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Section A: Financial Accounting

Question 1

Source A1

LC plc provided the following summarised trial balance at 31 December 2020 after the draft gross profit
had been calculated. Depreciation for the year had already been charged.

Summarised trial balance at 31 December 2020

$ $
Gross profit 96 200
Inventory 6 212
Administrative expenses 32 700
Distribution costs 19 405
Finance costs 4 410
Final dividend (2019) 7 000
Interim dividend (2020) 5 000
Ordinary share capital ($1 shares) 100 000
Retained earnings 54 732
Long-term bank loan 50 000
Trade receivables 25 400
Trade payables 16 200
Bank 11 200
Premises 200 000
Provision for depreciation of premises 4 000
Fixtures and fittings 27 600
Provision for depreciation of fixtures and fittings 5 520
Motor vehicles 18 000
Provision for depreciation of motor vehicles 7 875
345 727 345 727

Answer the following questions in the question paper. Questions are printed here for
reference only.

(a) Calculate the draft profit for the year based on the trial balance figures. [1]

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Additional information

The following took place on 31 December 2020 after the trial balance had been prepared.

1 The bank informed the company that its account was being debited with $120 in relation to a
dishonoured cheque from a credit customer, and with $150 and $110 for bank charges and
bank interest.

2 A bonus issue of 10 000 ordinary shares of $1 each was made.

3 It was decided to create a general reserve of $14 000.

4 The premises were revalued to $244 000. The fixtures and fittings and motor vehicles were
deemed to have a recoverable amount of $22 300 and $9200 respectively.

5 It was decided to provide $5000 for compensation to customers arising from the use of
damaged goods sold to them by the company.

6 It was discovered that the trial balance figures included values arising from the supply of
goods to a credit customer on a sale or return basis. The customer had not declared an
intention to buy the goods by the year end. They were included in sales at a value of $4600
and had an original cost of $2100.

(b) Calculate the corrected profit for the year ended 31 December 2020. Start your calculation
with your answer to (a). [5]

(c) Prepare the statement of financial position at 31 December 2020 after taking into account all
necessary information. [17]

(d) Explain how your treatment of the bonus issue might have been different if the trial balance
had contained a balance of $8000 on a share premium account. [2]

[Total: 25]

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Question 2

Source A2

The AB Club has 200 members who pay an annual subscription of $100 each. It provides social facilities
to its members and also rents and operates two vending machines to sell soft drinks to members. The
statement of financial position at 30 June 2020 showed the following assets and liabilities.

$
Equipment at valuation 2100
Furniture at valuation 1050
Subscriptions in arrears 400
Bank balance 1420
Cash 180
Inventory of soft drinks 210
Owing to suppliers of soft drinks 290

The following information was available.

1 Equipment and furniture were valued on 30 June 2021 at $1700 and $1500 respectively.

2 All subscriptions are received by cheque and banked immediately. On 30 June 2021, there were
no arrears of subscriptions and three members had paid in advance for the coming year.

3 All takings from the vending machines are in cash. Some are used to pay club expenses and
some are paid into the bank. Soft drinks are sold at a mark-up of 100%.

4 The inventory of soft drinks on 30 June 2021 was valued at $490 at selling price. On that date, the
amount owing to suppliers of soft drinks was $305.

5 Cash in hand on 30 June 2021 amounted to $150. The balance on the bank account on that date
was $2290.

6 Payments made through the bank during the year ended 30 June 2021 were:

$
Purchase of new furniture 720
Rent of premises 12 000
Rent of vending machines 6 000
Club expenses 5 140
Payments to suppliers of soft drinks 12 600
Total bank payments 36 460

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Answer the following questions in the question paper. Questions are printed here for
reference only.

(a) Calculate the profit from the vending machines for the year ended 30 June 2021. [5]

(b) Calculate for the year ended 30 June 2021:

(i) the value of subscriptions received and banked [3]

(ii) cash takings banked [4]

(iii) club expenses paid by cash. [4]

(c) Prepare the income and expenditure account for the year ended 30 June 2021. [6]

Additional information

It has been suggested to the managing committee that the club starts to rent a third vending
machine selling soft drinks.

(d) Advise the committee whether or not to start renting a third vending machine. Justify your
answer. [3]

[Total: 25]

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Question 3

Source A3

Adul and Basha have been in partnership for many years. On 31 December 2020, the partnership
business merged with Carl’s business.

The proposal for the merger was made six months before it took place. One of the conditions for the
merger was that Carl’s accounting system had to be computerised.

Answer the following questions in the question paper. Questions are printed here for reference
only.

(a) State four benefits of a computerised accounting system to a business. [4]

Additional information

The draft statements of financial position for both businesses at 31 December 2020 were as
follows.

Adul and
Basha Carl
$ $
Office equipment 564 000 265 000
Motor vehicles 98 200 65 000
Inventory 46 000 28 000
Trade receivables 83 300 36 000
Cash and cash equivalents 21 200 9 000
Total assets 812 700 403 000

Capital account
Adul 360 000
Basha 360 000
Carl 371 100
Current account
Adul 22 000
Basha (5 600)
736 400 371 100
Trade payables 76 300 31 900
Total equity and liabilities 812 700 403 000

1 Profit for the year ended 31 December 2020 was:

$
Adul and Basha 64 000
Carl 21 160

2 The goodwill for the partnership had been valued at $50 000. The goodwill value for Carl’s
business was to be the average profit for the last three years. Carl’s profit had increased by
15% each year for the last three years.

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3 All assets and liabilities were valued at their net book value except:

Adul and Basha Carl

$ $
Office equipment 580 000 230 000
Motor vehicles 88 000 62 000
Trade receivables 35 000

4 There was no partnership agreement between Adul and Basha. After the merger, it was
agreed that the profit and loss sharing ratio among Adul, Basha and Carl would be 2 : 2 : 1.

5 All the partners agreed that the combined goodwill would not be maintained in the books of
account of the new partnership.

6 Two motor vehicles had an equal value in the business of Adul and Basha. Immediately after
the merger, Adul would take one of the motor vehicles for his own use.

(b) Calculate the goodwill of Carl’s business. [2]

(c) Explain why the calculation of Carl’s goodwill is based on the profit of the business. [2]

(d) Prepare a statement showing the movement in the capital account for each of Adul, Basha
and Carl immediately after the merger. [6]

(e) Calculate the value of the total assets of the new business immediately after the merger.
Show your workings. [6]

Additional information

Better profitability of the business of Adul and Basha is one of the reasons for Carl’s decision to
merge.

(f) Advise Carl whether or not he has made the correct decision to merge with the partnership
business. Justify your answer using both financial and non-financial factors. [5]

[Total: 25]

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Question 4

Source A4

Tan owns a shop in her local town selling ornaments.

Tan and Wang entered a joint venture to sell ornaments in a city festival market in 2020. Tan purchased
goods from her local producers in a small town and Wang sold the products in his local city. Profit will
be shared equally and each party would record their own transactions.

The receipts and payments relating to the joint venture were as follows:

Tan Wang
$ $
Purchases of goods 46 000
Rent of stall 12 000
Cash register 2 600
Transportation 2 450 980
Assistant’s wages 2 770 5 400
Sales 95 400
Packaging 620 4 080

At the end of the joint venture, Wang took over the cash register and unsold ornaments at the value of
$2000 and $3100 respectively.

Answer the following questions in the question paper. Questions are printed here for reference
only.

(a) State three features of a joint venture. [3]

(b) Prepare the following accounts:

(i) the joint venture account [7]

(ii) the joint venture with Tan account in Wang’s books [4]

(iii) the joint venture with Wang account in Tan’s books [3]

Additional information

From Tan’s experience of the joint venture in the city festival market, she has found that the goods
are well accepted by the city people. She now plans to sell the ornaments in the city through
Wang as a consignee.

(c) Explain two benefits to each of Tan and Wang of selling the ornaments in the city on
consignment. [8]

[Total: 25]

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Section B: Cost and Management Accounting

Question 5

Source B1

V Limited operates a standard costing system and a system of budgetary control.

The budgeted information and standard costs for March 2020 were as follows.

Budgeted output 2 500 units

Budgeted fixed overheads $48 000
Standard cost per unit
Direct materials $24 (3 kilos at $8 each)
Direct labour $64 (4 hours at $16 each)

V Limited uses labour hours to absorb fixed overheads.

The actual results for March 2020 were as follows.

Output 2 400 units

Fixed overheads $49 800
Direct materials cost $68 340
Direct materials usage 8 040 kilos
Direct labour costs $156 864
Direct labour hours 9 120 hours

Answer the following questions in the Question Paper. Questions are printed here for reference
only.

(a) Prepare a cost statement, in a columnar form, showing the master budget, flexed budget, and
the actual result. [7]

(b) (i) Calculate the direct materials variance. [1]

(ii) Analyse the reasons for the direct materials variance. Support your answer with
calculations. [4]

(c) (i) Calculate the direct labour variance. [1]

(ii) Analyse the reasons for the direct labour variance. Support your answer with calculations.
[4]

(d) (i) Calculate the total fixed overheads variance. [1]

(ii) Calculate the fixed overheads expenditure variance. [1]

(iii) Calculate the fixed overheads volume variance. [1]

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Additional information

In a meeting reviewing the April 2020 budget, a director suggested that the production manager
should be fully accountable for the adverse variances of direct materials and direct labour in April
2020. The production manager explained that due to the main supplier’s failure to supply the
required materials, he had to ask the manager of the purchasing department to buy the materials
from another supplier. This had caused a delay in production.

(e) Discuss whether or not the production manager should be fully accountable for the adverse
variances in direct materials and direct labour. Justify your answer. [5]

[Total: 25]

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Question 6

Source B2

V Limited manufactures two products, Standard and Premium.

The following budgeted information for 2020 is available.

Standard Premium
Units produced and sold 10 000 4000
Direct materials : unit cost $20 $30
Direct labour : hours per unit 3 5
rate per hour $18 $18

Budgeted factory overheads, $240 000, are to be allocated to the products on the basis of direct labour
hours.

Answer the following questions in the Question Paper. Questions are printed here for reference
only.

(a) Calculate the total production cost and the unit cost for each product. [5]

Additional information

V Limited normally adds 40% to the cost of each product to set the selling price.

(b) Calculate the unit selling price for each product. [2]

Additional information

V Limited is considering implementing an activity based costing (ABC) system. The management
accountant has prepared the following cost analysis.

Overhead Occurrences
Activity costs Cost driver Standard Premium
$
Materials handling 80 000 Number of purchase orders 30 10
Machine setups 90 000 Number of setups 65 25
Inspection 70 000 Number of units produced 10 000 4000
240 000

(c) Define the term ‘cost driver’. [1]

(d) State three benefits of adopting ABC. [3]

(e) Calculate the total production cost and unit cost for each product if ABC is used. [5]

(f) Calculate the unit selling price for each product if ABC is used. [2]

(g) Explain the difference in total production cost for each product in respect of (a) and (e). [3]

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Additional information

V Limited plans to manufacture only the Premium product from 2021.

(h) Explain why V Limited would find ABC useful in 2020 but not in 2021. [4]

[Total: 25]

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