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(1)

ACCOUNTING

SAMPLE PAPER 2

2015

ANSWERS

1

Havisham plc

PBT ½

Finance costs ½

Depreciation charge 2

Amortisation charge 1

Impairment charge ½

Gain/loss on sale of PPE ½

Gain/loss on sale of intangible assets 1

Movement in inventories ½

Movement in trade receivables 1

Movement in trade payables 1

Tax paid 1

Interest paid 1

Purchase of PPE 2

Purchase of intangibles 1

Proceeds from sales of PPE 2

Proceeds from sales of intangible assets 1

Proceeds from issue of shares 1

Movement in borrowings 1

Dividends paid 1

Opening and closing cash ½

Total available 20

Maximum 16

Marking guide

(2)

© ICAEW 2015

Statement of cash flows for the year ended 31 May 20X2

£ Cash flows from operating activities

Profit before tax 730,040

Investment income 0

Finance costs 89,600

Depreciation 232,900

Amortisation (W1) 21,200

Impairment charge (W1) 20,000

Gain/ loss on sales of property, plant and equipment 84,810 Gain/ loss on sales of intangible assets (17,000 – 24,000) (7,000) Movement in inventories (285,550 – 430,040) (144,490) Movement in trade receivables (224,150 – 342,700) (118,550) Movement in trade payables (146,700 – 135,900 - 13,900) (3,100)

Cash generated from operations 905,410

Tax paid (W2) (236,420)

Interest paid (W3) (92,200)

Net cash from/ used in operating activities 576,790

Cash flows from investing activities

Purchase of property, plant and equipment (W4) (531,900)

Purchase of intangible assets (251,340)

Proceeds from sale of property, plant and equipment (127,800 – 84,810)) 42,990 Proceeds from sale of intangible assets 24,000

Interest received -

Net cash from/ used in investing activities (716,250)

Cash flows from financing activities

Proceeds from issue of shares (W5) 126,800

Movement in borrowings ((423,000 + 51,000) –(567,400+115,600) + (75,000)) 284,000

Dividends paid (W6) (231,640)

Net cash from/ used in financing activities 179,160

(3)

WORKINGS

5 SHARE CAPITAL AND SHARE PREMIUM

£ £

2 A Drawings decrease capital so they are a debit (B); discount allowed and carriage outwards are expenses so they too are debits (C) and (D). A bank overdraft is a liability so it is a credit (A).

LO1F 3 A,C Discount received should have been credited to an statement of profit or loss account and debited to

payables. Since both sides of the entry were debits, the debit side of the trial balance would exceed the credit side and a suspense account with a credit balance would be opened (A). Goods returned by a customer should have been debited to sales and credited to receivables. As they were debited to receivables the same situation arises, and a suspense account with a credit balance would be opened (C).

(4)

© ICAEW 2015

4 C The transposition error is £17,150 – £11,750 = £5,400. As the understatement is in the purchase day book total it affects only the control account, which is understated by £5,400 and so should be increased by that amount.

SAMPLE PAPER LO2B

5 B An overcast of the total of invoices in the sales day book means that £782 will be debited to the control account but not to the receivables ledger. In both A and C the receivables ledger will be overdebited by (£391 × 2); in D both the control account and the ledger will be overdebited by (391 × 2).

SAMPLE PAPER LO2B

6 A If the debit side of the trial balance is undercast by £692 this amount is debited in the suspense account. When the cheque payment of £905 was credited to cash it should have been debited to an expense account; instead it was debited to suspense. Thus the suspense account has a debit balance of £692 + £905 = £1,597.

SAMPLE PAPER LO2B

7 B The opening prepayment of rent of £4,251 needs to be debited to administrative expenses, and the closing prepayment of £7,200 × 2/3 = £4,800 needs to be credited. Total administrative expenses will therefore be £44,064 + £4,251 – £4,800 = £43,515.

SAMPLE PAPER LO3C

8 B Cost of sales includes carriage inwards, which is a cost incurred in bringing inventories to their present location, but excludes carriage outwards, which is a distribution cost and included in the statement of profit or loss after calculating gross profit. Closing inventories should be deducted in arriving at cost of sales.

The allowance needs to be debited with £6,546 – £5,060 = £1,486 (B), and £1,860 needs to be credited to trade receivables (F). The net debit to the irrecoverable debt expense account is therefore £1,860 – £1,486 = £374 (A).

ALLOWANCE FOR RECEIVABLES

£ £

Carried down (£12,650 × 0.4) 5,060 Brought down 6,546 Irrecoverable debts expense

(5)

10 C, G The value of closing inventory is (£572,904 – £27,485 + £15,000) = £560,419. This should be debited and credited to the closing inventory account; the debit is for the statement of financial position and the credit is for the statement of profit or loss.

SAMPLE PAPER LO1D

11 B The internal administration costs cannot be treated as part of the asset's cost, so in the first two years' depreciation of (£96,720 + £3,660)/5  2 = £40,152 was charged. This means that the whole of the remaining carrying amount of £60,228 must be allocated as depreciation in 20X6 given the revision of the asset's useful life.

SAMPLE PAPER LO1D, 3C

12 B This is calculated using T accounts, the carrying amount being £626,000 – £368,165 = £257,835. Note that no depreciation will be charged in the year to 31 March 20X6 for the asset acquired at the year end:

COST

Carried down 2,584 Statement of profit or loss (bal fig)

2,255

4,346 4,346

SAMPLE PAPER LO1D, 3C 15 B Using the balance sheet equation:

(6)

© ICAEW 2015

16 C Errol is a partner for the whole year, receiving 3/8 of the first 8 months profit, and 3/4 of the last 4

months after Sayhan’s retirement:

17 D Information's relevance is affected by its materiality. A, B and C are all characteristics contributing to information being a faithful representation of what it purports to represent.

1A

18 D 50,000 + 17,000 + 7,500 + 6,000 = £80,500

LO1C, 1D

19 B, D Purchase order and goods received note.

LO1C

20 D Profit increases capital so it is credited to the statement of financial position column, and debited to the statement of profit or loss column on the ETB.

LO2C

22 A Dr suspense £2,840, Cr Discount received £2,840

LO2D

23 C Debit Sales £230, Debit VAT control £46, Credit Receivables control £276

LO2D

24 B The whole of the subscription relates to the following year, so the instalment paid should all be treated as a prepayment, which reduces expenses in the year and so should be added back to the draft net profit.

The problem with the returned goods is that the draft net profit reflects the revenue made on sale of the goods, less the cost of those goods, therefore the profit on the sale should be deducted from the draft net profit.

In A the profit deducted has been calculated as £400 x 25%; in C just the cost of goods (£400) has been deducted, while in D the profit has been added back and the prepayment deducted.

* Gross profit percentages:

%

Revenue 100

Cost (25)

Gross profit 75

To calculate gross profit from cost, multiply by 75/25.

(7)

25 A, B If a company is no longer a going concern then the directors have concluded that it will not trade for the foreseeable future (ie less than twelve months) and so all non-current assets and liabilities are

transferred to current assets and current liabilities respectively (A).

All assets are valued at their resale or break-up value, which is the expected selling price in a forced sale position (B). This is likely to be a substantially lower value than carrying amount for assets such as fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which Wombat plc has none.

Although not being a going concern means the directors believe the company is likely to cease trading within 12 months, it does not necessarily mean that it will cease trading immediately (C), nor that a liquidator will be appointed immediately (D).

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