Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) December 2006 Answers Section A
Workings for computational MCQs
1 A 0/inventory 380
Purchases 480
Remaining inventory 220 ––––
Inventory lost 185
––––
2 A 1 + 500
2 + 500
3 no change
––––– 1,000 –––––
3 B 500 – (75% x 450)
6 D 180 + (40% x 500) – 30
7 B 838,000 – 72,000 = 766,000; allowance 60,000
14 A 3/
4x 10,800 + 1/4x 12,000 = 11,100; prepayment 3/4x 12,000
17 D 20% x (1,000,000 + 400,000 + 5,600,000)
18 B 100 + 50 + 60; 80 – 50 + 30
22 B 1: (40,000 + 60,000 – 50,000) x 2 = 100,000 – 95,000 = 5,000 cash lost 3: (40,000 + 60,000 – 50,000 – 2,500 inventory loss) x 2 = 95,000
23 D 834,600 + 134,600 – 4,800 + 8,700 – 144,400
25 A Payables ledger control account
Opening balance 318,600
Cash paid to suppliers 1,364,300 Purchases 1,268,600
Purchase returns 41,200 Refunds received from
Contras against debit suppliers 2,700
balances in receivables ledger 48,000
Discounts 8,200
Closing balance 128,200
–––––––––– ––––––––––
1,589,900 1,589,900
Section B
1 Golding
Balance sheet as at 30 June 2006
Cost or Accumulated Net book
valuation depreciation value
$000 $000 $000
Non-current assets
Land and buildings 9,000 200 8,800
Plant and equipment 6,000 4,400 1,600
––––––– –––––– –––––––
15,000 4,600 10,400
––––––– ––––––
Current assets
Inventories 4,700
Receivables (3,600 – 280) 3,320
Cash 1,200 Capital and reserves
Called up share capital 5,000
Share premium account 2,200
Revaluation reserve (5,000 + 4,000 – 4,000 – 2,400) 2,600
Retained earnings (see working) 5,570
––––––– 15,370
Non-current liabilities
8% Loan notes 1,000
Current liabilities
Payables 2,500
Accruals (500 + 250) 750 3,250
––––––– ––––––
19,620 –––––––
Working $000 $000 $000
Retained earnings balance
1 July 2005 4,600
Draft profit 2,900
less: irrecoverable debts 280
bonuses 250
depreciation 1,400 1,930 970
––––––– –––––– –––––––
5,570 –––––––
2 (a) Dr Cr
$ $
(1) Sales 70,000
Share capital 50,000
Share premium 20,000
(2) Suspense 16,000
Interest payable 8,000
Interest receivable 8,000
(3) Sales 16,000
Purchases 16,000
(4) Suspense 36,000
Rent 36,000
(b) – +
$ $
Profit per draft accounts 830,000
Adjustments
(1) Sales 70,000
(2) Interest 16,000
(3) Sales/Purchases 32,000
(4) Rent 36,000
–––––––– ––––––––
102,000 882,000
102,000 ––––––––
Revised profit 780,000
3 Joyce
Cash flow statement for the year ended 30 June 2006
$000 $000
Cash flows from operating activities
Profit before taxation (working 1) 22,200
Adjustments for
Depreciation 13,000
Interest expense 720
––––––– 35,920
Increase in inventories (4,900)
Increase in receivables (8,900)
Decrease in payables (2,100)
–––––––
Cash generated from operations 20,020
Interest paid (720)
Income taxes paid (6,200)
–––––––
Net cash from operating activities 13,100
Cash flows from investing activities
Purchase of property plant and equipment (Working 3) (19,000) –––––––
Net cash used in investing activities (19,000)
Cash flows from financing activities
Proceeds of issue of share capital 2,000
Proceeds of issue of loan notes 2,000
Dividends paid (4,000 )
–––––––
Net cash from financing activities –
–––––––
Net decrease in cash (5,900)
Cash at 1 July 2005 4,600
–––––––
Cash at 30 June 2006 (1,300)
––––––– WORKINGS
1 Calculation of profit for year
$000 $000
Dividends 4,000 0pening balance 18,000
Tax 8,200 Profit for year 22,200
Closing balance 28,000
––––––– –––––––
40,200 40,200
––––––– –––––––
2 Income taxes
$000 $000
Cash 6,200 Opening balance 6,000
Closing balance 8,000 Income statement 8,200
––––––– –––––––
14,200 14,200
––––––– –––––––
3 Non-current assets
$000 $000
Opening balance 130,000
Revaluation reserve 12,000 Depreciation 13,000
Purchases 19,000
Closing balance 148,000
–––––––– ––––––––
161,000 161,000
–––––––– ––––––––
4 (a) Following the matching concept, to reflect in operating profit the cost of use of tangible non-current assets (the amount of economic benefits consumed).
(b) It is not normally necessary to depreciate land, unless it is subject to depletion in some way – a quarry for example. Buildings should be depreciated like any other non-current asset so as to allocate their depreciable amount (cost or valuation) over their useful economic life.
(c) (i) Straight line. The depreciable amount of an asset, less any residual value, is written off in equal instalments over its estimated useful economic life.
(ii) Reducing balance. Depreciation is calculated as a percentage of the net book value of the asset at the end of each period. Other answers to (c) considered on their merits.
5 (a) If the event provides evidence of conditions that existed at the balance sheet date, adjustment must be made, if material. Adjustment is also required if an event after the balance sheet date indicates that the going concern basis of accounting is no longer appropriate.
(b) (i) Non-current assets are normally valued at cost or valuation less depreciation. If the going concern basis was no longer appropriate, net realisable value on the basis of a short-term sale would have to be adopted instead, and the assets would be included in current assets.
(ii) Inventory is normally valued at the lower of cost and net realisable value. If the going concern basis no longer applied, net realisable value on the basis of a short-term sale would have to be substituted.
Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) December 2006 Marking Scheme
1 Heading 1
Land and building
valuation 1
accumulated depreciation 1/
2 11/2
–––– Plant and equipment
cost 1/
2
accumulated depreciation 1/
2 1
––––
Inventory 1/
2
Receivables 1/
2+ 1/2 1
Cash 1/
2
Share capital 1/
2
Share premium account 1/
2
Revaluation reserve 1
Retained earnings 4 x 1/
2 2
Loan notes 1/
2
Accruals 1/
2+ 1/2 1
Payables 1/
2
Depreciation 1/
2
Interest expense 1/
2
Increase in inventory 1/
2
Increase in receivables 1/
2
Decrease in payables 1/
2
Net cash inflow from operating activities 1/
2
All other items in statement 6 x 1/
2 3
Calculation of non-current asset payment
Balances 1/
2+ 1/2 1
Revaluation reserve 1
Depreciation 1/
2 21/2
––––
Cash movement 1
Layout 1
Buildings – cost or valuation 1
Spread over useful economic life 1 3
5 (a) Conditions at b/s date 11/ 2
Materiality 1
Going concern 1/
