ABSA 203: Intermediate Financial Accounting I

Transcription

1 ABSA 203: Intermediate Financial Accounting I Tutorial Exercises Christos Minas PhD (Cand.), FAIA, MSc, BA

2 SUBJECT OUTLINE Objectives of the subject The aim of the subject is to build on the knowledge gained in the previous introductory accounting courses. The major thrust of Intermediate Accounting I is the application of financial accounting principles in a corporate setting. Content (Major units) 1. Issue of Shares and Debentures, Redemptions, Bonus issues, Forfeiture, Reserves. 2. Reconstructions and reorganizations. 3. Income statement for publication and internal use. 4. Balance sheet for publication and internal use. 5. Stockholders equity and present value 6. Stockholders interest and Capital employed 7. Consolidated accounts. 8. Long-term assets and liabilities such as acquisition, disposal and depreciation of fixed assets as well as amortization of intangible assets. 9. Reference is made on related SSAP's and the company s acts Bibliography Wood, F. Business Accounting Volume I and II, 11 th Edition, Pitman Publishing J D Spiceland,J Sepe,L A Tomassini, Intermediate Accounting, 3/e, McGraw-Hill, 2004 Other texts may be used to supplement as an alternative to the above book. Additional titles of texts and specific readings will be given during lectures. Assessment 1. Two test required, 40% of the final grade the first in the 4 th week and the second in 8 th week. 2. Final examination, 60% (end of semester). 2

3 Class Activity 1 Barry Limited issued 1 million Ordinary shares with a nominal value of 0.50 each. The market price was 0.85 per share. A total of 30 cents per share was paid on the application, 20 cents per share on the allotment, 20 cents per share for the first call and 15 cents per share for final calls. Applications were received for 1.3 million shares. The applications rejected were carried forward to the allotment account. One shareholder who applied for 15,000 shares failed to make the final call and another shareholder (with 20,000 shares) at the time of the first call paid both the first call and final call. You are required to: (a) Make the relevant journal entries. (b) Make the relevant ledger entries. Class Activity 2 Kyriakos Limited issued 3 million Ordinary shares with a nominal value of 1 each. The market price was 6.00 per share. A total of 50 cents per share was paid on the application, 350 cents per share on the allotment and 200 cents per share for first and final call. Applications were received for 5 million shares and any excess applications were refunded. All funds for the issue were received in full except for those due on the first and final call in respect for 500,000 shares. You are required to make the relevant ledger entries for the above. Class Activity 3 AEK plc invited Subscriptions for an issue of 1,000,000 ordinary shares of 1 each at a premium of 0.10 per share payable: 0.2 on Application 1 January on Allotment (including the premium) 31 January on First & Final Call 30 April 2006 Applications were received for 1,400,000 shares and the Directors disposed of the matter as follows: To Applications for 800,000 Allotment in Full To Applications for 400,000 One share for every two applied To Applications for 200,000 None (Refund application money) All cash was received on due dates except for the Call money on 50,000 shares which were forfeited on 1 May. On 15 May the shares were re-issued to Mr. Renos Kinigos as fully paid for 0.80 per share. Required (a) Make the necessary ledger entries, balancing the accounts at 31 May

4 (b) What is the minimum price that the above forfeited shares can be re-issued? Class Activity 4 Explain the difference between a bonus issue and a rights issue and contrast their accounting treatment. Class Activity 5 Luke Moore Limited issued 2 million Ordinary shares with a nominal value of 0.50 each. The market price was 0.90 per share. A total of 35 cents per share was paid on the application, 25 cents per share on the allotment, 20 cents per share for the first call and 10 cents per share for final calls. Applications were received for 2.5 million shares. Excess application money were refunded. You are required to make the relevant ledger entries. 4

5 Class Activity 6 The following trial balance was extracted from the books of Jubiler PLC on 31 December 2008: Debit Credit Ordinary Share Capital 0.50 each 75,000 8% Preference Share Capital 1 each 20,000 6% Debentures 20,000 Directors Remuneration 18,000 Audit fees 4,000 Goodwill 15,000 Carriage Inwards 1,300 Stock at 1 January ,000 Sales 250,500 Purchases 100,500 Debtors 11,600 Cash at Bank 25,500 Land 93,000 Buildings 70,000 Fixtures and Fittings 15,000 Trade Creditors 19,500 Interim ordinary dividend 3,750 Salaries and Wages 19,700 Rent and Rates 17,500 General Reserve Retained Earnings at 1 January ,850 Provision for depreciation on Building 5,000 Provision for depreciation on Fixtures and Fittings 7, , ,850 You are also given the following information at 31 December 2008: The stock at 31 December 2008 amounted to 35,000. Provide for 8,000 Corporation Tax for the year. Provide for the preference dividend for the year. Provide the final dividend 0.05 cent per ordinary share. The total interest due on Debentures is due. The Goodwill has been impaired by 9,000. The Salaries and Wages are accrued by 2000 and Director Remuneration is accrued by 3,000. Rent and Rates are prepaid by 900. Buildings are to be depreciated at 2% on cost and Fixtures and Fittings by 15% on the book value. Prepare a Profit and Loss Account (Income Statement) for the year ended 31 December 2008 and a Balance Sheet at 31 December

6 Class Activity 7 The following trial balance was extracted from the books of Tommy PLC on 31 December 2007 after the preparation of the Trading Account: Debit Credit Ordinary Share Capital 70,000 8% Preference Share Capital 25,000 6% Debentures 20,000 Directors Remuneration 8,300 Audit fees 4,700 Goodwill 10,000 Gross Profit 58,400 Stock 30,300 Debtors 6,300 Cash at Bank 32,000 Land 36,000 Buildings 46,000 Fixtures and Fittings 4,000 Trade Creditors 15,800 Interim ordinary dividend 3,500 Salaries and Wages 16,200 Rent and Rates 3,100 General Expenses Retained Earnings at 1 January , ,400 You are also given the following information at 31 December 2007: Provide for 4,300 Corporation Tax for the year. Provide 2,000 for the preference dividend for the year. The total interest due on Debentures of 1,200 is due. The Goodwill has been impaired by 4,300. A provision for bad debts of 1% of debtors is to be provided. The Salaries and Wages are accrued by Rates are prepaid by 420. Buildings are to be depreciated at 2% on the book value and Fixtures and Fittings by 15% on the book value. You are required to: a) Prepare a Profit and Loss Account for the year ended 31 December b) Prepare a Balance Sheet as at 31 December

7 Class Activity 8 The Trial Balance of Finikoudes Plc at 31 December 2006 appeared as follows: 8% Preference share capital of 1 each, fully paid Ordinary shares of 2 each, fully paid Purchases Retained profit Freehold land at cost Fixtures, at cost Depreciation on fixtures Directors Remuneration Motor vehicles, cost Depreciation on vehicles Insurance Stock at 1 January Debtors Trade creditors Sales Bank % Debentures (redeemable 2007) Debenture interest Wages and salaries Heat and light Audit fees Debenture discount Motor expenses Provision for bad debts Bad debts General Reserve Goodwill ====== ====== 7

8 Notes: 1. Stock at 31 December 2006 was Depreciation for 2006 has yet to be provided on the following bases: Fixtures 15% straight line method Motor vehicles 20% Reducing balance method 3. Write off additional bad debts of and adjust the provision for bad debts equal to 5% on the remaining debtors. 4. Insurance of 400 had been prepaid at the year end, and wages of were accrued 5. The directors propose the final dividend on preference shares and 12% dividend on the ordinary shares. 6. Taxation of is to be provided. 7. Transfer to General Reserve and write off half the Goodwill. REQUIRED Prepare for Finikoudes Plc: (a) A Trading, Profit & Loss Account for the year ended 31 December (b) A Balance Sheet as at 31 December (c) Who decides whether a dividend must be proposed and the amount of the dividend to be proposed. 8

9 Class Activity 9 The following is an extract from the trial balance of Angel Limited a limited liability company at 30 June 2005: $000 Plant and Equipment - cost Equipment accumulated depreciation at July 2004 Stock at 1 July Dividend Receivable Motor Vehicles - cost Motor Vehicles accumulated depreciation at 1 July 2004 Sales Revenue Purchases Distribution costs 8000 Administrative expenses Factory closure costs 6000 Provision for bad debts at 1 July Bad debts written off 900 8% Debentures Interest paid on loan notes 800 Retained profit at 1 July Suspense account 330 Debtors Notes: 1. The closing stock at 30 June 2005 was $12,800, Bad debts written off and the movement on the provision for bad debts are to be included in distribution costs. The provision for bad debts at 30 June 2005 amounted to 6% of Debtors, 3. The balance on the suspense account is the proceeds on the sales of motor vehicles, entered to the suspense account pending the correct treatment in the records. The motor vehicles had originally cost $500,000 and had a written down value at 1 July 2004 of $400,000. It is the company s policy to provide a full year s depreciation in the year of purchases and none in the year of sale. 4. Depreciation is to be provided for on the basis of cost as follows: Equipment 10% on cost Motor Vehicles 20% on cost 5. Prepayments and accruals were: Accruals Prepayments $000 $000 Administrative expenses Distribution costs The estimated income tax expense for the year is $2,000,000. There was an overprovision of corporation tax of $10,000 for the year ended 30 June

10 You are required to: Prepare Angel Limited s Profit and Loss Account (Income Statement) for the year ended 30 June Class Activity 10 The following trial balance was extracted from the books of Thelma Tsoura PLC on 31 December 2008: Debit Credit Ordinary Share Capital 75,000 8% Preference Share Capital 20,000 6% Debentures 20,000 Directors Remuneration 18,000 Audit fees 4,000 Goodwill 15,000 Carriage Inwards 1,300 Stock at 1 January ,000 Sales 155,500 Purchases 100,500 Debtors 11,600 Cash at Bank 25,500 Land 33,000 Buildings 30,000 Fixtures and Fittings 15,000 Trade Creditors 31,500 Interim ordinary dividend 3,750 Salaries and Wages 19,700 Rent and Rates 12,300 General Expenses 5,200 Retained Earnings at 1 January , , ,850 You are also given the following information at 31 December 2008: The stock at 31 December 2006 amounted to 35,000. Provide for 8,000 Corporation Tax for the year. Provide for the preference dividend for the year. The total interest due on Debentures is due. The Goodwill has been impaired by 9,000. The Salaries and Wages are accrued by 1600 and Director Remuneration is accrued by 3,000. Rent and Rates are prepaid by 900. Buildings are to be depreciated at 5% on the book value and Fixtures and Fittings by 15% on cost. You are required to prepare a Profit and Loss Account (Income Statement) for the year ended 31 December 2008 and a Balance Sheet as at 31 December

11 Class Activity 11 The following trial balance was extracted from the books of Rolando Limited on 31 December 2008: Debit Credit Ordinary Share Capital 70,000 Share Premium 12,000 12% Debentures 10,000 Directors Remuneration 10,000 Audit fees 1,500 Goodwill 9,000 Discounts allowed 550 Sales Revenue 88,000 Stock at 1 January ,600 Purchases 52,000 Carriage Inwards 2,000 Purchase returns 3,500 Trade Receivables (Debtors) 9,900 Cash at Bank 6,300 Land 10,000 Freehold Buildings-cost 45,000 Fixtures 8,000 Accumulated depreciation -Fixtures 900 Motor Vans-cost 44,000 Accumulated depreciation- Motor Vans 10,500 Bills Receivable 2,000 Trade Payables (Creditors) 11,700 Bills Payable 4,700 Rent Received 800 Debenture interest paid 600 Bank charges 250 General Expenses 2,000 Retained Earnings at 1 January , ,700 You are also given the following information at 31 December 2008: The stock was valued at 13,800. The total interest due on Debentures of 600 is due. The Goodwill has been impaired by 8,000. General expenses are prepaid by 500. Provide depreciation of 4000 for Motor Vans and 300 for Fixtures You are required to: a. Prepare an Income Statement for the year ended 31 December b. Prepare a Statement of Financial Position (Balance Sheet) as at 31 December

12 Class Activity 12 The following trial balance was extracted from the ledger accounts of Angel plc at 30 September, 2007: Debit Credit Share capital ( 1 ordinary shares fully paid) 400,000 Share premium 100,000 Debentures interest 12% p.a. issued ,000 Fixed Assets at cost Freehold premises 935,000 Machinery and equipment 160,000 Motor vehicles 125,000 Provision for depreciation at 1 October, 2006 Freehold premises 130,000 Machinery and equipment 40,000 Motor vehicles 62,500 Sales & Purchases 458,200 1,791,600 Discounts Allowed/Received 14,200 9,800 Opening Stock 113,400 Debtors and Creditors 154, ,400 Provision for doubtful debts at 1 October, ,700 Bad debts 6,900 Wages and salaries 238,400 Administrative expenses 332,800 Auditors fees 39,600 Debenture interest 12,000 Directors Remuneration 40,000 Retained profits at 1 October, ,200 Goodwill at cost 230,000 Bank balance 226,600 3,086,200 3,086,200 Additional information relevant to the year ended 30 September, 2007 is as follows: 1. Stock held at 30 September, 2004 is 121, Provision for doubtful debts to be increased to 9, Machinery and equipment and motor vehicles are to be depreciated at 25% per annum on cost. A further 10,000 is to be written off the freehold premises. 4. Corporation tax on the profits of the year is to be provided for at 235, The cost of goodwill is to be amortised over 20 years. 6. A dividend is proposed at the rate of 10p per share. 7. Wages and administrative expenses accruals amount to 1,500 and 900 respectively. 12

13 8. The debenture interest in the trial balance is the amount paid during the year. The terms of the debenture state that interest is to be paid half-yearly in arrears. Required (a)prepare for Angel plc a Trading, Profit and Loss Account for the year ended 30 September, 2007 together with a Balance Sheet as at that date. (b) Prepare the accounts for proposed dividend and corporation tax. 13

14 Class Activity 13 Airloaders plc had the following Trial Balance at 31 March 2006: Purchases/Sales 12,450 21,560 Debtors/Creditors 1,800 1,600 Returns inwards/outwards Machinery at cost 3,460 Vehicles at cost 850 Land and buildings (land 520,000) at cost 1,920 Discounts allowed/received Wages and salaries 3,240 Sales expenses 678 Stock at 1 April 2005 at cost 945 Accumulated depreciation at 1 April 2005: Buildings 42 Machinery 714 Vehicles 610 General expenses 3,416 Debenture interest paid % Debentures (issued 1 April 2005, repayable 2015) 1,000 Interim dividend paid on ordinary shares 150 Ordinary share capital ( 0.50 shares) 3,000 Retained earnings 750 Bank 120 Notes 29,529 29,529 ===== ===== (1) The stock at 31 March 2006 cost 985,000. (2) General expenses included a prepayment of 27,000. (3) Wages and salaries accrued amounted to 84,000. (4) The company depreciates buildings at 2% of cost. (5) The company depreciates machinery at 15% of cost. (6) The company depreciates vehicles at 25% using the reducing balance method. (7) The Directors wish to make a provision for doubtful debts equal to 2% of outstanding debtors. (8) The Directors propose a final dividend of 0.06 per share. (9) Provision should be made for debenture interest owing at 31 March

15 (10) Provision for Corporation tax 15,000 should be made. REQUIRED Prepare for Airloaders plc: (a) A Trading, Profit & Loss Account for the year ended 31 March (b) A Balance Sheet as at 31 March Class Activity 14 The following is the Balance Sheet of Evdokia PLC at 31 December 2007: Non-current (Fixed) Assets 235,000 Current Assets (except cash) 193,000 Cash and bank 82,000 TOTAL ASSETS 510,000 Ordinary share capital of 1 each 200,000 8% Preference Shares of 1 each 60,000 Share Premium 55,000 Profit and Loss Reserve 85,000 7% Debentures 46,000 Current Liabilities 64,000 TOTAL EQUITY AND LIABILITIES 510,000 On the same day the company resolved to redeem 25,000 Preference Shares at 1.30 each. In order to provide fund for the redemption, the company issued 25,000 ordinary shares at The preference shares had been issued at a premium of 30%. You are required to: a) Make the journal entries, including those relating to cash. b) Draw up the Balance Sheet after the redemption. c) Explain the difference between ordinary and preference shares. 15

16 Class Activity 15 The following is extracts of the Statement of financial position (Balance Sheet) of Demetris Limited on 31 December 2007: Ordinary share capital of 1 each 300,000 8% Preference Shares of 1 each 50,000 Share Premium 265,000 Profit and Loss Reserve 235,000 During 2008 the following transactions were carried out that affected the capital structure of the company: 1. On 1 February 2008 the company carried out a 2 for 3 bonus issue for its ordinary shares. The bonus issue was made from the share premium account. 2. On 1 August 2008 the company carried out a 1 for 5 rights issue for its ordinary shares at a market price of 2.90 per share. 3. On 1 August 2008 the company redeemed 30,000 preference shares at a redemption price of 1.20 per share. The preference shares were originally issued at an issue price of 1.20 per share. 4. The retained earnings for the year ended 31 December 2008 amounted to 77,400. You are required to carry out the double entries for the above and to show Statement of financial position (Balance Sheet) extracts of the capital structure at 31 December 2008 (18 marks). Class Activity 16 Gardening Supplies plc has an authorised capital consisting of 5,000,000 ordinary shares of 0.25 each and 500,000 8% preference shares of 1 each. The balances on its capital and loan accounts at 31 March 2005 were as follows: ,000,000 ordinary shares of 0.25 each ,000 8% preference shares of 1 each 300 Share premium 128 Revaluation reserve 150 Retained earnings % debenture loan repayable On 1 April 2005 the directors decided: (1) to make a capitalisation issue of 4 ordinary shares for every 5ordinary shares in issue, making maximum use of the non-distributable reserves; (2) to make a rights issue at 0.30 per share of all the remaining un-issued ordinary shares; (3) to issue a further 100,000 preference shares at a premium of 0.10; (4) to redeem the debenture loan early at a premium of 2 per cent; (5) to buy machinery at a cost of 500,000.

17 Required (a) Prepare journal entries (without narratives) to record the above transactions. (b) Calculate the total on the reserves of Gardening Supplies plc after the above transactions have been carried out. (C) Calculate the effect on the company s bank balance of the above transactions. (d) Give one reason why Gardening Supplies plc might replace a debenture loan with share capital. Class Activity 17 The following is the Balance Sheet of Zenovia PLC at 31 December 2007: Non-current (Fixed) Assets 335,000 Current Assets (except cash) 293,000 Cash and bank 182,000 TOTAL ASSETS 810,000 Ordinary share capital of 1 each 300,000 8% Preference Shares of 1 each 160,000 Share Premium 85,000 Profit and Loss Reserve 135,000 7% Debentures 66,000 Current Liabilities 64,000 TOTAL EQUITY AND LIABILITIES 810,000 On the same day the company resolved to redeem 50,000 Preference Shares at 1.30 each. In order to provide fund for the redemption, the company issued 50,000 ordinary shares at The preference shares had been issued at a premium of 30%. You are required to: d) Make the journal entries, including those relating to cash. e) Draw up the Balance Sheet after the redemption. f) Explain the difference between the revaluation reserve and profit and loss reserve. 17

18 Class Activity 18 At 1 January 2003, Martin O Neil Limited acquired 60% of Randy Lerner Limited when the Retained Earnings Reserves of the later were $60,000. The Balance Sheets of both companies at 31 December 2006 were as follows: Martin O Neil Randy Lerner $000s $000s Property, Plant and Equipment Cost of Investment in Randy Lerner Stocks Debtors Cash at Bank and in Hand Total assets Ordinary shares Retained Earnings Reserve Trade Creditors %Debentures Bank Overdraft Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December

19 Class Activity 19 At 1 January 2006, MUFC Limited acquired 70% of BCFC Limited when the reserves of the later were $45,000. The Balance Sheets of both companies at 31 December 2007 were as follows: MUFC BCFC $000s $000s Land and Buildings Cost of Investment in Steven Stride Stocks Debtors Cash at Bank Total assets Share Capital Reserves Trade Creditors Long Term Loans Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December Class Activity 20 At 1 January 2004, Doug Ellis Limited acquired 100% of Steven Stride Limited when the reserves of the later were $40,000. The Balance Sheets of both companies at 31 December 2004 were as follows: Doug Ellis Steven Stride $000s $000s Land and Buildings Cost of Investment in Steven Stride Stocks Debtors Cash at Bank Total assets Share Capital Reserves Trade Creditors Long Term Loans Total Equity and Liabilities

20 You are required to prepare the Consolidated Balance Sheet as at 31 December Class Activity 21 At 1 January 2004, Bobby Charlton Limited acquired 60% of Pele Limited when the Retained Earnings Reserves of the later were 50,000. The Balance Sheets of both companies at 31 December 2008 were as follows: Bobby Charlton Pele 000s 000s Property, Plant and Equipment Investment in Pele Limited Inventories (Stocks) Receivables (Debtors) Cash at Bank and in Hand Total assets Ordinary shares Retained Earnings Reserve Trade Payables (Creditors) %Debentures Bank Overdraft Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December Class Activity 22 The directors of Milner Limited are reviewing the company s draft financial statements for the year ended 31 March The following matters are under discussion: a) At 1 April 2004 the company s Land and Buildings were valued at a cost of $3 million and the Provision for Depreciation at that date amounted to $300,000. The revaluation that was carried by an independent surveyor showed a value of $4.5 million. The directors intend to include this valuation in its accounts. b) The company incurred research cost of $50,000 for the year ended 31 March It also developed a new product whose development costs amounted to $100,000. However the directors are uncertain whether the product would be a commercial success. c) At 31 March 2005, the company had Investments with a carrying value of $900,000 that is available for immediate sale. It is considered probable by the directors that the Investments would be sold. If the investments have a fair value of $450,000 and any expected selling costs would amount to 1% of the selling price. 20

21 You are required to advise the directors on the correct accounting treatment of the matters applying the relevant accounting standard that justifies your answer. Show your calculations where necessary. Class Activity 23 The directors of Agbonalor Limited are reviewing the company s draft financial statements for the year ended 31 August The following matters are under discussion: d) At 1 March 2006 the company bought Land and Buildings at a cost of $800,000. Included in this figure is Land worth $100,000. It is estimated that the buildings have a useful life of 50 years. e) The company incurred research cost of $90,000 for the year ended 31 August It also developed a new product whose development costs amounted to $160,000. The new product is to be sold from 1 February The directors are confident that the product will be a commercial success. f) At 31 August 2006, the company had Investments with a carrying value of $700,000 that is available for immediate sale. It is considered probable by the directors that the Investments would be sold. If the investments have a fair value of $950,000 and any expected selling costs would amount to 1% of the selling price. g) On 1 September 2005 the company sold a Motor Van for $8,000. The original cost of the van was $15,000 and the Accumulated Depreciation on this Van at 31 August 2005 was $6,000. h) Included in the balances of 1 September 2005 are Computer Equipment that has a cost of $10,000 and Accumulated Depreciation of $2,000. The company has decided to revise the remaining life on this equipment (as from 1 September 2005) to 2 years. You are required to advise the directors on the correct accounting treatment of the matters applying the relevant accounting standard that justifies your answer. Show your calculations where necessary. 21

22 SUBJECT: ABSA 203 INTERMEDIATE FINANCIAL ACCOUNTING I DATE: TIME: 2 ½ HOURS INSTRUCTIONS TO CANDIDATES This paper consists of TWO SECTIONS: SECTION A and SECTION B. SECTION A is compulsory and from SECTION B you are required to answer any 2 from 3 questions. SECTION A: COMPULSORY QUESTION 1 The following trial balance was extracted from the books of Rolando Limited on 31 December 2008: 22 Debit Credit Ordinary Share Capital 70,000 Share Premium 12,000 12% Debentures 10,000 Directors Remuneration 10,000 Audit fees 1,500 Goodwill 9,000 Discounts allowed 550 Sales Revenue 88,000 Stock at 1 January ,600 Purchases 52,000 Carriage Inwards 2,000 Purchase returns 3,500 Trade Receivables (Debtors) 9,900 Cash at Bank 6,300 Land 10,000 Freehold Buildings-cost 45,000 Fixtures 8,000 Accumulated depreciation -Fixtures 900 Motor Vans-cost 44,000 Accumulated depreciation- Motor Vans 10,500 Bills Receivable 2,000 Trade Payables (Creditors) 11,700 Bills Payable 4,700 Rent Received 800 Debenture interest paid 600 Bank charges 250 General Expenses 2,000 Retained Earnings at 1 January , ,700 You are also given the following information at 31 December 2008: The stock was valued at 13,800. The total interest due on Debentures of 600 is due. The Goodwill has been impaired by 8,000. General expenses are prepaid by 500. Provide depreciation of 4000 for Motor Vans and 300 for Fixtures

23 You are required to: c) Prepare an Income Stastement for the year ended 31 December 2008 (25 marks). d) Prepare a Statement of Financial Position (Balance Sheet) as at 31 December 2008 (25 marks). SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2 a) Kyriakos Limited issued 3 million Ordinary shares with a nominal value of 1 each. The market price was 6.00 per share. A total of 50 cents per share was paid on the application, 350 cents per share on the allotment and 200 cents per share for first and final call. Applications were received for 5 million shares and any excess applications were refunded. All funds for the issue were received in full except for those due on the first and final call in respect for 500,000 shares. You are required to make the relevant ledger entries for the above (17 marks). b) Explain the recognition criteria for intangible assets. Explain the accounting treatmen concerning research and development expenditure (8 marks). QUESTION 3 a) The following is extracts of the Statement of financial position (Balance Sheet) of Demetris Limited on 31 December 2007: Ordinary share capital of 1 each 300,000 8% Preference Shares of 1 each 50,000 Share Premium 265,000 Profit and Loss Reserve 235,000 During 2008 the following transactions were carried out that affected the capital structure of the company: 5. On 1 February 2008 the company carried out a 2 for 3 bonus issue for its ordinary shares. The bonus issue was made from the share premium account. 6. On 1 August 2008 the company carried out a 1 for 5 rights issue for its ordinary shares at a market price of 2.90 per share. 7. On 1 August 2008 the company redeemed 30,000 preference shares at a redemption price of 1.20 per share. The preference shares were originally issued at an issue price of 1.20 per share. 8. The retained earnings for the year ended 31 December 2008 amounted to 77,400. You are required to carry out the double entries for the above and to show Statement of financial position (Balance Sheet) extracts of the capital structure at 31 December 2008 (18 marks). b) Explain why companies may decide to purchase their own shares (7 marks). 23

24 QUESTION 4 a) At 1 January 2004, Bobby Charlton Limited acquired 60% of Pele Limited when the Retained Earnings Reserves of the later were 50,000. The Balance Sheets of both companies at 31 December 2008 were as follows: Bobby Charlton Pele 000s 000s Property, Plant and Equipment Investment in Pele Limited Inventories (Stocks) Receivables (Debtors) Cash at Bank and in Hand Total assets Ordinary shares Retained Earnings Reserve Trade Payables (Creditors) %Debentures Bank Overdraft Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December 2008 (18 marks). b) Compare and contrast he accounts of sole traders as opposed to limited companies (7 marks). 24

25 SUBJECT: ABSA 203 INTERMEDIATE FINANCIAL ACCOUNTING I DATE: TIME: 2 ½ HOURS INSTRUCTIONS TO CANDIDATES This paper consists of TWO SECTIONS: SECTION A and SECTION B. SECTION A is compulsory and from SECTION B you are required to answer any 2 from 3 questions. SECTION A: COMPULSORY QUESTION 1 The following trial balance was extracted from the books of Tommy PLC on 31 December 2007 after the preparation of the Trading Account: Debit Credit Ordinary Share Capital 70,000 8% Preference Share Capital 25,000 6% Debentures 20,000 Directors Remuneration 8,300 Audit fees 4,700 Goodwill 10,000 Gross Profit 58,400 Stock 30,300 Debtors 6,300 Cash at Bank 32,000 Land 36,000 Buildings 46,000 Fixtures and Fittings 4,000 Trade Creditors 15,800 Interim ordinary dividend 3,500 Salaries and Wages 16,200 Rent and Rates 3,100 General Expenses Retained Earnings at 1 January , ,400 You are also given the following information at 31 December 2007: Provide for 4,300 Corporation Tax for the year. Provide 2,000 for the preference dividend for the year. The total interest due on Debentures of 1,200 is due. The Goodwill has been impaired by 4,300. A provision for bad debts of 1% of debtors is to be provided. The Salaries and Wages are accrued by Rates are prepaid by 420. Buildings are to be depreciated at 2% on the book value and Fixtures and Fittings by 15% on the book value. 25

26 You are required to: e) Prepare a Profit and Loss Account for the year ended 31 December 2005 (25 marks). f) Prepare a Balance Sheet as at 31 December 2005 (25 marks). SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2 a) At 1 January 2006, MUFC Limited acquired 70% of BCFC Limited when the reserves of the later were $45,000. The Balance Sheets of both companies at 31 December 2007 were as follows: MUFC BCFC $000s $000s Land and Buildings Cost of Investment in Steven Stride Stocks Debtors Cash at Bank Total assets Share Capital Reserves Trade Creditors Long Term Loans Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December 2007 (18 marks). b) Bonus issues do not involve cash whereas rights issues do. Discuss this statement and reach a conclusion (7 marks). QUESTION 3 The following is the Balance Sheet of Evdokia PLC at 31 December 2007: Non-current (Fixed) Assets 235,000 Current Assets (except cash) 193,000 Cash and bank 82,000 TOTAL ASSETS 510,000 Ordinary share capital of 1 each 200,000 8% Preference Shares of 1 each 60,000 Share Premium 55,000 Profit and Loss Reserve 85,000 7% Debentures 46,000 Current Liabilities 64,000 26

27 TOTAL EQUITY AND LIABILITIES 510,000 On the same day the company resolved to redeem 25,000 Preference Shares at 1.30 each. In order to provide fund for the redemption, the company issued 25,000 ordinary shares at The preference shares had been issued at a premium of 30%. You are required to: g) Make the journal entries, including those relating to cash (8 marks). h) Draw up the Balance Sheet after the redemption (10 marks). i) Explain the difference between ordinary and preference shares (7 marks). QUESTION 4 c) Kyriakos Limited issued 2.5 million Ordinary shares with a nominal value of 0.50 each. The market price was 1.20 per share. A total of 75 cents per share was paid on the application, 25 cents per share on the allotment, 15 cents per share for the first call and 5 cents per share for final calls. Applications were received for 3.5 million shares and any excess applications were refunded. You are required to make the relevant ledger entries for the above (15 marks). b) Explain what is meant by the term depreciation. Explain the different ways in which Property, Plant and Equipment may be measured (10 marks). 27

28 SUBJECT: ABSA 234 PART (A) FINANCIAL ACCOUNTING DATE: TIME: 2 ½ HOURS INSTRUCTIONS TO CANDIDATES This paper consists of TWO SECTIONS: SECTION A and SECTION B. SECTION A is compulsory and from SECTION B you are required to answer any 2 from 3 questions. SECTION A: COMPULSORY QUESTION 1 The following trial balance was extracted from the books of Tommy PLC on 31 December 2007 after the preparation of the Trading Account: Debit Credit Ordinary Share Capital 70,000 8% Preference Share Capital 25,000 6% Debentures 20,000 Directors Remuneration 8,300 Audit fees 4,700 Goodwill 10,000 Gross Profit 58,400 Stock 30,300 Debtors 6,300 Cash at Bank 32,000 Land 36,000 Buildings 46,000 Fixtures and Fittings 4,000 Trade Creditors 15,800 Interim ordinary dividend 3,500 Salaries and Wages 16,200 Rent and Rates 3,100 General Expenses Retained Earnings at 1 January , ,400 You are also given the following information at 31 December 2007: Provide for 4,300 Corporation Tax for the year. Provide 2,000 for the preference dividend for the year. The total interest due on Debentures of 1,200 is due. The Goodwill has been impaired by 4,300. A provision for bad debts of 1% of debtors is to be provided. The Salaries and Wages are accrued by Rates are prepaid by 420. Buildings are to be depreciated at 2% on the book value and Fixtures and Fittings by 15% on the book value. 28

29 You are required to: a) Prepare a Profit and Loss Account for the year ended 31 December 2005 (25 marks). b) Prepare a Balance Sheet as at 31 December 2005 (25 marks). SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2 a) At 1 January 2006, MUFC Limited acquired 70% of BCFC Limited when the reserves of the later were $45,000. The Balance Sheets of both companies at 31 December 2007 were as follows: MUFC BCFC $000s $000s Land and Buildings Cost of Investment in Steven Stride Stocks Debtors Cash at Bank Total assets Share Capital Reserves Trade Creditors Long Term Loans Total Equity and Liabilities You are required to prepare the Consolidated Balance Sheet as at 31 December 2007 (18 marks). b) Bonus issues do not involve cash whereas rights issues do. Discuss this statement and reach a conclusion (7 marks). QUESTION 3 The following is the Balance Sheet of Evdokia PLC at 31 December 2007: Non-current (Fixed) Assets 235,000 Current Assets (except cash) 193,000 Cash and bank 82,000 TOTAL ASSETS 510,000 Ordinary share capital of 1 each 200,000 8% Preference Shares of 1 each 60,000 Share Premium 55,000 Profit and Loss Reserve 85,000 7% Debentures 46,000 Current Liabilities 64,000 29

30 TOTAL EQUITY AND LIABILITIES 510,000 On the same day the company resolved to redeem 25,000 Preference Shares at 1.30 each. In order to provide fund for the redemption, the company issued 25,000 ordinary shares at The preference shares had been issued at a premium of 30%. You are required to: a) Make the journal entries, including those relating to cash (8 marks). b) Draw up the Balance Sheet after the redemption (10 marks). c) Explain the difference between ordinary and preference shares (7 marks). QUESTION 4 a) Kyriakos Limited issued 2.5 million Ordinary shares with a nominal value of 0.50 each. The market price was 1.20 per share. A total of 75 cents per share was paid on the application, 25 cents per share on the allotment, 15 cents per share for the first call and 5 cents per share for final calls. Applications were received for 3.5 million shares and any excess applications were refunded. You are required to make the relevant ledger entries for the above (15 marks). b) Explain what is meant by the term depreciation. Explain the different ways in which Property, Plant and Equipment may be measured (10 marks). 30