CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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REVISION QUESTIONS C2
470
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Cash fl ow from fi nancing activities
Add/less:*
Increase/decrease* in cash and bank
Add/less:* opening bank balance (overdraft)
(1,000)
Closing bank balance
* Delete as appropriate.
(b) Insert the missing items into the statement of changes in equity for the year ended 31
December 20X5, provided below:
Ordinary
Shares
Share
Premium
General
Reserves
Retained
Earnings
Total
$’000 $’000 $’000 $’000 $’000
Balance at the start of the
period
Balance at the end of the
period
(c) Insert the missing items into the statement of fi nancial position at 31 December 20X5,
provided below.
Statement of fi nancial position as at 31 December 20X5
Assets $ $
Non-current assets 7,500
Less: accumulated depreciation
Current assets
Inventories 1,800
Receivables
Bank
Equity and liabilities
ordinary shares of $1 each
Share premium account
General reserves
Retained earnings
Current liabilities Payables
3,000
471
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(d) Complete the missing words in the following sentences
(i) ___________ is that ascribed to shares when authorised, appears on the share
certifi cate and used for _____________ calculations.
(ii) __________ are long-terms loans with a _________ interest rate, payable irre-
spective of profi ts. They may be __________ in the future, and _____________
on non-current assets.
(iii) P r o fi ts are transferred to __________ ____________ to limit the profi ts avail-
able for payment of current/future dividends.
(iv) ____________ are proposed by the directors, but are not payable until approved
by _________ at the annual general meeting.
Question 6
ABC Ltd prepares its fi nancial statements to 31 October each year. Its trial balance at
31 October 20X3 was as follows:
Debit ($’000) Credit ($’000)
Premises – cost 600
Manufacturing plant – cost 350
O f fi ce equipment – cost 125
Accumulated depreciation at 1 November 20X2
Premises 195
Manufacturing plant 140
O f fi ce equipment 35
Inventories at 1 November 20X2
Raw materials 27
Work in progress 18
Finished goods 255
Sales of fi nished goods 2,350
Purchases of raw materials 826
Returns inwards and outwards 38 18
Direct wages 575
Heat, light and power 242
Salaries 122
Printing, postage and stationery 32
Rent and insurances 114
Loan interest paid 12
Loan 250
Trade receivables and payables 287 75
Allowance for receivables 11
Sales tax account 26
Dividend paid 10
Ordinary shares of $1 each 500
Share premium account 100
Retained earnings 442
Bank balance 509
4,142 4 , 142
REVISION QUESTIONS C2
472
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
The following additional information at 31 October 20X3 is available:
(i) Closing inventories
Raw materials $24,000
Work in progress $19,000
Finished goods $147,000
(ii) Prepayments
Rent $17,000
Insurance $4,000
(iii) Accruals
Direct wages $15,000
Salaries $8,000
(iv) Salaries are to be apportioned as follows
Manufacturing 20%
Administration 80%
(v) Bad debts to be written off amount to $47,000, including sales tax at 17.5 per cent.
The company maintains a separate bad debts account. The debts have all been out-
standing for more than 6 months.
Note : In the case of bad debts that have been outstanding for more than 6 months,
the sales tax (which will already have been accounted for on the sale of the goods)
can be reclaimed from the tax authorities.
(vi) The allowance for receivables is to be amended to 2.5 per cent of receivables, after
adjusting for bad debts written off.
(vii) Depreciation of non-current assets is to be provided as follows:
Premises 2 per cent on cost (not the
revalued fi gure)
Plant 10 per cent on cost
O f fi ce equipment 20 per cent on reducing balance
Twenty-fi ve per cent of premises depreciation is to be apportioned to the manufac-
turing account.
Note: It is to be assumed that there is no expected residual value.
(viii) The loan was taken out on 1 November 20 2, and the capital is to be repaid as
follows:
1 January 20X4 $100,000
1 January 20X5 $100,000
1 January 20X6 $50,000
Interest is to be charged on the outstanding capital at 20 per cent per annum.
473
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(ix) Other expenses are to be apportioned as follows:
Heat, light and power 1/2 manufacturing
1/2 selling and administration
Rent and insurance 1/3 manufacturing
2/3 administration
(x) One line of fi nished goods inventories, currently recorded at $8,000, has a net realis-
able value of $3,000.
(xi) A fi nal dividend of 10¢ per share is to be proposed.
(xii) An accrual for income tax of $35,000 is to be made on the profi ts of the year.
(xiii) The premises are to be revalued to $700,000, and the potential tax liability is
$30,000.
Requirements
(a) Insert the missing items into the manufacturing account for the year ended 31
October 20X3.
Manufacturing account of ABC Ltd for the year ended 31 December 20X3
$’000 $’000 $’000
Direct materials
Direct labour
Prime cost
Indirect factory costs
Total factory cost
Change in work in progress
Factory cost of goods completed 1,616
REVISION QUESTIONS C2
474
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(b) Insert the missing items into the statement of comprehensive income for the year
ended 31 October 20X3.
Comprehensive income statement of ABC Ltd for the year ended 31 October 20X3
$’000 $’000
Sales
Less : cost of goods sold
Factory cost of goods completed
1,616
Gross profi t
Less : expenses
Operating profi t
P r o fi t before tax
Income tax
P r o fi t for the period
Other comprehensive income
Gain on property revaluation before tax
Income tax
Gain on property revaluation after tax
Total comprehensive income
475
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(c) Insert the missing items into the statement of changes in equity for the year ended
31 October 20X3.
Revaluation
Reserve
Retained
Earnings
$’000
Balance at start of period
Balance at end of period
(d) Insert the missing items into the statement of fi nancial position at 31 October 20X3.
Statement of fi nancial position of ABC Ltd as at 31 October 20X3
Assets
Cost
($’000)
Acc. Dep’n
($’000)
Carrying Amount
($’000)
Non-current assets
Current assets Inventories
Equity and liabilities
Non-current liability
Current liabilities
REVISION QUESTIONS C2
476
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Question 7
FPC Ltd is a manufacturing company that sells its goods to wholesalers. Its trial balance at
31 March 20X6 was as follows:
Debit ($) Credit ($)
Issued share capital, $1 ordinary shares 750,000
10% debentures, repayable 2X15 200,000
Retained earnings at 1 April 20X5 98,000
Premises – at cost 900,000
Premises – accumulated depreciation at 1 April 20X5 360,000
Plant – at cost 150,000
Plant – accumulated depreciation at 1 April 20X5 75,000
Sales 2,960,000
Raw materials purchased 1,500,000
Carriage outwards 10,000
Carriage inwards 15,000
Returns outwards 22,000
Returns inwards 14,000
Receivables 220,000
Payables 300,000
Bank balance 500,000
Inventories at 1 April 20X5
Raw materials 60,000
Work in progress 30,000
Finished goods 70,000
Direct labour 600,000
Discounts allowed 4,000
Discounts received 2,500
Rent 120,000
Insurance 100,000
Factory supervisors ’ salaries 150,000
O f fi ce wages and salaries 175,000
Sales offi cers ’ commission 113,500
Administration expenses 45,000
Sales tax account 8,500
Allowance for receivables at 1 April 20X5 7,000
Bad debts written off 6,500
4,783,000 4,783,000
477
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
The following additional information at 31 March 20X6 is available:
(i) Closing inventories:
$
Raw materials 80,000
Work in progress 42,500
Finished goods 100,000
(ii) Rent prepaid amounts to $10,000.
Insurance prepaid amounts to $20,000.
Twenty per cent of rent and insurance is to be regarded as factory cost.
(iii) Direct labour accrued amounts to $17,500.
(iv) Included in the above trial balance are fi nished goods sold on a sale or return basis,
which must be accepted or rejected by 15 April 20X6. Their selling price is $35,000
and their cost price is $27,000. Sales tax is not applicable on these goods.
(v) The premises are to be depreciated at 2 per cent per annum, straight line. The plant
is to be depreciated at 10 per cent per annum, straight line. Twenty-fi ve per cent of
premises depreciation is to be regarded as factory cost. Seventy-fi ve per cent of plant
depreciation is to be regarded as factory cost.
(vi) The allowance for receivables is to be amended to 5 per cent of receivables.
(vii) Sales offi cers ’ commission for the year is to be 5 per cent of net sales.
(viii) Administration expenses include stationery, which has been recorded at its total invoice
value of $9,400, including sales tax at 17.5 per cent. The sales tax is reclaimable.
(ix) The debentures were issued on 1 October 20X5. Interest is due on 1 April and 1
October annually in arrears.
(x) Corporation tax of $22,000 is to be accrued for the year.
(xi) A dividend of 3c per share is proposed.
REVISION QUESTIONS C2
478
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Requirements
(a) Insert the missing items into the statement of comprehensive income for the year
ended 31 March 20X6.
$ $ $ $
Sales
Less returns
Net sales
Opening inventories of fi nished goods
Opening inventories of raw material
Less : closing inventories of raw material
Direct material
Direct labour
Prime cost
Factory indirect expenses
Opening work in progress
Less : closing work in progress
Factory cost of goods completed
Less : closing inventories of fi nished goods
Cost of goods sold
Gross profi t
Discount received
479
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
$
$
Less : expenses
Operating profi t
P r o fi t before tax
P r o fi t for the period
(b) Insert the missing items into the statement of changes in equity for the year ended 31
March 20X6.
$’000
Balance at start of period
Balance at end of period
(c) For each of the following items that appear in the fi nancial statements of FPC Ltd,
state an accounting convention which affects its treatment:
(i) inventories of raw materials.
(ii) goods on sale or return.
(iii) allowance for receivables.
(i)
(ii)
(iii)