DETACH THIS SHEET AND STAPLE IT TO YOUR SCRIPT. YOU ARE ADVISED TO PHOTOCOPY YOUR SCRIPT BEFORE SENDING THE ORIGINAL IN FOR MARKING.

MARKING & SOLUTIONS REQUEST FORM

AC27 – F3(1) (INT)Exam Identification Code

Your details (MUST be completed by student)

Return address:

Student name: ........................................................................................

Address: ..................................................................................................

.................................................................................................................

Postcode: ................................................................................................

Printed solutions will be sent to you with your marked script

Tick here if you do not want us to mark your exam and fill in your name and address in the space provided above. You'll receive the solutions and a mark of 0%. Alternatively, please contact your local BPP centre quoting the Exam Identification Code.

Company: .........................................................................

Date of birth: ........................................ 19......................

Date of sitting: ..................................................................

Date sent: .........................................................................

BPP Student no*:

London & Home Study students return to: The Marking Dept, BPP Professional Education, Aldine House, 142-144 Uxbridge Road, London W12 8AW Other students return to: Your local Study Centre (addresses can be found at www.bpp.com) Sending your exam to the wrong centre WILL result in a delay to marking your script.

Exam details (completed by BPP Professional Education)

Course Examination 1

ACCA PAPER F3

Financial Accounting (International Stream)

Date received: .........................................................................................

Date returned: .........................................................................................

RESULTS

Marker Score

Marker's comments (completed by BPP Professional Education).........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

.........................................................................................................................................................................................................................

For office use only: Production code: ACF3CE07(INT)

* Failure to provide may result in a delay to the marking of this paper

ACCA Fundamentals Level

Paper F3

Financial Accounting (International Stream)

Course Examination 1

Question Paper

Time allowed 2 hours

ALL FIFTY questions are compulsory and MUST be attempted

Instructions: Please attempt this exam under test conditions and attach the frontsheet complete with your name and address to your script. The completed package should be sent to BPP Professional Education.

Take a few moments to review the notes on the inside of this page titled, ‘Get into good exam habits now!’ before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

2

Get into good exam habits now! Take a moment to focus on the right approach for this exam.

Effective exam technique The following steps are recommended for answering multiple choice and objective test questions.

Step 1 Note down how long you should allocate to each question. For this paper you will be answering 50 questions in 120 minutes, so you will be spending on average 2.5 minutes on each 2 mark question and 1 minute on each 1 mark question. Remember however that you will not be expected to spend an equal amount of time on each of them and that some can be answered instantly but others will take time to work out.

Step 2 Attempt each question. Read the question thoroughly.

Step 3 To answer a multiple choice question read the four options and see if one matches your own answer. Be careful with numerical questions, as the distracters are designed to match answers that incorporate common errors.

Step 4 If you are unsure of your answer.

• Re-read the question to ensure that you understand it and are answering the requirement

• Eliminate any obviously wrong answers

• Consider which of the remaining answers is the most likely to be correct and select the option

Step 5 If you are still unsure, continue to the next question. Likewise if you are nowhere near working out which option is correct after a couple of minutes, leave the question and come back to it later.

Step 6 Revisit questions you are uncertain about. When you come back to a question after a break you often find you are able to answer it correctly straight away. If you are still unsure have a guess. You are not penalised for incorrect answers, so never leave a question unanswered!

3

ALL FIFTY questions are compulsory and MUST be attempted

Please write your answer on lined paper with one answer per line

1 Cadillac Co pays local taxes in 10 equal instalments starting in May each year. The local taxes for the year to 31 March 20X1 were $18,900. The business is preparing its financial statements for the year ended 31 January 20X1.

The prepayment of local taxes at 31 January 20X1 is:

A $630 B $1,260 C $2,850 D $3,420 (2 marks)

2 According to IAS 2, inventory is valued under which basis?

A Historic cost B Lower of cost and net realisable value (1 mark)

3 Which of the following is the best description of the function of the books of prime entry in a standard double entry bookkeeping system?

A Books of prime entry record amounts owed to/from individual suppliers and customers

B Books of prime entry are used to list similar transactions with the totals being posted to the nominal ledger

C Books of prime entry are used to record cash transactions

D Books of prime entry are used to summarise credit transactions (2 marks)

4 A debit balance of $3,000 brought down on A Co's account in B Co's books means that

A A Co is owed $3,000 by B Co B B Co has sold $3,000 of goods to A Co C B Co is owed $3,000 by A Co D A Co has sold $3,000 of goods to B Co (2 marks)

5 Which of the following statements is true?

A The accruals concept plays a pervasive role in the selection of accounting policies, in accordance with IAS 1.

B Accruals bear no relation to the normal costs included in an income statement and purely represent payments made in advance for services.

C Prepayments are a credit balance in the balance sheet and show payments made in advance. (1 mark)

6 Which of the following statements is incorrect?

A If the trial balance (list of account balances) does not balance an error must have been made B The opening inventory balance is included in the trial balance C Proprietor's drawings are shown on the trial balance D The closing inventory balance is included in the trial balance (2 marks)

4

7 If a purchase return of $130 has been wrongly entered on the debit side of the sales returns account, but correctly entered in the supplier's account, the totals on the trial balance would show

A The debit side to be $260 more than the credit side B The debit side to be $130 more than the credit side C The debit side to be $130 less than the credit side D The debit and credit sides to be equal in value (2 marks)

8 Stingray Co has opening trade accounts payable of $24,183 and closing trade accounts payable of $34,655. Purchases for the period totalled $254,192 ($31,590 relating to cash purchases).

What were total payments recorded in the payables control account for the period?

A $243,710 B $233,084 C $212,130 D $264,674 (2 marks)

9 A business sells a non-current asset for $55,000. The asset originally cost $100,000 and accumulated depreciation is $45,000. What is the profit or loss on disposal?

A $10,000 profit B No gain or loss C $10,000 loss (1 mark)

10 Which one of the following occurrences might explain the existence of a credit balance on an individual trade receivable's account?

A The bookkeeper failed to make a posting from the returns inwards books to the receivables ledger

B The bookkeeper failed to post an invoice from the sales day book to the receivables ledger

C The customer took advantage of a settlement discount and paid less than the full amount invoiced

D The bookkeeper posted a total from the returns inwards book to the receivables control account twice by mistake (2 marks)

11 The entries required to correctly reflect inventory and cost of sales in the financial accounts for the first year of trading are:

A Debit inventory (B/S) - closing inventory Credit trading a/c - closing inventory Debit trading a/c - opening inventory Credit inventory (B/S) - opening inventory B Debit trading a/c - closing inventory Credit inventory (B/S) - closing inventory Debit inventory (B/S) - opening inventory Credit trading a/c - opening inventory C Debit inventory (B/S) - closing inventory Credit payables - closing inventory D Debit inventory (B/S) - closing inventory Credit trading a/c - closing inventory

(2 marks)

12 A company's bank statement shows an overdraft of $2,605 at 31 March 20X1. The statement includes bank charges of $46 which have not yet been recorded in the company's cash book. The statement does not include cheques for $780 paid to suppliers, nor an amount of $320 received from a customer; both of these amounts appear in the bank statement for April 20X1.

5

If the company prepares a balance sheet at 31 March 20X1, the figure for the bank overdraft should be

A $2,748 B $2,794 C $3,065 D $3,660 (2 marks)

13 Cameron had receivables totalling $55,000 at the year end 30 June 20X1. He has decided to write off two debts of $1,300 and $2,150 respectively and to make a specific allowance for $5,600. The company's policy is to make a general allowance of 2%. The balance on this allowance at 1 July 20X0 was $8,540.

What is the closing receivables allowance?

A $1,131 B $6,519 C $6,619 D $15,159 (2 marks)

14 A company receives news that a major customer has been declared bankrupt. His debt had been allowed for earlier in the year. The entries now required are

A Debit allowance for receivables, credit trade receivables B Debit irrecoverable debts written off, credit trade receivables C Debit irrecoverable debts written off, credit allowance for receivables D Debit allowance for receivables, credit irrecoverable debts written off (2 marks)

15 Octopus bought a car on 1 January 20X0 for $20,000 and decided to depreciate it at 30% per annum on a reducing balance basis. It was disposed of during the year ended 31 December 20X2 for $12,000. Octopus does not charge depreciation in the year of disposal.

What is the net effect on the income statement for y/e 31 December 20X2?

A Increase of $2,200 B Decease of $2,200 C Increase of $12,000 D Decrease of $12,000 (2 marks)

16 Clanger & Sons have an accounting year ended 31 December 20X1. At that date the balance on the receivables ledger control account was $65,000, but the total of the individual accounts in the receivables ledger came to $63,620.

Upon investigation the following facts were discovered:

1 The sales day book total for week 49 had been overcast by $300.

2 A credit balance of $210 on Cabbage's accounts in the receivables ledger had been incorrectly treated as a debit entry, when balancing off his account.

3 A payables ledger contra of $1,500 has been entered in Sprout's account in the receivables ledger but no other entry had been made.

The adjusted balance on the receivables ledger control account is

A $62,780 B $64,700 C $63,620 D $63,200 (2 marks)

6

17 Which of the following would cause an error in only the receivables ledger control account when carrying out a control account reconciliation?

A Miscasting the total of the sales day book B Transposition error in filling in the receivables ledger from the cash book C Customer cheque dishonoured by bank D Entry omitted from the sales day book (2 marks)

18 Trade receivables of Aztec Co settle their accounts according to the following pattern:

20% pay in the month of sale and are granted a 5% settlement discount by Aztec Co.

40% pay in the month following the month of sale and are granted a 2½% settlement discount.

40% pay two months after the date of sale and receive no discount.

Recent sales levels have been as follows: $ March 20X1 24,000 April 20X1 28,000 May 20X1 35,000

The amount of cash received from credit customers in May 20X1 is

A $26,090 B $26,220 C $27,170 D $32,040 (2 marks)

19 Demolition Co purchases a machine for $15,000. After incurring transportation costs of $1,300 and spending $2,500 on installing the machine the company are disappointed when it breaks down and costs $600 to repair. Depreciation is charged at 10% per annum with a full year's charge in the year of acquisition.

At what net book value will the machine be shown in Demolition's balance sheet at the year end?

A $10,080 B $16,920 C $17,460 D $13,500 (2 marks)

20 A gas accrual for $400 was treated as a prepayment in a sole trader's income statement. As a result the profit was

A Understated by $800 B Understated by $400 C Overstated by $800 D Overstated by $400 (2 marks)

21 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 Purchased 1,000 @ $5 each 5/12 Sold 700 @ $7.50 each 12/12 Purchased 800 @ $6.20 each 15/12 Purchased 300 @ $6.60 each 21/12 Sold 400 @ $8.00 each 28/12 Sold 500 @ $8.20 each

7

Which of the following combinations is correct for closing inventory valuation?

FIFO AVCO A $4,460 $4,095 B $3,220 $4,095 C $3,220 $2,740 D $4,460 $2,740 (2 marks)

22 A business has sales of $100,000 during a year. Opening inventory was $15,000 and purchases were $75,000. If the gross profit was $15,000, what was closing inventory?

A $5,000 B $10,000 (1 mark)

23 A business has received telephone bills as follows:

Date received Amount of bill Date paid $ Quarter to 30 November 20X0 December 20X0 739.20 January 20X1 Quarter to 28 February 20X1 March 20X1 798.00 April 20X1 Quarter to 31 May 20X2 June 20X1 898.80 June 20X1 Quarter to 31 August 20X3 September 20X1 814.80 October 20X1 Quarter to 30 November 20X4 December 20X1 840.00 January 20X2 Quarter to 28 February 20X5 March 20X2 866.00 March 20X2

In the income statement for the year ended 31 December 20X1 the charge for telephone should be

A $3,407.60 B $3,374.27 C $3,250.80 D $3,463.60 (2 marks)

24 International Financial Reporting Standards are set by which body?

A IASB B IASCF (1 mark)

25 Anthony's business bank statement showed an overdrawn balance of $5,250 on 31 October 20X1. When this was reconciled to the cash book, the following differences were noted: $ Unpresented cheques 1,070 Uncleared lodgements 1,240 Standing order for insurance premium not entered in the cash book 890 Overdraft interest not recorded in the cash book 80 Credited in error to Anthony's account by the bank 300

What was the original balance on Anthony's cash book at 31 October 20X1?

A $4,450 credit B $4,410 credit C $2,940 credit D $1,670 debit (2 marks)

8

26 Which one of the following would not be classified amongst current liabilities in the accounts of a business?

A Accrued interest charges B An allowance for receivables C Bank overdraft D Trade payable (2 marks)

27 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 a bill for rent payable by the business D The payment of rent by the business (2 marks)

28 Which of the following conditions would preclude any part of the development expenditure to which it relates from being capitalised?

A The development is incomplete B The benefits from the completed development are expected to be less than its cost C Funds are unlikely to be available to complete the development.

(1 mark)

29 Cataract Co purchases a machine for which the supplier's list price is $28,000. Cataract pays $23,000 in cash and trades in an old machine which has a net book value of $8,000. It is the company's policy to depreciate such machines at the rate of 10% per annum on cost.

What is the net book value of the machine after one year?

A $18,000 B $25,200 C $20,700 D $22,200 (2 marks)

30 A company buys a machine on 31 August 20X0 for $22,000. It has an expected life of seven years and an estimated residual value of $1,000. On 30 June 20X4 the machine is disposed of for $9,000. The company's year end is 31 December. Its accounting policy is to charge depreciation using the straight line method with a proportionate charge in the years of acquisition and disposal.

Calculate the profit or loss on disposal of the machine which will appear in the income statement for the year ended 31 December 20X4.

A Loss of $1,750 B Loss of $1,500 C Loss of $2,000 D Profit of $1,500 (2 marks)

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

Direct costs of materials and

labour

Production overheads incurred

Expected selling and distribution

overheads

Expected

selling price $ $ $ $ Inventory category 1 2,470 2,100 480 5,800 Inventory category 2 9,360 2,730 150 12,040 Inventory category 3 1,450 850 190 2,560 13,280 5,680 820 20,400

9

At what amount should finished goods inventory be stated in the company's balance sheet?

A $13,280 B $18,730 C $18,760 D $19,650 (2 marks)

32 In a period of rapid inflation, which method of valuing inventory issues will give the lower gross profit figure?

A FIFO B AVCO (1 mark)

33 The total of the balances in a company's receivables ledger is $800 more than the debit balance on its trade receivables control account. Which one of the following errors could by itself account for the discrepancy?

A One receivables ledger account with a credit balance of $800 has been treated as a debit balance

B Settlement discounts totalling $800 have been omitted from the nominal ledger

C The sales day book has been undercast by $800

D The cash receipts book has been undercast by $800 (2 marks)

34 Which of the following best explains what is meant by 'capital expenditure'.

Capital expenditure is expenditure:

A On non-current assets, including repairs B On expensive items, ie those over $12,000 C Relating to the acquisition or improvement of non-current assets. D On items relating to share capital (2 marks)

35 Vernon Vinyl purchased some new equipment on 1 April 20X1 for his mobile disco for $6,000. The estimated scrap value of the new equipment in 5 years' time is estimated to be $400. Vernon charges depreciation on the straight line basis, with a proportionate charge in the period of acquisition.

What should the depreciation charge for the plant be in Vernon's accounting period of twelve months to 30 September 20X1?

A $560 B $1,120 C $600 D $1,200 (2 marks)

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

A Each month an equal amount of cash is transferred into petty cash B The exact amount of 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 (2 marks)

10

37 When performing a reconciliation between the bank statement and a business cash book, which of the following would require an entry into the cash book?

1. Deposits credited after date 2. Direct debit on bank statement only 3. Bank charges 4. Bank error 5. Cheque presented after date

A 2, 3 and 4 B 2 and 3 C 1 and 5 D All of them (2 marks)

38 The inventory counters of Crocodile Co, inform you that there are 6,000 items of product A, and 2,000 of product B, these cost $10 and $5 respectively. They also tell you the following information:

Product A – 500 of these were found to be defective and would be sold at a cut price of $8.

Product B – 100 of these were also to be sold for $4.50 with selling expenses of $1.50 each.

What figure should appear in Crocodile's balance sheet for inventory?

A $64,000 B $63,800 C $68,800 D $63,300 (2 marks)

39 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 (1 mark)

40 A business held the following goods in inventory as at 31 December 20X0:

Manufacturing costs incurred

Costs to complete

Expected selling & distribution costs

Expected selling prices

$ $ $ $ Type A 1,700 1,000 140 2,900 Type B 2,200 1,200 170 3,400 Type C 2,500 500 170 3,800 6,400 2,700 480 10,100

At what total value should this inventory be shown in the company's balance sheet?

A $6,860 B $6,230 C $6,400 D $9,260 (2 marks)

11

41 As at 31 December 20X1 a company's bank statement shows an overdraft of $1,500. The statement includes bank charges of $30 which have not yet been recorded in the company's cash book. On 29 December 20X1 the company had paid a cheque of $500 to a supplier and banked $200 received from a trade receivable; neither of these items appear in the bank statement.

The bank balance on the company's balance sheet at 31 December 20X1 should be

A $1,800 credit B $1,530 credit C $1,200 credit D $1,200 debit (2 marks)

42 Which of the following are books of prime entry?

(1) Petty cash book (2) Journal book (3) Receivables ledger (4) Register of property, plant and equipment

A (1) only B (1) and (2) and (4) C (1) and (2) D All of the above (2 marks)

43 Derek, a sole trader, 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.

What is the effect of the above on the income statement for the year ended 31 December 20X0?

A Loss of $1,300 B Profit of $5,000 C Profit of $1,300 D Loss of $5,800 (2 marks)

44 A business received the following invoice from one of its suppliers of inventory.

Invoice 7035 Date 20 December 20X0

$ Goods 100 @ $10 1,000 Less: trade discount (50) 950 A further discount of $50 will be allowed if payment is received within 14 days.

12

What entry should be made on receipt of this invoice? (Ignore sales tax)

Debit Credit $ $ A Purchases 900 Trade payables 900

B Purchases 950 Trade payables 950

C Purchases 1,000 Discount received 50 Trade payables 950

D Purchases 950 Discount received 50 Trade payables 900

(2 marks)

45 On 1 December 20X0 Gilbert's payables ledger control account had a balance of $3,200 (credit). During the month the following transactions occurred:

$ Payments to suppliers 2,500 Cash purchases 300 Purchases on credit 3,300 Returns outwards 750

What is the balance on the control account as at 31 December 20X0?

A $2,850 B $3,250 C $3,550 D $4,350 (2 marks)

46 Enigma has reduced its allowance for receivables by $600.

Which of the following statements is correct?

A Net profit increases by $600 B Gross profit increases by $600 (1 mark)

47 The trial balance of Putney and Co as at 31 May 20X0 includes the following:

$ $ Receivables 40,235 Allowance for receivables (a percentage based on past experience)

2,050

Subsequently a review of the receivables ledger reveals the following:

Debts totalling $985 are considered irrecoverable and are to be written off. There is some doubt over the Recoverability of another receivable, Carter, owing $1,400. The company wishes to make a specific allowance for this. A percentage allowance of 2% of good debts is to be maintained.

13

What irrecoverable debt expense will the income statement for the year ended 31 May 20X0 include?

A $1,092 B $2,385 C $985 D $1,140 (2 marks)

48 On 1 April 20X0 a sole trader paid $3,080 in rent 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 rent in her income statement for the year ended 31 December 20X0?

A $2,772 B $2,926 C $3,010 D $3,080 (2 marks)

49 The accounting equation can be rewritten as:

A Assets + profits – drawings – liabilities = closing capital B Assets – liabilities – drawings = opening capital + profit C Opening capital + profit – drawings – liabilities = assets D Assets – liabilities – opening capital + drawings = profit (2 marks)

50 Which of the following statements about intangible assets is correct?

A According to IAS 38, research costs may be capitalised B According to IAS 38, development costs must be capitalised if certain conditions are met C Intangible assets include property, plant and equipment (1 mark)

End of Question Paper

14

Student self-assessment Having completed this exam, take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning

Did you finish too early? Y/N Go back and check your answers, especially those you were unsure of.

Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind move on.

Content

Did you struggle with:

Interpreting the questions? Y/N Learn subject jargon (look at key terms in your Study Text). Read questions carefully. Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Classroom students please contact your tutor for further help. Home Study students please contact ACCA queries for further help (accaqueries@bpp.com).

Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject.

Note here any thoughts on your performance which could help you on the big day.

ACF3CE07(INT)

AC27 – F3(1) (INT)

ACCA Fundamentals Level

Paper F3

Financial Accounting (International Stream)

Course Examination 1

Suggested solutions and guidance

2

Guidance on improving your exam performance To help improve your performance you should focus on these key areas.

1 Terminology This paper tests your understanding of a large number of key terms and definitions. Learning as many of these as you can will help save you time in the exam which you can use to answer questions that require more thought. Your Study Text provides you with assistance by highlighting these terms and definitions.

2 Question spotting Avoid the temptation to question spot or to assume certain areas of the syllabus will be examined in a particular way. Ensure you are able to answer questions across the syllabus in a number of question styles as this will maximise the number of questions that you will be able to attempt successfully.

3 What went wrong? OK, you're not going to get 100% correct, but pay attention when you consistently get certain areas of the syllabus wrong. This is your cue to revise these areas fully, learn from your mistakes, AND NEVER REPEAT THEM!

3

Answers 1 B

$ 9 instalments paid ($1,890 × 9) 17,010 Charge for 10 months ($18,900 × 10/12) (15,750) Prepayment 1,260

2 B

3 B

4 C The balance represents the outstanding amount ie sales less cash received.

5 A Prepayments are a debit balance in the balance sheet.

6 D Closing inventory is an adjustment to the initial trial balance.

7 A It has effectively been debited twice.

8 C

TRADE PAYABLES

$ $ Bal b/d 24,183 ∴ Payments 212,130 Bal c/d 34,655 Purchases ($254,192 – $31,590) 222,602

246,785 246,785 Bal b/d 34,665

9 B Net book value is $55,000 ($100,000 – $45,000). So the proceeds are the same as NBV and so there is no gain or loss.

10 B A would cause a debit balance. Note that this is the ledger not the control account.

11 D As it is the first year there will be no opening inventory.

12 C $ Bank balance per bank statement (2,605) OD Unpresented cheques (780) Outstanding lodgements 320 ∴ per balance sheet (3,065)

13 B $ Specific allowance 5,600 2% allowance 919 Closing allowance 6,519

Receivables 55,000 Less irrecoverable debts written off (3,450) Less specific allowance (5,600) 45,950 × 2% = 919

14 A A charge has already been made to irrecoverable debts. The receivable is now being removed from the ledger.

4

15 A

$ 31.12.X0 NBV 14,000 31.12.X1 NBV 9,800 Proceeds 12,000 NBV (9,800) Profit 2,200

16 D RLCA

$ $ B/f 65,000 SDB overcast 300 Contra 1,500 ∴ c/f 63,200 65,000 65,000

17 A The receivables ledger control account is posted from the daybook total but the receivables ledger is posted from the individual daybook entries. Thus this error would only impact the RLCA.

18 C $ May sales (20% × 35,000 × 95%) 6,650 April sales (40% × 28,000 × 97½%) 10,920 March sales (40% × 24,000 × 100%) 9,600 27,170

19 B $ Cost (15,000 + 1,300 + 2,500) 18,800 Depreciation (10% × 18,800) (1,880) NBV 16,920

20 C Increase profit by 2 × $400.

5

21 A $ $ FIFO 400 @ $6.20 2,480 300 @ $6.60 1,980

4,460 AVCO 200 @ $4 800 1,000 @ $5 5,000 1,200 @ $4.83 5,800 (700) (3,381) 500 2,419 800 @ $6.20 4,960 300 @ $6.60 1,980 1,600 @ $5.85 9,359 (900) (5,264) 700 4,095

22 A Sales are $100,000 and gross profit $15,000. So cost of sales are $85,000. Opening inventory plus purchases total $90,000. So closing inventory must be $5,000 ($90,000 – $5,000 = $85,000).

23 B (2/3 × 798.00) + 898.80 + 814.80 + 840.00 + (1/3 × 866.00).

24 A

25 B CASH BOOK

$ $ Balance c/d 5,380 ∴ Balance b/d 4,410 Standing order 890 Interest 80 5,380 5,380 $

Balance per bank statement (5,250) Less unpresented cheques (1,070) Add uncleared lodgements 1,240 Less bank error (300) Balance per amended cash book (5,380)

26 B An allowance for receivables is disclosed as a deduction from trade receivables.

27 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.

28 C A is clearly nonsense. You capitalise costs during the development and therefore the development is incomplete B is not so clear. It covers the situation where you can capitalise some of the costs, up to

the amount of future revenue but not all. The rest will be written off. C the project will not be completed. No income is therefore likely. On grounds of

prudence the costs will be written off.

29 B 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 asset's NBV is irrelevant.) After one year, the net book value of the new machine is 90% of $28,000 = $25,200.

6

30 B The depreciable amount is $(22,000 – 1,000) = $21,000. This is to be written off over seven years (or 84 months). The monthly depreciation charge is therefore $250.

$ Cost of asset 22,000 Accumulated depreciation (46 months × $250) 11,500 Net book value at date of disposal 10,500 Proceeds on disposal 9,000 Loss on disposal 1,500

31 C In this example, cost includes both direct materials/labour and also production overheads. NRV is expected selling price less expected selling costs.

Cost

NRV

Lower of cost/NRV

$ $ $ Category 1 4,570 5,320 4,570 Category 2 12,090 11,890 11,890 Category 3 2,300 2,370 2,300 18,760

32 B If prices are rising, the closing inventory will be lower if AVCO is used. This will produce a higher cost of sales figure and so a lower gross profit.

33 C The total of sales invoices in the day book is debited to the control account. If the total is understated by $800, the debits in the control account will also be understated by $800. Options B and D would have the opposite effect: credit entries in the control account would be understated. Option A would lead to a discrepancy of 2 × $800 = $1,600.

34 C Repairs are revenue expenses.

35 A Cost of equipment 5

4006,000 −

Depreciation charge for year $1,120 This year 6/12 = $560

36 B The fixed float is known as the ‘imprest amount’.

37 B

38 C Product A: 6,000 × $10 = 60,000 Less: 500 × $2 ($10 – $8) = (1,000) 59,000

Product B: 2,000 × $5 = 10,000 Less: 100 × $2 ($5 – $3) = (200) 68,800

39 B Debit entries decrease income and increase assets.

40 B Cost NRV Lower $ $ $ A 1,700 1,760 1,700 B 2,200 2,030 2,030 C 2,500 3,130 2,500 6,230

7

41 A $ Balance per bank statement (1,500) Less unpresented cheque (500) Add unrecorded lodgement 200 (1,800)

42 C

43 A DISPOSAL

$ $

Cost 20,000 Accumulated depreciation 14,200

Trade in allowance 4,500 ∴ loss 1,300 20,000 20,000

44 B The settlement discount does not apply until payment is made.

45 B PLCA

$ $ Cash 2,500 Bal b/d 3,200 Returns outwards 750 Purchases 3,300 Bal c/d 3,250 6,500 6,500

46 A This $600 reduction will be credited back to the irrecoverable debts expense account and so increase net profit.

47 A Expenses of $1,092 $ $ Irrecoverable debt w/o 985 Specific allowance 1,400 Percentage allowance: Receivables 40,235 Irrecoverable debts w/o (985) Specific allowance (1,400) (37,850) 2% provision c/f 757 Allowance b/f (2,050) Decrease in percentage allowance (1,293) 1,092

48 C $ $3,080 × 9/12 2,310 $3,080 × 100/110 × 3/12 700 3,010

49 D Remember: assets – liabilities = closing capital

50 B

8