Certified Accounting Technician Examination Intermediate Level

Maintaining Financial Records (International Stream)

Wednesday 8 December 2010

Time allowed: 2 hours This paper is divided into two sections: Section A ALL 20 questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted

Do NOT open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Paper T3 (INT)

Section A ALL 20 questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. Each question in this section is worth 2 marks. 1 When goods are sold to a customer on credit, what accounting entries should be made? A B C D Debit Sales account Trade receivables account Cash account Sales account Credit Cash account Sales account Sales account Trade receivables account

At 31 October 2009 Dongs statement of financial position reported non-current assets with a carrying amount of $237,950. In the year to 31 October 2010, he scrapped assets with a carrying amount of $12,890, and bought new assets for $19,500. He has calculated that depreciation for the year to 31 October 2010 is $46,900. What value should be reported for non-current assets in his statement of financial position at 31 October 2010? A B C D $244,560 $197,660 $278,240 $184,440

At 1 November 2009, Arif had a prepayment of $820 for vehicle expenses. During the year to 31 October 2010 he recorded the following in relation to vehicle expenses: (i) invoices for $19,630; and (ii) credit notes for $255. He has extracted his trial balance before calculating his closing accruals and prepayments. What is the correct debit balance for vehicle expenses on his trial balance at 31 October 2010? A B C D $20,705 $19,375 $20,195 $18,555

Shari is carrying out the reconciliation between the balance on her trade payables control account in her general ledger and the list of balances in her purchase ledger. She has found the following errors: (i) a credit balance on a suppliers account has been listed as a debit balance; (ii) an invoice was recorded in the purchase day book for the wrong value; and (iii) no record has been made of discount received from a supplier. Which of these errors require an entry in the trade payables control account in the general ledger? A B C D (i), (ii) and (iii) (i) and (ii) only (ii) and (iii) only (i) and (iii) only

Davindra is reconciling the total of the list of balances from her sales ledger to the balance on the trade receivables control account. The total of the list of balances is $25,627. She has discovered two errors: (i) a customers account has been overcast by $99; and (ii) an invoice for $89 has been treated as a credit note. What is the corrected total of the list of balances from her sales ledger? A B C D $25,617 $25,350 $25,439 $25,706

Jacinta is preparing her statement of financial position at 31 October 2010. The last electricity invoice she received was for $858. This was for the three months to 31 August 2010. Jacinta assumes that electricity costs are constant throughout the year. How should the accrual for electricity be reported in Jacintas statement of financial position at 31 October 2010? A B C D as as as as a a a a current current current current liability of $286 liability of $572 asset of $286 asset of $572

Vernon thinks the following mistakes may have been made in his accounting records: (i) a credit sale was recorded at the wrong value in the sales day book; and (ii) a cheque issued to a credit supplier was debited to the purchases account. The credit entry was made correctly. Which of the mistakes will be revealed by extracting a trial balance? A B C D (i) only (ii) only both (i) and (ii) neither (i) nor (ii)

At 31 October 2010, Jemma was owed $138,644 by her customers. She has calculated that her receivables allowance should be $2,600. How should receivables be reported in Jemmas statement of financial position at 31 October 2010? A B C D as as as as a a a a current current current current asset of $136,044 asset of $138,644 and a current liability of $2,600 liability of $136,044 liability of $138,644 and a current asset of $2,600

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At 1 December 2009 Giordis receivables allowance was $1,488. At 30 November 2010 the balance on his trade receivables account was $231,860. He has decided that balances totalling $2,437 are irrecoverable and should be written off and that his receivables allowance should be revised to 075% of the remaining balances. What amount should be charged to Giordis income statement for receivables expense in the year to 30 November 2010 (calculated to the nearest $1)? A B C D $1,721 $2,204 $2,670 $233

10 In the year ended 30 November 2010, Karl sold a machine for $5,800. The machine had been bought for $15,000 in July 2006. Karl depreciates machinery at 20% per annum on a reducing balance basis. He charges a full years depreciation in the year an asset is purchased, and no depreciation in the year of sale. What was the profit or loss on disposal of the machine? A B C D $344 loss $344 profit $2,800 loss $2,800 profit

11 Eoghan charges depreciation on machinery at a rate of 20% per annum on the reducing balance basis. In the year to 30 November 2009 he had incorrectly treated capital expenditure of $5,000 as revenue expenditure. The error has not yet been corrected. How is his profit for the year to 30 November 2010 affected by the error? A B C D understated by $800 understated by $1,000 overstated by $800 overstated by $1,000

12 Under the terms of a warranty, Bev has agreed to pay compensation to a customer. As they cannot agree on the value of the compensation, they have agreed to submit the dispute to arbitration. It is not clear when the arbitration hearing will take place, but Bevs legal advisor has told her that it will not be before January 2011. The legal advisor has also estimated the likely final settlement. How should the claim be dealt with in Bevs statement of financial position at 31 October 2010? A B C D it can be ignored until the dispute has finally been settled included in trade payables as a current liability included in trade payables as a non-current liability a provision should be recognised

13 Which of the following statements is correct? A B C D financial statements of a sole trader must be prepared by a qualified accountant financial statements do not provide useful information to lenders all the information needs of the owner are met by the financial statements financial statements are intended to meet the needs of a number of user groups

14 Veronica took out a bank loan for $60,000 on 30 September 2010, and agreed to repay $2,000 of capital per month starting on 31 October 2010, but actually made the first repayment on 12 November 2010. How should the outstanding capital on the loan be reported on her statement of financial position at 31 October 2010? A B C D Current liability $24,000 $24,000 $26,000 $26,000 Non-current liability $34,000 $36,000 $34,000 $32,000

15 Elma is preparing her extended trial balance. Which column(s) should closing inventory be extended into? A B C D Income statement Debit Credit No entry Credit Statement of financial position Credit Debit Debit No entry

16 Jan has extended and totalled the entries on her extended trial balance, but has not yet calculated the profit or loss for the year. The total of each column is: Income statement Debit Credit $275,654 $263,864 What is Jans profit or loss for the year? A B C D $23,499 $23,499 $11,790 $11,790 profit loss profit loss Statement of financial position Debit Credit $275,573 $287,363

17 Floyd calculated that his profit for the year was $65,285. He then found that he had treated an accrual of $189 as a prepayment. When he corrects the error, what is his revised profit for the year? A B C D $65,096 $65,474 $64,907 $65,663

18 As defined in the IASBs Framework for the preparation and presentation of financial statements, which qualitative characteristic of financial reporting requires accounting information to be free from material error and bias? A B C D comparability understandability relevance reliability

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19 At 1 November 2009 the value of Claudias net assets was $127,554. At 31 October 2010 the value was $174,529. During the year to 31 October 2010 Claudia introduced $35,000 of capital and her drawings were $17,150. What was Claudias profit for the year to 31 October 2010? A B C D $64,825 $29,125 $11,975 $46,975

20 In the year to 31 October 2010, Vlads sales were $142,200, all of which were made at a mark-up of 20%. His opening inventory value was $5,400 and his closing inventory value was $3,600. What was the value of Vlads purchases in the year to 31 October 2010? A B C D $120,300 $116,700 $111,960 $118,500 (40 marks)

Section B ALL FOUR questions are compulsory and MUST be attempted 1 (a) Identify two reasons for creating a suspense account. (b) Explain both the purpose of depreciation, and why land is not normally depreciated. (2 marks) (3 marks)

(c) Describe the effect on each element of the accounting equation (assets, liabilities and capital) when goods are sold on credit at a profit. (3 marks) (d) Explain how the basic accounting principle of prudence affects the preparation of financial statements. (3 marks) (e) Explain how the value of inventory is calculated using the periodic weighted average method of valuation. (4 marks) (15 marks)

(a) You are preparing Aris current account bank reconciliation at 30 November 2010, and have the following information: (i) at 30 November 2010 the bank statement shows an overdrawn balance of $1,723; (ii) at 30 November 2010 the bank current account in the general ledger had a credit balance of $2,678; (iii) cheques with a value of $1,759 were issued in November, but have not yet been recorded on the bank statement; (iv) a lodgement for $2,820 has not yet been credited on the bank statement; (v) a cheque for $780 received from a customer was incorrectly recorded in the cash received day book as $870; (vi) Ari recorded bank interest received of $373 as bank interest paid; (vii) in August, a supplier returned Aris cheque for $640, as it should only have been for $620. A replacement cheque for the correct amount was issued and correctly recorded, but Ari did not record the cancellation of the original cheque (this cheque is not included in the value of cheques noted at (iii) above); (viii) the bank agreed to reduce Aris fees by $180. Although Ari recorded the reduction in November, the bank did not credit his account until 2 December; and (ix) Ari has not recorded a cash withdrawal for $600, or the transfer of $1,500 from his personal deposit account. Required: (i) Prepare the bank account in Aris general ledger, including the necessary adjusting entries and the corrected balance; and NOTE: Your answer MUST be presented in an acceptable format, which clearly indicates whether each entry is a debit entry or a credit entry. Annotating an entry as + or will NOT obtain marks. (7 marks) (ii) Prepare the reconciliation between the balance on the bank statement and the corrected balance on the bank account in Aris general ledger. (5 marks) (b) In addition to his current account, Ari has a deposit account on which the closing balance at 30 November 2010 was $12,750. Required: State how the balances on the current account and the deposit account should be reported in Aris financial statements for the year to 30 November 2010. (3 marks) (15 marks)

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You are completing the final accounts for the partnership between Usain and Taylor for the year to 30 November 2010, and have the following information: (i) Profit for the year has been calculated as $34,850

(ii) The balances on the partners capital and current accounts at 1 December 2009 were: Usain Taylor Capital $37,500 credit $22,000 credit Current $9,438 credit $1,522 debit

(iii) On 1 March 2010, additional capital was introduced: Usain $11,000 Taylor $5,000

(iv) During the year drawings were: Usain $28,000 Taylor $24,000

(v) The partnership agreement provides for: Usain to receive a salary of $15,000 per annum interest on capital to be paid at a rate of 8% per annum, calculated on a monthly basis interest on drawings to be charged. You have already calculated the charges to be: Usain $3,360 Taylor $2,880 residual profit to be shared between Usain and Taylor in the ratio 3:2

Required: (a) Prepare the appropriation account for the partnership for the year, showing each partners total share of the profit of $34,850. (7 marks) (b) Calculate the balance on each of the partners current accounts at 30 November 2010. (4 marks)

(c) Calculate the total value of each partners investment in the partnership for inclusion in the statement of financial position at 30 November 2010. (4 marks) (15 marks)

Dwight has prepared his income statement for the year to 31 October 2010. The income statement reports a draft profit of $38,322. He has asked you how he should treat the following items: (i) the prepayment of insurance. The premium for the year to 31 January 2011 was $1,380; (ii) closing inventory has been included at the cost value of $16,800. This includes items which cost $1,350 but had been damaged. During November 2010, Dwight spent $280 to repair the damaged items and then sold them for $700; (iii) $500 of revenue expenditure had been treated as capital expenditure; and (iv) depreciation, calculated at 20% per annum on the reducing balance basis, has yet to be charged. Other balances from the trial balance at 31 October 2010 included: Dr $ 65,720 86,542 63,829 6,267 Cr $ 11,840

Non-current assets at cost Accumulated depreciation Trade receivables Trade payables Bank account

Required: (a) Prepare a statement showing the effect on the draft profit of each of the items (i)(iv) and the corrected profit for the year to 31 October 2010. (10 marks) (b) Calculate the value of current assets at 31 October 2010. (c) Calculate the value of current liabilities at 31 October 2010. (3 marks) (2 marks) (15 marks)

End Of Question Paper