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Sample Paper 2
2016/ 2017
Questions & Suggested Solutions
Page 1 of 26
NOTES TO USERS ABOUT SAMPLE PAPERS
Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance
to students and their teachers regarding the style and type of question, and their suggested solutions, in
our examinations. They are not intended to provide an exhaustive list of all possible questions that may
be asked and both students and teachers alike are reminded to consult our published syllabus (see
www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics.
There are often many possible approaches to the solution of questions in professional examinations. It
should not be assumed that the approach adopted in these solutions is the only correct approach,
particularly with discursive answers. Alternative answers will be marked on their own merits.
This publication is copyright 2016 and may not be reproduced without permission of Accounting
Technicians Ireland.
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 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 is answered in Section B, then only the first TWO questions, in the
order filed, will be corrected.
All figures should be labelled, as appropriate, e.g. €’s, £’s, units etc. Answers
Page 2 overleaf.
NOTE: This sample paper and solution have been prepared to reflect the provisions of FRS102.
QUESTION 1
(i) The FRC is responsible for the framework of codes and standards for the accounting profession.
What are ‘accounting standards’ and describe the objective of such standards.
8 marks
(ii) Describe the steps involved in the standard setting process and the measures taken to improve
transparency within the process.
12 marks
Total 20 marks
QUESTION 2
The following multiple choice question consists of TEN parts, each of which is followed by FOUR
possible answers. There is ONLY ONE right answer in each part.
Requirement
N.B. Candidates should answer this question by ticking the appropriate boxes on the special green
answer sheet which is supplied with the examination paper.
[1] In accordance with FRS 102 net realisable value is defined as:
Brian and Jean are in partnership and their capital account balances are £/€ 56,000 and £/€ 84,000
respectively. The partnership agreement details appropriation of partnership profits as follows:
Brian Jean
[2] If the profit for the year, before appropriation, was £/€112,000 what would Brian’s entitlement be
in total:
[3] If the profit for the year, before appropriation, was £/€112,000 what would Jean’s entitlement be
in total:
[4] In accordance with FRS 102 the clarification after the end of the accounting period of proceeds
from assets sold before the end of the accounting period, is an example of:
[6] Company A has inventory days of 23 and receivable days of 38. Ideally payable days should be:
[7] If a capital grant is recognised as deferred income in the Statement of Financial Position what are
the entries to be made each year over the useful life of the associated asset:
The business premises of ABC Limited went on fire on 30 November 2010 and financial records
were destroyed. However the following information is available:
£/€
Receivables : opening 45,000
Closing 56,000
Inventory : opening 60,000
Closing 44,000
Sales (credit) 270,000
Irrecoverable Receivables 14,000
[9] Using the information available what is the value of sales receipts:
[10] In preparing a cash flow statement in accordance with FRS 102 a profit on disposal of a non -
current asset should be:
(a) deducted from operating profit in computing the net cash flow from operating activities
(b) added back to operating profit in computing the net cash flow from operating activities
(c) deducted from payments to acquire tangible fixed assets to compute capital expenditure
(d) added to payments to acquire tangible fixed assets to compute capital expenditure
WIRE Ltd., a retailing company, has an authorised share capital of €/£2,500,000, comprised of 4,000,000
ordinary shares of 50 cent/pence each and €/£500,000 of 5% preference shares of €/£1 each.
€/£’000 €/£’000
A full year’s depreciation is provided in the year of purchase and none in the year of disposal.
(2) During the year motor vehicles which cost £/€ 45,000 in 2011 were disposed of for £/€ 24,000.
The only entries made (before extracting the above trial balance) were to debit the bank account
and credit the disposal of motor vehicles account.
(3) The deferred government grants balance included in the above trial balance arises in respect of a
grant of £/€ 100,000 received in 2013 to help finance the cost of plant and machinery purchased
during that year.
In addition a grant of £/€ 18,000 was received on 29th December 2014 towards the cost of new
computers purchased during the year. This grant has not yet been recorded in the company’s
books.
(4) Prepaid expenses valued at €/£24,000 were incorrectly included in operating costs.
Requirement
(a) Prepare, in the form required by FRS 102, the Statement of Financial Position for WIRE Ltd., for
the year ended 31st December 2014 in as far as the information provided permits.
N. B. You are NOT required to prepare a Statement of Comprehensive Income or notes to the accounts.
You are required to submit workings to show the make-up of the figures in the statement of
financial position.
17 Marks
(b) Prepare the following notes to the accounts for the year ended 31 December 2014:
Presentation 2 marks
Total 25 Marks
QUESTION
4
CARTER Limited is installing a new production plant at a cost of £/€ 1 million, in respect of which
government grants have been approved as follows:
The company depreciates its plant and equipment on the basis of 20% on original cost. The directors are
aware that the accounting treatment for grants is dealt with in FRS 102, and they have asked you to
advise them on the accounting options available to them and the effect which they would have on the
company’s financial statements.
Requirement
Presentation 2 marks
Total 20 Marks
QUESTION 5
The following errors were identified by the financial accountant of CUSACK Limited (a VAT registered
company) when reviewing the year end draft financial statements:
[i] A cheque was written for £/€20,000 to MAC GARAGE Limited and was entered into the motor
expense account. No other entries were made in the financial records. The cheque was in respect of
the balancing payment for the purchase of a new car. A car which has originally cost £/€13,000 and
which had a net book value of £/€6,500 at 1st January 2014 was traded in as part exchange. Assume
no loss or gain was made on the trade-in.
[ii] Depreciation on motor vehicles is charged at 25% per annum with a full year’s depreciation charged
in the year of acquisition and none in the year of disposal. No account was taken of the transactions
in note (i) above when calculating the depreciation for the year to December 2014.
[iii] During the year a new machine was purchased for £/€484,000 (which is inclusive of VAT of 21%).
CUSACK Limited received a government grant of £/€60,000 towards the cost of the new machine.
Plant and machinery is depreciated at a rate of 10% per annum including a full year’s depreciation in
the year of acquisition. No entries were made to record this transaction.
QUESTION 5 (cont’d)
Requirement
(a) Prepare the journal entries to show how each of the above items should be dealt with in the
final accounts for the year ended 31st December 2014. Narratives for the journals are required.
15 marks
(b) Compute the adjusted net profit before taxation for the year ended 31st December 2014 taking
into account the adjustments made at (a) above. The net profit before taxation as per the draft
accounts was £/€ 350,000.
3 marks
Presentation 2 marks
Total 20 Marks
QUESTION 6
The Statement of Financial Position, Statement of Changes in Equity and other relevant information of
CLINIC Limited, for the year ended 31 December 2014, are as follows:
ASSETS
Non-current assets 1,440 1,320
Current assets
Inventory 1,890 1,530
Receivables 2,850 2,130
Cash & cash equivalents 30 30
4,770 3,690
2,040 1,560
Additional information:
(1) On 1 July 2014 CLINIC issued £/€ 1 ordinary shares at £/€ 2 per share.
(2) During the year CLINIC sold non-current assets with a net book value of £/€90,000 for cash.
Included in the Statement of Comprehensive Income is a profit on disposal of £/€ 60,000.
(3) Included in trade payables at 31 December 2014 is an amount of £/€ 450,000 in respect of non-
current assets purchased during the year.
(4) The Statement of Comprehensive Income includes the following charges for the year:
Requirement
(a) Prepare a statement of cash flows for CLINIC Limited for the year ended 31 December 2014 in
accordance with FRS 102.
.
N. B. You are NOT required to prepare notes to the statement of cash flows.
18 Marks
Presentation 2 marks
Total 20 Marks
NOTE: This sample paper and solution have been prepared to reflect the provisions of FRS 100‐
FRS102.
(a) What are Accounting Standards and describe the objectives of these standards.
Accounting standards are a set of rules that describe how an item in financial accounting is
treated and calculated and how accounts should be prepared and presented. The objective of
accounting standards is to regulate the accounting profession and to provide guidance to both
accounting practitioners and users of financial information about how contentious and
difficult areas should be treated.
The standard setting process involves eight steps and incorporates an extensive
consultation process from stakeholders. The eight steps are as follows;
As can be seen from the above discussion the process through which the standard is developed
involves a significant amount of public consultation. This improves transparency in the standard
setting process. It is not possible for an accounting standard to be issued without taking on
board comments from interested parties. This avoids the situation whereby the process becomes
a pure academic exercise and ensures that the practical application is considered, understood
and provided for.
(1) B
(4) A
(5) C
(6) B
(7) A
(10) A
Workings:
(a)
WIRE Ltd.
£/€’000 £/€’000
Non‐current assets
Current assets
Inventories 50
Trade receivables 156
Prepayments (W1) 36
Cash and cash equivalents (W2) 124
366
Non‐current liabilities
Current liabilities
2,769
(b)
WIRE LIMITED
Accumulated depreciation
at 1st January 2014 400 240 70 45 755
charge for year 50 49 20 50 169
450 289 90 95 924
disposals 0 0 (27) 0 (27)
at 31st December
2014 450 289 63 95 897
Workings
(1) Prepayments
£/€’000
36
£/€’000
Bank balance 66
Short term investment 40
106
124
£/€’000
Accumulated profits 64
1,800
(5) Reserves
£/€’000
380
233
Cost in 2011 45
Depreciation charge:
2011
2012
2013
NBV 18
Proceeds 24
Profit on disposal 6
To : The Directors
From : A. Accountant
Date : XX/MM/YY
Subject : Accounting treatment of government grants
A. Accounting treatment
The grants which have been approved for the new production facility fall into two distinct
categories:
The above two grants are treated differently for accounting purposes. FRS 102 provides that: Revenue
based grants are to be credited to revenue as “other income” in the period in which the
related revenue expenditure has been incurred.
Capital based grants should be credited to revenue over the life of the related non‐current asset. The
amount of the grant should be credited to a deferred grant account, a portion of which is transferred to
revenue annually on the same basis as the related asset is depreciated
B. Recommendations
I recommend that Carter Limited adopt the following accounting treatment; Training
C. Accounting policies
The notes to the accounts of CARTER Limited should include the following:
(i)
Accounting Policy – Government Grants
Grants receivable on additions to non‐current assets are credited to the Deferred Government Grant
Account and are allocated to the Statement of Comprehensive Income over the estimated useful lives of
the assets concerned. Revenue based grants are credited directly to the Statement of Comprehensive
Income in the year in which they become due.
Solution to question 5
(a) DR CR
(i)
DR Motor vehicles (SOFP) 20000
CR Motor Expenses (SOCI) 20,000
DR Motor Vehicles 6,500
CR Disposal a/c 6,500
DR Disposal a/c 13,000
CR Motor Vehicles 13,000
DR Disposal a/c 6,500
CR Accumulated Depreciation 6,500
(ii)
(iii)
DR Bank 60,000
Cr Deferred income (SOFP) 60,000
(b)
£/€
[a]
CLINIC Limited
Adjustments for:
Depreciation 600
Profit on disposal (W3) (60)
NBV 90
Profit on sale 60
Sale proceeds 150
(4) Taxation
£/€’000
Opening balance 90
Charge for year 30
Closing balance (30)
Amount paid 90
Purchases 810
Amount owing included in trade payables 450
Amount paid 360
(7) Debentures
£/€’000