SEC Accounting 2012 Paper I Answer ALL questions. Question 1-10 are multiple choice and carry 2 marks each. Questions 11-14 carry 20 marks each. Write on the booklet the correct answer for each of the following. 1.

The main source of information for the purchase returns day book is obtained from a) b) c) d)

Invoices received Invoices sent out Credit notes received Debit notes sent out.

Answer : C 2.

Joanna owes you € 600 but cannot pay cash. She offers you new office equipment in payment, which you accept. The journal entries should be a) b) c) d)

Debit Cash account Joanna’s account Office equipment account Bank account

Credit Joanna’s account Office equipment account Joanna’s account Office equipment account.

Answer : C 3.

The information for the control accounts is obtained from the a) b) c) d)

Ledger Books of original entry Bank statements Documents.

Answer: B 4.

A club’s loss is often referred to as a) b) c) d)

A balance A deficit A surplus Accumulated fund.

Answer: B 5.

A club has 100 members and the subscription is €2 per year. All have paid the right amount except three members who paid €4 each because they still had to pay the fee of last year, and one member who also paid the fee for next year. The income from subscriptions for the year in the income and expenditure account should be

a) b) c) d)

€192 €200 €206 €208.

Answer: B 6.

The rate of turnover of stock is the a) b) c) d)

Total value of turnover Average stock divided by the cost of sales Number of times the average stock is sold Average of the opening and closing stock.

Answer: C 7.

During a year a business sells €50,000 and expenses are 20% of the gross profit. If 25% is added to the cost price of goods to obtain the selling price, the net profit is a) b) c) d)

€2,500 €5,500 €8,000 €10,000.

Answer: C 8.

Cash discount allowed to May Ltd, €50, was entered correctly in the personal account but was credited to the discount received account by mistake. The correct journal entries are a) b) c) d)

Debit € Discount allowed account 100 Discount received account 50 Discount allowed account 50 Discount allowed account and 50 discount received account 50

Credit Suspense account Discount allowed account Discount received account Suspense account

Answer: D 9.

An alternative expression for indirect expenses is a) b) c) d)

Prime cost Production cost Work in progress Overheads.

Answer: D

€ 100 50 50 100

10.

The issued capital of a company is €50,000 made up of shares of 50c each. If the directors paid an interim ordinary dividend of 5c per share, the total dividends paid that year would amount to a) b) c) d)

€25,000 €5,000 €2,500 €10,000.

Answer: B 11.

a)

What is a partnership profit and loss appropriation account?

A partnership would have an extra section shown under the profit and loss account called the profit and loss appropriation account and which shows the distribution of profits, interest on drawings, interest on capitals and salaries of partners.

(2 marks)

b)

Distinguish between capital and current accounts in the books of a partnership.

The capital account reflects the investment of each partner and remains year by year at the figure of capital put into the firm by the partners.

(2 marks)

The profits, interest on capital and the salaries to which the partner may be entitled are credited to a separate current account for the partner and the drawings and the interest on drawings are debited to it. The balance of the current account at the end of the financial year will then represent the amount of undrawn profits. The current account is a current capital account.

(2 marks)

c)

List one reason for a debit balance in a partner’s current account.

Any ONE of: A debit balance will be the result of drawings in excess of the profits to which the partner may be entitled; or Losses have been made. d)

(2 marks)

What is meant by the nominal value of a share and share premium?

The nominal value of a share is the “face” value of the share e.g. share can be of €1 each. This could be different from the market value or real value. (1 mark)

Share premium is used whenever shares are issued at a price higher than their normal value e.g. €1 ordinary shares issued at €1.50, the amount of excess of the nominal value (i.e. 50 cents per share) is credited to a share premium account.

(1 mark)

e)

Donald is one of three partners in a business. The partnership agreement includes the following: i. ii. iii.

Donald is entitled to an annual salary of €15,000. Interest on capital is to be at the rate of 5% annually. Any remaining profits and losses are shared equally between the partners. 1 April 2010 1 October 2010 31 March 2011 31 March 2011

Capital account balance Current account balance(Dr) Capital introduced Drawings for the year Donald’s total earnings for the year

€ 50,000 500 10,000 16,500 28,750

Required Donald’s capital and current accounts. Bal c/d

1 1 1

12.

a)

Bal b/d Drawings Bal c/d

Capital Account 60,000 Bal b/d Bank 60,000

50,000 1 10,000 1 60,000

Current 500 16,500 11,750 28,750

15,000 1 2,750 2 11,000 2 28,750

Account Salary Interest on capital Share of profit

Distinguish between bad debts and allowances for doubtful debts.

Bad debts are clients who never pay for goods sold to them on credit. Trade receivable accounts are written off.

(1 mark)

Also known as Provision for Bad Debts and this account is used only for estimates of the amount of the debtors at the year-end that are likely to finish up as bad debts.

(1 mark)

b)

Name and explain two accounting concepts that are applied in the accounting for allowances for doubtful debts.

Prudence concept – the accountant should always be on the side of safety and this is known as prudence. The prudence concept means that normally one will take the figure which will understate rather than overstate the profit.

(2 marks)

Accruals concept - net profit is the difference between the income and expenses for the financial period. Hence, the entry in the income statement represents the increase or decrease in the allowance for the year. c)

(2 marks)

Define depreciation and explain its purpose.

Depreciation is the part of the original cost of the fixed asset consumed during its period of use by the firm. Physical deterioration – wear and tear, erosion, rust, rot and decay, obsolescence, inadequacy, time and depletion are possible causes of depreciation.

(1 mark)

Purpose: Allocate the cost of a non-current asset, less its estimated residual value over its economic useful life.

(1 mark)

d)

Name three methods of depreciation and explain how the choice of method is made.

Straight line method - fixed installment method. It is used for those fixed assets that are expected to generate equal economic benefits over their useful life. Reducing balance method – it is used for those fixed assets that are expected to generate higher returns in their early years. Revaluation method – it is suitable for small, low value fixed assets. Accept any of the methods listed below. Depletion unit method = cost of fixed assets/expected total contents in units Multiplied by number of units taken in period Units of output method Machine hour method (3 marks)

e)

The statement of financial position of Smartfit Ltd at 31 December 2009 included the following:

Equipment

Cost € 52,000

Depreciation € 20,000

During the year ended 31 December 2010 the following non-current asset transactions took place: 1 April 2010 Old equipment bought on 1 July 2007 for € 8,000 was sold for € 3,000. 1 July 2010

The purchase of a new equipment costing € 20,000.

It is the policy of the company to provide a whole year’s depreciation at the rate of 20% per annum using the straight line method applied to the equipment held at the end of the financial year. Required i.The equipment account. ½ 1

ii.

Bal b/d Bank

8,000 1 64,000 ½ 72,000

Allowance for depreciation account. 1 ½

iii.

Disposal Bal c/d

Accumulated Depreciation Account 4,800 Bal b/d 28,000 P & L 32,800

20,000 ½ 12,800 1 32,800

The asset disposal account. ½

13.

Equipment Account 52,000 Disposal 20,000 Bal c/d 72,000

a)

Equipment

Disposal Account 8,000 Depreciation Bank P&L 8,000

4,800 ½ 3,000 1 200 1 8,000

What is the purpose of the books of original entry?

These are books in which the first record for transactions are made. Their purpose is to provide book-keeping with a system of control. Control accounts are prepared from these books. b)

Distinguish between a sales ledger and a sales ledger control account.

Sales ledger – this is kept just for customers’ personal accounts- Accounts of debtors

(2 marks)

(1 mark)

Sales ledger control account – applies to the complete sales ledger and it is used to locate errors and control fraud. c)

(1 mark)

Suggest one reason for a debit balance in a purchases ledger account.

Accept any ONE of: Advance payment by a creditor Returns of goods after the account had been settled Overpayment. d)    

(1 mark)

Explain the following terms:

Dishonoured cheque – funds not held in drawer’s account. Cheque is returned by the bank. Set-off - debtor’s balance set-off against amount due by the business. Trade discounts – discount offered to traders who buy a lot of goods from the business. Cash discounts - amount of reduction of the sum to be paid if settlement is made within a certain period of time.

(1 mark each)

e)

Martina set up a business on 1 January 2009. The following information is available:

Credit sales for the year Cash sales for the year Bad debts written off during the year Receipts from debtors during the year

2009 € 400,000 8,000 4,000 376,000

2010 € 450,000 10,000 2,000 428,000

Martina felt that a specific allowance for doubtful debts of €2, 500 was required in 2009 and in 2010 the allowance was adjusted to represent 2% of the trade accounts receivable balances outstanding at the end of the year. Required a) A sales ledger control account for 2010 only. 2 2

b)

Bal b/d Sales

Sales Ledger Control Account 20,000 Bad debts 450,000 Receipts Bal c/d 470,000

An allowance for doubtful debts account for 2010 only.

2,000 1 428,000 1 40,000 1 470,000

1 1

14.

a)

P&L Bal c/d

Allowance for doubtful debts Account 1,700 Bal b/d 800 2,500

2,500 2 2,500

Distinguish between the allocation and the apportionment of costs. Illustrate each with an example. Allocation of expenses is that each expense is allocated to the relevant department. When expense is made specifically for a department it is allocated to that department. E.g. Wages are allocated to the department where staff is engaged. (Accept any correct example).

(2 marks)

Apportionment is where an expense is divided between the departments on what is considered to be the most logical basis. Expenses made for the business in general are apportioned to the departments on the most equitable basis, e.g. apportion rent together with air conditioning and lighting in accordance with the floor space, occupied by each department

(2 marks)

b)

Why are departments allowed to run at a loss? Accept any ONE of: Some stores deliberately allow parts of their business to lose money so that customers come to the store to buy the cheap goods and then spend money in the other departments; or A department may be providing a contribution but once it absorbs fixed costs it makes a loss. However, fixed costs are not relevant to decision making since closing the department would not save any of the fixed costs for the business.

c)

Why are accounting ratios useful?

(2 marks)

Any TWO of the following:     d)

Using ratios can be useful to compare the trends to see if the ratios are getting better or worse as each period passes. They are essential for proper control. Ratios can be used to compare results to those of similar businesses. They give indication on liquidity, profitability and gearing and prompt action needs to be taken where the trend in a ratio is deteriorating.

What is a bank reconciliation statement?

(2 marks)

A bank reconciliation statement should show whether or not errors have been made either in the bank columns of the cash book or on the bank statement. It helps to reconcile cash book balances with bank statement balances.

(2 marks)

e)

On 31 March 2011 the bank balance in the cash book of Mora Bruna shows a debit balance of €1,255. On examining the bank statement she notices the following: i. Bank charges of €170 are not recorded in the cash book. ii. A direct debit of €485 for the payment of communication expenses had not been included in the cash book. iii. Deposits into the bank of €2,110 were not yet recorded in the bank statement. iv. A receipt from a debtor of €540 was only recorded in the bank statement. v. Cheques paid to suppliers € 1,260 had not been presented to the bank for payment. Required (a)

1 1

An up-dated cash book.

Bal b/d Debtor

(b)

Up-dated bank Account 1,255 Bank charges 540 Communication expenses Bal c/d 1,795

170 1 485 1 1,140 1 1,795

A bank reconciliation statement at 31 March 2011 showing the balance in the bank statement.

Bank reconciliation statement at 31 March 2011 Balance as per up-dated cash book add unpresented cheques less deposits not in bank statement Balance as per bank statement

€ 1,140 1,260 (2,110) 290

½ 2 2 ½

SEC Accounting 2012 Paper IIA Question 1. (a) ½ 1

(b)

Cash Account 500 Bank 37,000 Cleaning expenses Drawings Bal c/d 37,500

Bal b/d Sales

Sales Ledger Control Account Account

½ Bal b/d 62,500 43,500 1 1 Credit Sales 492,200 352,500 1

_______ 396,000

_______ 554,700

Receipts

480,000 1

1 Dis Rec’d

3,500

Discounts

3,000 1

1 Payments

342,000

Bad debt Bal c/d

700 1 71,000 ½ ______

1 bal c/d

50,500 ______

554,700

396,000

Capital

Bank Bal c/d

111,500 1 57,300 1 54,200 1 Rent 8,200 Bal b/d 800 P & L 9,000

1 1 1 ½

Purchases Ledger Control

(c)

Dr Cr Capital at start

16,800 2,600 18,000 100 37,500

600 8,400 9,000

Bal b/d Purchases

Income statement for the year ended 31 March 2011 € Sales (492,200 + 37,000)

€ 529,200

less cost of sales ½

Opening stock Purchases

½

less closing stock

½

Discount received Gross profit

½ ½ 1 ½ ½ ½ ½ ½ 1 ½

1

½ 1 ½

less expenses Discounts allowed Depreciation: equipment Rent Wages Selling expenses Bad debts General expenses Insurance Allowances for doubtful debts Cleaning Net profit

22,000 352,500 374,500 (25,200)

3,000 7,000 8,400 76,500 11,400 700 14,000 5,900 400 2,600

Statement of financial position as at 31 March 2011 € (35,000 - 19,000) Non-current assets Current assets Inventories Receivables (71,000 – 1,600) Bank Cash

25,200 69,400 30,300 100

(349,300) 179,900 3,500 183,400

(129,900) 53,500 € 16,000

125,000 141,000

Total current assets Total assets

1

Capital and liabilities Capital, 1 April 2010 Net profit Drawings

Capital, 31 March 2011 Current liabilities ½ Payables ½ Accruals Total liabilities Total capital and liabilities Question 2

54,200 53,500 (18,000 ) 89,700 50,500 800

Allowance for doubtful debts 1,800 Bal b/d P&L 1,800

51,300 141,000

2

Bal c/d

1

Bal b/d

1 1

P&L Bal c/d

1 ½

Bal b/d Bank

Stationery Account 760 P & L 2,520 Bal c/d 3,280

2,360 1 920 ½ 3,280

½ ½

Bank Bal c/d

Travel expenses Account 5,150 Bal b/d 510 P & L 3,280

290 1 5,370 1 5,660

1

Bal b/d

Rent receivable 250 Bank 3,000 250 3,500

Machinery Account 60,000 Asset Disposal Bal c/d 60,000

1,500 1 300 2 1,800

3,500

1

3,500

15,000 1 45,000 1 60,000

½

Disposal Bal c/d

1

Machinery

Bal b/d Bank

Depreciation of machinery Account 5,400 Bal b/d 20,680 P & L 26,080

20,000 ½ 6,080 2 26,080

Disposal of machinery Account 15,000 Bank Depreciation P&L 15,000

8,000 1 5,400 1 1,600 1 15,000

Office equipment 26,000 Bal c/d 12,000 38,000

38,000 38,000

(Not required) 1

Bal c/d

Depreciation of office equipment 12,800 Bal b/d P&L 12,800

26,000 x 15% = 3,900 12,000 x 15% = 900 2 4,800 Question 3 (a)

Sales

(b)

Creditors Returns out

Suspense

3,000 150

3,000 150

8,000 1 4,800 2 12,800

(c)

Insurance Suspense

(d)

Discount received Discount allowed Suspense

(e)

Sales Furniture Asset Disposal

(f)

Cash

1

50 450 450

900

1,200

1,200

500

Debtor Suspense

Bal b/d

50

250 250

Suspense Account 4,200 Sales

4,200

Insurance Discount received Discount allowed Cash

1 mark each (14 )

3,000 50 450 450 250 4,200

1 1 1 1 1

Question 4

(i)

Cost of Sales Sales Less Gross Profit

(ii)

1,600

2 marks

222,000

2 marks

=

Working Capital Current Assets Current Liabilities

(iii)

2,500 (900)

380,000 (158,000)

Gross Profit mark-up =

=

Gross Profit Cost of sales

=

900 1,600

= 56.25%

2 marks

(iv)

Net Profit margin =

(v)

Current Ratio =

Current Assets = Current Liabilities

(vi)

Quick Ratio =

Current assets – Stock Current liabilities

(vii)

ROCE

420 2,500

= Net Profit = Capital employed

=

16.8%

380,000 158,000

420 x 100 1,722

2 marks

= 2.40:1

= 380 – 160 158

= 1.39:1 2 marks

= 24.39%

4 marks

Accept also: 420 x 100/ 1,650 = 25.46% Accept also: Profit before interest ÷ Capital employed (viii)

Stock Turnover = Cost of Sales = Average stock 4 marks

1,600 = 1,600 (160+240) ÷ 2 200

Question 5

i) Correction of profit and profit and loss appropriation account Net profit 219,060 add purchases reversal 22,800 1 add expense reversal 690 1 Correct net profit 242,550 1 less interest on capital Farrugia (4,860) 1

2 marks

= 8 times

Micallef Caruana Share of profits Farrugi a Micalle f Caruan a

Drawings: Cash ½ Purchase ½ s Insuranc e Bal b/d ½

F

(10,800) (8,910)

1 (24,570) 1 217,980

43,596

1

87,192

1

87,192

1

217,980

Current Account C

M

16,500 ½ 18,600 ½ 14,700 Bal b/d 9,600 ½

5,700 ½ ½

7,500 Capital interest 690 Profits

50,286 ½ 87,642 ½ 79,722 76,386 111,94 102,61 2 2

F

M

27,93 ½ 13,950 ½ 0 4,860 1 10,800 1

C 6,510 ½ 8,910 1

43,59 ½ 87,192 ½ 87,192 ½ 6 76,38 6

111,94 2

102,61 2

SEC Accounting 2012 Paper 2B Question 1 (a) Accumulated fund at 1 January 2010 €

Assets Bank balance Sports equipment Subscription owing less: Subscription prepaid General expenses owing Accumulated fund

(c) 1 1 1

Bal b/d Income & expenditure Bal c/d

€

2,300 20,000 1,200

1 1 23,500 1

950 130

1 1,080 1 22,420

Subscriptions Account 1,200 Bal b/d 8,380 Bank 870 Bal c/d 10,450

less: Expenses Rent on premises Rent sports complex Postage General expenses

8,380 2 900 1 1,400 2,900 330 325

1,200 1 10,450

(c) Income and expenditure for the year ended 31 December 2010 € € Income Subscription Donations

950 1 8,300 1

1 1 1 4,955 2 4,325 1

Question 2 a) ½ ½

Bal b/d Sales

½ ½

Bal b/d Sales

½

Bal b/d

½

Sales

½ ½ ½

Bank Discounts allowed Bal c/d

1 ½

Set-off Bal c/d

Sean Balzan 680 Bank 850 Discounts allowed Bal c/d 1,530 Sam Attard 565 Bank 600 Discounts allowed Bal c/d 1,165 Paul Lia 400 Bad debts

500 ½ 15 ½ 650 ½ 1,165

400 1

Tanya Dingli 115 Set-off

115 1

Katya Kirkop 437 Bal b/d 23 Purchases

460 ½ 720 ½

720 1,180 Tanya Dingli 115 Bal b/d 530 Purchases 645

b)

646 ½ 34 ½ 850 ½ 1,530

1,180

180 ½ 465 ½ 645

1 1

Bal b/d Sales

Question 3 2

1 1

1

1

Bal b/d

Disposal Bal c/d

Bal c/d

Fixtures Bal c/d

Trade Receivables (Debtors) 1,645 Bank 1,565 Discounts allowed Bad debts Offset Bal c/d 3,210

Fixtures 27,000 Asset Disposal Bal c/d 27,000

1,146 1 49 1 400 1 115 1 1,500 1 3,210

15,000 1 12,000 1 27,000

Depreciation of Fixtures 4,500 Bal b/d 4,800 P & L 9,300

8,100 1 1,200 1 9,300

Depreciation of Equipment Bal b/d 19,616 P & L 19,616

15,520 2 4,096 1 19,616

Asset Disposal Fixtures 15,000 Cash Depreciation P&L 15,000

10,000 1 4,500 1 500 1 15,000

Question 4 Journal (i) (ii)

1 1 1

Suspense Sales Equipment

€ 800 1,000

€ 800

(iii) (iv) (v)

1 1 1 1 1 1 1 1

Bank

Office expenses

1,000

Debtors Bank charges Bank Suspense Returns In Returns Out

1 1 1

80 200

Suspense Account 800 Bal b/d 100 100 1,000

Sales Returns In Returns Out

Question 5

1,000 1,000 80 100 100

1,000 1 1,000

Income Statement Valletta 1

Sales

1 1

less cost of sales Opening stock Purchases

1

less closing stock

2 1

1 1 1 1

Discounts allowed Office salaries Administration exp Wages Rent Maintenance Depreciation

2

Net profit

1 1

Birkirkar a 1,440,722

2,881,44 4 1,380,000 1,948,664 3,328,664 (1,046,208 ) 16,000

602,400 974,332 1,576,73 2 2,282,45 6 598,988

584,880 8,000

18,920 14,400

18,920 14,400

214,132 3,840 4,104 40,500

107,066 1,920 2,052 40,500

311,896 287,092

991,852 448,870

192,858 256,012

Question 6 (i)

Manufacturing Account for the year ended 31 December 2010 Raw materials Purchases add carriage in

-

631,400 5,400 636,800

½ ½

less closing stock

120,800

½

Cost of raw materials used Direct wages (290,400 + 660) Direct expenses

516,000 291,060 4,820

1 1 ½

Prime cost

811,880

1

2,900 7,120 3,980 830 960 4,260 24,400 1,320 3,340 860,990

½ ½ ½ ½ ½ ½ ½ ½ ½

(990)

½

860,000

1

Factory overhead expenses Maintenance Factory power Superivisor’s wages Factory lighting Factory rent (-240) Factory cleaning Depreciation of machinery Factory insurance Indirect materials Work-in-progress less closing stock Cost of production (ii)

€

860,000 ÷ 1,720 = €500 40 x €500 = €20,000 closing stock of finished goods Sales 1,680 x €900 = €1,512,000

Question 7

3 1

Petty cash book Receipts

€ 600

Date

Details

1 Oct 2 Oct 4 Oct 5 Oct 5 Oct 7 Oct 8 Oct 9 Oct 11 Oct 12 Oct 13 Oct 15 Oct

Cash Postage Transport Off.cleaning Stationery Diesel van Transport Postage D.van service

85

Off.cleaning

20

Diesel van

40

Stationery

21 332

15 Oct

Bal c/d

600 268 332

Bal/bd Cash

Total

Postage & Stationery

Transport

Office Cleaning

Motor Expenses

€

€

€

€

€

20 15 20 45 40 12 14

20

268 600

15

45

14

20 40

12

85 20

21 100

27

40

1 1 1 1 1 1 1 1 1 1

40

1

165

1 1 1

1