55 Study Period 27 continued 3 Bill, Ben and Ted are in partnership sharing profits in the ratio 2:2:1 after allowing for a salary of $20,000 per annum for Ted. The partner's capital balances are: Bill $45,000, Ben $25,000, Ted $20,000. Interest is paid at 10% per annum. On 30 June 20X8 Bill retires, taking out his capital. Ben and Ted agree that Ted's salary will be discontinued and they will now share profits equally. Profits for the year ended 31 December 20X8 is $130,000. This accrues evenly throughout the year. What is Ben's total share of profit for the year? A $51,575 B $54,075 C $40,400 D $42,900 4 On 1 April 20X9 Ben and Ted take on a new partner, Harry, who contributes $20,000 capital. Ted contributes an additional $5,000 capital on the same day. It is agreed that Harry will receive a salary of $25,000 per annum and the new profit sharing ratio will be 2:2:1 (Ben, Ted, Harry). Profit for the year ended 31 December 20X9 is $170,000. What is Ben's total share of the profit for the year? A $72,437.50 B $62,087.50 C $64,587.50 D $72,087.50 56 Study Period 27 continued 5 The following is an extract from the financial statements of Tornado Co at 31 December 19X9. Balance sheet as at 31 December 19X9 Called up share capital $'000 Ordinary shares of $1 each 400 8% preferred shares of $1 each 50 450 Retained earnings 80 530 Income statement for the year ended 31 December 19X9 $'000 Profit on ordinary activities after taxation 45 Dividends Preferred 4 Ordinary 36 40 Retained profit for the year 5 What is the return on equity capital employed? A 9.0% B 10.0% C 8.5% D 11.3% 6 The following balances were extracted from a limited liability company's balance sheet at successive year ends. Year 1 Year 2 $ $ Income tax payable 354 216 Dividends payable 56 39 The tax charge in the income statement was $301,000. Dividends of $70,000 were declared before the year end. What will be the amount included in the cash flow statement for dividends and taxation? Dividends Taxation A 170,000 138,000 B 70,000 301,000 C 87,000 439,000 D 70,000 439,000 57 Study Period 27 continued 7 Which of the items below would not appear on a cash flow statement? A The nominal value of loan stock redeemed at par during the year B The dividends paid to equity shareholders during the year C The income statement charge for taxation for the year D The purchase of non-current asset investments Data for Questions 8 & 9 Extracts from a limited liability company's balance sheets show the following non-current assets at net book value: 30 June 19X8 19X9 $ $ Intangible assets Development expenditure 60,000 95,000 Property, plant and equipment Freehold 750,000 1,230,000 Plant and machinery 320,000 370,000 Fixtures and fittings 105,000 90,000 The expenditure for the year on development projects had been $55,000. The depreciation charge for property, plant and equipment was $100,000. 8 What is the amortisation charge that should be included in the reconciliation of profit before tax to net cash inflows from operating activities? A $20,000 B $60,000 C $95,000 D $115,000 9 What is the additions figure for property, plant and equipment included under investing activities? A $615,000 B $515,000 C $415,000 D $100,000 58 Study Period 27 continued 10 Which of the following must be shown on the face of the income statement rather than in the notes to the financial statements? A Depreciation B Dividends C Operating profit D Revenue You will find the solutions to this test at the end of this Study Programme. If you answer more than 5 questions correctly, your performance is satisfactory; if you answer more than 7 correctly, you are doing very well. You are now ready to attempt the second course exam. These exams are designed to give you some question practice at an early stage in your studies to enable you to obtain feedback on exam technique. Don’t worry too much if you have to revert to the material when answering questions. Obviously it will be beneficial to attempt them without reference to your Study Text and notes, but it is the technique in producing answers that is the valuable element at this stage. Once you have completed your attempt send your solutions, together with the front sheet, to: Marking Department BPP Professional Education Aldine House Aldine Place 142 – 144 Uxbridge Road Shepherds Bush Green London W12 8AW 59 Answers to Progress Test 1 1 D 2 D 3 B 4 C The accounting equation is good check on this answer. Assets = Capital + Liabilities Opening capital 5,000 5,000 Loan 3,000 3,000 Non current assets 1,500 (1,500) Inventory 4,400 (4,400) Sales (2,200) 3,050 850 $200 per month (1,200) (1,200) Goods from inventory (150) (150) 7,500 = 4,500 + 3,000 5 A $ Non current assets 12,000 Depreciation (9,000 ) 3,000 Current assets Receivables 2,100 Prepayment 500 2,600 Current liabilities Overdraft 75 Payables 1,600 Tax payable 350 (2,025) Net assets 3,575 6 C (2/3 x 798.0) + 898.80 + 814.80 + 840.0 + (1/3 x 966.0) 60 Answers to Progress Test 1 continued 7 A $'000 NBV @ 1 Jan 19X9 460 Depreciation charge for the year (4 ) NBV @ 31 December 19X9 456 Revalued amount 750 ∴ Revaluation reserve 294 8 B 1.1.X5 cost $70,000 Depreciation charge = 7 $7,000$70,000 − = $9,000 ⇒ NBV after two years 31.12.91 = $52,000 Useful life revised to three years ⇒ Depreciation = 7 $7,000$52,000 − = $15,000 ⇒ NBV 31.12.X8 = $52,000 – $30,000 = $22,000 $ Proceeds 30,000 Less NBV (22,000 ) Profit 8,000 9 B $ Bad debts 850 Decrease in receivables’ allowance (2,240 – 2% x 72,400) (792 ) 58 10 C $ Balance per trial balance 50,000 Less bad debt written off (2,500) Add bad debt recovered 1,800 49,300 61 Answers to Progress Test 2 1 C $ Bank balance per bank statement (3,204) OD Unpresented cheques (780) Outstanding lodgements 370 ∴ per balance sheet (3,614 ) 2 B SLCA $ $ b/f 65,000 SDB overcast 300 Contra 1,500 ∴ c/f 63,200 65,000 65,000 3 B Receivables ledger $ List of balances 63,620 Credit balance treated as a debit (2 × 210) (420 ) 63,200 4 B $ 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 9,359 (900) (5,264) 700 4,095 5 A 6 C 7 D 62 Answers to Progress Test 2 continued 8 B $ 2c x 160,000 = 3,200 6c x 160,000 = 9,600 12,800 9 C $ Cost of sales ($300,000 × 125 100 ) 240,000 Less decrease in inventory (14,000 ) 226,000 10 B $ Purchases: Cash paid 9,000 Payables b/f (8,000) Payables c/f 10,000 11,000 Cost of sales: Opening inventory 6,000 Purchases 11,000 17,000 Closing inventory (7,000 ) 10,000 Sales: 100 110 × 10,000 11,000 Cash received from receivables: Receivables b/f 12,000 Sales 11,000 Receivables c/f (14,000 ) 9,000 ∴ Cash introduced/withdrawn: Cash b/f 1,000 Received from receivables 9,000 Paid to payables (9,000) Cash c/f 2,000 ∴ cash introduced 1,000 63 Answers to Progress Test 3 1 D $ Turnover (80,000 + 10,000) 90,000 Gross profit (20,000 + 10,000 – 5,000) 25,000 90,000 25,000 = 27.8% 2 A $ Receivables 22,000 Short term investments 6,000 28,000 Trade payables 8,000 Bank overdraft 5,000 Income tax payable 7,000 20,000 20,000 28,000 = 1.4 3 B (a) January to June 20X8 $ Profit (130,000 × 6 / 12 ) 65,000 Less salary (20,000 × 6 / 12 ) (10,000) Less interest on capital: Bill (45,000 × 10% × 6 / 12 ) 2,250 Ben (25,000 × 10% × 6 / 12 ) 1,250 Ted (20,000 × 10% × 6 / 12 ) 1,000 (4,500 ) 50,500 PSR Bill 20,200 Ben 20,200 Ted 10,100 (50,500 ) – (b) July to December 20X8 $ Profit (130,000 × 6 / 12 ) 65,000 Less interest on capital: Ben (25,000 × 10% × 6 / 12 ) 1,250 Ted (20,000 × 10% × 6 / 12 ) 1,000 (2,250 ) 62,750 PSR Ben 31,375 Ted 31,375 (62,750 ) – Ben's total profit share: Interest on capital (1,250 + 1,250) 2,500 Profit share (20,200 + 31,375) 51,575 54,075 64 4 C (a) January to March 20X9 $ Profit (170,000 × 3 / 12 ) 42,500 Less interest on capital: Ben (25,000 × 10% × 3 / 12 ) 625 Ted (20,000 × 10% × 3 / 12 ) 500 (1,125 ) 41,375 PSR Ben 20,687.50 Ted 20,687.50 (41,375 ) – (b) April to December 20X9 $ Profit (170,000 × 9 / 12 ) 127,500 Less interest on capital: Ben (25,000 × 10% × 9 / 12 ) 1,875 Ted (25,000 × 10% × 9 / 12 ) 1,875 Harry (20,000 × 10% × 9 / 12 ) 1,500 (5,250) Less salary (25,000 × 9 / 12 ) (18,750 ) 103,500 PSR Ben 41,400 Ted 41,400 Harry 20,700 (103,500 ) – Ben's total profit share: Interest on capital (625 + 1,875) 2,500.00 Profit share (20,687.50 + 41,400) 62,087.50 64,587.50 5 C reserves and capital shareOrdinary dividend preferred after Profit = 80)(400 4)(45 + − = 8.5% 6 C DIVIDENDS $ $ ∴ paid 87 b/d 56 c/d 39 I/S 70 126 126 TAXATION $ $ ∴ paid 439 b/d 354 c/d 216 I/S 301 655 655 [...]...Answers to Progress Test 3 continued 7 C 8 A B/f Expenditure 9 INTANGIBLE NON-CURRENT ASSETS $ 60,000 ∴ Amortisation 55,000 115,000 95,000 115,000 A b/f ∴ Additions PROPERTY, PLANT AND EQUIPMENT $ 75 0,000 Depreciation 320,000 c/d 105,000 615,000 1 ,79 0,000 10 c/d $ 20,000 D 65 $ 100,000 1,230,000 370 ,000 90,000 1 ,79 0,000 66 . 31 December 20X9 is $ 170 ,000. What is Ben's total share of the profit for the year? A $72 ,4 37. 50 B $62,0 87. 50 C $64,5 87. 50 D $72 ,0 87. 50 56 Study Period 27 continued 5 The following. 62 ,75 0 PSR Ben 31, 375 Ted 31, 375 (62 ,75 0 ) – Ben's total profit share: Interest on capital (1,250 + 1,250) 2,500 Profit share (20,200 + 31, 375 ) 51, 575 54, 075 . B 1.1.X5 cost $70 ,000 Depreciation charge = 7 $7, 000 $70 ,000 − = $9,000 ⇒ NBV after two years 31.12.91 = $52,000 Useful life revised to three years ⇒ Depreciation = 7 $7, 000$52,000 −