ACCA f1 with answers 2006

Answers


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

June 2006 Answers

Section A
1

C

2

D

3

D

4

D

(280,000 x 20%) + (48,000 x 20% x 9/12 ) + (36,000 x 20% x 4/12 ) – (14,000 x 20% x 6/12 )
5/
12

x 24,000 + 7/12 x 30,000 = 27,500; 2/3 x 7,500 = 5,000
Receivables ledger control account

Opening receivables
Sales

148,200
880,600

Cash received from customers
Discounts allowed
Irrecoverable debts written off
Returns from customers
Closing receivables

––––––––––
1,028,800
––––––––––
5

D

6

D

7

C

8

B

9

B

10

D

11

A

12

B

13

B

14

A

819,300
16,200
1,500
38,700

153,100
––––––––––
1,028,800
––––––––––

3,980 – 270 – 180 – 3,200 = 330 : difference 100

630,000 – 4,320 – 440

430,000 x 5% = 21,500 – 18,000 + 28,000
Payables ledger control account
Cash paid to suppliers
Discounts received
Contras with amounts
receivable in receivables ledger
Purchases returns
Closing balance

988,400
12,600
4,200
17,400
325,200
––––––––––
1,347,800
––––––––––

15

A

16

D

17

C

18

A

19

C

20

B

21

D

22

C

23

B

24

C

1,100,000 – 4/5 (400,000 + 500,000)

25

A

20% x (400,000 + 800,000)

756,000 x

Opening balance
Purchases

384,600
963,200

––––––––––
1,347,800
––––––––––

10/
7

38,640 + 14,260 – 19,270 = 33,630

48,000 + 400 + 2,200

17


Section B
1

Leon and Mark
Statement of division of profit for the year ended 31 December 2005
Six months ended 30 June 2005
$
Leon:

(90,000 – 20,000) (see working)

Six months ended 31 December 2005
Profit
Interest on capital
Leon 5% x 400,000 x 6/12
Mark 5% x 200,000 x 6/12

$
70,000
––––––––
180,000

10,000

5,000
––––––––

Salary
Mark 20,000 x 6/12

(15,000)
––––––––
165,000
(10,000)
––––––––
155,000

Balance of profit
Leon 60%
Mark 40%

93,000
62,000
––––––––

Working
Profit for year
Add: irrecoverable debt

155,000
––––––––
0
––––––––
$

250,000
20,000
––––––––
270,000
––––––––

Profit for division
Six months ended 30 June 2005
less: irrecoverable debt

90,000
20,000
––––––––

Six months ended 31 December 2005

70,000
180,000
––––––––
250,000
––––––––

Current accounts

Drawings
Balance

Leon
$
160,000

13,000

173,000

Mark
$
80,000

30 June Profit
31 Dec Interest on capital
Salary
Share of balance 60:40
Balance

80,000

Leon
$
70,000
10,000
93,000

173,000

18

Mark
$
5,000
10,000

62,000
3,000
80,000


Alternative format
Leon and Mark
Statement of division of profit for the year ended 31 December 2006
Leon
$
Six months ended 30 June 2005
Leon: (90,000 – 20,000)(see working)

Mark
$

70,000
–––––––

Six months ended 31 December 2005
Interest on capital
Leon 5% x 400,000 x 6/12
Mark 5% x 200,000 x 6/12

Total
$
70,000
–––––––

10,000

Salary
Mark 20,000 x 6/12
Balance of profit 60:40

93,000
–––––––
103,000
–––––––

5,000

15,000

10,000

10,000

62,000
–––––––
77,000
–––––––

155,000
–––––––
180,000
–––––––

Current accounts

Drawings
Balance

2

Leon
$
160,000
13,000

Mark
$
80,000

173,000

80,000

2005
30 June Profit
31 Dec Share of profit
Balance

Leon
$
70,000
103,000

173,000

Mark
$
77,000
3,000
80,000

(a) Net profit adjustments
$
684,000

Profit per draft financial statements
(1) Inventory movement
Adjustment for sales $36,000 x 60%
(2) Goods on sale or return
Elimination of profit
(3) Reduction in inventory:
$18,000 – ($13,500 – $500)
(4) Debts written off
(5) Increase in allowance for receivables
($11,500 – $10,000)

21,600
(4,000)
(5,000)
(8,000)
(1,500)
–––––––––
$687,100
–––––––––

Revised net profit

(b) Adjustments to inventory and receivables
(i) Inventory
Inventories per draft financial statements
(1) Inventory movement – as (a) above
(2) Goods on sale or return
cost introduced into inventory
(3) Reduction in inventory (a) above

$
116,800
21,600
6,000
(5,000)
–––––––––
$139,400
–––––––––

Revised closing inventory

$
(ii) Receivables
per draft financial statements
(2) Deduction of goods on sale or return
(4) Debts written off

248,000
(10,000)
(8,000)

–––––––––
230,000
(11,500)
–––––––––
$218,500
–––––––––

(5) less: allowance for receivables

19


Ganda
Cash flow statement for the year ended 31 December 2005
$000

3

Cash flows from operating activities
Profit before taxation
Adjustment for:
Depreciation (W2)
Profit on sale of non-current asset (W3)
Interest expense

$000

970
310
(20)

120
–––––
1,380

Increase in inventory
Decrease in receivables
Increase in payables

(200)
200
100
–––––
1,480
(120)
(200)
–––––

Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities

1,160

Cash flows from investing activities
Purchase of non-current assets (W1)
Proceeds of sale of non-current assets (W3)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital (300 + 180)

Proceeds from issue of loan notes
Dividends paid

(1,500)
80
–––––
480
200
(250)
–––––

Net cash from financing activities
Cash at beginning of period
Cash at end of period

(1,420)

430
–––––
170
(230)
–––––
(60)
–––––

Workings
(1)

Non-current assets – cost

Opening balance
Purchases (balancing figure)

$000
2,100
1,500

Transfer disposal
Closing balance

––––––
3,600
––––––
(2)

$000
200
3,400
––––––
3,600
––––––

Non-current assets - accumulated depreciation

Transfer disposal

Closing balance

(3)

$000
140

Opening balance
Income statement – depreciation
(balancing figure)

720
––––––
860
––––––

$000
550
310
––––––
860
––––––

Non-current assets - disposal

Transfer – cost
Income statement

$000
200
20
––––––
220
––––––

Transfer – depreciation
Cash

20

$000
140
80
––––––
220
––––––


4

(a) The working capital cycle illustrates the changing make-up of working capital in the course of the trading operations of a
business:
1

Purchases are made on credit and the goods go into inventory.

2

Inventory is sold and converted into receivables

3

Credit customers pay their accounts

4

Cash is used to pay suppliers.

(b) Collection period for receivables
250
––––– x 365
1,000

91 days

Inventory turnover
200
––––– x 365
700

104 days
–––––––– (see Note below)
195 days

Payment period for payables
150
––––– x 365
800

68 days
––––––––
127 days

Length of working capital cycle

Note. If average inventory is used the inventory turnover becomes:
100 + 200
––––––––––– ÷ 2 x 365
700

78 days

The length of the cycle becomes 101 days.
Either answer is acceptable.
(c) The advantage to a company of keeping its working capital cycle short is that fewer resources are tied up in working capital,
thus freeing them for other purposes.
(Other answers considered on their merits)

5

To the directors of Ambia

8 June 2006

Comments on proposals under consideration
(a) Proposed bonus issue.
There are several problems in connection with the proposed bonus issue:
(i)

A bonus issue would not raise any capital for the company. To raise capital a rights issue (or an issue at full market
price) would be necessary.

(ii) For either a bonus issue or a rights issue to be possible, the authorised capital would have to be increased.
(iii) There are insufficient reserves to make a bonus issue of $500,000 worth of shares.

(b) Paying a dividend of 10c per share.
There are insufficient retained earnings to pay a dividend of more than 5c per share.
(c) IFRS 3 Business combinations does not allow goodwill to be revalued upwards.
(d) It is not possible to combine the reserves as suggested. IAS1 Presentation of financial statements requires retained earnings
to be shown seperately from other reserves.

21


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

June 2006 Marking Scheme
Marks

Section B
1

Statement of division of profit
Leon profit for first six months
Profit for second six months
Interest on capital
Salary
Balance of profit

2
1
1
1/
2

1
––––
51/2

Current accounts
Drawings 2 x 1/2
Leon profit 70,000
Interest on capital 2 x 1/2
Salary
Share of balance

1
1/
2

1
1/
2
1/
2

––––
9
––––
Alternative marking scheme (if statement of division of profit shows partners’ total shares)
Leon : profit for first six months
Profit for second six months (as total)
Interest on capital
Salary
Balance of profit

Total shares

2
1
1
1/
2
1
1
––––
61/2

Current accounts
Drawings 2 x 1/2
Leon profit 70,000
Total profit shares

2

1
1/
2

1
––––
9
––––

(a) Profit adjustments
1 mark per item 5 x 1

5

(b) Adjustments to inventory and receivables
Inventory
Movements
Goods on sale or return
Reduction to net realisable value

1
1
1
––––
3

Receivables
Goods on sale or return
Debts written off
Allowance for receivables

1
1
1
––––
3
––––

23

6

––––
11


Marks
3

Cash flows from operating activities
1/ mark per item other than interest
2
Interest added and deducted
Cash flows from investing activities
1/ mark per item
2
Cash flows from financing activities
1/ mark per item
2
Cash movement

31/2
1/
2

2 x 1/2

1

3 x 1/2
2 x 1/2

11/2
1
11/2
11/2
11/2
1/
2
1
––––
131/2
––––

Workings: non-current assets – cost
– depreciation
– disposal
Heading
Layout

4

(a) Purchases into inventory
Inventory into recievables
Receivables into cash
Cash to pay suppliers

1
1
1
1
––––

(b) per ratio 1
3x1
correct calculation

3
1
––––

(c) Up to

5

max12

4

4

2
––––
10

(a) (i)
(ii)
(iii)

2
1
1

(b)

1

(c)

1

(d) 2 x 1

2
––––

24

8
––––
50
––––


5D–GBRAA
Paper T3GBR

Workings for MCQ answers
1

4

6

10

13

14

16

C

280,000 x 20% + 48,000 x 20% x 9/12 + 36,000 x 20% x 4/12 – 14,000 x
20% x 6/12

A

as C, but plus 1,400

B

350,000 x 20%

D

as B, but – 1,400

A

as D, but discounts on wrong side

B

as D, but irrecoverable debts on wrong side

C

as in Q, but with discounts and irrecoverable debts on credit side

D

all items on debit side except opening balance moved to credit side

A

as D, but 180 adjusted in wrong direction

B

as D, but 270 adjusted in wrong direction

C

as D, but 3,200 adjusted in wrong direction

D

3,920 – 270 – 180 – 3,200 = 330 : 100 difference

A

630,000 – 4,320 + 440

B

630,000 – 4,800 – 440

C

630,000 – 4,320 – 440 – 800

D

630,000 – 4,320 – 440

B

430,000 x 5% = 21,500 – 18,000 + 28,000

A

as B but 18,000 not deducted

C

as B but provision based on 458,000

D

as B but provision based on 458,000 and 18,000 not deducted

A

Purchase returns
Cash
Discounts
Contras
c/bal

17,400
988,400
12,600
4,200
325,200
–––––––––
1,347,800
–––––––––

O/Bal
Purchases

384,600
963,200

–––––––––
1,347,800
–––––––––

B

as A but discounts on wrong side

C

as A but contras and discounts on wrong side

D

as in Q but contras and discounts on credit side (410,000 – 33,600)

A

(77 + 763 – 84) = 756 + 30%

B

763 x

10/
7

C

756 x

10/
3

D

756 x

10/
7

25


5D–GBRAA
Paper T3GBR

20

22

24

A

as in question

B

(38,640 – 19,270 + 14,260)

C

as B but plus 140

D

as B but minus 140

A

48,000 + 400 + 800 + 2,200

C

48,000 + 400 + 2,200

D

48,000 + 400

A

(1,100,000 – (400,000 + 500,000))

B

(1,100,000 – 4/5 x 400,000)

C

(1,100,000 – 4/5 (400,000 + 500,000))

D

4/

5

x 1,100,000

26