Accounting Technicians Ireland First Year Examination: Autumn 2016 Paper: FINANCIAL ACCOUNTING Tuesday 9 August 2016 9.30 a.m. to 12.30 p.m. INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY Candidates must indicate clearly whether they are answering the paper in accordance with the law and practice of Northern Ireland or the Republic of Ireland. 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 in Section A and TWO of the three questions in 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, s, units, etc. Answers should be illustrated with examples, where appropriate. Candidates may ignore any VAT implications to transactions throughout this paper unless the question specifically instructs them to do otherwise. Question 1 begins on Page 2 overleaf. Note: The terminology in use for 2016 exams will be in line with the FRS 102. In some cases this differs slightly from the terminology previously used (IFRS). For the 2016 exams, students who use IFRS terminology will not be penalised, however it is preferred that students use FRS 102 terminology throughout. Page 1 of 10 Fin. Accounting (FA) A2016
SECTION A Answer ALL THREE QUESTIONS (Compulsory) in this Section QUESTION 1 (Compulsory) The following trial balance was extracted from the books of P. Thomas, a sole trader, on 31 December 2015: / / Land 125,600 Equipment 101,110 Accumulated depreciation on equipment 31,415 Inventory as at 1/1/2015 24,810 Receivables and payables 62,100 52,175 VAT (refund due) 5,160 Deposit on rented premises, held by landlord 8,950 Bank and cash 7,820 Allowance for irrecoverable debts 5,625 PRSI liability 3,710 Business rent 15,000 Sales 402,250 Purchases 195,100 Returns 4,150 3,750 Discounts 2,150 3,120 Distribution and advertising 4,450 Power 2,100 Internet 770 Business insurance 11,250 Wages and salaries 82,190 Employers PRSI/NIC 8,280 4% long term bank loan 91,250 Long term loan interest 1,760 Irrecoverable debts 1,120 Drawings 5,290 Accumulated profits/losses 22,410 Capital 51,855 Suspense 1,600 669,160 669,160 The following information, which has not been accounted for above, is also available: 1. The inventory count as at 31 December 2015 showed closing inventory valued at / 21,195. 2. P. Thomas has agreed an annual rent of / 20,000 with his landlord. Rent for the fourth quarter 2015 remains unpaid at the year end. 3. Included in business insurance above is / 9,000 which relates to the year ended 29 February 2016 4. P. Thomas has specific concerns over / 2,560 of receivables and wishes to set up a specific allowance with respect to these balances. The general allowance on remaining receivable balances should be maintained at 5%. 5. Allowance to be made for depreciation as follows: Land Not depreciated Equipment 15% reducing balance method (Depreciation should be calculated to the nearest whole number) Page 2 of 10 Fin. Accounting (FA) A2016
QUESTION 1 (Continued) 6. The suspense account balance above relates to sales of / 800 which was recorded as purchases in error. The receivables and payables balances are correct. Ignore VAT. You are required to prepare: a) The Income Statement for the year ended 31 December 2015. b) The Statement of Financial Position as at that date. 11 Marks 9 Marks Page 3 of 10 Fin. Accounting (FA) A2016
QUESTION 2 (Compulsory) The trial balance of C. Cindy failed to agree. The debits exceeded the credits by / 8,452. The balance was placed in a suspense account. After an inspection the following items were discovered: i. The total of the purchases T account was undercast by / 1,000 ii. Cash sales of / 1,235 were recorded by debiting sales with / 2,135 and crediting cash with / 3,215. iii. Mr Smith whose debt was the subject of a specific allowance for receivables, paid his debt in full / 540. The only entry made for this transaction was to credit receivables with / 540. iv. An invoice for rates for / 1,125 was found behind the bookkeeper s desk. The invoice had not been accounted for. v. The total of the sales returns day book was overcast by / 640. vi. Discounts received of / 420 was recorded by crediting receivables and debited discounts received. vii. A new piece of machinery valued at / 12,150 was written off to repairs in error. The depreciation policy of C. Cindy is to depreciate machinery by 10% straight line method. The sole trader charges a full year s depreciation in the year of purchase and non in the year of sale. a) Prepare the journal entries, with the appropriate narratives, necessary to correct the above errors. 13 Marks b) Prepare a suspense account and hence calculate the remaining difference. 3 Marks c) Prepare a working showing the effect on proprietor s profit (if any) of correcting each of the above errors. 4 Marks Page 4 of 10 Fin. Accounting (FA) A2016
QUESTION 3 (Compulsory) Answer ANY FOUR of the SIX parts below Part A Outline your understanding of the imprest system as it relates to petty cash. Given the following information calculate the cash replenishment required for the month of May 2016. / Imprest cash float 175 Postage 35.75 Miscellaneous stationary 9.50 Taxi receipts 44.20 Gift for retirement party 50 Credit sales posted to the sales day book 625 Cake for retirement party 15 3 Marks Part B The following information relates to the payroll costs for D. Hicks, a sole trader for the month of June 2016. Name Gross Monthly Salary PAYE Deducted Employee PRSI/NIC Employer PRSI/NIC D. Box 1,950 390 137 10% of Gross C. Funne 2,210 553 155 10% of Gross A. Shine 3,120 967 219 10% of Gross 7,280 1,910 511 D. Hicks paid net salary on 29 June 2016. Prepare the journal entries that should appear in the books and records of D. Hicks for the month of June 2016 in relation to salary and wages. 5 Marks Part C Write a note on any two of the following terms as they relate to inventory valuation in the financial statements: Cost Net realisable value (NRV) First in - first out (FIFO) 5 Marks Page 5 of 10 Fin. Accounting (FA) A2016
QUESTION 3 (Continued) Part D P. Phonix does not keep proper books and records. He is available to provide you with the following information for the year ended 31 December 2015. / Payables (credit balance) 1 January 2015 10,150 Payables (debit balance)1 January 2015 160 Payables (credit balance) 31 December 2015 12,200 Payables (debit balance) 31 December 2015 450 Contra entry with receivables 2,130 Payments to payables (90% credit, 10% cash) 78,500 Interest charges on overdue accounts 1,020 Discount received 650 Discounts allowed 780 With the aid of a payables control account calculate the credit purchases for the year ended 31 December 2015. 5 Marks Part E The following information is available for P. Calc for the year ended 31 March 2016: During the year a new building premises was constructed. Costs in relation to the construction are as follows: / Material costs 142,150 Architect and legal fees 31,000 Cost of new plants & flowers for the building 320 Repairs 5,750 Site preparation costs 15,120 Loan interest incurred directly in relation to the construction of the asset 11,100 i. The value of buildings to be recorded as an addition in the books and records of P. Calc for the year ended 31 March 2016. 3 Marks ii. State the impact on profits and non-current assets if revenue expenditure is incorrectly capitalised and shown as a non-current asset. Part F i. Outline your understanding of the role played by the books of prime entry in the financial accounting system. ii. Provide an example of three books of prime entry and outline the information contained in each book of prime entry. 3 Marks Page 6 of 10 Fin. Accounting (FA) A2016
SECTION B Answer any TWO of the three questions in this Section QUESTION 4 a) The following information is available for A. Marche a sole trader who does not maintain proper books and records. / Positive bank balance 1/7/2015 9,785 Bank balance (overdraft) 30/6/2016 11,248 A. Marche capital introduced 25,120 Cash drawing 125 per month Inventory drawings (goods to the value of) 50 per month Funds lodged from tills 66,450 Cash received from credit customers 101,360 Payroll costs 56,741 Cash transferred to petty cash tin 542 Expenses paid from bank 45,270 Bank charges 202 Interest received on positive cash balances 101 Payments to payables 97,140 Sundry payments to payables 11,103 A. Marche suspects that an employee may be stealing funds from the business. With the aid of the information above prepare the Bank T Account for the year ended 30 June 2016 and hence derive any cash discrepancy which may indicate that an employee is stealing from A. Marche. 7 Marks b) J. Stanford does not maintain proper books and records. She is however able to provide you with the following information as at 31 December 2015. / NBV of non-current assets 119,750 Current assets 21,140 Capital as at 1 January 2015 43,640 Drawings 11,320 Current liabilities 23,710 Non-current liabilities 87,140 Capital introduced during 2015 15,000 i. Calculate the profit/loss figure for J. Stanford for the year ended 31 December 2015. 5 Marks ii. Outline your understanding of why the technique used in part (i) can be used to derive the profit/loss figure. Page 7 of 10 Fin. Accounting (FA) A2016
QUESTION 4 (Continued) Part C Outline your understanding of the concepts of mark-up and margin. The following information for the year ended 31 December 2015 is available for a sole trader who does not maintain proper books and records. Opening inventory as at 1 January 2015 / 32,110 Closing inventory as at 31 December 2015 / 29,320 Purchases / 184,750 Purchases returns / 7,980 Standard profit margin for 2015 45% Using the information above derive the sales figure (to the nearest whole number) for the year ended 31 December 2015. 4 Marks Page 8 of 10 Fin. Accounting (FA) A2016
QUESTION 5 Part A i. Outline your understanding of how the VAT system operates. Note: knowledge of VAT rates is not required. 4 Marks ii. The following transaction information is available for D. Dars for the month of April 2016. Opening VAT liability on April 1 2016 / 14,152; Purchases amounted to / 142,120 net of VAT; Sales were / 242,000 inclusive of VAT; Purchases returns were / 2,090 inclusive of VAT; Sales returns were / 900 net of VAT; On 14 th of April 2016 D. Dars paid / 14,100 in VAT to the Revenue Authority. The appropriate VAT rate for all transactions is 10% You are required to prepare the VAT T Account for the month of April 2016. 5 Marks Part B i. Outline your understanding of the accruals concept and the importance of the concept to financial statement preparation. 3 Marks The following information is available for insurance and electricity expenses for the year ended 30 April 2016: Insurance The insurance year of the sole trader is 1 February to 31 January each year; As at 1 st May 2015 the insurance invoice for / 12,000 dated 1 February 2015 to 31 January 2016 remains unpaid. This invoice was paid on 15 th May 2015. The insurance invoice from 1 February 2016 to 31 January 2017 amounted to / 18,000 and was paid in full on 30 April 2016. Electricity Electricity outstanding as at 1 st May 2015 amounted to / 1,120 Electricity invoices for the financial year were as follows: Time Period: / May and June 2015 950 July and August 2015 1,020 September & October 2015 945 November & December 2015 887 January & February 2016 1,130 March and April 2016 1,215 During the year ended 30 th April 2016 / 4,922 was paid in electricity costs. ii. Prepare the insurance T account and the electricity T account for the year ended 30 April 2016 and hence calculate the figure for inclusion in the Income Statement for insurance and electricity for the year ended 30 April 2016. 6 Marks iii. Prepare a Statement of Financial Position extract as at 30 April 2016 including relevant balances from the insurance and electricity accounts above. Page 9 of 10 Fin. Accounting (FA) A2016
QUESTION 6 a) A business can be run through one of three possible mediums: sole trader, partnership and limited company. Provide a description of each of these business types. 6 Marks Outline two advantages and one disadvantage of conducting business as a sole trader and a limited company. 6 Marks b) An accountant within an organisation has many roles. State any four of these. 4 Marks c) At the centre of accounting is the concept of accountability. For both a public limited company and a charity provide an example of the following: i. An organisational objective. ii. Whom the organisation is accountable to and why. 4 Marks Page 10 of 10 F