Mastering Financial Accounting I: Exam Guidelines & Insights
School
University of the West Indies at Mona**We aren't endorsed by this school
Course
ACCT 2014
Subject
Accounting
Date
Dec 10, 2024
Pages
11
Uploaded by DeaconBoulder15840
THE UNIVERSITY OF THE WEST INDIES Semester I 181 Semester II D Supplemental/Summer School D Examinations of December 181 /April/May D /July D 2022/2023 Originating Campus: Cave Hill □ Mona 181 St. Augustine D Mode: On Campus 181 By Distance D Course Code and Title: ACCT2014- Financial Accounting I Date: December 14, 2022 Duration: 2 Hours Time: 1:00PM-3:00PM Paper No: 1 Materials required: Answer booklet: Normal 181 Special D Not required D Calculator: Programmable D Non-Programmable D (where applicable) Multiple Choice answer sheets: numerical D alphabetical D 1-50 D 1-100 D Auxiliary/Other material{s)-Please specify: Candidates are permitted to bring the following items to their desks: Pencil or pen, Ruler, ID card Instructions to Candidates: This paper has 5 questions and 4 pages Candidates are reminded that the examiners shall take into account the proper use of the English Language in determining the mark for each response. 1. DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO 2. This paper has three (3) Sections 3. Section A is compulsory, Section B choose one (1) question and Section C choose one (1) question 4. Section A -50 marks, Section B -30 marks and Section C -20 marks 5. Read each question carefully before you begin answering. 6. All booklets and documents must be returned. 7. This paper is worth (100) marks and contributes to 60% of the Final Grade Semester I 2022/2023 UWI Libraries
2 Section A Question 1 The financial year end for Specter Limited is 31 March 2022. The first draft of the financial statements were prepared on 1 April 2022. The final draft of the financial statements are to be presented on 31 May 2022 however more information has been presented which may require adjustments to the financial statements. See trial balance used to prepare the first draft of the financial statements below: Ordinary Share Capital at $1 10% Preference Share Capital General Reserves Revaluation Reserve Retained Profits as at 1 April 2021 10% Debentures Cost of Sales Sales Other Operating Income Administrative Costs Distribution Costs PPE - Land Long Term Employee Loan Cash and Bank Inventory Trade Debtors Trade Creditors Provision for bad debt as at 1 April 2021 $'000 6,000 4,250 400 80 370 3,000 7,220 12,440 115 2,490 880 10,800 1,000 3,000 890 1,200 800 25 The following information was obtained after the trial balance above was created: 1} Transfer General reserves $200,000 2) On March 31, 2022 there was a revaluation on the Land to $12 million. This information is not yet reflected in the accounts. 3} Auditors fees for March 2022 Financial Statements is estimated to be $120,000. Auditors fees should be classified under Administrative Costs 4} Corporation Tax was calculated by the tax auditors to be $200,000 for the year ended 31 March 2022. This amount is unpaid. 5) The terms of the Employee Loan shown in the trial balance are as follows: Interest fee loan of $2,000,000 given to employee on 1 April 2019. Loan payment of $500,000 due 1 April each year. 6} At 1 April 2021, the number of ordinary shares in issue was 6 million. On September 30, 2021, there was an issue of 1 million ordinary shares at the issue price of $3.20 per share. This transaction is not reflected in the trial balance. 7} Inflation has negatively affected the customers of company. Consultants advised Specter Limited it should have the Provision for bad debt reflect 5% of the Trade Debtors. This update to the provision for bad debt is not yet reflected in the accounts. Semester I 2022/2023 UWI Libraries
3 8) There is no interest accrual brought forward from prior year ended 31 March 2021. 9) Dividends paid on 31 March 2022 for ordinary shares was $250,000 and preference shares were $400,000. This payment is not yet reflected in the accounts 10) Weighted average number of ordinary shares for the year is 6,200,000 shares Required: a) Prepare the Income Statement for the year ended 31 March 2022 (15 marks) b) Prepare the Statement of Changes in Equity for the year ended the 31 March 2022 (15 marks) c) Prepare the Statement of Financial Position as at 31 March 2022 (20 marks) Semester I 2022/2023 UWI Libraries
4 Section 8 Choose one (1) question Question 2 Kirk Fund land is a carpenter operating his own business. Below is his Balance Sheet for the year ended 30 September 2022 with Comparative Figures. Kirk Fundland Balance Sheet as at 30 September 2022 Non-current assets Property Plant & Equipment -Land 2022 ·2021 $'000 $'000 200 - Carpentry Tools and Equipment (NBV) 1,080 890 - Vehicles (NBV) 360 300 1,640 1,190 Current assets Inventory 480 460 Trade Debtors 220 260 Prepayments 30 20 Bank and Cash 480 240 1,210 980 2,850 2,170 financed by: Equity Capital 1,150 600 Retained Earnings 630 610 1,780 1,210 Non-current liabilities Long term loan 850 750 Current liabilities Trade creditors 170 190 Accruals 50 20 320 210 2,850 2,170 Additional information: 1.0n September 30, 2022 plant & equipment originally costing $300,000 with accumulated depreciation of $232,000 was disposed of for $68,000. 2. On September 30, 2022 a Tractor originally costing $180,000 with accumulated depreciation of $133,000 was disposed of for $80,000 3. On March 31, 2022 a new parcel of land was purchased for $200,000 in exchange for a note payable. Semester I 2022/2023 UWI Libraries
5 4. On March 31, 2022 plant & equipment were purchased amounting to $400,000 5. Interest expense for the year was $35,000 6. Depreciation expense for the year was $35,000 7. There were no drawings in the year Required: Prepare the Cash Flow Statement of Kirk Fundland for the year ended September 30, 2022 (30 marks) Semester I 2022/2023 UWI Libraries
6 Question 3 Kendall Limited Statement fo Financial Position as at 31 December 2022 2022 2021 $ million $ million $ million $ million Non-current assets Property (at valuation) 45 25 Plant and equipment 22 15 67 40 Current assets Inventory 44 46 Trade Debtors 33 17 Bank and Cash 0 7 77 70 144 110 Equity Ordinary Shares 25 20 Share premium 9 4 Revaluation reserve 8 5 Retained Earnings 16 16 58 45 Non-current liabilities 10% Debentures 20 40 15% Debentures 40 0 60 40 Current liabilities Trade Creditors 13 20 Dividends payable 9 5 Bank overdraft 4 0 26 25 144 110 Semester I 2022/2023 UWI Libraries
7 Additional information: 1. All issues and redemptions (payments) of debentures occurred on 1 January 2022 2. All debenture interest is paid in the accounting year in which it is charged 3. The company policy is that only one dividend is declared per annum and paid in the following year. It was decided by the Board for this year the total profit should go towards dividends. 4. See schedule for Building and equipment below: 2022 2021 $ million $ million Cost 46 30 Accumulated Depreciation (24) (15) Net Book Value 22 15 There were no disposals in the financial year of 31 December 2022. Required: Prepare the Cash Flow Statement for Kendall Limited for the year ended December 31, 2022 {30 marks) Semester I 2022/2023 UWI Libraries
8 Section C Answer one(l) question Please note that for this section there are NO calculations. Question 4 Jetsons Futures Inc designs and manufactures a variety of electronic products. The Financial Statements for the year ended 31 December 2021 are expected to be signed off by the board in two weeks. One batch of a product called "Jetsons Ionic Blowdryer" produced in November 2021 was noted to have a defective part that would need replacement before it could be sold. 1,000 completed units of the product with the defective part are stored in a warehouse. Costs of production include: • Raw Materials • Storage and Warehouse • Direct Labour • Administrative Overheads The Factory Manager estimates the costs for repairs to be one quarter of the cost of inventory. There are no additional costs necessary to sell the repaired products. The new financial controller is consulting with your firm as they do not understand the difference between the Inventory Value on the Financial Statements and The Inventory Costs. Required: The audit committee of the company has requested that you prepare a memo to respond to the above with reference to the relevant IFRS standards. In the memo, the following questions must be answered: a) With reference to the IFRS standards and the information given, how would Jetsons Futures Inc determine the Inventory Value of the bad batch of "Jetsons Ionic Blowdryer"? b) With reference to IAS 10 and the information given, what impact would the above have on the Financial Statements for the year ended 31 December 2021? (20 marks) Semester I 2022/2023 UWI Libraries
9 Question 5 Micah Architects and Engineering Ltd designs and administers construction of multiple projects. Their current project is a building for Greenbanks Ltd. The timeline is as follows: Date Details Contract signed, to design and administer Green banks building. The unique stages noted in the project are: Pre Design (PD) Design Development (DD) 1-Jan Construction Drawings (CD) Construction Administration (CA). Each stage has its own Stand Alone Selling Price based on the size of building however the contract amount is discounted so as to win the bidding war for the project. 31-Mar Predesign completed 30-Sep Design Development Completed 30-Nov Construction Drawings completed and approved by government agency Construction commences. Construction Administration starts on this date and is usually charged on a monthly basis.Construction is not expected to be completed until Dec 31 1-Dec 2024 31-Dec Greenbank made payment for entire cost of project. The financial statements for December 2022 are being prepared however there is a new financial administrator that does not know how to apply to IFRS 15 model to recognize revenue. Required: The audit committee of the company has requested that you prepare a memo to respond to the above with reference to the relevant IFRS standards. In the memo, the following questions must be answered : a) What are the steps in the IFRS 15 model and how would the financial administrator determine the revenue amount to be allocated to each stage of the project? b) In accordance with IAS 1 and IFRS 15 how should the revenue and money received for the Greenbank Project be recognized and classified in the financial statements as at 31 December 2022? (20 marks) Semester I 2022/2023 UWI Libraries
Question 6 Clora and Flora Pharmaceutical is a young small drug company that specializes in research and development. i) Developed and patented a new drug, "Clora", which was approved for medical use on 1 February 2022. The directors wish to capitalize the full cost of developing the drug. ii) The drug "Flora" is still in the research phase and is expected to eliminate allergic responses to pollen. The human trials have started and the drug has shown promise. The CFO wants to start capitalizing the costs from the drug and declare they are in the development phase. iii) The company spent a large sum sending staff on a specialist training course at the beginning of the current year. The directors noted that though the course was expensive they have seen a marked improvement in production quality, increase in revenue and cost reductions. The directors of New Medz believe these benefits will continue for another 2 years and wish to capitalize the training costs as an intangible asset. iv) The drug "Fauna" has been a reliable revenue stream for years however a new drug from a competitor is cheaper and more effective. The CFO argues that the asset is a well known name and should not lose any market share. Market analysts state the drug "Fauna" will soon be obsolete. Required: The audit committee of the company has requested that you prepare a memo to respond to the above with reference to the relevant IFRS standards. In the memo, the following questions must be answered: a) In accordance to IAS 38, which costs can be capitalized versus expensed and why b) What adjustments, if any, would have to be made to the financial statements in respect to the drug "Fauna"? If no adjustments are required, state the reasons. (20 marks) Semester I 2022/2023 UWI Libraries
11 Question 7 Nile Ltd is a shipping company that provides transportation and logistics services. They acquired a new set of ships in the current financial year. There were ten (10) ships acquired in total, two (2) of which are "Ultra Large" with the remaining classified as "Small Feeders". The useful life of the Ultra Larger ships is 20 years with a cost to dismantle at the end of its useful life. The small feeders have a useful life of 15 years however these ships are usually sold before the end of their useful life. The costs to acquire the ships include: Purchase price Discount Licensing of each ship Training of staff for operation of Ultra Large Ship Specialist team to get ships ready for initial sail Government inspections and health inspections Consultancy and engineer fees General overheads The company wishes to make the following changes to how they account for their Ships as they believe it would provide more reliable and relevant information Move from Cost Model to Revaluation Model of Ultra large ships Change useful life of small feeders to 12 years Required : The audit committee of the company has requested that you prepare a memo to respond to the above with reference to the relevant IFRS standards. In the memo, the following questions must be answered: a) In accordance to IAS 16, which costs can be capitalized versus expensed and why? b) With reference to IAS 8, what changes are allowed and what effect would the changes have on the financial statements. (20 marks) END OF EXAM PAPER Semester I 2022/2023 UWI Libraries