Answers to Mock Exam Paper (Mar 2015) Paper 2A

Answers to Mock Exam Paper (Mar 2015) — Paper 2A

SECTION A

(a)

Cash Book (Bank Column)
2014 / $ / 2014 / $
Sept / 30 / Bank interest received (ii) / 3,430 / Sept / 30 / Balance b/d / 8,990 / 0.5
Capital contribution (iii) / 1,900 / " / 30 / Rent — Standing order (iv) / 55,300 / 10.5
" / 30 / Debit bank column undercast (v) / 450 / 0.5
" / 30 / Cheque receipt recorded on the credit side (vi)
($1,234 + $12,340) / 13,574 / 1
" / 30 / Cheque payment overstated (vii) ($1,380  $1,280) / 100 / 1
" / 30 / Balance c/d / 44,836 / 0.5
64,290 / 64,290

(b)

Samantha CoBank Reconciliation Statement as at 30 September 2014 /
$
Adjusted overdraft balance as per cash book / (44,836) / 0.5
Add / Unpresented cheques (viii) / 16,050 / 1
(28,786)
Less / Uncredited deposit (i) / 11,100 / 1
Overdraft balance as per bank statement / (39,886) / 0.5

Repairs and Maintenance
2014 / $ / 2014 / $
Jan / 1 / Prepaid b/f / 450 / Jan / 1 / Accrued b/f / 4,000 / 0.50.5
Feb / 1 / Bank / 5,400 / Dec / 31 / Prepaid c/f ($5,400 ÷ 12) / 450 / 0.51
Dec / 31 / Bank / 13,000 / “ / 31 / Profit and loss — / 0.5
Repairs and maintenance / 14,400 / 0.5
18,850 / 18,850
Rent
2014 / $ / 2014 / $
Jan / 1 / Prepaid b/f / 20,000 / Dec / 31 / Prepaid c/f / 0.5
“ / 1 / Bank / 120,000 / ($30,000 × 2 ÷ 3) / 20,000 / 0.51
Mar / 1 / Bank / 30,000 / “ / 31 / Profit and loss — Rent / 240,000 / 0.50.5
Jun / 1 / Bank / 30,000 / 0.5
Sept / 1 / Bank / 30,000 / 0.5
Dec / 1 / Bank / 30,000 / 0.5
260,000 / 260,000

(8 marks)

3(a)

Computation of Capital Expenditure on the Warehouse / 0
$ / $
Asking price / 10,000,000 / 0.5
Less / Price reduction (i) / 500,000 / 1
9,500,000
Add / Repainting cost (ii) / 100,000 / 1
Extension to the warehouse (iii) / 2,500,000 / 1
Legal fees (v) / 80,000 / 2,680,000 / 1
Capital expenditure on the warehouse / 12,180,000 / 0.5

(5 marks)

(b)Depreciation on the warehouse for the year ended 31 December 2020:

($12,180,000 ‒ $4,000,000) ÷ 20 2

= $409,900 1

(3 marks)

SECTION B

4(a)

The Journal
Item / Details / Dr / Cr
$ / $
(i) / Repairs and maintenance / 200 / 1
Bank/Cash / 200 / 1
(ii) / Purchases / 3,000 / 1
Trade payables — Lee’s Ltd / 3,000 / 1

For item (i), the materiality concept has been applied. 1

As the cost of the lubricants did not appear to be material, the amount would not be shown separately in the accounts. 1

For item (ii), the accrual concept has been applied. 1

Even though the business had not paid the trade creditor the amount owed by the year-end, the transaction had been completed and should therefore be recorded as a purchase for the year. 1

(8 marks)

(b)The value of goodwill would not be recorded in the books. 1

This is because internally generated goodwill should not be recorded in the books of a business, unless it is a partnership. 1

(2 marks)

5(a)

Realisation
$ / $ / $
Goodwill / 300,000 / Capital: Apple —Machinery
Machinery and equipment / 491,250 / and equipment / 150,000 / 0.50.5
Motor vehicles / 975,000 / Inventory / 95,625 / 0.5
Inventory / 95,625 / Capital: Barry — Machinery
Trade receivables / 306,525 / and equipment / 180,000 / 0.50.5
Bank — Dissolution expenses / 56,250 / Bank — Machinery and equipment
[($491,250  $330,000) × 70%] / 112,875 / 0.5
Bank — Motor vehicles
($975,000 + $178,500) / 1,153,500 / 0.5
Bank — Trade receivables / 285,000 / 0.5
Trade payables — Discounts
received ($262,500 ×10%) / 26,250 / 0.5
Loss on realisation —
Capital: Apple (3/6) / 110,700
Capital: Barry (2/6) / 73,800 / 1
Capital: Cathy (1/6) / 36,900 / 221,400
2,224,650 / 2,224,650

(5.5 marks)

(b)

Bank
$ / $
Balance b/f / 85,350 / Realisation — Dissolution expenses / 56,250 / 0.5
Realisation — / Final settlement —
Machinery and equipment / 112,875 / Capital: Apple / 726,435 / 0.5
Motor vehicles / 1,153,500 / Capital: Barry / 854,040 / 0.50.5
Trade receivables / 285,000
1,636,725 / 1,636,725

(2 marks)

(c)

Capital
Apple / Barry / Cathy / Apple / Barry / Cathy
$ / $ / $ / $ / $ / $
Current: Barry / 4,500 / Balances b/f / 945,000 / 881,250 / 30,000 / 0.5
Current: Cathy / 6,000 / Current: Apple / 18,000 / 0.50.5
Realisation — / Loan from Apple / 127,500 / 0.5
Machinery and / Trade payables
equipment / 150,000 / 180,000 / ($262,500 × 90%) / 236,250 / 0.50.5
Inventory / 95,625 / Capital: Apple (3/5) / 7,740 / 0.50.5
Share of loss / 110,700 / 73,800 / 36,900 / Capital: Barry (2/5) / 5,160 / 10.5
Capital: Cathy / 7,740 / 5,160 / 0.5
Bank — Final
settlement / 726,435 / 854,040 / 0.5
1,090,500 / 1,117,500 / 42,900 / 1,090,500 / 1,117,500 / 42,900

(6.5 marks)

6(a)Under absorption costing:

Orange Ltd
Income Statement for the year ended 31 March 2015
$ / $
Sales (9,500 × 80% × $1,810) / 11,476,000 / 1
Less / Cost of goods sold:
Direct materials (9,500 × $180) / 1,710,000 / 0.5
Direct labour (9,500 × $410) / 3,895,000 / 0.5
Variable manufacturing overheads (9,500 × $60) / 570,000 / 0.5
Fixed manufacturing overheads / 1,000,000 / 0.5
7,175,000
Less Closing inventory ($7,175,000 ×1,900 ÷ 9,500) / 1,435,000 / 5,740,000 / 1
Gross profit / 5,736,000 / 0.5
Less / Marketing costs: / Variable ($11,476,000 × 6%) / 688,560 / 0.5
Fixed ($200,000 × 12) / 2,400,000 / 3,088,560 / 0.5
Net profit / 2,647,440 / 0.5

(6 marks)

(b)Under marginal costing:

Orange Ltd
Income Statement for the year ended 31 March 2015
$ / $
Sales / 11,476,000 / 1
Less / Variable cost of goods sold:
Direct materials / 1,710,000 / 0.5
Direct labour / 3,895,000 / 0.5
Variable manufacturing overheads / 570,000 / 0.5
6,175,000
Less Closing inventory ($6,175,000 × 1,900 ÷ 9,500) / 1,235,000 / 4,940,000 / 1
Product contribution margin / 6,536,000
Less / Variable marketing costs / 688,560 / 0.5
Total contribution margin / 5,847,440 / 0.5
Less / Fixed manufacturing overheads / 1,000,000 / 0.5
Fixed marketing costs / 2,400,000 / 3,400,000 / 0.5
Net profit / 2,447,440 / 0.5

(6 marks)

SECTION C

7(a)

The Journal
Details / Dr / Cr
$ / $
(i) / Motor vehicles / 400,000 / 0.5
Purchases / 400,000 / 0.5
Depreciation: Motor vehicles ($400,000 × 20%) / 80,000 / 0.5
Accumulated depreciation: Motor vehicles / 80,000 / 0.5
(ii) / Inventory / 2,064 / 0.5
Profit and loss — Closing inventory / 2,064 / 0.5
(iii) / Depreciation: Equipment [$20,000 × (20% – 10%) × 6 ÷ 12] / 1,000 / 0.5
Accumulated depreciation: Equipment / 1,000 / 0.5
(iv) / Commission revenue / 640 / 0.5
Commission expense / 2,440 / 0.5
Suspense / 3,080 / 0.5
(v) / Drawings / 12,000 / 0.5
General expenses / 12,000 / 0.5
(vi) / Trade payables / 20,000 / 0.5
Suspense / 20,000 / 0.5
Electricity / 20,000 / 0.5
Accrued expenses / 20,000 / 0.5
(vii) / Cash ($7,200 × 40%) / 2,880 / 0.5
Sales / 2,880 / 0.5
Abnormal inventory loss ($7,200 – $2,880) / 4,320 / 0.5
Profit and loss — Cost of goods sold / 4,320 / 0.5
(viii) / Suspense / 3,260 / 0.5
Sales / 3,260 / 0.5
(ix) / Profit and loss — Bad debts recovered ($7,908 – $7,900) / 8 / 0.5
Trade receivables / 8 / 0.5
Profit and loss / 15,808 / 0.5
Allowance for doubtful debts ($7,908 + $7,900) / 15,808 / 0.5

(13.5 marks)

(b)

Statement of Adjusted Net Profit for the year ended 31 December 2014
$ / $
Net profit before adjustments / 2,463,884
AddMotor vehicle purchase charged to purchases(i) / 400,000 / 0.5
Closing inventory understated(ii) / 2,064 / 0.5
Drawings charged to general expenses(v) / 12,000 / 0.5
Sales omitted(vii) / 2,880 / 0.5
Cost of goods sold overstated(vii) / 4,320 / 0.5
Sales omitted(viii) / 3,260 / 424,524 / 0.5
2,888,408
LessDepreciation on motor vehicle omitted(i) / 80,000 / 0.5
Depreciation on equipment understated(iii) / 1,000 / 0.5
Commission expense recorded as commission revenue(iv) / 3,080 / 0.5
Electricity omitted(vi) / 20,000 / 0.5
Abnormal inventory loss omitted (vii) / 4,320 / 0.5
Bad debts recovered overstated(ix) / 8 / 0.5
Allowance for doubtful debts understated(ix) / 15,808 / (124,216) / 0.5
Adjusted net profit / 2,764,192

(6.5 marks)

8(a)Workings:

(W1)Unit contribution margin:

$500 – $210 – ($6,000,000 ÷ 100,000) – $100 – $500 ×10% 1

= $80 1

(W2)Contribution margin ratio:

$80 ÷ $500

= 16% 1

Break-even sales in dollars:

[$2,780,000 + $3,060,000] ÷ 16% 1

= $36,500,000 1

Break-even sales in units:

[$2,780,000 + $3,060,000] ÷ $80 1

= 73,000 units 1

(b)Margin of safety in dollars:

(100,000 × $500) – $36,500,000 1

= $13,500,000 1

Margin of safety in units:

100,000 – 73,000 1

= 27,000 units 1

(c)Effect on profit after producing Sunlight:

Sales revenue ($800 ×70,000)56,000,000 1

Variable production costs ($710 ×70,000)(49,700,000) 1

Factory rent(1,200,000) 1

Reduction in contribution from Light:

(100,000 × $80 × 80%)(6,400,000) 1

Increase/(Decrease) in profit(1,300,000) 1

As the launch of Sunlight will reduce the profit, the business should not produce

it. 1

(d)No, I disagree with her. 1

The money that has been spent on research and development is a sunk cost. 1

As such cost cannot be changed regardless of future decisions, it should be

excluded when making decisions. 1

END OF PAPER 2A

Mock Exam Paper (Mar 2015): Paper 2A (Answers)