c's of Sole Trader Solutions - David Wilson

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TOPI C

1

Final a/c’s of Sole Trader Solutions 2 Arnold 3 Brennan 4 Cullen 5 Darcy 6 Egan 7 Farrell 8 Grennan

Graded Accounting Questions – Solutions

2

2

ARNOLD SOLUTION

(a) Trading Profit and loss a/c for year end 31/12/2012 €



Sales Cost of Sales Opening stock ! Purchases " Closing Stock Gross Profit " Administration Expenses Salaries Insurance Patents Written off Depreciation of Building Selling and Distribution Expenses Advertising Depreciation of Vehicle Bad Debts Provision ! Other Operating income Profit on Disposal Discount Received Rent Received Operating of profit " Mortgage interest ! Investment Interest Net Profit

85,200 780,750 (94,500)

(W) (W)

(W)

243,600 17,550 21,000 19,050

301,200

(W) (W)

6,900 45,000 1,268

53,168

(W)

(W)

(W) (W)

9,000 9,900 13,500

€ 1,344,000

771,450 572,550

(354,368)

32,400 250,582 (33,300) 14,400 231,682

Topic 1

Final a/c’s of Sole Trader Solutions

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Tangible Fixed Financial Fixed

Patents Land & Buildings Vehicles 8% Investments

Current Assets Closing Stock Debtors Provision for BIOS Investment Interest Due VAT

(W)

(W) (W) (W)

Crs. Falling Due for less than 1 year Creditors Mortgage Interest P.R.S.I Bank Total net Assets

(W)

1,425,00 225,000

130,350 (6,518)

98,250 27,000 6,750 24,600

73,500

94,500 123,832 7,200 6,000 231,532

(156,600)

Financed by Creditors Falling Due for More than 1 Year 6% Mortgage Capital & Reserves Capital ! Net Profit " Drawings ! Revaluation Reserve Total Capital employed

(W)

703,500 231,682 (82,200) 551,550

600,000

1,405,432 2,005,432

Notes to Accounts Stock Patents Income Vehicles Depc this year. Acc. Depreciation Disposal Purs. Mortgage Interest Insurance Debtors Buildings Acc. Depc. VAT (Cr.) Revaluation Reserve Bad Debts. Provision

101,250 97,800 7,200 225,000 6000 97,500 90,000 840,750 6,750 15,900 131,550 975,000 60,000 16,500 472,500 5,250

" ! ! ! ! ! " " " ! " " " " ! "

6,750 7,200 7,200 90,000 12,000 45,000 69,000 60,000 450 450 1,200 22,500 19,050 22,500 (Dr.) 79,050 6,518

84,000 1,425,000 151,500 270,000 1,930,500

94,500 # 84,000 " 21,000 # 14,400 # 225,000 " 90,000 # 45,000 ! 27,000 # 73,500 " 69,000 # " 30,000 # 9,000 profit 780,750 # 33,300 ! 27,000 # 17,550 ! 1,200 # 130,350 # ! 472,500 # 1,425,000 Nil " 79,050 # # 6,000 (Dr.) 551,550 # 1,268 #

74,932 2,005,432

3

4

3

Graded Accounting Questions – Solutions

BRENNAN SOLUTION

(a) Trading, Profit and Loss Account for year end 31/12/2012 Sales Less Cost of Sales Stock 1/1/12 ! Purchases Stock 31/12/12 Gross Profit



(W) (W)

26,900 488,400 515,300 (27,500)

Less Expenses Administration Salaries and general expenses Patents written off Insurance Depreciation - Buildings

(W) (W) (W)

54,200 12,000 12,000 8,100 86,300

Selling 1 Distribution Advertising Depreciation Delivery vans

(W)

12,800 20,350 33,150

Disposal Profit Provision for Bad Debts Commission Received Discount Operating Profit Investment Income Mortgage Interest Net Profit for year

2,400 112 12,000 5,400

(W) (W)

(W)

€ 721,000

(487,800) 233,200

(119,450) 113,750

19,912 133,662 7,200 140,862 (6,450) 134,412

(b) Balance Sheet of as at 31/12/2012 Tangible Fixed Assets Buildings Delivery Vans

€ Cost (W) (W)

510,000 118,000

€ Dep. — 35,350

Intangible Fixed Assets Patents

510,000 82,650 592,650 48,000

Financial Assets Investments Current Assets Stocks 31/12/2012 VAT Investment Income due Debtors Less Provision

€ NBV

120,000 760,650 (W) (W)

32,200 (1,288)

27,500 11,800 4,000 30,912 74,212

Topic 1 Creditors: amount falling due within 1 year Creditors Mortgage Interest due P.R.S.I Bank

Final a/c’s of Sole Trader Solutions

35,400 4,650 2,500 36,900

(79,450)

Financed by: Creditors: amounts falling due after 1 year 6% Fixed Mortgage

(W)

! Revaluation Reserve

370,000 134,412 504,412 (22,100) 153,100

Capital Employed

29,800 112,000 Nil 48,000 33,000 525,000 56,800 3,200 2,200 11,400 5,200 420,000 40,000 3,200 105,000 1,400

" " ! ! " " ! ! " ! ! " ! " ! "

2,500 33,000 4,550 20,350 33,000 36,600 3,200 4,000 400 400 200 15,000 8,100 15,000 DR. 48,100 1,288

# ! 39,000 # ! 15,800 # " 33,000 # " 2,400 # # " 12,000 # # ! 4,650 # ! 200 # # ! 105,000 # " 48,100 # # # #

(c) Why do sole traders prepare final accounts? • • • • • •

635,412 755,412

Notes to Accounts C/S Veh. Dept this yr. Acc. Depc. Disposal Purs. Patents In. Income Mortgage Interest Insurance Discount (Net) Buildings Acc. Depc. VAT (Cr.) Reval. Res. B/D’s Provision

(5,238) 755,412

120,000

Capital and Reserves Capital 1/1/2012 Add Net Profit Less Drawings

For Revenue Purposes Applications for bank loan or mortgage Comparison with Proposal years Comparison with Rivat Firns For Planning & Budgeting Purposes As a Form of analysis

27,500 118,000 20,350 35,350 2,400 Profit 488,400 48,000 7,200 6,450 12,000 5,400 Cr. 510,000 Nil 11,800 DR. 153,100 112 Over/!

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6

4

Graded Accounting Questions – Solutions

CULLEN SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012 Notes Sales Less cost of Sales Stock 1/1/12 Purchases



(W)

(W) (W) (W)

82,600 19,720 10,800 16,000 129,120

(W) (W) (W)

500 29,100 1,500

31,100 900 3,200 4,800 8,400

! Bad Dept. Recoverable Discount received Commission received Rent received Operating Profit ! Investment Income

(W)

Less Mortgage interest Net Profit

€ 988,000

56,400 601,680 658,080 (63,100)

(W)

Stock 31/12/12 Gross Profit Administration Expenses Salaries and General Expenses Insurance Depreciation on Buildings Patents written of Selling and Distribution Expenses Increase in prov. for bad debts Depreciation on delivery vans Loss on disposal of delivery van



(W)

594,980 393,020

160,220 232,800

17,300 250,100 6,000 256,100 (12,960) 243,140

(b) Balance Sheet as at 31/12/2012 Notes Fixed Assets Intangible Patents Tangible Buildings Delivery Vans

(W) (W)

Investments 4.5% Investments Current Assets Stock 31/12/12 Debtors Less Prov. for bad debts Investment Interest due

Cost €

Acc. Dep. €

760,000 204,000 964,000

— 66,600 66,600

Net Value €

760,000 137,400 897,400

€ 64,000

897,400 200,000 1,161,400

(W) (W)

50,500 (2,500)

63,100 48,000 3,000 114,100

Topic 1 Less: Creditors amounts due within 1 year Creditors Bank overdraft VAT (W) PRSI Mortgage Interest due (W) Net Current Assets Net Assets Financed by Creditors: amounts due after 1 year 6% and 4% Fixed Mortgage Capital Add Net Profit Less Drawings (W) Revaluation Reserve (W) Capital Employed

Final a/c’s of Sole Trader Solutions

86,400 36,500 2,400 6,400 11,400

(143,100)

380,000 243,110 (31,540)

7

29,000 1,132,400

280,000

591,600 260,800 1,132,400

Notes to Accounts Stock Vehicles Depc. this Yr/Vehs. Acc. Depc. Disposal Purchases Insurance Mortgage Interest* Debtors Patents Investments Interest Buildings VAT Acc. Depc. Blgs.* Revaluation Reserve Bad Debts Provision Drawings Bank o/d Bad Dept Recoverable

67,400 180,000 2,250 60,000 36,000 649,680 18,820 3,500 50,400 77,000 3,000 590,000 12,400 70,000 180,000 2,000 30,100 36,900

" " ! ! " " ! " " ! ! " " ! ! ! ! "

*Blgs. Dept. 500,000 @ 2% full year 80,000 @ 2% 1/2 yr. *Mortgage 6% 200,000 1 yr. 4% 80,000 3/4

4,300 36,000 5,250 29,100 22,500 48,000 500 500 400 3,000 3,000 10,000 10,000 10,800 80,800 500 1,440 400

# ! 60,000 # ! 21,600 # " 22,500 # " 12,000 # # ! 400 # ! 11,400 " 1,440 # ! 500 # " 16,000 # # ! 180,000 # # " 80,800 # # # # # #

63,100 204,000 29,100 66,600 (1,500) 601,680 19,720 12,960 50,500 64,000 6,000 760,000 2,400 Nil 260,800 2,500 31,540 36,500 900

#

10,000 800 10,800 12,000 2,400 14,400

(c) Explain what is meant by ‘Patents’ and why it is customary to write them off over a number of years.

Patents are a copyright or ownership of a trade mark, name, invention, procedure etc that you have discovered & wish to hold exclusive rights to. It is an intangible fixed Asset of a business & is usually written off as they are a “Transient asset”. They are subject to decreases in their value due to new processes being developed which would make yours obsolete & of less value.

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5

Graded Accounting Questions – Solutions

DARCY SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of sales Stock 1/1/2012 Add Purchases

Less Stock 31/12/2012 Gross profit Less Expenses Administration Salaries and general expenses Patents written off Insurance Depreciation – buildings Selling and Distribution Commission Depreciation – delivery vans Add Operating income Profit on sale of delivery van Reduction in provision for bad debts Rent Discount Operating profit Investment income Mortgage interest Net profit for year



(W)

47,600 441,000 488,600

(W)

(55,400)

(W) (W) (W)

81,100 11,300 8,500 13,665

114,565

(W)

20,000 13,950

33,950

(W) (W)

(W)

€ 774,000

(433,200) 340,800

(148,515) 192,285 200 384 8,800 3,100 204,769 10,500 (12,825) 202,444

(b) Balance Sheet as at 31 December 2012 Cost € Intangible Fixed Assets Patents (€56,500 " €11,300) Tangible Fixed Assets Buildings Delivery vans Financial Assets 12% Investments

Accumulated Depreciation €

Net €

Total € 45,200

(W)

1,200,000 94,000 1,294,000

39,750 39,750

1,200,000 54,250 1,254,250

1,254,250 150,000 1,449,450

Topic 1

Final a/c’s of Sole Trader Solutions

Current assets Stock Investment income due Debtors Less provision Insurance Co. Creditors: amounts falling due within 1 year Creditors (W) Mortgage interest due VAT PRSI Bank Financed by Creditors falling due after more than one year 9% Fixed mortgage Capital and reserves Capital 1/1/2012 Add Net profit Less Drawings Revaluation Reserve Capital employed

55,400 4,500 43,584

45,400 1,816

74,400 13,500 6,700 1,800 74,900

9

35,000 138,484

(171,300)

(32,816) 1,416,634 200,000

350,000 202,444 (37,475) 701,665

(W)

1,216,634 1,416,634

Notes to Accounts Closing Stock Vehicles Acc. Depc. Depc. this yr. Disposal Purchases Patents Investment interest Mortgage interest. Insurance Disc: Rec. Salaries, general expenses Acc. Depc. Insurance Co B\D. Provision Crs. Drawings Revaluation Res, Buildings

46,900 90,000 35,000 600 16,000 495,000 50,500 6,000 4,500 7,200 2,700 96,100 171,250

" " ! ! " ! ! ! " ! ! " !

1,500 16,000 13,950 2,250 9,200 10,000 6,000 4,500 900 900 400 15,000 13,665

2,200 64,400 29,200 516,750 656,250

" 1,816 ! 10,000 ! 4,275 ! 4,000 ! 184,915 " 20,000 ! 15,000 ! 32,000 ! 516,750

! ! " ! " " "

10,000 20,000 9,200 11,100 7,000 15,000 " 32,000 " 13,000 " 4,000 11,300

! 13,500 # 17,100 " 4,275 ! 400

" 184,915

(c) What is a suspense account and why is it created?

# 55,400 # 94,000 # 39,750 # 13,950 # 200 # 441,000 # 45,200 # 10,500 # 12,825 # 8,500 # 3,100 # 81,100 nil # # 35,000 # 384 # 74,400 # 37,475 # 701,665 # 1,200,000

A Suspense a/c is used when you make a mistake in the accounts that prevents the Trial Balance from balancing. This difference is left in the Suspense a/c until these errors are discovered. Errors are corrected through the Suspense a/c.

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Graded Accounting Questions – Solutions

6

EGAN SOLUTION

(a) Trading and Profit and loss Account for year ending 31/12/2012 € Sales Less Cost of sales Stock 1/1/2012 Add Purchases Less Stock 31/12/2012 Gross Profit Less Expenses Administration Patent written off Salaries and General expenses Insurance Depreciation – Buildings Selling and Distribution Advertising Loss on sale of van Depreciation – Delivery Vans Add. Bad Debt Recovered Discount Royalties Reduction in Provision for bad debts Operating Profit Investment Income Less Mortgage Interest New Profit for year



€ 980,000

65,700 629,600 (78,100)

(W) (W)

617,200 362,800

(W) (W) (W) (W)

12,600 193,700 13,800 17,500

237,600

(W) (W)

14,000 6,875 20,100

40,975

Cost €

Accumulated Depreciation €

(W) (W) (W) (W) (W) (W)

(278,575) 84,225 1,200 4,300 12,000 1,605 103,330 5,600 (11,000) 97,930

(b) Balance sheet as at 31/12/2012

Intangible Fixed assets Patents (63,000 " 12,600) Tangible Fixed Assets Buildings Delivery Vans

Net €

50,400 (W) (W)

1,200,000 136,000 1,336,000

76,475 76,475

1,200,000 59,525 1,259,525

Financial Assets 6% Investments Current Assets Stock Debtors Less provision VAT Investment Income due

Total €

1,259,525 160,000 1,469,925

(W)

77,200 (2,295)

78,100 74,905 20,700 3,200 176,905

Topic 1 Creditors: amounts falling due within one year Creditors (W) Bank PRSI Mortgage interest due Financed by Creditors: amounts falling due after more than one year 5% Fixed mortgage Capital and reserves Capital 1/1/2012 Add Net Profit Less Drawings Revaluation Reserve Capital employed

Final a/c’s of Sole Trader Solutions

92,700 60,300 2,500 11,250 166,750

11

10,155 1,480,080 300,000

(W)

735,000 97,930 (40,350) 387,500

1,180,080 1,480,080

Notes to Accounts Closing stock Purchases Crs. Veh. Depreciation this year Acc. Depc. Disposal Mortgage interest Salaries Discount(Cr.) Drawings B.D. Recov., Debtors Bank. O/D. Provision Patents Investment interest Buildings Acc. depc. Rev. Res. Vat (CR)

72,500 650,000 85,500 130,000 14,250 69,500 35,000 3,000 192,500 3,600 36,000 1,200 76,500 60,800 3,900 60,600 2,400 900,000 45,000 325,000 4,300

78,100 # 1,600 " 26,000 " 1,600 # 629,600 92,700 1,600 # 41,000 # 136,000 20,100 4,100 # 76,475 13,125 # (6,875) 13,125 # 11,000 11,250 # 13,750 " 2,750 # 700 # 193,700 4,300 # 40,350 1,600 # 1,200 # 77,200 700 # 60,300 500 # 1,605 2,295 # 50,400 2,400 " 12,600 # 5,600 3,200 # 1,200,000 25,000 ! 325,000 # nil 17,500 " 62,500 # 62,500 # 387,500 20,700 (DR) 25,000 #

! 5,600 ! 5,600 ! ! 5,600 ! " 35,000 ! ! 1,750 ! ! 20,100 " " 15,000 " " 500 ! ! 500 ! ! 700 ! 2,750 ! ! " " ! ! " ! ! "

(c) Calculate the period of Credit to debtors and assess the result.

Credit to DRS # CR Sales/Debtors # 980,000/77,200 # 12.69 Times Debtors are settling their accounts with the month which is within the recommended collection period so Egan has no problem with debtors collection.

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Graded Accounting Questions – Solutions

7

FARRELL SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 Sales Less Cost of Sales Stock Purchases Less Closing Stock Gross Profit Administration Patents written off General administration expenses Discount Directors fees Insurance Depreciation of Buildings Selling and Distribution Adverting Depreciation of Delivery Vans Loss on disposal of van Add Operating Income Bad Debt recovered Operating Profit Add Investment income Less Mortgage Interest Net Profit

364,500 32,800 244,400 (39,900)

(W) (W)

(W)

(W)

(W) (W)

5,500 42,500 850 4,500 3,050 5,800

62,200

2,100 6,713 4,375

13,188

237,300 127,200

(75,388) 51,812 500 52,312 3,900 (3,300) 52,912

(W) (W)

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Assets Goodwill Tangible Fixed Buildings Delivery Vehicles Financial Assets 8% Investments Current Assets Stock Debtors (20,200 less Provision 600) Investment Interest due Creditors: Amounts falling due within one year Creditors Bank VAT PRSI Mortgage interest due Total Net Assets

Cost €

Depc. €

(W) (W) (W)

400,000 45,500

7,088

Value € 22,000 400,000 38,412 65,000 525,412

(W) (W)

39,900 19,600 2,600

62,100

(W) (W)

59,300 7,650 2,050 1,950 3,375

74,325

(W)

(12,225) 513,187

Topic 1

Final a/c’s of Sole Trader Solutions

Financed By: Creditors: Amounts falling due for more than one year 6% Mortgage Capital and Reserves Capital Add Net Profit Less Drawings Revaluation Reserve (W) Total Capital Employed

13

75,000 242,500 52,912 (20,525)

274,887 163,300 513,187

(c) Notes to Accounts Purchases 256,200 ! 2,400 " 13,000 ! 400 " 1,600 Closing Stock 37,500 ! 2,400 Patents 26,200 ! 1,300 " 5,500 Discount 950 " 100 Delivery Vans 42,500 ! 18,000 " 15,000 Insurance 3,075 " 125 ! 100 Depreciation of Vans this year 563 ! 2,025 ! 4,125 Accumulated Depreciation of Vans 6,000 ! 6,713 " 5,625 Disposal of Vehicles 15,000 " 5,625 " 5,000 Investment Income 1,300 ! 2,600 Mortgage Interest 625 ! 125 ! 3,375 " 825 Buildings 290,000 ! 110,000 Accumulated Depreciation of Buildings 47,500 ! 5,800 " 53,300 Revaluation Reserve 110,000 ! 53,300 Debtors 20,000 ! 200 Creditors 56,500 ! 2,400 ! 400 Bank 7,950 " 300 Drawings 18,100 ! 825 ! 1,600

# # # # # # # # # # # # # # # # # #

244,400 39,900 22,000 850 45,500 3,050 6,713 7,088 (4,375) 3,900 3,300 400,000 Nil 163,300 20,200 59,300 7,650 20,525

14

Graded Accounting Questions – Solutions

8

GRENNAN SOLUTION

(a) Trading Profit Loss Account for year ending 31/12/2012 Sales Less Cost Sales Stock Purchases Less Closing Stock Gross Profit Less Expenses Administration Patents written of Salaries and General Discount Rent Insurance Depreciation of Buildings Loss on stolen goods Selling and Distribution Advertising Depreciation of Delivery Vans Loss on disposal of van

874,800 78,720 584,480 (95,760)

13,200 102,000 2,040 10,800 7,320 13,920 400

149,680

630 16,110 10,500

27,240

Add Operating Income Bad Debt recovered Operating Profit Add Investment income Less Mortgage Interest Net Profit

567,440 307,360

(176,920) 130,440 1,200 131,640 9,360 (7,920) 133,080

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Assets Patents Tangible Fixed Buildings Delivery Vehicles Financial Assets 8% Investments Current Assets Stock Debtors (48,480 less Provisionl, 440) Investment Interest due Advertising prepaid Insurance claim due

Cost €

960,000 109,200

Depc. €

17,010

Value € 52,800 960,000 92,190 156,000 1,260,990

95,760 47,040 6,240 4,410 3,600

157,050

Topic 1

Final a/c’s of Sole Trader Solutions

Creditors: Amounts falling due within one year Creditors Bank VAT PRSI Mortgage interest due Total Net Assets Financed By: Creditors: Amounts falling due for more than one year 6% Mortgage Capital and Reserves Capital Add Net Profit Less Drawings Revaluation Reserve Total Capital Employed

142,320 18,360 4,920 4,680 8,100

178,380

15

(21,230) 1,239,660 180,000

582,000 133,080 (47,340)

667,740 391,920 1,239,660

(c) Notes to Accounts Purchases Closing Stock Patents Discount Delivery Vans Insurance Depreciation of Vans this year Accumulated Depreciation of Vans Disposal of Vehicles Investment Income Mortgage Interest Buildings Accumulated Depreciation of Buildings Revaluation Reserve Debtors Creditors Bank Drawings Advertising Ins. Co. Claim

614,880 ! 5,760 90,000 ! 5,760 62,880 ! 3,120 2,280 " 240 102,000 ! 43,200 7,380 " 300 1,350 ! 4,860 14,400 ! 16,110 36,000 " 13,500 3,120 ! 6,240 1,500 ! 300 696,000 ! 264,000 114,000 ! 13,920

" 31,200 ! 960 " 1,920 " 4,000 # 584,480 # 95,760 " 13,200 # 52,800 # 2,040 " 36,000 # 109,200 ! 240 # 7,320 ! 9,900 # 16,110 " 13,500 # 17,010 " 12,000 # (10,500) # 9,360 ! 8,100 "1,980 # 7,920 # 960,000 "127,920 Nil #

264,000 ! 127,920 48,000 ! 480 135,600 ! 5,760 ! 19,080 " 720 43,440 ! 1,980 ! 5,040 " 4,410

960 1,920

# # # # # # #

391,920 48,480 142,320 18,360 47,340 630 3,600

TOPIC

2

Final a/c’s of Company Solutions 2 Abacus 3 Bliary 4 Capri 5 Duncan 6 Echo 7 Festina 8 Conolo 9 Prudence 10 Morgan 11 Gambert

Topic 2

2

Final a/c’s of Company Solutions

17

ABACUS SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 Sales Less Cost of Sales Stock 1/1/2012 Add Purchases Less Stock 31/12/12 Gross Profit Less Expenses Administration Administration Salaries & Gen. Exp Patents written off Dep.: Land & Build. Selling and Distribution Selling Dep.: Motor Vehicle Loss on Sale of Vehicle Add Operating Income Reduction in Bad Debt Prov. Operating Profit Investment Income Debenture Interest Net Profit for year before taxation Less Appropriations Dividends Paid Transfer To Reserve

824,000

(W)

42,500 600,800 643,300 (34,700)

(W) (W) (W)

28,200 95,480 10,250 10,400

144,300

(W) (W)

14,100 28,200 2,100

44,400

(W)

(608,600) 215,400

(W)

(188,730) 26,670 1,300 27,970 7,200 (10,000) 25,170

(W) (W)

20,900 10,000

Retained Profit (Loss) Profit and Loss balance 1/1/12 Profit and Loss balance 31/12/12

(30,900) (5,730) 1,800 (3,930)

(b) Balance Sheet as at 31/12/2012 Tangible Fixed Assets Land and Buildings Motor Vehicles Intangible Fixed Assets Patents Financial Assets 9% Investment

(W)

(W)

Cost

Dep.

800,000 144,000 944,000

– 44,300 (3) 44,300

NBV 800,000 99,700 899,700 30,750 120,000 1,050,450

18

Graded Accounting Questions – Solutions

Current Assets Stock 31/12/2012 Debtors Less Provision Invest Income due

(W) (W) (W)

Creditors: amounts falling due within 1 year VAT Creditors (W) Bank (W) Debenture Int. due (W)

36,100 2,000 72,800

18,200 41,350 14,630 7,600

Financed by: Creditors: amount falling due after 1 year 8% Debentures Capital and Reserves Ord. Shares @ €1 each 6% Pref. Share @ €1 each Revaluation Reserve Profit & Loss a/c balance General Reserve

34,700

38,000 (1,900)

(81,780)

(8,980) 1,041,470 150,000

Auth’d 500,000 280,000 780,000

(W)

Issued 370,000 180,000 550,000 335,400 (3,930) 10,000

891,470 1,041,470

Notes to Accounts Closing stock Patents Investment interest Vehicles Depc. this yr. Acc. Depc. Disposal Purchases Bank O/D. Creditors Salaries & Gen. Exps land & Blgs. Acc. Depc. Reval. Reserve Deb. Interest Prov. for B/D’s Prel. Div. (8%) Ord. Dividend Debenture Interest

}

1. 60,000 $ 8% $ 7m 2. 90,000 $ 8% $ 12m

36,400 38,300 2,700 135,000 1,600 28,500 24,000 624,300 16,200 41,800 95,000 520,000 45,000 280,000 2,400 3,200 3,600 7,300

1,700 ! 2,700 ! # 2,500 # # 24,000 ! # 4,400 # # # 28,200 ! ! 12,400 ! ! 23,500 2,500 # ! 450 ! 480 # # 280,000 # 10,400 ! # 55,400 7,600 # 1,900 ! # 10,800 # 18,600 " "

2,800 7,200

10,250 2,000 33,000 22,200 12,400 9,500 480 # 450

55,400

" " " " " " " " " " " " " " " " " " "

34,700 30,750 7,200 144,000 28,200 44,300 (2,100) loss 600,800 14,630 O/D 41,350 95,480 800,000 nil 335,400 10,000 1,300 over 14,400 25,900

"

10,000

Note: As customers adjusted bank figure of €14,630 does not equal the bank statement of €10,130 after the unpresented cheque of €4,200 is added, it is to be assumed that the difference of €4,500 between the two figures is due to errors not yet identified by the bank.

Topic 2

3

Final a/c’s of Company Solutions

19

BLIARY LTD. SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 Sales Cost of Sales Opening stock Purchases Closing Stock Gross Profit Selling and Distribution Deprec. on vans Advertising Bad Debts Provision for Bad Debts Administration Salaries Fees Insurance Goodwill written off ! Operating Income Discount Received Profit on van Operating Profit Investment Income Debenture Interest Net Profit Dividends Paid Retained Profit # Profit and loss 1/1/12 " Profit and loss 31/12/12

896,000 38,000 569,000 607,000 (37,300)

W W

W W W W

33,800 7,400 400 218

41,818

W

130,000 20,000 15,000 8,500

173,500 3,000 3,000

W W W

(569,700) 326,300

(215,318)

6,000 116,982 13,500 (13,200) 117,282 (32,000) 85,282 22,700 107,982

(b) Balance Sheet as at 31/12/2012 Fixed Assets Goodwill Buildings Vans

Cost 420,000 174,000 594,000

Investments Current Assets Stock Debtors, (30,300 – Prov 1,818) Investment Income Due

w

Depre.

Net

90,800 90,800

420,000 83,200 503,200

37,300 28,482 2,250 68,032

Total 8,500 503,200 150,000 661,700

20

Graded Accounting Questions – Solutions

Creditors amounts falling due less than one year Creditors Interest due Bank Financed by:

w w

40,910 10,800 10,040 Auth. 550,000 250,000 800,000

Ordinary Shares Preference Shares Retained Profits Crs. Falling Due for more than 1 year Debentures 8%

(61,750) Issued 280,000 100,000 380,000 107,982 180,000

Notes to Accounts Closing stock Goodwill Investment Income Advertising Deb. Int. Debtors Vehicles Depc. this year Acc. Depc. Disposal Purs. Bank o/d Crs. Bad Debt Provision for Bad Debts

40,000 12,500 4,500 6,800 2,800 31,000 162,000 1,667 66,000 20,000 587,000 16,800 41,000 400 1,600

! 2,700 # 4,500 ! 8,500 # 6,750 # 2,250 400 # 200 # 400 # 10,800 ! 200 ! 500 ! ! 20,000 # 32,000 # 3,733 # 28,400 # 33,800 ! 9,000 ! 9,000 ! 14,000 ! 18,000 90 ! 100 ! 6,750 # 90 ! !

1,818

" " " " " " " " " " " " " " "

37,300 8,500 13,500 7,400 13,200 30,300 174,000 33,800 90,800 3,000 569,000 10,040 40,910 400 (218)

(c) Are there any occasions when the Trial Balance is in balance, even though errors have occurred? • • • • • •

Transactions totally omitted Errors of original entry e.g. € 80 entered as € 800 on both sides Errors of Commission e.g. posted to incorrect a/c Errors of Principle e.g. posted to Purchases instead of vehicles Compensating errors that cancel each other out Complete Reversal of entries e.g. DR Sales CR Debtors

6,282 667,982

487,982 180,000 667,982

Topic 2

4

Final a/c’s of Company Solutions

21

CAPRI SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of sales Stock 1/1/12 Add Purchases Less Stock 31/12/12 Gross profit Less Expenses Administration Directors fees General expenses Patents written off Depreciation-buildings Selling and Distribution Bad debts written off Depreciation-delivery vans Loss on sale of van Add Operation income Reduction in provision for bad debts Operating profit Investment income Debenture interest Net profit for year before taxation Less Appropriation Dividends Paid Transfer to Debenture Reserve Retained profit Profit and loss balance 1/1/12 Profit and loss balance 31/12/12



40,000 560,000 600,000 (44,800)

W W

W W W

30,000 114,600 12,000 8,000

164,600

W W

1,350 32,700 7,200

41,250

W

€ 880,000

(555,200) 324,800

(205,850) 118,950 130 119,080 8,000 127,080 (15,000) 112,080

20,000 40,000

(60,000) 52,080 24,000 76,080

22

Graded Accounting Questions – Solutions

(b) Balance Sheet at on 31/12/2012 Cost € Intangible Fixed Assets Patents (€48,000 ! €12,000) Tangible Fixed Assets Land and buildings Delivery vans

W W

6% Investments Current assets Stock Investment income due Debtors Less provision

750,000 166,000 916,000

W

Creditors: amounts falling due within one year Creditors W Debenture interest due VAT Bank W Financed by Creditors: amounts falling due after more than one year 8% Debentures Capital and reserves Authorised Ordinary shares at €1 each 600,000 6% Preference shares at €1 each 300,000 900,000 Revaluation reserve W Profit and loss Balance Debenture Redemption Reserve

Accumulated Depreciation €

85,900 85,900

34,500 (2,070)

42,730 12,000 11,000 25,520

Net €

750,000 80,100 830,100

Total € 36,000

830,100 200,000 1,066,100

44,800 2,000 32,430 79,230

(91,250)

(12,020) 1,054,080

200,000 Issued 300,000 150,000 450,000 288,000 76,080 40,000

854,080 1,054,080

Topic 2 Workings 1. Purchases Less payment for delivery van 2. Closing stock Less Valueless stock 3. Salaries and general expenses Add ESB direct debit 4. Patents (€44,000 # €4,000) % 4 5. Depreciation buildings 2% of 500,000!100,000) 6. Depreciation - delivery vans 20% of [(€160,000 for 5 months) # (€166,000 for 7 months)] 7. Loss on sale of van cost Less Depreciation to date Less Trade-in 8. Decrease in Provision for bad debts (€2,200 ! €2,070) 9. Land and Buildings at cost Add Revaluation 10. Delivery vans at cost Add Purchases Less Disposal 11. Debtors Less Bank and bad debt 12. Creditors Less Error 13. Bank overdraft as per Trial Balance Less Investment income Less Credit transfer credited Add Bank under credited Add Direct debit-ESB 14. Revaluation reserve Land and buildings Provision for depreciation (30,000) # 8,000

Final a/c’s of Company Solutions

590,000 30,000 48,000 (3,200) 114,000 600

23

560,000 44,800 114,600 12,000

8,000 32,700

42,000 (16,800) (18,000)

7,200 130

500,000 250,000 160,000 48,000 (42,000) 36,000 (1,500) 43,000 (270) 26,800 (2,000) (150) (270) 600 250,000 38,000

(c) Explain what is meant by the Accrual Concept in accounting.

750,000

166,000 34,500 42,730

25,520 288,000

All expenses that belong to a particular period must be included in the accounts of that period whether paid or not. Similarly all Revenue income must be included whether Received or not. i.e. Due added, prepaid subtracted to ascertain the correct figure for period.

24

Graded Accounting Questions – Solutions

5

DUNCAN SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Stock 1/1/2012 Add Purchases Less Stock 31/12/2012 Gross Profit Less Expenses Administration Directors’ Fees Salaries & Gen. Exp. Parents w/o Dep.: Land & Build Selling and Distribution Bad Debts w/o Dep: Delivery van Inc. in Bad Debt Prov. Loss on sale of van Operating Profit Investment Income Debenture Interest Net Profit for year before taxation Less Appropriations Pref. dividend paid Ord. dividend paid Pref. dividend proposed Ord. dividend proposed Retained Profit Profit and Loss balance 1/1/2012 Profit and Loss balance 31/12/2012

32,200 465,000 (35,640)

(W) (W)

(W) (W)

34,400 130,200 6,600 8,800

180,000

(W) (W) (W)

1,400 30,900 600 1,800

34,700

(W) (W)

(W) (W) (W) (W)

8,800 13,600 8,800 15,800

€ 814,000

(461,560) 352,440

(214,700) 137,740 9,000 (12,000) 134,740

(47,000) 87,740 (1,800) 85,940

Topic 2

Final a/c’s of Company Solutions

(b) Balance Sheet as at 31/12/2012

Tangible Fixed Assets Land and Buildings Delivery Vans

(W)

Intangible Fixed Assets Patents

(W)

Financial Assets 6% Investments Current Assets Ins. Co., Stock 31/12/2012 VAT Invest Income due Debtors Less Provision Creditors: amounts falling due within 1 year Creditors Pref. Dividends due Ord. Dividends due Debenture Int. due Bank

€ Dep.

€ N.B.V.

660,000 156,000 816,000

69,700 69,700

660,000 86,300 746,300 59,400

(W) (W) (W) (W)

(W) (W) (W) (W)

Financed by: Creditors: amounts falling due after 1 year 8% Debentures Capital and Reserves Ord. Shares @ €1 each 8% Pref. Share @ €1 each Revaluation Reserve Profit & Loss a/c balance Shareholder’s Funds Capital Employed

€ Cost

(W)

44,000 (2,200)

38,370 8,800 15,800 9,600 3,930

Auth’d. 580,000 250,000 830,000

35,000 35,640 25,100 4,000

200,000 1,005,700

41,800 141,540

(76,500)

Issued 420,000 220,000 640,000 184,800 85,940

65,040 1,070,740 160,000

910,740 1,070,740

25

26

Graded Accounting Questions – Solutions

Notes to Accounts Closing stock Patents. Investment Income. Bank O/D. Debtors Bad Debts. Vehicles. Depc. this yr. Acc. Depc. Disposal. Purs. L & Blgs. Acc. Depc. Reval. Reserve Pref. Div. Ord. Div. Debenture Interest Prov. for B/Debts. Creditors Salaries & General Ins. Co.

38,200 63,000 3,000 6,800 46,000 1,400 150,000 2,400 54,000 48,000 545,000 480,000 36,000 140,000 8,800 13,600 2,400 1,600 38,100 148,200

! # # ! ! ! # # ! ! ! # # # # # ! # !

2,560 3,000 " 66,000 ! 2,000 # 4,000 2,000 ! 600 ! 2,000 48,000 8,100 30,900 15,200 15,000 20,000 8,800 44,800 8,800 15,800 9,600 2,200 270 18,000

# # ! ! ! # !

6,600

54,000 20,400 15,200 31,000 42,000 ! 23,000 60,000 # 140,000 44,800

(c) What are the main Objectives of Financial Accounting? • • • •

270

" " " " " " " " " " " " " " " " " " " " "

35,640 59,400 9,000 3,930 44,000 1,400 156,000 30,900 69,700 (1,800) loss 465,000 660,000 nil 184,800 17,600 29,400 12,000 (600) loss 38,370 130,200 35,000

To Process, Collect & Record information on most Transactions To classify & summarise this information in accounts To show performance of organization over a period To prepare financial statements at year end such as Trial Balance, Final accounts, Cash flow statements.

Topic 2

6

Final a/c’s of Company Solutions

27

ECHO SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 Sales Less Cost of Sales Stock Purchases Less Closing Stock Gross Profit Less Expenses Administration Patents written off Salaries and General Directors fees Depreciation of Buildings Selling and Distribution Bad Debts Depreciation of Delivery Vans Loss on disposal of van



€ 107,240 781,200 (114,520)

17,052 246,400 112,000 18,200

393,652

2,450 49,840 14,000

66,290

Add Operating Income Overprovision for bad debts Operating Profit Add Investment income Less Debenture Interest Net Profit Less Appropriation Dividend paid Transferred to Staff Pension

€ 1,386,000

(773,920) 612,080

(459,942) 152,138 1,042 153,180 10,080 (26,460) 136,800

56,000 32,900

Profit and Loss balance 1/1/2012 Profit and Loss balance 31/12/2012

(88,900) 47,900 94,640 142,540

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Assets Patents Tangible Fixed Buildings Delivery Vehicles Financial Assets 8% Investments Current Assets Stock Debtors (€99,960 less Provision 3,998) Investment Interest due Creditors : Amounts falling due within one year Creditors Bank VAT Debenture interest due Total Net Assets

Cost €

Depc. €

1,232,000 274,400

119,840

Value € 68,208 1,232,000 154,560 252,000 1,706,768

114,520 95,962 2,520

213,002

113,526 2,744 23,100 20,160

(159,530)

53,472 1,760,240

28

Graded Accounting Questions – Solutions

Financed By: Creditors : Amounts falling due for more than one year 8% Debenture Capital and Reserves Authorised Ordinary Share Capital at €1 each 966,000 6% Preference Share Capital 420,000 1,386,000 Profit and Loss Balance 31/12/2012 Staff Pension Fund Revaluation Reserve Total Capital Employed

322,000 Issued 770,000 280,000 1,050,000 142,540 32,900 212,800

1,438,240 1,760,240

Notes to Accounts Purchases 868,000 ! 86,800 Closing Stock 119,000 ! 4,480 Patents 81,480 # 3,780 ! 17,052 Provision for Bad Debts 5,040 ! 3,998 Delivery Vans 240,800 # 117,600 ! 84,000 Depreciation of Vans this year 5,880 # 12,600 # 31,360 Accumulated Depreciation of Vans 109,200 # 49,840 ! 39,200 Disposal of Vehicles 84,000 ! 30,800 ! 39,200 Investment Income 3,780 # 3,780 # 2,520 Debenture Interest 6,300 # 20,160 Buildings 1,092,000 # 140,000 Accumulated Depreciation on Buildings 54,600 # 18,200 ! 72,800 Revaluation Reserve 140,000 # 72,800 Debtors 103,460 ! 1,050 ! 2,450 Creditors 113,400 # 126 Bank 7,700 ! 3,780 ! 1,050 ! 126

781,200 " 114,520 " 68,208 " 1,042 " 274,400 " 49,840 " 119,840 " 14,000 " 10,080 " 26,460 " " 1,232,000 Nil " 212,800 " 99,960 " 113,526 " 2,744 "

(c) Explain with an example the difference between capital and current expenditure Capital expenditure Capital expenditure is entered in the balance sheet. It is expenditure incurred in the purchase or improvement of a fixed asset which increases the earning capacity of the asset, e.g. • purchase of buildings including professional fees • improvement or extension to buildings.

Revenue expenditure

Revenue expenditure is entered in the profit and loss account. It refers to the day to day running costs of a business. It represents costs incurred in the running of the business during the accounting period, e.g. wages, rent, insurance.

Topic 2

7

Final a/c’s of Company Solutions

FESTINA SOLUTION

(a) Trading Profit & Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Stock 1/1/12 Purchases Stock 31/12/12 Gross Profit Administration Expenses Salaries & General Expenses Patents written off Audit Fees Directors Fees Depreciation Buildings Selling and Distribution Expenses Depreciation Delivery Vans Bad Debts Increase Bad Debts Provision Bad Debt Recoverable Discount Received Disposal Profit Operating Profit Add Investment Income Less Debenture Interest Profit available for distribution Less Appropriation Dividends paid Retained Profit Profit & Loss Balance 1/1/12 Profit & Loss Balance 31/12/12



47,500 621,425 (62,800)

187,800 12,000 8,900 12,600 10,400

231,700

41,400 1,500 2,035

44,935 700 215 5,625

€ 967,000

(606,125) 360,875

(276,635) 84,240

6,540 90,780 5,250 (14,400) 81,630 (24,000) 57,630 (45,000) 12,630

29

30

Graded Accounting Questions – Solutions

(b) Balance Sheet as at 31/12/12 € Cost Fixed Assets Intangible: Patents Tangible: Land & Buildings Delivery Vans

€ Acc. Dep.

€ Net. Value



48,000 970,000 222,000 1,192,000

Financial 5% Investments Current Assets Stock 31/12/2012 Debtors 63,400 Less Provision for Bad Debts (3,135) Investment Income Due VAT Less Creditors: amounts due within 1 year Creditors Debenture Interest Due Bank

85,700 85,700

970,000 136,300 1,106,300

1,106,300 180,000 1,334,300

62,800

60,265 1,500 3,990

128,555

88,260 11,925 5,840

Net Current Assets Net Assets Financed by Creditors falling due for more than 1 year 7.5% Debentures Capital & Reserves Authorised Ordinary Shares @ € 1 each 580,000 5% Preference Shares 400,000 980,000 Revaluation Reserve Profit & Loss 31/12/12

(106,025) 22,530 1,356,830

Issued 480,000 300,000 780,000 352,200 12,630

212,000

1,144,830 1,356,830

Topic 2

Final a/c’s of Company Solutions

31

Notes to Accounts Closing Stock Patents Investment income Vehicles Depc. this yr Acc. Depc. Disposal Purchases Land & Building Acc. Depc. Revaluation Reserve Bank o/d Debtors Bad Debts Creditors * Prov. for Bad Debts Bad Debt Recoverable * Provision 5% of (65,000 ! 300 ! 2,000)

66,000 57,750 2,250 208,500 Nil 66,800 22,500 651,000 700,000 71,800 270,000 8,100 65,000 1,200 87,500 1,100

3,200 ! 2,250 ! # 1,500 # # ! 22,500 # 4,200 # # # 41,400 ! ! 22,500 ! 800 ! # # 270,000 # 10,400 ! # 82,200 40 ! # 700 ! # 300 # 800 ! # 3,135 !

62,800 " 12,000 48,000 " 1,500 5,250 " 36,000 222,000 " 37,200 41,400 " 22,500 85,700 " 5,626 " 5,625 profit 30,375 621,425 " 970,000 " 82,200 nil " 352,200 " 1,500 ! 800 " 5,840 300 ! 2,000 " 63,400 1,500 " 40 88,260 " (2,035) " 700 3,135 "

Note: Old vehicle Depreciated in full

(c) Would you, as a bank manager, recommend that a €100,000 loan at 10% annual interest be given to Festina for expansion? Support your answer with 3 relevant points. Yes, based on following: • Turned around deficit of €45,000 last YR to profit €12,630 this year • Land & Building more than sufficient security for loan even after using Debentures. • Working capital/Current Ratio 1.2 shows it hasn’t got cash flow problems • 5% Investments can be sold if all else fails.

32

Graded Accounting Questions – Solutions

8

CONOLO SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 € Sales ! Cost of Sales Opening stock # Purchases ! Closing stock " Gross Profit Less Administration Expenses Salaries & General Depreciation of Buildings Patents written off Audit fees Less Selling and Distribution

" # ! " ! " # "

Bad Debts Depreciation of vans Advertising Provision for bad debts # Bad debt Recoverable Discount Disposal profit Operating Profit Investment interest Debenture interest Net Profit Dividends Retained Profit Profit and Loss 1/1 Profit and Loss 31/12

(w) (w)

(w) (w) (w)

(w) (w)

(w)

€ 933,000

83,600 600,400 (71,400)

81,250 6,800 10,000 2,890

(612,600) 320,400

(100,940)

300 45,100 12,600 1,235 700 950 4,800

(59,235)

(160,175)

6,450 166,675 6,750 (14,850) 158,575 (12,600) 145,975 (45,000) 100,775

(w) (w)

(b) Balance Sheet as at 31/12/2012 € Intangible Fixed Tangible Fixed

Financial Current Assets

Patents Land and Buildings Delivery Vans

(W) (W) (W)

600,000 234.000 834,000

5% Investments Stock Debtors Provision Insurance Claim due Investment interest due VAT

(W) (W)

60,400 (2985)



74,100 74,100

71,400 57,415 25,600 750 1,110

156,275

€ 40,000 600,000 159,900 180,000 979,900

Topic 2 Less: Creditors falling due for less than 1 year Creditors Bank Debenture interest due

72,500 41,750 12,350

Financed by: Creditors falling due for more than 1 year 7% Debentures Capital and Reserves Ordinary shares of 1 € each 5% Preference shares Revaluation Reserve Profit and Loss a/c 31/12

Final a/c’s of Company Solutions

Authorised 500,000 300,000 (W)

(126,600)

Issued 400,000 150,000 550,000 178,800 100,775

33

29,675 1,009,575

180,000

829,575 1,009,575

Notes to Accounts Closing stock Land& Buildings Purchases Insurance claim Creditors Patents Investment Interest Vehicles Debtors Acc. Depc. Vehicles Depc. This year Disposal General Expenses Acc. Depc. Buildings Revaluation Reserve Bad Debt. Recoverable Bad Debt. Provision for Bad Debt Debenture Interest Bank overdraft

63,600 420,000 634,000 25,600 62,500 47,000 3,000 220,000 60,000 45,000 800 16,000 102,400 32,000 140,000 700 300 1,750 2,700 18,700

! 2,200 # 10,000 " ! 20,000 # 60,000 #140,000 " ! 5,600 ! 38,000 # 10,000 " " # 10,000 " # 3,000 ! 10,000 " # 3,000 # 750 " # 30,000 ! 16,000 " ! 300 # 700 " # 45,100 ! 16,000 " # 3,500 # 40,800 " ! 6,400 ! 4,800 " ! 22,000 # 850 " # 6,800 ! 38,800 " # 38,800 " " " ! 2,985(5% of 60,000 ! 300) " # 12,150 " ! 3,000 # 850 # 25,200 "

71,400 600,000 600,400 25,600 72,500 40,000 6,750 234,000 60,400 74,100 45,100 4,800 81,250 Nil 178,800 700 300 1,235 14,850 41,750

(c) Explain what is meant by term solvency and how it can be measured?

Solvency is the ability of an organisation to pay its debts from available current assets. It shows if a firm has cash flow problems and can avoid the possibility of creditors forcing the business into liquidation. Solvency is measured by using the Current Ratio (Current Assets: Current Liabilities) which has to have a min. answer of 1, and a further more severe test of liquidity using the Acid Test (Current Assets less Closing stock: Current liabilities) to show ability to meet debts in the short term.

34

Graded Accounting Questions – Solutions

9

PRUDENCE SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 Sales ! Cost Opening Stock # Purchases ! Closing Stock Gross Profit Administration Salaries & General Patents w/o Debt. of Blgs. Dir fees Selling and Distribution Advertising Bad Debts Debt of Veh. Operating Income - Disc Received Provision for B.D Disposal Operating Profit # Investment Income ! Debenture Interest Net Profit ! Appropriations Dividends paid

83,400 638,100 (84,300)

(w) (w)

(w) (w) (w)

121,450 8,000 9,000 6,800

(w)

33,000 2,000 57,500

895,950

(637,200) 258,750

145,250

92,500 1,450 495 1,000

(237,750)

2,945 23,945 9,000 (15,000) 17,945

19,500

Transfer to Deb. Reduction Res. Profit/loss for year P&L 1/1/12 " P&L 31/12/12

20,000

(39,500) (21,555) 14,400 (7,155)

(b) Balance Sheet at 31/12/2012 Intangible Fixed Patents Tangible land & Buildings Vehicles Financial 4% Investments Current Assets Stock Debtors ! Provision VAT. Crs. Falling Due less than 1 YR Creditors Debenture Interest Due Bank Net Current Assets

900,000 295,000 1,195,000

46,100 (2,305) 70,750 12,200 18,100

85,500 85,500

32,000 900,000 209,500 1,141,500 300,000 1,441,500

84,300 43,795 1,300 129,395 (101,050)

(28,345) 1,469,845

Topic 2 Financed by: Crs. Falling Due More than 1 yr 8% Debentures Capital & Reserves €1 Ordinary stores 6% Preference Shares

Auth. 900,000 400,000

Final a/c’s of Company Solutions

Issued 700,000 250,000 950,000 (7,155) 307,000 20,000

P&L a/c. Revaluation Reserve Debenture Redemption Resource

200,000

1,269,845 1,469,845

Notes to Accounts Closing Stock Purs. Crs. Patents Investment Int. Vehicles This years Depc. Acc Depc. Disposal Advertising Disc. Rec. Bank O/D Salaries & Gen. Debtors Bad Debts Debt. interest Prov. for B/Ds Acc. Debt Blgs. Blgs. Reval. Res. Deb Red. Res. Prel. Dividend Ord. Dividend

68,600 644,100 51,200 36,000 4,000 280,000 2,000 40,000 20,000 32,000 450 21,900 120,200 48,600 2,000 2,800 2,800 48,000 650,000 250,000 20,000 3,750 5,750

! # ! # # ! # # ! # # ! # !

4,300 20,000 450 4,000 5,000 20,000 3,500 57,500 12,000 1,000 1,000 5,000 1,250 2,500

# ! # !

20,000 26,000 20,000 8,000

# # ! !

35,000 52,000 12,000 9,000

# 1,250 ! 500 # 450

# 12,200 ! 2,305 # 9,000 ! 57,000 #250,000 # 57,000 # 11,250 # 43,250

" " " " " " " " " " " " " " " " " " " " " " "

84,300 638,100 70,750 32,000 9,000 295,000 57,500 85,500 1,000 Profit 33,000 1,450 18,100 121,450 46,100 2,000 15,000 495 (over) Nil 900,000 307,000 20,000 15,000 49,000

35

36

10

Graded Accounting Questions – Solutions

MORGAN PLC SOLUTION

(a) Trading Profit and Loss account for year ending 31/12/12 Sales ! Cost opening Stock # Purchases (#12,600) # Carriage ! Closing Stock (#12,600) " Cost of Sales " Gross Profit less Selling & Distribution Expenses (Sales) Advertising (30-6-6) Bad Debts Provision for Bad Debts (2,280 ! 1,830) Administration (Floor space) Directors fees Wages Healing Cleaning Insurance Depreciation of Buildings Depreciation of Furniture Operating Profit ! Debenture Interest " Net Profit ! Dividends Preference Ordinary # P & L 1/1/12 " P & L 1/1/12

Grocery 780,000 62,400 360,600 6,150 (85,800) 343,350 436,650

Hardware 390,000 31,350 186,600 3,600 (31,500) 190,050 199,950

12,000 600 300 12,900

6,000 300 150 6,450

29,700 78,300 16,740 16,200 13,500 5,400 27,000 186,840 236,910

19,800 52,200 11,160 10,800 9,000 3,600 18,000 124,560 68,940

(9,000) (45,000)

Total 1170,000 93,750 547,200 9,750 (117,300) 533,400 636,600 18,000 900 450 19,350 49,500 130,500 27,900 27,000 22,500 9,000 45,000 311,400 305,850 (26,400) 279,450 (54,000) 7,620 233,070

Topic 2

Final a/c’s of Company Solutions

37

(b) Balance Sheet as on 31/12/12 € Fixed Assets Goodwill Tangible Fixed land & Buildings Furniture Current Assets Stocks (85,800 # 31,500) Debtors 57,000 !Provision 2,280 Advertising prepaid Insurance prepaid Creditors Falling Due for less than 1 yr Creditors (12,600 ! 270) Bank (270 ! 300) Interest Due (26,400 ! 8,250) Dividends Due (6,750 # 28,500) Financed by: Ordinary Shares €1 6% Preference Shares Reserves Revaluation Reserve P&L 31/12/12 Crs. falling Due For More than 1yr 8% Debentures

420,000



165,000

€ 255,000 750,000 255,000 1,260,000

117,300 54,720 6,000 2,700

180,720

111,930 13,320 18,150 35,250

178,650

Auth. 750,000 300,000 1,050,000

Issued. 300,000 150,000 450,000 249,000 233,070

2,070 1,262,070

450,000

482,070 932,070 330,000 1,262,070

Report • Grocery dept. is making a profit of €236,910 which represents a 30% return on sales (Gross profit margin 56%) • Hardware dept. returns a 17.6% net profit % on sales with a gross margin of 51% • While both are profit making and performing well in a difficult economic climate it would not be inclined to close either dept. If however pressurised through cash flow problems or credit restrictions, Hardware would be the most likely to close down as a 17.6% return is over 40% less a return that the Grocery dept. of 30%.

38

11

Graded Accounting Questions – Solutions

GAMBERT SOLUTION

(a) Trading Profit & loss a/c for a/c 31/12/2012 Sales ! Cost opening stock # Purchases ! Closing stock Gross Profit Administration Patents w/o Salaries Dir fees Depc. of Blgs. Rent Selling & Distribution Advertising Vehicle Depc. Bad Debts. Provision for B/Ds Other operating income B.D. Recoverable Discount Rec. Profit on Sale of veh. Operating profit ! Debenture interest # Investment Income Net Profit ! Dividend Preference Dividend Ordinary " Profit for YR ! P&L 1/1/12 " P&L 31/12/12

75,200 1,243,200 (100,000)

6,400 177,600 48,000 15,790 19,600

267,390

15,700 38,000 2,050 394

56,144

700 11,500 3,250

40,000 88,000

1,752,250

(1,218,400) 533,850

(323,534) 210,316

15,450 225,766 (14,400) 28,800 240,166 (128,000) 112,166 (17,200) 94,966

Topic 2

Final a/c’s of Company Solutions

39

(b) Balance Sheet as at 31/12/2012 € Fixed Intangible Patents Tangible Buildings Vehicles Financial 9% Investment

312,000

Current Assets Closing stock Debtors ! Provision Ins Co. VAT. Investment interest due. Crs. falling Due less than 1 yr Creditors Deb. interest Due. Bank O/D

90,550 (3,594)

Financed by: Creditors more than 1 yr 8% Debentures Capital # Reserves. Ordinary shares of €1 each 10% Preference shares

€ 110,750

€ 25,600 1,000,000 201,250 320,000 1,546,850

100,000 86,956 25,600 22,500 18,900

253,956

99,490 9,600 40,460

(149,550)

Auth. 1,200,000 600,000

Revaluation Res. P&L a/c

Issued. 800,000 400,000

104,406 1,651,256 180,000

1,200,000 96,290 174,966 1,651,256

Notes to Accounts Closing stock Purs. Crs. Sales Drs. Blgs. Ins. Co Salaries Patents Inv. Income Vehicle Acc. Depc. Depc. this yr Disposal Advertising Deb. Int. (CR) Discount Bank O/D Bad Debts VAT Acc. Depc. Blgs. Reval. Res. Bad Debt Recovered B/D Provision

85,000 1,320,000 86,600 1,760,000 100,400 902,000 25,600 199,600 24,800 7,200 280,000 90,000 750 24,000 14,800 5,000 10,800 44,000 1,750 22,500 15,790 15,790 700 3,200

! # # ! ! !

3,200 12,000 12,000 7,750 7,750 20,000

! # # ! # # ! # ! # ! #

22,000 7,200 2,700 24,000 38,000 5,250 10,000 200 200 700 90 300

! 15,790 # 80,500 ! 3,594

100,000 " 1,243,200 800 ! 46,000 " 99,490 " " 1,752,250 90,550 # 700 ! 300 " ! 22,500 # 80,500 " 1,000,000 25,600 " 177,600 " 25,600 " 28,800 " 312,000 " 110,750 " 38,000 " " 3,250 PR. 15,700 " 14,400 " 11,500 " 40,460 ! 2,700 " 2,050 " " 22,500 DR nil " 96,290 " 700 " (394) "

# 12,000 # 6,200 ! 5,600 ! 38,000 # # 800 # 90 ! 2,500 # 60,000 ! 6,400 # 18,900 # 56,000 ! 17,250 # 32,000 ! 17,250 # 700 # 9,600 !

750

TOPIC

3

Final a/c’s of Manufacturing Solutions 2 Astroid 3 Betamax 4 Celestial 5 Ducato 6 Sheridan 7 Flotilla

Topic 3

2

Final a/c’s of Manufacturing Solutions

41

ASTEROID SOLUTION

(a) Manufacturing Account of Asteroid for year ended 31/12/2012 € D. Mats.

Opening Stock of raw materials 1/1/2012 Purchases of raw material

Less Closing Stock of raw materials Cost of raw materials consumed D. labour Manufacturing Wages Prime Cost Factory Overheads General Factory overheads Deprec: Plant & Machinery Buildings W.I.P. Factory Cost Add Work in Progress 1/1/2012

41,500 440,900 482,400 (52,400) 430,000 92,000 522,000

W W W W W W

53,500 63,000 14,300

W

(5,400) (600)

Less Work in Progress 31/12/2012 less

Less Sale of Scrap Materials Less Profit on Sale of Machinery Cost of Manufacture



130,800 652,800 24,200 677,000 (29,900) 647,100 (6,000) 641,100

Trading, Profit & Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Stock of finished goods 1/1/2012 Cost of goods produced Total available for sale Less Stock of fin. goods 31/12/2012 Cost of Goods Sold Gross Profit less Administration Administration Expenses Selling & Distribution Bad Debts Provision for Bad Debts. Selling & Distribution Exp. Operating Profit Debenture Interest due Net Profit before Taxation Taxation on profit Profit after Taxation Dividends Paid Retained Profit Profit and Loss balance 1/1/2012 Profit and Loss balance 1/1/2012

W 32,800 641,100 673,900 (42,300)

W

€ 925,850

(631,600) 294,250

42,900 700 1,648 36,400 W

38,748

(81,648) 212,602 (16,200) 196,402 (32,000) 164,402 (18,000) 146,402 32,500 178,902

42

Graded Accounting Questions – Solutions

(b) Balance Sheet as at 31/12/2012 Fixed Assets Land & Buildings Plant & Mach.

W

Current Assets Stocks: Raw Materials Work in Progress Finished Goods Debtors ! Provision

€ Cost

€ Dep.

€ N.B.V.

950,000 312,000 1,262,000

— 102,400 102,400

950,000 209,600 1,159,600

52,400 29,900 42,300 32,950 (1,648)

124,600

W

Creditors: amounts falling due within 1 year Trade Creditors P.R.S.I Debenture Interest due Taxation Bank Net Current Assets Total Assets less Current Liabilities Financed by: Creditors: amounts falling due after 1 year 8% Debentures Capital and Reserves Ordinary Shares @ € 1 4 % Pref. Shares @ 50 € Reval. Reserve a/c. Profit & Loss Balance Capital Employed

W

61,800 12,100 16,200 32,000 11,200

31,302 155,902

133,300

22,602 1,182,202

240,000

W

Auth’d. 850,000 400,000 1,250,000

Issued 300,000 250,000 550,000 213,300 178,902

942,202 1,182,202

Notes to Accounts

Sales Machinery Acc. Dehc. Mach. Depc. this yr. Disposal Purs. of Raw Mats. Creditors C/s of Raw Mats. Debtors Gen. Factory O/Hs C/s of fin goods Buildings Factory Wages Acc. Depc. Blgs. Revaluation Res. Bad Debts. Provision for Bad Debts. Debenture Interest Corporations Tax

936,600 ! 55,000 # 18,000 ! 453,900 # 42,300 !

900 !

740,000 # 40,000 # 54,000 #

3,000 330,000 63,000 600 15,600 12,000 49,800 40,400 7,750 52,600 36,100 25,000 132,000 14,300 145,000

! 7,750 ! 18,000 ! 15,600 # 62,400 ! 3,000 ! 25,000 # 12,000 # 12,000 ! 700 # 900 # 6,200 # 145,000 ! 40,000 ! 68,300 # 68,300 700 1,648 16,200 32,000

" " " " " " " " " " " " " " " " " " "

925,850 312,000 102,400 63,000 600 440,900 61,800 52,400 32,950 53,500 42,300 950,000 92,000 nil 213,300 700 1,648 16,200 32,000

Topic 3

3

Final a/c’s of Manufacturing Solutions

BETAMAX SOLUTION

(a) Manufacturing Account of Betamax or year ended 31/12/2012 Direct Materials Opening stock of raw materials Purchases of raw materials Carriage on Raw materials Less closing stock of raw materials Cost of raw materials consumed Direct Costs Direct Factory wages Hire of special equipment Prime Cost Factory Overheads General Factory overheads Patents written off Depreciation – Factory buildings – Plant and Machinery Loss on sale of Machine Factory Cost Work in progress 1/1/2012 Less Work in progress 31/12/2012 Less sale of scrap material Cost of Manufacture Trading Profit and Loss Account for year ending 31/12/2012 Sales Less Cost of sales Opening stock of finished goods Cost of manufacture Less Closing stock of finished goods Gross profit Less Administration Expenses Administration expenses Selling and Distribution Selling expenses Bad debt. Provision for Bad debt. Discount net Opening Profit Less Debenture interest Net profit before taxation Less Taxation Profit after Tax Les Dividends Retained Profit Profit and Loss 1/1/2012 Profit and Loss 31/12/2012

67,500 670,875 9,450 (73,500) 674,325 W

W W W W

353,190 15,000

90,300 22,500 17,250 83,100 3,075

W

368,190 1,042,515

216,225 1,258,740 31,875 (39,675) 1,250,940 (5,550) 1,245,390

1,615,800

W 126,750 1,245,390 (141,750)

33,150

W 157,748 750 4,200

W

(1,230,390) 385,410

162,698

(195,848) 189,562 4,500 194,062 (10,125) 183,937 (12,000) 171,937 (60,000) 111,937 113,100 225,037

43

44

Graded Accounting Questions – Solutions

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Patents

W

Tangible Fixed Factory Buildings Plant and Machinery

W W

Current Assets Stock - Raw Materials Work in Progress Finished goods Debtors Less Provision for bad debts.

Cost

W

Creditors falling due within one year Creditors Bank VAT Debenture interest due W Tax due Net Currents Assets Total Net Assets Financed by: Creditors falling due for more than one year 9% Debentures Capital and Reserves Ordinary shares of € 1 each 6% Preference shares of € 1 each Revaluation Reserve Profit and Loss 31/12/2012 Total Capital Employed

900,000 406,500 1,306,500 73,500 39,675 141,750 84,000 (4,200)

83,400 15,450 12,600 9,113 12,000

Depc.

268,875 268,875

Value 67,500 900,000 137,625 1,105,125

254,925 79,800 334,725

(132,563) 202,162 1,307,287

135,000 Authorised Issued 750,000 525,000 450,000 300,000 1,200,000 825,000 122,250 225,037

1,172,287 1,307,287

Topic 3

Final a/c’s of Manufacturing Solutions

Notes to Accounts Sales Purchase Direct factory wages Accumulated Depreciation Buildings Accumulated Depreciation Plant and Mach. Machinery Disposal loss Plant and Machinery Sale of scrap Closing stock of finished goods Administration Patents Bad Debt. Provision for bad debt Debenture interest Debtors Buildings Revaluation Reserve

1,627,500 720,375 378,690 67,500 195,000

! ! ! # #

11,700 49,500 25,500 17,250 ! 83,100 !

420,000 13,500 420,000 6,750 135,000 33,600 90,000

! ! ! ! ! # !

13,500 9,225 ! 13,500 1,200 3,000 # 300 ! 22,500

" 1,200 " " " 9,750 " 750 " "

262 96,750 787,500 37,500

# 750 # ! 750 ! 300 ! 75,000 # # 84,750 #

9,113 " 11,700 " 37,500 " "

(c) What is the Difference between Direct and Indirect Costs?

" 1,615,800 670,875 " 353,190 " 84,750 Nil 9,225 " 268,875 406,500 3,075 406,500 5,550 141,750 33,150 67,500 750 4,200 10,125 84,000 900,000 122,250

Direct Can be traced in full to the Product being manufactured e.g. Direct Materials, labour, Royalties Paid. Indirect Not directly related to Product Produced. e.g. Manufacturing overheads such as Supervision salary, Administration Overhead such as Telephone and Selling & Distribution costs such as Advertising.

45

46

Graded Accounting Questions – Solutions

4

CELESTIAL SOLUTION

(a) Manufacturing Account of Celestial PLC for the year ended 31/12/2012 € Opening Stock of raw materials 1/1/2012 Purchases of raw material

W

Less Closing Stock of raw materials Cost of raw materials consumed Manufacturing Wages Prime Cost Factory Overheads General Factory overheads Deprec.: - Plant & Machinery - Buildings Factory Cost Add Work in Progress 1/1/2012

W W

W W W

75,900 41,500 13,060

W

(6,100) 7,000

Less Work in Progress 31/12/2012 Less Sale of Scrap Materials Add Loss on Sale of Machinery Cost of Manufacture Gross Profit on Manufacture Current Market value

Trading Profit & Loss Account for year ended 31/12/2012 € Sales Less Cost of Sales Stock of finished goods 1/1/2012 #Current Market value Less Stock of fin. goods 31/12/12 Cost of Goods Sold Gross Profit on Trading Gross Profit on Manufacture Less Expenses Administration Expenses Administration Expenses Selling & Distribution Expenses Selling & Distribution Expenses Operating Profit Debenture Interest due Net Profit before Taxation Taxation on profit Profit after Taxation Dividends Paid Retained Profit Profit and Loss balance 1/1/2012 Profit and Loss balance 31/12/2012

W

(W9)

38,100 850,000 (40,100)

€ 940,150

(848,000) 92,150 51,540 143,690

27,400 38,600 (W10)

(66,000) 77,690 (7,200) 70,490 (15,000) 55,490 (38,200) 17,290 38,800 56,090

€ 34,000 510,300 544,300 (44,000) 500,300 167,700 668,000

130,460 798,460 22,500 820,960 (23,400) 797,560 900 798,460 51,540 850,000

Topic 3

Final a/c’s of Manufacturing Solutions

(b) Balance Sheet as at 31/12/2012

Fixed Assets Land & Buildings Plant & Mach. Current Assets Stocks: Finished Goods Raw Materials Work in Progress Debtors Creditors: amounts falling due within 1 year Trade creditors Accruals Debenture Interest due Taxation Bank

W

€ Cost

€ Dep.

820,000 274,000 1,094,000

— 108,100 108,100

40,100 44,000 23,400 W

W

€ N.B.V. 820,000 165,900 985,900

107,500 42,350 149,850

30,200 13,600 7,200 15,000 12,600 (78,600)

Net Current Assets Total Assets less Current Liabilities Financed by: Creditors: amounts falling due after 1 year 8% Debentures Capital and Reserves Ordinary Shares @ €1 6% Pref. Shares @ 50 Reval. Reserve a/c. Profit & Loss balance Capital Employed

71,250 1,057,150

105,000 Auth’d. 550,000 300,000 850,000 W

Issued 500,000 220,000 720,000 176,060 56,090

952,150 1,057,150

47

48

Graded Accounting Questions – Solutions

Celestial Notes to Accounts Sales Machinery Acc. Depc. Disposal Purs. Crs. C/s of Raw Mats. Drs. Gen factory of O/Hs L & Blgs. Manu. wages Acc Depc. L & Blgs. Rev. Res. Depc. this yr. Mach. C/s of Fin. goods Deb. Interest Corp. Tax

945,500 ! 75,000 16,000 520,500

48,000 680,000 # 18,000 56,000

(c) Calculate the unit cost of Production

600 290,000 ! 8,400 ! 8,400 # 4,800 25,400 39,200 ! 900 75,000 # 15,000 185,700 # 13,060 107,000 400 36,300

! 4,750 ! 16,000 # 41,500 ! 600 ! 15,000 # 4,800 # 4,800 ! 4,750 # 900 # 107,000 ! 18,000 ! 69,060 # 69,060 # 41,100 # 3,800 7,200 15,000

" " " " " " " " " " " " " " " " "

940,150 274,000 108,100 (7,000) 510,300 30,200 44,000 42,350 75,900 820,000 167,700 nil 176,060 41,500 40,100 7,200 15,000

240 # 6,550 ! 410 ! 170 " 6,210 Finished units Production Cost € 798,460 Cost per unit " " " € 128.58 per unit. no of finished goods (units) 6,210

Topic 3

5

Final a/c’s of Manufacturing Solutions

DUCATO SOLUTION

(a) Manufacturing Account of Ducato for year ended 31/12/2012 D. Mats.

D. Labour D. Expenses

O/s of Raw Materials # Purchases # Carriage In. ! Closing Stock

27,000 163,700 1,000

164,700 (37,500) 154,200 58,000 3,000 215,200

Direct Factory wages Hire of Special Equipment Prime Cost

Factory Overheads

W.I.P

less # "

Supervisors wages General Overheads Depc. of Blgs. Depc. of Equip. # O/s of W.I.P. ! C/s of W.I.P.

18,600 24,500 3,900 28,000 15,500 (16,000)

75,000 (500) 289,700 (43,00) 285,400 114,600 400,000

Sale of Scrap Cost of Manufacture Gross Profit on Manufacture Current Market value.

Trading Profit & Loss Account for year ended 31/12/2012 Sales !Cost

438,100

O/s of Fin. Goods # Current Market Value ! Closing Stock Gross Profit on Trading Gross Profit on Manufacturing !Admin. Admin Expenses Palents w/o Depreciation of Buildings loss of fire Selling & Dist. B\D. Prov. Distribution Eths. Bad Debts # Discount Rec. # Bad Debt Recoverable Overprovision Operating Profit ! Debenture Interest Net Profit ! Dividends Preference Ordinary # P & L 1/1/12 P & L 31/12/12

26,000 400,000 (32,000)

27,900 7,500 1,300 500 25,700 200

3,750 19,800

(394,000) 44,100 114,600 158,700

37,200

25,900 600 500 740

(63,100)

1,840 97,440 (4,200) 93,240 (23,550) 69,690 19,000 88,690

49

50

Graded Accounting Questions – Solutions

(b) Balance Sheet as at 31/12/2012 € Fixed Assets Intangible Tangible

Patents L & Blgs. Plant & Mach

Current Assets C/S of Raw Materials W.I.P Fin. Goods Insurance Co. Debtors !Provision !Crs falling due for less than 1 year Creditors Pref. Divs. Due Ord Divs. Due Bank VAT Deb. Int. Due Fin. by: Crs. falling due for more than 1 yr 7% Debentures Capital and Reserves Ordinary Shares Preference Shares P&L 31/12/12

(W)

320,000 140,000

27,000 (1,060)





50,200 80,500

22,500 269,800 59,500 351,800

37,500 16,000 32,000 12,300 25,940

123,740

47,000 1,875 10,475 13,800 4,500 4,200

(81,850)

Auth. 350,000 150,000

Issued 165,000 75,000 88,690

41,890 393,690

65,000

328,690 393,690

Topic 3

Final a/c’s of Manufacturing Solutions

Notes to Accounts Sales Drs. C/s fin. gds. Purs. Crs. C/s of R. mats. Disc. Rec. Gen. O/H Wages Factory Blgs. Ins. Co. loss on fire Patents Acc. Depc. P& M Acc Depc. Blgs. BD. Recov. B. Debts Provision Pref. Div. Ord. Div. Deb. Interest

442,900 31,500 28,000 179,500 41,000 31,500 1,200 25,100 69,000 300,000 12,300 500 30,000 52,500 45,000 500 200 1,800 1,875 9,325 1,050

! ! # # # # ! ! ! #

4,800 4,800 # 500 ! 200 4,000 6,000 ! 19,000 ! 2,800 6,000 6,000 600 600 11,000 30,000 ! 10,000

! 7,500 # 28,000 # 5,200 (3,900/1,300)

! 1,060 # 1,875 # 10,475 # 3,150

(c) Calculate unit cost of Production 1,140 # 240 ! 150 ! 89

" 1,141 units finished.

Cost of Production €285,400 € 250.13 per unit. " " no of finished goods (units) 1,141

" " " " " " " " " " " " " " " " " " " " "

438,100 27,000 32,000 163,700 47,000 37,500 600 24,500 58,000 320,000 12,300 500 22,500 80,500 50,200 500 200 740 over 3,750 19,800 4,200

51

52

Graded Accounting Questions – Solutions

6

SHERIDAN SOLUTION

(a) Manufacturing a/c of Sheridan Ltd for year end 31/12/2012 Direct Materials Opening stock of Raw Materials # Purchases of Raw Materials # Carriage on raw materials ! Closing stock of Raw Materials " Cost of Raw Materials consumed Direct Labour # Factory Wages Direct Expense # Hire of special equipment " Prime Cost Factory Overheads Depreciation of Plant and Machinery Depreciation of Buildings Supervisors salary General Expenses # Opening stock of Work in Progress ! Closing stock of Work in Progress

€ (W)

330,400 2,000

(W) (W)

€ 54,000 332,400 (78,000) 308,400 116,000 6,000 430,400

(W) (W)

56,000 9,600 37,200 38,100

(W)

31,000 (32,000)

! Sale of scrap materials " Cost of Manufacture # Gross profit on Manufacture " Transfer @ Current Market Value

140,900 (1,000) 570,300 (8,600) 561,700 188,300 750,000

Trading Profit and Loss a/c for year ending 31/12/2012 Sales ! Cost of Sales Opening stock of Finished goods # Current Market Value ! Closing stock of Finished goods " Gross Profit on Trading # Profit on Manufacture Less Administration Expenses Administration Expenses Depreciation of Buildings Goodwill written off General Expenses Less Selling and Distribution: Selling Bad Debts # Bad debt Recoverable Overprovision for bad debts Discount " Operating Profit ! Debenture interest " Net Profit ! Dividends " Retained Profit # Profit and Loss " Profit and Loss 31/12/12

876,200 52,000 750,000 (64,000)

(W) (W) (W)

55,800 3,200 15,000 12,700 51,400 300

(W) (W)

(738,000) 138,200 188,300 326,500

(86,700) (51,700) 700 1,500 2,400

(138,400) 4,600 192,700 (8,400) 184,300 (22400) 161,900 38,000 199,900

Topic 3

Final a/c’s of Manufacturing Solutions

53

(b) Balance Sheet as at 31/12/2012 Intangible Fixed: Tangible Fixed:

Goodwill Land and Buildings Plant and Machinery

(W) (W) (W)

Current Assets Stocks 31/12

Raw Materials Work in Progress Finished Goods Debtors ! Provision Insurance Claim due Less: Creditors falling due for less than 1 year Creditors VAT Bank Debenture interest due Net Current Assets Financed by: Creditors falling due for more than 1 year 7 % Debentures Capital and Reserves Ordinary shares of 1 € each 5% Preference shares Revaluation Reserve (W) Profit and Loss a/c 31/12/12

53,200 (2,100)





820,000 280,000 1,100,000

— 161,000 161,000

€ 45,000 820,000 119,000 984,000

78,000 32,000 64,000 51,100 25,600

250,700

97,000 9,000 27,600 8,400

142,000

Authorised 700,000 300,000

Issued 330,000 150,000 480,000 282,800 199900

108,700 1,092,700

130,000

962,700 1,092,700

54

Graded Accounting Questions – Solutions

Notes to Accounts Purchases 359,000 Buildings 600,000 Factory Wages 138,000 Insurance claim Closing stock of Raw Materials 63,000 Creditors 82,000 Goodwill 60,000 Sales 885,800 Closing stock of Finished Goods 56,000 Debtors 63,000 General Expenses 50,200 Acc. Depc. Plant & Mach 105,000 Acc. Depc. Buildings 90,000 Revaluation Reserve 180,000 Bad Debt Recovered Bad Debt Provision for Bad Debt. 3,600 Debenture Interest 2,100

! 5,600 ! 38,000 # 15,000 ! 20,000 # 60,000 # 180,000 ! 22,000

" " " " # 15,000 " # 15,000 " ! 15,000 " ! 9,600 " # 8,000 " ! 9,600 ! 600 # 700 ! 300 " # 600 " (38,100 # 12,700) " # 56,000 " # 12,800 (9,600/3,200 ! 102,800) " # 102,800 " " " ! 2,100 (4% of Debtors 53,200 ! 700) " # 6,300 "

(c) Why are manufacturing accounts prepared? • • • •

To find the cost of manufacturing a product To see if production is worthwhile as opposed to buying finished product To ensure correct allocation and control of overheads. To estimate any profit on manufacture.

330,400 820,000 116,000 25,600 78,000 97,000 45,000 876,200 64,000 53,200 50,800 161,000 Nil 282,800 700 300 over 1,500 8,400

Topic 3

7

Final a/c’s of Manufacturing Solutions

55

FLOTILLA SOLUTION

(a) Manufacturing a/c of Flotilla Year Ended 31/12/2012 Raw Materials used Stock 1 Jan Purchases Carriage In. Stock 31 Dec. Direct Costs Manufacturing Wages Hire of special equipment Prime Cost Factory Overheads Factory Insurance Factory Heat & Power Factory Supervisors Wages Deprec. — Buildings — Plant & Machinery

(W)





40,000 285,000 12,000 337,000 (52,000)

285,000

105,000 22,000 (W) (W) (W)

7,600 24,000 39,000 4,000 24,000

Add — Work-in-Progress 1/1/12 Less — Work-in-Progress 31/12/12 Less Sale of Scrap Materials Cost of Manufacturing Profit of Manufacturing Market Value of Manufactured Goods

127,000 412,000

98,600 510,600 37,000 547,600 (38,600) 509,000 (13,000) 496,000 75,000 571,000

Trading Profit & Loss A/C for Year Ending 31/12/2012 €

Sales Cost of Sales Cost of Manufactured Goods Stock — Finished Goods 1/1/12

571,000 45,000 616,000 (37,000)

Stock Finished Goods 31/12/12 Gross Profit — Trading Gross Profit — Manufacturing Less Expenses Administration Amount Written off Goodwill Depreciation — Buildings — Off. Equip. Insurance Office Salaries Selling and Distribution Provision Bad Debts Advertising Delivery Expenses

(W) (W) (W) (W)

9,600 2,000 8,000 3,800 72,000

95,400

1,908 5,400 34,000 86,000

127,308

€ 856,000

(579,000) 277,000 75,000 352,000

(222,708) 129,292

56

Graded Accounting Questions – Solutions

Add Operating Income Bad Debt Receivable Rent Receivable Investment Income Discount Receivable Operating Profit Less Debenture Interest Profit after Interest & Tax Appropriation: Dividend Paid Profit Retained Profit & Loss Bal. 1/1/12 Profit & Loss Bal. 31/12/12

700 800 9,000 2,600

(W) (W) (W)

13,100 142,392 (11,700) 130,692 (16,500) 114,192 6,900 121,092

(b) Balance Sheet as at 31/12/2012 € Cost

Fixed Assets Intangible: Goodwill Tangible: Buildings Plant & Machinery Office Equipment

400,000 180,000 40,000 620,000

Investment 6% Investments Current Assets Stocks: Raw Materials Work in Progress Finished Goods Debtors Investment Interest Due

52,000 38,600 37,000 (48,400!1,908)

Less Creditors (amounts falling due within one year) VAT Creditors Debenture Interest Due Rent Receivable Prepaid Bank Net Current Assets Financed by: Creditors (amounts falling due after 1 year.) 9% Debentures Capital and Reserves Ordinary Share €1 each 9% Preference Shares €1 each Profit & Loss Balancer Shareholders Funds

15,500 96,800 7,200 1,600 38,300

€ Acc. Dep. 36,000 84,000 28,000 148,00

€ Net 38,400 364,000 96,000 12,000 510,400 150,000 660,400

127,600 46,492 6,000 180,092

(159,400)

20,692 681,092 160,000

Authorised 400,000 200,000 600,000

Issued 300,000 100,000 400,000 121,092

521,092 681,092

Topic 3

Final a/c’s of Manufacturing Solutions

Notes to Accounts Insurance Purs Crs. VAT (cr.) C/S of Raw Mats. Goodwill Imnvestment Interest Bank Rent. Rec. Deb. Interest Bad Debts Discount Cr. Acc. Depc. Blgs. Acc. Depc. Plant Acc. Depc. Office Equip. Debenture Interest Drs. Bad Debt. Recoverable Provision for bad Debts

7,600 275,000 84,000 18,000 42,000 45,000 3,000 41,000 2,400 4,600 4,500 2,100 30,000 60,000 20,000 4,600 48,000

# 3,800 # 10,000 # 12,500 ! 2,500 # 10,000 # 3,000 # 6,000 ! 2,400 ! 1,600 ! 100 # 600 # 600 # 4,000 # 24,000 # 8,000 ! 100 # 700

#

300

! 9,600 !

300

# 7,200 # 300 ! 100 # 2,000

# 7,200 ! 300

" " " " " " " " " " " " " " " " " " "

11,400 285,000 96,800 15,500 52,000 38,400 9,000 38,300 800 11,700 5,400 2,600 36,000 84,000 28,000 11,700 48,400 700 1,908

(c) (i)

Cost of manufacturing per unit Total Cost of manufacturing " _______________________ Units Manufactured €496,000 " ________ 640 " €775 per unit.

(ii) Reduce any or all of the following ! Manufacturing wages ! Factory overheads ! Supervisors wages ! Better buying teams for Raw Materials.

57

TOPIC

4

Debtors and Creditors Control A/C’s Solutions 2 3 4 5 6 7 8

Conlon Clarke Carroll Dunleavy Daly Dooley Curley

Topic 4 Debtors and Creditors Control A/C’s Solutions

2

59

CONLON SOLUTION

(a) Creditors Control Account Balance Returns Invoice Bills Pay. Balance

€ 410 125 60 700 16,681 17,976

Balance Returns Interest Discount Balance

€ 17,320 112 50 84 410 17,976

(b) List of Creditors Balances € Original Balance Add Purchases Cash Purchases Discount Dis. Returns Less Interest Bills Payable Returns

610 150 84 120 18 700 277

€ 16,302

964

995 16,271

(c) Outline the advantage of Control Accounts to a firm.

1. Contra Item A contra item is an offset of a debtor against a creditor where debtor and creditor are the same person 2. Opening Balance €410 • A full payment of a debt followed by a credit note (returns or reduction) • Over payment of a debt • Full payment followed by discount

60

Graded Accounting Questions – Solutions

3

CLARKE SOLUTION

(a) Adjusted Creditors Ledger Control Account Balance b/d Credit Note Balance c/d

€ 664 133 36,541

Balance b/d

37,338 664

Balance b/d Interest Invoice error Disc recd. Disallowed Credit Note Balance c/d Balance b/d

€ 36,530 15 63 36 30 664 37,338 36,541

(b) Adjusted Schedule of Creditors € Balance as per list Add Interest Add Cash Purchases Add Invoice Add Disc Recd. Disallowed Less Credit Note Less Credit Note Net balance as per adjusted control account

(c)

(133) (240)

€ 34,895 69 480 770 36 (373) 35,877

1. Explain what is meant by Accounting Concept. These are the accounting practices or rules that are applied by accountants in the preparation of financial statements. 2. Name 2 fundamental accounting concepts. The Accruals Concept and The Prudence Concept. 3. Illustrate an accounting concept. The accruals concept states that all expenses incurred in particular period are recorded in that period regardless of whether they are paid or not. All incomes earned must be included in the accounts of that period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be recorded in the accounts of 2012 even though it wont be paid until 2013.

Topic 4 Debtors and Creditors Control A/C’s Solutions

4

61

CARROLL SOLUTION

(a) Adjusted Creditors Ledger Control Account Date 1/1/2012

Details Balance b/d Credit Note

€ 800 126

31/12/2012

Balance c/d

1/1/2013

Balance b/d

52,634 53,560 800

Date 1/1/2012

31/12/2012

Details € Balance b/d 52,245 Invoice error 18 Interest 25 Bank error 230 Credit Note 42 Disc. Rec’d Disallowed 200 Balance c/d 800

1/1/2013

Balance b/d

53,560 52,634

(b) Adjusted Schedule of Creditors € Balance as per schedule Add Invoice Interest error Bank error Disc. Recd. disallowed Less Credit Note error Credit Note Balance as per Adjusted Control a/c

720 89 230 200 747 336

€ 51,678

1,239

1,083 51,834

(c) Outline the advantages of controls accounts to a firm.

1. They act as a check on the accuracy of the ledgers by comparing the balance of the control account with the total as per the schedule 2. Errors can be found more easily using Control accounts 3. They are useful when a firm needs to find credit sales or purchases from incomplete records 4. They allow amounts owed by Debtors and owed to Creditors to be ascertained quickly by simply balancing the control accounts

(d) What other forms of verification can be used to check different figures? Bank Reconciliation statement to adjust customers Bank Record with bank statement Trial Balance to check the accuracy of ledger a/cs Final a/cs to calculate profit Assets & liabilities Suspense a/c to identify & correct errors

62

Graded Accounting Questions – Solutions

5

DUNLEAVY SOLUTION

(a) Adjusted Debtors Ledger Capital Account Date

Details Balance b/d Discount Allowed Interest Invoice error Credit Note Balance c/d Balance b/d

€ 15,530 100 5 90 24 580 16,329 15,629

Date Details Balance b/d Credit Note omitted

€ 580 120

Balance c/d

15,629

Balance b/d

16,329 580

(b) Adjusted Schedule of Debtors € Balance as per schedule (original) Add Invoice omitted Cash Sales Discount Disallowed Less Interest Bills Payable Credit Note error Restocking error Balance as per Adjusted Control a/c

650 420 100 13 600 130 240

€ 14,862

1,170

(983) 15,049 ! (15,629 " 580)

(c) Explain the difference between: 1. Bad debts 2. Provision for bad debts.

1. Bad Debts are Debtors who are currently unable to pay, they are bankrupt & must be treated as an expense & taken out of the Asset a/c, Debtors. 2. Provision for Bad Debts is an estimation i.e. % of Debtors that you think will be a bad Debt for next year. It is based on historical experience of non payment in the past. As they have not already occured the account is subtracted from Debtors in the Balance Sheet.

Topic 4 Debtors and Creditors Control A/C’s Solutions

6

DALY SOLUTION

(a) Adjusted Debtors Ledger Control Account Balance Invoice Returns Returns Balance

€ 12,300 480 810 50 400 14,040

Balance Interest Contra Bills Rec. Bal. c/d

€ 400 20 240 500 12,880 14,040

(b) Adjusted List of Debtors Balances € Add less

Original Balance J. Smyth Returns Cr. Note Interest Contra Bills Rec. Cash Sales Corrected Control balance

400 81 16 240 500 600

€ 13,837 480

(1837) 12,480

(c) What are the dangers associated with having a high debtors figure? 1. 2. 3. 4. 5.

Increased risk of bad debts Insufficient cash to pay creditors Need for overdraft facilities for working capital. Cost of Debtors collection department May need to sell long term debts to a factoring firm for collection

(d) Show journal entries for (i) and (ii) 1

2

Sales a/c Debtors a/c Invoice omitted Interest Received a/c Debtors a/c Suspence a/c

480 20

480

16 4

63

64

Graded Accounting Questions – Solutions

7

DOOLEY SOLUTION

(a) Adjusted Debtors Ledger Control a/c 1/1/12 Bal. b/d Discount Disallowed Dishonored Cheque Debtor Recoverable Invoice Bal. c/d Bal. b/d

€ 63,100 280 1,140 1,360 100 1,600 67,580 65,630

1/1/12 Bal. b/d Bills Receivable Returns Interest Bal. c/d Bal. b/d

(b) Adjusted Schedule of Debtors Balance as per Schedule less Bills Rec. Add Discount Disallowed less Returns Add Interest Add Dishonored cheque Add Invoice Add Debtor Recoverable Corrected balance (65,630 " 1,600)

60,256 (400) 174 (340) 340 1,140 1,500 1,360 64,030

(c) Why is it vital to implement strict credit control on debtors? If Debtors increase in size you may be faced with the following: 1. Increased risk of bad debts 2. Insufficient cash to pay creditors 3. Need for overdraft facilities for working capital 4. Cost of Debtors collection department 5. May need to sell long term debts to a factoring firm for collection.

€ 1,600 200 90 60 65,630 67,580 1,600

Topic 4 Debtors and Creditors Control A/C’s Solutions

8

65

CURLEY SOLUTION

(a) Adjusted Creditors Ledger Control Account € 25 9 677 300 80 5,100 6,191

1/1/12 Bal. b/d Interest Cr. note Contra Bills Payable Corrected bal.

1/1/12 Bal. b/d Discount Disallowed Restocking Charge Disc Disallowed

€ 6,100 30 11 50

6,191

(b) Adjusted Schedule of Creditors Original bal. " Interest # Disc Disallowed " Cr. note " Contra " Restocking " Bills Payable # Dishonoured Cheque Corrected Bal.

€ 5,370 (15) 90 (325) (300) (10) (210) 500 5,100

(c) Journal entries Creditors Discount Rec. Suspense a/c

Dr. 50 50 450

Cr. 550

(d) Explain what is meant by leaning on the trade.

Postponing payment of creditors until the very last occasion before they take action such as charge interest or use legal proceedings. Using creditors as a source of finance to run your business & provide you with cash flow.

TOPIC

5

Asset Disposal Revaluation Solution 2 Speedo 3 Fast & Furious 4 Velocity 5 A-Z 6 Auto Accelerator 8 Johno 9 Una Cullen 10 Stuart Trainor

Topic 5

2

Asset Disposal Revaluation Solution

67

SPEEDO CABS SOLUTION

(a)

Vehicles a/c Date 1/1/2013 1/4/2013

Details Balance b/d New Vehicle (No. 4)

1/1/2014 1/9/2014

Balance b/d New Vehicle (No. 5)

1/1/2015

Balance b/d

(b)

€ 118,000 48,000 166,000 126,000 52,000 178,000 136,000

Date Details 1/4/2013 Disposal 31/12/2013 Balance c/d 1/9/2014 Disposal 31/12/2014 Balance c/d

€ 40,000 126,000 166,000 42,000 136,000 178,000

Vehicle Disposal a/c Date 1/4/13 31/12/13

1/9/14

Details Vehicles a/c (No. 3) Profit & Loss a/c

€ 40,000 1,500

Vehicles a/c (No. 1)

41,500 42,000

42,000

(c)

Date 1/4/13 1/4/13

Details Depreciation a/c Trade In Bank (Insurance comp.)

1/9/14 1/9/14 31/12/14

Depreciation a/c Trade In Profit & Loss a/c

€ 9,500 20,000 12,000 41,500 35,700 5,000 1,300 42,000

Provision for Depreciation on Vehicles a/c Date

Details

1/4/13 31/12/13

Disposal Balance c/d

1/9/14 31/12/14

Disposal Balance c/d

€ 9,500 57,150 66,650 35,700 40,850 76,550

Date

Details

1/1/13 31/12/13

Balance b/d Profit & Loss a/c

1/1/14 31/12/14

Balance b/d Profit & Loss a/c

1/1/15

Balance b/d

€ 48,050 18,600 66,650 57,150 19,400 76,550 40,850

68

Graded Accounting Questions – Solutions

Workings

W1 Opening balance on Vehicles a/c 1/1/2013 € Vehicle No. 1 30,000 Entertainment unit 12,000 Vehicle No. 2 36,000 Vehicle No. 3 40,000 118,000 Acc. Depc. 18,000 7,200 14,850 8,000

48,050

Vehicle No. 1 Entertainment unit No. 2 No. 3 No. 4 No. 5 Total Depreciation

Cost € 30,000 12,000 36,000 40,000 48,000 52,000

2009 2010 € € 4,500 4,500 — — — 4,050 — — — — — —

2011 € 4,500 3,600 5,400 2,000 — —

2012 € 4,500 3,600 5,400 6,000 — — 48,050

2013 € 4,500 1,800 5,400 1,500 5,400 — 18,600

2014 Total Dep. € € 3,000 1,200 35,700 5,400 — 9,500 7,200 2,600 19,400

(d) What is meant by Depreciation?

Depreciation is the permanent and gradual decrease in the value of a fixed asset over a period due to wear and tear, obsolescence, use and the passage of time.

(e) Why does a company charge depreciation when calculating a profit?

Depreciation is an expense/cost incurred by this year’s trading activities and even though a non-cash expense should be taken away in calculating this year’s profit.

Topic 5

3

Asset Disposal Revaluation Solution

69

FAST & FURIOUS SOLUTION

Depreciation Chart Vehicle No.

Date Purchased

1

01/07/2009 01/01/2010 2 01/04/2010 3 01/10/2010 4 01/07/2012 5 01/10/2013 Profit & Loss Account

Cost 2009 € 6,000

€ 60,000 6,000 48,000 72,000 80,000 90,000

2010 € 12,000 2,400 7,200 4,800

Depreciation 2011 2012 € € 12,000 6,000 1,200 600 9,600 9,600 14,400 14,400 8,000 69,600

(a)

38,600

2013 €

Disposal € 40,200

9,600 10,800 16,000 4,500 40,900

44,400

Vehicles a/c (Cost) 1/1/12 1/7/12

Balance b/d Bank/Trade in

1/1/13 1/10/13

Balance b/d Bank/Trade in

1/1/14

Balance b/d

(b)

€ 186,000 80,000 266,000 200,000 90,000 290,000 218,000

1/7/12 31/12/12

Disposal Balance

1/10/13 31/12/13

Disposal Balance c/d

€ 66,000 200,000 266,000 72,000 218,000 290,000

Disposal of Vehicles a/c 1/7/12

1/10/13

Vehicles

€ 66,000

1/7/12

Disposal

66,000 72,000

Prov. Deprec. Trade-in Loss on Disposal

1/10/13

Prov. Deprec. Insurance Loss on Disposal

72,000

(c)

€ 40,200 20,000 5,800 66,000 44,400 19,000 8,600 72,000

Provision for Depreciation a/c 1/1/12 31/12/12

Disposal Balance c/d

31/10/13

Disposal Balance c/d

(d) Depreciation is calculated either

€ 40,200 68,000 108,200 44,400 64,500 108,900

1/1/12 31/12/12

Balance b/d P&L

1/1/13 31/12/13

Balance b/d P&L

1/1/14

Balance b/d

€ 69,600 38,600 108,200 68,000 40,900 108,900 64,500

1. On cost/Straight line method The amount written off (depreciated) p.a. is always the same. It is a fixed % of the cost of the asset. 2. On Book Value/Reducing Balance Method The amount written off p.a. is always less than the previous year. The % depreciation is calculated on the worth of the asset (cost less depreciation).

70

Graded Accounting Questions – Solutions

4

VELOCITY VEHICLES SOLUTION

Vehicle (1) (including tachograph) Cost/value 32,000 31,600 25,280 20,224

Depc. 6,400 6,320 5,056 2,359

YR. 07 08 09 10

Depc. 7,600 6,080 4,864 3,891

YR. 08 09 10 11

Depc. 8,800 7,040 1,877

YR. 09 10 11

Vehicle (2) Value 38,000 30,400 24,320 19,456

Vehicle (3) Value 44,000 35,200 28,160

Depreciation Table (1) (2) (3) (4) (5)

1/1/07 1/1/08 1/1/09 1/8/10 1/5/11

32,000 38,000 44,000 46,000 52,000

Acc. Depc. 17,776 13,680 8,800

40,256

(a)

2010 2,359 4,864 7,040 3,833 — 18,096

2011 — 3,891 1,877 8,433 6,933 21,134

Disposal 20,135 17,717

Vehicles a/c Date 1/1/10 1/8/10

Details Balance b/d Trade in Allowance Bank

1/1/11 1/5/11

Balance b/d Bank Trade in Allowance

1/1/12

Balance b/d

(4)

(5)

€ 120,000 16,000 30,000 166,000 128,000 46,000 6,000 180,000 136,000

Date 1/8/10

Details Disposal a/c

€ 38,000

31/12/10

Balance c/d

1/5/11

Disposal a/c

128,000 166,000 44,000

31/12/11

Balance c/d

136,000 180,000

Topic 5

(b)

Asset Disposal Revaluation Solution

71

Vehicle Disposal a/c Date 1/8/10

Details Vehicle a/c (1)

€ 38,000

Date 1/8/10

1/5/11

Vehicle a/c (3)

38,000 44,000

1/5/11

44,000

(c)

Details Dep. A/c Trade In allowance Profit ! Loss a/c (loss)

Dep. a/c Compensation Trade In allowance 31/12/11 Profit ! Loss a/c (loss)

€ 20,135 16,000 1,865 38,000 17,717 18,000 6,000 2,283 44,000

Provision for Depreciation a/c Date Details 1/8/10 Disposal a/c (1) 31/12/10 Balance c/d 1/5/11 Disposal a/c (3) 31/12/11 Balance c/d

€ 20,135 38,217 58,352 17,717 41,634 59,351

Date Details 1/1/10 Balance b/d 31/12/10 Profit ! Loss a/c 1/1/11 Balance b/d 13/12/11 Profit ! Loss a/c 1/1/12

Balance b/d

€ 40,256 18,096 58,352 38,217 21,134 59,351 41,634

72

Graded Accounting Questions – Solutions

5

TRANSPORT SOLUTION (A TO Z)

(1) unit (2) (3) (4) (5)

50,000 5,500 55,000 60,000 65,000 68,000

1/1/05 1/1/07 1/1/06 1/1/07 1/8/09 1/5/10

Vehicle 1 including unit

(a)

Acc. 29,520 * 1,980 26,840 21,600 — — 79,940

}

*31,500

2009 2,389 * 411 5,632 7,680 5,417

2010 — — 4,506 2,048 11,917 9,067 27,538

}

21,529

Disposal 34,300 31,328

2,800

Vehicles a/c 1/1/09 1/8/09

Balance b/d (1) Bank Trade-in

1/1/10 1/5/10

Balance b/d Bank Trade-in

1/1/11

Balance b/d

(b)

170,500 48,000 17,000 235,500 180,000 42,000 26,000 248,000 188,000

1/8/09

Disposal

31/12/09 Balance c/d 1/5/10

Disposal

31/12/10 Balance c/d

55,500 180,000 235,500 60,000 188,000 248,000

Vehicle Disposal Account 1/8/09

Vehicle 1

55,500

1/5/10

Vehicle 3

55,500 60,000

31/12/10 Profit and Loss

(c)

7,328 67,328

1/8/09

Depreciation (3) Trade in 31/12/09 Profit and Loss 1/5/10 1/5/10 1/5/10

Depreciation (5) Trade-in Bank (Insurance)

34,300 17,000 4,200 55,500 31,328 26,000 10,000 67,328

Provision for depreciation Account 1/8/09 Disposal (3) 31/12/09 Balance c/d 1/5/10 Disposal (5) 31/12/10 Balance c/d

34,300 67,169 101,469 31,328 63,379 94,707

1/1/09 Balance b/d (2) 13/12/09 Profit and Loss (4) 1/1/10 Balance b/d 31/12/10 Profit and Loss (6) 1/1/11

Balance b/d

79,940 21,529 101,469 67,169 27,538 94,707 63,379

Topic 5

Asset Disposal Revaluation Solution

Workings for Depreciation Table No. 1

Year 05 06 07 08 09

Cost 50,000 40,000 37,500 30,000 24,000

Depc. 10,000 8,000 7,500 6,000 2,800

Cost 55,000 44,000 35,200 28,160 22,528

Depc. 11,000 8,800 7,040 5,632 4,506

Cost 60,000 48,000 38,400 30,720

Depc. 12,000 9,600 7,680 2,048

Cost 65,000 59,588

Depc. 5,412 11,917

No. 2 Year 06 07 08 09 10 No. 3 Year 07 08 09 10 No. 4 Year 09 10

(d) Profits and Loss a/c extract 31/12/10 Depreciation Profit on Disposal

(27,538) 7,328

Balance Sheet on 31/12/10 Fixed Assets Vehicles

Cost € 188,000

Depc. € 63,379

NBV € 124,621

73

74

Graded Accounting Questions – Solutions

6

AUTO ACCELERATOR SOLUTION

Depreciation Table A Unit B C D E

75,000 15,000 51,000 66,000 81,000 87,000

Acc. 44,280 6,840 21,624 23,760 —

1/1/08 1/1/10 1/7/09 1/1/10 1/7/12 1/4/13

2012 3,072 816 5,875 8,448 8,100 — 26,311

96,504

(a)

2013 — — 4,700 1,690 14,580 13,050 34,020

Disposal 55,008 — 33,898 —

Vehicles a/c 1/1/12 1/7/12

Bal b/d Vehicle (D)

1/1/13 1/4/13

Bal. b/d Vehicle (E)

1/1/14

Bal b/d

207,000 81,000 288,000 198,000 87,000 285,000 219,000

(b)

1/7/12 Vehicle (A) 31/12/12 Bal c/d 1/4/13 Vehicle (C) 31/12/13 Bal c/d

90,000 198,000 288,000 66,000 219,000 285,000

Vehicle Disposal a/c 1/7/12

1/4/13

Vehicle (A)

90,000

1/7/12

Vehicle (C) Profit

90,000 66,000 6,448

Depreciation Allowance Loss

1/4/13

Depreciation Compensation Allowance

72,448

(c)

55,008 33,000 1,992 90,000 33,898 20,550 18,000 72,448

Provision for Depreciation a/c 1/7/12 Disposal (A) 31/12/12 Bal c/d

55,008 67,807 122,815 33,898 67,929 101,827

1/4/13 Disposal C 31/12/13 Bal c/d

1/1/12 Bal b/d 31/12/12 P & L 1/1/13 Bal b/d 31/12/13 P & L 1/1/14

(d) Profit and Loss: Expense Gain

Depreciation Disposal

Balance Sheet: Vehicles €219,000 (Cost)

€67,929 (Depc)

€ 34,020 6,448 €151,071 (Value)

Bal b/d

96,504 26,311 122,815 67,807 34,020 101,827 67,929

Topic 5

Workings for Depreciation Table Vehicle A 2008 2009 2010 2011 2012

75,000 60,000 48,000 38,400 30,720

p/a 15,000 12,000 9,600 7,680 3,072

15,000 10,200 8,160

p/a 4,800 2,040 816

51,000 45,900 36,720 29,376 23,501

p/a 5,100 9,180 7,344 5,875 4,700

66,000 52,800 42,240 33,792

p/a 13,200 10,560 8,448 1,690

81,000 72,900

p/a 8,100 14,580

Unit 2010 2011 2012

Vehicle B 2009 2010 2011 2012 2013

Vehicle C 2010 2011 2012 2013

Vehicle D 2012 2013

Asset Disposal Revaluation Solution

75

76

Graded Accounting Questions – Solutions

8

JOHNO SOLUTION

(a)

Provision for Depreciation Account

31/12/07 Balance c/d

€ 57,600 8,400 66,000 16,800

31/12/08 Balance c/d

16,800 29,760

1/1/06 Revaluation Reserve 31/12/06 Balance c/d

1/1/09 Revaluation Reserve 31/12/09 Balance c/d 1/1/10 Disposal 1/1/10 Revaluation Reserve 31/12/10 Balance c/d

29,760 29,760 14,256 44,016 9,240 5,016 7,200 21,456

1/1/06 Balance b/d 31/12/06 Profit and Loss 1/1/07 Balance b/d 31/12/07 Profit and Loss 1/1/08 Balance b/d 31/12/08 Profit and Loss 1/1/09 Balance b/d 31/12/09 Profit and Loss 1/1/10 Balance b/d 31/12/10 Profit and Loss

€ 57,600 8,400 66,000 8,400 8,400 16,800 16,800 12,960 29,760 29,760 14,256 44,016 14,256 7,200 21,456

Disposal of Land Account 1/1/07 Buildings 31/12/07 Profit and Loss

€ 240,000 30,000 270,000

1/1/07

Bank

€ 270,000 270,000

Disposal of Buildings Account 1/1/10 Buildings 31/12/10 Profit and Loss

€ 462,000 15,240 477,240

1/1/10 1/1/10

Depreciation Bank

€ 9,240 468,000 477,240

Revaluation Reserve Account € 1/1/06 31/2/10

Bal. c/d

356,376

1/1/09 1/1/10

356,376

Land and Buildings Prov. for Depreciation Land and Buildings Prov. for Depreciation Land and Buildings Prov. for Depreciation

€ 90,000 57,600 64,800 29,760 109,200 5,016 356,376

Topic 5

Asset Disposal Revaluation Solution

Land & Buildings 1/1/06 1/1/06

Bal. b/d Reval. Reserve

1/1/07

Bal. b/d

1/1/08

Bal. b/d Bank Bank. Wages

1/1/09

Bal. b/d Reval. Res.

1/1/10

Bal. b/d Reval. Res.

1/1/11

Bal. b/d

€ 570,000 90,000 660,000 660,000 660,000 420,000 150,000 54,000 24,000 648,000 648,000 64,800 712,800 712,800 109,200 822,000 360,000

31/12/06 Bal. c/d

1/1/07 Disposal 31/12/07 Bal. c/d

Fixed Assets land & Buildings Capital and Reserves Revaluation Reserve

€ Depc. 7,200

660,000 240,000 420,000 660,000

31/12/08 Bal. c/d

648,000 648,000

31/12/09 Bal. b/d

712,800 712,800 462,000 360,000 822,000

1/1/10

(b) Balance Sheet extract 31/12/10 € Cost 360,000

€ 660,000

€ NBV 352,800 356,376

Disposal Bal. c/d

77

78

Graded Accounting Questions – Solutions

9

UNA CULLEN SOLUTION Land and Buildings a/c Date 1/1/2005 1/1/2005

Details Balance b/d Revaluation Reserve

1/1/2006

Balance b/d

1/1/2007

Balance b/d Bank Bank Wages

1/1/2008 1/1/2008

Balance b/d Revaluation Reserve

1/1/2009 1/1/2009

Balance b/d Revaluation Reserve

1/1/2010

Balance b/d

€ 868,000 196,000 1,064,000 1,064,000 1,064,000 756,000 504,000 406,000 84,000 1,750,000 1,750,000 175,000 1,925,000 1,925,000 96,600 2,021,600 1,190,000

Date

Details

31/12/2005 Balance c/d 1/2/2006 Disposal 31/12/2006 Balance c/d

€ 1,064,000 1,064,000 308,000 756,000 1,064,000

31/12/2007 Balance c/d

1,750,000 1,750,000

31/12/2008 Balance c/d

1,925,000 1,925,000 831,600 1,190,000 2,021,600

1/2/2009 Disposal 31/12/2009 Balance c/d

Provision for Depreciation on Buildings a/c Date Details 1/1/2005 Revaluation Reserve 31/12/2005 Balance c/d

€ 80,640 15,120 95,760

31/12/2006 Balance c/d

30,240 30,240

31/12/2007 Balance c/d

65,240 65,240 65,240 38,500 103,740 16,632 21,868 23,800 62,300

1/1/2008 Revaluation Reserve 31/12/2008 Balance c/d 1/1/2009 Disposal 1/1/2009 Revaluation Reserve 31/12/2009 Balance c/d

Date Details 1/1/2005 Balance b/d 31/12/2005 Profit and Loss a/c 1/1/2006 Balance b/d 31/12/2006 Profit and Loss a/c 1/1/2007 Balance b/d 31/12/2007 Profit and Loss a/c 1/1/2008 Balance b/d 31/12/2008 Profit and Loss a/c 1/1/2009 Balance b/d 31/12/2009 Profit and Loss a/c

1/1/2010

Balance b/d

€ 80,640 15,120 95,760 15,120 15,120 30,240 30,240 35,000 65,240 65,240 38,500 103,740 38,500 23,800 62,300 23,800

Topic 5

Asset Disposal Revaluation Solution

Disposal of land 1/1/06

Land Profit

€ 308,000 84,000 392,000

1/1/06

Bank

€ 392,000 392,000

Disposal of Building 1/1/09

Building Profit

€ 831,600 137,032 968,632

1/1/09

Bank Depreciation

€ 952,000 16,632 968,632

Land & Building Prov. Depc. Land & Building Prov. Depc. Land & Building Prov. & Depc.

€ 196,000 80,640 175,000 65,240 96,600 21,868 635,348

Revaluation Reserve € 1/1/05 1/1/08 31/12/09 Balance c/d

635,348 635,348

1/1/09

(b) Balance Sheet Extract 31/12/09 Fixed Asset Land and Building Capital and Reserves Revaluation Reserve

Cost €1,190,000

Depc. 23,800

NBV 1,166,200 €635,348

79

80

Graded Accounting Questions – Solutions

10 STUART TRAINOR SOLUTION (a)

Land and Building Account 1/1/06 1/1/06

Balance b/d Revaluation Res.

1/1/07

Balance b/d

1/1/08 1/1/08

Balance b/d Bank Bank Wages

1/1/09 1/1/09

Balance b/d Revaluation Res.

1/1/10 1/1/10

Balance b/d Revaluation Res.

€ 250,000 230,000 480,000 480,000 480,000 360,000 150,000 30,000 20,000 560,000 560,000 140,000 700,000 700,000 50,000 750,000

€ 31/12/06

Balance c/d

1/1/07 31/12/02

Disposal Balance c/d

31/12/08

Balance c/d

480,000 480,000 120,000 360,000 480,000 560,000

31/12/09

Balance c/d

560,000 700,000

31/12/08

Disposal Balance c/d

700,000 450,000 300,000 750,000

Provision for Depreciation on Building Account 1/1/06 Revaluation Res. 31/12/06 Balance c/d

31/12/07 Balance c/d

31/12/08 Balance c/d 1/1/09 Reval Res. 31/12/09 Balance c/d 1/1/10 Disposal 1/1/10 Revaluation Res. 31/12/10 Balance c/d

€ 32,000 7,200 39,200 14,400 14,400 25,600 25,600 25,600 14,000 39,600 9,000 5,000 6,000 20,000

1/1/06 31/12/06

Balance b/d Profit and Loss

1/1/07 31/12/07

Balance b/d Profit and Loss

1/1/08 31/12/08

Balance b/d Profit and Loss

1/1/09 31/12/09

Balance c/d Profit and Loss

1/1/10 31/12/10

Balance b/d Profit and Loss

€ 32,000 7,200 39,200 7,200 7,200 14,400 14,400 11,200 25,600 25,600 14,000 39,600 14,000 6,000

1/1/12

Balance b/d

20,000 6,000

Topic 5

Asset Disposal Revaluation Solution

Disposal of Land Account € 120,000 20,000 140,000

1/1/07 Land 31/12/07 P & L (Profit)

€ 1/1/07

Bank

140,000 140,000

Disposal of Building Account € 450,000 69,000 519,000

1/1/09 Building 31/12/09 P & L (Profit)

1/1/09 1/1/09

Depreciation Bank

€ 9,000 510,000 519,000

Revaluation Reserve Account € 1/1/07 31/12/10 Bal. c/o

482,600

1/1/09 1/1/10

482,600

Land and Building Provision for Dep. Land and Building Provision for Dep. Land and Building Provision for Dep.

(b) Balance Sheet Extract 2010 Fixed Asset Land and Building Capital and Reserves Revaluation Reserve

Cost €300,000

Depc. €6,000

NBV €294,000 €482,600

€ 230,000 32,000 140,000 25,600 50,000 5,000 482,600

81

TOPIC

6

Tabular Statements Solution 2 Mercantile 3 Nordic 4 Othello 5 Polar 6 Remus 7 Sonata 8 Tertius 9 Qualter

Ordinary Shares Share Premium P & L Balance Creditors Expenses due Revaluation Reserve Bank

19,500 401,000

250,000 25,000 75,000 29,000 2,500

600 401,000

1/1/2012 252,000 (15,000) 70,000 (28,000) 68,400 53,000

MERCANTILE SOLUTION

Land & Buildings Depreciation Vehicles Depreciation Stock Debtors Goodwill Insurance Prepaid

2

143,000

143,000

143,000

Jan 128,000 15,000

140,000

15,000

100,000 25,000

140,000

5,000

45,000

Feb 90,000

(2,000)

(160) (1,840)

(2,000)

(2,000)

Mar

1,680 1,680

1,680 1,680

May

17,500 —

(17,500)



Jun

(600) (400)

1,000

400

400

Jul

14,500 15,200

700

15,200

8,000 7,200

Dec

(25,830)

(25,830)

(1,580) (25,830)

(17,000)

(7,250)

Dec

350,000 50,000 33,210 42,160 2,500 143,000 52,580 673,450

31/12/2012 470,000 (7,250) 123,000 (37,800) 66,400 53,400 5,000 700 673,450

Topic 6 Tabular Statements Solution 83

3

84

NORDIC SOLUTION 1/1/2012 300,000 (24,000) 48,000 (18,000) 78,000 96,000 (4,800)

Jan 110,000

475,200

135,000

Ordinary Shares 336,000 Share Premium 14,400 Profit and loss balance 26,400

80,000 20,000

Creditors Bank Expenses due Revaluation Reserve Rent Receivable

70,800 25,200 2,400

35,000

475,200

135,000

Land and Buildings Depreciation Equipment Depreciation Stock Debtors Bad debts provision Goodwill Insurance a/c. (prepaid)

Feb 140,000 24,000

15,000

Mar

April

600

600 (648)

600

(48)

10,000 164,000

1,500

600

(48)

Aug

Oct

Nov

Dec (10,000)

(600)

1,800 1,800

(300)

100

(3,600) 1,800

164,000

June

(800) 500

(48)

(900)

164,000

May

3,600 1,800

(400)

(300)



(16,640)



(600)

34,000 11,000

(1,350) (11,350)

(10,000) (1,350) 3,200

16,640

(45,000)

(600)





(600)

(3,200) (11,350)

(b) Name 3 groups of people who could be interested in a company’s financial affairs and identify the main reason why. • • • •

Banks — To meet interest & Repayments Creditors — for liquidity, ease of getting paid Shareholders — for Receipt of dividends & share price changes Revenue — for levying of Taxation.

31/12/2012 550,000 (10,000) 47,200 (17,500) 78,600 110,352 (4,800) 10,000 450 764,302 450,000 45,400 3,162

105,400 (6,460) 2,400 164,000 400 764,302

Graded Accounting Questions – Solutions

(a)

4

OTHELLO SOLUTION

Land & Buildings Acc. Depc. Del. van Acc. Depc. Stock Debtors Bad Debts Provision Insurance prepaid Goodwill Total Assets

Jan 85,000 35,000

723,800

120,000

65,000 22,400 1,800 560,000 37,000 37,600

18,000

7,000 205,000 23,000

130,000 52,000 120,000 120,000

205,000

*P&L 34,750 ! (15,700) " (16,800) " (4,650) " 2,400

Mar

600

Apr

May

June

Aug

(16,000) 5,200

(900)

Sep

Oct

Nov

(15,700)

4,000 6,500

(16,800) (2,500)

6,600 600

(900)

1,500

600

(900) (810)

6,600

3,900

(90)

(900)

Dec

(4,650) (10,800) (12,000)

1,200 2,700 6,600

(10,800)



10,500



48,300

9,000

(13,500)

(48,300)



1,500

10,500

10,000 3,500



(2,500)

37,150

(750)

(1,750)

*(34,750)

(2,500)

(2,400) 37,150

31/12/12 855,000 (15,700) 76,000 (33,100) 35,100 91,100 (3,000) 2,750 7,000 1,015,150 75,190 68,450 1,800 700,000 92,500 (43,090) 120,000 300 1,015,150

Tabular Statements Solution

723,800

Feb 180,000

Topic 6

Creditors Bank Expenses Due Ordinary Shares Share Premium P&L a/c. Reval. Reserve. Rent Rec. prepaid. Total liabs.

1/1/12 590,000 (35,000) 88,000 (28,000) 36,000 75,000 (3,000) 800

85

349,000 #900

180,000 35,000 51,000 61,000 19,000 3,000

349,000

76,000 (22,000) 25,000 61,000 60,000 (3,000)

100,000 "720

25,000

60,000 15,000

100,000

18,000

2,000

Jan 80,000

1,920 #5,000 !

(480)

2,400

1,920

1,920

Mar

(40)

(40)

(40)

500 (540)

Apr

810 1,200

390

1,200 1,200

May

(240) (5,180)

160 (400)

(240)

(700) 460

Jun



12,000

(12,000)



Aug

Double Entry works on the principle that there are two sides to every transaction, a giving and a receiving aspect. The debit side is for receiving with the credit side for the giving. Example: Purchased goods on credit: Debit the purchases account as we are receiving the goods Credit the creditors account as they are giving the goods

(b) Explain, with the aid of an example, how the principle of double entry works.

P & L for dec.

Ordinary Shares Share Premium P & L Balance Creditors Bank Expenses due Revaluation Reserve Rent Rec.

Equipment Depreciation Goodwill Stock Debtors Bad Debts Provision Insurance

1/1/2012 160,000 (8,000)

POLAR SOLUTION

Land & Buildings Depreciation

(a)

5



(25,000)

20,000 5,000



Oct

(1,920)

(1,920)

(1,920)

(1,920)

Nov

68,000 (720) 62,100

(5,180)

(900) 62,100

Dec 60,000 8,000 (5,000)

260,000 55,000 36,340 85,600 3,990 3,000 68,000 90 512,020

(5,000) 75,300 (21,540) 27,000 61,500 77,460 (3,000) 300 512,020

31/12/2012 300,000

86 Graded Accounting Questions – Solutions

588,700

406,000 19,600 40,600 85,400 32,200 4,900

187,600

53,200

112,000 22,400

187,600

588,700

273,000

273,000

273,000

Feb 238,000 35,000

(2,100)

(2,100)

(2,100)

(2,100)

Mar

Apr

6,720 2,800

(3,920)

2,800 2,800

May

378

(882)

1,260

378

378

Jun

Solutions include 1. Sell off Investments 2. Sale and lease back 3. Restrict credit 4. Improve stock control

Overtrading means that the firm is trying to finance too much sales from too little resources. The firm has too many debtors and not enough cash. Overtrading is identified by a worsening liquidity situation.

(112)

(112)

(112)

896 (1,008)

(b) What is meant by overtrading? How can it be corrected?

Ordinary Shares Share Premium P & L Balance Creditors Bank Expenses due Revaluation Reserve Rent Rec.

14,000

5,600

Jan 168,000

98,000 126,000 (6,300)

1/1/2012 364,000 (35,000) 70,000 (28,000)

REMUS SOLUTION

Land & Buildings Depreciation Equipment Depreciation Goodwill Stock Debtors Bad Debts Provision Insurance

(a)

6

(560)

140 (700)

(560)

(1,260) 700

Jul



25,900

(25,900)



Aug



(56,000)

42,000 14,000



Oct

(378)

(378)

(378)

(378)

Nov

(5,376) (26,880)

(21,504)

(2,100) (26,880)

(13,580)

(11,200)

Dec

560,000 56,000 (7,616) 137,900 (3,080) 4,900 273,000 1,344 1,022,448

31/12/2012 770,000 (11,200) 68,740 (40,880) 5,600 98,896 138,992 (8,400) 700 1,022,448

Topic 6 Tabular Statements Solution 87

SONATA SOLUTION

88

7

1/1/2012 Land & Building 290,000 Depreciation (24,000) Equipment 20,000 Depreciation (10,000) Goodwill 40,000 Stock 86,000 Debtors 90,000 Bad Debts Provision (4,500) Insurance 487,500 Ordinary Shares Share Premium P & L Balance Creditors Bank Expenses due Revaluation Reserve Rent Rec.

350,000 20,000 43,000 19,000 54,000 1,500

487,500 P & L Dec #14,400 Acc. Buildings Depc. 24,000

Jan 190,000

2,000 24,000

216,000

Feb

25,000

25,000

160,000 40,000 16,000

216,000 #2,470 #14,400

25,000

25,000 #1,050

Mar

Apr

3,000 (600)

2,400 #3,386

Jun

1,200 (1,350)

2,400

2,400

May

— 90,000 6,000

(150)

(b) Name and explain 3 fundamental accounting concepts.

1,400 1,400

(2,400)



(48,000) (400)

(150) * **

Aug

Oct

Nov

(800) 300

8,000 7,200

(500)

15,200

(2,400)

(150)

(96,000)

— "1,600 ! !

Jul

1,800 1,400 19,706 9,600

(2,400)

(2,400)

48,000



100 (600)

(500)

700

Dec 31/12/2012 120,000 600,000 9,600** (14,400) 27,200 (2,470) (4,970) 42,000 112,200 112,650 (3,386) (7,886) (1,050) 350 122,694 867,144

(19,706)*

14,500

15,200

144,000 (1,600) 122,694

Accruals Concept — All expenses incurred in a particular period must be included in that period paid or not, similarly income earned. Going Conern — Business continues to trade as an entity i.e continuity of existence Prudence Concept — Err on the side of caution i.e conservative accounting figures used such as stock valued at the lower of cost and net book value

600,000 66,000 (21,056) 59,400 17,100 1,500 144,000 200 867,144

Graded Accounting Questions – Solutions

(a)

162,000

22,550 1,750 14,750 375 100,000 12,500 10,075 39,250

30,000 6,000

3,250

39,250

(275)

(275)

375 (375)

(275)

(275)

Mar

— 1,280

800

480

1,280

(4,000) 5,280

April

3,000

750

2,250

3,000

3,000

June

*Profit and Loss. 5,825 ! 1,125 " 1,850 " 2,850

27,500 27,500

27,500

162,000

1,750

7,500

Feb 30,000

(600)

(75)

(525)

(600)

(600)

July

(b) Current ratio on 31/12/12 62,729 : 58,894 is 1.065:1 considerably worse than last yrs 1.5; • Tertius is barely solvent, has cash flow problems • Care taken to avoid possibility of receiver appointed.

(b) Has Tertius got liquidity problems?

Creditors VAT Bank Expense Due Share Capital Share Premium P. & L. Revaluation Res.

Jan 17,500 10,000

1/1/2012 82,500 (10,000) 24,500 (4,500) 10,000 32,500 27,500 (1,100) 600

TERTIUS SOLUTION

Land and Blgs. Acc. Depc. Vehicles Acc. Depc. Goodwill Closing Stock Debtors Prov. for B/Ds Insurance P. P.

(a)

8

(76)

(40)

(36)

(76)

300 (376)

Aug



(7,800)

7,800



Sept

1,000

1,250

(250)

1,000

1,000

Oct

6,100

(400)

6,500

6,100

5,500 600

Nov

(5,825)

(5,825)*

(5,825)

(2,850)

(1,125)

(1,850)

Dec

25,800 2,194 30,900 — 130,000 18,500 (1,540) 27,500 233,354

233,354

31/12/2012 130,000 (1,850) 37,500 (5,025) 10,000 30,550 32,804 (1,375) 750

Topic 6 Tabular Statements Solution 89

194,200

140,000 28,000

26,200

86,000 86,000

86,000

70,000 16,000

Feb

Using creditors to finance your business Postponing the payment of creditors until the very last day

Dangers • Creditors may demand payment immediately • Creditors may seek to appoint Receiver. • Your credit rating will disimprove. • Cannot avail of better buying price, discounts etc.

• •

(1,200)

(1,200)

(1,200)

(1,200)

Mar

(112)

(112)

(112)

896 (1,008)

April

* Bank ! (8,000) " 5,600 " 350 # 500 ! (2,550)

371,000

22,000 47,000 5,600 4,000 200,000 50,000 42,400

194,200

10,000

Jan 14,200 170,000

(b) What is meant by leaning on the Trade?

Creditors Bank VAT Rent Rec. Share Capital Share Premium P&L a/c Reval. Res.

371,000

1/1/2012 50,000 160,000 (16,000) 91,000 (21,000) 48,000 60,000 (3,000) 2,000

QUALTER SOLUTION

Goodwill Land and Blgs. Acc. Depc. Equipment Acc. Depc. Stock Debtors Provision Insurance

(a)

9

7,600

2,150

8,000

(2,550)

7,600

5,600

2,000

May

46,500

15,000

31,500

46,500

(10,000)

56,500

June

5,600

3,200

2,400

5,600

(6,400) 12,000

Aug

(2,000)

(100)

(1,900)

(2,000)

(2,000)

Sept

19,500

(1,500)

21,000

19,500

15,000 4,500

Nov

(28,830)

(18,430)*

(10,400)

(28,830)

(6,200)

(14,500)

(8,130)

Dec

46,600 95,050 8,000 1,600 340,000 78,000 41,888 86,000 697,138

697,138

31/12/20/12 64,200 456,500 (8,130) 103,480 (29,600) 32,496 80,992 (4,200) 1,400

P&L (14,500) " (8,130) " (6,200) " 10,400 ! (18,430)

1,120

480

(1,600)

1,120

(2,520) 1,400

July

90 Graded Accounting Questions – Solutions

TOPI C

7

Club a/c’s 2 Athlone 3 Bray 4 Clara 5 Dunshaughlin 6 Elphin 7 Ferbane 8 Galway

92

Graded Accounting Questions – Solutions

2

ATHLONE ATHLETICS SOLUTION

(a) Accumulated Fund on 1/1/2012 € Assets: Clubhouse & Grounds Equipment Bar Stock Bar Debtors Investment Income due 7½ Government Investments Levies due Liabilities: Life Membership Bar Creditors Subs. in Advance Levy Reserve Fund Wages due Bank Current Account Loan Loan Interest due Accumulated Fund in 1/1/07

€ 850,000 54,000 4,600 900 150 38,000 1,250 948,900

30,000 2,650 2,000 24,000 1,600 1,560 35,000 2,700

(99,510) €849,390

(b) Income and Expenditure Account for year ending 31/12/12 € Income: Investment Income Catering Profit Bar Profit Subscriptions Entrance Fees Annual Sponsorship Life Membership Expenditure: Sundry Expenses Loan interest Depr. of Equipment Depr. of Clubhouse Surplus of Income over Expenditure

(W) (W) (W) (W)

2,850 1,550 40,090 184,170 17,600 40,000 4,500 290,760

(W)

(W) (W) (W) (W)



96,000 1,080 1,000 25,500

123,580 167,180

Topic 7

Club a/c’s

93

(c) Balance Sheet as on 31/12/2012 € Cost 1,200,000 86,000 1,286,000

Fixed Assets: Clubhouse & Grounds Equipment Investments: 7½% Government Investments Building Society Current Assets: Bar Stock Debtors Bank Less Creditors: Amounts falling due within 1 year. Bar Creditors Subs. prepaid Financed by: Creditors: Amounts falling due after 1 year. Life membership (50,000 ! 5,000) Levy Reserve Fund (24,000 " 75,000) Revaluation Reserve Accumulated Fund 1/1/2012 " Excess Income Capital Employed

€ Depr. 1,000

€ N.B.V. 1,200,000 85,000 1,285,000 38,000 100,000 1,423,000

3,270 2,500

5,200 430 108,710 114,340 (5,770)

40,500 99,000 375,500 849,390 167,180

108,570 1,531,570

515,000 1,016,570 1,531,570

Notes to Accounts: (1) Bar. Sales Purs. Trading (2) Subs. (3) life subs. (4) Investment Interest (5) loan Interest (6) Depc. of Equip. (7) Revaluation Reserve

115,780 75,200 4,600 275,920 35,000 3,000 38,780 54,000 350,000

! ! " " " ! ! " "

900 2,650 75,820 2,000 15,000 150 35,000 32,000 25,500

430 # 115,310 3,270 # 75,820 5,200 # 75,220 ! 115,310 # 40,090 15,000 ! 2,500 ! 75,000 ! 1,250 # 184,170 5,000 # 45,000 2,850 # 2,700 # 3,780 ! 1,080 # 1,000 ! 85,000 # # 375,500

" " ! ! !

(d) The purchase of land costing €250,000 could be funded as follows: • • • • • •

Sell Investments # €38,000. Use Building Society A/c # €70,000. Apply for funding from National Lottery. Use the Levy Reserve Funding. Increase Life Membership Fee, or membership numbers. A Term Loan over five years should be easily granted as the Club is profitable and has adequate security in the form of Clubhouse & Grounds.

94

Graded Accounting Questions – Solutions

3

BRAY BOXING SOLUTION

(a) Accumulated Fund on 1/1/2012

Clubhouse Land Machinery Accumulated Deprec. Machinery Bar Stock Bar Debtors Subscriptions due 8% Investments Investment interest due Bank current account Levies due Bar Creditors Life Membership Levy Reserve Fund Loan Interest due Loan Accumulated Fund 1/1/2012

Assets € 340,000 180,000 34,000

Liabilities €

13,600

10,700 700 750 12,000 250 2,400 420

1,780 6,000 13,000 1,200 20,000 525,640 581,220

581,220

(b) Income and Expenditure Account for year ending 31/12/2012 € Income Bar Gross Profit Subscriptions Life Membership Catering Profit Investment Int. Investment Bonds Int.

W W W

18,330 62,950 5,200 13,160 960 625 101,225

W W

Expenditure Sundry Expenses Loss on Sale of Machinery Interest on Loan Depreciation on Machinery (20% of €60,000) Depreciation on Buildings (2% of €340,000) Excess of Income over Expenditure

W W



61,420 2,100 2,400 12,000 6,800

(84,720) 16,505

(c) Balance Sheet as at 31/12/2012 Fixed Assets Land Clubhouse Machinery Investments (12,000 " 25,000)

€ 180,000 340,000 60,000 580,000

€ 6,800 22,400 29,200

€ 180,000 333,200 37,600 550,800 37,000 587,800

Topic 7 Current Assets Bar Stock Interest on Investments/Bonds due (€625 " €250) Bar Debtors Current Liabilities Bank Overdraft Bar Creditors Subscriptions Prepaid Net Current Assets Financed By Accumulated Fund 1/1/2012 Excess of Income over Expenditure Life Membership Levy Reserve Fund (13,000 " 18,000)

Club a/c’s

95

12,800 875 850 14,525 3,600 3,900 880

(8,380)

6,145 593,945 525,640 16,505 20,800 31,000 593,945

W

Notes to Accounts (1) Bar Profit Sales 109,000 " 850 ! 700 Purs. 90,800 ! 1,780 " 3,900 Trading 10,700 " 92,920 ! 12,800 (2) Subs. 103,000 ! 20,000 ! 880 (3) life subs. 6,000 " 20,000 ! 5,200 (4) loan interest 23,600 ! 20,000 # 3,600 (5) 8% Investment income 960 " 250 ! 960 (6) 5% Bonds 5% of 25,000 for 6 months (7) Disposal 8,000 ! 3,200 (2 years) (8) Acc. Depreciation 13,600 ! 3,200 " 12,000 (9) Machinery 34,000 " 34,000 ! 8,000

# 90,820 ! 18,000 ! 2,400

# 4,800

109,150 # 92,920 # 18,330 ! 109,150 # 62,950 ! 420 ! 750 # 20,800 # 1,200 # 250 # 625 # ! 6,900 # (2,100) loss 22,400 # 60,000 #

(d) The Club intends to undertake Capital Expenditure of €80,000 in the year 2012. Would you anticipate any difficulties in the funding of such a project? Funding for a Capital Expenditure Programme can be sourced as follows: Realisation/Sale of Investments: Term Loan Capital Required:

€ 37,000 43,000 80,000

The Club should have no difficulty in obtaining the required funding for the following reasons: 1. Investment can be sold realising €37,000. 2. A Term Loan (€43,000), possibly over 3/5 years, should be easily obtained from any financial institution, as Club is a profitable concern with excellent security in the form of its Land and Clubhouse. 3. Based on the financial results for the year 2012, the Club had a Profit/Excess of Income of €16,505. When this is added to the Depreciation €18,800, a non-cash item, it would indicate a Cash Inflow from Operating Activities in the region of €35,305. This shows that the Club, based on existing performance, is even capable of repaying the Term Loan within 2 years.

96

Graded Accounting Questions – Solutions

4

CLARA CURLING SOLUTION

(a) Accumulated Fund on 1/1/2012 Assets

liabilities

Clubhouse Equipment Bar Stock Bar Debtors 8% Gov. Investments Interest Due Levies Due life subs. Subs. prepaid Bar Creditors Wages due Bank Current loan Interest Due levy Fund Accumulated Fund

290,000 15,000 4,100 260 16,000 420 1,000 36,000 1,050 1,450 200 1,850 16,000 800 40,000

326,780

(97,350) 229,430

(b) Income & Expenditure for year ending 31/12/2012 Income

Expenditure

Bar Profit Subs. life membership Catering profit Sponsorship Entrance fees Investment Income Coaching (!200) loan interest Depreciation Equipment Depreciation Clubhouse Surplus 1/E

2,950 26,450 4,200 1,700 4,800 700 1,280 1,400 400 2,300 5,800

42,080

(9,900) 32,180

(c) Balance Sheet on 31/12/2012 Fixed Assets

Clubhouse Equipment 8% Investment

Current Assets

Bank Bar Stock Bar Debtors Bar Creditors Subs. Prepaid

CRS falling Due Financed by

Accumulated Fund Surplus 1/E Revaluation Reserve life membership Levy Reserve Fund

€ 450,000 23,000 19,620 2,800 140 250 1,800

€ — 2,300

€ 450,000 20,700 16,000 486,700

22,560 (2,050) 229,430 32,180 165,800 37,800 42,000

20,510 507,210

507,210

Topic 7

Club a/c’s

97

Notes to Accounts: Subs. life Subs. • Bar Sales • Bar Purchases Bar Trading Investment income loan interest Equipment Depc. Revaluations Reserve

36,200 " 1,050 ! 6,000 ! 1,800 ! 2,000 ! 1,000 36,000 " 6,000 ! 4,200 12,400 " 140 ! 260 9,230 " 250 ! 1,450 *12,280! (4,100 " *8,030 ! 2,800) 1,700 ! 420 # 1,280/8 $ 100 Investment 100% 1,200 ! 400 this yr/800 due 1/1/ 15,000 " 8,000/10 160,000 " 5,800

# # # # # #

26,450 37,800 12,280* 8,030* 2,950 16,000

# 2,300 p.a. # 165,800

(d) Indicate the points you, as treasurer, would made to a proposal to reduce subscriptions by 10% • • • • •

If subs. were reduced by 10% ! loss of €2,645 income Surplus of €32,180 indicates club could afford reduction Investments €16,000 available to compensate Bank a/c €19,620 shows further available funds. Capital life subs. €37,800 available for current use.

98

Graded Accounting Questions – Solutions

5

DUNSHAUGHLIN DRAUGHTS SOLUTION

(a) Accumulated fund on 1/1/2012

Clubhouse & Land Equipment Provision for Deprec. on Equipment Bar Stocks Life Membership Bar Creditors Bar Debtors Levy Reserve Fund Insurance prepaid Catering Stock Bank Balance Investment interest due Levy due Investment Loan Stock of Heating Oil Accumulated Fund

€ Dr 560,000 36,000

€ Cr

20,000

29,000

40,000 7,700

100

8,000

400 1,000

1,300

250 200 20,000 400 €647,350

12,000 558,350 €647,350

Notes to Accounts (1) Bar Profit Sales Purs. Trading (2) Subs. (3) 7.5% Investment (4) Interest on loan (5) Equipment (6) Acc. Depc. on Equip. (7) Catering (8) Insurance (9) Depc. Equip. (10) Disposal (11) Light & heat

98,700 64,700 29,000 49,200 1,750 1,150 36,000 20,000 1,000 2,200 2,600 10,000 5,400

" " " ! ! " ! " " " " ! "

300 ! 6,100 ! 63,100 ! 8,000 ! 250 # 230 10,000 " 3,800 ! 1,500 ! 400 ! 500 " 5,000 ! 400 !

100 7,700 22,000 200 1,500

" 1,200 # 70,100 ! 100,100 ! 1,000 # 7½%/100%

14,000 5,000 700 # 1,800 ! 200 700 4,000 600 " 700

4,500

100,100 # 63,100 # 30,000 # 40,000 # 20,000 # 1,380 # 40,000 # 18,800 # 2,700 # 2,400 # 3,800 # # 1,000 (loss) 5,900 #

Topic 7

Club a/c’s

(b) Income and Expenditure account for year ending 31/12/2012 Income Gross Profit on Bar Interest Subscriptions Disco Profit (40,400 ! 14,100) Catering Profit Annual Grant Less Expenditure Light and Heat Insurance Interest on Loan Depreciation Loss on Sale of Equipment

W W W

€ Dr

W

W W W W W

5,900 2,400 1,380 3,800 1,000

€ Cr 30,000 1,500 40,000 26,300 2,700 3,000 103,500

(14,480) 89,020

(c) Dunshaughlin Draughts Balance Sheet on 31/12/12 Fixed Assets Clubhouse Equipment Financial Assets Investment Prize Bonds Current Assets Bar Stock Catering Stock Oil Stock Bar Debtors Insurance prepaid Creditors falling due less than 1 yr Bank Bar Creditors Subs. prepaid. Electricity Due Loan Interest Due Financed by Creditors falling due for more than 1 yr. Acc. Fund " Surplus loan life subs. Levy Fund







40,000

18,800

640,000 21,200 661,200

20,000 20,000

40,000

22,000 700 600 300 200

23,800

1,600 6,100 1,000 700 230

(9,630)

14,170 715,370 558,350 89,020

12,000 40,000 16,000

68,000 715,370

99

Graded Accounting Questions – Solutions

100

(d) What are the main differences between a levy and a subscription? Levy

Subscription

(e) Treasurer • • • •

! Non Regular income ! Not part of ordinary activity ! Appears in Balance sheet ! Example of capital income ! Annual & Regular ! Used for normal expenditure ! Appears in Income & Expenditure

Looks after finances i.e. has control over receipts and payments Maintains proper records Prepares accounts Presents financial report to A.G.M.

Topic 7

6

Club a/c’s

ELPHIN EQUESTRIAN SOLUTION

(a) Accumulated Fund, on 1/1/2012

Clubhouse Land/Stables Machinery Bar Stock Bar Debtors Subscriptions due 8% Investments Investment interest due Levies due Bank current account Bar Creditors Life Membership Levy Reserve Fund Loan Interest due Loan Accumulated Fund 1/1/2012

Assets € 350,000 400,000 44,000 11,700 1,250 1,200 20,000 620 300

Liabilities €

4,400 5,550 16,000 20,000 880 24,000 758,240 829,070

829,070

(b) Income and Expenditure account for year ended 31/12/2012 € Income Bar Gross Profit Subscriptions Life Membership (25%) Annual Grant Catering Profit Investment Interest Investment Bonds Interest Expenditure Sundry Expenses Loss on Sale of Machinery Interest on Loan (12 months) Deprec. on Machinery (20% of € 85,000) Deprec. on Buildings (2% of € 350,000) Excess of Income over Expenditure

W W W

51,340 103,260 5,000 17,500 10,000 1,600 375 189,075

W

W



85,900 7,000 2,640 17,000 7,000

(119,540) 69,535

101

102

Graded Accounting Questions – Solutions

(c) Balance Sheet as at Club 31/12/2012 Cost € 400,000 350,000 85,000 835,000

Fixed Assets: Land & Stables Clubhouse Machinery (€64,000 ! 9,000 " 30,000)

Acc. Dep. € 7,000 17,000 24,000

Investments (€20,000 " €25,000) Current Assets Bar Stock Interest on Investments/Bonds due Bar Debtors Cash at Bank Current Liabilities Bar Creditors Subscriptions Prepaid Net Current Assets Net Assets Financed By: Accumulated fund 1/1/2012 Excess if Income over Expenditure Life Membership Levy Reserve fund (€20,000 " €15,000)

NBV € 400,000 343,000 68,000 811,000 45,000 856,000

9,700 1,395 1,540 18,580 31,215

(W)

8,800 640

(9,440)

21,775 877,775 758,240 69,535 15,000 35,000 877,775

(W)

Notes to Accounts: (1) Bar Profit Sales 127,500 " 1,540 ! Purchases 71,200 " 8,800 ! Bar Trading 11,700 " 74,450* ! (2) Machinery 44,000 " 50,000 ! (3) life subs. 16,000 " 4,000 ! (4) loan interest 12 months # 2,640 ! (5) Investment income 8% 1,200 ! 620 " (6) Subs. 124,400 ! 1,200 ! (7) Investment Interest Due 375 " 1,020

1,250 5,550 9,700 # 76,450 !127,790* 9,000 5,000 3,520 1,020 640 ! 4,000 ! 15,000 ! 300

# 127,790* # 74,450* # 51,340 # 85,000 # 15,000 880 # # 1,600 # 103,260 # 1,395

(d) Special Purpose P&L a/c.

Sometimes nonprofit making organization such as a club prepare a Profit and Loss account for activities that are carried out to make a profit e.g. running a club lottery, dances, bar, restaurants etc. All expenses and revenues relating to that particular activities are entered in a special profit and loss account and the profit is than transferred to the income and expenditure account.

(e) What is the difference between annual subscriptions and levy reserve fund?

Annual subcriptions collected yearly for Revenue purposes i.e. to pay expenses & Run club for the year. Levy Reserve fund is collected over a number of years for a one off capital project such as grounds development.

Topic 7

7

FERBANE FENCING SOLUTION

(a) Accumulated fund on 1/1/2012 Assets 7% Investment Clubhouse Bar Stock Equipment Debtors Current a/c. Debtors a/c Interest due (3) Levy due Liabilities Life subs. Creditors Levy reserve Depreciation Loan Loan interest (6) Acc fund

€ 15,000 194,000 6,700 18,600 240 3,400 15,000 1,050 600



254,590

20,000 5,280 6,840 5,000 12,000 1,500

(50,620) 203,970

(b) Income & Expenditure for year ending 31/12/2012 Income Bar profit (1) Subs. (2) Interest on Deposit Interest on 7% Inv. (3) Interest on 8% Inv. (4) Disco. Profit Profit on Equipment (5) Expenditure Sundry Exps. Int. on Loan (6) Depreciation (7) Surplus 1/E

€ 29,550 31,000 750 1,050 2,400 24,600 100 19,840 500 2,000



89,450

(22,340) 67,110

Club a/c’s

103

104

Graded Accounting Questions – Solutions

(c) Balance Sheet as at 31/12/2012 Fixed Financial

Current

Illegible due

Financed by





Clubhouse Equipment (10) 7% Investments 8% Investments

20,000 15,000 60,000

5,400

Deposit a/c Deposit interest due Current a/c Stock Debtors 8% interest due

15,000 250 3,600 5,300 510 2,400

27,060

4,900 340

(5,240)

Creditors Subscriptions T.N.A

€ 194,000 14,600 75,000 283,600

Accumulated fund " Surplus " levy fund " life subs.

21,820 305,420 203,970 67,110 13,840 20,500 305,420

Notes to Accounts (1) Bar Sales 84,900 " 510 ! Purs. 42,100 " 4,900 " Trading 6,700 " 41,720 " (2) Subs. 39,440 ! 500 ! (3) 7% $ 2 # 2,100 i.e. 1,050 Per annum (4) 8% of 60,000 for ½ yr (5) Sale of Equipment 1,100 ! 1,000 (6) Loan interest 14,000 ! 12,000 # (7) Equipment 18,600 ! 2,600 " (8) Levy fund 6,840 " 7,000 (9) life subs. 20,000 " 500 (10) Provision for Depc. 5,000 ! 1,600 "

240 5,280 12,500 ! 5,300 # 55,620 ! 85,170 600 ! 7,000 ! 340

2,000 i i.e. 500 this yr 4,000 # 20,000 @ 10%

2,000

# # # # # # # # # # # #

85,170 41,720 29,550 31,000 1,050 2,400 100 profit 500 2,000 13,840 20,500 5,400

(d) The club intends to undertake capital expenditure of €60,000 in 2013. What advice would you give for the handling of such a project? Funds are available to finance this project through: • Surplus of €67,110 • Bank deposit €15,000, Current €3,600 • Investments €15,000 & €60,000 • Loan repaid so club is ideal client for further borrowing • Levy fund €13,840 • Bank deposit " investment # €90,000 No problem in Covering €60,000 Capital expenditure

Topic 7

8

GALWAY SOLUTION

(a) Accumulated Fund on 1/1/2012 Assets

Liabs.

Clubhouse Stock Equipment Acc. Depc. Debtors Subs. Due Investment interest Due Investment Bank Levy Due Life Subs. Creditors Levy Fund Wages Due Loan Loan interest due Acc. Fund

€ 300,000 6,000 20,000 (12,000) 566 750 400 24,000 2,000 450 35,000 6,500 40,000 3,500 30,000 W 2,400



342,166

(117,400) 224,766

(b) Income and Expenditure a/c for year ending 31/12/2012 Income

Exp.

Bar profit Inv. interest 5% Inv. interest 6% Catering Subs. Life subs. Disposal profit Sundry Expenses Loan interest Depc. Equipment Depc. Clubhouse Surplus 1/E

W

W W W W W

25,862 1,200 1,050 24,672 67,450 5,500 860 41,500 1,200 8,480 6,000

126,594

(57,180) 69,414

Club a/c’s

105

106

Graded Accounting Questions – Solutions

(c) Balance Sheet on 31/12/2012 Fixed Assets

Financial Current Assets

Crs. falling Due less than 1 yr

Financed by

Clubhouse Equipment 5% Investments 6% Investments

W W

Stock Debtors Bank 6% interest due Creditors Subs. prepaid

300,000 42,400

6,000 (14,720)

24,000 30,000

294,000 27,680 321,680 54,000

5,600 348 25,842 1,050

32,840

7,890 950

(8,840)

Crs falling Due more than 1 yr. Life Subs. W Levy Fund Acc. Fund Surplus 1/E

24,000 399,680

49,500 56,000 224,766 69,414 399,680

Notes to Accounts Investment: 1,600 ! 400 " 1,200 " 5%/100% " Investment Loan interest 3,600 " 2,400 for 12m Acc. Fund/1,200 6m 1/E. Bar Sales 99,652 ! (Cost O/S 6,000 # Purchases 73,390 ! c/s 5,600) Disposal 9,600 ! 5,760 " 3,840 ! 4,700 Subs. 105,600 ! 20,000 ! 950 ! 16,000 ! 450 ! 750 Life Subs. 35,000 # 20,000 ! 5,500 Equipment 20,000 # 32,000 ! 9,600 " 42,400 @ 20% Acc. Depc. 12,000 ! 5,760 # 8,480

" " " " " " " "

24,000 1,200 25,862 860 67,450 49,500 8,480 14,720

(d) The club intends to undertake capital expenditure of €120,000 in 2012. What advice would you give for the funding of such a project? There would be no problem funding this project due to the following: • Surplus of €69,414 more half of Expenditure planned • Bank a/c €25,842 " 20% of payment • Loan Repaid so new borrowing would not be a problem • Sell investments €54,000 almost 50% of expenditure • Use levy fund €56,000, even life subs. €49,500.

TOPI C

8

Service Firm a/c’s of Solutions 2 3 4 5 6 7 8 9 10

Anderson Beautiful Body Overweight Weight Watchers Fat Freddies Live Longer. Jumping Up’n Down Mick & Maggie McGuire Donal Power

108

Graded Accounting Questions – Solutions

2

ANDERSON CLINIC SOLUTION

(a) Profit and loss a/c for year ending 31/12/2012 Income Investment income Medical insurance scheme Profit on sale on equipment Receipts from patients Expenses Interest on mortgage Medical supplies Car expenses Light and heat (!5,128) Stationery Salaries & wages Sub. Physiotherapy wages ("900) Insurance Sponsorship Dep.: Surgery Equipment Vehicle Net Profit

€ W W W W W W

W

€ 9,600 47,100 1,600 94,680 152,980

14,400 24,400 5,200 7,692 3,980 15,200 2,700 7,020 3,100 5,600 7,800 4,400

(101,492) 51,488

(b) Balance Sheet as at 31/12/2012 € Cost

Fixed Assets Surgery Equipment

280,000 52,000 22,000 354,000

Financial Assets Investments (120,000 " 25,000) Current Assets Investment income due Medical insurance scheme due Stock of medical supplies 31/12/12 Bank Fees from patients due

16,800 23,400 13,200 53,400

€ NBV 263,200 28,600 8,800 300,600 145,000 445,600

5,600 4,100 5,200 19,520 560 34,980

W W

Less Creditors: amounts falling due within one year Interest due Wages due Financed by Creditors: amount falling due after more than 1 year Mortgage Capital Add Net Profit Less Drawings

€ Dep.

3,400 900

W

4,300

368,600 51,488 (43,808)

30,680 476,280 100,000 376,280 476,280

Topic 8

Service Firm a/c’s of Solutions

Notes to Accounts Loan Interest Patients Receipts Investment income Medical Insurance Purchase of supplies Equipment Disposal Bank Drawings Insurance

9% of 160,000 # 14,400 94,300 ! 180 8% of 120,000 # 9,600 46,800 ! 3,800 4,600 " 26,400 18,000 ! 5,400 20,000 ! 300 (35,800 ! 1,800) # 34,000 11,400 " 300

! 11,000 " 380 ! 4,000 " 4,100 ! 1,400 ! 14,200 ! 180 " 5,128 # 11,700

" 180

! 5,200

" 4,680 ! 4,680

# # # # # # # # #

3,400 (Due) 94,680 5,600 (Due) 47,100 24,400 1,600 (Profit) 19,520 43,808 7,020

109

110

Graded Accounting Questions – Solutions

3

BEAUTIFUL BODY SOLUTION

(a) Reserves on 1/1/2012 Assets Buildings & grounds (€420,000 ! €25,200) Equipment (€80,000 ! €48,000) Furniture (€90,000 ! €54,000) Investments Stock - health foods for resale Stock - oil Contract cleaning prepaid Cash at bank Less Liabilities Creditors fore supplies Clienta’ Fees in Advance Loan Interest on loan W Issued Capital Reserves



€ 394,800 32,000 36,000 30,000 2,400 540 480 4,200 500,420

3,680 5,400 40,000 2,200 400,000

(451,280) 49,140

(b) Profit and Loss Account of shop for year ending 31/12/2012 Shop Receipts/Sales Less Expenses Cost of Goods sold (€2,400 " €39,600 ! €3,200) Light and heat Insurance Telephone Wages and Salaries



W W

38,800 330 900 200 7,200

€ 68,400

(47,430) 20,970

(c) Profit and Loss Account for year ending 31/12/2012 Income Interest received Profit on health shop Customer’s Fees Less Expenses Wages and Salaries Insurance Light and heat Purchases–supplies Loan Interest Laundry Postage and Telephone Depreciation: Buildings Equipment Furniture Contract Cleaning Net Profit for year Add Reserves 1/1/2012 Profit and Loss balance 31/12/2012



4,250 20,970 221,870 247,090

W W W W W W

W



84,200 6,900 3,370 41,320 800 2,300 2,200 9,800 18,400 18,000 4,580

(191,870) 55,220 49,140 104,360

Topic 8

Service Firm a/c’s of Solutions

111

(d) Balance Sheet as at 31/12/2012

Fixed Assets Buildings & Grounds Equipment Furniture

W W

Financial Assets Investments

€ Cost

€ Dep.

€ NBV

650,000 92,000 90,000 832,000

— 66,400 72,000 138,400

650,000 25,600 18,000 693,600 30,000 723,600

Current Assets Closing Stock - shop goods - oil Cleaning prepaid 31/12/2012 Customers Fees due 31/12/2012

3,200 720 700 780 5,400

("110 cheque)

Less Creditors: amounts falling due within 1 year Bank Overdraft Electricity due 31/12/2012 Advance deposits Creditors for supplies

("110 cheque)

Financed by Share Capital and Reserves Ordinary Shares Revaluation Reserve Profit and Loss balance 31/12/2012

21,760 480 5,200 2,200 Auth’d 600,000

(29,640)

(24,240) 699,360

Issued 400,000 195,000 104,360

699,360 699,360

Notes to Accounts € 1 Loan interest 2 Fees 3 Wages 4 Insurance 5 Light & heat 6 Purchases Supplies 7 Buildings 8 Revaluation Reserve 9 Depc. of Blgs. 10 Contract Cleaning

3,000 221,000 91,400 7,800 540 42,800 420,000 160,000 25,200 4,800

! " ! ! " " " " " "

2,200 5,400 7,200 900 3,400 2,200 70,000 35,000 9,800 480

!

5,200 " 670

! 720 ! 330 " 480 ! 3,680 " 160,000 ! 35,000 ! 700

(e) Explain the purpose of preparing service Firm accounts. • • • • •

For Revenue (tax) requirements Requirement for bank loan and overdraft facilities For valuation and comparison purposes For analysis with different departments Required as a member of an affiliated associated

# # # # # # # # # #

800 221,870 84,200 6,900 3,370 41,320 650,000 195,000 nil 4,580

112

Graded Accounting Questions – Solutions

4

OVERWEIGHT HEALTH SOLUTION

(a) Reserves on 1/1/2012 Assets

Liabilities.

Builders (200,000 ! 8000) Equipment (100,000 ! 40,000) Furniture (50,000 ! 20,000) Contract clearing Stock oil 5% Investment Investment interest Due Fees Due Stock shop. Bank Creditors supplies Fees prepaid Capital Loan Interest Due Reserves 1/1/12

€ 192,000 60,000 30,000 500 580 75,000 500 3,000 1,000 7,450 4,500 5,800 200,000 30,000 4,000



370,030

244,300 125,730

(b) Profit and Loss a/c of Shop for year ending 31/12/2012 € Receipts ! Cost (1,000 " 400 Due. " 14,350 ! 1,730) Gross Profit ! Wages Insurance Telephone Profit

400 425 145

€ 15,400 14,020 1,380

(970) 410

(c) Profit & loss a/c for y/r 31/12/2012 Income

Exps.

Profit from Shop Members fees Investment income Wages & salaries Insurance (!425) Cleaning light & heat Telephone (!145) loan interest Bank Changers Depreciation Buildings Equipment Furniture Purchases solution Net loss for year !Reserves 1/1/12 P & L 31/12/12

(w) (w) (w)

(w) (w)

€ 410 121,350 4,150 110,850 3,825 3,600 1,330 1,305 2,000 100 4,400 20,500 10,000 6,300



125,910

164,210 (38,300) 125,730 87,430

Topic 8

Service Firm a/c’s of Solutions

113

(d) Balance sheet as at 31/12/2012 € Fixed Buildings Equipment Furniture

110,000 50,000

Investments 5% 4% Current Stocks Shop Oil Supplies Fees Due (800 " 200) Cleaning prepaid Investment interest due. !CRS falling Due less then 1yr Creditors centre Shop Bank Fees Prepaid Fixed CRS falling due more then 1yr Share capital Revaluation Reserve "P&L





60,500 30,000

350,000 49,500 20,000 419,500

75,000 20,000 1,730 200 1,100 1,000 250 4,050

8,330

650 400 89,700 2,250

(93,000)

(84,670) 489,830

Auth. 400,000

Issued 200,000 142,400 87,430 429,830

95,000

Notes to Accounts Fees Inv. income Inv interest due Cleaning light & heat loan Interest Purs. Supplies Depc. Equip. Reval. Res. Bank O/D Wages and Salaries

120,000 ! 3,000 " 5,800 " 800 ! 2,250 5% " 4% # 3,750 " 400 3,750 " 400 # 4,150 " 500 ! 600 3,350 " 500 ! 250 950 " 580 ! 200 6,000 / 6 m P & L 2,000 / 12 m Res. 4,000 11,250 ! 4,500 " 650 ! 1,100 20,000 " 3 m @ 20% of 10,000 # 500 130,000 " 8,000 " 4,400 89,400 " 200 " 100 111,250 ! 400

(e) Explain what is meant by enterprise analysis account

# 121,350 4,150 # 4,050 # 3,600 # 1,330 # # # # # #

6,300 20,500 142,400 89,700 110,850

Enterprise analysis accounts are prepared by service providers who wish to break down Activities / Profit between the different sections of their business e.g. health shop & health centre.

114

Graded Accounting Questions – Solutions

5

WEIGHT WATCHERS SOLUTION

(a) Reserves on 1/1/2012 Assets Buildings (240,000 ! 14,400) Equipment (30,000 ! 18,000) Furniture (12,000 ! 5,400) Investments Opening Stock - health foods for resale - heating oil Contract cleaning prepaid Bank 1/1/2012 Less Liabilities Creditors for supplies Clients’ Fees prepaid Loan Interest on loan due Issued Capital Reserves



(W)

3,450 1,800 12,500 1,688 270,000

€ 225,600 12,000 6,600 40,000 3,100 240 640 10,600 298,780

(289,438) 9,342

(b) Profit and Loss Account of shop for year ending 31/12/2012 Shop Receipts/Sales Less Expenses Cost of Goods sold Telephone (3,100 " 20,050 ! 3,700) Wages and Salaries Insurance Light and Heat

€ 19,450 320 5,600 450 600

(W) (W) (W)

€ 38,150

(26,420) 11,730

(c) Profit and Loss Account for year ending 31/12/2012 Income Investment Income Profit on health shop Clients’ Fees Less Expenses Wages and Salaries Insurance Light and Heat Purchases – supplies Interest on loan Laundry Postage and Telephone Depreciation: Buildings Equipment Furniture Contract Cleaning Net Profit for year Add Reserves 1/1/2012 Profit and Loss balance 31/12/2012

W W W W W W W W

1,600 11,730 92,275 105,605

W

45,325 5,950 2,650 7,250 187 2,600 1,520

W

5,200 6,900 1,800 7,250

86,632 18,973 9,342 28,315

Topic 8

Service Firm a/c’s of Solutions

115

(d) Balance Sheet as at 31/12/2012

Fixed Assets Building Equipment Furniture

W W

Financial Assets Investments Current Assets Bank. Closing Stock - shop goods - heating oil Cleaning prepaid 31/12/2012 Clients’ Fees due 31/12/2012 # (475 " 110)

€ Cost

€ Dep.

€ NBV

290,000 34,500 12,000 336,500

– 24,900 7,200 32,100

290,000 9,600 4,800 304,400 40,000 344,400

4,090 3,700 180 700 585 9,255

Less Creditors: amounts falling due within 1 year Electricity due 31/12/20 Clients’ Fees prepaid Creditors for supplies Financed by Share Capital and Reserves Ordinary Share Revaluation Reserve Profit and Loss balance 31/12/2012

90 2,400 3,250

W

Auth’d. 325,000

(5,740)

Issued 270,000 49,600

Notes to Accounts Loan interest Fees Wages Insurance light & heat Purchases Postage & Telephone Buildings Revaluation Reserve Contract Cleaning Bank

1,875 92,400 50,925 6,400 3,100 7,450 1,840 240,000 30,000 7,310 4,200

! 1,688 " 1,800 ! 5,600 ! 450 " 240 " 3,250 ! 320 " 20,000 " 5,200 " 640 ! 110

# # # # " 90 ! 180 ! 600 # ! 3,450 # # " 30,000 # " 14,400 # ! 700 # # "

475 ! 2,400

€ 187 92,275 45,325 5,950 2,650 7,250 1,520 290,000 49,600 7,250 4,090

(e) What factors would a bank manger consider before granting or not granting a €50,000 loan to the business for refurbishing of existing premises? • • • • •

Overdraft of €4,210 currently exists Profit for year only €18,972, poor return. Has buildings €290,000 as security Investments of €40,000 could be used to pay off loan Will this increased expenditure improve business prospects.

3,515 347,915

319,600 28,315 347,915

116

Graded Accounting Questions – Solutions

6

FAT FREDDIES SOLUTION

(a) Reserves on 1/1/12 Assets: Buildings (600,000 ! 24,000) Equipment (300,000 ! 120,000) Furniture (150,000 ! 60,000) Stock Oil Cleaning prepaid 5 % Investments Investment interest due Bank Fees due Liabilities: Clients prepaid Creditors Loan Loan Interest due Capital

€ 576,000 180,000 90,000 3,000 1,740 1,500 225,000 1,500 22,350 9,000 17,400 13,500 90,000 12,000 600,000



1,110,090

(732,900) 377,190

(b) Profit and Loss Account of Shop for year ending 31/12/2012 Receipts Less cost of sales Opening Stock Purchases Add due Less closing stock Gross Profit Less Wages Insurance Telephone Profit on shop

€ 3,000 42,750 400 (1,730) 8,000 1,260 480

€ 146,200

44,420 101,780 9,740 92,040

(c) Profit and Loss account for year ending 31/12/2012 Income Shop Profit Annual Grant Investment interest Clients Fees Less Expenditure Bank charges Insurance (90 %) Telephone (90 %) Wages (!80,000) Loan Interest Cleaning Light and Heat Purchases of supplies Depreciation - Buildings Depreciation - equipment Depreciation - Furniture Profit Add Reserves 1/1/2012 Profit and Loss 31/12/2012

92,040 10,000 11,850 354,050 100 11,340 4,320 145,750 6,000 6,150 4,100 26,830 13,300 61,000 30,000

467,940

308,890 159,050 377,190 536,240

Topic 8

Service Firm a/c’s of Solutions

117

(d) Balance Sheet as at 31/12/2012 Fixed Assets Buildings Equipment Furniture Financial 4% Bonds 5% Investments Current Assets Closing stock (1,730/200) Supplies Cleaning prepaid Bank Clients fees due Interest due Creditors falling due for less than I year Creditors shop Creditors centre Fees prepaid

Cost 850,000 320,000 150,000

Depc. 181,000 90,000

Value 850,000 139,000 60,000 30,000 225,000 1,304,000

1,930 1,100 550 53,520 5,350 11,550

74,000

400 9,560 9,500

(19,460)

Total Net Assets Financed by: Authorised 900,000

Share Capital Profit and Loss balance Revenue Reserve

54,540 1,358,540 Issued 600,000 536,240 222,300 1,358,540

Notes to Accounts Loan Interest 18,000 # 12,000 Fees 350,000 ! 9,000 " 17,400 Investment interest 5% 11,250 " 4% 600 ! 1,800 Cleaning 5,200 " 1,500 ! 550 Light and Heat 2,560 " 1,740 Purchases of supplies 31,870 ! 13,500 " 9,560 Bank 53,820 ! 100 ! 200 Depc. of Equipment 60,000 " 1,000 Revaluation Reserve 185,000 " 13,300 " 24,000

! ! ! !

" 6,000 # 18,000 9,500 " 5,150 # 354,050 1,500 # 11,550 due # 6,150 200 # 4,100 1,100 # 26,830 # 53,520 # 61,000 # 222,300

(e) Would a bank loan €100,000 for Capital investment to Fat Freddies based on your accounts? Give reasons for your answer. Yes based on the following: • Profit in shop €92,040 • Total Profit of centre €159,050 " Reserves €377,190 • Investments & Bonds valued €225,000 " €30,000 • Buildings as security worth €850,000 • Current Asset Ratio of 3.8:1 • No existing debt.

118

Graded Accounting Questions – Solutions

7

LIVE LONGER SOLUTION

Note: Account year ending 30/9/2011 (a) Reserves on 1/10/2010 Assets Buildings and Grounds (€350,000 ! €14,000) Equipment (€80,000 ! €32,000) Furniture (€30,000 ! €12,000) Investments Investment interest due Stock—Health Food (shop) Stock—Oil Contract cleaning prepaid Fees owed by members Bank balance Less Liabilities Creditors for supplies Advance fees from members Loan Interest on loan (6 months) Issued Capital Reserves 1/10/2010

€ 336,000 48,000 18,000 60,000 600 2,800 800 400 2,600 25,000

494,200



8,800 8,300 50,000 2,000 180,000 245,100 494,200

(b) Profit and Loss Account for Shop year end 30/09/2011 € Shop Receipts—Sales Cost of goods sold Stock 1/10/2010 Purchases – shop (€14,700 " €900) Stock 30/9/2011 Gross Profit Wages Insurance Telephone and Postage Profit from Health Shop

2,800 15,600 18,400 3,700 6,000 850 290

€ 28,300

14,700 13,600

7,140 6,460

Topic 8

Service Firm a/c’s of Solutions

(c) Profit and Loss account for year ending 30/9/2011 Income Profit from Health Shop Members Fees Investment Income Less Expenses Wages and Salaries Insurance (!850) Contract Cleaning Light and Heat Telephone and Postage Purchases – health supplies Bank Charges Depreciation – Buildings – Equipment – Furniture Loan Interest Net Profit for the year Add Reserves 1/10/2010 Profit and Loss Balance 30/9/2011

W W W W W W W

W

€ 6,460 245,300 3,600 98,500 7,650 6,600 2,300 2,610 12,800 360 7,000 16,000 6,000 4,000

€ 255,360

163,820 91,540 245,100 336,640

(d) Balance Sheet at 30/9/2011 Fixed Assets Buildings Equipment (€80,000 " €20,000) Furniture

€ Cost W

Investments (€60,000 " €40,000) Current Assets Stocks – Shop – Heating Oil – Health Supplies Member’s Fees due Investment Income due Loan to Staff Member Contract cleaning prepaid Bank

3,700 400 2,200 (1,600 " 480)

Less Creditors, amount due within one year Creditors – Health Centre – Shop Members Advanced Deposit Net Current Assets

1,300 900 4,500

Net Assets Financed by Share Capital Revaluation Reserve Profit & Loss balance 30/9/11

500,000 100,000 30,000 630,000

W

€ Acc. Dep. 48,000 18,000 66,000

€ Net 500,000 52,000 12,000 564,000 100,000 664,000

6,300 2,080 3,000 18,000 500 460 30,340

(6,700)

Authorised € 400,000

23,640 687,640 Issued € 180,000 171,000 336,640 687,640

119

120

Graded Accounting Questions – Solutions

Notes to Accounts Fees Inv. income " Bond interest Total interest Wages/Salaries Cleaning Light and Heat Purs. supplies loan interest Revaluation Reserve Buildings Bank

€ 245,300

242,500 " 8,300 " 1,600 ! 2,600 ! 4,500 # 2,400 " 600 ! 1,200 # 1,800 Due # 1,200 3,600 2,400 " 1,200 # 98,500 122,500 ! 6,000 ! 18,000 # 6,600 6,700 " 400 ! 500 # 2,300 1,900 " 800 ! 400 # 12,800 22,500 " 1,300 ! 8,800 ! 2,200 # 4,000 this yr 6,000 ! 2,000 # 171,000 150,000 " 14,000 " 7,000 # 500,000 350,000 "150,000 # 460 1,300 ! 360 ! 480 #

}

Topic 8

8

Service Firm a/c’s of Solutions

JUMPING UP’N DOWN EXERCISE CENTRE SOLUTION

(a) Reserves on 1/1/2012 Assets: Buildings (!39,600) Equipment (!24,300) Vehicle (!36,000) Stock Oil Cleaning prepaid 5% Investments Bank Liabilities: Clients prepaid Creditors Loan Loan Interest due Capital Accumulated Fund

€ 620,400 29,700 24,000 3,960 1,920 240 36,000 9,900

W

4,800 1,200 48,000 7,560 384,000



726,120

(445,560) 280,560

(b) Profit and Loss Account of Shop for year ending 31/12/2012 € Receipts Less cost of sales Opening stock Purchases Less closing stock Gross Profit Less Wages Insurance Light and Heat Telephone Profit on shop

3,960 33,600 (1,800)

8,640 960 300 420

€ 48,000

(35,760) 12,240

10,320 1,920

121

122

Graded Accounting Questions – Solutions

(c) Profit and Loss account for year ending 31/12/2012 Income Shop Profit Investment interest Clients Fees Less Expenditure Laundry Insurance (!960) Telephone (!420) Wages (!8,640) Loan Interest Cleaning Bad Debt Light and Heat Purchases of supplies Depreciation – Buildings Depreciation – Equipment Depreciation – Vehicle Loss on sale of vehicle Profit Add Reserves 1/1/2012 Profit and Loss 31/12/2012

W W





1,920 1,800 407,400

411,120

W W W W W W

2,400 6,720 1,500 93,960 2,160 3,960 720 5,364 44,040 18,000 10,800 11,040 9,600

210,264 200,856 280,560 481,416

(d) Balance Sheet on 31/12/2012 Fixed Assets Buildings Equipment Vehicle Financial 5% Investments

€ Cost 1,080,000 72,000 50,400 1,202,400

Current Assets 2,160 Closing stock (1,800 " 360) Cleaning prepaid 480 Clients fees due 600 Interests due 600 Creditors falling due for less than 1 year Creditors 2,160 Fees prepaid 6,000 Bank Overdraft 90,540 Electricity due 384 Total Net Assets Financed by: Share Capital Profit and Loss balance Revaluation Reserve

€ Depc. 35,100 5,040 40,140

€ Value 1,080,000 36,900 45,360 1,162,260 36,000 1,198,260

3,840

99,084

(95,244) 1,103,016

Auth. 540,000

Issued 384,000 481,416 237,600 1,103,016

Topic 8

Service Firm a/c’s of Solutions

123

Notes to Accounts Loan to Interest Fees Investment interest due Cleaning Light and Heat Purchase of supplies Vehicle Accumulated Depreciation Disposal Depreciation this year Revaluation Depc of Equipment

9,720 408,000 1,800 4,200 1,920 43,080 42,000

! " ! " " ! "

7,560 4,800 1,200 240 3,720 1,200 8,400

!

6,000 "

600

! ! "

480 360 ! 2,160

300 " 384

60,000 ! 36,000 ! 6,000 ! 8,400 6,000 " 5,040 39,600 " 18,000 " 180,000

(e) Comment on the liquidity position of the centre

# # # # # # # # # # # #

€ 2,160 407,400 600 3,960 5,364 44,040 50,400 5,040 9,600 11,040 237,600 10,800

Serious liquidity problem as current rate is 0.04:1 with the business being entirely financed & dependent on bank O/D facilities. O/D currently over 90,000, so surplus of 200,000 must be used immediately to alleviate cash flow problems. Repayment of O/D should solve liquidity problems and reduce accumulated interest on this loan.

124

Graded Accounting Questions – Solutions

9

MCGUIRE SOLUTION

(a)

Statement of Capital 1/1/2012 Assets Land & Buildings Machinery Investments Milk cheque due Cattle Sheep Fuel Bank Liabilities Electricity due Bank Loan Loan Interest due Capital

(b)

€ 560,000 100,000 40,000 4,400 112,000 34,000 1,400 5,000 700 30,000 2,400



856,800

33,100 823,700

Enterprise Analysis Account – Cattle and Milk Income Sales – Milk – Cattle & Calves (22,000 " 11,600) Beef premium Increase in stock Drawings by family Expenditure Purchases – cattle Dairy wages General farm expenses (60%) Fertiliser Vet fees (! VH1 $ 60%) Gross profit

€ 53,500 33,600 4,600 2,000 1,320 30,000 3,400 17,760 3,840 1,260



95,020

56,260 38,760

Enterprise Analysis Account – Sheep Income Sales – Sheep & Lambs (42,000 " 24,800) Ewe premium Wool Increase in stock Drawings family Expenditure Purchases – sheep General farm expenses (40%) Fertiliser Veterinary Fees (! VH1 $ 40%) Gross profit

€ 66,800 7,600 2,800 4,000 500 36,000 11,840 2,560 840



81,700

51,240 30,460

Topic 8

(c)

Service Firm a/c’s of Solutions

General Profit and Loss Account for year ending 31/12/2012 Income Gross profit – Cattle and milk – Sheep Interest Forestry premium Expenditure Light, heat and fuel (80%) Repairs (80%) Machinery Depreciation Loan interest Net Profit

€ 38,760 30,460 3,200 3,600



76,020

5,040 9,760 16,000 480

31,280 44,740

Notes to Accounts 1. Interest Payable 15 months interest # 8% $ 1.25 years # 10% 110% # 33,000 10% # 3,300 Interest due for last yr. 2,400 Interest for year 2012 Less Drawings 2. Milk sales Add due 31/12 Less due 1/1 Enterprise Account 3. Veterinary fees Less VHI 4. Interest Receivable Add Interest due 5. Light Heat and Fuel Add Stock 1/1 Less due 1/1 Less Stock 31/12 Less Drawings (20% of 6,300) Profit and Loss

(d)





600 (120) #

480

54,000 3,900 (4,400) # 53,500 3,300 (1,200) 2,100 1,600 1,600 3,200 6,700 1,400 (700) (1,100) (1,260) # 5,040

1. Which account, other than drawings, is affected by farm produce used by the family? Drawings Sales

Debited Credited

(Sales are credited instead of Purchases as farm produce is produced rather than Purchased) 2. Prepare McGuire’s drawings account. Drawings a/c Cattle & Milk Sheep Interest Vet fees Heat & light Prepairs Cash Depreciation of Machinery

€ 1,320 500 120 1,200 1,260 2,440 15,400 4,000



26,240

125

126

10 (a)

Graded Accounting Questions – Solutions

DONAL POWER SOLUTION

(i) Enterprise analysis a/c Cattle and Milk for year ending 31/12/2012 €

€ 180,000 58,000 5,000 3,200 246,200

Sales of Cattle Sales to Creamery EU Subsidy Drawings by family Less Cost of Sales Stock of Cattle 1/1/ " Purchases " Vet’s Expenses " Fertilisers " Feedstuffs ! Closing Stock Cattle Profit on Cattle " Milk

50,000 88,000 4,400 6,000 3,600 152,000 (58,000)

(94,000) 152,200

(ii) Enterprise analysis a/c Sheep for year ending 31/12/2012 Sales — sheep EU Subsidy Less Cost of Sales Stock 1/1/12 " Purchases " Vet’s Expenses " Fertilisers " Feedstuffs ! Closing Stock Gross Loss on Sheep

26,400 2,400 28,800 24,000 — 2,200 6,000 5,400 37,600 (8,400)

(29,200) (400)

(iii) Enterprise analysis a/c Bedding Plants for year ending 31/12/2012 Sales Drawings by Family Less Cost of Sales Opening Stock " Purchases " Fertilisers ! Closing Stock Gross Profit on Bedding Plants

54,000 1,600 55,600 — 11,000 2,000 13,000 —

(13,000) 42,600

Topic 8

Service Firm a/c’s of Solutions

(b) Trading and Profit and Loss a/c for year ending 31/12/2012 Profit on Cattle & Milk Loss on Poultry Profit on Strawberries Overall Gross Profit " Income Rent Receivable ! Expenses Wages Rates Insurance Repairs Debenture Interest Bank Charges Deprec. — Buildings — Machinery Net Profit ! Taxation Retained Profit

152,200 (400) 42,600 194,400 12,000 206,400 14,400 8,200 10,200 3,800 4,000 400 25,600 75,000

(141,600) 64,800 (24,000) 40,800

(c) Balance Sheet as at 31/12/2012 Fixed Assets Land " Buildings Machinery

€ Cost 1,400,000 300,000 1,700,000

Current Assets Stocks 31/12 — Cattle — Fertilisers — Poultry — Feedstuffs Rent Receivable due Milk Cheque due EU Subsidy due Bank Less Creditors falling due less than 1yr Creditors Debent. Interest due Taxation due Taxation Assets less Current Liabilities Financed By Capital 1/1 " Revaluation Reserve " Retained Profit ! Drawings Debentures

€ Dep. — 235,000 235,000

€ Net 1,400,000 65,000 1,465,000

58,000 10,000 8,400 4,600 1,800 6,000 7,400 171,480 267,680 43,080 4,000 24,000

71,080

1,180,000 245,600 40,800 (4,800)

196,600 1,661,600

1,461,600 200,000 1,661,600

127

128

Graded Accounting Questions – Solutions

(d) How might power improve the overall profitability of the farm?

The sheep operation should be ceased and the five acres transferred to the other two enterprises. The Bedding Plants seems to be the most profitable, yielding a profit of €42,600 from only 35 acres. The cattle and milk enterprise is profitable, yielding €152,200 but from 260 acres. The farmer, Donal Power, should investigate the possibility of expanding his bedding plant operation contracting his cattle and milk operation. He might also consider agri-tourism for the five acres presently used in sheep production.

(e) Write a brief comment on the profitability of this business.

The Return on Capital employed is not very high (i.e. the profit as a % of the resources invested in the business.) Net Profit " Interest $ 100 Capital Employed (64,800 " 4,000) $ 100 1,661,600 # 4.14%.

This is much too low as risk free investment in the bank would yield a similar return.

TOPI C

9

Cash Flow Statements Solution 2 3 4 5 6 7 8

Mary T Mags Nash Pinnacle On line Quigley Relihan

130

Graded Accounting Questions – Solutions

2

MARY T. SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow Operating Activities Operating Profit Depreciation for year Profit on sale of fixed assets Increases in stock Increases in Debtors Decrease in Creditors Net cash flow from operating active

164,400 49,200 (43,200) (19,200) (16,800) (19,200) 115,200

Cash Flow Statement of Mary T. Plc for the year ended 31/12/2013 € Operating Activities Net cash flow from operating activities Return on Investment and Servicing of Finance Interest paid Taxation Tax paid Capital Expenditure and Financial Investment Sale of fixed assets Purchase of fixed assets Purchase of investments Equity Dividends Dividends paid Net cash flow before liquid resources and financing Financing Repayment of Debentures Issue of ordinary shares Share Premium

€ 115,200 (14,400) (73,200)

74,400 (54,000) (15,600)

4,800 (67,200) (34,800)

(36,000) 72,000 18,000

54,000 19,200

Reconciliation of Net Cash to Movement in Net Debt Increase in cash ! Cash received from Debentures Changes in net debt Net Debt at 1/1/2012 Net Debt at 31/12/2012

19,200 36,000 55,200 (57,600) (2,400)

Workings Tax Depreciation on Buildings Dividends Dividends Net Debt 1/1

58,800 85,200 48,000 45,600 144,000

! ! " ! "

64,800 21,600 16,800 62,400 86,400

" " " "

50,400 90,000 74,400 40,800

# # # # #

Total 73,200 16,800 43,200 67,200 57,600

Topic 9

(b)

1. • • • • • •

Cash Flow Statements Solution

Outline the benefit of preparing a cash flow statement. They highlight chief sources of inflow and outflow of cash Predict possible future flows of cash As part of financial planning They assess the liquidity of the business They show the difference between cash and profit They are a requirement according to company legislation

2. Distinguish between a cash expense and a non cash expense. The following items affect profit but do not affect cash, called non-cash items • Credit sales • Credit purchases • Depreciation • Discounts • Provision for bad debts The following affect cash but not profit • Purchase and sale of fixed assets • Repayment of loans and other liabilities • Receipt of capital/debenture loan Cash is the amount of money available/left over at year end Profit is the difference between the revenue earned and the cost of those goods i.e the money made after all costs are deducted

131

132

Graded Accounting Questions – Solutions

3

MAGS SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow Operating Activities Operating Profit Depreciation for year Profit on sale of fixed assets Increase in stock Increase in Debtors Increase in Creditors Net cash flow from operating activ.

€ 210,000 112,500 (4,500) (22,500) (15,000) 33,000 313,500

Cash Flow Statement of Mags Plc. for the year ended 31/12/2012 € Operating Activities Net cash flow from operating activities Return on Investment and Servicing of Finance Interest paid Taxation Tax paid Capital Expenditure and Financial Investment Sale of fixed assets 52,500 Purchases of fixed assets (112,500) Purchase of investments (45,000) Equity Dividends Dividends paid Nat cash flow before liquid resources and financing Management of Liquid Resources Purchase of Government Securities Financing Repayment of Debentures (157,500) Issue of ordinary shares 60,000 Share Premium 33,000 Change in Cash Reconciliation of Net Cash to Movement in Net Debt Change in cash Government Securities " Cash received from Debentures Change in net debt Net Debt at 1/1/2012 Net Debt at 31/12/2012

(23,700) 18,000 157,500 151,800 (253,500) (101,700)

€ 313,500 (10,200) (57,000)

(105,000) (82,500) 58,800 (18,000)

(64,500) (23,700)

Topic 9

Cash Flow Statements Solution

Workings Tax Depreciation on Machinery Disposal Profit Dividends Net Debt 1/1/2012 Interest

(b)

64,500 270,000 105,000 51,000 270,000 12,000

! ! " ! " "

67,500 90,000 57,000 99,000 16,500 1,800

" 75,000 # " 303,000 # " 52,500 # " 67,500 # # #

Total 57,000 57,000 4,500 82,500 253,500 10,200

1. Explain the term solvency. Solvency • Describes when an organization has sufficient cash available to meet it outstanding debts • If Current Assets are greater than creditors falling due with the year then they are solvent 2. Identify a non-cash expense and a non-cash gain. Non-cash Expense Depreciation Loss on sale of Assets Non-cash gain Profit on sale of Assets Discount Received

133

134

Graded Accounting Questions – Solutions

4

NASH SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow from Operating Activities Operating profit Depreciation charges for the year (72,000 ! 18,000) Profit on sale of machinery Increases in stock Increases in debtors Increases in creditors Net cash inflow from operating activities

€ 168,000 90,000 (3,600) (18,000) (12,000) 26,400 250,800

Cash Flow Statement of Nash Plc for the year ended 31/12/2012 Operating Activities Net cash inflow from operating activities Returns on investment and servicing of finance Interest paid Taxation Corporation tax paid Capital expenditure and financial investment Investment Payments to acquire tangible fixed assets Receipts from sale of fixed assets Equity dividends paid Dividends paid during the year Net cash inflow before liquid resources and financing Management of Liquid Resources Purchase of Government securities Financing Repayment of debentures Receipts from issue of share Receipts from share premium Decrease in cash Reconciliation of Net Cash to Movement in Net Debt Decrease in cash during period Cash used to purchase Government securities Cash used to purchase debentures Net debt at 1/1/2012 (216,000 " 13,200) Net debt at 31/12/2012



€ 250,800 (8,160) (45,600)

(36,000) (90,000) 42,000

(84,000) (66,000) 47,040 (14,400)

(126,000) 48,000 26,400

(51,600) (18,960) (18,960) 14,400 126,000 121,440 (202,800) (81,360)

Topic 9

(b)

Cash Flow Statements Solution

1. Explain the term Accounting Standard This is a method of preparing financial information which is acceptable to the accountancy bodies 2. Identify two Accounting Bodies S.S.A.P. A.S.B. F.R.C.

Statement of Standard Accounting Practice Accounting Standards Board Financial Reporting Council (oversees implementation of acc. standards)

Workings Interest Tax Dividends Machinery Depreciation Disposal

9,600 51,600 40,800 216,000 84,000

" ! ! ! "

1,440 54,000 79,200 72,000 45,600

" 60,000 " 54,000 " 242,400 " 42,000

€ # 8,160 # 45,600 # 66,000 # 45,600 # 3,600

135

136

Graded Accounting Questions – Solutions

5

ON LINE SOLUTION

(a)

1. Abridged Profit and Loss for year ending 31/12/2012 € 184,000 (80,000) 104,000 (46,000) 58,000 (48,000) 10,000 610,000 620,000

Operating Profit " Interest # Profit before Tax " Tax Profit after Tax " Dividends # Profits for year ! P& L 1/1/2012 # P & L 31/12/2012

Reconciliation of Operating Profit to Net Cash Flow Operating Profit ! Stock decrease ! Debtors decrease ! Creditors increase ! Depreciation ! Patents written off " Profit on Disposal Cash flow from Operating Activities

(W)

€ 184,000 84,000 62,000 60,000 120,000 20,000 (14,000) 516,000

2. Cash flow Statement for the year ended 31/12/2012 Cash flow statement € Operating Activities Net Cash flow Ret. on Investment Interest Paid (W) Taxation Tax paid Capital Expenditure Sale of Fixed Assets Pur. of Fixed Assets. (W) Pur. of Inv. Equity Dividends Dividends paid Net cash before liquid resources & financing Management of Liquid Resources Pur. of Gov Securities Financing Share capital Debentures Change in cash

€ 516,000 (82,000) (30,000)

100,000 (480,000) (240,000)

(620,000) (42,000) (258,000) (20,000)

80,000 200,000

280,000 2,000

Topic 9

Cash Flow Statements Solution

Reconciliation of Net Cash to movement in Net Debt Change in cash ! Pur. of Gov Securities " Debentures # Change in net Debt " Net Debt 1/1/2012 # Net Debt 31/12/2012

(b)

2,000 20,000 (200,000) (178,000) (590,000) (768,000)

1. What do the letters ASB and FRC stand for? ASB FRC 2. • • • • •

Accounting Standards Board Financial Reporting Council (oversees implementation of acc. standards)

Name two other agencies that regulate company accounts. The Government EU directives Accounting bodies Stock Exchange Company Acts

Workings: Depreciation Interest Buildings

70,000 " 54,000 " 136,000 # 120,000 20,000 ! 80,000 " 18,000 # 82,000 1,620,000 " 140,000 " 1,960,000 # 480,000

137

138

Graded Accounting Questions – Solutions

6

RELIHAN SOLUTION

(a)

1. Abridged Profit and Loss for year ending 31/12/2012 Operating Profit Less Interest Profit before tax Taxation Profit after tax Dividends for year Retained Profit Profit and Loss balance 1/1/2012 Profit and Loss balance 31/12/2012

€ 135,200 (13,600) 121,600 (48,000) 73,600 (43,200) 30,400 361,600 392,000

Reconciliation on Operating Profit to Net Cash Flow from Operating Activities Operating Profit Depreciation for year Profit on sale of fixed assets Increase in stock Increase on Debtors Decrease in Creditors Net cash flow from operating activities

€ 135,200 120,000 (8,000) (86,400) (48,000) (26,400) 86,400

2. Cash Flow Statement of Relihan Plc for year ended 31/12/2012 € Operating Activities Net cash flow from operating activities Return on Investment and Servicing of Finance Interest paid Taxation Tax paid Capital Expenditure and Financial Investment Sale of fixed assets Purchase of fixed assets Sale of investments Equity Dividends Dividends paid Net cash flow before liquid resources and financing Management of Liquid Resources Government securities Financing Issue of Debentures Issue of ordinary shares Share Premium Change in cash

€ 86,400 (13,600) (40,800)

32,000 (152,000) 80,000

(40,000) (43,200) (51,200) (56,000)

40,000 48,000 14,400

102,400 (4,800)

Topic 9

Cash Flow Statements Solution

139

Reconciliation of Net Cash to Movement in Net Debt Decrease in cash ! Cash used to purchase liquid resources " Cash received from Debentures Change in net debt Net Debt at 1/1/2012 Net Debt at 31/12/2012

€ (4,800) 56,000 (40,000) 11,200 (67,200) (56,000)

Workings Tax Depreciation Disposal Profit Purchase of fixed asset Net Debt 1/1/2012

(b)

31,200 80,000 48,000 392,000 96,000

! " " " "

48,000 24,000 24,000 48,000 56,000

Total " 38,400 # 40,800 " 176,000 # 120,000 8,000 " 32,000 # " 496,000 # 152,000 ! 27,200 # 67,200

1. Explain why earning profit does not always result in a corresponding increase in cash balances. Credit sales/purchases affect profit but do not affect cash. Non cash losses and gains affect profit but not cash Purchase and sale of fixed assets by cash affect cash but not profit Introduction or withdrawal of capital in cash affect cash but not profit. 2. Write a note on the Accounting Standards Board. The Accounting Standards Board issues new accounting standards called FRS ie. Financial Reporting Standards. FRS requires large companies to prepare Cash Flow Statements for each activity period and that individual cash flows be entered under the standard headings (ORTCEMF) according to the activity that gives rise to them.

140

Graded Accounting Questions – Solutions

7

PINNACLE SOLUTION

(a)

1. Abridged Profit & Loss Account for year ending 31/12/2012 Operating Profit Interest for the year Profit before Taxation Taxation for year Profit after Taxation Dividends Retained profit for the year Retained profit on 1/1/ Retained profit on 31/12/

€ 325,360 (14,560) 310,800 (229,600) 81,200 (56,000) 25,200 275,800 301,000

(b) Reconciliation of Operating Profit to Net Cash Flow from Operating Activities Operating Profit Depreciation for year Profit on disposal of fixed assets *Increase in Prepayments Stock increases Debtors decreases Creditors decreases Patent amortised Net Cash inflow from operating activities

€ 325,360 63,000 (35,000) (1,400) (14,000) 19,600 (28,000) 14,000 343,560

2. Cash Flow Statement of Pinnacle plc, for year ended 31/12/2012 € Operating Activities Net Cash Inflow from operating activities Return on Investment & Servicing of Finance Interest Paid Taxation Corporation Tax Paid Capital Expenditure & Financial Investment Sale of Buildings Purchase of Building Purchase of Equipment Equity Dividends Paid Dividends Paid Net cash outflow before liquid resources and financing Management of liquid resources Purchase of Government Securities Financing Issue of Ordinary Shares Share Premium Repayment of Debenture Loan Increase in Cash

€ 343,560 (10,360) (210,000)

98,000 (63,000) (112,000)

(77,000) (77,000) (30,800) (21,000)

140,000 14,000 (84,000)

70,000 18,200

Topic 9

Cash Flow Statements Solution

Reconciliation of net cash flow to movement in net debt. Increase in cash Cash used to increase liquid resources Cash used to repay debentures Change in net debt Net debt at 1/1/2012 Net debt at 31/12/2012

18,200 21,000 84,000 123,200 (163 800) (40,600)

Workings Depreciation 63,000 " (119,000 Buildings Depc. 140,000 ! 42,000 Buildings 616,000 " (98,000 Disposal 133,000 " 70,000 Interest (10,080 ! 4,480) Tax 210,000 ! 229,600 Dividends 77,000 ! 56,000 Net Debt # Deb " cash " Gov. Sec.

(b)

1. • • • • • •

" 98,000 # 21,000) # 42,000 (Blgs.) " 112,000 # 70,000 (Disposal) ! 35,000) " 546,000 # 63,000 (Purchase) " 98,000 # 35,000 (Profit) # 14,560 " 4,200 # 10,360 (Paid) " 229,600 # 210,000 (Paid) " 56,000 # 77,000 (Paid)

What is the purpose of preparing Cash Flow Statements? They highlight chief sources of inflow and outflow of cash Predict possible future flows of cash As part of financial planning They assess the liquidity of the business They show the difference between cash and profit They are a requirement according to company legislation

2. Explain the learn non-cash items and give two examples. Non-cash items affect Profit but do not affect cash The following affect cash but not profit • Purchase and sale of fixed assets • Repayment of loans and other liabilities • Receipt of capital / debenture loan

141

142

Graded Accounting Questions – Solutions

8

QUIGLEY SOLUTION

(a)

1. Abridged Profit & Loss Account for year ending 31/12/2012 Operating Profit Interest Payable Profit before Tax Tax payable Profit after Tax Dividends Retained Profit Profit & Loss @ 1/1/2012 Profit & Loss @ 31/1/2012

€ 208,512 (29,440) 179,072 (104,000) 75,072 (72,000) 3,072 56,608 59,680

(12,800 ! 16,640)

2. Reconciliation of Operating Profit to Net Cash Flow from Operating Activities Operating Profit ! Depreciation " Profit on Disposal ! Amortisation of Patent " Increase in Prepayments ! Increase in Bad Debt Provision " Drs. increase " Stock increase " Crs decrease Net Cash inflow from Operating Activities

€ 208,512 83,200 (22,400) 19,200 (1,600) 128 (3,200) (27,200) (9,600) 247,040

(72,000 ! 11,200)

Cash Flow Statement of Quigley Plc. for ended 31/12/2012 € Operating Activities Net Cash inflow from Operating Activities Returns on Investment and Servicing of Finance Interest paid Taxation Tax paid Capital Expenditure and Financial Investment Purchase of Equipment Cost of Extension Sale of Equipment Sale of Quoted Investments Equity Dividends Dividends paid Net Cash Outflow before Management of Liquid Resources and Financing Management of Liquid Resources Purchase of Government Securities Financing Issue of Shares Repayment of Debenture Decrease in Cash

€ 247,040 (26,240) (84,800)

(168,000) (40,000) 88,000 16,000

(104,000) (48,000) (16,000)

(16,000) 160,000 (96,000)

64,000 32,000

Topic 9 Change in Cash Cash Bank

2011 1,600 (20,800) (19,200)

Cash Flow Statements Solution

143

2012 3,200 9,600 12,800

# 32,000

Reconciliation of Net Cash Flow to Movement in Net Debt Increase in Cash Repayment of Debenture Purchase of Govt. Securities Change in Net Debt Net Debt @ 1/1/2012 Net Debt @ 31/12/2012 Net Debt @ • Cash/Bank • Debentures • Government

€ 32,000 96,000 16,000 144,000 (403,200) (259,200)

01/01/2012 (19,200) (416,000) 32,000 403,200

31/12/2012 12,800 (320,000) 48,000 259,200

Workings Due 1/1/12 ! this yr Due 31/12/12 # Paid 1/1/12 Disposal * Purchase # 31/12/12

Interest 22,400 29,440 (25,600) 26,240 Equipment 360,000 (112,000) 168,000* 416,000

Tax 84,800 104,000 (104,000) 84,800

Dividends 48,000 72,000 (72,000) 48,000

Acc. Depc. 57,600 (46,400) 72,000* Depc. 83,200

L & Blgs. 600,000 80,000 40,000* extension. 720,000

Disposal 112,000 (46,400) (88,000) 22,400

(b) Explain why earning Profit does not always result in a corresponding increase in cost balances. • • • •

Credit sales and purchases affect profit but not cash Non cash losses and gains affect profit but not cash Purchase and sale of fixed assets by cash affect cash but not profit Introduction or withdrawl of capital in cash affect cash but not profit

TOPIC

10 Correction of Errors (Suspense a/c’s) Solutions 2 3 4 5 6 7 8

O’Brien O’Connell O’Driscoll O’Farrell O’Grady O’Halloran O’Leary

Topic 10

2

Correction of Errors (Suspense a/c’s) Solutions

145

Dr. Equipment 75 Purchases Sales Returns 825 Debtors Suspense 8 (Being car parts returned by a customer entered incorrectly in the books) Creditors 15,450 Purchases Returns Suspense (Being correction of incorrect recording of returns and recording of a charge for transport costs) Equipment 1,800 Purchases 18,000 Creditors Suspense 16,200 (Being correction of incorrect recording of the purchase of a motor car on credit) Drawings 1,448 Discount Allowed 52 Debtors (Being recording of an offset of a private debt owed by Tobin against debt owed by a customer to the firm) Sales Commission 4,500 Creditors 5,100 Capital Disc. Received (Being recording of capital introduced used for the purpose of clearing a debt and payment of commission)

Cr.

O’BRIEN SOLUTION

(a) Journal (i)

(ii)

(iii)

(iv)

(v)

(b)

Suspense Account Purchases Creditors

8 16,200 16,208

Creditors Original difference

14,400 1,808 16,208

(c) O’Brien Net Profit

Statement of corrected net profit Original profit as per Profit and Loss account Add Purchases returns Purchases Disc. received Less

Discount Allowed Commission Sales Returns Purchases Correct Net Profit

52 4,500 825 18,000

78,000 1,050 83 600 79,733

(23,377) 56,356

83 825

1,050 14,400

36,000

1,500

9,000 600

146

Graded Accounting Questions – Solutions

(d) Balance Sheet as at 31 December 2012 Fixed Assets Premises Equipment (! 75 ! 1,800) Current Assets Stock (! 1,808) Debtors (" 825 " 1,500) less Creditors falling due less than 1 yr Creditors (! 36,000 " 5,100 " 15,450) Bank

Financed by Capital (! 9,000) Add Net Profit Less Drawings (! 1,448)

(e) Explain with examples:

270,000 100,875 370,875 132,308 89,175 221,483 133,950 52,500 (186,450)

369,000 56,356 (19,448)

35,033 405,908

405,908 405,908

1. Error of commission: Correct amount hosted to incorrect a/c e. g.. T. Allen instead of C. Allen 2. Original Entry: Entered in wrong catagory of a/c as the error was made in book of original entry e.g. Vehicle entered in Purchases a/c.

Topic 10

3

Correction of Errors (Suspense a/c’s) Solutions

O’CONNELL SOLUTION

(a) (i) Suspense Bank (Overdraft brought down on incorrect side) (ii) Sales Cash Debtors Capital (Private sale treated as business sale) (iii) Debtor Bank Discount allowed disallowed Bad Debts (Record of dishonoured cheque and bad debt) (iv) Suspense Bank Vehicle Capital (Capital introduced) (v) Creditors Vehicles Suspense Repairs Drawings Bank (Repairs and drawings omitted)

(b)

€ 1,400

4,900 4,900

1,050

1,050 14,000 21,000

455 455 280 175

Suspense a/c Bank Bank

Dr. 1,400 14,000 15,400

Cr. Creditors Original difference

910 14,490 15,400

€ 1,400

4,900 4,900 1,050 963 87

14,000 21,000

910

455

147

148

Graded Accounting Questions – Solutions

(c) O’Connell Net Profit Original Net Profit Add Discount disallowed Less

Sales Bad Debts Repairs Corrected Net Profit

Statement of corrected net profit 26,250 87 26,337 4,900 1,050 280 (6,230) 20,107

(d) Corrected Balance Sheet Fixed Assets Premises Motor Vehicles (!21,000 ! 455) Furniture and Equipment Current Assets Stock Debtors (!4,900 ! 1,050 " 1,050) Cash ("4,900) Less Creditors falling due within 1 year Creditors ("455 " 14,490) Bank (!1,400 ! 963 ! 14,000 ! 455) Net Current Assets



€ 700,000 56,455 28,000



784,455

29,750 14,700 700 45,150 6,405 26,618

Financed by Capital (!4,900 ! 21,000) Add Net Profit Less Drawings (!175)

(e) What is a suspense account and why does it arise?

(33,023) 12,127 796,582 797,650 20,107 817,757 (21,175)

796,582 796,582

A Suspense a/c is used when you make a mistake in the accounts that prevent the Trial Balance from balancing. This difference is left in the Suspense a/c until these errors are discovered. Errors are corrected through the Suspense a/c.

Topic 10

4

Correction of Errors (Suspense a/c’s) Solutions

149

O’DRISCOLL SOLUTION

(a) Journal (i) Repairs a/c Drawings a/c Premises a/c Suspense a/c (Being cancellation of entry in premises account and recording of payments in drawings and repairs account.) (ii) Creditors a/c Purchases Returns a/c Suspense a/c (Being corrections of incorrect recording of a credit note and recording of a charge for returns.) (iii) Creditors a/c Purchase Returns a/c Suspense a/c (Being a credit note received entered incorrectly in the creditors and purchase returns accounts.) (iv) Debtors a/c Bank a/c Discount disallowed a/c Bad Debt a/c Debtors a/c (Being recording of dishonouring a cheque and recording of a bed debt.) (v) Sales a/c Debtors a/c Cash a/c Bank Capital a/c (Being recording of Capital introduced and cancellation of incorrect entries in sales and debtors accounts.)

(b) O’Driscoll net profit Statement of Corrected Net Profit € Original Net Profit as per books Add Purchase Returns Discount disallowed Less Repairs Purchases Returns Bad debt Sales Corrected Net Profit

216 400 3,800 1,360 5,200 25,200

€ 116,000

616

(35,560) 81,056

Dr. € 3,800 1,920 5,720

Cr. €

11,440 55,040 1,360

10,320

5,200 5,200 25,200 25,200

56,400

216 10,104

4,800 400 5,200 25,200 25,200

150

Graded Accounting Questions – Solutions

(c)

Suspense Account Date

Details Original Difference

€ 77,944

Date

77,944

Details Premises Creditors Creditors

€ 11,440 56,400 10,104 77,944

(d) Corrected Balance Sheet Fixed Assets Premises (!5,720) Fixtures and fittings



Current Assets Stock ("77,944) Debtors (!5,200 " 5,200 " 25,200) Cash Less: Current Liabilities amounts falling due within one year Creditors ("55,040 " 10,320) Bank ("25,200 ! 4,800) Financed by: Capital (!25,200) Add Net Profit Less Drawings (!1,920)

(e)

€ 1,045,720 170,000



1,215,720

66,856 65,200 16,200 148,256 62,040 43,600

(105,640)

42,616 1,258,336

1,215,200 81,056 (37,920) 1,258,336

1. Why do all errors not affect the suspense account? Only errors revealed by the Trial Balance affect suspense such as mathematical errors, Dr. entry but no Cr. & different amounts entered. 2. Identify 2 errors that do not affect the suspense account. • Errors of original entry (€80 entered as €800 on both sides) • Errors of omission (Cash sales €400 not entered in accounts) • Errors of Commission (Correct amount poster to incorrect a/c e.g. Cullen instead of Carty) • Errors of Principle (Purchase of vehicle entered in Purchases)

Topic 10

5

Correction of Errors (Suspense a/c’s) Solutions

151

O’FARRELL SOLUTION (a) Journal (i) Creditors a/c Captial a/c Suspense a/c (Being correction of incorrect recording of a private debt off set against a business debt.) (ii) Creditors a/c Purchase Returns a/c Suspense a/c (Being corrections of incorrect recording of a private debt off set against a business debt.) (iii) Sales Commission a/c Creditors a/c Capital a/c Discount Received a/c (Being recording of capital introduced and used for the purpose of clearing a debt and payment of commission.) (iv) Repairs a/c Drawings a/c Premises a/c Suspense a/c (Being correction of incorrect recording of payment of repairs and drawings.) (v) Bank a/c Discount Disallowed a/c Creditors a/c Creditors a/c Cash a/c (Being recording of dishonoured cheque and subsequent payment in cash.)

(b)

Dr. € 6,550

17,540 340

Suspense Account Details Original Difference

€ 23,840

23,840

Details Creditors/Returns Creditors/Capital Repairs/Drawing/Premises

(c) O’Farrell net profit Statement of Corrected Net Profit Original Net Profit as per books Add Discount received Less Purchase Returns Sales Commission Repairs Discount disallowed Corrected Net Profit



€ 46,500

450

450 46,950

340 2,250 800 40

(3,430) 43,520

€ 17,880 3,400 2,560 23,840

2,250 2,700

800 480 1,280

780 40 400

Cr. € 3,150 3,400

17,880

4,500 450

2,560

820 400

152

Graded Accounting Questions – Solutions

(d) Corrected Balance Sheet

Fixed Assets Premises (!1,280) Furniture and Equipment Currents Assets Stock (including suspense) ("23,840) Debtors Less Creditors falling due within 1 year Creditors ("17,540 " 6,550 " 2,700 ! 820 " 400) Bank ("780 ! 400) Net Current Assets Financed by Capital (!3,150 ! 4,500) Add Net Profit Less Drawings (!480)

Cost €

Acc. Depc. € 171,280 40,000 211,280 10,160 16,000

Net €

211,280

26,160

3,630 3,120 (6,750)

196,150 43,520 (8,980)

(e) Name 4 different types of Error that do not affect the Trial Balance 1. 2. 3. 4. 5.

Omission of transaction from the books Reversal of Entries i.e. DR sales CR Debtors Error of oirginal Entry " €150 entered in books instead of €1,500 Error of Principle " Purchase of fixed asset entered as purchase of stock Error of Commission " correct amount posted to incorrect a/c.

19,410 230,690

230,690 230,690

Topic 10

6

Correction of Errors (Suspense a/c’s) Solutions

O’GRADY SOLUTION

(a) Journal (i)

(ii)

Dr. 930

Bank O/D Creditors Discount Received Cash Creditors (Dishonored cheque)

60 450

Bank O/D Capital Drawings Vehicles Suspense (Vehicle introduced)

33,750 45,000 33,750

(iii)

Capital Hire of labour Prepaid (Consultancy contract work)

(iv)

Creditors Vehicle Repairs Suspense (Repairs to Equipment)

(v)

Purs. Rets. Creditors Suspense (Purchases Returns)

(b)

1,575 6,300 675 675 675

1,800 20,700

Suspense a/c Vehicles

33,750 33,750

Original Bal Repairs Returns

(c) Statement of corrected net profit Net Profit " Disc. Rec. " contract work " Repairs " Purs. Pets # Corrected Profit

121,800 (60) (1,575) (675) (1,800) 117,690

9,225 2,025 22,500 33,750

Cr. 990 450

33,750 45,000 33,750

7,875

2,025

22,500

153

154

Graded Accounting Questions – Solutions

(d) Corrected Balance Sheet Fixed Assets Premises Equipment Vehicles (!45,000 " 33,750 ! 675) Current Assets prepaid Stock (!9,225) Debtors Cash ("450) Less Crs. falling Due Creditors (!990 " 450 " 675 " 20,700) Bank ("930 ! 33,750) Finby. Capital (!7,875 ! 45,000) ! Net Profit " Drawings (!33,750)

900,000 45,000 101,925 1,046,925 6,300 282,825 57,300 1,050

347,475

63,165 79,320

(142,485)

204,990 1,251,915 1,177,875 117,690 (43,650) 1,251,915

(e) What are the limitations of Final Accounts as a means of presentation?

• Based on historical costs rather than current market value. Only monetary aspects displayed e.g. Goodwill often omitted. • Shows external situation but does not show profit from different departments etc. • Emphasis on past results and present position changes by the time accounts are prepared. Different methods of Asset valuation, finance structure etc. • Accounts can be shown to be unrepresentative of usual position, window dress balance sheet, create secret reserves thereby reducing Net Profit.

Topic 10

7

Correction of Errors (Suspense a/c’s) Solutions

O’HALLORAN SOLUTION JOURNAL

(a) Journal Dr. (i)

Bank a/c Suspense a/c (Overdraft on incorrect side)

(ii)

Creditors Equipment Equipment Suspense a/c (Purchase of Equipment)

(iii)

P. Rets. Crs. Suspense (Restocking charge error)

(iv)

(v)

1,100 11,000 9,900 5,000 5,100

Equipment Purchases S. Rets Debtors Suspense (S.Rets incorrectly entered) Capital Cash Disposal (Private asset introduced for cash)

(vi)

Debtors Drawings Discount All (Private Debt offset business debt)

(vi)

Wages Accruals due (Wages due not Recorded)

(vi)

Sales Drs. Capital Bank (Capital Introduced)

(b)

1,200

30 230

1,400

220 30 560

15,600

15,600

Suspence a/c Bank Purs

1,200 9,900 11,100

P.Rets Pur.Rets S Rets Original difference

10,100 7 993 11,100

Cr. 1,200

22,000

10,100

23 230 7 1,200 200 250

560

15,600 15,600

155

156

Graded Accounting Questions – Solutions

(c) Corrected Net Profit Net Profit " Rets. ! Purs. " S. Rets. ! Disposal. ! Discount Allowed " Wages " Sales Corrected Profit

490,000 (5,000) 23 (230) 200 (30) (560) (15,600) 468,803

(d) Corrected Balance Sheet Fixed Assets Premises Equip (!1,100 ! 30 ! 111,000)

1,580,000 1,012,130 2,592,130

Current Assets Stock (940,000 ! 993) Drs. (" 230 " 15,600 " 250) Cash ! 1400

940,993 243,920 11,400

Creditors falling due for less than 1 yr Crs. (!22,000 " 5,100) Bank (!1,200 " 15,600) Accruals

476,900 295,600 560

Financed by: Capital (!15,600 ! 1,200) ! Net Profit " Drawings (!220)

1,196,313

(773,060)

423,253 3,015,383 2,676,800 468,803 (130,220) 3,015,383

Topic 10

8

Correction of Errors (Suspense a/c’s) Solutions

O’LEARY SOLUTION JOURNAL

(a) Journal (i)

Creditors Bank O/D (Payment omitted)

500 1,550

(ii)

Purchase Creditors Closing Stock (Goods in transit)

5,000 5,000

(iii)

Creditors Capital (Private Debt offset business debt)

(iv)

Wages due Wages Bank Rent Receivable prepaid (Wages & Rent omitted)

(v)

(vi)

(vii)

320

210 480

Sales Returns Debtors Closing Stock (Restocking charge) Creditors Repairs Drawings Suspense (Repairs incorrectly entered)

5,700 5,000

350 1,200

Purchases Creditors Equipment P & L/Disposal Debtors Hire Purchase Suspense (Sale of Equipment)

(b)

400 7,300 400 2,800 1,900

Suspense a/c Equipment

1,900

Repairs * Balance

50 1,850

1,550 500

5,000 5,000

320 210

480

5,700 5,000 1,500

50 2,300 3,200

7,300

157

158

Graded Accounting Questions – Solutions

(c) Corrected Net Profit " Purchases ! Closing Stock " Wages " Returns " Restocking ! Closing Stock " Repairs ! Purchases " Disposal

100,000 (5,000) 5,000 (210) (5,000) (700) 5,000 (350) 2,300 (400) 100,640

(d) Balance Sheet Fixed Assets Premises Furniture & Equip (!7,300 " 3,200) Current Assets Stock (!1,850 ! 5,000 ! 5,000) Debtors ("5,700 ! 2,800) Cash Creditors falling due less than 1 yr Crs. ("500 ! 1,550 ! 5,000 " 320 ! 1,500 " 400) Bank (! 500 " 1,550 " 480) Accruals (210 ! 480) Financed by: Capital (!320) ! Net Profit " Drawings (!1,200) ! Loan

440,000 44,100 43,850 21,100 200

65,150

46,830 6,670 690

(54,190)

400,320 100,640 (13,200)

10,960 495,060

487,760 7,300 495,060

TOPI C

11 Interpretation of a/c’s Solutions 2 Artisan 3 Bocason 4 Condor 5 Delgado 6 Eliza 7 Fulcum 8 Gable

160

Graded Accounting Questions – Solutions

2

ARTISAN SOLUTION

(a)

1. Cash Purchases Credit purchases ______________ ! 8 times Creditors Credit purchases ! 8 times creditors ! 434,000 Total purchases ! Cost of sales " Opening stock " Closing stock ! 670,000 " 42,000 # 37,000 ! 665,000 ! 665,000 " 434,000 ! €231,000 2. Ordinary dividend cover 50,000 " 8,000 Net Profit " Preference dividend ! _____________ __________________________ 26,250

Ordinary dividend

! 1.6 times

3. Dividend Yield (DPS ! 26,250/350,000 ! 7.5 c) 7.5 $ 100 DPS $ 100 ! _________ ___________ 260 Market price 4. Interest Cover 50,000 # 14,000 Net Profit # interest ! ______________ _________________ interest 14,000 5. Earnings per share Net Profit " preference dividend _____________ __________________________ ! 50,000 " 8,000 350,000 No. of ordinary shares

! 2.9%

! 4.57 times

! 12 c

Period to recoup share

Market price 260 _______________ ! ____ Earnings per share

(b)

12

! 21.66 times

Profitability • ROCE for 2012 is 8.8% which is 3 to 4 times the return from risk free investment in the bank. However this profitability has disimproved from 10% last year which shows a less efficient use of resources. • Gross margin has also fallen from 28% to 24.7% which is also a poor indicator. • While Artison is a profitable business able to generate profits for interest payments the trend of profits declining by 12% would certainly worry debenture holders. Dividend Policy • DPS for 2012 is 7.5 c up 50% from last years 5 c together with a real rate of return of 4.64% would not please debenture holders. • The dividend cover is only 1.6 times which indicates that two thirds of the profits generated by the company have been distributed to the ordinary shareholders with little or no provision for the repayment of debentures.

Topic 11

Interpretation of a/c’s Solutions

161

Liquidity • Artisan is insolvent as the Current ratio of .96 (down from 1.2) indicates the co. is unable to pay its debts for the year. This ratio is well down the recommended fig of 2:1. • The Acid test shows the company is illiquid and has only 54 c in every €1 available to pay short term debts. This is significantly down from .75 of last year. • Artisan has serious cash flow problems with the ability to pay interest a very immediate worry. Gearing • Company is lowly geared at 41.3%, improved from 44% which would please debenture holders. • Interest cover has also fallen from 6 times last year to 4.57 times this year. • Gearing/interest cover is satisfactory though not exceptional and debenture holders would be concerned that not enough funds are being generated to provide for redemption of their loan. Share Price/Stock exchange performance • Market price has fallen from €2.8 to €2.6 showing a lack of confidence in the company by the market. When you factor in other indicators such as EPS falling from 14 c to 12 c this year and a very poor P/E ratio of 21.66 years prospects and market sentiment for Artisan are not positive. Sector Competition from large multinational distributors will make for difficult market conditions in this sector. Security Fixed assets of 570,000 provide adequate security for the debentures in the event of liquidation although one would question the real value of the fixed asset, as no depreciation has been written off. The fact that Artisan only has €76,500 in Reserves available to pay back debentures in 2 years’ time is a major worry.

(c)

1. A rising liquidity ratio is not always a sign of good management. High liquidity indicates that it is easier to pay short term debts on time and avail of cash discounts. However high liquidity means too much cash is tied up in liquid assets when they could be earning more profits. Extra cash could be invested wisely to gain a return. 2. Possible reasons for declining Gross Profit % • Unrecorded cash sales. • Closing stock undervalued/opening stock overvalued. • Price reduction. • Increase in purchase price. • More favourable terms offered to debtors e.g. increased cash discount. • Stock deterioration, pilferage, breakage etc.

162

Graded Accounting Questions – Solutions

3

BOCASAN SOLUTION

(a)

1. Credit Purchases Credit purchases ______________ ! 8 times

Creditors Credit purchases ! 8 times creditors ! 296,000 Total purchases ! Cost of sales " Closing stock # Opening stock ! 350,000 " 40,000 # 32,000 ! 342,000 ! 342,000 " 296,000

! €46,000

2. Ordinary dividend cover 73,000 " 12,000 Net Profit " Preference dividend ! ______________ __________________________ 21,000

Ordinary dividend

! 2.9 times

3. Dividend Yield 7.0 $ 100 DPS $ 100 (DPS ! 21,000/300,000 ! 7 c) ! _________ ___________ 2.85

Market price

! 2.46%

4. Interest Cover Net Profit # interest _________________ interest

73,000 # 18,000 _______________

! 5.05 times

18,000

5. Period to recoup share Market price 285 _______________ ! ____ Dividend per share

(b)

7

! 40.7 years

Profitability • ROCE for 2012 increased from 10.5% to 11.2% which is 3 to 4 times the return from risk free investment in the bank. This shows a more efficient use of resources in 2012. • Return on Equity also increased from 12% to 14% in 2012. • Bocasan is a profitable business able to generate profits for interest payments the trend of profits increasing would certainly please the bank. It is generating sufficient profit to meet interest payments from the bank. Security • Fixed assets of €495,000 (€310,000 after secured debentures) are available as security for the loan although the real value of these assets must be questioned as no depreciation has been written off. However Intangible assets of €285,000 although not realizable are a good sign of extra security. Liquidity • Current ratio of 1.27 (down form 1.3) indicates the co. is solvent and able to pay its debts for the year. This ratio of well down the recommended fig of 2:1. • The Acid test has also fallen form .9 to .83 and shows the company is illiquid and has only 83 c in every €1 available to pay short term debts. • Bocasan has cash flow problems with the ability to pay interest a very immediate worry, notwithstanding their ability to meet the extra €20,000 interest on the new loan.

Topic 11

Interpretation of a/c’s Solutions

163

Gearing • Gearing has improved from 49% to 47% this year which shows the company is lowly geared. This would increase to 57% after the loan and make Bocasan highly geared. • Interest cover has increased from 4.8 times to 4.9 but this would fall to only 3 times after loan is granted. • Gearing/interest cover is satisfactory though not exceptional and the bank would be concerned that these fig are not strong enough to warrant granting the loan. Share Price/Stock exchange performance The share price increased from €2.60 to €2.85 this year and with EPS of 20 c shows market confidence in the company even though it has a poor PE ratio of 40 years. Sector The tourist industry is going through difficulties at the moment as Ireland is perceived as being expensive. The increased value of the € has also worsened Ireland’s competitiveness. Redemption Debentures will be redeemed in 2015 and there is no Debenture Redemption Reserve set aside for this purpose. Because of poor gearing, profitability and liquidity a bank loan would not be recommended.

(c) What action would you advise Bocasan to take? 1.

Issue further ordinary shares to raise finance rather than borrow from bank. (200,000 ordinary shares available). 2. Reduce dividend on order to improve liquidity. 3. Improve gross profit % by reducing cost of sales or increasing selling price. 4. Sale and leaseback of fixed assets to raise finance. This could possibly generate over €400,000.

164

Graded Accounting Questions – Solutions

4

CONDOR SOLUTION

(a)

1. Cash Sales Credit sales ! 8 times __________

Debtors Credit sales ! 8 times Debtors ! 360,000 Cash Sales ! 1,250,000 " 360,000

! €890,000

2. Ordinary dividend cover Net Profit " Preference dividend ___________________________ Ordinary dividend

90,000 " 12,000 _______________

! 2.8 times

27,500

3. Dividend Yield DPS $ 100 (DPS ! 27,500/450,000 ! 6.1 c) ___________ Market price

6.1 $ 100 _________

! 1.69%

360

4. Stock Turnover Cost ____________ Average stock 880,000 _______

! 12.6 times

70,000

5. Earing per share Net Profit " preference dividend ______________ __________________________ ! 90,000 " 12,000 ! 17.3 c No. of ordinary share

Period to recoup share Market price 360 _______________ ! ____ Dividend per share 17.3

450,000

! 20.8 times

(b) Profitability • ROCE for 2012 at 10.3% is 3 times the return from risk free investment in the bank. Profitability has disimproved from 12% last year-less efficient use of resources. • Gross margin fallen from 32.5 to 29.7% which is also a poor indicator. • While condor is a profitable business able to generate profit to meet dividends the trend of profits declining by 14% would certainly worry ordinary shareholders. Dividend Policy • DPS of 6.1 for 2012 up from last years 5 c shows a generous dividend policy as markets now paying less than 3 c per share. • The Dividend cover of 2.8 times with the dividend yield of 1.69% and real of return 4.7% represent good practice. • Dividend policy is generous but would be questioned as they have serious liquidity problems.

Topic 11

Interpretation of a/c’s Solutions

165

Liquidity • Condor is insolvent as the Current ratio of .6 indicates the co. is unable to pay its debts for the year. The ratio is well down the rec. fig of 2:1. • The Acid test show the company is illiquid and has only 26 c every €1 available to pay short term debts. • Condor has serious cash flow problems and could face liquidation if creditors €135,000 apply to have debts paid immediately. With a further €39,500 due in dividends it is difficult to know it is going to get the cash from keep the business operating. Creditors could demand a receiver be appointed. Sector Any business currently supplying the construction sector is struggling at present with the severe downturn in this industry through oversupply and overpricing. Gearing • Company was lowly geared at 44% last year but has risen to 50% i.e. capital employed from outside sources this year. • Interest cover, i.e. ability to meet debt charges, excellent at 7 times although down on last year’s figure of 8.8 times. • The company is close to being highly geared which adds to liquidity problems of too much outside debt and the cost of service. It also increases the likelihood of a receiver being appointed. Share Price Stock exchange performance Share price has not increased from €3.60 even through EPS went up 13 c to 17 c and DPS 5 c to 6.1 c. Together with a poor P.E. ratio of 20.7 shows lack of market confidence in this company on the stock market.

(c) Advise the bank manager as to whether a loan of €150,000 at 10% interest should be granted to Condor for further expansion.

• Debentures of €300,000 are due to be repaid within 3 to 4 year and Condor will struggle to find this cash for redemption of Debentures. • Security of fixed assets €830,000 after Debentures €530,000 seems sufficient although one would question the accuracy of these figures as no depreciation has been provided on these. • Company will be highly geared after the loan at 56% which carries many risk also interest cover will fall to 4 times. • Liquidity ratio .26 will worsen further as a result of extra interest of €15,000 p.a. • Purpose for which loan is required had to be income generating. • Construction industry is possibly the worse area to be involved in at the present as prices are falling due to oversupply of units. Recommendation: Refuse loan application.

166

Graded Accounting Questions – Solutions

5

DELGADO SOLUTION

(a)

1. Cash Sales Credit Sales ! 6 __________

Debtors 6 DRS ! 390,000 ! CR Sales Total Sales

975,000

" Credit Sales

390,000

! Cash Sales

! €585,000

2. Ordinary dividend cover 117,500 " 16,000 Net Profit " Preference Dividend ! _____________ ! _______________________ 36,000 Ordinary Dividend

! 2.8 times

3. Earnings per ordinary share in 117,500 " 16,000 Net Profit " Preference Dividend ! _______________ ! ___________________________ 600,000 Number of Ordinary Share

! 16.9 c

4. Dividend yield on ordinary shares Dividend per share 100 ! __________ 6.21 $ 100 ! __________________ $ ____ 1 145 Market Price per Share (DPS ! 36,000/580,000 ! 6.21)

! 4.3%

5. How long it would take one ordinary share to recoup (recover) its 2012 market price (assume current performance is maintained) 1.45 Market Price ! _____ ! ______________ Earning per share 0.169 Length of time

! 8.58 years

(b) Profitability • ROCE has fallen from 13.4% last year to 11.46% this year which is still 3 to 4 times the return from risk free investment in the bank. However this profitability has disimproved from 10% last year which shows a less efficient use of resources. • Return on Equity also down from 15.6% to 15% although higher than Pref. 8% # Debentures 9%. • While Artison is a profitable business able to generate profits for interest payments the trend of profits declining by 12% would certainly worry ordinary shareholders. Dividend Policy • DPS for 2012 is 6 c down from 12.2c in 2011, a major disimprovement. • The dividend cover is 2.76 times which indicates that one third of the profits generated by the company have been distributed to the ordinary shareholders. • Dividend yield is 4.3 % and real rate of return is 12%, both of which are very favourable returns.

Topic 11

Interpretation of a/c’s Solutions

167

Liquidity • Current ratio has fallen from 1.45 to 1.16 shows the business to be barely solvent and well down on recommended fig of 2:1. • The Acid test shows the company is illiquid and has only 55 c in every €1 available to pay short term debts. This is significantly down from 1.1 of last year. • Delgado has serious cash flow problems in the short term with the ability to pay creditors a very immediate worry. With the risk of a receiver being appointed if creditors demand immediate payment. Gearing • Company is lowly geared at 34%, not overly committed to outside finance. • Interest cover is 9.56 times showing Delgado is able to meet its debt charges very easily. • Gearing/interest cover are both very healthy with little outside debt commitments and charges. Share Price/Stock exchange performance • Market price has fallen from €1.58 to €1.45 showing a lack of confidence in the company by the market. Although EPS of 17 c and PE of 8.5 are very good and may reassure investors on the stock market. Investments These are now only worth €115,000, a drop of 12% from cost price of €131,000. This indicates poor management decision.

(c) The Net Profit percentage was 12.5% in 2010. Calculate the percentage figure for Net 117,500 $ 100 Profit percentage _____________ ! 12.05%, and give 3 reasons for any change. 975,000 1. 2. 3. 4. 5.

Cash/stock losses Mark down of prices e.g. sale Incorrect stock valuation Increase in expenses Change in sales mix

How can a falling net profit percentage be corrected? 1. Record all cash transactions 2. Control expenses 3. No Price reductions

168

Graded Accounting Questions – Solutions

6

ELIZA SOLUTION

(a)

1. Cash Purchases Credit purchases ______________ ! 5 times

Creditors Credit purchases ! 5 times creditors ! 510,000 Total purchases ! Cost of sales " Opening stock # Closing stock ! 675,000 " 55,000 # 60,000 ! 680,000 Cash Purchases 510,000 " 680,000

€ ! 170,000

2. Interest Cover 38,000 # 27,000 Net Profit # interest ! ______________ _________________ interest

27,000

! 2.4 times

3. Dividend Yield DPS $ 100 (DPS ! 10,200/340,000 ! 3 c) ___________ Market price

3.0 $ 100 _________

! 2.5%

120

4. Period to recoup share Market price 120 _______________ ! ____ Dividend per share

3

! 40 years

5. Projected value of share P.E. Ratio $ E.P.S. ! 24 $ 4 c

! 96 c

(b) Profitability • ROCE for 2012 is 7% which is almost twice the return from risk free investment in the bank. However the projected profitability of 8.9% for next year shows a more efficient use of resources. • Return on Equity is a very poor 4.5% which compares unfavourably with Debentures return of 8%. • Ordinary shareholders would be unhappy with current but encouraged by projected profitability. Dividend Policy • DPS for 2012 is 3 c and expected to decrease to 2.4 c for next year. • The dividend cover is only 1.12 times which indicates that two thirds of the profits generated by the company have been distributed to the ordinary shareholders and a very small % of profits are being retained. • Dividend yield is a disappointing 2.5% less than the 3 to 4% available in the banks. Liquidity • Eliza is solvent with a Current ratio of 1.41 indicates the co. is able to pay its debts for the year. This ratio is well down the recommended fig of 2:1. • The Acid test shows the company is barely liquid and has 95 c in every €1 available to pay short term debts. Projected cash flow problems ahead for Eliza as Acid test is to fall to 0.8 for next year.

Topic 11

Interpretation of a/c’s Solutions

169

Gearing • Company is highly geared at 58% which would worry ordinary shareholders especially as it will only worsen to 66% for next year. • Interest cover due to disimprove from 2.4 to 1.4 times which is a major worry. • The trend in Gearing is unsatisfactory as ordinary shareholders will be concerned with the dilution of control and the burden of high debt. Share Price/Stock exchange performance • Market price is €1.20 but projected to fall by over 20% to 96 c next year. • Market confidence in Eliza is weak as EPS is projected to go down from 5 to 4. c and PE Ratio very poor showing company profits taking 40 years to accumulate the worth of the share. Sector Competition from large multinational distributors will make for difficult market conditions in this sector. Investments Shareholders would be disappointed with the loss on investments down from €168,000 to €130,000.

(c) Limitations of Final Accounts as a means of presentation

1. Based on historical costs rather than current market value. Only monetary aspects displayed e.g. Goodwill often omitted. 2. Shows external situation but does not show profit from different departments etc. 3. Emphasis on past results and present position changes by the time accounts are prepared. Different methods of Asset valuation, finance structure etc. 4. Accounts can be shown to be unrepresentative of usual position. Eliza can window dress the balance sheet and create secret reserves thereby reducing Net Profit.

170

Graded Accounting Questions – Solutions

7

FULCUM SOLUTION

(a)

1. Cash Purchases Credit Purchases ! 8 times per year ______________ Creditors

Credit purchases ! 280,000 Total Purchases ! 274,000 # 60,000 " 9,000 ! 325,000 (Cost # closing " Opening) " 280,000 ! €45,000 2. Return non Capital Employed Net Profit # Interest @ 100 ______________ ______________________ ! 91,500 # 22,500 1,019,000 Total Capital Employed

! 11.19%

3. Earnings per share 91,500 " 20,000 ! 14.3 c Net Profit " Preference Dividend ! ______________ ___________________________ No. of ordinary shares

500,000

4. Interest Cover 91,500 # 22,500 Net Profit # Interest ! ______________ _________________ Interest

! 5.07 times

22,500

5. Price Earnings Ratio Market price of share ____ _________________ ! 155 9.4 Dividend per share ordinary dividend 47,000 ! 9.4 c DPS ! __________________ ! _______ No. of ordinary shares 500,000

(

(b)

)

! 16.5 years

Liquidity • Current Ratio 1.67, solvent, able to pay debts for year but down on recommended ratio of 2:1 • Acid increased .9 to 1.1, liquid in short term, able to pay €1.09 in every €1 owed. • No cash flow problems, new shareholders confident they will receive dividends and be able to pay debts when they fall due. Profitability • Return on Investment 9.2% last year up to 11.2% this year. This is approx 4 times the return on risk free investment available in banks of 2–3%. Real rate of return is also a very acceptable 9%. • Return on Equity 8% last year up to 12.5% this year compares very favourably with a Debenture return of 9% and Preference return of 10% in this company. • These very satisfactory returns will ensure shareholders of the company’s ability to pay dividends at year end. Dividend Policy • DPS increased 9.4 c which is way above industrial average of 2–3 cent per share. • Dividend cover 3.6 shows ability to pay dividends and also sufficient retained earnings to create reserves. • Generous dividend policy would encourage prospective shareholders to buy these shares as would dividend yield of 6% Real Rate of Return of 21.8%.

Topic 11

Interpretation of a/c’s Solutions

171

Gearing • Lowly geared 44.2% a slight improvement from last year 45% shows less dilution of control. • A 7.7 times interest cover (10 last year) shows Fulcum’s ability to take on more debt if desired. • Low interest charges would reassure shareholders of high dividends, low debt service charges and greater control of the company. Performance/Share price • Share price €1.55 up from €1.20 last year, EPS 14.3 c and PE 10.8 are all excellent stock exchange indicators which will enhance share price though increased demand. Sector • Tourism in Ireland is still very strong and this provides the opportunity to prospective shareholders of getting involved in a very vibrant industry. However one would be concerned with (i) Ireland being described as expensive also (ii) a growing no. of Irish holiday abroad (iii) a strong €makes Ireland less attractive. Return • 200,000 shares @ 20 c ! €40,000 profit gross would be made if shares bought are disposed of immediately. • 200,000 shares represents a 29% ownership in Fulcum which could yield control and a possible directorship if shareholder decides to hold shares. I would recommend the purchase of shares.

(c) Dangers associated with High Gearing

1. Dilution of control away from the ordinary shareholders 2. High debt charges i.e. interest on debentures and preference dividend which must be paid 3. Poor credit rating in the event of a loan application

172

Graded Accounting Questions – Solutions

8

GABLE SOLUTION

(a)

1. Opening Stock Cost of Sales ! 10 Stock T/O ! ___________ Av. Stock 10 Av. stock ! Cost of Sales Av. stock ! 440,000/10 ! 44,000 Stock Total 88,000 " 74,000 (closing stock) DPS $ 100 2. Div. yield ! ___________ Market price 32,000 !10.5 Ord. dividend ! _______ DPS ! __________________ 304,000 No. of ordinary shares 10.5 $ 100 Yield ! __________ 2.05 146,000 # 14,000 $ 100 Net Profit # Interest $ 100 ! _____________________ _______________________ 3. ROCE ! 686,000 TCE 4. Real Return ! Dividend yield $ Div cover (Div cover ! 146,000 " 12,000/32,000 ! 4.1875) ! 5.1% $ 4.1875

!

Market Price 5. P/E ! ___________ EPS 146,000"12,000 EPS ! ______________ ! 44c 304,000 2.05 _____ ! 0.44

(

! 14,000

"

)

! 5.1% ! 23.3%

! 21.35%

! 4.66 Times

(b) Debenture holders

1. Liquidity • Current Ratio 1.5 shows Gable is solvent & able to pay debts for year but down on Rec. fig of 2:1. • Add Test shows business is illiquid and only able to pay 69 c in every € owed & expected to worsen to 59 c for next year. • Debenture holders worried they will not receive their interest as business has cash flow problems. 2. Profitability • Return or capital employed 23% is excellent but expected to fall to 18.9% next year. Still 5–6 times return you would get on risk free investment in bank. • Gross Profit % to fall from 60% to 40% next year is of major concern to debenture holders. • Projected profit decreases are a worry even in a depressed economic climate as it limits Gable’s ablility to meet debt payments. 3. Gearing stands at 38% i.e. lowly geared. Very positive sign although to increase to 44% still makes co. a low risk especially as if is able to cover interest 8 times for next year. 4. Reserves. Co. has set aside 40,000 in reserves to pay back Debentures in 3/4 yrs times. Although this is reassuring, it is only 28% of total Debentures. 5. Sector. Transport haulage is a very competitive & increasingly expensive business to run with the spiralling costs of diesel & oil rising. 6. Performance on stock exchange is excellent with EPS 44, P/E 4.6 although market confidence set to decline as share price & EPS projected to fall to €1.90 & 36 c. respectively. 7. Dividend Policy is generous to ordinary shareholder with DPS 10.5 (8.2. next year) Div Cover 3.3 times and a Real Rate of Return an excellent 21.35%.

(c) When is a company highly geared?

1. Co. is highly geared when Debt as a % of Total capital employed is greater than 50% 2. What are the associated problems? • Dilution of ownership & control. • High debt charges must be paid. • Greater Risk of liquidation as creditors demand payment. • Redemption of Debt & provision made thereon. • Poor Credit Rating for bank loan.

TOPI C

12 Published a/c’s Solutions 2 Annexe 3 Boycie 4 Kim Clavin 5 Duracell 6 Dragon 7 Equinox

174

Graded Accounting Questions – Solutions

2

ANNEXE SOLUTION

Annexe Published Accounts (a) Profit and Loss for year ended 31/12/2012 Turnover Less Cost of Sales Gross Profit Less Distribution Cost Less Admin, Expenses Other Operating Income Discount Operating Profit Profit on Sale of land Investment Income Interest payable Profit on Operating Act. before taxation Less Taxation Profit on Operating Activities after taxation Less Dividends paid Profit retained for year Profit brought forward at 1/1/2012 Profit carried forward at 31/12/2012 * Accept correct figure only.

€ W W W

45,400 258,500

€ 896,000 (557,000) 339,000 (303,900) 35,100 8,400 43,500 62,000 14,400 119,900 (15,600) 104,300 (24,000) 80,300 (33,000) 47,300 36,300 83,600

W W

Balance Sheet as at 31/12/2012 Fixed Assets Intangible Patents Tangible Fixed Financial Current Assets Closing Stock Debtors Creditors falling due less than 1yr. Trade creditors Other Creditors Taxation fin by: Creditors falling Due for more than 1yr. 8% Debentures Capital & Reserves Share Capital Revaluation Reserve P & L 31/12/2012

32,000 768,100 180,000

(w)

(w)

79,000 109,300

188,300

(w) (w)

68,000 51,550 35,250

(154,800)

980,100

33,500 1,013,600

225,000 465,000 240,000 83,600

788,600 1,013,600

Topic 12

Published a/c’s Solutions

175

Workings Cost of sales Distribution Admin Expenses Investment income Debenture interest Tangible Fixed Debtors Other Creditors Taxation

(b)

544,000 19,000 136,000 8% of 180,000 10,800 132,000 106,000 11,000 11,250

! ! ! # ! " ! ! !

84,000 26,400 27,000 14,400 4,800 86,000 3,300 15,600 24,000

" 79,000 !

8,000

# # ! 11,500 ! 73,000 ! 11,000 # " 11,100 # # 26,400 760,000 11,500 " ! " # # ! 24,950 # #

557,000 45,400 258,500 3,300 15,600 768,100 109,300 51,550 35,250

1. Notes to the Accounts Accounting Policy Notes Tangible fixed assets: – Depreciation is calculated in order to write off the value or cost of tangible fixed assets over their estimated useful economic life, as follows: – Buildings: 2% per annum – straight line basis – Delivery vans: 20% of cost – Stocks: stocks are valued on a first in first out basis at the lower of cost and net realizable value. 2. Interest payable – Interest payable on Debenture repayable during 2015 15,600 3. Operating profit – The operating profit is arrived at after charging: Depreciation on tangible fixed assets 37,900 Patent amortised 8,000 Directors’ remuneration 73,000 Auditor’s remuneration 11,000 4. Profit on sale of property – The company sold land for €140,000 greater than it cost. Cost was €78,000. 1. Explain the purpose of an audit and the duties of an auditor. Audit Examination of company accounts by independent accountants appointed by the directors to protect the shareholders. Purpose of Audit To show and prove that accounts show a ‘true and fair view’ of the Profit & Loss and Statement of Affairs of a company. 2. What is the difference between a Qualified and Unqualified audit? An unqualified auditor’s report is often referred to as a clean report. A report is unqualified when the auditors when the auditor in his/her opinion is satisfied that the following apply: • the financial statement give a true and fair view of the state of affairs of the company at the company at the end of the year and of it’s profit and loss account for the year. • the financial statements are prepared in accordance with the Companies Acts. • all the information given by the directors is consistent with the financial statements • the net assets are more than 50% of the called up capital. A qualified auditor’s report is when an auditor in his/her opinion is not satisfied or is unable to conclude that all or any of the above apply: The report will state the elements of the accounts or of the director’s report that are unsatisfactory.

176

Graded Accounting Questions – Solutions

3

BOYCIE SOLUTION

(a) Published Profit and Loss account for year ended 31/12/2012 € Turnover Cost of Sales Gross Profit Distribution costs Administration expenses Other operating income Discount received Operating Profit Profit on sale of land Investment income

w

w

18,700 244,200

€ 740,000 (483,600) 256,400 (262,900) (6,500) 14,200 7,700 40,000 4,320 52,020 (6,000) 46,020 (26,000) 20,020 (13,250) 6,770 51,600 58,370

w

Interest payable Profit on ordinary activities before taxation Taxation Dividends – paid Loss retained for the year Profit brought forward at 1/1/2012 Profit carried forward at 31/12/2012

Balance Sheet as at 31/12/2012 € Fixed assets Intangible assets Tangible fixed assets 9% investments Current Assets Stock Trade debtors (20,000 " € 1,250) Other debtors Creditor Amounts due in less a year Trade creditors Other creditors Taxation Bank Net current assets Total assets less current liabilities Financed By Creditors amounts due after falling 1 year Capital and Reserves Called up capital Revaluation reserve P & L Balance 31/12/12



w





22,500 900,000 48,000

970,500

24,400 18,750 13,820

56,970

43,500 18,200 26,000 15,600

(103,300)

(46,330) 924,170 90,000

w

500,000 275,800 58,370

834,170 924,170

Topic 12

Published a/c’s Solutions

177

Notes to the Accounts

1. Accounting policy note for tangible fixed assets and stock Buildings were revalued at the end of 31/12/12 and have been included in the accounts at their revalued amount. Depreciation is calculated in order to write off the cost of value of tangible fixed assets over their estimated useful economic life as follows. Buildings – 2% per annum – straight line basis. Stocks are valued on a first in first out basis at the lower of cost or net realisable value. 2. Operating Profit The operating profit is arrived at after charging: € Depreciation on Buildings 13,800 Amortisation of Patents 4,500 Directors fees 10,000 Auditors fees 6,200 3. Interest Payable Interest payable on 8% debentures (2015) including €20,000 received on 30/09/2012 # €6,000 4. Debentures Debentures are secured by a floating charge on the cost fixed Assets. Redeemable in 2015. 5. Tangible Fixed Assets € € Cost 01/01/12 760,000 Disposal (70,000) Transfer to revaluation 210,000 900,000 Depreciation 01/01/12 52,000 Change for year 13,800 Transfer to revaluation (65,800) Nil Net value at 01/01/12 €708,000 (€760,000 " €52,000) Net value at 31/12/12 €900,000

Workings:

Cost of Sales Administration Investment income Other Debtors Other Creditors Buildings Revaluation Reserve

23,500 13,800 48,000 13,000 10,000 690,000 210,000

480,000 " 24,400 ! 4,500 ! # 483,600 65,000 140,000 9,200 10,000 6,200 ! ! ! ! ! # 244,200 820 $ 9% # 4,320 " 3,500 # 820 ! # 13,820 6,200 ! 2,000 ! # 18,200 210,000 ! # 900,000 52,000 ! 13,800 ! # 275,800

(b) State and explain four important accounting concepts

1. Going concern – means the firm is being kept in its present trading use. i.e. continuity. i.e. accounts are prepared on this basis. 2. Accruals – income/expenses that should have been received/paid. Dues and prepaids. 3. Consistency – using the same accounting systems, standard presentation. 4. Prudence – the firm should overstate its losses and understate its gains, conservative accounting. Other concepts 5. Entity – the business is separate from the person. 6. Money measurement – monetary transactions only are included in the account. 7. Realisation – when a sale occurs is important and not when we are paid. 8. Double entry – assets # liabilities ! capital. 9. Objectivity – accountant should not use personal bias.

178

Graded Accounting Questions – Solutions

4

KIM CLAVIN SOLUTION

Profit and Loss account for year ended 31/12/2012 Turnover Cost of Sales Gross Profit Distribution Costs

(w) (w)

Administration expenses

(w)

Other Operating Income Operating Profit Investment Income Profit on sale of land

(w)

Interest Payable Profit on ordinary activities before tax Taxation Profit on ordinary activities after tax Dividends paid Profit retained for year Profit brought forward at 1/1/2012 Profit carried forward at 31/12/2012

(w)

(w)

(w)

€ 8,100,000 (6,320,000) 1,780,000 (478,890) 1,301,110 (675,960) 625,150 145,000 770,150 67,200 85,000 922,350 (24,000) 898,350 (235,000) 663,350 (30,000) 633,350 226,000 859,350

Balance Sheet as on 31/12/2012 € Fixed assets Intangible Assets Tangible Assets Financial Assets Current Assets Stock Debtors Bank Creditors: amounts falling due within 1 year Trade creditors Taxation Other Creditors Net Current Assets Total Net assets Creditors: amounts falling due after more than 1 year 12% Debentures Capital and Reserves Issued Shares(Ord. ! Pref.) Revaluation Reserve Profit carried forward

(W)

(W) (W)



€ 240,000 1,011,950 560,000 1,811,950

720,000 317,200 24,000

1,061,200

382,000 281,000 150,000

(813,000)

248,200 2,060,150 200,000

(W)

600,000 400,800 859,350

1,860,150 2,060,150

Topic 12

Published a/c’s Solutions

179

Workings: Cost Dist Admin. Other income Investment income Interest Payable Tangible Fixed Intangible Drs. Other Crs. Reval. Res.

660,000 450,000 504,000 120,000 12% of 560,000 12% of 200,000 900,000 320,000 300,000 126,000 260,000

Total ! 6,300,000 " 720,000 ! 80,000 # 6,320,000 25,050 ! 3,840 ! # 478,890 12,000 126,000 8,960 25,000 ! ! ! ! # 675,960 25,000 ! # 145,000 67,200 # 24,000 # ! 167,000 " 30,000 " 25,050 # 1,011,950 80,000 " # 240,000 17,200 ! # 317,200 12,000 ! 12,000 ! # 150,000 ! 128,000 ! 12,800 # 400,800

1. Accounting Policy for Stock and Fixed Assets Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2% on cost and were revalued at year end. Vehicles are depreciated @ 15% Depreciation calculated to write all asset in full over useful economic life. 2. Operating Profit Operating profit is arrived at after charging the following Depreciation of fixed assets 12,800 ! 25,050 Patents amortised 80,000 Directors remuneration 126,000 Auditors remuneration 12,000 25,000 ! Royalties received 3. Interest Payable Debenture €200,000 carry a 12% interest rate i.e. €24,000 p.a. 4. Debentures 12% Debentures 2013/2014 €200,000 Redeemable between the years 2013 and 2014 Carry an interest rate of 12% p.a. 5. Tangible Fixed Assets Land & Buildings Vehicles Cost Depc. Cost Depc. Cost 1/1 730,000 128,000 167,000 30,000 Disposal/Depreciation (90,000) 12,800 25,050 Revaluation 260,000 (140,800) 900,000 nil 167,000 55,050 #NBV 31/12

(b)

1. Criteria for determining company size This is determined by meeting 2 of the following for 2 consecutive years. Small Medium Large Employees Less than 50 50 – 250 More than 250 Balance Sheet Total Less than €2 m €2 – 6 m More than €6 m Annual Turnover Less than €3 m €3 – 12 m More than €12 m 2. What is a Qualified Audit? Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high to ignore. Directors have responsibility to detect fraud although auditors usually discover fraud initially.

180

Graded Accounting Questions – Solutions

5

DURACELL SOLUTION

(a) Trading Profit & loss a/c for y/r 31/12/2012 Turnover " Cost Cross Profit " Distribution " Admin ! other operating Income Operating Profit ! Profit on sale of land ! Investment income " Debenture Interest Net Profit " Tax

(W) (W) (W) (W)

(W)

" Divs. Paid Profit for year ! P & L 1/1/12 P & L 31/12/12

950,200 (524,000) 426,200 (91,440) (301,160) 33,600 15,500 49,100 65,000 12,000 (16,200) 109,900 (54,000) 55,900 (37,500) 18,400 84,000 102,400

Fixed Assets Balance Sheet on 31/12/2012 Intangible Patents Tangible Financial Current Assets Stock Drs. Creditors falling due for less than 1 yr. Creditors Other Crs. Taxation

(W)

(W)

(W) (W)

Financed by Crs. Falling due for more more than 1yr. Debentures Capital & Reserves Share Capital ! Profit & loss 31/12/12 Revaluation Reserve (W)

58,000 31,900 66,400

48,000 79,500 127,500

(156,300)

650,000 102,400

36,000 1,254,400 150,000 1,440,400

(28,800) 1,411,600

220,000 752,400 439,200 1,411,600

Topic 12

Published a/c’s Solutions

181

Workings: Cost of Sales 35,000 ! 525,000 " 48,000 ! 12,000 # 524,000 Distribution 36,000 ! 32,000 ! 6,000 ! 13,600 ! 3,840 91,440 # Admin 49,000 ! 76,000 ! 139,000 ! 15,360 ! 9,800 ! 12,000 # 301,160 Other Income 9,500 ! 6,000 15,500 # Debenture Interest 3,600 ! 12,600 16,200 # Tangible fixed 96,000 " 28,000 " 13,600 ! 1,200,000 # 1,254,400 Debtors 76,500 ! 3,000 79,500 # Other Creditors 9,800 ! 16,200 ! 5,900 31,900 # Taxation 12,400 ! 54,000 66,400 # Revaluation Reserve 240,000 ! 180,000 ! 19,200 439,200 #

Notes of Accounts

1. Accounting Policy for Stock and Fixed Assets Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2% on cost and were revalued at year end. Vehicles are depreciated @ 20% on cost. Depreciation calculated to write off asset in full over useful economic life. 2. Operating Profit Operating profit is arrived at after charging the following Depreciation of fixed assets 13,600 ! 19,200 Patents amortised 12,000 Auditors remuneration 9,800 6,000 ! Rental income 3. Debenture Costing €220,000 carry a 9% interest Rate are Redeemable in 2013 4. Tangible Fixed Assets

Cost 1/1 Disposal/Depreciation Revaluation #NBV 31/12

(b)

Buildings Cost Depc. 1,030,000 180,000 (70,000) 19,200 240,000 (199,200) 1,200,000 nil

Vehicles Cost Depc. 96,000 28,000 13,600 96,000

41,600

(i) Unqualified Audit A clean audit Qualified Audit Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high to ignore. Directors have responsibility to detect fraud although auditors usually discover fraud initially. (ii) Directors Responsibilities: Keep proper records Safeguard all assets Select suitable acc. Standards Recommend a dividend Decide on reserves Reports on any proposed changes or capital expenditure Give a review on yearly activities.

182

Graded Accounting Questions – Solutions

6

DRAGON SOLUTION

(a) Profit and Loss for Year ended 31/12/2012 Turnover Less Cost of sales Gross profit Less Distribution costs Less Administration costs Other Operating income Operating Profit Investment income Profit on sale of land

W W W W

Interest payable Profit on ordinary activities before tax Taxation Dividends paid Profit brought forward at 1/1/2012 Profit carried forward at 31/12/2012

1,203,000 (807,600) 395,400 (156,528) (172,032) 66,840 45,600 112,440 13,440 43,200 169,080 (10,800) 158,280 (37,200) 121,080 (43,200) 77,880 50,400 128,280

Balance Sheet as at 31/12/2012 Fixed Assets Intangible Assets Tangible Fixed Assets Financial Fixed Current Assets Stock Debtors Bank Creditors falling due within one year Trade Creditors Taxation Other Creditors

8,400 637,200 192,000 837,600

W

53,400 W 147,180 37,740

238,320

114,600 W 76,800 W 30,240

(221,640)

Creditors falling due after more than one year 6% Debentures Capital and Reserves Issued shares Revaluation Reserve W Profit carried forward

16,680 854,280 180,000

450,000 96,000 128,280

674,280 854,280

Topic 12

Published a/c’s Solutions

183

Workings Cost of Sales Distribution costs Administration expenses Other operating income Tangible Fixed assets Debtors Other Creditors Taxation Revaluation Reserve

48,600 118,800 127,200 28,800 570,000 145,800 4,440 37,200 54,000

! ! ! ! ! " ! ! !

804,000 4,128 4,440 6,600 168,000 8,700 24,000 39,600 31,680

8,400 " 53,400 # 807,600 33,600 # 156,528 24,000 ! 6,192 ! 10,200 # 172,032 10,200 # 45,600 67,200 " 33,600 # 637,200 10,080 # 147,180 1,800 # 30,240 # 76,800 10,320 ! # 96,000

! ! ! ! " ! !

Notes to Accounts Dragon

1. Accounting policy on Tangible Fixed Assets and Stock Depreciation is calculated to write off tangible fixed assets in full over its useful economic life as follows; Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012. Vehicles depreciated @ 20% on cost. Stocks are valued on a FIFO basis at the lower of cost and book value. 2. Operating Profit is arrived at after charging: Depreciation on Tangible Assets 43,920 Patents amortised 8,400 Auditors fees 4,440 Directors remuneration 24,000 10,200 ! Rental Income 3. Interest Payable on Debenture @ 6% (repayable by 2013/2014) 10,800 4. Tangible Fixed Assets Land/Blgs. Vehicles 1/1 2012 552,000 168,000 Disposal (36,000) Revaluation 54,000 Value 31/12/2012 570,000 168,000 Accumulated Depreciation Depreciation on 1/1 This year Revaluation Net Book Value 1/1 Net Book Value 31/12

(b)

31,680 10,320 (42,000) Nil

67,200 33,600 100,800

520,320 570,000

100,800 67,200

1. Contingent liability is a potential debt which may have to be paid if certain conditions or circumstances arise. It has not happened, may not occur and provision is not made in the books for such unless specifically agreed upon. A note relating to its existence is made as an addendum to the accounts. 2. The main objectives of Financial Accounting are: 1. To provide information useful for various users for assessing and decision making 2. To prepare financial statements that conform to accounting regulatory bodies 3. To conform to conditions according to the Company’s Acts and Stock exchange regulations if public co. 4. Financial Accounting should be relevant, reliable comparable and understandable 5. Financial Accounting should conform to the fundamental concepts.

184

Graded Accounting Questions – Solutions

7

EQUINOX SOLUTION

(a) Profit and Loss for Year ended 31/12/2012 Turnover Less Cost of sales Gross Profit Less Distribution costs Less Administration costs

W W W

Other Operating income W Operating Profit Investment income Profit on sale of land Interest payable Profit on ordinary activities before tax Taxation Dividends paid Profit brought forward at 1/1/2012 Profit carried forward at 31/12/2012

€ 2,305,750 (1,547,900) 757,850 (300,012) (329,728) 128,110 87,400 215,510 25,760 82,800 (20,700) 303,370 (71,300) 232,070 (82,800) 149,270 96,600 245,870

Balance Sheet as at 31/12/2012 Fixed Assets Intangible Assets 16,100 Tangible Fixed Assets W 1,221,300 Financial Fixed 368,000 Current Assets Stock 102,350 Debtors W 282,095 Bank 72,335 Creditors falling due within one year Trade Creditors 219,650 Taxation W 147,200 Other Creditors W 57,960

1,605,400

456,780

(424,810)

Creditors falling due after more than one year 6% Debentures Capital and Reserves Issued shares 862,500 Revaluation Reserve W 184,000 Profit carried forward 245,870

31,970 1,637,370 345,000

1,292,370 1,637,370

Topic 12

Published a/c’s Solutions

185

Workings Cost of Sales Distribution costs Administration expenses Other operating income Tangible Fixed assets Debtors Other Creditors Taxation Revaluation Reserve

93,150 227,700 243,800 19,550 1,092,500 279,450 8,510 75,900 103,500

! 1,541,000 ! 16,100 " 102,350 # 1,547,900 7,912 ! 64,400 300,012 ! # 8,510 ! 46,000 ! 11,868 ! 19,550 # 329,728 ! 12,650 ! 55,200 87,400 ! # ! 322,000 " 64,400 " 128,800 # 1,221,300 16,675 ! 19,320 282,095 " # 46,000 ! 3,450 57,960 ! # 71,300 147,200 ! # 60,720 7,912 11,868 184,000 ! ! ! #

Notes to Accounts Equinox

1. Accounting policy on Tangible Fixed Assets and Stock Depreciation is calculated in order to write off the value of tangible fixed assets over their estimated economic life as follows: Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012 Vehicles depreciated @ 20% on cost. Stocks are valued on a FIFO basis at the lower of cost and book value. 2. Operating Profit is arrived at after charging: Depreciation on Tangible Assets 84,180 Patents amortised 16,100 Auditors fees 8,510 Directors remuneration 46,000 19,550 ! Royalties 3. Proposed Capital Expenditure (i) Preliminary capital project agreement entered into for €500,000 (ii) Further capital improvements to existing buildings €150,000 4. Tangible Fixed Assets Land/Blgs. Vehicles 1/1/2012 1,058,000 322,000 Disposal (69,000) Revaluation 103,500 Value 31/12/2012 1,092,500 322,000 Accumulated Depreciation Depreciation on 1/1 This year Revaluation

Net Book Value 1/1 Net Book Value 31/12

(b)

60,720 19,780 (80,500) Nil 997,280 1,092,500

128,800 64,400 193,200 193,200 128,800

1. Material Item is any item whose cost is regarded as considerable and cannot be either ignored or included in general administration. Most accountants would regard an item of more than 5% of profit to be a material item. The materiality concept of accounting covers this principle. 2. Concepts are principles accountants use when preparing accounting information such as entity concept materiality concept, realization concept going concern concept. Bases are methods for dealing with certain items in the accounts such as stock valuation and depreciation over number of years. Policies are the systems of valuation such as FIFO and depreciation policy used such as 2% on cost.

TOPIC

13 Incomplete Records Solutions 2 Archer 3 Brophy 4 Casey 5 Dunican 6 Edwards 7 Fowler 8 Geraghty 9 Henshaw 10 Jennifer Ann 11 Ann O’Loughlin 12 Breda Connolly

Topic 13

2

Incomplete Records Solutions

187

ARCHER SOLUTION

(a) Trading and Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of sales Stock at 1 January 2012 Add Purchases

W 15,600 65,040 80,640

W

Less Stock 31 December 2012 Gross Profit Less Expenses General expenses Covenant Insurance Interest Light and heat

€ 204,200

(16,700)

W

25,500 2,600 3,540 2,240 4,650

W W W

(63,940) 140,260

(38,530) 101,730

Add income from investment fund Net Profit

55 101,785

(b) Balance Sheet as at 31/12/2012 € Intangible Fixed Assets Goodwill Tangible Fixed Assets Buildings (!60,000) Delivery vans Furniture ("5,000) Investments (500 # 4 ! 55) Current Assets Stock at 31 December 2012 Trade Debtors Bank Cash Prepayment (Insurance) Creditors amounts falling due within 1 year Trade Creditors Interest due Electricity due Working Capital Total Net Assets



W

€ 26,960 220,000 29,200 10,000 2,055 288,215

16,700 19,500 48,900 400 900 86,400

W

12,800 1,400 600

(14,800)

71,600 359,815

188

Graded Accounting Questions – Solutions

Financed by Creditors amounts falling after more than 1 year Loan Capital Balance at 1/1/2012 Add Capital introduced Add Net Profit Less Drawings Capital Employed

70,000

W

200,000 1,900 101,785 (13,870)

289,815 359,815

Notes to Accounts •

Sales Payment by debtors Amount owed by debtors 31/12/2012 Less amount owed on 1/1/2012 Credit Sales ! Cash Sales (89,600 ! 26,900 ! 45,200 ! 400 ! 2,600) Purchases Payment to creditors Creditors at 31/12/2012



Less Creditors at 1/1/2012 Credit Purchases Cash Purchases Total Purchases Less Drawings-Goods General Expenses Amount paid Less Wages due 1/1/2012 Insurance Amount paid Add insurance prepaid 1/1/2012 Less insurance prepaid 31/12/2012 Interest for year (4/12 # €8,400) Interest paid Interest due 31/12/2012





• •



• Bank • Drawings

Less Drawings (1/5) Light and Heat Amount paid Add electricity due 31/12/2012 Less Drawings (1/3) 129,500 ! 70,000 " 60,000 " 88,600 " 2,000 1,550 ! 560 ! 4,160 ! 2,600 ! 5,000

(c) Double Entry benefits • • • • •

Facilitates balancing of accounts to ensure accuracy Allows Final a/c preparation Requirement for Revenue purposes Requirement for bank loan application Comparison to other years & other firms.

38,000 19,500 57,500 (18,000) 39,500 164,700

204,200

31,200 12,800 44,000 (20,000) 24,000 45,200 69,200 (4,160)

65,040

26,900 (1,400)

25,500

3,600 840 (900) 1,400 1,400 2,800 (560)

5,600 600 (1,550) $ $

3,540

2,240

4,650 48,900 13,870

Topic 13

3

Incomplete Records Solutions

189

BROPHY SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Opening Stock Purchases Less Closing stock Gross Profit Less Expenses General Expenses Insurance Interest Light and Heat Covenant Add Income from Investment income Net Profit

€ 297,540

W 36,300 141,390 (39,600)

W

W W W W

(138,090) 159,450

47,775 5,670 8,640 9,562 5,250

(76,897) 195 82,748

(b) Balance Sheet as at 31/12/2012 Intangible Fixed Goodwill Tangible Fixed Buildings (330,000 ! 135,000) Equipment Furniture (24,000 " 6,000) Financial Assets Investment Fund Current Assets Stock Debtors Bank Cash Insurance prepaid Creditors falling due within 1 year Creditors Interest due Electricity Financed By Creditors falling due for more than 1 year Loan Capital Add capital introduced Net Profit Less Drawings





465,000 40,200 18,000

€ 11,895

523,200 12,345 547,440

W

W

W

37,800 3,300 450

390,000 12,750 82,748 (34,748)

39,600 57,150 25,530 1,050 1,530 124,860

(41,550)

83,310 630,750

180,000

450,750 630,750

190

Graded Accounting Questions – Solutions

Workings 1. Expenses Paid Adjustments

General 49,200 (1,425)

L&H 12,300 450

47,775

12,750 (3,188) 9,562

Cost / Used Less Drawings 2. Drawings 3. Goodwill 4. Sales

5. Purchases

6. Bank

Insurance 6,120 1,080 (1,530)

5,670

Interest 7,500 3,300 10,800 (2,160) 8,640

(Cash ! goods ! Expenses ! Asset) 14,040 ! 9,360 ! 3,188 ! 2,160 ! 6,000

$ 34,748

(Cost " Value) 390,000 " 378,105

$ 11,895

Credit (Pay ! Bal. 31/12 " Bal. 1/1) 68,100 ! 57,150 " 54,600 Cash (Pay ! Drawings ! Bal. 31/12 " Bal. 1/1) 211,800 ! 14,040 ! 1,050 Credit (Pay ! Bal. 31/12 " Bal. 1/1) 54,300 ! 37,800 " 42,450 Credit ! cash " drawings of goods 49,650 ! 101,100 " 9,360

$ 70,650 $ 226,890 $ 297,540 $ 49,650

(Payments ! Fund ! Asset-Lodge-Loan) 149,670 ! 12,150 ! 135,000 " 142,350 " 180,000

$ 141,390 $ 25,530

(c) Name 4 fundamental accounting Concepts and explain one using an example

• Accruals • Going concern • Consultancy • Prudence Accruals concept states that each year is accountable for its own expenses and gains i.e. amounts due but unpaid are added, amounts prepaid are subtracted from amount paid.

Topic 13

4

Incomplete Records Solutions

CAREY SOLUTION

(a) Trading, Profit and Loss Account of Carey for year ending 31/12/2012 € Sales Less Cost of Sales Opening Stock Purchases (141,400 " 4,320) Less Closing Stock Cost of Goods Sold Gross Profit Less Expenses General Expenses Insurance Light and Heat Interest Covenant Total Expenses

(W)

(W)

(W) (W) (W) (W)

€ 344,000

18,600 137,080 155,680 (22,400)

46,500 3,800 6,360 3,600 3,500

Investment Interest Rec. Net Profit

133,280 210,720

(63,760) 146,960 2400 149,360

(b) Balance sheet as at 31//12/2012 € Intangible Fixed Asset Goodwill Tangible Fixed Assets Premises (! 115,000) Vehicles Machinery ("4,500) Financial Fixed Assets 8% Investments Current Assets Closing Stock Insurance prepaid Investments Interest due Debtors Cash Bank Creditors: Amounts falling due less than 1 yr loan installments due Light and Heat Interest due Creditors

(W)

€ 4,500

355,000 12,000 13,500

380,500 30,000 415,000

(W)

(W)

(W)

22,400 1,320 900 27,700 980 122,540 175,840 22,500 240 1,300 16,100 (40,140)

135,700 550,700

191

192

Graded Accounting Questions – Solutions

Financed by Creditors: Amounts falling due after 1 year Loan Capital Balance 1/1/2012 Add Capital Introduced Add Net Profit Less Drawings

112,500

(W)

300,000 3,200 149,360 (14,360)

Workings: 1.

Expenses Paid !/" Adj. " Drawings

L!H 8,400 (160) 240 8,480 (2,120) 6,360

Workings Ins. 3,960 1,160 (1,320)

3,800

Interest 3,200 1,300 4,500 (900) 3,600

2. Drawings 4,320 ! 2,520 ! 4,500 ! 2,120 ! 900 $ 14,360 3. Goodwill 310,000 " 290,500 $ 19,500 4. Sales Cash a/c

Cash Sales

256,800

Balance b/d

256,800 980

Purchases General Exp. Lodgements Drawing Balance c/d

78,800 46,500 128,000 2,520 980 256,800

Credit Sales Debtors Control a/c Balance b/d Credit Sales Balance b/d Sales

CR Cash Total

24,800 87,200 112,000 27,700 256,800 87,200 344,000

Bank Balance c/d

84,300 27,700 112,000

438,200 550,700

Topic 13

Incomplete Records Solutions

5. Purchases

Credit Purchases Creditors Control a/c Bank Balance b/d

65,400 16,100 81,500

Total Purchases Cash Purchases Credit Purchases

Balance b/d 18,900 Credit Purchases 62,600 81,500 Balance c/d 16,100

78,800 62,600 141,400

6. Bank Total Bank Lodgements loan

217,000 135,000 352,000

Premises Payments Bal. c/d

115,000 114,460 122,540 352,000

(c) How to finance a proposed update of new computer systems: • • • •

Sell Investments will release € 25,000 Bank balance of €118,060 more than 3 items the amount required Profit of €148,805 Carey has no problem in financing this purchase through profits. Bank loan would be granted as current ratio is a massive 10:1.

193

194

Graded Accounting Questions – Solutions

5

DUNICAN SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Opening stock Purchases Less Closing stock Gross Profit Less Expenses General Expenses Insurance Interest Light and Heat

€ 224,880

(W)

11,400 89,040 (9,840)

(W) (W) (W) (W)

42,720 4,020 1,440 2,646

(90,600) 134,280

(50,826) 83,454 15 83,469

Add Income from Investment income

(b) Balance Sheet on 31/12/2012 Intangible Fixed Goodwill Tangible Fixed Buildings Delivery Vans Furniture Financial Assets Investment Fund Current Assets Stock Debtors Bank Cash Insurance prepaid Creditors falling due within 1 year Creditors Interest due Electricity Financed By Creditors falling due for more than 1 year Loan Capital Capital Introduced Net Profit Less Drawings





(W) 429,000 17,040 6,300

€ 10,800

452,340 2,895 466,035

(W) (W)

(W)

(W)

9,840 12,120 62,730 240 1,020

85,950

18,240 450 288

(18,978)

354,000 1,800 83,469 (14,262)

66,972 533,007

108,000

425,007 533,007

Topic 13

Incomplete Records Solutions

195

Notes to Accounts Expenses Paid Adjustments

General 44,280 "1,560

Light/Heat 3,240 288

42,720

3,528 "882 2,646

Cost / Used Less Drawings

Drawings Goodwill Sales " " Purchases

Bank

(c)

Insurance 4,080 960 "1,020

4,020

Interest 1,350 450 1,800 360 1,440

(Cash ! Goods ! Expenses) 4,680 ! 6,240 ! 882 ! 360 ! 2,100

$ 14,262

(Cost " value) 354,000 " 343,200

$ 10,800

Credit (Pay ! Bal. 31/12-1/1) 36,600 ! 12,120 " 7,200 Cash (Pay ! Drawing ! Bal. 31/12- 1/1) 177,000 ! 6,240 ! 240 " 120 Credit (Pay ! Bal. 31/12 " 1/1) 23,280 ! 18,240 "10,920 Credit ! cash " drawings of goods 30,600 ! 63,120 " 4,680 (Payments ! Fund ! Asset " Lodge " Loan) 57,390 ! 2,880 ! 93,000 " 108,000 " 108,000

$ 41,520 $ 183,360 $ 224,880 $ 30,600 $ 89,040 $ 62,730

1. Why are the records kept by Dunican unsatisfactory? Figures are estimated/calculated or not backed up with Double entry Records. 2. What additional information would be available if the firm’s accounts were prepared using the double-entry system? Figures for Sales, Purchases or all expenses would be available. These figures would correspond with alternative Dr. or Cr. entry in other ledger a/c’s. A Trial Balance would authenticate the accuracy of these figures.

196

Graded Accounting Questions – Solutions

6

EDWARDS SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012 € Sales Less Cost of Sales Opening stock Purchases Less Closing stock Gross Profit Less Exp. Rent General Expenses Insurance Interest Light and Heat Charity Donation Net Profit

€ 425,300

(W) 30,400 156,200 (34,000)

(W)

(W) (W) (W) (W) (W)

(152,600) 272,700

800 44,000 10,720 8,400 9,952 6,400

(80,272) 192,428

(b) Balance Sheet on 31/12/20012 Intangible Fixed Goodwill Tangible Fixed Buildings Delivery Vans Furniture/Equipment Current Assets Rent prepaid Stock Debtors Bank Cash Insurance prepaid

€ (W) 464,000 52,000 44,000

560,000

2,400 34,600 36,200 93,950 1,300 3,000

171,450

31,000 3,750 1,440 14,000

(50,190)

(W)

Creditors falling due within 1 year Creditors Interest due Electricity loan repayment due

(W)

Creditors falling due for more than 1 year Loan Capital Add capital introduced Net Profit Less Drawings



406,80

(W)

(W)



154,000 390,000 7,600 192,428 (22,088)

600,680

121,260 721,940

721,940 721,940

Topic 13

Incomplete Records Solutions

197

Notes to Accounts 1. Sales Credit Sales 68,000 ! 36,200 " 34,000 Cash sales 345,400 ! 1,300 ! 8,400 Total Sales

$ 70,200 $ 355,100 425,300

2. Purchases Credit purchases 66,200 ! 31,000 " 37,400 Cash purchases Total purchases Less drawings of stock Total purchases 3. 4. 5. 6. 7. 8. 9. 10.

Loan interest General Exp. Light & Heat Insurance Rent Drawings Goodwill Bank

4,650 ! 3,750 47,400 " 3,400 11,600 ! 1,440 " 600 $ 12,440 " 2,488 12,000 ! 1,720 " 3,000 4,800 " 2,400 " 1,600 9,600 ! 8,400 ! 1,600 ! 2,488 390,000 " 347,932 267,600 ! 168,000 " 201,650 " 140,000

(c) Explain the term Accounting Concept

$ 59,800 106,000 165,800 (9,600) 156,200 $ 8,400 $ 44,000 $ 9,952 $ 10,720 800 $ $ 22,088 $ 42,068 $ 93,950

These are the accounting practices or rules that are applied by accountants in the preparation of financial statements. Name 2 fundamental accounting concepts– The Accruals Concept and The Prudence Concept. Illustrate an accounting concept– The accruals concept states that all expenses incurred in a particular period are recorded in that period regardless of whether they are paid or not. All incomes earned must be included in the accounts of that period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be recorded in the accounts of 2012 even though it wont be paid until 2013.

198

Graded Accounting Questions – Solutions

7

FOWLER SOLUTION

(a) Balance Sheet of Fowler as at 31/12/2012 € Intangible Fixed Assets Goodwill Tangible Fixed Assets Buildings (!294,000) Equipment ("4,480) Financial Assets Investments

(W)

€ 26,544 616,000 17,920

(W)

14,679

Current Assets Closing Stock 31/12/2012 Debtors Bank Rates prepaid

(W)

33,740 54,180 115,360 630

Less Creditors: Amounts falling due within 1 year Creditors Interest due Electricity due 31/12/2012

(W) (W)

38,500 1,260 420

Financed by Creditors: Amounts falling due after 1 year Loan Capital Balance 1/1/2012 Add Capital Introduced Less Drawings

203,910

(40,180)

336,000

(W)

448,000 4,480 (27,776)

Add Net Profit Capital Employed

424,704 760,704 78,169 838,873

(b) Trading and Profit and Loss Account of Fowler for year ended 31/12/2012 € Sales Less Cost of Sales Opening Stock 1/1/2012 Purchases (268,492 " 9,464) Less Closing Stock 31/12/12 Cost of Sales Gross Profit Add Investment Income Less Expenses Wages & Gen. Expenses Light and Heat Rates Interest Net Profit

36,960 259,028 (33,740)

(W) (W) (W) (W)

71,610 17,360 2,436 5,376

€ 437,080

(262,248) 174,832 119 174,951

(96,782) 78,169

675,143

163,730 838,873

Topic 13

Incomplete Records Solutions

199

Notes to Accounts 1. Expenses Paid Adj. used/Payable "Drawings $ PLC.

2. Drawings 3,780 College

General 63,560 (770) 8,820

71,610

L!H 21,280 420 21,700 (4,340) 17,360

Rates 2,520 546 (630)

2,436

Interest 5,460 1,260 6,720 (1,344) 5,376

! 4,480 ! 9,464 ! 4,368 ! 4,340 ! 1,344 Equip. Stock Cash Interest L!H

3. Goodwill 413,000 " 386,456 4. Investment Fund 4# 3,640 ! 119

(c) Advice you would give to Fowler:

$ 27,776

$ 26,544 $ 14,679

– Keep a detailed cash book and general ledger supported by appropriate subsidiary day books; – Would enable Fowler to prepare an accurate Trading, Profit and Loss Account and Balance Sheet; – Avoid reliance on estimates.

200

Graded Accounting Questions – Solutions

8

GERAGHTY SOLUTION

(a) Balance Sheet as 31/12/2012 € Intangible Assets Goodwill Tangible Fixed Assets Premises (350,400 ! 180,000) Equipment (24,000 ! 18,000) Delivery Vans





€ 7,500

530,400 42,000 36,000 608,400

3,300 1,800 5,100

Financial Assets 5% Investments Current Assets Closing stock 24,240 Stock of heating oil 360 Debtors 40,800 Less Provision for bad debts (1,224) 39,576 Rates Prepaid W 2,100 Less Creditors: amounts falling due within one year. Creditors 42,480 Bank Overdraft 6,480 Loan instalments due 14,400 Interest due W 1,200 Electricity due 552 Financed by Creditors: amounts falling due after more than one year Loan 129,600 480,000 Capital " Balance 1/1/2012 Capital introduced 43,200 Net Profit 42,470 Less Drawings W (23,306) 542,364 671,964

530,400 38,700 34,200

603,300 60,000 670,800

66,276

(65,112)

1,164 671,964

(b) Trading and Profit and Loss Account for the year ending 31/12/2012 € Sales Less Cost of Sales Opening stock Purchases Less drawings Less closing stock Gross Profit Add Investment interest Less Expenses Rates Light and heat Interest

W

W W W

595,152 (4,992)

43,200 590,160 (24,240)

5,472 7,354 2,700

€ 761,400

(609,120) 152,280 3,000 155,280

Topic 13 Wages and general expenses Bad debts provision Depreciation Equipment Depreciation Vans Net Profit

Incomplete Records Solutions

W

90,960 1,224 3,300 1,800

(112,810) 42,470

Workings Rates 8,400 ! 540 " 2,100 " 1,368 Interest 2,400 ! 1,200 " 900 Wages & General 96,000 " 1,440 " 3,600 Light & Heat 9,000 ! 552 " 360 " 1,838 Drawings 4,992 ! 10,608 ! 3,600 ! 1,838 ! 1,368 ! 900 Purchases 609,120 ! 24,240 " 43,200 Goodwill 480,000 " 472,500 Depc of Equipment "10% of 24,000 for 12 months 2,400 !10% of 18,000 for 6 months 900 Depc of Vehicles 15% of 36,000 for 4 m. Loan installment 144,000/20 i.e. 7,200 # 2 Capital introduced 36,000 ! 7,200

5,472 $ 2,700 $ $ 90,960 7,354 $ $ 23,306 $ 590,160 7,500 $ $ $ $ $

3,300 1,800 14,400 43,200

(c) Cost 609,120 $ $ 18 Times Av. Stock 33,720 Sales 761,400 2. Cr. to Debtors $ $ $ 19 Times Debtors 39,576 Purs. 595,152 3. Cr. from Creditors $ $ $ 14 Times Creditors 42,480 1. Stock T/o

$

(d) Write a brief comment on the cash flow of this business.

201

Geraghty is selling his stock one and a half times her month, getting paid in less than 1 month & not leaning on trade credit. He has no cash flow problems.

202

Graded Accounting Questions – Solutions

9

HENSHAW SOLUTION

(a) Balance Sheet as at 31/12/2012 € Intangible Fixed Assets Goodwill Tangible Fixed Assets Buildings (! 135,000) Equipment (" 4500) Financial Assets Investment Fund 10% Investments

(W) 335,000 18,000 4,585 45,000

Current Assets Closing Stock Investment Income Due Rates Prepaid Debtors Bank

(W)

Financed By Creditors: Amounts falling due after 1 year Loan Capital Less Drawings Add Net Profit

353,000

49,585 427,085

7,350 3,750 1,275 23,000 13,250 48,625

(W) (W)

Less Creditors: Amounts falling due within 1 year Interest due Creditors Electricity Due

€ 24,500

1,275 10,750 115

(12,140)

325,000 (12,918) 1,488

W

36,485 463,570

150,000

313,570 463,570

(b) Trading, Profit and Loss Account € Sales Less Cost of Sales Opening Stock 1/1/2012 Purchases (82,200 " 2,340) Less Closing Stock 31/12/2012 Cost of Sales Gross Profit Add Investment Income Add 9% Investment Income Less Expenses Rates Interest Light and Heat Wages and General Expenses Net Profit

14,800 79,880 (7,350)

(W) (W) (W) (W)

5,025 2,700 4,012 49,580

€ 145,500

87,330 58,220 85 4,500 62,805

61,317 1,488

Topic 13

Incomplete Records Solutions

203

Workings: Goodwill Investment fund Rates Interest Light & heat Wages & General Drawings Investment Income

275,000 " 250,500 3 # 1,500 ! 85 5,100 ! 1,200 " 1,275 2,100 ! 1,275 $ 3,375 " 675 4,900 ! 115 " 1,003 50,500 " 1,600 ! 680 2,340 ! 3,380 ! 1,003 ! 4,500 ! 675 ! 1,020 45,000 # 10% $ 4,500 " 750

$ $ $ $ $ $ $ $

24,500 4,585 5,025 2,700 4,012 49,580 12,918 3,750

(c) Assess the performance of Henshaw under the following headings: (i) Liquidity (ii) Probability

Liquidity A current ratio of 4:1 shows Henshaw is easily capable of paying debts for the year. He is also able to pay debts 3.4 times (Acid Test) in the short run, so Henshaw has no cash flow problems so liquidity/solvency is very solid. Profitability A gross profit margin of 40% initially looks promising but the net profit % is only 1% which indicates a problem with expenses, wages & general expenses of €49,580 in particular. The return on capital employed is a very poor 0.3% but consideration must be given to the fact that this is his first year of trading and returns are generally poor in the initial years.

204

Graded Accounting Questions – Solutions

10 JENNIFER ANN SOLUTION (a) Balance Sheet as at 31/12/2012 € Intangible Fixed Assets Goodwill Tangible Fixed Assets Buildings (! 306,000) Equipment (41,400 " 8,280) Financial Assets Investment Fund 9% Investments Current Assets Closing Stock Investment Income Due Rates Prepaid Debtors Bank

(W)

20,880 900,000 33,120

(W)

33,480 5,220 4,320 70,200 177,620 290,840

(W) (W)

Less Creditors: Amounts falling due within 1 year Interest due Creditors Electricity Due Financed By Creditors: Amounts falling due after 1 year Loan Capital Balance 1/1/2012 Less Drawings Add Net Profit

(W)

2,700 33,300 1,008

(W)

€ Sales Less Cost of Sales Opening Stock 1/1/2012 Purchases (458,599 " 7,488) Less Closing Stock 31/12/2012

Less Expenses Rates Interest Light and Heat Wages and General Expenses Net Profit

28,080 451,111 (33,480)

€ 742,851

(445,711) 297,140 9,720 162 307,022

(W) (W) (W) (W) (W) (W)

(37,008)

10,962 108,000 1,072,962

253,832 1,326,794

450,000

(b) Trading, Profit and Loss Account

Gross Profit Add Investment Income Add 9% Investment Income



16,740 7,200 11,750 167,940

(203,630) 103,392

810,000 (36,598) 103,392

876,794 1,326,794

Topic 13

Incomplete Records Solutions

Workings: Goodwill Investment Fund General Expenses Light & Heat Rates Interest 9% Investment Interest

738,000 3 172,800 13,680 17,280 6,300 9,720

" 717,120 # 3,600 " 8,100 ! 1,008 ! 3,780 ! 2,700 " 4,500

! 162 ! 3,240 $ 14,688 " 2,938 " 4,320 $ 9,000 " 1,800

(c) Advice in relation to management of funds • • • •

$ 20,880 $ 10,962 $ 167,940 $ 11,750 $ 16,740 $ 7,200 $ 5,220 (Due)

Current Ratio 5.15 shows too much funds tied up in current Assets. Bank fig € 177,620 particularly high, earning little or no return so should be used more effectively. Firm carrying very high Debtors fig € 70,000 which could be very risky for bad debts. Reduce loan fig of € 450,000 to decrease interest payments.

205

206

Graded Accounting Questions – Solutions

11 ANN O’LOUGHLIN SOLUTION (a) Balance Sheet as at 31/12/2012 €





200,000

30,000

170,000

Fixed Assets Closed Assets Stock Debtors Cash Current Liabilities Creditors Bank

21,000 36,000 6,000 63,000 14,000 7,000

Financed by Capital ! Net Profit " Drawings

(21,000)

218,000 9,000 (15,000)

42,000 212,000

212,000

(b) Trading Profit and Loss account for year ending 31/12/2012 Sales Stock 1/1/12 !Purchases "Drawings of stock Stock 31/12/12 Gross Profit Depreciation Sundry Exp. Net Profit

275,500 (2,500)

— 273,000 273,000 (21,000) 30,000 24,000

315,000

252,000 63,000 (54,000) 9,000

(c) Would you recommend a loan of €50,000 to Ann O’Loughlin?

Yes, based on the following: • No borrowing exists i.e. gearing is zero • No cash flow problems as Current Ratio of 3:1 & Acid Test 2:1 are very strong & with extra interest of €5000 would only reduce these marginally • Security of fixed Assets € 170,000 covers the loan over 3 times • Return on capital is low at 4.1% but this is understandable in the first year of trading • Loan to be given for expansion / purchase of fixed Assets & not for current expenditure.

Topic 13

Incomplete Records Solutions

207

12 BREDA CONNOLLY (a) Balance Sheet on 31/12/2012 €



Intangible Assets Goodwill Tangible Fixed Assets Premises (190,000 ! 115,000) Equipment Delivery Vans

55,060

W W

27,000 24,000

2,100 1,600

Financial Assets 4% Investments Current Assets Closing stock Stock of heating oil Debtors Less Provision for bad debts Insurance prepaid



W

W

29,000 (1,450)

Less Creditors: amounts falling due within one year. Creditors Bank overdraft Loan installments due Interest due Electricity due W

305,000 24,900 22,400 407,360 30,000 437,360

16,000 200 27,550 1,250

45,000

31,200 3,400 9,000 375 310

(44,285)

715 438,075

Financed by Creditors: amounts falling due after more than one year. Loan Capital – Balance 1/1/2012 Capital introduced Net Profit Less Drawings Capital Employed

W

300,000 30,000 41,681 (14,606)

81,000

357,075 438,075

208

Graded Accounting Questions – Solutions

(b) Trading Profit and Loss a/c for y/e 21/12/2012 € Sales Less Cost of Sales Opening stock Purchases ("Drawings)

W

(449,520 " 3,120)

20,000 446,400

Less closing stock Gross Profit Add Investment interest

W

(16,000)

W W W W

3,681 4,888 1,500 56,900 1,450 2,100 1,600

Less Expenses Insurance Light and heat Interest Wages and general expenses Bad debts provision Depreciation Equipment Depreciation Vans Net Profit

W

€ 563,000

450,400 112,600 1,200

(72,119) 41,681

Workings Wages/General Expenses Light and Heat Interest Insurance Drawings Goodwill Equipment Depreciation Capital Introduced

60,000 " 900 " 2,200 $ 6,000 " 200 ! 310 " 1,222 $ 1,500 ! 375 " 375 $ 5,000 ! 340 " 1,250 $ 4,090 " 409 $ 2,200 ! 1,222 ! 375 ! 409 ! 3,120 ! 7,280 $ 300,000 " 244,940 $ 1,500 ! 600 $ 25,000 ! 5,000 $

56,900 4,888 1,500 3,681 14,606 55,060 2,100 30,000

(c) Provide a summary of the advice you would give to Breda Connolly after her first year of trading. Breda Connolly should keep a detailed cash book and general ledger supported by appropriate subsidiary day books. This would enable Breda to prepare an accurate Trading and Profit and Loss Account, and therefore avoid reliance on estimates.

TOPI C

14 Cash Budgeting Solutions 2 3 4 5 6 7 8 9

Lagan Corrib Lifley Silver Suir Nore Brosma Camcor

210

Graded Accounting Questions – Solutions

2

LAGAN SOLUTION

(a) Receipts Sales-Cash (30% less 5% disc) Credit 1 month (35%) Credit 2 month (35%) Total Receipts Payments Purchases-1m (50% ! 20%) 2 months (50%) Wages Equipment Variable overheads Fixed overheads Interest Total Payments

July 209,475

August 234,612 257,250

Sept 245,784 288,120 257,250 791,154

Octr 251,370 301,840 288,120 841,330

Nov 262,542 308,700 301,840 873,082

Dec 268,128 322,420 308,700 899,248

209,475

491,862

63,000

230,496 210,000 63,000

241,472 235,200 63,000

246,960 246,400 63,000

257,936 252,000 63,000

117,600 71,680 584 458,664

123,200 71,680 584 698,960

126,000 71,680 584 737,936

131,600 71,680 584 760,224

134,400 71,680 584 779,600

Net Cash Opening cash Borrowing Closing cash

(97,989)

33,198 (27,989)

92,194 5,209

103,394 97,403

112,858 200,797

119,648 313,655

5,209

97,403

200,797

313,655

433,303

205,800 63,000 67,200 105,000 71,680 584 307,464

70,000 (27,989)

(b) Budgeted Profit and Loss account Sales Less purchases Gross Profit Less Expenses Wages Variable overheads Fixed overheads Interest Depreciation Discount allowed Discount received Net Profit

5,164,600 2,951,200 2,213,400 378,000 737,800 430,080 3,504 6,720 77,469

(1,633,573) 24,136 603,963

(5,164,600 " 30% " 5%) (2,951,200 ! 537,600 " 50% " 2%)*

Topic 14

3

Cash Budgeting Solutions

211

CORRIB SOLUTION

(a) Total Sales 615,000 Receipts July Sales-Cash (30% less 5%) 175,275 Credit 1 month (60% of 70%) Credit 2 month (40% of 70%) Total Receipts 175,275 Payments Purchases-1 month (50% less 2%) 2 months (50%) Wages 60,000 Equipment 72,000 Variable overheads 153,750 Fixed overheads 66,300 Interest 495 Total Payments 352,545 Net Cash Opening cash Borrowing Closing cash

(177,270) 66,000 (111,270)

645,000 August 183,825 258,300

840,000 September 239,400 270,900 172,200 682,500

870,000 October 247,950 352,800 180,600 781,350

60,000

154,350 142,500 60,000

176,400 157,500 60,000

183,750 180,000 60,000

242,550 187,500 60,000

161,250 66,300 495 427,695

210,000 66,300 495 633,645

217,500 66,300 495 678,195

228,750 66,300 495 719,295

236,250 66,300 495 793,095

14,430 (111,270)

48,855 (96,840)

103,155 (47,985)

142,080 55,170

104,130 197,250

(96,840)

(47,985)

55,170

197,250

301,380

442,125 139,650

915,000 945,000 November December 260,775 269,325 365,400 384,300 235,200 243,600 861,375 897,225

(b) Budgeted Profit and Loss account Sales Less purchases Gross Profit Less Expense Wages Variable overheads Fixed overheads Interest Depreciation Discount allowed Discount received Net Profit

4,830,000 2,406,000 2,424,000 360,000 1,207,500 397,800 2,970 7,200 72,450

(2,047,920) 18,300 (394,380)

(4,830,000 " 30% " 5%) (2,406,000 ! 576,000 " 50% " 2%)

212

Graded Accounting Questions – Solutions

4

LIFFEY

(a) Receipt Cash Sales receipt (70%) Credit Sales receipt (1 month) Total Payments Purchases Machine Rent Wages Delivery van Insurance Loan Repayment & Interest (W1) Total Net Monthly Cash Flow Bank Loan Financing (3) Opening balance Closing balance

July € 67,200 19,500 86,700

Aug. € 70,700 28,800 99,500

Sept. € 72,100 30,300 102,400

Oct. € 69,300 30,900 100,200

Nov. € 66,500 29,700 96,200

Dec. € 63,700 28,500 92,200

80,800 20,000 9,500 2,600 — — — 112,900 (26,200) 18,000 11,250 3,050

82,400 — 9,500 2,600 — — — 94,500 5,000

79,200 — 9,500 2,600 40,000 — — 131,300 (28,900) 24,000 8,050 3,150

76,000 — 9,500 2,600 — — — 88,100 12,100

72,800 — 9,500 2,600 — 3,420 — 88,320 7,880

72,000 — 9,500 2,600 — — 6,200 90,300 1,900

3,150 15,250

15,250 23,130

23,130 25,030

3,050 8,050

(b) Budgeted Income Statement for the six months ended 30/12/2012 € Sales Less Cost of sales Opening Stock Purchases Less Closing Stock (80% of Jan. sales) Gross Profit Less Expenses Rent Wages Insurance Interest Depreciation-Machinery (20,000 " 20% " 6/12) Depreciation-Delivery van (40,000 " 15% " 4/12) Profit

56,800 463,200 520,000 (72,000)

57,000 15,600 2,160 1,080 2,000 2,000

€ 585,000

448,000 137,000

79,840 57,160

Topic 14

Cash Budgeting Solutions

213

Notes € 6,000 200 6,200

W Loan repayment (1/3 of €18,000) Interest (6,000 " 8% " 5/12) W Interest 18,000 " 8% " 5/12 24,000 " 8% " 3/12

600 480 1,080

Insurance Paid # Prepaid ! Prepaid

(c) Objectives of budgeting

1/1/2012 31/12/2012

3,420 1,400 (2,660) 2,160

1. Control – The budget provides a system of control by which actual result can be compared with planned results and corrective can be taken on area where variances occur. 2. Decision Making – The budget provides a basis foe decision making e.g. forecasting sales provides a basis for deciding on the amount be hired and so on. 3. Communication – Though the budget all the objectives of the company are communicate and are in achieving the objectives of the company and so on. 4. Planning – Helps to organize business for the future.

214

Graded Accounting Questions – Solutions

5

SILVER SOLUTION

Note: (xi) should read 1/4 of money borrowed on 31st July repaid on 31st Dec.

(a)

Receipts: Cash Sales Credit Sales Total Payment: Purchases Machine Rent Wages Computer Loan Repayment Total Payment Net Cash Borrowing Opening Cash Closing Cash

July 22,040 32,400 54,440 51,750

Aug 26,220 34,800 61,020 66,750 20,000

Sept 33,820 41,400 75,220 60,000

3,100

6,500

6,000 20,000

54,850 (410) 5,000 200 4,790

93,250 (32,230) 32,000 4,790 4,560

86,000 (10,780) 11,000 4,560 4,780

Oct 30,400 53,400 83,800 73,500

Nov 37,240 48,000 85,240 67,500

Dec 34,200 58,800 93,000 54,750

4,800 6,700

5,400

6,500

85,000 (1,200) 1,000 4,780 4,580

72,900 12,340 — 4,580 16,920

1,313 (W) 62,563 30,437 — 16,920 47,357

(b) Budgeted Profit & Loss Sales ! Cost of Sales opening Stock " Purchases ! Closing Stock # Gross Profit ! Expenses Wages Discount Allowed Rent (4,800 " 900 ! 3,600) Interest Depreciation Net Profit Workings • Interest

• Discount • Loan " Interest Repaid

(c)

40,000 374,250 (54,750) 37,400 9,680 2,100 (W) 1,880 1,000

484,000

(359,500) 124,500

(W)

(52,060) 72,440

250 1,280 330 20 1,880 5% of 40% of 484,000 # 9,680 1/4 of 5,000 at 12% for 5 months # 63 " 1,250 1,313 # 5,000 $ 5 m (months) 32,000 $ 4 m (months) 11,000 $ 3 m (months) 1,000 $ 2 m (months)

# # # #

1. Define a cash budget A cash budget is a forecast of cash inflows and cash outflows over a certain period. 2. Describe its advantages • It helps to give advance warning of a possible cash shortfall so that an overdraft can be arranged. • It helps to predict future cash surpluses so that short-term investments can be made • It highlights whether enough cash will be available to meet future needs.

Topic 14

6

Cash Budgeting Solutions

215

SUIR SOLUTION

(a) Sales Months

Cash 1 Months credit 2 month credits Total

15,000 Nov € 1,425

20,000 Dec € 1,900 6,750

1,425

8,650

25,000 Jan € 2,375 9,000 6,750 18,125

30,000 Feb € 2,850 11,250 9,000 23,100

30,000 Mar € 2,850 13,500 11,250 27,600

25,000 Apr € 2,375 13,500 13,500 29,375

30,000 May € 2,850 11,250 13,500 27,600

25,000 June € 2,375 13,250 11,250 27,125

10,000 July € 950 11,250 13,500

(b) Schedule of monthly payments for the same period. Purchases budget Sales requirement cost (50%) add Closing stock less Opening stock (25% of cost) Purchases requirement

Nov Dec Jan Feb Mar Apr May June July € € € € € € € € € 7,500 10,000 12,500 15,000 15,000 12,500 15,000 12,500 5,000 2,500 3,125 3,750 3,750 3,125 3,750 3,125 1,250 10,000 13,125 16,250 18,750 18,125 16,250 18,125 13,750 (1,875) (2,500) (3,125) (3,750) (3,750) (3,125) (3,750) (3,125) 1,250 8,125 10,625 13,125 15,000 14,375 13,125 14,375 10,625

(c) Cash budget for the same period Cash budget Sales receipts Total Purchases Equipment Expenses Net Cash Opening Cash Closing Cash

Jan € 18,125 18,125

Feb € 23,100 23,100

Mar € 27,600 27,600

Apr € 29,375 29,375

May € 27,600 27,600

June € 27,125 27,125

10,625 22,000 10,000 42,625 (24,500) — (24,500)

13,125

15,000

14,375

13,125

14,375

7,000 20,125 2,975 (24,500) (21,525)

7,000 22,000 5,600 (21,525) (15,925)

7,000 21,375 8,000 (15,925) (7,925)

7,000 20,125 7,475 (7,925) (450)

7,000 21,375 5,750 (450) 5,300

(d) The Principal Budget Factor

In every organisation there is some factor that limits output and therefore prevents the company from expanding continuously. The PBF could be sales demand, capacity of the factory and availability of raw materials or labour. What factors might a company take into account when forecasting likely sales? Last year’s sales; Market Research; The opinion of the sales reps, customers and the general public.

216

Graded Accounting Questions – Solutions

7

NORE SOLUTION

(a) Schedule of Receipts Cash Sales 1m Credit Sales 2m Credit Sales

Mar

Apr

May

June

26,600 60,000 68,000 154,600

30,400 56,000 60,000 146,400

34,200 64,000 56,000 154,200

32,300 72,000 64,000 168,300

Feb 90,000 16,800 (18,000) 88,800

Mar 84,000 19,200 (16,800) 86,400

Mar 154,600

April 146,400

May 154,200

June 168,300

88,800 21,000 109,800 44,800 24,000 68,800

86,400 24,000 110,400 36,000 68,800 104,800

98,400 27,000 125,400 28,800 104,800 133,600

106,800 25,500 132,300 36,000 133,600 169,600

(b) Schedule of Payments Cost # Closing Stock ! Opening Stock $ Purchases

April 96,000 21,600 (19,200) 98,400

May 108,000 20,400 (21,600) 106,800

June 102,000 22,800 (20,400) 104,400

July 114,000 (22,800)

(c) Cash Budget Receipts Payments Purchases Expenses $ Net cash Opening Cash Closing Cash

(d) Why do firm prepaid budgets?

(i) Objectives of Budgeting 1. Control: The budget provides a system of control which actual result can be compared with planned result and corrective action can be taken in areas where variances occur. 2. Decision-Making: The budget provides a basis for decision-making e.g. forecasting sales provides a basis for deciding on the amount of materials that need to be bought, how much labour needs to be hired and so on. 3. Communication: Through the budget all the objectives of the company are communicated downwards to staff at all level. Departments communicate and are in harmony in achieving the objective of the company and so on. 4. Planning for the future. (ii) Advantages of Budgeting 1. The budget acts as a motivator to staff at all levels to achieve their targets. The budget should not be imposed and should be agreed by all and be realistic. 2. Budgeting ensures that the organisation’s resources are used as efficiently as possible and that strict control of cost are achieved. 3. The budget defines areas of responsibility and people work much better in a company where each individual knows exactly what they are responsible for. 4. Budgeting ensures that planning takes place and that there is good communication between all sections of the company.

Topic 14

8

Cash Budgeting Solutions

BROSNA SOLUTION

(a) Total Sales

Cash sales Credit sales

(b)Cost # Closing Stock !Opening Stock $ Purchases

(c) Sales

Loan Purs. Cash Credit Vehicle Insurance Wages Loan Repayment Interest Net cash Cash 1/1/12 Cash 31/12/12

Jan (38,000) 14,440 30,000 44,440

Feb (50,000) 19,000 22,800 41,800

Mar (54,000) 20,520 30,000 50,520

April (48,000) 18,240 32,400 50,640

May (56,000) 21,280 28,800 50,080

June (72,000) 27,300 33,600 60,960

28,500 7,500 (7,120) 28,880

37,500 8,100 (7,500) 38,100

40,500 7,200 (8,100) 39,600

36,000 8,400 (7,200) 37,200

42,000 10,800 (8,400) 44,400

54,000 11,400 (10,800) 54,600

44,440 26,000 70,440 13,718 22,313 37,500

41,800

50,520

50,640

50,080

60,960

41,800 18,098 14,440

50,520 18,810 19,050

50,640 17,670 19,800

50,080 21,090 18,600

60,960 25,935 22,200

5,620

5,000

7,600

2,500 8,400

7,800

79,151 (8,711) 9,625 914

37,538 4,262 914 5,176

45,460 5,060 5,176 10,236

48,370 2,270 10,236 12,506

47,490 2,590 12,506 15,096

8,000 5,200 1,560 62,895 (1,935) 15,096 13,161

(d) Trading Sales ! Cost of Sales Opening Stock # Purchases ! Closing Stock Gross Profit Profit & loss a/c. Gross Profit Expenses Discount Allowed (5% of 40% of sales of 318,000) Depreciation Insurance (2,500 # 1,500 ! 1,250) Wages Interest # Discount Received (5% of 50% of 242,780) Net Profit

318,000 7,120 242,780 (11,400)

238,500 79,500 79,500

6,360 3,750 2,750 45,800 1,560

(60,220) 6,070 25,350

(76,000)

57,000

217

218

Graded Accounting Questions – Solutions

9

CAMCOR SOLUTION Jan 57,000

Feb 90,000

Mar 90,000

April 72,000

May 84,000

June 108,000

21,660 45,000 66,660

34,200 34,200 68,400

34,200 54,000 88,200

27,360 54,000 81,360

31,920 43,200 75,120

41,040 50,400 91,440

Cost # Closing stock ! Opening stock $ Purchases

42,750 13,500 (8550) 47,700

67,500 13,500 (13,500) 67,500

67,500 10,800 (13,500) 64,800

54,000 12,600 (10,800) 55,800

63,000 16,200 (12,600) 66,600

81,000 17,100 (16,200) 81,900

Rec. Sales Payments Purchases cash Purchases credit Equipment Rent Wages loan Repayment Interest $ Total Payment Net cash # opening cash Borrowing Closing cost

66,660

68,400

88,200

81,360

75,120

91,440

22,658 26,775 45,000

32,063 23,850

30,780 33,750

26,505 32,400

31,635 27,900

38,903 33,300

6750

9750

10,500

3,000 11,700

10,050

65,663 2,737 1,027

75,030 13,170 3,764

73,605 7,755 16,934

69,585 5,535 24,689

10,800 24,000 1,440 108,443 (17,003) 30,224

3,764

16,934

24,689

30,224

13,221

Sales

(a) Schedule of Receipts Cash Sales Credit Sales

(b) Schedule of Payment

(c) Cash Budget

10,183 (34,523) 11,550 24,000 1,027

(d) Trading Profit & loss Sales ! Cost of Sales Opening Stock # Purchases ! Closing Stock $ Gross Profit less Expenses Deprecation Rent (3,000 # 1,800 ! 1,500) Wages Interest Discount Allowed # Discount Received Net Profit (w) (w)

Discount Allowed Discount Received

501,000 8,550 384,300 (17,100)

(w) (w)

10,500 3,300 65,550 1,440 10,020

375,750 125,250

(90,810) 9,608 44,048

501,000 " 40% " 5% $ 10,020 384,300 " 50% " 5% $ 9,608

(e) Explain what is meant by the accruals principle in accounting.

Each year is responsible its own expenses whether paid for or not and also for its own gains whether actually Received or not i.e. add amounts due 31/12/12. All revenue earned by the year’s activities is to be included also even if not received until next year. Expenses due at the end of the year are added on while expenses prepaid at year end are subtracted as they have been paid this year but relate to next year. Gains/Profits are treated similarly.

TOPI C

15 Production Budget Solutions 2 Morris 3 Wilkinson 4 Pezula 5 Jess Kelliher 6 Kate O’Brien 7 Tymon 8 Swift 9 Muldoon

220

Graded Accounting Questions – Solutions

2

MORRIS SOLUTION

(a) Production Budget Basic 15,000 720 (900) 14,820

Required by sales Closing stock (80% of opening) Less Opening stock Budged production in units

Luxury 6,300 540 (675) 6,165

(b) Raw Materials Purchases Budget Basic (14,820 ! 7 kg)(14,820 ! 6 kg) Luxury (6,165 ! 5 kg)(6,165 ! 8 kg) Add Closing stock Less Opening stock Required purchases in kgs. Purchase price Purchase cost

Mat. X in kg 103,740 30,825 134,565 6,000 (7,500) 133,065 €3 €399,195

Mat. Y in kg 88,920 49,320 138,240 3,600 (4,500) 137,340 €5 €686,700





(c) Production Cost Budget Opening stock of raw materials Basic Luxury Purchases (399,195 " (686,700) Closing Stock of raw materials Basic (6,000 @ €3) Luxury (3,600 @ €5) Labour Basic (14,820 ! 7 @ €13) Luxury (6,165 ! 8 @ €13) Variable overheads Basic (14,820 ! 7 @ €4) Luxury (6,165 ! 8 @ €4) Fixed overheads Cost of Manufacture

€ 18,750 20,250

18,000 18,000

39,000 1,085,895 1,124,895

(36,000) 1,088,895 1,348,620 641,160 414,960 197,280

1,989,780

612,240 306,120 3,997,035

Topic 15

Production Budget Solutions

(d) Budgeting Trading account Sales of finished Goods Opening stock of finished goods Basic Luxury Cost of manufacture Less Closing stock of finished goods Basic (720 @ €200) Luxury (540 @ €250) Gross Profit

€ 15,000 ! €220 6,300 ! €260 108,000 94,500

144,000 135,000

(e) Factors taken into account in arriving at expected sales Last year’s sales Market research Trends Price to be charged Competition Type and elasticity of product



€ 4,938,000

202,500 3,997,035

(279,000)

3,920,535 1,017,465

221

222

Graded Accounting Questions – Solutions

3

WILKINSON SOLUTION

(a) Production Budget Required for Sales Closing Stock (80% of Opening Stock) Less Opening Stock

Stain 6,000 360 6,360 (450) 5,910

Silk 7,500 200 7,700 (250) 7,450

(b) Raw Materials Usage Budget Basic (5,910 ! 7) Classic (7,450 ! 5)

Materials A 41,370 37,250 78,620

Materials B 29,550 44,700 74,250

Material A 78,620 5,200 83,820 (6,500) 77,320 !€4 309,280 €675,530

Material B 74,250 4,000 78,250 (5,000) 73,250 !€5 366,250

Raw Materials Purchase Budget Required for Production Add Closing Stock (80% of Opening) Less Opening Stocks

Total

(c) Budget Production/Manufacuring Account Direct Materials Opening Stock of Raw Materials A Material (6,500 ! 3.00) # B Material (5,000 ! 4.50) #



19,500 22,500 42,000 675,530 717,530

Add Purchases of Raw Materials Less Closing Stock of Raw Materials A Material (5,200 ! 4) B Material (4,000 ! 5) Cost of Raw Materials Consumed Add Direct Labour Satin (12 ! 7 ! 5,910) Silk (12 ! 8 ! 7,450) Variable Overheads Satin (5,910 ! 7 ! 4) Silk (7,450 ! 8 ! 4) Fixed Overheads Total Cost of Production



20,800 20,000

496,440 715,200

165,480 238,400

(40,800) 676,730

1,211,640 1,888,370

403,880 201,940 €2,494,190

(5,910 ! 5) (7,450 ! 6)

Topic 15

Production Budget Solutions

(d) Budged Trading Account for Year Ended 31/12/2012 € Sales (6,000 ! 200) (7,500 ! 290) Opening Stock Satin (450 ! 180) Silk (250 ! 210)

81,000 52,500 133,500 2,494,190 2,627,690

Add Production Less Closing Stock *(w) (360 ! 179 " 200 ! 194) Gross Profit

(103,240)

Working Mat. A Mat. B Labour Variable Fixed

Fixed Overhead

Satin 7!4 # 5!5 # 7 ! 12 # 7!4 # 7!2 #

28 25 84 28 14 179

€ 3,375,000

Silk 5!4 # 6!5 # 8 ! 12 # 8!4 # 8!2 #

20 30 96 32 16 194

201,940 # ______________________ (5910 ! 7) " (7450 ! 8) 201,940 # ______________ 41,370 " 59,600 201,940 # €2.0 # _______ 100,970

Closing Stock 360 ! 179 # 64,440 200 ! 194 # 38,800 # 103,240

(2,524,450) €850,550

223

224

Graded Accounting Questions – Solutions

4

PEZULA SOLUTION

(a) Production Budget

Required for Sales " Closing Stock (80% of opening stock) $ Opening stock Budgeted Production in units

Silver Units 10,000 640 10,640 (800) 9,840

Gold Units 7,500 480 7,980 (600) 7,380

(b) Materials Purchases Budget Material I kgs Required by Production $ Silver $ Gold

(9,840 ! 5) (7,380 ! 7)

" Closing stock (80% of opening stock)

49,200 51,660 100,860

Material II kgs (9,840 ! 6) (7,380 ! 8)

4,800 105,660 (6,000) 99,660 €4 398,640

$ Opening stock Required purchases of R.M. in kgs Purchase price Purchase Cost

(c) Budgeted Manufacturing Account for Year Ended 31/12/2012 € Direct Materials Opening Stock of Raw Materials (6,000 ! 3 " 4,000 ! 4) " Purchases of Raw Materials (398,640 " 586,400)

34,000 985,040 1,019,040

Closing Stock of Raw Materials (4,800 ! 4 " 3,200 ! 5) Direct Labour Silver (9,840 ! 8 ! €12) Gold (7,380 ! 10 ! €12) Variable Overheads Silver (9,840 ! 8 ! €5.50) Gold (7,380 ! 10 ! €5.50) Fixed Overheads Total Production Cost



(35,200) 983,840 944,640 885,600 432,960 405,900

1,830,240

838,860 457,560 4,110,500

59,040 59,040 118,080 3,200 121,280 (4,000) 117,280 €5 €586,400

Topic 15

Production Budget Solutions

(d) Budgeted Trading Account for Year Ended 31/12/2012 € Sales (10,000 ! 200) " (7,500 ! 400) Less cost of sales: Opening stock (800 ! 200) " (600 ! 250) " cost of manufacture $ Closing stock (640 ! 214) " (480 ! 273) (W) Cost of Sales Gross Profit

5,000,000 310,000 4,111,500 (268,000)

Workings 1

Fixed overhead Per Hour 9,840 ! 8 7,380 ! 10 €457,000 units P.U. # ________ 152,520

# # #

78,720 73,800 152,520 €3

Silver Material I Material II Labour Variable O/H Fixed O/H

5 ! €4 6 ! €5 8 ! €12 8 ! €5.50 8 ! €3

# # # # #

€ 20 30 96 44 24 €214

Gold Material I Material II Labour Variable O/H Fixed O/H

7 ! €4 8 ! €5 10 ! €12 10 ! €5.50 10 ! €3

# # # # #

€ 28 40 120 55 30 €273

(e) The factors that companies look for when deciding sales They look at the following things: • Last year’s sales as an indicator. • The opinion of Sales manager and Sales Reps. • The state of the economy. • Competition from other companies. • Trends in the market. • Market research. • Prices to be charged. • Whether the goods are luxury or necessity goods.



(4,152,500) €847,500

225

226

Graded Accounting Questions – Solutions

5

JESS KELLIHER SOLUTION

(a) Production Budget

Required by sales Closing stock (80% of opening stock) Opening stock Budged production in units

Regular Units 5,000 320 5,320 (400) 4,920

Superior Units 4,000 240 4,240 (300) 3,940

(b) Raw Materials Purchases Budget

Required by production Regular (4.920 ! 5) Superior (3.940 ! 4) Add closing stock (80% of opening stock) Less opening stock Required Purchases of raw materials in kg Purchase price Purchase cost

Material A kg 24,600 15,760 40,360 4,800 45,160 (6,000) 39,160 €3.00 €117,480

Material B kg (4,920 ! 6)29,520 (3.940 ! 7)27,580 57,100 4,000 61,100 (5,000) 56,100 €4.00 €224,400

(c) Budged Manufacturing Account For year ending 31/12/2012 Direct Materials Opening stock of raw materials (6,000 ! €2.50 " 5,000 ! €3.50) Purchase of raw materials (117,480 " 224,400)



Less Closing stock of materials (4,800 ! 3 " 4,000 ! 4) Direct labour Regular (4.920 ! 8 hrs ! 10) Superior (3,940 ! 9 hrs ! 10) Variable overheads: Regular (4,920 ! 8 hrs ! 4) Superior (3,940 ! 9 hrs ! 4) Fixed overheads Total Production Cost

393,600 354,600 157,440 141,840

(d) Budged Trading Account for year ending 31/12/2012 Sales (5,000 ! 180) " (4,000 ! 220) Less Cost of sales Opening stock (400 ! €140) " (300 ! €160) Add Cost of manufacture (W) Less Closing stock (171 ! 320 " 188.5 ! 240) Gross Profit

€ 1,780,000 104,000 1,578,510 (99,960)

(1,582,550) €197,450

€ 32,500 341,880 374,380 (30,400) 343,980

748,200

299,280 187,050 €1,578,510

Topic 15

Production Budget Solutions

227

(w) Workings Mat. A Mat. B Variable Labour *Fixed

* Fixed #

(e)

Regular 5!3 6!4 8!4 8 ! 10 8 ! 2.5

# # # # # #

15 24 32 80 20 171

Mat. A Mat. B Variable Labour *Fixed

Superior 4!3 7!4 9!4 9 ! 10 9 ! 2.5

# 12 # 28 # 36 # 90 # 22.5 # 188.5

187,050 # €2.5 (4,920 ! 8) " (3,940 ! 9)

1. Capital Budget: This budget deals with any planned capital expenditure e.g. purchase of fixed assets and planned capital receipts such as the sale of the fixed assets. Decision relating to these items would be the responsibility of the board of directors. The carrying out of the capital budget is the responsibility of the financial controller. 2. Controllable Costs: Are costs that can be controlled by the manager of a cost centre. She/he will make the decision about the amount of the cost or if the cost should be incurred and can be held responsible for variances in these costs. E.g.- all variable costs are controllable. Uncontrollable Costs: Are costs over which the manager of a cost centre has no control and therefore cannot be held responsible for variances in these costs. E.g.- rates to the local authority are uncontrollable.

228

Graded Accounting Questions – Solutions

6

O’BRIEN SOLUTION

(a) Production Budget Required by sales Closing stock (80% of opening) Less Opening stock Budged production in units

Ruby Units 7,500 660 (600) 7,560

Diamond Units 6,000 495 (450) 6,045

(b) Raw Materials Purchases Budget Ruby (7,560 ! 5)(7,560 ! 6) Diamond (6,045 ! 4) (6,045 ! 7) Add Closing stock Less Opening stock Required purchases in kgs. Purchase price Purchase cost

Timber 37,800 24,180 61,980 9,900 (9,000) 62,880 €3 €188,640

Metal 45,360 42,315 87,675 8,250 (7,500) 88,425 €4 €353,700

(c) Production Cost Budget Opening stock of raw materials Ruby Diamond Purchases

(188,640 " 353,700)

Closing Stock of raw materials Ruby Diamond

9,900 @ €3 8,250 @ €4

Labour Variable overheads Fixed overheads Cost of Manufacture

Ruby Diamond Ruby Diamond

€ 18,000 22,500

7,560 @ 8 @ €12 6,045 @ 9 @ €12 7,560 @ 8 @ €5 6,045 @ 9 @ €5

29,700 33,000 725,760 652,860 302,400 272,025

€ 40,500 542,340 582,840

(62,700) 520,140 1,378,620 574,425 229,770 2,702,955

Topic 15

Production Budget Solutions

(d) Budgeting Trading account Sales of finished goods Opening stock of finished goods Ruby (600 ! €140) Diamond (450 ! €160) Cost of manufacture Less closing stock of finished goods (W) Ruby (660 @ 191) (W) Diamond (495 @ 211) Gross Profit Less Expenses Selling Administration Net Profit

€ (7,500 @ 270) 84,000 72,000

126,060 104,445

13,500 @ €2

(W) Workings TR1 TR2 Var. Labour *Fixed

*Fixed#

Ruby 5! 3 # 6! 4 # 8! 5 # 8 ! 12 # 8! 2 #

15 24 40 96 16 €191

Diamond 12 4! 3 # 28 7! 4 # 45 9! 5 # 9 ! 12 # 108 18 *9 ! 2 # €211

229,770 229,770 # # €2.0 (7,560 ! 8) " (6,045 ! 9) 114,885 60,480 54,405

"

€ (6,000 @ 330)

€ 4,005,000

156,000 2,702,955

(230,505)

27,000 30,000

(2,628,450) 1,376,550

(57,000) 1,319,550

229

230

Graded Accounting Questions – Solutions

7

TYMON SOLUTION

(a) Production Sales " Closing Stock (60%) $ Opening Stock # Production

July 12,000 7,650 — 19,650

Aug 12,750 9,000 (7,650) 14,100

Sept 15,000 9,900 (9,000) 15,900

Oct 16,500 10,350 (9,900) 16,950

Nov 17,250 9,450 (10,350) 16,350

(b) Purchases Production units ! Kgs # Kg Prod " C/s (10%) $ O/s # Kgs ! Price # Purs.

19,650 6 117,900 8,460 — 126,360 €1.50 €189,540

14,100 6 84,600 9,540 (8460) 85,680 €1.50 €128,520

15,900 6 95,400 10,170 (9540) 96,030 €1.50 €144,045

16,950 16,350 6 6 101,700 98,100 9,810 (10,170) 9,810 101,340 €1.50 €152,010 # 614,115

(c) Receipts Cash sales received Credit Sales one month Credit Sales two month Payments Purchases Wages Variable Overhead Fixed overhead Equipment Interest Net Monthly Cash Flow Bank Loan Opening Balance Closing Balance

July € 108,000

Aug € 114,750 126,000

108,000

30,000 98,250 42,750 45,000 300 216,300 (108,300) 36,000 — (72,300)

240,750

Sept € 135,000 133,875 126,000 394,875

Oct € 148,500 157,500 133,875 439,875

189,540 30,000 70,500 42,750

128,520 30,000 79,500 42,750

144,045 30,000 84,750 42,750

300 333,090 (92,340) — (72,300) (164,640)

300 281,070 113,805 — (164,640) (50,835)

300 301,845 138,030 — (50,835) 87,195

Topic 15

Production Budget Solutions

231

(d) Budgeted Trading and Profit and Loss Account for the 4 months ending 31/4/2012 € Sales Less Cost of Sales Opening stock Purchases Closing stock $ Finished goods (10,350 ! 30) Raw materials (9,810 ! 1.5) Gross Profit Less Expenses Wages Variable overheads Fixed overhead Depreciation $ Equipment Operating Profit Less interest Net Profit

310,500 14,715



€ 1,687,500

— 614,115 (323,215)

120,000 333,000 171,000 3,000

(290,900) 1,396,600

(627,000) 769,600 (1,200) 768,400

(e) Adverse variance occurs when Actual expenditure is greater than budgeted expenditure Causes • Raw material Price increase • Raw material use greater than planned • Labour cost increase due to overtime • Greater no. of workers needed for job or poor production

232

Graded Accounting Questions – Solutions

8

SWIFT SOLUTION

(a) Production Budget Quantity " Closing Stock $ Opening Stock # Production total

(b) Purchases Budget Quantity @ 6Kg’s " Closing Stock $ Opening Stock $ Total in units @ €1.80 per unit

(c) Cash Budget Total Sales Cash Sales Credit Sales $ Total income

Expenditure

Purchases Labour Overheads $ Net Cash Cash 1/1 $ Cash 31/12

July

Aug

Sept

Oct

Nov

13,500 8,550 (7,200) 14,850

14,250 9,900 (8,550) 15,600

16,500 10,800 (9,900) 17,400

18,000 11,250 (10,800) 18,450

18,750 10,350 (11,250) 17,850

14,850 89,100 9,360 (1,800) 96,660 €173,988

15,600 93,600 10,440 (9,360) 94,680 €170,424

17,400 104,400 11,070 (10,440) 105,030 189,054

18,450 110,700 10,710 (11,070) 110,340 198,612

17,850 107,100 10,350 (10,710) 106,740 192,132

243,000 97,200 117,000 214,200

256,500 102,600 145,800 248,400

297,000 118,800 153,900 272,700

324,000 129,600 178,200 307,800

100,500 18,000 40,500 159,000 55,200 8,700 63,900

173,988 18,000 42,750 234,738 13,662 63,900 77,562

170,424 18,000 49,500 237,924 34,776 77,562 112,338

189,054 18,000 54,000 261,054 46,746 112,338 159,084

(d) Budgeted Trading P & L o/c Sales (62,250 @ €18) $ Cost of Sales Opening Stock (7,200 @ €15) " Purchases $ Closing Stock (10,710 @ €15) Gross Profit $ Expenses Wages Variable O/Hs Net Profit

(e) Budgetary Control

€ 1,120,500 108,000 732,078 (160,650)

72,000 186,750

(679,428) 441,072

(258,750) 182,322

• limits placed on quantities used in production & cash actually share in advance of job completion • Budgetary Targets are set with actual use being compared to or kept in line with plan • Variances are calculated to show effectiveness of budgetary control

Topic 15

9

Production Budget Solutions

233

MULDOON SOLUTION

(a) Production Budget Sales Add Closing Stock Less Opening Stock

July 12,000 4,350 16,350 (3,800) 12,550

Aug 14,500 4,650 19,150 (4,350) 14,800

Sep 15,500 5,100 20,600 (4,650) 15,950

Oct 17,000 5,850 22,850 (5,100) 17,750

Nov 19,500 6,000 25,500 (5,850) 19,650

Dec 20,000

(b) Material Purchases Budget (in units and €’s) Units of Production Materials per unit (7 kg) Required for production Add Closing Stock Less Opening Stock Received for purchases Purchase price in € Price of raw materials

July 12,550 !7 87,850 20,720 108,570 (19,100) 89,470 ! 3.50 €313,145

Aug 14,800 !7 103,600 22,330 125,930 (20,720) 105,210 ! 3.50 €368,235

Sep 15,950 !7 111,650 24,850 136,500 (22,330) 114,170 ! 3.50 €399,595

Oct 17,750 !7 124,250 27,510 151,760 (24,850) 126,910 ! 3.50 €444,185

Nov 19,650 !7 137,550

€ Aug. 406,000 162,400 120,960 69,360 352,720 297,488 12,000 43,500 352,988 (268) 193,100 192,832

€ Sept. 434,000 173,600 146,160 80,640 400,400 349,823 12,000 46,500 408,323 (7,923) 192,832 184,909

€ Oct. 476,000 190,400 156,240 97,440 444,080 379,615 12,000 51,000 442,615 1,465 184,909 186,374

(c) Cash Budget

Sales Receipts

Payments

€ May 224,000 Cash Sales 1 Month Sales 2 Month Sales

€ June 289,000 (40%) (36%)* (24%)**

Purchases Wages Variable Overheads Net Cash Cash 1/1/2012 Closing Cash

€ July 336,000 134,400 104,040 53,760 292,200 93,100 12,000 36,000 141,100 151,100 42,000 193,100

*60% of 60% of sales on credit collected after 1 month i.e. 36% **40% of 60% of sales on credit collected after 2 months i.e. 24%

(d) Would you grant overdraft facilities to Muldoon based on her budgets? Yes, based on the following. • Sales volume increasing monthly. • Credit collection within 2 months. • Cash balance of €50,925 event of problems. • However cost of purchases increase is worrying also security would be required.

(e) Explain the term Master Budget.

Master Budget is an overall budget projection for next year. It would include Cash Budget, Production Budget, Purchases, Labour Overhead Budget, Production Cost, Sales, Capital & Budgeted final a/cs.

TOPIC

16 Product Costing Solutions 2 Foodies 3 Lockie 4 Ben and Nevis 5 Miah 6 Troy and Nathan 7 Wynnie 8 Gary John 9 Conor Daniel

Topic 16

2 (a)

Product Costing Solutions

FOODIES SOLUTION •





The fixed overhead absorption rates for each department. (Per direct labour hour.) Department Monthly fixed overhead €1,500 €3,000 €2,200 _______________________ ______ ______ ______ 1,000 800 2,500 Monthly direct labour hours ! €1.50 ! €1.20 ! €2.75 The labour rate per department. Department Monthly wages’ bill €6,000 €13,750 €7,200 _______________________ ______ _______ ______ 1,000 800 2,500 Monthly direct labour hours ! €6 ! €5.50 ! €9 2,200 ! €2.2 3,500 ! €1.4 1,320 ! €1.65 _____ _____ Variable rate per department _____ 1,000 800 2,500

(b) The administration overhead absorption rate. General administration overhead __________________________ Monthly labour hours

€34,400 _______

4,300 ! €8 per direct labour hour

(c) The selling price of job € Materials Labour

Overheads

Prep Cooking Finishing Variable Prep Cooking Finishing Fixed Prep Cooking Finishing

General administration Total cost Profit (€2,349.40 ÷ 0.75) Selling price

Dept. 50 " €6 Dept. 20 " €5.50 Dept. 16 " €9 Variable Dept. 50 " €2.20 Dept. 20 " €1.40 Dept. 16 " €1.65 Fixed Dept. 50 " €1.50 Dept. 20 " €1.20 Dept. 16 " €2.75 86 " €8 75% of s.p. 25% s.p.

€ 800.00

300.00 110.00 144.00

554.00

110.00 28.00 26.40

164.40

75.00 24.00 44.00

143.00 688.00 2,349.40 783.13 3,132.53

235

236

Graded Accounting Questions – Solutions

(d) Step-Fixed Costs

Fixed costs remain the same but only up to the point of maximum production from a particular factory size. If the company wishes to increase production beyond this level it must hire extra factory space so the fixed costs step upwards and so on. 30,000

example: Rent for factory space to produce • 5,000 units is €12,000 p.a., • 10,000 units is €20,000 p.a., • 15,000 units is €30,000 p.a.

€ Cost

20,000 12,000

0

5,000

10,000

15,000

Units

(e) Marginal Absorption Costing

There is a different profit figure because closing stock is valued differently. Marginal costing does not include fixed costs when costing a product whereas absorption costing does include the fixed costs. Therefore closing stock under marginal costing is valued lower than under absorption costing because a share of fixed costs is included in the value of stock under absorption costing but not included under marginal costing. (e.g.) Under absorption costing, closing stock is valued at a ¼ of e.g. production cost of 17,400. Under marginal costing, closing stock is valued at ¼ of e.g. production cost of 14,400. Closing stock – Absorption costing 4,350 Closing stock – Marginal costing (3,600) Difference 750 The profit difference is 22,950 # 22,200 ! 750 Absorption costing should be used a it agrees with standard accounting practice and concepts and matches costs with revenues.

Topic 16

3

Product Costing Solutions

237

LOCKIE SOLUTION

(a) Overhead Analysis Basis Indirect Materials Indirect Labour Machine Maintenance Plant Depreciation Light and Heat Rent and Rates Factory Canteen

Given Given Machine Hours Plant Valuation Volume Floor Space % of Employees

Total € 288,000 400,000 22,400 64,000 56,000 51,200 40,000 921,600

Manufacturing € 136,000 240,000 11,200 38,400 32,000 25,600 24,000 507,200

packaging € 80,000 96,000 8,400 19,200 16,000 16,000 12,000 247,600

(b) Overhead Absorption Rate Manufacturing Machine Hrs

Packing Labour Hrs.

Polishing Labour Hrs.

507,200 _______

247,600 _______

166,800 _______

€8.84

€8.34

Budgeted overheads ________________

Budgeted hours Overhead rate per Machine hr. Absorption rate per labour hour

32,000

28,000

20,000

€15.85

(c) Selling price of Job No. 45 A € 9,920 5,920

Materials Labour Overheads Manufacturing Packaging Polishing Production cost Profit Selling Price

8,000 $ 1,920 1,600 $ 3,680 $

1. Direct Costs

Are directly linked to that product or service Raw materials, direct labour and direct expense. Overheads not directly linked to the product or service but included as part of the cost. Rent, depreciation of equipment, supervisors salary. A location where costs are shared. A person has authority and responsibility for expenditure in a cost centre e.g. Manufacturing.

48 " 72 " 10 " (75%) (25%)

! 640 !

15.85 ! 760.80 8.84 ! 636.48 8.34 ! 83.40 ! 17,320.68 ! 5,773.56 ! 23,090.24

(d)

Indirect Costs 2. Cost Centre

Polishing € 72,000 64,000 2,800 6,400 8,000 9,600 4,000 166,800

238

Graded Accounting Questions – Solutions

4

BEN AND NEVIS SOLUTION

1. Ben (a) Overhead

Basis

Dep. of Equipment Dep. of Factory Factory heating Factory cleaning Canteen

Book value Floor area Volume Floor area No. employees

Production 1 2 € € 9,000 6,000 9,000 12,000 3,600 7,200 900 1,200 5,400 5,400 27,900 31,800

Total € 24,000 30,000 14,400 3,000 16,200 87,600

Service A € 3,000 6,000 2,400 600 2,700 14,700

B € 6,000 3,000 1,200 300 2,700 13,200

(b) Production 1 2 € € 27,900 31,800 11,025 3,675 9,900 3,300 48,825 38,775

Total Cost Apportion Dept. A to Production Apportion Dept. B to Production

Service A € 14,700 (14,700)

B € 13,200 (13,200)

(c) Machine hour absorption rate Dept. 1 Dept. 2

48,825 ! €10.85 Per machine hour. ______ 4,500 38,775 ______ ! €25.85 Per machine hour. 1,500

(d) Re-apportionment:

This is the term used where Service Department costs are re-apportioned between production departments because overheads can only be recovered by being included as part of the cost of production.

2. Nevis

Nevis estimates its fixed Production overhead costs next year will be €18,000 and that it will produce 3,000 tables incurring 4,000 Direct Labour/hours and 800 Machine/hours. €18,000 ! €6 per Unit Total Overheads ! _______ (a) Per Unit: _____________ 3,000 No of Units Per Direct Labour (b) _______________ hr

€18,000 ! €4.50 per Labour/hr ! _______ 4,000

Per Machine (c) __________ hr

€18,000 ! €22.50 per Machine/hr ! _______ 800

What happens if we produce more or less of the product and the Production Overheads are more or less than planned. Take the above example: What happens if the actual overhead incurred was €16,200 and the number of Units produced was (a) 2,800 Units (b) 3,000 Units (c) 3,400 Units (d) 1,900 Units. Units Fixed Production Overheads Overhead Absorbed (Unit " Rates) Under/Over Absorbed Workings

16,800 ! 2,800 " 6 18,000 ! 3,000 " 6 20,400 ! 3,400 " 6 11,400 ! 1,900 " 6

2,800 € 16,200 € W 16,800 € 600

3,000 16,200 18,000 1,800

3,400 16,200 20,400 4,200

1,900 16,200 11,400 (4,800)

Topic 16

5

Product Costing Solutions

MIAH SOLUTION

(a) Departmental overhead Absorption Rate (use dominant activity) Budgeted Manufacturing overheads 270,000 ! €4 per mach/hr Cutting ! ____________________________ ! _______ 67,500 Budgeted Machine hours Budgeted Manufacturing overheads 69,000 ! €1.15 per lab/hr Fitting ! ____________________________ ! _______ 60,000 Budgeted Labour hours

(b) Under/overhead Absorption by Dept. and in Total

Actual overhead incurred Absorbed overhead (W1) Over(under) Absorption

Cutting € 210,000 300,000 90,000

Fitting € 69,000 (W2)60,375 (8,625)

Total € 279,000 360,375 81,375

Overall effect: Profits increased by €81,375 Actual " Absorbed Rate (W1) Overhead Absorbed ! No. of Machine hours " Absorption Rule (75,000 " 4 ! 300,000) (W2) Overhead Absorbed ! No. of Labour hours " Absorption Rate (52,500 " 1.15 ! 60,375)

(c) Total Production cost of Job No 789 B. Direct Material Direct Wages Prime Cost Overhead Absorbed

Total production cost 80%

(110 $ 50) (100 $ 70)

! 160.00 ! 170.00

30 hrs " 4 25 hrs " 1.15

! €120.00 ! 28.75

Profit 20% Selling Price 100%

330

148.75 478.75 119.69 598.44

(d) Explain with examples: controllable and uncontrollable costs. Controllable costs Uncontrollable cost

The manager has the power to incur these costs. They can make a decision about the amount to be incurred e.g. raw materials, labour. A cost over which the manager of a cost centre has no control e.g. rates and taxes, interest rules.

239

240

Graded Accounting Questions – Solutions

6

TROY AND NATHAN SOLUTION

(i) Troy

Valuation of Closing Stock

(a) Value of the Closing Stock using first in first out (FIFO) method Purchases in Units 2,300 2,500 2,950 3,100 10,850

@ @ @ @

Cost Price € 14.00 17.00 17.00 19.00

@ @ @

Cost Price € 19.00 21.00 22.00

Sales in Units 3,210 2,200 4,050 10,400

! ! ! !

Purchases at Cost € 32,200 42,500 50,150 58,900 183,750

! ! !

Closing Stock in units Opening Stock Add Purchases

Sales Value € 60,990 46,200 89,100 196,290

6580 10,850 17,430 (9,460) 7,970

Less Sales Closing Stock Closing Stock in € 3,100 units @ €19.00 2,950 units @ €17.00 1,920 units @ €17.00

58,900 50,150 32,640 141,690

(b) Trading Account for the year ending 31/12/2012 € Sales Less Cost of Sales Opening Stock Purchases Less Closing Stock Gross Profit

78,960 183,750 262,710 141,690

€ 196,290

121,020 75,270

Topic 16

Product Costing Solutions

(ii) Nathan (a) Selling Price of job 2345 if the profit is set at 35% of selling price € Direct Materials Direct Wages Alpha Beta Gamma Variable Overheads Alpha Beta Gamma Fixed Overheads Alpha Beta Gamma General Administration Overheads 120 hours " €4.50 Total Cost ! 80% of selling price Profit ! 20% of selling price Selling Price ! 100%

€ 14,800.00

(35 hours " €17.00) (25 hours " €22.00) (60 hours " €19.00)

595.00 550.00 1,140.00

2,285.00

(35 hours " €5.00) (25 hours " €12.00) (60 hours " €7.00)

175.00 300.00 420.00

895.00

(35 hours " €3.50) (25 hours " €6.00) (60 hours " €11.50)

122.50 150.00 690.00

962.50 540 19,482.5 4,870.63 24,353.13

(iii) Enda May (a) Rates: Machine hour : Labour hour : Per Unit hour

32,000/1,000 ! €32 32,000/5,000 ! €6.4 32,000/4,000 ! €8.0

(b) Per Unit Actual 32,000 Absorbed (W) 36,000 Over/under 4,000

Labour hrs 32,000 35,200 3,200

(c)

Machine hrs 32,000 28,800 (3,200)

Explain the difference between allocation and apportionment of costs. Allocation – this is where direct costs can be linked directly to the item being costed. Apportionment – indirect costs are divided between cost centres using suitable bases of appointment.

(W)

Workings 36,000 ! 4,500 PU @ €8 35,200 ! 5,500 Labour hrs @ €6.4 28,800 ! 900 Machine hrs @ €32

241

242

Graded Accounting Questions – Solutions

7

WYNNIE SOLUTION

(i) Valuation of Closing Stock (a) Value of the Closing Stock using first in first out (FIFO) method. Purchases in Units 6,300 5,800 5,750 6,200 24,050 Sales in Units 5,700 9,150 8,250 23,100 Closing Stock in units Opening Stock Add Purchases

@ @ @ @

Cost Price 8.00 9.00 9.00 11.00

@ @ @

Cost Price 11.00 ! 12.00 ! 13.00 !

! ! ! !

Purchases at Cost 50,400 52,200 51,750 68,200 222,550 Sales Value 62,700 109,800 107,250 279,750 6,700 24,050 30,750 (23,100) 7,650

Less Sales Closing Stock Closing Stock in € 6,200 units @ €11.00 1,450 units @ €9.00

68,200 13,050 81,250

(b) Trading Account for the year ending 31/12/2012 € Sales Less Cost of Sales Opening Stock (6,700 units " €8.00)

53,600 222,550 276,150 (81,250)

Less Closing Stock Gross Profit

€ 279,750

(194,900) 84,850

(ii) Budgeted Overheads (a) Cutting Department Budgeted overhead costs Budgeted Hours Overhead Absorption Rates

Variable €9,600 600 €16 per hour

Fixed €3,300 600 €5.50 per hour

Welding Department Budgeted overhead costs Budgeted Hours Overhead Absorption Rates

Variable €12,600 1,400 €9 per hr

Fixed €2,100 1,400 €1.50 per hr

Finishing Department Budgeted overhead costs Budgeted Hours Overhead Absorption Rates

Variable €4,400 400 €11 per hour

Fixed €900 400 €2.25 per hour

Topic 16

Product Costing Solutions

243

(b) General Administration Overhead Overhead Absorption Rate per hour !

General Administration Overhead €6,000 ! Total Budgeted Hours 2,400 ! €2.50

(c) Calculation of Product Cost and Selling price € Direct Materials Direct wages: Cutting Department Welding Department Finishing Department Variable overheads Cutting Department Welding Department Finishing Department Fixed overheads Cutting Department Welding Department Finishing Department

€ 1,250.00

(75 hours @ €9) (150 hours @ €8) (24 hours @ €10)

675 1,200 240

2,115.00

(75 hours @ €16) (150 hours @ €9) (24 hours @ €11)

1,200.00 1,350.00 264.00

2,814.00

412.50 225.00 54.00

691.50

(75 hours @ €5.50) (150 hours @ €1.50) (24 hours @ €2.25)

General Administration overheads (249 hours @ €2.50) Total Cost ! 80% of selling price Profit ! 20% of selling price Selling Price ! 100%

622.50 7,493.00 1,873.25 9,366.25

(iii) Curley Meats *(Machine Hours) Cutting 50,400 12,600 ! €4.0

*(Labour Hours) Weighing 12,960 16,200 €0.80

*(Using dominant activity) Cutting Actual 55,800 *Absorbed (W) 57,600 Over/under 1,800 (W) Cutting Wages Packing

Weighing 10,800 10,656 (144)

14,400 @ €4.0 13,320 @ €0.80 9,000 @ €2.0

(c) Overall Effect on Profit

*(Labour Hours) Packing 14,400 7,200 €2.0 Packing 16,200 18,000 1,800

Total 82,800 86,256 3,456 ! 57,600 ! 10,656 ! 18,000

Cutting costs incurred were 1,800 less than expected/budgeted and therefore profits are 1,800 greater than expected. Weighing costs incurred were 144 more than expected/budgeted and therefore profits are 144 less than expected Packing costs incurred were 1,800 less than expected/budgeted and therefore profits are 1,800 greater than expected. Overall costs incurred were 3,456 less than expected/budgeted and therefore profits are 3,456 greater than expected.

244

Graded Accounting Questions – Solutions

8

GARY JOHN SOLUTION

(a)

Factory L & H Machinery

Basis Volume Valuation

Material handling Canteen Costs Supervisor General Repairs Cleaning

D. Materials Employees Employees Machines Floor

Re Apportioned

(machine hour)

€ Total 16,000 19,000

€ Prod. 1 10,000 10,000

€ Prod. 2 3,000 9,000

10,000 54,000 45,000 15,000 9,000 168,000

6,000 18,000 15,000 10,000 5,400 74,400 16,800 13,900 105,100

4,000 13,500 11,250 5,000 1,800 47,550 8,400 6,950 62,900

168,000

€ Service A 2,000

€ Service B 1,000

12,000 10,000

10,500 8,750

1,200 25,200 (25,200)

600 20,850



(20,850) —

(b) Production 1 Production 2

105,100 ! €1.31 80,000 62,900 ! €1.57 40,000

(c) Job no 72B per unit Materials €5.4 Labour €4.8 Production 1 €1.31 " 6 Production 2 €1.57 " 7 Cost per unit ! 80% Profit ! 20% Selling price ! 100%

! 5.40 ! 4.80 ! 7.86 ! 10.99 ! 29.05 ! 7.26 ! 36.31

(d) Actual Absorbed Prod. I 70,000 @ €1.31 Prod. II 41,400 @ €1.57 Under absorbed Profit Reduced by

142,400 ! €91,700 ! €64,998

(156,698) 14,298

€14,298

(e) What are the main differences between direct and indirect costs?

Direct Costs – are direct linked to that product or service e.g. Raw Materials, Direct labour & direct expenses. Indirect Costs – Overheads not directly linked to the product or service but included as part of the cost e.g. Rent depreciation of equipment.

Topic 16

9 (i)

CONOR DANIEL SOLUTION (a) Units 6,000 4,400 3,000 13,400 1,800 4,600 2,400 2,600 2,400 13,800 Units 8,000 13,400 (13,800) 7,600

Purchases

Sales

Opening Stock $ Purchases # Sales ! Closing Stock

Price @ €8 @ €12 @ €14

€ ! 48,000 ! 52,800 ! 42,000

€142,800

@ €18 @ €20 @ €22 @ €24 @ €26

! ! ! ! !

32,400 92,000 52,800 62,400 62,400

€302,000

! ! ! !

€ 42,000 52,800 1,600 €96,400

3,000 @ €14 4,400 @ €12 200 @ €8

! Closing stock (Value)

(b) Trading a/c. Sales # Cost & Sales Opening Stock $ Purchases # Closing Stock ! Gross Profit

(ii)

Product Costing Solutions

€ 302,000 64,000 142,800 (96,400)

(a) Variable

Fixed

Dept. 1. Dept. 2. Dept. 3. Dept. 1. Dept. 2. Dept. 3.

7,200/600 15,000/1000 4,500/500 6,900/600 13,000/1000 2,500/500

! €12 ! €15 ! €9 ! €11.5 ! €13 ! €5

(110,400) 191,600

245

246

Graded Accounting Questions – Solutions

(b) Administration

18,900/2,100 ! €9

(c) Job TR. 78 Materials Variable O/Hs Dept. 1. 40 @ €12 Dept. 2. 70 @ €15 Dept. 3. 30 @ €9 Fixed O/Hs Dept. 1. 40 @ €11.5 Dept. 2. 70 @ €13 Dept. 3. 30 @ €5 Wages Dept. 1. 40 @ €17 Dept. 2. 70 @ €21 Dept. 3. 30 @ €19 General Administration 140 @ €9 Cost Profit Selling Price

€ 2,350 ! 480 ! 1,050 ! 270

1,800

460 910 150

1,520

! 680 ! 1,470 ! 570

2,720

! ! !

! 80% ! 20% ! 100%

1,260 9,650 2,412.50 12,062.50

(iii) (a) Perfect Pork Cutting

€280,000 _________________

Boning

€72,000 ______________

Dispatch

€4 70,000(Machine hrs) ! 9000(labour hrs)

! €8

€80,000 _______________

40,000(labour hrs) ! (use dominant activity)

€2

(b) Actual # Absorbed (w) Over/Under Absorbed *(w) Absorbed working Cutting Boning Dispatch

Cutting 310,000 *320,000 10,000 80,000 7400 50,000

Boning 60,000 59,200 (800)

Dispatch 90,000 100,000 10,000

Machine hrs @ €4 ! Labour hrs @ €8 ! Labour hrs @ €2 !

Total 460,000 479,200 19,200 320,000 59,200 100,000

TOPI C

17 Marginal Costing Solution (with Flexible Budgeting) 2 McCanney 3 Zalon 4 Orion 5 Gazza and Jen 6 Remus 7 Tom and Jones 8 Marge and Bart 9 Red and Bull 10 John, Paul and George

248

Graded Accounting Questions – Solutions

2

MCCANNEY SOLUTION Total € 900,000 (351,000) 549,000 (277,000) 272,000

Sales (60,000) ! VC (w) # Cont. ! FC (w) # Profit

(a)

(b) (c)

(d)

(e)

Break Even

Per unit € 15 5.85 (5.10 " .75) 9.15

277,000 FC # _______ _____

# 30,274 unit

Margin

9.15 CPU 60,000 ! 30,274

Units

FC " Profit # ________________ 277,000 " 312,800 __________ CPU

# 29,726 unit 9.15

€ 13 SP. !VCPU !5.75 (5.10 " .65) 7.25 $ 75,000 # 543,750 327,000 ! FC # Profit Sales ! VC. # Cont. ! FC. # Profit

590,550 (318,550) 272,000

14.94 # 95%/100% (5.10) 9.84

277,000 FC ____________ # __________

CPU ! 10% 11.05 ! 1.7 (CPU # 17 ! (5.1 " 85) # 11.05)

# 64,460 unit

# € 216,750 # €15.73

# 29,626 units

SP VCPU # CPU

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

(f ) Break Even Chart 1,000

Total revenue (910,000)

t

fi Pro

Total costs (787,750)

€ 000

Break even point 500 Loss

Fixed costs (234,600)

100 42,773

65,000

Units

(w) Working FC Materials Labour Factory O/Hs Admin Selling

— — 32,000 140,000 105,000 277,000

VC 160,000 98,000 48,000 — 45,000 351,000

249

250

Graded Accounting Questions – Solutions

3

ZALON SOLUTION FC. Mats. labour O/H’s Selling Admin.

(a)

(b)

100,100 34,500 100,000 234,600

# 42,733 units

Margin # Sales ! B/E # 65,000 ! 42,733

# 22,267 units

234,600 " 146,700 (" 20%) FC " Profit # ________________ __________

# 69,454 units

234,600 FC _________________ # _________

# €197,143 units

Sales ! VC # Contribution ! FC # Profit

# 936,000 # (655,980) # 280,020 (264,600) € 15,420

FC # _____ CPU

(d)

(e)

5.49

3.59 ! 2.4 CPU ! 20% of s.p. (CPU # 12 ! (7.81 " 0.6) # 3.59) 78,000 $ 12 78,000 $ (7.81 " 0.6) (78,000 $ 3.59)

Total Sales ! VC # Contribution ! FC # Profit

P.U. 14 8.51 (7.81) 5.49

553,150 234,600 # _______ 5.49

B/E

CPU

(c)

Sales (65,000) ! VC # Conf. ! FC # Profit

VC. 312,250 152,500 42,900 45,500

Total 910,000 (553,150) 356,850 (234,600) 122,250

345,120 (222,870) 122,250

12 8.41 3.59

P.U. 13.12 # 95% of s.p. 7.81 (VCPU excl. comm.) 5.31

SP # €13.81

(f ) Explain what is meant by sensitivity analysis.

Sensitivity Analysis is a technique used by management to examine the effect on profit brought on by a change in: • Selling price • Overheads • Material costs. It is the ‘What if ’ situation.

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

4

ORION SOLUTION (w) (w)

(a)

(b)

€ 1,152,000 (811,200) (w) 340,800 (221,520) 119,280

Sales (96,000) ! Variable (V C) # Contribution ! Fixed (F.C) # Profit

Per unit 12 8.45 (7.85) 3.55 CPU

Break even

221,520 FC # _______ _____

# 62,400 units

Margin

96,000 ! 62,400

# 33,600 units

3.55

CPU

221,520 " 143,136 FC " Profit # ________________ __________

# 102,720 units

3.55

CPU

(c)

(d)

(e)

€ Sales 11 P.U. ! V.C 8.4 (7.85 " 0.55) # Contribution 2.6 $ 110,400 # 287,040 (239,520) ! FC # Profit # €47,520 Sales ! VC # Contribution ! FC # Profit

371,813 (252,533) 119,280

FC ___________

#

11.72 # 95% 7.85 3.87 100%

221,520 ________

CPU ! 10% 4.5 ! 1.3 (CPU # 13 ! (7.85 " 0.65) # 4.5)

Working Mats. labour O/H s Admin Selling

V.C 492,000 222,720 38,880 57,600 811,200

F.C

47,520 124,800 49,200 221,520

# €12.34 # 69,225 units

251

252

Graded Accounting Questions – Solutions

(f ) Total revenue (1,152,000)

1,200 it of Pr

€ 000

1,000

Total costs (1,032,720)

500 Loss

Fixed costs (221,520)

100 62,400 Units

96,000

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

5

GAZZA & JEN SOLUTION

1. Gazza (a) € Total 1,120,000

Sales (20,000) Variable Costs Materials 240,000 Wages 280,000 Overheads 60,000 Administration 99,000 # Contribution ! Fixed Costs 120,000 ! Overheads 125,000 ! Administration # Profit 245,000 # 11,112 units Fixed Costs # _______ __________ 22.05 C.P.U Margin 20,000 ! 11,112 # 8,888 units

(679,000) 441,000

33.95 22.05

(245,000) 196,000

(b)

Total revenue (1,120,000)

1,200 1,000

€ Costs Revenue

€ Per unit 56

it of Pr

Total costs (924,000)

Break even 500 Loss

Fixed costs (245,000)

100 11,112 Units

(c) Sales ! Variable # Contribution ! Fixed # Profit

(d)

53.2 (33.95) [email protected] 30,000 units # 577,500 (265,000) # €312,500

245,000 245,000 Fixed Costs __________________ # _______________________ # ___________

# 40,496 units

Sales €60.00 ! Variable 37.95 (33.95 " 1.0 " 3.0) # Contribution 22.05 @ 25,000 units # 551,250 ! Fixed !245,000 # Profit

# €306,250

C.P.U. ! 20% of S.P.

[50 ! 33.95] ! [20% of 50]

16.05 ! 10.0

(e)

253

254

Graded Accounting Questions – Solutions

2. Jen PLC (a) Level

Units

High Low Difference

7,200 4,800 2,400

Variable per unit Fixed element (High 7,200 @ €1.2 ! 13,640) (High 7,200 @ €0.8 ! 8,760)

Production € 13,640 10,760 2,880 2,880 _____ 2,400 €1.2 €5,000

Other € 8,760 6,840 1,920 1,920 _____ 2,400 €0.8 €3,000

(b) Flexible Budget for 85% (6,800 units) in Marginal Costing format € € Sales 80,800 Variable costs (W) Materials 6,800 @ €3 20,400 (W) Wages 6,800 @ €2 13,600 Production 6,800 @ €1.2 8,160 Other 6,800 @ €0.8 5,440 47,600 Contribution 33,200 Fixed Costs Administration 5,000 Production 5,000 Other 3,000 13,000 Profit 20,200 (V.C. 47,600 " F.C. 13,000 # T.C. 60,600 # 75% of sales) (W) Materials (W) Wages

14,400 4,800

#

€3 P.U.

9,600 4,800

#

€2 P.U.

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

6

REMUS SOLUTION

(a) € Sales (200,000 units) Variable Costs Manufacturing (60%) Production (200,000 $.6) Other (50%) Selling (15% of 1,200,000) Contribution Fixed Costs Manufacturing Production Selling & Distribution Other # Profit

€ 1,200,000

288,000 120,000 30,000 180,000

618,000 582,000

192,000 60,000 64,500 30,000

346,500 235,500

Production O/Hs Units 120,000 90,000 30,000

High Low

1 unit # €0.6 per unit Fixed (90,000 $ €0.6 ! 114,000) # 60,000

(b)

346,500 FC # _______ Break Even # _____ 2.91 CPU

(c) Units

€ 132,000 114,000 18,000

# 119,073 unit

# 119,073 @ €6

# €714,438

346,500 FC # _________ # ___________ CPU ! 25% 2.91 ! 1.5

# 245,745 units

(d) Sales 5.4 !VC 3.0 (2.19 " .81) # Contribution 2.4 $ 250,000 # 600,000 !FC ! 346,500 # Profit

(e)

# €253,500

256,500 " 330,000 # _______ 586,500 # 220,904 units FC " Profit # ________________ __________ CPU

2.655

(CPU # 5.7 ! (2.19 " .855) # 2.665)

2.655

€ Per Unit 6

3.09 (2.19) 2.91 (CPU)

255

256

Step fixed cost is a cost that is fixed for a limited Range of output. Then raises to a different level for a further Range. 30,000

20,000 € Rent

(f )

Graded Accounting Questions – Solutions

15,000

6,000

0

25,000 35,000 45,000 55,000 Output

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

7

TOM AND JONES SOLUTION

Tom Ltd U.C. 115,200 57,600 8,160

Materials labour Factory O/Hs Admin Exps. Selling

(a)

14,400 195,360

Sales (60,000) !V.C. # Contribution !F.C. # Profile Break Even Margin

€ Total 288,000 (195,360) 92,640 (63,440) 29,200

F.C.

12,240 38,400 12,800 63,440 € Per Unit 4.8 3.256 (3.016) 1.544 (CPU)

63,440 FC # ______ _____

# 41,088 units

60,000 ! 41,088

# 18,912 units

CPU

1.544

(b) S.P 5.2 !V.C 3.276 (3.016 " 0.26) 1.924 63,440 FC Units # ______________ # ___________ CPU ! 10% SP 1.924 ! 0.52

# 45,186 units

(c) S.P 4.4 !V.C. 3.236 (3.016 " 0.22) Contribution 1.164 $ 82.000 !FC # Profit

# 95.448 (67,110) €28,008

Jones Ltd (a) Marginal Costing Sales ! Variable Costs Materials (15,000 @ 50c) Labour (15,000 @ 80c) Variable O/Hs (15,000 @ 90 c) Contribution ! Closing Stock (1/5 of 33,000) ! Fixed Costs Profit



7,500 12,000 13,500 33,000 (6,600)

€ 96,000

(26,400) 69,600 (17,500) 52,100

257

258

Graded Accounting Questions – Solutions

Abortion Costing Sales ! Variable Costs Materials Labour Variable O/Hs " Fixed costs Production Cost ! Closing Stock (1/5 of 50,500) Profit



7,500 12,000 13,500 33,000 17,500 50,500 (10,100)

€ 96,000

(40,400) 55,600

(b) Outline the differences between marginal and absorption costing. Indicate which method should be used for financial accounting purposes and why.

There is a different profit figure because closing stock is valued differently. Marginal costing does not include fixed costs when costing a product whereas absorption costing does include the fixed costs. Therefore closing stock under marginal costing is valued lower than under absorption costing because a share of fixed costs is included in the value of stock under absorption costing but not included under marginal costing. Under absorption costing, closing stock is valued at a 1/5 of the production cost of 50,500. Under marginal costing, closing stock is valued at 1/5 of the production cost of 33,000. Closing stock – Absorption costing Closing stock – Marginal costing Difference

10,100 6,600 3,500

The profit difference is 55,600 ! 52,100 # €3,500 Absorption costing should be used as it agrees with standard accounting practice and concepts and matches costs with revenues.

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

8

259

MARGE AND BART SOLUTION

Marge Ltd Sales (70,000 units) ! Variable (VC) Materials labour 40% Overheads Sales Commission # Contribution ! Fixed Costs (FC) 60% Overheads Admin Exps. Selling Profit

(a)

Break Even Margin

650,000 560,000 60,000 98,000

90,000 192,000 90,000

372,000 FC # _______ _____

CPU 8.46 70,000 ! 43,972

€ 1,960,000

(1,368,000) 592,000

P.u. 28

19.54 (18.14) 8.46

(372,000) 220,000

#

43,972 units

#

26,028 units

(b) Sales ! VC # Contribution ! FC # Profit

629,200 (409,200) 220,000

100%

(c) Sales ! VC # Contribution ! FC # Profit/loss

27.13 # 95% (18.14) 8.99

# € 28.56

€ P.U. 24 19.34 (18.14 " 1.2) 4.66 $ 85,000 # 396,100 (422,000) (€25,900)

(d) Contribution to Sales Ratio is an alternative way of finding break even if not all figures are given especially variable costs. €1,231,221(Approx.) 372,000 FC # ________________________ ____ # _________________ C/S

0.30404 (592,000/1,960,000)

€28

# 43,972 units (approx. equal to B/E point in part a)

260

Graded Accounting Questions – Solutions

Bart Ltd (a) Absorption

Sales (4,800 $ €4.80) Less Costs Materials (5,400 $ 0.36) Labour (5,400 $ 0.54) Variable (5,400 $ 0.42) Fixed Costs ! Closing Stock (1/9 of 9,828) Profit

Marginal

Sales ! Costs Materials labour Variable ! Closing Stock (1/9 of 7,128) Contribution ! Fixed Costs Profit

23,040 1,944 2,916 2,268 2,700 9,828 (1,092)

1,944 2,916 2,268 7,128 792

(8,736) 14,304 23,040

(6,336) 16,704 (2,700) 14,004

(i) Fixed Costs: Remain the same where output level changes e.g. Rent i.e. fixed costs are independent of the level of production. Variable Costs: The amount of the cost changes directly with the level of production e.q. raw materials i.e. variable costs vary with the level of production. (ii) Direct Costs: Are costs that are directly linked to a product/service e.g. raw materials, direct lab direct expenses e.g. hire of special equipment. Total direct costs are also known as PRIME COST. Indirect Costs: Not directly linked to product/service, but must be included as part of the cost e factory rent and rates, factory light and heat, production supervisors salary. (iii) Controllable Costs: Costs that can be controlled by a manager in a Centre. The manager can make a decision about the amount of the cost and can be held responsible if a variance occurs e.g. raw materials. Uncontrollable Costs: Costs over which a manager has no control and cannot be held responsible for variances in these costs e.g. rates to the local authority. (iv) 1. Cost Allocation: When a cost can be charged in total to a cost centre without being dividend into smaller parts, it is said to be allocated. 2. Cost Absorption: Means that the fixed overhead costs are absorbed into the cost of the Product. 3 Methods of doing this: (1) Amount per Unit (2) Amount per direct Labour hour (3) Rate per direct Machine Hour.

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

9

261

RED AND BULL SOLUTION

Red (a) Materials Labour Production of O/Hs Other of O/Hs Admin.

Variable €11 €8 €4 — €1.25

Fixed — — €21,000 €22,000 €11,000

(b) High low method High Low

Units 8,000 4,000 4,000 VCPU Fixed

(c) Sales (90% ! 9000 units)

Production 53,000 37,000 €16,000 €4 €21,000 €

! Variable Costs Material 9,000 @ 11 Labour 9,000 @ 8 Production 9,000 @ 4 Administration 9,000 @ 1.25 # Contribution ! Fixed Costs Production Other Admin # Profit (VC " FC # 80 % of sales)

# # # #

99,000 72,000 36,000 11,250

21,000 22,000 11,000

Administration 21,000 16,000 €5,000 €1.25 €11,000 € 340,312.50

(218,250) 122,062.50

(54,000) 68,062.50

Bull Break-even point in units and value Variable costs Materials Labour Factory overheads Selling and Distribution (40,000 $ €1) Fixed Costs Factory overheads Selling and Distribution Administration (48,000 $ 75%) Marginal Costing Statement Sales (40,000 units) Less: Variable Costs Contribution Less Fixed Costs Net Profit

140,000 84,000 14,400 40,000 57,600 55,000 46,000 € 480,000 278,400 201,600 (158,600) 43,000

Per unit €12.00 €6.96 €5.04

278,400

158,600

5.96

262

Graded Accounting Questions – Solutions

(a) Break-Even Break Even

FC # _______ 158,600 _____

# 31,469 units

Margin

40,000 ! 31,469

# 8,531 units

Contribution to Sales Ratio

201,600 _______

# 0.42

FC ________

€377,619 # 31,469 units 158,600 # ________ _______

CPU

CS Ratio

5.04

480,000

€12

0.42

(b) Selling Price

€ Sales ! VC # Contribution 217,460 (174,460) ! F. C. 43,000 # Profit S.P. €12.40 #

€ P.U. 12.4 6.96 ! 5.44

(c) € 11 6.96 ____ 4.04

SP VCPU # CPU FC No of units # ______________ CPU ! % of SP 158,600 # 53,946 Units # _________ 4.04 ! 1.1

Topic 17 Marginal Costing Solution (with Flexible Budgeting)

10

JOHN, PAUL AND GEORGE SOLUTION

(i) John V.C. 30 24 62 24 10 150

Mats. labour Factory O/Hs Other O/Hs Selling

F.C. (in thousands)

6 15 4 25

€ Total 200,000 (150,000) 50,000 (25,000) 25,000

Sales (40,000) ! VC. # Cont. ! FC. # Profit

€ P.U. 5 3.75(3.5) 1.25

(a) High/low Method High Low

(b)

Units 55,000 30,000 25,000 VCPU FC

Factory 91,250 52,500 €38,750 €1.55 €6,000

Other 48,000 33,000 €15,000 €0.6 €15,000

25,000 FC # ______ # 20,000 Units B/E # _____ 1.25 CPU €50,000 # .25 ______ 25,000 # ________ €100,000 # 20,000 units C/S # _______ 200,000 .25 €5

(c)

225,000 Total revenue (200,000)

200,000 it of Pr

Total costs (175,000)



150,000

100,000

Break even point

50,000

ss

Lo

Margin

20,000 Units

Fixed costs (25,000) 40,000

263

264

(d)

Graded Accounting Questions – Solutions

25,000 # 25,000 units FC __________ # __________ CPU ! %

1.25 ! .25

(e)

(f )

Sales ! VC # Contribution ! FC # Profit

5 2.25 (3.75 ! 1.5) 2.75 $ 45,000 # 123,750 ("15,000) !40,000 €83,750

Sales ! VC # Contribution !FC # Profit (ii) Paul

4.8125 # 95%/100% # €5.07 3.5 52,500 ! 1.3125 27,500 25,000

(a)

€ Absorption Sales (8,000 units) ! Production Costs Mats. labour Variable O/Hs Fixed O/Hs

€ 64,000

(10,000 units) 6,000 9,000 7,000 5,000 27,000 5,400 (21,600) €42,400

!Closing Stock 1/5 Profit

€ Marginal Sales (8,000 units) ! Prod. costs Mats. labour Var O/Hs !C/S 1/5 Contribution ! Fixed Costs Profit

(iii) George (a) Wages Salaries Rent Maint. Var O/H Other O/H

FC. € 12,000 9,000 3,500 4,000 300

V.C € 7,650

1,360 2,550 1,785

Total € 19,650 9,000 3,500 5,360 2,550 2,085 42,145

€ 64,000

(10,000 units) 6,000 9,000 7,000 22,000 (4,400) (17,600) 46,400 (5,000) €41,400

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c's of Sole Trader Solutions - David Wilson

TOPI C 1 Final a/c’s of Sole Trader Solutions 2 Arnold 3 Brennan 4 Cullen 5 Darcy 6 Egan 7 Farrell 8 Grennan Graded Accounting Questions – Solutio...

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