Answers to Mock Exam Paper (Dec 2014)— Paper 2A
SECTION A
1
Andrea ChungIncome Statement for the year ended 31 December2016 / 0
$ / $
Sales / 2,650,999 / 0.5
Less Returns inwards / 2,628 / 0.5
2,648,371
Less / Cost of goods sold:
Opening inventory / 131,100 / 0.5
Add / Purchases / 1,645,100 / 0.5
1,776,200
Less / Returns outwards / 5,133 / 0.5
Closing inventory / 138,500 / 1,632,567 / 0.5
Gross profit / 1,015,804 / 0.5
Add / Other revenues:
Discounts received / 1,450 / 0.5
1,017,254
Less / Expenses:
Rent and rates ($316,000 $10,000) / 306,000 / 1
Wages and salaries / 238,000 / 0.5
Water and electricity ($52,555 + $5,111) / 57,666 / 1
Discounts allowed / 12,111 / 0.5
Miscellaneous expenses / 5,819 / 619,596 / 0.5
Net profit for the year / 397,658 / 0.5
(8 marks)
2(a)Workings:
(W1)
Per unit: / $ / $Selling price / 250
Less:Direct materials / 45
Direct labour / 20
Variable overheads / 15 / 80
Contribution margin / 170
(i) / Break-even sales in units / = / Fixed overheads ÷ Unit contribution margin
= / $11,900,000 ÷ $170 (W1) / 1
= / 70,000 units / 1
(ii) / Contribution margin ratio / = / Unit contribution margin ÷ Unit selling price
= / $170÷ $250 / 1
= / 68% / 1
(iii) / Projected sales in units / = / Projected sales revenue ÷ Unit selling price
= / $26,555,000÷ $250
= / 106,220 units / 1
Margin of safety ratio / = / (106,220 ‒ 70,000) ÷106,220
= / 34.10% / 1
(b)The equation for break-even sales in units is: Fixed overheads ÷ Unit contribution margin. Thus, a decrease in fixed overheads would lead to a decrease in the numerator of the above equation. We can conclude that the break-even sales in units would decrease as a result. 2
3(a)
Computation of Capital Expenditure on the Motor Vehicle / 0$ / $
List price / 500,000
Less / Trade discount (i) ($500,000 30%) / 150,000 / 1
350,000
Add / Painting fee of company logo (ii) / 1,000 / 1
First registration tax (iii) / 150,000 / 1
Carriage fee (v) / 800 / 151,800 / 1
Capital expenditure on the motor vehicle / 501,800 / 1
(5 marks)
(b)Depreciation of the motor vehicle for the year ended 31 December 2016:
($501,800 $50,000) / 9 2
= $50,200 1
(3 marks)
SECTION B
4
The JournalItem / Details / Dr / Cr
$ / $
(i) / Sundry expenses / 20 / 1
Cash / 20 / 1
(ii) / Trade receivables – Johnny / 5,000 / 1
Sales / 5,000 / 1
(4 marks)
For item (i), the materiality concept is applied. 1
As the cost of those pens ($20) may not be material for Jenny’s business, those items could be treated as expenses instead of assets of the business. 1
For item (ii), the accrual concept is applied. 1
Even the business has not yet received the money owed by the customer at the year end, the sales transaction should still be recorded if the business can reasonably assume that the sum is receivable. 1
For item (iii), half of the loan ($100,000) is repayable next year. This should be treated as current liabilities. 1
The other half of the loan ($100,000) which is repayable three years later should be treated as non-current liabilities. 1
(6 marks)
5(a)
Bank2016 / $ / 2016 / $
Nov / 30 / Debtor (i) / 900 / Nov / 30 / Balance b/d / 103,588 / 0.50.5
" / 30 / Supplier – Stale cheque (v) / 6,133 / " / 30 / Overdraft interest (ii) / 2,600 / 0.50.50.5
" / 30 / Balance undercast (vi) / 2,368 / " / 30 / Subscription of trade / 0.5
" / 30 / Computer (vii) ($5,540 − $5,450) / 90 / magazines (iv) / 1,200 / 10.50.5
" / 30 / Creditor (viii) ($8,840 − $4,840) / 4,000 / " / 30 / Debtor (ix) ($27,000 ÷ 90% / 1
" / 30 / Balance c/d / 96,897 / − $27,000) / 3,000 / 110.5
110,388 / 110,388
Joyce ChanBank Reconciliation Statement as at 30 November 2016
$
Overdraft balance as per adjusted cash book / (96,897) / 0.5
AddUnpresented cheques (v) ($668 + $2,456 + $67,501) / 70,625 / 1
(26,272)
LessBank charges incorrectly charged (iii) / 2,823 / 0.5
Uncredited deposits (xi) / 58,700 / 0.5
Balance as per bank statement / (87,795) / 0.5
6(a)(i)Under absorption costing:
Silver LtdIncome Statement for the year ended 31 March 2016
$ / $
Sales (138,000 3/4 $110) / 11,385,000 / 1
Less / Cost of goods sold:
Direct materials (138,000 $15) / 2,070,000 / 0.5
Direct labour (138,000 $9) / 1,242,000 / 0.5
Variable manufacturing overheads (138,000 $8) / 1,104,000 / 0.5
Fixed manufacturing overheads ($200,000 12) / 2,400,000 / 0.5
6,816,000
Less Closing inventory ($6,816,000
34,500/138,000) / 1,704,000 / 5,112,000 / 1
Gross profit / 6,273,000 / 0.5
Less / Promotion costs: / Variable ($11,385,0008%) / 910,800 / 0.5
Fixed ($40,000 12) / 480,000 / 1,390,800 / 0.5
Net profit / 4,882,200 / 0.5
(6 marks)
(ii)Under marginal costing:
Silver LtdIncome Statement for the year ended 31 March 2016
$ / $
Sales (138,000 3/4 $110) / 11,385,000 / 1
Less / Variable cost of goods sold:
Direct materials (138,000 $15) / 2,070,000 / 0.5
Direct labour (138,000 $9) / 1,242,000 / 0.5
Variable manufacturing overheads (138,000 $8) / 1,104,000 / 0.5
4,416,000
Less Closing inventory
($4,416,00034,500/138,000) / 1,104,000 / 3,312,000 / 1
Product contribution margin / 8,073,000
Less / Variable promotion costs ($11,385,0008%) / 910,800 / 0.5
Total contribution margin / 7,162,200 / 0.5
Less / Fixed manufacturing overheads ($200,000 12) / 2,400,000 / 0.5
Fixed promotion costs ($40,000 12) / 480,000 / 2,880,000 / 0.5
Net profit / 4,282,200 / 0.5
(6 marks)
(b)Difference in net profit
= $4,882,200 (under absorption costing) $4,282,200 (under marginal costing)
= $600,000 (higher under absorption costing) 1
The difference in net profit arises because the closing inventory is valued differently under the two approaches. Under absorption costing, a portion of fixed manufacturing costs are absorbed in the closing inventory. However, under marginal costing, all fixed manufacturing costs are treated as period costs and written off in the current period. Only variable manufacturing costs are included in the closing inventory. 1
Reconciliation of the difference in net profitFor the year ended 31 March 2016
$
Net profit under absorption costing / 4,882,200 / 0.5
Less / Fixed manufacturing overheads included in the closing inventory (W1) / 600,000 / 1
Net profit under marginal costing / 4,282,200 / 0.5
(4 marks)
Workings:
(W1)$2,400,000 (34,500÷ 138,000) = $600,000
SECTION C
7(a) (i)
Hong City LimitedIncome Statement for the year ended 30 September 2016 / 0
$ / $
Sales / 5,620,000 / 0.5
Less / Cost of goods sold:
Opening inventory / 730,684 / 0.5
Add / Purchases / 2,328,000 / 0.5
Carriage inwards / 9,200 / 0.5
3,067,884
Less / Closing inventory / 268,000 / 2,799,884 / 0.5
Gross profit / 2,820,116 / 0.5
Add / Other revenues:
Dividend income ($60,000 + $2,000) / 62,000 / 0.5
Decrease in allowance for doubtful accounts
[$68,000($1,553,0003%)] / 21,410 / 0.5
Discounts received / 6,105 / 89,515 / 0.5
2,909,631
Less / Expenses:
Auditfees / 64,000 / 0.5
Bad debts / 111,500 / 0.5
Debenture interest / 0.5
[($150,000 4%) + ($200,000 4%6/12)] / 10,000
Rent and rates ($155,500 $4,000) / 151,500 / 0.5
Wages and salaries ($350,830 + $16,600) / 367,430 / 0.5
Depreciation: / Plant and machinery ($4,761,00015%) / 714,150 / 0.5
Office equipment [($3,856,000 $420,200)
20%] / 687,160 / 2,105,740 / 0.5
Net profit / 803,891
Less / Profits tax / 345,000 / 0.5
Profit after tax / 458,891
Add / Retained earnings brought forward / 196,500 / 0.5
655,391
Less / Appropriations:
Transfer to general reserve / 90,600 / 0.5
Preferencedividends: Interim / 50,000 / 0.5
Final [(2,000,000 + 100,000) $1
2.5%] / 52,500 / 193,100 / 0.5
Retained earnings carried forward / 462,291 / 0.5
(11 marks)
(ii)
Hong City LimitedStatement of Financial Position as at 30September 2016 / 0
$ / $ / $
Accumulated / Net book
Non-current assets / Cost / depreciation / value
Plant and machinery / 4,761,000 / 1,596,150* / 3,164,850 / 0.5
Office equipment / 3,856,000 / 1,107,360** / 2,748,640 / 0.5
5,913,490
Long-term investments, at cost / 750,000 / 0.5
Current assets
Inventory / 268,000 / 0.5
Trade receivables / 1,553,000 / 0.5
Less / Allowance for doubtful debts ($1,553,0003%) / 46,590 / 1,506,410 / 0.5
Prepaid expenses / 4,000
Accrued revenue / 2,000 / 0.5
Cash at bank / 4,162,441 / 0.5
5,942,851
Less / Current liabilities:
Trade payables / 1,268,000 / 0.5
Accrued expenses[$16,600 + ($150,000 4%1/2) + ($200,000 4%1/2)] / 23,600 / 0.5
Tax payable / 345,000 / 1,636,600 / 0.5
Net current assets / 4,306,251
10,969,741
Less / Non-current liabilities:
4% debentures ($150,000 + $200,000) / 350,000 / 0.5
10,619,741
Financed by:
Capital and reserves
Preference share capital [$2,000,000 + (100,000 $1)] / 2,100,000 / 0.5
Ordinary share capital / 6,000,000 / 0.5
Share premium [$450,000 + (100,000 $0.1)] / 460,000 / 0.5
General reserve ($1,454,350 + $90,600) / 1,544,950 / 0.5
Proposed dividends / 52,500 / 0.5
Retained earnings / 462,291 / 0.5
10,619,741
(9 marks)
*$882,000 + $714,150 = $1,596,150
**$420,200 + $687,160 = $1,107,360
8(a)Workings:
(W1)Unit contribution margin:
$100 $15 ($104,000 / 8,000) $8 $100 10%
= $54
(W2)Contribution margin (percentage):
$54 / $100
= 54%
Break-even sales in dollar:
[$70,000 + $60,000] ÷ 54% 1
= $240,740 1
Break-even sales in units:
[$70,000 + $60,000] ÷ $54 1
= 2,407 units 1
(b)Margin of safety in dollar:
(8,000 $100) $240,740 1
= $559,260 1
Margin of safety in units:
8,000 2,407 1
= 5,593 units 1
(c)Increase in profit after producing ‘Very Delicious’:
$
Sales revenue ($200 5,000)1,000,000 1
Variable production cost ($50 5,000)(250,000) 1
Rental of factory(250,000) 1
Decrease in contribution of ‘Delicious
(8,000 $54 20%)(86,400) 2
Increase in profit413,600 1
Thus, the business should produce ‘Very Delicious’. 1
(d)No, I do not agree with him. 1
The money that has already been spent on research and development is a
sunk cost. 2
Those costs would not be affected by the future decisions of the business, thus
we do not need to consider those costs in the decision-making process. 2
END OF PAPER 2A
Mock Exam Paper (Dec 2014):Paper 2A (Answers)
p.1© Pearson Education Asia Limited 2014