National University of Science and

Technology

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING

SECOND SEMESTER FINAL EXAMINATION PAPER: 2013/2014

DATE:

SUBJECT: FINANCAL ACCOUNTING 1B (CAC 1202)

TIME ALLOWED: THREE (3) HOURS

MARKS: 100

INSTRUCTIONS TO CANDIDATES
1. Answer all questions
2. Use the examination book provided
3. Use black or blue pen
4. Begin each question on a new page
5. Show all workings clearly and
6. Submit all answer books

Page 1 of 12
QUESTION ONE [25 MARKS]
The directors of NUST Ltd provide the following balances extracted from the ledgers of the
company at 30 September 2012.
Dr Cr
$000 $000
Cost of sales and Sales 819 1 626
Operating expenses 672
Interest paid 12
600 000 ordinary shares of $0.50 each ‐ 300
10 % redeemable preference shares ‐ 100
8% Debentures (2016) ‐ 150
Interim preference dividend paid 5 ‐

Additional information:
The market price of the ordinary shares on 30 September 2012 was $1.60.

The directors wish to make provision for:

‐ Corporation taxation for the year of $28 000.
‐ Final preference dividend.
‐ Final ordinary dividend of $35 000 (no interim dividend was paid).

The corporation tax charge for the year was $28 000.

REQUIRED
a) Prepare Statement of Comprehensive Income for the year ended 30 September
2012. [10]

The following information relates to the Statement of Comprehensive Income for the year
ended 30 September 2011.
$000
Operating profit 120
Debenture interest paid 12
Provision for corporation tax 25

Page 2 of 12
Preference dividends for the year 10
Proposed ordinary dividend (no interim dividend was paid) 20

The market price per share at 30 September 2011 was $1.35.

The issued ordinary share capital was 600 000 shares of $0.50 each at both balance sheet
dates.
REQUIRED
b) Calculate the following ratios for each of the years ended 30 September 2011 and 30
September 2011:
i. interest cover;
ii. earnings per share (EPS);
iii. price earnings ratio (P/E);
iv. dividend yield;
v. dividend cover. [5]

The directors of NUST Ltd have drawn up the following draft balance sheet at 30 September
2012.
$000 $000 $000
ASSETS
Non‐Current assets
Premises 460
Other fixed assets 200
660
Current assets
Current assets other than bank 65
Balance at bank 91
156
Total assets 816
EQUITY & LIABILITIES
EQUITY
Share Capital and Reserves

Page 3 of 12
Ordinary shares of $0.50 each fully paid 300
Profit and loss account 180
480
LIABILITIES
Current Liabilities
Trade creditors 18
Proposed dividends 40
Taxation 28 86

Non‐Current Liabilities
10% redeemable preference shares of $1 each fully paid 100
8% Debentures (2016) 150
250
Total Liabilities 336
Total equity & liabilities 816

Note: Both the debentures and the preference shares were issued in 2006

The directors have not taken into account the following transactions that took place at the
close of business on 30 September 2012:
‐ the premises were revalued at $750 000;
‐ the preference shares were redeemed at a premium of 15%;
‐ a bonus issue of 1 new ordinary share for every 2 held was made;

It is company policy to maintain reserves in their most flexible form.

REQUIRED
(d) An extract showing the share capital and reserves section of the Statement of Financial
Position for NUST Ltd after the above items have been incorporated. [10]

Page 4 of 12
QUESTION TWO [25 MARKS]
You are provided with the following financial Statement;

ABC Ltd
The Summarised Statement of Financial Position at 30 April 2012
$000
ASSETS
PPE 2550
Net current assets 950
Total assets 3500

EQUITY & LIABILITIES

Ordinary shares of $1 2500
Share Premium account 200
Profit and Loss Account 350
10% redeemable preference shares of $1 300
6% debentures 2012/2013 150
Total equity and liabilities 3500

Further information:
1. The market price of the ordinary shares at 30 April 2012 was $1.60.
2. The dividend yield on ordinary shares was 2.5 per cent.
3. The liability for taxation at 30 April 2011 was $25 000. Taxation paid in the year
ended 30 April 2012 amounted to $22 000. The liability for taxation on the profit of
the year ended 30 April 2012 is $31 000 and is carried forward on the Taxation
account.
4. The retained profit for the year ended 30 April 2012 was $60 000.
5. The debentures were issued in 2007. The preference shares were issued at par.

REQUIRED:
a. Prepare ABC Ltd’s Statement of Comprehensive Income for the year ended 30 April
2012 in as much detail as possible. It should commence with the operating profit. [12]

Page 5 of 12
The following PPE note to the Statement of Financial Position gave details of the
movements on Non‐current assets in the year ended 30 April 2012:

Non‐current assets Premises Plant and Motor vehicles Total

machinery
COST $000 $000 $000 $000
As at 30 April 2011 1000 800 560 2360
Revaluation 500 – – 500
Purchases – 300 260 560
Disposals – (100) (80) (180)
As at 30 April 2012 1500 1000 740 3240

ACCUMULATED DEPRECIATION
Balance at 30 April 2011 300 380 255 935
Revaluation (300) (300)
Provided in the year – 110 95 205
Disposals ‐‐ (90) (60) (150)
As at 30 April 2012 – 400 290 690

Carrying value 1500 600 450 2550

at 30 April 2012

During the year ended 30 April 2012, plant and machinery was sold for $25 000 and motor
vehicles were sold for $8000.

REQUIRED
b) Prepare the following extracts from the Statement of Cash Flows for the year ended
30 April 2012:
i. Reconciliation of operating profit to net cash flow from operating activities;
ii. Capital expenditure (Investing activities). (Your answer should include only
those items that appear in the note on non‐current assets). [6]

Page 6 of 12
On 1 May 2012, before any further transactions had taken place, the company decided to
carry out the following redemptions:
‐ all the debentures at a premium of $0.05
‐ all the preference shares at $1.20 per share out of the proceeds of a new
issue of 200 000 ordinary shares of $1 at $1.25. The new issue of ordinary
shares was fully subscribed.

REQUIRED
c) Show, under the appropriate heading, how the redemption of the debentures and
preference shares will appear in ABC Ltd’s Statement of Cash flows for the year
ending 30 April 2013. [3]

Following the redemption of the debentures and preference shares, the market price of
ordinary shares rose from $1.60 to $1.85.
REQUIRED
d) Explain why the redemption of the debentures and the preference shares may have
caused the market price of the ordinary shares to rise. [4]

Page 7 of 12
QUESTION THREE [25 MARKS]

You have received the following financial statements of Pie Ltd for the year ended 30 April
2012, but you do not have the company’s Statement of Financial Position for the previous
year, 2011.

Pie Ltd
Statement of Financial Position as at 30 April 2012
Cost Depn. Carrying Amount
or valuation
$000 $000 $000
ASSETS
Non‐Current Assets
Intangible: Goodwill – – –

Tangible:
Freehold premises 600 – 600
Plant and machinery 520 280 240
Motor vehicles 135 85 50
1 255 365 890
Current assets:
Inventory 212
Receivables 96
308
Total assets 1198

EQUITY & LIABILITIES

Share capital and reserves
Ordinary shares of $1 300
Share Premium account 105
Revaluation reserve 360
General reserve 100

Page 8 of 12
Retained profit 134
Shareholders funds 999

LIABILITIES
Current liabilities
Bank 36
Payables 63
Ordinary dividend 20 119
Non‐Current liabilities
10% debentures 2011/2014 80
Total Liabilities 199
Total equity & liabilities 1198

Extract from Statement of Comprehensive income for the year ended 30 April 2012
$000 $000
Operating profit 119
Interest on debentures 10
109
Transfer to General Reserve 20
Ordinary dividends – paid 10
proposed 20 (50)
59
Pie Ltd
Statement of Cash Flow for the year ended 30 April 2012
$000 $000
OPERATING ACTIVITIES
Cash inflow from operating activities (see below) 226
Debenture interest paid (10)
Preference share dividend paid ( 3)
Equity dividends paid ( 25)
Cash flows before investing activities 188

Page 9 of 12
INVESTING ACTIVITIES
Payments to acquire tangible fixed assets;
Plant and machinery (250)
Motor vehicles (62)
Receipts from sale of tangible fixed assets (see below) 41
Net cash flows from investing activities 271
Cash flow before financing activities ( 83)

FINANCING ACTIVITIES
Issuing of ordinary share capital 100
Redemption of preference shares (115)
Redemption of debentures (40)
Net cashflow from financing activities ( 55)
Decrease in cash (138)

Reconciliation of operating profit with net cash inflow from operating activities
$000
Operating profit 119
Goodwill written off 30
Depreciation: plant and machinery 150
motor vehicles 50
Loss on sale of motor vehicle (see 1. below) 4
Profit on sale of plant and machinery (see 2. below) (15)
Increase in stock (40)
Increase in debtors (28)
Decrease in creditors (44)
Net cash inflow from operations 226

Further information relevant to the year ended 30 April 2012:

1. Motor vehicles which had cost $35 000 were sold for $6000.
2. Plant and machinery which had cost $90 000 was sold for $35 000.

Page 10 of 12
 3. The freehold premises were purchased on 1 May 2002 for $400 000. They had been

depreciated annually at the rate of 4% on cost.

4. $40 000 debentures had been redeemed at par on 31 October 2011 .
5. The company redeemed its 6% preference shares at a premium of $0.15 on 1 May
2011. The shares had been issued at $1.20. The redemption was financed by an issue
of 50 000 ordinary shares at $2.00 each.

REQUIRED
Prepare Pie Ltd’s Statement of Financial Position as at 30 April 2011.

QUESTION 4 [25 MARKS]

a) Define the following elements of financial statements

i. Contingent assets [3]
ii. Contingent Liabilities [3]
iii. Provision [3]
iv. Research costs [3]

b) State the recognition criteria for development costs as prescribed by IAS 38:
Intangible assets [5]
c) XYZ Pvt Ltd, a book seller, has announced a scheme which is open to any person who
buys any book from the shop. According to the scheme, no matter when any book is
purchased from XYZ Pvt Ltd, if the buyer returns the book, he will get a full refund of
the amount paid for the book.

Required:
Determine whether this is a contingent liability. [3]

d) ABC Pvt Ltd has to make a provision for warranty claims of $2,500 at the end of 2009
financial year. During the next year, 2010, ABC Pvt Ltd settles warranty claims worth

Page 11 of 12
 Required:
Set out the journal entries that it should make in respect of these transactions. [5]

THE END

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