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000) + ( 10 x 6.650 Bad Debts 32.000)] – 20.600 –––––––– –––––––– 6 A 7 A 8 A 9 D 10 D 11 B 12 A 13 C (2 x 5.550 –––––––– –––––––– 916.000 + 218.600 Contras 8.000 x 20% x 6/ ) – (60.1 (INT) Preparing Financial Statements (International Stream) December 2004 Answers Section A 1 B 2 C 146.600 916.000) 14 C 15 B [2/3 x 1/ 2 x (540.400 Interest 1.000 x 20% x 9/ ) 12 12 4 B 5 A Balance 614.000 Cash 311.Part 1 Examination – Paper 1.O.T.000 3 D (240.000 + (50% x 285.000 Balance 561.000 – 83. .000 Sales 301.000) 16 A 17 D 18 B 19 D 20 A 21 B 22 B 23 C 24 B 25 C A 7 B 8 C 5 D 5 ––– 25 ––– 17 [P.000 + 30.000 x 20%) + (160.000 Discounts 3.

500 –––––––– Purchases total becomes $431.300 + $38.900 + $4.200 + $125.800 –––––––– –––––––– Gross profit 201.300 Cost of sales $431.100 + $14.300 –––––––– Goods taken by Bob therefore total 20.000 402.200 Less: Cost of sales Less: Opening inventory 138.000 –––––––– Sales for income statement 604.300 –––––––– Goods taken by Bob therefore total 20.300 – $20.500 –––––––– Workings 1 Sales $ Credit sales $519.200 Cash sales 79.300 Calculation of goods taken by Bob Cost of sales allowing for 50% mark-up $604.200 x 2/3 402.800 –––––––– 18 .100 – 68.100 – $3.000 525.100 + 77.000 –––––––– Net profit 107.200 –––––––– 2 Purchases and cost of sales Cost of sales $604.400 + $4.800 Cost of sales as above 423.800 –––––––– 448.400 – $119.100 – $68.400 Expenses 3 194.000 –––––––– Alternative workings for (b) Purchases and cost of sales (before deducting goods taken by Bob) Purchases $408.800 Less: less: Closing inventory 146.800 less: closing stock 46.200 x 2/3 402.000 Less: Purchases 2 410.100 + $77.400 – $2.800 –––––––– –––––––– 3 Expenses $89.600 + $2.000 – $46.400 –––––––– (b) Calculation of goods taken by Bob: Purchases as above 410.200 431.000 423.200 431.800 Purchases per information in question: 408.500 410.800 –––––––– 448.Section B 1 (a) Bob Income statement for the year ended 30 September 2004 Reference $ $ to workings Sales 1 604.600 94.800 Details Opening inventory 38.000 Purchases (balancing figure) 410.100 + 14.000 402.

000 ––––––––––– Workings Cost of control $ $ Shares in Pard 700.770.300.000 ––––––––– ––––––––– 19 .000 1.–––––––– 700.140.400.000 ––––––––––– 2.000 –––––––– 1.100.000 Share capital 70% 1.2 (a) Cougar Statement of changes in equity Year ended 30 June 2004 Share Share premium Revaluation Accumulated Total capital account reserve profits $m $m $m $m $m At 1 July 2003 100 140 60 120 420 Prior year adjustment 11 1((6) 1(6) ––– ––– ––– ––– ––– 100 140 60 114 414 Arising on issue of shares 100 180 280 Surplus on land revaluation.000 ––––––––––– Share capital 500.100.270.000 Accumulated profits: 70% pre-acq 1.000 Balance for CBS 330.000 ––––––––––– $3.140.000 ––––––––– ––––––––– 2.420.420.000 Cost of control Pard 1.000 Revaluation reserve 800.700.000 Minority interest 330.000 2.–––––––– Accumulated profits $ $ Leo 1.330. 60.000 1.470.000 –––––––– 1.140.900.000 Accumulated profits 1.–––––––– Minority interest $ $ Share capital 30% 1.000 Cost of control goodwill written off 1.270.000 1.470.100.000 Balance for CBS 1.000 70% x 600.000 Minority interest 30% x 900.000 Accumulated profits: goodwill written off 1.000 1.000 Accumulated profits 30% 1.000 –––––––– 1.–––––––– 330.300.000 ––––––––––– $3. now realised (60) 160 – Net profit for year (40 + 6) 1 146 146 Dividends paid 1((8) 1((8) ––– ––– ––– ––– –––– 200 320 – 212 732 ––– ––– ––– ––– –––– 3 Leo Group Consolidated balance sheet as at 30 June 2004 $ Sundry net assets 3.000 –––––––– 1.

(336. (iv) The combined effects of the above three factors mean that return on capital employed is overstated.000 (100.000.000 180.000) 1.000 250.000 1)(200.000 250. 20 .000) 1.000) 1. using FIFO or average costs.350. sales in current terms are matched with cost of sales in historical cost terms.000 Year ended 30 September 2004 Amortisation (100. (ii) Inventory is often valued at cost.000) –––––––––– –––––––– ––––––––– –––––––––– 300. The total deferred development expenditure ($1.000 S (140. Any four points needed for full marks.200. Profit is again overstated.400.350.4 (a) Research and development Balance at New Income statement Balance sheet 1 Oct 2003 expenditure Amortisation Research 30 Sept 2004 $ $ $ $ $ Project Q 1.344.000 R )))400.000 ((200.000) (140.650. (v) Year on year comparison of results is likely to be misleading as figures will show an automatic increase as prices rise.700.000 –––––––––– ––––––––– –––––––––– 1. The result is that profit is overstated.000) New expenditure 250.200. or even have fallen. when in real terms sales and profits may have risen far less.000 250.000 180.000 –––––––––– –––––––– ––––––––– –––––––––– Headings The amortisation of deferred development expenditure ($100.000) and the depreciation of the research equipment ($136.000) will appear in the income statement under cost of sales.000 (300. Balance sheet Movements on deferred development expenditure during the year were: Cost Amortisation Net book value $ $ $ Balance at 1 October 2003 1.000) 1.000) (100.000 (136. (iii) Balance sheet values of assets may become seriously below their current value.000) (100.650.000) will appear in the balance sheet under intangible non-current assets.680. (b) Disclosure notes Income statement The aggregate amount of research and development expenditure recognised as an expense during the period was $376. all charged in cost of sales.000 –––––––––– ––––––––– –––––––––– 5 The use of historical cost accounting can mislead users when prices are rising in the following ways: (i) Depreciation is based on the original cost of non-current assets and thus understates the true value obtained by the business from the use of these assets.000) (136. If prices are rising.000 1.000) and the research expenditure ($140.000) 1.000) 1.000) –––––––––– –––––––– ––––––––– ––––––––– –––––––––– 1.000.350.000 1.000 (200.000 –––––––––– –––––––– ––––––––– ––––––––– –––––––––– Equipment Balance at New Depreciation Balance sheet 1 Oct 2003 expenditure 30 Sept 2004 $ $ $ $ 1500.

1 (INT) Preparing Financial Statements (International Stream) December 2004 Marking Scheme Section B Marks 1 (a) Calculations sales 4 x 1/2 2 cost of sales 1 purchases as balancing figure 1 expenses 6 x 1/2 3 Heading and layout 2 x 1/2 1 ––– 8 ––– (b) Calculation of purchases 4x 1/ 2 2 Correct method (subtraction of net purchases) 2 ––– 4 ––– 12 ––– 2 Opening balances 1 Prior year adjustment 1 Share issue 2x1 2 Surplus on revaluation transferred 2 Net profit for year 1 Dividends paid 1 ––– 8 ––– 3 Goodwill 4x 1/ 2 2 Minority interest 2x 1/ 1 2 Accumulated profits 5x 1/ 21/2 2 Balance sheet Share capital 1 Sundry net assets 1 Revaluation reserve 1 B/S layout 1 heading 1/ 2 ––– 41/2 ––– 10 ––– 4 (a) Project Q 1 R 1 S 1 Equipment Cost 1/ 2 Depreciation 1 Headings Accumulated profits 1 Balance sheet 1/ 2 ––– 6 ––– (b) Income statement Total 2 (b) Income statement heading used 1 Balance sheet 3 ––– 6 ––– 12 ––– 5 4x2 8 ––– 50 ––– 21 .Part 1 Examination – Paper 1.