“A” LEVEL ACCOUNTING

ACCOUNTING PACKAGE

QUESTIONS BOOKLET

NUMBER 1

INDIVIDUAL STUDIES

Tinofamba nevanofamba
1|Page TINOFAMBA NEVANOFAMBA
 QUESTION 1
The following information has been extracted from the accounts of Harvey Rabbit for the
year ended 31 March 2010.
$
Sales ledger balance at 1 April 2009 29 040
Credit sales 499 892
Cash sales 14 634
Credit sales returns 9 878
Receipts from debtors, banked 462 680
Discount allowed on credit sales 21 404
Bad debts written off 9 510
Debtors’ cheques dishonoured 662
Contra entries 1 153

REQUIRED
a. Prepare Harvey Rabbit’s sales ledger control account for the year ended 31 March
2010. [10]

The total of Harvey Rabbit’s sales ledger balances at 31 March 2010 was $26 845, which
did not agree with the closing balance of his sales ledger control account. On checking his
accounts he discovered the following errors.

1. A credit note for $420 which had been sent to a debtor had been entered in the sales
journal (day book) and posted as a sale to both accounts.
2. A debit entry in the sales ledger for $698 had been set off as a contra entry in the
purchases ledger, but no entry had been made in the control accounts.
3. The discount allowed account had been overstated by $310.
4. A sales invoice for $998 had been completely omitted from the accounts.
5. A debit balance of $2102 had been omitted from the list of debtors.
6. A debtor who owed $896 had been declared bankrupt during March 2010. The debt
had been written off in the control account, but no entry had been made in the
debtor’s account.
7. A receipt for $630 had been debited to the bank account but omitted from the
debtor’s account.
8. An entry for $816 in the sales journal (day book) had not been posted to the debtor’s
account.
9. A sales ledger account had been understated by $200.
10. A page of the sales journal (day book) with entries totalling $3856 had been omitted
from total sales. The amounts had, however, been posted to the debtors’ accounts.

REQUIRED
b. (i) Beginning with the closing balance which you have calculated in (a), prepare a
statement showing the amended balance on the control account. [6]

(ii) Beginning with Harvey Rabbit’s sales ledger balance of $26 845, prepare a
statement amending the total of the sales ledger balance to agree with the new
control account balance. [8]

c. State three advantages of keeping control accounts. [6]

[Total: 30]

2|Page TINOFAMBA NEVANOFAMBA

 QUESTION 2

The books of Simon Peter gave the following information for the month of 31 May 2003. All
sales and purchases were on credit.

Sales ledger balance at 1 May 2003 5 627

Purchases ledger balance at 1 May 2003 4 388
Sales for the year 100 384
Purchases for the year 64 987
Sales returns 1 997
Purchases returns 864
Payments received from debtors( all banked ) 92 760
Payments made to creditors 63 520
Debtor’s dishonoured cheque 109
Discount allowed 4 082
Discount received 3 241
Bad debts written off 1 884
Debit balances transferred to purchases ledger control account 208

The total of Simon Peter’s sales ledger balances is $9 387, which differs from the closing
balance in the sales ledger control account.
Required
a) Extract the relevant information from the above and prepare the sales ledger control
account for the month ended 31 May 2003. {10}
The following errors have been discovered since the sales ledger control account was
prepared.
1. A sales invoice for $2 001 had been completely omitted from the books.
2. A page of the sales day book with entries totaling $7 820 had been omitted from the
total sales but the individual entries had been posted to the debtors account.
3. A debit balance of $4 020 had been omitted from the list of debtors.
4. A sales ledger account had been understated by $220
5. Discount allowed had been overstated by $620
6. An entry of $1 620 in the sales day book had been omitted from the debtors account.
7. A contra entry had been made in the purchases ledger for a debit balance of $1 412 in
the sales ledger, but no entry had been made in the control accounts.
8. A receipt of $1 210 was debited to bank but not posted to the debtors account.
9. A credit note for $720 sent to a debtor had been entered in the sales day book and
posted as a sale to both accounts.
10. A debtor owing $1 820 was declared bankrupty during May 2003. The debt was
written off in the control account but no entry have been made in the debtors account.

Required
b) Prepare an amended sales ledger control account, extracting relevant information
from the list of errors given above. {8}
c) Prepare a statement altering the total of the sales ledger balance to agree with the new
sales ledger control account balance. {7}

3|Page TINOFAMBA NEVANOFAMBA

 QUESTION 3
On 31 August , Kingsville’s book keeper provided the following information:

$
Purchases ledger control account balance 14 130
Total of the purchases ledger balance (credit) 14 000
Total of the purchases ledger balance (debit) 560

Investigations were carried out and the following matters were revealed:

i. Included in the debit balance in the purchases ledger is a balance of $400 in the name
of B. White. This arose because a purchases invoice for $400 had earlier been posted
in error from the purchases day book to the credit side of the account of B.White in
the sales ledger.

ii. An allowance of $300 for damaged goods was omitted from the appropriate account
in the purchases ledger.

iii. An invoice of $350 was entered as $530 in the purchases day book.

iv. Cash paid to a supplier, $435 was entered as $535 in the cash book.

v. A payment of $1 400 had been correctly entered in the suppliers’s account but was
omitted from the bank account.

vi. Purchases of $80 were received on 31 August and included in the closing inventory
figure, but the invoice was not entered in the purchases day book.

vii. A credit note for $285, received from a supplier, was posted to the wrong side of the
suppliers’s account.

viii. A debit balance of $120 in the purchases ledger was extracted as a credit balance.

Required

a. A statement to show the revised purchases ledger balances,

b. An amended purchases ledger control account

4|Page TINOFAMBA NEVANOFAMBA

 QUESTION 4

On 1 January 2017, the non-current assets register of Golden Limited held the following
information on its taxis.

Date of purchase Taxi Cost Date of Cash received

Reg number disposal $

01/01/13 Vitz 28 000 31/03/2017 7 000

01/01/13 Honda 32 000 24/04/2017 10 000

01/01/14 Funcago 20 000 31/08/ 2017 10 500

01/01/14 Ipsum 20 000 30/11/2017 10 000

08/01/15 Chariot 25 000 - -

06/01/15 Mazda 28 000 23/11/2017 See below

25/01/16 Wish 30 000 - -

31/01/16 Corrolla 35 000 - -

On 23 November 2017, taxi Mazda was involved in an accident and was written off. The
insurance company has offered to pay 80% of the net book value of the taxi as at 31
December 2016. The company has agreed to accept the offer. The money is yet to be
received.

Depreciation is provided on taxis at 20% per annum using the reducing balance method. A
full year’s charge is made in the year of purchase but no depreciation applied in the year in
which a taxi is sold or otherwise disposed of.

a) Draw up for the year 2017,

i. The Taxis account, {4}

ii. The Provision for Depreciation Account on Taxis, {15}
iii. The Asset Disposal Account for taxi Mazda. {5}

5|Page TINOFAMBA NEVANOFAMBA

 QUESTION 5

Rapid Deliveries Ltd is a small parcels delivery company. In order to ensure a high level of
efficiency the vans used are usually replaced by the latest models. It is company policy not to
retain any van for more than four years. Depreciation is provided for at 25% per annum on
cost, calculated on a monthly basis on all vans used during the year. On 31 December 2010
the company had three vans.

Details of the vans appearing in the statement of financial position at 31 December

2010 were:
$
Vans at cost (3 vans) 75 000
Less depreciation to date 41 875
33 125

During 2011 two vans of the fleet were sold and van 4 was purchased on credit for
$32 000 on 1 October 2011. The following details relate to these transactions:

Sales
Date sold Van Year Cost Sale
Reference bought proceeds
1 April 2011 1 1 January 2008 24 000 5 000
1 July 2011 2 1 April 2009 26 000 10 000

Van 3 was bought in 2010 at a cost of $25 000.

REQUIRED
a)The ledger accounts for the year ended 31 December 2011:
(i) vans at cost account; [3]
(ii) vans provision for depreciation account; [11]
(iii) vans disposal account. [7]
b) Explain why it is important to provide for depreciation. [2]
c) State two advantages and two disadvantages of using the straight line method of
depreciation and reducing balance method of depreciation. [2]

6|Page TINOFAMBA NEVANOFAMBA

 QUESTION 6

The non-current asset register of Global Technology showed the following balances
on 1 January 2018.
Cost Accumulated depreciation
$ $
Property 40 000 3 200
Plant and equipment 24 000 10 500
Motor vehicles 27 500 13 500

The depreciation policy of the company is to provide for depreciation as follows:

Property 2 % per annum on cost
Plant and equipment at 20% per annum on cost
Motor vehicles 20% per annum on cost

A full year’s depreciation is charged in the year of purchase and none in the year of disposal.

During the year ended 31 December 2018, the following transactions took place.

February 1 Purchased a new machine for $7 500.

March 14 Installed office equipment at a cost of $11 500.

April 1 Sold equipment for $2 000. It had been purchased on1 August 2014 at a cost
of $6 000, which included $400 for insurance.

1 July Motor vehicles which had cost $3 500 were sold for $1 500, making a profit
on disposal of $500.
New motor vehicles were purchased on 1 July 2018 at a cost of $8 000.

October 1 Carried out major repairs on some equipment costing $15 000. This included a
new electric motor costing $5 000, which increased the efficiency of the
equipment by 300 %.

December 31 Re-valued the property to $50 000 soon after recording the depreciation for the
year.

Required
(a) For the year ended 31 December 2018, prepare:
(i) the disposal account. [4]
(ii) a schedule of non-current assets as it would appear as a note in the published
accounts. [14]
(b) Explain why a business depreciates its non-current assets. [2]

Additional information
Global Technology is listed on the Zimbabwe Stock Exchange and is required to produce
audited accounts.

(c) (i) Explain the purpose of an end of year audit. [2]

(ii) Assess briefly the implications of a qualified audit report. [3]

7|Page TINOFAMBA NEVANOFAMBA

 QUESTION 7
Shumi Power, extracted a trial balance on 31 March 2000, which failed to agree. The trial
balance totals were: $35 684 (debit) and $36 540 (credit). He entered the difference in a
suspense account to enable him to draft his final accounts. The draft profit and loss account
prepared by Shumi showed :
Gross profit $130 000
Operating profit of $138 000.
After completing the draft final accounts, Shumi consults you as accountant and you discover
the errors shown below:

i) An item for $1 076 in the Sales Day Book has been entered in Adbel’s account in the
Sales Ledger as $1 760.

ii) At 31 March 2000, Blessing’s account in the Sales Ledger showed a debit balance of
$900. There was also an account for her in the Purchases Ledger and it showed a
credit balance of $650. In offsetting these balances, the ledger clerk had debited
Blessing’s account in the Sales Ledger with $650 and credited her account in the
Purchases Ledger with the same amount.

iii) A purchase of goods costing $1 500 had been credited to the supplier’s account in the
Purchases Ledger but no other entry had been made in the books.

iv) A credit balance of $480 in the Sales Ledger had been included in the list of debtors as
a debit balance.

v) A sales invoice for $1 070 sent to Dunmore had been entered in the Sales Day Book as
$1 700.

vi) Discount receivable $300 in January 2000 had been debited in the Discount Allowed
account. Discount allowable of $800 for the same month had been credited in the
Discounts Received account.

vii) Some goods have been sent to Poppy, a customer, and invoiced to him for $2 450. The
mark-up on these goods was 40%. Poppy has notified Shumi on 30 March 2000 that
he has not ordered the goods and is returning them. No entries regarding the return of
these goods have been made in the books.

Required
a. Prepare the journal entries necessary to correct each of the errors given above.
(narratives not required) [9]
b. Write up the suspense account [5]
c. Prepare computations for the year ended 31 December 2003 of the following:
i) Corrected gross profit [6]
ii) Corrected net profit [5]

8|Page TINOFAMBA NEVANOFAMBA

 QUESTION 8
Hunter extracted a trial balance which failed to agree. He entered the difference in a suspense
account to enable him to draft his final accounts. The draft profit and loss account prepared
by Hunter showed a gross profit of $1 970 000 and a net profit of $1 380 000.

After completing the draft final accounts, Hunter consults you as accountant and you discover
the errors shown below:

i. A credit balance in the purchases ledger, $62 000, had been omitted from the list of
balances extracted from the ledger.

ii. Goods returned by Hunter to Power, a supplier, had been credited to Power’s account
and debited to returns outwards account. The goods had cost $120 000.

iii. A debt of $28 000 had been written off as bad in the sales ledger but no other entry had
been made.

iv. Repairs to Hunter’s business motor vehicle, $605 000, had been debited in error to the
motor vehicle account as $650 000.

v. The opening stock figure at 1 January 2003 had been entered in the trial balance as $434
000 instead of $344 000 as shown in the stock account.

vi. Purchases from Peter amounting to $810 000 had been received on 31 December 2003.
These had been included in closing stock at that date, but the invoice had not been
entered in the purchases journal.

vii. In November 2003, Hunter purchases a large quantity of stock of stationery at a bargain
price of $420 000. Three fifths of this stationery was in stock on 31 December 2003 but
no adjustment has been made to the accounts.

viii. A delivery van held as a fixed asset had been sold during the year for $144 000. The
proceeds of the sale had been credited to the sales account. The original cost of the van,
$360 000 and the accumulated depreciation to date, $240 000 were included in the
motor vehicles account. The company depreciates delivery vehicles at 25% per annum
on a straight line basis with proportionate depreciation in the year of purchase but none
in the year of sale.
Required
a) Prepare the journal entries necessary to correct each of the errors given above.
(narratives not required) {10}
b) Write up the suspense account {5}
c) Prepare computations for the year ended 31 December 2003 of the following:
i) Corrected gross profit {7}
ii) Corrected net profit {6}

9|Page TINOFAMBA NEVANOFAMBA

 QUESTION 9
Nissi Yasha runs a small retail shop selling costume stationery. He does not keep a full set of
acounting records, but he is able to give you the following information about the financial
position of the business at 1 May 2004 and 30 April 2005.

The business assets and liabilities were:

1 May 2004 30 April 2005
$ $
Fixtures and fittings (cost 10 000) 9 000 8 100
Van (E742 BMW) 7 000 -
Van(M217 IVECO) - 6 750
Inventory 6 000 7 000
Trade receivables 1 750 1 160
Trade payables 850 700
Insurance prepaid 340 400
Rent accrued due 250 200
Balance at bank 1 480 -
Bank overdraft - 9 170
Cash in hand 140 160

He also provided you with the following summary of the business bank account for the year
ended 30 April 2005.

$ $
Balance at 1 May 2004 1 480 Purchases 35 670
Receipts from debtors for sales 6 170 Rent and rates 4 170
Proceeds from sale of van Lighting and heating 2 140
(E742 BMW) 4 500 Advertising 850
Cash banked 41 120 Insurance 1 200
Balance 30 April 2005 9 170 Motor expenses 2 110
General expenses 3 180
Van (M217 IVECO) 9 000
Payment to creditors for purchases 4 120
62 440 62 440

All the takings from cash sales were banked after the following payments were made:
$
Purchases 1 360
Wages 15 240
Drawings 14 150
Nissi now knows that a part-time assistant who left his employment in October 2004 was
systematically stealing cash from the shop; he is uncertain of the exact amount. He was not
insured against this loss.
The shop normally earns a uniform gross profit margin of 50%.
Required.
a. A computation showing how much cash has been stolen from Nissi Yasha.
b. A Statement of Comprehensive Income (Trading and profit and loss account)
together with a Statement of financial position for the year ended 30 April 2005.

10 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 10

Patel, a sole trader, does not keep proper books of account. He provided the following
information.
1 January 2014 31 December 2014
$ $
Land and buildings at cost 50 000 50 000
Fixtures and fittings at valuation 6 000 4 500
Motor vehicles at net book value 7 600 ?
Trade payables 16 750 14 900
Trade receivables 14 670 13 690
Wages owing 1 200 1 400
Inventory 21 750 22 450
Cash in hand 800 950
Rent in advance 1 000 ?

Summary of Patel’s bank account for the year showed the following.
Receipts $ Payments $
Balance b/d 16 980 Payments to credit suppliers 109 620
Receipts from credit customers 156 420 Wages 22 670
Cash sales 20 700 Rent 19 000
Proceeds from sale of motor vehicle 1 500 Electricity 8 650
General expenses 4 750
Purchase of new motor vehicle 16 400
______ Balance c/d 14 510
195 600 195 600
Additional information
1. Before banking his receipts from cash sales Patel took $400 per month for his
personal drawings. All other payments were made from the bank.
2. During the year he took goods costing $2600 for his own use.
3. Patel depreciates his vehicles at 20% per annum using the reducing balance method.
A full year’s depreciation is charged in the year of purchase. No depreciation is
provided in the year of sale.
4. The vehicle sold had a net book value at 1 January 2014 of $2880.
5. A customer has been declared bankrupt and will not pay $750 owing. The amount
was included in the trade receivables at 31 December 2014.
6. In addition Patel has decided to create a provision for doubtful debts of 5%.
7. The rent payable is $16 000 per annum.

REQUIRED
(a) Prepare Patel’s income statement for the year ended 31 December 2014. [15]
(b) Prepare Patel’s statement of financial position at 31 December 2014. [9]

Additional information
Patel wishes to expand his business and is undecided about taking out a five year loan or
asking the bank for an overdraft.

REQUIRED
(c) State one advantage and one disadvantage of each option. [6]
[Total: 30]

11 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 11
Adbel received a legacy from his Father so he was able to fulfil a long standing desire to open
a spare parts shop. On 1 January 1992 he opened a business bank account with the full
amount of the legacy. However he paid little attention about keeping proper accounting
records.
Also on 1 January 1992 he rented premises at a rental of $750 per month payable quarterly in
advance. The first payment was made on 3 January 1992. At 31 December 1992 a summary
of Adbel’s bank transactions revealed the following:

Receipts $ Payments $
Legacy 50 000 Rent 6 750
Cash banked 269 000 Fixtures/equipment 21 670
Business rates 2 400
Electricity 4 670
Telephone 690
Purchases 265 770
Holiday in Vumba 3 400

All Adbel’s takings were banked after the following cash expenses were paid and personal
drawings taken. These were:
Wages $410 per week (50 weeks);
Sundry expenses $15 per week (50 weeks);
Cash purchases $2 980 for the year.
Adbel always retained a cash float of $250 in the till.
Additional information:
i. Due to an oversight the last quarter’s rent due on 1 October 1992 was not paid until
January 1993.
ii. Selling prices were fixed by marking up the goods by 40% on cost price.
iii. Business rates of $1000 had been paid on 5 October 1992 to cover the period 1
October 1992 until 31 March 1993.
iv. It was estimated that Adbel owed $1 800 for electricity and an accountant’s fee of
$220 at 31 December 1992.
v. It was decided to depreciate the fixtures and equipment by $6 670.
vi. Creditors for purchases were $6 250 at 31 December 1992.
vii. Trade debtors amounted to $38 000 at the year ended 31 December 1992 and a
provision for doubtful debts of 5% was to be established at that date.
viii. Closing stock was valued at cost at $15 000.
After preparing Adbel’s final accounts for the year ended 31 December 1992 the accountant
suggested he should consider converting his business into a private limited company.

Required
a) A Income statement for the year ended 31 December 1992 {14}
b) A statement showing the calculation of Adbel’s drawings {4}
c) A Statement of financial position as at 31 December 1992. {14}

12 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 12

Brian Mills and Beryl Smart had been in partnership for many years. Accounts were prepared
to 30 April. It was decided that the partners would retire on 30 April 2012 and the business
was sold to Chipperfield Ltd.

The partnership's statement of financial position at 30 April 2012 was as follows:

$ $

Non-current assets

Property 85 000

Fixtures and fittings 27 500

Plant and machinery 14 750

127 250

Current assets

Inventories 28 800

Trade receivables 10 950

Bank 5 450 45 200

Total assets 172 450

Current liabilities

Trade payables 13 950

Non-current liabilities

Loan from Brian Mills at 8% per annum 15 000

Loan from Beryl Smart at 6% per annum 10 000 25 000

Net assets 133 500

Capital accounts

Brian Mills 76 000

Beryl Smart 57 500 133 500

13 | P a g e T I N O F A M B A N E V A N O F A M B A
Chipperfield Ltd’s statement of financial position at 30 April 2012 was as follows:

$ $

Non-current assets

Property 145 000

Fixtures and fittings 57 750

Plant and machinery 18 750

221 500

Current assets

Inventories 39 450

Trade receivables 12 380

Bank 69 675 121 505

Total assets 343 005

Current liabilities

Trade payables 18 675

324 330

Equity

300 000 Ordinary shares of $0.50 150 000

Share premium 75 000

Retained earnings 99 330

324 330

14 | P a g e T I N O F A M B A N E V A N O F A M B A
Chipperfield Ltd purchased the business on 1 May 2012 for $160 000. The company took
over all of the assets (except the bank account) together with the current liabilities.

The purchase consideration was:

i. 120 000 ordinary shares of $0.50 nominal value issued at a premium of $0.10.
ii. 30 000 6% non-redeemable preference shares of $0.50.
iii. 10% debentures redeemable in 2020 issued so that Brian and Beryl receive the
same interest payments as in the partnership.
iv. The balance paid from the bank account.

The partnership assets were re-valued as follows:

Property 95 000

Fixtures and fittings 24 500

Plant and machinery 12 500

Inventories 27 500

Trade receivables 10 250

REQUIRED

Prepare Chipperfield Ltd’s statement of financial position at 1 May 2012, after the
partnership had been acquired. [22]

15 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 13

Amandeep, Bruce and Chetan have been in partnership trading as Abcan. They share profits
and losses in the ratio 3:2:1 respectively. Gurpreet and Hibo have been in partnership trading
as Gurbo. They share profits and losses equally.

At 31 March 2007 the summarised balance sheets of both businesses were as follows:

Abcan Gurbo

$ $

Premises 100 000 70 000

Machinery 35 000 13 000

Vehicles 78 000 -

Investments at cost 12 000 -

Stock 10 000 5 000

Debtors 14 000 9 000

Balance at bank 8 500 4 000

257 500 101 000

Less Creditors 7 500 6 000

250 000 95 000

Less 8 % Loan from Chetan 30 000 -

220 000 95 000

Capital accounts

Amandeep 100 000

Bruce 70 000

Chetan 50 000

Gurpreet 50 000

Hibo 45 000

220 000 95 000

16 | P a g e T I N O F A M B A N E V A N O F A M B A
The partners agreed to form a limited company, ABCOGH Ltd, to take over both businesses.
All Abcan’s assets were transferred to ABCOGH Ltd with the exception of three vehicles,
investments, debtors and balance at bank.

The agreed values of assets taken over by the company are:

Abcan Gurbo

$ $

Premises 170 000 100 000

Machinery 30 000 10 000

The remaining vehicles 40 000 -

Stock 9 000 5 000

The purchase consideration for Abcan was $240 000 as follows:

i. 57 000 7 % preference shares of $1 each to be distributed in profit sharing ratios;

ii. sufficient 6% debenture stock to give Chetan the same return as he had received on
his loan to the partnership;
iii. the balance as ordinary shares of $1 at a premium of $0.30 per share distributed to the
partners in proportion to their capital account balances at 31 March 2007.

Abcan collected $12 900 cash from debtors. Creditors accepted $7100 in full settlement of
amounts due to them.

The three vehicles which have been used by the partners were taken over by them as follows:

Partner Agreed takeover price

Amandeep 10 000

Bruce 7 500

Chetan 7 800

The investments at cost were purchased by Bruce at an agreed value of $13 400.

17 | P a g e T I N O F A M B A N E V A N O F A M B A
The purchase consideration for Gurbo was $134 000 as follows:

i. 43 000 7 % preference shares of $1 each to be distributed in profit sharing ratios;

ii. the balance as ordinary shares to be shared equally.

Costs involved in dissolving the Abcan partnership amounted to $6400; costs to dissolve the
Gurbo partnership were $3100. Gurbo collected $7000 cash from debtors. Creditors were
paid the amounts due to them.

REQUIRED

a. Prepare partnership capital accounts at 31 March 2007 for both businesses to show the
closing entries in both sets of partnership books of account. [27]

It was agreed that the issued ordinary share capital would be held as follows:

Amandeep 30%

Bruce 10%

Chetan 20%

Gurpreet 20%

Hibo 20%

It was further agreed that the transfer price of any ordinary shares would be $1.30 per share.

REQUIRED

b. Calculate the number of ordinary shares received by each partner. [3]

c. Calculate the amounts of cash payable or receivable by each shareholder to achieve the
required shareholding. [3]
d. Prepare a balance sheet for ABCOGH Ltd at 31 March 2007 immediately after
incorporation. [5]
e. Explain briefly one possible reason why the partners decided to change their business
into a limited company. [2]
[Total: 40]

18 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 14

The Statements of financial position of Power plc showed the following

At 30 April 2011 At 30 April 2010

$000 $000 $000 $000 $000 $000
Non-current asset
Intangible
Patents 125 150

Tangible 3 430 3 173

3 555 3 323
Current assets
Inventory 124 106
Trade receivables 78 82
Cash and cash equivalents 58 -
260 188

Current liabilities
Trade payables 63 56
Taxation 28 24
Interest 4 14
Cash and cash equivalents - 95 42 136
165 52
3 720 3 375
Non-current liabilities
10% Debentures 2028 300 ----
3 420 3 375

Equity
Ordinary share of $1 each 2 000 1 000
Share premium 250 1 000
Revaluation reserve ---- 250
Retained earnings 1 170 1 125
3 420 3 375

Additional information

1. The income statement for the year ended 30 April 2011 showed interest payable of
$32 000 and taxation of $28 000. Dividends paid during the year amounted to
$30 000.

2. A bonus issue was made during the year which doubled the number of ordinary shares
in issue. An issue of debentures also took place.

19 | P a g e T I N O F A M B A N E V A N O F A M B A
 3. At 30 April tangible non-current assets comprised:
2011 2010
$000 $000

Land at valuation 1 600 1 600

Buildings
Cost 1 200 1 200
Accumulated depreciation 168 144
1 032 1 056

Plant and equipment

Cost 1 125 729
Accumulated depreciation 327 212
798 517

4. During the year plant which had cost $92 000 was sold for $20 000. Depreciation of
$75 000 had been provided on plant.

REQUIRED

a) Calculate, for the year ended 30 April 2011,

i. The profit for the year attributable to equity holders [3]

ii. The profit from operations [4]

b) Prepare a statement of cash flows in accordance with the provisions of IAS 7 for the
year ended 30 April 2011. [25]

c) State two differences between an income statement and a statement of cash flows.[4]

d) i. Identify the reserves the directors selected to make the bonus issue. [2]

ii. Explain a reason for the selection. [2]

[Total: 40]

20 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 15

David is a sole trader. He provides the following financial information in respect of his
business.
Income statement for the year ended 31 December 2012
$000
Sales 3 380
Cost of sales (2 000)
Expenses (1 200)
Profit for the year 180

Statements of financial position at:

31 December 2011 31 December 2012
$000 $000 $000 $000
Non-current assets
Freehold land 2 000 3 500
Plant and machinery at cost 900 1020
Less: depreciation (500) (470)
Net book value 400 550
2 400 4 050
Current assets
Inventory 310 320
Trade receivables 240 210
Cash and cash equivalents 10 560 - 530
2 960 4 580
Current liabilities
Trade payables 200 160
Bank overdraft - 530
2 760 3 890
Non-current liability – loan 500 350
Net assets 2 260 3 540

Additional information

1. During the year the land was revalued by a professional valuer.

2. During the year Winston purchased new plant at a cost of $200 000. He also
sold some plant that had a net book value of $20 000 and had been depreciated
by $60 000. This resulted in a loss on disposal of $2000.

REQUIRED

a. Calculate Winston’s drawings for the year ended 31 December 2012. [4]

b. Prepare a statement of cash flows for the year ended 31 December 2012. [16]

c. Explain why Winston has an overdraft at the end of 2012, despite making a profit
for the year. [5]

21 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 16
Simba, a retailer whose financial year ends on 31 May 2015, failed to check his
inventory until 8 June 2015. At that date his inventory at cost was valued at $72 200.
Simba’s mark up is 30% on cost.

During the first ten days of June, the following transactions took place;

(i) Purchases of goods for resale 21 200

(ii) Purchases returns 515
(iii) Sales 25 740
(iv) Sales returns ( at selling price) 273
(v) Goods taken for personal use, at cost 700

After taking stock, Simba discovered that the following items had
been included in the valuation at 8 June:

(vi) A parcel of stock which had been water –damaged. This had been on
sale for $390 but was now worthless.
(vii) Stock which cost $1 200 but was now out of fashion and would have to
be sold for $400 less than cost.
(viii) Goods costing $950 which Simba had acquired on a sale or return
basis. He had not decided whether or not to keep them.
(ix) Goods, sold during May for $1 560, which were awaiting collection by
a customer.

Required

(a) The value of inventory at cost, at 31 May 2015. [13]

(b) What is the basis for stock valuation [3]

22 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 17

The annual stock taking of Square Deals Limited, retailers, did not take place on 30
September 1997 owing to staff illness.

The company’s books and records for the year ended 30 September 1997 reveal :

1. Sock at 1 October 1996, at cost, of $17 800.

2. Purchases of $165 000.
3. Purchases returns of $8 500.
4. Sales of $182 000.
5. Sales returns of $3 600.
6. In July 1997, stock costing $10 000 was stolen. As the company’s insurance did not
fully cover the loss, the amount received from the insurance company in full
settlement of the loss claim was only $4 500.
7. In August 1997 a quantity of stock which had cost $3 700, was found to be of no
value and therefore destroyed.
8. The company earns a gross profit of 35% on all sales.
9. In September 1997, goods costing $6 500 were sent on a sale or return basis to
Thomas Strong. 90% of these goods were sold by 30 September 1997 and these were
additional to the sales given in 4. above.
Thomas Strong receives from Square Deals Limited, a commission of 10% on the
selling price of all sales.

REQUIRED

(a) Calculate
i. The company’s Stock at 30 September 1997; [8]
ii. The company’s Gross Profit for the year ended 30 September 1997; [8]
iii. The amount of Commission payable to Thomas Strong on 30 September 1997.
[3]

(b) i. Explain briefly why stocks in annual accounts are usually valued ‘at cost’. [3]
ii. State an alternative to cost for stock valuation and explain when this
alternative method would be used. [3]

9364/1 W97 CAMBRIDGE

23 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 18

Adbel Ltd, a firm of wholesalers ,has an accounting year ended 30 April 1990.at the end of
April each year the storekeeper carries out stocktaking to ascertain the closing inventory
figures for the final accounts. However, this year he was suddenly taken ill ,and there was no
one else available who could understand the inventory records .Eventually stock is counted
on 14 may 1990,and is valued at 98 370.

The following information concerning inventory movements is available:

i. (a) The accounts department confirms that, during the period 1-14 May 1990, invoices
totaling $40 698 have been sent to customers. This figure includes carriage on
sales at 5%; $13 860 of goods were dispatched before 1 May.

(b) It is also known that credit notes have been issued to customers who returned
goods selling price $1 250 of which $960 relates to the period 1-14 May. The
1
firm’s mark up is 33 3 %.
ii. (a) The purchases department confirms that all orders already send to suppliers for
delivery during 1-14 May were goods totaling $22 890. However, this includes
goods list price $3 750 on which a trade discount of 20% is given, and orders for
$5 840 of goods which have not yet been received.

(b) It was noticed on May that one consignment of goods was of a different grade
from that ordered and these goods, invoiced by the supplier at $740 were made
from goods delivered between 1-14 May.

iii. The sales department borrowed inventory selling price $6 400 on 28 April for display
at an exhibition in which the firm is taking part. This has already helped to attract
orders of $12 500 for the firm’s products, although none of these goods have yet been
sent out or invoiced.

iv. It is also known that goods costing $1 200 were sent to a customer on a sale or return
basis. Of these, the customer has marked part of the consignment up by 25% and sold
it for $850 on 25 April, and returned the rest to Adbel’s inventory on 3 May.

v. It is discovered that the inventory has been valued using FIFO principles, whereas the
firm usually uses the LIFO method. The difference is $1 450 at a time when the prices
of similar inventories are rising.

Required

a. A detailed calculation of the closing inventory value for the final accounts. {20}

24 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 19
Musendo Ltd is a wholesale business that prepares its final accounts on 30 June every year.
The company has suffered serious employee problems which caused annual stocktaking to be
delayed and then carried out on 21 July 1992. The stocktake was not performed with its usual
efficiency.
At the conclusion of the stocktake the closing inventory figure was $23 790. The outcome of
this figure produced the following results at 30 June 1992:
$
Gross profit 157 000
Net profit 31 560
Net current assets 24 540
The management felt it was important that the correct closing inventory figure should be
determined, so a firm of expert stocktakers was engaged.
After a thorough investigation of the inventory and related records the following records were
revealed.:

i. Some inventory was found to be obsolete and was scrapped. This inventory cost $700
when purchased in January 1985.

ii. On 10 June 1992 goods costing $450 have been sent to Manu Mugova on a sale or
return basis. The customer had bought some of these goods immediately at an invoice
price of $180. No goods on a sale or return basis have been included in the closing
inventory.

All goods have a mark up of 20%

iii. Unused advertising material worth $1 120 had been incorrectly included in the
inventory of goods valuation.

iv. Carriage inwards relating to unsold inventory amounting to $120 had been incorrectly
debited to carriage outwards.

v. After checking the individual inventory sheets it was found that two were undercast
by $100 and $40 respectively and one was overcast by $60.

vi. The trading transactions that took place between 30 June 1992 and 21 July 1992 were:

$
Sales 2 970
Sales returns 480
Purchases 4 200
Purchases returns 340

The figures were used in the inventory calculations at 21 July 1992 but otherwise
were correctly entered in the accounts as transactions relating to the year 1992/93.

Required
a. A computation of the correct inventory value at 30 June 1992.
b. Statements to show the correct Gross and Net Profits for the year ended 30 June 1992
and the correct Net Current Assets at that date.

25 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 20

On 31 March 2016, the accountant of Shumi Power Ltd provided the following balances:

Debit Credit
$000 $000
Sales 900
Cost of sales 490
Operating expenses 30
Interest paid 10
Ordinary shares of $0,75 each 750
8% Preference shares of $1 each 100
7,5% Debentures 200
Interim ordinary dividend paid 4

Notes
1. The market price of each ordinary share was $1,50.
2. Corporation tax charged for the year was $22 000.
3. Ordinary dividends of $0,15 per share was paid.

Required
a. Prepared an Income Statement together with a Profit and Loss Appropriation Account
for the year ended 31 March 2016. [8]

b. Calculate, correct to two decimal places, the following ratios for the year ended 31
March 2016:

i. Net profit percentage

ii. Interest cover
iii. Earnings per share
iv. Price earnings ratio
v. Dividend cover
vi. Dividend yield [12]

c. i. How can a company use ratios to assess its own performance? [3]

ii. Why is return on capital employed an important measure of performance of a

company? [2]

26 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 21

The directors of Dunmore plc are preparing the end of year financial statements including the
notes to the accounts.
The following information is available at 1 January 2017:
$
Ordinary share capital (shares of $2 each) 2 000 000
Share premium 300 000
Revaluation reserve 400 000
General reserve 100 000
Retained earnings 1 500 000

During the year ended 31 December 2017 the following took place:

1. On 1 June an interim dividend of $0.20 per ordinary share was paid.

2. On 1 October an issue of 500 000 ordinary shares was made at $2.40 per share to raise
money to purchase an additional factory.

3. On 1 November there was a rights issue of 2 shares for every 5 currently held at $2.25.
The rights issue was necessary to fund the unexpected costs on the purchase of the
factory. The issue was fully subscribed.

4. On 1 December there was a bonus issue of 4 shares for every 10 held on that date. The
reserves were maintained in their most flexible form.

On 31 December 2017 the finance director informed the other directors that:

1 The profit from operations for the year was $520 000.
2 Finance charges of $64 000 had been paid during the year.
3 The end of year tax liability on profits had been calculated as $93 000.
4 There had been a transfer to the general reserve of $47 000.
5 A final dividend of $0.10 per ordinary share had been proposed.

Required
(a) State three uses of the notes to the accounts within the financial statements. [3]
(b) Prepare the statement of changes in equity for the year ended 31 December 2017. [15]

27 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 22
A Social Club provides activities for the elderly. It also provides them with meals and
organises coach trips.
The ledger accounts of the club for the year ended 31 December 2017 included the following:

Subscription account
Details $ Details $
Balance b/d 400 Balance b/d 100
Income & expenditure account 26 300 Bank 25 800
Balance c/d 50 Irrecoverable debts 250
Balance c/d 600
26 750 26 750

Fixtures and fittings account

Details $ Details $
Balance b/d 12 000 Balance c/d 15 300
Bank 3 300
15 300 15 300

Provision for depreciation of fixtures and fittings account

Details $ Details $
Balance c/d 3 930 Balance b/d 2 400
Income & expenditure account 1 530
3 930 3 930

The following information was also available.

1. The club owned its own premises which had an original cost of $100 000. These were not
depreciated.
2. On 1 January 2017 the bank account had a debit balance of $4700 and the accumulated
fund amounted to $114 850.
3. The sale of meals to members during the year amounted to $21 500 and made a profit of
$2600. Inventory of food remained constant at $250. No purchases of food were made on
a credit basis. All receipts and payments for meals were made through the bank account.
4. The club organised two coach trips every month. For each trip it hired a 50-seater coach
(with driver) at a cost of $1000. During 2017 the club sold 620 coach trip tickets for $25
each. All receipts and payments for trips were made through the bank account.
5. Other running costs paid during the year totalled $18 100. These included staff costs.
6. Staff costs of $200 were accrued at the end of the year.

Required
(a) State two differences between a club and a limited company. [4]
(b) Prepare the income and expenditure account for the year ended 31 December 2017. [7]
(c) Prepare the statement of financial position at 31 December 2017. [10]
Additional information
The management committee of the club is considering increasing the price of the coach trip
tickets to members.
(d) Advise the management committee whether or not it should increase the price of the
coach trip tickets. Justify your answer. [4]
28 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 23

The following is an extract from the statement of financial position of X Limited at 31

December 2016.
$
Equity
Share capital ($1 ordinary shares) 400 000
Share premium 20 000
Retained earnings 190 000
Total equity 610 000
Non-current liabilities
8% debentures (2019-2020) 80 000
Current liabilities
Trade and other payables 20 000
Cash and cash equivalents 60 000 80 000
Total liabilities 160 000
Total equity and liabilities 770 000

During the year ended 31 December 2017 the following transactions took place.

1 January 2017 Issue of 80 000 ordinary shares at $1.25 each.

30 June 2017 Rights issue of 3 ordinary shares for every 8 shares held on this date
at an issue price of $1.30. This was fully subscribed.

30 September 2017 Bonus issue of 1 ordinary share for every 6 shares held on this date.

Required

(a) Prepare journal entries to record each of these transactions in the books of account. [6]
(b) Prepare a statement to show the effect that the transactions had on the total equity. [3]
(c) State three uses of a share premium account. [3]
(d) State three reasons why a company may make a bonus issue of shares. [3]
[Total: 15]

29 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 24

Digits Ltd’s Statement of financial position at 30 April 2010 was as follows:

$000
Non-current assets 1 300
Net current assets 740
2 040

Ordinary shares of $1$ 1 200

10% preference shares of $1 300
Share premium account 200
Profit and Loss Account 340
2040

On 1 May 2010, before any further transactions had taken place, it was decided to redeem all
the preference shares at a premium of $0.30. The shares had been originally been issued at
$1.20 per share. In order to provide funds for the redemption, the company issued a further
100 000 ordinary shares at a premium of $0.25.

REQUIRED

Prepare Digits Ltd’s Statement of financial position as it will appear immediately after the
issue of additional ordinary shares and the redemption of the preference share capital. [18]

30 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 25

Larry Ltd’s summarised Statement of financial position (Balance Sheet) at 30 June 2010 was
as follows:
$000
Ordinary shares of $2 each 2 400
10% Preference shares of $2 each 600
Share premium 400
Profit and loss account 680
4 080

Non-current(Fixed) assets 2 600

Net current assets 1 480
4 080

On 1 July 2010, fixed assets were revalued to $2 850 000 and the company decided to redeem
all the preference shares at a premium of $0,60 per share. These shares have been issued at
$2,40 each. In order to provide funds for the redemption, the company issued a further 100
000 ordinary shares at a premium of $0,50 per share.
Required
Larry Ltd’s Statement of financial position (Balance sheet) immediately after the capital
reconstruction.

CONTACT DETAILS

0783-727157 {WHATSAPP} 0774-453126 {CALLS}

FOR SOLUTIONS

31 | P a g e T I N O F A M B A N E V A N O F A M B A