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The Institute of Chartered Accountants of Bangladesh

FINANCIAL ACCOUNTING
Professional Stage Application Level

Question Bank
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Financial accounting
The Institute of Chartered Accountants of Bangladesh Professional Stage
These learning materials have been prepared by the Institute of Chartered Accountants in England and Wales
ISBN: 978-1-84152-838-0
First edition 2009
All rights reserved. No part of this publication may be reproduced or
transmitted in any form or by any means or stored in any retrieval system, or
transmitted in, any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without prior permission of the publisher.

ii

© The Institute of Chartered Accountants in England and Wales, March 2009


Contents

Title

Marks

Time
allocation
Mins

Question

Answer

24
20
21
26
25
26
22
24
18
25

36
28
30
39
38
39
31
36
27

38

3
4
5
6
7
8
9
11
13
14

119
122
124
127
131
134
137
140
143
145

18
23
22
13
20
23

16
18
11
17
17
18
23
19
17
21
16
25
15
7

27
35
33
19
30
32
24
27
17
26
26
27
35
29
25

32
26
38
23
11

17
18
19
20
21
21
22
23
24
25
26
26
28
29
30
31
33
34
36
37

149
152
155

157
159
162
166
167
169
172
174
176
178
181
184
186
189
191
194
195

Page

Preparation of full single entity
financial statements
1
2
3
4
5
6
7
8

9
10

Howells Ltd
Berwick Ltd
Angus Ltd
Goblins Ltd
Harry Ltd
Frodo Ltd
Plodder Ltd
Copeland Ltd
Pippin Ltd
Merry Ltd

Preparation of extracts from
financial statements
11
12
13
14
15
16
17
18
19
20
21
22
23
24

25
26
27
28
29
30

Montrose Ltd
Gandalf Ltd
Cagreg Ltd
Roberts Ltd
Dumfries Ltd
Crieff Ltd
ITC Solutions Ltd
Withington Ltd
Islay Ltd
Greenstones Ltd
Okehampton Ltd
Banchory Ltd
Banff Ltd
Skinner Ltd
Rosetta Ltd
Arran Ltd
Elie Ltd
Wester Ross Ltd
Shadowlands Ltd
Scribo Ltd

© The Institute of Chartered Accountants in England and Wales, March 2009

iii


Title

Marks

Time
allocation
Mins

Question

Answer

18
24
14
17
16
19
22
18
15
17
23
18
17
23
30

17
20
18

27
36
21
26
24
29
33
27
23
26
35
27
25
35
45
26
30
27

39
40
41
42
43
45
46

47
48
49
51
52
53
54
56
57
58
60

197
200
203
206
208
211
214
217
220
223
226
229
232
235
238
242
244
247

61
66
68

249
250
250

71

251

76
78
80
84
86
88
90

254
254
254
256
257
258
258

91

94

259
259

97

260

Page

Preparation of full consolidated
financial statements
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47

48

Hemmingway Ltd
Highland Ltd
Ullapool Ltd
Law Ltd
Heeley Ltd
Harris Ltd
Lowland Ltd
Vanguard Ltd
Heaton Ltd
Jerome Ltd
Hardmead Ltd
Tain Ltd
Glencoe Ltd
Herdings Ltd
Camden Ltd
Gallant Ltd
Slick Ltd
Senorita Ltd

Single entity financial statements
Objective test questions
49
50
51
52
53
54
55

56
57
58
59
60
61
62

iv

Accounting and reporting concepts
BAS 1 Presentation of Financial Statements
BAS 2 Inventories
BAS 7 Cash Flow Statements (single company
only)
BAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
BAS 10 Events after the Balance Sheet Date
BAS 16 Property, Plant and Equipment
BAS 17 Leases
BAS 18 Revenue
BAS 32 and BAS 39 Financial Instruments
BAS 36 Impairment of Assets
BAS 37 Provisions, Contingent Liabilities and
Contingent Assets
BAS 38 Intangible Assets
BFRS 5 Non-current Assets Held for Sale and
Discontinued Operations

© The Institute of Chartered Accountants in England and Wales, March 2009

Title

Marks

Time
allocation
Mins

Page
Question

Answer

101

263

107
110
114

265
266
268

Consolidated financial statements
Objective test questions
63

64
65
66

Consolidated balance sheets
Consolidated statements of financial
performance
Consolidated cash flow statements
Group accounts accounting standards

© The Institute of Chartered Accountants in England and Wales, March 2009

v


vi

© The Institute of Chartered Accountants in England and Wales, March 2009


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Question Bank
Your exam will consist of
Part one

5-15 short-form questions
(worth 1-4 marks each)

20 marks

Part two

4 questions
(each worth around 20 marks)

80 marks

Time available

2.5 hours

© The Institute of Chartered Accountants in England and Wales, March 2009

1


2

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

Preparation of full single entity financial statements

1

Howells Ltd

The trial balance of Howells Ltd as at 31 December 20X8 is as follows.
Share capital
CU1 ordinary shares
CU1 5% preference shares (irredeemable)
Retained earnings
General reserve as at 31 December 20X8
Intangible assets
Land and buildings
Cost
Accumulated depreciation
Plant and machinery
Cost
Accumulated depreciation
Inventories at 1 January 20X8
Sundry net current assets
Revenue
Purchases
Debenture interest paid
Royalties received
Administrative salaries
Salesmen's salaries and commission
Factory wages
Operating lease rentals
Gain on sale of property
Administrative expenses
Selling and distribution expenses
Dividend received from Morgans Ltd
10% Debentures (issued and redeemable at par)
20X7 final dividend paid

CU

20,500
450,000
82,000

CU
100,000
50,000
56,015
20,000

81,000
18,000

58,045
261,349
1,600,047
907,989
6,260
14,005
126,232
24,291
54,117
6,002
18,822
9,600
12,500
2,037,707

25,040
11,000
62,600
2,037,707

You are provided with the following information in respect of 20X8.
(1) The gain on sale of the property is not expected to recur.
(2) Depreciation is to be provided on the basis of the following policies.
Buildings
Plant and machinery

Straight line over 50 years
Straight line over 10 years

The land originally cost CU115,000. In previous years the policy in respect of plant and machinery had
been to depreciate on a reducing balance basis. All the plant was acquired on 1 January 20X5 with the
exception of a machine acquired for CU22,000 at the start of 20X8.
(3) The intangible asset is a brand arising on the purchase of a sole trader which is held in the books at
original cost. Following an impairment review, fair value less costs to sell has been estimated at
CU10,000 and value in use at CU12,000.
(4) Howells Ltd wishes to propose an ordinary dividend of CU25,000 which will be paid on 25 March
20X9. The 20X8 preference dividends have been declared but not yet paid.
(5) Tax of CU22,500 is to be charged for the current year.
(6) During the year the directors transferred CU10,000 to the general reserve.

© The Institute of Chartered Accountants in England and Wales, March 2009

3

Preparation of full single entity financial statements
(7) Inventories held at 31 December 20X8 are valued at cost of CU68,000. Within this amount there are
1,000 units of finished goods valued at CU20 each. These units are now expected to sell at a
discounted price of CU18 each and incur CU1 selling costs per unit.
Requirements
(a)

Prepare the income statement, statement of changes in equity and notes thereto for the year ended
31 December 20X8 in a form suitable for publication to the extent the information is available. You
should classify expenses by function.
(20 marks)

(b) Explain the concept of 'fair presentation'.

(4 marks)
(24 marks)

2

Berwick Ltd
Berwick Ltd has produced the following trial balance as at 31 January 20X5.
CU
Profit before tax
Interim dividends paid
Final dividends paid
Development expenditure capitalised
Land and buildings
Revalued
Plant and machinery
Cost

Accumulated depreciation
Motor vehicles
Cost
Accumulated depreciation
Inventories and work in progress
Trade receivables and trade payables
Prepayments and accruals
Value added tax
Bank balance in hand and overdrawn
Bank loan
Share capital – ordinary shares of CU1 each
Retained earnings
Revaluation reserve
Share premium account

CU
370,000

22,000
66,000
70,000
1,500,000
650,000
160,000
250,000
90,000
370,000
420,000
97,000
249,000

3,694,000

380,000
100,000
50,000
110,000
200,000
850,000
770,000
564,000
50,000
3,694,000

Additional information
(1) The company’s land and buildings were revalued on 1 February 20X4 at CU1.5 million (land element
CU300,000). The remaining useful life of the buildings at that date was estimated at 40 years. The
property originally cost CU1 million on 1 February 20X0 (land element CU200,000) and was being
depreciated over 50 years.
The company intends to transfer to retained earnings that element of the revaluation reserve realised
by depreciation but has not yet done so for the year ended 31 January 20X5.
(2) No adjustments have been made for the depreciation charges for the year ended 31 January 20X5.
Depreciation rates are as follows.
Land and buildings
Plant and machinery
Motor vehicles

–
–
–

see (1) above
10% straight line
20% reducing balance

(3) The bank loan is repayable over five years in equal annual instalments starting on 30 June 20X5.
(4) Tax on profits for the year has been estimated at CU135,000 and has yet to be provided for in the
trial balance.

4

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

(5) The development expenditure was incurred during the year and relates to a single product.
Development will be completed in 20X6. The company believes it has a reasonable expectation of
future benefits but has been unable to demonstrate this.
(6) One of Berwick Ltd's customers was declared insolvent on 15 February 20X5. The customer owed
Berwick Ltd CU20,000 at 31 January 20X5.
Requirement
Prepare the balance sheet of Berwick Ltd as at 31 January 20X5 and the statement of changes in equity for
the year ended 31 January 20X5 in a form suitable for publication to the extent the information is available.
You are not required to prepare any notes to the financial statements.
(20 marks)
Note: Work to the nearest CU'000.

3

Angus Ltd
An extract from Angus Ltd's nominal ledger at 28 February 20X7 is as follows.
CU'000
Freehold land and buildings
Cost
Accumulated depreciation at 29 February 20X6
Revenue
Operating expenses
Income tax charge for period
Ordinary share capital
Retained earnings at 29 February 20X6

16,000
2,800
200,000
180,000
6,000
200,000
300,000

The following additional information is available. This information is not reflected in the balances above.
(1) On 1 March 20X6 the company commissioned a valuation of its freehold land and buildings for the
first time. This valuation showed an open market value of CU20 million (land element CU4 million)
and an existing use value of CU15 million (land CU3 million). The accounting records have not yet
been adjusted to reflect this valuation. Depreciation for the year ended 28 February 20X7 has not yet
been charged and is to be based on a 40-year useful life. Previously, annual depreciation of CU280,000
had been charged.
(2) The company announced the intended sale of its European operations on 31 January 20X7, when a
formal disposal plan was approved and adopted for full implementation by 30 June 20X7. Plant and
equipment with a carrying amount of CU3 million was classified as held for sale, its fair value at the

date of classification being estimated at CU2.85 million and the costs to sell it at CU50,000. On
10 February 20X7 the company contracted to terminate various operating leases for a payment of
CU50,000. Other costs flowing from this disposal decision were estimated at CU100,000. The
European operations contributed 10% of the revenue and 20% of the expenses shown above. The
company uses the cost model as its accounting policy for plant and equipment.
(3) As a result of the sale in (2) above the company will need to carry out a reorganisation of its other
activities at a cost of CU1.25 million. This reorganisation was announced to the workforce and the
public at the same time as the above.
(4) Prior to the year end the company declared an ordinary dividend of CU2 million.
(5) During April 20X6 a major project on inventory valuation had revealed that inventories in America on
28 February 20X6 had been overvalued by CU355,000 due to a compilation error. No adjustment has
been made for this error, which is considered material but not fundamental.

© The Institute of Chartered Accountants in England and Wales, March 2009

5


Preparation of full single entity financial statements
Requirements
(a)

Prepare, as far as the information permits, the following statements, in a form suitable for publication,
for Angus Ltd for the year ended 28 February 20X7.
(i)

Income statement

(ii)

Statement of changes in equity

(b) Explain the objectives of financial statements, giving appropriate examples.

(15 marks)
(6 marks)
(21 marks)

4

Goblins Ltd
Goblins Ltd is a computer games manufacturer based in the East End of London. At 31 December 20X4 the
following balances have been extracted.
CU
Patent rights
60,000
Work in progress, 1 January 20X4
125,500
Leasehold buildings
300,000
Ordinary share capital – CU1 nominal value
500,000
5% Preference share capital (redeemable 20X8) – CU1 nominal value
120,000
Revenue
1,740,600
Staff costs
260,400
Accumulated depreciation on buildings, 1 January 20X4
60,000

Inventories of finished games, 1 January 20X4
155,600
Consultancy fees paid
44,000
Directors' emoluments
360,000
Computers used on site
50,000
Accumulated depreciation on computers, 1 January 20X4
20,000
Income tax
12,400
Ordinary dividend paid, 30 September 20X4
50,000
Bank account
515,200
Trade and other receivables
420,300
Trade and other payables
80,200
Raw materials
294,500
Retained earnings, 1 January 20X4
102,300
The following additional information is available.
(1) Closing finished inventories are valued at cost of CU180,000 whilst work in progress has increased to
CU140,000. These valuations do not take into account the fact that, at the year end physical inventory
count, it was discovered that ten computer games consoles with a cost CU500 each had been badly
damaged. These items have a scrap value of CU50 each.
(2) The patent rights were acquired on 1 January 20X4 in respect of a program with a three-year lifespan.

If the company chose to do so it could sell these rights on without there being a significant impact on
the remainder of the business.
(3) Buildings are depreciated over 30 years. At 1 January 20X4 they were revalued to CU360,000. This
has not been reflected in the accounts. Computers are depreciated over five years. Goblins Ltd makes
a transfer between the revaluation reserve and retained earnings each period as a result of the
revaluation in accordance with best practice.
(4) A final dividend of 15p per ordinary share was declared on 15 December 20X4 and was paid shortly
after the year end. The preference dividend has not yet been paid.
(5) A necessary provision for specific receivables amounting to 5% of year-end receivables is to be
created. In addition, Goblins Ltd received notice on 15 January 20X5 that one of its customers had
gone into liquidation. This customer owed CU45,000 at the year end.
(6) There is an estimated income tax bill in relation to 20X4 of CU120,000. The income tax figure in the
trial balance (a credit balance) represents the difference between the opening provision and the income
tax paid in the year.

6

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

Requirements
(a)

Prepare the income statement for Goblins Ltd for the year ended 31 December 20X4 and the balance
sheet at that date in a form suitable for publication to the extent the information is available. You
should classify expenses according to their nature.
(22 marks)

(b) Explain briefly how assets and liabilities are recorded/carried under each of the four different
measurement bases referred to in BFRS Framework for the Preparation and Presentation of Financial
Statements.
(4 marks)
(26 marks)

5

Harry Ltd
Harry Ltd is a company which makes exclusive furniture to customers’ precise specifications. An extract
from Harry Ltd’s nominal ledger at 31 December 20X5 is as follows.
Raw materials and consumables
Salaries and wages
Work in progress at 1 January 20X5
Finished inventories at 1 January 20X5
Freehold land and buildings
Cost (land CU2 million)
Accumulated depreciation at 1 January 20X5
Plant and machinery
Cost
Accumulated depreciation at 1 January 20X5
Office furniture
Cost
Accumulated depreciation at 1 January 20X5
Intangible assets
Lease payment
Trade and other receivables
Trade and other payables
Retained earnings at 1 January 20X5
Ordinary share capital – CU1 nominal value

Preference share capital – 4% redeemable CU1 shares
Share premium account
Cash and cash equivalents
Revenue

CU
1,570,000
1,250,500
45,600
13,400
3,600,000
640,000
520,000
375,000
32,000
28,500
15,000
10,000
37,500
25,400
1,968,600
500,000
120,000
200,000
263,500
3,500,000

The following additional information is relevant.
(1) During the year the company used employees’ idle time to produce new furniture for the company’s
offices. The old furniture was all scrapped. Raw materials costing CU54,000 were used. The

employees’ time amounted to a cost to the company of CU20,500. No adjustment has been made for
this in the above.
(2) On 1 January 20X5 Harry Ltd entered into a lease agreement for a new machine. The fair value of this
machine was CU53,000. The lease agreement provides for six annual payments of CU10,000 on
31 December each year. Interest is to be allocated on the sum-of-the-digits basis. No other plant was
purchased or sold during the year.
(3) Freehold land and buildings were revalued for the first time on 1 January 20X5. The surveyor
performing the valuation estimated an alternative use valuation of CU5 million (including CU4 million
for the land) and an existing use valuation of CU3.5 million (including CU3 million for the land).
Buildings are to continue to be depreciated on a straight-line basis at a rate of 4% but Harry Ltd makes
no transfer between the revaluation reserve and retained earnings in respect of this.
Plant is depreciated on a reducing balance basis at a rate of 20%. Office furniture is depreciated on a
15% straight line basis.

© The Institute of Chartered Accountants in England and Wales, March 2009

7


Preparation of full single entity financial statements
(4) During the year the company made a 1 for 5 bonus issue of its ordinary shares. No entries have been
made in respect of this. Transaction costs amounted to legal costs of CU5,000 and an estimate of
directors’ time amounting to a cost of CU10,000. Both of these costs have been charged against the
share premium account.
(5) The preference shares are redeemable in 20X9. Dividends of 10p per share on the ordinary shares
and at the coupon rate on the preference shares were declared on 15 December 20X5 and paid early
in 20X6. The income tax charge for the period has been estimated at CU250,000.
(6) The intangible asset relates to a patent acquired on the purchase of a sole trader on 1 January 20X5.
This patent is considered to have a useful life of 20 years. The annual impairment review has indicated
that the patent has a recoverable value at 31 December 20X5 of CU14,000.

(7) Closing inventories at cost amounted to work in progress of CU50,200 and finished goods of
CU15,000. The latter included a table with a cost of CU5,000. The customer who had ordered this
table has been declared bankrupt. He had paid a CU1,000 deposit (which has been credited to
revenue) and owed CU10,000 at the year end in respect of other items. It is estimated that the table
can be sold for CU4,000.
Requirement
Prepare an income statement for Harry Ltd for the year ended 31 December 20X5 and a balance sheet as
at that date in a form suitable for publication. You should classify expenses according to their nature.
(25 marks)

6

Frodo Ltd
Frodo Ltd is a company which publishes a single textbook and provides tuition courses relating to that text.
An extract from Frodo Ltd’s nominal ledger at 31 March 20X6 is as follows.
Manufacturing costs
Administrative salaries
Selling and distribution costs
Inventories at 1 April 20X5
Freehold land and buildings
Cost (land CU1,750,000)
Accumulated depreciation at 1 April 20X5
Plant and machinery
Cost
Accumulated depreciation at 1 April 20X5
Borrowings
Trade and other receivables
Trade and other payables
Retained earnings at 1 April 20X5
Ordinary share capital – 50p nominal value

Preference share capital – 5% irredeemable CU1 shares
Cash and cash equivalents
Revenue
Finance costs

CU
4,450,000
410,500
375,000
113,400
2,550,000
480,000
620,000
337,000
200,000
37,500
25,400
212,500
500,000
200,000
63,500
6,700,000
35,000

The following additional information is relevant.
(1) The borrowings are repayable in ten equal instalments, commencing on 1 April 20X6.
(2) Revenue is made up of the following.
Tuition fees
Book sales
Advances

8

© The Institute of Chartered Accountants in England and Wales, March 2009

CU
1,500,000
5,100,000
100,000
6,700,000


QUESTION BANK

The tuition fees all relate to courses held during the year except for fees of CU300,000 which relate
to a ten-week course. Five weeks of this course had already been held by the year end. The remainder
is to be held in June 20X6. The advances relate to a new publication which Frodo Ltd has
commissioned and advertised heavily but which is not yet in production.
(3) There were no movements of non-current assets during the year. However, on 28 February 20X6,
Frodo Ltd decided to sell a major item of plant for which it no longer has any use. This plant cost
CU120,000 on 1 April 20X1 and was advertised for sale on 1 March 20X6 at a price of CU5,000. In
April 20X6 a buyer was identified at the advertised price. The sale is expected to be completed in May
20X6.
Plant is depreciated on a 10% straight line basis, taking into account the month of sale or purchase.
Freehold buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged
to cost of sales. Depreciation on freehold land and buildings is charged to administrative expenses.
(4) At the year end the company was in the throes of a legal action by one of its competitors which claims
that Frodo’s textbook has breached copyright. The case is not due to be decided until June 20X6 but
Frodo Ltd’s legal advisors think that the company has a 60% chance of losing the case and estimates
that this would cost Frodo Ltd CU100,000.

(5) One of Frodo Ltd’s customers who owed CU10,000 at the year end was declared bankrupt on 1 May
20X6.
(6) Closing inventories at cost amounted to CU120,000. Within this valuation is an amount of CU50,000
relating to fixed overheads, being a share of total fixed overheads of CU1 million. Frodo Ltd had
expected to produce one million books during the year but, due to production difficulties only in fact
produced 800,000. Overheads have been allocated on the basis of CU1.25 per book.
(7) The following should be provided for at the year end.
Income tax of CU350,000
An ordinary dividend of 20p per share
The preference dividend
Requirements
(a)

Prepare an income statement for Frodo Ltd for the year ended 31 March 20X6 and a balance sheet as
at that date in a form suitable for publication. You should classify expenses by function.
(21 marks)

(b) Explain the considerations underlying the accounting requirements for not-for-profit entities, including
the possible relevance of BFRSs and IPSASs.
(5 marks)
(26 marks)

7

Plodder Ltd
As at 30 November 20X0 and 30 November 20W9 Plodder Ltd had the following summarised balance
sheets.
20X0
20W9
CU

CU
CU
CU
ASSETS
Non-current assets
Property, plant and equipment
2,918,000
2,401,000
Intangibles
550,000
584,000
Investments
406,000
–
3,874,000
2,985,000
Current assets
Inventories
685,000
598,000
Trade and other receivables
480,000
465,000
Prepayments
96,000
126,000
Cash and cash equivalents
226,000
200,000
1,487,000

1,389,000

© The Institute of Chartered Accountants in England and Wales, March 2009

9


Preparation of full single entity financial statements
20X0
CU
Total assets
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital
Share premium account
Revaluation reserve
Retained earnings
Non-current liabilities
Borrowings
Current liabilities
Trade and other payables
Accruals
Taxation
Provisions
Total equity and liabilities

20W9

CU
5,361,000

CU

CU
4,374,000

1,100,000
342,000
375,000
1,785,000
3,602,000

1,000,000
200,000
–
1,311,000
2,511,000

500,000

1,000,000

749,000
108,000
282,000
120,000

427,000
131,000
165,000

140,000
1,259,000
5,361,000

863,000
4,374,000

Plodder Ltd's income statement for the year ended 30 November 20X0 was as follows.
CU
5,762,000
(4,630,000)
1,132,000
(236,000)
(127,000)
769,000
(68,000)
55,000
756,000
(232,000)
524,000

Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit from operations
Finance charge
Investment income
Profit before tax

Income tax expense
Profit for the period
The following additional information is relevant.

(1) Included within trade and other payables at 30 November 20X0 is CU351,000 (20W9 CU106,000)
relating to purchases of property, plant and equipment.
(2) Included within accruals at 30 November 20X0 is CU25,000 (20W9 CU50,000) in respect of interest
payable.
(3) Property, plant and equipment and intangible assets can be analysed as follows.
20X0
CU
Property, plant and equipment
Cost or valuation
Accumulated depreciation
Intangibles
Cost
Accumulated amortisation

20W9
CU

7,839,000
(4,921,000)
2,918,000

6,375,000
(3,974,000)
2,401,000

883,000

(333,000)
550,000

938,000
(354,000)
584,000

(4) During the year, plant with an original cost of CU479,000 and a carrying amount at the date of
disposal of CU326,000 was sold for CU424,000 which was received in cash. Intangible assets with
accumulated amortisation at the date of disposal of CU40,000 were sold for CU12,000.

10

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

(5) On 30 November 20X0 freehold land which originally cost CU175,000 (and had not been
depreciated) was revalued to CU550,000.
Requirement
Prepare a cash flow statement and note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Plodder Ltd for the year ended 30 November 20X0, using
the indirect method.
(22 marks)

8

Copeland Ltd
As at 31 May 20X1 and 31 May 20X2 Copeland Ltd had the following summarised balance sheets.

20X2
CU
ASSETS
Non-current assets
Property, plant and equipment
Cost or valuation
Accumulated depreciation
Intangibles
Cost
Accumulated amortisation

5,164,000
(2,198,000)
9,360,000
(3,690,000)

1,112,000
948,000
95,000
489,000

Total assets
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital
Share premium account
Revaluation reserve
Retained earnings
Non-current liabilities
15% debenture loan

Current liabilities
Trade and other payables
Interest payable
Taxation
Dividends payable
Total equity and liabilities

20X1
CU

CU

4,347,000
(2,001,000)
2,966,000

Investments
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents

CU

5,670,000
2,145,000
10,781,000

2,644,000

13,425,000

2,346,000
8,645,000
(2,715,000)

1,086,000
840,000
108,000
322,000

5,930,000
127,000
8,403,000

2,356,000
10,759,000

1,800,000
1,543,000
1,880,000
2,739,000
7,962,000

1,000,000
1,421,000
1,256,000
746,000
4,423,000

3,000,000

4,500,000

1,417,000
225,000
641,000
180,000

896,000
337,000
503,000
100,000
2,463,000
13,425,000

1,836,000
10,759,000

© The Institute of Chartered Accountants in England and Wales, March 2009

11


Preparation of full single entity financial statements
Copeland's income statement for the year ended 31 May 20X2 was as follows.
Revenue
Cost of sales
Gross profit
Distribution costs

Administrative expenses
Profit from operations
Finance cost
Investment income
Profit before tax
Income tax expense
Profit for the period

CU
8,646,000
(3,705,000)
4,941,000
(465,000)
(571,000)
3,905,000
(563,000)
78,000
3,420,000
(684,000)
2,736,000

The following additional information is relevant.
(1) On 31 May 20X2 property which was originally purchased for CU734,000 (and which had not
previously been revalued) was revalued to CU1,000,000. There were no other movements on the
revaluation reserve during the year.
(2) During the year plant and equipment with an original cost of CU1,201,000 and a carrying amount at
the date of disposal of CU496,000 was sold at a loss of CU189,000. As at 31 May 20X2 CU165,000 of
the sale proceeds had yet to be received and is included within trade and other receivables. As at
31 May 20X1 the corresponding figure in respect of disposals made during the year then ended was
CU79,000, which was received in full in June 20X1.

(3) As in the previous year, all acquisitions of property, plant and equipment made during the year were
paid for in cash at the date of acquisition. However, included within trade and other payables as at 31
May 20X2 is CU376,000 (20X1 – CUnil) relating to the acquisition of intangible assets.
(4) There were no disposals of intangible assets or investments during the year. Trade and other
receivables as at 31 May 20X2 include CU10,000 (20X1 – CU8,000) in respect of interest receivable
on investments.
(5) As at 31 May 20X1 the ordinary share capital of Copeland Ltd consisted of 1 million shares, each with
a CU1 nominal value. The following day the company made a 1 for 2 bonus issue of 500,000 shares
(utilising available profits).
(6) The dividend payable at both balance sheet dates represents a 10p per share dividend on the
company’s ordinary shares. Dividends of CU243,000 were charged to retained earnings in the year
ended 31 May 20X2.
(7) Copeland Ltd has not yet prepared its statement of changes in equity for the year ended 31 May 20X2.
Requirement
Prepare a cash flow statement and a note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Copeland Ltd for the year ended 31 May 20X2, using the
indirect method.
(24 marks)

12

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

9

Pippin Ltd
The following are the draft financial statements for Pippin Ltd for the year ended 31 December 20X7.

Income statement for the year ended 31 December 20X7
CU
7,350,500
(4,560,600)
2,789,900
(1,060,800)
(768,000)
961,100
(75,000)
886,100
(350,000)
536,100

Revenue
Cost of sales
Gross profit
Administrative expenses
Distribution costs
Profit from operations
Finance charge
Profit before tax
Income tax expense
Profit for the period
Balance sheet as at 31 December 20X7
20X7
CU

ASSETS
Non-current assets
Property, plant and equipment

Intangibles

560,500
169,000
25,000
10,700

Total assets
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital
Share premium account
Revaluation reserve
Retained earnings
Non-current liabilities
Preference share capital (redeemable)

Total equity and liabilities

CU

7,500,400
350,700
7,851,100

Current assets
Inventories
Trade and other receivables
Investments
Cash and cash equivalents

Current liabilities
Trade and other payables
Taxation
Ordinary dividend payable

20X6
CU

CU
6,950,300
300,500
7,250,800

765,100
144,500
12,400
20,200
765,200
8,616,300

942,200
8,193,000

4,000,000
1,200,000
500,000
1,357,800
7,057,800

3,500,000
950,000
236,800
2,206,700
6,893,500

500,000

400,000

148,500
410,000
500,000

139,500
360,000
400,000
1,058,500
8,616,300

899,500
8,193,000

Statement of changes in equity for the year ended 31 December 20X7 (extract)

Transfer from revaluation reserve
Profit for the period
Dividends on ordinary shares
Balance brought forward
Balance carried forward

Retained
earnings
CU
15,000
536,100
(1,400,000)
2,206,700
1,357,800

© The Institute of Chartered Accountants in England and Wales, March 2009

13


Preparation of full single entity financial statements
The following additional information is relevant.
(1) During the year Pippin Ltd issued both further ordinary shares and further redeemable preference
shares. The latter were issued at par.
(2) Investments categorised as current assets are held for the short-term and are readily convertible into
cash on demand.
(3) During the year Pippin Ltd sold plant and equipment with a carrying amount of CU560,500 for
CU600,000. Total depreciation charges for the year were CU750,600.
(4) Trade and other payables include accrued interest of CU5,000 (20X6 CU7,000).
(5) Intangibles relate to development costs capitalised in accordance with BAS 38 Intangible Assets. Costs
amounting to CU77,500 were capitalised during the year.
Requirement
Prepare a cash flow statement and note reconciling profit before tax to cash generated from operations in
accordance with BAS 7 Cash Flow Statements for Pippin Ltd for the year ended 31 December 20X7, using
the indirect method.

(18 marks)

10

Merry Ltd
The following are the draft financial statements for Merry Ltd for the year ended 31 March 20X5.
Income statement for the year ended 31 March 20X5

CU
5,650,500
(3,460,600)
2,189,900
(978,800)
(256,000)
955,100
(89,000)
866,100
(297,600)
568,500

Revenue
Cost of sales
Gross profit
Administrative expenses
Distribution costs
Profit from operations
Finance charge
Profit before tax
Income tax expense
Profit for the period

Balance sheet as at 31 March 20X5
ASSETS
Non-current assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets

14

20X5
CU

CU

20X4
CU

4,360,400
172,000
4,532,400
460,600
269,000
135,000

CU
2,950,300

156,000
3,106,300

365,100
244,500
120,200
864,600
5,397,000

© The Institute of Chartered Accountants in England and Wales, March 2009

729,800
3,836,100


QUESTION BANK

20X5
CU
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital
Share premium account
Retained earnings
Non-current liabilities
Finance lease liabilities
Current liabilities
Trade and other payables
Taxation
Finance lease liabilities

CU

20X4
CU

3,000,000
1,050,000
142,500
4,192,500

1,800,000
850,000
74,500
2,724,500

500,000

400,000

348,500
300,000
56,000

289,600
350,000
72,000
704,500
5,397,000

Total equity and liabilities

CU

711,600
3,836,100

The following additional information is relevant.
(1) Merry Ltd has not yet prepared its statement of changes in equity.
(2) During the year Merry Ltd made a 1 for 10 bonus issue of its ordinary shares. It subsequently issued
further shares at the market price. No dividends were payable as at 31 March 20X5 or 20X4.
(3) Cash paid to and on behalf of employees during the year amounted to CU2,650,000.
(4) An impairment review at 31 March 20X5 identified a fall in the recoverable amount of certain
investments. As a result, an impairment loss of CU12,000 was identified and written off to
administrative expenses.
(5) During the year Merry Ltd acquired plant and equipment for cash of CU2,057,000. In addition, plant
and equipment with a fair value of CU600,000 was acquired under a finance lease. All finance costs
relate to finance leases. The depreciation charge for the year, charged to cost of sales, was
CU750,600. A loss on sale of plant of CU55,000 was made during the year.
Requirements
(a)

Prepare a cash flow statement in accordance with BAS 7 Cash Flow Statements using the direct method
and a note of gross operating cash flows for Merry Ltd for the year ended 31 March 20X5.
(21 marks)

(b) Prepare the note reconciling profit before tax to cash generated from operations for Merry Ltd for
the year ended 31 March 20X5 as it would appear under the indirect method.
(4 marks)
(25 marks)

© The Institute of Chartered Accountants in England and Wales, March 2009

15


Preparation of full single entity financial statements

16

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

Preparation of extracts from financial statements

11

Montrose Ltd
Montrose Ltd has various outstanding matters to resolve regarding inventories in preparing its financial
statements for the year ended 30 September 20X4.
(1) Overheads relating to finished goods and work in progress have yet to be included in the final
inventory valuation. An analysis of the company's costing records shows the following.
CU
1,000,000
660,000
300,000
200,000
150,000

Direct labour
Production overheads
General administration overheads
Distribution overheads
Design and marketing overheads
The company's production activity has been as follows.
Year ended
30 September 20X3
30 September 20X4
30 September 20X5 (projected)

Actual units
650,000
500,000
–

Budget units
650,000
700,000
800,000

Full capacity of the plant is 900,000 units.
A new production process will be introduced in 20X5.
(2) The supply of raw materials in the year ended 30 September 20X4 was interrupted, due to a fire at a
supplier's premises. As compensation for production delays, the supplier agreed to a one-off payment
of CU100,000, which was received on 31 August 20X4, and this was credited to production
overheads.
(3) Raw materials are imported at a purchase cost of CU5.00 per unit. Other costs arising are as follows.
CU per unit

1.00
0.50
1.00

Import duty
Transport to factory
Storage and handling costs

(4) Half of the work in progress is 75% complete, and the remainder is 50% complete as to labour and
overheads, all raw materials having been issued.
(5) The company manufactures to customers' requirements for all orders. The final selling price is
determined on a cost plus standard mark-up basis for the majority of orders.
(6) Inventory at 30 September 20X4 amounted to the following.
Raw materials
Work in progress
Finished goods

Units
100,000
50,000
50,000

© The Institute of Chartered Accountants in England and Wales, March 2009

17


Preparation of extracts from financial statements
(7) The total net realisable value (NRV) of finished goods is CU560,000. The following is an analysis of
major orders in finished goods at the year end.

Units
Order M147
Order M293
Order M467
Order M364
Order M191

1,800
5,555
6,500
4,630
3,240
21,725

NRV
CU
22,000
55,000
60,000
54,000
40,000
231,000

Requirements
(a)

Calculate the amount to be included in the financial statements of Montrose Ltd for the year ended
30 September 20X4 in respect of inventories, preparing all relevant extracts from the financial
statements excluding accounting policy notes.
(12 marks)

(b) Explain the different concepts of capital and capital maintenance used in accrual basis accounting,
illustrating your explanation with appropriate examples.
(6 marks)
(18 marks)

12

Gandalf Ltd
At 1 July 20X5 the capital and reserves section of Gandalf Ltd's balance sheet showed the following.
Ordinary share capital (CU1 shares)
Share premium account
Revaluation reserve
Retained earnings

CU
500,000
120,000
420,000
347,500
1,387,500

The accountant of Gandalf Ltd has prepared a draft income statement for the year ended 30 June 20X6
which shows a profit for the period of CU135,500. However, there are certain matters which he is unsure
how to deal with and these are set out below. He has also asked for your assistance in preparing the
statement of changes in equity for that year. It is Gandalf Ltd's policy to maintain as high a possible balance
on retained earnings, whilst following BFRS.
(1) During the year Gandalf Ltd issued a further 300,000 ordinary shares at a price of CU1.25 per share. It
also issued 200,000 7% 50p irredeemable preference shares at par and 100,000 5% 50p redeemable
preference shares at a price of 70p per share. Transaction costs in relation to these share issues were

CU5,000, CU3,000 and CU1,000 respectively.
(2) During the year an ordinary interim dividend of CU30,000 was paid. The accountant has debited this
to finance charges. A further ordinary dividend of CU25,000 was declared on 15 June 20X6 and is
expected to be paid shortly. The accountant has made no entries in respect of this dividend or the
two preference dividends which had been declared by the year end and are due to be paid shortly.
(3) On 1 July 20X5 Gandalf Ltd revalued its freehold land and buildings which were carried in the books at
that date at a cost of CU500,000 (land CU300,000 and buildings CU200,000) and accumulated
depreciation of CU50,000. Depreciation is charged on a straight-line basis over an original estimated
useful life of 40 years. The valuation showed a fair value for the land of CU600,000 and for the
buildings of CU400,000. The estimated remaining useful life of the buildings was reassessed at the
same date and is believed to be 50 years. Depreciation for the year on freehold land and buildings has
not yet been charged.
(4) On 1 July 20X5 Gandalf Ltd decided to change its depreciation policy for plant and machinery from
20% straight-line to 25% reducing balance. Prior to charging depreciation for the year ended 30 June
20X6 the plant and machinery account showed a cost of CU357,800 and accumulated depreciation of
CU125,700. There were no movements on the plant and machinery account during the year. The
accountant has not yet calculated the depreciation charge for the year as he is unsure how to do this.

18

© The Institute of Chartered Accountants in England and Wales, March 2009


QUESTION BANK

(5) Whilst preparing the draft financial statements the accountant discovered an error in the previous
year's financial statements. Expenditure of CU42,500 had been capitalised as an intangible asset
whereas in fact this was in contravention of BAS 38. This expenditure has been subject to an
amortisation charge of 10% in the current year.
Requirements

(a)

Calculate a revised profit for the period reflecting the above matters.

(4 marks)

(b) Prepare the statement of changes in equity for Gandalf Ltd for the year ended 30 June 20X6.
(11 marks)
(c)

Explain the difference between financial statements prepared using the accrual basis and those
prepared using the cash accounting or break-up bases, illustrating your answers with simple
calculations.
(8 marks)
(23 marks)

13

Cagreg Ltd
Cagreg Ltd manufactures and sells heavy plant. The company also hires out plant for monthly periods (or
multiples thereof).
You ascertain the following details.
(1) Freehold land
Freehold land was acquired on 1 February 20X8 for CU100,000 to build a new factory. Due to
planning difficulties, building has not yet been started. The directors wish to revalue the land to its fair
value of CU130,000 at 30 September 20X9.
(2) Buildings
On 1 October 20X8 the directors reviewed the useful life of the buildings and determined that the
remaining life was 56 years. The buildings were acquired for CU200,000 on 1 October 20X4, when
their useful life was estimated at 40 years.

(3) Plant and machinery
Plant and machinery is accounted for under the cost model accounting policy and is depreciated at the
rate of 40% per annum based on carrying amount. Such plant has an estimated life of five years.
(i)

Plant which cost CU20,000 on 1 October 20X6 was classified as held for sale on 1 February
20X9. The sale was agreed at CU5,600 and completed on 31 March 20X9.

(ii)

New plant acquired cost CU60,000 on 1 January 20X9.

At 1 October 20X8 the cost of plant and machinery (not leased) was CU200,000, with accumulated
depreciation of CU72,000.
(4) Computer
Previously this has been depreciated on a straight-line basis at the rate of 10% per annum on cost. The
computer was acquired on 1 January 20X7 for CU60,000, and by the beginning of this accounting year
CU10,500 of depreciation had been charged. In an effort to charge out computer time to departments,
a record is now kept of computer time used. Management wish to depreciate the computer on a
usage basis. The manufacturer's estimate of total usage time of the computer's life is 40,000 hours. The
data processing manager estimates that some 10,000 hours have been worked prior to the current
accounting period. During the current year the record shows 4,800 hours worked. The computer will
have a scrap value of CU4,500 at the end of its useful life.
Requirements
(a)

Prepare the schedule of non-current assets which will form the note to the company's published
balance sheet at 30 September 20X9.
(16 marks)

(b) Briefly explain the qualitative characteristics contained in BFRS Framework for the Preparation and
Presentation of Financial Statements illustrating your answer with reference to the provisions of BAS 16
Property, Plant and Equipment.
(6 marks)
(22 marks)

© The Institute of Chartered Accountants in England and Wales, March 2009

19