ertified ccounting Technician Examination dvanced Level rafting Financial Statements (International Stream) Monday 6 June 2011 Time allowed Reading and planning: Writing: 15 minutes 3 hours This paper is divided into two sections: Section LL TEN questions are compulsory and MUST be attempted Section LL THREE questions are compulsory and MUST be attempted o NOT open this paper until instructed by the supervisor. uring reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall. Paper T6 (INT) The ssociation of hartered ertified ccountants
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Section LL TEN questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the andidate nswer ooklet to indicate your chosen answer to each multiple choice question. Each question in this section is worth 2 marks. 1 Which of the following statements are correct? (i) The going concern concept assumes that a business entity will continue in operational existence for the foreseeable future. (ii) The accruals concept means that transactions and events are recognised only when cash is received or paid for them. (iii) n item is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. (i) and (ii) only (i), (ii) and (iii) (i) and (iii) only (ii) and (iii) only 2 Phil and James are in partnership and share profits equally. Phil receives an annual salary of $25,750 and interest on capital is paid at 5% per year. t 1 June 2010 their capital balances were: $ Phil 200,000 James 100,000 On 1 ecember 2010, James introduced a further $25,000 capital. The partnership profit for the year ended 31 May 2011 was $265,625. What was Phil s total profit share for the year ended 31 May 2011? $150,750 $112,125 $147,875 $127,875 3 Which of the following would reduce the capital gearing of a company? (i) Issuing loan notes with a long redemption date (ii) Paying dividends to shareholders (iii) Making a bonus issue to shareholders (iv) Making a rights issue of ordinary shares (i) and (ii) (ii) and (iii) (i) and (iii) (iv) only 4 uring a period of rising prices, what is the impact of using historical cost accounting? Profits and assets are overstated Profits are overstated and assets understated Profits and assets are understated Profits are understated and assets overstated 3 [P.T.O.
5 t 1 May 2010 Purcell o purchased 75% of Lord o s 10 million $1 ordinary shares for $8,000,000. t that date Lord o had identifiable net assets with a fair value of $8,750,000. The fair value of the non-controlling interest in Lord o at acquisition was $3,000,000. What was the total goodwill at 1 May 2010? $2,250,000 $1,437,500 $1,250,000 $750,000 6 When accounting for goodwill arising on the acquisition of an ongoing business, which of the following statements is correct? Goodwill is recorded at its initial value less impairment losses Goodwill is amortised over its estimated useful life Goodwill is amortised over an estimated useful life not exceeding 20 years Goodwill is written off immediately after acquisition 7 Which of the following statements is correct? ontingent liabilities should never be disclosed ontingent liabilities should always be disclosed as a note ontingent liabilities should be disclosed as a note, unless their occurrence is remote ontingent liabilities should always be provided for in the financial statements 8 onfire o has 100,000 ordinary shares of 50 cents each and 30,000 6% preference shares of $1 each. Its profits after taxation for the year ending 31 May 2011 were $21,800. The directors have decided to pay an ordinary dividend which is 60% of profits after tax and preference dividends. What was the dividend per ordinary share? 21 80 cents 20 00 cents 12 00 cents 11 28 cents 9 Which of the following material events, occurring after the reporting period but before the financial statements are approved, are adjusting events according to IS 10 Events after the reporting period? (i) iscovery of a fraud affecting the year end financial statements (ii) Major acquisition of another business (iii) Inventory held at the reporting date was sold for less than cost (i), (ii) and (iii) (i) and (ii) only (ii) only (i) and (iii) only 4
10 sh o is a subsidiary of Volcanic o. t the financial year end Volcanic o s statement of financial position reports receivables of $1,000 which includes $200 due from sh o. sh o s statement of financial position reports payables of $200. What should the balance for receivables and payables be in the consolidated statement of financial position? Receivables Payables $ $ 1,000 200 800 200 800 nil 1,000 nil (20 marks) 5 [P.T.O.
Section LL THREE questions are compulsory and MUST be attempted 1 ayzell o has the following trial balance as at 31 May 2011: r r $000 $000 Land at cost (note vii) 1,460 Plant at cost 1,362 Plant accumulated depreciation 1 June 2010 (note v) 682 uildings at cost 4,600 uildings accumulated depreciation 1 June 2010 (note vi) 372 Intangible assets (note viii) 384 ank balance 232 Inventory at 1 June 2010 (note i) 990 Retained earnings at 1 June 2010 800 10% Loan notes 300 Loan interest paid 30 $1 Ordinary shares 4,400 Share premium account 486 ividend paid 155 Revenue 11,700 Returns inwards 217 Purchases 6,850 Wages and salaries 1,120 Insurance (note iii) 108 Electricity expenses (note ii) 542 dministrative expenses 500 llowance for receivables 1 June 2010 (note iv) 62 iscounts received 590 Trade payables 1,488 Trade receivables 1,900 irector s remuneration 430 20,880 20,880 dditional information as at 31 May 2011 (i) losing inventory is valued at $465,000. (ii) There are electricity expenses of $88,000 outstanding. (iii) Insurance expenses include $14,000 for June and July 2011. (iv) (v) (vi) The allowance for receivables is to be increased to 5% of trade receivables. Plant is depreciated at 20% per annum using the reducing balance method. Plant depreciation should be apportioned in accordance with note (x). uildings are depreciated at 5% per annum on their original cost. uilding depreciation should be apportioned in accordance with note (x). (vii) Land is to be valued at $1,550,000 as from 31 May 2011. (viii) The intangible assets were purchased on 1 ecember 2010 and have a useful life of four years from that date. mortisation should be apportioned in accordance with note (x). (ix) Tax has been calculated as $310,000 for the year. 6
(x) The expenses listed above should be apportioned as indicated: ost of istribution dministrative Sales osts Expenses iscounts received 100% Insurance 50% 50% Electricity expenses 60% 20% 20% Increase in allowance for receivables 100% Wages and salaries 40% 30% 30% irector s remuneration 100% epreciation: Plant 100% uildings 50% 30% 20% mortisation of intangible assets 100% Required: (a) Prepare the following financial statements for ayzell o in accordance with IS 1 Presentation of Financial Statements: (i) a statement of comprehensive income for the year ended 31 May 2011; and (ii) a statement of financial position as at 31 May 2011. The following mark allocation is provided as guidance for this requirement: (i) (ii) 20 marks 14 marks (34 marks) (b) Using the information from part (a), calculate the following accounting ratios for ayzell o. (i) Earnings per share; (ii) Interest cover; (iii) cid test (quick); (iv) ccounts payable period in days. (Show ratio formulas and workings) (6 marks) (40 marks) 7 [P.T.O.
2 The following is the statement of financial position for Erley o. Erley o Statement of financial position as at 31 May 2011 2010 $000 $000 $000 $000 ssets Non-current assets 750 565 urrent assets Inventory 80 90 Trade receivables 100 50 ash and cash equivalents 180 15 155 Total assets 930 720 Equity and liabilities Equity and reserves Ordinary share capital (shares of $1) 700 570 Share premium 40 20 Retained earnings 120 50 860 640 Non-current liabilities 10% Loan note 10 urrent liabilities ank overdraft 10 Trade payables 40 45 Taxation 20 70 25 70 Total equity and liabilities 930 720 dditional Information for the year ended 31 May 2011 (i) In addition to the interest on the loan notes, interest on the overdraft amounted to $1,000. (ii) The loan notes were repaid in full on 31 May 2011. (iii) There was no over or under provision of tax for the previous financial year. (iv) ividends of $35,000 were paid. (v) epreciation was $96,000. (vi) Non-current assets with a carrying amount of $35,000 were sold for $30,000. Required: (a) alculate the profit before tax of Erley o for the year ended 31 May 2011. (4 marks) (b) Prepare Erley o s statement of cash flows for the year ended 31 May 2011 in accordance with IS 7 Statement of ash flows, using the indirect method. (16 marks) (20 marks) 8
3 Mars and J Neptune are two sole traders who have decided to combine their existing businesses at 31 May 2011, to form a partnership called Planets. The statements of financial position of the two sole trader businesses are shown below: Statements of financial position as at 31 May 2011 Mars J Neptune $ $ $ $ ssets Non-current assets Property 89,375 Plant and machinery 44,500 57,200 Motor vehicle 5,500 25,025 139,375 82,225 urrent assets Inventory 13,750 14,300 Trade receivables 4,125 4,650 ash at bank 2,750 20,625 10,725 29,675 Total assets 160,000 111,900 apital and liabilities apital accounts Mars 132,075 J Neptune 83,300 urrent liabilities Trade payables 18,025 28,600 Loan from M Pluto 9,900 Total capital and liabilities 160,000 111,900 t the date of combination: (i) Goodwill was agreed to be $50,000 for Mars and $40,000 for J Neptune. (ii) The property belonging to Mars was revalued at $110,000. (iii) Mars plant and machinery was valued at $34,000. (iv) Mars motor vehicle was not transferred to Planets. (v) J Neptune s inventory was revalued at $11,550. (vi) The loan from M Pluto was taken over by Planets. (vii) ll the trade payables were taken over by Planets at their book value. (viii) future profit sharing ratio of 2:1 to Mars and J Neptune respectively is agreed. Required: (a) (b) Prepare the following accounts for both Mars and J Neptune as they would appear on the closing of their respective businesses: (i) (ii) Revaluation accounts; apital accounts. (4 marks) (4 marks) Prepare the Statement of financial position for Planets, immediately following the formation of the partnership. Note: Goodwill is not maintained within the accounts of the partnership. (8 marks) (c) State two advantages and two disadvantages of a sole trader joining a partnership. (4 marks) (20 marks) End of Question Paper 9