‘A’ LEVEL ACCOUNTING

COMPREHENSIVE

REVISION

ACCOUNTING QUESTIONS

BOOKLET

Tinofamba nevanofamba
MUSENDO POWER
SOLUTIONS AVAILABLE
 QUESTION 1

Adbel received a legacy from his Father so he was able to fulfil a long standing desire to open
a spare parts shop. On 1 January 1992 he opened a business bank account with the full
amount of the legacy. However he paid little attention about keeping proper accounting
records.
Also on 1 January 1992 he rented premises at a rental of $750 per month payable quarterly in
advance. The first payment was made on 3 January 1992. At 31 December 1992 a summary
of Adbel’s bank transactions revealed the following:

Receipts $ Payments $

Legacy 50 000 Rent 6 750

Cash banked 269 000 Fixtures/equipment 21 670

Business rates 2 400

Electricity 4 670

Telephone 690

Purchases 265 770

Holiday in Vumba 3 400

All Adbel’s takings were banked after the following cash expenses were paid and personal
drawings taken. These were:
Wages $410 per week (50 weeks);
Sundry expenses $15 per week (50 weeks);
Cash purchases $2 980 for the year.
Adbel always retained a cash float of $250 in the till.
Additional information:
i. Due to an oversight the last quarter’s rent due on 1 October 1992 was not paid
until January 1993.
ii. Selling prices were fixed by marking up the goods by 40% on cost price.
iii. Business rates of $1000 had been paid on 5 October 1992 to cover the period 1
October 1992 until 31 March 1993.
iv. It was estimated that Adbel owed $1 800 for electricity and an accountant’s
fee of $220 at 31 December 1992.
v. It was decided to depreciate the fixtures and equipment by $6 670.
vi. Creditors for purchases were $6 250 at 31 December 1992.
vii. Trade debtors amounted to $38 000 at the year ended 31 December 1992 and a
provision for doubtful debts of 5% was to be established at that date.
viii. Closing stock was valued at cost at $15 000.
After preparing Adbel’s final accounts for the year ended 31 December 1992 the accountant
suggested he should consider converting his business into a private limited company.
Required
a) A lncome statement for the year ended 31 December 1992 {14}
b) A statement showing the calculation of Adbel’s drawings {4}
c) A Statement of financial position as at 31 December 1992. {14}

QUESTION 2

Knowledge and Munashe are concerned at the cost of manufacture. Consequently at the
beginning of 2017 they decided to introduce a standard costing system.

The standard cost card for a reading desk included the following:
Direct materials ­ 2m3 of timber at $150/m3 = $300
1
Direct labour ­ 4 hours at $80 per hour = $360
2

During the year ended 31 March 2017, 2 500 reading desks were manufactured.
Actual expenditure was as follows:
5 750m3 timber at $851 000
10 500 direct labour hours at $892 500
Required
a. i. Total direct material cost variance {2}
ii. Direct material price variance {2}
iii. Direct material usage variance {2}
iv. Total direct labour cost variance {2}
v. Direct labour rate variance {2}
vi. Direct labour efficiency variance {2}
 QUESTION 3

Laison Ltd manufactures one product. The product passes through two processes. The cost
accountant provides the following information:

Process 1 Process 2

Materials per unit 4 litres 5 litres

Cost of materials per kilo $1.50 $3

Cost of materials used in process 1 $12 000 ­

Cost of materials used in process 2 ­ to be calculated

Direct labour hours per unit 3,5 2,2

Hourly labour cost $8 $10

Variable overhead per unit $5 per direct $3 per direct

labour hour labour hour

Fixed overhead absorption rate $7 per direct $8 per direct

labour hour labour hour

Opening work in progress nil nil

Closing stock of work in progress nil 1 000 units

Additional information:
The closing stock of work in progress in process 2 is complete as to 100% materials
 and 75% labour

Required

a) Prepare the ledger account for process 1. {9}

b) Prepare the ledger account for process 2. {23}

QUESTION 4
Golden Ltd manufactures and sells radios. The unit selling price and production costs are as
follows:
$
Selling price 800

Direct materials 100

Direct labour 90

Variable overheads 50

Fixed overheads 160

The fixed production overheads assume a monthly production of 2 000units.

The following monthly costs are also incurred:

Fixed administrative overheads $80 000
Variable sales overheads 10% of sales value
Fixed sales overheads $120 000
During the month of December 2010 a total of 2 400 units were produced of which 1 800
were sold. There was no stock on hand at the beginning of December.

Required
Combined profit statements of Marginal costing and Absorption costing. (20)

QUESTION 5

The Quartet is a partnership which owns a manufacturing firm. The balance sheets of the firm
as at 31 December 2004 and 2005 are given below.

As at 31December 2004 2005

Assets $000 $000 $000 $000
Non­current asset
Premises at cost 1 000 1 300
Provision for depreciation (375) 625 (26) 1 274

Plant and equipmet at cost 600 1 400

Provision for depreciation (240) 360 (700) 700

Motor vehicles at cost 840 1440

Provision for depreciation (504) 336 (864) 576
1 321 2 550
Current assets
Inventory 750 810
Trade receivables 649 540
Bank 400 1 799 380 1 730
3 120 4 280

Equity and liabilities

Partner’s capitals at 1 January2 330 2 600
Add revaluation ­ 675
 Net profit 566 739
2 896 4 014
Less drawings 296 2 600 334 3 680

Trade payables 520 600

3 120 4 280
Notes
i. The premises were revalued on 1 July 2005.
ii. During 2005, motor vehicles which had cost $180 000(net book value $36 000)
were sold for
$30 000.

Required
a. A cash flow statement for the year ended 31 December 2005. (12)
b. State and explain five benefits of preparing cash flow statements.(10)

QUESTION 6
Musendo Power Limited manufactures garden furniture. One of the lines it produces is a bird
table and the contribution made by the bird tables to the overall company results for the year
ended 30 June 2017 was as follow :
Contribution statement for the bird tables for the year to 30 June 2017.
$ $
Sales 162 000
Less: Variable costs
Raw materials 53 280
Direct labour 47 680 100 960
61 040

Additional information

1) No opening or closing stocks of bird tables.

2) Budget and standard costs for the year ended 30 June 2017.
i) Budgeted sales of bird tables: 15 000@ $10 each.
ii) Each bird table would require 4kg of materials at a cost of 80cents per kg
 iii) Three bird tables should be made per hour of direct labour.
iv) The direct labour rate is $7.20 per hour.

3) The additional results for the year ended 30 June 2017 revealed the following:
i) 18 000 bird tables were sold.
ii) 74 000 kg of raw material was used.
iii) Direct labour amounted to 6 400 hours.
Required
a) i) Sales volume variance {2}
ii) Sales price variance {2}
iii) Total sales variance {2}
iv) Raw material usage variance {2}
v) Raw materials price variance {2}

vi) Total raw materials variance {2}

vii) Direct labour efficiency variance {2}

viii) Direct labour rate variance {2}

h) Total direct labour variance {2}

b) Prepare a statement that shows the budgeted contribution for the year ended 30 June
2017. {4}

QUESTION 7
Differential Products Ltd. Commenced manufacturing on 1 January 2011. The directors have
been studying the company’s results for the years ended 31 December 2011 and 31 December
2012. The company has hitherto calculated profits using marginal costing principles. The
directors have now been advised by their accountant that they should have based their profit
calculations on absorption costing methods and they wish to know what effect costing would
have had on the company’s profits.
The information is available for the two years:
2011 2012
Sales (in units) 2 000 2 300
Price per unit $45 $50
No. of units produced 2 500 2 700
Direct materials per unit $9 $11
Direct labour per unit $12 $14
Direct expenses per unit $4 $5
Fixed overheads (factory) $49 000 $49 000

Stocks of finished goods are valued on the FIFO basis.

Required

a. Profit statements for Differential Products Ltd for the years ended 31
December 2011 and 2012 using marginal costing absorption costing.
{16}

b. Explain why the profits calculated using absorption costing differ from those
calculated under marginal costing. {4}

c. Prepare a statement which shows clearly how the different profits for 2011 and
2012 have arisen.
{5}

QUESTION 8

Power High School hires a bus whenever it has to travel for sports. The School Development
Association is considering buying a school bus.

The cost of the new bus is $150 000 payable $90 000 now and the balance in twelve months
time. The bus is expected to run for five years, after which it will be sold for $50 000.

At the beginning of the first year, the costs of running the new bus per annum are currently:

$
Fuel 10 000
Repairs 5 000
Other costs 2 000
These costs are expected to increase by 10% for each of the next three years and thereafter by
5% each year.

The cost of hiring a bus is currently $900 per trip and the school has an average of 40 trips
per year. The cost is expected to increase by 20% each year for the next 2 years and by a
further 10% each year thereafter. The cost of capital is 10%. The following extract is from the
present value table for $1.

10%

Year 1 0.909
2 0.826
3 0.751
4 0.683
5 0.621

Required
a. The annual savings rounded off to the nearest dollar, to be made by running a
new bus.
{6}
b. The Payback period
{4}
c. The Net Present Value
{12}
d. Advise the School Development Association (SDA) whether to buy or to
continue hiring.
{3}

QUESTION 9

The directors of Power Limited have introduced a new soap in the market. The soap is
manufactured through two processes, process 1 and process 2. The data relating to the
production processes is given below.

Process 1 Process 2

Direct material 1,5kgs/unit 0,8kg/unit

Cost of direct material $3/kg $4/kg

Direct labour 1 hr/unit 3 hr/unit
2 4

Labour hourly rate $2 $3

Overheads 200% of direct labour 150% of direct labour

Work in progress nil 1 000

Material used in process 1 $45 000

The closing work in progress in process 2 is complete as to 80% materials and 70%
labour. Normal loss of input is expected to be 20% in process 1. Scrap from process 1
is sold for $0,3 per unit.

a) Required

i) Process 1 account {5}

ii) Process 2 account {14}

b) Calculate for process 2

i) The cost of one completed unit. {1}

ii) The cost of one unit of work in progress. {1}

 QUESTION 10
Kilia manufactures garden ornaments.

Budgeted revenue and costs for 10 000 units of a garden ornament are as follows:

Revenue 300 000

Costs
Direct materials (10 000kilos)
60 000
Direct labour ( at $11 per hour) 132 000
Fixed overheads 70 000

The actual revenue and costs for 18 000 units were as follows:
$
Revenue 504 000

Costs
Direct materials (17 560kilos) 119 408
Direct labour (23 000 hours) 233 450
Fixed overheads 70 000

Required
a. Prepare a flexed budget to show the difference between the budgeted profit and the
actual profit for 18 000 units. {12}

b. Prepare a standard cost statement to reconcile the budgeted profit and the actual profit.
It should clearly show the following variances:

Sales volume variance

Sales price variance
Direct material usage variance
Direct material price variance
Direct material efficiency variance
Direct material rate variance
{16}

QUESTION 12
Chido and Chenai, who have in partnership for many years, decided to retire and dissolve the
partnership on 30 September 2003. Profits and losses were shared in the ratio of the partners’
Capital account balances, which were fixed at Chido $80 000 and Chenai $40 000. The
partnership Statement of financial position at 30 September 2003 was as follows.

Fixed assets (net book value) $ $

Buildings 104 000
Fixtures and fittings 35 000
Motor vehicles 26 000
165 000
Current assets
Inventory 10 500
Trade receivables 17 230
Bank 950
28 680
Current liabilities
Trade payables 9 230 19 450
184 450

Capital accounts: Chido 80 000

Chenai 40 000 120 000

Current accounts: Chido 14 430

Chenai (2 580) 11 850
Loan from: Chido 52 600
184 450

The partnership ceased trading on 30 September 2003 and the assets were realized a follows:
$
Buildings 100 000
Fixtures and fittings 37 000
One motor vehicle 15 000
The remaining motor vehicle was taken by Chido at an agreed valuation of 9 500
Inventories 5 200

All debts were collected and banked except for bad debts totaling $900.
Discount allowed amounted to $200
Creditors were paid in full
Dissolution expenses of $1 200 were paid by cheque
Chido’s loan was repaid from the bank account.
Partners’ Current account balances were transferred top their Capital accounts.
Required
Prepare the following accounts for the month of October 2003.
a. Dissolution account {8}
b. Partners’Current accounts, in columnar form {4}
c. Partners’Capital accounts, in columnar form {4}
d. The partnership Bank account {8}

QUESTION 13
Randal Ltd is considering expanding its business and has to decide between taking on Project
A or Project B. Both projects have a life of four years. Equipment is expected to have no
scrap value.

Other information about the projects is as follows:

Project A Project B
$ $
Initial cost $150 000 $ 140 000
Annual sales $100 000 $ 120 000
Annual purchases $40 000 $65 000
Other costs as a percentage of sales 8% 5%
Increase in working capital $10 000 $18 000

Randal Ltd uses a cost of capital of 10%. Discounting factors at 10% are as follows :

Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683

Using a cost of capital of 10% Project B has a net present value of $15 281.

REQUIRED
a. For each of the two projects calculate the following :
i. The annual net cash flow
ii. The Accounting Rate of Return
iii. The Payback period
b. Calculate the Net Present Value for Project A only.
c. State two benefits and two drawbacks of each of the following.
i. Accounting Rate of Return.
ii. The Payback period.
iii. The Net Present Value.
d. State which of the two projects Randal Ltd should select. Give reasons for your
answer.
 QUESTION 14

Summer Ltd makes three products : Microne, Tetrone and Zitrone for which the following
details are given :

Product Microne Tetrone Zitrone

Direct materials {kilos per unit} 5 7 10

Direct labour {hours per unit} 4 6 8
Direct expenses {per unit} $7 $4 $9
Selling price {per unit} $74 $85 $115
Additional information

i. All three products are made from material Bitrone

ii. Bitrone costs $3 per kilo.

iii. All three products require the same type of labour which is paid at $7 per hour.

iv. Total fixed costs amount to $70 000.

v. Budgeted production {based upon maximum demand} is :

Microne 2 000 units

Tetrone 2 400 units

Zitrone 1 800 units

It has now been discovered that the supply of material Bitrone is limited to 38 000 kilos.

REQUIRED

a. Calculate the contribution per kilo of material Bitrone used for each product.

b. Prepare a revised production budget which gives the maximum profit from the material
available.
 QUESTION 15

Sockaree does not keep a full set of accounting records. He never bothers to record personal drawings
although he keeps details of all expenses.
The following applies to 2016.

i) Opening and closing balances were:

1 January 31 December

Machinery 36 000 ?
Stocks 81 000 109 800
Debtors 14 220 18 900
Creditors 45 540 55 260
Accrued rates 16 200 14 760
Prepaid rent 2 880 3 870
Cash 5 940 8 370

ii) Sockaree invested additional cash amounting to $252 000 in the business.
iii) A new machine was purchased to replace the old machine which was trade in at $21
600. A cash payment of $167 000 was made to complete the transaction. The new machine is
to be depreciated by 15% on cost.
iv) Other cash payments were:
$
Creditors 939 240
Rent ant rates 90 000
Wages 95 940
Sundry expenses 39 870
v) A margin of 25% was maintained throughout the year.
vi) Discounts allowed were $19 840, returns inwards $24 000 and returns outwards $30
000.
vii) A set­off was effected between an amount of $24 000 owed by Randal and an amount
of $21 840 owed to Randal.

REQUIRED
(a) Prepare Sockaree’s Trading and Profit and Loss Account for 2006
(b) Calculate Sockaree’s capital on 1January 2006

(c) Prepare Sockaree’s Cash Account for 2006, showing clearly the amounts of drawings
and receipts from debtors.
 QUESTION 16

Karoi Ltd provides the following information:

Statements of financial position at

31 March 2005 31 March 2004

$000 $000 $000 $000 $000 $000
Non­current asset
Intangible
Patents 220 180
Tangible
Property 2 400 1 700
Equipment at cost 920 610
3 540 2 490
Current assets
Inventory 480 509
Trade receivables 611 569
Cash and cash equivalents 79 ­
1 170 1 078

Current liabilities
Trade payables 512 501
Other payables 76 54
Taxation 220 195
Cash and cash equivalents ­ 808 71 821
362 257
3 902 2 747
Non­current liabilities
Debentures 500 400
3 402 2 347

Equity
Ordinary share capitals 1 500 1 200
Revaluation reserve 700 ­
General reserve 400 200
Retained earnings 802 947
3 402 2 347

Income statement for the year ended 31 March 2005

$000
Profit from operations 636
Finance charges 61
575
Taxation 220
Profit for the year attributable to equity holders 335

Additional information
1. During the year directors transferred $200 000 to the general reserve and paid
dividends of $300 000.

2. At 31 March 2004 equipment had cost $905 000 and was shown after the provision of
$295 000 depreciation. At 31 March 2005 equipment had cost $1 240 000 and
depreciation of $320 000 had been provided.

3. During the year equipment which had cost $172 000 was sold for $90 000.
Depreciation of $101 000 had been provided on it.

4. Other payables include $21 000 unpaid interest at 31 March 2005 and $11 000 unpaid
interest at 31 March 2004.

5. During the year an issue of both ordinary shares and debentures had taken place, and
the property had been re­valued.

REQUIRED

b. Prepare a statement of changes in equity for the year ended 31 December 2005.
c. Prepare a statement of cash flows in accordance with the provisions of IAS 7
for the year ended 31 March 2005.
 QUESTION 17

Rapid Deliveries Ltd is a small parcels delivery company. In order to ensure a high level of
efficiency the vans used are usually replaced by the latest models. It is company policy not to
retain any van for more than four years. The depreciation applied relates to this policy. The
company uses the straight line method and calculates the annual depreciation charge on the
cost of the vans held at the year end. It assumes no residual value.

Details of the vans appearing in the balance sheet as at 31 December 1990 were:
$
Vans at cost (5 vans) 81 000
Less depreciation to date 38 750
42 250
During 1991 two vans of the fleet were sold and three were purchased. The following
details relate to these transactions:

Sales
Date sold Van Year Cost Sale
Reference bought proceeds
1 April 199 1 1988 14 000 4 000
1 July1991 2 1988 15 000 3 350

Purchases
Date purchased
Van Cost
Reference
1 April 1991 6 19 000
1 August 1991 7 20 000
1 November 1991 8 21 000

Van 3 was bought in 1989 at a cost of $16 000 and vans 4 and 5 were purchased in
1990 at the same price each.

REQUIRED
a)The ledger accounts for the year ended 31 December 1991:
(i) vans at cost account;
(ii) vans provision for depreciation account;
(iii) vans disposal account.
b) Explain why it is important to provide for depreciation.
c) State two advantages and two disadvantages of using the straight line method of
depreciation and reducing balance method of depreciation.
 QUESTION 18
Production Ltd manufactures one product , the Dunga. Each Dunga goes through two
production processes before being transferred to the sales department.
The following information is available:

Process 1

Each Dunga requires

4 kilos of raw materials at $2.50 a kilo ;

3 hours of direct labour hour at $6.00 an hour.

There is no working in progress.

Normal loss, occurring at the end of the process, is 20%. This is sold at $5.00 per unit.

Process 2

Each Dunga requires

4 kilos of raw materials at $4.00 a kilo ;

3 hours of direct labour hour at $8.00 an hour.

There is no normal loss.

Production overheads

Variable production overheads are charged at $2.00 per direct labour hour in both processes.

Fixed production overheads are charged at $7.50 per unit in both processes on units
completing the process.

During April 2015, 10 000 Dungas were transferred from process 2 to the sales department.

There was no working in progress on 1 April 2015. Work in progress in process 2 on 30 April
amounted to 2 000 units, 75% complete as to materials and 50% complete as to labour.

REQUIRED
a. Calculate the number of units in process 1 during April 2015.

b. Prepare for April 2015

i. The Process 1 Account;

ii. The Process 2 Account.

c. Calculate the cost per unit of each Dunga transferred to the sales department.
 QUESTION 19
Doctor Clarence runs a business which retails high quality clothing. It is particularly busy
during the festive season.

The budgeted sales and purchases figures for September 2015 to January 2016 are as follows:

September October November December January

$ $ $ $ $
Sales 215 000 225 000 310 000 425 000 195 000
Purchases 175 000 190 000 245 000 135 000 135 000

Additional information:

1. 50% of sales are expected to be paid for cash and these customers will receive a 6%
discount.

50% of the remaining sales are expected to be paid in the following month and these
customers will receive a 3% discount.

The remainder will pay 2 months after the sale.

2. 30% of purchases are expected to be paid for in the month of purchase and will
receive a 4% discount.

40% of purchases are expected to be paid in the month after purchase will receive a
2% discount.

The remainder are paid for 2 months after purchase.

3. The inventories held on 1 November 2015 are budgeted at $180 000.

The inventories held on 31 January 2016 are budgeted at $129 000.

4. The general expenses are budgeted at $18 000 in November 2015 with an expected
10% rise in December and a 15% reduction { on the December total} in January 2013.
All general expenses are expected to be paid in full in the month in which they occur.

5. The depreciation on the non­current assets acquired before November 2015 will be
$1 750 per month.

6. On 1 November 2015 Doctor will acquire a new storage system at a cost of $24 000
and will pay 50% of the cost immediately. The remainder will be paid in equal
instalments over the following 12 months without any interest charges.

This new non­current asset will be depreciated at 10% per annum on a monthly basis.
 7. Doctor will make drawings of $3 000 every month except for December 2015. In this
month he expects to draw 1,5% of the month’s expected sales.

8. The bank balance at 1 November 2015 is expected to be $34 850.

REQUIRED

a. A cash budget in columnar form, for the 3 months commencing with November 2015.

b. A budgeted income statement and statement for this 3 month period ending in
January 2016.

QUESTION 20

Digits Ltd’s Statement of financial position at 30 April 2010 was as follows:

$000
Non­current assets 1 300
Net current assets 740
2 040

Ordinary shares of $1$ 1 200

10% preference shares of $1 300
Share premium account 200
Profit and Loss Account 340
2040

On 1 May 2010, before any further transactions had taken place, it was decided to redeem all
the preference shares at a premium of $0.30. The shares had been originally been issued at
$1.20 per share. In order to provide funds for the redemption, the company issued a further
100 000 ordinary shares at a premium of $0.25.

REQUIRED

Prepare Digits Ltd’s Statement of financial position as it will appear immediately after the
issue of additional ordinary shares and the redemption of the preference share capital.
 QUESTION 21
The books of Simon Peter gave the following information for the month of 31 May 2003. All
sales and purchases were on credit.

Sales ledger balance at 1 May 2003 5 627

Purchases ledger balance at 1 May 2003 4 388
Sales for the year 100 384
Purchases for the year 64 987
Sales returns 1 997
Purchases returns 864
Payments received from debtors( all banked ) 92 760
Payments made to creditors 63 520
Debtor’s dishonoured cheque 109
Discount allowed 4 082
Discount received 3 241
Bad debts written off 1 884
Debit balances transferred to purchases ledger control account 208

The total of Simon Peter’s sales ledger balances is $9 387, which differs from the closing
balance in the sales ledger control account.
Required
a) Extract the relevant information from the above and prepare the sales ledger
control account for the month ended 31 May 2003.
The following errors have been discovered since the sales ledger control account was
prepared.
1. A sales invoice for $2 001 had been completely omitted from the books.
2. A page of the sales day book with entries totalling $7 820 had been omitted
from the total sales but the individual entries had been posted to the debtors account.
3. A debit balance of $4 020 had been omitted from the list of debtors.
4. A sales ledger account had been understated by $220
 5. Discount allowed had been overstated by $620
6. An entry of $1 620 in the sales day book had been omitted from the debtors
account.
7. A contra entry had been made in the purchases ledger for a debit balance of $1
412 in the sales ledger, but no entry had been made in the control accounts.
8. A receipt of $1 210 was debited to bank but not posted to the debtors account.
9. A credit note for $720 sent to a debtor had been entered in the sales day book
and posted as a sale to both accounts.
10. A debtor owing $1 820 was declared bankrupty during May 2003. The debt
was written off in the control account but no entry have been made in the debtors
account.

Required
b) Prepare an amended sales ledger control account, extracting relevant
information from the list of errors given above.
c) Prepare a statement altering the total of the sales ledger balance to agree with
the new sales ledger control account balance.
QUESTION 22
The Headlands company manufactures parts for the car industry. The company has
two production departments and a works canteen that provides meals and
refreshments for the two production departments.
The following information is available
Department A B Canteen
Floor area (square metres) 13 000 10 000 2 000
Staff employed 30 70 10
Power used (kwh) 1 200 300 100
Cost of machinery $80 000 $20 000 $5 000

The following budgeted costs for the month of December have not been apportioned
to a department.
$
Rent and rates 10 000
Insurance of machinery 2 625
Heating and lighting expenses 7 500
Supervisory wages 12 100
Power 4 800
Depreciation of machinery 9 030

Additional budgeted information per month

Department A Department B
Direct labour hours 5 120 12 605
 Direct machine hours 17 250 1 000

Required
a. A statement showing the apportionment of overheads for the month of
December. {17}
b. Calculate an overhead absorption rate for department A and department B.{8}
The managers of Headlands company have been asked to cost a new job 36.
The job would require:
6 kilos of material costing $7.40 per kilo;
Other variable costs of $30.50
The job will spend 14 hours in department A and a further 6 hours in
department B.
The job will be marked up by 60% on cost to achieve the selling price.
c. Calculate the price to be quoted to the customer for job 36.

QUESTION 23
Ticks Ltd Abel Ltd

Share capital: ordinary shares of $1.00 $1 000 000

ordinary shares of $0.25 $600 000

5% preference shares of $10 $400 000

8% preference shares of $1 $300 000

10% debenture stock 2005/6 $300 000 $180 000

Additional information for the year ended 31 March 2003:

Ticks Ltd Abel Ltd

Operating profit $360 000 $252 000

Dividend cover 5 times 7 times

Transferred to General Reserve $100 000 $60 000

Required
 a) prepare an extract of the Profit and Loss Account for the year ended 31 March
2003 for :
i. Ticks Ltd
ii. Abel Ltd {12}
At 31 March 2003 the market prices of the ordinary shares were as follows:
i. Ticks Ltd $1.60
ii. Abel Ltd $1.35

b) Calculate the following ratios for each company, showing all workings.

i. Interest cover

ii. Earnings per share

iii. Dividend paid per share

iv. Price earnings ratio

v. Dividend yield {10}

c) Compare and comment briefly on the ratios for Ticks Ltd and Abel Ltd in (b)
{10}

QUESTION 24

The balance sheets of Magnum Ltd as at 31 December 19­8 and 19­7 are as follows:
31.12.19­7 31.12.19­8
$ $
45 000 Fixed assets(net book value) 60 000
Current assets:
25 000 Stock 27 000
10 000 Debtors 12 000
 7 000 Bank ­
87 000 99 000
Share capital:
22 000 Ordinary shares of 25cents each 27 000
24 000 Preference shares of $1each 7 000
­ Capital Redemption Reserve 17 000
280 Share Premium Account 420
18 460 Retained Earnings 25 060
64 740 76 480
Current liabilities:
13 860 Creditors 8 500
5 600 Taxation 7 000
2 800 Proposed dividends 4 200
­ Bank 2 820
87 000 99 000
Notes:

1) A summary of the company’s fixed assets account in the general ledger for the
year ended 31 December 19­8 is shown below.
$ $
1 Jan 19­8 Cost b/f 106 400 31 Dec 19­8 Disposal A/c 11 200
31 Dece 19­8 Additions 30 800 31 Dec 19­8 Cost c/f 126 000
137 200 137 200
The assets were sold for $2 520, which represented a loss of $4 480 compared with
their book value.
2) A bonus (scrip) issue of 1 000 shares was made during the year, the shares
being paid up from the balance standing to the credit of the Share Premium Account.
3) The preference shares were redeemed at par in November 19­8

Required

a) Profit and loss appropriation account for the year ended 31 December 19­8
{5}
b) Cash flow statement for the year ended 31 December 19­8
{15}
c) Differences between bonus issue and a rights issue
{6}

QUESTION 25
On 1 July 2016, Musendo Power and Doctor Felix decided to enter into partnership. The
Statement of Financial position of their businesses as at 31 July 2016 are shown below:

Musendo Power Doctor Felix

 $ $

Non current assets (Net Book Value)

Plant and equipment 720 000 690 000

Motor vehicles ­ 100 000

720 000 790 000

Current assets

Inventory 52 000 43 000

Trade receivables 60 000 130 000

Bank 10 000 17 000

842 000 980 000

Less Current liabilities

Trade payables 19 500 20 000

822 500 960 000

Capital 700 000 810 000

Add Net profit 222 500 230 000

922 500 1 040 000

Less Drawings 100 000 80 000

822 500 960 000

Additional information
For amalgamation purposes, the assets of the separate businesses are to be valued at the
following agreed values:
Musendo Power Doctor Felix
$ $
Plant and equipment 700 000 745 000
Inventory 54 000 48 000
Goodwill 30 000 50 000

i. Doctor Felix is to take over his firm’s motor vehicle at $110 500.
ii. It is agreed that a provision for doubtful debts of 5% of trade receivables
should be created.
 iii. The partnership will not show goodwill in the Statement of Financial position.
iv. The capitals of the partners are to be as follows:
Musendo Power $800 000
Doctor Felix $900 000
v. Profits and losses will be shared equally between the partners.
vi. The adjustments are made in the books at 31 July 2016 and the partnership is
formed the following day.
Required
a. The Capital Accounts to reflect the amalgamation on 1 July 2016 .{14}
b. The Statement of Financial Position of the partnership immediately after
Musendo Power and Doctor Felix merge their interests.

QUESTION 26

The annual stock taking of Square Deals Limited, retailers, did not take place on 30
September 1997 owing to staff illness.

The company’s books and records for the year ended 30 September 1997 reveal :

1. Sock at 1 October 1996, at cost, of $17 800.

2. Purchases of $165 000.

3. Purchases returns of $8 500.

4. Sales of $182 000.

5. Sales returns of $3 600.

6. In July 1997, stock costing $10 000 was stolen. As the company’s insurance
did not fully cover the loss, the amount received from the insurance company in full
settlement of the loss claim was only $4 500.

7. In August 1997 a quantity of stock which had cost $3 700, was found to be of
no value and therefore destroyed.

8. The company earns a gross profit of 35% on all sales.

9. In September 1997, goods costing $6 500 were sent on a sale or return basis to
Thomas Strong. 90% of these goods were sold by 30 September 1997 and these were
additional to the sales given in 4. above.

Thomas Strong receives from Square Deals Limited, a commission of 10% on the
selling price of all sales.

REQUIRED
 (a) Calculate

i. The company’s Stock at 30 September 1997;

ii. The company’s Gross Profit for the year ended 30 September 1997

iii. The amount of Commission payable to Thomas Strong on 30 September 1997.

(b) i. Explain briefly why stocks in annual accounts are usually valued ‘at
cost’.

ii. State an alternative to cost for stock valuation and explain when this

alternative method would be used.

9364/1 W97 CAMBRIDGE

QUESTION 27

The summarised Balance Sheet as at 31 August 1996 of Topper Limited is as follows:

$ $

Fixed Assets 110 000

Current Assets:

Inventory 126 000

Bank 84 000

210 000

Less Amounts falling due within one year:

 Creditors 25 000 185 000

295 000

Financed by

Issued share capital 160 000

(Ordinary Share of $1 each, fully paid)

Profit and Loss Account 135 000

295 000

During the year ended 31 August 1997 the following events took place :

1. All Creditors at 31 August 1996 were settled in full on 10 September 1996.

2. On 16 September 1996, the company made a one for four bonus issue of fully
paid Ordinary shares.

3. On 30 September 1997, the company acquired some of the net assets of Brush
Brothers, a partnership, which had ceased trading. The net assets concerned were as
follows :

As shown in Brush Brothers Fair Value for Topper

latest Balance Sheet Limited’s Accounts
$ $
Fixed Asset 140 000 120 000
Current Assets :
Inventory 39 000 44 000
179 000 164 000
The purchase price of $164 000 was settled as follows :
i. The issue
of 60 000 Ordinary Shares of $1 each, fully paid, in Topper Limited.
ii. The issue
of 50 000 6% Loan Stock 2010­2015, at par, in Topper Limited.
4. On 1
March 1997, Topper Limited made a rights issue of one for every five Ordinary
Shares of $1 each already held. The price of $1.40 was payable in full immediately
and the issue was fully subscribed.
5. On 1
August 1997, Topper Limited sold some surplus fixed assets for $30 000. The written
down value of these fixed assets was $34 000.
Assume the events listed above were the only transactions involving Topper Limited
during the year ended 31 August 1997.
REQUIRED
a) Prepare
journal entries covering all the transactions listed above.
 b) Prepare a
Statement of financial position as at 31 August 1997 of Topper Limited
QUESTION 28
Herbert Limited makes a single product, whose unit budget details are as follows:
$ $
Selling price 30
Less costs
Direct material l9
Direct labour 4
Direct production expenses 6
Variable selling expenses 4 23
Contribution 7

Additional information
1. Unit sales are expected to be:
2. Credit sales will account for 60% of total sales. Debtors are expected to pay in the
month following sale for which there will be a cash discount of 2%.
3. Stock levels will be arranged so that production in one month will meet the next
month’s sales demand.
4. The purchases of direct materials in one month will just meet the next month’s
production requirements.
5. Suppliers of direct materials will be paid in the month following purchase.
6. Labour costs will be paid in the month in which they are incurred. All other
expenses will be paid in the month following that in which they are incurred.
7. Fixed expenses are $2 000 per month and include $180 for depreciation.
8. The bank balance at 1 July 19­9 is $3 900 favourable to the business.
Required
a) A cash budget for Herbert Limited for the three month period ending on 30 September
1999 showing the balance of cash at the end of each month.

b) List and explain three ways in which the preparation of a cash flow budget could be of
advantage to the management of Herbert Limited.
 QUESTION 29
Adam, Eve and Pinchmee are in partnership sharing profits and losses in the ratio 3:2:1.
At 31 December 19­1 their balance sheet was as follows:
$ $
Non current assets 106 644
Current assets
Inventory 71 116
Trade receivables 42 655
Bank 24 863
138 634
Less current liabilities
Trade payables 35 278 103 356
210 000
Capital accounts
Adam 100 000
Eve 50 000
Pinchmee 25 000
175 000
Current accounts
Adam 24 000
Eve 10 000
Pinchmee 1 000 35 000
210 000
Adam decided to retire from the partnership on 1 January 19­2
Accordingly it was agreed between the partners that:
1. The balances on their current accounts would be transferred to their respective
capital accounts.
2. Goodwill would be valued at $24 000, but no goodwill would be recorded in
the firm’s ledgers.
3. Non current assets would be revalued at $100 000, inventory at $60 000 and a
trade receivables for $240 would be written as bad.
4. Of the amount due to Adam $100 000 would be transferred to a Loan account
and the balance settled in cash immediately. A bank overdraft facility would be
available for this purpose, if necessary. The loan would be repayable to Adam in for
equal annual instalments, the first being due on 31 December 19­2.
Eve and Pinchmee decided to form a limited company, Evenmee Ltd, to acquire the
partnership business on 2 January 19­2. The company had an authorised share capital
of 100 000 ordinary shares of $1 each and acquired the partnership assets and
liabilities, including the loan from Adam, at their revised book values. Shares were
issued to Eve and Pinchmee at par value in the ratio 3:2. An appropriate cash payment
was made by one of these partners to the other to adjust their rights, and the
partnership receiving the payment immediately used the cash to subscribe for further
shares in Evenmee Ltd. at par.
 Required

a) The capital accounts of Adam, Eve and Pinchmee showing the entries in
respect of Adam’s retirement and the aquisition of the business by Evenmee Ltd.
(18)

b) The opening balance sheet of Evenmee Ltd as at 2 January 19­2.

(7)

QUESTION 30

Codan Ltd purchases a partnership

Jiri and Sisya were in partnership sharing profits and losses in the ratio 2:1. The
partnership’s Statement of Financial Position at 30 April 2006 is shown below.
Non current assets $ $
Freehold land 15 000
Freehold buildings 20 000
Equipment 18 000
53 000
Current assets
Inventory 11 000
Trade receivables 6 000
Bank 2 000
19 000
Less current liabilities
Trade payables 3 000 16 000
69 000

Capital accounts : Jiri 60 000

Sisya 35 000
95 000
Less Drawings : Jiri 18 000
Sisya 12 000 30 000
65 000
Loan from Jiri at 10%
4 000
69 000
Additional information
a. Codan Ltd offered to purchase the partnership. The offer was based on the following
revaluation of assets.
$
Freehold land 20 000
Freehold buildings 16 000
Equipment 15 000
Inventory 9 000
Trade receivables 5 000
The bank account was not taken over.

ii. The purchase consideration was $82 000 settled as follows:

1. Mike received sufficient 8% debentures in C.G.N. Ltd to ensure that hr
 continued to receive the same amount of interest as he had been entitled to on his loan
in the partnership.
2. C.G.N. Ltd paid $12 000 into the partnership bank account.
3. The balance of the purchase consideration was settled by an issue of ordinary
shares of $1 each in C.G.N. Ltd at $1,30 per share.
iii. The Statement of Financial Position of Codan. Ltd at 30 April 2006 before the
purchase of the partnership was as follows:

Non current assets $ $

Freehold buildings 110 000
Office furniture 12 000
122 000
Current assets
Inventory 120 000
Trade receivables 112 000
Bank 24 000
256 000
Current liabilities
Trade payables 114 000 142 000
264 000
Share capital and reserves
Ordinary shares of $1 each 200 000
Profit and loss account 64 000
264 000

Required

a) The Statement of Financial Position of Codan. Ltd as it will appear after the
purchase of the partnership.

b) The directors are deciding to expand the business but they do not have
adequate funds.

i. State any two possible sources of finance.

ii. Explain one advantage and one disadvantage of each source of finance.
 QUESTION 31

Freddy Ltd has traded at a loss over the past few years and no dividends have been paid to the
shareholders during that time. A scheme of capital reconstruction has recently been approved.
Freddy’s Ltd balance sheet at 31 March 2004 showed the following position:

Cost Accumulated NBV

Depreciation

Non current assets $000 $000 $000

Goodwill 75 ­ 75

Premises 780 80 700

Plant and equipment 210 65 145

Motor vehicles 350 60 290

1 415 205 1 210

Current assets

Inventory 30

Trade receivables 80

110

Current liabilities

Trade payables 90

Bank 50 140 (30)

1 180

Non­current liabilities
 71 % Debentures (85)
2
1 095

Share capital and reserves

800
Ordinary shares of $1 each
200
8% Preference shares of $0,50 each
400
Share premium
(305)
Profit and loss
1 095

A scheme of capital reduction has been agreed as follows:

1. Ordinary shares are to be reduced by $0,25 per share.
2. Preference shares are to be reduced to shares of $0,30 each.
3. Motor vehicles are to be sold for $350 000 cash.
4. Goodwill is to be written off.
5. A debt of $30 000 is to be written off as bad.
6. New plant and equipment was purchased for$170 000 on credit.
7. Trade creditors were paid $0,80 in every dollar owed to them in full settlement.
8. The debenture holder agreed to take over the old plant and equipment at a
valuation of $197 000. The balance was paid to the company.
9. A one for four bonus issue was made out of the share premium account.
Required
a) A capital reduction account, (8)
b) A balance sheet at 31 March 2004 immediately after the capital reconstruction
has been implemented. (12)
c) Distinguish between capital reserves and revenue reserves. (8)
QUESTION 32
The following is the Receipts and Payments account of the Outerapsce Sports and Social
Club for the year ended 31 October 2005.

$ $

Balance b/d 5 950 Clubhouse 65 000

Subscriptions 17 600 Equipment 7 400

Restaurant sales 62 100 Wages 23 400

Loan from members 60 000 Equipment repairs 4 320

Annual dance 3 750

General expenses 5 420

 Balance c/d 860

145 650 145 650

Additional information
31 Oct 2004 31 Oct 2005
$ $
Subscriptions in arrears 550 650
Subscriptions in advance 100 450
Restaurant stock 6 390 7 520
Restaurant creditors 4 235 4 785
Annual dance costs owing 50 125
Clubhouse at cost ­ 65 000
Equipment at cost 8 000 15 400
Loan from members ­ 60 000
Provision for depreciation on equipment 2 000 ?

The original equipment was purchased on 1 November 2003, the date the club
opened. Depreciation is charged at 2% straight­line on the clubhouse and 25%
reducing balance on equipment. Depreciation is charged for a complete year in the
year of purchase. Repairs were not original equipment.
All subscriptions owing in the year ended 31 October 2004 were paid during the
year ended 31 October 2005. Interest on the loan from members ,which was
received on 1 November 2004,is payable at the rate of 5% per annum.
$2 200 of the new equipment is for use in the restaurant. The general expenses
include $2 100 which should be charged to the restaurant. One third of the wages
are paid to restaurant staff.
Required
a) Calculate the Club’s accumulated fund at 1 November 2004. (4)

b) Prepare the restaurant Trading account for the year ended 31 October 2005. (6)

c) Prepare the club’s Income and Expenditure account for the year 31 October 2005.
(20)

TASK QUESTIONS
QUESTION 1
Larry Ltd’s summarised Statement of financial position (Balance Sheet) at 30 June 2010 was
as follows:
$000
Ordinary shares of $2 each 2 400
10% Preference shares of $2 each 600
Share premium 400
Profit and loss account 680
4 080

Non­current(Fixed) assets 2 600

Net current assets 1 480
4 080

On 1 July 2010, fixed assets were revalued to $2 850 000 and the company decided to redeem
all the preference shares at a premium of $0,60 per share. These shares have been issued at
$2,40 each. In order to provide funds for the redemption, the company issued a further 100
000 ordinary shares at a premium of $0,50 per share.
Required
Larry Ltd’s Statement of financial position (Balance sheet) immediately after the capital
reconstruction.

QUESTION 2

The following are results of the last two months trading at Townsend Limited.
Sales Total Profit
Revenue Costs
Month 1 $220 000 $200 000 $20 000
Month 2 $280 000 $245 000 $35 000
Total costs consists of fixed costs which do not vary from month to month and variable costs
which vary directly with sales revenue.

Required
i. Monthly fixed costs
ii. Contribution to sales ratio
iii. Break even level of sales

QUESTION 3
Simba, a retailer whose financial year ends on 31 May, failed to check his stock until
8 June 2009. At that date his stock at cost was valued at $72 200. Simba’s mark up is
30% on cost.
During the first ten day of May, the following transactions took place;

(i) Purchases of goods for resale 21 200

(ii) Purchases returns 515
(iii) Sales 25 740
(iv) Sales returns ( at selling price) 273
(v) Goods taken for personal use, at cost 700

After taking stock, Simba discovered that the following items had been
included in the valuation at 8 June:

(vi) A parcel of stock which had been water –damaged. This had been on sale for
$390 but was now worthless.
(vii) Stock which cost $1 200 but was now out of fashion and would have to be
sold for $400 less than cost.
(viii) Goods costing $950 which Simba had acquired on a sale or return basis. He
had not decided whether or not to keep them.
(ix) Goods, sold during May for $1 560, which were awaiting collection by a
customer.

Required

(a) The value of inventory at cost, at 31 May 2009. (13)

(b) What is the basis for stock valuation (3)

QUESTION 4
During May 1991 , M. Adbel & Co. Limited’s output was 4000 finished units plus 600 partly
finished items. There were no work in progress on May 1991.
The details for the month were:
Material Labour Overheads Total
Total costs $8 172 $7 120 $5 196 20 488
WIP degree of completion % 90 75 55 ­
Calculate for the month of May 1991
a) The total equivalent production for each cost element
b) The cost per completed units
c) The value of the work in progress

QUESTION 5

Month Sales Materials

$ $
June 46 000 15 000
July 47 000 15 600
August 48 000 16 000
September 52 000 17 000
October 56 000 18 600
November 60 000 21 000

Additional information:

1. 10% of all sales are expected to be cash sales.

2. Customers who settle their accounts within one month will receive a 5% discount.
Settlement after one month will be strictly net.
3. It is believed that half of all credit customers will settle their debts within one month
and that the remainder will pay the following month.
4. All materials will be paid for in the month following order, so that a cash discount of
2.5% can be obtained.
Required
Prepare an extract of a cash budget showing the amounts of sales and purchases for the three
months ending November.
 QUESTION 6

Two years ago Sandstone Ltd conducted market research at a cost of $16 000 to investigate
the potential market for new products. They are now considering two new products
developments, only one of which will be undertaken. The anticipated profitabilities of these
two separate projects are given below.
Project A Project B
$ $ $ $
Annual sales 80 000 100 000
Cost of sales 40 000 50 000
Administration costs 15 000 10 000
Depreciation 5 000 10 000
60 000 70 000
20 000 30 000
It is expected that the above will continue for each year of each project’s forecast life. The
capital cost for project A is $45 000 and for project B is $53 000.
The expected economic lives are
Project A 8 years
Project B 5 years
Depreciation has been calculated on a straight line basis, and assumes estimated scrap values
of $5 000 for Project A at the end of year 8, and $3 000 for Project B at the end of year 5.
All costs and revenue take place at the end of each year
The cost of capital is 12%
Extract from present value tables $1 @ 12%
Year 1 0,893 Year 5 0,567
Year 2 0,797 Year 6 0,507
Year 3 0,712 Year 7 0,452
Year 4 0,636 Year 8 0,404
REQUIRED
(a) Calculate the payback period and net present value of each project (14
marks)
(b) State, with reasoning, which of the two projects you would recommend (3
marks)
(c) Briefly explain why net present value is considered a more meaningful
technique compared to payback when making capital expenditure decisions
(4 marks)
(d) Explain how you have treated the original market research costs in relation to
the evaluation of the projects. (2
marks)
( Total 23 marks)
 QUESTION 7

Clumber Ltd manufactures one product. The product passes through three processes.
The cost accountant provides the following information:
Process 1 Process 2
Materials per unit 4 kilos 1kilo
Cost of materials per kilo $1.50 $4
Cost of materials used in process $300 000 $192 800
Direct labour per unit 3 hours 1,5 hours
Labour cost per hour $12 $10
Variable overhead per labour hour $8 $6.50
Fixed overhead per unit $5 $8
Actual output per process(units) 48 600 47 000

Additional information:
Process 1 There was no opening or closing stocks of work in progress.
Normal loss in this process was $6 000.
Process 2 There was no opening in progress.
Closing stock of work in progress was 1 600units
Closing stock of work in progress was 75% complete as to materials
And 50% complete as to labour.
Required
c) Prepare accounts for process 1 and 2. (27
marks)
 QUESTION 8
1. Benjamin Hove, extracted a trial balance on 31 March 2000, which failed to
agree. He entered the difference in a suspense account to enable him to draft his final
accounts. The draft profit and loss account prepared by Benjamin showed a Gross
profit of $130 000 and a Operating profit of $1 380 000.
After completing the draft final accounts, Benjamin consults you as accountant and
you discover the errors shown below:

i) An item for $1 076 in the Sales Day Book has been entered in Adbel’s account in
the Sales Ledger as $1 760.

ii) At 31 March 2000, Nomsa’s account in the Sales Ledger showed a debit balance
of $900. There was also an account for her in the Purchases Ledger and it showed a credit
balance of $650. In offsetting these balances, the ledger clerk had debited Nomsa’s
account in the Sales Ledger with $650 and credited her account in the Purchases Ledger
with the same amount.

iii) A purchase of goods costing $1 500 had been credited to the supplier’s account in
the Purchases Ledger but no other entry had been made in the books.

iv) A credit balance of $480 in the Sales Ledger had been included in the list of
debtors as a debit balance.

v) A sales invoice for $1 070 sent to Lilian had been entered in the Sales Day Book
AS $1 700.
 vi) Discount receivable $300 in January 2000 had been debited in the Discount
Allowed account. Discount allowable of $800 for the same month had been credited in the
Discounts Received account.

vii) Some goods have been sent to Poppy, a customer, and invoiced to him for $2 450.
The mark­up on these goods was 40%. Poppy has notified Benjamin on 30 March 2000
tha he has not ordered the goods and is returning them. No entries regarding the return of
these goods have been made in the books.

Required
a) Prepare the journal entries necessary to correct each of the errors given above.
(narratives not required) (8)

b) Write up the suspense account (5)

c) Prepare computations for the year ended 31 December 2003 of the following:
i) Corrected gross profit (7)

ii) Corrected net profit (7)

QUESTION 9

Data Ltd manufactures laptops. It has two production departments and two service
departments.

The following information for the month of May is available:

Production departments Service departments

Machining Assembly Maintenance Canteen
Overheads $400 000 $310 000 $190 000 $100 000
Number of employees 50 40 10 8
Maintenance hours 3 000 1 000
Machine hours 40 000 2 000
Direct labour hours 2 500 50 000

a. Explain the following terms:

i. Overhead allocation
ii. Overhead apportionment
iii. Overhead reapportionment {3}
b. Prepare an overhead analysis sheet to show the apportionment of service
department’s costs to the production departments.
{8}
 c. Calculate the overhead absorption rate (OAR) for each department, give your
answer two decimal places.
{6}
d. The following information relates to the costs of producing a laptop – Digits.

Per unit data Machining Assembly

Direct materials $49 $18
Direct labour 15 minutes 3 hours
Machine hours 2 hours 10 minutes
Direct labour rate $12 per hour $12 per hour

The company achieves a mark up of 25% on all laptops.

Calculate the selling price of the Digits laptop. {9}

TINOFAMBA NEVANOFAMBA

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