Accounting Technicians Ireland First Year Examination: May 2017 Paper: FINANCIAL ACCOUNTING Tuesday 9 May 2017 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. Page 1 of 9
SECTION A Answer ALL THREE QUESTIONS (Compulsory) in this Section QUESTION 1 (Compulsory) The following trial balance was extracted from the books of Rosie Kelly, a sole trader, on 31 st December 2016: / / Buildings 500,000 Land 50,000 Plant 100,000 Bank and cash 6,200 Receivables/payables 10,200 8,720 Sales 250,500 Purchases 124,750 Office expenses 4,300 Business rates 7,500 Electricity 1,400 Capital 541,000 Suspense s a/c 1,000 Inventory at 01 January 2016 17,300 Petrol 8,470 Vat refund 700 PRSI/ NIC liability 5,100 Wages and salaries 28,900 Allowance for bad debts 950 Bad debts 850 3% long-term bank loan 30,000 Drawings 9,000 Rent 15,000 Telephone and broadband 1,800 Accumulated depreciation on plant 01/01/2016 14,500 Accumulated depreciation on buildings 01/01/2016 35,000 Returns 900 1,100 Discounts 2,400 1,800 889,670 889,670 The following information is also provided: a) The inventory as at 31 December 2016 was counted at 19,500. This excluded the following items: Item Cost Sales value Selling costs / / / A 800 800 50 B 1,700 1,800 80 b) The land was sold for / 70,000 on 1 December 2016. The sales proceeds are due to be received on 1 February 2017. c) In November 2016 R. Kelly recorded the receipt of / 500 from a receivable as follows: Dr Bank 500 Dr Receivables 500 d) Depreciation for the year is to be charged as follows: Buildings 2% on cost Plant 10% reducing balance e) At the year-end rent due was estimated at / 1,500. In December 2016 broadband costs of / 150 were paid for the months of January and February 2017. Page 2 of 9
f) Mr. F. Monaghan, a customer, was declared bankrupt in December 2016 owing / 1,200. This has not been accounted for. Having reviewed the remaining receivables Rosie Kelly required a specific provision of / 300 against half of them and a general provision of 2% against the other half. g) The 3% long-term bank loan was received on 1 July 2016. You are required to prepare: a) The Income statement for the year ended 31 December 2016. b) The Statement of Financial Position as at that date. (11 Marks) (9 marks) Page 3 of 9
QUESTION 2 (Compulsory) You have been provided with the Bank Statement and the Bank T account for Rachel Ryan for the month ended 31 March 2016. Bank T account / / 01/03 Balance b/d 4,100 04/03 Cheque 75 44 07/03 Lodgement 41 765 08/03 Cheque 76 195 11/03 Lodgement 42 841 10/03 Cheque 74 150 27/03 Lodgement 43 156 18/03 Standing order 182 31/03 Lodgement 44 540 22/03 Cheque 77 244 27/03 Cheque 78 410 28/03 Cheque 79 220 29/03 Cheques 80 195 Balance c/d 4,762 6,402 6,402 Rachel Ryan Bank Statement as at 31 March 2016 Date Details DR / CR / Balance / 01/03 Balance 7,700 02/03 Cheque 71 2,000 5,700 05/03 Lodgement 40 150 5,850 06/03 Cheque 75 44 5,806 09/03 Lodgement 41 765 6,571 10/03 Cheque 76 159 6,412 16/03 Lodgement 42 841 7,253 17/03 Cheque 69 1,750 5,503 20/03 Cheque 74 150 5,353 21/03 Standing order 182 5,171 21/03 Direct debit 50 5,121 24/03 Cheque 77 214 4,907 28/03 Lodgement 43 165 5,072 29/03 Cheque 78 410 4,662 31/03 Bank charges 101 4,561 You are to assume that figures in the bank statement figures are correct You are required to: a) Reconcile the opening balance as per the bank T account to the opening balance as per the bank statement. (3 Marks) b) Prepare the adjusted bank T account for Rachel Ryan for the month of March 2016. (6 Marks) c) Prepare the Bank Reconciliation Statement as at 31 March 2016. (4 Marks) d) Outline two reasons why it is important to prepare bank reconciliations regularly. (3 Marks) e) Rachel Ryan is currently finalising her accounts for the year ended 31 December 2015. At that date she had / 1,400 in cash and a closing bank overdraft of / 2,500. She is proposing to show a net bank overdraft in current liabilities of / 1,100. Explain with reasons if you agree with her proposal. (4 Marks) Page 4 of 9
QUESTION 3 (Compulsory) ANSWER ANY FOUR PARTS Part A The following information is provided in relation to rent and rates for Tim Dooley s fresh fruit business / Rent due at 31 December 2015 1,200 Rates prepaid at 31 December 2015 400 Rent paid during 2016 12,400 Rates paid during 2016 5,000 Rates due at 31 December 2016 450 Rent prepaid at 31 December 2016 500 You are required to: Calculate the charge for rent and rates to be included in the Income Statement for the year ended 31 December 2016. Part B (i) Explain the concepts of a mark-up and a margin. (2 Marks) (ii) Using the following figures provided calculate the selling price if the company requires a mark-up of 20% and a margin of 20%. Labour cost / 500 Material cost / 750 Overheads / 150 (3 Marks) Part C Tom Crehan is a sole trader who sells all of his goods on credit. During the month of February 2016 he failed to maintain proper records of all credit sales made during the month. The following is a summary of the records he kept during the month: / Opening debit receivable balance 4,500 Opening credit receivable balance 300 Closing debit receivable balance 5,500 Cash received from credit customers 7,000 Bad debts written off 400 Discounts allowed 200 Discounts received 550 Contra entry with payables 75 Returns outwards 150 You are required to: Calculate the amount of credit sales that Tom Crehan made in the month of February 2016. Part D Outline your understanding of the terms external audit and internal audit as they relate to accounting. Page 5 of 9
Part E Jude Lawlor is a sole trader and has provided the following information for the month of March 2016 March 1 Opening balance 50 units / 4 per unit March 10 Purchases 200 units / 4.50 per unit March 17 Sales 210 units March 21 Purchases 160 units / 5 per unit March 28 Sales 190 units All sales were made on a credit basis at / 8 per unit. You are required to Calculate the Gross profit that Jude Lawlor earned if she adopted the First In First Out (FIFO) method of inventory valuation. Part F Some errors affect the balancing of the trial balance and some do not. You are required to outline five types of errors and their impact on the Trial Balance. Page 6 of 9
SECTION B Answer any TWO of the THREE questions in this Section QUESTION 4 Tom Kenny is a sole trader. Tom uses receivable and payable control accounts as part of his double entry system. At the end of December 2016 he extracted his trial balance and it failed to balance. The credits exceeded the debits by / 14,650 and the difference was entered in a suspense account. On examination of his accounts the following issues were identified 1. Rent paid of / 5,000 was posted to the rates account. 2. The total of the sales day book was incorrectly totalled and as a result the posting to the ledger was overcast by / 750. 3. Discounts received of / 1,570 were debited to the discount allowed account. 4. Credit sales of / 650 to John Finn were entered in the personal accounts as / 560. 5. Closing inventory was recorded as follows: Dr Cost of sales / 6,000 Cr Closing inventory (asset) / 6,000 6. The balance in the rent accrual account of / 1,700, at the end of last year, was not carried forward at the start of the year. 7. Cash received from Rachel Gillolly of / 450 was entered in the ledger accounts as follows: Dr Bank a/c / 450 Cr Trade receivables / 540 8. Purchase of a motor car for / 12,000 cash was recorded by debiting bank / 12,000 and crediting bank / 2,100. Ignore depreciation. You are required to a) Prepare the journal entries, where required, together with the appropriate narratives, necessary to correct the above errors. (12 Marks) b) Prepare the suspense account. (4 Marks) c) Calculate the impact on the profit of Tom Kenny of correcting the above errors. (4 Marks) Page 7 of 9
QUESTION 5 The following information is provided in relation to the Community Cricket Club for the year ended 31 December 2016: Assets and Liabilities of club were as follows: 31/12/2015 31/12/2016 / / Playing field 200,000 200,000 Shop inventories 5,500 4,800 Clubhouse (at cost) (note 1) 150,000 150,000 Subscriptions in advance 6,100 4,300 Shop payables 3,500 2,800 Subscriptions in arrears 3,300 5,100 Electricity due 240 310 Receipts and payment account for 2016 / / Shop takings 35,000 Balance c/d 6,700 Subscriptions received 99,100 Wages for part time shop worker 4,000 Heat and light (note 2) 1,000 Shop purchases 26,200 Travel expenses 14,000 Ground repairs 3,400 Water charges 250 Insurance 4,800 Electricity 900 Balance b/d 72,850 134,100 134,100 Notes: 1 The Clubhouse was purchased on 1 January 2010 and is being depreciated on a straight line basis over 50 years. 2. 25% of the heat and light relates to the club shop. You are required to: a) Calculate the accumulated fund as at 1 January 2016. b) Prepare the shop trading account for the year ended 31 December 2016. c) Prepare the club s income and expenditure account for the year ended 31 December 2016 and the statement of accumulated fund as at that date. (10 Marks) Page 8 of 9
QUESTION 6 a) Outline two reasons for having a conceptual framework. (2 Marks) b) Financial statements must be prepared to give a true and fair view. Outline your understanding of the term true and fair view as it relates to financial statements. (2 Marks) c) Your manager is unsure as to the meaning of accounting conventions and has asked you to explain the meaning of the following conventions giving an example of each one. (i) Historic cost (ii) Monetary measurement (iii) Business entity (iv) Materiality (12 marks) d) The accruals and going concern concepts are of fundamental importance to the preparation of financial statements. Explain, with the aid of relevant examples, the meaning of each of these concepts. (4 marks) Page 9 of 9