ACCA f1 with answers 2005 p2

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ACCA f1 with answers 2005 p2

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Answers Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) June 2005 Answers Section A D Rent received Balance Income statement Balance 16,900 316,200 28,400 –––––––– 361,500 –––––––– Balance Cash Balance 24,600 318,600 18,300 –––––––– 361,500 –––––––– A 38,000 + 637,000 – 45,000 = 630,000 x 10/7 = 900,000 B 39,800 + 44,200 – 64,100 = 19,900 overdrawn A A B Depreciation 1/40 x 1,000,000 Revaluation 1,000,000 – 640,000 A 836,200 – 8,600 + 700 + (14,000 x 70%) = 838,100 B 80,000 + 60,000 – 1,000 = 139,000 D 10 C 11 A Income statement 12/18 x 60,000 = 40,000 Prepayment 3/12 x 40,000 = 10,000 12 C 400,000 – 210,000 – 100,000 + 48,000 = 138,000 13 C 318,650 161,770 280 –––––––– 480,700 –––––––– 14 B 181,140 1,390 3,990 1,240 292,940 –––––––– 480,700 –––––––– 864,000 – 13,000 = 851,000 – 5% = 13,000 – (48,000 – 42,550) 808,450 7,550 15 C 17 16 D 17 C 83,600 + 18,000 – 4,500 = 97,100 18 B 19 A 20 B 21 A 22 D 23 C 160,000 – 80% (50,000 + 30,000) – 24,000 24 D 20% x 120,000 25 D 180,000 + 100,000 – 56,000 – 20,000 – 16,000 = 188,000 18 Section B Assets Non-current assets Land and buildings Plant and equipment Shuswap Balance sheet as at 31 December 2004 Cost or Accumulated valuation depreciation $000 $000 12,000 19,600 ––––––– 31,600 ––––––– Net book value $000 – 7,950 –––––– 7,950 –––––– Current assets Inventories (3,000 – 140) Receivables (2,600 – 200 – 106) Cash at bank 12,000 11,650 ––––––– 23,650 2,860 2,294 1,900 –––––– Equity and liabilities Capital and reserves Called up share capital (6,000 + 2,000) Share premium account Revaluation reserve Retained earnings (working) 7,054 ––––––– 30,704 ––––––– 8,000 2,400 4,000 12,310 –––––– 26,710 Non-current liabilities Loan notes Current liabilities Trade payables (2,100 – 106) 2,000 1,994 ––––––– 30,704 ––––––– Working Retained earnings balance Per question Bad debts written off Loss on sale of plant Depreciation adjustment Inventory adjustment (a) (b) (c) (d) (e) $000 12,400 (200) (100) 350 (140) ––––––– 12,310 ––––––– Income statement Accumulated depreciation of motor vehicles Adjustment to depreciation from reducing balance basis to straight-line basis $ 8,000 $ 8,000 Petty cash Rent receivable Rent received omitted from records 1,200 Bad debts Sundry receivables ledger accounts Bad debts written off 8,400 1,200 8,400 Suspense account 3,400 Motor vehicle repairs Correction of error – opening balance not brought forward Discounts allowed Discounts received Suspense account December 2004 discount totals not posted 3,400 380 290 90 19 Profit adjustments Profit per draft financial statements (a) Depreciation adjustment (b) Rent receivable not recorded (c) Bad debts written off (d) Motor repairs adjustment (e) Discounts not posted: 380 – 290 Adjusted profit $ 86,400 (8,000) 1,200 (8,400) 3,400 (90) –––––––– 74,510 –––––––– Sioux Cash flow statement for the year ended 31 December 2004 $000 Cash flows from operating activities Net profit before taxation 2,350 Adjustments for: Depreciation 1,250 Profit on sale of plant (150) Interest expense 300 –––––– Operating profit before working capital changes 3,750 Decrease in inventories 400 Increase in receivables (900) Increase in payables 500 –––––– Cash generated from operations 3,750 Interest paid (300) Income taxes paid (600) –––––– Cash flows from investing activities Purchase of non-current assets Proceeds of sale of non-current assets Net cash used in investing activities (3,300) 500 –––––– Cash flows from financing activities Proceeds of issue of loan notes Dividends paid Net cash from financing activities 1,000 (750) –––––– Net increase in cash Cash at January 2004 $000 2,850 (2,800) 250 –––––– 300 100 –––––– 400 –––––– Cash at 31 December 2004 Workings Non-current assets – cost Opening balance Revaluation reserve Cash (balancing figure) $000 8,000 500 3,300 ––––––– 11,800 ––––––– Disposal Closing balance $000 800 11,000 ––––––– 11,800 ––––––– Non-current assets – depreciation Disposal Closing balance $000 450 Opening balance Income statement 5,600 ––––––– 6,050 ––––––– $000 4,800 1,250 ––––––– 6,050 ––––––– 20 Non-current assets – disposal Cost Profit on sale $000 800 150 –––– 950 –––– Depreciation Cash $000 450 500 –––– 950 –––– (a) A highly-geared company has an obligation to pay interest on its loans regardless of its profit level It will show high profits if its overall rate of return on capital is greater than the rate of interest being paid on its borrowings, but a low profit or a loss if there is a down-turn in its profit such that the rate of interest to be paid exceeds the return on its assets (b) (i) One company may have revalued its assets while the other has not (ii) Accounting policies and estimation techniques may differ For example, one company may use higher depreciation rates than the other (iii) The use of historical cost accounting may distort the capital and profit of the two companies in different ways Other answers considered on their merits (a) The correct treatment is to provide for the best estimate of the costs likely to be incurred under the warranty, as required by IAS37 Provisions, contingent liabilities and contingent assets (b) The inventories should be valued at the lower of cost and net realisable value Cost is $80,000, net realisable value is $85,000 less 10%, or $76,500 The net realisable value of $76,500 should therefore be taken (IAS2 Inventories) (c) The opening inventory should be included in the current year’s income statement at the corrected figure, and the opening balance of retained profit reduced by $100,000 The $100,000 reduction will appear in the statement of changes in equity (IAS8 Accounting policies, changes in accounting estimates and errors) 21 Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) Land and buildings Plant and equipment depreciation adjustment for disposal Inventory adjustment Receivables-adjustment for write-off Payables Contra Payables Contra Share capital Share premium Revaluation reserve Retained earnings bad debts loss on plant depreciation adjustment Inventory adjustment Heading Journal entries 1/ mark per entry 1/ mark for narrative Profit adjustments x 1/2 June 2005 Marking Scheme 1 1/ 1/ 1/ 1 1 1 1 ––––– 131/2 1/ ––––– 1 /2 x max 12 71/2 21/ –––––2 10 Workings: Non-current assets: cost depreciation disposal x 1/2 x 1/2 x 1/2 11/2 11/2 Cash flow statement 1/ per item 13 x 1/2 61/2 Layout Heading 1 ––––– 12 /2 (a) (b) max 11 3x2 ––––– (a) (b) (c) Provision IAS 37 1 Correct treatment IAS2 1 Prior year adjustment Reconciliation Comparative figures adjusted IAS8 1 1 ––––– ––––– 50 ––––– 23 ... Part Examination – Paper 1.1(INT) Preparing Financial Statements (International Stream) June 2005 Answers Section A D Rent received Balance Income statement Balance 16,900 316,200 28,400 ––––––––... cost accounting may distort the capital and profit of the two companies in different ways Other answers considered on their merits (a) The correct treatment is to provide for the best estimate... adjustment Heading Journal entries 1/ mark per entry 1/ mark for narrative Profit adjustments x 1/2 June 2005 Marking Scheme 1 1/ 1/ 1/ 1 1 1 1 ––––– 131/2 1/ ––––– 1 /2 x max 12 71/2 21/ –––––2 10 Workings:

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