ACCA f1 with answers 2006

Answers Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) June 2006 Answers Section A C D D D (280,000 x 20%) + (48,000 x 20% x 9/12 ) + (36,000 x 20% x 4/12 ) – (14,000 x 20% x 6/12 ) 5/ 12 x 24,000 + 7/12 x 30,000 = 27,500; 2/3 x 7,500 = 5,000 Receivables ledger control account Opening receivables Sales 148,200 880,600 Cash received from customers Discounts allowed Irrecoverable debts written off Returns from customers Closing receivables –––––––––– 1,028,800 –––––––––– D D C B B 10 D 11 A 12 B 13 B 14 A 819,300 16,200 1,500 38,700 153,100 –––––––––– 1,028,800 –––––––––– 3,980 – 270 – 180 – 3,200 = 330 : difference 100 630,000 – 4,320 – 440 430,000 x 5% = 21,500 – 18,000 + 28,000 Payables ledger control account Cash paid to suppliers Discounts received Contras with amounts receivable in receivables ledger Purchases returns Closing balance 988,400 12,600 4,200 17,400 325,200 –––––––––– 1,347,800 –––––––––– 15 A 16 D 17 C 18 A 19 C 20 B 21 D 22 C 23 B 24 C 1,100,000 – 4/5 (400,000 + 500,000) 25 A 20% x (400,000 + 800,000) 756,000 x Opening balance Purchases 384,600 963,200 –––––––––– 1,347,800 –––––––––– 10/ 38,640 + 14,260 – 19,270 = 33,630 48,000 + 400 + 2,200 17 Section B Leon and Mark Statement of division of profit for the year ended 31 December 2005 Six months ended 30 June 2005 $ Leon: (90,000 – 20,000) (see working) Six months ended 31 December 2005 Profit Interest on capital Leon 5% x 400,000 x 6/12 Mark 5% x 200,000 x 6/12 $ 70,000 –––––––– 180,000 10,000 5,000 –––––––– Salary Mark 20,000 x 6/12 (15,000) –––––––– 165,000 (10,000) –––––––– 155,000 Balance of profit Leon 60% Mark 40% 93,000 62,000 –––––––– Working Profit for year Add: irrecoverable debt 155,000 –––––––– –––––––– $ 250,000 20,000 –––––––– 270,000 –––––––– Profit for division Six months ended 30 June 2005 less: irrecoverable debt 90,000 20,000 –––––––– Six months ended 31 December 2005 70,000 180,000 –––––––– 250,000 –––––––– Current accounts Drawings Balance Leon $ 160,000 13,000 173,000 Mark $ 80,000 30 June Profit 31 Dec Interest on capital Salary Share of balance 60:40 Balance 80,000 Leon $ 70,000 10,000 93,000 173,000 18 Mark $ 5,000 10,000 62,000 3,000 80,000 Alternative format Leon and Mark Statement of division of profit for the year ended 31 December 2006 Leon $ Six months ended 30 June 2005 Leon: (90,000 – 20,000)(see working) Mark $ 70,000 ––––––– Six months ended 31 December 2005 Interest on capital Leon 5% x 400,000 x 6/12 Mark 5% x 200,000 x 6/12 Total $ 70,000 ––––––– 10,000 Salary Mark 20,000 x 6/12 Balance of profit 60:40 93,000 ––––––– 103,000 ––––––– 5,000 15,000 10,000 10,000 62,000 ––––––– 77,000 ––––––– 155,000 ––––––– 180,000 ––––––– Current accounts Drawings Balance Leon $ 160,000 13,000 Mark $ 80,000 173,000 80,000 2005 30 June Profit 31 Dec Share of profit Balance Leon $ 70,000 103,000 173,000 Mark $ 77,000 3,000 80,000 (a) Net profit adjustments $ 684,000 Profit per draft financial statements (1) Inventory movement Adjustment for sales $36,000 x 60% (2) Goods on sale or return Elimination of profit (3) Reduction in inventory: $18,000 – ($13,500 – $500) (4) Debts written off (5) Increase in allowance for receivables ($11,500 – $10,000) 21,600 (4,000) (5,000) (8,000) (1,500) ––––––––– $687,100 ––––––––– Revised net profit (b) Adjustments to inventory and receivables (i) Inventory Inventories per draft financial statements (1) Inventory movement – as (a) above (2) Goods on sale or return cost introduced into inventory (3) Reduction in inventory (a) above $ 116,800 21,600 6,000 (5,000) ––––––––– $139,400 ––––––––– Revised closing inventory $ (ii) Receivables per draft financial statements (2) Deduction of goods on sale or return (4) Debts written off 248,000 (10,000) (8,000) ––––––––– 230,000 (11,500) ––––––––– $218,500 ––––––––– (5) less: allowance for receivables 19 Ganda Cash flow statement for the year ended 31 December 2005 $000 Cash flows from operating activities Profit before taxation Adjustment for: Depreciation (W2) Profit on sale of non-current asset (W3) Interest expense $000 970 310 (20) 120 ––––– 1,380 Increase in inventory Decrease in receivables Increase in payables (200) 200 100 ––––– 1,480 (120) (200) ––––– Cash generated from operations Interest paid Income taxes paid Net cash from operating activities 1,160 Cash flows from investing activities Purchase of non-current assets (W1) Proceeds of sale of non-current assets (W3) Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital (300 + 180) Proceeds from issue of loan notes Dividends paid (1,500) 80 ––––– 480 200 (250) ––––– Net cash from financing activities Cash at beginning of period Cash at end of period (1,420) 430 ––––– 170 (230) ––––– (60) ––––– Workings (1) Non-current assets – cost Opening balance Purchases (balancing figure) $000 2,100 1,500 Transfer disposal Closing balance –––––– 3,600 –––––– (2) $000 200 3,400 –––––– 3,600 –––––– Non-current assets - accumulated depreciation Transfer disposal Closing balance (3) $000 140 Opening balance Income statement – depreciation (balancing figure) 720 –––––– 860 –––––– $000 550 310 –––––– 860 –––––– Non-current assets - disposal Transfer – cost Income statement $000 200 20 –––––– 220 –––––– Transfer – depreciation Cash 20 $000 140 80 –––––– 220 –––––– (a) The working capital cycle illustrates the changing make-up of working capital in the course of the trading operations of a business: Purchases are made on credit and the goods go into inventory Inventory is sold and converted into receivables Credit customers pay their accounts Cash is used to pay suppliers (b) Collection period for receivables 250 ––––– x 365 1,000 91 days Inventory turnover 200 ––––– x 365 700 104 days –––––––– (see Note below) 195 days Payment period for payables 150 ––––– x 365 800 68 days –––––––– 127 days Length of working capital cycle Note If average inventory is used the inventory turnover becomes: 100 + 200 ––––––––––– ÷ x 365 700 78 days The length of the cycle becomes 101 days Either answer is acceptable (c) The advantage to a company of keeping its working capital cycle short is that fewer resources are tied up in working capital, thus freeing them for other purposes (Other answers considered on their merits) To the directors of Ambia June 2006 Comments on proposals under consideration (a) Proposed bonus issue There are several problems in connection with the proposed bonus issue: (i) A bonus issue would not raise any capital for the company To raise capital a rights issue (or an issue at full market price) would be necessary (ii) For either a bonus issue or a rights issue to be possible, the authorised capital would have to be increased (iii) There are insufficient reserves to make a bonus issue of $500,000 worth of shares (b) Paying a dividend of 10c per share There are insufficient retained earnings to pay a dividend of more than 5c per share (c) IFRS Business combinations does not allow goodwill to be revalued upwards (d) It is not possible to combine the reserves as suggested IAS1 Presentation of financial statements requires retained earnings to be shown seperately from other reserves 21 Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) June 2006 Marking Scheme Marks Section B Statement of division of profit Leon profit for first six months Profit for second six months Interest on capital Salary Balance of profit 1 1/ –––– 51/2 Current accounts Drawings x 1/2 Leon profit 70,000 Interest on capital x 1/2 Salary Share of balance 1/ 1/ 1/ –––– –––– Alternative marking scheme (if statement of division of profit shows partners’ total shares) Leon : profit for first six months Profit for second six months (as total) Interest on capital Salary Balance of profit Total shares 1 1/ 1 –––– 61/2 Current accounts Drawings x 1/2 Leon profit 70,000 Total profit shares 1/ –––– –––– (a) Profit adjustments mark per item x (b) Adjustments to inventory and receivables Inventory Movements Goods on sale or return Reduction to net realisable value 1 –––– Receivables Goods on sale or return Debts written off Allowance for receivables 1 –––– –––– 23 –––– 11 Marks Cash flows from operating activities 1/ mark per item other than interest Interest added and deducted Cash flows from investing activities 1/ mark per item Cash flows from financing activities 1/ mark per item Cash movement 31/2 1/ 2 x 1/2 x 1/2 x 1/2 11/2 11/2 11/2 11/2 1/ –––– 131/2 –––– Workings: non-current assets – cost – depreciation – disposal Heading Layout (a) Purchases into inventory Inventory into recievables Receivables into cash Cash to pay suppliers 1 1 –––– (b) per ratio 3x1 correct calculation –––– (c) Up to max12 4 –––– 10 (a) (i) (ii) (iii) 1 (b) (c) (d) x –––– 24 –––– 50 –––– 5D–GBRAA Paper T3GBR Workings for MCQ answers 10 13 14 16 C 280,000 x 20% + 48,000 x 20% x 9/12 + 36,000 x 20% x 4/12 – 14,000 x 20% x 6/12 A as C, but plus 1,400 B 350,000 x 20% D as B, but – 1,400 A as D, but discounts on wrong side B as D, but irrecoverable debts on wrong side C as in Q, but with discounts and irrecoverable debts on credit side D all items on debit side except opening balance moved to credit side A as D, but 180 adjusted in wrong direction B as D, but 270 adjusted in wrong direction C as D, but 3,200 adjusted in wrong direction D 3,920 – 270 – 180 – 3,200 = 330 : 100 difference A 630,000 – 4,320 + 440 B 630,000 – 4,800 – 440 C 630,000 – 4,320 – 440 – 800 D 630,000 – 4,320 – 440 B 430,000 x 5% = 21,500 – 18,000 + 28,000 A as B but 18,000 not deducted C as B but provision based on 458,000 D as B but provision based on 458,000 and 18,000 not deducted A Purchase returns Cash Discounts Contras c/bal 17,400 988,400 12,600 4,200 325,200 ––––––––– 1,347,800 ––––––––– O/Bal Purchases 384,600 963,200 ––––––––– 1,347,800 ––––––––– B as A but discounts on wrong side C as A but contras and discounts on wrong side D as in Q but contras and discounts on credit side (410,000 – 33,600) A (77 + 763 – 84) = 756 + 30% B 763 x 10/ C 756 x 10/ D 756 x 10/ 25 5D–GBRAA Paper T3GBR 20 22 24 A as in question B (38,640 – 19,270 + 14,260) C as B but plus 140 D as B but minus 140 A 48,000 + 400 + 800 + 2,200 C 48,000 + 400 + 2,200 D 48,000 + 400 A (1,100,000 – (400,000 + 500,000)) B (1,100,000 – 4/5 x 400,000) C (1,100,000 – 4/5 (400,000 + 500,000)) D 4/ x 1,100,000 26 ... (Other answers considered on their merits) To the directors of Ambia June 2006 Comments on proposals under consideration (a) Proposed bonus issue There are several problems in connection with the...Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) June 2006 Answers Section A C D D D (280,000 x 20%) + (48,000 x 20% x 9/12 ) + (36,000 x 20% x 4/12 ) –... Alternative format Leon and Mark Statement of division of profit for the year ended 31 December 2006 Leon $ Six months ended 30 June 2005 Leon: (90,000 – 20,000)(see working) Mark $ 70,000 –––––––