Accounting Fundamentals

Transcription

1 Subject no. 50A Certificate in Offshore Finance and Administration Accounting Fundamentals July 2013 Tuesday morning 9 July 2013 Time allowed: 2 hours Do not open this examination paper until the presiding officer or an invigilator tells you to. You must not take this paper out of the examination room. This examination paper is divided into three sections. You must attempt all parts of Question 1 in Section A, all questions in Section B, and two questions only in Section C. Section A carries 20 marks (2 marks for each part of Question 1). Section B carries 30 marks (6 marks for each question). Questions in Section C each carry 25 marks. You should allow yourself approximately 20 minutes in total to answer the questions in Section A, 40 minutes in total to answer the questions in Section B and 30 minutes for each of the questions attempted in Section C. Note: Unless otherwise specified, you should assume that an Act or an organisation referred to in the questions is a UK Act or organisation. ICSA, 2013 Page 1 of 8

2 Section A Answer all parts of Question 1. Select only one of the options A, B, C or D for each part. 1. (i) Which of the following items of expenditure by a sole trader would be classified as capital expenditure? A. 5,000 spent on marketing. B. 10,000 spent on loan interest. C. 15,000 spent on a computer. D. 20,000 spent on building repairs. (ii) The decision by a retailer to value his closing stock of 1,000 bags of flour at the current market price of 5 per kg rather than its original cost price of 7.50 per kg is an example of which one of the following accounting concepts? A. Consistency B. Prudence C. Materiality D. Money measurement (iii) When a wholesaler gives a retailer a 10% discount on a bulk purchase, what is the correct accounting treatment by the wholesaler to account for the discount? A. An expense in the profit and loss account. B. An expense in the trading account. C. An income in the trading account. D. None of the above. (iv) When the correct amount from a transaction is posted in the ledger but it has been posted to the wrong account, this is an error of which one of the following? A. Commission B. Principle C. Original entry D. Compensation ICSA, 2013 Page 2 of 8

3 Parts (v) to (x) relate to the magazine publishing business of Simon Gee for the accounting year 1 July 2012 to 30 June (v) Simon uses a petty cash float of 500 for his business. On 31 May 2013, the petty cash balance was 75. What is the correct accounting entry required to restore the petty cash float? A. Dr Petty Cash 500 Cr Cash 500 B. Dr Cash 500 Cr Petty Cash 500 C. Dr Petty Cash 425 Cr Cash 425 D. Dr Cash 425 Cr Petty Cash 425 (vi) At the year ended 30 June 2012, Simon Gee had a rent account debit balance of 4,800. On 1 October 2012, Simon paid 81,000 for the year ended 30 September What should be the entry in Simon s Profit & Loss account for the year ended 30 June 2013? A. 65,550 B. 76,200 C. 81,000 D. 85,800 (vii) On 1 September 2010, Simon Gee bought a new printing press for his magazine publishing business at a cost of 16,000. Simon s depreciation policy is 20% per annum reducing balance. Simon charges a full year s depreciation in the year of acquisition. What was the depreciation charge to Simon s Profit & Loss account for the year ended 30 June 2013? A. 2,048 B. 2,560 C. 3,200 D. 8,192 ICSA, 2013 Page 3 of 8

4 (viii) An extract from Simon s book of accounts as at 30 June 2013 produced the following: Current Assets Current Liabilities Inventories 8,000 Trade Creditors 75,650 Debtors 75,000 Bank 12,750 Total 95,750 Total 75,650 What is Simon s acid test (quick ratio) as at 30 June 2013? A. 0.79:1 B. 1.10:1 C. 1.16:1 D. 1.27:1 (ix) Simon s debtors at 30 June 2012 were 68,000 and his provision for doubtful debt was 2,720. At 30 June 2013, Simon s debtors had risen to 75,000 and Simon estimated he should make a 3% provision for doubtful debts. What is the correct journal entry to account for the change in the provision? Debit Credit A. Profit and loss account 2,250 Provision for doubtful debt 2,250 B. Provision for doubtful debt 2,250 Profit and loss account 2,250 C. Profit and loss account 470 Provision for doubtful debt 470 D. Provision for doubtful debt 470 Profit and loss account 470 (x) Simon pays his staff wages by cheque each month. What is the impact on the accounting equation? A. Increase expenses and decrease revenue. B. Increase revenue and decrease expenses. C. Increase expenses and decrease current asset. D. Increase current asset and decrease expenses. (Total: 20 marks) ICSA, 2013 Page 4 of 8

5 Section B Answer all five questions. 2. Identify and explain three classes of items shown in the upper section of a statement of financial position. (6 marks) 3. (a) Define what is meant by an accrual. (2 marks) (b) Outline how an accrual is treated in financial statements. (4 marks) (Total: 6 marks) 4. Try Sports had a sales ledger account balance of 157,050 on 31 May During the month of June 2013, the following transactions occurred: Bad debt written off 8,100 Payments received 402,180 Sales return 11,520 Credit sales 788,220 Prepare the sales ledger control account of Try Sports as at 30 June (6 marks) 5. Describe the six source documents relating to the purchases and sales cycles found in an accounting system. (6 marks) 6. A summary of balances extracted from Mo Speed s accounting records for the yearend 30 June 2013 is shown below: Capital 262,500 Purchases 60,500 Sales 54,000 Carriage in 5,000 Plant & machinery 87,500 Produce a trial balance for Mo Speed for the year ended 30 June 2013, and determine his bank balance. (6 marks) (Total: 30 marks) ICSA, 2013 Page 5 of 8

6 Section C Answer two questions only. 7. (a) Explain what is meant by a fixed asset and give one example. (3 marks) (b) (c) (d) Explain the different types of fixed assets found on a balance sheet, giving an example of each. (9 marks) Explain the difference between a bad debt and a provision for doubtful debt, giving an example of each. (8 marks) Explain the impact a bad debt and a provision for doubtful debt have upon the financial statements. (5 marks) (Total: 25 marks) ICSA, 2013 Page 6 of 8

7 8. The financial statements for Mexy Limited are shown below: Mexy Limited Income Statement for the year ended 30 June 2013: Sales 1,820,000 Cost of sales 1,314,300 Gross profit 505,700 Operating expenses 387,015 Profit before interest and taxation 118,685 Interest 11,050 Pre-tax profit 107,635 Mexy Limited Statement of Financial Position at 30 June 2013: Non Current Assets 2,039,100 Current Assets Inventories 128,400 Receivables 85,750 Bank/Cash 17, ,210 Current Liabilities Payables 116,575 Net Current Assets 114,635 Long term liabilities Loan 1,000,000 Net Assets 1,153,735 Capital and reserves Ordinary share capital 1,028,000 General reserves 125,735 Shareholder's Fund 1,153,735 Required (a) Using Mexy Limited s financial statements for the year ended 30 June 2013, identify and calculate the following: (i) (ii) Two profit margin ratios. Three working capital management ratios. (6 marks) (9 marks) (b) Outline five limitations of accounting ratios. (10 marks) (Total: 25 marks) ICSA, 2013 Page 7 of 8

8 9. (a) Identify and explain: (i) (ii) Two bedrock accounting concepts. Two desirable accounting concepts. (16 marks) (b) Identify and explain the two additional concepts identified by the IFRS. (9 marks) (Total: 25 marks) The scenarios included here, except where expressly identified, are entirely fictional. Any resemblance of the information in the scenarios to real persons or organisations, actual or perceived, is purely coincidental. ICSA, 2013 Page 8 of 8

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