accounting mock exam paper 2 answers

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ACCOUNTING SAMPLE PAPER 2 2015 ANSWERS 1 Havisham plc Marking guide Marks PBT Finance costs Depreciation charge Amortisation charge Impairment charge Gain/loss on sale of PPE Gain/loss on sale of intangible assets Movement in inventories Movement in trade receivables Movement in trade payables Tax paid Interest paid Purchase of PPE Purchase of intangibles Proceeds from sales of PPE Proceeds from sales of intangible assets Proceeds from issue of shares Movement in borrowings Dividends paid Opening and closing cash Total available Maximum ICAEW 2015 ½ ½ 2 1 ½ ½ 1 ½ 1 1 1 1 2 1 2 1 1 1 1 ½ 20 16 Statement of cash flows for the year ended 31 May 20X2 £Cash flows from operating activities Profit before tax Investment income Finance costs Depreciation Amortisation (W1) Impairment charge (W1) Gain/ loss on sales of property, plant and equipment Gain/ loss on sales of intangible assets (17,000 –24,000) Movement in inventories (285,550 –430,040) Movement in trade receivables (224,150 –342,700) Movement in trade payables (146,700 –135,900 -13,900) Cash generated from operations 730,040 0 89,600 232,900 21,200 20,000 84,810 (7,000) 144,490) 118,550) 3,100) 905,410 Tax paid (W2) Interest paid (W3) Net cash from/ used in operating activities 236,420) 92,200) 576,790 Cash flows from investing activities Purchase of property, plant and equipment (W4) Purchase of intangible assets Proceeds from sale of property, plant and equipment (127,800 –84,810))Proceeds from sale of intangible assets Interest received Net cash from/ used in investing activities 531,900) 251,340) 42,990 24,000 (716,250) Cash flows from financing activities Proceeds from issue of shares (W5) Movement in borrowings (423,000 +51,000) 567,400+115,600) 75,000))Dividends paid (W6) Net cash from/ used in financing activities 126,800 284,000 (231,640) 179,160 Net increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period ICAEW 2015 39,700) 13,430) 26,270) WORKINGS INTANGIBLES –NBV 1 B/d Purchases 386,900 251,340 Amortisation (bal fig) Disposals Impairment charge C/d 638,240 2 TAX £Cash (bal fig) C/d 3 236,420 201,800 438,220 B/d Statement of profit or loss INTEREST Cash (bal fig) C/d 4 92,200 9,750 101,950 b/d Statement of profit or loss 12,350 89,600 101,950 PPE -COST B/d Purchases Cash (bal fig) 797,500 13,900 531,900 Disposals Depreciation C/d 1,343,300 5 127,800 232,900 982,600 1,343,300 SHARE CAPITAL AND SHARE PREMIUM £C/d (398,200 +312,400) 6 710,600 710,600 B/d (232,800 +351,000) Cash (bal fig) 583,800 126,800 710,600 RETAINED EARNINGS Dividend (bal fig) C/d 3 192,520 245,700 438,220 2 21,200 17,000 20,000 580,040 638,240 A 231,640 534,800 766,440 B/d Profit in period 282,100 484,340 766,440 Drawings decrease capital so they are a debit (B);discount allowed and carriage outwards are expenses so they too are debits (C) and (D).A bank overdraft is a liability so it is a credit (A).LO1F A,C Discount received should have been credited to an statement of profit or loss account and debited to payables. Since both sides of the entry were debits, the debit side of the trial balance would exceed the credit side and a suspense account with a credit balance would be opened (A).Goods returned by a customer should have been debited to sales and credited to receivables. As they were debited to receivables the same situation arises, and a suspense account with a credit balance would be opened (C).SAMPLE PAPER LO2A ICAEW 2015 4 C The transposition error is £17,150 –11,750 =5,400. As the understatement is in the purchase day book total it affects only the control account, which is understated by £5,400 and so should be increased by that amount. SAMPLE PAPER LO2B 5 B An overcast of the total of invoices in the sales day book means that £782 will be debited to the control account but not to the receivables ledger. In both A and C the receivables ledger will be overdebited by (391 ×2);in D both the control account and the ledger will be overdebited by (391 ×2).SAMPLE PAPER LO2B 6 A If the debit side of the trial balance is undercast by £692 this amount is debited in the suspense account. When the cheque payment of £905 was credited to cash it should have been debited to an expense account; instead it was debited to suspense. Thus the suspense account has a debit balance of £692 +905 =1,597. SAMPLE PAPER LO2B 7 B The opening prepayment of rent of £4,251 needs to be debited to administrative expenses, and the closing prepayment of £7,200 ×2/3 =4,800 needs to be credited. Total administrative expenses will therefore be £44,064 +4,251 –4,800 =43,515. SAMPLE PAPER LO3C 8 B Cost of sales includes carriage inwards, which is a cost incurred in bringing inventories to their present location, but excludes carriage outwards, which is a distribution cost and included in the statement of profit or loss after calculating gross profit. Closing inventories should be deducted in arriving at cost of sales. Purchases 455,000 Carriage inwards 24,000 Closing inventories (52,000) Cost of sales 427,000 SAMPLE PAPER LO3C 9 A, B, F The allowance needs to be debited with £6,546 –5,060 =1,486 (B),and £1,860 needs to be credited to trade receivables (F).The net debit to the irrecoverable debt expense account is therefore £1,860 –1,486 =374 (A).ALLOWANCE FOR RECEIVABLES Carried down (12,650 ×0.4) Irrecoverable debts expense (B) 5,060 1,486 Brought down 6,546 6,546 6,546 IRRECOVERABLE DEBT EXPENSE Trade receivables 1,860 1,860 Allowance decreased Statement of profit or loss 1,486 374 1,860 SAMPLE PAPER LO2C, 3C ICAEW 2015 10 C, G The value of closing inventory is (572,904 –27,485 +15,000) 560,419. This should be debited and credited to the closing inventory account; the debit is for the statement of financial position and the credit is for the statement of profit or loss. SAMPLE PAPER LO1D 11 B The internal administration costs cannot be treated as part of the asset's cost, so in the first two years' depreciation of (96,720 +3,660)/5 2 =40,152 was charged. This means that the whole of the remaining carrying amount of £60,228 must be allocated as depreciation in 20X6 given the revision of the asset's useful life. SAMPLE PAPER LO1D, 3C 12 B This is calculated using T accounts, the carrying amount being £626,000 –368,165 =257,835. Note that no depreciation will be charged in the year to 31 March 20X6 for the asset acquired at the year end: COST £614,500 11,500 626,000 B/d Additions C/d 626,000 626,000 ACCUMULATED DEPRECIATION £368,165 368,165 C/d B/d (614,500 –399,960) Charge (614,500 ×0.25) 214,540 153,625 368,165 SAMPLE PAPER LO3C 13 D July –September October –March April –June 20,000 30,000 15,000 8,750 73,750 1,000,000 ×8% 3/12 750,000 ×8% 6/12 750,000 ×8% 3/12 500,000 ×7% 3/12 LO3C 14 B This is calculated using a T account: TAX Cash Carried down 1,762 2,584 4,346 Brought down Statement of profit or loss (bal fig) 2,091 2,255 4,346 SAMPLE PAPER LO1D, 3C 15 B Using the balance sheet equation: Closing net assets (1,726 +2,387) B) Drawings Opening net assets Net profit (B) 4,113 15,000 (5,000) 14,113 SAMPLE PAPER LO1D, 3B ICAEW 2015 16 C Errol is a partner for the whole year, receiving 3/8 of the first 8 months profit, and 3/4 of the last 4 months after Sayhan’s retirement: 30,312 £121,248 ×8/12 ×3/8 =30,312 £121,248 ×4/12 ×3/4 =60,624 SAMPLE PAPER LO1E 17 D Information's relevance is affected by its materiality. A, B and C are all characteristics contributing to information being a faithful representation of what it purports to represent. 1A 18 D 50,000 +17,000 +7,500 +6,000 =80,500 LO1C, 1D 19 B, D Purchase order and goods received note. LO1C 20 D 21 B Profit increases capital so it is credited to the statement of financial position column, and debited to the statement of profit or loss column on the ETB. LO2C Balance per bank statement Unpresented cheque Doubtful cheque 800) 80) 880) LO2B 22 A Dr suspense £2,840, Cr Discount received £2,840 LO2D 23 C Debit Sales £230, Debit VAT control £46, Credit Receivables control £276 LO2D 24 B The whole of the subscription relates to the following year, so the instalment paid should all be treated as a prepayment, which reduces expenses in the year and so should be added back to the draft net profit. The problem with the returned goods is that the draft net profit reflects the revenue made on sale of the goods, less the cost of those goods, therefore the profit on the sale should be deducted from the draft net profit. Draft net profit 75,000 500 Add back: Prepaid subscription instalment (1,000/2) Deduct: profit on returned goods £400 ×75/25* 1,200) 74,300 (B) In A the profit deducted has been calculated as £400 x 25%;in C just the cost of goods (400) has been deducted, while in D the profit has been added back and the prepayment deducted. Gross profit percentages: 100 Revenue Cost (25) Gross profit 75 To calculate gross profit from cost, multiply by 75/25. LO2A ICAEW 2015 25 A, B If a company is no longer a going concern then the directors have concluded that it will not trade for the foreseeable future (ie less than twelve months) and so all non-current assets and liabilities are transferred to current assets and current liabilities respectively (A).All assets are valued at their resale or break-up value, which is the expected selling price in a forced sale position (B).This is likely to be a substantially lower value than carrying amount for assets such as fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which Wombat plc has none. Although not being a going concern means the directors believe the company is likely to cease trading within 12 months, it does not necessarily mean that it will cease trading immediately (C),nor that a liquidator will be appointed immediately (D).LO3B ICAEW 2015

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