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CAT-T3

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June 04 To December 08

Maintaining Financial Records [INT]

CAT T3

Bank Reconciliation Statement

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CAT-T3 Bank Reconciliation Statements 1


Wilson is preparing his bank reconciliation at 31 May 2005. His bank statement shows a balance of $228 cash at the bank. The balance on the bank account in his general ledger is $113 (credit). He has noted the following reasons for the difference: (i) Cheque number 958602 was incorrectly recorded in Wilsons cash book as $760. The cheque was correctly debited on the bank statement on 2 May as $670. (ii) Bank charges of $428 were debited by the bank on 4 May.

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(iii) A customers cheque for $320 was returned by Wilsons bank in May as the customer had insufficient funds in his account. Wilson has not recorded the return of the cheque in his records. (iv)The bank has incorrectly credited Wilsons account with interest of $220. This is interest on a deposit account held by Wilson personally. The bank had not corrected the error by 31 May. (v) A lodgement of $850 entered in Wilsons cash book on 31 May was credited on the bank statement on 3 June. (vi) Five cheques have not yet been presented at the bank. These are: Cheque No. 956784 956892 958452 958541 958668 1 $ 625 see note (vii) 326 469 122 187 1,629 (vii) Cheque number 956784 was lost in the post and was cancelled. Wilson has not recorded the cancellation of the cheque.
Required: (a) Show Wilsons general ledger bank account including the necessary correcting entries. (NB You MUST present your answer in a format which clearly indicates whether each entry is a debit or a credit) (6 marks) (b) Prepare a reconciliation of the bank statement balance to the corrected general ledger balance. (7 marks) (c) Indicate how the bank balance will be reported in Wilsons final accounts. (2 marks) [Sec: B, Q: 2 T3 June 2005]

2
Sarah prepares a bank reconciliation statement for her business bank account at the end of each month. At 31 May 2007 her ledger balance was $2,759 (credit) and her bank statement showed that she had funds of $131 at the bank. She has the following information: (i) The bank debited Sarahs account with charges of $129 during May. Sarah has not recorded the charges. (ii) Sarah arranged for $2,500 to be transferred from her personal bank account into the business bank account. The bank made the transfer on 30 May, but Sarah has not made any entry for it in her records. (iii) On 22 May Sarah withdrew $100 cash which she did not record. (iv) Cheque number 543987 which Sarah issued to a supplier appears on the bank statement as $650. Sarah incorrectly recorded the cheque as $560. (v) On 31 May, Sarah lodged $457. This amount appears on the bank statement dated 3 June. (vi) Sarah was advised by the bank that she earned $52 interest for the period in May that her account was in credit. Sarah recorded this in May, but the bank did not credit her account until June.

CAT-T3 Bank Reconciliation Statements


(vii) (viii) Three of the cheques issued in May, with a total value of $942, were not debited on the bank statement until after 31 May. A cheque for $276, issued to a supplier was cancelled, but Sarah has not recorded the cancellation of the cheque.

Required: (a) Show the bank account in Sarahs general ledger, including any adjusting entries required due to the information in (i) to (viii) above. Note: You MUST present your answer in a format which clearly indicates whether each entry is a debit or a credit. (7 marks) (b) Prepare a reconciliation of the bank statement balance to the corrected balance on the bank account in Sarahs general ledger. (5 marks)

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(c) Indicate how the bank balance will be reported in Sarahs final accounts, and the value to be reported. (3 marks) [Sec: B, Q: 4 T3 June 2007]

3
You have been asked to complete the bank reconciliation at 30 November 2008 for Jeremy Stiles. The debit balance on the bank account in his general ledger is $2,717. The bank statement for his business bank account shows that he has $44 at the bank. You have noted the following: (i) Due to an addition error, Jeremy overstated the total of cash banked by $900. (ii) Jeremy recorded the value of a cheque paid to a supplier as $540. The cheque was debited on the bank statement at the correct value of $450. Jeremy did not record interest earned of $120, or bank charges of $265. Both of these items are shown on the bank statement for November. During November, a lodgement of $4,000 to Jeremys personal account was credited to his business account by the bank. A customers cheque for $464 was returned as the customer did not have sufficient funds for payment. Jeremy has not made any entries in his books for the return of the cheque. A lodgement for $7,785 was not credited by the bank until 1 December. Jeremy recorded this lodgement in November. Cheques issued, with a total value of $2,531, have not been debited by the bank. This includes a cheque for $427 which was cancelled. Jeremy has not made any entries in his books to record the cancellation of the cheque.

(iii)

(iv) (v)

(vi)

(vii)

Required: (i) Show the bank account in Jeremys general ledger, including any adjusting entries which are required by the information in (i) to (vii) above; Note: you MUST present your answer in a format which clearly indicates whether each entry is a debit entry or a credit entry. (7 marks) (ii) Prepare a reconciliation of the balance on the bank statement to the corrected balance on the bank account in Jeremys general ledger. (5 marks)

(b) Jeremy took out a bank loan on 31 October 2008 for $20,000. This is due for repayment in 16 equal instalments at three-monthly intervals. The first repayment is due on 31 January 2009.
Required: State how the balance on Jeremys bank account and the bank loan should be reported on his statement of financial position (balance sheet) at 30 November 2008. (3 marks) [Sec: B, Q: 2 T3 December 2008]

CAT T3

Control Accounts

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CAT-T3 Control Accounts 1


The balance on the payables ledger control account in Tinas nominal ledger is $48,395. The total of the listing of the balances in the personal ledger is $46,644. On checking, Tina found the following reasons for the difference: a) A cheque for $4,300 was paid to a supplier in full settlement of an invoice for $4,320. The discount was recorded in the personal account, but was not recorded in the nominal ledger. b) The payables day book total for June was overcast by $90. c) the total of cheques issued to suppliers was $78,056, but was posted to the control account as $78,065 d) An invoice for $459 was entirely omitted from the books. e) A credit balance of $870 on a suppliers account was included in the listing as a debit balance of $780.
Required: (a) Show the payables ledger control account, including any necessary correcting entries. NB You must use a format which clearly shows whether each entry is a debit or a credit entry (5marks)

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(b) Show the reconciliation of the listing of the balances on the personal accounts to the corrected payables ledger control account balance. (5 marks) (c) State the payables balance to be reported on Tinas balance sheet, indicating how the balance will be reported. (2 marks) (d) Indicate three reasons why a payables ledger reconciliation is carried out. (3 marks) [Sec: C, Q: 2 T3 Pilot Paper]

2
At 30 November 2004, the balance on the receivables control account in Elizabeths general ledger was $39,982. The total of the list of balances on the customers personal accounts was $39,614. Elizabeth has discovered the following errors: a) An invoice for $288 was entered correctly in the general ledger, but no entry was made in the personal account. b) A payment of $1,300 was accepted in full settlement of a balance of $1,309. No entry was made to record the discount. c) A credit note issued to a credit customer for $120 was incorrectly treated as an invoice. d) an addition error on a personal account meant that the balance was understated by $27. e) A customer had lodged a payment of $325 directly to Elizabeths bank account. The balance on the personal account was adjusted, but no entry was made in the general ledger. f) An invoice for $644 was posted as $466 in the general ledger. g) A credit balance of $47 on a customers account was treated as a debit balance.
Required: (a) Show the receivables control account, including the necessary correcting entries and the corrected balance. (6 marks) (b) Prepare a reconciliation of the list of balances to the corrected balance on the receivables control account. (7 marks) (c) State the correct receivables balance for inclusion in the final accounts and indicate where it should be reported on the balance sheet. (2 marks) [Sec: B, Q: 4 T3 December 2004]

CAT-T3 Control Accounts 3


You are carrying out a reconciliation between the balance on the trade receivables control account (which is $64,969) and the total of the list of the balances on the customers personal accounts (which is $65,132). You have found the following reasons for the difference: (i) A sales invoice for $320 was entered in the sales day book as $230; (ii) The total of the sales returns daybook was understated by $900; (iii) A credit note for $460 was treated as an invoice when the entries were being made in the personal ledger; (iv) A customer paid $1,700 in full settlement of a balance of $1,715. The discount was correctly recorded in the personal ledger, but was not entered in the control account; (v) The total value of cheques received from customers was $67,908 but $67,980 was posted to the control account; (vi) A debit balance of $20 on a customers account was omitted; (vii) A credit balance of $53 on a customers account was treated as a debit balance.
Required: (a) Show the trade receivables control account, including any necessary correcting entries and the corrected closing balance. (5 marks) (b) Prepare a reconciliation of the total of the list of balances on the customers personal accounts to the corrected balance on the trade receivables control account. (5 marks) (c) State the amount to be reported in the final accounts for trade receivables, and indicate how this balance will be reported. (2 marks) (d) State three reasons why a reconciliation between the balance on the control account and the total of the list of balances is carried out. (3 marks) [Sec: B, Q: 2 T3 June 2006]

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4
You are assisting in the preparation of the year end accounts of Rogers and Co. The balance on the trade payables control account in the general ledger is $45,505. The total value of the list of balances on the suppliers personal accounts is $46,886. You have noted the following: (i) An invoice from a supplier for $739 has been entirely omitted from the accounting records; (ii) A credit note received from a supplier for $266 was entered in the daybook as an invoice; (iii) No entries have been made in respect of an agreement to offset a credit balance of $864 in the payables ledger against a debit balance in the receivables ledger; (iv) Payments to a supplier totalling $1,800 have been recorded in the general ledger, but no entries have been made in the suppliers personal account; (v) A payment of $17,500 was made to settle a balance of $17,585. The balance on the suppliers personal account was fully written off, but only the payment of $17,500 was entered in the general ledger;

CAT-T3 Control Accounts


(vi) A payment of $340 to a supplier was recorded in the cheques issued daybook as $430; (vii) A credit balance of $167 on a suppliers account was listed as a debit balance.
Required: (a) Prepare the payables control account including the necessary adjusting entries and the corrected balance. (6 marks) (NB You must present your answer in a format which clearly indicates whether each entry is a debit entry or a credit entry.) (b) Prepare the reconciliation of the list of balances to the corrected balance on the payables control account. (7 marks)

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(c) State the correct payables balance for inclusion in the final accounts and where it should be reported. (2 marks) [Sec: B, Q: 2 T3 December 2006]

5
Toni Pedlow is carrying out a reconciliation between the balance on the trade payables control account in her general ledger, which is $128,593 and the total of the list of balances on the suppliers personal accounts, which is $128,929. She has discovered that: (i) an invoice from a supplier for $263 has been entirely omitted from her accounting records; (ii) an invoice from a supplier for $67 was entered in her daybook as a credit note; (iii) a payment of $430 to a supplier has not been recorded in the suppliers personal account; (iv) no entries have been made in respect of an agreement to offset a credit balance of $570 in the payables ledger against a debit balance in the receivables ledger; (v) a suppliers account with a credit balance of $71 was omitted from the list of balances; (vi) a balance of $24,823 was settled by a payment of $24,800. The settlement of the balance was correctly recorded on the suppliers personal account, but the discount was not entered in the general ledger; (vii) a cheque for $460 paid to a supplier was recorded in Tonis cash book as $640.
Required: (a) Prepare the payables control account in Tonis general ledger, including the necessary adjusting entries and the corrected balance. Note: you must present your answer in a format which clearly indicates whether each entry is a debit entry or a credit entry. (6 marks) (b) Prepare the reconciliation of the list of balances to the corrected balance on the payables control account in Tonis general ledger. (7 marks) (c) State how the payables balance should be reported in Tonis final accounts. (2 marks) [Sec: B, Q: 3 T3 December 2007]

CAT T3

Provision for Depreciation

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CAT-T3 Provision for Depreciation 1


At 1 October 2002 Jim had fixed assets as follows: Freehold Land $ Cost 85,000 Accumulated depreciation nil Buildings $ 120,500 128,920 Machinery $ 74,800 35,600

Jims policy is to provide for a full years depreciation in the year of acquisition, but no provision is made in the year of disposal. Depreciation is provided at the following rates: Land Buildings Machinery nil written off over 25 years, on the straight line basis 20% per annum, on the reducing balance basis

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During the year to 30 September 2003, Jim added an extension to the buildings at a cost of $6,800. He also acquired a new machine, by paying the dealer $9,000 by cheque and trading in an old machine for $5,500. The machine traded in had been acquired in January 2000 at a cost of $11,000. Jim has asked why depreciation is not charged on the land, but is charged on other fixed assets.
Required: (a) As at 30 September 2003, calculate: (i) The value of Jims non-current assets, before deducting depreciation; (ii) The accumulated depreciation; (iii) The net book value of non-current assets. (b) Calculate the profit or loss on the machine which was traded in. (3 marks) (4 marks) (1 mark) (3 marks)

(c) Draft brief notes which explain why depreciation should be charged on the non-current assets other than freehold land. (4 marks) [Sec: C, Q: 1 T3 Pilot Paper]

2
Simon depreciates his machinery at a rate of 20% per annum on a reducing balance basis. He provides a full years depreciation in the year an asset is acquired, and no provision is made in the year of disposal. At 1 November 2003, the cost of Simons machinery was $140,900, and the net book value was $94,570. During the year to 31 October 2004, a machine which had cost $35,000 and had been depreciated for four years was traded in for a new machine. The new machine cost $50,000, and the trade in value was $14,000. At 31 October 2004 the balance of the cost of the new machine was still outstanding.
Required: (a) Calculate the profit or loss on the machine traded in. (3 marks) (b) Calculate the depreciation charge for machinery for the year to 31 October 2004. (2 marks) (c) Show the following ledger accounts for the year: (i) Machinery at cost; (4 marks) (ii) Accumulated depreciation. (3 marks) (d) Calculate the total charge to be reported in the income statement for the year to 31 October 2004 in respect of machinery. (1 mark) (e) State the balances to be reported in the balance sheet as at 31 October 2004 as a result of these transactions. (2 marks) [Sec: B, Q: 3 T3 December 2004]

CAT-T3 Provision for Depreciation 3


Carol Dolbys balance sheet at 31 May 2005 reported her motor vehicles as follows: Cost Accumulated Depreciation Net book Value $ $ $ 170,000 62,000 108,000 During the year to 31 May 2006, Carol scrapped a van and part exchanged an old car for a new car. The van had been bought in January 2003 at a cost of $9,600. The car had been bought in September 2003 at a cost of $14,400. The part exchange value of the old car was $8,400, and the total cost of the new car was $17,610. Carol provides a full years depreciation in the year of purchase of an asset, and no depreciation is charged in the year of disposal. She depreciates motor vehicles at a rate of 25% per annum on a reducing balance basis. Required:
(a) Calculate: (i) The profit or loss on disposal of each of the vehicles; (5 marks) (ii) The depreciation charge for the year to 31 May 2006 for motor vehicles; (3 marks) (iii) The total amount to be reported in the income statement for the year to 31 May 2006 in respect of motor vehicles. (2 marks) (b) Prepare the following ledger accounts for the year to 31 May 2006: (i) Motor vehicles at cost; (2 marks) (ii) Disposal of assets. (3 marks) [Sec: B, Q: 4 T3 June 2006]

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4
You are employed in the accounting department of a transport company. One of your tasks is to maintain the accounting records relating to non-current assets. During the year to 30 November 2007, a new lorry was purchased. The invoice includes the following information: Date of invoice 1 January 2007 $ Volvo model S557 24,000 Customisation with company logo 1,000 Insurance for year to 31 December 2007 5,000 Fuel supplied 400 Total cost 30,400 The information you are required to record in the non-current asset register includes: (i) Internal reference number (ii) Manufacturers serial number (iii) Depreciation charge for year (iv) Cost (v) Supplier (vi) Description At 30 November 2006, the total cost of the companys lorries was $242,000, and the accumulated depreciation was $166,736. During the year to 30 November 2007 a lorry which cost $22,000 and which had a net book value of $11,264 was sold.

CAT-T3 Provision for Depreciation


Your companys policy is to depreciate lorries on the reducing balance basis at a rate of 20% per annum. It is anticipated that lorries will be sold after three years of use. The expected sale proceeds are 50% of the cost capitalized on acquisition. A full years depreciation is charged in the year of acquisition, and no depreciation is charged in the year of disposal.
Required: (a) Calculate the cost of the new lorry to be capitalised on acquisition as a non-current asset. (2marks) (b) Assuming that the new lorry is sold on 31 December 2009, calculate the anticipated profit or loss on disposal. (3 marks) (c) Prepare the following ledger accounts for the year to 30 November 2007: Lorries at cost; Accumulated depreciation on lorries. Note: you must present your answer in a format which clearly indicates whether each entry is a debit entry or a credit entry. (7 marks) (d) For any THREE of the items (i)(vi), state one reason for recording each item in the non-current asset register. (3 marks) [Sec: B, Q: 2 T3 December 2007]

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CAT T3

Provision for Doubtful Debts

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CAT-T3 Provision for Doubtful Debts 1


Included in the trade receivables balance is an amount of $3,574 which has been outstanding for just over a year. Your client has decided to write this balance off. The allowance for doubtful debts is to be calculated as follows: 6% of balances which have been outstanding for between 30 and 59 days; 50% of balances which have been outstanding for 60 days or more. At the end of the previous year the allowance for doubtful debts was $4,516. The trade receivables balances, including the irrecoverable balance of $3,574, have been analysed as follows:

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Age of debt less than 30 days 30 days to 59 days 60 days and over Total receivables

Balance $ 36,591 18,700 9,722 65,013

Required: (i) Briefly explain the difference between a bad debt and a doubtful debt. (2 marks) (ii) Calculate the total charge to the income statement for the year in respect of bad and doubtful debts and the value to be reported in the balance sheet for trade receivables. (6 marks)
[Sec: C, Q: 8(a) T3 June 2004]

CAT T3

Trial Balance & Rectification of Errors

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CAT-T3 Trial Balance | Rectification of Errors 1


Howard calculated his net profit for the year as $75,886, but is not sure how to treat the $90 (debit) balance on the suspense account. Control accounts are not maintained. On reviewing Howards records you note that: a) A cash sale for $900 was recorded in the cash book, but no other entry was made b) The purchase daybook was undercast by $900 c) A cheque paid to a supplier was correctly entered in the cash book as $540, but $450 was posted to the suppliers account d) A cheque received from a customer for $11,700 was accepted in full settlement of a balance of $11,790. No entries were made for the discount. e) Travel expenses include a payment of $405 for Howards holiday
Required: (a) Indicate whether or not Howards calculation of net profit was affected by each of the errors, and calculate his corrected net profit for the year. (8 marks) (b) Show Howards suspense account including the correction of the errors. (NB You MUST present your answer in a format which clearly indicates a brief narrative for each entry, and whether each entry is a debit or a credit) (5 marks) (c) Indicate which of the errors are an example of: Error of transposition; Error of omission; Arithmetical error; Error of principle. (2 marks) [Sec: C, Q: 7 T3 June 2004]

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2
Jeffreys trial balance at 30 September 2004 is shown below. Dr $ Capital at 1 October 2003 Inventory at 1 October 2003 Receivables Payables and accruals Bank Sales Returns inward Purchases Carriage inwards Wages Rent Stationery Travel Telephone General expenses Drawings 12,560 12,880 6,561 4,754 90,560 375 72,674 974 4,684 3,200 382 749 853 753 12,500 127,338 Cr $ 30,217

127,338

The value of Jeffreys inventory at 30 September 2004 was $11,875. Jeffrey has discovered the following errors in the postings: (i) An invoice for carriage inwards was posted to the returns inwards account. The invoice was for $264. (ii) A credit sale invoice for $560 was posted as $650. (iii) The telephone bill for the three months to 30 September 2004 which was received after the year end has not been included. The bill is for $297.

CAT-T3 Trial Balance | Rectification of Errors


Required: (a) Indicate which of the balances in the Trial Balance will be changed by the correction of the errors, and calculate the corrected balances. (6 marks) (b) Based on the corrected Trial Balance, calculate: (i) The Gross Profit and the Net Profit for the year to 30 September 2004; (7 marks) (ii) The capital balance at 30 September 2004. (2 marks) [Sec: B, Q: 2 T3 December 2004]

3
When carrying out the reconciliation between the balance on the trade receivables control account in her general ledger ($28,024 debit) and the list of balances from the receivables ledger ($28,245), Pat McCartney has noted:

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(i) (ii) (iii) (iv) (v) (vi)

An invoice for $875 issued to a customer was recorded in the daybook as a credit note; The balance on a customers account was included in the list of balances as $856, but the correct balance is $586; Although Pat had agreed to offset a balance of $450 due from a customer against a balance due to a supplier, no entries were made; A payment of $1,500 was accepted in full settlement of a balance of $1,507. The discount was correctly recorded in the general ledger, but no entry was made in the customers account; A customer returned goods valued at $422, but no credit note was issued; A debit balance of $28 on a customers account was included on the list of balances as a credit balance.

Required: (a) For each of the items (i)(vi) above, identify whether an adjustment is required in the general ledger account, to the list of balances, or both. (6 marks) (b) Calculate the corrected balance on the general ledger account. (3 marks) (c) Prepare the reconciliation of the list of balances to the corrected balance on the general ledger account. (6 marks) [Sec: B, Q: 2 T3 June 2008]

CAT T3

Incomplete Records

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CAT-T3 Incomplete Records 1


Cathy Quinn did not keep complete records for the year to 31 October 2008. From her bank statements, your previous years file and your discussion with Cathy you have obtained the following information: (i) Between 1 November 2007 and 31 October 2008, $158,125 was lodged to her bank account, and cheques totalling $135,186 were debited. (ii) Her lodgements included $10,000 transferred from her personal bank account. All other lodgements were payments received from customers. The cheques debited in her bank statement included the following: Paid to suppliers $101,028 Drawings $16,500 The remaining cheques were for business expenses. At 31 October 2007, she had no outstanding cheques or outstanding lodgements. She had no outstanding lodgements at 31 October 2008. In November 2008, cheques to suppliers with a total value of $3,897, which Cathy had written in October 2008, were debited in her bank statement. At 31 October 2007, she owed $11,624 to her suppliers, and was owed $17,684 by her customers. At 31 October 2008, she owed $10,789 to her suppliers. She does not know how much she was owed by her customers, but she earned a 30% margin on all her sales. Her accrued and prepaid business expenses were: 31 October 2007 31 October 2008 Accrued $2,204 $2,056 Prepaid $1,520 $1,470 Cathy does not hold any inventory.

(iii)

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(iv) (v) (vi)

(vii)

(viii) (ix)

(x)

Required: For the year to 31 October 2008, calculate Cathys: (a) Receipts from customers; (b) Business expenses; (c) Purchases; (d) Sales; (e) Net profit; and (f) Trade receivables balance at 31 October 2008.

(2 marks) (4 marks) (3 marks) (2 marks) (2 marks) (2 marks) [Sec: B, Q: 4 T3 December 2008]

CAT T3

Partnership Accounts

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CAT-T3 Partnership 1
John and Darryl are in partnership sharing profits and losses in the ratio 60:40 respectively. Under the terms of the partnership agreement, the partners are entitled to interest on their capital account balances at a rate of 5% per annum. The agreement also provides for a salary of $13,000 to be paid to John and a salary of $5,000 to be paid to Darryl. At 1 November 2002 the balances on the partners capital and current accounts were: Capital account Current account $ $ John 60,000 43,250 Darryl 50,000 26,560

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On 1 January 2003 John introduced a further $60,000. During the year to 31 October 2003 both partners withdrew $18,000. The draft accounts for the year to 31 October 2003 report a net profit of $37,458. Inventory was valued at cost $45,864. This includes damaged items which cost $5,748. The partners intend to repair these at a cost of $1,475. They will then be sold for $6,700.
Required: (a) Calculate the revised net profit for the year to 31 October 2003, after making any necessary adjustments to the valuation of inventory. (4 marks) (b) Calculate each partners total share of the profit. (6 marks) (c) Show Johns current account, including the closing balance, at 31 October 2003. NB You must use a format which clearly shows whether each entry is a debit or a credit entry. (5 marks) [Sec: C, Q: 3 T3 Pilot Paper]

2
A trainee in your office prepared draft accounts for the year ended 30 April 2004 for Orla Hughes and Paula Jones who are in partnership. The draft accounts report a gross profit of $157,846 and a net profit of $51,024. Cash payments of $15,000 to each partner have been included in expenses. At 1 May 2003 the balances on the partners capital and current accounts were: Orla Paula Capital account $125,000 (credit) $70,000 (credit) Current account $34,568 (credit) $23,741 (debit) The partnership agreement includes the following terms: Share of profits and losses Salary Interest on capital (per annum) Orla 2/3 $18,000 8% Paula 1/3 $12,000 8%

The partnership agreement also states that the partners capital account balances will remain fixed, and that the balances on the partners current accounts should not be included in the calculation of interest on capital.
Required: Calculate: (a) The correct gross profit and net profit to be reported in the partnership income statement for the year to 30 April 2004; (2 marks) (b) The amount of profit which will be credited to each partners current account for the year to 30 April 2004; (8 marks) (c) The balance on each partners current account at 30 April 2004; (4 marks) (d) The total net assets of the partnership at 30 April 2004. (1 mark) [Sec: C, Q: 6 T3 June 2004]

CAT-T3 Partnership 3
Ann and Jane have been trading as a partnership for several years, sharing profits and losses in the ratio 3:5. Their income statement for the year to 31 October 2005 reports a profit of $126,842 before taking into account the following items: (i) Ann is paid a salary of $22,000 per annum. Janes salary is $8,000 per annum; (ii) On 1 February 2005, each of the partners paid $35,000 into the partnership bank account. Anns payment is to be treated as capital, while Janes is to be treated as a loan, with interest at 4% per annum to be credited to her current account;

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(iii) Partners are charged interest on drawings at a rate of 16% per annum. All drawings are assumed to have been made half way through the year. During the year, Anns drawings were $28,000 and Janes were $24,000. At 1 November 2004, the balances on the partners current accounts were: Ann $17,420 (debit) Jane $9,547 (credit) Required: (a) (i) Calculate the amount of profit available for appropriation for the year to 31 October 2005; (2 marks) (ii) Calculate the total amount of profit due to each of the partners for the year to 31 October 2005. (7 marks) (b) Show the partners current accounts, including the closing balances for the year ended 31 October 2005. (6 marks)
[Sec: B, Q: 3 T3 December 2005]

4
Eleanor and Steve are in partnership, sharing profits and losses in the ratio 2:3. The partnership agreement provides for the following: Eleanor is entitled to a salary of $32,000; Steve is entitled to a salary of $26,000; Interest is paid at a rate of 8% per annum on the partners capital balances at the start of the financial year; and Interest is charged at a rate of 12% per annum on the partners drawings. At 1 May 2006, the partners capital and current account balances were: Eleanor Steve Capital $47,500 (credit) $34,800 (credit) Current $1,680 (debit) $6,750 (credit) During the year to 30 April 2007: Eleanors drawings were $22,800; Steves drawings were $25,600; and the net profit for the year was $52,956.
Required: (a) Calculate the profit attributable to each partner for the year to 30 April 2007. (b) Prepare the partners current accounts for the year to 30 April 2007. (9 marks) (6 marks) [Sec: B, Q: 3 T3 June 2007]

CAT-T3 Partnership 5
You are preparing final accounts for Roy and Greg who are in partnership. Under the terms of the partnership agreement: (i) Greg receives a salary of $12,000 per annum; (ii) Partners are paid interest on the opening balance on their capital account at 8% per annum; (iiI) Interest on drawings is to be charged as follows: Roy $4,480 Greg $2,744; and (iv) Profits and losses are shared 4:3 between Roy and Greg. The partnership income statement for the year to 30 April 2008 shows a net profit of $67,891. The opening balances on the partners capital and current accounts, and their drawings during the year were: Capital accounts Current accounts Drawings at 1 May 2007 at 1 May 2007 during year to 30 April 2008 Roy $55,000 Cr $28,563 Cr $32,000 Greg $51,000 Cr $17,506 Dr $19,600
Required: (a) Calculate each partners share of the profit of $67,891. (b) Prepare the partners current accounts for the year to 30 April 2008. (c) Calculate the net assets of the partnership at 30 April 2008. (8 marks) (4 marks) (3 marks) [Sec: B, Q: 3 T3 June 2008]

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CAT T3

Master Questions

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CAT-T3 Master Questions 1


A trainee in your office has prepared draft accounts for a client for the year to 31 March 2005, but has not dealt with the adjustments for accrued expenses, prepaid expenses, bad and doubtful debts and depreciation. Following the preparation of the income statement, the trainee prepared the balance sheet shown below. You have been asked to complete the final accounts. Draft Balance Sheet as at 31 March 2005 (before adjustments) $ Non-current assets Equipment at cost 175,000 Accumulated Depreciation (at 31 March 2004) (85,400) Current assets Inventory 42,339 Trade receivables 149,411 Bank account 6,280

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89,600

198,030 287,630 201,070 86,560 287,630

Proprietors capital Current liabilities Trade payables

The trainee has given you the following information about the remaining adjustments: (i) The last invoice received for electricity covered the three month period to 31 January 2005. The invoice was for $6,870. (ii) Rent of $28,500 for the six months to 30 June 2005 was paid in January. (iii) The trade receivables figure of $149,411 is stated after deducting the existing allowance for doubtful debts of $7,900 from the total trade receivables balance of $157,311. (iv)The total trade receivables balance of $157,311 includes a balance of $660 which has been outstanding for eight months. The client has decided to write off this balance. (v) The clients policy is to allow for doubtful debts on the basis of the length of time the debt has been outstanding. The aged analysis of trade receivables at 31 March 2005 and the required allowance is shown below: Age of debt Balance Allowance required $ 0 30 days 125,275 nil 31 60 days 1 27,200 20% of balances over 60 days 11 4,836 75% of balances 157,311 (vi) Depreciation is to be provided at a rate of 20% per annum on the reducing balance basis.

CAT-T3 Master Questions


Required: (a) Calculate the correct balance at 31 March 2005 for each of the following: (i) Accrued expenses; (ii) Prepaid expenses; (iii) Allowance for doubtful debts; and (iv) Accumulated depreciation. (b) Prepare the corrected balance sheet as at 31 March 2005. (2 marks) (2 marks) (3 marks) (2 marks) (6 marks)

[Sec: B, Q: 3 T3 June 2005]

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One of your clients, Steve Fletcher who does not keep full accounting records has asked you to calculate his profit for the year to 30 April 2005 and his bank balance at that date. Your file on last years accounts shows that his assets and liabilities at 30 April 2004 included the following: $ 15,800 23,750 16,800 17,500 42,900

Inventory Receivables Payables Cash at bank 1 Capital

In the year to 30 April 2005, Steve received $204,800 from his customers. Before banking the cash he used $2,900 to pay business expenses and took cash drawings of $17,900. He also banked $3,000 from the sale of some personal assets. He wrote cheques totalling $191,650. Of this amount, $3,100 was drawings and $22,800 was for business expenses. The rest of the cheques were paid to suppliers. At 30 April 2005 his inventory was valued at $16,200. At that date he was owed $25,400 by his customers and he owed $17,900 to his suppliers. You estimate that your fee for this work will be $150. You have already calculated that the depreciation charge on Steves non-current assets for the year to 30 April 2005 is $2,450. Required:
(a) Calculate Steves bank balance at 30 April 2005. (b) For the year to 30 April 2005, calculate Steves: (i) Sales; (ii) Purchases; and (iii) Gross Profit. (3 marks) (2 marks) (4 marks) (3 marks)

(c) Based on the gross profit you have calculated in (b) above, calculate Steves net profit for the year to 30 April 2005. (3 marks) [Sec: B, Q: 4 T3 June 2005]

CAT-T3 Master Questions 3


You work for a wholesale firm which distributes a single product. A trainee has prepared draft accounts for the month of October 2005. The accounts report a net loss of $35,580 and total net assets of $283,468. You have noted that: 1 the income statement does not report a figure for gross profit; 2 the trainee has not included any value for closing inventory; 3 the trainee has included $57,600 for opening inventory. This was calculated on the first in, first out (FIFO) basis. There were 480 items, valued at $120 per item.

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4 Purchases during the month were: Date Number of items 9 October 15 October 24 October 1,140 1,310 620

Cost per item $ 145 150 155 3,070

5 Sales during the month were: Date Selling price per item $ 12 October 1,040 205 21 October 1,840 220 2,880 6 As well as purchases, the other costs deducted from sales to calculate the net loss were: $ Wages of staff 44,700 Premises expenses 42,750 Administrative expenses 13,620 Selling and marketing costs 17,890 Carriage inwards 3,750 Carriage outwards 4,120 Depreciation 11,250 138,080
Required: (a) Calculate: (i) the number of items in inventory at 31 October 2005; and (1 mark) (ii) the value of inventory at 31 October 2005 on the FIFO basis. (2 marks) (b) Using the revised inventory value calculated in (a), calculate: (i) Cost of sales for October 2005; (4 marks) (ii) Gross profit for October 2005; (2 marks) (iii) Net profit for October 2005; and (2 marks) (iv) Net assets at 31 October 2005. (2 marks) (c) State the basic rule set out in IAS 2 which is to be applied to the valuation of inventory. (2 marks) [Sec: B, Q: 2 T3 December 2005]

Number of items

CAT-T3 Master Questions 4


Gareth Carson has been in business as a sole trader since 1 May 2005. He has prepared the draft income statement shown below and has asked you to check if it is correct. Draft Income Statement as at 30 April 2006 $ Sales Purchases Rent Electricity Telephone Returns inward Carriage and delivery Wages Other expenses Trade discounts on purchases Loss for year Additional information: 1 Closing inventory cost $6,378. This includes damaged items which cost $1,564. These could be repaired for $375 and then sold for $1,820. 2 The figure for rent is the total paid in the year to 30 April 2006. Five equal payments were made for the three month periods commencing on: 1 May 2005; 1 August 2005; 1 November 2005; 1 February 2006; and 1 May 2006. 3 Carriage and delivery comprises $1,428 for carriage on goods received and $418 for delivering goods to customers. 4 The charge for wages is made up of $28,000 paid to Gareth and $3,580 paid to a part-time employee.
Required: Prepare Gareths corrected Income Statement for the year to 30 April 2006, clearly showing both gross profit and net profit. [Sec: B, Q: 3 T3 June 2006]

$ 97,600

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46,840 15,000 4,800 2,750 954 1,846 31,580 839 104,609 (1,523)

103,086 (5,486)

CAT-T3 Master Questions 5


Jim McAvoy owns a small business. He has provided you with the following information about the business for the year to 30 November 2006: (i) During the year $76,846 was paid into the business bank account. This included a gift of $6,000 received from a relative, with the balance being receipts from customers. (ii) Before banking the cash Jim paid business expenses of $5,700 in cash and took cash drawings of $7,800. (iii) Jim does not hold a balance of cash on hand.

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(iv) As well as payments to suppliers, payments out of the bank account included business expenses of $3,400 and drawings of $2,000. (v) Jim does not receive any credit from his suppliers. (vi) Jims current assets and liabilities were: 1 December 2005 $ Inventory 5,250 Trade receivables 1,676 Cash at bank nil Bank overdraft 1,240
Required: For the year to 30 November 2006, calculate Jims: (i) Total payments made from the bank account; (ii) Payments received from customers; (iii) Sales; (iv) Purchases; (v) Gross profit; (vi) Net profit.

30 November 2006 $ 4,190 1,360 566 nil

(2 marks) (2 marks) (2 marks) (2 marks) (2 marks) (2 marks)

(b) Following your calculations in (a), Jim tells you that he normally adds a mark up of 20% to calculate his selling price, but on some occasions he reduced his selling price in order to make a sale. He would like to know how much this has cost him.
Required: Calculate the reduction in Jims sales for the year to 30 November 2006 as a result of the occasional reduction in his selling price. (3 marks) [Sec: B, Q: 4 T3 December 2006]

CAT-T3 Master Questions 6


Ron Green would like to know how his business has performed for the year to 31 May 2007. His trial balance at that date, as well as the other information he has given you, is shown below: Debit Credit $ $ Sales 729,542 Purchases 486,463 Electricity 9,200 Rent 42,000 Wages 120,800 Vehicle expenses 11,858 General expenses 5,843 Carriage inwards 10,644 Sales returns 5,728 Purchases returns 6,528 Machinery at cost 124,500 Vehicles at cost 38,672 Accumulated depreciation at 31 May 2006: Machinery 18,600 Vehicles 22,352 Inventory at 31 May 2006 29,664 Trade receivables 77,920 Trade payables 44,568 Bank account 5,702 Drawings 15,000 Capital account 151,000 978,292 978,292

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(i) The last electricity invoice received was for $2,760. This was for the three months to 31 March 2007. (ii) Ron has paid his rent up to 31 July 2007. His annual rent is $36,000. (iii) Ron depreciates his non-current assets on the following bases: Machinery 20% per annum, straight line Vehicles 25% per annum, reducing balance (iv) Rons inventory at 31 May 2007 cost $38,670. This includes some damaged items, which had cost $6,850. Ron has arranged for these to be repaired at a cost of $1,285. He will then be able to sell the items for $4,200.
Required: Calculate the amounts to be included in Rons final accounts for the year to 31 May 2007 for: (a) Accruals; (1 mark) (b) Prepayments; (1 mark) (c) Depreciation; (2 marks) (d) Closing inventory; (2 marks) (e) Cost of sales; (3 marks) (f) Gross profit; and (2 marks) (g) Net profit. (4 marks) [Sec: B, Q: 2 T3 June 2007]

CAT-T3 Master Questions 7


Tanya Joyce has extracted the following trial balance at 30 November 2007: Debit $ Sales Purchases Wages Electricity Rent General expenses Non-current assets at cost Accumulated depreciation at 1 December 2006 Inventory at 1 December 2006 Trade receivables Receivables allowance Cash at bank Trade payables Capital at 1 December 2006 Loan (due for repayment in 2012) Drawings 108,539 33,552 9,526 7,200 4,788 125,980 74,812 11,629 19,885 1,442 1,731 11,954 34,305 25,000 29,800 352,630 352,630 Credit $ 205,117

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Tanya also has the following additional information: (i) Depreciation for the year has been calculated as $25,196 (ii) Electricity accrued at 30 November 2007 is $940 (iii) Rent was prepaid by $1,200 at 30 November 2007 (iv) Inventory at 30 November 2007 was valued at $13,664 (v) The receivables allowance is to be revised to $1,620
Required: (a) Prepare Tanyas income statement for the year to 30 November 2007. (8 marks) (b) Calculate the following figures for inclusion in Tanyas balance sheet at 30 November 2007: (i) Current assets; (4 marks) (ii) Capital balance. (3 marks) [Sec: B, Q: 4 T3 December 2007]

CAT-T3 Master Questions 8


A junior member of staff has prepared accounts for a client for the month of November 2008. The accounts report a profit of $38,544 and closing capital of $117,529, based on a closing inventory valuation of $89,600. The closing inventory valuation was calculated using the periodic weighted average method. However, the first in, first out (FIFO) method should have been used. Inventory movements were: Date 5 November 10 November 16 November 18 November 21 November 26 November

Purchases Units Cost per unit ($) 1,000 12680 800 500 13000

Sales Units 400 1,200

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13200 600

Opening inventory was 600 units, with a total value of $74,400.


Required: Calculate the corrected value of: (i) Closing inventory; (ii) Profit for the month; and (iii) Closing capital.

(4 marks) (1 mark) (1 mark) [Sec: B, Q: 3(b) T3 December 2008]