ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
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Paper F3 (INT)
Financial Accounting
Q&A
Answers to
practice questions
Page
Recording transactions: sales, purchases and
cash
1 May transactions 437
2 June transactions 438
3 July transactions 440
Non-current assets
4 Revaluation 441
5 Owen 442
Provisions and contingencies
6 IAS37 444
Trial balance, correcting errors and suspense
accounts
7 Suspense 444
Control accounts and bank reconciliations
8 Control accounts 446
9 Control account reconciliation 447
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Preparing financial statements
10 SWAN 447
11 Stephen Chee 449
12 Herbert 450
13 Bell 452
14 Team Company financial statements 453
15 Blot Company 454
16 SAW Company 455
Partnership accounts
17 PAL Partnership 457
Statements of cash flows
18 King Company 458
19 Dove statement of cash flows 460
20 Hart statement of cash flows 461
Incomplete records
21 Miss Ringer 463
Answers to practice questions
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1 May transactions
(a) Accounts in the main ledger
Capital
$ May
$
1 Bank 2,500
Bank
May $ May $
1 Capital 2,500 6 Rent 120
9 Tradereceivables 430 12 Tradepayables 790
10 Tradereceivables 1,500 15 Advertising 230
31 Rent 180
31 Balancec/f 3,110
4,430 4,430
1June Balanceb/f 3,110
Purchases
May
$ $
2 Tradepayables 3,060
18 Tradepayables 1,530
4,590
Sales
$ May
$
4 Tradereceivables 2,830
21 Tradereceivables 670
3,500
Tradepayables
May $ May $
12 Bank 790 2 Purchases 3,060
31 Balancec/f 3,800 18 Purchases 1,530
4,590 4,590
1June Balanceb/f 3,800
Tradereceivables
May $ May $
4 Sales 2,830 9 Bank 430
21 Sales 670 10 Bank 1,500
31 Balancec/f 1,570
3,500 3,500
1June Balanceb/f 1,570
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Rent(expense)
May
$ $
6 Bank 120
31 Bank 180
300
Advertisingexpenses
May
$ $
15 Bank 230
(b) Trial Balance as at 31 May Year 6
Trialbalanceasat31May
Debit Credit
$ $
Capital2,500
Bank 3,110
Purchases 4,590
Sales3,500
Tradepayables3,800
Tradereceivables 1,570
Rent 300
Advertising 230
9,800 9,800
2 June transactions
(a) Main ledger transactions
Date Debit Credit
June
$ $
1 Bank 6,500
Capital6,500
2 Purchases 1,800
Tradepayables1,800
3 Tradereceivables 1,340
Sales1,340
4 Purchases 230
Bank230
5 Motorvan(assetaccount) 2,560
Bank2,560
7 Motorexpenses 120
Bank120
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9 Tradereceivables 1,180
Sales1,180
11 Purchases 3,480
Tradepayables3,480
13 Tradepayables 250
Purchasereturns250
19 Salesreturns 110
Tradereceivables110
20 Drawings 440
Bank440
21 Tradepayables 1,080
Bank1,080
23 Bank 660
Tradereceivables660
25 Bank 430
Tradereceivables430
28 Tradepayables 420
Purchasereturns420
29 Sundryexpenses 40
Bank40
30 Tradereceivables 960
Sales960
(b) Receivables ledger entries
DateDebitCredit
June
$ $
3 JBird 660
3 DSwann 250
3 SwallowCompany 430
9 MParrott 240
9 CanaryCompany 260
9 GFinch 680
19 DSwann110
23 JBird660
25 SwallowCompany430
30 DSwann 420
CanaryCompany 540
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(c) Payables ledger entries
Date Debit Credit
June
$ $
2 CJones1,800
11 CJones2,400
EDavies620
AEvans460
13 CJones 250
21 EDavies 620
AEvans 460
28 CJones 420
3 July transactions
Workings:
Sales tax on purchases = $108,100 × (15/115) = $14,100.
Purchases excluding sales tax = $108,100 × (100/115) = $94,000.
Sales tax on petty cash general expenses = $345 × (15/115) = $45.
General expenses excluding sales tax = $345 × (100/115) = $300.
Transaction Debit Credit
$ $
1 Tradereceivables 287,500
Sales250,000
Salestaxaccount37,500
2 Bank 11,600
Sales10,000
Salestaxaccount1,500
3 Purchases 94,000
Salestaxaccount 14,100
Tradepayables108,100
4 Salestaxaccount 11,160
Bank11,160
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5 Travel 240
Sundryexpenses 300
Salestaxaccount 45
Pettycashaccount585
6 Pettycashaccount 417
Bank417
7 Salesreturns 2,000
Salestaxaccount 300
Tradereceivables2,300
4 Revaluation
(a) Asset revaluation
Working: Annual depreciation = $(180,000 – 20,000)/10 years = $16,000.
Accumulated depreciation to 31 December Year 2 (= two years) = $32,000.
Non‐currentasset
$ $
Balanceb/f 180,000 Revaluationaccount 180,000
Revaluationaccount 240,000 Balancec/f 240,000
420,000 420,000
Balanceb’f 240,000
Accumulateddepreciation
$ $
Revaluationaccount 32,000 Balanceb/f 32,000
Revaluationaccount
$ $
Non‐currentasseta/c 180,000 Accumulateddepreciation 32,000
Revaluationreserve 92,000 Non‐currentasseta/c 240,000
272,000 272,000
Revaluationreserve
$ $
Revaluationaccount 92,000
Disposal calculation
Working: Annual depreciation in Year 3 = ($240,000 - $0)8 years = $30,000.
Net book value at the date of disposal in Year 4 = $240,000 - $30,000 = $210,000.
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$
Disposalvalue 225,000
Netbookvalueatthedateofdisposal 210,000
Gainondisposal 15,000
$
Gainondisposal(reportedinincomestatement) 15,000
Transferfromrevaluationreserve 92,000
Totalincreaseinretainedearningsreserve 107,000
Tutorial note
The transfer of the revaluation surplus from the revaluation reserve to retained
earnings is recorded in the main ledger by:
Debit: Revaluation reserve: $92,000
Credit: Retained earnings reserve: $92,000.
5 Owen
Tutorial note
Owen does not keep a separate asset account for each individual lorry. This means
that there is a single account for all the lorries.
Workings
Depreciation
BOW1: Disposed of during year to 30 April Year 7; therefore no further
depreciation. Accumulated depreciation at disposal date = $9,000.
COW2: Depreciation during year to 30 April Year 7 = $4,000.
DOW3: Disposed of during year to 30 April Year 7; therefore no further
depreciation. Accumulated depreciation at disposal date = $6,000.
FOW4: Since this lorry was written off in the year of purchase, there is no reason to
make an allowance for depreciation. Instead, the loss on the write-off can be
recorded as $5,000 ($35,000 cost less $30,000 insurance value). See note (iii) of the
question.
HOW5: Depreciation during year to 30 April Year 7 = $8,000.
JOW6: Depreciation during year to 30 April Year 7 = $5,000.
Total depreciation charge for the year = $4,000 + $8,000 + $5,000 = $17,000.
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(a) Lorries account entries
Lorriesaccount
Date $ Date
$
1.5.Yr6 Balanceb/d 68,000 31.7.Yr6 Lorriesdisposala/c
(BOW1)
16,000
1.8.Yr6 Cash(FOW4) 35,000 15.12.Yr6 Lorriesdisposala/c
(FOW4)
35,000
1.1.Yr7 Cash(HOW5) 41,000 1.4.Yr7 Lorriesdisposala/c
(DOW3)
31,000
1.4.Yr7 Cash(JOW6) 6,000
1.4.Yr7 Disposalaccount
(partexchange–
JOW6forDAB3)
20,000 30.4.Yr7 Balancec/d 88,000
170,000 170,000
1.5.Yr7 Balanceb/d 88,000
(Note: The balance on the account at the end of the year represents the combined
cost of lorries COW2, HOW5 and JOW6 = $21,000 + $41,000 + $26,000).
Lorriesdisposalaccount
Date $ Date
$
31.7.Yr6 Lorriesa/c(BOW1) 16,000 31.7.Yr6 Allowancefor
depreciationa/c
(BOW1)
9,000
15.12.Yr6 Lorriesa/c(FOW4) 35,000 31.7.Yr6 Cash(BOW1) 3,000
1.4.Yr7 Lorriesa/c(DOW3) 31,000 31.12.Yr6 Cash(FOW4) 30,000
1.4.Yr7 Allowancefor
depreciationa/c
(DOW3)
6,000
1.4.Yr7 Lorriesa/c‐part
exchangeJOW6
forDOW3
20,000
30.4.Yr7 Incomestatement
‐netlosson
disposaloflorries
14,000
82,000 82,000
Allowancefordepreciationonlorriesaccount
Date $ Date
$
31.7.Yr6 Lorriesdisposala/c
(BOW1)
9,000 1.5.Yr6 Balanceb/d 23,000
1.4.Yr7 Lorriesdisposala/c
(DOW3)
6,000 30.4.Yr7 Incomestatement
‐depreciationforthe
year
17,000
30.4.Yr7 Balancec/d 25,000
40,000 40,000
1.5.Yr7 Balanceb/d 25,000
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(b) Statement of financial position (extract) at 30 April Year 7
Non‐currentassets
$
Lorries,atcost 88,000
Less:Accumulateddepreciation 25,000
63,000
6 IAS 37
(a) Case 1. Success in the case would result in economic benefits of $250,000.
Success is probable (50% - 95%) but not yet virtually certain. The item should
therefore be reported as a contingent asset in a note to the financial
statements.
Case 2. If this case is lost, there will be a liability for $400,000. The probability
of defeat in the case is 70% (100% – 30%). The existence of a liability is
therefore probable, and it should be treated as an actual liability in the
financial statements for the year.
Case 3. If this case is lost, there will be a liability for $100,000. The probability
of defeat in the case is 96% - 97%. The existence of a liability is therefore
virtually certain, and it should be treated as an actual liability in the financial
statements for the year.
Case 4. If this case is lost, there will be a liability for $150,000. The probability
of defeat in the case is 30% - 40%. The existence of a liability is therefore
possible (= 5% to 50%). The item should be treated as a contingent liability,
and disclosed in a note to the financial statements.
(b) A liability exists as at the balance sheet date. It is not a contingent liability,
because the company must make the required modifications. An estimate of
the liability should be made, and it should be reported as a provision for the
year ended 31 December Year 6. The provision will reduce the profit for the
year. Since the modifications need not be made for 2 – 3 years, the company
can report the item as a long-term provision (non-current liability) in the
balance sheet.
(c) IAS37 states that a provision can be made for reorganisation costs, but only in
certain circumstances. There must be a detailed plan for the reorganisation, or
the employees affected by the reorganisation must know that it is going to
happen. These circumstances do not apply in this case. The company cannot
make a provision for reorganisation costs as at the end of Year 6.
7 Suspense
Transaction Debit Credit
$ $
1 Purchases 100
Suspenseaccount100
Correctionoferror:purchasesunder‐statedby$100.