Professional Documents
Culture Documents
Accounting
Level 3
Model Answers
Series 4 2009 (3512) Hong Kong
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Page 1 of 12
QUESTION 1
The draft accounting statements of Yobo Ltd included the following amounts:
£
Gross profit 743,200
Net profit 215,700
Net current assets 486,100
Fixed assets 917,000
Total assets 1,564,250
The auditors of Yobo Ltd have now completed their checks and have submitted correcting Journal
entries to the Finance Director. Due to a fault in the auditor’s computer system the names of the
accounts to be debited or credited have been wiped off the Journal entries. No back-up records have
been kept by the auditor.
Dr Cr
£ £
(1) 12,000
12,000
Purchase of motor vehicle for cash not previously recorded
(2) 1,600
1,600
Value of stock included twice in closing stock value
(3) 1,200
600
600
Electricity accrual incorrectly recorded as a prepayment
(4) 3,000
3,000
Increase in provision for bad debts not previously recorded
(5) 240
240
Motor expenses incorrectly recorded as purchases
REQUIRED
(a) Copy the Journal entries into your answer book (excluding the narratives) and insert the names of
the accounts to be debited or credited.
(11 marks)
(Total 25 marks)
3512/4/09MA Page 2 of 12
MODEL ANSWER TO QUESTION 1
Dr Cr
£ £
(1) Motor vehicles at cost 12,000
Cash 12,000
3512/4/09MA Page 3 of 12
QUESTION 2
The Finance Director of City Football Club is preparing the budget for the 2010/11 season. The Club
was relegated from the first division to the second division of the national league, at the end of the
2008/09 season.
The Club’s stadium has a maximum capacity of 50,000 and refreshments are sold at cost plus 50%.
REQUIRED
(b) the average attendance per home game necessary for the Club to break even.
(7 marks)
After the initial budget had been prepared City Football Club was taken over by a billionaire
businessman. The Club was therefore able to purchase a star player for £9 million in time for the start of
the 2010/11 season. His contract is for 3 years and the player will be paid £4 million each season. The
transfer fee of £9 million will be written off evenly over three seasons. This, together with the £4 million
salary, are to be treated as fixed costs.
The Finance Director now expects stadium occupancy to rise to 75% and to be able to raise average
ticket prices to £30 per supporter per home game. The forecasts for refreshment purchases, refreshment
mark-up, variable costs per supporter per home game and other fixed costs, remain unchanged.
REQUIRED
(c) Calculate the revised budgeted surplus for the 2010/11 season.
(7 marks)
(d) Outline one possible advantage and one possible disadvantage of purchasing the star player, other
than the immediate effects on costs and revenues.
(4 marks)
(Total 25 marks)
3512/4/09MA Page 4 of 12
MODEL ANSWER TO QUESTION 2
8,000,000 1 = 20,000
20 x 20
1 1
(d) Advantage/Disadvantages
Stronger team could mean promotion and increases in future surpluses.
May attract more star players, etc.
High salary may upset other players reducing team spirit and effectiveness.
Injury to star player could reduce attendances and team effectiveness, etc.
3512/4/09MA Page 5 of 12
QUESTION 3
The following information has been extracted from the accounting records of Seers Ltd for the year to 31
December 2008:
(1) 100,000 ordinary shares of £1 each were issued at a premium of £0.60 per share. Issue expenses
of £1,000 were charged to the Share Premium Account
(2) Debentures, nominal value £40,000, were redeemed at par
(3) Debenture interest paid was £7,500 and loan interest received was £720
(4) 10,000 ordinary shares in Green plc were purchased for £5,000
(5) Dividends of £12,000 were paid
(6) Retained profits increased by £84,375
(7) Fixed assets with accumulated depreciation of £3,200 and a book value of £4,800, were sold for
£3,700
(8) Fixed assets at cost increased by £74,500 and accumulated depreciation on fixed assets increased
by £8,900
(9) Debtors at 31 December 2008 were £90,000 which was 10% lower than the beginning of the year
(10) Stock at the beginning of the year was £34,000 and stock at 31 December 2008 was 20% higher
(11) Creditors increased by £12,000 over the year, but creditors at 31 December 2008 include £4,000
relating to purchases of fixed assets.
REQUIRED
(a) Calculate the figures which would appear in the Cash Flow Statement of Seers Ltd for the year
ended 31 December 2008 in respect of:
Proceeds of share issues appear as an item in cash flow statements. Four companies have all made a
rights issue of shares in recent months. They have used these funds as follows:
Company B – to buy new cars for directors and redecorate the board room
REQUIRED
(b) For each company, explain briefly whether or not the shareholders are likely to benefit from the uses
of funds.
(8 marks)
(Total 25 marks)
3512/4/09MA Page 6 of 12
MODEL ANSWER TO QUESTION 3
(a) Extracts from Cash Flow Statement of Seers Ltd for year ended 31 December 2008:
(ii) Net cash outflow from capital expenditure and financial investment £
Purchase of investment (5,000)
Sale of fixed assets ½ ½ ½ 1 3,700
Purchase of fixed assets [74,500 + (3,200+4,800) - 4,000] (78,500)
Outflow (79,800)
(iv) Net cash outflow from returns on investment and servicing of finance £
Debenture interest paid (7,500)
Loan interest received 720
Outflow (6,780)
Company B – No, only the directors seem to benefit, unless these improvements in their working
conditions stimulates them, so that they make more profitable decisions.
Company D – Yes, provided the interest saved is considerable or the lower gearing makes the
shareholders’ return more secure.
3512/4/09MA Page 7 of 12
QUESTION 4
The Balance Sheet of Platt Ltd at 31 December 2008 included the following fixed assets:
A different accounting policy for depreciation is applied to each of the four fixed assets, but the
accountant has forgotten which policy is applied to which asset. The policies are as follows:
Each fixed asset was purchased on 1 January in a year and only one is more than 3 years old.
REQUIRED
(a) State which of the four fixed assets is likely to be a building, giving two reasons for your choice.
(3 marks)
(b) Showing appropriate calculations, ascertain which accounting policy applies to which asset.
(11 marks)
Duffy Ltd has been in business for several years. On 1 January 2009, 100 units of Product Y were in
stock, valued at £25 per unit. In January 2009 the following transactions took place:
REQUIRED
(c) Calculate Duffy Ltd’s gross profit on Product Y, for January, using each of the following alternative
stock valuation methods:
(i) FIFO
(ii) Periodic weighted average cost (with the average purchase cost rounded down to the nearest
£).
(11 marks)
(Total 25 marks)
3512/4/09MA Page 8 of 12
MODEL ANSWER TO QUESTION 4
(b)
£
B Cost 54,000
Depreciation (54,000 x 0.10) 5,400
48,600
Depreciation (48,600 x 0.10) 4,860
NBV 43,740
(iii) 10% reducing balance
£
D Cost 92,000
Depreciation (92,000 x 0.10) 9,200
82,800
Depreciation (92,000 x 0.10) 9,200
NBV 73,600
(i) 10% straight line
A 44,800 =8
0.02 x 280,000
£
Cost 280,000
Depreciation (280,000 x 0.02 x 8) 44,800
NBV 235,200
(ii) 2% straight line
£
C Cost 48,000
Depreciation (48,000 x 0.10) 4,800
43,200
Depreciation (48,000 x 0.10) 4,800
38,400
Depreciation (38,400 x 0.15) 5,760
NBV 32,640
(iv) 10% straight line then 15% straight line
3512/4/09MA Page 9 of 12
MODEL ANSWER TO QUESTION 4 CONTINUED
3512/4/09MA Page 10 of 12
QUESTION 5
The following information relates to the accounts of two companies in respect of 2008:
REQUIRED
(a) Calculate, in as much detail as possible, the Trading and Profit and Loss Account for 2008 of each
of:
The following ratios have been extracted from the accounts of two other companies for 2008:
One of these companies is a bakery and the other sells expensive toys.
REQUIRED
(b) State which company is likely to be the bakery and explain why.
(3 marks)
(c) State which of the two companies a cautious investor is likely to buy shares in, if the economy is in
recession, and explain why.
(3 marks)
The following information relates to the accounts of Kemp plc for 2008:
REQUIRED
(Total 25 marks)
3512/4/09MA Page 11 of 12
MODEL ANSWER TO QUESTION 5
(a) (i) Giggs plc Trading and Profit and Loss Account for 2008
£ £
(ii) Peart plc Trading and Profit and Loss Account for 2008
£ £
Sales [(54,000 x 365)/25] 788,400
Less Cost of Goods sold:
Opening stock (48,000 x 100/120) 40,000
Purchases (R) 717,560
757,560
Closing stock 48,000 709,560
Gross profit (788,400 x 0.10) 78,840
Expenses (R) 55,188
Net profit (788,400 x 0.03) 23,652
(b) Yeo plc is likely to be the bakery as it has a very short stock turnover period. This is necessary when
trading in perishable goods like bread. Toys would have a much longer stock turnover period,
particularly if they are expensive.
(c) In a recession a cautious investor would invest in Yeo plc, the bakery. People are far more likely to
cut down on toy purchases than on food purchases in difficult times.