ACCA f1 with answers 2005

3 This constitutes a ‘probable’ contingent asset under IAS 37, and thus should be disclosed by note, explaining the nature of the contingent asset and, if possible, an estimate of the fi

Answers

Part 1 Examination – Paper 1.1(INT)

Preparing Financial Statements (International Stream) December 2005 Answers

Section A

10 D

11 D

12 C

13 C

14 D

15 A

16 D

17 A

18 C

19 B

20 D

21 B

22 C

23 C

24 A

25 B

17

SECTION B

Income statement for the year ended 30 June 2005

––––––––

393,500

330,300

Rent and general expenses (49,200 + 7,400 – 12,500 + 13,000) 57,100

–––––––– Workings

(1) Calculation of sales

Receivables ledger total account

(2) Calculation of purchases

Payables ledger total account

––––––––

––––––––

2 Land – cost/valuation

Buildings – cost/valuation

Buildings – accumulated depreciation

31 Dec Income statement depreciation

Land and Buildings – disposal

Minority interest

Retained earnings

19

Kye group Balance sheet as at 30 September 2005

$

––––––––

––––––––

708,000

––––––––

780,000 ––––––––

4 (1) The factory was in good condition at 30 June 2005, and thus the fire is a non-adjusting event according to IAS 10 Events

after the balance sheet date Details of the fire and an estimate of the loss suffered should be disclosed by note.

(2) According to IAS 37 Provisions, contingent liabilities and contingent assets, contingencies such as this are to be provided for

as soon as it becomes probable that a liability will arise A provision should therefore be made for the best estimate of the loss that will arise

(3) This constitutes a ‘probable’ contingent asset under IAS 37, and thus should be disclosed by note, explaining the nature of the contingent asset and, if possible, an estimate of the financial effect

(4) It is incorrect to include the revaluation gain in the income statement, because the gain is unrealised It should be credited

to revaluation reserve and shown in the balance sheet The gain should also be shown in the statement of changes in equity

(IAS 16 Property, Plant and Equipment and IAS 1 Presentation of Financial Statements).

5 Four accounting concepts needed for full marks

Examples:

(i) Accruals concept

The accruals concept is that transactions are reflected in the accounting period in which they occur, rather than the period in which any cash involved is received or paid If this concept is not followed, expenses, income, assets and liabilities are all liable to be misstated and fair presentation will not be achieved

(ii) Going concern concept

The going concern concept is that financial statements should be prepared on the basis that the business will continue for the foreseeable future If this concept is not followed, assets and liabilities, and hence income and expenses, will be distorted, except, of course, in the rare case that the business is in fact no longer a going concern

(iii) Prudence concept

Prudence means that a degree of caution should be exercised in making estimates of figures for the financial statements, so that assets are not overstated and liabilities are not understated If the prudence concept is not followed, fair presentation is unlikely to be achieved because assets and liabilities may be shown at unrealistic values

(iv) Neutrality

Neutrality means that information in financial statements should be free from deliberate or systematic bias If this concept is not followed, information may be presented in a misleading way and a fair presentation will not result

(v) Substance over form

The legal form of a transaction may not represent the true nature of that transaction The concept of substance over form is that, whenever legally possible, the substance or reality of a transaction should be accounted for rather than its legal form Other concepts considered on their merits

Part 1 Examination – Paper 1.1(INT)

Preparing Financial Statements (International Stream) December 2005 Marking Scheme

Section B

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111/2 max 11

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11

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8

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3

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2

–––––

2

–––––

4 –––––

–––––

21