1.

The following data is available in respect of Chatham Ltd:

Non current assets

Inventories
Trade payables
Bank balance
Bank overdraft
Current ratio

31 December 2015
$
320 000
36 000
8 000
2 000
4 :1

31 December 2016
$
460 000
46 000
12 000
4 000
5 :1

Additional information:

Sales in 2015 were $500 000 and net profit was $110 000.

In 2016 sales increased by 20%, the gross profit margin increased by 10 percent, the gross
profit was $300 000, but the net profit margin declined by 5 percent from previous year.

All sales and purchases are made on credit and there were no liabilities due beyond one
year.

Required:
(a) Construct the income statement of Chatham Ltd for 2015 and 2016 showing sales, cost of
sales, gross profit, expenses and net profit.
[14]
(b) Calculate the following in respect of both 2015 and 2016:
(i) Year end trade receivables
(ii) Acid test (quick) ratio
(iii) Inventory turnover (based on closing inventory and expressed in days)
(iv) Trade receivables collection period
(v) Trade payables settlement period (based on cost of goods sold and expressed in days)
(vi) Return on capital employed
[14]
(c) State two limitations of ratio analysis
[2]
[Total marks 30]

2.

The book-keeper of Ashford Partners has prepared draft accounts showing a net profit of
$12600 and a Suspense Account with a debit balance of $3300. The following errors were
subsequently discovered:
(i)

The closing inventory of $3826 had been included in the accounts at $3628. The
partnership uses a periodic inventory recording system.

(ii)

The proceeds of $1500 from the sale of machinery had been credited to the Suspense
Account and debited to the Bank Account. No other entries had been made in respect of
this machinery which cost $3800 and had accumulated depreciation of $2000 at the date
of sale. No depreciation is charged in the year of sale.

(iii) Prepaid rent expense of $278 had been entered as an accrual.

(iv) Accrued telephone expense of $148 had been entered as a prepayment of $184.
(v)

Drawings by John Ashford of $400 had been debited to Suspense Account and credited to
Bank Account.

(vi) No entry had yet been made in respect of capital introduced by Peter Ashford of $3000
just before the year end.
(vii) A payment of $4400 in respect of personal expenses incurred by the partners had been
correctly credited in the Bank Account but no debit entry had been made.
Required:
(a) Prepare:
(i) Journal entries (without narratives) showing the necessary amendments
(ii) The Suspense Account
(iii) A statement showing the corrected net profit
[13]
The senior partner now comments that he has every confidence in the bookkeeper.
(b) Give two reasons for concern about the bookkeepers ability.
[2]
[Total marks 15]

3.

Dorking Ltd commenced business on 1 October 2012, and on that date acquired the following
non current assets:
2

Land and buildings (including land $80 000)

Plant and machinery
Motor vehicles

$
200 000
140 000
75 000

Depreciation policies are as follows:

Buildings : written off evenly over 50 years

Plant and machinery : 30% per annum, reducing balance basis
Motor vehicles: 20% per annum, reducing balance basis

In the three years ended 30 September 2015 the following transactions took place:
1 October 2013 : Purchased plant and machinery for $12 000 and sold motor vehicles originally
costing $30 000, for $12 300.
1 October 2014 : Land and buildings were revalued at $300 000 (including land $108 000)
Required:
(a) Calculate the total amount charged for depreciation for each of the three years ended 30
September 2013, 2014 and 2015.
[10]
(b) Prepare Journal entries (with narratives) recording the transactions on 1 October 2013 and
on 1 October 2014.
[5]
[Total marks 15]

4.

Company XYZ produces two components (C1 and C2) and is planning the allocation of its
available resources for the next period. 75 units of component C1 and 60 units of component
C2 are required to be produced but machine hour capacity is restricted to a total of 300 hours.
Any deficit of components produced in-house can be made up by the purchase of any quantity
3

of either component from an outside supplier. The objective of Company XYZ is to satisfy the
requirement for components at minimum total cost.
The following information is available concerning each component:
Component
Costs per unit:
Direct materials
Direct labour
Variable production overheads
Fixed production overheads

Machine hours (per unit)

Price per unit from outside supplier

C1
$
6.20
5.10
1.20
4.80
17.30

C2
$
8.70
7.50
1.30
6.40
23.90

2.0
$ 18.50

3.0
$ 25.90

Required:
For the next period:
(a) Calculate the variable costs of producing each component in-house.

[2]

(b) Calculate the extra costs of buying-in each component.

[2]

(c) Determine which component should have production priority. Show workings clearly and
justify your conclusion.
[6]
(d) Calculate the number of units of each component that should be manufactured by Company
XYZ.
[4]

(b) There are two production cost centres (P1 and P2) and two service cost centres (Materials
Store and Employee Facilities) in a factory. Estimated overhead costs for the factory for a
period, requiring apportionment to cost centres, are:

Buildings depreciation and insurance

Management salaries
Power to operate machinery

$
42 000
27 000
12 600
4

Other utilities

9 400

In addition, the following overheads have been allocated to cost centres:

P1

P2

107 000

89 000

Cost centres
Materials store
$
68 000

Employee Facilities
$
84 000

Further information:

P1
Floor area (square metres)
Number of employees
Share of other utilities
overheads
Share of Materials Store
overheads
Machine hours

Cost centres
P2

4 560
18

5 640
24

Materials
store
720
6

Employee
Facilities
1 080
6

Total
12 000
54

35%

45%

10%

10%

100%

40%
6 200

60%
5 800

100%
12 000

Required:
(i) Prepare a schedule showing the allocated and apportioned factory overhead costs for each
cost centre;
[10]
(ii) Re-apportion the service cost centre overheads.
[6]
[Total marks 30]

10