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ACCA f1 with answers 20041

Answers



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

June 2004 Answers

Section A
1

A

20,000 minus

16,000 x 20%/2

2

B


(7/12 x 8,400) + (5/12 x 12,000) = 9,900
1,000 paid in advance in sundry payables

3

D

28,500 + 42,000 – 38,000

4

A

(160,000 x 20%) + (40,000 x 20% x 3/4) + (50,000 x 20% x 1/2)

5

D

6

C

Receivables ledger control account
308,600
154,200
2,400

147,200
1,400
4,900
4,600
307,100
––––––––
465,200
––––––––

––––––––
465,200
––––––––
7

B

8

A

9

C

386,400 minus loss on 1

3,800
Receivables ledger total account
130,000

Balance

686,400
1,400
4,160
2,000
181,000
––––––––
874,960
––––––––

744,960

––––––––
874,960
––––––––

10 D

Payables ledger total account
302,800
2,960
2,000
84,000
––––––––
391,760
––––––––

11 C

60,000
Balance

––––––––
391,760
––––––––

281,250/3 – 53,050

12 D
13 B

G
90,000
110,000
–––––––––
200,000
–––––––––

H
20,000
30,000
66,000
–––––––––
116,000
–––––––––

331,760

I
10,000
30,000
44,000
–––––––––
84,000
–––––––––

14 A
15 C
16 A
17 A
18 D

19


19 A
20 B
21 C
22 D
23 C

280,000 – (112,000 + 40,000 + 48,000) = 80,000; minus 20% = 64,000

24 C

290,000 x 20%

25 A

20


Section B
1

(a)

Sales revenue
less:

less:

Minica
Income statement for the year ended 31 December 2003
$
$
(3,845,000 – 15,000)
3,830,000

Cost of sales
Opening inventory
Purchases (2,184,000 – 60,000)
Carriage inwards

360,000
2,124,000
119,000
––––––––––
2,603,000
450,000
––––––––––

Closing inventory

Gross profit
less: Expenses
Sundry administrative expenses
Carriage outwards
Bad and doubtful debts
Depreciation
Profit on sale of office equipment

(W1)

430,300
227,000
26,000
94,000
(9,000)
––––––––––

(W2)
(W3)
(W4)

Net profit for the year
(b)

2,153,000
––––––––––
1,677,000

768,300
––––––––––
908,700
––––––––––

The proposed dividend of $240,000 would be disclosed by note in Minica’s published income statement.
Workings
1
2

$

Sundry administrative expenses
416,000 + 28,700 – 14,400

430,300

Bad and doubtful debts
Bad debts written off
Allowance (31,000 – 20,000)

3

15,000
11,000
––––––

26,000

88,000
6,000
––––––

94,000

Depreciation
(460,000 – 20,000) x 20 per cent
60,000 x 20 per cent x 6/12

4

$

Profit on sale of equipment
15,000 proceeds minus 6,000 net book value

21

9,000


2

$
Repairs to premises
Premises asset
Suspense

$

8,700
7,800
900

Correction of error in posting cost of repairs to premises
Suspense account
Motor vehicle disposal

1,000
1,000

Entry for unposted item
Accumulated depreciation
Depreciation expense
(or Income statement)

6,000
6,000

Motor vehicle disposal
Motor vehicles – cost
Transfer of cost of vehicle destroyed
to disposal account
Accumulated depreciation
Motor vehicle disposal
Transfer of depreciation on vehicle
destroyed to disposal account

30,000

Income statement
Motor vehicle disposal
Loss on destruction of car transferred

23,000

30,000

6,000
6,000

23,000

3

Renada
Cash flow statement for the year ended 31 October 2003
$
Cash flows from operating activities
Net profit before taxation
Adjustments for:
Depreciation
Loss on sale of office equipment
Operating profit before working
capital changes
Increase in inventory
Increase in receivables
Increase in payables
Cash used in operations
Income taxes paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of non-current assets
Proceeds from sale of noncurrent assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of
share capital
Net cash from financing activities

$

200,000
120,000
50,000
–––––––––––
370,000
(1,000,000)
(530,000)
1,050,000
–––––––––––
(110,000)
(120,000)
–––––––––––

(230,000)

(700,000)
30,000
––––––––––

500,000
––––––––––

Net decrease in cash and cash equivalents
Cash and cash equivalents at 31 October 2002
Cash and cash equivalents at 31 October 2003

22

(670,000)

500,000
–––––––––
(400,000)
140,000
–––––––––
(260,000)
–––––––––


Working
Non-current assets – net book value
Balance
Revaluation reserve

$
1,000,000
300,000

Assets purchased
(balancing figure)

$
80,000
120,000

Transfer disposal
Depreciation

700,000
Balance

1,800,000
––––––––––
2,000,000
––––––––––

––––––––––
2,000,000
––––––––––

4

(a)

31 October
2002
(i)

Inventory holding period
600,000/6,300,000

x 365

35 days

1,600,000/7,200,000 x 365
(ii)

2003

81 days

Average period of credit granted to customers
1,270,000 / 8,400,000 x 365

55 days

1,800,000 / 9,000,000 x 365

73 days

(iii) Average period of credit allowed by suppliers
1,050,000 / 6,400,000 x 365

60 days

2,100,000 / 8,200,000 x 365
(b)

(i)

93 days

All three ratios show deterioration.
The large increase in the inventory holding period suggests that the company is having difficulty making sales in the
closing months of the period.
Customers are taking longer to pay, placing further strain on the company’s liquid position.
The company is attempting to finance the increased inventory and receivables by paying its suppliers more slowly, which
will probably have the effect of losing supplier goodwill.

(ii)

5

(a)

The main reason for the decline is the reduced gross profit percentage. If the gross profit percentage of 2002
(25 per cent) had continued in 2003, an additional $450,000 of profit would have been made. Instead, the gross profit
percentage went down to 20 per cent.
Other contributing factors are:
– the new non-current assets ($700,000) were not acquired until near the end of the year, and thus may not be
fully operational
– the share issue also took place right at the end of the year, and so has not yet been deployed in profit-earning
assets.

Comparability means that users are able to draw conclusions about the performance or financial position of a business by
relating figures for a particular period to other relevant figures.
Possible types of comparison are:
(i) comparison with figures for the same business for earlier periods
(ii) comparison with figures for other businesses for the same period
(iii) comparison with budgets or forecasts
(Two types required for full marks)

(b)

Two
(i)
(ii)
(iii)

from:
by requiring the disclosure of accounting policies and the effect of changes in them
by reducing or eliminating the number of possible alternative treatments for similar items available to businesses
by requiring businesses to treat similar items in the same way within each period and from one period to the next, unless
a change is required to comply with accounting standards or to ensure that a more appropriate presentation of events
or transactions is provided.

23



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

June 2004 Marking Scheme

Section B
Marks
1

1/
2
1/
2
1/
2

Sales revenue
Opening inventory
Purchases
Carriage inwards
Closing inventory
Gross profit correct
Sundry administrative expenses
Carriage outwards
Bad and doubtful debts
Depreciation
Profit on sale

1
1/
2

1
1
1/
2
11/2
2
1

Heading

1
––
11
1
––
12
––

Proposed dividend

2

For each journal entry
1/
2
1/
2

per entry
for narrative

1
1/
2

–––
11/2

11/2 x 6
3

9

Calculation of cash used in operations
1/
2

Profit
Depreciation
Loss on sale
Working capital movements 3 x 1/2

1
1
11/2
––––

4
1/
2

Taxation
Investing activities
Purchases
Proceeds of sale

5 x 1/2

21/2
1/
2

Share issue

1

Cash movement

4

5

2x

1/
2

1

Heading

1/
2

Layout

1
––
11
––

(a)

Ratios

3x1

3

(b)

(i)

Comments

3x1

3

(c)

(ii)

Reasons for decline

2x2

4
––
10
––

(a)

Explanation
Types of comparison

(b)

2x1

2x2

25

2
2
––
4
4
––
8
––



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