INTERNATIONAL

ADVANCED LEVEL
ACCOUNTING

WORKSHEET
- THE ACCOUNTING SYSTEM -

Question 1
Chrishell owns s a manufacturing business. She applies a rate of factory pro8it which
varies each year. In this way inventory is valued at a transfer price similar to the price at
which the goods could be bought from an external supplier.

Chrishell provided the following information.

At 1 January 2019 $
Inventory of 8inished goods at transfer price 140 000
Unrealised pro8it included in inventory value 40 000

For the year ended 31 December 2019
Prime cost 505 000
Decrease in work in progress 12 000
Revenue 1 550 000
Decrease in provision for unrealised pro8it 15 000
Factory overheads 283 000
Distribution costs 212 000
Administrative expenses 484 000
Finance charges 20 000

At 31 December 2019
Inventory of 8inished goods at transfer price 125 000

Required:
(a) Calculate the amount of unrealised pro8it included in inventory on 31 December
2019.
(b) Calculate the rate of factory pro8it being applied in 2019.
(c) Prepare the income statement for the year ended 31 December 2019. [14]

Additional information:
The factory manager has suggested that a rate of factory pro8it of 50% should be applied
every year.

(d) Advise Chrishell whether she should apply a rate of factory pro8it of 50%. Justify
your answer.
(e) Explain where carriage on raw materials is recorded in the 8inancial statements of
a manufacturing business.

1
 INTERNATIONAL ADVANCED LEVEL
ACCOUNTING

Question 2
The following information is available for the Foreign Journalist Club for the year ended
31 August 2016.

(1) Annual subscriptions:
1 September 31 August
2015 2016
£ £
balances subscriptions in advance 350 530
subscriptions in arrears 900 700

• during the year annual subscriptions received and banked were £4 250
• £630 of the subscriptions in arrears at 1 September 2015 were received, the
balance was irrecoverable.

(2) Life membership subscriptions:
• balance 1 September 2015 £30 400
• during the year life membership subscriptions received and banked were £1 600
• the Foreign Journalist Club transfers 10% of the Life Membership Subscription
Account balance at the end of the year to the Income and Expenditure Account.

(3) Balances at 31 August 2016:
£
Subscriptions in advance 530
Subscriptions in arrears 700
Life membership subscriptions ?
Clubhouse (at book value) 55 000
5% Bank loan (repayable 30 June 2025) 6 000
Trade payables 825
Bank 1 950 Dr
Accrued expenses 235

Required:
(a) Explain two differences between the Receipts and Payments Account and the
Income and Expenditure Account.
(b) Prepare for the year ended 31 August 2016, showing the appropriate transfer to
the Income and Expenditure Account, the:
(i) Subscriptions Account
(ii) Life Membership Account.
(c) Calculate the Accumulated Fund at 31 August 2016.
(d) Prepare the Statement of Financial Position at 31 August 2016.
(e) Evaluate the case for the club offering life membership.