final a/c’s of sole trader solutions - david wilson ac book solutions.pdf · topic 1 final...

TOPIC

1Final a/c’s of Sole Trader

Solutions2 Arnold3 Brennan4 Cullen5 Darcy6 Egan7 Farrell8 Grennan

2 Graded Accounting Questions – Solutions

2 ARNOLD SOLUTION

(a) Trading Profit and loss a/c for year end 31/12/2012€ € €

Sales 1,344,000Cost of Sales Opening stock 85,200 ! Purchases (W) 780,750 " Closing Stock (W) (94,500) 771,450 Gross Profit 572,550" Administration Expenses Salaries 243,600 Insurance (W) 17,550 Patents Written off 21,000 Depreciation of Building (W) 19,050 301,200Selling and Distribution Expenses Advertising 6,900 Depreciation of Vehicle (W) 45,000 Bad Debts Provision (W) 1,268 53,168 (354,368)! Other Operating income Profit on Disposal (W) 9,000 Discount Received 9,900 Rent Received 13,500 32,400 Operating of profit 250,582 " Mortgage interest (W) (33,300) ! Investment Interest (W) 14,400 Net Profit 231,682

3Topic 1 Final a/c’s of Sole Trader Solutions

(b) Balance Sheet as at 31/12/2012Intangible Fixed Patents 84,000Tangible Fixed Land & Buildings 1,425,00 1,425,000 Vehicles (W) 225,000 73,500 151,500

270,000 1,930,500

Financial Fixed 8% Investments

Current Assets Closing Stock 94,500 Debtors 130,350 Provision for BIOS (W) (6,518) 123,832 Investment Interest Due (W) 7,200 VAT (W) 6,000

231,532Crs. Falling Due for less than 1 year Creditors 98,250 Mortgage Interest (W) 27,000 P.R.S.I 6,750 Bank 24,600 (156,600) 74,932 Total net Assets 2,005,432Financed by Creditors Falling Due for More than 1 Year 6% MortgageCapital & Reserves 600,000 Capital 703,500 ! Net Profit 231,682 " Drawings (82,200) ! Revaluation Reserve (W) 551,550 1,405,432 Total Capital employed 2,005,432

Notes to AccountsStock 101,250 " 6,750 # 94,500Patents 97,800 ! 7,200 " 21,000 # 84,000Income 7,200 ! 7,200 # 14,400Vehicles 225,000 ! 90,000 " 90,000 # 225,000Depc this year. 6000 ! 12,000 ! 27,000 # 45,000Acc. Depreciation 97,500 ! 45,000 " 69,000 # 73,500Disposal 90,000 " 69,000 " 30,000 # 9,000 profitPurs. 840,750 " 60,000 # 780,750Mortgage Interest 6,750 " 450 ! 27,000 # 33,300Insurance 15,900 ! 450 ! 1,200 # 17,550Debtors 131,550 " 1,200 # 130,350Buildings 975,000 " 22,500 ! 472,500 # 1,425,000Acc. Depc. 60,000 " 19,050 " 79,050 # NilVAT (Cr.) 16,500 " 22,500 (Dr.) # 6,000 (Dr.)Revaluation Reserve 472,500 ! 79,050 # 551,550Bad Debts. Provision 5,250 " 6,518 # 1,268


3 BRENNAN SOLUTION

(a) Trading, Profit and Loss Account for year end 31/12/2012€ €

Sales 721,000Less Cost of Sales Stock 1/1/12 26,900 ! Purchases (W) 488,400

515,300 Stock 31/12/12 (W) (27,500) (487,800) Gross Profit 233,200Less Expenses Administration Salaries and general expenses 54,200 Patents written off (W) 12,000 Insurance (W) 12,000 Depreciation - Buildings (W) 8,100

86,300Selling 1 Distribution Advertising 12,800 Depreciation Delivery vans (W) 20,350

33,150 (119,450)113,750

Disposal Profit 2,400 Provision for Bad Debts (W) 112 Commission Received 12,000

5,400 19,912 Discount (W) Operating Profit 133,662 Investment Income 7,200

140,862 Mortgage Interest (W) (6,450) Net Profit for year 134,412

(b) Balance Sheet of as at 31/12/2012€ € €

Cost Dep. NBVTangible Fixed Assets Buildings (W) 510,000 — 510,000 Delivery Vans (W) 118,000 35,350 82,650

592,650Intangible Fixed Assets Patents 48,000

Financial Assets Investments 120,000

760,650Current Assets Stocks 31/12/2012 27,500 VAT (W) 11,800 Investment Income due (W) 4,000 Debtors 32,200 Less Provision (1,288) 30,912

74,212


Creditors: amount falling due within 1 year Creditors 35,400 Mortgage Interest due 4,650 P.R.S.I 2,500 Bank 36,900 (79,450) (5,238)

755,412Financed by:Creditors: amounts falling due after 1 year 6% Fixed Mortgage 120,000Capital and Reserves Capital 1/1/2012 370,000 Add Net Profit 134,412 Less Drawings 504,412

(22,100)! Revaluation Reserve (W) 153,100 635,412

Capital Employed 755,412

Notes to AccountsC/S 29,800 " 2,500 # 27,500Veh. 112,000 " 33,000 ! 39,000 # 118,000Dept this yr. Nil ! 4,550 ! 15,800 # 20,350Acc. Depc. 48,000 ! 20,350 " 33,000 # 35,350Disposal 33,000 " 33,000 " 2,400 # 2,400 ProfitPurs. 525,000 " 36,600 # 488,400Patents 56,800 ! 3,200 " 12,000 # 48,000In. Income 3,200 ! 4,000 # 7,200Mortgage Interest 2,200 " 400 ! 4,650 # 6,450Insurance 11,400 ! 400 ! 200 # 12,000Discount (Net) 5,200 ! 200 # 5,400 Cr.Buildings 420,000 " 15,000 ! 105,000 # 510,000Acc. Depc. 40,000 ! 8,100 " 48,100 # NilVAT (Cr.) 3,200 " 15,000 DR. # 11,800 DR.Reval. Res. 105,000 ! 48,100 # 153,100B/D’s Provision 1,400 " 1,288 # 112 Over/!

(c) Why do sole traders prepare final accounts? • For Revenue Purposes • Applications for bank loan or mortgage • Comparison with Proposal years • Comparison with Rivat Firns • For Planning & Budgeting Purposes • As a Form of analysis


4 CULLEN SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012Notes € € €

Sales 988,000Less cost of SalesStock 1/1/12 56,400Purchases (W) 601,680

658,080Stock 31/12/12 (W) (63,100) 594,980Gross Profit 393,020Administration ExpensesSalaries and General Expenses 82,600Insurance (W) 19,720Depreciation on Buildings (W) 10,800Patents written of (W) 16,000 129,120Selling and Distribution ExpensesIncrease in prov. for bad debts (W) 500Depreciation on delivery vans (W) 29,100Loss on disposal of delivery van (W) 1,500 31,100 160,220

232,800! Bad Dept. Recoverable 900Discount received 3,200Commission received 4,800Rent received 8,400 17,300Operating Profit 250,100! Investment Income (W) 6,000

256,100Less Mortgage interest (W) (12,960)Net Profit 243,140

(b) Balance Sheet as at 31/12/2012Notes Cost Acc. Dep. Net Value

€ € € €Fixed AssetsIntangible Patents 64,000Tangible Buildings (W) 760,000 — 760,000Delivery Vans (W) 204,000 66,600 137,400

964,000 66,600 897,400 897,400Investments 4.5% Investments

200,000

1,161,400Current AssetsStock 31/12/12 63,100Debtors 50,500Less Prov. for bad debts (W) (2,500) 48,000Investment Interest due (W) 3,000

114,100

David Wilson


Less: Creditors amounts due within 1 yearCreditors 86,400Bank overdraft 36,500VAT (W) 2,400PRSI 6,400Mortgage Interest due (W) 11,400 (143,100)Net Current Assets 29,000Net Assets 1,132,400Financed byCreditors: amounts due after 1 year6% and 4% Fixed Mortgage 280,000Capital 380,000Add Net Profit 243,110Less Drawings (W) (31,540) 591,600Revaluation Reserve (W) 260,800Capital Employed 1,132,400

Notes to AccountsStock 67,400 " 4,300 # 63,100Vehicles 180,000 " 36,000 ! 60,000 # 204,000Depc. this Yr/Vehs. 2,250 ! 5,250 ! 21,600 # 29,100Acc. Depc. 60,000 ! 29,100 " 22,500 # 66,600Disposal 36,000 " 22,500 " 12,000 # (1,500)Purchases 649,680 " 48,000 # 601,680Insurance 18,820 ! 500 ! 400 # 19,720Mortgage Interest* 3,500 " 500 ! 11,400 " 1,440 # 12,960Debtors 50,400 " 400 ! 500 # 50,500Patents 77,000 ! 3,000 " 16,000 # 64,000Investments Interest 3,000 ! 3,000 # 6,000Buildings 590,000 " 10,000 ! 180,000 # 760,000VAT 12,400 " 10,000 # 2,400Acc. Depc. Blgs.* 70,000 ! 10,800 " 80,800 # NilRevaluation Reserve 180,000 ! 80,800 # 260,800Bad Debts Provision 2,000 ! 500 # 2,500Drawings 30,100 ! 1,440 # 31,540Bank o/d 36,900 " 400 # 36,500Bad Dept Recoverable # 900

*Blgs. Dept. 500,000 @ 2% full year # 10,000 80,000 @ 2% 1/2 yr. 800

10,800*Mortgage 6% 200,000 1 yr. 12,000 4% 80,000 3/4 2,400

14,400

(c) Explain what is meant by ‘Patents’ and why it is customary to write them off over a number of years.

Patents are a copyright or ownership of a trade mark, name, invention, procedure etc that you have discovered & wish to hold exclusive rights to. It is an intangible fixed Asset of a business & is usually written off as they are a “Transient asset”. They are subject to decreases in their value due to new processes being developed which would make yours obsolete & of less value.

David Wilson


5 DARCY SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012€ € €

Sales 774,000Less Cost of sales Stock 1/1/2012 47,600 Add Purchases (W) 441,000

488,600

Less Stock 31/12/2012 (W) (55,400) (433,200)Gross profit 340,800Less ExpensesAdministration Salaries and general expenses 81,100 Patents written off (W) 11,300 Insurance (W) 8,500 Depreciation – buildings (W) 13,665 114,565Selling and Distribution Commission 20,000 Depreciation – delivery vans (W) 13,950 33,950 (148,515)Add Operating income 192,285 Profit on sale of delivery van (W) 200 Reduction in provision for bad debts (W) 384 Rent 8,800 Discount 3,100Operating profit 204,769Investment income 10,500Mortgage interest (W) (12,825)Net profit for year 202,444

(b) Balance Sheet as at 31 December 2012

CostAccumulated Depreciation

Net

Total

€ € € €Intangible Fixed Assets Patents (€56,500 " €11,300) 45,200Tangible Fixed Assets Buildings (W) 1,200,000 1,200,000 Delivery vans 94,000 39,750 54,250

1,294,000 39,750 1,254,250 1,254,250Financial Assets 12% Investments 150,000

1,449,450


Current assets Stock 55,400 Investment income due 4,500 Debtors 45,400

1,81643,584

Less provision Insurance Co. 35,000Creditors: amounts falling due within 1 year 138,484 Creditors (W) 74,400 Mortgage interest due 13,500 VAT 6,700 PRSI 1,800 Bank 74,900 (171,300) (32,816)

1,416,634Financed by Creditors falling due after more than one year 9% Fixed mortgage 200,000Capital and reserves Capital 1/1/2012 350,000 Add Net profit 202,444 Less Drawings (37,475) Revaluation Reserve (W) 701,665 1,216,634Capital employed 1,416,634

Notes to AccountsClosing Stock 46,900 " 1,500 ! 10,000 # 55,400Vehicles 90,000 " 16,000 ! 20,000 # 94,000Acc. Depc. 35,000 ! 13,950 " 9,200 # 39,750Depc. this yr. 600 ! 2,250 ! 11,100 # 13,950Disposal 16,000 " 9,200 " 7,000 # 200Purchases 495,000 ! 10,000 " 15,000 " 32,000 " 13,000 " 4,000 # 441,000Patents 50,500 ! 6,000 " 11,300 # 45,200Investment interest 6,000 ! 4,500 # 10,500Mortgage interest. 4,500 " 900 ! 13,500 # 17,100 " 4,275 # 12,825Insurance 7,200 ! 900 ! 400 # 8,500Disc: Rec. 2,700 ! 400 # 3,100Salaries, general expenses 96,100 " 15,000 # 81,100Acc. Depc. 171,250 ! 13,665 " 184,915 # nilInsurance Co # 35,000B\D. Provision 2,200 " 1,816 # 384Crs. 64,400 ! 10,000 # 74,400Drawings 29,200 ! 4,275 ! 4,000 # 37,475Revaluation Res, 516,750 ! 184,915 # 701,665Buildings 656,250 " 20,000 ! 15,000 ! 32,000 ! 516,750 #1,200,000

(c) What is a suspense account and why is it created? A Suspense a/c is used when you make a mistake in the accounts that prevents the Trial Balance from

balancing. This difference is left in the Suspense a/c until these errors are discovered. Errors are corrected through the Suspense a/c.


6 EGAN SOLUTION

(a) Trading and Profit and loss Account for year ending 31/12/2012€ € €

Sales 980,000Less Cost of sales Stock 1/1/2012 65,700 Add Purchases (W) 629,600 Less Stock 31/12/2012 (W) (78,100) 617,200Gross Profit 362,800Less ExpensesAdministration Patent written off (W) 12,600 Salaries and General expenses (W) 193,700 Insurance (W) 13,800 Depreciation – Buildings (W) 17,500 237,600Selling and DistributionAdvertising 14,000 Loss on sale of van (W) 6,875 Depreciation – Delivery Vans (W) 20,100 40,975 (278,575)

84,225Add. Bad Debt Recovered 1,200 Discount (W) 4,300 Royalties 12,000 Reduction in Provision for bad debts (W) 1,605Operating Profit (W) 103,330Investment Income (W) 5,600Less Mortgage Interest (W) (11,000)New Profit for year (W) 97,930

(b) Balance sheet as at 31/12/2012

CostAccumulated Depreciation

Net

Total

€ € € €Intangible Fixed assets Patents (63,000 " 12,600) 50,400Tangible Fixed Assets Buildings (W) 1,200,000 1,200,000 Delivery Vans (W) 136,000 76,475 59,525

1,336,000 76,475 1,259,525 1,259,525Financial Assets 6% Investments 160,000

1,469,925Current Assets Stock 78,100 Debtors 77,200 Less provision (2,295) 74,905 VAT (W) 20,700 Investment Income due 3,200

176,905

David Wilson

David Wilson


Creditors: amounts falling due within one year Creditors (W) 92,700 Bank 60,300 PRSI 2,500 Mortgage interest due 11,250 166,750 10,155

1,480,080Financed by Creditors: amounts falling due after more than one year 5% Fixed mortgage 300,000Capital and reserves Capital 1/1/2012 735,000 Add Net Profit 97,930 Less Drawings (40,350) Revaluation Reserve (W) 387,500 1,180,080Capital employed 1,480,080

Notes to AccountsClosing stock 72,500 ! 5,600 # 78,100Purchases 650,000 ! 5,600 ! 1,600 " 26,000 " 1,600 # 629,600Crs. 85,500 ! 5,600 ! 1,600 # 92,700Veh. 130,000 " 35,000 ! 41,000 # 136,000Depreciation this year 14,250 ! 1,750 ! 4,100 # 20,100Acc. Depc. 69,500 ! 20,100 " 13,125 # 76,475Disposal 35,000 " 15,000 " 13,125 # (6,875)Mortgage interest 3,000 " 500 ! 11,250 # 13,750 " 2,750 # 11,000Salaries 192,500 ! 500 ! 700 # 193,700Discount(Cr.) 3,600 ! 700 # 4,300Drawings 36,000 ! 2,750 ! 1,600 # 40,350B.D. Recov., 1,200 # 1,200Debtors 76,500 ! 700 # 77,200Bank. O/D. 60,800 " 500 # 60,300Provision 3,900 " 2,295 # 1,605Patents 60,600 ! 2,400 " 12,600 # 50,400Investment interest 2,400 ! 3,200 # 5,600Buildings 900,000 " 25,000 ! 325,000 # 1,200,000Acc. depc. 45,000 ! 17,500 " 62,500 # nilRev. Res. 325,000 ! 62,500 # 387,500Vat (CR) 4,300 " 25,000 # 20,700 (DR)

(c) Calculate the period of Credit to debtors and assess the result. Credit to DRS # CR Sales/Debtors # 980,000/77,200 # 12.69 Times Debtors are settling their accounts with the month which is within the recommended collection period so

Egan has no problem with debtors collection.

David Wilson

David Wilson


7 FARRELL SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012Sales 364,500Less Cost of Sales Stock 32,800 Purchases (W) 244,400Less Closing Stock (W) (39,900) 237,300Gross Profit 127,200AdministrationPatents written off (W) 5,500General administration expenses 42,500Discount 850Directors fees 4,500Insurance (W) 3,050Depreciation of Buildings 5,800 62,200Selling and DistributionAdverting 2,100Depreciation of Delivery Vans (W) 6,713Loss on disposal of van (W) 4,375 13,188 (75,388)

51,812Add Operating IncomeBad Debt recovered 500Operating Profit 52,312

3,900Add Investment incomeLess Mortgage Interest (W) (3,300)Net Profit (W) 52,912

(b) Balance Sheet as at 31/12/2012Cost Depc. Value

Intangible Fixed Assets € € €Goodwill (W) 22,000Tangible FixedBuildings (W) 400,000 400,000Delivery Vehicles (W) 45,500 7,088 38,412Financial Assets8% Investments 65,000

525,412Current AssetsStock (W) 39,900Debtors (20,200 less Provision 600) (W) 19,600Investment Interest due 2,600 62,100Creditors: Amounts falling due within one yearCreditors (W) 59,300Bank (W) 7,650VAT 2,050PRSI 1,950Mortgage interest due (W) 3,375 74,325 (12,225)Total Net Assets 513,187


Financed By: Creditors: Amounts falling due for more than one year6% Mortgage 75,000Capital and ReservesCapital 242,500Add Net Profit 52,912Less Drawings (20,525) 274,887Revaluation Reserve (W) 163,300Total Capital Employed 513,187

(c) Notes to AccountsPurchases 256,200 ! 2,400 " 13,000 ! 400 " 1,600 # 244,400Closing Stock 37,500 ! 2,400 # 39,900Patents 26,200 ! 1,300 " 5,500 # 22,000Discount 950 " 100 # 850Delivery Vans 42,500 ! 18,000 " 15,000 # 45,500Insurance 3,075 " 125 ! 100 # 3,050Depreciation of Vans this year 563 ! 2,025 ! 4,125 # 6,713Accumulated Depreciation of Vans 6,000 ! 6,713 " 5,625 # 7,088Disposal of Vehicles 15,000 " 5,625 " 5,000 # (4,375)Investment Income 1,300 ! 2,600 # 3,900Mortgage Interest 625 ! 125 ! 3,375 " 825 # 3,300Buildings 290,000 ! 110,000 # 400,000Accumulated Depreciation of Buildings 47,500 ! 5,800 " 53,300 # NilRevaluation Reserve 110,000 ! 53,300 # 163,300Debtors 20,000 ! 200 # 20,200Creditors 56,500 ! 2,400 ! 400 # 59,300Bank 7,950 " 300 # 7,650Drawings 18,100 ! 825 ! 1,600 # 20,525


8 GRENNAN SOLUTION

(a) Trading Profit Loss Account for year ending 31/12/2012Sales 874,800Less Cost Sales Stock 78,720 Purchases 584,480Less Closing Stock (95,760) 567,440Gross Profit 307,360Less ExpensesAdministrationPatents written of 13,200Salaries and General 102,000Discount 2,040Rent 10,800Insurance 7,320Depreciation of Buildings 13,920Loss on stolen goods 400 149,680Selling and DistributionAdvertising 630Depreciation of Delivery Vans 16,110Loss on disposal of van 10,500 27,240 (176,920)

130,440Add Operating IncomeBad Debt recovered 1,200Operating Profit 131,640Add Investment income 9,360Less Mortgage Interest (7,920)Net Profit 133,080


Intangible Fixed Assets € € €Patents 52,800Tangible FixedBuildings 960,000 960,000Delivery Vehicles 109,200 17,010 92,190Financial Assets8% Investments 156,000

1,260,990Current AssetsStock 95,760Debtors (48,480 less Provisionl, 440) 47,040Investment Interest due 6,240Advertising prepaid 4,410Insurance claim due 3,600 157,050


Creditors: Amounts falling due within one yearCreditors 142,320Bank 18,360VAT 4,920PRSI 4,680Mortgage interest due 8,100 178,380 (21,230)Total Net Assets 1,239,660Financed By: Creditors: Amounts falling due for more than one year6% Mortgage 180,000Capital and ReservesCapital 582,000Add Net Profit 133,080Less Drawings (47,340) 667,740Revaluation Reserve 391,920Total Capital Employed 1,239,660

(c) Notes to AccountsPurchases 614,880 ! 5,760 " 31,200 ! 960 " 1,920 " 4,000 # 584,480Closing Stock 90,000 ! 5,760 # 95,760Patents 62,880 ! 3,120 " 13,200 # 52,800Discount 2,280 " 240 # 2,040Delivery Vans 102,000 ! 43,200 " 36,000 # 109,200Insurance 7,380 " 300 ! 240 # 7,320Depreciation of Vans this year 1,350 ! 4,860 ! 9,900 # 16,110Accumulated Depreciation of Vans 14,400 ! 16,110 " 13,500 # 17,010Disposal of Vehicles 36,000 " 13,500 " 12,000 # (10,500)Investment Income 3,120 ! 6,240 # 9,360Mortgage Interest 1,500 ! 300 ! 8,100 " 1,980 # 7,920Buildings 696,000 ! 264,000 # 960,000Accumulated Depreciation of Buildings

114,000 ! 13,920 " 127,920 # Nil

Revaluation Reserve 264,000 ! 127,920 # 391,920Debtors 48,000 ! 480 # 48,480Creditors 135,600 ! 5,760 ! 960 # 142,320Bank 19,080 " 720 # 18,360Drawings 43,440 ! 1,980 ! 1,920 # 47,340Advertising 5,040 " 4,410 # 630Ins. Co. Claim # 3,600

TOPIC

2Final a/c’s of Company

Solutions 2 Abacus 3 Bliary 4 Capri 5 Duncan 6 Echo 7 Festina 8 Conolo 9 Prudence10 Morgan11 Gambert

17Topic 2 Final a/c’s of Company Solutions

2 ABACUS SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012

Sales 824,000Less Cost of Sales Stock 1/1/2012 42,500 Add Purchases (W) 600,800

643,300 Less Stock 31/12/12 (W) (34,700) (608,600)Gross Profit 215,400Less ExpensesAdministration Administration 28,200 Salaries & Gen. Exp (W) 95,480 Patents written off (W) 10,250 Dep.: Land & Build. (W) 10,400 144,300Selling and Distribution Selling 14,100 Dep.: Motor Vehicle (W) 28,200 Loss on Sale of Vehicle (W) 2,100 44,400 (188,730)

26,670Add Operating Income Reduction in Bad Debt Prov. (W) 1,300Operating Profit 27,970 Investment Income (W) 7,200 Debenture Interest (W) (10,000)Net Profit for year before taxation 25,170Less Appropriations Dividends Paid 20,900 Transfer To Reserve 10,000

(30,900)Retained Profit (Loss) (5,730)Profit and Loss balance 1/1/12 1,800Profit and Loss balance 31/12/12 (3,930)

(b) Balance Sheet as at 31/12/2012

Cost Dep. NBVTangible Fixed Assets Land and Buildings 800,000 – 800,000 Motor Vehicles (W) 144,000 44,300 (3) 99,700

944,000 44,300 899,700Intangible Fixed Assets Patents (W) 30,750Financial Assets 9% Investment 120,000

1,050,450


Current Assets Stock 31/12/2012 (W) 34,700 Debtors 38,000 Less Provision (W) (1,900) 36,100 Invest Income due (W) 2,000

72,800Creditors: amounts falling due within 1 year VAT 18,200 Creditors (W) 41,350 Bank (W) 14,630 Debenture Int. due (W) 7,600

(81,780) (8,980)1,041,470

Financed by: Creditors: amount falling due after 1 year 8% Debentures 150,000Capital and Reserves Auth’d Issued Ord. Shares @ €1 each 500,000 370,000 6% Pref. Share @ €1 each 280,000 180,000

780,000 550,000 Revaluation Reserve (W) 335,400 Profit & Loss a/c balance (3,930) General Reserve 10,000 891,470

1,041,470

Notes to Accounts

Closing stock 36,400 ! 1,700 " 34,700Patents 38,300 # 2,700 ! 10,250 " 30,750Investment interest 2,700 # 2,500 # 2,000 " 7,200Vehicles 135,000 ! 24,000 # 33,000 " 144,000Depc. this yr. 1,600 # 4,400 # 22,200 " 28,200Acc. Depc. 28,500 # 28,200 ! 12,400 " 44,300Disposal 24,000 ! 12,400 ! 9,500 " (2,100) lossPurchases 624,300 ! 23,500 " 600,800Bank O/D. 16,200 ! 2,500 # 480 # 450 " 14,630 O/DCreditors 41,800 ! 450 " 41,350Salaries & Gen. Exps 95,000 # 480 " 95,480land & Blgs. 520,000 # 280,000 " 800,000Acc. Depc. 45,000 # 10,400 ! 55,400 " nilReval. Reserve 280,000 # 55,400 " 335,400Deb. Interest 2,400 # 7,600 " 10,000Prov. for B/D’s 3,200 ! 1,900 " 1,300 overPrel. Div. (8%) 3,600 # 10,800 " 14,400Ord. Dividend 7,300 # 18,600 " 25,900

"Debenture 1. 60,000 $ 8% $ 7m " 2,800

" 10,000 Interest 2. 90,000 $ 8% $ 12m " 7,200

Note: As customers adjusted bank figure of €14,630 does not equal the bank statement of €10,130 after the unpresented cheque of €4,200 is added, it is to be assumed that the difference of €4,500 between the two figures is due to errors not yet identified by the bank.

}


3 BLIARY LTD. SOLUTION


Sales 896,000Cost of SalesOpening stock 38,000Purchases W 569,000

607,000Closing Stock W (37,300) (569,700)Gross Profit 326,300Selling and DistributionDeprec. on vans W 33,800Advertising W 7,400Bad Debts W 400Provision for Bad Debts W 218 41,818AdministrationSalaries 130,000Fees 20,000Insurance 15,000Goodwill written off W 8,500 173,500 (215,318)! Operating IncomeDiscount Received 3,000Profit on van W 3,000 6,000Operating Profit 116,982Investment Income W 13,500Debenture Interest W (13,200)Net Profit 117,282 Dividends Paid (32,000)Retained Profit 85,282 # Profit and loss 1/1/12 22,700 " Profit and loss 31/12/12 107,982

(b) Balance Sheet as at 31/12/2012Fixed Assets Cost Depre. Net TotalGoodwill 8,500Buildings 420,000 420,000Vans 174,000 90,800 83,200

594,000 90,800 503,200 503,200Investments 150,000

661,700Current AssetsStock 37,300Debtors, (30,300 – Prov 1,818) w 28,482Investment Income Due 2,250

68,032


Creditors amounts falling due less than one yearCreditors w 40,910Interest due 10,800Bank w 10,040 (61,750) 6,282Financed by: 667,982

Auth. IssuedOrdinary Shares 550,000 280,000Preference Shares 250,000 100,000

800,000 380,000Retained Profits 107,982 487,982 Crs. Falling Due for more than 1 yearDebentures 8% 180,000 180,000

667,982

Notes to AccountsClosing stock 40,000 ! 2,700 " 37,300Goodwill 12,500 # 4,500 ! 8,500 " 8,500Investment Income 4,500 # 6,750 # 2,250 " 13,500Advertising 6,800 # 400 # 200 " 7,400Deb. Int. 2,800 ! 400 # 10,800 " 13,200Debtors 31,000 ! 200 ! 500 " 30,300Vehicles 162,000 ! 20,000 # 32,000 " 174,000Depc. this year 1,667 # 3,733 # 28,400 " 33,800Acc. Depc. 66,000 # 33,800 ! 9,000 " 90,800Disposal 20,000 ! 9,000 ! 14,000 " 3,000Purs. 587,000 ! 18,000 " 569,000Bank o/d 16,800 ! 6,750 # 90 ! 100 " 10,040Crs. 41,000 ! 90 " 40,910Bad Debt 400 " 400Provision for Bad Debts 1,600 ! 1,818 " (218)

(c) Are there any occasions when the Trial Balance is in balance, even though errors have occurred?

• Transactions totally omitted • Errors of original entry e.g. € 80 entered as € 800 on both sides • Errors of Commission e.g. posted to incorrect a/c • Errors of Principle e.g. posted to Purchases instead of vehicles • Compensating errors that cancel each other out • Complete Reversal of entries e.g. DR Sales CR Debtors


4 CAPRI SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012

€ € €Sales 880,000Less Cost of sales Stock 1/1/12 40,000 Add Purchases W 560,000

600,000 Less Stock 31/12/12 W (44,800) (555,200)

324,800Gross profitLess ExpensesAdministration Directors fees 30,000 General expenses W 114,600 Patents written off W 12,000 Depreciation-buildings W 8,000 164,600Selling and Distribution Bad debts written off 1,350 Depreciation-delivery vans W 32,700 Loss on sale of van W 7,200 41,250 (205,850)

118,950Add Operation income Reduction in provision for bad debts W 130Operating profit 119,080Investment income 8,000

127,080Debenture interest (15,000)Net profit for year before taxation 112,080Less Appropriation Dividends Paid 20,000 Transfer to Debenture Reserve 40,000 (60,000)

52,080Retained profitProfit and loss balance 1/1/12 24,000Profit and loss balance 31/12/12 76,080


(b) Balance Sheet at on 31/12/2012

CostAccumulated Depreciation Net Total

€ € € €Intangible Fixed Assets 36,000 Patents (€48,000 ! €12,000)Tangible Fixed Assets Land and buildings W 750,000 750,000 Delivery vans W 166,000 85,900 80,100

916,000 85,900 830,100 830,100 6% Investments 200,000

1,066,100Current assets Stock 44,800 Investment income due 2,000 Debtors W 34,500 Less provision (2,070) 32,430

79,230Creditors: amounts falling due within one year Creditors W 42,730 Debenture interest due 12,000 VAT 11,000 Bank W 25,520 (91,250) (12,020)

1,054,080Financed byCreditors: amounts falling due after more than one year 8% Debentures 200,000Capital and reserves Authorised Issued Ordinary shares at €1 each 600,000 300,000 6% Preference shares at €1 each 300,000 150,000

900,000 450,000 Revaluation reserve W 288,000 Profit and loss Balance 76,080 Debenture Redemption Reserve 40,000 854,080

1,054,080


Workings 1. Purchases 590,000 Less payment for delivery van 30,000 560,000 2. Closing stock 48,000 Less Valueless stock (3,200) 44,800 3. Salaries and general expenses 114,000 Add ESB direct debit 600 114,600 4. Patents (€44,000 # €4,000) % 4 12,000 5. Depreciation buildings 2% of 500,000!100,000) 8,000 6. Depreciation - delivery vans 20% of [(€160,000 for 5 months) #

(€166,000 for 7 months)]32,700

7. Loss on sale of van cost 42,000 Less Depreciation to date (16,800) Less Trade-in (18,000) 7,200 8. Decrease in Provision for bad debts (€2,200 ! €2,070) 130 9. Land and Buildings at cost 500,000 Add Revaluation 250,000 750,00010. Delivery vans at cost 160,000 Add Purchases 48,000 Less Disposal (42,000) 166,00011. Debtors 36,000 Less Bank and bad debt (1,500) 34,50012. Creditors 43,000 Less Error (270) 42,73013. Bank overdraft as per Trial Balance 26,800 Less Investment income (2,000) Less Credit transfer credited (150) Add Bank under credited (270) Add Direct debit-ESB 600 25,52014. Revaluation reserve Land and buildings 250,000 288,000 Provision for depreciation (30,000) # 8,000 38,000

(c) Explain what is meant by the Accrual Concept in accounting. All expenses that belong to a particular period must be included in the accounts of that period whether paid or not. Similarly all Revenue income must be included whether Received or not. i.e. Due added, prepaid subtracted to ascertain the correct figure for period.


5 DUNCAN SOLUTION

(a) Trading, Profit and Loss Account for year ending 31/12/2012

€ €Sales 814,000Less Cost of Sales Stock 1/1/2012 32,200 Add Purchases (W) 465,000 Less Stock 31/12/2012 (W) (35,640) (461,560)Gross Profit 352,440

Less ExpensesAdministration Directors’ Fees 34,400 Salaries & Gen. Exp. 130,200 Parents w/o (W) 6,600 Dep.: Land & Build (W) 8,800 180,000Selling and Distribution Bad Debts w/o 1,400 Dep: Delivery van (W) 30,900 Inc. in Bad Debt Prov. (W) 600 Loss on sale of van (W) 1,800 34,700 (214,700)Operating Profit 137,740 Investment Income (W) 9,000 Debenture Interest (W) (12,000)Net Profit for year before taxation 134,740Less Appropriations Pref. dividend paid (W) 8,800 Ord. dividend paid (W) 13,600 Pref. dividend proposed (W) 8,800 Ord. dividend proposed (W) 15,800 (47,000) Retained Profit 87,740 Profit and Loss balance 1/1/2012 (1,800) Profit and Loss balance 31/12/2012 85,940



€ € €Cost Dep. N.B.V.

Tangible Fixed Assets Land and Buildings 660,000 660,000 Delivery Vans (W) 156,000 69,700 86,300

816,000 69,700 746,300Intangible Fixed Assets Patents (W) 59,400

Financial Assets 6% Investments 200,000Current Assets 1,005,700Ins. Co., 35,000 Stock 31/12/2012 (W) 35,640 VAT 25,100 Invest Income due (W) 4,000 Debtors (W) 44,000 Less Provision (W) (2,200) 41,800

141,540Creditors: amounts falling due within 1 year Creditors (W) 38,370 Pref. Dividends due (W) 8,800 Ord. Dividends due (W) 15,800 Debenture Int. due (W) 9,600 Bank 3,930 (76,500) 65,040

1,070,740Financed by: Creditors: amounts falling due after 1 year 8% Debentures 160,000Capital and Reserves Auth’d. Issued Ord. Shares @ €1 each 580,000 420,000 8% Pref. Share @ €1 each 250,000 220,000

830,000 640,000 Revaluation Reserve (W) 184,800 Profit & Loss a/c balance 85,940 910,740Shareholder’s FundsCapital Employed 1,070,740


Notes to Accounts

Closing stock 38,200 ! 2,560 " 35,640Patents. 63,000 # 3,000 " 66,000 ! 6,600 " 59,400Investment Income. 3,000 # 2,000 # 4,000 " 9,000Bank O/D. 6,800 ! 2,000 ! 600 ! 270 " 3,930Debtors 46,000 ! 2,000 " 44,000Bad Debts. 1,400 " 1,400Vehicles. 150,000 ! 48,000 # 54,000 " 156,000Depc. this yr. 2,400 # 8,100 # 20,400 " 30,900Acc. Depc. 54,000 # 30,900 ! 15,200 " 69,700Disposal. 48,000 ! 15,200 ! 31,000 " (1,800) lossPurs. 545,000 ! 15,000 ! 42,000 ! 23,000 " 465,000L & Blgs. 480,000 ! 20,000 # 60,000 # 140,000 " 660,000Acc. Depc. 36,000 # 8,800 ! 44,800 " nilReval. Reserve 140,000 # 44,800 " 184,800Pref. Div. 8,800 # 8,800 " 17,600Ord. Div. 13,600 # 15,800 " 29,400Debenture Interest 2,400 # 9,600 " 12,000Prov. for B/Debts. 1,600 ! 2,200 " (600) lossCreditors 38,100 # 270 " 38,370Salaries & General 148,200 ! 18,000 " 130,200Ins. Co. " 35,000

(c) What are the main Objectives of Financial Accounting? • To Process, Collect & Record information on most Transactions • To classify & summarise this information in accounts • To show performance of organization over a period • To prepare financial statements at year end such as Trial Balance, Final accounts, Cash flow statements.


6 ECHO SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012€ € €

Sales 1,386,000Less Cost of Sales Stock 107,240 Purchases 781,200Less Closing Stock (114,520) (773,920)Gross Profit 612,080Less ExpensesAdministrationPatents written off 17,052Salaries and General 246,400Directors fees 112,000Depreciation of Buildings 18,200 393,652Selling and DistributionBad Debts 2,450Depreciation of Delivery Vans 49,840Loss on disposal of van 14,000 66,290 (459,942)

152,138Add Operating IncomeOverprovision for bad debts 1,042Operating Profit 153,180Add Investment income 10,080Less Debenture Interest (26,460)Net Profit 136,800Less AppropriationDividend paid 56,000Transferred to Staff Pension 32,900 (88,900)

47,900Profit and Loss balance 1/1/2012 94,640Profit and Loss balance 31/12/2012 142,540


Intangible Fixed Assets € € €Patents 68,208Tangible FixedBuildings 1,232,000 1,232,000Delivery Vehicles 274,400 119,840 154,560Financial Assets8% Investments 252,000

1,706,768Current AssetsStock 114,520Debtors (€99,960 less Provision 3,998) 95,962Investment Interest due 2,520 213,002Creditors : Amounts falling due within one yearCreditors 113,526Bank 2,744VAT 23,100Debenture interest due 20,160 (159,530) 53,472Total Net Assets 1,760,240


Financed By:Creditors : Amounts falling due for more than one year

8% Debenture 322,000Capital and Reserves Authorised IssuedOrdinary Share Capital at €1 each 966,000 770,0006% Preference Share Capital 420,000 280,000

1,386,000 1,050,000Profit and Loss Balance 31/12/2012 142,540Staff Pension Fund 32,900Revaluation Reserve 212,800 1,438,240

Total Capital Employed 1,760,240

Notes to Accounts

Purchases 868,000 ! 86,800 " 781,200Closing Stock 119,000 ! 4,480 " 114,520Patents 81,480 # 3,780 ! 17,052 " 68,208Provision for Bad Debts 5,040 ! 3,998 " 1,042Delivery Vans 240,800 # 117,600 ! 84,000 " 274,400Depreciation of Vans this year 5,880 # 12,600 # 31,360 " 49,840Accumulated Depreciation of Vans 109,200 # 49,840 ! 39,200 " 119,840Disposal of Vehicles 84,000 ! 30,800 ! 39,200 " 14,000Investment Income 3,780 # 3,780 # 2,520 " 10,080Debenture Interest 6,300 # 20,160 " 26,460Buildings 1,092,000 # 140,000 " 1,232,000Accumulated Depreciation on Buildings 54,600 # 18,200 ! 72,800 " NilRevaluation Reserve 140,000 # 72,800 " 212,800Debtors 103,460 ! 1,050 ! 2,450 " 99,960Creditors 113,400 # 126 " 113,526Bank 7,700 ! 3,780 ! 1,050 ! 126 " 2,744

(c) Explain with an example the difference between capital and current expenditure Capital expenditure Capital expenditure is entered in the balance sheet. It is expenditure incurred in the purchase or improvement of a fixed asset which increases the earning capacity of the asset, e.g.

• purchase of buildings including professional fees • improvement or extension to buildings.

Revenue expenditureRevenue expenditure is entered in the profit and loss account. It refers to the day to day running costs of a business. It represents costs incurred in the running of the business during the accounting period, e.g. wages, rent, insurance.


7 FESTINA SOLUTION

(a) Trading Profit & Loss Account for year ending 31/12/2012

€ € €Sales 967,000Less Cost of Sales Stock 1/1/12 47,500 Purchases 621,425 Stock 31/12/12 (62,800) (606,125) Gross Profit 360,875

Administration Expenses Salaries & General Expenses 187,800 Patents written off 12,000 Audit Fees 8,900 Directors Fees 12,600 Depreciation Buildings 10,400 231,700Selling and Distribution Expenses Depreciation Delivery Vans 41,400 Bad Debts 1,500 Increase Bad Debts Provision 2,035 44,935 (276,635)

84,240 Bad Debt Recoverable 700 Discount Received 215 Disposal Profit 5,625 6,540 Operating Profit 90,780Add Investment Income 5,250Less Debenture Interest (14,400) Profit available for distribution 81,630Less AppropriationDividends paid (24,000)Retained Profit 57,630Profit & Loss Balance 1/1/12 (45,000)Profit & Loss Balance 31/12/12 12,630



€ € € €Acc. Net.

Cost Dep. ValueFixed AssetsIntangible: Patents 48,000Tangible: Land & Buildings 970,000 970,000 Delivery Vans 222,000 85,700 136,300

1,192,000 85,700 1,106,300 1,106,300Financial 180,000 5% Investments 1,334,300Current Assets Stock 31/12/2012 62,800 Debtors 63,400 Less Provision for Bad Debts (3,135) 60,265Investment Income Due 1,500VAT 3,990 128,555Less Creditors: amounts due within 1 yearCreditors 88,260Debenture InterestDue 11,925 Bank 5,840 (106,025)

Net Current Assets 22,530Net Assets 1,356,830Financed by Creditors falling due for more than 1 year7.5% Debentures 212,000Capital & Reserves Authorised IssuedOrdinary Shares @ € 1 each 580,000 480,0005% Preference Shares 400,000 300,000

980,000 780,000Revaluation Reserve 352,200Profit & Loss 31/12/12 12,630 1,144,830

1,356,830


Notes to Accounts

Closing Stock 66,000 ! 3,200 " 62,800Patents 57,750 # 2,250 ! 12,000 " 48,000Investment income 2,250 # 1,500 # 1,500 " 5,250Vehicles 208,500 ! 22,500 # 36,000 " 222,000Depc. this yr Nil # 4,200 # 37,200 " 41,400Acc. Depc. 66,800 # 41,400 ! 22,500 " 85,700Disposal 22,500 ! 22,500 ! 5,626 " 5,625 profitPurchases 651,000 # 800 ! 30,375 " 621,425Land & Building 700,000 # 270,000 " 970,000Acc. Depc. 71,800 # 10,400 ! 82,200 " nilRevaluation Reserve 270,000 # 82,200 " 352,200Bank o/d 8,100 # 40 ! 1,500 ! 800 " 5,840Debtors 65,000 # 700 ! 300 ! 2,000 " 63,400Bad Debts 1,200 # 300 " 1,500Creditors 87,500 # 800 ! 40 " 88,260* Prov. for Bad Debts 1,100 ! 3,135 " (2,035)Bad Debt Recoverable 700* Provision 5% of (65,000 ! 300 ! 2,000)

" 3,135

Note: Old vehicle Depreciated in full

(c) Would you, as a bank manager, recommend that a €100,000 loan at 10% annual interest be given to Festina for expansion? Support your answer with 3 relevant points. Yes, based on following:

• Turned around deficit of €45,000 last YR to profit €12,630 this year • Land & Building more than sufficient security for loan even after using Debentures. • Working capital/Current Ratio 1.2 shows it hasn’t got cash flow problems • 5% Investments can be sold if all else fails.


8 CONOLO SOLUTION (a) Trading Profit and Loss Account for year ending 31/12/2012

€ €Sales 933,000

! Cost of SalesOpening stock 83,600

# Purchases (w) 600,400! Closing stock (w) (71,400) (612,600)" Gross Profit 320,400Less Administration Expenses

Salaries & General (w) 81,250Depreciation of Buildings (w) 6,800Patents written off (w) 10,000Audit fees 2,890 (100,940)

Less Selling and Distribution

Bad Debts 300Depreciation of vans (w) 45,100Advertising 12,600Provision for bad debts (w) 1,235 (59,235) (160,175)# Bad debt Recoverable 700 Discount 950 Disposal profit (w) 4,800 6,450

" Operating Profit 166,675# Investment interest (w) 6,750! Debenture interest (w) (14,850)" Net Profit 158,575! Dividends (12,600)" Retained Profit 145,975# Profit and Loss 1/1 (45,000)" Profit and Loss 31/12 100,775


€ € €Intangible Fixed Patents (W) 40,000Tangible Fixed Land and Buildings (W) 600,000 600,000

Delivery Vans (W) 234.000 74,100 159,900834,000 74,100

Financial 5% Investments 180,000Current Assets 979,900

Stock (W) 71,400Debtors (W) 60,400Provision (2985) 57,415Insurance Claim due 25,600Investment interest due 750VAT 1,110 156,275


Less: Creditors falling due for less than 1 yearCreditors 72,500Bank 41,750Debenture interest due 12,350 (126,600) 29,675

1,009,575Financed by:Creditors falling due for more than 1 year

7% Debentures 180,000Capital and Reserves Authorised Issued

Ordinary shares of 1 € each 500,000 400,0005% Preference shares 300,000 150,000

550,000Revaluation Reserve (W) 178,800Profit and Loss a/c 31/12 100,775 829,575

1,009,575

Notes to Accounts

Closing stock 63,600 ! 2,200 # 10,000 " 71,400Land& Buildings 420,000 ! 20,000 # 60,000 # 140,000 " 600,000Purchases 634,000 ! 5,600 ! 38,000 # 10,000 " 600,400Insurance claim 25,600 " 25,600Creditors 62,500 # 10,000 " 72,500Patents 47,000 # 3,000 ! 10,000 " 40,000Investment Interest 3,000 # 3,000 # 750 " 6,750Vehicles 220,000 # 30,000 ! 16,000 " 234,000Debtors 60,000 ! 300 # 700 " 60,400Acc. Depc. Vehicles 45,000 # 45,100 ! 16,000 " 74,100Depc. This year 800 # 3,500 # 40,800 " 45,100Disposal 16,000 ! 6,400 ! 4,800 " 4,800General Expenses 102,400 ! 22,000 # 850 " 81,250Acc. Depc. Buildings 32,000 # 6,800 ! 38,800 " NilRevaluation Reserve 140,000 # 38,800 " 178,800Bad Debt. Recoverable 700 " 700Bad Debt. 300 " 300Provision for Bad Debt 1,750 ! 2,985 (5% of 60,000 ! 300) " 1,235Debenture Interest 2,700 # 12,150 " 14,850Bank overdraft 18,700 ! 3,000 # 850 # 25,200 " 41,750

(c) Explain what is meant by term solvency and how it can be measured? Solvency is the ability of an organisation to pay its debts from available current assets. It shows if a firm has cash flow problems and can avoid the possibility of creditors forcing the business into liquidation. Solvency is measured by using the Current Ratio (Current Assets: Current Liabilities) which has to have a min. answer of 1, and a further more severe test of liquidity using the Acid Test (Current Assets less Closing stock: Current liabilities) to show ability to meet debts in the short term.


9 PRUDENCE SOLUTION


Sales 895,950! Cost Opening Stock 83,400 # Purchases (w) 638,100 ! Closing Stock (w) (84,300) (637,200) Gross Profit 258,750Administration Salaries & General (w) 121,450 Patents w/o (w) 8,000 Debt. of Blgs. (w) 9,000 Dir fees 6,800 145,250Selling and Distribution Advertising (w) 33,000 Bad Debts 2,000 Debt of Veh. 57,500 92,500 (237,750)Operating Income - Disc Received 1,450 Provision for B.D 495 Disposal 1,000 2,945 Operating Profit 23,945 # Investment Income 9,000 ! Debenture Interest (15,000) Net Profit 17,945! Appropriations Dividends paid 19,500

Transfer to Deb. Reduction Res. 20,000 (39,500) Profit/loss for year (21,555) P&L 1/1/12 14,400 " P&L 31/12/12 (7,155)

(b) Balance Sheet at 31/12/2012Intangible Fixed Patents 32,000Tangible land & Buildings 900,000 900,000 Vehicles 295,000 85,500 209,500

1,195,000 85,500 1,141,500Financial 4% Investments 300,000

1,441,500Current Assets Stock 84,300 Debtors 46,100 ! Provision (2,305) 43,795 VAT. 1,300Crs. Falling Due less than 1 YR 129,395 Creditors 70,750 Debenture Interest Due 12,200 Bank 18,100 (101,050) Net Current Assets (28,345)

1,469,845


Financed by:Crs. Falling Due More than 1 yr 8% Debentures 200,000Capital & Reserves Auth. Issued€1 Ordinary stores 900,000 700,0006% Preference Shares 400,000 250,000

950,000P&L a/c. (7,155)Revaluation Reserve 307,000Debenture Redemption Resource 20,000 1,269,845

1,469,845

Notes to AccountsClosing Stock 68,600 ! 4,300 # 20,000 " 84,300Purs. 644,100 # 20,000 ! 26,000 " 638,100Crs. 51,200 ! 450 # 20,000 " 70,750Patents 36,000 # 4,000 ! 8,000 " 32,000Investment Int. 4,000 # 5,000 " 9,000Vehicles 280,000 ! 20,000 # 35,000 " 295,000This years Depc. 2,000 # 3,500 # 52,000 " 57,500Acc Depc. 40,000 # 57,500 ! 12,000 " 85,500Disposal 20,000 ! 12,000 ! 9,000 " 1,000 ProfitAdvertising 32,000 # 1,000 " 33,000Disc. Rec. 450 # 1,000 " 1,450Bank O/D 21,900 ! 5,000 # 1,250 ! 500 # 450 " 18,100Salaries & Gen. 120,200 # 1,250 " 121,450Debtors 48,600 ! 2,500 " 46,100Bad Debts 2,000 " 2,000Debt. interest 2,800 # 12,200 " 15,000Prov. for B/Ds 2,800 ! 2,305 " 495 (over)Acc. Debt Blgs. 48,000 # 9,000 ! 57,000 " NilBlgs. 650,000 # 250,000 " 900,000Reval. Res. 250,000 # 57,000 " 307,000Deb Red. Res. 20,000 " 20,000Prel. Dividend 3,750 # 11,250 " 15,000Ord. Dividend 5,750 # 43,250 " 49,000


10 MORGAN PLC SOLUTION

(a) Trading Profit and Loss account for year ending 31/12/12

Grocery Hardware TotalSales 780,000 390,000 1170,000! Cost opening Stock 62,400 31,350 93,750# Purchases (#12,600) 360,600 186,600 547,200# Carriage 6,150 3,600 9,750! Closing Stock (#12,600) (85,800) (31,500) (117,300)" Cost of Sales 343,350 190,050 533,400" Gross Profit 436,650 199,950 636,600less Selling & Distribution Expenses (Sales)Advertising (30-6-6) 12,000 6,000 18,000Bad Debts 600 300 900Provision for Bad Debts (2,280 ! 1,830) 300 150 450

12,900 6,450 19,350Administration (Floor space)Directors fees 29,700 19,800 49,500 Wages 78,300 52,200 130,500Healing 16,740 11,160 27,900 Cleaning 16,200 10,800 27,000 Insurance 13,500 9,000 22,500Depreciation of Buildings 5,400 3,600 9,000Depreciation of Furniture 27,000 18,000 45,000

186,840 124,560 311,400Operating Profit 236,910 68,940 305,850! Debenture Interest (26,400)" Net Profit 279,450! Dividends Preference (9,000) Ordinary (45,000) (54,000)# P & L 1/1/12 7,620" P & L 1/1/12 233,070


(b) Balance Sheet as on 31/12/12

€ € €Fixed Assets Goodwill 255,000Tangible Fixed land & Buildings 750,000Furniture 420,000 165,000 255,000

1,260,000Current Assets Stocks (85,800 # 31,500) 117,300 Debtors 57,000 !Provision 2,280 54,720Advertising prepaid 6,000Insurance prepaid 2,700 180,720Creditors Falling Due for less than 1 yrCreditors (12,600 ! 270) 111,930Bank (270 ! 300) 13,320Interest Due (26,400 ! 8,250) 18,150Dividends Due (6,750 # 28,500) 35,250 178,650 2,070

1,262,070Financed by: Auth. Issued.Ordinary Shares €1 750,000 300,0006% Preference Shares 300,000 150,000

1,050,000 450,000 450,000Reserves Revaluation Reserve 249,000 P&L 31/12/12 233,070 482,070

932,070Crs. falling Due For More than 1yr 8% Debentures 330,000

1,262,070

Report • Grocery dept. is making a profit of €236,910 which represents a 30% return on sales (Gross profit

margin 56%) • Hardware dept. returns a 17.6% net profit % on sales with a gross margin of 51% • While both are profit making and performing well in a difficult economic climate it would not be

inclined to close either dept. If however pressurised through cash flow problems or credit restrictions, Hardware would be the most likely to close down as a 17.6% return is over 40% less a return that the Grocery dept. of 30%.


11 GAMBERT SOLUTION

(a) Trading Profit & loss a/c for a/c 31/12/2012

Sales 1,752,250! Cost opening stock 75,200# Purchases 1,243,200! Closing stock (100,000) (1,218,400) Gross Profit 533,850AdministrationPatents w/o 6,400Salaries 177,600Dir fees 48,000Depc. of Blgs. 15,790Rent 19,600 267,390Selling & DistributionAdvertising 15,700Vehicle Depc. 38,000Bad Debts. 2,050Provision for B/Ds 394 56,144 (323,534)

210,316Other operating incomeB.D. Recoverable 700Discount Rec. 11,500Profit on Sale of veh. 3,250 15,450 Operating profit 225,766! Debenture interest (14,400)# Investment Income 28,800 Net Profit 240,166! Dividend Preference 40,000 Dividend Ordinary 88,000 (128,000)" Profit for YR 112,166 ! P&L 1/1/12 (17,200)" P&L 31/12/12 94,966


(b) Balance Sheet as at 31/12/2012€ € €

Fixed Intangible Patents 25,600Tangible Buildings 1,000,000 Vehicles 312,000 110,750 201,250Financial 9% Investment 320,000

1,546,850Current Assets Closing stock 100,000 Debtors 90,550 ! Provision (3,594) 86,956 Ins Co. 25,600 VAT. 22,500 Investment interest due. 18,900 253,956Crs. falling Due less than 1 yr Creditors 99,490 Deb. interest Due. 9,600 Bank O/D 40,460 (149,550) 104,406

1,651,256Financed by: 180,000Creditors more than 1 yr8% Debentures Capital # Reserves. Auth. Issued.Ordinary shares of €1 each 1,200,000 800,00010% Preference shares 600,000 400,000

1,200,000Revaluation Res. 96,290P&L a/c 174,966

1,651,256

Notes to AccountsClosing stock 85,000 ! 3,200 # 12,000 # 6,200 " 100,000Purs. 1,320,000 # 12,000 ! 5,600 ! 38,000 # 800 ! 46,000 " 1,243,200Crs. 86,600 # 12,000 # 800 # 90 " 99,490Sales 1,760,000 ! 7,750 " 1,752,250Drs. 100,400 ! 7,750 ! 2,500 # 700 ! 300 " 90,550Blgs. 902,000 ! 20,000 # 60,000 ! 22,500 # 80,500 " 1,000,000Ins. Co 25,600 " 25,600Salaries 199,600 ! 22,000 " 177,600Patents 24,800 # 7,200 ! 6,400 " 25,600Inv. Income 7,200 # 2,700 # 18,900 " 28,800Vehicle 280,000 ! 24,000 # 56,000 " 312,000Acc. Depc. 90,000 # 38,000 ! 17,250 " 110,750Depc. this yr 750 # 5,250 # 32,000 " 38,000Disposal 24,000 ! 10,000 ! 17,250 " 3,250 PR.Advertising 14,800 # 200 # 700 " 15,700Deb. Int. 5,000 ! 200 # 9,600 " 14,400(CR) Discount 10,800 # 700 " 11,500Bank O/D 44,000 ! 90 ! 750 ! 2,700 " 40,460Bad Debts 1,750 # 300 " 2,050VAT 22,500 " 22,500 DRAcc. Depc. Blgs. 15,790 ! 15,790 " nilReval. Res. 15,790 # 80,500 " 96,290Bad Debt Recovered 700 " 700B/D Provision 3,200 ! 3,594 " (394)

TOPIC

3Final a/c’s of Manufacturing

Solutions2 Astroid3 Betamax4 Celestial5 Ducato6 Sheridan7 Flotilla

41Topic 3 Final a/c’s of Manufacturing Solutions

2 ASTEROID SOLUTION

(a) Manufacturing Account of Asteroid for year ended 31/12/2012€ €

D. Mats.Opening Stock of raw materials 1/1/2012 41,500Purchases of raw material W 440,900

482,400Less Closing Stock of raw materials W (52,400)Cost of raw materials consumed 430,000

D. labour Manufacturing Wages W 92,000Prime Cost 522,000Factory Overheads General Factory overheads W 53,500 Deprec: Plant & Machinery W 63,000 Buildings W 14,300 130,800

W.I.P. Factory Cost 652,800Add Work in Progress 1/1/2012 24,200

677,000Less Work in Progress 31/12/2012 (29,900)

647,100less Less Sale of Scrap Materials (5,400)

Less Profit on Sale of Machinery W (600) (6,000)Cost of Manufacture 641,100

Trading, Profit & Loss Account for year ending 31/12/2012€ €

Sales W 925,850Less Cost of Sales Stock of finished goods 1/1/2012 32,800 Cost of goods produced 641,100Total available for sale 673,900 Less Stock of fin. goods 31/12/2012 W (42,300)Cost of Goods Sold (631,600)Gross Profit 294,250less Administration Administration Expenses 42,900Selling & Distribution Bad Debts 700 Provision for Bad Debts. 1,648 Selling & Distribution Exp. 36,400 38,748 (81,648)Operating Profit 212,602 Debenture Interest due W (16,200)Net Profit before Taxation 196,402 Taxation on profit (32,000)Profit after Taxation 164,402 Dividends Paid (18,000)Retained Profit 146,402Profit and Loss balance 1/1/2012 32,500Profit and Loss balance 1/1/2012 178,902



Cost Dep. N.B.V.Fixed Assets Land & Buildings 950,000 — 950,000 Plant & Mach. W 312,000 102,400 209,600

1,262,000 102,400 1,159,600Current AssetsStocks: Raw Materials 52,400 Work in Progress 29,900 Finished Goods 42,300 124,600Debtors W 32,950! Provision (1,648) 31,302

155,902Creditors: amounts falling due within 1 year Trade Creditors W 61,800 P.R.S.I 12,100 Debenture Interest due 16,200 Taxation 32,000 Bank 11,200 133,300Net Current Assets 22,602Total Assets less Current Liabilities 1,182,202Financed by:Creditors: amounts falling due after 1 year 8% Debentures 240,000Capital and Reserves Auth’d. IssuedOrdinary Shares @ € 1 850,000 300,0004 % Pref. Shares @ 50 € 400,000 250,000

1,250,000 550,000Reval. Reserve a/c. W 213,300Profit & Loss Balance 178,902 942,202Capital Employed 1,182,202

Notes to AccountsSales 936,600 ! 3,000 ! 7,750 " 925,850Machinery 330,000 ! 18,000 " 312,000Acc. Dehc. Mach. 55,000 # 63,000 ! 15,600 " 102,400Depc. this yr. 600 # 62,400 " 63,000Disposal 18,000 ! 15,600 ! 3,000 " 600Purs. of Raw Mats. 453,900 # 12,000 ! 25,000 " 440,900Creditors 49,800 # 12,000 " 61,800C/s of Raw Mats. 40,400 # 12,000 " 52,400Debtors 42,300 ! 900 ! 7,750 ! 700 " 32,950Gen. Factory O/Hs 52,600 # 900 " 53,500C/s of fin goods 36,100 # 6,200 " 42,300Buildings 740,000 # 40,000 # 25,000 # 145,000 " 950,000Factory Wages 132,000 ! 40,000 " 92,000Acc. Depc. Blgs. 54,000 # 14,300 ! 68,300 " nilRevaluation Res. 145,000 # 68,300 " 213,300Bad Debts. 700 " 700Provision for Bad Debts. 1,648 " 1,648Debenture Interest 16,200 " 16,200Corporations Tax 32,000 " 32,000


3 BETAMAX SOLUTION

(a) Manufacturing Account of Betamax or year ended 31/12/2012Direct Materials Opening stock of raw materials 67,500Purchases of raw materials 670,875Carriage on Raw materials 9,450Less closing stock of raw materials (73,500)Cost of raw materials consumed 674,325Direct CostsDirect Factory wages W 353,190Hire of special equipment 15,000 368,190Prime Cost 1,042,515Factory OverheadsGeneral Factory overheads 90,300Patents written off W 22,500Depreciation – Factory buildings W 17,250

– Plant and Machinery W 83,100Loss on sale of Machine W 3,075 216,225Factory Cost 1,258,740Work in progress 1/1/2012 31,875Less Work in progress 31/12/2012 (39,675)

1,250,940Less sale of scrap material W (5,550)Cost of Manufacture 1,245,390Trading Profit and Loss Account for year ending 31/12/2012Sales W 1,615,800Less Cost of salesOpening stock of finished goods 126,750Cost of manufacture 1,245,390Less Closing stock of finished goods (141,750) (1,230,390)Gross profit 385,410Less Administration ExpensesAdministration expenses W 33,150Selling and DistributionSelling expenses 157,748Bad debt. 750Provision for Bad debt. 4,200 162,698 (195,848)

189,562Discount net 4,500Opening Profit 194,062Less Debenture interest W (10,125)Net profit before taxation 183,937Less Taxation (12,000)Profit after Tax 171,937Les Dividends (60,000)Retained Profit 111,937Profit and Loss 1/1/2012 113,100Profit and Loss 31/12/2012 225,037


(b) Balance Sheet as at 31/12/2012Intangible Fixed Cost Depc. ValuePatents W 67,500Tangible FixedFactory Buildings W 900,000 900,000Plant and Machinery W 406,500 268,875 137,625

1,306,500 268,875 1,105,125Current AssetsStock - Raw Materials 73,500 Work in Progress 39,675 Finished goods 141,750 254,925Debtors W 84,000Less Provision for bad debts. (4,200) 79,800

334,725Creditors falling due within one yearCreditors 83,400Bank 15,450VAT 12,600Debenture interest due W 9,113Tax due 12,000 (132,563)Net Currents Assets 202,162Total Net Assets 1,307,287Financed by:Creditors falling due for more than one year9% Debentures 135,000Capital and Reserves Authorised IssuedOrdinary shares of € 1 each 750,000 525,0006% Preference shares of € 1 each 450,000 300,000

1,200,000 825,000Revaluation Reserve 122,250Profit and Loss 31/12/2012 225,037 1,172,287Total Capital Employed 1,307,287


Notes to AccountsSales 1,627,500 ! 11,700 " 1,615,800Purchase 720,375 ! 49,500 " 670,875Direct factory wages 378,690 ! 25,500 " 353,190Accumulated Depreciation Buildings 67,500 # 17,250 ! 84,750 NilAccumulated Depreciation Plant and Mach.

195,000 # 83,100 ! 9,225 " 268,875

Machinery 420,000 ! 13,500 " 406,500Disposal loss 13,500 ! 9,225 ! 1,200 " 3,075Plant and Machinery 420,000 ! 13,500 " 406,500Sale of scrap 6,750 ! 1,200 " 5,550Closing stock of finished goods 135,000 ! 3,000 # 9,750 " 141,750Administration 33,600 # 300 ! 750 " 33,150Patents 90,000 ! 22,500 " 67,500Bad Debt. 750Provision for bad debt 4,200Debenture interest 262 # 750 # 9,113 " 10,125Debtors 96,750 ! 750 ! 300 ! 11,700 " 84,000Buildings 787,500 # 75,000 # 37,500 " 900,000Revaluation Reserve 37,500 # 84,750 " 122,250

(c) What is the Difference between Direct and Indirect Costs?DirectCan be traced in full to the Product being manufactured e.g. Direct Materials, labour, Royalties Paid.IndirectNot directly related to Product Produced.e.g. Manufacturing overheads such as Supervision salary, Administration Overhead such as Telephone and Selling & Distribution costs such as Advertising.


4 CELESTIAL SOLUTION

(a) Manufacturing Account of Celestial PLC for the year ended 31/12/2012€ €

Opening Stock of raw materials 1/1/2012 34,000Purchases of raw material W 510,300

544,300 Less Closing Stock of raw materials W (44,000)Cost of raw materials consumed 500,300Manufacturing Wages W 167,700Prime Cost 668,000Factory Overheads General Factory overheads W 75,900 Deprec.: - Plant & Machinery W 41,500 - Buildings W 13,060 130,460Factory Cost 798,460Add Work in Progress 1/1/2012 22,500

820,960Less Work in Progress 31/12/2012 (23,400)

797,560Less Sale of Scrap Materials (6,100)Add Loss on Sale of Machinery W 7,000 900Cost of Manufacture 798,460Gross Profit on Manufacture 51,540Current Market value 850,000

Trading Profit & Loss Account for year ended 31/12/2012€ €

Sales W 940,150Less Cost of Sales Stock of finished goods 1/1/2012 38,100 #Current Market value 850,000 Less Stock of fin. goods 31/12/12 (W9) (40,100) (848,000)Cost of Goods Sold 92,150Gross Profit on Trading 51,540Gross Profit on Manufacture 143,690Less ExpensesAdministration Expenses Administration Expenses 27,400Selling & Distribution Expenses Selling & Distribution Expenses 38,600 (66,000)Operating Profit 77,690 Debenture Interest due (W10) (7,200)Net Profit before Taxation 70,490 Taxation on profit (15,000)Profit after Taxation 55,490 Dividends Paid (38,200)Retained Profit 17,290Profit and Loss balance 1/1/2012 38,800Profit and Loss balance 31/12/2012 56,090



Cost Dep. N.B.V.

Fixed Assets Land & Buildings 820,000 — 820,000 Plant & Mach. W 274,000 108,100 165,900

1,094,000 108,100 985,900Current Assets Stocks: Finished Goods 40,100 Raw Materials 44,000 Work in Progress 23,400 107,500 Debtors W 42,350

149,850Creditors: amounts falling due within 1 year Trade creditors W 30,200 Accruals 13,600 Debenture Interest due 7,200 Taxation 15,000 Bank 12,600

(78,600)Net Current Assets 71,250Total Assets less Current Liabilities 1,057,150Financed by:Creditors: amounts falling due after 1 year 8% Debentures 105,000Capital and Reserves Auth’d. Issued Ordinary Shares @ €1 550,000 500,000 6% Pref. Shares @ 50 300,000 220,000

850,000 720,000 Reval. Reserve a/c. W 176,060 Profit & Loss balance 56,090 952,150 Capital Employed 1,057,150


CelestialNotes to Accounts

Sales 945,500 ! 600 ! 4,750 " 940,150Machinery 290,000 ! 16,000 " 274,000Acc. Depc. 75,000 ! 8,400 # 41,500 " 108,100Disposal 16,000 ! 8,400 ! 600 " (7,000)Purs. 520,500 # 4,800 ! 15,000 " 510,300Crs. 25,400 # 4,800 " 30,200C/s of Raw Mats. 39,200 # 4,800 " 44,000Drs. 48,000 ! 900 ! 4,750 " 42,350Gen factory of O/Hs 75,000 # 900 " 75,900L & Blgs. 680,000 # 18,000 # 15,000 # 107,000 " 820,000Manu. wages 185,700 ! 18,000 " 167,700Acc Depc. L & Blgs. 56,000 # 13,060 ! 69,060 " nilRev. Res. 107,000 # 69,060 " 176,060Depc. this yr. Mach. 400 # 41,100 " 41,500C/s of Fin. goods 36,300 # 3,800 " 40,100Deb. Interest 7,200 " 7,200Corp. Tax 15,000 " 15,000

(c) Calculate the unit cost of Production240 # 6,550 ! 410 ! 170 " 6,210 Finished units

Cost per unit " Production Cost"

€ 798,460" € 128.58 per unit.

no of finished goods (units) 6,210


5 DUCATO SOLUTION

(a) Manufacturing Account of Ducato for year ended 31/12/2012D. Mats. O/s of Raw Materials 27,000

# Purchases 163,700# Carriage In. 1,000 164,700! Closing Stock (37,500)

154,200D. Labour Direct Factory wages 58,000D. Expenses Hire of Special Equipment 3,000

Prime Cost 215,200Factory Overheads

Supervisors wages 18,600General Overheads 24,500Depc. of Blgs. 3,900Depc. of Equip. 28,000 75,000

W.I.P # O/s of W.I.P. 15,500! C/s of W.I.P. (16,000) (500)

289,700less Sale of Scrap (43,00)

Cost of Manufacture 285,400# Gross Profit on Manufacture 114,600" Current Market value. 400,000

Trading Profit & Loss Account for year ended 31/12/2012

Sales 438,100!Cost O/s of Fin. Goods 26,000 # Current Market Value 400,000 ! Closing Stock (32,000) (394,000) Gross Profit on Trading 44,100 Gross Profit on Manufacturing 114,600!Admin. Admin Expenses 27,900 158,700 Palents w/o 7,500 Depreciation of Buildings 1,300

500 loss of fire 37,200Selling & Dist. B\D. Prov. Distribution Eths. 25,700 Bad Debts 200 25,900 (63,100) # Discount Rec. 600 # Bad Debt Recoverable 500

740 Overprovision 1,840 Operating Profit 97,440 ! Debenture Interest (4,200) Net Profit 93,240! Dividends Preference 3,750 Ordinary 19,800 (23,550)

69,690 # P & L 1/1/12 19,000 P & L 31/12/12 88,690



€ € €Fixed Assets Intangible Patents (W) 22,500 Tangible L & Blgs. 320,000 50,200 269,800 Plant & Mach 140,000 80,500 59,500Current Assets 351,800 C/S of Raw Materials 37,500 W.I.P 16,000 Fin. Goods 32,000 Insurance Co. 12,300 Debtors 27,000 !Provision (1,060) 25,940 123,740!Crs falling due for less than 1 year Creditors 47,000 Pref. Divs. Due 1,875 Ord Divs. Due 10,475 Bank 13,800 VAT 4,500 Deb. Int. Due 4,200 (81,850) 41,890

393,690Fin. by: Crs. falling due for more than 1 yr 7% Debentures 65,000 Capital and Reserves Auth. Issued Ordinary Shares 350,000 165,000 Preference Shares 150,000 75,000 P&L 31/12/12 88,690 328,690

393,690


Notes to Accounts

Sales 442,900 ! 4,800 " 438,100Drs. 31,500 ! 4,800 # 500 ! 200 " 27,000C/s fin. gds. 28,000 # 4,000 " 32,000Purs. 179,500 # 6,000 ! 19,000 ! 2,800 " 163,700Crs. 41,000 # 6,000 " 47,000C/s of R. mats. 31,500 # 6,000 " 37,500Disc. Rec. 1,200 ! 600 " 600Gen. O/H 25,100 ! 600 " 24,500Wages Factory 69,000 ! 11,000 " 58,000Blgs. 300,000 # 30,000 ! 10,000 " 320,000Ins. Co. 12,300 " 12,300loss on fire 500 " 500Patents 30,000 ! 7,500 " 22,500Acc. Depc. P& M 52,500 # 28,000 " 80,500Acc Depc. Blgs. 45,000 # 5,200 (3,900/1,300) " 50,200BD. Recov. 500 " 500B. Debts 200 " 200Provision 1,800 ! 1,060 " 740 overPref. Div. 1,875 # 1,875 " 3,750Ord. Div. 9,325 # 10,475 " 19,800Deb. Interest 1,050 # 3,150 " 4,200

(c) Calculate unit cost of Production

1,140 # 240 ! 150 ! 89 " 1,141 units finished.Cost of Production

"€285,400

" € 250.13 per unit.no of finished goods (units) 1,141


6 SHERIDAN SOLUTION

(a) Manufacturing a/c of Sheridan Ltd for year end 31/12/2012€ €

Direct Materials Opening stock of Raw Materials 54,000# Purchases of Raw Materials (W) 330,400# Carriage on raw materials 2,000 332,400! Closing stock of Raw Materials (W) (78,000)" Cost of Raw Materials consumed 308,400Direct Labour# Factory Wages (W) 116,000Direct Expense# Hire of special equipment 6,000" Prime Cost 430,400Factory Overheads Depreciation of Plant and Machinery (W) 56,000 Depreciation of Buildings (W) 9,600 Supervisors salary 37,200 General Expenses (W) 38,100 140,900# Opening stock of Work in Progress 31,000! Closing stock of Work in Progress (32,000) (1,000)

570,300! Sale of scrap materials (8,600)" Cost of Manufacture 561,700# Gross profit on Manufacture 188,300" Transfer @ Current Market Value 750,000

Trading Profit and Loss a/c for year ending 31/12/2012 Sales 876,200! Cost of Sales Opening stock of Finished goods 52,000# Current Market Value 750,000! Closing stock of Finished goods (64,000) (738,000)" Gross Profit on Trading 138,200# Profit on Manufacture 188,300

326,500Less Administration Expenses Administration Expenses 55,800 Depreciation of Buildings (W) 3,200 Goodwill written off (W) 15,000 General Expenses (W) 12,700 (86,700)Less Selling and Distribution: Selling 51,400 Bad Debts 300 (51,700) (138,400)# Bad debt Recoverable 700 Overprovision for bad debts (W) 1,500 Discount 2,400 4,600" Operating Profit 192,700! Debenture interest (W) (8,400)" Net Profit 184,300! Dividends (22400)" Retained Profit 161,900# Profit and Loss 38,000" Profit and Loss 31/12/12 199,900



€ € €Intangible Fixed: Goodwill (W) 45,000Tangible Fixed: Land and Buildings (W) 820,000 — 820,000

Plant and Machinery (W) 280,000 161,000 119,0001,100,000 161,000 984,000

Current AssetsStocks 31/12 Raw Materials 78,000

Work in Progress 32,000Finished Goods 64,000Debtors 53,200! Provision (2,100) 51,100Insurance Claim due 25,600 250,700

Less: Creditors falling due for less than 1 yearCreditors 97,000VAT 9,000Bank 27,600Debenture interest due 8,400 142,000Net Current Assets 108,700

1,092,700Financed by:Creditors falling due for more than 1 year

7 % Debentures 130,000Capital and Reserves Authorised Issued

Ordinary shares of 1 € each 700,000 330,0005% Preference shares 300,000 150,000

480,000Revaluation Reserve (W) 282,800Profit and Loss a/c 31/12/12 199900 962,700

1,092,700


Notes to Accounts

Purchases 359,000 ! 5,600 ! 38,000 # 15,000 " 330,400Buildings 600,000 ! 20,000 # 60,000 # 180,000 " 820,000Factory Wages 138,000 ! 22,000 " 116,000Insurance claim " 25,600Closing stock of Raw Materials 63,000 # 15,000 " 78,000Creditors 82,000 # 15,000 " 97,000Goodwill 60,000 ! 15,000 " 45,000Sales 885,800 ! 9,600 " 876,200Closing stock of Finished Goods 56,000 # 8,000 " 64,000Debtors 63,000 ! 9,600 ! 600 # 700 ! 300 " 53,200General Expenses 50,200 # 600 " (38,100 # 12,700) " 50,800Acc. Depc. Plant & Mach 105,000 # 56,000 " 161,000Acc. Depc. Buildings 90,000 # 12,800 (9,600/3,200 ! 102,800) " NilRevaluation Reserve 180,000 # 102,800 " 282,800Bad Debt Recovered " 700Bad Debt " 300Provision for Bad Debt. 3,600 ! 2,100 (4% of Debtors 53,200 ! 700) " over 1,500Debenture Interest 2,100 # 6,300 " 8,400

(c) Why are manufacturing accounts prepared?• To find the cost of manufacturing a product• To see if production is worthwhile as opposed to buying finished product• To ensure correct allocation and control of overheads.• To estimate any profit on manufacture.


7 FLOTILLA SOLUTION

(a) Manufacturing a/c of Flotilla Year Ended 31/12/2012€ €

Raw Materials used Stock 1 Jan 40,000 Purchases (W) 285,000 Carriage In. 12,000

337,000 Stock 31 Dec. (52,000) 285,000Direct Costs Manufacturing Wages 105,000 Hire of special equipment 22,000 127,000Prime Cost 412,000Factory Overheads Factory Insurance (W) 7,600 Factory Heat & Power 24,000 Factory Supervisors Wages 39,000 Deprec. — Buildings (W) 4,000 — Plant & Machinery (W) 24,000 98,600

510,600 Add — Work-in-Progress 1/1/12 37,000

547,600 Less — Work-in-Progress 31/12/12 (38,600)

509,000 Less Sale of Scrap Materials (13,000)Cost of Manufacturing 496,000Profit of Manufacturing 75,000Market Value of Manufactured Goods 571,000

Trading Profit & Loss A/C for Year Ending 31/12/2012€ €

Sales 856,000 Cost of Sales Cost of Manufactured Goods 571,000 Stock — Finished Goods 1/1/12 45,000

616,000 Stock Finished Goods 31/12/12 (37,000) (579,000)Gross Profit — Trading 277,000Gross Profit — Manufacturing 75,000

352,000Less Expenses Administration Amount Written off Goodwill (W) 9,600 Depreciation — Buildings (W) 2,000 — Off. Equip. 8,000 Insurance (W) 3,800 Office Salaries 72,000 95,400Selling and Distribution Provision (W) 1,908 Bad Debts 5,400 Advertising 34,000 Delivery Expenses 86,000 127,308

(222,708)129,292


Add Operating Income Bad Debt Receivable 700 Rent Receivable 800 Investment Income (W) 9,000 Discount Receivable (W) 2,600 13,100

142,392 Operating Profit Less Debenture Interest (W) (11,700) Profit after Interest & Tax 130,692Appropriation: Dividend Paid (16,500) Profit Retained 114,192 Profit & Loss Bal. 1/1/12 6,900 Profit & Loss Bal. 31/12/12 121,092


€ € €Fixed Assets Cost Acc. Dep. NetIntangible: Goodwill 38,400Tangible: Buildings 400,000 36,000 364,000 Plant & Machinery 180,000 84,000 96,000 Office Equipment 40,000 28,000 12,000

620,000 148,00 510,400Investment 6% Investments 150,000

660,400Current Assets Stocks: Raw Materials 52,000 Work in Progress 38,600 Finished Goods 37,000 127,600 Debtors (48,400!1,908) 46,492 Investment Interest Due 6,000

180,092Less Creditors (amounts falling due within one year) VAT 15,500 Creditors 96,800 Debenture Interest Due 7,200 Rent Receivable Prepaid 1,600 Bank 38,300 (159,400)Net Current Assets 20,692

681,092Financed by: Creditors (amounts falling due after 1 year.) 160,000 9% DebenturesCapital and Reserves Authorised Issued Ordinary Share €1 each 400,000 300,000 9% Preference Shares €1 each 200,000 100,000

600,000 400,000 Profit & Loss Balancer 121,092 521,092 Shareholders Funds 681,092


Notes to Accounts

Insurance 7,600 # 3,800 " 11,400Purs 275,000 # 10,000 " 285,000Crs. 84,000 # 12,500 # 300 " 96,800VAT (cr.) 18,000 ! 2,500 " 15,500C/S of Raw Mats. 42,000 # 10,000 " 52,000Goodwill 45,000 # 3,000 ! 9,600 " 38,400Imnvestment Interest 3,000 # 6,000 " 9,000Bank 41,000 ! 2,400 ! 300 " 38,300Rent. Rec. 2,400 ! 1,600 " 800Deb. Interest 4,600 ! 100 # 7,200 " 11,700Bad Debts 4,500 # 600 # 300 " 5,400Discount Cr. 2,100 # 600 ! 100 " 2,600Acc. Depc. Blgs. 30,000 # 4,000 # 2,000 " 36,000Acc. Depc. Plant 60,000 # 24,000 " 84,000Acc. Depc. Office Equip. 20,000 # 8,000 " 28,000Debenture Interest 4,600 ! 100 # 7,200 " 11,700Drs. 48,000 # 700 ! 300 " 48,400Bad Debt. Recoverable " 700Provision for bad Debts " 1,908

(c)

(i) Cost of manufacturing per unit (ii) Reduce any or all of the following

" Total Cost of manufacturing _______________________ Units Manufactured ! Manufacturing wages ! Factory overheads

" €496,000 ________ 640 ! Supervisors wages ! Better buying teams for Raw Materials.

" €775 per unit.

TOPIC

4Debtors and Creditors

Control A/C’s Solutions2 Conlon3 Clarke4 Carroll5 Dunleavy6 Daly7 Dooley8 Curley

59Topic 4 Debtors and Creditors Control A/C’s Solutions

2 CONLON SOLUTION

(a) Creditors Control Account

€ €Balance 410 Balance 17,320Returns 125 Returns 112Invoice 60 Interest 50Bills Pay. 700 Discount 84Balance 16,681 Balance 410

17,976 17,976

(b) List of Creditors Balances

€ €Original Balance 16,302AddPurchases 610Cash Purchases 150Discount Dis. 84Returns 120 964LessInterest 18Bills Payable 700Returns 277 995

16,271

(c) Outline the advantage of Control Accounts to a firm. 1. Contra Item A contra item is an offset of a debtor against a creditor where debtor and creditor are the same person 2. Opening Balance €410 • A full payment of a debt followed by a credit note (returns or reduction) • Over payment of a debt • Full payment followed by discount


3 CLARKE SOLUTION

(a) Adjusted Creditors Ledger Control Account

€ €Balance b/d 664 Balance b/d 36,530Credit Note 133 Interest 15Balance c/d 36,541 Invoice error 63

Disc recd. Disallowed 36Credit Note 30Balance c/d 664

37,338 37,338Balance b/d 664 Balance b/d 36,541

(b) Adjusted Schedule of Creditors

€ €Balance as per list 34,895Add Interest 69Add Cash Purchases 480Add Invoice 770Add Disc Recd. Disallowed 36Less Credit Note (133)Less Credit Note (240) (373)Net balance as per adjusted control account 35,877

(c) 1. Explain what is meant by Accounting Concept. These are the accounting practices or rules that are applied by accountants in the preparation of

financial statements. 2. Name 2 fundamental accounting concepts. The Accruals Concept and The Prudence Concept. 3. Illustrate an accounting concept. The accruals concept states that all expenses incurred in particular period are recorded in that period

regardless of whether they are paid or not. All incomes earned must be included in the accounts of that period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be recorded in the accounts of 2012 even though it wont be paid until 2013.


4 CARROLL SOLUTION


Date Details € Date Details €1/1/2012 Balance b/d 800 1/1/2012 Balance b/d 52,245

Credit Note 126 Invoice error 18Interest 25Bank error 230Credit Note 42Disc. Rec’d Disallowed 200

31/12/2012 Balance c/d 80031/12/2012 Balance c/d 52,634

53,560 53,5601/1/2013 Balance b/d 800 1/1/2013 Balance b/d 52,634


€ €Balance as per schedule 51,678Add Invoice 720 Interest error 89 Bank error 230 Disc. Recd. disallowed 200 1,239Less Credit Note error 747 Credit Note 336 1,083Balance as per Adjusted Control a/c 51,834

(c) Outline the advantages of controls accounts to a firm. 1. They act as a check on the accuracy of the ledgers by comparing the balance of the control account with

the total as per the schedule 2. Errors can be found more easily using Control accounts 3. They are useful when a firm needs to find credit sales or purchases from incomplete records 4. They allow amounts owed by Debtors and owed to Creditors to be ascertained quickly by simply

balancing the control accounts

(d) What other forms of verification can be used to check different figures? Bank Reconciliation statement to adjust customers Bank Record with bank statement Trial Balance to check the accuracy of ledger a/cs Final a/cs to calculate profit Assets & liabilities Suspense a/c to identify & correct errors


5 DUNLEAVY SOLUTION

(a) Adjusted Debtors Ledger Capital Account

Date Details € Date Details €Balance b/d 15,530 Balance b/d 580Discount Allowed 100 Credit Note omitted 120Interest 5Invoice error 90 Balance c/d 15,629Credit Note 24Balance c/d 580

16,329 16,329Balance b/d 15,629 Balance b/d 580

(b) Adjusted Schedule of Debtors

€ €Balance as per schedule (original) 14,862AddInvoice omitted 650Cash Sales 420Discount Disallowed 100 1,170LessInterest 13Bills Payable 600Credit Note error 130Restocking error 240 (983)Balance as per Adjusted Control a/c 15,049 ! (15,629 " 580)

(c) Explain the difference between: 1. Bad debts 2. Provision for bad debts.

1. Bad Debts are Debtors who are currently unable to pay, they are bankrupt & must be treated as an expense & taken out of the Asset a/c, Debtors.

2. Provision for Bad Debts is an estimation i.e. % of Debtors that you think will be a bad Debt for next year. It is based on historical experience of non payment in the past. As they have not already occured the account is subtracted from Debtors in the Balance Sheet.


6 DALY SOLUTION

(a) Adjusted Debtors Ledger Control Account

€ €Balance 12,300 Balance 400Invoice 480 Interest 20Returns 810 Contra 240Returns 50 Bills Rec. 500Balance 400 Bal. c/d 12,880

14,040 14,040

(b) Adjusted List of Debtors Balances

€ €Original Balance 13,837

Add J. Smyth 480less Returns 400

Cr. Note 81Interest 16Contra 240Bills Rec. 500Cash Sales 600 (1837)Corrected Control balance 12,480

(c) What are the dangers associated with having a high debtors figure? 1. Increased risk of bad debts 2. Insufficient cash to pay creditors 3. Need for overdraft facilities for working capital. 4. Cost of Debtors collection department 5. May need to sell long term debts to a factoring firm for collection

(d) Show journal entries for (i) and (ii)

1 Sales a/c 480Debtors a/c 480Invoice omitted

2 Interest Received a/c 20Debtors a/c 16Suspence a/c 4


7 DOOLEY SOLUTION

(a) Adjusted Debtors Ledger Control a/c

€ €1/1/12 Bal. b/d 63,100 1/1/12 Bal. b/d 1,600Discount Disallowed 280 Bills Receivable 200Dishonored Cheque 1,140 Returns 90Debtor Recoverable 1,360 Interest 60Invoice 100Bal. c/d 1,600 Bal. c/d 65,630

67,580 67,580Bal. b/d 65,630 Bal. b/d 1,600

(b) Adjusted Schedule of Debtors

Balance as per Schedule 60,256less Bills Rec. (400)Add Discount Disallowed 174less Returns (340)Add Interest 340Add Dishonored cheque 1,140Add Invoice 1,500Add Debtor Recoverable 1,360Corrected balance (65,630 " 1,600) 64,030

(c) Why is it vital to implement strict credit control on debtors? If Debtors increase in size you may be faced with the following: 1. Increased risk of bad debts 2. Insufficient cash to pay creditors 3. Need for overdraft facilities for working capital 4. Cost of Debtors collection department 5. May need to sell long term debts to a factoring firm for collection.


8 CURLEY SOLUTION


€ €1/1/12 Bal. b/d 25 1/1/12 Bal. b/d 6,100Interest 9 Discount Disallowed 30Cr. note 677 Restocking Charge 11Contra 300 Disc Disallowed 50Bills Payable 80Corrected bal. 5,100

6,191 6,191


€Original bal. 5,370" Interest (15)# Disc Disallowed 90" Cr. note (325)" Contra (300)" Restocking (10)" Bills Payable (210)# Dishonoured Cheque 500Corrected Bal. 5,100

(c) Journal entries

Dr. Cr.Creditors 50 550Discount Rec. 50Suspense a/c 450

(d) Explain what is meant by leaning on the trade. Postponing payment of creditors until the very last occasion before they take action such as charge interest

or use legal proceedings. Using creditors as a source of finance to run your business & provide you with cash flow.

TOPIC

5Asset Disposal Revaluation

Solution 2 Speedo 3 Fast & Furious 4 Velocity 5 A-Z 6 Auto Accelerator 8 Johno 9 Una Cullen10 Stuart Trainor

67Topic 5 Asset Disposal Revaluation Solution

2 SPEEDO CABS SOLUTION

(a) Vehicles a/c

Date Details € Date Details €1/1/2013 Balance b/d 118,000 1/4/2013 Disposal 40,0001/4/2013 New Vehicle (No. 4) 48,000 31/12/2013 Balance c/d 126,000

166,000 166,0001/1/2014 Balance b/d 126,000 1/9/2014 Disposal 42,0001/9/2014 New Vehicle (No. 5) 52,000 31/12/2014 Balance c/d 136,000

178,000 178,0001/1/2015 Balance b/d 136,000

(b) Vehicle Disposal a/c

Date Details € Date Details €1/4/13 Vehicles a/c (No. 3) 40,000 1/4/13 Depreciation a/c 9,50031/12/13 Profit & Loss a/c 1,500 1/4/13 Trade In 20,000

Bank (Insurance comp.) 12,00041,500 41,500

1/9/14 Vehicles a/c (No. 1) 42,000 1/9/14 Depreciation a/c 35,7001/9/14 Trade In 5,00031/12/14 Profit & Loss a/c 1,300

42,000 42,000

(c) Provision for Depreciation on Vehicles a/c

Date Details € Date Details €1/4/13 Disposal 9,500 1/1/13 Balance b/d 48,05031/12/13 Balance c/d 57,150 31/12/13 Profit & Loss a/c 18,600

66,650 66,6501/9/14 Disposal 35,700 1/1/14 Balance b/d 57,15031/12/14 Balance c/d 40,850 31/12/14 Profit & Loss a/c 19,400

76,550 76,5501/1/15 Balance b/d 40,850


WorkingsW1 Opening balance on Vehicles a/c 1/1/2013

€Vehicle No. 1 30,000

Entertainment unit 12,000Vehicle No. 2 36,000Vehicle No. 3 40,000

118,000

Acc. Depc. Vehicle Cost 2009 2010 2011 2012 2013 2014 Total Dep.€ € € € € € € €

18,000 No. 1 30,000 4,500 4,500 4,500 4,500 4,500 3,000 7,200 Entertainment unit 12,000 — — 3,600 3,600 1,800 1,200 35,700

14,850 No. 2 36,000 — 4,050 5,400 5,400 5,400 5,400 8,000 No. 3 40,000 — — 2,000 6,000 1,500 — 9,500

No. 4 48,000 — — — — 5,400 7,200 No. 5 52,000 — — — — — 2,600

48,050 Total Depreciation 48,050 18,600 19,400

(d) What is meant by Depreciation? Depreciation is the permanent and gradual decrease in the value of a fixed asset over a period due to wear and tear, obsolescence, use and the passage of time.

(e) Why does a company charge depreciation when calculating a profit? Depreciation is an expense/cost incurred by this year’s trading activities and even though a non-cash expense should be taken away in calculating this year’s profit.


3 FAST & FURIOUS SOLUTION

Depreciation Chart

Vehicle No.

Date Purchased

Cost Depreciation2009 2010 2011 2012 2013 Disposal

€ € € € € € €1 01/07/2009 60,000 6,000 12,000 12,000 6,000

01/01/2010 6,000 2,400 1,200 600 40,2002 01/04/2010 48,000 7,200 9,600 9,600 9,6003 01/10/2010 72,000 4,800 14,400 14,400 10,800 44,4004 01/07/2012 80,000 8,000 16,0005 01/10/2013 90,000 4,500Profit & Loss Account 69,600 38,600 40,900

(a) Vehicles a/c (Cost)€ €

1/1/12 Balance b/d 186,000 1/7/12 Disposal 66,0001/7/12 Bank/Trade in 80,000 31/12/12 Balance 200,000

266,000 266,0001/1/13 Balance b/d 200,000 1/10/13 Disposal 72,0001/10/13 Bank/Trade in 90,000 31/12/13 Balance c/d 218,000

290,000 290,0001/1/14 Balance b/d 218,000

(b) Disposal of Vehicles a/c€ €

1/7/12 Vehicles 66,000 1/7/12 Prov. Deprec. 40,200Trade-in 20,000Loss on Disposal 5,800

66,000 66,0001/10/13 Disposal 72,000 1/10/13 Prov. Deprec. 44,400

Insurance 19,000Loss on Disposal 8,600

72,000 72,000

(c) Provision for Depreciation a/c€ €

1/1/12 Disposal 40,200 1/1/12 Balance b/d 69,60031/12/12 Balance c/d 68,000 31/12/12 P & L 38,600

108,200 108,20031/10/13 Disposal 44,400 1/1/13 Balance b/d 68,000

Balance c/d 64,500 31/12/13 P & L 40,900108,900 108,900

1/1/14 Balance b/d 64,500

(d) Depreciation is calculated either 1. On cost/Straight line method The amount written off (depreciated) p.a. is always the same. It is a fixed % of the cost of the asset. 2. On Book Value/Reducing Balance Method The amount written off p.a. is always less than the previous year. The % depreciation is calculated on the worth of the asset (cost less depreciation).


4 VELOCITY VEHICLES SOLUTION

Vehicle (1) (including tachograph)

Cost/value Depc. YR.32,000 6,400 0731,600 6,320 0825,280 5,056 0920,224 2,359 10

Vehicle (2)

Value Depc. YR.38,000 7,600 0830,400 6,080 0924,320 4,864 1019,456 3,891 11

Vehicle (3)

Value Depc. YR.44,000 8,800 0935,200 7,040 1028,160 1,877 11

Depreciation Table

Acc. Depc. 2010 2011 Disposal(1) 1/1/07 32,000 17,776 2,359 — 20,135(2) 1/1/08 38,000 13,680 4,864 3,891(3) 1/1/09 44,000 8,800 7,040 1,877 17,717(4) 1/8/10 46,000 3,833 8,433(5) 1/5/11 52,000 — 6,933

40,256 18,096 21,134

(a) Vehicles a/cDate Details € Date Details €1/1/10 Balance b/d 120,000 1/8/10 Disposal a/c 38,0001/8/10 Trade in Allowance

(4)16,000

Bank 30,000 31/12/10 Balance c/d 128,000166,000 166,000

1/1/11 Balance b/d 128,000 1/5/11 Disposal a/c 44,0001/5/11 Bank

(5)46,000

Trade in Allowance 6,000 31/12/11 Balance c/d 136,000180,000 180,000

1/1/12 Balance b/d 136,000


(b) Vehicle Disposal a/cDate Details € Date Details €1/8/10 Vehicle a/c (1) 38,000 1/8/10 Dep. A/c 20,135

Trade In allowance 16,000Profit ! Loss a/c (loss) 1,865

38,000 38,0001/5/11 Vehicle a/c (3) 44,000 1/5/11 Dep. a/c 17,717

Compensation 18,000Trade In allowance 6,000

31/12/11 Profit ! Loss a/c (loss) 2,28344,000 44,000

(c) Provision for Depreciation a/cDate Details € Date Details €1/8/10 Disposal a/c (1) 20,135 1/1/10 Balance b/d 40,25631/12/10 Balance c/d 38,217 31/12/10 Profit ! Loss a/c 18,096

58,352 58,3521/5/11 Disposal a/c (3) 17,717 1/1/11 Balance b/d 38,21731/12/11 Balance c/d 41,634 13/12/11 Profit ! Loss a/c 21,134

59,351 59,3511/1/12 Balance b/d 41,634


5 TRANSPORT SOLUTION (A TO Z)Acc. 2009 2010 Disposal

(1) 50,000 1/1/05 29,520*

2,389*

—unit 5,500 1/1/07 1,980 411 — 34,300(2) 55,000 1/1/06 26,840 5,632 4,506(3) 60,000 1/1/07 21,600 7,680 2,048 31,328(4) 65,000 1/8/09 — 5,417 11,917(5) 68,000 1/5/10 — 9,067

79,940 21,529 27,538

Vehicle 1 including unit *31,500 2,800

(a) Vehicles a/c1/1/09 Balance b/d (1) 170,500 1/8/09 Disposal 55,5001/8/09 Bank 48,000

Trade-in 17,000 31/12/09 Balance c/d 180,000235,500 235,500

1/1/10 Balance b/d 180,000 1/5/10 Disposal 60,0001/5/10 Bank 42,000

Trade-in 26,000 31/12/10 Balance c/d 188,000248,000 248,000

1/1/11 Balance b/d 188,000

(b) Vehicle Disposal Account1/8/09 Vehicle 1 55,500 1/8/09 Depreciation (3) 34,300

Trade in 17,00031/12/09 Profit and Loss 4,200

55,500 55,5001/5/10 Vehicle 3 60,000 1/5/10 Depreciation (5) 31,328

1/5/10 Trade-in 26,00031/12/10 Profit and Loss 7,328 1/5/10 Bank (Insurance) 10,000

67,328 67,328

(c) Provision for depreciation Account1/8/09 Disposal (3) 34,300 1/1/09 Balance b/d (2) 79,94031/12/09 Balance c/d 67,169 13/12/09 Profit and Loss (4) 21,529

101,469 101,4691/5/10 Disposal (5) 31,328 1/1/10 Balance b/d 67,16931/12/10 Balance c/d 63,379 31/12/10 Profit and Loss (6) 27,538

94,707 94,7071/1/11 Balance b/d 63,379

} }


Workings for Depreciation TableNo. 1

Year Cost Depc.05 50,000 10,00006 40,000 8,00007 37,500 7,50008 30,000 6,00009 24,000 2,800

No. 2

Year Cost Depc.06 55,000 11,00007 44,000 8,80008 35,200 7,04009 28,160 5,63210 22,528 4,506

No. 3

Year Cost Depc.07 60,000 12,00008 48,000 9,60009 38,400 7,68010 30,720 2,048

No. 4

Year Cost Depc.09 65,000 5,41210 59,588 11,917

(d) Profits and Loss a/c extract 31/12/10

Depreciation (27,538)Profit on Disposal 7,328

Balance Sheet on 31/12/10 Cost € Depc. € NBV €Fixed Assets Vehicles 188,000 63,379 124,621


6 AUTO ACCELERATOR SOLUTION

Depreciation Table

Acc. 2012 2013 DisposalA 75,000 1/1/08 44,280 3,072 —Unit 15,000 1/1/10 6,840 816 — 55,008B 51,000 1/7/09 21,624 5,875 4,700 —C 66,000 1/1/10 23,760 8,448 1,690 33,898D 81,000 1/7/12 — 8,100 14,580 —E 87,000 1/4/13 — 13,050

96,504 26,311 34,020

(a) Vehicles a/c1/1/12 Bal b/d 207,000 1/7/12 Vehicle (A) 90,0001/7/12 Vehicle (D) 81,000 31/12/12 Bal c/d 198,000

288,000 288,0001/1/13 Bal. b/d 198,000 1/4/13 Vehicle (C) 66,0001/4/13 Vehicle (E) 87,000 31/12/13 Bal c/d 219,000

285,000 285,0001/1/14 Bal b/d 219,000

(b) Vehicle Disposal a/c1/7/12 Vehicle (A) 90,000 1/7/12 Depreciation 55,008

Allowance 33,000Loss 1,992

90,000 90,0001/4/13 Vehicle (C) 66,000 1/4/13 Depreciation 33,898

Profit 6,448 Compensation 20,550Allowance 18,000

72,448 72,448

(c) Provision for Depreciation a/c1/7/12 Disposal (A) 55,008 1/1/12 Bal b/d 96,50431/12/12 Bal c/d 67,807 31/12/12 P & L 26,311

122,815 122,8151/4/13 Disposal C 33,898 1/1/13 Bal b/d 67,80731/12/13 Bal c/d 67,929 31/12/13 P & L 34,020

101,827 101,8271/1/14 Bal b/d 67,929

(d) Profit and Loss:

€Expense Depreciation 34,020Gain Disposal 6,448

Balance Sheet:Vehicles €219,000 €67,929 €151,071

(Cost) (Depc) (Value)


Workings for Depreciation Table

Vehicle A

p/a2008 75,000 15,0002009 60,000 12,0002010 48,000 9,6002011 38,400 7,6802012 30,720 3,072

Unit

p/a2010 15,000 4,8002011 10,200 2,0402012 8,160 816

Vehicle B

p/a2009 51,000 5,1002010 45,900 9,1802011 36,720 7,3442012 29,376 5,8752013 23,501 4,700

Vehicle C

p/a2010 66,000 13,2002011 52,800 10,5602012 42,240 8,4482013 33,792 1,690

Vehicle D

p/a2012 81,000 8,1002013 72,900 14,580


8 JOHNO SOLUTION

(a) Provision for Depreciation Account€ €

1/1/06 Revaluation Reserve 57,600 1/1/06 Balance b/d 57,60031/12/06 Balance c/d 8,400 31/12/06 Profit and Loss 8,400

66,000 66,00031/12/07 Balance c/d 16,800 1/1/07 Balance b/d 8,400

16,80031/12/07 Profit and Loss 8,400

16,80031/12/08 Balance c/d 29,760 1/1/08 Balance b/d 16,800

31/12/08 Profit and Loss 12,96029,760 29,760

1/1/09 Revaluation Reserve 29,760 1/1/09 Balance b/d 29,76031/12/09 Balance c/d 14,256 31/12/09 Profit and Loss 14,256

44,016 44,0161/1/10 Disposal 9,240 1/1/10 Balance b/d 14,2561/1/10 Revaluation Reserve 5,016 31/12/10 Profit and Loss 7,20031/12/10 Balance c/d 7,200

21,456 21,456

Disposal of Land Account€ €

1/1/07 Buildings 240,000 1/1/07 Bank 270,00031/12/07 Profit and Loss 30,000

270,000 270,000

Disposal of Buildings Account€ €

1/1/10 Buildings 462,000 1/1/10 Depreciation 9,24031/12/10 Profit and Loss 15,240 1/1/10 Bank 468,000

477,240 477,240

Revaluation Reserve Account€ €

1/1/06 Land and Buildings 90,000Prov. for Depreciation 57,600

31/2/10 Bal. c/d 356,376 1/1/09 Land and Buildings 64,800Prov. for Depreciation 29,760

1/1/10 Land and Buildings 109,200Prov. for Depreciation 5,016

356,376 356,376


Land & Buildings€ €

1/1/06 Bal. b/d 570,000 31/12/06 Bal. c/d 660,0001/1/06 Reval. Reserve 90,000

660,000 660,0001/1/07 Bal. b/d 660,000 1/1/07 Disposal 240,000

31/12/07 Bal. c/d 420,000660,000 660,000

1/1/08 Bal. b/d 420,000Bank 150,000Bank. 54,000Wages 24,000 31/12/08 Bal. c/d 648,000

648,000 648,0001/1/09 Bal. b/d 648,000

Reval. Res. 64,800 31/12/09 Bal. b/d 712,800712,800 712,800

1/1/10 Bal. b/d 712,800 1/1/10 Disposal 462,000Reval. Res. 109,200 Bal. c/d 360,000

822,000 822,0001/1/11 Bal. b/d 360,000

(b) Balance Sheet extract 31/12/10€ € €

Fixed Assets Cost Depc. NBVland & Buildings 360,000 7,200 352,800

Capital and ReservesRevaluation Reserve 356,376


9 UNA CULLEN SOLUTION Land and Buildings a/c

Date Details € Date Details €1/1/2005 Balance b/d 868,0001/1/2005 Revaluation Reserve 196,000 31/12/2005 Balance c/d 1,064,000

1,064,000 1,064,0001/1/2006 Balance b/d 1,064,000 1/2/2006 Disposal 308,000

31/12/2006 Balance c/d 756,0001,064,000 1,064,000

1/1/2007 Balance b/d 756,000Bank 504,000Bank 406,000Wages 84,000 31/12/2007 Balance c/d 1,750,000

1,750,000 1,750,0001/1/2008 Balance b/d 1,750,0001/1/2008 Revaluation Reserve 175,000 31/12/2008 Balance c/d 1,925,000

1,925,000 1,925,0001/1/2009 Balance b/d 1,925,000 1/2/2009 Disposal 831,6001/1/2009 Revaluation Reserve 96,600 31/12/2009 Balance c/d 1,190,000

2,021,600 2,021,6001/1/2010 Balance b/d 1,190,000

Provision for Depreciation on Buildings a/cDate Details € Date Details €1/1/2005 Revaluation Reserve 80,640 1/1/2005 Balance b/d 80,64031/12/2005 Balance c/d 15,120 31/12/2005 Profit and Loss a/c 15,120

95,760 95,7601/1/2006 Balance b/d 15,120

31/12/2006 Balance c/d 30,240 31/12/2006 Profit and Loss a/c 15,12030,240 30,240

1/1/2007 Balance b/d 30,24031/12/2007 Balance c/d 65,240 31/12/2007 Profit and Loss a/c 35,000

65,240 65,2401/1/2008 Revaluation Reserve 65,240 1/1/2008 Balance b/d 65,24031/12/2008 Balance c/d 38,500 31/12/2008 Profit and Loss a/c 38,500

103,740 103,7401/1/2009 Disposal 16,632 1/1/2009 Balance b/d 38,5001/1/2009 Revaluation Reserve 21,868 31/12/2009 Profit and Loss a/c 23,80031/12/2009 Balance c/d 23,800

62,300 62,3001/1/2010 Balance b/d 23,800


Disposal of land€ €

1/1/06 Land 308,000 1/1/06 Bank 392,000Profit 84,000

392,000 392,000

Disposal of Building€ €

1/1/09 Building 831,600 1/1/09 Bank 952,000Profit 137,032 Depreciation 16,632

968,632 968,632

Revaluation Reserve€ €

1/1/05 Land & Building 196,000Prov. Depc. 80,640

1/1/08 Land & Building 175,000Prov. Depc. 65,240

31/12/09 Balance c/d 635,348 1/1/09 Land & Building 96,600635,348 Prov. & Depc. 21,868

635,348

(b) Balance Sheet Extract 31/12/09

Fixed Asset Cost Depc. NBV Land and Building €1,190,000 23,800 1,166,200Capital and Reserves Revaluation Reserve €635,348


10 STUART TRAINOR SOLUTION

(a) Land and Building Account€ €

1/1/06 Balance b/d 250,0001/1/06 Revaluation Res. 230,000 31/12/06 Balance c/d 480,000

480,000 480,0001/1/07 Balance b/d 480,000 1/1/07 Disposal 120,000

31/12/02 Balance c/d 360,000480,000 480,000

1/1/08 Balance b/d 360,000 31/12/08 Balance c/d 560,0001/1/08 Bank 150,000

Bank 30,000Wages 20,000

560,000 560,0001/1/09 Balance b/d 560,000 31/12/09 Balance c/d 700,0001/1/09 Revaluation Res. 140,000

700,000 700,0001/1/10 Balance b/d 700,000 Disposal 450,0001/1/10 Revaluation Res. 50,000 31/12/08 Balance c/d 300,000

750,000 750,000

Provision for Depreciation on Building Account€ €

1/1/06 Revaluation Res. 32,000 1/1/06 Balance b/d 32,00031/12/06 Balance c/d 7,200 31/12/06 Profit and Loss 7,200

39,200 39,2001/1/07 Balance b/d 7,200

31/12/07 Balance c/d 14,400 31/12/07 Profit and Loss 7,20014,400 14,400

1/1/08 Balance b/d 14,40031/12/08 Balance c/d 25,600 31/12/08 Profit and Loss 11,200

25,600 25,6001/1/0931/12/09

1/1/10

Reval Res.Balance c/d

Disposal

25,60014,000

1/1/0931/12/09

1/1/10

Balance c/dProfit and Loss

Balance b/d

25,60014,00039,60014,000

39,6009,000

1/1/10 Revaluation Res. 5,000 31/12/10 Profit and Loss 6,00031/12/10 Balance c/d 6,000

20,000 20,0001/1/12 Balance b/d 6,000


Disposal of Land Account€ €

1/1/07 Land 120,00031/12/07 P & L (Profit) 20,000 1/1/07 Bank 140,000

140,000 140,000

Disposal of Building Account€ €

1/1/09 Building 450,000 1/1/09 Depreciation 9,00031/12/09 P & L (Profit) 69,000 1/1/09 Bank 510,000

519,000 519,000

Revaluation Reserve Account€ €

1/1/07 Land and Building 230,000Provision for Dep. 32,000

31/12/10 Bal. c/o 482,600 1/1/09 Land and Building 140,000Provision for Dep. 25,600

1/1/10 Land and Building 50,000Provision for Dep. 5,000

482,600 482,600

(b) Balance Sheet Extract 2010

Cost Depc. NBVFixed Asset Land and Building

€300,000 €6,000 €294,000

Capital and Reserves Revaluation Reserve €482,600

TOPIC

6Tabular Statements

Solution2 Mercantile3 Nordic4 Othello5 Polar6 Remus7 Sonata8 Tertius9 Qualter

83Topic 6 Tabular Statements Solution

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3 NORDIC SOLUTION

(a)1/1/2012 Jan Feb Mar April May June Aug Oct Nov Dec 31/12/2012

Land and Buildings 300,000 110,000 140,000 550,000Depreciation (24,000) 24,000 (10,000) (10,000)Equipment 48,000 (800) 47,200Depreciation (18,000) 500 (17,500)Stock 78,000 600 78,600Debtors 96,000 15,000 600 (648) (600) 110,352Bad debts provision (4,800) (4,800)Goodwill 10,000 10,000Insurance a/c. (prepaid) 1,800 (1,350) 450

475,200 135,000 164,000 600 (48) 1,800 (300) — — (600) (11,350) 764,302

Ordinary Shares 336,000 80,000 34,000 450,000Share Premium 14,400 20,000 11,000 45,400Profit and loss balance 26,400 1,500 (48) 100 (16,640) (10,000)

(1,350)3,200

3,162

Creditors 70,800 35,000 (400) 105,400Bank 25,200 (900) (3,600) 16,640 (45,000) (600) (6,460)Expenses due 2,400 1,800 2,400Revaluation Reserve 164,000 164,000Rent Receivable 3,600 (3,200) 400

475,200 135,000 164,000 600 (48) 1,800 (300) — — (600) (11,350) 764,302

(b) Name 3 groups of people who could be interested in a company’s financial affairs and identify the main reason why. • Banks — To meet interest & Repayments • Creditors — for liquidity, ease of getting paid • Shareholders — for Receipt of dividends & share price changes • Revenue — for levying of Taxation.

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4 OTHELLO SOLUTION

1/1/12 Jan Feb Mar Apr May June Aug Sep Oct Nov Dec 31/12/12Land & Buildings 590,000 85,000 180,000 855,000Acc. Depc. (35,000) 35,000 (15,700) (15,700)Del. van 88,000 (16,000) 4,000 76,000Acc. Depc. (28,000) 5,200 6,500 (16,800) (33,100)Stock 36,000 (900) 35,100Debtors 75,000 18,000 600 (2,500) 91,100Bad Debts Provision (3,000) (3,000)Insurance prepaid 800 6,600 (4,650) 2,750Goodwill 7,000 7,000Total Assets 723,800 120,000 205,000 600 (900) 6,600 (10,800) — 10,500 — (2,500) 37,150 1,015,150

Creditors 65,000 23,000 (810) (12,000) 75,190Bank 22,400 (900) 3,900 48,300 9,000 (13,500) (750) 68,450Expenses Due 1,800 1,800Ordinary Shares 560,000 130,000 10,000 700,000Share Premium 37,000 52,000 3,500 92,500P&L a/c. 37,600 1,500 (90) 1,200 (48,300) 1,500 (1,750) *(34,750) (43,090)Reval. Reserve. 120,000 120,000Rent Rec. prepaid. 2,700 (2,400) 300Total liabs. 723,800 120,000 205,000 600 (900) 6,600 (10,800) — 10,500 — (2,500) 37,150 1,015,150

*P&L 34,750 ! (15,700) " (16,800) " (4,650) " 2,400

86 Graded Accounting Questions – Solutions 87Topic 6 Tabular Statements Solution

5 PO

LAR S

OLU

TIO

N

(a)

1/1/

2012

Jan

Mar

Apr

May

Jun

Aug

Oct

Nov

Dec

31/1

2/20

12La

nd &

Bui

ldin

gs16

0,00

080

,000

60,0

0030

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epre

ciatio

n(8

,000

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000

(5,0

00)

(5,0

00)

Equi

pmen

t76

,000

(700

)75

,300

Dep

recia

tion

(22,

000)

460

(21,

540)

Goo

dwill

25,0

002,

000

27,0

00St

ock

61,0

0050

061

,500

Deb

tors

60,0

0018

,000

1,92

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40)

(1,9

20)

77,4

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d D

ebts

Prov

ision

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00)

(3,0

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Insu

ranc

e1,

200

(900

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9,00

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01,

920

(40)

1,20

0(2

40)

——

(1,9

20)

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0051

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0

Ord

inar

y Sh

ares

180,

000

60,0

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260,

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e Pre

miu

m35

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& L

Bala

nce

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(40)

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tors

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(400

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Expe

nses

due

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000

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luat

ion

Rese

rve

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Rent

Rec

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0(7

20)

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920

(40)

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40)

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(1,9

20)

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0051

2,02

0P

& L

for d

ec.

#90

0"

720

#5,

000

!(5

,180

)

(b) Ex

plai

n, w

ith th

e ai

d of

an

exam

ple,

how

the

prin

cipl

e of

dou

ble

entr

y w

orks

.D

oubl

e En

try

work

s on

the p

rincip

le th

at th

ere a

re tw

o sid

es to

ever

y tra

nsac

tion,

a gi

ving

and

a rec

eivin

g as

pect

. Th

e deb

it sid

e is f

or re

ceiv

ing

with

the c

redi

t sid

e for

the g

ivin

g.

Exam

ple:

Purc

hase

d go

ods o

n cr

edit:

Deb

it th

e pur

chas

es ac

coun

t as w

e are

rece

ivin

g th

e goo

ds

Cre

dit t

he cr

edito

rs ac

coun

t as t

hey

are g

ivin

g th

e goo

ds


6 R

EMU

S SO

LUTI

ON

(a)

1/1/

2012

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Oct

Nov

Dec

31/1

2/20

12La

nd &

Bui

ldin

gs36

4,00

016

8,00

023

8,00

077

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epre

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epre

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,896

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tors

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Deb

ts Pr

ovisi

on(6

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)(8

,400

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sura

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,100

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(25,

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dito

rs85

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00)

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00(3

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82)

25,9

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6,00

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78)

(3,0

80)

Expe

nses

due

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900

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luat

ion

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rve

273,

000

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(b) W

hat i

s mea

nt b

y ov

ertr

adin

g? H

ow c

an it

be

corr

ecte

d?O

vertr

adin

g m

eans

that

the fi

rm is

tryi

ng to

fina

nce t

oo m

uch

sales

from

too

little

reso

urce

s.Th

e firm

has

too

man

y de

btor

s and

not

enou

gh ca

sh.

Ove

rtrad

ing

is id

entifi

ed b

y a w

orse

ning

liqu

idity

situ

atio

n.So

lutio

ns in

clud

e

1. S

ell o

ff In

vestm

ents

2.

Sale

and

lease

bac

k

3. R

estri

ct cr

edit

4.

Im

prov

e sto

ck co

ntro

l

88G

raded

Acco

un

ting

Qu

estion

s – Solu

tion

s89

Top

ic 6 Tab

ular Statem

ents So

lutio

n

7 SONATA SOLUTION

(a)1/1/2012 Jan Feb Mar Apr May Jun Jul Aug Oct Nov Dec 31/12/2012

Land & Building 290,000 190,000 120,000 600,000Depreciation (24,000) 9,600** (14,400)Equipment 20,000 (800) 8,000 27,200Depreciation (10,000) 300 7,200 (2,470) (4,970)Goodwill 40,000 2,000 42,000Stock 86,000 25,000 1,200 112,200Debtors 90,000 24,000 2,400 (1,350) (2,400) 112,650Bad Debts Provision (4,500) (3,386) (7,886)Insurance 1,400 (1,050) 350

487,500 216,000 25,000 2,400 — (150) 1,400 (2,400) — (500) 15,200 122,694 867,144

Ordinary Shares 350,000 160,000 90,000 600,000Share Premium 20,000 40,000 6,000 66,000P & L Balance 43,000 3,000 (150) (48,000) 100 700 (19,706)* (21,056)Creditors 19,000 16,000 25,000 (600) 59,400Bank 54,000 (600) (96,000) (400) (2,400) 48,000 14,500 17,100Expenses due 1,500 1,500Revaluation Reserve 144,000 144,000Rent Rec. 1,800 (1,600) 200

487,500 216,000 25,000 2,400 — (150) 1,400 (2,400) — (500) 15,200 122,694 867,144P & L Dec #14,400 #2,470 #1,050 #3,386 "1,600 ! * 19,706Acc. Buildings Depc. 24,000 #14,400 ! ** 9,600

(b) Name and explain 3 fundamental accounting concepts.Accruals Concept — All expenses incurred in a particular period must be included in that period paid or not, similarly income earned.Going Conern — Business continues to trade as an entity i.e continuity of existencePrudence Concept — Err on the side of caution i.e conservative accounting figures used such as stock valued at the lower of cost and net book value


8 TE

RTIU

S SO

LUTI

ON

(a)

1/1/

2012

Jan

Feb

Mar

Apri

lJu

neJu

lyAu

gSe

ptO

ctN

ovD

ec31

/12/

2012

Land

and

Blgs

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c.(1

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cles

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ted.


9 Q

UA

LTER

SO

LUTI

ON

(a)

1/1/

2012

Jan

Feb

Mar

Apri

lM

ayJu

neJu

lyAu

gSe

ptN

ovD

ec31

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the T

rade

?•

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g cr

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fina

nce y

our b

usin

ess

• Po

stpon

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the p

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f cre

dito

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til th

e ver

y las

t day

Dan

gers

• C

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tors

may

dem

and

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int R

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• Yo

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il of

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ter b

uyin

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ice, d

iscou

nts e

tc.

TOPIC

7Club a/c’s

2 Athlone3 Bray4 Clara5 Dunshaughlin6 Elphin7 Ferbane8 Galway


2 ATHLONE ATHLETICS SOLUTION

(a) Accumulated Fund on 1/1/2012

€ €Assets:Clubhouse & Grounds 850,000Equipment 54,000Bar Stock 4,600Bar Debtors 900Investment Income due 1507½ Government Investments 38,000Levies due 1,250

948,900Liabilities:Life Membership 30,000Bar Creditors 2,650Subs. in Advance 2,000Levy Reserve Fund 24,000Wages due 1,600Bank Current Account 1,560Loan 35,000Loan Interest due 2,700 (99,510)Accumulated Fund in 1/1/07 €849,390

(b) Income and Expenditure Account for year ending 31/12/12

€ €Income:Investment Income (W) 2,850Catering Profit (W) 1,550Bar Profit (W) 40,090Subscriptions (W) 184,170Entrance Fees 17,600Annual Sponsorship 40,000Life Membership (W) 4,500

290,760Expenditure:Sundry Expenses (W) 96,000Loan interest (W) 1,080Depr. of Equipment (W) 1,000Depr. of Clubhouse (W) 25,500 123,580Surplus of Income over Expenditure 167,180

93Topic 7 Club a/c’s

(c) Balance Sheet as on 31/12/2012 € € €

Fixed Assets: Cost Depr. N.B.V.Clubhouse & Grounds 1,200,000 1,200,000Equipment 86,000 1,000 85,000

1,286,000 1,285,000Investments:7½% Government Investments 38,000Building Society 100,000

1,423,000Current Assets:Bar Stock 5,200Debtors 430Bank 108,710Less Creditors: Amounts falling due within 1 year. 114,340Bar Creditors 3,270Subs. prepaid 2,500 (5,770) 108,570

1,531,570Financed by:Creditors: Amounts falling due after 1 year.Life membership (50,000 ! 5,000) 40,500Levy Reserve Fund (24,000 " 75,000) 99,000Revaluation Reserve 375,500 515,000Accumulated Fund 1/1/2012 849,390" Excess Income 167,180 1,016,570Capital Employed 1,531,570

Notes to Accounts:

(1) Bar. Sales 115,780 ! 900 " 430 # 115,310 Purs. 75,200 ! 2,650 " 3,270 # 75,820 Trading 4,600 " 75,820 ! 5,200 # 75,220 ! 115,310 # 40,090(2) Subs. 275,920 " 2,000 ! 15,000 ! 2,500 ! 75,000 ! 1,250 # 184,170(3) life subs. 35,000 " 15,000 ! 5,000 # 45,000(4) Investment Interest 3,000 ! 150 # 2,850(5) loan Interest 38,780 ! 35,000 # 3,780 ! 1,080 # 2,700(6) Depc. of Equip. 54,000 " 32,000 ! 85,000 # 1,000(7) Revaluation Reserve 350,000 " 25,500 # 375,500

(d) The purchase of land costing €250,000 could be funded as follows: • Sell Investments # €38,000. • Use Building Society A/c # €70,000. • Apply for funding from National Lottery. • Use the Levy Reserve Funding. • Increase Life Membership Fee, or membership numbers. • A Term Loan over five years should be easily granted as the Club is profitable and has adequate security

in the form of Clubhouse & Grounds.


3 BRAY BOXING SOLUTION


Assets Liabilities€ €

Clubhouse 340,000Land 180,000Machinery 34,000Accumulated Deprec. Machinery 13,600Bar Stock 10,700Bar Debtors 700Subscriptions due 7508% Investments 12,000Investment interest due 250Bank current account 2,400Levies due 420Bar Creditors 1,780Life Membership 6,000Levy Reserve Fund 13,000Loan Interest due 1,200Loan 20,000Accumulated Fund 1/1/2012 525,640

581,220 581,220

(b) Income and Expenditure Account for year ending 31/12/2012

€ €IncomeBar Gross Profit W 18,330Subscriptions W 62,950Life Membership W 5,200Catering Profit 13,160Investment Int. W 960Investment Bonds Int. W 625

101,225ExpenditureSundry Expenses 61,420Loss on Sale of Machinery W 2,100Interest on Loan W 2,400Depreciation on Machinery (20% of €60,000) 12,000Depreciation on Buildings (2% of €340,000) 6,800 (84,720)Excess of Income over Expenditure 16,505

(c) Balance Sheet as at 31/12/2012Fixed Assets € € €Land 180,000 180,000Clubhouse 340,000 6,800 333,200Machinery 60,000 22,400 37,600

580,000 29,200 550,800Investments (12,000 " 25,000) 37,000

587,800


Current AssetsBar Stock 12,800Interest on Investments/Bonds 875 due (€625 " €250)Bar Debtors 850

14,525Current LiabilitiesBank Overdraft 3,600Bar Creditors 3,900Subscriptions Prepaid 880 (8,380) 6,145Net Current Assets 593,945Financed ByAccumulated Fund 1/1/2012 525,640Excess of Income over Expenditure 16,505Life Membership W 20,800Levy Reserve Fund (13,000 " 18,000) 31,000

593,945

Notes to Accounts(1) Bar Profit Sales 109,000 " 850 ! 700 # 109,150 Purs. 90,800 ! 1,780 " 3,900 # 92,920 Trading 10,700 " 92,920 ! 12,800 # 90,820 ! 109,150 # 18,330(2) Subs. 103,000 ! 20,000 ! 880 ! 18,000 ! 420 ! 750 # 62,950(3) life subs. 6,000 " 20,000 ! 5,200 # 20,800(4) loan interest 23,600 ! 20,000 # 3,600 ! 2,400 # 1,200(5) 8% Investment income 960 " 250 ! 960 # 250(6) 5% Bonds 5% of 25,000 for 6 months # 625(7) Disposal 8,000 ! 3,200 (2 years) # 4,800 ! 6,900 # (2,100) loss(8) Acc. Depreciation 13,600 ! 3,200 " 12,000 # 22,400(9) Machinery 34,000 " 34,000 ! 8,000 # 60,000

(d) The Club intends to undertake Capital Expenditure of €80,000 in the year 2012. Would you anticipate any difficulties in the funding of such a project?

Funding for a Capital Expenditure Programme can be sourced as follows:

€Realisation/Sale of Investments: 37,000Term Loan 43,000Capital Required: 80,000

The Club should have no difficulty in obtaining the required funding for the following reasons: 1. Investment can be sold realising €37,000. 2. A Term Loan (€43,000), possibly over 3/5 years, should be easily obtained from any financial institution,

as Club is a profitable concern with excellent security in the form of its Land and Clubhouse. 3. Based on the financial results for the year 2012, the Club had a Profit/Excess of Income of €16,505.

When this is added to the Depreciation €18,800, a non-cash item, it would indicate a Cash Inflow from Operating Activities in the region of €35,305. This shows that the Club, based on existing performance, is even capable of repaying the Term Loan within 2 years.


4 CLARA CURLING SOLUTION


Assets Clubhouse 290,000Equipment 15,000Bar Stock 4,100Bar Debtors 2608% Gov. Investments 16,000Interest Due 420Levies Due 1,000 326,780

liabilities life subs. 36,000Subs. prepaid 1,050Bar Creditors 1,450Wages due 200Bank Current 1,850 loan 16,000 Interest Due 800levy Fund 40,000 (97,350)Accumulated Fund 229,430

(b) Income & Expenditure for year ending 31/12/2012

Income Bar Profit 2,950Subs. 26,450life membership 4,200Catering profit 1,700Sponsorship 4,800Entrance fees 700Investment Income 1,280 42,080

Expenditure Coaching (!200) 1,400loan interest 400Depreciation Equipment 2,300Depreciation Clubhouse 5,800 (9,900)Surplus 1/E 32,180

(c) Balance Sheet on 31/12/2012

€ € €Fixed Assets Clubhouse 450,000 — 450,000

Equipment 23,000 2,300 20,7008% Investment 16,000

486,700Current Assets Bank 19,620

Bar Stock 2,800Bar Debtors 140 22,560

CRS falling Due Bar Creditors 250Subs. Prepaid 1,800 (2,050) 20,510

Financed by 507,210Accumulated Fund 229,430Surplus 1/E 32,180Revaluation Reserve 165,800life membership 37,800Levy Reserve Fund 42,000 507,210


Notes to Accounts:

Subs. 36,200 " 1,050 ! 6,000 ! 1,800 ! 2,000 ! 1,000 # 26,450life Subs. 36,000 " 6,000 ! 4,200 # 37,800• Bar Sales 12,400 " 140 ! 260 # 12,280*• Bar Purchases 9,230 " 250 ! 1,450 # 8,030*Bar Trading *12,280 ! (4,100 " *8,030 ! 2,800) # 2,950Investment income 1,700 ! 420 # 1,280/8 $ 100 Investment 100% # 16,000loan interest 1,200 ! 400 this yr/800 due 1/1/Equipment Depc. 15,000 " 8,000/10 # 2,300 p.a.Revaluations Reserve 160,000 " 5,800 # 165,800

(d) Indicate the points you, as treasurer, would made to a proposal to reduce subscriptions by 10%

• If subs. were reduced by 10% ! loss of €2,645 income • Surplus of €32,180 indicates club could afford reduction • Investments €16,000 available to compensate • Bank a/c €19,620 shows further available funds. • Capital life subs. €37,800 available for current use.


5 DUNSHAUGHLIN DRAUGHTS SOLUTION

(a) Accumulated fund on 1/1/2012

€ €Dr Cr

Clubhouse & Land 560,000Equipment 36,000Provision for Deprec. on Equipment 20,000Bar Stocks 29,000Life Membership 40,000Bar Creditors 7,700Bar Debtors 100Levy Reserve Fund 8,000Insurance prepaid 400Catering Stock 1,000Bank Balance 1,300Investment interest due 250Levy due 200Investment 20,000Loan 12,000Stock of Heating Oil 400Accumulated Fund 558,350

€647,350 €647,350

Notes to Accounts

(1) Bar Profit Sales 98,700 " 300 ! 100 " 1,200 # 100,100 Purs. 64,700 " 6,100 ! 7,700 # 63,100 Trading 29,000 " 63,100 ! 22,000 # 70,100 ! 100,100 # 30,000(2) Subs. 49,200 ! 8,000 ! 200 ! 1,000 # 40,000(3) 7.5% Investment 1,750 ! 250 # 1,500 # 7½%/100% # 20,000(4) Interest on loan 1,150 " 230 # 1,380(5) Equipment 36,000 ! 10,000 " 14,000 # 40,000(6) Acc. Depc. on Equip. 20,000 " 3,800 ! 5,000 # 18,800(7) Catering 1,000 " 1,500 ! 700 # 1,800 ! 4,500 # 2,700(8) Insurance 2,200 " 400 ! 200 # 2,400(9) Depc. Equip. 2,600 " 500 " 700 # 3,800(10) Disposal 10,000 ! 5,000 ! 4,000 # 1,000 (loss)(11) Light & heat 5,400 " 400 ! 600 " 700 # 5,900


(b) Income and Expenditure account for year ending 31/12/2012

€ €Income Dr CrGross Profit on Bar W 30,000Interest W 1,500Subscriptions W 40,000Disco Profit (40,400 ! 14,100) 26,300Catering Profit W 2,700Annual Grant 3,000

103,500Less ExpenditureLight and Heat W 5,900Insurance W 2,400Interest on Loan W 1,380Depreciation W 3,800Loss on Sale of Equipment W 1,000 (14,480)

89,020

(c) Dunshaughlin Draughts Balance Sheet on 31/12/12

€ € €Fixed AssetsClubhouse 640,000Equipment 40,000 18,800 21,200Financial Assets 661,200Investment 20,000 Prize Bonds 20,000 40,000Current Assets Bar Stock 22,000 Catering Stock 700 Oil Stock 600 Bar Debtors 300 Insurance prepaid 200 23,800Creditors falling due less than 1 yr Bank 1,600 Bar Creditors 6,100 Subs. prepaid. 1,000 Electricity Due 700

14,170 Loan Interest Due 230 (9,630) Financed by 715,370Creditors falling due for more than 1 yr. Acc. Fund 558,350 " Surplus 89,020 loan 12,000life subs. 40,000Levy Fund 16,000 68,000

715,370


(d) What are the main differences between a levy and a subscription?

Levy ! Non Regular income! Not part of ordinary activity! Appears in Balance sheet! Example of capital income

Subscription ! Annual & Regular! Used for normal expenditure! Appears in Income & Expenditure

(e) Treasurer • Looks after finances i.e. has control over receipts and payments • Maintains proper records • Prepares accounts • Presents financial report to A.G.M.


6 ELPHIN EQUESTRIAN SOLUTION

(a) Accumulated Fund, on 1/1/2012

Assets Liabilities€ €

Clubhouse 350,000Land/Stables 400,000Machinery 44,000Bar Stock 11,700Bar Debtors 1,250Subscriptions due 1,2008% Investments 20,000Investment interest due 620Levies due 300Bank current account 4,400Bar Creditors 5,550Life Membership 16,000Levy Reserve Fund 20,000Loan Interest due 880Loan 24,000Accumulated Fund 1/1/2012 758,240

829,070 829,070

(b) Income and Expenditure account for year ended 31/12/2012

€ €Income Bar Gross Profit W 51,340 Subscriptions W 103,260 Life Membership (25%) W 5,000 Annual Grant 17,500 Catering Profit 10,000 Investment Interest W 1,600 Investment Bonds Interest 375

189,075Expenditure Sundry Expenses 85,900 Loss on Sale of Machinery 7,000 Interest on Loan (12 months) W 2,640 Deprec. on Machinery (20% of € 85,000) 17,000 Deprec. on Buildings (2% of € 350,000) 7,000 (119,540) Excess of Income over Expenditure 69,535


(c) Balance Sheet as at Club 31/12/2012

Cost Acc. Dep. N B VFixed Assets: € € €Land & Stables 400,000 400,000Clubhouse 350,000 7,000 343,000Machinery (€64,000 ! 9,000 " 30,000) 85,000 17,000 68,000

835,000 24,000 811,000Investments (€20,000 " €25,000) 45,000

856,000Current AssetsBar Stock 9,700Interest on Investments/Bonds due (W) 1,395Bar Debtors 1,540Cash at Bank 18,580

31,215Current LiabilitiesBar Creditors 8,800Subscriptions Prepaid 640 (9,440)Net Current Assets 21,775 Net Assets 877,775Financed By:Accumulated fund 1/1/2012 758,240Excess if Income over Expenditure 69,535Life Membership (W) 15,000Levy Reserve fund (€20,000 " €15,000) 35,000

877,775

Notes to Accounts:

(1) Bar Profit Sales 127,500 " 1,540 ! 1,250 # 127,790* Purchases 71,200 " 8,800 ! 5,550 # 74,450* Bar Trading 11,700 " 74,450* ! 9,700 # 76,450 ! 127,790* # 51,340(2) Machinery 44,000 " 50,000 ! 9,000 # 85,000(3) life subs. 16,000 " 4,000 ! 5,000 # 15,000(4) loan interest 12 months # 2,640 ! 3,520 # 880(5) Investment income 8% 1,200 ! 620 " 1,020 # 1,600(6) Subs. 124,400 ! 1,200 ! 640 ! 4,000 ! 15,000 ! 300 # 103,260(7) Investment Interest Due 375 " 1,020 # 1,395

(d) Special Purpose P&L a/c. Sometimes nonprofit making organization such as a club prepare a Profit and Loss account for activities

that are carried out to make a profit e.g. running a club lottery, dances, bar, restaurants etc. All expenses and revenues relating to that particular activities are entered in a special profit and loss account and the profit is than transferred to the income and expenditure account.

(e) What is the difference between annual subscriptions and levy reserve fund? Annual subcriptions collected yearly for Revenue purposes i.e. to pay expenses & Run club for the year. Levy Reserve fund is collected over a number of years for a one off capital project such as grounds development.


7 FERBANE FENCING SOLUTION

(a) Accumulated fund on 1/1/2012

Assets € €7% Investment 15,000Clubhouse 194,000Bar Stock 6,700Equipment 18,600Debtors 240Current a/c. 3,400Debtors a/c 15,000Interest due (3) 1,050Levy due 600 254,590LiabilitiesLife subs. 20,000Creditors 5,280Levy reserve 6,840Depreciation 5,000Loan 12,000Loan interest (6) 1,500 (50,620)Acc fund 203,970

(b) Income & Expenditure for year ending 31/12/2012

Income € €Bar profit (1) 29,550 Subs. (2) 31,000Interest on Deposit 750Interest on 7% Inv. (3) 1,050Interest on 8% Inv. (4) 2,400Disco. Profit 24,600Profit on Equipment (5) 100 89,450ExpenditureSundry Exps. 19,840Int. on Loan (6) 500Depreciation (7) 2,000 (22,340)Surplus 1/E 67,110


(c) Balance Sheet as at 31/12/2012

€ € €Fixed Clubhouse 194,000

Equipment (10) 20,000 5,400 14,600Financial 7% Investments 15,000

8% Investments 60,000 75,000

Current Deposit a/c 15,000 283,600Deposit interest due 250Current a/c 3,600Stock 5,300Debtors 5108% interest due 2,400 27,060

Illegible dueCreditors 4,900Subscriptions 340 (5,240) 21,820T.N.A 305,420

Financed byAccumulated fund 203,970" Surplus 67,110" levy fund 13,840" life subs. 20,500

305,420

Notes to Accounts

(1) BarSales 84,900 " 510 ! 240 # 85,170Purs. 42,100 " 4,900 " 5,280 # 41,720Trading 6,700 " 41,720 " 12,500 ! 5,300 # 55,620 ! 85,170 # 29,550

(2) Subs. 39,440 ! 500 ! 600 ! 7,000 ! 340 # 31,000(3) 7% $ 2 # 2,100 i.e. 1,050 Per annum # 1,050(4) 8% of 60,000 for ½ yr # 2,400(5) Sale of Equipment 1,100 ! 1,000 # 100 profit(6) Loan interest 14,000 ! 12,000 # 2,000 i i.e. 500 this yr # 500(7) Equipment 18,600 ! 2,600 " 4,000 # 20,000 @ 10% # 2,000(8) Levy fund 6,840 " 7,000 # 13,840(9) life subs. 20,000 " 500 # 20,500(10) Provision for Depc. 5,000 ! 1,600 " 2,000 # 5,400

(d) The club intends to undertake capital expenditure of €60,000 in 2013. What advice would you give for the handling of such a project?

Funds are available to finance this project through: • Surplus of €67,110 • Bank deposit €15,000, Current €3,600 • Investments €15,000 & €60,000 • Loan repaid so club is ideal client for further borrowing • Levy fund €13,840 • Bank deposit " investment # €90,000 No problem in Covering €60,000 Capital expenditure

David Wilson


8 GALWAY SOLUTION


€ €Assets Clubhouse 300,000

Stock 6,000Equipment 20,000Acc. Depc. (12,000)Debtors 566Subs. Due 750Investment interest Due 400Investment 24,000Bank 2,000Levy Due 450 342,166

Liabs. Life Subs. 35,000Creditors 6,500Levy Fund 40,000Wages Due 3,500Loan 30,000Loan interest due W 2,400 (117,400)Acc. Fund 224,766

(b) Income and Expenditure a/c for year ending 31/12/2012

Income Bar profit W 25,862Inv. interest 5% 1,200Inv. interest 6% 1,050Catering 24,672Subs. W 67,450Life subs. W 5,500Disposal profit W 860 126,594

Exp. Sundry Expenses 41,500Loan interest W 1,200Depc. Equipment W 8,480Depc. Clubhouse 6,000 (57,180)Surplus 1/E 69,414


(c) Balance Sheet on 31/12/2012

Fixed Assets Clubhouse 300,000 6,000 294,000Equipment W 42,400 (14,720) 27,680

321,680Financial 5% Investments W 24,000

6% Investments 30,000 54,000Current Assets

Stock 5,600Debtors 348Bank 25,8426% interest due 1,050 32,840

Crs. falling Due less than 1 yrCreditors 7,890Subs. prepaid 950 (8,840) 24,000

399,680Financed by

Crs falling Due more than 1 yr.Life Subs. W 49,500Levy Fund 56,000Acc. Fund 224,766Surplus 1/E 69,414

399,680

Notes to Accounts

Investment: 1,600 ! 400 " 1,200 " 5%/100% " Investment " 24,000Loan interest 3,600 " 2,400 for 12m Acc. Fund/1,200 6m 1/E. " 1,200Bar Sales 99,652 ! (Cost O/S 6,000 # Purchases 73,390 ! c/s 5,600) " 25,862Disposal 9,600 ! 5,760 " 3,840 ! 4,700 " 860Subs. 105,600 ! 20,000 ! 950 ! 16,000 ! 450 ! 750 " 67,450Life Subs. 35,000 # 20,000 ! 5,500 " 49,500Equipment 20,000 # 32,000 ! 9,600 " 42,400 @ 20% " 8,480Acc. Depc. 12,000 ! 5,760 # 8,480 " 14,720

(d) The club intends to undertake capital expenditure of €120,000 in 2012. What advice would you give for the funding of such a project?

There would be no problem funding this project due to the following: • Surplus of €69,414 more half of Expenditure planned • Bank a/c €25,842 " 20% of payment • Loan Repaid so new borrowing would not be a problem • Sell investments €54,000 almost 50% of expenditure • Use levy fund €56,000, even life subs. €49,500.

TOPIC

8Service Firm a/c’s of

Solutions 2 Anderson 3 Beautiful Body 4 Overweight 5 Weight Watchers 6 Fat Freddies 7 Live Longer. 8 Jumping Up’n Down 9 Mick & Maggie McGuire10 Donal Power


2 ANDERSON CLINIC SOLUTION

(a) Profit and loss a/c for year ending 31/12/2012

Income€ €

Investment income W 9,600 Medical insurance scheme W 47,100 Profit on sale on equipment W 1,600 Receipts from patients W 94,680

152,980Expenses Interest on mortgage W 14,400 Medical supplies W 24,400 Car expenses 5,200 Light and heat (!5,128) 7,692 Stationery 3,980 Salaries & wages 15,200 Sub. Physiotherapy wages ("900) 2,700 Insurance W 7,020 Sponsorship 3,100 Dep.: Surgery 5,600 Equipment 7,800 Vehicle 4,400 (101,492)Net Profit 51,488

(b) Balance Sheet as at 31/12/2012€

Cost€

Dep.€

NBVFixed Assets Surgery 280,000 16,800 263,200 Equipment 52,000 23,400 28,600

22,000 13,200 8,800354,000 53,400 300,600

Financial Assets Investments (120,000 " 25,000) 145,000

445,600Current Assets Investment income due 5,600 Medical insurance scheme due 4,100 Stock of medical supplies 31/12/12 5,200 Bank W 19,520 Fees from patients due W 560

34,980Less Creditors: amounts falling due within one year Interest due 3,400 Wages due 900 4,300 30,680

476,280Financed by Creditors: amount falling due after more than 1 year

Mortgage 100,000 Capital 368,600 Add Net Profit 51,488Less Drawings W (43,808) 376,280

476,280

109Topic 8 Service Firm a/c’s of Solutions

Notes to Accounts

Loan Interest 9% of 160,000 # 14,400 ! 11,000 # 3,400 (Due)Patients Receipts 94,300 ! 180 " 380 " 180 # 94,680Investment income 8% of 120,000 # 9,600 ! 4,000 # 5,600 (Due)Medical Insurance 46,800 ! 3,800 " 4,100 # 47,100Purchase of supplies 4,600 " 26,400 ! 1,400 ! 5,200 # 24,400Equipment Disposal 18,000 ! 5,400 ! 14,200 # 1,600 (Profit)Bank 20,000 ! 300 ! 180 # 19,520Drawings (35,800 ! 1,800) # 34,000 " 5,128 " 4,680 # 43,808Insurance 11,400 " 300 # 11,700 ! 4,680 # 7,020


3 BEAUTIFUL BODY SOLUTION

(a) Reserves on 1/1/2012€ €

Assets Buildings & grounds (€420,000 ! €25,200) 394,800 Equipment (€80,000 ! €48,000) 32,000 Furniture (€90,000 ! €54,000) 36,000 Investments 30,000 Stock - health foods for resale 2,400 Stock - oil 540 Contract cleaning prepaid 480 Cash at bank 4,200

500,420Less Liabilities Creditors fore supplies 3,680 Clienta’ Fees in Advance 5,400 Loan 40,000 Interest on loan W 2,200 Issued Capital 400,000 (451,280)Reserves 49,140

(b) Profit and Loss Account of shop for year ending 31/12/2012€ €

Shop Receipts/Sales 68,400Less ExpensesCost of Goods sold (€2,400 " €39,600 ! €3,200) 38,800Light and heat W 330Insurance 900Telephone 200Wages and Salaries W 7,200 (47,430)

20,970

(c) Profit and Loss Account for year ending 31/12/2012€ €

Income Interest received 4,250 Profit on health shop 20,970 Customer’s Fees W 221,870

247,090Less Expenses Wages and Salaries W 84,200 Insurance W 6,900 Light and heat W 3,370 Purchases–supplies W 41,320 Loan Interest W 800 Laundry 2,300 Postage and Telephone 2,200 Depreciation: Buildings 9,800 Equipment 18,400 Furniture 18,000 Contract Cleaning W 4,580 (191,870)Net Profit for year 55,220Add Reserves 1/1/2012 49,140Profit and Loss balance 31/12/2012 104,360


(d) Balance Sheet as at 31/12/2012

€ € €Cost Dep. NBV

Fixed Assets Buildings & Grounds W 650,000 — 650,000 Equipment W 92,000 66,400 25,600 Furniture 90,000 72,000 18,000

832,000 138,400 693,600Financial Assets Investments 30,000

723,600Current Assets Closing Stock - shop goods 3,200 - oil 720 Cleaning prepaid 31/12/2012 700 Customers Fees due 31/12/2012 ("110 cheque) 780

5,400Less Creditors: amounts falling due within 1 year Bank Overdraft ("110 cheque) 21,760 Electricity due 31/12/2012 480 Advance deposits 5,200 Creditors for supplies 2,200 (29,640) (24,240)

699,360Financed by Share Capital and Reserves Auth’d Issued Ordinary Shares 600,000 400,000 Revaluation Reserve 195,000 Profit and Loss balance 31/12/2012 104,360 699,360

699,360

Notes to Accounts€

1 Loan interest 3,000 ! 2,200 # 800 2 Fees 221,000 " 5,400 ! 5,200 " 670 # 221,870 3 Wages 91,400 ! 7,200 # 84,200 4 Insurance 7,800 ! 900 # 6,900 5 Light & heat 540 " 3,400 ! 720 ! 330 " 480 # 3,370 6 Purchases Supplies 42,800 " 2,200 ! 3,680 # 41,320 7 Buildings 420,000 " 70,000 " 160,000 # 650,000 8 Revaluation Reserve 160,000 " 35,000 # 195,000 9 Depc. of Blgs. 25,200 " 9,800 ! 35,000 # nil10 Contract Cleaning 4,800 " 480 ! 700 # 4,580

(e) Explain the purpose of preparing service Firm accounts. • For Revenue (tax) requirements • Requirement for bank loan and overdraft facilities • For valuation and comparison purposes • For analysis with different departments • Required as a member of an affiliated associated


4 OVERWEIGHT HEALTH SOLUTION

(a) Reserves on 1/1/2012

€ €Assets Builders (200,000 ! 8000) 192,000

Equipment (100,000 ! 40,000) 60,000Furniture (50,000 ! 20,000) 30,000Contract clearing 500Stock oil 5805% Investment 75,000Investment interest Due 500Fees Due 3,000Stock shop. 1,000Bank 7,450 370,030

Liabilities. Creditors supplies 4,500Fees prepaid 5,800Capital 200,000Loan 30,000Interest Due 4,000 244,300 Reserves 1/1/12 125,730

(b) Profit and Loss a/c of Shop for year ending 31/12/2012€ €

Receipts 15,400! Cost (1,000 " 400 Due. " 14,350 ! 1,730) 14,020 Gross Profit 1,380! Wages 400 Insurance 425 Telephone 145 (970) Profit 410

(c) Profit & loss a/c for y/r 31/12/2012€ €

Income Profit from Shop (w) 410Members fees (w) 121,350Investment income (w) 4,150 125,910

Exps. Wages & salaries 110,850Insurance (!425) 3,825Cleaning (w) 3,600light & heat (w) 1,330Telephone (!145) 1,305loan interest 2,000Bank Changers 100Depreciation Buildings 4,400 Equipment 20,500 Furniture 10,000Purchases solution 6,300 164,210 Net loss for year (38,300) !Reserves 1/1/12 125,730P & L 31/12/12 87,430


(d) Balance sheet as at 31/12/2012

€ € €Fixed Buildings 350,000 Equipment 110,000 60,500 49,500 Furniture 50,000 30,000 20,000

419,500 Investments 5% 75,000 4% 20,000 95,000 Current Stocks Shop 1,730 Oil 200 Supplies 1,100 Fees Due (800 " 200) 1,000 Cleaning prepaid 250 Investment interest due. 4,050 8,330 !CRS falling Due less then 1yr Creditors centre 650 Shop 400 Bank 89,700 Fees Prepaid 2,250 (93,000) (84,670)

489,830 Fixed CRS falling due more then 1yr Auth. Issued Share capital 400,000 200,000 Revaluation Reserve 142,400 " P & L 87,430

429,830

Notes to Accounts

Fees 120,000 ! 3,000 " 5,800 " 800 ! 2,250 # 121,350Inv. income 5% " 4% # 3,750 " 400 # 4,150Inv interest due 3,750 " 400 # 4,150 " 500 ! 600 # 4,050Cleaning 3,350 " 500 ! 250 # 3,600light & heat 950 " 580 ! 200 # 1,330loan Interest 6,000 / 6 m P & L 2,000 / 12 m Res. 4,000Purs. Supplies 11,250 ! 4,500 " 650 ! 1,100 # 6,300Depc. Equip. 20,000 " 3 m @ 20% of 10,000 # 500 # 20,500Reval. Res. 130,000 " 8,000 " 4,400 # 142,400Bank O/D 89,400 " 200 " 100 # 89,700Wages and Salaries 111,250 ! 400 # 110,850

(e) Explain what is meant by enterprise analysis account Enterprise analysis accounts are prepared by service providers who wish to break down Activities / Profit

between the different sections of their business e.g. health shop & health centre.


5 WEIGHT WATCHERS SOLUTION

(a) Reserves on 1/1/2012Assets € € Buildings (240,000 ! 14,400) 225,600 Equipment (30,000 ! 18,000) 12,000 Furniture (12,000 ! 5,400) 6,600 Investments 40,000 Opening Stock - health foods for resale 3,100 - heating oil 240 Contract cleaning prepaid 640 Bank 1/1/2012 10,600

298,780Less Liabilities Creditors for supplies 3,450 Clients’ Fees prepaid 1,800 Loan 12,500 Interest on loan due (W) 1,688 Issued Capital 270,000 (289,438)Reserves 9,342

(b) Profit and Loss Account of shop for year ending 31/12/2012€ €

Shop Receipts/Sales 38,150Less Expenses Cost of Goods sold 19,450 Telephone (3,100 " 20,050 ! 3,700) 320 Wages and Salaries (W) 5,600 Insurance (W) 450 Light and Heat (W) 600 (26,420)

11,730

(c) Profit and Loss Account for year ending 31/12/2012Income Investment Income W 1,600 Profit on health shop W 11,730 Clients’ Fees W 92,275

105,605Less Expenses Wages and Salaries W 45,325 Insurance W 5,950 Light and Heat W 2,650 Purchases – supplies W 7,250 Interest on loan W 187 Laundry 2,600 Postage and Telephone W 1,520 Depreciation: Buildings 5,200 Equipment 6,900 Furniture 1,800 Contract Cleaning W 7,250 86,632Net Profit for year 18,973Add Reserves 1/1/2012 9,342Profit and Loss balance 31/12/2012 28,315


(d) Balance Sheet as at 31/12/2012

€ € €Cost Dep. NBV

Fixed Assets Building W 290,000 – 290,000 Equipment W 34,500 24,900 9,600 Furniture 12,000 7,200 4,800

336,500 32,100 304,400Financial Assets 40,000 Investments 344,400Current Assets Bank. 4,090 Closing Stock - shop goods 3,700 - heating oil 180 Cleaning prepaid 31/12/2012 700 Clients’ Fees due 31/12/2012 # (475 " 110) 585

9,255Less Creditors: amounts falling due within 1 year Electricity due 31/12/20 90 Clients’ Fees prepaid 2,400 Creditors for supplies 3,250 (5,740) 3,515

347,915Financed byShare Capital and Reserves Auth’d. Issued Ordinary Share 325,000 270,000 Revaluation Reserve W 49,600 319,600 Profit and Loss balance 31/12/2012 28,315

347,915

Notes to Accounts

€Loan interest 1,875 ! 1,688 # 187Fees 92,400 " 1,800 " 475 ! 2,400 # 92,275Wages 50,925 ! 5,600 # 45,325Insurance 6,400 ! 450 # 5,950light & heat 3,100 " 240 " 90 ! 180 ! 600 # 2,650Purchases 7,450 " 3,250 ! 3,450 # 7,250Postage & Telephone 1,840 ! 320 # 1,520Buildings 240,000 " 20,000 " 30,000 # 290,000Revaluation Reserve 30,000 " 5,200 " 14,400 # 49,600Contract Cleaning 7,310 " 640 ! 700 # 7,250Bank 4,200 ! 110 # 4,090

(e) What factors would a bank manger consider before granting or not granting a €50,000 loan to the business for refurbishing of existing premises?

• Overdraft of €4,210 currently exists • Profit for year only €18,972, poor return. • Has buildings €290,000 as security • Investments of €40,000 could be used to pay off loan • Will this increased expenditure improve business prospects.


6 FAT FREDDIES SOLUTION

(a) Reserves on 1/1/12Assets: € €Buildings (600,000 ! 24,000) 576,000Equipment (300,000 ! 120,000) 180,000Furniture (150,000 ! 60,000) 90,000Stock 3,000Oil 1,740Cleaning prepaid 1,5005 % Investments 225,000Investment interest due 1,500Bank 22,350Fees due 9,000 1,110,090Liabilities:Clients prepaid 17,400Creditors 13,500Loan 90,000Loan Interest due 12,000Capital 600,000 (732,900)

377,190

(b) Profit and Loss Account of Shop for year ending 31/12/2012€ €

Receipts 146,200Less cost of salesOpening Stock 3,000Purchases 42,750Add due 400Less closing stock (1,730) 44,420Gross Profit 101,780Less Wages 8,000Insurance 1,260Telephone 480 9,740Profit on shop 92,040

(c) Profit and Loss account for year ending 31/12/2012IncomeShop Profit 92,040Annual Grant 10,000Investment interest 11,850Clients Fees 354,050 467,940Less ExpenditureBank charges 100Insurance (90 %) 11,340Telephone (90 %) 4,320Wages (!80,000) 145,750Loan Interest 6,000Cleaning 6,150Light and Heat 4,100Purchases of supplies 26,830Depreciation - Buildings 13,300Depreciation - equipment 61,000Depreciation - Furniture 30,000 308,890Profit 159,050Add Reserves 1/1/2012 377,190Profit and Loss 31/12/2012 536,240


(d) Balance Sheet as at 31/12/2012Fixed Assets Cost Depc. ValueBuildings 850,000 850,000Equipment 320,000 181,000 139,000Furniture 150,000 90,000 60,000Financial4% Bonds 30,0005% Investments 225,000

1,304,000Current AssetsClosing stock (1,730/200) 1,930Supplies 1,100Cleaning prepaid 550Bank 53,520Clients fees due 5,350Interest due 11,550 74,000Creditors falling due for less than I yearCreditors shop 400Creditors centre 9,560Fees prepaid 9,500 (19,460)

54,540Total Net Assets 1,358,540Financed by:

Authorised IssuedShare Capital 900,000 600,000Profit and Loss balance 536,240Revenue Reserve 222,300

1,358,540

Notes to AccountsLoan Interest 18,000 # 12,000 " 6,000 # 18,000Fees 350,000 ! 9,000 " 17,400 ! 9,500 " 5,150 # 354,050Investment interest 5% 11,250 " 4% 600 ! 1,800 ! 1,500 # 11,550 dueCleaning 5,200 " 1,500 ! 550 # 6,150Light and Heat 2,560 " 1,740 ! 200 # 4,100Purchases of supplies 31,870 ! 13,500 " 9,560 ! 1,100 # 26,830Bank 53,820 ! 100 ! 200 # 53,520Depc. of Equipment 60,000 " 1,000 # 61,000Revaluation Reserve 185,000 " 13,300 " 24,000 # 222,300

(e) Would a bank loan €100,000 for Capital investment to Fat Freddies based on your accounts? Give reasons for your answer.

Yes based on the following: • Profit in shop €92,040 • Total Profit of centre €159,050 " Reserves €377,190 • Investments & Bonds valued €225,000 " €30,000 • Buildings as security worth €850,000 • Current Asset Ratio of 3.8:1 • No existing debt.


7 LIVE LONGER SOLUTION Note: Account year ending 30/9/2011(a) Reserves on 1/10/2010

Assets € €Buildings and Grounds (€350,000 ! €14,000) 336,000Equipment (€80,000 ! €32,000) 48,000Furniture (€30,000 ! €12,000) 18,000Investments 60,000Investment interest due 600Stock—Health Food (shop) 2,800Stock—Oil 800Contract cleaning prepaid 400Fees owed by members 2,600Bank balance 25,000Less LiabilitiesCreditors for supplies 8,800Advance fees from members 8,300Loan 50,000Interest on loan (6 months) 2,000Issued Capital 180,000Reserves 1/10/2010 245,100

494,200 494,200

(b) Profit and Loss Account for Shop year end 30/09/2011

€ €Shop Receipts—Sales 28,300Cost of goods sold Stock 1/10/2010 2,800 Purchases – shop (€14,700 " €900) 15,600

18,400 Stock 30/9/2011 3,700 14,700Gross Profit 13,600 Wages 6,000 Insurance 850 Telephone and Postage 290 7,140Profit from Health Shop 6,460


(c) Profit and Loss account for year ending 30/9/2011Income € € Profit from Health Shop W 6,460 Members Fees W 245,300 Investment Income W 3,600 255,360Less Expenses Wages and Salaries W 98,500 Insurance (!850) 7,650 Contract Cleaning W 6,600 Light and Heat W 2,300 Telephone and Postage 2,610 Purchases – health supplies W 12,800 Bank Charges 360 Depreciation – Buildings 7,000 – Equipment 16,000 – Furniture 6,000 Loan Interest W 4,000 163,820Net Profit for the year 91,540 Add Reserves 1/10/2010 245,100Profit and Loss Balance 30/9/2011 336,640

(d) Balance Sheet at 30/9/2011€ € €

Cost Acc. Dep. NetFixed AssetsBuildings W 500,000 500,000Equipment (€80,000 " €20,000) 100,000 48,000 52,000Furniture 30,000 18,000 12,000

630,000 66,000 564,000Investments (€60,000 " €40,000) 100,000

664,000Current AssetsStocks – Shop 3,700 – Heating Oil 400 – Health Supplies 2,200 6,300Member’s Fees due (1,600 " 480) 2,080Investment Income due 3,000Loan to Staff Member 18,000Contract cleaning prepaid 500 Bank 460

30,340Less Creditors, amount due within one yearCreditors – Health Centre 1,300 – Shop 900Members Advanced Deposit 4,500 (6,700)Net Current Assets 23,640

Net Assets 687,640Financed by Authorised Issued

€ € Share Capital 400,000 180,000 Revaluation Reserve W 171,000 Profit & Loss balance 30/9/11 336,640

687,640


Notes to Accounts

€Fees 242,500 " 8,300 " 1,600 ! 2,600 ! 4,500 # 245,300Inv. income 2,400 " 600 ! 1,200 # 1,800 Due" Bond interest # 1,200Total interest 2,400 " 1,200 # 3,600Wages/Salaries 122,500 ! 6,000 ! 18,000 # 98,500Cleaning 6,700 " 400 ! 500 # 6,600Light and Heat 1,900 " 800 ! 400 # 2,300Purs. supplies 22,500 " 1,300 ! 8,800 ! 2,200 # 12,800loan interest 6,000 ! 2,000 # 4,000 this yrRevaluation Reserve 150,000 " 14,000 " 7,000 # 171,000Buildings 350,000 " 150,000 # 500,000Bank 1,300 ! 360 ! 480 # 460

}


8 JUMPING UP’N DOWN EXERCISE CENTRE SOLUTION

(a) Reserves on 1/1/2012

Assets: € €Buildings (!39,600) 620,400Equipment (!24,300) 29,700Vehicle (!36,000) 24,000 Stock 3,960 Oil 1,920 Cleaning prepaid 240 5% Investments 36,000 Bank 9,900 726,120Liabilities:Clients prepaid 4,800Creditors 1,200Loan 48,000Loan Interest due W 7,560Capital 384,000 (445,560)Accumulated Fund 280,560

(b) Profit and Loss Account of Shop for year ending 31/12/2012

€ €Receipts 48,000Less cost of sales 3,960Opening stock 33,600Purchases (1,800) (35,760)Less closing stock 12,240Gross ProfitLess Wages 8,640Insurance 960Light and Heat 300Telephone 420 10,320Profit on shop 1,920


(c) Profit and Loss account for year ending 31/12/2012

Income€ €

Shop Profit 1,920Investment interest W 1,800Clients Fees W 407,400 411,120Less ExpenditureLaundry 2,400Insurance (!960) 6,720Telephone (!420) 1,500Wages (!8,640) 93,960Loan Interest 2,160Cleaning W 3,960Bad Debt 720Light and Heat W 5,364Purchases of supplies W 44,040Depreciation – Buildings 18,000Depreciation – Equipment W 10,800Depreciation – Vehicle W 11,040Loss on sale of vehicle W 9,600 210,264Profit 200,856Add Reserves 1/1/2012 280,560Profit and Loss 31/12/2012 481,416

(d) Balance Sheet on 31/12/2012

€ € €Fixed Assets Cost Depc. ValueBuildings 1,080,000 1,080,000Equipment 72,000 35,100 36,900Vehicle 50,400 5,040 45,360Financial 1,202,400 40,140 1,162,2605% Investments 36,000

1,198,260Current AssetsClosing stock (1,800 " 360) 2,160Cleaning prepaid 480Clients fees due 600Interests due 600 3,840Creditors falling due for less than 1 yearCreditors 2,160Fees prepaid 6,000Bank Overdraft 90,540Electricity due 384 99,084 (95,244)Total Net Assets 1,103,016

Financed by: Auth. IssuedShare Capital 540,000 384,000Profit and Loss balance 481,416Revaluation Reserve 237,600

1,103,016


Notes to Accounts€

Loan to Interest 9,720 ! 7,560 # 2,160Fees 408,000 " 4,800 ! 6,000 " 600 # 407,400Investment interest due 1,800 ! 1,200 # 600Cleaning 4,200 " 240 ! 480 # 3,960Light and Heat 1,920 " 3,720 ! 360 ! 300 " 384 # 5,364Purchase of supplies 43,080 ! 1,200 " 2,160 # 44,040Vehicle 42,000 " 8,400 # 50,400Accumulated Depreciation # 5,040Disposal 60,000 ! 36,000 ! 6,000 ! 8,400 # 9,600Depreciation this year 6,000 " 5,040 # 11,040Revaluation 39,600 " 18,000 " 180,000 # 237,600Depc of Equipment # 10,800

(e) Comment on the liquidity position of the centre Serious liquidity problem as current rate is 0.04:1 with the business being entirely financed & dependent

on bank O/D facilities. O/D currently over 90,000, so surplus of 200,000 must be used immediately to alleviate cash flow problems. Repayment of O/D should solve liquidity problems and reduce accumulated interest on this loan.


9 MCGUIRE SOLUTION

(a) Statement of Capital 1/1/2012

Assets € € Land & Buildings 560,000 Machinery 100,000 Investments 40,000 Milk cheque due 4,400 Cattle 112,000 Sheep 34,000 Fuel 1,400 Bank 5,000 856,800Liabilities Electricity due 700 Bank Loan 30,000 Loan Interest due 2,400 33,100Capital 823,700

(b) Enterprise Analysis Account – Cattle and Milk

Income € € Sales – Milk 53,500 – Cattle & Calves (22,000 " 11,600) 33,600 Beef premium 4,600 Increase in stock 2,000 Drawings by family 1,320 95,020Expenditure Purchases – cattle 30,000 Dairy wages 3,400 General farm expenses (60%) 17,760 Fertiliser 3,840 Vet fees (! VH1 $ 60%) 1,260 56,260 Gross profit 38,760

Enterprise Analysis Account – Sheep

Income € € Sales – Sheep & Lambs (42,000 " 24,800) 66,800 Ewe premium 7,600 Wool 2,800 Increase in stock 4,000 Drawings family 500 81,700Expenditure Purchases – sheep 36,000 General farm expenses (40%) 11,840 Fertiliser 2,560 Veterinary Fees (! VH1 $ 40%) 840 51,240 Gross profit 30,460


(c) General Profit and Loss Account for year ending 31/12/2012

Income € € Gross profit – Cattle and milk 38,760 – Sheep 30,460 Interest 3,200 Forestry premium 3,600 76,020Expenditure Light, heat and fuel (80%) 5,040 Repairs (80%) 9,760 Machinery Depreciation 16,000 Loan interest 480 31,280Net Profit 44,740

Notes to Accounts1. Interest Payable € € 15 months interest # 8% $ 1.25 years # 10% 110% # 33,000 10% # 3,300 Interest due for last yr. 2,400 Interest for year 2012 600 Less Drawings (120) # 4802. Milk sales Add due 31/12 54,000 Less due 1/1 3,900 Enterprise Account (4,400) # 53,5003. Veterinary fees 3,300 Less VHI (1,200) 2,1004. Interest Receivable 1,600 Add Interest due 1,600 3,2005. Light Heat and Fuel 6,700 Add Stock 1/1 1,400 Less due 1/1 (700) Less Stock 31/12 (1,100) Less Drawings (20% of 6,300) (1,260) Profit and Loss # 5,040

(d) 1. Which account, other than drawings, is affected by farm produce used by the family?

Drawings DebitedSales Credited

(Sales are credited instead of Purchases as farm produce is produced rather than Purchased) 2. Prepare McGuire’s drawings account.

Drawings a/c € €Cattle & Milk 1,320 Sheep 500Interest 120Vet fees 1,200Heat & light 1,260Prepairs 2,440Cash 15,400Depreciation of Machinery 4,000 26,240


10 DONAL POWER SOLUTION

(a) (i) Enterprise analysis a/c Cattle and Milk for year ending 31/12/2012

€ €Sales of Cattle 180,000Sales to Creamery 58,000EU Subsidy 5,000Drawings by family 3,200

246,200Less Cost of SalesStock of Cattle 1/1/ 50,000" Purchases 88,000" Vet’s Expenses 4,400" Fertilisers 6,000" Feedstuffs 3,600

152,000! Closing Stock Cattle (58,000) (94,000)Profit on Cattle " Milk 152,200

(ii) Enterprise analysis a/c Sheep for year ending 31/12/2012

Sales — sheep 26,400EU Subsidy 2,400

28,800Less Cost of SalesStock 1/1/12 24,000" Purchases —" Vet’s Expenses 2,200" Fertilisers 6,000" Feedstuffs 5,400

37,600! Closing Stock (8,400) (29,200)Gross Loss on Sheep (400)

(iii) Enterprise analysis a/c Bedding Plants for year ending 31/12/2012

Sales 54,000Drawings by Family 1,600

55,600Less Cost of SalesOpening Stock —" Purchases 11,000" Fertilisers 2,000

13,000! Closing Stock — (13,000)Gross Profit on Bedding Plants 42,600


(b) Trading and Profit and Loss a/c for year ending 31/12/2012

Profit on Cattle & Milk 152,200Loss on Poultry (400)Profit on Strawberries 42,600Overall Gross Profit 194,400" Income Rent Receivable 12,000

206,400! Expenses Wages 14,400 Rates 8,200 Insurance 10,200 Repairs 3,800 Debenture Interest 4,000 Bank Charges 400 Deprec. — Buildings 25,600 — Machinery 75,000 (141,600) Net Profit 64,800! Taxation (24,000)Retained Profit 40,800

(c) Balance Sheet as at 31/12/2012

€ € €Fixed Assets Cost Dep. NetLand " Buildings 1,400,000 — 1,400,000Machinery 300,000 235,000 65,000

1,700,000 235,000 1,465,000Current AssetsStocks 31/12 — Cattle 58,000

— Fertilisers 10,000— Poultry 8,400— Feedstuffs 4,600

Rent Receivable due 1,800Milk Cheque due 6,000EU Subsidy due 7,400Bank 171,480

267,680Less Creditors falling due less than 1yr Creditors 43,080 Debent. Interest due 4,000 Taxation due 24,000 71,080 196,600Taxation Assets less Current Liabilities 1,661,600Financed ByCapital 1/1 1,180,000" Revaluation Reserve 245,600" Retained Profit 40,800! Drawings (4,800) 1,461,600Debentures 200,000

1,661,600


(d) How might power improve the overall profitability of the farm? The sheep operation should be ceased and the five acres transferred to the other two enterprises. The Bedding Plants seems to be the most profitable, yielding a profit of €42,600 from only 35 acres. The

cattle and milk enterprise is profitable, yielding €152,200 but from 260 acres. The farmer, Donal Power, should investigate the possibility of expanding his bedding plant operation

contracting his cattle and milk operation. He might also consider agri-tourism for the five acres presently used in sheep production.

(e) Write a brief comment on the profitability of this business. The Return on Capital employed is not very high (i.e. the profit as a % of the resources invested in the

business.)Net Profit " Interest

$ 100Capital Employed(64,800 " 4,000)

$ 1001,661,600

# 4.14%.

This is much too low as risk free investment in the bank would yield a similar return.

TOPIC

9Cash Flow Statements

Solution2 Mary T3 Mags4 Nash5 Pinnacle6 On line7 Quigley8 Relihan


2 MARY T. SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow Operating ActivitiesOperating Profit 164,400Depreciation for year 49,200Profit on sale of fixed assets (43,200)Increases in stock (19,200)Increases in Debtors (16,800)Decrease in Creditors (19,200)Net cash flow from operating active 115,200

Cash Flow Statement of Mary T. Plc for the year ended 31/12/2013

€ €Operating ActivitiesNet cash flow from operating activities 115,200Return on Investment and Servicing of FinanceInterest paid (14,400)TaxationTax paid (73,200)Capital Expenditure and Financial InvestmentSale of fixed assets 74,400Purchase of fixed assets (54,000)Purchase of investments (15,600) 4,800Equity DividendsDividends paid (67,200)Net cash flow before liquid resources and financing (34,800)FinancingRepayment of Debentures (36,000)Issue of ordinary shares 72,000Share Premium 18,000 54,000

19,200

Reconciliation of Net Cash to Movement in Net Debt

Increase in cash 19,200! Cash received from Debentures 36,000Changes in net debt 55,200Net Debt at 1/1/2012 (57,600)Net Debt at 31/12/2012 (2,400)

WorkingsTotal

Tax 58,800 ! 64,800 " 50,400 # 73,200Depreciation on Buildings 85,200 ! 21,600 " 90,000 # 16,800Dividends 48,000 " 16,800 " 74,400 # 43,200Dividends 45,600 ! 62,400 " 40,800 # 67,200Net Debt 1/1 144,000 " 86,400 # 57,600

131Topic 9 Cash Flow Statements Solution

(b) 1. Outline the benefit of preparing a cash flow statement. • They highlight chief sources of inflow and outflow of cash • Predict possible future flows of cash • As part of financial planning • They assess the liquidity of the business • They show the difference between cash and profit • They are a requirement according to company legislation

2. Distinguish between a cash expense and a non cash expense. The following items affect profit but do not affect cash, called non-cash items • Credit sales • Credit purchases • Depreciation • Discounts • Provision for bad debts The following affect cash but not profit • Purchase and sale of fixed assets • Repayment of loans and other liabilities • Receipt of capital/debenture loan

Cash is the amount of money available/left over at year endProfit is the difference between the revenue earned and the cost of those goods

i.e the money made after all costs are deducted


3 MAGS SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow Operating Activities€

Operating Profit 210,000Depreciation for year 112,500Profit on sale of fixed assets (4,500)Increase in stock (22,500)Increase in Debtors (15,000)Increase in Creditors 33,000Net cash flow from operating activ. 313,500

Cash Flow Statement of Mags Plc. for the year ended 31/12/2012

€ €Operating ActivitiesNet cash flow from operating activities 313,500Return on Investment and Servicing of FinanceInterest paid (10,200)TaxationTax paid (57,000)Capital Expenditure and Financial InvestmentSale of fixed assets 52,500Purchases of fixed assets (112,500)Purchase of investments (45,000) (105,000)Equity DividendsDividends paid (82,500)Nat cash flow before liquid resources and financing 58,800Management of Liquid ResourcesPurchase of Government Securities (18,000)FinancingRepayment of Debentures (157,500)Issue of ordinary shares 60,000Share Premium 33,000 (64,500)Change in Cash (23,700)


Change in cash (23,700)Government Securities 18,000" Cash received from Debentures 157,500Change in net debt 151,800Net Debt at 1/1/2012 (253,500)Net Debt at 31/12/2012 (101,700)


WorkingsTotal

Tax 64,500 ! 67,500 " 75,000 # 57,000Depreciation on Machinery 270,000 ! 90,000 " 303,000 # 57,000Disposal Profit 105,000 " 57,000 " 52,500 # 4,500Dividends 51,000 ! 99,000 " 67,500 # 82,500Net Debt 1/1/2012 270,000 " 16,500 # 253,500Interest 12,000 " 1,800 # 10,200

(b) 1. Explain the term solvency. Solvency • Describes when an organization has sufficient cash available to meet it outstanding debts • If Current Assets are greater than creditors falling due with the year then they are solvent 2. Identify a non-cash expense and a non-cash gain. Non-cash Expense Depreciation Loss on sale of Assets Non-cash gain Profit on sale of Assets Discount Received


4 NASH SOLUTION

(a) Reconciliation of Operating Profit to Net Cash Flow from Operating Activities€

Operating profit 168,000Depreciation charges for the year (72,000 ! 18,000) 90,000Profit on sale of machinery (3,600)Increases in stock (18,000)Increases in debtors (12,000)Increases in creditors 26,400Net cash inflow from operating activities 250,800

Cash Flow Statement of Nash Plc for the year ended 31/12/2012

€ €Operating Activities Net cash inflow from operating activities 250,800Returns on investment and servicing of finance Interest paid (8,160)Taxation Corporation tax paid (45,600)Capital expenditure and financial investment Investment (36,000) Payments to acquire tangible fixed assets (90,000) Receipts from sale of fixed assets 42,000 (84,000)Equity dividends paid Dividends paid during the year (66,000) Net cash inflow before liquid resources and financing 47,040Management of Liquid Resources Purchase of Government securities (14,400)Financing Repayment of debentures (126,000) Receipts from issue of share 48,000 Receipts from share premium 26,400 (51,600) Decrease in cash (18,960)Reconciliation of Net Cash to Movement in Net Debt Decrease in cash during period (18,960) Cash used to purchase Government securities 14,400 Cash used to purchase debentures 126,000 Net debt at 1/1/2012 (216,000 " 13,200) 121,440 Net debt at 31/12/2012 (202,800)

(81,360)


(b) 1. Explain the term Accounting Standard This is a method of preparing financial information which is acceptable to the accountancy bodies 2. Identify two Accounting Bodies

S.S.A.P. Statement of Standard Accounting PracticeA.S.B. Accounting Standards BoardF.R.C. Financial Reporting Council (oversees implementation of acc. standards)

Workings€

Interest 9,600 " 1,440 # 8,160Tax 51,600 ! 54,000 " 60,000 # 45,600Dividends 40,800 ! 79,200 " 54,000 # 66,000Machinery Depreciation 216,000 ! 72,000 " 242,400 # 45,600Disposal 84,000 " 45,600 " 42,000 # 3,600


5 ON LINE SOLUTION

(a) 1. Abridged Profit and Loss for year ending 31/12/2012

€Operating Profit 184,000" Interest (80,000)# Profit before Tax 104,000" Tax (46,000)Profit after Tax 58,000" Dividends (48,000)# Profits for year 10,000! P& L 1/1/2012 610,000# P & L 31/12/2012 620,000

Reconciliation of Operating Profit to Net Cash Flow

€Operating Profit 184,000! Stock decrease 84,000! Debtors decrease 62,000! Creditors increase 60,000! Depreciation (W) 120,000! Patents written off 20,000" Profit on Disposal (14,000)Cash flow from Operating Activities 516,000

2. Cash flow Statement for the year ended 31/12/2012 Cash flow statement

€ €Operating ActivitiesNet Cash flow 516,000Ret. on InvestmentInterest Paid (W) (82,000)TaxationTax paid (30,000)Capital ExpenditureSale of Fixed Assets 100,000Pur. of Fixed Assets. (W) (480,000)Pur. of Inv. (240,000) (620,000)Equity DividendsDividends paid (42,000)Net cash before liquid resources & financing (258,000)Management of Liquid ResourcesPur. of Gov Securities (20,000)FinancingShare capital 80,000Debentures 200,000 280,000Change in cash 2,000


Reconciliation of Net Cash to movement in Net Debt

Change in cash 2,000! Pur. of Gov Securities 20,000" Debentures (200,000)# Change in net Debt (178,000)" Net Debt 1/1/2012 (590,000)# Net Debt 31/12/2012 (768,000)

(b) 1. What do the letters ASB and FRC stand for?

ASB Accounting Standards BoardFRC Financial Reporting Council (oversees implementation of acc. standards)

2. Name two other agencies that regulate company accounts. • The Government • EU directives • Accounting bodies • Stock Exchange • Company Acts

Workings:Depreciation 70,000 " 54,000 " 136,000 # 120,000Interest 20,000 ! 80,000 " 18,000 # 82,000Buildings 1,620,000 " 140,000 " 1,960,000 # 480,000


6 RELIHAN SOLUTION

(a) 1. Abridged Profit and Loss for year ending 31/12/2012

€Operating Profit 135,200Less Interest (13,600)Profit before tax 121,600Taxation (48,000)Profit after tax 73,600Dividends for year (43,200)Retained Profit 30,400Profit and Loss balance 1/1/2012 361,600Profit and Loss balance 31/12/2012 392,000

Reconciliation on Operating Profit to Net Cash Flow from Operating Activities

€Operating Profit 135,200Depreciation for year 120,000Profit on sale of fixed assets (8,000)Increase in stock (86,400)Increase on Debtors (48,000)Decrease in Creditors (26,400)Net cash flow from operating activities 86,400

2. Cash Flow Statement of Relihan Plc for year ended 31/12/2012

€ €Operating ActivitiesNet cash flow from operating activities 86,400Return on Investment and Servicing of FinanceInterest paid (13,600)TaxationTax paid (40,800)Capital Expenditure and Financial InvestmentSale of fixed assets 32,000Purchase of fixed assets (152,000)Sale of investments 80,000 (40,000)Equity DividendsDividends paid (43,200)Net cash flow before liquid resources and financing (51,200)Management of Liquid Resources

(56,000)Government securitiesFinancingIssue of Debentures 40,000Issue of ordinary shares 48,000Share Premium 14,400 102,400Change in cash (4,800)



€Decrease in cash (4,800)! Cash used to purchase liquid resources 56,000" Cash received from Debentures (40,000)Change in net debt 11,200Net Debt at 1/1/2012 (67,200)Net Debt at 31/12/2012 (56,000)

WorkingsTotal

Tax 31,200 ! 48,000 " 38,400 # 40,800Depreciation 80,000 " 24,000 " 176,000 # 120,000Disposal Profit 48,000 " 24,000 " 32,000 # 8,000Purchase of fixed asset 392,000 " 48,000 " 496,000 # 152,000Net Debt 1/1/2012 96,000 " 56,000 ! 27,200 # 67,200

(b) 1. Explain why earning profit does not always result in a corresponding increase in cash balances. Credit sales/purchases affect profit but do not affect cash. Non cash losses and gains affect profit but not cash Purchase and sale of fixed assets by cash affect cash but not profit Introduction or withdrawal of capital in cash affect cash but not profit.

2. Write a note on the Accounting Standards Board. The Accounting Standards Board issues new accounting standards called FRS ie. Financial Reporting

Standards. FRS requires large companies to prepare Cash Flow Statements for each activity period and that

individual cash flows be entered under the standard headings (ORTCEMF) according to the activity that gives rise to them.


7 PINNACLE SOLUTION

(a) 1. Abridged Profit & Loss Account for year ending 31/12/2012

€Operating Profit 325,360Interest for the year (14,560)Profit before Taxation 310,800Taxation for year (229,600)Profit after Taxation 81,200Dividends (56,000)Retained profit for the year 25,200Retained profit on 1/1/ 275,800Retained profit on 31/12/ 301,000

(b) Reconciliation of Operating Profit to Net Cash Flow from Operating Activities€

Operating Profit 325,360Depreciation for year 63,000Profit on disposal of fixed assets (35,000)*Increase in Prepayments (1,400)Stock increases (14,000)Debtors decreases 19,600Creditors decreases (28,000)Patent amortised 14,000Net Cash inflow from operating activities 343,560

2. Cash Flow Statement of Pinnacle plc, for year ended 31/12/2012

€ €Operating ActivitiesNet Cash Inflow from operating activities 343,560Return on Investment & Servicing of FinanceInterest Paid (10,360)Taxation Corporation Tax Paid (210,000)Capital Expenditure & Financial InvestmentSale of Buildings 98,000Purchase of Building (63,000)Purchase of Equipment (112,000) (77,000)Equity Dividends Paid Dividends Paid (77,000)Net cash outflow before liquid resources and financing

(30,800)

Management of liquid resourcesPurchase of Government Securities (21,000)FinancingIssue of Ordinary Shares 140,000Share Premium 14,000Repayment of Debenture Loan (84,000) 70,000Increase in Cash 18,200


Reconciliation of net cash flow to movement in net debt.

Increase in cash 18,200Cash used to increase liquid resources 21,000Cash used to repay debentures 84,000Change in net debt 123,200Net debt at 1/1/2012 (163 800)Net debt at 31/12/2012 (40,600)

WorkingsDepreciation 63,000 " (119,000 " 98,000 # 21,000) # 42,000 (Blgs.)Buildings Depc. 140,000 ! 42,000 " 112,000 # 70,000 (Disposal)Buildings 616,000 " (98,000 ! 35,000) " 546,000 # 63,000 (Purchase)Disposal 133,000 " 70,000 " 98,000 # 35,000 (Profit)Interest (10,080 ! 4,480) # 14,560 " 4,200 # 10,360 (Paid)Tax 210,000 ! 229,600 " 229,600 # 210,000 (Paid)Dividends 77,000 ! 56,000 " 56,000 # 77,000 (Paid)Net Debt # Deb " cash " Gov. Sec.

(b) 1. What is the purpose of preparing Cash Flow Statements? • They highlight chief sources of inflow and outflow of cash • Predict possible future flows of cash • As part of financial planning • They assess the liquidity of the business • They show the difference between cash and profit • They are a requirement according to company legislation

2. Explain the learn non-cash items and give two examples. Non-cash items affect Profit but do not affect cash The following affect cash but not profit • Purchase and sale of fixed assets • Repayment of loans and other liabilities • Receipt of capital / debenture loan


8 QUIGLEY SOLUTION

(a) 1. Abridged Profit & Loss Account for year ending 31/12/2012

€Operating Profit 208,512Interest Payable (29,440) (12,800 ! 16,640)Profit before Tax 179,072Tax payable (104,000)Profit after Tax 75,072Dividends (72,000)Retained Profit 3,072Profit & Loss @ 1/1/2012 56,608Profit & Loss @ 31/1/2012 59,680

2. Reconciliation of Operating Profit to Net Cash Flow from Operating Activities

€Operating Profit 208,512! Depreciation 83,200 (72,000 ! 11,200)" Profit on Disposal (22,400)! Amortisation of Patent 19,200" Increase in Prepayments (1,600)! Increase in Bad Debt Provision 128" Drs. increase (3,200)" Stock increase (27,200)" Crs decrease (9,600)Net Cash inflow from Operating Activities 247,040

Cash Flow Statement of Quigley Plc. for ended 31/12/2012

€ €Operating ActivitiesNet Cash inflow from Operating Activities 247,040Returns on Investment and Servicing of FinanceInterest paid (26,240)TaxationTax paid (84,800)Capital Expenditure and Financial InvestmentPurchase of Equipment (168,000)Cost of Extension (40,000)Sale of Equipment 88,000Sale of Quoted Investments 16,000 (104,000)Equity DividendsDividends paid (48,000)Net Cash Outflow before Management of Liquid (16,000)Resources and FinancingManagement of Liquid ResourcesPurchase of Government Securities (16,000)FinancingIssue of Shares 160,000Repayment of Debenture (96,000) 64,000Decrease in Cash 32,000


Change in Cash 2011 2012Cash 1,600 3,200Bank (20,800) 9,600

(19,200) 12,800# 32,000

Reconciliation of Net Cash Flow to Movement in Net Debt

€Increase in Cash 32,000Repayment of Debenture 96,000Purchase of Govt. Securities 16,000Change in Net Debt 144,000Net Debt @ 1/1/2012 (403,200)Net Debt @ 31/12/2012 (259,200)

Net Debt @ 01/01/2012 31/12/2012• Cash/Bank (19,200) 12,800• Debentures (416,000) (320,000)• Government 32,000 48,000

403,200 259,200

WorkingsInterest Tax Dividends

Due 1/1/12 22,400 84,800 48,000! this yr 29,440 104,000 72,000Due 31/12/12 (25,600) (104,000) (72,000)# Paid 26,240 84,800 48,000

Equipment Acc. Depc. L & Blgs. Disposal1/1/12 360,000 57,600 600,000 112,000Disposal (112,000) (46,400) 80,000 (46,400)* Purchase 168,000* 72,000* Depc. 40,000* extension. (88,000)# 31/12/12 416,000 83,200 720,000 22,400

(b) Explain why earning Profit does not always result in a corresponding increase in cost balances.

• Credit sales and purchases affect profit but not cash • Non cash losses and gains affect profit but not cash • Purchase and sale of fixed assets by cash affect cash but not profit • Introduction or withdrawl of capital in cash affect cash but not profit

TOPIC

10Correction of Errors

(Suspense a/c’s) Solutions2 O’Brien3 O’Connell4 O’Driscoll5 O’Farrell6 O’Grady7 O’Halloran8 O’Leary

145Topic 10 Correction of Errors (Suspense a/c’s) Solutions

2 O’BRIEN SOLUTION

(a) JournalDr. Cr.

(i) Equipment 75 Purchases 83Sales Returns 825 Debtors 825Suspense 8(Being car parts returned by a customer entered incorrectly in the books)

(ii) Creditors 15,450Purchases Returns 1,050Suspense 14,400

(Being correction of incorrect recording of returns and recording of a charge for transport costs)

(iii) Equipment 1,800Purchases 18,000

Creditors 36,000Suspense 16,200(Being correction of incorrect recording of the purchase of a motor car on credit)

(iv) Drawings 1,448Discount Allowed 52Debtors 1,500(Being recording of an offset of a private debt owed by Tobin against debt owed by a customer to the firm)

(v) Sales Commission 4,500Creditors 5,100Capital 9,000Disc. Received 600(Being recording of capital introduced used for the purpose of clearing a debt and payment of commission)

(b) Suspense AccountPurchases 8 Creditors 14,400Creditors 16,200 Original difference 1,808

16,208 16,208

(c) O’Brien Net Profit Statement of corrected net profit

Original profit as per Profit and Loss account 78,000Add Purchases returns 1,050

Purchases 83Disc. received 600

79,733Less Discount Allowed 52

Commission 4,500Sales Returns 825Purchases 18,000 (23,377)

Correct Net Profit 56,356


(d) Balance Sheet as at 31 December 2012

Fixed AssetsPremises 270,000Equipment (! 75 ! 1,800) 100,875

370,875Current Assets

Stock (! 1,808) 132,308Debtors (" 825 " 1,500) 89,175

221,483less Creditors falling due less than 1 yr

Creditors (! 36,000 " 5,100 " 15,450) 133,950Bank 52,500

(186,450) 35,033405,908

Financed byCapital (! 9,000) 369,000Add Net Profit 56,356Less Drawings (! 1,448) (19,448) 405,908

405,908

(e) Explain with examples: 1. Error of commission: Correct amount hosted to incorrect a/c e. g.. T. Allen instead of C. Allen 2. Original Entry: Entered in wrong catagory of a/c as the error was made in book of original entry e.g.

Vehicle entered in Purchases a/c.


3 O’CONNELL SOLUTION

(a)

€ € (i) Suspense 1,400

Bank 1,400 (Overdraft brought down on incorrect side) (ii) Sales 4,900

Cash 4,900 Debtors 4,900 Capital 4,900

(Private sale treated as business sale)(iii) Debtor 1,050 1,050

Bank 963 Discount allowed disallowed 87 Bad Debts 1,050

(Record of dishonoured cheque and bad debt)(iv) Suspense 14,000

Bank 14,000 Vehicle 21,000 Capital 21,000

(Capital introduced) (v) Creditors 455

Vehicles 455 Suspense 910 Repairs 280 Drawings 175 Bank 455

(Repairs and drawings omitted)

(b) Suspense a/cDr. Cr.

Bank 1,400Bank 14,000

Creditors 910Original difference 14,490

15,400 15,400


(c) O’Connell Net ProfitStatement of corrected net profit

Original Net Profit 26,250Add Discount disallowed 87

26,337Less Sales 4,900

Bad Debts 1,050Repairs 280 (6,230)Corrected Net Profit 20,107

(d) Corrected Balance Sheet

Fixed Assets € € €Premises 700,000Motor Vehicles (!21,000 ! 455) 56,455Furniture and Equipment 28,000 784,455Current AssetsStock 29,750Debtors (!4,900 ! 1,050 " 1,050) 14,700Cash ("4,900) 700

45,150Less Creditors falling due within 1 yearCreditors ("455 " 14,490) 6,405Bank (!1,400 ! 963 ! 14,000 ! 455) 26,618 (33,023)Net Current Assets 12,127

796,582Financed byCapital (!4,900 ! 21,000) 797,650Add Net Profit 20,107

817,757Less Drawings (!175) (21,175) 796,582

796,582

(e) What is a suspense account and why does it arise? A Suspense a/c is used when you make a mistake in the accounts that prevent the Trial Balance from

balancing. This difference is left in the Suspense a/c until these errors are discovered. Errors are corrected through the Suspense a/c.


4 O’DRISCOLL SOLUTION

(a) Journal

Dr. € Cr. €(i) Repairs a/c

Drawings a/c Premises a/c Suspense a/c

(Being cancellation of entry in premises account and recording of payments in drawings and repairs account.)

(ii) Creditors a/c Purchases Returns a/c Suspense a/c (Being corrections of incorrect recording of a credit note and recording of a charge for returns.)

3,8001,9205,720

55,0401,360

11,440

56,400

(iii) Creditors a/c Purchase Returns a/c Suspense a/c (Being a credit note received entered incorrectly in the creditors and purchase returns accounts.)

10,320216

10,104

(iv) Debtors a/c Bank a/c Discount disallowed a/c Bad Debt a/c Debtors a/c (Being recording of dishonouring a cheque and recording of a bed debt.)

5,200

5,200

4,800400

5,200

(v) Sales a/c Debtors a/c Cash a/c Bank Capital a/c (Being recording of Capital introduced and cancellation of incorrect entries in sales and debtors accounts.)

25,200

25,20025,200

25,200

(b) O’Driscoll net profit Statement of Corrected Net Profit

€ €Original Net Profit as per books 116,000Add

Purchase Returns 216Discount disallowed 400 616

LessRepairs 3,800Purchases Returns 1,360Bad debt 5,200Sales 25,200 (35,560)

Corrected Net Profit 81,056


(c) Suspense AccountDate Details € Date Details €

Original Difference 77,944 Premises Creditors Creditors

11,44056,40010,104

77,944 77,944


Fixed Assets € € €Premises (!5,720) 1,045,720Fixtures and fittings 170,000

1,215,720Current Assets

Stock ("77,944) 66,856Debtors (!5,200 " 5,200 " 25,200) 65,200Cash 16,200

148,256Less: Current Liabilities amounts falling due within one year

Creditors ("55,040 " 10,320) 62,040Bank ("25,200 ! 4,800) 43,600 (105,640) 42,616

1,258,336Financed by:

Capital (!25,200) 1,215,200Add Net Profit 81,056Less Drawings (!1,920) (37,920)

1,258,336

(e) 1. Why do all errors not affect the suspense account? Only errors revealed by the Trial Balance affect suspense such as mathematical errors, Dr. entry but no Cr. &

different amounts entered. 2. Identify 2 errors that do not affect the suspense account. • Errors of original entry (€80 entered as €800 on both sides) • Errors of omission (Cash sales €400 not entered in accounts) • Errors of Commission (Correct amount poster to incorrect a/c e.g. Cullen instead of Carty) • Errors of Principle (Purchase of vehicle entered in Purchases)


5 O’FARRELL SOLUTION

(a) JournalDr. € Cr. €

(i) Creditors a/c 6,550 Captial a/c 3,150 Suspense a/c 3,400 (Being correction of incorrect recording of a private debt off set against a

business debt.) (ii) Creditors a/c Purchase Returns a/c Suspense a/c

17,540340

17,880 (Being corrections of incorrect recording of a private debt off set against

a business debt.) (iii) Sales Commission a/c 2,250 Creditors a/c 2,700 Capital a/c 4,500 Discount Received a/c 450 (Being recording of capital introduced and used for the purpose of

clearing a debt and payment of commission.) (iv) Repairs a/c 800 Drawings a/c 480 Premises a/c 1,280 Suspense a/c 2,560 (Being correction of incorrect recording of payment of repairs and drawings.) (v) Bank a/c 780 Discount Disallowed a/c 40 Creditors a/c 820 Creditors a/c 400 Cash a/c 400 (Being recording of dishonoured cheque and subsequent payment in cash.)

(b) Suspense AccountDetails € Details €

Original Difference 23,840 Creditors/Returns 17,880Creditors/Capital 3,400Repairs/Drawing/Premises 2,560

23,840 23,840

(c) O’Farrell net profit Statement of Corrected Net Profit

€ €Original Net Profit as per books 46,500Add Discount received 450 450

46,950Less Purchase Returns 340 Sales Commission 2,250 Repairs 800 Discount disallowed 40 (3,430)Corrected Net Profit 43,520



CostAcc.

Depc. NetFixed Assets € € €Premises (!1,280) 171,280Furniture and Equipment 40,000

211,280 211,280Currents AssetsStock (including suspense) ("23,840) 10,160Debtors 16,000

26,160Less Creditors falling due within 1 yearCreditors ("17,540 " 6,550 " 2,700 ! 820 " 400) 3,630Bank ("780 ! 400) 3,120Net Current Assets (6,750) 19,410

230,690Financed byCapital (!3,150 ! 4,500) 196,150Add Net Profit 43,520Less Drawings (!480) (8,980) 230,690

230,690

(e) Name 4 different types of Error that do not affect the Trial Balance 1. Omission of transaction from the books 2. Reversal of Entries i.e. DR sales CR Debtors 3. Error of oirginal Entry " €150 entered in books instead of €1,500 4. Error of Principle " Purchase of fixed asset entered as purchase of stock 5. Error of Commission " correct amount posted to incorrect a/c.


6 O’GRADY SOLUTION

(a) JournalDr. Cr.

(i) Bank O/D 930Creditors 990Discount Received 60Cash 450Creditors 450(Dishonored cheque)

(ii) Bank O/D 33,750Capital 45,000Drawings 33,750Vehicles 45,000 33,750Suspense 33,750(Vehicle introduced)

(iii) Capital 7,875Hire of labour 1,575Prepaid 6,300(Consultancy contract work)

(iv) Creditors 675Vehicle 675Repairs 675Suspense 2,025(Repairs to Equipment)

(v) Purs. Rets. 1,800Creditors 20,700Suspense 22,500(Purchases Returns)

(b) Suspense a/cOriginal Bal 9,225

Vehicles 33,750 Repairs 2,025Returns 22,500

33,750 33,750

(c) Statement of corrected net profit

Net Profit 121,800 " Disc. Rec. (60) " contract work (1,575) " Repairs (675) " Purs. Pets (1,800)# Corrected Profit 117,690



Fixed AssetsPremises 900,000Equipment 45,000Vehicles (!45,000 " 33,750 ! 675) 101,925

1,046,925Current Assets prepaid 6,300 Stock (!9,225) 282,825 Debtors 57,300 Cash ("450) 1,050 347,475Less Crs. falling DueCreditors (!990 " 450 " 675 " 20,700)

63,165Bank ("930 ! 33,750) 79,320 (142,485) 204,990

1,251,915Finby. Capital (!7,875 ! 45,000) 1,177,875 ! Net Profit 117,690

(43,650) " Drawings (!33,750) 1,251,915

(e) What are the limitations of Final Accounts as a means of presentation? • Based on historical costs rather than current market value. Only monetary aspects displayed

e.g. Goodwill often omitted. • Shows external situation but does not show profit from different departments etc. • Emphasis on past results and present position changes by the time accounts are prepared. Different

methods of Asset valuation, finance structure etc. • Accounts can be shown to be unrepresentative of usual position, window dress balance sheet, create

secret reserves thereby reducing Net Profit.


7 O’HALLORAN SOLUTION JOURNAL

(a) Journal

Dr. Cr.(i) Bank a/c 1,200

Suspense a/c 1,200(Overdraft on incorrect side)

(ii) Creditors 22,000Equipment 1,100Equipment 11,000Suspense a/c 9,900(Purchase of Equipment)

(iii) P. Rets. 5,000Crs. 5,100Suspense 10,100(Restocking charge error)

(iv) Equipment 30Purchases 23S. Rets 230Debtors 230Suspense 7(S.Rets incorrectly entered)

(v) Capital 1,200Cash 1,400Disposal(Private asset introduced for cash)

200

(vi) Debtors 250Drawings 220Discount All 30(Private Debt offset business debt)

(vi) Wages 560Accruals due 560(Wages due not Recorded)

(vi) Sales 15,600Drs. 15,600Capital 15,600Bank 15,600(Capital Introduced)

(b) Suspence a/c

P.RetsBank 1,200 Pur.Rets 10,100Purs 9,900 S Rets 7

Original difference 99311,100 11,100


(c) Corrected Net ProfitNet Profit 490,000" Rets. (5,000)! Purs. 23" S. Rets. (230)! Disposal. 200! Discount Allowed (30)" Wages (560)" Sales (15,600)Corrected Profit 468,803


Fixed AssetsPremises 1,580,000Equip (!1,100 ! 30 ! 111,000) 1,012,130

2,592,130

Current AssetsStock (940,000 ! 993) 940,993Drs. (" 230 " 15,600 " 250) 243,920Cash ! 1400 11,400

1,196,313

Creditors falling due for less than 1 yrCrs. (!22,000 " 5,100) 476,900Bank (!1,200 " 15,600) 295,600Accruals 560 (773,060) 423,253

3,015,383

Financed by:Capital (!15,600 ! 1,200) 2,676,800! Net Profit 468,803" Drawings (!220) (130,220)

3,015,383


8 O’LEARY SOLUTION JOURNAL

(a) Journal

(i) Creditors 500 1,550Bank O/D 1,550 500(Payment omitted)

(ii) Purchase 5,000Creditors 5,000Closing Stock 5,000 5,000(Goods in transit)

(iii) Creditors 320Capital 320(Private Debt offset business debt)

(iv) Wages due 210Wages 210Bank 480Rent Receivable prepaid 480(Wages & Rent omitted)

(v) Sales Returns 5,700Debtors 5,700Closing Stock 5,000 5,000(Restocking charge)

(vi) Creditors 1,500Repairs 350Drawings 1,200Suspense 50(Repairs incorrectly entered)

(vii) Purchases 2,300Creditors 400Equipment 7,300 3,200P & L/Disposal 400Debtors 2,800Hire Purchase 7,300Suspense 1,900(Sale of Equipment)

(b) Suspense a/cEquipment 1,900 Repairs 50

* Balance 1,850


(c)Corrected Net Profit 100,000" Purchases (5,000)! Closing Stock 5,000" Wages (210)" Returns (5,000)" Restocking (700)! Closing Stock 5,000" Repairs (350)! Purchases 2,300" Disposal (400)

100,640

(d) Balance Sheet

Fixed Assets Premises 440,000 Furniture & Equip (!7,300 " 3,200) 44,100Current Assets Stock (!1,850 ! 5,000 ! 5,000) 43,850 Debtors ("5,700 ! 2,800) Cash

21,100200 65,150

Creditors falling due less than 1 yr Crs. ("500 ! 1,550 ! 5,000 " 320 ! 1,500 " 400) 46,830 Bank (! 500 " 1,550 " 480) 6,670 Accruals (210 ! 480) 690 (54,190) 10,960

495,060Financed by: Capital (!320) 400,320 ! Net Profit 100,640 " Drawings (!1,200) (13,200) 487,760 ! Loan 7,300

495,060

TOPIC

11Interpretation of a/c’s

Solutions2 Artisan3 Bocason4 Condor5 Delgado6 Eliza7 Fulcum8 Gable


2 ARTISAN SOLUTION

(a) 1. Cash Purchases

Credit purchases ______________ Creditors ! 8 times

Credit purchases ! 8 times creditors ! 434,000Total purchases ! Cost of sales " Opening stock " Closing stock

! 670,000 " 42,000 # 37,000 ! 665,000! 665,000 " 434,000 ! €231,000

2. Ordinary dividend cover

Net Profit " Preference dividend __________________________ Ordinary dividend ! 50,000 " 8,000 _____________ 26,250 ! 1.6 times

3. Dividend Yield

(DPS ! 26,250/350,000 ! 7.5 c)

DPS $ 100 ___________ Market price ! 7.5 $ 100 _________ 260 ! 2.9%

4. Interest Cover

Net Profit # interest _________________ interest ! 50,000 # 14,000 ______________ 14,000 ! 4.57 times

5. Earnings per share

Net Profit " preference dividend __________________________ No. of ordinary shares ! 50,000 " 8,000 _____________ 350,000 ! 12 c

Period to recoup share

Market price _______________ Earnings per share ! 260 ____ 12 ! 21.66 times

(b) Profitability • ROCE for 2012 is 8.8% which is 3 to 4 times the return from risk free investment in the bank. However

this profitability has disimproved from 10% last year which shows a less efficient use of resources. • Gross margin has also fallen from 28% to 24.7% which is also a poor indicator. • While Artison is a profitable business able to generate profits for interest payments the trend of profits

declining by 12% would certainly worry debenture holders.

Dividend Policy • DPS for 2012 is 7.5 c up 50% from last years 5 c together with a real rate of return of 4.64% would not

please debenture holders. • The dividend cover is only 1.6 times which indicates that two thirds of the profits generated by the

company have been distributed to the ordinary shareholders with little or no provision for the repayment of debentures.

161Topic 11 Interpretation of a/c’s Solutions

Liquidity • Artisan is insolvent as the Current ratio of .96 (down from 1.2) indicates the co. is unable to pay its

debts for the year. This ratio is well down the recommended fig of 2:1. • The Acid test shows the company is illiquid and has only 54 c in every €1 available to pay short term

debts. This is significantly down from .75 of last year. • Artisan has serious cash flow problems with the ability to pay interest a very immediate worry.

Gearing • Company is lowly geared at 41.3%, improved from 44% which would please debenture holders. • Interest cover has also fallen from 6 times last year to 4.57 times this year. • Gearing/interest cover is satisfactory though not exceptional and debenture holders would be concerned

that not enough funds are being generated to provide for redemption of their loan.

Share Price/Stock exchange performance • Market price has fallen from €2.8 to €2.6 showing a lack of confidence in the company by the market.

When you factor in other indicators such as EPS falling from 14 c to 12 c this year and a very poor P/E ratio of 21.66 years prospects and market sentiment for Artisan are not positive.

Sector Competition from large multinational distributors will make for difficult market conditions in this sector.

Security Fixed assets of 570,000 provide adequate security for the debentures in the event of liquidation although

one would question the real value of the fixed asset, as no depreciation has been written off. The fact that Artisan only has €76,500 in Reserves available to pay back debentures in 2 years’ time is a major worry.

(c) 1. A rising liquidity ratio is not always a sign of good management. High liquidity indicates that it is easier to pay short term debts on time and avail of cash discounts.

However high liquidity means too much cash is tied up in liquid assets when they could be earning more profits. Extra cash could be invested wisely to gain a return.

2. Possible reasons for declining Gross Profit % • Unrecorded cash sales. • Closing stock undervalued/opening stock overvalued. • Price reduction. • Increase in purchase price. • More favourable terms offered to debtors e.g. increased cash discount. • Stock deterioration, pilferage, breakage etc.


3 BOCASAN SOLUTION

(a) 1. Credit Purchases


Credit purchases ! 8 times creditors ! 296,000Total purchases ! Cost of sales " Closing stock # Opening stock

! 350,000 " 40,000 # 32,000 ! 342,000! 342,000 " 296,000 ! €46,000


Net Profit " Preference dividend __________________________ Ordinary dividend ! 73,000 " 12,000 ______________ 21,000 ! 2.9 times

3. Dividend Yield

DPS $ 100 ___________ Market price (DPS ! 21,000/300,000 ! 7 c) ! 7.0 $ 100 _________ 2.85 ! 2.46%

4. Interest Cover

Net Profit # interest _________________ interest

73,000 # 18,000 _______________ 18,000 ! 5.05 times

5. Period to recoup share

Market price _______________ Dividend per share ! 285 ____ 7 ! 40.7 years

(b) Profitability • ROCE for 2012 increased from 10.5% to 11.2% which is 3 to 4 times the return from risk free

investment in the bank. This shows a more efficient use of resources in 2012. • Return on Equity also increased from 12% to 14% in 2012. • Bocasan is a profitable business able to generate profits for interest payments the trend of profits

increasing would certainly please the bank. It is generating sufficient profit to meet interest payments from the bank.

Security • Fixed assets of €495,000 (€310,000 after secured debentures) are available as security for the loan

although the real value of these assets must be questioned as no depreciation has been written off. However Intangible assets of €285,000 although not realizable are a good sign of extra security.

Liquidity • Current ratio of 1.27 (down form 1.3) indicates the co. is solvent and able to pay its debts for the year.

This ratio of well down the recommended fig of 2:1. • The Acid test has also fallen form .9 to .83 and shows the company is illiquid and has only 83 c in every

€1 available to pay short term debts. • Bocasan has cash flow problems with the ability to pay interest a very immediate worry, notwithstanding

their ability to meet the extra €20,000 interest on the new loan.


Gearing • Gearing has improved from 49% to 47% this year which shows the company is lowly geared. This would

increase to 57% after the loan and make Bocasan highly geared. • Interest cover has increased from 4.8 times to 4.9 but this would fall to only 3 times after loan is granted. • Gearing/interest cover is satisfactory though not exceptional and the bank would be concerned that these

fig are not strong enough to warrant granting the loan.

Share Price/Stock exchange performance The share price increased from €2.60 to €2.85 this year and with EPS of 20 c shows market confidence in

the company even though it has a poor PE ratio of 40 years.

Sector The tourist industry is going through difficulties at the moment as Ireland is perceived as being expensive. The increased value of the € has also worsened Ireland’s competitiveness.

Redemption Debentures will be redeemed in 2015 and there is no Debenture Redemption Reserve set aside for this

purpose. Because of poor gearing, profitability and liquidity a bank loan would not be recommended.

(c) What action would you advise Bocasan to take? 1. Issue further ordinary shares to raise finance rather than borrow from bank. (200,000 ordinary shares

available). 2. Reduce dividend on order to improve liquidity. 3. Improve gross profit % by reducing cost of sales or increasing selling price. 4. Sale and leaseback of fixed assets to raise finance. This could possibly generate over €400,000.


4 CONDOR SOLUTION

(a) 1. Cash Sales

Credit sales __________ Debtors ! 8 times

Credit sales ! 8 times Debtors ! 360,000Cash Sales ! 1,250,000 " 360,000 ! €890,000


Net Profit " Preference dividend ___________________________ Ordinary dividend

90,000 " 12,000 _______________ 27,500 ! 2.8 times

3. Dividend Yield

DPS $ 100 ___________ Market price (DPS ! 27,500/450,000 ! 6.1 c)

6.1 $ 100 _________ 360 ! 1.69%

4. Stock Turnover

Cost ____________ Average stock

880,000 _______ 70,000 ! 12.6 times

5. Earing per share

Net Profit " preference dividend __________________________ No. of ordinary share ! 90,000 " 12,000 ______________ 450,000 ! 17.3 c

Period to recoup share

Market price _______________ Dividend per share ! 360 ____ 17.3 ! 20.8 times

(b) Profitability • ROCE for 2012 at 10.3% is 3 times the return from risk free investment in the bank. Profitability has disimproved from 12% last year-less efficient use of resources. • Gross margin fallen from 32.5 to 29.7% which is also a poor indicator. • While condor is a profitable business able to generate profit to meet dividends the trend of profits

declining by 14% would certainly worry ordinary shareholders.

Dividend Policy • DPS of 6.1 for 2012 up from last years 5 c shows a generous dividend policy as markets now paying less

than 3 c per share. • The Dividend cover of 2.8 times with the dividend yield of 1.69% and real of return 4.7% represent

good practice. • Dividend policy is generous but would be questioned as they have serious liquidity problems.


Liquidity • Condor is insolvent as the Current ratio of .6 indicates the co. is unable to pay its debts for the year. The

ratio is well down the rec. fig of 2:1. • The Acid test show the company is illiquid and has only 26 c every €1 available to pay short term debts. • Condor has serious cash flow problems and could face liquidation if creditors €135,000 apply to have

debts paid immediately. With a further €39,500 due in dividends it is difficult to know it is going to get the cash from keep the business operating.

Creditors could demand a receiver be appointed.

Sector Any business currently supplying the construction sector is struggling at present with the severe downturn

in this industry through oversupply and overpricing.

Gearing • Company was lowly geared at 44% last year but has risen to 50% i.e. capital employed from outside

sources this year. • Interest cover, i.e. ability to meet debt charges, excellent at 7 times although down on last year’s figure of

8.8 times. • The company is close to being highly geared which adds to liquidity problems of too much outside debt

and the cost of service. It also increases the likelihood of a receiver being appointed.

Share Price Stock exchange performance Share price has not increased from €3.60 even through EPS went up 13 c to 17 c and DPS 5 c to 6.1 c.

Together with a poor P.E. ratio of 20.7 shows lack of market confidence in this company on the stock market.

(c) Advise the bank manager as to whether a loan of €150,000 at 10% interest should be granted to Condor for further expansion.

• Debentures of €300,000 are due to be repaid within 3 to 4 year and Condor will struggle to find this cash for redemption of Debentures.

• Security of fixed assets €830,000 after Debentures €530,000 seems sufficient although one would question the accuracy of these figures as no depreciation has been provided on these.

• Company will be highly geared after the loan at 56% which carries many risk also interest cover will fall to 4 times.

• Liquidity ratio .26 will worsen further as a result of extra interest of €15,000 p.a. • Purpose for which loan is required had to be income generating. • Construction industry is possibly the worse area to be involved in at the present as prices are falling due

to oversupply of units. Recommendation: Refuse loan application.


5 DELGADO SOLUTION

(a) 1. Cash Sales

Credit Sales __________ Debtors ! 6

6 DRS ! 390,000 ! CR Sales

Total Sales 975,000

" Credit Sales 390,000

! Cash Sales ! €585,000


! Net Profit " Preference Dividend _______________________ Ordinary Dividend ! 117,500 " 16,000 _____________ 36,000 ! 2.8 times

3. Earnings per ordinary share in

! Net Profit " Preference Dividend ___________________________ Number of Ordinary Share ! 117,500 " 16,000 _______________ 600,000 ! 16.9 c

4. Dividend yield on ordinary shares

! Dividend per share __________________ Market Price per Share $ 100 ____ 1 ! 6.21 $ 100 __________ 145

(DPS ! 36,000/580,000 ! 6.21) ! 4.3%

5. How long it would take one ordinary share to recoup (recover) its 2012 market price (assume current performance is maintained)

! Market Price ______________ Earning per share ! 1.45 _____ 0.169

Length of time ! 8.58 years

(b) Profitability • ROCE has fallen from 13.4% last year to 11.46% this year which is still 3 to 4 times the return from

risk free investment in the bank. However this profitability has disimproved from 10% last year which shows a less efficient use of resources.

• Return on Equity also down from 15.6% to 15% although higher than Pref. 8% # Debentures 9%. • While Artison is a profitable business able to generate profits for interest payments the trend of profits

declining by 12% would certainly worry ordinary shareholders.

Dividend Policy • DPS for 2012 is 6 c down from 12.2c in 2011, a major disimprovement. • The dividend cover is 2.76 times which indicates that one third of the profits generated by the company

have been distributed to the ordinary shareholders. • Dividend yield is 4.3 % and real rate of return is 12%, both of which are very favourable returns.


Liquidity • Current ratio has fallen from 1.45 to 1.16 shows the business to be barely solvent and well down on

recommended fig of 2:1. • The Acid test shows the company is illiquid and has only 55 c in every €1 available to pay short term

debts. This is significantly down from 1.1 of last year. • Delgado has serious cash flow problems in the short term with the ability to pay creditors a very

immediate worry. With the risk of a receiver being appointed if creditors demand immediate payment.

Gearing • Company is lowly geared at 34%, not overly committed to outside finance. • Interest cover is 9.56 times showing Delgado is able to meet its debt charges very easily. • Gearing/interest cover are both very healthy with little outside debt commitments and charges.

Share Price/Stock exchange performance • Market price has fallen from €1.58 to €1.45 showing a lack of confidence in the company by the market.

Although EPS of 17 c and PE of 8.5 are very good and may reassure investors on the stock market.

Investments These are now only worth €115,000, a drop of 12% from cost price of €131,000. This indicates poor

management decision.

(c) The Net Profit percentage was 12.5% in 2010. Calculate the percentage figure for Net

Profit percentage 117,500 $ 100 _____________ 975,000 ! 12.05%, and give 3 reasons for any change. 1. Cash/stock losses 2. Mark down of prices e.g. sale 3. Incorrect stock valuation 4. Increase in expenses 5. Change in sales mix

How can a falling net profit percentage be corrected? 1. Record all cash transactions 2. Control expenses 3. No Price reductions


6 ELIZA SOLUTION



Credit purchases ! 5 times creditors ! 510,000Total purchases ! Cost of sales " Opening stock # Closing stock

! 675,000 " 55,000 # 60,000 ! 680,000 €Cash Purchases 510,000 " 680,000 ! 170,000

2. Interest Cover

Net Profit # interest _________________ interest ! 38,000 # 27,000 ______________ 27,000 ! 2.4 times

3. Dividend Yield

DPS $ 100 ___________ Market price (DPS ! 10,200/340,000 ! 3 c)

3.0 $ 100 _________ 120 ! 2.5%

4. Period to recoup share

Market price _______________ Dividend per share ! 120 ____ 3 ! 40 years

5. Projected value of share

P.E. Ratio $ E.P.S. ! 24 $ 4 c ! 96 c

(b) Profitability • ROCE for 2012 is 7% which is almost twice the return from risk free investment in the bank. However

the projected profitability of 8.9% for next year shows a more efficient use of resources. • Return on Equity is a very poor 4.5% which compares unfavourably with Debentures return of 8%. • Ordinary shareholders would be unhappy with current but encouraged by projected profitability.

Dividend Policy • DPS for 2012 is 3 c and expected to decrease to 2.4 c for next year. • The dividend cover is only 1.12 times which indicates that two thirds of the profits generated by the

company have been distributed to the ordinary shareholders and a very small % of profits are being retained.

• Dividend yield is a disappointing 2.5% less than the 3 to 4% available in the banks.

Liquidity • Eliza is solvent with a Current ratio of 1.41 indicates the co. is able to pay its debts for the year. This

ratio is well down the recommended fig of 2:1. • The Acid test shows the company is barely liquid and has 95 c in every €1 available to pay short term

debts. Projected cash flow problems ahead for Eliza as Acid test is to fall to 0.8 for next year.


Gearing • Company is highly geared at 58% which would worry ordinary shareholders especially as it will only

worsen to 66% for next year. • Interest cover due to disimprove from 2.4 to 1.4 times which is a major worry. • The trend in Gearing is unsatisfactory as ordinary shareholders will be concerned with the dilution of

control and the burden of high debt.

Share Price/Stock exchange performance • Market price is €1.20 but projected to fall by over 20% to 96 c next year. • Market confidence in Eliza is weak as EPS is projected to go down from 5 to 4. c and PE Ratio very poor

showing company profits taking 40 years to accumulate the worth of the share.

Sector Competition from large multinational distributors will make for difficult market conditions in this sector.

Investments Shareholders would be disappointed with the loss on investments down from €168,000 to €130,000.

(c) Limitations of Final Accounts as a means of presentation 1. Based on historical costs rather than current market value. Only monetary aspects displayed e.g.

Goodwill often omitted. 2. Shows external situation but does not show profit from different departments etc. 3. Emphasis on past results and present position changes by the time accounts are prepared. Different

methods of Asset valuation, finance structure etc. 4. Accounts can be shown to be unrepresentative of usual position. Eliza can window dress the balance

sheet and create secret reserves thereby reducing Net Profit.


7 FULCUM SOLUTION


Credit Purchases ______________ Creditors ! 8 times per year

Credit purchases ! 280,000Total Purchases ! 274,000 # 60,000 " 9,000 ! 325,000 (Cost # closing " Opening) " 280,000 ! €45,000

2. Return non Capital Employed

Net Profit # Interest @ 100 ______________________ Total Capital Employed ! 91,500 # 22,500 ______________ 1,019,000 ! 11.19%

3. Earnings per share

Net Profit " Preference Dividend ___________________________ No. of ordinary shares ! 91,500 " 20,000 ______________ 500,000 ! 14.3 c

4. Interest Cover

Net Profit # Interest _________________ Interest ! 91,500 # 22,500 ______________ 22,500 ! 5.07 times

5. Price Earnings Ratio

Market price of share _________________ Dividend per share ! 155 ____ 9.4 ! 16.5 years

(DPS ! ordinary dividend __________________ No. of ordinary shares ! 47,000 _______ 500,000 ! 9.4 c)

(b) Liquidity • Current Ratio 1.67, solvent, able to pay debts for year but down on recommended ratio of 2:1 • Acid increased .9 to 1.1, liquid in short term, able to pay €1.09 in every €1 owed. • No cash flow problems, new shareholders confident they will receive dividends and be able to pay debts

when they fall due.

Profitability • Return on Investment 9.2% last year up to 11.2% this year. This is approx 4 times the return on risk free

investment available in banks of 2–3%. Real rate of return is also a very acceptable 9%. • Return on Equity 8% last year up to 12.5% this year compares very favourably with a Debenture return

of 9% and Preference return of 10% in this company. • These very satisfactory returns will ensure shareholders of the company’s ability to pay dividends at year

end.

Dividend Policy • DPS increased 9.4 c which is way above industrial average of 2–3 cent per share. • Dividend cover 3.6 shows ability to pay dividends and also sufficient retained earnings to create reserves. • Generous dividend policy would encourage prospective shareholders to buy these shares as would

dividend yield of 6% Real Rate of Return of 21.8%.


Gearing • Lowly geared 44.2% a slight improvement from last year 45% shows less dilution of control. • A 7.7 times interest cover (10 last year) shows Fulcum’s ability to take on more debt if desired. • Low interest charges would reassure shareholders of high dividends, low debt service charges and greater

control of the company.

Performance/Share price • Share price €1.55 up from €1.20 last year, EPS 14.3 c and PE 10.8 are all excellent stock exchange

indicators which will enhance share price though increased demand.

Sector • Tourism in Ireland is still very strong and this provides the opportunity to prospective shareholders of

getting involved in a very vibrant industry. However one would be concerned with (i) Ireland being described as expensive also (ii) a growing no. of Irish holiday abroad (iii) a strong €makes Ireland less attractive.

Return • 200,000 shares @ 20 c ! €40,000 profit gross would be made if shares bought are disposed of

immediately. • 200,000 shares represents a 29% ownership in Fulcum which could yield control and a possible

directorship if shareholder decides to hold shares. I would recommend the purchase of shares.

(c) Dangers associated with High Gearing 1. Dilution of control away from the ordinary shareholders 2. High debt charges i.e. interest on debentures and preference dividend which must be paid 3. Poor credit rating in the event of a loan application


8 GABLE SOLUTION(a) 1. Opening Stock

Stock T/O ! Cost of Sales ___________ Av. Stock ! 10

10 Av. stock ! Cost of Sales Av. stock ! 440,000/10 ! 44,000 Stock Total 88,000 " 74,000 (closing stock) ! 14,000

2. Div. yield ! DPS $ 100 ___________ Market price

! DPS ! Ord. dividend __________________ No. of ordinary shares ! 32,000 _______ 304,000 !10.5 " Yield ! 10.5 $ 100 __________ 2.05 ! 5.1%

3. ROCE ! Net Profit # Interest $ 100 _______________________ T C E ! 146,000 # 14,000 $ 100 _____________________ 686,000 ! 23.3%

4. Real Return ! Dividend yield $ Div cover (Div cover ! 146,000 " 12,000/32,000 ! 4.1875) ! 5.1% $ 4.1875 ! 21.35%

5. P/E ! Market Price ___________ EPS

(EPS ! 146,000"12,000 ______________ 304,000 ! 44c) ! 2.05 _____ 0.44 ! 4.66 Times

(b) Debenture holders 1. Liquidity • Current Ratio 1.5 shows Gable is solvent & able to pay debts for year but down on Rec. fig of 2:1. • Add Test shows business is illiquid and only able to pay 69 c in every € owed & expected to worsen to

59 c for next year. • Debenture holders worried they will not receive their interest as business has cash flow problems. 2. Profitability • Return or capital employed 23% is excellent but expected to fall to 18.9% next year. Still 5–6 times

return you would get on risk free investment in bank. • Gross Profit % to fall from 60% to 40% next year is of major concern to debenture holders. • Projected profit decreases are a worry even in a depressed economic climate as it limits Gable’s ablility

to meet debt payments. 3. Gearing stands at 38% i.e. lowly geared. Very positive sign although to increase to 44% still makes co. a

low risk especially as if is able to cover interest 8 times for next year. 4. Reserves.

Co. has set aside 40,000 in reserves to pay back Debentures in 3/4 yrs times. Although this is reassuring, it is only 28% of total Debentures.

5. Sector. Transport haulage is a very competitive & increasingly expensive business to run with the spiralling costs

of diesel & oil rising. 6. Performance on stock exchange is excellent with EPS 44, P/E 4.6 although market confidence set to

decline as share price & EPS projected to fall to €1.90 & 36 c. respectively. 7. Dividend Policy is generous to ordinary shareholder with DPS 10.5 (8.2. next year) Div Cover 3.3 times

and a Real Rate of Return an excellent 21.35%.(c) When is a company highly geared? 1. Co. is highly geared when Debt as a % of Total capital employed is greater than 50% 2. What are the associated problems? • Dilution of ownership & control. • High debt charges must be paid. • Greater Risk of liquidation as creditors demand payment. • Redemption of Debt & provision made thereon. • Poor Credit Rating for bank loan.

TOPIC

12Published a/c’s Solutions

2 Annexe3 Boycie4 Kim Clavin 5 Duracell6 Dragon7 Equinox


2 ANNEXE SOLUTION

Annexe Published Accounts(a) Profit and Loss for year ended 31/12/2012

€ €Turnover 896,000Less Cost of Sales W (557,000)Gross Profit 339,000Less Distribution Cost W 45,400Less Admin, Expenses W 258,500 (303,900)

35,100Other Operating Income Discount 8,400Operating Profit 43,500Profit on Sale of land 62,000Investment Income W 14,400

119,900Interest payable W (15,600)Profit on Operating Act. before taxation 104,300Less Taxation (24,000) Profit on Operating Activities after taxation 80,300Less Dividends paid (33,000)Profit retained for year 47,300Profit brought forward at 1/1/2012 36,300Profit carried forward at 31/12/2012 83,600* Accept correct figure only.

Balance Sheet as at 31/12/2012Fixed AssetsIntangible Patents 32,000Tangible Fixed (w) 768,100Financial 180,000

980,100Current Assets Closing Stock 79,000Debtors (w) 109,300 188,300Creditors falling due less than 1yr. Trade creditors 68,000Other Creditors (w) 51,550 Taxation (w) 35,250 (154,800) 33,500

1,013,600

fin by:Creditors falling Due for more than 1yr. 8% Debentures 225,000Capital & Reserves Share Capital 465,000 Revaluation Reserve 240,000 P & L 31/12/2012 83,600 788,600

1,013,600

175Topic 12 Published a/c’s Solutions

WorkingsCost of sales 544,000 ! 84,000 " 79,000 ! 8,000 # 557,000Distribution 19,000 ! 26,400 # 45,400Admin Expenses 136,000 ! 27,000 ! 11,500 ! 73,000 ! 11,000 # 258,500Investment income 8% of 180,000 # 14,400 " 11,100 # 3,300Debenture interest 10,800 ! 4,800 # 15,600Tangible Fixed 132,000 " 86,000 " 26,400 ! 760,000 " 11,500 # 768,100Debtors 106,000 ! 3,300 # 109,300Other Creditors 11,000 ! 15,600 ! 24,950 # 51,550Taxation 11,250 ! 24,000 # 35,250

1. Notes to the Accounts Accounting Policy Notes Tangible fixed assets: – Depreciation is calculated in order to write off the value or cost of tangible fixed assets over their

estimated useful economic life, as follows: – Buildings: 2% per annum – straight line basis – Delivery vans: 20% of cost – Stocks: stocks are valued on a first in first out basis at the lower of cost and net realizable value.2. Interest payable – Interest payable on Debenture repayable during 2015 15,6003. Operating profit – The operating profit is arrived at after charging: Depreciation on tangible fixed assets 37,900 Patent amortised 8,000 Directors’ remuneration 73,000 Auditor’s remuneration 11,0004. Profit on sale of property – The company sold land for €140,000 greater than it cost. Cost was €78,000.

(b) 1. Explain the purpose of an audit and the duties of an auditor. Audit Examination of company accounts by independent accountants appointed by the directors to protect

the shareholders. Purpose of Audit To show and prove that accounts show a ‘true and fair view’ of the Profit & Loss and Statement of

Affairs of a company.2. What is the difference between a Qualified and Unqualified audit? An unqualified auditor’s report is often referred to as a clean report. A report is unqualified when the

auditors when the auditor in his/her opinion is satisfied that the following apply:• the financial statement give a true and fair view of the state of affairs of the company at the

company at the end of the year and of it’s profit and loss account for the year.• the financial statements are prepared in accordance with the Companies Acts.• all the information given by the directors is consistent with the financial statements• the net assets are more than 50% of the called up capital.

A qualified auditor’s report is when an auditor in his/her opinion is not satisfied or is unable to conclude that all or any of the above apply:

The report will state the elements of the accounts or of the director’s report that are unsatisfactory.


3 BOYCIE SOLUTION

(a) Published Profit and Loss account for year ended 31/12/2012€ €

Turnover 740,000Cost of Sales w (483,600)Gross Profit 256,400Distribution costs 18,700Administration expenses w 244,200 (262,900)

(6,500)Other operating incomeDiscount received 14,200Operating Profit 7,700Profit on sale of land 40,000Investment income w 4,320

52,020Interest payable (6,000)Profit on ordinary activities before taxation 46,020Taxation (26,000)

20,020Dividends – paid (13,250)Loss retained for the year 6,770Profit brought forward at 1/1/2012 51,600Profit carried forward at 31/12/2012 58,370

Balance Sheet as at 31/12/2012€ € € €

Fixed assetsIntangible assets 22,500Tangible fixed assets w 900,0009% investments 48,000 970,500Current AssetsStock 24,400Trade debtors(20,000 " € 1,250) 18,750Other debtors 13,820 56,970Creditor Amounts due in less a yearTrade creditors 43,500Other creditors 18,200Taxation 26,000Bank 15,600 (103,300)Net current assets (46,330)Total assets less current liabilities

924,170Financed ByCreditors amounts due after falling 1 year 90,000Capital and ReservesCalled up capital 500,000Revaluation reserve w 275,800P & L Balance 31/12/12 58,370 834,170

924,170


Notes to the Accounts1. Accounting policy note for tangible fixed assets and stock Buildings were revalued at the end of 31/12/12 and have been included in the accounts at their

revalued amount. Depreciation is calculated in order to write off the cost of value of tangible fixed assets over their estimated useful economic life as follows.

Buildings – 2% per annum – straight line basis. Stocks are valued on a first in first out basis at the lower of cost or net realisable value.

2. Operating Profit The operating profit is arrived at after charging:

€Depreciation on Buildings 13,800Amortisation of Patents 4,500Directors fees 10,000Auditors fees 6,200

3. Interest Payable Interest payable on 8% debentures (2015) including €20,000 received on 30/09/2012 # €6,0004. Debentures Debentures are secured by a floating charge on the cost fixed Assets. Redeemable in 2015.5. Tangible Fixed Assets

€ €Cost 01/01/12 760,000Disposal (70,000)Transfer to revaluation 210,000 900,000Depreciation 01/01/12 52,000Change for year 13,800Transfer to revaluation (65,800) Nil

Net value at 01/01/12 €708,000 (€760,000 " €52,000) Net value at 31/12/12 €900,000

Workings:Cost of Sales 23,500 ! 480,000 " 24,400 ! 4,500 # 483,600Administration 13,800 ! 65,000 ! 140,000 ! 9,200 ! 10,000 ! 6,200 # 244,200Investment income 48,000 $ 9% # 4,320 " 3,500 # 820Other Debtors 13,000 ! 820 # 13,820Other Creditors 10,000 ! 6,200 ! 2,000 # 18,200Buildings 690,000 ! 210,000 # 900,000Revaluation Reserve 210,000 ! 52,000 ! 13,800 # 275,800

(b) State and explain four important accounting concepts1. Going concern – means the firm is being kept in its present trading use. i.e. continuity. i.e. accounts are prepared on this basis.2. Accruals – income/expenses that should have been received/paid. Dues and prepaids.3. Consistency – using the same accounting systems, standard presentation.4. Prudence – the firm should overstate its losses and understate its gains, conservative accounting.Other concepts5. Entity – the business is separate from the person.6. Money measurement – monetary transactions only are included in the account.7. Realisation – when a sale occurs is important and not when we are paid.8. Double entry – assets # liabilities ! capital.9. Objectivity – accountant should not use personal bias.


4 KIM CLAVIN SOLUTION

Profit and Loss account for year ended 31/12/2012€

Turnover 8,100,000Cost of Sales (w) (6,320,000)Gross Profit 1,780,000Distribution Costs (w) (478,890)

1,301,110Administration expenses (w) (675,960)

625,150Other Operating Income (w) 145,000Operating Profit 770,150Investment Income (w) 67,200Profit on sale of land 85,000

922,350Interest Payable (w) (24,000)Profit on ordinary activities before tax 898,350Taxation (235,000)Profit on ordinary activities after tax 663,350Dividends paid (w) (30,000)Profit retained for year 633,350Profit brought forward at 1/1/2012 226,000Profit carried forward at 31/12/2012 859,350

Balance Sheet as on 31/12/2012€ € €

Fixed assetsIntangible Assets 240,000Tangible Assets 1,011,950Financial Assets 560,000

Current Assets 1,811,950Stock 720,000Debtors (W) 317,200Bank 24,000 1,061,200

Creditors: amounts falling due within 1 yearTrade creditors 382,000Taxation (W) 281,000Other Creditors (W) 150,000 (813,000)

Net Current Assets 248,200Total Net assets 2,060,150Creditors: amounts falling due after more than 1 year

12% Debentures 200,000Capital and Reserves

Issued Shares(Ord. ! Pref.) 600,000Revaluation Reserve (W) 400,800Profit carried forward 859,350 1,860,150

2,060,150


Workings:Total

Cost 660,000 ! 6,300,000 " 720,000 ! 80,000 # 6,320,000Dist 450,000 ! 25,050 ! 3,840 # 478,890Admin. 504,000 ! 12,000 ! 126,000 ! 8,960 ! 25,000 # 675,960Other income 120,000 ! 25,000 # 145,000Investment income 12% of 560,000 # 67,200Interest Payable 12% of 200,000 # 24,000Tangible Fixed 900,000 ! 167,000 " 30,000 " 25,050 # 1,011,950Intangible 320,000 " 80,000 # 240,000Drs. 300,000 ! 17,200 # 317,200Other Crs. 126,000 ! 12,000 ! 12,000 # 150,000Reval. Res. 260,000 ! 128,000 ! 12,800 # 400,800

1. Accounting Policy for Stock and Fixed Assets Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2%

on cost and were revalued at year end. Vehicles are depreciated @ 15% Depreciation calculated to write all asset in full over useful economic life.

2. Operating Profit Operating profit is arrived at after charging the following

Depreciation of fixed assets 12,800 ! 25,050 Patents amortised 80,000 Directors remuneration 126,000 Auditors remuneration 12,000! Royalties received 25,000

3. Interest Payable Debenture €200,000 carry a 12% interest rate i.e. €24,000 p.a.4. Debentures 12% Debentures 2013/2014 €200,000 Redeemable between the years 2013 and 2014 Carry an interest rate of 12% p.a.5. Tangible Fixed Assets

Land & Buildings VehiclesCost Depc. Cost Depc.

Cost 1/1 730,000 128,000 167,000 30,000Disposal/Depreciation (90,000) 12,800 25,050Revaluation 260,000 (140,800)#NBV 31/12 900,000 nil 167,000 55,050

(b)1. Criteria for determining company size This is determined by meeting 2 of the following for 2 consecutive years.

Small Medium LargeEmployees Less than 50 50 – 250 More than 250Balance Sheet Total Less than €2 m €2 – 6 m More than €6 mAnnual Turnover Less than €3 m €3 – 12 m More than €12 m

2. What is a Qualified Audit? Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high to

ignore. Directors have responsibility to detect fraud although auditors usually discover fraud initially.


5 DURACELL SOLUTION

(a) Trading Profit & loss a/c for y/r 31/12/2012Turnover 950,200" Cost (W) (524,000)Cross Profit 426,200" Distribution (W) (91,440)" Admin (W) (301,160)

33,600! other operating Income (W) 15,500Operating Profit 49,100! Profit on sale of land 65,000! Investment income 12,000" Debenture Interest (W) (16,200)Net Profit 109,900" Tax (54,000)

55,900" Divs. Paid (37,500)Profit for year 18,400! P & L 1/1/12 84,000P & L 31/12/12 102,400

Fixed Assets Balance Sheet on 31/12/2012Intangible Patents 36,000Tangible (W) 1,254,400Financial 150,000

1,440,400Current Assets Stock 48,000Drs. (W) 79,500Creditors falling due for less than 1 yr. 127,500Creditors 58,000Other Crs. (W) 31,900Taxation (W) 66,400 (156,300)

(28,800)1,411,600

Financed byCrs. Falling due for more more than 1yr. Debentures 220,000Capital & Reserves Share Capital 650,000 ! Profit & loss 31/12/12 102,400 752,400

439,200 Revaluation Reserve (W)1,411,600


Workings:Cost of Sales 35,000 ! 525,000 " 48,000 ! 12,000 # 524,000Distribution 36,000 ! 32,000 ! 6,000 ! 13,600 ! 3,840 # 91,440Admin 49,000 ! 76,000 ! 139,000 ! 15,360 ! 9,800 ! 12,000 # 301,160Other Income 9,500 ! 6,000 # 15,500Debenture Interest 3,600 ! 12,600 # 16,200Tangible fixed 96,000 " 28,000 " 13,600 ! 1,200,000 # 1,254,400Debtors 76,500 ! 3,000 # 79,500Other Creditors 9,800 ! 16,200 ! 5,900 # 31,900Taxation 12,400 ! 54,000 # 66,400Revaluation Reserve 240,000 ! 180,000 ! 19,200 # 439,200

Notes of Accounts1. Accounting Policy for Stock and Fixed Assets Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2%

on cost and were revalued at year end. Vehicles are depreciated @ 20% on cost. Depreciation calculated to write off asset in full over useful economic life.

2. Operating Profit Operating profit is arrived at after charging the following

Depreciation of fixed assets 13,600 ! 19,200 Patents amortised 12,000 Auditors remuneration 9,800! Rental income 6,000

3. Debenture Costing €220,000 carry a 9% interest Rate are Redeemable in 20134. Tangible Fixed Assets

Buildings VehiclesCost Depc. Cost Depc.

Cost 1/1 1,030,000 180,000 96,000 28,000Disposal/Depreciation (70,000) 19,200 13,600Revaluation 240,000 (199,200)#NBV 31/12 1,200,000 nil 96,000 41,600

(b)(i) Unqualified Audit A clean audit Qualified Audit Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high

to ignore. Directors have responsibility to detect fraud although auditors usually discover fraud initially.(ii) Directors Responsibilities: Keep proper records Safeguard all assets Select suitable acc. Standards Recommend a dividend Decide on reserves Reports on any proposed changes or capital expenditure Give a review on yearly activities.


6 DRAGON SOLUTION

(a) Profit and Loss for Year ended 31/12/2012

Turnover 1,203,000Less Cost of sales W (807,600)Gross profit 395,400Less Distribution costs W (156,528)Less Administration costs W (172,032)

66,840Other Operating income W 45,600Operating Profit 112,440Investment income 13,440Profit on sale of land 43,200

169,080Interest payable (10,800)Profit on ordinary activities before tax 158,280Taxation (37,200)

121,080Dividends paid (43,200)

77,880Profit brought forward at 1/1/2012 50,400Profit carried forward at 31/12/2012 128,280

Balance Sheet as at 31/12/2012

Fixed AssetsIntangible Assets 8,400Tangible Fixed Assets W 637,200Financial Fixed 192,000

837,600Current AssetsStock 53,400Debtors W 147,180Bank 37,740 238,320Creditors falling due within one yearTrade Creditors 114,600Taxation W 76,800Other Creditors W 30,240 (221,640) 16,680

854,280Creditors falling due after more than one year6% Debentures 180,000Capital and ReservesIssued shares 450,000Revaluation Reserve W 96,000Profit carried forward 128,280 674,280

854,280


WorkingsCost of Sales 48,600 ! 804,000 ! 8,400 " 53,400 # 807,600Distribution costs 118,800 ! 4,128 ! 33,600 # 156,528Administration expenses 127,200 ! 4,440 ! 24,000 ! 6,192 ! 10,200 # 172,032Other operating income 28,800 ! 6,600 ! 10,200 # 45,600Tangible Fixed assets 570,000 ! 168,000 " 67,200 " 33,600 # 637,200Debtors 145,800 " 8,700 ! 10,080 # 147,180Other Creditors 4,440 ! 24,000 ! 1,800 # 30,240Taxation 37,200 ! 39,600 # 76,800Revaluation Reserve 54,000 ! 31,680 ! 10,320 # 96,000

Notes to Accounts Dragon1. Accounting policy on Tangible Fixed Assets and Stock Depreciation is calculated to write off tangible fixed assets in full over its useful economic life as follows; Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012. Vehicles depreciated @ 20% on cost. Stocks are valued on a FIFO basis at the lower of cost and book value.2. Operating Profit is arrived at after charging:

Depreciation on Tangible Assets 43,920Patents amortised 8,400Auditors fees 4,440Directors remuneration 24,000! Rental Income 10,200

3. Interest Payable on Debenture @ 6% (repayable by 2013/2014) 10,8004. Tangible Fixed Assets Land/Blgs. Vehicles

1/1 2012 552,000 168,000Disposal (36,000)Revaluation 54,000Value 31/12/2012 570,000 168,000

Accumulated DepreciationDepreciation on 1/1 31,680 67,200This year 10,320 33,600Revaluation (42,000)

Nil 100,800

Net Book Value 1/1 520,320 100,800Net Book Value 31/12 570,000 67,200

(b)1. Contingent liability is a potential debt which may have to be paid if certain conditions or

circumstances arise. It has not happened, may not occur and provision is not made in the books for such unless specifically agreed upon. A note relating to its existence is made as an addendum to the accounts.

2. The main objectives of Financial Accounting are: 1. To provide information useful for various users for assessing and decision making 2. To prepare financial statements that conform to accounting regulatory bodies 3. To conform to conditions according to the Company’s Acts and Stock exchange regulations if public co. 4. Financial Accounting should be relevant, reliable comparable and understandable 5. Financial Accounting should conform to the fundamental concepts.


7 EQUINOX SOLUTION

(a) Profit and Loss for Year ended 31/12/2012€

Turnover 2,305,750Less Cost of sales W (1,547,900)Gross Profit 757,850Less Distribution costs W (300,012)Less Administration costs W (329,728)

128,110Other Operating income W 87,400Operating Profit 215,510Investment income 25,760Profit on sale of land 82,800Interest payable (20,700)Profit on ordinary activities before tax 303,370Taxation (71,300)

232,070Dividends paid (82,800)

149,270Profit brought forward at 1/1/2012 96,600Profit carried forward at 31/12/2012 245,870

Balance Sheet as at 31/12/2012Fixed AssetsIntangible Assets 16,100Tangible Fixed Assets W 1,221,300Financial Fixed 368,000 1,605,400Current Assets

Stock 102,350Debtors W 282,095Bank 72,335 456,780

Creditors falling due within one yearTrade Creditors 219,650Taxation W 147,200Other Creditors W 57,960 (424,810) 31,970

1,637,370Creditors falling due after more than one year

6% Debentures 345,000Capital and ReservesIssued shares 862,500Revaluation Reserve W 184,000Profit carried forward 245,870 1,292,370

1,637,370


WorkingsCost of Sales 93,150 ! 1,541,000 ! 16,100 " 102,350 # 1,547,900Distribution costs 227,700 ! 7,912 ! 64,400 # 300,012Administration expenses 243,800 ! 8,510 ! 46,000 ! 11,868 ! 19,550 # 329,728Other operating income 19,550 ! 12,650 ! 55,200 # 87,400Tangible Fixed assets 1,092,500 ! 322,000 " 64,400 " 128,800 # 1,221,300Debtors 279,450 " 16,675 ! 19,320 # 282,095Other Creditors 8,510 ! 46,000 ! 3,450 # 57,960Taxation 75,900 ! 71,300 # 147,200Revaluation Reserve 103,500 ! 60,720 ! 7,912 ! 11,868 # 184,000

Notes to Accounts Equinox1. Accounting policy on Tangible Fixed Assets and Stock Depreciation is calculated in order to write off the value of tangible fixed assets over their estimated

economic life as follows: Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012 Vehicles depreciated @ 20% on cost.

Stocks are valued on a FIFO basis at the lower of cost and book value.2. Operating Profit is arrived at after charging:

Depreciation on Tangible Assets 84,180Patents amortised 16,100Auditors fees 8,510Directors remuneration 46,000! Royalties 19,550

3. Proposed Capital Expenditure (i) Preliminary capital project agreement entered into for €500,000 (ii) Further capital improvements to existing buildings €150,0004. Tangible Fixed Assets Land/Blgs. Vehicles

1/1/2012 1,058,000 322,000Disposal (69,000)Revaluation 103,500Value 31/12/2012 1,092,500 322,000

Accumulated DepreciationDepreciation on 1/1 60,720 128,800This year 19,780 64,400Revaluation (80,500)

Nil 193,200

Net Book Value 1/1 997,280 193,200Net Book Value 31/12 1,092,500 128,800

(b)1. Material Item is any item whose cost is regarded as considerable and cannot be either ignored or

included in general administration. Most accountants would regard an item of more than 5% of profit to be a material item. The materiality concept of accounting covers this principle.

2. Concepts are principles accountants use when preparing accounting information such as entity concept materiality concept, realization concept going concern concept.

Bases are methods for dealing with certain items in the accounts such as stock valuation and depreciation over number of years.

Policies are the systems of valuation such as FIFO and depreciation policy used such as 2% on cost.

TOPIC

13Incomplete Records

Solutions 2 Archer 3 Brophy 4 Casey 5 Dunican 6 Edwards 7 Fowler 8 Geraghty 9 Henshaw10 Jennifer Ann11 Ann O’Loughlin12 Breda Connolly

187Topic 13 Incomplete Records Solutions

2 ARCHER SOLUTION

(a) Trading and Profit and Loss Account for year ending 31/12/2012

€ €Sales W 204,200Less Cost of sales Stock at 1 January 2012 15,600 Add Purchases W 65,040

80,640Less Stock 31 December 2012 (16,700) (63,940)

140,260Gross ProfitLess Expenses General expenses W 25,500 Covenant 2,600 Insurance W 3,540 Interest W 2,240 Light and heat W 4,650 (38,530)

101,730Add income from investment fund 55Net Profit 101,785


€ € €Intangible Fixed Assets W Goodwill 26,960Tangible Fixed Assets Buildings (!60,000) 220,000 Delivery vans 29,200 Furniture ("5,000) 10,000 Investments (500 # 4 ! 55) 2,055Current Assets 288,215 Stock at 31 December 2012 Trade Debtors 16,700 Bank 19,500 Cash W 48,900 Prepayment (Insurance) 400

900Creditors amounts falling due within 1 year 86,400 Trade Creditors Interest due 12,800 Electricity due 1,400Working Capital 600 (14,800) 71,600Total Net Assets 359,815


Financed byCreditors amounts falling after more than 1 year LoanCapital 70,000 Balance at 1/1/2012 Add Capital introduced 200,000 Add Net Profit 1,900 Less Drawings W 101,785Capital Employed (13,870) 289,815

359,815

Notes to Accounts

• SalesPayment by debtors 38,000Amount owed by debtors 31/12/2012 19,500

57,500Less amount owed on 1/1/2012 (18,000)Credit Sales 39,500! Cash Sales (89,600 ! 26,900 ! 45,200 ! 400 ! 2,600) 164,700 204,200

• PurchasesPayment to creditors 31,200Creditors at 31/12/2012 12,800

44,000Less Creditors at 1/1/2012 (20,000)Credit Purchases 24,000Cash Purchases 45,200Total Purchases 69,200Less Drawings-Goods (4,160) 65,040

• General ExpensesAmount paid 26,900Less Wages due 1/1/2012 (1,400) 25,500

• InsuranceAmount paid 3,600Add insurance prepaid 1/1/2012 840Less insurance prepaid 31/12/2012 (900) 3,540

• Interest for year (4/12 # €8,400) 1,400Interest paid 1,400

• Interest due 31/12/2012 2,800(560) 2,240

Less Drawings (1/5)• Light and Heat

Amount paid 5,600Add electricity due 31/12/2012 600Less Drawings (1/3) (1,550) 4,650

• Bank 129,500 ! 70,000 " 60,000 " 88,600 " 2,000 $ 48,900• Drawings 1,550 ! 560 ! 4,160 ! 2,600 ! 5,000 $ 13,870

(c) Double Entry benefits • Facilitates balancing of accounts to ensure accuracy • Allows Final a/c preparation • Requirement for Revenue purposes • Requirement for bank loan application • Comparison to other years & other firms.


3 BROPHY SOLUTION

(a) Trading Profit and Loss Account for year ending 31/12/2012€ €

Sales W 297,540Less Cost of SalesOpening Stock 36,300Purchases W 141,390Less Closing stock (39,600) (138,090)

159,450Gross ProfitLess ExpensesGeneral Expenses W 47,775Insurance W 5,670Interest W 8,640Light and Heat W 9,562Covenant 5,250 (76,897)Add Income from Investment income 195Net Profit 82,748

(b) Balance Sheet as at 31/12/2012Intangible Fixed € € €Goodwill 11,895Tangible FixedBuildings (330,000 ! 135,000) 465,000Equipment 40,200Furniture (24,000 " 6,000) 18,000 523,200Financial AssetsInvestment Fund 12,345

547,440Current AssetsStock 39,600Debtors 57,150Bank 25,530Cash 1,050Insurance prepaid W 1,530Creditors falling due within 1 year 124,860Creditors 37,800Interest due W 3,300Electricity 450 (41,550) 83,310

630,750Financed ByCreditors falling due for more than 1 yearLoan 180,000Capital 390,000Add capital introduced 12,750Net Profit 82,748Less Drawings W (34,748) 450,750

630,750


Workings1. Expenses General L & H Insurance Interest Paid 49,200 12,300 6,120 7,500 Adjustments (1,425) 450 1,080 3,300

(1,530) Cost / Used 12,750 10,800 Less Drawings (3,188) (2,160)

47,775 9,562 5,670 8,640

2. Drawings (Cash ! goods ! Expenses ! Asset)14,040 ! 9,360 ! 3,188 ! 2,160 ! 6,000 $ 34,748

3. Goodwill (Cost " Value)390,000 " 378,105 $ 11,895

4. Sales Credit (Pay ! Bal. 31/12 " Bal. 1/1)68,100 ! 57,150 " 54,600 $ 70,650Cash (Pay ! Drawings ! Bal. 31/12 " Bal. 1/1)211,800 ! 14,040 ! 1,050 $ 226,890 $ 297,540

5. Purchases Credit (Pay ! Bal. 31/12 " Bal. 1/1)54,300 ! 37,800 " 42,450 $ 49,650Credit ! cash " drawings of goods49,650 ! 101,100 " 9,360 $ 141,390

6. Bank (Payments ! Fund ! Asset-Lodge-Loan)149,670 ! 12,150 ! 135,000 " 142,350 " 180,000 $ 25,530

(c) Name 4 fundamental accounting Concepts and explain one using an example • Accruals • Going concern • Consultancy • PrudenceAccruals concept states that each year is accountable for its own expenses and gains i.e. amounts due but unpaid are added, amounts prepaid are subtracted from amount paid.


4 CAREY SOLUTION

(a) Trading, Profit and Loss Account of Carey for year ending 31/12/2012€ €

Sales (W) 344,000Less Cost of Sales

Opening Stock 18,600Purchases (W)

(141,400 " 4,320) 137,080155,680

Less Closing Stock (22,400)Cost of Goods Sold 133,280Gross Profit 210,720Less Expenses

General Expenses (W) 46,500Insurance (W) 3,800Light and Heat (W) 6,360Interest (W) 3,600Covenant 3,500

Total Expenses (63,760)146,960

Investment Interest Rec. 2400Net Profit 149,360

(b) Balance sheet as at 31//12/2012€ €

Intangible Fixed AssetGoodwill (W) 4,500

Tangible Fixed AssetsPremises (! 115,000) 355,000Vehicles 12,000Machinery ("4,500) 13,500 380,500

Financial Fixed Assets8% Investments 30,000

415,000Current AssetsClosing Stock 22,400Insurance prepaid (W) 1,320Investments Interest due 900Debtors 27,700Cash 980Bank (W) 122,540

175,840Creditors: Amounts falling due less than 1 yrloan installments due 22,500Light and Heat 240Interest due (W) 1,300Creditors 16,100

(40,140) 135,700550,700


Financed byCreditors: Amounts falling due after 1 yearLoan 112,500

CapitalBalance 1/1/2012 300,000Add Capital Introduced 3,200Add Net Profit 149,360Less Drawings (W) (14,360) 438,200

550,700

Workings:1.

Expenses WorkingsL!H Ins. Interest

Paid 8,400 3,960 3,200(160) 1,160

!/" Adj. 240 (1,320) 1,3008,480 4,500

" Drawings (2,120) (900)6,360 3,800 3,600

2. Drawings 4,320 ! 2,520 ! 4,500 ! 2,120 ! 900 $ 14,3603. Goodwill 310,000 " 290,500 $ 19,5004. Sales

Cash a/cPurchases 78,800General Exp. 46,500Lodgements 128,000

Cash Sales 256,800 Drawing 2,520Balance c/d 980

256,800 256,800Balance b/d 980Credit Sales

Debtors Control a/cBalance b/d 24,800 Bank 84,300Credit Sales 87,200 Balance c/d 27,700

112,000 112,000Balance b/d 27,700

Sales CR 256,800Cash 87,200Total 344,000


5. Purchases

Credit Purchases

Creditors Control a/cBank 65,400 Balance b/d 18,900Balance b/d 16,100 Credit Purchases 62,600

81,500 81,500Balance c/d 16,100

Total PurchasesCash Purchases 78,800Credit Purchases 62,600

141,400

6. Bank TotalBank

Lodgements 217,000 Premises 115,000loan 135,000 Payments 114,460

Bal. c/d 122,540352,000 352,000

(c) How to finance a proposed update of new computer systems: • Sell Investments will release € 25,000 • Bank balance of €118,060 more than 3 items the amount required • Profit of €148,805 Carey has no problem in financing this purchase through profits. • Bank loan would be granted as current ratio is a massive 10:1.


5 DUNICAN SOLUTION


€ €Sales 224,880Less Cost of SalesOpening stock 11,400Purchases (W) 89,040Less Closing stock (9,840) (90,600)Gross Profit 134,280Less ExpensesGeneral Expenses (W) 42,720Insurance (W) 4,020Interest (W) 1,440Light and Heat (W) 2,646 (50,826)

83,454Add Income from Investment income 15

83,469

(b) Balance Sheet on 31/12/2012

Intangible Fixed € € €Goodwill (W) 10,800Tangible FixedBuildings 429,000Delivery Vans 17,040Furniture 6,300 452,340Financial AssetsInvestment Fund 2,895

466,035Current AssetsStock 9,840Debtors 12,120Bank (W) 62,730Cash 240Insurance prepaid (W) 1,020 85,950Creditors falling due within 1 yearCreditors 18,240Interest due (W) 450Electricity 288 (18,978) 66,972

533,007Financed ByCreditors falling due for more than 1 yearLoan 108,000Capital 354,000Capital Introduced 1,800Net Profit 83,469Less Drawings (W) (14,262) 425,007

533,007


Notes to Accounts

Expenses General Light/Heat Insurance InterestPaid 44,280 3,240 4,080 1,350Adjustments "1,560 288 960

"1,020 450Cost / Used 3,528 1,800Less Drawings "882 360

42,720 2,646 4,020 1,440

Drawings (Cash ! Goods ! Expenses) 4,680 ! 6,240 ! 882 ! 360 ! 2,100 $ 14,262

Goodwill (Cost " value) 354,000 " 343,200 $ 10,800

Sales " Credit (Pay ! Bal. 31/12-1/1) 36,600 ! 12,120 " 7,200 $ 41,520 " Cash (Pay ! Drawing ! Bal. 31/12- 1/1) 177,000 ! 6,240 ! 240 " 120 $ 183,360 $ 224,880

Purchases Credit (Pay ! Bal. 31/12 " 1/1) 23,280 ! 18,240 "10,920 $ 30,600 Credit ! cash " drawings of goods 30,600 ! 63,120 " 4,680 $ 89,040

Bank (Payments ! Fund ! Asset " Lodge " Loan) 57,390 ! 2,880 ! 93,000 " 108,000 " 108,000 $ 62,730

(c) 1. Why are the records kept by Dunican unsatisfactory? Figures are estimated/calculated or not backed up with Double entry Records. 2. What additional information would be available if the firm’s accounts were prepared using the

double-entry system? Figures for Sales, Purchases or all expenses would be available. These figures would correspond with

alternative Dr. or Cr. entry in other ledger a/c’s. A Trial Balance would authenticate the accuracy of these figures.


6 EDWARDS SOLUTION


€ €Sales (W) 425,300Less Cost of SalesOpening stock 30,400Purchases (W) 156,200Less Closing stock (34,000) (152,600)Gross Profit 272,700Less Exp. Rent (W) 800General Expenses (W) 44,000Insurance (W) 10,720Interest (W) 8,400Light and Heat (W) 9,952Charity Donation 6,400 (80,272)Net Profit 192,428

(b) Balance Sheet on 31/12/20012

€ € €Intangible FixedGoodwill (W) 406,80Tangible FixedBuildings 464,000Delivery Vans 52,000Furniture/Equipment 44,000 560,000

600,680Current AssetsRent prepaid (W) 2,400Stock 34,600Debtors 36,200Bank (W) 93,950Cash 1,300Insurance prepaid (W) 3,000 171,450Creditors falling due within 1 yearCreditors 31,000Interest due (W) 3,750Electricity 1,440loan repayment due 14,000 (50,190) 121,260

721,940Creditors falling due for more than 1 yearLoan 154,000Capital 390,000Add capital introduced 7,600Net Profit 192,428Less Drawings (22,088) 721,940

721,940


Notes to Accounts1. Sales

Credit Sales 68,000 ! 36,200 " 34,000 $ 70,200Cash sales 345,400 ! 1,300 ! 8,400 $ 355,100Total Sales 425,300

2. PurchasesCredit purchases 66,200 ! 31,000 " 37,400 $ 59,800Cash purchases 106,000Total purchases 165,800Less drawings of stock (9,600)Total purchases 156,200

3. Loan interest 4,650 ! 3,750 $ 8,400 4. General Exp. 47,400 " 3,400 $ 44,000 5. Light & Heat 11,600 ! 1,440 " 600 $ 12,440 " 2,488 $ 9,952 6. Insurance 12,000 ! 1,720 " 3,000 $ 10,720 7. Rent 4,800 " 2,400 " 1,600 $ 800 8. Drawings 9,600 ! 8,400 ! 1,600 ! 2,488 $ 22,088 9. Goodwill 390,000 " 347,932 $ 42,06810. Bank 267,600 ! 168,000 " 201,650 " 140,000 $ 93,950

(c) Explain the term Accounting Concept These are the accounting practices or rules that are applied by accountants in the preparation of

financial statements. Name 2 fundamental accounting concepts– The Accruals Concept and The Prudence Concept. Illustrate an accounting concept– The accruals concept states that all expenses incurred in a particular period are recorded in that period

regardless of whether they are paid or not. All incomes earned must be included in the accounts of that period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be recorded in the accounts of 2012 even though it wont be paid until 2013.


7 FOWLER SOLUTION

(a) Balance Sheet of Fowler as at 31/12/2012€ €

Intangible Fixed AssetsGoodwill (W) 26,544

Tangible Fixed AssetsBuildings (!294,000) 616,000Equipment ("4,480) 17,920

Financial AssetsInvestments (W) 14,679

675,143Current Assets

Closing Stock 31/12/2012 33,740Debtors 54,180Bank 115,360Rates prepaid (W) 630

203,910Less Creditors: Amounts falling due within 1 year

Creditors 38,500Interest due (W) 1,260Electricity due 31/12/2012 (W) 420

(40,180) 163,730838,873

Financed by Creditors: Amounts falling due after 1 yearLoan 336,000

CapitalBalance 1/1/2012 448,000Add Capital Introduced 4,480Less Drawings (W) (27,776) 424,704

760,704Add Net Profit 78,169Capital Employed 838,873

(b) Trading and Profit and Loss Account of Fowler for year ended 31/12/2012€ €

Sales 437,080Less Cost of Sales

Opening Stock 1/1/2012 36,960Purchases (268,492 " 9,464) 259,028Less Closing Stock 31/12/12 (33,740)

Cost of Sales (262,248)Gross Profit 174,832

Add Investment Income 119174,951

Less ExpensesWages & Gen. Expenses (W) 71,610Light and Heat (W) 17,360Rates (W) 2,436Interest (W) 5,376 (96,782)

Net Profit 78,169


Notes to Accounts1. Expenses

General L ! H Rates InterestPaid 63,560 21,280 2,520 5,460Adj. (770) 420 546 1,260

8,820 (630)used/Payable 21,700 6,720"Drawings (4,340) (1,344)$ PLC. 71,610 17,360 2,436 5,376

2. Drawings3,780 ! 4,480 ! 9,464 ! 4,368 ! 4,340 ! 1,344 $ 27,776College Equip. Stock Cash L!H Interest

3. Goodwill 413,000 " 386,456 $ 26,5444. Investment Fund 4 # 3,640 ! 119 $ 14,679

(c) Advice you would give to Fowler: – Keep a detailed cash book and general ledger supported by appropriate subsidiary day books; – Would enable Fowler to prepare an accurate Trading, Profit and Loss Account and Balance Sheet; – Avoid reliance on estimates.


8 GERAGHTY SOLUTION

(a) Balance Sheet as 31/12/2012

€ € € €Intangible Assets

Goodwill 7,500Tangible Fixed Assets

Premises (350,400 ! 180,000) 530,400 530,400Equipment (24,000 ! 18,000) 42,000 3,300 38,700Delivery Vans 36,000 1,800 34,200 603,300

608,400 5,100Financial Assets 60,000

5% Investments 670,800Current Assets

Closing stock 24,240Stock of heating oil 360Debtors 40,800Less Provision for bad debts (1,224) 39,576Rates Prepaid W 2,100 66,276

Less Creditors: amounts falling due within one year.Creditors 42,480Bank Overdraft 6,480Loan instalments due 14,400Interest due W 1,200Electricity due 552 (65,112) 1,164Financed by 671,964

Creditors: amounts falling due after more than one yearLoan 129,600

Capital " Balance 1/1/2012 480,000Capital introduced 43,200Net Profit 42,470Less Drawings W (23,306) 542,364

671,964

(b) Trading and Profit and Loss Account for the year ending 31/12/2012

€ €SalesLess Cost of Sales 761,400Opening stock 43,200Purchases 595,152Less drawings W (4,992) 590,160Less closing stock (24,240) (609,120)Gross Profit 152,280Add Investment interest 3,000Less Expenses 155,280

Rates W 5,472Light and heat W 7,354Interest W 2,700


Wages and general expenses W 90,960Bad debts provision 1,224Depreciation Equipment 3,300Depreciation Vans 1,800 (112,810)

Net Profit 42,470

WorkingsRates 8,400 ! 540 " 2,100 " 1,368 $ 5,472Interest 2,400 ! 1,200 " 900 $ 2,700Wages & General 96,000 " 1,440 " 3,600 $ 90,960Light & Heat 9,000 ! 552 " 360 " 1,838 $ 7,354Drawings 4,992 ! 10,608 ! 3,600 ! 1,838 ! 1,368 ! 900 $ 23,306Purchases 609,120 ! 24,240 " 43,200 $ 590,160Goodwill 480,000 " 472,500 $ 7,500Depc of Equipment "10% of 24,000 for 12 months 2,400 !10% of 18,000 for 6 months 900 $ 3,300Depc of Vehicles 15% of 36,000 for 4 m. $ 1,800Loan installment 144,000/20 i.e. 7,200 # 2 $ 14,400Capital introduced 36,000 ! 7,200 $ 43,200

(c)

1. Stock T/o $ Cost$

609,120$ 18 TimesAv. Stock 33,720

2. Cr. to Debtors $ Sales$

761,400$ 19 TimesDebtors 39,576

3. Cr. from Creditors $ Purs.$

595,152$ 14 TimesCreditors 42,480

(d) Write a brief comment on the cash flow of this business. Geraghty is selling his stock one and a half times her month, getting paid in less than 1 month & not

leaning on trade credit. He has no cash flow problems.


9 HENSHAW SOLUTION

(a) Balance Sheet as at 31/12/2012€ €

Intangible Fixed Assets 24,500Goodwill (W)Tangible Fixed AssetsBuildings (! 135,000) 335,000Equipment (" 4500) 18,000 353,000Financial AssetsInvestment Fund 4,58510% Investments 45,000 49,585

427,085Current AssetsClosing Stock 7,350Investment Income Due (W) 3,750Rates Prepaid (W) 1,275Debtors 23,000Bank 13,250

48,625Less Creditors: Amounts falling due within 1 yearInterest due (W) 1,275Creditors 10,750Electricity Due 115 (12,140) 36,485

463,570Financed ByCreditors: Amounts falling due after 1 yearLoan 150,000Capital 325,000Less Drawings W (12,918)Add Net Profit 1,488

313,570463,570

(b) Trading, Profit and Loss Account€ €

Sales 145,500Less Cost of SalesOpening Stock 1/1/2012 14,800Purchases (82,200 " 2,340) 79,880Less Closing Stock 31/12/2012 (7,350)Cost of Sales 87,330Gross Profit 58,220Add Investment Income 85Add 9% Investment Income 4,500

62,805Less ExpensesRates (W) 5,025Interest (W) 2,700Light and Heat (W) 4,012Wages and General Expenses (W) 49,580 61,317Net Profit 1,488

David Wilson


Workings:Goodwill 275,000 " 250,500 $ 24,500Investment fund 3 # 1,500 ! 85 $ 4,585Rates 5,100 ! 1,200 " 1,275 $ 5,025Interest 2,100 ! 1,275 $ 3,375 " 675 $ 2,700Light & heat 4,900 ! 115 " 1,003 $ 4,012Wages & General 50,500 " 1,600 ! 680 $ 49,580Drawings 2,340 ! 3,380 ! 1,003 ! 4,500 ! 675 ! 1,020 $ 12,918Investment Income 45,000 # 10% $ 4,500 " 750 $ 3,750

(c) Assess the performance of Henshaw under the following headings: (i) Liquidity (ii) Probability

Liquidity A current ratio of 4:1 shows Henshaw is easily capable of paying debts for the year. He is also able to pay

debts 3.4 times (Acid Test) in the short run, so Henshaw has no cash flow problems so liquidity/solvency is very solid.

Profitability A gross profit margin of 40% initially looks promising but the net profit % is only 1% which indicates a

problem with expenses, wages & general expenses of €49,580 in particular. The return on capital employed is a very poor 0.3% but consideration must be given to the fact that this is his first year of trading and returns are generally poor in the initial years.


10 JENNIFER ANN SOLUTION

(a) Balance Sheet as at 31/12/2012€ €

Intangible Fixed AssetsGoodwill (W) 20,880Tangible Fixed AssetsBuildings (! 306,000) 900,000Equipment (41,400 " 8,280) 33,120Financial AssetsInvestment Fund (W) 10,9629% Investments 108,000Current Assets 1,072,962Closing Stock 33,480Investment Income Due (W) 5,220Rates Prepaid (W) 4,320Debtors 70,200Bank 177,620

290,840Less Creditors: Amounts falling due within 1 yearInterest due (W) 2,700Creditors 33,300Electricity Due 1,008 (37,008) 253,832

1,326,794Financed ByCreditors: Amounts falling due after 1 yearLoan 450,000CapitalBalance 1/1/2012 810,000Less Drawings (W) (36,598)Add Net Profit 103,392 876,794

1,326,794

(b) Trading, Profit and Loss Account€ €

Sales 742,851Less Cost of SalesOpening Stock 1/1/2012 28,080Purchases (458,599 " 7,488) 451,111Less Closing Stock 31/12/2012 (33,480) (445,711)

Gross Profit 297,140Add Investment Income 9,720Add 9% Investment Income (W) 162

(W) 307,022Less ExpensesRates (W) 16,740Interest (W) 7,200Light and Heat (W) 11,750Wages and General Expenses (W) 167,940 (203,630)Net Profit 103,392


Workings:Goodwill 738,000 " 717,120 $ 20,880Investment Fund 3 # 3,600 ! 162 $ 10,962General Expenses 172,800 " 8,100 ! 3,240 $ 167,940Light & Heat 13,680 ! 1,008 $ 14,688 " 2,938 $ 11,750Rates 17,280 ! 3,780 " 4,320 $ 16,740Interest 6,300 ! 2,700 $ 9,000 " 1,800 $ 7,2009% Investment Interest 9,720 " 4,500 $ 5,220 (Due)

(c) Advice in relation to management of funds • Current Ratio 5.15 shows too much funds tied up in current Assets. • Bank fig € 177,620 particularly high, earning little or no return so should be used more effectively. • Firm carrying very high Debtors fig € 70,000 which could be very risky for bad debts. • Reduce loan fig of € 450,000 to decrease interest payments.


11 ANN O’LOUGHLIN SOLUTION

(a) Balance Sheet as at 31/12/2012

€ € €Fixed Assets

200,000 30,000 170,000Closed AssetsStock 21,000

Debtors 36,000Cash 6,000

63,000Current Liabilities

Creditors 14,000Bank 7,000 (21,000) 42,000

212,000Financed by

Capital 218,000! Net Profit 9,000" Drawings (15,000) 212,000

(b) Trading Profit and Loss account for year ending 31/12/2012

Sales 315,000Stock 1/1/12 — !Purchases 275,500"Drawings of stock (2,500) 273,000

273,000Stock 31/12/12 (21,000) 252,000Gross Profit 63,000Depreciation 30,000Sundry Exp. 24,000 (54,000)Net Profit 9,000

(c) Would you recommend a loan of €50,000 to Ann O’Loughlin? Yes, based on the following: • No borrowing exists i.e. gearing is zero • No cash flow problems as Current Ratio of 3:1 & Acid Test 2:1 are very strong & with extra interest of

€5000 would only reduce these marginally • Security of fixed Assets € 170,000 covers the loan over 3 times • Return on capital is low at 4.1% but this is understandable in the first year of trading • Loan to be given for expansion / purchase of fixed Assets & not for current expenditure.


12 BREDA CONNOLLY

(a) Balance Sheet on 31/12/2012

€ € €Intangible Assets

Goodwill 55,060

Tangible Fixed AssetsPremises (190,000 ! 115,000) W 305,000Equipment W 27,000 2,100 24,900Delivery Vans 24,000 1,600 22,400

407,360Financial Assets 30,000

4% Investments 437,360

Current AssetsClosing stock W 16,000Stock of heating oil 200Debtors 29,000Less Provision for bad debts (1,450) 27,550Insurance prepaid W 1,250 45,000

Less Creditors: amounts falling due within one year.Creditors 31,200Bank overdraft 3,400Loan installments due 9,000Interest due 375Electricity due W 310 (44,285) 715

438,075Financed by

Creditors: amounts falling due after more than one year.Loan 81,000

Capital – Balance 1/1/2012 300,000Capital introduced 30,000Net Profit 41,681

Less Drawings W (14,606) 357,075Capital Employed 438,075


(b) Trading Profit and Loss a/c for y/e 21/12/2012

€ €Sales W 563,000Less Cost of SalesOpening stock 20,000Purchases ("Drawings) (449,520 " 3,120) 446,400

Less closing stock W (16,000) 450,400Gross Profit 112,600Add Investment interest 1,200

Less ExpensesInsurance W 3,681Light and heat W 4,888Interest W 1,500Wages and general expenses W 56,900Bad debts provision 1,450Depreciation Equipment 2,100Depreciation Vans 1,600 (72,119)

Net Profit W 41,681

Workings

Wages/General Expenses 60,000 " 900 " 2,200 $ 56,900Light and Heat 6,000 " 200 ! 310 " 1,222 $ 4,888Interest 1,500 ! 375 " 375 $ 1,500Insurance 5,000 ! 340 " 1,250 $ 4,090 " 409 $ 3,681Drawings 2,200 ! 1,222 ! 375 ! 409 ! 3,120 ! 7,280 $ 14,606Goodwill 300,000 " 244,940 $ 55,060Equipment Depreciation 1,500 ! 600 $ 2,100Capital Introduced 25,000 ! 5,000 $ 30,000

(c) Provide a summary of the advice you would give to Breda Connolly after her first year of trading.

Breda Connolly should keep a detailed cash book and general ledger supported by appropriate subsidiary day books. This would enable Breda to prepare an accurate Trading and Profit and Loss Account, and therefore avoid reliance on estimates.

TOPIC

14Cash Budgeting Solutions

2 Lagan3 Corrib4 Lifley5 Silver6 Suir7 Nore8 Brosma9 Camcor


2 LAGAN SOLUTION

(a)Receipts July August Sept Octr Nov DecSales-Cash (30% less 5% disc) 209,475 234,612 245,784 251,370 262,542 268,128 Credit 1 month (35%) 257,250 288,120 301,840 308,700 322,420 Credit 2 month (35%) 257,250 288,120 301,840 308,700Total Receipts 209,475 491,862 791,154 841,330 873,082 899,248PaymentsPurchases-1m (50% ! 20%) 205,800 230,496 241,472 246,960 257,9362 months (50%) 210,000 235,200 246,400 252,000Wages 63,000 63,000 63,000 63,000 63,000 63,000Equipment 67,200Variable overheads 105,000 117,600 123,200 126,000 131,600 134,400Fixed overheads 71,680 71,680 71,680 71,680 71,680 71,680Interest 584 584 584 584 584 584Total Payments 307,464 458,664 698,960 737,936 760,224 779,600

Net Cash (97,989) 33,198 92,194 103,394 112,858 119,648Opening cash (27,989) 5,209 97,403 200,797 313,655Borrowing 70,000Closing cash (27,989) 5,209 97,403 200,797 313,655 433,303

(b) Budgeted Profit and Loss accountSales 5,164,600Less purchases 2,951,200Gross Profit 2,213,400Less ExpensesWages 378,000Variable overheads 737,800Fixed overheads 430,080Interest 3,504Depreciation 6,720Discount allowed 77,469 (1,633,573) (5,164,600 " 30% " 5%)Discount received 24,136 (2,951,200 ! 537,600 " 50% " 2%)*Net Profit 603,963

211Topic 14 Cash Budgeting Solutions

3 CORRIB SOLUTION

(a)Total Sales 615,000 645,000 840,000 870,000 915,000 945,000Receipts July August September October November DecemberSales-Cash (30% less 5%) 175,275 183,825 239,400 247,950 260,775 269,325Credit 1 month (60% of 70%) 258,300 270,900 352,800 365,400 384,300Credit 2 month (40% of 70%) 172,200 180,600 235,200 243,600Total Receipts 175,275 442,125 682,500 781,350 861,375 897,225PaymentsPurchases-1 month (50% less 2%) 139,650 154,350 176,400 183,750 242,5502 months (50%) 142,500 157,500 180,000 187,500Wages 60,000 60,000 60,000 60,000 60,000 60,000Equipment 72,000Variable overheads 153,750 161,250 210,000 217,500 228,750 236,250Fixed overheads 66,300 66,300 66,300 66,300 66,300 66,300Interest 495 495 495 495 495 495Total Payments 352,545 427,695 633,645 678,195 719,295 793,095

Net Cash (177,270) 14,430 48,855 103,155 142,080 104,130Opening cash (111,270) (96,840) (47,985) 55,170 197,250Borrowing 66,000Closing cash (111,270) (96,840) (47,985) 55,170 197,250 301,380

(b) Budgeted Profit and Loss accountSales 4,830,000Less purchases 2,406,000Gross Profit 2,424,000Less ExpenseWages 360,000Variable overheads 1,207,500Fixed overheads 397,800Interest 2,970Depreciation 7,200Discount allowed 72,450 (2,047,920) (4,830,000 " 30% " 5%)Discount received 18,300 (2,406,000 ! 576,000 " 50% " 2%)Net Profit (394,380)


4 LIFFEY

(a)July Aug. Sept. Oct. Nov. Dec.

Receipt € € € € € €Cash Sales receipt (70%) 67,200 70,700 72,100 69,300 66,500 63,700Credit Sales receipt (1 month) 19,500 28,800 30,300 30,900 29,700 28,500Total 86,700 99,500 102,400 100,200 96,200 92,200PaymentsPurchases 80,800 82,400 79,200 76,000 72,800 72,000Machine 20,000 — — — — —Rent 9,500 9,500 9,500 9,500 9,500 9,500Wages 2,600 2,600 2,600 2,600 2,600 2,600Delivery van — — 40,000 — — —Insurance — — — — 3,420 —Loan Repayment & Interest (W1) — — — — — 6,200Total 112,900 94,500 131,300 88,100 88,320 90,300Net Monthly Cash Flow (26,200) 5,000 (28,900) 12,100 7,880 1,900Bank Loan Financing (3) 18,000 24,000Opening balance 11,250 3,050 8,050 3,150 15,250 23,130Closing balance 3,050 8,050 3,150 15,250 23,130 25,030

(b) Budgeted Income Statement for the six months ended 30/12/2012€ €

Sales 585,000Less Cost of sales Opening Stock 56,800 Purchases 463,200

520,000Less Closing Stock (80% of Jan. sales) (72,000) 448,000Gross Profit 137,000Less Expenses Rent 57,000 Wages 15,600 Insurance 2,160 Interest 1,080 Depreciation-Machinery (20,000 " 20% " 6/12) 2,000 Depreciation-Delivery van (40,000 " 15% " 4/12) 2,000 79,840Profit 57,160


Notes€

W Loan repayment (1/3 of €18,000) 6,000Interest (6,000 " 8% " 5/12) 200

6,200W Interest

18,000 " 8% " 5/12 60024,000 " 8% " 3/12 480

1,080Insurance Paid 3,420 # Prepaid 1/1/2012 1,400 ! Prepaid 31/12/2012 (2,660)

2,160

(c) Objectives of budgeting 1. Control – The budget provides a system of control by which actual result can be compared with

planned results and corrective can be taken on area where variances occur. 2. Decision Making – The budget provides a basis foe decision making e.g. forecasting sales provides a

basis for deciding on the amount be hired and so on. 3. Communication – Though the budget all the objectives of the company are communicate and are in

achieving the objectives of the company and so on. 4. Planning – Helps to organize business for the future.


5 SILVER SOLUTION

Note: (xi) should read 1/4 of money borrowed on 31st July repaid on 31st Dec.(a)

July Aug Sept Oct Nov DecReceipts: Cash Sales 22,040 26,220 33,820 30,400 37,240 34,200 Credit Sales 32,400 34,800 41,400 53,400 48,000 58,800 Total 54,440 61,020 75,220 83,800 85,240 93,000Payment: Purchases 51,750 66,750 60,000 73,500 67,500 54,750 Machine 20,000 Rent 4,800 Wages 3,100 6,500 6,000 6,700 5,400 6,500 Computer 20,000 Loan Repayment 1,313 (W) Total Payment 54,850 93,250 86,000 85,000 72,900 62,563 Net Cash (410) (32,230) (10,780) (1,200) 12,340 30,437 Borrowing 5,000 32,000 11,000 1,000 — — Opening Cash 200 4,790 4,560 4,780 4,580 16,920 Closing Cash 4,790 4,560 4,780 4,580 16,920 47,357

(b) Budgeted Profit & Loss

Sales 484,000! Cost of Sales opening Stock 40,000 " Purchases 374,250 ! Closing Stock (54,750) (359,500)# Gross Profit 124,500! Expenses Wages 37,400 Discount Allowed (W) 9,680 Rent (4,800 " 900 ! 3,600) 2,100 Interest (W) 1,880 Depreciation 1,000 (52,060) Net Profit 72,440

Workings • Interest 5,000 $ 5 m (months) # 250

32,000 $ 4 m (months) # 1,28011,000 $ 3 m (months) # 3301,000 $ 2 m (months) # 20

1,880 • Discount 5% of 40% of 484,000 # 9,680 • Loan " Interest Repaid 1/4 of 5,000 at 12% for 5 months # 63 " 1,250

# 1,313

(c) 1. Define a cash budget A cash budget is a forecast of cash inflows and cash outflows over a certain period. 2. Describe its advantages • It helps to give advance warning of a possible cash shortfall so that an overdraft can be arranged. • It helps to predict future cash surpluses so that short-term investments can be made • It highlights whether enough cash will be available to meet future needs.


6 SUIR SOLUTION

(a)Sales Months 15,000 20,000 25,000 30,000 30,000 25,000 30,000 25,000 10,000

Nov Dec Jan Feb Mar Apr May June July€ € € € € € € € €

Cash 1,425 1,900 2,375 2,850 2,850 2,375 2,850 2,375 9501 Months credit 6,750 9,000 11,250 13,500 13,500 11,250 13,250 11,2502 month credits 6,750 9,000 11,250 13,500 13,500 11,250 13,500Total 1,425 8,650 18,125 23,100 27,600 29,375 27,600 27,125

(b) Schedule of monthly payments for the same period.Purchases budget Nov Dec Jan Feb Mar Apr May June July

€ € € € € € € € €Sales requirement cost (50%)

7,500 10,000 12,500 15,000 15,000 12,500 15,000 12,500 5,000

add Closing stock 2,500 3,125 3,750 3,750 3,125 3,750 3,125 1,25010,000 13,125 16,250 18,750 18,125 16,250 18,125 13,750

less Opening stock (25% of cost)

(1,875) (2,500) (3,125) (3,750) (3,750) (3,125) (3,750) (3,125) 1,250

Purchases requirement 8,125 10,625 13,125 15,000 14,375 13,125 14,375 10,625

(c) Cash budget for the same period

Cash budget Jan Feb Mar Apr May June€ € € € € €

Sales receipts 18,125 23,100 27,600 29,375 27,600 27,125Total 18,125 23,100 27,600 29,375 27,600 27,125

Purchases 10,625 13,125 15,000 14,375 13,125 14,375Equipment 22,000Expenses 10,000 7,000 7,000 7,000 7,000 7,000

42,625 20,125 22,000 21,375 20,125 21,375Net Cash (24,500) 2,975 5,600 8,000 7,475 5,750Opening Cash — (24,500) (21,525) (15,925) (7,925) (450)Closing Cash (24,500) (21,525) (15,925) (7,925) (450) 5,300

(d) The Principal Budget Factor In every organisation there is some factor that limits output and therefore prevents the company from

expanding continuously. The PBF could be sales demand, capacity of the factory and availability of raw materials or labour.

What factors might a company take into account when forecasting likely sales? Last year’s sales; Market Research; The opinion of the sales reps, customers and the general public.


7 NORE SOLUTION

(a)Mar Apr May June

Schedule of Receipts Cash Sales 26,600 30,400 34,200 32,300 1m Credit Sales 60,000 56,000 64,000 72,000 2m Credit Sales 68,000 60,000 56,000 64,000

154,600 146,400 154,200 168,300

(b) Schedule of PaymentsFeb Mar April May June July

Cost 90,000 84,000 96,000 108,000 102,000 114,000# Closing Stock 16,800 19,200 21,600 20,400 22,800! Opening Stock (18,000) (16,800) (19,200) (21,600) (20,400) (22,800)$ Purchases 88,800 86,400 98,400 106,800 104,400

(c) Cash BudgetMar April May June

Receipts 154,600 146,400 154,200 168,300Payments Purchases 88,800 86,400 98,400 106,800 Expenses 21,000 24,000 27,000 25,500

109,800 110,400 125,400 132,300 $ Net cash 44,800 36,000 28,800 36,000 Opening Cash 24,000 68,800 104,800 133,600 Closing Cash 68,800 104,800 133,600 169,600

(d) Why do firm prepaid budgets? (i) Objectives of Budgeting 1. Control: The budget provides a system of control which actual result can be compared with planned

result and corrective action can be taken in areas where variances occur. 2. Decision-Making: The budget provides a basis for decision-making e.g. forecasting sales provides a

basis for deciding on the amount of materials that need to be bought, how much labour needs to be hired and so on.

3. Communication: Through the budget all the objectives of the company are communicated downwards to staff at all level. Departments communicate and are in harmony in achieving the objective of the company and so on.

4. Planning for the future. (ii) Advantages of Budgeting 1. The budget acts as a motivator to staff at all levels to achieve their targets. The budget should not be

imposed and should be agreed by all and be realistic. 2. Budgeting ensures that the organisation’s resources are used as efficiently as possible and that strict

control of cost are achieved. 3. The budget defines areas of responsibility and people work much better in a company where each

individual knows exactly what they are responsible for. 4. Budgeting ensures that planning takes place and that there is good communication between all

sections of the company.


8 BROSNA SOLUTION

Jan Feb Mar April May June(a) Total Sales (38,000) (50,000) (54,000) (48,000) (56,000) (72,000) (76,000) Cash sales 14,440 19,000 20,520 18,240 21,280 27,300 Credit sales 30,000 22,800 30,000 32,400 28,800 33,600

44,440 41,800 50,520 50,640 50,080 60,960

(b) Cost

28,500

37,500

40,500

36,000

42,000

54,000

57,000 # Closing Stock 7,500 8,100 7,200 8,400 10,800 11,400 !Opening Stock (7,120) (7,500) (8,100) (7,200) (8,400) (10,800) $ Purchases 28,880 38,100 39,600 37,200 44,400 54,600

(c) Sales

44,440

41,800

50,520

50,640

50,080

60,960 Loan 26,000

70,440 41,800 50,520 50,640 50,080 60,960Purs. Cash 13,718 18,098 18,810 17,670 21,090 25,935 Credit 22,313 14,440 19,050 19,800 18,600 22,200Vehicle 37,500Insurance 2,500Wages 5,620 5,000 7,600 8,400 7,800 8,000Loan Repayment 5,200Interest 1,560

79,151 37,538 45,460 48,370 47,490 62,895Net cash (8,711) 4,262 5,060 2,270 2,590 (1,935)Cash 1/1/12 9,625 914 5,176 10,236 12,506 15,096Cash 31/12/12 914 5,176 10,236 12,506 15,096 13,161

(d) Trading

Sales 318,000! Cost of SalesOpening Stock 7,120# Purchases 242,780! Closing Stock (11,400) 238,500Gross Profit 79,500

Profit & loss a/c. Gross Profit 79,500Expenses Discount Allowed (5% of 40% of sales of 318,000) 6,360Depreciation 3,750 Insurance (2,500 # 1,500 ! 1,250) 2,750 Wages 45,800 Interest 1,560 (60,220)# Discount Received (5% of 50% of 242,780) 6,070Net Profit 25,350


9 CAMCOR SOLUTIONJan Feb Mar April May June

Sales 57,000 90,000 90,000 72,000 84,000 108,000(a) Schedule of Receipts

Cash Sales 21,660 34,200 34,200 27,360 31,920 41,040Credit Sales 45,000 34,200 54,000 54,000 43,200 50,400

66,660 68,400 88,200 81,360 75,120 91,440(b) Schedule of Payment

Cost 42,750 67,500 67,500 54,000 63,000 81,000# Closing stock 13,500 13,500 10,800 12,600 16,200 17,100! Opening stock (8550) (13,500) (13,500) (10,800) (12,600) (16,200)$ Purchases 47,700 67,500 64,800 55,800 66,600 81,900

(c) Cash BudgetRec. Sales 66,660 68,400 88,200 81,360 75,120 91,440Payments Purchases cash 22,658 32,063 30,780 26,505 31,635 38,903 Purchases credit 26,775 23,850 33,750 32,400 27,900 33,300 Equipment 45,000 Rent 3,000 Wages 6750 9750 10,500 11,700 10,050 10,800 loan Repayment 24,000 Interest 1,440$ Total Payment 10,183 65,663 75,030 73,605 69,585 108,443Net cash (34,523) 2,737 13,170 7,755 5,535 (17,003)# opening cash 11,550 1,027 3,764 16,934 24,689 30,224Borrowing 24,000Closing cost 1,027 3,764 16,934 24,689 30,224 13,221

(d) Trading Profit & lossSales 501,000! Cost of Sales Opening Stock 8,550 # Purchases 384,300 ! Closing Stock (17,100) 375,750 $ Gross Profit 125,250less Expenses Deprecation 10,500 Rent (3,000 # 1,800 ! 1,500) 3,300 Wages 65,550 Interest 1,440Discount Allowed (w) 10,020 (90,810)# Discount Received (w) 9,608 Net Profit 44,048(w) Discount Allowed 501,000 " 40% " 5% $ 10,020(w) Discount Received 384,300 " 50% " 5% $ 9,608

(e) Explain what is meant by the accruals principle in accounting. Each year is responsible its own expenses whether paid for or not and also for its own gains whether actually

Received or not i.e. add amounts due 31/12/12. All revenue earned by the year’s activities is to be included also even if not received until next year.

Expenses due at the end of the year are added on while expenses prepaid at year end are subtracted as they have been paid this year but relate to next year. Gains/Profits are treated similarly.

TOPIC

15Production Budget

Solutions2 Morris3 Wilkinson4 Pezula5 Jess Kelliher6 Kate O’Brien7 Tymon8 Swift9 Muldoon


2 MORRIS SOLUTION

(a) Production Budget

Basic LuxuryRequired by sales 15,000 6,300Closing stock (80% of opening) 720 540Less Opening stock (900) (675)Budged production in units 14,820 6,165

(b) Raw Materials Purchases Budget

Mat. X in kg Mat. Y in kgBasic (14,820 ! 7 kg)(14,820 ! 6 kg) 103,740 88,920Luxury (6,165 ! 5 kg)(6,165 ! 8 kg) 30,825 49,320

134,565 138,240 Add Closing stock 6,000 3,600Less Opening stock (7,500) (4,500)Required purchases in kgs. 133,065 137,340Purchase price €3 €5Purchase cost €399,195 €686,700

(c) Production Cost Budget

Opening stock of raw materials € € €Basic 18,750Luxury 20,250 39,000Purchases (399,195 " (686,700) 1,085,895

1,124,895Closing Stock of raw materialsBasic (6,000 @ €3) 18,000Luxury (3,600 @ €5) 18,000 (36,000)

1,088,895

LabourBasic (14,820 ! 7 @ €13) 1,348,620Luxury (6,165 ! 8 @ €13) 641,160 1,989,780Variable overheadsBasic (14,820 ! 7 @ €4) 414,960Luxury (6,165 ! 8 @ €4) 197,280 612,240Fixed overheads 306,120Cost of Manufacture 3,997,035

221Topic 15 Production Budget Solutions

(d) Budgeting Trading account

€ € €Sales of finished Goods 15,000 ! €220 4,938,000

6,300 ! €260Opening stock of finished goodsBasic 108,000Luxury 94,500 202,500Cost of manufacture 3,997,035Less Closing stock of finished goodsBasic (720 @ €200) 144,000Luxury (540 @ €250) 135,000 (279,000) 3,920,535Gross Profit 1,017,465

(e) Factors taken into account in arriving at expected sales Last year’s sales Market research Trends Price to be charged Competition Type and elasticity of product


3 WILKINSON SOLUTION


Stain SilkRequired for Sales 6,000 7,500Closing Stock (80% of Opening Stock) 360 200

6,360 7,700Less Opening Stock (450) (250)

5,910 7,450

(b) Raw Materials Usage Budget

Materials A Materials BBasic (5,910 ! 7) 41,370 29,550 (5,910 ! 5)Classic (7,450 ! 5) 37,250 44,700 (7,450 ! 6)

78,620 74,250

Raw Materials Purchase BudgetMaterial A Material B

Required for Production 78,620 74,250Add Closing Stock (80% of Opening) 5,200 4,000

83,820 78,250Less Opening Stocks (6,500) (5,000)

77,320 73,250!€4 !€5

309,280 366,250Total €675,530

(c) Budget Production/Manufacuring Account

Direct Materials € €Opening Stock of Raw Materials A Material (6,500 ! 3.00) # 19,500 B Material (5,000 ! 4.50) # 22,500

42,000Add Purchases of Raw Materials 675,530

717,530Less Closing Stock of Raw Materials A Material (5,200 ! 4) 20,800 B Material (4,000 ! 5) 20,000 (40,800)Cost of Raw Materials Consumed 676,730 Add Direct LabourSatin (12 ! 7 ! 5,910) 496,440Silk (12 ! 8 ! 7,450) 715,200 1,211,640

1,888,370Variable Overheads Satin (5,910 ! 7 ! 4) 165,480 Silk (7,450 ! 8 ! 4) 238,400 403,880 Fixed Overheads 201,940 Total Cost of Production €2,494,190


(d) Budged Trading Account for Year Ended 31/12/2012

€ €Sales (6,000 ! 200) (7,500 ! 290) 3,375,000Opening Stock Satin (450 ! 180) 81,000Silk (250 ! 210) 52,500

133,500Add Production 2,494,190

2,627,690Less Closing Stock*(w) (360 ! 179 " 200 ! 194) (103,240) (2,524,450)

Gross Profit €850,550

Working

Satin SilkMat. A 7 ! 4 # 28 5 ! 4 # 20Mat. B 5 ! 5 # 25 6 ! 5 # 30Labour 7 ! 12 # 84 8 ! 12 # 96Variable 7 ! 4 # 28 8 ! 4 # 32Fixed 7 ! 2 # 14 8 ! 2 # 16

179 194

Fixed Overhead # 201,940 ______________________ (5910 ! 7) " (7450 ! 8)

# 201,940 ______________ 41,370 " 59,600

# 201,940 _______ 100,970 # €2.0

Closing Stock 360 ! 179 # 64,440 200 ! 194 # 38,800 # 103,240


4 PEZULA SOLUTION


Silver GoldUnits Units

Required for Sales 10,000 7,500" Closing Stock (80% of opening stock) 640 480

10,640 7,980$ Opening stock (800) (600)Budgeted Production in units 9,840 7,380

(b) Materials Purchases Budget

Material I Material IIkgs kgs

Required by Production$ Silver (9,840 ! 5) 49,200 (9,840 ! 6) 59,040$ Gold (7,380 ! 7) 51,660 (7,380 ! 8) 59,040

100,860 118,080" Closing stock (80% of opening stock) 4,800 3,200

105,660 121,280$ Opening stock (6,000) (4,000)Required purchases of R.M. in kgs 99,660 117,280Purchase price €4 €5Purchase Cost 398,640 €586,400

(c) Budgeted Manufacturing Account for Year Ended 31/12/2012

€ €Direct MaterialsOpening Stock of Raw Materials (6,000 ! 3 " 4,000 ! 4) 34,000" Purchases of Raw Materials (398,640 " 586,400) 985,040

1,019,040Closing Stock of Raw Materials (4,800 ! 4 " 3,200 ! 5) (35,200)

983,840Direct LabourSilver (9,840 ! 8 ! €12) 944,640Gold (7,380 ! 10 ! €12) 885,600 1,830,240Variable OverheadsSilver (9,840 ! 8 ! €5.50) 432,960Gold (7,380 ! 10 ! €5.50) 405,900 838,860Fixed Overheads 457,560Total Production Cost 4,110,500


(d) Budgeted Trading Account for Year Ended 31/12/2012

€ €Sales (10,000 ! 200) " (7,500 ! 400)Less cost of sales: 5,000,000Opening stock (800 ! 200) " (600 ! 250) 310,000" cost of manufacture 4,111,500$ Closing stock (640 ! 214) " (480 ! 273) (W) (268,000)Cost of Sales (4,152,500)Gross Profit €847,500

Workings1 Fixed overhead Per Hour

9,840 ! 8 # 78,720 7,380 ! 10 # 73,800

152,520

P.U. # €457,000 ________ 152,520

units # €3

Silver €Material I 5 ! €4 # 20Material II 6 ! €5 # 30Labour 8 ! €12 # 96Variable O/H 8 ! €5.50 # 44Fixed O/H 8 ! €3 # 24

€214

Gold €Material I 7 ! €4 # 28Material II 8 ! €5 # 40Labour 10 ! €12 # 120Variable O/H 10 ! €5.50 # 55Fixed O/H 10 ! €3 # 30

€273

(e) The factors that companies look for when deciding sales They look at the following things: • Last year’s sales as an indicator. • The opinion of Sales manager and Sales Reps. • The state of the economy. • Competition from other companies. • Trends in the market. • Market research. • Prices to be charged. • Whether the goods are luxury or necessity goods.


5 JESS KELLIHER SOLUTION


Regular SuperiorUnits Units

Required by sales 5,000 4,000Closing stock (80% of opening stock) 320 240

5,320 4,240Opening stock (400) (300)Budged production in units 4,920 3,940


Material A Material Bkg kg

Required by production Regular (4.920 ! 5) 24,600 (4,920 ! 6)29,520 Superior (3.940 ! 4) 15,760 (3.940 ! 7)27,580

40,360 57,100Add closing stock (80% of opening stock) 4,800 4,000

45,160 61,100Less opening stock (6,000) (5,000)Required Purchases of raw materials in kg 39,160 56,100Purchase price €3.00 €4.00Purchase cost €117,480 €224,400

(c) Budged Manufacturing Account For year ending 31/12/2012

Direct Materials € € Opening stock of raw materials (6,000 ! €2.50 " 5,000 ! €3.50) 32,500 Purchase of raw materials (117,480 " 224,400) 341,880

374,380 Less Closing stock of materials (4,800 ! 3 " 4,000 ! 4) (30,400)

343,980Direct labour Regular (4.920 ! 8 hrs ! 10) 393,600 Superior (3,940 ! 9 hrs ! 10) 354,600 748,200Variable overheads: Regular (4,920 ! 8 hrs ! 4) 157,440 Superior (3,940 ! 9 hrs ! 4) 141,840 299,280Fixed overheads 187,050Total Production Cost €1,578,510

(d) Budged Trading Account for year ending 31/12/2012

€Sales (5,000 ! 180) " (4,000 ! 220) 1,780,000Less Cost of salesOpening stock (400 ! €140) " (300 ! €160) 104,000Add Cost of manufacture 1,578,510(W) Less Closing stock (171 ! 320 " 188.5 ! 240) (99,960) (1,582,550)Gross Profit €197,450


(w) Workings

Regular SuperiorMat. A 5 ! 3 # 15 Mat. A 4 ! 3 # 12Mat. B 6 ! 4 # 24 Mat. B 7 ! 4 # 28Variable 8 ! 4 # 32 Variable 9 ! 4 # 36Labour 8 ! 10 # 80 Labour 9 ! 10 # 90*Fixed 8 ! 2.5 # 20 *Fixed 9 ! 2.5 # 22.5

# 171 # 188.5

* Fixed #187,050

# €2.5(4,920 ! 8) " (3,940 ! 9)

(e) 1. Capital Budget: This budget deals with any planned capital expenditure e.g. purchase of fixed assets and

planned capital receipts such as the sale of the fixed assets. Decision relating to these items would be the responsibility of the board of directors. The carrying out of the capital budget is the responsibility of the financial controller.

2. Controllable Costs: Are costs that can be controlled by the manager of a cost centre. She/he will make the decision about the amount of the cost or if the cost should be incurred and can be held responsible for variances in these costs. E.g.- all variable costs are controllable.

Uncontrollable Costs: Are costs over which the manager of a cost centre has no control and therefore cannot be held responsible for variances in these costs. E.g.- rates to the local authority are uncontrollable.


6 O’BRIEN SOLUTION


Ruby DiamondRequired by sales Units UnitsClosing stock (80% of opening) 7,500 6,000Less Opening stock 660 495Budged production in units (600) (450)

7,560 6,045


Timber MetalRuby (7,560 ! 5)(7,560 ! 6) 37,800 45,360Diamond (6,045 ! 4) (6,045 ! 7) 24,180 42,315

61,980 87,675Add Closing stock 9,900 8,250Less Opening stock (9,000) (7,500)Required purchases in kgs. 62,880 88,425Purchase price €3 €4Purchase cost €188,640 €353,700

(c) Production Cost Budget

Opening stock of raw materials € €Ruby 18,000Diamond 22,500 40,500

Purchases (188,640 " 353,700) 542,340582,840

Closing Stock of raw materialsRuby 9,900 @ €3 29,700Diamond 8,250 @ €4 33,000 (62,700)

520,140Labour Ruby 7,560 @ 8 @ €12 725,760

Diamond 6,045 @ 9 @ €12 652,860 1,378,620Variable overheads Ruby 7,560 @ 8 @ €5 302,400

Diamond 6,045 @ 9 @ €5 272,025 574,425Fixed overheads 229,770Cost of Manufacture 2,702,955


(d) Budgeting Trading account

€ € €Sales of finished goods (7,500 @ 270) " (6,000 @ 330) 4,005,000Opening stock of finished goods Ruby (600 ! €140) 84,000 Diamond (450 ! €160) 72,000 156,000Cost of manufacture 2,702,955Less closing stock of finished goods (W) Ruby (660 @ 191) 126,060 (W) Diamond (495 @ 211) 104,445 (230,505) (2,628,450)Gross Profit 1,376,550Less ExpensesSelling 13,500 @ €2 27,000Administration 30,000 (57,000)Net Profit 1,319,550

(W) Workings

Ruby DiamondTR1 5 ! 3 # 15 4 ! 3 # 12TR2 6 ! 4 # 24 7 ! 4 # 28Var. 8 ! 5 # 40 9 ! 5 # 45Labour 8 ! 12 # 96 9 ! 12 # 108*Fixed 8 ! 2 # 16 *9 ! 2 # 18

€191 €211

*Fixed#229,770

#229,770

# €2.0(7,560 ! 8) " (6,045 ! 9) 114,885 60,480 54,405


7 TYMON SOLUTION

(a)

Production July Aug Sept Oct NovSales 12,000 12,750 15,000 16,500 17,250" Closing Stock (60%) 7,650 9,000 9,900 10,350 9,450$ Opening Stock — (7,650) (9,000) (9,900) (10,350)# Production 19,650 14,100 15,900 16,950 16,350

(b) Purchases

Production units 19,650 14,100 15,900 16,950 16,350! Kgs 6 6 6 6 6# Kg Prod 117,900 84,600 95,400 101,700 98,100" C/s (10%) 8,460 9,540 10,170 9,810$ O/s — (8460) (9540) (10,170) 9,810# Kgs 126,360 85,680 96,030 101,340! Price €1.50 €1.50 €1.50 €1.50# Purs. €189,540 €128,520 €144,045 €152,010 # 614,115

(c)

July Aug Sept OctReceipts € € € € Cash sales received 108,000 114,750 135,000 148,500 Credit Sales one month 126,000 133,875 157,500 Credit Sales two month 126,000 133,875

108,000 240,750 394,875 439,875Payments Purchases 189,540 128,520 144,045 Wages 30,000 30,000 30,000 30,000 Variable Overhead 98,250 70,500 79,500 84,750 Fixed overhead 42,750 42,750 42,750 42,750 Equipment 45,000 Interest 300 300 300 300

216,300 333,090 281,070 301,845Net Monthly Cash Flow (108,300) (92,340) 113,805 138,030Bank Loan 36,000 — — —Opening Balance — (72,300) (164,640) (50,835)Closing Balance (72,300) (164,640) (50,835) 87,195


(d) Budgeted Trading and Profit and Loss Account for the 4 months ending 31/4/2012

€ € €Sales 1,687,500Less Cost of Sales Opening stock — Purchases 614,115 Closing stock $ Finished goods (10,350 ! 30) 310,500 Raw materials (9,810 ! 1.5) 14,715 (323,215) (290,900)Gross Profit 1,396,600Less Expenses Wages 120,000 Variable overheads 333,000 Fixed overhead 171,000 Depreciation $ Equipment 3,000 (627,000) Operating Profit 769,600 Less interest (1,200)Net Profit 768,400

(e) Adverse variance occurs when Actual expenditure is greater than budgeted expenditure Causes

• Raw material Price increase • Raw material use greater than planned • Labour cost increase due to overtime • Greater no. of workers needed for job or poor production


8 SWIFT SOLUTION

July Aug Sept Oct Nov(a) Production Budget

Quantity 13,500 14,250 16,500 18,000 18,750" Closing Stock 8,550 9,900 10,800 11,250 10,350$ Opening Stock (7,200) (8,550) (9,900) (10,800) (11,250)# Production total 14,850 15,600 17,400 18,450 17,850

(b) Purchases BudgetQuantity 14,850 15,600 17,400 18,450 17,850@ 6Kg’s 89,100 93,600 104,400 110,700 107,100" Closing Stock 9,360 10,440 11,070 10,710 10,350$ Opening Stock (1,800) (9,360) (10,440) (11,070) (10,710)$ Total in units 96,660 94,680 105,030 110,340 106,740@ €1.80 per unit €173,988 €170,424 189,054 198,612 192,132

(c) Cash BudgetTotal Sales 243,000 256,500 297,000 324,000Cash Sales 97,200 102,600 118,800 129,600Credit Sales $ 117,000 145,800 153,900 178,200Total income 214,200 248,400 272,700 307,800

ExpenditurePurchases 100,500 173,988 170,424 189,054Labour 18,000 18,000 18,000 18,000Overheads $ 40,500 42,750 49,500 54,000

159,000 234,738 237,924 261,054Net Cash 55,200 13,662 34,776 46,746Cash 1/1 $ 8,700 63,900 77,562 112,338Cash 31/12 63,900 77,562 112,338 159,084

(d) Budgeted Trading P & L o/c

€ Sales (62,250 @ €18) 1,120,500$ Cost of Sales Opening Stock (7,200 @ €15) 108,000 " Purchases 732,078 $ Closing Stock (10,710 @ €15) (160,650) (679,428) Gross Profit 441,072$ Expenses Wages 72,000Variable O/Hs 186,750 (258,750) Net Profit 182,322

(e) Budgetary Control • limits placed on quantities used in production & cash actually share in advance of job completion • Budgetary Targets are set with actual use being compared to or kept in line with plan • Variances are calculated to show effectiveness of budgetary control


9 MULDOON SOLUTION


July Aug Sep Oct Nov DecSales 12,000 14,500 15,500 17,000 19,500 20,000Add Closing Stock 4,350 4,650 5,100 5,850 6,000

16,350 19,150 20,600 22,850 25,500Less Opening Stock (3,800) (4,350) (4,650) (5,100) (5,850)

12,550 14,800 15,950 17,750 19,650

(b) Material Purchases Budget (in units and €’s)July Aug Sep Oct Nov

Units of Production 12,550 14,800 15,950 17,750 19,650Materials per unit (7 kg) !7 !7 !7 !7 !7Required for production 87,850 103,600 111,650 124,250 137,550Add Closing Stock 20,720 22,330 24,850 27,510

108,570 125,930 136,500 151,760Less Opening Stock (19,100) (20,720) (22,330) (24,850)Received for purchases 89,470 105,210 114,170 126,910Purchase price in € ! 3.50 ! 3.50 ! 3.50 ! 3.50Price of raw materials €313,145 €368,235 €399,595 €444,185

(c) Cash Budget

€ € € € € €May June July Aug. Sept. Oct.

Sales 224,000 289,000 336,000 406,000 434,000 476,000Receipts Cash Sales (40%) 134,400 162,400 173,600 190,400

1 Month Sales (36%)* 104,040 120,960 146,160 156,2402 Month Sales (24%)** 53,760 69,360 80,640 97,440

292,200 352,720 400,400 444,080Payments Purchases 93,100 297,488 349,823 379,615

Wages 12,000 12,000 12,000 12,000Variable Overheads 36,000 43,500 46,500 51,000

141,100 352,988 408,323 442,615Net Cash 151,100 (268) (7,923) 1,465Cash 1/1/2012 42,000 193,100 192,832 184,909Closing Cash 193,100 192,832 184,909 186,374

*60% of 60% of sales on credit collected after 1 month i.e. 36% **40% of 60% of sales on credit collected after 2 months i.e. 24%

(d) Would you grant overdraft facilities to Muldoon based on her budgets? Yes, based on the following. • Sales volume increasing monthly. • Credit collection within 2 months. • Cash balance of €50,925 event of problems. • However cost of purchases increase is worrying also security would be required.

(e) Explain the term Master Budget. Master Budget is an overall budget projection for next year. It would include Cash Budget, Production

Budget, Purchases, Labour Overhead Budget, Production Cost, Sales, Capital & Budgeted final a/cs.

TOPIC

1616Product Costing Solutions

2 Foodies3 Lockie4 Ben and Nevis5 Miah6 Troy and Nathan 7 Wynnie 8 Gary John9 Conor Daniel

235Topic 16 Product Costing Solutions

2 FOODIES SOLUTION

(a) • The fixed overhead absorption rates for each department. (Per direct labour hour.)

Department

Monthly fixed overhead _______________________ Monthly direct labour hours €1,500 ______ 1,000 €3,000 ______ 2,500 €2,200 ______ 800

! €1.50 ! €1.20 ! €2.75 • The labour rate per department.

Department

Monthly wages’ bill _______________________ Monthly direct labour hours €6,000 ______ 1,000 €13,750 _______ 2,500 €7,200 ______ 800

! €6 ! €5.50 ! €9

Variable rate per department 2,200 _____ 1,000 ! €2.2 3,500 _____ 2,500 ! €1.4 1,320 _____ 800 ! €1.65 •

(b) The administration overhead absorption rate.

General administration overhead __________________________ Monthly labour hours €34,400 _______ 4,300

! €8 per direct labour hour

(c) The selling price of job

€ €Materials 800.00Labour

Prep Dept. 50 " €6 300.00Cooking Dept. 20 " €5.50 110.00Finishing Dept. 16 " €9 144.00 554.00

Overheads Variable VariablePrep Dept. 50 " €2.20 110.00Cooking Dept. 20 " €1.40 28.00Finishing Dept. 16 " €1.65 26.40 164.40

Fixed FixedPrep Dept. 50 " €1.50 75.00Cooking Dept. 20 " €1.20 24.00Finishing Dept. 16 " €2.75 44.00 143.00

General administration 86 " €8 688.00Total cost 75% of s.p. 2,349.40Profit (€2,349.40 ÷ 0.75) 25% s.p. 783.13Selling price 3,132.53


(d) Step-Fixed Costs Fixed costs remain the same but only up to the point of maximum production from a particular factory

size. If the company wishes to increase production beyond this level it must hire extra factory space so the fixed costs step upwards and so on.

0 5,000

12,000

20,000

10,000 15,000

Units

€ C

ost

30,000

example: Rent for factory space to produce • 5,000 units is €12,000 p.a., • 10,000 units is €20,000 p.a., • 15,000 units is €30,000 p.a.

(e) Marginal Absorption Costing There is a different profit figure because closing stock is valued differently. Marginal costing does not include fixed costs when costing a product whereas absorption costing does

include the fixed costs. Therefore closing stock under marginal costing is valued lower than under absorption costing because

a share of fixed costs is included in the value of stock under absorption costing but not included under marginal costing.

(e.g.) Under absorption costing, closing stock is valued at a ¼ of e.g. production cost of 17,400. Under marginal costing, closing stock is valued at ¼ of e.g. production cost of 14,400.

Closing stock – Absorption costing 4,350Closing stock – Marginal costing (3,600)Difference 750The profit difference is 22,950 # 22,200 ! 750

Absorption costing should be used a it agrees with standard accounting practice and concepts and matches costs with revenues.


3 LOCKIE SOLUTION

(a) Overhead Analysis

Basis Total Manufacturing packaging Polishing€ € € €

Indirect Materials Given 288,000 136,000 80,000 72,000Indirect Labour Given 400,000 240,000 96,000 64,000Machine Maintenance Machine Hours 22,400 11,200 8,400 2,800Plant Depreciation Plant Valuation 64,000 38,400 19,200 6,400Light and Heat Volume 56,000 32,000 16,000 8,000Rent and Rates Floor Space 51,200 25,600 16,000 9,600Factory Canteen % of Employees 40,000 24,000 12,000 4,000

921,600 507,200 247,600 166,800

(b) Overhead Absorption Rate

Manufacturing Packing PolishingMachine Hrs Labour Hrs. Labour Hrs.

Budgeted overheads ________________ Budgeted hours 507,200 _______ 32,000 247,600 _______ 28,000 166,800 _______ 20,000

Overhead rate per Machine hr. €15.85Absorption rate per labour hour €8.84 €8.34

(c) Selling price of Job No. 45 A

€Materials 8,000 $ 1,920 ! 9,920 Labour 1,600 $ 3,680 $ 640 ! 5,920OverheadsManufacturing 48 " 15.85 ! 760.80Packaging 72 " 8.84 ! 636.48Polishing 10 " 8.34 ! 83.40Production cost ! 17,320.68Profit (75%) ! 5,773.56Selling Price (25%) ! 23,090.24

(d)

1. Direct Costs Are directly linked to that product or service Raw materials, direct labour and direct expense.

Indirect Costs Overheads not directly linked to the product or service but included as part of the cost.Rent, depreciation of equipment, supervisors salary.

2. Cost Centre A location where costs are shared. A person has authority and responsibility for expenditure in a cost centre e.g. Manufacturing.


4 BEN AND NEVIS SOLUTION

1. Ben(a)

Production ServiceOverhead Basis Total 1 2 A B

€ € € € €Dep. of Equipment Book value 24,000 9,000 6,000 3,000 6,000Dep. of Factory Floor area 30,000 9,000 12,000 6,000 3,000Factory heating Volume 14,400 3,600 7,200 2,400 1,200Factory cleaning Floor area 3,000 900 1,200 600 300Canteen No. employees 16,200 5,400 5,400 2,700 2,700

87,600 27,900 31,800 14,700 13,200(b)

Production Service1 2 A B€ € € €

Total Cost 27,900 31,800 14,700 13,200Apportion Dept. A to Production 11,025 3,675 (14,700)Apportion Dept. B to Production 9,900 3,300 (13,200)

48,825 38,775

(c) Machine hour absorption rate Dept. 1 48,825 ______ 4,500 ! €10.85 Per machine hour.

Dept. 2 38,775 ______ 1,500 ! €25.85 Per machine hour.

(d) Re-apportionment: This is the term used where Service Department costs are re-apportioned between production departments

because overheads can only be recovered by being included as part of the cost of production.

2. Nevis Nevis estimates its fixed Production overhead costs next year will be €18,000 and that it will produce 3,000

tables incurring 4,000 Direct Labour/hours and 800 Machine/hours.

(a) Per Unit: Total Overheads _____________ No of Units ! €18,000 _______ 3,000 ! €6 per Unit

(b) Per Direct Labour _______________ hr ! €18,000 _______ 4,000 ! €4.50 per Labour/hr

(c) Per Machine __________ hr ! €18,000 _______ 800 ! €22.50 per Machine/hr What happens if we produce more or less of the product and the Production Overheads are more or less

than planned. Take the above example: What happens if the actual overhead incurred was €16,200 and the number of

Units produced was (a) 2,800 Units (b) 3,000 Units (c) 3,400 Units (d) 1,900 Units.

Units 2,800 3,000 3,400 1,900Fixed Production Overheads € 16,200 16,200 16,200 16,200Overhead Absorbed (Unit " Rates) € W 16,800 18,000 20,400 11,400Under/Over Absorbed € 600 1,800 4,200 (4,800)

Workings 16,800 ! 2,800 " 6 18,000 ! 3,000 " 6 20,400 ! 3,400 " 6 11,400 ! 1,900 " 6


5 MIAH SOLUTION

(a) Departmental overhead Absorption Rate (use dominant activity)

Cutting ! Budgeted Manufacturing overheads ____________________________ Budgeted Machine hours ! 270,000 _______ 67,500 ! €4 per mach/hr

Fitting ! Budgeted Manufacturing overheads ____________________________ Budgeted Labour hours ! 69,000 _______ 60,000 ! €1.15 per lab/hr

(b) Under/overhead Absorption by Dept. and in Total

Cutting Fitting Total€ € €

Actual overhead incurred 210,000 69,000 279,000Absorbed overhead (W1) 300,000 (W2)60,375 360,375Over(under) Absorption 90,000 (8,625) 81,375

Overall effect: Profits increased by €81,375 Actual " Absorbed Rate (W1) Overhead Absorbed ! No. of Machine hours " Absorption Rule (75,000 " 4 ! 300,000) (W2) Overhead Absorbed ! No. of Labour hours " Absorption Rate (52,500 " 1.15 ! 60,375)

(c) Total Production cost of Job No 789 B.

Direct Material (110 $ 50) ! 160.00Direct Wages (100 $ 70) ! 170.00Prime Cost 330Overhead Absorbed

30 hrs " 4 ! €120.0025 hrs " 1.15 ! 28.75 148.75

Total production cost 80% 478.75Profit 20% 119.69Selling Price 100% 598.44

(d) Explain with examples: controllable and uncontrollable costs.

Controllable costs The manager has the power to incur these costs. They can make a decision about the amount to be incurred e.g. raw materials, labour.

Uncontrollable cost A cost over which the manager of a cost centre has no control e.g. rates and taxes, interest rules.


6 TROY AND NATHAN SOLUTION

(i) Troy Valuation of Closing Stock

(a) Value of the Closing Stock using first in first out (FIFO) method

Purchases in Units Cost Price Purchases at Cost€ €

2,300 @ 14.00 ! 32,2002,500 @ 17.00 ! 42,5002,950 @ 17.00 ! 50,1503,100 @ 19.00 ! 58,900

10,850 183,750

Sales in Units Cost Price Sales Value€ €

3,210 @ 19.00 ! 60,9902,200 @ 21.00 ! 46,2004,050 @ 22.00 ! 89,100

10,400 196,290

Closing Stock in units Opening Stock 6580Add Purchases 10,850

17,430Less Sales (9,460)Closing Stock 7,970Closing Stock in €3,100 units @ €19.00 58,9002,950 units @ €17.00 50,1501,920 units @ €17.00 32,640

141,690

(b) Trading Account for the year ending 31/12/2012

€ €Sales 196,290Less Cost of Sales Opening Stock 78,960 Purchases 183,750

262,710 Less Closing Stock 141,690 121,020Gross Profit 75,270


(ii) Nathan(a) Selling Price of job 2345 if the profit is set at 35% of selling price

€ €Direct Materials 14,800.00Direct Wages

Alpha (35 hours " €17.00) 595.00Beta (25 hours " €22.00) 550.00Gamma (60 hours " €19.00) 1,140.00 2,285.00

Variable OverheadsAlpha (35 hours " €5.00) 175.00Beta (25 hours " €12.00) 300.00Gamma (60 hours " €7.00) 420.00 895.00

Fixed OverheadsAlpha (35 hours " €3.50) 122.50Beta (25 hours " €6.00) 150.00Gamma (60 hours " €11.50) 690.00 962.50

General Administration Overheads120 hours " €4.50 540Total Cost ! 80% of selling price 19,482.5Profit ! 20% of selling price 4,870.63Selling Price ! 100% 24,353.13

(iii) Enda May(a)

Rates : Machine hour 32,000/1,000 ! €32: Labour hour 32,000/5,000 ! €6.4: Per Unit hour 32,000/4,000 ! €8.0

(b)

Per Unit Labour hrs Machine hrsActual 32,000 32,000 32,000Absorbed (W) 36,000 35,200 28,800Over/under 4,000 3,200 (3,200)

(c) Explain the difference between allocation and apportionment of costs. Allocation – this is where direct costs can be linked directly to the item being costed. Apportionment – indirect costs are divided between cost centres using suitable bases of appointment.

(W) Workings36,000 ! 4,500 PU @ €835,200 ! 5,500 Labour hrs @ €6.428,800 ! 900 Machine hrs @ €32


7 WYNNIE SOLUTION

(i) Valuation of Closing Stock(a) Value of the Closing Stock using first in first out (FIFO) method.

Purchases in Units Cost Price Purchases at Cost6,300 @ 8.00 ! 50,4005,800 @ 9.00 ! 52,2005,750 @ 9.00 ! 51,7506,200 @ 11.00 ! 68,200

24,050 222,550Sales in Units Cost Price Sales Value

5,700 @ 11.00 ! 62,7009,150 @ 12.00 ! 109,8008,250 @ 13.00 ! 107,250

23,100 279,750Closing Stock in unitsOpening Stock 6,700Add Purchases 24,050

30,750Less Sales (23,100)Closing Stock 7,650Closing Stock in €6,200 units @ €11.00 68,2001,450 units @ €9.00 13,050

81,250

(b) Trading Account for the year ending 31/12/2012

€ €Sales 279,750Less Cost of SalesOpening Stock (6,700 units " €8.00) 53,600

222,550276,150

Less Closing Stock (81,250) (194,900)Gross Profit 84,850

(ii) Budgeted Overheads(a)

Cutting Department Variable FixedBudgeted overhead costs €9,600 €3,300Budgeted Hours 600 600Overhead Absorption Rates €16 per hour €5.50 per hour

Welding Department Variable FixedBudgeted overhead costs €12,600 €2,100Budgeted Hours 1,400 1,400Overhead Absorption Rates €9 per hr €1.50 per hr

Finishing Department Variable FixedBudgeted overhead costs €4,400 €900Budgeted Hours 400 400Overhead Absorption Rates €11 per hour €2.25 per hour


(b)General Administration Overhead

Overhead Absorption Rate per hour !General Administration Overhead

!€6,000

Total Budgeted Hours 2,400! €2.50

(c) Calculation of Product Cost and Selling price

€ €Direct Materials 1,250.00Direct wages:Cutting Department (75 hours @ €9) 675Welding Department (150 hours @ €8) 1,200Finishing Department (24 hours @ €10) 240 2,115.00Variable overheadsCutting Department (75 hours @ €16) 1,200.00Welding Department (150 hours @ €9) 1,350.00Finishing Department (24 hours @ €11) 264.00 2,814.00Fixed overheadsCutting Department (75 hours @ €5.50) 412.50Welding Department (150 hours @ €1.50) 225.00Finishing Department (24 hours @ €2.25) 54.00 691.50

General Administration overheads (249 hours @ €2.50) 622.50Total Cost ! 80% of selling price 7,493.00Profit ! 20% of selling price 1,873.25Selling Price ! 100% 9,366.25

(iii) Curley Meats

*(Machine Hours)Cutting

*(Labour Hours)Weighing

*(Labour Hours)Packing

50,400 12,960 14,40012,600 16,200 7,200! €4.0 €0.80 €2.0

*(Using dominant activity) Cutting Weighing Packing Total

Actual 55,800 10,800 16,200 82,800*Absorbed (W) 57,600 10,656 18,000 86,256Over/under 1,800 (144) 1,800 3,456

Cutting 14,400 @ €4.0 ! 57,600Wages 13,320 @ €0.80 ! 10,656Packing 9,000 @ €2.0 ! 18,000

(c) Overall Effect on Profit Cutting costs incurred were 1,800 less than expected/budgeted and therefore profits are 1,800 greater than expected. Weighing costs incurred were 144 more than expected/budgeted and therefore profits are 144 less than expected Packing costs incurred were 1,800 less than expected/budgeted and therefore profits are 1,800 greater than expected. Overall costs incurred were 3,456 less than expected/budgeted and therefore profits are 3,456 greater than expected.

(W)


8 GARY JOHN SOLUTION

(a)

€ € € € €Basis Total Prod. 1 Prod. 2 Service A Service B

Factory L & H Volume 16,000 10,000 3,000 2,000 1,000Machinery Valuation 19,000 10,000 9,000

Material handling D. Materials 10,000 6,000 4,000Canteen Costs Employees 54,000 18,000 13,500 12,000 10,500Supervisor Employees 45,000 15,000 11,250 10,000 8,750General Repairs Machines 15,000 10,000 5,000Cleaning Floor 9,000 5,400 1,800 1,200 600

168,000 74,400 47,550 25,200 20,850Re Apportioned (machine hour) 16,800 8,400 (25,200)

13,900 6,950 (20,850)168,000 105,100 62,900 — —

(b)

Production 1 105,100! €1.3180,000

Production 2 62,900! €1.5740,000

(c)

Job no 72B per unitMaterials €5.4 ! 5.40Labour €4.8 ! 4.80Production 1 €1.31 " 6 ! 7.86Production 2 €1.57 " 7 ! 10.99Cost per unit ! 80% ! 29.05Profit ! 20% ! 7.26Selling price ! 100% ! 36.31

(d)

Actual 142,400AbsorbedProd. I 70,000 @ €1.31 ! €91,700Prod. II 41,400 @ €1.57 ! €64,998 (156,698)Under absorbed 14,298Profit Reduced by €14,298

(e) What are the main differences between direct and indirect costs? Direct Costs – are direct linked to that product or service e.g. Raw Materials, Direct labour & direct

expenses. Indirect Costs – Overheads not directly linked to the product or service but included as part of the cost e.g.

Rent depreciation of equipment.


9 CONOR DANIEL SOLUTION

(i)(a)

Units Price €Purchases 6,000 @ €8 ! 48,000

4,400 @ €12 ! 52,8003,000 @ €14 ! 42,000 €142,800

13,400Sales 1,800 @ €18 ! 32,400

4,600 @ €20 ! 92,0002,400 @ €22 ! 52,8002,600 @ €24 ! 62,4002,400 @ €26 ! 62,400 €302,000

13,800Units

Opening Stock 8,000$ Purchases 13,400# Sales (13,800) €

! Closing Stock 7,600 3,000 @ €14 ! 42,0004,400 @ €12 ! 52,800200 @ €8 ! 1,600

! Closing stock (Value) ! €96,400

(b)

Trading a/c. €Sales 302,000

# Cost & SalesOpening Stock 64,000

$ Purchases 142,800# Closing Stock (96,400) (110,400)! Gross Profit 191,600

(ii)(a)

Variable Dept. 1. 7,200/600 ! €12Dept. 2. 15,000/1000 ! €15Dept. 3. 4,500/500 ! €9

Fixed Dept. 1. 6,900/600 ! €11.5Dept. 2. 13,000/1000 ! €13Dept. 3. 2,500/500 ! €5


(b)

Administration 18,900/2,100 ! €9

(c)

Job TR. 78 €Materials 2,350Variable O/HsDept. 1. 40 @ €12 ! 480Dept. 2. 70 @ €15 ! 1,050Dept. 3. 30 @ €9 ! 270 1,800Fixed O/HsDept. 1. 40 @ €11.5 ! 460Dept. 2. 70 @ €13 ! 910Dept. 3. 30 @ €5 ! 150 1,520WagesDept. 1. 40 @ €17 ! 680Dept. 2. 70 @ €21 ! 1,470Dept. 3. 30 @ €19 ! 570 2,720General Administration140 @ €9 1,260Cost ! 80% 9,650Profit ! 20% 2,412.50Selling Price ! 100% 12,062.50

(iii)(a)

Perfect Pork

Cutting €280,000 _________________ 70,000(Machine hrs) ! €4

Boning €72,000 ______________ 9000(labour hrs) ! €8

Dispatch €80,000 _______________ 40,000(labour hrs) ! €2

(use dominant activity)

(b)

Cutting Boning Dispatch TotalActual 310,000 60,000 90,000 460,000# Absorbed (w) *320,000 59,200 100,000 479,200Over/Under Absorbed 10,000 (800) 10,000 19,200

*(w) Absorbed workingCutting 80,000 Machine hrs @ €4 ! 320,000Boning 7400 Labour hrs @ €8 ! 59,200Dispatch 50,000 Labour hrs @ €2 ! 100,000

TOPIC

17Marginal Costing Solution (with Flexible Budgeting)

2 McCanney 3 Zalon 4 Orion 5 Gazza and Jen 6 Remus 7 Tom and Jones 8 Marge and Bart 9 Red and Bull10 John, Paul and George


2 MCCANNEY SOLUTION

Total Per unit € €

Sales (60,000) 900,000 15 SP! VC (w) (351,000) 5.85 (5.10 " .75) VCPU# Cont. 549,000 9.15 # CPU! FC (w) (277,000)# Profit 272,000

(a) Break Even FC _____ CPU # 277,000 _______ 9.15 # 30,274 unit

Margin 60,000 ! 30,274 # 29,726 unit(b) Units FC " Profit __________ CPU # 277,000 " 312,800 ________________

9.15 # 64,460 unit

(c) SP.

€ 13

!VCPU !5.75 (5.10 " .65) 7.25 $ 75,000 # 543,750

! FC 327,000 # Profit # € 216,750

(d) Sales

14.94 # 95%/100%

#

€15.73

! VC. (5.10) # Cont. 590,550 9.84 ! FC. (318,550) # Profit 272,000(e) FC ____________ CPU ! 10% # 277,000 __________ 11.05 ! 1.7 # 29,626 units

(CPU # 17 ! (5.1 " 85) # 11.05)

249Topic 17 Marginal Costing Solution (with Flexible Budgeting)

(f )

100

42,773 65,000

500

1,000€

000

Units

Fixed costs(234,600)

Total costs(787,750)Profit

Total revenue(910,000)

Break Even Chart

Loss

Break even point

(w) WorkingFC VC

Materials — 160,000Labour — 98,000Factory O/Hs 32,000 48,000Admin 140,000 —Selling 105,000 45,000

277,000 351,000


3 ZALON SOLUTION

Total P.U.FC. VC. Sales (65,000) 910,000 14

Mats. 312,250 ! VC (553,150) 8.51 (7.81)labour 152,500 # Conf. 356,850 5.49O/H’s 100,100 42,900 ! FC (234,600)Selling 34,500 45,500 # Profit 122,250Admin. 100,000

234,600 553,150

(a) B/E # FC _____ CPU # 234,600 _______ 5.49 # 42,733 units

Margin # Sales ! B/E # 65,000 ! 42,733 # 22,267 units(b)

FC " Profit __________ CPU # 234,600 " 146,700 ________________ 5.49 (" 20%) # 69,454 units

(c) FC _________________ CPU ! 20% of s.p. # 234,600 _________ 3.59 ! 2.4 # €197,143 units

(CPU # 12 ! (7.81 " 0.6) # 3.59)(d)

Sales 78,000 $ 12 # 936,000 12! VC 78,000 $ (7.81 " 0.6) # (655,980) 8.41# Contribution (78,000 $ 3.59) # 280,020 3.59! FC (264,600)# Profit € 15,420

(e)Total P.U.

Sales 13.12 # 95% of s.p.! VC 7.81 (VCPU excl. comm.)# Contribution 345,120 5.31! FC (222,870)# Profit 122,250

SP # €13.81

(f ) Explain what is meant by sensitivity analysis. Sensitivity Analysis is a technique used by management to examine the effect on profit brought on by a

change in: • Selling price • Overheads • Material costs. It is the ‘What if ’ situation.


4 ORION SOLUTION

€ Per unitSales (96,000) 1,152,000 12

(w) ! Variable (V C) (811,200) (w) 8.45 (7.85)# Contribution 340,800 3.55 CPU

(w) ! Fixed (F.C) (221,520)# Profit 119,280

(a)Break even FC _____ CPU # 221,520 _______ 3.55 # 62,400 units

Margin 96,000 ! 62,400 # 33,600 units(b)

FC " Profit __________ CPU # 221,520 " 143,136 ________________ 3.55 # 102,720 units

(c) €

Sales 11 P.U.! V.C 8.4 (7.85 " 0.55)# Contribution 2.6 $ 110,400 # 287,040! FC (239,520)# Profit # €47,520

(d)Sales 11.72 # 95%! VC 7.85# Contribution 371,813 3.87! FC (252,533)# Profit 119,280 100% # €12.34

(e) FC ___________ CPU ! 10% # 221,520 ________ 4.5 ! 1.3 # 69,225 units

(CPU # 13 ! (7.85 " 0.65) # 4.5)

Working V.C F.C

Mats. 492,000labour 222,720O/H s 38,880 47,520Admin 124,800Selling 57,600 49,200

811,200 221,520


(f )

62,400 96,000Units


Total costs(1,032,720)Profit

Total revenue(1,152,000)

Loss

€ 00

0

100

500

1,000

1,200


5 GAZZA & JEN SOLUTION

1. Gazza(a)

€ Total € Per unit Sales (20,000) 1,120,000 56 Variable Costs Materials 240,000 Wages 280,000 Overheads 60,000 Administration 99,000 (679,000) 33.95 # Contribution 441,000 22.05 ! Fixed Costs ! Overheads 120,000 ! Administration 125,000 (245,000) # Profit 196,000

Fixed Costs __________ C.P.U # 245,000 _______ 22.05 # 11,112 units

Margin 20,000 ! 11,112 # 8,888 units

(b)

11,112Units


Break even


Total revenue(1,120,000)

Loss

€ C

osts

Rev

enue

100

500

1,000

1,200

(c)Sales 53.2! Variable (33.95)# Contribution 19.25@ 30,000 units # 577,500! Fixed (265,000)# Profit # €312,500

(d) Fixed Costs __________________ C.P.U. ! 20% of S.P. # 245,000 _______________________ [50 ! 33.95] ! [20% of 50] # 245,000 ___________ 16.05 ! 10.0 # 40,496 units

(e)Sales €60.00! Variable 37.95 (33.95 " 1.0 " 3.0)# Contribution 22.05 @ 25,000 units # 551,250! Fixed !245,000# Profit # €306,250


2. Jen PLC(a)

Level Units Production Other€ €

High 7,200 13,640 8,760Low 4,800 10,760 6,840Difference 2,400 2,880 1,920

Variable per unit 2,880 _____ 2,400 1,920 _____ 2,400

Fixed element €1.2 €0.8(High 7,200 @ €1.2 ! 13,640) €5,000(High 7,200 @ €0.8 ! 8,760) €3,000

(b) Flexible Budget for 85% (6,800 units) in Marginal Costing format€ €

Sales 80,800Variable costs(W) Materials 6,800 @ €3 20,400(W) Wages 6,800 @ €2 13,600Production 6,800 @ €1.2 8,160Other 6,800 @ €0.8 5,440 47,600Contribution 33,200Fixed CostsAdministration 5,000Production 5,000Other 3,000 13,000Profit 20,200(V.C. 47,600 " F.C. 13,000 # T.C. 60,600 # 75% of sales)

(W) Materials 14,400# €3 P.U. 4,800

(W) Wages 9,600# €2 P.U. 4,800


6 REMUS SOLUTION

(a) € € €

Per UnitSales (200,000 units) 1,200,000 6Variable CostsManufacturing (60%) 288,000Production (200,000 $.6) 120,000Other (50%) 30,000Selling (15% of 1,200,000) 180,000 618,000 3.09 (2.19)Contribution 582,000 2.91 (CPU)Fixed CostsManufacturing 192,000Production 60,000Selling & Distribution 64,500Other 30,000 346,500# Profit 235,500

Production O/HsUnits €

High 120,000 132,000Low 90,000 114,000

30,000 18,0001 unit # €0.6 per unitFixed (90,000 $ €0.6 ! 114,000) # 60,000

(b)Break Even # FC _____ CPU # 346,500 _______ 2.91 # 119,073 unit

# 119,073 @ €6 # €714,438(c)

Units # FC ___________ CPU ! 25% # 346,500 _________ 2.91 ! 1.5 # 245,745 units

(d)Sales 5.4!VC 3.0 (2.19 " .81)# Contribution 2.4 $ 250,000 # 600,000!FC ! 346,500 # €253,500# Profit

(e) FC " Profit __________ CPU # 256,500 " 330,000 ________________ 2.655 # 586,500 _______ 2.655 # 220,904 units

(CPU # 5.7 ! (2.19 " .855) # 2.665)


(f ) Step fixed cost is a cost that is fixed for a limited Range of output. Then raises to a different level for a

further Range.

0

6,000

15,000

20,000

30,000

55,00045,00035,00025,000Output

€ R

ent


7 TOM AND JONES SOLUTION

Tom LtdU.C. F.C.

Materials 115,200labour 57,600Factory O/Hs 8,160 12,240Admin Exps. 38,400Selling 14,400 12,800

195,360 63,440

€ Total € Per UnitSales (60,000) 288,000 4.8!V.C. (195,360) 3.256 (3.016)# Contribution 92,640 1.544 (CPU)!F.C. (63,440)# Profile 29,200

(a)Break Even FC _____ CPU # 63,440 ______ 1.544 # 41,088 units

Margin 60,000 ! 41,088 # 18,912 units

(b)S.P 5.2!V.C 3.276 (3.016 " 0.26)

1.924

Units # FC ______________ CPU ! 10% SP # 63,440 ___________ 1.924 ! 0.52 # 45,186 units

(c)S.P 4.4!V.C. 3.236 (3.016 " 0.22)Contribution 1.164 $ 82.000 # 95.448!FC (67,110)# Profit €28,008

Jones Ltd(a)

Marginal Costing € €Sales 96,000! Variable CostsMaterials (15,000 @ 50c) 7,500Labour (15,000 @ 80c) 12,000Variable O/Hs (15,000 @ 90 c) 13,500Contribution 33,000! Closing Stock (1/5 of 33,000) (6,600) (26,400)

69,600! Fixed Costs (17,500)Profit 52,100


Abortion Costing € €Sales 96,000! Variable CostsMaterials 7,500Labour 12,000Variable O/Hs 13,500

33,000" Fixed costs 17,500Production Cost 50,500! Closing Stock (1/5 of 50,500) (10,100) (40,400)Profit 55,600

(b) Outline the differences between marginal and absorption costing. Indicate which method should be used for financial accounting purposes and why.

There is a different profit figure because closing stock is valued differently. Marginal costing does not include fixed costs when costing a product whereas absorption costing does

include the fixed costs. Therefore closing stock under marginal costing is valued lower than under absorption costing because

a share of fixed costs is included in the value of stock under absorption costing but not included under marginal costing.

Under absorption costing, closing stock is valued at a 1/5 of the production cost of 50,500. Under marginal costing, closing stock is valued at 1/5 of the production cost of 33,000.

Closing stock – Absorption costing 10,100Closing stock – Marginal costing 6,600Difference 3,500

The profit difference is 55,600 ! 52,100 # €3,500 Absorption costing should be used as it agrees with standard accounting practice and concepts and matches

costs with revenues.


8 MARGE AND BART SOLUTION

Marge Ltd€ P.u.

Sales (70,000 units) 1,960,000 28! Variable (VC) Materials 650,000labour 560,00040% Overheads 60,000Sales Commission 98,000 (1,368,000) 19.54 (18.14)# Contribution 592,000 8.46! Fixed Costs (FC)60% Overheads 90,000Admin Exps. 192,000Selling 90,000 (372,000)Profit 220,000

(a)Break Even FC _____ CPU # 372,000 _______ 8.46 # 43,972 units

Margin 70,000 ! 43,972 # 26,028 units

(b)Sales 27.13 # 95%! VC (18.14)# Contribution 629,200 8.99! FC (409,200)# Profit 220,000

100% # € 28.56(c)

€ P.U.Sales 24! VC 19.34 (18.14 " 1.2)# Contribution 4.66 $ 85,000 # 396,100! FC (422,000)# Profit/loss (€25,900)

(d) Contribution to Sales Ratio is an alternative way of finding break even if not all figures are given especially variable costs.

FC ____ C/S # 372,000 ________________________ 0.30404 (592,000/1,960,000) # €1,231,221(Approx.) _________________ €28

# 43,972 units (approx. equal to B/E point in part a)


Bart Ltd(a)

Absorption Sales (4,800 $ €4.80) 23,040Less Costs Materials (5,400 $ 0.36) 1,944Labour (5,400 $ 0.54) 2,916Variable (5,400 $ 0.42) 2,268Fixed Costs 2,700

9,828! Closing Stock (1/9 of 9,828) (1,092) (8,736)Profit 14,304

Marginal Sales 23,040! Costs Materials 1,944labour 2,916Variable 2,268

7,128! Closing Stock (1/9 of 7,128) 792 (6,336)Contribution 16,704! Fixed Costs (2,700)Profit 14,004

(i) Fixed Costs: Remain the same where output level changes e.g. Rent i.e. fixed costs are independent of the level of production.

Variable Costs: The amount of the cost changes directly with the level of production e.q. raw materials i.e. variable costs vary with the level of production.

(ii) Direct Costs: Are costs that are directly linked to a product/service e.g. raw materials, direct lab direct expenses e.g. hire of special equipment. Total direct costs are also known as PRIME COST.

Indirect Costs: Not directly linked to product/service, but must be included as part of the cost e factory rent and rates, factory light and heat, production supervisors salary.

(iii) Controllable Costs: Costs that can be controlled by a manager in a Centre. The manager can make a decision about the amount of the cost and can be held responsible if a variance occurs e.g. raw materials.

Uncontrollable Costs: Costs over which a manager has no control and cannot be held responsible for variances in these costs e.g. rates to the local authority.

(iv)1. Cost Allocation: When a cost can be charged in total to a cost centre without

being dividend into smaller parts, it is said to be allocated.2. Cost Absorption: Means that the fixed overhead costs are absorbed into the

cost of the Product. 3 Methods of doing this:(1) Amount per Unit(2) Amount per direct Labour hour(3) Rate per direct Machine Hour.


9 RED AND BULL SOLUTION

Red(a)

Variable FixedMaterials €11 —Labour €8 —Production of O/Hs €4 €21,000Other of O/Hs — €22,000Admin. €1.25 €11,000

(b) High low method

Units Production AdministrationHigh 8,000 53,000 21,000Low 4,000 37,000 16,000

4,000 €16,000 €5,000VCPU €4 €1.25Fixed €21,000 €11,000

(c) Sales (90% ! 9000 units)€ €

! Variable Costs 340,312.50Material 9,000 @ 11 # 99,000Labour 9,000 @ 8 # 72,000Production 9,000 @ 4 # 36,000Administration 9,000 @ 1.25 # 11,250 (218,250)# Contribution 122,062.50! Fixed CostsProduction 21,000Other 22,000Admin 11,000 (54,000)# Profit 68,062.50(VC " FC # 80 % of sales)

BullBreak-even point in units and value

Variable costs Materials 140,000Labour 84,000Factory overheads 14,400Selling and Distribution (40,000 $ €1) 40,000 278,400

Fixed Costs Factory overheads 57,600Selling and Distribution 55,000Administration (48,000 $ 75%) 46,000 158,600

Marginal Costing Statement € Per unit Sales (40,000 units) 480,000 €12.00 Less: Variable Costs 278,400 €6.96 5.96 Contribution 201,600 €5.04 Less Fixed Costs (158,600) Net Profit 43,000


(a) Break-EvenBreak Even FC _____ CPU # 158,600 _______

5.04 # 31,469 units

Margin 40,000 ! 31,469 # 8,531 units

Contribution to Sales Ratio 201,600 _______ 480,000 # 0.42

FC ________ CS Ratio 158,600 _______ 0.42 # €377,619 ________ €12 # 31,469 units

(b)€ € P.U.

Selling Price Sales 12.4! VC 6.96# Contribution 217,460

(174,460) ! 5.44! F. C.# Profit 43,000S.P. # €12.40

(c)€

SP 11VCPU 6.96 ____ 4.04 # CPUNo of units # FC ______________ CPU ! % of SP

# 158,600 _________ 4.04 ! 1.1 # 53,946 Units


10 JOHN, PAUL AND GEORGE SOLUTION

(i) JohnV.C. F.C. (in thousands)

Mats. 30labour 24Factory O/Hs 62 6Other O/Hs 24 15Selling 10 4

150 25

€ €Total P.U.

Sales (40,000) 200,000 5! VC. (150,000) 3.75(3.5)# Cont. 50,000 1.25! FC. (25,000)# Profit 25,000

(a) High/low MethodUnits Factory Other

High 55,000 91,250 48,000Low 30,000 52,500 33,000

25,000 €38,750 €15,000VCPU €1.55 €0.6 FC €6,000 €15,000

(b)B/E # FC _____

CPU # 25,000 ______ 1.25 # 20,000 Units

C/S # €50,000 _______ 200,000 # .25 25,000 ______ .25 # €100,000 ________ €5 # 20,000 units

(c)

50,000

100,000

150,000

€

20,000 40,000

200,000

225,000

Units

Fixed costs(25,000)

Margin

Break even point


Total revenue(200,000)

Loss


(d) FC __________ CPU ! % # 25,000 __________ 1.25 ! .25 # 25,000 units

(e)Sales 5! VC 2.25 (3.75 ! 1.5)# Contribution 2.75 $ 45,000 # 123,750! FC ("15,000) !40,000# Profit €83,750

(f )Sales 4.8125 # 95%/100% # €5.07! VC 3.5 # Contribution 52,500 ! 1.3125!FC 27,500# Profit 25,000

(ii) Paul(a)

€ € € €Absorption MarginalSales (8,000 units) 64,000 Sales (8,000 units) 64,000! Production Costs (10,000 units) ! Prod. costs (10,000 units)Mats. 6,000 Mats. 6,000labour 9,000 labour 9,000Variable O/Hs 7,000 Var O/Hs 7,000Fixed O/Hs 5,000 22,000

27,000 !C/S 1/5 (4,400) (17,600)!Closing Stock 1/5 5,400 (21,600) Contribution 46,400Profit €42,400 ! Fixed Costs (5,000)

Profit €41,400(iii) George(a)

FC. V.C Total€ € €

Wages 12,000 7,650 19,650Salaries 9,000 9,000Rent 3,500 3,500Maint. 4,000 1,360 5,360Var O/H 2,550 2,550Other O/H 300 1,785 2,085

42,145

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