Sie sind auf Seite 1von 12

Term 1 2001-2002 Examination

November/December 2001

ACCT101
FINANCIAL ACCOUNTING
Instructions:
1. This paper consists of two parts, Part A and Part B, printed on a total of 12 pages (for a
total of 100 marks). PLEASE CHECK BEFORE COMMENCING. This is a FINAL
paper.
2. The time allowed for this examination paper is 3 (three) hours.
3. Part A consists of 3 questions (70 marks). You are to answer ALL questions and show
ALL relevant calculations.
4. Part B consists of 15 Multiple Choice Questions (30 marks). You are to write in your
answer booklet the most appropriate answer. Each correct answer is worth 2 marks and a
penalty of marks will be applied to any incorrect answer.

ACCT101 Financial Accounting

Term 1 2001/2

PART A (3 questions, total 70 marks)


Question 1 (20 marks)
Mrs. Linda Quek is well known for her skills as a baker. She started baking cakes and cookies
as a hobby in 1990, and her skills improved through the years. In the early days, she gave
what she baked to her extended families and friends during festivities. Her cakes and cookies
were so good that people started to ask for them outside the festivity periods. Soon she had to
enlarge her kitchen and put in more ovens to cope for the demands from her families and
friends. In 1998, she started selling her cakes and cookies on an ad hoc basis and her business
grew considerably in 1999.
On January 1, 2000, with the encouragement from her husband who gave her $45,000 as
capital for her business, she decided to see if she could turn what she had been doing into a
profitable business. She started by putting her bills and receipts in a money box so that she
could determine whether her business would be profitable and if she could run it as a full time
business.
At the end of the year 2000, Mrs. Quek had hoped for a pile of cash for her effort during the
year. Although she did not start her enterprise purely for money, she had worked very hard
and expected to have surplus cash in her safe. She wanted to take this cash and rent a place so
that she can sell her cakes and cookies in a nice little shop that she had always wanted to
own. She also wanted to buy a bigger delivery truck so as to deliver her products to every
corner in Singapore so that every one could savor her wonderful cakes and cookies.
However, as she counted her cash at the end of the year, she became painfully aware that
there wasnt as much as she had hoped for. When compared to a job offer she received from a
top hotel in Singapore to be the chief chef in the cake and pastries section, she was far behind.
She started questioning herself. What had happened? Where had all the money gone to?
Should she give up her hope to start her business?
In her search for the answers, she contacted you, her nephew/niece, and one who had eaten
many of her cakes and cookies, to ask you for advice.
In going through her records of her cash inflows and outflows, you established the following:
Mrs. Quek Cake Business
Cash flows for the year ended 31 Dec 2000
Inflows:
Cash from sales
Money from her husband

$348,000
$ 45,000

Outflows:
Raw materials (eggs, flours, butter etc.)
Wages for part-time help
Delivery expenses
Utilities
Other expenses

$161,898
$ 54,300
$ 72,982
$ 27,320
$ 55,500

Page 2

ACCT101 Financial Accounting

Term 1 2001/2

In addition, you obtained the following additional information:


1. Mrs. Quek purchased a small second-hand delivery truck for the delivery of her cakes and
cookies. The vehicle was purchased on 1 July 2000 at the cost of $40,000. The vehicle is
expected to last till 31 Dec 2005. The scrap value for the vehicle is estimated to be $7,000.
The $40,000 was included under delivery expenses.
2. Mrs. Quek spent $42,000 at the beginning of January 2000 to extend her kitchen and to
install two additional ovens. Mrs. Quek paid $25,000 for the ovens and she expects both
the kitchen and ovens to last for 5 years. Mrs. Quek had included the amount of $42,000
spent under the other expenses category.
3. In January 2001, Mrs. Quek received her PUB bill which showed her December 2000
utility expenses to be $2,880.
Required:
A. Based on the information given above (and make any necessary
assumptions on accounting policies), prepare the following financial
statements (for the 2000 financial year) for Mrs. Quek:
1. A properly classified balance sheet
2. A properly classified profit and loss statement
B. Briefly describe any 4 (four) characteristics of a company incorporated
under the Company Act.

(8 marks)
(8 marks)
(4 marks)

Question 2 (20 marks)


You are a partner of a business consultancy firm. One of the up and coming chains of
restaurants in Singapore, Beef & Co. comes to you to seek advice. Below are their financial
statements and its related notes.
Beef & Co. Pte Ltd
Balance Sheet as at 31 December 2000
Assets
Notes
2000
Cash
784,164
Trade Receivables
5,716
Other Receivables and prepayments
138,364
Inventories, at cost
40,588
Fixed Assets
2
545,460
1,514,292
Liabilities and Equity
Trade Payables
Income Tax Payable
Issued Capital
Share Premium
Accumulated profits (losses)

Page 3

339,126
150,000
400,000
200,000
425,166
1,514,292

1999
443,451
9,548
124,845
23,546
401,566
1,002,956
381,141
90,000
400,000
200,000
(68,185)
1,002,956

ACCT101 Financial Accounting

Term 1 2001/2

Beef & Co. Pte Ltd


Profit and Loss Statement for the year ended 31 December 2000
Notes
2000
1999
Revenue
4,512,875
2,125,789
Cost of Sales
(1,205,789)
(548,158)
Gross Profit
3,307,086
1,577,631
Administrative Expenses
4
(2,663,735) (1,158,456)
Profit before Tax
643,351
419,175
Income Tax
(150,000)
(90,000)
493,351
316,175
Notes to Financial Statements
1.
Summary of significant Accounting Policies
Basis of accounting The financial statements have been prepared in accordance
with the historical cost convention and have been prepared in accordance with the
provisions of the Singapore Companies Act and Singapore Statements of Accounting
Standards.
Revenue Recognition Revenue arising from food and beverages are recognized at
each months anticipated sales figures.
Inventories Inventories are all stated at cost, using the last-in first-out method, in
line with the companys policy to serve fresh foods to the customer.
Depreciation Depreciation is provided on the straight line basis. The annual
depreciation rates are as follows:
Furniture and fittings 33 1/3%
Renovation
33 1/3%
Plant and Equipment 20%
2.

Fixed Assets (All calculations are correct)


Cost:
At beginning
Additions
At ending

Furniture and
Fittings
Renovations
$
$
78,219
249,157
80,598
202,256
158,817
451,413

Plant and
equipment
$
229,144
137,849
366,993

Total
$
556,520
420,703
977,223

Acc. Depreciation
At beginning
Depreciation for year
At ending

26,073
52,939
79,012

83,052
150,471
233,523

45,829
73,399
119,227

154,954
276,809
431,763

Depreciation for last year

26,073

83,052

45,829

154,954

Net book value


At the beginning
At ending

52,146
79,805

166,105
217,890

183,315
247,766

401,566
545,460

Page 4

ACCT101 Financial Accounting

3.

Term 1 2001/2

Issued Capital
Authorised:
600,000 ordinary shares of $1 each
300,000 10% preference shares of $1 each

Issued and paid up


700,000 ordinary shares of $1 each

4.

2000
$
600,000
300,000
900,000

1999
$
600,000
300,000
900,000

400,000

400,000

These charges include:


Directors' Renumeration
Depreciation Expense
Bad Debts written off (no allowance provided)
Lease expense for space *
Salaries for staff

2000
465,154
276,809
1,589
750,461
1,169,722
2,663,735

1999
134,789
154,954
10,486
345,126
513,101
1,158,456

*The lease commitments are for the next 30 years are fixed at $750,461 for 8 units. These
leases are non-cancellable and at the end of the 30 years the ownership is transferred to Beef
& Co.
The director of the company, Lee Ah Meow, felt that this set of financial statements was very
well prepared and represented what accountants called a true and fair view of the companys
operations. However, as he was preparing to bring his company for expansion into Korea, he
needed additional funds to finance this venture.
He presented his financial statements to external users but they told him that it was full of
errors. Lee Ah Meow cannot understand what went wrong. As the accountant was going to
charge him high fees for redoing his books, he came to you, a start-up consultancy company
for help.
Required:
A. Examine the financial statements and all its related notes. Highlight 5
(five) errors either in the notes, accounting policies (with reference to
GAAP and SAS) or items in financial statements to Mr. Lee.
Only discuss issues or items PRESENTED in this question and you can
assume other materials are irrelevant to this question. For each error,
identify what is wrong and state what should be done instead.

(10 marks)

B. Calculate any 3 (three) financial ratios based on the financial statements to


Mr. Lee. Explain how these ratios may be interpreted and what they mean
in the context of the current economy and the potential expansion into
Korea.

(6 marks)

C. What is the relevance of Generally Accepted Accounting Principles


(GAAP) in the preparation of financial statements?

(4 marks)

Page 5

ACCT101 Financial Accounting

Term 1 2001/2

Question 3 (30 marks)


Determinus Teekielarus decided to go into business. Cappe Diem! he proclaimed, and
armed with $100,000 he begged over many years from his father, Determinus commenced his
executive lifestyle business, focusing on the Personal Digital Assistants (PDA) market. He
leased a property in Kayu Bakar Plaza on 1 July 1998 for 3 years (time value of money is
6%), paying $40,000 at the end of each year and proceeded to start his new life as a CEO of
Value Added Lifestyles (VAL) Ltd.
His inventory records show the following movements for the first month of operation:
July 1: Purchased 10 units of Palm ($400 each) and 10 units of CLIE ($500 each)
July 3: Sold 5 Palm units (average selling price $530 each) and 3 units of CLIE ($675)
July 10: Purchased 9 units of Palm ($410 each) and 13 units of CLIE ($520 each)
July 15: Purchased 14 units of Palm ($420 each) and 8 units of CLIE ($490 each)
July 18: Sold 12 Palm units (average selling price $540 each) and 5 units of CLIE ($690)
July 23: Sold 7 Palm units (average selling price $520 each) and 14 units of CLIE ($680)
In an effort to boost sales, Determinus agreed to provide some corporate clients with a credit
facility. At the end of July 1998, $23,000 was due from its customers. August was a bad
month, however. Many of his debtors, such as Mr. Kernot Phey, Ms. Bo Liau, and Mr. Bean
Aladin cannot be located, and Determinus believes a total of $2,300 will never be collected.
As a result, he stopped offering credit to customers, and the Debtors balance for August
decreased by $10,800.
Despite the slow beginning and tough first few months, the business grew as the PDA market
boomed. Within just 3 short years, Determinus now has the largest executive lifestyle
business in South East Asia, branching into many businesses, such as spas and rejuvenation
centers, executive short getaways, gymnasiums, chartered jets and others. In the financial year
ended June 2001, Determinus acquired $302,309,000 new fixed assets and was able to declare
and pay $23,422,000 dividends. The Balance Sheet and P&L of the company are as follows.
Value Added Lifestyles LTD
Balance Sheet as at 30 June 2001 ($000)
Assets
Cash
Accounts receivable
Interest receivable
Inventory
Prepaid expenses
Long-term receivable from other companies
Fixed assets, net depreciation
Total
Liabilities
Accounts payable
Salary and wage payable
Accrued liabilities
Long-term debt

2001
$34,726
89,099
2,294
34,029
6,039
11,940
573,021
$751,148

2000
$29,282
69,099
1,938
33,111
8,363
6,049
391,212
$539,054

$98,476
2,394
7,322
172,039

$73,467
3,019
6,948
76,500

Page 6

ACCT101 Financial Accounting

Term 1 2001/2

Stockholders Equity
Common stock
Retained earnings
Total

359,291
111,626
$751,148

293,091
86,029
$539,054

Value Added Lifestyles LTD


Profit and Loss Statement for the year ended 30 June 2001 ($000)
Revenues
Sales revenue
Interest revenue
Dividend revenue
Gain on sale of plant assets
Total revenues and gains
Expenses
Cost of goods sold
Salary and wage expense
Depreciation expense
Other operating expense
Interest expense
Income tax expense
Total expenses
Net income

2001
$310,223
2,820
5,042
8,392
$326,477
$110,286
57,301
49,919
42,820
10,183
6,949
$277,458
$49,019

Determinus believes there is no end to the possibility! In an ambitious move, on 1 July 2001,
he issued 5-years bonds totaling $100,000,000 to buy a fleet of Gulfstream private jets. The
stated interest rate for the bonds is 8% (interest compounded and payable yearly) and the
market rate is 6%.
With such ambitious plans, no one knows what the future holds for Determinus. His empire,
of course, may collapse anytime due to the high level of borrowings. Determinus feel quietly
confident, as he relaxes in his private small little island, drinking bubble tea and watching the
sunset.
Financial Tables
3 periods, 6%
5 periods, 6%
6 periods, 3%
10 periods, 3%

PV factor
0.8396
0.7473
0.8375
0.7441

PVA factor
2.6730
4.2124
5.4172
8.5302

FV factor
1.1910
1.3382
1.1941
1.3439

FVA factor
3.1836
5.6371
6.4684
11.4639

Required:
A. What would be the journal entries on 1 July 1998 and 31 July 1998 for the
lease property if it were an operating lease? What would the entries be if it
were a capital lease?

(4 marks)

B. If periodic inventory system is used, what is VALs ending inventory for


Palm on 31 July 1998 under weighted average inventory method? If
perpetual inventory system is used, what is the COGS of the CLIE under
LIFO method for the month of July 1998?

(6 marks)

Page 7

ACCT101 Financial Accounting

Term 1 2001/2

C. On advice from his accountant, Mr. Numero Logy, Determinus decided


that he would make a 5% allowance for bad debt (based on outstanding
accounts receivable). What is the journal entry to provide for this
allowance for July1998? What is the journal entry to write off the
uncollectible amount in August 1998?
D. What is the journal entry to record the bond issue on 1 July 2001?
Assuming effective rate of interest rate amortization for bond issues, what
would be the journal entry to record the amortization of the bond on June
30, 2002.
E.

Prepare the operating section of the Cash Flow Statement for the year
ended 30 June 2001. You can use either direct or indirect method.
OPTIONAL: Prepare a complete Cash Flow Statement including the cash
reconciliation for an additional 5 bonus marks. Only attempt this optional
part after you have completed all other questions in this examination.

End of Part A (70 marks)

Page 8

(5 marks)

(5 marks)

(10 marks)

(5 bonus
marks)

ACCT101 Financial Accounting

Term 1 2001/2

PART B (15 Multiple-Choice Questions, 30 marks)


1.

Jurassic Bones uses the periodic inventory system. The inventory account balances at the
beginning and end of the year were $58,000 and $45,000 respectively. Selling,
administration and finance expenses totaled $13,000 during the year and Sales Revenue
for the year amounted to $327,000. Jurassic Bones made a gross profit of $53,000. What
is the amount of net purchases made during the year?
A. $261,000
B. $287,000
C. $305,000
D. $310,000
E. $314,000

2.

The direct write-off method of accounting for bad debts:


A. Is subject to a significant amount of estimation error
B. Have a direct impact on the allowance for bad debts account
C. Requires that bad debts be provided in the period in which sales are made
D. Results in a better matching of costs with revenues than the allowance method
E. Fails to match bad debt losses with sales for the same period

3.

Which of the following statements is true?


A. Cash discounts are discounts given to customers so that they will purchase more
B. Sales Return and Allowance account is an expense item because it shows the
expenditure associated with the provision of quality products/services to customers
C. Net sales revenue is sales revenue less the discounts received for early payments
D. Expense should be recognized when the benefits have been completely consumed
and an obligation to pay exists
E. Under the allowance method, the bad debt expense account represents the portion of
current periods sales that are uncollectible

4.

The following data are a summary of selected transactions that occurred during the
financial year ended June 2000 for Celestial Travel: (a) Tour Fees receipts of $92,000
were collected during the year. However, $21,000 of this amount was still in the form of
customer deposits as at 30 June 2000, (b) Cash payments of $45,000 were made for
expenses during the year. $6,000 of this amount has not been consumed during the year.
Expenses owing but not yet paid amount to $4,000, and (c) Depreciation expense for
office equipment was $3,200. What is the accrual profit of Celestial Travel for the year?
A. $20,800
B. $24,000
C. $24,800
D. $47,000
E. None of the above

Page 9

ACCT101 Financial Accounting

Term 1 2001/2

5.

The following will occur if an adjusting entry to record accrued wages is NOT made:
A. Both expenses and liabilities will be understated
B. Both expenses and liabilities will be overstated
C. Expenses will be understated, but liabilities will be overstated
D. Expenses will be overstated, but liabilities will be understated
E. It depends on how the original transaction is recorded

6.

Why do companies include more than one year of balance sheet, profit and loss
statement, and cash-flow statement in annual reports?
A.
B.
C.

D.
E.

Companies do so to show that they are voluntarily disclosing more information than
necessary for the benefits of statement users.
Doing so allows management of companies to change the amounts that were
reported in previous years statements, where necessary.
As stakeholders of companies become more informed, they would like to have a
higher degree of disclosure in annual reports so that they can make better decisions
with regards to appointments of directors and auditors.
Doing so provides users of financial statements with a reference point for
determining changes in a companys financial position and performance.
To assist readers in establishing long term trends on the financial performance and
position of the company.

7.

After preparing its profit and loss statement for this year, the accountant of KS Trading
Pte. Ltd. discovered the following errors: The beginning inventory of the previous year
was understated by $25,000 and the ending inventory for the previous year was however,
overstated by $25,000. If these were the only errors, the net profit for this year will be:
A. Understated by $25,000
B. Overstated by $25,000
C. Understated by $50,000
D. Overstated by $50,000
E. None of the above

8.

Which of the following descriptions is incorrect?


A.
B.
C.
D.
E.

The Balance Sheet provides a summary of the financial position of a company at a


particular point in time, listing a companys assets, liabilities, owners equity.
The Income Statement reports the amount of net income earned by a company over
a period, including operating and non-operating revenue and expenses.
The Statement of Cash Flows reports the amounts collected or paid out in cash in
relation to its operating, investing, and financing activities over a period.
The Statement of Retained Earnings details the changes in the owners equity from
one accounting period to the next.
The Trial Balance is the most important element of an annual report because it lists
all the accounts used by the company during the financial year.

Page 10

ACCT101 Financial Accounting

9.

Term 1 2001/2

The total shareholders equity will be smaller at the end of a financial year than
its beginning balance if:
A.
B.
C.
D.
E.

The company has a net income lesser than dividends paid


The company issues additional shares of stock during the period
The company does not pay dividends
The company issues long term bonds at a premium
The company has a positive cash flow from operations

10. A business borrowed $1,000,000 on 1 July 2000. The terms of the loan required that the
loan be repaid by 5 equal installments of $200,000 each on 30 June each year beginning
2001. In addition, interest at the rate of 8% per annum would be charged and would be
payable monthly at the end of each month. The loan amount would be shown in the
balance sheet of the business as at 31 December 2001 as:
A. Long-Term Loan $1,000,000
B. Long-Term Loan $800,000
C. Long-Term Loan $600,000
D. Long-Term Loan $600,000, and Loan Payable under Current Liability $200,000
E. Long-Term Loan $800,000, and Loan Payable under Current Liability $200,000
11. Lion Eyes Ltd. leased a building from JTC for a period of eight years, beginning 20X1.
It refurbished the building extensively at a cost $750,000 on 1/7/X3, with an estimated
life of 5 years. What is the straight-line depreciation expense for the refurbished portion
of the building for the year ended 31/12/20X4?
A. $150,000
B. $93,750
C. $75,000
D. 46,875
E. None of the above
12. The primary objective of financial accounting is to:
A. Record the transactions of a business organization.
B. Provide information to help in decision-making.
C. Determine the value of a business organization.
D. Provide business organizations with a systematic means of bookkeeping.
E. Determine the taxable income of business organizations.
13. If a company does not capitalize the cost of improving the drainage system for the
purpose of alleviating the flooding of its compound, then:
A. Assets will be overstated
B. Assets will be understated
C. Expenses will be understated
D. Profit will be overstated
E. None of the above
Page 11

ACCT101 Financial Accounting

Term 1 2001/2

14. ABC Company recorded the following transactions related to accounts receivable and
uncollectible accounts for the financial year ending 30 June 2001: On 1 July 2000,
Provision for Bad Debts account had a $1,000 credit balance. In September 2000, $4,800
of account receivable was written off. In March 2001, $2,050 of accounts receivable
previously written off were received by the company. If the bad debt expense for the
year is $4,750, what is the ending balance of the Provision for Bad Debts account?
A. $8,500
B. $4,750
C. $3,000
D. $3,100
E. $1,000
15. The transactions carried out by Scientific Singapore Inc during the year caused an
increase in the following: Accounts receivable $44,250, short-term investments $30,000,
inventory $15,461 and bonds $25,000; and a decrease in the following: accounts payable
$13,261, motor vehicles $15,620, prepaid expense $1,500 and notes receivable $3,630. If
10,000 $1 par value shares were issued during the year at par, and dividends of $6,850
were paid, what was the net income for the year?
A. $68,872
B. $97,910
C. $40,732
D. $63,490
E. none of the above
End of Part B (30 marks)
END OF ACCT101 Financial Accounting Term 1 2001/2002 Examination

Page 12