CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
580
Question 8
In connection with controls over accounting documents and records that would help to
prevent errors or fraud in the operation of the computerised ledger, complete the missing
words in these sentences:
(i) invoices relate to a properly authorised __________;
(ii) numbered __________ should be raised, for example by storekeeper, to ensure that
goods have been inspected and taken into stores;
(iii) adequate __________ of duties exists;
(iv) purchase ledger records should be checked against __________ statements.
(8 marks)
Question 9
At the year end of TD, an imbalance in the trial balance was revealed that resulted in the
creation of a suspense account with a credit balance of $1,040.
Investigations revealed the following errors:
(i) A sale of goods on credit for $1,000 had been omitted from the sales account.
(ii) Delivery and installation costs of $240 on a new item of plant had been recorded as a
revenue expense.
(iii) Cash discount of $150 on paying a supplier, JW, had been taken, even though the
payment was made outside the time limit.
(iv) Inventories of stationery at the end of the period of $240 had been ignored.
(v) A purchase of raw materials of $350 had been recorded in the purchases account as
$850.
(vi) The purchase returns daybook included a sales credit note for $230 that had been
entered correctly in the account of the receivable concerned, but included with pur-
chase returns in the nominal ledger.
Requirements
(a) Insert the missing items into the table below to show the journal entries required to
correct each of the above errors.
Item Account name Debit Credit
$ $
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(12 marks)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
581
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(b) Insert the missing items into the suspense account given below to show the correc-
tions to be made.
Suspense account
$ $
(3 marks)
(c) Prior to the discovery of the errors, TD’s gross profi t for the year was calculated at
$35,750 and the net profi t for the year at $18,500.
Insert the missing items below in order to calculate the revised gross and net profi t
fi gures after the correction of the errors.
$
Gross profi t – original 35,750
Add/less *:
Add/less *:
Add/less *:
Revised gross profi t
Net profi t – original 18,500
Add/less *:
Add/less *:
Add/less *:
Add/less *:
Revised net profi t
(5 marks)
(Total marks 20)
Question 10
ARH plc has the following results for the last 2 years of trading:
Income statement of ARH plc
For the year ended 31.12.X4 31.12.9X5
$’000 $’000
Sales 14,400 17,000
Less : cost of sales (11,800) (12,600)
Gross profi t 2,600 4,400
Less : expenses (1,200) (2,000)
Operating profi t 1,400 2,400
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
582
Statement of changes in equity of ARH plc
For the year ended 31.12.X4 31.12.X5
Retained earnings start of period 320 1,200
Total comprehensive income for the period 1,400 2,400
Dividends paid (520) (780)
Retained earnings end of period 1,200 2,820
Statement of fi nancial position of ARH plc
At 31 December At 31 December
20X4 20X5
Assets $’000 $’000 $’000 $’000
Non-current assets 2,500 4,000
Current assets
Inventories 1,300 2,000
Receivables 2,000 1,600
Bank balances 2,400 820
5,700 4,420
8,200 8,420
Equity and liabilities
2.4 million ordinary shares of $1 each 2,400 2,400
Revaluation reserves 500 500
Retained earnings 1,200 2,820
4,100 5,720
Non-current liabilities
10% debentures 2,600 –
Current liabilities
Payables 1,500 2,700
8,200 8,420
Requirements
Calculate for 20X4 and 20X5 the:
(i) gross profi t margin,
(ii) operating profi t margin,
(iii) return on capital employed (ROCE), using average capital.
(6 marks)
Question 11
(a) You are given the following details regarding inventory movements during April
20X6:
1 Apr. 100 units on hand, cost $10 each
8 Apr. Inventory sold for $360, with a mark-up of 50%
18 Apr. 38 units purchased for $480 less trade discount of 5%
20 Apr. 50 units sold
23 Apr. 35 units sold
28 Apr. 20 units purchased for $260
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
583
FUNDAMENTALS OF FINANCIAL ACCOUNTING
You are required to insert the missing items into the inventory record cards given below,
using the fi rst in, fi rst out (FIFO), last in, fi rst out (LIFO) and average cost (AVCO) cost
formulas, in order to determine the quantity and cost of closing inventory at 30 April 20X6.
Inventory record card – FIFO
Receipts Issues Balance
Date Units $/unit $ Units $/unit $ Units $/unit $
1 Apr. 100 10 1000
8 A p r .
18 Apr.
20 Apr.
2 3 A p r .
28 Apr.
Totals
Inventory record card – LIFO
Receipts Issues Balance
Date Units $/unit $ Units $/
unit
$ Units $/unit $
1 Apr. 100 10 1,000
8 A p r .
18 Apr.
20 Apr.
2 3 A p r .
28 Apr.
Totals
Inventory record card – AVCO
Receipts Issues Balance
Date Units $/unit $ Units $/unit $ Units $/unit $
1 Apr. 100 1,000
8 A p r .
18 Apr.
20 Apr.
2 3 A p r .
28 Apr.
Totals
(10 marks)
(b) If the physical inventory count carried out at 30 April revealed a closing inventory quan-
tity of 50 units, which of the following could be possible reasons for the discrepancy.
(i) Recording of an issue at too high a level
(ii) Recording of a receipt at too high a level
(iii) Recording of a receipt at too low a level
(iv) Recording of an issue at too low a level.
(2 marks)
(Total marks 12)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
584
Question 12
The directors of R Ltd are hoping to negotiate an overdraft to provide working capital for
a proposed expansion of business. The bank manager has called for fi nancial statements for
the last 3 years and the directors have produced the following extracts:
Statements of fi nancial position as at 31 December
20X4 20X5 20X6
$’000 $’000 $’000 $’000 $’000 $’000
Non-current assets 147 163 153
Current assets
Inventories 27 40 46
Receivables 40 45 52
Bank 6 15 8
73 100 106
146 200 212
293 363 365
Current liabilities
(including tax) 33 45 43
20X4 ($’000) 20X5 ($’000) 20X6 ($’000)
Credit sales 360 375 390
Credit purchases 230 250 280
P r o fi t before tax 32 46 14
The bank manager has obtained the following additional information:
(i) The company commenced on 1 January 20X4 with an issued capital of 100,000 $1
ordinary shares issued at a premium of 60¢ each.
(ii) Income tax amounted to $5,000 in 20X5 and $6,000 in 20X6. There was no income
tax for 20X4.
(iii) Dividends paid were of 5¢ per share in 20X4, and 10¢ per share in each of 20X5 and
20X6.
(iv) $18,000 was transferred to general reserves in 20X5.
Requirements
(a) Insert the missing items into the table below to show the income statement for each
of the 3 years.
20X4 20X5 20X6
$’000 $’000 $’000
(3 marks)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
585
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(b) Insert the missing items into the table below to show the statement of changes in
equity for each of the 3 years.
20X4 20X5 20X6
$’000 $’000 $’000
Gen. res
Retained
earnings Gen. Res
Retained
earnings Gen. Res
Retained
earnings
Balance at start of period
(3 marks)
(c) Insert the missing items into the table below to show the capital section of the state-
ment of fi nancial position for each of the 3 years.
Description 20X4 ($’000) 20X5 ($’000) 20X6 ($’000)
Totals
(4 marks)
(d) (i) The formula for receivables days is:
(ii) The receivables days in each of the 3 years is:
For 20X4: days
For 20X5: days
For 20X6: days
(iii) The formula for payables days is:
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
586
(iv) The payables days in each of the 3 years is ( Note : remember to exclude taxation
from payables):
For 20X4: days
For 20X5: days
For 20X6: days
(6 marks)
(e) Deleting text as appropriate, complete the following paragraph, which discusses how
the above changes in receivables and payables days might affect the proposed overdraft.
The company appears to be increasing/decreasing the length of credit given to customers,
which slows down/speeds up the receipt of cash. At the same time it is increasing/decreasing
the length of credit from suppliers, which slows down/speeds up the payment of cash. These
two actions combined will cause the amount of cash available to increase/decrease . If these
payment periods could be brought more into line with each other, the amount of overdraft
required will be higher/lower .
(6 marks)
(Total marks 22)
Question 13
APW Ltd has the following trial balance at 30 April 20X8:
Debit ($’000) Credit ($’000)
Ordinary shares, 50¢ each 1,500
Irredeemable preference shares, 7% 400
Share premium account 200
Retained earnings at 1 May 20X7 580
8% debentures 500
Buildings – at valuation 3,500
Buildings – accumulated depreciation at 1 May 20X7 1,300
Factory plant – cost 1,200
Factory plant – accumulated depreciation at 1 May 20X7 200
O f fi ce equipment – cost 250
O f fi ce equipment – accumulated depreciation at 1 May 20X7 50
Delivery vehicles – cost 600
Delivery vehicles – accumulated depreciation at 1 May 20X7 360
Inventories at 1 May 20X7
Raw materials 234
Work in progress 182
Finished goods 98
Receivables and payables 136 124
Sales tax account 74
Employees ’ income tax and social security tax payable 62
Bank 248
Sales 2,660
Purchases of raw materials 785
Carriage outwards 20
Carriage inwards 40
Returns 104 65
Direct labour 372
Indirect factory labour 118
O f fi ce salaries 130
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
587
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Indirect factory overheads 63
Heat, light and power 120
Rent and insurance 130
Administration expenses 55
Debenture interest 20
Dividends paid – preference 28
Dividends paid – ordinary 140
Bank interest received 12
Bank charges 10
8,335 8,335
You are given the following information at 30 April 20X8:
(i) Inventories are as follows:
Raw materials $256,000
Work in progress $118,000
Finished goods $123,000
You ascertain that fi nished goods consist of three products:
Product Cost included in above valuation ($) Net realisable value ($)
Alpha 71,000 75,000
Beta 31,000 23,000
Delta 21,000 23,000
(ii) Depreciation is to be calculated as follows:
Buildings 5% on valuation (of which 40% is to be apportioned
to the factory)
Factory plant 10% on cost
O f fi ce equipment 20% on the reducing balance
Delivery vehicles 20% on cost
(iii) Wages and salaries costs accrued are:
Direct labour ($) Indirect factory labour ($) Offi ce salaries ($)
Gross wages 34,000 14,000 25,000
Employees ’ income 6,700 2,800 3,900
Tax and social
security deducted
Employer’s social 3,000 1,000 2,000
security tax
(iv) Income tax of $80,000 for the year is to be accrued.
(v) Heat, light and power accrued amounts to $15,000. Forty per cent of heat, light and
power is to be apportioned to the factory.
(vi) Rent and insurance prepaid amounts to $10,000. Thirty per cent of rent and insur-
ance is to be apportioned to the factory.
(vii) The debentures were issued in 20X4, and are due for repayment in 20Y4.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
588
Requirements
(a) Insert the missing items in the income statement for the year ended 30 April 20X8.
Income statement of APW Ltd for the year ended 30 April 20X8
$’000 $’000 $’000 $’000
Sales
Opening inventories of fi nished goods
Opening inventories of raw material
Prime cost
Cost of production transferred to
fi nished goods inventories
Gross profi t
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
589
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Operating profi t
P r o fi t before tax
(10 marks)
(b) Insert the missing items in the statement of changes in equity for the year ended
30 April 20X8.
Statement of changes in equity of APW Ltd for the year ended 30 April 20X8
Retained Earnings
Balance at start of period
(13 marks)
(c) Which are the two principal accounting conventions that affect the valuation of
inventories.
(i) _____________________________________________________
(ii) _____________________________________________________
(7 marks)
(Total marks 30)