1.   In times of rising prices, the LIFO method of inventory valuation is more prudent than the FIFO method.

2.   In order to prepare an income and expenditure account, a club will follow all the basic rules for preparing a profit and loss account.

3.   A foreman's salary is a direct cost with respect to the department's individual products.

4.   When factory has spare capacity, the fixed costs are relevant in respect to the additional order.

5.   In order to lower breakeven point in unit, business should increase its fixed costs.

6.   When the percentage of sales method is used, the estimated bad debt expenses should be adjusted by the existing balance of doubtful debt provision.

1.   Which one is not included in the financial statement footnote?
 

• a.changes in accounting estimates.
• b.accounting methods used in preparing the financial statement.
• c.contingent liabilities can not be, reasonably estimated.
• d.debtors which happened before the balance sheet date are collected between the balance sheet date and the issue of statement for that year.

2.   If a trade debtor of ＄20,000 has been wrongly posted to the credit of the trade creditor, but has been correctly entered in the buyer's account, the total of the trial balance would show ______.
 

• a.the credit side to be ＄20,000 more than the debit side
• b.the debit side to be ＄20,000 more than the credit side
• c.the credit side to be ＄40,000 mom than the debit side
• d.the debit side to be ＄40,000 more than the credit side

3.   A manufacturer has file following figure for the products:
                                      Product A    Product B    Product C    Product D
    Unit contribution                    ＄70          ＄40          ＄20        ＄50
    Units produced under constraints  1,000 units  1,200 units  2,000 units  1,250 units
      The opportunity cost which to produce product D instead of product C is ______.
 

• a.＄48,000
• b.＄40,000
• c.＄62,500
• d.＄22,500

4.   A manufacturer has the following figure for the product A
                                      Original Data          Increase Variable Cost to ＄15
    Unit selling                          30                              30
    Unit variable cost                    10                              15
    Fixed cost                          3,000                            3,000
    Budget selling units                  300                              300
      Margin of safety is ______.
   

• a.increase 50 units
• b.increase 100 units
• c.decrease 50 units
• d.decrease 100 units

5.   A business has the following figures for the year ended 31 December 2000
                                                            ＄
    Stock at beginning of period                          85,000
    Stock at the end of period                            90,000
    Purchases                                            300,000
    Purchases return                                      25,000
    Cost of goods sold is ______.
   

• a.＄295,000
• b.＄270,000
• c.＄305,000
• d.＄280,000

6.   Revenue Expenditure is the expenditure ______.
 

• a.relating to the acquisition of fixed assets
• b.relating to the issue of bond
• c.relating to converting a partnership into a limited company
• d.on wages of staff

7.   The accounting concept or convention, which, stock be reported at the lower of cost or market price, is the ______.
 

• a.going concern concept
• b.prudence concept
• c.realization concept
• d.historical cost concept

8.   Retained Earnings is most appropriately classified as ______.
 

• a.a fixed asset
• b.an intangible asset
• c.shareholder's equity
• d.a fictitious Iiability

9.   An asset that was acquired at a cost of ＄110,000 on 1 January Year 1, has an estimated scrap value of ＄10,000 and an estimated useful life of 4 years, the annual depreciation in Year 3 that is calculated using the sum-of-the-year's-digits is ______.
 

• a.＄40,000
• b.＄20,000
• c.＄10,000
• d.＄30,000

10.   When fixed assets are bought under a hire purchase agreement, the Him Purchase Interest Suspense is recorded in ______.
 

• a.fixed assets
• b.shareholder's equity
• c.intangible assets
• d.liabilities

1.  As at 31 December Year 8, Sam Ltd's cash book showed a debit balance of ＄1,055, although he had an overdraft of ＄3,511. The discrepancy is due to the following:
    —Bank interest of ＄10 had been included in the bank statement, but was not recorded in the cash book.
    —A cheque for ＄2,300 was banked on 28 December and correctly entered in the cash book. Unfortunately the customer had forgotten to sign the cheque and it was subsequently dishonored and returned by the bank on 31 December. The book-keeper recorded the return in the cash book on 3 January Year 9.
    —The bank had incorrectly deducted ＄907 from Sam's account for a cheque drawn by May.
    —A refund of ＄85 received from a supplier and banked on 2 October had been recorded in the cash book as a receipt of ＄58.
    —A cheque for ＄450 issued on 29 December as a refund to a customer had been recorded as a receipt in the cash book. It has not been presented for payment by 31 December.
    —The book-keeper had intended to desposit ＄2,750 in the bank on 31 December and therefore recorded it as a receipt in the cash book on that date. Due to a delay, the amount was not banked until 3 January Year 9.
    —An amount of ＄350 paid directly into the bank by a customer had not been recorded in the cash book.
    —The cash book receipts had been undercast by ＄800.
    Required:
    (a)Calculate the corrected cash book balance on 31 December Year 8.
    (b)Prepare a bank reconciliation statement for Sam showing the bank overdraft which appeared on his bank statement on that date.

1.  Sam Company Ltd. produces a range of products and absorbs production overhead using a rate of 168% on direct wages. The absorption rate was calculated from following budgeted figures:
                                                                                                ＄
    Direct wages                                                                            100,000
    Fixed production overhead                                                                90,000
    Variable production overhead                                                            78,000
    Sam is making component W, which is an essential part of product M. The cost of making component W is as follows:
                                                                                                ＄
    Raw material                                                                                10
    Direct wages                                                                                  8
    Production overhead                                                                          18
                                                                                                36
    It is found that component W could be bought from an outside supplier at ＄21. It is unlikely to reduce any production costs even if component W is acquired from outside.
    Required:
    (a)Determine the overhead absorption rate.
    (b)Advise whether the company should continue making component W or buy it from outside.

1.  (a)List 4 important features about budgetary control.
    (b)Sunny Ltd. has the following information for the year ended 31 December 2003:
                                                      Budgeted                    Actual
    Level of activity                                    75%                        80%
                                                            ＄                        ＄
    Costs: Direct materials                              75,000                    75,000
      Direct labour                                    225,000                  200,000
      Variable overhead                                  37,500                    43,000
    Total variable cost                                337,500                  318,000
    Fixed overhead                                      150,000                  170,000
                                                                         
    Required:
    Prepare a flexible budget for Sunny Ltd. for the year ended 31 December 2003.

1.  If a company had 120,000, 4% preference shares of ＄1 each and 250,000 ordinary shares of ＄ 1 each, then the dividends would be payable as follows:
                                                Year 1    Year 2    Year 3    Year 4    Year 5
                                                  ＄        ＄        ＄        ＄        ＄
    Total Profits appropriated for dividends    7,000      3,000      20,000    4,000      5,000
    Required:
    (a)If the preference shares are cumulative, non-participating, calculate the preference dividends and ordinary dividends in each year.
    (b)If the preference shares are cumulative, participating, calculate the preference dividends and ordinary dividends in each year.

1.  The assets and liabilities of the Music Club on 1 January 2002 were as follows:
                                                                                        ＄
    Clubhouse                                                                    1,375,000
    Music Equipment (Cost)                                                          300,000
    Music Equipment (Book Value)                                                    175,000
    Bank & Cash                                                                    533,500
    Bar Stock                                                                      145,500
    Bar Debtors                                                                      15,500
    Rates Prepaid                                                                    34,000
    Subscriptions-in Arrear                                                          5,500
    Subscriptions-in Advance                                                        23,500
    Bar Creditor                                                                    63,500
    Loan to Club                                                                    540,000
    Accruals-Electricity                                                            19,000
    Accruals- Miscellaneous Expenses                                                37,500
    Accruals-Loan Interest                                                          16,500
    Accruals-Rent of Music Ground                                                    11,000
    The receipts and payments account for the year ended 31 December 2001 shown below was prepared by the honorary treasurers.
    Receipts                                                  ＄                    ＄
    Bar Sales                                          2,015,000
    Telephone                                              2,000
    Hire of Music Facilities                              890,000
    Christmas Party                                        88,500
    Miscellaneous                                          43,000
    Subscriptions                                        170,000              3,208,500
    Payments
    Bar Purchases                                      1,468,500
    Loan Repayment                                        85,000
    Rent of Music Ground                                  49,000
    Rates                                                160,000
    Electricity                                          153,000
    Equipment Repairs                                      163,000
    Expenses of Christmas Party                            33,500
    Maintenance                                            66,500
    Wages                                                  70,000
    Telephone                                              6,500
    Bar Sundries                                          72,000
    Loan Interest                                          48,500
    Miscellaneous                                          81,500              2,457,000
    Increase in Bank                                                              751,500
    Bank Balance 1 January 2002                                                  533,500
    Bank Balance 31 December 2002                                             
    Additional Information:
    (1)Balances on 31 December 2002
                                                                                      ＄
    Bar Stock                                                                    197,000
    Bar Debtors                                                                    25,000
    Bar Creditors                                                                150,500
    Music Ground Rent Prepaid                                                      8,000
    Electricity Owing                                                              17,500
    Subscriptions-In Arrear                                                        9,500
    Subscriptions-in Advance                                                      30,000
    Rates Prepaid                                                                  38,000
    (2)Included in subscriptions in arrears on 31 December 2002 is  ＄2,500, which has been outstanding for 5 years, and the management committee wish to write off as a bad debt.
    (3)Depreciation is to be provided at the following rates:
    Clubhouse                5% by reducing balance method
    Music Equipment          5% by straight line method
    (4)Incorrectly included in repairs to equipment was ＄100,000 for the purchase of a full set of weight training equipment which was installed in the club house in January 2002, and which has an estimated life of 10 years.
    Required:
    Prepare the Club's Income and Expenditure Account for the year ended 31 December 2002.

1.  May Ltd. has the following information:
                                  Balance Sheet as at 31 December
                                                                Year 1      Year 2        Year 3
                                                                (＄ '000)  (＄ '000)    (＄ '000)
    Fixed Assets (net)                                            1,600      2,250        5,750
    Stock                                                        1,500      2,000        3,500
    Debtors                                                      3,025      5,000        6,250
    Bank                                                        2,000      1,250            -
                                                                  8,125      10,500      15,500
    Creditors                                                    2,000      2,500        3,100
    Taxation                                                        125        140          150
    Overdraft                                                        -            -        1,750
                                                                               
    Financed by
    ＄1 ordinary shares                                            500        500          500
    Reserves                                                      3,250      5,110        7,750
    Bank loan(6% above prime rate due 31/12/2009)                2,250      2,250        2,250
                                                                                 
    Market price per share                                        ＄25        ＄20        ＄16
    Profit and Loss Accounts for the year ended 31 December
                                                                  Year 3      Year 4      Year 5
                                                                (＄ '000)  (＄ '000)    (＄ '000)
    Sales (all credit sales)                                      24,000      25,000      26,500
    Cost of sales                                                15,000      17,500      19,000
    Gross profit                                                  9,000      7,500        7,500
    Salaries                                                      2,500      2,000        1,900
    Selling and delivery                                            4130        360          320
    Advertising                                                    1,100      1,200        1,300
    Other expense                                                  1,375        490          480
    Net profit before taxation                                                   
    Required:
    (a)Calculate the following ratios for Year 3, Year 4 and Year 5 (please show format):
      (i)Liquid ratio
      (ii)Current ratio
      (iii)Debtors collection period (days)
      (iv)Stock turnover
      (v)Capital turnover
      (vi)Return on assets employed
      (vii)Gross profit margin
      (viii)Earning per share
      (ix)Price/Earning ratio
    (b)Comment on the performance of the company over the three-year period using the ratios calculated above.

1.  The following ledger balances are extracted from the books of White Trading Company as at 31 December 2003:
                                                                              ＄
    Bad debts                                                                750
    Bank overdraft                                                          1,650
    Capital                                                              100,000
    Carriage inwards                                                        3,500
    Carriage outwards                                                      1,400
    Creditors                                                              18,500
    Debenture interest                                                        900
    Debtors                                                                12,500
    Discounts allowed                                                      1,300
    Discounts received                                                      1,500
    Drawings                                                              24,900
    Equipment (at cost)                                                  150,000
    Insurance                                                              1,000
    Lighting                                                                5,000
    Motor Van                                                              40,000
    Provision for bad debts                                                1,100
    Provision for depreciation
    —Equipment                                                            90,000
    —Motor Van                                                            18,000
    Purchases                                                          1,000,000
    Rent & rates                                                          110,000
    Salaries and wages                                                    210,000
    Sales                                                              1,400,000
    Stock 1 January 2003                                                  90,000
    Returns inwards                                                        13,000
    Returns outwards                                                      13,500
    9% 1998-2008 10-year Debenture                                        20,000
    Additional information relevant to the year ended 31 December 2003 is as follows:
    1. Closing stock at 31 December 2003                      ＄115,000
    2. Accrued wages                                            ＄20,000
    3. Prepaid insurance                                          ＄200
    4. Outstanding telephone bill                                  ＄200
    5. Outstanding rent                                        ＄10,000
    6. Removal expenses of ＄950 are still outstanding because of dispute and they have not yet been entered into the accounting records.
    7. The depreciation policy is:
  (a)Equipment reducing balance method at 5% p.a
  (b)Motor Van: 25% p.a on cost
    8. It is a policy to make a provision for bad debts at 4% of outstanding debtors on the balance sheet date.
    Required:
    Prepare the Trading and Profit and Loss Account for the year ended 31 December 2003.