Final Examination Semester 3 / Year 2012

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Final Examination Semester 3 / Year 2012 COURSE : FINANCIAL ACCOUNTING II COURSE CODE : ACCT 1103 TIME : 2 1/2 HOURS DEPARTMENT : ACCOUNTING AND FINANCE LECTURER : MS.

1 Final Examination Semester 3 / Year 2012 COURSE : FINANCIAL ACCOUNTING II COURSE CODE : ACCT 1103 TIME : 2 1/2 HOURS DEPARTMENT : ACCOUNTING AND FINANCE LECTURER : MS. TENG PEI YIN Student s ID : Batch No. : Notes to candidates: 1) The question paper consists of 7 pages. 2) Section A consists of 10 objective questions and Section B consists of 3 questions. 3) Answer all questions. 4) Return the question paper with your answer booklet.

2 Section A ALL 10 questions are compulsory and MUST be attempted Each question is this section is worth 2 marks. 1. Which of the following four statements are correct? A. If all the conditions specified in IAS 38 Intangible assets are met, the directors can chose whether to capitalise the development expenditure or not. B. Amortization of capitalised development expenditure will appear as an item in a company s statement of changes in equity. C. Capitalised development costs are shown in the statement of financial position as non-current assets D. Capitalised development expenditure must be amortised over a period not exceeding five years. 2. Which of the following statements are correct? (1) The money measurement concept is that only items capable of being measured in monetary terms can be recognised in financial statements. (2) Materiality means that only physical assets are recognized in the financial statements. (3) In times of rising prices, the use of historical cost accounting tends to understate assets and overstate profits. A. (1) only B. (2) only C. (3) only D. None of the statements 3. George, Freddie and Julian are in partnership running an adventure holidays business. During the year ended 30 September 2006, the business made a profit of $250,000. The partnership agreement states that partners receive 5% interest on their capital balance at the start of the year and then share the profits in the ratio 1:2:3. Other information relating to the partnership is as follows: George Freddie Julian $ $ $ Capital b/f 100, ,000 95,000 Current account b/f 15,600 Cr 31,200 Cr 13,000 Dr Cash withdrawn from business 12,800 25,000 34,000 On 31 January 2006, Julian paid an income tax bill of $12,400 from the business bank account. 1/7

3 What is the balance on Julian s current account at the year end? A. $62,725 Cr B. $75,125 Cr C. $88,725 Cr D. $101,125 Cr 4. Odd and Job are in partnership and share profits in the ratio 2:3. On 1 June 2007, a new partner, Mann joins the business, introducing $12,000 capital. The following also take place on this date: Goodwill is valued at $40,000. The profit share ratio is revised to 3:6:1. Property is revalued upwards by $35,000. If Odd s capital account had a balance of $45,000 credit prior to adjusting the accounts, what is the balance after adjustment, assuming that a goodwill account is used? A. $61,000 Cr B. $63,000 Cr C. $75,000 Cr D. $49,000 Cr 5. Agnes sold some items of inventory which she had bought for $2,622, for $1,950 in cash. How are her assets and capital affected by the sale? Assets Capital A. Reduced by $672 Reduced by $672 B. Reduced by $2,622 Reduced by $672 C. Increased by $672 Increased by $2,622 D. Increased by $1,950 Reduced by $ Gary bought a new machine. The invoice included costs for: (i) Installation charges (ii) Routine maintenance for the first year of operation (iii) Testing the machine prior to operation Which of the costs are capital expenditure? A. (i), (ii) and (iii) B. (i) and (ii) only C. (i) and (iii) only D. (ii) and (iii) only 2/7

4 7. Which of the following should normally be recorded in a non-current asset register? (i) The location of each asset; (ii) The serial number of each asset; (iii) Accumulated depreciation on each asset. A. (i) only B. (ii) and (iii) only C. (i) and (iii) only D. (i), (ii) and (iii) 8. Which method of inventory valuation is used when issues are assumed to be taken from inventory in the order in which they were received? A. Net realisable value B. First in first out C. Periodic weighted average D. Continuous weighted average 9. Tim has recently commenced trading. The materials he uses in his business are subject to regular price rises. He isunsure how to value his inventory and is trying to decide whether to use First In First Out (FIFO), or continuousweighted average. Which of the following statements is correct? A. Tim s profit will be unaffected by the method of inventory valuation. B. FIFO will lead to the higher reported profit. C. Continuous weighted average will lead to the higher reported profit. D. The profit will be more accurate if FIFO is used. 10. According to the Framework for the Peparation and Presentation of Financial Statements, how is the measurement of assets and liabilities affected by the application of prudence? Assets should not be.. Liabilities should not be.. A. Overstated Understated B. Overstated Overstated C. Understated Understated D. Understated Overstated (20 marks) 3/7

5 Section B ALL THREE questions are compulsory and MUST be attempted. Question 1 Paul and Barry are in a business partnership. Their trial balance as at 31May 2012 is given below: Dr Cr RM RM Sales revenue 568,000 Returns inwards 5,100 Purchases 375,600 Rent 18,760 Selling expenses 55,600 General expenses 3,680 Allowance for receivables at 1 June ,100 Bank 13,980 Wages 18,000 Trade payables 41,300 Current accounts at 1 June Paul 3,570 - Barry 2,190 Motor vehicles, at cost 30,000 Fixtures and fittings, at cost 14,000 Accumulated depreciation at 1 June 2011 Motor vehicles 9,000 Fixtures and fittings 7,000 Insurance 1,540 Inventory at 1 June ,200 Motor vehicle expenses 9,300 Trade receivables 47,500 Discounts allowed 8,900 Drawings - Paul 16,000 - Barry 11,000 Capital accounts at 1 June Paul 20,000 - Barry 15, , ,160 The following additional information as at 31 May 2012 is available: 1) Paul and Barry share profits and losses in the ratio 2:1 respectively. 2) Inventory was valued at RM32,000. 3) During the year, Barry has taken some goods for his own use to the value of RM450, but this has not yet been recorded in the accounting records. 4) Interest on drawings for the year were RM420 for Paul and RM180 for Barry. 5) Paul is entitled to a salary of RM15,000 per annum before profits are shared. 4/7

6 6) Insurance of RM900 has been paid in advance. 7) Depreciation is to be provided for as follows: - Motor vehicles at 20% using the reducing balance method. - Fixtures and fittings at 15% using the straight line method. 8) There are outstanding general expenses of RM600. 9) Debts of RM1,100 are to be written off and the allowance for receivables is to be adjusted to the equivalent of 5% of the remaining trade receivables, based on past experience. Required: Prepare the following statements for the partnership: (a) The income statement and appropriation account for the year ended 31 May (17 marks) (b) The partners current accounts for the year ended 31 May (9 marks) (c) The statement of financial position as at 31 May (14 marks) (40 marks) 5/7

7 Question 2 FINANCIAL ACCOUNTING II The following balances as at 31 December 2011 have been extracted from the books of William Speed, a small manufacturer: RM Stock at 1 January 2011: Raw materials 7,000 Work in progress 5,000 Finished goods 6,900 Purchases of raw materials 38,000 Direct labour 28,000 Factory overheads: Variable 16,000 Fixed 9,000 Administrative overheads: Rent and rates 19,000 Heat and light 6,000 Stationery and postages 2,000 Staff salaries 19,380 Sales 192,000 Plant and machinery: At cost 30,000 Accumulated depreciation 12,000 Motor vehicles (for sales deliveries): At cost 16,000 Accumulated depreciation 4,000 Payables 5,500 Debtors 28,000 Drawings 11,500 Balance at bank 16,600 Capital at 1 January ,380 Motor vehicle running costs 4,500 Additional information: (i) Stocks at 31 December 2011 were as follows: RM Raw materials 9,000 Work in progress 8,000 Finished goods 10,350 (ii) Depreciation is provided at the following percentages of the original cost of non-current assets held at the end of each financial year: Plant and machinery 10% Motor vehicles 25% (iii) Amount accrued due at 31 December 2011 for direct labour amounted to $3,000 and rent and rates prepaid at 31 December 2011 amounted to $2,000. 6/7

8 Required: Prepare a manufacturing, trading and profit and loss account for the year ended 31 December (20 marks) Question 3 (a) Explain the accrual concept. (5 marks) (b) Briefly explain the going concern concept. (5 marks) (c) State why it is important to differentiate between capital expenditure and revenue expenditure, and briefly explain the accounting treatment of each type of expenditure. (5 marks) (d) At 30 September 2011, closing inventory was incorrectly valued using the periodic weighted average method instead of the first-in, first-out (FIF0) method. During the year to 30 September 2011 prices have risen. The error was not corrected until 30 September 2012, when the correct method (FIF0) was used. Required: Identify the effect on profit and net assets in the financial statements for: (i) 2011; and (ii) 2012 (5 marks) (20 marks) 000 7/7

Manufacturing Accounts

All questions copyright of Cambridge International Examinations 1 Manufacturing Accounts All questions copyright of Cambridge International Examinations 2 2 1 The following balances were extracted from