accounting nov 2017 - ready for pdf on credit 10 days ago (6 marks) 14 if they are read in...

© ICSA, 2017 of 21

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Subject no. 50B

Paper 2

Accounting Tuesday morning, 28 November 2017 Time allowed: 1 hour 30 minutes Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. The examination paper contains 18 questions and is divided into three sections. You must attempt all questions in Section A and Section B, and two questions in Section C. Section A contains 15 marks, Section B contains 30 marks and Section C contains 30 marks. There are 75 marks available in total for the paper. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 30 minutes in total to answer the questions in Section B, and 20 minutes for each of the questions attempted in Section C. You may continue your answers on a separate sheet of paper if necessary. Separate answer sheets are available from the invigilator. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation.

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Section A Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 1 Which of the following items of expenditure would be classified as ‘capital expenditure’?

(Tick one box only) A £5,344 on coach hire for a staff outing

B £7,125 on replacing flood-damaged stock

C £7,600 on new computers

D £9,500 on rent (1 mark)

2 Explain why published accounts should follow the prudence concept.

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(2 marks) 3 When an organisation receives a product delivery, it creates a source document to send to its

accounts department so that the invoice can be paid. What is the name of this document?

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(1 mark)

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4 The following balances were extracted from the books of a sole trader, Zennon, at 31 October 2017.

£Sales 57,000Cost of sales 34,500Operating expenses 13,650Inventories 7,725Trade receivables 2,280Bank 9,180Trade payables 13,629

Showing your workings in the box below, calculate Zennon’s trade receivables ratio.

Trade receivables =

(2 marks)

5 Explain what a ‘prepayment’ is.

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(2 marks)

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6 Give an example of a type of company which, under FRS 102, is now likely to use the term ‘statement of financial position’ rather than ‘balance sheet’.

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(1 mark)

7 What is the generic name for organisations such as health authorities, charities and local sports clubs? __________________________________________________________________________ __________________________________________________________________________

(1 mark) 8 A customer pays a supplier for goods they previously purchased on credit. Show the correct book

entries for the supplier to record this payment.

Dr ___________________________ Account Cr ___________________________ Account

(2 marks)

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9 At the end of the financial year, the following extract was taken from the books of Maxine Sylvar, a sole trader.

£ Sales 79,800 Cost of sales 48,300 Gross profit 31,500 Debtors 9,580 Bank 12,852

Maxine’s books did not reflect an unrecoverable bad debt of £1,120. In addition, she always makes a 5% provision for doubtful debt. Showing your workings in the box below, calculate Maxine’s revised debtors balance as at the financial year end.

Debtors balance = (2 marks)

10 The method of depreciation which a company must use is specified in an accounting standard.

Is this true or false? (Tick one box only) True

False

(1 mark)

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Section B Answer all questions in this section. Continue your answers on a separate sheet of paper if necessary. 11 Complete the missing entries in the following statement of financial position.

Year ended 31 October

Non-current assets

Current assets

Current liabilities

Net current assets

Non- current liabilities

Equity

2017 35,750 13,050 (500) 17,060

2016 15,655 12,575 25,550 20,430

2015 49,335 16,575 1,120 24,405

(6 marks)

12 Using examples, explain what each of these books of original entry is used for.

(a) Sales returns daybook _________________________________________________________________________

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(3 marks)

(b) Purchase daybook _________________________________________________________________________

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(3 marks)

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13 The following transactions were carried out by Gibbz production last month. Complete the grid below to identify which accounts will receive the debit and credit entry.

Transactions Debit Credit

i.

Purchased a car on credit from Gyant Karz

ii.

Sold stock for cash

iii.

Purchased goods on credit from Jennings

iv.

Sold goods on credit to De Lane

v.

Disposed of some fixture and fittings for cash

vi. Knowles Partnership, a new client, returned goods purchased on credit 10 days ago

(6 marks)

14 If they are read in isolation, financial statements may give a limited perspective of an organisation’s

financial position. Explain how the use of accounting ratios can help overcome this problem.

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(6 marks)

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15 Explain three elements of internal controls within the double-entry bookkeeping system. i _______________________________________________________________________

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ii _______________________________________________________________________

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iii _______________________________________________________________________

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(6 marks)

__________________________________________________________________________ Total for Section B = 30 marks

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Section C Answer two questions only. Continue your answers on a separate sheet of paper if necessary. 16 The trial balance of Byrne’s Electronics for the year ended 31 October 2017 is shown below:

£ £Sales 131,250Inventories at 1 November 2016 18,375Purchases 36,250Salaries 16,250Telephone 3,750Travel expenses 9,750Office administration 1,225Rent 28,750Computers at cost 17,500Fixtures and fittings at cost 20,000Provision for doubtful debtors 625Debtors 6,000Creditors 20,500Bank 1,950Cash 775Drawings 13,750Capital 7,750Provision for depreciation: Computers 7,000Fixtures and fittings 7,200

174,325 174,325

Notes (i) Inventories at 31 October 2017 were valued at £5,775. (ii) Telephone charges for the year to 31 January 2018 were £3,500. (iii) Computers are depreciated on cost at 25% per annum. (iv) A repairs and maintenance bill of £1,055 was unpaid on 31 October 2017. (v) An unpaid debt of £1,250 is to be written off. (vi) Fixtures and fittings are depreciated at 20% on the reducing balance basis. (vii) Provision for doubtful debts is to be maintained at 10% of debtors.

Prepare the income statement for Byrne’s Electronics for the year ended 31 October 2017.

(15 marks)

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17 The following comparative information has been extracted from the financial statements of Mullery Telecoms Ltd.

31 October

201731 October

2016

£ £Turnover 130,000 120,000

Cost of sales 110,000 96,000

Gross profit 20,000 24,000

Retained profit 10,000 15,000

Non-current assets 10,000 14,000

Inventories 15,000 16,500

Trade receivables 25,000 30,000

Bank 5,000 2,500

Current liabilities 8,000 10,000

Total equity and liabilities 55,000 63,000

Showing your workings in the boxes below, calculate the following ratios for 2017 and 2016, and provide a comment on the effect of each ratio: Gross profit margin. Acid test. Inventory holding days.

(15 marks)

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Gross profit margin

2017 2016

Comments:

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Acid test

2017 2016

Comments:

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18 StoreCo plc (‘StoreCo’) began as a small, family business 30 years ago and has grown into a multinational fashion business, with 105 retail outlets across three continents. It has 12 distribution centres, employing 10,000 people in total. Family members still own 30% of the company. StoreCo prides itself on providing its customers with the latest in high quality fashion wear across all age groups and works closely with its local suppliers. The company seeks to source at least 40% of its products from local suppliers in the host countries. Over the last five years, StoreCo has successfully reduced its level of external debt. However, StoreCo no longer offers new employees access to its pension scheme. StoreCo’s management is optimistic about the business environment for the next three years.

Using the scenario above, identify five groups who may use StoreCo’s annual financial statements. For each group, discuss the decisions that they could make using this accounting information.

(15 marks)

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Total for Section C = 30 marks

Total for paper = 75 marks

END

The scenarios included here are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental.

Do not write on this page – examiner use only Section A Section B Section C

Question Question Question

1 11 16

2 12 17

3 13 18

4 14 Total

5 15

6 Total

7

8

9

10

Total

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Clerical check (full name):

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Total marks for paper:

accounting nov 2017 - ready for pdf on credit 10 days ago (6 marks) 14 if they are read in...

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