Jun 2007 paper 1 1 2 3 B A C Capital expenditure is all expenditure involved in purchasing and making ready a new fixed asset

as well as improvements to an existing fixed asset (A, C and D are capital expenditure) The deposit is prepaid income and cannot be recorded as sales until the goods have been supplied. Depreciation schedule Year to Book value (start) Depreciation for year Book value (end) Sept 2005 $26 000 26 x .2 = $5 200 26 5.2 = $20 800 Sept 2006 $20 800 20.8 x .2 = $4 160 20.8 4.16 = $16 640 If sold for $12000 there is a loss of (12000 16640) = $4640 Write off the bad debt first 28000 2100 = $25 900. Allowance for doubtful debts Balance end (25900 x .05) 1 295 Balance (start) 1 200 Income statement 95 1 295 1 295 It is prudent to show inventory at the lower of cost and net realisable value to avoid overstating the asset. Consistency means that statements are prepared using the same policies and principles each year. Error of principle the new machine is an asset but has been debited to an expense account Trade receivables (debtors) Balance (start) 280 Bank (cash rec) 520 Sales 550 Discount All 30 Bad debts 15 Balance end 265 830 830 The balance would need to be credited twice- once to reverse the error, once to enter correctly. Purchases ledger has a credit balance so a credit will increase it. A error of original entry no effect on trial balance B both accounts have been debited creating a trial balance imbalance. C error of omission no effect on trial balance D error of principle no effect on trial balance Trade payables (creditors) Bank (payments to suppliers) 212 760 Balance (start) 51 660 Discount received 1 000 Purchases 218 440 Balance (end) 56 340 270 100 270 100 IAS 2 inventory is reported at cost or net realisable value whichever is lower Net realisable value = selling price any costs to sell Cost Net realisable value Inventory = 2160 + 2740 = $4900 Item 1 2 160 (2450 190) 2 260 cost < realisable value Item 2 3 190 (3 060 320) 2 740 cost > realisable value Balance sheet (Owners equity section) Capital (start) 52 add capital introduced 25 net profit (loss) (9) less drawings (13) Capital (end) 55

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C A C C

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D B

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C D C A B

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C C A D A C

Profit appropriation Net profit 60 000 Salary A (9 000) Interest on Capital A (400) Interest on capital M (500) Residual profit 50 100 Profit share A 33 400 Profit share B 16 700 Ms share of profit = 16700 + 900 =$ 17 200 If mark-up = 50%, gross profit % = 33.33%. Therefore if 21000 (sales) $7000 (Gross profit) = $14000 (COGS) Closing stock = 15000 (op stock) + 18000 (purchases) - 14 000 (COGS) = $19 000 Closing stock (trading statement) = 20% x 93 500 = $18 700 Closing stock (balance sheet) = 18700 unrealised profit (18700 / 1.1) = $17 000 April receipts = (.2 x 220) + (.5 x 270) + (.3 x 240) = 44 + 135 + 72 = $251 000 Net assets do not change (no cash/assets received) Reserves are reduced to fund the bonus issue Pay interest first. Interest = 160 x 8% = $12 800. Remaining profit for dividends = 105 12.8 = $92 200. Maximum dividend 92.2/700 = 0.1317 A return on total assets C net/gross profit percentage D ROCE Inventory turnover = COGS / Ave stock. COGS = 5 (inv t/over) x $54 (ave stock) = $270 Sales = 270 x 1.3333 = $360 000 Liquidity ratio = (CA stock) : CL = 150 : (40 + 90 + 80) = 0.71 : 1 No correct answer because proposed dividend is not considered a liability any longer. Trade receivables turnover = debtors / credit sales x 360 debtors = (40 / 360) x 1406070 = 156 230 GP increase so selling price/mark-up has increased. NP fallen so a non-COGS expense has increased. Actual is below budget so absorption is less than budgeted for. Variable costs are materials and labour ($40 000). Variable cost per unit = $40 / 2 = $20 X makes a contribution of $6 per unit x 4000 units = $24 000. This leaves (48 24) = $24000 fixed costs for Y to cover. BEP = fixed costs / contribution = $24 / (12 8) = 6000 units Absorption rate = budgeted costs / budgeted patient days = $11 500 / (25 x 10) = $46 per patient day Contribution = selling price variable costs = 10 (1.2 + 0.8 + 1) = $7

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A C