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Certified Accounting Technician Examination Advanced Level

Drafting Financial Statements (International Stream)
Monday 1 June 2009

Time allowed Reading and planning: Writing:

15 minutes 3 hours

This paper is divided into two sections: Section A – ALL 10 questions are compulsory and MUST be attempted Section B – ALL THREE 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. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper T6 (INT)

Section A – ALL 10 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Each question in this section is worth 2 marks 1 Berino, a limited liability company, owns 70% of the shares in Muggie. Berino has payables of $244,000. Muggie has payables of $40,000 of which $6,000 is owed to Berino. Berino has receivables of $360,000 and Muggie has receivables of $150,000. What amounts should be recorded for consolidated receivables and payables in the group accounts of Berino? Payables $ 278,000 194,600 284,000 290,000 Receivables $ 504,000 352,800 510,000 516,000

A B C D

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During periods of general price inflation, what is the effect of using the historical cost concept on the value of a company’s non-current assets and profits? Non-current asset values understated understated overstated overstated Profit overstated understated overstated understated

A B C D

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Which of the following items could appear in a company’s statement of cash flows? (1) (2) (3) (4) A B C D Surplus on revaluation of non-current assets Bonus issue of shares Proceeds of issue of shares Dividends received 1 3 1 2 and and and and 2 4 3 4

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Scarfell has 10 million $1 issued ordinary shares. At 1 May 2009 Snowdon purchased 70% of Scarfell’s $1 ordinary shares for $8,000,000. At that date Scarfell had net assets with a fair value of $8,750,000 and its share price was $1·20. It is group policy to value the non-controlling interest at the fair value of the subsidiary’s identifiable net assets using the market value of the shares at acquisition. What was the total goodwill arising on acquisition at 1 May 2009? A B C D $4,400,000 $350,000 $750,000 $2,850,000

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At 31 May 2009 the following items have not yet been included in a company’s financial statements: (1) In June 2009 the company recorded a receipt of $3,000 rent from a tenant for the three months to 31 May 2009. (2) The company recorded a payment for $6,000 buildings insurance on 1 December 2008, for the year to 30 November 2009. (3) The accounts show the company made a loan of $10,000 to an employee, repayable on 1 June 2009. On the due date the employee repaid the loan and paid interest due of $500 on the loan to that date. What amounts should be recognised in respect of these items in the company’s statement of financial position at 31 May 2009? Current assets $ A 13,500 B 6,500 C 3,500 D 16,500 Current liabilities $ 3,000 nil 3,000 nil

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Ross’s financial year end is 31 May. The rent for Ross’s premises is paid quarterly in advance on 1 February, 1 May, 1 August and 1 November each year. The annual rent was $72,000 per year until 31 July 2008. It was increased from that date to $84,000 per year. What rent expense and end of year prepayment should be included in the financial statements for the year ended 31 May 2009? A B C D Expense $82,000 $83,000 $83,000 $82,000 Prepayment $14,000 $7,000 $14,000 $7,000

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Which of the following should appear in a company’s statement of changes in equity? 1 2 3 A B C D Amortisation of capitalised development costs Dividends paid Total comprehensive income for the year 1, 2 and 3 1 and 3 only 1 and 2 only 2 and 3 only

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Which of the following statements are correct? (1) A statement of cash flows prepared using the direct method produces a different figure for operating cash flow from that produced if the indirect method is used. (2) A surplus on revaluation of a non-current asset will appear as a cash flow in a statement of cash flows. (3) Rights issues of shares appear in the statement of cash flows. (4) A profit or loss on the sale of a non-current asset will appear as a cash flow under Investing Activities in a statement of cash flows. A B C D 1 2 3 2 and 4 and 3 only and 4

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At 31 May 2008 Bootle had an allowance for receivables of $25,000. At 31 May 2009 its trade receivables totalled $470,000. Bootle decided to write off debts totalling $24,000 and to adjust the allowance for receivables to 5% of the remaining trade receivables. What net figure should appear in the income statement for the year ended 31 May 2009 for receivables expense? A B C D $46,300 $21,300 $22,300 $22,500

10 Which of the following material events are adjusting in accordance with IAS 10 Events after the reporting period? (1) Discovery of a fraud affecting the financial statements. (2) Sale of inventory held at the reporting date for less than cost. (3) The insolvency of a customer with an outstanding debt owing at the reporting date. A B C D 1, 2 and 3 1 and 2 only 2 and 3 only 1 and 3 only.

(20 marks)

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This is a blank page. Section B begins on page 6.

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Section B – ALL THREE questions are compulsory and MUST be attempted 1 You are presented with the following trial balance of Portsmere, a limited liability company, at 31 May 2009. Dr $000 50 176 592 48 188 30 104 40 4 20 1,510 28 144 14 70 128 64 8 884 76 200 256 56 570 60 –––––– 2,704 –––––– –––––– Cr $000

Intangible assets Plant at cost Plant, accumulated depreciation, at 1 June 2008 Buildings at cost Buildings, accumulated depreciation, at 1 June 2008 Land at cost Bank balance Retained earnings at 1 June 2008 10% Loan notes Loan interest paid Dividend paid Revenue Returns inwards Wages and salaries Insurance Energy expenses Inventory at 1 June 2008 Administrative expenses Allowance for receivables, at 1 June 2008 Purchases Discounts received Trade payables Trade receivables Director’s remuneration $1 Ordinary shares Share premium account

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–––––– 2,704 –––––– ––––––

Additional information as at 31 May 2009 (i) (ii) (iii) (iv) Closing inventory has been valued at $60,000. Energy expenses of $12,000 for May 2009 have not been invoiced or recorded. Insurance expenses include $2,000 for June and July 2009. The allowance for receivables is to be increased to 5% of trade receivables. The increase should be charged to administrative expenses. (v) 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 50% to cost of sales, 30% to distribution costs and 20% to administrative expenses. (vii) Land was revalued at 31 May 2009 to $200,000. (viii) The intangible assets were purchased on 1 December 2008 and have a useful life of five years from that date. Amortisation is calculated on a monthly basis and charged to administrative expenses. (ix) Tax has been calculated as $40,000 for the year.

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(x) The expenses listed below should be apportioned as indicated: Cost of Sales – – 50% 40% – Distribution Costs – 50% 20% 35% – Administrative Expenses 100% 50% 30% 25% 100%

Discounts received Insurance Energy expenses Wages and salaries Director’s remuneration

(xi) The current share price of Portsmere is $1·10 per share. Required: (a) Prepare the following financial statements for Portsmere in accordance with IAS 1 Presentation of Financial Statements: (i) a statement of comprehensive income for the year ended 31 May 2009; Note: show clearly your workings for cost of sales, distribution costs and administrative expenses. (22 marks) (ii) a statement of financial position as at 31 May 2009. (b) Calculate the following accounting ratios for Portsmere: (i) Earnings per share; (ii) P ratio. .E. Note: show ratio formulas and workings. (3 marks) (40 marks) (15 marks)

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The statements of financial position of two sole trader businesses are shown below: Statement of Financial Position as at 31 May 2009 Black Pool Assets Non-current assets Property Plant and machinery Motor vehicle Current assets Inventory Trade receivables Cash at bank Total assets Capital and liabilities Capital accounts Black Pool Current liabilities Trade payables Loan from Peston Total capital and liabilities $ $ 32,500 16,200 2,000 ––––––– 50,700 $ $ – 20,800 9,100 ––––––– 29,900 5,200 1,690 3,900 –––––––

5,000 1,500 1,000 –––––––

7,500 ––––––– 58,200 ––––––– –––––––

10,790 ––––––– 40,690 ––––––– –––––––

49,500 – 5,100 3,600 ––––––– 58,200 ––––––– –––––––

– 30,290 10,400 – ––––––– 40,690 ––––––– –––––––

On 31 May 2009 Black and Pool decided to amalgamate their existing businesses to form a partnership called Blackpool. They agreed a future profit sharing ratio as partners of 3:1 to Black and Pool respectively. At the date of amalgamation: (i) goodwill was agreed to be $14,000 for Black and $10,000 for Pool. (ii) the property belonging to Black was revalued at $40,000. (iii) Black’s motor vehicle was not transferred to Blackpool. (iv) Pool’s inventory was revalued at $4,200. (v) Black’s plant and machinery was revalued at $15,000 and Pool’s revalued at $20,000. (vi) the loan from Peston was taken over by Blackpool. (vii) all the trade payables and receivables were taken over by Blackpool at their book values. Required: (a) Prepare the following accounts for both Black and Pool as they would appear on the closing of their respective businesses: (i) Revaluation accounts; (4 marks) (4 marks)

(ii) Capital accounts.

(b) Prepare the Statement of Financial Position for Blackpool immediately following the formation of the partnership. Note: goodwill is not to be recorded in the accounts of the partnership. (c) Describe four of the main terms you would expect to be set out in a partnership agreement. (8 marks) (4 marks) (20 marks)

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The IASB’s Framework for the Preparation and Presentation of Financial Statements sets out the concepts that underlie the preparation and presentation of financial statements for external users. The qualitative characteristics of financial information are described in the framework. Required: (a) Explain the purpose of an accounting conceptual framework. (3 marks)

(b) State and explain the four qualitative characteristics of financial information that are currently included in the IASB Framework. (8 marks) (c) State the arguments for the accounting profession having agreed accounting standards as a basis for preparing financial statements. (5 marks) (d) Discuss whether it is ever acceptable to depart from an accounting standard. (4 marks) (20 marks)

End of Question Paper

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