ACCA f1 with answers

Answers



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

December 2002 Answers

Section A
1
B
$400 debit which should have been credited – correction will bring trial balance into agreement.
2

D
Rent Receivable
O/Balance
Income Statement
C/Balance

$
21,200
475,900
31,200

$
28,700
481,200
18,400

O/Balance
Cash
C/Balance

528,300

3.

C

528,300

$2,500 + $7,500 + $9,000 + $9,000 + $6,000
One month in advance = $3,000 Cr.

4

D

$
69,040
3,000
4,800

20% × $345,200
10/
12 × 20% × $18,000
8/
12 × 20% × $36,000

76,840
5

D

–$36,840 + $51,240 – $43,620 = $29,220 overdrawn

6

A

7

A

8

B

$952,500 × 100/60 = $1,587,500

9

D

Sales
Opening inventory
Purchases

318,000

412,000

less: Inventory held

730,000
214,000

Shortfall

516,000
57,000

$

Gross profit 25%

459,000
153,000

10 C
11 C
12 A
13 C
14 A
15 D

$
612,000

5c × 10,000,000 + 8% × $500,000

16 A
17 D
18 A
19 B
20 C

17


21 D
22 B
23 B
24 A
25 C

Section B
1

Cronos Limited
Income statement for the year ended 30 September 2002
$

Sales
Cost of sales (W1)
Gross profit
Distribution costs (W1)
Administrative expenses (W1)

$

3,210,000
(1,823,100)
1,386,900

(188,500)
(944,680)

(1,133,180)

Profit from operations
Interest payable (30,000 + 30,000)

253,720
(60,000)

Net profit for the year

193,720

Working 1

Opening inventory
Purchases
Carriage inwards
Carriage outwards (47,250 + 1,250)
Wages and salaries
694,200
5,800
700,000
Sundry administrative expenses

(381,000 + 13,600 – 4,900)
Bad and doubtful debts
(14,680 + 8,000 – 2,700)
Depreciation of office equipment
20% × (214,000 – 40,000 + 48,000)
Loss on sale
Closing inventory

Cost of
Sales
$
186,400
1,748,200
38,100

Distribution
Costs
$

Administrative
Expenses
$

48,500

70,000

140,000

490,000

389,700
19,980
44,400
600
(219,600)
1,823,100

188,500

18

944,680


2

(a)

Journal entries
(1) Trial balance (no ledger entry)
Suspense account
Correction for carriage outwards balance omitted from trial balance

48,900

(2) Discount received
Discount allowed
Suspense account
Suspense account

Discount received
Discount allowed

38,880
38,880

48,900

77,760
136,400
68,200
68,200

Correction of discount totals
Wrong discount amount posted to the wrong side
(3) Ordinary share capital account
Share premium account

300,000
300,000

Correction of error in recording issue of shares – $300,000 wrongly credited to ordinary share capital account.
Suspense Account

(b)
Difference
Discount accounts

$
386,400

136,400

Trial balance (carriage outwards)
Discount accounts
Balance

522,800

3

$
48,900
77,760
396,140
522,800

Helios
Consolidated balance sheet as at 30 June 2002
Non-current assets
Goodwill
Tangible assets

$
68,800
770,000

Net current assets

838,800
390,000

1,228,800

Share capital
Share premium account
Accumulated profit

600,000
350,000
128,800
1,078,800
150,000

Minority interest

1,228,800

19


Cost of control

Investment in Luna

$
700,000

Share Capital 80%
Share Premium 80%
Accumulated profits 80% pre-acq
Balance – goodwill

700,000
Balance

172,000

$
320,000
160,000
48,000
172,000
700,000

Amortisation 20% × 3 years
Balance

172,000

103,200
68,800
172,000

Minority interest

Balance for CBS

$
150,000

Share Capital 20%

Share Premium 20%
Accumulated profits 20%

150,000

$
80,000
40,000
30,000
150,000

Accumulated profits
$
Cost of control
80% × $60,000
Minority interest
20% × $150,000
Cost of control
Goodwill amortisation
Balance for CBS

48,000

Helios
Luna

30,000
103,200
128,800
310,000

4

(a)

$
160,000
150,000

310,000

The values of the land and the buildings need to be separated, because the land would not normally require depreciation.
The revalued amount of the buildings should be depreciated over the estimated remaining useful economic life at the time of
the revaluation. The straight-line method is usually adopted, but other methods such as the reducing balance method may
be used.

(b)

Development costs should be amortised, using a method that reflects the pattern in which the economic benefits of the costs
are consumed by the enterprise. If this pattern cannot be determined reliably, the straight-line method should be used.
If the circumstances justifying the deferral of the expenditure cease to apply at any time, the expenditure should be written
off to the extent that it is no longer recoverable.

5

(c)

Investments of this kind do not depreciate, though they may fluctuate in value. Accordingly no depreciation is provided for
them.

(a)

IAS 10 Events after the Balance Sheet Date classifies this type of event as non-adjusting – no change to the figures in the
financial statements is required but there should be a note to ensure that the financial statements are not misleading. The
note should state the amount of the loss and the extent of the insurance cover.

(b)

A provision should be made for the estimated amount of the liabilities under warranties, as required by IAS 37 Provisions,
Contingent Liabilities and Contingent Assets. The provision will appear as a liability in the balance sheet and the operating
profit will be reduced by the amount of the allowance.

(c)

This is an adjusting event according to IAS 10 Events after the Balance Sheet Date. The closing inventory should be reduced
by $40,000 in the balance sheet and in cost of sales, thus reducing operating profit by this amount, unless it could be shown
that the deterioration had taken place after the balance sheet date

(d)

The goods have to be treated as trading inventory at September 2002, applying generally accepted accounting principles.
The effect on the income statement and balance sheet will be:
(i)

Sales and trade receivables both reduced by $100,000.

(ii)

Closing inventory increased by $80,000.

The combined effect of the two adjustments is to reduce current assets and profit by $20,000.

20


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

1

Sales revenue
Cost of sales
Distribution costs
Administrative expenses:
Wages and salaries
Sundry admin. expenses
Bad and doubtful debts
Depreciation
Loss on sale

December 2002 Marking scheme
Available
1/
2

5 × 1/2
2 × 1/2

21/2
1

1
1
11/2
11/2
1

6
91/2
1
2

Interest payable
Format

13

2

(1) Journal entry
Narrative

1/
2

(2) Journal entry
Narrative

1/
2

(3) Journal entry
Narrative

1/
2

Suspense account
Per entry
Final balance

1
11/2

2
21/2

1

3×1

11/2

3
1/
2

31/2
9

3

Maximum

Calculation of goodwill
Goodwill amortisation

4 × 1/2

Calculation of minority interest
Calculation of accumulated profits
Initial profits
Adjustments

3 × 1/2

2
1

2 × 1/2
3×1

1
3

Consolidated balance sheet – format
Assets
Capital and reserves
Minority interest

1
1
1/
2

3
11/2

4

21/2
11

21

12


Available
4

(a)

(b)

(c)

5

(a)

(b)

(c)

(d)

Land and buildings separated
Land not normally depreciated
Revalued amount for buildings depreciated over the
remaining useful economic life

1

Amortised
Basis of amortisation
Written off if no longer recoverable

1
1
1

Value fluctuating but does not depreciate
No depreciation required

1
1

Maximum

1
1

Non-adjusting event
Disclose by note
IAS 10 mentioned
Contents of note

1/
2
1/
2
1/
2
1/
2

Allowance required
IAS 37 mentioned
Effect on accounts

1/
2
1/
2

Adjusting event
IAS 10 mentioned
Effect on accounts

1/
2
1/
2

1

1

Description of adjustment
Generally accepted accounting principles
Adjustments to:
Sales
Receivables
Closing inventory
Effect on profit

3

3

3

3

2

2

8

8

2

2

2

1
1
1/
2
1/
2
1/
2
1/
2

4
10

22