ACCA f1 with answers 2005

Answers



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

December 2005 Answers

Section A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

22
23
24
25

A
A
B
D
C
D
B
A
D
D
D
C
C
D
A
D
A
C
B
D
B
C
C
A
B

17


SECTION B
1

Airn
Income statement for the year ended 30 June 2005
$
Sales revenue (Working 1)
Opening inventories
Purchases (Working 2)

$
517,200

58,900
334,600
––––––––
393,500
63,200

less: Closing inventories

––––––––
Gross profit
Wages
Rent and general expenses (49,200 + 7,400 – 12,500 + 13,000)
Depreciation: shop fittings (45,000 x 10%)

motor van (22,000 x 20%)
Profit on sale of van (4,500 – 4,000)

74,000
57,100
4,500
4,400
(500)
––––––––

Net profit

330,300
––––––––
186,900

139,500
––––––––
$47,400
––––––––

Workings
(1) Calculation of sales
Receivables ledger total account

Opening balance
Sales

$
44,700

Cash banked
Payments out of takings

$
418,200
95,100

517,200
––––––––
561,900
––––––––

Closing balance

48,600
––––––––
561,900
––––––––

(2) Calculation of purchases
Payables ledger total account
$
Cash paid for purchases
Closing balance

316,300
24,200
––––––––
340,500

––––––––

Credit purchases
Cash purchases

320,900
13,700
––––––––
334,600
––––––––

Total purchases

Opening balance
Purchases

$
19,600
320,900
––––––––
340,500
––––––––

18


2

Land – cost/valuation
2004

1 Jan
Balance
30 June Cash
31 Dec Revaluation reserve

$000
400
200
300
–––––
900
–––––

2004
30 Sept

Disposal

31 Dec

Balance

$000
100
800
–––––
900
–––––

Buildings – cost/valuation

2004
1 Jan
Balance
30 June Cash
31 Dec Revaluation reserve

$000
800
500
200
–––––
1,500
–––––

2004
30 Sept

Disposal

31 Dec

Balance

$000
100
1,400
–––––
1,500
–––––

Buildings – accumulated depreciation
2004
30 Sept Disposal

$000
20

31 Dec Revaluation reserve

204
–––––
224
–––––

2004
1 Jan
31 Dec

Balance
Income statement depreciation
2% x 1,200

$000
200
24
–––––
224
–––––

Land and Buildings – disposal

2004
30 Sept Land
Buildings
Income statement – profit

$000
100
100
320
–––––
520
–––––

3

2004
30 Sept

Depreciation
Cash

$000
20
500
–––––
520
–––––

Goodwill

Investment in Rye

$
260,000
––––––––
260,000
––––––––

Share capital 80%
Retained earnings 80%
Goodwill-retained earnings

$
80,000
144,000
36,000
––––––––
260,000
––––––––

Minority interest

Balance to CBS

$
72,000
––––––––
72,000
––––––––

Share capital 20%
Retained earnings 20%

$
20,000
52,000
––––––––
72,000
––––––––

Retained earnings
$
Cost of control
80% x $180,000
Goodwill
Minority interest 20%
Balance to CBS

144,000
36,000
52,000
508,000
––––––––
740,000
––––––––

Balances Kye
Rye

$

480,000
260,000

––––––––
740,000
––––––––

19


Kye group
Balance sheet as at 30 September 2005
$
780,000
––––––––
200,000
508,000
––––––––
708,000
72,000
––––––––
780,000
––––––––

Sundry net assets (420, 000 + 360,000)
Share capital
Retained earnings
Minority interest

4

(1) The factory was in good condition at 30 June 2005, and thus the fire is a non-adjusting event according to IAS 10 Events
after the balance sheet date. Details of the fire and an estimate of the loss suffered should be disclosed by note.
(2) According to IAS 37 Provisions, contingent liabilities and contingent assets, contingencies such as this are to be provided for
as soon as it becomes probable that a liability will arise. A provision should therefore be made for the best estimate of the
loss that will arise.
(3) This constitutes a ‘probable’ contingent asset under IAS 37, and thus should be disclosed by note, explaining the nature of
the contingent asset and, if possible, an estimate of the financial effect.
(4) It is incorrect to include the revaluation gain in the income statement, because the gain is unrealised. It should be credited
to revaluation reserve and shown in the balance sheet. The gain should also be shown in the statement of changes in equity
(IAS 16 Property, Plant and Equipment and IAS 1 Presentation of Financial Statements).

5

Four accounting concepts needed for full marks.
Examples:
(i)

Accruals concept
The accruals concept is that transactions are reflected in the accounting period in which they occur, rather than the period in
which any cash involved is received or paid. If this concept is not followed, expenses, income, assets and liabilities are all
liable to be misstated and fair presentation will not be achieved.

(ii)

Going concern concept
The going concern concept is that financial statements should be prepared on the basis that the business will continue for
the foreseeable future. If this concept is not followed, assets and liabilities, and hence income and expenses, will be distorted,
except, of course, in the rare case that the business is in fact no longer a going concern.

(iii) Prudence concept
Prudence means that a degree of caution should be exercised in making estimates of figures for the financial statements, so
that assets are not overstated and liabilities are not understated. If the prudence concept is not followed, fair presentation is
unlikely to be achieved because assets and liabilities may be shown at unrealistic values.
(iv) Neutrality
Neutrality means that information in financial statements should be free from deliberate or systematic bias. If this concept is
not followed, information may be presented in a misleading way and a fair presentation will not result.
(v)

Substance over form
The legal form of a transaction may not represent the true nature of that transaction. The concept of substance over form is
that, whenever legally possible, the substance or reality of a transaction should be accounted for rather than its legal form.

Other concepts considered on their merits.

20


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

December 2005 Marking Scheme

Section B
1

2

Heading
Sales revenue

Opening inventories
Purchases
Closing inventories
Wages
Rent and general expenses
Depreciation: shop fittings
motor van
Profit on sale of van

1
2
1/
2
2
1/
2
1/
2
2
1
1
1
–––––
1
11 /2

max 11

21/2
21/2

31/2
21/
–––––2

Land – cost/valuation
Buildings – cost/valuation
Buildings – accumulated depreciation
Land and buildings – disposal

11

3

11/2
1
21/2
1
1
1/
2
1/
–––––2

Goodwill
Minority interest
Retained earnings
Heading
Sundry net assets
Share capital
Minority interest in B/S

8

4

5

(1) IAS 10
Non-adjusting
Details in note 2 x 1/2

1
1
1
–––––
3

(2) IAS 37
Provide for

1
1
–––––
2

(3) IAS 37
Disclose by note 2 x 1/2

1
1

–––––
2

(4) IASs 16/1
Must not be in income statement
Include as revaluation reserve in balance sheet
Include in statement of changes in equity

1
1
1
1
–––––
4
–––––
11

max 10

4
8
–––––
12

max 10

Concepts stated
explained

4x1

4x1

21