G.C.E.(A.L.) Support Seminar

G.C.E.(A.L.) Support Seminar 2014 Accounting Paper I Answer Guide Questoion No. Answer Questoion No. Answer (1) 3 (21) 2 (2) 4 (22) 4 (3) 1 (23) 4 (4) 5 (24) 3 (5) 5 (25) 2 (6) 3 (26) 4 (7) 5 (27) 3 (8) 5 (28) 2 (9) 4 (29) 4 (10) 2 (30) 5 (11) 3 (12) 2 (13) 5 (14) 4 (15) 4 (16) 2 (17) 2 (18) 3 (19) 5 (20) 5 [ see page 2

2 Accounting Paper I 31' A False B False C True D False 32' Prime entry book Source document ^1& Purchase Journal Purchase Invoice ^2& General Journal Journal Voucher 33' 1. Increase 2. Decrease 3. Decrease 4. Decrease 34' ^a& Trade Creditors Dr. 18 000 Purchase account Cr. 18 000 ^b& Profit will decrease by Rs. 18 000. 35' Financial Accounting Management Accounting (1) Users of Information External Internal (2) Legal requirements Apply Not Apply (3) Time Annually (in general) On Demand (4) Nature of the information Historical oriented Historical, provided Present and Future oriented 36' Rs. 580 000 37' (i) Rs. 2 350 000 (ii) Rs. 3 450 000 38' (i) Rs. 1 200 (ii) Rs. 57 600 39' Rs. 300 000 40' ^ & A, B ^ & A, B, D ^ & C 41' (i) Rs. 162 000 (ii) Rs.165 600 42' 1' There must be a present obligation as a result of a past event. 2. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. 3. A reliable estimate can be made of the amount of the obligation.

3 43' Net cash flows generated from operational activities Rs.5 140 000 Option: Draft profit for the period Add: Provision for income tax Depreciation of assets Deduct: Profit on sale of motor vehicles Income tax paid Increase in inventories Net cash flows generated from operational activities 360 100 200 300 20 (Rs. '000) 5 200 460 5 660 (520) 5 140 44' A Transfer of Rs. 200 000 to the general reserve. B Issue of shares of Rs. 500 000 by capitalising the reserves. C Issue of Ordinary shares for Rs. 500 000. D Transfer of Rs. 300 000 to revaluation reserve, and Rs. 500 000 to retained earnings, out of the total comprehensive income of Rs.800 000. 45' Only C. 46' Rs.125 000 47' ^ & Purchasing department should be informed by the stores department on the required quantity of goods to be purchased. ^ & Obtain quotations from the approved suppliers. (Purchasing department will send to suppliers) ^ & Recording the receipts, issues and balances of the stocks and keeping them at the racks will enable to check the balances of stocks at the stores at any given time ^ & Register maintained to record the material receipts, issues and balances including the value. 48' ^ & Economic Order Quantity 2 000 units ^ & Optimum number of orders to place 125 orders 49' ^ & 2014.03.31 Accumulated Fund Rs. 36 000 2013.03.31 Accumulated Fund Rs. 31 000 Surplus Rs. 5 000 ^ & 2014.03.31 Accumulated Fund Rs. 36 000 50' 1. Prime cost 2. Prime cost 3. Production overhead cost 4. Production overhead cost

Question No. 01 ^1& ^2& 4 Accounting Paper II Net Profit Adjustment Statement Drafted Profit Add: Building revaluation Provision for doubtful debts Interest Income Deductions: Depreciation Building Depreciation Machinery Lease interest Bad debts Write off of inventories Long term loan interest Expenses of issue of shares Provision for income taxes 200 2 30 80 60 40 40 15 20 50 135 Kanishaka (Pvt) Ltd. Statement of Financial Position as at 31.03.2014 NonCurrent Assets Property Plant and Equipment Fixed Deposit 15% Current Assets Inventories Trade debtors 260 Provision for doubtful debts (13) Interest receivable Cash & cash equivalents Stated Capital Ordinary Shares Non redeemable preference shares Reserves Revaluation reserve General reserve Retained earnings Longterm liabilities Long term loan @12% Lease creditors Current liabilities Trade creditors Loan interest payable Lease creditors Income tax payables Dividends payables Bank overdraft 160 247 30 1 125 3 800 1 500 1 280 800 342 400 20 95 200 100 185 (Rs. '000) 580 232 812 (440) 372 (Rs. '000) 7 180 1 200 1 562 9 942 5 300 2 422 1 000 220 1 000 9 942

^3& Balance 01.04.2013 Capitalization of reserves General reserve Total comprehensive income Right issue of shares Dividends: Preference shares Ordinary shares Balance 31.03.2014 5 Kanishaka (Pvt) Ltd. Changes in equity statement for the year ended 31.03.2014 Ordinary shares 2 500 800 500 3 800 Preference shares 1 500 1 500 Revaluation reserve 1 000 (600) 880 1 280 General reserve 800 (200) 200 800 Retained earnings 450 (200) 372 (180) (100) 342 (Rs. '000) Total 6 250 1 252 500 (180) (100) 7 722 ^4& Disclosures (1) The inventories has been valued at Rs.160 000 which is the lower of cost of the inventories and its net realizable value. (2) Rs. 100 000 worth of inventories has been pledged to the bank as a security for the bank overdraft obtained. Workings : Asset Land Buildings Office Equipment Machinery Depreciation Buildings Office Equipment Machinery Balance 01.04.2013 4 400 2 000 1 800 400 Balance 01.04.2013 680 Additions/ Revaluations Additions 400 280 60 Disposals/ Transfers Deductions Balance 31.03.2014 4 400 2 000 1 800 400 Balance 31.03.2013 400 960 60 (Rs. '000) 8 600 ^1 420& 7 180 Building Account Bal b/f 1 600 Accumulated 280 Revaluation 680 Depreciation Reserve Bal c/d 2 000 2 280 2 280 Revaluation Reserve Bal b/f 200 Land 400 ^Equity& Buildings 680 880 Bal c/d 1 080 1 080

Question No. 02 6 02' ^a& ^1& Profit and Loss Appropriation Account (Rs.'000) Net profit 740 Interest on capital: Disa Gaya Sachi Salaries : Sachi Profit Shares : Disa Gaya Sachi 100 85 50 165 110 55 ^235& ^175& ^330& Drawings Drawings Balance c/d Current Accounts (Rs.'000) Dissa Gaya Sachi Dissa Gaya Sachi 200 30 535 765 220 35 240 495 140 20 125 285 Balance b/f Salaries Interest on capital Profit share Interest for loan 500 100 165 765 300 85 110 495 175 50 55 5 285 Goodwill Balance c/d Capital Accounts (Rs.' 000) Dissa Gaya Sachi Dissa Gaya Sachi 150 100 50 Balance b/f 1 000 800 Salaries 550 1 000 850 500 Goodwill 150 150 1 150 950 550 1 150 950 550 Ú Goodwill also can be treated by debiting Sachi Rs.50 and crediting Gaya Rs.50.

^a& Extracts of statement of Financial Position as at 31.03.2014 (Rs.'000) Equity and Liabilities Capital Accounts : Dissa Gaya Sachi Current Accounts : Dissa Gaya Sachi Non Current Liabilities : Loan from Sachi Current Liabilities : Loan from Sachi 7 1 000 850 500 535 240 125 2 350 900 325 60 3 635 Workings: Calculation of Adjusted profit Rs. 000 Profit before adjustments (120+180+360) 660 Add Drawings (30+35+20) 85 Deductions Loan interest 400 5/100 ¼ (5) 740 Total Goodwill 50 6 = 300 ^b& ^1& Suranji Manufacturing Enterprise Manufacturing account for the quarter ended 31.03.2014 1/1 Inventory Raw material purchases 3/31 Inventory Cost of materials consumed Production salaries Prime Cost Production overhead cost Overhead expenses Depreciation on machinery Total production cost 10 000 66 000 (8 800) 15 800 10 000 (Rs. '000) 67 200 62 000 129 200 25 800 155 000 ^2& Revenue generated from sales of flower pots 1650 150 = Rs. 247 500

8 Workings: Number of flower pots produced 1/1 Timber stock ( Sq.fts) 50 Purchases 300 3/31 Closing stock (8 800 / 220) (40) 310 No. of flower pots 310 5 = 1 550 Production salaries 1 550 40 = Rs. 62 000 Number of Flower pots sold Opening No. of flower pots 200 Production during the quarter 1 500 Closing stock (100) 1 650 Question No. 03 ^3& ^a& ^1& Bal B/f ^ & ^ & ^ & ^ & ^ & ^ & ^ & ^ & Motor Vehicles Furniture & fittings Assets Stocks Trade Debtors Bank Liabilities (Rs. '000) Equity 1 500 95 43 270 137 355 1 690 +40 40 +90 90 +125 +125 65 30 +50 +15 270 +265 5 35 5 30 8 8 25 25 1 475 135 60 30 412 350 1 762 ^2& All numbers are in rupees thousand Net profit/ loss = Closing net assets Opening net assets + Drawings Additional capital introduced Net Loss = Rs. 45 = 1 762 1 690 + 8 125

^b& ^1& (1) Promotional Expenses Dr. Suspense Account (Correcting the error of non recording of the promotional expenses) (2)... Suspense Account (Correcting for the error of insurance expenses of Rs. 3 200 not been taken to the trial balance) (3) Motor vehicle repair account Dr. Motor vehicle account (Correcting the error of recording of motor vehicle repair expenses of Rs. 10 000 in to the motor vehicle account) (4) Purchase returns account Dr. Trade creditors (Correcting the error of duplicating the recording of purchase returns of Rs. 2 400 in the purchase returns journal) (5) Suspense account Dr. Commission received account Commission paid account (Correcting the error of recording commission received as commission paid) (6) Sales account Dr. Suspense account (Correcting the totaling error in the sales journal which increased the total sales in sales journal by Rs.9 000) 9 General Journal 6 000 3 200 10 000 2 400 2 000 9 000 6000 3 200 10 000 2 400 1 000 1 000 9 000 ^2& Suspense Account Balance b/f 16 200 Insurance expenses 3 200 Commission received 1 000 Sales 9 000 Commission paid 1 000 Promotional expenses 6 000 18 200 18 200 Question No. 04 04' ^a& ^1& Creditors Control Account Sales returns 4 000 Balance B/f 81 000 Discount 8 000 Purchases 603 000 Cash 566 000 Cash 20 000 Balance C/d 126 000 704 000 704 000

^2& Rs. 145 000 10 Balance as per creditor account Add: Unrecorded Purchases Purchases being recorded at a lower amount Less: Sales Balance in the creditor account 12 000 27 000 126 000 39 000 165 000 (20 000) 145 000 Option: Creditors Control Account Sales 20 000 Balance B/f 126 000 Purchases 27 000 (recorded at a lesser value) Balance C/d 145 000 Purchases 12 000 165 000 165 000 ^3& Creditor Reconciliation Statement Balance as per creditors control 145 000 Add: Discount Asith Unrecorded discount Deductions: Unrecorded purchases Total of trade creditor ledger 3 000 4 000 7 000 152 000 (12 000) 140 000 ^b& ^1& Bank Reconciliation Statement as at 31.03.2014 Bank overdraft as per bank statement ^8 000& Add : Unrealized cheques 25 000 17 000 Less : Cheques issued but not presented Balance as per bank account ^18 000& ^1 000&

11 Bank Account Returned cheque 15 000 Balance B/f 13 750 (Rent) Bank charges 500 Cheque book charges 350 Balance C/d 1 000 Insurance expenses 1 400 16 000 16 000 Question No. 05 05' ^a& ^1& ^2& Bank account balance (over draft) before the adjustments are made is Rs.13 750 General Ledger (1) Machinery transfer account Dr. Machinery account (Transferring the cost of the machine to the machinery transfer account) (2) Accumulated depreciation for machinery Machinery transfer account (Transferring the accumulated depreciation of the transferring machinery to the Machinery transfer account ) (3) Machinery account Machinery transfer account Cash account (Completing the transaction by transferring the old machine and settling the balance by cash) (4) Machinery transfer account Profit & Loss/ Income statement (Recognizing the profit of machinery transfer) 130 000 32 500 120 000 2 500 130 000 32 500 100 000 20 000 2 500 ^2& Decrease in profit if not for machinery transfer (Machinery depreciation) = Rs. 10 000 Decrease in profit as a result of transfer (Depreciation 7 500+ 3 000) = Rs. 10 500 Increase in profit due to the profit obtained in machine transfer = Rs. 2 500 Rs. 8 000 Increase in profit 10 000 8 000 = Rs. 2 000

Workings: 12 Accumulated profit up to the date of transfer } Year ended 90 000 10 000 = 8 000 31.03.2011 10 Year ended = 8 000 31.03.2012 8 000 1 Year ended 2 = 4 000 31.03.2013 } 90 000 + 40 000 10 000 20 000 1 10 2 = 5 000 } Depreciation 10 000 3 up to 01.01.2014 4 = 7 500 32 500 Depreciation for the = 2014.01.01 to 1/1 to 3/31 = 7 500 year ended 31.03.2014 120 000 1 = 3 000 10 4 10 500 05' ^b& Statement of Affairs Capital 250 250 Noncurrent assets 150 000 Cash 80 000 Trade debtors 15 250 Trade creditors 30 000 Stocks 35 000 280 250 280 250 Cash account Bal b/f 80 000 Salaries 19 000 Receipts from 223 000 Operational expenses 18 000 trade debtors } Drawings 5 000 Cash sales 54 000 Trade creditors 280 000 Bal c/d 35 000 357 000 357 000 Creditors Control Account Cash 280 000 Bal b/f 30 000 Discount 4 000 Purchases 268 000 received } Bal c/d 14 000 298 000 298 000 Debtors Control Account Bal b/f 15 250 Cash 223 000 Sales 264 750 Discount given 7 000 Bal c/d 50 000 280 000 280 000

13 Sales Less: Cost of sales Stock Purchases Less: Closing stock Gross Profit Add: Other income Discount received Noncurrent asset depreciation Discount allowed Salaries Operational expenses Provision for doubtful debt Net Loss Income statement 35 000 268 000 303 000 (48 000) 15 000 7 000 27 000 18 000 2 500 318 750 (255 000) 63 750 4 000 67 750 (69 500) (1 750) Statement of Financial position Non Current Assets Property Plant and Equipment Depreciation Current Assets Cash Inventories Trade debtors 50 000 Provision for doubtful debt (2 500) 150 000 (15 000) 35 000 48 000 47 500 (Rs.'000) 135 000 130 500 265 500 Capital Less : Accumulated loss Less : Drawings Current liabilities Accrued salaries Trade creditors 250 250 (1 750) 248 500 (5 000) 8 000 14 000 243 500 22 000 265 500

Question No. 06 14 ^6& ^a& ^1& Statement of Affairs as at 31.03.2013 (Rs. ' 000) Accumulated Fund 550 Noncurrent assets Noncurrent Liabilities Sports complex 500 Life membership fund 500 Gym equipment 800 Gym Equipment fund 300 800 Current Liabilities Current Assets Subscription received 125 Subscription receivable 50 in advance } Bank balance 125 Advance received 40 165 Cash 40 215 1 515 1 515 Income and Expenditure Account for the year ended 31.03.2014 ^Rs. ' 000& Salaries 120 Subscription fees 550 Other Expenses 250 Daily fees 520 Promotional expenses 80 Rental income 120 Maintenance 75 Depreciation Sports complex 25 Depreciation Gym equipment 160 Surplus 480 1 190 1 190 Statement of Financial Position as at 31.03.2014 (Rs. ' 000) Accumulated Fund 550 Noncurrent assets Add : Surplus 480 Sports complex 475 Noncurrent Liabilities Gym equipment 640 1 115 Life time membership fund 450 Gym Equipment fund 300 750 Current Liabilities Subscription received 100 Current Assets in advance } Subscription receivable 100 Advance received 70 Bank balance 745 Rent received in advance 60 230 Cash 50 895 2 010 2 010

15 Workings: Subscription Account (Rs. ' 000) Balance B/f 50 Balance B/f 125 Income expenditure 550 Cash 425 Balance c/d 100 Life member fees 50 Balance c/d 100 700 700 Cash Account (Rs. ' 000) Balance B/f 40 Salaries 120 Subscription 425 Other expenses 250 Income from daily charges 550 Promotional expenses 80 Rental income 180 Maintenance 75 Bank 620 Balance c/d 50 1 195 1 195 ^b& Total variable cost = Rs. 300 Contribution = 800 300 = 500 Total Fixed Cost Vehicle expenses = 125 000 Other = 25 000 Salaries = 12 500 162 500 (1) Number of items to be sold = 162500 / 500 = 325 (2) In order to obtain a profit of Rs. 150 000 = (162500+150 000)/500 = 625

Question No. 07 16 ^7& ^a& ^1& Average Profit A Average Profit B 85 000 65 000 50 000 45 000 75 000 60 000 (32 000) 22 000 178 000 4 = 44 500 192 000 4 = 48 000 Accounting Rate of Return (ARR) Average Investment Average Profit 100 } Cost+ Scrap value Average Investment 2 Average Investment 250 000 + 50 000 = 150 000 2 44 500 100 48 000 100 150 000 150 000 29.67% 32% ^2& Payback Period A Time Profit Depreciation Scrap value Cash flow 0 ^250 000& 1 85 000 50 000 135 000 2 50 000 50 000 100 000 3 75 000 50 000 125 000 4 ^32 000& 50 000 50 000 68 000 Payback period = 2 years and 01 month Accumulated cash flows ^250 000& ^115 000& ^15 000& 110 000 178 000 15 000 125 000 12

17 Payback Period B Time Profit Depreciation Scrap value Cash flow 0 ^250 000& 1 65 000 50 000 115 000 2 45 000 50 000 95 000 3 60 000 50 000 110 000 4 22 000 50 000 50 000 122 000 Accumulated cash flows ^250 000& ^135 000& ^40 000& 70 000 192 000 40 000 110 000 12 Payback period 2 years and 04 months ^3& A 0 1 2 3 4 Discounting factor at 15% Cash Flows Present Value 1 ^250 000& ^250 000& '87 135 000 117 450 '76 100 000 76 000 '66 125 000 82 500 '57 68 000 38 760 Net Present Value 64 710 B 0 1 2 3 4 Discounting factor @ 15% Cash Flows Present Value 1 ^250 000& ^250 000& '87 115 000 100 050 '76 95 000 72 200 '66 110 000 72 600 '57 122 000 69 540 Net Present Value 64 390 ^4& As per Accounting Rate of Return (ARR) A B Option to select 29.67% 32% B As per Payback Period A B Option to select 2 years and 01 month 2 years and 04 months A (5) Machine A As per Net Present Value A B Option to select 64 710 64 390 A

^7& 18 ^b& (1) Average Consumption = 3 000 + 10 000 1 000 1 200 = 10 800 = 10 800 / 3 = 3 600 (2) Re order level = Maximum consumption Maximum lead time = 800 15 = 12 000 units (3) Re order quantity = 15 000 units ^4& Unit price 2014.03.01 Balance 3 000 10.00 30 000 Purchases 15 000 12.00 180 000 18 000 11.67 210 000 Issues (10 000) (116 700) 8 000 93 300 Sales returns 1 000 12.00 12 000 9 000 11.70 105 300 Purchases 15 000 15.00 225 000 24 000 13.76 330 300 Purchase returns (2 000) 15.00 (30 000) Balance 22 000 13.65 300 300 Value of stock as at 31.03.2014 is Rs. 300 300