ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
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Paper F3 (INT)
Financial Accounting
Q&A
Practice questions
Contents
Page
Recording transactions: sales, purchases and
cash
1 May transactions 417
2 June transactions 417
3 July transactions 418
Non-current assets
4 Revaluation 419
5 Owen 419
Provisions and contingencies
6 IAS37 420
Trial balance, correcting errors and suspense
accounts
7 Suspense 421
Control accounts and bank reconciliations
8 Control accounts 421
9 Control account reconciliation 422
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Preparing financial statements
10 SWAN 423
11 Stephen Chee 424
12 Herbert 425
13 Bell 426
14 Team Company financial statements 426
15 Blot Company 427
16 SAW Company 428
Partnership accounts
17 PAL Partnership 429
Statements of cash flows
18 King Company 430
19 Dove statement of cash flows 431
20 Hart statement of cash flows 432
Incomplete records
21 Miss Ringer 433
Practice questions
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1 May transactions
The following transactions in May Year 6 are those of a new business entity, Home
Oak Garden Traders.
MayYear6
Date
1 Setuptheentitywithcapitalincash:$2,500.
2 Boughtgoodsoncreditfromthefollowingsuppliers:TheBushesCompany$540,
FlowerCity$870,DGibson$250,Weedkill$760,TGreenery$640.(Total$3,060).
4 Soldgoodsoncreditto:TheOfficeCompany$430,VCork$640,TexasChain
Stores$1,760.(Total$2,830).
6 Paidrent$120.
9 TheOfficeCompanypaidthe$430thatitowed.
10 TexasChainStorespaid$1,500.
12 Thefollowingpaymentsweremade:toDGibson$250andtoTheBushes
Company$540.(Total$790).
15 Advertisingcostsof$230werepaidto
thelocalnewspaperpublisher.
18 Boughtgoodsoncreditfromthefollowingsuppliers:TheBushesCompany$430,
Landscape$1,100.(Total$1,530).
21 SoldgoodsoncredittoPublicParks$670
31 Paidrent$180.
Required
(a) You are required to use T accounts to show how these transactions should be
recorded in the main ledger accounts of the entity. The accounting system
contains a receivables ledger and a payables ledger for individual accounts, and
there are control accounts (total accounts) for receivables and payables in the
main ledger.
(b) Prepare a trial balance as at 31 May Year 6.
2 June transactions
The following transactions in June Year 7 are those of a new business entity,
Parakeet.
JuneYear7
Date
1 Setuptheentitywithcapitalincash:$6,500.
2 BoughtgoodsoncreditfromCJones$1,800
3 Creditsales:JBird$660,DSwann$250,SwallowCompany$430.(Total$1,340).
4 Purchasedgoodsforcash$230.
5 Boughtsecond‐handmotorvanfor$2,560,payingbycheque.
7
Paidmotorexpenses$120.
9 Creditsales:MParrott$240,CanaryCompany$260,GFinch$680.(Total$1,180).
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11 Purchasedgoodsoncredit:CJones$2,400,EDavies$620,AEvans$460.(Total
$3,480).
13 PurchasesreturnedtoCJones$250.
19 SalesreturnsfromDSwann$110.
20 Cashdrawingstakenbyowner$440.
21 PaymentsmadetoEDavies$620,AEvans$460.(Total$1,080).
23 Received
paymentfromJBird$660.
25 ReceivedpaymentfromSwallowCompany$430.
28 PurchasesreturnedtoCJones$420.
29 Purchasedstationery$40(recordasasundryexpense).
30 Creditsales:DSwann$420,CanaryCompany$540.(Total$960).
Required
(a) Prepare journal entries to show how the following transactions in June Year 7
should be recorded in the main ledger accounts of Parakeet, a newly-established
business entity.
The accounting system contains a receivables ledger and a payables ledger for
individual accounts, and there are control accounts (total accounts) for
receivables and payables in the main ledger.
You are not required to include any narrative in the journal entries.
(b) List the transactions that will be entered in the receivables ledger accounts for the
month.
(c) List the transactions that will be entered in the payables ledger accounts for the
month.
3 July transactions
Prepare journal entries to show how the following transactions in July Year 8 should
be recorded in the main ledger accounts of Entity DZ. (Narrative descriptions for
the journal entries are not required.)
Sales tax is at the rate of 15%.
JulyYear8
Transaction
1 Creditsales$250,000plussalestax
2 Cashsales$10,000plussalestax
3 Purchases$108,100includingsalestax
4 Salestaxpaidtothetaxauthorities:$11,160
5 Pettycashexpenses:travel$240,sundryexpenses$345(includingsalestax).There
isnovalueaddedtaxontravelexpenses,but
valueaddedtaxispayableonother
expenses
6 Cashwithdrawnfrombankforpettycash:$417
7 Salesreturns$2,000plussalestax
Practice questions
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4 Revaluation
MB Company bought an asset on 24 July Year 1 at a cost of $180,000. The asset had
an expected useful life of 10 years and an expected residual value of $20,000. The
company applies straight-line depreciation to this category of non-current assets. It
also charges a full year’s depreciation in the year of acquisition and no depreciation
in the year of disposal. Its financial year ends on 31 December.
At 31 December Year 2, the company re-valued the asset to $240,000. Its expected
remaining useful life is now 8 years, but its expected residual value is zero.
Required
(a) Show in T account format the book-keeping entries required to record the
revaluation of the asset on 31 December Year 2.
(b) The asset was sold on 12 February Year 4 for $225,000. Calculate the gain or loss
on disposal reported in the income statement for Year 4, and show the total effect
of the disposal on the retained earnings of the company. Ignore taxation.
5 Owen
Owen is in business as a haulage contractor. At 1 May Year 6 he had three lorries,
details of which are as follows:
Lorryregistration
number
Datepurchased Cost
Accumulated
depreciationtodate
$ $
BOW1 1JulyYear3 16,000 9,000
COW2 1JanuaryYear5 21,000 8,000
DOW3 1AprilYear6 31,000 6,000
During the year to 30 April Year 7, the following lorry transactions took place:
(a) BOW 1 was sold on 31 July Year 6 for $3,000 on cash terms. On 1 August Year 6
Owen replaced it with a new lorry, registration number FOW 4 for which he paid
$35,000 in cash.
(b) On 15 December Year 4, the new lorry (FOW 4) was involved in a major accident,
and as a result was completely written off. Owen was able to agree a claim with
his insurance company, and on 31 December Year 6 he received $30,000 from the
insurance company. On 1 January Year 7 he bought another lorry (registration
number HOW5) for $41,000.
(c) During March Year 7, Owen decided to replace the lorry bought on 1 April Year 6
(registration number DOW 3) with a new lorry. It was delivered on 1 April Year 7
(registration number JOW 6). He agreed a purchase price of $26,000 for the new
lorry, the terms of which were $20,000 in part-exchange for the old lorry and the
balance to be paid immediately in cash.
Notes:
(1) Owen uses the straight-line method of depreciation based on year-end figures.
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(2) The lorries are depreciated over a five-year period by which time they are
assumed to have an exchange value of $1,000 each.
(3) A full year’s depreciation is charged in the year of acquisition, but no
depreciation is charged if a lorry is bought and sold or otherwise disposed of
within the same financial year.
(4) No depreciation is charged in the year of disposal.
(5) Owen does not keep separate ledger accounts for each individual lorry.
Required
(a) Write up the following accounts for the year to 30 April Year 7:
(i) lorries account
(ii) lorries disposal account
(iii) allowance for depreciation on lorries account.
(b) Show how the lorries account and the allowance for depreciation account would
be presented in Owen’s statement of financial position as at 30 April Year 7.
6 IAS 37
Munch Company is a company of food manufacturers and processors, whose shares
are traded on the stock market. It is preparing its financial statements for the year
ended 31 December Year 6. The following items are being considered.
(a) The company is involved in several legal disputes. For each case, legal experts
have studied the available evidence and have estimated the probability of
winning the case. Details are as follows:
Case
Details
Probabilityof
winningthecase
1 Thecompanyissuingitsinvestmentbankfor
$250,000
80%‐90%
2 Thecompanyisbeingsuedbyacustomerfor
$400,000
30%
3 Thecompanyisbeingsuedbyashareholderfor
$100,000
3%‐4%
4 Thecompanyisbeingsuedbyasupplierfor$150,000 60%‐70%
In each case, the amounts involved are material.
(b) The government has introduced new regulations requiring improvements in
refrigeration equipment for foods held by producers and sellers of food products.
The modifications must be made within the next two to three years. The company
has not yet made any of the required modifications to its refrigeration equipment.
(c) On 14 December Year 6 the board of directors of Munch Company decided to
close down one of its business operations. A detailed plan for the closure has not
yet been drawn up and the employees who will be affected by the closure have
not yet been informed.
Practice questions
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Required
Explain how each of these items should be reported, if at all, in the annual report
and accounts for Munch Company for the year ended 31 December Year 6.
7 Suspense
The accountant of Grant Company has prepared a trial balance, but has found that
the total of debit balances is $862,150 and the total of credit balances is $864,600.
On investigation, he discovers the following errors in the book-keeping:
(1) Total purchases in the period were recorded at $100 below their correct value,
although the total value of trade payables was correctly recorded.
(2) Total telephone expenses were recorded at $1,000 above their correct amount,
although the total value of the amounts payable was correctly recorded.
(3) Purchase returns of $550 were recorded as a debit entry in the sales returns
account, but the correct entry had been made in the trade payables control
account.
(4) Equipment costing $2,000 had been recorded as a debit entry in the repairs
and maintenance account.
(5) Rental expenses of $5,490 were entered incorrectly as $5,940 in the expense
account but were entered correctly in bank account in the ledger.
(6) Bank charges of $200 have been omitted entirely from the ledger.
Required
Prepare journal entries for the correction of the errors.
Open a suspense account. Record the appropriate corrections in the suspense
account, so that the balance on this account is eliminated.
8 Control accounts
The following are transactions of Kwark, a new business, during May Year 6.
MayYear6
Transaction
1 Startedthebusinesswithcapitalof$2,500,paidintoabusinessbankaccount.
2 Boughtgoodsoncreditfromthefollowingentities:Ellis$810;MendezTrading
$1,305;Gibson$375;Dynasty$1,140;Liners$960.(Total$4,590).
3 Soldgoodsoncreditto:BaileyStores$753;Fastshop$1,120;Spencers$3,080.
(Total$4,953).
4 BaileyStorespaidbycheque$723.Adiscountof$30wasallowedforearly
payment.
5 Spencerspaid$1,500bycheque
6 Thefollowingpaymentwasmade:Ellis$700
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7 ThefollowingpaymentwasmadeGibson$350.Adiscountof$25wasreceived
forearlypayment.
8 Paidcarriageoutwards$345
9 PurchasereturnstoDynasty$400
10 SalesreturnsfromSpencers$270
11 PurchasesoncreditfromMendezTrading$753;Dynasty$1,650.(Total$2,403).
12 Soldgoodsoncredit
toFastshop$1,005.
Kwark has control accounts (total accounts) for total trade receivables and total
trade payables in the main ledger, and accounts for individual customers and
suppliers in a receivables ledger and a payables ledger respectively.
Required
(a) Use T accounts to show how the relevant transactions will be recorded in the
trade receivables and trade payables accounts in main ledger of Kwark in May.
(You are not required to prepare T accounts for any of the other main ledger
accounts.)
(b) Reconcile the balance on the trade receivables and trade payables control
accounts in the main ledger with the sum of the balances on the individual
accounts in the receivables ledger and payables ledger respectively.
9 Control account reconciliation
The balance on the trade payables control account is $79,500. This does not agree
with the sum of the balances on the accounts in the payables ledger.
On investigation, you discover the following errors:
(1) Purchases of $1,850 from Supplier A have been recorded in the payables
control account, but not in the supplier’s account in the payables ledger.
(2) A payment of $2,000 to Supplier B has been correctly recorded in the bank
account in the ledger, but not in Supplier B’s account in the payables ledger.
(3) A discount received of $300 from Supplier C has been recorded correctly in
the payables control account, but not in Supplier C’s account in the payables
ledger.
(4) Purchase returns to Supplier D of $1,500 have been correctly recorded in
Supplier D’s account in the payables ledger, but have not been recorded at all
in the main ledger.
Required
Prepare journal entries to correct the errors. (Note: When the error is in the payables
ledger, only one entry, a debit or a credit, is required as a journal entry.)
State the correct total balance for trade payables.
Practice questions
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10 SWAN
The following balances were extracted from the main ledger of SWAN at 31
December Year 7.
$
Capital 10,059
Inventoryat1JanuaryYear7 2,720
Cashinhand 55
Bankoverdraft 2,522
Sundryreceivables 7,009
Sundrypayables 6,735
Motorvans(Cost$2,000) 1,500
Drawingsincash 2,459
Fixturesandfittings(Cost$4,000) 3,800
Purchases 33,436
Allowanceforirrecoverabledebts 162
Sales 50,261
Purchasesreturns 120
Carriageinwards 546
Rent
626
Salariesandwages 5,226
Motorvehicleexpenses 920
Interestonbankoverdraftandbankcharges 56
Carriageoutwards 720
Discountsallowed 65
Discountsreceived 59
Returnsinwards 240
Freeholdland 10,300
Baddebts 240
You are given the following information:
(1) The inventory at 31 December Year 7 was $4,270.
(2) Wages and salaries payable at 31 December Year 7 were $426.
(3) Rent paid in advance at 31 December Year 7 amounted to $100.
(4) The allowance for irrecoverable debts is to be increased to $260.
(5) Depreciation is to be charged as follows: motor vans at 25% per year on cost,
fixtures and fittings 5% per year on cost.
(6) During Year 7, the owner of SWAN withdrew goods valued at $180 for his
own use. No entry has been made in the accounts for the withdrawal of these
goods.
(7) One quarter of the motor vehicle expenses is the cost of the owner’s private
motoring, as distinct from expenses for business purposes.
Required
Prepare an income statement for the year ending on 31 December Year 7 and a
statement of financial position as at that date.
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11 Steven Chee
The following trial balance was extracted from the main ledger of Steven Chee, a
sole trader, as at 31 May Year 6 – the end of his financial year.
StevenChee
Trialbalanceasat31MayYear6
DR CR
$ $
Landandbuildingsatcost 120,000
Equipmentatcost 80,000
Provisionfordepreciation(asat1JuneYear5)
Onlandandbuildings20,000
Onequipment38,000
Purchases 250,000
Sales402,200
Inventoryasat1JuneYear5 50,000
Discountsallowed 18,000
Discountsreceived4,800
Returnsoutwards15,000
Wagesandsalaries 61,800
Baddebts 4,600
Loaninterest 2,100
Otheroperatingexpenses 17,700
Tradepayables36,000
Tradereceivables 38,000
Cashinhand 300
Bank 1,300
Drawings 24,000
Allowancefordoubtfuldebts500
7%long‐termloan30,000
Capitalasat1JuneYear5121,300
667,800 667,800
The following additional information is available:
(a) Inventory as at 31 May Year 6 has been valued at cost at $42,000.
(b) There are accrued wages and salaries of $800
(c) Other operating expenses are prepaid by $300
(d) The allowance for doubtful debts is to be adjusted so that it is 2% of trade
receivables.
(e) Depreciation for the year ended 31 May Year 6 should be provided for as follows:
− Land and buildings – 1.5% per annum on cost, using the straight-line
method.
− Equipment – 25% per annum, using the reducing balance method.
Required
Prepare Steven Chee’s income statement for the year ended 31 May Year 6 and his
statement of financial position as at that date.