accounting mock exam paper 2 answers
ACCOUNTING
SAMPLE PAPER 2
2015
ANSWERS
1
Havisham plc
Marking guide
Marks
PBT
Finance costs
Depreciation charge
Amortisation charge
Impairment charge
Gain/loss on sale of PPE
Gain/loss on sale of intangible assets
Movement in inventories
Movement in trade receivables
Movement in trade payables
Tax paid
Interest paid
Purchase of PPE
Purchase of intangibles
Proceeds from sales of PPE
Proceeds from sales of intangible assets
Proceeds from issue of shares
Movement in borrowings
Dividends paid
Opening and closing cash
Total available
Maximum
© ICAEW 2015
½
½
2
1
½
½
1
½
1
1
1
1
2
1
2
1
1
1
1
½
20
16
Statement of cash flows for the year ended 31 May 20X2
£
Cash flows from operating activities
Profit before tax
Investment income
Finance costs
Depreciation
Amortisation (W1)
Impairment charge (W1)
Gain/ loss on sales of property, plant and equipment
Gain/ loss on sales of intangible assets (17,000 – 24,000)
Movement in inventories (285,550 – 430,040)
Movement in trade receivables (224,150 – 342,700)
Movement in trade payables (146,700 – 135,900 - 13,900)
Cash generated from operations
730,040
0
89,600
232,900
21,200
20,000
84,810
(7,000)
(144,490)
(118,550)
(3,100)
905,410
Tax paid (W2)
Interest paid (W3)
Net cash from/ used in operating activities
(236,420)
(92,200)
576,790
Cash flows from investing activities
Purchase of property, plant and equipment (W4)
Purchase of intangible assets
Proceeds from sale of property, plant and equipment (127,800 – 84,810))
Proceeds from sale of intangible assets
Interest received
Net cash from/ used in investing activities
(531,900)
(251,340)
42,990
24,000
(716,250)
Cash flows from financing activities
Proceeds from issue of shares (W5)
Movement in borrowings ((423,000 + 51,000) –(567,400+115,600) + (75,000))
Dividends paid (W6)
Net cash from/ used in financing activities
126,800
284,000
(231,640)
179,160
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
© ICAEW 2015
(39,700)
(13,430)
(26,270)
WORKINGS
INTANGIBLES – NBV
1
B/d
Purchases
£
386,900
251,340
Amortisation (bal fig)
Disposals
Impairment charge
C/d
638,240
2
TAX
£
Cash (bal fig)
C/d
3
236,420
201,800
438,220
B/d
Statement of profit or loss
INTEREST
Cash (bal fig)
C/d
4
92,200
9,750
101,950
b/d
Statement of profit or loss
£
12,350
89,600
101,950
PPE - COST
B/d
Purchases
Cash (bal fig)
£
797,500
13,900
531,900
£
Disposals
Depreciation
C/d
1,343,300
5
127,800
232,900
982,600
1,343,300
SHARE CAPITAL AND SHARE PREMIUM
£
C/d (398,200 + 312,400)
6
710,600
710,600
B/d (232,800 + 351,000)
Cash (bal fig)
£
583,800
126,800
710,600
RETAINED EARNINGS
Dividend (bal fig)
C/d
3
£
192,520
245,700
438,220
£
2
£
21,200
17,000
20,000
580,040
638,240
A
£
231,640
534,800
766,440
B/d
Profit in period
£
282,100
484,340
766,440
Drawings decrease capital so they are a debit (B); discount allowed and carriage outwards are expenses
so they too are debits (C) and (D). A bank overdraft is a liability so it is a credit (A).
LO1F
A,C Discount received should have been credited to an statement of profit or loss account and debited to
payables. Since both sides of the entry were debits, the debit side of the trial balance would exceed the
credit side and a suspense account with a credit balance would be opened (A). Goods returned by a
customer should have been debited to sales and credited to receivables. As they were debited to
receivables the same situation arises, and a suspense account with a credit balance would be opened
(C).
SAMPLE PAPER
LO2A
© ICAEW 2015
4
C
The transposition error is £17,150 – £11,750 = £5,400. As the understatement is in the purchase day
book total it affects only the control account, which is understated by £5,400 and so should be increased
by that amount.
SAMPLE PAPER
LO2B
5
B
An overcast of the total of invoices in the sales day book means that £782 will be debited to the control
account but not to the receivables ledger. In both A and C the receivables ledger will be overdebited by
(£391 × 2); in D both the control account and the ledger will be overdebited by (391 × 2).
SAMPLE PAPER
LO2B
6
A
If the debit side of the trial balance is undercast by £692 this amount is debited in the suspense account.
When the cheque payment of £905 was credited to cash it should have been debited to an expense
account; instead it was debited to suspense. Thus the suspense account has a debit balance of £692 +
£905 = £1,597.
SAMPLE PAPER
LO2B
7
B
The opening prepayment of rent of £4,251 needs to be debited to administrative expenses, and the
closing prepayment of £7,200 × 2/3 = £4,800 needs to be credited. Total administrative expenses will
therefore be £44,064 + £4,251 – £4,800 = £43,515.
SAMPLE PAPER
LO3C
8
B
Cost of sales includes carriage inwards, which is a cost incurred in bringing inventories to their present
location, but excludes carriage outwards, which is a distribution cost and included in the statement of
profit or loss after calculating gross profit. Closing inventories should be deducted in arriving at cost of
sales.
£
Purchases
455,000
Carriage inwards
24,000
Closing inventories
(52,000)
Cost of sales
427,000
SAMPLE PAPER
LO3C
9
A, B, F
The allowance needs to be debited with £6,546 – £5,060 = £1,486 (B), and £1,860 needs to be credited
to trade receivables (F). The net debit to the irrecoverable debt expense account is therefore £1,860 –
£1,486 = £374 (A).
ALLOWANCE FOR RECEIVABLES
Carried down (£12,650 × 0.4)
Irrecoverable debts expense
(B)
£
5,060
1,486
Brought down
6,546
£
6,546
6,546
IRRECOVERABLE DEBT EXPENSE
Trade receivables
£
1,860
1,860
Allowance decreased
Statement of profit or loss
£
1,486
374
1,860
SAMPLE PAPER
LO2C, 3C
© ICAEW 2015
10
C, G The value of closing inventory is (£572,904 – £27,485 + £15,000) = £560,419. This should be debited
and credited to the closing inventory account; the debit is for the statement of financial position and the
credit is for the statement of profit or loss.
SAMPLE PAPER
LO1D
11
B
The internal administration costs cannot be treated as part of the asset's cost, so in the first two years'
depreciation of (£96,720 + £3,660)/5 2 = £40,152 was charged. This means that the whole of the
remaining carrying amount of £60,228 must be allocated as depreciation in 20X6 given the revision of
the asset's useful life.
SAMPLE PAPER
LO1D, 3C
12
B
This is calculated using T accounts, the carrying amount being £626,000 – £368,165 = £257,835. Note
that no depreciation will be charged in the year to 31 March 20X6 for the asset acquired at the year end:
COST
£
614,500
11,500
626,000
B/d
Additions
£
C/d
626,000
626,000
ACCUMULATED DEPRECIATION
£
368,165
368,165
C/d
B/d (614,500 – 399,960)
Charge (614,500 × 0.25)
£
214,540
153,625
368,165
SAMPLE PAPER
LO3C
13
D
July – September
October – March
April – June
£
20,000
30,000
15,000
8,750
73,750
1,000,000 × 8% × 3/12
750,000 × 8% × 6/12
750,000 × 8% × 3/12
500,000 × 7% × 3/12
LO3C
14
B
This is calculated using a T account:
TAX
Cash
Carried down
£
1,762
2,584
4,346
Brought down
Statement of profit or loss (bal
fig)
£
2,091
2,255
4,346
SAMPLE PAPER
LO1D, 3C
15
B
Using the balance sheet equation:
Closing net assets (1,726 + 2,387) (B)
Drawings
Opening net assets
Net profit (B)
£
4,113
15,000
(5,000)
14,113
SAMPLE PAPER
LO1D, 3B
© ICAEW 2015
16
C
Errol is a partner for the whole year, receiving 3/8 of the first 8 months profit, and 3/4 of the last 4
months after Sayhan’s retirement:
£
30,312
£121,248 × 8/12 × 3/8 =
30,312
£121,248 × 4/12 × 3/4 =
60,624
SAMPLE PAPER
LO1E
17
D
Information's relevance is affected by its materiality. A, B and C are all characteristics contributing to
information being a faithful representation of what it purports to represent.
1A
18
D
50,000 + 17,000 + 7,500 + 6,000 = £80,500
LO1C, 1D
19
B, D Purchase order and goods received note.
LO1C
20
D
21
B
Profit increases capital so it is credited to the statement of financial position column, and debited to the
statement of profit or loss column on the ETB.
LO2C
Balance per bank statement
Unpresented cheque
Doubtful cheque
£
(800)
(80)
–
(880)
LO2B
22
A
Dr suspense £2,840, Cr Discount received £2,840
LO2D
23
C
Debit Sales £230, Debit VAT control £46, Credit Receivables control £276
LO2D
24
B
The whole of the subscription relates to the following year, so the instalment paid should all be treated
as a prepayment, which reduces expenses in the year and so should be added back to the draft net
profit.
The problem with the returned goods is that the draft net profit reflects the revenue made on sale of the
goods, less the cost of those goods, therefore the profit on the sale should be deducted from the draft
net profit.
£
Draft net profit
75,000
500
Add back: Prepaid subscription instalment (£1,000/2)
Deduct: profit on returned goods £400 × 75/25*
(1,200)
74,300 (B)
In A the profit deducted has been calculated as £400 x 25%; in C just the cost of goods (£400) has been
deducted, while in D the profit has been added back and the prepayment deducted.
* Gross profit percentages:
%
100
Revenue
Cost
(25)
Gross profit
75
To calculate gross profit from cost, multiply by 75/25.
LO2A
© ICAEW 2015
25
A, B If a company is no longer a going concern then the directors have concluded that it will not trade for the
foreseeable future (ie less than twelve months) and so all non-current assets and liabilities are
transferred to current assets and current liabilities respectively (A).
All assets are valued at their resale or break-up value, which is the expected selling price in a forced
sale position (B). This is likely to be a substantially lower value than carrying amount for assets such as
fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which
Wombat plc has none.
Although not being a going concern means the directors believe the company is likely to cease trading
within 12 months, it does not necessarily mean that it will cease trading immediately (C), nor that a
liquidator will be appointed immediately (D).
LO3B
© ICAEW 2015
SAMPLE PAPER 2
2015
ANSWERS
1
Havisham plc
Marking guide
Marks
PBT
Finance costs
Depreciation charge
Amortisation charge
Impairment charge
Gain/loss on sale of PPE
Gain/loss on sale of intangible assets
Movement in inventories
Movement in trade receivables
Movement in trade payables
Tax paid
Interest paid
Purchase of PPE
Purchase of intangibles
Proceeds from sales of PPE
Proceeds from sales of intangible assets
Proceeds from issue of shares
Movement in borrowings
Dividends paid
Opening and closing cash
Total available
Maximum
© ICAEW 2015
½
½
2
1
½
½
1
½
1
1
1
1
2
1
2
1
1
1
1
½
20
16
Statement of cash flows for the year ended 31 May 20X2
£
Cash flows from operating activities
Profit before tax
Investment income
Finance costs
Depreciation
Amortisation (W1)
Impairment charge (W1)
Gain/ loss on sales of property, plant and equipment
Gain/ loss on sales of intangible assets (17,000 – 24,000)
Movement in inventories (285,550 – 430,040)
Movement in trade receivables (224,150 – 342,700)
Movement in trade payables (146,700 – 135,900 - 13,900)
Cash generated from operations
730,040
0
89,600
232,900
21,200
20,000
84,810
(7,000)
(144,490)
(118,550)
(3,100)
905,410
Tax paid (W2)
Interest paid (W3)
Net cash from/ used in operating activities
(236,420)
(92,200)
576,790
Cash flows from investing activities
Purchase of property, plant and equipment (W4)
Purchase of intangible assets
Proceeds from sale of property, plant and equipment (127,800 – 84,810))
Proceeds from sale of intangible assets
Interest received
Net cash from/ used in investing activities
(531,900)
(251,340)
42,990
24,000
(716,250)
Cash flows from financing activities
Proceeds from issue of shares (W5)
Movement in borrowings ((423,000 + 51,000) –(567,400+115,600) + (75,000))
Dividends paid (W6)
Net cash from/ used in financing activities
126,800
284,000
(231,640)
179,160
Net increase/decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
© ICAEW 2015
(39,700)
(13,430)
(26,270)
WORKINGS
INTANGIBLES – NBV
1
B/d
Purchases
£
386,900
251,340
Amortisation (bal fig)
Disposals
Impairment charge
C/d
638,240
2
TAX
£
Cash (bal fig)
C/d
3
236,420
201,800
438,220
B/d
Statement of profit or loss
INTEREST
Cash (bal fig)
C/d
4
92,200
9,750
101,950
b/d
Statement of profit or loss
£
12,350
89,600
101,950
PPE - COST
B/d
Purchases
Cash (bal fig)
£
797,500
13,900
531,900
£
Disposals
Depreciation
C/d
1,343,300
5
127,800
232,900
982,600
1,343,300
SHARE CAPITAL AND SHARE PREMIUM
£
C/d (398,200 + 312,400)
6
710,600
710,600
B/d (232,800 + 351,000)
Cash (bal fig)
£
583,800
126,800
710,600
RETAINED EARNINGS
Dividend (bal fig)
C/d
3
£
192,520
245,700
438,220
£
2
£
21,200
17,000
20,000
580,040
638,240
A
£
231,640
534,800
766,440
B/d
Profit in period
£
282,100
484,340
766,440
Drawings decrease capital so they are a debit (B); discount allowed and carriage outwards are expenses
so they too are debits (C) and (D). A bank overdraft is a liability so it is a credit (A).
LO1F
A,C Discount received should have been credited to an statement of profit or loss account and debited to
payables. Since both sides of the entry were debits, the debit side of the trial balance would exceed the
credit side and a suspense account with a credit balance would be opened (A). Goods returned by a
customer should have been debited to sales and credited to receivables. As they were debited to
receivables the same situation arises, and a suspense account with a credit balance would be opened
(C).
SAMPLE PAPER
LO2A
© ICAEW 2015
4
C
The transposition error is £17,150 – £11,750 = £5,400. As the understatement is in the purchase day
book total it affects only the control account, which is understated by £5,400 and so should be increased
by that amount.
SAMPLE PAPER
LO2B
5
B
An overcast of the total of invoices in the sales day book means that £782 will be debited to the control
account but not to the receivables ledger. In both A and C the receivables ledger will be overdebited by
(£391 × 2); in D both the control account and the ledger will be overdebited by (391 × 2).
SAMPLE PAPER
LO2B
6
A
If the debit side of the trial balance is undercast by £692 this amount is debited in the suspense account.
When the cheque payment of £905 was credited to cash it should have been debited to an expense
account; instead it was debited to suspense. Thus the suspense account has a debit balance of £692 +
£905 = £1,597.
SAMPLE PAPER
LO2B
7
B
The opening prepayment of rent of £4,251 needs to be debited to administrative expenses, and the
closing prepayment of £7,200 × 2/3 = £4,800 needs to be credited. Total administrative expenses will
therefore be £44,064 + £4,251 – £4,800 = £43,515.
SAMPLE PAPER
LO3C
8
B
Cost of sales includes carriage inwards, which is a cost incurred in bringing inventories to their present
location, but excludes carriage outwards, which is a distribution cost and included in the statement of
profit or loss after calculating gross profit. Closing inventories should be deducted in arriving at cost of
sales.
£
Purchases
455,000
Carriage inwards
24,000
Closing inventories
(52,000)
Cost of sales
427,000
SAMPLE PAPER
LO3C
9
A, B, F
The allowance needs to be debited with £6,546 – £5,060 = £1,486 (B), and £1,860 needs to be credited
to trade receivables (F). The net debit to the irrecoverable debt expense account is therefore £1,860 –
£1,486 = £374 (A).
ALLOWANCE FOR RECEIVABLES
Carried down (£12,650 × 0.4)
Irrecoverable debts expense
(B)
£
5,060
1,486
Brought down
6,546
£
6,546
6,546
IRRECOVERABLE DEBT EXPENSE
Trade receivables
£
1,860
1,860
Allowance decreased
Statement of profit or loss
£
1,486
374
1,860
SAMPLE PAPER
LO2C, 3C
© ICAEW 2015
10
C, G The value of closing inventory is (£572,904 – £27,485 + £15,000) = £560,419. This should be debited
and credited to the closing inventory account; the debit is for the statement of financial position and the
credit is for the statement of profit or loss.
SAMPLE PAPER
LO1D
11
B
The internal administration costs cannot be treated as part of the asset's cost, so in the first two years'
depreciation of (£96,720 + £3,660)/5 2 = £40,152 was charged. This means that the whole of the
remaining carrying amount of £60,228 must be allocated as depreciation in 20X6 given the revision of
the asset's useful life.
SAMPLE PAPER
LO1D, 3C
12
B
This is calculated using T accounts, the carrying amount being £626,000 – £368,165 = £257,835. Note
that no depreciation will be charged in the year to 31 March 20X6 for the asset acquired at the year end:
COST
£
614,500
11,500
626,000
B/d
Additions
£
C/d
626,000
626,000
ACCUMULATED DEPRECIATION
£
368,165
368,165
C/d
B/d (614,500 – 399,960)
Charge (614,500 × 0.25)
£
214,540
153,625
368,165
SAMPLE PAPER
LO3C
13
D
July – September
October – March
April – June
£
20,000
30,000
15,000
8,750
73,750
1,000,000 × 8% × 3/12
750,000 × 8% × 6/12
750,000 × 8% × 3/12
500,000 × 7% × 3/12
LO3C
14
B
This is calculated using a T account:
TAX
Cash
Carried down
£
1,762
2,584
4,346
Brought down
Statement of profit or loss (bal
fig)
£
2,091
2,255
4,346
SAMPLE PAPER
LO1D, 3C
15
B
Using the balance sheet equation:
Closing net assets (1,726 + 2,387) (B)
Drawings
Opening net assets
Net profit (B)
£
4,113
15,000
(5,000)
14,113
SAMPLE PAPER
LO1D, 3B
© ICAEW 2015
16
C
Errol is a partner for the whole year, receiving 3/8 of the first 8 months profit, and 3/4 of the last 4
months after Sayhan’s retirement:
£
30,312
£121,248 × 8/12 × 3/8 =
30,312
£121,248 × 4/12 × 3/4 =
60,624
SAMPLE PAPER
LO1E
17
D
Information's relevance is affected by its materiality. A, B and C are all characteristics contributing to
information being a faithful representation of what it purports to represent.
1A
18
D
50,000 + 17,000 + 7,500 + 6,000 = £80,500
LO1C, 1D
19
B, D Purchase order and goods received note.
LO1C
20
D
21
B
Profit increases capital so it is credited to the statement of financial position column, and debited to the
statement of profit or loss column on the ETB.
LO2C
Balance per bank statement
Unpresented cheque
Doubtful cheque
£
(800)
(80)
–
(880)
LO2B
22
A
Dr suspense £2,840, Cr Discount received £2,840
LO2D
23
C
Debit Sales £230, Debit VAT control £46, Credit Receivables control £276
LO2D
24
B
The whole of the subscription relates to the following year, so the instalment paid should all be treated
as a prepayment, which reduces expenses in the year and so should be added back to the draft net
profit.
The problem with the returned goods is that the draft net profit reflects the revenue made on sale of the
goods, less the cost of those goods, therefore the profit on the sale should be deducted from the draft
net profit.
£
Draft net profit
75,000
500
Add back: Prepaid subscription instalment (£1,000/2)
Deduct: profit on returned goods £400 × 75/25*
(1,200)
74,300 (B)
In A the profit deducted has been calculated as £400 x 25%; in C just the cost of goods (£400) has been
deducted, while in D the profit has been added back and the prepayment deducted.
* Gross profit percentages:
%
100
Revenue
Cost
(25)
Gross profit
75
To calculate gross profit from cost, multiply by 75/25.
LO2A
© ICAEW 2015
25
A, B If a company is no longer a going concern then the directors have concluded that it will not trade for the
foreseeable future (ie less than twelve months) and so all non-current assets and liabilities are
transferred to current assets and current liabilities respectively (A).
All assets are valued at their resale or break-up value, which is the expected selling price in a forced
sale position (B). This is likely to be a substantially lower value than carrying amount for assets such as
fixtures and fittings acquired recently. An exception to this may arise in the case of properties, of which
Wombat plc has none.
Although not being a going concern means the directors believe the company is likely to cease trading
within 12 months, it does not necessarily mean that it will cease trading immediately (C), nor that a
liquidator will be appointed immediately (D).
LO3B
© ICAEW 2015