15582383 CIMA Financial Accounting Fundamentals Past Papers[1]

8/6/2019 15582383 CIMA Financial Accounting Fundamentals Past Papers[1]

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The Chartered Institute of Management Accountants 2001

Foundation Level Financial Accounting Fundamentals

1 FAFN 23 May 2001

Day 3 morning

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions).

Answer the TWO questions in section B.

Answer ONE question ONLY from section C.

Write your examination number in the boxes provided on the front of the answer book.

Write FAFN on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A which is on page 3 ofthis question paper booklet.Detach the sheet from the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.

TURN OVER

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FAFN 2 May 2001

SECTION A 50 MARKS

ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Question One

1.1 The fundamental objective of an external audit of a limited company is to

A give advice to shareholders.

B detect fraud and errors.

C measure the performance and financial position of a company.

D provide an opinion on the financial statements.

1.2 A receives goods from B on credit terms and A subsequently pays by cheque. A thendiscovers that the goods are faulty and cancels the cheque before it is cashed by B.

How should A record the cancellation of the cheque in his books?

A Debit creditors Credit returns outwards

B Credit bank Debit creditors

C Debit bank Credit creditors

D Credit creditors Debit returns outwards

1.3 The profit of a business may be calculated by using which one of the following formulae?

A Opening capital - drawings + capital introduced - closing capital

B Closing capital + drawings - capital introduced - opening capital

C Opening capital + drawings - capital introduced - closing capital

D Closing capital - drawings + capital introduced - opening capital

1.4 The turnover in a company was 2 million and its debtors were 5% of turnover. Thecompany wishes to have a provision for doubtful debts of 4% of debtors, which wouldmake the provision 33% higher than the current provision.

What figure would appear in the profit and loss account in respect of doubtful debts?

A debit 1,000. B credit 1,000. C debit 1,333. D credit 1,333.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correctanswer.



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May 2001 3 FAFN

1.5 Which one of the following should be accounted for as capital expenditure?

A The cost of painting a building.

B The replacement of windows in a building.

C The purchase of a car by a garage for re-sale.

D Legal fees incurred on the purchase of a building.

1.6 A business purchases a machine on credit terms for 15,000 plus value added tax (VAT)at 15%. The business is registered for VAT. How should this transaction be recorded inthe books?

Dr Cr

A Machinery 15,000

Creditors 15,000

B Machinery 17,250

Creditors 17,250

C Machinery 15,000

VAT 2,250

Creditors 17,250

D Machinery 17,250

VAT 2,250

Creditors 15,000

1.7 Which one of the following statements most closely expresses the meaning of true andfair?

A There is only one true and fair view of a companys financial statements.

B True and fair is determined by compliance with accounting standards.

C True and fair is determined by compliance with company law.

D True and fair is largely determined by reference to generally accepted accounting practice.

1.8 On 1 May 2000, A Ltd pays a rent bill of 1,800 for the period to 30 April 2001. What arethe charge to the profit and loss account and the entry in the balance sheet for the yearended 30 November 2000?

A 1,050 charge to profit and loss account and prepayment of 750 in the balance sheet.

B 1,050 charge to profit and loss account and accrual of 750 in the balance sheet.

C 1,800 charge to profit and loss account and no entry in the balance sheet.

D 750 charge to profit and loss account and prepayment of 1,050 in the balance sheet.



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FAFN 4 May 2001

1.9 S Ltd exchanged stock for a delivery vehicle with T Ltd. The stock had cost S Ltd 10,000and the normal selling price was 12,000; the delivery vehicle had cost T Ltd 9,000 andthe normal selling price was 13,000.

How should S Ltd value the vehicle in its balance sheet?

A 9,000. B 10,000. C 12,000. D 13,000.

1.10 Zs bank statement shows a balance of 825 overdrawn. The bank statement includesbank charges of 50, which have not been entered in the cash book. There areunpresented cheques totalling 475 and deposits not yet credited of 600. The bankstatement incorrectly shows a direct debit payment of 160, which belongs to anothercustomer.

The figure for the bank balance in the balance sheet should be

A 590 overdrawn.

B 540 overdrawn.

C 790 overdrawn.

D 840 overdrawn.

1.11 There is 100 in the cash till at the year end at F Ltd, but the accountant has discoveredthat some cash has been stolen. At the beginning of the year there was 50 in the cash tilland debtors were 2,000. Total sales in the year were 230,000. Debtors at the end of theyear were 3,000. Cheques banked from credit sales were 160,000 and cash sales of50,000 have been banked.

How much cash was stolen during the year?

A 18,950. B 19,000. C 19,050. D 20,950.

1.12 A car was purchased for 12,000 on 1 April 1997 and has been depreciated at 20% eachyear straight line, assuming no residual value. The company policy is to charge a fullyears depreciation in the year of purchase and no depreciation in the year of sale. The carwas traded in for a replacement vehicle on 1 August 2000 for an agreed figure of 5,000.

What was the profit or loss on the disposal of the vehicle for the year ended 31 December 2000?

A Loss 2,200. B Loss 1,400. C Loss 200. D Profit 200.



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May 2001 5 FAFN

1.13 A company includes in stock goods received before the year end, but for which invoicesare not received until after the year end. This is in accordance with

A the historical cost convention.

B the accruals concept.

C the consistency concept.D the materiality concept.

1.14 I Ltd operates the imprest system for petty cash. At 1 July there was a float of 150, but itwas decided to increase this to 200 from 1 August onwards. During July, the pettycashier received 25 from staff for using the photocopier and a cheque for 90 wascashed for an employee. In July, cheques were drawn for 500 for petty cash.

How much cash was paid out as cash expenses by the petty cashier in July?

A 385. B 435. C 515. D 615.

1.15 Which one of the following sentences does NOT explain the distinction between financialaccounts and management accounts?

A Financial accounts are primarily for external users and management accounts areprimarily for internal users.

B Financial accounts are normally produced annually and management accounts arenormally produced monthly.

C Financial accounts are more accurate than management accounts.

D Financial accounts are audited by an external auditor and management accounts do notnormally have an external audit.

1.16 The movement on the plant and machinery account for X Ltd is shown below:

Cost b/fwd 10,000

Additions 2,000

Disposals (3,000)

Cost c/fwd 9,000Depreciation b/fwd 2,000

Charge for the year 1,000

Disposals (1,500)

Depreciation c/fwd 1,500

Net book value b/fwd 8,000

Net book value c/fwd 7,500

The profit on the sale of the machine was 500. What figures would appear in the cash flowstatement of X Ltd?



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FAFN 6 May 2001

A Movement on plant account 500 and profit on disposal of 500.

B Movement on plant account 500 and proceeds on sale of plant 2,000.

C Purchase of plant 2,000 and profit on disposal of 500.

D Purchase of plant 2,000 and proceeds on sale of plant 2,000.

1.17 When there is inflation, the historical cost convention has the effect of

A overstating profits and understating balance sheet values.

B understating profits and overstating balance sheet values.

C understating cash flow and overstating cash in the balance sheet.

D overstating cash flow and understating cash in the balance sheet.

1.18 When reconciling the creditors ledger control account with the list of creditors ledgerbalances of M, the following errors were found: the purchase day book had been overstated by 500 and the personal ledger of a supplier had been understated by 400.

What adjustment must be made to correct these errors?

Control account List of creditor balances

A Cr 500 decrease by 400

B Dr 500 increase by 400

C Dr 400 increase by 500D Cr 400 decrease by 500

1.19 Extracts from the financial statements of CFS Ltd are set out below:

Profit and loss account for the year ended 31 December 2000

000 000 Turnover 300Cost of sales 150Gross profit 150Profit on sale of fixed asset 75

225Expenses 15Depreciation 30

45Net profit 180

Balances at 31 December 1999 2000 000 000

Stock, debtors, current liabilities (net) 40 50

What figure would appear in the cash flow statement of CFS Ltd for the year ended 31December 2000 in respect of net cash flow from operating activities?



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May 2001 7 FAFN

A 125. B 145. C 215. D 235.

1.20 B is a builder with a staff of ten employees. In April 2001, he paid the following amounts:

net salaries after tax and national insurance 14,000 tax and employees national insurance for March 2001 5,000 employers national insurance for March 2001 1,400

He owes the following amounts in respect of tax and national insurance for April 2001: tax and employees national insurance 6,000 employers national insurance 1,500

The correct expense for employee costs to be shown in the profit and loss account for April 2001is

A 19,000. B 20,000. C 20,400. D 21,500.

1.21 The following information relates to M Ltd:

At 30 September 2000 1999 000 000

Stock of raw materials 75 45Work-in-progress stock 60 70Stock of finished goods 100 90

For the year ended 30 September 2000 Purchases of raw materials 150,000Manufacturing wages 50,000Factory overheads 40,000

The prime cost of production in the manufacturing account for the year ended 30 September2000 is

A 165,000. B 170,000. C 210,000. D 270,000.

1.22 When valuing stock at cost, which of the following shows the correct method of arriving atcost?

Include inward Include transport costs production overheads

A Yes No

B No Yes

C Yes Yes

D No No



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FAFN 8 May 2001

1.23 A fixed asset register is

A an alternative name for the fixed asset ledger account.

B a list of the physical fixed assets rather than their financial cost.

C a schedule of planned maintenance of fixed assets for use by the plant engineer.

D a schedule of the cost and other information about each individual fixed asset.

1.24 The difference between a profit and loss account (which may also be referred to as anincome statement) and an income and expenditure account is that

A an income and expenditure account is an international term for a profit and loss account.

B a profit and loss account is prepared for a business and an income and expenditureaccount is prepared for a not-for-profit making organisation.

C a profit and loss account is prepared on an accruals basis and an income and expenditureaccount is prepared on a cash flow basis.

D a profit and loss account is prepared for a manufacturing business and an income andexpenditure account is prepared for a non-manufacturing business.

1.25 In a debtors report, which one of the following would you NOT expect to see?

A Total debtor balances outstanding for current and previous months.

B Debtor balances excluding VAT.

C Credit limit.

D Sales to date.

Total = 50 marks



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FAFN M200110

SECTION B 30 MARKS

ANSWER BOTH QUESTIONS

Question Two

The trial balance of FRS, a sole proprietor, at 31 July 2000 was as follows:

Capital 100,000Plant and machinery:

Cost 155,000Provision for depreciation to 1 August 1999 50,000

Trade debtors 15,000Trade creditors 3,000Stock at 1 August 1999 10,000Cash at bank 3,400Sales 150,000Drawings 35,000Provision for doubtful debts at 1 August 1999 2,000Bank loan repayable 2006 20,000Purchases 40,000Selling and distribution expenses 50,000Administration expenses 15,000Interest 1,600

325,000 325,000

The following final adjustments are required:(i) Stock at 31 July 2000 was valued at 12,000.

(ii) Selling and distribution expenses of 4,000 are to be accrued.

(iii) Administration expenses of 6,000 were prepaid.

(iv) The provision for doubtful debts is to be adjusted to 5% of debtors.

(v) Depreciation on the plant and machinery is 15,000 for the year to 31 July 2000.

Required: (a) Prepare a trading, profit and loss account for the year ended 31 July 2000 and a balance

sheet at that date. (14 marks)

(b) Calculate the following, as at 31 July 2000: current ratio; gearing; debtor days.

(6 marks)

(Total = 20 marks)



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M2001 FAFN 11

Question Three

The trial balance of E Ltd did not balance and the following errors have been discovered:

(i) A cheque for 1,000 received from a debtor had been credited to the sales accountand debited to the bank account.

(ii) The cash book had been undercast by 250.

(iii) A machine costing 5,000 had been debited to the machinery repairs account.Machinery is depreciated at 10% on cost and no residual value is assumed.

Required: (a) Correct the above errors by showing which ledger accounts should be debited or credited.

(4 marks)

(b) Explain why financial controls are necessary and give TWO examples.(6 marks)

(Total = 10 marks)



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FAFN M200112

SECTION C 20 MARKS

ANSWER ONE QUESTION ONLY

Question Four

(a) Define depreciation.(2 marks)

(b) State the purpose of depreciation.(4 marks)

(c) A transport company started business on 1 January 1998 and purchased truck (A) for80,000. Truck (A) was destroyed in a road accident on 1 March 1999 and the insurancecompany paid out 60,000 to the transport company.

On 1 April 1999, truck (B) was purchased for 90,000.On 1 July 1999, car (C) was purchased for 20,000.

On 1 August 2000, car (C) was traded in for car (D) which cost 25,000, less a part-exchangeallowance on car (C) of 15,000.The depreciation policy of the company is:

depreciate trucks at 40% each year on the reducing balance; depreciate cars at 25% each year using a straight-line basis; assume a residual value for cars of 10% of the original cost; if a vehicle is owned for part of a year, calculate depreciation according to the number of

months for which the vehicle is owned.

The year end of the company is 31 December.

Required:

Write up the following ledger accounts: motor vehicles at cost account;

(4 marks) provision for depreciation on motor vehicles account;

(6 marks) disposal of motor vehicles account.

(4 marks)You should include entries for each relevant year, and work to the nearest .

(Total = 20 marks)



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M2001 FAFN 13

Question Five

(a) State the rule for valuing stock.(2 marks)

(b) Explain the purposes of the rule for valuing stock. (8 marks)

(c) The trading account of T Ltd is set out below:

T Ltd trading account for the year ended 30 April 2001

000 000 Turnover 1,000Opening stock 200Purchases 700

900Closing stock 300Cost of goods sold 600Gross profit 400

The opening and closing stock was valued on a FIFO basis. On a LIFO basis, the opening andclosing stock would have been valued at 180,000 and 270,000 respectively.

Required: (i) Calculate gross profit if the trading account was prepared using a stock valuation basis of

LIFO.(2 marks)

(ii) Calculate "stock days", using the average method, on the assumption that stock is valued: on the FIFO basis; on the LIFO basis.

(3 marks)

(iii) Identify and explain any change in the gross profit and in "stock days" as a consequence ofusing LIFO rather than FIFO to value stock.

(5 marks)

(Total = 20 marks)

End of paper



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1 FAFN 21 November 2001

Day 3 morning



You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2 8).

Answer the TWO questions in section B (these are on pages 9 and 10).

Answer ONE question ONLY from section C (these questions are on page 12).

Write your examination number in the boxes provided on the front of the answer book.

Write FAFN on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A. Detach the sheetfrom the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.



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FAFN 4 November 2001

1.8 S Ltd, which is registered for purposes of value added tax, bought furniture on creditterms at a cost of $8,000, plus value added tax of $1,200.

What is the correct account entry?

DR CR

$ $ A Furniture 9,200Supplier 9,200

B Furniture 8,000VAT 1,200Supplier 6,800

C Furniture 8,000VAT 1,200Supplier 9,200

D Furniture 8,000Supplier 8,000

1.9 SOR Ltds stock was valued at $13,000 and excludes goods supplied to a customer on asale or return basis. The customer still has 30 days within which to return the stock. Thegoods on sale or return were purchased by SOR Ltd for $6,000 and were invoiced at amark-up of 25%.

The value of SOR Ltds stock should be

A $13,000. B $19,000. C $20,500. D $21,000.

1.10 A Ltds trial balance does not balance. Which ONE of the following errors may be thecause of this failure to balance?

A The purchase of a machine had been debited to the machine repairs account.B A cheque from a customer had been credited to the purchase ledger account of the

customer.C

Goods returned inwards had been debited to the sales ledger account of the customer.D The depreciation charge on machinery had been credited to the cost of machineryaccount.



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November 2001 5 FAFN

1.11 The current liabilities of CFS Ltd include the following:

2001 2000 Dividends payable $30,000 $25,000

The cash flow statement for the year ended in 2001 shows dividends paid of $27,000.

What were the dividends in the profit and loss account for the year ended 2001?

A $22,000 B $27,000 C $28,000 D $32,000

1.12 S is employed by T Ltd. His pay details for January and February are as follows:

January: Gross salary $2,000 Tax $500 National insurance $100 Net pay $1,400February: Gross salary $2,200 Tax $550 National insurance $110 Net pay $1,540

Tax and national insurance are payable to the government one month after they are

deducted from employees salaries.

How much cash did T Ltd pay out in February in connection with Ss wages?

A $2,000 B $2,060 C $2,140 D $2,200

1.13 The following is an extract from the balance sheets of FRC plc for the years ended31 July 2001 and 31 July 2000:

2001 2000 $000 $000

Stock 50 80Debtors 60 50Creditors 35 30Accruals 5 20

What figure would appear in the cash flow statement of FRC plc for the year ended 31 July 2001as part of the cash flow from operations?

A $25,000 outflowB $10,000 outflowC $10,000 inflowD $25,000 inflow

1.14 Which ONE of the following provides the best definition of an "audit trail"?

A The marks left by an auditor when a document has been inspected.B The working papers of an auditor.C The pursuit of a fraud by an auditor.D The trail of a transaction from source document to financial statement.



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1.15 N plc purchased a machine for $15,000. The transportation costs were $1,500 andinstallation costs were $750. The machine broke down at the end of the first month in useand cost $400 to repair. N plc depreciates machinery at 10% each year on cost,assuming no residual value.

What is the net book value of the machine after one year, to the nearest dollar?

A $13,500 B $14,850 C $15,525 D $15,885

1.16 Which ONE of the following might explain the debit balance on a purchase ledgeraccount?

A The company took a cash discount to which it was not entitled and paid less than theamount due.

B The company mistakenly paid too much.C The book-keeper failed to enter a contra with the sales ledger.D The book-keeper failed to post a cheque paid to the account.

1.17 In a period of inflation, which ONE of the following methods of charging stock issues toproduction will give the lowest profit figure?

A Average costB LIFOC FIFOD Replacement cost

1.18 Which ONE of the following provides the best explanation of the objective of an internalaudit?

A The objective is to assist directors of a company in the effective discharge of theirfinancial responsibilities towards the members.

B The objective is to provide support to the external auditor.C The objective is to detect fraud and error.D The objective is to audit the financial statements.



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1.19 The following information at 5 January 2001 relates to a club, which has a year end of31 December 2000:

$ Subscriptions for 1999 unpaid at January 2000 300Subscriptions for 1999 paid during the year ended 31 December 2000 250Subscriptions for 2000 paid during the year ended 31 December 2000 6,000Subscriptions for 2001 paid during the year ended 31 December 2000 1,000Subscriptions for 2000 unpaid at 31 December 2000 750It is the clubs policy to write off overdue subscriptions after one year.

What amount should be credited to the income and expenditure account for the year ended31 December 2000?

A $6,250 B $6,750 C $7,050 D $7,250

1.20 Who has the responsibility for ensuring that a company maintains proper accountingrecords?

A The shareholders.B The auditors.C The directors.D The company secretary.

1.21 Which ONE of the following formulae correctly expresses the relationship between thereturn on capital employed (ROCE), net profit margin (NPM) and asset turnover (AT)?

A ROCE = NPM ATB ROCE = NPM + ATC ROCE = NPM x ATD ROCE = NPM - AT

1.22 The correct ledger entries to record the issue of 150,000 $1 ordinary shares at a premiumof 20% and paid by cheque is:

DR CR $ $

A Bank 180,000Share capital 150,000Share premium 30,000

B Bank 180,000Share premium 180,000

C Bank 180,000Share capital 180,000

D Bank 150,000Share premium 30,000Share capital 120,000



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1.23 A fixed asset register had a balance of $125,000. A fixed asset, which had cost $12,000,was sold for $9,000 at a profit of $2,000.

What is the revised balance on the fixed asset register?

A $113,000 B $118,000 C $125,000 D $127,000

1.24 M plcs trial balance did not balance at 31 May 2001. The following errors werediscovered: Insurance of $500 prepaid at 31 May 2000 had not been brought down as an opening

balance on the insurance account; Wages of $5,000 had been incorrectly debited to the purchases account; The book-keeper had failed to accrue $300 for the telephone invoice owing at 31 May

2001.

What was the difference on the trial balance?

A $500 B $800 C $5,500 D $5,800

1.25 S is a builder who has numerous small items of equipment. He calculates hisdepreciation using the revaluation method. At the beginning of his financial year hevalued his equipment at $10,250; he bought equipment costing $3,450 and he soldequipment valued at $2,175. At the end of his financial year he valued his equipment at$8,000.

What is his depreciation charge on equipment for the year?

A $2,250 B $3,525 C $5,700 D $11,525

(Total = 50 marks)



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November 2001 FAFN 9

SECTION B 30 MARKS

ANSWER BOTH QUESTIONS

Question Two

The balances extracted from the nominal ledger of RHG Ltd for the year ended 31 July 2001were as follows:

$ Stock of raw materials at 1 August 2000 4,000Work-in-progress at 1 August 2000 2,000Stock of finished goods at 1 August 2000 8,000Direct factory wages 60,000Office salaries 50,000Directors' salaries 40,000Purchases of raw materials 90,000Depreciation charge on factory machinery 35,000Depreciation charge on office machinery 15,000Factory overheads 35,000Advertising 18,000Sales 450,000Factory machinery 400,000Office machinery 200,000Provision for depreciation on factory machinery at 31 July 2001 90,000Provision for depreciation on office machinery at 31 July 2001 30,000

Debtors 40,000Creditors 7,000Bank overdraft 3,00010% debenture 80,000Issued share capital: ordinary shares of $1 250,000Share premium account 25,000Profit and loss account reserve 62,000

The valuation of stock at 31 July 2001 was as follows: raw materials $3,000

work-in-progress $1,500 finished goods $6,000

Required: (a) prepare a manufacturing, trading and profit and loss account for the year ended 31 July

2001 and a balance sheet at that date.(14 marks)



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FAFN November 200110

(b) Calculate: the gearing ratio; (2 marks) debtor days; (2 marks) finished goods stock days. (2 marks)

(Total = 20 marks)

Question Three

The following information relates to C Ltd's cash book and bank statement on 30 June 2001.

$ Balance in the cash book (Cr) 2,250Bankings in the cash book, not on the bank statement 5,300Bank charges on the bank statement, not in the cash book 450Unpresented cheques less than six months old 7,500Unpresented cheque more than six months old, to be cancelled 800Standing order from a customer on the bank statement, not in the cashbook

3,600

Required: (a) Calculate the balance on the bank statement at 30 June 2001.

(5 marks)

The following information relates to D Ltd for the month of July 2001. $ Sales ledger balances at 1 July 18,300Sales day book 150,500Bad debts written off 12,100Cheques received from debtors 130,400Set off against purchase ledger 6,500Cheques dishonoured 2,700

Required: (b) Prepare a sales ledger control account for July 2001, carrying down the balance at 31 July

2001. (5 marks)

(Total = 10 marks)



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November 2001 FAFN 11

SECTION C 20 MARKS

ANSWER ONE QUESTION ONLY

Question Four

(a) Identify four potential user groups of financial statements.(4 marks)

(b) Explain why user groups in general need accounting information, and state the informationthey require. Choose two examples of user groups and give the specific information theyrequire and the purpose for which they would require it.

(8 marks)

(c) Identify and explain three characteristics of useful financial information.(8 marks)

(Total = 20 marks)

Question Five

Explain each of the following four accounting concepts, and give an example of its application:

(a) Going concern.(5 marks)

(b) Accruals.(5 marks)

(c) Consistency.(5 marks)

(d) Prudence (or conservatism).(5 marks)

(Total = 20 marks)

End of paper



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ExaminationQuestion andAnswer Book

Write here your full examination number

Centre Code:Hall Code:Desk Number:


1 FAFN22 May 2002

Day 3 morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided.Additional blank pages (20-23) are included towards the back of this booklet if you require more space fornotes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove any

sheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use ofcorrection fluid.

You are allowed three hours to answer this question paper. All questions are compulsory.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-11)

Answer the THREE questions in section B (these are on pages 12-19)

You are advised to spend 10 minutes reading through the paper before starting to answer the questions.

You should spend no more than 85 minutes in total answering the ONE question in section A, which has25 sub-questions.

You should spend no more than 85 minutes in total answering the THREE questions in section B.

Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leavethe examination hall with this booklet.

Do NOT write your name or your student registration number anywhere on this booklet.

TURN OVER

For office use only Total One Two Three Four

Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question




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FAFN 2 May 2002

SECTION A 50 MARKS

ANSWER ALLTWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Question One

1.1 An imprest system is

A accounting computer software.

B an audit process.

C automatic agreement of the cash book and bank statement.

D a method of controlling petty cash.

1.2 Which ONE of the following is correct?

A All limited companies are required by law to have an external audit.

B Only public limited companies are required by law to have an external audit.

C Only limited companies above a certain size are required by law to have an external audit.

D An external audit for a limited company is voluntary.

For office use only Total 1.1 1.2Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


REQUIRED: Place a circle O around the letter A, B , C or D that gives the correct answer to each sub-question.

If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.



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May 2002 3 FAFN

1.3 At 31 March 2001, accrued rent payable was $300. During the year ended 31 March 2002, rent paidwas $4,000, including an invoice for $1,200 for the quarter ended 30 April 2002.

What is the profit and loss account charge for rent payable for the year ended 31 March 2002?

A $3,300 B $3,900 C $4,100 D $4,700

Space for workings to 1.3

1.4 The responsibility for internal control rests with

A the internal auditors.

B the external auditors.

C the shareholders.

D the directors.

1.5 The annual insurance premium for S Ltd for the period 1 July 2001 to 30 June 2002 is $13,200, whichis 10% more than the previous year. Insurance premiums are paid on 1 July.

What is the profit and loss account charge for insurance for the year ended 31 December 2001?

A $11,800 B $12,540 C $12,600 D $13,200


TURN OVER

For office use only Total 1.3 1.4 1.5Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



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FAFN 4 May 2002

1.6 A bank reconciliation showed the following differences between the bank statement and the cashbook:

Unpresented cheques of $750

Outstanding deposits of $500

Bank charges of $100

If the balance on the bank statement is $1,000 overdrawn, what is the balance in the cash book beforeany adjustments?

A Debit $250 B Credit $1,150 C Credit $1,250 D Credit $1,500


1.7 Which ONE of the following expenses should be included in prime cost in a manufacturing account?

A Repairs to factory machinery.

B Direct production wages.

C Office salaries.

D Factory insurance.




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May 2002 5 FAFN

1.8 The entries in a sales ledger control account are:

Sales $250,000

Bank $225,000

Returns $2,500

Bad debts $3,000

Returned unpaid cheque $3,500

Contra purchase ledger account $4,000

What is the balance on the sales ledger control account?

A $12,000 B $19,000 C $25,000 D $27,000


1.9 A Ltd has an item in stock which cost $1,000 and can be sold for $1,200. However, before it can besold, it will require to be modified at a cost of $150. The expected selling costs of the item are anadditional $100.

How should this item be valued in stock?

A $950 B $1,000 C $1,050 D $1,100


TURN OVER




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FAFN 6 May 2002

1.10 A value for money audit is

A an external audit with limited scope.

B a review of expenditure to ensure effectiveness, efficiency and economy.

C a voluntary audit by an unregistered auditor.

D none of these.

1.11 Which ONE of the following statements regarding a fixed assets register is NOT correct?

A A fixed assets register enables reconciliations to be made with the nominal ledger.

B A fixed assets register enables depreciation charges to be posted to the nominal ledger.

C A fixed assets register agrees with the fixed asset nominal ledger account.

D A fixed assets register records the physical location of an asset.

1.12 B Ltd purchased a machine for $120,000 on 1 October 2001. The estimated useful life is 4 years witha residual value of $4,000. B Ltd uses the straight-line method for depreciation and chargesdepreciation on a monthly basis.

What is the charge for depreciation for the year ended 31 December 2001?

A $7,250 B $7,500 C $29,000 D $30,000


For office use only Total 1.10 1.11 1.12

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



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FAFN 8 May 2002

1.16 The total cost of salaries charged to the profit and loss account is

A the total gross salaries plus employer's national insurance contributions.

B the total gross salaries.

C the total net salaries.

D the total net salaries plus employer's national insurance contributions.

1.17 The segregation of duties is

A delegation of duties by a manager.

B two staff sharing one job.

C a feature of internal control.

D all of the above.

1.18 The net profit percentage in a company is 12% and the asset turnover ratio is 2.

What is the return on capital employed?

A 6% B 10% C 14% D 24%


1.19 Which of the following are used in a coding system for accounting transactions?A Department code.

B Nominal ledger code.

C Product code.

D All of the above.

For office use only Total 1.16 1.17 1.18 1.19

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question



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May 2002 9 FAFN

1.20 APM Ltd provides the following note to fixed assets in its balance sheet.

Plant and machinery Cost Depreciation Net book value $000 $000 $000

Opening balance 25 12 13Additions/charge 15 4 11

Disposals (10) (8) (2)Closing balance 30 8 22

The additional machinery was purchased for cash. A machine was sold at a profit of $2,000.

What is the net cash outflow for plant and machinery?

A $9,000 B $11,000 C $13,000 D $15,000


1.21 Which of the following errors will cause the trial balance totals to be unequal?

A Errors of transposition.

B Errors of omission.

C Errors of principle.

D All of the above.

TURN OVER




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May 2002 11 FAFN

1.25 Which ONE of the following is an appropriation by a limited company?

A Directors' salaries.

B Dividends.

C Donation to a charity.

D Loan interest.

(Total = 50 Marks)

End of Section A

Section B begins on page 12

TURN OVER

For office use only Total 1.25Marks awarded (First marker) for the sub-questionMarks awarded (Second marker) for the sub-question



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FAFN 12 May 2002

SECTION B 50 MARKS

ANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THECORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.

THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK ISINDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.

DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.

Question Two

The bookkeeper at QME plc has prepared the trial balance set out below from the nominal ledger. Theaccountant has prepared a schedule of adjustments which need to be made before the financial statementscan be prepared.

The trial balance of QME plc at 31 December 2001 was as follows:

$000 $000 Buildings at cost 250Provision for depreciation on buildings 70Equipment at cost 200Provision for depreciation on equipment 50Patent at valuation 150Stock at 1 January 2001 60Debtors/creditors 100 25Provision for doubtful debts at 1 January 2001 5Bank 30Sales 800Purchases 25010% Debentures 100Debenture interest paid 5Interim dividend 10Directors' remuneration 40Administration expenses 130

Selling and distribution expenses 160Ordinary shares of 50 cents each 200Profit and loss account reserve 50General reserve 25

1,355 1,355



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May 2002 13 FAFN

Schedule of adjustments:

(i) Stock at 31 December 2001 was valued at $70,000.(ii) Accruals: Administration expenses $30,000.(iii) Prepayments: Selling and distribution expenses $20,000.(iv) The 10% Debenture was issued in 1999, redeemable 2006.(v) The provision for doubtful debts is to be increased to 8% of debtors.(vi) The buildings are revalued at $300,000 and this revised value is to be included in the accounts.(vii) Depreciation:

Buildings: 2% of revised valueEquipment: 20% of net book value at the year end.

(viii) In September 2001, $30,000 taxation was paid. The tax advisers estimate that the taxation for theyear ended 31 December 2001 will be $10,000, but accounts have not yet been submitted to the taxauthorities.

(ix) The directors declare a final dividend of 5 cents per share.(x) The directors decide to transfer $15,000 to the general reserve.

Required:

(a) Complete the missing figures and words (in the shaded boxes) of thefinancial statements set out below.

QME plc Marks

available

For useby thesecondmarker

For useby the

firstmarker

Trading, Profit and Loss and Appropriation Account

Year ended 31 December 2001$000 $000

SalesCost of sales

Gross profit 1Administration expensesSelling and distribution expenses

Doubtful debts 1

Depreciation charge 1

Directors remuneration

Operating profit 1

Debenture interest 1

Profit before tax

Taxation

Profit after tax

Dividend 1

Transfer to general reserve

Retained profit 1

The Balance Sheet is overleaf

TURN OVER

Do not write in thesecolumns below



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FAFN 14 May 2002

Space for workings and/or notes for Question Two

QME plc Balance Sheet at 31 December 2001 Marksavailable


For useby the

firstmarker

$000 $000 $000

Fixed assets Cost or valuation Depreciation

1

Current assets

1Current liabilities

1

Capital and Reserves

2

Sub-total:12



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May 2002 15 FAFN

(b) The accountant at QME plc is preparing a report to the directors on the financial statements. Thereport will include key ratios.

Required:

Complete the missing words below (in the shaded boxes):

Marksavailable


For useby the

firstmarker

Stock days = / x 365 1

Debtor days = / x 365 1

Sub-total: 2

(c) How would the financial statements of QME plc change if:

(i) the accruals concept was not applied? (Use no more than 30words, in the shaded area below)

Marksavailable


For useby the

firstmarker

3

(ii) the going concern concept was not applied? (Use no more than30 words, in the shaded area below)

Marksavailable


For useby the

firstmarker

3

Question Two Total = 20 Marks

Section B continues overleaf

TURN OVER




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FAFN 16 May 2002

Question Three

The accountant and the sales ledger clerk at ILT Ltd met to discuss the debtors on 28 February 2001. Thesales ledger clerk reported that: the debtors in the ledger were: $25,000 in his opinion the following debts were bad: A Ltd $1,000

B Ltd $1,500 he considered the following debts doubtful: X Ltd $1,250

Y Ltd $1,750Z Ltd $2,200

The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, andmake a general provision of 5% at 28 February 2001.The accountant and the sales ledger clerk met again on 28 February 2002. The sales ledger clerk reportedthat: the debtors in the ledger were $30,000 in his opinion the following debts were bad: X Ltd $1,250

L Ltd $1,200 he considered the following debts doubtful: Y Ltd $1,750

P Ltd $900 the following had paid their debts in full: A Ltd $1,000

Z Ltd $2,200The accountant decided to write off the bad debts, make a specific provision for all the doubtful debts, andmake a general provision of 5% at 28 February 2002.

Required:

(a) Complete the missing information (in the shaded boxes) from the

schedule set out below which was prepared by the accountant.

Schedule of bad and doubtful debts Marks

available

For useby the

secondmarker

For useby the

firstmarker

$

28/2/ 2001

$ $

28/2/ 2002

$ Debtors 25,000 30,000Bad debts written off

1

Specific provision for doubtfuldebts

Debtors after bad debts andspecific provision

1

General provision fordoubtful debts

1

Total doubtful debts 1Sub-

Total: 4

The bookkeeper will enter the information from the accountants schedule into the ledger accounts.

Please do not write inthese columns below



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May 2002 17 FAFN

(b) Complete the missing information for the period 1 March 2001 to28 February 2002 in the two ledger accounts set out below, bycompleting the relevant shaded boxes.

Bad debts account Marks

available

For useby the

secondmarker

For useby the

firstmarker

$ $

3

Provision for doubtful debts account Marksavailable

For useby the

second

marker

For useby the

first

marker$ $

3

Sub-total: 6

Question Three Total = 10 Marks

Space for workings and/or notes for Question Three

Section B continues overleaf

TURN OVER




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FAFN 18 May 2002

Question Four

Q is a sole trader who has been trading for one year. He informs you that at the beginning of the year he had$10,000 in his bank account and that at the end of the year he had $12,000. He also informs you that hisrevenue was $40,000 and his expenditure $38,000. He therefore believes that his profit must be $2,000 andasks for your advice.

You reply that in order to calculate his profit you need to know whether he had any other assets and liabilitiesat the beginning and end of the year and whether the revenue and expenditure included any capital items.

Q is confused by these terms and asks you to explain them to him.

Required

(a) Define the four terms in no more than 30 words each using theshaded areas below.

Marksavailable

For useby the

secondmarker

Foruse bythe firstmarker

(i) Asset

2(ii) Liability

2(iii)Capital receipt

2(iv) Capital expenditure

2Sub-

total: 8

Part (b) of Question Four is on page 19




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May 2002 19 FAFN

Required

Marksavailable

For useby the

secondmarker

Foruse bythe firstmarker

(b) Give an example of each of the four terms you have defined aboveand explain why it conforms to your definition in no more than 30words each in the shaded areas below.(i) Asset

3(ii) Liability

3(iii)Capital receipt

3(iv) Capital expenditure

3Sub-total:

12

Question Four Total = 20 Marks

End of Question Paper TURN OVER FOR ADDITIONAL SPACE FOR WORKINGS AND NOTES




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FAFN 20 May 2002

You may use this sheet for workings(no marks are awarded for workings)



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FAFN 22 May 2002

You may use this sheet for workings(no marks are awarded for workings)



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May 2002 23 FAFN

DO NOT WRITE ON THIS SHEET



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FAFN 24 May 2002

1

FAFN

Financial Accounting Fundamentals

Day 3 morning



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1 FAFN20 November 2002

Day 3 morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Do notexceed the stated number of words. Please note that you will NOT receive marks for your workings.











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SECTION A 50 MARKS


Question One

1.1 Which ONE of the following best describes the stewardship function?

A Ensuring high profits.

B Managing cash.

C Ensuring the recording, controlling and safeguarding of assets.

D Ensuring high dividends to shareholders.

1.2 External auditors are primarily responsible for A writing a report to the shareholders expressing an opinion on the financial

statements.

B preparing the financial statements.

C detecting errors and fraud.

D ensuring that the accounts show a true and fair view.


REQUIRED:Place a circle O around the letter A, B , C or D that gives the correct answer to each sub-question.





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1.3 At the year end of SED Ltd in December 2000, a journal entry was raised to accrue for utilityexpenses of $3,600. This journal entry was reversed in January 2001. During the year endedDecember 2001, $30,000 was paid for utility expenses, of which $4,000 was prepaid at the year end.The charge to the profit and loss account for utility expenses for the year ended December 2001was

A $22,400

B $29,600

C $30,400

D $37,600


1.4 Z Limiteds cash book shows a credit balance of $2,200. A comparison with the bank statementshowed the following:

unpresented cheques totalling $600; receipts of $1,200 not yet cleared by the bank;

bank charges of $300 not entered in the cash book; a cheque from a customer for $400, which had been entered in the cash book when

received, has now been returned by the bank as " dishonoured " .

The balance on Z Limiteds bank statement is

A overdrawn $2,100

B overdrawn $2,300

C overdrawn $2,900

D overdrawn $3,500




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1.5 The role of the internal auditors is best described as

A auditing the financial accounts.

B supporting the work of the external auditors.

Creporting to management on the accounting systems.

D ensuring value for money.

1.6 On the first day of Month 1, a business had prepaid insurance of $10,000. On the first day of Month8, it paid, in full, the annual insurance invoice of $36,000, to cover the following year.The amount charged in the profit and loss account and the amount shown in the balance sheet atthe year end is:

Profit and loss account $

Balance carried forward $

A 5,000 24,000

B 22,000 23,000

C 25,000 21,000

D 36,000 15,000


1.7 In a manual accounting system, the most important reason for extracting a trial balance prior topreparing financial statements is that

A it proves the arithmetical accuracy of the ledgers.

B it provides a summary of the financial statements.

C it proves the individual ledger accounts are correct.

D it reveals how errors have been made.



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JSL Ltd operates the imprest system for its petty cash with a float of $750. At the end of July, thecashier prepared a spreadsheet for the petty cash expenses with a total column and analysiscolumns. A cash voucher for petrol for $50 was incorrectly entered as $5 in the total column andalso in one of the analysis columns in the spreadsheet.The total column was posted to the cash account, the analysis columns were posted to the relevantnominal ledger accounts and cash was drawn from the bank for the total of the cash expenditure onthe spreadsheet.

1.8

The effect of this error would be

A a petty cash balance of $705.

B petrol expenses overstated by $45.

C an imbalance on the trial balance.

D a petty cash balance of $750.


1.9 Financial statements are required to show a true and fair view.Which ONE of the following statements is the most appropriate explanation of a true and fair view?

A The accounts are approved by the shareholders.

B The accounts are set out in the correct format.

C The accounts conform to accounting concepts and conventions.

D The accounts comply with generally accepted accounting practice.



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1.10 SSG Ltd bought a machine for $40,000 in January 1998. The machine had an expected useful lifeof six years and an expected residual value of $10,000. The machine was depreciated on thestraight-line basis. In December 2001, the machine was sold for $15,000. The company has a policyin its internal accounts of combining the depreciation charge with the profit or loss on disposal of assets.

The total amount of depreciation and profit/loss charged to the internal profit and loss account over the life of the machine was

A $15,000

B $20,000

C $25,000

D $30,000


1.11 DEF plc has a supplier, M Ltd, and the balance on M Ltds purchase ledger account at 31 July 2002

was a credit balance of $2,000. On 5 August 2002, DEF plc received the July statement from M Ltdshowing a balance due of $3,000. The purchase ledger supervisor investigates the difference anddiscovers that: an invoice for $2,000 from M Ltd dated 31 July was not entered in the purchase ledger

account until 3 August 2002, but appears on M Ltds July statement. a cheque for $600 sent from DEF plc to M Ltd on 25 July 2002 in payment of a July invoice

does not appear on M Ltds July statement. This cheque was presented by M Ltd on 31 July2002.

The purchase ledger supervisor at DEF plc contacts the sales ledger supervisor at M Ltd andcorrectly says that there is a difference between the ledger accounts of

A $400

B $1,000

C $1,400

D $1,600




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1.12 On 1 October 2002, the debtors balance at G Ltd was $80,000. A summary of the transactions inthe month of October is set out below.

$ Cheques received 100,000Contra creditors 6,000Sales 90,000Returns inwards 4,000Discounts allowed 10,000

The debtors balance at 31 October was

A $50,000

B $58,000

C $62,000

D $70,000


1.13 Financial controls are primarily needed to

A minimise the risk of fraud and error.

B comply with legal requirements.

C improve the efficiency of the business.

D reduce the expense of the external auditors.



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1.14 The internal auditor at ILT plc has noticed that cheques from customers are being paid into the bankaccount approximately one month after the date on the cheque.

Should the internal auditor

A instruct the cashier to pay cheques in more promptly?

B disregard, because all cheques have been accounted for?

C ask customers to pay more promptly?

D inform senior management there may be a fraud?

1.15 SAD plc paid 240,000 in net wages to its employees in August 2002. Employees tax was 24,000,employees national insurance was 12,000 and employers national insurance was 14,000.Employees had contributed 6,000 to a pension scheme and had voluntarily asked for 3,000 to bededucted for charitable giving.

The amount to be charged to the profit and loss account in August 2002 for wages is

A 285,000

B 293,000

C 296,000

D 299,000


1.16 Which ONE of the following attributes is the most important for any code to possess in order to be of use in an accounting system?

A Easy to change the code number.

B Each code is a unique number.

C A combination of letters and digits to ensure input accuracy.

D Linked to assets, liabilities, income, expenditure and capital.



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1.17 Which of the following functions would most benefit from segregated duties of staff?

A Separate staff to maintain the sales and purchase ledgers.

B Separate staff to maintain the personal and nominal ledger accounts.

CSeparate staff to deal with the bank reconciliation and the cash book.

D Separate staff to deal with the trial balance and the preparation of accounts.

At the beginning of Period 6, XYZ Ltd had opening stock of 20 units of product X valued at $400each. During Period 6, the following stock movements occurred:

Day 5 Sold 15 items for $500 eachDay 10 Bought 8 items for $600 eachDay 14 Sold 12 items for $700 each

Using the FIFO method of stock valuation, the closing stock at the end of Period 6 was

1.18

A $500

B $5 50

C $600

D $700




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The following information is required for sub-questions 1.19 to 1.21

The accounts for SPA plc are set out below.

Profit and loss account for the year ended 30 November 2002 $000 $000

Turnover 5,000Opening stock 200Purchases 3,100Closing stock (300)Cost of sales (3,000)Gross profit 2,000Operating expenses (500)Operating profit 1,500

Balance sheet at 30 November 2002

$000 $000 Fixed assets 3,000Current assetsStock 300Debtors 900Bank 50

1,250Current liabilitiesTrade creditors (250) 1,000

4,000

Share capital 2,000Profit and loss account 2,000

4,000

Space for workings for 1.19 to 1.21

Questions 1.19 to 1.21 are on the next page



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1.22 The year end for ABC Ltd is July 2002 and in that month a company car was stolen. The net bookvalue of the company car was $8,000, but the company expects the insurance company to pay only$6,000. The correct journal entry to record this information was entered in the books in July 2002. InAugust 2002 the insurance company sent a cheque for $6,500.The journal entry to record this is:

Dr Cr $ $

A Bank 6,500Sundry debtor 6,500

B Bank 6,500Sundry debtor 6,000Disposal of fixed assets account 500

C Bank 500Disposal of fixed assets account 500

D Bank 500Sundry debtor 500


1.23 The trial balance of EHL plc does not balance and the debits exceed the credits by $2,300. Thefollowing errors are discovered:

the single column manual cash book receipts column was undercast by $600; discount received of $400 had been debited to the interest payable account; the proceeds of $1,000 on the sale of a fixed asset had been credited to sales.

Following the correction of these errors, the balance on the suspense account would be

A Cr $900

B Cr $2,100

C Cr $3,700

D Dr $2,100




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The accountant has asked S for some additional information and S has prepared the following schedule.

1. The following payments appeared on the bank statement in the year ended 31 July 2002:$

Payments to suppliers 135,000 (S takes a cash discount of 10% on invoice amount on allpayments to suppliers.)

Wages 15,000Vehicle expenses 9,000New vehicle 12,000General expenses 8,000Advertising 3,000 (this includes a prepayment of $1,000)Loan interest 500 ($500 was paid on 1 August 2002)Drawings 20,000 (S also took goods from the business worth $2,000)

202,500

2. The following receipts appeared on the bank statement in the year ended 31 July 2002:$

Receipts from sales 215,000Sale of old vehicle 2,000

217,000

3. The following amounts relate to cheques dated before 31 July 2002, but not presented by that date:$

General expenses 600Vehicle expenses 300

4. At 31 July 2002: $ debtors were 21,000 after excluding bad debts of $2,000creditors were 18,000stock was 10,000

The accountant has the following information on his file:(i) The net book value of the old vehicle which was sold was $3,000.(ii) Depreciation is charged on the net book value at the year end:

Vehicles 25%Machinery 20%

(iii) A general provision is made for doubtful debtors of 5% of debtors,after bad debts have been written off.

Space for workings to Question Two

The requirements for question two are on the next page



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Question Two continued

Required:Marks

available

For useby the

firstmarker


Prepare the profit and loss account for the year ended 31 July 2002and the balance sheet at that date by completing the shaded areas inthe financial statements below and on the next page.

S Profit and Loss account for the year ended 31 July 2002 $ $

SalesOpening stock 12,000

2

Purchases 2

Closing stock 10,000Cost of goods soldGross profit

Discount received 1

Less: Expenses

Wages 15,000

Vehicle expenses 1/2General expenses 1/2Advertising 1/2Loan interest 1/2Depreciation 11/2Charge for doubtful debts 1Bad debt 1/2Loss on sale of vehicle 1/2Profit for the year

(a)

Sub-total:10 1/2

Space for workings to Question Two




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S Balance sheet at 31 July 2002

$ $ $ Marksavailable

For useby the

firstmarker


Fixed assets(net book value)

Vehicles 1Machinery 1/2

Current assets

Stock 10,000Debtors 21,000Provision 1

Prepayment 1/2Bank

Current liabilities

Trade creditors 18,000

1

Accrual 1/2

Net current assets

Long-term liabilities

Loan 10% (10,000)

CapitalCapital at 1 August 2001 82,000Profit for the year ended31 July 2002

1

DrawingsCapital at 31 July 2002

1

Sub-total:61/2

After Ss financial statements had been prepared, S attended ameeting with his accountant to discuss them. S is surprised that the$2,000 he received when he sold his old vehicle does not appear inthe financial statements. Explain to S, ( in the shaded area below ),why the $2,000 does not appear in the financial statements.

3(Maximum of 30 words)

(b)

Total Marks for Question Two = 20

Question Two Total = 20 Marks



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Question Three

The Directors of M plc employ a book-keeper who prepares draft accounts for them using accountingsoftware. They are pleased that they have made a profit for the year ended 30 June 2002, but do notunderstand why the cash balances have decreased. They have asked you, as an independent accountant,to prepare a cash flow statement.

The draft financial statements for M plc are set out below.Profit and loss account for the year ended 30 June 2002

$000 Turnover 1,670Cost of sales (870)Gross profit 800Operating expenses (415)Depreciation (250)Loss on sale of fixed asset (5)

Operating profit 130Interest (15)Dividends (70)Retained profit for year 45

Balance sheets at 30 June 2002 2001

$000 $000 $000 $000 Fixed assets (see note) 980 700Current assets

Stock 70 65Debtors 175 215Bank and cash 50 65

295 345Current liabilities

Trade creditors (100) (85)Fixed asset creditor (20) 0Accrued interest (5) (10)Dividends (65) (60)

(190) (155)Net current assets

105 1901,085 890

Long-term liability

Loan (200) (250)885 640

Share capital 700 600Share premium account 100 0Profit and loss account 85 40

885 640

Note: M plc purchased fixed assets for $550,000 during the year ended 30 June 2002.



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Required:Marks

available

For useby the

firstmarker


Prepare a cash flow statement for M plc for the year ended 30 June2002 by completing the shaded areas as necessary in the cashflow statement below.

Cash flow statement M plc year ended 30 June 2002

$000 Operating profitAdjustments for non-cash items

1/2

1/21/2

Adjustments for working capital1/21/21/2

Cash from operationsInterest 1/2Purchase of fixed assets 1

Sale of fixed assets 1

Dividends 1/2

Share capital 1/2

LoanMovement in cash

1/2

(a)

What do you, as the independent accountant, consider is the mainreason for the decrease in the cash balance? (Maximum of 30words)

(b)

Sub-total: 7

3

Total Marks for Question Three = 10

Question Three Total = 10 Marks




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Question Four

D has been an accountant for many years. He had always understood thatthe historical cost convention was important in the preparation of thefinancial statements. However, he has recently been attending a series of lectures on accounting and many of the speakers have referred to a move tocurrent cost accounting. He is keen to update his knowledge and has asked

you to explain some terms to him.

Required:(Maximum of 30 words for each explanation) Marks

available

For useby the

firstmarker


(i) Define "historical cost accounting"

(ii) Give an example to illustrate the use of historical cost accounting

(iii) Define "net realisable value"

(iv) Give an example to illustrate the use of net realisable value

(v) Define "current cost accounting"

3

2

2

2

2




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Question Four continued

Required:(Maximum of 30 words for each explanation) Marks

available

For useby the

firstmarker

For useby the

secondmarker

(vi) Define "economic value"

(vii) Explain the effect on historical cost profit and asset values if currentcost accounting is used rather than historical cost accounting,

assuming rising prices.

(viii) Define "capital maintenance"

3

3

3Total Marks for Question Four = 20

Question Four Total = 20 Marks

End of Question Paper




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1 FAFN21 May 2003

Wednesday morning



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do not exceed the stated number of words. DoNOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid

the use of correction fluid.











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FAFN 2 May 2003

SECTION A 50 MARKS


Question One


For useby the

firstmarker


After the profit and loss account for Z Ltd had been prepared, it was found thataccrued expenses of $1,500 had been omitted and that closing stock had beenovervalued by $500.

The effect of these errors is an

1.1

A overstatement of net profit of $1,000

B overstatement of net profit of $2,000

C understatement of net profit of $1,000

D understatement of net profit of $2,000


REQUIRED:Place a circle O around the letter A, B , C or D that gives the correct answer to each sub-question.





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1.2 The cashier is reconciling his companys cash book with the bank statement at31 March 2003.

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$ The firms cash book shows a debit balance of 12,350

The following information is available:

Bank charges not entered in the cash book 170Unpresented cheques 4,600Direct debit payment on the bank statement not entered in thecash book

230

Sales receipts banked, but not credited by the bank 9,400A cheque from a customer which had previously been entered inthe cash book when received, has been returned by the bank asdishonoured, and this has not been recorded in the cash book

110

What should be stated as the bank balance in the companys balance sheet at31 March 2003?

A $11,840

B $12,060

C $12,860

D $16,640

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1.3 Which ONE of the following is true?

A External auditors normally check all purchase invoices.

B External auditors should prepare the accounts.

C External auditors must follow the audit procedures prepared by the internalauditors.

D External auditors check the internal control system.



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D is preparing the accounts for A Ltd for the year ended 31 March 2003. Themost recent gas bill received by A Ltd was dated 6 February 2003 and relatedto the quarter 1 November 2002 to 31 January 2003, and the amount of the billwas $2,100.

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1.4

Which ONE of the following ledger entries should be made in A Ltds books at31 March 2003?

Debit Credit A Accruals NIL Gas expense NIL

B Gas expense $1,400 Accruals $1,400

C Accruals $1,400 Gas expense $1,400

D Gas expense $2,100 Accruals $2,100

1.5 The following information related to Q plc for the year ended 28 February 2003: For useby the

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For useby the

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$ Prime cost 122,000Factory overheads 185,000Opening work-in-progress at 1 March 2002 40,000Factory cost of goods completed 300,000

The closing work-in-progress at 28 February 2003 was

A $33,000

B $40,000

C $47,000

D $54,000

1.6 N Ltd, which is registered for VAT, received an invoice from an advertisingagency for $4,000 plus VAT. The rate of VAT on the goods was 17 5%. Thecorrect ledger entries are:

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Debit $ Credit $ A Advertising expense 4,000 Creditors 4,000

B Advertising expense 4,700 Creditors 4,700

C Advertising expense 4,700 Creditors 4,000VAT account 700

D Advertising expense 4,000 Creditors 4,700VAT account 700



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FAFN 8 May 2003

1.15 The prime co

15582383 CIMA Financial Accounting Fundamentals Past Papers[1]

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