Final Examination
Semester 3 / Year 2012
COURSE
COURSE CODE
TIME
DEPARTMENT
LECTURER
: FINANCIAL ACCOUNTING II
: ACCT 1103
: 2 1/2 HOURS
: ACCOUNTING AND FINANCE
: MS. TENG PEI YIN
Student’s ID
Batch No.
:
:
Notes to candidates:
1) The question paper consists of 7 pages.
2) Section A consists of 10 objective questions and Section B consists of 3 questions.
3) Answer all questions.
4) Return the question paper with your answer booklet.
FINANCIAL ACCOUNTING II
Section A – ALL 10 questions are compulsory and MUST be attempted
Each question is this section is worth 2 marks.
1. Which of the following four statements are correct?
A. If all the conditions specified in IAS 38 Intangible assets are met, the directors can
chose whether to capitalise the development expenditure or not.
B. Amortization of capitalised development expenditure will appear as an item in a
company’s statement of changes in equity.
C. Capitalised development costs are shown in the statement of financial position as
non-current assets
D. Capitalised development expenditure must be amortised over a period not exceeding
five years.
2. Which of the following statements are correct?
(1) The money measurement concept is that only items capable of being measured in
monetary terms can be recognised in financial statements.
(2) Materiality means that only physical assets are recognized in the financial statements.
(3) In times of rising prices, the use of historical cost accounting tends to understate assets
and overstate profits.
A. (1) only
B. (2) only
C. (3) only
D. None of the statements
3. George, Freddie and Julian are in partnership running an adventure holidays business.
During the year ended 30 September 2006, the business made a profit of $250,000.
The partnership agreement states that partners receive 5% interest on their capital
balance at the start of the year and then share the profits in the ratio 1:2:3.
Other information relating to the partnership is as follows:
George
Freddie
Julian
$
$
$
Capital b/f
100,000
110,000
95,000
Current account b/f
15,600 Cr
31,200 Cr
13,000 Dr
Cash withdrawn from business 12,800
25,000
34,000
On 31 January 2006, Julian paid an income tax bill of $12,400 from the business bank
account.
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A.
B.
C.
D.
FINANCIAL ACCOUNTING II
What is the balance on Julian’s current account at the year end?
$62,725 Cr
$75,125 Cr
$88,725 Cr
$101,125 Cr
4. Odd and Job are in partnership and share profits in the ratio 2:3. On 1 June 2007, a
new partner, Mann joins the business, introducing $12,000 capital.
The following also take place on this date:
•
•
•
Goodwill is valued at $40,000.
The profit share ratio is revised to 3:6:1.
Property is revalued upwards by $35,000.
If Odd’s capital account had a balance of $45,000 credit prior to adjusting the accounts,
what is the balance after adjustment, assuming that a goodwill account is used?
A. $61,000 Cr
B. $63,000 Cr
C. $75,000 Cr
D. $49,000 Cr
5. Agnes sold some items of inventory which she had bought for $2,622, for $1,950 in
cash.
How are her assets and capital affected by the sale?
A.
B.
C.
D.
Assets
Reduced by $672
Reduced by $2,622
Increased by $672
Increased by $1,950
Capital
Reduced by $672
Reduced by $672
Increased by $2,622
Reduced by $672
6. Gary bought a new machine. The invoice included costs for:
(i) Installation charges
(ii) Routine maintenance for the first year of operation
(iii) Testing the machine prior to operation
Which of the costs are capital expenditure?
A.
B.
C.
D.
(i), (ii) and (iii)
(i) and (ii) only
(i) and (iii) only
(ii) and (iii) only
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FINANCIAL ACCOUNTING II
7. Which of the following should normally be recorded in a non-current asset register?
(i) The location of each asset;
(ii) The serial number of each asset;
(iii) Accumulated depreciation on each asset.
A. (i) only
B. (ii) and (iii) only
C. (i) and (iii) only
D. (i), (ii) and (iii)
8. Which method of inventory valuation is used when issues are assumed to be taken from
inventory in the order in which they were received?
A. Net realisable value
B. First in first out
C. Periodic weighted average
D. Continuous weighted average
9. Tim has recently commenced trading. The materials he uses in his business are subject
to regular price rises. He isunsure how to value his inventory and is trying to decide
whether to use First In First Out (FIFO), or continuousweighted average.
Which of the following statements is correct?
A.
B.
C.
D.
Tim’s profit will be unaffected by the method of inventory valuation.
FIFO will lead to the higher reported profit.
Continuous weighted average will lead to the higher reported profit.
The profit will be more accurate if FIFO is used.
10. According to the Framework for the Peparation and Presentation of Financial
Statements, how is the measurement of assets and liabilities affected by the application
of prudence?
A.
B.
C.
D.
Assets should not be ..
Overstated
Overstated
Understated
Understated
Liabilities should not be ..
Understated
Overstated
Understated
Overstated
(20 marks)
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FINANCIAL ACCOUNTING II
Section B – ALL THREE questions are compulsory and MUST be attempted.
Question 1
Paul and Barry are in a business partnership. Their trial balance as at 31May 2012 is given
below:
Dr
Cr
RM
RM
Sales revenue
568,000
Returns inwards
5,100
Purchases
375,600
Rent
18,760
Selling expenses
55,600
General expenses
3,680
Allowance for receivables at 1 June 2011
2,100
Bank
13,980
Wages
18,000
Trade payables
41,300
Current accounts at 1 June 2011 - Paul
3,570
- Barry
2,190
Motor vehicles, at cost
30,000
Fixtures and fittings, at cost
14,000
Accumulated depreciation at 1 June 2011
Motor vehicles
9,000
Fixtures and fittings
7,000
Insurance
1,540
Inventory at 1 June 2011
39,200
Motor vehicle expenses
9,300
Trade receivables
47,500
Discounts allowed
8,900
Drawings - Paul
16,000
- Barry
11,000
Capital accounts at 1 June 2011 - Paul
20,000
- Barry
15,000
668,160
668,160
The following additional information as at 31 May 2012 is available:
1) Paul and Barry share profits and losses in the ratio 2:1 respectively.
2) Inventory was valued at RM32,000.
3) During the year, Barry has taken some goods for his own use to the value of RM450,
but this has not yet been recorded in the accounting records.
4) Interest on drawings for the year were RM420 for Paul and RM180 for Barry.
5) Paul is entitled to a salary of RM15,000 per annum before profits are shared.
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FINANCIAL ACCOUNTING II
6) Insurance of RM900 has been paid in advance.
7) Depreciation is to be provided for as follows:
- Motor vehicles at 20% using the reducing balance method.
- Fixtures and fittings at 15% using the straight line method.
8) There are outstanding general expenses of RM600.
9) Debts of RM1,100 are to be written off and the allowance for receivables is to be
adjusted to the equivalent of 5% of the remaining trade receivables, based on past
experience.
Required:
Prepare the following statements for the partnership:
(a)
The income statement and appropriation account for the year ended 31 May
2012.
(17 marks)
(b)
The partners’ current accounts for the year ended 31 May 2012. (9 marks)
(c)
The statement of financial position as at 31 May 2012.
(14 marks)
(40 marks)
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FINANCIAL ACCOUNTING II
Question 2
The following balances as at 31 December 2011 have been extracted from the books of
William Speed, a small manufacturer:
RM
Stock at 1 January 2011: Raw materials
7,000
Work in progress
5,000
Finished goods
6,900
Purchases of raw materials
38,000
Direct labour
28,000
Factory overheads: Variable
16,000
Fixed
9,000
Administrative overheads:
Rent and rates
19,000
Heat and light
6,000
Stationery and postages
2,000
Staff salaries
19,380
Sales
192,000
Plant and machinery:
At cost
30,000
Accumulated depreciation
12,000
Motor vehicles (for sales deliveries):
At cost
16,000
Accumulated depreciation
4,000
Payables
5,500
Debtors
28,000
Drawings
11,500
Balance at bank
16,600
Capital at 1 January 2011
49,380
Motor vehicle running costs
4,500
Additional information:
(i) Stocks at 31 December 2011 were as follows:
RM
Raw materials
9,000
Work in progress
8,000
Finished goods
10,350
(ii) Depreciation is provided at the following percentages of the original cost of
non-current assets held at the end of each financial year:
Plant and machinery
10%
Motor vehicles
25%
(iii) Amount accrued due at 31 December 2011 for direct labour amounted to $3,000 and
rent and rates prepaid at 31 December 2011 amounted to $2,000.
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FINANCIAL ACCOUNTING II
Required:
Prepare a manufacturing, trading and profit and loss account for the year ended 31
December 2011.
(20 marks)
Question 3
(a) Explain the accrual concept.
(5 marks)
(b) Briefly explain the going concern concept.
(5 marks)
(c) State why it is important to differentiate between capital expenditure and revenue
expenditure, and briefly explain the accounting treatment of each type of expenditure.
(5 marks)
(d) At 30 September 2011, closing inventory was incorrectly valued using the periodic
weighted average method instead of the first-in, first-out (FIF0) method.
During the year to 30 September 2011 prices have risen.
The error was not corrected until 30 September 2012, when the correct method (FIF0)
was used.
Required:
Identify the effect on profit and net assets in the financial statements for:
(i) 2011; and
(ii) 2012
(5 marks)
(20 marks)
000
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