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1. The following is the draft statement of financial position of Kerris Emery, a sole trader,
at 30 June 2021.

Statement of financial position at 30 June 2021 $ $

ASSETS

Non-current assets

Property at valuation 600000

Machinery at book value 1080000

Delivery vans at book value 660000

2340000

Current assets

Inventories 140000

Trade receivables 38000

Other receivables 4000

Cash and cash equivalents 8000 190000

Total assets 2530000

CAPITAL AND LIABILITIES

Capital

Opening balance 2000000

Add Draft profit for the year 160000

2160000

Less Drawings 150000

2010000

Non-current liabilities

Loan 400000

Current liabilities

Trade payables 114000

Other payables 6000 120000

Total capital and liabilities 2530000

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Additional information After preparation of the draft statement of financial position the following
errors were found:

 Goods in inventory at 30 June 2021, valued at cost $30000, were found to be damaged.

The estimated net realizable value is $16000.

 Loan interest of 4% per annum had been omitted from the accounts.
 l No provision for depreciation on machinery had been made for the year. Depreciation

should have been provided at 5% per annum using the reducing balance method.

 Delivery vans are depreciated by 10% per annum. During the year vehicle repairs of

$20000 had been incorrectly debited to the delivery vans account.

 On 21 June 2021 a credit customer, who owed $7200, was declared bankrupt. It was

decided to write off this amount in full as irrecoverable. No record of this has been made in the
accounts.

a) Prepare a statement to show the corrected profit for the year ended 30 June 2021.
Item Increase Decrease No effect Total

[9]
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b) Prepare the corrected statement of financial position at 30 June 2021.

[7]
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c) i) Explain what is meant by net realizable value.

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[2]

ii) Discuss the accounting treatment of the damaged inventory in item 1.

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[2]

d) Using your answers to (a) and (b), calculate the following ratios to two decimal places:
i) current ratio
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ii) acid test ratio.
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[2]
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e) State four ways in which Emery could improve her working capital.
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iii) ………………………………………………………………………………………………
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f) Explain why the acid test ratio is a more reliable indicator of liquidity than the current ratio.
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[2]
Total [30 marks]
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2. Simon formed a parcel delivery business on 1 July 2021.

On 1 July 2021, he purchased a delivery vehicle for $29000 from his business bank
account.
He decided to depreciate delivery vehicles on a monthly basis using the straight‑line
method. He estimated that the delivery vehicle would have a useful working life of four
years and would have a residual value of $5000.

On 1 November 2022, a new delivery vehicle was purchased at a cost of $44000. The old
delivery vehicle was part exchanged at a value of $16800. The balance was settled by a
bank loan repayable over two years.

He estimated that the new delivery vehicle would have a useful working life of five years
and would have a residual value of $8000.
a) State two factors that cause the value of non‑current assets to depreciate.
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b) Prepare the following accounts for the year ended 30 June 2023. Use the space
provided to show your workings.
Delivery vehicles at cost
Date Details $ Date Details $
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Delivery vehicles provision for depreciation

Date Details $ Date Details $

Workings:

[8]
c) Calculate the profit or loss on disposal of the delivery vehicle sold on 1 November
2022.
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[2]
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Explain why it may be more appropriate to depreciate motor vehicles using the reducing balance
method rather than the straight‑line method.

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[Total: 15]
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3. M Limited has provided the following extract from the statement of financial position at 31
August 2016.
$
Equity
Capital and reserves
Ordinary shares of $0.25 each 200 000
Share premium 80 000
Revaluation reserve 40 000
Retained earnings 37 500
357 500

The following information is available.

1 On 1 January 2017 a rights issue was made on the basis of two ordinary shares for
every five ordinary shares held at a price of $0.40 per share. The rights issue was fully
subscribed.

2 On 30 June 2017 an interim dividend of $0.04 per share was paid on all shares in issue
at that date.

3 At 31 August 2017 non-current assets were re-valued downwards by $48 000.

4 Profit for the year ended 31 August 2017 was $22 500.

REQUIRED

(a) Prepare the statement of changes in equity for the year ended 31 August 2017. A total
column is not required.
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[6]

(b) State two reasons why capital reserves may be used before revenue reserves to
fund a bonus issue of shares for a limited company.

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(c) (i) State two benefits to a limited company of making a rights issue.

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(ii) State one limitation to a limited company of making a rights issue.

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[1]
Additional information

Directors of M Limited are considering obtaining a long-term bank loan to raise additional
capital.

REQUIRED

(d) Explain two advantages to the company of this course of action.

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[Total: 15]
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4. G Limited manufactures a single product type at one of its factories. The company uses
marginal costing.
REQUIRED
(a) Define each of the following terms:

(i) contribution per unit

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(ii) stepped costs

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(iii) margin of safety.

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(b) State two benefits of using marginal costing.

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[2]

Additional information
The following budgeted information is available for September 2022.
Selling price per unit $59
Direct materials per unit 8 kg at $2.70 per kg
Direct labour per unit 4 hrs at $8.20 per hour
Fixed costs per month $18 400
All units produced are sold.
REQUIRED
(c) Calculate the monthly break-even point in units.
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Additional information

The directors hope to increase demand by improving the product.

The following information is available.

1 Current production of the original product is 7200 units per month. This represents 90% of
normal capacity.

2 Direct materials will cost $3 per kg for the improved product. Each unit of the improved
product will require 15% more material.

3 The selling price of the improved product will be $65.

4 It is expected that monthly production will increase by 20%.

5 The factory can operate in overtime conditions. Direct labour is paid 1.5 times the normal
rate in overtime conditions.

6 An additional machine costing $40 000 will be required. Non-current assets are depreciated
by 15% per annum.

REQUIRED

(d) Prepare a marginal costing statement to show the monthly forecast profit if the improved
product is made.

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Workings

[7]

Additional information

At a second factory the company manufactures another single product type. The following
information is available.

Direct material per unit 13

Direct labour per unit 11

Other variable costs per unit 3

Selling price per unit 42

Fixed costs per week 12 000

The factory uses 10 machines, each producing 300 units per week. The directors are aware that
problems have arisen with 4 machines which require urgent repairs. These machines will be taken
out of production for 8 weeks.
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The directors are considering two options.

Option A: Buy in goods

The goods will be provided by an overseas supplier at $34 per unit.

Total delivery costs of $4200 for 8 weeks will be charged. The supplier can only provide 75% of
the lost production.

Option B: Hire replacement machines

Only two replacement machines are available at a cost of $150 per machine per week.

The machines will only be available for 7 weeks.

Staff will require training on the replacement machines at a total cost of $700.

REQUIRED

(e) Calculate the profit for the 8 weeks for each option.

(i) Option A

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(i) Option B

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[4]
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Workings

(f) Advise the directors which option they should choose. Justify your answer by considering both
options.

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[7]

[Total: 30]