
Debitdifficulties. He has asked[5]Wang
Jerry
10 800
and
Susi
for
the
payment
of
the
balance
on
his
loan
account
as
soon as possible.
Drawings for the year
[Total: 15]
Tom
8 000
REQUIRED
Jerry
2 800
© UCLES
[TurnJustify
over! your
(c) 2017
Advise
Wang and Susi whether 9706/22/M/J/17
or not they 12
should
Profit
from
operations
600 agree to Amit’s request.
answer.
Loan from partner account
Tom
24 000
Tom made the loan to the partnership on 1 December 2014.
Profits had accrued evenly and drawings had been taken evenly throughout the year.
Additional information
Tom and Jerry prepared a formal partnership agreement to take effect from 1 September 2015.
The terms of the agreement were:
1
Interest on capital was to be at a rate of 8% per annum.
2
Interest on drawings was to be at a rate of 3% per annum based on the annual drawings.
3
Tom was to be paid a salary of $16 216 per annum.
4
Profits and losses were to be shared in the ratio 3 : 2 respectively.
5
Loan interest was to be paid at a rate of 4% per annum.
[5]
[Total: 15]
REQUIRED
9706/22/M/J/17
[Turn over!
(a) Calculate the profit before appropriation for the nine months ended 31 August 2015 and the
three months ended 30 November 2015.
© UCLES 2017
&
&
OMAIR MASOOD
CEDAR COLLEGE
&
189
(c) Prepare the current accounts for Tom and Jerry for the year ended 30 November 2015.
&
&
3
(b) Prepare the appropriation account for the nine months ended 31 August 2015 and the three
months ended 30 November 2015.
Appropriation Account
9 months
$
Additional information
[8]
3 months
$
&
& The partnership is considering expansion and will need to purchase additional non-current assets
5 4
& at a cost of $60 000.
(f)REQUIRED
Discuss
possible
sources
of finance
which
be ended
used to
the purchase
(c)(i)Prepare
thetwo
current
accounts
for Tom
and Jerry
for could
the year
30fund
November
2015. of
the additional non-current assets.
&
(d) State the difference between capital and revenue expenditure.
1
&
[8]
Additional information
The partnership is considering expansion and will need to purchase additional non-current assets
at a cost of $60 000.
REQUIRED
(d) State the difference between capital and revenue expenditure.
&
&
2
(e) Identify and explain one accounting concept relating to depreciation.
&
&
&
5
(f)
&
[2]
(i) Discuss two possible sources of finance which could be used to fund the purchase[2]
of
the additional non-current assets.
1
(e) Identify
and explain one accounting concept relating to depreciation.
[6] [8]
Additional
information
(ii) Recommend
the most appropriate source of finance for the partnership. Justify your
[6]
answer.
The partnership is considering expansion and will need to purchase additional non-current assets
at a cost of $60 000.
&
&
[3]
REQUIRED
(d) State the difference between capital and revenue expenditure.
© UCLES 2016
2
9706/22/O/N/16
[3]
[2]
[Total: 30]
© UCLES 2016
9706/22/O/N/16
[2]
[6]
(e) Identify and explain one accounting concept relating to depreciation.
(ii) Recommend the most appropriate source of finance for the partnership. Justify your
answer.
© UCLES 2016
9706/22/O/N/16
[Turn over
[3]
[2]
[Total: 30]
OMAIR MASOOD
© UCLES 2016
© UCLES 2016
190
CEDAR COLLEGE
9706/22/O/N/16
9706/22/O/N/16
[Turn over
CHANGES IN PARTNERSHIP (PAST PAPERS)
12
Q1.
3
Aisha, Bilal and Cao have been in partnership for many years sharing profits and losses in the
ratio 2 : 2 : 1.
Bilal decided to retire from the partnership at 31 January 2018.
Their statement of financial position at 31 January 2018 before any adjustments was as follows:
Aisha, Bilal and Cao
Statement of financial position at 31 January 2018
$
Assets
Non-current assets
Premises
REQUIRED
Motor vehicles
Fixtures and fittings
$
13
85 000
32 000
7 500
124 500
(a) Prepare a statement to calculate the profit or loss on revaluation at 31 January 2018.
Current assets
Inventory
Trade and other receivables
Total assets
Capital and liabilities
Capital accounts
Aisha
Bilal
Cao
Current accounts
Aisha
Bilal
Cao
16 200
4 800
21 000
145 500
48 000
48 000
24 000
120 000
8 400
(1 200)
6 400
13
13600
Current liabilities
REQUIRED
[3]
Trade and other payables
5 600
overdraft
300 profit
11or
900
(a)Bank
Prepare
a statement to calculate6 the
loss on revaluation at 31 January 2018.
500from the partnership.
145
Total
capital
and
liabilities
(b) Prepare Bilal’s capital account on his retirement
The following information is available.
1
The partners agreed that the value of goodwill at that date was $85 000.
2
It was also agreed that certain assets should be revalued to the following amounts.
Premises
Inventory
$
114 000
15 000
3
As part of the final settlement, Bilal was entitled to retain one of the motor vehicles at its net
book value of $11 400.
4
It was agreed that of the final settlement due to13
Bilal, $20 000 would be paid immediately by
cheque and the balance would remain in the business as a loan.
REQUIRED
© UCLES 2018
[3]
9706/21/O/N/18
(a) Prepare a statement to calculate the profit or loss on revaluation at 31 January 2018.
[6]
(b) Prepare Bilal’s capital account on his retirement from the partnership.
(c) Identify three ways, other than using bank
14 finance, in which a partnership could raise funds
to purchase a non-current asset.
(d) State three items that may be included in the appropriation account before the division of
1
residual
profit.
(3+6+3+3)
12
(Nov18/P21/Q3)
23
OMAIR
MASOOD
3
[3]
CEDAR COLLEGE
[3]
[Total: 15]
© UCLES 2018
9706/21/O/N/18
[Turn over
[3]
191
8
2
Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively.
The partners decided to admit Liam as a partner with effect from 1 July 2018.
8
2
The partnership’s statement of financial position immediately prior to Liam’s admission was as
Q2.
follows.
Jack
and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively.
The partners decided to admit Liam as a partner with effect from 1 July 2018.
Jack and Kelly
Summarised
statement
of financial
The partnership’s statement of financial position immediately
priorposition
to Liam’s admission was as
follows.
at 30 June 2018
$
Jack and Kelly
Assets
Summarised statement of financial position
Non-current assets
91 400
at 30 June 2018
Current assets
21
700
$
100
Total
assets
113
Assets
Capital and
liabilities
Non-current
assets
91 400
Capital
accounts
Current
assets
21 700
Total assets
113 10033 000
Jack
Capital
and liabilities
Kelly
71 000
Capital
accounts
Current
liabilities
9 100
33 000
Jack capital and liabilities
Total
113 100
Kelly
71 000
10
Current liabilities
The partners do not maintain separate current accounts. 9 100
Total capital and liabilities
113 100
(b) State what is meant by the term ‘goodwill’.
The following was agreed.
The partners do not maintain separate current accounts.
1 following
Assets were
revalued upwards by $21 000.
The
was agreed.
2
1
Goodwill
valued
at $52
500.
Assets
werewas
revalued
upwards
by $21
000.No goodwill account was to be maintained in the
2
Goodwill was valued at $52 500. No goodwill account was to be maintained in the
partnership’s
books
of account.
In the future
profits
and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3
3
partnership’s books of account.
[1]
respectively.
(c)
why profits
a partnership
maywould
makebean
adjustment
for goodwill
when
they 2admit
: Liam,
: 5 : 3a new
3 Explain
In the future
and losses
shared
in the ratio
Jack : Kelly
partner.
respectively.
4 The balances of the partners’ capital10
accounts immediately after Liam’s admission should
total
$120
000
and
be
in
the
same
ratio
as the
profit sharing
4 The balances of the partners’ capital accounts
immediately
afterratio.
Liam’s admission should
(b) State what is meant by the term ‘goodwill’.
total $120 000 and be in the same ratio as the profit sharing ratio.
Each partner would either pay funds into, or withdraw funds from, the business bank account
in order
to achieve
this requirement.
Each
partner
would either
pay funds into, or withdraw funds from, the business bank account
in order to achieve this requirement.
REQUIRED
REQUIRED
10
[1] next
(a) Prepare the partners’ capital accounts to record Liam’s admission as a partner on the
(a) Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next
page.what is meant by the term ‘goodwill’.
(b) page.
State
[2]
(c) Explain why a partnership may make an adjustment for goodwill when they admit a new
partner.
11
(d) Explain why partners may agree not to maintain a goodwill account in the books of the
Additional
information
partnership
on the admission of a new
11partner.
The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an
[1]
Additional information
increase of 25% on the current year’s profit. The partners believe that Liam’s admission will result
in an improved return on capital employed.
The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an
increase
of 25%
on a
thepartnership
current year’smay
profit.
The partners
believe that
admission
result
(c)
Explain
why
make
an adjustment
forLiam’s
goodwill
when will
they
admit a new
REQUIRED
in anpartner.
improved return on capital employed.
(e) Advise the partners whether or not they are correct in believing that Liam’s admission will
REQUIRED
result in an improved return on capital employed in the year ending 30 June 2019.
(e) Advise
whether
or not they are correct in believing that Liam’s admission will
Supportthe
yourpartners
answer with
calculations.
© UCLES 2018
result in an improved return on capital 9706/22/O/N/18
employed in the year ending 30 June 2019.
© UCLES 2018
9706/22/O/N/18
(6+1+2+2+4)
(d) Explain why partners may agree not to maintain a goodwill account in the books of the
Support your answer with calculations.
(Nov18/P22/Q2)
partnership on the admission of a new partner.
OMAIR MASOOD
[2]
[2]
CEDAR COLLEGE
[2]
192
2
Q3.
1
Ashir, Bo and Chan are in partnership. The 4
partnership agreement includes the following terms:
1 Prepare
Profits and
are shared
in the ratio of
the partners’
accounts.
(b)
the losses
profit and
loss appropriation
account
for the capital
partnership
for the year ended
31 December 2016.
2
Interest on capital is 6% per annum.
3
Interest on drawings is 5% calculated on each partner’s total annual drawings.
4
Partners’ loan interest is 12% per annum.
5
Chan receives a salary of $1000 per month.
The following information is available at 31 December 2016:
$
Capital accounts
Ashir
Bo
Chan
Current accounts
Ashir
Bo
Chan
Drawings
Ashir
Bo
Chan
Fixtures and fittings
Cost
Provision for depreciation
Motor vehicles
Cost
Provision for depreciation
Loan account Ashir
Gross profit
Operating expenses
Staff wages
40 000
30 000
10 000
12 300
8 200
2 600 debit
15 400
12 200
16 400
32 400
21 400
80 000
48 000
10 000
171 620
54 960
32 500
Additional information
1
Operating expenses include a payment of $600 for insurance covering the 12-month period
to 31 August 2017.
2
Staff wages owing at 31 December 2016 were $860.
3
Depreciation is to be charged as follows:
Fixtures and fittings
Motor vehicles
10% per
3 annum using the reducing balance method
20% per annum using the straight-line method
REQUIRED
4
(a) Prepare the income statement for the6 partnership
for the year ended 31 December 2016.
[5]
Start with the given gross profit of $171 620.
(b)
Prepare
the profit and loss appropriation account for the partnership for the year ended
Additional
information
31 December 2016.
6 wished to retire with immediate effect. The partners
On 1 January 2017, Chan decided that he
(c)
Prepare the partners’ current accounts for the year ended 31 December 2016 on the next
agreed that as part of his settlement, he could keep one of the motor vehicles at the net book
Additional
information
page.
[7]
value
of $18
000.
© UCLES
2018
9706/21/M/J/18
On 1 January 2017, Chan decided that he wished to retire with immediate effect. The partners
At that that
dateas
it was
that the total
value keep
of goodwill
$124 000.
agreed
part agreed
of his settlement,
he could
one of was
the motor
vehicles at the net book
value of $18 000.
REQUIRED
At that date it was agreed that the total value of goodwill was $124 000.
(d) Prepare a statement to calculate the bank settlement due to, or from, Chan on his retirement.
REQUIRED
(d) Prepare a statement to calculate the bank settlement due to, or from, Chan on his retirement.
(June18/P21/Q1a-d)
© UCLES 2018
OMAIR MASOOD
(5+5+7+4)
9706/21/M/J/18
CEDAR COLLEGE
193
Cash and cash equivalents
Other current assets
1
7 450
61 500
293 950
Capital accounts:
Paul
Angela
Current liabilities
145 000
95 000
11
53 950
2
Q4.
293 950
3 Paul and Angela are in partnership sharing profits and losses in the ratio of 3:2 respectively. No
separate
current
accountsisare
maintained.
The
following
information
available:
May 2017,
admitted
partnership.
1On 1
Rachael
paidRachael
$75 000 was
as capital
intointo
the the
partnership
bank account.
[2]
2(a) Goodwill
at $50to000.
No goodwill
was toabe
maintained
(i) Statewas
twovalued
advantages
existing
partnersaccount
of introducing
new
partner. in the books of
account.
12partners of introducing a new partner.
(ii) State two disadvantages to existing
12
1
3 Non-current
assets were revalued at $270 000.
summarised
statement
offinancial
financial
position
at 30
30 April
April 2017
2017
before
theat
admission
of Rachael
Rachael isis
1 assets
A
statement
of
position
at
the
admission
4Asummarised
Current
(excluding
cash and
cash equivalents)
werebefore
revalued
$40 500. of
asfollows:
follows:
as
5 Current liabilities were revalued at $45 950.
2
$$
6Non-current
Paul, Angela
and Rachael225
will 000
share
Non-current
assets
000 profits and losses in the ratio 5:3:2 respectively.
assets
225
Cash
77450
2 equivalents
450
Cashand
andcash
cash
equivalents
REQUIRED
Other
current
assets
61
500
Other current assets
61500
293
[2]
293950
950
(b) Calculate
the profit or loss from revaluation on 1 May 2017 when Rachael was admitted.
Capital
Capitalaccounts:
accounts:
Show
how this is divided between
the partners.
Paul
145
000
Paul
145000
000
Angela
95
(ii) Angela
State two disadvantages
existing partners of introducing a new partner.
000
95to
Profit
or loss from revaluation
Current
liabilities
53 950
Current liabilities
53 950
293 950
1
293 950
[2]
The following information is available:
The following information is available:
1
1
2
2
Rachael paid $75 000 as capital into the partnership bank account.
2 paid $75 000 as capital into the partnership bank account.
Rachael
Goodwill was valued at $50 000. No goodwill
14 account was to be maintained in the books of
Goodwill was valued at $50 000. No goodwill account was to be maintained in the books of
account.
account.
3 Non-current
assets
were revalued
at $270may
000.be made when a new partner joins a business.
(d)
Explain
an adjustment
for goodwill
Division why
between
partners
[2]
3 Non-current assets were revalued at $270 000.
4 Current assets (excluding cash and cash equivalents) were revalued at $40 500.
54
Currentliabilities
assets (excluding
cash at
and
cash
Current
were revalued
$45
950.equivalents) were revalued at $40 500.
65
Current
liabilities
were revalued
at $45
950.and losses in the ratio 5:3:2 respectively.
Paul,
Angela
and Rachael
will share
profits
6
Paul, Angela and Rachael will share profits and losses in the ratio 5:3:2 respectively.
REQUIRED
[2]
REQUIRED
(b)
Calculate the profit or loss from revaluation on 1 May 2017 when Rachael was admitted.
Show how this is divided between the partners.
(b)
Calculateonthe
lossthe
from
revaluation
onaccounts
1 May 2017
when
Rachael
wasadmission
admitted.
(c) Prepare,
theprofit
next or
page,
partners’
capital
on 1 May
2017
after the
14
[2]
Show
is divided
between the partners.
Profit
orhow
lossthis
from
revaluation
of
Rachael.
(d) Explain why an adjustment for goodwill may be made when a new partner joins a business.
Profit or loss from revaluation
(e) State two factors that may result in the creation of goodwill for a business.
© UCLES 2018
(Mar18/P22/Q3)
1
© UCLES 2018
9706/22/F/M/18
9706/22/F/M/18
(2+2+2+5+2+2)
[Turn over
Division
between partners
2
[2][2]
Division between partners
[Total: 15]
(e) State two factors that may result in the creation of goodwill for a business.
© UCLES 2018
1
OMAIR
MASOOD
9706/22/F/M/18
CEDAR COLLEGE
[Turn over
[2]
(c) Prepare, on the next page, the partners’ capital accounts on 1 May 2017 after the admission
[2]
of2 Rachael.
194
8
Q5.
2
James and Lewis have been in partnership for some years sharing profits and losses equally.
They had no partnership agreement. Their statement of financial position at 30 September 2015
showed the following information.
$
230 000
60 000
290 000
Non-current assets
Net current assets
Capital accounts
James
Lewis
200 000
70 000
270 000
Current accounts
Opening balance
Share of profit
Drawings
REQUIRED
Closing balance
James
$
31 000
15 000
(21 000)
25 000
Lewis
$
17 000
15 000
(37 000)
(5 000)
9
20 000
290 000
(a) Prepare the revaluation account.
Additional information
On 1 October 2015 Ahmed joined the partnership. A partnership agreement was drawn up. The
terms set out in the agreement were:
1
Profits and losses are to be shared equally.
2
Interest is to be charged at 5% on drawings.
10
3 Interest is to be allowed at 10% on capital.
(c) State the advantages of interest on capital and interest on drawings.
The following also took place:
10
(i) Advantage of interest on capital
1 Ahmed introduced capital of $80 000, which he paid into the business bank account.
(c) Stateto
the
advantages
the
partners of interest on capital and interest on drawings.
2 Goodwill was valued at $60 000 but no goodwill account is to be maintained in the books of
(i) Advantage of interest on capital
account.
3
to the partners
Non-current
assets were revalued at $270
10 000.
9
4
The inventory
value was to be reduced by $4000.
the partnership
(c) State thetoadvantages
of interest on capital and interest on drawings.
REQUIRED
(i) Advantage of interest on capital
10
(a) Prepare the revaluation account.
10
to
the
partnership
to the partners
(b) Prepare
the capital accounts of the partners to record the admission of Ahmed.
(c) State the advantages of interest on capital and interest on drawings.
[2]
(c) State the advantages of interest on capital and interest on drawings.
(i) (ii)
Advantage
of interest
ononcapital
Advantage
of interest
drawings
(i) Advantage of interest on capital
to the
to partners
the partners
[2]
to the partners
to the partnership
[3]
(ii) Advantage of interest on drawings
© UCLES 2016
to the partners
9706/22/F/M/16
11
to the partnership
to the partnership
to the
partnership
(d) Explain
how
the terms of the partnership agreement will affect James and Lewis.[2]
(3+4+2+2+2+2)
James of interest on drawings
(ii) (i)
Advantage
to the partnership
to the partners
(Mar16/P22/Q2)
OMAIR MASOOD
[2]
CEDAR COLLEGE
(ii) (ii)Advantage
of interest
onon
drawings
Advantage
of interest
drawings
to the
partners
to the
partners
195
[2][2]
[3]
[2]
[4]
6
Q6.
2
Kim, a sole trader, provided the following statement.
Statement of financial position at 30 September 2014
$
Non-current assets
Motor vehicles
Equipment
Fixtures and fittings
100 000
80 000
172 000
352 000
Current assets
Inventory
Trade receivables
105 000
343 000
448 000
Total assets
800 000
Capital and liabilities
Opening capital
Add profit for the year
600 000
80 000
680 000
88 000
592 000
Less Drawings
Current liabilities
Trade payables
Bank overdraft
192 000
16 000
208 000
Total capital and liabilities
800 000
Additional information
1
On 1 October 2014 Kim admitted Chan as a partner.
2
Goodwill was valued at $120 000 but will not remain in the books of the partnership.
3
The profit sharing ratio was agreed at Kim 60% and Chan 40%.
the partnership. In addition he introduced equipment
Chan agreed to pay a cheque of $160 000 to 7
valued at $325 000 and inventory valued at $26 000.
REQUIRED
8
(a) Prepare the capital accounts of Kim and Chan at 1 October 2014.
9
(b) Prepare a statement of financial position for the partnership at 1 October 2014.
4
(c) State three advantages to Kim of forming a partnership.
(June15/P22/Q2a-c)
OMAIR MASOOD
© UCLES 2015
CEDAR COLLEGE
9706/22/M/J/15
(10+8+3)
196
Q7.
6
9
2 Bill and Charles are in partnership sharing profits and losses in the ratio of 2:1.
(d) Prepare the current account of Bill for the 6 months ended 30 June 2014.
Each partner draws $2000 cash from the business each month.
On 1 October 2013 Bill paid $24 000 into the business bank account.
They provided the following information.
9
Capital accounts
1 January 2013
(d) Prepare the current account of Bill for
$ the 6 months ended 30 June 2014.
Bill
120 000
Charles
60 000
Current accounts
Bill
Charles
1 January 2013
$
17 000 Cr
18 000 Cr
31 December 2013
$
2 160 Cr
2 800 Dr
REQUIRED
7
(a) Calculate the partnership profit for the year ended 31 December 2013 before
Additional
information
appropriation.
7
On 1 January 2014 a new partnership agreement
came into force which stated that Bill and
Charles will share profits and losses in the ratio of 3:2. Bill will receive $6000 salary per annum,
Additional information
and
Charles $5200 salary per annum.
On 1 January 2014 a new partnership agreement came into force which stated that Bill and
The
ratewill
of interest
on capital
is to be
8% ratio
per annum
interest
on$6000
drawings
is to
charged at
Charles
share profits
and losses
in the
of 3:2. and
Bill will
receive
salary
perbeannum,
11%
per annum.
and Charles
$5200 salary per annum.
Bill
willoncontinue
$2000
each
month.
Theand
rateCharles
of interest
capital istotowithdraw
be 8% per
annum
andper
interest
on drawings is to be charged at
[7]
11% per annum.
Goodwill was valued at $48 000 but is not to be retained in the books of account.
Bill and Charles will continue to withdraw $2000 each per month.
(e) (i) State two reasons why the partners are charged interest on drawings.
The net profit for the 6 months ended 30 June 2014 was $12 000.
Goodwill was valued at $48 000 but is not to be retained in the books of account.
1
REQUIRED
The net profit for the 6 months ended 30 June 2014 was $12 000.
8
(b) Prepare the capital accounts of Bill and Charles for the six months ended 30 June 2014.
REQUIRED
9
2 the partnership appropriation account for the six months ended 30 June 2014.
(c) Prepare
[7]
(b)
accounts
BillBill
and
for the six
months
ended2014.
30 June 2014.
(d) Prepare
Preparethe
thecapital
current
accountofof
forCharles
the 6 months
ended
30 June
[2]
(e) (i) State two reasons why the partners are charged interest on drawings.
(ii) State two reasons why the partners receive interest on capital.
1
(Nov14/P22/Q2)
1
(5+7+7+7+2+2)
[5]
2
2
[2]
[2]
(ii) State two reasons why the partners receive interest on capital.
OMAIR MASOOD
CEDAR COLLEGE
197
[Total: 30]
1
©©UCLES
UCLES2014
2014
9706/22/O/N/14
9706/22/O/N/14
[Turn over
6
Q8
2
Aiden and Beatrice are in partnership. They share profits and losses in the ratio 2:1 and prepare
financial statements to 31 March. Their balances at 31 March 2013 were:
Aiden
Beatrice
Capital accounts
$
38 500
27 600
Current accounts
$
4 250 Cr
2 975 Cr
On 1 April 2013 Charles was admitted to the partnership on the following terms.
1
He introduced $100 000 capital in cash and it was agreed that he would receive the same
level of profits as Beatrice. The profit sharing ratio between Aiden, Beatrice and Charles
would be 2:1:1.
2
Goodwill was valued at $120 000 and it was decided that goodwill was not to be retained in
the books of account.
3
Each partner was to receive an annual salary of $30 000.
4
Interest on capital was to be paid at 8% per annum.
5
No interest was to be charged on drawings up to $50 000. Interest at 6% per annum was to
be charged on any additional drawings.
For the year ended 31 March 2014:
1
The partnership made a profit of $325 000 before adjusting for the following items:
A debt of $5000 which had been written off as irrecoverable in the previous year was
recovered.
A cheque for $15 000 received from a debtor in January 2014 was dishonoured and the
debt is to be written off.
During the year Charles took a family holiday costing $2500. This was paid from the
partnership bank account and shown as an expense.
2
Total drawings for the year were Aiden $707500; Beatrice $46 900; Charles $34 750.
REQUIRED
8
(a) Prepare the partners’ capital accounts for9the year ended 31 March 2014.
(b) Prepare the appropriation account for the year ended 31 March 2014.
(c) Prepare the partners’ current accounts for the year ended 31 March 2014. (7+11+12)
(Nov14/P21/Q2)
OMAIR MASOOD
© UCLES 2014
CEDAR COLLEGE
9706/21/O/N/14
198
www.maxpapers.com
6
Q9.
For
Examiner's
Use
Amina and Nizam are in partnership sharing profits and losses in the ratio of 3:5. Their
accounting year ended on 31 December 2011.
2
The partnership agreement also states that:
1
Amina receives a salary of $24 450 annually;
2
Interest on drawings is charged at 5% on annual drawings;
3
Interest on capital is payable at the rate of 4% per annum.
The following balances were extracted from the books on 1 January 2011.
Amina
Nizam
Capital account
$140 000
$240 000
Current account
$8 400 Dr
$3 200 Dr
On 1 July 2011, Amina paid an additional $20 000 capital into the business bank
account.
Drawings for the year were Amina $26 000, Nizam $35 000.
Profit for the year before appropriations was $120 000.
REQUIRED
www.maxpapers.com
www.maxpapers.com
For
www.maxpapers.com
Examiner's
Prepare the appropriation account for
7 Amina and Nizam for the year ended
31 December 2011.
(b)
Prepare the current accounts for 8Amina and Nizam for the year ended
31 December 2011.
8
On 1 January 2012, Amina and Nizam agree to admit Sarah as a partner.
(a)
Use
For
Examiner's
Use
For
Onthat
1 January
2012, Amina
and Nizam
to admit
Sarahwere
as aalso
partner.
At
date goodwill
was valued
at $40agree
000. The
following
agreed about the
new partnership:
At that date goodwill was valued at $40 000. The following were also agreed about the
new partnership:
1
Goodwill would not remain in the books;
1
2
2
3
Examiner's
Use
GoodwillNizam
would and
not remain
the books;
Amina,
Sarah inwould
share profits and losses in the ratio 3:5:2
respectively;
Amina, Nizam and Sarah would share profits and losses in the ratio 3:5:2
respectively;
Sarah
would put $70 000 cash into the business;
3
4
Sarah would
$70into
000the
cash
into the business;
Sarah
would put
bring
partnership
inventory at a value of $30 000 and a
motor vehicle valued at $20 000.
4
Sarah would bring into the partnership inventory at a value of $30 000 and a
motor vehicle valued at $20 000.
REQUIRED
REQUIRED
(c)
Prepare the capital accounts for Amina, Nizam and Sarah at 1 January 2012.
(Nov12/P22/Q2a-c)
(c)
Prepare the capital accounts for Amina, Nizam and Sarah at 1 January 2012.
OMAIR MASOOD
© UCLES 2012
CEDAR COLLEGE
9706/22/O/N/12
(6+6+6)
[6]
199
5
Q10.
2
Jackie and Kim are in partnership sharing profits and losses in the ratio of 3:2. The following
statement of financial position was provided on 30 April 2012.
Statement of Financial Position at 30 April 2012
$
$
Non-current assets at net book value
Premises
Fixtures and fittings
$
120 000
72 000
192 000
Current assets
Inventory
Trade receivables
Bank
30 000
20 000
16 000
66 000
Current liabilities
Trade payables
Wages accrued
12 000
1 000
13 000
53 000
245 000
Net current assets
Net assets
Capital accounts
Jackie
Kim
141 000
94 000
Current accounts
Jackie
Kim
6 000
4 000
235 000
10 000
245 000
Maura is a long-term employee of the partnership. Her current annual salary is $16 500.
She recently inherited a sum of $60 000 and is considering an invitation from Jackie and
Kim to invest $50 000 in the business in return for becoming a partner on 1 May 2012.
If she agrees, the following terms would apply:
7
1
(b)
2
Maura is to be paid a partnership salary of $11 000 per year.
Prepare Maura’s current account for the year ended 30 April 2013.
All partners are to receive interest on capital of 3% per year.
For
Examiner's
Use
3
All partners are permitted to withdraw up to $10 000 per year.
4
All partners are to pay interest on annual drawings at 5% per year.
5
Maura is to receive a 10% residual share of profits and losses. The remaining profit or
loss is to be divided between the other partners in ratio to their capital.
6
Jackie and Kim will withdraw the full amount available to them while Maura will withdraw
$5 500.
6
The profit for the year ended 30 April 2013 is forecast to be $121 000.
For
Examiner's
Use
REQUIRED
9706/21/M/J/12
an estimated profit and loss
appropriation
account for the year ended[Turn over
7
30 April 2013, assuming Maura accepts the invitation to join the partnership.
[5]
© UCLES
(a) 2012
Prepare
(b)
(c)
Prepare Maura’s current account for the year ended 30 April 2013.
For
Examiner's
Use
Instead of investing in the partnership Maura could bank her $50 000 at an annual
interest rate of 5%.
Using appropriate figures calculated in (a) and (b), advise Maura whether or not to
accept the offer of a partnership.
(11+5+6)
(June12/P21/Q2a-c)
OMAIR MASOOD
CEDAR COLLEGE
200
DISSOLUTION
DISSOLUTION OF A PARTNERSHIP:
OF PARTNERSHIP
Q1.Dougal and Florence, who have been in partnership for many years, decided to retire
and dissolve the partnership on 30 September 2003. profits and losses were shared in the
ratio of 2:1. The partnership Statement of Financial position at 30 September 2003 was as
follows.
Non-Current assets(net
$
$
$
book values)
Building
104 000
Fixtures and fittings
35 000
Motor Vehicles
26 000
165 000
Current Assets
Inventory
Trade Receivables
Bank
10 500
17 230
950
Current liabilities
Trade Payables
28 680
9230
Capital accounts Dougal
Florence
80 000
40 000
Current accounts Dougal
Florence
14 430
(2580)
19 450
184 450
120 000
11 850
Loan from Dougal
52 600
184 450
The partnership ceased trading on 30 September 2003 and the assets were realized
$
Buildings
100 000
Fixtures and fittings
37 000
One motor vehicle
15 000
One vehicle was taken by Dougal at
9500
valuation
Inventory
5200
All debts were collected and banked except for bad debts totalling $900.
Discounts allowed amounted to $200.
Trade Payables were paid in full.
Dissolution expenses of $1200 were paid by cheque.
Dougal’s loan was repaid from the bank account.
REQUIRED:
(a) Dissolution (Realisation) account.
(b) Partners’ capital accounts in columnar form.
(c) The partnership bank account.
OMAIR MASOOD
CEDAR COLLEGE
201
Q2. King, Queen and Jack have been conducting business in partnership for several year
sharing profits in the ratio 3:2:1. On 31 May 1993 they decide to dissolve their partnership.
Non-Current
assets
Leasehold premises
Delivery vans
Fixtures and fittings
Office equipment
Cost
$
120 000
47 000
11 000
15 500
Depn. To date
$
36 000
17 000
8 500
4000
Current assets
Inventory
Trade Receivables
Bank
32000
17 800
4 300
Current liabilities
Trade Payables
Net Book Value
$
84 000
30 000
2 500
11 500
128000
54 100
182 100
36900
145 200
Less loan from
solo
80 000
$65 200
CAPITALS
King
Queen
Jack
28 000
10 000
12 000
CURRENT
ACCOUNTS
King
Queen
Jack
8 700
(3 700)
10 200
50 000
15 200
$65 200
!
!
The following arrangements were made in connection with the dissolution:
- Jack to take ownership of one of the two delivery vans – at a valuation of
$12 000. The van’s original cost was $22 000 and the written down value was $11 000.
- King to take ownership of Inventory – cost price $8 000 at a valuation of $6 700.
The remaining assets realized the following amounts when sold on 1 June 1993.
$
Leasehold premises
79 000
Delivery van
13 500
Fixtures and fittings
1 500
Office equipment
9 900
Trade Receivables
16 600
Inventory
20 500
All Trade Payables were paid and discounts received amounted to $1 350. The expenses of
dissolution amounted to $1 910
REQUIRED:
(a) The entries to record the above events in:
(i)
(ii)
(iii)
the realisation account;
the partners’ capital accounts (use columnar form);
the firm’s bank account
OMAIR MASOOD
CEDAR COLLEGE
!
202
Q3. Apple, Beech and Cherry have been trading for several years and sharing profit on the
basis 2:2:1. They decided to dissolve their partnership on 1 October 1994 because of bad
trading conditions. The Statement of Financial position of the business at 30 September
1994 showed:
Non-Current assets(at written
down value)
Plant machinery
Motor vehicles
Current assets
Inventory
Investments
Trade Receivables
Bank
Less: Current liabilities
Trade Payables
$
55 000
27 000
82 000
12 000
33 000
45 000
4 000
94000
29000
Financed by
Capital accountApple
Beech
Cherry
40 000
30 000
40 000
Current accountApple
Beech
Cherry
5 000
6 500
7 500
Loan
Beech
65000
$147000
110 000
19 000
129 000
18 000
$147 000
The loan from Beech was repaid, the Plant & Machinery was sold at auction for a net
$41000 and Apple took over a car (written down value $4000) for an agreed value of
$5500. The remaining vehicles were sold for $19,200. Inventory realized $10,200 and Trade
Receivables realized $38,700. The Trade Payables of $29000 were paid off with cheques
totalling $28100 and the investments realized $3,7000. Dissolution expenses incurred were
$1,910.
REQUIRED:
(a) the Bank account;
(b) the Realization account;
(c) the Partners’ accounts (Combining capital and current items);
to cover the dissolution of the Partnership.
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
203
Q4. Lilley, Dilley, and Willey have been carrying on business in partnership for some years
sharing profits in the ratio 3:2:1. On 31 December 19-3 they decided to dissolve the
partnership.On that date the firm’s Statement of Financial position was as follows:
Cost
Depreciation
NBV
$
$
$
Non-Current assets:
Plant and equipment
25000
13000
12000
Motor vehicles
18000
15000
3000
Office machinery
3000
2400
600
46000
30400
15600
Current assets:
Inventory
Trade Receivables
Bank
Current liabilities: Trade Payables
21000
6400
3800
31200
( 2700)
Less Loan from Lilley
Capitals:
Lilley
Dilley
Willey
20000
10000
2000
Current accounts: Lilley
Dilley
Willey
4000
5000
(1900)
28500
44100
5000
39100
32000
7100
39100
Willey retained his car which was valued at $4000. The remaining assets were sold for
$
10000
Plant and equipment
Motor cars
5000
Office machinery
400
Inventory
24000
Trade Receivables
6200
All Trade Payables were paid and discounts received amounted to $74 and dissolution
expenses amounted $800
Required:
Show the following accounts to record the dissolution of the partnership:
(i)
Realisation account
(ii)
The partners’ capital accounts in columnar form
(iii)
The firm’s bank account
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
204
Q5.The partnership of Allegro, Lento and Largo, sharing profits/losses in the ration 4:3:2
has been in business for many years. Recently, the firm’s market share has been declining,
and thus, when Largo decides to retire on 31 May 19-8, the partnership is dissolved. The
final Statement of Financial position of the partnership is:
Non-Current assets (net)
$
$
$
Premises
103500
Motor vehicles
20360
Office equipment
26000
149860
Current assets
Inventory
12628
Trade Receivables
14734
Bank
5282
32644
Current liabilities
Trade Payables
15510
15510
17134
166994
Long term liability
15% bank loan
Capital:
50000
116994
Allegro
Lento
Largo
50000
20000
40000
110000
Current a/cs:
Allegro
Lento
Largo
10358
(12341)
8977
6994
116994
Allegro feels that he could run a similar business successfully on a smaller scale from his
own home, and therefore elects to take some of the partnership’s assets at agreed
valuations as follows:
Motor vehicle
$5200
Office equipment
$7850
The premises realize $120000 the remaining vehicles and office equipment $2080 and
$3160 respectively, and the Inventory is sold for $2810. Trade Receivables settle for $11455
and dissolution costs amount to $1277. Trade Payables accept $14750 in full settlement.
REQUIRED:
(i)
The realization account, bank account and partner’s capital accounts, showing
the closing entries of the business.
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
205
Q6. Nursultan, Katia and Avtandil are in partnership sharing profits and losses in the ratio
of 3:2:1.
The following balances were available on 31 March 2012:
Capital accounts
Nursultan
Katia
Avtandil
$
10 000
20 000
58 000
Current accounts
Nursultan
Katia
Avtandil
5 350 Dr
6 250
21 100
Property
Motor vehicle
Inventories
Trade receivables
Trade payables
Bank overdraft
90 000
19 000
20 000
16 800
14 600
21 200
On 31 March 2012 the partners dissolved the partnership as follows:
1 Avtandil agreed to take over the motor vehicle at $17 000 and the inventories at $19 120.
2 The property was sold for $80 000.
3 The credit customers paid their accounts after receiving a 5% discount.
4 The credit suppliers agreed to give the partnership a 10% discount because all debts
were settled immediately.
5 The cost of dissolution was $5 620.
REQUIRED
Explain how a debit balance may arise on a partner’s current account.
State three possible reasons why the partners may have decided to
dissolve the partnership
Prepare the partners’ capital accounts to record the dissolution of
the partnership.
Show all workings including the bank account.
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
206
Q7. Anton, Bassini and Cartwright are in partnership with a profit sharing ratio of 2: 1: 1.
The partnership balance sheet at 30 June 2011 was as follows:
Anton, Bassini and Cartwright
Statement of financial position (balance sheet) at 30 June 2011
$
Non-current assets
Land and buildings
Fixtures and fittings
Motor vehicles
$
180 000
28 000
14 500
Current assets
Inventories
Trade receivables
Cash at bank
222 500
25 450
13 900
8 350
47 700
Current liabilities
Trade payables
10 200
Non-current
liabilities
Loan account –
Anton
Financed by:
Capital Accounts
Current Accounts
37 500
260 000
35 000
225 000
Anton
Bassini
Cartwright
100000
50 000
50 000
Anton
Bassini
Cartwright
19 532
7 623
(2 155)
200 000
25 000
225 000
On 1 July 2011 the partners decided to dissolve the partnership.
!
Anton acquired one of the motor vehicles at a valuation of $6 000 and Bassini acquired the
other one at an agreed value of $4 500.
!
The other assets were sold after valuations as follows:
Land and buildings
Fixtures and fittings
Inventories
$
142 500
22 500
18 750
The proceeds were banked together with $13 500 collected from trade receivables.
The partnership settled the trade payables at $10 000.
Dissolution expenses of $1 500 were paid.
On 30 June 2011 the current accounts were closed and the balances transferred to the
capital accounts.
REQUIRED
Prepare the following accounts to the show the closure of the partnership.
(a) The dissolution account
(b) The partners’ capital accounts in columnar format
(c) The bank account
!
!
Q8. Chang, Foo and Seet were in partnership sharing profit in the following proportions:
Chang one half, Foo one-third, and Seet one-sixth. The Statement of Financial position of
the partnership as at 30 September 1987 was as follows:
$
$
$
150000
Capitals
Freehold land &
buildings
Chang
130000
Plant & machinery
42000
OMAIR MASOOD
CEDAR COLLEGE
207
8
Q8.!
2
Amit and Binu are in partnership sharing profits and losses in the ratio 3 : 2 respectively. The
partnership statement of financial position at 30 June 2016 is as follows:
$
$
Non-current assets
Premises
Machinery
Motor vehicles
40 000
32 000
18 000
90 000
Current assets
Inventory
18 600
9 31 700
Trade receivables
13 100
Total assets
121 700
REQUIRED
Capital accounts
(a) Amit
Prepare the realisation account30on
the dissolution of the partnership.
000
Binu
20 000
50 000
Realisation account
Current accounts
Amit
33 200
Binu
18 400
51 600
101 600
Current liabilities
Trade payables
9 800
20 100
Bank overdraft
10 300
Total capital and liabilities
121 700
The partners agreed to dissolve the partnership on 30 June 2016. This resulted in the following:
1
Trade receivables realised $12 600.
2
Trade payables were settled in full for $9800.
3
Inventory was sold for $15 000.
4
The machinery was sold for $35 000.
5
Amit agreed to take over the premises at an agreed valuation of $30 000.
6
Binu agreed to take over one of the motor vehicles at an agreed valuation of $6500. The
remaining motor vehicle was sold for $12 000.
7
The costs of dissolution were $6300.
10
9
!
(c)REQUIRED
State two reasons why a partnership may be dissolved.
1
(a) Prepare the realisation account on the dissolution of the partnership.
[6]
!
Realisation
account
(b) Prepare a statement to show how much Binu
will receive
when the partnership bank account
2 is closed.
10
[2]
(c) State two reasons why a partnership may be dissolved.
1
(d) Explain
what would happen if the dissolution of the partnership resulted in a debit balance on
a partner’s capital account.
© UCLES 2017
9706/21/M/J/17
!
!
!
!
! (d)
!
!
!
2
[2]
Explain what would happen if the dissolution of the partnership resulted in a debit balance on
a partner’s capital account.
OMAIR MASOOD
208
CEDAR COLLEGE
[4]
© UCLES 2017
9706/21/M/J/17
[Turn over
Q9.!
!
Doug,!Elan!and!Fortune!have!traded!in!partnership!for!several!years,!sharing!
profits!on!the!basis!2:2:1.!The!Statement!of!Financial!position!of!the!business!at!
31!March!2001!showed:!
!
Non-Current Assets (at net book value)
Premises
Plant and machinery
Vehicles
$
Current Assets
Inventory
Trade Receivables
$
$
900000
140000
130000
1170000
85000
45100
130100
TOTAL ASSETS
CAPITAL AND LIABLITIES
Capital Accounts:
D
E
F
Current Accounts:
D
E
F
Non Current Liability -Loan from F
Current Liabilities
Trade Payables
Bank Overdraft
TOTAL CAPITAL AND LIABLITIES
1300100
500000
300000
250000
24000
(17200)
14300
64000
25000
1050000
21100
140000
89000
1300100
!
The!partners!have!decided!to!dissolve!the!partnership.!Following!information!is!
available!regarding!sale!of!assets!and!settlement!of!liabilities.!
!
1. Premises were sold for $980000 the estate agent will charge 1% commission
on selling price.
2. Plant and machinery were sold at $134000.
3. One vehicle was taken over by Doug at an agreed value of $30000.The
remaining vehicles were sold for $82000.
4. Inventory was sold at a discount of 30%.
5. All debts were collected other then bad debts of $2000.
6. Trade payables were paid $60000 in full settlement.
7. Dissolution expenses amount to $1400.
8. Loan from Fortune was repaid in full from the bank account.
REQUIRED:!
!
(a)!Realization!Account!!!!
(b)!Capital!Accounts!!!
(c)!Bank!Account!!!!!!!!!
!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
209
Q10.!
Chang,!Foo!and!Seet!were!in!partnership!sharing!profit!in!the!following!
proportions:!Chang!one!half,!Foo!oneHthird,!and!Seet!oneHsixth.!The!Statement!of!
Financial!position!of!the!partnership!as!at!30!September!1987!was!as!follows:!
!
$!
Freehold!land!
$!
$!
Capitals!
!
&!buildings!
150000!
Chang!
130000!
Plant!&!
!
42000!
machinery!
Foo!
60000!
Motor!cars!
!
30000!
Seet!
42000!
Inventory!
!
25000!
!
232000!
Trade!
18500!
!
Receivables!
!
!
Bad!debts!
600!
17900!
provision!
Trade!
13000!
!
!
!
Payables!
Bank!
19900!
!
!
!
overdraft!
!
$264900!
!
!
$264900!
On!30!September!1987!partners!agreed!to!dissolve!their!partnership!and!
following!information!is!available:!
(i)
Chang!wished!to!continue!trading!from!the!premises!n!his!own!behalf!
and!he!agreed!to!take!over!some!of!the!assets!i.e.!the!land!and!
buildings,!revalued!at!$180000!the!plant!and!machinery,!revalued!at!
$35000.!
(ii)
The!three!partners!were!to!retain!their!individual!motorcars,!which!
were!formerly!regarded!as!the!partnership!property.!The!agreed!
valuations!and!the!book!values!were!as!follows:!
!
!
Valuation!
Book!Value!
$!
$!
Chang!
6500!
8000!
Foo!
13000!
12000!
Seet!
9000!
10000!
!
(iii) The!Inventory!was!sold!for!$18000!
(iv) Trade!Receivables!realized!$18300!and!Trade!Payables!were!settled!
in!full!by!payment!of!$12700.!
(v)
The!expenses!of!dissolution!totalled!$1200.!
Required:!
(a) The!realisation!account!
(b) The!partner’s!capital!account!recording!all!the!entries!arising!from!
the!dissolution.!
(c) The!firm’s!bank!account.!(You!may!assume!that!all!required!
payments!and!receipts!have!taken!place)!
!
OMAIR MASOOD
CEDAR COLLEGE
210
11
REQUIRED
11
REQUIRED
Q11.
9
b) Prepare the partnership
realisation account.
(b) Prepare the partnership realisation account.
2
Mira, Sasha and Peta have been trading as a partnership.
They share profits and losses in the ratio of 2 : 2 : 1 respectively. The partnership ceased trading
on 31 January 2019.
REQUIRED
(a) State four reasons why a partnership may be dissolved.
10
1
Additional
information
The following information is available on dissolution of partnership.
1
2
Mira, Sasha and Peta
Statement of financial position at 31 January 2019
$
3
4
Assets
Non-current assets
Fixtures and fittings
Motor vehicles
45 200
22 000
67 200
Current assets
Inventory
Trade receivables
20 600
42 800
63 400
[4]
130 600
Total assets
Capital and liabilities
Capital accounts
Mira
Sasha
Peta
13
(d) Prepare the final bank account to show the
45 500
42 800
14 000
closure
102 300
Current liabilities
Trade payables
Bank overdraft
of the partnership.
26 400
1 900
28 300
Total capital and liabilities
130 600
2
Sasha took a motor vehicle at an agreed valuation of $4500. The remaining non-current
assets were sold for $64 300.
3
Inventory was sold for $19 800.
4
Received $40 500 from trade receivables.
5
Trade payables were paid $26 000.
11
REQUIRED
[5]
[5]
c) Prepare, on the
page, on
thethe
partners’
capital
accounts
dissolution.
(c)next
Prepare,
next page,
the
partners’on13
capital
accounts on dissolution.[2]
[2]
[2]
ES 2019
6
The costs of dissolution were $3700.
(b) Prepare the partnership realisation account.
(d) Prepare the final bank account to show the closure of the partnership.
© UCLES 2019
9706/22/F/M/19
[Turn over
(e) Suggest two reasons why the trade receivables did not pay the full amount they owed.
(4+5+2+2+2)
1
(Mar19/P22/Q2)
OMAIR MASOOD
© UCLES 2019
© UCLES 2019
2
CEDAR COLLEGE
211
9706/22/F/M/19
9706/22/F/M/19
9706/22/F/M/19
[Turn over
[Turn over
8
Q12.
2
2
8
Angela, Beena and Cai were in partnership sharing profits and losses in the ratio of 4 : 3 : 1. They
dissolved
their partnership
September
2017.profits and losses in the ratio of 4 : 3 : 1. They
Angela, Beena
and Cai wereonin30
partnership
sharing
dissolved their partnership on 30 September 2017.
The following information is available.
The following information is available.
1 At that date their statement of financial position was as follows:
1 At that date their statement of financial position was as follows:
Assets
$
$
$
$
Assets
$
$
$
$
Non-current assets
Non-current
assets
Land and
buildings
150 000
Land
buildings
150 40
000000
Motorand
vehicles
Motor
vehicles
40 60
000000
Machinery
Machinery
60250
000000
250 000
Current assets
Current
assets
Inventory
35 000
Inventory
35 45
000000
Trade receivables
Trade receivables
45 000
Bank
4 500
Bank
4 500
84 500
84 500
Total assets
assets
Total
Capital and
and liabilities
liabilities
Capital
334334
500500
Capital account
account
Capital
Current account
account
Current
Angela
Angela
100000
000
100
000
55
000
Beena
Beena
000
7575
000
4 000
4 000
CaiCai
000 200200
2525
000
000000
000)
8 000
(1 (1
000)
8 000
Total
Total
105000
000
105
000
7979
000
000
2424
000
Non-currentliabilities
liabilities
Non-current
10%
10% loan
loanfrom
fromBeena
Beena
10
208208
000000
100100
000000
Current
Current liabilities
liabilities
(b) Calculate
the amount to be paid to Beena on dissolution of 26
the26
partnership.
Trade
500
Trade payables
payables
500
2
2
Total
Total liabilities
liabilities
126126
500500
Total
Total capital
capitaland
andliabilities
liabilities
500500
334334
The
The following
followingassets
assetswere
weresold
soldfor
forcash.
cash.
Land and buildings
Land and buildings
Machinery
Machinery
Inventory
Inventory
$
$
200 000
200
000
55 150
55
150
33 750
33 750
3
3
Angela took a motor vehicle at an agreed valuation of $20 000.
Angelatook
tookthe
a motor
vehicle
at an
agreed
valuation
$20 000.
Beena
remaining
motor
vehicle
at an
agreed of
valuation
of $13 000.
Beena took the remaining motor vehicle at an agreed valuation of $13 000.
4 An amount of $40 500 was received from trade receivables in full settlement of their
4 accounts.
An amount of $40 500 was received from trade receivables in full settlement of their
accounts.
5 An amount of $25 000 was paid to trade payables in full settlement of their accounts.
5 An amount of $25 000 was paid to trade payables
in full settlement of their accounts.
9
6 Dissolution costs of $2300 were paid from the bank.
6REQUIRED
Dissolution costs of $2300 were paid from the bank.
10
(a) Prepare the realisation account on dissolution of the partnership.
© UCLES 2018
[3]
9706/23/O/N/18
(b) Calculate the amount to be paid Realisation
to Beena on
dissolution of the partnership.
account
© UCLES 2018
9706/23/O/N/18
11
(c) State two items which may be included in a partnership agreement.
$
$
(d) Explain why partners may each have a separate capital account and current account.
1
(6+3+2+4)
(Nov18/P23/Q2)
2
OMAIR MASOOD
CEDAR COLLEGE
[2]
212
11
11
Q13.
33
Wang and
and Yuan,
Yuan,
Wang
partnership.
Their
partnership. Their
follows:
follows:
who share
share profits
who
profits and
and losses
losses in
in the
the ratio
ratio 22::1,
1, decided
decided to
to dissolve
dissolve their
their
summarised
statement
of
financial
position
at
30
September
2015
summarised statement of financial position at 30 September 2015 was
was as
as
$
$
Non-current assets
assets
Non-current
Land
and
buildings
Land and buildings
Motor
vehicles
Motor vehicles
60
60 000
000
10
10 000
000
70
70 000
000
Current assets
Current
assets
Inventory
Inventory
Trade receivables
Trade receivables
14 000
14 000
16 000
16 000
30 000
30 000
Total assets
Total assets
100 000
100 000
Capital and liabilities
Capital and liabilities
Capital accounts
Capital accounts
Wang
Wang
Yuan
Yuan
40 000
40 000
25 000
25 000
65 000
65 000
Current accounts
Current accounts
Wang
Wang
Yuan
Yuan
12
(10 000)
(10 000)
13 000
13 000
3 000
3 000
REQUIRED
Current
liabilities
(a)
Prepare
the partnership realisation account.
Current
liabilities
Trade payables
Trade
Bank payables
Bank
26 000
26
000
6 000
6
000
32 000
32 000
Total capital and liabilities
Total capital and liabilities
100 000
100 000
Additional information
Additional information
1
1
Land and buildings were sold for $70 000.
Land and buildings were sold for $70 000.
2
2
Yuan took one vehicle at an agreed value of
13$3000 and the remaining vehicle was sold for
Yuan
$3500.took one vehicle at an agreed value of $3000 and the remaining vehicle was sold for
$3500.
(c)
reasons
why a $15
partner
3 State
Trade two
receivables
realised
000. may have an overdrawn current account.
3
Trade receivables realised $15 000.
4
4
5
5
6
6
1Trade payables were paid after taking a discount of $1500.
Trade payables were paid after taking a discount of $1500.
The inventory was sold for $12 000.
The inventory was sold for $12 000.
The expenses of dissolution were $1700.
The expenses of dissolution were $1700. 12
2
REQUIRED
[5]
(a) Prepare the partnership realisation account.
(b) Calculate the amount due to each partner 13
when the bank account is closed on dissolution.
[2]
(c) State two reasons why a partner may have an overdrawn current account.
(d) State why partnerships maintain separate capital accounts for each partner. (5+7+2+1)
1
(June16/P21/Q3) (June16/P23/Q3)
© UCLES 2016
© UCLES 2016
OMAIR MASOOD
2
9706/21/M/J/16
9706/21/M/J/16
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[Turn over
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[1]
[Total: 15]
LIMITED!COMPANIES!
LIMITED COMPANIES THEORY
(
Limited(companies(are(business(organizations,(whose(owners’(liabilities(are(limited(to(their(capital$
contributed(or(guarantees$made.(
(
CHARACTERISTICS!OF!LIMITED!COMPANIES!
1. Separate(legal(entity:(
2. Limited(liability:(
3. Perpetual(succession:(
4.
5.
6.
7.
8.
Number(of(members:(
Capital:(
Profit(distribution:(
Retained(profits:(
Legislation:(
A(company(is(regarded(as(a(separate(person(from(its(owners(and(
managers.(As(a(result,(it(can(sue(or(be(sued,(it(can(own(property.(
This(concept(is(often(referred(to(as(veil(of(incorporation.(
Shareholders’(liability(is(limited(to(what(they(have(paid(for(
shares.(
Unlike(partnership(and(sole(trader,(a(company(does(not(cease(to(
exist(on(the(death(or(retirement(of(any(of(the(owners.(Owners(
can(buy(and(sell(their(shares(without(affecting(the(running(of(the(
business.(
There(is(no(limit(as(to(the(number(of(members(
Company’s(capital(is(raised(through(the(issuance(of(shares(
Profits(are(distributed(to(members(through(dividends.(
The(retained(profits(are(capitalized(are(reserves.(
Companies(are(highly(regulated.(They(are(required(to(comply(
with(the(requirements(of(Company’s(ACT(as(well(as(Financial(
Reporting(Standards.(
(
ADVANTAGES!OF!OPERATING!AS!A!LIMITED!COMPANY:!
1. The(liability(of(the(shareholders(is(limited.(Therefore,(in(case(of(company(going(bankrupt,(the(
individual(assets(of(the(owners(will(not(be(used(to(meet(the(company’s(debts.(Only(shareholders(
who(have(only(partly(paid(for(their(shares(can(be(forced(to(pay(the(balance(owing(on(the(shares,(
but(nothing(else.(
2. There(is(a(formal(separation(between(the(ownership(and(management(of(the(business.(This(
helps(in(clearly(identifying(the(responsible(persons.(
3. Ownership(is(vastly(shared(by(many(people,(hence(diversifying(risk,(and(funds(become(available(
is(substantial(amounts.(
4. Shares(in(the(business(can(be(transferred(relatively(easily.(
(
DISADVANTAGES:!
1. Formation(costs(are(normally(very(high.(
2. Companies(are(highly(regulated.(
3. Running(costs(are(also(very(high(i.e.(preparation(and(submission(of(annual(returns,(audit(fees(
etc.(
4. Profit(distribution(is(also(subject(to(some(restrictions.(Not(all(surpluses(from(the(business(
transactions(can(be(distributed(back(to(the(shareholders.(
5. Company(accounts(must(be(available(for(inspection(to(the(public.(
OMAIR MASOOD
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There(are(two(types(of(limited(companies:(
There(are(two(types(of(limited(companies:(
1. Public$limited$companies:$
1. Public$limited$companies:$
a5 They(have(the(abbreviation(Plc(of(public(limited(company(at(the(end(of(their(names(
a5 They(have(the(abbreviation(Plc(of(public(limited(company(at(the(end(of(their(names(
b5 Their(minimum(allotted(share(is(required(to(be(£50(000.(
b5 Their(minimum(allotted(share(is(required(to(be(£50(000.(
c5 They(can(invite(the(general(public(to(subscribe(for(their(shares(
c5 They(can(invite(the(general(public(to(subscribe(for(their(shares(
d5 Their(shares(may(be(traded(in(the(stock(exchange(i.e.(they(can(be(quoted(with(the(stock(
Their(shares(may(be(traded(in(the(stock(exchange(i.e.(they(can(be(quoted(with(the(stock(
d5
exchange.(
exchange.(
2.
Private$limited$companies:(
2. Private$limited$companies:(
a5 They(have(the(abbreviation(‘Ltd’(for(limited(at(the(end(of(their(names.(
They(have(the(abbreviation(‘Ltd’(for(limited(at(the(end(of(their(names.(
a5
b5 They(are(not(allowed(to(invite(general(public(for(the(subscription(of(their(share(capital.(
They(are(not(allowed(to(invite(general(public(for(the(subscription(of(their(share(capital.(
b5
(
COMPANY!FINANCE!
COMPANY!FINANCE!
(
As(is(a(case(with(sole(traders(and(partnerships,(companies(also(have(two(main(sources(of(finance,(
As(is(a(case(with(sole(traders(and(partnerships,(companies(also(have(two(main(sources(of(finance,(
namely;(capital(and(liabilities.(The(difference(is(on(naming(and(classification(of(these(terms.(
namely;(capital(and(liabilities.(The(difference(is(on(naming(and(classification(of(these(terms.(
((
When(the(company(is(formed,(it(normally(issues(shares(to(be(subscribed(by(the(potential(members.(
When(the(company(is(formed,(it(normally(issues(shares(to(be(subscribed(by(the(potential(members.(
People(who(subscribe(and(buy(company’s(shares(are(known(as(shareholders,(and(they(become(the(legal$
People(who(subscribe(and(buy(company’s(shares(are(known(as(shareholders,(and(they(become(the(legal$
owners$of(the(company(depending(in(the(proportion(and(type(of(shares(they(hold.(They(receive(
owners$of(the(company(depending(in(the(proportion(and(type(of(shares(they(hold.(They(receive(
dividends$as(return(on(their(invested(capital.(Dividends(are,(therefore,(appropriations$of(the(profits.(
dividends$as(return(on(their(invested(capital.(Dividends(are,(therefore,(appropriations$of(the(profits.(
((
On(the(other(hand,(the(company(can(borrow(funds(from(other(people(who(are(not(owners.(The(main(
On(the(other(hand,(the(company(can(borrow(funds(from(other(people(who(are(not(owners.(The(main(
form(of(company(borrowings(is(by(issuing(debenture,(which(is(a(written(acknowledgement(of(a(loan(to(a(
form(of(company(borrowings(is(by(issuing(debenture,(which(is(a(written(acknowledgement(of(a(loan(to(a(
company,(given(under(the(company’s(seal.(The(debenture(holders(are(not(owners(of(the(company(but(
company,(given(under(the(company’s(seal.(The(debenture(holders(are(not(owners(of(the(company(but(
they(are(liabilities.(Debenture(holders(receive(a(fixed$percentage$of$interest$on(the(loan(amount.(
they(are(liabilities.(Debenture(holders(receive(a(fixed$percentage$of$interest$on(the(loan(amount.(
Debenture(interest(is(a(business$expense,$which(must(be(paid(when(is(due.(Other(forms(of(borrowings(
Debenture(interest(is(a(business$expense,$which(must(be(paid(when(is(due.(Other(forms(of(borrowings(
include(trade(creditors(and(bank(overdrafts.(
include(trade(creditors(and(bank(overdrafts.(
(
(The(difference(between(shareholders(and(debenture(holders(can(be(analyzed(in(terms(of:(
The(difference(between(shareholders(and(debenture(holders(can(be(analyzed(in(terms(of:(
1. Ownership;(and(
1.
2. Ownership;(and(
Return(on(investment((Debenture(holders(will(get(it(even(if(the(company(makes(losses)(
2.
Return(on(investment((Debenture(holders(will(get(it(even(if(the(company(makes(losses)(
(
(SHARE!CAPITAL!
SHARE!CAPITAL!
Share(capital(is(normally(of(two(types:(
Share(capital(is(normally(of(two(types:(
1. Ordinary(share(capital;(and(((the(real(shareholders)(
2. Ordinary(share(capital;(and(((the(real(shareholders)(
Preference(share(capital(
1.
( Preference(share(capital(
2.
(
((
((
((
(
OMAIR MASOOD
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215
What!are!the!different!Types!of!Preference!Shares?!
1. NonAcumulative!Preference!shares:!In(case(company(doesn’t(pay(enough(profits,(these(
shareholders(will(get(no(dividends(in(the(year(and(that(amount(of(dividend(will(never(be(given.(
2. Cumulative!Preference!Shares:!In(case(company(doesn’t(have(enough(profits,(these(
shareholders(will(get(no(dividend(in(the(year(and(that(amount(of(dividend(will(be(carried(
forward(to(next(year,(when(the(company(makes(enough(profit,(the(entire(amount(will(be(
payable(as(dividend.(
3. Participating!!Preference!Shares!: Preference(shares(which,(in(addition(to(paying(a(specified(
dividend,(entitle(preference(shareholders(to(participate(in(receiving(an(additional(dividend(if(
ordinary(shareholders(are(paid(a(dividend(above(a(stated(amount.(
4. Redeemable!Preference!Shares:!(Preference(shares(which(can(be(bought(back(by(the(company(
at(a(given(date(((They(are(treated(like(liability(and(not(equity().(The(dividends(given(to(them(are(
treated(like(interest(expense.(
Their(difference(is(summarized(in(the(table(below:(
Aspect$
Ordinary$shares$
Preference$shares$
Voting(power(
Carry(a(vote(
Limited(or(no(voting(power(
Dividends(
1. Vary(between(one(year(to(
1. Fixed(percentage(of(the(nominal(
another,(depending(on(the(
value.(
profit(for(the(period.(
2. Cumulative.(If(not(paid(in(the(
2. Rank(after(preference(
year(of(low(or(no(profits,(it(is(
shareholders.(
carried(forward(to(the(next(years.(
3. Not(cumulative.(
3. They(may(be(non5cumulative.(
Liquidation(
Entitled(to(surplus(assets(on(
1. Priority(of(payment(before(
(Company(closing(
liquidation,(after(all(liabilities(and(
ordinary(shareholders,(but(after(
down)(
preference(shareholders(have(been(
all(other(liabilities.(
paid.(Whatever(is(left,(go(to(
2. Not(entitled(to(surplus(assets(on(
Ordinary(shareholders.(
liquidation.(
SHARE!CAPITAL!STRUCTURE!
Authorized(share(capital:(
Issued(share(capital:(
Called5up(capital:(
Paid5up(capital:(
(
Uncalled(capital:((
OMAIR MASOOD
the(maximum(share(capital(that(the(company(is(empowered(to(issue(per(
its(memorandum(of(association.(It(is(sometimes(called(as(registered(
capital.(
The(total(nominal(value(of(share(capital(that(has(actually(been(issued(to(
the(shareholders.(
This(is(a(part(of(issued(capital(that(the(company(has(already(asked(the(
shareholders(to(pay.(Normally(when(the(company(issues(shares,(it(does(
not(require(its(shareholders(to(pay(the(full(price(on(spot.(Rather(it(calls(
the(installments(from(time(to(time.(It(is(the(amount(that(is(included(in(
the(balance(sheet.(
This(is(the(total(amount(of(the(money(already(collected(from(the(
shareholders(to(date.(Dividend(is(paid(on(this.(
This(is(the(part(of(issued(capital,(which(the(company(has(not(yet(
requested(its(shareholders(to(pay(for.(
CEDAR COLLEGE
216
(
(
The!distinctions!between!reserves,!provisions!and!liabilities!
The(distinctions(between(reserves,(provisions(and(liabilities(are(of(the(utmost(importance(and(must(be(
learned.(
(
Provisions(are:(
amounts(written(off(or(retained(by(way(of(providing(for(depreciation,(renewals(or(diminution(in(
the(value(of(assets.((
Or,(
retained(by(way(of(providing(for(nay(known(liability(of(which(the(amount(cannot(be(determined(
with(substantial(accuracy.(
Increases(and(decreases(in(provisions(are(debited(or(credited(in(the(Profit(and(Loss(account(and(credited(
to(a(Provision(account.(
(
Reserves(are:(
any(other(amounts(set(aside(out(of(profits(by(debiting(Profit(and(Loss(Appropriation(account(and(
crediting(the(relevant(provision(accounts,(
and(
amounts(placed(to(capital(reserve(in(accordance(with(the(Companies(Act(such(as(share(
premium,(unrealized(surpluses(on(the(revaluation(of(non(current(assets,(and(amounts(set(aside(
out(of(distributable(reserves(to(maintain(capital(when(shares(are(redeemed.(
Liabilities!are(:amounts(owing(which(can(be(determined(with(substantial(accuracy.(
ISSUE OF SHARES
Public Issue: This is normal issue of shares to general public. A company can issue shares to
public to raise more capital , this is done at the market price. Public issues have higher cost of
issue ( this means the company has to incur high expenses when issuing the shares I.e.
advertising and administration ). The main advantage of issuing shares is that no interest has to
be paid on it and the company only have to provide a return when they actually make profits.
Rights Issue : A rights issue represents the offer of shares to the existing shareholders in
proportion to their existing holding at a lower price compared to the market value.
Advantages of Rights Issue over Public issue
•
Rights issue are cheaper to administer and less risky way of raising capital
•
Shareholders will get some incentive as they will get shares at a lower price.
Disadvantages
•
Market price will fall
•
The company could have raised more funds through a public issue
Bonus Issue: Is the issue of shares to existing shareholders for free .When the company is
short of cash and can’t give dividends so they give out shares for free to the ordinary
shareholders. Other reasons for bonus issue include.
•
To utilize the capital reserves
OMAIR
MASOOD
CEDAR COLLEGE
• To increase confidence in the company’s future prospects as it is normally taken as a
signal of strength by the general public.
When doing bonus issue company will always use capital reserves first and then the revenue
217
Disadvantages
•
Market price will fall
•
The company could have raised more funds through a public issue
Bonus Issue: Is the issue of shares to existing shareholders for free .When the company is
short of cash and can’t give dividends so they give out shares for free to the ordinary
shareholders. Other reasons for bonus issue include.
•
To utilize the capital reserves
•
To increase confidence in the company’s future prospects as it is normally taken as a
signal of strength by the general public.
When doing bonus issue company will always use capital reserves first and then the revenue
reserves i.e.
We use share premium first and then revaluation reserve but if we don’t have enough
balance in both of these reserves then we will move to
•
General Reserve
•
Profit and Loss. ( Retained Earnings)
DEBENTURES!
((
A(debenture(is(a(document(containing(details(of(a(loan(made(to(a(company.(The(loan(may(be(secured(on(
A(debenture(is(a(document(containing(details(of(a(loan(made(to(a(company.(The(loan(may(be(secured(on(
the(assets(of(the(company,(when(it(is(known(as(a(mortgage$debenture.(If(the(security(for(the(loan(is(on(
the(assets(of(the(company,(when(it(is(known(as(a(mortgage$debenture.(If(the(security(for(the(loan(is(on(
certain(specified(assets(of(the(company,(the(debenture(is(said(to(be(secured(by(a(fixed$charge$on(the(
certain(specified(assets(of(the(company,(the(debenture(is(said(to(be(secured(by(a(fixed$charge$on(the(
assets.(If(the(assets(are(not(specified,(but(the(security(is(on(the(assets(as(they(may(exist(from(time(to(
assets.(If(the(assets(are(not(specified,(but(the(security(is(on(the(assets(as(they(may(exist(from(time(to(
time,(it(is(known(as(a(floating$charge$on(the(assets.(An(unsecured(debenture(is(known(as(a(simple$or$
time,(it(is(known(as(a(floating$charge$on(the(assets.(An(unsecured(debenture(is(known(as(a(simple$or$
naked$debenture.(
naked$debenture.(
Debentures(carry(the(right(to(a(fixed(rate(of(interest(which(forms(part(of(the(subscription(of(the(
Debentures(carry(the(right(to(a(fixed(rate(of(interest(which(forms(part(of(the(subscription(of(the(
debentures..(The(interest(must(be(paid(whether(or(not(the(company(makes(a(profit.(This(is(one(of(the(
debentures..(The(interest(must(be(paid(whether(or(not(the(company(makes(a(profit.(This(is(one(of(the(
distinctions(between(debentures,(and(shares(on(which(dividends(may(only(be(paid(if(profits(are(
distinctions(between(debentures,(and(shares(on(which(dividends(may(only(be(paid(if(profits(are(
available.(Debenture(interest(is(debited(as(an(expense(in(the(Profit(and(Loss(account(to(arrive(at(the(
available.(Debenture(interest(is(debited(as(an(expense(in(the(Profit(and(Loss(account(to(arrive(at(the(
profit(before(tax.(
profit(before(tax.(
((
RESERVES(
The(net(assets(of(the(company(are(represented(with(capital(and(reserves.(While(capital(represents(the(
The(net(assets(of(the(company(are(represented(with(capital(and(reserves.(While(capital(represents(the(
claim(that(owners(have(because(of(the(number(if(shares(they(own,(reserves(represent(the(claim(that(
claim(that(owners(have(because(of(the(number(if(shares(they(own,(reserves(represent(the(claim(that(
owners(have(because(of(the(wealth(created(by(the(company(over(the(years(but(not(distributed(to(them.(
owners(have(because(of(the(wealth(created(by(the(company(over(the(years(but(not(distributed(to(them.(
There(are(two(main(types(of(reserves:(
There(are(two(main(types(of(reserves:(
Revenue!Reserve!!
Revenue!Reserve
The(reserves(which(arise(from(profit((Trading(activities(of(the(company).(These(are(transferred(from(the(
The(reserves(which(arise(from(profit((Trading(activities(of(the(company).(These(are(transferred(from(the(
Appropriation(account.(Examples(include(General(Reserve(and(Retained(Profit((Profit(and(Loss).(
Appropriation(account.(Examples(include(General(Reserve(and(Retained(Profit((Profit(and(Loss).(
Dividends(can(only(be(paid(to(the(amount(of(revenue(reserve(on(the(balance(sheet.(i.e.(the(maximum(
Dividends(can(only(be(paid(to(the(amount(of(revenue(reserve(on(the(balance(sheet.(i.e.(the(maximum(
dividend(possible(is(the(sum(of(both(revenue(reserves.(
dividend(possible(is(the(sum(of(both(revenue(reserves.(
Capital!Reserve!
Capital!Reserve!
These(are(reserves(which(the(company(is(required(to(set(up(by(law(and(cannot(be(distributed(as(
These(are(reserves(which(the(company(is(required(to(set(up(by(law(and(cannot(be(distributed(as(
dividends.(They(normally(arise(out(of(capital(transactions.(These(include(Share(Premium(and(Revaluation(
dividends.(They(normally(arise(out(of(capital(transactions.(These(include(Share(Premium(and(Revaluation(
218
Reserve.( MASOOD
OMAIR
CEDAR COLLEGE
Reserve.(
Share!Premium!
Share!Premium!
Share(premium(occurs(when(a(company(issues(shares(at(a(price(above(its(nominal((par)(value.(This(
Share(premium(occurs(when(a(company(issues(shares(at(a(price(above(its(nominal((par)(value.(This(
excess(of(share(price(over(nominal(value(is(what(is(known(as(share(premium.(
excess(of(share(price(over(nominal(value(is(what(is(known(as(share(premium.(
Revenue!Reserve!
Revenue!Reserve!
The(reserves(which(arise(from(profit((Trading(activities(of(the(company).(These(are(transferred(from(the(
The(reserves(which(arise(from(profit((Trading(activities(of(the(company).(These(are(transferred(from(the(
Appropriation(account.(Examples(include(General(Reserve(and(Retained(Profit((Profit(and(Loss).(
Appropriation(account.(Examples(include(General(Reserve(and(Retained(Profit((Profit(and(Loss).(
Dividends(can(only(be(paid(to(the(amount(of(revenue(reserve(on(the(balance(sheet.(i.e.(the(maximum(
Dividends(can(only(be(paid(to(the(amount(of(revenue(reserve(on(the(balance(sheet.(i.e.(the(maximum(
dividend(possible(is(the(sum(of(both(revenue(reserves.(
dividend(possible(is(the(sum(of(both(revenue(reserves.(
Capital!Reserve!
Capital!Reserve!
These(are(reserves(which(the(company(is(required(to(set(up(by(law(and(cannot(be(distributed(as(
These(are(reserves(which(the(company(is(required(to(set(up(by(law(and(cannot(be(distributed(as(
dividends.(They(normally(arise(out(of(capital(transactions.(These(include(Share(Premium(and(Revaluation(
dividends.(They(normally(arise(out(of(capital(transactions.(These(include(Share(Premium(and(Revaluation(
Reserve.(
Reserve.(
Share!Premium!
Share!Premium!
Share(premium(occurs(when(a(company(issues(shares(at(a(price(above(its(nominal((par)(value.(This(
Share(premium(occurs(when(a(company(issues(shares(at(a(price(above(its(nominal((par)(value.(This(
excess(of(share(price(over(nominal(value(is(what(is(known(as(share(premium.(
excess(of(share(price(over(nominal(value(is(what(is(known(as(share(premium.(
What(are(the(uses(of(Share(Premium?(
What(are(the(uses(of(Share(Premium?(
1. Issue(Bonus(Shares(
1. Write(off(Formation((Preliminary(Expenses)(
Issue(Bonus(Shares(
2.
3.
2. Write(off(Goodwill.(
Write(off(Formation((Preliminary(Expenses)(
3. Write(off(Goodwill.(
Revaluation!Reserve!!
Revaluation!Reserve!!
(When(value(of(Assets(go(up(,(companies(are(allowed(to(revalue(them(upwards(but(gain(has(to(
(When(value(of(Assets(go(up(,(companies(are(allowed(to(revalue(them(upwards(but(gain(has(to(
be(recorded(in(a(reserve(rather(then(income(statement(.(This(reserve(can(only(be(used(to(issue(
be(recorded(in(a(reserve(rather(then(income(statement(.(This(reserve(can(only(be(used(to(issue(
bonus(shares(or(devalue(the(same(asset(which(was(revalued(upwards(before(
bonus(shares(or(devalue(the(same(asset(which(was(revalued(upwards(before(
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219
Q1
EXAMPLE 1
LIMITED COMPANIES (WORKSHEET)
Following Trial Balance is available for Dab Limited as at 31st December 2019.
Dr
$1 Share Capital
Sales
Purchases
Rent
General Expenses
8% Bank Loan
Loan Interest Paid
Inventory at Start
Motor Van
Provision for Depreciation-Motor Van
Machine
Provision for Depreciation-Machine
Trade Receivables
Trade Payables
Cash and Cash Equivalents
Provision for Doubtful Debts
Land
Retained Earnings
Cr
90,000
110,000
60,000
8,000
12,000
30,000
1,800
10,200
50,000
15,000
35,000
25,000
16,000
20,000
14,000
2,000
90,000
297,000
5,000
297,000
Additional Information
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
Inventory at 31st December 2019 was $15,000.
Loan interest has not been paid in full.
Rent owing amounted to $1,000.
$1,700 of General Expenses were paid in advance.
Machine is depreciated using 40% Reducing Balance Method.
Motor Van is depreciated at 10% of Cost.
Provision for doubtful debt should amount to 10%.
Tax Rate is 20%
Land was revalued at $100,000.
During the year, dividend of $0.1 per share was paid and at the end, dividends of
$0.15 per share was announced.
$3,000 were transferred to General Reserve.
REQUIRED
a) Income Statement
b) Statement of Changes in Equity
c) Statement of Financial Position
OMAIR MASOOD
CEDAR COLLEGE
220
EXAMPLE 2
Following(Trail(Balance(is(for(Cedax(Ltd(on(30(April(2006.(
(
(
$"
(Shares(of($1(each(fully(paid(
1800000(
Premises(
2300000(
Motor(vehicles((
500000(
Fixtures(and(fittings(
190000(
Provision(for(depreciation(on(motor(vehicles(
375000(
Provision(for(depreciation(on(fixtures(and(fittings(
102000(
Gross(profit(
1585600(
InventoryM(30(April(2006(
204000(
Administrative(expenses(
460000(
Selling(and(distribution(expenses(
486000(
6%(debentures((
100000(
Debentures(interest(paid(
3000(
Profit(on(sale(of(motor(vehicle(
2000(
Retained(Earnings—1(May(2005(
190000( Cr
Trade(Receivables(
132000(
Trade(Payables(
116000(
Bank(
26800( Cr
Cash(
400(
Dividend(paid(
75000(
Provision(for(doubtful(debts(
3000(
General(Reserve(
50000(
(
Additional"information"at"30"April"2006:"
Admin(expenses(prepaid($8000(
Selling(and(distribution(expenses(accrued($23000(
Provision(for(doubtful(debts(to(be(maintained(at(2%(Trade(Receivables(
Premises(were(revalued(at($2500000(
Depreciation(to(be(provided(as(follows:(
(
Motor(vehicles(40%(per(annum(reducing((diminishing)(balance(
(
Fixtures(and(fittings(20%(per(annum(on(cost(
$10000(were(transferred(to(general(reserve(
The(following(is(proposed:(
Final(dividend(of($0.10(per(share(is(to(be(paid(to(shareholders.(
REQUIRED:"
(a) Income(Statement(((
(b) (Statement(of(Changes(in(Equity(
(c) Statement(of(financial(position((Balance(Sheet)(as(at(30(April(2006(
(
OMAIR MASOOD
CEDAR COLLEGE
221
EXAMPLE'3'
!
Following!Trial!Balance!is!available!for!Gastro!Ltd!as!at!31st!December!2019.!
!
!
Revenue!
Purchases!
$5!Share!Capital!
Inventory!at!1st!Jan!
Sundry!Expenses!
General!Reserve!
Rent!&!Rates!
Selling!Expenses!
Retained!Earnings!
Freehold!Land!
Plant!&!Machinery!
Provision!for!Depn!on!Plant!&!Machinery!
Motor!Van!
Provision!for!Depn!on!Motor!Van!
Trade!Recievebles!
Trade!Payables!
10%!Debentures!
Debenture!Interest!Paid!
Bad!debts!
Cash!at!Bank!
Debit'(DR)'($)'
!
100000!
!
32000!
18000!
!
13000!
12000!
!
180000!
70000!
!
60000!
!
21000!
!
!
4000!
5000!
25000!
Credit'(CR)'($)'
250000!
!
100000!
!
!
20000!
!
!
40000!
!
!
50000!
!
12000!
!
18000!
50000!
!
!
!
!
!
!
!
Additional!Information.!
!
1. Inventory!at!31st!December!was!$40000.!
2. Provision!for!doubtful!debts!of!!5%!should!be!created!
3. Land!was!revalued!at!$200000.!
4. Motor!Van!is!depreciated!by!20%!RBM!and!Machine!by!30%!RBM.!
5. Tax!rate!is!10%.!
6. Debenture!interest!is!outstanding!partly.!
7. Rent!of!$300!is!in!owing!and!$500!of!Selling!expenses!are!prepaid.!
8. $5000!are!to!be!transferred!to!general!reserve!
9. Dividend!of!0.8!per!share!was!paid!during!the!year!
10. Dividend!of!$1.2!per!share!is!announced.!
!
REQUIRED:'
(a) INCOME'STATEMENT'
(b) STATEMENT'OF'CHANGES'IN'EQUITY'
(c) STATEMENT'OF'FINANCIAL'POSITION'
OMAIR MASOOD
CEDAR COLLEGE
222
EXAMPLE'4'
Following(Trial(Balance(is(available(for(Hydro(Ltd(as(at(31st(December(2019.(
(
Additional(Information.(
(
Revenue(
Purchases(
8%PDebentures(
Inventory(at(1st(Jan(
General(Expenses(
General(Reserve(
Rent(&(Rates(
Gain(on(Disposal(
Retained(Earnings(
Premises(
Plant(&(Machinery(
Provision(for(Depn(on(Plant(&(Machinery(
Trade(Recievebles(
Trade(Payables(
$1(Share(Capital(
Debenture(Interest(Paid(
Revaluation(Reserve(
Cash(at(Bank(
Dividends(paid(
(
Debit'(DR)'($)'
(
250000(
(
19000(
23000(
(
4000(
(
(
260000(
34000(
(
21000(
(
(
3000(
(
6000(
4000(
Credit'(CR)'($)'
400000(
(
50000(
(
(
6000(
(
1000(
23000(
(
(
14000(
(
6000(
120000(
(
4000(
(
(
1. Inventory(at(31st(December(was($25000.(
2. Provision(for(doubtful(debts(of((should(cover(for(specific(debt(of$1000(
and(3%(on(remainder(
3. Premises(was(revalued(at($300000.(
4. Plant(and(Machine(is(depreciated(by(20%(RBM((
5. Debenture(interest(is(outstanding(partly.(
6. $5000(are(to(be(transferred(to(general(reserve(
7. 10000(Shares(of($1(each(are(issued(at($1.8(each.(
8. Dividend(of($0.2(per(share(is(announced.(
(
REQUIRED:'
(a) INCOME'STATEMENT'
(b) STATEMENT'OF'CHANGES'IN'EQUITY'
(c) STATEMENT'OF'FINANCIAL'POSITION'
OMAIR MASOOD
CEDAR COLLEGE
223
Accounts(–(9706((
AS(–(Level((
(
(
(
(
(
(
(((((((((((((((((OMAIR(MASOOD(
EXAMPLE 5#
The following balances were extracted from the books of Lightyear plc. on 31 March 2003.
Debit
Credit
$
$
Purchases
700,000
Sales
1,800,000
Inventory at 1 April 2002
35,000
Discounts
8,000
10,000
Sales returns
20,000
10 % Debentures
30,000
$5 Share Capital
500,000
General administration expenses
320,000
General distribution costs
230,000
Trade Receivables
90,000
Trade Payables
60,000
Retained Earnings
190,000
Land and buildings
662,500
Delivery vehicles
200,000
Office equipment
120,000
Provision for doubtful debts
3,500
Salaries
110,000
Bank
130,000
Provision for depreciation – Office equipment
20,000
Provision for depreciation – Delivery vehicles
50,000
General reserve
12,000
Dividends Paid
50000
Additional Information:
(i) The closing Inventory was valued at $30,000.
(ii) General administration expenses owing; $3600
General distribution costs prepaid: $3300
(iii)The provision for doubtful debts account is to be reduced to $1800.
(iv) Depreciation is to be provided as follows:
(a) delivery vehicles 20% reducing balances
(b) office equipment 15% on cost.
(v) Interest on Debentures is outstanding for the year.
(vi) The directors have decided to transfer $15,000 to the general Reserve Account.
(vii) Lightyear plc. has had its land and buildings revalued to $800,000 and an
adjustment must be made in the books to reflect the revaluation.
(viii) Corporation tax for the year on profit from ordinary activities is estimated to be
$180,000.
(ix) On 31st March 2003 30000 Shares of $5 each were issued at $7 each.
REQUIRED:
(a) The Income Statement (Profit and Loss Account) for the year ended 31 March 2003.
(b) Statement of Changes in Equity for the year ended 31 March 2003
(c) The Statement of Financial position (Balance Sheet) as at 31 March 2003.
OMAIR
MASOOD
#
191#
CEDAR COLLEGE
224
3
3
3
3
33
3
3
ACCOUNT'FOR'LIMITED'COMPANIES'(WS'1)'
!
Q1.!
The!Following!information!is!available!for!HotSpurs!Ltd!as!at!1st!January!2019!
!
!
$!
Shares!of!$5!each!
200000!
Revaluation!Reserve!!
25000!
General!Reserve!
20000!
Retained!Earnings!
38000!
!
!
!
1. During!the!year!ended!31st!December!2019!the!company!earned!a!net!
profit!of!$85000.!
4
2. On!1st!Feb!2019!a!dividend!of!9%!was!paid!(this!was!proposed!last!year!)!
4 4
st!March!2019.!
3. 20000!new!shares!of!$5!were!issued!at!$8!on!1
The following
information is available about Whittlesford plc on 31 December
2011.
2.
st
!December!2019!and!a!
4.
A!dividend!of!$0.3!per!share!was!paid!on!31
The following
information is available about Whittlesford plc on 31 December
2011.
2.
The following information is available about 4Whittlesford
plc on 31 December 2011.
$
2.
further!dividend!of!!$0.4!per!share!was!announced.!
500 000 ordinary
shares
of
$1
each
500
000
4$ 4
st!December!2019!the!directors!also!decided!to!transfer!$7000!in!to!
5.
0n!31
4$
The500
following
information
is available
about
Whittlesford
plc on 31 December 2011.
Share
200
000
000premium
ordinary
shares
of $1 each
500
000
500
000
ordinary
shares
of
$1
each
500
000 plc plc
general!reserve.!
TheShare
following
information
about
Whittlesford
on 31
2011.2011.
The
following
informationisisavailable
available
about
on December
31 December
General
reserve
70Whittlesford
000
premium
200
000
2.TheShare
4200
following
information is available about
Whittlesford
plc on 31 December 2011.
$ 000
premium
Retained
earnings
298
300
reserve
70
000
!General
500 000 reserve
ordinary
shares of $1 each 500300
$000
70
Retained
earnings
4$000plc on 31 December 2011.
3 !General
The following
information is available about 298
Whittlesford
2.
$
Share
premium
200
000
500
000
ordinary
shares
of
$1
each
500
000
Retained
earnings
298
300
Further
is as
follows:
500information
000 ordinary
shares
of $1 each 500 000
Share
premium
200
000
General
reserve
000
500
000
ordinary
of $1 each
000
TheQ2!
following
information
is available
about
Whittlesford
plc on 31 December 2011.
$500
Further
information
is asshares
follows:
470
Share premium
200 000
General
reserve
70
000
Retained
earnings
298
300
500
000
ordinary
shares
of ended
$1 each31500
000
Share
premium
200
0002012 was $122 800.
1
The
draft
profit
for
the
year
December
Further
information
is
as
follows:
General
reserve
70
000
3 Retained
TheShare
following
information is available about200
Whittlesford
plc on 31 December 2011.
premium
000
earnings
298
300
General
reserve
70
000
1
The
draft
profit
for
the
year
ended
31
December
2012 was $122 800.
$
Retained
Generalearnings
reserve
70298
000 300
Further
information
is
as
follows:
Retained
earnings
300$520
On
1Retained
January
2012
property
revalued
from
000 was
to $780
000.
500
000
ordinary
of was
$1 each
500
000
12 The
draft
profit
for shares
the
year
ended
31
2012
$122
800.
$298
earnings
298December
300
Further
information
is asshares
follows:
2Further
On
1information
January
2012
property
was
revalued
from
$520 000 to $780 000.
Share
premium
000
500
000 ordinary
of $1
each
500 200
000
is as
follows:
1 On
The
draft
profit
for
thea
year
ended
December
2012
was5$122
800.
Share
premium
200
31
January
2012
rights
issue31
of
1000
share
for
every
held
was 000.
made at a premium of
General
reserve
70 000
information
isis as
follows:
Further
information
as follows:
23Further
On
January
2012
was
revalued
from
$520
000
to 800.
$780
The1
draft
profit
for
theproperty
year
ended
31
December
2012
was
$122
General
reserve
70
000
31 On
31
January
2012
a
rights
issue
of
1
share
for
every
5
held
was
made
at a premium of
$0.25
each.
Retained
earnings
298 300 2012 was $122 800.
12 The
draft
profit
for the
year ended
31
earnings
298December
300from
On The
1Retained
January
2012
property
was 31
revalued
$520
000
to800.
$780 000.
1
draft
profit
for
the
year
ended
December
2012
was
$122
$0.25
each.
The31
draft
profit
for
theayear
ended
31ofDecember
2012
was5$122
800.
312 On
January
2012
rights
1from
share
for
every
held
On 30
1 January
2012
property
wasissue
revalued
$520
000
to $780
000.was made at a premium of
42Further
On
June
2012
an
interim
dividend
of $0.08
per
share
was
paid.
information
is
as
follows:
Further
information
is
as
follows:
On
1
January
2012
property
was
revalued
from
$520
000
to
$780
000.
$0.25
each.
2On30
On
1January
January
property
was
revalued
$520
000
to $780
000.
31June
2012
a rights
issue
of
1from
share
every
5 held
43 On
20122012
an interim
dividend
of $0.08
perforshare
was
paid.was made at a premium! of
23 On
On
1
January
2012
property
was
revalued
from
$520
000
to
$780
000. at a premium of
31
January
2012
a
rights
issue
of
1
share
for
every
5
held
was
made
$0.25
each.
5
On
31
October
2012
a abonus
issue
of
shares
of every
1 was
for
every
4 $122
held
was
The
directors
1The
The
draft
profit
for
the
year
ended
31of
December
2012
$122
800.
draft
profit
for
the
year
ended
31
December
2012
was
800.
3On
On
31
January
2012
rights
issue
1of
share
for
5every
held
was
made
at made.
a made
premium
31
January
2012
a
rights
issue
1
share
for
5
held
was
atofadirectors
premium of
$0.25
each.
4531 On
30
June
2012
an
interim
dividend
of
$0.08
per
share
was
paid.
On
31
October
2012
a bonus in
issue
ofmost
shares
of 1 for
every 4 held was made.
The
decided
to
keep
the
reserves
their
flexible
form.
$0.25
each.
34 decided
On
31
January
2012
a
rights
issue
of
1
share
for
every
5
held
was
made
at
a
premium of
$0.25
each.
On
30
June
2012
an
interim
dividend
of
$0.08
per
share
was
paid.
2 On 1toJanuary
2012
property was
revalued
$520 form.
000 to $780 000.
keep the
reserves
in their
mostfrom
flexible
2 On
On30
1 January
2012
property
was revalued
from
$520 000
to
$780 000.
$0.25
each.
June
2012
an
interim
dividend
of
$0.08
per
share
was
paid.
564 On
31
October
2012
a
bonus
issue
of
shares
of
1
for
every
4
held
was
made.
The
4 31
On 30
June 20122012
an interim
dividend
$0.08 per share
paid. reserve and a final dividenddirectors
!
On
December
$40 000
wasof transferred
to was
general
of
3 30
OnJune
31 January
2012
abonus
rights dividend
issue ofof1shares
share
for
every
5every
held was
was
made
at a
premium
of directors
On
2012
an
interim
of
$0.08
per
share
paid.
On
31
October
2012
a
issue
of
1
for
4reserve
held
was
made.
645 decided
On
31
December
2012
$40
000
was
transferred
to
general
and
a finalThe
dividend
of
to
keep
the
reserves
in
their
most
flexible
form.
$0.12
per
share
was
proposed.
$0.25
each.
OnOn
3131
January
2012
abonus
rights
issue
ofof1$0.08
share
for share
every
5held
held
was
made
at adirectors
premium of
31
October
2012
aainterim
bonus
issue
shares
of
1per
for
every
4was
was
made.
The
453 $0.12
On
30
June
2012
an
dividend
paid.
5On
October
2012
issue
ofofshares
of
1 for
every
4 held
was
made.
The
directors
decided
to
keep
the
reserves
in
their
most
flexible
form.
per
share
was
proposed.
$0.25
each.
decided
to
keep
the
reserves
in
their
most
flexible
form.
decided
to
keep
the
reserves
in
their
most
flexible
form.
On
31
October
2012
a
bonus
issue
shares
of 1 was
forwho
every
held was
made.
The
directors
675 On
31
December
2012
$40
000
was
transferred
to
general
reserve
and
final
dividend
of!
4 5
On
30 June2013
2012
an
interim
dividend
ofof
$0.08
share
paid.
On
January
it was
discovered
that
aper
customer
had4owed
$4200
atathe
year
end
6
On
December
2012
$40
000
was
transferred
to
general
reserve
and
a
final
dividend
of
5
On
31
October
2012
a
bonus
issue
of
shares
of
1
for
every
4
held
was
made.
The
directors
decided
todeclared
keep
the
reserves
in
their
most
flexible
form.
7 $0.12
On
5On
January
2013
it2012
was
discovered
that
a customer
who
had owed
$4200
at
year end
had
been
bankrupt.
Itdividend
was
discovered
that
goods
in inventory
at the
the
per
share
was
proposed.
6On
31
December
$40 000
000
was also
transferred
to per
general
reserve
and
aand
final adividend
ofyear end,
64 had
31
December
2012
$40
transferred
toevery
general
reserve
dividend
of
30
June
2012
an
interim
ofdiscovered
$0.08
share
was
paid.
$0.12
per
share
was
proposed.
5Onbeen
On
31
October
2012
a
bonus
of
shares
offlexible
1 for
4goods
held
was
made.
The final
directors
decided
to
keep
the
reserves
inwas
their
most
form.
declared
bankrupt.
Itissue
was
also
that
in
inventory
at the
year end,
with $0.12
a cost
ofshare
$3000,
been water damaged and could now only be sold for $600.
per
washad
proposed.
$0.12
per share
was
proposed.
decided
keep
the
reserves
in
theirwas
most
flexible and
form.could
with
cost
ofto$3000,
had
been
water
damaged
now
only
be
sold
for a$600.
On 5a
31
December
2012
$40
000
transferred
to general
reserve
and
final
dividend
of
7675 On
January
2013
it
was
discovered
that
a customer
who
owed
$4200
at
the
year end
On
31
October
2012
a
bonus
issue
of
shares
of who
1 to
forwho
every
4had
held
was
made.
The
directors
On
5
January
2013
it
was
discovered
that
a
customer
had
owed
$4200
at
the
year
end
7
On
5
January
2013
it
was
discovered
that
a
customer
had
owed
$4200
at
the
year
end
6
On
31
December
2012
$40
000
was
transferred
general
reserve
and
a
final
dividend
of!
$0.12
per
share
was
proposed.
8 had
On
17
January
2013itbankrupt.
a
burglary
at
the
business
premises
resulted
in
thedividend
loss
ofat
computer
declared
Itin
was
also
that
goods
inventory
the end
year end,
6decided
On
31to
December
2012
$40
000
was
transferred
to general
reserve
and
ain
final
ofyear
On
5been
January
2013
was
discovered
that
adiscovered
customer
who
had
owed
$4200
at
keep
the
reserves
their
most
flexible
had
been
declared
bankrupt.
was
also
discovered
that
goods
in inventory
at the
the
year
end,
had
been
declared
bankrupt.
ItItwas
also
discovered
that form.
goods
in
inventory
atthe
theloss
year
end,
87 On!31!December!2012,!200000!Ordinary!shares!were!issued!at!$1.8!each.!
On
17
January
2013
a
burglary
at
the
business
premises
resulted
in
of
computer
$0.12
per
share
was
proposed.
equipment,
$15
700.
per
share
was
proposed.
with
a$0.12
cost
of
had
been
water
damaged
and
could
only
be sold
foryear
$600.
had
been
declared
bankrupt.
It water
was
also
discovered
that
goods
insold
inventory
at the
end,
a cost
$3000,
had
been
damaged
andand
could
now
only
be
forsold
$600.
withwith
cost
ofof$3000,
$3000,
had
been
water
damaged
could
nownow
only
be
for
$600.
$15
700.
7 !equipment,
On
5aaJanuary
2013
ithad
was
discovered
that a customer
who
had
owed
$4200
at the year end
with
cost
of
$3000,
been
water
damaged
and
could
now
only
be
sold
for
$600.
31
2012
$40
000
was
transferred
to had
general
reserve
and
a final
dividend
of
7OnOn
5December
January
2013
discovered
that
a customer
who
owed
$4200
at the
year
end
76 On
On
5On
January
2013
itit aawas
was
discovered
that
apremises
customer
who
had
owed
the
yearend,
end
had
been
declared
bankrupt.
Itatwas
also
discovered
that
goods
inventory
atatthe
REQUIRED
17
January
2013
burglary
business
resulted
in
thein
loss
of
computer
8REQUIRED
17
January
2013
burglary
at
the
business
premises
resulted
in$4200
the end,
loss
ofyear
computer
8 ! 8On
17
January
2013
aproposed.
burglary
atthe
the
business
premises
resulted
in
the
loss
of
computer
$0.12
per
share
was
had
been
declared
bankrupt.
It
was
also
discovered
that
goods
in
inventory
at
the
year
with
a
costdeclared
of $15
$3000,
beenItwater
damaged
and could
now
only
be sold
$600.
hadequipment,
been
was
also
discovered
thatresulted
goods
in the
inventory
the year end,
700.bankrupt.
8 equipment,
On
17
ahad
burglary
at
the
business
premises
loss for
ofatcomputer
$15
700.
withJanuary
a cost
of 2013
$3000,
had
been water
damaged
and could
now only
be soldin
for $600.
equipment,
700.
(a) REQUIRED:!
Explain
what$15
meant
keeping
reserves
in their and
mostcould
flexible
form.
with a cost
ofis$3000,
had
been water
damaged
now
only be sold for $600. [3]
equipment,
700. by
7 !Explain
On 5 January
2013 itby
was
discovered
that
customer
who had
owed $4200
at the
year
(a)
what is meant
keeping
reserves
in a
their
most
flexible
form.
[3] end
REQUIRED
8REQUIRED
On
burglary
business
premises
loss
of computer
8 17
On January
17 January2013
2013 a
a burglary
at at
thethe
business
premises
resulted resulted
in the loss in
of the
computer
REQUIRED
hadequipment,
been declared
bankrupt.
It
was
also
discovered
that
goods
in
inventory
at
the
year
end,
$15
700. a burglary at the business premises resulted in the loss of computer
equipment,
$15
8REQUIRED
On Explain
17 January
2013
(a)
what
is700.
meant
by keeping
reserves
in their most
flexible
form.
[3]
with a cost
ofstatement
$3000,
had
been
waterindamaged
and
could
now only
be
sold
foryear
$600.
(b) Prepare
the
of
changes
equity
for
Whittlesford
plc
for
the
ended
equipment,
$15
700. byofkeeping
(a) Prepare
Explain
what
is meant
reserves
in in
their
flexible
form.
[3]
(b)
the statement
changes
in equity
formost
Whittlesford
plc for the year ended
(a)
what
is
meantby
bykeeping
keeping
reserves
their
most
flexible
REQUIRED
31
December
2012.
[13] [3]
(a) Explain
Explain
what is
meant
reserves
in their
most
flexible
form.form.
[3]
REQUIRED
December
2012.
[13]
8 31
On
17
January
2013
a
burglary
at
the
business
premises
resulted
in
the
loss
of
computer
(b) Prepare the statement of changes in equity for Whittlesford plc for the year ended
REQUIRED
(a)
Explain what
meant by keeping reserves in their most flexible form.
[3]
!
equipment,
$15is
700.
31 December
2012.
[13]
(a)
meant byofkeeping
reserves
in their
flexible form.
(b) Explain
Preparewhat
the is
statement
changes
in equity
for most
Whittlesford
plc for the year ended [3]
(b)
the
statement
changes
equity
plcorthe
for
the ended
year ended
(c)
Explain
whether
the event
on
17 January
2013
wasfor
an Whittlesford
adjusting
event
a non-adjusting
(b) Prepare
Prepare
the statement
ofof
changes
in in
equity
for
Whittlesford
for
year
(a)
Explain
what
is
meant
by
keeping
reserves
in was
their
most
flexibleplc
form.
31 December
2012.
[13] [3]
(c)
Explain
whether
the
event
on
17 January
2013
an
adjusting
event
or a non-adjusting
REQUIRED
31
December
2012.
event.
[2] [13]
(b) December
Prepare the
statement of changes in equity for Whittlesford plc for the year ended
31
2012.
[13]
(c) Explain whether the event on 17 January 2013 was an adjusting event or a non-adjusting
event.
[2]
31 December 2012.
[13]
event. the statement of changes in equity for Whittlesford plc for the
[2] year ended
(b) Prepare
(a) Explain what is meant by keeping reserves in their most flexible form.
[3]
(c)
Explain
whether
the event of
on changes
17 January
2013
was
an Whittlesford
adjusting event
or for
a non-adjusting
31
December
2012.
[13]
(b)
Prepare
the
statement
in
equity
for
the year [3]
ended
OMAIR
MASOOD
CEDAR
COLLEGE
(c)
Explain
whether
the
event
onon
17auditor’s
January
2013
was
an adjusting
eventplc
or a
non-adjusting
(d)
State
three
characteristics
of
an
report.
(c)
Explain
whether
the
event
17
January
2013
was
an
adjusting
event
or
a
non-adjusting
(c) December
Explain
whether
the eventofon
January report.
2013 was an adjusting event or a non-adjusting
event.
[2] [13]
(d) State
three characteristics
an17auditor’s
[3]
31
2012.
(d)
State
[3]
event.
[2]
event.
[2]
event.three characteristics of an auditor’s report.
[2]
(b) Prepare the statement of changes in equity for Whittlesford plc for the year ended
(c) Explain whether the event on 17 January 2013 was an adjusting event or a non-adjusting
31 December
2012.
(d) Explain
State
three
characteristics
of on
an auditor’s
report.
[3] [13]
(c)
whether
the event
17 January
2013 was an adjusting event or [3]
a non-adjusting
(d) State
three
characteristics
of an
an auditor’s
report.
(d) event.
State
three
characteristics
of
auditor’s
report.
[3] [2]
225
2 2
1
1
1
!
The directors of Aston plc provided the following
2 financial information at 1 June 2013.
Q3.!
The directors of Aston plc provided the following financial information at 1 June 2013.
$000
$000
Ordinary
shareofcapital
shares) the following
25 000
The directors
Aston ($1
plc provided
financial information at 1 June 2013.
Ordinary
share capital ($1 shares)
25
000
Share
premium
5$000
000
Share
premium
5
000
Revaluation
reserve
000
Ordinary share
capital ($1 shares)
251 000
Revaluation
reserve
1 000
Retained
earnings
950
Share premium
52 000
Retained
earnings
2 950
Revaluation
reserve
1 000
Retained earnings
26 950
Land
000
Land
6 000
Land
6 000
issued.
On
1 July 2013 $1 800 000 8% debentures were
800May
0002014
8% debentures
were issued.
On the
1 July
2013
$1 31
For
year
ended
profit from operations
was $3 752 000.
000
8%
debentures
were
issued.
On 1tax
July
2013
$1 800
For
the
year
ended
31year
May
2014
profit
from
operations
was $3 752 000.
The
charge
for
the
was
25%
of the
profit
before taxation.
For the
ended
operations
was taxation.
$3 752 000.
The
taxyear
charge
for 31
theMay
year2014
wasprofit
25%from
of the
profit before
The tax charge for the year was 25% of the profit before taxation.
REQUIRED
REQUIRED
REQUIRED
(a)
Prepare the income statement for the year ended 31 May 2014.
[6]
(a) Prepare the income statement for the year ended 31 May 2014.
[6]
(a) Prepare the income statement for the year ended 31 May 2014.
[6]
!
Additional information
Additional
information
Additional
information
On
1 September
2013 a final dividend relating to the previous year of $0.04 per ordinary share
was
paid.
On
1
September
2013a afinal
finaldividend
dividend
relating
to the
previous
of $0.04
per ordinary
On 1 September 2013
relating
to the
previous
yearyear
of $0.04
per ordinary
shareshare
was
paid.
was1 paid.
On
October 2013, 5 000 000 ordinary shares of $1 each were issued at a premium of $0.10 per
share.
000
000ordinary
ordinary
shares
of $1
each
were
issued
a premium
of $0.10
On 1 October
October2013,
2013,55000
000
shares
of $1
each
were
issued
at a at
premium
of $0.10
per per
share.
share.
On 1 November 2013 a rights issue was made of 1 ordinary share for every 5 ordinary shares
at $1 per share. This was fully subscribed.
! owned
was
made
of 1ofordinary
share
for every
5 ordinary
shares
On 1 November
November2013
2013a arights
rightsissue
issue
was
made
1 ordinary
share
for every
5 ordinary
shares
!
owned at
share.
This was
fully
subscribed.
owned
at $1
$1per
per
share.
fully
subscribed.
On
1 February
2014
landThis
was was
revalued
at
$7 500 000.
500500
000.
On 1
February
2014
land
was
at at
$7$7
On
February2014
2014an
land
wasrevalued
revalued
On
11February
interim
dividend
of $0.03
per000.
ordinary share was paid.
On 1
February
2014
an
dividend
of $0.03
perper
ordinary
share
was was
paid.paid.
On
February
2014
aninterim
interim
dividend
$0.03
ordinary
share
000 of
was
made
from
retained
earnings
to a newly formed
On
11 March
2014
a transfer
of $500
general
reserve.
On 1 March 2014 a transfer of $500 000 was made from retained earnings to a newly formed
On
1 March 2014 a transfer of $500 000 was made from retained earnings to a newly formed
general reserve.
On
1 April
2014 the directors proposed a final dividend for the year 50% higher per share than
general
reserve.
the
year.the directors proposed a final dividend for the year 50% higher per share than
On previous
1 April 2014
!
On
1
April
2014
the previous year. the directors proposed a final dividend for the year 50% higher per share than
the previous year.
!
(b)!Prepare!a!statement!of!changes!in!equity!
!
!
!
!
!
!
!
!
!
!
!
!
© UCLES
9706/42/O/N/14
! 2014
© UCLES 2014
9706/42/O/N/14
!
!
© UCLES
2014
9706/42/O/N/14
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
226
!
Q4.!
!
2
6
The directors of Rebuild Limited are preparing the financial statements for the year ended
31 December 2015. The equity section of the statement of financial position at 31 December 2014
was as follows:
Ordinary shares of $2 each, fully paid
Share premium
General reserve
Retained earnings
$
240 000
8 000
40 000
75 500
363 500
During the year ended 31 December 2015, the following transactions took place:
March 1
Issued 10 000 ordinary shares at $2.10 each
March 31
Paid final dividend of 3% on all shares in issue at 31 December 2014
December 31
The directors revalued the company premises upwards by $20 000
The profit for the year ended 31 December 2015 was $47 100.
REQUIRED
(a) Prepare the statement of changes in equity for the year ended 31 December 2015.
!
!
!
[5]
© UCLES 2016
OMAIR MASOOD
9706/22/O/N/16
CEDAR COLLEGE
227
ACCOUNTS FOR LIMITED COMPANIES ( WORKSHEET 2)
Q1.
Q5.
Following balances are available for Champions Limited as at 1st January
2014.
$
Share Capital ($1)
200000
Share Premium
20000
Revaluation Reserve 5000
General Reserve
6000
Retained Earnings
34000
10% Debentures
50000
Additional Information
1. During the year ending 31st December 2014 the company’s operating
profit ( Net profit before interest and tax ) was $50000. The
corporation tax applicable is 20%.
2. On 31st March 2014 a dividend of $0.05 per share was paid to
shareholders ( This was announced in 2013).
3. On 1st July 2014 , 30000 new shares of $1 were issued at $1.4 each.
4. On 1st Oct 2014, a dividend of $0.03 per share was paid to all
shareholders.
5. On 31st December 2014, directors decided to transfer $3000 to
General Reserve.
6. On 31st December 2014, Company’s Land was revalued upwards from
$19000 to $28000.
7. On 31st December 2014 , directors announced a dividend of $0.1 per
share.
REQUIRED:
(a) A statement to show Net profit after Tax ( Income Statement)
(b) A statement of Changes in Owner’s Equity .
OMAIR MASOOD
CEDAR COLLEGE
228
Q2.
Q6.
Following balances are available for Magnum Limited as at 1st January 2014.
$
Share Capital ($5)
300000
Share Premium
15000
Revaluation Reserve General Reserve
10000
Retained Earnings
90000
10% Debentures
30000
Additional Information
• During the year ending 31st December 2014 the company’s operating
profit ( Net profit before interest and tax ) was $80000. The
corporation tax applicable is 30%.
• On 31st March 2014 a dividend of 10 percent was paid to
shareholders ( This was announced in 2013).
• On 1st July 2014 , 10000 new shares of $5 were issued at $9 each.
• On 1st Oct 2014, a dividend of $0.2 per share was paid to all
shareholders.
• On 31st December 2014, directors decided to transfer $5000 to
General Reserve.
• On 31st December 2014, Company’s Land was revalued upwards from
$19000 to $25000.
• On 31st December 2014 , directors announced a dividend of $0.5 per
share.
REQUIRED:
(a)A statement to show Net profit after Tax ( Income Statement)
(b) A statement of Changes in Owner’s Equity .
OMAIR MASOOD
CEDAR COLLEGE
229
ACCOUNTS FOR LIMITED COMPANIES ( WORKSHEET 3)
Q1.
Q7.
ACCOUNTS
FOR LIMITED COMPANIES ( WORKSHEET 3)
Following balances are available for Kings Limited as at 1st January 2014.
Q1.
$ for Kings Limited as at 1st January 2014.
Following balances are available
$
Share Capital ($1)
500000
Share
($1)
ShareCapital
Premium
500000
120000
Share
Premium
Revaluation
Reserve
120000
15000
Revaluation
Reserve
General Reserve
15000
6000
General
Reserve
Retained
Earnings
6000
134000
Retained
Earnings
10% Debentures
134000
100000
10%
Debentures
Additional
Information 100000
1. During
the year ending 31st December 2014 the company’s operating profit ( Net
Additional
Information
profit before
interest
) was $250000.
Thecompany’s
corporation
tax applicable
20%.
1. During
the year
endingand
31sttax
December
2014 the
operating
profit ( isNet
st
2. profit
On 31before
March
2014
a
dividend
of
$0.05
per
share
was
paid
to
shareholders
(
This
interest and tax ) was $250000. The corporation tax applicable is 20%.
was
announced
in 2013).
st
2. On 31 March 2014
a dividend of $0.05 per share was paid to shareholders ( This
3. was
On announced
1st July 2014in 12013).
for 5 Bonus Issue was announced.
On11ststJuly
Sept2014
201411for
for54Bonus
RightsIssue
issuewas
wasannounced.
announced at $1.4 per share
3.4. On
st
5.
On
1
st Oct 2014, a dividend of $0.03 per share was paid to all shareholders.
4. On 1 Sept 2014 1 for 4 Rights issue was announced at $1.4 per share
st
On131
December
2014, directors
decided
to transfer
General Reserve.
st
5.6. On
Oct
2014, a dividend
of $0.03
per share
was paid$3000
to all to
shareholders.
st
On31
31st December
December2014,
2014,directors
Company’s
Land was
revalued
upwards
from $19000
to
6.7. On
decided
to transfer
$3000
to General
Reserve.
$28000.
st
7. On 31 December 2014, Company’s Land was revalued upwards from $19000 to
8. $28000.
On 31st December 2014 , directors announced a dividend of $0.1 per share.
REQUIRED:
8. On 31st December 2014 , directors announced a dividend of $0.1 per share.
(a) A statement to show Net profit after Tax ( Income Statement)
REQUIRED:
(b) AAstatement
statementto
ofshow
Changes
in Owner’s
Equity
.
(a)
Net profit
after Tax
( Income
Statement)
Q2.$(b) A statement of Changes in Owner’s Equity .
Following balances are available for United Limited as at 1st January 2014.
Q2.$
Q8.
!
Following
balances are available for United Limited as at 1st January 2014.
$
!
$
Share Capital ($5)
400000
Share
($5)
ShareCapital
Premium
400000
20000
Share
Premium
Revaluation
Reserve
20000
25000
Revaluation
Reserve
General Reserve
25000
12000
General
Reserve
Retained
Earnings
12000
125000
Retained
Earnings
125000
!
Additional Information
!
1. During
the year ending 31st December 2014 the company’s net profit after tax was
Additional
Information
$120000.!
1. During
the year ending 31st December 2014 the company’s net profit after tax was
2. On!1st!March!2014!a!1!for!2!Rights!issue!was!announced!at!$7!each.!
$120000.!
!
2. On!1stst!March!2014!a!1!for!2!Rights!issue!was!announced!at!$7!each.!
3. On!1 !November!2014!A!dividend!of!$0.6!per!share!was!paid!to!all!shareholders.!
!
!
3. On!1st!November!2014!A!dividend!of!$0.6!per!share!was!paid!to!all!shareholders.!
4. !On!1st!December!2014!Land!was!revalued!upwards!by!$20000.!
!!
st
4.5. !On!1
st!December!2014!a!1!for!3!Bonus!issue!was!announced.!
On!31!December!2014!Land!was!revalued!upwards!by!$20000.!
!
REQUIRED$ st
5. On!31 !December!2014!a!1!for!3!Bonus!issue!was!announced.!
(a) A!statement!of!Changes!in!Equity!
REQUIRED$
(a) A!statement!of!Changes!in!Equity!
OMAIR MASOOD
CEDAR COLLEGE
230
Q3.!
$
Q3.!
Q9.
$Following balances are available for Qalandars Limited as at 1st January 2014.
Following
balances are available for Qalandars Limited as at 1st January 2014.
!
!
$
$
Share Capital ($0.5)
60000
Share Capital ($0.5)
60000
Share Premium
10000
Share Premium
10000
Revaluation Reserve
Revaluation Reserve
General Reserve
13000
General Reserve
13000
Retained Earnings
160000
Retained Earnings
160000
!
!Additional Information
Additional
Information
1. During
the year ending 31st December 2014 the company’s net profit after tax was
1. During
the year ending 31st December 2014 the company’s net profit after tax was
$80000.!
2. $80000.!
On!1st!March!2014!a!!1!for!5!Bonus!issue!was!announced.!
st!March!2014!a!!1!for!5!Bonus!issue!was!announced.!
!
2. On!1
3. !On!1st!November!2014!A!dividend!of!$0.02!per!share!was!paid!to!all!shareholders.!
! 3. On!1st!November!2014!A!dividend!of!$0.02!per!share!was!paid!to!all!shareholders.!
4. !On!1st!December!2014!Land!was!revalued!upwards!by!$10000.!
!
! 4. !On!1st!December!2014!Land!was!revalued!upwards!by!$10000.!
5. On!31st!December!2014!a!1!for!3!Rights!issue!was!announced!at!$0.9!each!
!
REQUIRED$
5. On!31st!December!2014!a!1!for!3!Rights!issue!was!announced!at!$0.9!each!
REQUIRED$
A!statement!of!Changes!in!Equity!
! A!statement!of!Changes!in!Equity!
!!
!Q4!
Q10.
Q4!
$
$Following balances are available for Zalmis Limited as at 1st January 2014.
Following
balances are available for Zalmis Limited as at 1st January 2014.
!
!
$
$
Share Capital ($1)
80000
Share Capital ($1)
80000
Share Premium
10000
Share Premium
10000
Revaluation Reserve
6000
Revaluation Reserve
6000
Retained Earnings
60000
Retained Earnings
60000
!
!Additional Information
Additional
Information
1. During
the year ending 31st December 2014 the company’s net profit after tax was
1. During
the year ending 31st December 2014 the company’s net profit after tax was
$30000.!
2. $30000.!
On!1st!March!2014!a!!1!for!2!Bonus!issue!was!announced.!
st!March!2014!a!!1!for!2!Bonus!issue!was!announced.!
2. On!1
!
3. !On!1st!April!2014!a!1!for!4!Rights!issue!was!announced!at!a!premium!of!$0.4!each!
3.
On!1st!April!2014!a!1!for!4!Rights!issue!was!announced!at!a!premium!of!$0.4!each!
!
!!
!
4. On!31st!December!2014!a!dividend!of!!4%!was!paid!to!all!shareholders.!
4. On!31st!December!2014!a!dividend!of!!4%!was!paid!to!all!shareholders.!
REQUIRED$
REQUIRED$
A!statement!of!Changes!in!Equity!
! A!statement!of!Changes!in!Equity!
!!
!!
!!
!!
!
OMAIR MASOOD
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ACCOUNTS(FOR(LIMITED(COMPANIES(((WS(4)(
6
Q1.(
Q11.
2
The following is an extract from the statement of financial position of WX Limited at
1 March 2016:
Equity
Ordinary share capital ($0.50 each)
Share premium account
Retained earnings
$
150 000
60 000
40 000
The following additional information is available:
1
On 30 April 2016, the non-current assets were revalued from their net book value of
$175 000 to $225 000.
2
On 30 June 2016, a bonus issue was made on the basis of three ordinary shares for every
ten held. Reserves were kept in the most distributable form.
3
On 30 September 2016, a rights issue was offered on the basis of one ordinary share for
every eight held. The ordinary shares were offered at a price of $0.80 per share and the
issue was fully subscribed.
4
On 31 December 2016, the company paid a dividend of $0.04 on all shares in issue at that
date.
5
Profit for the year ended 28 February 2017 was $50 500.
REQUIRED
(a) Prepare a statement of changes in equity for the year ended 28 February 2017 (A total
column is not required.)
WX Limited
Statement of Changes in Equity for the year ended 28 February 2017
(
© UCLES 2017
(
(
OMAIR MASOOD
Share
capital
Share
premium
Retained
earnings
Revaluation
reserve
$
$
$
$
(
9706/23/M/J/17
CEDAR COLLEGE
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13
Q2.(
Additional information
( Q12.
On 1 January 2017 the issued share capital of S Limited consists of ordinary shares of $0.40
each.
The following information is available for the year ended 31 December 2017:
1
On 1 April 2017 the company issued a 6% debenture of $300 000.
2
On 1 May 2017 the company paid a final dividend of $0.04 per ordinary share.
3
On 1 October 2017 the company made a rights issue of 1 ordinary share for every 4 held.
The shares were offered at a 20% discount on the market price of $1.45. The rights issue
was fully subscribed.
4
On 15 October 2017 the company paid an interim dividend of $0.015 per share to the
shareholders who were on the share register at 1 August 2017.
5
The company’s profit from operations for the year was $268 500.
REQUIRED
(b) Prepare the statement of changes in equity for the year ended 31 December 2017.
S Limited
Statement of changes in equity
for the year ended 31 December 2017
Ordinary
share
capital
$
Brought forward
at 1 January 2017
1 250 000
Share
premium
General
reserve
Retained
earnings
$
$
$
–
130 000
65 000
Total
$
1 445 000
Workings:
(
(
(
(
© UCLES 2018
(
(
(
(
(
(
(
OMAIR MASOOD
(
[6]
9706/22/O/N/18
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[Turn over
233
Q3(
(Q13.
3
8
The following is an extract from the statement of financial position of Chopin Limited at
30 June 2015:
Non-current assets
Ordinary shares of $0.25 each
Share premium
Retained earnings
$
750 000
300 000
20 000
635 210
During the year ended 30 June 2016, the following took place:
1 November 2015
Non-current assets were revalued to $1 000 000.
1 January 2016
A bonus issue of shares was made. The terms of the issue were 1 new
share for every 10 shares in existence. Reserves were maintained in the
most flexible form.
1 April 2016
Dividend of $0.02 per share was paid.
Profit for the year ended 30 June 2016 was $230 809.
REQUIRED
(a)
Prepare a statement of changes in equity for the year ended 30 June 2016.
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
© UCLES
( 2016
(
(
(
(
OMAIR MASOOD
(
[7]
9706/21/O/N/16
CEDAR COLLEGE
234
Q4.(
Q14.
1
2
Bayliss Limited is a retailer of ladies’ fashion material. The following trial balance has been
extracted from the books of account at 31 December 2015:
Dr
$
5% debentures (2017)
Administrative expenses
Cash and cash equivalents
Distribution costs
Dividends paid
General reserve
Interest paid
Inventory at 1 January 2015
Non-current assets at cost / valuation
Land and buildings
Plant and machinery
Provision for depreciation
Buildings
Plant and machinery
Ordinary shares of $0.50 each fully paid
Other payables
Other receivables
Purchases
Retained earnings
Revenue
Share premium
Trade payables
Trade receivables
Cr
$
80 000
205 000
32 000
197 000
10 000
21 000
13 000
98 000
185 000
204 000
23 000
94 000
140 000
7 000
3 000
480 000
61 000
984 000
3 000
59 000
109 000
1 504 000
1 504 000
Additional information
1
Inventory at 31 December 2015 is valued at a cost of $105 000.
2
Land is included in the trial balance at a value of $135 000. It is to be revalued to $150 000 at
31 December 2015.
3
Depreciation for the year ended 31 December 2015 is to be provided as follows:
Buildings – 2% per annum using the straight-line method
Plant and machinery – 10% per annum using the reducing balance method.
All annual depreciation is to be charged to administrative expenses.
4
Trade receivables includes a debt of $9000 which is to be written off to administrative
expenses at 31 December 2015.
5
The directors wish to make provision for doubtful debts of 3% of trade receivables. The
adjustment should be charged to administrative expenses.
6
On 31 December 2015, Bayliss Limited made a bonus issue of shares on the basis of one
ordinary share for every twenty ordinary shares held. The company policy is to leave
reserves in their most flexible form. No entries have been made in the books of account in
respect of the bonus issue.
7
Debenture interest has been paid to 30 September
2015.
3
(
REQUIRED
© UCLES 2016
9706/21/M/J/16
(a) Prepare the income statement for Bayliss Limited 4for the year ended 31 December 2015.
(b) Prepare the statement of changes in equity for Bayliss Limited
for the year ended 31 December 2015.
5
(
(
Bayliss Limited
(c) Prepare the statement of financial position for Bayliss Limited at 31 December 2015.
Statement of changes in equity for the year ended 31 December 2015
OMAIR
Share capital
MASOOD $000
Balance at
1 January 2015
Share premium
$000
CEDAR
Revaluation
reserve
General reserve
$000
$000
COLLEGE
Retained
earnings
$000
(
Total
$000
235
ACCOUNTS(FOR(LIMITED(COMPANIES((WORKSHEET(5)(
!
Q1.!
Q15.
The trial balance of BLT Limited at 31 December 2006 appeared as follows:!
$
$
Ordinary share capital $0.50 each
400,000
Share premium
300,000
8% Debentures
25,000
116,350
199,500
Returns
1,995
1,160
Carriage in
5,800
Discounts
1,250
Purchases and Sales
Selling Distribution expenses
10,500
Administrative expenses
18,000
Interest paid
2,000
Premises
300,000
Equipment
100,000
Motor vehicles at cost
50,000
Inventory – 1 January 2006
28,500
Trade Receivables and Trade Payables
45,000
Short-term investment – Bank deposit
245,000
Cash at bank
1,750
35,000
38,015
The following adjustments are to be needed:
(i) Inventory at 31 December 2006 was $49,500.
(ii) Accrued Selling expenses $1,500 &prepaid Administrative expenses $1,000.
(iii) Depreciation on equipment 10% and Motor vehicle 20% (both to be charged to
administrative expenses)
(iv) A provision for corporate taxes is to be made at 35%.
(v) Transfer to General Reserve $5,000.
(vi) At 31st December 2006 1 for 4 Bonus issue was announced
REQUIRED:
(a) Draw up an Income Statement and the Statement of Changes in Equity (for the year
ended 31 December 2006.
(b) Draw up a Statement of Financial position as at 31 December 2006
OMAIR MASOOD
CEDAR COLLEGE
236
Q2.!
Q3(
! Q16.
1
1
2016 Mar P22
2
2016 Mar P22
The trial balance of Seema Limited for the 2year ended 30 June 2015 shows these figures:
Debit2015 shows theseCredit
The trial balance of Seema Limited for the year ended 30 June
figures:
$
$
Debit
$
Revenue
Purchases
Revenue at 1 July 2014
Inventory
Purchases
Selling and distribution expenses
Inventory at 1 July
2014
Administrative
expenses
Selling and distribution expenses
Provision for doubtful debts
Administrative expenses
Interest
paid
Provision for doubtful debts
Non-current
Interest paid assets at cost
Warehouse
buildings
Non-current
assets
at cost
Motor
vehicles
Warehouse
buildings
Office
equipment
Motor vehicles
Office for
equipment
Provision
depreciation
Provision
for depreciation
Warehouse
buildings
Warehouse
buildings
Motor
vehicles
Motor vehicles
Office
equipment
Office
equipment
Trade
receivables
Trade receivables
Trade
payables
Trade payables
Cash
and
cash equivalents
Cash and cash equivalents
140
000
Ordinary
sharesofof
each
$1$1
each
140 000 Ordinary shares
5%
(2021– –2025)
2025)
5% Debentures
Debentures (2021
General
reserve
General reserve
Retained
earnings
Retained earnings
Interim ordinary
paid
Interim
ordinarydividends
dividends
paid
Credit
$ 526 000
342 000
37 500
342 000
37 510
37 500
36 130
37 510
36 130
526 000
125
625
125
625
300 000
70 000
300 000
25 000
70 000
25 000
12 000
12 00012 500
12 500 1 500
1 500
5 020
5 020
27 200
27 200
8 4008 400
889 385
889 385
6 270
6 270
140 000
140 000
25 00025 000
25 00025 000
140 990
140 990
889 385
889 385
(
Additional information
Additional
information
1
1
2
2
Inventory on 30 June 2015 was valued at $29 400.
Inventory on 30 June 2015 was valued at $29 400.
Depreciation is to be charged as follows:
Depreciation is to be charged as follows:
Warehouse buildings
Warehouse
Motor
vehiclesbuildings
Office
Motorequipment
vehicles
Office equipment
4% using straight line method
4%
using
straight
method
25%
using
straight
lineline
method
10%
using
reducing
balance
method.
25%
using
straight
line method
10% using reducing balance method.
3
The provision for doubtful debts is to be maintained at 5% of the trade receivables.
3
The provision for doubtful debts is to be maintained at 5% of the trade receivables.
4
An irrecoverable debt of $200 should be written off.
56
to per
the share.
general reserve.
The
directorshave
haveproposed
decidedatofinal
transfer
$25
The directors
dividend
of000
$0.07
67
The
directors have
a final dividend of $0.07 per share.
The debentures
wereproposed
issued in 2011.
78
The motor
vehicles
wereissued
used by
sales team.
The
debentures
were
inthe
2011.
8
The motor vehicles were used by the sales team.
4
5
An irrecoverable debt of $200 should be written off.
The directors have decided to transfer $25 000 to the general reserve.
(
(
Required:(
© UCLES 2016
9706/22/F/M/16
(a) Income(Statement(
(b) Statement(of(Changes(in(Equity(
© UCLES 2016
9706/22/F/M/16
(c) Statement(of(Financial(Position(
(
CEDAR COLLEGE
(
!
CEDAR COLLEGE
! OMAIR MASOOD
!
CEDAR COLLEGE
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Page 1
!
Page 1
237
30DAY&REVISION&CHALLENGE&&(DAY&16)&
!
&
Company<&(ISSUE&OF&SHARES&WITH&APPLICATIONS)&
&
LIMITED COMPANIES
(ISSUE OF SHARES WITH APPLICATION)
PAPER&2&QUESTIONS!
&
Q1.&
Following!Information!is!available!for!Gucci!Ltd!as!at!1st!January!
2019.!
!
!
$&
$1!Ordinary!Share!Capital!
90000!
Share!Premium!
18000!
Balance!at!Bank!
30000!Debit!
!
!
On!1st!January!it!was!decided!to!issue!40000!new!ordinary!shares!of!
$1!each!at!$1.4!each.!!The!shareholders!were!required!to!pay!in!
following!two!installments!!
!
!$0.6!on!application!
$0.8!on!allotment!and!final!call.!
!
The!issue!of!shares!was!oversubscribed!and!the!company!received!
applications!for!!55000!shares.!
!
At!the!time!of!allotment,!transfers!were!made!to!the!share!capital!
account!and!the!share!premium!account!and!monies!were!returned!
to!the!unsuccessful!applicants!
!
Required:&
Prepare!the!following!ledger!accounts!to!show!the!aboveRmentioned!
transactions!
!
(a) Application!for!Share!Account!(!Share!Issue!Holding!
Account)!
(b) Bank!Account!
(c) Ordinary!Share!Capital!Account!
(d) Share!Premium!Account!
!
!
!
OMAIR MASOOD
CEDAR COLLEGE
238
!
Q2.!
Following!Information!is!available!for!Zenga!Ltd!as!at!1st!January!
2019.!
!
!
$&
$5!Ordinary!Share!Capital!
150000!
Share!Premium!
30000!
Balance!at!Bank!
4500!Debit!
!
!
On!1st!January!it!was!decided!to!issue!10000!new!ordinary!shares!of!
$5!each!at!$7!each.!!The!shareholders!were!required!to!pay!in!
following!two!installments!!
!
!$4!on!application!
$3!on!allotment!and!final!call.!
!
The!issue!of!shares!was!oversubscribed!and!the!company!received!
applications!for!!15000!shares.!
!
At!the!time!of!allotment,!transfers!were!made!to!the!share!capital!
account!and!the!share!premium!account!and!monies!were!returned!
to!the!unsuccessful!applicants!
!
Required:&
Prepare!the!following!ledger!accounts!to!show!the!aboveRmentioned!
transactions!
!
(a) Application!for!Share!Account!(!Share!Issue!Holding!
Account)!
(b) Bank!Account!
(c) Ordinary!Share!Capital!Account!
(d) Share!Premium!Account!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
!
CEDAR COLLEGE
239
!
Q3.!
Following!Information!is!available!for!Prada!Ltd!as!at!1st!January!
2019.!
!
!
$&
$0.5!Ordinary!Share!Capital!
200000!
Share!Premium!
40000!
Balance!at!Bank!
2000!Credit!
!
!
On!1st!January!it!was!decided!to!issue!50000!new!ordinary!shares!of!
$0.5!each!at!$1.3!each.!!The!shareholders!were!required!to!pay!in!
following!two!installments!!
!
!$0.9!on!application!
$0.4!on!allotment!and!final!call.!
!
The!issue!of!shares!was!oversubscribed!and!the!company!received!
applications!for!!75000!shares.!
!
At!the!time!of!allotment,!transfers!were!made!to!the!share!capital!
account!and!the!share!premium!account!and!monies!were!returned!
to!the!unsuccessful!applicants!
!
Required:&
Prepare!the!following!ledger!accounts!to!show!the!aboveRmentioned!
transactions!
!
(a) Application!for!Share!Account!(!Share!Issue!Holding!
Account)!
(b) Bank!Account!
(c) Ordinary!Share!Capital!Account!
(d) Share!Premium!Account!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
!
CEDAR COLLEGE
240
!
Q4.!
Following!Information!is!available!for!Tory!Ltd!as!at!1st!January!2019.!
!
!
$&
$1!Ordinary!Share!Capital!
600000!
Share!Premium!
200000!
Retained!Earnings!
500000!
!
!
On!1st!January!it!was!decided!to!issue!80000!new!ordinary!shares!of!
$1!each!at!$2.4!each.!!The!shareholders!were!required!to!pay!in!
following!three!installments!!
!
!$0.9!on!application!
$1!on!allotment!!
$0.5!!on!Final!Call!
!
The!issue!of!shares!was!oversubscribed!and!the!company!received!
applications!for!!95000!shares.!
!
At!the!time!of!allotment,!transfers!were!made!to!the!share!capital!
account!and!the!share!premium!account!and!monies!were!returned!
to!the!unsuccessful!applicants!
!
Required:&
Prepare!the!following!ledger!accounts!to!show!the!aboveRmentioned!
transactions!
!
(a) Application!for!Share!Account!(!Share!Issue!Holding!
Account)!
(b) Bank!Account!
(c) Ordinary!Share!Capital!Account!
(d) Share!Premium!Account!
!
!
!
!
!
!
!
!
!
OMAIR MASOOD
!
CEDAR COLLEGE
241
! D $120 000
Structured
questions
Q5.!
1 At 1 April 2015, Morecap Limited had the following share capital and
reserves:
On 1 April 2015 it invites applications from the public for an issue of
100 000 ordinary shares to be issued at $1.50 each. The terms of the
issue are as follows:
• 1 May 2015: a payment of $1.00 per share to include the full share
premium
• 1 July 2015: a payment of $0.25 per share
• 1 August 2015: a final payment of $0.25 per share.
Additional information
1 On 1 May 2015, applications were received for 120 000 shares.
2 On 1 June 2015, unsuccessful applicants were refunded in full the
money they had paid.
3 On 1 July 2015, the successful applicants paid the next instalment
due.
4 On 1 August 2015, the successful applicants paid the final amount
due.
Required
a Prepare the relevant ledger accounts (including an extract from
the bank account) to record these transactions.
[7 marks]
b Explain the difference between an ordinary share and a
debenture.
[3 marks]
!
Additional information
The company’s year end is 31 March 2016. During the year ended 31
March 2016, the following took place:
• On 1 January 2016, the company paid an interim dividend of $0.10
on all ordinary shares issued at that date.
• Profit for the year ended 31 March 2016 was $180 000.
Required
c Prepare the statement of changes in equity for the year ended 31
March 2016.
[5 marks]
Total: 15
!
2! Pecnut Limited’s trial balance at 31 March 2016 was as follows:
OMAIR MASOOD
!
CEDAR COLLEGE
!
242
INCOMPLETE!RECORDS:!
INCOMPLETE RECORDS THEORY
(
Remember(Net(profit(can(be(calculated(using(the(following(formula.(If(a(question(says(make(a(trading(
profit(and(loss(account,(than(this(doesn’t(apply.(Only(when(it(says(to(calculate(net(profit(or(make(a(
statement(showing(net(profit.(
(
(
Opening(Capital(+(Additional(Capital(+(Net(profit(–(Drawings(=(Closing(Capital(
(
(I(really(hope(you(can(solve(for(net(profit),(don’t(memorize(the(formula,(it’s(the(equity(section.(!(
(
For(the(final(account(questions((where(the(income(statement(and(statement(of(financial(postion(is(
required),(always(make(the(following(accounts.((By(always,(I(mean(always).(
(
1. Sales(ledger(control(account((If(business(only(deals(in(cash(sales,(then(don’t)(
2. Purchase(ledger(control(account(
3. Bank(account((if(it(is(already(given(in(the(question,(then(it’s(okay)(
4. Cash(account((only(make(this(when(the(question(gives(cash(balances)(
(
Once(you(have(filled(in(your(accounts,(and(then(move(to(the(Final(accounts.(Don’t(panic(if(it(doesn’t(
balance,(because(marks(are(for(working.(Don’t(spend(your(entire(lifetime(on(this(question.(
(
NEVER!NEVER!NEVER!forget(depreciation.(They(will(usually(give(you(net(book(values(at(start(and(end.(
Depreciation(=((
(
(
Opening!NBV!+!Purchase!of!assets!–!Sale!of!assets!(at!NBV)!–!Closing!NBV!
!
Also(make(expense(accounts(or(adjust(for(prepaid(and(owings(directly.(But(show(all(working.(
(
In(Equity(by(section,(you(will(need(opening(capital.(This(will(come(from(Opening(Assets(–(Opening(
Liabilities.(Don’t(forget(to(include(the(opening(balance(of(the(bank(account(in(your(calculation((like(other(
idiots).(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
243
MARGINS!AND!MARKAUPS!
(
These(are(tools(used(to(compute(the(missing(figures(of(sales,(figures(or(stocks.(If(either(of(these(
percentages(is(given(
MARGINS(
Represent(Gross(Profit(as(a(percentage(of(selling(price.(
(
MARK5UP(
Represent(Gross(profit(as(a(percentage(of(cost.((
(
Try(to(use((
Sales(–(Cost(=(Profit(
(
If(Mark(up(if(given(Profit(is(a(%(of(Cost(and(IF(margin(is(given(Profit(is(a(%(of(Sales(
(
For(eg.(
(
Sales(=(80000(
Cost(=(?(
Margin(=(25%(
(
Sales(–(Cost(=(Profit(
800005(x(=(25(%(of(80000(
(
Cost(=(60000(
(
But(if(((
Sales(=(80000(
Cost(=(?(
Markup(=25%(
(
Sales(–(Cost(=(Profit(
800005(x(=(25(%(of(X(
(
Cost(=(64000(
(
(
(
(
(
(
OMAIR MASOOD
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244
INCOMPLETE RECORDS WORKSHEET
INCOMPLETE RECORDS (BASICS) ( WS 1)
Q1. Karen Gate owns small shop. Karen pays the takings into the business bank account. Karen
operates a manual system of accounts. The following is a summary of the bank account for the
year ended 28 February 2006.
Bank account summary for the year ended 28 February 2006
$
$
Trade Receivables
60,000
Balance b/d
Cash sales
25,000
Rent
8,000
Rates
Capital
5,000
6,300
4,100
20,000
Wages
9,700
General expenses
32,000
Trade Payables
3,500
Fixtures
15,000
Drawings
The following information is also available:
(i) Karen allowed her customers discounts of $1,000 during the year ended 28 February 2006.
(ii) Discounts received from suppliers for the year ended 28 February 2006 were $700.
(iii) Karen had taken goods at the cost price of $2,000 for her own personal use.
(iv) In addition to the items listed above, Karen’s assets and liabilities were as follows.
28 February
1 March 2005
2006
$
$
Trade Receivables
26,000
Inventory at cost
18,000
Rent prepaid
1,000
General expenses owing
Trade Payables
Fixtures
900
18,000
6,000
Cash in Hand
300
30,000
16,000
1,200
1,300
20,000
8,000
500
REQUIRED:
(a) The Income Statement(Trading and Profit and Loss Account) for the year ended 28
February 2006.
(b) The Statement of Financial position(Balance Sheet) as at 28 February 2006.
OMAIR MASOOD
CEDAR COLLEGE
245
Q2.Simon Locke commenced business several years ago selling computer games. Simon has always
relied on records of receipts and payments for assessing the progress of his business. He prepared the
following receipts and payments details for the year ended 31st December 2005.
$
$
Balance b/d
2,500
Cash sales
72,000
Rent
8,000
Rates
Trade
Receivables
Sale of computer
400
32,000
Trade Payables
5,000
13,000
6,000
General expenses
10,000
Wages
12,000
Drawings
Computer equipment
2,000
Additional information:
(i) The receipts and payments details have been prepared from the business bank account
through which all receipts and payments have passed.
(ii) Discount allowed to Trade Receivables for the year ended 31st December 2005 were $600.
(iii) During the year, Simon took goods at a cost price of $800 from the business for own use.
(iv) In addition to the items mentioned above, Simon’s assets and liabilities were as follows:
31st December
2004
$
Inventory at cost
3,200
Trade Receivables
1,200
Trade Payables
1,700
Rent prepaid
600
General expenses owing
500
Wages owing
-
Computer equipment
Cash in hand
1,500
230
31st December
2005
$
4,600
1,800
2,200
800
300
600
2,500
340
(v) Computer equipment sold had a net book value of $300.
(vi) All Cash Sales were banked but $2000 was kept for personal use and $400 was paid for
electricity.
REQUIRED:
(a) The Income Statement(Trading and Profit and Loss Account) for the year ended 31st
December 2005.
(b) The Statement of Financial position(Balance Sheet) as at 31st December 2005.
OMAIR MASOOD
CEDAR COLLEGE
246
INCOMPLETE RECORDS ( WORKSHEET 2)
Q1.
PAGE 266
2
Q3.
1
Iqbal runs a small trading business which has been in operation for several years. Iqbal pays all
sales receipts into the business bank account. The following is a summary of the bank account for
the year ended 31 March 2011.
Bank account summary for the year ended 31 March 2011
Balance b/d
Trade receivables
Cash sales
Capital
Loan
$
4 650
85 000
24 000
36 000
14 000
Trade payables
Motor expenses
Rent
Rates
Wages
Fixtures and fittings
$
37 000
4 100
6 000
2 200
43 000
40 000
Additional information
1
Discounts received from suppliers during the year ended 31 March 2011 were $500.
2
Iqbal allowed his customers discounts of $1400 during the year ended 31 March 2011.
3
Iqbal had taken goods at a cost price of $2400 for his personal use.
4
The loan was received on 1 October 2010 and interest is payable at 10% per annum.
5
The loan is due to be repaid in five years’ time.
6
Iqbal has decided to create a provision for doubtful debts of 3% of the trade receivables
outstanding at 31 March 2011.
7
Included in the wages figure in the bank account summary are Iqbal’s drawings of
$25 000.
The remaining assets and liabilities of Iqbal were:
1 April 2010
$
Inventory at cost
8 000
Fixtures and fittings (Net Book Value)
36 000
Delivery van (Net Book Value)
10 000
Trade receivables
7 200
Trade payables
3 400
Motor expenses owing
300
Rent prepaid
400
Rates owing
200
PAGE 267
Rates prepaid
–
3
31 March 2011
$
9 200
68 000
7 500
8 300
3 700
–
600
–
300
REQUIRED
(a) Prepare the income statement (trading and profit and loss account) for Iqbal for the year
ended 31 March 2011.
PAGE 269
For
Examiner’s
Use
5
..........................................................................................................................................
(b) Prepare the statement of financial position (balance sheet) for Iqbal at 31 March 2011.
For
.......................................................................................................................................... Examiner’s
..........................................................................................................................................
Use
..........................................................................................................................................
© UCLES 2011
..........................................................................................................................................
9706/21/O/N/11
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
OMAIR MASOOD
CEDAR COLLEGE
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
247
Q2.
PAGE 349
Q4.
2
1
Shaun is a sole trader. He pays all the sales receipts into the business bank account.
He provided his accountant with the following information for the year ended
31 December 2011.
Bank account summary for the year ended 31 December 2011
Dr.
$
Rent received
Trade receivables
Cash sales
Cr.
16 800
203 200
18 510
$
Balance b/d
Trade payables
General expenses
Wages
Motor vehicles
Equipment
Drawings
5 620
122 460
22 000
32 560
19 200
17 400
27 560
Shaun’s remaining assets and liabilities were:
1 January 2011
31 December 2011
$
$
Inventory (at cost)
22 300
17 400
Premises (at cost)
100 000
100 000
PAGE 350
Equipment (net book value)
28 400
27 600
3
Motor vehicles (net book value)
65 000
68 200
Trade
receivables
22
400
28
600
REQUIRED
Trade payables
17 500
19 470
General expenses prepaid
1 100
900
Rent
received
prepaid
800 purchased for the year
–
(a)
Calculate
the value
of Shaun’s sales and ordinary goods
Rent
received
owing 2011.
–
1 300
ended
31 December
Wages owing
2 400
500
For
Examiner's
Use
Sales
(i)
Additional information:
1
Shaun allowed his customers discounts of $4000.
2
Discounts received from suppliers were $3100.
3
Shaun has decided to create a provision for doubtful debts of 2% of the trade
receivables outstanding at 31 December 2011.
4
General expenses in the bank account summary include an amount of $660
which relates to the payment of Shaun’s private house insurance.
Shaun had taken goods at a PAGE
cost price
350 of $3700 for his personal use.
5
3
REQUIRED
(a)
For
Examiner's
Use
Calculate the value of Shaun’s sales and ordinary goods purchased for the year
ended 31 December 2011.
[4]
(i)
(ii)
© UCLES 2012
Sales
PAGE 351
Ordinary goods purchased
9706/23/M/J/12
4
PAGE 352
(b)
Prepare Shaun’s income statement for
5 the year ended 31 December 2011.
(c)
Prepare Shaun's statement of financial position at 31 December 2011.
OMAIR MASOOD
CEDAR COLLEGE
For
Examiner's
Use
For
Examiner's
Use
248
1
Q3.
PAGE 380
Q5.
2
Sharon Woo does not maintain full accounting records but is able to provide the following
cash receipts and payments information for the year ended 30 April 2012.
Cash receipts
Cash sales
Receipts from trade debtors
Disposal of surplus equipment
$
Cash payments
260 000 Payments to credit suppliers
40 000 Equipment
4 800 Wages
Drawings
Rent
$
216 000
20 000
22 000
48 000
10 000
The following information is also available:
1
Balances
1 May 2011
$
Premises
100 000
Bank
8 000
Trade receivables
26 800
Trade payables
21 200
Equipment
24 000
Rent prepaid
1 200
Inventory
16 800
30 April 2012
$
100 000
3 200 Cr
24 800
22 400
36 400
1 600
20 800
2
Surplus equipment was sold at a loss of $400
3
The sales figure does not include $18 000 of which Sharon Woo took $6 000 for
her own use and the remainder was used to pay wages.
4
Discounts allowed during the year amounted to $7200.
5
381 to $10 800.
Discounts received during the yearPAGE
amounted
3
REQUIRED
PAGE 382
(a)
For
Examiner's
Use
Calculate Sharon Woo’s capital at 1 May 2011.
4
(b)
Prepare Sharon Woo’s income statement for the year ended 30 April 2012.
OMAIR MASOOD
© UCLES 2012
CEDAR COLLEGE
9706/22/O/N/12
For
Examiner's
Use
249
Q4.
Q6.
1
2
Patel, a sole trader, does not keep proper books of account. He provided the following information.
Land and buildings at cost
Fixtures and fittings at valuation
Motor vehicles at net book value
Trade payables
Trade receivables
Wages owing
Inventory
Cash in hand
Rent in advance
1 January 2014
$
50 000
6 000
7 600
16 750
14 670
1 200
21 750
800
1 000
31 December 2014
$
50 000
4 500
?
14 900
13 690
1 400
22 450
950
?
Summary of Patel’s bank account for the year showed the following.
Receipts
$
Balance b/d
16 980
Receipts from credit customers
156 420
Cash sales
20 700
Proceeds from sale of motor vehicle
1 500
______
195 600
Payments
$
Payments to credit suppliers
109 620
Wages
22 670
Rent
19 000
Electricity
8 650
General expenses
4 750
Purchase of new motor vehicle 16 400
Balance c/d
14 510
195 600
Additional information
1
Before banking his receipts from cash sales Patel took $400 per month for his personal
drawings. All other payments were made from the bank.
2
During the year he took goods costing $2600 for his own use.
3
Patel depreciates his vehicles at 20% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase. No depreciation is provided in the
year of sale.
4
The vehicle sold had a net book value at 1 January 2014 of $2880.
5
A customer has been declared bankrupt and will not pay $750 owing. The amount was
included in the trade receivables at 31 December 2014.
6
In addition Patel has decided to create a provision for doubtful debts of 5%.
7
The rent payable is $16 000 per annum.
3
REQUIRED
(a) Prepare Patel’s income statement for the year ended 31 December 2014.
4
(b) Prepare Patel’s statement of financial position at 31 December 2014.
© UCLES 2015
OMAIR MASOOD
9706/21/M/J/15
CEDAR COLLEGE
250
Q5.
2
Q7.
1
Anton, a sole trader, does not keep proper books of account. He supplies the following
information for the year ended 30 September 2015.
Office fixtures at net book value
Delivery vehicles
Cost
Accumulated depreciation
Trade payables
Trade receivables
Rent payable owing
Cash
Inventory
Bank
1 October 2014
$
9 500
30 September 2015
$
8 600
15 700
4 600
12 670
10 500
1 500
980
24 640
2 400 Credit
?
?
13 460
9 670
2 400
445
40 800
?
Summary of Anton’s bank account is as follows.
Bank Account Summary
$
Receipts
Receipts from credit customers
Cash sales banked
Sale of delivery vehicle
Payments
Payments to credit suppliers
Wages
Rent
Electricity
General expenses
Purchase of delivery vehicle
153 300
12 900
5 400
118 900
17 800
8 500
7 540
4 630
13 600
Additional information
1
The inventory at 30 September 2015 was valued at selling price. Anton applies a mark up of 50%.
2
During the year a delivery vehicle which had cost $9000 on 1 October 2012 was sold for $5400.
3
Delivery vehicles are depreciated at 20% per annum using the reducing balance method.
Depreciation is charged in the year of purchase but not in the year of sale.
4
Anton took cash drawings of $600 per month before the cash sales were banked but has not
recorded these. He also took goods for his own use which had a sales value of $2763.
5
Total cash sales were $20 476.
6
There are unrecorded delivery vehicle expenses not accounted for.
3
REQUIRED
(a) Prepare Anton’s income statement for the year 4ended 30 September 2015.
(b) Prepare a statement of financial position at 30 September 2015.
© UCLES 2015
OMAIR MASOOD
9706/23/O/N/15
CEDAR COLLEGE
251
Q6.
PAGE 70
2
Q8.
1
Suhail is a sole trader who provides the following information.
For
Examiner's
Use
Suhail's assets and liabilities, other than bank, were as follows:
Premises at cost
Fixtures at book value
Vehicles at book value
Stock
Debtors
Cash
Creditors
1 April 2008
$
200 000
24 000
30 000
82 150
66 340
510
64 300
31 March 2009
$
200 000
18 000
22 500
76 500
60 870
510
71 200
There were no purchases or sales of fixed assets during the year ended 31 March 2009.
A summary of Suhail's bank statement for the year ended 31 March 2009 is shown below.
Dr
$
Bank balance at 1 April 2008
Receipts from debtors
Payments to creditors
Rent and rates
Electricity
Advertising
Wages
Sales commission paid
Drawings
Cr
$
841 030
605 190
12 590
17 145
19 325
65 100
14 250
28 500
Balance
$
61 000 overdrawn
780 030
174 840
162 250
145 105
125 780
60 680
46 430
17 930
Suhail's creditors had allowed him discount of $19 000 during the year.
All purchases and sales are on credit.
PAGE 71
3
REQUIRED
PAGE
72 for the year ended 31 March 2009.
(a) Prepare Suhail's trading and profit and loss
account
4
For
Examiner's
Use
(b) Prepare Suhail's balance sheet at 31 March 2009.
OMAIR MASOOD
© UCLES 2009
CEDAR COLLEGE
9706/21/M/J/09
For
Examiner's
Use
252
1
Jing is a sole trader. He does not maintain full accounting records. All sales and purchases are
on credit.
He provided the following information for the year ended 30 April 2015.
Q7.
$
Cheques received from credit customers
96
300
2
Q9.
Cheques paid to credit suppliers
73 540
5 500 records. All sales and purchases are
1 Rent
Jing paid
is a sole trader. He does not maintain full accounting
345
Electricity
on credit. paid
Carriage inwards
630
He provided
the following information for the year ended
Carriage
outwards
95030 April 2015.
95
Other operating expenses
$200
Irrecoverable debts written off
Cheques received from credit customers
96 300
Purchases returns
2 480
Cheques paid to credit suppliers
73 540
Rent paid
5 500
Electricity
paid
345
Jing had the following assets and liabilities.
Carriage inwards
630
Carriage outwards
950
At 30 April 2014
At 30 April 2015
Other operating expenses
95
$
$
Irrecoverable debts written off
200
Equipment
?
?
Purchases returns
2 480
Inventory
15 000
11 500
2 250
Trade receivables
3 750
Rent
prepaid
500
400
Jing had the following assets and liabilities.
35
40
Electricity owing
At 30 April
2014
At 30 April
2015
1 790
Trade payables
3 460
$
$
All
equipment was originally purchased
for $2700 on 1 May
Equipment
?
? 2013. Jing depreciates his equipment
using
the reducing balance method
at a rate of 10% per11annum.
Inventory
15 000
500
Trade receivables
3 750
2 250
REQUIRED
Rent prepaid
500
400
Electricity owing
35
40
(a)
(i) payables
Calculate the sales for the
year ended 30 April 2015.
Trade
3 460
1 790
All equipment was originally purchased for $2700 on 1 May 2013. Jing depreciates his equipment
using the reducing balance method at a rate of 10% per annum.
REQUIRED
(a) (i) Calculate the sales for the year ended 30 April 2015.
[2]
(ii) Calculate the purchases for the year ended 30 April 2015.
3
(iii) Prepare Jing’s income statement for the year ended 30 April 2015.
(ii) Calculate the purchases for the year ended 30 April 2015.
Jing
Income Statement for the year ended 30 April 2015
[2]
[2]
© UCLES 2016
9706/22/M/J/16
[2]
© UCLES
2016
OMAIR
MASOOD
9706/22/M/J/16
CEDAR
COLLEGE
253
8.
quired:
PAGE 106
Q10.
1
2
The following is a summary of Harry's balance sheet at 30 April 2008.
$000
Assets
Fixed assets
Q8.
Furniture and equipment at net book value
1
Current assets
Stock
Debtors
Cash
Total assets
For
Examiner's
Use
$000
PAGE 106
2
208
The following is a summary of Harry's balance sheet at 30 April 2008.
Assets
Fixed assets
Furniture and equipment at net book value
1500
610
6
Current assets
Stock
Debtors
Cash
Total assets
Equity and liabilities
Equity
Owner's capital
$000
$000
2116
2324
1500
610
61096
Current liabilities Equity and liabilities
Creditors for Equity
supplies
capital
Creditors for Owner's
expenses
Bank overdraft
920
98
210
Current liabilities
Creditors for supplies
Creditors for expenses
Bank overdraft
For
Examiner's
Use
208
2116
2324
1096
1228
2324
920
98
210
1228
2324
The following information is available for the year ended 30 April 2009:
$000
1 Amount paid into bank
2950
The following information is available for the year ended 30 April 2009:
(This included $50 000 from the sale of furniture and equipment
$000
which had a net 1book
value
of into
$48bank
000.)
Amount
paid
2950
(This included $50 000 from the sale of furniture and equipment
which had
net book
valuefor
of $48
2 Cash from Harry's sales
wasa used
to pay
the 000.)
following:
Expenses
2 Cash from Harry's sales was used to pay for the following:
Drawings
152
70
Expenses
Drawings
152
70
3 Amounts paid from the bank:
Purchases 3 Amounts paid from the bank:
Purchases
Interest on overdraft
Interest on overdraft
Expenses
1750
30 1750
30
810
Expenses
810
4 Balances at 30 April
2009: at 30 April 2009:
4 Balances
Creditors for supplies
Creditors for supplies
Creditors for expenses
Creditors for expenses
Debtors
Debtors
Stock
Stock
Cash
Cash
510
90
400
720
5
5 During the year, Harry brought into the business a motor vehicle.
5 During the year, Harry brought into the business a motor vehicle.
510
90
400
720
5
12
12
6 A provision for doubtful debts of 4% of debtors is to be made.
6 A provision for doubtful debts of 4% of debtors is to be made.
7 Depreciation on all fixed assets was to be provided for at 25% using the reducing
(diminishing) balance method. Full depreciation would be provided for in the year in
7 Depreciation on all which
fixed an
assets
to be provided
forwould
at 25%
using in
the
asset was
was introduced
but none
be applied
thereducing
year of disposal.
(diminishing) balance method. Full depreciation would be provided for in the year in
which an asset was introduced but none would be applied in the year of disposal.
Required:
© UCLES 2009
9706/22/O/N/09
9706/22/O/N/09
( a) Income Statement for the year ended
30 April 2009
(b) Statement of financial Position as at 30 April 2009.
© UCLES 2009
) Income Statement for the year ended 30 April 2009
Statement of financial Position as at 30 April 2009.
OMAIR MASOOD
CEDAR COLLEGE
254
PAGE 157
Q9.
2
PAGE 157
Q11.
2
Jasper, a sole trader, has provided the following summary
of his bank receipts and payments
For
for the year ended 30 April 2010.
Examiner’s
PAGE 157
1
Jasper, a sole trader, has provided the following summary of his bank receipts and payments Use For
2
for the year ended 30 April 2010.
Examiner’s
Dr
Cr
Use
1
Jasper, a sole trader, has provided
and payments
$ the following summary of his bank receipts
$
For
Dr
Cr
for the
ended 30 April 2010.
Examiner’s
Cash
andyear
cheques
424 000
Machinery
30 400
$
$
Use
Payments to creditors
228 000
Cash and cheques
424 000
Machinery
30 400
Rent
24 200
Dr
Cr
Payments to creditors
228 000
$
$
Insurance
14 200
Rent
24 200
10430
200
Cash and cheques
424 000 Wages
Machinery
400
Insurance
14 200
Postage
800
Payments to creditors
228
000
Wages
104 200
Electricity
824
400
Rent
200
Postage
800
Sundries
414
200
Insurance
200
Electricity
8 400
Wages
104 200
Sundries
4 200
Postage
800
Electricity
8
400
Jasper’s year-end balances were as follows:
Sundries
4 200
Jasper’s year-end balances were as follows:
At 30 April
2009
2010
Jasper’s year-end balances were as follows:$ At 30 April$
2009
2010
Trade receivables (debtors)
46 400
?
$
$
Inventory (stock)
24 400 At 30 April
30 600
Trade receivables (debtors)
46 400
?
Trade payables (creditors)
292009
200
322010
200
Inventory (stock)
24 400
30 600
$
$
Machinery at net book value
206 400
216 000
Trade payables (creditors)
29 200
32 200
Trade
receivables (debtors)
?
Rent
prepaid
–46 400
6 200
Machinery at net book value
206 400
216 000
Inventoryprepaid
(stock)
600
Insurance
–24 400
330
400
Rent prepaid
–
6 200
Trade payables (creditors)
29
200
Bank
? 200
532
400
Cr
Insurance prepaid
–
3 400
Machinery at net book value
206 400
216 000
Bank
?
5 400 Cr
Rentinformation
prepaid
–
6 200
Additional
Insurance prepaid
–
3 400
Additional
information
During
Bank the year machinery with a net book value
? of $5600 was
5 400sold
Cr for $1000, which was
paid into Jasper’s private bank account.
During the year machinery with a net book value of $5600 was sold for $1000, which was
Additional
informationprivate bank account.
paid into
Jasper
tookJasper’s
a salary of $28 000 which was included in the wages account.
1
During
year
machinery
with which
a net book value of $5600 was sold for $1000, which was
Jasperisthe
took
a salary
$28 000
Mark-up
calculated
asof75%
on account.
cost. was included in the wages account.
paid into
Jasper’s private
bank
Mark-up is calculated as 75% on cost.
Jasper took a salary of $28 000 which was included in the wages account.
Mark-up is calculated as 75% on cost.
PAGE 159
4
(c) Prepare Jasper’s income statement (trading and profit and loss account).
PAGE 160
..........................................................................................................................................
5
(d) Prepare
Jasper’s balance sheet at 30 April 2010.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
OMAIR MASOOD
© UCLES 2010
CEDAR
COLLEGE
9706/23/M/J/10
..........................................................................................................................................
..........................................................................................................................................
© UCLES 2010
9706/23/M/J/10
..........................................................................................................................................
..........................................................................................................................................
For
Examiner’s
Use
For
Examiner’s
Use
255
INCOMPLETE*RECORDS*(WORKSHEET*3)*
INCOMPLETE*RECORDS*(WORKSHEET*3)*
! Q12.
!
Q1.Q1.
BaleBale
is a sole
trader
and and
the following
details
relate
to histobusiness
for the
ended
31st31st
is a sole
trader
the following
details
relate
his business
for year
the year
ended
December
2004.!
December
2004.!
BankBank
Account
summary
for the
ended
31st31st
December
20042004
Account
summary
for year
the year
ended
December
$ $
$ $
CashCash
salessales
Trade
Receivables
Trade
Receivables
5,000
5,000
2,000
Balance
b/d b/d
2,000
Balance
8,000
8,000
72,000
RentRent
72,000
SaleSale
of motor
car car
of motor
18,000
18,000
15001500
General
expenses
General
expenses
9,000
9,000
Drawings
Drawings
52,000
52,000
Trade
Payables
Trade
Payables
4,000
4,000
Motor
car car
Motor
The The
following
information
is also
available
following
information
is also
available
1 January
20042004
1 January
$
31st31st
December
20042004
December
$
Trade
Receivables
Trade
Receivables
4,500
4,500
Inventory
at cost
Inventory
at cost
3,000
3,000
prepaid
RentRent
prepaid
300 300
General
expense
owing
General
expense
owing
900 900
Trade
Payables
Trade
Payables
3,000
3,000
Motor
Motor
car car
10000
10000
Building
Building
50,000
50,000
in Hand
CashCash
in Hand
200 200
$
$
7,000
7,000
?
?
500 500
700 700
18,000
18,000
11000
11000
50,000
50,000
700 700
1.Bale
withdrawn
a family
holiday
during
the year.
recorded
1.Bale
has has
withdrawn
$800$800
for afor
family
holiday
during
the year.
ThisThis
has has
beenbeen
recorded
as a as a
general
expense.
general expense.
2. Gross
Profit
Markup
2. Gross
Profit
Markup
was was
25%.25%.
3.
The
Motor
Car
sold
had
a book
of $1100.
3. The Motor Car sold had a book
valuevalue
of $1100.
4. Not
all Cash
banked,
$1600
for personal
$1400
4. Not
all Cash
SalesSales
werewere
banked,
$1600
was was
keptkept
for personal
use use
and and
$1400
was was
paidpaid
for for
Wages.
Wages.
REQUIRED:
REQUIRED:
Calculate the closing Inventory at 31st December 2004.
(a) (a)
Calculate
the closing Inventory at 31st December 2004.
(b) The Income Statement (Trading and Profit and Loss Account) for the year ended 31st
(b) The Income Statement (Trading and Profit and Loss Account) for the year ended 31st
December 2004.
December 2004.
(c) The Statement of Financial position (Balance sheet) as at 31st December 2004.
(c) The Statement of Financial position (Balance sheet) as at 31st December 2004.
OMAIR MASOOD
CEDAR COLLEGE
256
Q2!
Q13.
1
2
Khalid owns a wholesale business selling electrical goods. He does not keep proper books of
account, but is able to provide the following information.
Balances at 1 January 2014
Motor vehicle at cost
Motor vehicle provision for depreciation
Fixtures and fittings at cost
Fixtures and fittings provision for depreciation
Trade receivables
Trade payables
Inventory
Prepayment of two months’ property rental 3
General expenses accrued
Cashinformation
in hand
Additional
1
$
38 400
12 600
41 940
22 680
26 610
19 920
33 500
3 750
410
360
Summary of bank account for the year ended 31 December 2014
For the year ended 31 December 2014:
Dr
Credit sales $193 400
$
180
sales $15
BalanceCash
at 1 January
2014
4110 Payments to credit suppliers
3
Receipts from credit customers
200 270 Drawings
2 Cash
Trade
payables
$21 590.
Property
rental
sales
bankedat 31 December 2014
9 675were
Balance
at 31 December 2014
11 295 General expenses
Additional
information
3 All sales are made at 30% gross profit margin.
Purchase of motor vehicle
1 For the year ended 31 December 2014: Wages and salaries
REQUIRED
Motor expenses
Credit sales $193 400
225 350
Cash sales
$15 180
(b) Calculate
the following
for the year ended 31 December 2014.
REQUIRED
2 Trade
at 31 December 2014 were $21 590.
(i) payables
Sales revenue
(a) Calculate Khalid’s opening capital at 1 January
3 2014.
Cr
$
134 750
22 185
20 625
6 650
10 100
26 150
4 890
225 350
!
3 All sales are made at 30% gross profit margin.
3
Additional
information
!
REQUIRED
Additional information
1 For the year ended 31 December 2014:
1 For the
ended$193
31
400
Credit
sales
(b) Calculate
theyear
following
forDecember
the year2014:
ended 31 December 2014.
400
Creditsales
sales $15
$193180
Cash
Cash sales $15 180
(i) Sales revenue
2 Trade payables at 31 December 2014 were $21 590.
[1]
Trade payables at 31 December 2014 were $21 590.
2
(ii) Purchases
3 3 AllAllsales
at 30%
30%gross
grossprofit
profit
margin.
salesare
aremade
made at
margin.
REQUIRED
REQUIRED
!
Calculatethe
the following
following for
ended
31 31
December
2014.2014.
(b)(b)Calculate
forthe
theyear
year
ended
December
Salesrevenue
revenue
(i)(i) Sales
!
[1]
[1]
(ii) Purchases
!
[5]
(c) Calculate the value of closing inventory at 31 December 2014.
!
[1]
[1]
(ii) Purchases
© UCLES 2015
9706/22/M/J/15
(ii) Purchases
[1]
[3]
(c) Calculate the value of closing inventory at 31 December 2014.
[1]
OMAIR MASOOD
257
CEDAR COLLEGE
(c) Calculate the value of closing inventory at 31 December 2014.
(c) Calculate the value of closing inventory at 31 December 2014.
[1]
4
Additional information
Before banking his receipts from cash sales, Khalid took $400 per month for his personal
drawings. The only other cash payments during the year were for motor expenses.
Cash in hand at 31 December 2014 was $460.
REQUIRED
[4]
(d) Prepare the cash account for the year ended 31 December 2014 to identify the cash
payment made for motor expenses.
!
Additional information
1
Khalid allowed a total of $914 discount to credit customers.
2
Motor vehicles are depreciated at 25% per annum using the reducing balance method. A full
year’s depreciation is charged in the year of purchase, but none in the year of sale.
3
During the year, a motor vehicle that had cost $16 000 on 1 July 2012 was traded in for
$8200. The balance of the purchase price for the new vehicle was paid by cheque.
4
Fixtures and fittings are depreciated at 15% per annum using the reducing balance method.
There were no additions or sales of fixtures and fittings during the year.
5
There was no accrual for general expenses at 31 December 2014.
6
Prepaid rent at 31 December 2014 was $1875.
5
!
REQUIRED
for the year ended 31 December 2014.
! (e) Prepare Khalid’s income statementPAGE
173
Q3.!
2
! Additional information
! Q14.
[4]
!
9706/22/M/J/15
! On 1 January 2009 Clara Coyle, a sole trader,
had the following balances:
For
! 1 Khalid allowed a total of $914 discount to credit customers.
Examiner’s
Use
$
! 2 Motor vehicles are depreciated at 25% per annum using the reducing
balance
method.
A
full
Inventory (stock)
24 170
year’s depreciation is charged in the year of purchase, but none in the year of sale.
!
Premises
60 000
PAGE 173
!
Fittings and fixtures (net book value)
28 000
3 During the year, a motor vehicle that had
2 cost $16 000 on 1 July 2012 was traded in for
Cash
and
cash
equivalents
(bank)
4 000
!
$8200. The balance of the purchase price for the new vehicle
was paid by cheque.
Rates prepaid
440
1 ! On 1 January 2009 Clara Coyle, a sole trader, had the following balances:
For
Trade
receivables
(debtors)
3 810
Fixtures
and fittings
are depreciated at 15% per annum using
the reducing balance method.
Examiner’s
! 4 Trade
payables
(creditors)
3
420
Use
There were no additions or sales of fixtures and fittings during
$ the year.
Capital (stock)
117
000
!
Inventory
24
170
!
5 Premises
There was no accrual for general expenses at 31 December
2014.
60 000
!! There
was
no
opening
cash
or
cash
equivalent.
Fittings and fixtures (net book value)
28 000
!! 6 Cash
Prepaid
at equivalents
31 December
2014 was $1875.
andrent
cash
(bank)
4 000
accounting
records were not kept, but the following information
!! Full Rates
prepaid
440 was available for the
year
ended
31
December
2009.
Trade receivables (debtors)
3 810
!!
Trade
payables
(creditors)
3 420
!!
Bank Account Receipts
$
Capital
117 000
!!
Loan from uncle (interest free)
10 000
Receipts
from trade
(debtors)
163 100
no opening
cash receivables
or cash equivalent.
! There was
Cash sales paid into bank
34 000
! Full accounting
Bank
Account
Payments
records were not kept, but
the following information was available for the
© UCLES 2015
9706/22/M/J/15
! year ended
Payments
to trade 2009.
payables (creditors)
141 508
31 December
Ordinary
goods
purchased
(purchases)
by
cheque
6 300
!
Bank
Account Receipts
Rates
2$ 600
258
MASOOD
CEDAR COLLEGE
!OMAIR
Loan
from uncle (interest free)
10 3
000
Drawings
650
!
Receipts
from trade receivables (debtors)
163 4
100
General expenses
410
Cash
sales
paid
into
bank
34
000
Wages
21 300
!
Bank
Payments
Cash Account
payments
from cash sales
!
© UCLES 2015
1
There
was no
opening
cash or
cash
equivalent.
Fittings
fixtures
value)
Fittings
andand
fixtures
(net (net
bookbook
value)
28 00028 000
prepaid
440
! Rates
Cash
equivalents
(bank)
Cash
andand
cashcash
equivalents
(bank)
4 000 4 000
Trade
receivables
(debtors)
3
810
accounting
records were not kept, but the following 440
information
! Full
Rates
prepaid
440 was available for the
Rates
prepaid
Trade
payables
(creditors)
3
420
year
ended
31
December
2009.
receivables
(debtors)
3 810 3 810
Trade
receivables
(debtors)
! Trade
Capital
payables
(creditors)
3117
420 000
Trade
payables
(creditors)
3 420
! Trade
Bank Account Receipts
$
Capital
117 000
Capital
117 000
! was no
There
opening
cash (interest
or cash equivalent.
Loan
from uncle
free)
10 000
There
waswas
no opening
cash
or cash
equivalent.
Receipts
from
trade
receivables
(debtors)
163 100
There
no opening
cash
or cash
equivalent.
Full accounting
were
kept, but the following information
was available for the
Cashrecords
sales paid
intonot
bank
34 000
FullFull
accounting
records
were
not
kept,
but
the
following
information
was
for the for the
year
ended
31
December
2009.
Bank Account
Payments
accounting
records
were not kept, but the following informationavailable
was available
year
ended
31
December
2009.
Payments
to trade 2009.
payables (creditors)
141 508
year ended
31 December
Bank Account
$ 6 300
OrdinaryReceipts
goods purchased (purchases) by cheque
Bank
Account
Receipts
$10 000
Loan
from
uncle
(interest
free)
Bank
Account Receipts
Rates
2$ 600
Loan from uncle (interest free)
10 000
Receipts
from
(debtors)
16310
100
Loan
from trade
uncle receivables
(interest free)
000
Drawings
3
650
Receipts from trade receivables (debtors)
163 100
CashReceipts
sales
paid
into
bank
34
000
from
trade
receivables
(debtors)
163
100
General
expenses
4
410
Cash sales paid into bank
34 000
Bank
Payments
Cash
sales
paid into bank
3421
000
Wages
300
BankAccount
Account
Payments
Bank
Payments
Payments
to
payables
(creditors)
Cash Account
payments
from
cash(creditors)
sales
Payments
to trade
trade
payables
141141
508 508
Payments
topurchased
trade payables
(creditors)
141
508
Ordinary
goods
purchased
(purchases)
cheque 6 300
6 300
General
expenses
2
680
Ordinary
goods
(purchases)
byby
cheque
Ordinary
goods
purchased
(purchases)
by
cheque
6
300
Rates
2
600
Purchases
1
200
Rates
2 600
Rates as at 31 December 2009
2 600
Drawings
3 650
Drawings
3 650
Balances
Drawings
34
650
General
expenses
4 410
General
expenses
4 410
Trade
receivables (debtors)
100
General
expenses
411
410
Wages
21 300
Wages
21 300
Trade payables
(creditors)
850
Wages
21 300
Cashpayments
payments
from
Cash
from cash
cashsales
sales
Rates prepaid
240
Cash
payments
from cash
sales
General
expenses
2 680
General
expenses
2 680 400
General
expenses
owing
Purchases
1 200
General
expenses
21
680
Purchases
1 200
Wages owing
620
Balances
as at 31 December 2009
Purchases
1
200
Balances
as and
at 31cash
December
2009(cash)
Cash
equivalents
515
Trade
receivables
(debtors)
4 100
Balances
as at 31
December 2009 PAGE 174
Trade
receivables
(debtors)
4
100
Bank
PAGE 174 11 850 4 100?
Trade
payables
(creditors)
Trade
receivables
(debtors)
3
Trade
payables
(creditors)
11 850
Rates
prepaid
240
Trade
payables (creditors)
11 850
3
Rates
prepaid
Additional
Information:
General
400 240
Ratesexpenses
prepaid owing
240
General
expenses owing
For
Wages
owing
1 620 400
General
expenses owing
400
Examiner’s
For
1
The
selling
price
on
all
goods
is
based
on
cost
plus
25%.
Wages
owing
1
620
Cash
and
cash
equivalents
(cash)
515
Use
Wages owing
1 620
Examiner’s
Bank and cash equivalents (cash)
? 515
Cash
Use
Cash and cash equivalents (cash)
515
REQUIRED
2 During the year Clara Coyle withdrew goods, costing ?$140,
from the business, for
BankBank
?
REQUIRED
Additionalher
Information:
own use.
!
(a) Calculate the total sales for the year ended 31 December 2009.
Additional
Information:
Additional
Information:
The
selling
all goods
is based
on
plus
25%.
(a) 1Calculate
theprice
totalonsales
fordiscounts,
the
year ended
31
2009.
3 The
business
allowed
$1cost
300,
toDecember
its
trade receivables
(debtors).
..........................................................................................................................................
1 The
selling
price
on
all
goods
is
based
on
cost
plus
25%.
1 Thethe
selling
all goods
is based
cost plus
25%.
2..........................................................................................................................................
During
year price
Claraon
Coyle
withdrew
goods,on
costing
$140,
from the business, for
4 The business received discounts, $1 600, from its trade payables (creditors).
..........................................................................................................................................
her own use.
2 During
the year
Clara
Coyle
withdrew
goods,
costing
$140,
from
the
2 During
the year
Clara
Coyle
withdrew
goods,
costing
$140,
from
thebusiness,
business,for
for
..........................................................................................................................................
5
No
additions
or
disposals
of
non-current
(fixed)
assets
took
place
during
the
year.
her
own
use.
her
own
use.
..........................................................................................................................................
3 The business allowed discounts, $1 300, to its trade receivables (debtors).
Depreciation
of
$3discounts,
000
is to $1
be
provided
onits
fixtures
and fittings.
..........................................................................................................................................
34..........................................................................................................................................
The
business
allowed
discounts,
$1600,
300,
to its
trade
receivables
(debtors).
3 The
business
allowed
discounts,
$1
300,
to
trade
receivables
(debtors).
The
business
received
from
its
trade
payables
(creditors).
..........................................................................................................................................
Premises
are
not depreciated.
No
orreceived
disposals
of discounts,
non-current
(fixed)
assets
took
place
during
the year.
4 additions
The
business
received
600,
from
trade
payables
(creditors).
45..........................................................................................................................................
The
business
discounts,
$1 $1
600,
from
its its
trade
payables
(creditors).
© UCLES 2010
9706/21/O/N/10
PAGE
174
..........................................................................................................................................
Depreciation
of
is toofbenon-current
provided
on (fixed)
fixtures
and
fittings.
5 additions
No additions
or000
disposals
of
non-current
(fixed)
assets
took
place
duringthe
theyear.
year.
5 ..........................................................................................................................................
No
or $3
disposals
assets
took
place
during
3
Premises
are not depreciated.
..........................................................................................................................................
Depreciation
of 000
$3 000
to provided
be provided
fixtures
and
fittings.
PAGE
174
..........................................................................................................................................
Depreciation
of $3
is toisbe
on on
fixtures
and
fittings.
!
© UCLES! 2010
9706/21/O/N/10
For
3
..........................................................................................................................................
Premises
depreciated.
Examiner’s
Premises
are are
not not
depreciated.
..........................................................................................................................................
!
© UCLES 2010
9706/21/O/N/10
© UCLES! 2010
9706/21/O/N/10
..........................................................................................................................................
!
!
Use
REQUIRED
..........................................................................................................................................
..........................................................................................................................................
(a) Calculate
the total sales for the year ended 31 December 2009.
For
Examiner’s
Use
..........................................................................................................................................
REQUIRED
!
...................................................................................................................................... [5]
!
..........................................................................................................................................
..........................................................................................................................................
(a) Calculate
the total sales for the year ended 31 December 2009.
!
(b) ..........................................................................................................................................
Calculate the total purchases for the year ended 31 December 2009.
!
PAGE 175
!
......................................................................................................................................
[5]
..........................................................................................................................................
4
..........................................................................................................................................
!
..........................................................................................................................................
(b)(c) ..........................................................................................................................................
Calculate
the
total Statement
purchases
for theand
year
ended
31 account)
December
2009.
Prepare the
Income
(trading
profit
and loss
for Clara
Coyle for
For
..........................................................................................................................................
..........................................................................................................................................
the year ended 31 December 2009. PAGE 175
Examiner’s!
PAGE 176
Use
4
..........................................................................................................................................
!
!
..........................................................................................................................................
..........................................................................................................................................
5
..........................................................................................................................................
..........................................................................................................................................
!
(c) ..........................................................................................................................................
Prepare the Income Statement (trading and profit and loss account) for Clara Coyle for
For
..........................................................................................................................................
(d) ..........................................................................................................................................
Prepare
Balance
Sheet for Clara
Coyle at 31 December 2009.
..........................................................................................................................................
the
yearthe
ended
31 December
2009.
For
Examiner’s
..........................................................................................................................................
Examiner’s
PAGE 176
!Use ! Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
5
!
..........................................................................................................................................
..........................................................................................................................................
MASOOD
CEDAR COLLEGE
..........................................................................................................................................
! OMAIR
!
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(d)
the Balance Sheet for Clara Coyle at 31 December 2009.
..........................................................................................................................................
For
! Prepare
..........................................................................................................................................
..........................................................................................................................................
Examiner’s
..........................................................................................................................................
!
..........................................................................................................................................
!Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
! ! ..........................................................................................................................................
..........................................................................................................................................
259
Q15.
Q4.!
Lim Soh Ching is in business as a retail trader but she has not kept a full set of books.
The tax inspector now requires seeing annual accounts for 1995.
To enable these accounts to be prepared, the following incomplete information
is available:
(i) The bank account entries to 31st December 1995 are:
$
Rent paid
4,800
Vehicle expenses
2,900
Wages
9,700
Sundry expenses
1,300
170,600
Trade suppliers
Loan from father at 10% per annum
(loan taken 1 July 1995)
Payment for new delivery vehicle
27,000
see (iii) below
(i)
The bank paying-in book showing the receipts from debtors paid in cannot
be found. There were no other deposits except for the loan from Lim’s
father.
(ii)
Assets and liabilities:
Non-Current
Assets, at cost
Delivery vehicle
at 1 January 1995
at 31 December 1995
$
$
32,000
32,000
5,500 See (iii) below
Inventory, at cost
Inventory sheets not
18,700 available
Trade creditors
11,500
13,200
Trade Receivables
13,400
21,700
2,500 Dr
6,700 Dr
400
800
Bank balance
Prepayment – rent
OMAIR MASOOD
CEDAR COLLEGE
260
(iii)
(iv)
(v)
(vi)
In September 1995, Lim purchased a new delivery vehicle paying by
cheque. The list price was $19,100, but a trade-in allowance of $4,100 was
given for the old vehicle. The new vehicle is to be depreciated by 20% on
cost. It is Lim’s practice to provide a full year’s depreciation on NonCurrent Assets in the year of purchase, but none in the year of disposal
Lim has taken Inventory which cost $1000 for her own use during the
year.
All funds received from customers were banked except for $200 for
sundry business expenses and $5,000 for Lim’s own non-business
expenditure.
Lim is confident that her mark-up (gross profit to cost of sales) has been a
constant 20%
REQUIRED:
(a) Prepare the Income Statement (Trading and Profit and Loss Account) for the
year ended 31 December 1995.
(b) Prepare the Statement of Financial position (Balance Sheet) as at 31
December 1995.
!
! Q16.
Q5.!On
1 June 1993 Dawn Birch had the following assets and liabilities:!
!
Q5.!On
1 June 1993 Dawn Birch had the following assets
$ and liabilities:!
!
$
!
110,000
Premises
110,000
!
Premises
!
25,000
Fixtures and fittings
25,000
!
Fixtures and fittings
!
14,000
Inventory
14,000
!
Inventory
2,700
!
Trade Receivables
2,700
Trade Receivables
!
4,100
!
Trade Payables
4,100
Trade Payables
!
!
! At the same time Birch has $100,000 in the bank account. Additionally she also
At the same time Birch has $100,000 in the bank account. Additionally she also
! obtained a bank loan of $25,000, which was dated 1 June 1993, for a fixed term
a bank loan of $25,000, which was dated 1 June 1993, for a fixed term
! ofobtained
5 years and bearing interest at a fixed rate of 12% per annum.
of 5 years and bearing interest at a fixed rate of 12% per annum.
!
! During the year she was too busy to keep full records of all transactions.
During the year she was too busy to keep full records of all transactions.
!
However, her part records provide the following information.
!
However, her part records provide the following information.
!
In the year to 31st May 1994 she drew for her own personal use $200 per week
!
In the year to 31st May 1994 she drew for her own personal use $200 per week
the business bank account. There were two items paid out from cash
! from
from the business bank account. There were two items paid out from cash
! receipts for sales: $1,270 for general expenses and $1,740 for trade purchases:
receipts for sales: $1,270 for general expenses and $1,740 for trade purchases:
! All other cash sales were paid into the bank except for a cash balance of $410
All other cash sales were paid into the bank except for a cash balance of $410
retained at 31 May 1994.
retained at 31 May 1994.
Summary of bank account transactions for the year;
Summary
of bank account transactions
for the
year;
OMAIR
MASOOD
CEDAR
COLLEGE
$
Deposits paid into bank account
$
Deposits paid into bank account
Cash and cheque paid in (all from sales) 217,650
Cash and cheque paid in (all from sales) 217,650
261
In the year to 31st May 1994 she drew for her own personal use $200 per week
from the business bank account. There were two items paid out from cash
receipts for sales: $1,270 for general expenses and $1,740 for trade purchases:
All other cash sales were paid into the bank except for a cash balance of $410
retained at 31 May 1994.
Summary of bank account transactions for the year;
$
Deposits paid into bank account
Cash and cheque paid in (all from sales) 217,650
Payments from bank account
General Expenses
Trade Payables
5,040
159,250
Rates and Insurance
3,070
Electricity
1,280
Fixtures and Fittings
4,200
Wages
27,830
At 31st May 1994 there were notes in Birch’s diary relating to
1. Trade Payables – value at year end $21,600
Trade Receivables – value at year end $24,750
2. Birch has paid $240 insurance in advance and she estimates that she will pay
$900 to her accountant to prepare her final accounts and returns.
3. During the year Birch has used Inventory, cost price $490, for her own
purposes.
4. A provision for depreciation at 10% on cost is to be made on Fixtures and
Fittings.
5. Although there are n proper Inventory records Birch has maintained a
pricing policy whereby her gross profit was 25% of the selling price of her
goods.
REQUIRED:
(a)The Income Statement (Trading and Profit and Loss Account) for the year
ended 31st May 94.
(b)The Statement of Financial position (Balance Sheet) as at 31st May 94.
!
!
!
!
!
!
!
!
!
!
!
!
OMAIR
MASOOD
CEDAR COLLEGE
!
!
!
!
262
Q6.!
!Q17.
1
2
Maneesh has not maintained a full set of accounting records for the year ended 31 December 2015.
The following information has been provided:
Assets and liabilities at 1 January 2015
Assets
Liabilities
$
83 400
18 500
22 460
1 900
180
Non-current assets at net book value
Inventory
Trade receivables
Prepaid rent
Cash in hand
Trade payables
Accrued general expenses
Bank overdraft
Balance at 1 January 2015
$
12 770
1 320
5 640
106 710
126 440
126 440
Summary bank account for the year ended 31 December 2015
Receipts from credit customers
Cash sales banked
Balance at 31 December 2015
$
176 750
7 450
17 272
Balance at 1 January 2015
Payments to credit suppliers
Non-current assets
Drawings
General expenses
Rent
201 472
Balance at 1 January 2016
$
5 640
138 132
5 200
14 120
11 280
27 100
201 472
17 272
Additional information
1
Maneesh makes both cash and credit sales. All sales were made at 40% gross margin.
2
Credit sales for the year totalled $184 190.
3
Credit purchases for the year totalled $136 422. There were no cash purchases.
4
The business maintains a cash float of $180.
5
Maneesh withdrew $20 per week from cash sales for drawings, before banking the rest.
6
Maneesh depreciates his non-current assets at 20% per annum using the reducing balance
method.
7
The rent charge for the year was $24 600.
8
The general expenses charge for the year was $14 160.
9
Irrecoverable debts of $900 should be written off at 31 December 2015.
!
3
!
REQUIRED
© UCLES 2016
9706/23/O/N/16
(a) Prepare the income statement for the year ended 31 December 2015.
4
!
(b) Prepare the statement of financial position at 31 December 2015.
!
!
OMAIR MASOOD
CEDAR COLLEGE
263
Q7!
Q18.
!
1
2
Razia, a sole trader, started her business on 1 July 2015 selling ladies’ clothing. Razia did not
keep proper books of account, but was able to provide the following information.
Summary of bank account for the year ended 30 June 2016
$
36 340
78 780
4 330
Capital introduced
Cash banked
Balance c/d
Payments to trade payables
Shop rental
Shop fixtures and fittings
Purchase of motor vehicle
Motor expenses
Light and heat
119 450
3
$
80 690
25 200
3 600
5 800
3 140
1 020
119 450
Additional information
Additional information
1 Total revenue for the year was $92 600. All sales were made for cash.
1 All sales made a gross margin of 40%.
2 Razia kept no record of her cash drawings.
2 During the year, Razia had taken goods, $640 at cost price, for her own use.
3 The following expenses were paid from cash takings before the money was banked:
3 Inventory at 30 June 2016 had been counted and was valued at cost price $31 900. Razia
was aware that some goods$had been stolen during the year.
General expenses
950
Assistants’
wages
4 Razia
owed $8940
to trade2870
suppliers at 30 June 2016.
4REQUIRED
Cash in hand at 30 June 2016 was $1250.
REQUIRED
(b) Calculate the value of inventory stolen during the year ended 30 June 2016 at cost price.
(a) Prepare the cash account, showing clearly the value of Razia’s drawings for the year.
!
!
3
Additional information
1
All sales made a gross margin of 40%.
2
During the year, Razia had taken goods, $640 at cost price, for her own use.
3
Inventory at 30 June 2016 had been counted and was valued at cost price $31 900. Razia
was aware that some goods had been stolen during the year.
4
Razia owed $8940 to trade suppliers at 30 June 2016.
REQUIRED
(b) Calculate the value of inventory stolen during the year ended 30 June 2016 at cost price.
[4]
!
Additional information
1
[4]
At 30 June 2016, the following expenses were accrued:
Assistants’ wages
Light and heat
© UCLES
2 2017
Non-current
$
120
150
9706/22/F/M/17
assets should be depreciated
as follows:
Shop fixtures and fittings at 15% per annum using the reducing balance method
Motor vehicle using the straight-line method over five years. The estimated residual
value of the motor vehicle after five years is $400.
3
!
The annual charge for shop rental is $21 600.
Additional information
1
[4]
!
4
At 30 June 2016, the following expenses were accrued:
REQUIRED
Assistants’ wages
(c) Prepare
Light andthe
heatincome
© UCLES 2017
!
2
$
120
statement
for the year
150
9706/22/F/M/17
ended 30 June 2016.
[Turn over
Non-current assets should be depreciated as follows:
!
Shop fixtures and fittings at 15% per annum using the reducing balance method
Motor vehicle using the straight-line method over five years. The estimated residual
OMAIR
MASOOD
CEDAR
COLLEGE
value
of the motor vehicle after five years is
$400.
3
The annual charge for shop rental is $21 600.
264
INCOMPLETE RECORDS (MARK UP AND MARGIN)
Q1
A business sells goods at a margin of 20%. The revenue (sales) for the year was $240,000.
What is the cost of sales?
Q2
A business sells good at a markup of 33.3%.
Information for a year is given.
Revenue (Sales)
Opening Inventory
Closing Inventory
$
600,000
53,000
68,000
What are the total purchases for the year?
Q3
A business sells good at a markup of 35%
$
Revenue (Sales)
540,000
Purchases
350,000
Closing Inventory
70,000
What was the opening inventory?
Q4.
A trader made purchases of $300,000 and normally keeps gross margin of 40% before
making any sales. If the opening inventory was same as closing inventory for the year. What
was the sales/revenue figure for the trader?
Q5
A trader provides the following information for the year
Inventory at 1st January
Inventory at 31st December
Ordinary goods purchases
Gross profit % on sales/revenue
$15,125
$22,185
$65,500
25%
What is the value of sales/revenue for the year?
OMAIR MASOOD
CEDAR COLLEGE
265
Q6
During the month a company lost a quantity of inventory in a burglary. The table shows the
company’s results for the month.
Opening inventory, at cost
Purchases
Revenues (Sales)
Closing inventory, at cost
$
30,000
210,000
330,000
4,000
A gross profit on all sales(revenues) of 30% had been achieved.
What was the cost of the inventory lost in the burglary?
Q7
At the beginning of the financial year inventory was valued at $15,000. During the year,
sales/revenues of $21,000 and purchases of $18,000 were made. Unfortunately, all
inventory was stolen on the last day of the financial year.
Goods are marked up by 50% to calculate selling price.
What is the cost of the stolen inventory?
Q8
A business provides the following information.
Revenue (Sales)
Opening Inventory
Closing Inventory
Purchases
$
140,000
22,000
24,500
120,000
Goods are sold at a markup of 25%.
The owner has taken goods for own use but has not recorded these as drawings.
What is the value of the goods taken for own use?
OMAIR MASOOD
CEDAR COLLEGE
266
Q9
A company purchases a product that costs $120. The company expects to make a gross
profit margin of one-third.
What is the company’s mark-up in dollar amount?
Q10
A business had current assets and current liabilities as follows.
Inventories
Trade Receivables
Trade Payables
Rent receivable
$
1600
3200
2700
800
A fire destroyed the inventories, but 75% of the loss is covered by an insurance claim.
What are the current assets after the fire?
OMAIR MASOOD
CEDAR COLLEGE
267
RATIOS!
RATIOS
THEORY
(
PROFITABILITY!
(
GROSS!PROFIT!MARGIN! !
(
(
(
(
(
!
(
((
(
Gross(Profit( x(((100(
((Net(Sales(
)(
While(the(gross(profit(is(a(dollar(amount,(the(gross(profit(margin(is(expressed(as(a(percentage(of(net(
sales.(The(Gross(Profit(Margin(illustrates(the(profit(a(company(makes(after(paying(off(its(Cost(of(Goods(
sold.(The(Gross(Profit(Margin(shows(how(efficient(the(management(is(in(using(its(labour(and(raw(
materials(in(the(process(of(production((In(case(of(a(trader,(how(efficient(the(management(is(in(
purchasing(the(good).(There(are(two(key(ways(for(you(to(improve(your(gross(profit(margin.(First,(you(can(
increase(your(process.(Second,(you(can(decrease(the(costs(of(the(goods.(Once(you(calculate(the(gross(
profit(margin(of(a(firm,(compare(it(with(industry(standards(or(with(the(ratio(of(last(year.(For(example,(it(
does(not(make(sense(to(compare(the(profit(margin(of(a(software(company((typically(90%)(with(that(of(an(
airline(company((5%).(
(
Reasons(for(this(ratio(to(go(UP((opposite(for(down)(
1. Increase(in(selling(price(per(unit(
2. Decrease(in(purchase(price(per(unit(due(to(lower(quality(of(goods(or(a(different(supplier.(
3. Decrease(in(purchase(price(per(unit(due(to(bulk((trade)(discounts.(
4. Extensive(advertising(raising(sales(volume((units)(along(with(selling(price.(
5. Understatement(of(opening(stock.(
6. Overstatement(of(closing(stock.(
7. Decrease(in(carriage(inwards/Duties((trading(expenses)(
8. Change(in(Sales(Mix((maybe(we(are(selling(some(new(products(which(give(a(higher(margin).(
(
NET!PROFIT!MARGIN!
(
(
(
(
!
(
!
(
((
(
Operating(Profit( x(((100(
(Net(Sales(
)(
Net(profit(margin(tells(you(exactly(how(the(management(and(operations(of(a(business(are(performing.(
Net(Profit(Margin(compares(the(net(profit(of(a(firm(with(total(sales(achieved.(The(main(difference(
between(GP(Margin(and(NP(Margin(are(the(overhead(expenses((Expenses(and(loss).(In(some(businesses(
Gross(Margin(is(very(high(but(Net(Margin(is(low(due(to(high(expenses,(e.g.(Software(Company(will(have(
high(Research(expenses.(
(
Reasons(for(this(ratio(to(go(UP((opposite(for(down)(
All(the(reasons(for(GP(margin(apply(here.(Additionally(
1. Increase(in(cash(discounts(from(suppliers(
2. A(decrease(in(overhead(expenses(
3. Increase(in(other(incomes(like(gain(on(disposal,(Rent(Received(etc.(
OMAIR MASOOD
CEDAR COLLEGE
268
Return!on!Capital!Employed!(ROCE)!(
This(is(the(key(profitability(ratio(since(it(calculates(return(on(amount(invested(in(the(business.(If(this(ratio(
is(high,(this(means(more(profitability((In(exam(if(ROCE(is(higher(for(any(firm(it(is(better(than(the(other(
firm(irrespective(of(GP(and(NP(Margin).(This(return(is(important(as(it(can(be(compared(to(other(
businesses(and(potential(investment(or(even(the(Interest(rate(offered(by(the(bank.(If(ROCE(is(lower(than(
the(bank(interest(then(the(owner(should(shoot(himself.(This(ratio(can(go(up(if(profits(increase(and(capital(
employed(remains(the(same.(Also(if(Capital(employed(decreases,(this(ratio(might(go(up.(
(
(
(
((Operating(Profit_((
(Capital(Employed(
(
(
(
(
(
x(
100(
((((((((((Net(Profit(before(Interest(and(Tax(
!
Return!on!Total!Assets!
(
This(shows(how(much(profit(is(generated(on(total(assets((Fixed(and(Current).(The(ratio(is(considered(and(
indicator(of(how(effectively(a(company(is(using(its(assets(to(generate(profits.(
(
(
((Operating(Profit_((
(((((((Total(Assets(
x(
100(
(
Return!on!Shareholders’!Funds/Return!on!Net!Assets/Return!on!Owners!capital!
(
Since(all(the(capital(employed(is(not(provided(by(the(shareholders,(this(specifically(calculates(the(return(
to(the(shareholders((It’s(almost(the(same(thing(as(ROCE)(
(
x(
100(
(
Net(Profit(after(Tax(
Shareholders(Funds(
(
(
(
(
O.S.C(+(P.S.C(+(RESERVES(
(
(
(
(
NOTE:!
(
Capital(Employed(( =(Non(Current(Assets(+(Current(Assets(–(Current(
Liabilities(
(
OR!
(
=((Total(Equity(+(Non(Current(Liabilities((
!
OMAIR MASOOD
CEDAR COLLEGE
269
LIQUIDITY!AND!FINANCIAL!
(
As(we(know(a(firm(has(to(have(different(liquidity.(In(other(words(they(have(to(be(able(to(meet(their(day(
to(day(payments.(It(is(no(good(having(your(money(tied(up(or(invested(so(that(you(haven’t(enough(money(
to(meet(your(bills!(Current(assets(and(liabilities(are(an(important(part(of(this(liquidity(and(so(to(measure(
the(firms(liquidity(situation(we(can(work(out(a(ratio.(The(current(ratio(is(worked(out(by(dividing(the(
current(assets(by(the(current(liabilities.(
(
CURRENT!RATIO!
!
!
!
=!
!
!!!Current!assets!_(
Current!liabilities!
(
The(figure(should(always(be(above(1(or(the(form(does(not(have(enough(assets(to(meet(its(liabilities(and(
is(therefore(technically(insolvent.(However,(a(figure(close(to(1(would(be(a(little(close(for(a(firm(as(they(
would(only(just(be(able(to(meet(their(liabilities(and(so(a(figure(of(between(1.5(and(2(is(generally(
considered(being(desirable.(A(figure(of(2(means(that(they(can(meet(their(liabilities(twice(over(and(so(is(
safe(for(them.(If(the(figure(is(any(bigger(than(this(then(the(firm(may(be(tying(too(much(of(their(money(in(
a(form(that(is(not(earning(them(anything.(If(the(current(ratio(is(bigger(than(2(they(should(therefore(
perhaps(consider(investing(some(for(a(longer(period(to(earn(them(more.(
(
However,(the(current(assets(also(include(the(firm’s(stock.(If(the(firm(has(a(high(level(of(stock,(it(may(
mean(one(of(the(two(things,(
1. Sales(are(booming(and(they’re(producing(a(lot(to(keep(up(with(demand.(
2. They(can’t(sell(all(they’re(producing(and(it’s(piling(up(in(the(warehouse!(
(
If(the(second(of(these(is(true(then(stock(may(not(be(a(very(useful(current(asset,(and(even(if(they(could(
sell(it(isn’t(as(liquid(as(cash(in(the(bank,(and(so(a(better(measure(of(liquidity(is(the(ACID!TEST!(or!
QUICK)!RATIO.!This(excludes(stock(from(the(current(assets,(but(is(otherwise(the(same(as(the(current(
ratio.(
(
ACID!TEST!RATIO!
!
!
!
=!
!
Current!assets!–!stock!
!!!!Current!liabilities!
(
Ideally(this(figure(should(also(be(above(1.5(for(the(firm(to(be(comfortable.(That(would(mean(that(they(
can(meet(all(their(liabilities(without(having(to(pay(any(of(their(stock(and(still(have(some(buffer.(This(
would(make(potential(investors(feel(more(comfortable(about(their(liquidity.(If(the(figure(is(below(1,(they(
may(begin(to(get(worried(about(their(firm’s(ability(to(meet(its(debts.(
(
(
!
Note!:!Working!Capital!=!Current!Assets!–!Current!Liabilities!
OMAIR MASOOD
CEDAR COLLEGE
270
!
Rate!of!Stock!Turnover!
(
It(shows(the(number(of(times,(on(average,(that(the(business(will(sell(its(stock(in(a(given(period(of(time.(It(
basically(gives(an(indication(of(how(well(the(stock(has(been(managed.(A(high(ratio(is(desirable(because(
the(quicker(the(stock(is(turned(over,(more(profit(can(be(generated.(A(low(ratio(indicates(that(stocks(are(
kept(for(a(longer(period(of(time((which(is(not(good).(
(
(
!
(
!
Cost!of!Goods!Sold! !
!!!!Average!Inventory!
=!
____!Times!!!!!(!higher!the!better)!
(
(
(
Inventory!Days:!
This(is(Rate(of(Inventory(turnover(in(days.(Lower(the(better.(
(
(
(
!
!
!!Average!Inventory!!!!!!!x!365!=!
Cost!of!Goods!Sold!
____!Days!!!!!!!!!(!lower!the!better)!
!
Trade!Recieveables!Days(!Collection!Period)!
Shows(how(long(it(takes(on(average(to(recover(the(money(from(debtors.(Lower(the(better.(
(
(
(
the!better)!
!
!
!!!Closing!Trade!Receiveables!!!!!!x!365!
=!
____!Days!!!!!!!!!!!!!!!!!!(lower!
!!!!!Credit!Sales!
(
Trade!Payables!Days:!(Payment!Period)(
Shows(how(long(it(takes(on(average(to(payback(the(creditors.(Higher(the(better.(
(
(
(
!
!
!!Closing!Trade!Payables!x!365!
!!!!Credit!Purchases!
=!
____!Days!
!
Note:!
!
Average!Inventory!
!
!
!
!
!
!
=!
!
Opening!+!Closing!
!!!!!!!!!!!2!
!
!
OMAIR MASOOD
CEDAR COLLEGE
271
!
!
Utilization!Ratios!(All!higher!the!better)!
!
Total!Asset!utilization!(Total!Asset!Turnover)!
(
Shows(how(much(sales(are(being(generated(on(Total(Assets.(Higher(ratio(indicates(better(utilization(of(
Total(Assets.(
(
(
(((Net!Sales!!! !
!
!
Total!Assets!
=!
____!Times!
(
!
!
Non!Current!!Asset!Utilization!(Non!Current!Asset!Turnover)!
(
Shows(how(much(sales(are(being(generated(on(Non(current(assets.(Higher(ratio(indicates(better(
utilization(of.(
(
(
(((Net!Sales!!! !
!
!
Non!Current!Assets!
=!
____!Times!
(
Working!Capital!Utilization!(Working!Capital!Turnover)!
!
Sows(how(much(sales(are(being(generated(on(Working(Capital.(Higher(ratio(indicates(better(utilization(of(
Working(Capital.(
(
(
((((((((Net!Sales!!!!!!!!
!
!
Working!Capital!
=!
____!Times!
(
Advantages!of!Ratios!
1.
2.
3.
4.
Shows(a(trend(
Helps(to(compare(a(single(firm(over(a(two(years((time(–(series)(
Helps(to(compare(to(similar(firms(over(a(particular(year.(
Helps(in(making(decisions(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
272
(
(
Disadvantages!(Limitations):!
1.
2.
3.
4.
5.
6.
7.
8.
A(ratio(on(its(own(is(isolated((We(need(to(compare(it(with(some(figures)(
Depends(upon(the(reliability(of(the(information(from(which(ratios(are(calculated.(
Different(industries(will(have(different(ideal(ratios.(
Different(companies(have(different(accounting(policies.(E.g.(Method(of(depreciation(used.(
Ratios(do(not(take(inflation(into(account.(
Ratios(can(over(simplify(a(situation(so(can(be(misleading.(
Outside(influences(can(affect(ratios(e.g.(world(economy,(trade(cycles.(
After(calculating(ratios(we(still(have(to(analyze(them(in(order(to(derive(a(conclusion.(
(
How!to!Comment:!
Usually(in(CIE(they(assign(2(marks(for(comment(on(each(ratio.(One(mark(is(for(indicating(if(the(ratio(is(
better(or(worse((not(higher(or(lower).(The(second(mark(is(to(explain(the(importance(or(the(reason(of(the(
change(in(ratio.(For(e.g.(If(Gross(Profit(Margin(was(40%(and(now(its(50%,(you(should(say(that(the(Gross(
profit(Margin(has(improved((rather(than(increased)(and(this(may(be(due(to(an(increase(in(selling(price(or(
a(decrease(in(cost(of(goods(sold((depending(upon(the(question).(
(
Also(remember(that(the(liquidity(and(utilization(ratios(should(be(close(to(industry(average.(Too(less(or(
too(much(liquidity(is(bad!(
(
At(the(end(of(your(answer,(always(give(a(conclusion(
• When(comparing(a(single(firm(over(two(years(then(do(mention(performance(of(which(year(is(
better.((In(terms(of(profitability(and(liquidity)(
• When(comparing(two(different(firms(over(the(same(year(do(mention(performance(of(which(firm(
is(better.((In(terms(of(profitability(and(liquidity).(
(
(
If(the(question(says(evaluate(profitability(then(use((GP(Margin,(NP(Margin(and(ROCE)(
(
If(the(question(says(evaluate(liquidity,(use((Current(Ratio,(Acid(Test(and(Rate(of(Stock(Turnover)((
(
If(the(question(says(evaluate(the(performance(it(means(both(profitability(and(liquidity.(
(
Best(way:(
(
3(–(Profitability(
2(–(Liquidity(&(
1(–(Utilization(
(
OMAIR MASOOD
CEDAR COLLEGE
273
www.maxpapers.com
5
The following is an extract of Chikkadea’s financial statements (final accounts)
for the year
www.maxpapers.com
For
www.maxpapers.com
ended 30 April 2010.
Examiner’s
5
5
Use
Q1
Statement
(Tradingfinancial
and Profit
and Loss(final
account)
2
The following isIncome
an extract
of Chikkadea’s
statements
accounts) for the year
For
2
The following is an extract of Chikkadea’s financial statements (final accounts) for the year
For
for the year ended 30 April 2010
ended 30 April 2010.
Examiner’s
ended 30 April 2010.
Examiner’s
Use
2
RATIOS WORKSHEET
Income Statement (Trading and Profit and $Loss account)
Income Statement (Trading and Profit and Loss account)
for the year ended 30 April 2010
Revenue (Sales)
for the year ended 30 April 2010
Less cost of sales:
$
$ 000
Inventory (Stock) at 1 May 2009
32
Revenue (Sales)
Revenue
(Sales) purchased (Purchases)
Ordinary
281 250
Less costgoods
of sales:
Less cost of sales:
313000
250
Inventory (Stock) at 1 May 2009
32
Inventory (Stock) at 1 May 2009
32 000
000
Inventory
(Stock)purchased
at 30 April(Purchases)
2010
Ordinary goods
28128250
Ordinary goods purchased (Purchases)
281 250
Gross profit
313 250
313 250
Less
expenses
28 000
Inventory
(Stock) at 30 April 2010
28 000
Inventory (Stock) at 30 April 2010
Grossfor
profit
Profit
the
year
(Net
Profit)
Gross profit
Less expenses
Less expenses
Balance Sheet at 30 April 2010
Profit for the year (Net Profit)
Profit
for
the
year
(Net
Profit)
Assets
Balance Sheet at 30 April 2010
Non-current (Fixed) assets
Balance Sheet at 30 April 2010
Assets
Assets
Non-current
(Fixed) assets
Current
assets
Non-current
(Fixed) assets
Inventory (Stock)
Current assets
Trade
receivables
(Debtors)
Current
assets
Inventory (Stock)
Cash
and
cash
equivalents
(Bank)
Inventory (Stock)
Trade receivables (Debtors)
Total receivables
assets
Trade
(Debtors)
Cash and cash equivalents (Bank)
Cash and cash equivalents (Bank)
Total assets
Equity
and liabilities
Total
assets
$
375 000
Use
$
$
375 000
375 000
285 250
89 750
285 44
250750
285 250
89 45
750000
89 750
44 750
44 750
$
45 000
45 000 $
428 000
$
$
$
$
428 000
428 000
28 000
22 500
28 000
1 500
52 000
28 000
22 500
480 000
22 500
1 500
52 000
1 500
52 000
480 000
480 000
Equity:
Equity and liabilities
Equity
and liabilities
Capital
Equity:
Equity:
Capital
Capital
Current Liabilities
450 000
450 000
450 000
30 000
480
30 000000
30 000
480 000
480 000
The following have been calculated for Dakeeri, a competitor in the same
type of business.
Trade
payables
(Creditors)
Current
Liabilities
Current Liabilities
Trade payables (Creditors)
Trade payables (Creditors)
The following have been calculated for Dakeeri, a competitor in the same type of business.
The
haveratio
been calculated for Dakeeri, a competitor
in the same type of business.
(i) following
Gross profit
20.2%
(i) Gross profit ratio
20.2%
(i)
profitratio
ratio
20.2%
(ii) Gross
Net profit
10%
(ii) Net profit ratio
10%
(ii)
profiton
ratio
10%9%
(iii) Net
Return
capital employed
(iii) Return on capital employed
9%
(iii)
employed
9%8%
(iv) Return
Returnon
oncapital
total assets
(iv) Return on total assets
8%
(iv) Return on total assets
8%
(v) Current (working capital) ratio
1.5 : 1
(v) Current (working capital) ratio
1.5 : 1
(v) Current (working capital) ratio
1.5 : 1
(vi) Liquid (acid test) ratio
0.7 : 1
(vi) Liquid (acid test) ratio
0.7 : 1
(vi) Liquid (acid test) ratio
0.7 : 1
(vii)
(Debtors’turnover)
turnover)
days
(vii) Receivable
Receivable days
days (Debtors’
2828
days
(vii) Receivable days (Debtors’ turnover)
28 days
(viii)
(Creditors’turnover)
turnover)
days
(viii)Payable
Payable days
days (Creditors’
3535
days
(viii) Payable days (Creditors’ turnover)
35 days
(ix)
(Rateof
ofstockturn)
stockturn)
times
(ix) Inventory
Inventory turnover
turnover (Rate
88
times
(ix) Inventory turnover (Rate of stockturn)
8 times
©©UCLES
9706/21/M/J/10
[Turn
UCLES2010
2010
9706/21/M/J/10
[Turn
overover
© UCLES 2010
9706/21/M/J/10
[Turn over
OMAIR MASOOD
CEDAR COLLEGE
274
10
www.maxpapers.com
6
(c) Explain two advantages of using a sales ledger
control account.
REQUIRED
(i)
..................................................................................................................................
(a) Calculate the same ratios for Chikkadea’s business. In order to gain full marks you must
..................................................................................................................................
show
the formula or your workings for each calculation.
For
Examiner’s
For Use
Examiner’s
Use
www.maxpapers.com
..................................................................................................................................
Where
possible show your answers to one decimal place.
The first answer has been given as an example. 7
(ii)
10
..................................................................................................................................
Gross Profit
89 750 × 100
ended
www.maxpapers.com
For
100 =
=performed
23.9%
(b) Explain
(i) (i)Name
the × business
which
better during the year
(c)
two Sales
advantages
of using a375
sales
000ledger control account.
For
..................................................................................................................................
30 April 2010.
(i)
(b) (i)
B
Name
the
business
which
performed
better
during
the
Examiner’s
Use
year
Examiner’s
Use
ended
For
11
..................................................................................................................................
............................................................................................................................
[2]
30 April 2010.
Examiner’s
(ii) owns
..................................................................................................................................
S Turner
a food wholesale business. The following amounts were extracted from
Use
(ii)
Inventory
turnover
(as 2010.
a number of times)
..................................................................................................................................
books
of
account
at 31
December
For
(ii) Justify your
answer
to (b) (i) by comparing four of the ratios which you have
Examiner’s
............................................................................................................................ [2]
calculated
with the same four ratios given for Dakeeri.
Use
...........................................................................................................................
..................................................................................................................................
$
11
(16+2+12)
Inventory
– 1 January
45 000
(ii) Justify
your answer
to (b) (i) by comparing
four of the ratios which you have
..................................................................................................................................
..................................................................................................................................
...........................................................................................................................
000
Inventory
– 31
65Dakeeri.
(iii)
..................................................................................................................................
(June10/P21/Q2)
calculated
with
theDecember
same four ratios given for
(ii) Inventory
Cost turnover
of sales (as a number of times)
880 000
For
..............................................................................................................................
[4]
Business
expenses
130
000
...........................................................................................................................
Examiner’s
..................................................................................................................................
..................................................................................................................................
Use
...........................................................................................................................
Q2
Trade payables
100 000
Trade
receivables
150
000
...........................................................................................................................
S Turner owns
a food wholesale business. The following amounts were extracted from
..................................................................................................................................
..................................................................................................................................
...........................................................................................................................
Bank
overdraft
50 000
books
at 31
December 2010.
(iv)of account
..................................................................................................................................
Capital – 31 December 2010
1 125 000
.......................................................................................................................
[2]
...........................................................................................................................
..................................................................................................................................
..................................................................................................................................
$
The mark up on
goods is–25%.
Inventory
1 January
45 000
(iii) ...........................................................................................................................
Liquid
(acid test)
ratio.
..................................................................................................................................
Inventory – 31 December
65 000
(ii)
B
7
..................................................................................................................................
.............................................................................................................................. [4]
..................................................................................................................................
Cost of sales
880 000
REQUIRED
...........................................................................................................................
(v) ..................................................................................................................................
.......................................................................................................................
[2]
Business expenses
130 000
..................................................................................................................................
..................................................................................................................................
Trade
payables
100December
000
(a) Calculate
the profit
for the year (net profit) ended 31
2010.
...........................................................................................................................
(iii) Liquid
(acidreceivables
test) ratio.
Trade
150 000
11
..................................................................................................................................
Bank overdraft
50 000
..................................................................................................................................
..................................................................................................................................
...........................................................................................................................
...........................................................................................................................
Capital
–
31
December
2010
1
125
000
(ii) ..................................................................................................................................
Inventory turnover (as a number of times)
For
(vi) ..................................................................................................................................
..................................................................................................................................
Examiner’s
..................................................................................................................................
...........................................................................................................................
...........................................................................................................................
The mark
up
on goods is 25%.
Use
...........................................................................................................................
..................................................................................................................................
..................................................................................................................................
...........................................................................................................................
...........................................................................................................................
..................................................................................................................................
REQUIRED
...........................................................................................................................
..................................................................................................................................
..............................................................................................................................
[2]
...........................................................................................................................
...........................................................................................................................
..................................................................................................................................
(a) (vii)
Calculate
the profit for the year (net profit) ended 31 December 2010.
...........................................................................................................................
..................................................................................................................................
..................................................................................................................................
(b) Calculate
the following ratios, giving your answer to one decimal place.
...........................................................................................................................
.......................................................................................................................
..................................................................................................................................
........................................................................................................................... [2]
..................................................................................................................................
11
..................................................................................................................................
(i) Return
on capital employed
...........................................................................................................................
..................................................................................................................................
S Turner
is.......................................................................................................................
considering expanding her business by purchasing another food wholesale
[2]
(ii)..................................................................................................................................
Inventory turnover (as a number of times)
For
(viii)
..................................................................................................................................
..................................................................................................................................
business.
...........................................................................................................................
.......................................................................................................................
[2] Examiner’s
..................................................................................................................................
(iii) ...........................................................................................................................
Liquid (acid test) ratio.
Use
She has
obtained
the following information on two possible business purchases.
[12][12]
..........................................................................................................................
...........................................................................................................................
S Turner
is..........................................................................................................................
considering expanding her business by purchasing another food wholesale
..............................................................................................................................
[2]
...........................................................................................................................
business. ...........................................................................................................................
Paradis
Jones
...........................................................................................................................
[Total:
30] 30]
[Total:
(b) has
Calculate
the following
ratios,
giving youronanswer
to one decimal
place.
She
obtained
the
following
information
two
possible
business
purchases.
Foods
Wholesalers
...........................................................................................................................
(ix) ..................................................................................................................................
...........................................................................................................................
Return
on capital employed
15%
6%
[16]
...........................................................................................................................
(i) Return
on capital employed
Paradis
Jones
Current
ratio
3.4:1
1.8:1
...........................................................................................................................
...........................................................................................................................
Foods
© UCLES 2010 Liquid (acid test) ratio
9706/21/M/J/10
0.5:1 Wholesalers
1.4:1
.......................................................................................................................
[2]
...........................................................................................................................
Return
on
capital
employed
15%
6%
.......................................................................................................................
[2]
...........................................................................................................................
Current ratio
3.4:1
1.8:1
...........................................................................................................................
© UCLES 2011
9706/22/O/N/11
(acid
test)
ratio
0.5:1
1.4:1
REQUIRED
(iii)Liquid
Liquid
(acid
test)
ratio.
...........................................................................................................................
...........................................................................................................................
...........................................................................................................................
(c) Advise
which business, if any, she should purchase on the basis of all of the
...........................................................................................................................
REQUIRED
information
provided. Justify your answer.
...........................................................................................................................
...........................................................................................................................[2]
(c) Advise.......................................................................................................................
which business, if any, she should purchase on the basis of all of the
(2+2+2+2+4)
..................................................................................................................................
information
provided. Justify your answer.
.......................................................................................................................
[2]
...........................................................................................................................
(Nov11/P22/Q2B)
S Turner is considering expanding her business by purchasing another food wholesale
business.
..................................................................................................................................
..................................................................................................................................
...........................................................................................................................
OMAIR MASOOD
© UCLES 2011
CEDAR COLLEGE
9706/22/O/N/11
She has obtained the following information on two possible business purchases.
..................................................................................................................................
...........................................................................................................................
..................................................................................................................................
Paradis
Jones
...........................................................................................................................
..................................................................................................................................
..................................................................................................................................
Foods
Wholesalers
Return on capital employed
15%
6%
275
Q3
2
2
6
www.maxpapers.com
www.maxpapers.com
6
The following information is available for the Northern Division of Blackford Industrial Ltd:
The following information is available for the Northern Division of Blackford Industrial Ltd:
Statement of financial position at 30 April 2011
$0002011 $000
$000
Statement of financial position at 30 April
$000
$000
$000
Non-current assets at net book value
180
Non-current assets at net book value
180
Current assets
Current
assets
Inventory
40
Inventory
40 35
Trade receivables
Trade
35 43
Bank receivables
Bank
43118
118
Current liabilities
Current
liabilities
Trade
payables
55
Trade
55 23
Otherpayables
payables
Other payables
23
78
78
Net current assets
40
Net current assets
40
Capital employed
220
Capital employed
220
Equity
Equity
Ordinaryshare
sharecapital
capital– –$1$1each
each
Ordinary
Share
premium
Share premium
Retainedearnings
earnings
Retained
10 10
20 20
Total shareholders’
shareholders’funds
funds
Total
For
Examiner’s
For
Use
Examiner’s
Use
190190
30 30
220220
Additionalinformation
informationfor
foryear
yearended
ended
April
2011
Additional
3030
April
2011
$000
$000
480480
240240
60 60
120120
Total
Totalrevenue
revenue(sales)
(sales)
Cash
Cashpurchases
purchases
Cash
Cashpaid
paidtotocredit
creditsuppliers
suppliers
Operating
Operatingexpenses
expenses
At
were
reported:
At 30
30 April
April2010,
2010,the
thefollowing
followingbalances
balances
were
reported:
7
Inventory
Inventory
Trade payables
payables
(ii)Trade
gross
profit and profit for the year (net profit).
www.maxpapers.com
$000
$000
28 28
15 15
REQUIRED
REQUIRED
..................................................................................................................................
For
Examiner’s
Use
(a) Calculate the following amounts for the year ended 30 April 2011:
..................................................................................................................................
(a) Calculate
the following amounts for the year ended 30 April 2011:
www.maxpapers.com
(i) ..................................................................................................................................
cost of sales
7
(i) cost of sales
..................................................................................................................................
(ii) ..............................................................................................................................[2]
gross profit and profit for the year (net profit).
..................................................................................................................................
For
Examiner’s
Use
..................................................................................................................................
An analysis..................................................................................................................................
of the Southern Division of Blackford Industrial Ltd for the year ended 30 April
..................................................................................................................................
2011 yielded the following results.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Southern Division
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
1
Mark-up
40%
2
Gross
profit percentage 28.57%
..............................................................................................................................[4]
..............................................................................................................................[2]
3
Expenses
to sales 20%
..............................................................................................................................[4]
Net profit
percentage
An4analysis
of the
Southern8.57%
Division of Blackford Industrial Ltd for the year ended 30 April
5 yielded
Returnthe
on capital
employed
2011
following
results. 18.00%
6
Rate of inventory (stock) turnover 8.95 times
7
ratio (acid test) 1.1:1
© UCLES
2011 Liquid
9706/22/M/J/11
Southern
Division
© UCLES 2011
REQUIRED
OMAIR
1 MASOOD
Mark-up 40%
9706/22/M/J/11
CEDAR COLLEGE
2
Gross profit percentage 28.57%
Northern Division
3
Expenses to sales 20%
4
Net profit percentage 8.57%
(b) Calculate each of the same ratios for the Northern Division of Blackford Industrial Ltd,
5
Return on capital employed 18.00%
276
3
Expenses to sales 20%
..............................................................................................................................[2]
Northern
Division
4
Net
profit percentage
8.57%
(iii)
Expenses
to sales
For
..............................................................................................................................[2]
5
Return
on
capital
employed
18.00%
Examiner’s
Net profit
(b) (iv)
Calculate
eachpercentage
of the same ratios for the Northern Division of Blackford Industrial Ltd,
6for the
Rate
of inventory
(stock)
turnover 8.95 times
Use
..................................................................................................................................
year ended
30 April
2011. The calculations should be correct to two decimal
Return
on (acid
capital
employed
7(v)
Liquid
ratio
test)
1.1:1
places.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
REQUIRED
(i) Mark-up
..................................................................................................................................
8
..................................................................................................................................
..................................................................................................................................
Northern Division
..................................................................................................................................
..................................................................................................................................
(iii) Expenses
to sales
For
..............................................................................................................................[2]
Examiner’s
..................................................................................................................................
..................................................................................................................................
(b) Calculate
each
of
the
same
ratios
for
the
Northern
Division
of
Blackford
Industrial
Ltd,
Use
..............................................................................................................................[2]
..................................................................................................................................
(iv)
Net
profit
percentage
for the
year
ended
30 April 2011. The calculations should be correct to two decimal
..................................................................................................................................
..............................................................................................................................[2]
places.
(v) Return
on capital employed
..................................................................................................................................
..................................................................................................................................
(vi) ..............................................................................................................................[2]
Rate of inventory (stock) turnover
www.maxpapers.com
(i)
(ii)
www.maxpapers.com
Mark-up
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Gross profit percentage
8
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(iii) ..................................................................................................................................
Expenses
to sales
For
Examiner’s
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Use
..............................................................................................................................[2]
(iv) ..................................................................................................................................
Net
profit percentage
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(v) Return
on capital employed
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(vi) ..............................................................................................................................[2]
Rate
of inventory (stock) turnover
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
..................................................................................................................................
9
(vii)
Liquid
ratiopercentage
(acid test)
(ii) Gross
profit
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
..................................................................................................................................
(c) Using
theprofit
profitability
ratios (i) – (v) compare the performance of the Northern and
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
For
(iv) ..................................................................................................................................
Net
percentage
..............................................................................................................................[2]
Southern
Divisions of Blackford Industries and explain the significance of each ratio.
Examiner’s
Use
..............................................................................................................................[2]
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
(v) Return on capital employed 9706/22/M/J/11
© UCLES 2011
[Turn over
(4+2+2+2+2+2+2+2+2+10)
(vi) Rate
of inventory (stock) turnover
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
(June11/P22/Q2)
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
(vii) ..............................................................................................................................[2]
Liquid
ratio (acid test)
..............................................................................................................................[2]
Q4 ..........................................................................................................................................
..................................................................................................................................
6
..............................................................................................................................[2]
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
2 B M ..........................................................................................................................................
Reid’s
books on
of account
showed the following figures for the year ended 31 December 2012:
For
(v) ..................................................................................................................................
Return
capital employed
..................................................................................................................................
Examiner's
Use
..........................................................................................................................................
..............................................................................................................................[2]
$
..................................................................................................................................
..............................................................................................................................[2]
..................................................................................................................................
Revenue
200 000
© UCLES 2011
9706/22/M/J/11
[Turn over
..........................................................................................................................................
(vi)
Rate
of
inventory
(stock)
turnover
Ordinary
goods
purchased
145 000
..................................................................................................................................
ratio (acid test)
© UCLES(vii)
2011 Liquid
9706/22/M/J/11
..............................................................................................................................[2]
Profit from operations
22 500
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
Reid’s balances at 31 December 2012 were:
..........................................................................................................................................
Inventory
12 500
..............................................................................................................................[2]
..................................................................................................................................
..................................................................................................................................
Trade receivables
40 000
Cash..................................................................................................................................
and
cash
equivalents
10 000
(vi)
Rate
of
inventory
(stock)
turnover
..........................................................................................................................................
..................................................................................................................................
Trade payables
25 000
..................................................................................................................................
Finance
costs (interest owing)
12 500
..........................................................................................................................................
..............................................................................................................................[2]
..............................................................................................................................[2]
© UCLES 2011
9706/22/M/J/11
Non-current assets at net book value
60 000
..................................................................................................................................
..........................................................................................................................................
(vii)
Liquid ratio (acid test)
www.maxpapers.com
..................................................................................................................................
Additional
information:
..........................................................................................................................................
..................................................................................................................................
..............................................................................................................................[2]
1 80%
of revenue was on credit
..........................................................................................................................................
..................................................................................................................................
2 Inventory
at 1 January 2012 was $17 500
© UCLES 2011
9706/22/M/J/11
(vii)
Liquidpayables
ratio (acidand
test)trade receivables
3 Trade
balances were unchanged since
..........................................................................................................................................
1 ..................................................................................................................................
January 2012.
..................................................................................................................................
..........................................................................................................................................
..............................................................................................................................[2]
..................................................................................................................................
REQUIRED
..........................................................................................................................................
..................................................................................................................................
(a) Calculate
the following ratios, correct to two decimal places, in each case stating the
..........................................................................................................................................
formula used.
..............................................................................................................................[2]
..........................................................................................................................................
(i) Mark-up
..........................................................................................................................................
© UCLES 2011
9706/22/M/J/11
OMAIR MASOOD
CEDAR COLLEGE
..........................................................................................................................................
© UCLES 2011
9706/22/M/J/11
..........................................................................................................................................
[3]
277
7
[3]
(iv) Operating expenses to revenue ratio
(v) Current ratio
[3]
[3]
(vi) Acid test/liquid ratio
(ii) Inventory turnover
[3]
For
Examiner's
Use
7
(iii) Trade receivables turnover
[3]
(iv) Operating expenses to revenue ratio
8
[3]
(v) Current ratio
[3]
For the
ended
31 December
2011 the following ratios were:
(vi) year
Acid
test/liquid
ratio
[3]
8
(vii) Non-current
[3]
Inventory
turnover asset turnover.
13 times
(iii) Trade receivables turnover
For the year ended 31 December 2011 the following ratios were:
[3]
Trade receivables turnover
70 days
[3]
Inventory turnover
13 times
(v) Current ratio
[3]
REQUIRED
(vi)
Acid
test/liquid
ratio
Trade receivables turnover
70 days
[3]
© UCLES 2013
9706/23/M/J/13
[5]
(vii) Non-current asset turnover.
[3]
(b) Use the above ratios to compare B M Reid’s performance with the year ended
31 December 2012. State possible reasons for the changes.
REQUIRED
(c) State two limitations of the uses of ratios.
[3]
(b) Use the above ratios to compare B M Reid’s performance with the year ended
(3+3+3+3+3+3+3+5+4)
131 December 2012. State possible reasons for the changes.
[3]
(June13/P23/Q2)
(vi) Acid test/liquid ratio
[3]
© UCLES 2013
9706/23/M/J/13
2
(vii) Non-current asset turnover.
For
Examiner's
Use
For
Examiner's
Use
For
Examiner's
Use
Q5
1
1
2
The following information relates to two businesses, one of which manufactures computers
whilst the other is a food wholesaler. All sales and purchases are on credit.
The following information relates to two businesses, one of which manufactures computers
whilst2the other is a food wholesaler. All sales and purchases are on credit.
Business X
Business Y
(vii) Non-current asset turnover. Business X
Gross profit ratio
54%
Business Y
30%
6%
30%
0.5:1
6%
3 days
0.5:1
12%
3 days
$1 050 000
$4812%
000
$1 050
$14 000
000
$48
$50 000
000
$14 000
$50 000
Net profit ratio
18%
Gross profit ratio
54%
Current ratio
1.6:1
Net profit ratio
18%
Trade receivables turnover
40 days
Current ratio
1.6:1
Return on capital employed
5.4%
Trade
receivables turnover
40 days
Cost of sales
$248 400
Return
oninventory
capital employed
5.4%
Closing
$38
000
Cost
of
sales
$248
Cash and cash equivalents
$30400
000
Closing
inventory
Long-term
loan
$1$38
000000
000
Cash and cash equivalents
$30 000
loanassume a 360-day year.
$1 000 000
For Long-term
calculations,
For
Examiner's
Use
For
Examiner's
Use
[3]
[3]
[4]
[Total: 30]
[3]
[5]
(c)
State two limitations
the uses
of ratios.
For calculations,
assume aof
360-day
year.
[5]
[Turn over
REQUIRED
UCLES2013
2013
©©UCLES
9706/23/M/J/13
9706/23/M/J/13
REQUIRED
(a) 1 State and explain which business is the computer manufacturer and which is the food
wholesaler.
(c) State
State
two
limitations
of the uses
of computer
ratios.
3 manufacturer and which is the food
(a)
and
explain
which business
is the
3
wholesaler.
(b)
Prepare,
as fully
asas
the
given
incomestatements
statements
both
businesses.
1
(b)
Prepare,
as fully
the
giveninformation
information allows,
allows, income
forfor
both
businesses.
Income Statements
9706/23/M/J/13
Income Statements
Business X
Business Y
$
$
© UCLES 2013
2
Revenue
Business X
$
Less Cost of sales
[Turn
Business Y
$
2
Revenue
[4]
Gross profit
Expenses
Less Cost
of sales
[Total: 30]
[8]
[Turn[4]over
Profit for the year
© UCLES 2013
9706/23/M/J/13
Gross profit
(c)
OMAIR
MASOOD
Prepare,
as fully as
278
COLLEGE
the given CEDAR
information
allows, statements of financial position for
both
businesses.
Expenses
[Total: 30]
Statements of Financial Position
[3]
[8]
Profit for the year
$
Business X
$
$
Business Y
[3]$
For
For
Examine
Use
Examiner's
over Use
Gross profit
Expenses
Expenses
[8]
Profit
for the
year
Profit
for the
year
(c)
[8]
Prepare, as fully as the given information allows, statements of financial position for
(c) Prepare, as fully as the given information allows, statements of financial position for
both businesses.
both businesses.
Statements of Financial Position
Statements of Financial Position
$
Non-current assets
$
Business X
$
Business X
$
$
$
Business Y
$
Business Y
$
Current assets
Non-current assets
Inventory
Current assets
Trade receivables
Inventory
Cash
and cash
equivalents
Trade receivables
Total assets
4
and cash
CurrentCash
liabilities
equivalents
(d) Trade
(i) Define
the term liquidity.
payables
Total assets
Net assets
For
Examiner's
Use
4
Current liabilities
Capital
(d) (i)
Define the term liquidity.
Trade liabilities
payables
Non-current
[2]
For
Examiner's
Use
Loan
Net assets
(ii) employed
State which
Capital
business is more likely to have liquidity problems.
4
Capital
(d) (i) Define the term liquidity.
Non-current liabilities
(ii) State which business is more likely to have liquidity problems.
Loan
© UCLES 2013 (iii)
9706/22/M/J/13
State which ratio gives most concern
and why it does so.
Capital employed
[12]
[2]
[1]
(3+8+12+2+1+4)
2
[Turn over
[12]
[1]
[2]
(June13/P22/Q1)
Q6 (iii)
(ii)
For
Examiner's
Use
6 to and
State which
which business
ratio givesismost
it does
so.
State
moreconcern
likely
havewhy
liquidity
problems.
Luing Limited’s financial information for the year ended 31 December 2012 revealed the
following:
© UCLES
2013profit
Gross
ratio
35% 9706/22/M/J/13
Net profit ratio
14%
Rate
turnover
10 times
(iii)of inventory
State which
ratio gives most
concern and why it does so.
Trade payables turnover
42 days
Trade receivables turnover
58 days
Current ratio
3:1
Inventory at 1 January 2012
$7 800 000
Total revenue (all on credit) for 2012 $85 000 000
All purchases were on credit.
For
Examiner's
Use
[Turn
[1]over
[4]
[Total: 30]
[4]
[Total: 30]
REQUIRED
(a) For the year ended 31 December 2012, calculate
[4]
(i) Gross profit
[Total: 30]
OMAIR MASOOD
CEDAR COLLEGE
[2]
279
(ii) Cost of sales
(iii) Closing inventory
7
[2]
[2]
7
[2]
(v) Profit for the year
7
Workings:
(vi)
Expenses
(ii) Cost
of sales
(vii)
Trade
payables
For
Examiner's
Use
[2]
[4]
Workings:
(iii)
Closing inventory
(iv) Ordinary goods purchased
7
[2]
(v) Profit for the year
7
(vi) Expenses
6
Workings:
[2]
[2]
For
Examiner's
Use
[3]
[4]
(vii) Trade payables
(iii) Closing inventory
2
Bradley, a sole trader, provided the following
2014.
[3]
8 information for the year ended 31 March
(viii)
Trade goods
receivables
(iv) Ordinary
purchased
[2]
$ ratios other than the directors of the
(b) Identify three possible users of accounting
000 obtain from the ratios.
Revenue
420would
company. State what information the users
[2]
(vi) Expenses
Opening
inventory
© UCLES12013
(Nov13/P23/Q2)
Trade
payables
The (vii)
rate of
mark
up is 40%.
40 000
For
Examiner's
Use
[3]
(2+2+4+3+2+2+3+3+9)
[4]
9706/23/O/N/13
[3]
[3]
(viii)
Trade receivables
(iv) Ordinary
goods purchased
6
The rate of inventory turnover is 5 times per annum.
Q7
6
[2]
2 REQUIRED
Bradley, a sole trader, provided the following information for the year ended 31 March 2014.
2 © UCLES
Bradley,
following information for the year ended 31 March 2014.
2013 a sole trader, provided the
9706/23/O/N/13
[3]
Trade
payables
$
(a) (vii)
Explain
what
is meant by mark up.
$
Revenue
420 000
000
Revenue
420
Opening
40 000
(viii) inventory
Trade receivables
Opening
inventory
40 000
[3]
[3]
[9]
The2rate of mark up is 40%.
The rate of mark up is 40%.
[3]
© UCLES 2013
[9]
9706/23/O/N/13
(c) State
formulaturnover
for calculating
margin.
The
rate ofthe
inventory
is 5 times
per annum.
The rate of inventory turnover is 5 times per annum.
(viii) Trade receivables
REQUIRED
(c) State the formula for calculating margin.
REQUIRED
[3]
[2]
(a) Explain what is meant by mark up.
(a) Explain what is meant by mark up.
(b) Prepare the trading section of the income statement for the year ended 31 March 2014.
Additional information
[3]
(c) State the formula for calculating margin.
At 31 March 2014, the net book value of the non-current assets was $550 000.
Additional information
[2]
[9]
[2]
3
REQUIRED
9706/23/O/N/13
2014, the net book value of
the non-current assets was $550 000. [Turn over
8 turnover measures.
(d) (i) Explain what the non-current asset
REQUIRED
Additional
information
(ii)
State the
formula to calculate the non-current asset turnover ratio. Calculate the non-current
(d)
(i)
Explain
non-current
asset turnover
turnoverwhat
ratiothe
correct
to two
decimal
places. measures.
© UCLES asset
2013
9706/23/O/N/13
[Turn over
000.
At
31
March
2014,
the
net
book
value
of
the
non-current
(b) Prepare the trading section of the income statement assets
for the was
year$550
ended
31 (2+9+2+4+3)
March 2014.
(b) Prepare the trading section of the income statement for the year ended 31 March
2014.
(June15/P21/Q2a-d)
Ratio
Formula
Calculation
REQUIRED
© UCLES
At 312013
March
asset
turnover
(d) (i)non-current
Explain what
the
non-current asset turnover measures.
[2]
[2]
[2]
[9]
[4]
[Total: 30]
© UCLES 2013
9706/23/O/N/13
[Turn over
[4]
© UCLES 2013
9706/23/O/N/13
[Turn over
[4]
[3]
© UCLES
2015
OMAIR
MASOOD
9706/21/M/J/15
CEDAR
COLLEGE
280
[Turn over
(e) Explain why a provision for doubtful debts may be necessary.
© UCLES 2015
9706/21/M/J/15
[Turn over
Q8
2
6
Alberto is a retailer and has provided the following statement of financial position at 31 August 2014.
$
Assets
Non-current assets
350 000
Current assets
Inventory
Trade receivables
Total assets
65 000
45 000
110 000
460 000
Capital and liabilities
Owner’s capital
420 000
Current liabilities
Bank overdraft
Trade payables
18 000
22 000
40 000
460 000
Total capital and liabilities
The following additional information is also available for the year ended 31 August 2014.
$
Inventory at 1 September 2013
50 000
Purchases (all on credit)
280 000
Revenue (all on credit)
425 000
REQUIRED
(a) Complete the following table.
Ratio
Formula
Calculation
Inventory turnover (in days)
Trade receivables turnover
(in days)
Trade payables turnover
(in days)
Non-current asset turnover
Current ratio
[13]
OMAIR MASOOD
© UCLES 2015
CEDAR COLLEGE
9706/23/M/J/15
281
REQUIRED
7
7
(b) Additional
Evaluate
Alberto’s
performance in respect of the following ratios.
Additional
information
information
7
[3]
Inventory
turnover
(i) terms
Credit
negotiated
withwith
bothboth
customers
andand
suppliers
are are
30 days
net.net.
LastLast
yearyear
Alberto’s
Credit
terms
negotiated
customers
suppliers
30 days
Alberto’s
Additional
information
inventory
turnover
waswas
60 days.
inventory
turnover
60 days.
(ii) Trade receivables turnover
Credit terms negotiated with both customers and suppliers are 30 days net. Last year Alberto’s
REQUIRED
REQUIRED
8
inventory turnover was 60 days.
Evaluate
Alberto’s
performance
in respect
of the
following
ratios.
Evaluate
Alberto’s
performance
inextracted
respect
offrom
the
following
ratios.
REQUIRED
2(b) (b)
The
following
information
has been
the financial
statements of Thaw Limited at
[3]
31 December 2015.
Inventory
turnover
(i)
(b) (i)
Evaluate
Alberto’s
performance in respect of the following ratios.
Inventory
turnover
[3]
$
(ii) Trade receivables turnover
(i) Inventory turnover
Revenue
156 000
(iii)
Trade payables turnover
Purchases
88 000
(13+3+3+3)
Inventory
at
31
December
2015
42
000
(June15/P23/Q2a-b)
Operating expenses
48 000
[3] [3]
Trade receivables
39 000
Q9
8 2 000
Other receivables
[3][3]
(ii)
Trade
receivables
turnover
Cash
in Trade
hand
1 000
(ii)
receivables
turnover
2 Trade
The following
information has been extracted9 from
the financial statements of Thaw Limited at [3]
payables
29 000
(iii)
Trade
payables
turnover
(ii)
Trade
receivables
turnover
31 December
2015.
Other
payables
8 000
(iii)
Trade
receivables
turnover
(days)
Bank overdraft
10 000
$ 6 000
8% debenture (2019 – 2021)
Revenue
156 000
Purchases
88 000
Additional information
Inventory at 31 December 2015
42 000
Operating expenses
48 000
(iii)
Trade payables
turnover
1
Inventory
1 January
2015 was valued39at000
$34 000.
(iii)
Trade at
payables
turnover
Trade
receivables
9
(iii)receivables
Trade payables turnover
Other
2 000
2
All
sales
and purchases were on credit. 1 000
Cash
in
hand
(iii) Trade receivables turnover (days)
Trade payables
29 000
REQUIRED
Other
payables
8 000
(iv) Trade payables turnover (days)
Bank overdraft
10 000
8% debenture
– 2021) ratios for Thaw Limited.
6 000
(a)
Calculate(2019
the following
[3]
[3]
[3]
[3]
[1]
[3]
[3]
[3]
Additional
information
(i) Current
ratio to two decimal places.
1
9 000.
Inventory at 1 January 2015 was valued at $34
2
All sales
andreceivables
purchases were
on credit.
(iii)
Trade
turnover
(days)
(iv) Trade payables turnover (days)
REQUIRED
[1]
[1]
(v) Inventory turnover (days)
(a) Calculate the following ratios for Thaw Limited.
[1]
(i) Current ratio to two decimal places.
© UCLES 2015 (ii)
Liquid (acid test) ratio to two9706/23/M/J/15
decimal 9
places.
[Turn over
[1]
(iii) Trade receivables turnover (days)
(iv) Trade payables turnover (days)
[1]
[1]
(v) Inventory turnover (days)
(b) Discuss the ratios calculated in part (a) in respect of Thaw Limited’s liquidity and comment
[1]
10
9706/23/M/J/15
[Turn over
on the overall position.
(ii) Liquid (acid test) ratio to two decimal places.
[1]
(c) Explain three limitations of ratio analysis.
© UCLES 2015
(1+1+1+1+1+4+6)
(June16/P21/Q2) ((June16/P23/Q2)
(iv) Trade payables turnover (days)
9706/23/M/J/15
© UCLES
© UCLES
2015 2015
© UCLES 2015
(v)
Inventory turnover (days)
OMAIR MASOOD
9706/23/M/J/15
9706/23/M/J/15
CEDAR COLLEGE
[1]
[1]
[Turn
over
[Turn
over
[1]
[Turn over
282
(b) Discuss the ratios calculated in part (a) in respect of Thaw Limited’s liquidity and comment
[1]
on the overall position.
2
Cash sales were $18 575. All other sales were on a credit basis.
3
All purchases were on a credit basis.
4
Trade receivables at 30 April 2016 were $16 500.
5
Trade payables at 30 April 2016 were $9500.
Q10
3
8
Stapleton provided the following information for the year ended 30 April 2016:
6
Inventory turnover was 5 times per annum.
REQUIRED
Opening
inventory
Gross profit
$
25 200
37 150
(a) Calculate the trade receivables turnover (days). State the formula used.
Additional information
Formula
1
All goods were sold to achieve a 20% gross margin.
2
Cash sales were $18 575. All other sales were on a credit basis.
3
Calculation
All
purchases were on a credit basis.
9
(c) Calculate the trade payables turnover (days). State the formula used.
4
Trade receivables at 30 April 2016 were $16 500.
5
Trade payables at 30 April 2016 were $9500.
6
Inventory turnover was 5 times per annum.
Formula
Calculation
REQUIRED
[4]
(a) Calculate the trade receivables turnover (days). State the formula used.
9
(b) Formula
Calculate closing inventory.
[4]
(c) Calculate the trade payables turnover (days). State the formula used.
(d) State three uses of ratio analysis to a trader.
Formula
Calculation
(4+4+4+3)
1
(June17/P23/Q3)
Q11
2
Calculation
2
6
Wiggins has provided the following summary financial information for the year ended [4]
[4]
30 April 2017:
3
$
(b)
Calculate
closing
(d)
State
three
usesinventory.
of ratio analysis19to000
a trader.
Bank
overdraft
Cash in hand
1 725
Inventory
at 1 May 2016
?
1
Inventory at 30 April 2017
152 000
© UCLES 2017
9706/23/M/J/17
Purchases
860 000
Revenue
1 042 500
Trade receivables
31 275
[4]
[3]
[Total: 15]
2
Additional information
1
40% of sales are on a cash basis. All remaining sales are on a credit basis.
2
3 purchases are on credit.
All
3
The gross margin on all sales was 20%.
4
The trade payables turnover (days) for the year ended 30 April 2017 was 54.75 days (to two
[Total: 15]
decimal places).
© UCLES
2017
REQUIRED
1
[3]
9706/23/M/J/17
(a) State two limitations of using ratio analysis to analyse the performance of a business.
OMAIR MASOOD
[4]
CEDAR COLLEGE
283
2
All purchases are on credit.
7
1
3 The gross margin on all sales was 20%.
(c) Calculate the liquid (acid test) ratio to two decimal places.
4
The trade payables turnover (days) for the year ended 30 April 2017 was 54.75 days (to two
decimal places).
2
REQUIRED
[2]
(a) State two limitations of using ratio analysis to analyse the performance of a business.
7
(b) 1Calculate the current ratio to two decimal places.
8
[1]
(c) Calculate the liquid (acid test) ratio to two decimal places.
Additional information
8
(d) Calculate the rate of inventory turnover (times).
Wiggins
wishes
to
expand
his
business
by taking a bank loan of $30 000 repayable over five
2
Additional
years. information
[2]
Wiggins wishes to expand his business by taking a bank loan of $30 000 repayable over five
REQUIRED
years.
(e) Calculate
Advise Wiggins
whether
ortwo
not decimal
he should
take the loan. Justify your answer.
(b)
the current
ratio to
places.
REQUIRED
(e) Advise Wiggins whether or not he should take the loan. Justify your answer.
[1]
(2+4+1+4+4)
[4]
(d) Calculate the rate of inventory turnover (times).
Q12
2
1
The directors of AB Limited provide the following financial information:
Income Statement (extract) for the year ended 30 April 2016
$
Revenue
300 000
Purchases (80% on credit)
250 000
Expenses
27 0009706/22/M/J/17
© UCLES 2017
[4]
All sales earned a uniform gross margin of 20%.
Statement of Financial Position at 30 April 2016
[4]
$
3 000
Non-current assets
160
Current assets
Inventory
38 000
(b) Suggest
two reasons why the balance on35
a 000
retained earnings account may be lower than the
Trade receivables
profit
for
the
year.
Cash and cash equivalents
345 000
118 000
© UCLES 2017
9706/22/M/J/17
[4]
Total
278 000
1 assets
[4]
(b) Equity
Suggest
reasons why the balance on a retained earnings account may be lower than the
andtwo
liabilities
Equity
profit for the year.
[Total: 15]
3 000
[Total: 15]
Ordinary share capital of $1 each
170
3000
Share
premium
5
1
2 Retained
(b) Suggest
twoearnings
reasons why the balance on25
a 000
retained earnings account may be lower than the[4]
200
(b)
Suggest
two
reasons why the balance on a000
retained earnings account may be lower than the
profit
for
the
year.
Current liabilities
[2]
profit for the year.
Trade payables
27 000
51 000
12 Other payables
1
78 000
(c) Total
Calculate
equity the
andfollowing
liabilities ratios.
278 000
[2]
REQUIRED
(i) Rate of inventory turnover (to two decimal places)
2 2Prepare the income statement for AB Limited for the year ended 30 April 2016 in as much
(a)
3
(c) Calculate
thepossible.
following ratios.
detail as
[2]
[2]
(b)
reasonsturnover
why the (to
balance
on a retained
earnings account may be lower than the [2]
(i) Suggest
Rate oftwo
inventory
two decimal
places)
profit for the year.
(ii) Liquid
(acid
test) ratio
(to two decimal
places)
(c) Calculate
the
following
ratios.
the
following
ratios.
9706/22/M/J/17
(c) 2017
Calculate
© UCLES
1
[Turn over
(i) (i)Rate
of inventory
turnover
(to(totwo
Rate
of inventory
turnover
twodecimal
decimalplaces)
places)
[2]
(ii) Liquid (acid test) ratio (to two decimal places)
2
[2]
(iii) Trade payables turnover (days)
[2]
(ii) Liquid (acid test) ratio (to two decimal places)
(ii) Liquid
(acid test) ratio (to two decimal
places)
OMAIR
MASOOD
CEDAR
COLLEGE
9706/22/M/J/17
[2]
[2]
[2]
© UCLES 2017
(c) Calculate the following ratios.
(iii) Trade payables turnover (days)
[2]
(i) Rate of inventory turnover (to two decimal places)
© UCLES
UCLES 2017
2017
©
9706/22/M/J/17
9706/22/M/J/17
[Turn[2]
over
[2]
284
4
Additional information
3
12
4
The following
information is available for XY Limited, a competitor of AB Limited.
Additional
information
Anna has obtained the following data at 31 December 2016 in respect of Ravi, a possible new
Ratefollowing
of inventory
turnover is available
8.75for
times
customer.
The
information
XY Limited, a competitor of AB Limited.
Liquid (acid test) ratio
0.85 : 1
Tradeofpayables
turnover
(days)
42
days
Rate
inventory
turnover
times
$8.75
Liquid
(acid test) ratio
0.85 : 1
Trade
receivables
20 640
REQUIRED
Trade
turnover (days) 4 840
42 days
Cash
and payables
cash equivalents
debit
3
5
Inventory
Additional
(d)
Discuss information
the performance of 38
AB100
Limited5 by comparing the ratios calculated in part (c) with
REQUIRED
12
Trade
payables
28
760
those of XY Limited.
CD Limited
has been asked by both AB Limited and XY Limited to become their supplier. The
Additional
information
(d)
Discuss
the performance
ofdata
AB Limited
by comparing
the ratios
calculated
in part
(c) with new
Anna
has
obtained
theare:
following
31 December
2016
respect
of Ravi,
a possible
Other
figures
obtained
Rate
of
inventory
turnover
directors
of
CD
Limited
only wish
to at
supply
to one of the
twoincompanies.
those
of
XY
Limited.
customer.
CD Limited has been asked by both AB Limited and XY Limited to become their supplier. The
Sales
for theofyear
750 to one of the two companies.
directors
CD Limited only wish331
to supply
REQUIRED
Rate of inventory turnover
Inventory at 1 January 2016
46 200
$
REQUIRED
Trade
640 which company they should supply. Give reasons for your
(e)receivables
Advise the directors of CD20
Limited
Ravi has
acash
mark-up
of 25%.
Cash
andanswer.
equivalents
4 840 debit
(e) Advise the directors of CD Limited which company they should supply. Give reasons for your
Inventory
38 100
answer.
(4+2+2+2+2+6+4)
REQUIRED
Trade
payables
28 760
(June17/P21/Q1a-e)
Liquid (acid test) ratio
12
(a) Calculate
the following
Other
figures obtained
are: ratios for Ravi’s business to two decimal places:
3
Q13
Anna
hasLiquid
obtained
data at 31 December
2016 in respect of Ravi, a possible new
(acid the
test)following
ratio
Sales(i)for Current
the yearratio
331 750 12
customer.
Inventory at 1 January 2016
46 200
3
Anna has obtained the following data at 31 December 2016 in respect of Ravi, a possible new
customer.
$
13
Ravi has
a mark-up of 25%.
Trade
receivables
20 640
$ debit
Cash andTrade
cashpayables
equivalents
4 840
turnover (days)
Additional
information
Trade
receivables
20
640
REQUIRED
Inventory
38 100
Cash and cash equivalents
4 840 debit
Trade payables
28 760
Inventory
38 100
has the
alsofollowing
obtained
the following
in respect
Yuan, another
(a) Anna
Calculate
ratios
for
Ravi’sdata
business
to twoofdecimal
places: possible customer.
Trade
payables turnover (days)
Trade
payables
28 760
[2]
Other figures obtained are:
(i)
Current
ratio
Current
ratio
3.82
:
1
Other figures obtained are:
[6]
Sales for the
year(acid test) ratio331 750 1.63 : 1
Liquid
(ii)
Liquid
(acid
test)
ratio
Inventory
at
1
January
2016
46
200
SalesRate
for theofyear
331 7506.69 times per year
inventory turnover
Inventory at 1 January 2016
46 200
Ravi Anna’s
has a mark-up
of 25%. when choosing the customer is that they should pay her promptly.
main concern
[6]
[4]
Ravi has a mark-up of 25%.
[4]
REQUIRED
REQUIRED
REQUIRED
(a) Calculate the following ratios for Ravi’s business to
13two decimal places:
(a) Calculate
the following
for Ravi’s
two decimal
places:
(b)
Advise Anna
whichratios
customer
shebusiness
shouldtochoose.
Justify
your answer.
[2]
(i) Current
ratio
(i) Current
ratio
Additional
information
[2]
(ii) Liquid (acid test) ratio
Anna has also obtained the following data
in respect of Yuan, another possible customer.
13
(iii) Rate of inventory turnover
Current
ratio
Additional
information
3.82 : 1
Liquid (acid test) ratio
1.63 : 1
AnnaRate
has also
obtained
the
following
data
in on
respect
of Yuan,
another possible customer.
of inventory turnover
6.69
times
per
year
Question 1(f)
is
the next
page.
Current ratio
3.82 : 1
Anna’s
main
choosing
the is
customer
is that
they
Liquid
(acidconcern
test) ratiowhen Question
1.63 : 1
1(f)
on the next
page.
© UCLES 2017
9706/21/M/J/17
Rate of inventory turnover 6.69 times
per year
(ii) Liquid (acid test) ratio
[2] [2]
should pay her promptly.
[2]
REQUIRED
(ii)
Liquid (acid test) ratio
[5]
Anna’s main concern when choosing the customer is that they should pay her promptly.
(b)
Advise
which
customer she should choose. Justify your answer.
(iii)
Rate of Anna
inventory
turnover
REQUIRED
© UCLES 2017
9706/21/M/J/17
(c) State three limitations to a business of using ratio analysis.
(b) Advise Anna which customer she should choose. Justify your answer.
1
(June18/P21/Q3)
© UCLES 2018
OMAIR MASOOD
© UCLES 2017
(iii) Rate of inventory turnover
9706/21/M/J/18
CEDAR COLLEGE
9706/21/M/J/17
[3]
(2+2+3+5+3)
[2]
[Turn over
[2]
(iii) Rate of inventory turnover
2
© UCLES 2017
9706/21/M/J/17
[Turn over
285
3Purchases
H Limited
the following
information for its most recent year of trading.
(allprovided
credit)
800
(c) Calculate
the following77ratios
for the year.
Purchases returns
1 600
$
12
Administrative
and margin
(i) gross
Cash
sales
10
600
distribution expenses
14 800
Credit
salesprovided the following
900
300
Opening
inventory
481
3
H Limited
information for its most recent year of trading.
Purchases
(all
credit)
77
800
Closing inventory
6 500
13
Purchases returns
1 600
Q14
$
12
Administrative and
H(c)
Limited
calculates
a numberratios
of different
ratios
to analyse its results each year.
Cash
sales
10
600
Calculate
the
following
for
the
year.
distribution expenses
14 800
3 Credit
H Limited
provided
the
following
information
for
its most recent year of trading.
sales
900
Opening
inventory
481
300
REQUIRED
Purchases
(all
credit)
800
(i) gross
margin
Closing
inventory
677
500
$
600
Purchases
Cash sales returns
101
600
(a) H
Explain
the
difference
between
Credit
sales
81gross
900 margin and mark-up.
(ii)
expenses
to
revenue
Administrative
and
Limited calculates a number of
different ratios to analyse its results each year.
Purchases (all credit)
77 800
distribution
expenses
14
800
13
Purchases returns
1 600
Opening
inventory
4 300
REQUIRED
Administrative
and
distribution
expenses
146
800
inventory
500year.
(c) Closing
Calculate
the following ratios for
the
Opening inventory
4 300
(a)
Explain
the
difference
between
gross margin and mark-up.
(ii)
expenses
to
revenue
Closing inventory
6 500
H
Limited
calculates
a
number
of
different ratios to analyse its results each year.
(i) gross margin
[3]
[3]
[2]
H Limited calculates a number of different ratios to analyse its results each year.
[2]
(b) REQUIRED
(i) Name one cost recorded in an income statement which would not be included in the
REQUIRED
calculation
of the expenses to revenue ratio.
[2]
(iii)
profit margin
(a)
Explain
the
difference
between
gross
margin
and
mark-up.
[3]
(a) Explain the difference between gross margin and mark-up.
[1]
[2]
(b)(ii)(i) expenses
Name one
cost recorded in an income statement which would not be included in the
to revenue
calculation of the expenses to revenue ratio.
[2]
profit
margin
13 13 in the administrative expenses of a limited
(ii) (iii)
Name
two
costs which might be included
[2]
[1]
company.
[2]
(b) (i) Name one cost recorded in an income statement which would not be included in the
(c) Calculate
the following
ratios
for the
calculation
of the
expenses
revenue
(c) Calculate
the following
ratios
fortoyear.
the
year. ratio.
1
(b) (ii)
(i) Name
Name
one
cost which
recorded
in an (c)
income
statement which would not be included[3]
in the
(d)
State
how
the
three
calculated
are related.
(i)
gross
margin
two
costsratios
might beinincluded
in the administrative expenses of a limited[1]
(i) gross
margin
calculation
of
the
expenses
to
revenue
ratio.
2 company.
[2] [2]
(ii) expenses
to revenue
(ii) Name two costs which might be included in the administrative expenses of a limited [2]
[1]
1company.
(iii) profit
margin
[1]
1
(d) State2 how the three ratios calculated in (c) are related.
[2]
(ii) Name two costs which might be included in the administrative expenses of a limited
2
[2]
(e) Suggest
two reasons why H Limited’s gross margin may have been higher than the previous
company.
year.
[2]
1
(2+1+2+3+2+2+1+2) [1]
[2]
1
(iii)
profit margin
(Nov18/P23/Q3)
[3] [3]
2
[2]
(e)
Suggest
two
reasons
why
H
Limited’s
gross
margin
may
have
been
higher
than
the
previous
(d) State how the three ratios calculated in (c) are related.
year.expenses
to revenue
(ii) (ii)
expenses
to revenue
2
1
[2]
[2][1]
[Total: 15]
(d)
ratios
calculated
in (c)
are margin
related.may have been higher than the previous
2how the
(e)State
Suggest
twothree
reasons
why
H Limited’s
gross
[2] [2]
year.
margin
[2]
(iii) (iii)
profitprofit
margin
1
[1] 15]
© UCLES
9706/23/O/N/18
[Total:
© UCLES
2018 2018
9706/23/O/N/18
© UCLES 2018
9706/23/O/N/18
[Turn over
(e) Suggest two reasons why H Limited’s gross margin may have been higher than the previous
9706/23/O/N/18
2
year.
[2] [2]
[2]
1
(d) 2018
State how the three ratios calculated9706/23/O/N/18
in (c) are related.
© UCLES
[Turn over
(d) State how the three ratios calculated in (c) are related.
[Total: 15]
© UCLES 2018
2 2018
OMAIR
© UCLES
MASOOD
286
CEDAR
COLLEGE
9706/23/O/N/18
[1]
[2]
[1]
(e) Suggest two reasons why H Limited’s gross margin may have been higher than the previous
CONTROL ACCOUNTS THEORY
CONTROL!ACCOUNTS!
!
What!is!the!difference!between!Sales!Ledger!and!Salas!Ledger!Control!Account?!
!
Sales(ledger(is(where(we(make(individual(accounts(of(credit(customers.(It(is(part(of(double(entry(system(
and(it(gives(details(of(amounts(owing(by(each(customer.(A(list(of(debtors(is(extracted(from(the(sales(
ledger,(which(gives(the(figure(of(debtors(for(the(trial(balance.(
Sales(ledger(control(account(on(the(other(hand(is(the(total(debtors(account(in(the(general(ledger.(It(is(
not(part(of(the(double(entry(system.(It(I(often(referred(as(total(debtors(account.(All(the(entries(recorded(
here(are(totals(taken(from(daybooks(e.g.(Sales(figure(is(the(total(of(the(sales(daybook,(discount(allowed(
is(total(discount(allowed(from(the(discount(allowed(account(or(the(column(in(the(cashbook.(
(
USES!OF!CONTROL!ACCOUNT!
1. Helps(to(prevent(fraud(
2. Helps(to(detect(errors(
3. Quickly(provide(figures(of(total(debtors(and(creditor.(
LIMITATIONS!OF!CONTROL!ACCOUNT!
1. Cant(trace(error(of(omission((
2. Cant(trace(error(of(original(entry(
RECONCILIATION!OF!CONTROL!ACOUNT!
In(these(types(of(questions,(two(sets(of(balances(of(debtors(or(creditors(are(known.(One(is(from(the(
control(account(and(the(other(is(from(the(sales(ledger((or(list(of(debtors).(
They(will(also(give(you(several(errors(and(you(will(have(to(reconcile(both(the(balances.(
Errors(can(be(classified(as:(
(
1. If(an(error(is(made(in(the(personal((individual)(debtors(account,(than(it(will(only(affect(the(sales(
ledger((list)(balances.(E.g.(Sales(made(not(posted(to(debtor’s(account,(this(means(we(should(
increase(the(debtor(balances(in(the(ledger.(
2. If(an(error(is(made(in(any(total(figure(of(the(daybook,(it(will(effect(only(the(control(account(
balance,(e.g.(Sales(daybook(undercast,(Total(sales(understated(so(add(it(to(control(account(
balance.(
3. If(an(entry(is(completely(omitted(from(the(books,(it(will(affect(both(the(balances.(E.g.(A(sales(
invoice(completely(omitted(from(the(books,(add(it(to(both(balances.(
4. If(an(entry(is(originally(recorded(in(the(daybook(with(the(wrong(amount,(it(will(affect(both(the(
balances,(as(the(total(will(also(be(wrong.(E.g.(A(sales(invoice(of($500(was(originally(recorded(as(
$600,(this(means(the(total(sales(are(overstated(and(also(the(individual(account(of(the(customer(
has(been(debited(with($600.(We(should(subtract($100(from(both.(
5. If(a(balance(is(omitted(from(the(list(of(debtors,(it(will(only(affect(the(sales(ledger((list)(balance.(It(
cannot(affect(control(account(balance.(
(
OMAIR MASOOD
CEDAR COLLEGE
287
CONTROL ACCOUNTS AND RECONCILIATION
CONTROL ACCOUNTS AND RECONCILATION WITH LEDGERS
Q1.
The trial balance of Pineapple & Son revealed a difference in the books.
It was decided to prepare sales and purchases ledger control accounts to help detect
any error(s).
The following balances were in the books on 31 May 1990.
$
Purchases ledger balances on 1 June 1990
42,944
Sales ledger balances on 1 June 1990
75,500
Totals for the year ended 31 May 1991 were:
Purchases Journal
600,750
Sales Journal
842,910
Returns Out Journal
10,770
Returns in Journal
12,150
Cheques paid to Suppliers
580,120
Cheques/Cash from customers
751,950
Discounts allowed
20,120
Discount Received
8,640
Petty cash paid to suppliers
210
Bad debts written off
1,480
Customers cheques dishonoured
350
Balance on sales ledger set off against
4,080
Purchases Ledger
REQUIRED:
(a) Prepare sales and purchases ledger control accounts
(b) Explain three ways in which a business might use control accounts.
OMAIR MASOOD
CEDAR COLLEGE
288
Q2.The following balances were taken from the books of K. Packer as at 30 April
1990.
$
Purchases ledger balances
27,910
Sales ledger balances
45,020
Totals for the year ended 30 April 1990
Returns Out Journal
3,070
Sales Journal
501,510
Returns in Journal
10,440
Purchases Journal
300,450
Petty cash paid to suppliers
230
Cheques received from customers
458,770
Cheques paid to Suppliers
281,990
Cash received from customers
33,330
Bad debts written off
2,090
Discounts Allowed
7,080
Discounts received
6,540
Customer cheques dishonoured
1,790
Balance on sales ledger set off
2,330
against balance on Purchases Ledger
NOTE: All Packer’s transactions are carried out on a credit basis.
REQUIRED:
(a) To prepare Purchases and Sales Ledger Control Accounts for the year ended
30 April 1990 showing clearly the balances on these accounts at 30 April
1990.
(b) To explain why control accounts are prepared.
Outline the uses to which such accounts are put.
OMAIR MASOOD
CEDAR COLLEGE
289
Q3.Tripura Limited prepares control accounts at the end of each month. For March
2007, balances and transactions were as follows:
$
At 1 March 2007
Sales Ledger Control Account
Debit balance
Credit balance
Purchases Ledger Control Account
Debit balance
Credit balance
8,760
234
123
16,540
$
Transactions for the month of March 2007
43,210
Credit sales
987
Discount received
870
Sales returns
760
Discount allowed
475
Cheques from customers dishonoured
23,456
Payment to Trade Payables
33,654
Credit purchases
29,876
Cheques from credit customers
234
Cash refund to customers
1,234
Bad debts written off
3,210
Amount settled by contra set-off
1,020
Interest charged on debtor’s overdue account
$
At 31 March 2007
Sales Ledger Control Account
Credit balance
Purchases Ledger Control Account
Debit balance
567
321
REQUIRED:
From the information given above, prepare for the month of March 2007:
(a) Sales Ledger Control Account
(b) Purchases Ledger Control Account
OMAIR MASOOD
CEDAR COLLEGE
290
Q4. The following information has been extracted from the books of G. Elm, trader,
for the month of October 1994.
$
Sales Ledger Balances at 1 October
DR 72,950
CR 1,075
Purchases Ledger Balances at 1 October
DR 835
CR 64,410
550
Sales – Cash
620
Purchases – Cash
127,220
Sales – Credit
90,330
Purchases – Credit
Sales Returns (Credit Customers)
Purchases Returns(Credit Customers)
Balance on Bad Debts Provision at 1 October
1,250
2,520
805
Bad Debts Written Off
1,240
Cheque Dishonoured
1,790
Discounts Allowed
1,350
Discounts Received
Interest Charged
Accounts
970
on
Trade Receivables Overdue
Receipts from Trade Receivables
210
104,500
81,960
Payment to Trade Payables
Sales Ledger Credit Balance at 31 October
Purchases Ledger Debit Balance at 31 October
1,110
440
You should note that:
1. The provision for bad debts is to be adjusted to $2,900
2. On the 31 October the balances on P Reid’s account were:
• Purchases ledger $1,450
• Sales Ledger $910
The balance in the Sales Ledger is to be offset against the Purchases Ledger balance.
REQUIRED:
(a) Prepare Sales Ledger and Purchases Ledger Control Accounts for October 1994.
(b) List briefly the uses and advantages of Control Accounts.
(c) Explain briefly how a contra entry might arise.
OMAIR MASOOD
CEDAR COLLEGE
291
Q5.
An examination of the books of Better and Son reveals that on 30 September 1993 the
position was
DR
$
Trade Receivables Ledger Balances
80,200
Trade Payables Ledger Balances
402
CR
$
179
71,900
During the month of October 1993 the following events were recorded.
$
621,250
Sales
439,200
Purchases
3,650
Bad debts written off
12,110
Returns inwards
1,535
Returns outwards
Cash received from Trade Receivables
Cash paid to Trade Payables
574,225
399,700
14,750
Discount received
21,050
Discount allowed
Cash refund from suppliers
Amount due from customer as shown in Trade
Receivables ledger, offset against amount due to
same customer and included in Trade Payables
ledger
Allowances made to customers for goods damaged
in transit
Cash received for debt previously written off as
bad
Cheques received dishonoured
402
1,220
555
123
740
On 31 October 1993 there were no credit balances in the Trade Receivables ledger
there were no debit balances in the Trade Payables ledger.
REQUIRED:
(a) Prepare Trade Receivables and Trade Payables control accounts for the
month of October 1993.
(b) Explain the uses of control accounts by management.
OMAIR MASOOD
CEDAR COLLEGE
292
Q6.
The following information relating to the month of August 1992 is taken from the
books of Lucy. She maintains both Sales and Purchases (Suppliers) Ledgers Control
accounts as part of double entry accounting system.
$
Balance on customers’ accounts at 1 August 1992
Debit
Credit
Balances on supplier’s accounts at 1 August 1992
41,580
600
27,020
Credit sales invoiced during month
46,950
Invoices for good purchased during month
26,380
Contra (set off) settlements between customers’ and suppliers’ accounts
750
Cash sales during month
14,150
Cash paid to suppliers for credit transactions
25,260
Discount Received
590
Provision for doubtful debts at 1 August 1992
950
Customers’ balances written off as bad debts during month
450
Goods returned to suppliers
620
Credit notes issued to customers for goods returned ( sales returns)
1,220
Cash received from credit customers in full settlement of debts of
$42,230
41,630
Cash at bank 31 August 1992
5,100
Debit balances on suppliers accounts at 31 August 1992
230
Credit balances on customers’ accounts at 31 August 1992
120
REQUIRED:
(a) Using much of the above as is relevant, prepare a Sales Ledger Control
account and a Purchases (Suppliers) Ledger Control account, both for the
month of August 1992.
(b) Explain the ways in which control accounts can be of use to the management
of a business.
OMAIR MASOOD
CEDAR COLLEGE
293
!
Q7.The following balances relate to Mr. Naeem’s business for the month of February 2007 which was
the first month of trading:!
$
87,654
Credit sales
23,456
Cash sales
2,654
Credit sales returns
1,234
Cash Sales returns
67,900
Credit Purchases at list price
15,675
Cash Purchases
2,500
Purchases returns at list price
987
Cash purchases returns
Cheques received from Trade Receivables
65,423
37,278
Cheques paid to Trade Payables
1,962
Discount received
1,568
Discount allowed
Cash refunded to Trade Receivables for over payment
Cash received from suppliers for over payment
Cheques from Trade Receivables dishonoured
234
432
1,234
2,500
Bad debts written off
Bad debts written off previously recovered in cash
Interest charged on Trade Receivables’ overdue accounts
Interest charged by Trade Payables’ on overdue account
Amount settled by contra set-off
Credit balance on debtor’s account on 28 February
Debit balance on creditor’s account on 28 February
250
987
879
3,456
550
456
The credit purchases are subject to 10% trade discount on list prices.
REQUIRED:
From the information given above, prepare for the month of February 2007
(a) Sales Ledger Control Account
(b) Purchases Ledger Control Account
OMAIR MASOOD
CEDAR COLLEGE
294
Q8.The Trial Balance as at 31 October 1996 of Buzz Products Ltd. Included the following balances.
Cr($)
Dr ($)
Sales ledger Control Account
371
12,440
Purchases Ledger Control Account
9,846
214
311
Provision for doubtful debts
The company’s transactions during the year ended 31 October 1997 are summarized as follows:
$
23,740
Credit sales
783
Credit sales returns
13,471
Credit Purchases
183
Credit Purchases returns
832
Discounts allowed
610
Discounts received
540
Bad debts written off
12,307
Payments to credit suppliers
16,357
Receipts from credit customers
3,100
Receipts from cash customers
Additional Information:
1. Payments to suppliers incorrectly included $1630 for wages paid to the employees of Buzz
Products Ltd.
2. The Sales ledger Control Account included credit balances at 31 October 1997 for the
following customers.
$
T. King
B Lamb
131
22
3.
4.
The Purchases Ledger Account included debit balances at 31 Oct 1997 of $85 for T. Dent.
J. Patel is both a supplier and customer of Buzz Product Ltd. On the completion of each
year’s final accounts, an appropriate transfer is made in the company’s accounts so that J.
Patel has an year-end balance in either the Purchases Ledger or the Sales Ledger. At 31
October 1997, the balances of J. Patel’s accounts were as follows.
Purchase Ledger
550 Credit
Sales Ledger
710 Debit
5. The Company has decided that the Provision for doubtful debts at 31 October 1997 should
be 4% of the amount due from customers.
REQUIRED: (i) Sales Ledger Control Account
(ii)Purchases Ledger Control Account
(iii0Provision for doubtful debts account
OMAIR MASOOD
CEDAR COLLEGE
295
Q9.!M. House Private Co Ltd. operates an accounting system which includes both Sales and Purchases
Ledger Control Accounts.!The Company’s trial balance at the year ended 30 June 1987 included:!
DR
$
CR
$
Sales Ledger Control Account
45,200
760
Purchases Ledger Control Account
1,310
48,440
Below are sub-totals relating to the company dealings with its customers and suppliers during year
ended 30 June 1988.
$
Sales
Gross invoice value
Net invoice value (after trade discount)
435,620
395,850
Sales Returns
Gross invoice value
Net invoice value (after trade discount)
11,950
10,990
Amount receivable from customers
Full amount
Settled in full by receipt of
402,650
400,550
Debts written off (irrecoverable)
1,210
Purchases
Gross invoice value
Net invoice value (after trade discount)
325,600
271,500
Purchases Returns
Gross invoice value
Net invoice value
18,830
15340
Amounts payable to suppliers
Full amount
Settled in full by payment of
287,720
279,180
1. At 30 June 1988 the sales Ledger included these accounts with credit balances
$
H. Holborn
490
K. Cross
1,615
B. Street
885
and the Purchases Ledger included these accounts with debit balances
$
M. Arch
1,040
C. Larry
770
QUESTION CONTINUED ON NEXT PAGE
OMAIR MASOOD
CEDAR COLLEGE
296
2. At 30 June 1988 the personal account balances of B. Side were
$
Purchase Ledger
4,550
Sales Ledger
3,210
It was decided to set off B. Side’s balance in the Sales Ledger against his balance in the
Purchases Ledger.
REQUIRED:
(a) Prepare a Sales Ledger Control Account and a Purchases Ledger Control Account for the
year ended 30 June 1988.
Q10.!!!JR’s sales ledger control account balances at, 1 March 2008 were as follows.!
Dr $340,600
Cr $1,960
During March 2008 the following transactions took place.
$
295 000
Credit sales
219 750
Cash sales
Sales returns from credit customers
Receipts from Trade Receivables
6 480
238 600
3 500
Discounts allowed
Additional information for the month of March 2008
1.
The receipts from Trade Receivables included a cheque for $3600 in full settlement of a
debt of $3800. This was returned by the bank on 28 March marked “insufficient funds”.
2.
Eva Little and JR both buy form and sell to each other. At 31 March 2008 Eva owed JR
$5000 and JR owed $8600 to Eva. They agreed to offset balances, the net amount being
payable by JR on 31 March 2008.
3.
It was agreed that a debt of $2300 from Alice Springs was bad and it was written off.
4.
The total credit balances in the sales ledger control account at 31 March 2008 were $8340.
REQUIRED:
(a) Prepare JR’s sales ledger control account for the month of March 2008.
(b) State three possible reasons why a debtor’s account might have a credit balance.
(c) State three reasons for keeping control accounts.
!
OMAIR MASOOD
CEDAR COLLEGE
297
Q11.On 31 July 1995, Jeanne Cousseau sales ledger balances totaled $17,040 but, on
the same date, the balance of the sales ledger control was $18060 Dr.
After investigation, the following errors were found:
1. A Trade Receivable’s balance of $750 had been omitted from the list of
Trade Receivables.
2. Although discount allowed of $60 had been entered in the cash book, it had
not been posted to the customer’s account.
3. A debt of $200 had proved bad and had been written off. No entry had been
made in the control account.
4. T. Ballard was both a customer and a supplier. His purchases ledger balance
of $310 had been set off against his sales ledger balance but nothing had
been recorded in the control account.
5. Returns inwards $90 had not been entered anywhere in the accounts.
6. M. Ney returned goods worth $70 and this sum was debited to his account.
7. A Trade Receivable’s account was charged with $30 interest but it was not
recorded in the control account.
8. The sales day book had been under-casted by $10.
REQUIRED:
(a) An adjusted Sales Ledger Control Account
(b) A statement, suitably headed, showing the reconciliation of the original total
of the Sales Ledger balances with the amended Sales Ledger Control
Account balance.
OMAIR MASOOD
CEDAR COLLEGE
298
Q12.The Sales Ledger Control Account for Kaynine Ltd. for the year ended 31st
December 2007 has been prepared from the following information.
$
Debit balance b/d 1 January 2007
105,000
Credit balance b/d 1 January 2007
6,800
Totals for the year 1 January 2007 to 31 December 2007:
Cash sales
$
65,000
Credit sales
750,000
Cash
received
from
Receivables
Cheques received from
Receivables
Trade 5,800
Trade 698,000
Sales return from Trade Receivables
9,200
Contra purchases ledger
18,700
Discounts allowed
16,200
Dishonoured cheques
9,300
The Sales Ledger Control Account balance did not agree with the total shown in the
Schedule of Trade Receivables of $114,450. The following errors were discovered:
(i) A cheque for $18,300 received from a Trade Receivable had been correctly
posted to the Cash Book but omitted from the Sales Ledger.
(ii) Two Trade Receivable balances are more than six months old. A. Baker
owes $5,250 and S.Briggs owes $4,700. It was decided to make a specific
provision for the full amount of A. Baker’s debt and to write off in full the
amount owed by S. Briggs as a bad debt.
(iii)A credit sale of $8,950 to P. Winter had been correctly recorded in the Sales
Journal but had not been posted to the Sales Ledger.
(iv) A Cheque for $4,500 received from B Brookes a trade receivable was
subsequently dishonoured. This had been correctly recorded in the cash
book but the double entry had not been posted to the sales ledger.
REQUIRED:
(a) A Sales Ledger Control Account before the errors
(b) A corrected Sales Ledger Control Account for the year ended 31 December
2007.
(c) A statement reconciling the total of the Schedule of Trade Receivables with
the corrected balance on the Sales Ledger Control Account.
OMAIR MASOOD
CEDAR COLLEGE
299
Q13.The following information has been taken from the books of Jo King, for the financial
year ended 31 October 1995.
$
Sales Ledger Balances at 1 November 1994
29,186
Credit sales for the year
501,920
Credit sales returns
9,985
Payment received from Trade Receivables (all banked)
463,801
Cash sales
15,242
Trade Receivable’s cheque dishonoured
548
Discount allowed on credit sales
20,417
Bad debts written off
9,420
Debit balances transferred to purchase ledger accounts
1,043
The total of Jo King’s sales ledger balances amounts to $29,101 that does not agree with the
closing balance in the sales ledger control account.
The following errors have been discovered:
1. A debit balance for $2046 had been emitted from the list of Trade Receivables.
2. A page of the Sales Day Book with entries totalling $3942 had been mislaid and not
included in total sales: the amount had been posted to the Trade Receivables’
accounts.
3. A sales invoice for $1011 had been completely omitted from the books.
4. A sales ledger account had been understated by $100.
5. Discount allowed account had been overstated by $300.
6. An entry for $806 in the Sales Day Book had not been posted to the Trade
Receivable’s account.
7. A debit balance for $702 in the sales ledger had been set off against a contra
account in the purchases ledger, but no entry had been made in the control
accounts.
8. A receipt of $620 was debited to the Bank account but omitted from the Trade
Receivable’s account.
9. A credit note for $360 sent to a Trade Receivable had been entered in the Sales Day
Book and posted as a sale to both accounts.
10. A Trade Receivable owing $905 was declared bankrupt during October 1995. The
debt had been written off in the control account, but no entry had been made in the
Trade Receivable’s account to cancel the debt.
REQUIRED:
(a) From the original list of balances, draw up the Sales Ledger Control Account for
the year ended 31 October 1995 before the errors had been discovered.
(b) Take account of the ten errors, and:
(i) Show the amendments to be made to the control account and calculate the new
balance on it.
(ii) Draw up a statement amending the total of the sales ledger balance to agree
with the new control balance.
OMAIR MASOOD
CEDAR COLLEGE
300
Q14.
The balance on the Sales Ledger Control Account at 31 December is
$61,752. This does not agree with the total of the list of Trade Receivables
Ledger balances on that date, which amounts to $61,500.
On checking the accounts, you discover the following errors:
1. A balance of $198 has been emitted from the list of Trade Receivables
Ledger balances at 31 December.
2. A Trade Receivable’s account has been undercasted by $325.
3. A sales invoice for $2520 has been completely omitted from the books.
4. Sales figure for the month should have been listed as $230,256 not
$230,265.
5. A Trade Receivable who owed the business $280 has been declared
bankrupt. This has been correctly entered in the control account, but no
entry has been made to cancel the debt in the Trade Receivable’s
personal account.
REQUIRED:
(i) Make the necessary entries in the Sales Ledger Control Account to
correct it.
(ii) Prepare a statement amending the total of the Trade Receivables Ledger
balances.
OMAIR MASOOD
CEDAR COLLEGE
301
Q15.The Purchases Ledger Control Account of Henry Hutton for the year ended 30
November 2006 had been prepared from the following information.
$
Credit balance b/d 1 December 2005
174,000
Totals for the year 1 December 2005 to 30 November 2006
964,000
Credit purchases
766,000
Cheques paid to Trade Payables
5,600
Cash paid to Trade Payables
Credit purchases returned to suppliers
37,000
19,300
Discounts received
84,200
Contra sales ledger
The Purchases Ledger Control Account, which is part of the double entry
system, failed to agree with the total Trade Payables of $216,150 as shown by
the schedule of Trade Payables.
The following errors were subsequently discovered.
(i) A purchase of $8600 ad been entered in Jane Blake’s account in the
Purchases Ledger as $6800. The correct entry had been made in the
Purchases Journal.
(ii) The discounts received column in the Cash Book had been overcast by $750.
(iii)A credit purchase of $8700 from David Patel was correctly recorded in the
Purchases Ledger Control Account, but no other posting had been made.
(iv) Henry Hutton had returned goods costing $4600 to a supplier. No entries
had yet been made in Henry Hutton’s accounts to record the return of these
goods.
REQUIRED:
(a) A Purchase Ledger Control Account before the errors.
(b) A corrected Purchases Ledger Control Account for the year ended 30
November 2006.
(c) A statement showing the correct total of the Schedule of Trade Payables for
the year ended 30 September 2006.
(d) Explain three advantages to Henry Hutton of operating a system of control
accounts.
OMAIR MASOOD
CEDAR COLLEGE
302
Q16.Jean balanced her Purchases Ledger Control Account on 31 May 1994 and it
showed a credit balance of $19,950. She then listed the individual suppliers’ balances
in the Purchases Ledger and the total came to $18,960 at the same date.
When she examined the records, the following errors were found, and
subsequently corrected.
(i) Goods costing $850 had been bought from North on credit, but no entries
had been passed in any of the books.
(ii) West had allowed cash discount $20 to Jean. This had been entered on the
wrong side of West’s account but entered correctly in the cash book.
(iii)The Purchases Returns Day Book showed that a credit note for $60 had been
received from East but it had not been posted to East’s account.
(iv) The Purchases Day book had been overcast by $1,000.
(v) South’s credit balance of $90 had been omitted when the Purchases Ledger
balances had been listed.
REQUIRED:
(a) An adjusted Purchases Ledger Control Account.
(b) A Statement, suitably headed, showing the reconciliation of the original total
of the Purchases Lodger balances with the new Purchases Lodger Control
Account balances.
OMAIR MASOOD
CEDAR COLLEGE
303
Q17. The sales ledger control account of Kettlewell Ltd. For the year ended 28th
February 2006 has been prepared from the following information.
$
Debit balance b/d 1 March 2005
51000
Totals for the year 1 March 2005 to 28 February 2006:
Credit sales
620000
Cheques received from trade receivables
584000
Cash received from trade receivables
6000
Discount allowed
24200
Bad debts
4000
Dishonoured cheques
5100
Sales returns from trade receivables
6500
Contra purchase ledger
8000
The sales Ledger Control Account balance failed to agree with the total Trade
Receivables of $43,600 shown by the schedule of Trade Receivables. The
following errors were subsequently discovered.
(i) No contra entry had been made in a Trade Receivables account in the sales
ledger in respect of purchases by Kettlewell Limited of goods list price
$1,000, trade discount 10%. This item had been correctly dealt within the
Sales Ledger Control Account.
(ii) The discount allowed total shown in the cash book had been undercasted by
$700.
(iii)A customer had returned goods to Kettlewell Limited at the selling price of
$1700. The goods had been bought on credit. No entries had been made to
record the return of the goods in the accounts of Kettlewell Limited.
REQUIRED:
(a) A corrected Sales Ledger Control Account for the year ended 28th February
2006.
(b) A statement showing the correct total for the schedule of Trade Receivables
for the year ended 28th February 2006.
(c) Discuss the advantages that a system of control accounts would bring to a
business.
OMAIR MASOOD
CEDAR COLLEGE
304
Q18.The sales ledger control account of Workitt Ltd. for the year ended 31st
December 2000 has been prepared from the following information.
$
Debit balance b/d 1st January 1999
56,000
Totals for the year 1st January 1997 to 31st December 2000
800,000
Credit Sales
Cheques received from Trade Receivables
Cash received from Trade Receivables
676,000
1,000
20,000
Discount allowed
2,000
Dishonoured cheques
4,000
Contra Purchases Ledger
The control account Trade Receivables balance failed to agree with the total Trade Receivables
of $156,125 shown by the schedule of Trade Receivables. The following errors were
subsequently discovered.
(i) Workitt Ltd. had sent goods on a sale or return basis to a customer with a selling price of
$1,000. The customer had not signified its intention to purchase the goods while Workitt
Ltd. Considered them sold, and made the relevant accounting entries.
(ii) No contra entry had been made in a Trade Receivables account in the sales ledger in respect
of purchase by Workitt Ltd of good list price $500, trade discount 15%. This entry had been
correctly dealt within the control account.
(iii) The discount allowed total shown in the cash book had been undercasted by $700.
(iv) A customer had returned goods to Workitt Ltd. at the selling price of $2,000. These goods
had been bought on credit by the customer. No entries had been made to record the return of
goods in the accounts of Workitt Ltd.
(v) During 1999 Workitt Ltd. received a cheque drawn by a customer for goods sold on credit
for $600. The correct double entry was made in the accounts. The cheque was subsequently
returned by the bank marked ‘Refer to Drawer’. Workitt ltd. Credited the bank account.
The amount was included in the total of dishonoured cheques, but there was no further
entry. The company expects the account will be settled in February 2001.
REQUIRED:
(a) A corrected sales ledger control account for the year ended 31st December 2000 together
with a reconciliation statement of the Trade Receivables schedule showing the correct total
for the schedule of Trade Receivables.
(b) Discuss two advantages of operating a control account system.
OMAIR MASOOD
CEDAR COLLEGE
305
Q19
(a) The following information was extracted from the books of William Noel
for the year ended 30 April 2001.
$
Purchases Ledger Balance at 1 May 2000
43,120
Credit purchases for the year
824,140
Credit purchases returns
12,400
Cheques paid to Trade Payables
745,980
Cash purchases
8,940
Discount received on credit purchases
31,400
Credit balances transferred to sales ledger accounts
5,210
REQUIRED:
Draw up the Purchases Ledger Control Account for the year ended 30 April
2001
(b) The total of the balances in Noel’s purchases ledger amounts to $67,660,
which does not agree with the closing balance in the Control Account.
The following errors were then discovered:
1. Discount received had been overstated by $1000.
2. A credit purchases invoice for $2040 had been completely omitted from
the books.
3. A purchases ledger account had been understated by $100.
4. A credit balance of $850 in the purchases ledger had been set off against
a contra entry in the sales ledger, but no entry had been made in the
control accounts.
5. A payment of $1450 had been debited to the Trade Payables account but
was omitted from the bank account.
6. A credit balance of $3210 had been omitted from the list of the Trade
Payables.
REQUIRED:
(i) Extract the necessary information from the above list and draw up an
amended Purchases Ledger Control account for the year ended 30 April
2001.
(ii) Beginning with the given total of $67,660, draw up a table showing the
changes to be made in the Purchases Ledger to reconcile it with the new
Control account balance.
OMAIR MASOOD
CEDAR COLLEGE
306
Q20.RW Ltd. uses control accounts to check the accuracy of its Trade Receivables
and Trade Payables as shown by its double entry book keeping system. The Sales
Ledger Control Account and the Purchases Ledger Control Account for the financial
year ended 31st December 2006 have been prepared from the following information.
1st January 2006 balance b/d:
$
Sales Ledger Control Account
262,000 Dr
Purchases Ledger Control Account
307,000 Cr
Totals for the year 1st January 2006 to 31st December 2006:
$
Credit sales
Credit purchases
Sales returns
Purchase returns
Cheques received from Trade Receivables
Cash received from Trade Receivables
Cheques paid to Trade Payables
Discounts received
Discount allowed
Dishonoured cheques from Trade Receivables
376,000
287,500
12,700
13,700
327,800
18,200
212,700
7,600
8,800
4,500
At the financial year end 31 December 2006, RW Ltd.’s Schedule of Trade
Receivables had a total of $267,000, which differed from its Sales Ledger
Control Account balance at the date.
At the same date, RW Ltd.’s Schedule of Trade Payables had a total of
$324,000, which differed from its Purchases Ledger Account balance at that
date.
Subsequent investigation revealed the following.
(i) The total of sales in the Sales Journal had been undercasted by $66,500.
(ii) A cheque received from a Trade Receivable for $2,500, correctly processed
through the books, had subsequently been dishonoured. The books have not
yet been adjusted to reflect this.
OMAIR MASOOD
CEDAR COLLEGE
307
(iii)$4,000 purchases made on 31st December 2006 were correctly entered in the
(iii)$4,000 purchases made on 31st December 2006 were correctly entered in the
Purchases Journal but had not been posted to the individual supplier’s
Purchases Journal but had not been posted to the individual supplier’s
account in the Purchases Ledger.
account in the Purchases Ledger.
(iv) A credit sale to T. Cook for $45,200 had been correctly entered in the Sales
(iv) A credit sale to T. Cook for $45,200 had been correctly entered in the Sales
Journal but had not been posted to T. Cook’s account.
Journal but had not been posted to T. Cook’s account.
(v) D. Hubbard is both a customer and a supplier to RW Ltd. He purchased
(v) D. Hubbard is both a customer and a supplier to RW Ltd. He purchased
goods to the value of $62,500 from RW Ltd and supplier RW Ltd with
goods to the value of $62,500 from RW Ltd and supplier RW Ltd with
goods to the value of $32,500. The correct entries have been made in the
goods to the value of $32,500. The correct entries have been made in the
Sales Ledger and the Purchases Ledger but no contra entries have been made
Sales Ledger and the Purchases Ledger but no contra entries have been made
in the control accounts.
in the control accounts.
(vi) Purchases of $15,300 from a supplier had been found to be unsuitable and
(vi) Purchases of $15,300 from
a supplier had been found to be unsuitable and
were returned onth 14th December 2006. This transaction to record the return
were returned on 14 December 2006. This transaction to record the return
had not been processed through the books.
had not been processed through the books.
(vii) A cheque for $6,200 sent to a supplier, for goods received, had been
(vii) A cheque for $6,200 sent to a supplier, for goods received, had been
returned to RW Ltd as it had not been signed. As at 31 December 2006 a
returned to RW Ltd as it had not been signed. As at 31 December 2006 a
replacement cheque had not been issued and the return of the original
replacement cheque had not been issued and the return of the original
cheque had not been recorded in RW Ltd.’s books.
cheque had not been recorded in RW Ltd.’s books.
(viii) Sales returns of $3,200 had been correctly entered in the Sales Returns
(viii) Sales returns of $3,200 had been correctly entered in the Sales Returns
Journal but had not been posted to the individual Trade Receivable’s
Journal but had not been posted to the individual Trade Receivable’s
account.
account.
REQUIRED:
REQUIRED:
(a) A Sales Ledger and Purchase Ledger Control Account before the errors.
(a) A Sales Ledger and Purchase Ledger Control Account before the errors.
(b) Amended Sales Ledger and Purchase Ledger Control Accounts.
(b) Amended Sales Ledger and Purchase Ledger Control Accounts.
(c) A statement to correct schedule of Trade Receivables.
(c) A statement to correct schedule of Trade Receivables.
(d) A statement to correct the schedule of Trade Payables.
(d) A statement to correct the schedule of Trade Payables.
!
!
OMAIR MASOOD
CEDAR COLLEGE
308
CONTROL
PAST PAPERS
CONTROL ACCOUNTS
ACCOUNTS-PAST
PAPERS
Q1.
1
2
Delph started trading on 1 July 2016.
For the year ended 30 June 2017 he provided the following information relating to his sales and
purchases.
$
39 826
692
74 779
6 813
1 764
Bank payments to credit suppliers
Cash purchases
Credit purchases
Credit purchases returns
Discount received
At 30 June 2017
Sales ledger control account balance
21 555 Debit
3
REQUIRED
Additional
(a) Explaininformation
two benefits of using control accounts.
3
The following
book-keeping errors have been discovered in the sales ledger:
1
Additional information
1The The
salesbook-keeping
journal total for
June
2017
wasdiscovered
understated
by sales
$1470.
following
errors
have
been
in the
ledger:
21
AThe
customer’s
invoice
was was
entered
in the sales
journal as $2190.
sales journal
totalfor
for$2910
June 2017
understated
by $1470.
32
Discounts
allowed
in for
June
2017
amounting
tothe
$435
were
debited
to the sales ledger control
A customer’s
invoice
$2910
was
entered in
sales
journal
as $2190.
account.
3
4
2
Discounts
allowed in June 2017 amounting to $435 were debited to the sales ledger control
Aaccount.
sales invoice for $1520 dated 30 June 2017 was omitted from the sales journal.
4 A sales invoice for $1520 dated 30 June 2017 was omitted from the sales journal.
REQUIRED
4
REQUIRED
(b)
Prepare the amended sales ledger control account at 30 June 2017.
[4]
4
(b) Prepareinformation
the amended sales ledger control account at 30 June 2017.
Additional
Delph
Additional information
Amended salesDelph
ledger control account
At 30 June 2017 there was a debit balance on the purchases ledger account of $384.
Amended
sales
control account
At 30 June 2017 there was a debit
balance
onledger
the purchases
ledger account of $384.
$
$
REQUIRED
$
$
REQUIRED
(c) Prepare
for the year ended 30 June 2017.
Balancethe
b/dpurchases ledger control
21account
555
Balance the
b/d purchases ledger control
21 555
(c) Prepare
account for the year ended 30 June 2017.
Delph
Purchases ledger
control account
Delph
Purchases ledger control account
$
$
$
$
OMAIR MASOOD
© UCLES 2018
CEDAR COLLEGE
9706/22/F/M/18
309
[5]
Additional information
Delph has also provided the following information.
At 1 July 2016
Capital introduced
Loan from the bank (repayable 2021)
$
10 500
3 000
During the year ended 30 June 2017
Bank payments
Motor vehicle
Loan
Drawings
13 560
500
12 625
At 30 June 2017
Inventory
Cash in hand
Rent
Bank
Wages
5
3 700
360
650
856
1 890
Debit
Debit
Debit
Credit
Credit
The motor vehicle is to be depreciated at 25% using the reducing balance method.
REQUIRED
(d)
Prepare the statement of financial position at 30 June 2017.
©(Mar18/P22/Q1a-d)
UCLES 2018
(4+5+5+9)
Delph
9706/22/F/M/18
Statement of financial position at 30 June 2017
6
Q2.
2
2
2
6
6
Trott provided the following information for the year ended 30 April 2017:
Trott provided the following information for the year ended 30 April 2017:
Trott provided the following information for the year ended 30 April 2017:
$
$ 185
Sales ledger control account balance
93
$185
Sales
account balance
9378
Sales ledger
ledgercontrol
balances
370
Sales
account balance
93
Sales ledger
ledger control
balances
78185
370
Sales ledger balances
78 370
The following errors were identified:
The following errors were identified:
The following errors were identified:
1
1
1
The sales
salesjournal
journaltotal
totalhad
hadbeen
beenovercast
overcast
$30
420.
The
byby
$30
420.
The sales journal total had been overcast by $30 420.
3
3
3
Interest charged
chargedon
onan
anoverdue
overdueamount,
amount,
$720,
had
been
completely
omitted
the books
Interest
$720,
had
been
completely
omitted
fromfrom
the books
Interest
charged
on
an
overdue
amount,
$720,
had
been
completely
omitted
from
the
books
of
account.
of account.
of account.
4
4
The sales
salesreturns
returnsjournal
journalhad
hadbeen
been
overcast
$4560.
The
overcast
byby
$4560.
The sales returns journal had been overcast by $4560.
5
5
Discount
completely
omitted
from
the the
books
of account.
Discountallowed
allowedofof$1520
$1520had
hadbeen
been
completely
omitted
from
books
of account.
Discount allowed of $1520 had been completely omitted from the books of account.
6
6
Receipts
in in
thethe
cash
book
hadhad
been
overcast
by $18
965.965.
Receiptsfrom
fromcredit
creditcustomers
customersentered
entered
cash
book
been
overcast
by $18
Receipts from credit customers entered in the cash book had been overcast by $18 965.
7
77
An
irrecoverable
debt
ofof$1825
had
been
written
off in the
sales
ledger
control
account
but
An irrecoverable
irrecoverabledebt
debtof
$1825
had
been
written
in the
sales
ledger
control
account
An
$1825
had
been
written
off off
in the
sales
ledger
control
account
but but
no
entry
had
been
made
in
the
customer’s
account.
noentry
entryhad
hadbeen
beenmade
madein in
the
customer’s
account.
no
the
customer’s
account.
2
2
2
A dishonoured
dishonouredcheque
chequefor
for$9745
$9745
had
been
entered
in the
customer’s
account.
A
had
notnot
been
entered
in the
customer’s
account.
A dishonoured cheque for $9745 had not been entered in the customer’s account.
REQUIRED
REQUIRED
REQUIRED
(a) Complete the following tables to update the sales ledger control account balance and the
(a) Complete
Completethe
thefollowing
followingtables
tablesto to
update
sales
ledger
control
account
balance
and the
(a)
update
thethe
sales
ledger
control
account
balance
and the
sales ledger balances at 30 April 2017.
sales
April
2017.
salesledger
ledgerbalances
balancesatat3030
April
2017.
OMAIR MASOOD
Description
Description
Description
Opening balance
balance
Opening
Opening balance
Sales ledger control account
Sales
ledger
control
account
Sales
ledger
control
account
310
CEDAR COLLEGE
Add ($)
AddAdd
($) ($)
Less ($)
LessLess
($) ($)
Total ($)
TotalTotal
($) ($)
93185
185
93
93 185
no entry had been made in the customer’s account.
Opening balance
78 370
REQUIRED
(a) Complete the following tables to update the sales ledger control account balance and the
sales ledger balances at 30 April 2017.
Sales ledger control account
Description
Add ($)
Less ($)
Total ($)
Opening balance
93 185
7
12
Sales ledger
balances
3
Meena did not keep full accounting records. She was advised to keep her books of account using
Description
Add ($)
Less ($)
Total ($)
the double entry system.
12
REQUIRED
3
Opening balance
78 370
[11]
Meena did not keep full accounting records. She was advised to keep her books of account using
the State
double entry
(a)
threesystem.
benefits a business gains from maintaining a system of double entry
book-keeping.
REQUIRED
(b) State four advantages to a business of preparing a sales ledger control account.
(a) 1State three benefits a business gains from maintaining a system of double entry
book-keeping.
(Nov17/P22/Q2)
1
(11+4)
1
Q3. 2
3
12
2 did not keep full accounting records. She was advised to keep her books of account using
Meena
the 3double entry system.
2
REQUIRED
3
[3]
(a) State information
three benefits a business gains from maintaining a system of[3]double entry
Additional
book-keeping.
Additional
Meena
nowinformation
uses the double entry system of book-keeping. At the end of January the total of the
1
balances
in the sales ledger was $34 524. 9706/22/O/N/17
However,
the balance on the sales ledger control
14
© UCLES 2017
Meena now
the double entry system of book-keeping. At the end of January the total of the
[11]
account
wasuses
$33 205.
balances in the sales ledger was $34 524. However, the balance on the sales ledger control
3 wasthree
account
$33 205.
(c)
State
reasons why there might be a credit balance on a customer’s account in the
sales ledger.
On investigation
she found thetofollowing
errors: of preparing a sales ledger control account.
2 four advantages
(b) State
a business
1 The sales journal had been undercast by14
$1649.
1
1 The sales journal had been undercast by $1649.
On investigation she found the following errors:
1 AState
2(c)
cheque
received
been
correctly
entered
in the
cash on
book
as $650 butaccount
was entered
three
reasonshad
why
there
might be
a credit
balance
a customer’s
in the in
2 the
A cheque
received
been correctly entered in the cash book as $650 but was entered in
sales
ledger
ashad
$560.
sales
ledger.
the
3 sales ledger as $560.
3 An
4 irrecoverable debt, $420, had been written off in the sales ledger but not entered in the
1
2
3 An irrecoverable debt, $420, had been written off in the sales ledger but not entered in the
control
account.
[3]
control account.
13
4Additional
note
issuedfor
for$160
$160
had
been
completely
omitted
from
the books
of account.
4 AAcredit
credit note
issued
had
been
completely
omitted
from the
books
of account.
information
2
2 3
REQUIRED
Meena now uses the double entry system of book-keeping. At the end of January the total of the
balances
in athereconciliation
sales ledgerbetween
was $34the
524.
However,
balance
on the
ledgerledger
control
(b)
Prepare
sales
ledger the
control
account
andsales
the sales
14
[3]
account
was at
$33
balances
31205.
January.
3
(c)
State three
reasons why there might be a credit balance on a customer’s account in the
Additional
information
On sales
investigation
errors:
Sales ledger
control account
ledger. she found the following
[3]
[4]
[Total: 15]
Meena
considering
charging
onby
the$1649.
full account balances of her customers who do not
13 1Theissales
journal had
been interest
undercast
Additional
information
Description
Add ($)
Less ($)
Total ($)
pay
promptly.
© UCLES 2017
9706/22/O/N/17
[Turn over
2 A cheque
received
had been
correctly
entered
in balances
the cashofbook
as $650 but
was
entered in
Meena
is considering
charging
interest
on
the
full
account
her
customers
who
do
not
Opening
balance
33 205
REQUIRED
the sales ledger
as $560.
pay promptly.
2
(d)
Meena whether
or nothad
she been
should
take this
course
of action.
your
answer.
3 Advise
An irrecoverable
debt, $420,
written
off in
the sales
ledgerJustify
but not
entered
in the
REQUIRED
control account.
(3+6+3+3)
(d)
4 Advise Meena whether or not she should take this course of action. Justify your answer.
4
3A credit note issued for $160 had been completely omitted from the books of account.
(June17/P21/Q3)
© UCLES 2017
© UCLES
2017
Additional
9706/21/M/J/17
information
[3]
9706/21/M/J/17
OMAIR
MASOOD
CEDAR COLLEGE
Meena is considering charging interest on the full account balances of her customers who do not
pay promptly.
REQUIRED
[4]
[Total: 15]
311
6
6
Q4.
2
2
Raheem is a trader who makes all his sales on credit. He prepared the following sales ledger
Raheem
is a trader
who
makes
all his sales
on credit. He prepared the following sales ledger
control
account
for the
month
of December
2015:
7
control account for the month of December 2015:
$
$
$ reconcile theSales
(b)
Prepare
to
original
totaljournal
of sales ledger
Balance
b/d a statement
22 380
returns
1$440balances of $18 740 with
Balance
b/d balance16
22
380
journal account.
1 440
thejournal
closing
on910
the amended Sales
sales returns
ledger control
Sales
Bank
17
380
Sales journal
16 910
Bank
17
Balance c/d
20380
470
Balance c/d
20
39 290
39470
290
39 470
290
39 290
Balance b/d
20
Balance b/d
20 470
Raheem extracted a list of customer account balances from the sales ledger at
Raheem
extracted
list of customer
ledger
at control account.
31
December
2015atotaling
$18 740. account
This did balances
not agreefrom
with the
the sales
balance
on the
31 December 2015 totaling $18 740. This did not agree with the balance on the control account.
The following errors were found:
The following errors were found:
1 A sales invoice for $960 had been correctly recorded in the sales journal, but had not been
1 posted
A salestoinvoice
for $960 ledger
had been
correctly 7recorded in the sales journal, but had not been
the customer’s
account.
posted to the customer’s ledger account.
(b)
a statement
to reconcile
the original
salesoffledger
of $18
740 with
2 Prepare
A customer’s
irrecoverable
debt of $250
had not total
been of
written
in anybalances
of Raheem’s
books
2 the
A
customer’s
irrecoverable
debt
of
$250
had
not
been
written
off
in
any
of
Raheem’s
books
closing
balance
on
the
amended
sales
ledger
control
account.
of account.
of account.
3 A cheque received, $670, from a customer had been correctly recorded in the cash book. It
3 had
A cheque
received,
fromside
a customer
had beenledger
correctly
recorded
in the cash book. It
been entered
on$670,
the debit
of the customer’s
account
as $760.
[5]
had been entered on the debit side of the customer’s ledger account as $760.
4 A cheque received, $200, from a customer had been returned unpaid by the customer’s
4 bank.
A cheque
received,
$200,offrom
a customer
had had
been
returned
byRaheem’s
the customer’s
No entry
in respect
the returned
cheque
been
made unpaid
in any of
books
bank.
No
entry
in
respect
of
the
returned
cheque
had
been
made
in
any
of
Raheem’s
books
(c) State
three
advantages
to
a
business
of
maintaining
a
sales
ledger
control
account.
of account.
of account.
5 1Discounts allowed of $830 had not been entered in the control account. They had been
5 entered
Discounts
allowed
of $830
had accounts.
not been entered in the control account. They had been
in the
customers’
ledger
entered in the customers’ ledger accounts.
6 A contra to the purchases ledger of $1370 had been entered in the customer’s sales ledger
6 account,
A contra but
to the
ledger ofin$1370
had been
entered in the customer’s sales ledger
hadpurchases
not been included
the control
account.
2account, but had not been included in the control account.
REQUIRED
REQUIRED
(a) Prepare the updated sales ledger control7 account for the month of December 2015. Start
(a) 3your
Prepare
the with
updated
sales ledger
control
for the month of December 2015. Start
answer
the balance
brought
downaccount
of $20 470.
your answer with the balance brought down of $20 470.
(b) Prepare a statement to reconcile the original total of sales ledger balances of $18 740 with
Sales ledger
control
account
[3]
the closing balance on the amended
ledger
control
account.
Salessales
ledger
control
account
[5]
(c) State three advantages to a business of maintaining a sales ledger control account.
(d) State two types of errors that will not be identified by producing a sales ledger control
1
account.
1
(Nov16/P21/Q2)
(5+5+3+2)
2
2
3
[2]
[Total: 15]
[5]
[3]
[5]
[5]
(d) State two types of errors that will not be identified by producing a sales ledger control
account.
© UCLES 2016
9706/21/O/N/16
© UCLES 2016
9706/21/O/N/16
(c) State three advantages to a business
of maintaining a sales ledger control account.
312
OMAIR
CEDAR COLLEGE
1 MASOOD
1
© UCLES 2016
9706/21/O/N/16
[Turn over
8
8
22
Q5. Section
Answer
Section A
A and
and Section
Section B.
B.
Answer
For
8
For
The schedule of trade
receivables
(deb
Examiner’s
ForExaminer’s
Examiner’sUse
Use
A
The
sales
ledger
control
account
of
Dream
Beds
for
the
year
ended
31
December
2010
Answer
Section
A
and
Section
B.
A The sales ledger control account of Dream Beds for the year ended 31
31December
December
2010Usetotalled $61 140.
For 2010
2
2
5
8
A
Answer Section A and Section B.
The sales
ledger control account of Dream Beds for the year ended 31 December
2010
Examiner’s
isAshown
shown
below.
is
below.
Use
The sales ledger control account of Dream Beds for the year ended 31 December 2010
is shown below.
is shown below.
The following errors were subsequentl
$$
$
$
$ $
$
$
Jan Jan
Balance
returns
28
510
Jan
11 Balance
b/d
43
900
Dec
31
Sales
1 Balance b/d
43 900
Dec 31 Sales returns
28 510
Jan 31
1 Balance
b/d
43 900
Dec 31 Sales returns
28 510
Dec
Sales
522
650
Bank
1
A436
sale300
of $750 had been en
Dec
31
Sales
522
650
Bank
436
300
Dec
31
Sales
Dec 31 Sales
522 650
Bank
436 300
Bank
(dishonoured
cheques)
2
200
Discount
allowed
28
800
Bank
(dishonoured
cheques)
2
200
Discount
allowed
28
800
Bank(dishonoured cheques)
Bank
2 200
Discount allowed
28 800 $570. The correct entry had b
568 750568 750
568 750
Bad Debts
Bad Debts
8 400
Bad Debts 8 400 8 400
PLCA PLCA
3 210
3 210
2 An
entry
PLCA
3 210of $850 was correctl
Balance Balance
c/d
c/d 63 530 63 530
Balance c/d
63 530
closing
the account owing to
568 750 568 750
The schedule of trade receivables (debtors) extracted from the sales ledger at
The schedule of trade receivables (debtors) extracted from the sales ledger at
31 December 2010 totalled $61 140.
568 750
made.
The schedule
schedule
31 December
2010 receivables
totalled $61 140.
The
of trade
(debtors) extracted from the sales ledger
3 at A
31 December
December
The
following errors
were
subsequently
discovered:
31
2010
totalled
$61 140.
The following errors were subsequently discovered:
sum of $120 discount allow
sales ledger. The correct entr
1
A sale of $750 had been entered in John’s account in the sales ledger as
The following
following
The
errors
were
subsequently
discovered:
$570.
correct
entry
had been
in the
1 The
A sale
of $750
had
been made
entered
in sales
John’sjournal.
account in the sales ledger as
21
9
$570. The correct entry had been made in the sales journal.
4
At 31 December 2010 the ba
An
washad
correctly
entered
in Samera’s
account
in the sales
Aentry
saleofof$850
$750
been
entered
in John’s
account
in theledger,
sales ledger
REQUIRED
closing the account owing to Samera’s bankruptcy. No other journal.
entry had been
correct
had been
madeininSamera’s
the sales
2$570.
AnThe
entry
of $850entry
was correctly
entered
account in the sales ledger,
made.
as
For
Examiner’s
closing the account owing to Samera’s bankruptcy. No other entry had been
Use
corrected
sales
ledger
control
account
for
the
year
ended
31
December
2010.
(a) Prepare the
Purchases
made.
entry
of $850
wasallowed
correctly
in Samera’s
account
ininthe
ledger, Ledger
32 AAn
sum
of $120
discount
hadentered
been debited
to Beach’s
account
thesales
sales
ledger.
correct entry
made inbankruptcy.
the cash book.
closing
theThe
account
owinghad
tobeen
Samera’s
No
other entry had been
closing the account owing to Samera’s bankruptcy. No other entry had been
..........................................................................................................................................
3
A sum of $120 discount allowed had been debited to Beach’s account Sales
in the Ledger
made.
4
At 31 December
2010
the
balances
in had
Richard’s
were:
sales ledger.
The
correct
entry
been accounts
made in the
cash book.
..........................................................................................................................................
to Beach’s
in the
It was
decided to set off Ri
3 4A sum
of December
$120 discount
allowed
hadinbeen
debited
$
At 31
2010 the
balances
Richard’s
accounts
were: account
Purchases
Ledger
2680had been made
Credit
sales ledger.
The correct entry
in the cash book.
..........................................................................................................................................
balance in the purchases led
$
Sales Ledger
1980
Debit2
Answer Section A and Section B.
..........................................................................................................................................
Ledger
2680
Credit were:
4 At 31Purchases
December
2010 the balances
in Richard’s accounts
It was decided to set off Richard’s balance in the sales ledger against the
5
balance
in theLedger
purchases ledger. No entries
had been made. Debit
A The sales
Sales
1980
Goods to the value of $800 w
ledger control account of Dre
..........................................................................................................................................
had not yet been paid. Interes
$
is shown below.
5
Goods
to
the
value
of
$800
were
sold
to
Claire
in
June
2010,
and
the
account
It was decided
the
Creditledger against
Purchases
Ledgerto set off Richard’s
2680balance in the sales
account,
but no entries for thi
..........................................................................................................................................
had not
yet been
Interest charges
$30entries
are to be
on the overdue
balance
in paid.
the purchases
ledger.ofNo
hadapplied
been made.
account,
no entries for this had yet been
Sales but
Ledger
1980recorded.
Sales Ledger
1980
Debit
Balance
..........................................................................................................................................
5
Goods to the value of $800 were sold to Claire in JuneJan
2010,1and
the account
Inb/d
addition a provision for43d
In addition a provision for doubtful debts of 10% on the new
outstanding
Dec
31ledger
Sales
522
sales
against
the
It
was
decided
to
set
off
Richard’s
balance
in
the
had
not
yet
been
paid.
Interest
charges
of
$30
are
to
be
applied
on
the
overdue
balance is to be created.
balance
is tocheques)
be created. 2
..........................................................................................................................................
Bank
(dishonoured
account,
but
no
entries
for
this
had
yet
been
recorded.
balance in the purchases ledger. No entries had been made.
6
Dream Beds had sent goods with a selling price of $400 on a sale or return
..........................................................................................................................................
In Majit.
addition
ahad
provision
doubtful
of to10%
on the
outstanding
to
Majit
not$800
yet for
signified
any debts
intention
thenew
goods.
6 theDream
Beds had sent goods
2010,
and
account
5 basis
Goods
to the
value
of
were
sold
to Claire
inpurchase
June
Dreambalance
Beds had
is to considered
be created.the goods as sold, and made the relevant
overdue
had not yet
been paid. Interest charges of $30 are to be applied on thebasis
to Majit. Majit had not y
accounting
entries.
..........................................................................................................................................
account,
but
no
entries
for
this
had
yet
been
recorded.
9 a selling price of $400 on a sale or Dream
6
Dream Beds had sent goods with
return Beds had considere
7
A page
in the
journal
in October 2010 had been undercast by
568
basis
to sales
Majit. returns
Majit had
not
9 yet signified any intention to purchase the goods.
..........................................................................................................................................
accounting
entries.
$1600. No correction had yet been made.
REQUIRED
on the
new
In addition
a provision
for doubtful
debts as
of sold,
10% and
Dream Beds
had considered
the goods
made
the outstanding
relevant
For
REQUIRED
Examiner’s
For
accounting
entries.
The schedule
of [6]
trade
receivables (debt
balance
is to be
created.
......................................................................................................................................
Examiner’s
Use
31December
December
2010.
(a) Prepare the corrected sales ledger control account for the year ended31
2010 in
totalled
$61 returns
140.
7Use A page
the sales
account for the year ended 31 December 2010.
(a) Prepare the corrected sales ledger control
© UCLES 2011
9706/22/O/N/11
7
A
page
in
the
sales
returns
journal
in
October
2010
had
been
undercast
by
(b) Prepare
a
statement
reconciling
the
schedule
of
trade
receivables
(debtors)
total
with
or return
6 Dream Beds had sent goods with
selling price of $400 on a sale $1600.
10 amade.
No correction had yet
..........................................................................................................................................
$1600.
No correction
had ledger
..........................................................................................................................................
the corrected
in thehad
sales
control account.
following
errors were subsequently
purchase
the goods.
basis
to balance
Majit.
Majit
notyet
yetbeen
signified
any intention to The
Dream
Beds hadofconsidered
goods
as account.
sold, and made the relevant For
(c) Explain
two advantages
using a salesthe
ledger
control
..........................................................................................................................................
..........................................................................................................................................
(6+8+4)
..........................................................................................................................................
1
A sale
of $750
Examiner’shad been ent
accounting entries.
© UCLES
2011
9706/22/O/N/11
Use
..........................................................................................................................................
(Nov11/P22/Q2A)
$570.
The
correct
entry had be
(i)
..................................................................................................................................
..........................................................................................................................................
© UCLES 2011
970
..........................................................................................................................................
7 A page in the sales returns journal in October 2010 had been
..........................................................................................................................................
undercast by
313correctly
..................................................................................................................................
OMAIR
MASOOD
..........................................................................................................................................
2
An entry of $850 was
$1600. No correction hadCEDAR
yet been COLLEGE
made.
..........................................................................................................................................
..........................................................................................................................................
closing the
..................................................................................................................................
..........................................................................................................................................
made.
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
©
9706/22/O/N/11
© UCLES
UCLES 2011
2011 (ii)
..........................................................................................................................................
account owing to S
REQUIRED
(a) Prepare Harvey Rabbit’s sales ledger control account for the year ended 31 March 2010.
www.maxpapers.com
..........................................................................................................................................
www.maxpapers.com
6
6
..........................................................................................................................................
2 Q6.
The following information has been extracted from the accounts of Harvey Rabbit for the
For
2 year
The..........................................................................................................................................
following
has been extracted from the accounts of Harvey Rabbit for the
ended
31 information
March 2010.
For Examiner’s
year ended 31 March 2010.
Examiner’s
Use
Use
..........................................................................................................................................
$
$29 040
Sales ledger balance at 1 April 2009
Sales ledger balance at 1 April 2009
29 040
..........................................................................................................................................
Credit
sales
499 892
Credit sales
499 892
Cash sales
14 634
Cash sales
14 634
..........................................................................................................................................
Credit sales returns
9 878
Credit sales returns
9 878
Receipts
from
debtors,
banked
462
680
Receipts from debtors, banked
462 680
..........................................................................................................................................
Discount
oncredit
creditsales
sales
21 404
Discount allowed
allowed on
21 404
Bad
debts
written
off
9 510
..........................................................................................................................................
Bad debts written off
9 510
Debtors’
cheques
dishonoured
Debtors’ cheques dishonoured
662662
Contra
entries
1 153
..........................................................................................................................................
Contra entries
1 153
www.maxpapers.com
..........................................................................................................................................
REQUIRED
REQUIRED
8
(a) Prepare
Prepare Harvey
Harvey Rabbit’s
control
account
for the
yearyear
ended
31 March
2010.2010.
....................................................................................................................................[10]
(a)
Rabbit’ssales
salesledger
ledger
control
account
for the
ended
31 March
(ii)
Beginning with Harvey Rabbit’s sales ledger balance of $26 845, prepare a
..........................................................................................................................................
The ..........................................................................................................................................
total
of Harvey Rabbit’s sales ledger balances at 31 March 2010 was $26 845, which
statement
the total
the sales
to agree
with
did not agree
with theamending
closing balance
of hisofsales
ledger ledger
control balance
account. On
checking
histhe new
control
account
balance.
..........................................................................................................................................
accounts
he discovered the following errors.
..........................................................................................................................................
1
2
For
Examiner’s
Use
..........................................................................................................................................
..................................................................................................................................
A
credit
note for $420 which had been sent to a debtor had been entered in the sales
..........................................................................................................................................
journal (day book) and posted as a sale to both accounts.
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
A..........................................................................................................................................
debit entry in the sales ledger for $698 had been set off as www.maxpapers.com
a contra entry in the
7 made in the control accounts.
purchases
ledger,
but
no
entry
had
been
..........................................................................................................................................
..................................................................................................................................
3
..........................................................................................................................................
The
discount allowed account had been overstated by $310.
4
A..........................................................................................................................................
sales invoice for $998 had been completely omitted from the accounts.
5
A..........................................................................................................................................
debit..................................................................................................................................
balance of $2102 had been omitted from the list of debtors.
6
A debtor who owed $896 had been declared bankrupt during March 2010. The debt
For
..........................................................................................................................................
Examiner’s
..................................................................................................................................
Use
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
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© UCLES 2010
9706/23/M/J/10
had
been
written off in the control account,
but no entry had been made in the debtor’s
account.
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
7
A receipt for $630 had been debited to the bank account but omitted from the debtor’s
..........................................................................................................................................
account.
....................................................................................................................................[10]
8
....................................................................................................................................[10]
An
entry for $816 in the sales journal (day book) had not been posted to the debtor’s
Theaccount.
total of Harvey Rabbit’s sales ledger balances at 31 March 2010 was $26 845, which
..................................................................................................................................
did not agree
with the closing balance of his sales ledger control account. On checking his
..................................................................................................................................
The total of Harvey Rabbit’s sales ledger balances at 31 March 2010 was $26 845, which
did not agree with the closing balance of his sales ledger control account. On checking his
..................................................................................................................................
accounts
he
discovered
the
following
errors.
10
of
the for
sales
journal
(day
with to
entries
totalling
$3856
had been
omitted
1 AApage
credit
note
$420
which
had book)
been
sent
a debtor
had been
entered
in the
sales
heledger
discovered
thehad
following
9 accounts
A sales
account
been errors.
understated by $200.
1
from
total(day
sales.
Theand
amounts
been
posted to the debtors’ accounts.
journal
book)
postedhad,
as ahowever,
sale to both
accounts.
..................................................................................................................................
A credit
note for $420 which had been sent to a debtor had been entered in the sales
journal
posted
as for
a sale
bothbeen
accounts.
A debit(day
entrybook)
in theand
sales
ledger
$698tohad
set off as a contra entry in the
REQUIRED
2
(b)
2
www.maxpapers.com
ledger,
entry had
been which
made in
thehave
control
accounts.in (a), prepare a
..................................................................................................................................
(i)purchases
Beginning
withbut
thenoclosing
balance
you
calculated
8
A debit
entry showing
in the sales
ledger for
$698 on
had
setaccount.
off as a contra entry in the
statement
the amended
balance
thebeen
control
purchases
ledger, but no entry had been made in the control accounts.
..................................................................................................................................
(ii) Beginning
with
Harvey Rabbit’s
ledger account
balance of $26 845, prepare a
Amendments
to sales sales
ledger control
For
statement amending the total of the sales ledger balance to agree with the new Examiner’s
Use
..................................................................................................................................
control
account balance.
..............................................................................................................................[8]
..................................................................................................................................
..................................................................................................................................
9706/23/M/J/10
three advantages of keeping
control accounts.
© UCLES
(c) 2010
State
..................................................................................................................................
(10+6+8+6)
..................................................................................................................................
(June2010/P23/Q2)
..........................................................................................................................................
© UCLES 2010
9706/23/M/J/10
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
OMAIR
MASOOD
CEDAR COLLEGE
..........................................................................................................................................
..................................................................................................................................
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..........................................................................................................................................
314
ERRORS AND SUSPENSE THEORY
ERRORS!AND!SUSPENSE!
Error!not!affecting!the!Trial!Balance:!!
1. Error(of(complete(omission:(When(nothing(has(been(recorded(in(the(books.(To(correct(this,(
simply(record(the(transaction.(
2. Error(of(original(entry:(Where(correct(double(entry(is(passed(but(with(the(wrong(amount.(To(
correct(this,(adjust(for(the(difference.(
3. Error(of(principal:(Where(a(wrong(type(of(account(has(been(debited(or(credited(instead.(For(
example,(we(have(debited(Rent(instead(of(Motor(Van.(
4. Error(of(commission:(Where(a(wrong(account(but(of(same(type((usually(debtors(or(creditors)(has(
been(debited(or(credited(instead.(For(example,(we(have(credited(Mr.(A(instead(of(Mr.(B.(
5. Error(of(complete(reversal:(Where(a(completely(opposite(entry(is(passed(with(the(right(amount.(
To(correct(this,(pass(the(correct(entry(with(double(amounts.(
6. Compensating(error:(Where(one(error(compensates(for(other.(Like(a(debit(item((say(purchase)(
and(a(credit(item((say(sales)(are(both(undercast(with(same(amounts.((don’t(worry(about(this(too(
much(:P)(
(
All(the(above(errors(do(not(affect(the(Trial(Balance(because(in(all(situations(the(total(debits(are(equal(to(
total(credits.(
(
Errors!can!be!made!which!can!lead!to!disagreement!of!the!trial!balance.!
This(is(when(either(we(have(only(debited(something(and(forgot(to(credit((Incomplete(double(entry)(or(
we(have(debited(something(with(a(correct(amount(and(credited(the(other(with(the(wrong(amount(
(Incorrect(double(entry).(And(it(can(also(happen(if(any(daybook(is(over(or(under(cast.(E.g.(Sales(daybook(
is(undercast.(In(these(situations(Suspense(account(comes(into(the(picture.(Since(sales(daybook(is(
undercast,(this(means(only(the(total(sales(were(wrong((understated),(so(we(need(to(amend(the(sales(
accounts.(
(
(
(
(
Debit:(Suspense(
(
(
(
(
(
Credit:(Sales(
(
Also(sometimes(an(error(is(made(in(the(list(of(debtors(or(creditors.(Like(a(debit(balance(is(excluded(from(
the(list(of(debtors.(This(makes(the(debtors(figure(in(the(trial(balance(understated.(Logically(we(should(
(
(
(
Debit:(Debtors(
(
(
(
(
Credit:(Suspense(
But(guys(do(you(realize(that(only(the(list(of(debtors(is(wrong((which(is(not(an(account),(so(we(should(
(
(
(
Debit:(NO(DEBIT(ENTRY(
(
(
(
(
Credit:(Suspense(
(
What!if!there!is!still!balance!left!in!the!suspense!account?!
!
This(means(all(the(errors(are(still(not(found.(If(the(balance(comes(on(the(debit(side,(then(treat(it(as(a(
current(asset(in(the(balance(sheet,(if(it(comes(on(the(credit(side(then(treat(it(as(a(current(liability.(
OMAIR MASOOD
CEDAR COLLEGE
315
Correction)of)Errors)Worksheet))1)
Correction
of Errors
!
!
Q1.!
!
F002
Q1.
!
CORRECTION OF ERRORS WORKSHEET
Jun 2007 J Savill Question 3
!
!
!
!
!
!
Q2.!
2501
Jun 2007 Viktoria Question 2
!
!
!Q2.
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Correction of Errors
AS Level Accounting
Correction of Errors
!
!OMAIR MASOOD
CEDAR COLLEGE
!
!
2501
Q3.! Jan 2006 Paul Okan Question 1
!
21 of 270
!
316
!
Correction
of Errors
!
!
!
2501
Q3.! Jan 2006 Paul Okan Question 1
!Q3.
!
!
Correction
of Errors
!
!
!
Q4.!
2501
Jan 2002 Blakelock Question 1
!! Q4.
24 of 270
!
26 of 270
AS Level Accounting
AS Level Accounting
!
)
OMAIR MASOOD
!
CEDAR COLLEGE
!
317
Correction of Errors ( worksheet 2)
Accounts(–(9706((
Accounts(–(9706((
Q1.
AS(–(Level((
AS(–(Level((
(
(
( (
( (
( (
( (
( (
(((((((((((((((OMAIR(MASOOD(
(((((((((((((((OMAIR(MASOOD(
Q5.
inexperienced
bookkeeper
drawn
followingtrial
trialbalance:
balance:
Q5. Q5.
An An
inexperienced
bookkeeper
hashas
drawn
upup
thethe
following
Accounts(–(9706((
AS(–(Level((
(
(
(
(
(
(
Trial
Balance
April1999
1999
Trial
Balance
at at
3030
April
(((((((((((((((OMAIR(MASOOD(
Dr.
Dr.
$$
108,330
108,330
Cr.
Cr.
$$
Sales
Sales
Purchases
73,308
Purchases
73,308
Corrected Trial Balance
Return
350
Return
outout
350
Return
450
Dr.
Cr. 450
Return
in in
Trade
Receivables
7,300
$
$
Trade Receivables
7,300
Trade
Payables
3,456108,330
Trade
Payables
3,456
Sales
General
expenses
27,616
General
expenses
27,616
Purchases
73,308
Rent
240
Rent out
240
Return
350
Discount
allowed
1,000
Discount
1,000
Return
in allowed
450
Discount
received
750
Discount
received
750
Trade
Receivables
7,300
Balance
at bank
(overdrawn)
1,528 3,456
Balance
at bank
(overdrawn)
1,528
Trade
Payables
Non-Current
Assets
at
cost
73,200
Non-Current
Assets at cost
73,200
General
expenses
27,616
Provision
depreciation
11,200
Rent
240
Provision
forfor
depreciation
11,200
Provision
for
doubtful
debts
360
Discount
1,000
Provisionallowed
for doubtful debts
360
Inventory
1
May
1998
14,800
Discount
750
Inventoryreceived
1 May 1998
14,800
Inventory
30
April
1999
11,840
Balance
at
bank
(overdrawn)
1,528
Inventory 30 April 1999
11,840
Capital
102,440
Non-Current
Assets at cost
73,200
Capital
102,440
Drawings
30,96011,200
Provision
for
depreciation
Drawings
30,960
Suspense
75,972
Provision
for doubtful debts
360
Suspense
75,972
Inventory 1 May 1998
14,800
272,550 272,550
272,550
272,550
Capital
102,440
Drawings
30960
Suspense
460
(a) Prepare a corrected trial balance, giving an amended
figure for the Suspense
(a) Prepare a corrected trial balance, giving an228,874
amended228,874
figure for the Suspense
Account balance.
Account balance.
(b) After the trial balance in (a) has been corrected, the following errors were found:
#
#
1. Additional Non-Current Assets costing $1440 had been bought. The purchases
account has been debited.
2. An expense payment of $864 was entered in the accounts as $846.
3. A cheque for $320 was sent to a creditor. The bank and the creditor’s account
were both credited with this amount.
4. The total of the Purchases Day Book had been under-added by $480.
5. A credit note for $148 was sent to a customer but it had not been put through the
books.
6. Postage expenses of $300 had not been posted from the cash book to the ledger
account.
7. Owner had taken $250 of goods during the year for personal use. No entry had
been made in the accounts.
8. Returns outwards had been entered in the trial balance as $350. The correct
amount was $250.
76#wrongly as $600 in his account.
9. A sale of $500 to C White was entered
76#
10. A debit balance of $870 of A Fleming’s account was brought down as $780.
This latter figure was included in the total Trade Receivables.
11. An item of $120 had been debited twice in the General Expense Account.
Accounts(–(9706((
AS(–(Level((
OMAIR
#
(
(
MASOOD
(
(
(
77#
CEDAR
(
(((((((((((((((OMAIR(MASOOD(
COLLEGE
12. The Sales Day Book had been over-added by $200.
13. A banker’s order for $240 for payment of rent had been posted on the wrong
side of Bank Account.
318
10. A debit balance of $870 of A Fleming’s account was brought down as $780.
10. A debit
of $870
of A Fleming’s
account
brought down as $780.
Thisbalance
latter figure
was included
in the total
Tradewas
Receivables.
This
latter
figure
was
included
in
the
total
Trade
Receivables.
11. An item of $120 had been debited twice in the General Expense Account.
Accounts(–(9706((
( been( debited( twice in
( the General
(
(((((((((((((((OMAIR(MASOOD(
11. An item of( $120 had
Expense
Account.
Accounts(–(9706((
(
(
(
(
(77#
(
(((((((((((((((OMAIR(MASOOD(
AS(–(Level((
AS(–(Level((
77#
#
12. The Sales Day Book had been over-added by $200.
#
12. The
Sales
Day Book
by $200.
13. A
banker’s
orderhad
forbeen
$240over-added
for payment
of rent had been posted on the wrong
13. A banker’s
order
for
$240
for
payment
of
rent
had been posted on the wrong
side of Bank Account.
side
of Bank
14. The
totalAccount.
of the Discount Received column in the Cash Book of $250 had been
14. The debited
total of to
thethe
Discount
Received
Cash Book of $250 had been
Discount
Allowedcolumn
Accountininthe
error.
debited
to theNon-Current
Discount Allowed
error.
15. Surplus
Assets Account
were soldinfor
$310 during the year and the proceeds
15. Surplus
Non-Current
Assets
were
sold
for
$310
during the year and the proceeds
credited to the sales account.
credited
to the sales
account.
16. Purchases
of $300
from J Tipper had been debited to T Topper account.
16. Purchases
of
$300
from
Tipperbalance
had been
Topperhad
account.
17. A purchases LedgerJcredit
of debited
$180 fortoWT Aston
been omitted from
17. A purchases
credit balance of $180 for W Aston had been omitted from
the list ofLedger
Trade Payables.
the
of Trade
Payables.
18.list
P Rose’s
account
in Sales Ledger has been debited $145 for goods return by
18. P Rose’s
account
in
Sales
Ledger has been debited $145 for goods return by
him.
him.
REQUIRED:
REQUIRED:
REQUIRED:
Prepare Journal entries to correct each of these errors.
REQUIRED:
Prepare
Journal entries
correct each of these errors.
(Narrations
are not to
required)
CORRECTION(OF(ERRORS(((WORKSHEET(2)(
(a) Journal Entries to correct the above errors
(Narrations
are
not
required)
(a) Journal Entries to correct the above errors
( (b) Suspense Account
(b)
Q1.(Suspense Account
Q2.Q6.
(
AS!Level!accounting!
AS!Level!accounting!
Omair!Masood!
Omair!Masood!
##
Q7.G.
Carpenter
runsruns
a small
engineering
company,
Q7.G.
Carpenter
a small
engineering
company,and
andhashasprepared
preparedthe
thefollowing
followingTrial
Trial (
Balance
at
31
March
1992.
Balance at 31 March 1992.
$ $
$$
Capital
50,000
Capital
50,000
Motor
vehicles
8,000
Motor vehicles
8,000
Page!|!88!
Page!|!88!
Equipment
andand
fittings
10,300
Equipment
fittings
10,300
Inventory
1 April
1991
11,810
Inventory
1 April
1991
11,810
Purchases
169,400
Purchases
169,400
Sales
264,030
Sales
264,030
Premises
65,000
Premises
65,000
Trade
Receivables
28,045
Trade
Receivables
28,045
Trade
Payables
31,040
Trade
Payables
31,040
Discount
allowed
600
Discount
allowed
600
Discount
received
1,250
Discount
received
1,250
Wages
and
salaries
38,000
Wages and salaries
38,000
Sales
returns
130
Sales
returns
130
Purchases
returns
210
Purchases
returns
210
Drawings
640
Drawings
640
Insurance
720
Insurance
720
General
expenses
2,760
General expenses
2,760
Bank
11,205
Bank
11,205
Suspense
Suspense
8080
346,610 346,610
346,610 346,610
319
! SE!
#
#
Mr. Carpenter was unable to agree the Trial Balance and has entered the difference in a
Mr. Carpenter was unable to agree the Trial Balance and has entered the difference in a
Suspense Account. He asks you to check the account for him, and you find the following
Suspense Account. He asks you to check the account for him, and you find the following
errors:
errors:
(i) Equipment and fittings bought during the year for $7,000 have been debited to the
(i) Equipment and fittings bought during the year for $7,000 have been debited to the
Purchases account. The company
78# does not provide for depreciation in the year of
Purchases
account.
The
company
does not provide for depreciation in the year of
purchase on Non-Current Assets.
78#
purchase
on Non-Current
Assets.
(ii) Discount
allowed of $40
has been posted to the credit side of Discount received.
OMAIR
MASOOD
CEDAR
COLLEGE
(ii) Discount
allowed
of
$40
has
posted
to
the
credit side but
of Discount
(iii)A cheque for $155 from a been
debtor
has been
dishonoured,
no recordreceived.
has been made of
(iii)A cheque
for
$155
from
a
debtor
has
been
dishonoured,
but
no
record
has
beenbemade
this in the accounts. There is no reason to believe that payment will not
madeofin
this April.
in the accounts. There is no reason to believe that payment will not be made in
April.
(iv) Purchase returns of $50 have been posted to the debit of Sales returns.
Drawings
Purchases
returns
Purchases
returns
Insurance
Insurance
Drawings
Drawings
General
expenses
General
expenses
Insurance
Insurance
Bank
General
expenses
Bank
General
expenses
Suspense
Bank
Suspense
Bank
640
Suspense
Suspense
Continued
Nest
(a) Journal entries and aQuestion
Suspense Account
to correctOn
the the
errors.
CorrectionofofErrors
Errors
Correction
Page
Chapter:!ERRORS!AND!SUSPENSE!
Chapter:!ERRORS!AND!SUSPENSE!
Mr. Carpenter was unable to agree the Trial Balance and has entered the difference in a
Mr. Carpenter
was was
unable
to to
agree
Balanceand
andhashas
entered
the difference
Mr. Carpenter
unable
agreethe
theTrial
Trial Balance
entered
the difference
in a in a
Suspense
Account.
He asks
you the
to check
the account
forentered
him, and
find the
Mr.
Carpenter
was unable
to agree
Trial Balance
and has
the you
difference
in afollowing
Suspense
Account.
you
check the
the account
andand
youyou
find find
the following
Suspense
Account.
He He
asksasks
you
totocheck
accountforforhim,
him,
the following
Suspense
Account. He asks you to check the account for him, and you find the following
errors:
errors:
errors:
errors:
(i) (i)Equipment
boughtduring
during
$7,000
been debited
Equipmentand
and fittings
fittings bought
thethe
yearyear
for for
$7,000
have have
been debited
to the to the
(i) (i)
Equipment
and
fittings
boughtduring
duringthethe
year
for
$7,000
have
been debited
Equipment
and
fittings
bought
year
for
$7,000
have
been
debited
to
the to the
Purchases
The company
companydoes
does
provide
for depreciation
Purchasesaccount.
account. The
notnot
provide
for depreciation
in the in
yeartheof year of
Purchases
account.
The
company
doesnotnot
provide
for depreciation
theofyear of
Purchases
The company
provide
for depreciation
in the in
year
purchase
on
Assets.does
purchaseaccount.
onNon-Current
Non-Current
Assets.
purchase
on
Non-Current
Assets.
purchase
on Non-Current
Assets.
Discount
allowed of
of $40
has
to the
credit
side side
of Discount
received.
(ii)(ii)
Discount
allowed
$40
hasbeen
beenposted
posted
to the
credit
of Discount
received.
Discount
allowed
of $40
$40
has
been
posted
to to
the
credit
side side
of Discount
received.
(ii) (ii)
Discount
allowed
of
has
been
posted
the
credit
of
Discount
received.
(iii)
A
cheque
for
$155
from
a
debtor
has
been
dishonoured,
but
no
record
has
been
(iii)A cheque for $155 from a debtor has been dishonoured, but no record
hasmade
beenofmade of
(iii)
A
cheque
for
$155
from
a
debtor
has
been
dishonoured,
but
no
record
has
been
made
ofmade
this
in
the
accounts.
There
is
no
reason
to
believe
that
payment
will
not
be
made
in
(iii)A cheque
for
$155
from aThere
debtor
been dishonoured,
but payment
no recordwill
hasnot
beenbe
thisininthe
theaccounts.
accounts.
is has
no reason
to believe that
madeofin
this April.
There is no reason to believe that payment will not be made in
this April.
in the accounts. There is no reason to believe that payment will not be made in
April.
(iv) Purchase returns of $50 have been posted to the debit of Sales returns.
April.
(iv)Purchase
Purchase
returns
of $50
posted
the
debit
Sales returns.
(iv)
of1992,
$50
have
beenbeen
posted
to theto
debit
of
Sales
returns.
(v)
Duringreturns
March
Mr.have
Carpenter
remembered
that
of
theofinsurance
already paid, $60
(iv)(v)
Purchase
returns
of
$50
have
been
posted
to
the
debit
of
Sales
returns.
(v)During
During
March
1992,
Mr.
Carpenter
remembered
that
of
the
insurance
already
March
1992,
Mr.
Carpenter
remembered
that
of
the
insurance
already
paid,
$60paid, $60
related to a private insurance premium. In an attempt to correct the
accounts,
he made
(v) During
March
1992,
Mr.
Carpenter
remembered
that
of
the
insurance
already
paid,
$60
related
a private
insurance
In
an attempt
to correct
the accounts,
he made
related
toto
a debit
private
insurance
In anaccount,
attempt
to correct
theentry
accounts,
he made
another
entry
of
$60 npremium.
the premium.
Insurance
with
no other
being
made.
AS!Level!accounting!
another
entry
of
$60
n thenpremium.
Insurance
account,
with nowith
other
being
made.
related
to debit
a debit
private
insurance
In anaccount,
attempt
to
correct
accounts,
he (made
another
entry
of $60
the Insurance
noentry
otherthe
entry
being made.
AS!Level!accounting!
( another debit entry of $60
Question
Continued
On the
Nest
n the Omair!Masood!
Insurance
account,
with
noPage
other entry being made.
(
#
Omair!Masood!
Question
Continued
On the
Nest
Page
(
Question
Continued
On
the
Nest
Page
REQUIRED:
#
Chapter:!ERRORS!AND!SUSPENSE!
Chapter:!ERRORS!AND!SUSPENSE!
210
720 210
720
640
640
2,760
2,760
720
720
11,205
2,760
11,205
2,760
11,205
8080
11,205
346,610
80 346,610
80 346,610
346,610
346,610 346,610
346,610 346,610
REQUIRED:
(b) A Corrected trial balance
(a)All!Rights!Reserved!©!
Journal entries and a Suspense Account to correct the errors.
! (c) If errors had not been discovered prior to the preparation of the final accounts, how
All!Rights!Reserved!©!
!
(b) A Corrected
trial balance
might the Suspense
Account balance have been dealt with
(Page!|!89!
!All!Rights!Reserved!©!
(c)
If
errors
had
not
been
discovered
prior
to
the
preparation
of
the
final
accounts,
! how
! ( Q8
All!Rights!Reserved!©!
!
2501
Jan
2005
Meyer
Question
2
( might
the Suspense
Account balance
have been
of Financial
position
at 31
2501
2005 Statement
Meyer
Question
2 dealtaswith
(Page!|!89!
!
Q7 Jan
December 2002
!
( Q8
$
$
(
Statement of Financial position
as at 31
Non-Current Assets (net)
80,000
December 2002
$
$
Current Assets
Non-Current
Assets (net) 15,000
80,000
Inventory
Trade Receivables
Bank Assets
Current
Suspense Account
Inventory
Trade Receivables
Current Liabilities
Bank
Trade Payables
Suspense
Account
Working capital
FinancedLiabilities
by
Current
CapitalPayables
Trade
Add Net Profit
Working
capital
Less Drawings
Financed by
Capital
Add reveals:
Net Profit
Further examination
8,000
10,000
4,000
15,000
37,000
8,000
10,000
7,000
4,000 30,000
37,000 110,000
7,000 130,000
20,000
30,000
150,000
110,000
40,000
110,000
130,000
20,000
150,000
(i) The Sales Account has been undercasted by $2000.
Less
Drawings
(ii) The wages total for the year of $80,000 has been entered as 40,000
$75,000.
110,000
(iii)A cheque for $3,000 from Davey Builders, a debtor, has been
entered correctly in the
Chapter:!ERRORS!AND!SUSPENSE!
S!AND!SUSPENSE!
account of Davey Builders but has been entered as $1,500 in the Bank Account.
Further
examination
reveals:
(iv) Discount
received
of $250 has been entered as a debit to the Discount Allowed
(i) TheAccount.
Sales Account has been undercasted by $2000.
REQUIRED:
(ii) The wages total for the year of $80,000 has been entered as $75,000.
Journal entries
to correct
theDavey
errors. (Narratives
not required)
(iii)(a)
A cheque
for $3,000
from
Builders, aaredebtor,
has been entered correctly in the
(b) The Suspense Accounting showing the opening balance and correcting entries.
account of Davey Builders but has been entered as $1,500 in the Bank Account.
(c) Calculate the revised net profit for the year ended 31 December 2002
(iv)(d)
Discount
received
$250
beenwhich
entered
asnot
a affect
debit the
to balancing
the Discount
Identify and
explainofthree
typeshas
of error
would
of a trialAllowed
Account.
OMAIR
CEDAR COLLEGE
balance.MASOOD
REQUIRED:
(a) Journal entries to correct the errors. (Narratives are not required)
All!Rights!Reserved!©!
! (b) The Suspense Accounting showing the opening balance and correcting entries.
320
Correction of Errors
2501
Q8 Jan 2004 Focus Question 2
34 of 270
OMAIR MASOOD
AS Level Accounting
CEDAR COLLEGE
321
Correction
CorrectionofofErrors
Errors
2501
2003
Mary
BrookeQuestion
Question 11
2501
JanJan
2003
Mary
Brooke
Q9
Correction of Errors
2501 Jan 2003 Mary Brooke Question 1 continued
36 of 270
AS Level Accounting
36 of 270
OMAIR MASOOD
AS Level Accounting
CEDAR COLLEGE
322
3
David, a sole trader, has prepared a trial balance at 31 December 2017 which did not balance.
He entered the difference in a suspense account.
REQUIRED
2
13
(a) State two other uses of a suspense account.
REQUIRED
[2]
CORRECTION OF ERRORS-PAST PAPERS
1
(c) Prepare
the suspense account at 31 December 2017 clearly showing the opening balance
(b) State
four
types of error that will not be revealed by the trial balance.
account.
Q1. on the
12
1
Suspense account
3 David, a sole trader, has prepared a trial balance at 31 December 2017 which did not balance.
2
He entered
the difference in a suspense account.
2
$
$
[2]
REQUIRED
3
(a) State two other uses of a suspense account.
4
[4]
(b) State four types of error that will not be revealed by the trial balance.
1
1 information
Additional
On checking
the financial records, David discovered the following errors.
2
2
1 The
3 credit balance on the bank current account of $1650 had been entered in the trial
[2]
balance as a debit balance.
4 total of the purchases returns journal of $960 had been debited to the returns inwards
2 The
(b) account.
State four types of error that will not be revealed by the trial balance.
[4]
information
3Additional
A 1prepayment
of $450 for telephone charges at 1 January 2017 had not been brought down
as an opening balance.
On checking
the financial records, David discovered the following errors.
2
13
4 The balance on sales ledger control account
at 31 December 2017 of $13 625 had been
[6]
carried
down
as
$13
652.
1 The
3 credit balance on the bank current account of $1650 had been entered in the trial
REQUIRED
balance as a debit balance.
4
[4]
REQUIRED
(c)
Prepare
the suspense account at 31 December 2017 clearly showing the opening balance
2 on
The
total
of
the
purchases
returns
journal
of
$960
had
been
debited
to
the
returns
inwards
the account.
account.
(d) State three benefits to a business of preparing annual financial statements.
Additional information
Suspense account
(2+4+6+3)
3 A
(June18/P23/Q3)
1 prepayment of $450 for telephone charges at 1 January 2017 had not been brought down
$
On checking
the financial
records, David discovered
the following errors.
as an opening
balance.
$
Q2.
14 The
balance
on the
bankcontrol
current2account
account at
of 31
$1650
had been
entered
in 625
the had
trial been
The credit
balance
on sales
ledger
December
2017
of $13
balance
a debit
balance.
carried as
down
as $13
652.
Ross, a sole trader, owns a business selling computer equipment. He prepared the following
2 Thestatement
total of the
returns
journal2017,
of $960
hadcontained
been debited
to the returns inwards
income
for purchases
the year ended
31 March
which
errors.
account.
2
Ross
3
A
prepayment
of
$450
for
telephone
charges
1 January
2017
had not been brought down
Income
Statement
for
the
year at
ended
31 March
2017
© UCLES 2018
9706/23/M/J/18
as an opening balance.
$
$
4 The balance on sales ledger control account at 31 December 2017 of96$13
Revenue
520625 had been
as $13 652.
Add:carried
Returnsdown
outwards
440
96
960
3
Cost of sales
Inventory at 31 March 2017
23 400
Purchases
38 950
Carriage outwards
1 090
[3]
63 440
Inventory at 1 April 2016
(21 640)
41 800
[6]
[Total: 15]
Gross
profit
55 160
© UCLES
2018
9706/23/M/J/18
1
Less expenses:
REQUIRED
Property rental paid
16 240
Returns
inwards
240
OMAIR
COLLEGE
(d) StateMASOOD
three benefits to a businessCEDAR
of preparing
annual financial 1statements.
Drawings
8 600
© UCLES
2018
9706/23/M/J/18
Heating
1 940
1 and lighting
Travel expenses
2 060
© UCLES
2018 expenses
9706/23/M/J/18
General
6 690
323
[Turn over
Cost of sales
Inventory at 31 March 2017
Purchases
Carriage outwards
23 400
38 950
1 090
63 440
(21 640)
Inventory at 1 April 2016
Gross profit
Less expenses:
Property rental paid
Returns inwards
Drawings
Heating and lighting
Travel expenses
General expenses
Shop fittings – accumulated depreciation at 31 March 2017
41 800
55 160
16 240
1 240
8 600
1 940
2 060
6 690
3 320
40 090
15 070
Profit for the year
Additional information
The following notes also need to be taken into account when correcting the income statement.
1
Revenue includes goods sent on a sale or return basis to a customer who has not yet
accepted the goods. The goods cost $2500 and had been invoiced for $4000.
2
Depreciation on shop fittings for the year ended 31 March 2017, $1490, had been entered in
the books of account.
3
A prepayment of $1160 for property rental 5paid at 31 March 2017 had been incorrectly
entered in the books of account as an accrual.
4
A customer owing Ross $1250 has been declared bankrupt. This debt should have been
written off in these accounts, but no entry has yet been made.
5
3
REQUIRED
4
(a) Prepare the corrected income statement for the year ended 31 March 2017.
4
Additional information
Ross
Additional information
Income information
Statement for
the his
yearassets
endedand
31 liabilities
March 2017
Ross provided the following
about
at 31 March 2017:
Ross provided the following information about his assets and liabilities at 31 March 2017:
$
Accruals
1$960
580
Bank
loan
Accruals
18960
610
Bank
overdraft
2580
Bank
loan
8
© UCLES 2017
9706/22/O/N/17
950
Capital
at
1
April
2016
10
Bank overdraft
2 610
930
Shop
fittings
– cost
at 31 March 2017
11950
Capital
at 1 April
2016
10
080
Prepayments
Shop fittings – cost at 31 March 2017
112930
440
Trade
payables
6
Prepayments
2 080
870
Trade
receivables
12
Trade payables
6 440
Trade receivables
12 870
No adjustment had been made to any of these balances in respect of errors discovered in the
income
statement
notesmade
1 to 4toon
page
2.
No adjustment
hadorbeen
any
of these
balances in respect of errors discovered in the
income statement or notes 1 to 4 on page 2.
Ross introduced capital of $3000 into the business bank account on 31 March 2017. No entries
for
thisintroduced
have yet been
made
in theinto
books
account.
Ross
capital
of $3000
the of
business
bank account on 31 March 2017. No entries
for this have yet been made in the books of account.
One half of the bank loan is repayable in the year ending 31 March 2018. The remainder is due
for
repayment
date.
One
half of theafter
bankthat
loan
is repayable in the year ending 31 March 2018. The remainder is due
for repayment after that date.
REQUIRED
REQUIRED
[13]
(b) Prepare the statement of financial position at 31 March 2017 taking account of all relevant
[13]
information
from part
(a). at 31 March 2017 taking account of all relevant
(b) information
Prepareinformation
theand
statement
of financial
position
Additional
information and information from part (a).
Additional information
At present Ross does not make any provisionRoss
for doubtful debts.
Statement
Financial
Position
at debts.
31 March 2017
Ross
At present Ross does not
make anyofprovision
for
doubtful
Statement of Financial Position at 31 March 2017
REQUIRED
REQUIRED
(c) Advise Ross whether or not he should create a provision for doubtful debts. Justify your
(c) answer.
Advise Ross whether or not he should create a provision for doubtful debts. Justify your
answer.
(13+13+4)
(Nov17/P22/Q1)
OMAIR MASOOD
CEDAR COLLEGE
324
(a) (i) State the use of a suspense account.
10
REQUIRED
3 Contador, a sole trader, has provided the following extract from the trial balance for the year
ended
31 March
2015.
He does
not maintain
control
accounts
as part
of his accounting
records.
(b)
Prepare
journal
entries
to correct
all of the
errors
identified.
Narratives
are not required.
3
$
[1]
Debit balances
112 375
Q3
10
Credit balances
120 835
(ii) State three advantages to a business of maintaining a sales ledger control account.
Contador,
a sole trader, has provided the following extract from the trial balance for the year
REQUIRED
1 March 2015. He does not maintain control accounts as part of his accounting records.
ended 31
(a) (i) State the use of a suspense account.
$
Debit balances
112 375
2
Credit balances
120 835
REQUIRED
2
(a) (i) 3State the use of a suspense account.
(ii) State three advantages to a business of maintaining a sales ledger control account.
[3]
6
1
Additional information
Alex and Barry have been in partnership for many years. The terms of the partnership agreement
are following
as follows.
The
errors have been identified:
[1]
[1]
Interest
payable
tobeen
the partners
loan accounts at 10% per annum.
2 isjournal
11 The
sales
had
overcaston
bytheir
$26 350.
2 (ii)
Interest
onthree
capital
is allowed at
rate of 5%
annum. a sales ledger control account.
State
advantages
to the
a business
of per
maintaining
Barry expenses
is entitled of
to a
salaryhad
of $6000
per annum.
23 Motor
$5270
been posted
to the motor vehicles account. Motor vehicles
4 had
Interest
drawings is
the rate of 4% on the annual drawings.
been
depreciated
at charged
20% per at
annum.
1 on
5 Profits and losses are shared in the ratio of 3:1.
11
3
3 Interest received of $8945 had been debited to both the bank account and the interest
Thereceived
followingaccount.
balances were taken from their books of account at 31 May 2014.
REQUIRED
[3] [8]
2
Alex
Barry
(b)
Prepareinformation
journal entries
to correct all
Additional
$
$ of the errors identified. Narratives are not required.
000
Capital
account
90of
(c)
Assess
the effect
these errors60
on000
the profit for the year.
(1+3+8+3)
The
following
errors have
Current
account
14 000been
Cr identified:
12 500 9Dr
(Nov16/P22/Q3)
16 000
Loan account
15 000
3
1 The sales
journal had been overcast by $26 350.
Additional
information
9
During the year ended 31 May 2015, drawings for Alex totalled $5000 and for Barry $12 000.
[3]
Q4
2 Motor
expenses
of $5270
been
posted
the motor
vehicles
account. Motor vehicles
When
the books
of account
werehad
finally
checked
thetofollowing
errors
were discovered.
Additional
information
depreciated
at 20% per
annum.
Afterhad
the been
deduction
of loan interest,
the draft
profit for the year ended 31 May 2015 was $90 000.
Additional
information
1 The sales
day book had been undercast by $20 000.
When
the books
of account
were
the following
errors
2
Closing
inventory
valued
at finally
cost
$5000debited
had
a net
value
of
$3000. and the interest
3
Interest
received
of $8945
hadofchecked
been
to realisable
both
thewere
bankdiscovered.
account
REQUIRED
The
errors
beenofidentified:
3 following
Repairs
motorhave
vehicles
$7000 had been wrongly debited to the motor vehicles at cost [3]
receivedtoaccount.
1 The
sales (Ignore
day book
had
been undercast by $20 000.
any
depreciation.)
(a) account.
Prepare the
partnership
appropriation account for the year ended 31 May 2015.
2
Closing
inventory
valued
at cost
of $5000
had
net
realisable
value
of $3000.
14 The
sales journal
been
overcast
$26a350.
A purchase
invoicehad
of $4000
had
beenbywrongly
entered
in the
books
as $400.
[Total: 15]
3
Repairs
to
motor
vehicles
of $7000 9706/22/O/N/16
had been wrongly debited to the motor vehicles at cost
© UCLES 2016
account. (Ignore any depreciation.)
2REQUIRED
Motor expenses of $5270 had been posted to the motor vehicles account. Motor vehicles
4 A purchase invoice of $4000 had been wrongly entered in the books as $400.
had been depreciated at 20% per annum.
(e) Prepare a statement to show the corrected
6 profit for the year ended 31 May 2015.
REQUIRED
(5) interest
3 Interest received of $8945 had been debited to both the bank account and the
6
(Nov15/P21/Q2e)
received
(e) Prepare
aaccount.
statement to show the corrected profit for the year ended 31 May 2015.
Additional
information
Additional information
The financial statements of AB Limited for the year ended 30 April 2017 showed a draft profit for
Q5
the year of $71 000. A review of the books of account revealed the following errors:
The financial statements of AB Limited for the year ended 30 April 2017 showed a draft profit for
the year of $71 000. A review of the books of account revealed the following errors:
1 A sales invoice for $234 had been recorded as $324.
1
A sales invoice for $234 had been recorded as $324.
outwards account had been overcast
by $100.
9706/22/O/N/16
2 2016
Returns
© UCLES
© UCLES 2016
2
3
9706/22/O/N/16
Returns outwards account had been overcast
by $100.
Inventory of $1200 had been omitted from closing inventory.
[Turn over
3 Inventory of $1200 had been omitted from closing inventory.
REQUIRED
REQUIRED
(f)
Calculate the revised profit for the year ended 30 April 2017.
(c)
Assess the
of these
errors
on the
profit30forApril
the2017.
year.
(June17/P21/Q1f)
(f) Calculate
theeffect
revised
profit for
the year
ended
© UCLES 2016
9706/22/O/N/16
OMAIR MASOOD
CEDAR COLLEGE
[8]
(4)
[5]
[Total:
[5] 30]
[Total: 30]
325
8
2
Q6
The following is the statement of financial
position
of Francis Flintoff at 31 December 2014.
8
8
$ Flintoff at 31 December
$
The
following is
is the statement of financial position of Francis
2014.
2 2Non-current
The
following
assetsthe statement of financial position of Francis Flintoff at 31 December 2014.
Premises at valuation
$
Office equipment
at book value
Non-current
assets
Non-current
Motor assets
vehicles
at book value
Premises
at valuation
Premises
at valuation
Office equipment
at book value
Motor
vehicles at book
valuevalue
Current
assets
Office
equipment
at book
$
$254 000
74 500 $
40 500
254 000
369 000
254 000
74 500
40 500
74 500
65 600 369 000
40 500
14 800
369
000
65 600
14 200
94 600
Inventory
Motor
vehicles at book value
Current
assets
Trade
receivables
Inventory
Cash
and
Current assets cash equivalents
Trade receivables
14 800
14 200 65 600
94 600
463 600
Inventory
Trade receivables
Total
assets
Cash
andliabilities
cash equivalents
Capital
and
and cash equivalents
TotalCash
assets
14 800
463 600
14 200
94 600
348 200
Capital
at 1 January 2014
Capital
and liabilities
Total assets
Profit for
year 2014
Capital
at the
1 January
463 600
53 400
348 200
401
600
53 400
401 600
Profit for the year
Non-current
liability
Capital
and liabilities
6%
Loan
Non-current
liability
Capital at 1repayable
January 2021
2014
6%
Loan
repayable
Profit for the year 2021
24 000
348 200
24 000
Current liabilities
Current
liabilities
Trade
payables
53 400
401 600
38 000
Non-current
liability
Trade payables
6%
Loan
2021
Total capitalrepayable
and liabilities
38 000
463 60024 000
Total capital and liabilities
463 600
Current
liabilities
Additional
information
Additional
information
Trade payables
38 000
After preparation of this statement the following were discovered.
After preparation of this statement the following were discovered.
Total capital and liabilities
1
1
463 600
Goodswhich
whichwere
wereincluded
included
inventory
at their
of $1900
had been
damaged
Goods
in in
thethe
inventory
at their
costcost
priceprice
of $1900
had been
damaged
andcould
could
besold
soldforforonly
only
$360.
and
be
$360.
Additional
information
2
Interest at 6% had not been paid on the loan. No entry had been made for this.
2 Interest at 6% had not been paid on the loan. No entry had been made for this.
After
preparation of this statement the following were discovered.
1
3
4
4
2
3
000
forfor
thethe
year
ended
30 September
20152015
had not
paid and
Insurance
000
year
ended
30 September
hadbeen
not been
paidhad
and had
Insurancecosting
costing$12
$12
Goods
which
were
included
inthe
the
inventory at their cost price of $1900 had been damaged
been
omitted
from
the
accounts.
beencompletely
completely
omitted
from
accounts.
and could be sold for only $360.
Depreciation
31 31
December
2014
had had
beenbeen
charged
correctly.
The The
Depreciation for
forthe
theyear
yearended
ended
December
2014
charged
correctly.
book-keeper
had
also
entered
a
charge
for
motor
vehicles
for
the
year
ended
book-keeper
a charge
forloan.
motorNo
vehicles
thebeen
year made
ended for this.
Interest
at 6% had
hadalso
not entered
been paid
on the
entry for
had
31
31 December
December2015
2015ininerror.
error.
for the
yearatended
September
2015
had not been paid and had
Insurance
costing
$12 000
Depreciation
is charged
on motor
vehicles
10% on30
a reducing
balance
basis.
Depreciation
is charged
motor
9at910% on a reducing balance basis.
been
completely
omittedon
from
thevehicles
accounts.
REQUIRED
4 REQUIRED
Depreciation for the year ended 31 December 2014 had been charged correctly. The
book-keeper had also entered a charge for motor vehicles for the year ended
(a) (a)
Complete
the 2015
thefollowing
following
tableto toshow
show thethe correct
correct profit
profit for
for the
the year
year ended
ended
31 Complete
December
in error.table
31 December
2014.
31 December
2014.
Depreciation is charged on motor vehicles at 10% on a reducing balance basis.
Add
Deduct
Total
Add
Deduct
Total
($)($)
($)
($)
($)
($)
Original
profit
year
Original
profit
for for
thethe
year
© UCLES 2015
© UCLES
(b)2015
Prepare
10
9706/22/O/N/15
11
9706/22/O/N/15
the corrected statement
of financial position at 31 December 2014.
(c) Name five external users of accounting information and state their interest in the information.
(10+10+10)
1
(Nov15/P22/Q2)
OMAIR MASOOD
© UCLES 2015
CEDAR COLLEGE
9706/22/O/N/15
326
Q7
11
22
The
The following
following is
is the
the draft
draft statement
statement of
of financial
financial position
position ofof Chan
Chan Ya
Ya Wen,
Wen, aa sole
sole trader,
trader,atat
31
May
2014.
31 May 2014.
Statement
Statementof
ofFinancial
FinancialPosition
Positionatat31
31May
May2014
2014
$000
$000
Assets
Assets
Non-current
Non-current assets
assets
Buildings
Buildings at
at valuation
valuation
Equipment
Equipment at
at net
net book
book value
value
Motor
Motor vehicles
vehicles at
at net
net book
bookvalue
value
500
500
240
240
400
400
1140
1140
Current
Current assets
assets
Inventories
Inventories
Trade
Trade receivables
receivables
Other
Other receivables
receivables
Cash
Cash and
and cash
cash equivalents
equivalents
55
55
34
34
44
22
95
95
Total
Total assets
assets
1235
1235
Capital
Capital and
and Liabilities
Liabilities
Opening
Opening capital
capital
Add profit for the year
Add profit for the year
900
900
250
250
1150
1150
75
75
1075
1075
Less drawing
Less drawing
Closing capital
Closing capital
Non-current liabilities
Non-current liabilities
Loan
Loan
100
100
Current liabilities
Current liabilities
Trade payables
Trade payables
Other payables
Other payables
52
52
8
8
60
60
Total capital and liabilities
Total capital and liabilities
1235
1235
Additional information
Additional information
After preparation of the draft statement of financial position the following errors were discovered:
After preparation of the draft statement of financial position the following errors were discovered:
1
1
A purchase credit note received for $12 000 had been completely omitted from the books.
A purchase credit note received for $12 000 had been completely omitted from the books.
2
2
Inventory at 31 May 2014, cost $6000, was found to be damaged. A customer has agreed to
Inventory
at 31for
May
2014,
cost $6000,
found
to be damaged. A customer has agreed to
buy
the goods
$2500.
Delivery
costs was
will be
$250.
buy the goods for $2500. Delivery costs will be $250.
3
3
The loan was received on 1 December 2013. Loan interest of 4% per annum has not been
The loan was received on 1 December 2013. Loan interest of 4% per annum has not been
paid.
paid.
During the year vehicle repairs of $2000 had been incorrectly debited to the motor vehicles
During the
yearvehicles
vehicle have
repairs
of $2000
had been
incorrectly
debited
toyear
the motor
vehicles
account.
Motor
been
depreciated
by 25%
per annum
on the
end value.
account. Motor vehicles have been depreciated by 25% per annum on the year end value.
4
4
OMAIR MASOOD
© UCLES 2014
© UCLES 2014
CEDAR
COLLEGE
9706/21/O/N/14
9706/21/O/N/14
327
3
5
On 1 May 2014 a motor vehicle with a net book value of $16 000 had been badly damaged in
a collision. No entry has yet been made in the accounts for this. The insurance company has
agreed to pay $13 000 in compensation. The trader will receive a further $1200 for the scrap
value.
6
On 27 May 2014 a credit customer was declared bankrupt and it was decided to write off the
$8000 owing. No record in the accounts has yet been made.
REQUIRED
4
(a) Prepare a statement to show the corrected profit for the year ended 31 May 2014.
(b) Prepare a corrected statement of financial position at 31 May 2014.
(Nov14/P21/Q1a-b)
Q8
(10+12)
6
6
2
The following is the draft statement of financial position of George Grosz, a sole trader, at
2
The
following
is the draft statement of financial position of George Grosz, a sole trader, at
30 June
2012.
30 June 2012.
Statement of Financial Position at 30 June 2012
Statement of Financial Position at 30 June 2012
$
$
$
$
$
$
Non-current
assets
Non-current assets
Buildingsatatvaluation
valuation
Buildings
108 000 108 000
Equipmentatat
net
book
value
7 000
Equipment
net
book
value
7 000
Motorvehicles
vehicles
book
value
Motor
at at
netnet
book
value
35 000 35 000
150 000 150 000
Current
Currentassets
assets
Inventory
21 000
Inventory
21 000
Trade
receivables
18 000
Trade receivables
18 000
Cash and cash equivalents
8 000
Cash and cash equivalents
8 000
60 000
Other receivables
13 000
Other receivables
Current liabilities
Current
liabilities
Trade
payables
60 000
13 000
42 000
Trade payables
42 000
Non-current liabilities
Loan
Non-current liabilities
18 000
168 000
18 000
168 000
50 000
Loan
50 000
118 000
90 000 118 000
30 000
120 000 90 000
2 000 30 000
118 000 120 000
Capital at 1 July 2011
Add Draft profit for the year
Capital at 1 July 2011
Less
Add Drawings
Draft profit for the year
Less Drawings
2 000
118 000
Additional information:
1
Provision for depreciation on motor vehicles for the year ended 30 June 2012 had not
Additional
yet beeninformation:
charged. Depreciation is charged at 10% on the net book value at the year
end.
1
Provision for depreciation on motor vehicles for the year ended 30 June 2012 had not
2
Items
included
in inventory
and valuedisatcharged
their costatprice
of on
$9500
damaged
andat the year
yet been
charged.
Depreciation
10%
thewere
net book
value
[10]
had
an estimated net realisable value of $2000.
end.
3
A purchase
invoiceinfor
goods valued
$2000
been
omitted
the books.
included
inventory
and at
valued
athad
their
cost
pricefrom
of $9500
were damaged
9706/21/O/N/14
[Turnand
over
4
Sales invoices for goods valued at $4000 had been omitted from the books.
53
A purchase
invoice for
at $2000
had
omitted
fromend
thehad
books.
The
loan was received
at 1goods
Marchvalued
2012. Loan
interest
of been
6% due
at the year
not yet been paid.
2 2014
Items
© UCLES
had an estimated net realisable value of $2000.
4
Sales invoices for goods valued at $4000 had been omitted from the books.
OMAIR MASOOD
5
CEDAR COLLEGE
The loan was received at 1 March 2012. Loan interest of 6% due at the year end had
not yet been paid.
328
7
[7]
REQUIRED
For
Examiner's
Use
(a) Prepare a statement to show the corrected profit for the year ended 30 June 2012.
(b) Calculate Grosz’s capital at 30 June 2012.
(7+2)
www.maxpapers.com
(June13/P22/Q2a-b)
9
www.maxpapers.com
For
Examiner's
Use
In July 2012, Amina, Nizam and Sarah discovered
9 several errors that had been made in
their
accounts.
Their
trial
balance
failed
to
agree
and the difference was entered into a
Q9
suspense account.
In July 2012, Amina, Nizam and Sarah discovered several errors that had been made in
their accounts. Their trial balance failed to agree and the difference was entered into a
1
The revenue (sales) account had been overcast by $18 200.
suspense account.
21
For
Examiner's
Use
Discounts
received
$9 600 had
had been
been overcast
entered on
The revenue
(sales)ofaccount
by the
$18debit
200. side of the discounts
allowed account.
2
3
[2]
Discounts received of $9 600 had been entered on the debit side of the discounts
Simon, a debtor, had paid a cheque for $9 400 to clear his account. His account
allowed account.
had been credited for this amount but no entry had been made in the cash book.
3
Simon, a debtor, had paid a cheque for $9 400 to clear his account. His account
REQUIRED
had been credited for this amount but no entry had been made in the cash book.
www.maxpapers.com
REQUIRED
(d)
Prepare journal entries to correct each 10
of the errors which had been discovered
(narratives are not required).
Prepare journal
the suspense
the balance
brought
Prepare
entries account,
to correctclearly
each showing
of the errors
which had
been forward.
discovered (8+4)
(narratives
are
not
required).
(Nov12/P22/Q2d-e)
(e)
(d)
For
Examiner's
Use
www.maxpapers.com
Q10
1
2
[7]
The following is the draft balance sheet of Marshall Klingsman, a sole trader, at 30 April 2011.
(b) Calculate Grosz’s capital
at 30
June
2012.
Balance
Sheet
at 30
April 2011
$
© UCLES
2013
Non-current
assets
$
[Turn over
300 000
540 000
330 000
1 170 000
Current assets
Inventories
Trade receivables
Other receivables
Cash and cash equivalents
70 000
19 000
2 000
4 000
95 000
57 000
3 000
35 000
1 205 000
Non-current liabilities
Loan
Net assets
200 000
1 005 000
Financed by:
Capital at start
Add Profit for the year (net profit)
[4]
1 000 000
80 000
1 080 000
75 000
1 005 000
Less Drawings
Capital at end
OMAIR MASOOD
[2]
60 000
Net current assets
Additional information:
$
9706/22/M/J/13
Buildings at valuation
Equipment at book value
Motor vehicles at book value
Current liabilities
Trade payables
Other payables
For
Examiner’s
Use
[Total: 30]
[8]
[8]
CEDAR COLLEGE
329
After preparation of the draft balance sheet the following errors were found.
© UCLES 2013
1
9706/22/M/J/13
Goods in inventory at 30 April 2011, valued at cost $15 000, were found to be
damaged. The estimated net realisable value is $8 000.
[Turn over
Capital at start
Add Profit for the year (net profit)
1 000 000
80 000
1 080 000
75 000
1 005 000
Less Drawings
Capital at end
Additional information:
www.maxpapers.com
5
After(i)
preparation
of the
draft balance
sheetcost
the following
errors were
found.
(c)
Explain two
differences
between
and net realisable
value.
1
2
3
(c) (i)
(ii)
4
Goods
in inventory at 30 April 2011, valued at cost $15 000, were found to be
..................................................................................................................................
damaged. The estimated net realisable value is $8 000.
..................................................................................................................................
Loan interest of 4% per annum had been omitted from the accounts.
..................................................................................................................................
5
No provision for depreciation on equipment had been made for the year. Depreciation
..................................................................................................................................
should
have
been provided
at 5%cost
per annum
the reducing
Explain
two differences
between
and netusing
realisable
value. balance method.
For
Examiner’s
Use
www.maxpapers.com
Discuss
the accounting
treatment
theper
damaged
in item
Motor
vehicles
are depreciated
by of
10%
annum.inventory
During the
year 1.
vehicle repairs
..................................................................................................................................
of $10 000 had been incorrectly debited to the motor vehicles account.
..................................................................................................................................
..................................................................................................................................
5
On 28 April 2011 a credit customer, who owed $3600, was declared bankrupt. It
5 full. No record of this has been made in the
..................................................................................................................................
was
decided to write off this amount 3in
..................................................................................................................................
accounts.
(c) (i) ..................................................................................................................................
Explain two differences between cost and net realisable value.
REQUIRED
..................................................................................................................................
For
Examiner’s
Use
www.maxpapers.com
www.maxpapers.com
For
For
Examiner’s
Examiner’s
Use
Use
www.maxpapers.com
www.maxpapers.com
..............................................................................................................................[4]
..................................................................................................................................
(a) (ii)
Prepare
a statement
to show
the corrected
profit for
the year
(net 1.profit) ended
Discuss
the accounting
treatment
of6the damaged
inventory
in item
30 April 2011.
(d) Using..................................................................................................................................
your answers to (a) and (b) calculate
4 the following ratios to two decimal places:
(e) State ..................................................................................................................................
four ways in which Klingsman could improve his working capital.
For
.......................................................................................................................................... Examiner’s
(i) current
(b) Prepare
the ratio
corrected balance sheet at 30 April 2011.
..................................................................................................................................
For
Use
© UCLES 2011
9706/23/M/J/11
..........................................................................................................................................
..................................................................................................................................
5
Examiner’s
..........................................................................................................................................
Use
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
(c) ..........................................................................................................................................
(i) ..................................................................................................................................
Explain
two differences between cost and net realisable value.
For
..........................................................................................................................................
Examiner’s
..........................................................................................................................................
(ii) ..................................................................................................................................
Discuss
the accounting treatment of the damaged inventory in item 1.
Use
..........................................................................................................................................
..................................................................................................................................
..............................................................................................................................[4]
..........................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
(d) ..........................................................................................................................................
Using..................................................................................................................................
your answers to (a) and (b) calculate the following ratios to two decimal places:
..........................................................................................................................................
..............................................................................................................................[2]
..........................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
(i) current
ratio
..................................................................................................................................
..........................................................................................................................................
(ii)
liquid ratio (acid test).
..........................................................................................................................................
6
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
(e) State
four
ways in which Klingsman could improve his working capital.
..............................................................................................................................[4]
For
......................................................................................................................................[4]
..................................................................................................................................
(ii)
Discuss
the accounting treatment of the damaged inventory in item 1.
..........................................................................................................................................
Examiner’s
..................................................................................................................................
Use
..........................................................................................................................................
..........................................................................................................................................
Using
your
(a) and
(b)test)
calculate
the following
to two
decimalthan
places:
(f)(d) Explain
why answers
the liquidtoratio
(acid
is a more
reliable ratios
indicator
of liquidity
the
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
current
ratio.
..................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(i) ..............................................................................................................................[2]
current ratio
(9+7+2+2+2+2+4+2)
..................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(June11/P23/Q1)
..............................................................................................................................[2]
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
(ii)
liquid
ratio (acid test).
..................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..............................................................................................................................[4]
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
(d) Using
your answers to (a) and (b) calculate the following ratios to two decimal places:
..........................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..............................................................................................................................[2]
..................................................................................................................................
..........................................................................................................................................
(i)
current ratio
..........................................................................................................................................
..........................................................................................................................................
......................................................................................................................................[4]
(ii)
liquid ratio (acid test).
..............................................................................................................................[2]
..........................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
(f) Explain
why the liquid ratio (acid test) is a more reliable indicator of liquidity than the
..................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
current
ratio.
..........................................................................................................................................
.......................................................................................................................................... 330
..................................................................................................................................
OMAIR
MASOOD
CEDAR COLLEGE
..........................................................................................................................................
..................................................................................................................................
..........................................................................................................................................
..........................................................................................................................................
..................................................................................................................................
......................................................................................................................................[9]
© UCLES 2011
9706/23/M/J/11
[Turn over
..............................................................................................................................[2]
..........................................................................................................................................
..........................................................................................................................................
..............................................................................................................................[2]
www.maxpapers.com
www.maxpapers.com
BANK RECONCILIATION STATEMENTS THEORY
BANK!RECONCILIATION!STATEMENTS!
(
Cashbook(is(owner’s(record((Debit(means(+(balance,(Credit(means(–(balance)(
Bank(statement(is(bank’s(record((Credit(means(+(balance,(Debit(means(–(balance)(
(
Some(entries(which(are(recorded(in(the(bank(statement(but(not(in(the(cashbook:(
For(these,(we(will(have(to(correct(the(cashbook(
(
1. Credit(transfer((Bank(Giro):(Money(deposited(by(customer(directly(in(the(bank(account(
(We(should(add(it(to(cashbook(balance)(
2. Standing(order/(Direct(Debit:(Money(paid(to(supplier(directly(by(the(bank.(
(We(should(subtract(this(from(cashbook(balance)(
3. Bank(Charges/(Interest(Charged:(Money(deducted(directly(by(the(Bank.(
(We(should(subtract(this(from(cashbook(balance)(
4. Interest(Received/(Dividends(Received:(Money(added(to(the(bank(account(in(form(of(
interest(or(dividend((We(should(ad(it(to(the(cashbook(balance)(
5. Dishonored(Cheque:(A(cheque(received(from(customer(but(not(acknowledged(by(the(
bank((We(should(subtract(this(from(cashbook(balance(because(we(need(to(cancel(the(
entry(made(when(the(cheque(was(received).(
(
Some(entries(which(are(recorded(in(the(cashbook(but(not(on(the(bank(statement.(
(
For(this,(we(will(have(to(correct(the(bank(statement:(
(
1. Unpresented!Cheque:!Cheques(written(by(us(to(a(creditor(but(not(yet(presented(to(the(
bank(for(payment,(so(the(bank(has(not(deducted(money(from(our(account.(
(We(should(subtract(this(from(bank(statement(balance)(
2. Uncredited!Cheque!(Lodgments):!Cheques(received(by(us(but(not(yet(deposited(in(the(
bank,(so(the(bank(has(not(increased(the(bank(balance.((We(should(add(this(to(the(bank(
statement(balance)(
(
FOR!MCQ’s!remember!
!
Balance(as(per(Bank(statement(+(Uncredited(Cheques(–(Unpresented(Cheques(=(Balance(as(
per(corrected(Cashbook.(
(
If(balance(as(per(corrected(cashbook(is(given(in(the(question,(simply(ignores(the(entries(
which(will(affect(the(cashbook(balance.((
(
If(there(is(an(overdraft((for(either(cashbook(or(bank(statement),(take(it(as(a(negative(figure(
in(the(equation.(
OMAIR MASOOD
CEDAR COLLEGE
331
Accounts – 9706
AS – Level
Accounts – 9706
AS – Level– 9706
Accounts
AS – Level
OMAIR MASOOD
BANK RECONCILIATION
OMAIR MASOOD
OMAIR MASOOD
BANK RECONCILIATION WORKSHEET
BANK RECONCILIATION
Q1. Ahmed’s cash book at 30th April 1992 had a debit balance of $1120. On the same date,
BANK
RECONCILIATION
Q1.
the Bank Statement had a credit balance of $720.
th
Q1. After
Ahmed’s
cash book
at 30
April
1992the
had
a debit
balancethe
of $1120.
Ondifferences
the same date,
checking
the Cash
Book
against
Bank
Statement,
following
were
th
Q1. Ahmed’s
cash
book
at
30
April
1992
had
a
debit
balance
of
$1120.
On
the
same date,
the
Bank
Statement
had
a
credit
balance
of
$720.
found.
the
Bank
Statement
had Book
a credit
balance
$720.
After
checking
the Cash
against
theof
Bank
Statement, the following differences were
After
checking
the
Cash
Book
against
the
Bank
Statement,
the following differences were
found.
(i)
The bank had paid a bankers order (standing order) for insurance of $360.
found.
(i) The
The bank
bank had
had paid
a bankers
ordertransfer
(standing
order)
forthe
insurance
$360.
(ii)
received
by credit
(bank
giro)
sum of of
$170
due to Ahmed
(i) The bank had paid a bankers order (standing order) for insurance of $360.
from Leroy.
(ii) The bank had received by credit transfer (bank giro) the sum of $170 due to Ahmed
(ii) The
had received by credit transfer (bank giro) the sum of $170 due to Ahmed
frombank
Leroy.
(iii)Cheques issued for $220 had not been presented for payment.
from Leroy.
(iii)Cheques issued for $220 had not been presented for payment.
(iv)
paidissued
into the
didpresented
not appear
the Bank Statement.
(iii)$180
Cheques
forbank
$220by
hadAhmed
not been
foronpayment.
(iv) $180 paid into the bank by Ahmed did not appear on the Bank Statement.
(v)
cheque
issued
Ahmed
as $760 in the Cash
(iv)A
$180
paid for
into$670
the bank
by by
Ahmed
didhad
not been
appearentered
on the wrongly
Bank Statement.
but correctly
Bank
(v) Book
A cheque
for $670 on
issued
byStatement.
Ahmed had been entered wrongly as $760 in the Cash
(v) A
cheque
for
$670
issued
by
Ahmed
had been entered wrongly as $760 in the Cash
Book but correctly on Bank Statement.
(vi) Bank
charges
$40
had
been
debited
on
Book but correctly on Bank Statement. the Bank Statement.
(vi) Bank charges $40 had been debited on the Bank Statement.
(vii)
A cheque
$300
by Ahmed
and paid
into the bank had been returned
(vi) Bank
chargesfor$40
hadreceived
been debited
on the Bank
Statement.
Ahmed
had received
not yet made
any entries
to deal
cheque.
(vii) unpaid;
A cheque
for $300
by Ahmed
and paid
intowith
the this
bankreturned
had been
returned
(vii) A
cheque
for $300
by Ahmed
and paid
into
thethis
bank
had been
returned
unpaid;
Ahmed
had received
not yet made
any entries
to deal
with
returned
cheque.
unpaid; Ahmed had not yet made any entries to deal with this returned cheque.
REQUIRED:
REQUIRED:
(a)
Bring the Cash Book (Bank Columns) up to date starting with the balance given above
REQUIRED:
(a) and
Bring
the Cashas
Book
(Bank Columns) up to date starting with the balance given above
amending
necessary.
(a) Bring
the
Cash
Book
(Bank
and amending as necessary.Columns) up to date starting with the balance given above
and amending
as necessary.
(b) Prepare
a statement,
under its proper title, to reconcile the difference between your
(b) amended
Prepare aCash
statement,
itsand
proper
title, to
reconcile
the difference
Book under
balance
the given
Bank
Statement
balance. between your
(b) Prepare
a
statement,
under
its
proper
title,
to
reconcile
the
difference
amended Cash Book balance and the given Bank Statement balance. between your
amended Cash Book balance and the given Bank Statement balance.
OMAIR MASOOD
CEDAR COLLEGE
332
Accounts –– 9706
9706
Accounts
Accounts
– 9706
AS
–
Level
AS – Level
AS – Level
Q2.
OMAIR MASOOD
MASOOD
OMAIR
OMAIR MASOOD
Q2. T.
T. Howard’s
Howard’s Cash
Cash Book
Book at
at 30
30thth September
September 1990
1990 showed
showed aa debit
debit balance
balance at
at the
the bank
bank of
of
Q2.
Q2. T. Howard’s Cash Book at 30th September 1990 showed a debit balance at the bank of
some date
date had
had aa credit
credit balance
balance of
of $131.
$131.
$612 but the Bank Statement of the some
$612 but the Bank Statement of the some date had a credit balance of $131.
Bank Statement,
Statement, the
the following
following differences
differences were
were
After comparing the Cash Book with a Bank
After comparing the Cash Book with a Bank Statement, the following differences were
noted.
noted.
bank had
had not
not yet
yet appeared
appeared on
on the
the Statement.
Statement.
(i) An amount of $171 paid into the bank
(i) An amount of $171 paid into the bank had not yet appeared on the Statement.
(ii) Bank interest $30 in respect of an earlier
earlier overdraft
overdraft had
had been
been charged
charged by
by the
the bank.
bank.
(ii) Bank interest $30 in respect of an earlier overdraft had been charged by the bank.
(iii)Cheques issued for $280 had not been
been presented
presented for
for payment.
payment.
(iii)Cheques issued for $280 had not been presented for payment.
(iv) A cheque for $400 which had been
been paid
paid into
into the
the bank
bank had
had been
been returned
returned unpaid
unpaid
(iv)because
A cheque
for $400
which
had
been
paid
into
thebybank
had to
been
returned
unpaid
of
lack
of
funds.
No
action
had
been
taken
Howard
deal
with
this
because of lack of funds. No action had been taken by Howard to deal with this item.
item.
because of lack of funds. No action had been taken by Howard to deal with this item.
(v)
(v) Funds
Funds of
of $560
$560 paid
paid into
into the
the bank
bank had
had been
been entered
entered in
in the
the Cash
Cash Book
Book as
as $500.
$500.
(v) Funds of $560 paid into the bank had been entered in the Cash Book as $500.
(vi)
(vi)The
The bank
bank had
had made
made aa banker’s
banker’s order
order payment
payment for
for insurance
insurance of
of $240
$240 which
which had
had not
not
(vi)been
The
bank
had
made
a
banker’s
order
payment
for
insurance
of
$240
which
had
not
recorded
by
Howard.
been recorded by Howard.
been recorded by Howard.
(vii)
(vii) The
The bank
bank had
had received
received by
by direct
direct credit
credit transfer
transfer (bank
(bank giro)
giro) aa payment
payment of
of $20
$20 due
due to
to
(vii) Howard
The
bank
had
received
by
direct
credit
transfer
(bank
giro)
a
payment
of
$20
due
to
from
G.
Keith.
Howard from G. Keith.
Howard from G. Keith.
REQUIRED:
REQUIRED:
REQUIRED:
(a) Open a Bank Account in the Cash Book; make any necessary additional entries and
(a) Open a Bank Account in the Cash Book; make any necessary additional entries and
corrected
balance.
(a) show
Open the
a Bank
Account
in the Cash Book; make any necessary additional entries and
show
the
corrected
balance.
show the corrected balance.
(b) Prepare a bank reconciliation statement.
(b) Prepare a bank reconciliation statement.
(b) Prepare a bank reconciliation statement.
OMAIR MASOOD
CEDAR COLLEGE
333
Accounts – 9706
AS
– Level–– 9706
Accounts
9706
Accounts
AS––Level
Level
AS
Q3
Q3
Q3
OMAIR MASOOD
OMAIROMAIR
MASOOD
MASOOD
Q3.
Mohan is a trader. On 24 April 2011 he had a bank overdraft of $150.The following
transactions
took place24during
the
week
ended
30 April
2011.of $150.The following
Mohan
is
2011
he had
a bank
overdraft
Mohan
is aa trader.
trader.On
On 24April
April
2011
he had
a bank
overdraft of $150.The following
transactions
took
place
during
the
week
ended
30
April
2011.
transactions
took $200,
place by
during
thefor
week
endeduse.
30 April 2011.
April
25 Withdrew
cheque,
personal
April 25 Withdrew $200, by cheque, for personal use.
April
Withdrew
$200,
cheque,
use. to:
April 25
26 Paid
by cheque
theby
balances
on for
the personal
accounts owed
April 26 Paid by cheque the balances on the accounts owed to:
$400,on
less
cash discount
April 26 Paid by cheque theKerai,
balances
the3%
accounts
owed to:
Kerai, $400, less 3% cash discount
Susan,
$750,
lessless
4% 3%
cashcash
discount.
Kerai,
$400,
discount
Susan, $750, less 4% cash discount.
April 27 Cash sales, $630, paid Susan,
into the $750,
bank. less 4% cash discount.
April 27
27 Cash
Cash sales,
sales, $630,
$630, paid
paid into
into the
the bank.
bank.
April
April 28 Received a cheque from Lenny for the balance of her account, $2000, less
April
27
Cash
sales,
$630, from
paid Lenny
into theforbank.
April
28discount.
Received
cheque
the balance
balance of
of her
her account,
account, $2000,
$2000, less
less
April
28
Received
aa cheque
from Lenny
for the
4%
cash
4% cash
cash discount.
discount.
4%
April
28 Cashed
Received
a cheque
Lenny
April 30
cheque
to payfrom
wages,
$430.for the balance of her account, $2000, less
4%
cash
April
30 discount.
Cashed cheque
cheque to
to pay
pay wages,
wages, $430.
$430.
April
30
Cashed
April 30 Cashed cheque to pay wages, $430.
REQUIRED
REQUIRED
REQUIRED
(a) Prepare the bank columns of Mohan’s cash book for the week ended 30 April
(a) Prepare
Prepare
the
bank
columns
of Mohan’s
Mohan’s
cash
book
for the
the week
week ended
ended 30
30 April
April
(a)
columns
of
book
for
2011.
Showthe
thebank
balance
brought
down on cash
1 May
2011.
REQUIRED
2011.
Show
the
balance
brought
down
on
1
May
2011.
2011. Show the balance brought down on 1 May 2011.
On Prepare
1 May 2011
Mohancolumns
receivedof
the followingcash
bank statement:
(a)
the bank
for the week ended 30 April
On 11 May
May 2011
2011
Mohan received
received the
theMohan’s
following bank
bankbook
statement:
On
Mohan
following
statement:
2011. Show the balance brought Bank
downStatement
on 1 May 2011.
Bank
Statement
Bank Statement
On 1 May 2011 Mohan received the following
bank statement:
DR $
CR $
Balance $
DR
$
CR $$
Balance $$
DR $
CR
Balance
April 24 Balance
150 DR
April 24
24 Balance
Balance
150 DR
DR
Bank Statement
April
150
April
25
Cheque
200
350 DR
DR
April
25
Cheque
200
350
April
25
Cheque
200
350
DR
April
28
Cheque
388DR $
738 DR
DR
CR $ 738
Balance $
April 28
28 Cheque
Cheque
388
738
April
388
DR
April
29
Cheque
720
1458
DR
April
24
Balance
150 DR
April 29
29 Cheque
Cheque
720
1458 DR
DR
April
720
1458
April
29
Credit
Transfer
24
1434
DR
April 29
29
Credit
Transfer
24
1434 DR
DR
April
25 Credit
Cheque
200
350 DR
April
Transfer
24
1434
(Dividend)
(Dividend)
April
28 Cheque
388
738 DR
(Dividend)
April
29
Deposit
630
804 DR
DR
April
29
Deposit
630
804
April 29
630
804 DR
April
29 Deposit
Cheque
720
1458 DR
April 29 Credit Transfer
24
1434 DR
(Dividend)
(b)
Starting
with
the
closing
balance
from (a)
(a) update
update the
the bank
bank columns
columns in
in the
the cash
cash
(b)
Starting with
with the
the closing
closing balance
balance from
from
(b)April
Starting
(a) update
the bank
columns
cash804 DR
29 Deposit
630 in the
book. Bring
down the amended balance.
book. Bring
Bring down
down the
the amended
amended balance.
balance.
book.
(c)
Prepare
the
bank
reconciliation
statement at
at 1 May
May 2011.
2011.
(c) Prepare
Prepare the
the bank
bank reconciliation
reconciliation statement
statement
(c)
at 11 May
2011.
(b) Starting with the closing balance from (a) update the bank columns in the cash
book. Bring down the amended balance.
(c) Prepare the bank reconciliation statement at 1 May 2011.
OMAIR MASOOD
CEDAR COLLEGE
334
BANK%RECONCILIATION%(%WORKSHEET%2)%
10
of $12 000.
Their bank statement, however,
showed that the partnership
hadMASOOD
$9000 in the
Accounts
– 9706
OMAIR
10statement
On
the cash book with the bank
the following differences
were
found:
! comparing
Accounts
– 9706
OMAIR
MASOOD
Q4.
at
that
date.
ASbank
–
Level
At
30 April 2011 Robbie and Liza had a debit
balance
in the bank column of their cash book
PAGE
254
Q1.%
For
ASAt– 30
Level
April
2011 Robbie and Liza had a debit balance
in the bank column of their cash book
BANK%RECONCILIATION%(%WORKSHEET%2)%
For
of $12
Their
bankofstatement,
however,
showed
that the partnership
$9000
in the
1 000.
Bank
charges
$250 appeared
in the
bank statement
but had nothad
been
entered
in Examiner’s
! ! 000.
10statement
of $12
Their bank
statement,
however,
showed
that the partnership
had $9000
in the were
Examiner’sUse
On
comparing
cash book
with the
bank
the following
differences
found:
bank
at that
date.the
the
cash
book.
Use
Q4.atBANK%RECONCILIATION%(%WORKSHEET%2)%
bank
that date.
PAGE in
254
Q1.%
BANK%RECONCILIATION%(%WORKSHEET%2)%
At 30 April 2011 Robbie and Liza had a debit balance
the bank column of their cash book
For
On
comparing
the
cash
book
with
the
bank
statement
the
differences
were
!
2
Cheques
received
from
customers
amounting
tofollowing
$3750
had
been
entered
inin the
1
Bank
charges
of
$250
appeared
in
the
bank
statement
butwere
had
notfound:
been
in
of $12 000.
Their book
bank with
statement,
however,
showed
that
the
partnership
had
$9000
theentered
Examiner’s
On
comparing
the cash
the bank
statement
the 10
following
differences
found:
Q4.
!
!
Q4.
Q4.
cash
book
but
had
not
been
credited
by
the
bank.
Use
PAGE
254
Q1.%
the
cash
book.
at that date.
PAGE
254bank statement but had not been entered in
Q1.% bank
1 Bank charges of $250 appeared
in the
!
1
Bank
charges
of $250
appeared
in the
bank
statement
butin
had
been
enteredofintheir cash book
At
30
April
2011
Robbie
and
Liza
had
a 10
debit
balance
thenot
bank
column
!
10
cash
book.
3the
Athe
cheque
forcash
$600
received
from
a debtor
hadthe
been
entered
in the
cash
book
but
On
comparing
the
book
with
the
bank
statement
following
differences
were
found:
cash
book.
2
Cheques
received
from
customers
amounting
to
$3750
had
been
entered
of $12
000.
Their
bankbystatement,
however,
showedfunds
that for
thepayment’.
partnership
had
$9000 inin the
the
had
been
returned
the
bank
marked
‘insufficient
At
30
April
2011
Robbie
and
Liza
had
a
debit
balance
in
the
bank
column
of
their
cash
book
cash
book
but
had
not
been
credited
by
the
bank.
For
At 30bank
April
2011
Robbie
and Liza
hadcustomers
a debit balance
in the to
bank
column
ofbeen
their entered
cash book
at
that
date.
For
2
Cheques
received
from
amounting
$3750
had
in
the
ofCheques
$12
000.
Their
bank
however,
showed
that partnership
thehad
partnership
had
$9000
in the
1 Their
Bank
charges
ofstatement,
$250
appeared
in the
bank
butbeen
had
not
been
entered
in Examiner’s
received
from
customers
amounting
to statement
$3750
entered
in
of2 $12
000.
bank
statement,
however,
showed
that
the
had
$9000
in the
the
Examiner’s
cash
book
but
had
not
credited
bybank.
the
bank.
4cashCheques
issued
bybeen
the been
business
amounting
to $1600, recorded in the cash book, Use Use
bank
at
that
date.
the
cash
book.
book
but
had
not
credited
by
the
bank On
at3that
date.
cheque
for
$600
received
from
a debtor
hadthe
been
entered
in the cash
book
but
comparing
the
cash
book
with
the
bank
statement
following
differences
were
found:
didAnot
appear
in
April’s
bank
statement.
had
been
returned
by
the
bank
marked
‘insufficient
funds
for
payment’.
3
A
cheque
for
$600
received
from
a
debtor
had
been
entered
in
the
cash
book
but
On
comparing
the
cash
book
with
thea bank
statement
theto
following
differences
were
found:
2
Cheques
received
customers
amounting
$3750
entered
in the
3 comparing
A cheque
forcash
$600
received
from
debtor
hadthe
been
entered
inhad
thebeen
cash
book
but
On
the
book
withfrom
the
bank
statement
following
differences
were
found:
been
returned
by
the
bank
marked
‘insufficient
for payment’.
1had
Bank
charges
of
$250
appeared
inthe
thebank.
bankfunds
statement
but had not been entered in
REQUIRED
cash
book
but
not
been
credited
by
had been
returned
byhad
the
bank
marked
‘insufficient
funds
for payment’.
issued
by
the
business
amounting
to
in the
cash book,
1 Cheques
Bank
charges
of $250
appeared
the
bank
statement
but not
hadrecorded
not been
entered
the cash
1 4 Bank
charges
of book.
$250
appeared
in theinbank
statement
but$1600,
had
been
entered
in in
4
Cheques
issued
by
the
business
amounting
to
$1600,
recorded
in
the
cash
book,
cash
book.
3the
Athe
cheque
forand
$600
received
from
afor
debtor
had been
entered
thecash
cashbook,
book but
did
not
appear
inLiza’s
April’s
bank
statement.
(c)
Update
Robbie
cash
book
the
month
of
April
2011.
4 (i)
Cheques
issued
by
the
business
amounting
to $1600,
recorded
ininthe
cash
book.
not
appear
in
April’s
bank
statement.
been
by the
bank
marked ‘insufficient
funds
payment’.
did not
appear
inreturned
April’s
bank
statement.
2didhad
Cheques
received
from
customers
amounting
tofor
$3750
had been entered in the
2..................................................................................................................................
Cheques
received
from
customers
amounting
to $3750
entered
in the
2
Cheques
received
fromhad
customers
amounting
to
had had
beenbeen
entered
in the
REQUIRED
cash
book
but
not
been
credited
by$3750
the
bank.
REQUIRED
cash
book
but
had
not
been
credited
by
the
bank.
4
Cheques
issued
by
the
business
amounting
to
$1600,
recorded
in
the
cash
book,
REQUIRED cash book but had not been credited by the bank.
did not appear in April’s bank statement.
3Update
cheque
for
$600
received
from
afor
debtor
had
been
entered
in the cash
book but
(c)
(i) 3..................................................................................................................................
Robbie
and
Liza’s
cash
thebeen
month
of
April
2011.
AAcheque
forLiza’s
$600
received
abook
debtor
had
entered
the
cash
(c) 3Update
(i)
Robbie
and
Liza’s
cash
for
the
month
of
April
2011.
A Update
cheque
forand
$600
received
from
abook
debtor
had
been
entered
in
thein cash
bookbook
but but
(c) (i)
Robbie
cash
bookfrom
for
the
month
of April
2011.
had
been
returned
by
the
bank
marked
‘insufficient
funds
for
payment’.
had been
returned
bybank
the bank
marked
‘insufficient
for payment’.
had
been
returned
by the
marked
‘insufficient
fundsfunds
for payment’.
REQUIRED
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
4 Update
Cheques
issued
by business
the
business
toApril
$1600,
recorded
in book,
the cash book,
4..................................................................................................................................
Cheques
issued
byLiza’s
the
amounting
to $1600,
recorded
in cash
the cash
4 (i)
Cheques
issued
by
the
business
amounting
to $1600,
recorded
in the
book,
(c)
Robbie
and
cash
book
for amounting
the
month
of
2011.
did..................................................................................................................................
not
appear
in April’s
statement.
did
not
appear
in April’s
bank
statement.
did
not
appear
inbank
April’s
bank
statement.
..................................................................................................................................
..................................................................................................................................
!
..................................................................................................................................
..................................................................................................................................
!
REQUIRED
REQUIRED
..................................................................................................................................
REQUIRED
..................................................................................................................................
..................................................................................................................................
!
..................................................................................................................................
..............................................................................................................................[4]
(c)
Update
Robbie
and Liza’s
cash cash
bookbook
for the
of April April
2011.
(c)
(i)..................................................................................................................................
Update
Robbie
and Liza’s
formonth
the month
! (i)
..................................................................................................................................
(c)
(i)..................................................................................................................................
Update
Robbie
and Liza’s
cash book
for the of
month 2011.
of April 2011.
..................................................................................................................................
!
(ii) ..................................................................................................................................
Prepare
a bank reconciliation statement at 30 April 2011 to reconcile the bank!
..................................................................................................................................
!
..................................................................................................................................
! ..................................................................................................................................
..................................................................................................................................
statement
balance with the updated cash book balance.
..................................................................................................................................
!!
..................................................................................................................................
!
..................................................................................................................................
.................................................................................................................................. !
..............................................................................................................................[4]
! ..............................................................................................................................[4]
!
..................................................................................................................................
..................................................................................................................................
!!
..................................................................................................................................
..............................................................................................................................[4]
..................................................................................................................................
!
..................................................................................................................................
(ii)
Prepare
a bank
reconciliation
statement
at 30atApril
20112011
to reconcile
the bank
! (ii)
Prepare
a bank
reconciliation
statement
30 April
to reconcile
the bank
..................................................................................................................................
..................................................................................................................................
statement
balance
with
the
updated
cash
book
balance.
..............................................................................................................................[4]
statement
balance
with
the
updated
cash
book
balance.
(ii)
Prepare
a
bank
reconciliation
statement
at
30
April
2011
to
reconcile
the bank
!
..................................................................................................................................
..................................................................................................................................
!
statement balance with the updated cash book balance.
!
..................................................................................................................................
(ii)
Prepare
a bank reconciliation statement at 30 April 2011 to reconcile the bank !
..................................................................................................................................
..................................................................................................................................
! ! ! ..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
statement
balance with the updated cash book balance.
! ! ! ..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
!
..................................................................................................................................
..............................................................................................................................[4]
..................................................................................................................................
!
..............................................................................................................................[4]
..................................................................................................................................
! !!
..................................................................................................................................
!
..................................................................................................................................
Prepare
a bank reconciliation statement at 30 April 2011 to reconcile the bank
..................................................................................................................................
! !! (ii)..................................................................................................................................
..............................................................................................................................[4]
(ii)
Prepare
a bank reconciliation statement at 30 April 2011 to reconcile the bank
..................................................................................................................................
!
statement
balance with the updated cash book balance.
! ! ..................................................................................................................................
statement balance with the updated cash book balance.
..............................................................................................................................[4]
!
!
..................................................................................................................................
..................................................................................................................................
(ii)
Prepare a bank reconciliation statement at 30 April 2011 to reconcile the bank
!!
..................................................................................................................................
..................................................................................................................................
!
!
statement balance with the updated cash book balance.
..................................................................................................................................
! ! ..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
!
!
..................................................................................................................................
..................................................................................................................................
!
..................................................................................................................................
! ! ! ..............................................................................................................................[4]
..................................................................................................................................
!
..............................................................................................................................[4]
..................................................................................................................................
! !
..................................................................................................................................
..................................................................................................................................
!
..................................................................................................................................
! !
..................................................................................................................................
Examiner’s
Use
For
Examiner’s
Use
!
!
..............................................................................................................................[4]
..................................................................................................................................
..............................................................................................................................[4]
! !!
..................................................................................................................................
!
!
!
..................................................................................................................................
!
© UCLES 2011
9706/23/M/J/11
..................................................................................................................................
!
!
!
!
..................................................................................................................................
..................................................................................................................................
! ! !!
..............................................................................................................................[4]
!
..............................................................................................................................[4]
!
!
!
© UCLES 2011!
9706/23/M/J/11
..................................................................................................................................
!
!
© UCLES
9706/23/M/J/11
!! 2011
!
!!
..............................................................................................................................[4]
! © UCLES
2011
9706/23/M/J/11
!
!
!
© UCLES 2011
9706/23/M/J/11
!!
!
!
© UCLES
2011
! OMAIR MASOOD
© UCLES 2011
© UCLES 2011
9706/23/M/J/11
9706/23/M/J/11
CEDAR COLLEGE
9706/23/M/J/11
335
Accounts
– 9706 – 9706
Accounts
AS
– Level
AS – Level
AS – Level
AS – Level
OMAIR MASOOD
OMAIR MASOOD
Q5.
Q2.% Q5.
Q2.% Q5.
Q5.
%Q2.% Q5.
Kylie!Johnson’s!cash!book!(bank!columns)!had!a!debit!balance!of!$460!on!
Q2.%
%Q2.% Q5.
Kylie!Johnson’s!cash!book!(bank!columns)!had!a!debit!balance!of!$460!on!
%
Kylie!Johnson’s!cash!book!(bank!columns)!had!a!debit!balance!of!$460!on!
30!April!2006.!!
The!bank!statement!at!the!same!date!showed!that!Kylie!had!
%30!April!2006.!!
Kylie!Johnson’s!cash!book!(bank!columns)!had!a!debit!balance!of!$460!on!
The!bank!statement!at!the!same!date!showed!that!Kylie!had!
Kylie!Johnson’s!cash!book!(bank!columns)!had!a!debit!balance!of!$460!on!
30!April!2006.!!%
The!bank!statement!at!the!same!date!showed!that!Kylie!had!
a!balance!at!bank!of!$323.!
30!April!2006.!!
The!bank!statement!at!the!same!date!showed!that!Kylie!had!
a!balance!at!bank!of!$323.!
30!April!2006.!!
The!bank!statement!at!the!same!date!showed!that!Kylie!had!
a!balance!at!bank!of!$323.!
a!balance!at!bank!of!$323.!
On!checking!the!cash!book!against!the!bank!statement!the!following!
a!balance!at!bank!of!$323.!
On!checking!the!cash!book!against!the!bank!statement!the!following!
a!balance!at!bank!of!$323.!
On!checking!the!cash!book!against!the!bank!statement!the!following!
On!checking!the!cash!book!against!the!bank!statement!the!following!
differences!were!found.!
On!checking!the!cash!book!against!the!bank!statement!the!following!
differences!were!found.!
On!checking!the!cash!book!against!the!bank!statement!the!following!
differences!were!found.!
!differences!were!found.!
differences!were!found.!
differences!were!found.!
!!
!
(1)
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
!(1)
(1)
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
!
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
(1)
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
not!been!entered!in!the!cash!book.!
(1)
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
not!been!entered!in!the!cash!book.!
(1)
A!receivable,!Nancy!Tan,!paid!$80!directly!into!the!Bank.!This!had!
not!been!entered!in!the!cash!book.!
%not!been!entered!in!the!cash!book.!
not!been!entered!in!the!cash!book.!
%
not!been!entered!in!the!cash!book.!
%
%
(2)
Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
%Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
(2)
%
(2)
Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
(2)
Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
not!been!recorded!in!thecash!book.!
(2)
Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
not!been!recorded!in!thecash!book.!
(2)
Bank!charges,!$50,!were!included!on!the!bank!statement!but!had!
not!been!recorded!in!thecash!book.!
%not!been!recorded!in!thecash!book.!
not!been!recorded!in!thecash!book.!
%
not!been!recorded!in!thecash!book.!
%
%
(3)
Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
%Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
(3)
%
(3)
Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
(3)
Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
in!the!cash!book.!
(3)
Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
in!the!cash!book.!
(3)
Insurance!paid,!$32,!was!recorded!on!the!bank!statement!but!not!
in!the!cash!book.!
%in!the!cash!book.!
in!the!cash!book.!
%
in!the!cash!book.!
%
%
(4)
A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
%A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
(4)
%
(4)
A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
(4)
A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
the!bank!for!payment.!
(4)
A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
the!bank!for!payment.!
(4)
A!cheque,!$140,!sent!to!a!payable!had!not!yet!been!presented!to!
the!bank!for!payment.!
%the!bank!for!payment.!
the!bank!for!payment.!
%
the!bank!for!payment.!
%
%
(5)
A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
%A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
(5)
%
(5)
A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
(5)
A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
(5)
A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
(5)
A!transfer!of!$125!from!the!business!bankaccount!to!Kylie’s!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
the!bank!statement.!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
the!bank!statement.!
private!bank!account!had!been!entered!in!the!cash!book!but!not!on!
the!bank!statement.!
%the!bank!statement.!
the!bank!statement.!
%
the!bank!statement.!
%
%
(6)
An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
%An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
(6)
%
(6)
An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
(6)
An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
on!the!bank!statement.%
(6)
An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
on!the!bank!statement.%
(6)
An!amount!of!$400!paid!into!the!bank!on!29!April!did!not!appear!
on!the!bank!statement.%
on!the!bank!statement.%
%
on!the!bank!statement.%
%
on!the!bank!statement.%
%
%%
REQUIRED%
REQUIRED%
%
REQUIRED%
%REQUIRED%
REQUIRED%
%
REQUIRED%
%(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
%%(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
%
(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
and!bring!down!the!amended!balance.!
!
!!
!!
(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
and!bring!down!the!amended!balance.!
!
(a)
Starting!with!the!balance!on!30!April!2006,!update!the!cash!book!
and!bring!down!the!amended!balance.!
!
!
!
and!bring!down!the!amended!balance.!
!
!and!bring!down!the!amended!balance.!
!!
!!
!!!!!!!!![6]!
!
!
!!
!
!
!!!!!!!!![6]!
!
!
!
!
!and!bring!down!the!amended!balance.!
!
!!!!!!!!![6]!
!!!!!!!!![6]!
%!
!%
!
!
!!
!!!!!!!!![6]!
!
!
!
!
!!!!!!!!![6]!
%
(b)
Prepare!the!bank!reconciliation!statement!to!reconcile!the!
%%Prepare!the!bank!reconciliation!statement!to!reconcile!the!
(b)
%
(b)
Prepare!the!bank!reconciliation!statement!to!reconcile!the!
(b)
Prepare!the!bank!reconciliation!statement!to!reconcile!the!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
(b)
Prepare!the!bank!reconciliation!statement!to!reconcile!the!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
(b)
Prepare!the!bank!reconciliation!statement!to!reconcile!the!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
April!2006.!
!
!!
!!
!!!!!!!!![7]!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
April!2006.!
!!!!!!!!![7]!
adjusted!cash!book!balance!with!the!bank!statement!balance!at!30!
April!2006.!
!
!
!
!!!!!!!!![7]!
April!2006.!
!!
!!!!!!!!![7]!
%
April!2006.!
!
!
!
!!!!!!!!![7]!
%
April!2006.! !
!
!
!!!!!!!!![7]!
%
(c)
Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
%%Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
(c)
%
(c)
Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
(c)
Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
Kylie!Johnson:%
(c)
Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
Kylie!Johnson:%
(c)
Explain!how!the!following!would!appear!in!the!ledger!accounts!of!
Kylie!Johnson:%
Kylie!Johnson:%
%
Kylie!Johnson:%
%
Kylie!Johnson:%!
%
%%
(i)
Bank!overdraft;!
!!
!
!
!
(i)
Bank!overdraft;!
!
%
(i)
!
!
!!
!!
!!
(i)
Bank!overdraft;!
!Bank!overdraft;!
!Bank!overdraft;!
!!!!!!!!![2]%
(i)
!
!
!
!
!!
!
!
!!!!!!!!![2]%
Bank!overdraft;!
!
!
!
!
!
!
!(i)
!!!!!!!!![2]%
!!!!!!!!![2]%
(ii)
Short!term!loan!from!the!business!to!Kylie!Johnson.!
!Short!term!loan!from!the!business!to!Kylie!Johnson.!
!!
!!!!!!!!![2]%
(ii)
!
!
!!!!!!!!![2]%
(ii)
(ii) !Short!term!loan!from!the!business!to!Kylie!Johnson.!
Short!term!loan!from!the!business!to!Kylie!Johnson.!
!Short!term!loan!from!the!business!to!Kylie!Johnson.!
(ii)
!(ii) !!!!!!!!![2]%
!Short!term!loan!from!the!business!to!Kylie!Johnson.!
!!!!!!!!![2]%
!
!
!!!!!!!!![2]%
!!!!!!!!![2]%
!
!!
!!
!!!!!!!!![2]%
!
!
!
!!!!!!!!![2]%
!!
!!
!
!
!!
!!
!
!
!!
!!
!
!
!!
!!
!
!
!!
!!
!
!
!
!!
!
OMAIR MASOOD
CEDAR COLLEGE
336
AS – Level
Accounts – 9706
AS – Level
OMAIR MASOOD
!!!
Q3.%
Q3.%
Q3.% !
Q6.
Q6.
Q6.!!!
Q3.%
Lim!Janet’s!Cash!Book!(Bank!columns!only)!for!the!month!of!September!2000!
Q6.
Q6.
Lim!Janet’s!Cash!Book!(Bank!columns!only)!for!the!month!of!September!2000!
Lim!Janet’s!Cash!Book!(Bank!columns!only)!for!the!month!of!September!2000!
!was!as!follows:!
was!as!follows:!
was!as!follows:!
Lim!Janet’s!Cash!Book!(Bank!columns!only)!for!the!month!of!September!2000!
%%
Dr.% %was!as!follows:!
%
%%
Dr.%
%%
%%
%%
%%
%%
%%
%%
%%
%
%%
%%%%%%Cr.%
%%%%%%Cr.%
%
Dr.% %
%
%
%
%
%
%
%
%
%
£%
%
£%
%
£%
%
£%
% 2000! %%%%%%Cr.%
!
2000!
!
!!
2000!
Sept!
Sept!
!!
!!
!!
!!
1!
1!
2000!
12!
12!
Sept!
24!
24!
!30!
30!
!
!
!
!
%
Balance!b/f!
1!200!
Balance!b/f!
1!200!
Curry!
!!!450!
Curry!
!!!450!
1!
Balance!b/f!
Casper!
!!!120!
Casper!
12!
Curry! !!!120!
Jacques!
2!150!
Jacques!
24!
Casper! 2!150!
!
30!
Jacques! !
2000!
£%
Sept!
Sept!
!
!!
1!200!
!
!
!!!450!
!
!
!!!120!
!
!
2!150!
!
3!
3!
2000!
19!
19!
Sept!
23!
23!
!30!
30!
!
!
!
!
Lim! %
!!!180!
Lim!
!!!180!
Stefan!
!!!540!
Stefan!
!!!540!
3!
Desai! Lim! 2!100!
Desai!
2!100!
19!
Balance!Stefan! 1!100!
Balance!
23!
Desai! 1!100!
!
30!
Balance! !
£%
!
!!!180!
!!!540!
2!100!
1!100!
!
!!!
The!following!Bank!Statement!for!September!was!received!in!early!
The!following!Bank!Statement!for!September!was!received!in!early!
!
October!2000:!
October!2000:!
The!following!Bank!Statement!for!September!was!received!in!early!
!!
October!2000:!
Details%
Payments%
Receipts%
Balance%
Payments%
Receipts%
Balance%
Details%
!
2000!
£%
£%
£%
£% Payments% £% Receipts%£% Balance%
2000!
Details%
Sept! 1!
Balance!b/f!
1!200!
!!
!!
Sept! 1!
Balance!b/f!
2000!
£%
£% 1!200!
£%
!
13!
Curry!
!!
450!
1!650!
450!
1!650!
!
13!
Curry!
Sept!
1!
Balance!b/f!
!
!
1!200!
!
18!
Lim!
180!
1!470!
180!
!!
!
18!
Lim!
!20!
13!
Curry!
!
450! 1!470!
!
Banker’s!Order!–!Rent!
200!
!
1!270! 1!650!
200! 180!
!
1!270!
!
20!
Banker’s!Order!–!Rent!
!
18!
Lim!
!
!
22!
Stefan!
540!
!!!730! 1!470!
540!
!!
!!!730!
!
22!
Stefan!
!
20!
Banker’s!Order!–!Rent!
200!
!
!
24!
Casper!
120!
!!!850! 1!270!
!!
120!
!!!850!
!
24!
Casper!
!
22!
Stefan!
540!
!
!
29!
Unpaid!Cheque!–!
120!
!!!730! !!!730!
120!
!!
!!!730!
!
29!
Unpaid!Cheque!–!
!
24!
Casper!
!
120!
!!!850!
Casper!!
Casper!!
Casper!!
!
29!
Unpaid!Cheque!–!
120!
!
!
30!
Dividend!
180!
!!!910! !!!730!
30!
Dividend!
!!!
180!
!!!910!
!!
30!
180!
!!!910!
Casper!!Dividend!
!
!!
!
!!
(a)
(a)
(a)
(b)
(b)
(b)
(c)
(c)
!!
!!
!
!
!!
!!
!!
!
!
!
!
!
!
!
30!
Dividend!
!
180!
!!!910!
!Bring!the!Cash!Book!up!to!date,!starting!with!the!balance!at!30!
Bring!the!Cash!Book!up!to!date,!starting!with!the!balance!at!30!
Bring!the!Cash!Book!up!to!date,!starting!with!the!balance!at!30!
!September!2000.! !!!!!!!!![5]!
September!2000.!
!!!!!!!!![5]!
September!2000.!
!!!!!!!!![5]!
(a)
Bring!the!Cash!Book!up!to!date,!starting!with!the!balance!at!30!
%%%
September!2000.! !!!!!!!!![5]!
Prepare!a!statement,!under!its!correct!title,!to!reconcile!the!
Prepare!a!statement,!under!its!correct!title,!to!reconcile!the!
Prepare!a!statement,!under!its!correct!title,!to!reconcile!the!
%
difference!between!your!amended!Cash!Book!balance!and!the!
difference!between!your!amended!Cash!Book!balance!and!the!
difference!between!your!amended!Cash!Book!balance!and!the!
(b)
Prepare!a!statement,!under!its!correct!title,!to!reconcile!the!
balance!in!the!Bank!Statement!on!30!September!2000.!
balance!in!the!Bank!Statement!on!30!September!2000.!
!!!
balance!in!the!Bank!Statement!on!30!September!2000.!
difference!between!your!amended!Cash!Book!balance!and!the!
!
!
!
!
!
!!!!!!!!![7]!
!!!!!!!!![7]!
!!
!!balance!in!the!Bank!Statement!on!30!September!2000.!
!!
!!
!!
!!!!!!!!![7]!
!
%%%
!
!
!
!
!
!!!!!!!!![7]!
State!the!amount!of!bank!balance!that!would!appear!in!the!
State!the!amount!of!bank!balance!that!would!appear!in!the!
%
Statement!of!Financial!Position!on!30!September!2000.! !
Statement!of!Financial!Position!on!30!September!2000.!
!
(c)
State!the!amount!of!bank!balance!that!would!appear!in!the!
!!!!!!!!![1]%
!!
!!Statement!of!Financial!Position!on!30!September!2000.!
!!!!!!!!![1]%
!
!
!
!!!!!!!!![1]%
OMAIR MASOOD
CEDAR COLLEGE
337
AS––9706
Level
Accounts
AS – Level
OMAIR MASOOD
Q7.
Q7.
!! Q7.
!
Q7.
Q7.Q4.%
!Q4.% Q4.%
Vigo’s!cash!book!(bank!columns)!showed!the!following!entries.!
Vigo’s!cash!book!(bank!columns)!showed!the!following!entries.!
Vigo’s!cash!book!(bank!columns)!showed!the!following!entries.!
!Q4.%
!Vigo’s!cash!book!(bank!columns)!showed!the!following!entries.!
!
VIGO%
VIGO% VIGO%
!%
Dr.%
%
%
%
%%%%%%%%%%%%Cash%Book%
%%
%%
%%
%
Dr.%
%
%
%
%%%%%%%%%%%%Cash%Book%
%
Dr.% %
%
% VIGO%
%%%%%%%%%%%%Cash%Book%
%
%
%%
%%%Cr.%
%%%Cr.% %
%
%
%
%%%%%%%%%%%%Cash%Book%
%
%
%
%Dr.%
%%%Cr.%
!!
$!
!!
$!
%
%%%Cr.%
!
$!July! 7!
!
July!! 1!
Balance!b/d!
1!450!
Singh!
%
$!
$!
920!
July!! 1!
Balance!b/d!
1!450!
July! 7!
Singh!
920!
$!
!!
$!
July!! Cash!
1!
Balance!b/d!
1!450!
July! 7!
Singh! 480!
!!!
10!
!!!500!
16
10!
Cash!
!!!500!
!
16
480!
July!! 1!
Balance!b/d!
1!450! !!!500!
July!
7!
Singh!
920!
!
10!
Cash!
!
16
!!
Robinson!
Robinson!
10!
Cash!
!!!500!
!!
16
480!
!
Robinson!
!!!
19!
Parker!
!!!260!
24!
Kings!
220!
19!
Parker!
!!!260!
!
24!
Kings!
220!
!!
Robinson!
!31!
19!
Parker!
!!!260!
!
24!
Kings!
!!
31!
Cash!
!!!200!
%%
Cash!
!!!200!
!
!
19!
Parker!
!!!260!
!
24!
Kings!
220!
!
31!
Cash!
!!!200!
!
!!
!
Cash!
!!!200!
!
%
! 31!
The!following!bank!statement!was!received!by!Vigo.!
$!
920!
480!
220!
%
The!following!bank!statement!was!received!by!Vigo.!
The!following!bank!statement!was!received!by!Vigo.!
!!!
The!following!bank!statement!was!received!by!Vigo.!
Date%
Details%
Withdrawn%
Balance%
!
Details%
Withdrawn% Paid%in%
Paid%in%
Balance%
! ! Date% Date%
Details%
!
$% Withdrawn%$% Paid%in%$% Balance%
! Date%
! Details%
$%
$%
$%
Withdrawn%
Paid%in%
Balance%
July!!
!!
!!
!1! Balance!b/f!
$%
$% 1!450!
July!! 1!
Balance!b/f! !
1!450! $%
!Balance!b/f!
$%!
$%
$%
!!!
10!
500!
July!!
1!
!
! 1!950!
10! Cash!
Cash!
!
500!
1!950! 1!450!
1!
Balance!b/f!
!
!
1!450!
!July!!
12!
Singh!
920!
!
1!030!
!12! Singh!
10! Cash!
!
500! 1!030! 1!950!
!
920!
!
10!
Cash!
!!
500!
!!!
19!
260!
1!290!
!19! Parker!
12!
Singh!
920!
! 1!950!
Parker!
!
260!
1!290! 1!030!
!!
12!
Singh!
920!
!
1!030!
21!
Robinson!
480!
!
!!!810!
!
19!
Parker!
!
260!
!
21! Robinson!
480!
!
!!!810! 1!290!
19! Dishonored!cheque!–!
Parker!
!
260!
1!290!
!!!
22!
260!
!
!!!550!
!22! Dishonored!cheque!–!
21! Robinson!
480!
!
260!
!
!!!550! !!!810!
!
21! Parker!!
Robinson!
480!
!
!!!810!
!
22! Dishonored!cheque!–!
260!
!
!!!550!
Parker!!
22! Dividend!
Dishonored!cheque!–!
260!
!
!!!550!
!!!
25!
!!
!!!25!
!!!575!
Parker!!
25! Dividend!
!!!25!
!!!575!
Parker!!
!!
31!
!!!20!
!!
!31! Bank!charges!
25! Dividend!
!
!!!25!!!!555!
Bank!charges!
!!!20!
!!!555! !!!575!
!
25!
Dividend!
!
!!!25!
!!!575!
!!
!
31! Bank!charges!
!!!20!
!
!!!555!
!
31! Bank!charges!
!!!20!
!
!!!555!
REQUIRED%
!!!
!!!
!
!
REQUIRED%
!
REQUIRED%
%!%
REQUIRED%
REQUIRED%
(a)
Calculate!the!cash!book!balance!on!31!July.!Prepare!and!update!the!
%Calculate!the!cash!book!balance!on!31!July.!Prepare!and!update!the!
(a)
%
cash!book.!Bring!down!the!balance.!
!!
!!
!!
!!
cash!book.!Bring!down!the!balance.!
(a)
Calculate!the!cash!book!balance!on!31!July.!Prepare!and!update!the!
(a)
Calculate!the!cash!book!balance!on!31!July.!Prepare!and!update!the!
!!
!!!!!!!!![5]!
!!!!!!!!![5]!
cash!book.!Bring!down!the!balance.!
!
!
!!
!!
!!
%cash!book.!Bring!down!the!balance.!
%!
!!!!!!!!!![5]!!!!!!!!!![5]!
(b)
(b) Prepare!a!bank!reconciliation!statement!to!reconcile!the!adjusted!
%
%Prepare!a!bank!reconciliation!statement!to!reconcile!the!adjusted!
cash!book!balance!with!the!bank!statement!balance!at!31!July!
cash!book!balance!with!the!bank!statement!balance!at!31!July!
(b)
Prepare!a!bank!reconciliation!statement!to!reconcile!the!adjusted!
(b)
Prepare!a!bank!reconciliation!statement!to!reconcile!the!adjusted!
2004.!
!!
!!!!!!!!![6]!
2004.!
!!!!!!!!![6]!
cash!book!balance!with!the!bank!statement!balance!at!31!July!
%cash!book!balance!with!the!bank!statement!balance!at!31!July!
%2004.! !2004.! !!!!!!!!![6]!
!
!!!!!!!!![6]!
(c)
Explain!how!the!cash!book!is!both!a!book!of!prime!entry!and!a!
(c)
Explain!how!the!cash!book!is!both!a!book!of!prime!entry!and!a!
%
%
ledger!account.!
!!!!!!!!![2]%
ledger!account.!
!!!!!!!!![2]%
ledger!account.!
!!!!!!!!![2]%
(c)
Explain!how!the!cash!book!is!both!a!book!of!prime!entry!and!a!
(c)
Explain!how!the!cash!book!is!both!a!book!of!prime!entry!and!a!
ledger!account.!
ledger!account.!
!!!!!!!!![2]%!!!!!!!!![2]%
!
!
OMAIR MASOOD
CEDAR COLLEGE
338
(
INVENTORY VALUATION
THEORY
!
INVENTORY!VALUATION!(!STOCK)!
(
Remember(stock(is(valued(at(lower(of(cost(or(net(realisable(value((N.R.V).(This(is(basically(the(current(
market(value(of(the(stock(after(deducting(any(repair(cost.(This(is(application(of(the(prudence(concept.(
E.g.(If(a(piece(of(stock(costing($40(is(damaged.(Now(it(can(be(sold(for($48(but(only(if($10(of(repair(is(
undertaken.(This(means(the(NRV(of(stock(is(38((48(–(10).(Since(NRV((38)(is(lower(than(the(cost((40),(we(
should(value(it(as(38.(It(lets(say(the(NRV(was($41,(then(than(the(stock(would(have(been(valued(at($40.(
(
Assumptions!in!Stock!Valuations!
!
FIFO!
Advantages!
1. Good(representation(of(sound(storekeeping(as(oldest(stock(is(issued(first.(
2. Stock(is(shown(close(to(the(current(market(value((because(it(is(valued(at(most(recent(price)(
3. This(method(is(acceptable(by(accounting(regulations(
Disadvantages!
1. In(inflation(stock(is(valued(the(highest(and(it(overstates(profit(
2. Since(the(value(of(stock(issued(fluctuates,(this(will(lead(to(a(different(cost(for(an(identical(unit.(
AVCO!
Advantages!
1. Since(the(value(of(stock(issued(does(not(fluctuate,(this(will(lead(to(a(same(cost(for(an(identical(
unit.(
2. This(method(is(acceptable(by(accounting(regulations.(
Disadvantages!
1. Difficult(to(calculate.(
2. Average(price(does(not(represents(the(true(value(of(stock(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
339
INVENTORY VALUATION WORKSHEET
Q1
Q2
OMAIR MASOOD
CEDAR COLLEGE
340
Q5.
Q1.!
Accounts(–(9706((
(
(
(
! AS(–(Level((
Inventory at Start 60 Units @$10 each
INVENTORY)VALUATION)(WORKSHEET)2))
Purchases
!
Q5.
Q1.!
Q3.
January 70 units @ $11 each
!
80 units
@ each
$12 each
Inventory atFebruary
Start 60 Units
@$10
March 120 units @ $15 each
Purchases
May 90 units @ $16 each
(
(
(
(((((((((((((((((((OMAIR(MASOOD(
Sales
January 50 units @ $20 each
February 40 units @ $21 each
March 60 units @ $21 each
Sales
April 30 units @ $22 each
May5030units
units@@
$25
each
January
$20
each
June
70
units
@
$25
each
February 40 units @ $21 each
January 70 units @ $11 each
February 80 units @ $12 each
March 120 units @ $15 each
March 60 units @ $21 each
!
! (a)Calculate the
May
90
units
@
$16
each
April
30
units
@
$22
each
value of closing Inventory using Periodic Approach of FIFO and AVCO
!
May 30 units @ $25 each
!
June 70 units @ $25 each
! (b)Calculate the value of closing Inventory using Perpetual Approach of FIFO, LIFO! and
! AVCO
REQUIRED:!
(a)Calculate the value of closing Inventory using Periodic Approach of FIFO and AVCO
!!
! (a) Calculate!the!value!of!closing!inventory!using!FIFO!(perpetual)!
the value of closing Inventory using Perpetual Approach of FIFO, LIFO and
! (b)Calculate
(b) Calculate!the!value!of!closing!inventory!using!AVCO!(perpetual)!
AVCO
! REQUIRED:!
Q6.
!
!
(a) Calculate!the!value!of!closing!inventory!using!FIFO!(perpetual)!
John Jones commenced trading on 1 January 1987 as a dealer in KT Formula 1 High
!
(b)
Calculate!the!value!of!closing!inventory!using!AVCO!(perpetual)!
Performance
cars;
his( initial( capital( was $500,000
which was used to open a business
Accounts(–(9706((
(
(
(
(((((((((((((((((((OMAIR(MASOOD(
!!
AS(–(Level((
Q6.
bank account.
Q2.!
!
John Jones
commenced year,
trading
1 Januarytransactions
1987 as a dealer
in KT Formula 1 High
!Q4.
During
the succeeding
theon
following
took place:
!
Performance
his( of
initial
$500,000
which
was used
open
Accounts(–(9706((
(
(
( capital
( wasthe
( following
(((((((((((((((((((OMAIR(MASOOD(
! Janice Jersey’s
Q3.
first
6cars;
months
trading
showed
purchases
and to
sales
of a business
AS(–(Level((
1
January
Bought
4
cars
at
$60,000
each
bank account.
Q2.!
inventory.
1 FebruaryPurchases
Sold 1 car
forSales
$90,000
!
During
the following
transactions
took place:
1990the succeeding year,
1
April
Sold
1
car
for
$100,000
Q3. Janice Jersey’s
first 6 months 280
of trading
January
@ $65showed
each the following purchases and sales of
1 January
Bought
4 cars
at
Bought
3140
cars
at
$70,000
each
@ $60,000
$82
eacheach
inventory. February 1 June
1
February
Sold
1
car
for
$90,000
1 July 100
2 cars soldSales
for $110,000 each
March
@ $69 each
1990
Purchases
1
April
Sold
1
car
for
$100,000
$115,000
April
190for
@ $85
each
January 1 September
280 @ $65 each1 cars sold
1
June
Bought
3
cars
$70,000
May
220 @ $72 each
February
140 @ at
$82
each each
1 July
2 cars sold200
for $110,000
March
@ $69the
each
June
$90 eacheach
John
Jones expenses100
during
year ended 31@December
1987 totalled $10,000.
1
September
1
cars
sold
for
$115,000
April
190
@
$85
each
REQUIRED:
!
May
220
@6$72
each ended 30 June 1990 using the following
! Calculate
Janice’s
profit
for
the
months
REQUIRED:
200 @December
$90 each 1987 totalled $10,000.
(a) Calculate!the!value!of!closing!inventory!using!FIFO!(perpetual)!
John
Jones expenses
during
thenet
year
ended
methods
ofJune
inventory
valuation
(Perpetual
Methods)
(a)
Statements,
showing
the
profit
for31
the year ended
31 December 1987
for each of
REQUIRED:
!
(b) Calculate!the!value!of!closing!inventory!using!AVCO!(perpetual)!
! Calculate
the following
of inventory
perpetual)
Janice’s
profit formethods
the 6 months
ended 30valuation.
June 1990( using
the following
REQUIRED:
! (a)
FIFO
(First In First Out)
(a)
Calculate!the!value!of!closing!inventory!using!FIFO!(perpetual)!
of (i)
inventory
first Ivaluation
first
out(Perpetual
(FIFO)
Statements,
showing
the netMethods)
profit for the year ended 31 December 1987 for each of
! methods(a)
(b) Calculate!the!value!of!closing!inventory!using!AVCO!(perpetual)!
(ii)
Average Cost
Method
( AVCO)
the following
methods
of Calculate
inventory
perpetual)
(Weighted
Cost).
tovaluation.
2 decimal( places.
! (b)
(a) AVCO
FIFO (First
In First Average
Out)
(i) first I first out (FIFO)
!
(ii) Average Cost Method ( AVCO)
(b) AVCO (Weighted Average Cost). Calculate to 2 decimal places.
Q4. Julie Ash commenced in business on 1 January 1994 as a specialist surf board supplier.
During the first six months of trading her transaction were recorded as follows:
Q4. Julie Ash commenced in business on 1 January 1994 as a specialist surf board supplier.
During the first six months of trading
her transaction were
recorded as follows:
PURCHASES
SALES
Jan
6 @ $150 each
4 @ $310 each
PURCHASES
SALES
Feb
7 @ $160 each
7 @ $330 each
248$
Jan
6
@
$150
each
4
@
$310
each
Mar
6 @ $165 each
4@
$340
each
$
Feb
7
@
$160
each
7
@
$330
each
248$
April
9 @ $165 each
5 @ $350 each
Mar
6 @ $165 each
@ $340 each
$
May
7 @ $180 each 411
@ $350 each
April
9 @ $165 each
5 @ $350 each
June
10 @ $170 each
9 @ $360 each
May
7 @ $180 each 11 @ $350 each
Her OMAIR
business expenses
for the six monthsCEDAR
totalled $4,750.
All transactions were on a cash
MASOOD
COLLEGE
June
10 @ $170 each
9 @ $360 each
basis.
Her business expenses for the six months totalled $4,750. All transactions were on a cash
REQUIRED:
basis.
(a)
Calculate the net profit for the six months ending 30 June 1994 using three methods
REQUIRED:
341
Q5
Alan is a retailer of board markers. He has supplied the following information for the month of May 2018.
Date
2 May
5 May
12 May
19 May
29 May
Purchases
Quantity
Price per unit ($)
20
45
30
47
25
48
20
48
17
Date
2 May
6 May
15 May
23 May
27 May
Sales
Quantity
30
20
30
12
15
50
All sales were made at $90 per item.
Alan had an opening inventory of 20 board markers at $42 each on 1 May 2005.
(a) Calculate the closing inventory of board markers at 31 May 2018 under the following methods of
inventory valuation (periodic):
(i)
FIFO
(ii)
AVCO
(b) Calculate the closing inventory of board markers at 31 May 2018 under the following methods of
inventory valuation (perpetual):
(iii)
FIFO
(iv)
AVCO
Q6
Bradley commenced trading on 1 January 2019 as a dealer for cycle; during the year, following
transactions took place.
1 January
1 Feb
1 April
1 June
1 June
1 August
1 October
1 November
1 Dec
Bought 125 cycles @ $600 each
Sold 65 cycles @ $1000 each
Sold 40 cycles @ $1050 each
Bought 80 cycles @ $650 each
Sold 75 cycles @ $1100 each
Bought 90 cycles @$550 each
Sold 60 cycles @$1100 each
Sold 40 cycles @ $1050 each
Bought 25 cycles @$620 each
(a) Calculate the closing inventory of cycles at 31 December 2019 under the following methods of
inventory valuation (periodic):
(i)
FIFO
(ii)
AVCO
(b) Calculate the closing inventory of cycles at 31 December 2019 under the following methods of
inventory valuation (perpetual):
(i)
FIFO
(ii)
AVCO
OMAIR MASOOD
CEDAR COLLEGE
342
9
9
Q7
3
3
At 1 January 2013, Brahms had opening inventory of 50 teddy bears at a purchase price of
At 1 each.
January 2013, Brahms had opening inventory of 50 teddy bears at a purchase price of
$30
$30 each.
His transactions for the first three months of 2013 were:
His transactions for the first three months of 2013 were:
Date
Date
Jan
Jan
8
8
10
10
12
12
21
21
28
28
Feb
Feb
1
1
14
14
23
23
March
March
1
1
4
4
19
19
23
23
27
27
Purchases
Purchases
(units)
(units)
Purchase price
Purchase
(per unit) price
(per unit)
100
100
$30.00
$30.00
120
120
$30.50
$30.50
150
150
$31.00
$31.00
120
120
$31.50
$31.50
100
100
$32.00
$32.00
For
For
Examiner's
Examiner's
Use
Use
Sales
Sales
(units)
(units)
30
30
80
80
90
90
50
50
100
100
30
30
120
120
120
120
No other transactions took place during these months.
No other transactions took place during these months.
Each teddy bear was sold for $50.
Each teddy bear was sold for $50.
REQUIRED
REQUIRED
(a) Calculate the value of the inventory at 31 March 2013 using the following methods of
(a) Calculate the value of the inventory at 31 March 2013 using the following methods of
valuation.
valuation.
FIFO
FIFO
(i)
(i)
10
(ii) AVCO.
For
Examiner's
Use
(Perpetual)
(June 13/P23/Q3)
www.maxpapers.com
8
Q8
2
Paula Bridgewater, a retailer, supplied the following information on purchases and sales for
the month of February 2009.
For
Examiner’s
Use
At 1 February 2009 Paula Bridgewater had an opening inventory (stock) of 500 units valued
at $14 each.
[3]
Date
Purchase of goods for resale
Revenue
(purchases)
(sales)
(b) Using each method of valuation,
calculate the gross profit for the three
months ending
Quantity
Cost price
Quantity
Selling price
31 March 2013.
(i) FIFO
February 2
(units)
per unit ($)
2 000
15
1 500
18
2 000
20
3
10
14
18
©
© UCLES
UCLES 2013
2013
19
9706/23/M/J/13
9706/23/M/J/13
(units)
per unit ($)
[3]
[3]
2 300
30
1 300
32
2 100
34
[Turn over
over
[Turn
REQUIRED
[5]FIFO
(a) Calculate the closing inventory (stock) valuation at 28 February 2009 using the
method of inventory (stock) valuation (perpetual).
(ii) AVCO.
(Nov10/P23/Q2a)
..........................................................................................................................................
..........................................................................................................................................
OMAIR MASOOD
CEDAR COLLEGE
..........................................................................................................................................
..........................................................................................................................................
343
(
ACCOUNTING!CONCEPTS!
(
TABLE/SUMMARY/SNAPSHOT(OF(ACCOUNTING(CONCEPTS/CONVENTION(
(
Accounting!period!
Concept!
(
Accrual!Concept!/!
Matching!
(
Business!Entity!
(
Consistency!Concept!
OMAIR MASOOD
(
Also(known(as(Time(Period(where(business(operation(can(be(
divided(into(specific(period(of(time(such(as(month,(a(quarter(or(a(
year((accounting(period)(
(
Final(accounts(are(prepared(at(the(end(of(the(accounting(period,(
i.e.(one(year.(Internal(accounts(can(be(prepared(monthly,(
quarterly(or(half(yearly.(
(
(
Requires(all(revenues(and(expenses(to(be(taken(into(account(for(
the(period(in(which(they(are(earned(and(incurred(when(
determining(the(profit(/((loss)(of(the(business.(The(net(profit(/(
(loss)(is(the(difference(between(the(revenue(EARNED(and(the(
expenses(INCURRED(and(not(the(difference(between(the(revenue(
RECEIVED(and(expenses(PAID.(
Major(application(of(this(concept(is((
1. prepayments(and(accruals(
2. Depreciation(of(Non(current(Assets(
3. Bad(debts(and(Provision(for(doubtful(debts(
4. Capitalization(of(development(cost(
(
(
Also(known(as(Accounting(Entity(or(Separate(Entity(convention(
which(states(that(the(business(is(an(entity(or(body(separate(from(
its(owner.(Therefore(business(records(should(be(separated(and(
distinct(from(personal(records(of(business(owner.(
Major(application(of(this(concept(is((
1. Capital(accounts(and(Drawings(account(are(kept(for(the(
owner(
2. Owners(personal(transactions(are(not(recorded(in(business(
books((
(
(
According(to(this(convention,(accounting(practices(should(remain(
unchanged(from(one(period(to(another(unless(there(is(a(proper(
need(to(change(them.(For(example,(if(depreciation(is(charged(on(
non(current(assets(according(to(a(particular(method,(it(should(be(
done(year(after(year.(This(is(necessary(for(purpose(of(comparison.(
But(if(a(wrong(policy(has(been(applied(in(the(previous(years(like(
straight(line(method(for(Machinery(then(we(can(change(the(policy(
to(reducing(balance(method(((the(change(must(be(disclosed(in(the(
accounts(to(the(stakeholders)(
CEDAR COLLEGE
344
(
Dual!Aspect!Concept!
(
Going!Concern!Concept!
(
Historical!Cost!Concept!
(
(
Double(entry(system.(For(every(debit,(there(is(a(credit(entry(of(an(
equal(amount.(All(transactions(in(accounting(are(recorded(in(this(
form.(
(
(
The(business(will(follow(accounting(concepts(and(methods(on(the(
assumption(that(business(will(continue(its(operation(to(the(
foreseeable(future(or(for(an(indefinite(period(of(time.(The(major(
application(of(this(concept(is(that(we(record(our(assets(at(cost(less(
estimated(deprecation(rather(then(the(market(values(.(Since(we(
know(that(the(market(values(will(keep(on(changing(and(we(have(to(
continue(our(business(.(BUT(if(the(business(is(about(to(shut(down(
then(the(Non(current(assets(must(be(shown(at(market(values(((
disposal(values)((
(
Business(should(report(its(activities(or(economic(events(at(their(
actual(costs.(For(example,(Non(current(assets(are(recorded(at(their(
cost(in(account(except(for(land(which(can(be(revalued(due(to(
appreciation(
(
(
Materiality!Concept!
The(concept(of(materiality!recognises(that(some(types(of(
expenditure(are(less(important(in(a(business(context(than(others.(
So,(absolute(precision(in(the(recording(of(these(transactions(is(not(
absolutely(essential.((
For(example(:(A(business(purchases(a(ruler.(The(ruler(costs($0.45.(
It(estimated(that(the(ruler(should(last(for(three(years.(Technically,(
the(ruler(is(a(non5current(asset(and(should(therefore(be(classified(
as(capital(expenditure.(To(do(this(would(be(rather(silly(for(such(a(
trivial(amount.(The($0.45(would(be(treated(as(revenue(
expenditure(and(would(be(debited(to(either(general(expenses(or(
office(expenses.(This(treatment(is(not(going(to(have(a(significant(
impact(on(profits(or(the(valuation(of(net(assets(on(a(statement(of(
financial(position(–(the(absolute(accuracy(of(its(treatment(is(not(
material.((
(
Money!Measurement!
Concept!
(
OMAIR MASOOD
(
Also(known(as(Monetary(unit.(Transactions(related(to(the(
business,(and(having(money(value(are(recorded(in(the(books(of(
accounts.(Events(or(transactions(which(cannot(be(expressed(in(
term(of(money(do(not(find(a(place(in(the(books(of(accounts.(For(
example(motivation(/(skill(/(morale(of(employees(cannot(be(
recorded(in(accounts.(Also(the(internally(generated(goodwill(of(the(
business(should(be(written(off(immediately((
(
(
CEDAR COLLEGE
345
Prudence!/!Conservatism! Take(into(account(unrealized(losses,(not(unrealized(profits/gains.(
Concept!
Assets(should(not(be(over5valued,(liabilities(under5valued.(
Provisions(are(example(of(prudence(or(conservatism(concept.(Also(
under(this(prudence/conservatism(concept,(stock/inventory(is(
value(at(lower(of(cost(or(market(value.(This(concept(guides(
accountants(to(choose(option(that(minimize(the(possibility(of(
overstating(an(asset(or(income.(Major(Applications(include(
1. Provision(for(doubtful(debts(
2. Provision(for(depreciation(
3. Valuation(of(inventory(
4. Writing(off(goodwill(
(
(
(
Substance!Over!Form!
Real(substance(takes(over(legal(form(namely(we(consider(the(
economic(or(accounting(point(of(view(rather(than(the(legal(point(
of(view(in(recording(transactions.(Major(application(is(when(we(
are(leasing(the(assets(we(don’t(have(the(legal(ownership(but(the(
economic(benefits(do(flow(towards(the(firm(so(it(is(recorded(as((an(
asset(.(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
OMAIR MASOOD
CEDAR COLLEGE
346
!
FINANCIAL ACCOUNTING IMPORTANT KEYPOINTS
Financial(Accounting(
(
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
Written(down(value(or(net(book(value(means(after(depreciation.(
Only(assets(and(expenses(and(drawings(have(debit(balances,(all(the(other(things(in(the(world(will(
have(a(credit(balance.(
Sales(invoice(would(mean(good(sold(on(credit.(
If(bad(debt(is(inside(the(trial(balance(then(it(means(that(it(has(already(been(subtracted(from(the(
Trade(Receivables((
Everything(outside(the(Trial(Balance(has(to(come(TWICE.(
Provision(for(depreciation(is(a(Contra(Asset(Account.(It(is(NOT(AN(EXPENSE,(since(its(balance(is(
brought(down.(
All(the(balance(c/d(go(to(the(Statement(of(Financial(Position.(
All(the(expenses(and(incomes(are(in(the(Income(Statement(
Revenue(=(Sales.(
If(NOTHING(is(specified(about(the(policy(of(Depreciation,(then(you(account(for(it(MONTHLY.(
Every(Asset(has(an(Opening(Debit(balance(and(Closing(Credit(balance.(
Every(Liability(has(an(Opening(Credit(balance(and(closing(Debit(balance.(
The(Amount(of(Loan(interest(still(owing(and(not(paid((which(was(to(be(paid(this(year)(comes(in(
the(Current(Liabilities.(
Departmental(Account:(If(given(with(prepayment(any(expenses,(then(we(SHOULD(FIRST(ADJUST(
the(accruals(and(prepayments,(and(then(divide(them(into(%(of(EACH(department.(
Control(Account(is(not(part(of(the(double(entry.(It(is(THE(THIRD(ENTRY.(
List(price(is(the(price(WITHOUT(deducting(TRADE(DISCOUNT.(
Set(off(always(reduces(the(Control(Account!(
Credit(Notes(received(=(Purchases(Returns(
Credit(Notes(sent(=(Sales(Returns(
BAD(DEBTS(recovered(comes(on(the(debit(side(of(the(Sales(Ledger(Control(Account((S.L.C.A)(and(
even(on(the(credit(side.(
Whenever(you(receive(a(cheque(from(BANK(marked(‘REFER(TO(DRAWER’(then(it(is(CHEQUE(
DISHONOURED(
FIX(NET(PROFIT:(In(the(Journal,(if(the(account(doesn’t(go(in(the(balance(sheet,(then(if(something(
is(being(CREDITED(it(will(INCREASE(N.P,(or(if(it(DEBITED,(then(it(will(DECREASE(N.P.(
To(find(the(opening(balance(in(the(Suspense(LEAVE(THE(FIRST(two(lines(empty.(
The(amount(of(stationery(used,(goes(in(the(Profit(and(Loss(as(an(expense.(
Sundry(Expense(means(miscellaneous(expenses.(
Whatever(goes(in(the(Income(statement(is(REVENUE(EXPENDITURE.(
Whatever(goes(in(the(BALANCE(SHEET(is(CAPITAL(EXPENDITURE.(
CAPITAL(EMPLOYED((Sole(Trader)(=(CAPITAL(OWNED(+(LONG5TERM(LOAN.(
CAPITAL(OWNED((Sole(trader)(=(Assets(–(Liabilities.(
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5
5
5
5
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CAPITAL(EMPLOYED((COMPANY)(=(OSC(+(PSC(+(RESERVES((share(premium,(Retain(profits,(all(
reserves)(+(Long(Term(Liabilities.(
REFUND(FROM(Supplier(is(recorded(on(the(Credit(side(of(the(Purchase(Ledger(Control(Account.(
In(closing(Assets,(you(write(the(Bet(Book(Value((N.B.V)(
DRAWINGS(ARE(Neither(AN(Asset(NOR(A(LIABILITY.(
If(they(ask(you(to(make(a(STATEMENT(TO(find(Profit(or(Loss,(then(just(make(that(financed(by(
(Opening(capital(+(Net(Profit((x)(+(Capital(Introduced(–(Drawings(=(Capital(at(end)(
If(they(say(make(final(accounts,(then(make(Income(Statemet(and(Statement(of(financial(position.(
Closing(Stock(has(a(direct(relation(with(profit.(If(closing(stock(is(overstated,(profit(will(be(
overstated.(
Opening(stock(has(an(inverse(relation(with(profit.(If(opening(stock(is(overstated,(profit(will(be(
understated.(
Goods(sent(on(sale(or(return(basis(should(not(be(counted(as(sale(unless(accepted(by(the(
customer.(Infact(they(should(be(included(in(the(stock.(
If(no(account(is(wrong,(like(there(is(an(error(in(the(list(of(debtors(then(we(only(correct(it(through(
suspense(account((its(only(one(entry,(e.g.(Debit:(Suspense,(Credit:(–()(
We(only(double(the(amount(if(it(is(written(on(the(wrong(side(of(the(account.(
If(we(find(purchases/sales(through(control(account(we(will(still(have(to(subtract(returns(
Unpresented(cheques(are(payment(by(us.(
Uncredited(cheques(are(receipts(by(us((also(called(LODGMENTS).(
If(you(can’t(find(the(average(inventory,(use(closing(figure(instead(of(instead(of(average.(
If(nothing(is(specified,(we(can(assume(all(sales(and(purchases(are(on(credit(basis.(
Provision(for(bad(debt(is(a(separate(account.(We(can(record(the(provision(in(debtors(account,(
net(debtors(mean(after(deducting(provision.(
We(only(take(the(change(in(provision(in(the(Income(statement(
Cashbook(is(both(a(daybook(and(a(ledger.(
We(only(record(credit(sales(and(purchases(in(the(Sales(and(Purchase(Daybook,(cash(and(bank(
transactions(are(in(the(cashbook.(
If(a(daybook(is(overcast(only(that(amount(will(be(wrong.(E.g.(if(Sales(daybook(is(undercast,(this(
means(only(the(Sales(account(is(wrong.(
If(profit(is(given(inside(the(trial(balance,(the(stock(should(be(closing(stock((because(we(don’t(
need(the(opening(stock).(
Similarly(if(depreciation(for(the(year(is(inside(the(trial(balance,(the(provision(for(depreciation(
would(already(include(this(year’s(depreciation.(
Gross(profit(ratio(will(not(change(because(of(sales(volume((number(of(units),(but(net(profit(ratio(
will(increase.(
Net(Assets(=(Assets(–(Liabilities,(but(in(some(cases(CIE(uses(Net(Assets(as(Capital(Employed(
which(is(Assets(–(Current(Liabilities.(
Sale(or(Purchase(is(recorded(when(the(goods(are(accepted(not(when(the(invoice(is(sent(or(the(
payment(is(made.(
If(only(net(book(values(are(available(Depreciation(for(the(year(=(Opening(Net(Book(Value(+(
Purchase(of(Asset(–(Sale(of(Asset((Nbv)(–(Closing(Net(book(value.(
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In(most(question(they(don’t(mention(depreciation,(that(doesn’t(mean(there(is(no(depreciation,(
use(the(above(formula(to(determine.((Don’t(forget(the(depreciation(like(idiots).(
Cash(banked(will(come(on(the(debit(side(of(bank(and(credit(side(of(cash(account.(
Loan(is(as(long(term(liability(unless(payable(within(one(year.(If(nothing(is(written,(assume(long(
term.(
POOP(is(for(expenses.(
OPPO(is(for(incomes.(
Net(realizable(value(=(current(selling(price(–(any(expenses((repairs)(
We(always(ignore(replacement(cost(in(stock(valuation.(
Perpetual(methods(are(those(where(we(make(a(table.(
Markup(is(on(cost((cost(is(100)(
Margin(is(on(sales((Sales(is(100)(
(
(
COST(ACCOUNTING(
(
5
5
5
5
5
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5
Cost(centre(means(departments.(
If(a(business(doesn’t(split(overheads(into(different(departments,(they(will(only(have(one(
Overhead(absorption(rate(for(the(whole(factory((also(called(blanket(OAR).(
Absorption(costing(means(total(costing.(It(is(used(to(calculate(total(cost.(
We(only(use(OAR(to(calculate(the(overheads(for(a(unit/job/order/batch.(
OAR(can(be(calculated(on(any(basis(like(machine(hours,(labour(hours,(unit,(labour(cost((direct(
wages),(material(cost(etc.(
If(no(basis(are(given(use(either(labour(hours(or(machine(hours(depends(on(what(is(more(
(intensity).(
Absorbed(Overheads(=(OAR(x(Actual(Activity.(
Over(absorbed(means(Absorbed(are(more(than(actual(overheads(
Under(absorbed(means(Absorbed(are(less(than(actual(overheads.(
Usually(if(actual(activity(is(above(budget,(we(will(OVER(ABSORB(
If(actual(activity(is(below(budget,(we(will(UNDER(ABSORB(
Total(cost(is(cost(of(Production(+(the(non5production(cost.(
Stocks(can(only(include(production(cost.(In(absorption(costing,(we(use(total(production(cost(
whereas(in(marginal(we(use(only(variable(production(cost.(
Marginal(costing(is(about(decision(making.(
Decisions(are(based(on(contribution(not(profits.(It(is(assumed(that(fixed(cost(will(still(be(
incurred.(
(contribution/unit(x(#(of(units)(–(Fixed(Cost(=(Profit.(
Lower(breakeven(point(is(better.(Higher(margin(of(safety(is(better.(
Positive(contribution(product(or(department(should(never(be(closed(down.(
Positive(contribution(product(should(be(accepted(under(idle(capacity.(
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FORMATS!!
Financial statements of a sole trader – trading business
Income statement
Sole Trader (Name)
Income statement for the year ended 31 December 2013
$000
$000
$000
Revenue (sales)
520
Less Sales returns
3
517
Less Cost of sales
Opening inventory
46
Purchases
196
Less Purchase returns
4
192
Less Goods for own use
2
190
Carriage inwards
5
195
241
Less closing inventory
56
185
Gross profit
332
Discount received
2
Rent received
14
Commission received
4
* Profit on disposal of non-current assets
** Reduction in provision for doubtful debts
352
Less Expenses
Wages and salaries
84
Office expenses
52
Rent and rates
26
Insurance
19
Motor vehicle expenses
28
Selling expenses
22
Loan interest
2
* Loss on disposal of non-current assets
7
** Provision for doubtful debts
3
Depreciation of fixtures and fittings
9
Depreciation of office equipment
6
Depreciation of motor vehicles
8
266
*** Profit for the year
86
Notes:
* If only one asset was sold during the year only one of these items will appear.
** If the provision reduces, the surplus amount is added to the gross profit: if the provision increases, the
amount required is included in the expenses.
*** If the expenses exceed the gross profit plus other income, the resulting figure is described as a
net loss.
(
OMAIR MASOOD
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Statement(of(financial(position(
Sole Trader (Name)
Statement of financial position at 31 December 2013
$000
$000
ASSETS
Non-current assets
Cost
Land and buildings
Fixtures and fittings
Office equipment
Motor vehicles
CAPITAL & LIABILITIES
Capital
Opening balance
Add Profit for the year *
Deduct drawings
Non-current liabilities
Bank loan
Current liabilities
Trade payables
Other payables
Bank overdraft
Total capital and liabilities
Depreciation
to date
39
16
32
87
50
49
36
85
220
Current assets
Inventory
Trade receivables
Less Provision for doubtful debts
Other receivables
* Cash at bank
Cash on hand
Total assets
$000
Book
value
50
10
10
53
123
56
53
6
47
6
12
2
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
123
226
(
(
(
(
(
(
(
(
(
(
(
21
6
3
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
(
152
86
238
62
176
20
30
226
Note:
* If there is a net loss, this will be deducted rather than added.
OMAIR MASOOD
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Financial statements (final accounts) of a partnership business
Income statement
The income statement of a partnership is the same as the income statement of a sole trader. The net
profit is then appropriated to the partners as follows.
Partnership appropriation account for the year ended………………………
$
$
Profit for the year
Add: Interest on drawings
Less: Interest on capital
Less: Partners’ salaries
Profit before appropriation
Profit shared
OMAIR MASOOD
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Statement of financial position of a partnership
………………………………………………
Statement of financial position at ..........................................
$
$
Non-current assets
Current assets
Total assets
$
Capital accounts
Current accounts
Non-current liabilities
Current liabilities
$
Total capital and liabilities
OMAIR MASOOD
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Income statement of a limited company
…………………………………………………………………………
Income statement for the year ended .......................................................
$
Revenue
Cost of sales
Gross profit
Distribution costs
Administration expenses
Profit / (loss) from operations
Finance costs
Profit / (loss) before tax
Tax
Profit for the year
Statement of changes in equity for the year ended 31 December 2013
Balance at start of year
Share issue
Share
Share
Revaluation
Retained
capital
premium
reserve
earnings
Total
$
$
$
$
$
150,000
5,000
30,000
3,000
20,000
58,000
Revaluation
30,000
Dividends paid
OMAIR MASOOD
180,000
8,000
283,000
33,000
Profit for the year
Balance at end of the year
108,000
50,000
CEDAR COLLEGE
58,000
30,000
(12,000)
(12,000)
154,000
392,000
354
XYZ Limited
Statement of financial position at 31 December 2013
ASSETS
Non-current assets
Goodwill
Property, plant & equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY & LIABILITIES
Capital and reserves
Issued capital
Share premium
General reserve
Retained earnings
Non-current liabilities
Bank loan
Current liabilities
Trade and other payables
Tax liabilities
Total equity and liabilities
OMAIR MASOOD
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$000
2012
$000
7,700
100,000
107,700
8,000
92,100
100,100
1,000
5,000
500
6,500
800
4,000
300
5,100
114,200
105,200
40,000
2,000
10,000
52,500
104,500
40,000
2,000
10,000
43,000
95,000
5,000
5,200
1,200
3,500
4,700
114,200
1,000
4,000
5,000
105,200
355
!
EXAM!TIPS!
!
PAPER!1!
!
You(have(60(minutes(of(30(mcqs.(2(minutes(for(each.(
(
First(only(attempt(those(questions(which(you(are(100%(sure(of(and(skip(others.(
(
Read(the(MCQ(carefully,(because(CIE(likes(to(play(around.(
(
Now(spend(time(on(these(questions.(
(
If(you(are(stuck(try(to(eliminate(the(most(obvious(wrong(answer.(
(
556(questions(are(theoretical,(at(least(read(them(thrice.(
(
Sometimes(it’s(best(to(use(the(answer(to(check(if(it’s(wrong(or(right.(
(
If(you(see(something(in(the(answer(choice(which(you(haven’t(heard(of((that(can(never(be(the(answer).(
(
Please(don’t(leave(it(blank.(Take(an(educated(guess.(There(is(no(negative(marking.(
(
PAPER!2!
(
You(have(90(minutes(for(90(marks.((
(
Always(attempt(the(question(which(you(know(the(best(out(of(4(first.(This(will(give(you(confidence(and(
save(time.(You(will(end(up(spending(time(and(getting(it(wrong(if(you(do(the(toughest(one(first.(
(
Don’t(panic,(usually(in(every(paper(one(question(is(tricky.(Do(it(at(last.(
(
You(won’t(get(any(award(if(you(balance(the(balance(sheet.(If(the(balance(sheet(is(off(by(a(large(amount,(
that(doesn’t(mean(everything(is(wrong,(might(be(a(single(big(figure(which(you(have(missed.(DON’T(
WASTE(YOUR(TIME.(
(
Remember(you(don’t(have(to(get(90(on(90.(Go(for(the(maximum.(
(
HOPE!THIS!HELPS!!!
OMAIR MASOOD
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