Question 1
MamboLtd operates a small chain of computer shops. The following trial balance was extracted from the booksof MamboLtd as at 31 December 2020.DebitCredit££Sales213,690Purchases89,280Inventory as at 01 January 202013,020Trade receivablesand payables19,59015,630Delivery expenses2,400Electricityexpenses7,950Salaryexpenses24,750Bad debtexpenses690Allowancefor doubtful debts840Administration expenses7,020Advertising expenses9,720Buildingat original cost90,000 Furniture at original cost24,000 Vehicles at original cost36,000 Accumulated depreciationas at 01 January 2020-Building7,200 Accumulated depreciationas at 01 January 2020-Furniture4,800 Accumulated depreciationas at 01 January 2020-Vehicles16,200Long-term Loan36,000 Capital as at 01 January 202046,500 Capital drawings13,980Cash2,460340,860340,860The following additional information has not been taken into account in the preparation of the above trial balance:1.£360 of the latest electricity bill and £240 of the administration expenses remain unpaidat the year end.2.Loan interest of £1,800 has not been paid for the year.3.Thefollowing depreciation charges apply to the financial year 2020:•Depreciation expense forbuildingiscalculated usingthe straight-line basis method. They have a useful life of 50 years and there is no residual value. •Depreciation expense forfurniture is calculatedat 10% depreciation rate using the straight-line basis method. •Depreciation expense forvehicles is calculated at 20% depreciation rate using the reducing-balance method.
A further bad debt of £390 is to be written off for the year and the closing allowancefor doubtful debts is to be provided at 5% of receivables after the writeoff.5.MamboLtd has closing inventory as at 31 December 2020with a cost of £20,000. However, the market value of these goods is £55,000 and the cost to prepare these goods for sale is £20,390. The company has applied the “lower of cost-or-net realisable value” rule.6.Net profit (after above adjustments) as at year ended 31 December 2020 is £62,400.Required:a) Prepare a Statement of Financial Position for MamboLtd as at 31 December 2020.You are required to show all workings.(Note: Not all itemsin the trial balance are used for preparing the Statement of Financial Position)(30 marks)
b)The closing inventory must always be reported on the Statement of Financial Position at cost.Discuss why you agree or disagree with this statement. Where appropriate provide relevant examples to support your discussion. (Word count: no more than 500words)(10marks)
c)When preparing financial accounting information, a balance between “relevance” and “faithful representation” is required.Explain why you agree or disagree with this statement. Where appropriate, provide relevant examples to support your explanation. (Word count: no more than 500 words)(10marks)(Total 50 marks)
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Question 2
The trial balance for PKL Ltd at 31 December 2020 was as follows:DebitCredit££Purchases and sales30,520 166,920 Inventory at 01 January202012,460 Trade receivables and payables16,480 14,420 Production salaries and wages24,640 Production expenses14,420 Warehouse expenses1,900 Warehouse wages20,200 Administration salaries28,400 Administration expenses1,900 Equity shares £1each,fully paid at 31 December2020200,000 Share premium account40,000 Retained earningsat 01 January2020124,000 Plantat cost400,000 Equipmentat cost100,000 Vehiclesat cost30,000 Accumulated depreciation as at 01 January 2020-Plant40,000 Accumulated depreciation as at 01 January 2020-Equipment30,000 Accumulated depreciation as at 01 January 2020-Vehicles13,120 6% Fixed interest loan100,000 Bank207,040 Cash500 New capital, issued on 01 December2020160,000 888,460 888,460 The following additional information has not been taken into account in the preparation of the above trial balance:1.Tax for the year is estimated at £2,400.2.Inventory at 31 December 2020 was £9,120.3.Both the plant and equipment are used 40%in production, 30%distribution, and 30%administration. They are both depreciated using the straight-line method at rates of2%and 10%respectively,with no expected residual value.PKL’s accounting policy for depreciation is to charge a full year in the year of acquisition and in the year of disposal.4.Vehicles are only used by the distributiondepartmentand are depreciated at 20%using the reducing balancemethod.5.A vehicle, purchasedon01 January 2018for £14,000 was sold on 31 December2020 for £7,500. The proceeds werecredited to sales.6.A closing allowance for doubtful debtsof 8%is to be made.7.The new capital consists of the issue on 01 December 2020 of 80,000 £1 shares, but the market value of the shares on the issued date is £2 per share.The
MAN-10024 Financial AccountingP a g e| 5ledger clerk did not know how to treat this item in the ledgers and has recorded this transaction as a separate account.Required:a)Prepare aStatement of Profit or Loss forPKLLtd forthe year ended 31 December 2020.Include a computation of the closingretainedearnings at the bottom of the Statement of Profit or Loss.You are required to show all workings.(Note: Not all itemsin the trial balance are used forpreparingthe Statement of Profit or Loss)(35marks)b)A straight-line basis method of depreciation is most appropriate when an asset has higher utilisation at the early stage of its usage life.Discuss why you agree or disagree with this statement. Where appropriate provide relevant examples to support your discussion. (Word count: no more than 600words)(9marks)c)Explain and discuss the differences betweenthethree types of auditor’s opinion reports(Qualified, Unqualified, and Adverse), where appropriate provide examples.(Word count: no more than 400words)(6marks)(Total 50 marks)
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Question 3
Walnut Ltd, a wholesale company, reported the following Statementof Financial Position and Statement of Profit or Lossfor the years 2019and 2020, along with the following additional transaction data for 2020.Statement of Financial Position as at31 December 201931 December2020££££Non-current assets(NCA)atNet Book Value (NBV)Buildings108,620 124,900 Equipment18,690 20,460 Investment11,200 28,400 138,510 173,760 Current assetsInventory11,480 9,680 Trade receivables5,860 2,750 Bank220 017,560 12,430 Total assets156,070186,190EquityOrdinary £1 shares120,000 124,000 Share premium account08,000 Retained profits5,276 4,894 125,276 136,894 Non-current liabilities5%debentures9,000 30,000 9,000 30,000 Current liabilitiesTrade payables12,694 7,096 Accrued taxation2,100 2,500 Accrued dividends7,000 7,600 Bankoverdraft02,100 21,794 19,296 Total equity and liabilities156,070186,190
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Statement of Profit or Loss for the year ended 31 December20192020££Profit before tax13,120 9,718 Taxation2,100 2,500 Profit after tax11,020 7,218 Dividends7,000 7,600 Retained profit for the year4,020 (382)Retained profit at01 January1,256 5,276 Retained profit at 31December5,276 4,894 Notes:1.A market issue of shares was made on 01 January2020.2.During 2020, equipment originally purchased at £13,040 was sold for £3,580, accumulated depreciation ofthedisposed equipment being £7,540. The profit/loss on disposal hasbeen taken intoaccount in the Statement of Profit or Loss.3.Buildings costing £20,000 werepurchased during 2020.The depreciation charged for the year 2020on equipment was £5,000.4.Dividends received amounted to £1,500 and interest received was £3,000 during 2020. Both of which were credited to the Statement of Profit or Loss.5.New debentures were issued on 01 January2020 and all interest due waspaid.Required:a)Prepare aStatement of Cash Flowsfor Walnut Ltd for the year ended 31 December 2020. You are required to show all workings.(Note:Use the indirect methodwhen you prepare the cash flows from the operating activities). (40 marks)b)Identify and discuss the limitations of a Statement of Cash Flows for the users of financial statements.(Word count: no more than 500words)(10 marks)(Total 50 marks)
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Question 4
Statement of Financial Position of Granita Ltdas at 31 December 2020££Non-current assets:Property, Plant and Equipment(PPE)2,500,000Current assets:Inventory100,000Trade receivables200,000300,000Total assets2,800,000Equity finance:Ordinary shares1,500,000Reserves and retained earnings250,0001,750,000Non-currentliabilities:Long-term bank loan800,0002,550,000Current liabilities:Trade payables80,000Bank overdraft170,000250,000Total equity and liabilities2,800,000The long-term bank loan has a fixed annual interest rate of 4% per year. Granita Ltd pays taxation at an annual rate of 25%per annum. In 2020, Granita Ltd achieved a turnover(revenue)of £1,200,000 and expects revenuegrowth of 20%in the next year.Cost of sales in 2020were £500,000and other expenses were £400,000.The following accounting ratios have been forecast for the next year (2021)Gross profit margin55%Operating profit margin 25%Dividend payout ratio40%Inventory turnover period (days)91.25Trade receivable period (days)73.00Trade payable period (days)40.15Overdraft interest in 2021is forecast to be £50,000. Nochange is expected in the level of non-current assets, and depreciation should be ignored.
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Required:
a)Prepare a forecast Statement of Profit or Loss for the year 2021for Granita Ltd using the information provided.You are required to show all workings.(14marks)
b)Prepare a forecast Statement of Financial Position for the year 2021for GranitaLtd using the information provided.You are required to show all workings.(13marks)
c)Calculate the following ratiosof GranitaLtd for year 2020•Gross profit margin•Operating profit margin•Inventory turnover period•Trade receivables period•Trade receivables period•Current ratio•Quick ratioYou are required to show all workings.(7Marks)d)Prepare a short report for the management of Granita Ltd. The report should:•Compare and highlight the main concerns regarding the company’s performance based on the ratios from year 2020 (calculated in the above question) and 2021.•The directors would like to hear your suggestions on how the company’s performance could be improved. (Word count: no more than 1,000 words
