Financial Accounting. Sample Paper / 2018 Questions & Suggested Solutions

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1 Financial Accounting Sample Paper / 2018 Questions & Suggested Solutions

2 NOTES TO USERS ABOUT SAMPLE PAPERS Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see for a comprehensive list of examinable topics. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2017 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, 2017 Financial Accounting Sample Paper 2 Page 2 of 31

3 Accounting Technicians Ireland Year 1 FINANCIAL ACCOUNTING Sample Paper 2 EXAM DURATION: THREE HOURS INSTRUCTION TO CANDIDATES PLEASE READ CAREFULLY In this examination paper the / symbol may be understood and used by candidates in Northern Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate the Euro. Answer ALL THREE questions from Section A. Answer ANY TWO of the three questions from Section B. If more than TWO questions are answered in section B, then only the first two questions, in the order filed, will be corrected. Candidates should allocate their time carefully. All workings should be shown. All figures should be labelled as appropriate e.g. s, units etc. Answers should be illustrated with examples, where appropriate. Financial Accounting Sample Paper 2 Page 3 of 31

4 SECTION A Answer ALL THREE QUESTIONS (Compulsory) in this Section QUESTION 1 (Compulsory) a) Provide a definition of depreciation and explain why non current assets are depreciated over their useful economic life. 5 Marks b) The following information relates to the non current assets of Past Editions Limited. Fixtures & Fittings Plant & Machinery Cost at 1/1/ , ,000 Accumulated depreciation as at 1/1/ ,000 74,656 Depreciation Policy Details are as follows: Past Editions Limited depreciates at the following rates: Fixtures and fittings at 10% per annum straight line; Plant and machinery at 20% per annum straight line. The depreciation policy of Past Editions Limited is to charge depreciation from the month of acquisition to the month of sale. During the year to 31 December 2016 the following transactions relating to non current assets occurred: Fixtures and Fittings An item of fixtures and fittings was purchased for 36,000 on 1 March Installation costs of 1,500 were incurred to bring the asset into working condition. The asset is to be depreciated in line with the company s depreciation policy for fixtures and fittings. Plant & Machinery An item of machinery that originally cost 24,000 and with accumulated depreciation of 11,600 as at 1 January 2016 was traded in on 30 June 2016 against a new machine that cost 32,000. A trade in of 8,400 was achieved. QUESTION 1 (Cont d) Buildings Past Editions Limited constructed a new building and the following costs were incurred: Financial Accounting Sample Paper 2 Page 4 of 31

5 Purchase of site 50,000; Site preparation 10,500; Raw material and labour costs 46,500; Architect fees 15,000. The building was completed and Past Editions moved into the building on 1 September It is estimated that the building will have a useful economic life of 50 years and a residual value of 20,000. You are required to prepare the following nominal ledger accounts of Past Editions for the year ended 31 December 2016: i. Buildings: cost account; ii. Fixtures and fittings: cost account; iii. Plant and machinery : cost account; iv. Buildings: accumulated depreciation account; v. Fixtures and fittings: accumulated depreciation account; vi. Plant and machinery : accumulated depreciation account; vii. Disposal of plant and machinery account. 2 Marks 1 Mark 3 Marks 2 Marks 2 Marks 3 Marks 2 marks Total 20 Marks Financial Accounting Sample Paper 2 Page 5 of 31

6 QUESTION 2 (Compulsory) The following information relates to the receivables and payables of John Forman, a sole trader, for the year ended 31 December 2016: Extract from the books as at 1 January 2016: Receivables ledger debit balances Receivables ledger credit balances Payables ledger credit balances Payables ledger debit balances 200,000 Dr 20,000 Cr 180,000 Cr 80,000 Dr Transactions for the year ended 31 December 2016: Sales on credit 1,400,000 Sales returns (all credit) 80,000 Purchases on credit 900,000 Purchases returns (all credit) 40,000 Amounts received from receivables 1,200,000 Discounts allowed to receivables 20,000 Discounts allowed by payables 30,000 Irrecoverable debts written off 60,000 Interest charged by a payable for late payment of accounts 6,000 Discount received subsequently disallowed 3,000 Payments to payables 750,000 Dishonoured cheque received from a receivable (included in the amounts received from receivables above) 12,500 Cash sales 17,200 Contra entry between receivable and payable balances 4,890 Closing allowance for receivables 16,700 Additional Information A receivable s balance 3,495 was omitted from the list of debit balances as at 1 January At 31 December 2016 the total of the credit balances in the Receivables ledger was 30,000 and the total of the debit balances in the Payables ledger was 12,000. You are required to: a) Prepare the receivables and payables control accounts for Mr. Forman for the year ended 31 December Marks b) Explain why a company should prepare control accounts. 4 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 6 of 31

7 QUESTION 3 (Compulsory) - Complete Any Four Parts Part A Write a note on your understanding of the terms financial accounting and management accounting. As part of your discussion you should provide an example of the type of information provided by financial and management accounting. 5 Marks Part B Several user groups of financial accounting information have been identified. Two of these are investors and lenders. Write a brief note on both of these users of financial accounting information including the key accounting information required by each user and why each user requires the information. 5 Marks Part C Outline your understanding of the term external audit and explain why carrying out an external audit annually is important for many companies. 5 Marks Part D The concept that the financial statements of an entity represent a true and fair view is fundamental to financial accounting. Outline your understanding of the term true and fair view as it relates to financial accounting. 5 Marks Part E Several characteristics of accounting information have been identified. Two of these are comparability and reliability. Write a brief explanation of these terms as they relate to financial accounting information. 5 Marks Part F Over time several accounting concepts and conventions have developed. With the aid of examples, where appropriate, write a note on any two of the following concepts/conventions: i ii iii Going concern; Prudence; Materiality. 5 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 7 of 31

8 SECTION B Answer any TWO of the three questions in this Section QUESTION 4 The following trial balance was extracted from the books of T Higgins on 31 December 2016: Buildings at cost 132,000 Accumulated depreciation on buildings 38,000 Delivery vans at cost 25,000 Accumulated depreciation on delivery vans 8,000 Inventories as at 1/1/ ,800 Receivables and payables 18,700 36,200 Bank 3,150 Purchases and sales 293, ,790 General expenses 6,375 Discounts received 350 Carriage inwards 3,600 Insurance 3,900 VAT 2,450 Interest 1,300 Wages and salaries 41,000 Allowance for receivables 1/1/16 1,050 Irrecoverable debts 700 Drawings 12,300 Capital 99, , ,675 The following information, which has not been accounted for above, is also available: 1. Inventory at 31 December 2016 at cost was 32,950. This figure includes damaged inventory items that cost 7,800 and that is now worth only 3, During the year T. Higgins took inventory items for his personal use valued at 5,400. This has not been accounted for. 3. The bank figure in the trial balance, when compared to the bank statement, revealed that the following adjustment is required: A direct debit charge posted by the bank for 370 has not been entered in the books of T. Higgins. 4. An amount of 600 had been received in respect of a debt previously written off. This receipt has not been recorded in the books. 5. The allowance for receivables is to be adjusted to 4% of receivables Financial Accounting Sample Paper 2 Page 8 of 31

9 QUESTION 4 (cont d) 6. Depreciation is to be provided for as follows: i. Buildings - 2% straight line ii. Delivery Vans - 15% reducing balance 7. T. Higgins informs you that 750 of insurance is prepaid for 2017 and that an accrual for carriage inwards of 450 should be provided for. You are required to prepare: i. The Income Statement for the year ended 31 December 2016; ii. The Statement of Financial Position as at that date. 13 Marks 7 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 9 of 31

10 QUESTION 5 AA Rumble is an old fashioned business with a hand written set of books and records. A trial balance is extracted at the end of every month. This month (December 2016), however, the trial balance did not balance. The balance in the suspense account was 7,485 credit. The draft loss for the month of December 2016 was 12,540 before accounting for the transactions below. Upon inspection of the ledgers the following items were discovered: 1. An item of office machinery purchased during the month for 5,500 was credited to the machinery repairs account. The machinery was purchased on credit and the entry in the suppliers account was entered correctly. 2. The total of the receipts side of the cash book was overcast by 7, A discount received from J Morgan for 175 had been treated as a discount allowed to J Moran in the personal accounts and in the nominal ledger. 4. An invoice for light and heat for the month for 1,420 was found in a filing tray. The invoice has not yet been accounted for, nor the supplier paid as at the month end. 5. A cheque received from Mr. Smith for 6,450 in payment for goods previously sold to him was treated correctly in the cash book. However in Mr. Smith s personal account it was treated as the sale of additional goods and posted to the incorrect side of the account. The sales account was not affected. 6. Due to a totting error the balance in the allowance for receivables account is under cast by 985; 7. Due to cash flow problems, AA Rumble introduced 14,700 in cash into the business. The transaction was entered correctly in the cash book but was credited the capital account as 17,400. (Ignore the affects of VAT and depreciation) You are required to: a) Prepare the journal entries necessary to correct the above errors. b) Prepare a Suspense Account to clear the difference c) State the effect on profits (if any) of correcting each of the above errors. 11 Marks 5 Marks 4 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 10 of 31

11 QUESTION 6 The following information is available for All Lawns Tennis Club for the year to 31 December Receipts and Payments Account Details Details Balance c/d??? Light and heat 5,100 Subscriptions received: Repairs of clubhouse 11,350 - Ordinary (annual) 79,200 Barperson salaries 31,600 Bar takings 198,750 Insurance (30% relates to bar) 19,850 Bar purchases 72,800 Club secretary expenses 11,470 Lawn maintenance 7,820 Bar cleaning expenses 4,670 Closing bank balance b/d 121, , ,900 Opening balance b/d 121,240 Other assets and liabilities of the club are as follows: 1/1/16 31/12/16 Clubhouse building at cost 110, ,200 Bar inventories 9,700 10,200 Bar purchases payables 7,540 6,310 Subscriptions in advance 1,540 2,300 Subscriptions in arrears 3,560 5,560 Accruals light and heat Notes: 1. No depreciation is charged on the clubhouse. You are required to: a) Calculate the accumulated fund as at 1 January b) Prepare a bar trading account for the year ended 31 December Marks 5 Marks c) The clubs income and expenditure account for the year end 31 December 2016 and the statement of accumulated fund as at that date. 9 Marks Total 20 Marks Financial Accounting Sample Paper 2 Page 11 of 31

12 Financial Accounting Sample Paper 2 Suggested Solutions Financial Accounting Sample Paper 2 Page 12 of 31

13 Solution One Part A Depreciation has been defined as a measure of the cost of the economic benefits of the non current asset that have been consumed during the period. When an item of non current asset is purchased it will last for longer than one year. It is not purchased to be resold but is purchased to be used within the business to help the business generate profits. As such the purchase of an item of non current asset is an example of a capital item of expenditure. Such expenditure is not written off to the Income Statement in the year of purchase but is capitalised and written off to the Income Statement via depreciation over the useful economic life of the asset. Therefore depreciation is a method that allocates the cost of the non current asset to the accounting period that benefited from the use of the non current asset. If the full cost of the purchase of a non current asset was written off to the Income Statement in the year of purchase then one year would bear the full cost of the asset. This is clearly not a true and fair view when the asset is used within the business for several years. As such, depreciation is an example of the accruals concept whereby the cost of using the non current asset is matched to the profits generated by that asset over its useful economic life. Part B Buildings Cost Account Date Details Date Details 1/9/16 Addition 122,000 31/12/16 Balance 122, , ,000 1/1/2017 Balance 122,000 Note: all of the costs listed can be capitalised and included within the cost of the non current asset. Purchase of site 50,000 Site preparation 10,500 Raw material and labour costs 46,500 Architect fees 15, ,000 Solution One (cont d) Building Accumulated Depreciation Account Date Details Date Details 31/12/16 Balance /12/16 Inc. Statement 680 Financial Accounting Sample Paper 2 Page 13 of 31

14 /1/2017 Balance 680 Buildings depreciation calculation: 122,000 20,000 = 2,040 * 4/12 = Fixtures and Fittings Fixtures & Fittings Cost Account Date Details Date Details 1/1/16 Balance b/d 290,000 1/3/16 Additions 37,500 31/12/16 Balance c/d 327, , ,500 1/1/2017 Balance b/d 327,500 Fixtures and Fittings Accumulated Depreciation Account Date Details Date Details 1/1/16 Balance b/d 70,000 31/12/16 Balance 102,125 31/12/16 I/S charge 32, , ,125 1/1/2017 Balance 102,125 Depreciation on additions 37,500 * 10% = 3,750 * 10/12 = 3,125 Deprecation on existing (continuing) non current assets 290,000 * 10% = 29,000 Solution One (cont d) Total depreciation Additions 3,125 Existing assets 29,000 Total depreciation ,125 Plant and Machinery Financial Accounting Sample Paper 2 Page 14 of 31

15 Plant and Machinery Cost Account Date Details Date Details 1/1/16 Balance b/d 180,000 30/6/16 Disposal 24,000 30/6/16 Additions 32,000 31/12/16 Balance c/d 188, , ,000 1/1/2017 Balance b/d 188,000 Plant and Machinery Accumulated Depreciation Account Date Details Date Details 30/6/16 Disposal 14,000 1/1/16 Balance b/d 74,656 31/12/16 Balance 97,456 31/12/16 I/S charge 36, , ,456 1/1/2017 Balance 97,456 Depreciation on additions 32,000 * 20% = 6,400 * 6/12 = 3,200 Depreciation on disposals 24,000 * 20% = 4,800 * 6/12 = 2,400 Deprecation on existing (continuing) non current assets 180,000 24,000 * 20% = 31,200 Financial Accounting Sample Paper 2 Page 15 of 31

16 Solution One (cont d) Total depreciation Additions 3,200 Disposals 2,400 Existing assets 31,200 Total depreciation ,800 Plant and Machinery Disposal Account Date Details Date Details 30/6/16 Cost 24,000 30/6/16 Accumulated 14,000 Depreciation 30/6/16 Trade in 8,400 30/6/16 I/S 1,600 24,000 24,000 Financial Accounting Sample Paper 2 Page 16 of 31

17 Solution Two Part A Receivables Control Account Date Details Date Details 1/1/16 Balance b/d 200,000 1/1/16 Balance b/d 20,000 Sales 1,400,000 Sales returns 80,000 Dishonoured 12,500 Receipts from 1,200,000 cheques receivables Balance 3,495 Discounts allowed 20,000 omitted Irrecoverable debts 60,000 Contra 4,890 31/12/16 Balance c/d 30,000 31/12/16 Balance c/d 261,105 1,645,995 1,645,995 1/1/2017 Balance b/d 261,105 1/1/2017 Balance b/d 30,000 Note: both cash sales and the closing allowance for receivables do not appear in an individual receivables T account and therefore do not appear in the control account. Payables Control Account Date Details Date Details 1/1/16 Balance b/d 80,000 1/1/16 Balance b/d 180,000 Purchases 40,000 Purchases 900,000 returns Discounts received 30,000 Interest 6,000 Payments to 750,000 Discounts disallowed 3,000 payables Contra 4,890 31/12/16 Balance c/d 196,110 31/12/16 Balance c/d 12,000 1,101,000 1,101,000 1/1/2017 Balance b/d 12,000 1/1/2017 Balance b/d 196,110 Part B (Any two of the following points other relevant points accepted) Control accounts are prepared by businesses for the following reasons: 1. The purpose of the control account is to keep the nominal ledger free of details, yet have the correct balance for receivables and payables for the trial balance which in turn forms part of the financial statements. Solution Two (cont d) Financial Accounting Sample Paper 2 Page 17 of 31

18 2. Control accounts are a means of proving the accuracy of the ledger accounts of receivables and payables. As a result this is a control mechanism to ensure accuracy of the receivables and payables personal ledgers. This control assists in the location of errors. 3. Control accounts can also act as an internal check, i.e. the person posting entries to the control account acts as a check on a different person who posts amounts from the daybooks to the personal ledgers. Financial Accounting Sample Paper 2 Page 18 of 31

19 Solution Three Part A There are two broad types of accounting information: Financial accounting is based upon meeting the informational requirements of external users of accounting information for example payables, lenders and the government. Financial accounting is presented to external users in the form of financial statements. In order to facilitate comparison, financial accounts are prepared using accepted accounting conventions and standards. Financial Reporting Standards (FRSs) help to reduce the differences in the way companies prepare their financial statements. The financial statements are public documents. An example of the type of information provided by financial accounting is whether the business entity made a profit or loss during the financial period. This information is provided by the Income Statement. Management accounting is based upon meeting the informational needs of internal users of accounting information for example management. Management needs much more detailed and up-to-date information in order to control the business and plan for the future. They need to be able to cost products and assess profitability. In order to facilitate this, management accounts present information in any way that may be useful to management and in most cases to the specifications of management. Such information is only available within the company and usually is strategic in nature. An example of the type of information provided by management accounting is the financial budgets for the upcoming financial year. Part B Lenders Banks who lend money to a business require information initially to help the lender assess whether the bank should extend the credit to the business entity or not. Once the loan has been extended lenders require information that helps them determine whether loans and interest will be paid when due. The key accounting information for lenders is therefore, existing levels of debt and the cash flow of the business. Cash flow is probably the most important piece of information required by lenders as loans and interest are repaid out of the cash flow of the business entity. Investors Investors are fundamentally the owners of the business. Investors invest money in a business in return investors usually receive dividends from the business and may enjoy an increase in the market value of their investment. Thus investors are concerned about the risk and return in relation to their investment in the business. They require information to help them assess whether a business will be able to pay dividends and to measure the performance of the business. The key accounting information for investors is therefore information about business and sales growth, the profitability of the business and comparisons with other business entities. Comparisons with other business entities is important as investors can, in many cases, decide to sell their investment in one business entity and chose to invest in another business entity where rates are return are more attractive. Financial Accounting Sample Paper 2 Page 19 of 31

20 Solution Three (cont d) Part C Limited liability companies may have thousands of shareholders who are the owners of the company. These shareholders elect directors to run the company for them on their behalf. The directors run the company and report back to the shareholders on an annual basis on the company s performance, position and liquidity. Directors have complete access to all information about the company s performance, and are being rewarded based on how well the company performs. There is a bias for directors to portray the best financial picture possible in the financial statements and a danger that directors may act in their own private interests, rather than those of the shareholders. This scenario is referred to as an agency problem. The auditing process strives to provide a high level of assurance to users of financial accounting information by providing an independent examination of the company s books and financial statements. The auditor examines the books and financial statements of the company and forms an opinion expressed in the audit report as to whether the financial statements of the company gives a true and fair view of the state of affairs of the company at the end of the accounting year. The audit report gives shareholders an impression as to the extent to which they can rely upon the financial statements prepared and presented to them by the directors. Part D The overall aim of the regulatory environment is that the financial statements of an entity give a true and fair view of the underlying financial performance and position of the entity. While there is no formal definition for True and Fair view compliance with accounting standards and Company Law will normally be necessary for financial statements to give a true and fair view. True and fair refers to the financial statements and that the picture they portray of the underlying company performance (profitability) and position is in fact a true and fair view representation. In order to ensure that the financial statements of a company are true and fair the financial statements, of many companies, must by law be reviewed by an independent auditor. The overall aim of all accounting regulation is thus to insure that the financial statements of a business represent a true and fair view of the financial health of the business. This is crucial if the users of accounting information are to rely and make decision based upon the information presented to them in the financial statements. Financial Accounting Sample Paper 2 Page 20 of 31

21 Solution Three (cont d) Part E Reliability Reliable information has the following five characteristics: 1. It can be depended upon by users of accounting information to faithfully represent what it either purports to represent or could reasonably be expected to represent that is that the information is not misrepresented or misleading. 2. It is free from deliberate or systematic bias - that is it is neutral. 3. It is free from material error. Users of accounting information can be reasonably assured that this is the case if the financial statements are accompanied by a clean (unqualified) audit report. 4. It is complete within the bounds of materiality. Small assets may be excluded for example the company s stock of paper clips, as this omission would not have a material effect on the financial picture of the entity portrayed in the financial statements. 5 In its preparation under conditions of uncertainty, a degree of caution that is prudence has been applied in exercising judgement and making the necessary estimates. Comparability By examining an entity s financial statements for one accounting year an individual would gain a relatively small amount of insight in terms of the financial performance and position of the company. In order for financial information to be useful it must be comparable with the financial information of the entity in previous accounting period and with other entities in the same industry. By comparing the financial information of the entity over time one can assess trends and by comparing the financial of the entity with other entities we can assess how the entity is performing compared to its competitors. To be truly useful financial information must be comparable. Financial Accounting Sample Paper 2 Page 21 of 31

22 Solution Three (cont d) Part F - Any two of the following Going Concern Going concern states that when preparing a set of financial statements accountants assume, unless there is evidence to the contrary, that a company is not going out of business and that it will continue in operational existence for the foreseeable future (twelve months from the date the financial statements are signed) and there is no intention to put the company into liquidation. This has important implications for the valuation of assets and liabilities, for example assets can be valued at their value in use to the business as opposed to the net realisable value. Financial statements have to be prepared in accordance with the going concern concept. Prudence In conditions of uncertainty, a cautious approach should be taken, so that gains and assets are not overstated and losses and liabilities are not understated. This means that sales and profit should not be included in the Income Statement until the cash has been received or there is reasonable certainty that the cash will be received. In contrast, losses should be recognised in the Income Statement as soon as they are foreseen and considered reasonably certain. Prudence is the exercise of sound judgement in practical affairs. For example: if post year end inventory items were sold for less than cost, prudence would dictate that year end value of the inventory was written down to the net realisable value of the inventory. Hence ensuring that the value of year end assets (inventory) was not overstated and that profits were not over stated (closing inventory forms part of the profit calculation in the cost of sales section). It is important to note that prudence need only be applied under conditions of uncertainty. Where there is no uncertainty there is no need to apply prudence. Materiality Materiality is an important convention. Information is material to the financial statements if its omission or misstatement could influence the economic decisions of users. Information can be material in terms of its size in relation to the financial statements as a whole or an item could be material by its nature, transaction involving directors are normally considered to be material by their nature. The understandability of financial statements is improved if only material items are included as separate line items within the financial statements. If immaterial information is included as separate line items within the financial statements users may not be able to interpret the picture given by the accounts as a whole. Financial Accounting Sample Paper 2 Page 22 of 31

23 Solution Four T. Higgins Income Statement for the year ended 31 December 2016 Sales 374,790 Cost of sales Opening inventory 25,800 Purchases 287,600 Carriage inwards 4, ,450 Less closing inventory (28,150) Cost of sales (289,300) Gross Profit 85,490 Discount received 350 Less Expenses Debts previously written-off as irrecoverable, recovered (600) Bank charges 370 Insurance 3,150 Interest 1,300 Wages and salaries 41,000 General expenses 6,375 Depreciation of buildings 2,640 Depreciation of delivery vans 2,550 Irrecoverable debts 700 Decrease in allowance for receivables (302) Total expenses (57,183) Net Profit 28,657 Financial Accounting Sample Paper 2 Page 23 of 31

24 Solution Four (cont d) T. Higgins Statement of Financial Position as at 31 December Non current assets Buildings 132,000 (40,640) 91,360 Delivery vans 25,000 (10,550) 14, ,810 Current assets Closing inventory 28,150 Receivables 17,952 Prepayments ,852 Total Assets 152,662 Equity and Liabilities Capital Capital 99,685 Profit for , ,342 Drawings (17,700) Current liabilities Payables 36,200 Bank overdraft 2,920 VAT 2,450 Accruals ,642 42,020 Total Equity and Liabilities 152,662 Workings 1 Closing inventory as per question: 32,950 Less write down of inventory (4,800) 28,150 Solution Four (cont d) Financial Accounting Sample Paper 2 Page 24 of 31

25 Workings 2 Purchases as per TB 293,000 Drawings (5,400) 287,600 Drawings Drawings as per TB 12,300 Drawings as per W2 5,400 Total drawings 17,700 Working 3 and 4 New expense of 370 in the Income Statement: Bank as per TB O/D 3,150 Bank charges not accounted for 370 3,520 Irrecoverable debt recovered (600) Restated bank balance (overdraft) 2,920 Workings 5 Receivables as per TB 18,700 Allowance for receivables 4% 748 Opening allowance for receivables 1,050 Decrease in allowances for receivables 302 Workings 6 Cost of buildings 132,000 Depreciation 2% SL 2,640 Cost of delivery vans 25,000 Accumulated depreciation (8,000) NBV 17,000 Depreciation 15% RBM 2,550 Solution Four (cont d) Workings 7 Financial Accounting Sample Paper 2 Page 25 of 31

26 Insurance as per TB 3,900 Insurance prepaid as per w7 (750) 3,150 Carriage inwards as per TB 3,600 Carriage inwards accrued as per w ,050 Financial Accounting Sample Paper 2 Page 26 of 31

27 Solution Five Part A Debit Credit 1. Dr Machinery repairs 5,500 Dr Machinery at cost 5,500 Cr Suspense 11,000 Being an error of principle 2. Dr Suspense 7,300 Cr Bank/cash book 7,300 Being the a correction of error cash book overcast 3. Dr J Morgan 175 Dr J Moran 175 Cr Discount received 175 Cr Discount allowed 175 Being the correction of error discount incorrectly treated in personal accounts and nominal 4. Dr Light and heat 1,420 Cr Other payables 1,420 Being an error of omission 5. Dr Suspense 12,900 Cr Mr Smith 12,900 Being cash receipts treated as additional sales in error 6. Dr Suspense 985 Cr Allowance for receivables 985 Being correction of error, allowance for receivables under cast 7. Dr Capital 2,700 Cr Suspense 2,700 Being the correction of an error of transposition Solution Five (cont d) Part B Financial Accounting Sample Paper 2 Page 27 of 31

28 Suspense Account Details Details Journal 2 7,300 Opening balance 7,485 Journal 5 12,900 Journal 1 11,000 Journal Journal 7 2,700 21,185 21,185 Part C Draft loss for December 2016 (12,540) Journal 1 (5,500) Journal 2 - Journal Journal 4 (1,420) Journal 5 - Journal 6 - Journal 7 - Loss after adjustments (19,110) Financial Accounting Sample Paper 2 Page 28 of 31

29 Solution Six Part A Calculate the opening cash balance: Receipts and Payments Account Details Details Balance b/d 7,950 Light and heat 5,100 Subscriptions received: Repairs of clubhouse 11,350 - Ordinary (annual) 79,200 Barperson salaries 31,600 Bar takings 198,750 Insurance (30% relates to bar) 19,850 Bar purchases 72,800 Club secretary expenses 11,470 Lawn maintenance 7,820 Bar cleaning expenses 4,670 Closing bank balance c/d 121, , ,900 Opening balance b/d 121,240 Calculate opening accumulated funds: Assets Clubhouse 110,200 Bar inventory 9,700 Subs in arrears 3,560 Cash/bank 7, ,410 Liabilities Bar purchases payable 7,540 Subs in advance 1,540 Light and heat accruals 650 (9,730) Accumulated funds 1/1/16 121,680 Financial Accounting Sample Paper 2 Page 29 of 31

30 Solution Six (cont d) Part B Bar Payables Control Account Details Details Cash paid for purchases 72,800 Balance b/d 7,540 Balance c/d 6,310 Purchases 71,570 79,110 79,110 Balance b/d 6,310 All Lawns Tennis Club Bar trading account for the year ended 31 December 2016 Bar sales 198,750 Cost of sales Opening inventory 9,700 Purchases 71,570 81,270 Less closing inventory (10,200) Cost of sales (71,070) Gross Profit 127,680 Less expenses Barpersons wages 31,600 Insurance 5,955 Bar cleaning 4,670 (42,225) Bar profits 85,455 Part C Subscriptions Account Details Details Opening subs in arrears 3,560 Opening subs in advance 1,540 I/S value for subs 80,440 Cash received for subs 79,200 Closing subs in advance 2,300 Closing subs in arrears 5,560 86,300 86,300 Opening subs in arrears 5,560 Opening subs in advance 2,300 Financial Accounting Sample Paper 2 Page 30 of 31

31 Solution Six (cont d) Income and expenditure account for the year to 31 December 2016 Income Subscriptions 80,440 Bar profits 85, ,895 Expenditure Light and heat 4,990 Repairs 11,350 Insurance 13,895 Club secretary expenses 11,470 Lawn maintenance 7,820 (49,525) Excess of income over expenses 116,370 All Lawns Tennis Club Accumulated Fund Statement as at 31 December Non current assets Buildings 110, ,200 Current assets Bar closing inventory 10,200 Subs in arrears 5,560 Bank 121, ,000 Total Assets 247,200 Equity and Liabilities Accumulated Fund/Capital Opening accumulated fund 1/1/16 121,680 Excess of income over expenditure , ,050 Current liabilities Bar payables 6,310 Subs in advance 2,300 Accruals 540 9,150 Total Equity and Liabilities 247,200 Financial Accounting Sample Paper 2 Page 31 of 31