New Answer Book Practice Questions

ADVANCED LEVEL ACCOUNTING – S.M.AULLYBUX & D.HARRISON Answer key for multiple choice questions NO

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Chapter 1 Bad debts and Provision for doubtful debts Question 3 Paula Aniston ai) aii)

Pfdd at 31 Dec 2006 = 3 % x 160 000 = 4800 Pfdd at 31 Dec 2007 = 3 % x (182 000 – 5000 – 2300 – 1700) + 1700 = 6890

c)

Extract of IS Less Expenses Increase in Pfdd Bad debts

d)

2090 6 900

Extract of Balance sheet Current assets Trade receivables Less Pfdd

174 700 6 890

(182 000 – 5 000 – 2300)

(e) Provision for doubtful debts is an estimate of the amounts owed by credit customers who might be unable to pay their debt. The amount is not known with certainty. It is an application of the prudence concept in that profit is not overstated in the income statement, and trade receivables are not overstated in the balance sheet. (f) Past experience looking at previous trade receivables and the proportion that turn into bad debts. Looking at the credit record of existing customers. Specific knowledge of customers that are known to have financial problems. State of the economy for example in a recession the proportion of bad debts may increase

Question 3 Klix a)

16 800 × 1% = 12 600 × 2% = (7 100 – 700) × 3% = 1 300 × 10% =

168 252 192 130

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742 (c)

Balance Sheet (extract) at 31 December 2010 $ Trade receivables 37 100 Less provision for doubtful debts 742

36 358 d)

Revised Pfdd = 4 % x (16800 + 12600 + 7100 + 1300 – 700) = 1484 Hence Pfdd increases by $742 (1484 – 742)

e)

Reduce profit for the year

Reduce trade receivables/current assets/balance sheet total f) g)

Prudence concept Current provision $742 is 2% of the trade receivables; Actual bad debts are $1500, this may suggest the provision is insufficient. Past experience Specific knowledge about a customer The state of the economy Consistency concept Industry average Length of time Size of trade receivables Comparing with previous years or with competitors.

Chapter 2: Accounting for non-current assets Question 1 Alcom Ltd b(1) Dep: 2003 $130, 2004 $130, 2005 $310 b(2) Dep: 2003 $85, 2004 $130, 2005 $220 b(3) Dep: 2003 $130, 2004 $117 2005 $286 b(4) Dep: 2003 $85, 2004 $122, 2005 $200 Question 2 Mocota Ltd a) Machinery a\c – Bal b\d $41 000; Megaton $11800; Disposal $12 000; Bal c\d $40 800 Provision for depreciation – Bal b\d $14 400; depreciation for the year $7 344; Bal c\d $15 264 b) Loss on disposal $1 520 Question 3 Lea Croft a) Bal b\d $82 500; Bal c\d $92 500 b) Bal b\d $49 200 (19 600+ 17 600 + 12 000); Depreciation for the year $25 160 (3 960+7 200+14 000); Disposal $19 600; Bal c\d $54 760 c) Loss on disposal $4 200 Question 4 Berton Ltd a) Rates of depreciation: Equipment 10 %; Vehicles 25 % b) Loss on disposal of equipment $6000; Profit on disposal of vehicles $2500 c) Cost at 31 Oct 2010 – Equipment $1 070 000; Vehicles $690 000 Provision for depreciation at 31 Oct 2010 – Equipment $356 000; Vehicles $415 000 Question 5 Laser Ltd

Bal b\d R.Reserve

Property A\c (using method 1 of revaluation) 200 000 Disposal 172 700 Prov for dep Bal c\d 372 700

NBV of property 1 April 2008 Less NBV of property disposed NBV of property being revalued

164 000 (66 700) 97 300

Calcualtion of revaluation gain: Revalued amount NBV R.Gain

Bal b\d R.Reserve

80 000 22 700 270 000 372 700

(200 000 – 36 000) (80 000 – 13 300)

270 000 97 300 172 700

Property A\c (using method 2 of revaluation) 200 000 Disposal 80 000 150 000 Bal c\d 270 000 350 000 350 000

Calculation of difference between cost of property and revalued amount = 270 000 – 120 000 = 150 000 Cost being less than revalued amount, property account should be debited.

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Bal b\d Acquisition

Motor vehicle a\c 40 000 Disposal 10 000 Bal c\d 50 000

Disposal Property Bal c\d

Pfd (property) using method 1 of revaluation 13 300 Bal b\d 22 700 Income statement 5 400 41 400

8000 42 000 50 000

b) 36 000 5 400 41 400

Depreciation for the year = 0.02 x 270 000 = 5 400

Disposal R.reserve Bal c\d

Disposal Bal c\d

Pfd (property) using method 2 of revaluation 13 300 Bal b\d 22 700 Income statement 5 400 41 400

36 000 5 400 41 400

Pfd (M.vehicle) 3 904 Bal b\d 24 477 Income statement 28 381

24 000 4 381 28 381

Calculation of accumulated depreciation on M.vehicle disposed May 2006 0.2 x 8000 = 1600 May 2007 0.2 x (8000 – 1600)= 1280 May 2008 0.2 x (8000 – 1600 – 1280) 1024 3904

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NBV of vehicle at start = 40 000 – 24 000 = 16 000 NBV of vehicle disposed = 8 000 – 3904 = 4096 Depreciation of vehicle for the year = 0.2 x (16 000 – 4096 + 10 000) = 4381 Depreciation on Plant and Machinery = 0.15 x (250 000 + 120 000 – 69375) = 45 094 c) Cost 1 April 2008 Additions Disposal Revaluation Cost\Revalued amount at 31 March 2009

Property 200 000 (80 000) 150 000 270 000

Motor Vehicle 40 000 10 000 (8 000) 42 000

Plant and Machinery 250 000 120 000 370 000

Total depreciation 1 April 2008 Depreciation for the year Disposals Revaluation Total depreciation at 31 March 2009

36 000 5400 (13 300) 22 700 5 400

24 000 4381 (3904) 24 477

69 375 45094 114 469

Net book value 31 March 2009

264 600

17 523

255 531

Question 6 Poka ai) Bal b\d $460 000; Acquisition $80 000; Disposal $60 000; Bal c\d $480 000 aii) Bal b\d $150 000; Income Statement $114 750;Disposal $33 750; Bal c\d $231 000 aiii) Loss on disposal $2250 b) Cost $480 000; Acc dep $231 000; NBV $249 000 Question 7 a) Rates of depreciation: Machinery 10 %; Vehicles 25 % b) Loss on disposal of Machinery $40 000; Profit on disposal of vehicles (part exchanged) $20 000; loss on disposal of vehicles (accident) $60 000 c) Cost at 30 April 2010 – Machinery $5 200 000; Vehicles $3 080 000 Provision for depreciation at 30 April 2010 – Machinery $1 870 000; Vehicles $1 170 000 Question 8 CBL ai) Motor vehicle A\c: Bal c\d $366 000 aii) Prov for depreciation A\c Disposal (AM 5) 3900 Bal b\d Disposal (DM 2) 3600 Income statement Disposal (CT 18) 4800 Bal c\d 165 900 178 200

105000 73 200

178 200

Calculation of accumulated depreciation of vehicle disposed AM 5 June 2007 = 0.2 x 6500 = 1300 June 2008 = 0.2 x 6500 = 1300 June 2009 = 0.2 x 6500 = 1300 Total 3 900 DM 2 Total CT 18 Total

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June 2008 = 0.2 x 9000 = 1800 June 2009 = 0.2 x 9000 = 1800 3 600 June 2008 = 0.2 x 12000 = 2400 June 2009 = 0.2 x 12000 = 2400 4800

Depreciation for the year ended 30 june 2010 = 0.2 x 366 000 aiii) Disposal a\c Vehicle: AM 5 DM 2 CT 18

6500 9000 12000

Prov for dep:

AM 5 DM 2 CT 18 Sales proceeds AM 5 DM 2 CT 18 Incom statement

27500 b)

Balance sheet extract Motor Vehicle

Cost 366 000

3900 3600 4800 1500 1100 8500 4100 27500

Acc dep 165 900

NBV 200 100

Question 9 Tokyo Ltd a) Plant and Machinery A\c 2004 $ Jan 1 Bal b\d 100 000 July 1 Acquisition 1 200 Oct 1 Transfer from inventory 9 000 110 200

2004 Mar 31 Disposal July 1 Disposal Dec 31 Bal c\d

$ 2 500 1 000 106 700 110 200

Cost of machine taken from inventory = 15 000 – 40 % x 15 000 NBV of Machinery disposed on 31 March is 2000. This had been bought on 1 Jan 2002 since those bought on 1 July 2003 was still held by the company at 31 Dec 2004. Hence this machine has been depreciated for 2 complete years 2000 = 80 % 100 % = 2500 b) 2004 Mar 31 Disposal July 1 Disposal Dec 31 Bal c\d

Provision for depreciation A\c $ 2004 562.5 Jan 1 Bal b\d 250 Dec 31 I.Statement 26 235 27 047.5

Calculation of depreciation for the year 10 % x (100 000 – 2500 – 1000) 10 % x 2500 x 3\12 10 % x 1000 x 6\12 10 % x 1200 x 6\12 10 % x 9 000 x 3\12 Total

$ 17 000 10 047.5 27 047.5

= 9650 = 62.5 machine sold on 31 March =50 machine sold on 1 July =60 machine bought on 1 July =225 machine transferred from inventory on 1 Oct = 10 047.5

Acc dep of machine sold on 31 March = (2500 -2000) + 62.5 = 562.5 Acc dep of machine sold on 1 July = 200 + 50 = 250 c) Balance sheet extract Cost 106 700

Plant and Machinery

Acc dep 26 235

NBV 80 465

Question 10 AB Ltd

a)

Eratum: 4th line delete “A full year’s depreciation …….. of sale” and ignore information about vehicle Calculation of depreciation 31 Dec 2005 Machine 101 : Dep = 18 % x 20 000 x 10/12 = 3000 31 Dec 2006 Machine 101 : Dep = 18 % x 20 000 = Machine 102 : Dep = 18 % x 30 000 x 9/12 = 31 Dec 2007 Machine 101 : Dep = 18 % x 20 000 = Machine 102 : Dep = 18 % x 30 000 = Machine 102 : Dep = 18 % x 7200 x 4/12 =

3600 4050 7650 3600 2250 432 6282

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b) Provision for depreciation A\c 2005 3000 Income statement

2005 31 dec Bal c\d 2006

3000

2006 Balc\d

10650

Bal b\d Income statement

3000 7650 10650

Bal b\d Income statement

10650 6282 16 932

10650 2007 Disposal (4050 + 2250) Bal c\d

c)

6300 10632 16 932

Loss on disposal $7400

Question 11 Tana Ltd Schedule of Fixed Assets for year ended 31 December 2009 Land and buildings Machinery Cost at 1 Jan 680,000 320,000 Additions 18,000 Disposals Revaluations 120,000 Cost at 31 Dec 800,000 338,000

Office equipment 210,000 20,000 (15,000) 215,000

Total depreciation 1 Jan Disposals Depreciation for the year

72,000

160,000

8,000

26,700

85,000 (4,500) 30,750

Total depreciation 31 Dec Net book value 31 Dec

80,000 720,000

186,700 151,300

111,250 103,750

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Dep on land and buildings = 2 % x 400 000 = 8000 Dep on Machinery = 15 % x (320 000 + 18 000 – 160 000) = 26 700 Dep on office equipment = (15 % x 210 000 – 15 000 – 10 000 + 20 000) Note the equipment bought in 2000 has already been fully depreciated and therefore should not be depreciated in 2009 Question 12 Austen Ltd Schedule of non-current assets at 30 April 2011 Property plant and equipment Land and buildings Plant and machinery Cost As at 1 May 2010 Additions at cost Disposals Revaluation As at 30 April 2011

150 000

130 000 280 000

Fixtures and fittings

90 000 35 000

40 000 24 000 (15 000)

125 000

49 000

Depreciation As at 1 May 2010 Charge for the year Eliminated on disposal Eliminated on re valuation As at 30 April 2011 Net book value at 30 April 2011

45 000 5 600

39 375 17 125

10 800 4 900 (4 500)

(45 000) 5 600 274 400

56 500 68 500

11 200 37 800

Land and buildings depreciation charge: 280 000 x 2% = 5 600 Plant and machinery depreciation charge: 50 625 + 35 000 = 85 625 x 20% = 17 125 Fixtures and fittings depreciation charge: 40 000 – 15 000 + 24 000 x 10% = 4 900 Fixtures and fittings eliminated depreciation: 15 000 x 10% x 3 = 4 500 Chapter 3: Correction of Errors Question 1: Samir Khan Eratum Adj 5 change Ismail to Samir a)

Total trial balance $146 700 and balance suspense $1100.

b)

1. Dr suspense $2000, Cr sales $2000 2. Dr Drawings $400, Cr suspense $400 3. Dr Cash $500, Cr Suspense $500 4. Dr Machinery $5000, Cr Purchases $5000 5. Dr Drawings $1000, Cr Purchases $1000

c)

Revenue $127000 Purchases $70000 Machinery $14000 Drawings $9400 All other figures unchanged

Question2: Malcom Dsouza a) 1. Dr Stationery $50, Cr suspense $50 2. Dr Suspense $1000, Cr Sales $1000 3. Dr Abdullah $240, Cr Abdul $240 4. Dr Suspense $28, Cr Discount allowed $14, Cr Discount received $14 5. Dr Joe Jones $190, Cr Suspense $190 B)

Corrected profit $16178(+1000 + 14 +14 – 50)

Question 3: Gavin Corrected profit $4 900 (7300 + 6000 -2300+ 1000- 800 + 600 – 1700 + 1900 + 300 -4800 -1200 -1400) Question 4: Tinbin Eratum Adj 6 change Kathleen to Tinbin a) 1. Dr suspense $192, Cr other payables $192 2. Dr wages $40, Cr suspense $40 3. Dr shelving $320, Cr purchases $320 4. Dr suspense $160, Cr sales $160 5. Dr suspenses $18, Cr Telephone $18 6. Dr suspense $20, Cr discount allowed $10, Cr discount received $10 b) c)

Bal b\d credit side $350 Corrected profit $3578 (+320 +160 +18 + 10 + 10 – 40)

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Question 5: Watson $348 000 loss (+35 000 + 60 000 – 10 000 – 96000 – 14 000 – 120 000 – 47 000 + 25 000 + 21 000 + 14500 + 14 500 81 000) Question 6: Patsun a) 1. Dr sales $300, Cr suspense $300 2. Dr wages $450, Cr suspense $450 3. Dr Income Statement (depreciation) $6000, Cr provision for depreciation $6000 4. Dr suspense $3666, Cr Bank $3666 5. Dr suspense $200, Cr Smith $200 6. Dr suspense $80, Cr James $80 7. Dr Suspense $40, Cr David $40 b) Corrected profit $12470( - 300 – 450 – 6000) Question 7: Shellix a) 1. Dr suspense $1000, Cr sales $1000 2. Dr Plant $240, Cr Expenses $240 3. Dr Discount received $150, Cr Cathy $150 4. Dr other receivables $240, Cr insurance $240. 5. Dr suspense $500, Cr purchases $500 6. Dr Return outwards $230, Dr Return inwards $230, Cr suspense $460 b) Corrected profit $19870 (18 500 + 1000 + 240 + 240 + 500 – 230 – 230 – 150) Question 8: T Jackman a) Suspense account:

Dr side: Janet $30,Skyrays $66 and Bimbo $540 Cr side: Bal b\d $391, Equipment $60 and Bank charges $185

b) Corrected profit $15315 Question 9: Clara a) 1. Dr Cash\Bank $700, Cr suspense $700 2. Dr Pfdd $700, Income statement $700 3. Dr supplier (trade payables) $420, Cr suspense $420 4. Dr suspense $4500, Cr sales $4500 5. Dr equipment $2250, Cr maintenance exp $2250 6. Dr suspense $80, Cr trade payables $80 7. Dr repairs $350, Cr other payables $350 8. Dr Green (trade receivables) $1000, Cr suspense $1000 b) c)

Corrected profit $27800 Total NBV of NCA $141250 (NBV of Equipment $23 250) Total CA $48 910 or $48 210 (trade receivables $24 900; Pfdd $2900) Total CL $31 960 or $31 260 (trade payables $9460; Other payables $350)

Question 10: Alex a) 1. Dr Interest (profit) $1200; Cr Other payables $1200 2. Dr sales (profit) $2500; Cr Trade receivables $2500 3. Dr Drawings $450; Cr Maintenance (profit) $450 4. Dr Machinery $3500; Cr Wages (profit) $3500 Dr Depreciation (profit) $700; Cr Provision for depreciation $700 5.Dr Bank $420; Cr Trade receivables $420 Dr Bad debts (profit) $280; Cr Trade receivables $280 6. Dr Disposal $7500; Cr Vehicle $7500 Dr Provision for depreciation $4500; Cr Disposal $4500 Dr Bank $3000; Cr Disposal $3000 b) Corrected profit $13 770 (14 500 - 1200 – 2500 + 450 + 3500 – 700 – 280)

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Question 11: Lucyna Suspense A\c: Dr Side - Bank $200; Purchases $90; Trade payables $67 Cr Side – Bal B\d $330; Rooney $27 b) Trial balance: Trade receivables $10 337; Trade payables $3527; Purchases $94 05; F& Fittings $4470 Question 12: Jack Sparrow a) 1. Dr Suspense $81 000; Cr Sales $81 000 2. Dr Drawings $11 000; Cr Suspense $11 000 3. Dr Sales $15 500; Cr Suspense $15 500 4. Dr Willis $7 800; Dr Walls $7 800; Cr Suspense $15 600 5. Dr Return inwards $10 500; Cr Return Outwards $10 500 6. Dr Suspense $4 000; Cr Valentine $4 000 b) Corrected Profit $106 500 (+81 000 – 15 500 – 10 500 + 10 500) c) Trade receivables $21 000; Trade Payables $18 900; Drawings $56 000 Chapter 4: Control Account Question 1 Spam a) Bal c\d: SLC (normal) $9820 PLC (normal) $3270 Question 2 Popo Ltd a) Bal c\d: SLC $12390 PLC $4140 Question 3 Ryan Bond a) Bal c\d: SLC $1456 PLC $2005 Question 4 Sunny a) Bal c\d $19540 Dr side Bal b\d $19 900; sales undercast $200; interest $40 Cr side B.debts $260; Set off $340 b) $19 540 (Add $40;Less $140;Less $60;Add $1600) Question 5 Brenda a) Bal c\d $22550 b) $22 550 (Less $60;Add $1150;Add $150) Question 6 Dream Beds a) Bal c\d $58730 Dr side Bal b\d $63 530; Interest $30 – Cr side B.debts $850; Set off $1980; Sales $400; R.Inwards $1600 b) $58 730 (Add $180;Less $240;Less $1980;Add $30;Less $400) Question 7 a) Dr side- Bal b\d $26 153; D.cheque $2000; Sales undercast $1800; Bal c\d $250 (minority) Cr side - Bal b\d $150; B.debts $1250; Set off $420; R.inwards $800 b)

$27 583 (28503 – 120 - 800)

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Question 8 Electra Eratum change year 1999 (2 places) and 1997 to 2000 a) $157 000 b) Balance adjusted control a\c $153 300 (dr side $157 000; Cr side $1000,$700, $2000) Adjusted ledger balance $153 300 (156 125 – 1000 – 425 – 2000 + 600) Question 9 Jackson a) Bal c\d Sales ledger control $54409; Bal c\d purchases ledger control $40653 b) Bal c\d Adjusted Sales ledger control $54052; Bal c\d Adjusted purchases ledger control $40831 c) Statement adjusting sales ledger balance – original sales ledger bal $54204 (Add $27; Less $54;Less $125) Statement adjusting purchases ledger balance – original purchases ledger bal $39997 (Add $244; Add $590) Question 10 Lio Limited a) Bal c\d $43 400 b) Bal c\d $41 000 [Dr 43 400; Cr 700; Cr 1700] c) $41 000 (-900-1700) Question 11 Jean a) Bal c\d adjusted PLC $19800 b) Add $850; Less $40; Add $90; Less $60 Question 12 Janet a) Bal c\d $17500 (Dr side interest $30,credit sale $10) (Credit side B.debts $200, Set off $310, R.inwards $90) b) $17 500 (Add $750; Less $60; Less $90; Less $140) Question 13 Supreme Ltd Original SLC balance c\d $169 400; Original PLC balance c\d $143 200 Adjusted SLC bal c\d $183 300 [dr side $400, $6500, $7000] Statement adjusting ledger balances $183 300 [ +3400+7000-2250] Question 14: Harvey Rabbit a) SLC Bal c\d $24 969 bi) Adjusted SLC $28 595 bii) Less $840; Add $998; Add $2102; Less $896; Less $630; Add $816; Add 200 Question 15 a) Bal c\d $16126 (Dr side bal b\d $16 351;bal c\d $3049 [2699+350]) [Cr side bal b\d $2699; sales overcast $300; Reecipts $275] b) $16 126 [Add $894; Less $514;Less $275] Question 16 Bamma Ltd SLC bal c\d $92 660; PLC bal c\d $68 875 Chapter 5: Incomplete Records Question 1: Mike Thomson a) Sales $226 450; Purchases $162 420 b) Cost of sales $153 770; Gross profit $72 680; Total expenses $55 215; Profit for the year $17 465 c) Total NBV of NCA $30 765; Total CA $68 850; Total CL $30 670; Total NCL $10 000; Capital $47 280 (13500 + 9600 +21 000 +32900 +180 -17 700 – 12200)

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Question 2: Paul Lander a) Revenue $87 700; Cost of sales $32 400; Gross profit $55 300; Total expenses $38 620; Profit for the year $18 180 Total NBV of NCA $6800; Total CA $28 000; Total CL $6920; Total NCL $8 000; Capital $16 700 (3000+8000+6000+3500-500+1000-4300) Question 3: Salman b) Revenue $63 680; Purchases $41 085; Cost of sales $39 800; Gross profit $23 880;Drawing of goods $755; Cash stolen $2190; Total expenses $20 220; Profit for the year $3 660 c) Total NBV of NCA $17 505; Total CA $9 550; Total CL $4560; Capital $26 290;Drawings $7455 Question 4: Tan Boon Receipts from customers Payment to suppliers Drawings

593 000 515 000 19 000(B.F)

Cost of sales Gross Profit Total expenses Profit for the Year

458 500 196 500 131 000 65 500

Total NBV of Non-Current Assets Total Current Assets Total Current Liabilities Capital at start

45 000 183 000 26 500 155 000

Question 5: Melina Jackson Question 6: Jessica Brooks 13

Question 7: Patricia Large Credit Sales Cash Sales Total Sales Total Purchases Gross Profit Cost of Sales Goods stolen Total Expenses Profit

49 070 12 930 62 000 40 650 12 400 49 600 7 350 12 170 230

Total NBV of Non-Current assets Bank Balance Total Current Assets Total Current Liabilities Capital at Start Drawings Capital Introduced

4 700 11 730 12 500 2 950 22 510 10 300 1 810

Question 8: John Brown a) Revenue $90 000 (25 000 + 65 000); Purchases $34 700;Cost of sales $34 700; Gross profit $55 300; Total expenses $38 600; Profit for the year $17 400 Total NBV of NCA $8000; Total CA $47200; Total CL $23900; Capital $27100; Drawings $21 200 Question 9: Jack Bowman Eratum Adj 2 change Jane Newbury to Jack Bowman a) Revenue $140 400; Purchases $109 400; Cost of sales $108 000; Gross profit $32 400;Total expenses $18 360; Profit $14 040 b) Total NBV of NCA $32 192; Total CA $26 400; Cash and cash equivalent $ 6 100; Total CL $13 200

Question 10: Shaista Total Purchases Total Sales Cost of Sales Gross profit Goods Stolen

49 500 62 850 52 750 10 100 (5/105 x 2100 + 7.5/107.5 x 1290 + 20/120 x 59 460) 250

Question 11: Wong Li Keng Closing inventory $19400; Cost of sales $294300; Gross profit $196 200; Pfdd $1845; Dep f& Fittings $5300; Dep vehicles $3072; Interest on loan $1900; total exp $193367; Profit $2833. NBV of F&F $35 700; NBV of vehicles $12 288; Rent prepaid $11 250; Total CA $90305; Interset owing $1100; Total CL $40850; Total NCL $44 000; Capital at start $80 610. Question 12 P.Line Revenue $178 200; Purchases $156 600; Cost of sales $148 500; Gross profit $29 700; Total expense $28 100; Profit for the year $1 600. Total NBV of NCA $32 500; Total CA $45 500; Total CL $15 700; Total NCL $10 000; Capital $58 300 Question 13 Ray Damson a) $155 000 ( 170 000 – 10 000 + 49 000 – 17 000 +45 600 + 38 500 – 72 200 – 1400 – 47 500) b) Balance at 30 September 2011 $50800 overdraft Dr (17 000; 173 500) Cr (47 500; 16 200; 12 500; 165 100; c) Goods damaged in fire $24 400; Cost of sales $147 200; Gross profit $36 800; Total expenses $62 000 (15 900 + 24 400 + 1700 + 500 + 20 000); Loss for the year $25 200 Total NBV of NCA $170 300 (158 300 + 11 500); Total CA $49 000(17000 + 32 000); Total CL $102 000 (50 100 + 1100+ 50 800) Question 14 Phillip Bust

Bal b\d Capital Receipts

Cash Account 330 14000 67900

Trade payables Expenses Drawings M.Van Wages Loan Additional drawings Bal c\d

52180 7215 6250 5800 5330 3500 1490 (balancing figure) 465 82230 82230 Revenue $68160; Purchases $52720; Cost of sales $51120; Gross profit $17040; Total expense $13910; Profit for the year $3130. Total NBV of NCA $6300; Total CA $11330; Total CL $3890; Capital $4350; Additional capital introduced $14000; Drawings $7740 Question 15 A Lee Quinn ai) $15 610 aii) $140 500 aiii) $126690

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b) G.Profit $99 000; Total expenditure $47 790; Profit for the year $54 020 c) NCA $96 400 (70 000 + 12 000 + 14 400); CA $103 218 (19 500 +12 000 + 71 718 – bank is b.Figure); CL $11 000; Capital at start $150 000; Drawings $15 402 Question 16 John White Revenue $320 000; Purchases $220 000; Closing inventory $28 000 (B.Figure); Cost of sales $192 000; G.P $128 000; Total expenses $100 500; Profit for the year $27 500 Total NCA $12 000; Trade receivables $89 100; Other receivables (F.overhead prepaid) $6260; Trade payables $50 000; Variable overheads owing $6 700; Overdraft $15 660; drawings $4500 Fixed overhead prepaid = 5760 + 15 700 + 3600 – 18800 = 6260 Variable overhead owing = (0.24 x 320 000) – 22700 – 26300 – 21100 = 6700 Trade receivables = 320 000 – 29000 – 25000 – 67000 – 40000 – 54000 – 15000 – 900 = 89100 Question 17 Jimmy Chang a) Bank balance $12400 b) Revenue $51 000; Purchases $32 800; Cost of sales $29 000; Gross profit $20900; Total expenses $19300; Profit for the year $2500 Total NCA $10 000; Total CA $27500; Total CL $23000; Capital at start $22100 Question 18 Sherlock Moriarty a) Revenue $471 570 ; Purchases $315 120; Cost of sales $314 380; Gross profit $157 190;Total expenses $103 505; Profit for the year $63 185 Total NBV of NCA $120 250; Total current assets $104 400; Total CL $35 700; Capital at start $140 000 Question 19 Ousman Sagna Revenue $301 800 (Cash sales $100 255; credit sales $201 545); Purchases $222 600; Cost of sales $225 300; Gross profit $75 100; Total expenses $49 030; Profit for the year $26 070 Total NBV of NCA $103 100; Total CA $52 950; Total CL $18 480 Question 20 Marcel ai) Credit purchases $95 600 aii) Credit sales $128 900 b) $9 700 (33 000+95600-29700-8600[10750 x 100\125] -60000 [2\3 x 128900-9200-29700]-20600) Chapter 6: Non-Profit Organisation Question 1: Texas Billard Club Purchases Cost of sales Café Profit Income: Subscription Ordinary Total Income Total expenditure Surplus Total NBV of Non-Current assets

44 700 43 700 27 120 30 800 63690 50 320 13 370 = $145 400

15

Total Current Assets =$135 350 Total Current Liabilities =$11 250 Accumulated fund at start =$246 630 Question 2 : Malaga Sports club a) Total income $ 5734 (4314 + 120 + 1300); Total expenditure $5662; Surplus $72 Total NCA $14800 (12000 + 2800); Total CA $1549 (110 + 1439); Total CL $308 (168 + 100 + 40); Acc Fund $15 489; Life subscription $480 Question 3: Schubert Music Club Balance b/d Income and expenditure

b) Purchases Cost of Sales Café Profit

400 2800

a) Subscription Account balance b/d Receipts Write Off Balance c/d

7600 9600 850

c) Life Subscription Total Income Total expenditure Deficit

300 2500 100 300

350 4000 11600 7600

Question 4: Adsburry sports and social club Purchases Cost of Sales Bar Profit

23 300 25 100 16 600

Subscription Ordinary Total Income Total expenditure Surplus

23 950 42 300 19 625 22 675

Total NBV of Non Current Assets Cash and Cash equivalent Total Current Assets Total Current liabilities Accumulated Fund at Start

47 275 31 200 37 750 5 350 51 000

Question 5 Disney Sports club a) Total income $2986 (1875 + 631 + 100 + 60 + 320); Total expenditure $2520 (140 + 230 + 800 + 215 + 185 + 500 + 450); Surplus 466 b) Total NCA $31 750 (24 500 + 7250); Total CA $5739 (75 + 110 + 5554); Total CL $195; Acc Fund $36 828 Question 6 Racket Sport Club Eratum Restaurant supplies should be on credit side in Receipt and payment a|c a) Acc Fund $14505 b) Purchases $36050; Cost of sales $34920; Restaurant profit $16730 c) Total income $34080 (17350 + 16730); Total expenditure $34165 (15600 + 4320 + 3825 + 3320 + 2800+ 3000 + 1300); Deficit $85 Total NCA $73750 (63700 + 10050); Total CA $9030 (7520 + 650 + 860); Total CL $8360 (4785 + 125 + 450 + 3000); NCL $60 000. Question 7 Picasso Art Club a) Profit on art material $1530 b) Subscription written off $25; Subscription in income and expenditure $1410; Total income $3550; Total expenditure $3310; Surplus $240 c) Non-current assets $4600; Current assets $1725; current liabilities $385

16

Question 8 Seletar social club a) Inventory loss $1 920; Cost of sales $19 180; Bar profit $300 b) Total income $21 600; Total expense $19 760; Surplus $1 840 Total NBV of NCA $88 000; Total CA $22 280; Total CL $860; Acc Fund $107 580 Question 9 : Orchard Social club a) Bar profit $5200 b) Total income $20 310 (5200 + 13480 + 420 + 1210); Total expenditure $14 160 (7950 + 1720 + 4490); Surplus $6150 Total CA $13 980 (1850+620+6400+4600+30+480); Total CL $2280 (1150+310+820); Acc Fund $3550; Legacy $2000 Question 10 Avenal Social club a) Inventory stolen $3550; Cost of sales $36 450; Bar profit $12 150 b) Subscription $32 600; Disco profit $6 900; Total expenditure $43 900; Surplus $7750 Total NBV of NCA $120 200; Total CA $37 400; Total CL $2350; Acc Fund $147 500 Question 11 : Vacoas Tennis club ai) Bal b\d Subscription Sales Donation Sale of tickets for annual dance

Receipt and payment A\c 1200 Purchases 4000 Sundry expenses 3500 Electricity 50 Maintenance and wages 2640 Dinner dance expense Equipment Bal c\d

1850 1170 257 4500 1900 600 1113

aii) Cost of sales $2000; Refreshment profit $1500 aiii) Total income $6410; total expenditure $6660; Deficit $250 Question 12 : Carlos Snooker Club a) Bar sales $18 000; Cost of sales $14 400; Bar profit $3600 b)Bal $3750 Dr c) Subscription transferred to income and expenditure A\c $16 800 d) surplus $3776 e) $100 846 (97 070 + 3776) Question 13: Top Hat Sports club a) Annual Subscription $39 750; Life Subscription $240; Café loss $3560; Depn $3000; Total exp $42 930; Deficit $2940 b) Non-current assets $19 500; C.Assets $5330 (800 + 750 +3780) C.Liabilities $1820 (760 + 910 +3780); Acc Fund $21 390; Lifemembership $4560 Not-for-profit organisation Has balance sheet Shows accumulated fund Has income and expenditure account Shows surplus or deficit Limited access to financial statements Has receipts and payments account

Public limited company Has statement of financial position Shows share capital and reserves Has income statement Shows profit or loss General access to financial statements Has statement of cash flow

17

Chapter 7: Inventory Valuation-IAS 2 Question 1: Janet i)

FIFO:

Perpetual Periodic ii) AVCO: Perpetual Periodic Question 2: Jenifer i) FIFO: ii)

AVCO:

Question 3: Mike i) FIFO: ii)

AVCO:

$2 670 $2 670 $2 531 $2 473

Perpetual Periodic Perpetual Periodic

$8 280 $ 8 280 $7 715 $7 538

Perpetual Periodic Perpetual Periodic

$1 932 $1 932 $1 909 $1 896

Question 4: Margaret i) FIFO: Perpetual $1 880 Periodic $1 880 ii) AVCO: Perpetual $1 862 Periodic $1 822 iii) Revenue $11 770 Cost of sales $5 575 Gross Profit $6 195 Profit for the year $1 445 Question 5 Rosedale a) Closing inventory FIFO $5100; Gross profit $21 080; Trade receivables $59 380; Trade payables $43 400; Alternatively instead of Trade receivables and Trade payables can put Cash $15 980 b) Closing inventory AVCO $4760 Question 6 Alan Balwin ai) $172.5 (75 x $2.3) aii) $163.5 (75 x $2.18) aiii $162.35 (75 x $2.165) Question 7: Pear Ltd FIFO periodic $112 859; AVCO perpetual $108 997 Question 8 Monica Celest $197 790 (234 500 – 84 000 + 48 500 – 4 050 + 3470 – 7600 – 600 + 5000 + 2570 ) Question 9 Genelia Eratum change Krishna to Genelia $27 957 (26 870 – 1940 +2625 +360 -30 +72)

18

Question 10: Mustapha Deoff Inventory= $22 596 (24 500 + 6744 -7950 +80 -88 +200 -400 -240 -250) Question 11 Alan Smith $156 320 (162 500 + 144 000 – 150 000 – 6160 + 8500 – 4600 – 5600 + 7680) Question 12: Harold Green Inventory= $16 743 (43 400 – 2100 – 10000 -2000 +280 000 -4200 -290 000 + 2143 – 500) Question 13 Dolly Ltd Eratum Adj 8 change 4 to 3,Thomas Strong to Dick Paulsen and Square Deals to Dolly a) $38 790 (17 800 + 165 000 – 8500 – 118300 +2340 – 10000 – 3700 – 5850) b) Selling price of goods sold by Dick = $9 000 (5850 ÷ 65 x 100) Commission = 10 % x 9 000 = $900 Question 14 Joy Locke a) Engine 7.00 + 0.80 + 10/2 = 12.80 Carriage 5.00 + 0.50 + 10/5 = 7.50 Track 2.00 + 0.25 + 10/10 = 3.25 b) Units of Inventory on 31 Jan Received from toymaker Plain engines taken for painting Sales of painted engines Engines sent on sale or return basis Units of inventory at 4 Feb Value of inventory :

Plain engines Good painted engines Faulty painted engine

Total value

Plain engines 12 (balancing figure) 20 (18) 14

Painted engines 39 (Balancing figure) 18 (21) (10) 26

84 (12 x 7) 486.4 (38 x $12.8) 4 (1 x $4) 574.4

Question 15 Bettina Eratum Inventory figure missing on 7 April 2011, it should be $10 500 $17 130

(10 500 + 780 – 9400 + 2500 + 5400 + 7350) Chapter 8: Departmental Accounts

Question 1-(Bridge Ltd) a) Rent and Rates Heat and Light Insurance of inventory Depreciation- Fittings General Administration- Salaries

Wood 5460 1080 500 4800 5600

Metal 3640 720 750 2800 8200

19

b) Wood 106 000 64 000 40 090 1 139 22 771

Cost of Sales Gross Profit Total expenditure excluding bonus Bonus Profit for the year

c)

Metal 161 000 82 000 44 110 1 804 36 086

Total NBV of Non-Current Assets=$223 400; Total Current Assets=$79 800; Total Current liabilities=$24 543

Question 2–( Dellow and Coucom)

Cost of Sales Gross Profit Total Expenditure Profit/ Loss

Television 111 000 103 000 117 065 (14 065) loss

Computing 199 000 229 000 175 280 53 720

Telephones 38 000 69 000 46 145 22 855

Question 3 Krabtree a) Spares 116 450 27 930 88 520 67 300 21 220

Revenue\Income from repairs Cost of Sales Gross Profit Total expenses Profit for the year

Electical 98 700 83 950 14 750

20

Chapter 9: Manufacturing Account Question 1: Gary Nevin Cost of Raw Materials Prime Cost Total Overheads Factory Profit Cost of Production at Transfer Value Cost of Sales Gross Profit Increase in Provision for Unrealized profit Total Expenses Profit for the year Question 2: Carlton Plc Cost of Raw Materials Prime Cost Total Overheads Factory Profit Cost of Production at Transfer Value Net Revenue Cost of Sales Gross Profit Decrease in Provision for Unrealised \profit

36 000 67 000 28 000 23 000 115 000 111 550 80 450 690 52 880 49 880

Total NBV of Non-Current Assets Total Current Assets Total Current Liabilities

23 000 71 880 8 500

105 000 245 000 59 000 101 000 404 000 555 000 422 180 132 820 4 545

Total expenses Profit for the year

12 290 226 075

Question 3: Janice Brook Cost of Raw Materials Prime cost Total overheads Factory profit Cost of production at Transfer Value Cost of sales Gross Profit Provision for Unrealised Profit Total Expenses Profit for the year

36 000 75 000 40 550 20 650 123 900 111 900 58 100 2 000 68 350 8 400

Total NBV of Non-Current Assets Total current assets Total current liabilities Net assets

81 500 55 100 12 200 124 400

Question 4: Pakenham Ltd a) Opening Inventory of Finished Goods at Transfer Value Closing Inventory of Finished Goods at Transfer Value Cost of Sales Gross Profit Total Expenses Profit for the year b) Value of Inventory : Raw Materials Finished Goods Question 5 Luke and Bryan

34 500 36 800 480 700 121 300 87 000 97 000

18 000 32 000

Cost of Raw Materials Prime Cost Factory Profit Cost of Production at Transfer Value Cost of Sales Gross Profit Increase in Provision for Unrealised profit Total expenses Profit for the year Share of residual profit: Luke Bryan c) Balance current account:

21 126 000 207 000 29 200 321 200 313 170 106 830 730 75 170 60 130 23 478 15 652

Luke $22 652 Cr Bryan $44 978 Cr

Question 6 Excel Ltd Eratum change variable factory overheads to $14 700 and Inventory of finished goods to $4 000 (cost price) Prime cost Factory Indirect cost Factory overheads:

Fixed Variable Depreciation P& machinery Cost of production at cost Factory profit

32 000 19 100 14 700 6 200 40 000 72 000 18 000 (balancing figure)

COP at transfer value (90 x 1000)

90 000

Income statement Revenue Less cost of sales Opening inventory at transfer value 4 000 + (18 000 ÷72 000 x 4 000) COP at transfer value Less closing inventory (5 + 90 – 92) x $1000 Cost of sales G.Profit Factory profit Add decrease in PFUP (1 000 – 600) Less expenses Admin exp (18 700 – 2300) S & Distribution cost Profit for the year c)

138 000 5 000 90 000 (3 000) 92 000 46 000 18 000 400 18 400 64 400 16 400 26 300 42 700 21 700

NCA $53 400 (43 400 + 10 000) CA $18 800 (2400 + 2100 +7500 + 2300 +4500) CL $3100 O.Shares $45 000 (40 000 + 5000) Share premium nil (4 000 – 4000) G.Reserve $11 000 (7000 – 1000 + 5000) R.Profit $13 100 (4400 + 21700 – 5000 – 8000) Note bonus issue = $5 000

Question 7 Merton Ltd a) Cost of raw materials $148 100; Prime cost $253 500; Total overheads $75 500; Factory profit $27 000; COP at transfer value $345 000 b) Increase in Pfup $740 c) Cost of sales $338 100; Gross profit $86 900; Total expenses $67 000; Profit $46 160 Total NBV of NCA $413 500; Total CA $137 760; Total CL $143 900; Retained profit $107 360 Question 8 Nutt and Bolt a) Cost of raw materials $223 000; Prime cost $633 000; Total overheads $134 000; cost of completed production at cost $756 000; Factory profit $151 200. b) Cost of sales $832 800; Gross profit $117 200; Total expenses $57 800; Profit $198 200; Share of profit Nutt $ 63 600 Bolt $63 600. Current account balance Nutt $65 600, Bolt $44 600 Total NBV of NCA $266 000; Total CA $388 000; Total CL $93 800 Question 9 David Eratum change amount of direct labour to $28 200 and Trade receivable to $41 600 Manufacturing A\c Raw Materials Opening inventory Purchases Less closing inventory Cost of raw material consumed

2800 16 400 19 200

22

Other direct costs Direct labour Prime costs Indirect costs Factory overheads:

28 200 47 400 Variable Fixed

9600 43 000 52 600 100 000 20 000 120 000

Cost of production at cost Factory profit COP at transfer value (800 x $150) Income statement Revenue Less cost of sales Opening inventory at transfer value COP at transfer value Less closing inventory (90 x $150) Cost of sales G.Profit Factory profit Add decrease in PFUP (2750 - 2250)

155 800 (110 x $150)

16 500 120 000 (13 500) (123 000) 32 800 20 000 500 20 500 53 300

Less expenses Admin and selling exp (18 700 – 2300) Profit for the year

28 500 24 800

NCA $25 000 (16 000 + 9000) CA $93 950 (11 250 + 41 600 +41 100) CL $18 100

23

Question 10 Macheda Manufacturing A\c Raw Materials Opening inventory Purchases Less closing inventory Cost of raw material consumed Other direct costs Direct labour (50 000 + 2000) Direct expense Prime costs Indirect costs Factory overheads: Variable Fixed Depreciation of property (0.02 x 200 000 x ¾) Depreciation of P & M 0.25 x (100 000 – 36 000)

28 000 50 000 32 000 46 000 52 000 12 000

18 000 22 000 3000 16 000

Add opening work in progress Less closing work in progress Cost of production at cost Factory profit (balancing figure) COP at transfer value (800 x $150) b)

64 000 110 000

59 000 169 000 72 000 80 000 161 000 48300 209 300

PFUP A\c Bal cd

12 000 12 000

Bal b\d I.Statement

7500 4500 12 000

Pfup at start = 48 300 ÷161 000 x 25 000 = 7500 Pfup at end = 48 300 ÷161 000 x 40 000 = 12000 Note: The opening balance of pfup does not appear in the trial balance this means that opening inventory of finished goods in the trial balance is at cost price. When pfup appears in the trial balance then inventory of finished goods must be at transfer price for the trial balance to agree. Income statement Revenue 300 000 Less cost of sales Opening inventory at transfer value (25 000 + 7500) 32 500 COP at transfer value 209 300 Less closing inventory (40 000 + 12 000) (52 000) Cost of sales (189 800) G.Profit 110 200 Factory profit 48 300 Less increase in PFUP (12 000 - 7500) 4 500 43 800 154 000 Less expenses Marketing exp (20 000 – 1000) 19 000 Admin overheads 34 000 Dep property (0.02 x20 000 x 1\4) 1 000 Dep office machinery (0.1 x 36 000) 3 600 57 600 Profit for the year 96 400 Question 11 Stam Manufacturing A\c Raw Materials Opening inventory Purchases Less closing inventory Cost of raw material consumed Other direct costs Direct wages Royalties Prime costs Indirect costs Indirect wages Heat and light 2\3 x (26 650 + 800) General factory expenses Insurance 2\3 x (15 010 – 760) Depreciation of P & M 0.1 x 210 000

26 740 278 630 24 390 280 980 372 560 6 500

74 280 18 300 47 080 9 500 21 000

Add opening work in progress Less closing work in progress Cost of production at cost Factory profit (0.2 x 828 730) COP at transfer value (800 x $150)

379 060 660 040

170 160 830 200 23 170 24 640 828 730 165 746 994 476

PFUP A\c Bal cd

7 344 7 344

Bal b\d I.Statement

6 240 1 104 7 344

Note : the opening inventory of finished goods is at transfer price. Used the rate of factory profit to check. 20 /120 x 37 440 = 6 240 (if you take 20 % of 37 440 you don’t get 6 240)

24

The closing inventory can be either cost or transfer value, I have taken it as cost. Pfup at end 20 % x 36 720 = 7344 Income statement Revenue Less cost of sales Opening inventory at transfer value COP at transfer value Less closing inventory (36 720 + 7 344) Cost of sales G.Profit Factory profit Less increase in PFUP (7 344 – 6 240)

1 163 750 37 440 994 476 (44 064) (987 852) 175 898 165 746 1104 164 642 340 540

Less expenses Heat and light Insurance General office exp Profit for the year

9 150 4 750 36 740 50 640 289 900

Question 12 Helen Tong (a) Manufacturing account for the year ended 31 December 2007 $ Purchases of raw materials 230 400 Direct wages 359 500 Manufacturing royalties 17 100 Prime cost 607 000 Factory overheads 215 000 Total production cost 822 000 Manufacturing profit 304 140 Transfer price 1 126 140 Income statement for the year ended 31 December 2007(1) $ Revenue Inventory of finished goods (12 300 × 129%) 15 867 Transfer price 1 126 140 Inventory 18 769 Cost of sales Gross profit

25

$ 1 750 000

1 123 238 626 762

(b) Provision for unrealised profit $ Balance c/d

Balance b/d Income statement

Balance b/d

5069 5069 5069 W2

W1 15867 – 12 300(1) = 3567 W2 30 4140 ÷ 822 000 × 100 = 37%

37 ÷ 137 × 18769 = 5069

(c)

W1 W2

$ 3567 W1 1502 5069

1 126 140 ÷ 4000 = $281.535 (transfer price per unit ie selling price of the factory) (607 000 + 43 000) ÷ 4000 = $162.50 (variable cost per unit)

Contribution per unit = $119.035 (281.535 – 162.5)

Fixed costs = 80 % x 215 000 = 172 000 Break even = $172 000 ÷ $119.035 = 1445 units Margin of safety = 4000 – 1445 = 2555 units (d) 1445 × $281.535 = $406 818 Chapter 10 Accounting Concepts Question 1 Donald (a) (i)

Donald should include a proportion of this amount in the current years Income statement as $7,200 covers a 6 month period of which 5 months are in the next accounting period. He should therefore include $1,200, which is equivalent of one month’s rent should be included in the income statement for the year ended 31 December 2007. The remaining $6,000 should be included in the current assets on the Balance Sheet as a prepayment. This is an example of the accruals (matching) concept which states that expenses should be matched against the period that they are incurred.

(ii)

Donald should not include the $2,500 for a private holiday in the general expenses. This should be included in Donald’s drawings as it is for personal use. This is an example of the business entity concept which states that the financial transactions of the business should be treated separate from those of the owner. Therefore personal transactions should not be confused with business transactions.

(iii)

Donald should not include the sales of $10,000 as the customer has not yet signed the contract. Profit should not be recognised until the exchange of goods or services. This is an example of the realisation concept which states that profit should not be recognised until the goods or service pass to the customer.

(iv)

Donald should not include the management as an asset of $50,000 in the Balance Sheet, as no monetary amount has exchanged hands. This is an example of the money measurement concept which states that only assets that have a true monetary value can be included in the balance sheet. This helps to ensure that amounts on the balance sheet are objective not subjective.

Question 2 1. Business entity concept: The business dealings of the owner should be kept separate from his private affairs. 2. Money measurement concept: No monetary amount has exchanged hands, only assets that have a true monetary value can be included in the balance sheet 3. Materiality concept: The door mats are small items of insignificant value and therefore it is allowed to treat them as a revenue expenditure instead of a capital expenditure 4. Matching concept\Accrual concept: Although the invoices have not been received by the end of the financial year , the purchases have been made in the current financial year and therefore should be included in the current year’s purchases. Question 3 Polska Item (1) Audit and tax fees (2) Golf clubs on sale or return (3) Rent (4) Fixtures and fittings (5) Inventory

Effect on profit (5000) (10000) 2000 750 (75) (500)

Concept Accruals Realisation / prudence Accruals/Matching Cost Prudence

Chapter 11: Financial Statements of Partnerships Question1: Brown and White Total expenditure $14 700

26

Profit for the year Share of Profit:

Current Account:

$10 000 Brown $2 250 White $1 500 Brown $4 250(cr) White $7 750(cr)

Question 2: James and Gemma Jan-June 60 000 30 000 16 300 5 100 1 350 6 000 17 550 4 275 4 275

Cost of sales Gross Profit Closing Inventory Depreciation Interest Remaining expense Profit share of Residual Profit: James Gemma Current A/c: Bal c/d- James - Gemma

22 737.5 Cr 19 237.5 Cr

Question 3: Hook, Line and Sinker a) i) Loss on disposal Total Interest on loan Corrected profit for the year Share of Residual Profit- H L S ii) Current A/c balance H= $12 445 Cr L= $11 517 Cr S= $4 478 Cr

July-Dec 100 000 50 000 20 300 5 725 1 350 6 000 36 925 13 462.5 13 462.5

2 360 6 500 36 140 $10 445 $6 267 $4 178

27

Capital A/c balance $40 000 $15 000 $10 000

d)

Total NBV of NCA = $141 440 Total Current Assets = $22 000 Total Current Liabilities = $5 000 Total Non-Current Liabilities =$65 000 Question: 4 Short and Tall Revenue Less cost of sales Opening inventory O.G.Purchased Less Closing inventory Cost of sales Gross profit Gross profit (apportioned in proportion to revenue) Less expenses Rent and rates (time basis) Heat and light (time basis) Staff salaries: Long as employee Other staff (time basis) Selling expenses (proportion of revenue)

600 000 60 000 420 000 90 000

Jan – Aug 112 000

390 000 210 000 Sept – Dec 98 000

4 000 8 400 10 000 20 000 11 200

2 000 4 200 10 000 9 800

Distribution expenses (proportion revenue) Interest (time basis) Bad debts (proportion revenue) Profit for the year Less Appropriation Salaries: S 6667 T 6667 L Residual profit Share of residual profit S 20 311 T 10 155 L -

4 960 5 000 4 640 43 800

13 334 30 466

4 340 2 500 4 060 61 100 4 000 4 000 4 000

12 000 49 100

24 550 16 367 8 183

Question: 5 Archer and Bowman a) Corrected profit $15 520 (+ 30 -1400 -2000 + 420 -20) b) Share of residual profit: Archer $2010; Bowman $2010 Question: 6 Lee Kim and Michael Total capital on 1 Oct 2005 = 240 000 + 210 000 +150 000 + 190 000 + 50 000 +80 000 = 920 000 Total capital on 30 Sept 200 = 750 000 +660 000 + 390 000 – 346 000 – 285 000 = 1 169 000 Total capital on 30 Sept 2007 = 870 000 + 690 000 + 420 000 – 404 000 – 255 000 = 1 321 000 Total capital on 30 Sept 2008 = 1 200 000 + 825 000 +495 000 – 448 000 – 375 000 = 1 697 000 Total drawings 2006 = 45 000 + 42 000 + 36 000 + 45 000 = 168 000 Total drawings 2007 = 70 000 + 48 000 + 30 000 +60 000 = 208 000 Total drawings 2008 = 105 000 + 105 000 + 8 000 + 65 000 = 283 000 Calculation of profit 2006 1 169 000 168 000 (920 000) 417 000

Capital at end of year Add drawings Less capital introduced Less capital at start Profit for the year

2007 1 321 000 208 000 (1 169 000) 360 000

2008 1 697 000 283 000 (180 000 (1 321 000) 479 000

Closing balance capital account of Michael: 2006 $150 000; 2007 $150 000; 2008 $210 000 Share of residual profit for Michael: 2006 = 1/6 x (417 000 – 45 000) = 62 000 2007 = 1/6 x (360 000 – 60 000) = 50 000 2007 = 1/6 x (479 000 – 65 000) = 69 000 Closing balance current account of Michael: 2006 $106 000; 2007 $126 000; 2007 $187 000 Question: 7 Rahul and Shivam a) Rahul $80 000; Shivam $40 000 b) Cost of sales $603 000; Gross profit $213 000; Profit for the year $101500. c) Share of profit Rahul $23 000; Shivam $11 500 Balance current account Rahul $46 500 Question 8 Boris and Cheong

Closing balances Int. on drawings Drawings Int. on capital

Boris $ 9 908 1 320 22 000 33 228 (8 000)

Cheong $ 22 092 1 200 20 000 43 292 (7 200)

28

Profit Opening balances

(23 728) 1 500 Cr

(b) Original net profit Depreciation Loss on disposal Sales Discount received Drawings Bad debt Recovery bad debt Provision for doubtful debts Corrected net profit

$ 72 000 (14 400) (500) 10 500 600 3 400 (500) 210 (945) 70 365

(35 592) 500 Cr

c) Share of residual profits B $37 558; C $25 039 d Balance current account B $17 626 Cr; Cheong $9 339 Cr Question 9 Carl and Daniel Revenue $376 382; Purchases $196 202; Cost of sales $196 734; Gross profit $179 648; Total expenses $138 958; Profit for the year $46 690; Share or residual profit for Carl $20 292 and Daniel $13 528 Balance current account for Carl $6388 Dr and Daniel $4548 Dr Question 10 Alice and Nancy NCA at 30 Sept 99 = (132 000 – 6000 + 48 000) x 87.5 % = 152 250 Total capital = Assets – liabilities = 152 250 + 258 000 + 50400 – 70 000 – 13 000 – 27 000 – 72 000 = 278 650 Profit

= Capital at end + drawings – capital at start

29

= 278 650 +50 400 – 223 000 = 106 050

b) Share of residual profit Alice $36 250; Nancy $50 000 ( she should get a minimum of $ 50 000, if the residual profit is shared equally she will get less) Balance current account $Alice $54 850; Nancy $43 800 c) NCA $152 250; CA $308 400 (258 000 + 50400); CL $134 000 (70 000 + 13000 + 27000 + 24 000); NCL $48 000; Chapter 12: Dissolution of Partnership Question 1: Thomas, Dickson and Harry Share of realisation loss Thomas $4000; Dickson $2000; Harry $1000 To close capital account business has to pay Thomas $31 000, Dickson $11 000 and Harry $5000 Question 2 Paul, Stuart and Dev a) Share of realisation loss: Paul $1839; Stuart $1226; Dave $1226 b) Capital account P S D P S Current a\c 5257 Bal b\d 51 000 34 000 Loss on realisation 1839 1226 1226 Current a\c 18390 Realisation: Vehicle 19750 Loan Inventory 4640 Interest Bank 47801 22877 46704 69390 34000 47930 69390 34000 c) Bank account Bal b\d 3070 T.Payables and expenses Realisation: NCA 110000 Dissolution cost

D 34 000 6233 7160 537 47930

9005 7050

Inventory T.Receivables

8895 11472

Capital: Paul Stuart Dave

47801 22 877 46704 133437

133437 Interest on loan = 5 % x 7160 x 18/12= 537 Cost of inventory taken by Stuart 0.8 x 5800 = 4640 Cash received from sale of remaining inventory = 75 % x (16 500 – 4640) = 8895 Question 3 Kevin, Dev and Dick Share of realisation loss Kevin $13 737; Dev $9158; Dick $4579

Realisation Loss on realization Capital Dev Bank

Kevin 15000 13737 3774 -

Dev 9158 -

32511 9158

Capital account Dick Bal b\d 4579 Loan 3484 Capital Kevin 33937 Capital Dick Bank 42000

Kevin 13000 19511 32511

Dev 1900 3774 3884 9158

Dick 12000 30000 42000

Amount owing to business by Dev = 9158 -1900 = 7258 Since he is insolvent this sum will have to be contributed by Kevin and Dick in proportion of their capital account balances. Amount to be contributed by Kevin = 13 000 ÷ 25 000 x 7258 = 3774 Amount to be contributed by Dick = 12 000 ÷ 25 000 x 7258 = 3484

Bal b\d Realisation (property) Realisation (T.Receivables) Capital Kevin

800 25000 4200 19511 49511

Bank account trade payables Realisation (dissolution exp) Capital Dick

7274 8300 33937 49511

Question 4 Paul and Sandeep Share of realisation loss Paul $ 2400; Sandeep $2400 To close capital account, business has to pay $53 000 to Paul and $4 300 to Sandeep. Question 5: Angela, Belinda, Cindy Assume shares are divided between partners using PSR Selling price of Business =$330 000 Profit on Realisation A =$30 000 B =$20 000 C =$10 000 Question 6: Chang,Foo and Seet Profit on Realisation C =$12 000 F =$8 000 S = $4 000 Capital A\c : Chang to pay business $89 500 Business to pay Foo =$55 000 Seet = $37 000 Question 7 Dough, Ray and Mee Loss on Realisation D =$8400

30

R =$5600 M = $2800

Capital A\c : Mee to pay business $25800 Business to pay Dough=$48600 Ray = $4400 Question 8 Anton, Bassini and Cartwright a) Share of loss on realisation A $27 700; B $13 850; C $13 850 To close capital account business has to pay A $85 832; B $39 273; C $33 995 (b) Option 1 200 000 × 6% = 12 000 Option 2 80 000 × 0.15 = 12 000 (c)

Both options give the same annual return. Option 1 is fixed. Option 2 may fluctuate (depending on profit). Option 2 gives ownership rights and voting rights. Debentures are safer investment.

Question 9 Akram, Bhupesh and Chuck a) Total expenses $349 000; Profit for the year $34 000; Share of residual loss A $1320; B $880; Share of residual profit C $7200 (minimum share of resisual profit) b) Current account balances A $9720 Dr; B $680 Dr; C $1400 Cr c) To close capital account business has to pay Chuck $9400 whereas Akram and Bhupesh has to pay the business $3520 and $9880 respectively. Question 10 Joel and Pooja Profit on realisation Joel $16 000; Pooja $16 000 To close bank account, business to pay Joel $49 500 and Pooja $46 000 Question 11 Nursultan Katia and Avtandil Eratum balance current account for Nursultan should be $5 350 Dr instead of $350 Dr (a) A debit balance on a current account arises when a partner has withdrawn more money than he is entitled to and is therefore in debt to the partnership. (b) A partnership may be dissolved – as the partners are constantly in disagreement and can no longer work together. – as the partnership is no longer liquid and further trading would increase the debt. – as the partnership is no longer profitable – as a partner wishes to set up on his own, or a partner dies or retires. c) Share of Loss on realisation Nursultan $8940; Katia $5960; Avtandil $2980 To close capital account, business has to pay Katia $20290 and Avtandil $40 000 whereas Nursultan has to pay business $4290 d) Capital brought by Avtandil = 17 000 + 19120 = 36120 Capital brought by Damir = 36120 ÷ 3 x 2 = 24 080 Number of shares Avtandil = $36 120 ÷ $0.5 = 72 240 Number of shares Damir = $24 080 ÷ $0.5 = 48 160 Chapter 13: Structural Change in Partnerships Question 1: Nelson and Aliya a) Bal c\d: Nelson $55 000, Aliya $50 000, Betty $35 000 Total Non-current assets $110 000; total Current Assets $41 350; Total current liabilities $2790

31

b) Bal c\d: Nelson $41 000, Aliya $36 000, Betty $28 000 Total Non-current assets $75 000; total Current Assets $41 350; Total current liabilities $2790

Question 2: Melina and Audrey a) Capital account M A

C

Bal b\d Bank 23400 16600 22500 Revaluation gain 23400 16600 22500

Bal c\d

M 13000 10400 10400

A 14000 2600 2600

C 22500 22500

A 14000 2600 2600

C 22500 22500

Total goodwill at the time of structural change = Carla’s share of goodwill x her PSR = 2500 x 6 = 15 000 Revaluation gain = 9000 – 7000 – 600 - 400 + 12 000 = 13 000 NCA $70 000; CA $26 000; CL $2500; NCL $31 000 b) Goodwill cancel Bal c\d

Capital account C 2500 Bal b\d Bank 15900 11600 20000 Revaluation gain 23400 16600 22500 M 7500

A 5000

M 13000 10400 10400

Question 3: George, Smith and Tom a) Revaluation gain = 143 000 – 13 000 – 9000 – 1000 = 120 000 Capital A/c Balance c\d G$145 333 S$139 333 T$65 344

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Total NBV of NCA= $291 000 Total Current Assets =$81 100 Total Current Liabilities=$ 22 100

b) Capital account Revaluation cancel Goodwill cancel Bal c\d

G S T 60000 40000 20000 Bal b\d 27000 18000 9000 Revaluation gain 85333 99333 45334 Goodwill 172333 157333 74334

Total NBV of NCA= $170 000 Total Current Assets =$82 100 Total Current Liabilities=$22 100 Question 4: Gerard, Bert and John Balance Capital A/c –G 30 500 B 22 000 Paid to John 26 500 Share of Residual Profit Jan-Sep Oct-Dec G 31 387.5 11 655 B 20 925 7 770 J 10 462.5 -

G S T 95000 80000 55000 53333 53333 13334 24000 24000 6000 172333 157333 74334

Balance Current A/c

G =$41 482.5 B =$29 080

Paid to John =$10 437.5 Question 5: Pascal, Jane and Michel a)

Balance capital account Pascal $62 000; Michel $4000 Amount transferred to loan account for Jane $68 000

b)

Total NBV of NCA $130 000 Total Current Assets $28 000 (1000 + 27 000) Total Current Liabilities $92 000 (24 000 + 68 000)

Question 6: James and Susan Mokobi a) Balance on current account at 30 April 2005 James $5600 Cr; Suzan $3650 Dr b) Balance on capital account on 1 Nov 2005 James $41 000; Suzan $32 000; Anna $24 000 Profit and loss Appropriation account for the year ended 30 April 2006 May – Oct Nov – April Profit for the year 37500 37500 Less Appropriation Interest on Capital: James 525 2050 Suzan 300 1600 Anna 1200 Salary suzan 3500 4325 4850 Residual profit 33175 32650 Share of Residual profit James 16 587.5 21766 Suzan 16587.5 5442 Anna 5442 Note: Rate of interest on drawings for old partnership = 300 ÷ 6000 x 100 = 3 % (since there is no drawings given for the year ended 30 April 2006, this means that there is no drawings for the year and there will be no interest in appropriation account) Rate of interest on capital for old partnership= 1050 ÷ 35 000 x 100 = 3 % Question 7: Frank and Ernest b)Balance Capital A/c F- $76 800 E - $118 400 D- $188 500 a) Total NBV of NCA $327 300 Total Current Assets $127 800 Total Current Liabilities $22 400 Question 8:Ryan and Lam a) Capital account balances Ryan $370 000; Lam $380 000; Cinderella $200 000 b) Share of residual profit Jan – June July – Dec Ryan 80 000 22 500 Lam 80 000 22 500 Cinderella 22 500 c) Current account balances Ryan $96 400 Cr; Lam $109 900 Cr; Cinderella $23 500 Cr Question 9: Anna and Dora a) Balance capital account Anna $52 500; Dora $77 500 b) Share of residual profit Oct – Dec Anna 1125 Dora 1125

Jan – Sept 1860 7440

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c) Current account balances Anna $18 960 Cr; Dora $19 040 Cr

Question 10: Ben and Josie a) Capital account balances Ben $63 000; Josie $45 000; Melvyn $24 000 b) Capital account balances Ben $17 100; Josie $51 300; Melvyn $34 200 Ben should withdraw $37 228 whereas Josie and and Melvyn should introduced $17 914 and $19 314 respectively (c)

Current accounts

Balance b/d Drawings

B J M 1 000 18 000 17 000 16 000

850 19 000 17 850 16 000

Balance b/d Profit Salary Interest on capital Interest on loan Profit Balance c/d

B

J 4 000 12 300 8 200

M

684

8 200 4 000 1 368

2 052 1 500 2 098

699 1 399 5 317 1 033 19 000 17 850 16 000

Question 11: Eleni and Gianna ai) Share or residual profit: Eleni $12 000; Gianna $6 000 aii) Bal on Current account: Eleni $500 Cr; Gianna $900 Cr bi) Dr Vehicle $8000,Dr Inventory $7500, Dr Bank $9500, Cr Capital $25 000 Dr Capital Gianna $4000, Dr Capital Michalis $12 000, Cr Capital Eleni $16 000 Bii) Total NBV of NCA= $62 000; Total Current Assets =$72800; Total Current Liabilities=$58400; Capital Eleni $46 000; Capital Gianna $16 000; Capital Michalis $13 000 Question 12: Alan, Brian and Clive a) Capital account Balances A $75 500 9transferred to current a\c); B $38 000; C $6000; D $17 000 Share of residual profit July – Dec Jan – June A 5963 B 3975 8585 C 1987 4292.5 D 4292.5 b) Current a\c balances A $93590 (paid through bank account); B $12 822 Dr; C $9042.5 Cr; D $4802.5 Cr Question 13: Ahmed, Bola and Chaudhry a) Capital accont Balances Ahmed $65 000; Bola $62 000; Chaudhry $77 000 b) Profit for the year $144 000 (38 500 x3 - 1340 + 5040 + 4800 + 6000 + 14000) Share of residual profit April to September 2007 Ahmed $15 193; Bola $15 193; Chaudhry $15 194 Share of residual profit October 2007 to March 2008 Ahmed $35 360; Bola $23 573; Chaudhry $11 787 c) Current account balances Ahmed $33 839 Cr; Bola $1217 Cr; Chaudhry $14 444 Question 14: Brad and Rob a) Share of revaluation gain (including increase in value of goodwill) Brad $39 400; Rob $19 700 Balances on capital account Brad $121 400; Rob $67 700; Buzz $25 000 b) Balances on capital account Brad $91 400; Rob $52 700; Buzz $10 000 c) Balance sheet under (a) NCA $215 000; CA $32 760; CL $4660; NCL $29 000 Balance sheet under (b) NCA $155 000; CA $32 760; CL $4660; NCL $29 000

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Question 15: Ali and Ben Revenue $320 000; Opening inventory $32 000; Purchases $210 000; Closing inventory $34 000; COS $208 000; GP $ 112 000 April – Dec Jan – Mar G.Profit 84 000 28 000 Rent and rates 7650 2550 Salaries 10950 3650 Gen expenses 10500 3500 Depreciation 9000 3000 Profit for the year 45 900 15 300 Interest on capital A 5625 1975 B 2250 800 C 375 Salary Carl 2500 Residual profit 38 025 9650 Share of profit\ losss A 25350 (10370) B 12675 2895 C 17125 Carl’s share of residual profit should be $17 125 (20 000 – 375 – 2500) minimum share of total profit $20 000 Ben’s share of residual profit for Jan to Mar = 3/10 x 9650 = 2895 Ali’s share of residual loss for Jan to Mar = 9650 – 2895 – 17125 = 10370 Capital account C B\d 79000 32000 15000 Bank Goodwill 79000 32000 15000

C\d

A

B

A

B

A 75000 4000 79000

B 30000 2000 32000

C 15000 15000

A 7600 14980 7420 30000

B 3050 15570 1380 20000

C 375 2500 17125

Current account

Drawings Salary paid Bal c\d

c)

C

Interest on cap 30000 20000 4000 Salary 2500 Share or R.profit 13500 Bal c\d 30000 20000 20000

20000

NCA $24 000; CA $133700 (34 000 + 27000 +800 +71900); CL $27 000

Question 16: Kevin and Aniel a) Share of residual profit Kevin $22 250; Aniel $11 125 b) Current account balances at 31 Oct 2007 Kevin $2490 Cr; Aniel $1135 Cr – transferred to capital account c) Revaluation gain = $51 000 (53 000 – 1300 – 500 – 200) 200 is the loss on disposal of vehicle taken over by Aniel Closing balances in capital account should reflect PSR: Kevin 3/5 x120 000 = 72 000 Adam 1/5 x 120 000 = 24 000 Carl 1/5 x 120 000 = 24 000

Vehicle

Kevin -

Aniel 4800

Capital account Adam Carl Bal b\d

Kevin Aniel Adam Carl 40000 25000 -

35

Goodwill Bank Bal c\d d) e)

27000 9000 9000 Goodwill 30000 15000 5000 53335 Revaluation gain 34 000 17000 72000 24000 24000 Current a\c 1135 Bank Share of residual profit Kevin $17910; Adam $5970; Carl $5970 Current account balances at 30 April 2008 Kevin $650 Cr; Adam $1540 Cr; Carl $30 Dr

33000

33000

Question 17: Alex and Brian a) Balances on capital account Alex $104 000; Brian $58 000; Cindy $3 000 b) Income statement and Appropriation account Oct – May June – Sept Gross profit 100 000 50 000 Admin exp – Salary cindy 12 000 Other 26 000 13 000 Depreciation 4 500 2 000 Profit for the year 57 500 35 000 Share of residual profit: Alex 34 500 10 160 Brian 23 000 10 160 Cindy 5080 c) Balances on current account Alex $17 820; Brian $12 480; Cindy $3 200 d) NCA $183 500 (150 000 + 33 500); CA $74 000; CL $59 000 Question 18: Poppy and Rose a) Capital account balances P $182 500; R $127500 b) Total current account balances at end Add Total drawings Less Total (Net) current account balances at start

32 900 (26 350 + 6550) 39500 (9000 + 12000 + 7500 +11 000) 6400 (8500 -2100)

c) Share of residual profit Jan – June July – Dec P 7770 (180) R 7770 (120) d) Corrected current account balances P $26195; R $6705 Question 19: Ong and Tan 1 Dr Bank A\c $200 000, Cr Capital A\c Kaw $200 000 2 Dr Goodwill $180 000, Cr Capital A\c Ong $108 000, Cr Capital A\c Tan $72 000 (record goodwill) Dr Capital A\c Ong $60 000, Dr Capital A\c Tan $60 000, Dr Capital A\c Kaw $60 000, Cr Goodwill A\c $180 000 (cancel goodwill) 3 Dr capital A\c Ong $188 000, Dr Capital A\c an $42 000’ Cr Bank A\c $230 000 b) Jan to June share of residual profit Ong $28 500, Tan $19 000 July to Dec share of residual profit Ong $17 167, Tan $17167, Kaw $17166 Question 20: Bryan and Celina a) Capital at end 60000 Add drawings 40000 (17 000 + 23 000) Less capital at start (50000) (20 000 + 30 000) Profit for the year 50 000 b)

Closing balance on capital account Bryan $50 000; Celina $63 000; Diksha $40 000

c)

Jan to June share of residual profit Bryan $22 500; Celina $22 500 July to Dec share of residual profit Bryan $19 200; Celina $12 800; Diksha $6400

d)

Closing balances on current account Bryan $1950 Cr; Celina $2110 Cr; Diksha $2060 Dr

36

Chapter 14 Company internal use Question 1 Babylon SOCIE – Bal at end: O.Share $1 200 000; S.Premium $190 000; R.Profit $1 554 000 Question 2 Peter Jordan a) Profit for the year $558 860 b) SOCIE – Balance at end: O.Share $1 500 000; P.Share $200 000; S.Premium $150 000; G.Reserve $50 000; R.Profit $567 460. c) Total NBV of NCA $2 396 500; Total C.Assets $341 760; Total C.Liabilities $170 800; Total NCL $100 000 Question 3 IBX a) 1. Dr Bank $90 000, Dr S.Premium $10 000, Cr Debentures $100 000. 2. Dr Prov For dep (property) $120 000, Cr Property $50 000, Cr R.Reserve $70 000. Dr Prov for dep (plant and equipment) $40 000, Dr Income statement $15 000, Cr Plant and Equipment $55 000. 3. Dr Bank $165 000, Cr O.S capital $75 000, Cr S.Premium $90 000. 4. Dr R.Reserve $70 000, Dr S.Premium $80 000, Cr O.S capital $150 000. 5. Dr Ordinary dividend $18 750, Dr Preference dividend $12 000, Cr Bank $30 750. b)

SOCIE – Bal at end; O.Share $525 000; P.Share $150 000; S.Premium $50 000; R.Reserve nil; R.Profit $39 250

Question 4 Worrifree a) Cost of sales $270 000; Gross profit $700 000; Profit for the year $106 000 SOCIE – Bal at end; O.Share $400 000; G.Reserve $10 000; R.Profit $92 000 b) Total NBV of NCA $628 000; Total C.Assets $314 000; Total C.Liabilities $95 000; Total NCL $345 000 Question 5 Don Ltd a) Cost of sales $177 000; Gross profit $217 000; Profit for the year $75 200 SOCIE – Bal at end; O.Share $50 000; P.Share $200 000; G.Reserve $60 000; R.Profit $32 500 b) Total NBV of NCA $306 000; Total C.Assets $126 800; Total C.Liabilities $40 300; Total NCL $50 000 Question 6 Piriton Ltd a) Cost of sales $1 438 000; Gross profit $1 554 000; Profit for the year $525 800 SOCIE – Bal at end; O.Share $400 000; Share premium $80 000; G.Reserve $320 000; R.Profit $265 800 Total NBV of NCA $1 184 000; Total C.Assets $146 800; Total C.Liabilities $265 000; Question 7 Central Retailers Ltd a) Cost of sales $2 635 000; Gross profit $565 000; total expenses $502 000; Profit before interest $ 75 000 Interest $15 000; Profit for the year $60 000 SOCIE – Bal at end: O.Share $275 000; P.Share $100 000; Revaluation Reserve $120 000; G.Reserve $90 000; R.Profit $59 000; Total $644 000 b) NBV of Property $343 000; NBV of P& Equipment $240 000; Total C.Assets $441 000; Total C.Liabilities $230 000; Total NCL $150 000

37

Question 8 Benylin Bal on 1 Jan 2007 Revaluation gain Bonus issue Expenses on B.issue Rights issue Profit for the year O.Dividend paid Transfer to G.Reserve Bal on 31 Dec 2007

O.Share 1 600 000 400 000 250 000 2 250 000

S.Premium 250 000 (200 000) (25 000) 125 000 150 000

R.Reserve 140 000 60 000 (200 000) 0

G.Reserve 40 000 40 000

R.Earnings 240 000 130 000 (125 000) (40 000) 205 000

Chapter 15 Company Publication Question 1 Travic Ltd a) Cost of sales $192 000; Gross profit $153 000; Distribution cost $41 950; Administrative expenses $13 000; Other operating income $5 000; Loss on disposal $2 000; Profit on discontinued operations $7 000; Operating profit $108 050; Investment income $19 000; Finance charge $15 000; Tax $22 000; Profit for the year $90 050 b) SOCIE balance at end: O.Share $525 000; P.share $100 000; S.Premium $5 000; R.Reserve $95 000; G.Reserve $60 000; R.Profit $93 050; Total $878 050 c) Total NBV of NCA $935 050; Total CA $138 000; Total CL $45 000; Total NCL $150 000

38

Question 2 Ashbourne plc a) Cost of sales $4 291 000; Gross profit $2 925 000; Distribution cost $1 485 000; Administrative expenses 000; Operating profit $342 000; Finance cost $160 000; Profit for the year $182 000

$1 098

b) SOCIE balance at end: O.Share $5 000 000; S.Premium $2 500 000; R.Reserve $1 000 000; R.Profit $189 000; Total $8 689 000 Total NBV of NCA $8 122 000; Total CA $2 966 000; Total CL $399 000; Total NCL $2 000 000 Question 3 Hamilton Ltd a) Gross profit $781 000; Operating profit $94 000; Finance cost $12 000; Profit for the year $80 000 SOCIE Balance at end: O.Share capital $300 000; P.Share $100 000; General reserve $10 000; R.Profit Total $460 000

$130 000;

bi) Income gearing 2005 9.23 % and 2006 10 % ii) EPS 2005 $0.14 and 2006 $0.16 iii) P\E ratio 2005 9.64 times and 2006 10 times iv) DPS 2005 $0.0333 and 2006 $0.025 v) Dividend yield 2005 2.47% and 2006 1.56 % vi) Dividend cover 4.15 times and 2006 5 times

Question 4 United Ltd a) Revenue $1 192 000; Cost of sales $450 000; Gross profit $742 000; Distribution cost $284 700; Administrative expenses $248 100; Other operating income $30 200; Profit for the year $109 400 b) SOCIE balance at end: O.Share $600 000; S.Premium $150 000; G.Reserve $219 000; R.Profit $32 400

c) Total NBV of NCA $896 800; Total CA $292 600; Total CL $188 000

Question 5 Kitz Ltd a) Revenue $1 186 000;Cost of sales $358 000; Gross profit $828 000; Distribution cost $292 100 (190 000+ 5000 + 72 500 + 15 600 + 9000); Administrative expenses $223 500 (150 000 – 6800 + 12 000 – 14 000 + 800 + 72 500 + 9000); Other operating income $33 400; Operating profit $345 800; Tax $120 000; Profit for the year $225 800 b) SOCIE balance at end: O.Share $500 000; S.Premium $100 000; G.Reserve $180 000; R.Profit $132 800 c) Total NBV of NCA $840 600; Total CA $245 200; Total CL $173 000 Question 6 Busby Ltd a) Revenue $1 494 700; Cost of sales $298 500; Gross profit $1 196 200; Distribution cost $273 800 (76 000+ 8400+115 000+ 62 000+12400); Administrative expenses $205 400 (84 000 - 10 200 +115 000 + 12 400 + 4200 - 2300 + 2300); Other operating income $16 200; Operating profit $733 200; Tax $148 000; Profit for the year $585 200 b) SOCIE balance at end Ordinary share capital $1 200 000; Share Premium $600 000; Revaluation Reserve $200 000; General Reserve $150 000; Retained Profit $338 200 c) Total NBV of NCA $2 456 200 (2 100 000 + 223 200 + 133 000); Total CA $220 400; Total CL $188 400 Question 7 Poland Ltd a) Revenue $620 000;Cost of sales $430 000; Gross profit $190 000; Distribution cost $55 950 (6000+11200+4000+28000+2000+1750+3000); Administrative expenses $54 650 (40 000 +600+1000+6300+2000+1750+3000);Operating profit $69 400; Investment income $18 000; profit before interest $87 400; Finance charge $9600; Tax $5500;Profit for the year $72 300 b) b) SOCIE balance at end Ordinary share capital $100 000;Non Redeemable Preference share capital $30 000; Share Premium $7 500; Revaluation Reserve $40 000; General Reserve $23 000; Retained Profit $97 300 c) Total NBV of NCA $273 500; Total CA $171 200; Total CL $51 900; Total NCL $95 000 Question 8: LDH Ltd Gross Profit Operating Profit Profit for the year Total NBV of NCA Total C.Assets Total C.Liabilities Total NCL Ordinary share Capital 10% non-redeemable P.share Reserves

$ 16 032 4 368 2 617 12 046 12 031 3 860 9 200 5 000 200 5 817

Question 9 Togo Ltd a) Revenue Cost of Sales Distribution cost Administration cost Non- recurring: Revaluation loss Loss on disposal Operating Profit

3 150 000 1 958 700 439 600 484 100 19 000 55 000 193 600

39

Investment Income Finance cost: Interest on loan Redeemable Preference dividend Profit for the year

15 000 7 200 15 000 186 400

b) sOCIE Balance at end – Ordinary share Preference share Share Premium CRR Retained profit General Reserve c) Total NBV of NCA Total Current Assets Total Current Liabilities Total NCL Net assets

450 000 100 000 412 500 30 000 331 700 60 000

1 057 600 669 000 182 400 160 000 1 384 200

Question 10 Vivic Ltd a) Revenue 12 550 000 Cost of Sales 6 650 000 Distribution cost 3 210 700 (2800 000 + 389 700 + 21 000) Administration cost 2 545 300 (2 260 000 + 259 800 +14 000 + 11 500) Other operating income 590 000 Non- recurring Inpairment 170 000 Profit on disposal 150 000 Loss on discontinued operations 1 980 000 Operating loss 1 266 000 Investment Income 460 000 Finance cost: Interest 60 000 Tax 57 000 Loss for the year 923 000 b) SOCIE Balance at end – Ordinary share Share Premium Revaluation Reserve Retained earnings c) Total NBV of NCA Total Current Assets Total Current Liabilities Total NCL Net assets

800 000 300 000 640 000 (223 000) Losses

1 795 500 (1000 000 + 665 000 + 30 500 + 100 000) 1 348 500 (440 000 + 598 500 +310 000) 1 127 000 (720 000 + 10 000 + 57 000 + 340 000) 500 000 1 517 000

Chapter 16 International Accounting Standards Question 1 O’Really Ltd a) 1 IFRS 3; 2 IAS 36; 3 IAS 2; 4 IAS 16; % IAS 37 b) $301 880 (367 500 – 50 000 – 220 – 15 000 – 400) – depreciation has not been provided on property at all this is because the NBV at 1 May 2006 and at 30 April 2007 is the same – $500 000 c) Property $735 000; Other tangible assets $710 000; Goodwill $130 000; Inventory $59 780;

40

trade receivables $7 600 (8000 – 400); Cash and cash equivalent $14 000; Current liabilities $42 000; O.share capital $750 000; P.Share capital $250 000; S.Premium $62 500; R.Reserve $250 000; Retained Profit $301 880 d) Ordianry share capital $850 000; P.Share capital $50 000; S.Premium $102 500; R.Reserve $250 000; CRR $50 000; Retained profit $241 880. Question 2 Megrand Ltd a) IAS 38; IAS 36; IAS 16; IAS 37; IAS 2. b) $1 190 795 (1 280 000 – 15000 – 73 700 – 480 -25) c) Property, Plant and Equipment $3 635 000 (3 200 000 – 15 000 + 500 000 – 73 700); Inventory $119 975; Trade receivables $15 520; Cash and cash equivalent $28 000; T.payables $84 000; O.Share capital $2 000 000; R.reserve $500 000. Question 3 Cobra Item 1: IAS 2 Inventories Item 2: IAS 38 Intangible assets Item 3: IAS 10 Events after the reporting period (balance sheet date) Item 1: IAS 2 states that inventories should be valued at the lower of cost and net realisable value. The net realisable value would be the selling price of $62 400 less the cost to convert the inventory of $12 500 = $49 900. As the NRV is lower than cost then $2100 ($52 000 – $49 900) would be deducted from inventories in current assets and also deducted from retained earnings. This is an application of prudence Item 2: IAS 38 states that the patent cost of $62 000 represents a purchased intangible asset which is recognised in the financial statements at cost price. It is capitalised in the balance sheet if this cost can be reliably measured and if there are probable future economic benefits. If the patent has a finite life then it can be written down via amortisation . If instead it has an indefinite life then it is not amortised. Item 3: IAS 10 states that if material events exist at the balance sheet date and if the outcome is known before the accounts have been approved then the impact can be adjusted in the financial statements. $35 000 would be deducted from trade receivables in current assets and also deducted from retained earnings Question 4 Wiles Ltd Situation 1: IAS 8 Accounting policies, changes in accounting estimates and errors. A change in the depreciation method would usually be against the concept of consistency and so would not be recommended. However, if the change would lead to more reliable and relevant information, then the change would be appropriate in this circumstance. The previous year’s figures and this year’s figures in the financial statements would need to be restated to assist with comparability. This would affect the depreciation charge both in the income statement and the statement of financial position (balance sheet). Situation 2: IAS 10 Events after the reporting period. The flood happened after the year end date and so would be classified as a non-adjusting event even though the financial statements may not have been approved by the board of directors. No adjustment is therefore made to the financial statements for the year end. However, if the impact of the event is deemed to be material then the event details will be disclosed in the notes to the financial statements. In this case, the event nature and an estimate of the financial impact will be shown

Situation 3: IAS 37 Provisions, contingent liabilities and contingent assets. The restructuring represents a current obligation as a result of a past event. Provided that a reliable estimate can be made of the probable outflow of economic benefits then the change needs to be recognised in the financial statements as a liability , due to the fact that there is more than a 50% likelihood of the event occurring . The cost of

41

the restructuring would therefore be shown as a cost in the income statement and also as a liability in the statement of financial position (balance sheet). Situation 4: IAS 36 Impairment of assets. A fall in the market value of the land and buildings is due to an external indication that impairment has occurred. If the market value, which is the recoverable amount, is less than the carrying amount or net book value then an impairment loss exists. The non-current assets are reduced to this recoverable amount in the statement of financial position (balance sheet) and is also recognised as an expense in the income statement. Chapter 17 Business financing Question 1 Allion Ltd Option 1 Interest payable p.a. 25 000 Option 2 Debenture interest p.a. 56 000 Option 3 Dividends paid p.a 54 000 These figures may be incorporated in the analysis. Option 1 is the cheapest and the loan will be paid off in only 4 years. It will deplete cash by $250 000 each year but can the company afford to pay this; risk of default plus development; evaluation of effect on cash flows ; evaluation of effect on profits . Option 2 is the most expensive from the interest point of view but the interest payable will reduce in real terms over the years. The interest must be paid whether profits are made or not. Capital sum repayable in 2035 but until then no repayments of capital; risk of non payment of interest plus development; evaluation of effect on cash flows evaluation of effect on profits. Option 3 provides permanent capital and although dividends of 2.7 cents per share will be paid, the Directors have the choice not to pay if the profits are insufficient to warrant non payment or they may wish to pay less than the current rate. This option will keep ownership in the hands of current shareholders unless a significant number of existing shareholders sell their rights to the shares. Risk of non payment of dividend plus development; evaluation of effect on cash flows evaluation of effect on profits Chapter 18 Financial analysis Question 1 Candy Ltd a) 1- 66.67 %; 2- 40 %; 3- 13.33% ; 4- 10.14 % ; 5- 12.59 % ; 6- 9.59 % ; 7- 3.83:1 ; 8- 2.85:1 ; 9- 4 % ; 10- 2.33 times ; 11- $0.175 ; 12- 10.29 times ; 13- $0.075 ; 14- 4.17 % ; 15- 26.45 % ; 16- 300 % or 3 times Question 2 Manny Kyoor a) 1- 30 %; 2- 15.16 % using NPBI or 13.1 Using NPAI ; 3- 1.87:1 ; 4- 0.456:1; 5- 5 times or 73 days ; 6- 218.75 % ; 721.4 % ; 8- 43.9 % using NPBI; 9- 22.42 days ; 10- 27.38 days Question 3 Ferdi Nand Purchases $344000; Closing inventory $64000; Cost of sales $360000; Gross profit $120000; Profit for the year $72000 Cost of NCA $400000, Acc dep $160000; Cash and cash equivalent $6000; Trade payables $110000; Capital $242000; Drawings $24000 Question 4 Sania Gearing Earnings per share (EPS) Dividend per share Dividend yield Dividend cover Price/earnings ratio

57.57% $0.15 $0.04 5% 3.75 times 5.33 times

42

Question 5 Lucky and Sad i) Gross profit margin ii) Net profit margin iii) Return on capital employed iv) Current ratio v) Acid test ratio vi) Trade receivables collection period vii) Trade payables payment period viii) Inventory turnover ix) Working capital cycle x) Expense to sales ratio xi) Income Gearing xii) Gearing xiii) Return on Equity

66.67 % 20.515 % 12.07 % 1.9:1 1.4:1 74.606 days 131.08 days 65.518 days 9.044 days 46.15 % 12.59 % 15.19 % 11.28 %

Question 6 M Porter a) Revenue $262800; Purchases $184690; Cost of sales $210240; Gross profit $52560; Fixed Expenses $31536; Variable expenses $7884 Total NBV of NCA $100000; Inventory $22265; Trade receivables $28800; Cash and cash equivalent $1307; Trade payables $8602; Capital $140000. b) Trade payables $15180; Cash and cash equivalent $24330; Capital $156445. Question 7 Wayne i) Dividend per share ii) Dividend yield iii) Dividend cover iv) Earnings per share v) Price/earnings bi) Bayern – higher DPS bii) Topaz Higher P\E ratio

$0.08 per share 5% 2.5 times $0.2 per share 8 times

Question 8 Phoenicia Ltd a) Revenue $381538; Purchases $254000; Cost of sales $248000; Gross profit $133538; Distribution cost $29251; Administrative expenses $58502; NPBI $45785; Interest $18314; Profit for the year $27471 SOCIE – Balance at end O.S capital $125000; R.Profit $14971. b) Ratio for Algebra: 1 – 64.52 %; 2 - $0.52; 3 – 4.807 times; 4 – 2.6 times; 5 - $0.2; 6 – 8 % Ratio for Vectra: 1 – 75.95 %; 2 - $0.9; 3 – 3.611 times; 4 – 9 times; 5 - $0.1; 6 – 3.08 % Question 9 Crust Ltd 2003 1 16.5 % 2 10.9 % 3 14.5 % 4 2.33:1 5 1.51:1 6 3.89 % 7 22.3 % 8 $0.248 9 10.1 times 10 $0.17

2004 13.4 % 11.6 % 12.07 % 2.33:1 1.41:1 7.49 % 36 % $0.266 11.3 times $0.2

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11 12

6.8 % 1.46 times

6.7 % 1.33 times

Question 10 Orchard Ltd Bee a) 1. 197.1 days 2. 73 days 3. 91.25 days 4. 178.85 days 5. 16.19 % 6. 28.57 % 7. 20.24 % 8. 16.19 % 9. 3.5:1 10 1.36:1 11. $0.38 per share

Cee 154.8 days 61.41 days 54.6 days 161.61 days 19.87 % using NPBI – 18.09 using NPAI 28.89 % 38 % 24.55 % 2.59:1 0.9:1 $0.63 per share

Question 11 Lopez Ltd a) Revenue $438 000; Purchases $223 000; Cost of sales $219 000; Expenses $153 300; Profit for the year $65 700 b) Total NBV of NCA $333 599; Trade receivables $33 600; Bank $11 050; Trade payables $19 550; Retained profit $122 699 d)

Dividend yield Dividend cover Dividend per share Earnings per share (EPS) Price earnings ratio

Question 12 Sanaa Malik

4.106 % 4 times $0.03285 $0.1314 6.09 times

Eratum Average payment period is 40 days instead of 0 days

a) Purchases $555 000; Closing Inventory $60 000; Cost of sales $522 000; Gross profit $348 000; Expenses $217 500; NPBI $130 500; Interest $6 000; Profit for the year $124 500 SOCIE – Bal at end: O.share capital $180 000; P.Share capital $50 000; Retained profit $196 233 b) Total NBV of NCA $435 000; Inventory $60 000; T.Receivables $53 630; Bank $38 425; T. Payables $60 822 c) income gearing 4.597 %; Gearing 28.5 % Question 13 Sameer and Ryan Sameer ai) 50 % aii) 25 % aiii) 30 % aiv) 3.6:1 av) 3:1 avi) 30.42 days

Ryan 60 % 40 % 48 % 1:1 0.75:1 73 days

Question 14 Grist Plc a) Operating profit $192 000; Finance charge $12 000; Tax $36 000; Profit for the year $144 000; Preference dividend paid $12 000; Retained profit c\f $110 000 b) Net current assets $422 000; Debenture $200 000; O.Share $300 000; P.share $240 000; S.Premium $150 000; G.Reserve $30 000; R.Profit $110 000.

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c) Dividend cover 2.44 times; P\E ratio 11.36 times; Dividend yield 3.6 %; Gering ratio 42.6 %; ROCE 18.6 % Question 15 Angus Sand a)

Inventory turnover Gross profit to sales Net profit to sales Current ratio Quick ratio Return on equity Return on capital employed Gearing ratio Earnings per share Trade payables payment period Trade receivables collection period Working capital cycle

73 days 30 % 12.5 % 1.22:1 0.3:1 38.46 % 30.375 % 35 % $0.625 36.5 days 22.81 days 59.31 days

Chapter 19 Redemption of Shares and Debentures Question 1 (a) Dr Bank $15000, Cr O.S capital $15000 Dr P.S capital $10000, Cr Bank $10000 Net Assets (except bank) $45 000; Bank $20000; O.S Capital $45000; S.Premium $3000; R.Profit $17000. Question 1 (b) Dr P.S capital $10000, Dr R.Profit $1000; Cr Bank $11000 Dr Retained profit $10000, Cr CRR $10 000 Net Assets (except bank) $45 000; Bank $4000; O.S Capital $30000; CRR $10000; S.Premium $3000; R.Profit $6000. Question 1 (c) Dr Bank $11000, Cr P.S capital $11000 Dr P.S capital $10000, Dr S.Premium $2000, Cr Bank $12000 Net Assets (except bank) $45 000;Bank $14000; O.S Capital $30000; P.S capital $11 000; S.Premium $1000; R.Profit $17000.

Question 1 (d) Dr Bank $11000, Cr P.S capital $11000 Dr P.S capital $10000, Dr S.Premium $1500, Dr R.Profit $2500, Cr Bank $14000 Net Assets (except bank) $45 000; Bank $12000; O.S Capital $30000; P.S capital $11000; S.Premium $1500; R.Profit $14500. Question 1 (e) Dr Bank $5000, Cr O.S capital $5000 Dr P.S capital $10000, Dr S.Premium $3000, Dr R.Profit $1000, Cr Bank $14000 Dr R.Profit $5000, Cr CRR $5000 Net Assets (except bank) $45 000; Bank $6000; O.S Capital $35000;CRR $5000; R.Profit $11000. Question 1 (f) Dr Bank $2500, Cr O.S capital $2500 Dr P.S capital $10000, Dr S.Premium $2500, Dr R.Profit $300, Cr Bank $12800

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Dr R.Profit $7500, Cr CRR $7500 Net Assets (except bank) $45 000; Bank $4700; O.S Capital $32500; S.Premium $500; CRR $7500; R.Profit $9200. Question 1 (g) Dr Bank $14000, Cr O.S capital $10000, Cr S.Premium $4000 Dr P.S capital $10000, Dr S.Premium $1300, Cr Bank $11300 Net Assets (except bank) $45 000; Bank $17700; O.S Capital $40000; S.Premium $5700; R.Profit $17000. Question 2 (a) Dr R.Reserve $75000 S.Premium $8000, Dr R.Profit $17000, Cr O.S capital $100000 Dr P.S capital $40000, Cr Bank $40000 Dr R.Profit $40000, Cr CRR $40000 Net Assets (except bank) $425 000; Bank $35000; O.S Capital $300000; P.S capital $40000; CRR $40000; R.Profit $80000. Question 2 (b) Dr Bank $25000, Cr O.S capital $25000 Dr P.S capital $80000, Cr Bank $80000 Dr R.Profit $55000, Cr CRR $55000 Net Assets (except bank) $425 000; Bank $20000; O.S Capital $225000; R.Reserve $75000; CRR $55000; S.Premium $8000 R.Profit $82000. Question 2 (c) Dr Bank $112500, Cr O.S capital $75000, Cr S.Premium $37500 Dr O.S capital $50000, Dr S.Premium $5000, Dr R.Profit $20 000,Cr Bank $75000 Net Assets (except bank) $425 000; Bank $112500; O.S Capital $225000; P.S capital $80000; R.Reserve $75000; S.Premium $40500 R.Profit $117000. Question 2 (d) Dr R.Reserve $75000 S.Premium $5000, Cr O.S capital $80000 Dr P.S capital $50000, Dr R.Profit $15000, Cr Bank $65000 Dr R.Profit $50000, Cr CRR $50000 Net Assets (except bank) $425 000; Bank $10000; O.S Capital $280000; P.S capital $30000; CRR $50000; S.Premium $3000; R.Profit $72000. Question 2 (e) Dr O.S capital $50000, Dr R.Profit $10000, Cr Bank $60000 Dr R.Profit $50000, Cr CRR $50000 Net Assets (except bank) $425 000; Bank $15000; O.S Capital $150000; P.S capital $80000; R.Reserve $75000; CRR $50000; S.Premium $8000 R.Profit $77000. Question 3 Hitman Ltd NCA $1 420 000; Net current assets $495 000 (760+125-390); Ordinary shares $1 400 000; S.Premium $185 000 (220+25-60); CRR $175 000; R.Profit $155 000 Question 4 Paltex Ltd b) Ordinary shares $700 000; CRR $100 000; R. Profit $103 000 Question 5 Westella Ltd a) Dr Bank $55000, Cr O.S capital $44000, Cr S.Premium $11000 Dr P.s capital $100000, Dr R.Profit $5000, Cr Bank $105000

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b)

Dr R.Profit $45000, Cr CRR $45000 Dr Bank $198000, Dr S.Premium $2000, Debentures $200000 Dr Property $180000, Cr Bank $180000 Assets (except bank) $470 000; Bank $28000; Trade payables $25000; Debentures $200000; O.S capital $194 000; S.Premium $9000; CRR $45000; R.profit $25000

Question 6 Mirates Ltd a) Net Assets $937 500 (960+32-55); O.Share $720 000; S.Premium $27 000 (20 +12 -5); CRR $18 000; R.Profit $172 000 Question 7 Vital Ltd a) Dr debenture $500 000; Dr S.Premium $75 000; Cr Bank $575 000 Dr Retained Profit $500 000; Cr DRR $500 000 b) Non-Current Assets $2 500 000; Net Current assets $925 000; O.Share $1 400 000; P.Share $600 000; S.Premium $405 000; DRR $500 000; R.Profit $520 000 Question 8 Cosmic Ltd a) Dr Bank $120 000, Cr O.share $100 000, Cr S.Premium $20 000 Dr Debenture $250 000, Dr S.Premium $50 000, Cr Bank $300 000 b) NCA $3 200 000; Net current assets $1 620 000; Redeemable P.share $350 000, O.Share $4 000 000; S.Premium nil; R.Profit $470 000 Question 9 Rengaw NCA $142 000; CA $112 000; CL $72 000; O.S capital $110 000; S.Premium $15 000; DRR $4 000; R.Profit $17000 Question 10 Jupiter Ltd NCA $2 900 000; Net current liabilities $200 000 (1100-520-780); Debentures nil; O.Share $1 200 000; P.Share $nil; S.Premium $460 000 (480-20); CRR $600; R.Profit $440 (1220-180-600) Question 11 Venus Ltd Non-Current Assets $ 3 600 000; Net current assets $430 000 (900 – 220 + 270 – 520); Ordinary shares $3 400 000 (3200 + 200); Share premium $300 000 (250 – 20 +70); CRR $130 000; Retained profit $200 000 (450 - 120 – 130) Question 12 Frog Log Ltd Statement of Financial Position at 30 April 2011 $000 Non-current assets Premises (530 – 5) Other non-current assets (2 012– 270 + 20 - 112)

$000

Current assets Current liabilities Convertible loan stock 2011 Trade and other payables (B.Figure)

1 610 100 545

$000 525 1 650 2 175

645 965 3 140

Non-current liabilities Debentures Equity Ordinary shares (1 000 + 50) Share premium (750 + 100) Revaluation reserve Capital redemption reserve

200 2 940 1 050 850 280 100

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General reserve (80 + 50) Retained earnings (615 – 10 - 100 + 170 – 50 – 95) (b)

Share premium Revaluation reserve CRR General reserve Retained earnings

130 530

2 940

capital reserve capital reserve capital reserve revenue reserve revenue reserve

(c) When the market value of the share is higher than the price given in their option to convert In this case when market value is higher than $3 a share Question 13 Hamilton Ltd a) Dr Premises $290 000, Cr Revaluation reserve $290 000 Dr P.Share $100 000, Dr Retained profit $10 000, Cr Bank $110 000 Dr Retained Profit $100 000, Cr CRR $100 000 Dr CRR $100 000, Dr Revaluation reserve $50 000, Cr Ordinary share $150 000 b)

Non-current assets $950 000 (750 + 200); Current Assets $200 000; Current liabilities $105 000 (58 + 28 + 19) Ordinary share $450 000 (300 + 150); Revaluation reserve $240 000 (290 – 50); Retained profit $70 000 (180 – 10 – 100)

Question 14 Beldoy Total NBV of NCA $2 010 000; Total CA $2 391 000; Total CL $245 000; Total NCL $300 000; Ordinary shares $2 000 000; Share premium $930 000; R.Profit $926 000. Chapter 20: Capital reduction Question 1 Failure Ltd a) Dr P.S capital $37500, Cr Cap Reduction $37500 Dr O.S capital $175000, Cr Cap reduction $175000 Dr Cap Reduction $3375, Cr O.S capital $3375 Dr S.Premium $40000, Cr Cap reduction $40000 Dr Prov For dep $62500, Cr Plant and machinery $62500 Dr Cap Reduction $72500, Cr Plant and Machinery $72500 Dr Cap Reduction $7250, Cr Preliminary exp $7250 Dr Cap reduction $55000, Cr Goodwill $55000 Dr Cap reduction $114375, Cr Retained losses $114375 Dr Bank $62500, Cr O.S capital $62500 d) Total NBV of NCA $125000; Total C.A $121875; Total C.L $43500; O.s Capital $90875; P.shares cap $112500 Question 2 Downfall Ltd Eratum replace net Assets by Total Assets less current liabilities Total Assets minus current liabilities $2 000 000; NCL $800 000; O.Share capital $700 000; P.Share capital $500 000 Question 3 Kalamitty Ltd b) Tangible non-current assets $1075000; Net current assets $675000; O.S capital $1750000. Question 4 Joloss Tangible non-current assets $500000; Inventory $22000; Trade receivables $64000; Bank $6000; Current liabilities $42000; O.S capital $550000. Question 5 Decline Ltd NBV of property $100 000; NBV of Plant and Machinery $41 000; Inventory $10 000; Cash and cash equivalent $22 000; Total CA $83 000; Total CL $24 000; O.share capital $150 000; P.Share capital $40 000; S.Premium $10 000.

48

Question 6 Knotsogood a)

Capital reconstruction account - Dr Side: Goodwill $110000, Inventory $4000, T.receivables $21000, Retain losses $410000 Capital reconstruction account - Cr Side: P.S capital $100000, O.S capital $375000, Profit on disposal of land $45000, Profit on sale of investment $25000

b) Total NBV of NCA $320000; Inventory $36000; T.Receivables $35000; Cash and cash equivalents $164000; Trade payables $80000; O.S capital $149000; P.S capital $100000; S.premium $226000. C(i) C(ii)

$0.68 $0.63

Question 7 A.Banana Journal P.Share capital Capital reduction O.Share capital Capital reduction Capital Reduction O.Share capital 10 % Debentures Capital Reduction Capital Reduction 8 % Debenture O.Share capital Capital reduction Goodwill Patent Capital Reduction Inventory T.Receivables Bank Director’s loan O.Share capital

Dr 500 000

500 000 6 000 000 6 000 000 120 000 120 000 1 000 000 1 000 000 1 000 000 800 000 200 000

49

2 200 000 1 500 000 700 000 150 000 50 000 100 000 150 000 100 000 250 000

Capital reduction Bank Capital Reduction Retained earnings b)

Cr

25 000 25 000 1 200 000 1 200 000

NCA $6 500 000 (3 600 000 + 2 900 000); CA $2 650 000 (1 050 000 + 1 600 000); CL $1 475 000 (1 100 000 + 375 000); NCL $800 000; O Share cap $2 570 000; P.Share cap $1 500 000 Capital reserve $2 805 000

Question 8 Rising Tide a) O.share capital O.Share capital Goodwill P& Machinery M.Vehicle Inventory

5 000 2 000 46 000 20 000 5 000 7 000

Capital Reduction A\c O.Share capital 8 % P.S capital Property

80 000 20 000 10 000

Retained earnings Bal c\d (capital reserve)

15 000 10 000 110 000

110 000

b)

NCA $109 000 (39 000 + 40 000 + 30 000); CA $90 000 (31 000 + 12 000 + 47 000); CL $8 000; NCL $20 000 O.Share capital $127 000 (160 000 – 80 000 + 40 000 + 5000 + 2000); S.Premium $4 000; P.share capital $30 000; Capital reserve $10 000 c) Statement showing anticipated annual return Existing Existing Existing O.Shareholders P.Shareholders Loan stock holders Interest on loan stock 0.07 x 20 000 1400 Preference dividend 0.1 x 30 000 3000 Ordinary dividend payable to: Loan holders 4 000 x $0.15 600 P.Shareholders 10 000 x $0.15 1500 O. Shareholders 240 000 x $.015 36 000 Total return 36 000 4500 2000 Profits remaining after interest and P.dividend = 42 500 – 1400 – 3000 = 38 100 Number of ordinary shares at end = $127 000 ÷ .05 = 254 000 DPS = 38 100 ÷ 254 000 = $0.15 Question 9 Milwall Eratum the figure for retained profit should be in the Dr column Journal Dr Cr O.Share s 90 000 Capital reduction 90 000 Capital reduction 7 500 O.Shares of $0.5 each 7 500 P.Share 150 000 Capital reduction 150 000 Capital reduction 75 000 O.Shares (50 000 x $0.5) 25 000 8 % Debentures 50 000 11 % Debentures 100 000 8 % debentures 100 000 Capital reduction 12 500 O.share (25 000 x $0.5) 12 500 Capital reduction 38 850 Retained earnings 38 850 S.Premium 25 000 Capital reduction 25 000 Capital reduction 50 000 Goodwill 50 000 Capital reduction 81 150 Plant and machinery (balancing figure) 81 150 Bank 30 000 O.share 30 000 Total NCA $199 350 (95 000 + 104 350); CA $89 150 (25 000 + 50 000 + 14150 ); CL $63 500; NCL $150 000 (100 000 + 50 000); O.Shares $75 000 (7500 + 25 000 + 12 500 + 30 000) Chapter 21: Business purchase Question 1 Argy and Bargy a) Profit on realisation Argy $10000; Bargy $5000 Capital account – Business to pay Argy $11000 (loan transferred to capital a\c) and Bargy $3000

50

b) Total NBV of NCA $63000; Total CA $58000; Total CL $17000; Total NCL $5000; O.S capital $80000; S.Premium $15000 Retained profit $4000. Question 2 Drakar Ltd a) Profit on realisation Aamer $22800, Bjorn $15200 Capital account – Business to pay Aamer $10800 and Bjorn $7200 b) Total NBV of NCA $917000; Total CA $330000; Total CL $43000; Total NCL $140000; O.S capital $650000; S.Premium $190000 Retained profit $224000. Question 3 Suck and Blow a) Profit on Realisation Suck $85 800; Blow $57 200 Capital account – Business to pay Suck $36 800 and Blow $51200 b) Total NBV of NCA $1483000; Total CA $318000; Total CL $185000; Total NCL $75000; O.S capital $1200000; S.Premium $65000; General reserve $200000; Retained profit $76000. Question 4 Wong, Gruber and Gupta a) Profit on realisation $32500, capital account – business to pay Wong $17500 b) Profit on Realisation Gruber $7 950; Gupta $7 950 ; Capital account – Business to pay Gupta $9 450 and Gruber to pay business $8 550. c) Total NBV of NCA $152 000 (including positive goodwill of $2000 on acquisition of Wong’s business); Total CA $19 500; Total NCL $75000; O.S capital $72 000; S.Premium $24 000; Retained profit $500 (resulting from negative goodwill on acquisition of partnership). Question 5 Kasio Ltd a) Purchase price $570 000; Negative goodwill $10 000; Total NBV of NCA $2 785 000; Total CA $1 167 500; Total CL $545 000; O.S capital $1950 000; S.Premium $97 500; DRR $ 450 000; Retained profit $760 000. c) NPBI $142 500; Profit $127 500 Question 6 Shawn and Phillips a) Share of Profit on realisation Shawn $16 800; Phillips $11 200 b) To close capital a\c Business has to pay Shawn $23 800 and Phillip $11 200 c) NCA $295 000 (168 +66 +8 +25 +28); CA $70 000 (24 500 + 12 500 + 33000); CL $28 000; O.Share $250 000; S.Premium $25 000; Retained profit $47 000 Question 7 Gate, Fence and Way a) Share of residual profit Gate $17 390; Fence $10 434; Way $6956 Balance on current account at 30 April 2004 : Gate $11 740 Cr; Fence $511 Dr; Way $4929 Dr b) Share of Profit on realisation Gate $5 000; Fence $3 000; Way $2 000. To close capital account business has to pay Gate $15 490; Fence has to pay business $5 761; Way has to pay business $8 429 c) Goodwill $10 600 positive NCA $55 600 (30 000 + 10 000 + 5 000 + 10 600); CA $41 500 (32 000 +9 500); CL $7 100; O.Share $20 000; P.share $37 500; S.Premium $32 500 Question 8 Paul and Vicky (Eratum – agreed value of computer should be $12 000 instead of $2 000) a) Purchases price $170 000 (fair value of net assets + goodwill) b) Share of profit on realisation Paul $4050; Vicky $2700 To close capital account Paul has to pay Vicky $3400 c) Total NCA $155 000 (70 + 40 + 6 + 7 + 12 + 20); Total CA $22 000 (9 + 10 + 3); Total CL $7 000; Ordinary share $100 000; Share Premium $70 000 Question 9 Prescott, Rohini and Singh

51

a) Goodwill $26 950; Total NCA $406 675; Total CA $73 700; Total CL $24 080; Total NCL (debentures) $37 500; O.Share $300 000; S.Premium $70 000; Retained profit $48 795.

b) Turnover Cost of sales Gross profit Expenses Operating profit Interest payable Profit before taxation Taxation Profit after taxation Dividend paid Retained profit for yr. (c)

$ 617 194 344 859 272 335 137 599 134 736 3 000 131 736 33 500 98 236 15 000 (10 000 ÷ 200 000 x 300 000) 83 236

E.p.s. 2011 = 28 217 / 200 000 = $0.141 E.p.s. 2012 = 98 236 / 300 000 = $0.327

Question 10 Brian Mills and Beryl Smart a) Goodwill $4200; Total NCA $357 700; Total CA $104 255; Total CL $32 625; Total NCL(Debentures) $18 000; O.Share $210 000; Non Redeemable P.S $15 000; S.Premium $87 000; R.Profit $99 330 b)

ROCE 2012 =324 330 ÷ ÷82 350 × 100% = 25.39% ROCE 2013 = 429 330 116 000 × 100% = 27.02% Chapter 22: Merger

Question 1 Jack and Kevin ai) Capital balance Jack $48 000; Kevin $60 000 aii) Capital balance Jack $39 900; Kevin $51 900 bi) Total NBV of NCA $73 200; Total CA $46 200; Total CL $11 400 bii) Total NBV of NCA $57 000; Total CA $46 200; Total CL $11 400 Question 2 Chan and David c) Capital balance Chan$30 000; David $5 000 d) Total Non-current assets $33 000; Total CA $21 000; Total CL $19 000 e) Share of losses: Chan $2 000; David $1 000 Question 3 Aneeqa and Emilita a) Total NBV of NCA $177 400; Total CA $53 150; Total CL $24 800; Capital Aneeqa $67 000; Emilita $138 750 b) Aneeqa gained $6470; Emilita lost $1470 c) Current ratio Aneeqa 3.73:1 ; Emilita 1.04:1 ; Partnership 2.14:1 Quick ratio Aneeqa 2.37:1 ; Emilita 0.79:1 ; Partnership 1.34:1 Emilita has benefitted in terms of job security d) For her income to remain unchanged Emilita should received $1470 additional as share of profit, partnership profit for the year should therefore increase by $2450 to arrive at $ 57 450. Hence % change is 14.9 % Question 4 Hugh Bean and David Keen a) Profit for the year $28 600 (42 000 + 800 – 2000 – 12 000 -480); Interest on drawing Hugh $1275 and David $1800 ; Interest on capital Hugh $2960 and David $240; Salary Hugh $8 000 and David $14 000; Share of profits Hugh $2478 and David $3717 b) Capital balance Hugh $29 600 and David $4400; Current account balance Hugh $2863 and David $4637 Question 5 Pandit and Rowe

52

a) Balance capital account Pandit $29 700 and Rowe $29 900 b) Share of Profit Pandit $20 535 and Rowe $6845 c) Balance current account Pandit $4420 and Rowe $7880 Chapter 23: Statement of Cash Flows Question 1 Sabrina Plc

Operating Profit Depreciation Profit on Disposal of non-current assets Increase in inventories Increase in trade receivables Increase in trade payables Cash from operations Interest paid Tax paid Cash flow from Operating activities

$000 686 786 (15) (214) (278) 60 1 025 (225) (94) 706

Net cash from operating activities Cash flows from investing activities Cash flows from financing activities Net Decrease in cash and cash equivalents

$000 706 (3409) 2 390 (313)

Question :2 Mittal Ltd Depreciation Revaluation gain Bonus issue Profit on disposal Profit from Operations Interest paid Income taxes paid Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Decrease in Cash and cash equivalent

53 36 998 25 000 17 000 1 883 32 000 2 450 4 750 61 469 (99 949) [39 542 – 139 491] 27 025 [23 400 + 60 000 – 50 000 – 6 375] 11 455

Question 3 Powerpoint Ltd Operating Profit Profit on Sales Property Impairment Depreciation: property Machinery Interest Paid Tax paid Net cash flow from Operating Activities Cash flow from Investing Activities Cash flow from Financing Activities Net Increase in cash and cash Equivalent

1 046 000 50 000 24 000 12 000 99 000 30 000 363 000 520 000 48 000 (183 000) 385 000

Cash Margin Cash liquidity ratio Cash Interest cover Cash dividend cover Gearing ratio Earnings per share

=20.8% =41.04% =1 733.33% =162.75% =27.5% =$0.79 per share

Question 4 Popper’s Plc Operating Profit Depreciation Loss on Disposal Interest Paid Tax Paid Net cash flow from operating activities Cash flow from Investing activities Cash flow from Financing activities Net Increase in cash and cash equivalent Question 5: Superprofit Ltd a) Cost of sales Gross Profit Operating profit Profit for the year

5 349 000 1 400 000 5 000 15 000 2 248 000 4 577 000 (2 905 000) (1 034 000) 638 000

427 500 447 500 215 500 108 000

b) Net Cash Flow from operation Net Cash Flow from investing Net Cash Flow from Financing Decrease in cash and cash equivalent

101 000 (230 000) 85 000 44 000

c) Balance at end – Ordinary Share - Preference Share - Retained Profit

280 000 100 000 283 000

Question 6 Boger Plc Operating Profit Depreciation: Plant and Machinery M.Vehicles Equipment Loss on disposal: P.& Machinery Equipment Profit on disposal M.Vehicle Interest Paid Tax Paid Net Cash flow from Operating activities Cash flow from Investing activities Cash flow from Financing activities Decrease in cash and cash Equivalent

484 000 135 000 85 000 7 000 3 000 2 000 13 000 10 000 78 000 589 000 (620 000) 10 000 (21 000)

54

Question 7 Prophile Plc Non-Current Assets Premises Plant and Machinery

Cost 1 000 000 1 380 000

Total Current Assets Total Current Liabilities Debentures Nets Assets Equity Ordinary Share at $1 (850+150) Share premium Revaluation Reserve General Reserve Retained Profit

Acc. Depn _ (580 000)

NBV 1 000 000 800 000 335 000 97 000 200 000 1 838 000 1 000 000 200 000 240 000 160 000 238 000

Question 8 Candy ltd Non-current assets $72 000; Inventory $82 000; Trade receivables $147 000; Cash and cash equivalent $191 000; Trade payables $105 000; Other payables (tax) $10 000; Debentures $25 000; O.Share capital $140 000; P. Share capital $100 000; S.Premium $36 000; General reserve $65 000; Retained profit $11 000 Question 9 Squid Ltd Property (NBV) Plant and Equipment (NBV) Current assets Inventory Trade receivables Other receivables Cash and cash equivalent Current liabilities Trade payables Redeemable P.Share Interest owing Tax owing Debentures Net Assets Equity Ordinary Share Share Premium General Reserve Retained Profit

450 000 295 000

55

85 000 80 000 34 000 192 000 96 000 300 000 10 000 25 000 100 000 605 000 300 000 100 000 30 000 175 000

Question 10 Pie Ltd Property Plant and Machinery Motor Van Goodwill

Cost 400 000 360 000 108 000 30 000

Total Current Assets

339 000

Acc. Depn (160 000) (200 000) (60 000) -

NBV 240 000 160 000 48 000 30 000

Total Current Liabilities Debentures Net Assets Equity Ordinary Share Preference Share Share Premium General Reserve Retained profit

Question 11 Hillman Worraker Depreciation: Plant and Machinery M.Vehicles Building Loss on disposal of vehicles Profit on disposal building Interest Paid Tax Paid Net Cash flow from Operating activities Cash flow from Investing activities Cash flow from Financing activities Increase in cash and cash Equivalent

122 000 120 000 575 000 250 000 100 000 70 000 80 000 75 000

110 000 208 000 23 000 5 000 101 000 28 000 50 000 178 000 (468 000) 528 000 (-100 000 +660 000 – 32 000) (238 000)

Question 12 Costello Plc 56 Operating Profit Depreciation: Buildings Plant and Machinery Vehicle Profit on Disposal(Vehicle) Loss on disposal(Plant and Machinery) Interest paid Tax paid Cash flow from Operating activities Net cash flow from Investing activities Net cash flow from Financing Activities Net decrease in cash and cash equivalent

Question 13 Konair Plc Operating Profit Depreciation: Freehold Property Vehicles Plant and Machinery Profit on Disposal Interest Paid Tax Paid Net cash flow from Operating Activities Cash flow from Investing Activities

393 000 470 000 50 000 400 000 7 000 26 000 30 000 306 000 1 625 (3 647 000) 135 500 667 000

392 000 25 000 230 000 50 000 4 000 81 000 220 000 230 000 (442 000)

Cash flow from financing activities Net decrease in cash and cash equivalent

127 000 (85 000) Chapter 24: Overhead Costing

Question 1 Ken Ltd a) OAR 40 % of direct labour costs; Total cost $17 160; Selling price $21 450 b) OAR: Assembly $1.2 per direct labour hour, Painting 45 % of direct labour cost; Packing $9.375 per machine hour. c) $20 160 Question 2 Beldoy Ltd a) Total budgeted overheads: Moulding $69 197; Assembly $78 983; Paintshop $45 820 b) Budgeted labour hours: Moulding 25 200; Assembly 33 600; Paintshop 16 800 OAR: Moulding $2.75 per labour hour; Assembly $2.35 per labour hour; Paintshop $2.73 per labour hour c) $14.395 (6.1875+4.1125+4.095) Question 3 Darnick Holdalls Ltd a) Total budgeted overheads: Cutting $186 200; Stitching $228 600 Total direct wages for Cutting $420 000; Total machine hours for Stitching 88 000 OAR: Cutting 44.33% of direct wages; Stitching $2.598 per machine hour b) $77.38 Question 4 Poisson Ltd ai) $0.1576 per machine hour aii) 132.2 % of direct labour cost aiii) $0.1329 per direct labour hour 57 Question 5 Mandar Ltd ai) Labour rate: Cutting $6.6; Pressing $6.25; Production $6.75; Assembly $6 aii) OAR: Cutting $4.8; Pressing $6.1; Production $4.9; Assembly $5.3 b) $264 000 c) $330 000 Question 6 Tepco a) X 8000 units; Y 19 000 units b) Dept A $104 000 (28000+ 76000); Dept B $146 000 (32000+114000); Dept C $81 000 (24000+57000) c) Ding $84 000 (28000+32000+24000); Dong $247 000 (76000+114000+57000) d) Contribution Ding $96 000; Dong $380 000 Profit Ding $12 000; Dong $133 000 e) 52 000 hours (Ding 14 000 hrs + Dong 38 000 hrs) Question 7 Debbie , Harry and Co a) Total overheads: Cutting $132 670; Assembly $122 112; Painting $92 218 b i) 66.335 % of direct materials bii)119.717% of direct wages biii) $6.147 per machine hour ci) Factory wide OAR $5.338 per labour hour; Overheads charged to the job $69.394 cii) $64.09 (21.227 + 24.422 + 18.441) Question 8 Weighton ai) $5 per machine hour

aii) 35 % of direct wages b) $117 Question 9 Horden Products Ltd a)Total overheads A $210 000; B $175 000; C $150 000 OAR - Dept A 150 % of direct wages; Dept B 87.5 % of direct wages; Dept C 120 % of direct wages b) $1430 ci) OAR - Dept A $8.4 per labour hour; Dept B $3.5 per labour hour; Dept C $2.5 per labour hour cii) OAR - Dept A $2.1 per machine hour; Dept B $4.375 per machine hour; Dept C $15 per machine hour Question 10 Armstead a) 150 % of direct wages b) Production overhead $2175 (150 % x 1450); total production cost $5550; Selling price $7770 c) Cost centre A $12.5 per machine hour Cost centre B $12 per labour hour Cost centre C $10.5 per labour hour Cost centre D $94.1 % of direct wages d) Production overhead $3110.84 (12.5 x 100 + 12 x 110 +10.5 x 30 + 94.1 % x 240); total production cost $6485.84; Selling price $9080.18 Chapter 25 Marginal and Absorption costing Question 1 Korsair Ltd 2008 8150 $603 100

2009 6700 $495 800

b) Total variable cost c) OAR $12 per unit d) Overhead absorbed e) Overabsorption\underabsorption

$320 000

$280 000

$96 000 $6000 over

$84 000 $6000 under

fi) Value of inventory MC basis: Opening Closing fi) Value of inventory AC basis: Opening Closing gi) MC basis: Contribution Profit gi) AC basis: Cost of sales Profit

$18 000 $12 000 $23 400 $15 600 $260 800 $165 800 $423 800 $164 000

$12 000 $24 000 $15 600 $31 200 $214 400 $119 400 $348 400 $123 000

a) Units sold Revenue

58

Question 2 CBA Ltd a) 1600 units b) Total variable costs $195 500; Contribution $102 000; Profit $67 000 c) Cost of sales $204 000; Gross profit $93 500; Overabsorption $1500; profit $70 000 Question 3 Niltox a) 8900 units b) Total variable costs $60 520; Contribution $72 980; Profit $38 980 c) Cost of sales $56 070; Gross profit $77 430; Underabsorption $2250; profit $40480

Question 4 Central Ltd a) OAR $0.3 per unit; Overabsorption $9000 b) Total variable costs $390 000; Contribution $260 000; Profit $200 000 c) Cost of sales $377 000; Gross profit $273 000; profit $206 000 Question 5 Vishy a) Total variable cost $12 090; Contribution $5850; Profit $3150 b) Cost of sales $12382.5; Gross profit $557.5; Profit $3262.5 Question 6 Rander Ltd a) Revenue Opening inventory DM DL VO Closing inventory Contribution Profit or loss Units of closing inventory Period 1: Units of closing inventory Period 2:

Period 1 147 000 58 500 66 000 44 000 103 800 82 300 27 700 loss

Period 2 246 750 103 800 43 500 49 200 32 800 112 800 130 250 48 250 profit

Pooh = 2500 – 300 = 2200 Barbie = 1750 – 1600 = 150 Pooh = 2200 + 1900 – 1700 = 2400 Barbie = 150 + 1250 – 1250 = 150 59

b) Revenue Opening inventory DM DL VO F.Overhead absorbed Closing inventory Profit

Period 1 147 000 58 500 66 000 44 000 110 000 172 800 41 300

Period 2 246 750 172800 43 500 49 200 32 800 82 000 187 800 54 250

DL hours per unit

Pooh = $18 ÷ $6 = 3 hrs Barbie = $12 ÷ $6 = 2 hrs Budgeted hours = 2400 x 3 hrs + 1400 x 2 hrs = 10 000 hrs OAR = $100 000 ÷ 10 000 hrs = $10 per hour OAR per unit Pooh = $10 x 3 hrs = $30 Barbie = $10 x 2 hrs = $20 Overhead absorbed

P1= 2500 x $30 + 1750 x $20 = $110 000 P2 = 1900 x $30 + 1250 x $20 = $82 000 Since overhead absorbed is equal to actual overheads in both periods there is neither over nor under absorption Closing inventory P1 = 2200 x (45 + 30) + 150 x (32 + 20) = 172 800 P2 = 2400 x (45 + 30) + 150 x (32 + 20) = 187 800

Question 7 Nafferton Ltd a) Marginal costing :Total variable cost for 2002 $3 150 000 and 2003 $2 250 000; Contribution for 2002 $1 050 000 and 2003 $750 000; Profit for the year for 2002 $867 000 and 2003 $ 567 000 Absorption costing: Cost of sales for 2002 $3 066 000 and 2003 $2 190 000; Fixed production overhead absorbed for 2002 $ $114 000 and 2003 $96 000; Over-absorption of $6 000 for 2002 and under-absorption of $12 000 for 2003; Profit for the year 2002 $855 000 and 2003 $573 000 Question 8 Titanic Ltd Gross Profit Under AC 2011 $180 000; 2012 $183 800 Gross Profit Under MC 2011 $173 000; 2012 $175 600 Question 9 Goodwryte a) Unit contribution

N = 100 – 62 – 16 – 16 = 6 K = 250 – 110 – 29 – 32 = 79 E = 500 – 210 – 53 -58 = 179

Total fixed costs

N = 6000 x 17 = 102 000 K = 2000 x 40 = 80 000 E = 300 x 60 = 18 000 200 000 Profit = 247 700 – 200 000 = 47 700 c)

Calculation of unit sold in 2006 N = 6000 - 380 K = 2000 - 55 E = 300 - 22 P = 4000 – 940

= = = =

5 620 1 945 278 3060

Revenue

N = 5 620 x 100 = 562 000 K = 1 945 x 250 = 486 250 E = 278 x 500 = 139 000 P = 3060 x 20 = 61 200 1 248 450

Direct materials

N = 6000 x 62 K = 2000 x 110 E = 300 x 220 P = 4000 x 10

= 372 000 = 220 000 = 63 000 = 40 000 695 000

Direct Labour

N = 6000 x 16 K = 2000 x 29 E = 300 x 53 P = 4000 x 3

= 96 000 = 58 000 = 15 900 = 12 000 181 900

Variable overheads

N = 6000 x 16

= 96 000

Contribution

N = 6000 x 6 = 36 000 K = 2000 x 79 = 15 800 E = 300 x 179 = 53 700 247 700 60

K = 2000 x 32 E = 300 x 58 P = 4000 x 2

= 64 000 = 17 400 = 8 000 185 400

Total variable production costs per unit

Closing inventory

N = 62 + 16 + 16 = 94 K = 110 + 29 + 32 = 171 E = 210 + 53 +58 = 321 P = 10 + 3 + 2 = 15

N = 380 x 94 = 35 720 K = 55 x 171 = 9 405 E = 22 x 321 = 7 062 P = 940 x 15 = 14 100 62 287 Statement of profit using Marginal costing $

Revenue Less variable costs M.Material D.Labour Variable overheads Less cosing inventory Total variable costs Contribution Less fixed costs (102 % x 200 000) Profit

$ 1 248 450

695 000 181 900 185 400 (66 287) (996 013) 252 437 204 000 48 437

d) Statement of profit using Absorption costing $ Revenue Less cost of sales M.Material D.Labour Variable overheads Fixed production overheads absorbed Less cosing inventory Profit

695 000 181 900 185 400 204 000 (77 207)

Increase in F.cost 204 000 – 200 000 = 4000 ( allocated to pennine) OAR per unit pennine = $4000 /4000 units = $1 per unit Total variable production costs per unit N = 62 + 16 + 16+ 17 = 111 K = 110 + 29 + 32+ 40 = 211 E = 210 + 53 +58 + 60 = 381 P = 10 + 3 + 2 + 1= 16 Closing inventory Absorption costing

N = 380 x 111 = 42 180 K = 55 x 211 = 11 605 E = 22 x 381 = 8382

$ 1 248 450

1 189 093 59 357

61

P = 940 x 16 = 15 040 77 207

Question 10 Redwood ai) Revenue Less V.Cost Opening inventory Variable production cost Less closing inventory Total variable cost Contribution Less fixed cost Gross Profit

2008 480 000

2009 572 000

2010 736 000

405 000 (81 000) 324 000 156 000 (60 000) 96 000

81 000 360 000 (60 000) 381 000 191 000 (66 000) 125 000

60 000 512 000 (64 000) 508 000 228 000 (70 000) 158 000

Calculation of inventory in units Opening inventory in units Add units produced Less units sold Closing inventory in units Variable production cost per unit

2008 2009 3000 15000 12000 12000 13000 3000 2000 2008 = 15 + 8 + 4 = 27 2009 = 15 + 9 +6 = 30 2010 = 16 + 9 + 7 = 32 Closing Inventory under marginal costing 2008 = 3000 x 27 = 81 000 2009 = 2000 x 30 = 60 000 2010 = 2000 x 32 = 64000

2010 2000 16000 16000 2000

aii) Revenue Less V.Cost Opening inventory Variable production cost Fixed production costs Less closing inventory Cost of sales Gross Profit Fixed cost per unit

62

2008 480 000

2009 572 000

2010 736 000

405 000 60 000 (93 000) 372 000 108 000

93 000 360 000 66 000 (71 000) 448 000 124 000

71 000 512 000 70 000 (72 250) 580 250 155 750

2008 = $60 000 ÷ 15 000 = $4 2009 = $66 000 ÷ 12 000 = $5.5 2010 = $70 000 ÷ 16 000 = $4.375

Closing Inventory under Absorption costing

2008 = 3000 x (27 + 4) = 93 000 2009 = 2000 x (30 + 5.5) = 71 000 2010 = 2000 x (32 + 4.375) = 72 750

Reconciliation of profit 2008 108 000 (12 000) 96 000

Profit as per AC Add difference in opening inventory Less difference in closing inventory Profit as per MC

2009 124 000 12 000 (11 000) 125 000

2010 155 750 11 000 (8750) 158 000

Question 11 Hilton ai) Total Variable costs; Sept $21 600; Oct $41 400 Contribution; Sept $38 400; Oct $73 600 Profit Sept $24 000; Oct $59 200 aii) Fixed overhead absorbed Sept $12 000; Oct $16 000; Cost of sales Sept $28 800; Oct $55 200; Profit Sept $26 400; Oct $56 800 Chapter 26 Cost Volume profit analysis Question 1 Katerina b) 35 % c) BEP in value $257142.86 d) $542 857.14 e) Profit $41 250 f) $538 333 – 538 485 acceptable range 63 Question 2 Hoi Poloi b) Selling price four drawer $27; three drawer $21; two drawer $15 c) BEP in units four drawer 14 000; three drawer 8 000; two drawer 27 000 BEP in dollars four drawer $378 000; three drawer $168 000; two drawer $405 000 d) four drawer $7 000 profit; three drawer $12000 loss; two drawer $15 000 profit e) four drawer $5 500 profit; three drawer $11 400 loss; two drawer $21 000 profit; Total profit $15 100 Question 3 Paul 3 (a) (i) (400 hours × 6) × 80% = 1,920 cars (ii) $(1.00 + 0.50 + 0.05 + 1.25) = $2.80 × 1,920 cars = $5 376 (iii) (Variable costs 5376 + Fixed costs 3840) = $9 216 (iv) $9216 / 1920 cars = $4.80 per car (v) Price per car = $(4.80 + 25%) $6.00 (vi) (6 × 1920) = 11 520 – 9216 $2 304 (b)

(i) SP – VC = $(6.00 – 2.80) = $3.20 per car wash (ii) BEP = $3840 / $3.20 = 1200 cars (iii) In dollars = (1920 – 1200) = 720 cars × $6 = $4320 (iv) In cars = 1440 cars less 1200 cars = 240 × $6 = $1440 (v) $(3.20 / 6.00) × 100 = 53.33%

(c)

(i) BEP = FC/c = $3240 / 2.40 = 1350 cars BEP in dollars = 1350 cars × $6 = $8100 (ii) $792

Question 4 a) $5

b) $2; 40 % c) 60 % d) $10 000 e) 3333.3 units; $16 666.67 f) $83 333.3 ; 16 666.67 units g) 24 000 units; $120 000 Question 5 a) 1/3 b) 2/3 c) $25 000 d) $75 000/ 9375 units e) $270 000 Question 6 Varihary a) Sintax 9000 units ;Gremmer 2000 units b) SIntax 40 %; Gremmer 20 % c)C\s ratio Company 35 % d) BEP in value $28571.43; Profit $32 000; Loss $3000 e) Sintax 9600 units ;Gremmer 2400 units f) C\s ratio Company 34. 5% Question 7 Hiper ltd a) A – Break-even point; B – Total revenue line; C – Total cost line; D – Fixed cost line b) 333.33 units; $2500 c) 266.67 units; $2000 d) $1200 Question 8 Larry a) 1 – Profit range; 2 – Loss range; 3 – Sales revenue; 4 – BEP in dollars b) BEP in units 95.24; BEP in value $2857 c) 204.76 units; $6142.8 d) $6100 Question 9 Beplay ai) aii) aii)

BEP 1500 units ; $240 000 Margin of safety 6500 units; $1 040 000 Profit $494 000

b) Profit from option 1 $494 400; option 2 $539 600; option 3 $518 000 c) Sales in units under option 1 to maintain profit at draft forecast: 8475 units (80x – 114 000 – 70 000 = 494 000) X = 8475 Local employer may face redundancies; multiplier impact on other employers in the community. Industrial relations; switching to an overseas supplier may lead to local unrest and protests, leading to adverse publicity. Reliability of new supplier, will deliveries be on time? How will urgent requirements be dealt with? Transport and communication issues. Price stability; has the overseas supplier offered a lower price to get the business? How long will this price be fixed? Quality issues, difficulties and time in resolving problems compared to ability to quickly visit local supplier. Question 10 Caspian ai) BEP 18 000 units and $720 000

64

aii) profit $51 750 aiii) Margin of safety 4 500 units ; 20 % aiv) 20 000 units Question 11 BLT a) DM per unit = 21 000 ÷ 6000 = $3.5 DL per unit = 3 x $12 = $36 V.P expense per unit = 21 000 ÷ 6000 = $3.5 TVC per unit = 43 Unit contribution = 87 – 43 = 44 BEP = 108 000 ÷ 44 = 2455 Margin of safety in value = (6000 – 2455) x $87 = 308 415 Profit for the year = (6000 x 44) – 108 000 = 156 000 b)

100 % capacity = 6000 ÷75 % = 8000 units Revised DM per unit = 0.9 x 3.5 = 3.15 Decrease in DM per unit = 0.35 Decrease in S.Price = 87 - 80 = 7 Revised unit contribution = 44 +0.35 – 7 = 37.35 New BEP = 108 000 ÷37.35 = 2892 Margin of safety = (8000 – 2892) x 80 = $408 640 Profit = (8000 x 37.35) – 108 000 = 190 800

c)

Revenue (6000 x 87 + 4000 x 72) Less V.C DM (10 000 x 3.5) x 85 % DL (8000 x 36) + (2000 x 3 x 18) V.P.expenses (10 000 x 3.5) Contribution Less F.cost (108 000 + 20 000 ) Profit

810 000 29750 396 000 35 000

65

460 750 349 250 128 000 221 250

Question 12 Debussy ai) 120 000 units; $720 000 aii) $80 000 aiii) 80 000 units; 40 %

c) Selling Price per unit

D946 6

D947 9

D948 13

Total

Less Variable Costs per unit 5 10.50 10 Equals Contribution per unit 1 (1.5) 3 × Number of Units 200 000 50 000 30 000 Equals Total Contribution 200 000 (75 000) 90 000 215 000 Less Fixed Costs 240 000 Equals Profit / Loss (25 000) d) All three products should not be produced. D947 should be eliminated as it has a negative contribution . Question 13 Ozwide a) Factory BEP in units BEP in value Brisban 2750 110 000 Melbourne 3643 145 720 Perth 2333 93320 Sydney 3000 120 000 b) Units to be produced in each factory = 3600 (14 400 ÷ 4) B M Unit contribution $8 $7 Sales in units 3600 3600 Total contribution 28800 25200 Less fixed costs 22000 25500 Profit \(loss) 6800 (300)

P $9 3600 32400 21000 11400

S $10 3600 36000 30000 6000

Company profit = 6 800 – 300 + 11400 + 6000 = 23 900 c) Unit contribution Sales in units Total contribution

B $8 4800 38400

P $9 4800 43200

S $10 4800 48000

Company profit = 38400 + 43 200 +48 000 – 22 000 – 5 000 – 21 000 – 30 000 = 51 600 d) Contribution from: B = 39 200 (4000 x 8 + 800 x 9) P = 44 000 (4000 x 9 + 800 x 10) S = 48 800 (4000 x 10 + 800 x 11) Company profit = 39 200 + 44 000 + 48 800 – 22 000 – 5 000 – 21 000 – 30 000 = 54 000 Question 14 Mary Smith ai) $15 aii) 12 000 units aiii) 13 000 units; 52 % (b) Depreciation, Admin costs, Rent, Insurance, Advertising/marketing, Rates, Indirect wages,Loan interest (c) Stepped costs occur when a business increases capacity. As a result of expansion overheads such as insurance, rent and rates and bank interest payments are likely to increase. On a break even chart these increases would result in a horizontal fixed cost line moving to a higher level beyond the output at which increased capacity occurs. (e) If budgeted data is reasonably accurate and the budgeted level of activity could be maintained in future years then the business would generate more profits ($225 000 v $195 000) by increasing capacity. The margin of safety will also be higher in unit terms (15 000 v 13 000) but lower in percentage terms (37.5% v 52%). The business will make no profit following expansion if sales return to the previous level as the new break-even is the same as the previous sales / output. The capital cost of $3 000 000 is likely to result in interest payments which would have to be met irrespective of profit performance.

66

Question 15 Letters Question 16 Alberta ai) BEP in units 120 000; BEP in value $1 440 000 aii) $560 000 aiii) 280 000 units ; 70 % b) $980 000 Question 17 Global Airlines ai) Contribution per flight = 18 000 – 4 100 – 6 800 – 700 – 1400 = 5 000 Profit for the year = (600 x 5 000) – 1 800 000 = 1 200 000 aii) aiii)

BEP = $1 800 000 ÷ $5 000 =360 flight Margin of safety = 600 – 360 = 240 flight

bi)

Contribution per flight for Washinton = 15 500 – 4 700 – 6 900 – 900 – 1200 = 1800 Contribution per flight for Denver = 14 800 – 5 200 – 7 100 – 800 – 1800 = 100 negative Contribution per flight for San Francisco = 14 000 – 5500 – 5700 -600 - 1400 = 800

To maximize profit, Global should extend its operation to Washinton and San Francisco only since Denver has a negative contribution. Contribution from:

Total contribution Less fixed costs Maximum profit

Texas Washinton S.Francisco

3 000 000 (600 x 5000) 720 000 (400 x 1800) 440 000 (550 x 800) 4 160 000 2 580 000 (1800 000 + 390 000 + 390 000) 1 580 000 67

bii) Number of flights = 1550 (600 + 400 + 550) Currently making a profit of $1,200,000. Expanding would increase profit by 31.7% to $1,580,000. New airports would have higher costs and lower revenue at start up, but over time this may change. Although Denver shows a negative contribution, it is fairly small and operating on a wider base might bring benefits to the company. The company may consider running denver at an initial loss and developing over time. All figures are estimates and may not materialise. Social factors such as global warming may decrease demand, although demand may increase with increasing leisure time/development/reputation.

Question 18 Bahuja a) Profit = 120 000 x (187 – 131) b) Statement of profit assuming shift system runs Revenue Less V.Cost D.Materials 12 117 600 D.Labour 3 590 400 V.Overheads 1 350 000 TVC Contribution Fixed costs Profit

31 440 000

(120 000 x 187 + 60 000 x 150) (180 000 x 74.8) x 90 % (120 000 x 18.7) + (60 000 x 18.7 x120 %) (180 000x 7.5)

17 058 000 14 382 000 6 100 000 8 282 000

(3600 000 + 2500 000)

Additional profit = 8 282 000 – 6 720 000 = 1 562 000 c) Unit contribution from night shift = 150 -74.8 – (1.2 x 18.7) – 7.5 = 45.26 Minimum increase in sales to justify night shift = 2 500 000 ÷ 45.26 = 55 236 units

Note that material cost has to be taken as 74.8 since discount will be received only if purchases increase by 50 %. d) Would the firm be able to maintain selling price of the firsts 120 000 units at $187 Would it be more profitable to contract out the additional 60 000 units Would extra day shift facilities be more profitable Would it be more profitable to diversify into new products Chapter 27: Decision making Make or Buy Question 1 Kam Ltd ai) Profit when produce $75 000 aii) Profit when buy $55 000 c) $80 000 d) 12 500 units; 1-12499 profit higher under purchase; above 12 500 units profit higher under production Question 2 Garth Vader a i) 225 000 units aii) 440 000 units b) 720 000 units c(i) 200 000 units (ii) 250 000 units (iii) 300 000 units d) 257 143 units

Cabinet 1($) 12 000 000 17 000 000 22 000 000

Cabinet 2($) 4 000 000 16 000 000 28 000 000

Cabinet 3($) 27 200 000 loss 12 200 000 loss 2 800 000

Question 3 Aloysius Dixon a) Total contribution = Profit + Fixed costs 1 656 000 + 640/2 + 480/2 = 2 216 000 divided by 8000 for unit contribution = 277 b) Purchase Lease Extra shift Sales 11 000 000 11 000 000 11 000 000 Direct materials 1 024 000 1 280 000 1 280 000 Direct labour 5 000 000 6 250 000 6 437 500 Variable production overhead 320 000 400 000 400 000 Variable sales overhead 300 000 300 000 300 000 Fixed production overhead 320 000 320 000 320 000 Fixed sales overhead 240 000 240 000 240 000 Buy in, Lease, Training 1 840 000 260 000 50 000 Total costs 9 044 000 9 050 000 9 027 500 Profit 1 956 000 1 950 000 1 972 500 Original profit 1 656 000 1 656 000 1 656 000 additional profit 300 000 294 000 316 500

68

Question 4 Tutti and Butti ai) Fixed cost = 1.2 x 80 000 = 96 000 DM per unit: B = $20 ÷ 10 = 2 H = $15 ÷ 10 = 1.5 S = $10 ÷ 10 = 1 Total DM per knife = 2 + 1.5 + 1 = 4.5 DL per unit:

B = 1.5 x $8 ÷ 10 = 1.2 H = 2 x $8 ÷ 10 = 1.6 S = 1 x $8 ÷ 10 = 0.8 A = 1 x $6 ÷10 = 0.6 Total DL per unit = 4.2 V.O per unit:

B = 1.5 x $1 ÷ 10 = 0.15 H = 2 x $1 ÷ 10 = 0.2 S = 1 x $1 ÷ 10 = 0.1 A = 1 x $1 ÷10 = 0.1 Total VO per unit = 0.55 Unit contribution = 12 -4.5 – 4.2 – 0.55 = 2.75 Profit = (80 000 x 2.75) – 96 000 = 124 000 aii)

Buy Blades Hours freed if blades are purchased = 1.5 ÷ 10 x 80 000 = 12 000 hours Hour required to produce 1 handle and 1 spring = (2 + 1) ÷ 10 = 0.3 Additional handles and spring that can be produced = 12 000 ÷ 0.3 = 40 000

Calculation of unit contribution S.P DM DL VO Purchase price of blade Unit contribution

12 2.5 3 0.4 3 3.1

(1.5 + 1) (1.6 +0.8 + 0.6) (0.2 + 0.1 + 0.1)

Profit = (120 000 x 3.1) - 96 000 = 276 000 aiii)

Buy handles Hours freed if handles are purchased = 2 ÷ 10 x 80 000 = 16 000 hours Hour required to produce 1 blade and 1 spring = (1.5 + 1) ÷ 10 = 0.25 Additional handles and spring that can be produced = 16 000 ÷ 0.25 = 64 000 Calculation of unit contribution S.P 12 DM 3 (2 + 1) DL 2.6 (1.2 +0.8 + 0.6) VO 0.35 (0.15 + 0.1 + 0.1) Purchase price of handle 4 Unit contribution 2.05

69

Profit = (144 000 x 2.05) - 96 000 = 199 200 aiv)

Buy Blades and handles Hours freed if handles are purchased = 12 000 + 16 000 = 28 000 Additional spring that can be produced = 28 000 ÷ 0.1 = 280 000 Calculation of unit contribution S.P 12 DM 1 DL 1.4 (0.8 + 0.6) VO 0.2 (0.1 + 0.1) Purchase price of blade 3 Purchase price of handle 4 Unit contribution 2.4 Profit = (360 000 x 2.4) - 96 000 = 768 000

Question 5 Compo a) TVC per unit for purchases = 200 Tvc per unit for Alternative A = 120 (45 + 60 + 15) TVC per unit for Alternative B = 85 (45 + 30 + 10) Let units be Q Cost equation for purchase = 200Q Cost equation for Alternative A = 120Q + 18 000 000 Cost equation for Alternative B = 85Q + 34 500 000 200 Q = 120Q + 18 000 000 Q = 225 000 units Hence 225 000 units should be produced under alternative A so that the total annual cost would be equal to the outside purchase cost 200 Q = 85Q + 34 500 000 Q = 300 000 units Hence 300 000 units should be produced under alternative B so that the total annual cost would be equal to the outside purchase cost Unit contribution for purchase = 50 (250 – 200) Unit contribution for Alternative A = 120 (240 – 120) Unit contribution for Alternative B = 175 (260- 85) Profit equation for purchase = 50Q Profit equation for Alternative A = 120Q - 18 000 000 Profit equation for Alternative B = 175Q - 34 500 000 bi)

At 200 000 units profit for:

Purchase = 50 x 200 000 = 10 000 000 Alternative A = 120 x 200 000 – 18 000 000 = 6 000 000 Alternative B = 175 x 200 000 – 34 500 000 = 500 000 At a level of 200 000 units purchase is most profitable

bii)

At 250 000 units profit for:

Purchase = 50 x 250 000 = 12 500 000 Alternative A = 120 x 250 000 – 18 000 000 = 12 000 000

70

Alternative B = 175 x 250 000 – 34 500 000 = 9 250 000 At a level of 200 000 units purchase is most profitable biii)

At 500 000 units profit for:

Purchase = 50 x 500 000 = 25 000 000 Alternative A = 120 x 500 000 – 18 000 000 = 42 000 000 Alternative B = 175 x 500 000 – 34 500 000 = 53 000 000 At a level of 500 000 units produce using Alternative B is most profitable c) Equate profit equation A with B 120Q – 18 000 000 = 175Q – 34 500 000 Q = 300 000 d)

Equate profit equation purchase with that of Alternative A 50Q = 120Q – 18 000 000 Q = 257 143 At 257 144 it would be more profitable to produce using alternative A rather than purchase from outside supplier Equate profit equation purchase with that of Alternative B 50Q = 175Q – 34 500 000 Q = 276 000 At 276 001 it would be more profitable to produce using alternative B rather than purchase from outside supplier Note: the minimum production level at which it would pay the company to manufacture rather than purchase is 257 144 using Alternative A. Alternative B would become more profitable than purchase after 276 000 units. 71

Question 6 Sord Ltd a) DM per tonne = $60 D.Labour rate per hour = $5 D.Labour rate per tonne = $250 VPO per tonne= $25 Fixed production overhead = 400 000 Variable admin & selling overhead = $10 Fixed Admin & selling overhead = $480 000 Unit contribution = $155 ( 500 – 60 – 250 – 25 – 10) b) Option 1 Revenue (20 000 x 500) Less variable cost Cost of purchase (4000 x 425) DM D.wages VPO Variable admin & selling (20 000 x 10) Contribution Fixed production overheads Fixed Admin & selling (480 000 + 90 000) Profit

10 000 000 1 700 000 960 000 4 000 000 400 000 200 000

7 260 000 2 740 000 400 000 570 000 1 770 000

Option 2 Revenue (20 000 x 500) Less variable cost DM (20 000 x 60) D.wages 4 000 000 + (220 000 x 6) VPO (20 000 x 25) Variable admin & selling (20 000 x 10) Contribution Fixed production overheads Fixed Admin & selling (480 000 + 90 000) Training Profit Option 3 Revenue (20 000 x 500) Less variable cost DM (20 000 x 60) D.wages (20 000 x 250) VPO (20 000 x 25) Variable admin & selling (20 000 x 10) Contribution Fixed production overheads Fixed Admin & selling (480 000 + 90 000) Rent Profit

10 000 000 1 200 000 5 320 000 500 000 200 000

7 220 000 2 780 000 400 000 570 000 100 000 1 710 000

10 000 000 1 200 000 5 000 000 500 000 200 000

6 900 000 3 100 000 400 000 570 000 300 000 1 830 000

Question 7 Bilaben a) $235 500 b) Option 1 Sales 5000 x 250 Direct Materials 5000 x 35 Basic D Labour 4.5000 x 6 5000 extra hours 5000 x 9 Extra costs 5000 x 1.5 VO V Admin 0verheads Fixed costs

Net Profit Option 2 Sales DM DL VO V Admin 0verheads Fixed Costs Lease Net Profit

1,250,000 175,000 270,000 45,000 7,500 60,000 70,000 125,000 70,000 150,000

345,000

1,250,000 157,500 270,000 54,000 63,000 345,000 50,000

939,500 310,500

972,500 277,500

72

Option 3 Sales DM DL VO V Ad O Fixed Costs Cost of buying in 500 x 200 Net Profit

1,250,000 157,500 270,000 54,000 63,000 345,000 100,000 989,500 260,500

Option 1 Second most profitable option, but could lead to employees expecting overtime in future. Option 2 Market research costs already spent, so no further outlay, and best net profit. But there may be possible retraining problems. Option 3 No additional capital outlay, but possible problems of quality control. Dropping of product line Question 8 Quid ltd a) Contribution A $270 000; B $540 000; C $600 000; Profit $123 000 b) $253 000 profit ; BEP 23 400 units. Question 9 Singh Ltd a) Athol 5000 hours; Brose 3250 hours; Crowdie 5500 hours; Total hours 13 750. b) Athol $2.4; Crowdie $5 c) Athol 8 units; Brose 4 units; Crowdie 4 units e) Total variable costs Athol $162 750; Crowdie $88 800; Profit $34 450.

Question 10 Ventanna Ltd (a) (i) Sales price Variable costs Contribution (ii) Fixed cost per unit Number of units

P $ 61 51 10

T $ 158 118 40

O $ 170 120 50

P $ 15 2 000 30 000

T $ 30 1 600 48 000

O $ 40 1 000 40 000

Total fixed cost = $118 000 1 (iii)

BEP (units)

P $ 30 000/10 3 000

T $ 48 000/40 1 200

O $ 40 000/50 800

73

Dollars

Total contribution (based on unit contribution) Less Fixed costs P/(L)

183 000

189 600

136 000

P $ 20 000

T $ 64 000

O $ 50 000

30 000 (10 000)

48 000 16 000

40 000 10 000

(c) TOTAL FIXED COSTS WERE $118000 T $ 2 400 40 96 000

Output Contribution TOTAL CONTRIBUTION LESS Fixed costs TOTAL PROFIT Old profit Increase in profit

O TOTAL $ 1 500 50 75 000 171 000 147 500 (118 000 + 0.25 x 118 000) 23 500 16 000 7 500

Question 11 Bond Ltd a) Sales in units Unit contribution Total contribution Less fixed cost G.P overheads Depreciation Rent and rates Admin overheads Selling overheads Profit

Labour cost

A B C

Total Sales revenue A B C Total

A 20 000 $ 6 120 000

B 30 000 $ 5 150 000

C 50 000 $ 4 200 000

Total

15000 38400 12000 11163 20000 23437

30000 10800 9000 22326 30000 47874

75000 10800 9000 46511 50000 8689

120000 60000 30000 80000 100000 80000

470 000

20 000 x3 = 60 000 30 000 x 4 = 120 000 50 000 x 6 = 300 000 480 000 20 000 x 15 =300 000 30 000 x 20 = 600 000 50 000 x 25 = 1 250 000 2 150 000

c)

Total contribution from A and B 270 000 (120 000 + 150 000) Total fixed cost 390 000 Loss of the company 120 000 It is not viable to discontinue product C since profit of the company will decrease from $80 000 to a loss of $120 000. This is because of the positive contribution of $200 000 from product which will not be earned. Closure of deparment Question 12 Central Ltd a) Contribution Leeway $30000; Mayway $58 500; Noway $49 500; Profit $10 000

74

b) Loss $15 000 Question 13 Kiat Ltd Eratum year ended 2012 should have been 2002 Dodo Lolo Gross profit 36 750 60 750 Profit (loss) for the year 1750 10 750

Momo 34 625 5625

Popo 19 500 (500)

Company profit if all stores are operating = 17 625 (1750 + 10750 + 5625 – 500) Company profit if Popo is closed G.Profit 132 125 (36 750 + 60 750 + 34 625) Salary 57 000 (19 000 + 25 000 + 13 000) Store F.Overhead 32 000 (10 000 + 16 000 + 6 000) Head office cost 24000 (6000 + 9000 + 10000 +3 000 – 4000) Profit 19 125 Company profit if Dodo and Popo is closed G.Profit 95 375 Salary 38 000 Store F.Overhead 22 000 Head office cost 19000 Profit 16 375

(60 750 + 34 625) (25 000 + 13 000) (16 000 + 6 000) (6000 + 9000 + 10000 +3 000 – 9000)

Only Popo should be closed. Although it has a positive contribution, its closure would result in a decrease in head office cost and this will increase profit from $17 625 to 19 125. Note: the store fixed overheads will not be incurred if the department is closed Acceptance of special order below normal selling price Question 14 Florensuc a) Contribution $54 000; Profit $30 000 b) Profit $36 000 c) Profit $27 000

Question 15 Chocopie a) Unit contribution sales in units Total contribution Less fixed cost Profit

6 (20 – 6 – 5 – 2 – 1) 6 300 37 800 15 000 22 800

b) Revenue (6300 x $20 + 1500 x $16) Less V.Cost DM (7800 x 6) DL (7800 x 5) VPO (7800 x 2) V.Selling (6300 x 1) Contribution Less fixed cost Profit c)

90 % capacity = 6300

150 000 46800 39000 15 600 6300 107700 42 300 15 000 27 300

75

100 % = 7000 Accepting the special order would result in production to exceed capacity, hence increase in fixed cost Contribution 42 300 Less fixed cost 21 300 (15 000 + 6000)

Question 16 Tiger Ltd a) 80 % capacity = sales of $2 400 000 100 % = 3 000 000 50 % selling price remain constant = $1 500 000 50 % selling price decrease by 10 % = 1 500 000 x 90 % = 1 350 000 Revenue (1 500 000 + 1 350 000 ) Less cost DM (750 ÷ 80 %) DL (300 ÷ 80 %) VO (150 ÷ 80 %) Fixed costs Profit

2 850 000 937 500 375 000 187 500 800 000 550 000

Option 3 Revenue (2 400 000 + 1 350 000 ) Less cost DM (750 ÷ 80 x 130) DL (300 ÷ 80 x 30 x 150 % + 375 000) VO (150 ÷ 80 x 130) Fixed costs Profit

3 750 000 1 218 750 543 750 243 750 800 000 943 750

Question 17 Pad Ltd Assume normal production is 450 000 units and FC per unit has been calculated using labour hours for 450 000 units. ai) Unit contribution = 45 (100 – 15 – 30 – 10) Total contribution = 450 000 x 45 = 20 250 000 Profit = 20 250 000 – 1 800 000 = 18 450 000

aii) Revenue (120 000 x 75 + 380 000 x 100) Less V.Cost RM (500 000 x 15) DL (500 000 x 30) VO (500 000 x 10) Contribution Less Fixed cost Profit b)

c)

47 000 000 7 500 000 15 000 000 5 000 000

27 500 000 19 500 000 1 800 000 17 700 000

P\v ratio if order is not accepted = 45 ÷ 100 = 0.45 or 45% BEP = 1 800 000 ÷ 0.45 = $4 000 000 P\v ratio if order is accepted = 19 500 000 ÷ 47 000 000 = 0.4148 BEP = 1 800 000 ÷ 0.4148 = $4 338 440 The order should not be accepted because company profit will decrease.

Question 18 Hyde Ltd a) DM per unit = 3

76

DW per unit = 4 VPO per unit = 0.4 VDO per unit = 1.2 Actual sales = 30 000 units a)

Alternative 1 New SP = 90 % x 15 = $13.5 Unit contribution = 4.9 (13.5 – 3 – 4 -0.4 – 1.2 ) Total contribution = 40 000 x 4.9 = 19 600 Profit = 196 000 – 50 000 – 20 000 = 126 000 Alternative 2 New sales volume = 36 000 (120 % x 30 000) Unit contribution = 5.9 (15 – 3 – 4 – 0.4 – 1.2 – 0.5) Total contribution = 36 000 x 5.9 = 212 400 Profit = 212 400 – 70 000 = 142 400

b) c)

Price to be quoted to break even = 3 + 4 + 0.4 = $7.4 Contribution per unit = 23 000 ÷ 5000 = 4.6 Price to be quoted to earn a contribution of $23 000 = $12 (7.4 + 4.6)

Question 19 Barton Ltd ai)

Unit contribution = 65 – 8 – 17 – 11 = 29 Total contribution = 2000 x 29 = 58 000 Profit = 58 000 – 29 400 = 28 600

aii)

Revenue (2000 x 65 + 20 000) Less V.Cost DL (2000 x 8) + (600 x 10) DM (2 600 x17) V.O (2600 x 11) Contribution Less Fixed costs Profit

aiii)

b)

Revenue (2000 x 65 + 34 000) Less V.Cost DL (2000 x 8) + (750 x 10) DM (2 750 x17) V.O (2750 x 11) Extra processing cost (750 x 6) Contribution Less Fixed costs Profit

150 000 22 000 44 200 28 600 94 800 55 200 29 400 25 800 164 000 23 500 46 750 30 250 4500 105 000 59 000 29 400 29 600

Total variable cost of A = 600 x (10 + 17 + 11) = 22 800 Contribution from A = 20 000 – 22 800 = 2800 negative Total variable cost of B = 750 x (10 + 17 + 11+ 6) = 33 000 Contribution from A = 34 000 – 33 000 = 1000

Question20 Barrow Ltd ai) Mat per unit 12 Lab per unit 6 V.P Overhead per unit 4

(480 000 ÷ 40 000) (240 000 ÷ 40 000) (160 000 ÷ 40 000)

77

Price per unit to break even = 12 + 6 + 4 = 22 aii)

Profit per unit = 30 000 ÷ 12 000 = 2.5 Price per unit to achieve a profit of $30 000 = 22 + 2.5 = $24.5 Selection of Machine

Question 21 Cariokae a) MACHINE DATA FOR ORDER P235 Order quantity Production rates per hour Operating hours Number of operators Direct labour hours worked COSTS FOR P235 Direct materials Direct labour Variable overheads Set up costs Total cost c) NEW DATA FOR P235

Order quantity Production rate per hour Operating hours Number of operators Direct labour hours worked AMENDED COSTS FOR P235 Direct materials Direct labour Variable overheads Setup

A 3000 100 30 4

B 3000 150 20 5

C 3000 200 15 6

$ 9000 1260 1440 200 11900

$ 9000 1050 1200 330 11580

$ 9000 945 1080 600 11625

A 3 000 120 25 5 125

MACHINE B 3 000 180 16.67 67 100

$ 8 100 1 312.50 1 500 200 11 112.50

$ 8 100 1 050 1 200 330 10 680

Question 22 Barkis ai) Total cost using X $6320; Total cost using Y $6420 aii Total cost using X $7850; Total cost using Y $7900 bi) $1780 bii) $2105 Limiting Factor Question 23 Jardiniere Ltd a) Contribution per unit Alpha $13; Beta $6; Kamma $14 b) Profit for November $250 000 c) Optimum production plan: Kamma 10 000 units Alpha 10 000 units Beta 2 000 units Profit $202 000 d) New optimum plan Kamma Alpha

10 000 units 7 000 units

C 3 000 240 12.50 87.50 $ 8 100 918.75 1 050 600 10 668.75

78

Beta

5 000 units

Loss in profit $ 21 000 Question 24 Plastic Ltd a) Light boots contribution per unit: 30 – (10 + 8) = 12 Break-even - units: 42 000/12 = 3 500 - sales revenue: 3 500 x 30 = 105 000 c) d)

Profit = (10 000 x $12 + 12 000 x $14) – 84 000 = 204 000 Light Unit contribution 12 Limiting factor per unit $6 Contribution per limiting factor 2 Ranking 1st $ of cloth available Allocated to L Remainder Remainder allocated to H

Heavy 14 $8 1.75 2nd

130 000 60 000 (10 000 x 6) 70 000 70 000

Number of units of Heavy that can be produced = $70 000 ÷ $8 = 8750 Optimal plan Light 10 000 units Heavy 8 750 units Profit = $12 x 10 000 + $14 x 8750 – 84 000 = 158 500 e) Advantages: Simple to construct and interpret Easy to explain to non-accountants Facilitates ‘what – if’ analysis Useful for comparison with actual performance Useful for setting production targets and for pricing decisions Limitations: Over-simplified Cost and revenue curves may in reality not be linear Fixed costs may be stepped Some costs may not be easily categorised as either fixed or variable (semi-variable costs) f) Uses of marginal costing for decision making: Limiting factor, maximising contribution from restricted inputs Acceptance of special orders Make or buy Discontinuing a product or service, based on contribution Question 25 Skinner ltd ai) Plan 1 S25 000 units; DL 40 000 units; X 10 000 units Plan 2 S33 000 units; DL 36 000 units; X 12 000 units aii) Profit from plan 1 $35 000; Profit from plan 2 $4000 Question 26 Teracota Ltd ai)

S.P V.C per unit Unit contribution Sales in units Total contribution

G 43 30 13 4000 52000

L 38 30 8 3000 24000

S 36 22 14 2000 28000

79

aii)

b)

Profit = 52 000 + 24 000 + 28 000 – 50 000 = 54 000 G 43 34 9 4 kg 2.25 3rd

S.P V.C per unit Unit contribution Limiting factor per unit Contribution per limiting factor Ranking Kilo available Allocated to S Remainder Allocated to L Remainder Remainder allocated to G

L 38 32 6 2 kg 3 2nd

S 36 24 12 2 kg 6 1st

25 000 4 000 (2000 x 2) 21000 6 000 (3000 x 2) 15 000 15 000

Number of units of Glass to be produced = 15 000 kg ÷ 4 kg = 3750 Optimal plan G 3750 units L 3000 units S 2 000 units Total contribution = 3750 x $9 + 3 000 x $6 + 2 000 x $12 = 75 750 Profit = 75 750 – 50 000 = 25 750 ci)

cii)

The product providing a small positive contribution is helping the business to cover its fixed costs, therefore the business may decide to continue producing the product; if the business discontinued this product, fixed costs would not change and would still have to be met, therefore profit would fall; the business should only discontinue this product when it has introduced a replacement product which provides a higher contribution The product which has a negative contribution is failing to cover even variable costs such as direct materials and direct labour; immediately discontinuing this product would increase profits; it is making no contribution towards fixed costs; the business should only consider continuing production of this product if it is seen as strategically important or if this business has a realistic plan to improve its performance eg reducing variable costs

Question 27 Blue Skies Ltd a) Unit contribution: Beach $26; Explorer $48; Family $60 b) Total contribution $4 140 000; Profit $640 000 c) Beach $5.2; Explorer $8; Family $6.6 d) Beach 18 000 units; Explorer40 000 units; Family 24 000 units e) Contribution: Beach $468 000; Explorer $1 920 000; Family $1 440 000; Profit $328 000 f) Beach 27 000 units; Explorer40 000 units; Family 19 000 units Contribution: Beach $702 000; Explorer $1 920 000; Family $1 140 000; Profit $262 000 Question 28 Garden supplies ltd a) African $1; British $2; Chinese $2.5 b) Optimal plan African 0; British 20 000; Chinese 16 666; Profit $21 665 c) Optimal plan African 6000; British 20 000; Chinese 13 666; Profit $20 165 Question 29 Mauvil Ltd a) S.Price TVC per unit

X 65 47

Y 64 40

Z 82 62

80

Unit contribution Hours per unit

18 3 hrs

24 2 hrs

20 4 hrs

Contribution per limiting factor Ranking

6 2nd

12 1st

5 3rd

Machinist hours available Allocated to B Remainder Allocated to A Remainder Remainder allocated to C

100 000 32 000 (16 000 x 2 hrs) 68 000 36 000 (12 00 x 3 hrs) 32 000 32 000

Number of units of C that can be produced = 32 000 hrs ÷4 hrs = 8 000 units Contribution: A (12 000 x $18) 216 000 B (16 000 x $24) 384 000 C (8 000 x $20) 160 000 Total contribution 760 000 Fixed costs 600 000 Profit 160 000

b) S.Price TVC per unit Unit contribution Sales in units Total contribution Less fixed cost Profit

X 65 50 15 12 000 180 000

Y 64 42 22 16 000 352 000

Question 30 Beacon ltd a) Contribution X $78 000; Y $167 750; Z $50 000 Profit $146 000 bi) X 1st ; Y 2nd ; Z 3rd bii) X 2nd ; Y 1st ; Z 3rd Questions 31 Shaws Ltd a) $1 750 000 loss (10 000 000 – 3 750 000 – 3 000 000 – 5 000 000) b) X Y S.Price 10 6 Material per unit 3.75 1.25 Other vc per unit 3 2.5 Unit contribution 3.25 2.25 Klacktine per unit (L.Factor) 3 kg 1 kg Contribution per L.factor 1.08 2.25 Ranking 2nd 1st Material available Allocated to Y Remainder Allocated to X

3 500 000 kg 2 000 000 kg 2 000 000 x 1 kg 1 500 000 kg 1 500 000 kg

Number of units of X to be produced = 1 500 000 kg ÷ 3 kg = 500 000 units Optimal plan:

X 500 000 units

Z 82 66 16 18 000 288 000

total

820 000 600 000 220 000

81

Y 2 000 000 units c)

Fixed cost Contribution from X Remainder to be recovered from sale of Y

5 000 000 1 625 000 3 375 000

(500 000 x $3.25)

Hence units of Y to be sold = 3 375 000 ÷ $2.25 = 1 500 000 units Units to be produced and sold to break even

X Y

500 000 units 1 500 000 units

82

Questions 32 Quango (a) Statement of profitability – original plan Product Platinum Sales quantity 2 000 Unit contribution ($) 118 Total contribution ($) 236 000 Less fixed overheads 36 000 Net profit 200 000

Fixed overheads

Total

Gold 1 800 90 162 000 27 000 135 000

Silver 1 600 80 128 000 19 200 108 800

Bronze 2 400 83 199 200 36 000 163 200

Total

725 200 118 200 $607 000

P = 0.6 x 30 x 2000 = 36 000 G = 0.6 x 25 x 1800 = 27 000 S = 0.6 x 20 x 1600 = 19 200 B = 0.6 x 25 x 2400 = 36 000 118 200

Variable overheads

P = 0.4 x 30 x 2000 = 24 000 G = 0.4 x 25 x 1800 = 18 000 S = 0.4 x 20 x 1600 = 12 800 B = 0.4 x 25 x 2400 = 24 000 Total 78 800 Total overheads = 118 200 + 78 800 = 197 000 New amount of fixed overheads = 1.08 x 118 200 = 127 656 Amount of money remaining to pay for variable overheads = 197 000 – 127 656 = 69 344 Available 69 344 Allocated to Silver 12 800 (1600 x 8) Remainder 56 544 Allocated to Platinum 24 000 (2000 x 12) Remainder 32 544 Allocated to Gold 18 000 (1800 x 10) Remainder 14 544 Remainder allocated to Bronze 14 544 Number of units of Bronze that can be produced $14 544 ÷ $10 = 1454 Optimal plan P 2000 units G 1800 S 1600 B 1454 (c) Statement of profitability – optimum product mix Product Platinum Gold Quantity 2 000 1 800 Contribution/unit ($) 118 90 Total contribution ($) 236 000 162 000 Less fixed overheads ($) 38 880 29 160 Net profit 197 120 132 840 Product Unit contribution ($) V.overheads per unit Contribution per l.factor Ranking

Platinum 118 12 9.83 2nd

Gold 90 10 9 3rd

83

Silver 1 600 80 83 128 000 20 736 107 264 Silver 80 8 10 1st

Bronze 1 454

Total

120 682 38 880 81 802

646 682 127 656 $519 026

Bronze 83 10 8.3 4th

Questions 33 J.Prime Ltd a) Product E has to be purchased instead of being produced since the purchase price of $20 is less than the v ariable production costs of $21 (9 + 4.5 + 0.5 + 7) D F S.Price 25 12 Less VC Raw material 5.6 2.3 Manual operatives 4.9 2.7 Technician 2 1 V.Overheads 6.5 1 Unit contribution 6 5 Hour of technician per unit 0.5 0.25 Contribution per L.Factor 12 20 Ranking 2nd 1st Technician hour per unit

D = $2 ÷ $4 = 0.5 hr F = $1 ÷ $4 = 0.25 hr

Technician hours available Allocated to F Remainder Remainder allocated to D

4000 2500 1500 1500

(10 000 x 0.25 hr)

Number of units of D that can be produced = 1500 hrs ÷ 0.5 hr = 3000 units Unit contribution E = 24 – 20 = 4

Unit contribution Sales in units Total contribution Fixed cost Profit Fixed cost

Total b)

D $6 3000 18000 (12000) 6000

E $4 24000 96000 (24000) 72000

F $5 10000 50000 (20000) 30000

b) c)

164000 (56000) 108000

D $2 x6000 = 12 000 E $1 x 24000 = 24 000 F $2 x10 000 = 20 000 56 000

As a result of restriction on the availability of assembly technician only 3000 units of D can be produced and sold. Hence the remaining 3000 units cannot be produced. The cost to the company is the lost contribution from these units cost = 3000 x $6 = $18 000

Questions 34 Simons a)

84

Fixed overheads = $ 102 000 (5000 x $8 + 2000 x $10 + 3000 x $14) Unit contribution for Standard $64; De-luxe $73; Super $87 Total contribution $727 000; Profit for the company $465 000 Selling price $250 Number of hours required per unit: Standard 4 hours $16 ÷ $4 De-luxe 5 hours $20 ÷ $4 Super 7 hours $28 ÷ $4 Executive 9 hours

Optimal plan Standard 5000 units De-luxe nil Super 2400 units Executive 2500 units Unit contribution for Standard $64; Super $107; Executive $165 Total contribution $989 300; Profit for the company $712 300 Questions 35 Supersmooth a) BEP: Standard 3100 units\ $37 200 Deluxe 2232 units\ $33 480 b) 7020 profit (25 000 – 12400 – 5580) c) Standard 5250 units; Deluxe 3200 units Questions 36 Papa mio Eratum Option 2: Fulfill the total demand for boardroom and office and use…. a) 45 000 hours (13 000 x 2hrs + 5 000 x 3 hrs + 2 000 x 2 hrs) c) S O Unit contribution 24 21 Labour hour per unit 2 hrs 3 hrs Contribution per labour hr 12 7 d) Unit contribution Labour hour per unit Contribution per labour hr e)

S 4 2 hrs 2

O 1 3 hrs 1\3

B 24 2 hrs 12 B 4 2 hrs 2

Option 1 Units of boardroom = 6 000 + 13 000 = 19 000 Hours required = 19 000 x 2 hrs = 38 000 hrs Hours available 45 000 Allocated to B 38 000 Remainder allocated to S 7 000 Number of units of Standard that can be produced = 7000 hrs ÷2 hrs = 3500 units Option 2 Units of boardroom = 6 000 + 13 000 = 19 000 Units of Office = 1 000 + 1 000 = 2 000

Hours available 45 000 Allocated to B 38 000 Allocated to office 6 000 Remainder allocated to S 1 000 Number of units of standard that can be produced = 1000 hrs ÷2 hrs = 500 units Since this is less than 2000, hence will be discontinued as per directors’ decision

Boardroom Standard Office

Option 1 UK 144 000 Africa 52 000 UK 24 000 Africa 10 000 Uk -

Option 2 144 000 52 000 21 000

85

Africa Total contribution Fixed cost Profit

230 000 200 000 30 000

1000 218 000 200 000 18 000

Questions 37 Moon Ltd a) Unit contribution of flower pot $16; Profit $110 000 b) Profit $137 500; Contribution flower $240 000 (15 000 x $16); Contribution garden $77 500 (3750 x $18 + 1000 x $10) Chapter 28: Budgets Question 1 Gala Ltd 1 2 3 4 5 6 Production 950 1050 1350 1100 850 850 Purchases (Kg) 1900 2100 2700 2200 1700 1700 Purchases ($) 7600 8400 12 150 9900 7650 8500 Sales budget ($) 152 000

199 500

266 000

d)

Trade Receivables $275 500

e)

Trade Receivables Budget: Closing balances - September 365 750 October 353 000 November 300 000 December 265 000

Question 2 Jenifer Stewart a) Cash budget July Cash sales 4900 Credit sales Total payments 44 400 Closing balance 500 b)

190 000

170 000

86

Aug 8820 4400 4920

Sept 12740 7500 22200 2960

Budgeted Income Statement $ Revenue 145 000 Purchases 116 000 Closing Inventory 29 000 Total Expense 17 760 Profit 11 240

Question 3 Harold Ltd Total Receipts: July August September Total Payments: July August September

220 000

15 820 15 220 18 720

27 240 18 912 14 256

c)

Oct 9800 13500 33900 (7640)

Nov 8820 19500 23900 (3220)

Dec 11760 15000 31700 (8160)

Budgeted Balance sheet Total NBV of NCA Total Current assets Total Current Liabilities Total Non-Current Liabilities

$ 14 400 53 000 29 660 15 000

Closing Balance: July August September Question 4 Glora a) Production

15 320 19 012 14 548

1 2100

b ) Purchases Budget

c) 1 2 3

2 2400 1 3 900 kg

3 1500 2 2 700 kg

Total Receipts $ 102 000 97 000 99 500

Question 5 Smith a) Jan Total Receipts 25 400 Total Payments 24 510 Closing Balance 890

Feb 600 1 860 (370)

4 1200

6 1600

3 2 600 kg Total Payments $ 82 200 72 700 53 300

Mar 1 750 1 980 (600)

5 1400

April 2 200 2 340 (740)

Closing balances $ 29 800 54 100 100 300

May 2 900 2 760 (600)

Jun 3 550 3 460 (510)

87 b) Revenue Purchases Closing Inventory C.O.S G.P Total Expense Profit Question 6 Svensen b) Income Statement Revenue Purchases Gross Profit Total exp Profit Total NBV of NCA Total Current Assets Total Current Liabilities

$ 16 500 11 410 910 10 500 6 000 2 710 3590

Total NBV of NCA Total Current assets Total Current Liabilities

SOCIE –Bal at end Ordinary share Share Premium Retained Profit

132 000 63 000 70 000 60 250 9 750

$ 23 750 6 310 2 970

200 000 15 000 41 000

212 550 75 950 32 500

Question 7 Echoes Bank Debtors prior year Debtors first month (1160 × 0.5 × 0.95)

$000 122 551

Balance Creditors (75 + 680 – 90)

$000 15 665

Debtors second month (1060 × 0.5) Sale of vehicles Sale of eqpt Debentures Share issue

Rates Insurance Purchase of vehicle Purchase of eqpt S,d,a expenses Tax Dividend Interest Balance

530 80 75 300 170

1828 Forecast income statement for the year ending 30 April 2012 $000 Sales Opening inventory 150 Ordinary goods purchased 680 Closing inventory 165 Cost of sales Gross profit Profit on sale of equipment Less expenses Discount allowed 29 Rates and insurance 42 Loss on sale of vehicles 15 Depreciation – Land and buildings 10 Equipment 85 Vehicles 120 S,d,a expenses 184 Profit from operations Finance charges Tax Profit for the year (c) Forecast Statement of Financial Position at 30 April 2012 Cost Non-current assets Land and buildings 1 200 Equipment 425 Vehicles 400 2 025 Current assets Inventory Trade receivables Prepaid rates and insurance Cash and cash equivalents Current liabilities Tax Trade payables Non-current liabilities Debentures Ordinary shares of $0.50 each Share premium Retained earnings

20 90

18 30 400 310 184 30 48 15 113 1828

$000 1 260

665 595 5

485 115 15 20 80

88

Dep

NBV

60 130 120 310

1 140 295 280 1 715

165 150 14 113 442

110

332 300 1 747

850 220 677 (645 + 80 – 48)

1 747 Question 8 Cern Ltd a) Production budget in units – Month 1: 10000 units; Month 2: 11000 units; Month 3: 12000 units; Month 4: 12000 units; Month 5: 10000 units. b) Purchases budget in units – Month 1: 10500 units; Month 2: 11500 units; Month 3: 12000 units; Month 4: 11000 units. c)

Receipts from cash sales – Month 1$ 57000; Month 2 $57000; Month 3 $62700; Month 4 $68400 Receipts from customers on 1 month credit - Month 1 nil ; Month 2 $139500; Month 3 $139500; Month 4 $153450 Receipts from customers on 2 month credit - Month 1 nil ; Month 2 nil; Month 3 $96000; Month 4 $96000. Total payments - Month 1 $1217500 ; Month 2 $266000; Month 3 $282000; Month 4 $299500 Closing balance - Month 1 $839500 ; Month 2 $770000; Month 3 $786200; Month 4 $804550 d) Closing inventory of raw materials $50000; Closing inventory of finished goods $240000; Trade receivables $393600; trade payables $110000. Question 9 Fancy Ltd

Eratum:

Adj 3 Loan amount of $60 000 missing in the Question Adjustment number 10 instead of month it should be year $ 1 500 000

Revenue Less Cost of sales Purchases (B.Figure) Less closing inventory Cost of sales Gross profit (0.4 x 1 500 000) Expenses Interest on loan (.08 x 60 000) Operating expenses (25 000 x6 + 30 000x6) Dep Property (120 000 ÷ 20) Dep Plant and machinery (190 000 ÷5) Dep M. Vehicles (50 000 ÷ 4) Profit for the year Closing inventory

1 080 000 180 000 900 000 600 000 4800 330 000 6000 38 000 12 500

391300 208700

= Cost price of sales January and February 2001 =(150 000 + 150 000) x 0.6 = 180 000

Share capital Loan T.receivables Directors’ Loan (B.Figure)

Bank Account 250000 60 000 1 290 000 71 800

Property P & Machinery M. Vehicles Interest Operating expenses T.Payables Loan Bal c\d

Operating expense paid = 25 000 x 6 + 30 000 x 5 = 300 000 T.Receivables at 31 Dec = Sales of Dec + 40 % sales of Nov

120000 190000 50 000 4800 300 000 990 000 12 000 5000

89

= 150 000 + 0.4 x 150 000 = 210 000 Receipts from customers = 1500 000 – 210 000 = 1 290 000 Sales at cost for Dec = 0.6 x 150 000 = 90 000 Sales at cost for Jan = 0.6 x 150 000 = 90 000 Sales at cost for Feb = 0.6 x 150 000 = 90 000 Closing inventory Nov = 90 000 + 90 000 = 180 000 Closing inventory Dec = 90 000 + 90 000 = 180 000 Purchases Budget for Dec Closing inventory 180 000 Add Sales at cost price 90 000 Less Opening inventory 180 000 Purchases 90 000 Trade payables at 31 Dec = 90 000 (purchases of Dec) c) Total NBV of NCA $303 500 (114 000 +152 000 + 37 500); Total CA $395 000 (180 000 + 210 000 + 5000); Total CL $120 000 (90 000 + 30 000); Total NCL $119 800 (48 000 +71 800) Question 10 Gordon Ltd Question 11 Ada Campellini a) Total receipts: Nov $254 012.5; Dec $331 175; Jan $272 212.5 Total payments: Nov $230 540; Dec $219 095; Jan $186 130 Closing bank balance: Nov $58 322.5; Dec $170 402.5; Jan $256 485 b) Revenue $930 000; Purchases $515 000; Cost of sales $566 000; Gross profit $364 000; Discount received $10 740; Discount allowed $35 100; Total expenses $95 580; profit $279 160 Question12 P.Blowers a) Cash Budget Bal b\d 10000 Trade payables 240100 Trade receivables 480 800 Rent 3200 Disposal 1100 Wages 21600 Insurance 1500 Other expenses 2400 Equipment 3000 Van 8000 Drawings 12000 Bal c\d 200100 491900 491900

b) Revenue $522 000; Purchases $261 000; Cost of sales $258 500; G.Profit $263 500; Total expenses $31 100; Profit for the year $232 400 Total NBV of NCA $12 200 (4200+8000); Total CA $255 700; Total CL $24 000 Question 13 Harry Receipts Cash sales Credit sales : 1 month : 2 months Total receipts

Nov 60800 44850 4600 110200

Dec 97280 78000 4600 179880

Jan 36480 124800 8000 169280

90

Payments Supplier:

20 600 145915

20 600 118959

25000 58500 605 4000 1000 10 600 89715

Closing balance

(71715)

(10794)

68771

Question 14 Buncles

Eratum:

Adj 6 wages should be $7 000 instead of $70 000 Adj 5 change 40 % to 25 % to avoid decimal in calculations

Oct 27 300 45 570 3805 76 675

Nov 28 000 45864 3875 77 739

Overheads Wage Machine Interest Drawings Total payments

a) Receipts Cash sales Credit sales

same month 26000 1 month later 114075 500 4720

: 1 month : 2 months

Total receipts

39000 73125 550 5664

Dec 29 400 47 040 3900 80 340

Jan 26 250 49 392 4000 79 642

91 Payments Suppliers Wages Bonus Other expenses Non-current assets Dividend Total payments Opening balance Closing balance

64 000 7 000 300 6000 77 300 4000 3375

Receipts from credit sales on 1 month credit In Oct = 0.6 x 77 500 x 0.98 = 45 570 In Nov = 0.6 x 78 000 x 0.98 = 45 864 In Dec = 0.6 x 80 000 x 0.98 = 47 040 In Jan = 0.6 x84 000 x 0.98 = 49 392 Receipts from credit sales on 2 month credit In Oct = 0.05 x 76 100 = 3805 In Nov = 0.05 x 77 500 = 3875 In Dec = 0.05 x 78 000 = 3900 In Jan = 0.05 x80 000 = 4000 Calculation of sales at cost price

67 200 7 350 320 6000 80 870 3375 244

60 000 7 350 400 6420 16 000 24 000 114 170 244 (33 586)

60 800 7 350 560 6420 75 130 (33 586) (29 074)

Oct = 78 000 ÷ 125 x 100 = 62 400 Nov = 80 000 ÷ 125 x 100 = 64 000 Dec = 84 000 ÷ 125 x 100 = 67 200 Jan = 75 000 ÷ 125 x 100 = 60 000 Feb = 76 000 ÷ 125 x 100 = 60 800 Mar = 77 000 ÷ 125 x 100 = 61 600 Purchases (goods are bought two month before they are sold) September $64 000 (sales at cost price for Nov) October $67 200 November $60 000 December $60 800 January $61 600 c) Inventory $108 859; Trade receivables $52 950; Trade payables $61 600; Bonus owing $200; Bank overdraft $29 074 Trade receivables at 31 Jan 2001 = 5 % sales of Dec + 5 % sales of Jan + 60 % sales of Jan = 0.05 x 84 000 + 0.05 x75 000 + 0.60 x 75 000 = 52 950 Purchases Budget Oct Nov Dec Jan Opening inventory 112 859 117 659 113 659 107 259 + Purchases 67 200 60 000 60 800 61 600 -Sales at Cost 62 400 64 000 67 200 60 000 Closing inventory 117 659 113 659 107 259 108 859 Question 15 Sogo Ltd a) Purchases in units July 10 500; Aug 12 000; Sept 9 000; Oct 10 000; Nov 8 500; Dec 9 000 b) Total receipts Sept $981 250; Oct $1 112 500; Nov $1 031 250; Dec $987 500 Total payments Sept $1 197 000; Oct $987 000; Nov $994 000; Dec $1 436 000 Closing balances Sept ($191 750); Oct ($66 250); Nov ($29 000); Dec ($477 500) Question 16 Jax Ltd Receipts Cash sales Credit sales : 1 month : 2 months Total receipts

Mar 3880 10920 3850 18650

April 4365 10920 4400 19685

May 4850 12285 4400 21535

Payments Supplier: same month Labour cost: Wage Bonus* V.Overheads Selling expenses Rent Other fixed overheads Machine

2646 3600 100 1600 2400 1390 3000

2940 4000 200 1800 2700 1390 -

3528 4800 400 2000 3000 1230 1390 1000

Total payments Closing balance

14736 (4086)

13030 2569

17348 6756

92

Workings Cash sales = 20 % of monthly sales less 3 % discount Calculation of receipts from customers on 1 month credit Credit sales = 80 % of monthly sales Receipts after 1 month = 70 % of credit sales 1 month earlier minus 2.5 % discount Receipts in March = 0.7 x $16000 x 0.975 = 10920 Receipts in April = 0.7 x $16000 x 0.975 = 10920 Receipts in May = 0.7 x $18000 x 0.975 = 12285 Bad debts = 2 % of monthly sales Bad debts for sales of Jan = 0.02 x $17500 = 350 - deducted when calculating receipts two month later i.e in Mar Bad debts for sales of Feb = 0.02 x $20000 = 400 - deducted when calculating receipts two month later i.e in Apr Bad debts for sales of Mar = 0.02 x $20000 = 400 - deducted when calculating receipts two month later i.e in May Calculation of receipts from customers on 2 month credit = 30 % of credit sales 2 months earlier minus bad debts Receipts in March = 0.3 x $14000 - 350 = 3850 Receipts in April = 0.3 x $16000 - 400 = 4400 Receipts in May = 0.3 x $16000 - 400 = 4400 Feb Mar Production in units 800 900 Production requirement (kg) 2400 2700 Purchases (kg) 2700 3000 Purchases ($) $1 per kg 2700 3000 Payment to suppliers: Mar = 0.98 x $2700 = 2646 April = 0.98 x $3000 = 2946 May = 0.98 x $3600 = 3528

Apr 1000 3000 3600 3600

May 1200 3600

*It is assumed that bonus is paid only on units produced in excess of 800 Other production overheads [33600 – 12000 – 4920] ÷ 12 =1390 Chapter 29: Standard costing and variance analysis Question 1 Chang Ltd Direct material price variance = $450 A Direct material usage variance = $975 F Total direct material variance = $525 F Question 2 Barta Ltd Direct material price variance = $153 A Direct material usage variance = $25 F Total direct material variance = $128 A Question 3 Craft Direct labour rate variance = $135 A Direct labour efficiency variance = $475 F Total direct labour variance = $340 F Question 4 Tiger Ltd Direct labour rate variance = $11.6 F

93

Direct labour efficiency variance = $9.5 A Total direct labour variance = $2.1 F Question 5 Santa Sales price variance = $22 500 A Sales volume variance = $ 45 000 F Total sales variance = $ 22 500 F Question 6 Lepar Ltd Sales price variance = $3 480 F Sales volume variance = $3 880 F Total sales variance = $7 360 F Question 7 AFC Ltd Sales price variance = $42 750 F Sales volume variance = $178 000 A Total sales variance = $135 250 A Question 8 Ravon Ltd (a) Direct material price variance = $1 590 F Direct usage variance = $800 F Total direct material variance = $2 390 F (b) Direct labour rate variance = $79.2 F Direct labour efficiency variance = $972 A Total direct labour variance = $892.8 A (c) Total standard cost = $52 920 Total actual cost = $51 422.8 Question 9 Motoworld Ltd (a) Direct material price variance = $1725 A Direct usage variance = $6300 F Total direct material variance = $4575 F (b) Direct labour rate variance = $590 F Direct labour efficiency variance = $17920 F Total direct labour variance = $18510 F c) Standard cost for actual production $166 920 Actual cost $143 835 Question 10 Aston Ltd (a) Direct material price variance = $14 700 A Direct usage variance = $29 983.3 A Total direct material variance = $44 683.3 A (b) Direct labour rate variance = $85.2 A Direct labour efficiency variance = $370.2 F Total direct labour variance = $285 F Question 11 Relham

94

ai) $1100 A aii) $1050 F aiii) $3000 F aiv) $900 A Question 12 Lim Ltd a) Sales volume var $40000 Adv Sales price var $10000 Adv Total sales var $50 000 Adv Direct material price variance = $2700 adv Direct material usage variance = $3200 Fav Total RM var $500 fav Direct labour rate variance = 600 F Direct labour efficiency variance = $5600 Adv Total labour var $5000 Adv b) Budgeted contribution $98880 Question 13 LBC Ltd (a) Budgeted profit = $52 000 (b) Quantity variance = $12 000 F (c) i) Direct material price variance = $21 000 A Direct material usage variance = $12 000 F ii) Direct labour rate variance = $7 200 F Direct labour efficiency variance = $36 000 A iii) Sales price variance = $24 000 A (d) Actual Loss = $9 800 Question 14 Tremix Ltd

Eratum

Std hours for finishing dept should be 1.5 instead of 2.5 Change polishing to finishing

ai) $1885 A aii) $8300 A aiii) $6415 F bi) $48 000 A bii) $27 000 A biii) $21 000 A ci) $20 000 hours cii) $3.68 ciii) $1600 A Question 15 Kamma a) Budgeted production of 8 500 units = $22 500 Budgeted production for 8 200 units = $21 000 Actual production of 8 200 units = $57 940 b) i) Sale price = $28 700 F ii) DM price = $1 540 A iii) DM usage = $ 5 000 F iv) DL rate = $2 380 F v) DL efficiency = $2 400 F vi)Quantity = $1 500 A

95

Question 16 John Brown Material price variance: P Q

$1 320 A $720 F

Material usage variance: P Q

$900 A NIL

Labour rate variance = $300 A Labour efficiency variance = $1 200 F Standard cost = $30 600 Question 17 Criel Ltd Question 18 Laxio Ltd a) DM price var $240 000 F; DM usage var $68 400 A b) DL rate var $30 000 F; DL efficiency var $58 080 A c) Standard cost $1 493 520; Actual cost $1 350 000 Question 19 Mexus Ltd ai) Mat price var $105 000A; Mat usage var $48 000F aii) Lab rate var $nil; Lab efficiency var $48 000A b) Budgeted cost $840 000; Actual cost $945 000 Question 20 Buraco Ltd a) $7150 standard profit b) $5796 actual profit ci)Sale price var = $550 A; Sales volume Var $2580F ii) DM price var = $314 A; DM Usage var $480 F iii) DL rate = $720 A; DL efficiency var = $150 F iv)Quantity var = $390 F

Question 21 Ridgeway Ltd ai) $7.37 per machine hour aii) $10.96 per labour hour aii) 65.5 % of total DM cost or $0.65 per $ of material b) $106.37 (30.8 + 18 +22.11) x 150 % di) $2760 A dii) $1640 A diii) $1120 A div) $440 A dv) $2000 F dvi) $1560 F e)$81.52

Chapter 30: Investment Appraisal Question 1 Entel Ltd

96

a)

Year Annual NCF 0 (135 000) 1 35 000 2 35 000 3 35 000 4 35 000 5 70 000 b) Payback period 3 years and 10.3 months c) NPV $28 590 d) Discounted payback 4 years and 4.8 months e) IRR 14.78 % f) ARR 17.65 % Question 2 Bradley Ltd (a) Net present value = $203 776, Yes acceptable since positive NPV (b) Discounted payback = 3 years 7.05 months (d) Internal rate of return = 17.007% Question 3 Clothing company a)

Year Annual NCF 0 (250 000) 1 60 000 2 110 000 3 96 800 4 17 500 b) Payback Period 2 years and 9.9 months c) ARR 6.86 % d) NPV $19 950.7 negative e) Cannot be calculated f)IRR 4.92 % Question 4 Peacock Ltd (take useful life of machine to be 3 years with nil scrap value) a) Total production costs: Year 1 $135 000; Year 2 $162 000; Year 3 $194 400 b) Annual NCF Year 0 ($146 000); Year 1 $71 250; Year 2 $85 500; Year 3 $43 200 NPV $9051 c) Discounted payback 2 years and 8.18 month d) IRR 18 .99% Financial considerations: • machine has reduced production costs ;machine has increased output ;potentially could lead to more sales and more profit • the net present value calculation gives a positive result which is supportive of purchase but is based on estimates of future cash flows and cost of capital which may be inaccurate • NPV should not be used in isolation – should use other techniques example payback ;payback is 1 year 320 days;how quickly the money is recouped has a bearing on risk • what is the source of the funding for the purchase price? is the money available? has the money borrowed been secured on assets? • extra costs, e.g. legal costs could be involved in protecting their reputation against the activities of action/green/environmentalists which will reduce profits

97

• shareholders may sell their shares once they discover the waste disposal methods which may reduce the share price . Non-financial considerations: • there may be extensive action against the company by environmental groups which may be reported in the media and affect the reputation of the company • this may give competitors the competitive edge • the company is acting against laws aimed at protecting the environment • negative effect on wildlife • could cause health problems • effect on workforce of new machine/training implications maximum . Question 5 Makeit Ltd (a) Accounting rate of return = 13.95 % (b) Discounted payback = 4 years 6.9 months (c) Internal rate of return = 14.57 % Question 6 Mr X Annual NCF Year 0 ($11000); Year 1 ($5620); Year 2 $5148; Year 3 $6002; Year 4 $5852; Year 5 $9198 a) Payback 3 years and 11.2 months b) NPV $2361 c) IRR $15.28

98 Question 7 Qadir Cricket Club ( there is an error in the original question and reproduced in the book concerning the PV of $1 for the 5th year , it should be 0.567 instead of 0.507 a) Year ANCF 0 (203 600) 1 65 400 2 168 500 3 282 300 4 406 760 5 547 302 Net cash flow generated = 1 266 662 b) NPV (using 0.567) $759 114; NPV (using 0.507) $726 275.77 c) Discounted payback (using 0.567) 2 years 0.65 months; Discounted payback (using 0.507) 2 years 0.648 months Question 8 Ghosh Ltd ai) Annual NCF Year A B 0 (150000) (140000) 1 52 000 49 000 2 52 000 49 000 3 52 000 49 000 4 52 000 49 000 aii) ARR : A 17.06 %; B 15.9 % aiii) Payback: A 2 years 10.6 months; B 2 years 10.3 months

b) NPV of Project A $14 788

Question 9 Star Ltd ai) Annual net cash flow Year A B 0 (180 000) (205 000) 1 56 000 70 000 2 57 000 70 000 3 60 000 69 000 4 51 000 55 000 5 57 000 48 000 Payback period Product A 3 years 1.65 months; Product B 2 years 11.3 months aii) NPV Product A $33 276; Product B $35 642 aiii) ARR Product A 21.3 %; Product B 20.9 % Question 10 Ekulrac Taxi Annual net cash flow Year A B C 0 (30 000) (35 000) (40 000) 1 9 000 7960 8480 2 9000 7960 8480 3 8500 7760 8380 4 8300 7460 8280 5 15000 16260 19080 a) Net present Value A $8019; B $843; C $351 negative b) Payback A 3 years 5.06 months; B 4 years 2.8 months; C 4 years 4 months c) ARR for Axis 21.4 % Question 11 JR Calculation of annual net cash flow assuming the existing machine is used Year Scrap value sales D.Labour D.Material & V.Overheads 05/06 630000 140000 330000 06/07 630000 140000 330000 07/08 630000 140000 330000 08/09 630000 140000 330000 09/10 10000 630000 140000 330000

99

ANCF 160000 160000 160000 160000 170000

Number of machine hours = 50 weeks x 5 days x 8 hours Annual D.Labour = 2000 hours x $70 = $140 000 Annual D.material and V.overheads = 60 000 chairs x (2 + 3.5) = $330 000 Note: the investment cost of the existing machine is an irrelevant cost since it is a sunk cost Calculation of annual net cash flow assuming the replacement machine is bought Year Investment & sales D.Labour D.Material & V.Overheads Scrap value 0 (250 000) + 30000*

ANCF (220000)

05/06 06/07 07/08 08/09 09/10

5000

735000 735000 735000 735000 735000

140000 140000 140000 140000 140000

373000 373000 373000 373000 373000

222000 222000 222000 222000 227000

* The scrap value of the existing machine is a cash inflow if the replacement machine is bought. New production = 60 000 + (2000 hrs x 5) = 70 000 chairs New annual sales = 70 000 x $10.5 = $735 000 Revised D.Material per chair 90 % x $2 = $1.8 Revised D.M and V.O per annum = 330 000 + 10 000 x (2.5+1.8) = $373 000 Calculation of incremental annual NCF Year ANCF with replacement machine 0 1 160000 2 160000 3 160000 4 160000 5 170000

ANCF with existing machine (220000) 222000 222000 222000 222000 227000

Incremental ANCF (220000) 62000 62000 62000 62000 57000

10 0 Alternatively the incremental annual NCF can be calculated as follows Year Investment & Incremental Incremantal Scrap value sales Material & V.Overheads 0 (250 000) + 30000 05/06 105000 43000 06/07 105000 43000 07/08 105000 43000 08/09 105000 43000 09/10 5000 105000 43000 (10000)*

Incremental ANCF (220000) 62000 62000 62000 62000 57000

Incremantal sales = 735 000 – 630 000 = 105 000 Incremental material and variable overheads = 373 000 – 330 000 = 43 000 Note 1. Labour cost is the same under both options and therefore it is a common cost. Common costs are not relevant for decision making. (refer to chapter 27) 2. The scrap value of the existing machine at the end of year 6 is an opportunity cost ( value of benefit sacrificed as a result of replacing the existing machine) Calculation of Payback Year Incrementl ANCf 0 (220000)

Cummulative incremental ANCF (220000)

1 62000 2 62000 3 62000 4 62000 5 57000 34000 ÷62 000 x12 6.58 Payback = 3 years 6.58 months Calculation of NPV Year Incrementl ANCf 0 (220000) 1 62000 2 62000 3 62000 4 62000 5 57000

(158000) (96000) (34000) 28000

D.Rate 14 % 1 0.877 0.769 0.675 0.592 0.519 NPV

present value (220000) 54374 47678 41850 36704 29583 (9811)

IRR = 12.23 % Question 12 Game Ltd ai) Annual NCF Year A B 0 (320000) (375000) 1 100 000 113 000 2 112 000 164 000 3 127 000 132 000 4 144 000 156 000 aii) Payback: A 2 years 10.2 months; B 2 years 8.9 months aiii) NPV: A $66000; B $79 061 aiv) ARR: A 12.73 %; B 12.67 % Question 13 Inter Ltd ai) Payback - Project A 1 year 5.14 months; Project B 1 year 4.7 months aii NPV - Project A $151 875; Project B $152 534 aiii) ARR – Project A 96.8 %; Project B 93 .3 % Question 14 Arsen Football Club Eratum the PV of $1 for the 5th year at 12 % should be 0.567 instead of 0.507 a) Annual net cash flow Year Jim John 0 (200 000) (100 000) 1 150 000 200 000 2 150 000 200 000 3 150 000 4 150 000 5 150 000 Net cash flow 550 000 300 000 b) c)

NPV Jim $340 750 ; NPV John $238 000 IRR Jim 43.66 %; IRR John 73.03 %

10 1

Question 15 Polton a) Year 0 1 2 3 4

Annual NCF Proposal 1 (420 000) 138 000 120 000 129 800 198 000

Proposal 2 (300 000) 122 000 104 000 113 800 182 000

b) NPV Proposal 1 $37 276; Proposal 2 $106 572 c) Discounted payback for proposal 1: 3 years and 8.7 months Chapter 31: Process Costing Question 1 a) Cost transferred from P1 to P2 = $64 800 Cost transferred from P2 to finished goods = $113 400 b) P1 = $32.4 P2 = $63 Question 2 a) Cost transferred from PA to PB = $109 125 Cost transferred from PB to finished goods = $172 725 b) Unit cost: Process A = $24.25 Process B = $38.38

10 2

Question 3 a) Cost transferred from P1 = $84 000 Cost of WIP P2 = $14 880 Cost of finished goods transferred = $155 520 b) Cost of 1 completed unit from: P1 = $14 P2 = $28.8 c) Cost of 1 unit of WIP = $24.8 Question 4 ‘ Kiwi’ a) Process X Material cost Labour cost V. Overhead F. Overhead Cost of WIP Cost transferred to PY

$ 25 000 6 900 4 140 2 760 6 800 32 000

b) Cost of 1 complete unit from PX = $45.7 PY = $66.2 c) Cost of 1 unit of WIP in PX = $34

Question 5 ‘ Klactine’

Process Y Process X Material Labour V. Overhead F. Overhead Cost transferred to f. goods

$ 32 000 4 200 7 000 1 750 1 400 46 350

a) Process P Material Labour V. Overhead F. Overhead Cost transferred to process Q

$ 54 000 15 750 21 000 6 300 97 050

Process Q Process P Material Labour V. Overhead F. Overhead Scrap value of N. loss Cost of WIP Cost transferred to f.goods

$ 97 050 22 800 16 500 4 125 8 250 2 625 21 600 124 500

Process T Process S Material Labour V. Overhead F. Overhead Cost of WIP Cost transferred to f.goods

$ 312 000 64 980 71 000 42 600 26 000 50 272 466 308

b) Cost of 1 completed unit: Process P = $32.35 Process Q = $55.33 Cost of 1 unit of WIP in Process Q = $43.2 Question 6 Clyde Ltd a) Process S Material Labour V. Overhead F. Overhead Cost transferred to process T

$ 96 000 160 000 40 000 16 000 312 000

10 3 b) Cost of completed unit: Process S = $42.74 Process T = $71.74 Cost of 1 unit of WIP from Process T= $62.84 Question 7 Caramel Ltd Eratum process 2 direct labour per unit should be 1.5 hours a) Process 1 $ Process 2 Material 500 000 Process 1 Labour 640 000 Material V. Overhead 480 000 Labour F. Overhead 120 000 V. Overhead Cost transferred to process 2 1 732 800 F. Overhead Cost of WIP Cost transferred to f.goods Process 3: Cost transferred to F.goods = $4 419 952 b) Cost of 1 completed unit: P1 = $44.66 P2 = $75.41 P3 = $116.31 Cost of 1 unit of WIP = $62.47

$ 1 732 800 231 000 347 400 376 350 228 000 49 978 2 865 572

Question 8 Clumber Eratum process 2 direct labour per unit should be 1.5 hours a) Process 1 a\c: Mat 300 000 Lab 1 800 000 VO 1 200 000 FO 250 000

bi) bii) c) d) e)

Process 2 a\c: Process 1 3 544 0000 Mat 192 800 Lab 717 000 VO 466 050 FO 376 000 Bal c\d 141 272 Transfer to P3 5 154 578 Cost of 1 completed unit from P 1 =72.92 Cost of 1 completed unit from P 2 =109 .67 Transfer to finished goods = 6 931 728 Cost of 1 completed from P3 = 147.48 Profit margin = 33.83 %

10 4 Question 9 Laurus Process 1 Material Labour V. Overhead F. Overhead Cost transferred to process 2

Question 10 Cernox a) Process 1 Material Labour Variable overhead Fixed overhead Scrap value Cost of WIP Transfer to P2

$ 12 000 56 000 35 000 49 000 152 000

$ 80 000 55 200 36 800 18 400 1 175 14 000 175 225

Process 2 Process 1 Material Labour V. Overhead F. Overhead Cost of WIP Cost transferred to f.goods

Process 2 Process 1 Material Labour Variable overhead Fixed overhead Scrap value Transfer to F.goods Cost of WIP

b) Cost of 1 complete unit from: Process 1 = $20.6147

$ 152 000 30 000 38 500 11 550 30 800 125 650 137 200

$ 175 225 51 000 41 750 25 050 16 700 4 900 284 356 20 469

Process 2 = $37.91 Cost of 1 unit of closing WIP from: Process 1 = $14 Process 2 = $34.115 Question 11 Atwood a) i) ii) iii) iv) v)

10 000 $6 per labour hour $2 per labour hour $3.5 per unit 15 %

i) ii) iii)

7 800 units $546 459 $42 916

b)

Question 12 RJP Ltd Cost element Material Labour v.overhead

Completed production 90 000 90 000 90 000

Unit cost statement Process 1 Wastage Spoilage Equivalent production 8 000 2 000 100 000 2000 92 000 2 000 92 000

Completed production = 100 000 – 8000 – 2000 = 90 000 Fixed cost P1 = 2000 ÷ 7000 x 28 000 = 8000 Scrap value = 2 000 x .06 = 1200 Process 1 A\c Material 130 000 Labour 184 000 V.overheads 55 200 F.overheads 8 000 377 200

Cost

Unit cost

130 000 184 000 55 200

1.3 2 0.6

Scrap value Process 2 Process 3 F.Goods

1200 188 000 150 400 37 600 377 200

Transfer to process 2 = 0.5 x (377 200 – 1200) = 188 000 Transfer to process 3 = 0.4 x (377 200 – 1200) = 150 400 Transfer to finished goods = 0.1 x (377 200 – 1200) = 37 600 Cost of 1 completed kilo from p1 = 377 200 – 1200 ÷ 90 000 = $4.1778 Kilo transferred to P2 = 0.5 x 90 000 = 45 000 Kilo transferred to P3 = 0.5 x 90 000 =36 000 Kilo transferred to finished goods = 0.1 x 90 000 = 9000

Cost element Process 1

Completed production 43 375

Unit cost statement Process 2 Wastage Spoilage 1000

625

Equivalent production 45 000

Cost

Unit cost

188 000

4.1778

10 5

Labour v.overhead

3 375 43 375

-

625 625

Completed production = 45 000 – 1000 -625 = 43 375 Fixed cost P2 = 3000 ÷ 7000 x 28 000 = 12000 Scrap value = 625 x .06 = 375 Process 2 A\c Process 1 188 000 Labour 66 000 V.overheads 5500 F.overheads 12 000 271 500

Cost element

Completed production

Process 1 Labour v.overhead

34 170 34 170 34 170

44 000 44 000

66 000 5 500

1.5 0.125

Scrap value

375

F.Goods

271 125 271 500

Unit cost statement Process3 Wastage Spoilage Equivalent closing WIP 500 330 1000 330 300 330 300

Equivalent production

Cost

Unit cost

36 000 34 800 34 800

150 400 45 240 6 960

4.1778 1.3 0.2

Completed production = 36 000 – 500 – 330 - 1000 = 34 170 Fixed cost P2 = 2000 ÷ 7000 x 28 000 = 8000 Scrap value = 330 x .06 = 198 10 6 Closing WIP

P1 (1000 x 4.1778) = 4178 Labour (300 x 1.3) = 390 V.Overheads (300 x 0.2) = 60 4628

Cost of wastage in Process 3 = 500 x 4.1778 = 2089 If the cost of wastage is shared between the Closing WIP and good production then closing WIP will increase by $58 (1 000 ÷ 36 000 x 2089). Hence cost of closing WIP will be 4628 + 58 = 4686 (4687 given in marking scheme Nov 2009 p42) Process 3 A\c Process 1 150 400 Scrap value 198 Labour 45 240 F.Goods 205 774 V.overheads 6960 Bal c\d 4628 F.overheads 8 000 210 600 210 600 Cost of 1 completed kilo from p2 = 271 125 ÷43 375 = $6.25 Cost of 1 completed kilo from p3 = 205 774 ÷ 34 170 = $6.02 Question 13 DC Ltd a) 63 000 units b) Process 1 A\c

Material Labour V.overheads F.overheads

1 120 000 2 100 000 1 260 000 140 000

Scrap value Process 2

140 000 4 480 000

c) Cost of raw materials $1 492 800 d) Cost of work in progress $258 364 Question 14 Isko Ltd a) Transfer to Process Y $135 000 Closing WIP $10 300 b)(i) Transfer to F.goods Closing WIP

$287 700 $18 900

(ii) Transfer to F.goods $288 461 Closing WIP $18 139 c) Cost of one completed unit from Process X $30 Cost of one completed unit from process Y using FIFO $56.41 Cost of one completed unit from process Y using AVCO $56.56 Question 15 Lutosa Ltd Process A: Bal b\d $6376; Material $54360; Labour $ 97120; V.Overheads $43704; F.Overheads $24280; Transfer to Process B $220 956; Bal c\d $4884 Process B: Bal b\d $10416; Process B $220956; Material $60825; Labour $ 54315; V.Overheads $21726; F.Overheads $28968; Transfer to F.goods $384100; Bal c\d $13106 Question 16 Alpha. a) (i) Process A- FIFO: Balance c/d $18 480;Transfer to PB $218 700 Process B FIFO: Balance c\d $14 010; Transfer to F.goods $475 600 (ii) Process A – AVCO: Bal c/d $18 480; Transfer to PB = $218 700 Process B – AVCO: Bal c\d $14093; Transfer to F.goods $475517 Question 17 Sparky Ltd Process 1: Bal b\d $17960; Material $150200; Labour $ 121600; Variable and fixed Overheads $136 560; Transfer to Process 2 $418 080; Bal c\d $8240 Process 2: Bal b\d $27560; Process 1 $418080; Material $141300; Labour $ 71640; Variable and fixed overheads $62688; Transfer to F.goods $713670; Bal c\d $7598 Question on Joint product and By-Product Question 18 Chemiflo a) Units produced: -

L 2 000 M 2 500 H 3 000

b) Value of closing Inventory: - L $1 784 - M $3 363 - H $4 925

10 7

c) Revenue Cost of sales Gross Profit Closing Inventory: L, M & H d) Revenue Closing Inventory

$122 700 $60 988 $61 712 $10 072

$122 700 $ 10 260 – L = 2 520, M = 3 440, H = 4 300

Question 19 QR Ltd Question 20 BK Chemicals a (i) Profit A $3 500 B $7 500 C $8 000 Total $19 000 a (ii)

Profit and Loss A B C Total

b (i)

A = $14 237 B = $13 559 C = $12 204

b (ii)

A = $6 487 B = $17 298 C = $16 217

$2 500 Loss $27 500 Profit $27 500 Profit $52 500

10 8