Jun 2008 paper 1 1 2 3 C C A Payments made on 1st of each month therefore no amounts prepaid/accrued on 31 Oct Rent expense for

the year = (8 months x $500) + (4 months x $600) = $6400 Fixed assets (book value) Balance 16 000 Depreciation 5 000 Additions 22 000 Balance (end) 8 000 Balance (end) 25 000 38 000 38 000 Trade receivables Allowance for doubtful debts Balance 35 600 Bad debt 1 600 Income Summary 480 Balance 1 160 Balance (end) 34 000 Balance (34 x .02) 680 35 600 35 600 1 160 1 160 Therefore charge to Income statement for bad and doubtful debts = 1600 480 = $1 120 Asset Y depreciation Y1 = 20 000 x 20% = $4 000 Asset Y depreciation Y2 = (20000 4000) x 20% = $3200 Asset X depreciation = (10000 2000) / 5 years = $1 600 Total = 3200 + 1600 = $4800 depreciation is an application of the matching concept as it matches the cost of the asset with the revenue earned by the asset over its useful life. If it is after the preparation of the manufacturing account it must be the stock of loose tools. Had it been before the manufacturing account it could have been the annual charge for fixed tools. Cashbook (bank columns only) Balance (end) 4 825 Balance 4 800 Bank charges 25 48 25 4 825 Balance 4 825 X Ltd (Purchases ledger ) X Ltd (Sales ledger) X Ltd (Sales ledger) 500 Balance 500 Balance 750 X Ltd (purchases ledger) 500 A would not have been entered in either place B and C would both result in the control account balance exceeding the list of balances D the total entered in the control account is $900 less than it should be but the individual entries have all been entered correctly in the customer accounts. Marginal/absorption costing apply to the manufacture of goods only. Subscriptions Balance start (arrears) 75 Balance start (advance) 50 Income and expenditure 3 695 Bank 3 750 Balance end (advance) 150 Balance end (arrears) 120 3 920 3 920 Prime cost = direct costs of manufacturing Materials used = opening + purchases closing = 10 + 58 8 = $60 000 Direct labour $97 000 + 60 000 = $157 000 Lower of cost and net realisable value is the prudent way to measure stock. A accumulated fund is the club equivalent of the capital account B income and expenditure is the club equivalent of revenue and expenses D surplus or deficit is the club equivalent of profit or loss A goodwill is not shown in the profit appropriation B and D are distributions of profit (debited) in the appropriation Manufacturing wages should be debited in the manufacturing account therefore gross profit is overstated. There is no impact on net profit. Creditors: amounts falling due after 1 year = non-current liabilities = $30 000 + $70 000 = $100 000

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The share premium cannot be used for a cash dividend so this should be debited first for the bonus issue. General Journal General Journal Balance sheet (after) Share premium 80 Bank 140 Ordinary shares +300 500 Revenue 120 ordinary 100 Share premium - 80 + 40 reserves shares 40 ordinary 200 Share 40 Revenue -120 40 shares premium reserves (bonus issue) (rights issue) Debtors turnover (days) = debtors / credit sales x 360 credit sales = debtors / turnover / 360 = 26 700 / (30 / 360) = $320 400 Total sales = credit sales / .9 = $356 000 If mark-up remains unchanged the gross profit percentage will not change. Some of the fixed costs will not increase with greater volume so net profit improves Asset use = Return on total assets = operating profit / total assets. If assets increase then ROTA will decrease. Gearing = non-current liabilities : Equity and reserves. Revaluation reserve increases therefore gearing will fall. A current assets fall when the debt is written off B Non-current assets increase/decrease by same amount. No change to CA/CL C Bank (CA) decrease offset by trade payables (CL) decrease. Working capital unchanged. D Stock (CA) increase offset by trade payables increase. Working capital unchanged. Current ratio = CA : CL CA = 175 150 = $25 000 Current ratio = $25 000 : $5 000 = $5 : $1 Margin of safety = current level of output breakeven. Graph does not indicate current level of output but C is best option. Breakeven = fixed costs / (selling price variable costs). If selling price is increased and fixed.variable costs remain the same the BEP will fall. Absorbed overhead = actual overhead underabsorbed = 518 400 32 400 = $486 000 Actual output = absorbed / absorption rate = $486 / ($5.40 x 4) = 22 500 units Old price new price Selling price 25 27.50 Variable cost 15 15 Contribution (price variable costs) 10 12.50 Breakeven (fixed cost / contribution) 30 000 units 24 000 Margin of safety (50 000 BEP) 20 000 26 000 6000 increase in margin of safety is a 30% increase. Fixed costs will increase to $60 000. Therefore selling price must increase to $130 000 to maintain profit level. Old fixed costs new fixed costs Selling price/unit 120 130 Variable cost/unit 40 40 Contribution (price variable costs) 80 90 Breakeven (fixed cost / contribution) 50/80 = 625 units 60/90 = 667 Breakeven point has increased by 42 units Extra profit from X Extra profit from Y Total extra profit A 300 units x $12 $3 600 B 500 units x $12 = $6 000 1000 units x 4 = $4 000 $10 000 C 1000 units x $1 = $1 000 2000 units x $6 = $12 000 $13 000 D 1000 units x $5 = $5 000 2000 units x $5 = $10 000 $15 000