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JUNE 2012 EXAMINATION
D1. Financial Accounting
Instructions to candidates
1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time.
2. This is a closed book examination.
3. Use of a silent, non-programmable calculator, which is NOT part of a mobile phone
or any other device capable of communication, is allowed.
4. Put your candidate number on the top of each answer page.
5. Start each new question on a new page.
6. Include any workings.
Answer ALL questions
Part A: 5 questions: 6 marks available per question (total 30 marks)
Part B: 2 questions: 20 marks available per question (total 40 marks)
Part C: 1 question: 30 marks available
©IFA Financial Accounting June 2012
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Part A
Answer all questions
Question 1
Required:
(a) Describe how the International Financial Reporting Standard for Small and
Medium–sized Entities states that inventories should be measured in an organisation’s
financial statements.
(2 marks)
(b) Give four possible reasons why inventories could be valued below costs.
(4 marks)
(Total 6 marks)
©IFA Financial Accounting June 2012
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Question 2
Required:
Describe the information needs of the following TWO user groups:
(a) Employees
(3 marks)
(b) Government and their agencies.
(3 marks)
(Total 6 marks)
©IFA Financial Accounting June 2012
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Question 3
XYZ Company and ABC Company are retailers selling similar goods and operating in the
same town. The following information has been extracted from their financial statements at
31 March 2012.
Revenue
Gross profit
Operating profit
XYZ
$’000
6,000
1,860
480
ABC
$’000
6,000
1,380
450
Share capital
Retained earnings
3,000
2,400
3,000
600
Required:
(a) Calculate three profitability ratios for both companies.
(3 marks)
(b) Suggest three possible reasons for the differences in the companies’ ratios.
(3 marks)
(Total 6 marks)
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Question 4
You are the accountant for a medium-sized organisation which is going to install a new
receivables ledger computer system for its customers’ records.
Required:
State four documents/reports that the accountant you would require as output from the
new system explaining why you would need each document/report.
(Total 6 marks)
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Question 5
You are just about to reconcile your organisation’s bank account at 31 December 2011 and
have discovered the following matters that could require adjustment. There is a debit
balance on the cashbook and the bank statement shows a credit balance.
Required:
Complete the table below showing the adjustment to the cashbook balance or an item that
requires adjusting in the bank reconciliation.
Matter
Adjustment to
cash book balance
Adjustment to balance
per bank statement
The bank dishonoured a
customer’s cheque for $345.
Bank charges of $90 have
been omitted from the cash
book.
Amount paid into the bank
account amounting to $890 in
December 2011 was not
cleared by the bank until
January 2012.
(1.5 marks)
Cheques drawn by the
organisation in December
2011 amounting to $2230
were not presented until
January 2012.
(1.5 marks)
(1.5 marks)
(1.5 marks)
(Total 6 marks)
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Part B
Answer ALL questions
Question 6
Anita, Brian and Clive have been in partnership for many years. Their bookkeeper has just
produced the following summarised income statement for the year ended 31 December 2011.
$
1,200,000
(720,000)
480,000
(300,000)
180,000
Revenue
Cost of sales
Gross profit
Expenses
Net profit before appropriations
The following information is also available:
(a) The partnership agreement states that interest is to be credited at 6% per annum on
the year-end capital accounts.
(b) The partners are entitled to the following salaries per annum:
Anita
Brian
Clive
$32,000
$22,000
$13,000
(c) The partners made the following cash drawings during the year:
Anita
Brian
Clive
$41,200
$28,400
$26,800
(d) The balance on the capital and current accounts at the beginning of the year were:
Capital accounts
Anita
Brian
Clive
$50,000 credit
$44,000 credit
$6,000 credit
Current accounts
Anita
Brian
Clive
$11,400 credit
$4,800 credit
$4,600 debit
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Capital accounts remained unchanged throughout the year.
(e) On 31 December 2011 Helen was admitted into the partnership. She paid $90,000 cash
into the partnership bank account on that date.
(f) The old partners shared profits in the ratio of 5:3:2. The new partners shared profits in
the ratio 4:3:3:2.
(g) Goodwill of $120,000 is to be shared between the partners but not recorded on the
partnerships statement of financial position.
(h) Land and buildings are to be revalued upwards by $80,000 as at 31 December 2011,
which will remain in the partnership’s statement of financial affairs.
(i) Brian had also loaned the partnership $20,000 at an interest rate of 10% per annum.
This interest has not yet been accounted for as at 31 December 2011.
Required:
Prepare:
(a) The partners’ capital accounts for the year ended 31 December 2011.
(8 marks)
(b) The appropriation account for the partnership for the year ended 31 December 2011.
(7 marks)
(c) The partners’ current accounts for the year ended 31 December 2011.
(5 marks)
(Total 20 marks)
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Question 7
You are the accountant for Cameron Company. Your assistant has just prepared the financial
statements for the company for the year ended 31 December 2011. The income statement
showed a profit after taxation of $1,054,924, however when analysisng the financial
statements you observe that a suspense account has been included. Following your
investigation some errors emerged which required correction.
Required:
(a) Explain the how the following errors should be corrected.
(i)
Credit sales $23,854 had been debited to the receivables ledger control as
$32,854. Other entries had been made correctly.
(2 marks)
(ii)
Inventory at the year-end amounting to $65,800 had been omitted from the list of
stock held.
(2 marks)
(iii)
A new motor vehicle costing $12,000 had been included in error in motor
expenses. Cameron Company depreciates it motor vehicles at 25% using the
reducing balance method. A full year depreciation is charged in the year of
purchase and none in the year of sale.
(4 marks)
(iv)
During 2011 the company incurred bad receivables amounting to $23,850. At
31 December 2010 there had been a provision for bad receivables of $10,000. No
entry had been made to account for the above bad receivables. Cash of $2,000
had been received during the year for a debt that had been written off in 2010. All
other entries had been correctly made and no further provision for doubtful
receivables was considered to be required at 31 December 2011.
(4 marks)
(v)
On 1 December 2011 an insurance invoice was received amounting to $12,000
covering the year to 1 November 1012. The whole $12,000 has been charged to
the income statement.
(2 marks)
Required:
(b) Calculate the revised profit after taxation showing the correction of the above errors.
(6 marks)
(Total 20 marks)
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Section C
Question 8
You are employed by Boge Company as an accountant. One of your staff has produced the
following trial balance at 31 December 2011.
Administrative expenses
Distribution costs
Trade receivables and payables
Ordinary $1 shares
Share premium
Revenue and purchases
8% loan notes
Buildings at cost
Fixtures and fittings at cost
Motor vehicles at cost
Buildings - Accumulated depreciation at 1 January 2011
Fixtures and fittings – accumulated depreciation at 1 January
2011
Motor vehicles – accumulated depreciation at 1 January
2011
Inventories at 1 January 2011
Interest paid
Bank
Retained earnings at 1 January 2011
Accruals including rent (note 6)
$’000
81,070
164,450
130,920
372,000
$’000
56,700
144,000
48,000
760,000
150,000
260,000
49,500
138,000
13,500
17,420
41,900
156,740
6,000
1,358,680
15,000
102,060
10,100
1,358,680
You have also ascertained the following information:
(a) The inventory at cost on 31 December 2011 was $189,000,000. Included in this figure
are items that originally cost $4,000,000 that it is expected will be sold for $2,500,000.
(b) The taxation charge for the year to 31 December 2011 is estimated to be $40,000,000.
(c) The audit fee of $2,000,000 is to be accrued.
(d) Interest on the loan notes had been paid up to 30 June 2011.
(e) Credit sales for January 2012 amounting to $6,000,000 had been incorrectly included in
the above trial balance. These sales were unpaid at 31 December 2011.
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(f) During the year the company acquired additional premises from 1 July 2011 at an
annual rental of $24,000, payable quarterly in advance on 1 July 2011 and 1 October
2011. The staff member mistakenly assumed that payments had been made in arrears
and had included an accrual in the above trial balance.
(g) Depreciation for the year ended 31 December 2011 is to be calculated using the
following rates:
Buildings
Fixtures and fittings
Motor vehicles
2% on cost
10% on cost
25% on reducing balance
Administrative expense
Administrative expense
Distribution cost.
(h) The company has already announced a dividend for the year of 10c per share.
(i) All expenses are administrative expenses unless otherwise stated.
Required:
(a) Prepare the income statement for the year ended 31 December 2011 and a statement
of financial position at that date for Boge Company (all calculations to the nearest
$’000).
(26 marks)
Boge Company is considering purchasing shares in Extra Company in 2012. Extra will be a
subsidiary of Boge if Boge can exercise control over Extra.
Required:
(b) Identify TWO circumstances in which Boge will exercise control over Extra.
(4 marks)
(Total 30 marks)
©IFA Financial Accounting June 2012