Manual A2 Final

CHAPTER 1
1.2
Subscriptions account
20X4 $ 20X4 $
Apr 01 Balance (arrears) b/f 2 800 Apr 01 Balance (pre-received) b/f 2 200
20X5 20X5
Mar 30 Income and Expenditure account 60 900 Mar 30 Cash 60 500
Mar 30 Balance (pre-received) c/d 2 400 Mar 30 Balance (arrears) c/d 3 400
66 100 66 100
Apr 01 Balance (arrears) b/d 3 400 Apr 01 Balance (pre-received) b/d 2 400
1.4
(a) Calculation of Accumulated Fund as on 1 July 20X5
$
Assets on 1 July 20X5 ($3 110 + $1 020 + $100 + $1 050 + $32 000 + $7 500) 44 780
Liabilities on 1 July 20X5 ($200 + $410 + $720) (1 330)
Accumulated fund on 1 July 20X5 43 450
(b) United Music Club

Subscriptions account
$ $
Balance (arrears) b/f 1 050 Balance (pre-received) b/f 720
Income & Expenditure account 20 540 Cash 20 590
Balance (pre-received) c/d 940 Balance (arrears) c/d 1 220
22 530 22 530
Balance (arrears) b/d 1 220 Balance (pre-received) b/d 940
(c) United Music Club

Refreshment trading account
$ $
Sales 12 300
Cost of Sales
Opening Inventory 1 020
Purchases (W.1) 8 250
9 270
Closing Inventory (1 360) (7 910)
Gross Profit 4 390
Refreshment wages ($6 250 + $350  $200) × 30% (1 920)
Refreshment Profit 2 470
(W.1) Payables for Refreshment purchases account

$ $
Bank 8 200 Balance b/f 410
Balance c/d 460 Purchases (Balancing figure) 8 250
8 660 8 660
(d) United Music Club

Income and Expenditure Account for the year ended 30 June 20X6
Incomes $ $
Subscriptions (as per “b part) 20 540
Refreshment profit (as per “c” part) 2 470 23 010
Expenditures
Wages ($6 250 + $350  $200) × 70% 4 480
Miscellaneous expenses 1 260
Telephone and stationary 1 920
Rent and insurances ($3 200  $150 + $100) 3 150
Repairs and maintenance 1 050
Lighting and heating 3 360
Loss on sale of equipment ($1 200 − $800) 400
Depreciation on equipment ($32 000 + $2 000 − $1 200 − $29 800) 3 000
Depreciation on furniture and fixtures ($7 500 − $6 000) 1 500 (20 120)
Surplus 2 890
(e) Balance Sheet

As at 30 June 20X6
Non-Current Assets $ $ $
Machines and equipment 29 800
Furniture and fixtures 6 000 35 800
Current Assets
Inventory of refreshments 1 360
Subscriptions in arrears 1 220
Prepaid insurance 150
Cash at bank 9 560
12 290
Current Liabilities
Subscriptions paid in advance 940
Accrued wages and salaries 350
Owing for refreshments 460 (1 750) 10 540
46 340
Represented By
Accumulated fund on 1 July 20X5 (“a” part) 43 450
Surplus 2 890 46 340
1.6
(a) Art Material Trading account
For the year ended 31 December 20X4
$ $
Sales 3 415
Cost of Sales
Opening inventory 490
Purchases 1 760
2 250
Closing inventory (365) (1 885)
Profit on art materials 1 530
(b) Income and expenditure account

Incomes $ $
Subscriptions ($1 295  $70 + $110 + $160  $85) 1 410
Profit on art materials 1 530
Profit on exhibition ($940  $380) 560
Interest on deposit {($800 × 5%) + ($400 × 5% × 6/12)} 50 3 550
Expenditures
Heating and lighting 790
Bad debts ($95  $70) 25
Insurance 65
Premises maintenance 630
Rent ($1 120 + $120 + $160) 1 400
Depreciation-equipment ($4 500 + $400 $4 600) 300 (3 210)
Surplus 340
1.8
(a) Shop Trading Account for the year ended 31 December 20X6
$ $
Shop takings 29 900
Cost of Sales
Opening inventory 3 500
Purchases ($23 300 + $460  $540) 23 220
26 720
Closing inventory($2 600 + $1 400) (4 000) (22 720)
Gross profit 7 180
Expenses:
Rent ($2 500  $200)  1/2 1 150
General expenses ($1 930  $180)  1/2 875
Insurance ($2 310  1/2) 1 155
Depreciation – fixtures ($2 000  $1 800) 200 (3 380)
Shop profit 3 800
(b) Income and expenditure account
Incomes $ $
Subscription ($4 300 + $90 + $120  $80) 4 430
Shop profit 3 800
Collection at matches 940
Donations 1 000
Interest on deposit account 70 10 240
Expenditures
Rent ($2 500  $200)  1/2 1 150
General expenses ($1 930  $180)  1/2 875
Insurance ($2 310  1/2) 1 155
Footballs 1 140
Stationery and postage ($20 + $140  $35) 125
Ground man’s wages 1 900
Interest on loan ($12 000 × 12% × 6/12) 720
Depreciation Clubhouse ($37 000 × 15%) 5 550 (12 615)
Deficit (2 375)
(c) Islamabad united football club Balance sheet as at 31 December 20X6
Non-Current Assets Cost $ Depn $ Net $
Clubhouse 37 000 13050 23 950
Fixtures 1 800
Deposit account 2 000
27 750
Current Assets
Shop inventory 4 000
Stationery inventory ($2 600 + $1 400) 35
Subscription in arrears 120
Bank 3 000
Prepaid rates 200 7 355
Current Liabilities
Shop trade payables 460
Subscription in advance 80
Accrued interest 720 (1 260) 6 095
33 845
Non-Current Liabilities
Loan (12 000)
21 845
Financed By
Accumulated fund(2 010+3 50054090+17 500+2 000180+20) 24 220
Deficit (2 375) 21 845
CHAPTER 2
2.2
(a) Realisation Account
$ $
Non-current assets 60 000 Bank - non-current assets 63 200
Closing inventory 9 900 Bank - inventory 10 300
Bank (dissolution cost) 1 100
Realisation Profit
Imran Capital (3/5) 1 500
Wasim Capital (2/5) 1 000 _____
73 500 73 500
(b) Partners Capital Accounts

Imran Wasim Imran Wasim
$ $ $ $
Bank (balancing figure) 37 900 34 600 Balance b/f 30 000 30 000
Current account 6 400 3 600
_____ _____ Realisation account (profit) 1 500 1 000
37 900 34 600 37 900 34 600
(c) Bank Account

$ $
Balance b/f 3 500 Trade payables 3 000
Realisation account - non-current assets 63 200 Wasim’s loan 8 000
Realisation account - inventory 10 300 Realisation account (dissolution cost) 1 100
Trade receivables 7 600 Imran Capital 37 900
______ Wasim Capital 34 600
84 600 84 600
2.4
Realisation Account
$ $
Non-Current Assets 120 000 Provision for depreciation 45 000
Inventory 12 500 Provision for doubtful debts 1 000
Trade receivables 22 000 Parkway Ltd 125 000
Realisation profit
Nelson Capital (3/5) 9 900
Parker Capital (2/5) 6 600 ______
171 000 171 000
Bank Account
$ $
Balance b/f 3 300 Nelson loan 8 000
Parkway Ltd 35 000 Nelson capital 18 500
_____ Parker capital 11 800
38 300 38 300
Partners’ Capital Accounts
Nelson Parker Nelson Parker
($) ($) ($) ($)
Ordinary shares (1/2; 1/2) 45 000 45 000 Balance b/f 45 000 35 000
Bank (balancing figure) 18 500 11 800 Current account 8 600 6 400
Realisation (profit) 9 900 6 600
_____ _____ Trade payables _____ 8 800
63 500 56 800 63 500 56 800
Ordinary shares Account

$ $
Parkway Ltd ($125 000  $35 000) 90 000 Nelson Capital (1/2) 45 000
_____ Parker capital (1/2) 45 000
90 000 90 000
2.6
(a) Calculation of purchase consideration
Agreed value of assets taken over $
Freehold land and buildings 90 000
Plant and equipment 24 000
Vehicles 16 000
Goodwill 18 400
Closing inventory 24 700
Trade receivables 13 800
Bank balance 11 300
198 200
Agreed value of liabilities taken over
Trade payables (8 200)
Purchase consideration agreed for the sale of partnership 190 000
(b) Realisation Account
$ $
Freehold land and buildings 80 000 Provision for depreciation-plant 9 200
Plant and equipment 35 000 Provision for depreciation-vehicles 8 400
Vehicles 26 000 Trade payables 8 200
Inventory 24 700 Frerile Ltd 190 000
Trade receivables 13 800
Bank balance 11 300
Realisation profit Capital: Fred (2/5) 10 000
Richard (2/5) 10 000
Lewis (1/5) 5 000 ______
215 800 215 800
(c) Partners Capital Accounts

Fred ($) Richard ($) Lewis ($) Fred ($) Richard ($) Lewis ($)
Current account 2 600 Balance b/f 70 000 40 000 30 000
12% debentures 10 000 Fred’s Loan 12 000
Ordinary shares 91 400 56 200 32 400 Current account 9 400 6 200
______ _____ _____ Realisation (profit) 10 000 10 000 5 000
101 400 56 200 38 600 101 400 56 200 35 000
(d) Equity shares Account

$ $
Parkway Ltd 180 000 Fred Capital 91 400
Richard capital 56 200
____ Lewis capital 32 400
180 000 180 000
CHAPTER 3
3.2
FLB Ltd
Balance Sheet (after the purchase of the partnership business)
Non-Current Assets $ $ $
Intangible: Goodwill 15 200
Tangibles Freehold premises 90 000
Fixtures and fittings 40 000
Motor vehicles 36 200 166 200 181 400
Current Assets
Trade receivables ($27 400  $1 900) 25 500
Cash at bank 7 600
56 900
Current Liabilities
Trade payables (18 300) 38 600
220 000
12% Debentures (W 1) (12 000)
208 000
Equity
Equity share capital (W 2) 140 000
Preference share capital 54 000
Share Premium (W 2) 14 000 208 000
WORKING
(W 1) Calculation of purchase consideration
Agreed value of assets taken over $
Freehold premises 90 000
Fixtures and fittings 40 000
Motor vehicles 36 200
Goodwill 15 200
Trade receivables ($27 400  $1 900) 25 500
Cash at bank 7 600
238 300
Agreed value of liabilities taken over
Trade payables (18 300)
Purchase consideration agreed for the sale of partnership 220 000
(W 2) Face value of debentures × 10 % = Interest on Lin’s loan of partnership

X × 10% = ($15 000 × 8%)
X = $1 200 ÷ 10%
X = $12 000
(W 3) $
Issue price of shares issued to partners [$220 000 (W 1)  $12 000(W 2)  (54 0001)] 154 000
Face value of shares issued to partners (140 000 shares @ $1) 140 000
Share Premium 14 000
3.4
United Ltd
Balance Sheet as at 1 April 20X4
Non-Current Assets Cost Depn. NBV
Intangibles $000 $000 $000
Goodwill(W 1) 27
Tangibles
Freehold premises 1 200 300 900
Plant and equipment ($450 000 + $45 000) 495 280 215
Fixtures and fittings ($250 000 + $30 000) 280 120 160
Motor vehicles($180 000 + $15 000) 195 96 99
2 170 796 1 401
Current Assets
Inventory($126 000 + $40 000) 166
Trade receivables [$112 000 + ($50 000  90%)] 157
Bank ($111 000  $20 000) 91
414
Current Liabilities
Trade payables ($101 000 + $32 000) 133 281
1 682
12% debentures ($30 000 10%/12%) (25)
1 657
Share Capital and Reserves
Ordinary shares of $1[$1 200 000 + (100 000  $1)] 1 300
Share premium [$170 000$20 000$100 000$25 000] 25
General Reserve 200
Retained profit 132 1 657
WORKING Calculation of Goodwill
$000
Purchase price of the business 170
Fair value of net assets ($45 000 + $30 000 + $15 000 + $40 000 + $45 000  $32 000) 143
Goodwill 27
3.6
CERD Ltd
Balance Sheet for (after the completion of the amalgamation process)
Non-Current Assets $ $
Intangibles
Goodwill ($24 200 + $8 400) 32 600
Tangibles
Freehold premises 125 000
Furniture and fixtures ($31 500 + $19 800) 51 300
Plant and machinery($26 400 + $25 400) 51 800 228 100
260 700
Current assets
Inventory ($20 850 + $13 600) 34 450
Trade receivables ($12 150 + $8 100) 20 250
Bank balance ($7 100  $2 300) 9 400
64 100
Current liabilities
trade payables($7 200 + $2 600) (9 800) 54 300
315 000
8% Debentures ($20 000 10%/8%) (25 000)
290 000
Capital and Reserves
Equity share capital [$172 000 + $60 000] 232 000
Share premium [$43 000 + $15 000] 58 000 290 000
WORKINGS
(W 1) Calculation of Purchase consideration
C and D E and Co
$ $
Freehold premises 125 000 --------
Furniture and fixtures 31 500 19 800
Plant and machinery 26 400 25 400
Inventory 20 850 13 600
Trade receivables ($13 500 ; $9 000)  90% 12 150 8 100
Bank balance 7 100 2 300
223 000 69 200
Less Trade payables (7 200) (2 600)
Fair value of net assets purchased 215 800 66 600
Add Goodwill 24 200 8 400
Purchase consideration agreed for the business 240 000 75 000
(W 2) Calculation of Value of shares issued for purchase of business
C and D E and Co
$ $
Purchase consideration agreed for the business 240 000 75 000
Amount settled in debentures ($20 000 10%/8%) (25 000) (-------)
215 000 75 000
Agreed value per equity share  1.25  1.25
172 000 60 000
Face value of equity shares(172 000 ; 60 000)  $1 172 000 60 000
Share premium (172 000 ; 60 000)  $0.25 43 000 15 000
CHAPTER 4
4.2
(a) ABC plc.
Income Statement
For the year ended 30 September 20X6
$000 $000
Sales 540
Cost of Sales
Opening inventory 45
Add Purchases 297
342
Closing inventory (52) (290)
Gross profit 250
Operating Expenses
Salaries and wages 40
Rent and insurance 19
Bad debts 2
Sundry expenses 18
Depreciation [($600 000 $120 000) × 20%] 96 (175)
Operating Profit 75
Less Debenture interest (4)
Profit after interest 71
Tax (13)
Profit attributable to equity holders 58
(b) Statement of Changes in Equity
Ordinary Preference Share General Retained Total
capital capital Premium reserves Earnings Equity
$000 $000 $000 $000 $000 $000
Balance at year start 300 80 40 35 15 470
Profit after tax 58 58
Transfer to reserves 12 (12) -----
Preference dividends (8) (8)
Ordinary dividends paid ___ ___ __ __ (15) (15)
Balance at year end 300 80 40 47 38 505
(b) ABC Plc

Balance Sheet as at 30 September 20X6
Non-Current Assets $000 $000 $000
Non-current assets at cost 600
Provision for depreciation ($120 000 + $96 000) (216) 384
Current Assets
Inventory on 30 September 20X6 52
Trade receivables 130
Cash at bank 72
254
Current Liabilities
Trade payables 70
Tax payable 13 (83) 171
555
8 % debentures (50)
505
Equity
Ordinary share capital 300
10% preference capital 80
Share premium 40
General Reserves 47
Retained profit 38 505
4.4
(a) Valentine Ltd
Income Statement for the year ended 31 December 20X4
$000 $000
Sales 448
Cost of Sales (202)
Gross profit 246
Operating Expenses
Miscellaneous Distribution expenses ($16 000  $2 000) 14
Wages and salaries 30
Depreciation on plant ($120 000  20% 1/4) 24
Miscellaneous administrative expenses 38
Administrative wages and salaries 44
Auditors’ remuneration 24 (174)
72
Other Incomes
Rent receivable 12
Operating profit 84
Loan interest ($100 000 × 9%) (9)
Less Corporation tax (24)
(b) Statement of changes in equity

Ordinary Share premium General Retained
Total
capital reserves Earnings
$000 $000 $000 $000 $000
Balance at start of year 300 60 40 20 420
Current year profit 51 29
Ordinary Dividends paid (22)
Bonus Issue 50 (50) --
Conversion of loans into shares 25 25 ___ --- 50
Balance at end of the year 375 35 40 49 499
(c) Valentine Ltd

Balance Sheet as at 31 December 20X5
Intangibles
Goodwill 40
Tangibles
Land and Building 400
Plant and machinery at cost 120
Provision for depreciation ($30 0000 +$24 000) (54) 66
506
Current Assets
Inventory 37
Cash at bank 12
Prepaid distribution expenses 2
94
Current Liabilities
Trade payables 23
Interest on loan owing [($100 000 × 9%)  $5 000] 4
Tax payable 24 (51)
Net Current Assets 43
549
9% convertible loan stock (50)
499
Equity
$1 Ordinary shares ($300 000 + $50 000 + $25 000) 375
Share premium ($60 000  $50 000 + $25 000) 35
General Reserves 40
Retained earnings 49
499
4.6
(a) Income statement
$000 $000
Gross profit [$410 000  ($24 000  $18 000)] 404
Operating Expenses
Distribution expenses 68
Administration expenses [$254 000  $8 000  $6 000] 240 (308)
Operating profit 96
Interest on loan ($320 000 × 10%) (32)
Interest on bank overdraft (8)
Interest received on investment ($100 000 × 12%) 12 (28)
Less Corporation tax (23)
(b) Statement of changes in equity

Ordinary Share Revaluation General Retained
Total
capital premium reserves reserves Earnings
$000 $000 $000 $000 $000 $000
Balance at start of year 400 40 --- 10 18 468
Current year profit 45 45
Revaluation profit 80 80
Dividends paid ___ __ __ ___ (10) (10)
Balance at end of the year 400 40 80 10 53 583
(c) Phillips plc

Balance Sheet as at 30 September 20X8
$000 $000 $000
Non-Current Assets Cost Depn. NBV
Land and buildings 350 Nil 350
Office equipment 120 48 72
Delivery vehicles 72 32 40
12% Investments 100
562
Current Assets
Inventory [$303 000  ($24 000  $18 000)] 297
Prepaid rent 6
Accrued interest on investment ($12 000  $8 000) 4
529
Current Liabilities
Trade payables 107
Interest on loan owing [($320 000 × 10%)  $24 000] 8
Tax payable 23
Bank overdraft 50 (188) 341
903
10% Bank loan (320)
583
Equity
Ordinary Share Capital ($2 equity shares fully paid) 400
Share Premium 40
Revaluation reserves 80
General reserves 10
Retained earnings 53 583
4.8
Non-Current Assets Schedule
For the year ended 31 March 20X3
Land & building Fixtures & fittings Motor vehicles
$ $ $
Cost on 1 April 20X2 650 000 180 000 70 000
Additions ---- 18 000 22 000
Disposals ---- (14 000) (12 000)
Revaluations 100 000 ---- ----
Cost/value at 30 June 20X7 750 000 184 000 80 000
Total depreciation 1 April 20X2 52 000 63 000 30 800
Disposals ---- (5 600) (5 856)
Current year depreciation charge 5 000 18 400 11 011
Revaluations (52 000) ---- ----
Total depreciation 31 March 20X3 5 000 75 800 35 955
Net book value at 31 March 20X3 745 000 108 200 44 045
CHAPTER 5
5.2
Number of rights shares (400 000 1/5) = 80 000 shares
Effects
Bank (80 000 shares × $1.00) ↑$80 000
Ordinary share capital (80 000 shares × $1.00) ↑$80 000
5.4
Number of right shares (480 000 1/4) = 120 000 shares
Effects
Bank (120 000 shares × $0.80) ↑$96 000
Ordinary share capital (120 000 shares × $0.50) ↑$60 000
Share premium (120 000 shares × $0.30) ↑$36 000
5.6
Number of bonus shares = 600 000  2/5
= 240 000 shares
Effects
Share premium (240 000 × 1/2) ↓$120 000
Revaluation reserves (240 000 × 1/2) ↓$120 000
Ordinary share capital (240 000 × $1) ↑$240 000
Revised Balance sheet extract (after bonus issue)

$
Ordinary share capital ($600 000 + $240 000) 840 000
Share premium account ($140 000  $120 000) 20 000
Revaluation reserve ($130 000  $120 000) 10 000
General reserve 80 000
Retained earnings 40 000
990 000
5.8
(a) Income statement (extract) for the year ended 31 March 20X6
$
Operating profit (balancing figure) 150 000
Finance costs (12 000)
Profit before tax 138 000.
Tax ($110 400 × 20%/80%) (27 600)
Profit for the year attributable to equity holders 110 400.
(b) Statement of changes in equity for the year ended 31 March 20X6
Share Share Revaluation General Retained Total
capital premium reserve reserve Profits
$ $ $ $ $ $
Balance at 1 April 20X5 800 000 240 000 80 000 140 250 1 260 250
Profit for the year 110 400 110 400
Revaluation of property(W 1) 40 000 40 000
Final dividend paid (W 2) (100 000) (100 000)
Rights issue (W 3) 128 000 12 800 140 800
Bonus issue (W 4) 116 000 (58 000) (58 000) (-)
Interim dividends (W 5) (46 400) (46 400)
Transfer to reserves _____ _____ _____ 50 000 (50 000) -
Balance at 31 March 20X6 1 044 000 194 800 62 000 50 000 54 250 1 173 050
WORKINGS
W1 Property↑ $40 000 ($420 000  $380 000) Revaluation reserves↑$40 000 (420 000380 000)
W2 Retained Profits ↓$100 000(400 000 × $0.25) Bank ↓ $100 000 (400 000 × $0.25)
W3 Bank ↑ $140 800 (80 000 × 80% × $2.20) Share capital ↑ $128 000 (80 000 ×80%× $2.00)
Premium ↑ $12 800 (80 000 × 80% × $0.20)
W4 Premium ↓ $58 000 ($116 000 × 1/2) Share capital ↑ $116 000 (464 000 × 1/8 × $2.0)
Revaluation Reserves ↓ $58 000
W5 Retained Profits ↓$46 400 ($464 000 × $0.10) Bank ↓ $46 400 ($464 000 × $0.10)
CHAPTER 6
6.2
National Limited
Cash flow statement
For the year ended 30 June 20X3
$000 $000
Operating Profit 595
Depreciation on non-current assets 400
Profit on disposal of non-current assets ($330 000  $320 000) (10)
Debenture interest paid (15)
Corporation tax paid (70) 305
Operating profit before working capital changes 900
Increase in Inventory ($530 000  $450 000) (80)
Decrease in Trade receivables ($370 000  $350 000) 20
Increase in Trade payables ($210 000  $170 000) 40 (20)
Net cash from operating activities 880
Cash flows from investing activities
Payments to acquire non-current assets (1 100)
Proceeds from sales of non-current assets 330
Net cash flow from investing activities (770)
Cash flows from financing activities
Dividends paid during year (310)
Receipts from issue of shares (250 000 shares × $1.20) 300
Receipts from issue of loan stock ($150 000  $120 000) 30
Net cash flow from financing activities 20
Net increase (decrease) in cash and cash equivalents 130
Cash and cash equivalents at the beginning of the year 190
Cash and cash equivalents at the end of the year 320
6.4
Cash flow statement
For the year ended 31 March 20X6
$000 $000
Operating profit 644
Depreciation on land and buildings 44
Depreciation on plant and equipment 62
Depreciation on motor vehicles 75
Loss on fixtures disposal [$15 000  ($45 000  $26 000)] 4
Profit on vehicle disposal [$16 000  ($34 000  $24 000)] (6)
Debenture interest paid ($18 000 + $14 000  $4 000) (28)
Increase in Trade receivables ($293 000  $153 000) (140)
Decrease in Trade payables ($332 000  $319 000) 13 (197)
Payments to acquire tangible Non-Current Assets (154)
Proceeds from sales of Plant and equipment 15
Proceeds from sales of vehicles 16 (123)
Net cash flow from investing activities
Dividends paid during year (223)
Receipts from issue of shares (200 000 shares × $1.25) 250
Payment for redemption of debentures ($280 000  $80 000) (200)
Net cash flow from financing activities (173)
6.6
Bradshaw Limited
Cash flow statement
$000 $000
Amortisation of goodwill ($120 000  $100 000) 20
Depreciation on land and buildings 40
Depreciation on fixtures and fittings ($156 000  $138 000) 18
Depreciation on motor vehicles [$148 000  {$126 000  ($40 000  $15 000)}] 47
Profit on sale of motor vehicles [$18 000  $15 000)] (3)
Interest paid (14)
Decrease in Trade payables ($169 000  $149 000) (20)
Increase in other payables (accruals) ($15 000  $12 000) 3 (127)
Dividends received 20
Payments to acquire fixtures and fittings($385 000  $325 000) (60)
Payments to acquire motor vehicles [$340 000  ($330 000  $40 000)] (50)
Receipts from sale of motor vehicles 18
Increase in investments ($185 000  $125 000) (60)
Dividends paid during year ($64 000 + $36 000) (100)
Receipts from issue of shares ($1 800 000$1 600 000)+ ($170 000$120 000) 250
Receipts from issue of debentures ($140 000  $100 000) 40
Net cash flow from financing activities 190
Cash and cash equivalents at the beginning of the year ($5 000  $77 000) (72)
Cash and cash equivalents at the end of the year ($99 000 + $26 000) 125
6.8
(a) Glazing Pvt. Ltd
Calculation of profit before interest and tax
$000
Operating profit (balancing figure) 618
Interest ($140 000 × 10%) (14)
Taxation (112)
Profit after tax 492
(b) Glazing Pvt. Ltd

Cash flow statement for the year ended 30 September20X5
$000 $000
Amortisation of goodwill ($160 000  $120 000) 40
Depreciation on freehold premises ($400 000  $400 000 + $50 000) 50
Depreciation on plant and equipment ($245 000  $230 000) 15
Depreciation on motor vehicles [$155 000  ($165 000  $45 000)] 35
Profit on sale of motor vehicles [$17 000  ($60 000  $45 000)] (2)
Debentures interest ($14 000 + $7 000  $8 000) (13)
Increase in other receivables (prepayments) ($20 000  $15 000) (5)
Increase in Trade payables ($335 000  $320 000) 15 (58)
Payments to acquire Plant and equipment ($725 000  $670 000) (55)
Payments to acquire motor vehicles [$505 000  ($485 000  $60 000)] (80)
Receipts from sale of motor vehicles 17
Dividends paid during year ($114 000 + $48 000) (162)
Receipts from issue of shares (200 000 shares  $1.00  150%) 300
Payment of debentures ($620 000  $140 000) (480)
Net cash flow from financing activities (342)
6.10
Malcolm Trading Co
Balance Sheet as at 30 June 20X4
Freehold premises ($2 000 000+$200 000); ($300 000$300 000) 2 200 --- 2 200
Plant and Equipment ($590 000 + $55 000) ($280 000 + $25 000) 645 305 340
Vehicles (485 000+65 00045 000); (165 000+15 00025 000) 505 155 350
3 350 460 2 890
Current assets
Inventory ($290 000 + $240 000) 530
Trade receivables ($215 000 + $165 000) 380
Other receivables (prepayments) ($15 000  $5 000) 10
Bank 410
1 330
Less Current Liabilities
Trade payables ($176 000 + $8 000) 184
Taxation 162
Interest payable ($20 000 + $8 000  $18 000) 10 (356) 974
3 864
8% debentures ($200 000 + $50 000) (250)
3 614
Equity
Equity share capital [$2 000 000 + (300 000 shares  $1.0)] 2 300
Share premium account [$100 000 + (300 000 shares  $0.50)] 250
Revaluation Reserves (2 200 000  $200 000 + $300 000) 500
Retained profits 564 3 614
CHAPTER 7
7.2
Income statement, balance sheet, a statement of changes in equity, a statement of cash flows, a statement of accounting
policies and explanatory notes, a balance sheet at the beginning of the earliest comparative period.
7.4
(i) Examples of cost of conversion may include direct labour, other direct expenses, and production overheads.
(ii) Abnormal losses, storage costs (unless essential to the production process), general administrative overheads
unrelated to production, selling costs etc.
(iii) The valuation of work in progress and finished goods includes not only their raw or direct material content, but also
includes conversion costs.
7.6
Cash is defined as cash on hand and demand deposits including bank overdrafts whereas Cash equivalents are defined as short
term, highly liquid investments that can easily be converted into cash within three months from the date of deposit.
7.8
(i) The accounting policies are defined as the specific principles, bases, conventions, rules and practices which are
applied by a business in preparing and presenting financial statements.
(ii) Accounting basics include the methods developed for applying the accounting principles in the preparation of the
financial statements. They are intended to reduce subjectivity by identifying and applying acceptable accounting
methods.
(iii) A company must correct material errors that occurred in previous accounting periods by restating and comparing the
incorrect information along with the correct information.
7.10
Adjusting Events Non-Adjusting Events
(i) ✓
(ii) ✓
(iii) ✓
(iv) ✓
(v) ✓
(vi) ✓
(vii) ✓
(viii) ✓
(ix) ✓
(x) ✓
7.12
(i) Straight line method
(ii) Tangible non-current assets shall initially be measured at cost. Afterwards, IAS 16 permits to value these assets either
at cost less accumulated depreciation and any accumulated impairment losses or at revalued amount.
(iii) Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s
length transaction.
(iv) $328 900 ($310 000 + $8 000 + $6 000 + $4 200)
7.14
(i) The recoverable amount is the higher of fair value less costs to sell (any costs that would be incurred were it to be
sold) and its present value in use.
(ii) Value in use is the present value of the future cash flows obtainable as a result of an asset’s continued use, including
cash from its ultimate disposal.
(iii) Impairment loss is the amount by which the carrying amount (cost less accumulated depreciation) of an asset exceeds
its recoverable amount.’ The impairment loss is shown as an expense in the income statement.
(iv) Internal causes of impairment may include obsolescence or physical damage, asset is part of a restructuring or held
for disposal, worse economic performance than expected etc.
(v) $21 000 (higher of fair value and value in use) but is below the book value of $22 500 [$30 000  ($30 000 × 25%)].
(vi) asset fair value less costs to sell value in use Recoverable value (higher of fair value and
value in use)
$ $ $
1 30 200 29 700 30 200
2 29 200 31 400 31 400
3 24 300 23 400 24 300
(vii) $83 100 ($30 200 + $28 600 + $24 300)
(viii) $2 900 [($32 400 + $28 600 + $25 000)  $83 100 (vi part)]
7.16
(i) A legal obligation is an obligation that could be contractual or arise due to legislation or result from other operation of
law. A constructive obligation arises from the entity’s actions, through which it has indicated to others that it will
accept certain responsibilities, and as a result has created a valid expectation that it will discharge those
responsibilities.
(ii) A contingent asset is a possible asset that arises from past events and its confirmation is dependent on the occurrence
of one or more uncertain future events.
(iii) A provision is recognized when there is a probable future obligation to pay an amount which can be reliably
estimated.
(iv) At 31 December 20X6 it would not be accounted for anywhere in the books as no transfer of economic resources is
probable to settle the obligation.
At 31 December 20X7 a provision should be recognised as it is probable that a transfer of economic resources will be
required to settle the obligation.
(v) The unpaid legal fees of $ 1 500 will be treated as a current liability and should have already been included in the
accounts. The provision should be made for the claim of $25 000 as the transfer of economic resources is probable
unless it is remote.
7.18
(i) Non-purchased goodwill is not accounted for in the accounts of a company.
(ii) As the software product has become obsolete so it implies no future economic benefits for the company. This amount
therefore should be accounted for as an expenditure.
(iii) An intangible asset arising from development (or from the development phase of an internal project) shall be
recognised if the business has resources available to complete a separately identifiable and measurable project.
Moreover the project must be technically feasible and commercially viable. If the above criteria are not met,
development expenditure must be written off to the income statement as it is incurred.
(iv) Research Development
1 ✓
2 ✓
3 ✓
4 ✓
CHAPTER 9
9.2
(a) Income Statement (extract)
$000 $000
$200 000×12%
Operating profit ( ) 216
11.11%
Interest ($200 000  12%) (24)
Profit before tax 192
Tax (21)
Statement of Changes in Equity (extract)

For the year ending 31 December 20X4
$000
Last year retained profits 54
Profit after tax 171
Transfer to general reserves (balancing figure) (36)
Preference dividends ($300 000  10%) (30)
Ordinary dividends ($141 000  1.9) (74)
Retained profits c/f 85
(b) (i) Income Gearing 31 December 20X4 31 December 20X5

Fixed interest charges $24 000
× 100 8% (as given) × 100 = 8.63%
Operating profits $278 000
(ii) Dividend cover

Profit after tax and preference dividends $195 000
Ordinary dividend
1.9 times (as given) = 1.41 times
$138 000
(iii) Earnings per share

Profit after tax and preference dividends $141 000 $195 000
Total number of ordinary shares = $0.10 = $0.13
(700 000/0.5) ($750 000/0.5)
(iv) Price/Earnings ratio

Market price per share $0.65 $0.75
Earnings per share =6.5 times = 5.77 times
$0.10 $0.13
(v) Dividends per share

Total equity dividends $74 000 $138 000
Total number of ordinary shares = $0.053 = $0.092
(700 000/0.5) ($750 000/0.5)
(vi) Dividend yield

Dividend per share $0.053 $0.092
× 100 × 100 = 8.13% × 100 = 12.27%
Market price per share $0.65 $0.75
(c) The decrease in income gearing ratio from 11.11% to 8.63% will enhance the ability of the company to handle its fixed
interest charges and to pay ordinary dividend. Furthermore lower income gearing also assures that firm is a going concern.
The dividend cover ratio reveals that company’s ability to pay dividend to ordinary shareholders has reduced from 1.9
times to 1.41 times which indicates that further reduction in profits may put the ordinary dividend at risk. This may
negatively affect market price of the company’s ordinary shares.
Earnings per share has improved from $0.10 to $0.13 per share. The improvement in the ratio may result in increase in
both dividend and market price per ordinary share.
Price earnings ratio has marginally deteriorated from 6.50 times to 5.77 times. This indicates that stock market may have
less confidence in the company or the company’s earnings may have been overstated (poor quality of earnings).
Furthermore the decrease in the price earnings ratio also reveals that the less you have to pay for the shares, relative to
what you can expect to earn from it.
Dividend per share has increased from $0.053 to $0.092. This growing dividend per share can be a sign that the company's
management believes that the growth can be sustained. High dividend per share may also result in decrease in dividend
cover rate and increase in dividend yield.
Dividend yield expresses the dividend as a percentage of the market price of a share. Increase in dividend yield from 8.13%
to 12.27% signifies improvement in return on each $ invested in equity shares of the company. This increase may also
indicate that company’s shares are under-priced or future dividends may not be as high as previous ones.
CHAPTER 10
10.2
(a) Calculation of profit (loss) share on joint venture
$ $
Sales revenue of auto spare parts 11 500
Expenses by Berry
Purchase cost 7 600
Delivery expenses 550
Expenses by Ferry
Commission: Ferry ($11 500 × 6%) 690
Other expenses 660 (9 500)
Profit on sales 2 000
Profit share: Berry ($2 000 × 3/5) 1 200
Ferry ($2 000 × 2/5) 800 2 000
(b) Calculation of amount to be paid by Ferry to Berry in final settlement

$ $
Sales revenue of auto spare parts 11 500
Less Commission ($11 500 × 6%) 690
Expenses by Ferry 660
Profit share of Ferry ($2 000 × 2/5) 800 (2 150)
Amount to be paid by Ferry in final settlement 9 350
10.4
Memorandum Joint Venture account
$000 $000
Bank – Material 600 Bank – Revenue 1 121
Bank – Labour and other expenses 320
Commission [($600 000 + $320 000) × 5%] 46
Profits : Bradley ($155 × 4/5) 124
Stephan ($155 × 1/5) 31 155 ____
1 121 1 121
10.6
(a) Memorandum Joint Venture account
$ $
Bank – Purchases (Robins) 5 400 Bank –sales 10 800
Bank – purchases (Smith) 2 300
Bank – other expenses (Robins) 1 160
Bank – other expenses (Smith) 400
Commission – Smith ($10 800 × 5%) 540
Profits : Robins ($1 000 × 1/2) 500
Smith ($1 000 × 1/2) 500 1 000 ____
10 800 10 800
(b) Books of Robins

Joint Venture with Smith Account
$ $
Bank – Purchases 5 400 Balance c/d 7 060
Bank – other expenses 1 160
Profit share 500 ____
7 060 7 060
Balance b/d 7 060 Bank (receipt from Smith) 7 060
(c) Books of Smith

Joint Venture with Robins Account
$ $
Bank – Purchases 2 300 Bank – sales 10 800
Bank – other expenses 400
Commission – Smith ($10 800 × 5%) 540
Profit share 500
Balance c/d 7 060 _____
10 800 10 800
Bank (amount paid to Robins) 7 060 Balance b/d 7 060
10.8
Expenses by Henry $ $
Interest 400 Bank - Sales 11 700
Expenses by Shaun Drawings –Henry($10 000×10%×3/5) 600
Bank – Purchases 8 990 Drawings –Shaun($10 000×10%×2/5) 400
Bank – Transportation charges 190
Bank – Insurance 184
Bank – Wages 126
Bank – Other expenses 110
Commission ($11 700 × 5%) 585
Profits : Henry ($2 115 × 2/3) 1 410
Shaun ($2 115 × 1/3) 705 2 115 ____
12 700 12 700
(b) Books of Henry

Joint Venture with Shaun Account
$ $
Bank – Advance 12 000 Drawings ($10 000×10%×3/5) 600
Interest 400 Balance c/d 13 210
Profit share 1 410 _____
13 810 13 810
Balance b/d 13 210 Bank (receipt from Shaun) 13 210
(c) Books of Shaun

Joint Venture with Henry Account
$ $
Bank – Purchases 8990 Bank – Advance 12 000
Bank – Transportation charges 190 Bank - Sales 11 700
Bank – Insurance 184 Drawings ($10 000×10%×2/5) 400
Bank – Wages 126
Bank – Other expenses 110
Commission ($11 700 × 5%) 585
Profit share 705
Balance c/d 13 210 _____
24 100 24 100
Bank (amount paid to Henry) 13 210 Balance b/d 13 210
10.10
$ $
ABC Electronics – Purchases 12 200 ABC Electronics – Return out 300
ABC Electronics – Interest (@5%) 610 ABC Electronics - Dis. received 200
Bank – Packing charges 340 M Bevan- sales 17 600
Bank – selling & marketing exp 290
Commission ($17 600 × 5%) 880
Discount allowed 130
Profits : Taylor ($3 190 × 4/5) 2 552
Turner ($3 190 × 1/5) 638 3 190 _____
18 100 18 100
(b) Books of Taylor
Joint Venture with Turner Account
$ $
ABC Electronics – Purchases 12 200 ABC Electronics – (paid by Turner) 12 810
ABC Electronics – Interest ($12 200 × 5%) 610 Balance c/d 3 352
Bank – Packing charges 340
Profit share 2 552 _____
16 162 16 162
Balance b/d 3 352 Bank (receipt from Turner) 3 352
(c) Books of Turner

Joint Venture with Taylor Account
$ $
ABC Electronics – Purchases 12 810 ABC Electronics – Return out 300
Bank – selling & marketing exp 290 ABC Electronics - Dis. received 200
Commission ($17 600 × 5%) 880 M Bevan- sales 17 600
Discount allowed 130
Profit share 638
Balance c/d 3 352 _____
18 100 18 100
Bank (amount paid to Taylor) 3 352 Balance b/d 3 352
Note:
Bad debts of $200 were not accounted for in memorandum joint venture account as would be borne by Turner as he is
receiving 5% del-credere commission.
CHAPTER 11
11.2
Value of closing inventory = (4 000 units × $50) + [($5 000 + $3 500) × 10%]
= $20 850
11.4
Calculation of value of the Closing Inventory
$ $
Cost of purchase (1 000 units @ $50) 50 000
Additional costs
Packaging ($2 900 × 25%) 725
Insurance ($2 000 × 25%) 500
Carriage ($1 600 × 25%) 400 1 625
Value of unsold inventory 51 625
11.6
Value of goods lost in transit = (400 units × $50) + ($5 000 × 10%)
= $20 500
11.8
Value of sales = [(800 boxes × $50) ÷ 80% × 4/5] × 110%
= $44 000
11.10
Commission = [(800 × $62.50) × 4/5 × 4%] + [(800 × $62.5) × 4/5 × 10% × 8%]
= $1 920
11.12
Consignment Account
$ $
Goods on Consignment Account 150 000 Harrison A/c-sales ($150 000 × 80% ÷ 80%) 150 000
Bank A/c (consignor’s expenses) 8 000 Balance c/d ($150 000 + $8 000) × 20% 31 600
Harrison A/c (consignee’s expenses) 4 500
Income statement(profit on consignment) 19 100 _____
181 600 181 600
Balance b/d 31 600
11.14
Consignment Account
$ $
Balance b/f (opening inventory) 44 000 Suffayan A/c (sales) 502 000
Goods on Consignment Account 520 000 Balance c/d (closing inventory) 156 000
Bank A/c (Muaz’ expenses) 19 500
Suffayan A/c (expenses) 17 400
Suffayan A/c (commission) 25 100
Income statement(profit on consignment) 32 000 _____
658 000 658 000
Balance b/d 156 000
11.16
Consignment Account
$ $
Goods on Consignment Account 180 000 Consignee A/c (sales by consignee) 200 000
Neil A/c – commission ($4 000 + $2 400) 6 400 Balance c/d (closing inventory) 32 600
Income statement (profit on consignment) 46 200 _____
232 600 232 600
Balance b/d 32 600
Neil’s Account
$ $
Consignment A/c – credit sales 200 000 Consignment A/c – ordinary commission 4 000
Consignment A/c – Del Credere commission 2 400
Bank (cash receipts) 170 000
_ __ Balance c/d (amount due from Neil) 23 600
200 000 200 000
Balance b/d 23 600
11.18
Books of Williams Consignment Account
$ $
Goods on Consignment Account (200 × $250) 50 000 George A/c – sales (150 × $350) 52 500
Bank A/c – Expenses 3 000 Abnormal loss [(50000+3000) × 15/200] 3 975
George A/c – expenses ($800 + $600) 1 400 Balance c/d [($50 000 + 3 000) × 35/200] 9 275
George A/c – commission ($52 500 × 4%) 2 100
Income statement (profit on consignment) 9 250 ______
65 750 65 750
Balance b/d 9 275
George’s Account
$ $
Consignment A/c – sales (150 × $350) 52 500 Consignment A/c – Expenses 1 400
Consignment A/c–commission (50000×4%) 2 100
_ __ Balance c/d (amount due from George) 11 000
52 500 52 500
Balance b/d 11 100
Abnormal Loss Account

$ $
Consignment A/c 3 975 Bank (insurance claim) 3 000
____ Income statement (loss not recovered) 975
3 975 3 975
Books of George William’s Account

$ $
Bank A/c – Expenses 1 400 Accounts receivables – sales (150 × $350) 52 500
Bank – commission (50000×4%) 2 100
Balance c/d (amount due to Williams) 11 000 _ __
52 500 52 500
Balance b/d 11 100
11.20
(a) Consignment Account
$ $
Goods on Consignment A/c (800 × $25) 20 000 Vikram A/c – sales($27 585–$4 125) /92% 25 500
Bank A/c – (freight) 1 500 Balance c/d 4 125
Vikram A/c – landing and handling charges 500
Vikram A/c – advertising 310
Vikram A/c – commission ($25 500 × 8%) 2 040
Income statement (profit on consignment) 5 275 _____
29 625 29 625
Balance b/d 4 125
(b) Vikram’s Account

$ $
Consignment A/c – sales 25 500 Consignment A/c – landing and handling 500
Consignment A/c– advertising 310
Consignment A/c–commission 2 040
Bank ($25 500 × 70%) 17 850
_ __ Balance c/d (amount due from Vikram) 4 800
25 500 25 500
Balance b/d 4 800
Total cost of bags on consignment
(c) Per bag cost =
Number of bags consigned
$20 000+$1 500+$500
=
800 Bags
= $27.5 per bag
Value of closing inventory
Bags in closing inventory =
Per unit cost
$4 125
=
$27.50
= 150 bags
Total Sales Value

(d) Per bag sales value =
Number of units sold
25 500
= (800 − 150) bags
= $39.23
11.22
Consignment Account
$ $
Goods on Consignment Account (75× $400) 30 000 Abbot A/c – Sales 20 000
Bank A/c – expenses ($300 + $225 + $150) 675 Goods on Consignment A/c (30 000 × 25/125) 6 000
Abbot A/c – expenses 850 Balance c/d [($30 000 + $675) × 25/75] 10 225
Abbot A/c – commission ($20 000 × 8%) 1 600
Inventory reserves [($30 000 × 25/75 )× 25/125] 2 000
Income statement (profit on consignment) 1 100 ______
36 225 36 225
Balance b/d 10 225
Abbot’s Account
$ $
Consignment A/c – sales 20 000 Consignment A/c – Expenses 850
Consignment A/c–commission 1 600
______ Balance c/d (amount due from Abbot) 350
20 000 20 000
Balance b/d 350
CHAPTER 12
12.2
Mann Everton
Manufacturing Account for the year ended 31 December 20X7
Raw Materials Cost $ $ $
Opening Inventory 18 700
Purchases of Raw material 144 800
Add Carriage on Raw Materials 2 800 147 600
166 300
Closing inventory (20 800)
Cost of materials consumed 145 500
Direct wages ($105 000  80%) 84 000
Factory Direct Expenses 11 200
Prime Cost 240 700
Factory Overheads
Indirect wages ($105 000  20%) 21 000
Rent and rates ($7 900  $400)  80% 6 000
Heating and lighting ($5 400 + $600)  80% 4 800
Machines repairs ($6 300  $200) 6 100
Miscellaneous factory overheads 12 100
Depreciation of Factory Equipment 12 400 62 400
Total Manufacturing Costs 303 100
Add Work in progress- opening 12 900
316 000
Less Work in progress - closing (15 300)
Cost of Production 300 700
(b) Income Statement
$ $
Sales 438 490
Cost of Sales
Opening Inventory of finished goods 23 600
Add Cost of Production (“a” part) 300 700
Purchases of finished goods 34 000 334 700
358 300
Closing inventory of finished goods ($27 300  100%/130%) (21 000) (337 300)
Gross Profit 101 190
Expenses
Rent and rates ($7 900  $400)  20% 1 500
Heating and lighting ($5 400 + $600)  20% 1 200
Carriage on Sales 3 800
Depreciation of Motor vehicle 1 500
Selling and distribution expenses 8 900
Administration expenses 11 100 (28 000)
Net Profit 73 190
12.4
(a) Manufacturing Account
$000 $000
Purchase of raw material 850
Less Closing Inventory of Raw Material (22) 828
Direct wages 80
Prime Cost 908
Factory overheads 155
Total Manufacturing Cost 1 063
Less Work in process – Closing inventory (23)
Cost of Production 1 040
Transfer value of goods produced ($1 040 000  100%/80%) 1 300
Factory Profit 260
$000 $000
Sales 1 800
Cost of Sales
Market value of production 1 300
Closing inventory: Finished goods (60) (1 240)
Gross Profit 560
Selling and administration expenses (173)
Net Profit on trading 387
Add Factory Profit 260
Less Provision for unrealised profit ($60 000  20%) (12) 248
Overall Net Profit 635
(c) Balance Sheet as at 31 December 20X2
$000 $000 $000
Non-Current Assets 1 185
Current Assets
Closing inventory Raw materials 22
Work in Process 23
Finished goods 60
Less Provision for unrealised profit ($60 000  20%) (12) 48
Bank 260
353
Current Liabilities
Trade Payables (23) 330
1 515
Financed By
Capital 880
Add Net Profit 635 1 515
12.6
(a) Manufacturing Account
For the half year ended 31 May 20X7
Cost of Raw Material $ $
Purchases 44 000
Add Carriage in ($1 000  80%) 800
44 800
Less Increase in raw material inventory (1 000) 43 800
Direct labour cost ($65 000 − $15 000) 50 000
License fee paid 9 000
Prime Cost 102 800
Factory overheads
Indirect wages 15 000
Indirect material cost ($4 000 + $8 000 − $3 000) 9 000
Repairs and insurance ($8 500 − $500) 3/4 6 000
Rent and rates ($8 000 + $1 000)  2/3 6 000
Miscellaneous factory overheads 1 700
Depreciation on machine ($3 000  1/2) 1 500 39 200
Total Factory Cost 142 000
Add Decrease in work in progress 2 500
Cost of production 144 500
Factory profit (balancing figure) 25 500
Market value of production ($144 500  100/85) 170 000
(b) Trading Account

For the half year ended 31 May 20X7
$ $
Sales 240 000
Cost of sales
Opening inventory 8 000
Purchase of finished goods [$9 000 + ($1 000  20%)] 9 200
Market value of production 170 000
187 200
Closing inventory (9 000) (178 200)
Gross profit on trading 61 800
Add Factory profit 25 500
Increase in provision for unrealised profit [($9 000  15%) − $1 000] (350) 25 150
Overall Gross profit 86 950
(c) Balance Sheet (extract)

As at 31 May 20X7
Current Assets $ $
Inventories: Indirect materials 3 000
Finished goods 9 000
Less Provision for unrealised profit ($9 000  15%) (1 350) 7 650
CHAPTER 13
13.2
(a)
Cost Pool Activity rate Hand Bags School Bags
Activity $ Activity $
Equipment Set-ups $100 per set-up 700 70 000 500 50 000
Assembly and polishing $4 per labour hour 12 000 48 000 10 000 40 000
Quality inspection $20 per quality check 600 12 000 500 10 000
130 000 100 000
Estimated Overheads
(b) Overheads per unit =
Estimated Number of Units
$130 000
Hand Bags =
65 000 units
= $2.00 per unit
$100 000
School Bags =
80 000 units
= $1.25 per unit
(c) Total Overheads = Units of output × Per unit cost

Hand Bags = 6 000 units × $2.00
= $12 000
School Bags = 5 000 units × $1.25

= $6 250
13.4
Estimated Overheads
(a) Overhead absorption rate =
Estimated Direct Labour Hours
$50 000+$90 000+$60 000
=
5 000 labour hours
= $40 per direct labour hour
Estimated Equipment setup Costs

(b) Equipment set-up rate =
Estimated Equipment set ups
$50 000
=
100 Setups
= $500 per equipment set-up
Estimated Machining Costs

Machining cost per machine hour =
Estimated Machine Hours
$90 000
=
9 000 Machine Hours
= $10 per machine hour
Estimated Assembly Costs

Assembly cost per labour hour =
Estimated Labour Hours
$60 000
=
5 000 Labour Hours
= $12 per labour hour
(c) Statement to compare total overheads under both costing systems

Super Deluxe
Total costs under job order costing (3 000;2 000) lab hours @ 40 120 000 80 000
Total costs under ABC
Equipment set-up (60 × 500);(40 × 500) 30 000 20 000
Machining (5 000 × 10);(4 000 × 10) 50 000 40 000
Assembly (3 000 × 12);(2 000 × 12) 36 000 116 000 24 000 84 000
Difference in Total Costs 4 000 (4 000)
13.6
Activity Cost Pool Hierarchy Cost Driver
Painting Unit Level Activities Number of direct labour hours
Material Purchasing Batch-level Activities Number of purchase orders or number of batches
Product design & improvement Product Level Activities No of products, number of modifications
Delivery cost Customer Level Activities Number of sales orders
Utilities (Light & heat) Facility Level Activities Area in square meters
Inspection/quality control Unit or Batch Level Activities No of inspection hrs, No of units (batches)
Production control Product Level Activities Number of production process changes
Milling Unit Level Activities Number of machine hours
Machine maintenance Facility Level Activities Number of machine hours
Production scheduling Batch Level Activities Number of production orders
13.8
Calculation of Sales and Costs per unit
X Y
Cost Pool Activity rate
Activity $ Activity $
Direct Material Costs 21 500 23 560
Direct Labour Costs 17 460 18 200
Overheads (Workings)
Setup costs $50 per setup (90 × 50) 4 500 (75 × 50) 3 750
Assembly and painting $4.5 per direct labour hour (760 × 4.5) 3 420 (1 380 × 4.5) 6 210
Machining $7.60 per machine hour (1300 × 7.6) 9 880 (1650 × 7.6) 12 540
Total costs 56 760 64 260
÷ Total number of units ÷2 150 ÷4 080
Total cost per unit 26.40 15.75
Add Profit ($26.40 × 20%) ; ($15.75 × 20%) 5.28 3.15
Sales Value per unit 31.68 18.90
WORKINGS
Estimated Machine setup Costs
Set-up rate =
Estimated Number of setups
$60 000
=
1 200 Setups
= $50 per set-up
Estimated Assembly and painting costs

Assembly and painting rate =
Number of direct labour hours
$54 000
=
12 000 Labour hours
= $4.5 per direct labour hour

Machining rate =
$68 400
=
9 000 Machine Hours
= $7.60 per machine hour
13.10
Estimated Order processing Costs
(a) Order processing rate =
Estimated number of sales orders
$125 000
=
250 orderss
= $500 per sales order
Estimated Machine running Costs

Machine running per machine hour =
$600 000
=
20 000 Machine Hours
Estimated Inspection Costs

Inspection cost per inspection hour =
Estimated Inspection Hours
$75 000
=
5 000 Inspection Hours
= $15 per labour hour
(b) Statement to calculate total Costs and Sales Value under ABC
A B
$000 $000 $000 $000
Direct Material cost (15 000 × 22) ; (28 000 × $18) 330 504
Direct Labour cost (15 000 × 2 hrs @ 4) ; cost (28 000 × 4 hrs @ 3) 120 336
Overheads
Order processing ($500 per sales order) 80 45
Machine running costs ($30 per machine hour) 240 360
Product inspection ($15 per labour hour) 30 350 45 450
Total costs under ABC 800 1 290
Add Profit 200 323
Total Sales value ($800 000 ÷ 80%) ; ($1 290 000 ÷ 80%) 1 000 1 613
÷ Sales (units 000) 15 28
Sales price per unit 66.67 57.61
13.12
(a) Calculation of total overheads of each product by using Activity based costing
Total Overheads
Cost Pool Activity rate
Bull Sheep Crocodile
Material receiving $5 000 per purchase order (W 1) 575 000 300 000 125 000
Chemical Treatment $48 per direct labour hour (W 2) 163 200 144 000 292 800
Machining $45 per machine hour (W 3) 139 500 166 500 234 000
Distribution $1 600 per sales order (W 4) 78 400 102 400 19 20O
Total Overheads 956 100 712 900 671 000
(b) Statement to show difference in profits under conventional costing and ABC
Bull Sheep Crocodile Total
$(000) $(000) $(000) $(000)
Sales Revenue 2 700 2 100 3 200 8 000
Direct Material cost (1 000) (800) (850) (2 650)
Direct Labour cost (400) (300) (450) (1 150)
Overheads (956.1) (712.9) (671) (2 340)
Profit under ABC 343.9 287.1 1 229 1 860
Profit under absorption costing 320.0 110.0 1 430 1 860
Difference in profits ($) 23.9 177.1 (201.0) Nil
Estimated Material receiving Costs

(W 1) Material receiving rate =
Estimated Number of Purchase Orders
$1 000 000
=
200 purchase orders
= $5 000 per purchase order
Estimated Costs of Chemical Treatment

(W 2) Chemical treatment cost per hour =
Number of Direct labour Hours
$600 000
=
12 500 Labour Hours
= $48 per direct labour hour

(W 3) Machining costs per hour =
$540 000
=
12 000 Machine Hours
Estimated Distribution Costs

(W 4) Distribution cost per delivery =
Estimated Sales orders
$200 000
=
125 Sales orders
= $1 600 per sales order
13.14
(a)
David & Co. Langer Brothers.
Unit Level Activities $ $
Sales Returns (70 × $10) 700 (150 × $10) 1 500
Batch Level activities
Order processing (4 × $280) 1 120 (24 × $280) 6 720
Distribution cost (4 × $400) 1 600 (24 × $400) 9 600
Sales returns (2 × $120) 240 (5 × $120) 600
Facility Level activities
Finance Charges (788 800× 1%) 7 888 (936 000× 1%) 9 360
Sales Salary (1250 × 4 × $3) 15 000 (250 × 24 × $3) 18 000
Customer Level activities
Customer Visits (12 × $100) 1 200 (14 × $100) 1 400
Total customer support costs 27 748 47 180
(b)
David & Co. Langer Brothers.
$ $ $ $
Sales (1250 × 4 × $160) ; (250 × 24 × $160) 800 000 960 000
Sales Returns(70 × $160) ; (150 × $160) (11 200) 788 800 (24 000) 936 000
Cost of sales (591 600) (702 000)
Gross Profit (788 800× 25%); (936 000× 25%) 197 200 234 000
Sales support costs (27 748) (47 180)
Profit from each customer 169 452 186 820
CHAPTER 14
14.2
Actual material quantity × Actual material price $
4 200 kg × $3.80 15 960
Actual material quantity × Standard material price
4 200 kg × $4.00 16 800
Material price variance (favourable) 840
Actual material quantity × Standard material rate
4 200 kg × $4.00 16 800
Standard material quantity × Standard material rate
4 000 kg × $4.00 16 000
Material usage variance (adverse) 800
Actual labour hours × Actual labour rate
2 000 hours × $5.15 10 300
Actual labour hours × Standard labour rate
2 000 hours × $5.00 10 000
Labour rate variance (adverse) 300
2 000 hours × $5.00 10 000
Standard labour hours × Standard labour rate
2 200 hours × $5.00 11 000
Labour efficiency variance (favourable) 1 000
14.4
(a) Actual material quantity × Standard material rate $
5 840 × $5.20 30 368
(690 × 8.5) × $5.20 30 498
Material usage variance (favourable) 130
Actual material quantity × Actual material price
5 840 × $30 952
$5.30 ( ) 30 952
5 840
5 840 × $5.20 30 368
Material price variance (adverse) 584
Actual material quantity × Actual material price
5 840 × $30 952
$5.30 ( ) 30 952
5 840
(690 × 8.5) × $5.20 30 498
Total material variance (adverse) 454
(b) Actual labour hours × Standard labour rate $000
4 210 × $6.50 27 365
(690 × 6) × $6.50 26 910
Labour efficiency variance (adverse) 455
$27 786
4 210 × $6.60 ( ) 27 786
4 210
4 210 × $6.50 27 365
Labour rate variance (adverse) 421
$27 786
4 210 × $6.60 ( ) 27 786
4 210
(690 × 6) × $6.50 26 910
Total labour variance (adverse) 876
14.6
Actual sales volume × Actual price $
1 100 units × $8.5 9 350
Actual sales volume × Standard price
1 100 units × $8 8 800
Sales price variance (favourable) 550
1 100 units × $8 8 800
Budgeted sales volume × Standard price
1 200 units × $8 9 600
Sales volume variance (adverse) 800
14.8
(a) $
Material A: [35 800 liters × ($1.9  $2.0)] 3 580 Fav
Material B: [23 600 liters × ($3.2  $3.0)] 4 720 Ad
Material C: [16 200 liters × ($7.0  $7.0)] Nil
Direct materials price variance (adverse) 1 140
(b) Material A: [35 800 liters  (7 500 × 5 liters)] × $2.00 3 400 Fav
Material B: [23 600 liters  (7 500 × 3 liters)] × $3.00 3 300 Ad
Material C: [16 200 liters  (7 500 × 2 liters)] × $7.00 8 400 Ad
Direct materials usage variance (adverse) 8 300
(c) Actual labour hours × Actual labour rate $
18 000 hours × $7.00 126 000
3 400 hours $7.50 25 500
151 500
(18 000 + 3 400) hours × $7.00 149 800
Labour Rate Variance (adverse) 1 700
(d) Actual labour hours × Standard labour rate $
(18 000 + 3 400) hours × $7.00 149 800
(7 500 × 3) hours × $7.00 157 500
Labour Efficiency Variance (favourable) 7 700
(e) Actual sales volume × Actual price

7 500 units × $75 562 500
7 500 units × $80 600 000
Sales price variance (adverse) 37 500
(f) Actual sales volume × Standard price $
7 500 units × $80 600 000
6 000 units × $80 480 000
Sales volume variance (favourable) 120 000
14.10
(a) Statement to calculate profit for 2 400 units
For the quarter ended 31 March 20X6
$ $
Sales (2 400 units @ $30) 72 000
Costs Direct Materials (2 400 units × 3 200/2 000) liters @ $4.50 17 280
Direct Labour (2 400 units × 800/2 000) hours @ $7.50 7 200
Variable production overhead (2 400 units @ $3.20) 7 680
Fixed overhead 11 200 (43 360)
Profit 28 640
(b) Calculation of Variances

(i) Actual material quantity × Actual material price $
3 650 liters × $4.20 15 330
3 650 liters × $4.50 16 425
Material Price variance (favourable) 1 095
(ii) Actual material quantity × Standard material price

3 650 liters × $4.50 16 425
Standard material quantity × Standard material price
3 840 liters × $4.50 17 280
Material usage variance (favourable) 855
(iii) Actual labour hours × Actual labour rate

980 hours × $7.90 7 742
980 hours × $7.50 7 350
Labour Rate Variance (adverse) 392
(iv) Actual labour hours × Standard labour rate

980 hours × $7.50 7 350
960 hours × $7.50 7 200
Labour Efficiency Variance (adverse) 150
(v) Actual sales volume × Actual price
2 400 units × $28 67 200
2 400 units × $30 72 000
Sales price variance (adverse) 4 800
(vi) Actual sales volume × Standard price
2 400 units × $30 72 000
2 000 units × $30 60 000
Sales volume variance (favourable) 12 000
(vii) Flexible budget profit 28 640
Less Original budget profit 22 000
Quantity variance (favourable) 6 640
(c) Statement to reconcile original budgeted and actual profits

For the quarter ended 31 March 20X6
$ $ $
Budgeted profit for 2 000 units 22 000
Variances Favourable Adverse
Quantity variance 6 640
Sales price variance 4 800
Direct materials price 1 095
usage 855
Direct labour rate 392
efficiency 150
Variable overheads variance ($7 680  $7 158) 522
Fixed overheads variance ($11 500  $11 200) ____ 300
Totals 9 112 5 642 3 470
Actual profit for 2 400 units 25 470
14.12
Warrior and Co
Income statement (based on actual results)
$ $
Sales (3 000 units @ $62) W5 186 000
Variable Costs
Direct Materials [12 500 kilos (W 2) @ $4.62 (W 1)] 57 750
Direct Labour [6 210 labour hours (W 4) @ $5.90 (W 3)] 36 639
Variable overhead [(3 000 units @ $6.50)  $1 100] 18 400 (112 789)
Contribution 73 211
Fixed overheads ($18 600 + $700) (19 300)
Profit 53 911
WORKINGS
(W 1) Actual material quantity × Actual material price $
$57 750
12 500 × $4.62 ( ) 57 750
12 500
12 500 × $4.50 56 250
Material price variance (adverse) 1 500
(W 2) Actual material quantity × Standard material price

$56 250
12 500( ) × $4.50 56 250
$4.50
Standard material quantity × Standard material price
(3 000 × 4) × $4.50 54 000
Material usage variance (adverse) 2 250
(W 3) Actual labour hours × Actual labour rate

$36 639
6 210 hours × $5.90 ( ) 36 639
6 210
6 210 hours × $6.00 37 260
Labour Rate Variance (favourable) 621
(W 4) Actual labour hours × Standard labour rate
$37 260
6 210 hours ( ) × $6.00 37 260
$6.00
(3 000 × 2) × $6.00 36 000
Labour Efficiency Variance (adverse) 1 260
(W 5) Actual sales volume × Actual price

$186 000
3 000 units × $62 ( ) 186 000
3 000
3 000 units × $60 180 000
Sales price variance (favourable) 6 000
14.14
(i) Actual hours × Actual rate $

6 500 × 25 350
Standard hours × Standard rate
($24 000÷$4)× 1 350 27 000
6 750 ( ) × $4.00
1 200 units
Total variable overhead variance (favourable) 1 650
(ii) Actual hours × Actual rate
6 500 × 25 350
Actual hours × Standard rate
6 500 × $4.00 26 000
Variable OH expenditure variance (favourable) 650
(iii) Actual hours × Standard rate
6 500 × $4.00 26 000
Standard hours × Standard rate
($24 000÷$4)× 1 350 27 000
6 750 ( ) × $4.00
1 200 units
Variable OH efficiency variance (favourable) 1 000
14.16
(a) Actual hours × Actual rate per hour $

3 780 × 3 720
Flexed budgeted hours × Standard rate per hour
3 960 (2 640 × 1.5) × $1.00 3 960
Total Fixed overhead variance (favourable) 240
(b) Actual hours × Actual rate per hour
3 780 × 3 720
Original budgeted hours × Standard rate per hour
3 600 (2 400 × 1.5) × $1.00 3 600
Fixed overhead expenditure variance (adverse) 120
(c) Flexed budgeted hours × Standard rate per hour
3 960 (2 640 × 1.5) × $1.00 3 960
3 600 (2 400 × 1.5) × $1.00 3 600
Fixed overhead volume variance (favourable) 360
(g) Actual hours × Standard rate per hour
3 780 × $1.00 3 780
3 960 (2 640 × 1.5) × $1.00 3 960
Fixed overhead efficiency variance (favourable) 180
(h) Actual hours × Standard rate per hour

3 780 × $1.00 3 780
3 600 (2 400 × 1.5) × $1.00 3 600
Fixed overhead capacity variance (favourable) 180
14.18
(a) Actual hours × Actual rate $

120 000 × 550 000
Flexed budgeted hours × Standard rate
100 000 × 23 000 $500 000 575 000
115 000 ( ) × $5.0 ( )
20 000 units 100 000 hours
Total variable overhead variance (fav) 25 000
(b) Actual hours × Actual rate $
120 000 × 550 000
Actual hours × Standard rate
$500 000 600 000
120 000 × $5.0 ( )
100 000 hours
Variable overhead expenditure variance (fav) 50 000
(c) Actual hours × Standard rate
$500 000 600 000
120 000 × $5.0 ( )
100 000 hours
Flexed budgeted hours × Standard rate
100 000 × 23 000 $500 000 575 000
115 000 ( ) × $5.0 ( )
20 000 units 100 000 hours
Variable overhead efficiency variance (adv) 25 000
(d) Actual hours × Actual rate per hour $
120 000 × 340 000
100 000 × 23 000 $300 000 345 000
115 000 ( ) × $3.0 ( )
20 000 units 100 000 hours
Total Fixed overhead variance (favourable) 5 000
(e) Actual hours × Actual rate per hour
120 000 × 340 000
$300 000 300 000
100 000 × $3.0 ( )
100 000 hours
Fixed overhead expenditure variance (adverse) 40 000
(f) Flexed budgeted hours × Standard rate per hour
100 000 × 23 000 $300 000 345 000
115 000 ( ) × $3.0 ( )
20 000 units 100 000 hours
$300 000 300 000
100 000 × $3.0 ( )
100 000 hours
Fixed overhead volume variance (favourable) 45 000
(g) Actual hours × Standard rate per hour
120 000 × $300 000 360 000
$3.0 ( )
100 000 hours
100 000 × 23 000 × $300 000 345 000
115 000 ( ) $3.0 ( )
20 000 units 100 000 hours
Fixed overhead efficiency variance (adverse) 15 000
(h) Actual hours × Standard rate per hour

120 000 × $300 000 360 000
$3.0 ( )
100 000 hours
100 000 × $300 000 300 000
$3.0 ( )
100 000 hours
Fixed overhead capacity variance (favourable) 60 000
CHAPTER 15
15.2
Cash budget
For the four months ending 31 October 20X3
July August September October
Receipts $ $ $ $
Sales (current month sales × 25%) 2 000 2 900 4 100 4 500
(two months’ earlier sales × 75%) 6 000 8 700
Capital 25 000
Bank loan ______ 15 000 _____ _____
Total receipts (a) 27 000 17 900 10 100 13 200
Payments
Cash purchases (current month purchases × 60%) 7 200 6 300 7 500 7 800
Purchases (last month purchases × 40%) 4 800 4 200 5 000
Furniture and equipment 9 000 1 500
Cash Drawings 2 000 2 000 2 000
Loan interest ($15 000 × 8% × 3/12) 300
Monthly cash expenses 4 000 4 000 4 000 4 000
Net payments (b) 20 200 17 100 18 000 20 300
Net receipts/ (payments) (a  b) 6 800 800 (7 900) (7 100)
Bank balance at start - 6 800 7 600 (300)
Bank balance at end 6 800 7 600 (300) (7 400)
15.4
Cash budget
For the four months ending 31 October 20X8
July August September October
Receipts $ $ $ $
Sales (current month units sold × $40 × 35%) 19 600 18 200 21 000 25 200
(last month units sold × $40 × 60%) 28 800 33 600 31 200 36 000
(two month earlier units sold × $40 × 5%) 2 200 2 400 2 800 2 600
Total receipts 50 600 54 200 55 000 63 800
Payments
Direct material [two months earlier purchases×$14] 16 800 19 600 18 200 21 000
Direct labour [current month production (W. 1) × $7] 9 100 10 12 600 11 200
500
Direct production expenses [last month production×$2] 2 800 2 600 3 000 3 600
Variable selling costs [last month units sold × $5] 6 000 7 000 6 500 7 500
Purchase of Non-Current Assets ($18 000 × 1/2) 9 000
Fixed costs ($7 500  $2 500) 5 000 5 000 5 000 5 000
Total payments 40 400 43 300 43 200 58 700
Net receipts (payments) 10 200 10 900 11 800 5 100
Bank balance at start 14 500 24 700 35 600 47 400
Bank balance at end 24 700 35 600 47 400 52 500
WORKINGS Months May June July August September October November
Units of sales 1 100 1 200 1 400 1 300 1 500 1 800 1 600
Units of production 1 200 1 400 1 300 1 500 1 800 1 600
Units of purchases 1 200 1 400 1 300 1 500 1 800 1 600
15.6
(a) David and Co.
Cash budget
For the three months ending 30September 20X3
July August September
Receipts $ $ $
Sales (current month sales × 10%) 22 500 23 400 23 200
(last month sales × 90% × 50% × 96%) 92 880 97 200 101 088
(two months earlier sales × 90% × 50%) 94 500 96 750 101 250
Dividends _____ 3 000 ______
Total receipts 209 880 220 350 225 538
Payments
Purchases (last month purchases × 50% × 98%) 82 688 85 995 85 260
(two months earlier purchases × 50%) 80 625 84 375 87 750
Purchase of machine 3 000
Wages and salaries 20 000 20 000 20 000
Bonus (last month sales  $225 000) × 5%   450
Other cash expenses (W 2) 6 000 7 200 7 970
Overdraft interest ($5 200 × 1%) 52  
Total payments 189 365 197 570 204 430
Net receipts (payments) 20 515 22 780 21 108
Bank balance at start (5 200) 15 315 38 095
Bank balance at end 15 315 38 095 59 203
(b) Balance Sheet (Extract) to show net Current Assets
AS at 30 September 20X3
Current Assets $ $ $
Inventory (September purchases) 178 500
Accounts receivables [(September sales×90%)+(August sales×90%×50%] 314 100
Less Provision for discounts allowed (September sales90%×50%×4%) (4 176) 309 924
Bank balance (as per cash budget) 59 203 547 627
Current Liabilities
Accounts payables [(September purchases) + (August purchases × 50%] 265 500
Bonus payable [($232 000  $225 000)  5%] 350
Payables for machines ($18 000  $3 000) 15 000
Accrued expenses 6 000 (286 850)
Net Current Assets 260 777
WORKINGS
(W 1) Sales ($) Purchases ($)
May 210 000 161 250
June 215 000 168 750
July 225 000 175 500
August 234 000 174 000
September 232 000 178 500
October 238 000
(W 2) July ($) August ($) September ($)
Accrued expenses at start 4 000 5 000 5 500
Add Cash expenses incurred during the month 7 000 7 700 8 470
Less Accrued expenses at end 5 000 5 500 6 000
Expense paid during the month 6 000 7 200 7 970
15.8
a) Exe Limited
Cash budget For the three months ending 30 June 20X4
April May June
Receipts $000 $000 $000
Sales (current month sales × 1/2 × 95%) 100 114 119
(two months’ earlier credit sales × 1/2) 110 115 105
Total receipts 210 229 224
Payments
Materials (last month’s purchases) 168 192 200
Purchase of machine 5 5
Wages: current month ($25 000 × 80%); ($30 000 × 80%) 20 20 24
last month ($25 000 × 20%) 5 5 5
Rent 8 8 8
Other overheads 12 12 12
Total payments 213 242 254
Net receipts (payments) (3) (13) (30)
Bank balance at start 122 119 106
Bank balance at end 119 106 76
For the three months ended 30 June 20X4
$000 $000
Sales ($210 000 + $240 000 + $250 000) 700
Cost of Sales
Opening Inventory 168
Purchases ($192 000 + $200 000 + $224 000) 616
784
Closing inventory (224) 560
Gross Profit 140
Expenses
Discounts allowed[($210 000+$240 000+$250 000)×1/2×5%] 17
Wages ($25 000 + $25 000 + $30 000) 80
Rent ($8 000 × 3) 24
Other expenses ($12 000 × 3) 36
Depreciation [($720 000+$20 000)$180 000]×20% ×3/12 28 (185)
Net Loss (45)
(c) Balance Sheet
As at 30 June 20X4
Non-Current Assets ($720 000 + $20 000) 740
Provision for depreciation ($180 000 + $28 000) (208) 532
Current Assets
Inventory 224
Trade receivables [($240 000 + $250 000) × 1/2 )] 245
Balance at bank 76 545
Current Liabilities
Trade payables 224
Payables for machine [$20 000  ($5 000 + $5 000)] 10
Other payables [($30 000 × 20%) + $12 000] 18 (252) 293
825
Capital and Reserves
$1 Ordinary shares 750
Un-appropriated profit ($120 000  $45 000) 75 825
WORKINGS
(W.1) MONTH SALES ($) PURCHASES ($)
January - 220 000 × 4/5= 176 000
February 220 000 230 000 × 4/5= 184 000
March 230 000 210 000 × 4/5= 168 000
April 210 000 240 000 × 4/5= 192 000
May 240 000 250 000 × 4/5= 200 000
June 250 000 280 000 × 4/5= 224 000
July 280 000 -
15.10
Cash budget
For the four months ending 30 April 20X4
January February March April
Receipts $ $ $ $
Sales (current month sales × 30% × 95%) 23 085 24 795 26 505 25 650
(last month sales × 70% × 80% × 98%) 41 160 44 453 47 746 51 038
(two month earlier sales × 70% ×20%) 10 080 10 500 11 340 12 180
Issue of ordinary shares _____ 33 000 _____ _____
Total receipts 74 325 112 748 85 591 88 868
Payments
Purchases [last month purchases] 58 000 62 000 60 000 58 000
Purchase of Non-Current Assets ($30 000 × 1/2) 15 000 15 000
Selling expenses : Current month sales × 15% × 80% 9 720 10 440 11 160 10 800
Las month sales × 15% × 20% 2 250 2 430 2 610 2 790
Rent 3 000
Ordinary dividend _____ _____ 8 000 _____
Total payments 84 970 77 870 96 770 71 590
Net receipts (payments) (10 645) 34 878 (11 179) 17 278
Bank balance at start 8 500 (2 145) 32 733 21 554
Bank balance at end (2 145) 32 733 21 554 38 832
Purchases budget
For the four months ending 30 April 20X4
January February March April
$ $ $ $
Expected sales at cost price (Sales × 2/3) 54 000 58 000 62 000 60 000
Add Desired level of ending inventory (balancing figure) 52 000 54 000 50 000 46 000
Less Desired level of beginning inventory 44 000 52 000 54 000 50 000
Expected purchases 62 000 60 000 58 000 56 000
CHAPTER 16
16.2
$120 000
Payback Period =
$45 000
= 2.67 years
16.4
Year Cash Flows ($) Net Cash Flow ($)
0 (80 000) (80 000)
1 34 000 (46 000)
2 28 000 (18 000)
3 24 000 6 000
4 17 000 23 000
$18 000
Payback Period = 2 years + ( 365 days)
$24 000
= 2 years and 274 days
16.6
Calculation of net present value (NPV)
Years * Cash Flows ($) Discounted Value of $1 @12% Discounted Cash flows @12% ($)
0 (80 000) 1.000 (80 000)
1 34 000 0.893 30 362
2 28 000 0.797 22 316
3 24 000 0.712 17 088
4 17 000 0.636 10 812
Net Present Value @12% 578
16.8
(a) Calculation of Payback period
Cash Flows ($) Cumulative Cash flows ($)
Years
Project A Project B Project A Project B
0 (40 000) (40 000) (40 000) (40 000)
1 15 000  (25 000) (40 000)
2 15 000  (10 000) (40 000)
3 15 000  5 000 (40 000)
4 15 000 70 000 20 000 30 000
Payback period
$𝟏𝟎 𝟎𝟎𝟎
Project A = 2 years + (  𝟑𝟔𝟓 𝐝𝐚𝐲𝐬)
$𝟏𝟓 𝟎𝟎𝟎
= 2 years and 244 days approximately
Project B = 4 years
(b) Calculation of net present value (NPV)

Cash Flows ($) Discounted Value of $ 1 Discounted Cash flows @12% ($)
Years @ 12%
0 (40 000) (40 000) 1.000 (40 000) (40 000)
1 15 000  0.893 13 395 
2 15 000  0.797 11 955 
3 15 000  0.712 10 680 
4 15 000 70 000 0.636 9 540 44 520
Net Present Value 5 570 4 520
Difference in discount rates
(c) Internal rate of return = Discount rate giving +ve NPV + × +ve NPV
Difference in NPVs
20%−12%
Project A = 0.12 + ( )× $5 570
$5 570−(−$1 180)W.1
= 0.1860 or 18.60%
20%−12%
Project B = 0.12 + ( )× $4 520
$4 520−(−$6 260)W.1
= 0.1535 or 15.35%
(d) Project A should be accepted as it has higher net present value and internal rate of return whereas it has shorter payback
period.
(W.1) Statement to show discounted cash flows

Cash Flows ($) Discounted Value of $ 1 Discounted Cash flows @10% ($)
Years @ 20%
0 (40 000) (40 000) 1.000 (40 000) (40 000)
1 15 000  0.833 12 495 
2 15 000  0.694 10 410 
3 15 000  0.579 8 685 
4 15 000 70 000 0.482 7 230 33 740
Net Present Value (1 180) (6 260)
16.10
Average Profit (W 1)
Accounting rate of return = × 100
Average Investment (W 2)
$45 000
= × 100
$150 000
= 30%
WORKINGS
$225 000
(W 1) Average profits =
5 years
= $45 000
Cost+Scrap Value
(W 2) Average Investment =
2
+ Additional working capital requirements
$200 000 +$40 000
= + $30 000
2
= $150 000
16.12
(a) Calculation of net present value (NPV)
Years * Cash Flows ($) Discounted Value of $ 1 @ 10% Discounted Cash flows @10% ($)
0 (52 000) 1.000 (52 000)
1 14 000 0.909 12 726
2 14 000 0.826 11 564
3 14 000 0.751 10 514
4 14 000 0.683 9 562
5 26 000 0.621 16 146
Net Present Value @10% 8 512
* Annual cash inflow = $19 000  $5 000 = $14 000

** Cash inflow in year 5 = $14 000 + $5 000 + $7 000 = $26 000
(b) Internal rate of return = Discount rate giving +ve NPV + × +ve NPV
Difference in NPVs
20%−10%
= 0.10 + ( )× $8 512
$8 512−(−$5 316)W.1
= 0.1616 or 16.16%
Average Profits (W.2)
(c) Accounting rate of return = × 100
Average Investments (W.3)
$6 000
= × 100
$32 000
= 18.75 %
WORKINGS
(W.1) Statement to show discounted cash flows
Years Cash Flows ($) Discounted Value of $1@ 20% Discounted Cash flows @20% ($)
0 (52 000) 1.000 (52 000)
1 14 000 0.833 11 662
2 14 000 0.694 9 716
3 14 000 0.579 8 106
4 14 000 0.482 6 748
5 26 000 0.402 10 452
Net Present Value @20% (5 316)
(W.2) Average annual profit = Revenue – Cash Expenses – Depreciation
$45 000−$5 000
= $19 000  $5 000 ( )
5 years
= $ 6 000
Cost+Scrap Value
(W.3) Average investment = + Additional working capital requirements
2
$45 000 +$5 000
= + $7 000
2
= $32 000
16.14
(a) Calculation of reduction in annual operating costs
Annual operating expenses with Annual operating expenses with Reduction in annual

existing machines ($) new machines ($) cost ($)
Two new machines ($30 000 + $24 000)  ($12 000 + $10 000) $32 000
Automatic Machine ($30 000 + $24 000)  $14 000 $40 000
Original Cash outflow

(b) Payback period =
Constant Annual Cash inflow
$72 000
Two new machines =
$32 000
= 2.25 years or 2 years 92 days approximately
$82 000
Automatic machines =
$40 000
= 2.05 years or 2 years 19 days approximately
(c) Calculation of net present value (NPV)
Years Cash Flows ($) Discounted Value of $ Discounted Cash flows @9% ($)
Two new machines Automatic Machine 1 @ 9% Two new machines Automatic Machine
0 W.1 (72 000) W.3 (82 000) 1.000 (72 000) (82 000)
1 32 000 40 000 0.917 29 344 36 680
2 32 000 40 000 0.842 26 944 33 680
3 32 000 40 000 0.772 24 704 30 880
4 W.2 42 000 W.4 50 000 0.708 29 736 35 400

(d) Internal rate of return = Discount rate giving +ve NPV + × +ve NPV
Difference in NPVs
15%−9%
Two new machines = 0.09 + ( )× $38 728
$38 728−($25 112)W.5
= 0.2607 or 26.07%
15%−9%
Automatic machines = 0.09 + ( )× $54 640
$54 640−($37 960)W.5
= 0.2865 or 28.65%
WORKINGS
(W.1) ($50 000 + $40 000)  ($10 000 + $8 000) = $72 000
(W.2) $32 000 + $6 000 + $4 000 = $42 000
(W.3) $100 000  ($10 000 + $8 000) = $82 000
(W.4) $40 000 + $10 000 = $50 000

(W.5) Calculation of net present value (NPV) at 15%
Years Cash Flows ($) Discounted Value of $ Discounted Cash flows @15% ($)
Two new Automatic Machine 1 @ 15% Project A Project B
machines
0 W.1 (72 000) W.3 (82 000) 1.000 (72 000) (82 000)
1 32 000 40 000 0.870 27 840 34 800
2 32 000 40 000 0.756 24 192 30 240
3 32 000 40 000 0.658 21 056 26 320
4 W.2 42 000 W.4 50 000 0.572 24 024 28 600
16.16
(a) Statement to Compute Cumulative Cash flows
Year Present value of Cash flows ($) Cumulative Cash flows ($)
0 (750 000) (750 000)
1 321 480 (428 520)
2 286 920 (141 600)
3 434 320 292 720
4 387 960 680 680
$𝟏𝟒𝟏 𝟔𝟎𝟎
Pay-back period = 2 years + (  𝟑𝟔𝟓 𝐝𝐚𝐲𝐬)
$𝟒𝟑𝟒 𝟑𝟐𝟎
= 2 years and 119 days approximately
(b) Statement to Compute Net Present Value

Year Cash Flows ($) Present value of $1 @12% Present value of Cash flows ($)
0 (750 000) 1.000 (750 000)
1 360 000 0.893 321 480
2 360 000 0.797 286 920
3 610 000 0.712 434 320
4 610 000 0.636 387 960
Net Present Value 680 680
WORKINGS
(W 1) Additional receipts $000 $000
Gate money [(28 000 × $5.25 × 30)  $3 500 000] 910
Sponsorship 80
Sale of broadcasting rights 70 1 060
Additional payments
Annual pay to Steve 65
Additional pay to team players [(8 000 × 50) + (1 000 × 50)] × 30% 135
Additional promotional costs 250 450
Net increase in annual operating cash inflows 610
(W 2) Year Cash inflows (W 1) Cash out flows Net Cash inflows

0 Nil  (500 000 + 250 000) = (750 000)
1 610 000  250 000 = 360 000
2 610 000  250 000 = 360 000
3 610 000  = 610 000
4 610 000  = 610 000

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Manual A2 Final

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CHAPTER 1

(b) United Music Club

(c) United Music Club

(W.1) Payables for Refreshment purchases account

(d) United Music Club

(e) Balance Sheet

(b) Income and expenditure account

(b) Partners Capital Accounts

(c) Bank Account

Ordinary shares Account

(c) Partners Capital Accounts

(d) Equity shares Account

(W 2) Face value of debentures × 10 % = Interest on Lin’s loan of partnership

(b) ABC Plc

(b) Statement of changes in equity

(c) Valentine Ltd

(b) Statement of changes in equity

(c) Phillips plc

Revised Balance sheet extract (after bonus issue)

(b) Glazing Pvt. Ltd

Statement of Changes in Equity (extract)

(b) (i) Income Gearing 31 December 20X4 31 December 20X5

(ii) Dividend cover

(iii) Earnings per share

(iv) Price/Earnings ratio

(v) Dividends per share

(vi) Dividend yield

(b) Calculation of amount to be paid by Ferry to Berry in final settlement

(b) Books of Robins

(c) Books of Smith

(b) Books of Henry

(c) Books of Shaun

(c) Books of Turner

Abnormal Loss Account

Books of George William’s Account

(b) Vikram’s Account

Total Sales Value

(b) Trading Account

(c) Balance Sheet (extract)

(c) Total Overheads = Units of output × Per unit cost

School Bags = 5 000 units × $1.25

Estimated Equipment setup Costs

Estimated Machining Costs

Estimated Assembly Costs

(c) Statement to compare total overheads under both costing systems

Estimated Assembly and painting costs

Estimated Machining Costs

Estimated Machine running Costs

Estimated Inspection Costs

Estimated Material receiving Costs

Estimated Costs of Chemical Treatment

Estimated Machining Costs

Estimated Distribution Costs

(e) Actual sales volume × Actual price

(b) Calculation of Variances

(ii) Actual material quantity × Standard material price

(iii) Actual labour hours × Actual labour rate

(iv) Actual labour hours × Standard labour rate

(c) Statement to reconcile original budgeted and actual profits

(W 2) Actual material quantity × Standard material price

(W 3) Actual labour hours × Actual labour rate

(W 5) Actual sales volume × Actual price

(i) Actual hours × Actual rate $

(a) Actual hours × Actual rate per hour $