Accounting Technicians Ireland

First Year Examination: Autumn 2016

Paper: FINANCIAL ACCOUNTING
Tuesday 9 August 2016
9.30 a.m. to 12.30 p.m.
INSTRUCTIONS TO CANDIDATES
PLEASE READ CAREFULLY
Candidates must indicate clearly whether they are answering the paper in accordance with the
law and practice of Northern Ireland or the Republic of Ireland.
In this examination paper the / symbol may be understood and used by candidates in Northern
Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to
indicate the Euro.
Answer ALL THREE questions in Section A and TWO of the three questions in Section B. If
more than TWO questions are answered in Section B, then only the first two questions, in the
order filed, will be corrected.
Candidates should allocate their time carefully.
All workings should be shown.
All figures should be labelled as appropriate e.g. s, s, units, etc.
Answers should be illustrated with examples, where appropriate.
Candidates may ignore any VAT implications to transactions throughout this paper unless the
question specifically instructs them to do otherwise.
Question 1 begins on Page 2 overleaf.

Note:
The terminology in use for 2016 exams will be in line with the FRS 102. In some cases this differs
slightly from the terminology previously used (IFRS). For the 2016 exams, students who use
IFRS terminology will not be penalised, however it is preferred that students use FRS 102
terminology throughout.

Page 1 of 10

Fin. Accounting (FA) A2016

SECTION A
Answer ALL THREE QUESTIONS (Compulsory) in this Section

QUESTION 1 (Compulsory)
The following trial balance was extracted from the books of P. Thomas, a sole trader, on 31 December
2015:
/
/
Land
125,600
Equipment
101,110
Accumulated depreciation on equipment
31,415
Inventory as at 1/1/2015
24,810
Receivables and payables
62,100
52,175
VAT (refund due)
5,160
Deposit on rented premises, held by landlord
8,950
Bank and cash
7,820
Allowance for irrecoverable debts
5,625
PRSI liability
3,710
Business rent
15,000
Sales
402,250
Purchases
195,100
Returns
4,150
3,750
Discounts
2,150
3,120
Distribution and advertising
4,450
Power
2,100
Internet
770
Business insurance
11,250
Wages and salaries
82,190
Employers PRSI/NIC
8,280
4% long term bank loan
91,250
Long term loan interest
1,760
Irrecoverable debts
1,120
Drawings
5,290
Accumulated profits/losses
22,410
Capital
51,855
Suspense
1,600
669,160
669,160

The following information, which has not been accounted for above, is also available:
1.

The inventory count as at 31 December 2015 showed closing inventory valued at /21,195.

2.

P. Thomas has agreed an annual rent of /20,000 with his landlord. Rent for the fourth
quarter 2015 remains unpaid at the year end.

3.

Included in business insurance above is /9,000 which relates to the year ended 29 February
2016

4.

P. Thomas has specific concerns over /2,560 of receivables and wishes to set up a specific
allowance with respect to these balances. The general allowance on remaining receivable
balances should be maintained at 5%.

5.

Allowance to be made for depreciation as follows:

Land

Not depreciated

Equipment

15% reducing balance method

(Depreciation should be calculated to the nearest whole number)

Page 2 of 10

Fin. Accounting (FA) A2016

QUESTION 1 (Continued)

6.

The suspense account balance above relates to sales of /800 which was recorded as
purchases in error. The receivables and payables balances are correct. Ignore VAT.

You are required to prepare:

a)

The Income Statement for the year ended 31 December 2015.

b)

The Statement of Financial Position as at that date.

11 Marks
9 Marks
Total 20 Marks

Page 3 of 10

Fin. Accounting (FA) A2016

QUESTION 2 (Compulsory)
The trial balance of C. Cindy failed to agree. The debits exceeded the credits by /8,452. The balance
was placed in a suspense account. After an inspection the following items were discovered:

i.

The total of the purchases T account was undercast by /1,000

ii.

Cash sales of /1,235 were recorded by debiting sales with /2,135 and crediting cash with
/3,215.

iii.

Mr Smith whose debt was the subject of a specific allowance for receivables, paid his debt in
full /540. The only entry made for this transaction was to credit receivables with /540.

iv.

An invoice for rates for /1,125 was found behind the bookkeepers desk. The invoice had
not been accounted for.

v.

The total of the sales returns day book was overcast by /640.

vi.

Discounts received of /420 was recorded by crediting receivables and debited discounts
received.

vii.

A new piece of machinery valued at /12,150 was written off to repairs in error. The
depreciation policy of C. Cindy is to depreciate machinery by 10% straight line method. The
sole trader charges a full years depreciation in the year of purchase and non in the year of
sale.

You are required to:

a)
b)
c)

Prepare the journal entries, with the appropriate narratives, necessary to correct the above errors.
13 Marks
Prepare a suspense account and hence calculate the remaining difference.
3 Marks
Prepare a working showing the effect on proprietors profit (if any) of correcting each of the
above errors.
4 Marks
Total 20 Marks

Page 4 of 10

Fin. Accounting (FA) A2016

QUESTION 3 (Compulsory)
Answer ANY FOUR of the SIX parts below
Part A
Outline your understanding of the imprest system as it relates to petty cash.
2 Marks
Given the following information calculate the cash replenishment required for the month of May 2016.
/
175
35.75
9.50
44.20
50
625
15

Imprest cash float

Postage
Miscellaneous stationary
Taxi receipts
Gift for retirement party
Credit sales posted to the sales day book
Cake for retirement party

3 Marks

Part B
The following information relates to the payroll costs for D. Hicks, a sole trader for the month of June
2016.
Name
D. Box
C. Funne
A. Shine

Gross Monthly
Salary
1,950
2,210
3,120
7,280

PAYE
Deducted
390
553
967
1,910

Employee
PRSI/NIC
137
155
219
511

Employer
PRSI/NIC
10% of Gross
10% of Gross
10% of Gross

D. Hicks paid net salary on 29 June 2016.

You are required to:

Prepare the journal entries that should appear in the books and records of D. Hicks for the month of
June 2016 in relation to salary and wages.
5 Marks

Part C
Write a note on any two of the following terms as they relate to inventory valuation in the financial
statements:
Cost
Net realisable value (NRV)
First in - first out (FIFO)
5 Marks

Page 5 of 10

Fin. Accounting (FA) A2016

QUESTION 3 (Continued)
Part D
P. Phonix does not keep proper books and records. He is available to provide you with the following
information for the year ended 31 December 2015.

Payables (credit balance) 1 January 2015

Payables (debit balance)1 January 2015
Payables (credit balance) 31 December 2015
Payables (debit balance) 31 December 2015
Contra entry with receivables
Payments to payables (90% credit, 10% cash)
Interest charges on overdue accounts
Discount received
Discounts allowed

/
10,150
160
12,200
450
2,130
78,500
1,020
650
780

You are required to:

With the aid of a payables control account calculate the credit purchases for the year ended 31
December 2015.
5 Marks

Part E
The following information is available for P. Calc for the year ended 31 March 2016:
During the year a new building premises was constructed. Costs in relation to the construction are as
follows:
/
Material costs
142,150
Architect and legal fees
31,000
Cost of new plants & flowers for the building
320
Repairs
5,750
Site preparation costs
15,120
Loan interest incurred directly in relation to the construction of the asset
11,100
You are required to:
i.

ii.

The value of buildings to be recorded as an addition in the books and records of P. Calc for
the year ended 31 March 2016.
3 Marks
State the impact on profits and non-current assets if revenue expenditure is incorrectly
capitalised and shown as a non-current asset.
2 Marks

Part F
i.

ii.

Outline your understanding of the role played by the books of prime entry in the financial
accounting system.
2 Marks
Provide an example of three books of prime entry and outline the information contained in
each book of prime entry.
3 Marks
Total 20 Marks

Page 6 of 10

Fin. Accounting (FA) A2016

SECTION B
Answer any TWO of the three questions in this Section
QUESTION 4
a) The following information is available for A. Marche a sole trader who does not maintain proper
books and records.
/
9,785
11,248
25,120
125 per month
50 per month
66,450
101,360
56,741
542
45,270
202
101
97,140
11,103

Positive bank balance 1/7/2015

Bank balance (overdraft) 30/6/2016
A. Marche capital introduced
Cash drawing
Inventory drawings (goods to the value of)
Funds lodged from tills
Cash received from credit customers
Payroll costs
Cash transferred to petty cash tin
Expenses paid from bank
Bank charges
Interest received on positive cash balances
Payments to payables
Sundry payments to payables

A. Marche suspects that an employee may be stealing funds from the business. With the aid of the
information above prepare the Bank T Account for the year ended 30 June 2016 and hence derive any
cash discrepancy which may indicate that an employee is stealing from A. Marche.
7 Marks

b) J. Stanford does not maintain proper books and records. She is however able to provide you with
the following information as at 31 December 2015.
/
119,750
21,140
43,640
11,320
23,710
87,140
15,000

NBV of non-current assets

Current assets
Capital as at 1 January 2015
Drawings
Current liabilities
Non-current liabilities
Capital introduced during 2015
You are required to:
i.
ii.

Calculate the profit/loss figure for J. Stanford for the year ended 31 December 2015.
5 Marks
Outline your understanding of why the technique used in part (i) can be used to derive the
profit/loss figure.
2 Marks

Page 7 of 10

Fin. Accounting (FA) A2016

QUESTION 4 (Continued)

Part C
Outline your understanding of the concepts of mark-up and margin.
2 Marks
The following information for the year ended 31 December 2015 is available for a sole trader who does
not maintain proper books and records.
/32,110
/29,320
/184,750
/7,980
45%

Opening inventory as at 1 January 2015

Closing inventory as at 31 December 2015
Purchases
Purchases returns
Standard profit margin for 2015

Using the information above derive the sales figure (to the nearest whole number) for the year ended 31
December 2015.
4 Marks
Total 20 Marks

Page 8 of 10

Fin. Accounting (FA) A2016

QUESTION 5
Part A
i.
Outline your understanding of how the VAT system operates. Note: knowledge of VAT rates
is not required.
4 Marks
ii.

The following transaction information is available for D. Dars for the month of April 2016.

Opening VAT liability on April 1 2016 /14,152;

Purchases amounted to /142,120 net of VAT;
Sales were /242,000 inclusive of VAT;
Purchases returns were /2,090 inclusive of VAT;
Sales returns were /900 net of VAT;
On 14th of April 2016 D. Dars paid /14,100 in VAT to the Revenue Authority.

The appropriate VAT rate for all transactions is 10%

You are required to prepare the VAT T Account for the month of April 2016.
5 Marks
Part B
i.
Outline your understanding of the accruals concept and the importance of the concept to
financial statement preparation.
3 Marks
The following information is available for insurance and electricity expenses for the year
ended 30 April 2016:
Insurance
The insurance year of the sole trader is 1 February to 31 January each year;
As at 1st May 2015 the insurance invoice for /12,000 dated 1 February 2015 to 31
January 2016 remains unpaid. This invoice was paid on 15 th May 2015.
The insurance invoice from 1 February 2016 to 31 January 2017 amounted to
/18,000 and was paid in full on 30 April 2016.
Electricity
Electricity outstanding as at 1st May 2015 amounted to /1,120
Electricity invoices for the financial year were as follows:
Time Period:
May and June 2015
July and August 2015
September & October 2015
November & December 2015
January & February 2016
March and April 2016

ii.

iii.

/
950
1,020
945
887
1,130
1,215

During the year ended 30th April 2016 /4,922 was paid in electricity costs.

You are required to:

Prepare the insurance T account and the electricity T account for the year ended 30 April 2016
and hence calculate the figure for inclusion in the Income Statement for insurance and
electricity for the year ended 30 April 2016.
6 Marks
Prepare a Statement of Financial Position extract as at 30 April 2016 including relevant
balances from the insurance and electricity accounts above.
2 Marks
Total 20 Marks

Page 9 of 10

Fin. Accounting (FA) A2016

QUESTION 6
a) A business can be run through one of three possible mediums: sole trader, partnership and limited
company. Provide a description of each of these business types.
6 Marks
Outline two advantages and one disadvantage of conducting business as a sole trader and a limited
company.
6 Marks

b) An accountant within an organisation has many roles. State any four of these.
4 Marks

c) At the centre of accounting is the concept of accountability. For both a public limited company and
a charity provide an example of the following:
i.
ii.

An organisational objective.
Whom the organisation is accountable to and why.
4 Marks
Total 20 Marks

Page 10 of 10