CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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SOLUTIONS TO REVISION QUESTIONS C2
490
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(a) Revised operating profi t
$
Original operating profi t 80,000
(i) Receivables (1,000)
Suspense (4,000)
(ii) Bank (1,000)
(iii) Receivables (1,000)
Allowance for receivables 1 , 140
(iv) Inventories 2,000
Retained earnings b/fwd 1,000
(v) Suspense 3,000
Revised operating profi t 80,140
Statement of comprehensive income of Fiddles plc
$
Operating profi t 80,140
Debenture interest (7,200)
P r o fi t for the period 72,940
Statement of changes in equity of Fiddles plc
$
Balance at start of period (200,000 1,000) 199,000
P r o fi t for the period 72,940
Dividend (10,000)
Balance at end of period 261,940
491
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Statement of fi nancial position of Fiddles plc
Assets $ $ $
Non-current assets
Land 100,000
Buildings 120,000
Plant and machinery
Cost 170,000
Accumulated depreciation 120,000
50,000
270,000
Current assets
Inventories 192,000
Receivables 186,000
Less: allowance 1, 860
184,140
Bank 13,000
389,140
659,140
Equity and liabilities
Share capital 100,000
Retained earnings 261,940
361,940
Non-current liabilities
Debentures 180,000
Current liabilities
Payables 100,000
Debenture interest 7,200
Dividends declared 10,000
117,200
659,140
SOLUTIONS TO REVISION QUESTIONS C2
492
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
Solution 5
●
This question involves the preparation of a statement of cash fl ows by analysing changes
in the statement of fi nancial position, together with the adjustment of profi t for items
that do not affect cash.
●
Transfers to reserves must be added back before arriving at operating profi t; this must
then be adjusted by adding back depreciation for the year.
(a)
$’000
Cash fl ow from operating activities
P r o fi t for the year ended 20X5 1,500
Add : depreciation 750
Add : decrease in inventories 200
Add : decrease in receivables 1,500
Less : decrease in payables (1,000)
2,950
Cash fl ow from fi nancing activities
Issue of shares 3,000
Increase in cash and bank 5,950
Opening bank balance (1,000)
Closing bank balance 4,950
(b) Statement of changes in equity of OGN Ltd for the year ended 31 December 20X5
Ordinary
Shares
Share
Premium
General
Reserves
Retained
Earnings Total
$’000 $’000 $’000 $’000
Balance at the start of the period 7,000 1,500 1,000 9,500
Retained earnings 1,500 1,500
Transfer to general reserve 1,000 (1,000)
Issue of ordinary shares 2,000 1,000 3,000
Balance at the end of the period 9,000 1,000 2,500 1,500 14,000
493
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(c) Statement of fi nancial position of OGN Ltd as at 31 December 20X5
Assets $’000 $’000
Non-current assets 7,500
Less : accumulated depreciation (750)
6,750
Current assets
Inventories 1,800
Receivables 3,500
Bank 4,950
10,250
17,000
Equity and liabilities
9,000 ordinary shares of $1 each 9,000
Share premium account 1,000
General reserves 2,500
Retained earnings 1,500
14,000
Current liabilities
Trade payables 3,000
17,000
(d)
(i) Par (or nominal) value is that ascribed to shares when authorised, appears on the
share certifi cate and used for dividend calculations.
(ii) Debentures are long-terms loans with a fi xed interest rate, payable irrespective of
profi ts. They may be redeemable in the future, and secured on non-current assets.
(iii) Profi ts are transferred to general reserves to limit the profi ts available for payment
of current/future dividends. They may be reversed in the future.
(iv) Dividends are proposed by the directors, but are not payable until approved by
members at the annual general meeting.
Solution 6
●
Commence this question by preparing a workings section, adjusting for the various
points given to you in the notes, with adjustments and apportionments clearly labelled.
●
It might also help to label the fi gures in the trial balance according to their destina-
tion, that is, manufacturing account, statement of comprehensive income, statement of
changes in equity, statement of fi nancial position – and a note of items to be appor-
tioned between different accounts.
SOLUTIONS TO REVISION QUESTIONS C2
494
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(a) Manufacturing account of ABC Ltd for the year ended 31 October 20X3
$’000 $’000 $’000
Opening inventories of raw materials 27
Purchases of raw materials 826
Less : returns (18)
808
835
Less : closing inventories of raw materials (24)
Direct materials 811
Direct labour (575 15) 590
Prime cost 1,401
Indirect factory costs
Heat, light and power (50% $242) 121
Salaries (20% (122 8)) 26
Rent and insurance (1 / 3 (114 21)) 31
Depreciation of plant (10% $350) 35
Depreciation of premises (25% (2% 600)) 3
216
Total factory cost 1,617
Change in work in progress
Opening inventories 18
Less : closing inventories (19)
(1)
Factory cost of goods transferred 1,616
495
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(b) Trading and statement of comprehensive income of ABC Ltd for the year ended 31 October
20X3
$’000 $’000
Sales 2,350
Less : returns (38)
2,312
Less : cost of goods sold
Opening inventories of fi nished goods 255
Factory cost of goods transferred 1,616
1,871
Less : closing inventories of fi nished goods (147)
(1,724)
Gross profi t 588
Less : expenses
Heat, light and power 121
Salaries 104
Printing, post and stationery 32
Rent and insurance 62
Change in allowance for receivables (5)
Bad debts written off 40
Inventories written down 5
Depreciation
Premises 9
O f fi ce equipment 18
(386)
Operating profi t 202
Loan interest payable (50)
P r o fi t before tax 152
Income tax (35)
P r o fi t for the period 117
Other comprehensive income
Gain on property revaluation before tax 100
Income tax (30)
Gain on property revaluation after tax 70
Total comprehensive income 187
(c) Statement of changes in equity of ABC Ltd for the year ended 31 October 20X3
Revaluation
Reserve
Retained
Earnings
$’000
Balance at start of period 442 442
Total comprehensive income 70 117 187
Dividends paid (10) (10)
Balance at end of period 70 549 619
SOLUTIONS TO REVISION QUESTIONS C2
496
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(d) Statement of Financial position of ABC Ltd as at 31 October 20X 3
Cost ($’000)
Acc. Dep’n
($’000)
Carrying amount
($’000)
Assets
Non-current assets
Premises 700 (207) 493
Plant 350 (175) 175
O f fi ce equipment 125 (53) 72
1,175 (435) 740
Current assets
Inventories
Raw materials 24
Work in progress 19
Finished goods 142
185
Receivables 240
Less: allowance (6)
234
Prepayments 21
Bank balance 509
949
1,689
Equity and liabilities
Ordinary share capital 500
Share premium account 100
Revaluation reserve 70
Retained earnings 549
1,219
Non-current liability
Loan repayable 150
Current liabilities
Trade payables (75)
Accruals (61)
Sales tax liability (19)
Income Tax (65)
Loan repayable in 12 months (100)
320
1,689
Note that the dividend is ignored because it is only proposed.
Solution 7
●
This question involves a manufacturer, with all the usual adjustments and apportion-
ments required.
●
Prepare a workings section, with adjustments and apportionments clearly labelled.
497
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(a) Statement of comprehensive income of FPC Ltd for year ended 31 March 20X6
$ $ $ $
Sales 2,925,000
Less : returns (14,000)
Net sales 2,911,000
Opening inventories of fi nished goods 70,000
Opening inventories of raw material 60,000
Purchases 1,500,000
Carriage inwards 15,000
1,515,000
Less : returns outwards (22,000)
Net purchases 1,493,000
1,553,000
Less : closing inventories of raw material (80,000)
Direct material 1,473,000
Direct labour 617,500
Prime cost 2,090,500
Factory indirect expenses
Rent and rates 22,000
Insurance 16,000
Factory supervisors ’ salaries 150,000
Depreciation – premises 4,500
Depreciation – plant 11,250
203,750
2,294,250
Opening work in progress 30,000
Less : closing work in progress (42,500)
(12,500)
Factory cost of goods completed 2,281,750
2,351,750
Less : closing inventories of fi nished goods (127,000)
Cost of goods sold (2,224,750)
Gross profi t 686,250
Discount received 2,500
688,750
SOLUTIONS TO REVISION QUESTIONS C2
498
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
$ $
Less : expenses
Carriage outwards 10,000
Discount allowed 4,000
Rent 88,000
Insurance 64,000
O f fi ce wages and salaries 175,000
Sales offi cers ’ commission 145,000
Administration expenses 43,600
Allowance for receivables 2,250
Bad debts written off 6,500
Depreciation – premises 13,500
3,750
Depreciation – plant and machinery (556,150)
Operating profi t 132,600
Debenture interest paid ( 10,000 )
P r o fi t before tax 122,600
Income tax (22,000)
P r o fi t for the period 100,600
Workings
Rent as per trial balance $120,000, less prepaid $10,000 $110,000
20% factory $22,000; 80% administration $88,000
Insurance as per trial balance $100,000, less prepaid $20,000 $80,000
20% factory $16,000; 80% administration $64,000
Direct labour as per trial balance $600,000, add accrued $17,500 $617,500
Sales as per trial balance $2,960,000, less sale or return $35,000 $2,925,000
Receivables as per trial balance $220,000, less sale or return $35,000 $185,000
Depreciation plant: 10% of $150,000 $15,000
75% factory $11,250; 25% administration $3,750
premises: 2% of $900,000 $18,000
25% factory $4,500; 75% administration $13,500
Allowance for receivables 5% of $185,000 $9,250, less previous balance $7,000 $2,250
Sales offi cers ’ commission 5% of $2,911,000 $145,550, less already paid $113,500 $32,050
accrued
Administration expenses as per trial balance $45,000, less incorrect sales tax $1,400 $43,600
499
FUNDAMENTALS OF FINANCIAL ACCOUNTING
THE FINANCIAL STATEMENTS OF LIMITED COMPANIES AND THE STATEMENT OF CASH FLOWS
(b) Statement of changes in equity of FPC Ltd for year ended 31 March 20X6
$’000
Balance at start of period 98,000
P r o fi t for the period 100,600
Balance at end of period 198,600
Note : The dividend is ignored because it is proposed.
(c) (i) consistency convention
(ii) matching convention
(iii) prudence convention
Solution 8
(a)
Non-current assets at cost
$’000 $’000
Balance b/f 1,000 Disposals a/c 50
Additions
350 Balance c/f 1,300
1,350 1,350
Non-current asset – accumulated depreciation
$’000 $’000
Disposals a/c 20 Balance b/f 400
Balance c/f 600 Charge for the year 220
620 620
Non-current assets – disposals
$’000 $’000
Non-current assets at cost 50 Non-current assets acc. depn. 20
P r o fi t on sale of non-current assets 10 Disposal proceeds 40
6 0 6 0