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 21,200 O/Balance 28,700
Income Statement 475,900 Cash 481,200
C/Balance 31,200 C/Balance 18,400
528,300 528,300
3. C $2,500 + $7,500 + $9,000 + $9,000 + $6,000 One month in advance = $3,000 Cr.
$
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 612,000
Opening inventory 318,000
Purchases 412,000
730,000
less:Inventory held 214,000 516,000
Shortfall 57,000 459,000
Gross profit 25% 153,000
21 D
Income statement for the year ended 30 September 2002
$ $
Sales 3,210,000
Cost of sales (W1) (1,823,100)
Gross profit 1,386,900
Distribution costs (W1) (188,500)
Administrative expenses (W1) (944,680) (1,133,180)
Profit from operations 253,720
Interest payable (30,000 + 30,000) (60,000)
Net profit for the year 193,720
Working 1
Cost of Distribution Administrative
Sales Costs Expenses
$ $ $
Opening inventory 186,400
Purchases 1,748,200
Carriage inwards 38,100
Carriage outwards (47,250 + 1,250) 48,500
Wages and salaries 694,200 5,800
700,000 70,000 140,000 490,000
Sundry administrative expenses
(381,000 + 13,600 – 4,900) 389,700
Bad and doubtful debts
(14,680 + 8,000 – 2,700) 19,980
Depreciation of office equipment
20% ×(214,000 – 40,000 + 48,000) 44,400
Loss on sale 600
Closing inventory (219,600)
2 (a) Journal entries
(1) Trial balance (no ledger entry) 48,900
Suspense account 48,900
Correction for carriage outwards balance omitted from trial balance
(2) Discount received 38,880
Discount allowed 38,880
Suspense account 77,760
Suspense account 136,400
Discount received 68,200
Discount allowed 68,200
Correction of discount totals
Wrong discount amount posted to the wrong side
(3) Ordinary share capital account 300,000
Share premium account 300,000
Correction of error in recording issue of shares – $300,000 wrongly credited to ordinary share capital account.
Suspense Account
(b)
$ $
Difference 386,400 Trial balance (carriage outwards) 48,900
Discount accounts 136,400 Discount accounts 77,760
Balance 396,140
522,800 522,800
3 Helios
Consolidated balance sheet as at 30 June 2002
Non-current assets $
Goodwill 68,800
Tangible assets 770,000
838,800
Net current assets 390,000
1,228,800
Share capital 600,000
Share premium account 350,000
Accumulated profit 128,800
1,078,800
Minority interest 150,000
1,228,800
Cost of control
$ $
Investment in Luna 700,000 Share Capital 80% 320,000
Share Premium 80% 160,000
Accumulated profits 80% pre-acq 48,000
Balance – goodwill 172,000
700,000 700,000
Balance 172,000 Amortisation 20% ×3 years 103,200
Balance 68,800
172,000 172,000
Minority interest
$ $
Balance for CBS 150,000 Share Capital 20% 80,000
Share Premium 20% 40,000
Accumulated profits 20% 30,000
150,000 150,000
Accumulated profits
$ $
Cost of control Helios 160,000
80%× $60,000 48,000 Luna 150,000
Minority interest
20%× $150,000 30,000
Cost of control
Goodwill amortisation 103,200
Balance for CBS 128,800
310,000 310,000
4 (a) 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.
(c) Investments of this kind do not depreciate, though they may fluctuate in value. Accordingly no depreciation is provided for them.
5 (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:
Part 1 Examination – Paper 1.1(INT)
Preparing Financial Statements (International Stream) December 2002 Marking scheme
Available Maximum
1 Sales revenue 1/2
Cost of sales 5 ×1/2 21/2
Distribution costs 2 ×1/2 1
Administrative expenses:
Wages and salaries 1
Sundry admin. expenses 1 Bad and doubtful debts 11/2
Depreciation 11/2
Loss on sale 1 6
91/2
Interest payable 1
Format 2
13 12
2 (1) Journal entry 1
Narrative 1/2
11/2
(2) Journal entry 2
Narrative 1/2
21/2
(3) Journal entry 1
Narrative 1/2
Goodwill amortisation 1 3
Calculation of minority interest 3 ×1/2 11/2
Calculation of accumulated profits
Initial profits 2 ×1/2 1
Adjustments 3 ×1 3 4
Consolidated balance sheet – format
Assets 1
Capital and reserves 1
Minority interest 1/2
21/2
11
Available Maximum
4 (a) Land and buildings separated 1
Land not normally depreciated 1
Revalued amount for buildings depreciated over the
remaining useful economic life 1 3 3
(b) Amortised 1
Basis of amortisation 1
Written off if no longer recoverable 1
3 3
(c) Value fluctuating but does not depreciate 1
No depreciation required 1 2 2
8 8
5 (a) Non-adjusting event 1/2
Disclose by note 1/2
IAS 10 mentioned 1/2
Contents of note 1/2
2
(b) Allowance required 1/2
IAS 37 mentioned 1/2
Effect on accounts 1 2
(c) Adjusting event 1/2
IAS 10 mentioned 1/2
Effect on accounts 1
2
(d) Description of adjustment 1
Generally accepted accounting principles 1 Adjustments to:
Sales 1/2
Receivables 1/2
Closing inventory 1/2
Effect on profit 1/2 4
