ACCA f1 with answers 2005 p2

Answers



Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream)

June 2005 Answers

Section A
1

D

Rent received
Balance
Income statement
Balance

16,900
316,200
28,400
––––––––
361,500
––––––––

Balance
Cash
Balance

24,600

318,600
18,300
––––––––
361,500
––––––––

2

A

38,000 + 637,000 – 45,000 = 630,000 x 10/7 = 900,000

3

B

39,800 + 44,200 – 64,100 = 19,900 overdrawn

4

A

5

A

6

B

Depreciation 1/40 x 1,000,000
Revaluation 1,000,000 – 640,000

7

A

836,200 – 8,600 + 700 + (14,000 x 70%) = 838,100

8

B

80,000 + 60,000 – 1,000 = 139,000

9

D

10 C

11 A

Income statement 12/18 x 60,000 = 40,000
Prepayment 3/12 x 40,000 = 10,000

12 C

400,000 – 210,000 – 100,000 + 48,000 = 138,000

13 C
318,650
161,770
280
––––––––
480,700
––––––––

14 B

181,140
1,390
3,990
1,240
292,940
––––––––
480,700
––––––––

864,000 – 13,000 = 851,000 – 5% =
13,000 – (48,000 – 42,550)

808,450
7,550

15 C

17

16 D

17 C

83,600 + 18,000 – 4,500 = 97,100

18 B

19 A

20 B

21 A

22 D

23 C

160,000 – 80% (50,000 + 30,000) – 24,000

24 D

20% x 120,000

25 D

180,000 + 100,000 – 56,000 – 20,000 – 16,000 = 188,000

18

Section B
1

Assets
Non-current assets
Land and buildings
Plant and equipment

Shuswap
Balance sheet as at 31 December 2004
Cost or
Accumulated
valuation
depreciation
$000
$000
12,000
19,600
–––––––
31,600
–––––––

Net book
value
$000

–
7,950
––––––

7,950
––––––

Current assets
Inventories (3,000 – 140)
Receivables (2,600 – 200 – 106)
Cash at bank

12,000
11,650
–––––––
23,650

2,860
2,294
1,900
––––––

Equity and liabilities
Capital and reserves
Called up share capital (6,000 + 2,000)
Share premium account
Revaluation reserve
Retained earnings (working)

7,054
–––––––
30,704
–––––––

8,000
2,400
4,000
12,310
––––––

26,710

Non-current liabilities
Loan notes
Current liabilities
Trade payables (2,100 – 106)

2,000
1,994
–––––––
30,704
–––––––

Working
Retained earnings balance
Per question
Bad debts written off
Loss on sale of plant
Depreciation adjustment
Inventory adjustment

2

(a)

(b)

(c)

(d)

(e)

$000
12,400
(200)
(100)
350
(140)
–––––––
12,310
–––––––

Income statement
Accumulated depreciation of motor vehicles
Adjustment to depreciation from reducing balance basis
to straight-line basis

$
8,000

$
8,000

Petty cash
Rent receivable
Rent received omitted from records

1,200

Bad debts
Sundry receivables ledger accounts
Bad debts written off

8,400

1,200

8,400

Suspense account
3,400
Motor vehicle repairs
Correction of error – opening balance not brought forward
Discounts allowed
Discounts received
Suspense account
December 2004 discount totals not posted

3,400

380
290
90

19


Profit adjustments
Profit per draft financial statements
(a) Depreciation adjustment
(b) Rent receivable not recorded
(c) Bad debts written off
(d) Motor repairs adjustment
(e) Discounts not posted: 380 – 290
Adjusted profit

3

$
86,400
(8,000)
1,200
(8,400)
3,400
(90)
––––––––
74,510
––––––––

Sioux
Cash flow statement for the year ended 31 December 2004.
$000
Cash flows from operating activities

Net profit before taxation
2,350
Adjustments for:
Depreciation
1,250
Profit on sale of plant
(150)
Interest expense
300
––––––
Operating profit before working capital changes
3,750
Decrease in inventories
400
Increase in receivables
(900)
Increase in payables
500
––––––
Cash generated from operations
3,750
Interest paid
(300)
Income taxes paid
(600)
––––––
Cash flows from investing activities
Purchase of non-current assets
Proceeds of sale of non-current assets
Net cash used in investing activities

(3,300)
500
––––––

Cash flows from financing activities
Proceeds of issue of loan notes
Dividends paid
Net cash from financing activities

1,000
(750)
––––––

Net increase in cash
Cash at 1 January 2004

$000

2,850

(2,800)

250
––––––
300
100
––––––
400
––––––

Cash at 31 December 2004
Workings
Non-current assets – cost

Opening balance
Revaluation reserve
Cash (balancing figure)

$000
8,000
500
3,300
–––––––
11,800
–––––––

Disposal

Closing balance

$000
800

11,000
–––––––
11,800
–––––––

Non-current assets – depreciation

Disposal
Closing balance

$000
450

Opening balance
Income statement

5,600
–––––––
6,050
–––––––

$000
4,800
1,250
–––––––
6,050
–––––––

20


Non-current assets – disposal

Cost
Profit on sale

4

$000
800
150
––––
950
––––

Depreciation
Cash

$000
450
500
––––
950
––––

(a)

A highly-geared company has an obligation to pay interest on its loans regardless of its profit level. It will show high profits if
its overall rate of return on capital is greater than the rate of interest being paid on its borrowings, but a low profit or a loss if
there is a down-turn in its profit such that the rate of interest to be paid exceeds the return on its assets.

(b)

(i)

One company may have revalued its assets while the other has not.

(ii)

Accounting policies and estimation techniques may differ. For example, one company may use higher depreciation rates
than the other.

(iii) The use of historical cost accounting may distort the capital and profit of the two companies in different ways.
Other answers considered on their merits.

5

(a)

The correct treatment is to provide for the best estimate of the costs likely to be incurred under the warranty, as required by
IAS37 Provisions, contingent liabilities and contingent assets.

(b)

The inventories should be valued at the lower of cost and net realisable value. Cost is $80,000, net realisable value is
$85,000 less 10%, or $76,500. The net realisable value of $76,500 should therefore be taken (IAS2 Inventories)

(c)

The opening inventory should be included in the current year’s income statement at the corrected figure, and the opening
balance of retained profit reduced by $100,000. The $100,000 reduction will appear in the statement of changes in equity.
(IAS8 Accounting policies, changes in accounting estimates and errors)

21

Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream)
1

2

Land and buildings
Plant and equipment
depreciation
adjustment for disposal
Inventory adjustment
Receivables-adjustment for write-off
Payables Contra
Payables Contra
Share capital
Share premium
Revaluation reserve
Retained earnings
bad debts
loss on plant
depreciation adjustment
Inventory adjustment
Heading

Journal entries
1/ mark per entry
2
1/ mark for narrative
2

Profit adjustments 5 x 1/2

June 2005 Marking Scheme
1
1
1

2
1
1/
2
1/
2
1/
2
1
1
1
1
1
1
1
1
–––––
131/2

1
1/
2
–––––

1
1 /2 x 5

max 12

71/2
21/
–––––2
10

3

Workings:
Non-current assets:
cost
depreciation
disposal

3 x 1/2
2 x 1/2
3 x 1/2

11/2
1
11/2

Cash flow statement
1/ per item
2

13 x 1/2

61/2

Layout
Heading

4

1
1
–––––
1
12 /2

(a)
(b)

max 11

3
3x2

6
–––––
9

5

(a)

(b)

(c)

Provision
IAS 37

1
1

2

Correct treatment
IAS2

1
1

2

Prior year adjustment
Reconciliation
Comparative figures adjusted
IAS8

1
1
1
1

4
–––––
8
–––––
50
–––––

23