International Foundation Diploma (Business) Introduction to - - PDF document

International Foundation Diploma (Business) Introduction to Accounting - IFDB 108 May 2019 Practice paper

Instructions to candidates

You are allowed 3 hours to answer this question paper. You are strongly advised to read ALL question requirements carefully before attempting any question. The paper consists TWO (2) sections. Section A – Compulsory. Answer all questions. Section B – Answer any THREE (3) questions of your choice. Answers for all questions required should be written on the additional paper provided. Marks for each question are shown in brackets [ ]. Write your candidate number, full name and date in the space provided below. Candidate No. Candidate Name Date

SECTION A – 40 MARKS Answer ALL questions

Question 1

• 1. “Recording assets based on purchasing cost” is referred by,

A Income concept B Matching concept C Money measurement concept D Historical cost concept

• 2. What is not an enhancing qualitative characteristic of accounting information?

A Understandability B Timeliness C Neutral D Verifiability

• 3. Which of the following term best describes the event of using the same accounting

concept from period to period? A Accounting period concept B Consistency concept C Materiality concept D Relevant

• 4. What is the purpose of accounting?

A to ensure the cash book balance agrees with the bank B to know how long trade receivables, take to pay C to prepare the financial statements of the business D to write up all the ledger accounts

• 5. Journal entry (prime entry) for credit purchase returns are entered in ___________

A Return inwards journal B Purchases journal C Purchases ledger D Return outwards journal

• 6. Which of the following users might be more interested in the liquidity position of the

company? A Trade creditors and lenders B Tax authorities C Customers D Prospective investors

• 7. What would be the margin of safety in units if break-even point units are 1,200 units

and expected sales are 1,450 units? A 1,200. B 1,450. C 250. D Not enough information to conclude.

• 8. Who is considered as the father of accounting?

A Adam Smith B Albert Einstein C David Recardo D Luca Pacioli

• 9. Which one of the following is the most liquid asset?

A Trade receivables B Inventory C Bank overdraft D Cash in hand

• 10. Equity consists of:
• I. Retained earnings
• II. Share capital
• III. Non-current assets
• IV. Non-current liabilities

A I, II and III B I, III and IV C I and II D II only [Total 10 marks]

Question 2 (a) Tea Trail LTD is a value-added tea manufacturing organization pursuing tea exporting

• business. The following trial balance has been extracted for the year ended 31 March

2018. TEA TRAIL LTD TRIAL BALANCE AS AT 31 March 2018 DR $ CR $ Sales 138,078 Purchases 82,350 Carriage 5,144 Drawings 7,800 Rent, rates and insurance 6,622 Postage and stationery 3,001 Advertising 1,330 Salaries and wages 26,420 Bad debts 877 Provision for bad debts 130 Debtors 12,120 Creditors 6,471 Cash in hand 177 Cash in bank 1,002 Inventory as at 1 April 2017 11,927 Equipment: At cost Accumulated depreciation 58,000 19,000 Capital 53,091 216,770 216,770 Additional information:

• 1. Rent is accrued by $210.
• 2. Rates have been prepaid by $880.
• 3. $2,211 of carriage represents carriage inwards on purchases.
• 4. Equipment is to be depreciated at 15% per annum using the straight-line method.
• 5. The provision for bad debts to be increased by $40.
• 6. Inventory as at 31st March 2018 has been valued at $13,551.

Required: I. Prepare the Property, plant and equipment note. (2 marks) II. Prepare the income statement for the year ended 31 March 2018. (9 marks) III. Prepare the statement of financial position as at 31 March 2018. (10 marks)

(b) Ann Enterprises produces and sells ‘budget cereals’ in packets. The following balances were extracted from their books of accounts on 30 September 2018. Opening stock: Raw materials at cost 12,000 Work in progress 6,600 Carriage inwards 2,500 Rent 60,000 Factory administration cost 70,000 Direct wages 350,000 Factory other overhead expenses 40,000 Purchase of raw material 620,000 Insurance cost of factory 10,000 Additional information: Raw Material closing stock is valued at cost: $10,000 and working progress closing stock is valued at $7,400. [Total 30 marks] Required: I. Prepare the Manufacturing Account for the year ended 30 September 2018. (6 marks)

• II. Calculate the cost of a ‘packet of budget cereal’, if the company manufactured 15,000

units during the year. (You have to show all the workings clearly) (1 mark)

• III. Calculate the selling price of a packet of budget cereal if Ann enterprises is keeping a

margin of 10%. (2 marks) $

SECTION B – 60 MARKS Answer any THREE (3) questions of your choice.

Question 3 Penguin Printers LTD, a printing press, commenced business during April 2018. The following information relates to Penguin Printers LTD’s first month of operations. April 1 Started business with $3,500 cash April 4 Deposited $2,800 of the cash into a bank account April 5 Bought goods for cash $150 April 8 Bought goods on credit from: CINE Graphics $360; Stationery PLC $110 April 10 Sold goods on credit to: BIM $90; Tryonics LTD $150; NLB LTD $160 April 15 Paid rent by cheque $55 April 21 Bought a machine on credit from Graphic Cooperation $480 April 23 Paid salaries in cash $420 April 28 Returned goods to: Stationery PLC $60 April 29 Goods returned to Penguin Printers LTD by BIM $20 [Total 20 marks] Required: (a) Prepare all the relevant prime entry books. (5 marks) (b) Prepare all the ledger accounts. (9 marks) (c) Prepare the trial balance of Penguin Printers LTD as at 30 April 2018. (6 marks)

Question 4 (a) The following information relates to Baker Friends Ltd, a single owner bakery. On 31st March 2018, the bank column of Baker Friends Ltd’s cash book showed a debit balance

• f $1,500.

The monthly bank statement written up to 31st March 2018 showed a credit balance of $2,950. On reviewing the cash book with the bank statement, it was discovered that the following transactions had not been entered in the cash book:

• 1. Dividends of $240 had been paid directly to the bank.
• 2. A credit transfer – customs and excise VAT refund of $260 had been collected by the

bank.

• 3. Bank charges $30.
• 4. A direct debit of $70 for the RAC subscription had been paid by the bank.
• 5. A standing order of $200 for Baker Friends Ltd’s loan repayment had been paid by the

bank.

• 6. Baker Friends Ltd’s owner’s deposit account balance of $1,400 was transferred into the

company’s current account.

• 7. The unpresented cheques and unrealised cheques values were $1,600 and $1,750

accordingly. (b) Martin runs a small business to produce and sell a hair gel called Smart Gel. This is an herbal based product with no added chemicals. Martin has the following cost structure: (per unit) Direct materials (herbs) $1.25 Direct labour $0.50 Direct expenses $0.25 (per annum) Distribution cost $30,000 Administration expenses $20,000 Required: I. Prepare bank account with adjustments as at 31 March 2018. (6 marks)

• II. Prepare the bank reconciliation statement for the month of March 2018.

(4 marks)

Mark has estimated that he would be able to sell 14,000 units at a selling price of $7 per unit during the year ended 31 December 2018. [Total 20 marks] Question 5 (a) Explain two (2) differences between financial accounting and management accounting. [4 marks] (b) Identify the applicable accounting concept/ principle for following transactions and

• events. [5 marks]

Transaction/ Event Applicable Concept/ Principle $500,000 revenue is reported in financial statements once it is earned not when it is received by cash. The company has no evidence that it will or will have to cease operations within foreseeable future. $4,000 worth cash withdrawal of the owner has reported separately as drawings. Transaction is not recorded in the books of accounts unless it is measurable in terms of money The life-span of a business can be divided into equal time periods (c) Describe three (3) users of financial statements and their interest. [6 marks] (d) Kazmina Company has started its operations in a land worth $3,500,000. By 31st December 2017, the company has delivery vehicle worth $1,500, 000 and inventory worth $500,000. Kazmina didn’t make full payment for the inventory purchased and still Required: I. Calculate break-even point in units and value. (3 marks) II. Calculate the margin of safety in units and in value. (2 marks) III. Calculate the profit for the year ended 31 December 2018. (3 marks) IV. Calculate the units required to earn a target profit of $25,000. (2 marks)

$200,000 is remaining to pay. Primarily, the company has borrowed $4,000,000 from C.

• Stewart. Before commencing the trading, Kazmina Company had $100,000 cash in hand

and $500,000 cash at bank. Calculate the capital of Kazmina Company as at 31st December 2017 [5 marks] [Total 20 marks] Question 6 ABC Ltd. operates in pharmaceutical industry and it produces medicine called “ X- Strong” which gives instant relief for headaches. The company management has prepared sales forecast for year 2019. The expected selling price and demand for the product as follows: X-Strong Selling Price $1,000 Expected Demand 15,000 units Budgeted cost for the product is outlined below; Raw Material X (1 kg @ $ 25) 15 kg Raw Material Y (1kg @ $ 10) 10 kg Labour (1 hour @ $30 ) 5 hours Budgeted finished goods and raw material stocks as follows: Opening Stock Closing Stock X Strong 250 units 300 units Raw Material Material X 1000 kg 800 kg Material Y 500 kg 1000 kg

Required: (a) Explain two (2) benefits of preparing functional budgets [5 marks]

(b) Prepare following budgets for year 2019. i. Sales Budget (units and value) [2 marks] ii. Production budget (units and value) [3 marks] iii. Material usage (units) [3 marks] iv. Material purchase budget (units and value) [3 marks] v. Labour budget in hours and value [4 marks] [Total 20 marks] Question 7 Following transactions are pulled out from AMG’s business for the first week of May 2017.

• 1. AMG started a business investing $ 550,000 cash
• 2. The owner invested his land worth $ 2,500,000 in the business
• 3. He rendered consultancy services of $ 40,000 on credit to Cat Stevens
• 4. Obtained a loan from Alex: $60,000
• 5. Purchased $ 5,000 worth stationery on credit.
• 6. AMG, the owner, withdrew $ 15,000 cash for personal use
• 7. Investment income receieved in cash is $ 27,500
• 8. Expenses for the month paid from cash: wages $ 10,000, administration expenses $

3,000, insurance expenses $ 2,000

• 9. Purchased a building for $ 10,000 cash
• 10. Repaid $ 25,000 of the bank loan by a cheque

Required: Record the above transactions in the accounting equation (expanded equation). You are required to draw a table, and number correctly when answering. [20 marks] Hint: Assets = Liabilities + Capital + (Income – Expenses)

[Total 20 marks] ~End of paper~