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ACCA f1 with answers 203

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Part 1 Examination – Paper 1.1 (INT)
Preparing Financial Statements (International Stream)

December 2003 Answers

Section A
1

A
A
B
C
D

2

B


3

B

4

B
B
C
D

5

C
A
B
C

D
6

A

7

D
A
B
C
D

8

C

9

B

16,000
18,000
18,000
16,000

+
+
+
+

14,600 – 18,000
14,600 – 16,000
14,600 + 16,000
14,600

16,690 – 9,160 – 3,860
16,690 + 3,860 – 9,160
As B but overdrawn
C + 2 x $3,660 discounts allowed
C + 2 x $1,800 bad debts written off
Sales ledger control account
$
$
284,680
3,660
189,120
1,800
4,920
179,790
800
Balance
282,830
––––––––
––––––––
473,800
473,800
––––––––
––––––––
C + $1,600 (contras)

483,700
483,700
483,700
483,700

– 38,400 +
+ 38,400 –
+ 38,400 –
– 38,400 +

14,800
14,800
14,800
14,800

+ 400 –
+ 400 –
– 400 +
– 400 +

1,800
1,800
1,800
1,800 (Correct)

10 D
11 B
A
B
C
12 B
A
B
C
D

$181,600 x 40% = 72,640 – 67,600 = $5,040
$114,000 x 10/6 = $190,000 – 181,600 = $8,400 (correct)
$181,600 – (114,000 + 40%)
P
Q
P
Q
P
Q
P
Q

(340,000 –
95,000
180,000 +
90,000
180,000 +
90,000
170,000 +
85,000

20,000)/2 + 170,000/2
90,000 – 20,000 (Correct)
90,000
85,000

13 B
14 D
15 C
16 C
17 D
18 C

19


19 C
20 D
21 B
A
B
C
D
22 D
A
B
C
D

All rights issue proceeds added to share capital
Bonus issue 75,000
125,000 + 62,500 + 37,500; 100,000 + 187,500 – 37,500 (correct)
As B, but bonus issue added to share premium
Bonus issue does not allow for previous issue.
$80,000 + 7% x $500,000 x 3/12
As D but including 7% x $500,000 x 6/12 instead of 3/12
As D but excluding 7% x $500,000 x 3/12
8% x $1m x 3/12 + 8% x $750,000 x 9/12 + 7% x $500,000 x 3/12

23 A
24 A
25 A

20


Section B
1

(a)

Abrador
Balance sheet as at 31 December 2002
$

Assets
Non-current assets
Property, plant and equipment (W1)
Development costs
Current assets
Inventory
Receivables (W2)

3,000,000
570,000
––––––––––
3,900,000
2,910,000
––––––––––

Equity and liabilities
Capital and reserves
Issued share capital
Share premium account
Accumulated profits (W3)

Curent liabilities
Trade payables
Bank overdraft
6% loan notes

3,570,000

6,810,000
––––––––––
10,380,000
––––––––––

1,500,000
700,000
5,780,000
––––––––––
7,980,000
1,900,000
100,000
400,000
––––––––––

Workings
1
Property, plant and equipment per question
less: depreciation at 31 December 2001

2,400,000
––––––––––
10,380,000
––––––––––
5,000,000
1,000,000
––––––––––
4,000,000
1,000,000
––––––––––
3,000,000
––––––––––

less: 25% x 4,000,000

2

$

Receivables
less: Written off

3,400,000
400,000
––––––––––
3,000,000
90,000
––––––––––
2,910,000
––––––––––

less: Allowance

$
3

Accumulated profit
Per question
less: Depreciation
Bad debts
Allowance for doubtful debts

7,170,000
1,000,000
400,000
(10,000)
–––––––––

21

1,390,000
––––––––––
5,780,000
––––––––––


(b)
$
Movements on deferred development expenditure during year
Balance at 31 December 2001
New expenditure in 2002

550,000
120,000
–––––––––
670,000
(100,000)
–––––––––
570,000
–––––––––

Amortisation for year
Deferred development expenditure at 31 December 2002
Total expenditure on research and development charged in income statement
Current expenditure
Amortisation

2

(a)

85,000
100,000
–––––––––
185,000
–––––––––

Office building – cost/valuation
2002
1 July Balance
1 July Revaluation

$
1,600,000
400,000
––––––––––
2,000,000

$

Office building – accumulated depreciation
2002
1 July Revaluation reserve
2003
30 June Balance

$
320,000

2002
1 July Balance
2003
30 June Income statement (W1)

50,000
–––––––––
370,000
–––––––––

$
320,000
50,000
–––––––––
370,000
–––––––––

Revaluation reserve
$

(b)

2002
1 July Office building – cost
1 July Office building – depreciation

$
400,000
320,000
–––––––––
720,000

Plant and machinery – cost
2002
1 July Balance
1 Oct Cash

2003
1 July Balance

$
840,000
200,000
––––––––––
1,040,000
––––––––––

2003
1 April Transfer disposal
30 June Balance

800,000

22

$
240,000
800,000
––––––––––
1,040,000
––––––––––


Plant and machinery – accumulated depreciation
2003
1 April Transfer – disposal
30 June Balance

$
180,000

2002
1 July Balance
2003
30 June Income statement (W2)

326,000
––––––––––
506,000
––––––––––

$
306,000
200,000
––––––––––
506,000
––––––––––

Plant and machinery – disposal
2003
1 April Transfer – cost
30 June Income statement
profit

$
240,000

2003
1 April Transfer – depreciation
Cash

10,000
––––––––––
250,000
––––––––––

$
180,000
70,000
––––––––––
250,000
––––––––––

Workings
1
Depreciation of office building
$2m/40 (remaining useful life) = $50,000
2

Depreciation of plant and machinery
25% x ($840,000 – $240,000 + $200,000) = $200,000

3

Cost of control

Investment

$
180,000

Share capital 70%
Accumulated profits 70%
Accumulated profits –
goodwill amortised 4/5 x $5,000
Balance for CBS

––––––––––
180,000
––––––––––

$
70,000
105,000
4,000
1,000
––––––––––
180,000
––––––––––

Minority interest

Balance for CBS

$
123,000

Share capital 30%
Accumulated profits 30%

––––––––––
123,000
––––––––––

$
30,000
93,000
––––––––––
123,000
––––––––––

Accumulated profits
$
Cost of control
70% pre-acq
Minority interest 30%
Cost of control
goodwill amortised
Balance for CBS

Eagle
Oxer

105,000
93,000
4,000
558,000
––––––––––
760,000
––––––––––

$
450,000
310,000

––––––––––
760,000
––––––––––

23


Eagle Group
Consolidated balance sheet as at 31 October 2003
$
1,000
900,000
––––––––
901,000
––––––––
220,000
558,000
––––––––
778,000
123,000
––––––––
901,000
––––––––

Goodwill
Sundry net assets

Share capital
Accumulated profits

Minority interest

4

(a)

The basic principle for the valuation of inventory according to IAS 2 Inventories is to take the lower of cost and net realisable
value.
The 3,000 skirts should therefore be included at cost $40,000, and the jackets should be valued at net realisable value:
$
$25,000 less $1,800
23,200
$20,000 less $2,000
18,000
–––––––
41,200
–––––––

(b)

IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires contingent liabilities of this kind and degree of
probability be disclosed by note, detailing the nature of the contingent liability and an estimate of the financial effect.
The $100,000 should therefore be removed and the note substituted. Provision should be made for legal expenses to be
incurred.

5

(c)

IAS 10 Events after the Balance Sheet Date classifies this as a non-adjusting event but a note giving details of the event and
its financial effect (a loss of $180,000 plus $228,000 = $408,000) is required as the item is material enough to influence
a reader of the financial statements.

(a)

(i)

Profit on a sale is calculated by taking the difference between historical cost and sale proceeds. When prices are rising,
as they usually are, the ‘holding gain’ arising while the goods were held in inventory is included as part of the profit,
ignoring the fact that it will cost more to replace the item.

(ii)

Depreciation based on the historical cost of assets understates the real value of the benefit obtained from the use of these
assets if prices have risen since the assets were acquired. Profit is thus overstated.

(iii) The retention of historical values for non-current assets in the balance sheet understates their actual value. This can
mislead shareholders when the balance sheet value of the business is used when calculating return on capital employed.
(b)

(i)

It is simple and cheap

(ii)

Figures used are objective and verifiable.

(iii) Lack of a sound and acceptable alternative.

24


Part 1 Examination – Paper 1.1 (INT)
Preparing Financial Statements (International Stream)

December 2003 Marking Scheme

Marks
1

(a)

(b)

2

(a)

(b)

3

Tangible non-current assets 2 x 1/2
Development costs correctly displayed
Receivables 2 x 1/2
Issued share capital
Share premium
Accumulated profits 3 x 1/2
Loan notes in current liabilities
Layout

1
1/
2
1
1
1
11/2
1/
2
2
–––

Movements in deferred development expenditure
Opening balance
Movements 2 x 1
Income statement 2 x 1/2

1
2
1
–––

Office building
cost/valuation 2 x 1/2
accumulated depreciation:
calculations
entries 4 x 1/2
revaluation reserve 2 x 1

81/2 max 8

4
–––
12
–––

1
1
2
2
–––

Plant and machinery
cost 4 x 1/2
accumulated depreciation 4 x 1/2
disposal 4 x 1/2

2
2
2
–––

Goodwill 5 x 1/2
Minority interest 2 x 1/2
Accumulated profits 5 x 1/2
Share capital
Sundry net assets
Heading

21/2
1
21/2
1/
2
1
1/
2
–––

25

6

6
–––
12
–––

8
–––


Marks
4

(a)

(b)

(c)

5

Inventory
IAS 2 mentioned
IAS 2 Valuation 2 x 1/2
Contingent liability
IAS 37 mentioned
Disclose by note stating nature and financial effect
Remove $100,000 and replace with note
Provide for legal expenses
Event after the balance sheet date
IAS 10 mentioned
Non-adjusting
Note required detailing event and financial effect

1
1
–––

2

1
1
1
1
–––

4

1
1
1
–––

(a)

3x2

6

(b)

3x1

3
–––

26

3
–––
9
–––

9
–––



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