Accounting 2020 Question Bank - For Vietnam [PDF]

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Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The Institute of Chartered Accountants in England and Wales

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ACCOUNTING

For exams in 2020

Question Bank

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Accounting The Institute of Chartered Accountants in England and Wales ISBN: 978-1-5097-2727-8 Previous ISBN: 978-1-5097-1991-4

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

First edition 2007 Thirteenth edition 2019

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, graphic, electronic or mechanical including photocopying, recording, scanning or otherwise, without the prior written permission of the publisher. The content of this publication is intended to prepare students for the ICAEW examinations, and should not be used as professional advice. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

Contains public sector information licensed under the Open Government License v3.0 Originally printed in the United Kingdom on paper obtained from traceable, sustainable sources.

The publishers are grateful to the IASB for permission to reproduce extracts from the International Financial Reporting Standards including all International Accounting Standards, SIC and IFRIC Interpretations (the Standards). The Standards together with their accompanying documents are issued by: The International Accounting Standards Board (IASB) 30 Cannon Street, London, EC4M 6XH, United Kingdom. Email: [email protected] Web: www.ifrs.org Copyright © IFRS Foundation

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Disclaimer: The IASB, the International Financial Reporting Standards (IFRS) Foundation, the authors and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise to the maximum extent permitted by law. Copyright © IFRS Foundation

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All rights reserved. Reproduction and use rights are strictly limited. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IFRS Foundation. Contact the IFRS Foundation for further details.

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© ICAEW 2019

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Accounting

ICAEW 2020

Contents The following questions are exam-standard. Unless told otherwise, these questions are the style, content and format that you can expect in your exam. Page

Title

Questions

Answers

Introduction to accounting

3

171

2

The accounting equation

9

173

3

Recording financial transactions

13

175

4

Ledger accounting and double entry

17

177

5

Preparing basic financial statements

21

179

6

Errors and corrections to accounting records and financial statements

25

181

7

Cost of sales and inventories

37

187

8

Irrecoverable debts and allowance for receivables

49

191

9

Accruals and prepayments

59

195

10

Non-current assets and depreciation

73

201

11

Company financial statements

89

209

12

Company financial statements under IFRS standards

105

219

13

Statement of cash flows

127

245

14

Company financial statements under UK GAAP

141

259

143

261

157

267

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Sole trader and partnership financial statements under UK GAAP

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15

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16

Sample of an exam

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Mock Exam guidance notes

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277

Contents

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Exam This assessment consists of 25 questions in total. There will be 24 objective-test questions (60% of the marks) which will be of three types: Multiple choice – select 1 from 4 options A, B, C or D (see Chapter 4, Q10)



Multi-part multiple choice – select 1 from 2 or 3 options, for two or more question parts (see Chapter 1, Q21)



Multiple response – select 2 or 3 responses from 4 or more options (see Chapter 6, Q1)

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s



The remaining 40% of the marks are allocated from the preparation of single company financial statements; either a statement of profit or loss and statement of financial position or a statement of cash flows, using a proforma template. In this Question Bank you should select only one option per question unless told otherwise. The assessment is 1.5 hours long and at least 55 marks are required to pass this assessment.

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Our website has the latest information, guidance and exclusive resources to help you prepare for this assessment. Find everything you need, from exam webinars, sample assessments, errata sheets and the syllabus to advice from the examiners at icaew.com/exams if you’re studying the ACA and icaew.com/cfabstudents if you’re studying ICAEW CFAB.

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Accounting

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Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

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IC Question Bank

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Accounting: Question Bank

ICAEW 2020

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Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

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Chapter 1: Introduction to accounting 1

Which of the following best explains what is meant by 'capital expenditure'? Capital expenditure is expenditure:

B

on expensive items over £10,000

C

on the acquisition of non-current assets, or improvement in their earning capacity

D

on items relating to owners' capital

LO 1d

Which of the following should be accounted for as capital expenditure? A

The annual cost of painting a factory floor

B

The repair of a window in a building

C

The purchase of a vehicle by a garage for re-sale

D

Legal fees incurred on the purchase of a building

LO 1d

Which of the following items should be treated as capital expenditure in the financial statements of a sole trader? A

£500 taken by the proprietor to buy himself a music system

B

£800 spent on purchasing a new PC to replace his secretary's old one

C

£2,000 on purchasing a machine for resale

D

£150 paid to a painter for redecorating his office

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3

on non-current assets, including repairs and maintenance

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

2

A

4

LO 1d

Which of the following is an aspect of relevance, according to the IASB's Conceptual Framework? A

Neutrality

B

Free from error

C

Completeness

D

Materiality LO 1a

ICAEW 2020

Chapter 1: Introduction to accounting

3

5

According to the IASB's Conceptual Framework, which of the following are enhancing qualitative characteristics? A

Comparability, understandability, timeliness, verifiability

B

Consistency, prudence, measurability, verifiability

C

Consistency, reliability, measurability, timeliness

D

Materiality, understandability, measurability, reliability

6

In relation to the business of a sole trader, which two of the following does the government and its agencies need to be able to do? A

Establish levels of tax revenue

B

Assess whether the business will continue in existence

C

Produce national statistics

D

Assess the owner's stewardship

E

Take decisions about their investment

A

the statement of profit or loss

B

the statement of financial position

C

retained earnings

D

the statement of cash flows

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8

LO 1a

Information about an entity's financial position is primarily provided in:

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7

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1a

LO 1a

According to the IASB's Conceptual Framework, information on which two of the following areas can help users identify the reporting entity's financial strengths and weaknesses? A

The economic resources it controls

B

Its financial performance in the past

C

The demographic structure of the local economy

D

The entity's claims (the entity's liabilities)

E

Its management structure LO 1a

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Accounting: Question Bank

ICAEW 2020

According to IAS 1, Presentation of Financial Statements which two of the following are objectives of financial statements? A

To show the results of management's stewardship of the resources entrusted to it

B

To provide a basis for valuing the entity

C

To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions

D

To facilitate comparison of financial performance between entities operating in different industries

E

To assist management and those charged with governance in making timely economic decisions about deployment of the entity's resources

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LO 1a

10 Information is relevant if it is capable of making a difference in the decisions made by users. According to the IASB's Conceptual Framework, financial information is capable of making a difference in decisions if it has which of the following? Predictive value

2

Comparative value

3

Historic value

4

Confirmatory value

A

1 and 3 only

B

2 and 4 only

C

1 and 4 only

D

2 and 3 only

LO 1d

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11 The accounting principle which, in times of rising prices, tends to understate asset values and overstate profits, is: A

going concern

B

accruals

C

consistency

D

historical cost LO 1d

ICAEW 2020

Chapter 1: Introduction to accounting

5

12 Which of the following statements about accounting concepts and the characteristics of financial information is correct? Financial statements are required to give a true and fair view. These terms have clear definitions which are included in IAS 1, Presentation of Financial Statements.

B

The historical cost concept means that only items capable of being measured in monetary terms can be recognised in financial statements.

C

It may sometimes be necessary to exclude information that is relevant and reliable from financial statements because it is too difficult for some users to understand.

D

A specific disclosure requirement of an IFRS Standard need not be satisfied if the information is immaterial.

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A

LO 1d

13 Listed below are two comments on accounting conventions. 1

According to the IASB's Conceptual Framework, financial information must be either relevant or faithfully represented if it is to be useful.

2

Materiality means that only items having a physical existence may be recognised as assets.

Which, if either, of these comments is correct? 1 only

B

2 only

C

Both of them

D

Neither of them

LO 1d

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A

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AE

14 Which of the following is the best description of fair presentation in accordance with IAS 1, Presentation of Financial Statements? A

The financial statements are accurate.

B

The financial statements are as accurate as possible given the accounting systems of the organisation.

C

The directors of the company have stated that the financial statements are accurate and correctly prepared.

D

The financial statements are reliable in that they reflect the effects of transactions, other events and conditions. LO 1d

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Accounting: Question Bank

ICAEW 2020

15 Which of the following definitions for the going concern concept in accounting is the closest to the definition given in IAS 1, Presentation of Financial Statements? The directors do not intend to liquidate the entity or to cease trading in the foreseeable future.

B

The entity is able to pay its debts as and when they fall due.

C

The directors expect the entity's assets to yield future economic benefits.

D

Financial statements have been prepared on the assumption that the entity is solvent and would be able to pay all creditors in full in the event of being wound up.

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A

LO 3b

16 According to IAS 1, Presentation of Financial Statements, compliance with IFRS Standards will normally ensure that: A

the entity's inventory is valued at net realisable value

B

the entity's assets are valued at their break-up value

C

the entity's financial statements are prepared on the assumption that it is a going concern

D

the entity's financial position, financial performance and cash flows are presented fairly LO 1d, 3b

17 The directors of Lagon plc wish to omit an item from the company's financial statements on the grounds that it is commercially sensitive. Information on the item would influence the users of the information when making economic decisions. According to IAS 1, Presentation of Financial Statements the item is said to be: neutral

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A

prudent

C

material

D

understandable

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AE

B

LO 1a

18 Which three of the following are fundamental principles of the IESBA Code of Ethics for Professional Accountants? A

Integrity

B

Objectivity

C

Independence

D

Confidentiality

E

Courtesy LO 1b

ICAEW 2020

Chapter 1: Introduction to accounting

7

19 Which of the following statements is correct? A

The ICAEW Code of Ethics applies to its members only.

B

The ICAEW Code of Ethics applies to its members and employees of member firms only.

C

The ICAEW Code of Ethics applies to its members, employees of member firms and ICAEW students.

D

The ICAEW Code of Ethics applies to its members, employees of member firms, ICAEW students and all other members of UK accountancy bodies.

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LO 1b

20 Which of the following statements best describes ethical guidance in the UK?

21

A

Ethical guidance provides a set of rules which must be followed in all circumstances.

B

Ethical guidance is a framework containing a combination of rules and principles, the application of which is dependent on the professional judgement of the accountant based on the specific circumstances.

C

Ethical guidance provides a set of principles which can be applied at the discretion of the accountant.

D

Ethical guidance is a series of legal requirements.

LO 1b

There are two main approaches to a code of professional ethics: a rules-based ethical code and a code based upon a set of principles. Indicate whether the following statements are true or false.

A code based upon a set of principles requires a professional accountant to comply with a set of specific rules. True

B

False

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A

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AE

A rules-based code requires a professional accountant to identify, evaluate and address threats to compliance with fundamental ethical principles. C

True

D

False

The ICAEW uses a rules-based approach. E

True

F

False LO 1b

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Accounting: Question Bank

ICAEW 2020

Chapter 2: The accounting equation

2

The accounting equation can be written as: A

Assets + profits – drawings – liabilities = closing capital

B

Assets – liabilities – drawings = opening capital + profit

C

Assets – liabilities – opening capital + drawings = profit

D

Opening capital + profit – drawings – liabilities = assets

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

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LO 1d

The capital of a sole trader would change as a result of: A

a credit customer paying by bank transfer

B

raw materials being purchased on credit

C

non-current assets being purchased on credit

D

personal petrol being paid for out of the business's petty cash

LO 1d, 3a

A business can make a profit and yet have a decreased bank balance. Which of the following might cause this to happen? A

The sale of non-current assets at a loss

B

The charging of depreciation in the statement of profit or loss

C

The lengthening of the period of credit given to customers

D

The lengthening of the period of credit taken from suppliers

AE

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3

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4

LO 1d, 3a, 3b

The purpose of the financial statement that lists an entity's total assets and total capital/liabilities is to show: A

the financial performance of the entity over a period of time

B

the amount the entity could be sold for in liquidation

C

the amount the entity could be sold for as a going concern

D

the financial position of the entity at a particular moment in time LO 3b, 3a

ICAEW 2020

Chapter 2: The accounting equation

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5

A sole trader is £5,000 overdrawn at her bank and receives £1,000 from a credit customer in respect of its account. Which element(s) of the accounting equation will change due to this transaction? Assets and liabilities

B

Liabilities only

C

Assets only

D

Assets, liabilities and capital

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A

LO 1d

A sole trader purchases goods on credit.

Which element(s) of the accounting equation will change due to this transaction?

7

A

Assets and liabilities

B

Assets and capital

C

Capital and liabilities

D

Assets only

LO 1d

A sole trader borrows £10,000 from a bank.

Which element(s) of the accounting equation will change due to this transaction? Assets and liabilities

B

Assets and capital

C

Capital and liabilities

D

Assets only

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A

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LO 1d

A sole trader sells goods for cash for £500 which had cost £300.

Which element(s) of the accounting equation will change due to this transaction? A

Assets and liabilities

B

Assets and capital

C

Capital and liabilities

D

Assets only LO 1d

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Accounting: Question Bank

ICAEW 2020

9

A sole trader increases the business's number of motor vehicles by adding his own car to the business's fleet. Which element(s) of the accounting equation will change due to this transaction? Assets only

B

Capital only

C

Assets and capital

D

Assets and liabilities

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

10 Which three of the following are elements of financial statements as identified by the IASB’s Conceptual Framework? Income

B

Expenses

C

Profits

D

Losses

E

Obligations

F

Resources

G

Equity

LO 1d

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A

ICAEW 2020

Chapter 2: The accounting equation

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Accounting: Question Bank

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Chapter 3: Recording financial transactions 1

A business paid out £12,450 in net wages to its employees. In respect of these wages, the following amounts were shown in the statement of financial position. PAYE payable National Insurance payable

£ 2,480 1,350 1,500

– employees' – employer's

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

No other deductions were made.

Employees' gross wages, before deductions, were:

B

£27,450

C

£16,280

D

£17,780

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LO 1d

Which of the following is a source document that would be entered into the accounting system? A

Debit note

B

Credit note

C

Sales order

D

Purchase order

LO 1c

Which of the following best explains the imprest system of petty cash?

AE

3

£12,450

W

2

A

A

Each month an equal amount of cash is transferred into petty cash.

B

The exact amount of petty cash expenditure is reimbursed at intervals to maintain a fixed float.

C

Petty cash must be kept under lock and key.

D

The petty cash total must never fall below the imprest amount.

LO 1c, 1d

ICAEW 2020

Chapter 3: Recording financial transactions

13

4

On 1 April Amara had a balance of £100 (the imprest amount) in petty cash. At the end of April she has vouchers totalling £38, a receipt for a refund for stationery of £4 and a note to say that an employee was reimbursed £12 in respect of postage costs but no voucher was issued. How much does Amara need to reinstate her imprest balance at 30 April? £34

B

£46

C

£54

D

£66

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A

LO 1c

The following data has been extracted from the payroll records of Kleen Ltd for the month of February 20X1. £ PAYE 17,000 Employer's NIC 7,500 Employees' NIC 6,000 Cash paid to employees 50,000 The wage expense for the month is: A

£50,000

B

£56,000

C

£74,500

D

£80,500

LO 1c, 1d

When a purchase invoice is received from a supplier which two of the following documents would the invoice be checked to?

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Sales order

B

Purchase order

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AE

A

7

C

Remittance advice

D

Goods received note

E

Credit note

LO 1c

George purchases goods on credit from Hardeep for £1,000. £100 of these goods are defective and George returns them to Hardeep. What document would Hardeep issue to George in respect of the returned goods? A

Invoice

B

Remittance advice

C

Credit note

D

Delivery note LO 1c

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Accounting: Question Bank

ICAEW 2020

8

Oscar downloads his bank transaction report for the day. The report shows a cash payment of £412 which the computerised accounting system has not been able to match to a transaction. The unmatched payment is most likely the result of: the purchase of a new laptop for £412

B

payment to a regular credit supplier for an invoice totalling £412

C

a receipt from a credit customer in respect of an invoice for £450 on which a prompt payment discount of £38 was taken

D

the payment of net wages of £412 which is consistent with the payroll ledger

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A

LO 1c

A business has the following payroll costs for a month:

£ 112,450 15,800 9,810 11,200

Gross pay Income tax deducted Employees' national insurance Employer's national insurance

What is the net amount paid to employees for the month? A

£75,640

B

£91,440

C

£102,640

D

£86,840

W

LO 1c, 1d

AE

10 The petty cash float in a business has an imprest amount of £200. At the end of March vouchers in the petty cash box totalled £136 and the amount of cash remaining in the box was £54.

IC

Which of the following explains the difference? A

A petty cash voucher for £10 is missing.

B

An employee was given £10 too little when making a petty cash claim.

C

An employee reimbursed petty cash with £10 in respect of postage stamps used, but no voucher was prepared.

D

A voucher for £10 was put in the box but no payment was made to the employee. LO 1c

ICAEW 2020

Chapter 3: Recording financial transactions

15

11 A business has the following payroll costs for a month: Gross pay Income tax Employees' national insurance Employer's national insurance

£ 38,600 5,400 3,100 3,500

What is the wages cost to the business for the month? £38,600

B

£42,100

C

£47,100

D

£50,600

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A

LO 1c, 1d

12 Which two of the following are source documents that contain information that will be entered into a business's accounting system? Goods received note

B

Invoice to a customer

C

Purchase order to a supplier

D

Cheque to a supplier

E

Delivery note to a customer

LO 1c

IC

AE

W

A

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Accounting: Question Bank

ICAEW 2020

Chapter 4: Ledger accounting and double entry 1

Richard is a VAT registered trader whose sales and purchases carry VAT at the standard rate of 20%. Richard sells a customer goods on credit for £4,800 exclusive of VAT. What is the double entry to record this ? Debit Sales £4,800, Debit VAT £960, Credit Receivables £5,760

B

Debit Sales £4,000, Debit VAT £800, Credit Receivables £4,800

C

Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960

D

Debit Receivables £4,800, Credit Sales £4,000, Credit VAT £800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 2c

2

What transaction is represented by the entries: Debit rent, Credit landlord? A

The receipt of rental income by the business

B

The issue of an invoice for rent to a tenant

C

The receipt of an invoice for rent payable by the business

D

The payment of rent by the business

LO 1d, 2d

In double-entry bookkeeping, which of the following statements is true? A

Credit entries decrease liabilities and increase income.

B

Debit entries decrease income and increase assets.

C

Credit entries decrease expenses and increase assets.

D

Debit entries decrease expenses and increase assets.

IC

AE

W

3

4

LO 1d

A debit balance of £3,000 brought down on A Ltd's account in B Ltd's books means that B Ltd owes A Ltd £3,000. A

True

B

False LO 1d

ICAEW 2020

Chapter 4: Ledger accounting and double entry

17

5

Crimson plc paid an invoice from a credit supplier and took advantage of the early settlement discount offered. When the invoice was received and recorded, Crimson plc did not expect to take the discount. The journal entry to record the payment of the invoice is: Debit Payables, Credit Purchases, Credit Cash at bank account

B

Debit Payables, Credit Cash at bank account

C

Debit Cash at bank account, Debit Purchases, Credit Payables

D

Debit Cash at bank account, Credit Purchases, Credit Payables

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A

LO 1d

Winn Ltd has opening trade payables of £24,183 and closing trade payables of £34,655. Purchases for the period totalled £254,192 (£31,590 relating to cash purchases). Total payments recorded in the payables ledger for the period were: A

£212,130

B

£233,074

C

£243,720

D

£264,664

LO 1d, 2c

What is the correct double entry to record an invoice raised to a credit customer who is not expected to take advantage of an early settlement discount? A

Debit Revenue, Credit Receivables

B

Debit Payables, Credit Revenue

C

Debit Receivables, Credit Revenue

AE

W

7

IC

D

8

Debit Revenue, Credit Payables

LO 1d, 2c

Which of the following could be a debit entry in the payables account? A

Output VAT

B

Cash purchases total

C

Payments made to suppliers

D

Early settlement discounts given to customers LO 1d, 2c

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Accounting: Question Bank

ICAEW 2020

9

A payment has been received from a credit customer in settlement of an invoice. The customer was expected to take advantage of an early settlement discount offered, however, payment was not made within the required timeframe and the discount was not taken. The correct double entry to record the receipt of funds from the customer in full settlement of the invoice is: Debit Cash at bank, Credit Receivables, Credit Revenue

B

Debit Cash at bank, Debit Revenue, Credit Payables

C

Debit Receivables, Debit Revenue, Credit Cash at bank

D

Debit Receivables, Credit Revenue, Credit Cash at bank

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 2c

10 A business which is registered for VAT received the following invoice from one of its VAT registered suppliers: Invoice: Date:

7035 20 December 20X0

Goods: 100 @ £10 Less trade discount

£ 1,000 (50) 950

A further discount of £50 will be allowed if payment is received within 14 days.

Assume the business is not expected to make the payment within 14 days and the VAT rate is 20%.

W

What amount of VAT should have been charged on the invoice? £180

B

£190

C

£200

D

£210

IC

AE

A

ICAEW 2020

LO 1c

Chapter 4: Ledger accounting and double entry

19

20

Accounting: Question Bank

ICAEW 2020

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Chapter 5: Preparing basic financial statements 1

Anchor Ltd is preparing its financial statements. After transferring the balances on all the income and expense ledger accounts to the profit and loss ledger account, the total credits in the profit and loss ledger account exceed the total debits by £4,000. Which two of the following statements about Anchor Ltd are correct?

Anchor Ltd has made a profit for the year of £4,000.

C

To begin to calculate the closing capital account balance, Anchor Ltd should credit the capital account and debit the profit and loss ledger account with £4,000.

D

The opening balance on the profit and loss ledger account for the next reporting period is £4,000 credit.

E

The closing balance on the profit and loss ledger account of £4,000 should be deducted from the capital account to give the profit for the year.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

B

LO 3c

Which of the following would be classified as a non-current asset? A

Cash

B

Prepayments

C

Land

D

Receivables

LO 3c

Gerrard Ltd is registered for VAT. In the month of April, it sells goods to customers for a total of £89,436 excluding VAT and purchases goods from suppliers for a total of £86,790 including VAT.

AE

3

Anchor Ltd has made a loss for the year of £4,000.

W

2

A

IC

What is the net amount shown in Gerrard Ltd's VAT account at the end of April? A

£3,422 debit

B

£2,452 debit

C

£3,422 credit

D

£2,452 credit LO 3c

ICAEW 2020

Chapter 5: Preparing basic financial statements

21

5

Which of the following statements concerning preparation of financial statements is true? A

The balances on income and expense accounts are brought down at the end of the accounting period to be carried forward to the next accounting period.

B

The balances on asset and liability accounts are summarised in an additional ledger account known as the statement of financial position ledger account.

C

The statement of profit or loss ledger account is a list of all the balances extracted from the business's accounts.

D

Loss for the year is a credit entry in the statement of profit or loss ledger account.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

4

LO 3c

A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers. The balance on his trade receivables account at the end of May was: £1,500

B

£3,900

C

£8,700

D

£11,100

A

Bank overdraft

B

Drawings

C

Purchases

Delivery outwards

IC

AE

D

7

LO 3c

Which of the following would be a credit balance in the trial balance?

W

6

A

LO 1f

Plym plc is a VAT registered retailer. All transactions attract VAT at the rate of 20%. For the year to 30 June 20X7, Plym plc made purchases of £69,600 including VAT and made sales of £89,400 excluding VAT. There was no change in the figures for opening and closing inventory in the statements of financial position as at 30 June 20X6 and 20X7. What was Plym plc's gross profit for the year ended 30 June 20X7? A

£19,800

B

£4,900

C

£31,400

D

£16,500 LO 3c

22

Accounting: Question Bank

ICAEW 2020

8

Violet had an opening trade payables balance of £3,450 on 1 December. During the month of December, she sold goods totalling £6,780 to customers on credit, purchased goods totalling £5,100 from suppliers on credit and made cash purchases of £400. She also received £3,900 from credit customers and made payments to credit suppliers of £4,200. What was the balance on Violet's trade payables account at the end of December? £4,350

B

£6,330

C

£4,750

D

£2,550

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

9

A

LO 3c

The following are balances on the accounts of Luigi, a sole trader, as at the end of the current financial year and after all entries have been processed and the profit for the year has been calculated. Non-current assets Trade receivables Trade payables Bank loan Accumulated depreciation, non-current assets Inventory Accruals Prepayments Bank overdraft

£ 85,000 7,000 3,000 15,000 15,000 4,000 1,000 2,000 2,000

What is the balance on Luigi's capital account? £59,000

B

£66,000

C

£62,000

AE

W

A

IC

D

ICAEW 2020

£64,000

LO 3c

Chapter 5: Preparing basic financial statements

23

24

Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 6: Errors and corrections to accounting records and financial statements

2

Which three of the following situations are likely to result in a suspense account being used to record a transaction? A

A receipt of £135 from a customer who unexpectedly, but correctly, has taken a 3% prompt payment discount.

B

A payment of £84 made to a supplier in respect of an invoice of £70 plus VAT at 20%.

C

A receipt of £3,500 from the disposal of a van with a carrying amount of £2,700.

D

A journal entry posted by the bookkeeper to write off an irrecoverable debt of £55 in which the bookkeeper was unsure where to record the credit entry.

E

A payment made to a supplier for £90.25 in respect of an invoice for £95 on which a prompt payment discount of 5% was expected to be taken.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

LO 2b

Indicate whether the following statements are true or false.

The owner's drawings are shown on the initial trial balance. A

True

B

False

The closing inventory balance is included in the final trial balance.

D

False

IC

LO 1e

W

True

When performing a reconciliation between the bank transaction report and the cash at bank account, which two of the following would require an entry in the cash at bank account?

AE

3

C

A

Deposits credited after date

B

Direct debit on bank transaction report only

C

Bank charges

D

Bank error

E

Cheque presented after date LO 2b

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements

25

4

Epsilon's cash at bank account at 31 December 20X3 shows a balance of £565 overdrawn. On comparing this with the transaction report downloaded from the electronic banking system, the accountant discovers the following: 1

A cheque for £57 drawn by Epsilon on 29 December 20X3 has not yet been presented for payment.

2

A cheque for £92 from a customer, which was paid into the bank on 24 December 20X3, has been dishonoured on 31 December 20X3.

The correct balance in Epsilon's cash at bank account as at 31 December 20X3 is: £473 debit

B

£714 credit

C

£657 credit

D

£473 credit

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

5

A

LO 2b

Smyths's draft profit for the year is £324,700. After the draft profit was calculated, the following issues were discovered. •

Debts of £6,800 should have been written off as irrecoverable at the year end, but the journal entry was not posted.

•

The accounting system had automatically calculated and recorded depreciation, but the standing data was found to be incorrect. The depreciation rate for cars should have been updated to 20% straight-line at the start of the year, but was left as 25% straightline in error. The balance on the car cost account at the year end was £24,000. There were no additions or disposals of cars in the year.

What is Smyths's corrected profit for the year after accounting for the above issues? £323,500

B

£319,100

W

A

£313,100

D

£316,700

IC

AE

C

6

LO 2a, 2b

A company's initial trial balance includes a balance of £25,000 in a suspense account. On reviewing the exception report, the bookkeeper identified the amount as a purchase of machinery for £25,000. The amount had been correctly recorded in cash at bank but the other side of the transaction had not been matched by the accounting system. Which of the following journal entries would remove the suspense account and correctly record the purchase of machinery?

26

Accounting: Question Bank

ICAEW 2020

A B C D

DEBIT CREDIT

Plant and machinery Cash at bank account

£25,000

DEBIT CREDIT

Suspense account Plant and machinery

£25,000

DEBIT CREDIT

Plant and machinery Suspense account

£25,000

DEBIT CREDIT

Cash at bank account Suspense account

£25,000

£25,000 £25,000 £25,000 £25,000

7

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 2c

The following information relates to a bank reconciliation. The balance in the cash at bank account before taking the items below into account was £8,970 overdrawn. 1

Bank charges of £550 on the bank statement have not been entered in the cash at bank account.

2

The bank has credited the account in error with £425 which belongs to another customer.

3

Cheque payments totalling £3,275 have been entered in the cash at bank account but have not been presented for payment.

4

Cheques totalling £5,380 have been correctly entered on the debit side of the cash at bank account but have not been paid in at the bank.

What was the overdrawn balance as shown by the bank statement? £6,990

B

£10,650

C

£11,200

D

£11,625

AE

W

A

IC

8

LO 2b

Which two of the following statements about bank reconciliations are correct?

A

In preparing a bank reconciliation, unpresented cheques must be deducted from the balance shown in the bank statement.

B

A cheque from a customer paid into the bank but dishonoured must be corrected by making a debit entry in the cash at bank account.

C

An error by the bank must be corrected by an entry in the cash at bank account.

D

An overdraft is a debit balance in the bank statement.

E

Bank charges that only appear on the bank statement must be debited to the cash at bank account. LO 2b

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements

27

9

Alpha received a statement from its credit supplier Beta, showing a balance to be paid of £8,950. Alpha's payables ledger for Beta shows a balance due to Beta of £4,140. Investigation reveals the following: 1

A bank transfer made to Beta of £4,080 has not been recorded by Beta.

2

Alpha has not adjusted the payables ledger for a £40 cash discount taken by Alpha but not allowed by Beta as payment was not made on time.

3

Goods costing £380 returned by Alpha have not been recorded by Beta.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What discrepancy remains between Alpha's and Beta's records after accounting for these items? A

£9,310

B

£390

C

£310

D

£1,070

LO 2a

10 Peri's customer unexpectedly took advantage of an early settlement discount for £300, paying £3,700 on an invoice which totalled £4,000. Peri's bookkeeper was not sure where to record the discount taken and so posted the following journal entry: DEBIT DEBIT CREDIT

Cash at bank Suspense account Receivables

3,700 300

4,000

Which of the following journal entries will remove the suspense account and correctly record the discount? Debit Receivables £300, Credit Suspense account £300

B

Debit Revenue £300, Credit Suspense account £300

C

Debit Cash at bank £300, Credit Suspense account £300

D

Debit Payables £300, Credit Suspense account £300

AE

W

A

LO 2c

IC

11 Which three of the following differences between a company's cash at bank account and its bank transaction report balance as at 30 November 20X3 would feature in the bank reconciliation? A

Cheques recorded and sent to suppliers before 30 November 20X3 but not yet presented for payment

B

Omission by the bank of a cash lodgement made by the company on 26 November 20X3

C

Bank charges

D

Cheques paid in before 30 November 20X3 but not credited by the bank until 3 December 20X3

E

A customer's cheque recorded and paid in before 30 November 20X3 but dishonoured by the bank LO 2b

28

Accounting: Question Bank

ICAEW 2020

12 In performing a bank reconciliation exercise, which two of the following require an entry in the cash at bank account? A

Cheque paid in, subsequently dishonoured on the bank transaction report

B

Error by bank

C

Bank charges

D

Lodgements credited after date

E

Outstanding cheques not yet presented

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 2b

13 An error of principle would occur if plant and machinery purchased: A

was omitted from the accounting records

B

was debited to the purchases account

C

was debited to the equipment account

D

was debited to the correct account but with the wrong amount

LO 2a

14 Olivia's exception report showed £265 received in the business bank account, and correctly recorded in cash at bank, could not be matched by the accounting system and so had been posted to a suspense account. Olivia discovered that the receipt was in respect of a sales invoice for £295 on which the customer had unexpectedly taken a prompt payment discount of £30. The customer had paid within the required timeframe and so was entitled to take the discount.

W

Which of the following journal entries should Olivia now post to correctly record the receipt and clear the suspense account? Debit Trade receivables £265, Credit Suspense account £265

B

Debit Revenue £30, Debit Suspense account £265, Credit Trade receivables £295

C

Debit Suspense account £265, Credit Trade receivables £265

D

Debit Trade receivables £295, Credit Revenue £30, Credit Suspense account £265

IC

AE

A

LO 2b

15 Which of the following statements about bank reconciliations are correct? 1

All differences between the cash at bank account and the bank statement must be corrected by means of a journal entry.

2

In preparing a bank reconciliation, cheques received from credit customers before the period end but credited by the bank after the period end should reduce an overdrawn balance in the bank statement.

3

Bank charges not yet entered in the cash at bank account should be dealt with by an adjustment to the balance per the bank statement.

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements

29

4

If a cheque received from a credit customer is dishonoured after date, a credit entry in the cash at bank account is required.

A

2 and 4

B

1 and 4

C

2 and 3

D

1 and 3

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 2b

16 The following trade payables account contains some errors. All goods are purchased on credit. TRADE PAYABLES

Purchases

Purchases (Discounts received from suppliers) Trade receivables (contra) Closing balance

\\ £ 945,800

Opening balance Cash at bank account

12,600 4,200 410,400 1,373,000

£ 384,600 988,400

1,373,000

What would be the closing trade payables balance when the errors have been corrected? £325,200

B

£350,400

C

£333,600

D

£410,400

LO 2b

AE

W

A

IC

17 An error of commission is one where: A

a transaction has not been recorded

B

one side of a transaction has been recorded in the wrong account, and that account is of a different class to the correct account

C

one side of a transaction has been recorded in the wrong account, and that account is of the same class as the correct account

D

a transaction has been recorded using the wrong amount LO 2a

30

Accounting: Question Bank

ICAEW 2020

18 Owais's trial balance included a suspense account which had been automatically opened by the computerised accounting system. Using the exception report, the bookkeeper identified that the balance in the suspense account was due to the following unmatched transactions: 1

A payment to a credit supplier for £135 related to an invoice for £120. The business missed the deadline to take the early settlement discount it had expected to take.

2

A receipt of £90 from a credit customer who had unexpectedly (but appropriately) taken an early settlement discount of £10.

3

Interest received in the business bank account of £70.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What is the balance on the suspense account? A

Debit £25

B

Credit £25

C

Debit £65

D

Credit £65

LO 2b

19 All Elmo's sales and purchases attract VAT at 20%. A customer has just returned goods sold for £230 excluding VAT. The double entry for this transaction is: Debit Trade receivables £276, Credit VAT £46, Credit Revenue £230

B

Debit Revenue £276, Credit Trade receivables £276

C

Debit Revenue £230, Debit VAT £46, Credit Trade receivables £276

D

Debit Trade receivables £230, Debit VAT £46, Credit Revenue £276

LO 2c

W

A

IC

AE

20 Recording the purchase of stationery by debiting the computer equipment account would result in: A

an overstatement of profit and an overstatement of non-current assets

B

an understatement of profit and an overstatement of non-current assets

C

an overstatement of profit and an understatement of non-current assets

D

an understatement of profit and an understatement of non-current assets

ICAEW 2020

LO 2a

Chapter 6: Errors and corrections to accounting records and financial statements

31

21 In the trade payables of Magma plc, an invoice of £807 from Ferdinand has been recorded as a credit note. After correcting this error, the trade payables balance will be: A

reduced by £807

B

reduced by £1,614

C

increased by £807

D

increased by £1,614

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 2b

22 Beta Ltd has calculated a draft gross profit of £150,000 and a draft net profit of £83,000 for the year ended 31 December 20X3. Two issues were then discovered: 1

Inventory costing £5,000, with a resale value of £7,500, was received into the warehouse on 2 January 20X4 but had been included in the closing inventory amount at 31 December 20X3.

2

£10,000 relating to staff training costs was incorrectly capitalised as part of the purchase cost of a new machine which had been purchased on 1 July 20X3. Beta Ltd depreciates machinery on a straight-line basis at a rate of 20% per annum. Depreciation should be included as an administrative expense in the year.

After correcting these issues, what amounts should Beta Ltd report for gross profit and net profit? Gross profit £142,500 £145,000 £145,000 £142,500

LO 2a

AE

W

A B C D

Net profit £66,500 £69,000 £74,000 £65,500

23 Ewan, a sole trader, has taken goods valued at £1,800 for his own use. This has not been recorded in arriving at his draft profit figure. To record the drawings he:

IC

Must adjust cost of sales by: A

Debit £1,800

B

Credit £1,800

So his reported profit will: C

Increase

D

Decrease LO 2a, 2c

32

Accounting: Question Bank

ICAEW 2020

24 The debit balance in Omar plc's cash at bank account at the year end is £42,510. The following items appear in the bank reconciliation at the year end. Unpresented cheques Uncleared lodgements

£ 2,990 10,270

A cheque received from a customer for £2,470 was returned unpaid by the bank before the year end, but this has not been recorded in the cash at bank account. What was the bank balance shown by the bank statement? £37,700

B

£47,320

C

£35,230

D

£32,760

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 2b

25 Rochelle has a debit balance of £26 in Staint plc's payables ledger. Which of the following would, alone, explain this balance? A

Staint plc paid an invoice for £26 even though it had recorded a credit note that Rochelle had issued in respect of this amount.

B

Staint plc bought and paid for some goods for £26 which it then returned, but Rochelle has not yet issued a credit note.

C

Staint plc received a credit note for £26 from Rochelle but posted it to the account of Nashalle.

D

Staint plc paid a cheque to Rochelle for £53 in respect of an invoice for £79.

W

LO 2a, 2b

IC

AE

26 Catt plc has prepared a draft statement of profit or loss at 31 May 20X1 which shows a gross profit of £99,500. Catt plc has now discovered that at both the beginning and the end of the period, one line of inventory, the Sungsa, has been included at selling price: £1,240 at 31 May 20X1 and £3,720 at 1 April 20X0. The Sungsa is always sold at a mark-up of 25% by Catt plc. After correcting this error Catt plc's gross profit for the year to 31 May 20X1 is: A

£99,996

B

£99,004

C

£98,880

D

£100,120 LO 2a

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements

33

27 Mayo plc has prepared a draft statement of profit or loss that shows a net profit of £75,000 for the year ended 30 April 20X5. Subsequently, the following matters have been discovered. 1

A subscription notice for £1,000 was received in April 20X5 for the year to 30 April 20X6. Mayo plc pays the subscription in two equal instalments. The first instalment was paid on 28 April 20X5 and posted to the cash at bank account and to administrative expenses. No other entries have been made.

2

Goods that cost £400 and sold at a gross margin of 75% were returned by Dandy Ltd on 30 April 20X5, after the inventory count had taken place. No credit note was issued.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Once these matters have been dealt with Mayo plc's net profit for the year ended 30 April 20X5 will be: A

£75,400

B

£74,300

C

£75,100

D

£75,700

LO 2a

28 Hood plc has a draft net profit of £540,000. It discovered the following errors: 1

Repair costs of £6,600 incurred on 1 November 20X1 were debited to fixtures and fittings. Hood plc depreciates fixtures and fittings at 25% per annum.

2

An early settlement discount of £1,785 taken unexpectedly, but appropriately, by a customer was debited to trade receivables and credited to sales.

On correction of these errors Hood plc's net profit will be: £535,050

B

£531,480

C

£533,265

W

A

£536,430

AE

D

LO 2a

IC

29 Net profit was calculated as being £10,200. It was later discovered that capital expenditure of £3,000 had been treated as revenue expenditure, and revenue receipts of £1,400 had been treated as capital receipts. What is the net profit after correcting for these errors? A

£5,800

B

£8,600

C

£11,800

D

£14,600 LO 2a

34

Accounting: Question Bank

ICAEW 2020

30 On reviewing its cash at bank account and the transaction report downloaded from its electronic banking system, Probla plc discovers the following errors: 1

A cheque from a credit customer for £1,095 was recorded in trade receivables and cash at bank account as £1,509.

2

A cheque to a credit supplier for £89 was entered incorrectly in trade payables and the cash at bank account as £98.

What is the journal entry to correct these errors? Debit Receivables £414, Credit Payables £9, Credit Cash £405

B

Debit Cash £405, Debit Payables £9, Credit Receivables £414

C

Debit Receivables £414, Debit Payables £9, Credit Cash £423

D

Debit Cash £423, Credit Receivables £414, Credit Payables £9

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 2b

31 In relation to trade payables at the year end of 30 April 20X1, Jitka plc has discovered that: 1

a contra of £85 with trade receivables is required; and

2

an early settlement discount of £2,220, which was taken appropriately by a credit customer, was credited to revenue and debited to trade payables. Jitka plc had not expected the customer to take the discount.

Before these discoveries, the balance on trade payables was £72,560. In its statement of financial position as at 30 April 20X1 Jitka plc will have a figure for trade payables of: £70,255

B

£74,695

C

£74,865

D

£76,915

AE

W

A

LO 2a, 3c

IC

32 Topping plc's initial trial balance for the year ended 31 October 20X9 has been prepared. It shows draft profit for the period of £58,147 and a credit balance on a suspense account of £738 in respect of accrued expenses. The bookkeeper was unsure of how to record the accrual and incorrectly debited £738 to prepayments and credited the suspense account. What is Topping plc's profit after tax when this error is corrected? A

£59,623

B

£57,409

C

£58,885

D

£56,671 LO 2a

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements

35

36

Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 7: Cost of sales and inventories 1

A business has opening inventory of £7,200 and closing inventory of £8,100. Purchases for the year were £76,500, delivery inwards was £50 and delivery outwards was £180. What is the correct amount for cost of sales? £75,550

B

£75,650

C

£75,830

D

£77,450

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

2

Platoon plc is preparing its financial statements for the year ended 30 April 20X1, having extracted an initial trial balance. It had no opening inventory, its purchases in the period were £686,880 and closing inventories were valued as £18,647 on 30 April 20X1.

Which two of the following journal entries are required to record cost of sales and closing inventories at 30 April 20X1? Dr Cost of sales

£686,880; Cr Inventories

£686,880

B

Dr Purchases

£686,880; Cr Cost of sales

£686,880

C

Dr Cost of sales

£686,880; Cr Purchases

£686,880

D

Dr Inventories

£18,647; Cr Cost of sales

£18,647

E

Dr Cost of sales

£18,647; Cr Inventories

£18,647

F

Dr Inventories

£18,647; Cr Purchases

£18,647

AE

W

A

IC

3

LO 3c

Muse plc began trading on 1 January 20X8 and had zero inventories at that date. During 20X8 it made purchases of £455,000, incurred delivery inwards of £24,000, and delivery outwards of £29,000. Closing inventories at 31 December 20X8 were £52,000. What is the correct amount for cost of sales for the year ended 31 December 20X8? A

£456,000

B

£427,000

C

£432,000

D

£531,000 LO 3c

ICAEW 2020

Chapter 7: Cost of sales and inventories

37

4

Boomerang Co had 200 units in inventory at 30 November 20X1 valued at £800. During December it made the following purchases and sales. 2/12 5/12 12/12 15/12 21/12 28/12

Purchased Sold Purchased Purchased Sold Sold

1,000 700 800 300 400 500

@ @ @ @ @ @

£5.00 each £7.50 each £6.20 each £6.60 each £8.00 each £8.20 each

Which of the following is the closing inventory amount using FIFO? £4,460

B

£4,340

C

£4,620

D

£3,500

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

5

A

LO 1d

The following information relates to Camberwell plc's year-end inventory of finished goods.

Inventories category 1 Inventories category 2 Inventories category 3

Direct costs of materials and labour £ 2,470 9,360 1,450 13,280

Production overheads incurred £ 2,100 2,730 850 5,680

Expected selling and distribution overheads £ 480 150 190 820

Expected selling price £ 5,800 12,040 2,560 20,400

W

At what amount should finished goods inventory be stated in the company's statement of financial position? £13,280

B

£18,960

C

£18,760

D

£19,580

IC

AE

A

6

LO 1d

At its year end Crocodile plc has 6,000 items of product A, and 2,000 of product B, costing £10 and £5 respectively. The following information is available: Product A – 500 are defective and can only be sold at £8 each. Product B – 100 are to be sold for £4.50 each with selling expenses of £1.50 each.

38

Accounting: Question Bank

ICAEW 2020

What figure should be shown in Crocodile plc's statement of financial position for inventory? A

£57,000

B

£68,950

C

£68,800

D

£70,000

7

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d, 3c

Indicate whether the following statements are true or false.

In a period of rising prices, applying the FIFO method to determine the cost of inventories will give a lower gross profit figure than the AVCO method. A

True

B

False

Closing inventory is a debit in the statement of profit or loss. C

True

D

False

LO 1d, 2a

8

Mickey Ltd has calculated the cost of inventory using AVCO. At 1 June 20X8 there were 60 units in inventory at a cost of £12 each. On 8 June, 40 units were purchased for £15 each, and a further 50 units were purchased for £18 each on 14 June. On 21 June, 75 units were sold for £20.00 each. What is the cost of closing inventory at 30 June 20X8? £1,110

B

£1,010

AE

W

A

£900

D

£1,125

IC

C

9

LO 3c

Morgan plc's direct production cost of each unit of inventory is £46. Production overheads are £15 per unit. Currently the goods can only be sold if they are modified at a cost of £17 per unit. The selling price of each modified unit is £80 and selling costs are estimated at 10% of selling price.

ICAEW 2020

Chapter 7: Cost of sales and inventories

39

At what amount should each unmodified unit of inventory be included in the statement of financial position? A

£48

B

£55

C

£64

D

£61

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 3c

10 Indicate whether the following statements are true or false.

A van for sale by a dealer is shown as a non-current asset in its statement of financial position. A

True

B

False

Import duties are included in the cost of inventory. C

True

D

False

LO 3c

11 Which two of the following may be included when arriving at the cost of finished goods inventory for inclusion in the financial statements of a manufacturing company? Delivery inwards

B

Delivery outwards

C

Depreciation of delivery vehicles

D

Finished goods storage costs

E

Production line wages

AE

W

A

LO 1d

IC

12 Which of the following statements about inventory for the purposes of the statement of financial position is correct? A

AVCO and LIFO are both acceptable methods, under IAS 2, Inventories, of arriving at the cost of inventories.

B

The cost of inventories of finished goods may include labour and materials cost only, without including overheads.

C

Inventories should be included at the lowest of cost, net realisable value and replacement cost.

D

It may be acceptable for the cost of inventories to be based on selling price less estimated profit margin. LO 1d

40

Accounting: Question Bank

ICAEW 2020

13 A company's closing inventory at 31 January 20X3 amounted to £284,700. The following items were included, at cost, in the total: 1

400 coats, which had cost £80 each and normally sold for £150 each. Owing to a defect in manufacture, they were all sold after 31 January 20X3 at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.

2

800 skirts, which had cost £20 each. These too were found to be defective. Remedial work in February 20X3 cost £5 per skirt, and selling expenses were £1 per skirt. They were sold for £28 each.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What should be the inventory value after considering the above items? A

£281,200

B

£282,800

C

£329,200

D

£284,700

LO 1d

14 Sahara plc sells three products – Basic, Super and Luxury. The following information was available at the year end.

Original cost Estimated selling price Selling and distribution costs to be incurred

Units of inventory

Basic £ per unit 6 9 1

Super £ per unit 9 12 4

Luxury £ per unit 18 15 5

Units 200

Units 250

Units 150

What is the value of inventory at the year end? £3,600

W

A

£4,700

C

£5,100

D

£6,150

IC

AE

B

LO 1d

15 A company uses the FIFO method to arrive at its inventory cost. At 1 May 20X2 the company had 700 engines in inventory, valued at £190 each. During the year ended 30 April 20X3 the following transactions took place: 20X2 1 July 1 November

Purchased 500 engines at £220 each Sold 400 engines for £160,000

20X3 1 February 15 April

Purchased 300 engines at £230 each Sold 250 engines for £125,000

ICAEW 2020

Chapter 7: Cost of sales and inventories

41

What is the cost of the company's closing inventory of engines at 30 April 20X3? A

£188,500

B

£195,500

C

£161,500

D

£167,500

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d

16 An inventory record card shows the following details. February

1 7 14 21 28

50 units in inventory at a cost of £40 per unit 100 units purchased at a cost of £45 per unit 80 units sold 50 units purchased at a cost of £50 per unit 60 units sold

What is the cost of inventory at 28 February using the FIFO method? A

£2,450

B

£2,500

C

£2,700

D

£2,950

LO 1d

17 For the year ended 31 October 20X3 a company did a physical count of inventory on 4 November 20X3, leading to an inventory cost at this date of £483,700. Between 1 November 20X3 and 4 November 20X3 the following transactions took place: Goods costing £38,400 were received from suppliers.

2

Goods that had cost £14,800 were sold for £20,000.

3

A customer returned, in good condition, some goods which had been sold to him in October for £600 and which had cost £400.

AE

W

1

IC

4

The company returned goods that had cost £1,800 in October to the supplier, and received a credit note for them.

What figure should be shown in the company's financial statements at 31 October 20X3 for closing inventory, based on this information? A

£458,700

B

£505,900

C

£508,700

D

£461,500 LO 3c

42

Accounting: Question Bank

ICAEW 2020

18 In preparing its financial statements for the current year, a company's closing inventory was understated by £300,000. What will be the effect of this error if it remains uncorrected? The current year's profit will be overstated and next year's profit will be understated.

B

The current year's profit will be understated but there will be no effect on next year's profit.

C

The current year's profit will be understated and next year's profit will be overstated.

D

The current year's profit will be overstated but there will be no effect on next year's profit.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 2a

19 At 30 September 20X3 the closing inventory of a company amounted to £386,400. The following items were included in this total at cost: 1

1,000 items which had cost £18 each. These items were all sold in October 20X3 for £15 each, with selling expenses of £800.

2

Five items which had been in inventory for many years and which had been purchased for £100 each, sold in October 20X3 for £1,000 each, net of selling expenses.

What figure should appear in the company's statement of financial position at 30 September 20X3 for inventory? £382,600

B

£390,200

C

£368,400

D

£400,600

LO 3c

W

A

AE

20 The cost of inventory in the financial statements of Quebec Ltd for the year ended 31 December 20X4 of £836,200 was based on an inventory count on 4 January 20X5.

IC

Between 31 December 20X4 and 4 January 20X5, the following transactions took place:

Purchases of goods Sales of goods (profit margin 30% on sales) Goods returned by Quebec Ltd to a supplier

£ 8,600 14,000 700

What adjusted figure should be included in the financial statements for inventories at 31 December 20X4? A

£838,100

B

£842,300

C

£818,500

D

£834,300 LO 3c

ICAEW 2020

Chapter 7: Cost of sales and inventories

43

21 The closing inventory of Epsilon amounted to £284,000 at cost at the year end of 30 September 20X1. This total includes the following two inventory lines. 1

500 items which had cost £15 each and which were included at £7,500. These items were found to have been defective at the date of the statement of financial position. Remedial work after that date cost £1,800 and they were then sold shortly afterwards for £20 each. Selling expenses were £400.

2

100 items which had cost £10 each. After the date of the statement of financial position they were sold for £8 each, with selling expenses of £150.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What amount should be shown in Epsilon's statement of financial position for inventory? A

£283,650

B

£284,350

C

£284,650

D

£291,725

LO 3c

22 Lamp makes the following purchases in the year ending 31 December 20X9. 1 2 3 4 5

21.01.X9 30.04.X9 31.07.X9 01.09.X9 11.11.X9

Units 100 300 40 60 80

£/unit 12.00 12.50 12.80 13.00 13.50

Total (£) 1,200 3,750 512 780 1,080

At the year end 200 units are in inventory but 8 are damaged and are only worth £10 per unit. These are identified as having been part of the 11.11.X9 delivery. Lamp operates a FIFO system for arriving at the cost of inventory.

W

What is the correct figure for inventories at 31 December 20X9?: £2,450

B

£2,525

IC

AE

A

44

C

£2,594

D

£2,700

Accounting: Question Bank

LO 1d

ICAEW 2020

23 Bouncy Balls plc has 40 units of its special spongy balls in inventory as at 30 November 20X7. The product costs £5 per unit to manufacture and can be sold for £15 per unit. Half of the units in inventory at the year end have been damaged and will require rectification work costing £10 per unit before they can be sold. Selling costs are £1 per unit. What is the value of inventory at 30 November 20X7? £160

B

£180

C

£200

D

£600

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

24 The closing inventory of Stacks plc amounted to £58,200 excluding the following two inventory lines: 1

200 items which had cost £15 each. These items were found to be defective at the year-end date. Rectification work after that date amounted to £1,200 for the batch, after which they were sold for £17.50 each, with selling expenses totalling £300 for the batch.

2

400 items which had cost £2 each. All were sold after the year-end date for £1.50 each, with selling expenses of £200 for the batch.

What amount for inventory should be shown in the statement of financial position of Stacks plc? £62,000

B

£61,600

C

£60,600

D

£61,000

LO 3c

W

A

AE

25 Fenton plc is a manufacturer of PCs. The company makes two different models, the M1 and M2, and has 100 of each in inventory at the year end.

IC

Costs and related data for a unit of each model are as follows:

Costs to date Selling price Modification costs to enable sale Delivery outwards

M1 £ 230 400 110 65

M2 £ 350 500 – 75

What figure for inventory should be shown in the statement of financial position at the year end? A

£57,500

B

£58,000

C

£65,000

D

£65,500 LO 3c

ICAEW 2020

Chapter 7: Cost of sales and inventories

45

26 When calculating the cost of inventory, which of the following shows the correct method of arriving at cost? Include inward delivery costs

Include production overheads

Yes

No

B

No

Yes

C

Yes

Yes

D

No

No

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

27 A trader who sets her selling prices by adding 50% to cost actually achieved a mark-up of 45%. Which of the following factors could account for the shortfall? A

Sales were lower than expected.

B

The value of the opening inventories had been overstated.

C

The closing inventories of the business were higher than the opening inventories.

D

Goods taken from inventories by the proprietor were recorded by debiting drawings and crediting purchases with the cost of the goods. LO 2a

28 The gross profit margin is 20% where:

cost of sales is £100,000 and sales are £120,000

B

cost of sales is £100,000 and sales are £125,000

W

A

cost of sales is £80,000 and gross profit is £16,000

D

cost of sales is £80,000 and sales are £96,000

IC

AE

C

LO 2a

29 Which of the following factors could cause a company's gross profit margin to fall below the expected level? A

Overstatement of closing inventories

B

The incorrect inclusion in purchases of invoices relating to goods supplied in the following period

C

The inclusion in sales of the proceeds of sale of non-current assets

D

Increased cost of delivery borne by the company on goods sent to customers LO 1d

46

Accounting: Question Bank

ICAEW 2020

30 An extract from a business's statement of profit or loss is as follows: £ Revenue Opening inventory Purchases Closing inventory

£ 115,200

21,000 80,000 (5,000) (96,000) 19,200

What mark-up has the business applied? 14.8%

B

16.7%

C

20.0%

D

83.3%

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

31 Franz plc is a manufacturer. Its 12-month reporting period ends on 31 July and it adopts the average cost (AVCO) method of inventory usage and valuation. At 1 August 20X4 it held inventory of 2,400 units of the material Zobdo, valued at £10 each. In the year to 31 July 20X5 there were the following inventory movements of Zobdo: 14 November 20X4 28 January 20X5 7 May 20X5

Sales Purchase Sales

900 units 1,200 units for £20,100 1,800 units

What was the cost of Franz plc's closing inventory of Zobdo at 31 July 20X5? £11,700

B

£9,000

C

£15,075

W

A

£35,100

IC

AE

D

LO 1d

32 For many years Wrigley plc has experienced rising prices for raw material X, and has kept constant inventory levels. It has always used the AVCO method to arrive at the cost of inventory. What would the result be if Wrigley plc had always used the FIFO method in each successive year's financial statements? A

Lower cost of sales and higher closing inventory

B

Lower cost of sales and lower closing inventory

C

Higher cost of sales and lower closing inventory

D

Higher cost of sales and higher closing inventory LO 1d, 3a

ICAEW 2020

Chapter 7: Cost of sales and inventories

47

33 During the year ended 31 March 20X4 Boogie plc suffered a major fire at its factory, in which inventory that had cost £36,000 was destroyed. An insurance payment of 80% of the cost has been agreed but not received at the year end. Which of the following correctly completes the journal entry too take account of these matters? Debit trade and other receivables with £28,800 and: Debit Administrative expenses £36,000, Credit Purchases £28,800, Credit Revenue £36,000

B

Debit Administrative expenses £7,200, Credit Purchases £36,000

C

Debit Administrative expenses £36,000, Credit Purchases £36,000, Credit Other income £28,800

D

Debit Administrative expenses £7,200, Credit Inventory £36,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 2a, 2c

34 Percy plc started trading on 1 April 20X4. The cost of inventory shown in Percy plc's statement of financial position at 31 March 20X5, using the AVCO basis, was £6,420. Had the FIFO basis been used, the cost would have been £8,080. What is the effect of adopting the FIFO basis on Percy plc's financial statements for the year ended 31 March 20X5? A

increase profits and decrease current assets by £1,660

B

increase current assets and decrease losses by £1,660

C

increase capital and decrease current assets by £1,660

D

increase current assets and increase losses by £1,660

W

LO 1d, 3a, 3c

IC

AE

35 Kane Ltd has completed its inventory count for the period ended 30 June 20X8. The inventory count concluded that there were inventories costing £32,340 of which £1,280 were found to be damaged and so had a net realisable value of nil. What is the journal entry to record closing inventories at 30 June 20X8? A

Dr

Cost of sales

£32,340, Cr

Inventories

£32,340

Dr

Inventories

£32,340, Cr

Cost of sales

£32,340

C

Dr

Cost of sales

£31,060, Cr

Inventories

£31,060

D

Dr

Inventories

£31,060, Cr

Cost of sales

£31,060

B

LO 1d

48

Accounting: Question Bank

ICAEW 2020

Chapter 8: Irrecoverable debts and allowance for receivables 1

At 30 September 20X4, Mathieson plc's allowance for receivables was £19,500. At 30 September 20X5 it was decided to write off irrecoverable debts totalling £6,000 and to decrease the allowance for the remaining receivables to £15,000.

2

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What is the charge or credit to the statement of profit or loss in respect of irrecoverable debts for the year ended 30 September 20X5?: A

£1,500 credit

B

£1,500 debit

C

£21,000 debit

D

£21,000 credit

LO 1d

At 30 June 20X1 Cameron plc has decided to write off two debts of £1,300 and £2,150 respectively and to make an allowance of £6,631 against the remaining trade receivables balance. The balance on this allowance at 1 July 20X0 was £8,540. What is Cameron plc's irrecoverable debts expense for the year to 30 June 20X1? A

£1,541

B

£1,909

C

£3,450

D

£5,359

AE

W

LO 1d, 3c

IC

3

Enigma plc has reduced its allowance for receivables by £600. Indicate whether the following statements are true or false. This will increase gross profit by £600. A

True

B

False

This will increase net profit by £600. C

True

D

False LO 2a

ICAEW 2020

Chapter 8: Irrecoverable debts and allowance for receivables

49

4

Disaster plc's trial balance shows trade receivables of £50,000. However, no adjustment has been made for the following items. 1

£3,250 from J Crisis & Sons who have gone into liquidation. The amount is considered irrecoverable.

2

An increase in the allowance for receivables of £2,000.

3

Cash received from P Chaos of £2,500 which had previously been written off.

What is the revised trade receivables account balance after posting the above adjustments? £50,500

B

£50,200

C

£46,750

D

£49,250

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

5

At 28 February 20X4, a company's allowance for receivables was £38,000. At 28 February 20X5 it was decided to write off £28,500 of receivables and to increase the allowance for the remaining receivables to £42,000. What is the irrecoverable debts expense in the statement of profit or loss for the year ended 28 February 20X5?:

B

£28,500

C

£70,500

D

£32,500

IC

LO 1d

W

£42,000

Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year £500 was received in respect of a debt previously written off, and an allowance for receivables of £495 was considered necessary. The allowance brought down as at 1 January 20X0 was £1,000.

AE

6

A

What is the correct action for Arrow plc to take respect of irrecoverable debts for the year ended 31 December 20X0? A

charge £5

B

charge £1,005

C

write back £5

D

write back £1,005 LO 1d, 3c

50

Accounting: Question Bank

ICAEW 2020

7

During 20X5 Bow plc received £500 from a customer in respect of a balance that had previously been written off, and reduced its allowance for receivables to £100. The allowance brought down as at 1 January 20X5 was £1,000. At the year end the dishonour of a cheque received for £280 needs to be accounted for, and the debt related to it needs to be written off. What is the irrecoverable debts debit or credit in the statement of profit or loss for the year ended 31 December 20X5? £880 debit

B

£780 debit

C

£1,120 credit

D

£1,300 credit

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

8

A

LO 3c

At 31 December 20X2 a company's receivables totalled £400,000 and an allowance for receivables of £50,000 had been brought forward from the year ended 31 December 20X1. It was decided to write off debts totalling £38,000 and to adjust the allowance for receivables to £36,200.

What is the irrecoverable debts expense that should appear in the company's statement of profit or loss for the year ended 31 December 20X2?

B

£51,800

C

£38,000

D

£24,200

LO 3c

W

£36,200

At 1 July 20X2 the receivables allowance of Quaint plc was £18,000.

AE

9

A

IC

During the year ended 30 June 20X3 debts totalling £14,600 were written off. It was decided that the receivables allowance should be £16,000 as at 30 June 20X3.

What amount should appear in Quaint plc's statement of profit or loss for irrecoverable debts expense for the year ended 30 June 20X3? A

£12,600

B

£14,600

C

£16,600

D

£30,600 LO 3c

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Chapter 8: Irrecoverable debts and allowance for receivables

51

10 At 1 May trade receivables were £31,475. During May, sales of £125,000 were made on credit. Receipts from credit customers amounted to £122,500 and settlement discounts of £550 that were not expected to be taken at the date of invoice were taken by credit customers. Credit notes of £1,300 were issued to customers. What is the closing balance on trade receivables at 31 May? £34,725

B

£33,225

C

£32,125

D

£35,825

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

11 Panther plc had an allowance for receivables at 1 July 20X1 of £450. Panther plc wants to write off a receivables balance of £800 as irrecoverable and increase the allowance for receivables to £2,965. As well as crediting trade receivables with £800, what other entries must be made to record the required adjustments in Panther plc's accounting records?

A B C

Credit

Irrecoverable debts expense £3,315

Allowance for receivables £2,515

Allowance for receivables £2,515

Irrecoverable debts expense £3,315

Irrecoverable debts expense £3,765

Allowance for receivables £2,965

Allowance for receivables £2,965

Irrecoverable debts expense £3,765

LO 1d, 3c

AE

W

D

Debit

IC

12 The following trade receivables account has been prepared by an inexperienced bookkeeper and may contain errors of principle. TRADE RECEIVABLES

20X3 1 Jan Balance 31 Dec Sales Sales (discounts given to customers) Irrecoverable debts expense

£ 284,680 194,040 3,660

20X3 31 Dec Cash at bank

£

179,790 Contras with trade payables Balance

1,800 484,180

800 303,590 484,180

An outstanding debt of £4,920 at 31 December 20X3 is to be written off.

52

Accounting: Question Bank

ICAEW 2020

What is the correct figure for receivables that should appear on the statement of financial position at 31 December 20X3? A

£289,350

B

£291,350

C

£287,750

D

£297,590

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d, 3c

13 At 30 June 20X4 a company's allowance for receivables was £39,000. At 30 June 20X5 trade receivables totalled £517,000. It was decided to write off debts totalling £37,000 and to adjust the allowance for receivables to £24,000. What figure should appear in the statement of profit or loss for irrecoverable debts expense for the year ended 30 June 20X5? A

£52,000

B

£22,000

C

£37,000

D

£23,850

LO 3c

14 At 1 January 20X5 a company had an allowance for receivables of £18,000. At 31 December 20X5 the company's trade receivables were £458,000.

W

It was decided:

(a) to write off debts totalling £28,000 as irrecoverable; and

AE

(b) to adjust the allowance for receivables to £21,500.

IC

What amount for irrecoverable debts should be charged in the company's statement of profit or loss for the year ended 31 December 20X5? A

£49,500

B

£31,500

C

£32,900

D

£50,900 LO 3c

15 At 1 July 20X5 a company's allowance for receivables was £48,000. At 30 June 20X6, receivables amounted to £838,000. It was decided to write off £72,000 of these debts and adjust the allowance for receivables to £60,000.

ICAEW 2020

Chapter 8: Irrecoverable debts and allowance for receivables

53

What are the final amounts for inclusion in the company's statement of financial position at 30 June 20X6? Allowance for receivables Net balance £ £ 60,000 778,000

B

766,000

60,000

706,000

C

766,000

108,000

658,000

D

838,000

108,000

730,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

Receivables £ 838,000

LO 3c

16 The following issues arose while Atkins Ltd was preparing its financial statements for the year to 31 December 20X2. 1

£350 was received in December 20X2 in respect of a debt which had been written off in the previous year. The receipt was correctly included in the cash at bank account, but the computerised accounting system was unable to match this transaction and posted the other side of the entry to a suspense account.

2

The directors determined that that the allowance for receivables should be reduced from £900 to £800 at the year end.

What journal entries should Atkins Ltd make to account for the above issues?

Debit Irrecoverable debts expense £450, Credit Suspense £350, Credit Allowance for receivables £100

B

Debit Allowance for receivables £800, Credit Suspense £350, Credit Irrecoverable debts expense £450

C

Debit Irrecoverable debts expense £450, Debit Suspense £350, Credit Allowance for receivables £800

D

Debit Allowance for receivables £100, Debit Suspense £350, Credit Irrecoverable debts expense £450

IC

AE

W

A

LO 1d, 2d

17 If Poppy plc reduces its allowance for receivables by £300, which of the following statements is correct? A

Current assets decrease by £300

B

Current liabilities decrease by £300

C

Gross profit increases by £300

D

Net profit increases by £300 LO 2a, 3c

54

Accounting: Question Bank

ICAEW 2020

18 At 31 December 20X4 a company's trade receivables totalled £864,000 and the allowance for receivables was £48,000. It was decided that debts totalling £13,000 were to be written off, and the allowance for receivables adjusted to £42,550. Which of the following journal entries would correctly record these adjustments?

B

C D

DEBIT CREDIT

Irrecoverable debts expense Allowance for receivables

£18,450

DEBIT DEBIT CREDIT

Irrecoverable debts expense Allowance for receivables Trade receivables

£7,550 £5,450

DEBIT CREDIT

Irrecoverable debts expense Allowance for receivables

£7,550

DEBIT CREDIT CREDIT

Irrecoverable debts expense Allowance for receivables Trade receivables

£55,550

£18,450

£13,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

£7,550

£42,550 £13,000

LO 3c

19 A business has extracted its initial trial balance as at 31 December 20X7 as follows: Trial balance (extract)

Trade receivables Allowance for receivables at 1 January 20X7

Trial balance £ £ 441,500 20,300

A balance of £2,400 is to be written off as irrecoverable and the allowance for receivables is to be £21,955. What is the net trade receivables balance to be presented in the statement of financial position at 31 December 20X7? £417,145

B

£396,845

C

£419,545

AE

W

A

IC

D

£421,945

LO 2c

20 At 1 January 20X1 Urb plc received £3,000 in full settlement of a debt that had previously been written off. At 31 December 20X1 Urb plc determined that a balance of £3,600 owed by a customer was irrecoverable and should be written off. Urb plc also decided to decrease its allowance for receivables from £2,200 to £1,500 on 31 December 20X1.

ICAEW 2020

Chapter 8: Irrecoverable debts and allowance for receivables

55

What amount should Urb plc charge or credit for irrecoverable debts in the statement of profit or loss for the year ended 31 December 20X1? A

£1,300 debit

B

£1,300 credit

C

£100 debit

D

£100 credit

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 3c

21 At its year end of 28 February 20X6 Stope plc has in its accounting records a figure for trade receivables of £47,533, and an allowance for receivables of £500 at 28 February 20X5. One customer, Invincible plc, has experienced financial difficulties and has now gone into administration. Its balance of £10,380 at 28 February 20X6 is deemed to be irrecoverable and should be written off. The directors of Stope plc also wish to increase the allowance for receivables to £850. What will Stope plc record in its accounting records as at 28 February 20X6 in respect of the above transactions? A

Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,380

B

Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,730

C

Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,380

D

Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,730

W

LO 3c

AE

22 Moon plc's initial trial balance as at 31 October 20X1 has been extracted and shows the following:

IC

Trial balance (extract)

Allowance for receivables as at 1 November 20X0 Trade receivables

Trial balance £ £ 6,546

251,760

As at 31 October 20X1 Grundle's balance to Moon plc of £1,860 is irrecoverable. It is also decided that the allowance for receivables should be increased to £8,420.

56

Accounting: Question Bank

ICAEW 2020

What amount should Moon plc include as its net trade receivables figure in the statement of financial position as at 31 October 20X1? A

£235,024

B

£241,480

C

£243,340

D

£236,794

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 3c

23 Meridi plc has an allowance for receivables of £500 on 1 July 20X7. During the year to 30 June 20X8 the following events take place: 1

A cheque for £92 was recorded and correctly banked, but was returned unpaid on 29 June 20X8. No entries have yet been made for this return. The directors wish to write the debt off as irrecoverable.

2

An allowance for receivables of £475 is required at the year end.

3

A cheque received for £58 in respect of an amount written off in January 20X7 was recorded in the cash at bank account but the suspense account was used to record the other side of the transaction.

What journal entries are required as at 30 June 20X8 to account for the above issues? Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9, Credit Allowance for receivables £25

B

Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33, Credit Cash at bank £92, Credit Allowance for receivables £25

C

Debit Suspense £58, Debit Irrecoverable debts expense £67, Debit Allowance for receivables £25, Credit Cash at bank £92, Credit Receivables £58

D

Debit Suspense £58, Debit Irrecoverable debts expense £9, Debit Allowance for receivables £25, Credit Cash at bank £92

IC

AE

W

A

ICAEW 2020

LO 1d, 2d

Chapter 8: Irrecoverable debts and allowance for receivables

57

58

Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 9: Accruals and prepayments 1

A business preparing its financial statements for the year to 31 October pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from £48,000 to £60,000 from 1 March 20X4. What figure should appear for rent in the statement of profit or loss for the year ended 31 October 20X4 and in the statement of financial position as at that date?

A B C D

Statement of financial position

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statement of profit or loss £56,000

£10,000

£52,000

£5,000

£56,000

£5,000

£55,000

£10,000

LO 1d, 3c

2

A business has received telephone bills as follows: Date received

Quarter to 30 November 20X0 Quarter to 28 February 20X1 Quarter to 31 May 20X1 Quarter to 31 August 20X1 Quarter to 30 November 20X1 Quarter to 28 February 20X2

December 20X0 March 20X1 June 20X1 September 20X1 December 20X1 March 20X2

Amount of bill £ 739.20 798.00 898.80 814.80 840.00 966.00

Date paid

January 20X1 April 20X1 June 20X1 October 20X1 January 20X2 March 20X2

What amount of telephone expenses should be included in the statement of profit or loss for the year ended 31 December 20X1? £3,407.60

B

£3,351.60

AE

W

A

£3,250.80

D

£3,463.60

IC

C

ICAEW 2020

LO 1d, 3c

Chapter 9: Accruals and prepayments

59

3

A company receives rent from a large number of properties. The total cash received in the year ended 31 October 20X6 was £481,200. The following are the amounts of rent in advance and in arrears at 31 October 20X5 and 20X6. 31 October 20X5 £ 28,700 21,200

Rent received in advance Rent in arrears (all subsequently received)

31 October 20X6 £ 31,200 18,400

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What amount of rental income should be included in the company's statement of profit or loss for the year ended 31 October 20X6? A

£486,500

B

£460,900

C

£501,500

D

£475,900

LO 1d, 3c

4

A rent prepayment of £960 was treated as an accrual in a sole trader's statement of profit or loss at the year end. As a result the profit was: A

understated by £960

B

understated by £1,920

C

overstated by £1,920

D

overstated by £960

LO 1d, 3c

In the year ended 31 December 20X4 B Ltd received cash of £318,600 from subscribers to its website.

W

5

IC

AE

Details of subscriptions in advance and in arrears at the beginning and end of 20X4 are as follows:

Subscriptions received in advance Subscriptions owing

31 December 20X4 £ 28,400 18,300

31 December 20X3 £ 24,600 16,900

All subscriptions owing were subsequently received. What figure for subscriptions income should be included in the statement of profit or loss of B Ltd for 20X4? A

£321,000

B

£336,400

C

£300,800

D

£316,200 LO 1d, 3c

60

Accounting: Question Bank

ICAEW 2020

6

A company receives rent for subletting part of its office block. Rent, receivable quarterly in advance, is received as follows: Date of receipt 1 October 20X1 30 December 20X1 4 April 20X2 1 July 20X2 1 October 20X2

Period covered 3 months to 31 December 20X1 3 months to 31 March 20X2 3 months to 30 June 20X2 3 months to 30 September 20X2 3 months to 31 December 20X2

£ 7,500 7,500 9,000 9,000 9,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What figures, based on these receipts, should be included in the company's financial statements for the year ended 30 November 20X2? Statement of profit or loss

A B C D

Statement of financial position

£33,500 Debit

Accrued income (Debit) £6,000

£33,500 Credit

Deferred income (Credit) £6,000

£34,000 Credit

Deferred income (Credit) £3,000

£34,000 Credit

Accrued income (Debit) £3,000

LO 1d, 3c

7

During 20X4, Bibi paid a total of £60,000 for rent, covering the period from 1 October 20X3 to 31 March 20X5. What figures should be included in the financial statements for the year ended 31 December 20X4? Statement of profit or loss

A B C

AE

W

D

IC

8

Statement of financial position

£40,000

£10,000 Prepayment

£40,000

£15,000 Prepayment

£50,000

£10,000 Accrual

£50,000

£15,000 Accrual

LO 1d, 3c

A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent was increased from £90,000 per year to £120,000 per year as from 1 October 20X2. What rent expense and accrual should be included in the company's financial statements for the year ended 31 January 20X3? Rent expense (SPL)

Accrual (SFP)

A

£100,000

£20,000

B

£100,000

£10,000

C

£97,500

£10,000

D

£97,500

£20,000 LO 1d, 3c

ICAEW 2020

Chapter 9: Accruals and prepayments

61

9

A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 20X6: Rent in advance £ 134,600 144,400

30 June 20X5 30 June 20X6

Rent in arrears £ 4,800 8,700

Cash received from tenants in the year ended 30 June 20X6 was £834,600. All rent in arrears was subsequently received.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What figure should appear in the company's statement of profit or loss for rent receivable in the year ended 30 June 20X6? A

£840,500

B

£1,100,100

C

£569,100

D

£828,700

LO 1d, 3c

10 A company has sublet part of its offices and in the year ended 30 November 20X3 the rent receivable was: Until 30 June 20X3 From 1 July 20X3

£8,400 per year £12,000 per year

Rent was received quarterly in advance on 1 January, April, July, and October each year. What amounts should appear in the company's financial statements for the year ended 30 November 20X3? Statement of profit or loss

A

W

B C

IC

AE

D

Statement of financial position

£9,900

£2,000 in other payables

£9,900

£1,000 in other payables

£9,600

£1,000 in other payables

£9,600

£2,000 in other receivables

LO 1d, 3c

11 A business compiling its financial statements for the year to 31 July each year pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from £60,000 per year to £72,000 per year as from 1 October 20X3. What figure should be included as the rent expense in the statement of profit or loss for the year ended 31 July 20X4? A

£69,000

B

£62,000

C

£70,000

D

£63,000 LO 1d, 3c

62

Accounting: Question Bank

ICAEW 2020

12 At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the company paid £38,000 for insurance for the year to 30 September 20X5. What figures should be included for insurance in the company's financial statements for the year ended 30 June 20X5? Statement of profit or loss

Statement of financial position

£45,200

Prepayment £0

B

£39,300

Prepayment £9,500

C

£36,700

Prepayment £9,500

D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

£39,300

Prepayment £0

LO 1d, 3c

13 A company sublets part of its office accommodation. In the year ended 30 June 20X5 cash received from tenants was £83,700. Details of rent in arrears and in advance at the beginning and end of the year were: In arrears £ 3,800 4,700

30 June 20X4 30 June 20X5

In advance £ 2,400 3,000

All arrears of rent were subsequently received.

What figure for rental income should be included in the company's statement of profit or loss for the year ended 30 June 20X5? £84,000

B

£83,400

C

£80,600

D

£86,800

AE

W

A

LO 1d, 3c

IC

14 Details of a company's insurance policy are shown below:

Premium for year ended 31 March 20X6 paid April 20X5 £10,800 Premium for year ending 31 March 20X7 paid April 20X6 £12,000

What figures relating to insurance should be included in the company's financial statements for the year ended 30 June 20X6? Statement of profit or loss

Statement of financial position

A

£11,100

£9,000 prepayment (Debit)

B

£11,700

£9,000 prepayment (Debit)

C

£11,100

£9,000 accrual (Credit)

D

£11,700

£9,000 accrual (Credit) LO 1d, 3c

ICAEW 2020

Chapter 9: Accruals and prepayments

63

15 An organisation's year end is 30 September. On 1 January 20X6 the organisation took out a loan of £100,000 with annual interest of 12%. The interest is payable in equal instalments on the first day of April, July, October and January in arrears. How much should be charged to the statement of profit or loss for the year ended 30 September 20X6, and how much should be accrued on the statement of financial position? Statement of profit or loss

Statement of financial position

£12,000

£3,000

B

£9,000

£3,000

C D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

£9,000

£0

£6,000

£3,000

LO 1d, 3c

16 A business sublets part of its office accommodation.

The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The annual rent has been £24,000 for some years, but it was increased to £30,000 from 1 July 20X5. What amounts for this rent should appear in the company's financial statements for the year ended 31 January 20X6? A B C D

Statement of profit or loss

Statement of financial position

£27,500

£5,000 accrued income

£27,000

£2,500 accrued income

£27,000

£2,500 deferred income

£27,500

£5,000 deferred income

W

LO 1d, 3c

IC

AE

17 The electricity account for the year ended 30 June 20X1 was as follows. Opening balance for electricity accrued at 1 July 20X0 Payments made during the year 1 August 20X0 for three months to 31 July 20X0 1 November 20X0 for three months to 31 October 20X0 1 February 20X1 for three months to 31 January 20X1 30 June 20X1 for three months to 30 April 20X1

£ 300

600 720 900 840

On 1 August 20X1 a payment of £840 was made for the three months ended 31 July 20X1. What is the charge for electricity that should be included in the statement of profit or loss for the year ended 30 June 20X1?: A

£3,060

B

£3,320

C

£3,360

D

£3,620 LO 1d, 3c

64

Accounting: Question Bank

ICAEW 2020

18 The year end of Murphy plc is 30 November 20X1. The company pays for its gas by a standing order of £600 per month. It had an opening accrual of £400 and a closing accrual of £500. What is the correct charge for gas to be included in Murphy plc's statement of profit or loss for the year ended 30 November 20X1? £7,700

B

£7,100

C

£7,200

D

£7,300

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

19 At 31 December 20X8 Blue Anchor plc has an insurance prepayment of £250. During 20X9 they pay £800 in respect of various insurance contracts. The closing accrual for insurance is £90. What is the charge for insurance that should be included in the statement of profit or loss for the year ended 31 December 20X9? A

£460

B

£800

C

£960

D

£1,140

LO 1d, 3c

20 At 31 March 20X7, accrued rent payable was £300. During the year ended 31 March 20X8, rent paid was £4,000, including an invoice for £1,200 for the quarter ended 30 April 20X8. What is the statement of profit or loss charge for rent payable for the year ended 31 March 20X8? £3,300

B

£3,900

C

£4,100

D

£4,700

IC

AE

W

A

LO 1d, 3c

21 Constains plc has an insurance prepayment of £320 at 31 March 20X2. During the year ended 31 March 20X2 Constains plc paid two insurance bills, one for £1,300 and one for £520. What was the insurance prepayment at 31 March 20X1 if the charge for insurance for the year was £1,760? A

£200

B

£260

C

£320

D

£380 LO 1d, 3c

ICAEW 2020

Chapter 9: Accruals and prepayments

65

22 The annual insurance premium for Boost Ltd for the period 1 July 20X6 to 30 June 20X7 is £13,200, which is 10% more than the previous year. Insurance premiums are paid on 1 July. What is the statement of profit or loss charge for insurance for the year ended 31 December 20X6? £12,000

B

£12,600

C

£13,200

D

£14,520

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

23 A gas accrual for £400 at the year end was treated as a prepayment in a business's statement of profit or loss. As a result the profit was: A

understated by £400

B

overstated by £400

C

understated by £800

D

overstated by £800

LO 2a

24 At 31 December 20X2 the following matters require inclusion in a company's financial statements: On 1 January 20X2 the company made a loan of £12,000 to an employee, repayable on 30 April 20X3, charging interest at 2% per year. On the due date she repaid the loan and paid the whole of the interest due on the loan to that date.

2

The company has paid insurance £9,000 in 20X2, covering the year ending 31 August 20X3.

3

In January 20X3 the company received rent from a tenant £4,000 covering the six months to 31 December 20X2.

IC

AE

W

1

For these items, what total figures should be included in the company's statement of financial position at 31 December 20X2? Current assets

A

Current liabilities

£22,000

£240

B

£22,240

£0

C

£10,240

£0

D

£16,240

£6,000 LO 1d, 3c

66

Accounting: Question Bank

ICAEW 2020

25 Whilst reviewing the trial balance for a business it was determined that an accrual for electricity was required for £300 and that there was a prepayment of insurance of £800. What four entries are required to adjust the initial trial balance? Debit electricity

£300

B

Debit insurance

£800

C

Credit electricity

£300

D

Credit insurance

£800

E

Debit accruals

£300

F

Credit accruals

£300

G

Debit prepayments

£800

H

Credit prepayments

£800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

26 A business has an accrual for electricity at 1 January 20X7 of £215 and has paid electricity bills of £3,420 during the year to 31 December 20X7. At 31 December 20X7 there is an accrual for electricity of £310. What is the electricity charge to be included in the statement of profit or loss for the year ended 31 December 20X7? A

£2,895

B

£3,325

C

£3,515

D

£3,945

LO 1d, 3c

AE

W

27 A business has paid £10,400 of insurance premiums during the year ended 31 March 20X7. At 1 April 20X6 there was an insurance prepayment of £800 and at 31 March 20X7 there was a prepayment of £920.

IC

What is the insurance charge in the statement of profit or loss for the year ended 31 March 20X7? A

£8,680

B

£10,280

C

£10,400

D

£10,520 LO 1d, 3c

ICAEW 2020

Chapter 9: Accruals and prepayments

67

28 Wright & Co's year end is 31 August 20X4. Telephone line rental of £120 was paid on 31 July for the two months from that date. This amount was included in the accounting records by debiting the telephone expense account and crediting the cash at bank account. Which two of the following entries of £60 should Wright & Co make at the year end in relation to this expense? Debit the telephone charges account

B

Debit the prepayments account

C

Debit the accruals account

D

Credit the accruals account

E

Credit the prepayments account

F

Credit the telephone charges account

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

29 Krim plc paid local property tax of £6,495 on 31 May 20X7, in respect of the three months ending 31 August 20X7. In the administrative expenses ledger account for the year ended 30 June 20X7 Krim plc must: A

debit £2,165

B

credit £2,165

C

debit £4,330

D

credit £4,330

LO 1d

W

30 Jeremiah plc is a newsagent business and is preparing its financial statements for the year ended 31 August 20X8. There are three outstanding matters that the company has not yet accounted for. A subscription of £240 for the year ending 31 January 20X9, paid and accounted for by Jeremiah plc on 1 July 20X8.

IC

AE

1

2

Advance payments (deposits) of £75 recorded as received from customers in respect of magazines on order but not yet received at the year end.

3

An unpaid property tax demand for the six months to 30 September 20X8 for £5,400.

Which three of the following balances will appear in Jeremiah plc's statement of financial position as at 31 August 20X8? A

Deferred income £75

B

Accrued income £75

C

Prepayment £100

D

Accrual £4,500

E

Accrual £900

F

Prepayment £140 LO 1d, 3b, 3c

68

Accounting: Question Bank

ICAEW 2020

31 Minoto plc is preparing its financial statements as at 31 December 20X4. Its ledger account balance for rental income includes £9,870 rent received and included in cash at bank in 20X4 in respect of 20X3. Minoto plc should enter a journal with two entries of £9,870 as: a debit entry to the rental income account

B

a debit entry to the deferred income (liability) account

C

a debit entry to the accrued income (asset) account

D

a credit entry to the rental income account

E

a credit entry to the deferred income (liability) account

F

a credit entry to the accrued income (asset) account

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 2c, 3b

32 As at 30 November 20X4 Whitley plc had accrued distribution costs of £5,019 and prepaid distribution costs of £2,816. On 1 December 20X4 the bookkeeper processed the following opening journal: Credit Accruals £5,019, Debit Prepayments £2,816, Debit Distribution costs £2,203. During the year to 30 November 20X5 cash was paid in respect of distribution costs of £147,049 and was correctly posted to the distribution costs account. At the year end, Whitley plc's bookkeeper correctly processed closing journals to set up an accrual of £4,423 and a prepayment of £3,324 in respect of distribution costs. Which of the following journals should Whitley plc process as at 30 November 20X5 to correct the three accounts? A

Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406

B

Debit Accruals £5,019, Credit Prepayments £2,816, Credit Distribution costs £2,203

C

Debit Distribution costs £4,406, Debit Prepayments £5,632, Credit Accruals £10,038

D

Debit Distribution costs £2,203, Debit Prepayments £2,816, Credit Accruals £5,019

AE

W

LO 1d, 2c, 3b

IC

33 Bez plc draws up financial statements to 31 December in each year. It pays internet server charges for each year ending 30 April in two equal instalments, on 1 May and 1 November, in advance. It also pays telephone rental charges quarterly in arrears at the end of February, April, July and November. The total internet server charge for the year to 30 April 20X6 was £9,000. Telephone rental charges for the year commencing 1 July 20X5 were £7,440. What was the prepayment for internet server charges included in Bez plc's statement of financial position at 31 December 20X5? A

£1,500

B

£3,000

C

£2,250

ICAEW 2020

Chapter 9: Accruals and prepayments

69

What was the accrual for telephone rental charges included in Bez plc's statement of financial position at 31 December 20X5? D

£1,860

E

£1,240

F

£620 LO 1d, 3b, 3c

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

34 Butters plc is finalising certain figures that will appear in its financial statements as at 30 June 20X5. On 1 March 20X4 the company paid an annual subscription to a trade association of £21,000 for the 12 months ended 28 February 20X5. A 12.5% increase in this subscription is expected, but has not been finalised at 30 June 20X5. What will Butters included in its statement of financial position at 30 June 20X5 in respect of the subscription? A

an accrual of £15,750

B

an accrual of £7,875

C

a prepayment of £15,750

D

a prepayment of £7,875

LO 1d, 3b, 3c

35 Details of a company's insurance policy are shown below: •

Premium for year ending 31 March 20X7 paid April 20X6: £10,800

•

Insurance costs are included within administrative expenses.

What is the double entry to reverse the opening accrual or prepayment in the year ended 30 June 20X7? Dr Administrative expenses

£8,100

Cr Prepayment

B

Dr Prepayments

£8,100

Cr Administrative expenses £8,100

W

A C

Dr Administrative expenses

£2,700

Cr Accruals

D

Dr Accruals

£2,700

Cr Administrative expenses £2,700

AE IC

£8,100

£2,700

LO 1d, 2c, 3b

36 Alli Ltd owns a number of properties which are rented to tenants. Cash received from tenants in the year ended 30 June 20X6 was £834,600 which has been included as rental income in the year. The following information is available for the year ended 30 June 20X6:

30 June 20X6

Rent in advance £ 144,600

Rent in arrears £ 8,700

All rent in arrears was subsequently received.

70

Accounting: Question Bank

ICAEW 2020

What is the journal entry to adjust Alli Ltd's rental income for the year ended 30 June 20X6? Debit Accrued income £144,600, Credit Deferred income £8,700, Credit Rental income £135,900

B

Debit Accrued income £8,700, Debit Rental income £135,900, Credit Deferred income £144,600

C

Debit Deferred income £144,600, Credit Accrued income £8,700, Credit Rental income £135,900

D

Debit Deferred income £8,700, Debit Rental income £135,900, Credit Accrued income £144,600

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 2c, 3b

37 A company has occupied rented premises for some years, paying an annual rent of £120,000. From 1 April 20X6 the rent was increased to £144,000 per year. Rent is paid quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. What is the journal entry to transfer the balance on the rent expense account to the profit and loss ledger when preparing the financial statements for the year ended 30 November 20X6? A

Debit Profit and loss ledger account £136,000, Credit Rent expense

£136,000

B

Debit Rent expense £136,000, Credit Profit and loss ledger account

£136,000

C

Debit Rent expense £138,000, Credit Profit and loss ledger account

£138,000

D

Debit Profit and loss ledger account £138,000, Credit Rent expense

£138,000 LO 1d, 2c, 3b

38 What is the journal entry for an accrual of rent expenses of £500? Debit Prepayments £500, Credit Rent expense £500

W

A

Debit Accruals £500, Credit Rent expense £500

C

Debit Rent expense £500, Credit Accruals £500

D

Debit Rent expense £500, Credit Prepayments £500

IC

AE

B

LO 1d, 2c, 3b

39 At 1 July 20X4 a company had prepaid insurance of £8,200. On 1 January 20X5 the company paid £38,000 for insurance for the year to 31 December 20X5.

What is the journal entry to transfer the balance on the insurance expense account to the profit and loss ledger account for the year ended 30 June 20X5? A

Debit Profit and loss ledger account £27,200, Credit Insurance expense £27,200

B

Debit Insurance expense £27,200, Credit Profit and loss ledger account £27,200

C

Debit Profit and loss ledger account £36,700, Credit Insurance expense £36,700

D

Debit Insurance expense £36,700, Credit Profit and loss ledger account £37,600 LO 1d, 2c, 3b

ICAEW 2020

Chapter 9: Accruals and prepayments

71

72

Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 10: Non-current assets and depreciation 1

Cataract plc purchases a machine for which the supplier's list price is £28,000. Cataract plc pays £23,000 in cash and trades in an old machine, which has a carrying amount of £8,000. It is the company's policy to depreciate machines at the rate of 10% per annum on cost. What is the carrying amount of the machine after one year? £18,000

B

£25,200

C

£20,700

D

£22,200

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

2

A

LO 1d

Demolition plc purchases a machine for £15,000 on 1 January 20X1. After incurring transportation costs of £1,300 and spending £2,500 on installing the machine it breaks down and costs £600 to repair. Depreciation is charged at 10% per annum. At what carrying amount will the machine be shown in Demolition plc's statement of financial position at 31 December 20X1? £13,500

B

£14,670

C

£16,920

D

£18,800

IC

LO 3c

W

A company buys a machine on 31 August 20X0 for £22,000. It has a useful life of seven years and a residual value of £1,000. On 30 June 20X4 the machine is sold for £9,000 cash which has been recorded correctly in the cash at bank account, however a suspense account was opened to record the other side of the transaction. The company's accounting policy is to charge depreciation monthly using the straight-line method, with depreciation charged in the month of purchase but not the month of disposal.

AE

3

A

What journal entry is required to correctly record the disposal of the machine and to remove the suspense account? A

Debit Suspense account £9,000, Debit Accumulated depreciation £11,500, Debit Loss on disposal £1,500, Credit Machine cost £22,000

B

Debit Suspense account £9,000, Debit Accumulated depreciation £11,750, Debit Loss on disposal £1,250, Credit Machine cost £22,000

C

Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11,500, Credit Profit on disposal £1,500

D

Debit Machine cost £22,000, Credit Suspense account £9,000, Credit Accumulated depreciation £11,750, Credit Profit on disposal £1,250 LO 1d

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4

Derek plc purchased a van on 1 October 20X0 for a total cost of £22,000 by paying £17,500 cash and trading in an old van. The old van had cost £20,000 and the related accumulated depreciation was £14,200. The loss on disposal of the old van in Derek plc's statement of profit or loss for the year ended 31 December 20X0 is: £1,300

B

£2,000

C

£2,500

D

£5,800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

5

A

LO 3c

Vernon plc purchased some new equipment on 1 April 20X1 for £6,000. The scrap value of the new equipment in five years' time has been assessed as £300. Vernon charges depreciation monthly on the straight-line basis. What is the journal entry to record the depreciation charge for the equipment in Vernon plc's reporting period of 12 months to 30 September 20X1? Debit Depreciation expense £570, Credit Accumulated depreciation £570

B

Debit Accumulated depreciation £570, Credit Depreciation expense £570

C

Debit Depreciation expense £600, Credit Accumulated depreciation £600

D

Debit Accumulated depreciation £600, Credit Depreciation expense £600

LO 3c

A car has a list price of £23,500 but the garage gives Ride plc a 10% trade discount. In settlement the garage accepts payment of £18,000, together with an old company car. The amount to be capitalised by Ride plc for the new car is:

W

6

A

£16,200

B

£18,000

C

£21,150

D

£23,500

IC

AE

A

74

Accounting: Question Bank

LO 1d

ICAEW 2020

7

A company purchased a car for £18,000 on 1 January 20X0. The car was traded in on 1 January 20X2. The new car has a list price of £30,000 and the garage offered a part-exchange allowance of £5,000. The company provides depreciation on cars using the reducing balance method at a rate of 25% per annum. What loss on disposal will be recognised in the statement of profit or loss for the year ended 31 December 20X2? B

£8,500

C

£10,125

D

£11,175

A

To ensure funds are available for the eventual replacement of the asset

B

To comply with the consistency concept

C

To ensure the asset is included in the statement of financial position at the lower of cost and net realisable value

D

To match the cost of the non-current asset with the revenue that the asset generates LO 1d

Which of the following is excluded from the cost of a tangible non-current asset? A

Site preparation costs

B

Legal fees

C

Costs of a design error

D

Installation costs

AE IC

10

LO 3c

What is the reasoning behind charging depreciation in historical cost accounting?

W

9

£5,125

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

8

A

LO 1d

Which of the following statements about intangible assets in public company financial statements are correct?

1

Internally generated goodwill should not be capitalised.

2

Purchased goodwill should normally be amortised through the statement of profit or loss.

3

Development expenditure must be capitalised if certain conditions are met.

A

1 and 3 only

B

1 and 2 only

C

2 and 3 only

D

1, 2 and 3 LO 1d, 3c

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Chapter 10: Non-current assets and depreciation

75

11 Your firm bought a machine for £5,000 on 1 January 20X1, when it had a useful life of four years and a residual value of £1,000. Straight-line depreciation is to be applied on a monthly basis. On 31 December 20X3, the machine was sold for £1,600. The amount to be entered in the 20X3 statement of profit or loss for profit or loss on disposal is: profit of £600

B

loss of £600

C

profit of £350

D

loss of £400

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 3c

12 An asset was purchased by Prance plc on 1 January 20X1 for: Cost Annual licence fee Total

£ 1,000,000 15,000 1,015,000

The business adopts a date of 31 December as its reporting year end.

The asset was traded in for a replacement asset on 1 January 20X4 at an agreed value of £500,000. It has been depreciated at 25% per annum on the reducing-balance method.

What figure is included regarding this disposal in the statement of profit or loss for the year ended December 20X4? £25,000 profit

B

£78,125 profit

C

£62,500 loss

D

£250,000 loss

AE

W

A

LO 3c

IC

13 The asset register showed a total carrying amount of £67,460. A non-current asset costing £15,000 had been sold for £4,000, making a loss on disposal of £1,250. The balance on the asset register after accounting for the disposal is: A

£42,710

B

£51,210

C

£53,710

D

£62,210 LO 2b

76

Accounting: Question Bank

ICAEW 2020

14 On 1 January 20X5 a company purchased some plant. The invoice showed: Cost of plant Delivery to factory One year warranty covering breakdown during 20X5

£ 48,000 400 800 49,200

Modifications costing £2,200 were necessary to enable the plant to be installed.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What amount should be capitalised for the plant in the company's accounting records? A

£51,400

B

£48,000

C

£50,600

D

£48,400

LO 1d

15 A company's plant and machinery ledger account for the year ended 30 September 20X2 was as follows: PLANT AND MACHINERY £

20X1 1 Oct Balance

1 Dec Cash – addition at cost

381,200

18,000 399,200

£

20X2 1 Jun

Disposal account – cost of asset sold 30 Sep Balance

36,000 363,200 399,200

The company's policy is to charge depreciation at 20% per year on the straight-line basis. What is the journal entry to record the depreciation charge in the statement of profit or loss for the year ended 30 September 20X2? Debit Accumulated depreciation £84,040, Credit Depreciation expense £84,040

B

Debit Depreciation expense £84,040, Credit Accumulated depreciation £84,040

IC

AE

W

A

16

C

Debit Accumulated depreciation £76,840, Credit Depreciation expense £76,840

D

Debit Depreciation expense £76,840, Credit Accumulated depreciation £76,840 LO 1d, 3c

The carrying amount of a company's non-current assets was £200,000 at 1 August 20X0. During the year ended 31 July 20X1, the company sold non-current assets for £25,000 on which it made a loss of £5,000. The depreciation charge for the year was £20,000. The carrying amount of non-current assets at 31 July 20X1 is: A

£150,000

B

£175,000

C

£180,000

D

£195,000 LO 3c

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77

17

A plant account is shown below: PLANT £ 20X2 1 Jan Balance (plant purchased 20X0) 1 Apr Cash – plant purchased

£ 20X2 1 Oct

380,000 51,000 431,000

31 Dec

Disposal account cost of plant sold Balance

30,000 401,000 431,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The company's policy is to charge depreciation on plant monthly at 20% per year on the straight-line basis. What should the company's plant depreciation charge be in the statement of profit or loss for the year ended 31 December 20X2? A

£82,150

B

£79,150

C

£77,050

D

£74,050

LO 1d, 3c

18 A company's policy for depreciation of its plant and machinery is to charge depreciation monthly at 20% per year on cost. The company's plant and machinery account for the year ended 30 September 20X4 is shown below: PLANT AND MACHINERY £

IC

AE

W

20X3 1 Oct Balance (all plant purchased after 20X0) 20X4 1 Apr Cash purchase of plant

200,000

50,000 250,000

20X4 30 Jun 30 Sep

Disposal account Balance

£

40,000 210,000

250,000

What should be the depreciation charge in the statement of profit or loss for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 20X4? A

£43,000

B

£51,000

C

£42,000

D

£45,000 LO 1d, 3c

78

Accounting: Question Bank

ICAEW 2020

19 Beta plc purchased some plant and equipment on 1 July 20X1 for £40,000. The scrap value of the plant at the end of its 10-year useful life is £4,000. Beta plc's policy is to charge depreciation monthly on the straight-line basis. The journal entry to record the depreciation charge on the plant in Beta's statement of profit or loss for the reporting period of 12 months ending 30 September 20X1 should be: Debit Depreciation expense £900; Credit Accumulated depreciation £900

B

Debit Accumulated depreciation £900; Credit Depreciation expense £900

C

Debit Depreciation expense £1,000; Credit Accumulated depreciation £1,000

D

Debit Accumulated depreciation £1,000; Credit Depreciation expense £1,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

20 Exe plc, which has a year end of 31 December, purchased a machine on 1 January 20X1 for £35,000. It was depreciated at 40% per annum on the reducing balance basis. On 1 January 20X4 Exe plc part-exchanged this machine for a more advanced model. It paid £30,000 and realised a profit on disposal of £2,440. The price of the new machine was: A

£10,000

B

£34,680

C

£35,120

D

£40,000

LO 1d

W

21 Automat plc purchases a machine for which the supplier's list price is £18,000. Automat plc pays £13,000 in cash and trades in an old machine which has a carrying amount of £8,000. It is the company's policy to depreciate such machines monthly at the rate of 10% per annum on cost.

IC

AE

The carrying amount of the new machine after one year is: A

£16,200

B

£18,000

C

£18,900

D

£21,000

LO 1d, 3c

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Chapter 10: Non-current assets and depreciation

79

22 Beehive plc bought a car on 1 January 20X7 for £10,000 and decided to depreciate it at 30% per annum on a reducing balance basis. It was disposed of on 1 January 20X9 for £6,000. The net effect on the statement of profit or loss for the year ended 31 December 20X9 is a credit of: £1,100

B

£3,000

C

£4,000

D

£5,100

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

23 Ben plc has a draft net profit for the year ended 31 December 20X8 of £56,780 before accounting for the depreciation on a new machine. Ben plc purchased the machine for £120,000 on 1 October 20X8. The useful life is four years with a residual value of £4,000. Ben plc uses the straight-line method for depreciation and charges depreciation on a monthly basis. The net profit after charging depreciation on the machine for the year ended 31 December 20X8 is: A

£51,947

B

£49,530

C

£49,280

D

£27,780

W

LO 1d, 3c

IC

AE

24 Sam plc's statement of profit or loss for the year ended 31 December 20X4 showed a profit for the year of £83,600. It was later found that £18,000 paid for the purchase of a van on 1 January 20X4 had been debited to the motor expenses account. It is the company's policy to depreciate vans at 25% per year on the straight-line basis. What is the profit for the year after adjusting for this error? A

£106,100

B

£70,100

C

£97,100

D

£101,600 LO 2a

80

Accounting: Question Bank

ICAEW 2020

25 On 1 January 20X4 Joffa plc purchased a new machine at a cost of £96,720. Delivery costs were £3,660 and internal administration costs of £9,450 were incurred. At that time Joffa plc planned to replace the machine in five years, when it would have no value, and to depreciate the machine on a straight-line basis. Joffa plc decides on 1 January 20X6 that the machine only has one remaining year of useful life. There is no change to the residual value at the end of its life. How much depreciation will be charged in respect of this machine in Joffa plc's statement of profit or loss for the year ended 31 December 20X6? £58,032

B

£60,228

C

£65,898

D

£33,460

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

26 Stripes plc purchased new machinery on 1 August 20X4 for £38,000. The scrap value of the machinery at the end of its six-year useful life has been assessed as £2,000. Stripes plc's policy is to calculate depreciation monthly on the straight-line basis. The depreciation charge in Stripes plc's statement of profit or loss for year ended 31 March 20X5 should be: A

£4,000

B

£3,500

C

£6,000

D

£4,500

W

LO 1d, 3c

IC

AE

27 On 1 June 20X3 Spam plc purchased some plant at a price of £43,000. It cost £1,500 to transport the plant to Spam plc's premises and set it up, plus £900 for a licence to operate it. The plant had a useful life of eight years and a residual value of £3,500. On 1 June 20X5 the directors of Spam plc decided to change the depreciation method to reducing balance, at 40%. What is the carrying amount of Spam plc's machine in its statement of financial position at 31 May 20X6? A

£20,025

B

£20,280

C

£20,550

D

£20,955 LO 3c

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Chapter 10: Non-current assets and depreciation

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28 On 1 April 20X5 Herepath plc bought a Foxy car for £23,500. The company's depreciation policy for cars is 30% per annum using the reducing balance method. On 1 April 20X7 the Foxy was part exchanged for a Vizgo car, which had a purchase price of £28,200. Herepath plc made a payment to the seller for £19,350, in final settlement. What was Herepath plc's profit or loss on the disposal of the Foxy? £5,150 loss

B

£7,835 profit

C

£2,665 loss

D

£6,250 loss

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

29 Muncher plc includes profits and losses on disposal of non-current assets in administrative expenses in its statement of profit or loss. Depreciation is charged on fixtures and fittings at 20% using the reducing balance method. On 1 July 20X6 some fixtures that cost £4,000 on 1 July 20X3 were sold for £150. In the administrative expenses account Muncher plc must: A

debit £1,450

B

credit £1,450

C

debit £1,898

D

credit £1,898

LO 1d

IC

AE

W

30 Redruth plc began trading on 1 April 20X3. The carrying amount of plant and equipment in Redruth plc's financial statements as at 31 March 20X5 was £399,960. The cost of these assets was £614,500. On 31 March 20X6 an asset costing £11,500 was acquired. Depreciation is charged on plant and equipment monthly at an annual rate of 25% straight-line. There are no residual values. The carrying amount of Redruth plc's plant and equipment in its statement of financial position at 31 March 20X6 is: A

£254,960

B

£257,835

C

£299,970

D

£308,595 LO 3c

82

Accounting: Question Bank

ICAEW 2020

31 Morse plc has the following note to its statement of financial position relating to plant and machinery as at 31 May.

Cost Accumulated depreciation Carrying amount

20X7 £ 110,000 72,000 38,000

20X6 £ 92,000 51,000 41,000

During the year to 31 May 20X7, the following transactions occurred in relation to plant and machinery:

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Additions £39,000

Loss on disposals £2,000

Depreciation charge £27,000

What were the proceeds from disposals of plant and machinery received by Morse plc in the year to 31 May 20X7? A

£7,000

B

£8,000

C

£13,000

D

£17,000

LO 1d, 3a

32 Anaconda plc acquired a machine on 31 March 20X4, its year end, for £196,600. It made a bank transfer to the seller totalling £110,000 and traded in an old machine with a carrying amount at that date of £34,400. This machine had cost £60,000. A further sum of £42,000 was then due to the supplier of the machine as the final payment.

W

The entry made in the accounting records in respect of this transaction was to debit the suspense account with £152,000, credit cash £110,000 and credit other payables £42,000.

IC

AE

Which of the following journal entries is required to correctly reflect the purchase and disposal in Anaconda plc's accounting records? A

Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £34,400, Credit Disposal £79,000, Credit – suspense £152,000

B

Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £34,400, Credit Disposal £19,000, Credit – suspense £152,000

C

Debit Machine – cost £196,600, Debit Machine – accumulated depreciation £25,600, Credit Disposal £70,200, Credit – suspense £152,000

D

Debit Machine – cost £136,600, Debit Machine – accumulated depreciation £25,600, Credit Disposal £10,200, Credit – suspense £152,000 LO 2b, 2c

ICAEW 2020

Chapter 10: Non-current assets and depreciation

83

33 Gilbert plc acquired a new truck on 1 July 20X4 for £99,900 including VAT at 20%. The company depreciates all vehicles straight-line at 20% per annum on a monthly basis. What is the carrying amount of Gilbert plc's truck at 31 December 20X4? £89,910

B

£83,250

C

£66,600

D

£74,925

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 3c

34 Crocker plc, a retailer, depreciates all vehicles monthly over five years. On 31 October 20X9 Crocker plc bought a car at a cost of £17,625 plus VAT, trading in an old car that had cost £16,800 including VAT on 1 July 20X7. A payment of £13,500 was also made. VAT is at a rate of 20%. In respect of this disposal in its statement of profit or loss for the year ended 31 December 20X9 Crocker plc will show a loss of: A

£2,430

B

£4,835

C

£5,955

D

£1,310

LO 1d, 3c

IC

AE

W

35 Plummet plc is preparing its statement of profit or loss for the year ended 31 December 20X4. On the initial trial balance at that date administrative expenses have a debit balance of £684,000 before accounting for depreciation and profits/losses on disposal in respect of the company's computer equipment. At 31 December 20X3 Plummet plc had computer equipment that cost £1,004,408, all of which had been purchased on 1 January 20X2, and it had accumulated depreciation of £697,600. A computer system costing £6,800 was sold on 1 January 20X4 for £1,800. Computer equipment is depreciated monthly on a straight-line basis over four years. The amount to be disclosed as administrative expenses in Plummet plc's statement of profit or loss for the year ended 31 December 20X4 is: A

£933,402

B

£935,002

C

£936,702

D

£963,702 LO 1d, 3c

84

Accounting: Question Bank

ICAEW 2020

36 Dukakis plc had computer equipment with a carrying amount at 1 April 20X2 of £150,000. On that date it traded in a computer which had cost £24,000 on 1 April 20X0 for a new computer which cost £34,600, transferring £18,000 to the sellers bank account in full settlement of the purchase. Dukakis plc depreciates computers at 40% per annum on the reducing balance. What is the journal entry to record depreciation for the year ended 31 March 20X3 in respect of computers? Debit Accumulated depreciation £56,544, Credit Depreciation expense £56,544

B

Debit Accumulated depreciation £70,384, Credit Depreciation expense £70,384

C

Debit Depreciation expense £56,544, Credit Accumulated depreciation £56,544

D

Debit Depreciation expense £70,384, Credit Accumulated depreciation £70,384

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

37 The carrying amount of machinery has reduced by £10,000 following the disposal of one item of machinery. Which of the following statements relating to the disposal are correct? A

Disposal proceeds were £15,000 and the profit on disposal was £5,000

B

Disposal proceeds were £15,000 and the carrying amount of the machinery disposed of was £5,000

C

Disposal proceeds were £15,000 and the loss on disposal was £5,000

D

Disposal proceeds were £5,000 and the carrying amount of the machinery disposed of was £5,000

W

LO 1d

AE

38 Yvette purchased some plant on 1 January 20X0 for £38,000. The payment for the plant was correctly entered in the cash at bank account but was incorrectly entered on the debit side of the plant repairs account.

IC

Yvette charges depreciation monthly on the straight-line basis over five years and assumes no scrap value at the end of the life of the asset. How will Yvette's profit for the year ended 31 March 20X0 be affected by the error? A

Understated by £30,400

B

Understated by £36,100

C

Understated by £38,000

D

Overstated by £1,900 LO 2a

ICAEW 2020

Chapter 10: Non-current assets and depreciation

85

39 Asha Ltd, a manufacturing company, receives an invoice on 29 February 20X2 for work done on one of its machines. £25,500 of the cost is actually for a machine upgrade, which will improve efficiency. The accounts department do not notice and charge the whole amount of the invoice to maintenance costs. Machinery is depreciated at 25% per annum on a straight-line basis, with a proportional charge in the years of acquisition and disposal. By what amount will Asha Ltd's profit for the year to 30 June 20X2 be understated? £19,125

B

£25,500

C

£23,375

D

£21,250

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 2a

40 Whipper has an machine which cost £40,000 and has a carrying amount of £32,000 on 1 April 20X7. It is being depreciated at 20% per annum on the reducing balance basis. On 31 March 20X8, Whipper performed an impairment review and determined that the fair value less disposal costs of the machine was £22,400 and the value in use was £21,000. What is the impairment loss in respect of the machine at 31 March 20X8? A

£17,600

B

£1,600

C

£4,600

D

£3,200

LO 1d

AE

W

41 Dash has a property which cost £420,000 on 1 April 20X4. It is being depreciated on the straight-line basis over 20 years to its residual value of £40,000. On 31 March 20X9, Dash carried out an impairment review and has assessed that the property had a fair value less disposal costs of £280,000 and a value in use of £300,000.

IC

What is the impairment loss in respect of the property at 31 March 20X9? A

£15,000

B

£25,000

C

£45,000

D

£80,000 LO 1d

86

Accounting: Question Bank

ICAEW 2020

42 The directors of Ellen Ltd are considering whether any impairment has arisen in respect of its plant and machinery in the year ended 31 March 20X2. Which of the following are indicators that an impairment of plant and machinery may have occurred: There have been technological advances which means the plant and machinery is not as efficient as that currently available

2

The market capitalisation of Ellen Ltd is above the value of its non-current assets

3

The plant and machinery are being used to produce a new product which is generating more sales than the previous product

A

1 only

B

1 and 2 only

C

2 and 3 only

D

1, 2 and 3

LO 1d

IC

AE

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

ICAEW 2020

Chapter 10: Non-current assets and depreciation

87

88

Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 11: Company financial statements 1

A company's share capital consists of 20,000 25p equity shares all of which were issued at a premium of 20%. The market value of the shares is currently 70p each. What is the balance on the company's equity share capital account? £5,000

B

£6,000

C

£14,000

D

£24,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e

3

Which of the following may appear as current liabilities in a company's statement of financial position? 1

Loan due for repayment within one year

2

Taxation

3

Warranty provision

A

1, 2 and 3

B

1 and 2 only

C

1 and 3 only

D

2 and 3 only

LO 3c

At 30 June 20X5 Meredith plc had the following balances:

W

2

£m 100 80

AE

Equity shares of £1 each Share premium

IC

During the year ended 30 June 20X6, the following transactions took place:

1 September 20X5: A 1 for 2 bonus issue of equity shares, using the share premium. 1 January 20X6: A 2 for 5 rights issue at £1.50 per share, taken up fully paid. What are the balances on each account at 30 June 20X6? Share capital £m

Share premium £m

A

210

110

B

210

60

C

240

30

D

240

80 LO 1d, 1e, 3c

ICAEW 2020

Chapter 11: Company financial statements

89

4

Klaxon plc issued, for cash, 1,000,000 50p shares at a premium of 30p per share. Which of the following journals correctly records the share issue? Debit Share capital £500,000, Debit Share premium £300,000, Credit Cash at bank £800,000

B

Debit Cash at bank £800,000, Credit Share capital £500,000, Credit Share premium £300,000

C

Debit Cash at bank £1,300,000, Credit Share capital £1,000,000, Credit Share premium £300,000

D

Debit Share capital £1,000,000, Debit Share premium £300,000, Credit Cash at bank £1,300,000 LO 1d, 1e, 2c

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

5

A

Sanders plc issued 50,000 equity shares of 25p each at a premium of 50p per share. The cash received was correctly recorded but the full amount was credited to the share capital account. Which of the following journals corrects this error? A

Debit Share premium £25,000, Credit Share capital £25,000

B

Debit Share capital £25,000, Credit Share premium £25,000

C

Debit Share capital £37,500, Credit Share premium £37,500

D

Debit Share capital £25,000, Credit Cash at bank £25,000

LO 1d, 1e, 2c

6

Which of the following journals correctly records a bonus issue of shares? Debit Cash at bank, Credit Share capital

W

A

Debit Share capital, Credit Share premium

C

Debit Share premium, Credit Share capital

D

Debit Investments, Credit Cash at bank

IC

AE

B

90

Accounting: Question Bank

LO 1e, 2c

ICAEW 2020

7

At 31 December 20X1 the capital structure of a company was as follows: £ 50,000 180,000

100,000 equity shares of 50p each Share premium

During 20X2 the company made a 1 for 2 bonus issue, using the share premium for the purpose, and later issued for cash another 60,000 shares at 80p per share. What is the company's capital structure at 31 December 20X2? Equity share capital

Share premium

£130,000

£173,000

B C D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

£105,000

£173,000

£130,000

£137,000

£105,000

£137,000

LO 1d, 1e

8

Evon plc issued 1,000,000 equity shares of 25p each at a price of £1.10 per share, all received in cash. Which of the following journals records this issue? A

Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Share premium £850,000

B

Debit Share capital £250,000, Debit Share premium £850,000, Credit Cash at bank £1,100,000

C

Debit Cash at bank £1,100,000, Credit Share capital £1,100,000

D

Debit Cash at bank £1,100,000, Credit Share capital £250,000, Credit Retained earnings £850,000

AE

W

LO 1d, 1e, 2c

IC

9

In the year to 31 March 20X2 Kable had the following capital structure:

£ 50,000 70,000

200,000 equity shares of 25p each Share premium

On 15 March Kable paid an equity dividend of 15p per share. What is the total dividend paid by Kable? A

£7,500

B

£30,000

C

£50,000

D

£72,000 LO 1d

ICAEW 2020

Chapter 11: Company financial statements

91

10 Afua plc sells small electrical items. It has a year end date of 31 December 20X7. On 28 December it accepted an order from a credit customer for 100 toasters at a price of £35 per toaster. On 30 December, Afua plc dispatched 60 toasters to the customer but they were not received by the customer until 1 January 20X8. Afua plc remains responsible for the goods until they are delivered to the customer. The remaining 40 toasters were dispatched on 2 January 20X8 and received by the customer on 4 January 20X8. How much revenue should Afua plc recognise in respect of the sale of toasters in the year ended 31 December 20X7? £3,500

B

£2,100

C

£1,400

D

Nil

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 3c

11 At 30 June 20X2 Brandon plc's capital structure was as follows:

£ 125,000 100,000

500,000 equity shares of 25p each Share premium

In the year ended 30 June 20X3 the company made a 1 for 2 rights issue at £1 per share and this was taken up in full. Later in the year the company made a 1 for 5 bonus issue, using the share premium for the purpose. What was Brandon plc's capital structure at 30 June 20X3? Equity share capital

A B

W

C

IC

AE

D

Share premium

£450,000

£25,000

£225,000

£250,000

£225,000

£325,000

£212,500

£262,500

LO 1d, 3c

12 The retained earnings of Posti plc at 1 July 20X5 were £900,000. The retained earnings at 30 June 20X6 are £1,080,000. The profit for the year is £455,000. What was the total dividend paid during the year? A

£180,000

B

£275,000

C

£445,000

D

£635,000 LO 1d

92

Accounting: Question Bank

ICAEW 2020

13 At 1 July 20X4 Xando plc's capital structure was as follows: £ 500,000 400,000

Share capital 1,000,000 shares of 50p each Share premium In the year ended 30 June 20X5 Xando plc made the following share issues: 1 January 20X5: A 1 for 4 bonus issue. 1 April 20X5:

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A 1 for 10 rights issue at £1.50 per share.

What will be the balances on the company's share capital and share premium at 30 June 20X5 as a result of these issues?

A B C D

Share capital

Share premium

£687,500

£650,000

£675,000

£375,000

£687,500

£150,000

£687,500

£400,000

LO 1d, 3c

14 A company has the following capital structure:

£ 50,000 75,000

200,000 shares of 25p Share premium

It makes a 1 for 5 rights issue at £1.25, which is fully taken up by the shareholders.

W

What is the balance on the share premium account following the rights issue? £35,000

B

£75,000

C

£85,000

D

£115,000

IC

AE

A

ICAEW 2020

LO 1d, 3c

Chapter 11: Company financial statements

93

15 The equity section from the statement of financial position for Bowden Ltd as at 31 December 20X6 is as follows: £'000 Equity Share capital: equity shares of 50p each Share premium Retained earnings Total equity

5,000 900 6,300 12,200

The company decides to make a 1 for 5 bonus issue of shares on 30 June 20X7.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What will be the balances on the company's share capital and share premium at 30 June 20X7 as a result of these issues? Share capital

A B C D

Share premium

£5,900,000

£nil

£6,000,000

£nil

£5,900,000

£900,000

£4,100,000

£900,000

LO 1d, 1e

16 At 1 April 20X8 the share capital and share premium of a company were as follows: Share capital – 300,000 equity shares of 25p each Share premium

£ 75,000 200,000

During the year ended 31 March 20X9 the following events took place:

On 1 October 20X8 the company made a 1 for 5 rights issue at £1.20 per share.

2

On 1 January 20X9 the company made a 1 for 3 bonus issue using the share premium to do so.

W

1

IC

AE

What is the correct balance on the share capital account at 31 March 20X9? A

£90,000

B

£120,000

C

£360,000

D

£480,000

LO 1d, 3c

94

Accounting: Question Bank

ICAEW 2020

17 Layla plc is preparing its financial statements for the year ended 31 August 20X6. The initial trial balance shows the following balances: Prepayments at 1 September 20X5 Insurance expense

£ 1,012 3,400

Of the prepayments at 1 September 20X5, £450 related to insurance. At 31 August 20X6 prepayments will include £515 related to insurance. What amount will be included in Layla plc's statement of profit or loss for the year ended 31 August 20X6 in respect of insurance expenses? £3,495

B

£3,897

C

£2,903

D

£3,335

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

18 The retained earnings of Zippy plc at 1 January 20X8 were £926,450. The retained earnings at 31 December 20X8 are £1,426,980. During the year, Zippy plc paid a dividend of £312,000 and made a bonus issue of 500,000 25p ordinary shares from retained earnings. What is Zippy plc's profit for the year ended 31 December 20X8? £63,530

B

£1,312,530

C

£937,530

D

£313,530

LO 1d

IC

AE

W

A

ICAEW 2020

Chapter 11: Company financial statements

95

19 Which of the following journal entries may be accepted as being correct according to their narratives? Debit Credit £ £ A Wages account 38,000 Purchases account 49,000 Buildings account 87,000 Labour and materials used in construction of extension to factory B

Directors' personal accounts

Director A Director B

30,000 40,000

C

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Directors' remuneration Directors' bonuses transferred to their accounts Sales Trade receivables Correction of £10,000 received from credit customer recorded as cash sale

D

Trade receivables Suspense account Correction of misposting of discount received from supplier

70,000

10,000

10,000

2,000

2,000

LO 1d, 2c

20 At 30 June 20X2 a company had £1 million 8% loan notes in issue, interest being paid half-yearly on 30 June and 31 December. On 30 September 20X2 the company redeemed £250,000 of these loan notes at par, paying interest due to that date. On 1 April 20X3 the company issued £500,000 7% loan notes at par, interest payable half-yearly on 31 March and 30 September.

W

What figure should appear in the company's statement of profit or loss for finance costs in the year ended 30 June 20X3? £88,750

B

£82,500

C

£65,000

D

£73,750

IC

AE

A

96

Accounting: Question Bank

LO 3c

ICAEW 2020

21 A company has a balance of £3,200 (debit) on its income tax payable account at 31 December 20X7 relating to the income tax payable on the 20X6 profits. The company's estimated income tax liability for the year to 31 December 20X7 is £24,500. What is the income tax charge in the statement of profit or loss for the year ended 31 December 20X7? £21,300

B

£24,500

C

£27,700

D

£30,900

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 3c

22 A company is preparing its financial statements for the year ending 31 March 20X7. The initial trial balance has the following figures relating to tax: Income tax payable at 1 April 20X6 Income tax paid during the year ended 31 March 20X7

£ 14,300 12,700

The estimated income tax liability for the year ended 31 March 20X7 is £15,600.

What is the income tax figure for inclusion in the company's statement of profit or loss for the year ended 31 March 20X7? £12,700

B

£14,000

C

£17,200

D

£28,300

LO 3c

W

A

AE

23 Cheetah plc had a provision of £10,000 in its financial statements for the year ended 31 March 20X3 in respect of a legal claim. In July 20X4 the claim was settled at a cost of £13,000.

IC

What is the expense in respect of the legal claim included in Cheetah plc's statement of profit or loss for the year ended 31 March 20X4? A

£10,000

B

£13,000

C

£3,000

D

Nil LO 3c

ICAEW 2020

Chapter 11: Company financial statements

97

24 Camelia plc is preparing its financial statements for the year ended 30 June 20X9. Its initial trial balance shows the following balances: Accruals at 1 July 20X8 Distribution costs paid

£ 948 130,647

Of the accruals at 1 July 20X8, £586 related to distribution costs. At 30 June 20X9 the equivalent figure is £654 for distribution costs.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What amount for distribution costs should be shown in Camelia plc's statement of profit or loss for the year ended 30 June 20X9? A

£129,407

B

£130,579

C

£130,715

D

£131,887

LO 1d, 3c

25 On 1 January 20X6 Pigeon plc has £300,000 of 50p equity shares in issue, and a balance on share premium of £750,000. On 1 April 20X6 the company makes a 1 for 3 bonus issue. What is the balance on Pigeon plc's share premium at 31 December 20X6? A

£450,000

B

£550,000

C

£650,000

D

£850,000

W

LO 1d, 1e

IC

AE

26 At 1 July 20X7 Leak plc owed £524,925 to credit suppliers. In the year to 30 June 20X8 it paid credit suppliers £1,249,506 and posted £1,987,345 to trade payables in respect of goods purchased on credit. Leak plc took £12,824 in settlement discounts (which it had not expected to take) from credit suppliers. At the end of the period it processed a contra with trade receivables of £8,236. What amount for trade payables should be included in the statement of financial position of Leak plc as at 30 June 20X8? A

£1,267,352

B

£1,241,704

C

£1,258,176

D

£1,283,824 LO 3c

98

Accounting: Question Bank

ICAEW 2020

27 Monksford plc is preparing its financial statements for the year ended 31 December 20X1. Its initial trial balance shows the following balances: Income tax payable at 1 January 20X1 20X0 income tax paid in 20X1 (as finally agreed with HMRC)

£ 2,091 1,762

The estimated income tax due for the year ended 31 December 20X1 is £2,584. What is the income tax expense to be included in Monksford plc's statement of profit or loss for the year ended 31 December 20X1? £1,269

B

£2,255

C

£2,584

D

£2,913

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

28 Zenia plc is preparing its financial statements for the 12 month reporting period ended 31 August 20X6, having prepared an initial trial balance which includes the following balances: £ 948 2,733

Accruals at 1 September 20X5 Interest paid

Of the accruals at 1 September 20X5, £362 related to interest payable. At 31 August 20X6 accruals will include £419 related to interest payable. What will be the finance cost included in Zenia plc's statement of profit or loss for the 12 month reporting period ended 31 August 20X6? £2,204

B

£2,676

C

£2,733

D

£2,790

AE

W

A

LO 1d, 3c

IC

29 Wonka plc has the following ledger account balances as at 1 September 20X5: Share capital (£0.50 equity shares) Share premium Retained earnings

£200,000 £20,000 £793,442

On 1 November 20X5 Wonka plc made a 1 for 4 rights issue at £4.50 per share. On 31 August 20X6 it made a 2 for 1 bonus issue. Profit for the year to 31 August 20X6 was £100,000. What are the balances on the three ledger accounts as at 31 August 20X6? A

Share capital £1,500,000, Share premium £Nil, Retained earnings £813,442

B

Share capital £750,000, Share premium £Nil, Retained earnings £813,442

C

Share capital £750,000, Share premium £420,000, Retained earnings £393,442

D

Share capital £1,500,000, Share premium £Nil, Retained earnings £393,442 LO 1d, 1e

ICAEW 2020

Chapter 11: Company financial statements

99

30 Grease plc is a large company with a share capital of 3 million 20p equity shares. To raise funds it has made a 1 for 4 rights issue of its equity shares at £3.60 per share. The rights issue was fully taken up but only £1.9 million had been paid up at the year end, 30 September 20X2. Grease plc correctly debited cash at bank with £1.9 million and recorded the other side of the transaction in the suspense account. Which adjustment should Grease plc make to correctly record the rights issue? Debit Other receivables £2,700,000, Credit Share capital £150,000, Credit Share premium £2,550,000

B

Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital £750,000, Credit Share premium £1,950,000

C

Debit Other receivables £800,000, Credit Share capital £150,000, Credit Share premium £650,000

D

Debit Suspense £1,900,000, Debit Other receivables £800,000, Credit Share capital £150,000, Credit Share premium £2,550,000 LO 1e, 2c

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

31 Lake plc makes purchases on credit for £9,801 and purchases for cash of £107 in the year ended 31 January 20X4. The company's purchases accruals need to be £75 less than at the previous year end, and prepayments need to be £60 less. What is the figure for purchases included in cost of sales in Lake plc's statement of profit or loss for the year ended 31 January 20X4? A

£9,893

B

£9,923

C

£9,786

D

£9,908

W

LO 1d, 3c

IC

AE

32 Wombat plc is a retailer that owns no properties and only has fixtures and fittings, purchased within the last six months, as non-current assets. The company has been experiencing trading problems for some time. The directors have concluded that the company is no longer a going concern and have changed the basis of preparing the financial statements to the break-up basis. Which two of the following will be the immediate effects of changing to the break-up basis? A

All fixtures and fittings are transferred from non-current to current assets.

B

Fixtures and fittings are valued at their resale value.

C

The company ceases to trade.

D

A liquidator is appointed. LO 3b

100 Accounting: Question Bank

ICAEW 2020

33 Drange plc has share capital of 300,000 £1 shares at 1 March 20X7. These were issued at £1.50 per share. On 28 February 20X8 Drange plc made a 2 for 3 bonus issue. Before accounting for this, the balance on retained earnings at 28 February 20X8 was £717,000. What is the balance of retained earnings to be included in Drange plc's statement of financial position at 28 February 20X8? £517,000

B

£567,000

C

£667,000

D

£717,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e, 3c

34 The trial balance of Albion plc, a manufacturer, as at the year end 30 April 20X4 included the following items: 1

Depreciation of delivery vehicles

2

Delivery inwards

In the statement of profit or loss depreciation of delivery vehicles should be included in the heading: A

Cost of sales

B

Administrative expenses

C

Distribution costs

In the statement of profit or loss delivery inwards from suppliers should be included in the heading: Cost of sales

E

Administrative expenses

F

Distribution costs

AE

W

D

LO 3c

IC

35 Rembrandt plc is finalising certain figures that will appear in its financial statements as at 30 September 20X7. In its initial trial balance at that date Rembrandt plc has a figure for income tax payable as at 1 October 20X6 of £114,520. The total income tax charge in the statement of profit or loss for the year to 30 September 20X7 is £145,670, and income tax paid in the year was £123,090. What is the income tax payable balance that will appear in Rembrandt plc's statement of financial position as at 30 September 20X7? A

£91,940

B

£114,520

C

£137,100

D

£382,000 LO 3c

ICAEW 2020

Chapter 11: Company financial statements 101

36 Touch plc is finalising certain figures that will appear in its financial statements as at 30 April 20X7. Relevant initial trial balance figures are as follows: Trade and other payables (excluding interest payable) 6% debentures as at 1 May 20X6

£ 246,800 400,000

Touch plc issued 6% debentures of £120,000 at par on 1 February 20X7, repayable at par in 10 years' time. No interest was outstanding at 1 May 20X6, and the company paid interest in respect of debentures of £24,000 in the period to 30 April 20X7.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What amount for trade and other payables (including interest payable) should be shown in Touch plc's statement of financial position as at 30 April 20X7? A

£222,800

B

£246,800

C

£248,600

D

£272,600

LO 3c

37 As at 1 June 20X4 Brazil plc had 400,000 10p equity shares, which it issued in 20X1 at £2.20 each, fully paid. It also had 200,000 £1 8% irredeemable preference shares issued at par in 20X2. On 31 January 20X5 Brazil plc made a further issue of 45,000 of the £1 irredeemable 8% preference shares at £1.50 fully paid. On the same date Brazil plc made a 1 for 4 bonus issue of equity shares. Brazil plc wishes to use the share premium in respect of the bonus issue. What is the balance of share premium that Brazil plc will present in its statement of financial position as at 31 May 20X5? £452,500

B

£762,500

C

£830,000

W

A

£852,500

AE

D

LO 1d, 1e, 3c

IC

38 The retained earnings of Camel plc at 1 January 20X7 were £1,055,000. The retained earnings at 31 December 20X7 are £1,210,000. The profit for the year is £387,000. During the year Camel made a 1 for 2 bonus issue, with £65,000 paid from retained earnings. What was the total dividend paid during the year? A

£Nil

B

£167,000

C

£232,000

D

£297,000 LO 1d

102 Accounting: Question Bank

ICAEW 2020

39 At 30 June Temso plc's equity was as follows:

Equity shares of 25p each Share premium Retained earnings

20X8 £ 100,000 100,000 267,000

20X9 £ 125,000 75,000 299,000

In the year ended 30 June 20X9 Temso plc made a 1 for 4 bonus issue. Profits for the year were £44,000.

A

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What was the total dividend paid in the year? £12,000

B

£13,000

C

£37,000

D

£76,000

LO 1d

40 At 30 September 20X6 Bake plc's equity was as follows: Equity shares of 50p each Share premium Retained earnings

£ 450,000 80,000 676,000

In the year ended 30 September 20X7 Bake plc made a 1 for 3 bonus issue which was partly paid out of share premium. Retained earnings were £754,000 at 30 September 20X7 after Bake made a profit of £213,000. What was the total dividend paid in the year ended 30 September 20X7? A

£15,000

B

£65,000

£205,000

W

C

£361,000

AE

D

LO 1d

IC

41 Panther Co sells goods with a one year warranty and had a provision for warranty claims of £64,000 at 31 December 20X0. During the year ended 31 December 20X1, £25,000 in claims were paid to customers. On 31 December 20X1, Panther Co estimated that 5% of warranties would be invoked at a cost of £58,000. What amount should Panther Co charge or credit to the statement of profit or loss for the year ended 31 December 20X1 in respect of the warranty provision? A

£58,000 charge

B

£33,000 charge

C

£19,000 charge

D

£6,000 credit LO 3c

ICAEW 2020

Chapter 11: Company financial statements 103

104 Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 12: Company financial statements under IFRS standards 1 Hexham plc The following is the trial balance of Hexham plc at 31 March 20X8: £ 1,150,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

£ Sales Inventories at 1 April 20X7 Purchases Distribution costs Administrative expenses Irrecoverable debts expense Loan interest paid Land and buildings cost Plant and equipment cost Land and buildings accumulated depreciation at 1 April 20X7 Plant and equipment accumulated depreciation at 1 April 20X7 Trade receivables Allowance for receivables Bank Equity share capital (£1 shares) Share premium Bank loan Retained earnings Equity dividends paid Trade payables Advance deposits from customers

75,000 465,000 220,000 340,000 36,000 8,000 600,000 340,000

96,000 63,000

60,000

5,000 24,000 400,000 100,000 200,000 61,000

15,000

2,159,000

54,000 6,000 2,159,000

1

W

The following adjustments have yet to be accounted for:

Hexham plc holds two lines of inventory at 31 March 20X8.

AE

Details are as follows:

IC

Item

Total cost Selling price

CX100 £ 16,200 15,000

BY200 £ 76,000 83,600

2

Hexham plc paid an annual insurance premium of £16,800 for the year 1 September 20X7 to 31 August 20X8. This payment is included in administrative expenses.

3

The company's depreciation policy is as follows: Buildings

Straight-line over 50 years

Plant and equipment

10% straight-line

The cost of the land was £200,000, and all non-current assets are assumed to have zero residual values. There were no additions to or disposals of non-current assets during the year ended 31 March 20X8. Depreciation on buildings is charged to administrative expenses, and depreciation on plant and equipment is charged to cost of sales.

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 105

At the year end, trade receivables include a balance of £4,800 which is considered irrecoverable. Hexham plc wishes to adjust the allowance for receivables at 31 March 20X8 to £2,760. The company presents irrecoverable debts as other operating expenses on the face of the statement of profit or loss.

5

The bank loan was received on 1 July 20X7 and is repayable in full in five years. Interest is charged at a fixed rate of 8% per annum.

6

Income tax for the year ended 31 March 20X8 is estimated at £10,000.

7

Hexham plc products come with a six-month warranty. Management estimates that 5% of warranties will be invoked, at a cost of £15,000 to Hexham plc. Provisions are charged to other operating expenses.

8

Hexham plc paid rent of £25,000 on 27 March 20X8 which covers the period 1 April 20X8 to 30 June 20X8. This amount has been included in administrative expenses.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

4

Requirement

Prepare the statement of profit or loss for Hexham plc for the year ended 31 March 20X8 and the statement of financial position at that date. Statement of profit or loss 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 expense Profit/(loss) for year

W

Statement of financial position at 31 March 20X8

£

AE

Non-current assets Property, plant and equipment Land and buildings Plant and equipment

IC

Current assets Inventories Trade receivables Prepayments Total assets

Equity Equity share capital Share premium Retained earnings Non-current liabilities Borrowings

106 Accounting: Question Bank

ICAEW 2020

£ Current liabilities Bank overdraft Trade payables Accruals Deferred income Provision Income tax payable Total equity and liabilities

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

2 Ford plc

Ford plc is a company which publishes a single textbook and provides tuition courses relating to that text. The following trial balance was extracted from the nominal ledger of Ford plc on 31 March 20X6.

AE

W

Manufacturing costs Administrative salaries Distribution costs Inventories at 1 April 20X5 Freehold land and buildings Cost (land £1,750,000) Accumulated depreciation at 1 April 20X5 Plant and machinery Cost Accumulated depreciation at 1 April 20X5 Borrowings Trade receivables Trade payables Retained earnings at 1 April 20X5 Equity share capital – 50p nominal value Share premium Preference share capital – 5% irredeemable £1 shares Dividend paid Cash and cash equivalents Revenue Finance costs

£ 4,450,000 410,500 375,000 113,400

£

2,550,000

480,000

620,000

337,000 200,000

37,500

25,400 212,500 400,000 100,000 200,000

20,000 43,500

6,700,000

35,000 8,654,900

8,654,900

The following additional information is relevant.

The borrowings are repayable in 10 equal instalments, commencing on 1 April 20X6.

2

Revenue is made up of the following.

IC

1

Tuition fees Book sales Advances

£ 1,500,000 5,100,000 100,000 6,700,000

The tuition fees all relate to courses held during the year except for fees of £300,000 which relate to a 10-week course. Five weeks of this course had already been held by the year end. The remainder is to be held in June 20X6. The advances relate to the delivery of a new publication which Ford plc has commissioned and advertised heavily but which is not yet in production.

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 107

There were no movements of non-current assets during the year. Plant is depreciated on a 10% straight-line basis, taking into account the month of sale or purchase. Freehold buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged to cost of sales. Depreciation on freehold land and buildings is charged to administrative expenses.

4

At the year end the company was in the process of a legal action by one of its competitors which claims that Ford's textbook has breached copyright. The case is not due to be decided until June 20X6 but Ford plc's legal advisors think that the company has a 70% chance of losing the case and estimates that this would cost Ford plc £100,000.

5

One of Ford plc's customers who owed £10,000 at the year end was declared insolvent on 1 May 20X6. The liquidator does not expect to pay any money to creditors and the amount is considered irrecoverable.

6

Closing inventories at cost amounted to £120,000. Within this valuation is an over-allocation of fixed overheads, of £10,000.

7

The following should be accounted for at the year end.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

3

Income tax of £350,000 The preference dividend 8

Ford plc employed the services of a training and consultancy firm for a six month period commencing on the 1 February 20X6 for a total fee of £60,000. 50% of this fee is due for payment on 1 April 20X6, while the balance is to be paid within 30 days of the contract's conclusion. No record has been made in respect of this in the accounts of Ford plc. The contract fee should be included in administrative expenses.

9

Ford plc rent some additional office space for administrative staff. Rent is due quarterly in advance. Ford plc made a payment of £20,000 on 31 March 20X6, and this has been included in administrative expenses.

10 During the year, Ford plc issued a 1 for 4 bonus issue from share premium. This has not been reflected in the accounts. Requirement

W

Prepare the statement of profit or loss for Ford plc for the year ended 31 March 20X6 and the statement of financial position at that date.

AE

Statement of profit or loss for the year ended 31 March 20X6

£

IC

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

108 Accounting: Question Bank

ICAEW 2020

Statement of financial position at 31 March 20X6 £ Non-current assets Property, plant, and equipment Land and buildings Plant and machinery

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets Equity Equity share capital Preference share capital Retained earnings Non-current liabilities Borrowings

W

Current liabilities Borrowings Accruals Dividends payable Trade payables Deferred income Provision Income tax payable Total equity and liabilities

AE

3 Jayne plc

IC

The following trial balance was extracted from the nominal ledger of Jayne plc on 31 December 20X2. £

Accrued expenses at 31 December 20X2 Administration expenses Cost of sales Cash and bank Payables due within one year (includes preference dividends payable) Receivables Distribution costs Preference dividend paid Equity dividend paid Non-current assets at cost 10% loan (repayable in 10 years) £1 equity share capital

ICAEW 2020

£ 2,500

198,076 426,772 15,477

49,809 12,691 61,554 3,600 4,000 157,680 33,000 11,000

Chapter 12: Company financial statements under IFRS standards 109

£ 60% £1 preference share capital (irredeemable) Accumulated depreciation at 31 December 20X1 Retained earnings at 31 December 20X1 Suspense account Share premium Inventories at 31 December 20X2 Revenue Income tax at 31 December 20X1

£ 6,000 40,630 26,014 1,350 7,500

39,323

919,173

726,370 15,000 919,173

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The following additional information is relevant. 1

Jayne plc sold a motor vehicle during the year ended 31 December 20X2. The motor vehicle sold had a cost of £2,000 and a carrying amount of £1,100. Any profits or losses on disposal are treated as a cost of sales. Jayne plc for this transaction has been to record the sales proceeds in cash at bank and used the suspense account as the other side of the entry. There are no other entries in the suspense account.

2

The non-current assets account includes freehold land which cost £25,000.

Depreciation is charged at 20% on the carrying amount of depreciable assets in use at the year end. This charge is to be distributed 40% to cost of sales, 30% to distribution costs and 30% to administrative expenses. 3

A bonus issue of 1 for 5 equity shares made during the year out of the share premium account has not been reflected above.

4

Included in administrative expenses is a rates payment of £1,500 for the year to 1 April 20X3. An invoice for insurance of £1,200 for the year to 30 November 20X3 was received and processed on 5 January 20X3.

5

The following accruals are to be made. (a) Loan interest (12 months) (b) Income tax of £12,000

At 31 December 20X2 Jayne plc considers an amount owing of £453 from Mr Maguire should be written off as irrecoverable, and a further allowance for receivables of 3% of the remaining receivables is necessary. Irrecoverable debts expenses are included in administrative expenses.

AE

7

The income tax liability of £15,000 at 31 December 20X1 was settled at £15,400 in September 20X2. The payment was debited to administration expenses.

W

6

IC

8

9

Jayne plc received a letter in December 20X2 from the solicitor of a former employee claiming that their client was unfairly dismissed. Jayne plc's legal advisors estimate that there is a 70% chance that the claim will be successful and they estimate that the award to the claimant will be £20,000. Provisions are charged to administrative expenses. A cheque for £12,000, sent to a supplier, was incorrectly recorded as £21,000. This error has not been corrected in the accounting records of Jayne plc.

Requirement Prepare the statement of profit or loss for Jayne plc for the year ended 31 December 20X2 and the statement of financial position at that date.

110 Accounting: Question Bank

ICAEW 2020

Statement of profit or loss for the year ended 31 December 20X2 £

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position at 31 December 20X2

£

Non-current assets Property, plant, and equipment Land Other non-current assets

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets Equity Equity share capital Preference share capital Share premium Retained earnings

W

Non-current liabilities Borrowings

IC

AE

Current liabilities Borrowings Bank overdraft Trade payables Provision Accruals Deferred income Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 111

4 Skylar plc The trial balance for Skylar plc as at 31 October 20X7 is shown below. £'000

£'000 15,000 3,348

10,254 387 20,000 7,997 12,345

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Share capital Trade payables Trade receivables Accruals at 31 October 20X7 5% bank loan repayable in 10 years Cash at bank Retained earnings Property (freehold buildings) cost Plant and equipment cost Property (freehold buildings) – accumulated depreciation at 1 November 20X6 Plant and equipment – Accumulated depreciation at 1 November 20X6 Interest Sales Purchases Distribution costs Administrative expenses Inventories as at 1 November 20X6 Dividends paid

20,000 38,460

2,500

21,128

750

53,761

30,946 6,654 3,652 8,456 1,300 128,469

128,469

Further information

Depreciation has not yet been charged. There were no movements in non-current assets during the year. Plant is depreciated at 10% straight-line on a monthly basis taking into account the month of sale or purchase. Freehold buildings are depreciated over their useful life of 40 years. Depreciation on plant is charged to cost of sales. Depreciation on freehold buildings is charged to administrative expenses.

2

The inventories at the close of business on 31 October 20X7 had a sales value of £12,232,500. Goods are sold at an average mark-up of 25%.

The company paid £48,000 insurance costs in June 20X7, which covered the period from 1 July 20X7 to 30 June 20X8. This was included in administrative expenses in the trial balance.

AE

3

W

1

IC

4

Interest on the bank loan for the last three months of the year has not been included in the accounts in the trial balance.

5

The income tax charge for the year has been calculated as £1,254,000.

6

A cheque received from customer Broke plc for £15,000 on 27 October 20X7, which was recorded in the accounting records of Skylar plc, has not cleared. A liquidator was appointed to Broke plc on 15 November 20X7 and he has confirmed that the cheque will not be reissued. Management have advised that Broke plc's total outstanding balance of £30,000 should be written off as an irrecoverable debt and recorded in administrative expenses.

7

During the year Skylar plc renewed its contract with haulage company Distributers plc. The contract commenced on 1 September 20X7 and no payment has been made to date. The annual contract fee is £200,000.

112 Accounting: Question Bank

ICAEW 2020

8

All of Skylar's goods come with a 12 month warranty. Management estimate that 2% of these warranties will be exercised, and the cost of repair or replacement of these goods will be £250,000 in total. The warranties expense should be presented in administrative expenses.

Requirement Prepare the statement of profit or loss for Skylar plc for the year ended 31 October 20X7 and the statement of financial position at that date. Statement of profit or loss for the year ended 31 October 20X7 £'000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position at 31 October 20X7

£'000

Non-current assets Property, plant, and equipment Land and buildings Plant and equipment

W

Current assets Inventories Prepayments Trade receivables Cash and cash equivalents Total assets

IC

AE

Equity Equity share capital Retained earnings

Non-current liabilities Borrowings Current liabilities Trade payables Accruals Income tax payable Provision Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 113

5 Corolla plc Corolla plc's trial balance as at 31 October 20X8 is shown below. Debit £'000

35,152

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Share capital (£1 per share) Share premium Trade payables Land and buildings – cost Land and buildings – accumulated depreciation at 1 November 20X7 Plant and equipment – cost Plant and equipment – accumulated depreciation at 1 November 20X7 Trade receivables Accruals at 31 October 20X8 8% bank loan repayable in 10 years Cash at bank Retained earnings Interest paid Revenue Purchases Distribution costs Administrative expenses Inventories as at 1 November 20X7 Dividends paid

Credit £'000 20,000 5,000 2,798 7,000

12,500

7,400

5,436

436 15,000

9,774

9,801

600

41,620 5,443 4,789 9,032 1,500 125,846

58,411

125,846

Further information 1

The inventories at the close of business on 31 October 20X8 were valued at £7,878,000.

2

Depreciation is to be charged for the year as follows:

W

Buildings Plant and equipment

2% per annum straight-line basis 20% per annum reducing balance basis

AE

Depreciation is apportioned as follows:

IC

Cost of sales Distribution costs Administrative expenses

% 40 40 20

Land, which is non-depreciable, is included in the trial balance at a cost of £15,152,000.

3

The company began a series of television adverts for the company's range of products on 1 October 20X8 at a cost of £45,000. The adverts were to run for three months and were to be paid for in full at the end of December 20X8. Advertising expenses are to be included in distribution costs.

4

Interest on the bank loan for the last six months of the year has not been included in the accounts in the trial balance.

5

The income tax charge for the year has been calculated as £970,000.

6

During the year, Corolla plc made a 1 for 4 bonus issue of equity shares. This has not been reflected in the accounts.

114 Accounting: Question Bank

ICAEW 2020

7

Management have calculated that an allowance for receivables equal to 5% of the trade receivables balance at 31 October 20X8 is required. The allowance should be charged to administrative expenses.

8

Corolla plc paid an insurance premium for annual cover up to 30 June 20X9. Due to a reference number error, the computerised accounting system posted the payment of £45,000 to a trade supplier's account.

Requirement

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Prepare the statement of profit or loss for Corolla plc for the year ended 31 October 20X8 and the statement of financial position at that date. Statement of profit or loss for the year ended 31 October 20X8

£'000

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position at 31 October 20X8

£'000

Non-current assets Property, plant and equipment Land and buildings Plant and machinery

AE

W

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets

IC

Equity Equity share capital Retained earnings

Non-current liabilities Borrowings Current liabilities Trade payables Accruals Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 115

6 Ariel plc The following trial balance was extracted from the nominal ledger of Ariel plc on 31 March 20X2. £'000

£'000 5,000 1,347

17,630 14,000 16,276 3,600

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Equity share capital (£1 per share) Trade payables Buildings – cost/value Plant and machinery – cost/value Buildings – accumulated depreciation Plant and machinery – accumulated depreciation Trade receivables Accruals at 31 March 20X2 6% bank loan repayable in 15 years Cash at bank Retained earnings Interest paid Revenue Purchases Distribution costs Administrative expenses Inventories as at 1 April 20X1 Dividends paid

2,133

129 6,850

2,578

4,595

720

35,547

27,481 1,857 2,235 3,790 920 73,344

73,344

Further information:

The inventories at the close of business on 31 March 20X2 were valued at £4,067,000.

2

Depreciation has already been provided on property, plant and equipment for the year ended 31 March 20X2.

3

On 31 March 20X2 items of plant with a cost of £12,750,000 and accumulated depreciation of £3,100,000 were assessed to have a value of £8,500,000 in an impairment review. Any adjustment should be included in cost of sales.

The company rented some office photocopiers for the period 1 March to 30 June 20X2. The contract price for the four months was £164,000 and this was paid in full on 3 March and is charged to administrative expenses.

AE

4

W

1

IC

5

The company sourced extra warehousing space, for the storage of goods prior to their sale, for a period of three months from 1 February to 30 April 20X2. The invoice for the full three months of £114,000 was paid on 16 April. No entry has been made in the accounts for this transaction, which should be charged to distribution costs.

6

The income tax charge for the year has been calculated as £874,000.

7

On 15 April 20X2 one of the company's customers went into liquidation. Trade receivables at 31 March 20X2 include a balance of £95,000 owed by this customer. The directors have been advised that they are unlikely to receive any of this amount and wish to write the debt off as irrecoverable. Irrecoverable debts are written off to administrative expenses.

8

Ariel plc provides a warranty for certain lines of product. It is estimated that 1% of these warranties will be invoked at a cost of £25,000.

Requirement Prepare the statement of profit or loss for Ariel for the year ended 31 March 20X2 and the statement of financial position at that date.

116 Accounting: Question Bank

ICAEW 2020

Statement of profit or loss for the year ended 31 March 20X2 £'000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position at 31 March 20X2

£'000

Non-current assets Property, plant and equipment Buildings Plant and machinery

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets Equity Equity share capital Retained earnings

W

Non-current liabilities Borrowings

IC

AE

Current liabilities Trade payables Accruals Provision Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 117

7 Enercell plc The trial balance for Enercell plc as at 31 October 20X7 is shown below. £'000

£'000 20,000 2,500 5,022

15,381 580 30,000 11,996

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Equity share capital (£1 per share) Share premium Trade payables Trade receivables Accruals 5% bank loan repayable in 10 years Cash at bank Retained earnings Interest Gross profit Distribution costs Administrative expenses Dividends paid Closing inventories Property (freehold buildings) – cost Property (freehold buildings) – accumulated depreciation as at 1 November 20X6 Plant and equipment – cost Plant and equipment – accumulated depreciation as at 1 November 20X6

18,518

1,125

39,539

9,981 5,478 1,950 18,000 30,000

3,750

57,690

151,601

31,692 151,601

Further information

There were no movements in non-current assets during the year. Plant and equipment is depreciated on a 10% straight-line basis. Freehold buildings are depreciated over their useful life of 40 years. Depreciation is charged to administrative expenses.

2

The figure for closing inventories in the trial balance is the sales value (goods are sold at a mark-up of 25%). Inventory should be valued at cost.

3

The company paid £72,000 insurance costs in June 20X7, which covered the period from 1 July 20X7 to 30 June 20X8. This was included in administrative expenses in the trial balance. Interest on the bank loan for the last three months of the year has not been included in the trial balance.

AE

4

W

1

The income tax charge for the year has been calculated as £1,881,000.

6

A customer was injured by a defective product during the year and has issued proceedings against the company. Enercell plc's legal team have advised that there is a 75% probability that this will result in an estimated payout of £750,000. Provisions are charged to administrative expenses.

7

Enercell plc rented additional warehouse space during the year for a period of six months, commencing on 1 August 20X7. The rent payable is £4,000 per month, no payments have been made to date. Rent is charged to distribution costs.

8

During the year, Enercell plc issued a 1 for 10 bonus share issue from share premium.

9

A cheque which was sent on 23 October 20X7 to a supplier for £32,000 was incorrectly recorded as £23,000.

IC

5

Requirement Prepare the statement of profit or loss for Enercell plc for the year ended 31 October 20X7 and the statement of financial position at that date.

118 Accounting: Question Bank

ICAEW 2020

Statement of profit or loss for the year ended 31 October 20X7 £'000 Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statement of financial position at 31 October 20X7

£'000

Non-current assets Property, plant and equipment Buildings Plant and equipment Intangible assets Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets Equity Equity share capital Share premium Retained earnings Non-current liabilities Borrowings

IC

AE

W

Current liabilities Trade payables Accruals Income tax payable Provision Total equity and liabilities

8 Liquid plc

The following trial balance was extracted from the nominal ledger of Liquid plc on 31 December 20X6: £

Sales Inventories at 1 January 20X6 Purchases Distribution costs Administrative expenses Irrecoverable debts expense Loan interest paid Land and buildings cost Plant and equipment cost

ICAEW 2020

£ 1,590,000

35,000 600,000 236,000 169,000 15,000 3,000 975,000 267,000

Chapter 12: Company financial statements under IFRS standards 119

£

£ 178,000 95,000

45,000 8,000 300,000 50,000 50,000 55,000 5,000 20,000 4,000 2,350,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Land and buildings accumulated depreciation at 1 January 20X6 Plant and equipment accumulated depreciation at 1 January 20X6 Trade receivables Bank Equity share capital (£1 shares) Share premium Bank loan Retained earnings Equity dividends paid Trade payables Advance deposits from customers

2,350,000

The following adjustments have yet to be accounted for: 1

Inventories held at 31 December 20X6 are valued at £120,000.

2

The company's depreciation policy is as follows: Buildings

Straight-line over 50 years

Plant and equipment

10% straight-line

The cost of the land was £100,000, and all non-current assets are assumed to have zero residual values. There were no additions to or disposals of non-current assets during the year ended 31 December 20X6. Depreciation on buildings is charged to administrative expenses, and depreciation on plant and equipment is charged to cost of sales. At the year end, trade receivables include a balance of £13,000 which is considered irrecoverable. The company presents irrecoverable debts as other operating expenses in the statement of profit or loss. Management believe that an allowance for receivables of £16,000 is required in respect of the remaining trade receivables balance.

4

Liquid plc paid rent of £20,000 on 20 December 20X6 which covers the period 1 April 20X6 to 31 March 20X7. This amount has been included in distribution costs. Liquid plc's annual insurance premium for plant and equipment is £10,000 for the year ended 31 December 20X6. Liquid paid £5,000 in respect of this on 25 November 20X6. This payment is included in administrative expenses.

AE

5

W

3

During the year, the company offered a 1 for 6 bonus issue to shareholders, from share premium.

7

The bank loan was received on 1 July 20X6 and is repayable in full in five years. Interest is charged at a fixed rate of 12% per annum.

8

Income tax for the year ended 31 December 20X6 is estimated at £45,000.

9

Liquid plc products come with a 6 month warranty. Management estimates that 5% of warranties will be invoked, at a cost of £25,000 to Liquid plc. Provisions are charged to other operating expenses.

IC

6

Requirement Prepare the statement of profit or loss for Liquid plc for the year ended 31 December 20X6 and the statement of financial position at that date.

120 Accounting: Question Bank

ICAEW 2020

Statement of profit or loss for the year ended 31 December 20X6 £

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

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 expense Profit/(loss) for the period

Statement of financial position at 31 December 20X6

£

Non-current assets Property, plant and equipment Land and buildings Plant and equipment Intangible assets

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets

W

Equity Equity share capital Preference share capital Share premium Retained earnings

AE

Non-current liabilities Borrowings

IC

Current liabilities Borrowings Bank overdraft Trade payables Accruals Deferred income Provision Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 121

9 Colbolt plc The trial balance for Colbolt plc as at 31 March 20X7 is shown below. £

£ 18,000 4,500 7,954

12,039

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Equity share capital (£1 per share) Share premium Trade payables Trade receivables Accruals 6% bank loan repayable in 10 years Cash at bank Retained earnings Interest Gross profit Distribution costs Administrative expenses Dividends paid Closing inventories Property (freehold buildings) – cost Property (freehold buildings) – accumulated depreciation as at 1 April 20X6 Plant and equipment – cost Plant and equipment – accumulated depreciation as at 1 April 20X6

140 25,000

9,997

21,722

1,125

33,931

4,548 8,800 2,100 19,000 32,520

4,878

57,688

147,817

31,692 147,817

Further information

Plant and equipment is depreciated on a 12.5% straight-line basis. Freehold buildings are depreciated over their useful life of 40 years. Depreciation is to be charged to administrative expenses.

2

The figure for closing inventories in the trial balance is the sales value (goods are sold at a mark-up of 20%). Inventory should be valued at cost of sales.

3

The bank loan was taken out in 20X4, therefore a full year's interest needs to be recorded. Interest on the bank loan for the last three months of the year has not been included in the trial balance. The income tax charge for the year has been calculated as £1,566.

AE

4

W

1

During the year, Colbolt plc issued a 1 for 10 bonus share issue from share premium.

6

A cheque which was sent on 23 March 20X7 to a supplier for £12 was incorrectly recorded as £21.

IC

5

7

Colbolt plc received notice on 15 April 20X7 that one of its customers, Pulse Limited, had gone into liquidation and the debt requires to be written off as irrecoverable. This customer owed £165 at the year end. Colbolt plc decided to create an allowance for receivables on the remaining trade receivables balance of £4,500. Irrecoverable debts are charged to administrative expenses.

8

Colbolt plc rents some additional office space for administrative staff. Rent is due quarterly in advance. Colbolt plc made a payment of £30 on 28 February 20X7, and this has been included in administrative expenses.

9

On 31 March 20X7 items of plant with a cost of £8,000 and accumulated depreciation of £3,100 were assessed to have a value of £4,500 in an impairment review. Any adjustment should be included in cost of sales.

122 Accounting: Question Bank

ICAEW 2020

Requirement Prepare the statement of profit or loss for Colbolt plc for the year ended 31 March 20X7 and the statement of financial position at that date. Statement of profit or loss for the year ended 31 March 20X7 £

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position at 31 March 20X7

£

Non-current assets Property, plant and equipment Freehold buildings Plant and equipment Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets

W

Equity Equity share capital Share premium Retained earnings

AE

Non-current liabilities Borrowings

IC

Current liabilities Trade payables Accruals Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 123

10 Waterford plc The trial balance for Waterford plc as at 31 May 20X6 is shown below. £

8,890 567 14,000 5,678

48,144

600

45,998

27,557 10,089 600 3,757 80,000

7,000

26,100

7,086

17,000

5,200

180,271

1

£ 25,000 9,000 675

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Equity share capital (£1 per share) Share premium Trade payables Trade receivables Accruals 7.5% bank loan repayable in 8 years Cash at bank Retained earnings Interest Gross profit Administrative expenses Distribution costs Dividends paid Closing inventories Property (freehold land and buildings) – cost Property (freehold land and buildings) – accumulated depreciation as at 1 June 20X5 Plant and equipment – cost Plant and equipment – accumulated depreciation as at 1 June 20X5 Motor vehicles – cost Motor vehicles – accumulated depreciation as at 1 June 20X5 Suspense

17,601 180,271

The company's depreciation policy is as follows:

W

Buildings Plant and equipment Motor vehicles

Straight-line over 50 years 15% reducing balance 25% straight-line

AE

The cost of the land within the cost of property was £500, and all non-current assets are assumed to have zero residual values.

IC

There were no additions to non-current assets during the year ended 31 May 20X6.

Depreciation on buildings is charged to administrative expenses, and depreciation on plant and equipment and motor vehicles is charged to cost of sales.

2

On 1 June 20X5 motor vehicles purchased on 1 July 20X4 at a cost of £8,000 were disposed of for £2,500. The cash received has been correctly recorded but the only other entry was to the suspense account.

3

Income tax for the year ended 31 March 20X6 is estimated at £8,000.

4

Within the closing inventory carried at cost is an over-allocation of fixed overheads, of £78.

5

During the year, Waterford plc made a 1 for 4 bonus issue from share premium. The correct entry to share premium has been made, but the corresponding entry was posted to the suspense account.

6

An accrual needs to be made for the remainder of the interest expense for the year.

124 Accounting: Question Bank

ICAEW 2020

7

At 31 May 20X6 Waterford plc determined that £650 owing from a customer is required to be written off as irrecoverable, and an allowance for receivables of 3% of the remaining receivables is necessary. Irrecoverable debts are considered an administrative expense.

8

An adjustment has been made to remove £8,851 for sales made in May 20X6 for products to be delivered in June 20X6. The correct entry has been made to the revenue account but the corresponding entry has been posted to the suspense account.

9

On 31 May 20X6 Waterford plc paid an insurance premium for annual cover up to 31 May 20X7. The full £55 was included within administrative expenses at 31 May 20X6.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Requirement Prepare the statement of profit or loss for Waterford plc for the year ended 31 May 20X6 and the statement of financial position at that date. Statement of profit or loss for the year ended 31 May 20X6

£

Gross profit Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position at 31 May 20X6

£

Non-current assets Property, plant and equipment Property Plant and equipment Motor vehicles

AE

W

Current assets Inventories Trade receivables Prepayments Cash and cash equivalents Total assets

IC

Equity Equity share capital Share premium Retained earnings Non-current liabilities Borrowings

Current liabilities Trade payables Accruals Deferred income Income tax payable Total equity and liabilities

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 125

11 Corrie Ltd is preparing its statement of changes in equity for the year ended 31 December 20X6. Its opening retained earnings balance at 1 January 20X6 was £151,600. The following balances and transactions arose during the year: Corrie Ltd issued 10,000 £1 equity shares at a premium of £0.80 per share on 1 January 20X6



Corrie Ltd made a bonus issue on 1 March 20X6 of 5,000 £1 equity shares utilising retained earnings



It paid a dividend totalling £16,000 on 31 October 20X6



It made a loss for the year of £17,800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s



What is the closing balance of Corrie Ltd's retained earnings at 31 December 20X6? A

£148,400

B

£112,800

C

£130,800

D

£134,000

LO 3c

12 Dale Ltd is preparing its statement of changes in equity for the year ended 31 December 20X8. The opening share capital balance in the statement of changes in equity was £100,000, comprising 100,000 £1 equity shares which were issued at a premium of £0.50 per share. The following balances and transactions arose in the year: 

Dale Ltd issued 20,000 £1 equity shares at price of £1.70 per share on 1 July 20X8



Dale Ltd made a bonus issue on 1 October 20X8 of 10,000 £1 equity shares utilising retained earnings



It paid a dividend totalling of 20p per share to all shareholders on 31 December 20X8

What was the closing balance of share capital in the statement of changes in equity at 31 December 20X8? £144,000

B

£104,000

C

£118,000

D

£130,000

AE

W

A

LO 3c

IC

13 The accountant is preparing the financial statement of Marge Ltd for the year ended 31 May 20X9. She has identified the following transactions which may require to be included in the statement of changes in equity: 1

A bonus issue made in the year

2

A bank loan for £100,000 received during the year

3

Dividends paid to equity shareholders

Which of the above transactions should be included in the statement of changes in equity? A

1 only

B

1 and 3 only

C

2 and 3 only

D

1, 2 and 3 LO 3c

126 Accounting: Question Bank

ICAEW 2020

Chapter 13: Statement of cash flows 1 Havisham plc Extracts from the financial statements for Havisham plc for the year ended 31 March 20X2 are as follows: Statement of profit or loss for the year ended 31 March 20X2

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

£ 819,640 (89,600) 730,040 (245,700) 484,340

Profit from operations Finance costs Profit before tax Income tax Profit for year

Statements of financial position at 31 March

Non-current assets Property, plant and equipment Intangible assets Current assets Inventories Trade receivables Government bonds Cash Total assets

W

Equity share capital (£1 shares) Share premium Retained earnings

AE

Non-current liabilities Borrowings Preference shares

IC

Current liabilities Borrowings Bank overdraft Income tax payable Trade payables Accrued interest Total equity and liabilities

20X2 £

20X1 £

982,600 580,040

797,500 386,900

430,040 342,700 40,000 37,470 2,412,850

285,550 224,150 10,000 3,800 1,707,900

312,400 398,200 534,800

232,800 351,000 282,100

567,400 75,000

423,000 0

115,600 51,200 201,800 146,700 9,750 2,412,850

51,000 27,230 192,520 135,900 12,350 1,707,900

Additional information 1

Included in profit from operations is a loss of £84,810 in respect of the disposal of machinery in the year. This machinery had a carrying amount of £127,800 at the disposal date.

2

The depreciation charge for the year was £232,900.

3

Included in trade payables at 31 March 20X2 is an amount of £13,900 in respect of a purchase of an item of property, plant and equipment in the year that has not yet been paid for.

ICAEW 2020

Chapter 13: Statement of cash flows 127

Intangible assets costing £251,340 were purchased for cash during the year. Intangible assets with a carrying amount of £17,000 were sold for £24,000 during the year. The profit on disposal has been offset against operating costs.

5

On 1 April 20X1 Havisham plc made a one for ten bonus issue from share premium. A further share issue took place in December 20X1 for cash.

6

Havisham plc declared and paid a dividend during the year.

7

Redeemable preference shares in the amount of £75,000 were issued during the year.

8

An impairment review at 31 December 20X7 identified a fall in the recoverable amount of intangible assets. As a result, an impairment loss of £20,000 was identified and charged to administrative expenses.

9

The government bonds are highly liquid and management has decided to class them as cash equivalents.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

4

Requirement

Prepare a statement of cash flows for the year ended 31 December 20X2 in accordance with IAS 7. ADJUSTED FROM SAMPLE EXAM £

AE

W

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation of intangible assets Impairment Gain/loss on sale of property, plant and equipment Gain/loss on sale of intangible assets Movement in inventories Movement in trade receivables Movement in trade payables Cash generated from operations Tax paid Interest paid Net cash from/used in operating activities

IC

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Proceeds from sale of intangible assets Interest received Net cash from/used in investing activities Cash flows from financing activities Proceeds from issue of shares Movement in borrowings Dividends paid Net cash from/used in financing activities Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

128 Accounting: Question Bank

ICAEW 2020

2 Castle plc As at 31 May 20X1 and 31 May 20X2 Castle plc had the following summarised statements of financial position. 20X2 £

£

3,284,000 (2,198,000)

3,091,000 (2,001,000)

1,086,000

Intangibles assets Cost Accumulated amortisation

9,360,000 (3,690,000)

Current assets Investments Inventories Trade receivables Prepayments Cash

W

Non-current liabilities 15% debenture loan Preference shares

AE IC

Total equity and liabilities

8,645,000 (2,715,000)

60,000 1,112,000 948,000 95,000 299,000

EQUITY AND LIABILITIES Equity Ordinary share capital Share premium Retained earnings

Current liabilities Trade payables Accruals Income tax payable

1,090,000

5,670,000 2,145,000 8,901,000

Investments

Total assets

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

ASSETS Non-current assets Property, plant and equipment Cost Accumulated depreciation

20X1 £

5,930,000 127,000 7,147,000

40,000 1,086,000 840,000 108,000 182,000

2,514,000 11,415,000

2,256,000 9,403,000

1,800,000 1,543,000 2,689,000 6,032,000

1,000,000 1,421,000 746,000 3,167,000

3,000,000 100,000

4,500,000 0

1,417,000 225,000 641,000

896,000 337,000 503,000

2,283,000 11,415,000

1,736,000 9,403,000

Castle's statement of profit or loss for the year ended 31 May 20X2 was as follows.

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit from operations Finance costs Investment income Profit before tax Income tax Profit for the period

ICAEW 2020

£ 8,646,000 (3,705,000) 4,941,000 (465,000) (621,000) 3,855,000 (563,000) 78,000 3,370,000 (684,000) 2,686,000

Chapter 13: Statement of cash flows 129

The following additional information is relevant. During the year plant and equipment with an original cost of £1,201,000 and a carrying amount at the date of disposal of £496,000 was sold at a loss of £189,000. As at 31 May 20X2 £165,000 of the sale proceeds had yet to be received and is included within trade receivables. As at 31 May 20X1 the corresponding figure in respect of disposals made during the year then ended was £79,000, which was received in full in June 20X1.

2

As in the previous year, all acquisitions of property, plant and equipment made during the year were paid for in cash at the date of acquisition. However, included within trade payables at 31 May 20X2 is £376,000 (20X1 – £nil) relating to the acquisition of intangible assets.

3

There were no disposals of intangible assets or investments during the year. Trade receivables at 31 May 20X2 include £10,000 (20X1 – £8,000) in respect of interest receivable on investments.

4

As at 31 May 20X1 the ordinary share capital of Castle plc consisted of 1 million shares, each with a £1 nominal value. The following day the company made a 1 for 2 bonus issue of 500,000 shares (utilising available profits).

5

Dividends of £243,000 were paid during the year ended 31 May 20X2.

6

The current asset investments are government bonds and management has decided to class them as cash equivalents.

7

During the year Castle plc issued 100,000 £1 redeemable preference shares.

8

Included within accruals at 31 May 20X2 is £125,000 (20X1 £75,000) for interest payable.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

Requirement

Prepare a statement of cash flows for the year ended 31 May 20X2 in accordance with IAS 7. £

IC

AE

W

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation of intangible assets Gain/loss on sale of property, plant and equipment Movement in inventories Movement in trade receivables Movement in prepayments Movement in trade payables Movement in accruals Cash generated from operations Tax paid Interest paid Net cash from/used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of investments Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Interest received

130 Accounting: Question Bank

ICAEW 2020

£ Net cash from/used in investing activities Cash flows from financing activities Proceeds from issue of shares Dividends paid Movement in borrowings Net cash from/used in financing activities

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

3 Tam plc

As at 30 November 20X1 and 30 November 20X2 Tam plc had the following summarised statements of financial position. 20X2 20X1 £ £ £ £ ASSETS Non-current assets Property, plant and equipment 2,543,000 2,401,000 Intangibles 550,000 584,000 Investments 406,000 – 3,499,000 2,985,000 Current assets Inventories 685,000 598,000 Trade and other receivables 480,000 465,000 Prepayments 96,000 126,000 Cash and cash equivalents 426,000 200,000 1,687,000 1,389,000 Total assets 5,186,000 4,374,000

AE

W

EQUITY AND LIABILITIES Equity Ordinary share capital Share premium account Retained earnings

IC

Non-current liabilities Borrowings Redeemable preference shares Current liabilities Trade payables Accruals Income tax payable Provisions Total equity and liabilities

ICAEW 2020

1,100,000 342,000 1,785,000 3,227,000

1,000,000 200,000 1,311,000 2,511,000

500,000 200,000

1,000,000 0

749,000 108,000 282,000 120,000

427,000 131,000 165,000 140,000

1,259,000 5,186,000

863,000 4,374,000

Chapter 13: Statement of cash flows 131

Tam plc's statement of profit or loss for the year ended 30 November 20X2 was as follows. £ 5,762,000 (4,630,000) 1,132,000 (236,000) (127,000) 769,000 (68,000) 55,000 756,000 (232,000) 524,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Gross profit Distribution costs Administrative expenses Profit from operations Finance charge Investment income Profit before tax Income tax Profit for the period

The following additional information is relevant. 1

Included within trade payables at 30 November 20X2 is £351,000 (20X1 £106,000) relating to purchases of property, plant and equipment.

2

Included within accruals at 30 November 20X2 is £25,000 (20X1 £50,000) for interest payable.

3

Property, plant and equipment and intangible assets can be analysed as follows. 20X2 £

Property, plant and equipment Cost or valuation Accumulated depreciation Intangible assets Cost Accumulated amortisation

20X1 £

7,464,000 (4,921,000) 2,543,000

6,375,000 (3,974,000) 2,401,000

883,000 (333,000) 550,000

938,000 (354,000) 584,000

During the year, plant with an original cost of £479,000 and a carrying amount at the date of disposal of £326,000 was sold for £424,000 which was received in cash.

5

Tam plc received £20,000 during the year from the sale of highly liquid investments, which were classed as cash equivalents. During the year, Tam plc made a 1 for 20 bonus issue of its ordinary shares. The subsequent issue of shares was made at a premium.

AE

6

W

4

Included in trade and other receivables at the year end was £25,000 in relation to investment income. The corresponding figure for 20X1 was £15,000.

IC

7

8

Intangible assets with accumulated amortisation at the date of disposal of £40,000 were sold for £12,000. There were no acquisitions of intangible assets during the year.

9

Redeemable preference shares in the amount of £200,000 were issued during the year.

Requirements Prepare a statement of cash flows for Tam plc, for the year ended 30 November 20X2 in accordance with IAS 7.

132 Accounting: Question Bank

ICAEW 2020

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation of intangible assets Gain/loss on sale of property, plant and equipment Gain/loss on sale of intangible assets Movement in inventories Movement in trade and other receivables Movement in prepayments Movement in trade payables Movement in accruals Movement in provisions Cash generated from operations Tax paid Interest paid Net cash from/used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of investments Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Interest received Net cash from/used in investing activities

W

Cash flows from financing activities Proceeds from issue of shares Dividends paid Movement in borrowings Net cash from/used in financing activities

AE

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

IC

4 Kaya plc

The following are the draft financial statements for Kaya plc for the year ended 31 December 20X7. Statement of profit or loss for the year ended 31 December 20X7

Revenue Cost of sales Gross profit Administrative expenses Distribution costs Profit from operations Finance charge Profit before tax Income tax Profit for the period

ICAEW 2020

£ 7,350,500 (4,560,600) 2,789,900 (1,060,800) (768,000) 961,100 (75,000) 886,100 (350,000) 536,100

Chapter 13: Statement of cash flows 133

20X6 £

£

6,713,500 300,500 7,014,000 365,100 144,500 12,400 20,200

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statements of financial position as at 31 December 20X7 and 20X6 20X7 £ £ ASSETS Non-current assets Property, plant and equipment 6,985,400 Intangible assets 350,700 7,336,100 Current assets Inventories 60,500 Trade receivables 169,000 Investments 25,000 Cash and cash equivalents 10,700 265,200 Total assets 7,601,300 EQUITY AND LIABILITIES Equity Ordinary share capital Share premium account Retained earnings

Non-current liabilities Preference share capital (redeemable) Current liabilities Trade payables Income tax payable

4,000,000 1,200,000 1,342,800 6,542,800

3,500,000 950,000 2,206,700 6,656,700

500,000

400,000

148,500 410,000

Total equity and liabilities

542,200 7,556,200

139,500 360,000

558,500 7,601,300

499,500 7,556,200

The following additional information is relevant.

During the year Kaya plc issued redeemable preference shares at par.

2

The current asset investments are government bonds and management has decided to class them as cash equivalents. During the year Kaya plc sold plant and equipment with a carrying amount of £560,500 for £600,000. Total depreciation charges for the year were £750,600.

AE

3

W

1

Trade payables include accrued interest of £5,000 (20X6 £7,000).

5

Kaya plc acquired new intangible assets at a cost of £77,500 during the year.

IC

4

6

Included in trade receivables is investment income of £14,500 (20X6 £2,000).

7

An impairment review at 31 December 20X7 identified a fall in the recoverable amount of intangible assets. As a result, an impairment loss of £15,000 was identified and written off to administrative expenses.

8

Included in trade payables is £10,000 which relates to the purchase of machinery.

9

During the year Kaya plc made a 1 for 100 bonus issue of its ordinary shares.

Requirement Prepare a statement of cash flows for the year ended 31 December 20X7 in accordance with IAS 7.

134 Accounting: Question Bank

ICAEW 2020

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation of intangible assets Impairment Gain/loss on sale of property, plant and equipment Gain/loss on sale of intangible assets Movement in inventories Movement in trade receivables Movement in trade payables Cash generated from operations Tax paid Interest paid Net cash from/used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Net cash from/used in investing activities Cash flows from financing activities Proceeds from issue of shares Movement in borrowings Dividends paid Net cash from/used in financing activities

W

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

5 Siena plc

AE

The following are the draft financial statements for Siena plc for the year ended 31 March 20X5. Statement of profit or loss for the year ended 31 March 20X5

IC

Revenue Cost of sales Gross profit Administrative expenses Distribution costs Profit from operations Finance charge Profit before tax Income tax Profit for the period

ICAEW 2020

£ 5,650,500 (3,460,600) 2,189,900 (978,800) (256,000) 955,100 (89,000) 866,100 (297,600) 568,500

Chapter 13: Statement of cash flows 135

20X4 £

£

2,950,300 156,000 3,106,300 365,100 244,500 100,000 20,200

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statements of financial position as at 31 March 20X5 and 20X4 20X5 £ £ ASSETS Non-current assets Property, plant and equipment 4,360,400 Investments 172,000 4,532,400 Current assets Inventories 460,600 Trade receivables 269,000 Government bonds 105,000 Cash 180,000 1,014,600 Total assets 5,547,000 EQUITY AND LIABILITIES Equity Ordinary share capital 3,000,000 Share premium account 1,050,000 Retained earnings 142,500 4,192,500 Non-current liabilities Loan 556,000 Preference shares (redeemable) 150,000 Current liabilities Trade payables Income tax payable

348,500 300,000

Total equity and liabilities

729,800 3,836,100

1,800,000 850,000 74,500 2,724,500 472,000 0

289,600 350,000

648,500 5,547,000

639,600 3,836,100

The following additional information is relevant.

During the year Siena plc made a 1 for 10 bonus issue of its ordinary shares. It subsequently issued further shares at the market price.

2

An impairment review at 31 March 20X5 identified a fall in the recoverable amount of certain non current investments. As a result, an impairment loss of £12,000 was identified and written off to administrative expenses.

AE

W

1

IC

3

During the year Siena plc acquired plant and equipment for cash of £2,057,000. In addition, plant and equipment with a fair value of £600,000 was acquired through a long term loan. The depreciation charge for the year, charged to cost of sales, was £750,600. A loss on sale of plant of £55,000 was made during the year.

4

Interest payable of £10,000 has been included in trade payables at year end. The corresponding figure in 20X4 was £5,000.

5

The government bonds are highly liquid and management has decided to class them as cash equivalents.

6

Siena plc issued £150,000 redeemable preference shares during the year.

7

Included in trade payables is £10,000 in relation to the acquisition of long term investments.

Requirements Prepare a statement of cash flows for Siena plc the year ended 31 March 20X5 in accordance with IAS 7.

136 Accounting: Question Bank

ICAEW 2020

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Impairment Gain/loss on sale of property, plant and equipment Movement in inventories Movement in trade receivables Movement in trade payables Cash generated from operations Tax paid Interest paid Net cash from/used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of investments Proceeds from sale of property, plant and equipment Proceeds from sale of intangibles Interest received Net cash from/used in investing activities Cash flows from financing activities Proceeds from issue of shares Movement in borrowings Dividends paid Net cash from/used in financing activities

Part of the process of preparing a cash flow statement is the calculation of net cash flows from operating activities.

AE

6

W

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

IC

Which of the following statements about that calculation using the indirect method are correct? 1

Loss on sale of non-current assets should be deducted from profit before tax.

2

Increase in inventories should be deducted from profit before tax.

3

Increase in trade payables should be added to profit before tax.

4

Impairment losses should be added to profit before tax.

A

1, 2 and 3

B

1, 2 and 4

C

1, 3 and 4

D

2, 3 and 4 LO 3c

ICAEW 2020

Chapter 13: Statement of cash flows 137

7

In the course of preparing a statement of cash flows, the following figures are to be included in the calculation of net cash flows from operating activities. £ 900,000 80,000 40,000 130,000 100,000 80,000

Depreciation charges Impairment losses Profit on sale of non-current assets Increase in inventories Decrease in trade receivables Increase in trade payables

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What will the net effect of these items be in the statement of cash flows? £

A B C D

8

Addition to cash flows from operating activities

890,000

Deduction from cash flows from operating activities

890,000

Addition to cash flows from operating activities

1,070,000

Addition to cash flows from operating activities

990,000

LO 3c

An extract from a statement of cash flows prepared by a trainee accountant is shown below. Cash flows from operating activities Profit before tax Depreciation Decrease in inventories Increase in trade receivables Increase in trade payables Cash generated from operations

£m 28 (9) 13 (4) (8) 20

Which of the following criticisms of this extract are correct?

Depreciation charges should have been added, not deducted.

2

Decrease in inventories should have been deducted, not added.

IC

AE

W

1

3

Increase in trade receivables should have been added, not deducted.

4

Increase in trade payables should have been added, not deducted.

A

2 and 4

B

2 and 3

C

1 and 3

D

1 and 4 LO 3c

138 Accounting: Question Bank

ICAEW 2020

9

Bailey disposes of an asset with a carrying amount of £21,000 for £30,000 on 7 July 20X1. How will this transaction be shown in cash flows from operating activities? Cash flows from operating activities £ (9,000)

B

9,000

C

(21,000)

D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

21,000

LO 3c

10 An extract from the statement of financial position for Highmead has the following balances: 20X5

£

Current liabilities Income tax payable

20X4

£

£

150,000

£

10,000

The tax expense in the statement of profit or loss for the year ended 20X5 was £160,000 and £150,000 in the year ended 20X4. What is the amount of tax that Highmead paid or received in the year ended 20X5? £20,000 paid

B

£20,000 received

C

£10,000 paid

D

£10,000 received

LO 3c

AE

W

A

IC

11 The following extracts are taken from the financial statements of Radio for the years ended 31 March 20X4 and 20X5: Statement of financial position extract:

Inventories Trade receivables Trade payables

ICAEW 2020

20X5 £ 310,600 312,000 277,200

20X4 £ 363,700 299,500 269,400

Chapter 13: Statement of cash flows 139

Statement of profit or loss extract:

Profit from operations Finance charge Profit before tax Income tax Profit for the period

20X5 £ 797,200 (15,000) 782,200 (219,000) 563,200

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

What is the cash generated from operations to be included in the statement of cash flows for the year ended 31 March 20X5? £626,600

B

£748,800

C

£815,600

D

£845,600

LO 3c

IC

AE

W

A

140 Accounting: Question Bank

ICAEW 2020

Chapter 14: Company financial statements under UK GAAP

2

3

What does GAAP stand for? A

Generally Agreed Accounting Policies

B

Generally Accepted Accounting Policies

C

Generally Agreed Accounting Practice

D

Generally Accepted Accounting Practice

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

LO 3c

In the UK which of the following are responsible for the preparation of company annual financial statements? A

The shareholders

B

The board of directors

C

The auditors

D

The members

LO 1a

Indicate whether the following statements are true or false.

Creditors falling due after more than one year are equivalent to current liabilities. A

True

B

False

Non-current assets are equivalent to fixed assets. True

D

False

IC

AE

W

C

4

LO 3c

Teacup Ltd uses the first-in, first-out (FIFO) method to value its stocks of finished goods. At 1 January there were stocks of 25 units that had cost £54 each. During January the following transactions occurred: 8 January 15 January 22 January

10 units were sold for £62 each 10 units were purchased for £55 each 10 units were sold for £62 each

What was the value of Teacup Ltd's closing stock at 31 January? A

£815

B

£810

C

£825

D

£820 LO 1d

ICAEW 2020

Chapter 14: Company financial statements under UK GAAP 141

5

Diamond Ltd issues 250,000 equity shares with a nominal value of £2 each at a price of £3.55 each for cash. Which of the following sets of entries would be made to record this transaction? A

Credit Bank £887,500, Debit Share capital £500,000, Debit Share premium £387,500

B

Debit Bank £887,500, Credit Share capital £250,000, Credit Share premium £637,500

C

Debit Bank £887,500, Credit Share capital £500,000, Credit Share premium £387,500

D

Credit Bank £887,500, Debit Share capital £250,000, Debit Share premium £637,500

6

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d, 1e, 2d

The following balances have been extracted from Saracen Ltd's trial balance at 31 December 20X8: Debit £

Retained profits at 1 January 20X8 10% debentures issued in 20X5 Debenture interest paid

Credit £ 4,695,600 1,300,000

65,000

Operating profit for the year ended 31 December 20X8 is £520,000. Corporation tax for the year has been estimated at £156,000. What is the figure for retained profits in Saracen Ltd's balance sheet as at the year end, 31 December 20X8? A

£4,929,600

B

£4,994,600

C

£5,059,600

D

£5,215,600

AE

W

LO 1d, 3c

IC

7

Which of the following transactions are not recorded in a company's cash at bank account? A

Bonus issue of shares

B

Sale of goods for cash to a customer

C

Receipt of loan from a bank

D

Purchase for cash of shares in another company

LO 1c, 1d

142 Accounting: Question Bank

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 1

Alice and Betty are in partnership, sharing profits and losses in the ratio 2:1. Their year end is 30 June. On 1 January 20X4 Cath joined the partnership and the new profit sharing ratio became Alice 50%, Betty 30% and Cath 20%.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The profit for the year ended 30 June 20X4 was £520,000, after charging an expense of £40,000 which related to the first six months of the year. The remainder of the profit accrued evenly over the year. What is Betty's total profit share for the year ended 30 June 20X4? A

£173,333

B

£156,000

C

£164,666

D

£164,000

LO 1e

The following information is relevant for questions 2 and 3

Lisa, Mary and Olga are in partnership, sharing profits and losses in the ratio 30%, 30%, 40%. Their agreement states that Olga and Lisa are to receive annual salaries of £20,000 and £35,000 respectively. Interest credited on capital is 5% and interest charged on drawings is 10%. The following information is relevant. £

500,000 400,000 300,000

Current accounts at 31.12.X4 Lisa Mary Olga

300,000 150,000 400,000

AE

W

Capital accounts at 31.12.X5 Lisa Mary Olga

IC

Drawings on 31.12.X5 Lisa Mary Olga

70,000 35,000 40,000

Assume that drawings were made on the first day of the year for the purposes of calculating interest. Net profit for the year ended 31.12.X5 was £1,350,000.

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 143

2

What is Olga's total share of the profit for the year ended 31.12.X5? A

£391,350

B

£427,850

C

£529,000

D

£530,800

3

4

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1e

What is the closing balance on Mary's current account at 31.12.X5? A

£390,500

B

£391,350

C

£506,350

D

£541,350

LO 1e

Declan and Indiah are in partnership, sharing profits 3:2.

On 1 July 20X4 Calum joins the partnership. Under the new partnership agreement profits will be shared by Declan, Indiah and Calum 5:3:2 respectively with the following annual salaries. Indiah £40,000 pa

Calum £48,000 pa

Profit accrues evenly over the year. The partnership profit at 31 December 20X4 was £450,000.

W

At 31 December 20X4 how should the profits be allocated?

AE

A B

IC

C

D

Declan

Indiah

Calum

£229,500

£165,900

£54,600

£236,500

£160,900

£52,600

£225,000

£135,000

£90,000

£225,500

£164,300

£60,200

144 Accounting: Question Bank

LO 1e

ICAEW 2020

5

Billy and Charlie are in partnership together sharing profits equally. They each invested £20,000 and £30,000 respectively in the business and Billy later made a loan of £5,000 to the business. The loan is outstanding throughout the year to 31 March 20X6. Interest is charged on capital and loans at 5% per annum and is credited to current accounts. The balances on the partners' current accounts at 1 April 20X5 were £15,500 for Billy and £12,700 for Charlie. The partnership made a profit of £32,000 for the year ending 31 March 20X6, before accruing for any interest. What is the balance on the partners' current accounts at 31 March 20X6?

A B C D

6

Charlie

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Billy £31,500

£28,700

£31,375

£28,825

£31,625

£28,825

£31,250

£28,950

LO 1e

Curtis and Sillett are in partnership, sharing profits 3:2 and preparing their accounts to 30 June each year. On 1 January 20X6, McAllister joined the partnership, and from that date the profit sharing ratio became Curtis 50%, Sillett 25% and McAllister 25%, after providing for salaries for Sillett and McAllister of £20,000 and £12,000 per annum respectively. The partnership profit for the year ended 30 June 20X6 was £480,000, accruing evenly over the year. What are the partners' total profit shares for the year ended 30 June 20X6?

W

A B

AE

C

IC

D

7

Curtis

Sillett

McAllister

£256,000

£162,000

£62,000

£248,000

£168,000

£64,000

£264,000

£166,000

£66,000

£264,000

£156,000

£60,000

LO 1e

A partner's private petrol bills have been treated as part of the partnership's motor vehicle expenses. Which of the following journals corrects the error? A

Debit Drawings account, Credit Motor vehicle expenses account

B

Debit Motor vehicle expenses account, Credit Drawings account

C

Debit Motor vehicle expenses account, Credit Capital account

D

Debit Capital account, Credit Motor vehicle expenses account LO 1d, 1e, 2c

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 145

8

How should interest charged on partners' drawings be dealt with in partnership financial statements? A

Credited as income in the profit and loss account

B

Deducted from profit in allocating the profit among the partners

C

Added to profit in allocating the profit among the partners

D

Debited as an expense in the profit and loss account

9

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d, 1e

Which of the following journals records interest earned on partners' capital account balances? A

Debit Partners' current accounts, Credit Profit and loss appropriation account

B

Debit Profit and loss appropriation account, Credit Partners' current accounts

C

Debit Profit and loss appropriation account, Credit Cash at bank

D

Debit Profit and loss appropriation account, Credit Partners' capital accounts

LO 1d, 1e, 2c

10 Paula and Quinn are in partnership, sharing profits in the ratio 2:1. On 1 July 20X4 they admitted Paula's son Ryan as a partner. Paula guaranteed that Ryan's profit share would not be less than £25,000 for the six months to 31 December 20X4. The profit sharing arrangements after Ryan's admission were Paula 50%, Quinn 30%, Ryan 20%. The profit for the year ended 31 December 20X4 is £240,000, accruing evenly over the year. What should Paula's final profit share be for the year ended 31 December 20X4? £140,000

W

A

£139,000

C

£114,000

AE

B

IC

D

£139,375

LO 1d, 1e

11 What journal is necessary to record interest payable on partners' drawings? A

Debit Partners' drawings accounts, Credit Partners' current accounts

B

Debit Profit and loss appropriation account, Credit Partners' drawings accounts

C

Debit Partners' drawings accounts, Credit Interest payable account

D

Debit Partners' current accounts, Credit Profit and loss appropriation account LO 1d, 1e, 2c

146 Accounting: Question Bank

ICAEW 2020

12 Faith, Hope and Charity are partners sharing residual profits in the ratio 3:2:1. The partnership agreement provides for interest on capital at the rate of 8% per annum and a salary for Hope of £8,000 per annum. The partnership made a profit in the year totalling £3,960 and the balances on partners' capital accounts throughout the year were: Faith £20,000; Hope £15,000; Charity £12,000. What is Charity's share of residual profits or losses for 20X5? £1,300 loss

B

£Nil

C

£340 loss

D

£655 profit

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e, 2c

13 Preston, after having been a sole trader for some years, entered into partnership with Alex on 1 July 20X2, sharing profits equally. The business profit for the year ended 31 December 20X2 was £340,000, accruing evenly over the year, apart from a charge of £20,000 for an irrecoverable debt relating to trading before 1 July 20X2 which it was agreed that Preston should bear entirely. How is the profit for the year to be divided between Preston and Alex? Preston

A B C D

Alex

£245,000

£95,000

£250,000

£90,000

£270,000

£90,000

£255,000

£85,000

LO 1d, 1e

W

14 Gina, Hardeep and Iona are in partnership, preparing their accounts for the year to 31 December each year.

AE

The profit-sharing arrangements are as follows: Until 30 June 20X3: annual salaries 3:1:1.

Hardeep: £40,000, Iona: £20,000, balance to be split

IC

From 1 July 20X3 salaries to be discontinued, profit to be divided 5:3:2.

The profit for the year ended 31 December 20X3 was £400,000 before charging partners' salaries, accruing evenly through the year and after charging an expense of £40,000 which it was agreed related wholly to the first six months of the year. How should the profit for the year be divided among the partners? Gina

Hardeep

Iona

A

£182,000

£130,000

£88,000

B

£200,000

£116,000

£84,000

C

£198,000

£118,000

£88,000

D

£180,000

£132,000

£88,000 LO 1d, 1e

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 147

15 Xavier and Yanis are in partnership, sharing profits in the ratio 2:1 and preparing their financial statements to 30 June each year. On 1 January 20X4 Zena joined the partnership, and it was agreed that the profit-sharing arrangement should become Xavier 50%, Yanis 30% and Zena 20%. The profit for the year ended 30 June 20X4 was £540,000, after charging an expense of £30,000 which it was agreed related to the period before 1 January 20X4. The profit otherwise accrued evenly over the year. What is X's total profit share for the year ended 30 June 20X4? £305,000

B

£312,500

C

£315,000

D

£295,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e

16 Gordon, Hilary and Indi are in partnership, sharing profits in the ratio 3:1:1, after charging salaries of £20,000 per year each for Hilary and Indi. On 1 January 20X4 they agreed to change the profit-sharing ratio to 3:2:1 and to discontinue Hilary's salary. Indi's salary continued unchanged. The partnership profit for the year ended 30 June 20X4 was £380,000, accruing evenly over the year. How should the £380,000 profit be divided among the partners? A B C D

Gordon

Hilary

Indi

£192,000

£104,000

£84,000

£192,500

£103,333

£84,167

£209,000

£101,333

£69,667

£179,000

£111,333

£89,667

W

LO 1d, 1e

IC

AE

17 The current account of a partner has been written up as follows.

Interest on capital Salary Balance c/d

CURRENT ACCOUNT

£ 2,800 1,500 10,870 15,170

Balance b/d Drawings Profit share

£ 270 6,200 8,700 15,170

The balance brought down is entered correctly and the other entries are all correct in amount. What is the correct balance carried down? A

A debit balance of £1,530

B

A debit balance of £6,530

C

A credit balance of £7,070

D

A credit balance of £16,470 LO 1d, 1e

148 Accounting: Question Bank

ICAEW 2020

18 A gas accrual for £400 at the reporting date was treated as a prepayment in a sole trader's financial statements. As a result the profit was: A

understated by £800

B

understated by £400

C

overstated by £800

D

overstated by £400

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 2a

19 A sole trader prepares financial statements each year to 31 May. His rent is payable quarterly in advance on 1 January, 1 April, 1 July and 1 October. Local property taxes are paid each year in two equal instalments on 1 April and 1 October. His annual rental for the calendar years 20X6 and 20X7 was £4,800 and £5,400 respectively but on 1 January 20X8 this was increased to £6,600 per annum. Local property tax for the last three years has been as follows: Year commencing 1 April 20X6 Year commencing 1 April 20X7 Year commencing 1 April 20X8

£ 3,600 3,900 4,500

In preparing his financial statements for the year ended 31 May 20X8, the charge to the profit and loss account from his rent and local property tax account would be: A

£9,900

B

£10,100

C

£10,200

D

£10,300

AE

W

LO 1d, 3c

IC

20 A local taxes prepayment of £475 at the reporting date was treated as an accrual in preparing a trader's profit and loss account. As a result, his profit was: A

understated by £950

B

overstated by £950

C

understated by £475

D

overstated by £475 LO 2a

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 149

21 The net assets of Walter's business decreased by £11,025 over the year to 31 October 20X7. During that year he had paid in additional capital of £14,000, drawn £875 in cash each month and, on one occasion, taken goods costing £2,625 for his own use. The loss made by the business for the year ended 31 October 20X7 was: £10,150

B

£11,900

C

£21,525

D

£25,025

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e, 3a

22 Harry has been unable to calculate his business' profit or loss for the year ended 31 December 20X8 as fire destroyed most of his accounting records. He has, however, been able to provide the following information. 1

Net assets at 31 December 20X7 were £23,000 and £32,500 at 31 December 20X8.

2

He introduced capital during the year of £4,000 cash.

3

He took cash drawings of £2,500 and goods with a selling price of £800. The cost of the goods was £750.

What was Harry's profit or loss for the year ended 31 December 20X8? A

£8,750 profit

B

£(1,750) loss

C

£9,800 profit

D

£(2,750) loss

W

LO 1d, 1e, 3a

IC

AE

23 Alexander's net assets have increased by £127,000 over the year. He took drawings of £47,000 and paid in the proceeds from a personal property sale amounting to £25,000. His net profit for the year was: A

£55,000

B

£105,000

C

£149,000

D

£199,000 LO 1d, 1e, 3a

150 Accounting: Question Bank

ICAEW 2020

24 A business has net assets of £286,400 on 31 January 20X6 and had net assets of £266,800 on 31 January 20X5. During the year the owner of the business: 1

took goods for his own use which cost £10,000 and had a market value of £14,000;

2

introduced capital of £50,000; and

3

withdrew £30,000 as salary.

The profit for the year was: £9,600

B

£30,400

C

£70,400

D

£109,600

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 1e, 3a

25 Which two of the following would be classified as current liabilities in the balance sheet of a sole trader? A

Owner's capital

B

Accrued interest charges

C

Drawings

D

Bank overdraft

E

Income tax payable

LO 3c

26 Which of the following equations represents the closing capital of a sole trader? Opening capital – capital introduced + profit – drawings

B

Opening capital – capital introduced – profit + drawings

C

Opening capital + capital introduced + profit – drawings

AE

W

A

IC

D

Opening capital + capital introduced – loss + drawings

LO 1e, 3a, 3c

27 Sayhan, Errol and Alev are in partnership, preparing financial statements as at 31 August each year and sharing profits 4:3:1. Sayhan retired on 30 April 20X2, and Errol and Alev continued, sharing profits 3:1 respectively. Goodwill as at 30 April 20X2 (not to be retained in the accounts) was valued at £50,000. The net entry to Errol's capital account to include and then eliminate goodwill is: A

Debit £6,250

B

Debit £18,750

C

Credit £6,250

D

Credit £18,750 LO 1e

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 151

28 Samantha has discovered the following errors and omissions in her accounting records: 1

A cheque for £180 from a customer has been returned unpaid by the bank. No entries have been made in the accounting records for the return of the cheque.

2

An invoice for £12 was raised by the bookkeeper and entered into the accounting records by the computerised accounting system; however, it was later discovered that it should have been a credit note.

Which of the following journals will be entered in Samantha's nominal ledger accounts in order to correct these items? Debit Debtors £156, Debit Sales £24, Credit Cash £180

B

Debit Cash £180, Credit Debtors £156, Credit Sales £24

C

Debit Debtors £168, Debit Sales £12, Credit Cash £180

D

Debit Bad debts expense £180, Debit Debtors £24, Credit Cash £180, Credit Sales £24

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 2c

29 Which three of the following could be found in the financial statements of a partnership? A

Fixed assets

B

Share premium

C

Drawings

D

Dividends paid

E

Profit for the year

LO 3c

IC

AE

W

30 Sunil started business on 1 December 20X3 with cash of £5,000. He has not yet prepared a full set of financial statements. As at the end of his first reporting period, 30 November 20X4, he has cash at bank of £1,726. He made sales of £33,498 during the period and paid expenses in cash of £19,385. He has no outstanding creditors at the end of the period, and has no fixed assets or stock, but one customer owes him £2,387. Assuming Sunil made no other capital injections but took drawings of £15,000 in the period, identify his profit for the 12 month reporting period to 30 November 20X4 and his net assets at the end of the period on an accrual basis. A

Net profit of £11,726, net assets of £1,726

B

Net profit of £14,113, net assets of £4,113

C

Net profit of £11,726, net assets of £4,113

D

Net profit of £14,113, net assets of £1,726 LO 1d, 3b

152 Accounting: Question Bank

ICAEW 2020

31 Sayhan, Errol and Alev are in partnership, preparing financial statements as at 31 August each year and sharing profits 4:3:1. Sayhan retired on 30 April 20X2, and Errol and Alev continued, sharing profits 3:1 respectively. The business's profit for appropriation, evenly over the 12 months to 31 August 20X2, was £121,248. For the year to 31 August 20X2 Errol's profit share is: £30,312

B

£45,468

C

£60,624

D

£90,936

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1e

32 Helen, John and Chris are in partnership, preparing financial statements as at 31 January each year and sharing profits 5:3:2. Helen retired on 30 September 20X6, and John and Chris continued, sharing profits 5:3 respectively. Goodwill as at 30 September 20X6 (not to be retained in the accounts) was valued at £50,000. The net entry to John's capital account to include and then eliminate goodwill is: A

Debit £3,750

B

Debit £16,250

C

Credit £3,750

D

Credit £16,250

LO 1e

33 Ines, Alex and Sebastian are in partnership sharing profits 3:2:1. Each partner has a combined capital and current account, which at 1 July 20X7 were as follows: £10,490

W

Ines Alex

IC

AE

Sebastian

£12,020

£20,170

During the year to 30 June 20X8 the partnership made profits of £87,750, and each partner took drawings of £7,500. On 30 June 20X8 Alex retires. The partners value goodwill at £60,000 at that date, but do not wish this valuation to remain in the accounts. Ines and Sebastian will continue in partnership, sharing profits equally. What is the balance on Sebastian's capital and current account on 1 July 20X8? A

£46,865

B

£14,795

C

£53,770

D

£7,295 LO 1e

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 153

34 In relation to accounting for partnerships, which two of the following statements are true? Goods taken by a partner from the business are treated as drawings.

B

Interest on drawings by a partner is income in the partnership's profit and loss account.

C

Interest on a partner's loan capital is income in the partnership's profit and loss account.

D

Drawings by a partner are credited in the current account.

E

In the absence of a partnership agreement, no salaries are due to partners.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

35

A

LO 1e

In a partnership, interest on partners' drawings affects: A

net profit available for appropriation only

B

the cash position only

C

neither net profit available for appropriation nor the cash position

D

both net profit available for appropriation and the cash position

LO 1e

36 Ben and Josh went into business together on 1 March 20X2 without a formal partnership agreement. At that date Ben contributed £10,000 fixed capital to the business and Josh contributed £20,000 fixed capital. On 1 December 20X2 Josh made a loan to the partnership of £40,000. To how much, if any, interest are the partners together entitled in respect of their capital and loan for the year ended 28 February 20X3? £2,000

B

£1,000

W

A

£500

D

£Nil

IC

AE

C

LO 1e

37 Randolph started a trading business on 1 May 20X4 with capital of £40,000. In his first year of trading he made a net profit of £117,000, selling goods at a mark-up on cost of 60%. He injected additional capital of £30,000 in the year and withdrew a monthly amount of £3,200 for his living expenses. He also took drawings from stock of goods with a resale value of £7,200. He had no stock at the year end. What were Randolph's net assets at 30 April 20X5? A

£141,400

B

£144,100

C

£144,280

D

£179,300 LO 3a

154 Accounting: Question Bank

ICAEW 2020

38 Mushtaq, a sole trader, has the following information at the start and end of his second year of trading. At 1 January 20X0 £ 39,400 15,600 11,500 10,200 6,600

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Fixed assets (net book value) Stock Trade debtors Trade creditors Cash in hand

At 31 December 20X0 £ 46,000 18,900 8,400 7,500 6,400

During 20X0 Mushtaq introduced £3,000 capital. He took stock for his own use that cost £500, and paid himself £750 per month. What is Mushtaq's profit or loss for 20X0? £15,800 profit

B

£2,800 loss

C

£16,300 profit

D

£18,800 profit

LO 3a

IC

AE

W

A

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 155

156 Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Sample of an exam: questions 1 Shindig plc The following trial balance was extracted from the nominal ledger of Shindig plc, a computer console and games manufacturer, on 31 December 20X4. £ 60,000 125,500 300,000

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Licence Work in progress, 1 January 20X4 Leasehold buildings Equity share capital – £1 nominal value Share premium 5% Preference share capital (redeemable) – £1 nominal value Revenue Production staff costs (charged to cost of sales) Accumulated depreciation on buildings, 1 January 20X4 Inventories of finished games, 1 January 20X4 Consultancy fees paid (charged to other operating expenses) Computers used on site Accumulated depreciation on computers, 1 January 20X4 Income tax Equity dividend paid, 30 September 20X4 Allowance for receivables Bank account Trade receivables Trade payables Raw materials Suspense account Retained earnings, 1 January 20X4

500,000 100,000 120,000 1,705,600

620,400

60,000

155,600 44,000 50,000

20,000 12,400

125,000

18,765

440,200 420,300

80,200

294,500 83,765

2,700,500

102,300 2,700,500

The following additional information is available.

W

Closing finished inventories are valued at cost of £180,000 whilst work in progress has increased to £140,000. These valuations do not take into account the fact that, at the year end physical inventory count, it was discovered that ten computer games consoles with a cost of £500 each had been badly damaged. These items have a scrap value of £50 each.

AE

1

IC

2

The licence was acquired on 1 January 20X4 in respect of exclusive rights to sell games in a specific market for a period of three years. If the company chose to do so it could sell these rights on without there being a significant impact on the remainder of the business.

3

Buildings are depreciated over 30 years. Computers are depreciated over five years. Both depreciation and amortisation are charged to other operating expenses.

4

Shindig plc received notice on 15 January 20X5 that one of its customers, X Limited, had gone into liquidation. This customer owed £45,000 at the year end which should be written off as an irrecoverable debt. Shindig plc determined that an allowance for receivables totalling £18,765 was required. There was no allowance for receivables in the prior year. The credit entry has been correctly recorded but the debit entry has been made to the suspense account. Irrecoverable debts are charged to other operating expenses.

5

There is an estimated income tax bill in relation to 20X4 of £120,000. The income tax figure in the trial balance (a credit balance) represents the difference between the income tax payable balance at 31 December 20X3 and the income tax paid in the year.

ICAEW 2020

Sample of an exam: questions 157

During the year, Shindig plc made a 1 for 4 bonus issue of equity shares from share premium. The correct entry has been made to share capital, however the corresponding entry has been made to the suspense account.

7

A cheque was issued to a supplier in the amount of £5,000 on 28 December 20X4. This was not recorded in the books of Shindig plc.

8

There has been a lot of publicity surrounding Shindig plc's newest game, 'Warpaint', which is due to be released in March 20X5. Due to the high level of interest Shindig plc have allowed customers to pay for the game in advance to ensure that they receive their copy of the game on the release date. Shindig plc was unclear how to account for this revenue of £35,000 so included it in the suspense account.

9

Shindig plc sold a product with a warranty of two years. It is estimated that 3% of the warranties will be invoked at a cost of £10,000. Provisions are charged to other operating expenses.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

6

Requirement

Prepare the statement of profit or loss for Shindig plc for the year ended 31 December 20X4 and the statement of financial position at that date. Statement of profit or loss for the year ended 31 December 20X4

£

Revenue Cost of sales Gross profit Other operating expenses Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position at 31 December 20X4

£

AE

W

Non-current assets Leasehold buildings Computers Intangible assets

IC

Current assets Inventories Trade receivables Cash and cash equivalents Total assets Equity

Equity share capital Retained earnings Non-current liabilities Borrowings

158 Accounting: Question Bank

ICAEW 2020

£

2

Which three of the following users of financial statements are likely to be interested in the financial statements of a small private company? A

Stock market analysts

B

Company employees

C

The company's bank

D

Institutional shareholders

E

Suppliers

LO 1a

Which of the following accounting treatments derive from the accounting concept of accruals? 1

Write down of a non-current asset which has suffered a fall in value

2

Opening and closing inventory adjustments

3

Capitalisation and amortisation of development expenditure

A

1 and 2

W

3

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Current liabilities Trade payables Accruals Deferred income Provision Income tax payable Total equity and liabilities

3 only

C

2 and 3

D

1 only

IC

AE

B

4

LO 3b

In times of rising prices, what effect does the use of the historical cost concept have on a company's asset values and profit? A

Asset values and profit both understated

B

Asset values and profit both overstated

C

Asset values understated and profit overstated

D

Asset values overstated and profit understated LO 1d, 3b

ICAEW 2020

Sample of an exam: questions 159

5

Holly has downloaded a transaction report from her electronic banking system. The report shows a receipt of £565 which the computerised accounting system has not been able to match to a transaction. Which of the following transactions is most likely to have resulted in the unmatched receipt? A payment made to settle a supplier invoice of £600 on which a prompt payment discount of £35 has been taken

B

A standing order paid in respect of rental charges of £565 for the month

C

Proceeds of £565 from the sale of machinery to a competitor

D

A receipt from a credit customer in settlement of an invoice of £565

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

6

A

LO 1c

Rose Ltd was set up on 1 May 20X8 with opening capital of £1,000. During the month of May 20X8, it entered into the following transactions: Purchases of goods for resale, on credit Payments to credit suppliers Sales on credit Sales in cash Receipts from credit customers Non-current assets purchased for cash Depreciation Other expenses, all paid in cash

£ 12,100 8,400 16,200 1,300 3,200 1,500 100 800

What is the net profit earned by Rose Ltd in the month of May 20X8? £3,200

B

£5,400

C

£4,500

D

£3,000

AE

W

A

IC

7

LO 3c

Two errors have been found in Trim plc's accounts:

1

It was agreed that the credit balance of £420 in Ahmed's payables ledger should be offset gainst his account in the receivables ledger, but no entries have been made in trade receivables or trade payables to reflect this.

2

The balance of £510 owed by Thomas, a credit customer, is irrecoverable, however the journal entry posted to write off the irrecoverable debt was made for £150 in error.

160 Accounting: Question Bank

ICAEW 2020

The journal that corrects both these errors is: Debit Trade payables £420, Debit Irrecoverable debts expense £360, Credit Trade receivables £780

B

Debit Trade receivables £780, Credit Irrecoverable debts expense £360, Credit Trade payables £420

C

Debit Trade payables £780, Credit Irrecoverable debts expense £360, Credit Trade receivables £420

D

Debit Trade receivables £420, Debit Irrecoverable debts expense £360, Credit Trade payables £780

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

8

A

LO 2c

Nimbus plc has prepared draft financial statements for the year ending 30 June 20X0, following a physical inventory count. It was discovered during the inventory count that inventory at a cost of £18,000 has been stolen. Nimbus plc has insurance which covers 40% of the cost of inventory stolen. The insurance company has agreed to pay in this instance but no money has yet been received. No accounting entries have been made in respect of the stolen inventory. Correcting this matter will:

increase net profit by £7,200

B

decrease net profit by £7,200

C

increase net profit by £10,800

D

decrease net profit by £10,800

LO 2a

A bakery business, which is registered for VAT, issued the following invoice to one of its customers:

W

9

A

IC

AE

Invoice: Date:

1005 8 May 20X8

Cakes: 150 @ £12 Less 5% trade discount

£ 1,800 (90) 1,710

Assuming the VAT rate is 20% and that the invoice amounts are exclusive of VAT, what amount of VAT should have been charged on the invoice? A

£360

B

£300

C

£285

D

£342 LO 1c

ICAEW 2020

Sample of an exam: questions 161

10 Which two of the following types of account would normally appear on the debit side of the initial trial balance? Asset

B

Liability

C

Income

D

Expense

E

Capital

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1f

11 As at 31 December 20X1 the transaction report downloaded from a company's electronic banking system shows an overdraft of £1,500. The transaction report includes bank charges of £30 which have not yet been recorded in the company's cash at bank account. On 29 December 20X1 the company had paid a cheque of £500 to a supplier and received cash of £200 from a credit customer; neither of these items appear in the bank statement. The overdraft on the bank balance in the company's statement of financial position at 31 December 20X1 should be: A

£1,800

B

£1,830

C

£1,200

D

£1,230

LO 2b

W

12 A review of the receivables ledger reveals that debts totalling £985 are considered irrecoverable and are to be written off. The allowance for receivables is to be increased by £100.

AE

What are double entries required to adjust the allowance for receivables and to write off the irrecoverable debts?

IC

A

B

C

D

To adjust the allowance for receivables

To write off the irrecoverable debts

DEBIT Allowance for receivables £100

DEBIT Irrecoverable debts expense £985

CREDIT Irrecoverable debts expense £100

CREDIT Allowance for receivables £985

DEBIT Allowance for receivables £100

DEBIT Trade receivables £985

CREDIT Trade receivables £100

CREDIT Irrecoverable debts expense £985

DEBIT Trade receivables £100

DEBIT Allowance for receivables £985

CREDIT Allowance for receivables £100

CREDIT Irrecoverable debts expense £985

DEBIT Irrecoverable debts expense £100

DEBIT Irrecoverable debts expense £985

CREDIT Allowance for receivables £100

CREDIT Trade receivables £985 LO 3c

162 Accounting: Question Bank

ICAEW 2020

13 Bark plc has yet to account for sales commission of £1,755 owed to its employees for sales made during the year. Sales commission is included within distribution costs. Which two of the following entries of £1,755 should Bark plc make at the year end in respect of the sales commission? Debit the accruals account

B

Debit the prepayments account

C

Debit the distribution costs account

D

Credit the distribution costs account

E

Credit the prepayments account

F

Credit the accruals account

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d

14 Brindal plc acquired five apartments on 1 June 20X4 and immediately rented them out to different tenants. Brindal plc has a credit balance on its rent receivable account in the trial balance as at 31 May 20X5 of £22,850. It has yet to record rent in arrears for Apartment 1 as at 31 May 20X5 of £4,490, and rent in advance for Apartment 4 of £7,720 also at 31 May 20X5. What amount will appear for rent under other income in Brindal plc's statement of profit or loss for the year ended 31 May 20X5? £19,620

B

£22,850

C

£26,080

D

£37,340

LO 3c

W

A

IC

AE

15 Cornucopia plc applies a standard mark-up of 25% on cost. During 20X9, its sales were £125,000 and its purchases were £80,000. Opening inventory was £35,000. The company did not carry out an inventory count at 31.12.X9 and has no records of an inventory figure at that date. Using the information above, what should the closing inventory be? A

£15,000

B

£21,250

C

£48,750

D

£55,000 LO 1d

16 Violet has a machine which cost £68,000 on 1 September 20X5. It is being depreciated on the straight-line basis over 10 years to its residual value of £8,000. On 31 August 20X7, Violet carried out an impairment review and has assessed that the machine had a fair value less disposal costs of £51,000 and a value in use of £49,000.

ICAEW 2020

Sample of an exam: questions 163

What is the total amount charged to profit or loss in respect of the machine in the year ended 31 August 20X7? A

£6,000

B

£6,800

C

£11,000

D

£13,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

LO 1d

17 McClown plc has the following information in its financial statements relating to fixtures and fittings as at 31 December:

Cost Accumulated depreciation Carrying amount

20X9 £ 600,000 180,000 420,000

20X8 £ 480,000 218,000 262,000

During the year to 31 December 20X9, the following transactions occurred in relation to fixtures and fittings: Additions £284,000

Sales proceeds from disposals £178,800 Depreciation charge £66,400

What is McClown plc's profit or loss on disposals of fixtures and fittings in the year ended 31 December 20X9? £119,200 loss

B

£119,200 profit

C

£196,800 profit

W

A

£196,800 loss

IC

AE

D

LO 1d

18 At the end of its first year of trading on 30 June 20X1 Waddy Ltd's net assets are £207,594. It has share capital of £50,000 made up of 25p equity shares issued at 40p each, and a retained profits reserve of £107,594. In relation to Waddy Ltd's balance sheet at 30 June 20X1 which of the following statements could be true? A

It has other reserves of £50,000.

B

It has share premium of £100,000.

C

It has other reserves of £20,000.

D

It has share premium of £50,000. LO 1d, 3a, 3c

164 Accounting: Question Bank

ICAEW 2020

19 On 1 April 20X0 a sole trader paid £3,080 in local taxes for the year ending 31 March 20X1. This was an increase of 10% on the charge for the previous year. What is the correct charge for local taxes in her profit and loss account for the year ended 31 December 20X0? £2,870

B

£3,003

C

£3,010

D

£3,080

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

20 On 1 April 20X6 a business paid £2,860 in local property tax for the year ending 31 March 20X7. This was an increase of 10% on the charge for the previous year. What is the correct charge for local property tax in the statement of profit or loss for the year ended 31 December 20X6? A

£2,665

B

£2,730

C

£2,795

D

£2,860

LO 1d, 3c

21 Shula and Kenton are in partnership sharing profits and losses 5:3 after allowing for partner salaries of £20,000 and £25,000 respectively. On 1 November 20X8 Shula lent the business £50,000 at 8% interest pa. The net profit for the year ended 30 April 20X9, before loan interest, is £122,000.

W

How much profit will be credited to Kenton's current account? £53,875

IC

AE

A B

£66,875

C

£53,125

D

£52,375

ICAEW 2020

LO 1e

Sample of an exam: questions 165

22 At 1 January 20X5 Tandem plc had an allowance for receivables in its ledger accounts totalling £2,375. On 30 June 20X5 Basnet plc's liquidator informed Tandem plc that it would not make any further payments and therefore Basnet plc's outstanding debt of £200 should be written off. At 31 December 20X5 Ost plc paid £500 of an amount written off as irrecoverable in the previous year. Tandem plc's allowance for receivables needs to be increased by £800 at 31 December 20X5. What amount for irrecoverable debts expense should be included in Tandem plc's statement of profit or loss for the year ended 31 December 20X5? £500 debit

B

£500 credit

C

£1,275 debit

D

£1,275 credit

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

A

LO 1d, 3c

23 Which two of the following are values that a regulator concerned with restoring trust in financial information will seek to promote? A

Transparency

B

Relativity

C

Collaboration

D

Consistency

LO 1b

24 Which of the following assertions about statements of cash flows is/are correct?

A statement of cash flows prepared using the direct method produces a different figure for net cash flows generated from operations compared to that produced when the indirect method is used.

W

1

Rights issues of shares do not feature in statements of cash flows.

3

A bonus issue of shares will not appear as an item in a statement of cash flows.

4

A profit on the sale of a non-current asset will appear as an item under Cash Flows from Investing Activities in a statement of cash flows.

A

1 and 4

B

2 and 3

C

3 only

D

2 and 4

IC

AE

2

LO 3c

166 Accounting: Question Bank

ICAEW 2020

25 Part of a draft statement of cash flows is shown below: £'000 8,640 (2,160) 360 (330) 440

Profit before tax Depreciation charges Proceeds of sale of non-current assets Increase in inventories Increase in trade payables The following criticisms of the above extract have been made: Depreciation charges should have been added, not deducted.

2

Increase in inventories should have been added, not deducted.

3

Increase in trade payables should have been deducted, not added.

4

Proceeds of sale of non-current assets should not appear in this part of the statement of cash flows.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

Which of these criticisms are valid? 2 and 3 only

B

1 and 4 only

C

1 and 3 only

D

2 and 4 only

LO 3c

IC

AE

W

A

ICAEW 2020

Sample of an exam: questions 167

168 Accounting: Question Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC Answer Bank

170 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 1: Introduction to accounting C

Capital expenditure relates to the acquisition of, or improvement of the earning capacity of, non-current assets.

2

D

Legal fees incurred on the purchase of a building – the others are all revenue expenditure.

3

B

£800 spent on purchasing a new PC to replace his secretary's old one. Item A is drawings, C is the acquisition of a current asset in the form of inventory, and D is a revenue expense.

4

D

Information's relevance is affected by its materiality. A, B and C are all characteristics contributing to information being a faithful representation of what it claims to represent.

5

A

This is set out in paragraph 2.23-2.36 of the IASB's Conceptual Framework.

6

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). SAMPLE EXAM (amended)

7

B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

The financial position of an entity is reflected in the resources it controls (assets), financial structure (debt and capital), liquidity (cash) and solvency (ability to pay its debts). Most of this information is provided in the statement of financial position (B). The statement of profit or loss primarily provides information about an entity's financial performance, while the statement of cash flows reflects changes in the financial position. Retained earnings is a figure in the statement of financial position which accumulates movements over the years in retained earnings.

A,C International Accounting Standard 1 (IAS 1), Presentation of Financial Statements provides the objective of financial statements. It states that the objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions (C). In addition it states that the financial statements also show the results of management's stewardship of the resources entrusted to it (A).

IC

AE

9

A,D The IASB's Conceptual Framework states that information about the economic resources (A) and claims (D) of an entity can help users to identify the reporting entity's financial strengths and weaknesses. That information can then be used to help users to assess the reporting entity's liquidity and solvency.

W

8

10 C

1 and 4 only. Financial information can make a difference to decisions if it has predictive value (it can be used to predict future outcomes) or confirmatory value (it provides feedback about previous evaluations).

11 D

The historical cost convention.

12 D

While financial statements are required to give a true and fair view, these terms are not defined in statute, they tend to be determined in courts of law or on the facts (A). Recognition of items on the basis of monetary amounts is the money measurement concept, not the historical cost concept (B). Items should not be excluded on the basis of being difficult to understand (C).

13 D

1

Information must be both relevant and faithfully represented to be useful.

2

Materiality concerns whether an item in the financial statements can influence users' decisions; there is no absolute amount that makes an item material.

ICAEW 2020

Chapter 1: Introduction to accounting 171

14 D

Definitions per IAS 1

15 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). SAMPLE EXAM

16 D

IAS 1 paragraph 15

17 C

Omissions or misstatements of items are material (C) if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements (IAS 1). It is the information in the financial statements as a whole that should be neutral ie, free from bias (A). Prudence (B) is the inclusion of a degree of caution when making judgements in relation to estimates. Understandable (D) is an enhancing characteristic mentioned in the IASB's Conceptual Framework concerned with classifying, characterising and presenting information clearly and concisely.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

18 A,B,D

SAMPLE EXAM

Independence and Courtesy (options C and E) are not fundamental principles of the IESBA Code of Ethics for Professional Accountants. 19 C

The ICAEW Code of Ethics applies to its members, employees of member firms and ICAEW students. It also applies to affiliates and where applicable, member firms.

20 B

Although there are some specific 'rules', the majority of ethical guidance is in the form of principles, the spirit of which should be followed by the accountant.

21 B,D,F

A code based on principles does not contain specific rules with which a professional accountant must comply. A rules-based code does not require a professional accountant to adhere to a set of principles.

IC

AE

W

The ICAEW uses a principles-based approach.

172 Accounting: Answer Bank

ICAEW 2020

Chapter 2: The accounting equation C

The accounting equation Assets = Opening capital + profit – drawings + liabilities can be rewritten as: Assets – liabilities – opening capital + drawings = profit.

2

D

Petrol being paid in petty cash means assets decrease and drawings increase, which decrease capital. Option A is a switch between assets, while options B and C increase assets and increase liabilities.

3

C

The lengthening of the period of credit given to customers, since this means that while there are increased profits as the level of sales increases, it takes longer to collect cash from those customers.

4

D

A relates to the statement of profit or loss, B and C suggest that the statement of financial position represents a valuation which is incorrect, while D is correct in that it is the definition of a statement of financial position's purpose.

5

A

The overdraft liability will decrease and receivables will decrease by an equal amount.

6

A

Assets will increase as the sole trader has acquired inventory, and liabilities will increase as the goods were purchased on credit.

7

A

Assets increase as cash on receipt of the loan funds, and liabilities will increase as the loan is a liability.

8

B

Assets will increase as there is an increase in cash of £500 and a decrease in inventory of only £300, and capital will increase due to the profit of £200.

9

C

The car increases assets and it is treated as capital introduced rather than as a liability of the business to its proprietor.

10 A,B,G

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

IC

AE

W

According to the IASB's Conceptual Framework, income, expenses and equity are elements of financial statements. The IASB's Conceptual Framework also identifies assets and liabilities as elements of financial statements.

ICAEW 2020

Chapter 2: The accounting equation 173

174 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 3: Recording financial transactions C

12,450 + 2,480 + 1,350 = £16,280

2

B

A credit note is a source document that requires entry in the accounting system.

3

B

The exact amount of petty cash expenditure is reimbursed at intervals to maintain a fixed float.

4

B

Total expenses paid out of petty cash total £50 and receipts total £4. The net expenditure is therefore £46. This amount should be withdrawn from the bank account and added to petty cash to maintain the imprest amount of £100.

5

D

50,000 + 17,000 + 7,500 + 6,000 = £80,500

6

B,D Purchase order and goods received note.

7

C

A credit note is issued by a supplier when a customer returns goods to them (C). Invoices (A) are issued when goods are originally sold, on the basis of a delivery note (D) which shows what exactly has been sold. A remittance advice (B) is sent in by the customer to the supplier with payment.

8

A

The payment represents expenditure. The purchase of a laptop is not a regular transaction and it is therefore likely that this wouldn't be automatically matched by the accounting system. The payment of a regular supplier for the exact amount of the invoice (B) and the payment of wages matching the payroll (D) are highly likely to have been matched by the accounting system. Option C is a receipt, not a payment.

9

D

The net pay to employees is after deducting income tax and employees' national insurance.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

112,450 – 15,800 – 9,810 = £86,840 10 A

There is £10 or a petty cash voucher for £10 missing from the petty cash box.

11 B

38,600 + 3,500 = £42,100

IC

AE

W

12 B,D The invoice to a customer and the cheque to a supplier are both source documents that require information to be entered into a business's accounting system. The purchase order and goods received note act as supporting documentation when an invoice arrives from a supplier, but do not themselves contain information that is recorded in the system. Similarly the delivery note acts as supporting documentation when preparing an invoice to a customer, but is not separately recorded.

ICAEW 2020

Chapter 3: Recording financial transactions 175

176 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 4: Ledger accounting and double entry C

Debit Receivables £5,760, Credit Sales £4,800, Credit VAT £960

2

C

Options A and B are ruled out because they relate to rental income, which would be a credit (not a debit) in a rent account. Option D is ruled out because there is no entry made in the bank account and therefore no payment can yet have been made.

3

B

Debit entries decrease income and increase assets. Credit entries increase income, decrease assets and increase liabilities.

4

B

False. A Ltd owes to B Ltd.

5

A

As the settlement discount was not expected to be taken at the date the invoice was received and recorded, it must now be deducted from purchases.

6

A

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

TRADE PAYABLES

Payments (bal fig) Bal c/d

£ 212,130

34,655 246,785

Bal b/d

Purchases (254,192 – 31,590) Bal b/d

£ 24,183

222,602 246,785 34,655

C

An invoice issued to a customer is recorded as Debit Receivables, Credit Revenue regardless of whether an early settlement discount is expected to be taken or not.

8

C

Cash paid to suppliers would be debited to payables and credited to cash (C). Output VAT (A) is related to sales not purchases and therefore would be recorded in the receivables ledger, and the cash purchases total (B) would not appear at all in the payables account. Early settlement discounts given to customers (D) affect receivables, not payables.

9

A

The customer was expected to take advantage of the early settlement discount, so at the point of invoice the revenue would have been recorded net of the discount. As the customer did not subsequently pay on time, the discount must be added back to revenue (by crediting revenue). The payment received will increase the cash at bank account (debit) and decrease receivables (credit).

AE

W

7

IC

10 B

The supplier may deal with the scenario in one of two ways:

The first is to ignore the settlement discount and simply issue an invoice with a VAT amount of £190 (£950  20% = £190). If the settlement discount is claimed, the supplier will issue a credit note to evidence the reduction in the invoice and VAT amount. Alternatively, if the supplier does not wish to issue a credit note, they must issue an invoice which contains the terms of the settlement discount, and a statement that the customer can only recover as input tax the actual VAT paid to the supplier.

ICAEW 2020

Chapter 4: Ledger accounting and double entry 177

178 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 5: Preparing basic financial statements B,C Total credits exceed total debits, which means there is a credit balance in the account – this represents a profit for the period. The correct entry to transfer the profit for the year to the capital account is debit profit and loss ledger account, credit capital account. This step is required in order to start to calculate the closing balance on the capital account which is included in the statement of financial position. Option D is incorrect as the balance on the profit and loss ledger account is cleared to the capital account, it is not brought down to the next period. Option E is incorrect, the closing balance on the profit and loss ledger account is the profit for the year.

2

C

Land is a non-current asset for long term use in the business.

3

C

Sales exclude VAT and therefore VAT must be calculated as £89,436  20% = £17,887. Purchases include VAT and therefore VAT must be calculated as £86,790  20/120 = £14,465. The net amount is £3,422 credit as this is the amount owed to HMRC.

4

D

A loss decreases capital so it is debited to the capital account in the statement of financial position, therefore the other side of the entry is to credit it to the statement of profit or loss ledger account.

5

B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

TRADE RECEIVABLES

Opening balance Credit sales 6

A

7

C

£ 2,700 16,500 19,200

Cash received Closing balance

Drawings decrease capital so they are a debit (B); purchases and delivery outwards are expenses so they too are debits (C) and (D). A bank overdraft is a liability so it is a credit (A).

£ 89,400 (58,000) 31,400 (C)

IC

AE

W

Revenue Purchases (69,600 × 5/6) Gross profit

8

£ 15,300 3,900 19,200

Option A incorrectly uses the purchases figure without deducting VAT. Option B incorrectly deducts VAT from the sales figure and does not deduct VAT from purchases. Option D uses the correct VAT exclusive purchases figure, but incorrectly deducts VAT from the sales figure.

A

TRADE PAYABLES

Cash at bank account Closing balance

£ 4,200 4,350 8,550

Opening balance Purchases

£ 3,450 5,100 8,550

Option B uses sales to credit customers and receipts from credit customers. Option C includes the cash purchases of £400 and option D debits purchases and credits payments made.

ICAEW 2020

Chapter 5: Preparing basic financial statements 179

9

C

£98,000 – £36,000 = £62,000 (the capital account is the balancing figure for the trial balance) Credit £

3,000 15,000 15,000 4,000 1,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Non-current assets Trade receivables Trade payables Bank loan Accumulated depreciation, non-current assets Inventory Accruals Prepayments Bank overdraft

Debit £ 85,000 7,000

2,000

2,000 36,000

IC

AE

W

98,000

180 Accounting: Answer Bank

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements 1

A,C,D

2

3

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

In A, where a discount is taken unexpectedly, the transaction would not be matched against the amount recorded on the invoice and a suspense account would be used. In C the disposal of a van is not a regular transaction and therefore the computerised system is unlikely to be able to match it – and a suspense account would be used. In D, if the bookkeeper is unsure of one side of a transaction, the suspense account is used to enable the posting to take place and then investigated and corrected later. In B, £70 plus VAT at 20% is £84, and so this receipt would be matched. In E, £95 less 5% is £90.25 and so this payment would also be matched. A

True

C

True

B,C Cash at bank account: direct debit on bank transaction report only (B), bank charges (C) Deposits credited after date (A), bank error (D) and cheque presented after date (E) would appear on the bank reconciliation.

4

C

5

B

(565) – 92 = (657). The cheque for £57 is already included in the cash at bank account.

Draft profit Less irrecoverable debts Add back depreciation charged in error (24,000 × 25%) – (24,000 × 20%) Adjusted profit

£ 324,700 (6,800) 1,200 319,100

AE

W

Option A did not deduct the irrecoverable debt expense. Option C deducted depreciation of 20% of £24,000, but did not add back the incorrect depreciation charged already. Option D deducted the difference in depreciation charges, instead of adding it back.

C

7

C

IC

6

8

The £25,000 needs to be removed from the suspense account (CR) and needs to be recorded in the plant and machinery account (DR). £

Cash at bank account balance b/f Bank charges Correct cash at bank account Error Unpresented cheques Uncredited lodgements Bank statement balance

(8,970) (550)

(9,520) 425 3,275 (5,380) (11,200)

A,D Note that bank charges in the bank statement would be credited to the cash at bank account, not debited.

ICAEW 2020

Chapter 6: Errors and corrections to accounting records and financial statements 181

9

C £ 4,140 40 4,080 380 8,640 8,950 310

Alpha balance Discount disallowed Cash paid Goods returned Beta balance Difference remaining

The suspense account has to be reversed and the amount debited to revenue to reduce revenue recorded for this sale to the amount net of the early settlement discount.

11 A,B,D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

10 B

A represents unpresented cheques, and B and D represent uncredited lodgements. These are always included in the reconciliation of the bank transaction report to the corrected cash at bank account balance. Bank charges (C) and dishonoured cheques (E) would appear on the bank transaction report and would have to be corrected in the cash at bank account before reconciliation. 12 A,C Unpresented cheques, bank errors and uncredited lodgements are included in the reconciliation of the bank transaction report balance to the corrected cash at bank account balance. Bank charges (C) and dishonoured cheques (A) would appear on the bank transaction report and would have to be corrected in the cash at bank account before reconciliation. This would be to treat it as revenue rather than capital expenditure.

14 B

The £30 prompt payment discount taken by the customer will reduce (dr) revenue. The suspense account needs to be removed (dr) and trade receivables decreased (cr) to reflect that the debt is no longer owed by the credit customer. Option (A) and (C) ignore the adjustment to revenue and (D) reverses the journal entries.

15 A

In preparing a bank reconciliation, uncredited lodgements reduce an overdrawn balance in the bank statement. If a cheque received from a customer is dishonoured after date, a credit entry in the cash at bank account is required to reinstate the debt. Not all differences between the cash at bank account and the bank statement must be corrected by means of a journal entry, since some items appear in the bank reconciliation only (eg, errors by the bank, unpresented cheques and uncredited lodgements). Bank charges not yet entered in the cash at bank account should be dealt with by updating the cash at bank account, not by making an adjustment to the balance per the bank statement.

IC

AE

W

13 B

16 A

TRADE PAYABLES Cash at bank account Purchases (discount received from suppliers) Trade receivables Closing balance

182 Accounting: Answer Bank

£ 988,400 12,600 4,200 325,200 1,330,400

Opening balance Purchases

£ 384,600 945,800

1,330,400

ICAEW 2020

17 C

A transaction has been posted to the wrong account, but not the wrong class of account.

18 B

Credit £25. The balance can be found by working out what double entries the computerised accounting system has made: Item 1

Debit Suspense a/c, Credit Cash at bank a/c

£135

Item 2

Debit Cash at bank a/c, Credit Suspense a/c

£90

Item 3

Debit Cash at bank a/c, Credit Suspense a/c

£70

SUSPENSE A/C £ 135 25 160

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash at bank account Balance c/d

Cash at bank account Cash at bank account

£ 90 70 160

Balance b/d

25

19 C

When the goods were sold, they would have been recorded as Debit Trade receivables £276 (£230 + VAT at 20%), Credit Revenue £230 and Credit VAT £46. This journal entry required to be reversed when the goods are returned. Option (C) is the correct reversing journal entry. Option (A) records the sales, Option (B) ignores VAT and Option (D) reverses revenue and trade receivables.

20 A

An expense has been posted as a non-current asset when it should have been a deduction from profit, non-current assets are overstated as a result.

21 D

£807 should have been credited to payables, but instead it was debited to payables. The payables ledger should be credited with £807, to correct the error, and £807 again to record the invoice ie, increase by 2  £807 = £1,614.

22 B

Gross profit Closing inventory included in error Adjusted gross profit

IC

AE

W

Net profit Closing inventory included in error Staff training costs capitalised in error Add back depreciation on capitalised staff training costs (10,000 × 20% × 6/12 months) Adjusted net profit

£ 150,000 (5,000) 145,000 83,000 (5,000) (10,000) 1,000 69,000

Option A deducted the resale value of the inventory instead of the cost. Option C did not deduct the inventory cost from the net profit. Option D deducted the resale value of the inventory and did not add back the depreciation charge on the capitalised staff training costs.

23 B,C As some items have been withdrawn by the owner rather than sold or carried forward as inventory, cost of sales should be reduced (credited) (B). A lower cost of sales figure means an increased reported profit (C). SAMPLE EXAM 24 D Uncorrected bank ledger balance Dishonoured cheque Corrected bank ledger balance Unpresented cheques Uncleared lodgements Bank statement balance

ICAEW 2020

£ 42,510 (2,470) 40,040 2,990 (10,270) 32,760

Chapter 6: Errors and corrections to accounting records and financial statements 183

SAMPLE EXAM 25 A SUPPLIER ACCOUNT: ROCHELLE £ 26

Cash (A)

A

B, C

No effect yet on Rochelle's account

D

Paying £26 too little on an invoice would leave a credit balance on the account

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

26

£

As opening inventory is debited to cost of sales in the statement of profit or loss, an overstatement or overvaluation here decreased profit and so should be added back. The reverse is true of closing inventory. Draft gross profit Add back: overstatement of opening inventory (3,720  25/125*) Deduct: overstatement of closing inventory (1,240  25/125*) Corrected gross profit

£ 99,500 744 (248) 99,996 (A)

In Option B the overstatement in opening inventory is deducted, and that in closing inventory is added back. In the other two options the wrong gross profit percentage is applied, taking 25% margin (on sales value ie, 25/100) rather than 25% mark-up (on cost). * Gross profit percentages: Revenue Cost Gross profit

% 125 (100) 25

To calculate gross profit from selling price, multiply by 25/125.

The whole of the subscription relates to the following year, so the instalment paid should all be treated as a prepayment, which reduces expenses in the year and so should be added back to the draft net profit.

W

27 B

IC

AE

The problem with the returned goods is that the draft net profit reflects the revenue made on sale of the goods, less the cost of those goods, therefore the profit on the sale should be deducted from the draft net profit.

Draft net profit Add back: Prepaid subscription instalment (£1,000/2) Deduct: profit on returned goods £400  75/25*

£ 75,000 500 (1,200) 74,300 (B)

In A the profit deducted has been calculated as £400 × 25%; in C just the cost of goods (£400) has been deducted, while in D the profit has been added back and the prepayment deducted. * Gross profit percentages: Revenue Cost Gross profit

% 100 (25) 75

To calculate gross profit from cost, multiply by 75/25.

184 Accounting: Answer Bank

ICAEW 2020

28

B

The repair costs should have been expensed fully to the statement of profit or loss, reducing profits by £6,600, and the depreciation charged of £1,650 should be added back. The net effect is to decrease profits by £4,950. The early settlement discount was not expected to be taken, so the original sales invoice would have been recorded gross of this discount. Now the discount has been taken, it should have been credited to trade receivables and debited to sales. As the amount has currently been credited to sales, the reduction in profit will be £1,785  2 to remove the credit and post the debit to sales. £ 540,000 (4,950) (3,570) 531,480 (B)

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Draft net profit Net repair costs (6,600  0.75) Discount to customer ( 2) Final net profit 29 D

£10,200 + £3,000 + £1,400 = £14,600.

30 A

1 2

31 B

Receivables has reduced by £414 more than it should have been and cash increased by the same amount.

Payables has been reduced by £9 more than it should have been and bank decreased by the same amount.

The early settlement discount of £2,220 should have been debited to revenue and credited to receivables, so the debit entry posted to payables needs to be reversed.

1 Trade receivables (contra) c/d (bal fig)

TRADE PAYABLES £ 85 b/d 74,695 2 Sales 74,780

74,780

The incorrect entry was debit Prepayments £738, credit Suspense £738. Reversing this has no effect on profit. Making the correct entry of debit Expenses £738, credit Accruals £738 decreases profit by £738: £58,147 – £738 = £57,409 (B).

IC

AE

W

32 B

£ 72,560 2,220

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Chapter 6: Errors and corrections to accounting records and financial statements 185

186 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 7: Cost of sales and inventories 1

B £ 7,200 76,500 50 (8,100) 75,650

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Opening inventory Purchases Delivery inwards Less closing inventory 2

C,D Applying the cost of sales equation, COS = Opening inventories + purchases – closing inventories, purchases made in the year are transferred to cost of sales at the year-end by debiting cost of sales and crediting purchases (C). Closing inventories are recorded as a current asset by debiting inventories and crediting cost of sales (D).

3

B

Cost of sales includes delivery inwards, which is a cost incurred in bringing inventories to their present location, but excludes delivery outwards, which is a distribution cost and included in the statement of profit or loss after calculating gross profit. Closing inventories should be deducted in arriving at cost of sales. £ 455,000 24,000 (52,000) 427,000

Purchases Delivery inwards Closing inventories Cost of sales

SAMPLE EXAM

4

A

Closing inventory = 200 + 1,000 + 800 + 300 – 700 – 400 – 500 = 700 units. £ 2,480 1,980 4,460

FIFO 400 @ 6.20 300 @ 6.60 700 C

Cost includes both direct materials/labour and also production overheads.

W

5

IC

AE

NRV is expected selling price less expected selling costs.

6

Category 1 Category 2 Category 3

C

Product A 5,500  £10 = 500  £8 = Product B 1,900  £5 = 100  £3 = 7

Cost £ 4,570 12,090 2,300 18,960

NRV £ 5,320 11,890 2,370 19,580

Lower of cost/NRV £ 4,570 11,890 2,300 18,760

£ 55,000 4,000 9,500 300 68,800

B

False: if prices are rising, the charge to cost of sales will be higher if AVCO is used. Gross profit will therefore be lower under this method.

D

False: closing inventory is a debit in the statement of financial position and a credit in the statement of profit or loss.

ICAEW 2020

Chapter 7: Cost of sales and inventories 187

8

A Units 1.6.X8 8.6.X8 14.6.X8

60 40 50 150 (75) 75

21.6.X8

Av cost £

14.80 14.80

Value £ 720 600 900 2,220 (1,110) 1,110

B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

9

Cost £ 12 15 18

£ 46 15 61

Cost Production overheads

Net realisable value Sales price Less modification costs Less selling costs (80  10%) 10 B C

£ 80 (17) (8) 55

False: it is current asset inventory.

True: import duties should be included in inventory cost.

11 A,E (B) and (C) are distribution costs and (D) is not incurred in arriving at the cost of finished goods. 12 D

Selling price less an estimated profit margin is an acceptable method of arriving at the cost of inventory. It is a frequently used method in the retail industry. Regarding (A), LIFO is not an acceptable inventory valuation method. Overheads should be included in cost (B), and under IAS 2 inventories should be included in the SOFP at the lower of cost and NRV, replacement cost (c) is not relevant.

W

13 A

£ 284,700 (32,000) 28,500 281,200

IC

AE

Original value Coats – Cost 400  £80 – NRV (£75  95%)  400

14 B

At 31 January 20X3 the skirts were correctly valued at costs incurred to date of £20 per skirt which was lower than the NRV of £22. Therefore no adjustment required.

Basic Super Luxury

188 Accounting: Answer Bank

Cost £ 6 9 18

Net realisable value £ 8 8 10

Lower of cost & NRV £ 6 8 10

Units 200 250 150

Value £ 1,200 2,000 1,500 4,700

ICAEW 2020

15 A £ 9,500 110,000 69,000 188,500

50 @ £190 500 @ £220 300 @ £230 16 D (10 units  £45) + (50 units  £50) = £2,950 17 D

£ 483,700 (38,400) 14,800 (400) 1,800 461,500

18 C

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Inventory check balance Less goods from suppliers Add goods sold Less goods returned Add goods returned to supplier

If closing inventory is understated, cost of sales will be overstated and profit will be understated. Next year's opening inventory will be understated and its cost of sales will be understated, so its profit will be overstated.

19 A

£

Original balance Item (1) Cost NRV 15,000 – 800 Write down Inventory value 20 A

(18,000) 14,200

(3,800) 382,600

£ 836,200 (8,600) 9,800 700 838,100

W

Inventory count value Less purchases Add sales (14,000  70/100) Add goods returned Inventory figure

AE

21 A

B/d

IC

£ 386,400

Item 1 Item 2

£ 284,000 – (350) 283,650

No change as NRV exceeds cost Reduce to NRV (1,000 – 800 +150)

22 C

(20  £12.50) + (40  £12.80) + (60  £13.00) + (72  £13.50) + (8  £10) = £2,594

23 B

(20  £5) + (20  (£15 – 10 – 1)) = £180

24 C

£60,600 200 items  £15 = £3,000 NRV = (200  £17.50) – 1,200 – 300 = £2,000 400 items = (400  £1.50) – 200 = £400 Total = £58,200 + £2,000 + £400 = £60,600

25 A

ICAEW 2020

100  (£400 – £110 – £65) + (100  £350) = £57,500

Chapter 7: Cost of sales and inventories 189

Cost can include both inward delivery costs and production overheads.

27 B

A and C would not explain a shortfall and D is the correct treatment for drawings but does not affect mark-up. B will cause cost of sales to be overstated and so reduce the mark-up.

28 B

£125,000  80% = £100,000

29 B

Options A and C would increase the gross profit margin. Option D would not affect gross profit.

30 C

19,200/96,000  100% = 20%

31 A

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

26 C

Units

8/X4 11/X4

b/f Sell

1/X5

Buy

5/X5 7/X5

Sell c/f

2,400 (900) 1,500 1,200 2,700 (1,800) 900

Value £ 10.00 10.00 10.00 16.75 13.00 13.00 13.00

£ 24,000 (9,000) 15,000 20,100 35,100 (23,400) 11,700

SAMPLE EXAM

When raw material prices are rising, AVCO averages the earlier, lower prices with the later, higher prices, while FIFO just takes the later, higher prices. Thus FIFO would result in a higher inventory value than AVCO. As inventory quantities are constant, this means that closing inventory would always be higher than opening inventory. As closing inventory is a reduction in the cost of sales calculation, all other things being equal this would result in the overall debit balance of cost of sales being lower under FIFO than under AVCO: hence lower cost of sales and higher closing inventory value (A).

33 C

To calculate cost of sales correctly the purchases figure should only take into consideration the goods purchased for resale. Therefore it is necessary to reduce purchases, not inventory, by the cost of the inventory destroyed (Credit Purchases £36,000). This cost to the business should be shown under administrative expenses in the statement of profit or loss (Debit Administrative expenses £36,000). The sum due from the insurance company of £28,800 should be treated as part of other income, not revenue, as it is from a non-trading source (Credit Other income £28,800).

AE

W

32 A

IC

34 B

35 D

Closing inventory is an asset in the statement of financial position and is deducted from cost of sales (and hence added to profit) in the statement of profit or loss. An increase of inventory from £6,420 to £8,080 would therefore increase net assets and increase profit (decrease losses) by £1,660 (8,080 – 6,420).

The damaged inventories should be written down to nil before the closing inventories are recorded. Closing inventories are included as current assets at the end of the period by debiting inventories and crediting cost of sales.

190 Accounting: Answer Bank

ICAEW 2020

Chapter 8: Irrecoverable debts and allowances 1

B

£6,000 write off less decrease in allowance of £4,500 is net debit of £1,500.

2

A

1,300 + 2,150 – (8,540 – 6,631) = £1,541

3

B

False.

C

True: irrecoverable debts expense hits net profit not gross profit.

C £ 50,000 (3,250) 46,750

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

4

Balance before adjustments Less irrecoverable debt written off

Adjustment (2) will be to the allowance, not to receivables; adjustment (3) affects irrecoverable debts. 5

D

(28,500 + (42,000 – 38,000)) = £32,500

6

D

£1,005 credit

Required allowance b/f allowance Reduction (credit) Bad debt recovered (credit) 7

C

£ 495 1,000 505 500 1,005

IRRECOVERABLE DEBTS EXPENSE

Write off

D

AE

8

W

Statement of profit or loss (bal fig)

1,120 1,400

Closing allowance required Opening allowance Decrease in allowance Irrecoverable debts written off Irrecoverable debts expense

IC 9

£ 280

A

Irrecoverable debts written off Reduction in allowance (18,000 – 16,000)

ICAEW 2020

£

Decrease in allowance (1,000 –100) Cash

900 500 1,400

£ 36,200 50,000 (13,800) 38,000 24,200 £ 14,600 (2,000) 12,600

Chapter 8: Irrecoverable debts and allowances 191

10

C

RECEIVABLES £ 31,475 125,000

B/d balances Sales

Cash at bank Sales (Discounts) Credit note C/d

156,475 The correct journal entry to record the adjustments is:

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

11 A

£ 122,500 550 1,300 32,125 156,475

DEBIT Irrecoverable debts expense (SPL) CREDIT Allowance for receivables CREDIT Trade receivables

£3,315 £2,515 £800

Only the increase in the allowance for receivables of £2,515 should be recorded. 12 C

TRADE RECEIVABLES £ 284,680 194,040

Opening balance Credit sales

Cash at bank Sales (discounts given to customers) Irrecoverable debts expense Irrecoverable debts expense Trade payables Closing balance

478,720

13 B

W

Allowance for receivables Previous allowance Reduction Debts written off Irrecoverable debts expense

IC

AE

14 B

15 B

Allowance required Existing allowance Increase required Irrecoverable debts written off Irrecoverable debts expense (28,000 + 3,500) Trade receivables

£ 179,790

3,660 1,800 4,920 800 287,750 478,720

£ 24,000 (39,000) (15,000) 37,000 22,000

£ 21,500 (18,000) 3,500 28,000 31,500

= £838,000 – £72,000 = £766,000

Allowance for receivables is increased by £12,000 to £60,000. 16 D

Issue 1: Unmatched transactions are posted to the suspense account. To remove the suspense account and correctly post the cash received the double entry is Debit Suspense account £350, Credit Irrecoverable debts expense £350. Issue 2: To decrease the allowance to £800, the double entry is: Debit Allowance for receivables £100, Credit Irrecoverable debts expense £100.

192 Accounting: Answer Bank

ICAEW 2020

Combining these journals: DEBIT

Allowance for receivables (2)

£100

DEBIT

Suspense account (1)

£350

CREDIT

Irrecoverable debts expense (350(1) + 100(2))

£450

Net profit increases by £300.

18 B

DEBIT

Irrecoverable debts expense

£7,550

DEBIT

Allowance for receivables

£5,450

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

17 D

CREDIT

Trade receivables

£13,000 £ 42,550 (48,000) (5,450) 13,000 7,550

Allowance required Existing allowance Reduction in allowance Irrecoverable debts written off Statement of profit or loss charge

Option A is incorrect as it does not remove the irrecoverable debt from receivables and has recorded an increase in the allowance for receivables instead of a decrease. Option C in incorrect as it does not remove the irrecoverable debt from receivables, crediting the amount to the allowance instead. Option D is incorrect as it records the full amount of the new allowance as a credit entry rather than just recording the decrease in the allowance for the current year. £441,500 – 2,400 – 21,955

20 D

The amount received that was previously written off (£3,000) and the decrease in the allowance for receivables (£700) will both be credited to the statement of profit or loss. The amount written off (£3,600) will be a debit.

21 D

An allowance for receivables of £850 is required and the charge to profit or loss is the amount written off of £10,380 plus the increase in allowance of £350.

22 B

The net trade receivables shown in the statement of profit or loss is after deducting the allowance for receivables of £8,420 and the write-off of £1,860.

W

19 A

For (3), the entry made was Debit Cash £58, Credit Suspense £58; the suspense account entry must be reversed to the credit of the irrecoverable debts expense account.

IC

AE

23 D

SUSPENSE

Irrecoverable debts expense (3)

£ 58 58

b/d

£ 58 58

ALLOWANCE FOR RECEIVABLES £

Irrecoverable debts expense (2) (bal fig) c/d

b/d 25 475 500

ICAEW 2020

£ 500

500

Chapter 8: Irrecoverable debts and allowances 193

IRRECOVERABLE DEBTS EXPENSE Cash at bank (1)

£ 92

£ 25 58

Allowance for receivables (2) Suspense (3)

The net debit to the irrecoverable debt expense account is therefore (92 – 25 – 58) = £9. CASH AT BANK £

£ 92

IC

AE

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Irrecoverable debts expense (1)

194 Accounting: Answer Bank

ICAEW 2020

Chapter 9: Accruals and prepayments 1

A

Statement of profit or loss (8/12  60,000) + (4/12  48,000) Statement of financial position (2/12  60,000)

2

A

3

D

(2/3  798.00) + 898.80 + 814.80 + 840.00 + (1/3  966.00)

RENT RECEIVABLE

4

B

5

D

£ 21,200

£ 28,700 481,200

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

B/d arrears Statement of profit or loss (bal fig) C/d advances

475,900 31,200 528,300

B/d advances Cash received C/d arrears

18,400 528,300

£960 has been deducted from instead of added to profit. Therefore to cancel the error, you have to add it back then to post the correct entry you have to add it on again.

SUBSCRIPTION INCOME ACCOUNT

B/d arrears Subscription income (bal fig) C/d advances 6

C

£ 16,900 316,200 28,400 361,500

B/d advances Cash received C/d arrears

AE

W

Receipt 1 October 20X1 (£7,500  1/3) 30 December 20X1 4 April 20X2 1 July 20X2 1 October 20X2 (£9,000  2/3) Credit to statement of profit or loss

£ 24,600 318,600 18,300 361,500

£ 2,500 7,500 9,000 9,000 6,000 34,000

IC

Credit deferred income (£9,000  1/3)

7

A

8

B

3,000

Statement of profit or loss = £60,000  12/18 = £40,000

Statement of financial position = £60,000  3/18 prepayment = £10,000 Rent expense (SPL) (8/12  90,000) + (4/12  120,000) = 100,000 Accrual (SFP) 12,000/12 = 10,000

9

D RENTAL INCOME B/d arrears Rental income (bal fig) C/d advances

ICAEW 2020

£ 4,800 828,700 144,400 977,900

B/d advances Cash received C/d arrears

£ 134,600 834,600 8,700 977,900

Chapter 9: Accruals and prepayments 195

10 B £ Statement of profit or loss December to June 8,400  7/12 July to November 12,000  5/12

4,900 5,000 9,900

Other payables 12,000  1/12 = 1,000 (December rent received in advance) 11 C £ 10,000 60,000 70,000

12 C

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

August to September 60,000  2/12 October to July 72,000  10/12

Statement of profit or loss £ 8,200 38,000 (9,500) 36,700

Prepaid insurance Payment January 20X5 Prepayment July-Sept 20X5 13 A

Statement of financial position £

9,500 9,500

RENT RECEIVABLE £ 3,800

B/d arrears Statement of profit or loss (bal fig) C/d advances 14 A

Statement of profit or loss

84,000 3,000 90,800

B/d advances Cash received C/d arrears

£ 2,400 83,700

4,700 90,800

= (9/12  £10,800) + (3/12  £12,000) = £11,100

W

Statement of financial position = prepayment of (9/12  £12,000) = £9,000

100,000  12%  9/12 = £9,000 is payable (P/L), but only £6,000 has been paid (April and July).

16 D

Statement of profit or loss (5/12  24,000) + (7/12  30,000) = £27,500

IC

AE 15 B

17 B

Statement of financial position (2/12  30,000) = £5,000

ELECTRICITY ACCOUNT £

20X0 1 August 1 November 20X1 1 February 30 June 30 June

196 Accounting: Answer Bank

Cash Cash Cash Cash Accrual £840  2/3

600 720 900 840 560 3,620

£ 20X0 1 July

20X1 30 June

Accrual reversed

300

Statement of profit or loss 3,320 3,620

ICAEW 2020

18 D

(12 × £600) – 400 (opening accrual) + 500 (closing accrual) = £7,300

19 D

£250 (reversed prepayment) + £800 (cash) + £90 accrual = £1,140

20 B

£300 (reverse accrual) + £4,000 (cash) – £400 (closing accrual) = £3,900

21 B INSURANCE £ 260 1,820 2,080

Statement of profit or loss Prepayment

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Reverse prepayment (bal fig) Cash 22 B

(6/12  (13,200  100/110)) + (6/12  13,200) = £12,600

23 D

Overstated by £800

24 B

£22,240 current asset

25 A

Loan 12,000 + (12,000  2%)

= £12,240 current asset

Insurance 9,000  8/12

= £6,000 current asset

Rent

= £4,000 current asset

£ 1,760 320 2,080

Debit electricity

D

Credit insurance

F

Credit accruals

G

Debit prepayments

26 C

(£3,420 – 215 + 310) = £3,515

27 B

(£10,400 + 800 – 920) = £10,280

28 B,F £60 has been prepaid as at the year end of 31 August 20X4, so this should be debited to the prepayments account (B) and credited to the telephone charges account (F). The prepayment of local property tax is for July and August, that is 2/3  £6,495 = £4,330. This is debited to prepayments and credited to administrative expenses.

W

29 D

AE

30 A,C,D

Five months of the subscription has been prepaid at 31 August 20X8:

IC

£240  5/12 = prepayment £100 (C)

Deposits of £75 will be treated as income in the subsequent year, so this must all be treated as deferred income £75 (A). Five of the six months property tax relates to the year ended 31 August 20X8, so this must be accrued: £5,400  5/6 = accrual £4,500 (D)

31 A,F The company debited cash at bank with the 20X3 rent received and credited rental income for 20X4, when it should have credited the rent receivable or accrued income asset account set up at 31 December 20X3. The correcting journal should therefore Debit Rental income (A) and Credit Accrued income (F).

ICAEW 2020

Chapter 9: Accruals and prepayments 197

32 A

The bookkeeper has processed the opening (1) and closing (2) journals as follows: ACCRUALS £ b/d Jnl 1 Jnl 2

Jnl 1 Cash Jnl 2

DISTRIBUTION COSTS £ 2,203 Jnl 2 147,049 4,423

£

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

b/d Jnl 1 Jnl 2

PREPAYMENTS £ 2,816 2,816 3,324

£ 5,019 5,019 4,423

£ 3,324

The cash payment and Journal 2 are correct. To correct Journal 1 the bookkeeper should: Debit Accruals £10,038, Credit Prepayments £5,632, Credit Distribution costs £4,406 33

B,F Unless told otherwise we can assume that all charges accrue evenly in the period. The internet server charge payment of £4,500 made on 1 November 20X5 covers the six months to 30 April 20X6. Of this payment, four months is a prepayment covering the period 1 January to 30 April 20X6, an amount of (4/6  £4,500) = £3,000 (B). The telephone rental payments are in arrears, so when the last payment for 20X5 is made on 30 November, Bez plc still owes one month (December) of rental, which is (£7,440  1/12) = £620 (F). B

Having paid its 20X4/X5 fee in advance, Butters plc is now paying its 20X5/X6 fee in arrears. The amount unpaid at 30 June 20X5 will therefore be an accrual. There are outstanding fees for the period 1 March–30 June 20X5, which is four months. The accrual is therefore £21,000  1.125  4/12 = £7,875 (B).

W

34

In the financial statement for the previous year ended 30 June 20X6, a prepayment of (£10,800  9/12) would have been recorded. This must be reversed in the year ended 30 June 20X7 by debiting the expense in the statement of profit or loss and crediting the prepayment (A). (B) has calculated the correct prepayment but has not recorded the correcting journal entry. (C) and (D) both incorrectly involve an accrual being created for the year ended 30 June 20X6.

IC

AE

35 A

36 B

The rent received in advance is deferred income which must be removed from the amount recorded as rental income in the year by Debit Rental income and Credit Deferred income. The rent in arrears is accrued income which must be included in rental income for the year by Debit Accrued income and Credit Rental income. (B) is the correct combination of these journal entries.

37 A

The balance on the rent expense account at 30 November 20X6 is £120,000  4/12 + £144,000  8/12 = £136,000. This is a debit balance and therefore to transfer the balance to the profit and loss ledger account, Debit profit and loss ledger account £136,000 and Credit Rent expense (A). Option (B) reverses the journal entry. Options (C) and (D) incorrectly calculate the rent expense.

198 Accounting: Answer Bank

ICAEW 2020

The rent expenses needs to be increased (debit) and a liability to pay this amount needs to be created (credit accruals).

39 A

The insurance expense for the year ended 30 June 20X5 is £27,200, being the £8,200 prepayment plus £19,000 (£38,000  6/12). This is a debit balance on the insurance expense account and therefore to transfer the balance to the profit and loss ledger account, we must debit the profit and loss ledger account and credit the insurance expense account with £27,200 (option A). Option B reverses the journal entry. Options (C) and (D) incorrectly calculate the insurance expense.

IC

AE

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

38 C

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Chapter 9: Accruals and prepayments 199

200 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 10: Non-current assets and depreciation 1

B

2

C

The cost of the machine is £28,000. Cataract has paid £23,000 in cash and has evidently agreed a trade-in value of £5,000 for the old machine. (The old asset's carrying amount is irrelevant.) After one year, the carrying amount of the new machine is 90% of £28,000 = £25,200.

£ 18,800 (1,880) 16,920

3

A

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cost (15,000 + 1,300 + 2,500) Depreciation (10%  18,800) Carrying amount

The suspense account needs to be cleared (dr), the accumulated depreciation of £11,500 as calculated below and the machinery cost need to be removed at the date of disposal and the loss recorded. £ Cost of asset 22,000 (11,500) Accumulated depreciation (46 months  (21,000/84)) Carrying amount at date of disposal 10,500 Proceeds on disposal 9,000 Loss on disposal 1,500 Option (B) uses the incorrect number of months for depreciation. Options (C) and (D) reverse the journal entries.

4

A

DISPOSAL

Cost

£ 20,000

Depreciation Trade in allowance (22,000 – 17,500)  loss

A

The depreciation charge is (6,000 – 300)/(5  12) = £95. This year 6  £95 = £570. This is recorded as Debit Depreciation expense £570; Credit Accumulated depreciation £570.

AE

5

4,500 1,300 20,000

W

20,000

£ 14,200

C

£23,500  90% = £21,150

7

A

£18,000  75%  75% – 5,000 = £5,125 loss

8

D

To match the cost of the non-current asset with the revenue that the asset generates.

9

C

Any abnormal costs are not directly attributable to the asset and therefore should not be capitalised.

IC

6

10 A

Purchased goodwill is retained in the statement of financial position subject to an impairment review.

11 D

(£5,000 – £1,000)/4 = £1,000 depreciation per annum for three years DISPOSAL ACCOUNT Cash at bank

£ 5,000

5,000

ICAEW 2020

Depreciation Proceeds  loss

£ 3,000 1,600 400 5,000

Chapter 10: Non-current assets and depreciation 201

12 B Cost 20X1 Depreciation 20X2 Depreciation 20X3 Depreciation

13 D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

20X4 Part exchange Profit

£ 1,000,000 250,000 750,000 187,500 562,500 140,625 421,875 500,000 78,125

Balance b/d Less cost of non-current asset sold Add accumulated depreciation of asset sold (15,000 – (4,000 + 1,250))

£ 67,460 (15,000) 9,750 62,210

14 C

48,000 + 400 + 2,200 = 50,600

15 D

The journal entry to record the depreciation expense is Debit Depreciation expense £76,840, Credit Accumulated depreciation £76,840. £ 3,000 December addition – 18,000  20%  10/12 4,800 June disposal – 36,000  20%  8/12 69,040 Balance – 345,200  20% 76,840

16 A

(200,000 – 20,000 – 25,000 – 5,000 = 150,000)

17 A

W

Plant held all year (380,000 – 30,000)  20% New plant (51,000  20%  9/12) Plant disposed of (30,000  20%  9/12)

IC

AE

18 A

19 A

Plant held all year (200,000 – 40,000)  20% Disposal 40,000  20%  9/12 Additions 50,000  20%  6/12

£ 70,000 7,650 4,500 82,150

£ 32,000 6,000 5,000 43,000

The journal entry to record the depreciation expense is Debit Depreciation expense £900, Credit Accumulated depreciation £900. £36,000/120  3 = £900

20 D

The machine has had three years' depreciation at 40% reducing balance. Carrying amount is therefore (£35,000 × 60% × 60% × 60%) = Add profit on disposal Part-exchange allowance Payment Price of new machine

202 Accounting: Answer Bank

£ 7,560 2,440 10,000 30,000 40,000

ICAEW 2020

21 A

£18,000  90% = £16,200

22 A

(£10,000  70%  70%) – £6,000 = £1,100

23 B

The depreciation for the year is (£120,000 – 4,000)/48  3 = £7,250. This should be deducted from the draft net profit to give an adjusted profit of £49,530.

24 C £ 83,600 18,000 (4,500) 97,100

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Draft profit for the year Add purchase price Less additional depreciation (18,000  25%) Adjusted profit 25 B

The internal administration costs cannot be treated as part of the asset's cost, so in the first two years' depreciation of (£96,720 + £3,660)/5  2 = £40,152 was charged. This means that the whole of the remaining carrying amount of £60,228 must be allocated as depreciation in 20X6 given the revision of the asset's useful life. SAMPLE EXAM

26 A

The depreciation is calculated as:

(£38,000 – 2,000)/6 years = £6,000 per annum/£500 per month

The machine was purchased on 1 August 20X4 and the year end is 31 March 20X5, hence eight month's depreciation is required. 27

C

The initial amount capitalised is £44,500, as the licence cost is excluded from the value of the plant because it is not a directly attributable cost. Depreciation is initially ((44,500 – 3,500)/8) = £5,125 per annum, so at 1 June 20X5 the carrying amount is (44,500 – (2  5,125)) = £34,250. Depreciation is then charged at 40% on this figure, giving a depreciation figure of £13,700 for the year to 31 May 20X6, and a carrying amount of £20,550.

AE

W

Purchase price Transport

IC

c/d

PLANT – COST £ 43,000 c/d 1,500 44,500

PLANT – ACCUMULATED DEPRECIATION £ 23,950 31/5/X4 Charge (44,500 – 3,500)/8 31/5/X5 Charge (44,500 – 3,500)/8 31/5/X6 (44,500 – 10,250) × 0.4 23,950

£ 44,500 44,500

£

5,125 5,125

13,700 23,950

Carrying amount: 44,500 – 23,950 = £20,550

ICAEW 2020

Chapter 10: Non-current assets and depreciation 203

28 C DISPOSAL Cost

£ 23,500

£ Accumulated depreciation £23,500 – (£23,500  0.7  0.7) Part exchange value (£28,200 – £19,350) Loss on disposal (bal fig)

11,985 8,850 2,665 23,500

23,500

29 C

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

SAMPLE EXAM

The debit to administrative expenses is the loss on disposal of £1,898 DISPOSAL

Cost

£ 4,000

Acc dep (£4,000 – (£4,000  0.8  0.8  0.8)) Proceeds Administrative expenses (loss on disposal)

4,000

£ 1,952 150 1,898 4,000

SAMPLE EXAM

30 B

This is calculated using T accounts, the carrying amount being £626,000 – £368,165 = £257,835. Note that no depreciation will be charged in the year to 31 March 20X6 for the asset acquired at the year end: COST

B/d Additions

£ 614,500 11,500 626,000

C/d

£

626,000 626,000

AE

W

ACCUMULATED DEPRECIATION

IC

C/d

31

C

b/d Additions

£

368,165 368,165

B/d (614,500 – 399,960) Charge (614,500  0.25)

SAMPLE EXAM

PLANT & MACHINERY – COST £ 92,000 Disposals – bal fig 39,000 c/d 131,000

PLANT & MACHINERY – ACCUMULATED DEPRECIATION £ Disposals – bal fig 6,000 b/d c/d 72,000 Charge 78,000

204 Accounting: Answer Bank

£ 214,540 153,625 368,165

£ 21,000 110,000 131,000

£ 51,000 27,000 78,000

ICAEW 2020

DISPOSALS P&M – cost

£ 21,000

£ 6,000 13,000 2,000 21,000

P&M – acc dep Proceeds – bal fig Loss

21,000 32

D

The accumulated depreciation at the part exchange date is (60,000 – 34,400) = £25,600, and this must be eliminated from the accumulated depreciation account by debiting the account.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The machine cost account is debited with the difference between the cost of the old and new machines (196,600 – 60,000) = £136,600. Anaconda is paying a total cash/payables figure of (110,000 + 42,000) = £152,000 for the machine, therefore the part-exchange allowance is (196,600 – 152,000) = £44,600. This is compared to the carrying amount of £34,400 to give a gain on disposal of £10,200. DEBIT DEBIT CREDIT CREDIT

Accumulated depreciation Cost Disposal Suspense

Cash Trade and other payables Part exchange value b/d (net entry)

D

IC

34

MACHINE – COST £ 110,000 Disposal 42,000 c/d 44,600 196,600 136,600

£ 60,000 136,600 196,600

DISPOSAL £ 60,000 Accumulated depreciation 10,200 Part exchange value 70,200 b/d (net entry)

£ 25,600 44,600 70,200 10,200

VAT on vehicles except for cars is treated as input tax, so the truck's cost in the ledger accounts is £99,900  5/6 = £83,250 (B). This is depreciated at 20% per annum for six months, a charge of £8,325. Hence the carrying amount at the year end is £83,250 – £8,325 = £74,925 (D).

AE

33

W

Cost c/d Profit on disposal

£25,600 £136,600 £10,200 £152,000

In option C the cost is depreciated for a full year (£83,250  0.8), while in A the cost is taken to include VAT, and is then depreciated for six months.

D

VAT is not treated as input tax when a car is purchased for use in a business (as opposed to being bought as inventory by a car dealer). As Crocker plc is a retailer we can assume that the gross figure should be taken as the cost of both vehicles. The old car had been depreciated for 28 months when it was traded in.

Old car – cost

ICAEW 2020

DISPOSALS £ 16,800 Vehicles – acc dep (16,800/60  28) Part exchange value ((17,625  1.2) – 13,500) Loss – bal fig 16,800

£ 7,840 7,650 1,310 16,800

(D)

Chapter 10: Non-current assets and depreciation 205

Note that in Option A the error is to have depreciated the old car for only two years, assuming a policy of 'full year's depreciation in the year of purchase and none in the year of sale'. In Option B the net price of the new car is used when calculating the part exchange value, while in Option C both these errors are made. 35

B

In respect of the disposal, the computer sold had a carrying amount of £6,800/4  2 = £3,400 at 1 January 20X4, so a loss of (3,400 – 1,800) = £1,600 arises on disposal. The remaining computers have a cost of £997,608 (1,004,408 – 6,800). We know that none of them was written down fully at the previous year end, and we can assume there have been no additions, so depreciation of £997,608/4 = £249,402 arises.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

ADMINISTRATIVE EXPENSES £ 684,000 Statement of profit or loss 1,600 249,402 935,002

b/d Disposal Depreciation charge

b/d

COMPUTERS – COST £ 1,004,408 Disposal c/d 1,004,408

COMPUTERS – ACCUMULATED DEPRECIATION £ 3,400 b/d Disposal (6,800/4  2) c/d 943,602 Charge (997,608/4) 947,002

D

935,002

£ 6,800 997,608 1,004,408

£ 697,600 249,402 947,002

£ 3,400 1,800 1,600 6,800

The journal entry to record the depreciation is Debit Depreciation expense £70,384; Credit Accumulated depreciation £70,384.

AE

36

W

Cost

DISPOSAL £ 6,800 Accumulated depreciation Proceeds Loss (bal fig) 6,800

£ 935,002

IC

Carrying amount of computer traded in = £24,000  60%  60% = £8,640.

Carrying amount of remaining computers is therefore 150,000 + 34,600 – 8,640 = £175,960. Depreciation on these is (175,960  40%) = £70,384 (D).

b/d Additions

37 A

COMPUTERS – CARRYING AMOUNT £ 150,000 Disposal (24,000  0.6  0.6) 34,600 Charge (175,960  40%) c/d 184,600

£ 8,640 70,384 105,576 184,600

The carrying value of the machinery has decreased by £10,000. The profit or loss on disposal is the difference between the carrying amount at the date of disposal and the proceeds on sale. If proceeds were £15,000 and the carrying amount £10,000, a profit of £5,000 (A) must have been made. Option (C) calculates a loss rather than a profit. Options (B) and (D) use the incorrect carrying amount.

206 Accounting: Answer Bank

ICAEW 2020

38 B

The journal entries to correct the misposting are: Debit Property, plant and equipment £38,000, Credit Plant repairs £38,000, and Debit Depreciation expense £1,900, Credit Accumulated depreciation £1,900 Depreciation is calculated as £38,000/5 years  3/12. Profit is understated by £38,000 – £1,900 = £36,100 Cost less four months' depreciation = £25,500 – £2,125 = £23,375

40 D

The carrying amount of the machine at 31 March 20X8 must be calculated and compared to the recoverable amount.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

39 C

Carrying amount at 1 April 20X7 Depreciation charge (20% reducing balance) Carrying amount at 31 March 20X8 Recoverable amount – higher of: Fair value less disposal costs Value in use Recoverable amount Loss on impairment

£ 32,000 (6,400) 25,600 22,400 21,000 22,400 3,200

Option (A) compares cost to the recoverable amount, option (B) depreciates on the straight-line basis and option (C) uses the lower value in use as the recoverable amount. 41 B

£ 420,000 (95,000) 325,000 280,000 300,000 300,000 25,000

W

Cost at 1 April 20X4 Depreciation charge ((420,000 – 40,000)  5/20) Carrying amount at 31 March 20X9 Recoverable amount – higher of: Fair value less costs to sell Value in use Recoverable amount Loss on impairment

AE

Option (A) ignores residual value, option (C) uses fair value less disposal costs as the recoverable amount and (D) compares depreciable cost to the recoverable amount.

IC

42 A

ICAEW 2020

Technological advances which means the plant and machinery is not as efficient as that currently available is an indicator of impairment. Market capitalisation exceeding the value of non-current assets is not an indicator of impairment but market capitalisation that is less than the value of non-current assets would be. Using the plant and machinery for a new product that is expected to generate benefits does not indicate impairment.

Chapter 10: Non-current assets and depreciation 207

208 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 11: Company financial statements 1

A

2

A

3

B

20,000  £0.25 = £5,000

SHARE CAPITAL £m

£m 100 50 60 210

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Bal b/d Share premium (bonus) Cash at bank (rights)

Bal c/d

210 210

SHARE PREMIUM

Share capital (bonus) Bal c/d

£m 50 60

Bal b/d Cash at bank (rights)

110

£m 80 30

110

4

B

Share capital will be credited with the nominal value of the shares (1m  50p) – the balance goes to share premium (1m  30p).

5

B

This is the transfer of the premium to the share premium.

6

C

A bonus issue does not involve cash but can be financed from the share premium.

7

B

W

Equity shares at start of year Add bonus issue 50,000 × 50p Add new issue 60,000 × 50p

AE

Share premium at start of year Less bonus issue 50,000 × 50p Add new issue 60,000 × 30p

IC

8

9

A

Debit cash Credit share capital Credit share premium B

£ 50,000 25,000 30,000 105,000 180,000 (25,000) 18,000 173,000

£ 1,100,000 250,000 850,000

£30,000 200,000 shares  15p = £30,000

10 D

ICAEW 2020

No revenue can be recognised as Afua plc remains responsible for the toasters until they are delivered to the customer, which does not happen until after the year end.

Chapter 11: Company financial statements 209

11 B SHARE CAPITAL Number

£ Bal b/d Cash at bank (1 for 2 rights)

900,000

225,000

900,000

225,000

Share premium (1 for 5 bonus)

£ 125,000 62,500

750,000 150,000

37,500

900,000

225,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Bal c/d

Number 500,000 250,000

SHARE PREMIUM

Share capital (1 for 5 bonus) Bal c/d 12 B

£ 37,500

250,000 287,500

£ 100,000

Bal b/d

Cash at bank (1 for 2 rights)

187,500 287,500

The total dividend paid during the year is £275,000. WORKING

Dividends (bal fig) C/fwd 13 D

RETAINED EARNINGS £ 275,000 B/fwd 1,080,000 Profit for the year 1,355,000

W

1 Jul 20X4 1 Jan 20X5 – 1 for 4 bonus issue (250,000 × 50p) 1 Apr 20X5 – 1 for 10 rights issue

250,000 125,000 1,375,000

Share capital £ 500,000

Share premium £ 400,000

125,000 62,500 687,500

(125,000) 125,000 400,000

200,000/5 = 40,000 shares.

AE

14 D

Share capital Number 1,000,000

£ 900,000 455,000 1,355,000

Balance on share premium becomes £75,000 + (40,000  £1) = £115,000

IC

15 B

Share capital £6,000,000

Share premium £nil

Bowden Ltd is issuing (£10m/5  1) = 2,000,000 new shares of 50p each to its owners, in proportion to their existing shareholdings. The double entry: DEBIT

Share premium (total balance of share premium) DEBIT Retained earnings (remainder) CREDIT Share capital

£ 900,000

£

100,000 1,000,000

This removes the whole share premium leaving a balance of zero.

210 Accounting: Answer Bank

ICAEW 2020

16 B

You do not have to complete the share premium to answer this question but it is good practice in this type of question to complete both. SHARE CAPITAL Number

£ Bal b/d Cash at bank (1 for 5 rights)

480,000

120,000

480,000

120,000

Share premium (1 for 3 bonus)

£ 75,000 15,000

360,000 120,000

30,000

480,000

120,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Bal c/d

Number 300,000 60,000

SHARE PREMIUM

Share capital (1 for 3 bonus) Bal c/d

£ 30,000 227,000

Bal b/d Cash at bank (1 for 5 rights 60,000  95p)

257,000

17

D

257,000

INSURANCE COST

Prepayments Cash at bank

£ 450 3,400 3,850

Prepayments Bal c/d

AE

W

C WORKING

Dividend paid Share capital C/fwd

IC

£ 515 3,335 3 3,850 £ 450 3,400 (515) 3,335

Opening prepayment Insurance cost for the year Closing prepayment Expense in statement of profit or loss 18

£ 200,000 57,000

19 C

RETAINED EARNINGS £ 312,000 B/fwd Profit for the year 125,000 1,426,980 (bal fig) 1,863,980

£ 926,450

937,530 1,863,980

(A) is wrong because labour and construction costs of building a factory would be debited to non-current assets cost. (B) is wrong because directors' remuneration would be debited to the expense account, (D) is wrong because a misposting of discount from a supplier would be a debit to trade payables not to trade receivables.

20 D July – September October – March April – June

ICAEW 2020

1,000,000  8%  3/12 750,000  8%  6/12 750,000  8%  3/12 500,000  7%  3/12

£ 20,000 30,000 15,000 8,750 73,750

Chapter 11: Company financial statements 211

21 C INCOME TAX £ 3,200

B/d C/d Income tax payable

£ Statement of profit or loss (bal fig)

24,500 27,700

27,700 27,700

22 B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

INCOME TAX Cash at bank C/d Income tax payable

£ 12,700 15,600

B/d Statement of profit or loss (bal fig)

28,300

£ 14,300 14,000 28,300

23 C

The £3,000 that was not provided for in 20X3 would be the expense recognised in 20X4.

24 C

This is calculated using a T account:

DISTRIBUTION COSTS

Cash at bank Closing accrual

£ 130,647 654

Accrual reversed Statement of profit or loss (bal fig)

131,301

25 C

£ 586

130,715 131,301

When a company makes a bonus issue it receives no monies from shareholders. Instead it issues shares to existing shareholders at par value, crediting share capital and debiting share premium (if there is insufficient share premium then retained earnings may be debited).

W

Pigeon plc has 600,000 ordinary shares in issue prior to the bonus issue, because each share has a 50p par value. It therefore issues 200,000 (1/3  600,000) shares to shareholders, again with a par value of 50p each. The journal to record this issue is

AE

Debit Credit

Share premium (200,000  50p) Share capital

£100,000

£100,000

The share premium is therefore reduced to £650,000.

IC

26 B

Cash at bank Trade receivables Purchases (discounts taken unexpectedly)

TRADE PAYABLES £ 1,249,506 b/d 8,236

212 Accounting: Answer Bank

£ 524,925

12,824 Purchases

c/d (bal fig)

SAMPLE EXAM

1,241,704 2,512,270

1,987,345 2,512,270

ICAEW 2020

27 B

This is calculated using a T account: INCOME TAX £ 1,762 2,584

Cash at bank Carried down

£ 2,091

Brought down Statement of profit or loss (bal fig)

2,255 4,346

4,346

SAMPLE EXAM This is calculated using a T account: FINANCE COSTS

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

28 D

£ 2,733 419

Cash Closing accrual

Accrual reversed Statement of profit or loss (bal fig)

3,152

£ 362 2,790 3,152

SAMPLE EXAM

29

B

We can assume unless told otherwise that share premium is used to the maximum possible extent when a bonus issue is made. 1 November rights issue: Debit Cash £450,000, Credit Share capital £50,000 (400,000 shares  50p  ¼), Credit Share premium £400,000

31 August bonus issue: Credit Share capital £500,000 (500,000 shares  50p  2), Debit Share premium £420,000 (taking the balance down to zero), Debit Retained earnings £80,000 SHARE CAPITAL

c/d

Number 1,500,000

£ 750,000

1,500,000

750,000

b/d (£200,000/£0.50) Rights issue (400,000/4)

AE

W

Bonus issue (500,000  2)

IC

Bonus issue c/d

Balance of bonus (500,000 – 420,000) c/d (bal fig)

Number 400,000 100,000 500,000 1,000,000 1,500,000

£ 200,000 50,000 250,000 500,000 750,000

SHARE PREMIUM £ 420,000 b/d 0 Rights (100,000  £4)

£ 20,000 400,000

420,000

420,000

RETAINED EARNINGS £ b/d 80,000 813,442 Profit for year 893,442

£ 793,442 100,000 893,442

The two most common mistakes with this kind of question are to take the number of shares as the share capital balance as in A and D (ie, to treat all shares as £1 shares), and to fail to use the share premium to the maximum for the debit entry for the bonus issue, as in C.

ICAEW 2020

Chapter 11: Company financial statements 213

30 D

The initial entry resulted in a suspense account with a credit balance of £1.9 million. To eliminate the suspense account a debit entry of £1.9 million is required. The rights issue is 1 for 4, so (3,000,000/4) = 750,000  20p shares are issued, giving a credit of £150,000 in the share capital account. The share premium is therefore (3.60 – 0.20) = £3.40 per share, which gives a credit to the share premium of 750,000  £3.40 = £2,550,000. The remainder of the journal is to record the amount unpaid on the shares ((750,000  £3.60) – £1,900,000) = £800,000 as an other receivable:

31 A

Suspense Other receivables Share capital Share premium

£1,900,000 £800,000 £150,000 £2,550,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

DEBIT DEBIT CREDIT CREDIT

The cash and credit purchases occur during the year, so when we open the T account with these figures we know there has been no opening journal reversing the accruals and prepayments as at the end of the previous year. Instead of being told opening and closing accruals and prepayments you are told the difference between them. You need to think carefully therefore about the side of the T account on which the net difference should appear. Where there is a decrease in the accrual the net effect is a credit in the expense account, while a decrease in a prepayment will be a net debit in the expense account.

Trade payables Cash at bank

Decrease in prepayments

PURCHASES £ 9,801 Decrease in accruals 107 Statement of profit or loss (bal fig) 60 9,968

£

75

9,893

(A)

9,968

Note that in option B the net differences are the wrong way round; option C ignores the cash purchases, while option D ignores the effect of accruals and prepayments entirely.

W

32 A,B If a company is no longer a going concern then the directors have concluded that it will not trade for the foreseeable future (ie, less than 12 months) and so all non-current assets and liabilities are transferred to current assets and current liabilities respectively (A).

IC

AE

All assets are valued at their resale or break-up value, which is the expected selling price in a forced sale position (B). This is likely to be a substantially lower value than carrying amount for assets such as fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which Wombat plc has none.

33 C

Although not being a going concern means the directors believe the company is likely to cease trading within 12 months, it does not necessarily mean that it will cease trading immediately (C), nor that a liquidator will be appointed immediately (D).

When a bonus issue is made you should assume that the share premium is used as far as possible, with only the remainder being debited to retained earnings.

c/d

214 Accounting: Answer Bank

SHARE CAPITAL £ 500,000 b/d Share premium Retained earnings 500,000

£ 300,000 150,000 50,000 500,000

ICAEW 2020

Share capital

SHARE PREMIUM £ 150,000 b/d (300,000 × £0.50)

£ 150,000

150,000

150,000

RETAINED EARNINGS £ b/d

717,000

50,000 667,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Share capital (200,000 – 150,000) c/d

£

717,000

717,000

34 C,D Delivery vehicle costs, including depreciation, are part of distribution costs (C) because they are part of the cost of providing customers with the final product. These costs are completely independent of the original purchase cost of the product Albion plc manufactures. Delivery inwards is part of the overall cost of bringing materials to their current condition and location. As such they should be included in inventory costs, and thus cost of sales (D). 35 C

Cash at bank c/d (bal fig)

INCOME TAX PAYABLE £ 123,090 b/d 137,100 Statement of profit or loss 260,190

36 C

£ 114,520 145,670 260,190

The total interest charge for the year should be:

New debentures (£120,000  6%  3/12) = £1,800

Original debentures (£400,000  6%) = £24,000 (= cash paid)

AE

W

Therefore the closing accrual should be £1,800, giving a total trade and other payables total of (246,800 + 1,800) = £248,600.

IC

c/d

ICAEW 2020

TRADE AND OTHER PAYABLES £ 248,600 b/d Accrual 248,600

£ 246,800 1,800

248,600

Chapter 11: Company financial statements 215

INTEREST £ 24,000 b/d Statement of profit or loss 1,800 (400,000  0.06) + (120,000  0.06  3/12)

Cash at bank Accrual (trade and other payables)

25,800

£ 0 25,800

25,800

37 D

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Bonus issue (400,000/4  0.10)

Bal c/d 38 B

SHARE PREMIUM £ 10,000 b/d (400,000  (2.20 – 0.10)) Preference shares (45,000  (1.50 – 1.00)) 852,500 862,500

£

840,000 22,500

862,500

The total dividend paid during the year is £167,000 WORKING

Dividends (bal fig) Bonus issue C/fwd 39 A

RETAINED EARNINGS £ 167,000 B/fwd

65,000 1,210,000 1,442,000

Profit for the year

£ 1,055,000 387,000 1,442,000

The total dividend paid during the year is £12,000. The bonus issue was fully paid out of share premium so does not affect the dividend calculation.

W

WORKING

AE

Dividends (bal fig) C/fwd

IC

40 B

RETAINED EARNINGS £ 12,000 B/fwd 299,000 Profit for the year 311,000

£ 267,000 44,000 311,000

The total dividend paid during the year is £65,000. WORKING

Dividends (bal fig) Bonus issue (150,000 – 80,000) C/d

216 Accounting: Answer Bank

RETAINED EARNINGS £ 65,000 B/d 70,000 754,000 889,000

Profit for the year

£ 676,000

213,000 889,000

ICAEW 2020

41 C £ 64,000 19,000 83,000

IC

AE

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash at bank C/d

WARRANTY PROVISION £ 25,000 B/d 58,000 Warranty expense (bal fig) 83,000

ICAEW 2020

Chapter 11: Company financial statements 217

218 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 12: Company financial statements under IFRS standards

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

The marking guide gives an indication of how marks will be awarded in the exam for a similar question. Marks will total to 16 (40%). Where more than ½ mark is indicated, in the exam candidates may be awarded partial marks. Candidates should not include guessed figures in any computations.

1 Hexham plc Marking guide

½ 1 1 1 1 1 ½

Statement of financial position Land and buildings Plant and equipment Inventories Trade receivables Prepayments Equity share capital Share premium Retained earnings Borrowings Bank overdraft Trade payables Accruals Deferred income Provision Income tax payable

1 ½ ½ 1 ½ ½ ½ 1 ½ 1 ½ 1 ½ ½ ½

IC

AE

W

Statement of profit or loss Revenue Cost of sales Distribution costs Administrative expenses Other operating expenses Finance costs Income tax expense

Total

Marks

16

Statement of profit or loss for the year ended 31 March 20X8 Revenue Cost of sales (W1) Gross profit Distribution costs (W1) Administrative expenses (W1) Other operating expenses(W2)

ICAEW 2020

£ 1,150,000 (483,000) 667,000 (220,000) (316,000) (53,560)

Chapter 12: Company financial statements under IFRS standards 219

£ 77,440 (12,000) 65,440 (10,000) 55,440

Profit/(loss) from operations Finance costs (W3) Profit/(loss) before tax Income tax expense Profit/(loss) for year Statement of financial position at 31 March 20X8

£ Non-current assets Property, plant, and equipment Land and buildings (W4) Plant and equipment (W4) Current assets Inventories (W1) Trade receivables (W2) Prepayments (W1)

Equity

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Total assets

496,000 243,000

91,000 52,440 32,000

914,440

Equity share capital Share premium Retained earnings (W5)

400,000 100,000 101,440 200,000

Current liabilities Bank overdraft Trade payables Accruals (W3) Deferred income Provision Income tax payable Total equity and liabilities

24,000 54,000 4,000 6,000 15,000 10,000 914,440

W

Non-current liabilities Borrowings

AE

WORKINGS

IC

(1) Allocation of costs

Opening inventories Per TB Depreciation (W4) Insurance prepayment (16,800  5/12) Rent prepayment Closing inventory (15,000 + 76,000)

220 Accounting: Answer Bank

Administrative expenses £

Distribution costs £

340,000 8,000 (7,000) (25,000)

220,000

316,000

220,000

Cost of sales £ 75,000 465,000 34,000

(91,000) 483,000

ICAEW 2020

Tutorial note Read the question carefully to make sure you allocate the depreciation to the right line of expenditure. There is no depreciation on land because it has an unlimited useful life. (2) Irrecoverable debts, warranty provision and trade receivables Other operating expenses £ 36,000 4,800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Per TB Irrecoverable debt written off

Trade receivables £ 60,000 (4,800) 55,200

Warranty provision Allowance for receivables adjustment

15,000 (2,240)* 53,560

(2,760) 52,440

* 2,760 – 5,000 (3) Finance costs

£ 8,000 4,000 12,000

Loan interest paid per TB Accrued interest Current period interest expense (9 months: 9/12  8%  200,000) (4) Property, plant and equipment

Land £

Cost or valuation Accumulated dep'n Carrying amount per TB Depreciation charge Carrying amount 31 March 20X8

200,000 – 200,000 – 200,000

Buildings £

Plant and equipment £

400,000 (96,000) 304,000 (8,000) 296,000

340,000 (63,000) 277,000 (34,000) 243,000

Total £

739,000

W

(5) Retained earnings

£ 61,000 55,440 (15,000) 101,440

IC

AE

Opening retained earnings Profit for the year (from statement of profit or loss) Dividends Closing retained earnings

2 Ford plc

Marking guide

Marks Revenue Cost of sales Distribution costs Administrative expenses Finance costs Income tax expense Land and buildings Plant and machinery Inventories

ICAEW 2020

1 1 1 1 ½ ½ 1 1 ½

Chapter 12: Company financial statements under IFRS standards 221

Marks

Total

1 ½ ½ ½ ½ 1 ½ 1 1 1 ½ ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Receivables Prepayments Cash Equity share capital Irredeemable preference share capital Retained earnings Non-current borrowings Current borrowings Accruals Payables Provision Income tax payable

16

Statement of profit or loss for the year ended 31 March 20X6

£ 6,450,000 (4,515,400) 1,934,600 (375,000) (540,500) 1,019,100 (35,000) 984,100 (350,000) 634,100

Revenue (W5) Cost of sales (W1) Gross profit Distribution costs (W1) Administrative expenses (W1) Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for year

Statement of financial position as at 31 March 20X6

£

AE

W

ASSETS Non-current assets Property, plant and equipment Land and buildings (W2) Plant and machinery (W2)

2,050,000 221,000

IC

Current assets Inventories (W1) Trade receivables (37,500 – 10,000) Prepayments Cash and cash equivalents

110,000 27,500 20,000 43,500 201,000 2,472,000

Total assets EQUITY AND LIABILITIES Capital and reserves Equity share capital (W6) Preference share capital (irredeemable) Retained earnings (W4)

500,000 200,000 816,600 1,516,600

Non-current liabilities Borrowings (200,000  9/10) Current liabilities Borrowings (200,000  1/10)

222 Accounting: Answer Bank

180,000 20,000

ICAEW 2020

£ Accruals (W1) Dividend payable (W4) Trade payables Deferred income (W3) Provision Income tax payable

20,000 10,000 25,400 250,000 100,000 350,000 775,400 2,472,000

Total equity and liabilities

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

WORKINGS (1) Allocation of costs

Manufacturing costs Administrative salaries Selling and distribution costs Opening inventories Depreciation (W2) Provision Irrecoverable debt Prepayments (rent) Accruals (consultancy fees 60,000  2/6) Closing inventories (120,000 – 10,000)

Cost of sales £ 4,450,000 – – 113,400 62,000 – –

Administrative £ – 410,500 – – 20,000 100,000 10,000 (20,000) 20,000

(110,000) 4,515,400

540,500

Distribution £ – – 375,000 – – – –

375,000

(2) Property, plant and equipment

AE

W

Cost B/f C/f Acc dep B/f For year ((2,550,000 – 1,750,000)  40), (620,000  10%) C/f Carrying amount c/f

Freehold £

Plant £

2,550,000 2,550,000

620,000 620,000

480,000 20,000

337,000 62,000

500,000

399,000

2,050,000

221,000

Total £

2,271,000

IC

(3) Deferred income

Fees in advance (W5) Advances (W5)

£ 150,000 100,000 250,000

(4) Retained earnings B/f Equity dividend paid Preference dividend (200,000  5%) Profit for year

ICAEW 2020

£ 212,500 (20,000) (10,000) 634,100 816,600

Chapter 12: Company financial statements under IFRS standards 223

(5) Revenue £ 6,700,000 (150,000) (100,000) 6,450,000

Per TB Less Fees in advance (300,000  5/10) Advances (6)

£ 400,000 100,000 500,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

C/fwd

EQUITY SHARE CAPITAL £ Per TB 500,000 Bonus issue (share premium) 500,000

Bonus issue (equity share cap)

SHARE PREMIUM £ 100,000 Per TB 100,000

£ 100,000 100,000

3 Jayne plc

Marking guide

½ 1 1 1 ½ 1 ½ 1½ ½ 1 ½ 1 ½ ½ 1 1 ½ ½ ½ 1 ½

IC

AE

W

Revenue Cost of sales Distribution costs Administrative expenses Finance costs Income tax expense Land Other non-current assets Inventories Receivables Prepayments Cash Equity share capital Preference share capital Share premium Retained earnings Non-current borrowings Payables Provision Accruals Income tax payable

Marks

Total

16

Statement of profit or loss for the year ended 31 December 20X2 £ Revenue Cost of sales (W1) Gross profit Distribution costs (W1) Administrative expenses (W1)

224 Accounting: Answer Bank

726,370 (433,798) 292,572 (67,011) (208,678)

ICAEW 2020

£ 16,883 (3,300) 13,583 (12,400) 1,183

Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense (W4) Profit/(loss) for year Statement of financial position at 31 December 20X2

£ 25,000 72,760

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Non-current assets Property, plant, and equipment Land Other non-current assets (130,680 (W2) – 57,920 (W3)) Current assets Inventories Trade receivables (12,691 – 820 (W6)) Prepayments (W1) Cash and cash equivalents (15,477 + 9,000) Total assets

39,323 11,871 375 24,477 173,806

Equity Equity share capital (11,000 + 11,000/5) Preference share capital Share premium (7,500 – 11,000/5) Retained earnings (W5)

13,200 6,000 5,300 19,597

Non-current liabilities Borrowings

33,000

W

Current liabilities Borrowings Bank overdraft Trade payables (49,809 + 9,000) Provision for legal claim Accruals (2,500 + 3,300 (finance cost) + 100 (insurance)) Deferred income Income tax payable (W4) Total equity and liabilities

AE

WORKINGS

0 0 58,809 20,000 5,900 0 12,000 173,806

IC

(1) Allocation of costs

Per TB Income tax Prepayment (rates 1,500 × 3/12) Accrual (insurance 1,200 × 1/12) Depreciation (18,190 (W3) 30:30:40) Profit on disposal (1,350 – 1,100) Provision for legal claim Irrecoverable debts and allowance for receivables (W6)

ICAEW 2020

Administrative expenses £ 198,076 (15,400) (375) 100 5,457

Distribution costs £ 61,554

5,457

Cost of sales £ 426,772

7,276 (250)

20,000 820 208,678

67,011

433,798

Chapter 12: Company financial statements under IFRS standards 225

(2)

PPE B/fwd (157,680 – 25,000)

£ 132,680

£ 2,000 130,680 132,680

Disposals C/fwd (bal fig)

132,680 PPE – ACCUMULATED DEPRECIATION £ Disposals (2,000 – 1,100) 900 B/fwd Depn (130,680 (W2) – (40,630 – C/fwd 57,920 900))  20% 58,820

(4)

£ 40,630 18,190 58,820

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

(3)

TAX PAYABLE

£ 15,400 12,000

Tax paid C/fwd

£ 15,000 12,400

B/fwd Statement of profit or loss (bal fig)

27,400

(5)

Dividend on equity shares Dividend on preference shares paid C/fwd (6)

Receivables Less Mr Maguire

27,400

RETAINED EARNINGS £ B/fwd 4,000 Profit for the period 3,600 19,597 27,197

£ 26,014 1,183

27,197

£ 12,691 (453)

W

12,238 3% allowance 367 Total irrecoverable debts expense 453 + 367 = 820.

4 Skylar plc

AE

Marking guide

IC

Revenue Cost of sales Distribution costs Administrative expenses Finance costs Income tax expense Land and buildings Plant and equipment Inventories Prepayments Trade receivables Cash and cash equivalents Share capital Retained earnings Borrowings

226 Accounting: Answer Bank

Marks

1 1 1 1 1 ½ 1 1 1 1 1 1 ½ 1 ½

ICAEW 2020

Marks Trade payables Accruals Income tax payable Provision

½ 1 ½ ½

Total

16

Skylar plc

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statement of profit or loss for the year ended 31 October 20X7

£'000 53,761 (33,462) 20,299 (6,687) (4,400) 9,212 (1,000) 8,212 (1,254) 6,958

Revenue Cost of sales (W1) Gross profit Distribution costs (W2) Administrative expenses (W3) Profit/(loss) from operations Finance costs (5%  20,000) Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position as at 31 October 20X7

£'000

Assets Non-current assets Property, plant, and equipment Land and buildings (W4) Plant and equipment (W4)

AE

W

Current assets Inventories (12,232.500  100/125) Prepayments (W3) Trade receivables (W5) Cash and cash equivalents (7,997 – 15)

IC

Total assets Equity and liabilities Equity Equity share capital Retained earnings (W6) Total equity Non-current liabilities Borrowings (Bank loan) Current liabilities Trade payables Accruals (387 + 250 + 33) Income tax payable Provision

Total liabilities Total equity and liabilities

ICAEW 2020

17,000 13,486 30,486 9,786

32 10,239 7,982 28,039 58,525

15,000 18,003 33,003 20,000 3,348 670 1,254 250 5,522 25,522 58,525

Chapter 12: Company financial statements under IFRS standards 227

WORKINGS (1) Cost of sales £'000 8,456 30,946 3,846 (9,786) 33,462

Opening inventories Purchases Plant and equipment depreciation charge (W3) Closing inventories (12,232.5/1.25) (2) Distribution costs

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

£'000 6,654 33 6,687

Distribution costs per TB Accruals (Haulage contract £200,000  2/12) (3) Administrative expenses

£'000 3,652 500 30 250 (32) 4,400

Administrative expenses per TB Freehold buildings depreciation charge (W4) Irrecoverable debt Warranty provision Prepayments (48  8/12) (4) Property, plant and equipment

Cost Acc depn B/d For year (20,000)  40) , (38,460  10%) Carrying amount c/f

Freehold £'000

Plant £'000

Total £'000

20,000 2,500 500 17,000

38,460 21,128 3,846 13,486

30,486

(5) Trade receivables

£'000 10,254 (15) 10,239

AE

W

Trade receivables Irrecoverable debt (Bounced cheque)

IC

(6)

Dividends paid C/d (bal fig)

228 Accounting: Answer Bank

RETAINED EARNINGS

£'000 1,300 18,003 19,303

B/d Profit for the year

£'000 12,345 6,958 19,303

ICAEW 2020

5 Corolla plc Marking guide Marks

Total

Corolla plc

½ 1 1 1 1 ½ 1 1 ½ 1 1 ½ 1½ 1½ ½ 1 1 ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Distribution costs Administrative expenses Finance costs Income tax expense Land and buildings Plant and equipment Inventories Receivables Prepayments Cash Equity share capital Retained earnings Loan Payables Accruals Income tax payable

16

Statement of profit or loss for the year ended 31 October 20X8

£'000 58,411 (43,342) 15,069 (6,026) (5,360) 3,683 (1,200) 2,483 (970) 1,513

IC

AE

W

Revenue Cost of sales (W1) Gross profit Distribution costs (W2) Administrative expenses (W2) Profit/(loss) from operations Finance costs (8% × 15,000) Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position as at 31 October 20X8 Assets Non-current assets Property, plant and equipment Land and buildings (W3) Plant and equipment (W3) Current assets Inventories Trade receivables (5,436 – 272) Prepayments (45,000 × 8/12) Cash and cash equivalents Total assets

ICAEW 2020

£'000

27,752 4,080 7,878 5,164 30 9,774 22,846 54,678

Chapter 12: Company financial statements under IFRS standards 229

Equity Equity share capital (W6) Retained earnings (W4) Total equity Non-current liabilities Borrowings Current liabilities Trade payables (W5) Accruals (436 + 600 + 15) Income tax payable

25,000 9,814 34,814 15,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

2,843 1,051 970 4,864 19,864 54,678

Total liabilities Total equity and liabilities WORKINGS

(1) Cost of sales

£'000 9,032 41,620 568 (7,878) 43,342

Opening inventories Purchases Depreciation (40%  1,420 (W3)) Closing inventories (2) Allocation of costs

Administrative expenses £'000 4,789

Per TB Accrual (45,000 × 1/3) Depreciation (1,420 20%, 40% (W3)) Insurance (45,000 × 4/12) Allowance for receivables (5,436 × 5%)

284 15 272 5,360

Distribution costs £'000 5,443 15 568 6,026

IC

AE

W

(3) Property, Plant and Equipment

(4)

Cost at 1 Nov 20X7 Accumulated depreciation at 1 Nov 20X7 Charge (20,000  2%), ((12,500 – 7,400)  20%) Carrying amount

Dividends C/d (bal fig)

230 Accounting: Answer Bank

Land £'000 15,152

15,152

Buildings £'000 20,000 (7,000)

(400) 12,600

RETAINED EARNINGS £'000 1,500 B/d 9,814 Profit for the year 11,314

Plant and equipment £'000 12,500 (7,400) (1,020) 4,080

Total £'000

31,832

£'000 9,801 1,513 11,314

ICAEW 2020

(5) Trade payables £'000 2,798

Trade payables Error in treatment of insurance payment*

45 2,843

* In a computerised accounting system, transactions posted to a supplier's personal account are also automatically included in trade payables, therefore we need to add back the payment deducted from trade payables in error.

C/fwd

EQUITY SHARE CAPITAL £'000 Per TB 25,000 Bonus issue (share premium) 25,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

(6)

Equity share capital

SHARE PREMIUM £'000 5,000 Per TB 5,000

£'000 20,000 5,000 25,000 £'000 5,000 5,000

6 Ariel plc

Marking guide

IC

AE

W

Revenue Cost of sales Distribution costs Administrative expenses Finance costs Income tax expense Land and buildings Plant and equipment Inventories Receivables Prepayments Cash Equity share capital Retained earnings Borrowings Payables Accruals Provision Income tax payable Total

ICAEW 2020

Marks

½ 1½ 1½ 1½ ½ ½ 1 1½ ½ 1 ½ ½ ½ 1½ ½ ½ 1 ½ ½

16

Chapter 12: Company financial statements under IFRS standards 231

Statement of profit or loss for the year ended 31 March 20X2 £'000 35,547 (28,354) 7,193 (1,933) (2,232) 3,028 (720) 2,308 (874) 1,434

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales (W1) Gross profit Distribution costs (W2) Administrative expenses (W2) Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position as at 31 March 20X2

£'000

Assets Non-current assets: Buildings (W3) Plant and machinery (W3)

Current assets: Inventories Trade receivables (2,133 - 95) Prepayments Cash and cash equivalents

IC

AE

W

Total assets Equity and liabilities: Equity Equity share capital Retained earnings (W4) Total equity Non-current liabilities: Borrowings (Bank loan) Current liabilities: Trade payables Accruals (129 + 76) Provision Income tax payable

Total liabilities Total equity and liabilities

1,354 9,250

4,067 2,038

123 2,578 8,806 19,410

5,000 5,109 10,109 6,850 1,347

205 25 874 2,451 9,301 19,410

WORKINGS (1) Cost of sales Opening inventories Purchases Closing inventories Impairment loss (12,750 – 3,100 – 8,500)

232 Accounting: Answer Bank

£'000 3,790 27,481 (4,067) 1,150 28,354

ICAEW 2020

(2) Allocation of costs Administrative expenses £'000 2,235

Per TB

Distribution costs £'000 1,857 76

Accruals (114  2/3)

(3) PPE

(123) 25 95 2,232

1,933

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Prepayment (164  3/4) Provision Irrecoverable debt

Cost/Value Accumulated depreciation Impairment loss

Plant & Machinery £'000 14,000 (3,600) (1,150) 9,250

Buildings £'000 17,630 (16,276) 1,354

(4)

Dividends C/d (bal fig)

RETAINED EARNINGS £'000 920 B/d 5,109 Profit for the year 6,029

£'000 4,595 1,434 6,029

7 Enercell plc Marking guide

IC

AE

W

Gross profit Distribution costs Administrative expenses Finance costs Income tax expense Property Plant & equipment Inventories Trade receivables Prepayments Cash and cash equivalents Share capital Share premium Retained earnings Borrowings Trade payables Accruals Income tax payable Provision Total

ICAEW 2020

Marks

1 1 1 1 ½ 1 1 1 ½ 1 1 1 ½ 1 ½ 1 1 ½ ½

16

Chapter 12: Company financial statements under IFRS standards 233

Enercell plc Statement of profit or loss for the year ended 31 October 20X7 £'000 35,939 (9,993) (12,699) 13,247 (1,500) 11,747 (1,881) 9,866

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Gross profit (W1) Distribution costs (W2) Administrative expenses (W2) Profit/(loss) from operations Finance costs (5% x 30,000) Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position as at 31 October 20X7

£'000

Assets Non-current assets Property, plant, and equipment Buildings (W3) Plant and equipment (W3)

Current assets Inventories (18,000 × 100/125) Trade receivables Prepayments (W2) Cash and cash equivalents (11,996 – 9)

IC

AE

W

Total assets Equity and liabilities Equity Equity share capital (W4) Share premium (W4) Retained earnings (W5) Total equity Non-current liabilities Borrowings (Bank loan) Current liabilities Trade payables (5,022 – 9) Accruals (580 + 12) + ((30,000  5%)  3/12) Income tax payable Provision Total liabilities Total equity and liabilities WORKINGS

(1) Gross profit Change in inventory (18,000 – (18,000  100/125))

234 Accounting: Answer Bank

25,500 20,229 45,729

14,400 15,381 48 11,987 41,816 87,545

22,000 500 26,434 48,934 30,000

5,013 967 1,881 750 8,611 38,611 87,545

39,539 (3,600) 35,939

ICAEW 2020

(2) Administrative expenses £'000 5,478 750 5,769 (48) 750 12,699

Administrative expenses Freehold buildings depreciation charge (W3) Plant and equipment depreciation charge (W3) Prepayments – insurance (72  8/12) Provision (see Note 6) Distribution costs

£'000 9,981 12 9,993

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Distribution costs Rent accrual (4  3 months)

(3) Property, plant and equipment

Cost Acc depn For year ((30,000)  40) , (57,690  10%) Carrying amount (4)

C/d (bal fig)

Bonus issue C/d (bal fig)

W

(5)

IC

AE

Dividends paid C/d (bal fig)

ICAEW 2020

Freehold £'000

Plant £'000

Total £'000

30,000 (3,750) (750) 25,500

57,690 (31,692) (5,769) 20,229

45,729

SHARE CAPITAL £'000 B/d 22,000 Bonus (share premium) 22,000 SHARE PREMIUM £'000 2,000 B/d 500 2,500

RETAINED EARNINGS £'000 1,950 B/d 26,434 Profit for the year 28,384

£'000 20,000 2,000 22,000 £'000 2,500 2,500

£'000 18,518 9,866 28,384

Chapter 12: Company financial statements under IFRS standards 235

8 Liquid plc Marking guide Marks ½ 1 1 1 1 ½ ½

Statement of financial position Land and buildings Plant and equipment Inventories Trade receivables Prepayments Equity share capital Retained earnings Borrowings Bank overdraft Trade payables Accruals Deferred income Provision Income tax payable

1 1 ½ 1 ½ 1 1 ½ ½ 1 ½ ½ 1 ½

Total

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Statement of profit or loss Revenue Cost of sales Distribution costs Administrative expenses Other operating expenses Finance costs Income tax expense

16

W

Statement of profit or loss for the year ended 31 December 20X6

IC

AE

Revenue Cost of sales (W1) Gross profit Distribution costs (W1) Administrative expenses (W1) Other operating expenses (W2) Profit/(loss) from operations Finance costs (W3) Profit/(loss) before tax Income tax expense Profit/(loss) for the period

236 Accounting: Answer Bank

£ 1,590,000 541,700 1,048,300 231,000 191,500 69,000 556,800 3,000 553,800 45,000 508,800

ICAEW 2020

Statement of financial position at 31 December 20X6 £ Non-current assets Property, plant, and equipment Land and buildings (W4) Plant and equipment (W4) Current assets Inventories (W1) Trade receivables (W2) Prepayments (W1) Cash and cash equivalents Total assets

120,000 16,000 5,000 0 1,065,800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Equity

779,500 145,300

Equity share capital (W6) Preference share capital Share premium (W6) Retained earnings (W5)

350,000 0 0 558,800

Non-current liabilities Borrowings (bank loan)

50,000

Current liabilities Borrowings Bank overdraft Trade payables Accruals (Insurance) Deferred income Provision (W2) Income tax payable Total equity and liabilities WORKINGS

0 8,000 20,000 5,000 4,000 25,000 45,000 1,065,800

W

(1) Allocation of costs

IC

AE

Opening inventories Per TB Depreciation (W4) Rent prepayment Accrual (Insurance) Closing inventory

Administrative expenses £ 169,000 17,500

Distribution costs £ 236,000

Cost of sales £ 35,000 600,000 26,700

(5,000)

5,000

191,500

231,000

(120,000) 541,700

Tutorial note

Read the question carefully to make sure you allocate the depreciation to the right line of expenditure. There is no depreciation on land because it has an infinite useful life.

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 237

(2) Irrecoverable debts, warranty provision and trade receivables

Per TB (Irrecoverable debts/Trade receivables) Irrecoverable debt written off Warranty provision Allowance for receivables

Other operating expenses £ 15,000 13,000 25,000 16,000 69,000

Trade receivables £ 45,000 (13,000) (16,000) 16,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

(3) Finance costs

£ 3,000 0 3,000

Loan interest paid per TB Accrued interest Current period interest expense (6 months: 6/12  12%  50,000) (4) Property, plant and equipment

Land £

Cost or valuation Accumulated dep'n Carrying amount per TB Depreciation charge Carrying amount 31 December 20X8

100,000 – 100,000 – 100,000

Buildings £

Plant and equipment £

Total £

875,000 (178,000) 697,000 (17,500) 679,500

267,000 (95,000) 172,000 (26,700) 145,300

924,800

(5) Retained earnings

£ 55,000 508,800 (5,000) 558,800

Opening retained earnings Profit for the year (from Statement of profit or loss) Dividends Closing retained earnings

AE

W

(6) Equity

IC

Per TB 1 for 6 bonus issue (300,000/6)

238 Accounting: Answer Bank

Equity share capital £ 300,000 50,000 350,000

Share premium £ 50,000 (50,000) 0

ICAEW 2020

9 Colbolt plc Marking guide Marks

Total

Colbolt plc

1 1 1 1 ½ 1 1 1 1 1 1 1 ½ 1 ½ 1 1 ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Gross profit Distribution costs Administrative expenses Finance costs Income tax expense Property Plant & equipment Inventories Trade receivables Prepayments Cash and cash equivalents Share capital Share premium Retained earnings Borrowings Trade payables Accruals Income tax payable

16

Statement of profit or loss for the year ended 31 March 20X7

£ 30,364 (4,548) (21,469) 4,347 (1,500) 2,847 (1,566) 1,281

IC

AE

W

Gross profit (W1) Distribution costs (W2) Administrative expenses (W2) Profit/(loss) from operations Finance costs (6%  25,000) Profit/(loss) before tax Income tax expense Profit/(loss) for the period

Statement of financial position at 31 March 20X7

Assets Non-current assets Property, plant, and equipment Freehold buildings (W3) Plant and equipment (W3) Current assets Inventories (19,000  100/120) Trade receivables (12,039 – 165 – 4,500) Prepayments (W2) Cash and cash equivalents (9,997 + 9)

ICAEW 2020

£

26,829 18,385 45,214 15,833 7,374 20 10,006

Chapter 12: Company financial statements under IFRS standards 239

£ 33,233 78,447

Total assets Equity and liabilities Equity Equity share capital (W4) Share premium (W4) Retained earnings (W5) Total equity Non-current liabilities Borrowings (Bank loan) Current liabilities Trade payables (7,954 + 9) Accruals (140 + (1,500 – 1,125) Income tax payable

19,800 2,700 20,903 43,403

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

25,000 7,963 515 1,566 10,044 35,044 78,447

Total liabilities Total equity and liabilities WORKINGS

(1) Gross profit

Gross profit Change in inventory (19,000 – (19,000  120/100) Impairment (8,000 – 3,100) – 4,500)

£ 33,931 (3,167) (400) 30,364

(2) Distribution costs Distribution costs

4,548

Administrative expenses

£ 8,800 813 7,211 (20) 4,665 21,469

AE

W

Administrative expenses Freehold buildings depreciation charge (W3) Plant and equipment depreciation charge (W3) Prepayments – rent (30  2/3) Irrecoverable debts (165 + 4,500)

IC

(3) Property, plant and equipment

Freehold £ 32,520 (4,878) (813) 0 26,829

Cost Acc depn For year ((32,520) ÷ 40) , (57,688  12.5%) Impairment (8,000 – 3,100) – 4,500) Carrying amount

Plant £ 57,688 (31,692) (7,211) (400) 18,385

Total £

45,214

(4) SHARE CAPITAL £ C/d (bal fig)

240 Accounting: Answer Bank

19,800 19,800

B/d Bonus (share premium)

£ 18,000 1,800 19,800

ICAEW 2020

SHARE PREMIUM Bonus issue C/d (bal fig)

£ 1,800 2,700 4,500

£ 4,500

B/d

4,500

(5) RETAINED EARNINGS £ 2,100 20,903 23,003

£ 21,722 1,281 23,003

B/d Profit for the year

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Dividends paid C/d (bal fig)

10 Waterford plc Marking guide

1 ½ 1 1 ½ 1 1 1½ 1 1 ½ ½ 1 ½ 1 ½

Trade payables Accruals Deferred income Income tax payable Total

½ 1 ½ ½

IC

AE

W

Gross profit Distribution costs Administrative expenses Finance costs Income tax expense Property Plant & equipment Motor vehicles Inventories Trade receivables Prepayments Cash and cash equivalents Share capital Share premium Retained earnings Borrowings

Marks

Marks

16

Waterford plc

Statement of profit or loss for the year ended 31 May 20X6

£ 37,151 (29,989) (10,089) (2,927) (1,050) (3,977) (8,000) (11,977)

Gross profit (W1) Distribution costs (W2) Administrative expenses (W2) Profit/(loss) from operations Finance costs (14,000  7.5%) Profit/(loss) before tax Income tax expense Profit/(loss) for the period Statement of financial position at 31 May 20X6

ICAEW 2020

Chapter 12: Company financial statements under IFRS standards 241

£ Assets Non-current assets Property, plant, and equipment Property (W3) Plant and equipment (W3) Motor vehicles (W3)

71,410 16,162 3,383 90,955

Current assets Inventories (3,757 – 78) Trade receivables (W4) Prepayments Cash and cash equivalents

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

3,679 7,993 55 5,678 17,405 108,360

Total assets Equity and liabilities

Equity Equity share capital (W5) Share premium (W6) Retained earnings (W7) Total equity Non-current liabilities Borrowings (Bank loan) Current liabilities Trade payables Accruals (567 + 450) Deferred income Income tax payable

31,250 9,000 35,567 75,817 14,000

675 1,017 8,851 8,000 18,543 108,360

Total equity and liabilities WORKINGS

W

(1) Gross profit

IC

AE

Gross profit Loss on disposal (W9) Motor vehicle depreciation Change in inventory Plant depreciation

£ 45,998 (3,667) (2,250) (78) (2,852) 37,151

(2) Administrative expenses

Administrative expenses Insurance prepaid Building depreciation Doubtful debt allowance (W4)

Distribution costs Distribution costs

242 Accounting: Answer Bank

£ 27,557 (55) 1,590 897 29,989

10,089

ICAEW 2020

(3) Property, plant and equipment Plant £

Motor vehicles £

Cost Acc depn CA b/fwd Depreciation expense ((80,000 – 500)/50) (19,014  15%) ((17,000 – 8,000)  25%) Disposal (8,000 – (8,000  25%  11/12)

80,000 7,000 73,000

26,100 7,086 19,014

17,000 5,200 11,800

(1,590)

(2,852)

(2,250) (6,167)

Carrying amount

71,410

16,162

3,383

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Buildings £

(4) Receivables and allowance for receivables

£ 8,890 (650) 8,240 (247) 7,993

Trade receivables Irrecoverable debt

3% allowance for receivables (5)

SHARE CAPITAL £

– 0

(6)

B/d Bonus issue (25,000/4)

£ 25,000 6,250 31,250

SHARE PREMIUM £

IC

AE

(7)

W

B/d

Dividends paid Loss for the year C/d (bal fig)

– –

£ 9,000 9,000

RETAINED EARNINGS £ 600 11,977 35,567 48,144

B/d

£ 48,144

48,144

(8) SUSPENSE Disposal account Bonus issue Deferred income

ICAEW 2020

£ 2,500 6,250 8,851 17,601

B/d

£ 17,601

17,601

Chapter 12: Company financial statements under IFRS standards 243

(9) DISPOSAL ACCOUNT Motor vehicle cost

£ 8,000 –

11 B

1,833 2,500 3,667 8,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

8,000

£ Motor vehicle accumulated depreciation Suspense Loss on disposal

Retained earnings at 1 January 20X6 Bonus issue Dividend paid Loss for the year Retained earnings at 31 December 20X6

£ 151,600 (5,000) (16,000) (17,800) 112,800

Option (A) incorrectly adds the loss for the year, option (C) incorrectly adds the proceeds on issue of shares and option (D) ignores the bonus issue and the dividend paid.

12 D

Share capital at 1 January 20X8 Issue of shares (20,000  £1) Bonus issue Share capital at 31 December 20X8

£ 100,000 20,000 10,000 £130,000

Option (A) include the share premium on issue, option (B) deducts the dividend paid and option (C) includes the share premium on issue and incorrectly deducts the bonus issue. A bonus issue impacts the share capital and retained earnings column and dividends aid to equity shareholders impacts on retained earnings, A bank loan affects noncurrent liabilities and cash and is therefore not recorded in the statement of changes in equity.

IC

AE

W

13 B

244 Accounting: Answer Bank

ICAEW 2020

Chapter 13: Statement of cash flows 1 Havisham plc Marking guide

Total

½ ½ ½ 1 ½ ½ 1 1 1 1 1 1 1 ½ 1 ½ 1 1 1 ½

Marks

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

PBT Finance costs Depreciation charge Amortisation charge Impairment charge Gain/loss on sale of PPE Gain/loss on sale of intangible assets Movement in inventories Movement in trade receivables Movement in trade payables Tax paid Interest paid Purchase of PPE Purchase of intangibles Proceeds from sales of PPE Proceeds from sales of intangible assets Proceeds from issue of shares Movement in borrowings Dividends paid Opening and closing cash

16

W

Statement of cash flows for the year ended 31 May 20X2

£

730,040 0 89,600 232,900 21,200 20,000 84,810 (7,000) (144,490) (118,550) (3,100) 905,410

Tax paid (W2) Interest paid (W3) Net cash from/used in operating activities

(236,420) (92,200) 576,790

IC

AE

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation (W1) Impairment charge (W1) Gain/loss on sales of property, plant and equipment Gain/loss on sales of intangible assets (17,000 – 24,000) Movement in inventories (285,550 – 430,040) Movement in trade receivables (224,150 – 342,700) Movement in trade payables (146,700 – 135,900 – 13,900) Cash generated from operations

ICAEW 2020

Chapter 13: Statement of cash flows 245

£ (531,900) (251,340) 42,990 24,000 – (716,250)

Cash flows from financing activities Proceeds from issue of shares (W5) Movement in borrowings ((423,000 + 51,000) – (567,400+115,600) + (75,000)) Dividends paid (W6) Net cash from/ used in financing activities

126,800 284,000 (231,640) 179,160

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from investing activities Purchase of property, plant and equipment (W4) Purchase of intangible assets Proceeds from sale of property, plant and equipment (127,800 – 84,810) Proceeds from sale of intangible assets Interest received Net cash from/used in investing activities

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period WORKINGS (1)

B/d Purchases

(2)

AE

(3)

W

Cash (bal fig) C/d

IC

Cash (bal fig) C/d

(4)

B/d Purchases Cash (bal fig)

(5)

INTANGIBLES – CA £ 386,900 Amortisation (bal fig) 251,340 Disposals Impairment charge C/d 638,240

TAX PAID £ B/d 236,420 Statement of profit or loss 201,800 438,220

£ 21,200 17,000 20,000 580,040 638,240

£ 192,520 245,700

438,220

INTEREST

£

92,200 9,750 101,950

B/d Statement of profit or loss

PPE – COST £ 797,500 13,900 Disposals 531,900 Depreciation C/d 1,343,300

SHARE CAPITAL AND SHARE PREMIUM £ B/d (232,800 + 351,000) C/d (398,200 + 312,400) 710,600 Cash (bal fig) 710,600

246 Accounting: Answer Bank

39,700 (13,430) 26,270

£ 12,350 89,600

101,950

£

127,800 232,900 982,600 1,343,300

£ 583,800 126,800 710,600

ICAEW 2020

(6) Dividend (bal fig) C/d

RETAINED EARNINGS £ 231,640 B/d 534,800 Profit in period 766,440

£ 282,100 484,340 766,440

2 Castle plc Marking guide Marks

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s ½ ½ ½ 1 1 ½ ½ 1 ½ 1 1 1 ½ 1 ½ ½ 1 1 ½ ½ 1 ½

16

W

Profit before tax Investment income Finance costs Depreciation Amortisation Gain/loss on sales of property, plant and equipment Movement in inventories Movement in trade receivables Movement in prepayments Movement in trade payables Movement in accruals Tax paid Interest paid Purchase of property, plant and equipment Purchase of intangible assets Purchase of investments Proceeds from sale of property, plant and equipment Interest received Proceeds from issue of shares Dividends paid Movement in borrowings Opening and closing cash Total

AE

Statement of cash flows for the year ended 31 May 20X2

IC

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation (W2) Amortisation (W5) Gain/loss on sales of property, plant and equipment Movement in inventories (1,112,000 – 1,086,000) Movement in trade receivables (W12) Movement in prepayments (108,000 – 95,000) Movement in trade payables (W13) Movement in accruals (W11) Cash generated from operations

ICAEW 2020

£

£

3,370,000 (78,000) 563,000 902,000 975,000 189,000 (26,000) (20,000) 13,000 145,000 (162,000) 5,871,000

Chapter 13: Statement of cash flows 247

£ Tax paid (W7) Interest paid (W10) Net cash from/used in operating activities

(1,394,000) (339,000) (2,018,000) 221,000 – 76,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from investing activities Purchase of property, plant and equipment (W1) Purchase of intangible assets (W4) Purchase of investments (W6) Proceeds from sale of property, plant and equipment (W3) Proceeds from sale of intangibles Interest received (W9) Net cash from/used in investing activities

Cash flows from financing activities Proceeds from issue of shares (W8) Dividends paid Movement in borrowings (100,000 + 3,000,000 – 4,500,000)

(3,454,000)

422,000 (243,000) (1,400,000)

Net cash from/used in financing activities

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year WORKINGS (1)

B/d Cash (bal fig)

PROPERTY, PLANT AND EQUIPMENT – COST £ 3,091,000 1,394,000 PPE – disposals C/d 4,485,000

(1,221,000) 137,000 222,000 359,000

£

1,201,000 3,284,000 4,485,000

PROPERTY, PLANT AND EQUIPMENT – ACCUMULATED DEPRECIATION £ £ B/d 2,001,000 PPE – disposals (1,201,000 – Statement of profit or loss 496,000) 705,000 (bal fig) 902,000 C/d 2,198,000 2,903,000 2,903,000

IC

AE

W

(2)

£ (546,000) (513,000) 4,812,000

(3)

PROPERTY, PLANT AND EQUIPMENT – PROCEEDS FROM DISPOSALS £ PPE – acc dep (1,201,000 – PPE – cost or valuation 1,201,000 496,000) Statement of profit or loss Trade receivables 79,000 Cash (bal fig) C/d 1,280,000

(4) B/d Cash (bal fig) Trade payables

248 Accounting: Answer Bank

INTANGIBLE ASSETS – COST £ 8,645,000 339,000 376,000 C/d 9,360,000

£

705,000 189,000 221,000 165,000 1,280,000

£

9,360,000 9,360,000

ICAEW 2020

(5)

INTANGIBLE ASSETS – ACCUMULATED DEPRECIATION £ B/d 3,690,000 Statement of profit or loss (bal fig) 3,690,000

C/d

(6)

(7)

Cash (bal fig) C/d (8)

INVESTMENTS £ 127,000 2,018,000 C/d 2,145,000

2,145,000 2,145,000

TAX PAID £ 546,000 B/d 641,000 Statement of profit or loss 1,187,000

£ 503,000 684,000 1,187,000

£

SHARE CAPITAL AND SHARE PREMIUM £ B/d (1,000,000 + 1,421,000) Retained earnings C/d (1,800,000 + 1,543,000) 3,343,000 Cash (bal fig) 3,343,000

(9)

B/d Statement of profit or loss (10)

W

Cash (bal fig) C/d

AE

(11)

IC

Cash (bal fig) C/d

(12)

B/d Cash (bal fig) Interest receivable PPE (13)

C/d

ICAEW 2020

975,000 3,690,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

B/d Cash (bal fig)

£ 2,715,000

INVESTMENT INCOME £ 8,000 Cash (bal fig) 78,000 C/d 86,000

£ 2,421,000 500,000 422,000 3,343,000

£ 76,000 10,000 86,000

FINANCE COSTS £ 513,000 B/d 125,000 Statement of profit or loss 638,000

ACCRUALS £ 162,000 B/d 100,000 262,000

£ 75,000 563,000 638,000 £ 262,000

262,000

TRADE RECEIVABLES £ 840,000 B/d 20,000 10,000 165,000 C/d 1,035,000

£ 8,000 79,000

948,000 1,035,000

TRADE PAYABLES £ B/d Cash (bal fig) 1,417,000 Intangible assets 1,417,000

£ 896,000 145,000 376,000 1,417,000

Chapter 13: Statement of cash flows 249

3 Tam plc Marking guide Marks

W

Total

½ ½ ½ ½ 1 1 1 ½ 1 ½ ½ ½ ½ 1 1 1 ½ ½ ½ ½ ½ 1 ½ ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Profit before tax Investment income Finance costs Depreciation Amortisation Gain/loss on sales of property, plant and equipment Gain/loss on sales of intangible assets Movement in inventories Movement in trade receivables Movement in prepayments Movement in trade payables Movement in accruals Movement in provisions Tax paid Interest paid Purchase of PPE Purchase of investments Proceeds from sales of PPE Proceeds from sales of intangibles Interest received Proceeds from issue of ordinary shares Dividends paid Movement in borrowings Opening and closing cash

16

AE

Statement of cash flows for the year ended 30 November 20X2

IC

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation (W4) Amortisation (W2) Gain/loss on sales of property, plant and equipment (W7) Gain/loss on sales of intangible assets (W9) Movement in inventories (685,000 – 598,000) Movement in trade and other receivables (W10) Movement in prepayments (126,000 – 96,000) Movement in trade payables ((749,000 – 351,000) – (427,000 – 106,000)) Movement in accruals ((131,000 – 50,000) – (108,000 – 25,000)) Movement in provisions (140,000 – 120,000) Cash generated from operations

250 Accounting: Answer Bank

£

756,000 (55,000) 68,000 1,100,000 19,000 (98,000) 3,000 (87,000) (5,000) 30,000 77,000 2,000 (20,000) 1,790,000

ICAEW 2020

£ (115,000) (93,000) 1,582,000

Tax paid (W6) Interest paid (W5) Net cash from/used in operating activities Cash flows from investing activities Purchase of property, plant and equipment (W3) Purchase of intangible assets Purchase of investments Proceeds from sale of property, plant and equipment (Note 4) Proceeds from sale of intangibles (Note 4) Interest received (W11) Net cash from/used in investing activities

(1,323,000)

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

(406,000) 424,000 12,000 45,000 (1,248,000)

Cash flows from financing activities Proceeds from issue of shares (50,000 W1 + 192,000 W2) Dividends paid (W8) Movement in borrowings (500,000 – 1,000,000 + 200,000) Net cash from/used in financing activities

242,000 (50,000) (300,000) (108,000)

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year WORKINGS (1)

SHARE CAPITAL £ B/fwd Share premium 1,100,000 Cash (bal fig) 1,100,000

C/fwd (1,100,000)

AE

W

Share capital (bonus) C/fwd (2)

IC

Disposals C/fwd

(3)

B/fwd Cash (bal fig) C/fwd (4)

Disposals (W7) C/fwd

ICAEW 2020

226,000 200,000 426,000

SHARE PREMIUM £ 50,000 B/fwd 342,000 Cash (bal fig) 392,000

£ 1,000,000 50,000 50,000 1,100,000 £ 200,000 192,000 392,000

INTANGIBLES – ACCUMULATED AMORTISATION £ 40,000 B/fwd 333,000 Statement of profit or loss (bal fig) 373,000 PPE – COST OR VALUATION £ 6,375,000 B/fwd 1,323,000 Disposals 351,000 C/fwd 8,049,000 PPE – ACCUMULATED DEPRECIATION £ 153,000 B/fwd 4,921,000 Statement of profit or loss (bal fig) 5,074,000

£ 354,000 19,000 373,000

£ 106,000 479,000 7,464,000 8,049,000 £ 3,974,000 1,100,000 5,074,000

Chapter 13: Statement of cash flows 251

(5)

FINANCE CHARGE £ 93,000 B/fwd 25,000 Statement of profit or loss 118,000

Cash (bal fig) C/fwd (6)

£ 50,000 68,000 118,000

TAX PAID £ 115,000 282,000 397,000

(7)

PPE – DISPOSALS £ Acc depn (479,000 – 326,000) 98,000 479,000 Cash 577,000

Statement of profit or loss (bal fig) Cost (8)

RETAINED EARNINGS £ 50,000 B/fwd 1,785,000 Statement of profit or loss 1,835,000

Dividends (bal fig) C/fwd (9)

B/fwd Statement of profit or loss

£ 165,000 232,000 397,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash (bal fig) C/fwd

Cost (938,000 – 883,000)

INTANGIBLES – DISPOSALS £ 55,000 Accumulated amortisation Cash Statement of profit or loss (bal fig) 55,000

£ 153,000

424,000 577,000

£ 1,311,000 524,000 1,835,000 £ 40,000 12,000 3,000 55,000

(10) Movement in trade receivables

£ 455,000 450,000 5,000

W

Opening (480,000 – 25,000) Closing (465,000 –15,000) Increase

IC

AE

(11)

B/fwd (trade and other receivables) Statement of profit or loss

252 Accounting: Answer Bank

INVESTMENT INCOME £ Cash (bal fig) 15,000 55,000 C/fwd 70,000

£ 45,000 25,000 70,000

ICAEW 2020

4 Kaya plc Marking guide Marks

Total

½ 1½ ½ ½ 1 1 1 1 1 1 1 1 ½ ½ ½ 1 1 1 ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Profit before tax Investment income Finance costs Depreciation Amortisation Impairment Gain/loss on sales of property, plant and equipment Movement in inventories Movement in trade receivables Movement in trade payables Tax paid Interest paid Purchase of PPE Purchase of intangible assets Proceeds from sales of PPE Proceeds from issue of ordinary shares Movement in borrowings Dividends paid Opening and closing cash

16

Statement of cash flows for the year ended 31 December 20X7

IC

AE

W

Cash flows from operating activities Profit before tax Investment income (W7) Finance costs Depreciation Amortisation (W5) Impairment charge (W5) Gain/loss on sales of property, plant and equipment (600,000 – 560,500) Movement in inventories (365,100 – 60,500) Movement in trade receivables (W6) Movement in trade payables (W4) Cash generated from operations Tax paid (W1) Interest paid (W2) Net cash from/used in operating activities

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Net cash from/used in investing activities

ICAEW 2020

£

886,100 (12,500) 75,000 750,600 12,300 15,000 (39,500) 304,600 (12,000) 1,000 1,980,600 (300,000) (77,000) 1,603,600

(1,573,000) (77,500) 600,000 (1,050,500)

Chapter 13: Statement of cash flows 253

£ Cash flows from financing activities Proceeds from issue of shares (W8) Movement in borrowings (500,000 – 400,000) Dividends paid (W9) Net cash from/used in financing activities

750,000 100,000 (1,400,000) (550,000)

WORKINGS (1)

3,100 32,600 35,700

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

TAX PAID

Cash (bal fig) C/fwd (2)

Cash (bal fig) C/fwd (3)

£ 300,000 410,000 710,000

B/fwd Statement of profit or loss

FINANCE CHARGE £ 77,000 B/fwd 5,000 Statement of profit or loss 82,000

£ 360,000 350,000 710,000 £ 7,000 75,000 82,000

PPE

B/fwd Cash (bal fig) Trade payables

£ 6,713,500 1,573,000 10,000 8,296,500

Disposals Statement of profit or loss C/fwd

£ 560,500 750,600 6,985,400 8,296,500

(4) Movement in trade payables

£ 132,500 133,500 1,000

AE

(5)

W

Opening (139,500 – 7,000) Closing (148,500 – 5,000 – 10,000) Increase

B/fwd

IC

Cash

INTANGIBLES £ 300,500 Statement of profit or loss (bal fig) 77,500 Impairment C/fwd 378,000

£

12,300 15,000 350,700 378,000

(6) Movement in trade receivables

£ 142,500 154,500 12,000

Opening (144,500 – 2,000) Closing (169,000 – 14,500) Increase (7) B/fwd Cash

254 Accounting: Answer Bank

INVESTMENT INCOME £ 2,000 12,500 C/fwd 14,500

£ 14,500 14,500

ICAEW 2020

(8)

C/fwd

(9)

£ 3,500,000 35,000 465,000 4,000,000

SHARE PREMIUM £ 35,000 B/fwd 1,200,000 Cash (bal fig) 1,235,000

£ 950,000 285,000 1,235,000

RETAINED EARNINGS £ 1,400,000 B/fwd 1,382,800 Statement of profit or loss 2,742,800

£ 2,206,700 536,100 2,742,800

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Bonus issue (share capital) C/fwd

SHARE CAPITAL £ B/fwd Bonus Issue (share premium) 4,000,000 Cash (bal fig) 4,000,000

Dividends paid C/fwd

5 Siena plc

Marking guide

IC

AE

W

Profit before tax Finance cost Depreciation Impairment Gain/loss on sale of property, plant and equipment Movement in inventories Movement in trade receivables Movement in trade payables Tax paid Interest paid Purchase of PPE Purchase of investments Proceeds from sales of PPE Proceeds from issue of ordinary shares Movement in borrowings Dividends paid Opening and closing cash

Total

ICAEW 2020

½ ½ 1 1½ ½ 1 1 1½ 1 1 ½ 1 1 1 1 1 1

Marks

16

Chapter 13: Statement of cash flows 255

Statement of cash flows for the year ended 31 March 20X5 £

Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Purchase of investments (W9) Proceeds from sale of property, plant and equipment (496,300 (W4) – 55,000) Proceeds from sale of intangibles Interest received Net cash from/used in investing activities Cash flows from financing activities Proceeds from issue of shares (1,020,000 (W5) + 380,000 (W6)) Movement in borrowings (W1) Dividends paid (W3) Net cash from/used in financing activities

W

Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year WORKINGS

IC

AE

(1)

866,100 0 89,000 750,600 12,000 55,000 (95,500) (24,500) 43,900 1,696,600 (347,600) (84,000) 1,265,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Impairment (Note 3) Gain/loss on sales of property, plant and equipment Movement in inventories (460,600 – 365,100) Movement in trade receivables (269,000 – 244,500) Movement in trade payables (W8) Cash generated from operations Tax paid (W2) Interest paid (W7) Net cash from/ used in operating activities

Preference shares Cash (bal fig) C/fwd

BORROWINGS £

150,000 366,000 556,000 1,072,000

B/fwd PPE

(2,057,000) (18,000)

441,300

(1,633,700) 1,400,000 (366,000) (500,500) 533,500 164,800 120,200 285,000

£

472,000 600,000 1,072,000

Further clarification: WORKING 1.1 Cash (bal fig) C/fwd

256 Accounting: Answer Bank

LOAN (BORROWINGS) £ 516,000 556,000 1,072,000

B/fwd PPE

£ 472,000 600,000 1,072,000

ICAEW 2020

WORKING 1.2

REDEEMABLE PREFERENCE SHARES (BORROWINGS) £

£ C/fwd

150,000 150,000

B/fwd Cash (bal fig)

0 150,000 150,000

WORKING 1.3 Movement in borrowings

(2)

(3)

Cash – dividends paid (bal fig) C/fwd (4)

£ 347,600 300,000 647,600

B/fwd Statement of profit or loss

RETAINED EARNINGS £ 500,500 B/fwd 142,500 Statement of profit or loss 643,000

£ 350,000 297,600 647,600

£ 74,500 568,500 643,000

PPE

AE

W

B/fwd Cash Long term loan

C/fwd

IC

366,000

TAX PAID

Cash (bal fig) C/fwd

(5)

£ 516,000 (cash outflow) (150,000) (cash inflow)

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Loan (from working 1.1) Less preference shares (from working 1.2) Total cash outflow resulting from movement in borrowings

(6)

Bonus issue (W7) C/fwd

(7) Cash (bal fig) C/fwd

ICAEW 2020

£ 2,950,300 2,057,000 600,000 5,607,300

Statement of profit or loss Disposals (bal fig) C/fwd

£ 750,600 496,300 4,360,400 5,607,300

SHARE CAPITAL £ B/fwd Bonus issue 3,000,000 Cash (bal fig) 3,000,000

£ 1,800,000 180,000 1,020,000 3,000,000

SHARE PREMIUM £ 180,000 B/fwd 1,050,000 Cash (bal fig) 1,230,000

£ 850,000 380,000 1,230,000

INTEREST PAYABLE £ 84,000 B/fwd 10,000 Statement of profit or loss 94,000

£ 5,000 89,000 94,000

Chapter 13: Statement of cash flows 257

(8) Interest payable C/fwd (9)

6

D

7

D

£ 289,600 10,000 10,000 43,900 353,500

INVESTMENTS £ 156,000 Impairment 18,000 10,000 C/fwd 184,000

£ 12,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

B/fwd Cash (bal fig) Trade payables

TRADE PAYABLES £ 5,000 B/fwd Investments Interest payable 348,500 Cash (bal fig) 353,500

172,000 184,000

Loss on sale of non-current assets should be added back to profit before tax.

Add depreciation Add impairment losses Less profit on sale of non-current assets Less increase in inventories Add decrease in trade receivables Add increase in trade payables Addition to profit/loss before taxation

£ 900,000 80,000 (40,000) (130,000) 100,000 80,000 990,000

8

D

The depreciation charge and the increase in trade payables should both have been added.

9

A

The £9,000 profit is shown before profit before tax in the statement of profit or loss. As it is not a cash flow it is deducted from the profit before tax figure in the reconciliation of profit before tax to net cash from operating activities.

10 A

£20,000 paid

AE

W

Cash paid C/fwd

IC

11 D

TAX PAID £ 20,000 B/fwd 150,000 Tax expense 170,000

Cash flows from operating activities Profit before tax Finance costs Movement in inventories (363,700 – 310,600) Movement in trade receivables (299,500 – 312,000) Movement in trade payables (277,200 – 269,400) Cash generated from operations

£ 10,000 160,000 170,000

£ 782,200 15,000 53,100 (12,500) 7,800 845,600

Option A has used profit for the period instead of profit before tax. Option B has subtracted the movement in inventories and in trade payables and added the movement in trade receivables. Option C has incorrectly subtracted the finance costs instead of adding them back.

258 Accounting: Answer Bank

ICAEW 2020

Chapter 14: Company financial statements under UK GAAP D

Generally Accepted Accounting Practice

2

B

By law it is the board of directors which is responsible for preparing financial statements.

3

B

False. Creditors falling due after more than one year are non-current liabilities.

C

True.

D

There are only (25 – 10 + 10 – 10) = 15 units in stock at the end of January. 10 of these are valued at £55, and the remainder at £54:

4

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

1

(10  £55) + (5  £54) = £820 5

C

6

A

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. SAMPLE EXAM

Retained profits at 1.1.X8 Operating profit Debenture interest (£1.3m × 10%) Tax Retained profits at 31.12.X8

£ 4,695,600 520,000 (130,000) (156,000) 4,929,600

SAMPLE EXAM

7

A

The bonus issue of shares (A) does not involve cash, the double entry is Debit Share premium, Credit Share capital.

IC

AE

W

Options B, C and D do involve cash and would be recorded in the cash at bank account.

ICAEW 2020

Chapter 14: Company financial statements under UK GAAP 259

260 Accounting: Answer Bank

ICAEW 2020

W

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

AE

IC

Chapter 15: Sole trader and partnership financial statements under UK GAAP 1

D £

2

D

520,000 40,000 560,000

Salary Interest on capital Interest on drawings Residual profit (3:3:4) C

£ B

£ C

280,000 (40,000) 240,000

160,000

80,000

280,000 520,000

140,000 300,000

84,000 164,000

56,000 56,000

3: Mary £

4: Olga £ 20,000 15,000 (4,000) 499,800 530,800

Total £ 55,000 60,000 (14,500) 1,249,500 1,350,000

3: Lisa £ 35,000 25,000 (7,000) 374,850 427,850

Share

3

£ A

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Profit

20,000 (3,500) 374,850 391,350

MARY'S CURRENT ACCOUNT

Drawings Bal c/d 4

D

IC

AE

W

Share Share

5

1 Jan to 30 June: 450,000/2 1 July to 31 Dec: Salaries (6 months) Profit (£225,000 – 44,000)

B

£ 35,000 506,350 541,350

Bal b/d Profit share

3: 5: Declan £ 135,000

2: 3: Indiah £ 90,000

2: Calum £

90,500 225,500

20,000 54,300 164,300

24,000 36,200 60,200

Total £ 225,000 44,000 181,000 450,000

Profit for appropriation: £32,000 – £250 = £31,750 Share

Opening balance Loan interest Interest on capital (5%  £20,000; £30,000) Profit share Closing balance

ICAEW 2020

£ 150,000 391,350 541,350

1: Billy £ 15,500 250 1,000 14,625 31,375

1: Charlie £ 12,700 1,500 14,625 28,825

Chapter 15: Sole trader and partnership financial statements under UK GAAP 261

6

A Share Share To 31 December 20X5 (£480,000  6/12) To 30 June 20X6 (£480,000  6/12) Salaries 6/12 PSR

3: 10: Curtis £ 144,000

2: 5: Sillett £ 96,000

112,000 256,000

10,000 56,000 162,000

5: McAllister £

Total £ 240,000

6,000 56,000 62,000

16,000 224,000 480,000

A

The petrol bills have been debited to motor vehicle expenses. This is incorrect and should be reversed (so credit motor vehicle expenses). Because they are private expenses of the partner they should be debited to his drawings account.

8

C

Added to profit in allocating the profit among the partners.

9

B

Interest on partners' capital is an appropriation of profit (debit appropriation account). Since partners have earned the money by their investment in the business, their current accounts should be credited with it. (Option D would be theoretically possible, but most firms maintain current accounts separately from capital accounts in order to record such items).

10 B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

7

Share Share

Profit share January to June (120,000) Profit share July to December (120,000) Guarantee amount

1: 3: Quinn £ 40,000 36,000 76,000 76,000

2: Ryan £

24,000 24,000 1,000 25,000

Total £ 120,000 120,000 240,000 240,000

Interest payable by partners increases the amounts of profits available for appropriation (credit appropriation account). It must be charged against the partners' current accounts (debit partners' current accounts).

W

11 D

2: 5: Paula £ 80,000 60,000 140,000 (1,000) 139,000

Note the question asks for Charity's residual profit share, not her total profit share.

AE

12 A

IC

Share

Interest on capital Salary Residual loss shares (3:2:1)

3: Faith £ 1,600

(3,900) (2,300)

2: Hope £ 1,200 8,000 (2,600) 6,600

1: Charity £ 960

(1,300) (340)

Total £ 3,760 8,000 (7,800) 3,960

13 B Share

January to June (340 – ((340 + 20)/2)) July to December (180/2)

262 Accounting: Answer Bank

1: Preston £'000 160 90 250

1: Alex £'000 90 90

ICAEW 2020

14 B

Profit in first 6 months is ((400,000 + 40,000)/2) – £40,000) = £180,000 Share Share

3: 5: Gina £

To 30 June Salaries (6 months) Profit To 31 Dec (400 + 40)/2

20,000 30,000 66,000 116,000

1: 2: Iona £ 10,000 30,000 44,000 84,000

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

15 B

90,000 110,000 200,000

1: 3: Hardeep £

Total £ 30,000 150,000 220,000 400,000

Profit for July to Dec (540,000 + 30,000)/2 – 30,000 = £255,000 Profit for Jan to June (570,000/2) = £285,000

£ 170,000 142,500 312,500

Xavier profit share July to Dec £255,000 x 2/3 Xavier profit share Jan to June £285,000 x 50% 16 A

3: 3: Gordon £

Share Share

July to December – salaries (6 months) Profit share (380/2 – 20) January to June – salary (6 months) Profit share (380/2 – 10) 17 C

102,000

1: 2: Hilary £ 10,000 34,000

90,000 192,000

60,000 104,000

1: 1: Indi £ 10,000 34,000 10,000 30,000 84,000

Total £ 20,000 170,000 10,000 180,000 380,000

The corrected account looks like this.

CURRENT ACCOUNT

W

£ 6,200 7,070

AE

Drawings Balance c/d

Balance b/d Interest on capital Salary Net profit

13,270

£ 270 2,800 1,500 8,700 13,270

The accrual should have increased expenses by £400 but instead expenses were decreased by £400 leading to an overstatement of profit of £800.

19 A

£4,000 tax + £5,900 rent = £9,900

IC

18 C

£

Rent 1 June 20X7 to 31 December 20X7 = 7/12 × £5,400 1 January 20X8 to 31 May 20X8 = 5/12 × £6,600 Local property tax 1 June 20X7 to 31 March 20X8 = 10/12 × £3,900 1 April 20X8 to 31 May 20X8 = 2/12 × £4,500 20 A

ICAEW 2020

3,150 2,750 5,900 3,250 750 4,000

Understated by 2  £475 = £950

Chapter 15: Sole trader and partnership financial statements under UK GAAP 263

21 B Decrease in net assets Capital introduced Drawings (875  12) Drawings Loss 22 A

£ 11,025 14,000 (10,500) (2,625) 11,900

Use the accounting equation: £ 32,500

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Net assets at 31.12.X8

£

Owner's interest Opening capital (= opening net assets) Capital introduced Profit (balancing figure) Drawings (2,500 + 750)

23,000 4,000 8,750 (3,250) 32,500

Goods drawn by owner are taken at cost. 23 C

Increase in net assets Add drawings Deduct capital paid in Net profit

£ 127,000 47,000 (25,000) 149,000

Opening net assets Capital introduced Drawings Profit (balancing figure) Closing net assets

£ 266,800 50,000 (40,000) 9,600 286,400

AE

W

24 A

25 B,D Owner's capital (A) and drawings (C) relate to capital; income tax payable (E) does not feature in a sole trader's balance sheet.

IC

26 C 27 B

Errol is credited with £50,000  3/8 = £18,750, then debited with £50,000  3/4 = £37,500, a net debit of £18,750.

28 A

The correcting journals in full are: DEBIT CREDIT

Debtors Cash

DEBIT CREDIT

Sales (2  12) Debtors

264 Accounting: Answer Bank

£ 180

£ 180

24 24

ICAEW 2020

So the net correcting journal (A) is DEBIT DEBIT CREDIT

£ 156 24

Debtors Sales Cash

£

180 SAMPLE EXAM

29 A,C,E

30 B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

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. SAMPLE EXAM Using the balance sheet equation:

£ 4,113 15,000 (5,000) 14,113

Closing net assets (1,726 + 2,387) (B) Drawings Opening net assets Net profit (B) 31 C

SAMPLE EXAM Errol is a partner for the whole year, receiving 3/8 of the first eight months profit, and 3/4 of the last four months after Sayhan's retirement: £ 30,312 30,312 60,624

£121,248 × 8/12 × 3/8 = £121,248 × 4/12 × 3/4 =

SAMPLE EXAM

32 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. SAMPLE EXAM

W

33 D

AE

Share

1 Ines £ 7,500

IC

Drawings Goodwill (60,000 @ 1:1) 30,000 c/d

Alex £ 7,500

30,000

46,865

Loan a/c 84,365

1 Sebastian £ 7,500

7,295

53,770 61,270

44,795

b/d Profit (87,750 @ 3:2:1) Goodwill (60,000 @ 3:2:1)

3 Ines £ 10,490

2 Alex £ 12,020

1 Sebastian £ 20,170

43,875

29,250

14,625

30,000

20,000

10,000

84,365

61,270

44,795

Note that you would have arrived at Answer B if you had ignored Sebastian's £7,500 drawings. 34

A,E Goods taken by a partner count as drawings in the same way as does cash (A), and no salaries are appropriated to partners unless they specifically agree that they should be (E).

ICAEW 2020

Chapter 15: Sole trader and partnership financial statements under UK GAAP 265

Interest on drawings by a partner (B) are negative appropriations of profit, not income. Interest on a partner's loan capital (C) is an expense in the profit and loss account, not income. Drawings by a partner are debited to the current account, not credited (D). C

Interest on drawings is an appropriation of profit. It affects neither the partnership's net profit available for appropriation nor the cash position. Drawings, rather than interest on them, affect the cash position.

36

C

In the absence of a formal agreement the Partnership Act 1890 states that partners shall receive no interest on their fixed capital contributions, but that they shall receive interest at 5% per annum on loans to the partnership. Josh's loan has been outstanding for three months in the financial year so he is entitled to: £40,000 × 5% × 3/12 = £500 (C).

37

B

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

35

Opening net assets Net profit Capital injection Drawings (£3,200  12) Stock drawings (£7,200  100/160) Closing net assets 38

A

£ 62,900 3,000 15,800 (9,500) 72,200

IC

AE

W

Opening capital (39,400 + 15,600 + 11,500 – 10,200 + 6,600) Capital introduced Profit for year (bal fig) Drawings ((12  750) + 500) Closing capital (46,000 +18,900 + 8,400 – 7,500 + 6,400)

£ 40,000 117,000 30,000 (38,400) (4,500) 144,100

266 Accounting: Answer Bank

ICAEW 2020

Sample of an exam: answers 1 Shindig plc Marking guide Marks

Total

1 1 1 ½ 1 1½ 1 1 1 1 1 1 ½ 1 1 ½ ½ ½

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Revenue Cost of sales Other operating expenses Finance costs Income tax expense PPE Intangibles Inventories Receivables Cash Equity share capital Retained earnings Borrowings Payables Accruals Deferred income Provision Income tax payable

16

W

Statement of profit or loss for the year ended 31 December 20X4

IC

AE

Revenue Cost of sales (W2) Gross profit Other operating expenses (W2) Profit/(loss) from operations Finance costs Profit/(loss) before tax Income tax expense (W3) Profit/(loss) for the year

ICAEW 2020

£ 1,705,600 (880,500) 825,100 (157,765) 667,335 (6,000) 661,335 (107,600) 553,735

Sample of an exam: answers 267

Statement of financial position as at 31 December 20X4 £ ASSETS Non-current assets Leasehold buildings (W1) Computers Intangible assets (W4)

230,000 20,000 40,000 290,000

Current assets Inventories (W5) Trade receivables (W6) Cash and cash equivalents (440,200 – 5,000)

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

315,500 356,535 435,200 1,107,235 1,397,235

Total assets EQUITY Equity share capital Retained earnings (W7)

500,000 531,035 1,031,035

Non-current liabilities Borrowings (Preference share capital (redeemable)) Current liabilities Trade payables (80,200 – 5,000) Accruals (120,000  5%) Deferred income Provision Income tax payable

120,000

75,200 6,000 35,000 10,000 120,000 246,200 1,397,235

Total equity and liabilities WORKINGS

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(1) Property, plant and equipment

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Cost Depreciation B/f Charge (W2) C/f Carrying amount c/f

268 Accounting: Question Bank

Leasehold £ 300,000

Computers £ 50,000

60,000 10,000 70,000 230,000

20,000 10,000 30,000 20,000

Total £

250,000

ICAEW 2020

(2) Allocation of costs Other expenses £ 10,000 10,000 20,000 294,500 63,765

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Staff costs Depreciation: Leasehold buildings (300,000 ÷ 30) Depreciation: Computers (50,000  5) Amortisation: Licence (60,000  3) (W4) Raw materials Irrecoverable debts (45,000 + 18,765 (W6) Finished games (180,000 – (10  £450) – 155,600) Work in progress (140,000 – 125,500) Provision Consultancy fees

Cost of Sales £ 620,400

(19,900) (14,500)

10,000 44,000 157,765

880,500

(3) Income tax

£ 120,000 (12,400) 107,600

For year Overprovision re previous year (4) Intangibles (licence)

£ 60,000 (20,000) 40,000

B/f Amortisation for the year C/f (5) Inventories

£ 175,500 140,000 315,500

W

Finished games (180,000 – (10  £450)) WIP

AE

(6) Trade receivables

£ 420,300 (45,000) (18,765) 356,535

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Per TB Less Irrecoverable debt write off Allowance for receivables

(7)

RETAINED EARNINGS

Dividends paid C/d (bal fig) (8)

£ 125,000 531,035 656,035

B/d Profit for the year

£ 102,300 553,735 656,035

SHARE PREMIUM Bonus issue (suspense)

ICAEW 2020

£ 100,000 100,000

Per TB

£ 100,000 100,000

Sample of an exam: answers 269

(9)

SUSPENSE ACCOUNT Per TB Deferred income

2

£ 83,765 35,000 118,765

Bonus issue (share premium) Allowance for receivables

£ 100,000 18,765 118,765

B,C,E The employees, the bank and the suppliers will be interested.

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Neither stock market analysts nor institutional shareholders (large owners of company shares eg, pension funds) would be interested in investing in a small private company. 3

C

2 and 3

4

C

Profit will be overstated due to depreciation based on understated assets, and cost of sales based on understated inventory.

5

C

As the receipt is unmatched, it is most likely to be the proceeds of sale of equipment as this is not a regular transaction. The receipt from the credit customer in respect of an invoice of £565 is likely to have been matched by the accounting system as it is a straightforward regular transaction. The other two transactions are payments, not receipts.

6

C

Profit is calculated as:

£ Sales on credit 16,200 Sales in cash 1,300 Purchases of goods for resale, on credit (12,100) Depreciation and other expenses (900) Net profit 4,500 Option A ignores cash sales. Option B simply takes account of sales and purchases. Option D incorrectly deducts capital expenditure on non-current assets. The correct entry is to debit payables with the contra of £420 and irrecoverable debts expense with £360 (£510 – 150), then credit receivables with the total £780 (£420 + £360).

A

The stolen inventory will already have been reflected in the physical count, so effectively its cost has already been debited to gross profit, reducing both gross and net profit by £18,000. The insurance claim will be 40%  £18,000 = £7,200. This figure should be accounted for as follows:

AE

8

A

W

7

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DEBIT CREDIT

9

Other receivables Other income

£7,200

£7,200

The credit entry increases net profit – not gross profit – by £7,200 (A). D

As the invoice amounts are exclusive of VAT, it should be calculated as 20% of the invoice amount after deducting the trade discount. If the amounts had been inclusive of VAT, the VAT would have been calculated as 20/120 of the invoice total.

10 A,D Assets and expenses are debit balances; liabilities, capital and income are credit balances.

270 Accounting: Question Bank

ICAEW 2020

11 A

£1,800 £ (1,500) (500) 200 (1,800)

Balance per bank statement Less unpresented cheque Add uncredited lodgement Cash at bank account balance 12 To adjust the allowance for receivables: Irrecoverable debts expense Allowance for receivables

£100 £100

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DEBIT CREDIT

To write off the irrecoverable debt: DEBIT CREDIT

Irrecoverable debts expense Trade receivables

£985

£985

13 C,F Unpaid sales commission of £1,755 is an accrued expense which should be credited to accruals (F). As sales commission is included within distribution costs it should be debited to this account (C). SAMPLE EXAM 14 A

RENT

Deferred income Statement of profit or loss (bal fig)

£ 7,720

£ 22,850 4,490

Cash at bank Accrued income

19,620 27,340

27,340

SAMPLE EXAM

15

£'000

AE

W

Sales Opening inventory Purchases Closing inventory (bal fig) Cost of sales (125,000  100/125) Gross profit

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16 C

Cost at 1 September 20X5 Depreciation charge ((68,000 - 8,000)  2/10) Carrying amount at 31 August 20X7 Recoverable amount – higher of: Fair value less disposal costs Value in use Recoverable amount Loss on impairment Total charge to profit or loss (6,000 (depreciation) + 5,000 (impairment)

£'000 125

% 125

100 25

100 25

35 80 (15)

£ 68,000 (12,000) 56,000 51,000 49,000 51,000 5,000 11,000

Option (A) is just depreciation, option (B) is depreciation ignoring the residual value and (D) uses the incorrect recoverable amount based on value in use.

ICAEW 2020

Sample of an exam: answers 271

17 B

The incorrect figure of £196,800 is arrived at by using a single carrying amount T account and mixing up the b/d and c/d figures.

b/d Additions

FIXTURES & FITTINGS – COST £ 480,000 Disposals – bal fig 284,000 c/d 764,000

F&F – cost IS – Profit on disposal

18

C

DISPOSALS £ 164,000 F&F – acc dep 119,200 Proceeds 283,200

Share capital Share premium (£50,000/£0.25  £(0.40 – 0.25)) Retained profits reserve Other reserves (bal fig) Closing net assets 19 C

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3,080  9/12 3,080  100/110  3/12

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AE

20 C

21 C

£ 218,000 66,400 284,400

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FIXTURES & FITTINGS – ACCUMULATED DEPRECIATION £ Disposals – bal fig 104,400 b/d c/d 180,000 Charge 284,400

£ 164,000 600,000 764,000

3/12 x (£2,860 x 100/110) 9/12 x £2,860

Net profit before interest Interest (50,000  8%  6/12) Partner salaries (20,000 + 25,000) Residual profit for appropriation (5/8 and 3/8  75,000 = 46,875 and 28,125)

272 Accounting: Question Bank

£ 104,400 178,800 283,200

£ 50,000 30,000 107,594 20,000 (C) 207,594

£ 2,310 700 3,010

£ 650 2,145 2,795

£ 122,000 (2,000) 120,000 (45,000) 75,000

ICAEW 2020

Share

Salaries Residual profits Total

5 Shula £ 20,000 46,875 66,875

(B)

3 Kenton £ 25,000 28,125 53,125

(C)

Note that in option A the interest is not deducted from net profit before it is appropriated, while in option D a full year's interest is deducted. A £500 debit

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22

IRRECOVERABLE DEBTS EXPENSE

Irrecoverable debts expense Increase in allowance

£ 200 800

1,000

23 A, D 24 C

Cash at bank Statement of profit or loss

£ 500 500

1,000

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. 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.

IC

AE

W

25 B

ICAEW 2020

Sample of an exam: answers 273

274 Accounting: Question Bank

ICAEW 2020

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276 Accounting

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Suggested structure for Mock Exams in 2020 Exam standard The Mock Exam should be set at the same level represented in the 2020 sample exams. Exam format The Mock Exam should consist of one scenario-based question worth 40% of the total marks, and 24 objective test questions worth 2.5 marks each.

1.

Pa R ef V rtn er ie er en tn in ce am L e ar C op ni ng ie s

Style of exam questions

The scenario-based questions will involve either:

(a) preparing a statement of profit or loss and statement of financial position from a trial balance and additional information; or (b) producing a statement of cash flows from a statement of profit or loss, statements of financial position and additional information. 2.

Each objective test question should conform to the style used in the sample exam ie:    

3.

multiple choice questions (1 from 4), multi-part multiple choice questions (1 from 2 or 3, for more than 1 question part), or multiple response (more than 1 from 4 or more) no negative questions

There should be 2–4 non-numerical, ‘knowledge’ type questions.

Exam coverage and balance

A Mock Exam should have approximately the syllabus coverage and balance set out in the table below.

Weighting %

Number of questions

1 Maintaining financial records

30

9–11

2 Adjustments to accounting records and financial statements

25

8–10

3 Preparing financial statements

45

5–8

100

25

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Syllabus area

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Total

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Mock Exam guidance notes 277

The following matrix contains three sets of questions, selected from within this Question Bank. Each one contains an appropriate balance of questions which form a 'sample exam' for you to attempt. Note that the question topics listed here are only examples of the nature of questions which may be included – the actual exam questions may be on different topics. Sample exam

Sample exam

1

Ch 13; Q2

Ch 12; Q3

2

Ch 1; Q10

Ch 2; Q4

3

Ch 1; Q20

Ch 1; Q19

Ch 3; Q12

Ch 1; Q22

Ch 4; Q1

Ch 3; Q4

Ch 4; Q11

Ch 4; Q6

Ch 5; Q9

Ch 5; Q1

Ch 5; Q7

Ch 6; Q5

Ch 6; Q6

Ch 6; Q8

Ch 6; Q1

Ch 7; Q5

Ch 7; Q35

Ch 7; Q17

Ch 7; Q18

Ch 7; Q34

Ch 7; Q7

Ch 8; Q17

Ch 8; Q24

Ch 9; Q35

Ch 11; Q39

Ch 9; Q36

Ch 11; Q10

Ch 10; Q26

Ch 8; Q13

Ch 10; Q39

Ch 9; Q33

Ch 10; Q32

Ch 9; Q23

Ch 11; Q31

Ch 10; Q24

Ch 11; Q32

Ch 10; Q13

Ch 13; Q12

Ch 13; Q10

Ch 13; Q13

Ch 15; Q19

Ch 14; Q7

Ch 15; Q16

Ch 15; Q4

Ch 15; Q23

Ch 15; Q14

4 5 6 7 8 9 10 11 12 13 14 15 16

18

AE

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W

17

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Question

20

IC

21 22 23 24 25

278 Accounting

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Notes

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