CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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REVISION QUESTIONS C2
460
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Analytical review has revealed that the fi nancial statements have shown a marked and
unexpected improvement over last year’s fi gures in certain key areas. You ascertain that
the main reason for this is that the December payroll journal and cheques paid to the tax
authorities have not been processed.
Manufacturing staff Administration staff
$ $
Net pay 29,799 5,999
Employee income tax 10,800 2,286
Social security tax – employees 4,212 859
Social security tax – employers 4,683 956
Taxes deducted in 1 month are paid to the tax authority in the following month.
Requirements
(a) Insert the missing items into the journals given below.
Payment journal Debit ($) Credit ($)
Employee income tax payable
Social security tax payable
Cash
Payroll journals
Manufacturing staff
Cost of sales
Cash
Employee income tax payable
Social security tax payable
Administration staff
Administrative salaries
Cash
Employee income tax payable
Social security tax payable
(b) Complete the following boxes in order to calculate the revised cash balance at 31
December 20X1.
$
Cash balance per original statement of
fi nancial position
87,800
Revised cash balance
461
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(c) Insert the missing items into the fi nancial statements below, to take account of the
necessary adjustments in Part (a):
Statement of comprehensive income for the year ended 31 December 19X1 (draft)
$ $ $
Sales 1,210,213
Cost of sales (943,000
)
Gross profi t
Admin. salaries (110,100 )
Other expenses
(28,956)
P r o fi t for the period
Statement of fi nancial position as at 31 December 19X1 (draft)
Assets $ $
Non-current assets 596,294
Current assets
Inventories 186,200
Receivables 252,111
Cash
Equity and liabilities
Share capital 100,000
Retained earnings
Current liabilities
Trade payables 120,290
Employee income tax
Social security tax
REVISION QUESTIONS C2
462
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Question 3
The following list of balances as at 30 April 20X2 has been extracted from the books of
River Garages Ltd after the preparation of the draft fi nancial statements for the year ended
on that date.
$
Freehold land and buildings
At cost 100,000
Accumulated depreciation 20,000
Plant and machinery
At cost 58,000
Accumulated depreciation 16,400
Motor vehicles
At cost 36,000
Accumulated depreciation 8,500
Inventories at cost 24,700
Trade receivables 4,500
Amounts prepaid 1,600
Balance at bank 4,300
Trade payables 7,900
Ordinary shares of $1 each, fully paid 100,000
Retained earnings
At 1 May 20X1 7 , 600
Year ended 30 April 20X2 40,000
47,600
8% loan stock 30,000
Suspense account 1,300 debit
Subsequently, the following discoveries have been made:
1. The company’s inventories at 30 April 20X2 of $24,700 includes a motor car (J168
MRK) at $10,000. However, this vehicle was taken out of inventories on 1 February
20X2 for the use of the company’s workshop manager.
Note : It is company policy to provide for depreciation on motor vehicles at the rate of
25 per cent per annum on cost. Depreciation is to be time apportioned from the date
of bringing the car into use as a non-current asset. Assume that there is no expected
residual value.
2. A receipt of $1,000 from J Green, receivable, in February 20X2, was credited to sales as
$1,400.
3. Interest on the 8 per cent loan stock is paid annually in arrears on 1 May. No provision
for the loan interest has been made in the draft fi nancial statements for the year ended
30 April 20X2.
463
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
4. No entry has been made in the company’s books for a credit purchase of raw materials
costing $2,000 on 14 April 20X2 from T Conway. However, a debit balance of $2,000
at 30 April 20X2 on T Conway’s account in the company’s books arises from a pay-
ment made to T Conway on that date.
5. The remaining balance of the suspense account arises from a prepayment at 30 April
20X2 for insurance, being omitted from the company’s list of balances on that date.
Note : River Garages Limited does not maintain either a sales ledger total (or control
account) or a purchases ledger total (or control account).
Requirements
(a) Insert the missing items into the journal given below, to correct items 1–4 above.
Item Account name Debit or credit? $
1 .
2 .
3 .
4 .
(b) Insert the missing items into the following boxes in order to calculate the remaining
balance on the suspense account, after correcting the four errors in the journal above.
Debit or credit? $
Suspense account balance arising per list of
balances at 30 April 20X2
Correction required re item number
Remaining balance on suspense account
(c) Insert the missing items into the journal given below, to correct item 5.
Item Account name Debit or credit? $
5 .
REVISION QUESTIONS C2
464
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(d) Complete the table below to recalculate the profi t for the year ended 30 April 20X2,
after adjusting for all the above items:
$
Per list of balances at 30 April 20X2 40,000
Less :
Revised balance
(e) Insert the missing items into the revised statement of fi nancial position at 30 April
20X2, given below, after taking account of the necessary adjustments
Statement of fi nancial position as at 30 April 20X2
Assets Cost ($)
Carrying
amount ($)
Non-current assets
Land and buildings 100,000 (20,000) 80,000
Plant and machinery 58,000 (16,400) 41,600
Motor vehicles
Current assets
Inventories
Trade receivables
Amounts prepaid
Balance at bank
465
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Equity and liabilities
Ordinary shares of $1 each fully paid 100,000
Retained earnings:
*
At 1 May 20X1
Year ended 30 April 20X2
7,600
Non-current liabilities
8% loan stock
30,000
Current liabilities
Trade payables
Accrued charges
*Rather than show a statement of changes in equity, the movement has been shown in
the statement of fi nancial position.
Question 4
The accountant of Fiddles plc has begun preparing fi nancial statements, but the work is
not yet complete. At this stage, the items included in the trial balance are as follows:
$’000
Land 100
Buildings 120
Plant and machinery 170
Accumulated depreciation 120
Share capital 100
Retained earnings 200
Receivables 200
Payables 110
Inventories 190
Operating profi t 80
Debentures (16%) 180
Allowance for receivables 3
Bank balance (asset) 12
Suspense 1
Notes (i)–(vii) are to be taken into account.
(i) The sales ledger control account fi gure, which is used in the trial balance, does not
agree with the total of the sales ledger balances. A contra of $5,000 has been entered
correctly in the individual ledger accounts but has been entered on the wrong side of
both control accounts.
A batch total of sales of $12,345 has been entered in the double-entry system as
$13,345, although individual ledger account entries for these sales were correct.
REVISION QUESTIONS C2
466
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
The balance of $4,000 on sales returns account has inadvertently been omitted from
the trial balance, though correctly entered in the ledger records.
(ii) A standing order of receipt from a regular customer for $2,000, and bank charges of
$1,000, have been completely omitted from the records.
(iii) A receivable for $1,000 is to be written off. The allowance for receivables balance is
to be adjusted to 1 per cent of receivables.
(iv) The opening inventories fi gure had been overstated by $1,000 and the closing inven-
tories fi gure understated by $2,000.
(v) Any remaining balance on suspense account should be treated as purchases if a debit
balance and as sales if a credit balance.
(vi) The debentures were issued 3 months before the year end. No entries have been
made as regards interest.
(vii) A dividend of 10 per cent of share capital was declared before the year end, but not
paid until after the year end.
Requirements
(a) Insert the missing items in the journal entries to cover items in notes (i)–(v) above.
You are not to open any new accounts and may use only those accounts included in
the trial balance as given.
Journal
Debit ($) Credit ($)
(i)
(ii)
(iii)
(iv)
(v)
467
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(b) Insert the missing items in the fi nancial statements.
Revised operating profi t
$
(i)
(ii)
(iii)
(iv)
(v)
Revised operating profi t
Statement of comprehensive
income of Fiddles plc
$
Operating profi t
Statement of changes in equity of Fiddles plc
Retained earnings
Balance at start
REVISION QUESTIONS C2
468
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Statement of fi nancial position of Fiddles plc
Assets $ $ $
Non-current assets
Plant and machinery
Current assets
Bank
Equity and liabilities
Non-current liability
Current liabilities
469
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Question 5
The statement of fi nancial position of OGN Ltd as at 31 December 20X4 was as follows:
Assets $’000 $’000 $’000
Non-current assets 7,500
Current assets
Inventories 2,000
Receivables 5,000
7,000
14,500
Equity and liabilities
7,000 ordinary shares of $1 each 7,000
General reserves 1,500
Retained earnings 1,000
9,500
Current liabilities
Trade payables 4,000
Bank overdraft 1,000
5,000
14,500
During 20X5 a profi t for the period of $1.5 million is made, after charging depre-
ciation of $750,000. $1 million is transferred to general reserves. Closing inventories at
31 December 20X5 are $1.8 million and receivables are reduced by $1.5 million. Payables
at 31 December 20X5 amount to $3 million.
During the year, two million additional ordinary shares are issued at a premium of 50c
each, paid for immediately in cash. No dividends are declared for the year and no non-current
assets are purchased.
Requirements
(a) Insert the missing items into the boxes below to calculate the bank balance at
31 December 20X5 by establishing the movement in cash during the period.
$’000
Cash fl ow from operating activities
P r o fi t for the period 1,500
Add/less :* depreciation
Add/less :* increase/decrease* in inventories
Add/less :* increase/decrease* in receivables
Add/less :* increase/decrease* in payables