1.

The following balances were extracted from the books of Waldie plc on 31 May 2014.

Purchases

Dr

Cr

700,000

Revenue

1500,000

Inventory at (1 June 2013)

54,000

Discounts

7,200

Sales returns

5,600

Ordinary shares of $ 0.50 each

Ordinary share capital calls not paid

400,000
8,000

Commission received

40,000

General distribution costs

185,000

General administrative expenses

110,000

Retained earnings at (1 June 2013)

Trade receivables

3,000

86,000
60,000

Trade payables

37,400

Office equipment

90,000

Delivery vehicles

220,000

Land and buildings

517,400

Provision for depreciation of office equipment

30,000

Provision for depreciation of delivery vehicles

56,000

General reserve

90,000

Share premium

100,000

Bank

197,000

Provision for doubtful debts

Salaries

1,800
190,000
2344,200

2344,200

Additional information:
(i)

Inventory at 31 May 2014 was valued at $55,500.

(ii)

General distribution costs owing $2,800; General administrative expenses

prepaid $2,500.

(iii)

Commission receivable of $1,200 is outstanding for the year.

(iv)

The provision for doubtful debts is to be maintained at $1,800.

(v)

During April 2014 an independent surveyor revalued land and buildings to

$650,000. No entries have yet been made in the accounts. Land and buildings
are not depreciated.

(vi)

Salaries are spilt equally between distribution costs and administrative expenses.

(vii)

Depreciation is to be provided as follows:

Office equipment 20% per annum on cost;
Delivery vehicles 20%per annum using reducing balance method.

(viii)

Office equipment is split equally between distribution costs and administrative

expenses. Delivery vehicles are treated under distribution costs.

(ix)

The directors recommend a transfer to the general reserve $45,000 and paid an
ordinary share dividend of $125,000.

(x)

Corporation tax for the year is estimated at $65,000.

(xi)

At the year end company made a bonus issue of two Ordinary shares for every
five held. Following the bonus issue company also made a rights issue of one
ordinary share for every five held at $0.75 each.

Required:

(a)

Income statement for the year ended 31 May 2014

2

[12]
(b)

Statement of retained earnings for the year ended 31 May 2014

3

[6]
(c)

(i) Explain the difference between the Share premium Account and the General
Reserve.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[4]
(ii) Discuss how the balance on each of these accounts can be used.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[4]
(d)

Statement of financial position as at 31st May 2014

4

Cost

Depn

NBV

[14]
[Total marks 30]

1. Timpsons Ltd. Manufacture a range of products and is divided into three cost
centre:
A, Band C which are all production cost centre.
The budgeted costs for the year ahead are as follows:
$
Rent

8,400

Depreciation of machinery

5,400

Light and heat

2,800

Supervision

3,600

Insurance of stocks

1,200

Power

5,400

Indirect materials

3,000

The following information is available for the three cost centre:

A

C
Area (square feet)
Number of employees
Cost of machinery
Value of stock
$12,000
Indirect materials

3,000

2,200

40

2,800

30

$48,000

20

$36,000

$30,000
$ 1,600

$24,000

$18,000
$

760

Machine hours
4,000

8,000

6,000

Labour hours
2,000

4,000

6,000

640

You are required to:

6

(a) Define the following terms:

(i)
allocation
(ii)
apportionment
(b) Prepare an overhead analysis sheet which shows how the budgeted costs
should be charged to the three cost centers.
(c) Calculate a suitable overhead absorption rate for each center and explain why
you have chosen that type of rate.