Answers

Part 1 Examination Paper 1.1(INT) Preparing Financial Statements (International Stream) Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A A B A D D B C C D D D A A C B D B A A C B D A A

December 2006 Answers

Workings for computational MCQs 1 A 0/inventory Purchases COGS 650 195 Inventory Remaining inventory Inventory lost 380 480 860 455 405 220 185

1 2 3

+ 500 + 500 no change 1,000

500 (75% x 450)

180 + (40% x 500) 30

838,000 72,000 = 766,000; allowance 60,000

14 A

3/ 4

x 10,800 + 1/4 x 12,000 = 11,100; prepayment 3/4 x 12,000

17 D

20% x (1,000,000 + 400,000 + 5,600,000)

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18 B

100 + 50 + 60; 80 50 + 30

22 B

1: (40,000 + 60,000 50,000) x 2 = 100,000 95,000 = 5,000 cash lost 3: (40,000 + 60,000 50,000 2,500 inventory loss) x 2 = 95,000

23 D

834,600 + 134,600 4,800 + 8,700 144,400

25 A

Payables ledger control account Opening balance Purchases Refunds received from suppliers 318,600 1,268,600 2,700

Cash paid to suppliers 1,364,300 Purchase returns 41,200 Contras against debit balances in receivables ledger 48,000 Discounts 8,200 Closing balance 128,200 1,589,900

1,589,900

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Section B 1 Golding Balance sheet as at 30 June 2006 Cost or valuation $000 Non-current assets Land and buildings Plant and equipment 9,000 6,000 15,000 Accumulated depreciation $000 200 4,400 4,600 4,700 3,320 1,200 9,220 19,620 Capital and reserves Called up share capital Share premium account Revaluation reserve (5,000 + 4,000 4,000 2,400) Retained earnings (see working) 5,000 2,200 2,600 5,570 15,370 1,000 2,500 750 $000 $000 Net book value $000 8,800 1,600 10,400

Current assets Inventories Receivables (3,600 280) Cash

Non-current liabilities 8% Loan notes Current liabilities Payables Accruals (500 + 250)

3,250 19,620 $000 4,600

Working Retained earnings balance 1 July 2005 Draft profit less: irrecoverable debts bonuses depreciation

2,900 280 250 1,400

1,930

970 5,570

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(a) (1) Sales Share capital Share premium (2) Suspense Interest payable Interest receivable (3) Sales Purchases Suspense OR Suspense Sales Purchases Suspense Sales Suspense Suspense Purchases (4) Suspense Rent (b) Profit per draft accounts Adjustments (1) Sales (2) Interest (3) Sales/Purchases (4) Rent

Dr $ 70,000

Cr $ 50,000 20,000

16,000 8,000 8,000 16,000 16,000 32,000

48,000 48,000 64,000 64,000 64,000 64,000 48,000 48,000 36,000 36,000 $ + $ 830,000

70,000 16,000 32,000 102,000 36,000 882,000 102,000 780,000

Revised profit

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Joyce Cash flow statement for the year ended 30 June 2006 $000 Cash flows from operating activities Profit before taxation (working 1) Adjustments for Depreciation Interest expense Increase in inventories Increase in receivables Decrease in payables Cash generated from operations Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property plant and equipment (Working 3) Net cash used in investing activities Cash flows from financing activities Proceeds of issue of share capital Proceeds of issue of loan notes Dividends paid Net cash from financing activities Net decrease in cash Cash at 1 July 2005 Cash at 30 June 2006 WORKINGS 1 Calculation of profit for year $000 4,000 8,200 28,000 40,200 $000 18,000 22,200 40,200 Income taxes $000 6,200 8,000 14,200 $000 6,000 8,200 14,200 22,200 13,000 720 35,920 (4,900) (8,900) (2,100) 20,020 (720) (6,200) 13,100 (19,000) (19,000) 2,000 2,000 (4,000 ) (5,900) 4,600 (1,300) $000

Dividends Tax Closing balance

0pening balance Profit for year

Cash Closing balance

Opening balance Income statement

Non-current assets $000 130,000 12,000 19,000 161,000 $000 Depreciation Closing balance 13,000 148,000 161,000

Opening balance Revaluation reserve Purchases

(a)

Following the matching concept, to reflect in operating profit the cost of use of tangible non-current assets (the amount of economic benefits consumed). It is not normally necessary to depreciate land, unless it is subject to depletion in some way a quarry for example. Buildings should be depreciated like any other non-current asset so as to allocate their depreciable amount (cost or valuation) over their useful economic life.

(b)

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(c)

(i) (ii)

Straight line. The depreciable amount of an asset, less any residual value, is written off in equal instalments over its estimated useful economic life. Reducing balance. Depreciation is calculated as a percentage of the net book value of the asset at the end of each period.

Other answers to (c) considered on their merits.

(a)

If the event provides evidence of conditions that existed at the balance sheet date, adjustment must be made, if material. Adjustment is also required if an event after the balance sheet date indicates that the going concern basis of accounting is no longer appropriate. (i) Non-current assets are normally valued at cost or valuation less depreciation. If the going concern basis was no longer appropriate, net realisable value on the basis of a short-term sale would have to be adopted instead, and the assets would be included in current assets. Inventory is normally valued at the lower of cost and net realisable value. If the going concern basis no longer applied, net realisable value on the basis of a short-term sale would have to be substituted.

(b)

(ii)

(iii) Loan notes, if shown as non-current liabilities, would have to be reclassified as current liabilities.

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Part 1 Examination Paper 1.1(INT) Preparing Financial Statements (International Stream) 1 Heading Land and building valuation accumulated depreciation Plant and equipment cost accumulated depreciation Inventory Receivables Cash Share capital Share premium account Revaluation reserve Retained earnings Loan notes Accruals Payables Format
1/ 2

December 2006 Marking Scheme 1 1

1/ 2 1/ 2 1/ 2

11/2

+ 1/2

1
1/ 2

1
1/ 2 1/ 2 1/ 2

4 x 1/2
1/ 2

+ 1/2

1 2 1/ 2 1 1/ 2 2 131/2 11/2 11/2 3 1 4 11

max 11

(a)

1 2 3 4

3 x 1 (or 4 x 1 max 3)

(b)

4x1

11

1/ + 1/ Heading 2 2 Operating profit 4 x 1/2 + tax 1 Depreciation Interest expense Increase in inventory Increase in receivables Decrease in payables Net cash inflow from operating activities All other items in statement 6 x 1/2 Calculation of non-current asset payment 1/ + 1/ Balances 2 2 Revaluation reserve Depreciation

1 3 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 3 1 1 1/ 2

21/2 1 1 1 14 /2

Cash movement Layout

max 12

(a) (b) Land not depreciated Land mention of depletion Buildings cost or valuation Spread over useful economic life 2x2
1/ 2 1/ 2

1 1

3 4 8

(c)

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(a)

Conditions at b/s date Materiality Going concern 2+2+1

11/2 1 1/ 2

3 5 8

(b)

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