Advanced Financial Accounting
Sample Paper 2
Questions & Suggested Solutions
Page 1 of 27
INSTRUCTIONS TO CANDIDATES
PLEASE READ CAREFULLY
Candidates must indicate clearly whether they are answering the paper in accordance with the law
and practice of Northern Ireland or the Republic of Ireland.
In this examination paper the €/£ symbol may be understood and used by candidates in Northern
Ireland to indicate the UK pound sterling by candidates in the Republic of Ireland to indicate the
Euro.
Answer ALL THREE questions in Section A and TWO of the THREE questions in Section B. If
more than TWO questions is answered in Section B, then only the first TWO questions, in the
order filed, will be corrected.
Candidates should allocate their time carefully.
All workings should be shown.
All figures should be labelled, as appropriate, e.g. €’s, £’s, units etc.
Answers should be illustrated with examples, where appropriate.
Question 1 begins on Page 2 overleaf.
NOTE:
This sample paper and solution have been prepared in recognition that public companies
are now required to prepare accounts implementing the language of International
Accounting Standards (I.A.S.’s) but that other companies and non corporate entities are
not required to do so.
Examinees would be at liberty to use the language of either (i) I.A.S.’s or (ii) the
Companies (Amendment) Act 1986 and F.R.S.’s/S.S.A.P’s in answering questions relating
to non‐public companies
Advanced Financial Accounting Sample Paper 2
Page 2 of 27
SECTION A
Answer ALL THREE Questions in this Section
(The total marks for section A will be 60, made up of a theory question of 20 marks, a
multiple choice question of 15 marks and a further question of 25 marks)
QUESTION 1
(i) The ASB and the IASB are responsible for issuing new accounting standards.
What are ‘accounting standards’ and describe the objective of such standards.
8 marks
(ii) Describe the steps involved in the standard setting process and the measures taken to improve
transparency within the process.
12 marks
Total 20 marks
QUESTION 2
The following multiple choice question consists of TEN parts, each of which is followed by FOUR
possible answers. There is ONLY ONE right answer in each part.
Each part carries 1½ marks.
Requirement
Indicate the right answer to each of the following TEN parts.
Total 15 Marks
N.B. Candidates should answer this question by ticking the appropriate boxes on the special green
answer sheet which is supplied with the examination paper.
[1]
In accordance with IAS 2 ‘Inventories’ net realisable value is defined as:
(a)
the actual or estimated selling price
(b)
the actual or estimated selling price less all further costs to completion and all costs to be
incurred in marketing, selling and distribution
(c)
the actual or estimated selling price less all costs to be incurred in marketing selling and
distribution
(d)
the actual or estimated selling price less all further costs to be completion
Advanced Financial Accounting Sample Paper 2
Page 3 of 27
QUESTION 2 (cont’d)
BACKGROUND INFORMATION TO PARTS [2] & [3]
Brian and Jean are in partnership and their capital account balances are £/€ 56,000 and £/€ 84,000
respectively. The partnership agreement details appropriation of partnership profits as follows:
Brian
Annual salary
Interest on capital
Share of residual profit
[2]
£/€ 45,300
£/€ 30,300
£/€ 25,100
£/€ 66,700
In accordance with IAS 10 ‘Events after the balance sheet date’ the clarification after balance
sheet date of proceeds from assets sold before the balance sheet date is an example of:
(a)
(b)
(c)
(d)
[5]
£/€ 25,100
£/€ 30,300
£/€ 45,300
£/€ 20,200
If the profit for the year, before appropriation, was £/€112,000 what would Jean’s entitlement be
in total:
(a)
(b)
(c)
(d)
[4]
£/€28,000
10 %
60 %
If the profit for the year, before appropriation, was £/€112,000 what would Brian’s entitlement be
in total:
[a]
[b]
[c]
[d]
[3]
£/€19,500
10 %
40 %
Jean
an adjusting event
a non-adjusting event
a material event
an immaterial event
The formula for price earnings ratio is:
(a)
(b)
(c)
(d)
dividend per share / market value per share
earnings per share / market value per share
market value per share / earnings per share
market value per share / dividend per share
Advanced Financial Accounting Sample Paper 2
Page 4 of 27
QUESTION 2 (cont’d)
[6]
Company A has inventory days of 23 and receivable days of 38. Ideally payable days should be:
(a)
(b)
(c)
(d)
[7]
greater than 38 but less than 61
greater than 61
less than 61
greater than 23 but less than 61
If a capital grant is recognised as deferred income in the balance sheet what are the entries to be
made each year over the useful life of the associated asset:
(a)
(b)
(c)
(d)
debit deferred income, credit other operating income
credit deferred income, debit other operating income
debit deferred income, credit bank
credit deferred income, debit bank
BACKGROUND INFORMATION TO PARTS [8] & [9]
The business premises of ABC Limited went on fire on 30 November 2010 and financial records
were destroyed. However the following information is available:
[8]
Receivables : opening
Closing
Inventory : opening
Closing
Sales (credit)
Bad debts
£/€
45,000
56,000
60,000
44,000
270,000
14,000
Gross margin
20%
Using the information available what is the value of purchases:
(a)
(b)
(c)
(d)
[9]
£/€ 112,000
£/€ 209,000
£/€ 121,000
£/€ 200,000
Using the information available what is the value of sales receipts:
(a)
(b)
(c)
(d)
£/€ 295,000
£/€ 245,000
£/€ 273,000
£/€ 259,000
Advanced Financial Accounting Sample Paper 2
Page 5 of 27
QUESTION 2 (cont’d)
[10]
In preparing a cash flow statement in accordance with IAS 7 a profit on disposal of a fixed asset
should be:
(a)
(b)
(c)
(d)
deducted from operating profit in computing the net cash flow from operating activities
added back to operating profit in computing the net cash flow from operating activities
Deducted from payments to acquire tangible fixed assets to compute capital expenditure
Added to payments to acquire tangible fixed assets to compute capital expenditure
Advanced Financial Accounting Sample Paper 2
Page 6 of 27
QUESTION 3
WIRE Ltd., a retailing company, has an authorised share capital of €/£2,500,000, comprised of 4,000,000
ordinary shares of 50 cent/pence each and €/£500,000 of 5% preference shares of €/£1 each.
The following trial balance was extracted as at 31st December 2009
€/£’000
Ordinary share capital ......................................................................
5% preference share capital .............................................................
Share premium account ...................................................................
General reserve ................................................................................
Retained profits at 1 January 2009 ..................................................
6% debenture stock (redeemable in 2013) ......................................
Freehold premises at cost at 1st January 2009 .................................
Freehold premises accumulated depreciation at 1st January 2009 ..
Plant & machinery at cost at 1st January 2009 ................................
Plant & machinery accumulated depreciation at 1st January 2009 .
Motor vehicles at cost at 1st January 2009 ......................................
Motor vehicles accumulated depreciation at 1st January 2009 .......
Computer equip at cost ...................................................................
Computer equip accumulated depreciation at 1st January 2009 .....
Additions to non-current assets at cost:
Plant & machinery ......................................................................
Motor vehicles ............................................................................
Computer equipment ..................................................................
Disposal of motor vehicles (sale proceeds) .....................................
Inventory at 31 December 2009 ......................................................
Receivables & payables ...................................................................
Bank .................................................................................................
VAT ..................................................................................................
Corporation tax ................................................................................
Prepayments & accruals...................................................................
Long term investments.....................................................................
Short term investments ....................................................................
Retained profit for the year (after providing for dividends and .....
debenture interest but before adjusting for items 1 to 3 below) .....
Deferred government grants at 1st January 2009 .............................
....................................................................................................
€/£’000
1,500
300
150
230
41
200
2,500
400
420
240
120
70
120
45
70
25
30
24
50
156
66
12
60
40
________
3,669
85
32
98
18
146
90
_______
3,669
ADDITIONAL INFORMATION
(1)
Depreciation is to be provided on non-current assets as follows:
Freehold premises .............................. 2% on cost
Plant & machinery .............................. 10% on cost
Motor vehicles ................................... 20% on cost
Computer equipment .......................... 33 1/3 % on cost
A full year’s depreciation is provided in the year of purchase and none in the year of disposal.
Advanced Financial Accounting Sample Paper 2
Page 7 of 27
QUESTION 3 (Cont’d)
(2)
During the year motor vehicles which cost £/€ 45,000 in 2006 were disposed of for £/€ 24,000.
The only entries made (before extracting the above trial balance) were to debit the bank account
and credit the disposal of motor vehicles account.
(3)
The deferred government grants balance included in the above trial balance arises in respect of a
grant of £/€ 100,000 received in 2008 to help finance the cost of plant and machinery purchased
during that year.
In addition a grant of £/€ 18,000 was received on 29th December 2009 towards the cost of new
computers purchased during the year. This grant has not yet been recorded in the company’s
books.
(4)
Prepaid expenses valued at €/£24,000 were incorrectly included in operating costs.
Requirement
(a) Prepare, in a form suitable for publication, the statement of financial position for WIRE Ltd., for
the year ended 31st December 2009 in as far as the information provided permits.
N. B. You are NOT required to prepare an Statement of Profit & Loss or notes to the accounts. You are
required to submit workings to show the make-up of the figures in the statement of financial
position.
17 Marks
(b)
Prepare the following notes to the accounts for the year ended 31 December 2009:
(i) Non-current assets
(ii) Deferred government grants
6 Marks
Presentation 2 marks
Total 25 Marks
Advanced Financial Accounting Sample Paper 2
Page 8 of 27
SECTION B
Answer TWO of the THREE questions in this Section
QUESTION 4
CARTER Limited is installing a new production plant at a cost of £/€ 1 million, in respect of which
government grants have been approved as follows:
Capital cost
Training costs
-
40%
100%
The company depreciates its plant and equipment on the basis of 20% on original cost. The directors are
aware that the accounting treatment for grants is dealt with in IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, and they have asked you to advise them on the accounting
options available to them and the effect which they would have on the company’s financial statements.
Requirement
You are required to draft a report to the directors which:
(a) outlines the accounting treatment of the foregoing grants under IAS 20;
(b) recommends (with reasons) the treatment which you believe would be most suitable in the case
of CARTER Limited; and
(c) indicate the form of accounting policy or other notes which should be included in the annual
financial statements of the company.
18 Marks
Presentation 2 marks
Total 20 Marks
QUESTION 5
The following errors were identified by the financial accountant of CUSACK Limited (a VAT registered
company) when reviewing the year end draft financial statements:
[i] A cheque was written for £/€20,000 to MAC GARAGE Limited and was entered into the motor
expense account. No other entries were made in the financial records. The cheque was in respect of
the balancing payment for the purchase of a new car. A car which has originally cost £/€13,000 and
which had a net book value of £/€6,500 at 1st January 2010 was traded in as part exchange. Assume
no loss or gain was made on the trade-in.
[ii] Depreciation on motor vehicles is charged at 25% per annum with a full year’s depreciation charged
in the year of acquisition and none in the year of disposal. No account was taken of the transactions
in note (i) above when calculating the depreciation for the year to December 2010.
[iii] During the year a new machine was purchased for £/€484,000 (which is inclusive of VAT of 21%).
CUSACK Limited received a government grant of £/€60,000 towards the cost of the new machine.
Plant and machinery is depreciated at a rate of 10% per annum including a full year’s depreciation in
the year of acquisition. No entries were made to record this transaction.
Advanced Financial Accounting Sample Paper 2
Page 9 of 27
QUESTION 5 (cont’d)
Requirement
(a) Prepare the journal entries to show how each of the above items should be dealt with in the
final accounts for the year ended 31st December 2010. Narratives for the journals are required.
15 marks
(b) Compute the adjusted net profit before taxation for the year ended 31st December 2010 taking
into account the adjustments made at (a) above. The net profit before taxation as per the draft
accounts was £/€ 350,000.
3 marks
Presentation 2 marks
Total 20 Marks
QUESTION 6
The Statement of Financial Position, Statement of Changes in Equity and other relevant information of
CLINIC Limited, for the year ended 31 December 2010, are as follows:
Statement of Changes in Equity as at 31
December 2010
As at 1 January 2010
Net profit for year end 31 December 2010
Share issue
Ordinary dividends
Ord
share
capital
Share
premium
Retained
profits
Total
equity
£/€'000
£/€'000
£/€'000
£/€'000
270
-
180
90
30
30
300
Advanced Financial Accounting Sample Paper 2
30
( 60)
450
90
60
(60)
210
540
Page 10 of 27
QUESTION 6 (cont’d)
Statement of Financial Position as at 31 December 2010
£/€'000
ASSETS
Non-current assets
Current assets
Inventory
Receivables
Cash & cash equivalents
£/€'000
£/€'000
1,440
1,890
2,850
30
Total assets
£/€'000
1,320
1,530
2,130
30
4,770
3,690
6,210
5,010
EQUITY and LIABILITIES
Capital and reserves
£/€1 ordinary shares
Preference shares
Share premium account
Retained earnings
300
300
30
210
270
300
180
840
Non-current liabilities
Bank loans
10% debentures
2,190
1,140
750
1,800
900
3,330
Current liabilities
Bank overdraft
Current installments due on loans
10% debentures
Trade payables
Taxation
Total equity and liabilities
Advanced Financial Accounting Sample Paper 2
30
540
300
1,140
30
2,700
540
930
90
2,040
1,560
6,210
5,010
Page 11 of 27
QUESTION 6(Cont’d)
Additional information:
(1)
On 1 July 2010 CLINIC issued £/€ 1 ordinary shares at £/€ 2 per share.
(2)
During the year CLINIC sold non-current assets with a net book value of £/€90,000 for cash.
Included in the Statement of Profit & Loss is a profit on disposal of £/€ 60,000.
(3)
Included in trade payables at 31 December 2010 is an amount of £/€ 450,000 in respect of noncurrent assets purchased during the year.
(4)
The Statement of Profit & Loss includes the following charges for the year:
............................................................ 31 Dec 2010
31 Dec 2009
(i) Depreciation
....................... £/€ 600,000
(ii) Interest ...................................... £/€ 540,000
(iii) Tax ............................................ £/€ 30,000
£/€ 550,000
£/€ 270,000
£/€ 60,000
Requirement
(a) Prepare a statement of cash flows for CLINIC Limited for the year ended 31 December 2010 in
accordance with IAS 7 Statement of Cash Flows.
.
N. B. You are NOT required to prepare notes to the statement of cash flows.
18 Marks
Presentation 2 marks
Total 20 Marks
Advanced Financial Accounting Sample Paper 2
Page 12 of 27
Advanced Financial Accounting
Sample Paper 2 – Suggested Solutions
NOTE:
This sample paper and solution have been prepared in recognition that public companies
are now required to prepare accounts implementing the language of International
Accounting Standards (I.A.S.’s) but that other companies and non corporate entities are
not required to do so.
Examinees would be at liberty to use the language of either (i) I.A.S.’s, (ii) the Companies
(Amendment) Act 1986 and F.R.S.’s/S.S.A.P’s in answering questions relating to non‐
public companies.
Advanced Financial Accounting Sample Paper 2
Page 13 of 27
Solution to question 1
(a)
What are Accounting Standards and describe the objectives of these standards.
Accounting standards are a set of rules that describe how an item in financial accounting is
treated and calculated and how accounts should be prepared and presented. The objective
of accounting standards is to regulate the accounting profession and to provide guidance to
both accounting practitioners and users of financial information about how contentious
and difficult areas should be treated.
Accounting standards are issued by a national or international body of the accounting
profession and are intended to apply to all financial accounts which are intended to give a
true and fair view of the financial position and profit/loss of an entity. Standards are
detailed working regulations within the framework of government legislation and they
cover areas in which the law is silent.
(b)
Standard setting process
The standard setting process involves six steps and a consultation process which involves
interested parties and organisations from around the world. The six steps are discussed below:
1.
Setting the agenda
This step in the process involves deciding on what area in financial accounting needs to be
addressed through a standard. When deciding if an item should be added to the agenda
the IASB considers the following factors:
i. the relevance of the information to users
ii. the reliability of the information which would be provided
iii. existing guidance in the area
iv. whether the new item increases the possibility of convergence and resource
constraints.
2.
Planning the project
Once an item has been added to the agenda the next decision to be made is whether the
IASB should undertake the project alone or in conjunction with another body such as the
ASB in Ireland or the UK. Once this has been determined a project team is assembled.
3.
Developing and publishing the discussion paper
The purpose of a discussion paper is to solicit early comment from interested parties in an
effort to ensure all issues are identified and discussed. A discussion paper will usually
contain the following elements:
i.
ii.
iii.
iv.
a detailed overview of the issue stating why a standard is required in this area
different potential approaches for dealing with the issue
preliminary views of the IASB on dealing with the issue, and
an invitation to comment on the issue.
Advanced Financial Accounting Sample Paper 2
Page 14 of 27
4.
Developing and publishing the exposure draft
Once the IASB has received and discussed all comments received a draft standard is
prepared detailing a specific proposal for dealing with the issue. The draft standard is then
issued to interest parties for consideration and comment.
5.
Developing and publishing the standard
Once the exposure draft has been issued comments will be received by the IASB on the
proposed treatment. The IASB may then decide that it is satisfied with the proposed
treatment and a draft IFRS is drawn up. This draft IFRS is referred to as a pre‐ballot draft.
The pre‐ballot draft is normally subjected to external review which is usually undertaken
by IFRIC. IASB members are then balloted and if the ballot is in favour of the publication of
the standard then the IFRS is issued.
Where the IASB is not satisfied that it is in a position to agree on the proposed treatment
then a second exposure draft may be issued suggesting a revised treatment of the item in
question.
6.
After the standard is issued
The process is not complete once the standard is issued. At this stage the IASB hold further
meetings with interested parties in order to understand any unanticipated issues relating
to the practical application of the standard.
Transparency within the process
As can be seen from the above discussion throughout the process public consultation is
either invited or considered. It is not possible for an accounting standard to be issued
without taking on board comments from interested parties. This avoids the situation
whereby the process becomes a pure academic exercise and ensures that the practical
application is considered, understood and provided for.
Advanced Financial Accounting Sample Paper 2
Page 15 of 27
Solution to question 2
(1)
B
(2)
C
(see working)
(3)
D
(see working)
(4)
A
(5)
C
(6)
B
(7)
A
(8)
D
(see working)
(9)
B
(see working)
(10)
A
Workings:
(2)
112,000 – (19,500+ 28,000) ‐10%(56,000 + 84,000) = 50,500 x 40% = 20,200
20,200 + 19,500 + 5,600 = 45,300
(3)
50,500 x 60% = 30,300 + 28,000 + 8,400 = 66,700
(8)
Sales 270,000
Gross margin 20% = 54,000
Cost of sales = 270, 000 – 54,000 = 216,000
216,000 + closing inventory 44,000 – opening inventory 60,000 = purchases 200,000
(9)
Opening receivables 45,000 + sales 270,000 = 315,000
315,000 – bad debts 14,000 – closing receivables 56,000 = sales receipts 245,000
Advanced Financial Accounting Sample Paper 2
Page 16 of 27
Solution to question 3
(a)
WIRE Ltd.
Statement of financial position as at 31 December 2009
£/€’000
£/€’000
Non­current assets
Property, plant & equipment (Note 1)
Other financial assets
2,343
60
2,403
Current assets
Inventories
Trade receivables
Prepayments (W1)
Cash and cash equivalents (W2)
50
156
36
124
Total assets
366
2,769
Equity and liabilities
Capital (W4)
Reserves
Accumulated profits (W3)
1,800
380
64
2,244
Non­current liabilities
Interest‐bearing borrowings
200
200
Current liabilities
Trade and other payables (W7)
Deferred government grants (Note 2)
233
233
92
2,769
Advanced Financial Accounting Sample Paper 2
Page 17 of 27
Solution to question 3(cont’d)
(b)
WIRE LIMITED
Notes to the Accounts for the year ended 31 December 2009
(1)
Property, plant and equipment
Freehold
premises
Plant &
machinery
Motor
vehicles
Computer
equip
Total
£/€’000
£/€’000
£/€’000
£/€’000
£/€’000
Cost
at 1st January 2009
additions
disposals
at 31st December
2009
Accumulated depreciation
at 1st January 2009
charge for year
disposals
at 31st December
2009
Net book value
at 1st January 2009
at 31st December
2009
(2)
2,500
420
70
120
25
(45)
120
30
3,160
125
(45)
2,500
490
100
150
3,240
400
50
450
0
240
49
289
0
70
20
90
(27)
45
50
95
0
755
169
924
(27)
450
289
63
95
897
2,100
180
50
75
2,405
2,050
201
37
55
2,343
Deferred government grants
At 1st January 2009
Received during the year
90
18
108
Released to profit and loss account during the year (16)
At 31st December 2009
Advanced Financial Accounting Sample Paper 2
92
Page 18 of 27
Solution to question 3(cont’d)
Workings
(1) Prepayments
£/€’000
Prepayments per trial balance
Add prepayments omitted in error
12
24
36
(2) Cash and cash equivalents
£/€’000
Bank balance
Short term investment
Government grant received
66
40
106
18
124
(3) Accumulated profits
£/€’000
Retained profit for year per trial balance
Profit on disposal of motor vehicle
Depreciation (Note 1)
Prepayments
Government grants released
146
6
(169)
24
16
23
Retained Profit brought forward 1 Jan 2009
41
Accumulated profits
64
(4) Issued capital
Ordinary share capital
8% preference capital
£/€’000
1,500
300
1,800
Advanced Financial Accounting Sample Paper 2
Page 19 of 27
Solution to question 3(cont’d)
(5) Reserves
£/€’000
Share premium
General reserves
150
230
380
(7) Trade and other payables
£/€’000
Trade payables per Trial Balance
Corporation tax
VAT
Accrued expenses
85
98
32
18
233
(8) Disposal of motor vehicle
Cost in 2006
Depreciation charge:
2006
2007
2008
NBV
Proceeds
Profit on disposal
Advanced Financial Accounting Sample Paper 2
£/€’000
45
9
9
9
18
24
6
Page 20 of 27
Solution to question 4
To
From
Date
Subject
:
:
:
:
The Directors
A. Accountant
XX/MM/YY
Accounting treatment of government grants
A. Accounting treatment
The grants which have been approved for the new production facility fall into two distinct
categories:
1.
2.
Revenue based grant – the grant for training costs
Capital based grant – the grant for plant
The above two grants are treated differently for accounting purposes. IAS 20 provides that:
(i)
(ii)
Revenue based grants are to be credited to revenue in the period in which the
related revenue expenditure has been incurred and, where actual amounts are not
known for certain, appropriate estimates must be made; and
Capital based grants on the other hand are to be credited to revenue over the life
of the related non‐current asset by either:
i. Reducing the cost of the asset by the full amount of the grants; or
ii. Treating the amount of the grant as deferred credit, a portion of which is
transferred to revenue annually. Where this method is used the amount of the
deferred credit, if material, should be shown separately in the statement of
financial position and separate from shareholders’ funds.
Where there is a contingent liability to repay any grants received this must be disclosed by way of
note to the accounts.
B. Recommendations
As far as the company is concerned, I recommend that the following accounting policies be
adopted:
Training grants – these grants be credited to revenue as they are due; and
Grants on plant – these grants be treated as deferred credits and disclosed separately in the
statement of financial position under the heading ‘Government Grants’ and allocated to the
statement of comprehensive income over the life of the asset using the same rates of depreciation
as applied to the relevant assets.
C. Accounting policies
The notes to the accounts of CARTER Limited should include the following:
(i)
Grants receivable on additions to non‐current assets are credited to the Government
Grants Account and are allocated to the statement of comprehensive income over the
estimated useful lives of the assets concerned. Revenue based grants are credited directly
to the statement of comprehensive income in the year in which they become due.
Advanced Financial Accounting Sample Paper 2
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(ii)
£/€
Balance at start of year
Received during the year
Released to the profit and loss account during the year
XXXX
XXXX
XXXX
Balance at end of year
XXXXX
(iii)
Contingent liabilities
Under various agreements between the company and grant awarding bodies the Company has
received grants amounting to £/€ XXX during the year. There exists a contingent liability to repay
in whole or in part the grants received if certain circumstances set out in the agreement occur.
Advanced Financial Accounting Sample Paper 2
Page 22 of 27
Solution to question 5
(a)
(i)
DR
DR
CR
DR
CR
Motor vehicles (B/S)
Motor vehicles (B/S)
Accumulated depreciation
Motor vehicles expense (P&L)
26,500
6,500
CR
13,000
20,000
[Being correction of cheque debited to motor expense in error and disposal of motor
vehicle in part payment]
(ii)
DR Depreciation (P&L)
CR Accumulated depreciation (B/S)
3,375
3,375
[Being calculation of depreciation charge on additions (6,625 – 3,250)]
(iii)
DR Plant & machinery
DR VAT recoverable
CR Bank
400,000
84,000
484,000
[Being purchase of new machine]
DR Depreciation (P&L)
CR Accumulated depreciation (B/S)
40,000
40,000
[Being calculation of depreciation on new machine]
DR Bank
Cr Deferred income (B/S)
60,000
60,000
[Being receipt of government grant]
DR Deferred income (B/S)
CR Grant released (P&L)
6,000
6,000
[Being release of proportion of grant to Statement of Profit & Loss]
Advanced Financial Accounting Sample Paper 2
Page 23 of 27
Solution to question 5 (cont’d)
(b)
£/€
Net profit before tax
350,000
(i)
Motor vehicle expense
20,000
(ii)
Motor vehicle depreciation
(3,375)
(iii)
Plant and machinery
(40,000)
(iii)
Grant released
6,000
Revised net profit
Advanced Financial Accounting Sample Paper 2
332,625
Page 24 of 27
Solution to question 6
[a]
CLINIC Limited
Statement of Cash Flows for the year ended 31 December 2010
£/€ '000
£/€ '000
Cash flows from operating activities
Net profit before interest (W1)
Adjustments for:
Depreciation
Profit on disposal (W3)
Changes in working capital
Increase in inventory (W2)
Increase in receivables (W2)
Decrease in payables (W2)
660
600
(60)
(360)
(720)
(240)
(780)
(120)
Cash generated from operations
Interest paid
Tax paid (W4)
(540)
(90)
(630)
Net cash from operating activities
Cash flows from investing activities
Payment to acquire non-current assets (W5)
Receipt from sale of non-current assets (W3)
(750)
(360)
150
(210)
Cash flows from financing
Proceeds from share issue (incl share prem)
New bank loans (W6)
Issue of new debentures (W7)
Dividends paid
60
390
540
(60)
930
Decrease in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
Advanced Financial Accounting Sample Paper 2
(30)
30
0
Page 25 of 27
Workings
(1) Net profit before interest
£/€’000
Net profit for year
Add: tax
Add : interest
(2) Changes in working capital
Inventory (1,890 – 1,530)
Receivables (2,850 – 2,130)
Trade payables (1,140 – 450 – 930)
(3) Non‐current asset disposal
NBV
Profit on sale
Sale proceeds
(4) Taxation
Opening balance
Charge for year
Closing balance
Amount paid
(5) Non‐current asset acquisition
Opening balance
Less: disposal
Depreciation charge
90
30
540
660
£/€’000
360 increase
720 increase
240 decrease
£/€’000
90
60
150
£/€’000
90
30
(30)
90
£/€’000
Closing balance
1,320
(90)
(600)
630
(1,440)
Purchases
Amount owing included in trade payables
Amount paid
810
450
360
Advanced Financial Accounting Sample Paper 2
Page 26 of 27
(6) Bank loans
£/€’000
Opening balance (1,800 + 540)
Closing balance (2,190 + 540)
2,340
2,730
New loans
390
(7) Debentures
£/€’000
Opening balance
Closing balance (1,140 + 300)
900
(1,440)
New debentures issued
540
Advanced Financial Accounting Sample Paper 2
Page 27 of 27