Subject no. 50A Certificate in Offshore Finance and Administration Accounting Fundamentals July 2012 Tuesday morning 10 July 2012 Time allowed: 2 hours Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. This examination paper is divided into three sections. You must attempt all parts of Question 1 in Section A, all questions in Section B, and two questions only in Section C. Section A carries 20 marks (2 marks for each part of Question 1). Section B carries 30 marks (6 marks for each question). Questions in Section C each carry 25 marks. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 40 minutes in total to answer the questions in Section B and 30 minutes for each of the questions attempted in Section C. ICSA, 2012 Page 1 of 8
Section A Answer all parts of Question 1. Select only one of the options A, B, C or D for each part. 1. (i) The bookkeeper at Good Hope Designs incorrectly posted a payment of 125 to Safeguard Insurance as a debit to finance charges. This is an example of which one of the following errors? A. Compensation B. Commission C. Principle D. Omission (ii) Which one of the following types of organisation is listed on the stock market? A. Private limited company B. Sole trader C. Partnership D. Public limited company (iii) Which one of the following is a bedrock concept of accounting? A. Going concern B. Prudence C. Money measurement D. Duality (iv) The sales ledger control account is also known as: A. Creditors control account B. Debtors control account C. Sales daybook D. Sales returns daybook ICSA, 2012 Page 2 of 8
(v) On 1 April 2012, Annie Smart purchased a computer for her business and paid by cheque. What was the impact on the accounting equation? Increase Decrease A. Fixed asset Current asset B. Current asset Fixed asset C. Fixed asset Capital D. Fixed asset Current liability (vi) Which one of the following is an example of a current liability? A. Drawings B. Owner s capital C. A prepayment D. An accrual Questions (vii) to (x) relate to the car repair and servicing business of Sam Strong ( Sam ) for the accounting year 1 July 2011 to 30 June 2012. (vii) During the year, Sam paid one month s rent for his home from the business. How should this payment be shown in his financial statements? A. As an expense in the profit and loss account. B. As a debtor in the balance sheet. C. As a deduction from capital in the balance sheet. D. As a current liability in the balance sheet. (viii) Sam had a turnover of 120,000 during the year. The gross profit margin was 25% and the operating costs were 12,000. What was Sam s operating profit margin for the year? A. 25% B. 15% C. 10% D. 7.5% ICSA, 2012 Page 3 of 8
The following extract from Sam s business balance sheet at 30 June 2012 relates to questions (ix) and (x): Current Assets Inventory 16,000 Debtors 9,500 Bank 3,250 Current Liabilities Trade Creditors 11,500 (ix) What was the current ratio for Sam s business as at 30 June 2012? A. 1.11:1 B. 2.5:1 C. 4.59:1 D. 5.98:1 (x) What was the acid test (quick ratio) for Sam s business as at 30 June 2012? A. 1.11:1 B. 2.5:1 C. 4.59:1 D. 5.98:1 (Total: 20 marks) ICSA, 2012 Page 4 of 8
Section B Answer all five questions. 2. Explain how the following are used in book-keeping: (i) (ii) (iii) Purchase returns day book. Petty cashbook. Sales ledger. (6 marks) 3. Identify and explain three sources of income shown in the financial statements of clubs and societies. (6 marks) 4. Explain the similarities and differences between a bad debt and a provision for a doubtful debt. (6 marks) 5. In your answer booklet, draw the table below and complete the ledger entries necessary to record the three stages in accounting for the disposal of a fixed asset before any surplus or deficit can be transferred to the income statement. No. Debit Credit 1 2 3 (6 marks) 6. Fay Starr began a cake making business on 1 April 2012. Her business transactions for the first month were as follows: 5 Apr Fay opened her business bank account with a deposit of 5,425 from her personal account. 6 Apr She purchased some equipment at a cost of 2,655 on credit from Caterers Enterprise. 9 Apr Fay baked six dozen cup-cakes for resale. 24 Apr Bank agreed an overdraft limit of 7,500. For each date, state the double entry required to record the business activity for the month of April 2012. (6 marks) (Total: 30 marks) ICSA, 2012 Page 5 of 8
Section C Answer two questions only. 7. (a) Explain the purpose of the trial balance within the accounting system. (7 marks) (b) Identify and explain six errors a trial balance cannot detect. (18 marks) (Total: 25 marks) 8. The extracts from the financial statements of Minus Zero plc for the year ended 30 June 2012 are provided below: Minus Zero plc 2012 Sales 90,000 Cost of sales 58,500 Gross profit 31,500 Operating profit 16,200 Retained profit for the year 8,220 Non current assets 25,000 Inventory 4,200 Receivables 12,329 Cash at bank 2,150 Payables 8,190 Total equity 31,489 Required (a) Calculate the solvency of the company using two suitable ratios. (4 marks) (b) (c) (d) Explain what the results of both ratio calculations you completed in (a) tell us about the assets and liabilities of the company. (4 marks) Identify, calculate and comment on the working capital management of the company using three suitable ratios. (12 marks) Outline and comment upon two problems encountered when using accounting ratios. (5 marks) (Total: 25 marks) ICSA, 2012 Page 6 of 8
9. The following trial balance was prepared from the ledger balances of J Chivers, trading as Chivers Sportswear ( Chivers ), for the year ended 30 June 2012: Trial balance for Chivers as at 30 June 2012 Sales 195,000 Sales returns 11,010 Purchases 96,000 Purchase returns 766 Debtors 12,113 Provision for doubtful debts 600 Creditors 7,886 Long term loan 7,319 Bank overdraft 9,218 Office & factory rent 12,660 Opening stock 3,834 Plant and machinery at cost 92,022 Accumulated depreciation as at 30 June 2011 14,271 Office furniture at cost 10,988 Accumulated depreciation as at 30 June 2011 1,099 Carriage in 288 Carriage out 219 Travelling expenses 1,316 Administration 7,503 Repairs 191 Salaries 50,970 Telephone 3,014 Drawings 18,205 Discounts allowed 3,440 Capital 87,614 323,773 323,773 Notes to the trial balance: (i) Stock at 30 June 2012 was 2,955. (ii) Accrued expenses at 30 June 2012 were travel expenses 1,155 and telephone 318. (iii) Office & factory rent includes 1,600 for the first quarter of 2012. (iv) (v) (vi) A total of 2,113 has to be written off as bad debt. The provision for doubtful debt has to be 10% of the debtors balance. Plant and machinery is depreciated on the reducing balance basis at 25% per annum. Office furniture is depreciated at 10% on original cost. (continued) ICSA, 2012 Page 7 of 8
Required (a) Prepare a trading, profit and loss account for Chivers for the year ended 30 June 2012. (13 marks) (b) Prepare a balance sheet for Chivers as at 30 June 2012. (12 marks) (Total: 25 marks) The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental. ICSA, 2012 Page 8 of 8