Exam question paper
NVQ/SVQ Level 4 in Accounting
Diploma in Accounting
(Diploma Pathway)
Drafting Financial Statements
(Accounting Practice, Industry
and Commerce) (DFS)
2003 Standards
Drafting Financial Statements
(Accounting Practice, Industry
and Commerce) (DFS)
2003 Standards
Wednesday 5 December 2007 (morning)
Time allowed - 3 hours plus 15 minutes’ reading time
Important:
This exam paper is in two sections. You should try to complete every task in both sections.
We recommend that you use the 15 minutes’ reading time to study the exam paper fully
and carefully so that you understand what to do for each task. However, you may begin to
write your answers within the reading time, if you wish.
We strongly recommend that you use a pen rather than a pencil.
You may not use programmable calculators or dictionaries in the exam.
Do NOT open this paper until instructed to do so by the Supervisor.
DFS
Note:
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This exam paper is in TWO sections.
You must show competence in both sections. So, try to complete EVERY task in BOTH sections.
Section 1 contains 6 tasks and Section 2 contains 2 tasks.
Please use the answer booklet provided.
You should include all your workings and essential calculations in your answers.
The answer booklet includes the following pro-formas:
•
•
•
•
•
Journal entries
Company income statement
Company balance sheet
Consolidated balance sheet
Cash flow statement
You should spend about 125 minutes on Section 1 and about 55 minutes on Section 2.
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Section 1
This section is in three parts.
Part A
You should spend about 55 minutes on this part.
Data
You have been asked to help prepare the financial statements of Benard Ltd for the year ended
31 October 2007. The company’s trial balance as at 31 October 2007 is shown below.
Benard Ltd
Trial balance as at 31 October 2007
Debit
£000
Share capital
Credit
£000
12,000
Trade and other payables
3,348
Property, plant and equipment – cost
58,463
Property, plant and equipment – accumulated depreciation
Trade and other receivables
27,974
6,690
Accruals
387
7% bank loan repayable 2012
16,000
Cash at bank
1,184
Retained earnings
12,345
Interest
560
Sales
50,875
Purchases
35,245
Returns inwards
678
Returns outwards
453
Distribution costs
6,654
Administrative expenses
4,152
Inventories as at 1 November 2006
8,456
Final dividend for year ended 31 October 2006
700
Interim dividend for year ended 31 October 2007
600
123,382
4
123,382
Further information:
•
•
•
•
•
•
•
•
The share capital of the company consists of ordinary shares with a nominal value of £1.
The sales figure in the trial balance does not include the credit sales for October 2007 of £3,564,000.
The inventories at the close of business on 31 October 2007 cost £9,786,000.
Goods for resale costing £127,000 purchased on two months’ credit in October 2007 were returned
to the supplier on 30 October 2007. No entries have been made in the accounts in the trial balance.
The company paid £48,000 insurance costs in June 2007, which covered the period from 1 July
2007 to 30 June 2008. This was included in administrative expenses in the trial balance.
Interest on the bank loan for the last six months of the year has not been included in the accounts in
the trial balance.
The corporation tax charge for the year has been calculated as £1,254,000.
All of the operations are continuing operations.
Task 1.1
Using the pro-forma in your answer booklet, make the necessary journal entries as a result of the
further information given above.
Task 1.2
(a)
Using the pro-forma in your answer booklet, draft the income statement for Benard Ltd for the
year ended 31 October 2007.
(b)
Using the pro-forma in your answer booklet, draft the balance sheet for Benard Ltd as at
31 October 2007.
5
Part B
You should spend about 45 minutes on this part.
Data
The Managing Director of Dumyat plc has asked you to prepare the balance sheet for the group. Dumyat plc
has one subsidiary undertaking, Devon Ltd. The balance sheets of the two companies as at 31 October 2007
are set out below.
Balance sheets as at 31 October 2007
Dumyat plc)
£000)
Devon Ltd)
£000)
65,388)
26,000)
91,388)
31,887)
28,273)
11,508)
4,000)
2,146)
45,927)
5,566)
5,154)
0)
68)
10,788)
137,315)
42,675v
(13,554)
0)
(6,140)
(19,694)
(1,475)
(4,000)
(108)
(5,583)
26,233)
5,205)
Non-current liabilities
Long-term loans
(25,000)
(4,000)
Total liabilities
(44,694)
(9,583)
Net assets
92,621)
33,092)
Equity
Share capital
Share premium
Retained earnings
Total equity
25,000)
12,000)
55,621)
92,621)
12,000)
4,000)
17,092)
33,092)
Non-current assets
Property, plant and equipment
Investment in Devon Ltd
Current assets
Inventories
Trade and other receivables
Receivable from Devon Ltd
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Payable to Dumyat plc
Tax liabilities
Net current assets
6
31,887)
You have been given the following further information:
•
•
•
•
•
The share capital of Devon Ltd consists of ordinary shares of £1 each. Ownership of these shares carries
voting rights in Devon Ltd. There have been no changes to the balances of share capital and share premium
during the year. No dividends were paid or proposed by Devon Ltd during the year.
Dumyat plc acquired 9,000,000 shares in Devon Ltd on 1 November 2006.
At 1 November 2006 the balance of retained earnings of Devon Ltd was £12,052,000.
The fair value of the non-current assets of Devon Ltd at 1 November 2006 was £28,800,000. The book
value of the non-current assets at 1 November 2006 was £25,800,000. The revaluation has not been
recorded in the books of Devon Ltd (ignore any effect on the depreciation for the year).
The directors of Dumyat plc have concluded that goodwill has not been impaired during the year.
Task 1.3
Using the pro-forma in your answer booklet, draft a consolidated balance sheet for Dumyat plc and
its subsidiary undertaking as at 31 October 2007.
Task 1.4
Prepare brief notes for the directors to answer the following questions.
(a)
What is a "business combination"?
(b)
How is the acquirer in a business combination identified?
(c)
Explain why Dumyat plc is the acquirer in a business combination.
7
Part C
You should spend about 25 minutes on this part.
Data
For the year ended 31 October 2007 you have been asked to prepare:
•
•
a reconciliation between profit from operations and net cash from operating activities
a cash flow statement for Lochnagar Ltd.
The balance sheets of Lochnagar Ltd for the past two years and the most recent income statement are set
out below:
Lochnagar Ltd
Income statement for the year ended 31 October 2007
£000)
Continuing operations
Revenue
22,400)
Cost of sales
(12,320)
Gross profit
10,080)
Gain on disposal of property, plant and equipment
224)
Distribution costs
(4,704)
Administrative expenses
(2,240)
Profit from operations
3,360)
Finance costs – interest on loans
(91)
Profit before tax
3,269)
Tax
(1,344)
Profit for the period from continuing operations attributable to equity holders
8
1,925
Lochnagar Ltd
Balance sheets as at 31 October
2007)
£000)
2006)
£000)
25,171)
24,100)
Inventories
3,696)
2,464)
Trade and other receivables
3,360)
2,464)
0)
129)
7,056)
5,057)
32,227)
29,157)
Trade and other payables
(1,232)
(1,848)
Tax liability
(1,344)
(944)
(361)
0)
(2,937)
(2,792)
4,119)
2,265)
Bank loans
(1,300)
(800)
Total liabilities
(4,237)
(3,592)
Net assets
27,990)
25,565)
2,200)
2,000)
800)
500)
Retained earnings
24,990)
23,065)
Total equity
27,990)
25,565)
Non-current assets
Property, plant and equipment
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Bank overdraft
Net current assets
Non-current liabilities
Equity
Share capital
Share premium
9
Further information:
•
•
•
The total depreciation charge for the year was £3,545,000.
Property, plant and equipment costing £976,000 with accumulated depreciation of £355,000 was
sold in the year at a profit of £224,000.
All sales and purchases were on credit. Other expenses were paid for in cash.
Task 1.5
Provide a reconciliation of profit from operations to net cash from operating activities for Lochnagar
Ltd for the year ended 31 October 2007.
Task 1.6
Using the pro-forma in your answer booklet, prepare the cash flow statement for Lochnagar Ltd for
the year ended 31 October 2007.
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Note:
Please turn over for Section 2.
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Section 2
You should spend about 55 minutes on this section.
Data
Sally Forth is a shareholder in Tay Ltd. She wishes to assess the efficiency and effectiveness of the
management of the company. She has asked you to assist her by analysing the financial statements of the
company for the last two years. The financial statements of Tay Ltd are set out below:
Tay Ltd
Income statements for the year ended 31 October
2007)
£000)
2006)
£000)
2,400)
2,100)
(1,392)
(1,155)
1,008)
945)
Distribution costs
(540)
(472)
Administrative expenses
(240)
(315)
Profit from operations
228)
158)
Finance costs
(91)
(56)
Profit before tax
137)
102)
Tax
(44)
(22)
Profit for the period from continuing operations attributable to
equity holders
93
80
Continuing operations
Revenue
Cost of sales
Gross profit
12
Tay Ltd
Balance sheets as at 31 October
2007)
£000)
2006)
£000)
4,750)
4,100)
Inventories
320)
208)
Trade receivables
360)
231)
0)
68)
680)
507)
5,430)
4,607)
(195)
(139)
Non-current assets
Property,plant and equipment
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Trade payables
Tax liabilities
(44)
(22)
(152)
0)
(391)
(161)
289)
346)
Bank loans
(1,300)
(800)
Total liabilities
(1,691)
(961)
3,739)
3,646)
Share capital
2,500)
2,500)
Retained earnings
1,239)
1,146)
Total equity
3,739)
3,646)
Bank overdraft
Net current assets
Non-current liabilities
Net assets
Equity
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Task 2.1
Prepare a report for Sally Forth that includes the following:
(a)
the formulas that are used to calculate each of the following ratios:
(i)
(ii)
(iii)
(iv)
gross profit ratio
net profit ratio
inventories turnover in days (based on cost of sales)
trade receivables turnover in days (trade receivables collection period)
(b)
a calculation of the above ratios for the two years
(c)
a comment on the relative performance of the company for the two years based on the ratios
calculated and what this tells you about the company
(d)
ONE suggestion as to how EACH of the ratios might be improved.
Task 2.2
(a)
Set out the accounting equation and define the elements in the equation.
(b)
Briefly explain how the profit for the year affects the elements in the accounting equation.
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NVQ/SVQ qualification codes
527558
Technician (2003 standards) - 100/2942/4 / G794 24
Unit number (DFS) – Y/101/8109
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