National University of Science and
Technology
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
SUPPLEMENTARY EXAMINATION PAPER: 2013
SUBJECT: FINANCIAL ACCOUNTING IB: CAC 1201
TIME ALLOWED: THREE (3) HOURS
MARKS: 100
INSTRUCTIONS TO CANDIDATES
1. Answer all questions
2. Use the answer book provided
3. Use black or blue pen
4. Begin each question on a new page and
5. Submit all answer books
Page 1 of 10
Question1
Given below are summarised financial statements for Havens Ltd for 2011 and 2012
Statement of financial position
2011 2012
$ $
Plant 10 000 11 000
Accumulated Depreciation (4 000) (5 000)
Caring amount 6 000 6 000
Buildings 50 000 90 000
Accumulated Depreciation (10 000) (11 000)
Caring amount 40 000 79 000
Investment @ cost 50 000 80 000
Land 43 000 63 000
Inventory 55 000 65 000
Receivables 40 000 50 000
Bank 3 000 --------
237 000 343 000
Ordinary shares of $1 each 40 000 50 000
Share Premium 12 000 14 000
Revaluation Reserve (land) --------- 20 000
Accumulated profit 45 000 45 000
10% Loan Interest 100 000 150 000
Payables 40 000 60 000
Bank --------- 4 000
237 000 343 000
Page 2 of 10
INCOME STATEMENT
2011 2012
$ $
Sales 200 000 200 000
Cost of Sales (100 000) (120 000)
100 000 80 000
Expenses (50 000) (47 000)
50 000 33 000
Interest (10 000) (13 000)
Net profit 40 000 20 000
Notes:
A $20 000 dividend has been paid in the year.
a) Prepare a statement of cash flows for Havens for 2012, to explain as far as
possible the movement in the bank balance. The statement of cash flows
should be prepared using the direct method. (20 marks)
b) Using the summarised accounts given, and the statement you have just
prepared, comment on the position, progress and direction of Havens
(5 marks)
Page 3 of 10
Question 2
Given below are summarised financial statements for Havens Ltd for 2011 and 2012
Statement of financial position
2011 2012
$ $
Plant 10 000 11 000
Accumulated Depreciation (4 000) (5 000)
Caring amount 6 000 6 000
Buildings 50 000 90 000
Accumulated Depreciation (10 000) (11 000)
Caring amount 40 000 79 000
Investment @ cost 50 000 80 000
Land 43 000 63 000
Inventory 55 000 65 000
Receivables 40 000 50 000
Bank 3 000 --------
237 000 343 000
Ordinary shares of $1 each 40 000 50 000
Share Premium 12 000 14 000
Revaluation Reserve (land) --------- 20 000
Accumulated profit 45 000 45 000
10% Loan Interest 100 000 150 000
Payables 40 000 60 000
Bank --------- 4 000
237 000 343 000
Page 4 of 10
INCOME STATEMENT
2011 2012
$ $
Sales 200 000 200 000
Cost of Sales (100 000) (120 000)
100 000 80 000
Expenses (50 000) (47 000)
50 000 33 000
Interest (10 000) (13 000)
Net profit 40 000 20 000
Notes:
A $20 000 dividend has been paid in the year.
a) Prepare a statement of cash flows for Havens for 2012, to explain as far as
possible the movement in the bank balance. The statement of cash flows
should be prepared using the direct method.
b) Using the summarised accounts given, and the statement you have just
prepared, comment on the position, progress and direction of Havens
Question 3
Revenue recognition is given by IAS 18. This standard gives the recognition criteria.
a) List and explain the five criterions to be observed to recognise revenue from
sale of goods.
b) State whether the following events occurring after the reporting date require
an adjustment to the assets and liabilities of the financial statements.
(i) Purchase of an investment
(ii) A change in the rate of tax, applicable to the previous year
(iii) An increase in the pension benefit
(iv) Losses due to fire
(v) An irrecoverable debt suddenly being paid
(vi) The receipts of proceeds of sales or other evidence concerning the net
realizable value of inventory
Page 5 of 10
(vii) A sudden decline in the value of property held as a long term
investment.
The directors of a company are considering the company’s draft financial statements
for the year ended 30/09/2002
The following material points are unresolved:
(i) One of the company’s buildings was destroyed in a flood in October 2002.
The estimated value of the building was $4 million, but was insured for
only $3 million. The company’s going concern status is not jeopardized.
The directors are unsure what adjustments on disclosure if any should be
made.
(ii) Some goods which had cost $120,000 and which were included in closing
inventory at 30/09/2002 at that figure were found to have deteriorated while
held in inventory. The directors are unsure whether to adjust the inventory
figure downwards by $40,000or allow the loss to fall in the period when
deterioration was discovered.
(i) The company’s warehouse was destroyed by fire with an uninsured
loss of inventory worth $180,000 and damage to the buildings also
uninsured of $228,000. The going concern is not affected. The financial
statements currently make no mention of the fire losses.
The draft financial statements for Darlars, a limited liability company for the
year ended 31/12/12 is currently under review. The following points have
been raised:
I. An ex-employee has started an action against the company for wrongful
dismissal. The company’s legal team have stated that the ex-employee
is not likely to succeed. The following estimates have been given by the
lawyers relating to the case:
a) Legal costs (to be incurred whether the claim is successful or not)
$5 000
b) Settlement of claim if successful $15 000. Total $20 000.
(ii) The company has a policy of refunding the cost of any goods returned
by dissatisfied customers, even though it is under no legal obligation to
Page 6 of 10
do so. This policy of making refunds is generally known. At the year
end returns totalling $4 800 have been made.
(iii) A claim has been made against a company for injury suffered by the
pedestrian in connection with building work by the company. Legal
advisers have confirmed that the company will probably have to pay
damages of $100 00 but that a counter claim made against the building
subcontractor for $50 000 would probably be successful.
Sate with reasons what adjustments, if any, should be made by the company
in the financial statements.
Question 4
The trial balance of Gumps, a company as at 31 December 2012 was as follows:
DR CR
$ $
Sales and purchases 20 000 50 000
Inventory 8 000
Distribution costs 8 000
Adminstration expenses 15 550
Receivables and payables 10 000
Fundamental reorganisation costs 2 400
Cash at bank 8 100
Ordinary shares 50c 8 000
10% irredeemable preference shares $1 9 000
10% loan notes 8 000
Non- current assets at net book value 35 000
Share premium 3 000
Retained profits at 1 January 2012 3 000
Lone note interest 400
Preference dividend 450
Interim ordinary dividend 1 600
Page 7 of 10
Tax 500
Suspense 8 000
109 000 109 000
Notes:
1) A building whose net book value is currently $5 000 is to be revalued to $11
000
2) A final ordinary dividend of 10c per share is to be proposed.
3) The balance on the corporation tax account represents an overprovision of tax
for the previous year. Tax for the current year is estimated at $3 000
4) Closing inventory is $12 000
5) The balance on the suspense account represents the proceeds from the issue
of 4 000 ordinary shares.
Prepare the following statements for the year ended 31 December 2012:
a) Statement of comprehensive income
b) Statement of Financial position
c) Statement of changes in equity
d) An income statement (hence ignoring the revaluation)
Page 8 of 10
The following are the Statement of Financial Position of Victory plc for 2011 and
2012 together with the statement of comprehensive income for the year ended 31
December 2012.
Victory plc Statement of Financial positions
2011 2012
$000 $ 000
Goodwill at cost 110 100
Land @ cost 140 230
Buildings @ cost 168 258
Provision for depreciation on buildings (22) (28)
Motor vehicle @ cost 162 189
Provision for depreciation on motor vehicle (46) (41)
Inventory 116 148
Accounts receivable 76 100
Prepaid expenses 60 64
Bank 10 -----
664 877
Called-up capital ($1 shares) 300 360
Share premium account ------ 48
General reserve 44 60
Retained profits 96 130
Debentures 60 100
Corporation tax payable 60 70
Bank ---- 24
Accounts receivables 99 79
Accrued wages 5 6
664 877
Page 9 of 10
Victory plc statement of comprehensive income for the year ended 31
December 2012
$000
Sales revenue 670
Less cost of sales 323
347
Less expense:
Wages 112
Office expenses 27
Selling expenses 9
Depreciation:
Motor vehicles 22
Buildings 6
Interest 18
Amortisation of good will 10
204
Profit before taxation 150
Less corporation tax 70
Net profit after tax 80
Notes:
a) During 2012, motor vehicles, costing $42 000 and depreciated by $27 00,
were sold. New motor vehicles costing $69 000 were purchased in the year.
b) A dividend of $30 000 was paid out in June 2012
c) Corporation tax paid over 2012 amounted to $60 000
Required:
A cash flow statement in accordance IAS 7 for the period ended 31 December 2012
using the direct method.
Page 10 of 10
