OA 2993
UNIVERSITY OF CAMBRIDGE LOCAL EXAMINATIONS SYNDICATE
Joint Examination for the Higher School Certificate
and General Certificate of Education Advanced Level
ACCOUNTING 9364/1
PAPER 1
Tuesday 19 NOVEMBER 1996 S hours
Additional materials:
Answer paper
TIME 3 hours
NSTRUCTIONS TO CANDIDATES
Nrite your name, Centre number and candidate number in the spaces provided on the answer
yaper/answer booklet,
\nswer four questions.
Nrite your answers on the separate answer paper provided.
‘ you use more than one sheet of paper, fasten the sheets together.
ection A
nswer both questions.
ection B
nswer either Question 3 or Question 4.
ection C
nswer either Question 5 or Question 6.
FORMATION FOR CANDIDATES
Il questions in this paper carry equal marks. The number of marks is given in brackets [ ] at the end
If each part question.
bxation should be ignored
Il accounting statements are to be presented in good style. Workings must be submitted.
ul may Use a calculator,
U1 are reminded of the need for good English in your answers.
5 This question paper consists of 11 printed pages and 1 blank page.
UcteS 1596 [Turn over3
Additional information for the three months ended 30 September 1996
1
All receipts and payments were passed through the business's bank account.
2. Except where otherwise stated, all receipts and payments have taken place on the last
day of the relevant month.
3. 45% of the turnover arose from cash sales.
4. Auniform gross profit of 42% arose from all sales.
5. The stock turnover rate was 2; this rate was arrived at using the average of opening and
closing stock.
6. Fixed overheads of £16000 were incurred; there were no accruals or prepayments of
fixed overheads on 30 June 1996.
7. Variable overheads amounted to 18% of total sales; there were no accruals or
prepayments of variable overheads on 30 June 1996.
8. It has been decided to write off debts amounting to £500 as bad on 30 September
1996.
9. Depreciation is to be provided at the following annual rates on cost:
Fixtures and fittings 10%
Motor vehicles 20%
10. The motor vehicle sold on 1 July 1996 had cost Krishna Takdir £6000 and its provision
for depreciation on 30 June 1996 was £2600.
11. All purchases were obtained on a monthly credit basis.
12. The fixed overheads mentioned in 6., and the variable overheads in 7., do not include
bad debts written off or depreciation.
REQUIRED:
(a) Prepare the Trading and Profit and Loss Account for the three months ended 30 September
1996. [19]
(b) Prepare the Balance Sheet as at 30 September 1996. (6]
You should give as much relevant detail as possible in your answers to (a) and (b).
s06ut W286 [Turn over+
As a result of a warehouse fire in September 1996, Tan Kwan Loy, a wholesaler, suffered a major
loss of stock. However, the insurance company has now agreed to pay Tan Kwan Loy £41 000 in
settlement of his insurance claim for loss of stock.
The following information has been obtained from Tan Kwan Loy's accounting records:
At 31 October 1995
Trading stock at cost
Sales Ledger — debit balance
credit balance
Purchases Ledger — debit balance
credit balance
Year ended 31 October 1996
Purchases
Purchases returns
Sales
Sales returns
Bad debts written off (Sales Ledger)
Discounts allowed
Discounts received
Cash paid to suppliers
Cash received from customers
Establishment and administrative expenditure
Sales and distributive expenditure
Goods for own use, at cost
At 31 October 1996
Trading stock at cost
Sales Ledger — debit balance
credit balance
Purchases Ledger — debit balance
credit balance
Additional information:
1.
£
38000
27600
300
630
28710
324000
8900
426500
14500
1300
1400
900
316750
405751
34100
49382
1200
To be determined
To be determined
271
To be determined
26410
During the year ended 31 October 1996, the stock turnover rate has been 6.25; the average
of opening and closing stock has been used in calculating the stock turnover rate.
A uniform rate of gross profit of 60% on the cost of goods sold was obtained during the year
It has been decided to create a provision for doubtful debts of 2.5% of the amount due from
2.
ended 31 October 1996.
3.
customers at 31 October 1996.
REQUIRED:
(a) Prepare the following accounts for the year ended 31 October 1996:
(i) the Sales Ledger Control (Total Sales) Account;
(ii) the Purchase Ledger Control (Total Purchases) Account;
(iii) the Trading and Profit and Loss Account.
7]
7]
(7)
(b) Prepare an extract of the Balance Sheet as at 31 October 1996, showing Tan Kwan Loy's
debtors and creditors.
2s wos
[4]is 6
Section B
Answer either Question 3 or Question 4.
Owing to the unexpected illness of the company’s accountant, the following draft summarised
balance sheet as at 30 September 1996 has been prepared by an inexperienced deputy.
Space Age Products Limited
Cost Provision for
depreciation
£ £ £
Fixed Assets:
Freehold buildings 90000 29250 60750
Plant and machinery 188000 131 600 56400
278.000 160850 417150
Current Assets:
Stock 223230
Debtors 193300
Balance at bank (current account) 59.450
475980
Less: Current Liabilities
Creditors 55 130 420850
538000
Creditors falling due after more
than one year: 10% Loan Stock 80.000
458000
Shareholders’ capital and reserves
Ordinary shares of £0.50 each, fully paid. 300000
Retained earnings 158000
458000
The draft accounts show the following results for the year ended 30 September 1996:
Gross profit £168 000
Net profit £43 400
Space Age Products Limited is engaged in retail trading.
After the completion of the draft accounts, the following discoveries have been made:
4. Areceipt of £8100 from T. Lamb, a credit customer, in December 1995 was credited to sales.
2. No entries have been made in the company’s books for a quantity of goods stolen from one
of the company’s warehouses in February 1996. None of these goods, which had cost
£11500, were recovered. The loss was not covered by insurance.
3. Provision has not been made in the company’s accounts for interest on the loan stock for the
six months ended 30 September 1996, payable on 5 October 1996.
4. Entries have not been made in the company’s books for the following:
(i) the writing off of the following bad debt - J. Stone £480; ~
(ii) the creation of a provision for doubtful debts of 2) % of debts outstanding at
30 September 1996. \7
5. In March 1996, the company made a rights issue of one share for every four shares held on
1 March 1996; the price of the shares issued being £0.90, payable in full on application. The
issue was fully subscribed and the proceeds were paid into a newly opened bank deposit
account. No entries have been made in the company’s books for the rights issue.
Notes: (i) It can be assumed that there were no costs of issue.
(ii), The new shares ranked for dividend immediately,
6. Provision has not yet been made in the company's books for a proposed final dividend of
£0.08 per share for the year ended 30 September 1996.
Note: The company has never paid an interim dividend,
REQUIRED:
Prepare a Statement showing the corrected gross profit and net profit for the year ended
30 September 1996 af Space Age Products Limited. [13]
(a
(b) Prepare a corrected Balance Sheet as at 30 September 1996 of Space Age Products
Limited, [12]
[Turn over8
Jane Taylor, the owner of a long established restaurant, is considering retirement from full time
work.
An offer of £100 000 for the business has been received from Rainbow Caterers Limited. This would
involve the transfer to the company of all the restaurant's net assets (book value £86000; market
value £91 000, made up of tangible fixed assets of £48000 and net current assets of £43000).
Instead of selling the restaurant, Jane Taylor could continue to own the restaurant and appoint a
manager at a salary of £18000 per annum to run the business.
Rainbow Caterers Limited has offered to pay Jane Taylor for the purchase of the restaurant
in one of the following ways:
A Issue 30 000 ordinary shares of £1 each, fully paid, in Rainbow Caterers Limited.
orB Immediately after a bonus issue to existing shareholders of one ordinary share for
every ordinary share already held, issue 50000 ordinary shares of £1 each, fully
paid, in Rainbow Caterers Limited.
ore Issue 200000 12% preference shares of £0.50 each, fully paid, in Rainbow
Caterers Limited.
OrD _ Issue £10000 10% Loan Stock in Rainbow Caterers Limited.
Additional information:
1. For several years, Jane Taylor's restaurant has produced an average annual net profit of
£32 000, this is expected to be maintained in the foreseeable future, but may be reduced
by the amount of a manager's salary.
2. In recent years, Rainbow Caterers Limited’s annual net profit has been maintained at
£107 000. The combined business will benefit from a reduction of overheads of £9000
per annum
3. It is the policy of Rainbow Caterers Limited to distribute 50% of its annual net profits in
dividends.
4. Rainbow Caterers Limited's Balance Sheet as at 31 October 1996 is summarised as
follows:
£
Ordinary shares of £1 each fully paid 100000
Retained earnings 140000
10 000
Tangible fixed assets 90000
Net current assets 150000
240000
5. Rainbow Caterers Limited plan to appoint a manager at an annual salary of £18000 to
run Jane Taylor's restaurant.
3c W96REQUIRED:
(a) Prepare an Accounting Statement to show Jane Taylor’s expected annual income if she
retains ownership of her restaurant. (3]
(b)
Prepare an Accounting Statement to show the expected trading profits of the combined
businesses if Jane Taylor sells her business to Rainbow Caterers Limited. {9}
Calculate for Jane Taylor her expected annual income under each of the four possible ways
of settling the purchase price. [8]
(¢)
)
Prepare the summarised Balance Sheet, in as much detail as possible, of Rainbow Caterers
Limited assuming that Jane Taylor has sold the restaurant to the company, the bonus issue
has taken place and the company has issued 50000 ordinary shares of £1 each, fully paid,
to Jane Taylor. (5)
oes woe [Turn over5
10
Section C
Answer either Question § or Question 6.
John White, a shareholder in Apex Products Limited, has now received the published accounts o
the company for the year ended 31 March 1996.
The following statement was included with the published accounts of Apex Products Limited:
Apex Products Limited Cash Flow Statement for the year ended 31 March 1996
£000 £000
Net cash inflow from operating activities (See Note 1) 8000
Return on investments and servicing of finance:
Interest received 1600
Interest paid (80)
Dividends paid
Net cash inflow from returns on investments and servicing of finance 820
Tax paid (2100)
Investing activities:
Net cash outflow from investing activities - Payments to acquire fixed assets 4410)
Net cash inflow before financing 5310
Financing:
Net cash inflow from financing Issue of ordinary share capital 300
Increase in cash and cash equivalents (See Note 2) 5610
Notes:
1. Reconciliation of operating profit to net cash inflow from operating acti
£'000
Operating profit 7100
Depreciation charges 750
Increase in stocks (60)
Inctease in debtors (100)
Increase in creditors _310
Net cash inflow from operating activities 8000
2. Analysis of changes in cash and cash equivalents during the year
£’000
Balance at 1 April 1995 17100
Increase in cash and cash equivalents year ended 31 March 1996 5610
Balance at 31 March 1996 22710
ose w96"1
As itis the first time that John White has seen a cash flow statement, he has asked William Hunt,
an accountant friend, the following questions:
1. What are the advantages of a Cash Flow Statement as compared with a Profit and Loss
Account?
2, In the calculation of the net cash inflow from operating activities, why are depreciation
charges added to the operating profit?
3. In the calculation of the net cash inflow from operating activities, why are the increases in
stocks and debtors deducted from the operating profit?
REQUIRED:
(a) Prepare an Accounting Statement showing the net change in the working capital of Apex
Products Limited during the year ended 31 March 1996. [4]
(b) As the accountant friend of John White, Prepare replies to the three questions he has
asked, [21]
smut Wise [Turn over