ACCA f1 with answers

Answers Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) December 2002 Answers Section A B $400 debit which should have been credited – correction will bring trial balance into agreement D Rent Receivable O/Balance Income Statement C/Balance $ 21,200 475,900 31,200 $ 28,700 481,200 18,400 O/Balance Cash C/Balance 528,300 C 528,300 $2,500 + $7,500 + $9,000 + $9,000 + $6,000 One month in advance = $3,000 Cr D $ 69,040 3,000 4,800 20% × $345,200 10/ 12 × 20% × $18,000 8/ 12 × 20% × $36,000 76,840 D –$36,840 + $51,240 – $43,620 = $29,220 overdrawn A A B $952,500 × 100/60 = $1,587,500 D Sales Opening inventory Purchases 318,000 412,000 less: Inventory held 730,000 214,000 Shortfall 516,000 57,000 $ Gross profit 25% 459,000 153,000 10 C 11 C 12 A 13 C 14 A 15 D $ 612,000 5c × 10,000,000 + 8% × $500,000 16 A 17 D 18 A 19 B 20 C 17 21 D 22 B 23 B 24 A 25 C Section B Cronos Limited Income statement for the year ended 30 September 2002 $ Sales Cost of sales (W1) Gross profit Distribution costs (W1) Administrative expenses (W1) $ 3,210,000 (1,823,100) 1,386,900 (188,500) (944,680) (1,133,180) Profit from operations Interest payable (30,000 + 30,000) 253,720 (60,000) Net profit for the year 193,720 Working Opening inventory Purchases Carriage inwards Carriage outwards (47,250 + 1,250) Wages and salaries 694,200 5,800 700,000 Sundry administrative expenses (381,000 + 13,600 – 4,900) Bad and doubtful debts (14,680 + 8,000 – 2,700) Depreciation of office equipment 20% × (214,000 – 40,000 + 48,000) Loss on sale Closing inventory Cost of Sales $ 186,400 1,748,200 38,100 Distribution Costs $ Administrative Expenses $ 48,500 70,000 140,000 490,000 389,700 19,980 44,400 600 (219,600) 1,823,100 188,500 18 944,680 (a) Journal entries (1) Trial balance (no ledger entry) Suspense account Correction for carriage outwards balance omitted from trial balance 48,900 (2) Discount received Discount allowed Suspense account Suspense account Discount received Discount allowed 38,880 38,880 48,900 77,760 136,400 68,200 68,200 Correction of discount totals Wrong discount amount posted to the wrong side (3) Ordinary share capital account Share premium account 300,000 300,000 Correction of error in recording issue of shares – $300,000 wrongly credited to ordinary share capital account Suspense Account (b) Difference Discount accounts $ 386,400 136,400 Trial balance (carriage outwards) Discount accounts Balance 522,800 $ 48,900 77,760 396,140 522,800 Helios Consolidated balance sheet as at 30 June 2002 Non-current assets Goodwill Tangible assets $ 68,800 770,000 Net current assets 838,800 390,000 1,228,800 Share capital Share premium account Accumulated profit 600,000 350,000 128,800 1,078,800 150,000 Minority interest 1,228,800 19 Cost of control Investment in Luna $ 700,000 Share Capital 80% Share Premium 80% Accumulated profits 80% pre-acq Balance – goodwill 700,000 Balance 172,000 $ 320,000 160,000 48,000 172,000 700,000 Amortisation 20% × years Balance 172,000 103,200 68,800 172,000 Minority interest Balance for CBS $ 150,000 Share Capital 20% Share Premium 20% Accumulated profits 20% 150,000 $ 80,000 40,000 30,000 150,000 Accumulated profits $ Cost of control 80% × $60,000 Minority interest 20% × $150,000 Cost of control Goodwill amortisation Balance for CBS 48,000 Helios Luna 30,000 103,200 128,800 310,000 (a) $ 160,000 150,000 310,000 The values of the land and the buildings need to be separated, because the land would not normally require depreciation The revalued amount of the buildings should be depreciated over the estimated remaining useful economic life at the time of the revaluation The straight-line method is usually adopted, but other methods such as the reducing balance method may be used (b) Development costs should be amortised, using a method that reflects the pattern in which the economic benefits of the costs are consumed by the enterprise If this pattern cannot be determined reliably, the straight-line method should be used If the circumstances justifying the deferral of the expenditure cease to apply at any time, the expenditure should be written off to the extent that it is no longer recoverable (c) Investments of this kind not depreciate, though they may fluctuate in value Accordingly no depreciation is provided for them (a) IAS 10 Events after the Balance Sheet Date classifies this type of event as non-adjusting – no change to the figures in the financial statements is required but there should be a note to ensure that the financial statements are not misleading The note should state the amount of the loss and the extent of the insurance cover (b) A provision should be made for the estimated amount of the liabilities under warranties, as required by IAS 37 Provisions, Contingent Liabilities and Contingent Assets The provision will appear as a liability in the balance sheet and the operating profit will be reduced by the amount of the allowance (c) This is an adjusting event according to IAS 10 Events after the Balance Sheet Date The closing inventory should be reduced by $40,000 in the balance sheet and in cost of sales, thus reducing operating profit by this amount, unless it could be shown that the deterioration had taken place after the balance sheet date (d) The goods have to be treated as trading inventory at September 2002, applying generally accepted accounting principles The effect on the income statement and balance sheet will be: (i) Sales and trade receivables both reduced by $100,000 (ii) Closing inventory increased by $80,000 The combined effect of the two adjustments is to reduce current assets and profit by $20,000 20 Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) Sales revenue Cost of sales Distribution costs Administrative expenses: Wages and salaries Sundry admin expenses Bad and doubtful debts Depreciation Loss on sale December 2002 Marking scheme Available 1/ × 1/2 × 1/2 21/2 1 11/2 11/2 91/2 Interest payable Format 13 (1) Journal entry Narrative 1/ (2) Journal entry Narrative 1/ (3) Journal entry Narrative 1/ Suspense account Per entry Final balance 11/2 21/2 3×1 11/2 1/ 31/2 Maximum Calculation of goodwill Goodwill amortisation × 1/2 Calculation of minority interest Calculation of accumulated profits Initial profits Adjustments × 1/2 2 × 1/2 3×1 Consolidated balance sheet – format Assets Capital and reserves Minority interest 1 1/ 11/2 21/2 11 21 12 Available (a) (b) (c) (a) (b) (c) (d) Land and buildings separated Land not normally depreciated Revalued amount for buildings depreciated over the remaining useful economic life Amortised Basis of amortisation Written off if no longer recoverable 1 Value fluctuating but does not depreciate No depreciation required 1 Maximum 1 Non-adjusting event Disclose by note IAS 10 mentioned Contents of note 1/ 1/ 1/ 1/ Allowance required IAS 37 mentioned Effect on accounts 1/ 1/ Adjusting event IAS 10 mentioned Effect on accounts 1/ 1/ 1 Description of adjustment Generally accepted accounting principles Adjustments to: Sales Receivables Closing inventory Effect on profit 3 3 2 8 2 1 1/ 1/ 1/ 1/ 10 22 ... Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) December 2002 Answers Section A B $400 debit which should have been credited – correction will bring trial balance