Accounting 9706

A Level
1

1. Sole Trader Final Accounts

The following trial balance was extracted from the books of K. Kelly on 31/12/2005.

Buildings (cost 900,000) 855,000
Delivery Vans (cost 130,000) 60,500
6% Investments 1/6/2005 160,000
Patents (incorporating 3 months investment income) 60,600
5% Fixed Mortgage (including increase of
100,000 received on 1/4/2005) 300,000
Debtors and Creditors 76,500 85,500
Purchases and Sales 650,000 980,000
Stock 1/1/2005 65,700
Commission 20,000
Salaries and general expenses (incorporating suspense) 1EC92,500
Provision for Bad Debts 3,900
Discount (net) 3,600
Rent 12,000
Mortgage interest paid for the first 3 months 3,000
Insurance 7,800
Dividends 6,800
Bank 60,800
Drawings 36,000
Capital 735,000

2,187,600 2,187,600

The following information and instructions are to be taken into account:

(i) Stock at 31/12/2005 at cost was 72,500. No record had been made in the books for goods in transit on
31/12/2005. The invoice for these goods had been received showing the recommended retail selling price
of 7,000 which is cost plus 25%.
(ii) Provide for depreciation on vans at the annual rate of 15% of cost from the date of purchase to the date of sale.
NOTE: On 30/4/2005 a delivery van which cost 35,000 on 31/10/2002 was traded against a new van
which cost 41,000. An allowance of 15,000 was made on the old van. The cheque for the net amount of this
transaction was entered in the bank account but was incorrectly treated as a purchase of trading stock. These were the
only entries made in the books in respect of this transaction.
(iii) The suspense figure arises as a result of the posting of an incorrect figure for mortgage interest to the mortgage
interest account and discount received 700 entered only in the creditors account. The correct interest was entered in
the bank account.
(iv) Patents, which incorporate 3 months investment income, are to be written off over a 5 year period,
commencing in 2005.
(v) Provision to be made for mortgage interest due.
(vi) Provide for depreciation on buildings at the rate of 2% of cost per annum. It was decided to revalue the buildings at
1,200,000 on 31/12/2005.
(viii) Provision for bad debts to be adjusted to 3% of debtors.

You are required to prepare a:

(a) Trading and Profit and Loss account, for the year ended 31/12/2005. (15)
(b) Balance sheet as at 31/12/2005. (15)

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 Accounting 9706
A Level
2

2. Cash Flow Statement

The following are the Balance Sheets of Butler Plc as at 31/12/2004 and 31/12/2005, together with an
abridged Profit and Loss account for the year ended 31/12/2005:
Abridged Profit and Loss Account for the year ended 31/12/2005
Operating profit 140,000
Interest for year (8,000)
Profit before taxation 132,000
Taxation for year (45,000)
Profit after taxation 87,000
Dividends - Interim 21,000
- Proposed 45,000 (66,000)
Retained profits for the year 21,000
Retained profits on 1/12/2005 191,000
Retained profits on 31/12/2005 212,000

Balance Sheets as at 31/12/2005 31/12/2004

Fixed Assets
Land and buildings at cost 825,000 750,000
Less accumulated depreciation (95,000) 730,000 (80,000) 670,000
Machinery at cost 400,000 470,000
Less accumulated depreciation (202,000) 198,000 (180,000) 290,000
928,000 960,000
Financial Assets
Quoted investments 130,000 100,000
Current Assets
Stock 220,000 205,000
Debtors 200,000 190,000
Prepaid 12,000 -
Bank - 10,000
Cash 2,000 1,000
434,000 406,000
Less Creditors: amounts falling due within 1 year
Trade creditors 250,000 228,000
Interest due 1,200 -
Taxation 50,000 43,000
Dividends 45,000 34,000
Bank 6,800 -
(353,000) (305,000)
Net Current Assets 81,000 101,000
1,139,000 1,161,000
Financed by
Creditors: amounts falling due after more than 1 year
9% Debentures 75,000 180,000
Capital and Reserves
1 Ordinary shares 830,000 790,000
Share premium 22,000 -
Profit and loss account 212,000 1,064,000 191,000 981,000
1,139,000 1,161,000

The following information is also available:

1 There were no disposals of Buildings during the year but new Buildings were acquired.
2 There were no purchases of Machinery during the year. Machinery was disposed of for 35,000.
3 Depreciation charged for the year on Machinery in arriving at the Operating profit was 60,000.
You are required to:
(a) Prepare the Cash Flow Statement of Butler Plc for the year ended 31/12/2005 including
Reconciliation Statement(s). (24)
(b) Explain why Cash Flow Statements are prepared. (4) P01
(c) Identify a Non Cash expense and a Non Cash gain. (2)
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 Accounting 9706
A Level
3

3. Published Accounts
Ross Plc has an Authorised Capital of 800,000 divided into 600,000 Ordinary Shares at 1 each and 200,000
10% Preference Shares at 1 each. The following Trial Balance was extracted from its books on 31/12/2005.

9% Investments 1/1/2005 200,000
Patent 64,000
Land and buildings (re-valued on 1/7/2005) 860,000
Delivery vans at cost 140,000
Delivery vans accumulated depreciation on 1/1/2005 64,000
Revaluation Reserve 265,000
Debtors and Creditors 200,000 98,300
Purchases and Sales 700,000 1,221,000
Stock 1/1/2005 70,000
Directors Fees 89,000
Salaries and General Expenses 175,000
Discount 6,260
Advertising 23,000
Investment Income 9,000
Profit on sale of Land 80,000
Rent 30,000
Interim dividends 29,000
Profit and Loss Balance 1/1/2005 78,000
6% Debentures including 100,000
issued on 1/8/2005 280,000
Bank 18,440
Issued Capital
300,000 Ordinary Shares at 1 each 300,000
160,000 10% Preference Shares 160,000
2,580,000 2,580,000

The following information is also relevant:

(i) Stock on 31/12/2005 was valued on a first in first out basis at 72,000
(ii) The patent was acquired on 1/1/2003 for 80,000. It is being amortised over 10 years in equal
instalments. The amortisation is to be included in cost of sales.
(iii) On 1/7/2005 the Ordinary shareholders received an interim dividend of 21,000 and the Preference shareholders
received 8,000. The directors propose the payment of the Preference dividend due and a final dividend on Ordinary
shares to bring the total Ordinary dividend to 15c per share.
(iv) On 1/7/2005 land, which cost 100,000 was sold for 180,000. On this date the remaining land and
buildings were re-valued at 860,000. Included in this revaluation is land now valued at 160,000 but which
originally cost 50,000. The re-valued buildings had cost 530,000.
(v) Depreciation is to be provided as follows: Delivery
vans at the rate of 20% of cost.
Buildings at the rate of 2% of cost per annum until date of revaluation and thereafter at 2% per annum
of re-valued figure.
(vi) Provide for debenture interest due, investment income due, auditors fees of 8,400 and taxation 40,000.

You are required to:

(a) Prepare the published profit and loss account for the year ended 31/12/2005, in accordance with the
Companies Acts and appropriate reporting standards. (24)

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 Accounting 9706
A Level
4

4. Interpretation of Accounts

The following figures have been taken from the final accounts of Sawgrass Plc., a manufacturer in the
dairy industry, for the year ended 31/12/2005. The company has an Authorised Capital of 500,000 made
up of 400,000 1 Ordinary shares and 100,000 6% Preference shares.

Trading and Profit and Loss account for

year ended 31/12/2005
Ratios and figures for year ended
31/12/2004
Sales 890,000
Cost of sales (695,000) Interest cover 5 times
Total operating expenses for the year (120,000) Quick ratio 1.2:1
Interest for year (20,000) Earnings per ordinary share 19c
Net Profit for year 55,000 Return on capital employed 4.2%
Proposed dividends (48,000) Market value of ordinary share 2.10
Retained profit for year 7,000 Gearing 35%
Profit and Loss balance 1/1/2005 40,000 cr. P/E ratio 10 years
Profit and Loss Balance 31/12/2005 47,000 Dividend per ordinary share 18c
Balance Sheet as at 31/12/2005

Intangible Assets 150,000
Fixed Assets 320,000
Investments (market value 90,000) 105,000 575,000
Current Assets
(including Stock 45,000 and Debtors 48,000) 98,000
Creditors (28,000)
Proposed dividends (48,000) 22,000
597,000
10% Debentures (2010/2011) 200,000

Issued capital
300,000 Ordinary shares @ 1 each 300,000
50,000 6% Preference shares @ 1 each 50,000
Profit and Loss balance. 47,000 397,000
597,000
Market value of one ordinary share is 2.

You are required to provide answers to the following:

(a) Calculate the following for the year 2005:

1. Interest cover.
2. Earnings per share.
3. Cash sales if the average period of credit given to debtors is 2 months.
4. How long it would take one ordinary share to recoup (recover) its 2005 market price
based on present dividend pay out rate.
5. Dividend yield on ordinary shares for 2004. (10)

(b) Indicate whether the Debenture holders would be satisfied with the policies and state of
affairs of the company. Use available relevant information to support your answer. (5)

(c) What actions would you advise the company to take? (5)

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 Accounting 9706
A Level
5

5. Adjusting Events

The financial position of NSL Ltd on 1/1/2005 is shown in the following Balance sheet:
Balance sheet as at 1/1/2005
Cost Dep. NBV
Fixed Assets
Land & buildings 260,000 25,000 235,000
Equipment 50,000 20,000 30,000
310,000 45,000 265,000
Current Assets
Stock 70,000
Debtors (less provision 5%) 85,500
155,500
Less Creditors: amounts falling due within 1 year
Creditors 61,000
Bank 23,000
Expenses due 3,500 87,500
Net Current Assets 68,000
333,000
Financed by
Capital and reserves
Authorised - 400,000 Ordinary shares @ 1 each
Issued - 290,000 Ordinary shares @ 1 each 290,000
Share premium 14,000
Profit and loss balance 29,000
333,000
The following transactions took place during 2005:

Jan. NSL Ltd. bought an adjoining business which included buildings 120,000, debtors
10,000 and creditors 38,000. The purchase price was discharged by granting the seller
80,000 shares in NSL Ltd. at a premium of 20 cent per share.
Feb. NSL Ltd. decided to re-value land and buildings at 550,000 (which includes land valued
at 70,000) on 28/2/2005.
March Management decided that the provision for bad debts should be raised to 6% of debtors. April
Goods previously sold for 800 were returned. The selling price of these goods was
cost plus 25%. A credit note was issued showing a deduction of 10% of the selling price as
a restocking charge.
May Received a bank statement on May 31 showing a credit transfer received of 4,800 to cover
10 months rent in advance from May 1 and a direct debit of 2,000 to cover fire insurance
for the year ended 31/3/2006.
June A payment of 630 was received from a debtor whose debt had been previously written
off and who now wishes to trade with NSL Ltd. again. This represents
70% of the original debt and the debtor had undertaken to pay the remainder of the debt by
January, 2006.
July A creditor, who was owed 500 by NSL Ltd., accepted equipment, the book value
of which was 400, in full settlement of the debt. The equipment cost 900. Aug.
An interim dividend of 5c per share was paid on all paid up shares.
Oct. Received 40,000 from the issue of the remaining shares.
Nov. Received balance of previously written off bad debt as agreed in June.
Dec. The buildings are to be depreciated at the rate of 2% per annum of value at 28/2/2005. The total
depreciation charge on equipment for the year was 9,700.

You are required to:

Make adjustments for the above events and prepare a revised Balance Sheet on 31/12/2005. (20)

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 Accounting 9706
A Level
6

6. Correction of errors and suspense account

The Trial Balance of M. OMeara, a garage owner, failed to agree on 31/12/2005. The difference was
entered in a Suspense Account and the following Balance Sheet was prepared.

Balance Sheet as at 31/12/2005

Fixed Assets
Premises 700,000
Equipment 60,000
Furniture 20,000 780,000

Current Assets
Stock (including suspense) 91,400
Debtors 35,200
Cash 500
127,100
Less: Current Liabilities
Creditors 54,000
Bank 28,000 82,000 45,100
825,100
Financed by:
Capital 790,000
Add: Net profit 64,100
854,100
Drawings 29,000 825,100
825,100

On checking the books, the following errors were discovered:

(i) A motor car, purchased on credit from D. Foran for 13,000, had been entered on the
incorrect side of Forans account as 1,300 and credited as 3,100 in the Equipment account.
(ii) OMeara had returned a motor car, previously purchased on credit for 14,600 from a supplier.
OMeara entered this transaction as 16,400 on the correct sides of the correct accounts in the ledger.
A credit note subsequently arrived from the supplier showing a restocking charge of 500 to cover the cost
of the return. The only entry made in respect of this credit note was a credit of 14,100 in the creditors
account.
(iii) A debtor who owed OMeara 1,000 sent a cheque for 800 and 150 in cash in full
settlement. This was correctly recorded in the books. However, no entry has been made in the books
of the subsequent dishonouring of this cheque or of the writing off of the remaining debt in full
because of bankruptcy.
(iv) A private debt for 770, owed by OMeara, had been offset in full against a business debt of 820
owed to the firm for car repairs previously carried out. No entry had been made in the books in respect
of this offset.
(v) A cheque for 2,250 paid by OMeara out of a private bank account for 15 months hire of diagnostic
equipment up to 31/3/2006 had not been entered in the books.

You are required to:

(a) Journalise the necessary corrections. (10)

(b) Show the Suspense Account. (4)
(c) Prepare a Statement showing the correct net profit. (7)
(d) Prepare a corrected Balance Sheet. (10)

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 Accounting 9706
A Level
7

7. Marginal and Absorption Costing

A. Harrrington Ltd., produces a single product. The companys profit and loss account for the year
ended 31/12/2005, during which 60,000 units were produced and sold, was as follows:

Sales 720,000
Materials 288,000
Direct labour 144,000
Factory overheads 51,000
Administration expenses 96,000
Selling expenses 68,000 647,000
Net profit 73,000

The materials, direct labour and 40% of the factory overheads are variable costs. Apart from
sales commission of 5% of sales, selling and administration expenses are fixed.

You are required to calculate:

(a) The companys break-even point and margin of safety.

(b) The number of units that must be sold at 13 per unit to provide a profit of 10% of the sales
revenue received from these same units.

(c) The profit the company would make in 2006 if it reduced its selling price to 11, increased
fixed costs by 10,000 and thereby increased the number of units sold to 80,000, with all other
cost levels and percentages remaining unchanged.

B. Cloud Ltd produces 8,000 units of product Z during the year ended 31/12/2005. 6,000 of these units were
sold at 6 per unit. The production costs were as follows:

Direct Materials 0.50 per unit

Direct Labour 0.80 per unit
Variable Overhead 0.50 per unit
Fixed Overhead absorbed 1 per unit

Note: Fixed Overhead incurred during the year were 7,500

You are required to:

(a) Prepare Profit and Loss statements under Marginal and Absorption costing principles.

(b) Outline the differences between Marginal and Absorption costing. Indicate which method should
be used for financial accounting purposes and why.

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 Accounting 9706
A Level
8

8. Flexible Budgeting

Mc Ginley manufactures a component for the motor industry. The following flexible budgets have
already been prepared for 50%, 75% and 85% of the plants capacity:

Output Levels 50% 75% 85%

Units 10,000 15,000 17,000

Costs
Direct materials 140,000 210,000 238,000
Direct wages 110,000 165,000 187,000
Production overheads 73,000 108,000 122,000
Other overhead costs 39,000 54,000 60,000
Administration expenses 28,000 28,000 28,000
390,000 565,000 635,000

Profit is budgeted to be 20% of sales.

You are required to:

(a) (i) Classify the above costs into fixed, variable and mixed costs.

(ii) Separate production overheads into fixed and variable elements.

(iii) Separate other overhead costs into fixed and variable elements.

(iv) Prepare a flexible budget for 95% activity level.

(v) Restate the budget, using marginal costing principles, and show the contribution.

(b) What is an adverse variance? State why adverse variances may arise in Direct material costs.

(c) Explain, with examples, controllable and uncontrollable costs.

End of Question Paper

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