CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
SOLUTIONS TO REVISION QUESTIONS C2
640
credit side. Option (B) is a correct entry. Option (C) would make the credit side
less than the debit side.
1.4 Answer: (D)
Share premium arises where shares are issued for more than their par value. Reserves
are created from profi ts retained in the business or from the upward revaluation of
non-current assets. The suspense account is created when there is an imbalance in
the ledger accounts. Goodwill arises when the value of the assets purchased is less
than the purchase price.
1.5 Reconstruction of cost of goods sold to establish the purchases fi gure:
$ $
Opening inventories 12,000
Add : Purchases 122,000*
Less : Returns (5,000)
117,000
Closing inventories (18,000)
Cost of goods sold 111,000
*Found by difference.
1.6 Answer: (D)
1.7 Answer: $350,000
1.8
$
Opening balance 34,500
Credit purchases 78,400
Discounts (1,200)
Payments (68,900)
Purchase returns (4,700)
38,100
1.9
$
Statement balance 13,400
Add : dishonoured cheque 300
Add : bank charges 50
Less : Unpresented cheques (1,400)
Adjustment re error (390) (i.e. twice 195)
11,960
1.10
$
Cash book balance (1,240)
Unpresented cheques 450
Receipt not yet processed (140)
Bank charges (75)
As per statement (1,005)
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641
FUNDAMENTALS OF FINANCIAL ACCOUNTING
1.11 Answer: (A)
1.12 Answers: 1C, 2E, 3 A, 4B, 5D
1.13 Reliable – the caretaker is not likely to know; the offi ce staff should know.
Relevance – the economics exam is not likely to be relevant.
Complete – the student needs to know the precise date.
Understandable – C/42 is probably not understandable to the new student – this
might be Block C, Room 42, or room C, block 42.
1.14 Answer: (B)
1.15 Answer: (D)
1.16 Answer: (B)
1.17 Answer: (D)
Solution 2
2.1 Answer: (D)
2.2 Answer: (B)
2.3 Credit $962.50
2.4 Answer: (D)
2.5 Income statement $9000; Statement of fi nancial position $3,000
2.6 Answer: (A)
2.7 Answer: (C)
2.8 $41.00
2.9 Answer: (B)
2.10 $18,000
2.11 Debit $7,700
2.12 Answer: (C)
2.13 57 days
2.14 $1,880
2.15 Debit $210
Solution 3
3.1 Answer: (C)
3.2 Answer: (D)
3.3 Answer: (A)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
SOLUTIONS TO REVISION QUESTIONS C2
642
3.4 Overdrawn $880
3.5 Answer: (D)
3.6 Answer: (C)
3.7 Answer: (D)
3.8 Answer: (B)
3.9 $385
3.10 Answer: (A)
3.11 Loss $28.80
3.12 $182,000
3.13 $180.00
3.14 $26,000
3.15 8 times
Solution 4
4.1 Answer: (C)
4.2 Answer: (B)
4.3 Answer: (A)
4.4 Answer: (A)
4.5 Answer: (D)
4.6 $339,000
4.7 $90
4.8 Answer: (D)
4.9 Credit $190
4.10 Answer: (C)
4.11 $14,550
4.12 $171,000
4.13 Answer: (C)
4.14 Answer: (A)
4.15 Answer: (B)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
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FUNDAMENTALS OF FINANCIAL ACCOUNTING
Solution 5
5.1 Answer: (C)
5.2 Answer: (A)
$
Disposal proceeds 30,000
Less : profi t (10,000)
Carrying amount 20,000
$271,200 $20,000 $251,200
5.3 Answer: (B)
5.4 Answer: (D)
5.5 Answer: (B)
$
Increase in inventories 500
Decrease in bank (800)
Increase in payables (2,400)
Decrease in working capital (2,700)
5.6
Subscription account
Dr Cr
$ $
Balance b/f 200 Balance b/f 90
Paid in advance c/f 85 Receipts 4,800
Income and expenditure statement 4,655 Outstanding c/f 50
4,940 4,940
5.7 Answer: (B)
5.8
$ $
Opening capital 28,000
Capital introduced (petrol) 1,800
Add : profi t
Per IS 45,000
Add back own wages 18,000
Less : petrol (1,800)
61,200
91,000
Less : drawings
Wages 18,000
Telephone 800
(18,800)
Closing capital 72,200
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
SOLUTIONS TO REVISION QUESTIONS C2
644
5.9
$
Purchase of raw material 56,000
Carriage inwards 2,500
Increase in inventories (1,700)
Cost of material consumed 56,800
Direct wages 21,000
Prime cost
77,800
Production overhead 14,000
Decrease in work in progress 5,000
Production cost 96,800
5.10
Qty Price
$
Total
$
Opening inventories 60 4.00 240
Purchases 100 4.80 480
Balance 160 4.50 720
Sales 80 4.50 360
Balance
80
4.50 360
Purchases 120 5.00 600
Balance 200 4.80 960
Sales 50 4.80 240
Balance 150 4.80 720
5.11 Answer: (D)
5.12 Answer: (D)
5.13 Answer: (A)
5.14 Answer: (D)
60 150 000 90 000
150 000
90 000 240 000
% of $ $
$$
,,
,$, ,
5.15 Answer:
(C)
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
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FUNDAMENTALS OF FINANCIAL ACCOUNTING
Solution 6
(a)
Suspense account
$ $
Stationery error 18 Trial balance difference 2,221
Discount allowed omitted 950 Sales daybook error 180
Proceeds of sale of non-current asset
not entered in disposal account 750
Bank interest omitted 220
Balance carried down 903
2,621 2.621
(b)
Sales ledger control account
$ $
Balance at 30 April 20X6 104,637 Discount allowed 950
Error in sales daybook 180 Contra to purchase ledger 426
Credit sale omitted 325 Contra to purchase ledger 426
Balance carried down 103,340
105,142 105,142
(c)
$
P r o fi t as originally calculated 227,642
Add : stationery error 18
Add : error in sales daybook total 180
Add : credit sale omitted 325
Less : loss on sale of non-current asset (170)
Revised net profi t 227,995
Solution 7
This question involves the comparison of the statement received from a supplier with the
ledger account maintained in the fi rm’s purchase ledger. Remember that debits on one
should appear as credits on the other. The technique is similar to that of bank reconcilia-
tions but there are added complications in the form of discounts assumed to be taken by
the fi rm but not allowed by the supplier, and debit notes issued by the fi rm that have not
yet been raised as credit notes by the supplier. The items to appear on the reconciliation
will include items from both the statement and the ledger account; both are likely to be
incorrect, and therefore the simplest way of reconciling the two is to prepare a calculation
of the corrected balance for each and ensure that they agree.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
SOLUTIONS TO REVISION QUESTIONS C2
646
(a)
$
Balance per supplier’s statement 5,950
Less : cash in transit (1,400)
Less : Debit Note 65 (300)
Corrected balance 4,250
Balance per ledger
3,250
Add : discount disallowed 200
Amend Credit Note 0062 100
Invoice 01395 not yet received 800
Less : Credit Note 0070 not yet received (100)
Correct balance 4,250
(b) (i) This is an invoice from Wang to Kingston. It will have been entered in Wang’s
records as soon as it was issued, but has not yet been received by Kingston. (f)
(ii) This is a credit note issued by Wang and entered in its records at once; it has not
yet been received by Kingston. (g)
(iii) This is cash discount that has been deducted by Kingston upon payment of the out-
standing balance at the beginning of January, ignored or disallowed by Wang. (i)
(iv) This is cash paid by Kingston at the end of the month, and entered in its ledger
account at once; it has not yet been received by Wang. (k)
(v) This is a debit note issued by Kingston perhaps due to goods returned; credit note
not yet received by Wang. (l)
(c) $4,250 current liability.
Solution 8
(i) invoices relate to a properly authorised order;
(ii) numbered goods received notes (GRN) should be raised, for example by storekeeper,
to ensure that goods have been inspected and taken into stores;
(iii) adequate segregation of duties exists;
(iv) purchase ledger records should be checked against suppliers ’ statements.
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
647
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Solution 9
(a) TD: journal entries
Debit Credit
$ $
(i) Suspense account 1,000
Sales 1,000
(ii) Plant at cost 240
Delivery costs 240
(iii) Discounts received 150
J W 150
(iv) Stationery inventories (balance) 240
Stationery account 240
(v) Suspense account 500
Purchases 500
(vi) Returns outwards 230
Returns inwards 230
Suspense 460
(b)
Suspense account
$ $
(i) Sales 1,000 Balance per trial balance 1,040
(v) Purchases 500 (vi) Returns in and out 460
1,500 1,500
(c) Revised gross and net profi t fi gures
$
Gross profi t – original 35,750
Add : (i) 1,000
Add : (v) 500
Less : (vi) (460)
Revised gross profi t 36,790
Net profi t – original
18,500
Add : increase in gross profi t 1,040
Add : (ii) 240
Less : (iii) (150)
Add : (iv) 240
Revised net profi t 19,870
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
SOLUTIONS TO REVISION QUESTIONS C2
648
Solution 10
Ratios
20X4 20X5
(i) Gross profi t margin
Gross profit
Sales
100
2 600
14 400
100 18 1
,
,
.%
4 400
17 000
100 25 9
,
,
%.
(ii) Operating profi t margin
Operating profit
Sales
100
1 400
14 400
100 9 7
,
,
.%
2 400
17 000
100 14 1
,
,
.%
(iii) Return on capital employed
Operating profit
Average total capital
100
1 400
6 260
100 22 4
,
,
.%
2 400
6 210
100 38 6
,
,
.%
Solution 11
(a) Inventory record card – FIFO
Date Units
Receipts
$/unit $ Units
Issues
$/unit $ Units
Balance
$/unit $
1 Apr. 100 10 1,000
8 Apr. 24 10 240 76 10 760
18 Apr. 38 12 456 38 12 456
20 Apr. 50 10 500 26 10 260
38 12 456
23 Apr. 26 10 260
9 12 108 29 12 348
28 Apr. 20 13 260 20 13 260
Totals
58 716 109 1,108 49 608
Inventory record card – LIFO
Date Units
Receipts
$/unit $ Units
Issues
$/unit $ Units
Balance
$/unit $
1 Apr. 100 10 1,000
8 Apr. 24 10 240 76 10 760
18 Apr. 38 12 456 38 12 456
20 Apr. 38 12 456
12 10 120 64 10 640
23 Apr. 35 10 350 29 10 290
28 Apr. 20 13 260 20 13 260
Totals 58 716 109 1,166 49 550
PREPARING FOR THE COMPUTER-BASED ASSESSMENTS (CBAs)
649
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Inventory record card – AVCO
Date Units
Receipts
$/unit $ Units
Issues
$/units $ Unit
Balance
$/unit $
1 Apr. 100 10 1,000
8 Apr. 24 10 240 76 10 760
18 Apr. 38 12 456 114 10.67 1,216
20 Apr. 50 10 533 64 10.67 683
23 Apr. 35 10 373 29 10.67 310
28 Apr. 20 13 260 49 11.63 570
Totals 58 716 109 1,146 49 570
(b) (i) recording of an issue at too high a level.
(ii) recording of a receipt at too low a level.
Solution 12
(a) Income statements of R Ltd for years ended 31 December
20X4 20X5 20X6
$’000 $’000 $’000
P r o fi t before tax 32 46 14
Income tax – (5) (6)
P r o fi t for the period 32 41 8
(b) Statement of changes in equity of R Ltd for years ended 31 December
20X4 20X5 20X6
$’000 $’000 $’000
Gen. Retained Gen. Retained Gen. Retained
Res Earnings Res Earnings Res Earnings
Balance at start of period – – – 27 18 40
Total comprehensive
income for the period
32 41 8
Dividends (5) ( 10 ) ( 10 )
Transfer to general reserve 18 (18)
Balance at end of period – 27 18 40 18 38
(c) Capital sections of statements of fi nancial position of R Ltd as at years ended 31
December
20X4 20X5 20X6
$’000 $’000 $’000
Share capital 100 100 100
Share premium account 60 60 60
General reserve account – 18 18
Retained earnings 27 40 38
187 218 216