FFA/FA FINANCIAL ACCOUNTING

$
Increase in net assets 88,000
Capital introduced (50,000)
Drawings (68,000 + 20,000) 88,000
Profit for the year 126,000

29.2 A
$
DEBIT cash 1,100,000
CREDIT share capital 250,000
CREDIT share premium 850,000
29.3 C Closing inventory should be valued at the lower of cost and NRV as per IAS 2.
29.4 D
Share Share
capital premium
$ $
1 July 20X4 500,000 400,000
1 January 20X5 – bonus issue (250,000  50c) 125,000 (125,000)
1 April 20X5 – rights issue 62,500 125,000
687,500 400,000

29.5 B RECEIVABLES LEDGER CONTROL ACCOUNT

$ $
Opening balance 138,400 Cash received 78,420
Credit sales 80,660 Payables contra 1,000
Dishonoured cheques 850 Irrecoverable debts written off 4,950
Closing balance 135,540
219,910 219,910

29.6 A SUSPENSE ACCOUNT

$ $
Opening balance 14,550 To cash account 10,000
To rent account 4,550
29.7 B, D A revaluation of a non-current asset and a bonus issue of shares are both non-cash transactions.
29.8 D
$
Opening inventory 138,600
Purchases 716,100
Closing inventory (149,100)
Cost of sales 705,600

Sales = 705,600  100/70 = 1,008,000

29.9 C
SPL SOFP
$ $
Prepaid insurance 8,200
Payment January 20X5 38,000
Prepayment July-Sept 20X5 (9,500) 9,500
36,700 9,500

29.10 D All three statements are correct.

29.11 D Beta has issued a credit note for $500 to Alpha which Alpha has not yet received.
29.12 A Research expenditure is never capitalised.
29.13 D (i) and (iv) provide information about conditions which existed at the reporting date and are
therefore adjusting.

228
 ANSWERS

29.14 $84,000 RENT RECEIVED

$ $
Arrears b/f 3,800 In advance b/f 2,400
Rent in advance 3,000 Cash received 83,700
Rental income 84,000 In arrears 4,700
90,800 90,800

29.15 B
$
Allowance for receivables ((517,000 – 37,000)  5%) 24,000
Previous allowance (39,000)
Reduction (15,000)
Debts written off 37,000
Charge to statement of profit or loss 22,000

29.16 D 2 and 3 only. Attributable overheads should be included in finished goods inventories.
29.17 B The proceeds will appear under investing activities and any profit will be deducted under
operating activities.
29.18 C All four items will appear in the statement of changes in equity.
29.19 A
$
Balance per bank statement (38,600)
Bank charges 200
Lodgements 14,700
Cheque payments (27,800)
Cheque payment misposted 8,400
Balance per cash book (43,100)

30 Mixed bank 2
30.1 C
$
Balance b/f ((280,000 – 14,000)  20%) 53,200
Addition 1 April (48,000  20%  9 )
12 7,200
Addition 1 Sept (36,000  20%  4 ) 2,400
12
62,800
1,400
Sale (14,000  20%  1 )
2
64,200

30.2 D Item 1 is wrong, as inventory should be valued at the lower of cost and net realisable value.
Items 2, 3 and 4 are all correct.
30.3 D RENT RECEIVABLE
$ $
31.1.X6 Statement of profit or loss 27,500
1.2.X5 Balance b/f ( 2 × $6,000) 4,000
3
1.4.X5 Received 6,000
1.7.X5 Received 7,500
1.10.X5 Received 7,500
1.1.X6 Received 7,500
31.1. X6 Balance c/f ( 2  $7,500) 5,000
3
32,500 32,500

229
 FFA/FA FINANCIAL ACCOUNTING

30.4 D 20%. ROCE is defined as the profit on ordinary activities before interest and tax divided by
capital employed = $300,000/$1.5m = 20%
30.5 D Items (1) and (4) are adjusting events. Item (2) is a non-adjusting event but might be disclosed
by way of note if material. Item (3) is a non-adjusting event that is disclosed by way of note.
30.6 $100
$
Balance per Alta 3,980
Cheque not yet received (270)
Goods returned (180)
Contra entry (3,200)
Revised balance per Alta 330
Balance per Ordan (230)
Remaining difference 100

30.7 B, D For returns, we need to debit the purchases returns account $130 to reverse the entry and debit
the sales returns account $130 to record the entry correctly. The credit of $260 will be to
suspense. So journal B is correct.
For machinery, we need to debit plant and machinery $18,000 and credit suspense $18,000.
So journal D is correct.
30.8 B Item (1), as the plant register is not part of the double entry system, the adjustment does not go
through the suspense account.
Item (2), the transaction has been completely omitted from the records.
Therefore only items (3) and (4) affect the suspense account.
30.9 D
$
Initial profit 630,000
Item (1) – increase in depreciation (4,800 – 480) (4,320)
Item (2) – bank charges (440)
Item (3) – no effect on P/L –
Item (4) – no effect on P/L –
Revised profit 625,240

30.10 A Statements (1) and (2) are correct.

30.11 C Only Statements (2) and (3) are correct.
30.12 B
$
Closing receivables 458,000
Irrecoverable debts w/off (28,000)
430,000
Allowance required (5%  430,000) 21,500
Existing allowance (18,000)
Increase required 3,500

Charge to statement of profit or loss (28,000 + 3,500) 31,500

30.13 A PLCA
$ $
Cash paid to suppliers 988,400 Opening balance 384,600
Discounts received 12,600 Purchases 963,200
Purchases returns 17,400
Contras 4,200
Closing balance 325,200
1,347,800 1,347,800

30.14 A We need to increase drawings (debit) and reduce purchases (credit). Therefore journal A is the
correct answer. Remember that we only adjust inventory at the year end.

230
 ANSWERS

30.15 D
$ $
Sales (balancing figure) 1,080,000
Opening inventory 77,000
Purchases 763,000
840,000
Closing inventory 84,000
Cost of sales (70%) 756,000
Gross profit ( 30  756,000) 324,000
70

30.16 C Statements (3) and (4) are correct. Statement (1) is incorrect because land is not usually
depreciated. Statement (2) is incorrect as the gain on revaluation for property accounted for in
accordance with IAS 16 is shown in the statement of profit or loss and other comprehensive
income, under 'other comprehensive income' or in the separate statement of other comprehensive
income. (NB gains on property classified as investment property per IAS 40 are recognised in
profit or loss, but this is beyond the scope of this syllabus).
30.17 B
$
Balance per bank (overdrawn) (38,640)
Add outstanding lodgements 19,270
(19,370)
Less unpresented cheques (14,260)
Balance per cash book (overdrawn) (33,630)

30.18 C 48,000 + 400 + 2,200 = 50,600

30.19 B Opening inventory: debit statement of profit or loss, credit inventory account
Closing inventory: debit inventory account, credit statement of profit or loss
Remember that inventory is part of cost of sales, which is included in the statement of profit or
loss.

30.20 D $'000
Fair value of consideration 4,000
Plus fair value of NCI at acquisition 2,200
Less net acquisition-date fair value of identifiable assets acquired
and liabilities assumed (4,750)
Goodwill 1,450

31 Mixed bank 3
31.1 A
$
Sales (100%) 650,000
Cost of sales (70%) 455,000
Gross profit (30%) 195,000
Opening inventory 380,000
Purchases 480,000
860,000
Closing inventory (bal. fig.) (405,000)
Cost of sales 455,000
Calculated inventory 405,000
Actual inventory 220,000
Lost in fire 185,000

31.2 B Income from investments and dividends paid on redeemable preference shares are recognised in
the statement of profit or loss.

231
 FFA/FA FINANCIAL ACCOUNTING

31.3 D Dividends paid go through the SOCIE, not the statement of profit or loss and other comprehensive
income. Also dividends declared after the end of the reporting period, are disclosed by way of
note to the financial statements.
31.4 D Goose Co has control over all three of these investments, and hence they are all subsidiaries.
31.5 B Trade receivables = 838,000 – 72,000
= 766,000
Allowance for receivables = 60,000
Net balance = 766,000 – 60,000
= 706,000
31.6 A, D Overheads must be included in the value of finished goods. Inventories should be valued at the
lower of cost and net realisable value, not replacement cost.
31.7 C Inventory is correctly recorded, so (2) and (4) are incorrect. Purchases are understated, so cost of
sales are understated and so profit for 20X6 is overstated. Therefore (1) only is the correct answer.
31.8 D 1.26:1. (Receivables 176,000)/(trade payables 61,000 + overdraft 79,000).
31.9 A All four items are correct.
31.10 A
INSURANCE
$ $
Prepayment b/f 8,100 SPL 11,100
(3/4  10,800) Prepayments c/f 9,000
Paid 12,000 (3/4  12,000)
20,100 20,100

31.11 C Statements (2) and (3) are incorrect. A bounced cheque is credited to the cash book and bank
errors do not go through the cash book at all.
31.12 B
SHARE CAPITAL
$m $m
Bal b/f 100
Bonus (1/2  100m) 50
Bal c/f 210 Rights (2/5  150m) 60
210 210

SHARE PREMIUM
$m $m
Bonus 50 Bal b/f 80
Bal c/f 60 Rights 30
110 110

31.13 A All three statements are correct

31.14 A Items (2), (3) and (4) preserve double entry and so would not show up in a trial balance.

31.15 $2,850,000 $'000

Fair value of consideration transferred 8,000
Plus fair value of NCI at acquisition ($1.20  3,000,000) 3,600
Less net acquisition-date fair value of identifiable assets acquired
and liabilities assumed (8,750)
Goodwill 2,850

232
 ANSWERS

31.16 B
$
Opening inventory 40,000
Purchases 60,000
100,000
Closing inventory (50,000)
Cost of sales 50,000
This implies sales of 100,000 (50,000  2)
So either (1) is correct or (3) is correct.

31.17 D
RENT RECEIVED
$ $
Arrears b/f 4,800 Prepayments b/f 134,600
Cash received 834,600
Profit or Loss 828,700
Prepayments c/f 144,400 Arrears c/f 8,700
977,900 977,900

31.18 C RECEIVABLES LEDGER CONTROL ACCOUNT

$ $
Opening balance 284,680 Cash received 179,790
Credit sales 189,120 Irrecoverable debts written off 5,460
Sales returns 4,920
Contras 800
Closing balance 282,830
473,800 473,800

31.19 A $150,000
$
Carrying amount at 01 August 20X0 200,000
Less depreciation (20,000)
180,000

Proceeds 25,000
Loss 5,000
Carrying amount of asset sold (30,000)
Therefore carrying amount 150,000

32 Mixed bank 4
32.1 A Share capital (1m  $1) = 1,000,000
Share premium (1m  50c) = 500,000
32.2 C The correct answer is decrease current ratio and decrease quick ratio. Proposed dividends are not
accrued for, so the only impact on the financial statements is to decrease cash.
32.3 D
RENTAL INCOME
$ $
Arrears b/f 42,300 Prepayments b/f 102,600
Profit or Loss 858,600 Received 838,600
Prepayments c/f 88,700 Arrears c/f 48,400
989,600 989,600

32.4 C Journals A and B have their entries reversed and Journal D should not include the suspense
account at all.

233
 FFA/FA FINANCIAL ACCOUNTING

32.5 A Per IAS 37 provide for probable losses of known amount and for which there is a constructive
obligation, disclose possible losses, ignore remote ones.
32.6 A
RENT PAID
$ $
Prepayment b/f 10,000
(1/12  120,000)
Paid – 1/1 30,000 SPL 136,000
–¼ 36,000
– 1/7 36,000
– 1/10 36,000 Prepayments c/f 12,000
(1/3  36,000)

148,000 148,000

32.7 A
$ $
Trade receivables 863,000
Irrecoverable debts w/off (23,000)
840,000
Closing allowance for receivables (5%  840,000) 42,000
Opening allowance 49,000
Reduction (7,000)

Charge = 23,000 – 7,000

= 16,000

32.8 C
SHARE CAPITAL
$m $m
Bal b/f 1.0
Share issue (note 1) 0.5
Bal c/f 2.0 Bonus (note 2) 0.5
2.0 2.0

SHARE PREMIUM
$m $m
Bonus (note 2) 0.5 Bal b/f 1.4
Bal c/f 1.8 Share issue (note 1) 0.9
2.3 2.3

Notes
1 Share issues of 1,000,000 shares raises $1,400,000. Shares are 50c each, so share
capital is $500,000 and share premium $900,000.
2 Share capital is $1.5m or 3m shares. Therefore the bonus issue is 1m shares.
32.9 C Inventory should be valued at the lower of cost and net realisable value, so Statement (1) is
incorrect.
32.10 $192,600
$
Held all year ((960,000 – 84,000)  20%) 175,200
Addition (48,000  20%  ½) 4,800
Disposal (84,000  20%  ¾) 12,600
192,600

32.11 B, C Items A and D involve completed double entry and so do not go through the suspense account.
32.12 D Debit drawings and credit the cost to purchases.

234
 ANSWERS

32.13 D Cost + Profit = Selling price

100 25 125
PUP = (25/125  15,000)  2/3 = $2,000
Inventories = $40,000 + $20,000 – $2,000 = $58,000
32.14 D Tax is separately disclosed in the statement of profit or loss and other comprehensive income
only, while profit for the period is shown in the statement of profit or loss and other
comprehensive income and in the statement of changes in equity.
32.15 D The reducing balance method charges more depreciation in earlier years.
32.16 D A decrease in receivables should be added and so should an increase in payables. Therefore (3)
and (4) are correct.
32.17 C $47,429
$ $
Balance per P Johnson 46,747
Add: Whitchurch Co invoice, previously omitted from ledger 267
Rectofon Co balance, previously omitted from list 2,435
3,102
49,449
Less: Error on posting of Bury Inc's credit note to ledger 20
P Fox & Son (Swindon) Co's balance included twice 2,000
2,020
Revised balance per receivables ledger 47,429

33 Mixed bank 5
33.1 B Closing inventory $1,700
Inventory Unit
Purchases Sales Balance value cost
Units Units Units $ $
10 10 3,000 300
12 3,000 250
22 6,000
8 (2,400)
14 3,600
6 1,200 200
20 4,800
12 (3,100)*
8 1,700

* 2 @ $300 + 10 @ $250 = $3,100

33.2 A The IFRS Advisory Council
33.3 D SUSPENSE ACCOUNT
$ $
Cash 1,512 Bal b/f 759
Receivables 131
Bal c/f 622
1,512 1,512

33.4 D The sales daybook has been totalled incorrectly so the incorrect total has been posted to the
control account. Each individual transaction has been posted to the individual accounts so when
the two are compared there will be a difference of $200.

235
 FFA/FA FINANCIAL ACCOUNTING

33.5 C
$
Receivables allowance at 30.11.X8 (598,600  2%) 11,972
Opening allowance at 1.12.X7 (12,460)
Reduction in allowance (credit to statement of profit or loss) (488)

Total credit to statement of profit or loss = 488 + 635 = $1,123

33.6 C
$
Rent accrual (4/12  $12,000) (4,000)
Insurance prepayment (10/12  $6,000) 5,000
Net increase in profit 1,000

33.7 D
$
Non-current assets at 1 December 20X7 2,500,000
Depreciation charge for the year (75,000)
Non-current asset disposed of (carrying amount) (120,000)
Revaluation of non-current assets 500,000
2,805,000
Non-current assets at 30 November 20X8 4,200,000
Therefore non-current assets acquired during the year (1,395,000)
Sales proceeds from disposal of non-current asset 150,000
To be included in 'net cash flows from investing activities' (1,245,000)

NON-CURRENT ASSETS
$'000 $'000
Bal b/f 2,500 Depreciation 75
Revaluation 500 Disposal 120

Additions (bal fig) 1,395 Bal c/f 4,200

4,395 4,395

33.8 A A transposition error in the sales day book will not cause a difference between the SLCA and the
receivables ledger as the total of the SDB is posted to the SLCA and the individual balances in
the SDB to the receivables ledger, therefore the same error will be posted to both the SLCA and
the receivables ledger.
33.9 A Make sure you read the dates carefully as some of the goods are returned after 31 May and we
are only concerned with sales returns at that date, which is the goods with a list price of $3,000.
The value of the original sale is after the trade discount of 10%, so the actual amount invoiced
for those goods is $2,700 ($3,000 × 90%).
33.10 C Only Statement (2) is correct. Development expenditure should be capitalised in accordance with
IAS 38, however, research expenditure should be written off to the statement of profit or loss as
incurred. Goodwill arising in a business combination should be capitalised as a non-current asset
in the statement of financial position.
33.11 D All of the suggestions are flawed. LIFO is not permitted under IAS 2. Provisions cannot be created
unless a constructive obligation exists, the amount can be reliably estimated and the likelihood of
having to pay out cash is probable – none of these conditions are met, therefore a provision
cannot be made. Development expenditure must be amortised over its useful life.
33.12 C Journal entries (1) and (2) should both be reversed.
33.13 C Carriage outwards is a distribution expense.

236
 ANSWERS

33.14 C
Frog Toad
$'000 $'000
Per question 650 160
Pre-acquisition retained earnings (145)*
15
Post-acquisition retained earnings of Toad 15
Group retained earnings 665
* 100 + (60/12  9)
33.15 D
$
Profit before tax 36,000
Dividend (21,000)
Added to retained earnings 15,000

33.16 D It reduces receivables.

33.17 A $2,185. Prepayment b/f $60 (2/3  90) + $2,145 – prepayment c/f $60 – accrual b/f $80 +
accrual c/f $120 = $2,185.
33.18 B In Option (2), receivables and drawings are debits but discount received is a credit. In Option (4),
capital and trade payables are credits but operating expenses are debits.
33.19 $205,000
Profit = Drawings + Increase in net assets – Capital introduced
= $77,000 + $173,000 – $45,000
= $205,000
33.20 B $130 loss
Capital = Assets – Liabilities
$50 + $100 + profit for the year = $90 – $70
$150 + profit for the year = $20
Therefore, the profit for the year is in fact a loss of $130.

34 Mixed bank 6
34.1 A X is a receivable of Y.
34.2 A $47,429
RECEIVABLES LEDGER CONTROL
$ $
Balance b/d 50,241 Returns inwards 41,226
Sales 472,185 Irrecoverable debts written off 4,586
Cheques dishonoured 626 Cheques received 429,811
Balance c/d 47,429
523,052 523,052

34.3 A $2,098
CASH BOOK
$ $
20X3 20X3
31 May Balance b/d 873 31 May Bank charges 630
Error $(936 – 693) 243 Trade journals 52
Balance c/d 2,098 Insurance 360
Business rates 2,172
3,214 3,214
1 May Balance b/d 2,098

237
 FFA/FA FINANCIAL ACCOUNTING

34.4 B $87 loss

$
Carrying amount: 9,000  0.7  0.7  0.7 3,087
Proceeds of sale (3,000)
Loss on disposal 87

34.5 A Depreciation is an application of the accruals principle.

34.6 C Original annual depreciation = $(160,000 – 40,000)/8 years = $15,000 per year.
The change in the estimated life of the asset is made on 31 December 20X3, and this means
that the change should be applied for the year ending 31 December 20X3.
$
Cost 160,000
Accumulated depreciation to 31 December 20X2 (2 years  $15,000) 30,000
Carrying amount at 1 January 20X3 130,000
Residual value 40,000
Remaining depreciable amount as at 1 January 20X3 90,000

Remaining life from 1 January 20X3 = 4 years

Annual depreciation = $90,000/4 years = $22,500.
Net book value (carrying amount at 31 December 20X3 =
$130,000 – $22,500 = $107,500.
34.7 B $200 debit which should have been credited – correction will bring trial balance into agreement
34.8 C IAS 1 requires revenue to be disclosed on the face of the statement of profit or loss and other
comprehensive income. It does not specify that a company must disclose profit before tax or
gross profit on the face of the statement of profit or loss and other comprehensive income,
however, most companies choose to do this. Dividends are disclosed in the statement of changes
in equity if they are paid or are declared before the period end.
34.9 D ($73,680) + 102,480 – 87,240 = (58,440) $58,440 overdrawn
34.10 C (1), (2) and (3) are all incorrect.
34.11 A Cash received from customers, irrecoverable debts written off, and credits for goods returned by
customers are credits to the sales ledger control account.
34.12 B $952,500  100/60 = $1,587,500
34.13 C
$
Theoretical gross profit ($130,000  30%) 39,000
Actual gross profit ($130,000 – $49,800 – $88,600 + $32,000) 23,600
Shortfall – missing inventory 15,400

34.14 A $ $
Sales 240,000
Purchases 134,025
 Drawings (2,640)
Inventory adjustment (11,385)
Cost of sales (50%  240,000) 120,000
120,000

34.15 D Incorrect answers: Goods purchased for cash – current assets remain the same, Payables paid
out of an overdraft – current liabilities remain the same

238
 ANSWERS

34.16 D
PUP = 50,000  25/125  40% = $4,000
Lexus
group
$'000
Revenue (350 + 150 – 50*) 450
Cost of sales (200 + 60 – 50* + 4) 214

* to remove intragroup sales

34.17 D
Share capital 75,000 + 15,000 + 30,000 = 120,000
Share premium 200,000 + 57,000 – 30,000 = 227,000
(Remember shares are 25c)
34.18 D

35 Mixed bank 7
35.1 A PLANT AND EQUIPMENT (CARRYING AMOUNT)
$'000 $'000
b/d 155 Depreciation charge in year 25
Purchases of P+E 10  Carrying amount of sale 15
c/d 125
165 165
$'000
So, Carrying amount 15
Proceeds (7)
Loss 8

35.2 D (2c + 3c)  10,000,000. The final ordinary dividend is declared before the year end and so is
accrued for. The preference dividend is classified as a finance cost.
35.3 A Working capital is increased as the company will receive cash for the share issue. Share premium
is not reduced as it is not a bonus issue of shares, it will probably increase as the shares will
probably be issued at a premium.
35.4 D A revaluation surplus will be presented as part of equity, not current liabilities.
35.5 C In Statement (i) both sides of the double entry posting from the cash book would be incorrect but
equal in value, so this would not cause a trial balance imbalance. In Statement (ii), both
expenses and non-current assets are debit balances in the trial balance, so posting to the wrong
account in this case would not cause a trial balance imbalance.
35.6 D The dividends actually paid will go through the statement of changes in equity. The final
proposed dividend of $120,000 is disclosed in the notes to the statement of financial position.
35.7 D Deferred development expenditure should be amortised over its useful life. If the conditions in
IAS 38 are met, development expenditure must be capitalised. Trade investments are not
intangible assets, they should be reported under non-current assets: investments in the SOFP.
35.8 RENT
$ $
Bal b/f (rent in arrears) 4,800 Bal b/f (rent in advance) 134,600
SPL 828,700 Bank (bal. fig.) 834,600

Bal c/f (rent in advance) 144,400 Bal c/f (rent in arrears) 8,700
977,900 977,900

35.9 D A, B and C are all income items reflected in the statement of profit or loss and other
comprehensive income. In contrast D is reflected in the statement of financial position.

239
 FFA/FA FINANCIAL ACCOUNTING

35.10 B Items A, C and D are all capital items, reflected in the statement of financial position.
35.11 A PAYABLES LEDGER CONTROL ACCOUNT
$ $
Cash paid to suppliers 1,364,300 Opening balance 318,600
Discounts received 8,200 Purchases 1,268,600
Purchases returns 41,200 Refunds received from 2,700
suppliers
Contras 48,000
Closing balance 128,200
1,589,900 1,589,900

35.12 C We need to increase the rent expenses (debit) and set up a liability to pay this amount (credit
accruals).
35.13 C Wastage of inventory means that cost of sales is high relative to revenue.
35.14 A Sales: current assets = 5:1
Therefore current assets ($30m/5) = $6m
Current ratio = 2:1
Therefore current liabilities ($6m/2) = $3m
Acid test ratio = 1.5:1
Therefore current assets – inventory ($3m  1.5) = $4.5m
Hence, Inventory ($6m – $4.5m) = $1.5m
35.15 C All three statements are correct.
35.16 A 485,000 + 48,600 + 18,100 – 368,400
35.17 B = 60,000 + ((1,232,000 – 60,000)  5%) – 90,000
35.18 A Although we may use a trial balance as a step in preparing management or financial statements,
the main reason is A.

240