SECTION A
Answer ALLquestions in this section.
AAT 2011 (Pilot Paper 2, 1)(Cost classification, concepts and terminology)
1.(a)Briefly explain the concept/principle of Business Entity with example.
(4 marks)
(b)Below are a number of costs that are incurred in a variety of organisations. Indicate, according to the cost behaviour pattern, whether the cost involved is a variable cost or a fixed cost with respect to the goods and services produced by the organisations.
(i)Depreciation expense of a building on a straight line basis
(ii)Electrical costs of running machines
(iii)Directors’ remuneration
(iv)Batteries used in trucks
(v)Commissions to salespersons based on sales value
(vi)Buttons used in manufacturing clothes
(3 marks)
(Total: 7 marks)
AAT 2011 (Paper 2, 2) (Cost-volume-profit analysis)
2.ABC Limited sold 40,000 units of goods in last month. The total sales were $300,000, total variable expenses were $240,000, and total fixed expenses were $45,000.
REQUIRED:
(a)Calculate the company’s contribution margin (CM) ratio.
(1 mark)
(b)Calculate the margin of safety ratio and comment the result.
(4 marks)
(c)It is estimated that if the selling price is to be reduced by $0.50 in next month, sales volume would be increased by 5%. Advise whether the company should adjust its selling price next month.
(4 marks)
(Total:9 marks)
AAT 2011 (Pilot Paper 2, 3) (Correction Errors)
3.International Food Company is engaged in trading of food products. The company’s inventory record is kept in periodic inventory system. Before preparing its financial statements for the year ended 31 December 2010, the following errors are found. You are required to prepare journal entries to correct the errors below.
REQUIRED:
(a)Great One Company, a supplier, sent a statement of account showing that an invoice of $1,400 was omitted in the company’s books.
(b)A trade debtor transferred $4,510 to the company’s business bank account. The company debited the trade receivables account and credited the trade payables account in its books.
(4 marks)
AAT 2011 (Pilot Paper 2, 4) (Accounting Principles)
4.(a) “The accounting concept/principle of consistency requires a company to use the same method of depreciation for all types of its non-current assets.” Comment the statement and state whether the statement is correct or not.
(4 marks)
(b) Financial reports provide information about the reporting entity’s economic resources, claims against the reporting entity and the effects of transactions and other events and conditions that change those resources and claims. Explain the meaning of “relevance” in fundamental qualitative characteristics of useful financial information.
(6 marks)
(Total:10 marks)
Section B
Answer ALL questions in this section.
AAT 2011 (Pilot Paper 2, 5) (Absorption and marginal costing)
5.i-M Limited has provided the following data concerning last month’s manufacturing operations.
Purchases of raw materials / $53,000Indirect materials used in manufacturing / $8,000
Direct labour ($25 per hour) / $62,000
Manufacturing overhead incurred (excluded indirect materials) / $32,000
Inventories: / Beginning / Ending
$ / $
Raw materials / 24,000 / 6,000
Work in process / 41,000 / 38,000
Finished goods / 86,000 / 93,000
Annual budgeted manufacturing overhead is $360,000 which is based on 30,000 budgeted direct labour hours.
REQUIRED:
(a)Prepare a Schedule of Cost of Goods Manufactured for last month.
(7 marks)
(b)Prepare a Schedule of Cost of Goods Sold for last month.
(4 marks)
(c)What is the purpose of the job cost sheet in a job costing?
(4 marks)
(Total:15 marks)
AAT 2011 (Pilot Paper 2, 6) (Bank Rec)
6.The following information relates to the banking transactions of Tai Sang Company for the month of August 2010:
Cash Book (Bank Column Only)2010 / $ / 2010 / $
Aug / 1 / Balance b/d / 2,420 / Aug / 2 / General expenses (211012) / 67
Aug / 4 / Sales / 835 / Aug / 9 / Wages (211013) / 330
Aug / 23 / Sales / 716 / Aug / 11 / Drawings (211014) / 410
Aug / 31 / Company A / 185 / Aug / 12 / Purchases (211015) / 406
Sales / 640 / Aug / 24 / Rent (211016) / 290
Aug / 25 / Wages (211017) / 345
Aug / 27 / C Limited (211018) / 502
Bank Statement
Date / Details / Dr / Cr / Balance
2009 / $ / $ / $
Aug / 1 / Balance b/d / 2,420 / Cr
Aug / 3 / CQ211012 / 67 / 2,353 / Cr
Aug / 4 / Credit / 835 / 3,188 / Cr
Aug / 7 / Standing order (rates) / 136 / 3,052 / Cr
Aug / 11 / CQ211013 / 330 / 2,722 / Cr
Aug / 16 / CQ211014 / 140 / 2,582 / Cr
Aug / 20 / CQ211015 / 406 / 2,176 / Cr
Aug / 23 / Direct debt (insurance) / 153 / 2,023 / Cr
Credit / 716 / 2,739 / Cr
Aug / 27 / CQ211017 / 345 / 2,394 / Cr
Aug / 30 / Credit transfer – B Limited / 268 / 2,662 / Cr
Bank interest / 8 / 2,670 / Cr
REQUIRED:
(a)Update the cash book starting with the closing balance as at 31 August 2010.
(4 marks)
(b)Prepare the bank reconciliation statement as at 31 August 2010, starting with the bank statement balance.
(4 marks)
(c)Explain why the entry of Company A in the bank column of the company’s cash book on 31 August 2010 was not credited by the bank even it has already been deposited into the bank on that date.
(3 marks)
(d)Explain with TWO reasons why business needs to use a bank reconciliation statement for cash control purpose.
(4 marks)
(Total:15 marks)
AAT 2011 (Pilot Paper 2, 7) (Limited company)
7.Sunshine Sports Trading Ltd. is carrying on trading of sports equipment business. On 31 December 2010, the following trial balance was extracted from the books of the company:
Dr / Cr$ / $
Motor vans, at cost / 630,000
Rent / 255,000
Plant and machinery, at cost / 870,000
Wages and salaries / 714,000
Repairs to buildings / 109,500
Purchases and sales / 3,219,500 / 5,307,000
Electricity and water / 55,500
Interest on debentures / 37,500
Carriage inwards / 24,000
Trade receivable and payables / 447,000 / 85,620
Sundry expenses / 93,000
Bad debts written off / 21,000
Allowance for impairment loss on trade receivables, 1 January 2010 / 28,380
Motor expenses / 57,000
Inventories / 283,500
Accumulated depreciation, 1 January 2010:
Motor vans / 90,000
Plant and machinery / 285,000
Bank / 242,500
Stationery / 500
Returns inward / 76,500
Discounts / 51,000 / 31,500
Directors’ remuneration / 120,000
10% debentures, repayable in 2012 / 500,000
400,000 ordinary shares of $1.50 each / 600,000
Share premium / 150,000
Retained earnings / 229,500
7,307,000 / 7,307,000
Additional information at 31 December 2010:
(1)Inventories were valued at $336,000, including damaged items costing $30,000 that could not be sold.
(2)Accruals not made before the extraction of trial balance were:
$Stationery / 4,500
Wages and salaries / 39,000
Auditor’s fee / 40,000
(3)Depreciation should be provided per annum at the following rates:
Motor van at 20% under reducing balancing method
Plant and machinery at 10% under straight line method
(4)Allowance for impairment loss on trade receivables was to be adjusted to $17,880.
(5)Interest on debenture was to be paid half-year on 1 April and 1 October of each year.
(6)Income tax expense for the year is estimated to be $33,840
(7)The board of directors declared a dividend of $0.20 per ordinary share on 31 December 2010.
REQUIRED:
(a)Prepare a statement of comprehensive income for the year ended 31 December 2010. Expenses are grouped into (i)Administration expenses, (ii) Distribution costs, or (iii) Other expenses.
(11 marks)
(b)Prepare a statement of financial position as at 31 December 2010.
(9 marks)
(Total:20 marks)
Section C
Answer ONEquestion in this section.
AAT 2011 (Pilot Paper 2, 8) (Issue of shares and debentures)
8.On 1 January 2010, HNH Limited had the following equity and non-current liabilities balances:
10% debentures, repayable in 2017 / $140,000Issued ordinary shares / $560,000
Share premium / $100,000
The company’s authorized share capital is 1,000,000 ordinary shares of $1.00 each. On 4 April 2010, the company offered for subscription 200,000 ordinary shares of $1.00 each at $1.40 each, payable in full on application.
On 15 June 2010, applications were received for 325,000 shares. As it is an oversubscription, unsuccessful applications were rejected and cash received in respect of these shares was returned on 7 July 2010. Shares were allotted on 8 July 2010.
On 20 October 2010, the company issued 500,000 12% debentures of $1.00 each for cash at par, repayable in 2020. These were secured by the premises of the company. Debentures were fully subscribed.
REQUIRED:
(a)Prepare the necessary journal entries to record the above share and debenture issues.
(6 marks)
(b)Prepare the section of equity and non-current liabilities extracted from statement of financial position as at 31 December 2010.
(2 marks)
(c)Compute the debt-to-equity ratio before and after the above transactions and briefly comment on it.
(3 marks)
(d)Identify any THREE pros of each of the above two financing methods used by HNH Limited.
(9 marks)
(Total: 20 marks)
AAT 2011 (Paper 2, 9) (Incomplete records)
9.Gigi Chan is the owner of a tuck shop and does not keep proper set of books. On 31 March 2010, the following information is available.
As at 31 March 2009 / As at 31 March 2010Items / $ / $
Trade receivables / 67,260 / 78,900
Trade payables / 43,540 / 54,880
Inventory / 78,010 / X
Accrued general expenses / 1,360 / 3,280
She just received profit tax return from the Inland Revenue Department. She is requested to submit the profit and loss account for the year ended 31 March 2010 for tax assessment purpose.
Additional information:
(1)All goods were purchased and sold on credit.
(2)During the year ended 31 March 2010, cheques and cash received from trade receivable amounted to $488,270 and $32,970 respectively. Cash discounts granted to trade receivables for early settlement were $7,700.
(4)Cheques and cash paid to trade payables amounted to $308,060 and $17,870 respectively. Discounts received from trade payables were $5,960.
(5)The gross profit margin was 25% on all sales for the year.
(6)The firm paid $24,770 for general expenses during the year.
REQUIRED:
(a)You are required to prepare the following statements:
(i)Statement to compute sales for the year ended 31 March 2010
(3 marks)
(ii)Statement to compute purchases for the year ended 31 March 2010
(3 marks)
(iii)Profit and loss account for the year ended 31 March 2010
(6 marks)
(b)Compute the ratios of average inventory period (in days), trade receivable collection period and trade payable repayment period. Comment on any liquidity problems faced by Gigi.
(8 marks)
(Total: 20 marks)
END OF PAPER 2A
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