CIMA | Financial Accounting Fundamentals past papers

© The Chartered Institute of Management Accountants 2001

Foundation Level Financial Accounting Fundamentals

1 FAFN23 May 2001

Day 3 – morning

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions).

Answer the TWO questions in section B.

Answer ONE question ONLY from section C.

Write your examination number in the boxes provided on the front of the answer book.

Write FAFN on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A which is on page 3 ofthis question paper booklet.Detach the sheet from the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.

TURN OVER

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FAFN 2 May 2001

SECTION A — 50 MARKS

ANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Question One

1.1 The fundamental objective of an external audit of a limited company is to

A give advice to shareholders.

B detect fraud and errors.

C measure the performance and financial position of a company.

D provide an opinion on the financial statements.

1.2 A receives goods from B on credit terms and A subsequently pays by cheque. A thendiscovers that the goods are faulty and cancels the cheque before it is cashed by B.

How should A record the cancellation of the cheque in his books?

A Debit creditors Credit returns outwards

B Credit bank Debit creditors

C Debit bank Credit creditors

D Credit creditors Debit returns outwards

1.3 The profit of a business may be calculated by using which one of the following formulae?

A Opening capital - drawings + capital introduced - closing capital

B Closing capital + drawings - capital introduced - opening capital

C Opening capital + drawings - capital introduced - closing capital

D Closing capital - drawings + capital introduced - opening capital

1.4 The turnover in a company was £2 million and its debtors were 5% of turnover. Thecompany wishes to have a provision for doubtful debts of 4% of debtors, which wouldmake the provision 33% higher than the current provision.

What figure would appear in the profit and loss account in respect of doubtful debts?

A debit £1,000. B credit £1,000. C debit £1,333. D credit £1,333.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correctanswer.



May 2001 3 FAFN

1.5 Which one of the following should be accounted for as capital expenditure?

A The cost of painting a building.

B The replacement of windows in a building.

C The purchase of a car by a garage for re-sale.

D Legal fees incurred on the purchase of a building.

1.6 A business purchases a machine on credit terms for £15,000 plus value added tax (VAT)at 15%. The business is registered for VAT. How should this transaction be recorded inthe books?

Dr Cr

A Machinery 15,000

Creditors 15,000

B Machinery 17,250

Creditors 17,250

C Machinery 15,000

VAT 2,250

Creditors 17,250

D Machinery 17,250

VAT 2,250

Creditors 15,000

1.7 Which one of the following statements most closely expresses the meaning of “true andfair”?

A There is only one true and fair view of a company’s financial statements.

B True and fair is determined by compliance with accounting standards.

C True and fair is determined by compliance with company law.

D True and fair is largely determined by reference to generally accepted accounting practice.

1.8 On 1 May 2000, A Ltd pays a rent bill of £1,800 for the period to 30 April 2001. What arethe charge to the profit and loss account and the entry in the balance sheet for the yearended 30 November 2000?

A £1,050 charge to profit and loss account and prepayment of £750 in the balance sheet.

B £1,050 charge to profit and loss account and accrual of £750 in the balance sheet.

C £1,800 charge to profit and loss account and no entry in the balance sheet.

D £750 charge to profit and loss account and prepayment of £1,050 in the balance sheet.



FAFN 4 May 2001

1.9 S Ltd exchanged stock for a delivery vehicle with T Ltd. The stock had cost S Ltd £10,000and the normal selling price was £12,000; the delivery vehicle had cost T Ltd £9,000 andthe normal selling price was £13,000.

How should S Ltd value the vehicle in its balance sheet?

A £9,000. B £10,000. C £12,000. D £13,000.

1.10 Z’s bank statement shows a balance of £825 overdrawn. The bank statement includesbank charges of £50, which have not been entered in the cash book. There areunpresented cheques totalling £475 and deposits not yet credited of £600. The bankstatement incorrectly shows a direct debit payment of £160, which belongs to anothercustomer.

The figure for the bank balance in the balance sheet should be

A £590 overdrawn.

B £540 overdrawn.

C £790 overdrawn.

D £840 overdrawn.

1.11 There is £100 in the cash till at the year end at F Ltd, but the accountant has discoveredthat some cash has been stolen. At the beginning of the year there was £50 in the cash tilland debtors were £2,000. Total sales in the year were £230,000. Debtors at the end of theyear were £3,000. Cheques banked from credit sales were £160,000 and cash sales of£50,000 have been banked.

How much cash was stolen during the year?

A £18,950. B £19,000. C £19,050. D £20,950.

1.12 A car was purchased for £12,000 on 1 April 1997 and has been depreciated at 20% eachyear straight line, assuming no residual value. The company policy is to charge a fullyear’s depreciation in the year of purchase and no depreciation in the year of sale. The carwas traded in for a replacement vehicle on 1 August 2000 for an agreed figure of £5,000.

What was the profit or loss on the disposal of the vehicle for the year ended 31 December 2000?

A Loss £2,200. B Loss £1,400. C Loss £200. D Profit £200.



May 2001 5 FAFN

1.13 A company includes in stock goods received before the year end, but for which invoicesare not received until after the year end. This is in accordance with

A the historical cost convention.

B the accruals concept.

C the consistency concept.

D the materiality concept.

1.14 I Ltd operates the imprest system for petty cash. At 1 July there was a float of £150, but itwas decided to increase this to £200 from 1 August onwards. During July, the pettycashier received £25 from staff for using the photocopier and a cheque for £90 wascashed for an employee. In July, cheques were drawn for £500 for petty cash.

How much cash was paid out as cash expenses by the petty cashier in July?

A £385. B £435. C £515. D £615.

1.15 Which one of the following sentences does NOT explain the distinction between financialaccounts and management accounts?

A Financial accounts are primarily for external users and management accounts areprimarily for internal users.

B Financial accounts are normally produced annually and management accounts arenormally produced monthly.

C Financial accounts are more accurate than management accounts.

D Financial accounts are audited by an external auditor and management accounts do notnormally have an external audit.

1.16 The movement on the plant and machinery account for X Ltd is shown below:

£

Cost b/fwd 10,000

Additions 2,000

Disposals (3,000)

Cost c/fwd 9,000

Depreciation b/fwd 2,000

Charge for the year 1,000

Disposals (1,500)

Depreciation c/fwd 1,500

Net book value b/fwd 8,000

Net book value c/fwd 7,500

The profit on the sale of the machine was £500. What figures would appear in the cash flowstatement of X Ltd?



FAFN 6 May 2001

A Movement on plant account £500 and profit on disposal of £500.

B Movement on plant account £500 and proceeds on sale of plant £2,000.

C Purchase of plant £2,000 and profit on disposal of £500.

D Purchase of plant £2,000 and proceeds on sale of plant £2,000.

1.17 When there is inflation, the historical cost convention has the effect of

A overstating profits and understating balance sheet values.

B understating profits and overstating balance sheet values.

C understating cash flow and overstating cash in the balance sheet.

D overstating cash flow and understating cash in the balance sheet.

1.18 When reconciling the creditors’ ledger control account with the list of creditors’ ledgerbalances of M, the following errors were found:

• the purchase day book had been overstated by £500 and

• the personal ledger of a supplier had been understated by £400.

What adjustment must be made to correct these errors?

Control account List of creditor balances

A Cr £500 decrease by £400

B Dr £500 increase by £400

C Dr £400 increase by £500

D Cr £400 decrease by £500

1.19 Extracts from the financial statements of CFS Ltd are set out below:

Profit and loss account for the year ended 31 December 2000

£000 £000Turnover 300Cost of sales 150Gross profit 150Profit on sale of fixed asset 75

225Expenses 15Depreciation 30

45Net profit 180

Balances at 31 December1999 2000£000 £000

Stock, debtors, current liabilities (net) 40 50

What figure would appear in the cash flow statement of CFS Ltd for the year ended 31December 2000 in respect of net cash flow from operating activities?



May 2001 7 FAFN

A £125. B £145. C £215. D £235.

1.20 B is a builder with a staff of ten employees. In April 2001, he paid the following amounts:

• net salaries after tax and national insurance £14,000• tax and employees’ national insurance for March 2001 £5,000• employer’s national insurance for March 2001 £1,400

He owes the following amounts in respect of tax and national insurance for April 2001:

• tax and employees’ national insurance £6,000• employer’s national insurance £1,500

The correct expense for employee costs to be shown in the profit and loss account for April 2001is

A £19,000. B £20,000. C £20,400. D £21,500.

1.21 The following information relates to M Ltd:

At 30 September 2000 1999£000 £000

Stock of raw materials 75 45Work-in-progress stock 60 70Stock of finished goods 100 90

For the year ended 30 September 2000Purchases of raw materials £150,000Manufacturing wages £50,000Factory overheads £40,000

The prime cost of production in the manufacturing account for the year ended 30 September2000 is

A £165,000. B £170,000. C £210,000. D £270,000.

1.22 When valuing stock at cost, which of the following shows the correct method of arriving atcost?

Include inward Includetransport costs production overheads

A Yes No

B No Yes

C Yes Yes

D No No



FAFN 8 May 2001

1.23 A fixed asset register is

A an alternative name for the fixed asset ledger account.

B a list of the physical fixed assets rather than their financial cost.

C a schedule of planned maintenance of fixed assets for use by the plant engineer.

D a schedule of the cost and other information about each individual fixed asset.

1.24 The difference between a profit and loss account (which may also be referred to as an“income statement”) and an income and expenditure account is that

A an income and expenditure account is an international term for a profit and loss account.

B a profit and loss account is prepared for a business and an income and expenditureaccount is prepared for a not-for-profit making organisation.

C a profit and loss account is prepared on an accruals basis and an income and expenditureaccount is prepared on a cash flow basis.

D a profit and loss account is prepared for a manufacturing business and an income andexpenditure account is prepared for a non-manufacturing business.

1.25 In a debtors’ report, which one of the following would you NOT expect to see?

A Total debtor balances outstanding for current and previous months.

B Debtor balances excluding VAT.

C Credit limit.

D Sales to date.

Total = 50 marks



FAFN M200110

SECTION B – 30 MARKS

ANSWER BOTH QUESTIONS

Question Two

The trial balance of FRS, a sole proprietor, at 31 July 2000 was as follows:

£ £

Capital 100,000

Plant and machinery:

Cost 155,000

Provision for depreciation to 1 August 1999 50,000

Trade debtors 15,000

Trade creditors 3,000

Stock at 1 August 1999 10,000

Cash at bank 3,400

Sales 150,000

Drawings 35,000

Provision for doubtful debts at 1 August 1999 2,000

Bank loan – repayable 2006 20,000

Purchases 40,000

Selling and distribution expenses 50,000

Administration expenses 15,000

Interest 1,600

325,000 325,000

The following final adjustments are required:

(i) Stock at 31 July 2000 was valued at £12,000.

(ii) Selling and distribution expenses of £4,000 are to be accrued.

(iii) Administration expenses of £6,000 were prepaid.

(iv) The provision for doubtful debts is to be adjusted to 5% of debtors.

(v) Depreciation on the plant and machinery is £15,000 for the year to 31 July 2000.

Required:(a) Prepare a trading, profit and loss account for the year ended 31 July 2000 and a balance

sheet at that date.(14 marks)

(b) Calculate the following, as at 31 July 2000:

• current ratio;

• gearing;

• debtor days.

(6 marks)

(Total = 20 marks)



M2001 FAFN11

Question Three

The trial balance of E Ltd did not balance and the following errors have been discovered:

(i) A cheque for £1,000 received from a debtor had been credited to the sales accountand debited to the bank account.

(ii) The cash book had been undercast by £250.

(iii) A machine costing £5,000 had been debited to the machinery repairs account.Machinery is depreciated at 10% on cost and no residual value is assumed.

Required:(a) Correct the above errors by showing which ledger accounts should be debited or credited.

(4 marks)

(b) Explain why financial controls are necessary and give TWO examples.

(6 marks)

(Total = 10 marks)



FAFN M200112

SECTION C – 20 MARKS

ANSWER ONE QUESTION ONLY

Question Four

(a) Define depreciation.

(2 marks)

(b) State the purpose of depreciation.

(4 marks)

(c) A transport company started business on 1 January 1998 and purchased truck (A) for£80,000. Truck (A) was destroyed in a road accident on 1 March 1999 and the insurancecompany paid out £60,000 to the transport company.

On 1 April 1999, truck (B) was purchased for £90,000.

On 1 July 1999, car (C) was purchased for £20,000.

On 1 August 2000, car (C) was traded in for car (D) which cost £25,000, less a part-exchangeallowance on car (C) of £15,000.

The depreciation policy of the company is:

• depreciate trucks at 40% each year on the reducing balance;• depreciate cars at 25% each year using a straight-line basis;• assume a residual value for cars of 10% of the original cost;• if a vehicle is owned for part of a year, calculate depreciation according to the number of

months for which the vehicle is owned.

The year end of the company is 31 December.

Required:Write up the following ledger accounts:

• motor vehicles at cost account;(4 marks)

• provision for depreciation on motor vehicles account;(6 marks)

• disposal of motor vehicles account.(4 marks)

You should include entries for each relevant year, and work to the nearest £.

(Total = 20 marks)



M2001 FAFN13

Question Five

(a) State the rule for valuing stock.

(2 marks)

(b) Explain the purposes of the rule for valuing stock.

(8 marks)

(c) The trading account of T Ltd is set out below:

T Ltd trading account for the year ended 30 April 2001

£000 £000Turnover 1,000

Opening stock 200

Purchases 700

900

Closing stock 300

Cost of goods sold 600

Gross profit 400

The opening and closing stock was valued on a FIFO basis. On a LIFO basis, the opening andclosing stock would have been valued at £180,000 and £270,000 respectively.

Required:(i) Calculate gross profit if the trading account was prepared using a stock valuation basis of

LIFO.(2 marks)

(ii) Calculate "stock days", using the average method, on the assumption that stock is valued:

• on the FIFO basis;

• on the LIFO basis.(3 marks)

(iii) Identify and explain any change in the gross profit and in "stock days" as a consequence ofusing LIFO rather than FIFO to value stock.

(5 marks)

(Total = 20 marks)

End of paper





1 FAFN21 November 2001

Day 3 – morning



You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2 – 8).

Answer the TWO questions in section B (these are on pages 9 and 10).

Answer ONE question ONLY from section C (these questions are on page 12).

Write your examination number in the boxes provided on the front of the answer book.

Write FAFN on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A. Detach the sheetfrom the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.



FAFN 2 November 2001



Question One

1.1 At 30 June 2000, an electricity ledger account had an accrual of $300 and a creditbalance was brought down at 1 July 2000. During the financial year, electricity invoicestotalling $4,000 were paid, including an invoice for $600 for the quarter ended 31 May2001.

What is the profit and loss account charge for electricity payable for the year ended 30 June2001?

A $3,700 B $3,900 C $4,000 D $4,100

1.2 The principal duty of an external auditor is

A to check that a company’s accounts agree with the accounting records.

B to ensure that a company’s systems and controls are adequate to ensure the reliability ofthe accounting records.

C to prevent fraud and errors.

D to provide a report to the shareholders.

1.3 On 1 June 2000, H paid an insurance invoice of $2,400 for the year to 31 May 2001.What is the charge to the profit and loss account and the entry in the balance sheet forthe year ended 31 December 2000?

A $1,000 profit and loss account and prepayment of $1,400.

B $1,400 profit and loss account and accrual of $1,000.

C $1,400 profit and loss account and prepayment of $1,000.

D $2,400 profit and loss account and no entry in the balance sheet.

1.4 An imprest system

A records the use of a company’s seal.

B helps to reconcile the cash book with the bank statement.

C helps to control petty cash.

D is part of computerised accounting.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONEcorrect answer.



November 2001 3 FAFN

1.5 The provision for doubtful debts in the ledger of B Ltd at 31 October 2000 was $9,000.During the year ended 31 October 2001, bad debts of $5,000 were written off. Debtorbalances at 31 October 2001 were $120,000 and the company policy is to have a generalprovision of 5%.

What is the charge for bad and doubtful debts in the profit and loss account for the year ended31 October 2001?

A $2,000 B $3,000 C $5,000 D $8,000

1.6 A "true and fair view" occurs when

A financial statements are presented in accordance with prescribed formats.

B assets and liabilities are recorded at current values.

C financial statements have been audited.

D financial statements are prepared in accordance with generally accepted accountingpractice.

1.7 A company bought a machine on 1 October 1996 for $52,000. The machine had anexpected life of eight years and an estimated residual value of $4,000. On 31 March2001, the machine was sold for $35,000. The company’s year end is 31 December. Thecompany uses the straight-line method for depreciation and it charges a full year’sdepreciation in the year of purchase and none in the year of sale.

What is the profit or loss on disposal of the machine?

A Loss $13,000

B Profit $7,000

C Profit $10,000

D Profit $13,000




1.8 S Ltd, which is registered for purposes of value added tax, bought furniture on creditterms at a cost of $8,000, plus value added tax of $1,200.

What is the correct account entry?

DR CR$ $

A Furniture 9,200Supplier 9,200

B Furniture 8,000VAT 1,200Supplier 6,800

C Furniture 8,000VAT 1,200Supplier 9,200

D Furniture 8,000Supplier 8,000

1.9 SOR Ltd’s stock was valued at $13,000 and excludes goods supplied to a customer on asale or return basis. The customer still has 30 days within which to return the stock. Thegoods on sale or return were purchased by SOR Ltd for $6,000 and were invoiced at amark-up of 25%.

The value of SOR Ltd’s stock should be

A $13,000. B $19,000. C $20,500. D $21,000.

1.10 A Ltd’s trial balance does not balance. Which ONE of the following errors may be thecause of this failure to balance?

A The purchase of a machine had been debited to the machine repairs account.

B A cheque from a customer had been credited to the purchase ledger account of thecustomer.

C Goods returned inwards had been debited to the sales ledger account of the customer.

D The depreciation charge on machinery had been credited to the cost of machineryaccount.




1.11 The current liabilities of CFS Ltd include the following:

2001 2000Dividends payable $30,000 $25,000

The cash flow statement for the year ended in 2001 shows dividends paid of $27,000.

What were the dividends in the profit and loss account for the year ended 2001?

A $22,000 B $27,000 C $28,000 D $32,000

1.12 S is employed by T Ltd. His pay details for January and February are as follows:

January: Gross salary $2,000 Tax $500 National insurance $100 Net pay $1,400February: Gross salary $2,200 Tax $550 National insurance $110 Net pay $1,540

Tax and national insurance are payable to the government one month after they arededucted from employees’ salaries.

How much cash did T Ltd pay out in February in connection with S’s wages?

A $2,000 B $2,060 C $2,140 D $2,200

1.13 The following is an extract from the balance sheets of FRC plc for the years ended31 July 2001 and 31 July 2000:

2001 2000$000 $000

Stock 50 80Debtors 60 50Creditors 35 30Accruals 5 20

What figure would appear in the cash flow statement of FRC plc for the year ended 31 July 2001as part of the cash flow from operations?

A $25,000 outflow

B $10,000 outflow

C $10,000 inflow

D $25,000 inflow

1.14 Which ONE of the following provides the best definition of an "audit trail"?

A The marks left by an auditor when a document has been inspected.

B The working papers of an auditor.

C The pursuit of a fraud by an auditor.

D The trail of a transaction from source document to financial statement.




1.15 N plc purchased a machine for $15,000. The transportation costs were $1,500 andinstallation costs were $750. The machine broke down at the end of the first month in useand cost $400 to repair. N plc depreciates machinery at 10% each year on cost,assuming no residual value.

What is the net book value of the machine after one year, to the nearest dollar?

A $13,500 B $14,850 C $15,525 D $15,885

1.16 Which ONE of the following might explain the debit balance on a purchase ledgeraccount?

A The company took a cash discount to which it was not entitled and paid less than theamount due.

B The company mistakenly paid too much.

C The book-keeper failed to enter a contra with the sales ledger.

D The book-keeper failed to post a cheque paid to the account.

1.17 In a period of inflation, which ONE of the following methods of charging stock issues toproduction will give the lowest profit figure?

A Average cost

B LIFO

C FIFO

D Replacement cost

1.18 Which ONE of the following provides the best explanation of the objective of an internalaudit?

A The objective is to assist directors of a company in the effective discharge of theirfinancial responsibilities towards the members.

B The objective is to provide support to the external auditor.

C The objective is to detect fraud and error.

D The objective is to audit the financial statements.




1.19 The following information at 5 January 2001 relates to a club, which has a year end of31 December 2000:

$Subscriptions for 1999 unpaid at January 2000 300Subscriptions for 1999 paid during the year ended 31 December 2000 250Subscriptions for 2000 paid during the year ended 31 December 2000 6,000Subscriptions for 2001 paid during the year ended 31 December 2000 1,000Subscriptions for 2000 unpaid at 31 December 2000 750

It is the club’s policy to write off overdue subscriptions after one year.

What amount should be credited to the income and expenditure account for the year ended31 December 2000?

A $6,250 B $6,750 C $7,050 D $7,250

1.20 Who has the responsibility for ensuring that a company maintains proper accountingrecords?

A The shareholders.

B The auditors.

C The directors.

D The company secretary.

1.21 Which ONE of the following formulae correctly expresses the relationship between thereturn on capital employed (ROCE), net profit margin (NPM) and asset turnover (AT)?

A ROCE = NPM ÷ AT

B ROCE = NPM + AT

C ROCE = NPM x AT

D ROCE = NPM - AT

1.22 The correct ledger entries to record the issue of 150,000 $1 ordinary shares at a premiumof 20% and paid by cheque is:

DR CR$ $

A Bank 180,000Share capital 150,000Share premium 30,000

B Bank 180,000Share premium 180,000

C Bank 180,000Share capital 180,000

D Bank 150,000Share premium 30,000Share capital 120,000




1.23 A fixed asset register had a balance of $125,000. A fixed asset, which had cost $12,000,was sold for $9,000 at a profit of $2,000.

What is the revised balance on the fixed asset register?

A $113,000 B $118,000 C $125,000 D $127,000

1.24 M plc’s trial balance did not balance at 31 May 2001. The following errors werediscovered:

• Insurance of $500 prepaid at 31 May 2000 had not been brought down as an openingbalance on the insurance account;

• Wages of $5,000 had been incorrectly debited to the purchases account;• The book-keeper had failed to accrue $300 for the telephone invoice owing at 31 May

2001.

What was the difference on the trial balance?

A $500 B $800 C $5,500 D $5,800

1.25 S is a builder who has numerous small items of equipment. He calculates hisdepreciation using the revaluation method. At the beginning of his financial year hevalued his equipment at $10,250; he bought equipment costing $3,450 and he soldequipment valued at $2,175. At the end of his financial year he valued his equipment at$8,000.

What is his depreciation charge on equipment for the year?

A $2,250 B $3,525 C $5,700 D $11,525

(Total = 50 marks)



November 2001 FAFN9


ANSWER BOTH QUESTIONS

Question Two

The balances extracted from the nominal ledger of RHG Ltd for the year ended 31 July 2001were as follows:

$

Stock of raw materials at 1 August 2000 4,000

Work-in-progress at 1 August 2000 2,000

Stock of finished goods at 1 August 2000 8,000

Direct factory wages 60,000

Office salaries 50,000

Directors' salaries 40,000

Purchases of raw materials 90,000

Depreciation charge on factory machinery 35,000

Depreciation charge on office machinery 15,000

Factory overheads 35,000

Advertising 18,000

Sales 450,000

Factory machinery 400,000

Office machinery 200,000

Provision for depreciation on factory machinery at 31 July 2001 90,000

Provision for depreciation on office machinery at 31 July 2001 30,000

Debtors 40,000

Creditors 7,000

Bank overdraft 3,000

10% debenture 80,000

Issued share capital: ordinary shares of $1 250,000

Share premium account 25,000

Profit and loss account reserve 62,000

The valuation of stock at 31 July 2001 was as follows:

• raw materials $3,000

• work-in-progress $1,500

• finished goods $6,000

Required:(a) prepare a manufacturing, trading and profit and loss account for the year ended 31 July

2001 and a balance sheet at that date.(14 marks)



FAFN November 200110

(b) Calculate:

• the gearing ratio; (2 marks)

• debtor days; (2 marks)

• finished goods stock days. (2 marks)

(Total = 20 marks)

Question Three

The following information relates to C Ltd's cash book and bank statement on 30 June 2001.

$Balance in the cash book (Cr) 2,250

Bankings in the cash book, not on the bank statement 5,300

Bank charges on the bank statement, not in the cash book 450

Unpresented cheques less than six months old 7,500

Unpresented cheque more than six months old, to be cancelled 800

Standing order from a customer on the bank statement, not in the cashbook

3,600

Required:(a) Calculate the balance on the bank statement at 30 June 2001.

(5 marks)

The following information relates to D Ltd for the month of July 2001.$

Sales ledger balances at 1 July 18,300

Sales day book 150,500

Bad debts written off 12,100

Cheques received from debtors 130,400

Set off against purchase ledger 6,500

Cheques dishonoured 2,700

Required:(b) Prepare a sales ledger control account for July 2001, carrying down the balance at 31 July

2001.(5 marks)

(Total = 10 marks)



November 2001 FAFN11

SECTION C – 20 MARKS

ANSWER ONE QUESTION ONLY

Question Four

(a) Identify four potential user groups of financial statements.

(4 marks)

(b) Explain why user groups in general need accounting information, and state the informationthey require. Choose two examples of user groups and give the specific information theyrequire and the purpose for which they would require it.

(8 marks)

(c) Identify and explain three characteristics of useful financial information.

(8 marks)

(Total = 20 marks)

Question Five

Explain each of the following four accounting concepts, and give an example of its application:

(a) Going concern.

(5 marks)

(b) Accruals.

(5 marks)

(c) Consistency.

(5 marks)

(d) Prudence (or conservatism).

(5 marks)

(Total = 20 marks)

End of paper



ExaminationQuestion andAnswer Book

Write here your full examination number

Centre Code:

Hall Code:

Desk Number:


1 FAFN22 May 2002

Day 3 – morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided.Additional blank pages (20-23) are included towards the back of this booklet if you require more space fornotes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove anysheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use ofcorrection fluid.

You are allowed three hours to answer this question paper. All questions are compulsory.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-11)

Answer the THREE questions in section B (these are on pages 12-19)

You are advised to spend 10 minutes reading through the paper before starting to answer the questions.

You should spend no more than 85 minutes in total answering the ONE question in section A, which has25 sub-questions.

You should spend no more than 85 minutes in total answering the THREE questions in section B.

Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leavethe examination hall with this booklet.

Do NOT write your name or your student registration number anywhere on this booklet.

TURN OVER

For office use only Total One Two Three Four

Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question




FAFN 2 May 2002



Question One

1.1 An imprest system is

A accounting computer software.

B an audit process.

C automatic agreement of the cash book and bank statement.

D a method of controlling petty cash.

1.2 Which ONE of the following is correct?

A All limited companies are required by law to have an external audit.

B Only public limited companies are required by law to have an external audit.

C Only limited companies above a certain size are required by law to have an external audit.

D An external audit for a limited company is voluntary.

For office use only Total 1.1 1.2

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


REQUIRED:Place a circle “O” around the letter A, B, C or D that gives the correct answer to each sub-question.

If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.



May 2002 3 FAFN

1.3 At 31 March 2001, accrued rent payable was $300. During the year ended 31 March 2002, rent paidwas $4,000, including an invoice for $1,200 for the quarter ended 30 April 2002.

What is the profit and loss account charge for rent payable for the year ended 31 March 2002?

A $3,300 B $3,900 C $4,100 D $4,700

Space for workings to 1.3

1.4 The responsibility for internal control rests with

A the internal auditors.

B the external auditors.

C the shareholders.

D the directors.

1.5 The annual insurance premium for S Ltd for the period 1 July 2001 to 30 June 2002 is $13,200, whichis 10% more than the previous year. Insurance premiums are paid on 1 July.

What is the profit and loss account charge for insurance for the year ended 31 December 2001?

A $11,800 B $12,540 C $12,600 D $13,200


TURN OVER

For office use only Total 1.3 1.4 1.5




FAFN 4 May 2002

1.6 A bank reconciliation showed the following differences between the bank statement and the cashbook:

Unpresented cheques of $750

Outstanding deposits of $500

Bank charges of $100

If the balance on the bank statement is $1,000 overdrawn, what is the balance in the cash book beforeany adjustments?

A Debit $250 B Credit $1,150 C Credit $1,250 D Credit $1,500


1.7 Which ONE of the following expenses should be included in prime cost in a manufacturing account?

A Repairs to factory machinery.

B Direct production wages.

C Office salaries.

D Factory insurance.

For office use only Total 1.6 1.7




May 2002 5 FAFN

1.8 The entries in a sales ledger control account are:

Sales $250,000

Bank $225,000

Returns $2,500

Bad debts $3,000

Returned unpaid cheque $3,500

Contra purchase ledger account $4,000

What is the balance on the sales ledger control account?

A $12,000 B $19,000 C $25,000 D $27,000


1.9 A Ltd has an item in stock which cost $1,000 and can be sold for $1,200. However, before it can besold, it will require to be modified at a cost of $150. The expected selling costs of the item are anadditional $100.

How should this item be valued in stock?

A $950 B $1,000 C $1,050 D $1,100


TURN OVER

For office use only Total 1.8 1.9Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



FAFN 6 May 2002

1.10 A “value for money audit” is

A an external audit with limited scope.

B a review of expenditure to ensure effectiveness, efficiency and economy.

C a voluntary audit by an unregistered auditor.

D none of these.

1.11 Which ONE of the following statements regarding a fixed assets register is NOT correct?

A A fixed assets register enables reconciliations to be made with the nominal ledger.

B A fixed assets register enables depreciation charges to be posted to the nominal ledger.

C A fixed assets register agrees with the fixed asset nominal ledger account.

D A fixed assets register records the physical location of an asset.

1.12 B Ltd purchased a machine for $120,000 on 1 October 2001. The estimated useful life is 4 years witha residual value of $4,000. B Ltd uses the straight-line method for depreciation and chargesdepreciation on a monthly basis.

What is the charge for depreciation for the year ended 31 December 2001?

A $7,250 B $7,500 C $29,000 D $30,000


For office use only Total 1.10 1.11 1.12Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



May 2002 7 FAFN

1.13 In the quarter ended 31 March 2002, C Ltd had VAT taxable outputs, net of VAT, of $90,000 andtaxable inputs, net of VAT, of $72,000.

If the rate of VAT is 10%, how much VAT is due?

A $1,800 receivable B $2,000 receivable C $1,800 payable D $2,000 payable


1.14 Which of the following statements concerning a "true and fair" view is correct?

A True and fair has a precise definition which is universally accepted.

B There can only be one true and fair view of a company's financial statements.

C True and fair means the financial statements are accurate.

D True and fair is mainly determined by compliance with generally accepted accounting practice.

1.15 The M Club discloses the following note to its Income and Expenditure Account:

"Subscriptions in arrears are accounted for when received; subscriptions in advance are accounted foron a matching basis."

At 31 March 2001, there were subscriptions owing of $1,000 and subscriptions in advance of $500.During the year ended 31 March 2002, subscriptions of $10,000 were received, includingsubscriptions relating to the previous year of $800 and subscriptions in advance of $600.

What amount should be included for subscriptions in the year ended 31 March 2002?

A $8,100 B $8,900 C $9,100 D $9,900


TURN OVER




FAFN 8 May 2002

1.16 The total cost of salaries charged to the profit and loss account is

A the total gross salaries plus employer's national insurance contributions.

B the total gross salaries.

C the total net salaries.

D the total net salaries plus employer's national insurance contributions.

1.17 The segregation of duties is

A delegation of duties by a manager.

B two staff sharing one job.

C a feature of internal control.

D all of the above.

1.18 The net profit percentage in a company is 12% and the asset turnover ratio is 2.

What is the return on capital employed?

A 6% B 10% C 14% D 24%


1.19 Which of the following are used in a coding system for accounting transactions?

A Department code.

B Nominal ledger code.

C Product code.

D All of the above.

For office use only Total 1.16 1.17 1.18 1.19Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



May 2002 9 FAFN

1.20 APM Ltd provides the following note to fixed assets in its balance sheet.

Plant and machinery

Cost Depreciation Net book value$000 $000 $000

Opening balance 25 12 13Additions/charge 15 4 11Disposals (10) (8) (2)Closing balance 30 8 22

The additional machinery was purchased for cash. A machine was sold at a profit of $2,000.

What is the net cash outflow for plant and machinery?

A $9,000 B $11,000 C $13,000 D $15,000


1.21 Which of the following errors will cause the trial balance totals to be unequal?

A Errors of transposition.

B Errors of omission.

C Errors of principle.

D All of the above.

TURN OVER

For office use only Total 1.20 1.21Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



FAFN 10 May 2002

1.22 Which ONE of the following is a record of prime entry?

A The nominal ledger.

B The sales ledger.

C The trial balance.

D The sales day book.

1.23 P is a sole proprietor whose accounting records are incomplete. All the sales are cash sales andduring the year $50,000 was banked, including $5,000 from the sale of a business car. He paid$12,000 wages in cash from the till and withdrew $2,000 per month as drawings. The cash in the till atthe beginning and end of the year was $300 and $400 respectively.

What were the sales for the year?

A $80,900 B $81,000 C $81,100 D $86,100


1.24 Which of the following is NOT helpful in detecting an error?

A A bank reconciliation.

B A sales ledger control account.

C An imprest system.

D A suspense account.




May 2002 11 FAFN

1.25 Which ONE of the following is an appropriation by a limited company?

A Directors' salaries.

B Dividends.

C Donation to a charity.

D Loan interest.

(Total = 50 Marks)

End of Section A

Section B begins on page 12

TURN OVER

For office use only Total 1.25Marks awarded (First marker) for the sub-questionMarks awarded (Second marker) for the sub-question



FAFN 12 May 2002


ANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THECORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.

THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK ISINDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.

DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.

Question Two

The bookkeeper at QME plc has prepared the trial balance set out below from the nominal ledger. Theaccountant has prepared a schedule of adjustments which need to be made before the financial statementscan be prepared.

The trial balance of QME plc at 31 December 2001 was as follows:

$000 $000

Buildings – at cost 250

Provision for depreciation on buildings 70

Equipment at cost 200

Provision for depreciation on equipment 50

Patent – at valuation 150

Stock at 1 January 2001 60

Debtors/creditors 100 25

Provision for doubtful debts at 1 January 2001 5

Bank 30

Sales 800

Purchases 250

10% Debentures 100

Debenture interest paid 5

Interim dividend 10

Directors' remuneration 40

Administration expenses 130

Selling and distribution expenses 160

Ordinary shares of 50 cents each 200

Profit and loss account reserve 50

General reserve 25

1,355 1,355



May 2002 13 FAFN

Schedule of adjustments:

(i) Stock at 31 December 2001 was valued at $70,000.(ii) Accruals: Administration expenses $30,000.(iii) Prepayments: Selling and distribution expenses $20,000.(iv) The 10% Debenture was issued in 1999, redeemable 2006.(v) The provision for doubtful debts is to be increased to 8% of debtors.(vi) The buildings are revalued at $300,000 and this revised value is to be included in the accounts.(vii) Depreciation:

Buildings: 2% of revised valueEquipment: 20% of net book value at the year end.

(viii) In September 2001, $30,000 taxation was paid. The tax advisers estimate that the taxation for theyear ended 31 December 2001 will be $10,000, but accounts have not yet been submitted to the taxauthorities.

(ix) The directors declare a final dividend of 5 cents per share.(x) The directors decide to transfer $15,000 to the general reserve.

Required:

(a) Complete the missing figures and words (in the shaded boxes) of thefinancial statements set out below.

QME plcMarks

available

For useby thesecondmarker

For useby the

firstmarker

Trading, Profit and Loss and Appropriation Account

Year ended 31 December 2001

$000 $000

Sales

Cost of sales

Gross profit 1

Administration expenses

Selling and distribution expenses

Doubtful debts 1

Depreciation charge 1

Directors’ remuneration

Operating profit 1

Debenture interest 1

Profit before tax

Taxation

Profit after tax

Dividend 1

Transfer to general reserve

Retained profit 1

The Balance Sheet is overleaf

TURN OVER

Do not write in thesecolumns below



FAFN 14 May 2002

Space for workings and/or notes for Question Two

QME plc – Balance Sheet at 31 December 2001Marks

available


For useby the

firstmarker

$000 $000 $000

Fixed assetsCost or

valuationDepreciation

1

Current assets

1

Current liabilities

1

Capital and Reserves

2

Sub-total:12



May 2002 15 FAFN

(b) The accountant at QME plc is preparing a report to the directors on the financial statements. Thereport will include key ratios.

Required:

Complete the missing words below (in the shaded boxes):

Marksavailable


For useby thefirst

marker

Stock days = / x 365 1

Debtor days = / x 365 1

Sub-total: 2

(c) How would the financial statements of QME plc change if:

(i) the accruals concept was not applied? (Use no more than 30words, in the shaded area below)

Marksavailable


For useby thefirst

marker

3

(ii) the going concern concept was not applied? (Use no more than30 words, in the shaded area below)

Marksavailable


For useby thefirst

marker

3

Question Two Total = 20 Marks

Section B continues overleaf

TURN OVER




FAFN 16 May 2002

Question Three

The accountant and the sales ledger clerk at ILT Ltd met to discuss the debtors on 28 February 2001. Thesales ledger clerk reported that:

• the debtors in the ledger were: $25,000

• in his opinion the following debts were bad: A Ltd $1,000

B Ltd $1,500

• he considered the following debts doubtful: X Ltd $1,250

Y Ltd $1,750

Z Ltd $2,200

The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, andmake a general provision of 5% at 28 February 2001.

The accountant and the sales ledger clerk met again on 28 February 2002. The sales ledger clerk reportedthat:

• the debtors in the ledger were $30,000

• in his opinion the following debts were bad: X Ltd $1,250

L Ltd $1,200

• he considered the following debts doubtful: Y Ltd $1,750

P Ltd $900

• the following had paid their debts in full: A Ltd $1,000

Z Ltd $2,200The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, andmake a general provision of 5% at 28 February 2002.

Required:

(a) Complete the missing information (in the shaded boxes) from theschedule set out below which was prepared by the accountant.

Schedule of bad and doubtful debtsMarks

available


For useby thefirst

marker

$

28/2/2001

$ $

28/2/2002

$

Debtors 25,000 30,000Bad debts written off

1

Specific provision for doubtfuldebts

Debtors after bad debts andspecific provision

1

General provision fordoubtful debts

1

Total doubtful debts 1Sub-

Total: 4

The bookkeeper will enter the information from the accountant’s schedule into the ledger accounts.

Please do not write inthese columns below



May 2002 17 FAFN

(b) Complete the missing information for the period 1 March 2001 to28 February 2002 in the two ledger accounts set out below, bycompleting the relevant shaded boxes.

Bad debts accountMarks

available


For useby thefirst

marker

$ $

3

Provision for doubtful debts account Marksavailable


For useby thefirst

marker

$ $

3

Sub-total: 6

Question Three Total = 10 Marks

Space for workings and/or notes for Question Three

Section B continues overleaf

TURN OVER




FAFN 18 May 2002

Question Four

Q is a sole trader who has been trading for one year. He informs you that at the beginning of the year he had$10,000 in his bank account and that at the end of the year he had $12,000. He also informs you that hisrevenue was $40,000 and his expenditure $38,000. He therefore believes that his profit must be $2,000 andasks for your advice.

You reply that in order to calculate his profit you need to know whether he had any other assets and liabilitiesat the beginning and end of the year and whether the revenue and expenditure included any capital items.

Q is confused by these terms and asks you to explain them to him.

Required

(a) Define the four terms in no more than 30 words each using theshaded areas below.

Marksavailable


Foruse bythe firstmarker

(i) Asset

2

(ii) Liability

2

(iii) Capital receipt

2

(iv) Capital expenditure

2

Sub-total: 8

Part (b) of Question Four is on page 19




May 2002 19 FAFN

Required

Marksavailable


Foruse bythe firstmarker

(b) Give an example of each of the four terms you have defined aboveand explain why it conforms to your definition in no more than 30words each in the shaded areas below.

(i) Asset

3

(ii) Liability

3

(iii) Capital receipt

3

(iv) Capital expenditure

3Sub-total:

12

Question Four Total = 20 Marks

End of Question Paper

TURN OVER FOR ADDITIONAL SPACE FOR WORKINGS AND NOTES




FAFN 20 May 2002

You may use this sheet for workings(no marks are awarded for workings)



May 2002 21 FAFN




FAFN 22 May 2002




May 2002 23 FAFN

DO NOT WRITE ON THIS SHEET



FAFN 24 May 2002

1

FAFN

Financial Accounting Fundamentals

Day 3 – morning



The Chartered Institute of Management Accountants 2002


Write here your full examination numberCentre Code:Hall Code:Desk Number:



Day 3 – morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Do notexceed the stated number of words. Please note that you will NOT receive marks for your workings.












SECTION A — 50 MARKSANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Question One

1.1 Which ONE of the following best describes the stewardship function?

A Ensuring high profits.

B Managing cash.

C Ensuring the recording, controlling and safeguarding of assets.

D Ensuring high dividends to shareholders.

1.2 External auditors are primarily responsible for

A writing a report to the shareholders expressing an opinion on the financialstatements.

B preparing the financial statements.

C detecting errors and fraud.

D ensuring that the accounts show a true and fair view.








1.3 At the year end of SED Ltd in December 2000, a journal entry was raised to accrue for utilityexpenses of $3,600. This journal entry was reversed in January 2001. During the year endedDecember 2001, $30,000 was paid for utility expenses, of which $4,000 was prepaid at the yearend.The charge to the profit and loss account for utility expenses for the year ended December 2001was

A $22,400

B $29,600

C $30,400

D $37,600


1.4 Z Limited’s cash book shows a credit balance of $2,200. A comparison with the bank statementshowed the following:

• unpresented cheques totalling $600;• receipts of $1,200 not yet cleared by the bank;• bank charges of $300 not entered in the cash book;• a cheque from a customer for $400, which had been entered in the cash book when

received, has now been returned by the bank as "dishonoured".

The balance on Z Limited’s bank statement is

A overdrawn $2,100

B overdrawn $2,300

C overdrawn $2,900

D overdrawn $3,500





1.5 The role of the internal auditors is best described as

A auditing the financial accounts.

B supporting the work of the external auditors.

C reporting to management on the accounting systems.

D ensuring value for money.

1.6 On the first day of Month 1, a business had prepaid insurance of $10,000. On the first day of Month8, it paid, in full, the annual insurance invoice of $36,000, to cover the following year.The amount charged in the profit and loss account and the amount shown in the balance sheet atthe year end is:

Profit and loss account$

Balance carried forward$

A 5,000 24,000

B 22,000 23,000

C 25,000 21,000

D 36,000 15,000


1.7 In a manual accounting system, the most important reason for extracting a trial balance prior topreparing financial statements is that

A it proves the arithmetical accuracy of the ledgers.

B it provides a summary of the financial statements.

C it proves the individual ledger accounts are correct.

D it reveals how errors have been made.




JSL Ltd operates the imprest system for its petty cash with a float of $750. At the end of July, thecashier prepared a spreadsheet for the petty cash expenses with a total column and analysiscolumns. A cash voucher for petrol for $50 was incorrectly entered as $5 in the total column andalso in one of the analysis columns in the spreadsheet.The total column was posted to the cash account, the analysis columns were posted to the relevantnominal ledger accounts and cash was drawn from the bank for the total of the cash expenditure onthe spreadsheet.

1.8

The effect of this error would be

A a petty cash balance of $705.

B petrol expenses overstated by $45.

C an imbalance on the trial balance.

D a petty cash balance of $750.


1.9 Financial statements are required to show a true and fair view.Which ONE of the following statements is the most appropriate explanation of a true and fair view?

A The accounts are approved by the shareholders.

B The accounts are set out in the correct format.

C The accounts conform to accounting concepts and conventions.

D The accounts comply with generally accepted accounting practice.




1.10 SSG Ltd bought a machine for $40,000 in January 1998. The machine had an expected useful lifeof six years and an expected residual value of $10,000. The machine was depreciated on thestraight-line basis. In December 2001, the machine was sold for $15,000. The company has a policyin its internal accounts of combining the depreciation charge with the profit or loss on disposal ofassets.

The total amount of depreciation and profit/loss charged to the internal profit and loss account overthe life of the machine was

A $15,000

B $20,000

C $25,000

D $30,000


1.11 DEF plc has a supplier, M Ltd, and the balance on M Ltd’s purchase ledger account at 31 July 2002was a credit balance of $2,000. On 5 August 2002, DEF plc received the July statement from M Ltdshowing a balance due of $3,000. The purchase ledger supervisor investigates the difference anddiscovers that:• an invoice for $2,000 from M Ltd dated 31 July was not entered in the purchase ledger

account until 3 August 2002, but appears on M Ltd’s July statement.• a cheque for $600 sent from DEF plc to M Ltd on 25 July 2002 in payment of a July invoice

does not appear on M Ltd’s July statement. This cheque was presented by M Ltd on 31 July2002.

The purchase ledger supervisor at DEF plc contacts the sales ledger supervisor at M Ltd andcorrectly says that there is a difference between the ledger accounts of

A $400

B $1,000

C $1,400

D $1,600





1.12 On 1 October 2002, the debtors’ balance at G Ltd was $80,000. A summary of the transactions inthe month of October is set out below.

$Cheques received 100,000Contra creditors 6,000Sales 90,000Returns inwards 4,000Discounts allowed 10,000

The debtors’ balance at 31 October was

A $50,000

B $58,000

C $62,000

D $70,000


1.13 Financial controls are primarily needed to

A minimise the risk of fraud and error.

B comply with legal requirements.

C improve the efficiency of the business.

D reduce the expense of the external auditors.




1.14 The internal auditor at ILT plc has noticed that cheques from customers are being paid into the bankaccount approximately one month after the date on the cheque.

Should the internal auditor

A instruct the cashier to pay cheques in more promptly?

B disregard, because all cheques have been accounted for?

C ask customers to pay more promptly?

D inform senior management there may be a fraud?

1.15 SAD plc paid £240,000 in net wages to its employees in August 2002. Employees’ tax was £24,000,employees’ national insurance was £12,000 and employer’s national insurance was £14,000.Employees had contributed £6,000 to a pension scheme and had voluntarily asked for £3,000 to bededucted for charitable giving.

The amount to be charged to the profit and loss account in August 2002 for wages is

A £285,000

B £293,000

C £296,000

D £299,000


1.16 Which ONE of the following attributes is the most important for any code to possess in order to be ofuse in an accounting system?

A Easy to change the code number.

B Each code is a unique number.

C A combination of letters and digits to ensure input accuracy.

D Linked to assets, liabilities, income, expenditure and capital.




1.17 Which of the following functions would most benefit from segregated duties of staff?

A Separate staff to maintain the sales and purchase ledgers.

B Separate staff to maintain the personal and nominal ledger accounts.

C Separate staff to deal with the bank reconciliation and the cash book.

D Separate staff to deal with the trial balance and the preparation of accounts.

At the beginning of Period 6, XYZ Ltd had opening stock of 20 units of product X valued at $4·00each. During Period 6, the following stock movements occurred:

Day 5 Sold 15 items for $5·00 eachDay 10 Bought 8 items for $6·00 eachDay 14 Sold 12 items for $7·00 each

Using the FIFO method of stock valuation, the closing stock at the end of Period 6 was

1.18

A $5·00

B $5⋅50

C $6·00

D $7·00





The following information is required for sub-questions 1.19 to 1.21

The accounts for SPA plc are set out below.

Profit and loss account for the year ended 30 November 2002$000 $000

Turnover 5,000Opening stock 200Purchases 3,100Closing stock (300)Cost of sales (3,000)Gross profit 2,000Operating expenses (500)Operating profit 1,500

Balance sheet at 30 November 2002$000 $000

Fixed assets 3,000Current assetsStock 300Debtors 900Bank 50

1,250Current liabilitiesTrade creditors (250) 1,000

4,000

Share capital 2,000Profit and loss account 2,000

4,000

Space for workings for 1.19 to 1.21

Questions 1.19 to 1.21 are on the next page




1.19 The return on capital employed in SPA plc is

A 75·0%

B 37·5%

C 50·0%

D 100·0%

1.20 The fixed asset turnover ratio in SPA plc is

A 1 : 1·67

B 1·25 : 1

C 2·5 : 1

D 1·67 : 1

1.21 The quick ratio (acid test ratio) in SPA plc is

A 2·4 : 1

B 3·8 : 1

C 4·8 : 1

D 5·1 : 1




1.22 The year end for ABC Ltd is July 2002 and in that month a company car was stolen. The net bookvalue of the company car was $8,000, but the company expects the insurance company to pay only$6,000. The correct journal entry to record this information was entered in the books in July 2002. InAugust 2002 the insurance company sent a cheque for $6,500.The journal entry to record this is:

Dr Cr$ $

A Bank 6,500Sundry debtor 6,500

B Bank 6,500Sundry debtor 6,000Disposal of fixed assets account 500

C Bank 500Disposal of fixed assets account 500

D Bank 500Sundry debtor 500


1.23 The trial balance of EHL plc does not balance and the debits exceed the credits by $2,300. Thefollowing errors are discovered:

• the single column manual cash book receipts column was undercast by $600;• discount received of $400 had been debited to the interest payable account;• the proceeds of $1,000 on the sale of a fixed asset had been credited to sales.

Following the correction of these errors, the balance on the suspense account would be

A Cr $900

B Cr $2,100

C Cr $3,700

D Dr $2,100





1.24 At the beginning of the year in GHI Ltd, the opening work-in-progress was $240,000. During theyear, the following expenditure was incurred:

$Prime cost 720,000Factory overheads 72,000

The closing work-in-progress was 350,000

The factory cost of goods completed during the year was

A $538,000

B $610,000

C $682,000

D $902,000


1.25 In July 2002, a company sold goods at standard value added tax (VAT) rate with a net value of£200,000, goods exempt from VAT with a value of £50,000 and goods at zero VAT rate with a netvalue of £25,000. The purchases in July 2002, which were all subject to VAT, were £161,000,including VAT. Assume that the rate of VAT is 15%.

The difference between VAT input tax and VAT output tax is

A Dr £9,000

B Cr £5,850

C Cr £9,000

D none of these.


(Total = 50 Marks)




SECTION B – 50 MARKSANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECTANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.

THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK ISINDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.

DO NOT EXCEED THE STATED NUMBER OF 30 WORDS IN THE SHADED BOXES.


Question Two

S owns a small business and keeps all the accounting records himself on a computer using basic accountingsoftware. He does not understand financial statements and therefore never uses this part of the software. Hedoes, however, regularly print out the analysis of the receipts and payments in and out of his bank account.Unfortunately, his computer was stolen and his accountant now wants to prepare his accounts.

The accountant has the balance sheet at 31 July 2001, the previous year end, and this is set out below.

Balance sheet at 31 July 2001$ $ $

Fixed assets (net book value)Vehicles 50,000Machinery 25,000

75,000Current assetsStock 12,000Debtors 19,000Provision (1,000) 18,000Prepayment advertising 3,000Bank 1,000

34,000Current liabilitiesTrade creditors (16,000)Accrual – vehicle expenses (1,000) (17,000)

Net current assets 17,00092,000

Long-term liabilitiesLoan 10% (10,000)

82,000

Capital 82,000




The accountant has asked S for some additional information and S has prepared the following schedule.

1. The following payments appeared on the bank statement in the year ended 31 July 2002:$

Payments to suppliers 135,000 (S takes a cash discount of 10% on invoice amount on allpayments to suppliers.)

Wages 15,000Vehicle expenses 9,000New vehicle 12,000General expenses 8,000Advertising 3,000 (this includes a prepayment of $1,000)Loan interest 500 ($500 was paid on 1 August 2002)Drawings 20,000 (S also took goods from the business worth $2,000)

202,500

2. The following receipts appeared on the bank statement in the year ended 31 July 2002:$

Receipts from sales 215,000Sale of old vehicle 2,000

217,000

3. The following amounts relate to cheques dated before 31 July 2002, but not presented by that date:$

General expenses 600Vehicle expenses 300

4. At 31 July 2002: $debtors were 21,000 after excluding bad debts of $2,000creditors were 18,000stock was 10,000

The accountant has the following information on his file:(i) The net book value of the old vehicle which was sold was $3,000.(ii) Depreciation is charged on the net book value at the year end:

Vehicles 25%Machinery 20%

(iii) A general provision is made for doubtful debtors of 5% of debtors,after bad debts have been written off.

Space for workings to Question Two

The requirements for question two are on the next page




Question Two continued

Required:Marks

available

For useby thefirst

marker


Prepare the profit and loss account for the year ended 31 July 2002and the balance sheet at that date by completing the shaded areas inthe financial statements below and on the next page.

S Profit and Loss account for the year ended 31 July 2002$ $

SalesOpening stock 12,000

2

Purchases 2

Closing stock 10,000Cost of goods soldGross profitDiscount received 1

Less: ExpensesWages 15,000

Vehicle expenses 1/2General expenses 1/2Advertising 1/2Loan interest 1/2Depreciation 11/2Charge for doubtful debts 1Bad debt 1/2Loss on sale of vehicle 1/2Profit for the year

(a)

Sub-total:101/2

Space for workings to Question Two





S Balance sheet at 31 July 2002

$ $ $ Marksavailable

For useby thefirst

marker


Fixed assets(net book value)Vehicles 1

Machinery 1/2

Current assetsStock 10,000Debtors 21,000Provision 1

Prepayment 1/2Bank

Current liabilitiesTrade creditors 18,000

1

Accrual 1/2

Net current assets

Long-term liabilitiesLoan 10% (10,000)

CapitalCapital at 1 August 2001 82,000Profit for the year ended31 July 2002 1

DrawingsCapital at 31 July 2002

1

Sub-total:61/2

After S’s financial statements had been prepared, S attended ameeting with his accountant to discuss them. S is surprised that the$2,000 he received when he sold his old vehicle does not appear inthe financial statements. Explain to S, (in the shaded area below),why the $2,000 does not appear in the financial statements.

3(Maximum of 30 words)

(b)

Total Marks for Question Two = 20





Question Three

The Directors of M plc employ a book-keeper who prepares draft accounts for them using accountingsoftware. They are pleased that they have made a profit for the year ended 30 June 2002, but do notunderstand why the cash balances have decreased. They have asked you, as an independent accountant,to prepare a cash flow statement.

The draft financial statements for M plc are set out below.

Profit and loss account for the year ended 30 June 2002

$000Turnover 1,670Cost of sales (870)Gross profit 800Operating expenses (415)Depreciation (250)Loss on sale of fixed asset (5)Operating profit 130Interest (15)Dividends (70)Retained profit for year 45

Balance sheets at 30 June 2002 2001

$000 $000 $000 $000Fixed assets (see note) 980 700Current assets

Stock 70 65Debtors 175 215Bank and cash 50 65

295 345Current liabilities

Trade creditors (100) (85)Fixed asset creditor (20) 0Accrued interest (5) (10)Dividends (65) (60)

(190) (155)Net current assets 105 190

1,085 890Long-term liability

Loan (200) (250) 885 640

Share capital 700 600Share premium account 100 0Profit and loss account 85 40

885 640

Note: M plc purchased fixed assets for $550,000 during the year ended 30 June 2002.




Required:Marks

available

For useby thefirst

marker


Prepare a cash flow statement for M plc for the year ended 30 June2002 by completing the shaded areas as necessary in the cashflow statement below.

Cash flow statement M plc year ended 30 June 2002$000

Operating profitAdjustments for non-cash items

1/2

1/21/2

Adjustments for working capital1/21/21/2

Cash from operationsInterest 1/2

Purchase of fixed assets 1

Sale of fixed assets 1

Dividends 1/2

Share capital 1/2

LoanMovement in cash

1/2

(a)

What do you, as the independent accountant, consider is the mainreason for the decrease in the cash balance? (Maximum of 30words)

(b)

Sub-total: 7

3

Total Marks for Question Three = 10






Question Four

D has been an accountant for many years. He had always understood thatthe historical cost convention was important in the preparation of thefinancial statements. However, he has recently been attending a series oflectures on accounting and many of the speakers have referred to a move tocurrent cost accounting. He is keen to update his knowledge and has askedyou to explain some terms to him.

Required:(Maximum of 30 words for each explanation) Marks

available

For useby thefirst

marker


(i) Define "historical cost accounting"

(ii) Give an example to illustrate the use of historical cost accounting

(iii) Define "net realisable value"

(iv) Give an example to illustrate the use of net realisable value

(v) Define "current cost accounting"

3

2

2

2

2





Question Four continued

Required:(Maximum of 30 words for each explanation) Marks

available

For useby thefirst

marker


(vi) Define "economic value"

(vii) Explain the effect on historical cost profit and asset values if currentcost accounting is used rather than historical cost accounting,assuming rising prices.

(viii) Define "capital maintenance"

3

3

3Total Marks for Question Four = 20








Write here your full examination number

Centre Code:

Hall Code:

Desk Number:


1 FAFN21 May 2003

Wednesday morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do not exceed the stated number of words. DoNOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoidthe use of correction fluid.











FAFN 2 May 2003



Question One


For useby the

firstmarker


After the profit and loss account for Z Ltd had been prepared, it was found thataccrued expenses of $1,500 had been omitted and that closing stock had beenovervalued by $500.

The effect of these errors is an

1.1

A overstatement of net profit of $1,000

B overstatement of net profit of $2,000

C understatement of net profit of $1,000

D understatement of net profit of $2,000







May 2003 3 FAFN


1.2 The cashier is reconciling his company’s cash book with the bank statement at31 March 2003.

For useby the

firstmarker


$The firm’s cash book shows a debit balance of 12,350

The following information is available:

Bank charges not entered in the cash book 170Unpresented cheques 4,600Direct debit payment on the bank statement not entered in thecash book

230

Sales receipts banked, but not credited by the bank 9,400A cheque from a customer which had previously been entered inthe cash book when received, has been returned by the bank as“dishonoured”, and this has not been recorded in the cash book

110

What should be stated as the bank balance in the company’s balance sheet at31 March 2003?

A $11,840

B $12,060

C $12,860

D $16,640

For useby the

firstmarker


1.3 Which ONE of the following is true?

A External auditors normally check all purchase invoices.

B External auditors should prepare the accounts.

C External auditors must follow the audit procedures prepared by the internalauditors.

D External auditors check the internal control system.



FAFN 4 May 2003


D is preparing the accounts for A Ltd for the year ended 31 March 2003. Themost recent gas bill received by A Ltd was dated 6 February 2003 and relatedto the quarter 1 November 2002 to 31 January 2003, and the amount of the billwas $2,100.

For useby thefirst

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1.4

Which ONE of the following ledger entries should be made in A Ltd’s books at31 March 2003?

Debit CreditA Accruals NIL Gas expense NIL

B Gas expense $1,400 Accruals $1,400

C Accruals $1,400 Gas expense $1,400

D Gas expense $2,100 Accruals $2,100

1.5 The following information related to Q plc for the year ended 28 February 2003: For useby thefirst

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For useby the

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$Prime cost 122,000Factory overheads 185,000Opening work-in-progress at 1 March 2002 40,000Factory cost of goods completed 300,000

The closing work-in-progress at 28 February 2003 was

A $33,000

B $40,000

C $47,000

D $54,000

1.6 N Ltd, which is registered for VAT, received an invoice from an advertisingagency for $4,000 plus VAT. The rate of VAT on the goods was 17⋅5%. Thecorrect ledger entries are:

For useby thefirst

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For useby the

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Debit $ Credit $A Advertising expense 4,000 Creditors 4,000

B Advertising expense 4,700 Creditors 4,700

C Advertising expense 4,700 Creditors 4,000VAT account 700

D Advertising expense 4,000 Creditors 4,700VAT account 700



May 2003 5 FAFN


1.7 E Ltd received an invoice for the purchase of fixed asset equipment which wascredited to the correct supplier’s ledger account, but debited to the equipmentrepairs account, instead of the equipment account.

For useby thefirst

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The effect of not correcting this error on the financial statements would be:

A Profit would be overstated and fixed assets would be understated.

B Profit would be overstated and fixed assets would be overstated.

C Profit would be understated and capital would be overstated.

D Profit would be understated and fixed assets would be understated.

1.8 H Ltd began trading on 1 July 2001. The company is now preparing itsaccounts for the accounting year ended 30 June 2002. Rates are charged for atax year, which runs from 1 April to 31 March, and were $1,800 for the yearended 31 March 2002 and $2,000 for the year ended 31 March 2003. Ratesare payable quarterly in advance, plus any arrears, on 1 March, 1 June,1 September and 1 December.

For useby thefirst

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The charge to H Ltd’s profit and loss account for rates for the year ended 30June 2002 is

A $1,650

B $1,700

C $1,850

D $1,900

1.9 The return on capital employed for S plc is 24% and the net asset turnover ratiois 3 times.

For useby thefirst

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What is the net profit margin?

A 8%

B 28%

C 72%

D It cannot be calculated.



FAFN 6 May 2003

1.10 Which ONE of the following would NOT help detect errors in a computerisedaccounting system?

For useby thefirst

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A The use of coding systems.

B The use of batch processing.

C The use of passwords.

D The use of control accounts.

1.11 The total cost of salaries charged to a limited company’s profit and loss accountis

For useby thefirst

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For useby the

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A cash paid to employees.

B net pay earned by employees.

C gross pay earned by employees.

D gross pay earned by employees, plus employer’s national insurancecontributions.

1.12 Which ONE of the following statements is TRUE? For useby thefirst

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For useby the

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A Internal auditors report to the directors.

B External auditors report to the directors.

C Internal auditors are employed by the shareholders.

D External auditors are employees of a company.



May 2003 7 FAFN

1.13 The following is the aged debtors analysis for J Ltd at 30 April 2003: For useby thefirst

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For useby the

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Age of debt Less than 1month

1-2 months 2-3 months Over 3months

Amount ($) 12,000 24,000 8,000 6,000

The company provides for doubtful debts as follows:

Provision 0% 1% 10% 30%

The doubtful debt provision at 1 May 2002 brought forward was $2,880.

The entry for doubtful debts in the profit and loss account for the year ended 30April 2003 and the net debtors figure in the balance sheet at that date shouldbe:

Profit and loss account Balance sheetA $40 credit $47,160

B $40 debit $47,160

C $2,840 debit $50,000

D $2,840 credit $47,160

1.14 The following information relates to companies Q plc and R plc, who arecompetitors selling widgets:

For useby thefirst

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For useby the

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Q plc R plcGross profit percentage 30% 25%Fixed asset turnover ratio 4 5

A director at Q plc believes that these ratios indicate that:

(i) Q plc has a higher selling price.

(ii) Q has lower purchasing costs.

(iii) R plc has lower sales volume.

(iv) R plc has fewer fixed assets.

Which of the above are possibly true based on the information provided?

A (i) only.

B (i) and (ii) only.

C (i), (ii) and (iii) only.

D (i), (ii), (iii) and (iv).



FAFN 8 May 2003

1.15 The prime cost of goods manufactured is the total of For useby thefirst

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For useby the

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A raw materials consumed.

B raw materials consumed and direct wages.

C raw materials consumed, direct wages and direct expenses.

D raw materials consumed, direct wages, direct expenses and productionoverheads.

1.16 On 1 May 2003, E Ltd owed a supplier $1,200. During the month of May, E Ltd: For useby thefirst

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For useby the

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• purchased goods for $1,700 and the supplier offered a 5% discount forpayment within the month.

• returned goods valued at $100 which had been purchased in April 2003.

• sent a cheque to the supplier for payment of the goods delivered in May.

The balance on the supplier’s account at the end of May 2003 is

A $1,015

B $1,100

C $1,185

D $1,300

1.17 The main advantage of using a sales ledger control account is that For useby thefirst

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For useby the

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A double entry book-keeping is not necessary.

B it helps in detecting errors.

C it helps with credit control.

D it ensures that the trial balance will always balance.



May 2003 9 FAFN


1.18 The following information relates to J Ltd for the year ended 30 April 2003: For useby thefirst

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For useby the

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$000Retained profit for the year 28,000Net cash inflow from operating activities 26,000Dividend paid 3,000Profit on sale of fixed assets 1,000Proceeds on sale of fixed assets 5,000Taxation paid 2,000Interest paid 4,000Payments for fixed assets 8,000Issue of debentures 6,000

The cash flow statement will show

A a decrease in cash of $13,000.

B an increase in cash of $14,000.

C an increase in cash of $20,000.

D an increase in cash of $22,000.

1.19 Which of the following is an “appropriation of profit” in a limited company? For useby thefirst

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For useby the

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A Interest paid.

B Dividend paid.

C Directors’ remuneration.

D Retained profit.



FAFN 10 May 2003

1.20 N operates an imprest system for petty cash. On 1 February 2003, the floatwas $300. It was decided that this should be increased to $375 at the end ofFebruary 2003.

For useby thefirst

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During February, the cashier paid $20 for window cleaning, $100 for stationeryand $145 for coffee and biscuits. The cashier received $20 from staff for theprivate use of the photocopier and $60 for a miscellaneous cash sale.

What amount was drawn from the bank account for petty cash at the end ofFebruary 2003?

A $185

B $260

C $315

D $375

1.21 An audit trail in a computerised accounting system is For useby thefirst

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For useby the

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A information regarding all transactions in a period.

B a history of all transactions on a ledger account.

C a list of all transactions checked by the internal auditor.

D a list of all transactions automatically posted from day books to ledgers.

1.22 The following are extracts from the financial statements for the year ended 31January 2003 of M plc:

For useby thefirst

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$000Issued Ordinary shares of $1 200Share premium account 50Profit and loss account 25Debenture 80Profit before interest for the year ended 31 January 2003 60

What is the return on total capital employed?

A 17%

B 22%

C 24%

D 30%



May 2003 11 FAFN


1.23 The following information was extracted from the balance sheets of Z Ltd at31 December 2002 and at 31 December 2001:

For useby thefirst

marker

For useby the

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2002 2001$000 $000

Stock 100 140Debtors 150 130Trade creditors 125 115Other creditors 60 75

What figure should appear as part of the cash flow statement for the yearended 31 December 2002?

A $25,000 outflow

B $15,000 outflow

C $15,000 inflow

D $25,000 inflow

1.24 In order to confirm that financial statements show a true and fair view, theexternal auditor should ensure that the financial statements comply with

For useby thefirst

marker

For useby the

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A company law.

B accounting standards.

C generally accepted accounting principles.

D all of the above.



FAFN 12 May 2003

1.25 S Ltd purchased equipment for $80,000 on 1 July 2002. The company’saccounting year end is 31 December. It is S Ltd’s policy to charge a full year’sdepreciation in the year of purchase. S Ltd depreciates its equipment on thereducing balance basis at 25% per annum.

For useby thefirst

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The net book value of the equipment at 31 December 2005 should be

A Nil

B $25,312

C $29,531

D $33,750

For Marking Purposes Only – Total Marks for Question One

(Total = 50 Marks)

End of Section A



May 2003 13 FAFN


ANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECTANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.


Question Two

The treasurer at the WV Golf Club has presented a receipts and payments account at the annual generalmeeting for many years. However, at the annual general meeting this year a member proposed that anincome and expenditure account be prepared in its place. After a discussion, the members agreed with thisproposal. The treasurer does not know how to prepare an income and expenditure account and has givenyou, an accountant, his most recent receipts and payments account, which is set out below.

WV Golf Club – Receipts and payments account year ended 31 March 2003

$ $ReceiptsAnnual subscriptions 42,400Shop sales 10,000Deposits for golfing holiday 600

53,000PaymentsWages 35,000Shop supplies 7,500Ground maintenance 6,000Rent 1,400Lawnmower 900Repairs 1,200

52,000Receipts less payments 1,000

Balance at bank 1 April 2002 4,300Balance at bank 31 March 2003 5,300

The treasurer has provided you with the following additional information:

(i) The subscriptions are as follows:

$Annual subscriptions received 38,500Joining fees 1,500Subscriptions received in advance for year ended 31 March 2004 2,400Total 42,400

Joining fees are to be apportioned over 5 years.

Subscriptions owing for the year ended 31 March 2003 amount to $1,400. The members whosesubscriptions are owing have left the club and the treasurer has said that it is unlikely that thesemembers will pay their subscriptions.

(ii) The club has decided to organise its first golfing holiday in June 2003. Some members have paiddeposits for the holiday, which amount to $600, but the treasurer has said that, unless more membersagree to go, he will cancel the holiday and return the deposits.



FAFN 14 May 2003

(iii) Other assets and liabilities of the club were estimated as follows:

31 March2002

31 March2003

$ $Employee’s tax owing 500 400Creditor for shop supplies 750 1,000Rent paid in advance 200 300Stock of shop supplies 1,800 1,500Equipment – at valuation 9,000 8,000


Required:

(a) Prepare the shop trading account and the income and expenditureaccount for the year ended 31 March 2003 and the balance sheet(opposite) at that date by completing the blanks in the financial statementsbelow.

Marksavailable

For useby thefirst

marker

For useby the

secondmarker

WV Golf Club Shop Trading Account year ended 31 March 2003

$ $

Shop gross profit 2

WV Golf Club Income and expenditure accountyear ended 31 March 2003

$ $IncomeShop trading account – gross profit

3Expenditure

3Surplus/Deficit for the year

Sub-total: 8



May 2003 15 FAFN

Question Two continued


WV Golf Club Balance Sheet year at 31 March 2003

Marksavailable

For useby thefirst

marker

For useby the

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$ $Fixed assetsEquipment

Current assets

Current liabilities

Net current assets

Accumulated funds

1/2

11/2

2

4

Sub-total: 8

(i) State TWO advantages (in the shaded area below) of a receiptsand payments account.

(Maximum of 30 words)

(ii) Explain ONE advantage (in the shaded area below) of anincome and expenditure account compared to a receipts andpayments account.

(b)

(Maximum of 30 words)

2

2

Sub-total: 4

Question Two Total Marks = 20



FAFN 16 May 2003

Question Three

The book-keeper at D Ltd has prepared a trial balance at 31 December 2002, but is unable to complete theaccounts as there were certain transactions during the year which he did not know how to record and,therefore, omitted from the books. He has asked you, the accountant, to prepare the journal entries for thesetransactions.

The transactions are as follows:

(i) The company bought a new delivery vehicle. The invoice details were as follows:

$Cost of delivery vehicle 10,780Annual road tax 1,000

11,780

The company paid the invoice by trading in an old van, which had a net book value of $2,500, for anagreed figure of $3,290 and the balance of the money was borrowed from a bank.

(ii) In January 2002, the company decided to issue $200,000 ordinary $1 shares at an issue price of$1⋅40.

The terms of the issue were:

• 70 cents on application, payable February 2002 (which included the premium);• 50 cents on allotment, payable March 2002;• 20 cents on call, payable in September 2002.

The book-keeper had recorded all the cash received during the year in the bank account and hadrecorded the issue of shares in a mispostings account, which he used for transactions for which he didnot know the correct ledger accounts for the debit and credit entries.

(iii) The stock at the previous year-end was valued at $13,000. However, the store keeper has told thebook-keeper during this current year that this figure was not correct and it should have been $11,000,as he counted one item twice.

(iv) At the previous year-end, M, a customer who owed $1,600, was considered to be a doubtful debtor.The book-keeper thought there was a fifty per cent chance he might pay and, therefore, made adoubtful debt provision of $800. During the current year, the book-keeper learnt that M is nowbankrupt and cannot pay any of his debts.

(v) The trial balance shows the cost of land and buildings at $100,000 and the accumulated depreciationat $15,000. The land and buildings have been revalued at $150,000 and the directors wish to recordthis revaluation in the balance sheet.



May 2003 17 FAFN

Required:

Prepare the journal entries for the transactions opposite by completing theshaded areas of the schedule below.

You are NOT required to write a narrative for each journal.

Do not write in these

columns below

Dr

$

Cr

$Marks

available

For useby thefirst

marker

For useby the

secondmarker

Journal (i)

Journal (ii)

Journal (iii)

Journal (iv)

Journal (v)

2

2

2

2

2Total: 10




FAFN 18 May 2003

Question Four

You are the senior accountant in a company and in charge of the accounts department.

One of your junior staff is very good at book-keeping and you have identified her as a person with potentialfor promotion. You have therefore agreed to pay for her tuition on a financial accounting course. She hasasked you what she will learn apart from book-keeping.

Required:

Marksavailable

For useby thefirst

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State briefly (in the shaded area below) the purpose and contents ofEITHER the International Accounting Standards Board’s “Framework forthe Preparation and Presentation of Financial Statements”

OR the Accounting Standards Board’s “Statement of Principles forFinancial Reporting”.

(a)

Explain (in the shaded area below) the objective of financialstatements.

(b)

Describe (in the shaded area below) the characteristics of usefulinformation.

(c)

3

3

3

Sub-total: 9



May 2003 19 FAFN


Required:

Marksavailable

For useby thefirst

marker

For useby the

secondmarker

(d) Explain (in the shaded areas below) the following accountingconcepts:

business entity(i)

money measurement(ii)

cost(iii)

realisation(iv)

3

3

3

2

sub-total: 11

Total: 20







Write your full examination number,your contact ID and your name on adouble-sided card, which must beattached to this booklet here.



Wednesday morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do not exceed the stated number of words. DoNOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoidthe use of correction fluid.


Answer the ONE question in section A (this has 25 sub-questions)

Answer the THREE questions in section B





Do NOT write your name or your contact ID anywhere on this booklet.




SECTION A — 50 MARKSANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Question One


1.1 A business is normally said to have earned revenue when For useby thefirst

marker


A cash has been received.

B a customer is legally obliged to pay for goods delivered or services rendered.

C an order has been placed.

D goods have been manufactured and placed in stock.


REQUIRED:Place a circle "O" around the letter A, B, C or D that gives the correct answer to each sub-question.







1.2 The following information relates to C Limited at 30 June 2003: For useby thefirst

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$Balance per cash book – credit balance 4,300Unpresented cheques 1,500Bank charges not entered in the cash book 300Receipts not yet credited by the bank 2,600Dishonoured cheques not yet recorded in the cash book 500

What would be the balance shown on the bank statement at 30 June 2003?

A Overdraft $6,200

B Overdraft $5,100

C Overdraft $4,000

D Favourable $2,400

1.3 The following information relates to NBV Limited for the year ended31 July 2003.

For useby thefirst

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$000Direct materials 160Direct labour 200Prime cost 360Carriage outwards 80Depreciation of delivery vehicles 30Factory indirect overheads 450Increase in work-in-progress stock 75Decrease in stock of finished goods 55

What should be the factory cost of goods completed for the year ended 31 July 2003?

A $735,000

B $845,000

C $885,000

D $1,095,000





1.4 Which of the following tests carried out by an external auditor is a compliancetest?

For useby thefirst

marker


A Confirming authorisation of a reconciliation of the sales ledger control account.

B Checking unpresented cheques in a bank reconciliation.

C Checking a purchase invoice with the purchase day book.

D Inspecting physical existence of fixed assets.

1.5 The following information relates to CFS plc: For useby thefirst

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Machinery $000Cost at 1 January 2002 80Additions 20Disposal (10)Cost at 31 December 2002 90

Provision for depreciation at 1 January 2002 15Depreciation charge 8Disposal (6)Provision for depreciation at 31 December 2002 17

The proceeds on disposal of the machine were $1,000.

CFS plc is preparing the cash flow statement for the year ended 31 December 2002.In relation to the items above, what should be the net adjustment to operating profit inorder to determine the net cash flow from operating activities?

A Deduct $11,000

B Add back $3,000

C Add back $5,000

D Add back $11,000





1.6 The accountant at S Limited is preparing quarterly accounts for Quarter 3. InQuarter 2, he had accrued $1,600 for gas and this balance was carried forwardto Quarter 3. In Quarter 3, a gas bill of $2,700 was paid. The accountant hasaccrued $2,400 for gas in Quarter 3.

What should be the charge for gas in the profit and loss account for Quarter 3?

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A $1,900

B $2,400

C $2,700

D $3,500

1.7 D plc has a policy that all items of equipment which cost less than $1,000 arecharged to an expense account, rather than a fixed asset account. This is anexample of the application of the concept of

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A going concern.

B materiality.

C money measurement.

D prudence.

1.8 Internal auditors report to For useby thefirst

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A the management.

B the shareholders.

C the external auditors.

D the government.





1.9 A Limited is preparing financial statements for the year ended 30 June 2003.Rent is payable quarterly in advance on 1 February, 1 May, 1 August and1 November. The annual charge for rent was $1,800 and $2,400 for the yearsended 31 January 2003 and 2004 respectively.

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Which of the following ledger entries should be made in A Limited’s accounts?

A Rent expense $2,000 Prepayment $400

B Rent expense $2,050 Prepayment $200

C Rent expense $2,050 Accrual $200

D Rent expense $2,100 Prepayment/accrual Nil

1.10 T Limited purchased a machine costing $14,000 on 1 August 1999. Thecompany estimated that the asset had a useful life of 4 years and an expectedresidual value of $2,000. The company uses the straight-line method ofdepreciation. The company’s financial year end is 30 November.It is the company’s policy to charge a full year’s depreciation in the year ofpurchase and none in the year of disposal. On 1 November 2002, the assetwas sold for $4,500.

What should be the profit or loss on disposal in the year ended 30 November 2002?

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A Loss $500

B Loss $3,500

C Loss $9,500

D Profit $500





1.11 The following information is an extract from the balance sheets of DCF plc: For useby thefirst

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31 August 2003 31 August 2002$000 $000

Stock 20 14Trade debtors 16 18Bank 12 10

48 42

Trade creditors (14) (17)34 25

DCF plc is preparing the cash flow statement for the year ended 31 August 2003. Inrelation to the items above, what should be the net adjustment to operating profit inorder to determine the net cash flow from operating activities?

A Deduct $1,000

B Deduct $2,000

C Deduct $7,000

D Add back $1,000

1.12 Which of the following entries would NOT affect the agreement of the totals inthe trial balance?

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(i) An invoice for $300 for rent has been omitted from the ledgers.

(ii) A cash sale has been recorded as debit cash sales, credit cash.

(iii) An invoice for vehicle expenses has been charged to the vehicle fixedasset account.

(iv) A credit note for $500 for goods returned by a customer had beenrecorded in the correct ledgers, but as $5,000.

A (i) only

B (i) and (ii) only

C (i), (ii) and (iii) only

D All of them.





1.13 Which ONE of the following is NOT an intangible fixed asset? For useby thefirst

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A Goodwill

B Trademark

C Investment

D Patent

1.14 E Ltd bought computer equipment on 1 January 2000 for $24,000 andestimated that it would have a useful life of five years and a residual value of$2,000. E Ltd uses the straight-line method of depreciation. On 31 December2001, it now considers that the remaining life is only two years and that theresidual value will be nil.

What should be the annual depreciation charge for the years ended 31 December2002 and 2003?

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A $4,800

B $5,500

C $6,600

D $7,600

1.15 A company has a quick (acid test) ratio of 2 : 1. Current assets include stock of$10,000 and debtors of $6,000. Current liabilities are $4,000.

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What is the bank balance?

A Credit $4,000

B Credit $2,000

C Debit $2,000

D Debit $4,000





1.16 Which of the following does NOT prevent fraud and errors? For useby thefirst

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A Authorisation procedures

B Organisation of staff

C Suspense accounts

D Reconciliations

1.17 The BMX cycling club started in January 2001. The following fees werereceived in the years ended 31 December 2001 and 2002. There were no feesreceived in advance, or fees in arrears, at either year end.

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2001 2002$ $

Joining fees 8,000 10,000Annual fees 5,000 7,000Life membership fees 4,000 6,000

17,000 23,000

Joining fees are recognised over a period of 4 years and life membership feesare recognised over 10 years.

What should be the total amount of fees recognised in the income and expenditureaccount for the year ended 31 December 2002?

A $7,000

B $11,500

C $12,500

D $23,000





1.18 ABC plc declared a final dividend of 5% for the year ended 28 February 2003.The nominal value of the shares is 50 cents. X bought 1,000 shares at a priceof $4 in December 2002 and the shares were valued at a price of $3 on28 February 2002.

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What should be the final dividend received by X?

A $25

B $50

C $150

D $200

1.19 The internal accounts of E Ltd value stock at replacement cost. Thewarehouse manager has produced the following schedule for the values of thethree items (X1, X2 and X3) in stock at the year end.

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First In/ Net realisable ReplacementFirst Out value cost

$000 $000 $000X1 10 20 30X2 15 11 8X3 12 14 13

37 45 51

At what value should the stock be stated in the statutory financial statements?

A $33,000

B $37,000

C $45,000

D $51,000

1.20 The job descriptions of staff in the credit control department are normallysegregated because

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A lower salaries can be paid.

B work is completed more efficiently.

C control is facilitated.

D staff are less likely to become bored.





1.21 The style of management accounts within an enterprise is determined by For useby thefirst

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A company law.

B company law and accounting standards.

C the shareholders.

D the directors.

1.22 Which of the following is the best description of current purchasing poweraccounting?

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A A method of accounting which considers the effects of changing price levels byreference to the retail price index.

B A method of adjusting historical cost accounts for the effects of changing pricelevels by using indices specific to the enterprise.

C A method of accounting which uses market values.

D A method of accounting which uses economic values (value in use).

1.23 The following information relates to P Ltd at 30 September:

2003 2002$000 $000

Stock of raw materials 60 40Work-in-progress stock 50 85Stock of finished goods 20 28

For the year ended 30 September 2003:

$000Purchases of raw materials 710Manufacturing wages 42Factory overheads 360

The prime cost of production in the manufacturing account for the year ended30 September 2003 is

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A $690,000

B $732,000

C $1,092,000

D $1,135,000





1.24 The following information was extracted from the pay slip of J, who receivedher net salary in cash for the month ended 31 March 2003:

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£Gross salary 3,000Tax deducted 450Employer’s national insurance 300Employee’s national insurance 250Employer’s contribution to pension fund 210Employee’s contribution to pension fund 180Voluntary deduction for payment to charity 20

The charge to the profit and loss account, the balance on the payroll control accountand the net pay for J’s salary for March was

Charge toprofit and loss account

Balance on payroll controlaccount

Net pay

A £2,100 £1,410 £2,100

B £3,510 £700 £2,300

C £3,000 £1,000 £1,590

D £3,510 £1,410 £2,100

1.25 Which of the following are normally produced in the month-end routine of acomputerised accounting system?

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(i) Balances on all ledger accounts at the end of the month

(ii) Balances on the debtors’ and creditors’ personal ledgers and thedebtors’ and creditors’ control accounts

(iii) Balance on stock (inventory)

(iv) The profit and loss account and balance sheet

A (i) only

B (i) and (ii) only

C (i), (ii) and (iii) only

D All of them.

(Total = 50 Marks)

End of Section A




SECTION B – 50 MARKSANSWER ALL THREE QUESTIONS

IMPORTANT

MARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECTANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.


Question Two

VA is a sole proprietor. He employs a book-keeper who uses an accounting software package to produce atrial balance. At the year end, his accountant manually prepares journal entries and asks the book-keeper toenter these into the accounting software package.

The trial balance of VA at 31 August 2003 is set out below.

Dr$

Cr$

Advertising 8,000Bank 2,000Bank loan 20,000Bank interest 2,000Capital at 1 September 2002 20,000Capital introduced 5,000Carriage outwards 12,000Computing expenses 10,000Creditors 20,000Debtors 30,000Discount received 3,000Drawings 33,000Fixtures at cost 60,000Power 3,000Provision for depreciation on fixtures at 1 September 2002 15,000Provision for doubtful debts at 1 September 2002 1,000Purchases 240,000Rent 7,000Salaries 36,000Sales 383,000Stock at 1 September 2002 24,000

467,000 467,000

The following additional information has been provided by the book-keeper to the accountant.

(i) The stock at 31 August 2003 has been valued at $20,000.(ii) The prepayment for rent at 31 August 2003 is $2,000.(iii) The computer crashed in August 2003. An engineer gave an estimate of $500 to repair the computer,

which VA accepted. The engineer repaired the computer in August, but has not yet submitted hisinvoice.

(iv) Depreciation on the fixtures is to be provided for the year ended 31 August 2003 on the reducingbalance basis at 1/3 per annum.

(v) The provision for doubtful debts is to be 5% of the debtors.





Required: (a)Marks

available

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(1) Prepare the journal entries for the information in items (i) to (v) onpage 20.Use the journal schedule set out below and complete the name of theledger account and the amount of the debit and credit in the shadedareas.You are NOT required to write a narrative for the journal entries.

Ledger account Dr$

Cr$

(i)

(ii)

(iii)

(iv)

(v)

1

1

1

1

1

sub-total: 5




Required: (a)

(2) Prepare the accounts for VA for the year ended 31 August 2003 bycompleting the shaded areas in the accounts below.

VA Trading, Profit and Loss Account year ended 31 August 2003$ $

Sales

Gross profit

Less: Expenses

Net profit

Marksavailable

21/2

1/21/21/21/21/21/21/21/21/2

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sub-total: 7




Question Two continuedDo not write in these

columns below

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VA Balance Sheet at 31 August 2003

Fixed Asset$

Cost$

Provision fordepreciation

$

Current Assets

Current Liabilities

Net Current Assets

Long-term Liability

Capital at 1 September 2002

Capital at 31 August 2003Sub-total:

1

1/2

1/21/21/21/2

1/2

1/2

1/21/21/2

6

(b) VA is considering converting his business into a limited liabilitycompany. He has asked his accountant about the differences between theaccounts of a sole proprietor and those of a limited liability company.His accountant explained that one of the differences is that the accounts ofa limited liability company must show a true and fair view.You are required to explain the meaning of a “true and fair view” in theshaded area below.

(maximum of 30 words)Sub-total: 2





Question Three

All transactions with customers of PFI Limited are recorded in personal accounts in the sales ledger, and thesales ledger control account is part of the double entry in the nominal ledger.

The following information relates to transactions with customers for the month ended 31 October 2003.

$Sales ledger control account balance at 1 October 2003 20,000Credit sales 200,000Cheques received from customers 175,000Discounts allowed 4,000Returns inwards 5,000Bad debts written off 7,000Interest charged on debtors’ accounts overdue 500Contra with the purchase ledger control account 3,000Cheque received relating to a debt which had previously been written off as bad 600

Total of the balances on personal accounts in the sales ledger at 31 October 2003 24,500

Required:Prepare the sales ledger control account by entering the descriptionand the appropriate amount of the debit or credit in the schedulebelow.

Marksavailable

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Sales ledger control accountDescription

Dr$

Cr$

1/21/21/21/21/21/21/21/21/21/2

(a)

Sub-total: 5

(b) The following errors were subsequently discovered:

(i) The total of the sales day book had been over-cast by $1,000.

(ii) A discount allowed of $500 had been correctly entered in a debtor’s personal account in the salesledger, but no other entries in the books had been made.

(iii) A credit note of $800 for goods returned had been correctly entered in the sales ledger controlaccount, but had not been entered in the debtor’s personal account in the sales ledger.

(iv) NHS is both a customer of and supplier to PFI Limited. A contra of $1,200 between NHS debtor’saccount in the sales ledger and creditor’s account in the purchase ledger had been omitted from thebooks.

(v) The schedule of the balances on the personal accounts in the sales ledger had been under-cast by$1,300.





Required:

Prepare a statement reconciling the sales ledger control account and thetotal of the balances on the personal accounts in the sales ledger byentering a description and the appropriate amount in the shaded areas ofthe schedule below.

Marksavailable

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DescriptionSales ledger

controlaccount

$

Total ofbalances on

personalaccounts inthe sales

ledger$

Original balances at 31 October 2003 24,500

Revised balances at 31 October 2003

11111

Sub-total: 5





Question Four

The objective of the financial statements of an enterprise is to provide information about the financialposition, performance and financial adaptability of that enterprise which is useful to a wide range of users forassessing the stewardship of management and for making economic decisions.

Required:Marks

available

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(a)State the financial statement which provides information about thefinancial position of an enterprise and describe its key components.State why this information may be useful to users.

(i)

(maximum of 30 words) 4

State the financial statement which provides information about theperformance of an enterprise and describe its key components. Statewhy this information may be useful to users.

(ii)

(maximum of 30 words) 4State the key components of a cash flow statement. State why thisinformation may be useful to users.

(iii)


(b)Give two examples of users of financial statements.


(i)

Sub-total: 14





Required:Marks

available

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Give one example of an economic decision based on accountinginformation that may be made by each of two different categories ofusers of financial statements.

(ii)


(c) Explain the meaning of the term “stewardship”.

(maximum of 30 words) 3Sub-total: 6





Documents

CIMA | Financial Accounting Fundamentals past papers