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

Size: px

Start display at page:

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

Valentine Gordon
5 years ago
Views:

1 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 INSTRUCTIONS TO CANDIDATES: There are 5 questions in this examination; answer ALL questions from section A and ONE question from section B: This is a closed book examination. You must hand in this exam paper with your answer booklet.

2 Page 2 of 14 University of Bolton Section A answer all 3 questions Question 1 You are the trainee accountant at a prestigious firm of accountants based in Bolton (Marsh and Co) one of your clients Button, Hamilton and Rosberg are in a partnership and supply specialised carbon fibre aerodynamic components to the motor racing industry. The partners share profit and losses equally, however Rosberg has recently been declared insolvent and as a result the partnership is to cease on 1 January The balance sheet of the partnership on 31 st December 2016 is given below: Balance Sheet as at 31 st December 2016 Fixed Assets Premises 50,000 Current Assets: Inventory 48,600 Receivables 28,200 76,800 Current Liabilities: Creditors 78,300 Bank overdraft 28,700 Net current assets 107,000 Net Assets 19,800 Capital: Button 8,000 Hamilton 6,000 Rosberg 2,000 16,000 Current a/c s: Button 2,000 Hamilton 1,400 Rosberg 400 3,800 19,800 Question 1 continues over the page

3 University of Bolton Question 1 continued Page 3 of 14 The following information relates to the cessation of the partnership: I. The premises were sold for 47,500. II. Inventory realised 41,200 III. Receivables of 26,800 were collected. IV. Payables were paid in full. Required: Part A Using the double entry T account system to account for the transactions above, close down the books of the partnership clearly showing how each transaction is dealt with as well as amounts to be paid to / collected from the partners as applicable (20 Marks) Part B The remaining solvent partners are contemplating starting a similar business as a limited company. Outline the main differences and considerations that the partners will need to take into consideration before making this decision. (5 Marks) Total 25 Marks End of Question 1

4 Page 4 of 14 University of Bolton Question 2 As a financial accountant working at Holmes plc you have been tasked with assisting with the preparation of the year-end financial statements for the year ended 31 December One of your colleagues has already completed the draft statement of comprehensive income and the statement of financial position and these are below, as you had an excellent education at the University of Bolton they have asked for your help. Statement of Comprehensive Income for the year ended 31 December Turnover 5,740 Cost of sales (4,840) Gross profit 900 Other income 60 Distribution costs (120) Administrative expenses (350) Interest payable (50) Profit before taxation 440 Taxation (160) Profit for the year 280 Other comprehensive income Gain on property revaluation 100 Total comprehensive income 380 Question 2 continues over the page

5 University of Bolton Page 5 of 14 Question 2 continued Statements of Financial Position as at 31 December Non-current assets Property plant and equipment 2,880 1,860 Investment property ,300 2,260 Current assets Inventory 1, Receivables Taxation receivable - 50 Bank 10-1,700 1,400 Total Assets 5,000 3,660 Equity and Liabilities Ordinary shares 20p each 1, Share premium Revaluation reserve Retained earnings 1,440 1,310 3,190 1,960 Non-current liabilities 6% Debentures Deferred taxation Current liabilities Trade payable 1,410 1,050 Bank overdraft Provisions Taxation payable 150-1,760 1,270 Total Equity and Liabilities 5,000 3,660 Question 2 continues over the page

6 University of Bolton Page 6 of 14 Question 2 continued Additional information: I. One machine within PPE with a net book value of 240,000 was sold generating a loss of 90,000 in March II. Depreciation charged in the financial statements for the year amounted to 280,000. III. The company uses the revaluation model (IAS40) for investment properties, there were no sales or purchases of investment properties during the year any changes in value are included within other income. IV. The 6% debentures were redeemed early incurring a penalty of 20,000 (charged to administration expenses). V. There was an issue of shares during the year for cash consideration. VI. The provisions relate to warranties on the company s products, the products have a 12 month warranty period from the date of sale. VII. A dividend of 3 pence per share was paid on the first day of the financial year. Required: Prepare the Statement of Cash Flows for the year ended 31 December 2016 using the indirect method in accordance with IAS7. Total 25 marks End of Question 2

7 Page 7 of 14 University of Bolton Question 3 You are a junior accountant working at a medium sized firm of accountants based in Manchester. One of your clients (Help4us Ltd) has provided you with the trial balance for the year ended 31 December 2016 along with some additional information. Trial balance at 31 December 2016 Dr Cr Accumulated depreciation: Land and buildings 720 Plant and machinery 480 Fixtures and fittings 544 Inventory 31 December Warehouse rates 40 Wages and salaries 1,600 Cash at bank 1,100 Production expenses 2,520 Vehicle and fuel expenses 500 General expenses 920 Trade payables 420 Trade receivables 840 Land and buildings at cost 8,000 Plant and machinery at cost 3,400 Fixtures and fittings at cost 1,360 Ordinary shares ( 1 each) 4,000 10% Debentures 2,000 Heat and light 360 Sales 10,400 Purchases 748 Accruals 525 Retained earnings 2,424 21,513 21,513 Question 3 continues over the page

8 Page 8 of 14 University of Bolton Question 3 continued. Additional information: I. The directors estimate that corporation taxation of 880,000 will arise on profits for the year II. Audit fees of 140,000 have not yet been recorded in the ledgers of the company. III. Included within general expenses is an amount of 10,000 which relates to charges for January IV. Depreciation for the year is to be provided as follows: a. Buildings - 2% straight line (buildings cost 1,500,000) b. Plant and machinery 20% reducing balance c. Fixtures and fittings 10% straight line. V. Depreciation is to be allocated 40% to production, 30% to distribution and 30% to administration. VI. Wages and salaries are to be allocated on the same basis as depreciation. VII. Vehicle expenses relates purely to delivery wagons. VIII. Heat and light is to be apportioned 50% to Production, 20% to Distribution and 30% to Administration. IX. Inventory at 31 December 2016 was valued at 150,000. X. A dividend of 5 pence per share has been declared at the year-end by the directors and is not reflected in the trial balance above. XI. Interest for the debentures is yet to be accounted for. XII. General expenses are to allocated 100% to administration. Required: Process the additional information above and prepare the Statement of Comprehensive Income and the Statement of Financial Position for Help4us Ltd for the 31 December 2016 financial year end. Total 25 Marks End of Question 3

9 Page 9 of 14 University of Bolton END OF SECTION A Section B Answer ONE question only Question 4 Fozia plc is a UK listed company, the main activity is the manufacture and distribution of confectionary. The company has been operating for several years but the shareholders have become increasingly worried over recent years due to the company s results. At a recent board meeting which you attended, the directors decided upon a recovery plan and two of the main elements of this plan are as follows: To restructure the finances of the company the directors intend to issue more shares and reduce the reliance on loans and overdrafts. Change the historic operating practices employed by the company in relation to the distribution network which has relied upon local depots holding inventory for distribution to local customers. The financial statements of the company for the previous 3 years ended 31 December are as follows: Statements of Comprehensive Income for the year ended 31 December s 000 s 000 s Turnover 5,380 5,295 5,210 Cost of sales 3,904 3,836 3,768 Gross profit 1,476 1,459 1,442 Expenses 1,208 1,176 1,117 Operating profit Interest paid Profit before tax Taxation Profit for the year Question 4 continues over the page

10 University of Bolton Page 10 of 14 Question 4 continued Statements of Changes in Equity for the year to 31 December s 000 s 000 s Balance at 1 January Profit for the year Dividends paid (120) (120) (120) Balance at 31 December Statements of Financial Position As At 31 December Non-current assets 000 s 000 s 000 s Land and buildings 1,013 1,053 1,093 Plant and machinery 1,420 1, ,433 2,295 1,991 Current assets Inventory Trade receivables Cash , Total Assets 3,562 3,076 2,602 Equity and Liabilities Ordinary shares ( 1 each) 1,250 1,250 1,000 Retained earnings ,128 2,124 1,835 Non-current liabilities Long term secured loan Current liabilities Bank overdraft Trade payables Other payables

11 Page 11 of 14 University of Bolton Total equity and liabilities 3,562 3,076 2,602 Question 4 continues over the page Question 4 continued The following industry average ratios have been provided to you for the sector in which Fozia plc operates, these have been consistent over the 3 year period Return on capital employed 13% Gross profit margin 25% Gearing 40% Inventory turnover (based on year end balances) 12 times Interest cover 3 times Receivables collection period 12 days Payables payment period 15 days Current ratio 3:1 Acid test 1.5:1 Dividend cover 3 times Required: I. Calculate the financial ratios for each of the 3 years for Fozia plc and compare your results to the industry average and comment on these comparisons. (20 marks) II. Based on your computations in (i) discuss the positive and negative implications of the director s recovery plan. (5 marks) Total 25 Marks End of Question 4

12 University of Bolton Page 12 of 14 Question 5 Part A Sadique Limited buys used cars and sells these via the internet, most of the cars require some form of repairs / maintenance prior to sale to customers. At the current reporting period end Sadique Limited has decided to reduce the amount of vehicles it holds in inventory as it wishes to become a franchised dealer for new luxury vehicles. You have been provided with the following information relating to the reporting period end: Purchase price Repair costs to date Expected costs prior to sale Expected sales price BMW M Sport 10, ,500 Mercedes C 15, ,500 Class Audit RS4 18, ,100 23,000 Ford fiesta 8, ,500 52,800 2,000 3,400 62,500 Selling expenses are expected to amount to 4% of the expected sales price. Required: I. Explain why it is not allowable under IAS2 (Inventories) to present the value of inventory within the year-end financial statements at 52,800 or 62,500. (2 Marks) II. Compute the value that the inventory should be disclosed in the year-end financial statements in accordance with the requirements of IAS 2 (clearly show your workings). (13 Marks) Question 5 continues over the page

13 University of Bolton Page 13 of 14 Question 5 continued Part B i) Mega Ltd purchased a machine on 30 June 2016 paying 420,000. This amount included the cost of the machine 380,000, there was a trade discount of 38,000 (this has not been netted off the machine cost. Delivery charges amounted to 6,800, the maintenance team of Mega Ltd installed the machine incurring costs of 29,600. In addition Mega Ltd took out a 12 month maintenance programme at a cost of 27,000 as well as purchasing some spare parts to take advantage of an anticipated price increase on those parts at a cost of 14,600. The company also took out a 1 year loan of 200,000 at an annual interest rate of 10%, half of this loan was used to finance the purchase of this machine. Required Applying the requirements of IAS16 and IAS23 compute the amount that Mega Ltd should capitalise in relation to the machine, in addition provide explanations for your treatment of all the costs (5 Marks) ii) Hardy Ltd purchased freehold property on 1 January 2006 for 800,000 (includes land of 300,000). The accounting policies of Hardy Ltd disclose that Buildings are depreciated over their useful economic life of 40 years on the straight line depreciation method, it is anticipated that these buildings will be fully written down at the end of this period. Ten years later (1 January 2016) the land was revalued at 400,000 and the buildings at 450,000. The useful economic life of these assets remained unchanged. Required: Using the T accounting format to present your answers, present the entries to record the revaluation that took place on 1 January 2016 and also compute the depreciation charge for the 31 December 2016 financial year end.

14 Page 14 of 14 University of Bolton (5 Marks) Total 25 marks END OF QUESTIONS

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

[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