| ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| END SEMESTER EXAMINATION – SEPT/OCT. 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B.COM(Int. Fin & A/c)– I SEMESTER | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| C4 15MC101: FINANCIAL ACCOUNTING | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Duration: 3 Hours Max. Marks: 100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SECTION – A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| I) | Answer ALL the questions. Each carries 2 marks. (10×2=20) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. | Sales revenue should be recognised when goods and services have been supplied; costs are incurred when goods and services have been received.
Which accounting concept governs the above? Explain. |
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| 2. | The net assets of Atlas, a trader, at 1 January 20X5 amounted to $128,000. During the year to 31 December 20X5 Atlas introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 20X5 Atlas net assets totalled $184,000. What is Atlas total profit or loss for the year ended 31 December 20X5? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. | A company’s motor vehicles at cost account at 30 June 20X6 is as follows:
MOTOR VEHICLES – COST
What opening balance should be included in the following period’s trial balance for motor vehicles – cost at 1 July 20X6? Why? |
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| 4. | Jones Company has the following transactions:
1) Payment of $400 to J Blog for a cash purchase. 2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month. What are the correct ledger entries to record these transactions? |
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| 5. | You are given the following information:
Receivables at 1 January 20X5 $10,000 Receivables at 31 December 20X5 $9,000 Total receipts during 20X5 (including cash sales of $5,000) $85,000 What are sales on credit during 20X5? |
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| 6. | Ben has extracted the following list of balances from his general ledger at 31 October 20X5:
Sales $258,542; Opening inventory $9,649; Purchases $142,958; Expenses $34,835; Non-current assets (carrying amount) $63,960; Receivables $31,746; Payables $13,864; Cash at bank $1,783; Capital $12,525. What is the total of the debit balances in Ben’s trial balance at 31 October 20X5? |
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| 7. | Distinguish between Carriage Inwards and Outwards and its treatment. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8. | In preparing its financial statements for the current year, a company’s closing inventory was understated by $300,000.What will be the effect of this error if it remains uncorrected? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9. | Your firm bought a machine for $5,000 on 1 January 20X1, which had an expected useful life of four years and an expected residual value of $1,000; the asset was to be depreciated on the straight-line basis. The firm’s policy is to charge depreciation in the year of disposal. On 31 December 20X3, the machine was sold for $1,600.What amount should be entered in the 20X3 statement of comprehensive income for profit or loss on disposal? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10. | What does IAS 1 and IAS 16 deal with? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SECTION – B | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| II) | Answer any FOUR questions. Each carries 5 marks. (4×5=20) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11. | (a) At 31 December 20X4 a company’s capital structure was as follows:
Ordinary share capital $125,000(500,000 shares of 25c each) Share premium account 100,000 In the year ended 31 December 20X5 the company made a rights issue of 1 share for every 2 held at$1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1share for every 5 held, using the share premium account for the purpose. What was the company’s capital structure at 31 December 20X5? (b) Explain the term Limited Liability Companies. (3+2) |
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| 12. | The closing inventory at cost of a company at 31 January 20X5 amounted to $284,700.
The following items were included at cost in the total: a) 400 coats, which had cost $80 each and normally sold for $150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds. b) 800 skirts, which had cost $20 each. These too were found to be defective. Remedial work in February 20X5 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each. What should the inventory value be according to IAS 2 Inventories after considering the above items? |
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| 13. | Yen Co. is a company which specialises in developing new materials and manufacturing processes for the furniture industry. The company receives payments from a variety of manufacturers, which pay for the right to use the company’s patented fabrics and processes.
Research and development cost for the year ended 30 September 20X5 can be analysed as follows: Current project: Project A $280,000 New flame-proof padding. Expected to cost a total of $400,000 to complete development. Expected total revenue $2,000,000 once work completed – probably late 20X6. Customers already placed advance orders for the material after seeing demonstrations of its capabilities earlier in the year. Explain how the research project A will be dealt with in Yen Co.’s statement of profit or loss and statement of financial position. Explain your proposed treatment in terms of IAS 38 Intangible assets. |
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| 14. | Give Journal entries to rectify the following errors:
a. $2000 paid for furniture purchased has been debited to Purchases account. b. Goods of $300 taken by the proprietor have not been entered in the books at all. c. A credit sale of goods to Ram for $2500 has been wrongly passed through the purchase book. d. No entry has been made for purchases return of $200. e. An amount of $1200 spent on annual white-washing was debited to building. |
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| 15. | (a)S & Co sell three products – A, B and C. The following information was available at the year end.
In accordance with IAS2 Inventories, what is the value of inventory at the year end?
(b)A car was purchased by a business in May 20X1 for: Cost 10,000; Road fund licence 150; Total 10,150. The business adopts a date of 31 December as its year end. The car was traded in for a replacement vehicle in August 20X4 at an agreed value of $5,000.It has been depreciated at 25% per annum on the reducing-balance method, charging a full year’sdepreciation in the year of purchase and none in the year of sale. What was the profit or loss on disposal of the vehicle during the year ended December 20X4? (2.5 +2.5) |
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| 16. | Given that prudence is the main consideration, discuss under what circumstances, if any, revenue (IAS 18) might be recognised at the following stages of a sale:
a. Goods are acquired by the business which it confidently expects to resell very quickly. b. A customer places with a firm order for the goods. c. The goods are delivered to the customer. d. The customer pays for the goods. e. The customer’s cheque in payment for the goods is cleared by the bank. |
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SECTION – C |
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| III) | Answer any THREE questions. Each carries 15 marks. (3×15=45) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17. | (a)What is the purpose of depreciation? In what circumstances is the reducing balance method more appropriate than the straight line method? Give reasons for your answer.
(b) Charles Company entered into the following transactions: i) He sold goods on credit to Cody with a list price of $3,200. He allows a 10% trade discount anda further 2% discount for payment within seven days. Cody paid within two days. ii) He made a credit sale to Mary allowing a 5% trade discount on the list price of $640. iii) He purchased goods for $600 and paid $590, receiving a discount for immediate cash payment. How much discount should be recorded in the Discount Allowed account as a result of the above transactions?
(c)Alice Company has issued 100,000 ordinary shares of $1 each and 40,000 7% preference shares of $2 each. Its profits after taxation for the year to 30 September 20X5 were $16,800. The management board has decided to pay an ordinary dividend (i.e. a dividend on ordinary shares) which is 50% of profits after tax and preference dividend. Required: Show the amount in total of dividends as appropriation of profit and of retained profits, and calculate the dividend per share on ordinary shares. ( 5+3+ 7 ) |
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| 18. | A firm has the following transactions with its product S.
Year 1 Opening inventory: nil Buys 20 units at $600 per unit Buys 24 units at $500 per unit Sells 16 units at $800 per unit Buys 12 units at $400 per unit Sells 24 units at $800 per unit Year 2 Buys 20 units at $400 per unit Sells 10 units at $800 per unit Buys 24 units at $300 per unit Sells 50 units at $800 per unit Required Using FIFO, calculate the following on an item by item basis for both year 1 and year 2. (i) The closing inventory (ii) The sales (iii) The cost of sales (iv) The gross profit |
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| 19. | The following is the Trial Balance of Harry as at 31st March, 20X5: (in $)
The following adjustments are to be made: a. Included amongst the Debtors is $ 3,000 due from Rammy and included among the Creditor $ 1,000 due to him. b. Provision for Doubtful Debts is created at 5% and Discount at 2% on Sundry Debtors. c. Depreciation on Furniture and Fittings at 10% shall be written off. d. Personal purchases of Harry amounting to $ 600 had been recorded in the Purchase Day Book. e. Interest on Bank Loan shall be provided for the whole year. f. A quarter of the amount of Printing & Stationary Expenses is to be carried forward to the next year. g. Credit Purchase Invoice amounting to $ 400 had been omitted from the Books. h. Stock on 31.3.2015 was $78,600 You are required to prepare the Trading and Profit & Loss A/c for the year ended 31.3.2015 and Balance Sheet as on 31.3.2015. |
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| 20. | (a) A business includes $220,000 worth of machinery at cost in its accounts. Its policy is to make a provision for depreciation at 20% per annum straight line. The total provision now stands at $140,000. The business sells for $38,000 a machine which it purchased exactly two years ago for $60,000. Show the relevant double entries as well as ledger entries.
(b)You are a dealer in Computers. The Balance sheet on the 1st day is as follows:
On the second day computers purchased worth $400,000 for cash. On the third day plant purchased for cash $1,600,000. On the fourth day purchase of stationary for $100,000 for cash. On the Fifth day goods sold for cash $600,000 (cost $400,000). On the sixth day loan of $300,000 received from European Bank. Answer the following questions: i. Identify the first day transaction and pass journal entry ________________ ii. The balance sheet total on the asset side at the end of the second day is _____________. iii. The balance sheet total of inventory at the beginning of third day is_____________. iv. The balance sheet total on the asset side at the end of the 5th day is ______________. v. The balance sheet cash position at the beginning of the 5th day is ________. vi. The liability side total at the end of fifth day will be ______________. vii. Profits earned during the first week are ____________. viii. If debit side total is more than credit side total, it is a _____________. (7+8)
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| 21. | When Ivan commenced trading as a car hire dealer on 1 January 20X1, he purchased business premises at a cost of $100,000.
For the purpose of accounting for depreciation, he decided the following: (a) The land part of the business premises was worth $40,000; this would not be depreciated. (b) The building part of the business premises was worth the remaining $60,000. This would be depreciated by the straight line method to a nil residual value over 30 years. After five years of trading, on 1 January 20X6 Ivan decides that his business premises are now worth $300,000, divided into: $ Land 150,000 Building 150,000 300,000 He estimates that the building still has a further 25 years of useful life remaining. Required: (a) Calculate the annual charge for depreciation for the first five years of the building’s life and the statement of financial position value of the land and building as at the end of each of the first five years. (b) Demonstrate the impact the revaluation will have on the depreciation charge and the statement of financial position value of the land and building. (c) Show the Accounting Entries in the Ledger for the above Revaluation. |
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| SECTION – D | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IV) | Case Study (1×15=15) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 22. | UPS, a limited liability company, has the following Trial balance at 31 December 20X5.
The following additional information is relevant.(Amount in ‘000s) (a) Inventory at 31 December 20X5 was valued at $1,600. While doing the inventory count, errors in the previous year’s inventory count were discovered. The inventory brought forward at thebeginning of the year should have been $2200, not $2400 as above. (b) Depreciation is to be provided as follows: (i) Buildings at 5% straight line, charged to administrative expenses. (ii) Plant and equipment at 20% on the reducing balance basis, charged to cost of sales. (iii) Motor vehicles at 25% on the reducing balance basis, charged to distribution costs. (c) No final dividend is being proposed. (d) A customer has gone bankrupt owing $76,000. This debt is not expected to be recovered and an adjustment should be made. An allowance for receivables of 5% is to be set up. (e) 1 million new ordinary shares were issued at $1.50 on 1 December 20X5. The proceeds havebeen left in a suspense account. Required: Prepare the following: (a) Statement of profit or loss for the year ended 31 December 20X5 (b) Statement of changes in equity for the year ended 31 December 20X5 (c) Statement of financial position as at 31 December 20X5 All statements are to be prepared in accordance with the requirements of International FinancialReporting Standards. Ignore taxation. (3+4+8) |
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