Question 1

The following trial balance is of T. Portside a sole trader at 31 May 2010:

Debit               Credit

£000                  £000

Buildings at cost                                                                        592

Plant at cost                                                                                 176

Plant, accumulated depreciation, 1 June 09                                                           88

Land at cost                                                                                238

Bank balance                                                                               30

Sales                                                                                                                  1,510

Purchases                                                                                   884

Discounts                                                                                    20                       76

Returns inwards                                                                          28

Carriage outwards                                                                        10

Wages                                                                                         170

Insurance                                                                                      14

Energy expenses                                                                          70

Inventory at 1 June 09                                                                 128

Trade payables                                                                                                    207

Trade receivables                                                                      263

Office expenses                                                                           64

Allowance for ID at 1 Jun 09                                                                                    8

Loan                                                                                                                       40

Loan interest paid                                                                         4

Drawings                                                                                     20

Capital                                                                                                                   734

 

2,711               2,711

======          ======

Additional information as at 31 May 2010:

1.   Closing inventory has been counted and valued at £60,000

2.   £12,000 for energy expenses for May 2010 has not been accrued.

3.   Insurance expenses include £2,000 for June & July 2010.

4.   Irrecoverable debts of £7,000 have yet to be written off

5.   The allowance for ID is to be increased to 5% of trade receivables.

6.   Plant is depreciated at 25% per annum using the reducing balance method. 7.   Buildings are depreciated at 5% per annum on their original cost.

8.   T.Portside had removed inventory costing £10,000 for his own use during the year.

Required:

(a) Prepare the Income Statement and SFP for the year ended 31 May 2010 (40 marks)

Question 1-continued

T.Portside Income Statement for the year ended 31 May2010

=====

Profit for the year

=====

T.Portside Statement of Financial Position as at 31 May 2010

(b) Discuss how financial statements meet the needs of their primary users. Give examples.    (10 marks)

(TOTAL 50 MARKS)

WORKINGS FOR QUESTION 1

Cost

Less: depreciation

Net book value

Vehicles

£

120,650

54,320

 

66,330

Vehicles are depreciated using the straight line method over 5 years.

The company’s depreciation policy states that depreciation is to be charged pro rata to time in the year of acquisition but no charge should be made in the year of disposal.

During the current year (to 31st  December 2010) the following transactions took place:

Additions:

31 January 2010

31st March 2010

30 June 2010

Purchased a lorry for £30,000

Purchased a van for £12,000

Purchased a car for £18,000

Disposals:

30 April 2010                          Motor car sold for £2,000 – it cost £12,000 on 1st  August 2007

31 August 2010                      Lorry sold for £7,400 – it cost £18,000 on 31st  May 2008

31 October 2010                     Van sold for £3,500 – it cost £9,000 on 30th  Sept 2008

Required:

(a)  Complete the Cost, provision for depreciation and disposal accounts below  showing your      workings (show all your calculations to the nearest whole number)                         (20 marks)

Dr                                                     Cost Account                                                        Cr

Dr

Provision for Depreciation Account

Cr

Workings

b) Explain the difference between capital and revenue expenditure (4 marks)

c) Give an example of an IAS governing NCA’s and depreciation? (1mark)

(Total 25 marks)

Question 3

You have been asked to prepare control accounts in order to produce end of year figures for receivables and payables for inclusion in the accounts of Blackheath Ltd for the year ended  31st December 2011. All sales and purchases are on made credit. You obtain the following  information for the year:

	£
Discounts allowed	5,450
Cash and cheques from credit customers	329,871
Discounts received	2,905
Cash and cheques paid to credit suppliers	289,470
Customer’s cheque dishonoured	543
Carriage inwards	2,343
Purchases	310,259
Sales	315,003
Returns inwards	7,498
Returns outwards	3,892

In addition the following information is received:

(i)  Irrecoverable debts amounting to £1,256 are to be written off and the allowance for ID is £3,450

(ii) A balance of £250 in the purchase ledger control account is to be offset against the same person’s balance in the sales ledger control account (i.e. a contra entry)

(iii) A signed “bill of exchange receivable” for £8,650 was received from a customer. Cash received from bills receivable was £4,232.

(iv) Cash of £1,245 was received in respect of a debit balance on a credit supplier’s ledger account

(v) the opening balances at 1st  January 2011 for receivables and payables were £56,907 and £78,540, respectively.

Required:

a)   Complete the two control accounts below for the year ended 31st December 2011 entering the closing balances for receivables and payables. (15 marks)

 

Dr                                                     Purchases control a/c                                Cr

b)   What is the purpose of control accounts? (4 marks)

c)    Name any THREE accounting concepts and give a brief explanation of each one. (6 marks)

Question 4

(a)  At 1st  January 2010, the following balances were brought forward in the ledger of A.Shrub:

Rates payable account

Electricity account

Interest receivable account Allowance for ID

Dr

Cr

Dr

Cr

£500

£400

£500

£3,200

You are told the following:

Rates are payable quarterly in advance on the last day of October, January, April and July. The charge for rates was increased on 1st  August from £6,000 per annum to £7,200 per

annum.

Interest was received during the year as follows:

 

2nd January 2010	£500 (for the 6 months to 31st  December 2009)
2nd July 2010	£650 (for the 6 months to 30th  June 2010)

From 1st July 2010 onwards the balance on the loan was £20,000 and interest was received at a rate of 6% per annum.

Electricity is paid as follows:

 

2nd February 2010

3rd May 2010

2nd August 2010

4th November 2010

£560 (for the period to 31st  January 2010)

£670 (for the period to 30th  April 2010)

£630 (for the period to 31st  July 2010)

£675 (for the period to 31st  October 2010)

Any accrual required for electricity at the year end is estimated using the most recent bill received.

At 31st  December the balance of trade receivables amounts to £200,000. This includes a bad debt for £6,000 which is to be written off. The allowance for ID is to be amended to 3% of   trade receivables.

(a) Complete the ledger accounts below for rates, electricity, interest receivable and the allowance for ID for the year ended 31st  December 2010.

(18 marks)

Dr                                                     Electricity  Account                                                Cr

 

Dr

Interest Receivable  Account

Cr

 

Dr

Allowance for IR

Cr

 

Workings