ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
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Incomestatement
$ $
Disposalaccount 2,000
(Lossondisposal)
Exercise 7
Revaluationaccount
$ $
Buildingaccount 1,000,000 Accumulated
depreciation
60,000
Revaluationreserve
(=balancingfigure)
1,060,000 Buildingaccount 2,000,000
2,060,000 2,060,000
Buildingaccount
$ $
Openingbalanceb/f 1,000,000 Revaluationaccount 1,000,000
Revaluationaccount 2,000,000 Closingbalancec/f 2,000,000
3,000,000 3,000,000
Openingbalanceb/f 2,000,000
Accumulateddepreciationofbuildingaccount
$ $
Revaluationaccount 60,000 Openingbalanceb/f 60,000
Revaluationreserve
$ $
Revaluationaccount 1,060,000
Exercise 8
A machine was purchased three years ago on 1 January Year 2. It cost $150,000 and
its expected life was 10 years with an expected residual value was $30,000.
Due to technological changes, the estimated life of the asset was re-assessed during
Year 5. The total useful life of the asset is now expected to be 7 years and the
machine is now considered to have no residual value.
Original depreciation = $150,000 – 30,000/10
= $12,000 per annum
Net book value at start of year 5 = $150,000 – (12,000 × 3)
= $114,000
If the total useful life is anticipated to be 7 years then there are four years remaining.
Depreciation charge for year 5 = $114,000/4
= $28,500
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Multiple choice questions
1 D
$
Originalcost 160,000
Depreciationinyearto30June2008(25%) (40,000)
120,000
Depreciationinyearto30June2009(25%) (30,000)
90,000
Depreciationinyearto30June2010(25%) (22,500)
67,500
Disposalvalue 60,000
Lossondisposal (7,500)
2 B
The land and buildings are re-valued in the asset account from $2.1 million to $2.4
million; therefore debit land and buildings $300,000. Accumulated depreciation on
the building is reduced to $0; therefore debit accumulated depreciation $150,000.
Credit Revaluation reserve with $450,000.
3 B
Assets held throughout the year = $720,000 - $63,000 = $657,000.
Depreciationcharge
$
Assetsheldthroughouttheyear(657,000×20%) 131,400
Newassetpurchase(36,000×20%×6/12) 3,600
Assetdisposedof(63,000×20%×9/12) 9,450
Totaldepreciationcharge 144,450
4 A
Original annual depreciation charge = $(140,000 – 20,000)/10 years = $12,000.
The revised depreciation charge applies fro 1 July 2009, when the asset is 3 years old
and now has an estimated remaining life of 4 years.
$
Assetcost 140,000
Accumulateddepreciationto30June2009(3years) 36,000
Netbookvalueat30June2009 104,000
The remaining depreciable amount is $84,000 (= $104,000 – 20,000)
Remaining useful life 4 years
Therefore annual depreciation charge from 1 July 2009 = $21,000
$
Netbookvalueat30June2009 104,000
Depreciationinyearto30June2010 21,000
Netbookvalueat30June2010 83,000
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5 B
The depreciation charge after the revaluation is $100,000 per year (= $4.8 million/48
years). Before the revaluation it was $80,000 per year (= $4 million/50 years). Excess
depreciation is therefore $20,000. The excess depreciation each year is transferred
from revaluation reserve to retained profits, but is not reported in profit or loss for
the year.
Chapter 7: Accruals and prepayments. Receivables and payables
Exercise 1
Method 1
$
Paymentsintheyear:(42,000x3)+48,000 174,000
AccruedexpenseattheendofYear3(=48,000×1month/3months) 16,000
190,000
Less:Accruedexpenseatthebeginningoftheyear(=42,000×2months/3
months)
(28,000)
RentalexpenseintheincomestatementforYear3 172,000
Method 2
Factoryrentalexpenseaccount
Year3
$ $
Bank 42,000 Balanceb/f(accrual) 28,000
Bank 42,000 Incomestatement 172,000
Bank 42,000 (balancingfigure)
Bank 48,000
Balancec/f(accrual) 16,000
190,000 190,000
Year4
Balanceb/f(accrual) 16,000
Exercise 2
$
Invoices/paymentsfortheyear 12,900
+Openingprepaidexpense 1,700
14,600
–Closingprepaidexpense (1,900)
=Expensefortheyear 12,700
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Exercise 3
Tradereceivables
$ $
Openingbalanceb/f 77,000 Irrecoverabledebts 7,000
Sales 250,000 (baddebtswrittenoff)
Bank 252,000
Closingbalancec/f
(=balancingfigure)
68,000
327,000 327,000
Openingbalanceb/f 68,000
Irrecoverabledebtsexpense
$ $
Tradereceivables 7,000 Allowanceforirrecoverable
debts
1,500
(=baddebtswrittenoff)(=reductioninallowance)
Incomestatement 5,500
(=balancingfigure)
7,000 7,000
Allowanceforirrecoverabledebts
$ $
Irrecoverabledebts 1,500 Openingbalanceb/f 6,000
(=reductioninallowance)
Closingbalancec/f 4,500
6,000 6,000
Openingbalanceb/f 4,500
Multiple choice questions
1 B
Statementoffinancialposition
$
Yearendreceivables$(942,000–86,000) 856,000
Allowanceforirrecoverabledebts (65,000)
Nettradereceivables 791,000
2 A
Insurancecoststo30June2010 $
Premiumfor9months1July2009–31Mar2010(9/12×$27,600) 20,700
Premiumfor3months1April2010–30Jun2010(3/12×$30,000) 7,500
Insurancecostforyearto30June2010 28,200
At30June2010,insurancehasbeenprepaidforthe9‐monthperiod1July2010–31
March2011.Thisprepaymentis (9/12 × $27,600) = $22,500.
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3 D
Rentalincome
$ $
Cashreceived948,300
Excludefromprofitandlossfortheyear
Rentreceivedinadvancefornextyear 138,100
Cashreceivedforrentinarrearsforpreviousyear 5,700
(143,800)
Includeinprofitandlossfortheyear
Rentreceivedlastyearforcurrentyear 127,900
Rentinarrearsforcurrentyear,notyetreceived 9,400
137,300
Totalrentalincomeforyearto30June941,800
4 A
Payables
$ $
Cashpaidtosuppliers 491,000 Balanceb/f 212,500
Discountsreceived 2,700 Purchases 447,000
Contras:receivablesledger 12,800 Refundsfromsuppliers 3,200
Purchasesreturns 7,600
Balancec/f(balancingfigure)
148,600
662,700 662,700
5 A
$
For the 4 months 1 December 2009 – 31 March 2010: 4/12 × $240,000
80,000
For the 8 months 1 April – 30 November 2010: 8/12 × $288,000
192,000
Total insurance cost for the year 272,000
At 30 November 2010, there is a prepaid expense for rent for December 2010. The
prepayment is therefore $24,000 (= $288,000/12 months). This prepayment will be
included in current assets in the statement of financial position as at 30 November
2010 (a debit balance).
In the same way at 30 November 2009, the previous year, there was prepaid rent for
December 2009 of $20,000.
The total amount to be charged to the income statement for the year to 30 November
2010 could also be calculated as follows:
$
Payment on 1 January 60,000
Payments on 1 April, 1 July, 1 October 216,000
+ Opening prepaid expense (for December 2009) 20,000
296,000
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– Closing prepaid expense (for December 2008) (24,000)
= Expense for the year 272,000
6 A
$ $
Irrecoverabledebtswrittenoff29,000
Allowanceatendofyear5%×$(749,000–29,000) 36,000
Allowanceatbeginningofyear 44,000
Reductioninallowanceforirrecoverabledebts(8,000)
Totalchargefortheyear21,000
7 C
Receivablesledgercontrolaccount
$ $
Openingbalance 268,900 Ca shfromcreditcustomers 106,400
Interestchargedonoverdueaccounts 1,600 Discountsallowed 2,400
Creditsales 115,800 Baddebtswrittenoff 5,900
Contrasagainstpayables 5,300
Closingbalance
266,300
386,300 386,300
Note: Cash sales (Debit Bank, Credit Sales) and changes in the allowance for
receivables are not recorded in the receivables ledger accounts or the total account for
receivables.
Chapter 8: Provisions and contingencies
Multiple choice questions
1 D
A provision cannot be made for future operating losses. A provision can be made
for future reorganisation costs under certain circumstances.
2 C
When the likelihood of a future obligation is less than probable but more than
remote, it should be disclosed as a contingent asset. When the obligation becomes
probable, it should be recognised as a liability (in this case as a provision).
3 A
The likelihood of an obligation arising in (1) is possible but not probable; therefore it
should be disclosed in a note as a contingent liability. There is an obligation for the
company to meet warranty claims and a future obligation is certain (even though it
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is difficult to estimate accurately). A provision for warranty costs should therefore
be made.
4 D
When a contingent asset is ‘recognised’, this means that it is treated as an asset in
the statement of financial position. This occurs when the economic benefits are
virtually certain to arise.
5 C
The provision should be for the most likely amount, which is $400,000 in this
situation.
6 B
Chapter 9: Capital structure and finance costs
Exercise 1
Share capital = $600,000 + 400,000
= $1,000,000
Share premium = 400,000 shares × $2.20 premium
= $880,000
Exercise 2
Number of shares in issue = 800,000 shares at $0.25 each.
New shares issued = 800,000 × 2/5 = 320,000.
Cash raised = 320,000 shares × $2.25 = $720,000.
Increase in issued share capital = 320,000 shares × $0.25 = $80,000.
Increase in share premium = 320,000 shares × ($2.25 - $0.25) = $640,000.
Aftertherightsissue
$000
Non‐currentassets 780
Currentassets(170+720) 890
Totalassets 1,670
Equityandliabilities
Sharecapital:ordinarysharesof$0.25each 280
Sharepremium(70+640) 710
Retainedearnings 330
Totalequity 1,320
Non‐currentliabilities 200
Currentliabilities 150
Totalequityandliabilities 1,670
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Exercise 3
Sharecapital
Share
premium
Retained
earnings
$000$000$000
Beforethebonusissue 400170520
Bonusissue(400×1/2) 200(170)(30)
Afterthebonusissue 6000490
Statementoffinancialpositionafterthebonusissue
$000
Non‐currentassets 1,230
Currentassets 510
Totalassets 1,740
Equityandliabilities
Sharecapital:ordinarysharesof$0.25each 600
Retainedearnings 490
Totalequity 1,090
Non‐currentliabilities 400
Currentliabilities 250
Totalequityandliabilities 1,740
Exercise 4
Share
capital
Share
premium
Reval’n
surplus
Retained
earnings
Total
$000 $000 $000 $000 $000
At1JanuaryYear3 500 100 120 480 1,200
Rightsissueofshares 100 120 220
Bonusissueofshares 200 (200)
Equitydividendspaid(200) (200)
Profitaftertax400 400
Othercomprehensive
income:gainon
revaluationof
property
100 100
At31DecemberYear3 800 20
220 680 1,720
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Multiple choice questions
1 A
2 D
Equity dividends paid are disclosed in the statement of changes in equity, but
dividends that have been declared are disclosed in a note to the statements.
Dividend payments reduce total reserves (retained profits) in the statement of
financial position, but they are not separately disclosed in either the income
statement or the statement of financial position.
3 C
A bonus issue involves the transfer of some reserves (usually share premium) to
share capital, but total share capital plus reserves remain unchanged.
4 A
Share
capital
Share
premium
$ $
At 1 July 2009
200,000 160,000
1 for 2 bonus issue
100,000 (100,000)
300,000 60,000
2 for 5 rights issue
120,000 120,000
(120,000 shares, premium $1 per share)
At 30 June 2010
420,000 180,000
5 A
Sales Share
capital
Share
premium
$ $ $
Whatwasrecorded Cr1,000,000 ‐‐
Whatshouldhavebeenrecorded‐Cr200,000 Cr800,000
Adjustmenttocorrecttheerror Dr1,000,000 Cr200,000 Cr800,000
Chapter 10: Trial balance, correcting errors and suspense accounts
Exercise 1
The errors are corrected as follows.
Journalentry Debit Credit
$ $
Error1
Salesreturns 800
Suspenseaccount 800
Purchasesreturns 800
Suspenseaccount 800
Error2
Suspenseaccount 1,000
Sales 1,000
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The opening balance on the suspense account is a debit balance, since total credits
are higher than total debits by $600.
Suspenseaccount
$ $
Openingbalance 600 Salesreturns 800
Sales 1,000 Purchasesreturns 800
1,600 1,600
Multiple choice questions
1 D
2 A
For Item B, if the narrative is correct the debits and credits would be the other way
round. For Item C, the error is corrected by Debit Rent expenses $34,000, Credit
Rental income account $34,000. For Item D, the correct entry should be Debit Wages
and Salaries, credit Cash (or Mr Lima’s personal account).
3 A
The errors in 3 and 4 do not involve different amounts of debit and credit entries;
therefore a suspense account is not required to correct the error.
4 A
Omissions – a failure to record either the debit or the credit side of a transaction - do
not make total debits and total credits different. The error in B results in higher total
credit balances than debit balances.
5 C
Where we are: Discounts allowed: Debit $4,510
Discounts received: Credit $3,520
Where we want to be: Discounts allowed: Debit $3,520
Discounts received: Credit $4,510
To correct:
Credit: Discounts allowed: $990
Credit: Discounts received: $990
So Debit: Suspense account $1,980