UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT ACCOUNTANCY SEMESTER ONE EXAMINATIONS 2017/18 FINANCIAL ACCOUNTING AND REPORTING MODULE NO: ACC5001

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1 [IOM05] UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT ACCOUNTANCY SEMESTER ONE EXAMINATIONS 2017/18 FINANCIAL ACCOUNTING AND REPORTING MODULE NO: ACC5001 Date: Tuesday 16 th January 2018 Time: 10:00 13:00 INSTRUCTIONS TO CANDIDATES: There are FIVE questions in this examination Section A - Answer ALL questions Section B Answer ONE question This is a closed book examination. You must hand in this exam paper with your answer booklet.

2 Page 2 of 12 Section A answer ALL questions Question 1 Part A Jim and Lisa were in partnership sharing profits and losses equally. On 1 st January 2018, after several years of successful trading in the SCUBA diving and travel industry, they decide to convert the partnership into a limited company as they felt the company was starting to grow at increasing rates, the new company was to be named Collier Ltd. The latest trail balance for the partnership on 31 st December 2017 were is below: Dr 000 Cr 000 Capital Jim 1,000 Capital Lisa 680 Cash/bank 180 Land and buildings 1,200 Fixtures and fittings 400 Motor vehicles 160 Accumulated depreciation Fixtures and fittings 168 Accumulated depreciation Motor vehicles 72 Inventory 184 Trade receivables 408 Trade payables 372 Loan: Lisa 240 2,532 2,532 The following information is to be taken into consideration: (a) Jim was to take one of the vehicles for personal use at an agreed valuation of 16,000. (b) Collier Ltd. Was to take over all other assets and liabilities with the exception of the Cash/bank which was to be used to settle the balances on the partners accounts after all adjustments had been made. (c) The assets and liabilities of the partnership were revalued at : 000 Land and buildings 1,500 Fixtures and fittings 190 Motor vehicles 48 Inventory 174 Trade receivables 376 Trade payables 372 Question 1 continues over the page.

3 Page 3 of 12 Question 1 continued. (d) The balance on Lisa s loan account was to be transferred to her capital account. (e) Costs of conversion were estimated at 48,000 (f) The purchase consideration was to be 2,000,000 1 ordinary shares in the company, valued at par, and shared equally among the partners. Required: Prepare the necessary accounts to bring about the closure of the partnership using the T account double entry system (DO NOT amalgamate any transactions) AND Prepare the opening balance sheet of Collier Ltd. on 1 st January (20 marks) Part B Write a short briefing paper for a meeting with Jim and Lisa outlining the differences between the regulatory requirements for a partnership versus being an incorporated company. (5 marks) Total 25 Marks

4 Page 4 of 12 Question 2 As the financial accountant at Boyde plc, a company that manufactures elite sports equipment for university gymnasiums. You have been asked by the finance director to assist him in the preparation of the year-end financial statements. He has already prepared the Statements of comprehensive income and financial position but has not completed the statement of cash flows. The Statement of financial position and an extract from the Statement of comprehensive income for the year ended 31 December 2017 are as follows: Statement of financial position as at 31 December Non-current assets Property and equipment 9,840 9,000 Development costs 1, Other investments ,760 10,560 Current assets Inventory 3,330 3,744 Trade receivables 2,892 2,376 Bank ,240 6,204 TOTAL ASSETS 18,000 16,764 Equity and liabilities Ordinary shares 1 each 6,000 5,400 Share premium 1, Retained earnings 6,168 5,244 13,368 11,184 Non-current liabilities 7% Debentures - 2,400 Current liabilities Trade payables 3,264 2,208 Taxation 1, Accrued dividend Bank overdraft 234-4,632 3,180 TOTAL EQUITY AND LIABILITIES 18,000 16,764 Question 2 continues over the page.

5 Page 5 of 12 Question 2 continued. Extract from Statement of comprehensive income for the year ended 31 December Operating profit 2,016 Dividends received 72 Premium on debentures (240) Interest (288) Profit before taxation 1,560 Taxation (516) Profit after taxation 1,044 Additional information: Operating profit is stated after charging amortisation on development costs of 204,000 and depreciation on property and equipment amounting to 636,000. Equipment that had originally cost the company 480,000 with associated accumulated depreciation of 36,000 was sold during the year at a loss of 312,000. The debentures were redeemed at a premium of 10%. Dividends are paid in full in the year following the year end. Required: a) Prepare a statement of cashflows for the year ended 31 December 2017 for Boyde Plc in accordance with IAS7. (20 marks) b) Briefly explain the usefulness of a statement of cashflows in comparison to the statement of comprehensive income. (5 marks) Total 25 marks

6 Page 6 of 12 Question 3 As a student at the University of Bolton studying accountancy you have been employed as a financial accountant at a local manufacturing company Marsh Limited. The year ended 31 December 2017 has just passed and you have just run the year end trial balance in readiness of the preparation of the first draft of the financial statements. The trial balance is as follows: Dr Cr Freehold land 4,200 Buildings (cost 9,360,000) 8,252 Production machinery (cost 6,192,000) 3,716 Computer equipment (cost 1,728,000) 1,382 Investments 960 Trade receivables 14,526 Trade payables 5,182 31/12/16 AND 31/12/17 23,588 Bank 23,122 Grant 170 Profit on land sale 1,072 Sales 763,200 Purchases 637,958 Administration costs 18,000 Distribution costs 70,200 Directors emoluments 1,124 Bad deb write off s 314 Audit fees 224 Equipment hire 4,800 Interest 1,210 Preference dividends paid 324 Ordinary dividends paid 852 Loan (9%) 14,400 Preference shares 7,200 Ordinary shares 10,800 Retained earnings 12, , ,752 Question 3 continues over the page.

7 Page 7 of 12 Question 3 continued. Additional information not reflected in the trial balance: a) The authorised share capital of the company is 8 million 9% preference shares with a par value of 1 each and 18 million 50p par value ordinary shares. b) Depreciation is yet to be provided for and is charged at 20% on cost for production machinery, 10% on cost for computers and 2% on cost for buildings. It is company policy to charge all depreciation to cost of sales. c) The tax charge which is yet to be provided for has been calculated to be 10,696,000. d) Government grants received in the year amounted to 170,000, the company has decided to follow IAS 20 and defer the grants and release these at 20% per year. The first year s release (disclosed as other income) has yet to be accounted for. e) Inventory costing 1,000,000 has a net realisable value in accordance with IAS 2 of 500,000. f) During the year assets with a net book value of 1,440,000 realised 2,632,000 when sold. g) Dividends of 3p per share was declared prior to the year-end as well as the remainder of the preference dividend which is to be accounted for. h) The land was valued by a district valuer at the year-end and was valued at 5,000,000. Required: Using the trial balance and additional information, prepare the Statement of comprehensive income and the Statement of financial position for Marsh Limited for the 31 December 2017 year end (all amounts to nearest 000). Total 25 Marks END OF SECTION A

8 Page 8 of 12 Section B Answer ONE question only Question 4 Statements of comprehensive income for the year ended 31 December 2017 Mo Ltd Kashif Ltd Turnover 24,000 30,000 Gross profit 6,000 7,800 Distribution costs 1,000 1,200 Administration expenses 3,000 2,000 Operating profit 2,000 4,600 Interest receivable Interest payable Profit before taxation 1,360 4,100 Taxation 480 1,440 Profit after taxation 880 2,660 Statements of financial position as at 31 December 2017 Non-current assets Intangible assets Tangible assets 8,000 14,000 Investments 1,200 1,600 9,600 15,600 Current assets Inventory Trade receivables 3,500 5,000 Bank 3, ,000 6,000 TOTAL ASSETS 16,600 21,600 Equity and liabilities Ordinary shares 2,000 2,000 Share premium 2,000 2,000 Revaluation reserve 2,220 3,500 Retained earnings 6,380 7,100 12,600 14,600 Non-current liabilities Debentures 2,000 4,000 Current liabilities Trade payables 2,000 3,000

9 Page 9 of 12 TOTAL EQUITY AND LIABILITIES 16,600 21,600 Question 4 continued. Required: Question 4 continues over the page. Part A Your company is considering purchasing one of the above companies. Prepare a report to the directors of your company that outlines which company (with justifications) you would recommend investing in. It is expected your report will include comparison of the following key ratios: i Gross profit margin ii Net profit margin iii Trade receivables collection period iv Trade payables period v Inventory turnover (number of times) vi Current ratio vii Acid test viii Gearing. Part B (20 marks) Briefly explain the drawbacks / limitations of ratio analysis when analysing other company s financial statements. (5 marks) Total 25 Marks

10 Page 10 of 12 Question 5 You are a newly qualified accountant working at a large firm of accountants that recognise that your degree from the University of Bolton makes you one of the best accountants globally and hence the reason they employed you immediately upon graduation. One of the partners of the firm you work for has asked if you can assist two of his clients (both Plc s reporting under IFRS/IAS regulations) with a few queries, both companies have a reporting period end date of 31 December each year. The information regarding both companies is as follows: Pacitin Plc: Pacitin PLC manufactures products to help health organisations treat patients quit smoking. The company purchased a new machine for its production department on 30 June 2017 at a cost of 840,000. Upon review of the purchase order the breakdown of the cost of the machine is as follows: Cost price of the machine 760,000 Discount negotiated by the chairman (76,000) 684,000 Transportation to site costs 13,600 Costs relating to the installation and ground preparation 59,200 1 year s maintenance charge 54,000 Supplementary spares 29,200 Total cost 840,000 Khan Plc: Khan Plc is a listed company that supplies boxing related products to gymnasiums and boxing academies and is based in Bolton. On 1 January 2007 the company purchased a freehold property at a cost of 1,600,000 and includes land of 600,000 and 1,000,000 of buildings. The company has accounting policies that state that buildings are depreciated over a 40-year period using the straight-line method of depreciation. It is anticipated that at the end of the useful economic life (UEL) of the building that they will have no residual value.

11 Page 11 of 12 Question 5 continues over the page. Question 5 continued. At the start of the current financial year the directors took the decision to have the land and buildings revalued. An independent (RIC s) valuer advised that the land had a carrying value of 800,000 and the buildings were to be valued at 900,000. The directors wish to have these revised values reflected in the current 31 December 2017 reporting period end financial statements. There are to be no changes to the UEL or residual values of these assets. Required: i Giving two examples of each type of asset, distinguish between non-current and current assets. (4 marks) ii With appropriate examples, explain the differences between transactions that may be classed as revenue expenditure and those classed as capital expenditure. (5 marks) iii If either of the companies had incorrectly accounted for an item of capital expenditure (i.e. posted the purchase to the Income Statement), what would the effect on the year-end financial statements be, in addition explain the effect on future years financial statements. (5 marks) iv IAS 16 (Property plant and equipment) provides information on how to account for, and disclose items meeting the criteria of expenditure on a noncurrent property plant and equipment transaction. Taking this standard into consideration calculate the amount that should be included in the cost disclosure note as additions in the financial statements of Pacitin Plc. Your answer should also clearly explain all items that are/are not included in the capitalised amounts. (6 marks) v As noted in the information relating to Khan Plc a revaluation took place on 1 January Prepare the journal that should be posted to the general ledger to reflect the revaluations, in addition compute the revised amount of depreciation that should be charged to the income statement for the reporting period just ended. (5 marks)

12 Page 12 of 12 Total 25 marks END OF QUESTIONS

UNIVERSITY OF BOLTON BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATIONS 2016/17 FINANCIAL ACCOUNTING AND REPORTING MODULE NO: ACC5001

BBS006 UNIVERSITY OF BOLTON BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATIONS 2016/17 FINANCIAL ACCOUNTING AND REPORTING MODULE NO: ACC5001 Date: Tuesday 10 th January 2017 Time: 2:00pm to 5:00pm