Beruflich Dokumente
Kultur Dokumente
Accounting
Level 3
Model Answers
Series 2 2009 (3001)
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Page 1 of 20
SECTION A
(Answer Questions 1 and 2 in Section A – compulsory)
QUESTION 1
Hong Kong Plastics plc has an authorised share capital of 600,000 ordinary shares of £1 each. Some
years ago the company issued 300,000 of these shares at par and has now decided to issue the
remaining ordinary shares, payable as follows:
£
Application 0.25
Allotment (including premium) 1.15
First call 0.35
Final call 0.25
2.00
Applications were received for 360,000 shares, of which 25,000 were rejected and the application
monies refunded. The shares were allotted to the remaining applicants on a pro-rata basis and the
surplus application money was applied to the amount due on allotment.
The total amount due on allotment and first call was duly received. The entire amount due on the final
call was received from all shareholders with the exception of the holder of 8,000 shares who failed to
pay on the due date. The directors agreed to wait for payment of the outstanding balance, but it still
remains outstanding.
REQUIRED
Prepare the following accounts in the ledger of Hong Kong Plastics plc:
(a) Application
(b) Allotment
(Total 20 marks)
3001/2/09/MA Page 2 of 20
MODEL ANSWER TO QUESTION 1
Application Account
Ordinary Share
Capital 75,000
Allotment Account
Ordinary Share
Capital 45,000 Application 8,750
Ordinary Share
Capital 105,000 Bank 105,000
______ ______
105,000 105,000
Ordinary Share
Capital 75,000 Bank 73,000
3001/2/09/MA Page 3 of 20
MODEL ANSWER TO QUESTION 1 CONTINUED
______ ______
300,000 300,000
Application 75,000
Allotment 45,000
3001/2/09/MA Page 4 of 20
SECTION A CONTINUED
QUESTION 2
The Balance Sheets of Chao Ltd at 31 December were as follows:
2006 2007
£000 £000 £000 £000 £000 £000
Fixed Assets (NBV) 500 800
Current Assets
Stock 90 75
Debtors 60 50
Bank 35 20
185 145
Notes:
(1) During the year ended 31 December 2007, fixed assets costing £400,000 were purchased and
fixed assets with a net book value of £50,000 were sold for £40,000
(2) All financing transactions took place on 1 January 2007
(3) Interim dividends amounting to £45,000 were paid in 2007.
REQUIRED
(b) Prepare a statement reconciling operating profit to net cash inflow/outflow from operations.
(7 marks)
(c) Prepare the Cash Flow Statement in accordance with FRS 1 (Revised). (8 marks)
(Total 20 marks)
3001/2/09/MA Page 5 of 20
MODEL ANSWER TO QUESTION 2
Interim dividend 45
Proposed dividend 45
General Reserve 20
130
250
£000
£000 £000
3001/2/09/MA Page 6 of 20
MODEL ANSWER TO QUESTION 2 CONTINUED
Proposed at 31.12.06 20
Financing
..__
Decrease in cash for the period (20 - 35) -15
3001/2/09/MA Page 7 of 20
SECTION B
(Answer any THREE questions from Section B)
QUESTION 3
Cheng Ltd buys old farming machinery, repairs it and then sells the repaired machinery to local
farmers. On 1 March 2001, the company purchased a disused barn with the intention of using it as a
warehouse. The barn required extensive work to be undertaken before it was considered fit for use
and the company incurred the following costs:
£
Purchase price 50,000
Legal fees relating to purchase 3,000
Tiles for new roof 16,000
Concrete for new floor 4,750
Electrical installation 8,250
Wood for internal partitions 5,000
Cost of own labour used 16,000
Warehouse completed in November 2002 - cost of opening party 1,800
Note: Included in the cost of wood for internal partitions was £600 spent on new panels for the
existing doors in the accounts department. The cost of own labour included £2,400 relating to repair
work on the Managing Director's private house. The cost of the land included in the barn purchase
price was £20,000. Land costs are posted to a freehold land account.
The policy of Cheng Ltd is to depreciate buildings at 2% per annum using the reducing balance
method. A full year's depreciation is charged in the year a building is ready for occupation but no
depreciation is charged in the year of disposal. The financial year of the company ends on
31 December.
REQUIRED
(a) Calculate:
(i) the capital cost of the barn to be recorded in the Buildings Account (7 marks)
(ii) the accumulated depreciation on the barn up to 31 December 2006, making your
calculations to the nearest £1. (5 marks)
On the 5 March 2007 the barn was totally destroyed by fire together with three renovated machines.
The following details relate to the renovated machines:
Purchase cost Renovation Cost Anticipated Selling Price
£ £ £
Machine A 3,000 1,500 6,000
Machine B 2,800 2,200 5,500
Machine C 7,000 4,000 10,000
The insurers agreed to pay £70,000 in respect of the loss of the barn and Cheng Ltd received this
amount on 2 February 2008. The company has yet to submit an insurance claim in respect of the
machinery destroyed in the fire.
3001/2/09/MA Page 8 of 20
QUESTION 3 CONTINUED
REQUIRED
(b) Prepare, in respect of the year ended 31 December 2007, the journal entries required to record
the destruction of the barn and the resulting insurance claim. Journal narratives are not required.
(5 marks)
(c) Calculate the value of the insurance claim for the machinery destroyed in the fire. (3 marks)
(Total 20 marks)
3001/2/09/MA Page 9 of 20
MODEL ANSWER TO QUESTION 3
(a) (i) £
Concrete 4,750
Electrical 8,250
Insurers 70,000
3001/2/09/MA Page 10 of 20
MODEL ANSWER TO QUESTION 3 CONTINUED
(c)
Cost NRV Claim
Machine £ £ £
(Total 20 marks)
3001/2/09/MA Page 11 of 20
SECTION B CONTINUED
QUESTION 4
Bao Corporate Media Ltd produced the following Balance Sheet at 31 December 2008:
Tangible Fixed Assets £ £ £
Premises 200,000
Motor vehicles 88,000
Equipment 125,000
413,000
Current Assets
Stock 15,000
Trade debtors 65,000
Prepayments 500
80,500
Creditors: Amounts falling due within 1 year
Trade creditors 16,000
Accruals 2,000
Bank overdraft 5,500
Proposed dividends 20,000
43,500
Net Current Assets 37,000
450,000
Creditors: Amounts falling due after more than 1 year
6% Debenture (2014) 25,000
425,000
Share Capital and Reserves £
200,000 £1 ordinary shares fully paid 200,000
General Reserve 50,000
Profit and Loss 175,000
425,000
The following forecasts relate to the financial year ending 31 December 2009:
(1) Sales for the year, all on credit, are estimated at £800,000. Receipts from debtors are estimated
at £825,000
(2) Credit purchases will amount to £400,000 and payments to creditors will amount to £390,000
(3) Payments for operating expenses (including interest) will amount to £450,000. Included in this
total is £24,000 in respect of insurance covering the period 1 March 2009 to 28 February 2010.
Wages accrued at the year end will amount to £3,000
(4) It is expected that stock at the 31 December 2009 will amount to 7.5% of credit purchases
(5) Motor vehicles with a net book value of £20,000 will be sold for £18,000 and new equipment
costing £30,000 acquired. At 31 December 2009, £5,000 will still be owed on the equipment and
should be treated as a creditor
(6) The General Reserve of £50,000 will be converted into bonus shares following which a rights
issue of ordinary shares will take place. The rights issue will be on the basis of 1 ordinary share
for every 5 then held. The price per share will be £1.30 payable on application. The issue is
expected to be fully subscribed and all cash received by the 31 December 2009
(7) A dividend of £0.10 per share will be proposed at 31 December 2009 on all shares then in issue
(8) It may be assumed that all receipts and payments will pass through the bank account.
REQUIRED
Prepare an extract from the forecast balance sheet of Bao Corporate Media Ltd showing the working
capital position at 31 December 2009.
(Total 20 marks)
3001/2/09/MA Page 12 of 20
MODEL ANSWER TO QUESTION 4
Workings:
[a] Stock [b] Debtors [c] Prepayments
3001/2/09/MA Page 13 of 20
SECTION B CONTINUED
QUESTION 5
Chun and Yan share profits and losses in the ratio 3:2. Yan is entitled to an annual salary of £8,000
and both partners receive interest at 5% per annum on their capital account balances. The following
balances were extracted from the books of the partnership at 31 March 2008:
£ £
Premises 80,000 Capital Accounts:
Goodwill 36,000 Chun 90,000
Equipment 15,000 Yan 30,000
Drawings: Current Accounts:
Chun 25,000 Chun 25,000
Yan 15,000 Yan 15,000
Stock 50,000 Creditors 10,000
Debtors 24,000 Loan (2010) 30,000
Bank 3,000 Profit for year to 31.3.08 48,000
248,000 248,000
Additional information:
(1) The net profit for the year was 8% of sales and the gross profit mark-up was 100%
(2) Administration costs represented 40% of the cost of sales and selling costs totalled 15% of sales
(3) The loan was taken out on 1 October 2007 at an interest rate of 10% per annum.
REQUIRED
(a) Re-create the Profit and Loss Account (in as much detail as the information provided will allow)
and prepare the Appropriation Account for the year ended 31 March 2008.
(7 marks)
(3) The partners decided that the value of goodwill was no longer to be retained in the books but the
value of premises was to be increased to £100,000 and the value of stock reduced to £40,000
(4) Chun and Yan would continue to share profits/(losses) between themselves in the same ratio.
REQUIRED
(i) Capital Accounts, in columnar form, of Chun, Yan and Ning (8 marks)
(ii) Opening Balance Sheet of the new partnership in vertical format. (5 marks)
(Total 20 marks)
3001/2/09/MA Page 14 of 20
MODEL ANSWER TO QUESTION 5
If mark-up = 100%, gross profit margin must be: 100 x 100 = 50%
200
Cost of sales therefore equals sales of 600,000 - gross profit of 300,000 = 300,000
Less:
Less:
Interest on capital:
3001/2/09/MA Page 15 of 20
MODEL ANSWER TO QUESTION 5 CONTINUED
(b)
Initial workings:
Revised Goodwill
Revised profit share between Chun, Yan and Ning equals 3:2:1
Revaluation Profit
3001/2/09/MA Page 16 of 20
MODEL ANSWER TO QUESTION 5 CONTINUED
(b) (i)
Capital Accounts
Details C Y N Details C Y N
£ £ £ £ £ £
Bank 80,000
Equipment 4,000
146,400 67,600 94,000 146,400 67,600 94,000
3001/2/09/MA Page 17 of 20
MODEL ANSWER TO QUESTION 5 CONTINUED
(b) (ii)
Chun, Yan and Ning
Balance Sheet at 1 April 2008
Fixed Assets £ £
Premises 100,000
Current Assets
Stock 40,000
Debtors 24,000
Current Liabilities
Creditors 10,000
Net Current Assets 137,000
266,000
Loan 30,000
236,000
Financed by: £
Capital Accounts:
Chun 86,400
Yan 27,600
Ning 74,000
188,000
Current Accounts:
3001/2/09/MA Page 18 of 20
SECTION B CONTINUED
QUESTION 6
Brean has sold desks for many years. On 1 January 2008 he opened his first branch in Barrow. All
double entry records are kept at the head office. All desks are purchased by head office and invoiced
to Barrow at selling prices fixed to give a gross profit of 30% on sales revenue. All sales are for cash.
(1) Head office sent 480 wooden desks costing £91 each and 125 metal desks costing £63 each to
the Barrow branch.
(2) The Barrow branch returned 60 wooden desks and 5 metal desks to head office as they were the
wrong colour.
(3) At 31 December 2008, 50 wooden desks and 6 metal desks remained in stock at the Barrow
branch.
(4) Head office made the following payments on behalf of the Barrow branch:
At 31 December 2008 it was discovered that no stock had been damaged, lost or stolen. The part
time staff were entitled to a commission equal to 5% of sales revenue. The manager was entitled to a
bonus equal to 1% of the branch net profit before charging the bonus.
REQUIRED
(a) Prepare the following accounts for the year ended 31 December 2008, as they would appear in
the head office books of Brean:
(b) Suggest one reason why the manager might be dissatisfied with the bonus system.
(2 marks)
(Total 20 marks)
3001/2/09/MA Page 19 of 20
MODEL ANSWER TO QUESTION 6
(a)
(i) Branch Stock Account
£ £
Goods sent to branch (480 x 91) 43,680 Goods sent to branch (60 x 91) 5,460
Branch stock adj. (480 x 39) 18,720 Branch stock adj. (60 x 39) 2,340
Goods sent to branch (125 x 63) 7,875 Goods sent to branch (5 x 63) 315
Branch stock adj. (125 x 27) 3,375 Branch stock adj. (5 x 27) 135
Bank (370* x 130) 48,100
Bank (114** x 90) 10,260
Balance c/d (50 x 130) 6,500
………. Balance c/d (6 x 90) 540
73,650 73,650
* 480-60-50 = 370
** 125-5-6 = 114