Paper T6 (INT)

Certified Accounting Technician Examination

Advanced Level

Drafting Financial
Statements
(International Stream)
Monday 6 June 2011

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours
This paper is divided into two sections:
Section A ALL TEN questions are compulsory and MUST
be attempted
Section B ALL THREE questions are compulsory and MUST
be attempted
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

 This is a blank page.
The question paper begins on page 3.

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Section A ALL TEN questions are compulsory and MUST be attempted

Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to
each multiple choice question.
Each question in this section is worth 2 marks.

1 Which of the following statements are correct?

(i) The going concern concept assumes that a business entity will continue in operational existence for the
foreseeable future.
(ii) The accruals concept means that transactions and events are recognised only when cash is received or paid for
them.
(iii) An item is material if its omission or misstatement could influence the economic decisions of users taken on the
basis of the financial statements.
A (i) and (ii) only
B (i), (ii) and (iii)
C (i) and (iii) only
D (ii) and (iii) only

2 Phil and James are in partnership and share profits equally. Phil receives an annual salary of $25,750 and interest
on capital is paid at 5% per year.
At 1 June 2010 their capital balances were:
$
Phil 200,000
James 100,000
On 1 December 2010, James introduced a further $25,000 capital. The partnership profit for the year ended 31 May
2011 was $265,625.

What was Phils total profit share for the year ended 31 May 2011?
A $150,750
B $112,125
C $147,875
D $127,875

3 Which of the following would reduce the capital gearing of a company?

(i) Issuing loan notes with a long redemption date
(ii) Paying dividends to shareholders
(iii) Making a bonus issue to shareholders
(iv) Making a rights issue of ordinary shares
A (i) and (ii)
B (ii) and (iii)
C (i) and (iii)
D (iv) only

4 During a period of rising prices, what is the impact of using historical cost accounting?
A Profits and assets are overstated
B Profits are overstated and assets understated
C Profits and assets are understated
D Profits are understated and assets overstated

3 [P.T.O.
5 At 1 May 2010 Purcell Co purchased 75% of Lord Cos 10 million $1 ordinary shares for $8,000,000. At that date
Lord Co had identifiable net assets with a fair value of $8,750,000. The fair value of the non-controlling interest in
Lord Co at acquisition was $3,000,000.

What was the total goodwill at 1 May 2010?

A $2,250,000
B $1,437,500
C $1,250,000
D $750,000

6 When accounting for goodwill arising on the acquisition of an ongoing business, which of the following statements
is correct?
A Goodwill is recorded at its initial value less impairment losses
B Goodwill is amortised over its estimated useful life
C Goodwill is amortised over an estimated useful life not exceeding 20 years
D Goodwill is written off immediately after acquisition

7 Which of the following statements is correct?

A Contingent liabilities should never be disclosed
B Contingent liabilities should always be disclosed as a note
C Contingent liabilities should be disclosed as a note, unless their occurrence is remote
D Contingent liabilities should always be provided for in the financial statements

8 Bonfire Co has 100,000 ordinary shares of 50 cents each and 30,000 6% preference shares of $1 each. Its profits
after taxation for the year ending 31 May 2011 were $21,800. The directors have decided to pay an ordinary
dividend which is 60% of profits after tax and preference dividends.

What was the dividend per ordinary share?

A 2180 cents
B 2000 cents
C 1200 cents
D 1128 cents

9 Which of the following material events, occurring after the reporting period but before the financial statements
are approved, are adjusting events according to IAS 10 Events after the reporting period?
(i) Discovery of a fraud affecting the year end financial statements
(ii) Major acquisition of another business
(iii) Inventory held at the reporting date was sold for less than cost
A (i), (ii) and (iii)
B (i) and (ii) only
C (ii) only
D (i) and (iii) only

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10 Ash Co is a subsidiary of Volcanic Co. At the financial year end Volcanic Cos statement of financial position reports
receivables of $1,000 which includes $200 due from Ash Co. Ash Cos statement of financial position reports
payables of $200.

What should the balance for receivables and payables be in the consolidated statement of financial position?
Receivables Payables
$ $
A 1,000 200
B 800 200
C 800 nil
D 1,000 nil

(20 marks)

5 [P.T.O.
Section B ALL THREE questions are compulsory and MUST be attempted

1 Bayzell Co has the following trial balance as at 31 May 2011:

Dr Cr
$000 $000
Land at cost (note vii) 1,460
Plant at cost 1,362
Plant accumulated depreciation 1 June 2010 (note v) 682
Buildings at cost 4,600
Buildings accumulated depreciation 1 June 2010 (note vi) 372
Intangible assets (note viii) 384
Bank balance 232
Inventory at 1 June 2010 (note i) 990
Retained earnings at 1 June 2010 800
10% Loan notes 300
Loan interest paid 30
$1 Ordinary shares 4,400
Share premium account 486
Dividend paid 155
Revenue 11,700
Returns inwards 217
Purchases 6,850
Wages and salaries 1,120
Insurance (note iii) 108
Electricity expenses (note ii) 542
Administrative expenses 500
Allowance for receivables 1 June 2010 (note iv) 62
Discounts received 590
Trade payables 1,488
Trade receivables 1,900
Directors remuneration 430

20,880 20,880

Additional information as at 31 May 2011
(i) Closing inventory is valued at $465,000.
(ii) There are electricity expenses of $88,000 outstanding.
(iii) Insurance expenses include $14,000 for June and July 2011.
(iv) The allowance for receivables is to be increased to 5% of trade receivables.
(v) Plant is depreciated at 20% per annum using the reducing balance method. Plant depreciation should be
apportioned in accordance with note (x).
(vi) Buildings are depreciated at 5% per annum on their original cost. Building depreciation should be apportioned
in accordance with note (x).
(vii) Land is to be valued at $1,550,000 as from 31 May 2011.
(viii) The intangible assets were purchased on 1 December 2010 and have a useful life of four years from that date.
Amortisation should be apportioned in accordance with note (x).
(ix) Tax has been calculated as $310,000 for the year.

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(x) The expenses listed above should be apportioned as indicated:
Cost of Distribution Administrative
Sales Costs Expenses
Discounts received 100%
Insurance 50% 50%
Electricity expenses 60% 20% 20%
Increase in allowance for receivables 100%
Wages and salaries 40% 30% 30%
Directors remuneration 100%
Depreciation: Plant 100%
Buildings 50% 30% 20%
Amortisation of intangible assets 100%

Required:
(a) Prepare the following financial statements for Bayzell Co in accordance with IAS 1 Presentation of Financial
Statements:
(i) a statement of comprehensive income for the year ended 31 May 2011; and
(ii) a statement of financial position as at 31 May 2011.
The following mark allocation is provided as guidance for this requirement:
(i) 20 marks
(ii) 14 marks
(34 marks)

(b) Using the information from part (a), calculate the following accounting ratios for Bayzell Co.
(i) Earnings per share;
(ii) Interest cover;
(iii) Acid test (quick);
(iv) Accounts payable period in days.
(Show ratio formulas and workings) (6 marks)

(40 marks)

7 [P.T.O.
2 The following is the statement of financial position for Erley Co.
Erley Co
Statement of financial position as at 31 May
2011 2010
$000 $000 $000 $000
Assets
Non-current assets 750 565
Current assets
Inventory 80 90
Trade receivables 100 50
Cash and cash equivalents 180 15 155

Total assets 930 720

Equity and liabilities
Equity and reserves
Ordinary share capital (shares of $1) 700 570
Share premium 40 20
Retained earnings 120 50

860 640
Non-current liabilities
10% Loan note 10
Current liabilities
Bank overdraft 10
Trade payables 40 45
Taxation 20 70 25 70

Total equity and liabilities 930 720

Additional Information for the year ended 31 May 2011
(i) In addition to the interest on the loan notes, interest on the overdraft amounted to $1,000.
(ii) The loan notes were repaid in full on 31 May 2011.
(iii) There was no over or under provision of tax for the previous financial year.
(iv) Dividends of $35,000 were paid.
(v) Depreciation was $96,000.
(vi) Non-current assets with a carrying amount of $35,000 were sold for $30,000.

Required:
(a) Calculate the profit before tax of Erley Co for the year ended 31 May 2011. (4 marks)

(b) Prepare Erley Cos statement of cash flows for the year ended 31 May 2011 in accordance with IAS 7
Statement of Cash flows, using the indirect method. (16 marks)

(20 marks)

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3 C Mars and J Neptune are two sole traders who have decided to combine their existing businesses at 31 May 2011,
to form a partnership called Planets. The statements of financial position of the two sole trader businesses are shown
below:
Statements of financial position as at 31 May 2011
C Mars J Neptune
$ $ $ $
Assets
Non-current assets
Property 89,375
Plant and machinery 44,500 57,200
Motor vehicle 5,500 25,025

139,375 82,225
Current assets
Inventory 13,750 14,300
Trade receivables 4,125 4,650
Cash at bank 2,750 20,625 10,725 29,675

Total assets 160,000 111,900



Capital and liabilities
Capital accounts
C Mars 132,075
J Neptune 83,300
Current liabilities
Trade payables 18,025 28,600
Loan from M Pluto 9,900

Total capital and liabilities 160,000 111,900



At the date of combination:
(i) Goodwill was agreed to be $50,000 for C Mars and $40,000 for J Neptune.
(ii) The property belonging to C Mars was revalued at $110,000.
(iii) C Mars plant and machinery was valued at $34,000.
(iv) C Mars motor vehicle was not transferred to Planets.
(v) J Neptunes inventory was revalued at $11,550.
(vi) The loan from M Pluto was taken over by Planets.
(vii) All the trade payables were taken over by Planets at their book value.
(viii) A future profit sharing ratio of 2:1 to C Mars and J Neptune respectively is agreed.

Required:
(a) Prepare the following accounts for both C Mars and J Neptune as they would appear on the closing of their
respective businesses:
(i) Revaluation accounts; (4 marks)
(ii) Capital accounts. (4 marks)

(b) Prepare the Statement of financial position for Planets, immediately following the formation of the
partnership.
Note: Goodwill is not maintained within the accounts of the partnership. (8 marks)

(c) State two advantages and two disadvantages of a sole trader joining a partnership. (4 marks)

(20 marks)

End of Question Paper