Financial Accounting and Reporting-I Suggested Answers Certificate in Accounting and Finance Autumn 2014

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Bartholomew Barnaby Cross
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1 Ans.1 (a) ABC Limited Statement of comprehensive income for the year ended 30 June 2014 Rs. in million Sales (737-12) 725 Cost of sales (W-1) (563) Gross profit 162 Selling and marketing expense (28) Administrative expenses [(51+6(W-3)]+(28-18)+5 (72) Other income 3 Profit before tax 65 Income tax expense (25) Profit for the year 40 (b) Statement of financial position as at 30 June 2014 ASSETS Non-current assets Property, plant and equipment (343-44) 299 Current assets Stock 111 Debtors [117-(28-18)-5] 102 Other receivable 3 Cash and bank Total assets 566 EQUITY AND LIABILITIES Owner's equity Share capital 300 Unappropriated profit (90+40) 130 Total equity 430 Current liabilities Creditors (83+20) 103 Income tax payable (25-4) 21 Advance from customer Total equity and liabilities 566 Workings W-1: Cost of Sales Opening stock 75 Purchases (301+20) 321 Manufacturing expenses 240 Depreciation (W-3) 38 Closing stock (114-3) (W-2) (111) 563 W-2: Inventory adjustment Cost of product (150,000 x Rs. 120) 18 NRV of product (150,000 x [((Rs %) - Rs. 20)] (15) 3 W-3: Depreciation: Depreciation Chargeable to Cost of sales Administration Factory building [(200-50]*10%) (60:40) Machinery [((280-87)*15%)] Page 1 of 8

2 Ans.2 Branch Account Opening stock 240,000 Opening stock reserve (240,000*20/120) 40,000 Opening debtors (W) 59,600 Cash sales 175,000 Goods sent to branch (300,000+36,000) 336,000 Collection from debtors 378,000 Branch expenses 104,000 Goods returned to HO 30,000 Goods in transit 36,000 Closing stock reserve (180,000*20/120) 30,000 Goods sent to branch a/c (loading on net goods sent to branch) [(336,000-36,000-30,000) 20/120] 45,000 Profit and loss a/c (Branch profit Closing stock 180,000 transferred) (balancing) 206,000 Closing debtors 91,600 Working: Debtors as on 30 June , , ,000 = 59, , ,600 Ans.3 (a) Revenue recognition from sale of goods IAS 18 says that an entity may recognise revenue from the sale of goods only when all of the following conditions have been met: The entity has transferred to the buyer the significant risks and rewards of ownership of the goods. This normally occurs when legal title to the goods or possession of the goods passes to the buyer. The entity does not retain effective control over the goods sold, nor retains a continuing management involvement to the degree usually associated with ownership. The amount of revenue can be measured reliably. It is probable that economic benefits associated with the transaction will flow to the entity. The costs incurred (or to be incurred) for the transaction can be measured reliably. (b) (i) The garments remain the property of AL and EM bears none of the risks of ownership. When EM sells the garments or decides to keep them at the end of three months, it records the purchases at that point from AL. This is therefore the point at which the risks and rewards pass to EM. Up to that point there is no sale and the garments should appear in inventory of AL. The 2% display charge should be accounted for as marketing expense. (ii) A lay away sale does not involve financing and the revenue from the lay away sale may be recognized in AL s financial statements when the goods are delivered. However, if experience indicates that most such sales are consummated, revenue may be recognized when a significant deposit is received provided the goods are on hand, identified and ready for delivery to the buyer. Page 2 of 8

3 Ans.4 Debit Credit Date Particulars (Rs. in million) (Rs. in million) 1-Jul-10 Plant Bank (Record purchase of plant) 30-Jun-11 Depreciation Accumulated depreciation - Plant (Record depreciation for the year ) Working: Rs. 500m 10 = Rs. 50m 1-Jul-11 Accumulated depreciation - Plant Plant (Reversal of prior years depreciation) 1-Jul-11 Plant Surplus on revaluation of fixed assets (Increase in value through revaluation) Working: Rs. 575m - Rs. 450m = Rs. 125m 30-Jun-12 Depreciation Accumulated depreciation - Plant (Record depreciation for the year ) Working: Rs. 575m 9 = Rs m 30-Jun-12 Surplus on revaluation of fixed assets Retained earnings (Reversal for excess depreciation) Working: Rs. 125m 9 = Rs m 1-Jul-12 Accumulated depreciation - Plant Plant (Reversal of prior year depreciation) 1-Jul-12 Surplus on revaluation of fixed assets Revaluation expense (balancing) Plant (Decrease in value through revaluation) Working: Surplus on rev. = Rs. 125m - Rs m = Rs Building: [Rs. 575m - Rs m] - Rs. 390m =Rs Jun-13 Depreciation Accumulated depreciation - Plant (Record depreciation for the year ) Working: Rs. 390m 8 = Rs m 1-Jul-13 Accumulated depreciation - Plant Plant (Reversal of prior year depreciation) 1-Jul-13 Plant Revaluation income 8.75 Surplus on revaluation of fixed assets (balancing) (Reversal of prior year depreciation) Working: Revaluation income = Rs. 10m-[Rs. 50m - Rs m] = Rs. 8.75m Plant: Rs. 380m - [Rs. 390m - Rs m] = Rs m Page 3 of 8

4 30-Jun-14 Depreciation Accumulated depreciation - Plant (Record depreciation for the year ) Working: Rs. Rs. 380m 7 = Rs m 30-Jun-14 Surplus on revaluation of fixed assets 4.29 Retained earnings 4.29 (Reversal for excess depreciation) Working: Rs. 30m 7 = Rs. 4.29m Page 4 of 8

5 Ans.5 Units Cost P/U Alpha Gamma Beta Cost Cost Cost (Rs.) Units Cost (Rs.) Units P/U P/U Cost (Rs.) Opening stock 20 3,000 60, ,000 4,800, , ,000 Total Cost Purchased during the month Invoice value 920,000 2,375,000 1,820,000 LC opening charges (0.5% of invoice value) 4,600 11,875 9,100 Import duties to be added (23% 60%=13.8%) Invoice value 126, , ,160 Transportation cost (360/20) 1,500 27,000 (50/2) 1,500 37,500 (490/15) 1,500 49,000 Wrapping cost ( ) 108,000 (50 1,500) 75,000 ( ) 343, *3,296 1,186, *56,543 2,827, *5,045 2,472,260 Closing stock ( ) ( ) ( ) Value of closing stock on FIFO basis From opening stock ,000 1,440, From purchases 30 3,296 98, ,543 2,827, , ,451 98,880 4,267, ,451 NRV of closing stock Selling price 5,200 58,000 4,100 Less: Selling cost per unit (700) (1,500) (400) 30 4, , ,500 4,520, , ,000 Closing stock at lower of cost and NRV 98,880 4,267, ,000 4,810,005 Page 5 of 8

6 Ans.6 Vehicle 1/7/2013 Opening balance 65,201,300 1/8/2013 Cost of vehicle exchanged 850,000 1/8/2013 New vehicle in exchange for old car 900,000 6/30/2014 Vehicle sold 1,500,000 1/12/ ,250,000 each 3,750,000 30/6/2014 Closing balance 67,751,300 1/2/2014 Repair to a vehicle 250,000 70,101,300 70,101,300 1/8/2013 Acc dep for vehicle exchanged Accumulated Depreciation - Vehicle 1/7/2013 Opening balance 24,450,500 (127, ,375+7,677) 243,552 6/30/2014 Acc dep for vehicle sold 30/6/2014 Depreciation for the year 6,496,733 (112, , ,906) 497,531 (W-1) 30/6/2014 Closing balance 30,206,150 30,947,233 30,947,233 Loss / gain on sale of vehicles 6/30/2014 Gain on sale of vehicle [1,350,000 - (1,500, ,531)] 243, ,000) 56, ,083 1/8/2013 Loss on exchange of vehicle 350,000 +(850,000-6/30/2014 Transfer to P&L Net gain on disposal of assets 347, , ,531 W-1: Depreciation for the year Depreciation on opening written down value (65,201,300-24,450,500) 15% 6,112,620 Less: Depreciation on exchanged assets from 1/8/13 to 30/6/14 (850, ,552) 15% 11/12 (83,387) Add: Depreciation on addition - Exchanged asset (900,000 15% 11/12) 123,750 Add: Depreciation on addition (3,750,000 15% 7/12) 328,125 Add: Depreciation on major repair (250,000 5/12 15% ) 15,625 6,496,733 Page 6 of 8

7 Ans.7 TRADING ACCOUNT For the year ended 30 June 2014 Opening stock 1,805,000 Sales Cash (W-2) 15,834,600 Purchases (W-1) 11,860,000 - Credit (W-3) 4,480,920 Purchase discount 265,800 Gross profit c/d 7,618,320 Closing stock 702,000 21,283,320 21,283,320 PROFIT & LOSS ACCOUNT For the year ended 30 June 2014 Carriage outward 260,000 Gross profit b/d 7,618,320 Petrol 156,000 Car expenses 73,000 Rent (42,000-20,000) 22,000 Salaries 1,600,000 Traveling expenses 40,000 Printing & stationary 46,000 Advertisement 125,000 Insurance (50, ,000) 65,000 Depreciation (600, ,000) 750,000 Truck hire charges 657,000 Misc. expense (362, ,000) 492,300 Profit for the year 3,332,020 7,618,320 7,618,320 Balance Sheet As at 30 June 2014 Owner's equity Fixed assets Ashfaq's capital Freehold land 2,500,000 (4,396,600+3,332,020-1,560,000) 6,168,620 Motor car (2,000, ,000) 1,400,000 Furniture (1,000, ,000) 850,000 Liabilities Current assets Creditors (W-1) 2,845,500 Stock 702,000 Bank overdraft (W-5) 831,100 Debtors (W-4) 4,366,520 Cash in hand 26,700 9,845,220 9,845,220 WORKINGS W-1 : Creditors Bank 9,850,700 Balance b/d 1,102,000 Purchase discount 265,800 Purchases (W-1.1) 11,860,000 Balance c/d 2,845,500 12,962,000 12,962,000 W-1.1: Rs. 3,000,000 + (Rs.265,800/0.03) = Rs. 11,860,000 W-2 : Cash Balance b/d 15,900 Bank 13,717,800 Cash sales (bal) 15,834,600 Drawings (30,000 52) 1,560,000 Carriage outward (5,000 52) 260,000 Petrol (3,000 52) 156,000 Misc. expense (2,500 52) 130,000 Balance c/d 26,700 15,850,500 15,850,500 Op. Stock + Net purchases Closing Stock W-3: Total sales = (Rs. 1,805, ,594, ,000) 1.6 = Rs. 20,315,520 Credit sales = 20,315,520-15,834,600 = Rs. 4,480,920 Page 7 of 8

8 W-4 : Debtors Balance b/d 350,000 Bank 464,400 Credit sales (W-3) 4,480,920 Balance c/d (balancing) 4,366,520 4,830,920 4,830,920 W-5: (360,600+14,182,200-15,373,900=831,100 (Bank over draft) (THE END) Page 8 of 8

SOLUTION: FINANCIAL ACCOUNTING FUNDAMENTAL, MAY (a) The role of the accountant in an organization can be analyzed as follows:

SOLUTION: FINANCIAL ACCOUNTING FUNDAMENTAL, MAY (a) The role of the accountant in an organization can be analyzed as follows: SOLUTION 1 (a) The role of the accountant in an organization can be analyzed as follows: - Preparation and presentation of timely accurate financial/management accounts to manage to help management interpret