Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) June 2003 Answers
Section A
Section B
1 (a) Alamute and Brador
Income statement for the year ended 31 March 2003
$ $
Sales Revenue 448,700
Cost of sales: Opening inventory 15,600
Purchases 184,600
———— 200,200 Less: Closing inventory 21,400
———— (178,800)
————
Gross profit 269,900
Less: Expenses: Salaries 88,000
Rent (30,000 + 11,000) 41,000 Insurance (4,000 – 1,500) 2,500
Sundry expenses 39,400
Depreciation (35,500 ×20%) 7,100 Bad and doubtful debts
(2,400 – 500) 1,900
———— (179,900)
————
Net profit 90,000
————
Division of profit Alamute Brador Total
$ $ $
Net profit 90,000
Interest on capital 2,500 2,500 (5,000)
———— 85,000
Balance of profit 60:40 51,000 34,000 (85,000)
———— ———— ————
53,500 36,500 –
———— ———— ————
(b) Current Accounts
Alamute Brador Alamute Brador
$ $ $ $
Balance 2,600 Balance 3,800
Drawings 48,400 36,900 Share of profit 53,500 36,500
Balance 8,900 Balance 3,000
––––––– ––––––– ––––––– –––––––
57,300 39,500 57,300 39,500
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2 Paniel
Cash flow statement for the year ended 31 March 2003
$ $
Net cash inflow from operating activities 746,000
Interest paid (72,000)
———— 674,000
Cash flows from investing activities
Purchase of non-current assets (W1) (1,400,000) Proceeds from sale of non-current assets 280,000
—————
Net cash used in investing activities (1,120,000)
Cash flows from financing activities
Proceeds from issuance of share capital 200,000 Proceeds from long-term borrowings 400,000 Dividends paid (260,000 – 110,000) (150,000)
—————
Net cash from financing activities 450,000
————
Increase in cash 4,000
Cash at 31 March 2002 14,000
————
Cash at 31 March 2003 18,000
———— Workings
1 Fixed assets – cost
$ $
Opening balance 2,140,000 Transfer – disposal 480,000
Purchases 1,400,000 Closing balance 3,060,000
————— —————
3,540,000 3,540,000
————— —————
3 (a) $
Opening capital 128,000
Capital introduced 50,000
———— 178,000
Less: Drawings 48,000
———— 130,000
Closing capital 184,000
————
Profit is therefore 54,000
————
(b) Purchases Total Account
$ $
Balance brought forward 130,400 Payments to suppliers 888,400 Goods taken by Senji 1,000 Discounts received 11,200 Refunds from suppliers 2,400
Purchases 937,050
Balance carried forward 171,250
————— —————
1,070,850 1,070,850
(c) $ $ Cost of sales:
Opening inventory 243,000
Purchases 595,400
Less: Returns 41,200 554,200
———— ————
797,200
Less: Closing inventory 261,700
———— 535,500 ———— Sales figure is therefore $535,500 ×3/
2= $803,250
4 (a) Year ended 31 March
2002 2003
(i) Current ratio 990,000/430,000 2.3:1
1,420,000/860,000 1·65:1
(ii) Quick ratio 450,000/430,000 1·05:1
700,000/860,000 0·81:1
(iii) Inventory turnover
540,000/1,900,000 ×365 104 days
720,000/2,400,000 ×365 109 days
(iv) Average period of credit allowed to customers
450,000/2,800,000 ×365 59 days
700,000/3,700,000 ×365 69 days
(v) Average period of credit allowed by suppliers
410,000/2,080,000 ×365 72 days
690,000/2,580,000 ×365 98 days
(b) Comments
(i) The current ratio and quick ratio are both down by over 20%.
The drop in the quick ratio to below 1:1 could indicate liquidity problems.
(ii) The increase in sales, and hence in receivables, purchases and payables, is placing strain on the working capital, evidenced by the increase in the receivables and payables payment periods.
(iii) The business is one requiring large holdings of inventory, but inventory control appears to have deteriorated slightly between the two years
(iv) Cash sales have decreased considerably in 2003. Making more sales for cash could contribute to an improvement in the current and quick ratios because this would reduce the overdraft.
Other comments considered on their merits.
5 (a) (i) Reserves are balances in a company’s balance sheet forming part of the equity interest and representing surpluses or gains, whether realised or not.
(ii) Share premium account
The surplus arising when shares are issued at a price in excess of their par value. Revaluation reserve
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Part 1 Examination – Paper 1.1(INT)Preparing Financial Statements (International Stream) June 2003 Marking Scheme
Marks
Bad and doubtful debts 1
Division of profit 2
—— 8
Layout and style 1
—— 9
Current accounts
Share of profit 1
Drawings 1
2 Interest paid 1
Capital expenditure
Purchases of non-current assets 2
Proceeds of sale of non-current assets 1
Financing
Issue of shares 1
Issue of loan notes 1
Dividends paid 2
Increase in cash and cash movement 11/
2
Format and style 1
—— 101/ 2max 9
3 (a) Opening capital 1/
2
Capital introduced 1
Drawings 1
Closing capital 1/
2
—— 3
(Marks awarded for having figures the correct way round)
(b) 1/
2mark per item 6 ×1/2 3
(c) Opening inventory 1/
2
Purchases 1/
2
Purchases returns 1/
2
Closing inventory 1/
2
Sale figure correct 1
—— 3
—— 9
4 (a) 1 mark per pair of ratios 5 ×1 5
(b) 1 mark per valid comment 4 ×1 4
Marks
5 (a) (i) Definition 2
Examples 2 ×1 2
Origins 2 ×1 2
—— 6
(b) Bonus issue 2
Rights issue 2
Difference 1
—— 5
