Ollscoil Mhá Nuad

Maynooth University

SEMESTER 2
2021-2022

AC202
FINANCIAL ACCOUNTING 3
Dr Danny Chow

Time allowed: 90 minutes

Instructions

Yes No N/A
Formulae and Tables book allowed (i.e. available on request) X
Formulae and Tables book required (i.e. distributed prior to exam commencing) X
Statistics Tables and Formulae allowed (i.e. available on request) X
Statistics Tables and Formulae required (i.e. distributed prior to exam commencing) X
Dictionary allowed (supplied by the student) X
Non-programmable calculator allowed X

Answer all questions. Question 1 is worth 40%, Question 2 and 3 are worth 30% each.

This exam is worth 80% of the AC202 module.

© Maynooth University 2022

 SEMESTER 2 2021-2022
AC202 FINANCIAL ACCOUNTING 3

Question 1
The following balances were extracted from the books of Bamburgh Ltd as at 31/03/2022.

Trial Balance at 31/03/2022 €'000 €'000

Sales 24,500
Inventory as at 01/04/2021 2,540
Purchases 13,200
Production Expenses 1,000
Administration Expenses 1,250
Sales and Distribution Expenses 1,340
Lease payment 685
Dividend on Ordinary Shares paid 400
Property: Cost 8,200
Property: Accumulated depreciation at 01/04/2021 1,470
Plant and Equipment: Cost 3,290
Plant and Equipment: Accumulated depreciation at 01/04/2021 1,850
Debenture 6% 2,000
Bank 8,265
Share Capital (Ordinary Shares of €0.50 each) 6,000
Share Premium 2,500
Trade receivables 2,200
Retained Earnings at 01/04/2021 1,515
Trade payables 2,535
42,370 42,370

The following additional information is relevant:

 Inventory at 31/03/2022 at cost was €1,200,000. The Net Realisable Value of the inventory at this
date was €1,140,000.
 The interest payable on the debenture at 6% per annum for the year ending 31/03/2022 has not yet
been accounted for.
 Production expenses are to be treated as part of the ‘Cost of Sales’ figure.
 Property consists of Land and Buildings. Land (cost €2,000,000) has been revalued (for the first time)
to €2,500,000. Buildings remain at book value. The company's policy is not to depreciate land.
 Buildings should be depreciated on a straight-line basis over 20 years. No depreciation has been
charged in the current year. See also note below for the allocation of depreciation expense.
 Plant and Equipment is to be depreciated at 25% on a reducing balance basis. See also note below for
the allocation of depreciation expense.
 Depreciation is to be allocated to expense headings as follows:
o Production Expenses 60%
o Sales and Distribution Expenses 25%
o Administration Expenses 15%
 On 01/04/2021, Bamburgh Ltd entered into a contract for the right to use equipment from Seafield
Leasing Solutions Ltd through a lease contract. The cost of the asset, which approximates the Present
Value of the Minimum lease repayments on 01/04/2021, was €2,400,000 and the duration of the

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 contract is four years. The lease payment is paid in arrears (i.e., at the end of the year, 31 March). To
date, aside from the first least payment made on 31/03/2022, no other accounting entries were
recorded for the transaction. Bamburgh Ltd uses the actuarial method of accounting for interest on a
finance lease, with an implicit interest rate of 5.52% per annum.
 A bonus issue of one (bonus) share for every five ordinary shares made during the year, funded from
the share premium account, has not been reflected in the trial balance. There were no other
movements in the ordinary shares issued.
 Corporation tax for the year of €762,000 is to be provided for.

Requirements:
Prepare a Statement of Profit or Loss and Other Comprehensive Income and a Statement of Changes in
Equity for the year ending 31 March 2022, and a Statement of Financial Position as at 31 March 2022,
under International Accounting Standard (IAS) No.1.
(40 marks)

Question 2
Aaron, Clarice and Xander are partners in a small tax advisory firm for a number of years, sharing profits
and losses on a 5:3:2 basis. The partnership has agreed to interest on capital of 10%, interest on drawings
of 8% and for Clarice to receive a salary of €15,000.

At 1 April 2021, the capital account and current account balances of the partners were as follows:
Capital Current
Account € Account €
Aaron 43,000 9,450
Clarice 140,000 7,350
Xander 81,000 (9,500)

Cash drawings for the year to 31 March 2022 were as follows: Aaron €17,500; Clarice €14,600; Xander
€19,200.

The partnership has experienced cashflow problems during the year, due to the challenges in persuading
its bank to extend its overdraft facility. As a result, the partners decided to introduce additional capital
during the year to assist with its cashflow. Aaron introduced an additional €25,000 on 1 August 2021,
Clarice €39,000 on 1 December 2021 and Xander €16,000 on 1 February 2022.

Profit for the year ended 31 March 2022 was €114,730. As part of the longstanding partnership
agreement, Aaron is guaranteed a minimum share of profit of €50,000.

Requirements:
a) Prepare the Profit Appropriation Account for the year ended 31 March 2022 to the nearest €1.
(17 marks)
b) Prepare the partners’ Capital Accounts and Current Accounts for the year ended 31 March 2022, all in
‘T’ format, to the nearest €1.
(10 marks)
c) If instead of providing a capital injection into the business, assume that the partners have decided to
dissolve the partnership at the year end. As a result, Xander is declared insolvent, with a deficit of
€40,000. How would this deficit be shared amongst the remaining partners?
(3 marks)
(Total: 30 marks)

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© Maynooth University 2022
Question 3
“The head of the UK accounting regulator has warned top management at the Big Four audit
firms that they should do a better job of running their own businesses … The Big Four have faced
scrutiny over a series of corporate scandals and have been fined a total of €42m in the past three
years for failing to properly check the accounts of companies … Almost 30 per cent of company
audits by the seven leading audit firms were deemed to require improvement in this year’s FRC
[the former UK Financial Reporting Council] quality inspections … The Big Four have already
agreed with the FRC to an “operational separation” of their audit and consulting businesses and
ministers are considering forcing large companies to give some of their audit work to midsized
firms to boost competition.”

Excerpt from the Financial Times (web edition), 16 November 2021; Article title: “UK accounting
watchdog tells Big Four to run businesses better”

Requirement:
What do you understand by the need for ‘operational separation’ of audit and consulting in the above
article? Your answer should discuss threats to auditors’ independence, their ethical conduct and
responsibilities relating to the detection of fraud, drawing on your knowledge of two major corporate
scandals.
(20 marks)

To what extent should the blame for such scandals largely rest with the auditors?
(10 marks)

End of paper

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