Test by pearz

Accounting test

Answer all questions

Question 1

Aziz has been in business for several years, but does not keep proper books of account. He
provides you with the following list of balances for the financial year ended 30 June 2011.

$
Motor vehicles (cost $65 000) 50 000
Fixtures (cost $48 000) 32 000
Trade receivables 18 000
Trade payables 14 000
Accrued expenses 500
Inventory 6 000
Premises at cost 100 000

A summary of his receipts and payments for the year ended 30 June 2012 is as follows:

$ $
Receipts from credit customers 132 900 Payments to suppliers 88 600
Sale of old motor vehicle 3 600 Purchase of vehicle 15 000
Cash sales 6 600 Expenses paid 17 400

At 30 June 2012 trade receivables were $20 500 and trade payables were $13 600.

REQUIRED
(a) Calculate the purchase of goods for resale for the year ended 30 June 2012. [3]
(b) Calculate the total sales for the year ended 30 June 2012 [4]
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Aziz earns a uniform gross profit of 40% on all his sales. Early in June 2012 he had a flood
in his premises which damaged some of his stock and made it impossible to sell. He has
valued his remaining stock at 30 June 2012 at a selling price of $14 000.

REQUIRED
(c) Calculate the cost of the stock destroyed in the flood [6]

The vehicle which Aziz sold during the year ended 30 June 2012 had been purchased on
30 September 2009 for $16 000. Aziz depreciates his vehicle at 25% per annum using the
straight-line method. He charges a full year's depreciation in the year of purchase and
none in the year of disposal. He received $5 000 as a trade-in allowance for the new
vehicle.

REQUIRED
(d) Calculate the profit or loss on the disposal of the vehicle. [4]

Aziz depreciates his fixtures at 10% per annum using the reducing balance method.
He also wants to create a provision for doubtful debts equal to 3% of his trade
receivables. At 30 June 2012 he had prepaid expenses of $320.

REQUIRED
(e) Prepare Aziz's income statement for the year ended 30 June 2012. [8]

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Question 2

Mashungu and Pashapa were in partnership, sharing profits and losses in the ratio 2:1. They
decided to retire and sell their business to Rukudzo Ltd on 31 December 2017. Their statement
of financial position on that date is shown below.

Mashungu and Pashapa Statement of Financial position 31 December 2017

Assets $ $

Property 150 000

Plant and machinery 120 000

Motor vehicles 36 000

Office equipment 15 000

Inventory 82 000

Trade receivables 94 000

Bank 40 000

537 000

Equity and liabilities

Capital accounts: Mashungu 200 000

Pashapa 155 000 355 000

12% Loan from Mashungu 75 000

Trade payables 107 000

537 000

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Rukudzo Ltd agreed to take over all the assets, except the bank account, based on the
following valuations: $

Property 300 000

Plant and machinery 90 000
Motor vehicles 27 000
Office equipment 8 000
Inventory 60 000
Trade receivables 75 000

Rukudzo Ltd took over the trade payables at their book value. The purchase consideration
of $600 000 was settled as follows:
1. Mashungu received sufficient 10 % debentures in Rukudzo Ltd to ensure that he
continued to receive the same amount of interest as he had been entitled to on his
loan to the partnership.
2. Rukudzo Ltd. paid $120 000 to the partnership bank account.
3. The balance of the purchase price was settled in ordinary shares of $1 each in
Rukudzo Ltd at a price of $1.30 per share.

The shares were distributed among the partners in the profit sharing ratio and the final balances
on their capital accounts were settled in cash.

(a) Prepare the following accounts to close the books of the partnership:
(i) Realisation account [5]
(ii) Bank account [3]
(iii) Capital accounts in columnar form [8]
(b) Calculate
(i) The amount paid for goodwill by Rukudzo Ltd. [3]
(ii) The number of ordinary shares issued to Pashapa. [2]
(c) Suggest possible reasons why Rukudzo Ltd agreed to pay a substantial amount for
goodwill. [4]

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Question 3

ABC Ltd manufactures plastic garden chairs.

The chairs have a selling price of $5 each. The following is the production budget for the quarter
ended 31 October 2007.

Budgeted costs (based on normal activity level of 120 000 units per quarter)

Variable material and labour costs 240 000

Variable production overheads 72 000

Fixed production overheads 36 000

Variable selling overheads 48 000

Fixed selling overheads 24 000

The company has calculated its overhead absorption rate on the basis of normal level of activity.
150 000 chairs were produced in the quarter ended 31 October 2007. There were 30 000 chairs
in stock at 1 August 2007 and 50 000 chairs were is stock at the end of the quarter. No stocks of
raw materials are held and there is no wastage.

(a) Calculate the overhead absorption rate for the fixed production overheads and fixed
selling overheads at normal activity level. (4)

(b) Calculate the fixed production overheads absorbed during the quarter ended 31 October
2007 and the extent of any under or over absorption. (2)

(c) Prepare a profit and loss account for the quarter using the following bases:
(i) Absorption costing
(ii) Marginal costing (14)

(d) Reconcile the profit you have calculated under absorption costing with the profit
calculated under marginal costing. (2)
(e) State three advantages of absorption costing. (3)

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Question 4
(a) Define the following terms
(i) Cost centre [1]
(ii) Overhead under-absorption [1]
(iii) Overhead over-absorption [1]

(b) Providence Limited runs a factory with four departments. Production departments are
machine shop and Assembly shop whereas Service departments are Maintenance
department and Power house department. Budgeted overheads for the coming year are as
follows:

Production departments Service departments

Machine shop Assembly shop maintenance Power house
$ $ $ $
Total overheads 131 050 145 050 141 900 51 000

The following information is given:

Machine shop Assembly Maintenance Power house

shop department department
Machine hours 55 400 11 600
Direct labour hours 16 000 24 000
Maintenance hours 9 000 3 000 - -
Units of power used 21 000 6 000 3 000 -

(i) Reapportion the costs of Service departments to the Production departments showing
the appropriate bases used [4]
(ii) Calculate an overhead absorption rate for the Machine shop based on machine hours
and Assembly shop based on direct labour hours [6]

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(c) Providence Limited has received an order for job A101. The following details are available
for the job.

Machine shop Assembly

Direct materials $ 2 000 $8 000
Direct labour $10 000 $5 000
Direct labour hours 100 300
Machine hours 200 50

Providence Limited add a mark-up of 20% on each job.

Calculate the selling price of A101. [8]

(d) Identify two differences between marginal and absorption costing [4]