Paper2A

Accounting Module

SECTION A

QUESTION 1 Marks

(a) l. Business entity

I..I. Timeliness
Going concern
． ．．
lll .

iv. Money measurement

l5
',
Realisation

＇
｀
V.

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(b) Materiality
Materiality refers to the impact of an item's nature and size on the company's financial
operations. / Information is material if omitting it or mis-stating it could influence decisions
that users make on the basis of the reported financial information.
The calculator is insignificant in value in view of a multinational corporation's size of
operations, and hence it should be recorded as an expense in the year of purchase.
(3)

8 marks

QUESTION2 Marks

(a) Number of units remaining unsold = (400 + 500 + 1500) -(250 + 1600) = 550 units
Unit average cost = $(17 200 + 20 000 + 54 000) I 2400units = $38/unit
Value of closing inventory = $38 x 550 units = $20 900 (2)

(b)
Tommy Company
Income statement for the month ended 31 March 2017
＄

＄
Sales (250 x $45 + 1600 x $39) 73 650 0.5
Less: Cost of goods sold
Opening inventory 17 200 0.5
Purchases 74 000 0.5
91 200
Less: Closing inventory 20 900 70 300 0.5
Gross profit 3 350
Less: Operating expenses 14 350 0.5
Net loss 11 000 0.5
(3)

(c) the gross profit for the month of March 2017 will decrease by $1650 ($3 x 550)/decrease to 2
$1700
because of applying the rule of lower of cost and net realisable value 1
(3)
8 mark5

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QUESTIONS Marks

( a) The Journal
Dr Cr
＄ ＄
(i) Discounts allowed 3 400 0.5
Trade receivables 3 400 0.5

(ii) Cash 28 050 0.5

Sales 450 0.5
Trade receivables - Pearl Limited 28 500 0.5

(iii) Trade payables 270 0.5

Purchases 270 0.5

(iv) Suspense 880 0.5

Returns inwards 440 0.5
Returns outwards 440 0.5
(5)

(b) Statement to calculate the retained rofits as at 31 December 2016

＄ ＄
Draft net profit for 2016 7 700
Adjustments: Discounts allowed omitted (i) (3 400) 0.5
Sales overstated (ii) (450) 0.5
Purchases overstated (iii) 270 0.5
Returns inwards wrongly debited (iv) 440 0.5
Returns outwards omitted (iv) 440 (2 700) 0.5
Adjusted net profit for 2016 5 000 0.5
Retained profits as at 1 January 2016 10 000 0.5
Retained profits as at 31 December 2016 15 000 0.5
(4)

(c) Gearing ratio:

320 000 + 760 000
100%
320 000 + (I 305 000 + 760 000 + 15 000)
X

45% (2)

( d) - The dividend per share for preference shares is usually fixed, while it varies for ordinary shares. Max. 2
- The preference shareholders usually have the right to receive dividends prior to the ordinary
shareholders.
(I mark for each difference, maximum 2 marks)
(2)

13 mark

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QUESTION 6 Marks

(a) Selling price: ($2 400 000/9600) = $250 per unit

Variable cost of goods sold: ($300 000 + $600 000)/(2400+9600) = $75 per unit

ll4
Variable selling and administrative overheads: ($240 000/9600) = $25 per unit
Contribution margin: $250 - $75 - $25 = $150 per unit

（
、
.'
,
(b) Total fixed overheads: ($15 000 + $930 000) + $360 000 = $1 305 000

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Contribution margin ratio: $150/$250 = 0.6
Breakeven sales: $1 305 000/0.6 = $2 175 000
OR
($1 305 000/$150)units x $250= 8700 units x $250= $2 175 000
(4)

(c) (i) Total direct labour hours: (6 minutes x 5000) + (10 minutes x 7000) = 100 000 minutes 0.5
Predetermined fixed production overhead absorption rate:
Ml: $988 000/100 000 x 6 minutes = $59.28 per unit 0.5
Super-M: $988 000/100 000 x 10 minutes = $98.8 per unit 0.5

(ii) Total machine hours: (48 minutes x 5000) + (40 minutes x 7000) = 520 000 minutes 0.5
Predetermined fixed production overhead absorption rate:
Ml: $988 000/520 000 x 48 minutes = $91.2 per unit 0.5
Super-M: $988 000/520 000 x 40 minutes = $76 per unit 0.5
(3)

(d) machme hour

as the operation is machine-oriented/machine maintenance and depreciation for machinery are
the main components of fixed production overheads/total machine hours used is nearly
five-fold of total direct labour hours used
(2)

13 marks

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QUESTION 7 (Cont'd) Marks

(b) - normal loss is an expected loss arising from normal purchases or production activities
abnormal loss is an unexpected loss in the operation of a business

l3
the loss caused to Mark's business by the frre is an abnormal loss

（
、
,
＇
20 marks

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QUESTIONS Mar

(a)
Ca ital
2016 Bill Ben Tom 2016 Bill Ben Tom
＄ ＄ ＄ ＄ ＄ ＄
0.5 Goodwill 48 000 Balance b/d 162 000 466 000
0.5 Loan -Bill 252 500 Cash at bank 240 000
1 Balance c/d 563 500 192 000 Current 42 000
Revaluation (wl) 24 500 73 500
Goodwill 24 000 24 000
252 500 563 500 240 oool 252 500 563 500 240 000

(wl) Gain on revaluation = $248 000 - ($120 000 / 0.8) = $98 000

(b) (i) A ro riation account for the ear ended 31 December 2016
＄
Net loss $(371 000 + 19 600 + 5050) (w2) 395 650
Add: Salary to Tom ($2000 x 12) 24 000
419 650

Share of loss - Ben (1/2) 209 825

-Tom (1/2) 209 825
419 650
(w2) Depreciation expense under-provided for = [$248 000 -($120 000/0.8)] x 20% = $19 600
Loan interest expense = $252 500 x 2% = $5050

(b) (ii)
Current
2016 Ben Tom 2016 Ben Tom
＄ ＄ ＄ ＄
0.5 Balance b/d 20 000 Appropriation account - salary 24 000
Appropriation account
0.5
- share of loss 209 825 209 825 Balance c/d 229 825 185 825
229 825 209 825 229 825 209 825

c Items that would be recorded m the current account:

（）
- Drawings
- Interest on capital
- Interest on drawings
- Interest on loan to partner(s)
(1 mark for each item, max. 2 marks)

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QUESTION 8 (Cont'd) Marks

(d) Realisation
＄ ＄
0.5 Equipment ($248 000 x 0.8) 198 400 Ben's Capital: Equipment 174 000 0.5
0.5 Trade receivables 70 000 Cash at bank - Trade receivables and inventory 96 000 0.5
0.5 Inventory 98 000 Trade payables - discounts received 1 000 0.5
0.5 Cash at bank- realisation expenses 6 000 Interest payable 5 050 0.5
Share ofrealisation loss:
Capital - Ben (1/2) 48175
Capital - Tom (1/2) 48175 96 350
372 400 372 400
(4)

(e)
2017 Ben T�017 Ben Tom
＄ ＄ ＄
0.5 Current account 229 825 185 825 Balance b/d 563 500 192 000 0.5
0.5 Realisation: Equipment 174 000 Cash at bank 42 000 0.5
0.5 Realisation 48175 48175
0.5 Cash at bank 111 500
563 500 234 000 563 500 234 000
(3)

20 marks

END OF PAPER 2A

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