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Accounting Acc3 Unit 3: Financial Accounting: Determination of Income

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0% found this document useful (0 votes)

22 views14 pages

Accounting Acc3 Unit 3: Financial Accounting: Determination of Income

Uploaded by

Ayaz Nujuraully

We take content rights seriously. If you suspect this is your content, claim it here.

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Download as PDF, TXT or read online on Scribd

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Surname Other Names Leave blank

Centre Number Candidate Number

Candidate Signature

General Certificate of Education

January 2003
Advanced Subsidiary Examination

ACCOUNTING ACC3
Unit 3: Financial Accounting:
Determination of Income

Wednesday 15 January 2003 Afternoon Session

No additional materials are required. For Examiners Use

You may use a calculator.
Number Mark Number Mark

1
Time allowed: 1 hour
2

Instructions 3
l Use blue or black ink or ball-point pen.
4
l Fill in the boxes at the top of this page.
l Answer all questions in the spaces provided.
5
l All workings must be shown and clearly labelled; otherwise marks for method
may be lost.
l Make and state any necessary assumptions.
l Do all rough work in this book. Cross through any work you do not want
marked.

Information
l The maximum mark for this paper is 80. This includes up to 4 marks for the
Quality of Written Communication.
l Mark allocations are shown in brackets.
l You will be assessed on your ability to use an appropriate form and style of
writing, to organise relevant information clearly and coherently, and to use
specialist vocabulary, where appropriate. The degree of legibility of your hand-
writing and the level of accuracy of your spelling, punctuation and grammar will Total
(Column 1)
also be taken into account.
Total
(Column 2)

Quality of Written
Communication

TOTAL

Examiners Initials

Copyright © 2003 AQA and its licensors. All rights reserved.

G/M121439/J03/ACC3 6/6/6/6/
LEAVE
3 MARGIN
BLANK

Answer all questions in the spaces provided.

1 Total for this question: 5 marks

Stocks should be valued at the lower of cost or net realisable value.

REQUIRED

(a) Complete the following sentence.

The above statement is an example of the ............................................................ concept.

(1 mark)

(b) Explain what is meant by the term net realisable value.

..........................................................................................................................................................

..........................................................................................................................................................
(4 marks)
___
5

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2 Total for this question: 13 marks

Lee Brown started in business on 1 January 2001. His financial year end is 31 December.

His fixed assets cost £40 000 on 1 January 2001 and had an expected useful life of 10 years.

None of the fixed assets are expected to have any value at the end of their useful life.

At 31 December 2001 Lee used the straight-line method of providing for depreciation on his fixed
assets.

For the year ended 31 December 2002 he changed his method of providing for depreciation to the
reducing-balance method. He continues to use an annual rate of 10%.

Lees draft profit for the year ended 31 December 2002 was £34 700 before provisions for depreciation
on fixed assets had been charged to the profit and loss account.

REQUIRED

(a) Calculate Lees net profit after using the reducing-balance method of providing depreciation on
fixed assets.
£
Lees draft net profit for the year ended 31 December 2002 34 700

Provision for depreciation on fixed assets .........

__________

Lees revised net profit for the year ended 31 December 2002 .........
__________
(4 marks)

(b) Prepare a balance sheet extract showing Lees fixed assets as at 31 December 2002 after charging
depreciation using the reducing-balance method.

£
Fixed assets at cost 40 000

Depreciation ........

Net book value ........

(3 marks)

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Concept 1..........................................................................................................................................
(1 mark)

Concept 2..........................................................................................................................................
(1 mark)

(d) Explain two reasons why fixed assets depreciate.

Reason 1 ...........................................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................
(2 marks)

Reason 2 ...........................................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................
(2 marks)
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13

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3 Total for this question: 21 marks

The following is the summarised draft balance sheet as at 31 December 2002 for David Mark Ltd.
£ £
Fixed assets 700 000
Current assets
Stock 85 000
Debtors 60 000
Bank 17 000
162 000
Less current liabilities
Trade creditors 37 000 125 000
825 000
_______

Share capital and reserves

Ordinary shares of 50 pence each 250 000
8% preference shares of £1 each 100 000
Profit and loss account 400 000
General reserve 75 000
825 000
_______

The companys retained profit for the year, before appropriations, was £150 000, which has been
included in the profit and loss account figure shown in the balance sheet above.
Additional information
The following have not yet been taken into consideration.
(1) Transfer from profit and loss account to the general reserve £45 000.
(2) A proposed final dividend on preference shares of £4000.
(3) A proposed final dividend on ordinary shares of 7 pence per share.
(4) An issue of 200 000 ordinary shares of 50 pence each at 75 pence per share.
(Note these shares are not eligible for dividend in the year ended 31 December 2002.)

REQUIRED

(a) Calculate the retained profit for the year ended 31 December 2002 after appropriations.
£
Retained profit for the year as per draft final accounts 150 000

..........................................................................................................................................................

..........................................................................................................................................................
___________

Corrected retained profit for the year ___________

(4 marks)

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(b) Prepare the summarised balance sheet as at 31 December 2002 as it would appear after taking
into account the additional information listed on the opposite page.

David Mark Ltd

Summarised Balance Sheet as at 31 December 2002

..........................................................................................................................................................

..........................................................................................................................................................
(10 marks)

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..........................................................................................................................................................
(2 marks)

(d) Assess the importance of the term Ltd to an ordinary shareholder in David Mark Ltd.

..........................................................................................................................................................

..........................................................................................................................................................
(5 marks)
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21

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4 Total for this question: 23 marks

Dewray plc manufactures bedroom furniture.

All completed furniture is transferred to the trading account at cost plus 20%.

The following figures have been extracted from the trial balance of the company as at
31 December 2002 after calculating prime cost.
Dr Cr
£000 £000
Prime cost 1 207
Factory overheads 915
Factory machinery at cost 150
Office equipment at cost 60
Provision for depreciation factory machinery 90
office equipment 18
Provision for unrealised profit 26
Stocks as at 1 January 2002
work in progress at cost 34
finished goods at cost plus 20% 156
Sales 3 460

Additional information

(1) All fixed assets are depreciated at 10% per annum on cost.

£000
(2) Stocks as at 31 December 2002 raw materials at cost 75
work in progress at cost 36
finished goods at cost plus 20% 192

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REQUIRED

(a) Prepare a summarised manufacturing account for the year ended 31 December 2002.

Dewray plc
Summarised Manufacturing Account for the year ended 31 December 2002
£000
Prime cost 1 207

..........................................................................................................................................................

..........................................................................................................................................................
(7 marks)

QUESTION 4 CONTINUES ON THE NEXT PAGE

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(b) Prepare a trading account for the year ended 31 December 2002.

Dewray plc
Trading Account for the year ended 31 December 2002
£000

..........................................................................................................................................................

..........................................................................................................................................................
(6 marks)

(c) Calculate the amount of the adjustment to the provision for unrealised profit to be shown in the
profit and loss account for the year ended 31 December 2002.

The amount of the adjustment to the provision for unrealised profit to be shown in the profit and
loss account is:
£ ............................................

Workings ...........................................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................
(4 marks)

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(d) Explain how the amount calculated in (c) should be shown in the profit and loss account.

..........................................................................................................................................................

..........................................................................................................................................................
(2 marks)

(e) Complete the following extract from the balance sheet.

Dewray plc
Balance Sheet extract as at 31 December 2002

Current assets
Stock raw materials ....................................................................................................................

work in progress ...............................................................................................................

finished goods ...................................................................................................................

..........................................................................................................................................................

..........................................................................................................................................................
(4 marks)
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5 Total for this question: 14 marks

Jill and her brother Jack have recently inherited £10 000 each. They wish to invest all of their
inheritance in Multar plc.

They could invest in one of the following:

ordinary shares;
7% preference shares;
6% debentures.

Jill does not mind taking risks with any money she has whereas her brother is a much more cautious
person. He is looking for an investment which will give him a steady income.

REQUIRED

(a) State one advantage and one disadvantage of each type of investment.

Ordinary shares

Advantage.........................................................................................................................................

..........................................................................................................................................................