2011-AL

P ACCT
PAPER 1

AL
Principles of accounts

SUGGESTED ANSWER

TO

2010-2011
Paper one

Prepared by Patrick Tong Accounting Team

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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Q1
Joey and Sam
(b) Trading and profit and loss and appropriation account for the year ended 31 December 2010
$ $ $
Sales 872,000
Less: Returns inwards 27,300 844,700

Less: Cost of goods sold

Opening inventory 154,590
Purchases ($440,000-2,590) 437,410
Less: Returns outwards 14,900 422,510
577,100
Less: Closing inventory ($180,150-7200+15750+3300) 192,000 385,100
Gross profit 459,600

Gain on disposal 4,230

Discount received 9,500 13,730
473,330
Less: Expenses
Discount allowed 16,490
Depreciation 93,195
($140,000x20%x3/12)+(563,700-140,000)x20%
+87,300x20%x1/12
Rent and rates ($136,000-10,000-22,000) 104,000
Salaries ($80,900+1300-60,000) 22,200
Sundry expenses ($9900+1,000-1,200) 9,700
Cash loss ($1200 x 20%) 240
Service charges 4,400
Loan interest ($80,000x4%x6/12) 1,600 251,825
Net profit
221,505
Less: appropriation:
Interest on capital:
- Joey (700,000x3%) 21,000
- Sam ($350,000x3%) 10,500 31,500
190,005
Salaries:
- Joey 60,000
- Sam 12,000 72,000
118,005

Share of profit:
- Joey (2/3) 78,670
- Sam (1/3) 39,335
118,005
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Joey and Sam

(c) Balance Sheet as at 31 December 2010
$ $ $
Non-current asset 424,805
Office equipment, at net book value

Current assets
Inventories 192,000
Trade receivable ($291,110+11,000) 302,110
Insurance receivable ($1,200 x 80%) 960
Bank ($102,420+1,082,620-836,040-4,400-11,000) 333,600
828,670

Current liabilities
Trade payable 88,000
Accrued salaries 1,300
Interest payable 1,600 90,900 737,770
1,162,575
Non-current liabilities
4% Loan from Joey 80,000
1,082,575

Capitals:
- Joey 700,000
- Sam 350,000 1,050,000

Currents:
- Joey 31,370
- Sam 1,205 32,575
1,082,575
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Workings:

Trade Receivables
b/f $328,290 BK $865,390
Sales 872,000 RI 27,300
BK: DC 11,000 DA (diff) 16,490
c/f (291110+11000) 302,110
1,211,290 1,211,290

Trades Payable
BK $371,600 b/f $44,000
RO 14,900 Purchase (diff) 440,000
DR 9,500
c/f 88,000
484,000 484,000

Currents
Joey Sam Joey Sam
Drawings $100,300 $74,630 b/f $32,000 $14,000
(78300+22000) Salaries - 12,000
(72040+2590) Int on capital 21,000 10,500
c/f 31,370 1,205 Share of profit 78,670 39,335
131,670 75,835 131,670 75,835
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 
 
Q2

Statement to calculate the cash paid for the acquisition

Ordinary share capital ($1,000,000x80%) 800,000

Retained profit ($269,000x80%) 215,200

Share premium ($80,000x80%) 64,000

Revaluation reserve ($350,000-291,600)x80% 46,720

Goodwill ($78,080+30,000) 108,080

Cash price (diff) 1,234,000

Sunny Ltd
Statement of comprehensive income for the year ended 31 December 2010

Turnover (1,994,000-840,000)+180,000 1,334,000

Cost of sales(897,000-425,000)+180,000-15,000 637,000

Gross Profit 697,000

Other income (180,000-60,000)+16,000 136,000

Selling and distribution expenses(165,000-72,000) 93,000

Administrative expenses (375,840-110,000)-30,000-5,840 230,000

Profit before tax 510,000

Tax (81,000-25,000) 46,000

Profit after tax 464,000

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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 
 

Sunny Ltd
Statement of financial position as at 31 December 2010
Non-current Assets $
Property, plant and equipment, net (3,293,560-1,421,000)-58,400+5,840 1,820,000
Investment 1,234,000
3,054,000
Current Assets
Inventories (216,500-110,000)+15000 121,500
Trade receivables (178,500-123,000)+24,000 79,500
Cash at bank (303,000-101,000)-6,000 196,000
3,451,000
Current liabilities
Trade payables (342,000-170,000)+18,000 190,000
Tax payable (77,000-30,000) 47,000
3,214,000

Equity
Ordinary shares of $2 each 2,100,000
Share premium 300,000
Retained profits (working) 814,000
3,214,000
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 
 
Workings:
Retained profits
Goodwill impairment 30,000 Bal b/f - Sunny Ltd (Diff) 814,000
Pre acquisition div 16,000 Bal b/f - Windy Ltd 180,800
(475,000-249,000) x0.8
Unrealized profit on stock 15,000
Depreciation adjustment 4,672

Bal c/f 929,128

994,800 994,800

Minority interest
Depreciation adjustment 1,168 Ordinary share capital 200,000
Retained profits 95,000
Share premium 16,000
Revaluation reserve 11,680
Bal c/f 321,512
322,680 322,680
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Q3
Statement to calculate the corrected profit before tax
$
Profit before tax, before corrections (W1) 57,300
Add: Interest overcharged $20,000-(20,000/10) x6 8,000
Less: Research cost ($10,000-10,000/4) 7,500
Profit before tax, after corrections 57,800

(W1) $
Profit before tax (before corrections) 57,300 (Diff)
Less: Taxation 17,000
(many student
Transfer to general reserve ($20,000-14,000) 6,000
overlook this part)
Retained profit carry forward ($95,430-61,130) 34,300

Kenneth Ltd
Cash flow statement for the year ended 31 December 2010
$ $
Cash flow from operating activities
Profit before tax 57,800
Adjustments for:
Depreciation ($86,000+14,300) 100,300
Loss on disposal ($10,500+400) 10,900
Interest income (300)
Development cost ($80,000/4) 20,000
Interest expenses ($13,400+2,000x6) 25,400
Operating profit before working capital changes 214,100
Increase in inventories ($230,0000178,000) (52,000)
Decrease in Trade receivable ($195,600-184,900-300) 11,000
Increase in prepaid expenses ($42,100-1,800) (40,300)
Increase in Trade payable ($176,070-154,100) 21,970
Increase in accrued expenses ($2,200-1,900) 300
Cash generated from operation 15,5070
Tax paid (18,320)
Interest paid ($13,400+6,400-6,800) + 12,000 (25,000)
Net cash from operating activities 111,750
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

 
Cash flow from investing activities
Sales on office equipment 203,500
Purchase of machinery (35,700)
Development cost paid (80,000)
Net cash from investing activities 87,800

Cash flow from financing activities

Cash paid for installment ($13,000x6)+30,000 (108,000)
Receipt from issuing debentures ($170,000-160,000) 10,000
Receipt from issuing ordinary shares ($400,000+62,500-320,000-50,000) 92,500
Net cash used in financing activities (5,500)
Net increase in cash and cash equivalent 194,050
Cash and cash equivalent as at 1 January 2010 29,450
Cash and cash equivalent as at 31 December 2010 ($173,500+50,000) 223,500

Workings:

Office equipment
b/f 432,000 Disposal (diff) 272,000
Leased O.E. 160,000 c/f 320,000
592,000 592,000

Accumulated Depreciation – Office equipment

Disposal 58,000 b/f 115,000
c/f 143,000 P&L (diff) 86,000
201,000 201,000

Disposal – O.E.
O.E. 272,000 AD 58,000
P&L-Gain on disposal 10,500
Bank (diff) 203,500
272,000 272,000
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Machinery
b/f 92,000 Disposal 14,500
Disposal 6,800
Bank (diff) 35,700 c/f 120,000
134,500 134,500

Accumulated Depreciation – Machinery

Disposal 7,300 b/f 28,000
c/f 35,000 P&L (diff) 14,300
42,300 42,300

Disposal – Machinery
Machinery 14,500 AD 7,300
Machinery 6,800
P&L (diff) 400
14,500 14,500
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Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

Q4
(a1) Bright_Kids Club
Bar trading and profit and loss account for the year ended 31 December 2011
$ $
Bar sales 367,000
Less: Cost of sales
Opening inventory 57,300
Add: Purchases (diff) 215,750
273,050
Less: Closing inventory (28,100-750) 27,350 245,700
Gross profit (122,050-750) #121,300

Bar wages 72,550

Bar profit before commission 48,750
Commission # 4,432
Bar profit 44,318

# It should be noted that the examiner might take a progressive view by adopt
aggregate/category method in application of LCM rule. In this way, expected loss of $750
can be ignored, gross profit remained at $122,050 and commission revised to $4,500. This
principle had been applied to theory or inventory valuation topic, but not yet been applied to
preparation of final account before.

W1
Sales = Cost + profit
Normal 353250 211950 141300
disc 13750 33000 (19250)
367000 244950 122050 (before value loss)
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Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

(a2) Bright_Kids Club

Income and Expenditure Account for the year ended 31 December 2011
$ $
Bar profit 44,318
Subscription income(w2) 850,530
Interest income 7,000
Disposal profit(w3) 69,450
Profit from toys trading 6,900
Other income 11,277 989,475

Less: Expenditure
Depreciation (w4) 93,930
Donation 20,000
Subscription written off 4,200
Administrative expense 475,200 593,330
Surplus 396,145

(a3)
Bright_Kids Club
Balance sheet as at 31 December 2010
Non current assets $ $
Office equipment at cost 531,000
Less: Accumulated depreciation 171,480
Net book value 359,520
Current assets
Inventory - bar 27,350
- toys 500
Bar receivable 211,000
Subscription receivable 117,600
Bank(494697+7000-13440-1200) 487,057 843,507
Total assets 1,203,027

Accumulated fund
Opening balance (w5) 653,220
Surplus for the year 396,145
1,049,365
Current liabilities
Bar payable (w6) 79,750
Subscription in advance 64,680
Wages accrued 4,800
Commission accrued 4,432 153,662
Total fund and liabilities 1,203,027
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Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

(b)
To improve inventory control by reducing the amount of inventory
Consider to adopt the just in time inventory control
Stop selling those foods at loss

w2 Subscription
b/f 82320 b/f 87600
Bk 13440 bk 839160
Bk: refund 26313 IE: sub w/o 4200
IE(diff) 850530
Other inc 11277 c/f 117600
c/f 64680 (104160+13440)
1048560 1048560

w3: profit on disposal

100,000- (123000-92450) =69450

w4 Depreciation on office equipment

depreciation:
Disposal: 18450 (123,000x0.18x10/12)
newly acquired: 4020 (134000x0.18x2/12)
Existing: 71460 (520000-123000)x0.18
93930

w5: Opening AF
106000 - 87600+82320+350000+57300+198000-46000-6800
= 653,220
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Suggested answer for 2011 Paper 1 ‐ Prepared by Patrick Tong Accounting Team 
 

Q5(a) The Journal

Debit Credit
$ $
(i) Rental income receivable 50,000
Rental income 25,000
Rental Deposit 75,000

(ii) Sales 80,000

Accounts Receivable 80,000
Inventory 50,000
Cost of Goods Sold 50,000
Accounts Payable 32,000
Inventory 32,000

(iii) Discount received 45,000

Machinery 45,000
(here, assumed other payable a/c had been settled and difference t/f to discount received a/c)

Machine ($12,500+7,000+3,000) 22,500

Installation cost 12,500
Transportation cost 7,000
Insurance 3,000

Accumulated Depreciation - Machine 3,750

Depreciation expenses 3,750

(iv) 34,000
Retained profit
Depreciation expenses 34,000
Accumulated depreciation - Motor car (62,000-28,000) x2 68,000

Accumulated depreciation - Motor Car (34,000x2+28,000x5) 208,000

Other receivable 95,000
Motor Car 270,000
Gain on disposal 33,000

(b)
- Q examines the application of prior year adjustment, the following points might be involved:
- No prior year adjustment is needed in 2009 as it is a change of accounting estimate, not accounting
policy
- Prior year adjustment is needed in 2010 as it is correction of errors related to last year (if amount is
considered to be material)