ACCA f1 with answers 20041

The large increase in the inventory holding period suggests that the company is having difficulty making sales in the closing months of the period.. Customers are taking longer to pay, p

Answers

Part 1 Examination – Paper 1.1 (INT)

Section A

1 A 20,000 minus 16,000 x 20%/2

2 B (7/12 x 8,400) + (5/12 x 12,000) = 9,900

1,000 paid in advance in sundry payables

3 D 28,500 + 42,000 – 38,000

4 A (160,000 x 20%) + (40,000 x 20% x 3/4) + (50,000 x 20% x 1/2)

4,600 307,100

1,400

2,000 181,000

2,960

84,000

11 C 281,250/3 – 53,050

12 D

14 A

15 C

16 A

17 A

18 D

19

19 A

20 B

21 C

22 D

23 C 280,000 – (112,000 + 40,000 + 48,000) = 80,000; minus 20% = 64,000

24 C 290,000 x 20%

25 A

Section B

Income statement for the year ended 31 December 2003

less: Cost of sales

Purchases (2,184,000 – 60,000) 2,124,000

––––––––––

2,603,000

less: Closing inventory 450,000 2,153,000

–––––––––– ––––––––––

less: Expenses

Sundry administrative expenses (W1) 430,300

Profit on sale of office equipment (W4) (9,000)

––––––––––

––––––––––

(b) The proposed dividend of $240,000 would be disclosed by note in Minica’s published income statement

1 Sundry administrative expenses

2 Bad and doubtful debts

––––––

3 Depreciation

(460,000 – 20,000) x 20 per cent 88,000

––––––

4 Profit on sale of equipment

15,000 proceeds minus 6,000 net book value 9,000

21

2 $ $

Correction of error in posting cost of repairs to premises

Entry for unposted item

(or Income statement)

Transfer of cost of vehicle destroyed

to disposal account

Transfer of depreciation on vehicle

destroyed to disposal account

Loss on destruction of car transferred

Cash flow statement for the year ended 31 October 2003

Cash flows from operating activities

Adjustments for:

Loss on sale of office equipment 50,000

–––––––––––

Operating profit before working

–––––––––––

Net cash used in operating activities ––––––––––– (230,000)

Cash flows from investing activities

Purchase of non-current assets (700,000)

Proceeds from sale of

Net cash used in investing activities –––––––––– (670,000)

Cash flows from financing activities

Proceeds from issuance of

Net cash from financing activities –––––––––– 500,000

–––––––––

–––––––––

Cash and cash equivalents at 31 October 2003 (260,000)

–––––––––

Non-current assets – net book value

Assets purchased

(i) Inventory holding period

600,000/6,300,000 x 365 35 days

(ii) Average period of credit granted to customers

1,270,000 / 8,400,000 x 365 55 days

(iii) Average period of credit allowed by suppliers

1,050,000 / 6,400,000 x 365 60 days

(b) (i) All three ratios show deterioration

The large increase in the inventory holding period suggests that the company is having difficulty making sales in the closing months of the period

Customers are taking longer to pay, placing further strain on the company’s liquid position

The company is attempting to finance the increased inventory and receivables by paying its suppliers more slowly, which will probably have the effect of losing supplier goodwill

(ii) The main reason for the decline is the reduced gross profit percentage If the gross profit percentage of 2002 (25 per cent) had continued in 2003, an additional $450,000 of profit would have been made Instead, the gross profit percentage went down to 20 per cent

Other contributing factors are:

– the new non-current assets ($700,000) were not acquired until near the end of the year, and thus may not be fully operational

– the share issue also took place right at the end of the year, and so has not yet been deployed in profit-earning assets

5 (a) Comparability means that users are able to draw conclusions about the performance or financial position of a business by

relating figures for a particular period to other relevant figures

Possible types of comparison are:

(i) comparison with figures for the same business for earlier periods

(ii) comparison with figures for other businesses for the same period

(iii) comparison with budgets or forecasts

(Two types required for full marks)

(b) Two from:

(i) by requiring the disclosure of accounting policies and the effect of changes in them

(ii) by reducing or eliminating the number of possible alternative treatments for similar items available to businesses (iii) by requiring businesses to treat similar items in the same way within each period and from one period to the next, unless

a change is required to comply with accounting standards or to ensure that a more appropriate presentation of events

or transactions is provided

23

Part 1 Examination – Paper 1.1 (INT)

Preparing Financial Statements (International Stream) June 2004 Marking Scheme

Section B

Marks

–– 11

–– 12 ––

2 For each journal entry

–––

11/2

3 Calculation of cash used in operations

––––

Investing activities

Proceeds of sale

1/2

–– 11 ––

–– 10 ––

–– 4

–– 8 ––