Advanced Financial Accounting

Sample Paper 2
Questions & Suggested Solutions

Page1of27



INSTRUCTIONSTOCANDIDATES

PLEASEREADCAREFULLY

Candidates must indicate clearly whether they are answering the paper in accordance with the law
and practice of Northern Ireland or the Republic of Ireland.

In this examination paper the / symbol may be understood and used by candidates in Northern
Ireland to indicate the UK pound sterling by candidates in the Republic of Ireland to indicate the
Euro.

AnswerALLTHREEquestionsinSectionAandTWOoftheTHREEquestionsinSectionB.If
morethanTWOquestionsisansweredinSectionB,thenonlythefirstTWOquestions,inthe
orderfiled,willbecorrected.

Candidatesshouldallocatetheirtimecarefully.

Allworkingsshouldbeshown.

Allfiguresshouldbelabelled,asappropriate,e.g.s,s,unitsetc.

Answersshouldbeillustratedwithexamples,whereappropriate.

Question1beginsonPage2overleaf.

NOTE: Thissamplepaperandsolutionhavebeenpreparedinrecognitionthatpubliccompanies
arenowrequiredtoprepareaccountsimplementingthelanguageofInternational
AccountingStandards(I.A.S.s)butthatothercompaniesandnoncorporateentitiesare
notrequiredtodoso.

Examineeswouldbeatlibertytousethelanguageofeither(i)I.A.S.sor(ii)the
Companies(Amendment)Act1986andF.R.S.s/S.S.A.Psinansweringquestionsrelating
tononpubliccompanies

AdvancedFinancialAccountingSamplePaper2 Page2of27

SECTIONA

AnswerALLTHREEQuestionsinthisSection
(ThetotalmarksforsectionAwillbe60,madeupofatheoryquestionof20marks,a
multiplechoicequestionof15marksandafurtherquestionof25marks)

QUESTION1

(i) The ASB and the IASB are responsible for issuing new accounting standards.

What are accounting standards and describe the objective of such standards.
8 marks

(ii) Describe the steps involved in the standard setting process and the measures taken to improve
transparency within the process.
12marks

Total 20 marks

QUESTION 2

The following multiple choice question consists of TEN parts, each of which is followed by FOUR
possible answers. There is ONLY ONE right answer in each part.

Each part carries 1 marks.

Requirement

Indicate the right answer to each of the following TEN parts.

Total 15 Marks

N.B. Candidates should answer this question by ticking the appropriate boxes on the special green
answer sheet which is supplied with the examination paper.

[1] In accordance with IAS 2 Inventories net realisable value is defined as:

(a) the actual or estimated selling price

(b) the actual or estimated selling price less all further costs to completion and all costs to be
incurred in marketing, selling and distribution
(c) the actual or estimated selling price less all costs to be incurred in marketing selling and
distribution
(d) the actual or estimated selling price less all further costs to be completion

AdvancedFinancialAccountingSamplePaper2 Page3of27

QUESTION 2 (contd)

BACKGROUND INFORMATION TO PARTS [2] & [3]

Brian and Jean are in partnership and their capital account balances are / 56,000 and / 84,000
respectively. The partnership agreement details appropriation of partnership profits as follows:

Brian Jean

Annual salary /19,500 /28,000

Interest on capital 10 % 10 %
Share of residual profit 40 % 60 %

[2] If the profit for the year, before appropriation, was /112,000 what would Brians entitlement be
in total:

[a] / 25,100
[b] / 30,300
[c] / 45,300
[d] / 20,200

[3] If the profit for the year, before appropriation, was /112,000 what would Jeans entitlement be
in total:

(a) / 45,300
(b) / 30,300
(c) / 25,100
(d) / 66,700

[4] In accordance with IAS 10 Events after the balance sheet date the clarification after balance
sheet date of proceeds from assets sold before the balance sheet date is an example of:

(a) an adjusting event

(b) a non-adjusting event
(c) a material event
(d) an immaterial event

[5] The formula for price earnings ratio is:

(a) dividend per share / market value per share

(b) earnings per share / market value per share
(c) market value per share / earnings per share
(d) market value per share / dividend per share

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QUESTION 2 (contd)

[6] Company A has inventory days of 23 and receivable days of 38. Ideally payable days should be:

(a) greater than 38 but less than 61

(b) greater than 61
(c) less than 61
(d) greater than 23 but less than 61

[7] If a capital grant is recognised as deferred income in the balance sheet what are the entries to be
made each year over the useful life of the associated asset:

(a) debit deferred income, credit other operating income

(b) credit deferred income, debit other operating income
(c) debit deferred income, credit bank
(d) credit deferred income, debit bank

BACKGROUND INFORMATION TO PARTS [8] & [9]

The business premises of ABC Limited went on fire on 30 November 2010 and financial records
were destroyed. However the following information is available:

/
Receivables : opening 45,000
Closing 56,000
Inventory : opening 60,000
Closing 44,000
Sales (credit) 270,000
Bad debts 14,000

Gross margin 20%

[8] Using the information available what is the value of purchases:

(a) / 112,000
(b) / 209,000
(c) / 121,000
(d) / 200,000

[9] Using the information available what is the value of sales receipts:

(a) / 295,000
(b) / 245,000
(c) / 273,000
(d) / 259,000

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QUESTION 2 (contd)

[10] In preparing a cash flow statement in accordance with IAS 7 a profit on disposal of a fixed asset
should be:

(a) deducted from operating profit in computing the net cash flow from operating activities
(b) added back to operating profit in computing the net cash flow from operating activities
(c) Deducted from payments to acquire tangible fixed assets to compute capital expenditure
(d) Added to payments to acquire tangible fixed assets to compute capital expenditure

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QUESTION3

WIRE Ltd., a retailing company, has an authorised share capital of /2,500,000, comprised of 4,000,000
ordinary shares of 50 cent/pence each and /500,000 of 5% preference shares of /1 each.

The following trial balance was extracted as at 31st December 2009

/000 /000

Ordinary share capital ...................................................................... 1,500

5% preference share capital ............................................................. 300
Share premium account ................................................................... 150
General reserve ................................................................................ 230
Retained profits at 1 January 2009 .................................................. 41
6% debenture stock (redeemable in 2013) ...................................... 200
Freehold premises at cost at 1st January 2009 ................................. 2,500
Freehold premises accumulated depreciation at 1st January 2009 .. 400
Plant & machinery at cost at 1st January 2009 ................................ 420
Plant & machinery accumulated depreciation at 1st January 2009 . 240
Motor vehicles at cost at 1st January 2009 ...................................... 120
Motor vehicles accumulated depreciation at 1st January 2009 ....... 70
Computer equip at cost ................................................................... 120
Computer equip accumulated depreciation at 1st January 2009 ..... 45
Additions to non-current assets at cost:
Plant & machinery ...................................................................... 70
Motor vehicles ............................................................................ 25
Computer equipment .................................................................. 30
Disposal of motor vehicles (sale proceeds) ..................................... 24
Inventory at 31 December 2009 ...................................................... 50
Receivables & payables ................................................................... 156 85
Bank ................................................................................................. 66
VAT .................................................................................................. 32
Corporation tax ................................................................................ 98
Prepayments & accruals................................................................... 12 18
Long term investments..................................................................... 60
Short term investments .................................................................... 40
Retained profit for the year (after providing for dividends and .....
debenture interest but before adjusting for items 1 to 3 below) ..... 146
Deferred government grants at 1st January 2009 ............................. 90
.................................................................................................... ________ _______
3,669 3,669
ADDITIONAL INFORMATION

(1) Depreciation is to be provided on non-current assets as follows:

Freehold premises .............................. 2% on cost

Plant & machinery .............................. 10% on cost
Motor vehicles ................................... 20% on cost
Computer equipment .......................... 33 1/3 % on cost

A full years depreciation is provided in the year of purchase and none in the year of disposal.

AdvancedFinancialAccountingSamplePaper2 Page7of27

QUESTION 3 (Contd)

(2) During the year motor vehicles which cost / 45,000 in 2006 were disposed of for / 24,000.
The only entries made (before extracting the above trial balance) were to debit the bank account
and credit the disposal of motor vehicles account.

(3) The deferred government grants balance included in the above trial balance arises in respect of a
grant of / 100,000 received in 2008 to help finance the cost of plant and machinery purchased
during that year.

In addition a grant of / 18,000 was received on 29th December 2009 towards the cost of new
computers purchased during the year. This grant has not yet been recorded in the companys
books.

(4) Prepaid expenses valued at /24,000 were incorrectly included in operating costs.

Requirement

(a) Prepare, in a form suitable for publication, the statement of financial position for WIRE Ltd., for
the year ended 31st December 2009 in as far as the information provided permits.

N. B. You are NOT required to prepare an Statement of Profit & Loss or notes to the accounts. You are
required to submit workings to show the make-up of the figures in the statement of financial
position.

17 Marks

(b) Prepare the following notes to the accounts for the year ended 31 December 2009:

(i) Non-current assets

(ii) Deferred government grants
6 Marks

Presentation 2 marks
Total 25 Marks

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SECTIONB
AnswerTWOoftheTHREEquestionsinthisSection

QUESTION4

CARTER Limited is installing a new production plant at a cost of / 1 million, in respect of which
government grants have been approved as follows:

Capital cost - 40%

Training costs - 100%

The company depreciates its plant and equipment on the basis of 20% on original cost. The directors are
aware that the accounting treatment for grants is dealt with in IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance, and they have asked you to advise them on the accounting
options available to them and the effect which they would have on the companys financial statements.

Requirement

You are required to draft a report to the directors which:

(a) outlines the accounting treatment of the foregoing grants under IAS 20;
(b) recommends (with reasons) the treatment which you believe would be most suitable in the case
of CARTER Limited; and
(c) indicate the form of accounting policy or other notes which should be included in the annual
financial statements of the company.
18 Marks

Presentation 2 marks
Total 20 Marks

QUESTION 5

The following errors were identified by the financial accountant of CUSACK Limited (a VAT registered
company) when reviewing the year end draft financial statements:

[i] A cheque was written for /20,000 to MAC GARAGE Limited and was entered into the motor
expense account. No other entries were made in the financial records. The cheque was in respect of
the balancing payment for the purchase of a new car. A car which has originally cost /13,000 and
which had a net book value of /6,500 at 1st January 2010 was traded in as part exchange. Assume
no loss or gain was made on the trade-in.

[ii] Depreciation on motor vehicles is charged at 25% per annum with a full years depreciation charged
in the year of acquisition and none in the year of disposal. No account was taken of the transactions
in note (i) above when calculating the depreciation for the year to December 2010.

[iii] During the year a new machine was purchased for /484,000 (which is inclusive of VAT of 21%).
CUSACK Limited received a government grant of /60,000 towards the cost of the new machine.
Plant and machinery is depreciated at a rate of 10% per annum including a full years depreciation in
the year of acquisition. No entries were made to record this transaction.

AdvancedFinancialAccountingSamplePaper2 Page9of27

QUESTION 5 (contd)

Requirement

(a) Prepare the journal entries to show how each of the above items should be dealt with in the
final accounts for the year ended 31st December 2010. Narratives for the journals are required.

15 marks

(b) Compute the adjusted net profit before taxation for the year ended 31st December 2010 taking
into account the adjustments made at (a) above. The net profit before taxation as per the draft
accounts was / 350,000.
3marks

Presentation 2 marks
Total 20 Marks

QUESTION6

The Statement of Financial Position, Statement of Changes in Equity and other relevant information of
CLINIC Limited, for the year ended 31 December 2010, are as follows:

Statement of Changes in Equity as at 31

December 2010
Ord
share Share Retained Total
capital premium profits equity

/'000 /'000 /'000 /'000

As at 1 January 2010 270 - 180 450

Net profit for year end 31 December 2010 90 90
Share issue 30 30 60
Ordinary dividends ( 60) (60)

300 30 210 540

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QUESTION 6 (contd)

Statement of Financial Position as at 31 December 2010

/'000 /'000 /'000 /'000

ASSETS
Non-current assets 1,440 1,320

Current assets
Inventory 1,890 1,530
Receivables 2,850 2,130
Cash & cash equivalents 30 30
4,770 3,690

Total assets 6,210 5,010

EQUITY and LIABILITIES

Capital and reserves

/1 ordinary shares 300 270
Preference shares 300 300
Share premium account 30 -
Retained earnings 210 180
840 750
Non-current liabilities
Bank loans 2,190 1,800
10% debentures 1,140 900
3,330 2,700
Current liabilities
Bank overdraft 30 -
Current installments due on loans 540 540
10% debentures 300 -
Trade payables 1,140 930
Taxation 30 90

2,040 1,560

Total equity and liabilities 6,210 5,010

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QUESTION 6(Contd)

Additional information:

(1) On 1 July 2010 CLINIC issued / 1 ordinary shares at / 2 per share.

(2) During the year CLINIC sold non-current assets with a net book value of /90,000 for cash.
Included in the Statement of Profit & Loss is a profit on disposal of / 60,000.

(3) Included in trade payables at 31 December 2010 is an amount of / 450,000 in respect of non-
current assets purchased during the year.

(4) The Statement of Profit & Loss includes the following charges for the year:

............................................................ 31 Dec 2010 31 Dec 2009

(i) Depreciation ....................... / 600,000 / 550,000

(ii) Interest ...................................... / 540,000 / 270,000
(iii) Tax ............................................ / 30,000 / 60,000

Requirement

(a) Prepare a statement of cash flows for CLINIC Limited for the year ended 31 December 2010 in
accordance with IAS 7 Statement of Cash Flows.
.
N. B. You are NOT required to prepare notes to the statement of cash flows.
18 Marks
Presentation 2 marks
Total 20 Marks

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AdvancedFinancialAccounting

SamplePaper2SuggestedSolutions

NOTE: Thissamplepaperandsolutionhavebeenpreparedinrecognitionthatpubliccompanies
arenowrequiredtoprepareaccountsimplementingthelanguageofInternational
AccountingStandards(I.A.S.s)butthatothercompaniesandnoncorporateentitiesare
notrequiredtodoso.

Examineeswouldbeatlibertytousethelanguageofeither(i)I.A.S.s,(ii)theCompanies
(Amendment)Act1986andF.R.S.s/S.S.A.Psinansweringquestionsrelatingtonon
publiccompanies.

AdvancedFinancialAccountingSamplePaper2 Page13of27

Solutiontoquestion1

(a) WhatareAccountingStandardsanddescribetheobjectivesofthesestandards.

Accountingstandardsareasetofrulesthatdescribehowaniteminfinancialaccountingis
treatedandcalculatedandhowaccountsshouldbepreparedandpresented.Theobjective
ofaccountingstandardsistoregulatetheaccountingprofessionandtoprovideguidanceto
both accounting practitioners and users of financial information about how contentious
anddifficultareasshouldbetreated.

Accounting standards are issued by a national or international body of the accounting
professionandareintendedtoapplytoallfinancialaccountswhichareintendedtogivea
true and fair view of the financial position and profit/loss of an entity. Standards are
detailed working regulations within the framework of government legislation and they
coverareasinwhichthelawissilent.

(b)Standardsettingprocess

Thestandardsettingprocessinvolvessixstepsandaconsultationprocesswhichinvolves
interestedpartiesandorganisationsfromaroundtheworld.Thesixstepsarediscussedbelow:

1. Settingtheagenda

Thisstepintheprocessinvolvesdecidingonwhatareainfinancialaccountingneedstobe
addressedthrough a standard. When deciding if an item shouldbe added to the agenda
theIASBconsidersthefollowingfactors:

i. therelevanceoftheinformationtousers
ii. thereliabilityoftheinformationwhichwouldbeprovided
iii. existingguidanceinthearea
iv. whether the new item increases the possibility of convergence and resource
constraints.

2. Planningtheproject

Once an itemhas beenadded to theagendathenextdecision to be madeis whether the

IASBshouldundertaketheprojectaloneorinconjunctionwithanotherbodysuchasthe
ASBinIrelandortheUK.Oncethishasbeendeterminedaprojectteamisassembled.

3. Developingandpublishingthediscussionpaper

Thepurposeofadiscussionpaperistosolicitearlycommentfrominterestedpartiesinan
effort to ensure all issues are identified and discussed. A discussion paper will usually
containthefollowingelements:

i. adetailedoverviewoftheissuestatingwhyastandardisrequiredinthisarea
ii. differentpotentialapproachesfordealingwiththeissue
iii. preliminaryviewsoftheIASBondealingwiththeissue,and
iv. aninvitationtocommentontheissue.

AdvancedFinancialAccountingSamplePaper2 Page14of27

4. Developingandpublishingtheexposuredraft

Once the IASB has received and discussed all comments received a draft standard is
prepareddetailingaspecificproposalfordealingwiththeissue.Thedraftstandardisthen
issuedtointerestpartiesforconsiderationandcomment.

5. Developingandpublishingthestandard

Once the exposure draft has been issued comments will be received by the IASB on the
proposed treatment. The IASB may then decide that it is satisfied with the proposed
treatmentandadraftIFRSisdrawnup.ThisdraftIFRSisreferredtoasapreballotdraft.
Thepreballotdraftisnormallysubjectedtoexternalreviewwhichisusuallyundertaken
byIFRIC.IASBmembersarethenballotedandiftheballotisinfavourofthepublicationof
thestandardthentheIFRSisissued.

WheretheIASBisnotsatisfiedthatitisinapositiontoagreeontheproposedtreatment
thenasecondexposuredraftmaybeissuedsuggestingarevisedtreatmentoftheitemin
question.

6. Afterthestandardisissued

Theprocessisnotcompleteoncethestandardisissued.AtthisstagetheIASBholdfurther
meetingswithinterestedpartiesinordertounderstandanyunanticipatedissuesrelating
tothepracticalapplicationofthestandard.

Transparencywithintheprocess

Ascanbeseenfromtheabovediscussionthroughouttheprocesspublicconsultationis
eitherinvitedorconsidered.Itisnotpossibleforanaccountingstandardtobeissued
withouttakingonboardcommentsfrominterestedparties.Thisavoidsthesituation
wherebytheprocessbecomesapureacademicexerciseandensuresthatthepractical
applicationisconsidered,understoodandprovidedfor.

AdvancedFinancialAccountingSamplePaper2 Page15of27

Solutiontoquestion2

(1) B

(2) C (seeworking)

(3) D (seeworking)

(4) A

(5) C

(6) B

(7) A

(8) D (seeworking)

(9) B (seeworking)

(10)A

Workings:

(2)112,000(19,500+28,000)10%(56,000+84,000)=50,500x40%=20,200
20,200+19,500+5,600=45,300

(3)50,500x60%=30,300+28,000+8,400=66,700

(8)Sales270,000
Grossmargin20%=54,000
Costofsales=270,00054,000=216,000
216,000+closinginventory44,000openinginventory60,000=purchases200,000

(9)Openingreceivables45,000+sales270,000=315,000
315,000baddebts14,000closingreceivables56,000=salesreceipts245,000

AdvancedFinancialAccountingSamplePaper2 Page16of27

Solutiontoquestion3

(a)
WIRELtd.

Statementoffinancialpositionasat31December2009


/000/000

Noncurrentassets

Property,plant&equipment(Note1)2,343
Otherfinancialassets60
2,403

Currentassets

Inventories50
Tradereceivables156
Prepayments(W1)36
Cashandcashequivalents(W2)124
366

Totalassets2,769

Equityandliabilities

Capital(W4)1,800
Reserves380
Accumulatedprofits(W3)64
2,244

Noncurrentliabilities

Interestbearingborrowings200
200

Currentliabilities

Tradeandotherpayables(W7)233
233

Deferredgovernmentgrants(Note2)92

2,769

AdvancedFinancialAccountingSamplePaper2 Page17of27

Solutiontoquestion3(contd)

(b)

WIRELIMITED

NotestotheAccountsfortheyearended31December2009

(1)Property,plantandequipment

Freehold Plant & Motor Computer

premises machinery vehicles equip Total
/000 /000 /000 /000 /000
Cost
at 1st January 2009 2,500 420 120 120 3,160
additions 70 25 30 125
disposals (45) (45)
at 31st December
2009 2,500 490 100 150 3,240

Accumulated depreciation
at 1st January 2009 400 240 70 45 755
charge for year 50 49 20 50 169
450 289 90 95 924
disposals 0 0 (27) 0 (27)
at 31st December
2009 450 289 63 95 897

Net book value

at 1st January 2009 2,100 180 50 75 2,405
at 31st December
2009 2,050 201 37 55 2,343

(2)Deferredgovernmentgrants

At1stJanuary2009 90
Receivedduringtheyear 18
108

Releasedtoprofitandlossaccountduringtheyear (16)

At31stDecember2009 92

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Solutiontoquestion3(contd)

Workings

(1)Prepayments

/000

Prepaymentspertrialbalance12
Addprepaymentsomittedinerror24

36

(2)Cashandcashequivalents

/000

Bankbalance66
Shortterminvestment40
106

Governmentgrantreceived18

124

(3)Accumulatedprofits

/000

Retainedprofitforyearpertrialbalance146
Profitondisposalofmotorvehicle6
Depreciation(Note1)(169)
Prepayments24
Governmentgrantsreleased16
23

RetainedProfitbroughtforward1Jan200941

Accumulatedprofits64

(4)Issuedcapital
/000

Ordinarysharecapital1,500
8%preferencecapital300

1,800

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Solutiontoquestion3(contd)

(5)Reserves
/000

Sharepremium150
Generalreserves230

380

(7)Tradeandotherpayables
/000

TradepayablesperTrialBalance85
Corporationtax98
VAT32
Accruedexpenses18

233

(8)Disposalofmotorvehicle
/000

Costin200645
Depreciationcharge:
2006 9
2007 9
2008 9
NBV18
Proceeds24

Profitondisposal6

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Solutiontoquestion4

To : TheDirectors
From : A.Accountant
Date : XX/MM/YY
Subject : Accountingtreatmentofgovernmentgrants

A.Accountingtreatment

The grants which have been approved for the new production facility fall into two distinct
categories:

1. Revenuebasedgrantthegrantfortrainingcosts
2. Capitalbasedgrantthegrantforplant

Theabovetwograntsaretreateddifferentlyforaccountingpurposes.IAS20providesthat:

(i) Revenue based grants are to be credited to revenue in the period in which the
relatedrevenueexpenditurehasbeenincurredand,whereactualamountsarenot
knownforcertain,appropriateestimatesmustbemade;and
(ii) Capitalbasedgrantsontheotherhandaretobecreditedtorevenueoverthelife
oftherelatednoncurrentassetbyeither:
i. Reducingthecostoftheassetbythefullamountofthegrants;or
ii. Treating the amount of the grant as deferred credit, a portion of which is
transferredtorevenueannually.Wherethismethodisusedtheamountofthe
deferred credit, if material, should be shown separately in the statement of
financialpositionandseparatefromshareholdersfunds.

Wherethereisacontingentliabilitytorepayanygrantsreceivedthismustbedisclosedbywayof
notetotheaccounts.

B.Recommendations

As far as the company is concerned, I recommend that the following accounting policies be
adopted:

Traininggrantsthesegrantsbecreditedtorevenueastheyaredue;and
Grants on plant these grants be treated as deferred credits and disclosed separately in the
statement of financial position under the heading Government Grants and allocated to the
statementofcomprehensiveincomeoverthelifeoftheassetusingthesameratesofdepreciation
asappliedtotherelevantassets.

C.Accountingpolicies

ThenotestotheaccountsofCARTERLimitedshouldincludethefollowing:

(i) Grants receivable on additions to noncurrent assets are credited to the Government
Grants Account and are allocated to the statement of comprehensive income over the
estimatedusefullivesoftheassetsconcerned.Revenuebasedgrantsarecrediteddirectly
tothestatementofcomprehensiveincomeintheyearinwhichtheybecomedue.

AdvancedFinancialAccountingSamplePaper2 Page21of27

(ii)
/

Balanceatstartofyear XXXX
ReceivedduringtheyearXXXX
ReleasedtotheprofitandlossaccountduringtheyearXXXX

BalanceatendofyearXXXXX

(iii) Contingentliabilities

Under various agreements between the company and grant awarding bodies the Company has
receivedgrantsamountingto/XXXduringtheyear.Thereexistsacontingentliabilitytorepay
in whole or in part the grants received if certain circumstances set out in the agreement occur.

AdvancedFinancialAccountingSamplePaper2 Page22of27

Solutiontoquestion5

(a) DRCR
(i)
DR Motorvehicles(B/S) 26,500
CR Motorvehicles(B/S) 13,000
DRAccumulateddepreciation6,500
CRMotorvehiclesexpense(P&L)20,000

[Beingcorrectionofchequedebitedtomotorexpenseinerroranddisposalofmotor
vehicleinpartpayment]

(ii)

DR Depreciation(P&L) 3,375
CR Accumulateddepreciation(B/S) 3,375

[Beingcalculationofdepreciationchargeonadditions(6,6253,250)]

(iii)

DR Plant&machinery 400,000
DRVATrecoverable84,000
CR Bank 484,000

[Beingpurchaseofnewmachine]

DR Depreciation(P&L) 40,000
CR Accumulateddepreciation(B/S) 40,000

[Beingcalculationofdepreciationonnewmachine]

DR Bank 60,000
Cr Deferredincome(B/S) 60,000

[Beingreceiptofgovernmentgrant]

DR Deferredincome(B/S) 6,000
CR Grantreleased(P&L) 6,000

[BeingreleaseofproportionofgranttoStatementofProfit&Loss]

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Solutiontoquestion5(contd)

(b)

Netprofitbeforetax 350,000

(i) Motorvehicleexpense 20,000

(ii) Motorvehicledepreciation (3,375)

(iii) Plantandmachinery (40,000)

(iii) Grantreleased 6,000

Revisednetprofit332,625

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Solutiontoquestion6

[a]
CLINICLimited

StatementofCashFlowsfortheyearended31December2010

/ '000 / '000

Cash flows from operating activities

Net profit before interest (W1) 660

Adjustments for:
Depreciation 600
Profit on disposal (W3) (60)

Changes in working capital

Increase in inventory (W2) (360)
Increase in receivables (W2) (720)
Decrease in payables (W2) (240)
(780)
Cash generated from operations (120)

Interest paid (540)

Tax paid (W4) (90)
(630)

Net cash from operating activities (750)

Cash flows from investing activities

Payment to acquire non-current assets (W5) (360)
Receipt from sale of non-current assets (W3) 150
(210)

Cash flows from financing

Proceeds from share issue (incl share prem) 60
New bank loans (W6) 390
Issue of new debentures (W7) 540
Dividends paid (60)
930

Decrease in cash and cash equivalents (30)

Cash and cash equivalents at start of year 30

Cash and cash equivalents at end of year 0

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Workings

(1)Netprofitbeforeinterest
/000

Netprofitforyear 90
Add:tax 30
Add:interest 540
660

(2)Changesinworkingcapital
/000

Inventory(1,8901,530) 360increase
Receivables(2,8502,130) 720increase
Tradepayables(1,140450930) 240decrease

(3)Noncurrentassetdisposal
/000

NBV 90
Profitonsale 60
Saleproceeds150

(4)Taxation
/000

Openingbalance 90
Chargeforyear30
Closingbalance (30)
Amountpaid 90

(5)Noncurrentassetacquisition
/000

Openingbalance 1,320
Less:disposal(90)
Depreciationcharge (600)
630
Closingbalance (1,440)

Purchases 810
Amountowingincludedintradepayables450
Amountpaid360

AdvancedFinancialAccountingSamplePaper2 Page26of27

(6) Bankloans
/000

Openingbalance(1,800+540) 2,340
Closingbalance(2,190+540) 2,730

Newloans 390


(7) Debentures
/000

Openingbalance 900
Closingbalance(1,140+300) (1,440)

Newdebenturesissued 540

AdvancedFinancialAccountingSamplePaper2 Page27of27