ACCA f1 with answers 2006

3 GandaCash flow statement for the year ended 31 December 2005 Cash flows from operating activities Adjustment for: ––––– 1,380 ––––– ––––– Cash flows from investing activities Cash flow

Answers

Part 1 Examination – Paper 1.1(INT)

Preparing Financial Statements (International Stream) June 2006 Answers

Section A

1 C (280,000 x 20%) + (48,000 x 20% x 9/12 ) + (36,000 x 20% x 4/12 ) – (14,000 x 20% x 6/12 )

3 D 5/12x 24,000 + 7/12x 30,000 = 27,500; 2/3x 7,500 = 5,000

Irrecoverable debts written off 1,500

6 D 3,980 – 270 – 180 – 3,200 = 330 : difference 100

10 D 630,000 – 4,320 – 440

11 A

12 B

13 B 430,000 x 5% = 21,500 – 18,000 + 28,000

Contras with amounts

receivable in receivables ledger 4,200

15 A

16 D 756,000 x 10/7

17 C

18 A

19 C

20 B 38,640 + 14,260 – 19,270 = 33,630

21 D

22 C 48,000 + 400 + 2,200

23 B

24 C 1,100,000 – 4/5(400,000 + 500,000)

25 A 20% x (400,000 + 800,000)

17

Section B

Statement of division of profit for the year ended 31 December 2005

Six months ended 30 June 2005

–––––––– Six months ended 31 December 2005

Interest on capital

165,000 Salary

–––––––– 155,000 Balance of profit

0 ––––––––

––––––––

––––––––

––––––––

–––––––– 250,000 –––––––– Current accounts

Share of balance 60:40 93,000 62,000

Alternative format

Leon and Mark Statement of division of profit for the year ended 31 December 2006

Six months ended 30 June 2005

Six months ended 31 December 2005

Interest on capital

Salary

Current accounts

2 (a) Net profit adjustments

$

(1) Inventory movement

(2) Goods on sale or return

(3) Reduction in inventory:

(5) Increase in allowance for receivables

–––––––––

–––––––––

(b) Adjustments to inventory and receivables

(2) Goods on sale or return

–––––––––

–––––––––

$

(ii) Receivables

––––––––– 230,000 (5) less: allowance for receivables (11,500)

–––––––––

$218,500 ––––––––– 19

3 Ganda

Cash flow statement for the year ended 31 December 2005

Cash flows from operating activities

Adjustment for:

–––––

1,380

–––––

–––––

Cash flows from investing activities

Cash flows from financing activities

–––––

––––– Workings

Purchases (balancing figure) 1,500

Income statement – depreciation

4 (a) The working capital cycle illustrates the changing make-up of working capital in the course of the trading operations of a

business:

1 Purchases are made on credit and the goods go into inventory

2 Inventory is sold and converted into receivables

3 Credit customers pay their accounts

4 Cash is used to pay suppliers

(b) Collection period for receivables

250

1,000 Inventory turnover

Payment period for payables

––––– x 365 800

––––––––

Note If average inventory is used the inventory turnover becomes:

100 + 200

700 The length of the cycle becomes 101 days

Either answer is acceptable

(c) The advantage to a company of keeping its working capital cycle short is that fewer resources are tied up in working capital, thus freeing them for other purposes

(Other answers considered on their merits)

Comments on proposals under consideration

(a) Proposed bonus issue

There are several problems in connection with the proposed bonus issue:

(i) A bonus issue would not raise any capital for the company To raise capital a rights issue (or an issue at full market price) would be necessary

(ii) For either a bonus issue or a rights issue to be possible, the authorised capital would have to be increased

(iii) There are insufficient reserves to make a bonus issue of $500,000 worth of shares

(b) Paying a dividend of 10c per share

There are insufficient retained earnings to pay a dividend of more than 5c per share

(c) IFRS 3 Business combinations does not allow goodwill to be revalued upwards.

(d) It is not possible to combine the reserves as suggested IAS1 Presentation of financial statements requires retained earnings

to be shown seperately from other reserves

21

Part 1 Examination – Paper 1.1(INT)

Preparing Financial Statements (International Stream) June 2006 Marking Scheme

1 Statement of division of profit

––––

51/2 Current accounts

––––

9

––––

Alternative marking scheme (if statement of division of profit shows partners’ total shares)

––––

61/2 Current accounts

––––

9

––––

2 (a) Profit adjustments

(b) Adjustments to inventory and receivables

Inventory

––––

3 Receivables

––––

11

1/2 mark per item other than interest

Cash flows from investing activities

Cash flows from financing activities

––––

13 1 / 2 max12

––––

––––

––––

–––– 10

50

––––

24

Workings for MCQ answers

1 C 280,000 x 20% + 48,000 x 20% x 9/12+ 36,000 x 20% x 4/12– 14,000 x

20% x 6/12

A as C, but plus 1,400

B 350,000 x 20%

D as B, but – 1,400

4 A as D, but discounts on wrong side

B as D, but irrecoverable debts on wrong side

C as in Q, but with discounts and irrecoverable debts on credit side

D all items on debit side except opening balance moved to credit side

6 A as D, but 180 adjusted in wrong direction

B as D, but 270 adjusted in wrong direction

C as D, but 3,200 adjusted in wrong direction

D 3,920 – 270 – 180 – 3,200 = 330 : 100 difference

10 A 630,000 – 4,320 + 440

B 630,000 – 4,800 – 440

C 630,000 – 4,320 – 440 – 800

D 630,000 – 4,320 – 440

13 B 430,000 x 5% = 21,500 – 18,000 + 28,000

A as B but 18,000 not deducted

C as B but provision based on 458,000

D as B but provision based on 458,000 and 18,000 not deducted

B as A but discounts on wrong side

C as A but contras and discounts on wrong side

D as in Q but contras and discounts on credit side (410,000 – 33,600)

16 A (77 + 763 – 84) = 756 + 30%

B 763 x 10/7

C 756 x 10/3

D 756 x 10/7

5D–GBRAA Paper T3GBR

20 A as in question

B (38,640 – 19,270 + 14,260)

C as B but plus 140

D as B but minus 140

22 A 48,000 + 400 + 800 + 2,200

C 48,000 + 400 + 2,200

D 48,000 + 400

24 A (1,100,000 – (400,000 + 500,000))

B (1,100,000 – 4/5x 400,000)

C (1,100,000 – 4/5(400,000 + 500,000))

D 4/5x 1,100,000

26 5D–GBRAA Paper T3GBR