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2011-AL P ACCT PAPER 1
2011-AL
P ACCT
PAPER 1

AL Principles of accounts

SUGGESTED ANSWER

TO

2010-2011

Paper one

Prepared by Patrick Tong Accounting Team

Page 1

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Q1

 

Joey and Sam

 

(b)

Trading and profit and loss and appropriation account for the year ended 31 December 2010

 

$

$

$

Sales

872,000

Less: Returns inwards

 

27,300

844,700

Less: Cost of goods sold

 

Opening inventory

 

154,590

Purchases ($440,000-2,590)

 

437,410

Less: Returns outwards

14,900

422,510

 

577,100

Less: Closing inventory ($180,150-7200+15750+3300)

 

192,000

385,100

Gross profit

 

459,600

Gain on disposal

 

4,230

Discount received

9,500

13,730

 

473,330

Less: Expenses

 

Discount allowed

 

16,490

Depreciation

93,195

($140,000x20%x3/12)+(563,700-140,000)x20%

 

+87,300x20%x1/12

Rent and rates ($136,000-10,000-22,000)

 

104,000

Salaries ($80,900+1300-60,000)

22,200

Sundry expenses ($9900+1,000-1,200)

9,700

Cash loss ($1200 x 20%)

240

Service charges

4,400

Loan interest ($80,000x4%x6/12) Net profit

1,600

251,825

 

221,505

Less: appropriation:

 

Interest on capital:

- Joey (700,000x3%)

 

21,000

- Sam ($350,000x3%)

10,500

31,500

 

190,005

Salaries:

- Joey

60,000

- Sam

12,000

72,000

 

118,005

Share of profit:

 

- Joey (2/3)

 

78,670

- Sam (1/3)

39,335

 

118,005

Page 2

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

(c)

Joey and Sam

Balance Sheet as at 31 December 2010

 

$

$

$

Non-current asset Office equipment, at net book value

 

424,805

Current assets Inventories Trade receivable ($291,110+11,000) Insurance receivable ($1,200 x 80%) Bank ($102,420+1,082,620-836,040-4,400-11,000)

 

192,000

302,110

960

333,600

 

828,670

Current liabilities

 

Trade payable

88,000

Accrued salaries

1,300

Interest payable

1,600

90,900

737,770

 

1,162,575

Non-current liabilities 4% Loan from Joey

 

80,000

 

1,082,575

Capitals:

 

-

Joey

700,000

-

Sam

350,000

1,050,000

Currents:

 

- Joey

 

31,370

- Sam

1,205

32,575

 

1,082,575

Page 3

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Workings:

Trade Receivables

 

b/f

$328,290

BK

$865,390

Sales

872,000

RI

27,300

BK: DC

11,000

DA (diff)

16,490

 

c/f (291110+11000)

 

302,110

 

1,211,290

 

1,211,290

Trades Payable

 

BK

$371,600

b/f

$44,000

RO

14,900

Purchase (diff)

440,000

DR

9,500

 

c/f

88,000

484,000

 

484,000

Currents

 
 

Joey

Sam

 

Joey

Sam

Drawings

$100,300

$74,630

b/f Salaries Int on capital Share of profit

 

$32,000

$14,000

(78300+22000)

-

12,000

(72040+2590)

21,000

10,500

c/f

31,370

1,205

78,670

39,335

131,670

75,835

 

131,670

75,835

Page 4

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Q2

Statement to calculate the cash paid for the acquisition

 

$

Ordinary share capital ($1,000,000x80%)

800,000

Retained profit ($269,000x80%)

215,200

Share premium ($80,000x80%)

64,000

Revaluation reserve ($350,000-291,600)x80%

46,720

Goodwill ($78,080+30,000)

108,080

Cash price (diff)

1,234,000

Sunny Ltd

Statement of comprehensive income for the year ended 31 December 2010

 

$

Turnover (1,994,000-840,000)+180,000

1,334,000

Cost of sales(897,000-425,000)+180,000-15,000

637,000

Gross Profit

697,000

Other income (180,000-60,000)+16,000

136,000

Selling and distribution expenses(165,000-72,000)

93,000

Administrative expenses (375,840-110,000)-30,000-5,840

230,000

Profit before tax

510,000

Tax (81,000-25,000)

46,000

Profit after tax

464,000

Page 5

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Sunny Ltd Statement of financial position as at 31 December 2010

Non-current Assets Property, plant and equipment, net (3,293,560-1,421,000)-58,400+5,840 Investment

$

1,820,000

1,234,000

 

3,054,000

Current Assets Inventories (216,500-110,000)+15000 Trade receivables (178,500-123,000)+24,000 Cash at bank (303,000-101,000)-6,000

121,500

79,500

196,000

 

3,451,000

Current liabilities Trade payables (342,000-170,000)+18,000 Tax payable (77,000-30,000)

190,000

47,000

 

3,214,000

Equity Ordinary shares of $2 each Share premium Retained profits (working)

2,100,000

300,000

814,000

 

3,214,000

Page 6

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Workings:

Retained profits

Goodwill impairment Pre acquisition div

30,000

Bal b/f

- Sunny Ltd (Diff)

814,000

16,000

Bal b/f - Windy Ltd (475,000-249,000) x0.8

180,800

Unrealized profit on stock Depreciation adjustment

15,000

 

4,672

Bal c/f

929,128

994,800

 

994,800

Minority interest

 

Depreciation adjustment

1,168

Ordinary share capital Retained profits Share premium Revaluation reserve

200,000

 

95,000

16,000

11,680

Bal c/f

321,512

 

322,680

 

322,680

Page 7

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Q3

Statement to calculate the corrected profit before tax

$

Profit before tax, before corrections (W1) Add: Interest overcharged $20,000-(20,000/10) x6 Less: Research cost ($10,000-10,000/4) Profit before tax, after corrections

57,300

8,000

7,500

57,800

(W1)

$

Profit before tax (before corrections) Less: Taxation

57,300

(Diff)

17,000

Transfer to general reserve ($20,000-14,000)

6,000

(many student overlook this part)

Retained profit carry forward ($95,430-61,130)

34,300

Kenneth Ltd Cash flow statement for the year ended 31 December 2010

 

$

$

Cash flow from operating activities Profit before tax Adjustments for:

57,800

Depreciation ($86,000+14,300) Loss on disposal ($10,500+400) Interest income Development cost ($80,000/4) Interest expenses ($13,400+2,000x6) Operating profit before working capital changes Increase in inventories ($230,0000178,000) Decrease in Trade receivable ($195,600-184,900-300) Increase in prepaid expenses ($42,100-1,800) Increase in Trade payable ($176,070-154,100) Increase in accrued expenses ($2,200-1,900) Cash generated from operation Tax paid Interest paid ($13,400+6,400-6,800) + 12,000 Net cash from operating activities

100,300

10,900

(300)

20,000

25,400

214,100

(52,000)

11,000

(40,300)

21,970

300

15,5070

(18,320)

(25,000)

 

111,750

Page 8

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Cash flow from investing activities Sales on office equipment Purchase of machinery

203,500

(35,700)

Development cost paid Net cash from investing activities

(80,000)

 

87,800

Cash flow from financing activities Cash paid for installment ($13,000x6)+30,000 Receipt from issuing debentures ($170,000-160,000) Receipt from issuing ordinary shares ($400,000+62,500-320,000-50,000) Net cash used in financing activities Net increase in cash and cash equivalent Cash and cash equivalent as at 1 January 2010 Cash and cash equivalent as at 31 December 2010 ($173,500+50,000)

(108,000)

10,000

92,500

 

(5,500)

194,050

29,450

223,500

Workings:

Office equipment

 

b/f

432,000

Disposal (diff)

272,000

Leased O.E.

160,000

c/f

320,000

592,000

592,000

Accumulated Depreciation – Office equipment

Disposal

58,000

b/f

115,000

c/f

143,000

P&L (diff)

86,000

201,000

201,000

Disposal – O.E.

O.E.

272,000

AD P&L-Gain on disposal Bank (diff)

58,000

 

10,500

203,500

 

272,000

 

272,000

Page 9

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Machinery

b/f

92,000

Disposal

14,500

Disposal

6,800

 

Bank (diff)

35,700

c/f

120,000

134,500

134,500

Accumulated Depreciation – Machinery

Disposal

7,300

b/f

28,000

c/f

35,000

P&L (diff)

14,300

42,300

42,300

Disposal – Machinery

Machinery

14,500

AD

7,300

 

Machinery

6,800

P&L (diff)

400

 

14,500

14,500

Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

Page 10

Q4

(a1)

Bright_Kids Club Bar trading and profit and loss account for the year ended 31 December 2011

 

$

$

Bar sales Less: Cost of sales Opening inventory Add: Purchases (diff)

367,000

57,300

215,750

 

273,050

Less: Closing inventory (28,100-750) Gross profit (122,050-750)

27,350

245,700

 

#121,300

Bar wages Bar profit before commission Commission Bar profit

72,550

48,750

# 4,432

44,318

# It should be noted that the examiner might take a progressive view by adopt aggregate/category method in application of LCM rule. In this way, expected loss of $750 can be ignored, gross profit remained at $122,050 and commission revised to $4,500. This principle had been applied to theory or inventory valuation topic, but not yet been applied to preparation of final account before.

W1

 

Sales

=

Cost

+

profit

Normal

353250

211950

141300

disc

13750

33000

(19250)

367000

244950

122050

(before value loss)

Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

Page 11

(a2)

Bright_Kids Club Income and Expenditure Account for the year ended 31 December 2011

 

$

$

Bar profit

44,318

Subscription income(w2)

850,530

Interest income

7,000

Disposal profit(w3)

69,450

Profit from toys trading

6,900

Other income

11,277

989,475

Less: Expenditure

Depreciation (w4)

93,930

Donation

20,000

Subscription written off

4,200

Administrative expense

475,200

593,330

Surplus

396,145

(a3)

Bright_Kids Club

Balance sheet as at 31 December 2010

Non current assets

$

$

Office equipment at cost

531,000

Less: Accumulated depreciation

171,480

Net book value

359,520

Current assets

Inventory - bar

27,350

- toys

500

Bar receivable

211,000

Subscription receivable

117,600

Bank(494697+7000-13440-1200)

487,057

843,507

Total assets

1,203,027

Accumulated fund

Opening balance (w5)

653,220

Surplus for the year

396,145

1,049,365

Current liabilities

Bar payable (w6)

79,750

Subscription in advance

64,680

Wages accrued

4,800

Commission accrued

4,432

153,662

Total fund and liabilities

1,203,027

Suggested answer for 2011 Paper 1 - Prepared by Patrick Tong Accounting Team

Page 12

(b)

To improve inventory control by reducing the amount of inventory Consider to adopt the just in time inventory control Stop selling those foods at loss

w2

Subscription

b/f

82320

b/f bk IE: sub w/o

87600

Bk

13440

839160

Bk: refund

26313

4200

IE(diff)

850530

Other inc

11277

c/f

117600

c/f

64680

(104160+13440)

1048560

1048560

w3: profit on disposal

100,000- (123000-92450) =69450

w4

Depreciation on office equipment

depreciation:

Disposal:

18450 (123,000x0.18x10/12) 4020 (134000x0.18x2/12) 71460 (520000-123000)x0.18

newly acquired:

Existing:

93930

w5: Opening AF 106000 - 87600+82320+350000+57300+198000-46000-6800 = 653,220

Page 13

Suggested answer for 2011 Paper 1 Prepared by Patrick Tong Accounting Team

Q5(a)

The Journal

Debit

$

Credit

$

(i)

Rental income receivable

50,000

Rental income

25,000

Rental Deposit

75,000

(ii)

Sales

80,000

Accounts Receivable

80,000

Inventory

50,000

Cost of Goods Sold

50,000

Accounts Payable

32,000

Inventory

32,000

(iii)

Discount received

45,000

Machinery

45,000

(here, assumed other payable a/c had been settled and difference t/f to discount received a/c)

Machine ($12,500+7,000+3,000)

22,500

Installation cost

12,500

Transportation cost

7,000

Insurance

3,000

Accumulated Depreciation - Machine

3,750

Depreciation expenses

3,750

(iv)

Retained profit

34,000

Depreciation expenses

34,000

Accumulated depreciation - Motor car (62,000-28,000) x2

68,000

Accumulated depreciation - Motor Car (34,000x2+28,000x5)

208,000

Other receivable

95,000

Motor Car

270,000

Gain on disposal

33,000

(b)

-

Q examines the application of prior year adjustment, the following points might be involved:

- No prior year adjustment is needed in 2009 as it is a change of accounting estimate, not accounting

policy

- Prior year adjustment is needed in 2010 as it is correction of errors related to last year (if amount is

considered to be material)