1
ADVANCED LEVEL ACCOUNTING – S.M.AULLYBUX & D.HARRISON
Answer key for multiple choice questions
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3 Chapter 1 Bad debts and Provision for doubtful debts
Question 3 Paula Aniston
ai) Pfdd at 31 Dec 2006 = 3 % x 160 000 = 4800 aii) Pfdd at 31 Dec 2007 = 3 % x (182 000 – 5000 – 2300 – 1700) + 1700 = 6890 c) Extract of IS Less Expenses Increase in Pfdd 2090 Bad debts 6 900
d) Extract of Balance sheet Current assets
Trade receivables 174 700 (182 000 – 5 000 – 2300)
Less Pfdd 6 890
(e) Provision for doubtful debts is an estimate of the amounts owed by credit customers who might be unable to pay their debt. The amount is not known with certainty. It is an application of the prudence concept in that profit is not overstated in the income statement, and trade receivables are not overstated in the balance sheet.
(f) Past experience looking at previous trade receivables and the proportion that turn into bad debts. Looking at the credit record of existing customers.
Specific knowledge of customers that are known to have financial problems.
State of the economy for example in a recession the proportion of bad debts may increase
Question 3 Klix
a) 16 800 × 1% = 168 12 600 × 2% = 252 (7 100 – 700) × 3% = 192 1 300 × 10% = 130742
(c) Balance Sheet (extract) at 31 December 2010 $
Trade receivables 37 100
Less provision for doubtful debts 742
36 358
d)
Revised Pfdd = 4 % x (16800 + 12600 + 7100 + 1300 – 700) = 1484
Hence Pfdd increases by $742 (1484 – 742)
e) Reduce profit for the year
Reduce trade receivables/current assets/balance sheet total
f) Prudence concept Current provision $742 is 2% of the trade receivables; Actual bad debts are $1500, this may suggest the provision is insufficient.
g) Past experience
Specific knowledge about a customer The state of the economy
Consistency concept Industry average Length of time
Size of trade receivables
4 Chapter 2: Accounting for non-current assets
Question 1 Alcom Ltd b(1) Dep: 2003 $130, 2004 $130, 2005 $310 b(2) Dep: 2003 $85, 2004 $130, 2005 $220 b(3) Dep: 2003 $130, 2004 $117 2005 $286 b(4) Dep: 2003 $85, 2004 $122, 2005 $200 Question 2 Mocota Ltd
a) Machinery a\c – Bal b\d $41 000; Megaton $11800; Disposal $12 000; Bal c\d $40 800
Provision for depreciation – Bal b\d $14 400; depreciation for the year $7 344; Bal c\d $15 264 b) Loss on disposal $1 520
Question 3 Lea Croft
a) Bal b\d $82 500; Bal c\d $92 500
b) Bal b\d $49 200 (19 600+ 17 600 + 12 000); Depreciation for the year $25 160 (3 960+7 200+14 000); Disposal $19 600; Bal c\d $54 760
c) Loss on disposal $4 200 Question 4 Berton Ltd
a) Rates of depreciation: Equipment 10 %; Vehicles 25 %
b) Loss on disposal of equipment $6000; Profit on disposal of vehicles $2500 c) Cost at 31 Oct 2010 – Equipment $1 070 000; Vehicles $690 000
Provision for depreciation at 31 Oct 2010 – Equipment $356 000; Vehicles $415 000 Question 5 Laser Ltd
Property A\c (using method 1 of revaluation)
Bal b\d 200 000 Disposal 80 000
R.Reserve 172 700 Prov for dep 22 700
Bal c\d 270 000
372 700 372 700
NBV of property 1 April 2008 164 000 (200 000 – 36 000) Less NBV of property disposed (66 700) (80 000 – 13 300) NBV of property being revalued 97 300
Calcualtion of revaluation gain: Revalued amount 270 000
NBV 97 300
R.Gain 172 700
Property A\c (using method 2 of revaluation)
Bal b\d 200 000 Disposal 80 000
R.Reserve 150 000 Bal c\d 270 000
350 000 350 000
Calculation of difference between cost of property and revalued amount = 270 000 – 120 000 = 150 000 Cost being less than revalued amount, property account should be debited.
5 Motor vehicle a\c
Bal b\d 40 000 Disposal 8000
Acquisition 10 000 Bal c\d 42 000
50 000 50 000
b)
Pfd (property) using method 1 of revaluation
Disposal 13 300 Bal b\d 36 000
Property 22 700 Income statement 5 400
Bal c\d 5 400
41 400 41 400
Depreciation for the year = 0.02 x 270 000 = 5 400
Pfd (property) using method 2 of revaluation
Disposal 13 300 Bal b\d 36 000
R.reserve 22 700 Income statement 5 400
Bal c\d 5 400
41 400 41 400
Pfd (M.vehicle)
Disposal 3 904 Bal b\d 24 000
Bal c\d 24 477 Income statement 4 381
28 381 28 381
Calculation of accumulated depreciation on M.vehicle disposed
May 2006 0.2 x 8000 = 1600 May 2007 0.2 x (8000 – 1600)= 1280 May 2008 0.2 x (8000 – 1600 – 1280) 1024 3904 NBV of vehicle at start = 40 000 – 24 000 = 16 000 NBV of vehicle disposed = 8 000 – 3904 = 4096
Depreciation of vehicle for the year = 0.2 x (16 000 – 4096 + 10 000) = 4381
Depreciation on Plant and Machinery = 0.15 x (250 000 + 120 000 – 69375) = 45 094 c)
Property Motor Vehicle Plant and Machinery
Cost 1 April 2008 200 000 40 000 250 000
Additions - 10 000 120 000
Disposal (80 000) (8 000) -
Revaluation 150 000 - -
Cost\Revalued amount at 31 March 2009 270 000 42 000 370 000 Total depreciation 1 April 2008 36 000 24 000 69 375
Depreciation for the year 5400 4381 45094
Disposals (13 300) (3904) -
Revaluation 22 700 - -
Total depreciation at 31 March 2009 5 400 24 477 114 469 Net book value 31 March 2009 264 600 17 523 255 531
6 Question 6 Poka
ai) Bal b\d $460 000; Acquisition $80 000; Disposal $60 000; Bal c\d $480 000
aii) Bal b\d $150 000; Income Statement $114 750;Disposal $33 750; Bal c\d $231 000 aiii) Loss on disposal $2250
b) Cost $480 000; Acc dep $231 000; NBV $249 000 Question 7
a) Rates of depreciation: Machinery 10 %; Vehicles 25 %
b) Loss on disposal of Machinery $40 000; Profit on disposal of vehicles (part exchanged) $20 000; loss on disposal of vehicles (accident) $60 000
c) Cost at 30 April 2010 – Machinery $5 200 000; Vehicles $3 080 000
Provision for depreciation at 30 April 2010 – Machinery $1 870 000; Vehicles $1 170 000 Question 8 CBL
ai) Motor vehicle A\c: Bal c\d $366 000 aii)
Prov for depreciation A\c
Disposal (AM 5) 3900 Bal b\d 105000
Disposal (DM 2) 3600 Income statement 73 200 Disposal (CT 18) 4800
Bal c\d 165 900
178 200 178 200
Calculation of accumulated depreciation of vehicle disposed AM 5 June 2007 = 0.2 x 6500 = 1300 June 2008 = 0.2 x 6500 = 1300 June 2009 = 0.2 x 6500 = 1300 Total 3 900 DM 2 June 2008 = 0.2 x 9000 = 1800 June 2009 = 0.2 x 9000 = 1800 Total 3 600 CT 18 June 2008 = 0.2 x 12000 = 2400 June 2009 = 0.2 x 12000 = 2400 Total 4800
Depreciation for the year ended 30 june 2010 = 0.2 x 366 000 aiii)
Disposal a\c
Vehicle: AM 5 6500 Prov for dep: AM 5 3900
DM 2 9000 DM 2 3600 CT 18 12000 CT 18 4800 Sales proceeds AM 5 1500 DM 2 1100 CT 18 8500 Incom statement 4100 27500 27500
b) Balance sheet extract Cost Acc dep NBV
7 Question 9 Tokyo Ltd
a) Plant and Machinery A\c
2004 $ 2004 $
Jan 1 Bal b\d 100 000 Mar 31 Disposal 2 500
July 1 Acquisition 1 200 July 1 Disposal 1 000
Oct 1 Transfer from inventory 9 000 Dec 31 Bal c\d 106 700
110 200 110 200
Cost of machine taken from inventory = 15 000 – 40 % x 15 000
NBV of Machinery disposed on 31 March is 2000. This had been bought on 1 Jan 2002 since those bought on 1 July 2003 was still held by the company at 31 Dec 2004. Hence this machine has been depreciated for 2 complete years
2000 = 80 % 100 % = 2500 b)
Provision for depreciation A\c
2004 $ 2004 $
Mar 31 Disposal 562.5 Jan 1 Bal b\d 17 000
July 1 Disposal 250 Dec 31 I.Statement 10 047.5
Dec 31 Bal c\d 26 235
27 047.5 27 047.5
Calculation of depreciation for the year
10 % x (100 000 – 2500 – 1000) = 9650
10 % x 2500 x 3\12 = 62.5 machine sold on 31 March 10 % x 1000 x 6\12 =50 machine sold on 1 July 10 % x 1200 x 6\12 =60 machine bought on 1 July
10 % x 9 000 x 3\12 =225 machine transferred from inventory on 1 Oct
Total = 10 047.5
Acc dep of machine sold on 31 March = (2500 -2000) + 62.5 = 562.5 Acc dep of machine sold on 1 July = 200 + 50 = 250
c)
Balance sheet extract
Cost Acc dep NBV
Plant and Machinery 106 700 26 235 80 465
Question 10 AB Ltd
Eratum: 4th line delete “A full year’s depreciation …….. of sale” and ignore information about vehicle a) Calculation of depreciation 31 Dec 2005 Machine 101 : Dep = 18 % x 20 000 x 10/12 = 3000 31 Dec 2006 Machine 101 : Dep = 18 % x 20 000 = 3600 Machine 102 : Dep = 18 % x 30 000 x 9/12 = 4050 7650 31 Dec 2007 Machine 101 : Dep = 18 % x 20 000 = 3600 Machine 102 : Dep = 18 % x 30 000 = 2250 Machine 102 : Dep = 18 % x 7200 x 4/12 = 432 6282
8 b)
Provision for depreciation A\c
2005 2005
31 dec Bal c\d 3000 Income statement 3000
2006 2006 Balc\d 10650 Bal b\d 3000 Income statement 7650 10650 10650 2007 Disposal (4050 + 2250) 6300 Bal b\d 10650
Bal c\d 10632 Income statement 6282
16 932 16 932
c) Loss on disposal $7400
Question 11 Tana Ltd
Schedule of Fixed Assets for year ended 31 December 2009
Land and buildings Machinery Office equipment
Cost at 1 Jan 680,000 320,000 210,000
Additions 18,000 20,000
Disposals (15,000)
Revaluations 120,000
Cost at 31 Dec 800,000 338,000 215,000
Total depreciation 1 Jan 72,000 160,000 85,000
Disposals (4,500)
Depreciation for the year 8,000 26,700 30,750 Total depreciation 31 Dec 80,000 186,700 111,250 Net book value 31 Dec 720,000 151,300 103,750 Dep on land and buildings = 2 % x 400 000 = 8000
Dep on Machinery = 15 % x (320 000 + 18 000 – 160 000) = 26 700 Dep on office equipment = (15 % x 210 000 – 15 000 – 10 000 + 20 000)
Note the equipment bought in 2000 has already been fully depreciated and therefore should not be depreciated in 2009
Question 12 Austen Ltd
Schedule of non-current assets at 30 April 2011 Property plant and equipment
Land and buildings Plant and machinery Fixtures and fittings Cost As at 1 May 2010 150 000 90 000 40 000 Additions at cost 35 000 24 000 Disposals (15 000) Revaluation 130 000 As at 30 April 2011 280 000 125 000 49 000
9 Depreciation
As at 1 May 2010 45 000 39 375 10 800
Charge for the year 5 600 17 125 4 900
Eliminated on disposal (4 500)
Eliminated on re valuation (45 000)
As at 30 April 2011 5 600 56 500 11 200
Net book value at 30 April 2011 274 400 68 500 37 800
Land and buildings depreciation charge: 280 000 x 2% = 5 600
Plant and machinery depreciation charge: 50 625 + 35 000 = 85 625 x 20% = 17 125 Fixtures and fittings depreciation charge: 40 000 – 15 000 + 24 000 x 10% = 4 900 Fixtures and fittings eliminated depreciation: 15 000 x 10% x 3 = 4 500
Chapter 3: Correction of Errors Question 1: Samir Khan
Eratum Adj 5 change Ismail to Samir a) Total trial balance $146 700 and balance suspense $1100. b) 1. Dr suspense $2000, Cr sales $2000 2. Dr Drawings $400, Cr suspense $400 3. Dr Cash $500, Cr Suspense $500 4. Dr Machinery $5000, Cr Purchases $5000 5. Dr Drawings $1000, Cr Purchases $1000 c) Revenue $127000 Purchases $70000 Machinery $14000 Drawings $9400
All other figures unchanged Question2: Malcom Dsouza
a) 1. Dr Stationery $50, Cr suspense $50 2. Dr Suspense $1000, Cr Sales $1000 3. Dr Abdullah $240, Cr Abdul $240
4. Dr Suspense $28, Cr Discount allowed $14, Cr Discount received $14 5. Dr Joe Jones $190, Cr Suspense $190
B) Corrected profit $16178(+1000 + 14 +14 – 50) Question 3: Gavin
Corrected profit $4 900 (7300 + 6000 -2300+ 1000- 800 + 600 – 1700 + 1900 + 300 -4800 -1200 -1400) Question 4: Tinbin
Eratum Adj 6 change Kathleen to Tinbin
a) 1. Dr suspense $192, Cr other payables $192 2. Dr wages $40, Cr suspense $40
3. Dr shelving $320, Cr purchases $320 4. Dr suspense $160, Cr sales $160 5. Dr suspenses $18, Cr Telephone $18
6. Dr suspense $20, Cr discount allowed $10, Cr discount received $10 b) Bal b\d credit side $350
10 Question 5: Watson $348 000 loss (+35 000 + 60 000 – 10 000 – 96000 – 14 000 – 120 000 – 47 000 + 25 000 + 21 000 + 14500 + 14 500 - 81 000) Question 6: Patsun a) 1. Dr sales $300, Cr suspense $300 2. Dr wages $450, Cr suspense $450
3. Dr Income Statement (depreciation) $6000, Cr provision for depreciation $6000 4. Dr suspense $3666, Cr Bank $3666 5. Dr suspense $200, Cr Smith $200 6. Dr suspense $80, Cr James $80 7. Dr Suspense $40, Cr David $40 b) Corrected profit $12470( - 300 – 450 – 6000) Question 7: Shellix a) 1. Dr suspense $1000, Cr sales $1000 2. Dr Plant $240, Cr Expenses $240
3. Dr Discount received $150, Cr Cathy $150 4. Dr other receivables $240, Cr insurance $240. 5. Dr suspense $500, Cr purchases $500
6. Dr Return outwards $230, Dr Return inwards $230, Cr suspense $460 b) Corrected profit $19870 (18 500 + 1000 + 240 + 240 + 500 – 230 – 230 – 150) Question 8: T Jackman
a) Suspense account: Dr side: Janet $30,Skyrays $66 and Bimbo $540
Cr side: Bal b\d $391, Equipment $60 and Bank charges $185 b) Corrected profit $15315
Question 9: Clara
a) 1. Dr Cash\Bank $700, Cr suspense $700 2. Dr Pfdd $700, Income statement $700
3. Dr supplier (trade payables) $420, Cr suspense $420 4. Dr suspense $4500, Cr sales $4500
5. Dr equipment $2250, Cr maintenance exp $2250 6. Dr suspense $80, Cr trade payables $80
7. Dr repairs $350, Cr other payables $350
8. Dr Green (trade receivables) $1000, Cr suspense $1000 b) Corrected profit $27800
c) Total NBV of NCA $141250 (NBV of Equipment $23 250)
Total CA $48 910 or $48 210 (trade receivables $24 900; Pfdd $2900) Total CL $31 960 or $31 260 (trade payables $9460; Other payables $350) Question 10: Alex
a) 1. Dr Interest (profit) $1200; Cr Other payables $1200 2. Dr sales (profit) $2500; Cr Trade receivables $2500 3. Dr Drawings $450; Cr Maintenance (profit) $450 4. Dr Machinery $3500; Cr Wages (profit) $3500
Dr Depreciation (profit) $700; Cr Provision for depreciation $700 5.Dr Bank $420; Cr Trade receivables $420
Dr Bad debts (profit) $280; Cr Trade receivables $280 6. Dr Disposal $7500; Cr Vehicle $7500
Dr Provision for depreciation $4500; Cr Disposal $4500 Dr Bank $3000; Cr Disposal $3000
11 Question 11: Lucyna
Suspense A\c: Dr Side - Bank $200; Purchases $90; Trade payables $67 Cr Side – Bal B\d $330; Rooney $27
b) Trial balance: Trade receivables $10 337; Trade payables $3527; Purchases $94 05; F& Fittings $4470 Question 12: Jack Sparrow
a)
1. Dr Suspense $81 000; Cr Sales $81 000 2. Dr Drawings $11 000; Cr Suspense $11 000 3. Dr Sales $15 500; Cr Suspense $15 500
4. Dr Willis $7 800; Dr Walls $7 800; Cr Suspense $15 600 5. Dr Return inwards $10 500; Cr Return Outwards $10 500 6. Dr Suspense $4 000; Cr Valentine $4 000
b) Corrected Profit $106 500 (+81 000 – 15 500 – 10 500 + 10 500) c) Trade receivables $21 000; Trade Payables $18 900; Drawings $56 000
Chapter 4: Control Account Question 1 Spam a) Bal c\d: SLC (normal) $9820 PLC (normal) $3270 Question 2 Popo Ltd a) Bal c\d: SLC $12390 PLC $4140 Question 3 Ryan Bond
a) Bal c\d: SLC $1456 PLC $2005 Question 4 Sunny
a) Bal c\d $19540 Dr side Bal b\d $19 900; sales undercast $200; interest $40 Cr side B.debts $260; Set off $340
b) $19 540 (Add $40;Less $140;Less $60;Add $1600) Question 5 Brenda
a) Bal c\d $22550
b) $22 550 (Less $60;Add $1150;Add $150) Question 6 Dream Beds
a) Bal c\d $58730 Dr side Bal b\d $63 530; Interest $30 – Cr side B.debts $850; Set off $1980; Sales $400; R.Inwards $1600
b) $58 730 (Add $180;Less $240;Less $1980;Add $30;Less $400) Question 7
a) Dr side- Bal b\d $26 153; D.cheque $2000; Sales undercast $1800; Bal c\d $250 (minority) Cr side - Bal b\d $150; B.debts $1250; Set off $420; R.inwards $800
12 Question 8 Electra
Eratum change year 1999 (2 places) and 1997 to 2000 a) $157 000
b) Balance adjusted control a\c $153 300 (dr side $157 000; Cr side $1000,$700, $2000) Adjusted ledger balance $153 300 (156 125 – 1000 – 425 – 2000 + 600)
Question 9 Jackson
a) Bal c\d Sales ledger control $54409; Bal c\d purchases ledger control $40653
b) Bal c\d Adjusted Sales ledger control $54052; Bal c\d Adjusted purchases ledger control $40831
c) Statement adjusting sales ledger balance – original sales ledger bal $54204 (Add $27; Less $54;Less $125) Statement adjusting purchases ledger balance – original purchases ledger bal $39997 (Add $244; Add $590) Question 10 Lio Limited
a) Bal c\d $43 400
b) Bal c\d $41 000 [Dr 43 400; Cr 700; Cr 1700] c) $41 000 (-900-1700)
Question 11 Jean
a) Bal c\d adjusted PLC $19800
b) Add $850; Less $40; Add $90; Less $60 Question 12 Janet
a) Bal c\d $17500 (Dr side interest $30,credit sale $10) (Credit side B.debts $200, Set off $310, R.inwards $90) b) $17 500 (Add $750; Less $60; Less $90; Less $140)
Question 13 Supreme Ltd
Original SLC balance c\d $169 400; Original PLC balance c\d $143 200 Adjusted SLC bal c\d $183 300 [dr side $400, $6500, $7000]
Statement adjusting ledger balances $183 300 [ +3400+7000-2250] Question 14: Harvey Rabbit
a) SLC Bal c\d $24 969 bi) Adjusted SLC $28 595
bii) Less $840; Add $998; Add $2102; Less $896; Less $630; Add $816; Add 200 Question 15
a) Bal c\d $16126 (Dr side bal b\d $16 351;bal c\d $3049 [2699+350]) [Cr side bal b\d $2699; sales overcast $300; Reecipts $275]
b) $16 126 [Add $894; Less $514;Less $275] Question 16 Bamma Ltd
SLC bal c\d $92 660; PLC bal c\d $68 875
Chapter 5: Incomplete Records Question 1: Mike Thomson
a) Sales $226 450; Purchases $162 420
b) Cost of sales $153 770; Gross profit $72 680; Total expenses $55 215; Profit for the year $17 465
c) Total NBV of NCA $30 765; Total CA $68 850; Total CL $30 670; Total NCL $10 000; Capital $47 280 (13500 + 9600 +21 000 +32900 +180 -17 700 – 12200)
13 Question 2: Paul Lander
a) Revenue $87 700; Cost of sales $32 400; Gross profit $55 300; Total expenses $38 620; Profit for the year $18 180 Total NBV of NCA $6800; Total CA $28 000; Total CL $6920; Total NCL $8 000; Capital $16 700
(3000+8000+6000+3500-500+1000-4300) Question 3: Salman
b) Revenue $63 680; Purchases $41 085; Cost of sales $39 800; Gross profit $23 880;Drawing of goods $755; Cash stolen $2190; Total expenses $20 220; Profit for the year $3 660
c) Total NBV of NCA $17 505; Total CA $9 550; Total CL $4560; Capital $26 290;Drawings $7455 Question 4: Tan Boon
Receipts from customers Payment to suppliers
Drawings Cost of sales
Gross Profit Total expenses Profit for the Year
593 000 515 000 19 000(B.F) 458 500 196 500 131 000 65 500
Total NBV of Non-Current Assets Total Current Assets Total Current Liabilities
Capital at start
45 000 183 000
26 500 155 000
Question 5: Melina Jackson Question 6: Jessica Brooks Question 7: Patricia Large Credit Sales Cash Sales Total Sales Total Purchases Gross Profit Cost of Sales Goods stolen Total Expenses Profit 49 070 12 930 62 000 40 650 12 400 49 600 7 350 12 170 230
Total NBV of Non-Current assets Bank Balance
Total Current Assets Total Current Liabilities Capital at Start Drawings Capital Introduced 4 700 11 730 12 500 2 950 22 510 10 300 1 810
Question 8: John Brown
a) Revenue $90 000 (25 000 + 65 000); Purchases $34 700;Cost of sales $34 700; Gross profit $55 300; Total expenses $38 600; Profit for the year $17 400
Total NBV of NCA $8000; Total CA $47200; Total CL $23900; Capital $27100; Drawings $21 200 Question 9: Jack Bowman
Eratum Adj 2 change Jane Newbury to Jack Bowman
a) Revenue $140 400; Purchases $109 400; Cost of sales $108 000; Gross profit $32 400;Total expenses $18 360; Profit $14 040
14 Question 10: Shaista Total Purchases 49 500 Total Sales 62 850 Cost of Sales 52 750 Gross profit 10 100 (5/105 x 2100 + 7.5/107.5 x 1290 + 20/120 x 59 460) Goods Stolen 250
Question 11: Wong Li Keng
Closing inventory $19400; Cost of sales $294300; Gross profit $196 200; Pfdd $1845; Dep f& Fittings $5300; Dep vehicles $3072; Interest on loan $1900; total exp $193367; Profit $2833.
NBV of F&F $35 700; NBV of vehicles $12 288; Rent prepaid $11 250; Total CA $90305; Interset owing $1100; Total CL $40850; Total NCL $44 000; Capital at start $80 610.
Question 12 P.Line
Revenue $178 200; Purchases $156 600; Cost of sales $148 500; Gross profit $29 700; Total expense $28 100; Profit for the year $1 600.
Total NBV of NCA $32 500; Total CA $45 500; Total CL $15 700; Total NCL $10 000; Capital $58 300 Question 13 Ray Damson
a) $155 000 ( 170 000 – 10 000 + 49 000 – 17 000 +45 600 + 38 500 – 72 200 – 1400 – 47 500) b) Balance at 30 September 2011 $50800 overdraft
Dr (17 000; 173 500)
Cr (47 500; 16 200; 12 500; 165 100;
c) Goods damaged in fire $24 400; Cost of sales $147 200; Gross profit $36 800; Total expenses $62 000 (15 900 + 24 400 + 1700 + 500 + 20 000); Loss for the year $25 200
Total NBV of NCA $170 300 (158 300 + 11 500); Total CA $49 000(17000 + 32 000); Total CL $102 000 (50 100 + 1100+ 50 800)
Question 14 Phillip Bust
Cash Account
Bal b\d 330 Trade payables 52180
Capital 14000 Expenses 7215
Receipts 67900 Drawings 6250
M.Van 5800
Wages 5330
Loan 3500
Additional drawings 1490 (balancing figure)
Bal c\d 465
82230 82230
Revenue $68160; Purchases $52720; Cost of sales $51120; Gross profit $17040; Total expense $13910; Profit for the year $3130.
Total NBV of NCA $6300; Total CA $11330; Total CL $3890; Capital $4350; Additional capital introduced $14000; Drawings $7740
Question 15 A Lee Quinn ai) $15 610
aii) $140 500 aiii) $126690
15 b) G.Profit $99 000; Total expenditure $47 790; Profit for the year $54 020
c) NCA $96 400 (70 000 + 12 000 + 14 400); CA $103 218 (19 500 +12 000 + 71 718 – bank is b.Figure); CL $11 000; Capital at start $150 000; Drawings $15 402
Question 16 John White
Revenue $320 000; Purchases $220 000; Closing inventory $28 000 (B.Figure); Cost of sales $192 000; G.P $128 000; Total expenses $100 500; Profit for the year $27 500
Total NCA $12 000; Trade receivables $89 100; Other receivables (F.overhead prepaid) $6260; Trade payables $50 000; Variable overheads owing $6 700; Overdraft $15 660; drawings $4500 Fixed overhead prepaid = 5760 + 15 700 + 3600 – 18800 = 6260
Variable overhead owing = (0.24 x 320 000) – 22700 – 26300 – 21100 = 6700
Trade receivables = 320 000 – 29000 – 25000 – 67000 – 40000 – 54000 – 15000 – 900 = 89100 Question 17 Jimmy Chang
a) Bank balance $12400
b) Revenue $51 000; Purchases $32 800; Cost of sales $29 000; Gross profit $20900; Total expenses $19300; Profit for the year $2500
Total NCA $10 000; Total CA $27500; Total CL $23000; Capital at start $22100 Question 18 Sherlock Moriarty
a) Revenue $471 570 ; Purchases $315 120; Cost of sales $314 380; Gross profit $157 190;Total expenses $103 505; Profit for the year $63 185
Total NBV of NCA $120 250; Total current assets $104 400; Total CL $35 700; Capital at start $140 000 Question 19 Ousman Sagna
Revenue $301 800 (Cash sales $100 255; credit sales $201 545); Purchases $222 600; Cost of sales $225 300; Gross profit $75 100; Total expenses $49 030; Profit for the year $26 070
Total NBV of NCA $103 100; Total CA $52 950; Total CL $18 480 Question 20 Marcel
ai) Credit purchases $95 600 aii) Credit sales $128 900
b) $9 700 (33 000+95600-29700-8600[10750 x 100\125] -60000 [2\3 x 128900-9200-29700]-20600) Chapter 6: Non-Profit Organisation
Question 1: Texas Billard Club Purchases
Cost of sales Café Profit
Income: Subscription Ordinary Total Income Total expenditure Surplus 44 700 43 700 27 120 30 800 63690 50 320 13 370 Total NBV of Non-Current assets = $145 400
16 Total Current Assets =$135 350
Total Current Liabilities =$11 250 Accumulated fund at start =$246 630 Question 2 : Malaga Sports club
a) Total income $ 5734 (4314 + 120 + 1300); Total expenditure $5662; Surplus $72
Total NCA $14800 (12000 + 2800); Total CA $1549 (110 + 1439); Total CL $308 (168 + 100 + 40); Acc Fund $15 489; Life subscription $480
Question 3: Schubert Music Club
a) Subscription Account
Balance b/d 400 balance b/d 300
Income and expenditure 2800 Receipts 2500
Write Off 100 Balance c/d 300 b) Purchases 7600 Cost of Sales 9600 Café Profit 850 c) Life Subscription 350 Total Income 4000 Total expenditure 11600 Deficit 7600
Question 4: Adsburry sports and social club Purchases Cost of Sales Bar Profit Subscription Ordinary Total Income Total expenditure Surplus 23 300 25 100 16 600 23 950 42 300 19 625 22 675
Total NBV of Non Current Assets Cash and Cash equivalent Total Current Assets Total Current liabilities Accumulated Fund at Start
47 275 31 200 37 750 5 350 51 000
Question 5 Disney Sports club
a) Total income $2986 (1875 + 631 + 100 + 60 + 320); Total expenditure $2520 (140 + 230 + 800 + 215 + 185 + 500 + 450); Surplus 466
b) Total NCA $31 750 (24 500 + 7250); Total CA $5739 (75 + 110 + 5554); Total CL $195; Acc Fund $36 828 Question 6 Racket Sport Club
Eratum Restaurant supplies should be on credit side in Receipt and payment a|c a) Acc Fund $14505
b) Purchases $36050; Cost of sales $34920; Restaurant profit $16730
c) Total income $34080 (17350 + 16730); Total expenditure $34165 (15600 + 4320 + 3825 + 3320 + 2800+ 3000 + 1300); Deficit $85
Total NCA $73750 (63700 + 10050); Total CA $9030 (7520 + 650 + 860); Total CL $8360 (4785 + 125 + 450 + 3000); NCL $60 000.
Question 7 Picasso Art Club
a) Profit on art material $1530
b) Subscription written off $25; Subscription in income and expenditure $1410; Total income $3550; Total expenditure $3310; Surplus $240
17 Question 8 Seletar social club
a) Inventory loss $1 920; Cost of sales $19 180; Bar profit $300 b) Total income $21 600; Total expense $19 760; Surplus $1 840
Total NBV of NCA $88 000; Total CA $22 280; Total CL $860; Acc Fund $107 580 Question 9 : Orchard Social club
a) Bar profit $5200
b) Total income $20 310 (5200 + 13480 + 420 + 1210); Total expenditure $14 160 (7950 + 1720 + 4490); Surplus $6150
Total CA $13 980 (1850+620+6400+4600+30+480); Total CL $2280 (1150+310+820); Acc Fund $3550; Legacy $2000 Question 10 Avenal Social club
a) Inventory stolen $3550; Cost of sales $36 450; Bar profit $12 150
b) Subscription $32 600; Disco profit $6 900; Total expenditure $43 900; Surplus $7750 Total NBV of NCA $120 200; Total CA $37 400; Total CL $2350; Acc Fund $147 500 Question 11 : Vacoas Tennis club
ai)
Receipt and payment A\c
Bal b\d 1200 Purchases 1850
Subscription 4000 Sundry expenses 1170
Sales 3500 Electricity 257
Donation 50 Maintenance and wages 4500
Sale of tickets for annual dance 2640 Dinner dance expense 1900
Equipment 600
Bal c\d 1113
aii) Cost of sales $2000; Refreshment profit $1500
aiii) Total income $6410; total expenditure $6660; Deficit $250 Question 12 : Carlos Snooker Club
a) Bar sales $18 000; Cost of sales $14 400; Bar profit $3600 b)Bal $3750 Dr
c) Subscription transferred to income and expenditure A\c $16 800 d) surplus $3776
e) $100 846 (97 070 + 3776) Question 13: Top Hat Sports club
a) Annual Subscription $39 750; Life Subscription $240; Café loss $3560; Depn $3000; Total exp $42 930; Deficit $2940
b) Non-current assets $19 500; C.Assets $5330 (800 + 750 +3780) C.Liabilities $1820 (760 + 910 +3780); Acc Fund $21 390; Lifemembership $4560
Not-for-profit organisation Public limited company
Has balance sheet Has statement of financial position Shows accumulated fund Shows share capital and reserves Has income and expenditure account Has income statement
Shows surplus or deficit Shows profit or loss
Limited access to financial statements General access to financial statements Has receipts and payments account Has statement of cash flow
18 Chapter 7: Inventory Valuation-IAS 2
Question 1: Janet
i) FIFO: Perpetual $2 670 Periodic $2 670 ii) AVCO: Perpetual $2 531 Periodic $2 473 Question 2: Jenifer
i) FIFO: Perpetual $8 280 Periodic $ 8 280 ii) AVCO: Perpetual $7 715
Periodic $7 538 Question 3: Mike
i) FIFO: Perpetual $1 932 Periodic $1 932 ii) AVCO: Perpetual $1 909 Periodic $1 896 Question 4: Margaret
i) FIFO: Perpetual $1 880 Periodic $1 880 ii) AVCO: Perpetual $1 862 Periodic $1 822
iii) Revenue $11 770
Cost of sales $5 575 Gross Profit $6 195 Profit for the year $1 445 Question 5 Rosedale
a) Closing inventory FIFO $5100; Gross profit $21 080; Trade receivables $59 380; Trade payables $43 400; Alternatively instead of Trade receivables and Trade payables can put Cash $15 980
b) Closing inventory AVCO $4760 Question 6 Alan Balwin ai) $172.5 (75 x $2.3) aii) $163.5 (75 x $2.18) aiii $162.35 (75 x $2.165) Question 7: Pear Ltd
FIFO periodic $112 859; AVCO perpetual $108 997 Question 8 Monica Celest
$197 790 (234 500 – 84 000 + 48 500 – 4 050 + 3470 – 7600 – 600 + 5000 + 2570 ) Question 9 Genelia
Eratum change Krishna to Genelia
19 Question 10: Mustapha Deoff
Inventory= $22 596 (24 500 + 6744 -7950 +80 -88 +200 -400 -240 -250) Question 11 Alan Smith
$156 320 (162 500 + 144 000 – 150 000 – 6160 + 8500 – 4600 – 5600 + 7680) Question 12: Harold Green
Inventory= $16 743 (43 400 – 2100 – 10000 -2000 +280 000 -4200 -290 000 + 2143 – 500) Question 13 Dolly Ltd
Eratum Adj 8 change 4 to 3,Thomas Strong to Dick Paulsen and Square Deals to Dolly a) $38 790 (17 800 + 165 000 – 8500 – 118300 +2340 – 10000 – 3700 – 5850)
b) Selling price of goods sold by Dick = $9 000 (5850 ÷ 65 x 100) Commission = 10 % x 9 000 = $900
Question 14 Joy Locke
a) Engine 7.00 + 0.80 + 10/2 = 12.80 Carriage 5.00 + 0.50 + 10/5 = 7.50 Track 2.00 + 0.25 + 10/10 = 3.25 b)
Plain engines Painted engines Units of Inventory on 31 Jan 12 (balancing figure) 39 (Balancing figure)
Received from toymaker 20 -
Plain engines taken for painting (18) 18
Sales of painted engines - (21)
Engines sent on sale or return basis - (10)
Units of inventory at 4 Feb 14 26
Value of inventory : Plain engines 84 (12 x 7) Good painted engines 486.4 (38 x $12.8) Faulty painted engine 4 (1 x $4)
Total value 574.4
Question 15 Bettina
Eratum Inventory figure missing on 7 April 2011, it should be $10 500 $17 130 (10 500 + 780 – 9400 + 2500 + 5400 + 7350)
Chapter 8: Departmental Accounts Question 1-(Bridge Ltd)
a)
Rent and Rates Heat and Light
Insurance of inventory Depreciation- Fittings
General Administration- Salaries
Wood 5460 1080 500 4800 5600 Metal 3640 720 750 2800 8200
20 b)
Cost of Sales Gross Profit
Total expenditure excluding bonus Bonus
Profit for the year
Wood 106 000 64 000 40 090 1 139 22 771 Metal 161 000 82 000 44 110 1 804 36 086
c) Total NBV of Non-Current Assets=$223 400; Total Current Assets=$79 800; Total Current liabilities=$24 543 Question 2–( Dellow and Coucom)
Cost of Sales Gross Profit Total Expenditure Profit/ Loss Television 111 000 103 000 117 065 (14 065) loss Computing 199 000 229 000 175 280 53 720 Telephones 38 000 69 000 46 145 22 855 Question 3 Krabtree a)
Revenue\Income from repairs Cost of Sales
Gross Profit Total expenses Profit for the year
Spares 116 450 27 930 88 520 67 300 21 220 Electical 98 700 - - 83 950 14 750
Chapter 9: Manufacturing Account Question 1: Gary Nevin
Cost of Raw Materials Prime Cost
Total Overheads Factory Profit
Cost of Production at Transfer Value Cost of Sales
Gross Profit
Increase in Provision for Unrealized profit Total Expenses
Profit for the year
36 000 67 000 28 000 23 000 115 000 111 550 80 450 690 52 880 49 880
Total NBV of Non-Current Assets Total Current Assets
Total Current Liabilities
23 000 71 880 8 500
Question 2: Carlton Plc Cost of Raw Materials Prime Cost
Total Overheads Factory Profit
Cost of Production at Transfer Value Net Revenue
Cost of Sales Gross Profit
Decrease in Provision for Unrealised \profit
105 000 245 000 59 000 101 000 404 000 555 000 422 180 132 820 4 545
21 Total expenses
Profit for the year
12 290 226 075
Question 3: Janice Brook Cost of Raw Materials Prime cost
Total overheads Factory profit
Cost of production at Transfer Value Cost of sales
Gross Profit
Provision for Unrealised Profit Total Expenses
Profit for the year
36 000 75 000 40 550 20 650 123 900 111 900 58 100 2 000 68 350 8 400
Total NBV of Non-Current Assets Total current assets
Total current liabilities Net assets 81 500 55 100 12 200 124 400 Question 4: Pakenham Ltd
a) Opening Inventory of Finished Goods at Transfer Value 34 500 Closing Inventory of Finished Goods at Transfer Value 36 800
Cost of Sales 480 700
Gross Profit 121 300
Total Expenses 87 000
Profit for the year 97 000
b) Value of Inventory : Raw Materials 18 000 Finished Goods 32 000 Question 5 Luke and Bryan
Cost of Raw Materials Prime Cost
Factory Profit
Cost of Production at Transfer Value Cost of Sales
Gross Profit
Increase in Provision for Unrealised profit Total expenses
Profit for the year
Share of residual profit: Luke Bryan 126 000 207 000 29 200 321 200 313 170 106 830 730 75 170 60 130 23 478 15 652 c) Balance current account: Luke $22 652 Cr
Bryan $44 978 Cr
Question 6 Excel Ltd
Eratum change variable factory overheads to $14 700 and Inventory of finished goods to $4 000 (cost price)
Prime cost 32 000
Factory Indirect cost
Factory overheads: Fixed 19 100 Variable 14 700
Depreciation P& machinery 6 200 40 000
Cost of production at cost 72 000
22 COP at transfer value (90 x 1000) 90 000
Income statement
Revenue 138 000
Less cost of sales
Opening inventory at transfer value 4 000 + (18 000 ÷72 000 x 4 000) 5 000
COP at transfer value 90 000
Less closing inventory (5 + 90 – 92) x $1000 (3 000)
Cost of sales 92 000
G.Profit 46 000
Factory profit 18 000
Add decrease in PFUP (1 000 – 600) 400 18 400
64 400 Less expenses
Admin exp (18 700 – 2300) 16 400
S & Distribution cost 26 300 42 700
Profit for the year 21 700
c) NCA $53 400 (43 400 + 10 000)
CA $18 800 (2400 + 2100 +7500 + 2300 +4500) CL $3100
O.Shares $45 000 (40 000 + 5000) Share premium nil (4 000 – 4000) G.Reserve $11 000 (7000 – 1000 + 5000) R.Profit $13 100 (4400 + 21700 – 5000 – 8000) Note bonus issue = $5 000
Question 7 Merton Ltd
a) Cost of raw materials $148 100; Prime cost $253 500; Total overheads $75 500; Factory profit $27 000; COP at transfer value $345 000
b) Increase in Pfup $740
c) Cost of sales $338 100; Gross profit $86 900; Total expenses $67 000; Profit $46 160 Total NBV of NCA $413 500; Total CA $137 760; Total CL $143 900; Retained profit $107 360 Question 8 Nutt and Bolt
a) Cost of raw materials $223 000; Prime cost $633 000; Total overheads $134 000; cost of completed production at cost $756 000; Factory profit $151 200.
b) Cost of sales $832 800; Gross profit $117 200; Total expenses $57 800; Profit $198 200; Share of profit Nutt $ 63 600 Bolt $63 600.
Current account balance Nutt $65 600, Bolt $44 600
Total NBV of NCA $266 000; Total CA $388 000; Total CL $93 800 Question 9 David
Eratum change amount of direct labour to $28 200 and Trade receivable to $41 600 Manufacturing A\c
Raw Materials
Opening inventory 2800
Purchases 16 400
Less closing inventory -
23 Other direct costs
Direct labour 28 200
Prime costs 47 400
Indirect costs
Factory overheads: Variable 9600
Fixed 43 000 52 600
Cost of production at cost 100 000
Factory profit 20 000
COP at transfer value (800 x $150) 120 000
Income statement
Revenue 155 800
Less cost of sales
Opening inventory at transfer value (110 x $150) 16 500
COP at transfer value 120 000
Less closing inventory (90 x $150) (13 500)
Cost of sales (123 000)
G.Profit 32 800
Factory profit 20 000
Add decrease in PFUP (2750 - 2250) 500 20 500
53 300 Less expenses
Admin and selling exp (18 700 – 2300) 28 500
Profit for the year 24 800
NCA $25 000 (16 000 + 9000) CA $93 950 (11 250 + 41 600 +41 100) CL $18 100 Question 10 Macheda Manufacturing A\c Raw Materials Opening inventory 28 000 Purchases 50 000
Less closing inventory 32 000
Cost of raw material consumed 46 000
Other direct costs
Direct labour (50 000 + 2000) 52 000
Direct expense 12 000 64 000
Prime costs 110 000
Indirect costs
Factory overheads: Variable 18 000
Fixed 22 000
Depreciation of property (0.02 x 200 000 x ¾) 3000
Depreciation of P & M 0.25 x (100 000 – 36 000) 16 000 59 000 169 000
Add opening work in progress 72 000
Less closing work in progress 80 000
Cost of production at cost 161 000
Factory profit (balancing figure) 48300
COP at transfer value (800 x $150) 209 300
b) PFUP A\c
Bal b\d 7500
Bal cd 12 000 I.Statement 4500
24 Pfup at start = 48 300 ÷161 000 x 25 000 = 7500
Pfup at end = 48 300 ÷161 000 x 40 000 = 12000
Note: The opening balance of pfup does not appear in the trial balance this means that opening inventory of finished goods in the trial balance is at cost price. When pfup appears in the trial balance then inventory of finished goods must be at transfer price for the trial balance to agree.
Income statement
Revenue 300 000
Less cost of sales
Opening inventory at transfer value (25 000 + 7500) 32 500
COP at transfer value 209 300
Less closing inventory (40 000 + 12 000) (52 000)
Cost of sales (189 800)
G.Profit 110 200
Factory profit 48 300
Less increase in PFUP (12 000 - 7500) 4 500 43 800
154 000 Less expenses
Marketing exp (20 000 – 1000) 19 000
Admin overheads 34 000
Dep property (0.02 x20 000 x 1\4) 1 000
Dep office machinery (0.1 x 36 000) 3 600 57 600
Profit for the year 96 400
Question 11 Stam
Manufacturing A\c Raw Materials
Opening inventory 26 740
Purchases 278 630
Less closing inventory 24 390
Cost of raw material consumed 280 980
Other direct costs
Direct wages 372 560
Royalties 6 500 379 060
Prime costs 660 040
Indirect costs
Indirect wages 74 280
Heat and light 2\3 x (26 650 + 800) 18 300
General factory expenses 47 080
Insurance 2\3 x (15 010 – 760) 9 500
Depreciation of P & M 0.1 x 210 000 21 000 170 160 830 200
Add opening work in progress 23 170
Less closing work in progress 24 640
Cost of production at cost 828 730
Factory profit (0.2 x 828 730) 165 746
COP at transfer value (800 x $150) 994 476
PFUP A\c
Bal b\d 6 240
Bal cd 7 344 I.Statement 1 104
7 344 7 344
Note : the opening inventory of finished goods is at transfer price. Used the rate of factory profit to check. 20 /120 x 37 440 = 6 240 (if you take 20 % of 37 440 you don’t get 6 240)
25 The closing inventory can be either cost or transfer value, I have taken it as cost.
Pfup at end 20 % x 36 720 = 7344
Income statement
Revenue 1 163 750
Less cost of sales
Opening inventory at transfer value 37 440
COP at transfer value 994 476
Less closing inventory (36 720 + 7 344) (44 064)
Cost of sales (987 852)
G.Profit 175 898
Factory profit 165 746
Less increase in PFUP (7 344 – 6 240) 1104 164 642
340 540 Less expenses
Heat and light 9 150
Insurance 4 750
General office exp 36 740 50 640
Profit for the year 289 900
Question 12 Helen Tong
(a) Manufacturing account for the year ended 31 December 2007 $
Purchases of raw materials 230 400
Direct wages 359 500
Manufacturing royalties 17 100
Prime cost 607 000
Factory overheads 215 000
Total production cost 822 000 Manufacturing profit 304 140
Transfer price 1 126 140
Income statement for the year ended 31 December 2007(1)
$ $
Revenue 1 750 000
Inventory of finished goods (12 300 × 129%) 15 867
Transfer price 1 126 140
Inventory 18 769
Cost of sales 1 123 238
Gross profit 626 762
(b) Provision for unrealised profit
$ $
Balance b/d 3567 W1
Balance c/d 5069 Income statement 1502
5069 5069
Balance b/d 5069 W2
W1 15867 – 12 300(1) = 3567
W2 30 4140 ÷ 822 000 × 100 = 37% 37 ÷ 137 × 18769 = 5069
(c) W1 1 126 140 ÷ 4000 = $281.535 (transfer price per unit ie selling price of the factory) W2 (607 000 + 43 000) ÷ 4000 = $162.50 (variable cost per unit)
26 Fixed costs = 80 % x 215 000 = 172 000
Break even = $172 000 ÷ $119.035 = 1445 units Margin of safety = 4000 – 1445 = 2555 units
(d) 1445 × $281.535 = $406 818
Chapter 10 Accounting Concepts Question 1 Donald
(a) (i) Donald should include a proportion of this amount in the current years Income statement as $7,200 covers a 6 month period of which 5 months are in the next accounting period. He should therefore include $1,200, which is equivalent of one month’s rent should be included in the income statement for the year ended 31 December 2007. The remaining $6,000 should be included in the current assets on the Balance Sheet as a prepayment.
This is an example of the accruals (matching) concept which states that expenses should be matched against the period that they are incurred.
(ii) Donald should not include the $2,500 for a private holiday in the general expenses. This should be included in Donald’s drawings as it is for personal use.
This is an example of the business entity concept which states that the financial transactions of the business should be treated separate from those of the owner. Therefore personal transactions should not be confused with business transactions.
(iii) Donald should not include the sales of $10,000 as the customer has not yet signed the contract. Profit should not be recognised until the exchange of goods or services. This is an example of the realisation concept which states that profit should not be recognised until the goods or service pass to the customer.
(iv) Donald should not include the management as an asset of $50,000 in the Balance Sheet, as no monetary amount has exchanged hands.
This is an example of the money measurement concept which states that only assets that have a true monetary value can be included in the balance sheet. This helps to ensure that amounts on the balance sheet are objective not subjective.
Question 2
1. Business entity concept: The business dealings of the owner should be kept separate from his private affairs. 2. Money measurement concept: No monetary amount has exchanged hands, only assets that have a true
monetary value can be included in the balance sheet
3. Materiality concept: The door mats are small items of insignificant value and therefore it is allowed to treat them as a revenue expenditure instead of a capital expenditure
4. Matching concept\Accrual concept: Although the invoices have not been received by the end of the financial year , the purchases have been made in the current financial year and therefore should be included in the current year’s purchases.
Question 3 Polska
Item Effect on profit Concept
(1) Audit and tax fees (5000) Accruals
(2) Golf clubs on sale or return (10000) Realisation / prudence
(3) Rent 2000 Accruals/Matching
(4) Fixtures and fittings 750 Cost
(75)
(5) Inventory (500) Prudence
Chapter 11: Financial Statements of Partnerships Question1: Brown and White
27 Profit for the year $10 000
Share of Profit: Brown $2 250 White $1 500 Current Account: Brown $4 250(cr) White $7 750(cr) Question 2: James and Gemma
Jan-June July-Dec Cost of sales 60 000 100 000 Gross Profit 30 000 50 000 Closing Inventory 16 300 20 300 Depreciation 5 100 5 725 Interest 1 350 1 350 Remaining expense 6 000 6 000 Profit 17 550 36 925
share of Residual Profit: James 4 275 13 462.5
Gemma 4 275 13 462.5
Current A/c: Bal c/d- James 22 737.5 Cr - Gemma 19 237.5 Cr Question 3: Hook, Line and Sinker
a)
i) Loss on disposal 2 360
Total Interest on loan 6 500
Corrected profit for the year 36 140 Share of Residual Profit- H $10 445
L $6 267 S $4 178 ii) Current A/c balance Capital A/c balance
H= $12 445 Cr $40 000
L= $11 517 Cr $15 000
S= $4 478 Cr $10 000
d) Total NBV of NCA = $141 440 Total Current Assets = $22 000 Total Current Liabilities = $5 000 Total Non-Current Liabilities =$65 000 Question: 4 Short and Tall
Revenue 600 000
Less cost of sales
Opening inventory 60 000
O.G.Purchased 420 000
Less Closing inventory 90 000
Cost of sales 390 000
Gross profit 210 000
Jan – Aug Sept – Dec
Gross profit (apportioned in proportion to revenue) 112 000 98 000 Less expenses
Rent and rates (time basis) 4 000 2 000
Heat and light (time basis) 8 400 4 200
Staff salaries: Long as employee 10 000 -
Other staff (time basis) 20 000 10 000 Selling expenses (proportion of revenue) 11 200 9 800
28 Distribution expenses (proportion revenue) 4 960 4 340
Interest (time basis) 5 000 2 500
Bad debts (proportion revenue) 4 640 4 060
Profit for the year 43 800 61 100
Less Appropriation
Salaries: S 6667 4 000
T 6667 4 000
L - 13 334 4 000 12 000
Residual profit 30 466 49 100
Share of residual profit S 20 311 24 550
T 10 155 16 367
L - 8 183
Question: 5 Archer and Bowman
a) Corrected profit $15 520 (+ 30 -1400 -2000 + 420 -20) b) Share of residual profit: Archer $2010; Bowman $2010 Question: 6 Lee Kim and Michael
Total capital on 1 Oct 2005 = 240 000 + 210 000 +150 000 + 190 000 + 50 000 +80 000 = 920 000 Total capital on 30 Sept 200 = 750 000 +660 000 + 390 000 – 346 000 – 285 000 = 1 169 000 Total capital on 30 Sept 2007 = 870 000 + 690 000 + 420 000 – 404 000 – 255 000 = 1 321 000 Total capital on 30 Sept 2008 = 1 200 000 + 825 000 +495 000 – 448 000 – 375 000 = 1 697 000 Total drawings 2006 = 45 000 + 42 000 + 36 000 + 45 000 = 168 000
Total drawings 2007 = 70 000 + 48 000 + 30 000 +60 000 = 208 000 Total drawings 2008 = 105 000 + 105 000 + 8 000 + 65 000 = 283 000 Calculation of profit
2006 2007 2008
Capital at end of year 1 169 000 1 321 000 1 697 000
Add drawings 168 000 208 000 283 000
Less capital introduced - - (180 000
Less capital at start (920 000) (1 169 000) (1 321 000)
Profit for the year 417 000 360 000 479 000
Closing balance capital account of Michael: 2006 $150 000; 2007 $150 000; 2008 $210 000 Share of residual profit for Michael: 2006 = 1/6 x (417 000 – 45 000) = 62 000
2007 = 1/6 x (360 000 – 60 000) = 50 000 2007 = 1/6 x (479 000 – 65 000) = 69 000
Closing balance current account of Michael: 2006 $106 000; 2007 $126 000; 2007 $187 000 Question: 7 Rahul and Shivam
a) Rahul $80 000; Shivam $40 000
b) Cost of sales $603 000; Gross profit $213 000; Profit for the year $101500. c) Share of profit Rahul $23 000; Shivam $11 500
Balance current account Rahul $46 500
Question 8 Boris and Cheong
Boris Cheong $ $ Closing balances 9 908 22 092 Int. on drawings 1 320 1 200 Drawings 22 000 20 000 33 228 43 292 Int. on capital (8 000) (7 200)
29
Profit (23 728) (35 592)
Opening balances 1 500 Cr 500 Cr
(b) $
Original net profit 72 000
Depreciation (14 400) Loss on disposal (500) Sales 10 500 Discount received 600 Drawings 3 400 Bad debt (500)
Recovery bad debt 210 Provision for doubtful debts (945) Corrected net profit 70 365
c) Share of residual profits B $37 558; C $25 039
d Balance current account B $17 626 Cr; Cheong $9 339 Cr Question 9 Carl and Daniel
Revenue $376 382; Purchases $196 202; Cost of sales $196 734; Gross profit $179 648; Total expenses $138 958; Profit for the year $46 690; Share or residual profit for Carl $20 292 and Daniel $13 528
Balance current account for Carl $6388 Dr and Daniel $4548 Dr Question 10 Alice and Nancy
NCA at 30 Sept 99 = (132 000 – 6000 + 48 000) x 87.5 % = 152 250 Total capital = Assets – liabilities
= 152 250 + 258 000 + 50400 – 70 000 – 13 000 – 27 000 – 72 000 = 278 650 Profit = Capital at end + drawings – capital at start = 278 650 +50 400 – 223 000 = 106 050
b) Share of residual profit Alice $36 250; Nancy $50 000 ( she should get a minimum of $ 50 000, if the residual profit is shared equally she will get less) Balance current account $Alice $54 850; Nancy $43 800
c) NCA $152 250; CA $308 400 (258 000 + 50400); CL $134 000 (70 000 + 13000 + 27000 + 24 000); NCL $48 000;
Chapter 12: Dissolution of Partnership Question 1: Thomas, Dickson and Harry
Share of realisation loss Thomas $4000; Dickson $2000; Harry $1000
To close capital account business has to pay Thomas $31 000, Dickson $11 000 and Harry $5000 Question 2 Paul, Stuart and Dev
a) Share of realisation loss: Paul $1839; Stuart $1226; Dave $1226 b)
Capital account
P S D P S D
Current a\c - 5257 - Bal b\d 51 000 34 000 34 000
Loss on realisation 1839 1226 1226 Current a\c 18390 - 6233
Realisation: Vehicle 19750 - - Loan - - 7160
Inventory - 4640 - Interest - - 537
Bank 47801 22877 46704
69390 34000 47930 69390 34000 47930 c)
Bank account
Bal b\d 3070 T.Payables and expenses 9005
30
Inventory 8895 Capital: Paul 47801
T.Receivables 11472 Stuart 22 877
Dave 46704
133437 133437
Interest on loan = 5 % x 7160 x 18/12= 537
Cost of inventory taken by Stuart 0.8 x 5800 = 4640
Cash received from sale of remaining inventory = 75 % x (16 500 – 4640) = 8895 Question 3 Kevin, Dev and Dick
Share of realisation loss Kevin $13 737; Dev $9158; Dick $4579 Capital account
Kevin Dev Dick Kevin Dev Dick
Realisation 15000 - - Bal b\d 13000 1900 12000
Loss on realization 13737 9158 4579 Loan - - 30000
Capital Dev 3774 - 3484 Capital Kevin - 3774 -
Bank - - 33937 Capital Dick - 3884 -
Bank 19511 - -
32511 9158 42000 32511 9158 42000
Amount owing to business by Dev = 9158 -1900 = 7258
Since he is insolvent this sum will have to be contributed by Kevin and Dick in proportion of their capital account balances.
Amount to be contributed by Kevin = 13 000 ÷ 25 000 x 7258 = 3774 Amount to be contributed by Dick = 12 000 ÷ 25 000 x 7258 = 3484
Bank account
Bal b\d 800 trade payables 7274
Realisation (property) 25000 Realisation (dissolution exp) 8300
Realisation (T.Receivables) 4200 Capital Dick 33937
Capital Kevin 19511
49511 49511
Question 4 Paul and Sandeep
Share of realisation loss Paul $ 2400; Sandeep $2400
To close capital account, business has to pay $53 000 to Paul and $4 300 to Sandeep. Question 5: Angela, Belinda, Cindy
Assume shares are divided between partners using PSR Selling price of Business =$330 000
Profit on Realisation A =$30 000 B =$20 000 C =$10 000 Question 6: Chang,Foo and Seet Profit on Realisation C =$12 000
F =$8 000 S = $4 000
Capital A\c : Chang to pay business $89 500 Business to pay Foo =$55 000
Seet = $37 000 Question 7 Dough, Ray and Mee Loss on Realisation D =$8400
31 R =$5600
M = $2800
Capital A\c : Mee to pay business $25800 Business to pay Dough=$48600
Ray = $4400 Question 8 Anton, Bassini and Cartwright
a) Share of loss on realisation A $27 700; B $13 850; C $13 850
To close capital account business has to pay A $85 832; B $39 273; C $33 995 (b) Option 1 200 000 × 6% = 12 000
Option 2 80 000 × 0.15 = 12 000
(c) Both options give the same annual return.
Option 1 is fixed. Option 2 may fluctuate (depending on profit). Option 2 gives ownership rights and voting rights.
Debentures are safer investment. Question 9 Akram, Bhupesh and Chuck
a) Total expenses $349 000; Profit for the year $34 000; Share of residual loss A $1320; B $880; Share of residual profit C $7200 (minimum share of resisual profit)
b) Current account balances A $9720 Dr; B $680 Dr; C $1400 Cr
c) To close capital account business has to pay Chuck $9400 whereas Akram and Bhupesh has to pay the business $3520 and $9880 respectively.
Question 10 Joel and Pooja
Profit on realisation Joel $16 000; Pooja $16 000
To close bank account, business to pay Joel $49 500 and Pooja $46 000 Question 11 Nursultan Katia and Avtandil
Eratum balance current account for Nursultan should be $5 350 Dr instead of $350 Dr
(a) A debit balance on a current account arises when a partner has withdrawn more money than he is entitled to and is therefore in debt to the partnership.
(b) A partnership may be dissolved
– as the partners are constantly in disagreement and can no longer work together. – as the partnership is no longer liquid and further trading would increase the debt. – as the partnership is no longer profitable
– as a partner wishes to set up on his own, or a partner dies or retires. c) Share of Loss on realisation Nursultan $8940; Katia $5960; Avtandil $2980
To close capital account, business has to pay Katia $20290 and Avtandil $40 000 whereas Nursultan has to pay business $4290
d) Capital brought by Avtandil = 17 000 + 19120 = 36120 Capital brought by Damir = 36120 ÷ 3 x 2 = 24 080 Number of shares Avtandil = $36 120 ÷ $0.5 = 72 240 Number of shares Damir = $24 080 ÷ $0.5 = 48 160
Chapter 13: Structural Change in Partnerships Question 1: Nelson and Aliya
a) Bal c\d: Nelson $55 000, Aliya $50 000, Betty $35 000
32 b) Bal c\d: Nelson $41 000, Aliya $36 000, Betty $28 000
Total Non-current assets $75 000; total Current Assets $41 350; Total current liabilities $2790
Question 2: Melina and Audrey
a) Capital account
M A C M A C
Bal b\d 13000 14000 -
Bank - - 22500
Bal c\d 23400 16600 22500 Revaluation gain 10400 2600 -
23400 16600 22500 10400 2600 22500
Total goodwill at the time of structural change = Carla’s share of goodwill x her PSR = 2500 x 6 = 15 000
Revaluation gain = 9000 – 7000 – 600 - 400 + 12 000 = 13 000 NCA $70 000; CA $26 000; CL $2500; NCL $31 000
b) Capital account
M A C M A C
Goodwill cancel 7500 5000 2500 Bal b\d 13000 14000 -
Bank - - 22500
Bal c\d 15900 11600 20000 Revaluation gain 10400 2600 -
23400 16600 22500 10400 2600 22500
Question 3: George, Smith and Tom
a) Revaluation gain = 143 000 – 13 000 – 9000 – 1000 = 120 000 Capital A/c Balance c\d
G- $145 333 S- $139 333 T- $65 344 Total NBV of NCA= $291 000 Total Current Assets =$81 100 Total Current Liabilities=$ 22 100
b) Capital account
G S T G S T
Revaluation cancel 60000 40000 20000 Bal b\d 95000 80000 55000 Goodwill cancel 27000 18000 9000 Revaluation gain 53333 53333 13334
Bal c\d 85333 99333 45334 Goodwill 24000 24000 6000
172333 157333 74334 172333 157333 74334
Total NBV of NCA= $170 000 Total Current Assets =$82 100 Total Current Liabilities=$22 100 Question 4: Gerard, Bert and John Balance Capital A/c –G 30 500 B 22 000 Paid to John 26 500 Share of Residual Profit
Jan-Sep Oct-Dec
G 31 387.5 11 655 B 20 925 7 770
33 Balance Current A/c G =$41 482.5
B =$29 080 Paid to John =$10 437.5
Question 5: Pascal, Jane and Michel
a) Balance capital account Pascal $62 000; Michel $4000 Amount transferred to loan account for Jane $68 000 b) Total NBV of NCA $130 000
Total Current Assets $28 000 (1000 + 27 000) Total Current Liabilities $92 000 (24 000 + 68 000) Question 6: James and Susan Mokobi
a) Balance on current account at 30 April 2005 James $5600 Cr; Suzan $3650 Dr
b) Balance on capital account on 1 Nov 2005 James $41 000; Suzan $32 000; Anna $24 000 Profit and loss Appropriation account for the year ended 30 April 2006
May – Oct Nov – April
Profit for the year 37500 37500
Less Appropriation
Interest on Capital: James 525 2050
Suzan 300 1600
Anna - 1200
Salary suzan 3500 4325 - 4850
Residual profit 33175 32650
Share of Residual profit James 16 587.5 21766
Suzan 16587.5 5442
Anna - 5442
Note: Rate of interest on drawings for old partnership = 300 ÷ 6000 x 100 = 3 % (since there is no drawings given for the year ended 30 April 2006, this means that there is no drawings for the year and there will be no interest in appropriation account)
Rate of interest on capital for old partnership= 1050 ÷ 35 000 x 100 = 3 % Question 7: Frank and Ernest
b)Balance Capital A/c F- $76 800 E - $118 400 D- $188 500 a) Total NBV of NCA $327 300
Total Current Assets $127 800 Total Current Liabilities $22 400 Question 8:Ryan and Lam
a) Capital account balances Ryan $370 000; Lam $380 000; Cinderella $200 000 b) Share of residual profit Jan – June July – Dec
Ryan 80 000 22 500
Lam 80 000 22 500
Cinderella - 22 500
c) Current account balances Ryan $96 400 Cr; Lam $109 900 Cr; Cinderella $23 500 Cr Question 9: Anna and Dora
a) Balance capital account Anna $52 500; Dora $77 500
b) Share of residual profit Oct – Dec Jan – Sept
Anna 1125 1860
