ACCOUNTING SAMPLE PAPER 1 AUGUST 2013 – DECEMBER 2014 ANSWERS 1 Hexham plc Each question is worth a total of 16 marks (scaled to 40%); partial marking is awarded depending on the complexity and calculation required to complete any entry. Prepare the income statement for Hexham plc for the year ended 31 March 20X8 and the statement of financial position at that date. Income statement for the year ended 31 March 20X8 Revenue Cost of sales Gross Profit Distribution costs Administrative expenses Other operating expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax Profit/(loss) for year £ 1,150,000 (483,000) 667,000 (220,000) (341,000) (38,560) 67,440 (12,000) 55,440 (10,000) 45,440 Statement of financial position at 31 March 20X8 £ Non-current assets Land and buildings Plant and equipment Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets 496,000 243,000 91,000 52,440 7,000 0 889,440 Equity Equity share capital Preference share capital Share premium Retained earnings 400,000 0 100,000 91,440 Non-current liabilities Borrowings 200,000 Current liabilities Borrowings Bank overdraft Trade payables Accruals Deferred income 0 23,100 54,900 4,000 6,000 © ICAEW 2013 Tax payable Total equity and liabilities 2 £ 10,000 889,440 A,C Both tax and national statistics will apply to the needs of government and its agencies. Whether the business will continue as a going concern (B) is an issue for the sole trader, its suppliers, customers and employees. Probably only the sole trader is interested in their own stewardship (D) of the business's resources; this is really only an issue for company owners, as is (E). LO1A 3 A According to IAS 1 paragraph 25, going concern relates to whether the entity will continue in operational existence without liquidating, ceasing trading or being unable to avoid these things (A). LO3B 4 D IAS 1 paragraph 15 LO1D, 3B 5 A, F Note that the question is asking about Johan plc's books of original entry, not Marius plc's. When Marius plc buys goods on credit, Johan plc sells them to it so only the sales day book (A) can be at issue. Contra entries are made in ledger accounts, not books of original entry, so only the payables ledger (F) can be at issue here. LO1C 6 C £ Revenue Purchases (69,600 × 5/6) Gross profit 89,400 (58,000) 31,400 (C) Option A uses the cash paid figure, which includes VAT, as the cost of purchases. Option B assumes that the revenue figure is the gross one, whereas revenue in the income statement (and turnover in the profit and loss account, if this were a UK GAAP question) should be shown exclusive of VAT; it also uses the cash paid figure as the cost of purchases. Option D uses the correct VAT exclusive purchases figure, but again assumes the revenue figure includes VAT. LO3C 7 B Start by posting the adjustment in full: Discount allowed Discount received Suspense account Debit £ 3,840 3,840 Credit £ 2,960 2,960 1,760 LO2D 8 B,C As some items have been drawn out by the owner rather than sold or carried forward as inventory, the purchases figure in cost of sales should be reduced or credited (B). A lower cost of sales figure means an increased reported profit (C). LO2A, 2D 9 D This question is not asking for the balance on the suspense account, but for the adjustment made to the suspense account by the correcting journal. A single journal to correct all these errors would be: £ CR Receivables (90 + 66) DR Sales DR Suspense (9,980 – 9,890) + (2 × 33) – 110 The debit entry in the suspense account is £46 (D) © ICAEW 2013 110 46 156 £ 156 156 LO2B, 2D 10 A Employer’s NIC is an expense to the business in addition to gross pay, so it should be debited to the salaries expense account from the control account (A). B is incorrect as it suggests that the debit balance on the control account should be credited to the liability account. Employees’ NIC and PAYE are not additional expenses, so the remaining debit balance after gross pay has been charged cannot be these (C and D). LO2B 11 C The difference in the amount at which the purchase of stamps was recorded is £120 – £12 = £108. As only £12 was recorded expenses have clearly been understated. Petty cash should have been topped up with (£36 + £60 + £120) = £216, so the £108 top-up is £216 – £108 = £108 too little (C). LO2A 12 D £ 42,510 (2,470) 40,040 2,990 (10,270) 32,760 Uncorrected cash book balance Dishonoured cheque Corrected cash book balance Unpresented cheques Uncleared lodgements Bank statement balance LO2B 13 C, F Unpaid sales commission of £1,755 is an accrued expense which should be credited to accruals (F). As sales commission is a distribution cost it should be debited to this account ©. LO1D, 2C 14 A RENT Advances Income statement (bal fig) £ 7,720 19,620 27,340 Receipts received Arrears £ 22,850 4,490 27,340 LO2C, 3C © ICAEW 2013 15 A Units Value £ 8/X4 b/f 11/X4 Sell 1/X5 Buy 5/X5 Sell 7/X5 c/f £ 2,400 10.00 24,000 (900) 10.00 (9,000) 1,500 10.00 15,000 1,200 16.75 20,100 2,700 13.00 35,100 (1,800) 13.00 (23,400) 900 13.00 11,700 LO1D 16 C £ 83,600 18,000 (4,500) 97,100 Draft net profit Add: purchase price Less: additional depreciation (18,000 × 25%) Adjusted profit LO2A 17 C DISPOSAL Cost £ 23,500 23,500 Accumulated depreciation £23,500 - (£23,500 x 0.7 × 0.7) Part exchange value (£28,200 – £19,350) Loss on disposal (bal fig) £ 11,985 8,850 2,665 23,500 LO1D 18 C Cash raised is 250,000  £3.55 = £887,500, which is debited to cash at bank. The credit to share capital is 250,000  £2 = £500,000, while the credit to share premium is 250,000  £1.55 = £387,500. LO1D, 1E, 2D 19 A, C, E Share premium (B) and dividends paid (D) are found only in company financial statements. Fixed assets (A) is a UK GAAP term which can be seen in the financial statements of sole traders, partnerships or some limited companies. Partners take drawings (C) rather than dividends. Profit for the year (E) can be found in any financial statements. LO3C 20 A, D In the absence of a drawings account on the ETB the debit for drawings should be to capital, since it reduces the amount of the owner’s interest in the business (A). To remove the incorrect entry from other expenses the account needs to be credited (D). LO2C 21 B John is credited with £50,000 × 3/10 = £15,000, then debited with £50,000 × 5/8 = £31,250, a net debit of £16,250. LO1E © ICAEW 2013 22 B The suspense account is increased by the imbalance in the adjustments processed (173 – 144) = 29: Suspense Adjustments Total Initial TB DR CR £ £ 78 Adjustments DR CR £ £ 29 144 173 173 173 Revised TB DR CR £ £ 107 LO2B, 2C 23 C £ Payables ledger balances at 31/12/X4 Debit balance listed as credit balance (£153 × 2) Corrected balance Miscast of cash book (£2,950 – £2,590) Original control account balance 29,800 (306) 29,494 (360) 29,134 LO2B 24 C The direct and indirect methods will give the same figure. A rights issue of shares is a cash flow. The profit on sale of a non-current asset appears as an adjustment to profit before taxation in order to reach net cash flow from operating activities. LO3C 25 B Depreciation should be added back as it is not a cash flow. Proceeds from the sale of non-current assets appear under the heading ‘Cash flows from investing activities’ and are not included as an adjustment to profit in order to reach net cash flows from operating activities LO3C © ICAEW 2013