DB ACCOUNTING

UNIT 1852[answers)
PREPARE FINANCIAL STATEMENTS

Exam Duration: 2 Hour

Level: 5
Credit: 8
Version: 4
Element 1 Apply fundamentals of accounting to financial statements
Element 2 Prepare financial statement

INSTRUCTIONS:

1. Write your full name and ID number on the answer sheet.

2. Answer all the questions on the answer sheet provided.
3. Do not write in pencil.
4. Cell phones must be turned off and left in your bags at the front of the exam room.
5. All questions are compulsory.

Name:

ID NO.

Date:

NIS 1
Question 1

Assets Liabilities Owner’s Equity

Bank A/C Other Assets A/c Accrued Loan O.E Sales -
receivable Payable Expenses
7500 2500 40,000 Premises 4,000 500 10,000 84,500
6,000 Equipment
18,000 Car
25,000 Investments
a -500 -500
b 800 -800
c 1500 1500 fees
d -1200 1,200 Equipment
e 650 650 electricity
f -400 400 bad debts
g -450 450 wages
h -26 Doubtful 26 doubtful
debts all. debts
i -250 250 telephone
j -1,000 -1,000
k -1,100 -1,000 100 interest
l 4,000 -4,000 Investment
m -100 100 insurance
n 400 400 advertising
9200 1,300 86,174 5,050 0 9,000 83,500 1,500 2376

NIS 2
 (ii) Prepare a Trial balance at 31 July 2002

debit credit
Premises 40,000
Equipment 7,200
Car 18,000
Investments 21,000
Bank 9200
A/C receivable 1,300

A/c payable 5,050

Loan 9,000

Owner’s equity 83,500

Sales 1,500
Wages 450
Electricity 650
Bad Debts 400
Doubtful debts 26
Telephone 250
Interest 100
Advertising 400
Doubtful debts allowance 26
Insurance 100
99,076 99,076

NIS 3
(iii)
Prepare Mark’s Statement of financial position and performance after the month of
trading

Statement of Financial Performance

$ $ $
Revenue 1500
less expenses
Selling expenses
Advertising 400
Administration expenses
Electricity 650
Insurance 100
Wages 450
Telephone 250
Repairs 200
Depreciation-vehicle 1800 3450

Financial Expenses
Interest 100
Doubtful debts 26
Bad Debts 400 526
4376
Net loss (2876)

NIS 4
 Statement of Financial Position
$ $ $
Owners’ equity
Capital 84,500
less net loss 2,876
81624
less withdrawals 1000 80,624

Current Assets
Bank 9,200
Accounts receivable 1300
Less allowance 26 1,274 10,474

Less current liabilities

Accounts payable 5050
Accrued expenses 200 5,250
Working capital 5,224

Add Non current assets

Premises 40,000
equipment 7,200
Car 18,000
less Acc. Depreciation 1,800 16,200
Investments 21,000 84,400
89,624
less Non-current liabilities
loan 9,000
80,624

NIS 5
(iv)
Statement of Cash Flows-31 July 2002
$ $ $
Cash from operating activities
Cash provided from
Customers 2,300
Cash applied
Payment to suppliers 350
Wages 950
Interest 100 1,400
Net cash from operating activities 900

Cash from investing activities

cash provided from
Investment 4,000
cash applied
equipment 1,200
net cash from investing activities 2,800

Cash from Financing activities

cash applied
loan 1,000
drawings 1,000
net cash outflow (2,000)
net increase in cash 1,700
Add cash at 1 July 2002 7,500
Balance of cash at 31 July 2002 $9,200

(v)
General Journal
debit credit
Aug 1 Accrued expense 200
Repairs 200
Being reversal entry for repairs

NIS 6
Question 2

a Mark uses the car for business and for his personal use.
Accounting Entity – Mark should keep the financial affairs of the business separate
from his own affairs

b Explain the Modified Historical Cost concept and name a fixed asset in the Statement
of Financial Position that should be valued according to this concept.
The recognition that some assets such as premises increase in value over time

c At what price should all assets be normally recorded in the position statement?
At the price for which the assets were paid at the time they were bought by the
company. This is the Historical cost concept

d Mark appointed two accountants to draw up his financial statements. The two
accountants obtained different results.
Reliability – it is important that documents be verified independently and free from
bias.

e One accountant produced his reports on 31 August 2002- one month late.
Relevance- Information must be available when it is needed (timeliness)

f. Mark has no accounting background and thus could not understand some aspects of the
reports
Understandability- Information must be comprehended by the users. Mark is expected
to have reasonable knowledge.

g. Mark has compared his firm’s results with other legal firms.
Comparability: users are able to identify similarities or differences between that
information and information in other reports.

h. Writing pads to the value of $10 were purchased. Mark did not find it necessary to
record the above transaction.
Materiality concept – this concept is about the importance of information and provides
for the separate disclosure in financial reports. - the writing pads are material even if
the effects are minor.

NIS 7
Question 2

Accounting Entity – Mark should keep the financial affairs of the business separate
from his own affairs

The recognition that some assets such as premises increase in value over time

At the price for which the assets were paid at the time they were bought by the
company. This is the Historical cost concept

Reliability – it is important that documents be verified independently and free from

bias.

Relevance- Information must be available when it is needed (timeliness)

Understandability- Information must be comprehended by the users. Mark is expected

to have reasonable knowledge.

Comparability: users are able to identify similarities or differences between that

information and information in other reports.

Materiality concept – this concept is about the importance of information and provides
for the separate disclosure in financial reports. - the writing pads are material even if
the effects are minor.

NIS 8
Question 3

(i) Name ONE item in the position statement that reflects current accounting policies.-
explain.
Depreciation of non-current assets- the Car at 10% using the Straight line method.. I
is important this is to be disclosed in the reports.

(ii) In your opinion, do you think the financial reports are consistent with the
requirements and nature of organizations in New Zealand?-explain.

Yes-

(iii) Identify the following:

- two current assets Bank and Accounts Receivable
- two long-term assets Premises, Equipment, Car
- two current liabilities Accounts Payable, Accrued expenses
- one long-term liabilities Loan

Question 4

1. ‘not exceeding 20 years”

2. market value
3. not amortised
4. at fair value of net tangible assets at acquisition.
5. Straight line method.

NIS 9