CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
620
(ii) non-current assets have been disposed of on credit, for more than their carrying
amount;
(iii) a long-term bank loan has been repaid by increasing the overdraft;
(iv) goods sold on credit have been returned and the original sales value has been credited
to the receivables ’ account.
Non-current assets Working capital Profi t
(i) ________ ________ ________
(ii) ________ ________ ________
(iii) ________ ________ ________
(iv) ________ ________ ________
(8 marks)
Question 26
The Monarch Sports Club has the following summary of its cash book for the year ended
30 June 20X7:
$ $
Opening bank balance 12,500
Receipts
Subscriptions 18,000
Life membership fees 3,000
Competition receipts 7,500
Entrance fees 2,500
Equipment sold 1,000
32,000
44,500
Payments
Transport to matches 3,700
Competition prizes 4,300
Coaching fees 2,100
Repairs to equipment 800
Purchase of new equipment 4,000
Purchase of sports pavilion 35,000
(49,900)
Closing balance (overdrawn) 5,400
The following information is available regarding the position at the beginning and end of
the accounting year:
1 July 20X6 30 June 20X7
$ $
Subscriptions in advance 1,100 900
Subscriptions in arrears 200 300
Coaching fees outstanding 150 450
Of the subscriptions outstanding at the beginning of the year, only half were eventually
received.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
621
FUNDAMENTALS OF FINANCIAL ACCOUNTING
The equipment sold during the year had a carrying amount of $1,200 at 1 July 20X6.
Equipment is to be depreciated at 20 per cent per annum straight line. Life membership
fees are taken to cover 10 years.
The treasurer insists that no depreciation needs to be charged to the sports pavilion, as
buildings do not decrease in value. He says that the last club of which he was treasurer did
charge depreciation on its buildings but that when the club came to replace them, there
was still insuffi cient money in the bank to pay for the new building.
Requirements
(a) Insert the missing words in the following sentences
A _____ and _____ account is a summary of the cash and bank transactions for the
relevant period; in essence, it is a summarised cash book.
An _____ and _____ statement is essentially the same as an income statement. It takes
into account prepayments and accruals and distinguishes between capital and revenue
items.
(4 marks)
(b) Insert the missing items in the income and expenditure statement for the Monarch
Sports Club for the year ended 30 June 20X7.
Income and expenditure statement of Monarch Sports Club for the year ended 30 June 20X7 .
$ $
Income
Annual subscriptions
Receipts in year
Add : Subs in advance at
Less : Subs in arrears at
Less : Subs in advance at
Add : Subs in arrears at
Expenses
Surplus for year
(8 marks)
(Total marks 12)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
622
Question 27
Robert Costello is a sole trader. His business mainly involves the sale of computer systems
to small businesses and home users, including hardware and pre-loaded software. He also
sells individual items of equipment from his shop. At 30 September 20X9, he extracts the
following trial balance from his accounting records:
Debit Credit
$ $
Capital at 1 October 20X8 26,600
Loan from bank 40,000
Loan repayments made 12,600
Inventories at 1 October 20X8 42,500
Sales of computer systems 305,000
Other sales 5,500
Purchases 180,300
General offi ce expenses 8,800
Car insurance 400
Shop rental 24,000
Local business tax 3,500
Heating and lighting 2,400
Wages 18,500
Fixtures and fi ttings – cost 10,000
Fixtures and fi ttings – acc. depreciation 1 October 20X8 3,600
Motor vehicle – cost 21,000
Motor vehicle – acc. depreciation 1 October 20X8 5,000
Receivables 62,900
Payables 15,200
Sales tax 4,500
Bank balance 18,500
405,400 405,400
You are given the following information at 30 September 20X9:
(i) Closing inventories of hardware and software were $45,200.
(ii) The fi gure in the accounts for shop rental includes $6,000 for the period from
1 October 20X9 to 31 December 20X9.
(iii) Local business tax for the year ending 31 March 20Y0 has been paid in full, amount-
ing to $2,400.
(iv) Heating and lighting to be accrued is $350.
(v) The wages total recorded in the books consists of $15,000 that Robert paid to him-
self, and $3,500 paid to his father for assistance with bookkeeping.
(vi) During the year, sales of sundry items amounting to $5,640 (including sales tax at
17.5 per cent) were made for cash, and have not been recorded in the books. The
cash was used to pay for stationery ($470 including sales tax), shop assistant’s wages
($3,760) and petrol ($1,410 including sales tax).
(vii) During the year, a motor vehicle that had cost $8,000, and on which the accumu-
lated depreciation was $5,000, was given in part exchange for a new vehicle costing
$15,000. The part-exchange valuation was $2,000. The ledger accounts in the above
trial balance contain the cost and accumulative depreciation of the disposed vehicle,
and the balance paid by cheque for the new vehicle.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
623
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(viii) Fixtures and fi ttings are to be depreciated at the rate of 20 per cent per annum on
the reducing-balance basis; motor vehicles are to be depreciated at the rate of 20 per
cent per annum, straight line, with a full year’s depreciation provided in the year of
acquisition.
(ix) One of Robert’s business customers is in fi nancial diffi culties, and is unable to pay
the whole of his debt of $6,000. He offered to pay in six equal instalments, starting
August 20X9, but so far has made no payment. Robert feels that he is likely to get
half the money back. Other receivables are also showing signs of diffi culties, and he
thinks it might be prudent to make an allowance of 5 per cent for receivables.
(x) The bank loan was taken out on 1 January 20X9. The loan is being repaid in 40
monthly instalments of $1,400, including fl at-rate interest of 12 per cent per annum
on the amount borrowed.
Requirements
(a) Insert the missing items in Robert’s income statement for the year 30 September
20X9.
Income statement of Robert Costello for the year ended 30 September 20X 9
$ $
Gross profi t
Net profi t
(12 marks)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
624
(b) Insert the missing items in Robert’s statement of fi nancial position 30 September 20X9
Balance sheet of Robert Costello as at 30 September 20X9
Assets Cost Acc. Dep’n Carrying Amount
Non-current assets $ $ $
Current assets
Capital and liabilities
Non-current liabilities
Current liabilities
(12 marks)
(Total marks 24)
Question 28
Tanwir commenced in business on 1 October 20X9, with capital in the bank of $20,000.
During his fi rst month of trading, his transactions were as follows:
2 Oct. Purchased inventories for $3,500 on credit from A Jones
3 Oct. Paid $1,200 rental of premises, by cheque
5 Oct. Paid $5,000 for offi ce equipment, by cheque
10 Oct. Sold goods costing $1,000, for $1,750, on credit to P Assad
15 Oct. Returned inventories costing $500 to A Jones
18 Oct. Purchased inventories for $2,400 on credit from A Jones
25 Oct. Paid A Jones for the net purchases of 2 Oct., by cheque
28 Oct. P Assad paid $500 on account, by cheque
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
625
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Requirements
(a) Insert the missing items in the ledger accounts for the above transactions.
Capital
$ $
Bank
$ $
Purchases
$ $
A Jones
$ $
Rent payable
$ $
Offi ce equipment
$ $
Sales
$ $
P Assad
$ $
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
626
Returns outwards
$ $
(12 marks)
(b) During his fi rst year of trading, Tanwir brings his private car, valued at $6,000, into
the business. The business made a net profi t of $17,500 for the year, after deducting
$650 for petrol that was paid out of his private funds. He has drawn $5,000 out of the
business bank account for himself, as well as paying his home telephone bill of $450
from business funds.
Insert the missing items in the calculation of Tanwir’s capital at the end of the fi rst
year of trading.
Calculation of Tanwir’s closing capital
$
Closing capital
(5 marks)
(c) State the accounting convention that has governed the treatment of the items which
make up Tanwir’s capital at the end of the year.
convention
(3 marks)
(Total marks 20)
Question 29
Jay Ltd values inventories on the fi rst in, fi rst out (FIFO) cost formula. During October
20X9, there are the following details regarding inventory of Product A:
1 Oct. Balance in inventory 120 items valued at $8 each
3 Oct. Purchases 180 items at $9 each
4 Oct. Sales 150 items at $12 each
8 Oct. Sales 80 items at $15 each
12 Oct. Returns to the supplier 30 items purchased on 3 Oct.
18 Oct. Purchases 300 items at $10 each
22 Oct. Sales 100 items at $15 each
28 Oct. Returns from customers 20 items sold on 22 Oct.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
627
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Requirements
(a) Insert the missing items in the stores ledger card for Product A for October 20X9
using the FIFO cost formula.
Note : Goods returned inwards are valued at the latest issue price.
Date Quantity
Receipts
price Value Quantity
Issues
price Value
Balance
quantity Value
$ $ $ $ $
1 Oct.
3 Oct.
4 Oct.
8 Oct.
12 Oct.
18 Oct.
22 Oct.
28 Oct
(4 marks)
(b) Insert the missing items in the stores ledger card for Product A for October using the
AVCO (weighted average cost) cost formula.
Date Quantity
Receipts
price Value Quantity
Issues
price Value
Balance
quantity Value
$ $ $ $ $
1 Oct.
3 Oct.
4 Oct.
8 Oct.
12 Oct.
18 Oct.
22 Oct.
28 Oct.
(4 marks)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
REVISION QUESTIONS C2
628
(c) Calculate the gross profi t for October using both methods of inventory valuation by
inserting the missing items in the schedule below.
Trading accounts of Jay Ltd
FIFO AVCO
$ $
Opening inventory
Purchases
Closing inventory
Cost of sales
Sales
Gross profi t
(4 marks)
(Total marks 12)
Question 30
MMM Ltd is a recently formed company, which provides training and educational serv-
ices. The company was formed with an authorised share capital of 1,000,000 $1 shares.
The three shareholders, who are also directors, each purchased 120,000 shares at $1.40 per
share. It is expected that the business will grow rapidly during the fi rst 2 years, and that
funds for that expansion will be sought by issuing shares to family members and obtaining
bank fi nance.
During the fi rst year of trading, a profi t before tax of $48,800 was made, after deduct-
ing salaries to the three directors of $60,000 in total. Income tax of $6,500 was accrued
for the year. As well as the salaries, the three directors paid dividends for themselves at 5¢
per share. They also decided to transfer $5,000 into general reserves.
During the second year of trading, profi t before tax was $55,000. Family members pur-
chased a further 30,000 shares at $1.50 per share, at the start of the year. Salaries were as
in the fi rst year. Dividends of 13¢ per share were paid. Income tax of $8,000 was accrued
for the year, and a further $5,000 transferred into general reserves.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
629
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Requirement
Insert the missing items in the statement of changes in equity for each of years 1 and 2.
Statement of changes in equity of MMM Ltd
Year 1 Year 2
Share
capital
Share
premium
General
reserve
Retained
earnings
Share
capital
Share
premium
General
reserve
Retained
earnings
$ $ $ $ $ $ $ $
Balance
at start of
period
– – – –
Balance at
end of period
(9 marks)
Question 31
EMP plc is a retail organisation, with the following trial balance at 31 October 20X1:
Debit Credit
$m $m
Ordinary shares of 50¢ each 200
Share premium account 16
General reserves 14
Retained earnings at 1 November 20X0 62
Plant and machinery
Cost 250
Acc. depreciation at 1 November 20X0 56
O f fi ce equipment
Cost 90
Acc. depreciation at 1 November 20X0 30
Inventories at 1 November 20X0 62
Receivables and payables 84 80
Allowance for receivables at 1 November 20X0 8
Bank balance 8
Purchases and sales 230 376
Returns inwards and outwards 16 12
Administrative expenses
Wages and salaries 28
Directors ’ fees 10
Telephone costs 12
Rent and insurances 8
Heat and light 16
Printing and stationery 12
Distribution expenses 24
Dividend paid 4
854 854