Exam ID 107 QUESTION PAPER

Exam ID 107

QUESTION PAPER

Qualification

:

Level 3 Diploma – Record Adjustments and Prepare

Financial Statements

(Qualification Accreditation Number 500/3022/x)

Examination

:

Paper Two / June 2011

Afternoon Sitting

THE INTERNATIONAL ASSOCIATION OF BOOK-KEEPERS

IAB LEVEL 3 DIPLOMA IN ACCOUNTING AND ADVANCED BOOK-KEEPING UNIT TITLE: RECORD ADJUSTMENTS AND PREPARE FINANCIAL STATEMENTS

PAPER TWO

GENERAL INFORMATION AND INSTRUCTIONS

 THIS QUESTION BOOKLET CONTAINS FIVE QUESTIONS WITHIN TWO SECTIONS. YOU MUST ANSWER FOUR QUESTIONS AS FOLLOWS:

SECTION A - ANSWER BOTH QUESTIONS IN THIS SECION  Question One Carries 25 Marks

 Question Two Carries 15 Marks

SECTION B - ANSWER ANY TWO OF THE QUESTIONS IN THIS SECTION  All Questions Carry Equal Marks – 30 Marks Each

 You must enter your Student Number, Candidate Number and Name of

Examination Centre on your answers.

 Time allowed: Two Hours. It is recommended that this time be allocated as follows:

 SECTION A QUESTIONS - 40 Minutes

 SECTION B QUESTIONS - 80 Minutes

 All answers are to be written in ink.

 Correcting fluid can be used in moderation, otherwise cross out errors neatly.

 The use of silent non-programmable calculators is permitted.



not want marking - otherwise we will take the marks of your first two answers.

 NOTE – This question booklet has information and data printed on both sides of the pages contained within the booklet.

SECTION A – You must answer both questions in this section

Question One

The book-keeper of Drake Electronics has prepared a list of balances as at 31 May 2011.

Drake Electronics

List of Balances as at 31 May 2011

£

Sales 222,880

Purchases 70,130

Stock @ 1 June 2010 35,130

Rent and Rates 16,400

Heat and Light 13,210

Wages and Salaries 54,750

Motor Vehicle Expenses 4,430

Sundry Expenses 1,780

Returns Inward 2,560

Returns Outward 790

Loan Interest Paid 1,210

Trade Debtors 28,500

Trade Creditors 20,480

Bank 38,860 DR

Motor Vehicles (cost) 74,200

Workshop Equipment (cost) 57,700

Motor Vehicles (provision for depreciation) 38,100

Workshop Equipment (provision for depreciation) 23,110

Capital 100,000

Drawings 26,500

Long Term Loan 20,000

The following additional information is also available as at 31 May 2011:

1 Stock at 31 May 2011 was valued at £32,150

2 Rates of £1,400 are prepaid as at 31 May 2011

3 Accrue Heat and Light of £290 and Wages and Salaries of £320 as at 31 May 2011

4 Depreciation for the year ended 31 May 2011 is to be provided for as follows:

 Motor Vehicles – 30% per year using the diminishing balance method

applied on a full year basis.

 Workshop Equipment – 10% per year using the straight line method applied

on a full year basis.

5 Create a Provision for Doubtful Debts of 2% of Trade Debtor balance as at 31 May

2011

REQUIRED:

Task A – Prepare the Trading and Profit and Loss Account of Drake Electronics for the year ended 31 May 2011

Task B – Prepare the Balance Sheet of Drake Electronics as at 31 May 2011

(Total 25 marks)

Note: The following proformas are provided for your use in completing the above tasks:

 Trading and Profit and Loss Account (see page 2 of your answer booklet)

Question Two

Listed below are definitions of some key accounting concepts:

1. This concept requires that financial statements are prepared on the basis that

transactions are shown in the final accounts for the period in which they occur.

2. This concept requires that the same policies and procedures are applied uniformly

from one accounting period to another.

3. This concept requires that a cautious approach be adopted in the treatment of

transactions when preparing the financial statements.

4. This concept requires that financial statements are prepared with the underlying

assumption that the business will continue to operate for the foreseeable future.

5. This concept accepts that whilst preparing financial statements the information

used is true and fair, there may be a point at which the effort of providing exact and detailed information is out of all proportion to the cost.

REQUIRED:

Task A – State the name of the accounting concept defined in each item 1 to 5 above

Task B – In the calculation of the Cost of Sales in the Trading Account the value of Closing Stock features as a deduction. State with which accounting concept this complies and explain why it is necessary to carry out the deduction in order to achieve compliance.

Note: The following proformas are provided for your use in completing the above tasks:

 A table for stating the name of the accounting concept defined in items 1 to

5 (see page 4 of your answer booklet)

SECTION B – You must answer any two questions from this section

Question Three

Haraf Interiors make and sell curtains to order. They have completed a year end stock valuation and agreed a closing stock valuation as at 31 May 2011 of £17,020. During the stock take the book-keeper came across six unusual items of stock which he did not know how to value and has not included them in the closing stock valuation of £17,020. You have been given the following list of unusual stock items:

List of unusual stock items Item

No. Quantity Cost Price Comments

1 3 £57 _each

Rolls of velvet material. The colours are not in fashion and the rolls have become dirty as they have been stored at the back of the store cupboard for some time. Cut into 12 lengths and offer for sale in the bargain bin at £17 per length. The cost of cutting will be £15 in total to cut all three rolls. 2 1 £122.50 A set of curtains made to order - the customer never collected the order and could not be traced.

Mark down to £100 to sell in the sale.

3 40 £2.50 _each

‘Instant Tiebacks’ - a new product supplied to Haraf Interiors by the manufacturer on a sale or return basis for a trial period of 3 months. Haraf Interiors have agreed to return any unused items.

4 4 £15.75 Rolls of curtain lining that were underneath a leaking tin of machine oil. All 4 rolls are damaged and beyond sale. Scrap all 4 rolls.

5 1 box of ₁₀₀ 29p _each A box of 100 ribbon lengths left by a Sales _{Representative as a free sample.}

6 20 £5.75 _each

Rolls of trimmings ordered, received and held physically in stock but no invoice has been received or entries made in the books in respect of this purchase.

REQUIRED:

Task A - Calculate a revised closing stock valuation using the schedule supplied in your answer booklet.

Task B - Prepare the Journal entry necessary to account for the revised closing stock figure as at 31 May 2011. Date your Journal entry 31 May 2011 and provide a suitable narrative.

Task C - Prepare the Journal entry necessary to account for the accrual of the cost of item 6 to the purchases account and trade creditors account. Date your Journal entry 31 May 2011 and provide a suitable narrative.

Task D - State the rule regarding the valuation of stock at Cost or Net Realisable Value.

Task E - Explain how to calculate Net Realisable Value.

(Total 30 marks)

Note: The following proformas are provided for your use in completing the above tasks:

 Schedule for the Calculation of a revised closing stock valuation (see page 6

of your answer booklet)

 Journal (see page 7 of your answer booklet)

 A lined area for answering Tasks D and E (see page 7 of your answer

Question Four

Chris Cox owns ‘Chill Out’ - a small business offering a range of outdoor leisure pursuits including Paintballing, Quad biking and Canyoning. During the year ended 31 May 2011 Chris purchased a 22 acre plot of woodland and incurred the following costs setting up a new base for his business:

2011 Details

1 January Took receipt of a bank loan £75,000

1 January Paid RG Holdings £49,750 for plot of land by cheque

20 January Paid architect £1,400 to draw up plans for development of plot by

cheque

15 February Paid £6,000 for groundwork on site by cheque

16 February Paid £2,050 for magazine adverts by cheque

16 February Paid £3,190 for annual Public Liability and Outdoor Leisure Activities

insurance by cheque

21 February Paid £18,850 to builders for construction of reception, office, store &

cafe building by cheque

25 February Paid £2,400 for stock for cafe by cheque

26 February Banked £1,950 for deposits on bookings

27 February Paid £890 for opening party supplies with cash

2 March Banked £1,840 in receipts from bookings and cafe takings

5 March Received £12,000 rural development grant

Chris has decided to depreciate Land and Buildings at 2% per year on a full year basis using the straight line method.

REQUIRED:

Task A – Complete the table in your answer booklet by ticking the appropriate box to categorize the items above between Capital Income, Capital Expenditure, Revenue Income and Revenue Expenditure.

Task B –

Task C –

Task D – Task E –

Complete the table in your answer booklet by stating whether Expenses, Profit, Fixed Assets and Capital would be overstated, understated or have no effect if revenue expenditure were treated as capital expenditure.

From the information provided above prepare a Land and Buildings (Cost) Account to account for the capital expenditure of the new venue. Balance off the account as at 31 May 2011 and bring forward the balance as at 1 June 2011.

Calculate the depreciation charge for the year ended 31 May 2011 of Land and Buildings (Cost).

Prepare the Journal entry necessary to account for the depreciation charge calculated in Task D above. Date your Journal 31 May 2011 and include a suitable narrative.

(Total 30 marks)

Note: The following proformas are provided for your use in completing the above tasks:

 Tables (see page 8 of your answer booklet)

 Ledger Account (see page 9 of your answer booklet)

 Space for calculating depreciation (see page 9 of your answer booklet)

Question Five

The Newtown Dance and Social Club has a large number of members who each pay a subscription to enjoy the clubs social facilities and weekly dances. As well as charging its members subscriptions the club raises income through its bar and by holding weekly raffles.

You have been given the following information:

Newtown Dance and Social Club Balance Sheet as at 31 May 2010

£ £ £

Fixed Assets:

Fixtures and Fittings 22,970

Current Assets:

Bar Stock 540

Premises Expenses Prepaid 260

Subscriptions in Arrears 130

Bank 2,570

3,500

Current Liabilities:

Subscriptions in Advance 330

Dance Expenses Accrued 240

Administration Expenses Accrued 170 Owed to suppliers for bar stock 350

1,090

2,410 25,380

Accumulated fund 25,380

Summary of the Receipts and Payments for the year ended 31 May 2011: £

Receipts Subscriptions 3,100

Bar Takings 4,210

Sale of Raffle Tickets 1,030

Payments: Suppliers of bar stock 1,920

Raffle prizes and expenses 340

Premises Expenses 720

Insurance Costs 1,430

Administration Expenses 610

Dance Expenses 790

Fixtures and Fittings 2,000

Additional information as at 31 May 2011:

£

Bank Balance (not overdrawn) 3,100

Bar Stock valuation 380

Subscriptions in Arrears 220

Subscriptions Prepaid 470

Owed to suppliers for bar stock 280

Administration Expenses Accrued 190

Insurance Costs Prepaid 70

Depreciate Fixtures and Fittings at 10% Reducing Balance method.

REQUIRED:

Task A – Prepare a Subscriptions Account for the year ended 31 May 2011.

Task B – Prepare a Bar Trading Account for the year ended 31 May 2011.

Task C – Prepare the Income and Expenditure Account for the year ended 31 May 2011.

(Total 30 marks) Note: The following proformas are provided for your use in completing the above tasks:

 Subscriptions Account (see page 10 of your answer booklet)

 Bar Trading Account (see page 10 of your answer booklet)

 Income and Expenditure Account (see page 11 of your answer booklet)