Preparing Financial Statements

(International Stream)
PART 1 THURSDAY 13 JUNE 2002

QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered

Section B

Paper 1.1(INT)

Section B – ALL FIVE questions are compulsory and MUST be attempted 1 The following information is available about the transactions of Marmot, a limited liability company, for the year ended 31 December 2001. $000 Depreciation 880 Cash paid for expenses 2,270 Increase in inventories 370 Cash paid to employees 2,820 Decrease in receivables 280 Cash paid to suppliers 4,940 Decrease in payables 390 Cash received from customers 12,800 Net profit before taxation* 2,370 *Marmot has no interest payable or investment income. Required: Compute Marmot’s net cash flow from operating activities for the company’s cash flow statement for the year ended 31 December 2001 using: (a) the direct method; (b) the indirect method. (10 marks)

2

The following balances appeared in the balance sheet of Addax, a limited liability company, at 31 March 2001. Plant and equipment – cost Accumulated depreciation $ 840,000 370,000

In the year ended 31 March 2002 the following transactions took place: (1) Plant which had cost $100,000 with a written down value of $40,000 was sold for $45,000 on 10 December. (2) New plant was purchased for $180,000 on 1 October 2001. It is the policy of the company to charge depreciation at 10% per year on the straight line basis with a proportionate charge in the year of acquisition and no charge in the year of sale. None of the plant was over ten years old at 31 March 2001. Required: (a) Prepare ledger accounts recording the above transactions. A cash account is NOT required. (5 marks)

(b) List the items which should appear in Addax’s cash flow statement for the year ended 31 March 2002 based on these transactions and using the indirect method, including the headings under which they should appear. Note. The headings from IAS 7 are to be used. (4 marks) (9 marks)

2

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The following information is available about the balances and transactions of Alpaca, a limited liability company. Balances at 30 April 2001 Non-current assets – cost Non-current assets – accumulated depreciation Inventories Receivables Cash at bank Payables Issued share capital – ordinary shares of $1 each Accumulated profits 10% Loan notes Loan note interest owing Transactions during year ended 30 April 2002: Sales revenue Purchases Expenses Interest on loan notes paid during year Issue of 100,000 $1 ordinary shares at a premium of 50c $ 1,000,000 230,000 410,000 380,000 87,000 219,000 400,000 818,000 200,000 10,000 $ 4,006,000 2,120,000 1,640,000 20,000 per share

There were no purchases or sales of non-current assets during the year. Adjustments at 30 April 2002 (1) Depreciation of $100,000 is to be allowed for. (2) Receivables totalling $20,000 are to be written off. Balances at 30 April 2002 (1) (2) (3) (4) Inventory Receivables (before writing off debts shown above) Cash at bank Trade payables $ 450,000 690,000 114,000 180,000

Required: Prepare the balance sheet of Alpaca as at 30 April 2002 using the format in IAS 1 Presentation of Financial Statements as far as the information available allows. Note: No formal income statement is required, but your answer should include a working showing your computation of the accumulated profit figure in the balance sheet. This working carries 4 of the 11 marks available in all. (11 marks)

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[P.T.O.

4

Financial statements must be prepared according to established accounting concepts, many of which may be found in the IASB’s Framework for the Preparation and Presentation of Financial Statements. Define and explain the relevance of the following accounting concepts: (a) Going concern (b) Accruals (c) Substance over form (d) Historical cost (3 marks) (2 marks) (3 marks) (2 marks) (10 marks)

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The summarised financial statements of Weden, a limited liability company engaged in manufacturing, are shown below: Income statement Year ended 31 March 2001 $000 $000 3,200 800 1,800 2,600 300 (2,300) Gross profit Expenses Interest paid Net profit 900 (400) (100) 400 Balance sheets 31 March 2001 $000 $000 1,970 300 600 60 50 1,010 2,980 Issued share capital Share premium account Accumulated profits Non-current liabilities 10% loan notes Current liabilities Payables – trade Accruals 600 200 750 1,550 1,000 380 50 1,400 80 31 March 2002 $000 $000 4,000 300 3,200 3,500 500 (3,000) 1,000 (450) (200) 350

Sales revenue Cost of sales Opening inventory Purchases less: Closing inventory

Non-current assets Current assets Inventory Receivables – trade Prepayments Cash

31 March 2002 $000 $000 4,000 500 800 70 10 1,380 5,380 600 200 1,100 1,900 2,000

430 2,980 4

1,480 5,380

Required: (a) Compute the following five ratios for each of the two years: (i) return on capital employed

(ii) return on owners’ equity (iii) current ratio (iv) inventory turnover (use closing figures) (v) number of days’ purchases in trade payables (5 marks)

(b) Comment briefly on the changes in the company’s results and position between the two years, mentioning possible causes for the changes. (5 marks) (10 marks)

End of Question Paper

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