ce. test cove 02101020 FORM TP 2015124 MAY/JUNE 2015 ‘© CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION® _ ACCOUNTING UNIT 1 — Paper 02 2 hours and 45 minutes READ THE FOLLOWING INSTRUCTIONS CAREFULLY. 1. This paper comprises THREE questions. 2. EACH question is worth 35 marks. 3. ALL questions are COMPULSORY. 4, Begin EACH answer on a new page. 5. You may use a silent, non-programmable calculator to answer questions. 6. ALL working must be clearly shown. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. Copyright © 2013 Caribbean Examinations Council All rights reserved, 02101020/CAPE 2015B, Ross started operations on I June 2014 with a motor car purchased three years ago for $120 000. The latest valuation estimated the worth of the car at $75 000. On the same day, B. Ross opened a chequing account at a local bank with $20 000, $15 000 of which was proceeds ofa loan from M. Brown. ‘After the first six months of operations, B. Ross recorded drawings of $17 300 and a loss of $21 500. (a) State the meaning of the following accounting concepts: (i) Historical cost [2 marks] Gi) Prudence [2 marks} (b) What amount should B. Ross record for the motor car in the books of the business? [2 marks] (c) Identify and explain the concept which allows B. Ross to record the motor car invested in the business as a non-current asset. [4 marks] (a) Show the journal entries required to record the formation of B. Ross’ business on 1 June 2014. [6 marks] (ec) Show the closing entries to record the loss and the drawings for the period. [3 marks] (0) Themanagement of B. Ross intends to operate in a paperless environment and hires a trainee accountant. Within the first week on the job, the trainee accountant is seen to be consistently using Blackberry Messenger while working. In addition, the trainee occasionally logs on to Facebook using the computer on which financial information is stored. Outline THREE controls that the management can implement to ensure the integrity of its accounting records. [6 marks] GO ON TO THE NEXT PAGE 02101020/CAPE 2015eB. test cope 02101020 FORM TP 2015124 MAY/JUNE 2015 ‘o CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION® ACCOUNTING UNIT 1 — Paper 02 ‘Question No. 1) (-).... Candidate No. ‘ABLE 1: EFFECTS OF TRANSACTIONS ON CASH BOOK AND STATEMENT OF COMPREHENSIVE INCOME ‘Transaction Cash Book Statement of ‘Comprehensive Income Paid a monthly salary of $10 500 Example | to an employee who quit on Decrease by $10 500 Expense of $10 500 31 December 2014 (| Paid rent of $12 000 for six months ending 30 September 2014 . (i) | Bad debts of $1 500 written off during the accounting year (iii) | Fixtures purchased for $74 000 on 2 July 2013 by cheque (iv) | Depreciation on fixtures purchased on 2 July 2013 is charged at a rate of 15% using the straight line method (y)_ | Invoice for electricity amounting to $3 700 for the month of June 2014 not received nor paid [10 marks] TO BE ATTACHED TO YOUR ANSWER BOOKLET 02101020/CAPE 2015(g) Using Table 1 provided as an insert, show the effect of EACH of the following transactions in the Cash Book and Statement of Comprehensive Income of BisNess Ltd for the year ended 30 June 2014, if the accruals basis of accounting is used. One example has been done for you on the insert. (i) Paid rent of $12 000 for six months ending 30 September 2014. (i) Bad debts of $1 500 written off during the accounting year. (iii) Fixtures purchased for $74 000 on 2 July 2013 by cheque. (iv) Depreciation on fixtures purchased on 2 July 2013 is charged at a rate of 15% using the straight line method. (¥)__ Invoice for electricity amounting to $3 700 for the month of June 2014 not received nor paid, [10 marks] ‘Total 35 marks GO ON TO THE NEXT PAGE, 02101020/CAPE 2015-4- (a) Amar and Mohan are equal partners in a retail clothing business. They each contributed $240 000. Afterwards, it was agreed that Lee should join the partnership with all three partners sharing profits equally. For the purpose of admitting the new partner, the goodwill in the business was valued at $180 000. Goodwill is not to be maintained in the accounts. Lee brought in cash of $160 000 into the business. Prepare the capital accounts of the partnership showing clearly the adjusted balances after the admission of the new partner. [11 marks} (b) Distinguish between ‘corporations’ and ‘co-operatives’ in terms of the following characteristics: (i) Transferability of ownership interest (ii) Voting rights ii) Purpose (iv) Legislation [8 marks} GO ON TO THE NEXT PAGE 02101020/CAPE 2015(c) — Anextract of the adjusted Trial Balance for Point Dex Ltd as at 31 May 2014 is provided below. $000 Sales 750 000 Inventory (31 May 2014) 145 300 Gross purchases 345 700 Retums outwards 34 100 Discounts received 1700 Allowance for doubtful accounts 4500 Accounts receivable 105 000 Accounts payable 79.750 Property, plant and equipment at cost 1375 400 Accumulated depreciation 466 800 Selling and distribution cost 125 435 Investment in Aral Ltd 350 000 Investment income 35.000 Depreciation charge 101 000, Administrative cost 234 195 Research cost 15 670 Inventory (1 June 2013) 77.400 Tax payable 7500 15% loan (2025) 735.000 General reserve 1500 Dividends paid 670 000 Retained earnings 825 760 Additional notes: + Point Dex Ltd depreciates all assets at a rate of 10% per annum using the reducing balance method. Depreciation is normally allocated at 40% to distribution and 60% to administration. + Corporation tax is 25%, (Prepare a Statement of Comprehensive Income for Point Dex Ltd for the year ended 31 May 2014. [11 marks} (ii) Identify the figures to be included in a) Current assets b) Current liabilities which would appear in the Statement of Financial Position as at 31 May 2014. 15 marks} ‘Total 35 marks GO ON TO THE NEXT PAGE 02101020/CAPE 20153. The financial statements for Siscco Ltd for the income year to 30 June 2012 are given below. Statement of Comprehensive Income Revenue Cost of sale Gross profit Operating expense Loss on sale of NCA Interest on loan, Profit before tax Tax Profit for the period Statement of Financial Position Non-current asset Property, plant and equipment Current assets Inventory at close Accounts receivable Bank Total current assets Total assets Equity and liability Equity Ordinary share $1 Share premium Retained earnings Total equity Non-current liability 02101020/CAPE 2015 6% loan Current liability Trade payables Accruals $000 3218 30 $000 560 1540 1216 1980 1170 $000 17234 (11930) 5304 (3.248) 2057 48 2.009 (1110) 899 $000 6 181.50 3316 9 497.50 4250 400 77.50 4727.50 1.620 3.150 9 497.50 GO ON TO THE NEXT PAGE(a) Prepare common size statements for Siscco Ltd. From these, prepare a report to analyse the performance of the company. Your report should focus on liquidity and profitability by using at least TWO ratios in EACH category. Calculate ratios to two decimal places. [14 marks} HINT: You may use the following formulae: Gross profit margin = fae. x 100 Net profit margin = —Netpofitbefor inerstandiax_ gg Retum on capital employed = ae x 100 Current ratio a Acid test (quick ratio) - agate (6) List THREE limitations of ratio analysis. [3 marks] (©) Section 32 of the IFRS for SMEs defines Events after the End of Reporting Period as “any event that provides evidence of conditions that existed at the end of the reporting period” (i) Outline TWO examples of events that would be disclosed in the financial statements as required by Section 32, [4 marks} (ii) __ Explain the meaning of ‘conditions that existed at the end of the reporting period’ and give ONE example. [4 marks} GO ON TO THE NEXT PAGE 02101020/CAPE 2015-8- (4) (i)_List THREE duties of the receiver in a bankruptcy situation. [3 marks] (ii) In dealing with the claims of an insolvent business, the liquidator must first pay any outstanding National Insurance/Social Security funds which had been withheld from wages, followed by claims of secured creditors, claims of partly secured creditors and lastly unsecured claims, before dealing with shareholders. The list falls into three categories shown in the headings in Table 2 below. Copy Table 2 into your answer booklet. Complete the table to show how items a) to g) should be classified. a) — Unsecured bank loan. b) Accounts receivable of $40 000 has been pledged as security for a note payable of $120 000. ©) Wages and salaries payable. 4) — Robin has used her shares in The Cable Inc, valued at $75 000 as security for a business loan of $75 000. ©) The utility bill for the Water Authority. f) Davis” Garage has a charge on a car owned by Philip Patel as a result of a high court judgement. 2) Accounts payable. TABLE 2 Secured Claims Partly Secured Claims Unsecured Claims END OF TEST [7 marks} ‘Total 35 marks IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST. 02101020/CAPE 2015