NVQ/SVQ Level 3 in Accounting Maintaining Financial Records and Preparing Accounts (FRA) and

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1 NVQ/SVQ Level 3 in Accounting Maintaining Financial Records and Preparing Accounts (FRA) and Advanced Certificate in Accounting (Diploma Pathway) Financial Accounting (FRA) June 2006 SUGGESTED ANSWERS Note: The suggested answers may, in parts, be longer than would be expected of candidates in the exam. The fuller version is given for tutorial purposes.

2 SECTION 1 Task 1.1 Rent Balance b/f (prepayment) 1,100 Rent for the year 4,800 Bank 4,900 Balance c/f (prepayment) 1,200 6,000 6,000 Task 1.2 Selling expenses Bank 2,395 Balance b/f (accrual) 205 Balance c/f (accrual) 260 Selling expenses for the year 2,450 2,655 2,655 Working: 390 x 2 = Task 1.3 Capital Balance c/f 15,157 Balance b/f 5,157 Bank 10,000 15,157 15,157 2

3 Task 1.4 (a) Cost 1,200 1,200 x 35% = depreciation year ended March 2004 (420) Net book value 31 March x 35% = depreciation year ended March 2005 (273) Net book value 31 March (b) Equipment at cost Disposals 1,200 Equipment accumulated depreciation 693 Equipment at cost (partexchange allowance) 300 Loss on disposal (balance) 207 1,200 1,200 Workings: Accumulated depreciation (from Task 1.4(a)) = 693 Task 1.5 (a) Bank 1,700 Part-exchange allowance 300 Cost of new equipment 2,000 (b) Opening balance equipment cost 3,100 Less cost of disposal (1,200) Plus cost of new equipment 2,000 Revised total equipment cost 3,900 (c) Opening balance accumulated depreciation 1,593 Less depreciation on disposal (693) Revised accumulated depreciation 900 Revised total equipment cost (Task 1.5b) 3,900 Revised accumulated depreciation ( 900) Revised net book value 3,000 x 35% = depreciation charge for the year 1,050 3

4 (d) Revised accumulated depreciation (Task 1.5c) 900 Depreciation charge for the year (Task 1.5c) 1,050 Updated accumulated depreciation 1,950 Task 1.6 Stock for sale 1,980 Stock in transit 120 Closing stock 2,100 Tutorial note: According to SSAP 9, stock is valued at the lower of cost or net realisable value. In this case cost is lower each time. The stock sold but not yet despatched is not included because it has been sold and its value included in sales. Task 1.7 Ebony Gee Trial Balance as at 31 March 2006 Dr Cr Accrual 260 Bank 1,090 Capital 15,157 Closing stock balance sheet 2,100 Closing stock profit and loss account 2,100 Depreciation charge 1,050 Drawings 6,000 Equipment accumulated depreciation 1,950 Equipment cost 3,900 Loss on disposal 207 Office expenses 3,600 Opening stock 1,750 Payroll expenses 18,000 Postage and packing expenses 4,200 Prepayment 1,200 Purchases 26,300 Rent 4,800 Sales 55,000 Selling expenses 2,450 TOTAL 75,557 75,557 4

5 Task 1.8 From: To: Date: 14 June 2006 Subject: Depreciation Fixed assets have a life of more than one year. Their cost should be spread over their useful life rather than charging the profit and loss account with the full amount paid at the time of purchase. Depreciation is the means by which the cost of the fixed asset is spread over the useful economic life of the asset. The accruals concept says that transactions should be reflected in the accounting period to which they relate, not the period in which the cash is received or paid. Therefore depreciation is an application of the accruals concept because the cost of the asset is charged to the profit and loss account over the useful life of the asset rather than when it is paid for. It would not be correct to charge the full cost of the asset to the profit and loss account at the time of purchase. Task 1.9 Going concern 5

6 SECTION 2 Task 2.1 JOURNAL Dr (a) Rent 7,500 General expenses 7,500 Cr (b) Suspense account 80,000 Capital account Pat 80,000 (c) Wages 1,150 Wages 1,150 Suspense account 2,300 (d) Depreciation expense 9,000 Equipment accumulated depreciation 9,000 (e) VAT 420 Suspense 420 Purchases 420 Purchases ledger control account 420 6

7 Task 2.2 Workings Jadon Profit and Loss Account for the year ended 30 April 2006 Sales 365,000 Opening stock 1, , Purchases 124,500 Closing stock (2,200) Cost of goods sold (124,200) Gross profit 240,800 51, ,300 Wages 53,538 22, ,500 Rent 30,000 19,500 7,500 General expenses 12,000 14, ,000 Depreciation (vehicles and equipment) 23,062 (118,600) Net profit 122,200 7

8 Task 2.3 Ade Jon Capital Accounts Pat Goodwill eliminated 60,000 60,000 30,000 Balance c/f 45,000 50,000 50,000 Ade Jon Balance b/d 1 May ,000 35,000 Goodwill introduced 75,000 75,000 Pat Bank 80, , ,000 80, , ,000 80,000 Workings: Goodwill introduced 150,000 x 50% = 75,000 per partner Goodwill eliminated 150,000 x 40% = 60,000 for Ade and Jon 150,000 x 20% = 30,000 for Pat Task 2.4 Interest on capital 1 May Jan 06 1 Feb April 06 Total Ade 1, ,025 Jon 1, ,325 Pat Workings: Ade 30,000 x 6% x 9/12 = 1,350 45,000 x 6% x 3/12 = 675 Jon 35,000 x 6% x 9/12 = 1,575 50,000 x 6% x 3/12 = 750 Pat 50,000 x 6% x 3/12 = 750 8

9 Task 2.5 Jadon Appropriation account for the year ended 30 April May Jan Feb April 2006 Total Net profit 91,650 30, ,200 Salaries: Interest on capital: Profit available for distribution Profit share: Ade (8,175) (2,725) (10,900) Jon (11,250) (3,750) (15,000) Pat - (6,600) (6,600) Ade (1,350) (675) (2,025) Jon (1,575) (750) (2,325) Pat - (750) (750) 69,300 15,300 84,600 Ade (34,650) (6,120) (40,770) Jon (34,650) (6,120) (40,770) Pat - (3,060) (3,060) Balance nil 9

10 Task 2.5 workings: 1 May Jan 2006 = 9/12 1 Feb April 2006 = 3/12 Total Net profit 122,200 x 9/12 = 91, ,200 x 3/12 = 30, ,200 Salaries: Interest on capital: Profit available for distribution Profit share: Ade 10,900 x 9/12 = (8,175) 10,900 x 3/12 = (2,725) (10,900) Jon 15,000 x 9/12 = (11,250) 15,000 x 3/12 = (3,750) (15,000) Pat - (6,600) (6,600) Ade From task 2.4 (1,350) From task 2.4 (675) (2,025) Jon From task 2.4 (1,575) From task 2.4 (750) (2,325) Pat - From task 2.4 (750) (750) 69,300 15,300 84,600 Ade 69,300 x 50% = (34,650) 15,300 x 40% = (6,120) (40,770) Jon 69,300 x 50% = (34,650) 15,300 x 40% = (6,120) (40,770) Pat - 15,300 x 20% = (3,060) (3,060) 10

11 Task 2.6 Drawings Balance c/f Ade Jon Current Accounts Pat 60,000 60,000 7, ,195 Balance b/d as at 1 May 05 Ade Jon 6,800 3,100 Pat 2,910 Salaries 10,900 15,000 6,600 Interest on capital 2,025 2, Profit share 40,770 40,770 3,060 60,495 61,195 10,410 60,495 61,195 10,410 Task 2.7 (a) (b) Capital Assets Task 2.8 I would check the suspense account. Tutorial note: The suspense account should be zero. If the suspense account were not zero, I would try to find the error/s and if I couldn t, I would ask my supervisor for help. 11