Paper T6 (Int) Drafting Financial Statements: Sample Multiple Choice Questions - June 2009

Certified Accounting Technician examination
Sample multiple choice questions June 2009
Paper T6 (INT)
Drafting Financial Statements
Section A only
All questions are compulsory
Note: Section B of the actual exam paper will contain three written questions
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The following questions are typical of those that will appear in Section A of the examination paper from June 2009
onwards. There will be a total of ten questions in section A.
All questions in Section A will be worth two marks each.
Aye and Bee are in partnership sharing profits and losses in the ratio 3:2 respectively. The partners capital and current
account balances at the beginning of the year were as follows:

Current accounts
Capital accounts
Aye
$
7,500CR
12,000CR
Bee
$
2,100CR
9,000CR
The partnership made a profit of $100,000 for the year. Ayes drawings were $9,200, and Bees were $7,320.
What should Ayes current account balance be at the end of the year?
A $67,500
B $58,300
C $76,700
D $16,700

(2 marks)
At 1 May 2009 Tibor purchased six million of Kinnots ten million $1 ordinary shares for $6,000,000. At that date
Kinnot had net assets with a fair value of $8,450,000 and its share price was $1.10. It is group policy to value the
non-controlling interest at the fair value of the subsidiarys identifiable net assets using the market value of the shares
at acquistion.
What is the total goodwill on acquisition of Kinnot?
A $930,000
C $1,550,000
D $1,950,000

$2,450,000
(2 marks)
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.
Amortisation of capitalised development expenditure will appear as an item in a companys statement of changes
in equity.
Capitalised development costs are shown in the statement of financial position as non-current assets.
Capitalised development expenditure must be amortised over a period not exceeding five years.
(2 marks)
According to IAS I Presentation of Financial Statements, which of the following items could appear in the statement
of changes in equity:
(1)
(2)
(3)
(4)
A 1, 2 and 4 only
B 1, 3 and 4 only
C 1 and 3 only
Total comprehensive income for the year

Dividends
Loss on sale of investments.
Issue of share capital
D 1, 2, 3 and 4

(2 marks)
A property company received cash for rent totalling $628,950 in the year ended 31 May 2009. Figures for rent in
advance and in arrears at the beginning and end of the year were:

Rent received in advance

Rent in arrears (all subsequently received)
31 May 2008
$
76,950
31,725
3
1 May 2009
$
66,525
36,300
What amount should appear in the companys income statement for the year ended 31 May 2009 for rental
income?
A $613,950
B $634,800
C $623,100

D $643,950

(2 marks)
According to IAS 10 Events after the Reporting Period, which of the above material events which occurred after
the reporting date, require an adjustment to the figures in the financial statements?
(1) An issue of shares to finance expansion.

(2) A fire destroying some of the companys inventory (the companys going concern status is not affected).
(3) Sale for less than cost of some old inventory held at the reporting date
(4) The bankruptcy of a major customer, with a substantial debt outstanding at the reporting date.
A 3 and 4 only
B 1, 2 and 3
C 2 and 3 only

D 2 and 4 only

(2 marks)
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 recognised 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 None of the statements
D 3 only

(2 marks)
When calculating a companys gearing ratio which of the following factors would cause it to fall?
(1) A rights issue of ordinary shares.

(2) An issue of loan notes.
(3) An upward revaluation of non-current assets.
A 1 only
B 1 and 2
C 2 and 3

D 1 and 3

(2 marks)
Steve and Paul are in partnership and share profits equally. Steve receives an annual salary $30,250 and interest on
capital is paid at 5% per year.
At 1 June 2008 their capital balances were:

$
Steve 150,000
Paul
75,000
On 1 December 2008 Paul introduced a further $75,000 capital, and Steves salary was discontinued. The partnership
profit for the year ended 31 May 2009 was $228,250.
What was Steves total profit share for the year ended 31 May 2009?
A $100,000
B $99,000
C $122,625

D $105,625

(2 marks)
10 At 31 May 2008 Stoneacres capital structure was as follows:

Ordinary share capital (1,000,000 shares of 25c each)
Share premium account
$
250,000
200,000
In the year ended 31 May 2009 Stoneacre made a rights issue of 1 share for every 2 held at $1 per share and this
was taken up in full.
Later in the year Stoneacre made a bonus issue of 1 share for every 10 held, using the share premium account for the
purpose.
What was the companys capital structure at 31 May 2009?

Ordinary share capital

$

A
387,500

$
187,500
412,500
537,500
387,500
550,000

D
400,000
550,000

End of Sample Questions
(2 marks)
Answers
Sample Multiple Choice Question Paper T6 (INT)

Drafting Financial Statements
1 B

Opening balance

Profit share (100,000 x 3/5)

Drawings

Closing current account balance
Answers
$
7,500
60,000
(9,200)
58,300
2 D

Consideration transferred

Fair value of non-controlling interest 4,000,000 x $1.10

Less fair value of net assets at acquistion

Goodwill =
$
6,000,000
4,400,000
10,400,000
(8,450,000)
1,950,000
D 628,950 + (76,950 31,725) (66,525 36,300) = 643,950
9 C

Steve

Paul

$
$

Profit

Salary (30,250 x )
15,125

Interest on capital (150,000 x 5%)
7,500

(75,000 x 5% x )
1,875

(150,000 x 5% x )

3,750

Profit share
100,000
100,000

Total profit share
122,625
105,625

10 B

Share capital

$

Opening balance
250,000

Rights issue (1,000,000 x 1/2 x 25c)
125,000

(1,000,000 x 1/2 x 75c)

Bonus issue (1,500,000 x 1/10 x 25c)
37,500

(1,500,000 x 1/10 x 25c)

Total
412,500
$
228,250
(15,125)
(7,500)

(5,625)
200,000
Share premium
$
200,000
375,000
(37,500)
537,500
Answers
4JINTIX
Paper 6INT
ACCA Certified Accounting Technician Examination Paper T6(INT)

Drafting Financial Statements (International Stream)
June 2004 Answers

and Marking Scheme
4JINTAA
Paper 6INT
Marks
1
(a)
(i)
Sondaw
Income Statement for the year ended 31 May 2004
05
$000
5,876
(3,072)
2,804
(492)
(763)
1,549
(30)
1,519
(250)
1,269
Revenue
Cost of sales (W1)
Gross profit
Distribution costs (W1)
Administrative expenses (W1)
Profit from operations
Finance cost
Profit before tax
Tax
Net profit for the period
Total
(ii)
Sondaw
Balance sheet as at 31 May 2004
05
50
05
30
60
05
05
05
05
05
180
05
Assets
Non-current assets
Property, plant and equipment (W2)
$000
3,193
Current assets
Inventory
Trade and other receivables ($438 $38 $20 + $6)
Cash
800
386
50
Total assets
Equity and liabilities
Capital and reserves
$1 Ordinary shares
Accumulated profits ($280 + $1,269)
Non-current liabilities
5% loan notes
Current liabilities
Trade and other payables ($500 + $10 + $20)
Taxation
530
250
Total equity and liabilities
1,236
4,429
30
05
25
10
1,500
1,549
3,049
10
10
600
05
780
4,429
Total
11
35
05
14
4JINTAA
Paper 6INT
Marks
Workings
1
$000
Opening inventory
1,200
General expenses (10:40:50)
60
Heat and light (50:30:20)
45
Marketing and advertising ($248 $6)
Wages ($490 + $10) (60:30:10)
300
Purchases
2,200
Discounts received
(150)
Closing inventory
(800)
Bad debt expense
Allowance for bad and doubtful debts (($438 $38) x 5%)
Depreciation buildings (50:20:30)
125
Depreciation motor vehicles
Depreciation plant and equipment
92
Audit fee
3,072
Distribution Costs
$000
Administrative
Expenses
$000
240
27
300
18
242
50
150
38
20
75
50
25
20
763
492
Non current assets ($000)
Cost
Depreciation b/f
Current years depreciation:
Buildings $5000 x 5%
Motor vehicles ($160 $60) x 25%
Plant & equipment ($700 $240) x 20%
(b)
Cost of Sales
Buildings
$
5,000
(2,000)
Vehicles
$
160
(60)
Plant & Equip

$
700
(240)
Total Property
Plant & Equip
$
5,860
(2,300)
(92)
368
1,(250)
1,1(25)
1,1(92)
3,193
(250)
(25)
2,750
75
The purpose of depreciation is to spread the cost of an asset, less its residual value, over its productive
(economic) life.
10
When deciding the method of calculating depreciation the following factors are relevant:
Pattern of usage If the main value from the asset is obtained during its earliest years then it might be
appropriate to use reducing balance.
Life of the asset The time period in which wear and tear, obsolescence or depletion takes place.
Total
12
10
10
30
4JINTAB
Paper 6INT
Marks
2
Nobrie
Cash flow statement for the year ended 31 May 2004
$000
Cash flows from operating activities
Net profit before tax
41,738
Adjustments for:
Depreciation
5,862
Investment income
(146)
Interest paid
1,177
Profit on equipment disposal
(1,540)
Operating profit before working capital changes

47,091
Increase in inventory
(866)
Increase in receivables
(5,684)
Decrease in payables
(3,625)
Cash generated from operations

36,916
Interest received
146
Interest paid
(1,177)
Tax paid
(9,191)
Net cash from operating activities

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of equipment
05
$000
05
05
05
05
15
15
15
15
05
05
20
26,694
(28,048)
3,053
Net cash used in investing activities
40
10
(24,995)
Cash flows from financing activities

Proceeds from issue of share capital
Repayment of long term borrowing
7,450
(6,244)
Net cash used in financing activities
Cash and cash equivalents at end of period
10
20
10
1,206
2,905
(4,749)
(1,844)
Net increase in cash and cash equivalents

Cash and cash equivalents at the beginning of period
10
Total
05
10
10
10
250
Examiners note
IAS 7 allows interest paid to be an operating cash flow or a financing cash flow. Interest received can be an operating cash flow
or an investing cash flow.
Workings
1
Taxation
Paid (Balancing figure)

Balance c/f
$000
9,191
7,989
17,180
Balance b/f
Income statement
$000
7,323
9,857
17,180
$000
Disposal of assets
Proceeds
Less NBV (Balancing figure)
Profit on sale
3,053
(1,513)
1,540
Non-current Asset NBV
B/fwd
Revaluation
Additions (Balancing figure)
$000
88,466
8,272
28,048
124,786
Depreciation
Disposal NBV (W2)
C/Fwd
$000
5,862
1,513
117,411
124,786
13
4JINTAC
Paper 6INT
Marks
3
Partnership profit statement for the year ended 31 May 2004

3 months to
9 months to
31 August 2003
31 May 2004
$000
$000
200,000
600,000
(25,000 )
(18,000)
175,000
582,000
Unadjusted profit
Bad debt written off
Loan interest (W1)
Division of Profit
Angela
Brenda
Christine
Hannah
4/7
2/7
1/7
100,000
50,000
25,000
175,000
4/10
3/10
3/10
232,800
174,600
174,600
582,000
Total
$000
800,000
(25,000)
(18,000)
757,000
332,800
224,600
25,000
174,600
757,000
10
10
10
10
10
05
05
60
Capital accounts
Marks
Pre 31/8/03
Angela
$
Gdwill 2:1
467,667
Loan a/c
Balance c/d
633,333
1,100,000
Post 31/8/03
Gdwill 4:3:3
Bal c/f
Brenda
$
233,333
326,667
560,000
Christine Hannah
$
$
480,000

480,000
280,000 210,000
820,000 350,000
210,000
250,000
Marks
Angela
$
10 Balance b/f
500,000
05 Gwill 4:2:1
400,000
F Prop 4:2:1
200,000
1,100,000
Brenda
$
260,000
200,000
100,000
560,000
15 Balances b/d
Cash capital
Cash gdwill
Gdwill
326,667
250,000
210,000
233,333

560,000
460,000

1,100,000 560,000
460,000

30
633,333
466,667
1,100,000
Christine Hannah
$
$
330,000
100,000
50,000

480,000
15
15
05
05
10
50
Current accounts
Marks
Pre 31/8/03
Drawings
Bal c/d
Angela
$
20,000
140,000
160,000
Post 31/8/03
Drawings
40,000
Bal c/f
332,800
372,800
Brenda
$
110,000
80,000
90,000
Christine Hannah
$
$
35,000

35,000
Marks
Angela
$
15 Bal b/f
60,000
Profit to 31/8/03 100,000
160,000
Brenda
$
40,000
50,000
90,000
Christine Hannah
$
$
10,000
25,000

35,000
40,000
30,000 15 Bal b/d

140,000 80,000
214,600
144,600
Profit to 31/5/04 232,800 174,600
174,600

254,600
174,600
372,800 254,600
174,600

30
Working
(W1) Interest on Christines loan
Closing capital
$480,000
Interest at 5% for 9/12 = $18,000
14
15
15
30
4JINTAD
Paper 6INT
(a)
2003
Gross profit percentage
Net profit percentage
Return on equity
Inventory turnover
Quick ratio
Gross profit x 100
Sales
4,600 x 100 =
20,000
2300%
4,950 x 100
26,000
1904%
Net profit x 100
Sales revenue
2,140 x 100 =
20,000
1070%
2,180 x 100
26,000
838%
Net Profit x 100
Equity
2,140 x 100 =
11,120
1924%
2,180 x 100
13,300
1639%
Cost of goods sold
Inventory
15,400
6,000
257 times
21,050
6,700
314 times
Current assets inventory
Current liabilities
4,520
3,200
141 :1
7,700
4,200
183 :1
8030 days
6,740 x 365
26,000
9462 days
Receivables collection period Receivables x 365
Sales
Marking Scheme
1/ mark for correctly stating the formula and
2
(b)
2004
1/
4,400 x 365 =
20,000
mark for each correct ratio
Relevant comments could include:
It is difficult to judge the success of the expansion over such a short period of time.
The profitability ratios have deteriorated.
The reduction in the gross profit percentage could be due to difficult trading conditions or that the selling prices have
been lowered to generate sales.
The deterioration in the net profit percentage is partly due to the reduced gross profits.
The rate of inventory turnover has improved which might suggest that profitability in the future will improve.
The quick ratio has improved, this is partly due to the increase in cash which may indicate that not all the cash raised
from issuing the debentures has been invested.
The receivables collection period has increased which may indicate poor credit control, or longer credit terms being
offered to customers, or increased sales due to the success of the expansion.
Marking scheme
1 mark for each relevant comment up to a maximum of 7 marks.
(c)
Some of the factors Egriff should consider when deciding whether to raise finance by loan notes rather than issuing more
shares:
1
Loan notes pay a fixed level of interest. Therefore, the company will find budgeting for the cash flows straight-forward.
Loan note holders are non-current creditors of the company and therefore do not control the company, unlike
shareholders who own the company and will be able to vote on issues affecting the company.
If company profits fall then share dividends do not have to be paid. However, the interest on loan notes will still have
to be paid regardless of the level of profit.
Shareholders will often expect dividend payments to grow over time, therefore increasing the costs to the company.
If the company was to be wound up then loan note holders would rank higher than ordinary shareholders.
Marking scheme
15
(International Stream)
ACCA CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION
ADVANCED LEVEL
MONDAY 7 JUNE 2004
QUESTION PAPER
Time allowed 3 hours
ALL FOUR questions are compulsory and MUST be answered
Paper T6(INT)
Drafting Financial
Statements
The Association of Chartered Certified Accountants

4JGIRLAA
Paper 6IRL
ALL FOUR questions are compulsory and MUST be attempted

1
You have been provided with the following trial balance as at 31 May 2004 for a limited liability company called
Sondaw.
Dr
$000
50
1,200
600
90
248
490
5,000
160
700
Bank
Inventory at 1 June 2003
General expenses
Heating and lighting
Marketing and advertising expenses
Wages
Buildings at cost
Motor vehicles at cost
Plant and equipment at cost
Accumulated profits at 1 June 2003
Trade receivables
Purchases
Loan note interest paid
5% Loan note
Revenue
Discounts received
Trade payables
$1 Ordinary Shares
Accumulated depreciation at 1 June 2003
Buildings
Motor vehicles
Plant and equipment
Cr
$000
280
438
2,200
30
600
5,876
150
500
1,500
11,206
2,000
60
240
11,206
The following notes are relevant:

1
2
Inventory at 31 May 2004 was valued at $800,000.

Marketing and advertising expenses include $6,000 paid in advance for a marketing campaign which will begin
in June 2004. Marketing and advertising expenses should be allocated to administrative expenses.
3 There are wages outstanding of $10,000 for the year ended 31 May 2004.
4 A customer ceased trading owing the company $38,000; the debt is not expected to be recovered.
5 An allowance for doubtful debts is to be established amounting to 5% of trade receivables.
6 Depreciation is to be provided for as follows:
(i) buildings at 5% per annum on their original cost, allocated 50% to cost of sales, 20% to distribution costs
and 30% to administrative expenses.
(ii) motor vehicles at 25% per annum of their written down value, allocated to distribution costs.
(iii) plant and equipment at 20% per annum of their written down value, allocated to cost of sales.
7 No dividends have been paid or declared.
8 Income tax of $250,000 is to be provided for the year.
9 The audit fee is estimated to be $20,000.
10 The expenses listed below should be apportioned as follows:
General expenses
Wages and salaries
Cost of
Sales
10%
50%
60%
Distribution
Costs
40%
30%
30%
Administrative
Expenses
50%
20%
10%
2
4JIRLAA
Paper 6IRL
Required:
(a) Prepare the following financial statements for the year ended 31 May 2004 for Sondaw in accordance with
IAS 1 Presentation of Financial Statements:
(i)
An income statement;
(18 marks)
(ii)
A balance sheet.
(14 marks)
You are advised to show workings where appropriate.

(b) Briefly explain the purpose of providing for depreciation and identify the factors to be taken into account
when deciding on which depreciation method to use.
(3 marks)
(35 marks)
3
[P.T.O.
4JINTAB
Paper 6INT
You have been given the following information relating to a limited liability company called Nobrie.
This company is preparing its financial statements for the year ended 31 May 2004.
Nobrie
Income statement for the year ended 31 May 2004
$000
66,600
(13,785)
52,815
(7,530)
(2,516)
42,769
146
(1,177)
41,738
(9,857)
31,881
28,063
59,944
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Investment income
Finance cost
Profit before tax
Tax
Accumulated profits brought forward at 1 June 2003
Accumulated profits carried forward at 31 May 2004
Nobrie
Balance Sheets as at 31 May
2004
Assets
Non-current assets
Cost
Accumulated depreciation
Current Assets
Inventory
Trade receivables
Cash
$000
24,931
18,922
3,689
27,000
14,569
15,395
59,944
6% loan note
Current Liabilities
Bank overdraft
Trade payables
Taxation
$000
144,844
(27,433)
117,411
Total assets
Share premium
Revaluation reserve
Accumulated profits
2003
$000
47,542
164,953
116,908
114,785
(26,319)
88,466
24,065
13,238
2,224
23,331
10,788
7,123
28,063
17,824
5,533
16,699
7,989
30,221
164,953
$000
39,527
127,993
69,305
24,068
6,973
20,324
7,323
4
34,620
127,993
4JINTAB
Paper 6INT
Additional information
(i)
During the year ended 31 May 2004, the company sold a piece of equipment for $3,053,000, realising a profit
of $1,540,000. There were no other disposals of non-current assets during the year.
(ii) Profit from operations is stated after charging depreciation of $5,862,000.

(iii) There were no amounts outstanding in respect of interest payable or receivable as at 31 May 2003 or 2004.
(iv) There were no dividends paid or declared during the year.
Required:
Prepare a cash flow statement for Nobrie for the year ended 31 May 2004 in accordance with IAS 7 Cash Flow
Statements.
4JINTAC
Paper 6INT
(25 marks)
Angela, Brenda and Christine are in a partnership and share profits and losses in the ratio 4:2:1. They prepare their
accounts to 31 May each year. At 1 June 2003 their capital and current accounts showed the following balances:
Capital accounts
$
500,000
260,000
330,000
Angela
Brenda
Christine
Current accounts
$
60,000
40,000
10,000
On 31 August 2003 Christine decided to leave the partnership due to ill health. Hannah joined the partnership on
1 September 2003 and introduced $250,000 as capital and also paid $210,000 for a 30% share of the goodwill.
Goodwill, which is not to be reported in the balance sheet, is agreed to be worth $700,000. After Hannahs admission
to the partnership it was agreed the profits and losses would be shared as follows:
Angela
Brenda
Hannah
40%
30%
30%
Before calculating the amount Christine is entitled to when she leaves the partnership the following adjustments need
to be taken into account:
(a) The net profit for the partnership for the year ended 31 May 2004 was $800,000 before allowing for items (b)
and (c) below. It was agreed that the profit accrued evenly throughout the year.
(b) A bad debt of $25,000 relating to a sale made in June 2003 is to be written off for the year ended 31 May
2004.
(c) Christine has decided to leave her final agreed capital balance in the partnership as a loan and receive interest
at a rate of 5% per annum up to the year end. The loan interest was paid to her on 31 May 2004.
(d) The partnerships freehold property is to be revalued upwards by $350,000 and it is agreed that the freehold
property will be carried at the revalued amount in the balance sheet.
(e) The partners drawings during the year were:
Angela
Brenda
Christine
Hannah
$
60,000
50,000
35,000
30,000
($20,000 before 31 August 2003 and the remainder afterwards)

($10,000 before 31 August 2003 and the remainder afterwards)
(All before 31 August 2003)
(All after 31 August 2003)
Required:
Prepare a statement showing the final profit for the year ended 31 May 2004 and the share attributable to each
partner, together with the capital and current accounts for all four partners.
(20 marks)
5
[P.T.O.
4JINTAD
Paper 6INT
The financial statements of Egriff, a company limited by liability, for the years ended 31 May 2003 and 31 May 2004
are summarised below.
Revenue
Cost of sales
Gross profit
Expenses:
Administrative
Selling and distribution
Depreciation
Loan note interest
Income statements for the years ended

31 May 2003
31 May 2004
$000
$000
$000
$000
20,000
26,000
(15,400)
(21,050)
4,600
4,950
(800)
(1,550)
(110)
(900)
(1,565)
(200)
(105)
(2,460)
2,140
Net profit
(2,770)
2,180
Balance sheets as at
31 May 2003
$000
$000
Non current assets
At cost
Current assets
Inventory
Receivables
Bank
4,600
(800)
3,800
6,000
4,400
120
10,520
14,320

Issued share capital
Accumulated profit
31 May 2004
$000
$000
5,600
(1,000)
6,700
6,740
960
8,000
3,120
11,120
7% Loan notes
3,200
14,320
Current liabilities
4,600
14,400
19,000
8,000
5,300
13,300
1,500
4,200
19,000
Additional Information
During 2003 Egriff issued loan notes of $1,500,000 at 7% per annum to fund the expansion of the business. The
additional cash was received on 1 June 2003.
6
4JINTAD
Paper 6INT
Required:
(a) Calculate the following ratios for Egriff for both years.
Return on equity
Inventory turnover
Quick ratio
Receivables collection period
State the formulas used for calculating the ratios.
(9 marks)
(b) Comment on the success of the business expansion as indicated by the ratios you have calculated in part
(a).
(7 marks)
(c) Briefly explain the factors Egriff should consider in deciding whether to raise finance by issuing loan notes
rather than issuing more shares.
(4 marks)
(20 marks)
End of Question Paper
7
Answers

1
(a)
Guyridge
Income statement for the year ended 31 October 2004
$
Sales revenue (W1)

Opening inventory
Purchases (W2)
Carriage inwards
$
395,000
25,000
195,000
4,500
224,500
(37,000)
Less closing inventory

Cost of goods sold
Gross profit
Expenses
Vehicle running expenses
Insurance
Telephone
Advertising
Rent and rates
Office supplies
Depreciation for: Vehicles
Equipment
13,500
8,000
6,250
3,500
4,250
14,000
1,250
6,000
12,000
18,000
Interest on capital: Kevin

David
8,000
5,000
________
Share of Profit: Kevin 2/3

1
David /3
05
05
(5,000 + 4,000 1,000)

(7,000 3,000 + 2,250)
(2,250 + 2,000)
(15,000 1,000)
05
05
(88,750)
118,750
2,000
1,000
30
05
20
05
05
15
15
05
15
15
05
10
10
15,000
5,000
Net profit before appropriation

Interest on drawings: Kevin
David
Marks Workings ($)

05
05
(187,500)
207,500
Bad debts
Discounts allowed
(b)
December 2004 Answers

and Marking Scheme
3,000
121,750
(13,000)
________
108,750
72,500
36,250
108,750
05
05
05
05
05
10
10
23
Current Accounts
Kevin
Drawings
Interest on drawings
Balance c/f
$
60,000
2,000
41,500
103,500
Balance b/f
Interest on capital
Share of profit
$
23,000
8,000
72,500
103,500
10
10
05
David
Drawings
Balance c/f
$
30,000
1,000
31,250
62,250
Balance b/f
Interest on capital
Share of profit
$
21,000
5,000
36,250
62,250
10
10
05
50
11
Marks
(c)
Guyridge
Balance Sheet as at 31 October 2004
Cost
Provision for
Net Book
Depreciation
Value
$
$
$
Non-current assets
Vehicles
Equipment
32,000
60,000
92,000
Current Assets
Inventory
Trade receivables (W1)
Prepayments
Bank (W3)
37,000
55,000
1,000
68,000
Partners capital accounts

Kevin
David
Partners current accounts
Kevin
David
Current liabilities
Trade payables (W2)
Accruals
Workings
W1
Receivables b/f
Sales (bal. fig)
W2
Bank
Payables c/f
W3
Balance b/f
Receivables control
14,000
24,000
38,000
80,000
50,000
41,500
31,250
10,000
2,250
05
18,000
36,000
54,000
10
10
10
05
05
10
30
161,000
215,000
05
05
130,000
05
05
72,750
202,750
05
10
12,250
215,000
12
Allocation
of marks
Trade Receivables Control Account

$
80,000
Bad debts
395,000
Settlement discounts
Bank
Receivables c/f
475,000
Trade Payables Control Account

$
200,000
Trade payables b/f
10,000
Purchases (bal. fig)
210,000
Bank
$
10,000
Trade payables control
400,000
Drawings: Kevin
David
Carriage inwards
Vehicle expenses
Insurance
Telephone
Advertising
Rent and rates
Office supplies
Balance c/f
410,000
$
15,000
5,000
400,000
55,000
475,000
$
15,000
195,000
210,000
$
200,000
60,000)
30,000)
4,500)
13,500)
5,000)
7,000)
3,500)
2,250)
15,000)
1,250)
68,000
410,000
05 + 05
05 + 05
05
05
05 + 05
05 + 05
05 + 05
05 + 05
12
Marks
2
(a)
Goodwill on acquisition of Bury

Cost of investment
Share capital ($30,000 x 70%)
General reserve ($500,000 x 70%)
Accumulated profits ($1,500,000 x 70%)
$000
21,000
350
1,050
$000
24,000
05
05
10
10
(22,400)
1,600
Total
(i)
Black
05
Consolidated income statement for the year ended 31 October 2004
$000
Workings ($000)
Sales revenue
323,200
20 245,000 + 95,000 16,800
Cost of sales
(176,640)
25 140,000 + 52,000 16,800 + 1,440*
Gross Profit
146,560
Distribution costs
(22,000)
05
(68,000)
05
Goodwill impairment
(160)
10 (960 800)
Profit before tax

56,400
Income tax expense
(18,250)
05
Profit after tax

38,150
Minority interest
(4,500)
20 30% x 15,000

33,650
05
Total 100
(ii)
Black
Marks
Consolidated Balance Sheet as at 31 October 2004
05
Assets
$000
$000
Non-current assets
Intangible goodwill
800
20
Property, plant and equipment
150,000
05 (110,000 + 40,000)
150,800
Current assets
Inventory, at cost
15,810
15 (13,360 + 3,890 1,440*)
Trade receivables
12,420
25 (14,640 + 6,280 7,000** 1,500***)
Bank
6,070
34,300
05 (3,500 + 2,570)
Total assets
185,100

Capital and Reserves
$1 Ordinary shares
100,000
05
General reserves
9,550
15 (9,200 + ((1,000 500) x 70%)
Accumulated profits (W1)
30,506
30
Minority interest
12,084
10 (30% x 40,280)
152,140
Current liabilities
Trade payables
9,960
20 (9,000 + 2,460 1,500***)
Dividends payable to Minority
Interests
3,000
10 (10,000 7,000)
Dividends
20,000
32,960
05

185,100
170
Notes:
* Exclusion of unrealised profit held in inventory ($1,440,000)
** Exclusion of the intragroup dividends from trade receivables ($7,000,000)
*** Intracompany indebtedness
13
Working Paper
W1 Accumulated profits as at 31 October 2004
$000
Black balance sheet
Less unrealised profit
Bury:
Retained profits
Pre-acquisition reserves
$000
27,300
(1,440)
9,280
(1,500)
7,780
Group share (70% x $7,780,000)

Less cumulative goodwill impairment as at 31 October 2004
5,446
(800)
30,506
(1600 (960 160))
Marks
3
(a)
Dividend per share
Dividend cover
Dividend for the year
Number of shares in issue

Profit after tax for ord shholders
Dividend
10,000
= 20 cents per share
50,000
15
11,150
= 11 times
10,000
15
11,150
= 22 cents
50,000
15
Earnings per share
Net Profit after tax
No. of ordinary shares
Price earnings ratio
Price per share
Earnings per share
150
= 67
223
15
Debt
Equity
1,000
= 3%
32,520
15
12,715
= 254 times
50
15
Debt/equity ratio
Interest cover
Profit before interest and taxation
Interest
Total marks
____
9
14
(b)
(i) & (ii)

Notes on Tressvens ratios
Ratio
Tressven
Hilladay
Comment on the ratio calculated
Dividend per share
20c
10c
The level of dividend per share available to Tressven

shareholders is double that available to Hilladay. This
may suggest a generous level of dividend which will
please shareholders in the short term.
Dividend cover
11
The level of dividend does not appear to be justified by

the available profit. It also suggests that this level of
dividend may not be sustainable in the future.
Earnings per share
22c
20c
The EPS for Tressven is similar to Hilladays EPS.

However, Hilladay has retained half its earnings for
future investment. This is not the case for Tressven
and would suggest profit levels may stagnate.
67
134
A comparison of the PE ratio suggests that investors

are keener to invest in Hilladay than Tressven. This may
be because of concerns regarding the future profitability of
Tressven.
Debt/equity ratio
3%
15%
The gearing ratio for Tressven seems low in comparison

with Hilladay. It may be that Tressven is not borrowing
sufficiently to invest in the future of the company.
Alternatively Hilladay may have high borrowings.
Interest cover
254
100
Tressven can comfortably afford to meet its interest

charges, so can Hilladay. This suggests that Tressven
could afford to increase its borrowing to invest.
There should be some evidence of trying to interpret the ratios, while acknowledging the limitations of the information
available. Other comments, if appropriate, will also be given credit.
1 mark for making a relevant comment about each ratio up to 6 marks.
15
(a)
The main purposes of the Framework for the Preparation and Presentation of Financial Statements are:
(i)
To provide a framework for the future development of international accounting standards and the review of existing ones.
(ii)
To inform interested parties (e.g. national standard setting bodies) of the approach taken by the IASB in formulating
standards.
(iii) To provide guidance to practitioners when applying international accounting standards.

(iv) To provide a basis for reducing the number of alternative accounting treatments permitted by international accounting
standards and thereby promoting harmonisation of regulations, accounting standards and procedures.
(v)
To assist auditors in forming an opinion as to whether financial statements conform with international accounting
standards.
(vi) To assist the users of financial statements when interpreting the information.
(1 mark for each reason up to a maximum of 5 marks)
(b)
User Group
Information needs
Current (and future) investors
They need to assess the financial performance of the organisation to understand

the level of risk and the returns provided by their investment.
Key information requirements: ability to generate cash, level of profitability, and
dividends.
Lenders
They need information on the ability of the organisation to repay loans and any
interest.
Key information: profitability, ability to manage working capital (liquidity), current
level of borrowing, value of assets.
Customers
Customers that are dependent on the organisation for significant levels of

business or are considering placing long term contracts will need to know
whether it will stay in business or not.
Key information requirements: ability to generate cash, and profitability.
Suppliers (and trade creditors)
They will want to know whether the organisation will stay in business and
whether they will be paid.
Key information requirements: ability to generate cash, and profitability.
Marking scheme
1
/2 mark for identifying the user group and up to 2 marks for stating their information requirements. Maximum of 10 marks.
16
ADVANCED LEVEL
MONDAY 6 DECEMBER 2004
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements
Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination
hall


1
Kevin and David are in partnership together and trade under the name Guyridge. They have just completed their
second year of trading and have asked for your help in preparing their final accounts for the year ended 31 October
2004.
The business has expanded rapidly. Consequently, the partners have not had time to maintain the accounting records
properly. However, they are able to provide you with the following information.
At 1 November 2003 the business had the following balances:
Dr
$
Capital accounts: Kevin
David
Current accounts: Kevin
David
Vehicles at cost
32,000
Equipment at cost
60,000
Provisions for depreciation
Vehicles
Equipment
Prepayments:
Advertising
2,000
Insurance
4,000
Accruals:
Rent and rates
Cash at bank
10,000
Inventory
25,000
Trade payables
Trade receivables
80,000
213,000
Cr
$
80,000
50,000
23,000
21,000
8,000
12,000
3,000
1,000
15,000
213,000
The business also made payments during the year for the following:
$
Carriage inwards
4,500
13,500
Insurance
5,000
7,000
Telephone
3,500
Advertising
2,250
Rent and rates
15,000
Office supplies
1,250
Suppliers
200,000
252,000
Inventory as at 31 October 2004 was valued at $37,000.
The business owed $10,000 to suppliers as at 31 October 2004.
Insurance of $1,000 was paid in advance at 31 October 2004.
During the year bad debts of $15,000 were written off.
Interest on capital account balances is to be allowed at 10%.
Receipts from customers were $400,000 and there was $55,000 outstanding from customers at 31 October 2004.
Settlement discounts of $5,000 were given to customers.
Invoices totalling $2,250 relating to heating and lighting were unpaid at 31 October 2004.
Depreciation on vehicles is to be provided at 25% of their written down value.
2
Depreciation on equipment is to be provided at 20% on its original cost.

Cash drawings during the year were: Kevin $60,000; David $30,000.
Interest on drawings is to be charged as follows: Kevin $2,000; David $1,000.
Kevin and David have an agreement to share the profits in the ratio 2:1.
Required
Prepare the following statements for the partnership:
(a) the income statement and appropriation account for the year ended 31 October 2004;
(b) the partners current accounts for the year ended 31 October 2004; and
(c) the balance sheet as at 31 October 2004.
(23 marks)
(5 marks)
(12 marks)
(You are advised to show any necessary supporting workings)

(40 marks)
3
[P.T.O.
The following are the financial statements relating to Black, a limited liability company, and its subsidiary company
Bury.
Income statements for the year ended 31 October 2004
Black
$000
Sales revenue
Cost of sales
245,000
(140,000)
105,000
(12,000)
(55,000)
38,000
7,000
45,000
(13,250)
31,750
Gross profit
Distribution costs
Dividend income from Bury
Profit before tax
Tax
Balance Sheets as at 31 October 2004

Black
$000
Assets
Non-current assets
Investments:
21,000,000 $1 ordinary shares in Bury at cost
Current assets
Inventory, at cost
Trade receivables and dividend receivable
Bank
13,360
14,640
3,500
Total assets
$1 Ordinary shares
General reserve
Accumulated profits
Current liabilities
Payables
Dividend
Bury
$000
95,000
(52,000)
43,000
(10,000)
(13,000)
20,000
20,000
(5,000)
15,000
Bury
$000
$000
110,000
40,000
24,000
134,000
40,000
31,500
165,500
3,890
6,280
2,570
100,000
9,200
27,300
136,500
9,000
20,000
$000
29,000
165,500
12,740
52,740
30,000
1,000
9,280
40,280
2,460
10,000
4
12,460
52,740
The following information is also available:

(a) Black purchased its $1 ordinary shares in Bury on 1 November 1999. At that date the balance on Burys general
reserve was $05 million and the balance of accumulated profits was $15 million.
(b) At 1 November 2003 the goodwill arising from the acquisition of Bury was valued at $960,000. Blacks
impairment review of this goodwill at 31 October 2004 valued it at $800,000.
(c) During the year ended 31 October 2004 Black sold goods which originally cost $12 million to Bury. Black
invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 2004.
(d) Bury owed Black $15 million at 31 October 2004 for some of the goods Black supplied during the year.
Required:
(a) Calculate the goodwill arising on the acquisition of Bury.
(3 marks)
(b) Prepare the following financial statements for Black:

(i)
the consolidated income statement for the year ended 31 October 2004;
(ii) the consolidated balance sheet as at 31 October 2004.
(10 marks)
(17 marks)
Disclosure notes are not required.

(30 marks)
5
[P.T.O.
Nicola is thinking of investing in a limited liability company called Tressven. She has asked for your help to calculate
some of the ratios she needs to decide whether or not to invest. She has given you the summarised financial
statements of Tressven which are shown below:
Tressven
$000
Sales revenue
23,420
Cost of sales
(8,245)
Gross profit
15,175
Expenses
(2,460)

12,715
Finance cost
(50)
Profit before tax

12,665
Income tax expense
(1,515)

11,150
Tressven
Balance sheet as at 31 October 2004
$000
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Cash
31,000
1,450
2,500
50
Total assets
$050 Ordinary Shares
Reserves
Current liabilities
Trade payables
Tax
Loan notes
4,000
35,000
25,000
7,520
32,520
860
620
1,480
1,000
35,000
6
(i)
During the year Tressven paid dividends of $10 million.
(ii) The market share price for Tressven is $150.

(iii) Tressvens main competitor is a company called Hilladay which has the following ratios:
Dividend per share
Dividend cover
Earnings per share (EPS)
Debt/equity ratio
Interest cover
10 cents
5 times
20 cents
134
15%
100 times
Required:
(a) Calculate the following ratios for Tressven:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Dividend per share;

Dividend cover;
Earnings per share (EPS);
Price earnings ratio (PE ratio);
Debt/equity ratio;
Interest cover.
Show all workings
(9 marks)
(b) Prepare notes for Nicola that comment on the ratios you have calculated. Use the ratios for Hilladay as a
comparator.
(6 marks)
(15 marks)
Required:
(a) Explain the main purposes of the International Accounting Standards Boards Framework for the Preparation
and Presentation of Financial Statements.
(5 marks)
(b) Identify any four user groups of financial statements and explain what information they are likely to want
from them.
(10 marks)
(15 marks)
7
Answers

June 2005 Answers and

Marking Scheme
Marks
(a)
(i)
Adnett
Gross profit
Finance cost
Profit before tax
Tax
(ii)
10
$000
3,485
(2,715)
770
(153)
(331)
286
(58)
228
(70)
158
Revenue
Cost of sales (W1)
Adnett
$000
Assets
Non-current assets (W2)
Goodwill
Current assets
Inventory
Trade receivables
Bank
Total assets
$1 Ordinary shares (W3)
Share premium account (W3)
General reserve
Retained earnings
10% Loan notes
Current liabilities
Trade payables
Income tax
Wages accrual
Loan notes interest
1,030
70
42
58
10
50
(3,500 15)
15
45
05
(580 x 10%)
05
10
150
$000
1,773
68
1,841
560
660
147
Workings
$000
1,367
3,208
4
10
05
10
05
1,080
40
70
238
1,428
15
15
10
20
580
05
1,200
3,208
(700 40)
(35 + 35)
(115 + 158 35)
05
05
10
05
170
13
Workings
1
Opening inventory
Discounts allowed
Discounts received
Heating and lighting (40:20:40)
Wages and salaries ($250 + $42) (50:25:25)
Purchases ($2,170 + $35 $17) (11/2 marks)
Carriage inwards
Closing inventory (1/2 mark)
Increase in allowance for doubtful debts
Goodwill impairment
Depreciation plant
Directors remuneration
Administrative
Expenses
$000
108
54
146
2,188
105
(560)
73
70
(80)
108
60
73
13
200
26
10
17
13
2,715
(5 marks)
153
(15 marks)
60
331
(45 marks)
Goodwill
$000
85
Land
$000
345
Buildings
$000
1,040
(160)
Total
Property, Plant
Plant
& Equipment
$000
$000
1,200
2,585
(400)
(560)
(17)
(52)
68
345
828
(200)
600
(52)
(200)
1,773
Share Capital Reconciliation
Opening balance
Issued on purchase of business
Shares ranking for dividend
Bonus issue 900 x 1/5
Closing balance
(b)
Distribution
Cost
$000
Non-current assets
Cost
Depreciation b/f
Current years depreciation/amortisation:
Goodwill write-down
Buildings $1,040 x 5%
Plant ($1,200 $400) x 25%
Cost of
Sales
$000
515
Share Capital
$000
800
100
900
180
1,080
Share Premium
$000
200
20
220
(180)
40
The accounting treatment for goodwill as required by IFRS 3

At the date of acquisition the acquirer recognises goodwill as an intangible asset. On an ongoing basis goodwill is measured
at cost and is assessed for impairment in accordance with IAS 36 at least annually. When a recoverable amount write-down
is required that write-down is taken through the income statement in the period in which it is identified.
3 marks
14
Marks
2
(a)
Prepared in accordance with IAS7

Snowdrop
$000s
Adjustments for:
Depreciation
Loss on sale of tangible non-current assets
Interest
Increase in payables
Interest paid
Tax paid
Dividends paid
1
$000s
1,032
700
20
10
1,762
1
1
05
(80)
(130)
85
1,637
(10)
(145)
(270)
1
1
1
05
2
1
1,212
Cash flow from investing activities

Purchase of non-current assets
Receipts from sales of tangible non-current assets
(2,800)
180

1,280
(100)
1
1
1,180
(228)
170
(58)
Net increase/(decrease) in cash and cash equivalents

25
1
Note
Dividends paid and interest paid may be shown in either operating activities or financing activities.
1
1
05
1
20
Workings
Balance b/f
New non-current assets (bal)
Non-current assets
$000
2,700
Depreciation
2,800
Disposals
Balance c/f
5,500
$000
700
200
4,600
5,500
Tax
Tax paid (balancing figure)
Balance c/f
(b)
$000
145
180
325
Balance b/f
Income statement
$000
145
180
325
Comment on the financial position of Snowdrop as shown by the cash flow statement
There has been a net outflow of cash $228,000 which has left the company with an overdraft of $58,000.
There was significant expenditure on non-current assets of $2,800,000 during the year. This should help improve
operational efficiency and future profitability.
Additional ordinary shares were issued which resulted in a cash inflow of $1,280,000. This will result in future cash
outflows in the form of dividends.
Long term loans of $100,000 were repaid which will reduce interest payments in future.
There has been an increase in receivables of $130,000 which may mean customers are taking longer to pay and
consequently having an adverse impact on cash flows.
15 marks for each relevant comment which is adequately explained up to a maximum of 6 marks.
15
(c)
Briefly state some of the ways in which a company could manipulate the year end cash position.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Offering short term incentives to customers to increase sales.

Reducing the selling price to increase sales.
Cutting expenses.
Disposing of assets.
Delaying payments to credit suppliers.
Encouraging customers to pay early by offering discounts.
Resourcing effective debt collection procedures.
Marks
3
(a)
(i)
Capital accounts immediately before sole traders merge
Balance c/f
A. Littles Capital Account

$000
205
Balance b/f
Revaluation
Goodwill
205
$000
160
10
35
205
Revaluation (70 55)

Balance c/f
(ii)
Goodwill w/off (2:1)

Balances c/f
(iii)
B. Suttons Capital Account

$000
15
Balance b/f
89
Goodwill
104
$000
79
25
104
Little Suttons Capital Accounts

A. Little
B. Sutton
A. Little
$000
$000
$000
40
20
Transfer: Sole traders 205
165
69
205
89
205
B. Sutton
$000
89
89
Little Sutton
Balance sheet as at 1 June 2005
$000
Assets
Non-current assets
Freehold property
Plant and equipment
$000
120
80
200
Current assets
Inventory
Trade receivables
Bank and cash
27
18
23
Total assets
Capital and liabilities
Capital Accounts
A. Little
B. Sutton
Current liabilities
Trade payables
Total capital and liabilities
68
268
05
05
05
05
05
165
69
234
05
05
34
268
05
16
(b)
Briefly state two advantages and two disadvantages of A Little and B Sutton becoming partners rather than continuing as
sole traders.
Advantages
Risks are spread between the partners
They may be able to specialise in a particular activity within the business.
They may find it easier to raise finance for the business.
They can pool their network of contacts

Disadvantages
They may find working together a problem.
Their individual freedom for decision making might be limited.
They now have to share any profits.

1 mark for each advantage or disadvantage up to a maximum of 4 marks.
(a)
Return on capital employed* Net Profit before Interest & tax
Capital employed
x 100
25 x 100 =139%
180
(ii)
Gross Profit
Revenue
x 100
60 x 100 =375%
160
15
Net Profit before interest and tax
Revenue
x 100
25 x 100 =156%
160
15
Current Assets Inventory
Current liabilities
:1
Receivables
Revenue
x 365
(iii) Net profit percentage*
(iv) Quick/Acid test ratio
(v)
(vi) Earnings per share
Profits on ordinary activities after tax
No. of ordinary shares in issue
75 45 :1
45
= 067 :1
15
25 x 365 =
160
57 days
15
10
100
10 cents
15
* Alternative definitions are also acceptable
(b)
Marks
15
(i)
90
Brief Report
To:
From: A CAT Student
Date June 2005
Subject: Financial Appraisal of F. Raser Using Accounting Ratios
Introduction
The purpose of this report is to analyse the financial performance of F. Raser over the last three years using accounting ratios.
The report specifically comments on the following ratios:
Return on capital employed;

Gross profit percentage;
Net profit percentage;
Quick/acid test ratio;
Receivables collection period; and
Earnings per share
The report also highlights what other information would be useful to help interpret the ratios.
Return on capital employed
The return on capital employed has declined over the last three years from 162% to 139% and is now well below the
industry average (162%). This should be a cause for concern to the board of directors because if investors can obtain a
higher return elsewhere then they may withdraw their investment. Alternatively they may seek to change the management
board. It would be helpful to have more information on the market in which F. Raser operates e.g. is the market growing or
declining, are there many buyers and sellers or just a few.
17

The gross profit percentage has risen over the period from 304% to 375%. Clearly the company has either
(i)
increased the selling price of its goods, e.g. perhaps it is able to sell at a premium because of perceptions regarding the
quality of the goods sold.
(ii)
reduced the cost of its supplies. Possibly changing suppliers or obtaining greater discounts as sales volume has
increased.
It would be useful to know what the company is selling and the volume of sales analysed by product and year.
The net profit percentage has declined over the period from 193% to 156% and is significantly below the industry average
of 173%. This is worrying considering the increase in the gross profit percentage over the same period. The decline in the
net profit percentage suggests that the costs may not be tightly controlled within the company. More detailed information on
expenditure during the period would be helpful in identifying the reasons for the decline in profitability.
Quick (or acid test) ratio
The quick ratio has also declined significantly during the period from 15 to 067 suggesting the company may be
experiencing liquidity problems. This view is also supported when the ratio is compared to the industry average which is over
double that of F. Raser. The level of inventory may be a concern as it is tying up cash. More information on the type of
inventory and the level of inventory turnover would be useful.
The time taken to collect debts has increased over the period from 32 days to 57 days. This seems very high when compared
to the industry average debt collection period of just 35 days. The ratio suggests that there is little control over debt collection.
In addition, the lengthening of the collection period means it is more likely that some debts will not be paid by customers.
The poor control over debt collection will be a factor contributing to the adverse liquidity situation of the company.
Earnings per share
The earnings per share deteriorated over the period from 18c per share to 10c per share. This level of EPS is also significantly
below the industry average and it is likely to discourage potential investors from investing in the company and may not be
sufficient to keep existing shareholders.
Conclusion
Although the company has managed to increase its gross profit over the period, this has not resulted in a similar increase in
net profit. In summary the ratios indicate poor internal control of costs and poor management of working capital. The return
on capital employed and the EPS ratios are unlikely to be sufficiently attractive to potential investors or to existing
shareholders.
Marking scheme
1 mark for each relevant comment up to a maximum of 10 marks. 1 mark for report format.
18
ADVANCED LEVEL
MONDAY 6 JUNE 2005
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements

hall


1
The trial balance of Adnett, a limited liability company, at 31 May 2005 was as follows:
Dr
$000
Revenue
Discounts received
Discounts allowed
Bank balance
Buildings at cost
Buildings, accumulated depreciation, 1 June 2004
Plant at cost
Plant, accumulated depreciation, 1 June 2004
Land at cost
Purchases
Returns inwards
Returns outwards
Trade payables
Trade receivables
Carriage inwards
Wages and salaries
10% Loan notes
General reserve
Allowance for doubtful debts, at 1 June 2004
Retained earnings at 1 June 2004
$1 Ordinary shares
Cr
$000
3,500
80
70
147
1,040
160
1,200
400
345
2,170
15
17
270
60
1,030
700
105
250
580
35
30
60
115
800
515
6,947
200
6,947
Additional information as at 31 May 2005

(i)
(ii)
(iii)
(iv)
(v)
Closing inventory has been counted and is valued at $560,000.

There are wages and salaries to be paid of $42,000.
Loan note interest has not been paid during the year.
The allowance for doubtful debts is to be increased to $40,000.
Plant is depreciated at 25% per annum using the reducing balance method. The entire charge is to be allocated
to cost of sales.
(vi) Buildings are depreciated at 5% per annum on their original cost, allocated 25% to cost of sales, 50% to
distribution costs and 25% to administrative expenses.
(vii) On 1 August 2004 Adnett purchased and absorbed another business as a going concern. Adnett paid $85,000
for goodwill and $35,000 for the business inventory. The purchase was paid for by the issue of 100,000
ordinary shares. This transaction has not yet been recorded in the books of Adnett. At 31 May 2005 the fair
value of the goodwill was $68,000.
(viii) During May 2005 a bonus (or scrip) issue of one for five was made to ordinary shareholders. This has not been
entered into the books. The share premium account is to be used for this purpose.
(ix) No dividends have been paid or declared.
(x) The directors have agreed a transfer of $35,000 to the general reserve from profits for the period.
(xi) Tax has been calculated as $70,000 for the year.
2
(xii) The expenses listed below should be apportioned as indicated:
Discounts allowed and received

Wages and salaries
Goodwill impairment
Cost of
Sales
40%
50%
Distribution
Costs
20%
25%
Administrative
Expenses
100%
40%
25%
100%
Required:
(a) Prepare, for external use, the following financial statements for Adnett in accordance with IAS 1 Presentation
of Financial Statements:
(i)
the income statement for the year ended 31 May 2005; and
(ii) the balance sheet as at 31 May 2005
(15 marks)
(17 marks)
(Notes to the financial statements are not required)

(b) Briefly explain the accounting treatment for purchased goodwill.
(3 marks)
(35 marks)
3
[P.T.O.
The following information has been extracted from the draft financial statements of Snowdrop, a limited liability
company.
Snowdrop
2005
$000
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Bank
4,600
580
360
0
940
5,540
Total assets
Share premium
Retained earnings
10% Loan note (redeemable 31 May 2005)
Current liabilities
Trade payables
Taxation
Bank overdraft
2004
$000
450
180
58
2,700
500
230
170
900
3,600
3,500
300
1,052
4,852
2,370
150
470
2,990
100
688
5,540
$000
365
145
0
510
3,600
(i) The income statement for the year ended 31 May 2005 shows the following:
Operating profit
Interest payable
Profit before taxation
Taxation
Profit for financial year
$000
1,042
(10)
1,032
(180)
852
(ii) During the year dividends paid were $270,000.

(iii) Profit before taxation had been arrived at after charging $700,000 for depreciation on non-current assets.
(iv) During the year non-current assets with a net book value of $200,000 were sold for $180,000.
4
Required:
(a) Prepare a cash flow statement for Snowdrop for the year ended 31 May 2005 in accordance with IAS 7
Cash Flow Statements, using the indirect method.
(20 marks)
(b) Comment on the financial position of Snowdrop as shown by the cash flow statement you have prepared.
(6 marks)
(c) Briefly state some of the ways in which companies could manipulate their year end cash position.
(4 marks)
(30 marks)
5
[P.T.O.
A. Little and B. Sutton were two sole traders in the same line of business. On 1 June 2005 they decided to merge
their businesses to form a partnership called Little Sutton. It was agreed that the profits from the partnership should
be split between A. Little and B. Sutton in the ratio 2:1.
The balance sheets for the two sole traders were as follows:
Balance Sheets as at 31 May 2005
A. Little
$000
$000
Assets
Non-current
Freehold property
Plant and equipment
Current assets
Inventory
Trade receivables
Bank and cash
B. Sutton
$000
110
25
135
15
10
15
40
175
Total assets
Proprietors Capital
A. Little
B. Sutton
$000
70
70
12
8
8
28
98
160
79
Current liabilities
Trade payables
15
175
19
98
Additional information not included in the balance sheets above:

(i) The freehold property was revalued at $120,000 on 31 May 2005.
(ii) The plant and equipment which originally belonged to B. Sutton was revalued to $55,000 on 31 May 2005.
(iii) Goodwill is agreed at 31 May 2005 to be $35,000 for A. Little and $25,000 for B. Sutton. Goodwill is not to
be carried in the partnership balance sheet.
(iv) All assets and liabilities are taken over by the partnership.
Required:
(a) Prepare the:
(i)
capital accounts of A. Little and B. Sutton as at 31 May 2005 prior to the formation of the partnership.
(4 marks)
(ii) partners capital accounts as in the new partnership as at 1 June 2005.
(3 marks)
(iii) opening balance sheet for the Little Sutton partnership.
(4 marks)
(b) Briefly state two advantages and two disadvantages of A. Little and B. Sutton becoming partners rather than
continuing as sole traders.
(4 marks)
(15 marks)
6
This is a blank page.

Question 4 begins on page 8.
7
[P.T.O.
You are presented with the following summarised accounts for F. Raser, a limited liability company.
F. Raser
Revenue
Cost of sales
Gross profit
Distribution & administrative expenses
Finance cost
Profit before tax
Tax expense
$000
160
(100)
60
(35)
25
(5)
20
(10)
10
F. Raser
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Cash and bank
$000
150
45
25
5
75
225
Total Assets
$1 Ordinary shares
Reserves
100
30
130
10% loan notes
Current liabilities
Trade payables
Taxation
Dividends (for the year)
50
30
10
5
45
225
The ratio values for F. Raser for 2003 and 2004 as well as the current average ratio values for the industry sector in
which F. Raser operates are as follows:
Ratio
Return on capital employed (%)
Gross profit percentage (%)
Net profit percentage (%)
Quick/Acid test ratio
Receivables collection period (days)
Earnings per share (cents)
Historical Data
2003
2004
162
147
304
347
193
177
15
11
320
440
180
130
Industry Average
2005
162
323
173
15
350
150
8
Required:
(a) Calculate the following ratios for F. Raser for the year ended 31 May 2005. State clearly the formulae used
for each ratio.
(i)
(ii)
(iii)
(iv)
(v)
(vi)

Quick/Acid test ratio
Earnings per share
(9 marks)
(b) Using the additional information given and the ratios you calculated in part (a), write a brief report on the
financial performance of F. Raser. Indicate in your report what additional information might be useful to help
interpret the ratios.
(11 marks)
(20 marks)
9
Answers

December 2005 Answers and

Marking Scheme
Marks
(a)
Wisaron
Income Statement and Appropriation Account
for the year ended 31 October 2005
$
Sales revenue
Less Returns inwards
Opening inventory
Add Purchases
Carriage inwards
Net profit
Interest on drawings: Lewis
Aaron
Lewis 3/5
Aaron 2/5
05
05
05
10
05
($215,300 $900)
05
(220,050)
78,550
05
05
17,500
12,000
1,900
800
6,000
1,340
9,490
05
10
05
05
05
05
10
2,500
800
200
75
400
565
15
10
10
05
05
15
(53,570)
24,980
270
210
480
25,460
(8,500)
16,960
Salary: Aaron
Share of profit:
05
$
302,200
(3,600)
298,600
23,500
214,400
1,150
239,050
19,000
Cost of goods sold

Gross Profit
Expenses
Selling expenses
Rent
General expenses
Insurance
Motor vehicle expenses
Discounts allowed
Wages
Depreciation
Motor vehicles
Fixtures and fittings
Loan interest
Bank charges
Irrecoverable debts
Increase in allowance for receivables
Workings
10,176
6,784
16,960
($13,000 $1,000)
($9,090 + $400)
(($16,000 $6,000) x 25%)
($8,000 x 10%)
(($5,000 x 8%) x 05)
(($25,700 $400) x 5%) $700
05
05
05
10
05
05
190
11
Marks
(b)
Workings
Current Accounts
Lewis
Drawings
Goods
Balance c/f
$
6,500
900
270
5,266
12,936
Balance b/f
Loan interest
Share of profit
$
2,560 05 + 05
200
1+1
10,176 05 + 05
12,936
Aaron
Drawings
Balance c/f
(c)
$
5,600
210
10,844
16,654
Balance b/f
Salary
Share of profit
Wisaron
Accumulated
Cost
Depreciation
Assets
Non-current assets
Motor vehicles
Current assets
Inventory
Trade receivables
Allowance for receivables
Prepayment (rent)
Bank
16,000
8,000
24,000
8,500
3,800
12,300

Lewis
Aaron
7,500
4,200
11,700
24,035
1,000
1,375
45,410
57,110
10
10
10
05
10
10
($25,700 $400)
($25,300 x 5%)
10
10
($1,450 $75)
05
7,000
6,000
13,000
10
05
5,266
10,844
16,110
05
05
5,000
10
Loan from Lewis
Current Liabilities
Payables
Accruals (wages)
05
Net
Book
Value
$
19,000
25,300
(1,265)
Total assets
Lewis
Aaron
$
1,370 05 + 05
8,500 05 + 1
6,784 0 + 05
16,654
22,600
400
23,000
57,110
($12,000 $5,000)
05
10
05
14
12
$000
2
(a)
Goodwill on acquisition
Cost of investment
Share Capital
Reserves
Revaluation of land
Spyder
Assets
$000
Non-current assets
Land and buildings
Plant
Current assets
Inventory
Trade receivables
Bank
597,000
626,000
188,000
Total assets
$1 Ordinary shares
Reserves
Minority Interest
(612,000)
48,000
$000
663,000
505,000
1,168,000
1,411,000
2,579,000
$000
315,000
278,000
70,000
348,000
663,000
580,000
169,600
(76,000)
(48,000)
(12,000)
Reserves
W3 Minority Interest
Share Capital (20% x $600 million)
Revaluation (20% x $70 million)
Reserves (20% x $212 million)
Minority Interest
1
1
1
1
$000
289,000
2,579,000
W2 Reserves
Spyder balance
Reserves of Phly (80% x $212 million)
Pre acquisition reserves (80% x $95 million)
Less Goodwill
Profit on purchases from Spyder
Marks
(80% x 600)
(80% x 95)
(80% x 70)
1,500,000
613,600
176,400
2,290,000
Current liabilities
Payables
Workings
W1 Land and Buildings
Spyder
Phly: Book value
: Revaluation of land on acquisition
Workings
$m
660,000
480,000
76,000
56,000
Goodwill
(b)
$000
(W1)
(285 + 220)
2
05
(357 + 252 12) 15

(525 + 126 25) 15
(158 + 30)
05
(W2)
(W3)
1
35
3
(220 + 94 25)
15
15
Analysis of marks
05
05
1
05
1
1
05
05
(136,000)
613,600
35
120,000
14,000
42,400
176,400
1
1
1
13
(c)
Inter-company trading and consolidation

The companies within a group are separate legal entities and therefore may treat other companies within the group the same
as any other customers. For example, in this question, Phly has purchased goods from Spyder.
The accounts of Spyder will show a profit earned on sales to Phly and similarly Phlys balance sheet will include inventory at
the cost purchased from Spyder. There are two accounting issues that need to be addressed when preparing the group
accounts:
(i)
(ii)
Although Spyder has made a profit on the goods it has sold to Phly, the group has not made a sale, or any profit, until
an outside customer buys the goods from Phly.
Any purchases that remain unsold by Phly at the end of the year will be included in Phlys inventory. Their balance sheet
value will be their cost to Phly, which is not the same as to the group.
The only profits to be recognised should be those made by the group in providing goods to third parties. Inventory in the
consolidated balance sheet should also be valued at the cost to the group. Thus, the $12 million of Spyders profit in Phlys
closing inventory is unrealised from the groups perspective and is eliminated in full upon consolidation.
There may also be receivables and payables within a group. In these circumstances these internal balances are cancelled.
For example in this question Phly is indebted to Spyder for $25 million. Therefore Phly has a payable on its balance sheet of
$25 million and Spyder has a receivable of $25 million on its balance sheet. When the accounts are consolidated the two
balances are cancelled.
Marking scheme
Up to 3 marks for identifying the issue of unrealised profit on inventory, explaining how they are treated on consolidation and
using an example from the question.
Up to 3 marks for identifying the issue of internal receivables and payables, explaining how they are treated on consolidation
and using an example from the question.
(a)
Ratio
x 100
Aber
1,100
x 100 = 200%
5,500
Cromby
2,160
x 100 = 300%
7,200
Profit before int. & tax

Return on capital employed* x 100
Capital Employed
490
x 100 = 118%
4,155
475
x 100 = 63%
7,520
Earnings per share
Formulae
Gross Profit
Sales
Net Profit after tax
275
3,000
280
= 92 cents
7,000
= 40 cents
Marking scheme
1 mark for each ratio (6 marks)
* Alternative ratio definitions and calculations may be acceptable.
(b)
Ratio
Earnings per share
Aber
20%
Cromby
30%
Comment
Cromby has been able to achieve a significantly higher gross profit
percentage than Aber. This may be due to a number of factors; for
example, Cromby may be operating at the luxury (branded) end of the
leisurewear market, consequently it may be able to charge its
customers a premium price for its goods. Cromby may also be able
to obtain good discounts from its suppliers for bulk purchases.
Alternatively, Aber may have expensive suppliers, with high costs
associated with carriage inwards.
118%
63%
Abers return on capital employed is nearly double that of Cromby.

This might suggest that Aber is managed more efficiently than
Cromby. Certainly Abers return represents a reasonable return when
compared to current market borrowing rates. However, more
information is needed; for example are the property assets of both
businesses correctly valued?
92c
40c
Aber has a higher EPS than Cromby and from a shareholders

perspective, Aber would be considered a better investment.
It would be useful to have the previous years EPS figures so that any
trends could be identified.
There should be some evidence of trying to interpret the ratios, while acknowledging the limitations of the information
available. Other comments, if appropriate, will also be given credit.
1 mark for each relevant comment up to 9 marks.
14
(c)
Limitations of ratio analysis:

1
2
3
4
5
The accounting information used to prepare the ratios may be out of date.
Usually the information presented in the published accounts is summarised, making a detailed analysis impossible.
Price changes over time make year on year comparisons difficult.
Changes in accounting policies from year to year may produce misleading ratios.
Different businesses use different accounting policies. This may make direct comparisons difficult.
Marking scheme
1 mark for each limitation that is explained up to 5 marks (other examples may be given).
(a)
(i)
Going Concern Concept

The going concern concept implies that the business will continue in operational existence for the foreseeable future,
and that there is no intention to put the company into liquidation or make drastic cutbacks to the scale of operation.
This concept has a major influence on the assumptions made when evaluating particular items in the balance sheet.
For example assets are not normally shown at net realisable value because they are expected to be kept in the business
for future use.
2 marks
(ii)
Accruals Concept
The accruals concept requires that revenue and costs are recognised as they are earned or incurred, not when the money
is received or paid. They must be matched with one another so far as their relationship can be established or justifiably
assumed and dealt with in the income statement of the period to which they relate.
2 marks
(iii) Reliablity
Accounting information must be reliable if it is to be useful. In accounting terms this means the information should be
free from material error and bias. The user must be able to depend on it being a faithful representation.
2 marks
(iv) Understandability
Users of financial statements must be able to understand them. However, it is assumed they have some business,
economic and accounting knowledge and they are able to apply themselves to study the information provided properly.
The complex matters of financial statements should not be left out simply because of their difficulty, if it is relevant
information.
2 marks
(b)
The arguments for having accounting standards
Accounting standards restrict the number of choices in the methods used to prepare financial statements and therefore
reduce the risk of creative accounting. This should help the users of accounts to compare the financial performance of
different organisations.
Companies are obliged to disclose the accounting policies they have used in the preparation of accounts. This should
help the users of accounts better understand the information presented.
Accounting standards should increase the credibility of accounts by increasing uniformity of accounting treatment
between companies.
Accounting standards require companies to disclose information which they might not want to disclose if the standards
did not exist.
Accounting standards provide a focal point for discussion about accounting practice.
The arguments against having accounting standards
Sometimes the accounting method advocated may not be appropriate in some particular circumstances or for certain
types of organisation.
Accounting standards may be overly prescriptive, reducing flexibility and the opportunity for accountants to use their
professional judgement.
Standards may be too general, resulting in a lack of clear guidance in some situations.
If standards contain too many detailed rules, there is a danger that preparers will develop creative accounting techniques
that technically adhere to the rules but conflict with the overall aims and principles behind financial statements.
Accounting standards may have been drafted as a consequence of a particular pressure group.
Some accounting standards can be expensive to comply with.
Marking scheme: 1 mark for each relevant point up to 7 marks.
15
ADVANCED LEVEL
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements

hall


1
Lewis and Aaron are in partnership trading as Wisaron. The trial balance for Wisaron as at 31 October 2005 was as
follows:
Dr
$
215,300
17,500
1,150
3,600
13,000
Purchases
Selling expenses
Carriage inwards
Returns inwards
Rent
Sales revenue
Bank
General expenses
Trade payables
Current accounts at 1 November 2004 Lewis
Aaron
Trade receivables
Insurance
Inventory at 1 November 2004
Allowance for receivables at 1 November 2004
Settlement discounts allowed
Wages
Drawings
Lewis
Aaron
Capital accounts at 1 November 2004 Lewis
Aaron
Motor vehicles, at cost
Fixtures and fittings, at cost
Accumulated depreciation at 1 November 2004:
Motor vehicles
Cr
$
302,200
1,450
1,900
22,600
2,560
1,370
25,700
800
23,500
6,000
700
1,340
9,090
6,500
5,600
12,000
6,000
16,000
8,000
356,430
6,000
3,000
356,430
The following additional information as at 31 October 2005 is available:

1
2
Lewis and Aaron share profits and losses in the ratio 3:2 respectively.
Lewis has taken some goods for his own use during the year to the value of $900, but this has not yet been
recorded in the accounts.
3 Interest on drawings for the year is $270 for Lewis and $210 for Aaron.
4 Aaron is entitled to a salary of $8,500 per annum before profits are shared.
5 On 1 May 2005 it was agreed that $5,000 should be transferred from Lewis capital account to a loan account
bearing 8% interest per annum. However, no entries have yet been recorded in the accounts for the transfer.
6 Rent of $1,000 has been paid in advance.
7 Inventory was valued at $19,000.
8 Bank charges of $75 have not been entered into the accounts.
9 There are outstanding wages of $400.
10 Debts of $400 are to be written off and the allowance for receivables to be adjusted, based on past events to the
equivalent of 5% of the remaining trade receivables.
11 Depreciation is to be provided for as follows:
Motor vehicles at 25% using the reducing balance method.
Fixtures and fittings at 10% using the straight line method.
2
Required:
(a) the income statement and appropriation account for the year ended 31 October 2005.
(b) the partners current accounts for the year ended 31 October 2005; and
(c) the balance sheet as at 31 October 2005.
(19 marks)
(7 marks)
(14 marks)
(40 marks)
3
[P.T.O.
The draft balance sheets of Spyder, a limited liability company and its subsidiary company Phly at 31 October 2005
are as follows:
Spyder
Assets
Non-current assets
Tangible assets:
Land and buildings
Plant
Investment:
Shares in Phly at cost
Current assets
Inventory
Trade receivables
Bank
$000
Phly
$000
$000
315,000
285,000
600,000
$000
278,000
220,000
498,000
660,000
357,000
525,000
158,000
1,040,000
2,300,000
Total assets
$1 Ordinary shares
Reserves
Current liabilities
Payables
252,000
126,000
30,000
408,000
906,000
1,500,000
580,000
2,080,000
600,000
212,000
812,000
220,000
2,300,000
94,000
906,000

(1) Spyder purchased 480 million shares in Phly some years ago, when Phly had a credit balance of $95 million in
reserves. All the purchased goodwill has now been written off.
(2) At the date of acquisition the freehold land of Phly was revalued at $70 million in excess of its book value. The
revaluation was not recorded in the accounts of Phly.
(3) Phlys inventory includes goods purchased from Spyder at a price that includes a profit to Spyder of
$12 million.
(4) At 31 October 2005 Phly owes Spyder $25 million for goods purchased during the year.
Required:
(a) Calculate the goodwill on acquisition.
(4 marks)
(b) Prepare the consolidated balance sheet for Spyder as at 31 October 2005.
(show clearly any workings)
(15 marks)
(c) Explain the accounting treatment of intra-group trading and inter-company balances when preparing
consolidated accounts. Use the transactions between Spyder and Phly to illustrate your answer. (6 marks)
(25 marks)
4

5
[P.T.O.
Aber and Cromby are two retail businesses trading in the leisurewear market. Your manager has asked you to review
the performance of both businesses from the financial statements which are provided below.
Revenue
Cost of sales
Gross profit
Expenses
Finance cost
Profit before tax
Income tax expense
Income Statements
for the year ended 31 October 2005
Aber
$000
5,500
(4,400)
1,100
(610)
490
(15)
475
(200)
275
Cromby
$000
7,200
(5,040)
2,160
(1,685)
475
(15)
460
(180)
280
Balance sheets
as at 31 October 2005
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Cash
Aber
$000
3,750
125
500
30
655
4,405
Total assets
$1 Ordinary Shares
Reserves
Loan notes
Current liabilities
Trade payables
Overdraft
Tax
200
0
50
360
190
0
550
7,750
3,000
1,080
4,080
7,000
410
7,410
75
110
250
4,405
Cromby
$000
7,200
205
5
20
230
7,750
6
Required:
(a) Calculate the following ratios for BOTH Aber and Cromby.
(i) Gross profit percentage;
(ii) Return on capital employed;
(iii) Earnings per share.
(Show all workings)
(6 marks)
(b) Comment on the performance of the businesses as indicated by each of the ratios you have calculated in
part (a).
(9 marks)
(c) Explain the limitations of using ratios as a basis for analysing business performance.
(5 marks)
(20 marks)
(a) Required:
Explain the following accounting terms:
(i)
(ii)
(iii)
(iv)
Going concern concept;

Accruals concept;
Reliability;
Understandability.
(8 marks)
(b) State the arguments for and against having accounting standards as a basis for preparing financial
statements.
(7 marks)
(15 marks)
7
Answers

1
(a)
June 2006 Answers

and Marking Scheme
Calculation of profit before interest and tax.

Retained Earnings
Marks
$000
80
100
Taxation
Dividends
Loan note interest
Bal. at 31 May 2006
(b)
Bal. at 1 June 2005

Profit before interest
and tax (Bal. fig)
6
314
500
$000
130
370
500
1
1
05
05
Prepared in accordance with IAS 7

Hadrian
$000
364
Adjustments for:
Depreciation
300
Profit on sale of tangible non-current assets
(20)
Interest
6

650
(110)
(120)
(30)

Interest paid
(6)
Tax paid
(60)
Dividends paid
(100)

Cash flow from investing activities
Purchase of non-current assets
(880)
Receipts from sale of tangible non-current assets
100

550
(60)
Net cash from financing activities

Net decrease in cash and cash equivalents
05
$000
1
1
1
05
1
1
1
390
(166)
224
05
15
1
25
15
(780)
15
15
490
(66)
70
1
1
05
05
20
Note
Interest paid and dividends paid may be shown in either operating activities or financing activities.
Workings
Balance b/f
New non-current assets (bal)
Non-current assets
$000
1,500
Depreciation
880
Disposals
Balance c/f
2,380
$000
300
80
2,000
2,380
9
(c)
(i)
Return on capital employed*
(ii)
Quick ratio
Profit before int. & tax
Capital employed
x 100
370
2,414
Current Assets Inventory
Current liabilities
:1
274
200
Receivables
Sales revenue
x 365
270
800
x 365 = 123 Days
284
2,000
= 14 cents
(iii) Receivables collection period#
(iv) Earnings per share
Profits on ordinary act. after tax
x 100 =
:1
15%
14 : 1
* Alternative ratio definitions and calculations may be acceptable.

Average receivables may be used in ratio definition and calculation.
Marking scheme: 05 for each correct formula and 1 mark for each correct ratio.
(d)
Comments on the cash flow statement

Cash in the business has decreased by $66,000 and the changes in working capital suggest a squeeze on liquidity i.e.
receivables and inventory have increased over the period and at the same time payables have decreased. However, cash from
operations is positive and Hadrian is able to pay interest and tax which are key items.
During the year Hadrian has:
repaid $60,000 of long term loans which will reduce future years interest payments
purchased non-current assets worth $880,000 which may improve future efficiency and therefore profitability
issued 500,000 shares at a 10% premium
Comments on ratios
The return on capital employed appears to be good when compared with the industry average. However, this may be
misleading if the companys non-current assets are under valued.
Quick ratio
The low quick ratio in comparison with the industry average confirms the analysis from the cash flow statement that liquidity
may be a problem for this company.
The long receivables collection period suggests the company may be having problems collecting its debts. This long debt
collection period will be having an adverse impact on the companys liquidity. In addition, the longer the collection period,
the less likely the debts will be recovered.
Earnings per share
The earnings per share is just slightly lower than the industry average. This may not necessarily be a cause for concern, as
the company issued shares in 2006 which will have reduced the EPS. The success of the share issue suggests that investors
find this company an attractive investment. The investment by the company, in new assets, is likely to result in a higher EPS
in the future.
Marking Scheme: 1 mark for each relevant comment up to a maximum of 11 marks.
10
Marks Workings
2
(a)
Paul and Barry

Income statement and appropriation account
for the year ended 31 May 2006
$
$
568,000
(5,100)
562,900
Sales revenue
Less returns inwards
Opening inventory
Add Purchases
05
39,200
375,150
414,350
(32,000)
05
10 ($375,600 $450)
05
Cost of goods sold
(382,350)
180,550
Gross profit
Expenses
Rent
Selling expenses
General expenses
Wages
Depreciation
Motor vehicles
Insurance
Discounts allowed
Bad debts
Increase in allowance for receivables
18,760
55,600
4,280
18,000
(123,100)
57,450
420
180
600
58,050
(15,000)
43,050
Salary: Paul
Share of profit: Paul 2/3

Barry 1/3
05
05
05
05
10 ($3,680 + $600)
05
4,200
2,100
640
9,300
8,900
1,100
220

Interest on drawings: Paul
Barry
05
05
28,700
14,350
43,050
15
10
10
05
05
05
15
(($30,000 $9,000) x 20%)

($14,000 x 15%)
($1,540 $900)
(($47,500 $1,100) x 5%) $2,100
05
05
05
05
05
160
(b)
Current Accounts
Paul
Drawings
Balance c/f
$
16,000
420
30,850
47,270
Bal b/f
Salary
Share of profit
$
3,570
15,000
28,700
47,270
05 + 0
05 + 05
0 + 05
Barry
Drawings
Goods
Balance c/f
$
11,000
450
180
4,910
16,540
Bal b/f
Share of profit
$
2,190
14,350
16,540
05 + 0
05 + 05
05
11
(c)
Paul and Barry
Accumulated
Cost
Depreciation
Non-current assets
Motor vehicles
Current assets
Inventory
Trade receivables
30,000
14,000
44,000
13,200
9,100
22,300

Paul
Barry
Paul
Barry
Current Liabilities
Trade payables
Accruals (general expenses)
(a)
16,800
4,900
21,700
Goodwill on acquisition of
Everpool
Cost of investment
Share capital (75% of $4,000,000)
Pre-acquisition reserves (75% of $200,000)
900
13,980
20,000
15,000
30,850
4,910
41,300
600
10
10
05
05
10 ($47,500 $1,100)
10 ($46,400 x 5%)
44,080
90,960
112,660
35,000
35,760
70,760
41,900
112,660
05
05
05
05
05
05
05
05
05
100
Workings ($000)
$000
(3,000)
(150)
(b)
Net
Book
Value
$
32,000
46,400
(2,320)
Prepayment (insurance)
Bank
Marks Workings
05
$000
3,500
(3,150)
350
Liverton
Consolidated income statement for the year ended 31 May 2006
$000
Sales revenue
8,800
Cost of sales
(5,004)
Gross profit
3,796
Distribution costs
(1,590)
(1,020)
Goodwill impairment
(70)
Profit before tax

1,116
Income tax expense
(480)
Profit for the period

636
Attributable to:
Equity holders of the parent
571
Minority interest
65
636
05
1
1
05
15 (6,400 + 2,600 200)

25 (3,700 + 1,450 200 + (60% x 90))
05
05
1 (200 130)
05
05
1 (260 x 25%)
12
(c)
Associates
An associate is defined as an entity over which an investor has significant influence and that is neither a subsidiary nor a
joint venture of the investor. Significant influence is the power to participate in the financial and operating policy decisions of
the investee. If an investor holds between 20% and 50% of the voting power of the investee then the investor will usually
have significant influence over the investee, unless it can be clearly demonstrated this is not the case.
The
(a)
(b)
(c)
(d)
(e)
existence of significant influence might also be demonstrated in one or more of the following ways:
Representative of the investor on the board of directors.
Participation in the policy making process.
Material transactions between investee and investor.
Interchange of management personnel.
Provision of essential technical information.
Marking scheme: 1 mark for each point up to a maximum of 4 marks for a good answer.
(a)
Adjusting events These are events that provide evidence of a condition that existed at the balance sheet.
IAS 10 requires that the amounts recognised in the financial statements be adjusted to take account of an adjusting event.
The standard also requires that disclosures be up-dated in the light of new information that relate to a condition that existed
at the balance sheet date.
Non-adjusting event These are events that are indicative of conditions that arose after the balance sheet date.
IAS 10 prohibits the adjustment of amounts recognised in the financial statements to reflect non-adjusting events after the
balance sheet date. However, if a non-adjusting event is material and its non-disclosure could influence the decisions of users
then an entity should disclose the following:
(a)
the nature of the event
(b)
an estimate of its financial effect, or a statement that such an estimate cannot be made.
Marking scheme: up to 2 marks for defining each type of event and how they should be treated (maximum 4 marks).
(b)
(i)
Receivables that were thought to be good at the balance sheet date will not now be paid. Adjusting event
(ii)
Jilton Newl has announced a bid to take over another company. Non adjusting event
(iii) Some material errors have been discovered which show the financial statements are incorrect. Adjusting event
(iv) The factory workforce at Jilton Newl has started strike action for an indefinite length of time. Non adjusting event
Marking scheme: 1 mark for each correct answer (maximum 4 marks)
(c)
Contingent liability
IAS 37 defines a contingent liability as:
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity; or
A present obligation that arises from past events but is not recognised because:
It is not probable that a transfer of economic benefits will be required to settle the obligation; or
The amount of the obligation cannot be measured with sufficient reliability
Contingent liabilities should not be recognised in the financial statements but they should be disclosed unless the possibility
of any liability is remote. The required disclosures are:
A brief description of the nature of the contingent liability
An estimate of its financial effect
An indication of the uncertainties that exist
The possibility of any reimbursement
Marking scheme: up to 15 marks for defining a contingent liability and up to 2 marks for the accounting treatment.
Contingent asset
IAS 37 defines a contingent asset as:
A possible asset that arises from past events and whose existence will be confirmed by the occurrence, or non-occurrence,
of one or more uncertain future events not wholly within the entitys control.
13
A contingent asset must not be recognised. Only when the realisation of the related economic benefit is virtually certain should
recognition take place. At that point the asset is no longer a contingent asset.
A contingent asset is disclosed where an inflow of economic benefit is probable.
Marking scheme: up to 15 marks for defining a contingent asset and up to 2 marks for the accounting treatment.
14
ADVANCED LEVEL
MONDAY 5 JUNE 2006
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements

hall


1
The balance sheet of Hadrian, a limited liability company, as at 31 May 2006 is provided below together with
comparative figures for the previous year.
Hadrian
2006
2005
$000
$000
$000
$000
Assets
Non-current assets
2,000
1,500
Current assets
Inventory
340
230
Trade receivables
270
150
Bank
4
614
70
450
2,614
1,950

Ordinary share capital (shares of $1)
2,000
1,500
Share premium
100
50
Retained earnings
314
130
2,414
1,680
10% Loan note
60
Current liabilities
Trade payables
120
150
Taxation
80
200
60
210

2,614
1,950
(i)
Interest paid was $6,000 during the year ended 31 May 2006.
(ii) There was no over or under provision of tax for the year ended 31 May 2005.
(iii) Dividends paid were $100,000 during the year ended 31 May 2006.
(iv) Depreciation of $300,000 was charged for the year ended 31 May 2006.
(v) Non-current assets with a net book value of $80,000 were sold at a profit of $20,000 during the year ended
31 May 2006.
Required:
(a) Calculate the profit before interest and tax of Hadrian for the year ended 31 May 2006.
(3 marks)
(b) Prepare a cash flow statement for Hadrian for the year ended 31 May 2006 in accordance with IAS 7 Cash
Flow Statements, using the indirect method.
(20 marks)
2
Further Information
(i)
Sales revenue for the year ended 31 May 2006 was $800,000.
(ii) The latest average ratios for the industry in which Hadrian operates are as follows:
10%
Quick ratio
2:1
80 days
Earnings per share
15 cents
(c) Calculate the following ratios for Hadrian for the year ended 31 May 2006 ONLY:
(i)
(ii)
(iii)
(iv)

Quick ratio;
Receivables collection period;
Earnings per share.
State the formula used for each ratio.
(6 marks)
(d) Using information from your cash flow statement, the industry ratios and the ratios you have calculated in
(c), comment on the financial performance of Hadrian.
(11 marks)
(40 marks)
3
[P.T.O.
Paul and Barry are in a business partnership. Their trial balance as at 31 May 2006 is given below:
Dr
Cr
$
$
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 2005
2,100
Bank
13,980
Wages
18,000
Trade payables
41,300
Current accounts at 1 June 2005 Paul
3,570
Current accounts at 1 June 2005 Barry
2,190
Motor vehicles, at cost
30,000
Fixtures and fittings, at cost
14,000
Accumulated depreciation at 1 June 2005:
Accumulated depreciation Motor vehicles
9,000
Accumulated depreciation Fixtures and fittings
7,000
Insurance
1,540
39,200
9,300
Trade receivables
47,500
Discounts allowed
8,900
Drawings Paul
16,000
Drawings Barry
11,000
Capital accounts at 1 June 2005 Paul
20,000
Capital accounts at 1 June 2005 Barry
15,000
668,160
668,160
The following additional information as at 31 May 2006 is available:

1
2
3
4
5
6
7
8
9
Paul and Barry share profits and losses in the ratio 2:1 respectively.
Inventory was valued at $32,000.
During the year, Barry has taken some goods for his own use to the value of $450, but this has not yet been
recorded in the accounting records.
Interest on drawings for the year were $420 for Paul and $180 for Barry.
Paul is entitled to a salary of $15,000 per annum before profits are shared.
Insurance of $900 has been paid in advance.
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
There are outstanding general expenses of $600.
Debts of $1,100 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:
(a) the income statement and appropriation account for the year ended 31 May 2006.
(b) the partners current accounts for the year ended 31 May 2006; and
(c) the balance sheet as at 31 May 2006.
(16 marks)
(4 marks)
(10 marks)
(30 marks)
4
The summarised income statements of two companies, Liverton and Everpool, for the year ended 31 May 2006 are
provided below. Liverton acquired 3,000,000 ordinary shares in Everpool for $3,500,000 on 1 June 2004. At that
time, the retained earnings of Everpool were $200,000.
Income statements for the year ended 31 May 2006
Liverton
$000
Sales revenue
6,400
Cost of sales
(3,700)
Gross profit
2,700
Distribution costs
(1,100)
(700)

900
Dividends received from Everpool
150
Profit before tax

1,050
Tax
(400)

650
Everpool
$000
2,600
(1,450)
1,150
(490)
(320)
340
340
(80)
260

(i)
Everpools total share capital consists of 4,000,000 ordinary shares of $1 each.
(ii) At 31 May 2005 Liverton had valued the goodwill arising from the acquisition of Everpool at $200,000. An
impairment review of this goodwill at 31 May 2006 valued it at $130,000.
(iii) During the year ended 31 May 2006 Liverton sold goods costing $110,000 to Everpool for $200,000. At
31 May 2006, 60% of these goods remained in Everpools inventory.
Required:
(a) Calculate the goodwill arising on the acquisition of Everpool.
(3 marks)
(b) Prepare the consolidated income statement for Liverton for the year ended 31 May 2006.
(8 marks)
(c) Explain the criteria that should be met for a company to be accounted for as an associate company.
(4 marks)
(15 marks)
5
[P.T.O.
(a) Define an adjusting event after the balance sheet date and a non-adjusting event after the balance sheet date
and state how each should be accounted for.
(4 marks)
(b) Jilton Newl is a large manufacturing company. After the date of the balance sheet, but prior to the financial
statements being authorised for issue, the following material events occurred:
(i)
It was discovered that a receivables balance existing at the balance sheet date will not now be received.
(ii) Jilton Newl has announced a bid to take over another company.
(iii) Some material errors have been discovered which show the financial statements are incorrect.
(iv) The factory workforce at Jilton Newl has started strike action for an indefinite length of time.
Required:
For each of the events described above, state if they should be treated as an adjusting or non-adjusting event
after the balance sheet date.
(4 marks)
(c) Define a contingent liability and a contingent asset, and explain how each should be treated in the
financial statements.
(7 marks)
(15 marks)
6
Answers
6DINTIX
Paper T6INT


and Marking Scheme
6DINTAA
Paper T6INT
Marks
1
(a)
Tonson
$000
Sales revenue
Less returns inward
Opening inventory
Add purchases
05
$000
5,780
(95)
5,685
05
10
350
3,570
3,920
(250)
Less closing inventory (275 25)

Cost of sales
05
05
10
(3,670)
2,015
50
2,065
Discounts received
Gross profit
General expenses
Insurance
Marketing expenses (W1)
Wages and salaries (W2)
Energy expenses
Telephone
Property expenses
Loan note interest
Receivables expense (W3)
Depreciation: Buildings
Motor vehicles
Furniture and equipment
10
05
05
05
15
15
05
05
05
05
15
15
15
15
60
75
45
715
66
80
100
33
155
75
32
240
(1,676)
389
(150)
239
Net profit before taxation

Tax
Total
05
180
13
6DINTAA
Paper T6INT
Marks
(b)
Tonson
Cost/
Accumulated
Assets
Valuation
Depreciation
Non-current assets
$000
$000
Land
740
0
Buildings
1,800
0
Furniture and equipment (W4)
1,200
660
Motor vehicles (W5)
240
112
3,980
772
Current assets
Inventory
Trade receivables
Less allowance
05
Net Book
Value
$000
740
1,800
540
128
3,208
05
05
10
10
05
250
900
(45)
Prepayments
Cash in hand
855
5
15
Total assets
$1 Ordinary shares ($1,800 + $180)
Share premium account ($200 $180)
Revaluation reserve (W6)
Retained earnings ($315 + $239)
7% Loan notes
Current liabilities
Trade payables
Tax
Accruals
Bank overdraft
10
05
10
290
150
40
94
10
05
1,125
4,333
05
1,980
20
735
554
3,289
1.0
1.0
15
10
470
10
05
05
10
10
574
4,333
Total
17.0
Working Papers
W1
Balance as per TB
W2
Balance as per TB
Wages accrued c/f
Marketing expenses
$
50,000
Income statement
Prepayment c/f
50,000
Wages and Salaries

$
675,000
Income statement
40,000
715,000
$
45,000
5,000
50,000
$
715,000
715,000
14
6DINTAA
Paper T6INT
Marks
W3
Balance as per TB
Balance c/f
W4
Balance c/f
W5
Balance c/f
Receivables Expense
$
150,000
Income statement
5,000
155,000
155,000

$
45,000
Balance as per TB
Bad debts
45,000
$
40,000
5,000
45,000
Furniture and Equipment Accumulated Depreciation

$
660,000
Balance as per TB
Inc. Statemt
(20% of $1,200,000)
660,000
Motor Vehicles Accumulated Depreciation

$
112,000
Balance as per TB
Inc. Statemt
20% of ($240,000 $80,000)
112,000
$
155,000
$
420,000
240,000
660,000
$
80,000
32,000
112,000
W6 Revaluation Reserve
Depreciation on buildings for the year is calculated as $1,500,000 x 5% = $75,000
Therefore the net book value of the buildings is $1,065,000 at the end of the year, i.e.
$1,500,000 $360,000 $75,000.
When the buildings are revalued at the end of the year a revaluation reserve is created of
$735,000. i.e. $1,800,000 $1,065,000 = $735,000.
15
6DINTAB
Paper T6INT
Marks
2
(a)

H Marathon
Cash flow statement for the year ended 31 October 2006
$000
10,889
Adjustments for
Depreciation
6,784
Interest received
(101)
Interest paid
1,749
(1,806)

17,515
Decrease in inventory
3,015
Decrease in receivables
3,034
(270)

23,294
Interest received
101
Interest paid
(1,749)
Tax paid (W4)
(2,395)

Purchase of property, plant and equipment (W1 to W3)
(7,671)
5,667
Dividends paid
(3,697)

Proceeds from issues of share capital
05
$000
1
1
05
05
1
05
05
05
05
05
2
19,251
3
1
1
(5,701)
4,231
(16,889)
1
1
(12,658)
892
(4,806)
(3,914)
Total

Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
1
1
18
Examiners note
IAS 7 allows interest paid to be an operating cash flow or a financing cash flow. Interest received can be an
operating cash flow or an investing cash flow. Dividends paid can be shown as cash flows from investing
activities or cash flows from financing activities.
Workings (all in $000):
W1
Non-current assets at cost

B/f
Revaln
Additions
W3
124,252
6,525
7,671
138,448
Disposal
c/f
W2
5,296
On disposals
c/f
133,152
138,448
Non-current assets disposal a/c

Cost
Profit
5,296
1,806
7,102
Acc dep
Cash
W4
1,435
5,667
7,102
1,435
30,978
32,413
b/f
Charge
25,629
6,784
32,413
Taxation
Paid
C/f
2,395
2,101
4,496
B/f
Inc. stat.
1,926
2,570
4,496
Note: the entries in italics in these t-accounts are the balancing figures.
16
Marks
6DINTAB
Paper T6INT
Alternative workings:
Additions of non-current assets:
Opening net book value
Disposals (5,667 1,806)
Depreciation
Revaluation (12,554 6,029)
Closing net book value
(b)
Non-current assets NBV

98,623
(3,861)
(6,784)
6,525
94,503
7,671
102,174
B/forward 98,623
Revaluation 6,525
Addns (bal) 7,671
112,819
Disposals 3,861
Depr'tion
6,784
C/f
102,174
112,819
Over the period there was a net cash inflow to the business of $892,000.
(1 mark)
The company purchased non-current assets of $7,671,000. The purchase of new non-current
assets may help operational efficiency and therefore improve future cash flows.
(2 marks)
The company was able to generate additional cash by selling non-current assets for $5,667,000.
(1 mark)
Loan notes of $16,889,000 were redeemed, this will reduce interest payments in the future.
(2 marks)
Inventory levels were reduced by $3,015,000. This might indicate the company has adopted
better inventory control procedures which should have a positive impact on future cash flows.
(2 marks)
Receivables were reduced by $3,034,000 and there was a small decrease in payables. These
changes may indicate better cash flow management procedures being adopted by the company.
(2 marks)
Marking scheme Other relevant comments may be acceptable. Maximum of 8 marks

(c)
Cash flow statements may be more useful than profit statements for the following reasons:
Cash flow statements help users understand where the company has generated its cash and
how it has been applied during the period.
Cash flow statements are more objective than profit statements as they cannot be manipulated
by choosing more favourable accounting policies.
Cash flow statements provide a useful insight into the changes in the structure of working capital.
Cash flow statements enable users to establish whether the company is able to repay its debts.
6DINTAC
Paper T6INT
Marking scheme Up to 4 marks for relevant comments
(i)
Nyfe
$
Ork
$
Realisation a/c
Cash
56,255
38,453
56,255
38,453
(ii)
Furniture & fittings (NBV)
Motor vehicles (NBV)
Inventory
Receivables
Cash and bank:
Loan
Payables
Dissolution expenses
Profit on realisation: Nyfe 3/6
Ork 2/6
Poon 1/6
Partners Accounts
Poon
$
9,000
Capital a/cs
12,802
Current a/cs
Realisation a/c
21,802
Nyfe
$
45,000
9,750
1,505
56,255
Realisation Account
$
50,000
Loan a/c
35,000
Payables
25,000
42,000
Cash and bank:
18,000
Furniture and fittings
25,440
Motor vehicles
1,000
Inventory
1,505
Receivables
1,003
Poon (motor vehicle)
502
199,450
Ork
$
30,000
7,450
1,003
38,453
$
18,000
26,500
48,800
29,500
27,750
39,900
9,000
199,450
Poon
$
15,000
6,300
502
21,802
Total
1
2
1
05
05
05
05
05
05
05
05
05
1
1
1
05
05
05
05
05
Total
10
17
6DINTAC
Paper T6INT
Marks
(iii)
Cash and bank

$
6,000
Balance
Realisation a/c
Motor vehicles
Inventory
Receivables
48,800
29,500
27,750
39,900
6DINTAD
Paper T6INT
151,950
$
Realisation A/c:
Loan
Payables
Partners a/c: Nyfe
Ork
Poon
(a)
05
18,000
25,440
1,000
56,255
38,453
12,802
151,950
Gross profit x 100
Sales
129 x 100
284
Binky
454 %
Net profit x 100
Sales
61 x 100
284
215
05
05
05
05
05
05
1
05
05
05
Total
154 x 100
305
Smokey
505 %
47 x 100
305
154
Asset Turnover ratio
Sales
x 100
Capital employed
284 x100
258
1101 %
305 x 100
477
639
Current ratio
Current assets
Current liabilities
201
188
11
:1
383
325
12
:1
Current liabilities
110
188
06
:1
90
325
03
:1
46 x 365
284
591
days
75 x 365
305
898
days
Quick ratio
Recbles collection period
Receivables x 365
Sales
Marking Scheme
mark for correctly stating the formula and 1/2 mark for each correct ratio
1/
2
(b)
Smokey has a higher gross profit percentage than Binky. Smokey may have a cheaper supplier
than Binky or benefit from discounts. Alternatively, its market position or geographical location may
enable the company to charge a premium.
The net profit percentage for Smokey is significantly lower than Binky suggesting that Smokey is
not controlling its expenses as tightly as Binky.
Binky is able to obtain a significantly higher level of sales from its assets, suggesting the company
is being run more efficiently.
The current ratios indicate that both companies have sufficient current assets to meet their current
liabilities. However, the quick ratios reveal a more worrying picture.
The quick ratios for both companies are less than 1. Smokey has a very low quick ratio of 03 and
may not be able to pay its debts as they become due. The very high inventory levels may indicate
poor inventory control, it might be that some of the inventory is unsellable.
The receivables collection period for Smokey is significantly higher than Binky. This will obviously
be contributing to the companys adverse liquidity position. Action is required to improve the debt
collection procedures.
Overall Binky appears to be the better company to invest in, from the information given.
Marking scheme
18
ADVANCED LEVEL
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements

hall

6DINTPA
Paper T6INT
6DINTAA
Paper T6INT

1
The following information has been extracted from the books of Tonson, a limited liability company, as at 31 October
2006.
Dr
$000
15
75
350
60
66
50
675
Cash
Insurance
General expenses
Energy expenses
Marketing expenses
Wages and salaries
Discounts received
Retained earnings at 1 November 2005
Sales revenue
Telephone expenses
Property expenses
Bank
Returns inward
Trade payables
Loan note interest
Trade receivables
Purchases
7% Loan notes
Bad debts
$1 Ordinary shares
Accumulated depreciation at 1 November 2005
Buildings
Motor Vehicles
Land at cost
Buildings at cost
Furniture and equipment at cost
Cr
$000
50
200
315
40
5,780
80
100
94
95
290
33
900
3,570
470
150
1,800
360
80
420
740
1,500
240
1,200
9,899
9,899
You have also been provided with the following information:

1
2
3
4
5
6
7
8
9
Inventory at 31 October 2006 was valued at $275,000 based on its original cost. However, $45,000 of this
inventory has been in the warehouse for over two years and the directors have agreed to sell it in November 2006
for a cash price of $20,000.
The marketing expenses include $5,000 which relates to November 2006.
Based on past experience the allowance for receivables is to be increased to 5% of trade receivables.
There are wages and salaries outstanding of $40,000 for the year ended 31 October 2006.
Buildings are depreciated at 5% of cost. At 31 October 2006 the buildings were professionally valued at
$1,800,000 and the directors wish this valuation to be incorporated into the accounts.
Depreciation is to be charged as follows:
(i) Motor vehicles at 20% of written down value.
(ii) Furniture and equipment at 20% of cost.
No dividends have been paid or declared.
Tax of $150,000 is to be provided for the year.
During October 2006 a bonus (or scrip) issue of one for ten was made to ordinary shareholders. This has not
been entered into the books. The share premium account was used for this purpose.
2
6DINTAA
Paper T6INT
Required:
Prepare the following statements, FOR INTERNAL USE:
(a) the income statement for the year ended 31 October 2006; and
(18 marks)
(b) the balance sheet as at 31 October 2006
(17 marks)
(35 marks)
3
[P.T.O.
6DINTAB
Paper T6INT
You have been given the following information relating to H Marathon, a limited liability company. The company is
preparing its cash flow statement for the year ended 31 October 2006
H Marathon
Revenue
Cost of sales
$000
54,577
(27,128)
27,449
(9,146)
(5,766)
12,537
101
(1,749)
10,889
(2,570)
8,319
Gross profit
Distribution costs
Interest received
Finance cost
Profit before tax
Taxation
Balance sheets as at 31 October

Assets
Non-current assets
Cost
Current assets
Inventory
Trade receivables
Bank
Total assets
Share premium
Revaluation reserve
Retained earnings
7% loan notes
Current liabilities
Bank overdraft
Trade payables
Taxation
2006
$000
2005
$000
133,152
(30,978)
102,174
124,252
(25,629)
98,623
26,350
13,412
2,955
42,717
29,365
16,446
3,036
48,847
144,891
147,470
23,576
11,982
12,554
58,532
106,644
21,082
10,245
6,029
53,910
91,266
5,743
22,632
6,869
23,534
2,101
32,504
7,842
23,804
1,926
33,572
144,891
147,470
4
6DINTAB
Paper T6INT
(i) During the year dividends paid were $3,697,000.
(ii) There were no amounts outstanding in respect of interest payable or receivable as at either year end.
(iii) Operating profit is stated after charging depreciation of $6,784,000.
(iv) During the year, the company sold equipment for $5,667,000 realising a profit of $1,806,000. This equipment
had never been revalued, and there were no other disposals of non-current assets during the year.
(v) The only revaluation of non-current assets was that of a piece of freehold land.
Required:
(a) Prepare a cash flow statement for H Marathon for the year ended 31 October 2006 in accordance with
IAS 7 Cash Flow Statements, using the indirect method.
(18 marks)
(b) Comment on the financial performance and position of H Marathon as shown by the cash flow statement you
have prepared.
(8 marks)
(c) Why are cash flow statements sometimes considered more useful than profit statements?
(4 marks)
(30 marks)
5
[P.T.O.
6DINTAC
Paper T6INT
Nyfe, Ork and Poon decide to dissolve their partnership on 1 December 2006 after being in business for many years.
The balance sheet of the partnership as at 30 November 2006 was as follows:
Nyfe, Ork and Poon
Balance sheet as at 30 November 2006
Assets
Non-current assets
Motor vehicles
Current assets
Inventory
Receivables
Bank
25,000
42,000
6,000
Total assets
Nyfe
Ork
Poon
$
50,000
35,000
85,000
73,000
158,000
45,000
30,000
15,000
90,000

Nyfe
Ork
Poon
9,750
7,450
6,300
23,500
18,000
Loan
Current Liabilities
Payables
26,500
158,000
(a) The partnership agreement states that Nife, Ork and Poon share profits and losses in the ratio 3:2:1
(b) The furniture and fittings were sold for $48,800.
(c) Only $39,900 of outstanding receivables were recovered.
(d) The payables were settled for $25,440.
(e) It was agreed between the partners that Poon could take a motor vehicle at a valuation of $9,000 in addition to
his share of the profit. The motor vehicle had a net book value of $8,000. The other motor vehicles were sold
for $29,500.
(f) The inventory was sold for $27,750.
(g) The loan was repaid in full on 1 December 2006.
(h) There were no outstanding interest payments on the loan.
(i) Expenses incurred in dissolving the partnership were $1,000.
6
6DINTAC
Paper T6INT
Required:
Prepare the following accounts on dissolution:
(i)
Partners accounts
(4 marks)
(ii) Realisation account
(10 marks)
(iii) Cash and bank account
(6 marks)
(20 marks)
7
[P.T.O.
6DINTAD
Paper T6INT
Two companies Binky and Smokey trade in the same market. Their financial statements for the year ended 31 October
2006 are summarised below:
Binky
$000
$000
284
(155)
129
Sales revenue
Cost of sales
Gross profit
Expenses:
Administrative
Depreciation
Loan note interest
(24)
(35)
(9)
$000
Smokey
$000
305
(151)
154
(37)
(53)
(12)
(5)
(68)
61
Net profit
(107)
47
Balance sheets as at 31 October 2006

Binky
Assets
Non-current assets
At cost
$000
$000
320
(75)
Smokey
$000
$000
515
(96)
245
Current assets
Inventory
Receivables
Bank
91
46
64
Total assets
Share capital and reserves
Share capital
Retained earnings
10% Loan note
Current liabilities
201
446
150
108
188
446
419
293
75
15
383
802
250
177
50
325
802
8
6DINTAD
Paper T6INT
Required:
(a) Calculate the following ratios for Binky and Smokey:
(State the formulas used for calculating the ratios)
Profitability ratios:
Asset turnover ratio
Liquidity ratios:
Current ratio
Quick ratio (acid test ratio)
(9 marks)
(b) Compare and comment on the performance of the companies as indicated by the ratios you have calculated
in part (a).
(6 marks)
(15 marks)
9
Answers

June 2007 Answers

and Marking Scheme
Marks
(a)
Goodwill on acquisition of Tricepts

Cost of investment
Share capital ($25 million x 80%)
Retained earnings ($2 million x 80%)
$000
20,000
1,600
Goodwill
(b)
$000
24,000
(21,600)
2,400
Total
1
1
1
(i)
Bicepts
05
$000
Workings ($000)
Sales revenue
197,000
15 135,000 + 74,000 12,000
Cost of sales
(89,000)
25 70,000 + 30,000 12,000 + 1,000*
Gross Profit
108,000
Distribution costs
(13,700)
05
(26,784)
05
Goodwill impairment
(600)
15 2,400 1,800
Net profit before interest and tax

66,916
Interest payable
(12)
10 16 4
Profit before tax

66,904
Income tax expense
(19,000)
05
Profit for the year

47,904
Attributable to:
Equity holders of the parent
43,704
Minority interest
4,200
15 20% x 21,000
47,904

Total 100
(ii)
Bicepts
Consolidated Balance Sheet as at 31 May 2007
Assets
$000
$000
Non-current assets
Intangible goodwill
1,800
119,050
120,850
Current assets
Inventory
Receivables
Bank
14,128
22,486
4,744
Total assets
$1 Ordinary shares
Retained earnings (W1)
Minority interest
Current liabilities
Payables
Tax
Dividends payable to Minority Interests
Dividends
41,358
162,208
70,000
46,340
8,000
124,340
6,118
18,000
1,600
12,000
8% Loan Notes
37,718
05
10
05
(2,400 600)
15
35
05
(10,630 + 4,498 1,000*)
05
40
15
25
05
10
05
150
10
162,208

Total 190
(80,000 + 39,050)
(18,460 + 12,230 6,400** 1,800*** 4****)

(3,400 + 1,344)
(20% x 40,000)
(6,000 + 1,922 1,800*** 4****)
(200 50)
11
Marks
Notes:
* Exclusion of unrealised profit held in inventory ($1,000,000)
** Exclusion of the intragroup dividends from receivables ($6,400,000)
*** Intragroup indebtedness ($1,800,000)
**** Exclusion of intragroup interest ($4,000)
Workings
W1 Retained earnings as at 31 May 2007
$000
Bicepts Balance Sheet
Tricepts :
Retained earnings
$000
37,540
(1,000)
15,000
(2,000)
13,000
Group share (80% x $13,000,000)

Less goodwill written off as at 31 May 2007
(c)
05
1
10,400
(600)
46,340
2
05
When one company sells goods to another company within the same group an identical amount is shown in the sales figure
of the first company and in the cost of sales of the second. However, as far as the group is concerned there has not been an
external sale. Therefore, on consolidation the amount of the inter-company trade must be eliminated from sales and purchases
(cost of sales).
If there are unrealised profits on inter-company trading these also need to be excluded from the figures for the group profits.
This is achieved by calculating and then deducting the amount of unrealised profit from unsold inventory at the year end.
Similarly, if non-current assets have been sold at profit between companies in a group then the profit element has to be
eliminated.
Any receivables/payables balances outstanding between the two companies at the year end are cancelled on consolidation to
avoid producing a misleading balance sheet.
Marking Scheme: Up to a total of 3 marks
(a)
J Moors accounts
(i)
Inventory loss
Capital account
(ii)
Marks
Revaluation account
$
500
16,500
17,000
Goodwill
Property profit
$
12,000
5,000
17,000
10 + 05
05 + 10
Capital account
Balance c/f to new business
$
56,000
56,000
P Crofts accounts
(i)
Plant and machinery loss
Capital account
Balance b/f
Dodds loan
Profit on revaluation
$
35,000
4,500
16,500
56,000
05 + 05
10
05
Revaluation account
$
1,500
7,500
9,000
Goodwill
$
9,000
9,000
10 + 05
05
12
Marks
(ii)
Capital account
$
7,000
23,800
30,800
Motor vehicle
Balance c/f to new business
Balance b/f
Profit on revaluation
$
23,300
7,500
30,800
10 + 05
05 + 05
Total
(b)
Marks
Assets
Non-current assets
Property
Plant and machinery
Moorcroft
$
8,500
2,800
4,000
Total assets
Capital accounts
J Moor
P Croft
Current liabilities
Trade payables
Workings
$
30,000
28,500
58,500
Current assets
Inventory
Trade receivables
Cash at bank
10
1
1
($14,000 + $14,500)
1
1
1
($4,500 + $4,000)
42,000
16,800
58,800
2
2
W1
W1
15,000
73,800
15,300
73,800
Total 10
Working 1
Marks
Partners Capital accounts
Goodwill written off

2:1 x $21,000
Balance c/f
(c)
Moor
$
Croft
$
14,000
42,000
56,000
7,000
16,800
23,800
Balance b/f from

old business
Moor
$
Croft
$
56,000
23,800
56,000
23,800
10 + 10 + 05 + 05
05 + 05
Goodwill is calculated as the difference between the value of the whole business as a going concern and the value of the
tangible and other identifiable intangible assets less any liabilities. Therefore, goodwill is a balancing item rather than an item
that is objectively valued.
(up to 2 marks)
Goodwill needs to be recalculated when a partner joins a partnership business for the following reasons.
A new partner that joins a business is entitled to share in the future growth of all the partnership assets. Their entitlement
arises because they make a payment to enter the partnership, or the existing partners consider they will enhance the future
profitability of the firm. However, the new partners entitlement is to share in the future growth of the business not its past
growth.
Any goodwill which has already been built up by the existing partners needs to be credited to them.
(up to 3 marks)
Total 5 marks
13
Marks
3
(a)
(i)
(ii)
(iii)
(iv)
(v)
(b)
Gross profit
Revenue
x 100
95
375
x 100
253%
Net profit from operations

x 100
Revenue
50
375
x 100
133%
133
103
:1
13:1
133 96
:1
103
04:1
331 days
Net profit percentage*
Current assets
Current liabilities
Current ratio
Acid test (Quick) ratio
x 100

:1
Current liabilities
Trade receivables
Sales
* Could also be profit for the period.
x 365
34
375
x 365
Total
Comments on the performance of Acoms

Gross Profit
Gross profit percentage has reduced from the previous year by 27%. This might indicate increased competition in the market
and that selling prices have been discounted. Alternatively the cost of purchases may have increased significantly. The
situation is particularly worrying because this ratio is now below the industry average.
Net Profit
The net profit percentage has also deteriorated on the previous year and is below the industry average. This suggests that the
control of costs needs to be improved if the company is to remain competitive.
Current Ratio
The current ratio has deteriorated slightly on the previous year but is simliar to the industry average. The business has
sufficient current assets to cover its current liabilities. However, the composition of the current assets is heavily weighted with
inventory. The company may have problems converting inventory to cash if it is required quickly.
Acid Test
The acid test ratio gives a better indication of liquidity than the current ratio. This ratio is 04:1 and has fallen significantly
below the industry average. This ratio suggests the company may be experiencing some liquidity problems. The current
inventory levels might also indicate the business is having some trading problems.
The receivables collection period has more than doubled since the previous year and is 13 days longer than the industry
average. The business may be giving customers more credit in order to sell more inventory. Alternatively the receivables
collection procedures may need to be tightened up, which would help to improve the business liquidity situation.
Marking scheme: Maximum of 10 marks.
(c)
Main limitations of ratio analysis
Inflation may distort comparisons of ratios over time.

Different accounting policies may distort intercompany comparisons.
The ratios are only as good as the financial information on which they are based.
The accounting information used to prepare the ratios may be out of date.
Changes in accounting policies from year to year may produce misleading ratios.
Usually the information presented in the published accounts is summarised, making a detailed analysis impossible.
Using industry averages as a basis for comparison can be misleading as they are the average of the ratios from a number
of companies.
Marking scheme 1 mark for each relevant comment up to a maximum of 5 marks
(a)
(i)
The role of the IASC Foundation is to oversee the IASB and related bodies and to raise the funds needed.
(ii)
The role of the IASB is to develop and issue global accounting standards.
(iii) The role of IFRIC is to provide timely guidance on the application of IFRSs where unsatisfactory interpretations exist or
new processes arise.
(iv) The role of SAC is to provide a formal forum where the IASB can consult individuals, and representatives of organisations
affected by its work.
Marking scheme: 1 mark for briefly explaining each role up to a maximum of 4 marks.
14
(b)
The qualitative characteristics of financial information are the characteristics that make the information useful and determine
whether, when and how it is presented in financial statements so that the information they give is useful to users for assessing
the financial position, performance and financial adaptability of the business.
(1) Relevance
Information is considered to be relevant if it has the ability to influence the economic decisions of users and is provided
in time to influence those decisions.
(2) Reliability
Information is reliable if:
(a)
it can be depended upon by users to represent faithfully what it either purports to represent or is reasonably
expected to represent and therefore reflects the substance of the transactions and other events that have taken
place.
(b)
it is free from deliberate or systematic bias and material error, and is complete; and
(c)
in its preparation under conditions of uncertainty, a degree of caution has been applied in exercising the necessary
judgements.
(3) Comparability
Information is comparable if it enables users to determine and evaluate similarities in, and differences between, the
nature and effects of transactions and other events over time and across different businesses.
(4) Understandability
Information is understandable if its significance can be appreciated by users that have a reasonable knowledge of
business and economic activities and accounting and a willingness to study with reasonable diligence the information
provided.
Marking scheme: 1/2 a mark for identifying and 2 marks for explaining the characteristic. Maximum of 10 marks.
(c)
The main problems with historical cost accounting are:

(i)
Non-current assets values are unrealistic

The value of non-current assets shown on the balance sheet may be unrealistic if presented at their historical cost. For
example, property assets have a tendency to appreciate over time, hence the value on the balance sheet becomes
understated.
To overcome this problem a business may periodically revalue its assets.
(ii)
Potential capital reduction

Distributions made out of profit based on the historical cost basis may result in a reduction of capital in real terms.
Depreciation is regarded as a proxy for the contribution non-current assets have made to the business over the
accounting period. A criticism of depreciation based on historical cost is that it may not adequately reflect the value of
the assets contribution during the year. This inadequacy is partly overcome by periodically revaluing the assets.
(iii) Holding gains on inventory are included in profit

Closing inventory, during a period of rising prices, will tend to have a higher value than goods purchased in earlier
periods (i.e. inventory appreciation). Therefore, the gross profit will be overstated because the closing inventory is
deducted from the opening inventory plus purchases. However, when the inventory is eventually sold it will probably
cost more to replace.
(iv) Comparisons over time are unrealistic
Measuring the growth or the success of a business over time can be difficult during periods of inflation. For example,
comparing the current profitability of a company with its performance ten years later would be meaningless without
attempting to adjust the figures for inflation.
Examiners note: reference to Current Purchasing Power Accounting (CPP) and Current Cost Accounting (CCA) should be given
due credit.
Marking Scheme: 1 mark per relevant point up to a maximum of 6 marks.
15
ADVANCED LEVEL
MONDAY 4 JUNE 2007
QUESTION PAPER
Paper T6(INT)
Drafting Financial
Statements

hall


1
You are provided with the following financial statements for Bicepts, a limited liability company, and its subsidiary
Tricepts:
Bicepts
$000
Sales Revenue
135,000
Cost of sales
(70,000)
Gross profit
65,000
Distribution costs
(7,500)
(19,000)

38,500
Income from Tricepts: Loan note Interest
4
Dividends
6,400
Interest payable
Profit before tax

44,904
Income tax expense
(10,000)

34,904
Tricepts
$000
74,000
(30,000)
44,000
(6,200)
(7,784)
30,016
(16)
30,000
(9,000)
21,000
Balance Sheets as at 31 May 2007

Bicepts
$000
$000
Tricepts
$000
$000
80,000
39,050
24,000
50
104,050
39,050
Assets
Non-current assets
Investments:
$1 ordinary shares in Tricepts at cost
Tricepts loan notes
Current assets
Inventory
Receivables
Bank
10,630
18,460
3,400
Total assets
$1 Ordinary shares
Retained earnings
Current liabilities
Payables
Tax
Dividends payable
32,490
136,540
4,498
12,230
1,344
70,000
37,540
107,540
6,000
11,000
12,000
8% Loan note
29,000
136,540
18,072
57,122
25,000
15,000
40,000
1,922
7,000
8,000
16,922
200
57,122
2

(i)
Bicepts purchased 80% of the $1 ordinary shares in Tricepts on 1 June 2006. At that date Tricepts retained
earnings were $2,000,000.
(ii) Bicepts annual impairment review of goodwill on acquisition of Tricepts valued it at $1,800,000 at 31 May
2007.
(iii) During the year ended 31 May 2007 Bicepts sold goods which originally cost $8,000,000 to Tricepts for
$12,000,000. Tricepts still had 25% of these goods in inventory at 31 May 2007.
(iv) Tricepts owed Bicepts $1,800,000 at 31 May 2007 for some of the goods Bicepts supplied during the year.
(v) Bicepts owns $50,000 of Tricepts loan notes. The interest is paid annually in arrears at 31 May. Interest for the
year ended 31 May 2007 is included in Tricepts payables. Bicepts has also included the interest in its
receivables.
(vi) All dividends were declared, but not paid prior to the year end.
Required:
(a) Calculate the goodwill arising on the acquisition of Tricepts.
(3 marks)
(b) Prepare the following financial statements for Bicepts:

(i)
the consolidated income statement for the year ended 31 May 2007.
(10 marks)
(ii) the consolidated balance sheet as at 31 May 2007.

Note: A working should be included for the retained earnings. Disclosure notes are not required.
(19 marks)
(c) Explain the accounting treatment of intra-group trading in consolidated accounts.
(3 marks)
(35 marks)
3
[P.T.O.
J Moor and P Croft have been trading independently as sole traders. They have decided to form a partnership called
Moorcroft from their existing businesses. The future profit sharing ratio in the new business will be 2:1 to J Moor and
P Croft respectively.
The balance sheets of the sole trader businesses at the date of the formation of the partnership were as follows:
Balance sheets as at 31 May 2007
J Moor
Assets
Non-current
Property
Plant and machinery
Motor vehicle
Current assets
Inventory
Trade receivables
Cash at bank
$
25,000
14,000
39,000
5,000
1,500
1,000
Total assets
Capital accounts
Moor
Croft
Current liabilities
Trade payables
Loan from Dodd
7,500
46,500
P Croft
$
16,000
7,000
23,000
4,000
1,300
3,000
8,300
31,300
35,000
23,300
7,000
4,500
46,500
8,000
31,300
At the date of formation of the partnership:
(i) the property belonging to J Moor was revalued at $30,000.
(ii) the motor vehicle was retained by P Croft and not transferred to Moorcroft.
(iii) J Moors inventory was revalued at $4,500.
(iv) the plant and machinery belonging to P Croft was revalued at $14,500.
(v) J Moor agreed to take personal responsibility for the loan from Dodd.
(vi) goodwill was agreed to be $12,000 for J Moor and $9,000 for P Croft.
(vii) all the trade payables and trade receivables were taken over by Moorcroft at their book values.
Required:
(a) Prepare the following accounts for both J Moor and P Croft as they would appear on the closing of their sole
trader businesses:
(i)
Revaluation accounts;
(5 marks)
(ii) Capital accounts.
(5 marks)
(b) Prepare the balance sheet of Moorcroft immediately following the formation of the partnership.
Note: goodwill is not carried in the balance sheet.
(10 marks)
(c) Explain briefly how partnership goodwill is calculated and why it needs to be recalculated when a new
partner joins a partnership.
(5 marks)
(25 marks)
4

5
[P.T.O.
Acoms is a small business with limited liability. Its summarised financial results are given below:
Acoms
$000
Revenue
375
Cost of sales
(280)
Gross profit
95
Distribution & administrative expenses
(45)

50
Finance costs
(5)
Profit before tax

45
Income tax expense
(15)

30
Acoms
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Cash and bank
410
96
34
3
Total assets
$1 Ordinary shares
Retained earnings
Current liabilities
Trade payables
Taxation
$000
133
543
300
90
390
88
15
10% Loan notes
103
50
543
The following are ratios for Acoms for the year to 31 May 2006 and the industry average ratios for 2007:
Ratio
Gross profit percentage (%)
Net profit percentage (%)
Current ratio
Receivables collection period (days)
Acoms
2006
347
177
15
11
160
Industry Average
2007
300
200
15
10
200
6
Required:
(a) Calculate the following ratios for Acoms for the year ended 31 May 2007. State clearly the formula used for
each ratio.
(i)
(ii)
(iii)
(iv)
(v)

Current ratio
(5 marks)
(b) Use the information given and the ratios you calculated in part (a) to comment on the performance of Acoms.
(10 marks)
(c) State five limitations of ratio analysis.
(5 marks)
(20 marks)
Required:
(a) State the role of each of the following bodies:
(i)
(ii)
(iii)
(iv)
International Accounting Standards Committee Foundation

International Accounting Standards Board (IASB)
International Financial Reporting Interpretations Committee (IFRIC)
Standards Advisory Council (SAC)
(4 marks)
(b) Identify and explain the four qualitative characteristics of financial information that are currently included in
the IASBs Framework for the Preparation and Presentation of Financial Statements.
(10 marks)
(c) Discuss the problems with using historical cost accounting during a period of rising prices and explain how
these problems may be overcome.
(6 marks)
(20 marks)
7
Answers
ACCA Certified Accounting Technician Examination Paper T6 (INT)

(a)
(i)

and Marking Scheme
Marks Workings
$000
05
Malright
$000
1,765
(1,343)
422
(80)
(192)
150
(5)
145
(45)
100
Revenue
Cost of sales (W1)
Gross profit
Finance cost
Profit before tax
Tax
(ii)
Malright
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Total assets
$1 Ordinary shares
Retained earnings
10% Loan notes
Current liabilities
Bank overdraft
Trade payables
Current tax
Energy expenses accrual
Loan notes interest
50
250
45
15
5
(1,800 35)
15
45
10
10
05
140
05
$000
966
75
304
10
40
379
1,345
35
05
10
05
650
80
200
930
05
05
20
50
10
365
1,345
(320 16)
(130 + 100 30)
10
05
10
10
10
05
150
11
Workings
W1
Cost of
Sales
$000
1,105
Distribution
Cost
$000
Purchases
Discounts received
Wages (40:25:35)
72
45
Energy expenses ($105 + $15) (40:20:40)
48
24
Opening inventory
160
Increase in allowance for receivables ((320 x 005) 10)
Closing inventory
(75)
11
11
Depreciation plant
22
1,343
80
(4 marks) (15 marks)
(90)
63
48
80
6
70
Cost
Accumulated depreciation b/f
Buildings $740 x 5%
Plant ($220 $110) x 20%
(b)
Buildings
$000
740
(60)
(37)
235
(05 mark)
643
(15 marks)
(1 mark)
(1 mark)
(1 mark)
15
192
(45 marks)
W2 Non-current assets
Land
$000
235
Administrative
Expenses
$000
Plant
$000
220
(110)
Total
Property, Plant
& Equipment
$000
1,195
(170)
(37)
(22)
(22)
88
966
(15 marks) (35 marks)
Accounting ratios for Malright

:1
Current liabilities
379 75
=
365
(i)
Quick ratio
(acid test ratio)
083:1
(ii)
Interest cover
Profit before interest and tax
Interest
150
30 times
(iii) Earnings per share
Profit after tax
No of ordinary shares
100
650
154 cents
(iv) Price earnings ratio
Current share price per share
Earnings per share
130
154
84
Marking scheme: A total of 6 marks 05 mark for stating the correct formula and 1 mark for the correct ratio.
(a)
Appropriation Account for the year ended 31 October 2007
Marks
$
Net profit
Less partners salaries
Alan
Bob
Colin
30,000
35,000
28,000
Less interest on capital

Alan
Bob
Colin
4,000
3,500
3,000
Net profit available for appropriation

Alan
Bob
Colin
3/6
2/6
1/6
$
134,904
(93,000)
(10,500)
31,404
15,702
10,468
5,234
31,404
05
)
)
)
)
)
)
05
05
05
12
(b)
(c)
Partners Current Accounts

Alan
$
Bal b/f
Drawings
22,000
Capital a/c
30,502
Bal c/f
52,502
Marks
Bob
$
17,000
Colin
$
1,600
25,000
33,168
50,168
9,634
36,234
Partners Capital Accounts

Alan
$
Goodwill
Loan a/c
109,502
Bal c/f
Bob
$
28,800
Colin
$
43,200
47,200
14,800
109,502
76,000
58,000
Bal /b/f
Int on cap
Salaries
Profit
Bal b/f
Cash
Revaluation a/c
Goodwill: 3:2:1
Current a/c
Alan
$
2,800
4,000
30,000
15,702
52,502
Bob
$
1,200
3,500
35,000
10,468
50,168
Colin
$
3,000
28,000
5,234
36,234
Alan
$
40,000
Bob
$
35,000
15,000
2,000
24,000
Colin
$
30,000
15,000
1,000
12,000
76,000
58,000
3,000
36,000
30,502
109,502
1+1
1+1
1+1
1+1
1+1
1+1
1+2
1
1
Working for Revaluations
Property
Equipment and machinery
Inventory
Receivables
Book Value
$
120,000
40,000
22,000
18,000
Revalued amount
$
136,000
35,000
18,000
17,000
Net Change
New valuations apportioned to each partner
Alan
3/6
Bob
2/6
Colin
1/6
(d)
Change
$
16,000
(5,000)
(4,000)
(1,000)
6,000
3,000
2,000
1,000
6,000
Advantages of operating as a partnership:

(i) Business risk is spread amongst more people.
(ii) Individual partners may be able to specialise in particular activities within the business.
(iii) Access to a larger pool of capital.
Disadvantages of operating as a partnership:
(i)
(ii)
Disputes might arise between the partners.

Decision making may take longer if all partners have to be consulted.
Marking scheme: 1 mark for each relevant point up to a maximum of 4 marks
(a)
Cost of investment
Share capital
Retained earnings
$000
2,800
42
Goodwill
$000
3,345
(2,842)
503
Workings
$000
(70% x 60)
13
Marks
05
1
15
(b)
Prestend
Assets
$000
Non-current assets
Current assets
Inventory
Trade receivables
Bank
2,280
2,520
950
Total assets
$1 Ordinary shares
Retained earnings
Minority Interest
$000
7,500
(4,200 + 3,300)
05
(1,500 + 800 20)

(1,800 + 750 30)
(600 + 350)
15
15
05
(W1)
(W2)
1
45
2
(1,220 + 200 30)

(700 + 800)
15
05
5,750
13,250
1,390
1,500
13,250
Workings
W1 Retained earnings
Prestend balance
Retained earnings of Northon (70% x $200,000)
Pre acquisition reserves (70% x $60,000)
Less Goodwill
Unrealised profit on purchases from Prestend
525
140
(42)
(503)
(20)
Reserves
W2 Minority Interest
Share Capital (30% x $4,000,000)
Retained earnings (30% x $200,000)
Minority Interest
14
(565)
100
05
1
1
1
1
45
1,200
60
1,260
1
1
The existence of significant influence might be demonstrated where there is:

(a)
(b)
(c)
(d)
(e)
(f)
Marks
05
$000
9,000
100
1,260
10,360
Current liabilities
Payables
Tax
(c)
Workings
A holding of 20% or more of the shares in the investee company, but less than 50%.
Participation in the policy making process of the investee company.
Material transactions between the two companies.
An interchange of management personnel beween the companies.
The provision of essential technical information by the investor company.
A representative of the investor company on the board of directors of the investee company.
Marking scheme: 1 mark for each circumstance up to a maximum of 3 marks.
14
(a)
Marks
Geofost
Cash flow statement for the year ended 31 October 2007
$000
Adjustments for:
Depreciation
Finance cost
Profit on disposal of non-current assets
Decrease in inventory
Interest paid (100 120 + 730)
Tax paid (W1)
Payments to acquire property, plant & equipment
Proceeds from sale of property, plant & equipment
$000
15,000
05
4,658
730
(720)
19,668
6,075
(1,863)
3,178
27,058
(710)
(4,090)
1
05
1
1
1
1
15
1
22,258
(24,340)
2,694

Dividend paid
1
05
(21,646)
1,869
(2,300)
(1,486)
1
1
1
(1,917)
(1,305)
634
(671)
Net increase (decrease) in cash and cash equivalents

05
05
14
Examiners note
IAS 7 allows interest paid and dividend paid to be an operating cash flow or a financing cash flow.
W1 Taxation
Paid
C/f
4,090
3,020
7,110
B/f
Income statement
2,760
4,350
7,110
Note: The Paid entry is the balancing figure.

(b)
Over the period there was a net cash outflow from the business of $1,305,000.
The company purchased non-current assets of $24,340,000. The purchase of new non-current assets may help the future
operational efficiency of the business and therefore improve future cash flows.
The company generated additional cash by selling non-current assets for $2,694,000 which yielded a profit on their NBV of
$720,000.
Loan notes of $2,300,000 were repaid, this will reduce interest payments in the future. However, the bank overdraft has
increased by $801,000. This will inevitably increase the cost of finance from the bank.
Inventory levels were reduced by $6,075,000. This had a positive impact on the cash flow of the business.
Receivables have increased by $1,863,000. This might suggest increased sales or that debt collection arrangements need
tightening up.
The payables increase is good for cash flow but potentially may lead to problems with suppliers if the company does not stay
within agreed credit terms. Payables have almost doubled and the company may find they are no longer given credit.
Marking scheme Other relevant comments may be acceptable. Maximum of 6 marks
15
Drafting Financial
Statements
Monday 3 December 2007
Time allowed
Reading and planning:
Writing:
15 minutes
3 hours
ALL FOUR questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
Paper T6 (INT)
Certified Accounting Technician Examination

Advanced Level
This question paper must not be removed from the examination hall.

1
You are presented with the following trial balance of Malright, a limited liability company, at 31 October 2007:
Buildings at cost
Buildings, accumulated depreciation, 1 November 2006
Plant at cost
Plant, accumulated depreciation, 1 November 2006
Land at cost
Bank balance
Revenue
Purchases
Discounts received
Returns inwards
Wages
Energy expenses
Trade payables
Trade receivables
Allowance for receivables, at 1 November 2006
10% Loan notes
Dividend paid
$1 Ordinary shares
Dr
$000
740
Cr
$000
60
220
110
235
50
1,800
1,105
90
35
180
105
160
250
320
80
10
70
130
50
30
3,280
650
80
3,280
Additional information as at 31 October 2007:

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Closing inventory has been counted and is valued at $75,000.

The items listed below should be apportioned as indicated:
Cost of
Distribution
Administrative
Sales
Costs
Expenses
Discounts received
100%
Energy expenses
40%
20%
40%
Wages
40%
25%
35%
100%
An invoice of $15,000 for energy expenses for October 2007 has not been received.
Loan note interest has not been paid for the year.
The allowance for receivables is to be increased to 5% of trade receivables.
Plant is depreciated at 20% per annum using the reducing balance method. The entire charge is to be allocated
to cost of sales.
Buildings are depreciated at 5% per annum on their original cost, allocated 30% to cost of sales, 30% to
distribution costs and 40% to administrative expenses.
Tax has been calculated as $45,000 for the year.
The current share price of Malright is $130 per share.
2
Required:
(a) Prepare the following financial statements for Malright in accordance with IAS 1 Presentation of Financial
Statements:
(i)
the income statement for the year ended 31 October 2007; and
(ii) the balance sheet as at 31 October 2007.
(14 marks)
(15 marks)
Note: notes to the financial statements are not required. Round all figures to the nearest thousand dollars
(b) Calculate the following accounting ratios for Malright:
(i)
(ii)
(iii)
(iv)
Quick ratio (acid test ratio);

Interest cover;
Earnings per share;
Price earnings ratio.
Note: show ratio formulas and workings.
(6 marks)
(35 marks)
3
[P.T.O.
Alan, Bob and Colin have been successfully trading as ABC partnership for several years. Due to ill health Alan has
decided to retire from the partnership as from 31 October 2007.
You have been provided with the following information:
(i)
Alan, Bob and Colin shared profits in the ratio 3:2:1.
(ii)
The partnership made a profit for the year ended 31 October 2007 of $134,904.
(iii) Alan has agreed that if there was a credit balance on his capital account at 31 October 2007 it can be transferred
into a loan to the partnership.
(iv) The partnership agreement allows for the following salaries per annum: Alan $30,000, Bob $35,000 and Colin
$28,000.
(v)
During the year cash drawings were as follows: Alan $22,000, Bob $17,000 and Colin $25,000. No interest
is charged on drawings.
(vi) At 1 November 2006 Alan and Bob had credit balances on their current accounts of $2,800 and $1,200
respectively, Colin had a debit balance of $1,600.
(vii) Interest on capital is to be paid at a rate of 10% on the balance at 1 November 2006 on capital accounts. On
1 November 2006, the partners had credit capital account balances as follows: Alan: $40,000, Bob $35,000
and Colin $30,000.
(viii) On the retirement of Alan, both Bob and Colin invested a further $15,000 each into the business and agreed a
new profit-sharing ratio:
Bob
2/5
Colin
3/5
(ix) The assets of the partnership were revalued at 31 October 2007 for the purpose of Alans retirement.
The book values and the revalued amounts are as follows.
Property
Equipment and machinery
Inventory
Receivables
Book Value
$
120,000
40,000
22,000
18,000
Revalued amount
$
136,000
35,000
18,000
17,000
The revalued amounts are to remain in the books of the new partnership.
(x)
Goodwill is not carried on the balance sheet. However, at 31 October 2007 the goodwill in the partnership was
valued at $72,000. Any adjustments for goodwill are to be made through the partners capital accounts.
Required:
(a) Prepare an appropriation account for the partnership for the year ended 31 October 2007.
(4 marks)
(b) Prepare the partners current accounts for the year ended 31 October 2007.
(8 marks)
(c) Prepare the partners capital accounts for the year ended 31 October 2007 showing the adjustments that
need to be made on the retirement of Alan from the partnership.
(9 marks)
(d) State the advantages and disadvantages of operating as a partnership rather than as a sole proprietor.
(4 marks)
(25 marks)
4
Prestend is the parent company of Northon. The following are the balance sheets for both companies as at 31 October
2007.
Assets
Non-current assets
Investments:
Shares in Northon at cost
Current assets
Inventory
Receivables
Bank
Prestend
$000
$000
Northon
$000
$000
4,200
3,300
3,345
1,500
1,800
600
Total assets
$1 Ordinary shares
Retained earnings
Current liabilities
Payables
Tax
3,900
11,445
800
750
350
1,900
5,200
9,000
525
9,525
4,000
200
4,200
1,220
700
11,445
200
800
5,200

(i)
Prestend purchased 2,800,000 shares in Northon some years ago when Northon had retained earnings of
$60,000. Goodwill on acquisition has been fully written off as impaired in prior years.
(ii) During the year Prestend sold goods with an invoice value of $240,000 to Northon. These goods were invoiced
at cost plus 20%. Half of the goods are still in Northons inventory at the year end.
(iii) Northon owes Prestend $30,000 at 31 October 2007 for goods it purchased during the year.
Required:
(a) Calculate the goodwill on acquisition.
(3 marks)
(b) Prepare the consolidated balance sheet for the Prestend group as at 31 0ctober 2007.
Note: a working should be included for group retained earnings. Disclosure notes are not required.
(14 marks)
(c) A company that owns less than 50% of the shares of another company will regard it as an associate if it is
able to exert significant influence. Identify three circumstances that might demonstrate significant
influence.
(3 marks)
(20 marks)
5
[P.T.O.
Geofost, a limited liability company is preparing its cashflow statement for the year ended 31 October 2007. You have
been presented with the following information.
Geofost
Finance cost
$000
15,730
(730)
15,000
(4,350)
10,650
Profit before tax

Taxation
Balance sheets as at 31 October
Assets
Non-current assets
2007
$000
44,282
Current assets
Inventory
Trade receivables
Cash
3,560
6,405
559
Total assets
Retained earnings
9% loan notes
Current liabilities
Bank overdraft
Trade payables
Interest payable
Taxation
1,230
7,442
120
3,020
10,524
54,806
2006
$000
26,574
9,635
4,542
1,063
15,240
41,814
16,000
3,365
15,629
34,994
15,000
2,496
6,465
23,961
8,000
10,300
11,812
54,806
429
4,264
100
2,760
7,553
41,814
(i) During the year dividends paid were $1,486,000.
(ii) Summary schedule of changes to non-current assets during 2007:
Balance b/f
Additions
Disposals
Depreciation
Balance c/f
Cost
$000
33,218
24,340
(2,964)
54,594
Accumulated
depreciation
$000
6,644
(990)
4,658
10,312
Net book
value
$000
26,574
24,340
(1,974)
(4,658)
44,282
(iii) The total proceeds from the disposal of non-current assets were $2,694,000.
6
Required:
(a) Prepare a cash flow statement for Geofost for the year ended 31 October 2007 in accordance with IAS 7
Cash Flow Statements, using the indirect method.
(14 marks)
(b) Comment on the financial performance and position of Geofost as shown by the cash flow statement you
have prepared.
(6 marks)
(20 marks)
7
Answers

1
(a)
June 2008 Answers

and Marking Scheme
Steven, Stephanie and Michael

$
Sales revenue (W1)

Opening inventory
Purchases (W2)
Carriage inwards
35,000
266,000
7,500
308,500
(23,000)

Cost of goods sold
Gross profit
Expenses
Insurance
Energy
Telephone
Advertising
Rent
Stationery
Depreciation for: Vehicles
Equipment
Marks Workings ($)

05
$
513,500
05
(285,500)
228,000
20,400
7,000
10,100
5,750
3,150
24,000
1,400
5,600
20,000
17,000
8,000

Interest on drawings: Steven
Stephanie
Michael
1,500
1,000
500
Interest on capital: Steven

Stephanie
Michael
(5,000)
(5,000)
(2,500)
Share of Profit: Steven

Stephanie
Michael
05
05
1
15
05
05
1
05
1
1
25,600
Bad debts
Discounts allowed
3
05
2
05
05
05
(122,400)
105,600
3,000
108,600
(12,500)
96,100
38,440
38,440
19,220
96,100
05
05
05
05
05
05
1
1
1
22
13
(8,000 1,000)
(10,000 2,500 + 2,600)
(20,000 + 4,000)
(b)
Current Accounts
Marks
Steven
$
60,000
1,500
4,940
66,440
Drawings
Balance c/f
Balance b/f
Interest on capital
Share of profit
$
23,000
5,000
38,440
66,440
05
1
05
Stephanie
$
45,000
1,000
18,440
64,440
Drawings
Balance c/f
Balance b/f
Interest on capital
Share of profit
$
21,000
5,000
38,440
64,440
05
1
05
Michael
$
25,000
500
14,220
39,720
Drawings
Balance c/f
(c)
Balance b/f
Interest on capital
Share of profit
$
18,000
2,500
19,220
39,720
Steven, Stephanie and Michael

Statement of financial position as at 31 May 2008
Cost
Non-current assets
Vehicles
Equipment
Net Book
Value
$
40,000
80,000
120,000
17,600
36,000
53,600
22,400
44,000
66,400
23,000
50,000
1,000
38,800
Total assets
Steven
Stephanie
Michael
50,000
50,000
25,000

Steven
Stephanie
Michael
4,940
18,440
14,220
Current liabilities
Trade payables
Accruals
14,000
2,600
05
Accumulated
Depreciation
$
Current Assets
Inventory
Trade receivables
Prepayments
Bank (W3)
05
1
05
112,800
179,200
125,000
37,600
162,600
16,600
179,200
14
1
1
05
05
1
3
05
05
05
05
05
05
05
1
12
Workings
W1
Receivables b/f
Credit Sales (bal fig)
Allocation
of marks
Trade Receivables Control Account
$
61,500
513,500
575,000
W2
Bank
Payables c/f
$
270,000
14,000
284,000
(a)
05 + 05
05 + 05
05
05
$
18,000
266,000
284,000
Trade payables b/f

Purchases (bal fig)
05 + 05
05 + 05
Bank
$
15,000
500,000
515,000
$
17,000
8,000
500,000
50,000
575,000
Trade Payables Control Account
W3
Balance b/f
Receivables control
Bad debts
Settlement discounts
Bank
Receivables c/f
Trade payables control

Drawings: Steven
Stephanie
Michael
Other Payments
Balance c/f
$
270,000
60,000
45,000
25,000
76,200
38,800
515,000
05 + 05
05 + 05
Prepared in accordance with IAS7

Marks
Traffold
Statement of cash flows for the year ended 31 May 2008
05
$000

Adjustments for:
Depreciation
Interest received
Interest paid
Decrease in receivables
Interest received
Interest paid
Tax paid (W2)
$000
4,899
2,487
(57)
794
(66)
8,057
(1,940)
2,450
554
9,121
57
(794)
(1,665)
1
05
05
1
05
05
05
05
05
2
6,719

Purchase of property, plant and equipment (W1)
(9,262)
766
3
1
(8,496)
15
Marks
Dividends paid
5,467
(2,091)
(1,540)
1
1
1
1,836
59
536
595

1
1
18
Examiners note
IAS 7 allows interest paid and dividend paid to be an operating cash flow or a financing cash flow. Interest received can be
an operating cash flow or an investing cash flow.
W1 Additions of non-current assets:
Marks or
Opening net book value

Disposals (766 66)
Depreciation
41,016
(700) 1
(2,487) 05
Revaluation (7,454 4,092)
3,362
41,191
9,262
50,453

Closing net book value
Tax paid
Closing balance
B/forward
Revaluation
Addns (bal)
41,016
3,362
9,262
53,640
_______
Disposals
Deprtion
C/f
700
2,487
50,453
53,640
_______
05
W2 Taxation
Bal b/f
Income statement
Non-current assets NBV
or
1,296
1,570
05
05
(1,665)
1,201
Taxation
Paid
C/f
1,665
1,201
2,866
B/f
Inc state
1,296
1,570
2,866
Note: the entries in italics in these t-accounts are the balancing figures.
(b)
Comments could be:
Indicative
marks
Over the period there was a net cash inflow to the business of $59,000. The bank balance increased
from $536,000 to $595,000.
(05 mark)
The company was able to generate additional cash by selling some equipment for $766,000.
(05 mark)
Loan notes of $2,091,000 were repaid, this will reduce interest payments in the future and therefore
help the cash flow situation of the company.
(2 marks)
Inventory levels have increased by $1,940,000. This might indicate the company is experiencing some
trading difficulties. Alternatively it could be that the company is taking advantage of some short term
supplier discounts and purchasing inventory.
(2 marks)
Receivables have decreased by $2,450,000. This could indicate that sales have fallen, alternatively
it could be that the company has taken action to improve its credit control arrangements.
(2 marks)
The company purchased non-current assets of $8,262,000. The purchase of new non-current assets
may help improve operational efficiency, reduce costs and therefore improve future cash flows.
(2 marks)
4,000,000 additional shares were issued during the year generating a cash inflow of $5,467,000.
(1 mark)
Marking scheme Answers above indicate the types of comments that could be made. Other relevant comments are
acceptable. Maximum of 7 marks available.
16
(a)
Marks
Workings ($000)
Goodwill on acquisition of Derwent

$000
Cost of investment
Share capital (80% of $5,000,000)
Pre-acquisition reserves (80% of $500,000)
(b)
4,000
400
$000
4,750
(4,400)
350
Total
Keswick
$000
10,100
(4,950)
5,150
(2,010)
(1,350)
(80)
1,710
(740)
970
Sales revenue
Cost of sales
Gross Profit
Distribution costs
Goodwill impairment
Profit before tax
Income tax expense
Profit after tax
Attributable to:
Shareholders of Keswick
Minority interest
890
80
970
Total
1
1
1
05
15
25
8,400 + 3,200 1,500

4,600 + 1,700 1500 + (30% x 500)*
05
05
1
250 170
05
15
15
400 x 20%
10
* Unrealised profit
(c)
Any two of the following:

(i)
The parent has an agreement with other investors which gives it control over more than 50% of the voting rights.
(ii)
The parent under an agreement or by statute has power to govern the financial and operating policies of the entity.
(iii) The parent has the power to appoint or remove a majority of members of the board of directors.
(iv) The parent has the power to cast the majority of votes at meetings of boards of directors.
Marking scheme: 1 mark for each, up to max of 2 marks
17
(a)
Any 6 ratios:
2008
2007
Gross profit
Sales
x 100
946
1,886
x 100
502%
470
1,150
x 100 =
409%
Net profit
Sales
x 100
249
1,886
x 100
132%
64
1,150
x 100 =
56%
Current assets
Current liabilities
405
387
10 : 1
515
195
26 : 1
Current liabilities
165
387
04 : 1
385
195
20 : 1
Current ratio
Quick ratio
Loans
x 100
Ord Share cap
& reserves
Gearing
Inventory turnover
Receivables
Sales
x 365
650
718
x 100
91%
150
700
x 100 =
214%
165
1,886
x 365
319 days
85
1,150
x 365 =
270 days
39 times
680
130
52 times
932 days
130
680
x 365 =
698 days
726 days
145
680
x 365 =
778 days
30%
132
850
x 100 =
155%
Cost of sales
Closing inventory
940
240
Closing inventory
x 365
Cost of sales
240
940
x 365
187
940
x 365
412
1,368
x 100
or:
Inventory turnover
Payables
cost of sales*
Payables period
Return on capital emp.
x 365
PBIT
x 100
S.Cap + Res +
Non curr lia.
* a proxy for purchases

Marking Scheme
The above ratios are indicative of the ones a candidate could produce. 1/2 should be awarded for each ratio calculated
correctly and 1/2 for stating the correct formula, a maximum of 9 marks.
(b)

Gross Profit Percentage Gross profit percentage has increased significantly. This may be because Quadrop has obtained
better discounts from its suppliers. Alternatively, its market position or location may be allowing it to charge its customers
premium prices.
Net Profit Percentage Net profit has improved as a percentage of sales, but not by the same increase in the gross profit
percentage. It may be that extra expenses, e.g. in marketing, are being incurred to generate the higher level of sales.
Current Ratio The current ratio has fallen. The company may be suffering from liquidity problems and may not be able to
make payments as they fall due. The financial statements show that cash balances have fallen from a $300,000 surplus to
an overdraft of $120,000.
Quick Ratio Quadrops quick ratio has deteriorated from the previous year and is worryingly low. The business clearly has
cash flow problems.
Gearing There has been a significant increase in the gearing of the company. It has taken on additional loans presumably
to finance the additional non-current and intangible assets.
Receivables collection period This has increased from the previous year by nearly five days. The slower collection of
receivables will be contributing to the poor liquidity situation.
Inventory turnover The inventory turnover ratio has fallen suggesting that there may be some inventory control problems.
Alternatively the company may be changing the mix/type of goods it sells resulting in different turnover ratios.
Payables The payables period has decreased from 778 days to 726 days which suggests it is paying suppliers more
quickly. This will have an adverse impact on the cash flow position, unless discounts are being received for early payment.
18
Return on capital employed The business has improved its ROCE from 155%30% despite taking out more long term
loans. This level of return to shareholders should be acceptable and attractive to any prospective shareholders.
Marking scheme
(c)
The nature of Quadrops business

Industry average ratios
The general economic conditions that exist
The size of Quadrop in comparison to its competitors
Marking scheme: 1 mark for each piece of information up to a maximum of 3 marks
19
Drafting Financial
Statements
Monday 2 June 2008
Time allowed
Writing:
15 minutes
3 hours

Paper T6 (INT)

Advanced Level

1
Steven, Stephanie and Michael are in partnership. They have asked you to prepare their accounts for the year ended
31 May 2008. Unfortunately the partners have not maintained full accounting records. However, they know that
during the year they made the following payments:
$
270,000
10,000
20,400
8,000
7,500
3,150
20,000
5,750
1,400
346,200
Suppliers
Energy
Insurance
Carriage inwards
Advertising
Rent
Telephone
Stationery
The following balances at 1 June 2007 are available:

Dr
$
Capital accounts: Steven
Stephanie
Michael
Current accounts: Steven
Stephanie
Michael
Cash at bank
Inventory
Trade payables
Trade receivables
Vehicles at cost
Equipment at cost
Vehicles
Equipment
Accrual for energy
Prepayment for rent
Cr
$
50,000
50,000
25,000
23,000
21,000
18,000
15,000
35,000
18,000
61,500
40,000
80,000
12,000
16,000
2,500
4,000
235,500
235,500
(i) $14,000 was owed to suppliers as at 31 May 2008.
(ii) Insurance of $1,000 was paid in advance at 31 May 2008.
(iii) Receipts from customers were $500,000 and there was $50,000 outstanding from credit customers at 31 May
2008.
(iv) During the year bad debts of $17,000 were written off.
(v) Settlement discounts of $8,000 were given to credit customers.
(vi) An invoice for $2,600 relating to energy expenses was unpaid at 31 May 2008.
(vii) Inventory as at 31 May 2008 was valued at $23,000.
(viii) Cash drawings during the year were: Steven $60,000; Stephanie $45,000; Michael $25,000.
(ix) Depreciation on vehicles is to be provided at 20% of written down value.
(x) Depreciation on equipment is to be provided at 25% on original cost.
(xi) Interest on drawings is to be charged as follows: Steven $1,500; Stephanie $1,000; Michael $500.
2
(xii) Interest on capital account balances is to be allowed at 10%.

(xiii) Steven, Stephanie and Michael have an agreement to share profits in the ratio 2:2:1.
Required:
Prepare the following for the partnership:
(a) the income statement and appropriation account for the year ended 31 May 2008;
(b) the partners current accounts for the year ended 31 May 2008; and
(c) the statement of financial position as at 31 May 2008.
(22 marks)
(6 marks)
(12 marks)
(40 marks)
3
[P.T.O.
Traffold, a limited liability company, is preparing its statement of cash flows for the year ended 31 May 2008.
Traffold
Statements of financial position as at 31 May
Assets
Non-current assets
Cost
Current assets
Inventory
Trade receivables
Bank
Total assets
$1 Ordinary share capital
Share premium
Revaluation reserve
Retained earnings
9% loan notes
Current liabilities
Trade payables
Taxation

Traffold
Sales revenue
Cost of sales
2008
$000
2007
$000
65,251
(14,798)
50,453
53,525
(12,509)
41,016
16,503
6,214
595
23,312
73,765
14,563
8,664
536
23,763
64,779
21,000
7,892
7,454
19,979
56,325
17,000
6,425
4,092
18,190
45,707
6,734
8,825
9,505
1,201
10,706
73,765
8,951
1,296
10,247
64,779
$000
28,775
(14,821)
13,954
(4,908)
(3,410)
5,636
57
(794)
4,899
(1,570)
3,329
Gross profit
Distribution costs
Interest received
Finance cost
Profit before tax
Taxation
4
(i)
(ii)
(iii)
(iv)
(v)
Dividends paid during the year were $1,540,000.

There were no amounts outstanding in respect of interest payable or receivable as at either year end.
Total depreciation for the year was $2,487,000.
The only revaluation of non-current assets was of a piece of freehold land.
During the year, the company sold equipment for $766,000 realising a profit of $66,000.
Required:
(a) Prepare a statement of cash flows for Traffold for the year ended 31 May 2008 in accordance with IAS 7
Statement of Cash Flows, using the indirect method.
(18 marks)
(b) Comment on the financial position of Traffold as shown by the statement of cash flows you have prepared.
(7 marks)
(25 marks)
5
[P.T.O.
Derwent is a limited liability company with a total share capital of 5,000,000 ordinary shares of $1 each. On
1 June 2005, Keswick acquired 80% of the ordinary shares in Derwent for $4,750,000. At that time, Derwent had
reserves of $500,000.
The summarised draft income statements of Keswick and Derwent for the year ended 31 May 2008 are provided
below.
Sales revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
Dividend received from Derwent
Profit before tax
Tax
Keswick
$000
8,400
(4,600)
3,800
(1,500)
(900)
1,400
200
1,600
(600)
1,000
Derwent
$000
3,200
(1,700)
1,500
(510)
(450)
540
540
(140)
400
(i)
During the year ended 31 May 2008 Keswick sold goods costing $1,000,000 to Derwent for $1,500,000. At
31 May 2008, 30% of these goods remained in Derwents inventory.
(ii) At 31 May 2007 Keswick valued the goodwill arising from the acquisition of Derwent at $250,000. An
impairment review of this goodwill at 31 May 2008 valued it at $170,000.
Required:
(a) Calculate the goodwill arising on the acquisition of Derwent on 1 June 2005.
(b) Prepare the consolidated income statement for Keswick for the year ended 31 May 2008.
(3 marks)
(10 marks)
(c) Identify two circumstances when a company owning 50% or less of the shares of an entity will still be
deemed to have control of the entity.
(2 marks)
(15 marks)
6

Question 4 starts on page 8.
7
[P.T.O.
Janet owns some shares in a company. She has received the most recent financial statements that the company has
produced, which are shown below. You have agreed to prepare an analysis of the financial performance and liquidity
of the company for her.
Quadrop
Income statements for the year ended 31 May
2008
$000
Sales revenue
Cost of sales
Gross profit
Administration costs
Distribution costs
Interest payable
2007
$000
1,886
(940)
946
(349)
(185)
(68)
(602)
344
(95)
249
Profit before tax

Taxation
Profit for period
$000
$000
1,150
(680)
470
(223)
(115)
(13)
(351)
119
(55)
64
Statements of financial position as at 31 May

2008
Assets
Non-current assets
Property, Plant & Equipment
Intangibles
Current assets
Inventory
Receivables
Bank
Total assets
$000
$000
$000
950
400
1,350
530
530
240
165
405
1,755

Equity
Share premium
Revaluation reserve
Retained earnings
Total equity
Liabilities
Loans
Current liabilities
Payables
Taxation
Overdraft
2007
$000
187
80
120
130
85
300
515
1,045
400
150
50
118
718
400
150
50
100
700
650
150
387
1,755
145
50
195
1,045
8
Required:
(a) Calculate six accounting ratios for 2007 and 2008, which could be used to analyse the financial performance
and liquidity of Quadrop. State the formulas used for calculating the ratios.
(9 marks)
(b) Using the ratios you have calculated in part (a), comment on the performance and liquidity of Quadrop.
(8 marks)
(c) What additional information about Quadrop would help you to interpret the ratios?
(3 marks)
(20 marks)
9
Answers


and Marking Scheme
Marks
(a)
Screeth
Statement of comprehensive income for the year ended 31 October 2008
Revenue
Cost of sales (W1)
Gross profit
Finance costs
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income:
Gains on property revaluation
15 ($9,427 $166)
35
30
50
05
05
05
05
1,267 10 ($3,150 $1,883)
1,397 05

170
Total comprehensive income for the year
(b)
05
$000
9,261
(6,770)
2,491
(955)
(1,228)
(58)
250
(120)
130
Screeth
Statement of financial position as at 31 October 2008
$000
Assets
Non-current assets
Current assets
Inventory
Trade receivables
Prepayments
Cash in hand
05
$000
4,960
480
1,615
10
27
Total assets
Equity and Liabilities
$1 Ordinary shares
Revaluation reserve
Retained earnings ($875 + $130 $200)
7% Loan notes
Current liabilities
Trade payables
Tax
Accruals
Bank overdraft
507
120
60
311
Total liabilities
2,132
7,092
45
05
15 ($1,700 $85)
10
05
05
2,850
350
1,267
805
5,272
05
05
10
25
822
10
05
05
10
10
998
7,092 05

180
13
Marks
Workings
W1
Cost of
Sales
$000
Distribution costs
Salaries (1,180 + 60) (25:35:40)
Discounts received (1 mark)
Property expenses (20:30:50)
Insurance (130 10) (20:40:40)
Purchases
Opening inventory
Depreciation buildings 132 (W2) (0:50:50)
Depreciation motor vehicles (W2)
Depreciation furniture and equipment (W2)
Closing inventory (1 mark)
Receivables expense (W4) (1 mark)
310
58
24
6,248
610
Distribution Administrative
Cost
Expenses
$000
$000
250
126
434
496
(88)
87
145
48
48
66
70
66
160
(480)
6,770
(35 marks)
955
(3 marks)
275
1,228
(5 marks)
W2 Depreciation on non-current assets
Cost
Depreciation b/f
Buildings 2,640 x 5%
Motor vehicles (420 140) x 25%
Furniture and equipment 800 x 20%
Buildings
$000
2,640
(625)
Motor
vehicles
$000
420
(140)
(132)
(70)
1,883
210
W3 Non-current assets as at 31 October 2008

Land (from TB)
Buildings revalued at 31 October 2008
Motor vehicles (W2)
Furniture and equipment (W2)
Balance as per TB
(160)
305
$000
1,295 05
3,150 10
210 15
305 15

4,960 45
Total Property, Plant & Equipment

Working Papers
W4
Furniture
& equipment
$000
800
(335)
Receivables Expense
$
260,000
15,000
275,000
Income statement
$
275,000
275,000
Allowance for Receivables

$
Balance c/f ($1,700,000 x 5%) 85,000
85,000
Balance as per TB
Receivables expenses
$
70,000
15,000
85,000
14
Marks Workings ($000)

2
(a)
Goodwill on acquisition of Bruce

$000
Cost of investment
Share capital ($9,260,000 x 70%)
Retained earnings ($750,000 x 70%)
6,482
525
Parents goodwill
Non-controlling interests goodwill
Total goodwill
(b)
(i)
(ii)
$000
8,800
10
10
10
(7,007)
1,793
600 10
2,393

Total 40
Wallace
Consolidated income statement for the year ended 31 October 2008
$000
Revenue
72,400 10
Cost of sales
(33,200) 20
Gross profit
39,200
Distribution costs
(5,000) 05
(9,792) 05
Finance costs
(2) 10
Profit before tax

24,406
Income tax expense
(6,800) 05
Profit for the year

17,606
Profit attributable to:

Owners of the parent
15,506 05
Non-controlling interest
2,100 20
17,606

Total 80
Wallace
Consolidated statement of financial position as at 31 October 2008
Assets
$000
$000
Non-current assets
Tangible assets, net book value
44,895 05
Intangible goodwill
2,393 05
47,288
Current assets
Inventory, at cost
4,365
15
Receivables
10,774
35
Cash and cash equivalents
1,762
16,901 05
Total assets
64,189
Equity and Liabilities

$1 Ordinary shares
26,000 10
Retained earnings (W1)
16,945 30
42,945
Non-controlling interest (W2)
4,803 30
Total equity
47,748
10% Loan note
20 10
Current liabilities
Payables
9,839
25
Tax
6,582
10
Total current liabilities

16,421

64,189

Total 180
50,000 + 27,400 5,000

26,000 + 11,000 5,000 + 1,200*
7,000 + 2,792
86
3,700 + 3,100
30% x (8,200 1,200)
(30,000 + 14,895)
(3,900 + 1,665 1,200*)

(6,850 + 4,530 600** 6***)
(1,260 + 502)
(80 60)
(6,645 + 3,800 600** 6***)
4,080 + 2,502
15
Marks
Notes:
* Exclusion of unrealised profit held in inventory (($5,000,000 $3,000,000) x 60% = $1,200,000)
** Intra-company indebtedness ($600,000)
*** Exclusion of intragroup interest ($6,000)
Workings
W1 Retained earnings as at 31 October 2008
$000
Wallace as per statement of financial position
Bruce:
Retained earnings
Unrealised profit
$000
14,145
05
5,950
(750)
(1,200)
4,000
Group share (70% x $4,000)
2,800
16,945
25
30
W2 Non-controlling interest as at 31 October 2008

$000
15,210
(1,200)
14,010
4,203
600
4,803
Net assets of Bruce at 31 October 2008

Non-controlling interest share (30% x $14,010)

Goodwill attributable to non-controlling interest
Total non-controlling interest
(a)
Property
Furniture & fittings (NBV)
Motor vehicles (NBV)
Inventory
Receivables
Cash and bank:
Loan
Payables
Profit on realisation: Melanie 12
Vicky 14
Lucy 14
(b)
Balance b/f
Realisation a/c
Property
Motor vehicles
Inventory
Receivables
Realisation Account
$
100,000
Loan a/c
30,000
Payables
20,000
20,000
49,000
Cash and bank:
10,000
Property
29,350
2,100
Motor vehicles
4,360
Inventory
2,180
Receivables
2,180
269,170
Cash and Bank

$
5,000
Realisation A/c:
Loan
110,000
Payables
26,800
22,300
Partners a/c: Melanie
21,650
Vicky
45,900
Lucy
231,650
05
05
10
10
30
$
10,000
32,520
110,000
26,800
22,300
21,650
45,900
269,170
05
05
05
05
05
05
05
05
05
05
10
10
05
05
05
05
05
05
Total
100
$
10,000
29,350
2,100
92,040
40,680
57,480
231,650
16
05
05
05
05
05
Total
05
05
10
05
05
05
60
Marks
(c)
Cash
(a)
Melanie
$
92,040
Vicky
$
40,680
92,040
40,680
Ratio
Partners Accounts
Lucy
$
57,480
Capital a/cs
Current a/cs
Realisation a/c
57,480
Formula
Current assets
Current liabilities
Quick ratio
Current liabilities
Receivables
Sales
PBIT
S. Cap + Res + Non curr lia.
Gross profit
Sales
Net profit
Sales
Current ratio
:1
:1
x 365
x 100
x 100
x 100
Melanie
$
80,000
7,680
4,360
92,040
Vicky
$
30,000
8,500
2,180
40,680
Lucy
$
50,000
5,300
2,180
57,480
Total
20
10
10
40
Campbell
Giddens
Calculation
Ratio
Calculation
Ratio
303
274
43:1
18:1
70
151
165
107
24:1
07:1
70
151
69
98
x 365
42 days
x 365 53 days
596
678
99
32
x 100
183%
x 100 31%
540
1,049
202
152
x 100
339%
x 100 224%
596
678
99
24
x 100
166%
x 100 35%
596
678
Marking scheme: 1/2 mark for correctly stating the formula and 1/2 mark for each correct ratio
(b)
The current ratios indicate that both companies have sufficient current assets to meet their current liabilities. Campbells
current ratio is very healthy due mainly to the relatively lower level of liabilities.
The quick ratio shows that Giddens may have some liquidity problems; it is less than 1:1 and therefore the company
may not be able to pay its debts as they become due. The high level of payables relative to current assets may indicate
some difficulty in paying suppliers. Giddens bank balance when compared to Campbells is also low.
The receivables collection period for Giddens is longer than for Campbell. This may indicate poor credit control in
Giddens and may have an adverse effect on company liquidity.
Campbell is making a very good return on capital employed (18%) compared to Giddens (31%). Campbell should be
an attractive investment to potential investors with this level of return.
Campbell has a higher gross profit percentage than Giddens. It may be that Campbell is able to source its supplies more
cheaply than Giddens or benefit from discounts. Alternatively, it may have some other advantage such as its location
which enables it to charge higher prices.
The net profit percentage for Giddens is very low compared with Campbell, suggesting that it is not controlling its
expenses as carefully as it should.
Marking scheme
17
Drafting Financial
Statements
Monday 1 December 2008
Time allowed
Writing:
15 minutes
3 hours

Paper T6 (INT)

Advanced Level

1
Screeth is a limited liability company with the following trial balance as at 31 October 2008.
Dr
$000
250
126
1,180
Distribution costs
Salaries
Discounts received
Sales
Property expenses
Returns inward
Cash
Insurance
Purchases
Bank
Loan note interest
Trade payables
Trade receivables
7% Loan notes
Receivables expense
$1 Ordinary shares
Dividends paid: Final for year ended 31 October 2007
Land at cost
Buildings at cost
Furniture and equipment at cost
Accumulated depreciation at 1 November 2007
Buildings
Motor vehicles
Cr
$000
88
9,427
290
166
27
130
6,248
610
311
58
350
875
70
507
1,700
822
260
2,850
200
1,295
2,640
420
800
16,400
625
140
335
16,400
Further information relating to Screeth:

1
2
3
4
5
6
7
The insurance includes $10,000 which relates to November 2008.

Buildings are depreciated at 5% of cost. Building depreciation during the year is allocated 50% to distribution
costs and 50% to administrative expenses.
At 31 October 2008 the buildings were professionally valued at $3,150,000 and the directors wish this
valuation to be incorporated into the accounts.
Depreciation is to be charged as follows:
(i) Motor vehicles at 25% of written down value, allocated to distribution costs
(ii) Furniture and equipment at 20% of cost, allocated to administrative expenses.
Inventory at 31 October 2008 was valued at $480,000 based on its original cost.
Based on past experience the allowance for receivables is to be increased to 5% of trade receivables and allocated
to administrative expenses.
There are salaries outstanding of $60,000 for the year ended 31 October 2008.
2
The items listed below should be apportioned as indicated:

Cost of
Sales
Property expenses
20%
Insurance
20%
Salaries
25%
Discounts received
Tax of $120,000 is to be provided for the year.
Distribution
Costs
30%
40%
35%
Administrative
Expenses
50%
40%
40%
100%
Required:
Prepare, the following financial statements for Screeth:
(a) the statement of comprehensive income for the year ended 31 October 2008.
(17 marks)
(b) the statement of financial position as at 31 October 2008.
(18 marks)
(35 marks)
3
[P.T.O.
You are presented with the following information for Wallace, a limited liability company, and its subsidiary Bruce:
Wallace
$000
Revenue
50,000
Cost of sales
(26,000)
Gross profit
24,000
Distribution costs
(2,700)
(7,000)
Finance costs
Income from Bruce: Loan note interest

6
Dividends
2,100
Profit before tax

16,406
Income tax expense
(3,700)
Profit for the year

12,706
Bruce
$000
27,400
(11,000)
16,400
(2,300)
(2,792)
(8)
11,300
(3,100)
8,200
Statements of financial position as at 31 October 2008

Wallace
$000
$000
Assets
Non-current assets
Tangible assets
Investments:
$1 ordinary shares in Bruce at cost
Bruce loan notes
Current assets
Inventory, at cost
Receivables
3,900
6,850
1,260
Total assets
$1 Ordinary shares
Retained earnings
Total equity
10% Loan note
Current liabilities
Payables
Tax
Total liabilities
6,645
4,080
Bruce
$000
$000
30,000
14,895
8,800
60
38,860
14,895
12,010
50,870
1,665
4,530
502
6,697
21,592
26,000
14,145
40,145
9,260
5,950
15,210
80
10,725
50,870
3,800
2,502
6,302
21,592

(i)
Wallace purchased 70% of the $1 ordinary shares in Bruce on 1 November 2007. At that date Bruces retained
earnings were $750,000.
(ii) It is group policy to value the non-controlling interest at fair value. For this purpose, the fair value of the goodwill
attributable to the non-controlling interest of Bruce is $600,000. Consolidated goodwill was not impaired at
31 October 2008.
4
(iii) Wallace owns $60,000 of Bruces loan notes. The interest is paid annually in arrears. Interest for the year ended
31 October 2008 is included in Bruces payables. Wallace has also accrued the interest in its receivables.
(iv) During the year ended 31 October 2008 Bruce sold goods which originally cost $3,000,000 to Wallace for
$5,000,000. Wallace has only been able to sell 40% of these goods by 31 October 2008.
(v) At 31 October 2008 Wallace owed Bruce $600,000 for some of the goods that Bruce supplied during the year.
(vi) All Bruces dividends were paid in the financial year ended 31 October 2008.
Required:
(a) Calculate the goodwill arising on the acquisition of Bruce as at 1 November 2007.
(4 marks)
(b) Prepare the following financial statements for Wallace:

(i)
the consolidated income statement for the year ended 31 October 2008;
(8 marks)
(ii) the consolidated statement of financial position as at 31 October 2008.

Note: A working should be included for the retained earnings. Disclosure notes are not required. (18 marks)
(30 marks)
5
[P.T.O.
Melanie, Vicky and Lucy have had a business partnership for a number of years and share profits and losses in the
ratio 2:1:1. The partnership was dissolved on 1 December 2008. The statement of financial position for the
partnership as at 30 November 2008 was as follows:
Assets
Non-current assets
Property
Motor vehicles
Melanie, Vicky and Lucy

Statement of financial position as at 30 November 2008
$
$
100,000
30,000
20,000
150,000
Current assets
Inventory
Receivables
Bank
20,000
49,000
5,000
Total assets
Melanie
Vicky
Lucy
74,000
224,000
80,000
30,000
50,000
160,000

Melanie
Vicky
Lucy
7,680
8,500
5,300
21,480
Loan
10,000
Current liabilities
Payables
32,520
224,000

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
The property was sold for $110,000 and the furniture and fittings were sold for $26,800.
The motor vehicles were all sold for $22,300.
Only $45,900 of outstanding receivables were recovered.
The payables were settled for $29,350.
The inventory was sold for $21,650.
The loan was repaid in full on 1 December 2008.
There were no outstanding interest payments on the loan.
There were expenses incurred in dissolving the partnership of $2,100.
6
Required:
Prepare the following accounts on dissolution:
(a) Realisation account.
(10 marks)
(b) Cash and bank account.
(6 marks)
(c) Partners accounts.
(4 marks)
(20 marks)
7
[P.T.O.
An investor is considering the purchase of shares in either Campbell or Giddens. Both companies are in the same line
of business and their accounts are summarised below:
Statements of financial position as at 31 October 2008
Campbell
$000
$000
Assets
Non-current assets
At cost
420
(113)
Giddens
$000
$000
1,070
(144)
307
Current assets
Inventory
Receivables
138
69
96

Share capital
Retained earnings
10% Loan note
Current liabilities
Trade payables
Interest payable
Income tax
60
10
303
610
926
167
98
9
274
1,200
370
170
540
900
69
969
80
70
610
120
1
30
151
1,200

Campbell
$000
$000
596
(394)
202
Sales revenue
Cost of sales
Gross profit
Expenses:
Administrative
Depreciation
Loan note interest
(36)
(53)
(14)
(45)
(56)
(19)
(8)
(103)
99
Net profit
Giddens
$000
$000
678
(526)
152
(128)
24
8
Required:
(a) Calculate the following six ratios for both companies, clearly showing the ratio formulae and figures used.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Current ratio;
Quick ratio (acid test ratio);
Receivables collection period;
Gross profit percentage;
Net profit percentage.
(9 marks)
(b) Prepare, for the investor, comments on the performance and position of Campbell and Giddens using the
ratios calculated in part (a).
(6 marks)
(15 marks)
9

Paper T6 (Int) Drafting Financial Statements: Sample Multiple Choice Questions - June 2009

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Certified Accounting Technician examination

Sample multiple choice questions June 2009

FOR FREE CAT & ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com

What is the total goodwill on acquisition of Kinnot?

Which of the following four statements are correct?

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Total comprehensive income for the year

(1) An issue of shares to finance expansion.

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Which of the following statements are correct?

C None of the statements

(1) A rights issue of ordinary shares.

At 1 June 2008 their capital balances were:

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10 At 31 May 2008 Stoneacres capital structure was as follows:

What was the companys capital structure at 31 May 2009?

Share premium account

End of Sample Questions

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Sample Multiple Choice Question Paper T6 (INT)

D 628,950 + (76,950 31,725) (66,525 36,300) = 643,950

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ACCA Certified Accounting Technician Examination Paper T6(INT)

June 2004 Answers

Total equity and liabilities

Non current assets ($000)

Plant & Equip

Operating profit before working capital changes

Cash generated from operations

Net cash from operating activities

Net cash used in investing activities

Cash flows from financing activities

Net cash used in financing activities

Cash and cash equivalents at end of period

Net increase in cash and cash equivalents

Paid (Balancing figure)

Non-current Asset NBV

Partnership profit statement for the year ended 31 May 2004

30,000 15 Bal b/d

Net profit percentage

Gross profit x 100

Net profit x 100

Net Profit x 100

Cost of goods sold

Current assets inventory

Receivables collection period Receivables x 365

mark for each correct ratio

Relevant comments could include:

The profitability ratios have deteriorated.

The Association of Chartered Certified Accountants

ALL FOUR questions are compulsory and MUST be attempted

The following notes are relevant:

Inventory at 31 May 2004 was valued at $800,000.

You are advised to show workings where appropriate.

(ii) Profit from operations is stated after charging depreciation of $5,862,000.

($20,000 before 31 August 2003 and the remainder afterwards)

Income statements for the years ended

Capital and reserves

End of Question Paper