SECTION A

ANWSER ALL THE QUESTIONS

1. The Marlboro tobacco company ltd. Balance sheet for the year ended
31st December 2007 and 2008 are as follows:
31st December 2008 31st December 2007
£ (000) £ (000) £(000) £(000) £(000) £(000)
Fixed assets Cost Depn N.B.V Cost Depn N.B.V
Free hold property 1000 1000 850 850
Plant and machinery 780 (320) 460 695 (280) 415
Motor vehicles 400 (185) 215 332 (170) 162
Office computers 60 (30) 30 55 (28) 27
2240 (535) 1705 1932 (478) 1454
Current assets
Stocks 250 222
Debtors 102 107
Cash at bank 54 75
706 404
Current liabilities
Trade creditors 45 68
Taxation 140 86
Proposed dividends 120 100
(305) (254)
Working capital 401 150
2106 1604
Long term liabilities
10% debenture stock (100) (150)
2006 1454
Capital and reserves:
Issued share capital 1000 600
Share premium 30 210
Revaluation reserve 150 -
Asset replacement 250 200
reserve
General reserve 400 300
Retained profit 176 144
2006 1454

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ACCOUNTING ADVANCED LEVEL TEST#1
 Additional information
During the year ended 31st December 2008 the following transactions
took place:
Plant and machinery which cost £12000 was sold for £22000 at a loss
of £3000.
Motor vehicle which had cost £85000 and which had a written down
value of £15000 at the date of sale was sold for £28000.
Office computer equipment which had cost £10000 and on which
depreciation of £5000 had been provided was sold at a loss of £2000.
During the year ended 31st December 2008 a bonus issue was made
using part of the share premium account.
The company then made a rights issue as well at a premium.
There had been no additions of freehold property during the year.
The redemption of 10% debenture stock took place on 1st January 2008.
Dividend proposed was £180000.
Taxation for the year amounted to £132000.

Required:

a. A statement reconciling operating profit to net cash flow from

operating activities. (6)
b. A cash flow statement for the year ended 31st December 2008. ( 10)
c. An analysis of changes bank balance for the year. (4)

HINTS: PROFIT AND LOSS APPROPRIATION ACCOUNT,

REVALUATION RESERVE RULE, MISSING FIGURE TECHNIQUE
ETC.

YOU ARE ADVISED TO SHOW ALL YOUR WORKINGS

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ACCOUNTING ADVANCED LEVEL TEST#1
 2. Sania , Deesha and Saima are in partnership, sharing profits and
losses in the ratio 2:2:1. On 31st may 2008, the balance sheet of the
partnership was as follows:
Details £ £ £
Fixed assets
Free hold land and building 180000
Machinery 160000
Office equipment 15000
Motor vehicles 45000
400000
Current assets
Stock 65000
Debtors 32000
97000
Current liabilities
Creditors 36000
Bank 11000
(47000)
50000
450000
Capital accounts
Sania 200000
Deesha 175000
Saima 75000
450000

The partners have now realised that their capital account balances do
not reflect the following matters which need to be adjusted:
i. Interest on drawings at 6% per annum.
ii. Interest on partner’s capital at 7% per annum.
During the year the partners drew the following amounts, which had been
entered in their capital accounts:
Date 2007 Sania £ Deesha £ Saima £
1 June
st 16000 25000 15000
1st December 9000 - 8000

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ACCOUNTING ADVANCED LEVEL TEST#1
 Partner’s capital account for the purpose of interest calculation is
taken as:
Sania £ Deesha £ Saima £
190000 150000 60000

Saima has decided to retire on 1st June 2008 on the following terms:
I. She would receive £10000 payable by cheque immediately.
II. The freehold land and buildings will be revalued at £350000.
III. Goodwill was to be valued at £200000.
IV. Saima would take the ownership of a partnership vehicle of
£8000.
V. The balance of saima’s capital would be left in the partnership as
loan.
VI. It was decided to write off the goodwill account.

Required;
a. The capital accounts of the three partners, showing in details
the adjustments necessary, and the revised balances of both
at 31st may 2008 and 1st June 2008. (10)
b. The balance sheet of the partnership and Sania and Deesha.
(5)
c. An explanation of why do you think the partners decided to
write off the goodswill (5)

HINTS: REVALUATION ACCOUNT, ADJUSTMENT OF NET PROFIT,

ETC.

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ACCOUNTING ADVANCED LEVEL TEST#1
 SECTION B

ANWSER ANY ONE QUESTION

3.
a. Why is liquidity more important than profitability in the short
term for a new business (3)
b. the following is the data of two firms

Salman khan Ltd. Imran khan Ltd.

£ £
Fixed assets 200000 Fixed assets 150000
Current assets Current assets
Debtors 10000 Debtors 45000
Cash at bank 23000 Stock 100000
Stock 12000 Prepaid expenses 8000
Prepaid expenses 1250 Cash in hand 0
Cash in hand 1200 Current liabilities
Current liabilities Creditors 50000
Creditors 35000 Bank overdraft 34000
Bank overdraft - Long term liability:
Long term liability: 10% debentures 200000
15% debentures 120000 Financed by:
Financed by: Ordinary share capital 200000
Ordinary share capital 200000 Retained earnings 100000
Preference share capital 50000
Retained earnings 34500
Required:

a. By the use of appropriate ratios comment on the following aspects of

the two companies:
i. Profitability. Ii. Liquidity iii. Gearing (3X3= 9)
b. What are the advantages and disadvantages of highly geared
company? (3)

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ACCOUNTING ADVANCED LEVEL TEST#1
4. Gallery tone is club for painters. The members can sell their painting
through exhibitions organised by the club. The financial year ends on
31st December.
The following information is available
1st Jan 2008 £ 31st Dec 2008 £
Picture frames 1000 1000
Equipments 1600 1840
Stock of Paintings at cost 2200 3120
Debtors from paintings sales 200 110
Subscription in arrears 100 80
Subscriptions in advance 40 55
Cash at bank 416 ?
Rent advance 100 70
Electricity owing 60 80
Printing expenses 15 40

Receipts and payments for the year

£ £
Subscription 1100 Purchase of paintings 3000
Sale of painting 5140 Purchase of equipment 400
Sale of raffle tickets 300 Rent 900
Refreshments 440 Electricity 230
Printing 60
Raffle prizes 100
Staff expenses 35
Refreshments 240

Equipment is to be depreciated 10% on reducing balance method.

Required:
a. Prepare income and expenditure account for the year ended 31st
December 2008
b. Balance sheet as at 31st December 2008.

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ACCOUNTING ADVANCED LEVEL TEST#1