Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) June 2005 Answers
Section A
1 D Rent received
Balance 16,900 Balance 24,600
Income statement 316,200 Cash 318,600
Balance 28,400 Balance 18,300
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361,500 361,500
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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
13,000 – (48,000 – 42,550) 7,550
15 C
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
Section B
1 Shuswap
Balance sheet as at 31 December 2004
Cost or Accumulated Net book
valuation depreciation value
Assets $000 $000 $000
Non-current assets
Land and buildings 12,000 – 12,000
Plant and equipment 19,600 7,950 11,650
––––––– –––––– –––––––
31,600 7,950 23,650
––––––– ––––––
Current assets
Inventories (3,000 – 140) 2,860
Receivables (2,600 – 200 – 106) 2,294
Cash at bank 1,900 7,054
–––––– –––––––
30,704 ––––––– Equity and liabilities
Capital and reserves
Called up share capital (6,000 + 2,000) 8,000
Share premium account 2,400
Revaluation reserve 4,000
Retained earnings (working) 12,310 26,710
–––––– Non-current liabilities
Loan notes 2,000
Current liabilities
Trade payables (2,100 – 106) 1,994
––––––– 30,704 ––––––– Working
Retained earnings balance
$000
Per question 12,400
Bad debts written off (200)
Loss on sale of plant (100)
Depreciation adjustment 350
Inventory adjustment (140)
––––––– 12,310 –––––––
$ $
2 (a) Income statement 8,000
Accumulated depreciation of motor vehicles 8,000
Adjustment to depreciation from reducing balance basis to straight-line basis
(b) Petty cash 1,200
Rent receivable 1,200
Rent received omitted from records
(c) Bad debts 8,400
Sundry receivables ledger accounts 8,400
Bad debts written off
(d) Suspense account 3,400
Motor vehicle repairs 3,400
Correction of error – opening balance not brought forward
(e) Discounts allowed 380
Discounts received 290
Suspense account 90
December 2004 discount totals not posted
Profit adjustments
$ Profit per draft financial statements 86,400
(a) Depreciation adjustment (8,000)
(b) Rent receivable not recorded 1,200
(c) Bad debts written off (8,400)
(d) Motor repairs adjustment 3,400
(e) Discounts not posted: 380 – 290 (90)
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Adjusted profit 74,510
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3 Sioux
Cash flow statement for the year ended 31 December 2004.
$000 $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)
–––––– 2,850
Cash flows from investing activities
Purchase of non-current assets (3,300)
Proceeds of sale of non-current assets 500
Net cash used in investing activities –––––– (2,800)
Cash flows from financing activities
Proceeds of issue of loan notes 1,000
Dividends paid (750)
Net cash from financing activities –––––– 250
––––––
Net increase in cash 300
Cash at 1 January 2004 100
––––––
Cash at 31 December 2004 400
–––––– Workings
Non-current assets – cost
$000 $000
Opening balance 8,000 Disposal 800
Revaluation reserve 500
Cash (balancing figure) 3,300
Closing balance 11,000
––––––– –––––––
11,800 11,800
––––––– –––––––
Non-current assets – depreciation
$000 $000
Disposal 450 Opening balance 4,800
Income statement 1,250
Closing balance 5,600
––––––– –––––––
6,050 6,050
Non-current assets – disposal
$000 $000
Cost 800 Depreciation 450
Profit on sale 150 Cash 500
–––– ––––
950 950
–––– ––––
4 (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)
Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) June 2005 Marking Scheme
1 Land and buildings 1
Plant and equipment
depreciation 1
adjustment for disposal 1 2
Inventory adjustment 1
Receivables-adjustment for write-off 1/
2
Payables Contra 1/ 2
Payables Contra 1/
2
Share capital 1
Share premium 1
Revaluation reserve 1
Retained earnings
bad debts 1
loss on plant 1
depreciation adjustment 1
Inventory adjustment 1
Heading 1
––––– 131/
2 max 12
2 Journal entries 1/
Cash flow statement 1/
5 (a) Provision 1
IAS 37 1 2
(b) Correct treatment 1
IAS2 1 2
(c) Prior year adjustment 1
Reconciliation 1
Comparative figures adjusted 1
