Subject no.

50A Certificate in Offshore Finance and Administration

Accounting Fundamentals
July 2012

Tuesday morning 10 July 2012

Time allowed: 2 hours

Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room.

This examination paper is divided into three sections. You must attempt all parts of Question 1 in Section A, all questions in Section B, and two questions only in Section C. Section A carries 20 marks (2 marks for each part of Question 1). Section B carries 30 marks (6 marks for each question). Questions in Section C each carry 25 marks. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 40 minutes in total to answer the questions in Section B and 30 minutes for each of the questions attempted in Section C.

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Section A
Answer all parts of Question 1. Select only one of the options A, B, C or D for each part. 1. (i) The bookkeeper at Good Hope Designs incorrectly posted a payment of 125 to Safeguard Insurance as a debit to finance charges. This is an example of which one of the following errors? A. B. C. D. (ii) Compensation Commission Principle Omission

Which one of the following types of organisation is listed on the stock market? A. B. C. D. Private limited company Sole trader Partnership Public limited company

(iii)

Which one of the following is a bedrock concept of accounting? A. B. C. D. Going concern Prudence Money measurement Duality

(iv)

The sales ledger control account is also known as: A. B. C. D. Creditors control account Debtors control account Sales daybook Sales returns daybook

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(v)

On 1 April 2012, Annie Smart purchased a computer for her business and paid by cheque. What was the impact on the accounting equation? Increase A. B. C. D. Fixed asset Current asset Fixed asset Fixed asset Decrease Current asset Fixed asset Capital Current liability

(vi)

Which one of the following is an example of a current liability? A. B. C. D. Drawings Owners capital A prepayment An accrual

Questions (vii) to (x) relate to the car repair and servicing business of Sam Strong (Sam) for the accounting year 1 July 2011 to 30 June 2012. (vii) During the year, Sam paid one months rent for his home from the business. How should this payment be shown in his financial statements? A. B. C. D. As an expense in the profit and loss account. As a debtor in the balance sheet. As a deduction from capital in the balance sheet. As a current liability in the balance sheet.

(viii) Sam had a turnover of 120,000 during the year. The gross profit margin was 25% and the operating costs were 12,000. What was Sams operating profit margin for the year? A. B. C. D. 25% 15% 10% 7.5%

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The following extract from Sams business balance sheet at 30 June 2012 relates to questions (ix) and (x): Current Assets Inventory Debtors Bank Current Liabilities Trade Creditors (ix) 16,000 9,500 3,250

11,500

What was the current ratio for Sams business as at 30 June 2012? A. B. C. D. 1.11:1 2.5:1 4.59:1 5.98:1

(x)

What was the acid test (quick ratio) for Sams business as at 30 June 2012? A. B. C. D. 1.11:1 2.5:1 4.59:1 5.98:1 (Total: 20 marks)

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Section B
Answer all five questions. 2. Explain how the following are used in book-keeping: (i) (ii) (iii) Purchase returns day book. Petty cashbook. Sales ledger. (6 marks) 3. Identify and explain three sources of income shown in the financial statements of clubs and societies. (6 marks) Explain the similarities and differences between a bad debt and a provision for a doubtful debt. (6 marks) In your answer booklet, draw the table below and complete the ledger entries necessary to record the three stages in accounting for the disposal of a fixed asset before any surplus or deficit can be transferred to the income statement. No. 1 2 3 (6 marks) 6. Fay Starr began a cake making business on 1 April 2012. Her business transactions for the first month were as follows: 5 Apr Fay opened her business bank account with a deposit of 5,425 from her personal account. She purchased some equipment at a cost of 2,655 on credit from Caterers Enterprise. Fay baked six dozen cup-cakes for resale. Bank agreed an overdraft limit of 7,500. Debit Credit

4.

5.

6 Apr

9 Apr 24 Apr

For each date, state the double entry required to record the business activity for the month of April 2012. (6 marks) (Total: 30 marks)

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Section C
Answer two questions only. 7. (a) Explain the purpose of the trial balance within the accounting system. (7 marks) (b) Identify and explain six errors a trial balance cannot detect. (18 marks) (Total: 25 marks)

8.

The extracts from the financial statements of Minus Zero plc for the year ended 30 June 2012 are provided below: Minus Zero plc 2012 Sales Cost of sales Gross profit Operating profit Retained profit for the year Non current assets Inventory Receivables Cash at bank Payables Total equity 90,000 58,500 31,500 16,200 8,220 25,000 4,200 12,329 2,150 8,190 31,489

Required (a) Calculate the solvency of the company using two suitable ratios. (4 marks) (b) Explain what the results of both ratio calculations you completed in (a) tell us about the assets and liabilities of the company. (4 marks) Identify, calculate and comment on the working capital management of the company using three suitable ratios. (12 marks) Outline and comment upon two problems encountered when using accounting ratios. (5 marks) (Total: 25 marks)

(c)

(d)

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9.

The following trial balance was prepared from the ledger balances of J Chivers, trading as Chivers Sportswear (Chivers), for the year ended 30 June 2012: Trial balance for Chivers as at 30 June 2012 Sales Sales returns Purchases Purchase returns Debtors Provision for doubtful debts Creditors Long term loan Bank overdraft Office & factory rent Opening stock Plant and machinery at cost Accumulated depreciation as at 30 June 2011 Office furniture at cost Accumulated depreciation as at 30 June 2011 Carriage in Carriage out Travelling expenses Administration Repairs Salaries Telephone Drawings Discounts allowed Capital 11,010 96,000 766 12,113 600 7,886 7,319 9,218 12,660 3,834 92,022 14,271 10,988 1,099 288 219 1,316 7,503 191 50,970 3,014 18,205 3,440 323,773 87,614 323,773 195,000

Notes to the trial balance: (i) (ii) Stock at 30 June 2012 was 2,955. Accrued expenses at 30 June 2012 were travel expenses 1,155 and telephone 318. Office & factory rent includes 1,600 for the first quarter of 2012. A total of 2,113 has to be written off as bad debt. The provision for doubtful debt has to be 10% of the debtors balance. Plant and machinery is depreciated on the reducing balance basis at 25% per annum. Office furniture is depreciated at 10% on original cost.

(iii) (iv) (v) (vi)

(continued)

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Required (a) Prepare a trading, profit and loss account for Chivers for the year ended 30 June 2012. (13 marks) Prepare a balance sheet for Chivers as at 30 June 2012. (12 marks) (Total: 25 marks)

(b)

The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.

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