This task is based on a workplace scenario separate to the rest of the assessment.

Transcription

1 BPP Practice Assessment 1 Task 2 (16 marks) This task is based on a workplace scenario separate to the rest of the assessment. You are Paul, a part-qualified accounting technician employed by an accountancy firm. Your friend Scott has recently begun to trade through a new company, Nicol Ltd, which manufactures and retails wound care products for hospitals. Scott has approached you requesting to become a client of your employer. In the exam you will be able to access relevant extracts from the AAT Code of Professional Ethics via a pop-up window. When accepting a new client relationship an accountant in practice must consider customer due diligence. (a) Are these statements true or false? Statement True False Paul can verify the client s identity through an informal discussion with Scott given that they are friends. Paul must consider whether acceptance would create any threats to compliance with the fundamental principles. Paul must consider how profitable the relationship will be. As part of the customer due diligence processes, Paul must verify the nature and value of Nicol Ltd. s assets. Nicol Ltd is reviewing two contracts, North and South, for next month. The contracts will require a specialist grade of labour. The following forecasts have been prepared: Forecast North South Contribution ( ) 12,000 8,000 Fixed costs ( ) 3,000 3,000 Profit from operations ( ) 9,000 5,000 Number of units 4,000 2,000 Total specialist labour hours required (hours) 6,000 8,000 There is a shortage of specialist labour for next month due to staff holidays. This means that only 10,000 hours of specialist labour are expected to be available for these two contracts. (b) Complete all cells in the forecast profit statement below to recommend how many units should be produced under each contract, and the forecast profit/loss made. Forecast North South Total

2 Contribution per unit ( ) Contribution per hour ( ) Ranking Total labour hours available (hours) Labour hours allocated (hours) Number of units produced Total contribution earned ( ) Less: fixed costs ( ) Forecast profit/loss made ( ) To enable Nicol Ltd to carry out the new contracts some new equipment will need to be purchased. Details are as follows: (c) It is estimated it will be used for four years. The cost will be 16,000; this will be paid from the bank account. The business plans to sell the equipment after four years when its residual value is expected to be 4,000. Vehicles are depreciated on a straight line basis. A full year's depreciation is applied in the year of acquisition. Depreciation has already been entered into the accounting records for existing equipment. Calculate the depreciation charge for the year on the new equipment Make entries in the accounts below for: The acquisition of the new equipment The depreciation charge on the new equipment On each account, show clearly the balance to be carried down or transferred to the statement of profit or loss, as appropriate. Balance b/d 54,500

3 Equipment accumulated depreciation Balance b/d 6,800 Drop-down list: Balance b/d Balance c/d Bank Disposals Profit or loss account Purchases Purchases ledger control account Sales Sales ledger control account Equipment running expenses Equipment accumulated depreciation Empty Solutions

4 (a) Are these statements true or false? Statement True False Paul can verify the client s identity through an informal discussion with Scott given that they are friends. Paul must consider whether acceptance would create any threats to compliance with the fundamental principles. Paul must consider how profitable the relationship will be. As part of the customer due diligence processes, Paul must verify the nature and value of Nicol Ltd. s assets. (b) Complete all cells in the forecast profit statement below to recommend how many units should be produced under each contract, and the forecast profit/loss made. Forecast North South Total Contribution per unit ( ) (W1) 3 4 Contribution per hour ( ) (W2) 2 1 Ranking 1 2 Total labour hours available (hours) 10,000 Labour hours allocated (hours) 6,000 4,000 Number of units produced (W3) 4,000 1,000 Total contribution earned ( ) (W4) 12,000 4,000 16,000 Less: fixed costs ( ) 6,000 Forecast profit/loss made ( ) 10,000 Workings W1: North - 12,000/4,000 = 3 South - 8,000/2,000 = 2 W2: North - 12,000/6,000 = 2 South - 8,000/8,000 = 1 W3: North produce all units = 4,000 South hours per unit = 8,000/2,000 = 4 hours 4,000 hours/4 hours per unit = 1,000 units W4: North = 4,000 units x 3 = 12,000 South = 1,000 units x 4 = 4,000 (c) Calculate the depreciation charge for the year on the new equipment. 3,000 Workings:

5 ( 16,000-4,000)/ 4 years = $3,000 No apportionment as a full year charge in year of acquisition. Make entries in the accounts below for: The acquisition of the new equipment The depreciation charge on the new equipment Balance b/d 54,500 Balance c/d 70,500 Bank 16,000 70,500 70,500 Vehicles accumulated depreciation 3,000 Profit or loss account 3,000 3,000 3,000 Vehicles accumulated depreciation Balance c/d 9,800 Balance b/d 6,800 3,000 9,800 9,800