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                   1
Final a/c’s of Sole Trader
                Solutions
2    Arnold
3    Brennan
4    Cullen
5    Darcy
6    Egan
7    Farrell
8    Grennan
  2        Graded Accounting Questions – Solutions



 2  Arnold Solution
(a)	Trading	Profit	and	loss	a/c	for	year	end	31/12/2012
                                                       €        €             €
   Sales                                                                  1,344,000
   Cost of Sales
     Opening stock                                              85,200
     1 Purchases                            (W)                780,750
     2 Closing Stock                        (W)                (94,500)    771,450
     Gross Profit                                                          572,550
   2	Administration Expenses
     Salaries                                        243,600
     Insurance                              (W)       17,550
     Patents Written off                              21,000
     Depreciation of Building               (W)       19,050   301,200
   Selling and Distribution Expenses
     Advertising                                       6,900
     Depreciation of Vehicle                (W)       45,000
     Bad Debts Provision                    (W)        1,268    53,168    (354,368)
   1	Other Operating income
     Profit on Disposal                     (W)                  9,000
     Discount Received                                           9,900
     Rent Received                                              13,500      32,400
     Operating of profit                                                   250,582
     2 Mortgage interest                    (W)                            (33,300)
     1 Investment Interest                  (W)                             14,400
     Net Profit                                                            231,682
                                                          Topic 1    Final a/c’s of Sole Trader Solutions       3


(b)	Balance	Sheet	as	at	31/12/2012
    Intangible Fixed               Patents                                                             84,000
    Tangible Fixed                 Land & Buildings                 1,425,00                       1,425,000
                                   Vehicles                 (W)      225,000         73,500           151,500
    Financial Fixed                8% Investments                                                     270,000
                                                                                                   1,930,500
    Current Assets
      Closing Stock                                                                  94,500
      Debtors                                                        130,350
      Provision for BIOS                                    (W)       (6,518)      123,832
      Investment Interest Due                               (W)                      7,200
      VAT                                                   (W)                      6,000
                                                                                   231,532
    Crs. Falling Due for less than 1 year
      Creditors                                                       98,250
      Mortgage Interest                                     (W)       27,000
      P.R.S.I                                                          6,750
      Bank                                                            24,600       (156,600)        74,932
      Total net Assets                                                                           2,005,432
    Financed by Creditors Falling Due
    for More than 1 Year
      6% Mortgage
    Capital & Reserves                                                              600,000
      Capital                                                        703,500
      1 Net Profit                                                   231,682
      2 Drawings                                                     (82,200)
      1 Revaluation Reserve                                 (W)      551,550      1,405,432
      Total Capital employed                                                      2,005,432

Notes	to	Accounts
    Stock                          101,250    2     6,750                    5     94,500
    Patents                         97,800    1     7,200         2  21,000 5      84,000
    Income                           7,200    1     7,200                    5     14,400
    Vehicles                       225,000    1    90,000         2  90,000 5     225,000
    Depc this year.                   6000    1    12,000         1  27,000 5      45,000
    Acc. Depreciation               97,500    1    45,000         2  69,000 5      73,500
    Disposal                        90,000    2    69,000         2  30,000 5 9,000	profit
    Purs.                          840,750    2    60,000                    5    780,750
    Mortgage Interest                6,750    2       450         1  27,000 5      33,300
    Insurance                       15,900    1       450         1  1,200 5       17,550
    Debtors                        131,550    2     1,200                    5    130,350
    Buildings                      975,000    2    22,500         1  472,500 5 1,425,000
    Acc. Depc.                      60,000    2    19,050         2  79,050 5          Nil
    VAT (Cr.)                       16,500    2            
                                                   22,500 (Dr.)              5 6,000	(Dr.)
    Revaluation Reserve            472,500    1    79,050                    5    551,550
    Bad Debts. Provision             5,250    2     6,518                    5      1,268
 
  4      Graded Accounting Questions – Solutions



 3  BrennAn Solution
(a)	Trading,	Profit	and	Loss	Account	for	year	end	31/12/2012
                                                              €            €
   Sales                                                                721,000
   Less Cost of Sales
     Stock 1/1/12                                        26,900
     1 Purchases                         (W)            488,400
                                                        515,300
     Stock 31/12/12                      (W)            (27,500)       (487,800)
     Gross Profit                                                       233,200
   Less Expenses Administration
     Salaries and general expenses                          54,200
     Patents written off                 (W)                12,000
     Insurance                           (W)                12,000
     Depreciation - Buildings            (W)                 8,100
                                                            86,300
   Selling 1 Distribution
     Advertising                                            12,800
     Depreciation Delivery vans          (W)                20,350
                                                            33,150     (119,450)
                                                                        113,750
       Disposal Profit                                       2,400
       Provision for Bad Debts           (W)                   112
       Commission Received                                  12,000
       Discount                          (W)                 5,400       19,912
       Operating Profit                                                 133,662
       Investment Income                                                  7,200
                                                                        140,862
     Mortgage Interest                   (W)                             (6,450)
     Net Profit for year                                                134,412


(b)	Balance	Sheet	of	as	at	31/12/2012
                                                      €               €              €
                                                     Cost            Dep.           NBV
   Tangible Fixed Assets
     Buildings                          (W)        510,000               —         510,000
     Delivery Vans                      (W)        118,000           35,350         82,650
                                                                                   592,650
   Intangible Fixed Assets
     Patents                                                                        48,000

   Financial Assets
     Investments                                                                   120,000
                                                                                   760,650
   Current Assets
     Stocks 31/12/2012                                               27,500
     VAT                                (W)                          11,800
     Investment Income due              (W)                           4,000
     Debtors                                        32,200
     Less Provision                                 (1,288)          30,912
                                                                     74,212
                                                  Topic 1   Final a/c’s of Sole Trader Solutions       5


    Creditors: amount falling due within 1 year
      Creditors                                             35,400
      Mortgage Interest due                                  4,650
      P.R.S.I                                                2,500
      Bank                                                  36,900        (79,450)            (5,238)
                                                                                             755,412
    Financed by:
    Creditors: amounts falling due after 1 year
      6% Fixed Mortgage                                                                      120,000
    Capital and Reserves
      Capital 1/1/2012                                                    370,000
      Add Net Profit                                                      134,412
      Less Drawings                                                       504,412
                                                                          (22,100)
    1 Revaluation Reserve                         (W)                     153,100            635,412

    Capital Employed                                                                         755,412

Notes	to	Accounts
    C/S                   29,800  2  2,500                   5     27,500
    Veh.                 112,000  2  33,000       1  39,000 5     118,000
    Dept this yr.            Nil  1  4,550        1  15,800 5      20,350
    Acc. Depc.            48,000  1  20,350       2  33,000 5      35,350
    Disposal              33,000  2  33,000       2  2,400 5        2,400 Profit
    Purs.                525,000  2  36,600                  5    488,400
    Patents               56,800  1  3,200        2  12,000 5      48,000
    In. Income             3,200  1  4,000                   5      7,200
    Mortgage Interest      2,200  2     400       1  4,650 5        6,450
    Insurance             11,400  1     400       1      200 5     12,000
    Discount (Net)         5,200  1     200                  5      5,400 Cr.
    Buildings            420,000  2  15,000       1  105,000 5    510,000
    Acc. Depc.            40,000  1  8,100        2  48,100 5         Nil
    VAT (Cr.)              3,200  2  15,000 DR.
                                                             5     11,800 DR.
    Reval. Res.          105,000  1  48,100                  5    153,100
    B/D’s Provision        1,400  2  1,288                   5        112 Over/1

(c)	Why	do	sole	traders	prepare	final	accounts?
    •    For Revenue Purposes
    •    Applications for bank loan or mortgage
    •    Comparison with Proposal years
    •    Comparison with Rivat Firns
    •    For Planning & Budgeting Purposes
    •    As a Form of analysis
  6       Graded Accounting Questions – Solutions



 4  Cullen Solution
(a)	Trading,	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                         Notes         €          €                €
   Sales                                                                        988,000
   Less cost of Sales
   Stock 1/1/12                                                56,400
   Purchases                             (W)                  601,680
                                                              658,080
   Stock 31/12/12                        (W)                  (63,100)          594,980
   Gross Profit                                                                 393,020
   Administration Expenses
   Salaries and General Expenses                     82,600
   Insurance                             (W)         19,720
   Depreciation on Buildings             (W)         10,800
   Patents written of                    (W)         16,000 129,120
   Selling and Distribution Expenses
   Increase in prov. for bad debts       (W)            500
   Depreciation on delivery vans         (W)         29,100
   Loss on disposal of delivery van      (W)          1,500     31,100          160,220
                                                                                232,800
   1 Bad Dept. Recoverable                                         900
   Discount received                                             3,200
   Commission received                                           4,800
   Rent received                                                 8,400          17,300
   Operating Profit                                                            250,100
     I
   1   nvestment Income                  (W)                                     6,000
                                                                               256,100
   Less Mortgage interest                (W)                                   (12,960)
   Net Profit                                                                  243,140

(b)	Balance	Sheet	as	at	31/12/2012
                                 Notes      Cost     Acc.	Dep.           Net	Value
                                             €           €                   €             €
      Fixed Assets
      Intangible Patents                                                                   64,000
      Tangible Buildings         (W)       760,000         —              760,000
      Delivery Vans              (W)       204,000     66,600             137,400
                                           964,000     66,600             897,400         897,400
      Investments                                                                         200,000
      4.5% Investments
                                                                                      1,161,400
      Current Assets
      Stock 31/12/12                                                       63,100
      Debtors                                          50,500
      Less Prov. for bad debts   (W)                   (2,500)             48,000
      Investment Interest due    (W)                                        3,000
                                                                          114,100
                                                       Topic 1   Final a/c’s of Sole Trader Solutions             7


    Less:	Creditors	amounts	due	within	1	year
    Creditors                                                      86,400
    Bank overdraft                                                 36,500
    VAT                       (W)                                   2,400
    PRSI                                                            6,400
    Mortgage Interest due     (W)                                  11,400          (143,100)
    Net Current Assets                                                                                29,000
    Net Assets                                                                                     1,132,400
    Financed by
    Creditors: amounts due after 1 year
    6% and 4% Fixed Mortgage                                                                         280,000
    Capital                                                                        380,000
    Add Net Profit                                                                 243,110
    Less Drawings             (W)                                                   (31,540)         591,600
    Revaluation Reserve       (W)                                                                    260,800
    Capital Employed                                                                               1,132,400

Notes	to	Accounts
    Stock                     67,400    2     4,300                        5      63,100
    Vehicles                 180,000    2    36,000    1  60,000           5     204,000
    Depc. this Yr/Vehs.        2,250    1     5,250    1  21,600           5      29,100
    Acc. Depc.                60,000    1    29,100    2  22,500           5      66,600
    Disposal                  36,000    2    22,500    2  12,000           5      (1,500)
    Purchases                649,680    2    48,000                        5     601,680
    Insurance                 18,820    1       500    1     400           5      19,720
    Mortgage Interest*         3,500    2       500    1  11,400  2  1,440 5      12,960
    Debtors                   50,400    2       400    1     500           5      50,500
    Patents                   77,000    1     3,000    2  16,000           5      64,000
    Investments Interest       3,000    1     3,000                        5        6,000
    Buildings                590,000    2    10,000    1 180,000           5     760,000
    VAT                       12,400    2    10,000                        5        2,400
    Acc. Depc. Blgs.*         70,000    1    10,800    2  80,800           5           Nil
    Revaluation Reserve      180,000    1    80,800                        5     260,800
    Bad Debts Provision        2,000    1       500                        5        2,500
    Drawings                  30,100    1     1,440                        5       31,540
    Bank o/d                  36,900    2       400                        5       36,500
    Bad Dept Recoverable                                                   5          900

    *Blgs. Dept. 500,000 @ 2% full year                                      5     10,000
                  80,000 @ 2% 1/2 yr.                                                 800
                                                                                   10,800
    *Mortgage 6% 200,000 1 yr.                                                     12,000
                
               4% 80,000 3/4                                                        2,400
                                                                                   14,400

    E
(c)		 xplain	what	is	meant	by	‘Patents’	and	why	it	is	customary	to	write	them	off	over	a	
    number	of	years.
    P
      atents are a copyright or ownership of a trade mark, name, invention, procedure etc that you have 
    discovered & wish to hold exclusive rights to. It is an intangible fixed Asset of a business & is usually written 
    off as they are a “Transient asset”. They are subject to decreases in their value due to new processes being 
    developed which would make yours obsolete & of less value.
  8       Graded Accounting Questions – Solutions



 5  dArCy Solution
(a)	Trading,	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                 €            €               €
Sales                                                                      774,000
Less Cost of sales
  Stock 1/1/2012                                            47,600
  Add Purchases                          (W)               441,000
                                                           488,600

  Less Stock 31/12/2012                  (W)               (55,400)        (433,200)
Gross profit                                                                340,800
Less Expenses
Administration
  Salaries and general expenses                81,100
  Patents written off                    (W)   11,300
  Insurance                              (W)    8,500
  Depreciation – buildings               (W)   13,665      114,565
Selling	and	Distribution
  Commission                                   20,000
  Depreciation – delivery vans           (W)   13,950       33,950         (148,515)
Add Operating	income                                                        192,285
  Profit on sale of delivery van         (W)                                    200
  Reduction in provision for bad debts   (W)                                    384
  Rent                                                                        8,800
  Discount                                                                    3,100
Operating profit                                                            204,769
Investment income                                                            10,500
Mortgage interest                        (W)                                (12,825)
Net profit for year                                                         202,444


(b)	Balance	Sheet	as	at	31	December	2012
                                                 	          Accumulated	          	           	
                                                Cost        Depreciation         Net        Total
                                                 €               €                €           €
      Intangible	Fixed	Assets
        Patents (€56,500 2 €11,300)                                                          45,200
      Tangible	Fixed	Assets
        Buildings                        (W)   1,200,000                       1,200,000
        Delivery vans                             94,000       39,750             54,250
                                               1,294,000       39,750          1,254,250   1,254,250
      Financial	Assets
        12% Investments                                                                      150,000
                                                                                           1,449,450
                                                     Topic 1    Final a/c’s of Sole Trader Solutions             9


    Current	assets
      Stock                                                                                   55,400
      Investment income due                                                                    4,500
      Debtors                                                             45,400              43,584
      Less provision                                                        1,816
      Insurance Co.                                                                           35,000
    Creditors:	amounts	falling	due	within	1	year                                             138,484
      Creditors                       (W)                                 74,400
      Mortgage interest due                                               13,500
      VAT                                                                   6,700
      PRSI                                                                  1,800
      Bank                                                                74,900            (171,300)       (32,816)
                                                                                                          1,416,634
    Financed by Creditors falling due 
    after more than one year
      9% Fixed mortgage                                                                                      200,000
    Capital	and	reserves
      Capital 1/1/2012                                                                       350,000
      Add Net profit                                                                         202,444
      Less Drawings                                                                          (37,475)
      Revaluation Reserve                  (W)                                               701,665      1,216,634
    Capital employed                                                                                      1,416,634

Notes	to	Accounts
    Closing Stock               46,900  2  1,500  1  10,000                                             5 55,400
    Vehicles                    90,000  2  16,000  1  20,000                                            5 94,000
    Acc. Depc.                  35,000  1  13,950  2  9,200                                             5 39,750
    Depc. this yr.                 600  1  2,250  1  11,100                                             5 13,950
    Disposal                    16,000  2  9,200  2  7,000                                              5       200
    Purchases                  495,000  1  10,000  2	 15,000  2	 32,000  2	13,000 2	4,000               5 441,000
    Patents                     50,500  1  6,000  2  11,300                                             5 45,200
    Investment interest          6,000  1  4,500                                                        5 10,500
    Mortgage interest.           4,500  2	    900  1  13,500  5  17,100  2  4,275                       5 12,825
    Insurance                    7,200  1     900  1     400                                            5     8,500
    Disc: Rec.                   2,700  1     400                                                       5     3,100
    Salaries, general expenses  96,100  2  15,000                                                       5 81,100
    Acc. Depc.                 171,250  1  13,665  2 184,915                                            5        nil
    Insurance Co                                                                                        5 35,000
    B\D. Provision               2,200  2  1,816                                                        5       384
    Crs.                        64,400  1  10,000                                                       5 74,400
    Drawings                    29,200  1  4,275  1  4,000                                              5 37,475
    Revaluation Res,           516,750  1 184,915                                                       5 701,665
    Buildings                  656,250  2  20,000  1  15,000  1	 32,000  1	516,750                      5 1,200,000

(c)	What	is	a	suspense	account	and	why	is	it	created?
    A
       Suspense a/c is used when you make a mistake in the accounts that prevents the Trial Balance from 
    balancing. This difference is left in the Suspense a/c until these errors are discovered. Errors are corrected 
    through the Suspense a/c.
 10     Graded Accounting Questions – Solutions



 6  egAn Solution
(a)	Trading	and	Profit	and	loss	Account	for	year	ending	31/12/2012
                                                      €          €                €
   Sales                                                                       980,000
   Less Cost of sales
     Stock 1/1/2012                                            65,700
     Add Purchases                          (W)               629,600
     Less Stock 31/12/2012                  (W)               (78,100)         617,200
   Gross Profit                                                                362,800
   Less	Expenses
   Administration
     Patent written off                     (W)    12,600
     Salaries and General expenses          (W)   193,700
     Insurance                              (W)    13,800
     Depreciation – Buildings               (W)    17,500     237,600
   Selling	and	Distribution
   Advertising                                      14,000
     Loss on sale of van                    (W)      6,875
     Depreciation –	Delivery Vans           (W)     20,100     40,975          (278,575)
                                                                                 84,225
   Add. Bad Debt Recovered                                                        1,200
     Discount                               (W)                                   4,300
     Royalties                                                                   12,000
     Reduction in Provision for bad debts   (W)                                   1,605
   Operating Profit                         (W)                                 103,330
   Investment Income                        (W)                                   5,600
   Less Mortgage Interest                   (W)                                 (11,000)
   New	Profit	for	year                      (W)                                  97,930

(b)	Balance	sheet	as	at	31/12/2012
                                                     	         Accumulated	            	           	
                                                    Cost       Depreciation           Net        Total
                                                     €              €                  €          €
   Intangible	Fixed	assets
     Patents (63,000 2 12,600)                                                                    50,400
   Tangible	Fixed	Assets
     Buildings                              (W)   1,200,000                         1,200,000
     Delivery Vans                          (W)     136,000          76,475            59,525
                                                  1,336,000          76,475         1,259,525   1,259,525
   Financial	Assets
     6% Investments                                                                               160,000
                                                                                                1,469,925
   Current	Assets
     Stock                                                                             78,100
     Debtors                                                         77,200
     Less provision                                                  (2,295)           74,905
     VAT                                    (W)                                        20,700
     Investment Income due                                                              3,200
                                                                                      176,905
                                                     Topic 1   Final a/c’s of Sole Trader Solutions     11


    Creditors:	amounts	falling	due	within	one	year
      Creditors                            (W)                                92,700
      Bank                                                                    60,300
      PRSI                                                                     2,500
      Mortgage interest due                                                   11,250 166,750          10,155
                                                                                                   1,480,080
    Financed	by	Creditors:	amounts	
    falling	due	after	more	than	one	year
      5% Fixed mortgage                                                                               300,000
    Capital	and	reserves
      Capital 1/1/2012                                                                735,000
      Add Net Profit                                                                   97,930
      Less Drawings                                                                   (40,350)
      Revaluation Reserve                      (W)                                    387,500      1,180,080
    Capital	employed                                                                               1,480,080

Notes	to	Accounts
    Closing stock              72,500    1  5,600                                  5     78,100
    Purchases                 650,000    1  5,600  1  1,600  2  26,000  2  1,600 5  629,600
    Crs.                       85,500    1  5,600  1  1,600                        5     92,700
    Veh.                      130,000    2  35,000  1  41,000                      5 136,000
    Depreciation this year     14,250    1  1,750  1  4,100                        5     20,100
    Acc. Depc.                 69,500    1  20,100  2  13,125                      5     76,475
    Disposal                   35,000    2  15,000  2  13,125                      5     (6,875)
    Mortgage interest           3,000    2     500  1  11,250  5	 13,750  2  2,750 5     11,000
    Salaries                  192,500    1     500  1      700                     5  193,700
    Discount(Cr.)               3,600    1     700                                 5       4,300
    Drawings                   36,000    1  2,750  1  1,600                        5     40,350
    B.D. Recov.,                1,200                                              5       1,200
    Debtors                    76,500    1     700                                 5     77,200
    Bank. O/D.                 60,800    2     500                                 5     60,300
    Provision                   3,900    2  2,295                                  5       1,605
    Patents                    60,600    1  2,400  2  12,600                       5     50,400
    Investment interest         2,400    1  3,200                                  5       5,600
    Buildings                 900,000    2  25,000  1  325,000                     5  1,200,000
    Acc. depc.                 45,000    1  17,500  2  62,500                      5          nil
    Rev. Res.                 325,000    1  62,500                                 5  387,500
    Vat (CR)                    4,300    2  25,000                                 5     20,700 (DR)

(c)	Calculate	the	period	of	Credit	to	debtors	and	assess	the	result.
      redit to DRS 5 CR Sales/Debtors 5 980,000/77,200 5 12.69 Times
    C
     
    Debtors are settling their accounts with the month which is within the recommended collection period so 
    Egan has no problem with debtors collection.
 12     Graded Accounting Questions – Solutions



 7  FArrell Solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
   Sales                                                                          364,500
   Less Cost of Sales
     Stock                                                            32,800
     Purchases                                      (W)              244,400
   Less Closing Stock                               (W)              (39,900)     237,300
   Gross Profit                                                                   127,200
   Administration
   Patents written off                              (W)      5,500
   General administration expenses                          42,500
   Discount                                                    850
   Directors fees                                            4,500
   Insurance                                        (W)      3,050
   Depreciation of Buildings                                 5,800     62,200
   Selling	and	Distribution
   Adverting                                                 2,100
   Depreciation of Delivery Vans                    (W)      6,713
   Loss on disposal of van                          (W)      4,375     13,188     (75,388)
                                                                                   51,812
   Add Operating Income
   Bad Debt recovered                                                                 500
   Operating Profit                                                                52,312
   Add Investment income                                                            3,900
   Less Mortgage Interest                           (W)                            (3,300)
   Net	Profit                                       (W)                            52,912

(b)	Balance	Sheet	as	at	31/12/2012
                                                              Cost       Depc.       Value
   Intangible	Fixed	Assets                                     €          €            €
   Goodwill                                           (W)                            22,000
   Tangible	Fixed
   Buildings                                          (W)    400,000                400,000
   Delivery Vehicles                                  (W)     45,500      7,088      38,412
   Financial	Assets
   8% Investments                                                                    65,000
                                                                                    525,412
   Current	Assets
   Stock                                              (W)     39,900
   Debtors (20,200 less Provision 600)                (W)     19,600
   Investment Interest due                                     2,600     62,100
   Creditors:	Amounts	falling	due	within	one	year
   Creditors                                          (W)     59,300
   Bank                                               (W)      7,650
   VAT                                                         2,050
   PRSI                                                        1,950
   Mortgage interest due                              (W)      3,375     74,325     (12,225)
   Total Net Assets                                                                 513,187
                                            Topic 1   Final a/c’s of Sole Trader Solutions       13


   Financed	By:		
   Creditors:	Amounts	falling	due	for	more	than	one	year
   6% Mortgage                                                                          75,000
   Capital	and	Reserves
   Capital                                                                242,500
   Add Net Profit                                                           52,912
   Less Drawings                                                          (20,525)     274,887
   Revaluation Reserve                                   (W)                           163,300
   Total Capital Employed                                                              513,187

(c)	Notes	to	Accounts
   Purchases                             256,200 1  2,400  2  13,000 1  400  2 1,600   5   244,400
   Closing Stock                          37,500 1  2,400                              5    39,900
   Patents                                26,200 1  1,300  2  5,500                    5    22,000
   Discount                                  950 2     100                             5        850
   Delivery Vans                          42,500 1  18,000  2  15,000                  5    45,500
   Insurance                               3,075 2     125  1  100                     5      3,050
   Depreciation of Vans this year            563 1  2,025  1  4,125                    5      6,713
   Accumulated Depreciation of Vans        6,000 1  6,713  2  5,625                    5      7,088
   Disposal of Vehicles                   15,000 2  5,625  2  5,000                    5    (4,375)
   Investment Income                       1,300 1  2,600                              5      3,900
   Mortgage Interest                         625 1     125  1  3,375 2  825            5      3,300
   Buildings                             290,000 1 110,000                             5   400,000
   Accumulated Depreciation of Buildings  47,500 1  5,800  2  53,300                   5         Nil
   Revaluation Reserve                   110,000 1  53,300                             5   163,300
   Debtors                                20,000 1     200                             5    20,200
   Creditors                              56,500 1  2,400  1	 400                      5    59,300
   Bank                                    7,950 2     300                             5      7,650
   Drawings                               18,100 1     825  1  1,600                   5    20,525
 14     Graded Accounting Questions – Solutions



 8  grennAn Solution
(a)	Trading	Profit	Loss	Account	for	year	ending	31/12/2012
   Sales                                                                    874,800
   Less Cost Sales
     Stock                                                     78,720
     Purchases                                                584,480
   Less Closing Stock                                         (95,760)      567,440
   Gross Profit                                                             307,360
   Less Expenses
   Administration
   Patents written of                              13,200
   Salaries and General                           102,000
   Discount                                         2,040
   Rent                                            10,800
   Insurance                                        7,320
   Depreciation of Buildings                       13,920
   Loss on stolen goods                               400     149,680
   Selling	and	Distribution
   Advertising                                        630
   Depreciation of Delivery Vans                   16,110
   Loss on disposal of van                         10,500      27,240     (176,920)
                                                                           130,440
   Add Operating Income
   Bad Debt recovered                                                         1,200
   Operating Profit                                                         131,640
   Add Investment income                                                      9,360
   Less Mortgage Interest                                                    (7,920)
   Net	Profit                                                               133,080

(b)	Balance	Sheet	as	at	31/12/2012
                                                       Cost       Depc.         Value
   Intangible	Fixed	Assets                              €          €              €
   Patents                                                                       52,800
   Tangible	Fixed
   Buildings                                          960,000                   960,000
   Delivery Vehicles                                  109,200      17,010        92,190
   Financial	Assets
   8% Investments                                                               156,000
                                                                              1,260,990
   Current	Assets
   Stock                                               95,760
   Debtors (48,480 less Provisionl, 440)               47,040
   Investment Interest due                              6,240
   Advertising prepaid                                  4,410
   Insurance claim due                                  3,600     157,050
                                              Topic 1      Final a/c’s of Sole Trader Solutions      15


   Creditors:	Amounts	falling	due	within	one	year
   Creditors                                                  142,320
   Bank                                                        18,360
   VAT                                                          4,920
   PRSI                                                         4,680
   Mortgage interest due                                        8,100    178,380    (21,230)
   Total Net Assets                                                                1,239,660
   Financed	By:		
   Creditors:	Amounts	falling	due	for	more	than	one	year
   6% Mortgage                                                                       180,000
   Capital	and	Reserves
   Capital                                                              582,000
   Add Net Profit                                                       133,080
   Less Drawings                                                        (47,340)     667,740
   Revaluation Reserve                                                               391,920
   Total Capital Employed                                                          1,239,660

(c)	Notes	to	Accounts
   Purchases                           614,880 1	 5,760 2	 31,200 1  960 2 1,920 2 4,000
                                                                                            5 584,480
   Closing Stock                        90,000 1	 5,760                                     5 95,760
   Patents                              62,880 1	 3,120 2  13,200                           5 52,800
   Discount                              2,280 2     240                                    5 2,040
   Delivery Vans                       102,000 1  43,200 2  36,000                          5 109,200
   Insurance                             7,380 2     300 1     240                          5 7,320
   Depreciation of Vans this year        1,350 1  4,860 1  9,900                            5 16,110
   Accumulated Depreciation of Vans     14,400 1  16,110 2  13,500                          5 17,010
   Disposal of Vehicles                 36,000 2  13,500 2  12,000                          5 (10,500)
   Investment Income                     3,120 1  6,240                                     5 9,360
   Mortgage Interest                     1,500 1     300 1  8,100 2  ,980
                                                                   1                        5 7,920
   Buildings                           696,000 1 264,000                                    5 960,000
   Accumulated Depreciation                               1
                                       114,000 1  13,920 2  27,920                          5      Nil
     of Buildings 
   Revaluation Reserve                 264,000 1 127,920                                    5     391,920
   Debtors                              48,000 1     480                                    5      48,480
   Creditors                           135,600 1  5,760 1    960                            5     142,320
   Bank                                 19,080 2     720                                    5      18,360
   Drawings                             43,440 1  1,980 1  1,920                            5      47,340
   Advertising                           5,040 2  4,410                                     5         630
   Ins. Co. Claim                                                                           5       3,600
                       Topic


                        2
       Final a/c’s of Company
                      Solutions
  2    Abacus
  3    Bliary
  4    Capri
  5    Duncan
  6    Echo
  7    Festina
  8    Conolo
  9    Prudence
10     Morgan
11     Gambert
                                           Topic 2  Final a/c’s of Company Solutions       17



 2  AbAcus solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
   Sales                                                                          824,000
   Less Cost of Sales
     Stock 1/1/2012                                 42,500
     Add Purchases                       (W)       600,800
                                                   643,300
     Less Stock 31/12/12                 (W)       (34,700)                      (608,600)
   Gross Profit                                                                   215,400
   Less Expenses
   Administration
     Administration                                 28,200
     Salaries & Gen. Exp                 (W)        95,480
     Patents written off                 (W)        10,250
     Dep.: Land & Build.                 (W)        10,400         144,300
   Selling	and	Distribution
     Selling                                        14,100
     Dep.: Motor Vehicle                 (W)        28,200
     Loss on Sale of Vehicle             (W)         2,100          44,400       (188,730)
                                                                                   26,670
   Add Operating Income
     Reduction in Bad Debt Prov.         (W)                                        1,300
   Operating Profit                                                                27,970
     Investment Income                   (W)                                        7,200
     Debenture Interest                  (W)                                      (10,000)
   Net Profit for year before taxation                                             25,170
   Less Appropriations
     Dividends Paid                                                 20,900
     Transfer To Reserve                                            10,000
                                                                                  (30,900)
   Retained Profit (Loss)                                                          (5,730)
   Profit and Loss balance 1/1/12                                                   1,800
   Profit and Loss balance 31/12/12                                                (3,930)

(b)	Balance	Sheet	as	at	31/12/2012
                                                    Cost            Dep.           NBV
   Tangible Fixed Assets
     Land and Buildings                            800,000           –            800,000
     Motor Vehicles                      (W)       144,000       44,300 (3)        99,700
                                                   944,000         44,300         899,700
   Intangible Fixed Assets
     Patents                             (W)                                           30,750
   Financial Assets
     9% Investment                                                                 120,000
                                                                                 1,050,450
  18     Graded Accounting Questions – Solutions


    Current Assets
      Stock 31/12/2012                           (W)                              34,700
      Debtors                                                 38,000
      Less Provision                             (W)          (1,900)             36,100
      Invest Income due                          (W)                               2,000
                                                                                  72,800
    Creditors: amounts falling due within 1 year
      VAT                                                     18,200
      Creditors                                  (W)          41,350
      Bank                                       (W)          14,630
      Debenture Int. due                         (W)           7,600
                                                                                 (81,780)           (8,980)
                                                                                                 1,041,470
    Financed by: Creditors: amount falling due
    after 1 year
       8% Debentures                                                                              150,000
    Capital and Reserves                                     Auth’d              Issued
       Ord. Shares @ €1 each                                500,000              370,000
       6% Pref. Share @ €1 each                             280,000              180,000
                                                            780,000              550,000
       Revaluation Reserve                       (W)                             335,400
       Profit & Loss a/c balance                                                   (3,930)
       General Reserve                                                             10,000          891,470
                                                                                                 1,041,470

Notes	to	Accounts
                     Closing stock           36,400    2   1,700                             5        34,700
                     Patents                 38,300    1   2,700 2      10,250               5        30,750
                     Investment interest      2,700    1   2,500 1       2,000               5         7,200
                     Vehicles               135,000    2  24,000 1      33,000               5       144,000
                     Depc. this yr.           1,600    1   4,400 1      22,200               5        28,200
                     Acc. Depc.              28,500    1 28,200 2       12,400               5        44,300
                     Disposal                24,000    2 12,400 2        9,500               5   (2,100)	loss
                     Purchases              624,300    2 23,500                              5       600,800
                     Bank O/D.               16,200    2   2,500 1        480 1 450          5   14,630	O/D
                     Creditors               41,800    2     450                             5        41,350
                     Salaries & Gen. Exps    95,000    1     480                             5        95,480
                     land & Blgs.           520,000    1 280,000                             5       800,000
                     Acc. Depc.              45,000    1 10,400 2       55,400               5            nil
                     Reval. Reserve         280,000    1 55,400                              5       335,400
                     Deb. Interest            2,400    1   7,600                             5        10,000
                     Prov. for B/D’s          3,200    2   1,900                             5     1,300 over
                     Prel. Div. (8%)          3,600    1 10,800                              5        14,400
                     Ord. Dividend            7,300    1 18,600                              5        25,900
                                                                                             5
    Debenture
      Interest   }   1. 60,000 3 8% 3 7m
                     2. 90,000 3 8% 3 12m
                                                       5
                                                       5
                                                            2,800
                                                            7,200
                                                                                             5        10,000

Note: As customers adjusted bank figure of €14,630 does not equal the bank statement of €10,130 after the
unpresented cheque of €4,200 is added, it is to be assumed that the difference of €4,500 between the two
figures is due to errors not yet identified by the bank.
                                                 Topic 2  Final a/c’s of Company Solutions     19



 3  bliAry ltd. solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
   Sales                                                                      896,000
   Cost of Sales
   Opening stock                                                 38,000
   Purchases                             W                      569,000
                                                                607,000
   Closing Stock                         W                      (37,300)      (569,700)
   Gross Profit                                                                326,300
   Selling	and	Distribution
   Deprec. on vans                       W         33,800
   Advertising                           W          7,400
   Bad Debts                             W            400
   Provision for Bad Debts               W            218        41,818
   Administration
   Salaries                                       130,000
   Fees                                            20,000
   Insurance                                       15,000
   Goodwill written off                  W          8,500       173,500       (215,318)
   1 Operating	Income
   Discount Received                                              3,000
   Profit on van                         W                        3,000         6,000
   Operating Profit                                                           116,982
   Investment Income                     W                                     13,500
   Debenture Interest                    W                                    (13,200)
   Net Profit                                                                 117,282
     Dividends Paid                                                           (32,000)
   Retained Profit                                                             85,282
            1 Profit and loss 1/1/12                                           22,700
            5 Profit and loss 31/12/12                                        107,982

(b)	Balance	Sheet	as	at	31/12/2012
   Fixed	Assets                                        Cost         Depre.        Net         Total
   Goodwill                                                                                    8,500
   Buildings                                          420,000                   420,000
   Vans                                               174,000        90,800      83,200
                                                      594,000        90,800     503,200      503,200
   Investments                                                                               150,000
                                                                                             661,700
   Current	Assets
   Stock                                                                          37,300
   Debtors, (30,300 – Prov 1,818)            w                                    28,482
   Investment Income Due                                                           2,250
                                                                                  68,032
 20      Graded Accounting Questions – Solutions


   Creditors	amounts	falling	due	less		
   than	one	year
   Creditors                                      w                         40,910
   Interest due                                                             10,800
   Bank                                           w                         10,040   (61,750)       6,282
   Financed	by:                                                                                   667,982
                                                                            Auth.     Issued
   Ordinary Shares                                                         550,000   280,000
   Preference Shares                                                       250,000   100,000
                                                                           800,000   380,000
   Retained Profits                                                                  107,982      487,982
     Crs.	Falling	Due	for	more	
   	 than	1	year
   Debentures 8%                                                                     180,000      180,000
                                                                                                  667,982

Notes	to	Accounts
   Closing stock                     40,000   2 2,700                            5      37,300
   Goodwill                          12,500   1 4,500 2 8,500                    5       8,500
   Investment Income                  4,500   1 6,750 1 2,250                    5      13,500
   Advertising                        6,800   1    400 1    200                  5       7,400
   Deb. Int.                          2,800   2    400 1 10,800                  5      13,200
   Debtors                           31,000   2    200 2    500                  5      30,300
   Vehicles                         162,000   2 20,000 1 32,000                  5     174,000
   Depc. this year                    1,667   1 3,733 1 28,400                   5      33,800
   Acc. Depc.                        66,000   1 33,800 2 9,000                   5      90,800
   Disposal                          20,000   2 9,000 2 14,000                   5       3,000
   Purs.                            587,000   2 18,000                           5     569,000
   Bank o/d                          16,800   2 6,750 1      90 2 100            5      10,040
   Crs.                              41,000   2     90                           5      40,910
   Bad Debt                             400                                      5         400
   Provision for Bad Debts            1,600   2    1,818                         5        (218)

    A
(c)		 re	there	any	occasions	when	the	Trial	Balance	is	in	balance,	even	though	errors		
    have	occurred?
   •   Transactions totally omitted
   •   Errors of original entry e.g. € 80 entered as € 800 on both sides
   •   Errors of Commission e.g. posted to incorrect a/c
   •   Errors of Principle e.g. posted to Purchases instead of vehicles
   •   Compensating errors that cancel each other out
   •   Complete Reversal of entries e.g. DR Sales CR Debtors
                                            Topic 2  Final a/c’s of Company Solutions      21



 4  cApri solution
(a)	Trading,	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                          €             €                 €
   Sales                                                                                880,000
   Less Cost of sales
     Stock 1/1/12                                                     40,000
     Add Purchases                            W                      560,000
                                                                     600,000
     Less Stock 31/12/12                      W                      (44,800)       (555,200)
                                                                                     324,800
   Gross profit
   Less Expenses
   Administration
     Directors fees                                     30,000
     General expenses                         W        114,600
     Patents written off                      W         12,000
     Depreciation-buildings                   W          8,000       164,600
   Selling	and	Distribution
     Bad debts written off                               1,350
     Depreciation-delivery vans               W         32,700
     Loss on sale of van                      W          7,200        41,250        (205,850)
                                                                                     118,950
   Add Operation income
     Reduction in provision for bad debts     W                                             130
   Operating profit                                                                     119,080
   Investment income                                                                      8,000
                                                                                        127,080
   Debenture interest                                                                   (15,000)
   Net profit for year before taxation                                                  112,080
   Less Appropriation
     Dividends Paid                                                   20,000
     Transfer to Debenture Reserve                                    40,000            (60,000)
                                                                                         52,080
   Retained profit
   Profit and loss balance 1/1/12                                                        24,000
   Profit and loss balance 31/12/12                                                      76,080
 22     Graded Accounting Questions – Solutions


(b)	Balance	Sheet	at	on	31/12/2012
                                                             Accumulated	
                                                    Cost     Depreciation     Net        Total
                                                     €            €            €           €
   Intangible	Fixed	Assets                                                               36,000
     Patents (€48,000 2 €12,000)
   Tangible	Fixed	Assets
     Land and buildings               W         750,000                     750,000
     Delivery vans                    W         166,000          85,900      80,100
                                                916,000          85,900     830,100      830,100
      6% Investments                                                                     200,000
                                                                                       1,066,100
   Current	assets
     Stock                                                                   44,800
     Investment income due                                                    2,000
     Debtors                          W                          34,500
     Less provision                                              (2,070)     32,430
                                                                             79,230
   Creditors:	amounts	falling	due	within	one	year
     Creditors                        W                          42,730
     Debenture interest due                                      12,000
     VAT                                                         11,000
     Bank                             W                          25,520     (91,250)     (12,020)
                                                                                       1,054,080
   Financed	by
   Creditors:	amounts	falling	due	after	more	than	one	year
     8% Debentures                                                                      200,000
   Capital	and	reserves                       Authorised         Issued
     Ordinary shares at €1 each                 600,000         300,000
     6% Preference shares at €1 each            300,000         150,000
                                                900,000         450,000
     Revaluation reserve               W                        288,000
     Profit and loss Balance                                     76,080
     Debenture Redemption Reserve                                40,000                  854,080
                                                                                       1,054,080
                                                   Topic 2  Final a/c’s of Company Solutions              23


   Workings
   	 1.	Purchases                                          590,000
        Less payment for delivery van                       30,000                 560,000
   	 2.	Closing	stock                                       48,000
        Less Valueless stock                                (3,200)                 44,800
   	 3.	Salaries	and	general	expenses                      114,000
        Add ESB direct debit                                   600                 114,600
   	 4.	Patents
        (€44,000 1 €4,000) 4 4                                                      12,000
   	 5.	Depreciation	buildings
        2% of 500,0002100,000)                                8,000
   	 6.	Depreciation	-	delivery	vans
        20% of [(€160,000 for 5 months) 1                                           32,700
        (€166,000 for 7 months)]
   	 7.	Loss	on	sale	of	van
        cost                                                 42,000
        Less Depreciation to date                           (16,800)
        Less Trade-in                                       (18,000)                 7,200
   	 8.	Decrease	in	Provision	for	bad	debts
        (€2,200 2 €2,070)                                                              130
   	 9.	Land	and	Buildings	at	cost                         500,000
        Add Revaluation                                    250,000                 750,000
   10.	Delivery	vans	at	cost                               160,000
        Add Purchases                                       48,000
        Less Disposal                                      (42,000)                166,000
   11.	Debtors                                              36,000
        Less Bank and bad debt                              (1,500)                 34,500
   12.	Creditors                                            43,000
        Less Error                                            (270)                 42,730
   13.	Bank	overdraft	as	per	Trial	Balance                  26,800
        Less Investment income                              (2,000)
        Less Credit transfer credited                         (150)
        Add Bank under credited                               (270)
        Add Direct debit-ESB                                   600                  25,520
   14.	Revaluation	reserve
        Land and buildings                                 250,000                 288,000
        Provision for depreciation (30,000) 1 8,000         38,000

    E
(c)		 xplain	what	is	meant	by	the	Accrual	Concept	in	accounting.	
   All expenses that belong to a particular period must be included in the accounts of that period whether paid
   or not. Similarly all Revenue income must be included whether Received or not.
   i.e. Due added, prepaid subtracted to ascertain the correct figure for period.
 24     Graded Accounting Questions – Solutions



 5  duncAn solution
(a)	Trading,	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                                  €        €
   Sales                                                                814,000
   Less Cost of Sales
     Stock 1/1/2012                                           32,200
     Add Purchases                        (W)                465,000
     Less Stock 31/12/2012                (W)                (35,640)   (461,560)
   Gross Profit                                                          352,440

   Less Expenses
   Administration
     Directors’ Fees                               34,400
     Salaries & Gen. Exp.                         130,200
     Parents w/o                          (W)       6,600
     Dep.: Land & Build                   (W)       8,800    180,000
   Selling	and	Distribution
     Bad Debts w/o                                  1,400
     Dep: Delivery van                    (W)      30,900
     Inc. in Bad Debt Prov.               (W)         600
     Loss on sale of van                  (W)       1,800     34,700    (214,700)
   Operating Profit                                                      137,740
     Investment Income                    (W)                              9,000
     Debenture Interest                   (W)                            (12,000)
   Net Profit for year before taxation                                   134,740
   Less Appropriations
     Pref. dividend paid                  (W)                  8,800
     Ord. dividend paid                   (W)                 13,600
     Pref. dividend proposed              (W)                  8,800
     Ord. dividend proposed               (W)                 15,800     (47,000)
     Retained Profit                                                      87,740
     Profit and Loss balance 1/1/2012                                     (1,800)
     Profit and Loss balance 31/12/2012                                   85,940
                                            Topic 2  Final a/c’s of Company Solutions   25


(b)	Balance	Sheet	as	at	31/12/2012
                                                 €              €              €
                                                Cost           Dep.          N.B.V.
   Tangible	Fixed	Assets
     Land and Buildings                       660,000                         660,000
     Delivery Vans                    (W)     156,000         69,700           86,300
                                              816,000         69,700          746,300
   Intangible	Fixed	Assets
     Patents                          (W)                                      59,400

   Financial	Assets
     6% Investments                                                           200,000
   Current	Assets                                                           1,005,700
   Ins. Co.,                                                  35,000
     Stock 31/12/2012                 (W)                     35,640
     VAT                                                      25,100
     Invest Income due                (W)                      4,000
     Debtors                          (W)      44,000
     Less Provision                   (W)      (2,200)        41,800
                                                             141,540
   Creditors:	amounts	falling	due		
   within	1	year
     Creditors                        (W)      38,370
     Pref. Dividends due              (W)       8,800
     Ord. Dividends due               (W)      15,800
     Debenture Int. due               (W)       9,600
     Bank                                       3,930        (76,500)          65,040
                                                                            1,070,740
   Financed	by:	Creditors:	amounts	
   falling	due	after	1	year
      8% Debentures                                                           160,000
   Capital	and	Reserves                        Auth’d.        Issued
      Ord. Shares @ €1 each                   580,000        420,000
      8% Pref. Share @ €1 each                250,000        220,000
                                              830,000        640,000
     Revaluation Reserve              (W)                    184,800
     Profit & Loss a/c balance                                85,940          910,740
   Shareholder’s Funds
   Capital Employed                                                         1,070,740
 26      Graded Accounting Questions – Solutions


Notes	to	Accounts
   Closing stock               38,200   2    2,560                                5             35,640
   Patents.                    63,000   1    3,000 5 66,000 2           6,600     5             59,400
   Investment Income.           3,000   1    2,000 1 4,000                        5              9,000
   Bank O/D.                    6,800   2    2,000 2    600 2             270     5              3,930
   Debtors                     46,000   2    2,000                                5             44,000
   Bad Debts.                   1,400                                             5              1,400
   Vehicles.                  150,000   2   48,000   1   54,000                   5            156,000
   Depc. this yr.               2,400   1    8,100   1   20,400                   5             30,900
   Acc. Depc.                  54,000   1   30,900   2   15,200                   5             69,700
   Disposal.                   48,000   2   15,200   2   31,000                   5        (1,800)	loss
   Purs.                      545,000   2   15,000   2   42,000 2 23,000          5            465,000
   L & Blgs.                  480,000   2   20,000   1   60,000 1 140,000         5            660,000
   Acc. Depc.                  36,000   1    8,800   2   44,800                   5                 nil
   Reval. Reserve             140,000   1   44,800                                5            184,800
   Pref. Div.                   8,800   1    8,800                                5             17,600
   Ord. Div.                   13,600   1   15,800                                5             29,400
   Debenture Interest           2,400   1    9,600                                5             12,000
   Prov. for B/Debts.           1,600   2    2,200                                5          (600)	loss
   Creditors                   38,100   1      270                                5             38,370
   Salaries & General         148,200   2   18,000                                5            130,200
   Ins. Co.                                                                       5             35,000

(c)	What	are	the	main	Objectives	of	Financial	Accounting?
   •   To Process, Collect & Record information on most Transactions
   •   To classify & summarise this information in accounts
   •   To show performance of organization over a period
   •   To prepare financial statements at year end such as Trial Balance, Final accounts, Cash flow statements.
                                                Topic 2  Final a/c’s of Company Solutions    27



 6  Echo solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                         €               €               €
   Sales                                                                             1,386,000
   Less Cost of Sales
     Stock                                                            107,240
     Purchases                                                        781,200
   Less Closing Stock                                                (114,520)        (773,920)
   Gross Profit                                                                        612,080
   Less Expenses
   Administration
   Patents written off                                 17,052
   Salaries and General                               246,400
   Directors fees                                     112,000
   Depreciation of Buildings                           18,200         393,652
   Selling	and	Distribution
   Bad Debts                                            2,450
   Depreciation of Delivery Vans                       49,840
   Loss on disposal of van                             14,000          66,290         (459,942)
                                                                                       152,138
   Add Operating Income
   Overprovision for bad debts                                                          1,042
   Operating Profit                                                                   153,180
   Add Investment income                                                               10,080
   Less Debenture Interest                                                            (26,460)
   Net Profit                                                                         136,800
   Less Appropriation
   Dividend paid                                                       56,000
   Transferred to Staff Pension                                        32,900         (88,900)
                                                                                       47,900
   Profit and Loss balance 1/1/2012                                                    94,640
   Profit and Loss balance 31/12/2012                                                 142,540

(b)	Balance	Sheet	as	at	31/12/2012
                                                       Cost           Depc.            Value
   Intangible	Fixed	Assets                              €              €                 €
   Patents                                                                              68,208
   Tangible	Fixed
   Buildings                                         1,232,000                       1,232,000
   Delivery Vehicles                                   274,400        119,840          154,560
   Financial	Assets
   8% Investments                                                                      252,000
                                                                                     1,706,768
   Current	Assets
   Stock                                              114,520
   Debtors (€99,960 less Provision 3,998)              95,962
   Investment Interest due                              2,520         213,002
   Creditors	:	Amounts	falling	due	within	one	year
   Creditors                                          113,526
   Bank                                                 2,744
   VAT                                                 23,100
   Debenture interest due                              20,160        (159,530)          53,472
   Total Net Assets                                                                  1,760,240
 28      Graded Accounting Questions – Solutions


Financed By:
Creditors	:	Amounts	falling	due	for	more	than	one	year
    8% Debenture                                                                           322,000
    Capital	and	Reserves                           Authorised           Issued
    Ordinary Share Capital at €1 each                966,000            770,000
    6% Preference Share Capital                      420,000            280,000
                                                   1,386,000          1,050,000
    Profit and Loss Balance 31/12/2012                                  142,540
    Staff Pension Fund                                                   32,900
    Revaluation Reserve                                                 212,800          1,438,240

   Total Capital Employed                                                                1,760,240

Notes	to	Accounts
   Purchases                               868,000 2 86,800                                      5   781,200
   Closing Stock                           119,000 2   4,480                                     5   114,520
   Patents                                  81,480 1   3,780 2 17,052                            5    68,208
   Provision for Bad Debts                   5,040 2   3,998                                     5     1,042
   Delivery Vans                           240,800 1 117,600 2 84,000                            5   274,400
   Depreciation of Vans this year            5,880 1 12,600 1 31,360                             5    49,840
   Accumulated Depreciation of Vans        109,200 1 49,840 2 39,200                             5   119,840
   Disposal of Vehicles                     84,000 2 30,800 2 39,200                             5    14,000
   Investment Income                         3,780 1   3,780 1 2,520                             5    10,080
   Debenture Interest                        6,300 1 20,160                                      5    26,460
   Buildings                             1,092,000 1 140,000                                     5 1,232,000
   Accumulated Depreciation on Buildings    54,600 1 18,200 2 72,800                             5        Nil
   Revaluation Reserve                     140,000 1 72,800                                      5   212,800
   Debtors                                 103,460 2   1,050 2 2,450                             5    99,960
   Creditors                               113,400 1     126                                     5   113,526
   Bank                                      7,700 2   3,780 2 1,050 2 126                       5     2,744

    E
(c)		 xplain	with	an	example	the	difference	between	capital	and	current	expenditure	
   Capital	expenditure	
   Capital expenditure is entered in the balance sheet. It is expenditure incurred in the purchase or
   improvement of a fixed asset which increases the earning capacity of the asset, e.g.
   • purchase of buildings including professional fees
   • improvement or extension to buildings.
   Revenue	expenditure
   Revenue expenditure is entered in the profit and loss account. It refers to the day to day running costs of a
   business. It represents costs incurred in the running of the business during the accounting period, e.g. wages,
   rent, insurance.
                                               Topic 2  Final a/c’s of Company Solutions   29



 7  FEstinA solution
(a)	Trading	Profit	&	Loss	Account	for	year	ending	31/12/2012
                                           €               €               €
   Sales                                                                967,000
   Less Cost of Sales
     Stock 1/1/12                                        47,500
     Purchases                                          621,425
     Stock 31/12/12                                     (62,800)       (606,125)
     Gross Profit                                                       360,875

   Administration	Expenses
     Salaries & General Expenses         187,800
     Patents written off                  12,000
     Audit Fees                            8,900
     Directors Fees                       12,600
     Depreciation Buildings               10,400        231,700
   Selling	and	Distribution	Expenses
     Depreciation Delivery Vans           41,400
     Bad Debts                             1,500
     Increase Bad Debts Provision          2,035         44,935        (276,635)
                                                                         84,240
     Bad Debt Recoverable                                   700
     Discount Received                                      215
     Disposal Profit                                      5,625           6,540
     Operating Profit                                                    90,780
   Add Investment Income                                                  5,250
   Less Debenture Interest                                              (14,400)
     Profit available for distribution                                   81,630
   Less Appropriation
   Dividends paid                                                       (24,000)
   Retained Profit                                                       57,630
   Profit & Loss Balance 1/1/12                                         (45,000)
   Profit & Loss Balance 31/12/12                                        12,630
 30     Graded Accounting Questions – Solutions


(b)	Balance	Sheet	as	at	31/12/12
                                    €                  €            €          €
                                                      Acc.        Net.
                                  Cost                Dep.        Value
   Fixed	Assets
   Intangible:	Patents                                                        48,000
   Tangible:
     Land & Buildings             970,000                         970,000
     Delivery Vans                222,000             85,700      136,300
                                1,192,000             85,700    1,106,300   1,106,300
   Financial                                                                  180,000
     5% Investments                                                         1,334,300
   Current	Assets
     Stock 31/12/2012                                 62,800
     Debtors                      63,400
     Less Provision
        for Bad Debts              (3,135)            60,265
   Investment Income
     Due                                               1,500
   VAT                                                 3,990     128,555
   Less	Creditors:	amounts	due	within	1	year
   Creditors                                          88,260
   Debenture Interest
   Due                                                11,925
     Bank                                              5,840    (106,025)

   Net Current Assets                                                          22,530
   Net Assets                                                               1,356,830
   Financed	by	Creditors	falling	due	for	more	than	1	year
   7.5% Debentures                                                           212,000
   Capital	&	Reserves                              Authorised     Issued
   Ordinary Shares @ € 1 each                         580,000    480,000
   5% Preference Shares                               400,000    300,000
                                                      980,000    780,000
   Revaluation Reserve                                           352,200
   Profit & Loss 31/12/12                                         12,630    1,144,830
                                                                            1,356,830
                                                  Topic 2  Final a/c’s of Company Solutions   31


Notes	to	Accounts
    Closing Stock               66,000   2   3,200                        5     62,800
    Patents                     57,750   1   2,250 2       12,000         5     48,000
    Investment income            2,250   1   1,500 1        1,500         5       5,250
    Vehicles                   208,500   2 22,500 1        36,000         5    222,000
    Depc. this yr                  Nil   1   4,200 1       37,200         5     41,400
    Acc. Depc.                  66,800   1 41,400 2        22,500         5     85,700
    Disposal                    22,500   2 22,500 2         5,626         5 5,625	profit
    Purchases                  651,000   1     800 2       30,375         5    621,425
    Land & Building            700,000   1 270,000                        5    970,000
    Acc. Depc.                  71,800   1 10,400 2        82,200         5          nil
    Revaluation Reserve        270,000   1 82,200                         5    352,200
    Bank o/d                     8,100   1      40 2        1,500 2 800 5         5,840
    Debtors                     65,000   1     700 2          300 2 2,000 5     63,400
    Bad Debts                    1,200   1     300                        5       1,500
    Creditors                   87,500   1     800 2           40         5     88,260
    * Prov. for Bad Debts        1,100   2   3,135                        5     (2,035)
    Bad Debt Recoverable                                                            700
    * Provision 5% of                                                     5       3,135
    (65,000 2 300 2 2,000)
Note:	Old	vehicle	Depreciated	in	full

    W
(c)		 ould	you,	as	a	bank	manager,	recommend	that	a	€100,000	loan	at	10%	annual	
    interest	be	given	to	Festina	for	expansion?	Support	your	answer	with	3	relevant	points.	
   Yes, based on following:
   • Turned around deficit of €45,000 last YR to profit €12,630 this year
   • Land & Building more than sufficient security for loan even after using Debentures.
   • Working capital/Current Ratio 1.2 shows it hasn’t got cash flow problems
   • 5% Investments can be sold if all else fails.
 32     Graded Accounting Questions – Solutions



 8  conolo solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                                          €                €
       Sales                                                                            933,000
   2 Cost of Sales
       Opening stock                                83,600
   1 Purchases                       (w)           600,400
   2 Closing stock                   (w)           (71,400)                             (612,600)
   5 Gross Profit                                                                        320,400
   Less Administration	Expenses
       Salaries & General            (w)            81,250
       Depreciation of Buildings     (w)             6,800
       Patents written off           (w)            10,000
       Audit fees                                    2,890          (100,940)
   Less Selling	and	Distribution

       Bad Debts                                       300
       Depreciation of vans          (w)            45,100
       Advertising                                  12,600
       Provision for bad debts       (w)             1,235              (59,235)        (160,175)
       1 Bad debt Recoverable                          700
          Discount                                     950
          Disposal profit            (w)             4,800                                6,450
   5   Operating Profit                                                                 166,675
   1   Investment interest           (w)                                                  6,750
   2   Debenture interest            (w)                                                (14,850)
   5   Net Profit                                                                       158,575
   2   Dividends                                                                        (12,600)
   5   Retained Profit                                                                  145,975
   1   Profit and Loss 1/1                                                              (45,000)
   5   Profit and Loss 31/12                                                            100,775

(b)	Balance	Sheet	as	at	31/12/2012
                                                                                €          €          €
   Intangible	Fixed      Patents                     (W)                                             40,000
   Tangible	Fixed        Land and Buildings          (W)                      600,000               600,000
                         Delivery Vans               (W)                      234.000    74,100     159,900
                                                                              834,000    74,100
   Financial             5% Investments                                                             180,000
   Current	Assets                                                                                   979,900
                         Stock                       (W)                       71,400
                         Debtors                     (W)      60,400
                         Provision                             (2985)          57,415
                         Insurance Claim due                                   25,600
                         Investment interest due                                  750
                         VAT                                                    1,110   156,275
                                                       Topic 2  Final a/c’s of Company Solutions               33


   Less: Creditors	falling	due	for	less	than	1	year
                           Creditors                                            72,500
                           Bank                                                 41,750
                           Debenture interest due                               12,350      (126,600)       29,675
                                                                                                         1,009,575
   Financed	by:
   Creditors	falling	due	for	more	than	1	year	
                          7% Debentures                                                                    180,000
   Capital	and	Reserves                                                      Authorised       Issued
                          Ordinary shares of 1 € each                         500,000        400,000
                          5% Preference shares                                300,000        150,000
                                                                                             550,000
                           Revaluation Reserve           (W)                                 178,800
                           Profit and Loss a/c 31/12                                         100,775       829,575
                                                                                                         1,009,575

Notes	to	Accounts
   Closing stock                63,600   2 2,200 1 10,000            5                  71,400
   Land& Buildings             420,000   2 20,000 1 60,000 1140,000 5                  600,000
   Purchases                   634,000   2 5,600 2 38,000 1 10,000 5                   600,400
   Insurance claim              25,600                               5                  25,600
   Creditors                    62,500   1 10,000                    5                  72,500
   Patents                      47,000   1 3,000 2 10,000            5                  40,000
   Investment Interest           3,000   1 3,000 1     750           5                   6,750
   Vehicles                    220,000   1 30,000 2 16,000           5                 234,000
   Debtors                      60,000   2    300 1    700           5                  60,400
   Acc. Depc. Vehicles          45,000   1 45,100 2 16,000           5                  74,100
   Depc. This year                 800   1 3,500 1 40,800            5                  45,100
   Disposal                     16,000   2 6,400 2 4,800             5                   4,800
   General Expenses            102,400   2 22,000 1    850           5                  81,250
   Acc. Depc. Buildings         32,000   1 6,800 2 38,800            5                      Nil
   Revaluation Reserve         140,000   1 38,800                    5                 178,800
   Bad Debt. Recoverable           700                               5                     700
   Bad Debt.                       300                               5                     300
   Provision for Bad Debt        1,750   2 2,985(5% of 60,000 2 300) 5                   1,235
   Debenture Interest            2,700   1 12,150                    5                  14,850
   Bank overdraft               18,700   2 3,000 1     850 1 25,200 5                   41,750

    E
(c)		 xplain	what	is	meant	by	term	solvency	and	how	it	can	be	measured?	
   Solvency is the ability of an organisation to pay its debts from available current assets. It shows if a firm has
   cash flow problems and can avoid the possibility of creditors forcing the business into liquidation.
   Solvency is measured by using the Current Ratio (Current Assets: Current Liabilities) which has to have a
   min. answer of 1, and a further more severe test of liquidity using the Acid Test (Current Assets less Closing
   stock: Current liabilities) to show ability to meet debts in the short term.
 34     Graded Accounting Questions – Solutions



 9  prudEncE solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
   Sales                                                                             895,950
   2 Cost Opening Stock                                             83,400
      1 Purchases                       (w)                        638,100
      2 Closing Stock                   (w)                        (84,300)          (637,200)
      Gross Profit                                                                    258,750
   Administration
      Salaries & General                (w)    121,450
      Patents w/o                       (w)      8,000
      Debt. of Blgs.                    (w)      9,000
      Dir fees                                   6,800             145,250
   Selling and Distribution
      Advertising                       (w)         33,000
      Bad Debts                                      2,000
      Debt of Veh.                                  57,500          92,500           (237,750)
   Operating Income - Disc Received                                  1,450
      Provision for B.D                                                495
      Disposal                                                       1,000              2,945
      Operating Profit                                                                 23,945
      1 Investment Income                                                               9,000
      2 Debenture Interest                                                            (15,000)
      Net Profit                                                                       17,945
   2 Appropriations
      Dividends paid                                                19,500

      Transfer to Deb. Reduction Res.                               20,000            (39,500)
      Profit/loss for year                                                            (21,555)
      P&L 1/1/12                                                                       14,400
      5 P&L 31/12/12                                                                   (7,155)

(b)	Balance	Sheet	at	31/12/2012
   Intangible Fixed Patents                                                      32,000
   Tangible land & Buildings              900,000                               900,000
     Vehicles                             295,000             85,500            209,500
                                        1,195,000             85,500          1,141,500
   Financial 4% Investments                                                     300,000
                                                                              1,441,500
   Current Assets
     Stock                                                    84,300
     Debtors                              46,100
     2 Provision                          (2,305)             43,795
     VAT.                                                      1,300
   Crs. Falling Due less than 1 YR                           129,395
     Creditors                            70,750
     Debenture Interest Due               12,200
     Bank                                 18,100             (101,050)
     Net Current Assets                                                         (28,345)
                                                                              1,469,845
                                                   Topic 2  Final a/c’s of Company Solutions      35


   Financed by:
   Crs. Falling Due More than 1 yr
     8% Debentures                                                              200,000
   Capital & Reserves                        Auth.               Issued
   €1 Ordinary stores                       900,000             700,000
   6% Preference Shares                     400,000             250,000
                                                                950,000
   P&L a/c.                                                       (7,155)
   Revaluation Reserve                                          307,000
   Debenture Redemption Resource                                 20,000     1,269,845
                                                                            1,469,845

Notes	to	Accounts
   Closing Stock             68,600   2    4,300   1   20,000               5     84,300
   Purs.                    644,100   1   20,000   2   26,000               5    638,100
   Crs.                      51,200   2      450   1   20,000               5     70,750
   Patents                   36,000   1    4,000   2    8,000               5     32,000
   Investment Int.            4,000   1    5,000                            5      9,000
   Vehicles                 280,000   2   20,000   1   35,000               5    295,000
   This years Depc.           2,000   1    3,500   1   52,000               5     57,500
   Acc Depc.                 40,000   1   57,500   2   12,000               5     85,500
   Disposal                  20,000   2   12,000   2    9,000               5      1,000	Profit
   Advertising               32,000   1    1,000                            5     33,000
   Disc. Rec.                   450   1    1,000                            5      1,450
   Bank O/D                  21,900   2    5,000   1 1,250 2 500 1 450      5     18,100
   Salaries & Gen.          120,200   1    1,250                            5    121,450
   Debtors                   48,600   2    2,500                            5     46,100
   Bad Debts                  2,000                                         5      2,000
   Debt. interest             2,800   1 12,200                              5     15,000
   Prov. for B/Ds             2,800   2 2,305                               5        495	(over)
   Acc. Debt Blgs.           48,000   1	 9,000 2 57,000                     5    Nil
   Blgs.                    650,000   1250,000                              5    900,000
   Reval. Res.              250,000   1 57,000                              5    307,000
   Deb Red. Res.             20,000                                         5     20,000
   Prel. Dividend             3,750   1 11,250                              5     15,000
   Ord. Dividend              5,750   1 43,250                              5     49,000
 36     Graded Accounting Questions – Solutions



10  MorgAn plc solution
(a)	Trading	Profit	and	Loss	account	for	year	ending	31/12/12
                                                   Grocery   Hardware     Total
   Sales                                          780,000    390,000    1170,000
   2 Cost opening Stock                            62,400     31,350      93,750
   1 Purchases (112,600)                          360,600    186,600     547,200
   1 Carriage                                       6,150      3,600       9,750
   2 Closing Stock (112,600)                      (85,800)   (31,500)   (117,300)
   5 Cost of Sales                                343,350    190,050     533,400
   5 Gross Profit                                 436,650    199,950     636,600
   less Selling	&	Distribution	Expenses	(Sales)
   Advertising (30-6-6)                            12,000      6,000      18,000
   Bad Debts                                          600        300         900
   Provision for Bad Debts (2,280 2 1,830)            300        150         450
                                                   12,900      6,450      19,350
   Administration (Floor space)
   Directors fees                                  29,700     19,800      49,500
     Wages                                         78,300     52,200     130,500
   Healing                                         16,740     11,160      27,900
     Cleaning                                      16,200     10,800      27,000
     Insurance                                     13,500      9,000      22,500
   Depreciation of Buildings                        5,400      3,600       9,000
   Depreciation of Furniture                       27,000     18,000      45,000
                                                  186,840    124,560     311,400
   Operating Profit                               236,910     68,940     305,850
   2 Debenture Interest                                                  (26,400)
   5 Net Profit                                                          279,450
   2 Dividends Preference                                     (9,000)
     Ordinary                                                (45,000)    (54,000)
   1 P & L 1/1/12                                                          7,620
   5 P & L 1/1/12                                                        233,070
                                                     Topic 2  Final a/c’s of Company Solutions              37


(b)	Balance	Sheet	as	on	31/12/12
                                                         €                 €                 €
    Fixed Assets Goodwill                                                                  255,000
    Tangible Fixed land & Buildings                                                        750,000
    Furniture                                         420,000           165,000            255,000
                                                                                         1,260,000
    Current Assets
      Stocks (85,800 1 31,500)                        117,300
      Debtors        57,000
      2Provision      2,280                             54,720
    Advertising prepaid                                  6,000
    Insurance prepaid                                    2,700          180,720
    Creditors	Falling	Due	for	less	than	1	yr
    Creditors (12,600 2 270)                          111,930
    Bank (270 2 300)                                   13,320
    Interest Due (26,400 2 8,250)                      18,150
    Dividends Due (6,750 1 28,500)                     35,250           178,650              2,070
                                                                                         1,262,070
    Financed	by:                                      Auth.             Issued.
    Ordinary Shares €1                                750,000           300,000
    6% Preference Shares                              300,000           150,000
                                                    1,050,000           450,000            450,000
    Reserves
      Revaluation Reserve                                               249,000
      P&L 31/12/12                                                      233,070            482,070
                                                                                           932,070
    Crs.	falling	Due	For	More	than	1yr
      8% Debentures                                                                        330,000
                                                                                         1,262,070

Report
   • Grocery dept. is making a profit of €236,910 which represents a 30% return on sales (Gross profit
      margin 56%)
   • Hardware dept. returns a 17.6% net profit % on sales with a gross margin of 51%
   • While both are profit making and performing well in a difficult economic climate it would not be
      inclined to close either dept. If however pressurised through cash flow problems or credit restrictions,
      Hardware would be the most likely to close down as a 17.6% return is over 40% less a return that the
      Grocery dept. of 30%.
 38     Graded Accounting Questions – Solutions



11  gAMbErt solution
(a)	Trading	Profit	&	loss	a/c	for	a/c	31/12/2012
   Sales                                                           1,752,250
   2 Cost opening stock                                  75,200
   1 Purchases                                        1,243,200
   2 Closing stock                                     (100,000)   (1,218,400)
      Gross Profit                                                    533,850
   Administration
   Patents w/o                                6,400
   Salaries                                 177,600
   Dir fees                                  48,000
   Depc. of Blgs.                            15,790
   Rent                                      19,600    267,390
   Selling & Distribution
   Advertising                               15,700
   Vehicle Depc.                             38,000
   Bad Debts.                                 2,050
   Provision for B/Ds                           394     56,144      (323,534)
                                                                     210,316
   Other operating income
   B.D. Recoverable                             700
   Discount Rec.                             11,500
   Profit on Sale of veh.                     3,250                   15,450
     Operating profit                                                225,766
   2 Debenture interest                                              (14,400)
   1 Investment Income                                                28,800
     Net Profit                                                      240,166
   2 Dividend Preference                     40,000
     Dividend Ordinary                       88,000                 (128,000)
   5 Profit for YR                                                   112,166
     2 P&L 1/1/12                                                    (17,200)
   5 P&L 31/12/12                                                     94,966
                                                       Topic 2  Final a/c’s of Company Solutions    39


(b)	Balance	Sheet	as	at	31/12/2012
                                                                       €            €             €
   Fixed Intangible Patents                                                                      25,600
   Tangible Buildings                                                                         1,000,000
     Vehicles                                                        312,000      110,750       201,250
   Financial 9% Investment                                                                      320,000
                                                                                              1,546,850
   Current Assets
     Closing stock                                                   100,000
     Debtors                                           90,550
     2 Provision                                       (3,594)        86,956
     Ins Co.                                                          25,600
     VAT.                                                             22,500
     Investment interest due.                                         18,900      253,956
   Crs. falling Due less than 1 yr
     Creditors                                                        99,490
     Deb. interest Due.                                                9,600
     Bank O/D                                                         40,460     (149,550)      104,406
                                                                                              1,651,256
   Financed by:                                                                                  180,000
   Creditors more than 1 yr
   8% Debentures
     Capital 1 Reserves.                                              Auth.       Issued.
   Ordinary shares of €1 each                                       1,200,000     800,000
   10% Preference shares                                              600,000     400,000
                                                                                              1,200,000
   Revaluation Res.                                                                              96,290
   P&L a/c                                                                                      174,966
                                                                                              1,651,256
Notes	to	Accounts
   Closing stock                85,000   2    3,200   1 12,000 1 6,200                      5    100,000
   Purs.                     1,320,000   1   12,000   2 5,600 2 38,000 1       800 2 46,000 5  1,243,200
   Crs.                         86,600   1   12,000   1    800 1    90                      5     99,490
   Sales                     1,760,000   2    7,750                                         5 1,752,250
   Drs.                        100,400   2    7,750   2 2,500    1    700 2    300          5     90,550
   Blgs.                       902,000   2   20,000   1 60,000   2 22,500 1 80,500          5 1,000,000
   Ins. Co                      25,600                                                      5     25,600
   Salaries                    199,600   2   22,000                                         5    177,600
   Patents                      24,800   1    7,200   2 6,400                               5     25,600
   Inv. Income                   7,200   1    2,700   1 18,900                              5     28,800
   Vehicle                     280,000   2   24,000   1 56,000                              5    312,000
   Acc. Depc.                   90,000   1   38,000   2 17,250                              5    110,750
   Depc. this yr                   750   1    5,250   1 32,000                              5     38,000
   Disposal                     24,000   2   10,000   2 17,250                              5 3,250	PR.
   Advertising                  14,800   1      200   1    700                              5     15,700
   Deb. Int.                     5,000   2      200   1 9,600                               5     14,400
   (CR) Discount                10,800   1      700                                         5     11,500
   Bank O/D                     44,000   2       90   2    750   2 2,700                    5     40,460
   Bad Debts                     1,750   1      300                                         5      2,050
   VAT                          22,500                                                      5 22,500	DR
   Acc. Depc. Blgs.             15,790   2 15,790                                           5         nil
   Reval. Res.                  15,790   1 80,500                                           5     96,290
   Bad Debt Recovered              700                                                      5        700
   B/D Provision                 3,200   2 3,594                                            5      (394)
                     Topic


                      3
Final a/c’s of Manufacturing
                   Solutions
   2    Astroid
   3    Betamax
   4    Celestial
   5    Ducato
   6    Sheridan
   7    Flotilla
                                            Topic 3  Final a/c’s of Manufacturing Solutions      41



 2  Asteroid solution
(a)  Manufacturing Account of Asteroid for year ended 31/12/2012
                                                                   €           €
   D. Mats.
               Opening Stock of raw materials 1/1/2012                      41,500
               Purchases of raw material                 W                 440,900
                                                                           482,400
             Less Closing Stock of raw materials         W                 (52,400)
             Cost of raw materials consumed                                430,000
   D. labour Manufacturing Wages                         W                  92,000
             Prime Cost                                                    522,000
             Factory Overheads
                General Factory overheads                W       53,500
                Deprec: Plant & Machinery                W       63,000
                  Buildings                              W       14,300    130,800
   W.I.P.    Factory Cost                                                  652,800
             Add Work in Progress 1/1/2012                                  24,200
                                                                           677,000
               Less Work in Progress 31/12/2012                            (29,900)
                                                                           647,100
   less        Less Sale of Scrap Materials                      (5,400)
               Less Profit on Sale of Machinery          W         (600)    (6,000)
               Cost of Manufacture                                         641,100

Trading, Profit & Loss Account for year ending 31/12/2012
                                                                               €         €
   Sales                                                 W                             925,850
   Less Cost of Sales
      Stock of finished goods 1/1/2012                                       32,800
      Cost of goods produced                                                641,100
   Total available for sale                                                 673,900
      Less Stock of fin. goods 31/12/2012                W                  (42,300)
   Cost of Goods Sold                                                                  (631,600)
   Gross Profit                                                                         294,250
   less Administration
      Administration Expenses                                                42,900
   Selling & Distribution
      Bad Debts                                                     700
      Provision for Bad Debts.                                    1,648
      Selling & Distribution Exp.                                36,400      38,748    (81,648)
   Operating Profit                                                                    212,602
      Debenture Interest due                             W                             (16,200)
   Net Profit before Taxation                                                          196,402
      Taxation on profit                                                               (32,000)
   Profit after Taxation                                                               164,402
      Dividends Paid                                                                   (18,000)
   Retained Profit                                                                     146,402
   Profit and Loss balance 1/1/2012                                                     32,500
   Profit and Loss balance 1/1/2012                                                    178,902
 42     Graded Accounting Questions – Solutions


(b)  Balance Sheet as at 31/12/2012
                                                                         €            €              €
                                                                        Cost         Dep.          N.B.V.
   Fixed Assets
     Land & Buildings                                               950,000           —          950,000
     Plant & Mach.                                        W         312,000         102,400      209,600
                                                                  1,262,000         102,400    1,159,600
   Current Assets
   Stocks: Raw Materials                                                52,400
           Work in Progress                                             29,900
           Finished Goods                                               42,300      124,600
   Debtors                                                W             32,950
   2 Provision                                                          (1,648)      31,302
                                                                                    155,902
   Creditors: amounts falling due within 1 year
     Trade Creditors                                      W             61,800
     P.R.S.I                                                            12,100
     Debenture Interest due                                             16,200
     Taxation                                                           32,000
     Bank                                                               11,200      133,300
   Net Current Assets                                                                             22,602
   Total Assets less Current Liabilities                                                       1,182,202
   Financed by:
   Creditors: amounts falling due after 1 year
     8% Debentures                                                                                 240,000
   Capital and Reserves                                             Auth’d.          Issued
   Ordinary Shares @ € 1                                            850,000         300,000
   4 % Pref. Shares @ 50 €                                          400,000         250,000
                                                                  1,250,000         550,000
   Reval. Reserve a/c.                                    W                         213,300
   Profit & Loss Balance                                                            178,902      942,202
   Capital Employed                                                                            1,182,202

Notes to Accounts
   Sales                                          936,600 2     3,000   2 7,750     5   925,850
   Machinery                                                  330,000   2 18,000    5   312,000
   Acc. Dehc. Mach.                                55,000 1    63,000   2 15,600    5   102,400
   Depc. this yr.                                                 600   1 62,400    5    63,000
   Disposal                                        18,000 2    15,600   2 3,000     5       600
   Purs. of Raw Mats.                             453,900 1    12,000   2 25,000    5   440,900
   Creditors                                                   49,800   1 12,000    5    61,800
   C/s of Raw Mats.                                            40,400   1 12,000    5    52,400
   Debtors                             42,300 2      900 2      7,750   2     700   5    32,950
   Gen. Factory O/Hs                                           52,600   1     900   5    53,500
   C/s of fin goods                                            36,100   1 6,200     5    42,300
   Buildings                          740,000 1 40,000 1       25,000   1 145,000   5   950,000
   Factory Wages                                              132,000   2 40,000    5    92,000
   Acc. Depc. Blgs.                                54,000 1    14,300   2 68,300    5        nil
   Revaluation Res.                                           145,000   1 68,300    5   213,300
   Bad Debts.                                                                 700   5       700
   Provision for Bad Debts.                                                 1,648   5     1,648
   Debenture Interest                                                      16,200   5    16,200
   Corporations Tax                                                        32,000   5    32,000
                                          Topic 3  Final a/c’s of Manufacturing Solutions         43


3  BetAmAx solution
(a) Manufacturing Account of Betamax or year ended 31/12/2012
   Direct Materials
     Opening stock of raw materials                          67,500
   Purchases of raw materials                               670,875
   Carriage on Raw materials                                  9,450
   Less closing stock of raw materials                      (73,500)
   Cost of raw materials consumed                                       674,325
   Direct Costs
   Direct Factory wages                               W     353,190
   Hire of special equipment                                 15,000      368,190
   Prime Cost                                                          1,042,515
   Factory Overheads
   General Factory overheads                                 90,300
   Patents written off                                W      22,500
   Depreciation – Factory buildings                   W      17,250
                  – Plant and Machinery               W      83,100
   Loss on sale of Machine                            W       3,075      216,225
   Factory Cost                                                        1,258,740
   Work in progress 1/1/2012                                              31,875
   Less Work in progress 31/12/2012                                      (39,675)
                                                                       1,250,940
   Less sale of scrap material                        W                   (5,550)
   Cost of Manufacture                                                 1,245,390
   Trading Profit and Loss Account for year ending 
   31/12/2012
   Sales                                              W                             1,615,800
   Less Cost of sales
   Opening stock of finished goods                                       126,750
   Cost of manufacture                                                 1,245,390
   Less Closing stock of finished goods                                 (141,750)   (1,230,390)
   Gross profit                                                                        385,410
   Less Administration Expenses
   Administration expenses                            W                  33,150
   Selling and Distribution
   Selling expenses                                         157,748
   Bad debt.                                                    750
   Provision for Bad debt.                                    4,200     162,698      (195,848)
                                                                                      189,562
   Discount net                                                                         4,500
   Opening Profit                                                                     194,062
   Less Debenture interest                            W                               (10,125)
   Net profit before taxation                                                         183,937
   Less Taxation                                                                      (12,000)
   Profit after Tax                                                                   171,937
   Les Dividends                                                                      (60,000)
   Retained Profit                                                                    111,937
   Profit and Loss 1/1/2012                                                           113,100
   Profit and Loss 31/12/2012                                                         225,037
 44     Graded Accounting Questions – Solutions


(b) Balance Sheet as at 31/12/2012
   Intangible Fixed                                    Cost       Depc.        Value
   Patents                                    W                                 67,500
   Tangible Fixed
   Factory Buildings                          W        900,000                  900,000
   Plant and Machinery                        W        406,500     268,875      137,625
                                                     1,306,500     268,875    1,105,125
   Current Assets
   Stock - Raw Materials                               73,500
           Work in Progress                            39,675
           Finished goods                             141,750      254,925
   Debtors                                    W        84,000
   Less Provision for bad debts.                       (4,200)      79,800
                                                                   334,725
   Creditors falling due within one year
   Creditors                                            83,400
   Bank                                                 15,450
   VAT                                                  12,600
   Debenture interest due                       W        9,113
   Tax due                                              12,000    (132,563)
   Net Currents Assets                                                          202,162
   Total Net Assets                                                           1,307,287
   Financed by:
   Creditors falling due for more than one year
   9% Debentures                                                               135,000
   Capital and Reserves                             Authorised Issued
   Ordinary shares of € 1 each                         750,000      525,000
   6% Preference shares of € 1 each                    450,000      300,000
                                                     1,200,000      825,000
   Revaluation Reserve                                              122,250
   Profit and Loss 31/12/2012                                       225,037   1,172,287
   Total Capital Employed                                                     1,307,287
                                            Topic 3  Final a/c’s of Manufacturing Solutions              45


Notes to Accounts
Sales                                    1,627,500    2       11,700               5 1,615,800
Purchase                                   720,375    2       49,500               5   670,875
Direct factory wages                       378,690    2       25,500               5   353,190
Accumulated Depreciation Buildings          67,500    1       17,250 2      84,750          Nil
Accumulated Depreciation Plant and         195,000    1       83,100 2       9,225 5   268,875
   Mach.
Machinery                                  420,000    2       13,500               5        406,500
Disposal loss                               13,500    2        9,225 2       1,200 5          3,075
Plant and Machinery                        420,000    2       13,500               5        406,500
Sale of scrap                                6,750    2        1,200               5          5,550
Closing stock of finished goods            135,000    2        3,000 1       9,750 5        141,750
Administration                              33,600    1          300 2         750 5         33,150
Patents                                     90,000    2       22,500               5         67,500
Bad Debt.                                                                                       750
Provision for bad debt                                                                        4,200
Debenture interest                             262         1 750 1           9,113 5         10,125
Debtors                                     96,750   2 750 2 300 2          11,700 5         84,000
Buildings                                  787,500   1    75,000 1          37,500 5        900,000
Revaluation Reserve                         37,500   1    84,750                   5        122,250

(c) What is the Difference between Direct and Indirect Costs?
Direct
Can be traced in full to the Product being manufactured e.g. Direct Materials, labour, Royalties Paid.
Indirect
Not directly related to Product Produced.
e.g. Manufacturing overheads such as Supervision salary, Administration Overhead such as Telephone and
Selling & Distribution costs such as Advertising.
 46     Graded Accounting Questions – Solutions


 4  CelestiAl solution
(a) Manufacturing Account of Celestial PLC for the year ended 31/12/2012
                                                                  €            €
   Opening Stock of raw materials 1/1/2012                                   34,000
   Purchases of raw material                               W                510,300
                                                                            544,300
      Less Closing Stock of raw materials                  W                (44,000)
   Cost of raw materials consumed                                           500,300
   Manufacturing Wages                                     W                167,700
   Prime Cost                                                               668,000
   Factory Overheads
      General Factory overheads                            W    75,900
      Deprec.: - Plant & Machinery                         W    41,500
               - Buildings                                 W    13,060      130,460
   Factory Cost                                                             798,460
   Add Work in Progress 1/1/2012                                             22,500
                                                                            820,960
   Less Work in Progress 31/12/2012                                         (23,400)
                                                                            797,560
   Less Sale of Scrap Materials                                 (6,100)
   Add Loss on Sale of Machinery                           W     7,000          900
   Cost of Manufacture                                                      798,460
   Gross Profit on Manufacture                                               51,540
   Current Market value                                                     850,000

Trading Profit & Loss Account for year ended 31/12/2012
                                                       €          €
   Sales                                      W                 940,150
   Less Cost of Sales
     Stock of finished goods 1/1/2012                 38,100
     1Current Market value                           850,000
     Less Stock of fin. goods 31/12/12       (W9)    (40,100)   (848,000)
   Cost of Goods Sold                                             92,150
   Gross Profit on Trading                                        51,540
   Gross Profit on Manufacture                                   143,690
   Less Expenses
   Administration Expenses
     Administration Expenses                          27,400
   Selling & Distribution Expenses
     Selling & Distribution Expenses                  38,600     (66,000)
   Operating Profit                                               77,690
     Debenture Interest due                  (W10)                (7,200)
   Net Profit before Taxation                                     70,490
     Taxation on profit                                          (15,000)
   Profit after Taxation                                          55,490
     Dividends Paid                                              (38,200)
   Retained Profit                                                17,290
   Profit and Loss balance 1/1/2012                               38,800
   Profit and Loss balance 31/12/2012                             56,090
                                                 Topic 3  Final a/c’s of Manufacturing Solutions   47


(b) Balance Sheet as at 31/12/2012
                                                                 €           €             €
                                                                Cost        Dep.         N.B.V.
   Fixed Assets
     Land & Buildings                                          820,000       —           820,000
     Plant & Mach.                                    W        274,000     108,100       165,900
                                                             1,094,000     108,100       985,900
   Current Assets
     Stocks: Finished Goods                                     40,100
              Raw Materials                                     44,000
              Work in Progress                                  23,400     107,500
     Debtors                                          W                     42,350
                                                                           149,850
   Creditors: amounts falling due within 1 year
     Trade creditors                                  W         30,200
     Accruals                                                   13,600
     Debenture Interest due                                      7,200
     Taxation                                                   15,000
     Bank                                                       12,600
                                                                           (78,600)
   Net Current Assets                                                                     71,250
   Total Assets less Current Liabilities                                               1,057,150
   Financed by:
   Creditors: amounts falling due after 1 year
     8% Debentures                                                                       105,000
   Capital and Reserves                                         Auth’d.      Issued
     Ordinary Shares @ €1                                      550,000     500,000
     6% Pref. Shares @ 50                                      300,000     220,000
                                                               850,000     720,000
     Reval. Reserve a/c.                              W                    176,060
     Profit & Loss balance                                                  56,090       952,150
     Capital Employed                                                                  1,057,150
 48     Graded Accounting Questions – Solutions


Celestial
Notes to Accounts
   Sales                              945,500 2       600   2 4,750     5    940,150
   Machinery                                      290,000   2 16,000    5    274,000
   Acc. Depc.                          75,000   2 8,400     1 41,500    5    108,100
   Disposal                            16,000   2 8,400     2     600   5     (7,000)
   Purs.                              520,500   1 4,800     2 15,000    5    510,300
   Crs.                                            25,400   1 4,800     5     30,200
   C/s of Raw Mats.                                39,200   1 4,800     5     44,000
   Drs.                                48,000   2     900   2 4,750     5     42,350
   Gen factory of O/Hs                             75,000   1     900   5     75,900
   L & Blgs.               680,000 1 18,000     1 15,000    1 107,000   5    820,000
   Manu. wages                                    185,700   2 18,000    5    167,700
   Acc Depc. L & Blgs.                 56,000   1 13,060    2 69,060    5          nil
   Rev. Res.                                      107,000   1 69,060    5    176,060
   Depc. this yr. Mach.                               400   1 41,100    5     41,500
   C/s of Fin. goods                               36,300   1 3,800     5     40,100
   Deb. Interest                                                7,200   5       7,200
   Corp. Tax                                                   15,000   5     15,000

(c) Calculate the unit cost of Production
   240 1 6,550 2 410 2 170 5 6,210 Finished units
                        Production Cost           € 798,460
   Cost per unit 5                              5           5 € 128.58 per unit.
                   no of finished goods (units)     6,210
                                            Topic 3  Final a/c’s of Manufacturing Solutions                49


 5  duCAto solution
(a) Manufacturing Account of Ducato for year ended 31/12/2012
   D. Mats.               O/s of Raw Materials                                        27,000
                          1 Purchases                            163,700
                          1 Carriage In.                           1,000             164,700
                          2 Closing Stock                                            (37,500)
                                                                                     154,200
   D. Labour              Direct Factory wages                                        58,000
   D. Expenses            Hire of Special Equipment                                    3,000
                          Prime Cost                                                 215,200
   Factory Overheads
                          Supervisors wages                       18,600
                          General Overheads                       24,500
                          Depc. of Blgs.                           3,900
                          Depc. of Equip.                         28,000              75,000
   W.I.P                  1 O/s of W.I.P.                         15,500
                          2 C/s of W.I.P.                        (16,000)               (500)
                                                                                     289,700
   less                   Sale of Scrap                                               (43,00)
                          Cost of Manufacture                                        285,400
   1                      Gross Profit on Manufacture                                114,600
   5                      Current Market value.                                      400,000

Trading Profit & Loss Account for year ended 31/12/2012
   Sales                                                                                       438,100
   2Cost           O/s of Fin. Goods                   26,000
                   1 Current Market Value             400,000
                   2 Closing Stock                    (32,000)                              (394,000)
                   Gross Profit on Trading                                                    44,100
                   Gross Profit on Manufacturing                                             114,600
   2Admin.         Admin Expenses                       27,900                               158,700
                   Palents w/o                           7,500
                   Depreciation of Buildings             1,300
                   loss of fire                            500              37,200
   Selling & Dist. B\D. Prov.
                   Distribution Eths.                   25,700
                   Bad Debts                               200              25,900              (63,100)
                   1 Discount Rec.                                             600
                   1 Bad Debt Recoverable                                      500
                   Overprovision                                               740               1,840
                   Operating Profit                                                             97,440
                   2 Debenture Interest                                                         (4,200)
                   Net Profit                                                                   93,240
   2 Dividends Preference                                3,750
                Ordinary                                19,800                                  (23,550)
                                                                                                 69,690
           1 P & L 1/1/12                                                                        19,000
             P & L 31/12/12                                                                      88,690
 50     Graded Accounting Questions – Solutions


(b) Balance Sheet as at 31/12/2012
                                                             €          €         €
   Fixed Assets
     Intangible    Patents                 (W)                                   22,500
     Tangible      L & Blgs.                               320,000    50,200    269,800
                   Plant & Mach                            140,000    80,500     59,500
   Current Assets                                                               351,800
     C/S of Raw Materials                                   37,500
             W.I.P                                          16,000
             Fin. Goods                                     32,000
     Insurance Co.                                          12,300
     Debtors                                     27,000
     2Provision                                  (1,060)    25,940   123,740
   2Crs falling due for less than 1 year
       Creditors                                            47,000
     Pref. Divs. Due                                         1,875
     Ord Divs. Due                                          10,475
       Bank                                                 13,800
       VAT                                                   4,500
     Deb. Int. Due                                           4,200   (81,850)    41,890
                                                                                393,690
   Fin. by:
     Crs. falling due for more than 1 yr
     7% Debentures                                                               65,000
     Capital and Reserves                                   Auth.     Issued
     Ordinary Shares                                       350,000   165,000
     Preference Shares                                     150,000    75,000
     P&L 31/12/12                                                     88,690    328,690
                                                                                393,690
                                          Topic 3  Final a/c’s of Manufacturing Solutions   51


Notes to Accounts 
   Sales              442,900   2    4,800                       5   438,100
   Drs.                31,500   2    4,800 1    500 2   200      5    27,000
   C/s fin. gds.       28,000   1    4,000                       5    32,000
   Purs.              179,500   1    6,000 2 19,000 2 2,800      5   163,700
   Crs.                41,000   1    6,000                       5    47,000
   C/s of R. mats.     31,500   1    6,000                       5    37,500
   Disc. Rec.           1,200   2      600                       5       600
   Gen. O/H            25,100   2      600                       5    24,500
   Wages Factory       69,000   2   11,000                       5    58,000
   Blgs.              300,000   1   30,000 2 10,000              5   320,000
   Ins. Co.            12,300                                    5    12,300
   loss on fire           500                                    5       500
   Patents             30,000   2 7,500                          5    22,500
   Acc. Depc. P& M     52,500   1 28,000                         5    80,500
   Acc Depc. Blgs.     45,000   1 5,200 (3,900/1,300)            5    50,200
   BD. Recov.             500                                    5       500
   B. Debts               200                                    5       200
   Provision            1,800   2 1,060                          5   740 over
   Pref. Div.           1,875   1 1,875                          5     3,750
   Ord. Div.            9,325   1 10,475                         5    19,800
   Deb. Interest        1,050   1 3,150                          5     4,200

(c) Calculate unit cost of Production
    1,140 1 240 2 150 2 89      5 1,141 units finished.
        Cost of Production         €285,400 € 250.13 per unit.
                                 5         5
    no of finished goods (units)     1,141
 52     Graded Accounting Questions – Solutions


 6  sheridAn solution
(a) Manufacturing a/c of Sheridan Ltd for year end 31/12/2012
                                                                                €                  €
   Direct Materials
     Opening stock of Raw Materials                                                              54,000
   1 Purchases of Raw Materials              (W)                            330,400
   1 Carriage on raw materials                                                2,000           332,400
   2 Closing stock of Raw Materials          (W)                                              (78,000)
   5 Cost of Raw Materials consumed                                                           308,400
   Direct Labour
   1 Factory Wages                           (W)                                              116,000
   Direct Expense
   1 Hire of special equipment                                                                  6,000
   5 Prime Cost                                                                               430,400
   Factory Overheads
     Depreciation of Plant and Machinery     (W)            56,000
     Depreciation of Buildings               (W)             9,600
     Supervisors salary                                     37,200
     General Expenses                        (W)            38,100                            140,900
   1 Opening stock of Work in Progress                                       31,000
   2 Closing stock of Work in Progress                                      (32,000)           (1,000)
                                                                                              570,300
   2 Sale of scrap materials                                                                   (8,600)
   5 Cost of Manufacture                                                                      561,700
   1 Gross profit on Manufacture                                                              188,300
   5 Transfer @ Current Market Value                                                          750,000

Trading Profit and Loss a/c for year ending 31/12/2012
     Sales                                                                             876,200
   2 Cost of Sales
     Opening stock of Finished goods                                  52,000
   1 Current Market Value                                            750,000
   2 Closing stock of Finished goods                                 (64,000)          (738,000)
   5 Gross Profit on Trading                                                            138,200
   1 Profit on Manufacture                                                              188,300
                                                                                        326,500
   Less Administration Expenses
     Administration Expenses                       55,800
     Depreciation of Buildings         (W)          3,200
     Goodwill written off              (W)         15,000
     General Expenses                  (W)         12,700            (86,700)
   Less Selling and Distribution:
     Selling                                       51,400
     Bad Debts                                        300            (51,700)          (138,400)
   1 Bad debt Recoverable                                                700
     Overprovision for bad debts       (W)                             1,500
     Discount                                                          2,400              4,600
   5 Operating Profit                                                                  192,700
   2 Debenture interest                (W)                                               (8,400)
   5 Net Profit                                                                        184,300
   2 Dividends                                                                          (22400)
   5 Retained Profit                                                                   161,900
   1 Profit and Loss                                                                    38,000
   5 Profit and Loss 31/12/12                                                          199,900
                                                 Topic 3  Final a/c’s of Manufacturing Solutions     53


(b) Balance Sheet as at 31/12/2012
                                                                            €          €             €
   Intangible Fixed:    Goodwill                       (W)                                          45,000
   Tangible Fixed:      Land and Buildings             (W)                820,000      —           820,000
                        Plant and Machinery            (W)                280,000    161,000       119,000
                                                                        1,100,000    161,000       984,000
   Current Assets
   Stocks 31/12          Raw Materials                                     78,000
                         Work in Progress                                  32,000
                         Finished Goods                                    64,000
                         Debtors                              53,200
                         2 Provision                          (2,100)      51,100
                         Insurance Claim due                               25,600    250,700
   Less: Creditors falling due for less than 1 year
                         Creditors                                         97,000
                         VAT                                                9,000
                         Bank                                              27,600
                         Debenture interest due                             8,400    142,000
                         Net Current Assets                                                      108,700
                                                                                               1,092,700
   Financed by:
   Creditors falling due for more than 1 year
                        7 % Debentures                                                             130,000
   Capital and Reserves                                                 Authorised    Issued
                        Ordinary shares of 1 € each                      700,000     330,000
                        5% Preference shares                             300,000     150,000
                                                                                     480,000
                        Revaluation Reserve          (W)                             282,800
                        Profit and Loss a/c 31/12/12                                  199900     962,700
                                                                                               1,092,700
 54      Graded Accounting Questions – Solutions


Notes to Accounts
   Purchases                      359,000   2 5,600 2 38,000 1 15,000            5     330,400
   Buildings                      600,000   2 20,000 1 60,000 1 180,000          5     820,000
   Factory Wages                  138,000   2 22,000                             5     116,000
   Insurance claim                                                               5      25,600
   Closing stock of Raw Materials 63,000    1 15,000                             5      78,000
   Creditors                       82,000   1 15,000                             5      97,000
   Goodwill                        60,000   2 15,000                             5      45,000
   Sales                          885,800   2 9,600                              5     876,200
   Closing stock of Finished Goods 56,000   1 8,000                              5      64,000
   Debtors                         63,000   2 9,600 2      600 1      700 2 300 5       53,200
   General Expenses                50,200   1     600 5 (38,100 1 12,700)        5      50,800
   Acc. Depc. Plant & Mach        105,000   1 56,000                             5     161,000
   Acc. Depc. Buildings            90,000   1 12,800 (9,600/3,200 2 102,800)     5           Nil
   Revaluation Reserve            180,000   1 102,800                            5     282,800
   Bad Debt Recovered                                                            5          700
   Bad Debt                                                                      5          300
   Provision for Bad Debt.          3,600   2 2,100 (4% of Debtors 53,200 2 700) 5   over 1,500
   Debenture Interest               2,100   1 6,300                              5        8,400

(c) Why are manufacturing accounts prepared?
   •	   To find the cost of manufacturing a product
   •	   To see if production is worthwhile as opposed to buying finished product
   •	   To ensure correct allocation and control of overheads.
   •	   To estimate any profit on manufacture.
                                         Topic 3  Final a/c’s of Manufacturing Solutions   55


 7  FlotillA solution
(a) Manufacturing a/c of Flotilla Year Ended 31/12/2012
                                                            €                €
   Raw Materials used
     Stock 1 Jan                                           40,000
     Purchases                                (W)        285,000
     Carriage In.                                          12,000
                                                         337,000
      Stock 31 Dec.                                      (52,000)      285,000
   Direct Costs
      Manufacturing Wages                                105,000
      Hire of special equipment                           22,000       127,000
   Prime Cost                                                          412,000
   Factory Overheads
      Factory Insurance                       (W)          7,600
      Factory Heat & Power                                24,000
      Factory Supervisors Wages                           39,000
      Deprec. — Buildings                     (W)          4,000
               — Plant & Machinery            (W)         24,000        98,600
                                                                       510,600
     Add — Work-in-Progress 1/1/12                                      37,000
                                                                       547,600
     Less — Work-in-Progress 31/12/12                                  (38,600)
                                                                       509,000
     Less Sale of Scrap Materials                                      (13,000)
   Cost of Manufacturing                                               496,000
   Profit of Manufacturing                                              75,000
   Market Value of Manufactured Goods                                  571,000

Trading Profit & Loss A/C for Year Ending 31/12/2012
                                                                         €             €
   Sales                                                                             856,000
     Cost of Sales
         Cost of Manufactured Goods                                   571,000
         Stock — Finished Goods 1/1/12                                  45,000
                                                                      616,000
       Stock Finished Goods 31/12/12                                  (37,000)      (579,000)
   Gross Profit — Trading                                                            277,000
   Gross Profit — Manufacturing                                                       75,000
                                                                                     352,000
   Less Expenses Administration
     Amount Written off Goodwill              (W)         9,600
     Depreciation — Buildings                 (W)         2,000
                   — Off. Equip.                          8,000
     Insurance                                (W)         3,800
     Office Salaries                                     72,000        95,400
   Selling and Distribution
   Provision                                  (W)         1,908
     Bad Debts                                            5,400
     Advertising                                         34,000
     Delivery Expenses                                   86,000       127,308
                                                                                    (222,708)
                                                                                     129,292
 56     Graded Accounting Questions – Solutions


   Add Operating Income
   Bad Debt Receivable                                                   700
     Rent Receivable                                                     800
     Investment Income                           (W)                   9,000
     Discount Receivable                         (W)                   2,600          13,100
                                                                                     142,392
     Operating Profit
     Less Debenture Interest                     (W)                                 (11,700)
     Profit after Interest & Tax                                                     130,692
   Appropriation:
     Dividend Paid                                                                   (16,500)
     Profit Retained                                                                 114,192
     Profit & Loss Bal. 1/1/12                                                         6,900
     Profit & Loss Bal. 31/12/12                                                     121,092

(b) Balance Sheet as at 31/12/2012
                                                             €               €             €
   Fixed Assets                                             Cost         Acc. Dep.        Net
   Intangible: Goodwill                                                                  38,400
   Tangible: Buildings                                      400,000        36,000       364,000
     Plant & Machinery                                      180,000        84,000        96,000
     Office Equipment                                        40,000        28,000        12,000
                                                            620,000        148,00       510,400
   Investment 6% Investments                                                            150,000
                                                                                        660,400
   Current Assets
     Stocks:
       Raw Materials                                         52,000
       Work in Progress                                      38,600
       Finished Goods                                        37,000       127,600
     Debtors                             (48,40021,908)                    46,492
     Investment Interest Due                                                6,000
                                                                          180,092
   Less Creditors (amounts falling due within one year)
     VAT                                                     15,500
     Creditors                                               96,800
     Debenture Interest Due                                   7,200
     Rent Receivable Prepaid                                  1,600
     Bank                                                    38,300      (159,400)
   Net Current Assets                                                                    20,692
                                                                                        681,092
   Financed by:
     Creditors (amounts falling due after 1 year.)                                      160,000
        9% Debentures
   Capital and Reserves                                   Authorised        Issued
     Ordinary Share €1 each                                 400,000       300,000
     9% Preference Shares €1 each                           200,000       100,000
                                                            600,000       400,000
      Profit & Loss Balancer                                              121,092       521,092
      Shareholders Funds                                                                681,092
                                             Topic 3  Final a/c’s of Manufacturing Solutions   57


Notes to Accounts
      Insurance                          7,600   1 3,800                5      11,400
      Purs                             275,000   1 10,000               5     285,000
      Crs.                              84,000   1 12,500 1      300    5      96,800
      VAT (cr.)                         18,000   2 2,500                5      15,500
      C/S of Raw Mats.                  42,000   1 10,000               5      52,000
      Goodwill                          45,000   1 3,000 2      9,600   5      38,400
      Imnvestment Interest               3,000   1  6,000               5       9,000
      Bank                              41,000   2 2,400 2       300    5      38,300
      Rent. Rec.                         2,400   2 1,600                5         800
      Deb. Interest                      4,600   2    100 1     7,200   5      11,700
      Bad Debts                          4,500   1    600 1       300   5       5,400
      Discount Cr.                       2,100   1    600 2       100   5       2,600
      Acc. Depc. Blgs.                  30,000   1  4,000  1    2,000   5      36,000
      Acc. Depc. Plant                  60,000   1 24,000               5      84,000
      Acc. Depc. Office Equip.          20,000   1 8,000                5      28,000
      Debenture Interest                 4,600   2    100 1     7,200   5      11,700
      Drs.                              48,000   1    700 2       300   5      48,400
      Bad Debt. Recoverable                                             5         700
      Provision for bad Debts                                           5       1,908

(c)
      (i)   Cost of manufacturing per unit   (ii) Reduce any or all of the following
               Total Cost of manufacturing          2 Manufacturing wages
            5 _______________________
                    Units Manufactured              2 Factory overheads
              €496,000                              2 Supervisors wages
            5 ________
                640                                 2 Better buying teams for Raw Materials.
            5 €775 per unit.
                     Topic


                      4
      Debtors and Creditors
     Control A/C’s Solutions
2    Conlon
3    Clarke
4    Carroll
5    Dunleavy
6    Daly
7    Dooley
8    Curley
                                     Topic 4  Debtors and Creditors Control A/C’s Solutions                  59



    2  Conlon Solution
(a)	Creditors	Control	Account
                          €                                  €
     Balance               410         Balance             17,320
     Returns               125         Returns                112
     Invoice                60         Interest                50
     Bills Pay.            700         Discount                84
     Balance            16,681         Balance                410
                        17,976                             17,976

(b)	List	of	Creditors	Balances
                            €             €
     Original Balance                   16,302
     Add
     Purchases             610
     Cash Purchases        150
     Discount Dis.          84
     Returns               120             964
     Less
     Interest               18
     Bills Payable         700
     Returns               277             995
                                        16,271


(c)	Outline	the	advantage	of	Control	Accounts	to	a	firm.
	    1.	 Contra	Item
         A contra item is an offset of a debtor against a creditor where debtor and creditor are the same person
	    2.	 Opening	Balance	€410
         • A full payment of a debt followed by a credit note (returns or reduction)
         • Over payment of a debt
         • Full payment followed by discount
    60     Graded Accounting Questions – Solutions



    3  Clarke Solution
(a)	Adjusted	Creditors	Ledger	Control	Account
                                €                                             €
      Balance b/d                664         Balance b/d                    36,530
      Credit Note                133         Interest                           15
      Balance c/d             36,541         Invoice error                      63
                                             Disc recd. Disallowed              36
                                             Credit Note                        30
                                             Balance c/d                       664
                              37,338                                        37,338
      Balance b/d                664         Balance b/d                    36,541

(b)	Adjusted	Schedule	of	Creditors
                                                             €                €
      Balance as per list                                                  34,895
      Add Interest                                                             69
      Add Cash Purchases                                                      480
      Add Invoice                                                             770
      Add Disc Recd. Disallowed                                                36
      Less Credit Note                                       (133)
      Less Credit Note                                       (240)           (373)
      Net balance as per adjusted control account                          35,877

(c)
	     1.	 Explain	what	is	meant	by	Accounting	Concept.	
          These are the accounting practices or rules that are applied by accountants in the preparation of
          financial statements.
	     2.	 Name	2	fundamental	accounting	concepts.
          The Accruals Concept and The Prudence Concept.
	     3.	 Illustrate	an	accounting	concept.
          The accruals concept states that all expenses incurred in particular period are recorded in that period
          regardless of whether they are paid or not. All incomes earned must be included in the accounts of that
          period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be
          recorded in the accounts of 2012 even though it wont be paid until 2013.
                                    Topic 4  Debtors and Creditors Control A/C’s Solutions                61



    4  Carroll Solution
(a)	Adjusted	Creditors	Ledger	Control	Account
     Date                 Details                €           Date             Details                  €
     1/1/2012             Balance b/d            800         1/1/2012         Balance b/d            52,245
                          Credit Note            126                          Invoice error              18
                                                                              Interest                   25
                                                                              Bank error                230
                                                                              Credit Note                42
                                                                              Disc. Rec’d Disallowed    200
                                                            31/12/2012        Balance c/d               800
     31/12/2012           Balance c/d         52,634
                                              53,560                                                   53,560
     1/1/2013             Balance b/d            800        1/1/2013          Balance b/d              52,634

(b)	Adjusted	Schedule	of	Creditors
                                                €        €
     Balance as per schedule                           51,678
     Add
       Invoice                                720
       Interest error                          89
       Bank error                             230
       Disc. Recd. disallowed                 200        1,239
     Less
       Credit Note error                      747
       Credit Note                            336       1,083
     Balance as per Adjusted Control a/c               51,834

(c)	Outline	the	advantages	of	controls	accounts	to	a	firm.
     1. They act as a check on the accuracy of the ledgers by comparing the balance of the control account with
        the total as per the schedule
     2. Errors can be found more easily using Control accounts
     3. They are useful when a firm needs to find credit sales or purchases from incomplete records
     4. They allow amounts owed by Debtors and owed to Creditors to be ascertained quickly by simply
        balancing the control accounts

(d)	What	other	forms	of	verification	can	be	used	to	check	different	figures?
	    Bank	Reconciliation statement to adjust customers Bank Record with bank statement
	    Trial	Balance to check the accuracy of ledger a/cs
	    Final a/cs to calculate profit Assets & liabilities
	    Suspense	a/c to identify & correct errors
    62      Graded Accounting Questions – Solutions



    5  Dunleavy Solution
(a)	Adjusted	Debtors	Ledger	Capital	Account	
     Date     Details                          €           Date Details                     €
              Balance b/d                    15,530             Balance b/d                  580
              Discount Allowed                  100             Credit Note omitted          120
              Interest                            5
              Invoice error                      90               Balance c/d             15,629
              Credit Note                        24
              Balance c/d                       580
                                             16,329                                       16,329
              Balance b/d                    15,629               Balance b/d                580

(b)	Adjusted	Schedule	of	Debtors	
                                              €                             €
     Balance as per schedule (original)                                   14,862
     Add
     Invoice omitted                        650
     Cash Sales                             420
     Discount Disallowed                    100                            1,170
     Less
     Interest                                13
     Bills Payable                          600
     Credit Note error                      130
     Restocking error                       240                          (983)
     Balance as per Adjusted Control a/c               15,049 5 (15,629 2 580)

(c)	Explain	the	difference	between:	
	    1.	 Bad	debts	
	    2.	 Provision	for	bad	debts.
     1. Bad	Debts are Debtors who are currently unable to pay, they are bankrupt & must be treated as an
        expense & taken out of the Asset a/c, Debtors.
     2. Provision for Bad Debts is an estimation i.e. % of Debtors that you think will be a bad Debt for next
        year. It is based on historical experience of non payment in the past. As they have not already occured
        the account is subtracted from Debtors in the Balance Sheet.
                                      Topic 4  Debtors and Creditors Control A/C’s Solutions   63



 6  Daly Solution
(a)	Adjusted Debtors Ledger Control Account
                       €                            €
   Balance           12,300          Balance         400
   Invoice              480          Interest         20
   Returns              810          Contra          240
   Returns               50          Bills Rec.      500
   Balance              400          Bal. c/d     12,880
                     14,040                       14,040

(b)	Adjusted	List	of	Debtors	Balances
                                                   €           €
              Original Balance                               13,837
   Add        J. Smyth                                          480
   less       Returns                              400
              Cr. Note                              81
              Interest                              16
              Contra                               240
              Bills Rec.                           500
              Cash Sales                           600        (1837)
              Corrected Control balance                      12,480

(c)	What	are	the	dangers	associated	with	having	a	high	debtors	figure?
   1.     Increased risk of bad debts
   2.     Insufficient cash to pay creditors
   3.     Need for overdraft facilities for working capital.
   4.     Cost of Debtors collection department
   5.     May need to sell long term debts to a factoring firm for collection

(d)	Show	journal	entries	for	(i)	and	(ii)
   1      Sales a/c                               480
          Debtors a/c                480
          Invoice omitted
   2      Interest Received a/c        20
          Debtors a/c                              16
          Suspence a/c                              4
 64     Graded Accounting Questions – Solutions



 7  Dooley Solution
(a)	Adjusted	Debtors	Ledger	Control	a/c
                                     €                                         €
   1/1/12 Bal. b/d                 63,100          1/1/12 Bal. b/d            1,600
   Discount Disallowed                280          Bills Receivable             200
   Dishonored Cheque                1,140          Returns                       90
   Debtor Recoverable               1,360          Interest                      60
   Invoice                            100
   Bal. c/d                         1,600          Bal. c/d                  65,630
                                   67,580                                    67,580
   Bal. b/d                        65,630          Bal. b/d                   1,600

(b)	Adjusted	Schedule	of	Debtors
   Balance as per Schedule                    60,256
   less Bills Rec.                              (400)
   Add Discount Disallowed                       174
   less Returns                                 (340)
   Add Interest                                  340
   Add Dishonored cheque                       1,140
   Add Invoice                                 1,500
   Add Debtor Recoverable                      1,360
   Corrected balance (65,630 2 1,600)         64,030

(c)	Why	is	it	vital	to	implement	strict	credit	control	on	debtors?
   If Debtors increase in size you may be faced with the following:
   1. Increased risk of bad debts
   2. Insufficient cash to pay creditors
   3. Need for overdraft facilities for working capital
   4. Cost of Debtors collection department
   5. May need to sell long term debts to a factoring firm for collection.
                                     Topic 4  Debtors and Creditors Control A/C’s Solutions                65



 8  Curley Solution
(a)	Adjusted	Creditors	Ledger	Control	Account
                               € 	     	                             €
   1/1/12 Bal. b/d              25         1/1/12 Bal. b/d         6,100
   Interest                      9         Discount Disallowed        30
   Cr. note                    677         Restocking Charge          11
   Contra                      300         Disc Disallowed            50
   Bills Payable                80
   Corrected bal.            5,100
                             6,191                                 6,191

(b)	Adjusted	Schedule	of	Creditors
                                       €
   Original bal.                     5,370
   2 Interest                          (15)
   1 Disc Disallowed                    90
   2 Cr. note                         (325)
   2 Contra                           (300)
   2 Restocking                        (10)
   2 Bills Payable                    (210)
   1 Dishonoured Cheque                500
   Corrected Bal.                    5,100

(c)	Journal	entries
                       Dr.       Cr.
   Creditors            50       550
   Discount Rec.        50
   Suspense a/c        450

(d)	Explain	what	is	meant	by	leaning	on	the	trade.
   Postponing payment of creditors until the very last occasion before they take action such as charge interest
   or use legal proceedings. Using creditors as a source of finance to run your business & provide you with
   cash flow.
                            Topic


                            5
Asset Disposal Revaluation
                  Solution
    2    Speedo
    3    Fast & Furious
    4    Velocity
    5    A-Z
    6    Auto Accelerator
    8    Johno
    9    Una Cullen
  10     Stuart Trainor
                                             Topic 5  Asset Disposal Revaluation Solution         67



 2  Speedo CabS Solution
(a)	                                             Vehicles	a/c
          Date            Details            €                Date             Details             €
       1/1/2013   Balance b/d             118,000          1/4/2013   Disposal                   40,000
       1/4/2013   New Vehicle (No. 4)      48,000          31/12/2013 Balance c/d               126,000
                                          166,000                                               166,000
       1/1/2014   Balance b/d             126,000          1/9/2014   Disposal                   42,000
       1/9/2014   New Vehicle (No. 5)      52,000          31/12/2014 Balance c/d               136,000
                                          178,000                                               178,000
       1/1/2015   Balance b/d             136,000

(b)	                                      Vehicle	Disposal	a/c
          Date             Details           €                Date              Details            €
       1/4/13     Vehicles a/c (No. 3)     40,000          1/4/13      Depreciation a/c           9,500
       31/12/13   Profit & Loss a/c         1,500          1/4/13      Trade In                  20,000
                                                                       Bank (Insurance comp.)    12,000
                                           41,500                                                41,500
       1/9/14     Vehicles a/c (No. 1)     42,000          1/9/14      Depreciation a/c          35,700
                                                           1/9/14      Trade In                   5,000
                                                           31/12/14    Profit & Loss a/c          1,300
                                           42,000                                                42,000

(c)	                            Provision	for	Depreciation	on	Vehicles	a/c
          Date            Details            €                  Date           Details            €
       1/4/13     Disposal                  9,500          1/1/13      Balance b/d               48,050
       31/12/13   Balance c/d              57,150          31/12/13    Profit & Loss a/c         18,600
                                           66,650                                                66,650
       1/9/14     Disposal                 35,700          1/1/14      Balance b/d               57,150
       31/12/14   Balance c/d              40,850          31/12/14    Profit & Loss a/c         19,400
                                           76,550                                                76,550
                                                           1/1/15      Balance b/d               40,850
 68       Graded Accounting Questions – Solutions


Workings
W1 Opening balance on Vehicles a/c 1/1/2013
                                €
Vehicle No. 1                30,000
  Entertainment unit         12,000
Vehicle No. 2                36,000
Vehicle No. 3                40,000
                           118,000

Acc.	Depc.         Vehicle         Cost    2009 2010        2011      2012      2013        2014 Total	Dep.
                                    €        €     €          €        €         €           €       €
 18,000      No. 1                30,000    4,500 4,500      4,500    4,500     4,500       3,000
  7,200      Entertainment unit   12,000       —     —       3,600    3,600     1,800       1,200    35,700
 14,850      No. 2                36,000       — 4,050       5,400    5,400     5,400       5,400
  8,000      No. 3                40,000       —     —       2,000    6,000     1,500          —       9,500
             No. 4                48,000       —     —          —        —      5,400       7,200
             No. 5                52,000       —     —          —        —         —        2,600
 48,050      Total Depreciation                                      48,050    18,600      19,400

    W
(d)		 hat	is	meant	by	Depreciation?	
   Depreciation	is the permanent and gradual decrease in the value of a fixed asset over a period due to wear
   and tear, obsolescence, use and the passage of time.

    W
(e)		 hy	does	a	company	charge	depreciation	when	calculating	a	profit?		
   Depreciation is an expense/cost incurred by this year’s trading activities and even though a non-cash expense
   should be taken away in calculating this year’s profit.
                                                    Topic 5  Asset Disposal Revaluation Solution                     69



    3  FaSt & FuriouS Solution
Depreciation	Chart
       Vehicle	       Date	             Cost                            Depreciation
       No.          Purchased                        2009      2010       2011      2012           2013      Disposal
                                         €             €         €          €         €             €           €
       1          01/07/2009           60,000        6,000     12,000    12,000      6,000
                  01/01/2010            6,000                   2,400      1,200       600                     40,200
       2          01/04/2010           48,000                   7,200      9,600     9,600         9,600
       3          01/10/2010           72,000                   4,800    14,400 14,400            10,800       44,400
       4          01/07/2012           80,000                                        8,000        16,000
       5          01/10/2013           90,000                                                      4,500
       Profit & Loss Account                                              69,600      38,600      40,900

(a)	                                               Vehicles	a/c	(Cost)
                                                     €                                                           €
       1/1/12        Balance b/d                  186,000          1/7/12         Disposal                     66,000
       1/7/12        Bank/Trade in                 80,000          31/12/12       Balance                     200,000
                                                  266,000                                                     266,000
       1/1/13        Balance b/d                  200,000          1/10/13        Disposal                     72,000
       1/10/13       Bank/Trade in                 90,000          31/12/13       Balance c/d                 218,000
                                                  290,000                                                     290,000
       1/1/14        Balance b/d                  218,000

(b)	                                            Disposal	of	Vehicles	a/c
                                                     €                                                            €
       1/7/12        Vehicles                      66,000          1/7/12          Prov. Deprec.                40,200
                                                                                   Trade-in                     20,000
                                                                                   Loss on Disposal              5,800
                                                   66,000                                                       66,000
       1/10/13       Disposal                      72,000          1/10/13         Prov. Deprec.                44,400
                                                                                   Insurance                    19,000
                                                                                   Loss on Disposal              8,600
                                                   72,000                                                       72,000

(c)	                                       Provision	for	Depreciation	a/c
                                                     €                                                           €
       1/1/12        Disposal                      40,200          1/1/12          Balance b/d                 69,600
       31/12/12      Balance c/d                   68,000          31/12/12        P&L                         38,600
                                                  108,200                                                     108,200
       31/10/13      Disposal                      44,400          1/1/13          Balance b/d                 68,000
                     Balance c/d                   64,500          31/12/13        P&L                         40,900
                                                  108,900                                                     108,900
                                                                   1/1/14          Balance b/d                 64,500

(d)	Depreciation	is	calculated	either
       1.	 On	cost/Straight	line	method
           The amount written off (depreciated) p.a. is always the same. It is a fixed % of the cost of the asset.
	      2.	 On	Book	Value/Reducing	Balance	Method
           The amount written off p.a. is always less than the previous year.
           The % depreciation is calculated on the worth of the asset (cost less depreciation).
  70         Graded Accounting Questions – Solutions



 4  VeloCity VehiCleS Solution
Vehicle	(1)	(including	tachograph)
       Cost/value          Depc.          YR.
       32,000              6,400          07
       31,600              6,320          08
       25,280              5,056          09
       20,224              2,359          10

Vehicle	(2)
       Value               Depc.          YR.
       38,000              7,600          08
       30,400              6,080          09
       24,320              4,864          10
       19,456              3,891          11

Vehicle	(3)
       Value               Depc.          YR.
       44,000              8,800          09
       35,200              7,040          10
       28,160              1,877          11

Depreciation	Table
                                         Acc.	Depc.     2010       2011       Disposal
       (1)      1/1/07      32,000        17,776         2,359         —      20,135
       (2)      1/1/08      38,000        13,680         4,864      3,891
       (3)      1/1/09      44,000         8,800         7,040      1,877     17,717
       (4)      1/8/10      46,000                       3,833      8,433
       (5)      1/5/11      52,000                          —       6,933
                                         40,256         18,096     21,134

(a)	                                                      Vehicles	a/c
       Date         Details                              €         Date       Details           €
       1/1/10       Balance b/d                       120,000      1/8/10     Disposal a/c    38,000
       1/8/10       Trade in Allowance                 16,000
                    Bank                    (4)        30,000      31/12/10   Balance c/d    128,000
                                                      166,000                                166,000
       1/1/11       Balance b/d                       128,000      1/5/11     Disposal a/c    44,000
       1/5/11       Bank                               46,000
                    Trade in Allowance      (5)         6,000      31/12/11   Balance c/d    136,000
                                                      180,000                                180,000
       1/1/12       Balance b/d                       136,000
                                           Topic 5  Asset Disposal Revaluation Solution        71


(b)	                                    Vehicle	Disposal	a/c
       Date      Details                  €          Date      Details                      €
       1/8/10    Vehicle a/c (1)        38,000       1/8/10    Dep. A/c                   20,135
                                                               Trade In allowance         16,000
                                                               Profit 1 Loss a/c (loss)    1,865
                                        38,000                                            38,000
       1/5/11    Vehicle a/c (3)        44,000       1/5/11   Dep. a/c                    17,717
                                                              Compensation                18,000
                                                              Trade In allowance           6,000
                                                     31/12/11 Profit 1 Loss a/c (loss)     2,283
                                        44,000                                            44,000

(c)	                               Provision	for	Depreciation	a/c
       Date     Details                    €         Date     Details                       €
       1/8/10   Disposal a/c (1)         20,135      1/1/10   Balance b/d                 40,256
       31/12/10 Balance c/d              38,217      31/12/10 Profit 1 Loss a/c           18,096
                                         58,352                                           58,352
       1/5/11   Disposal a/c (3)         17,717      1/1/11   Balance b/d                 38,217
       31/12/11 Balance c/d              41,634      13/12/11 Profit 1 Loss a/c           21,134
                                         59,351                                           59,351
                                                     1/1/12     Balance b/d               41,634
  72       Graded Accounting Questions – Solutions



 5  tranSport Solution (a to Z)
                                           Acc.       2009         2010         Disposal
(1)
unit
                50,000
                 5,500
                           1/1/05
                           1/1/07
                                          29,520
                                           1,980}*
                                                      2,389
                                                        411
                                                            * }        —
                                                                       —        34,300
(2)             55,000     1/1/06         26,840      5,632         4,506
(3)             60,000     1/1/07         21,600      7,680         2,048       31,328
(4)             65,000     1/8/09             —       5,417        11,917
(5)             68,000     1/5/10             —                     9,067
                                          79,940     21,529        27,538

Vehicle 1 including unit                  *31,500      2,800

(a)	                                           Vehicles	a/c
   1/1/09         Balance b/d (1)          170,500      1/8/09    Disposal                  55,500
   1/8/09         Bank                      48,000
                  Trade-in                  17,000      31/12/09 Balance c/d               180,000
                                           235,500                                         235,500
   1/1/10         Balance b/d              180,000      1/5/10    Disposal                  60,000
   1/5/10         Bank                      42,000
                  Trade-in                  26,000      31/12/10 Balance c/d               188,000
                                           248,000                                         248,000
   1/1/11         Balance b/d              188,000

(b)	                                    Vehicle	Disposal	Account
       1/8/09      Vehicle 1                55,500      1/8/09   Depreciation (3)          34,300
                                                                 Trade in                  17,000
                                                        31/12/09 Profit and Loss            4,200
                                            55,500                                         55,500
       1/5/10      Vehicle 3                60,000      1/5/10    Depreciation (5)         31,328
                                                        1/5/10    Trade-in                 26,000
       31/12/10 Profit and Loss              7,328      1/5/10    Bank (Insurance)         10,000
                                            67,328                                         67,328

(c)	                                Provision	for	depreciation	Account
       1/8/09   Disposal (3)                34,300      1/1/09   Balance b/d (2)            79,940
       31/12/09 Balance c/d                 67,169      13/12/09 Profit and Loss (4)        21,529
                                           101,469                                         101,469
       1/5/10   Disposal (5)                31,328      1/1/10   Balance b/d                67,169
       31/12/10 Balance c/d                 63,379      31/12/10 Profit and Loss (6)        27,538
                                            94,707                                          94,707
                                                        1/1/11    Balance b/d               63,379
                                            Topic 5  Asset Disposal Revaluation Solution   73


Workings	for	Depreciation	Table
No.	1
   Year          Cost           Depc.
   05           50,000          10,000
   06           40,000           8,000
   07           37,500           7,500
   08           30,000           6,000
   09           24,000           2,800

No.	2
   Year          Cost           Depc.
   06           55,000          11,000
   07           44,000           8,800
   08           35,200           7,040
   09           28,160           5,632
   10           22,528           4,506

No.	3
   Year          Cost           Depc.
   07           60,000          12,000
   08           48,000           9,600
   09           38,400           7,680
   10           30,720           2,048

No.	4
   Year        Cost             Depc.
   09          65,000            5,412
   10          59,588           11,917

(d)	Profits	and	Loss	a/c	extract	31/12/10
   Depreciation             (27,538)
   Profit on Disposal         7,328

   Balance	Sheet	on	31/12/10              Cost	€      Depc.	€       NBV	€
   Fixed Assets      Vehicles            188,000       63,379       124,621
    74        Graded Accounting Questions – Solutions



    6  auto aCCelerator Solution
Depreciation	Table
                                              Acc.         2012          2013         Disposal
       A         75,000         1/1/08       44,280        3,072            —
       Unit      15,000         1/1/10        6,840          816            —           55,008
       B         51,000         1/7/09       21,624        5,875         4,700              —
       C         66,000         1/1/10       23,760        8,448         1,690          33,898
       D         81,000         1/7/12           —         8,100        14,580              —
       E         87,000         1/4/13                        —         13,050
                                             96,504       26,311        34,020

(a)	                                               Vehicles	a/c
       1/1/12     Bal b/d                    207,000           1/7/12   Vehicle (A)               90,000
       1/7/12     Vehicle (D)                 81,000           31/12/12 Bal c/d                  198,000
                                             288,000                                             288,000
       1/1/13     Bal. b/d                   198,000           1/4/13   Vehicle (C)               66,000
       1/4/13     Vehicle (E)                 87,000           31/12/13 Bal c/d                  219,000
                                             285,000                                             285,000
       1/1/14     Bal b/d                    219,000

(b)	                                         Vehicle	Disposal	a/c
       1/7/12     Vehicle (A)                 90,000           1/7/12    Depreciation             55,008
                                                                         Allowance                33,000
                                                                         Loss                      1,992
                                              90,000                                              90,000
       1/4/13     Vehicle (C)                 66,000           1/4/13    Depreciation             33,898
                  Profit                       6,448                     Compensation             20,550
                                                                         Allowance                18,000
                                              72,448                                              72,448

(c)	                                 Provision	for	Depreciation	a/c
       1/7/12   Disposal (A)                  55,008           1/1/12   Bal b/d                   96,504
       31/12/12 Bal c/d                       67,807           31/12/12 P & L                     26,311
                                             122,815                                             122,815
       1/4/13   Disposal C                    33,898           1/1/13   Bal b/d                   67,807
       31/12/13 Bal c/d                       67,929           31/12/13 P & L                     34,020
                                             101,827                                             101,827
                                                               1/1/14    Bal b/d                  67,929

(d)	Profit	and	Loss:
                                                        €
       Expense              Depreciation              34,020
       Gain                 Disposal                   6,448

	      Balance	Sheet:
       Vehicles       €219,000           €67,929       €151,071
                      (Cost)             (Depc)        (Value)
                                  Topic 5  Asset Disposal Revaluation Solution   75


Workings	for	Depreciation	Table
Vehicle	A
                      p/a
   2008     75,000   15,000
   2009     60,000   12,000
   2010     48,000    9,600
   2011     38,400    7,680
   2012     30,720    3,072

Unit
                      p/a
   2010     15,000    4,800
   2011     10,200    2,040
   2012      8,160      816

Vehicle	B
                      p/a
   2009     51,000    5,100
   2010     45,900    9,180
   2011     36,720    7,344
   2012     29,376    5,875
   2013     23,501    4,700

Vehicle	C
                      p/a
   2010     66,000   13,200
   2011     52,800   10,560
   2012     42,240    8,448
   2013     33,792    1,690

Vehicle	D
                      p/a
   2012     81,000    8,100
   2013     72,900   14,580
 76       Graded Accounting Questions – Solutions



 8  Johno Solution
(a)                              Provision	for	Depreciation	Account
                                           €                                               €
      1/1/06   Revaluation Reserve       57,600      1/1/06   Balance b/d                57,600
      31/12/06 Balance c/d                8,400      31/12/06 Profit and Loss             8,400
                                         66,000                                          66,000
      31/12/07 Balance c/d               16,800      1/1/07   Balance b/d                 8,400
                                                     31/12/07 Profit and Loss             8,400
                                         16,800                                          16,800
      31/12/08 Balance c/d               29,760      1/1/08   Balance b/d                16,800
                                                     31/12/08 Profit and Loss            12,960
                                         29,760                                          29,760
      1/1/09   Revaluation Reserve       29,760      1/1/09   Balance b/d                29,760
      31/12/09 Balance c/d               14,256      31/12/09 Profit and Loss            14,256
                                         44,016                                          44,016
      1/1/10   Disposal                   9,240      1/1/10   Balance b/d                14,256
      1/1/10   Revaluation Reserve        5,016      31/12/10 Profit and Loss             7,200
      31/12/10 Balance c/d                7,200
                                         21,456                                          21,456

                                     Disposal	of	Land	Account
                                           €                                               €
      1/1/07   Buildings                240,000      1/1/07    Bank                     270,000
      31/12/07 Profit and Loss           30,000
                                        270,000                                         270,000

                                   Disposal	of	Buildings	Account
                                           €                                               €
      1/1/10   Buildings                462,000      1/1/10    Depreciation               9,240
      31/12/10 Profit and Loss           15,240      1/1/10    Bank                     468,000
                                        477,240                                         477,240

                                    Revaluation	Reserve	Account
                                           €                                               €
                                                     1/1/06    Land and Buildings        90,000
                                                               Prov. for Depreciation    57,600
      31/2/10   Bal. c/d                356,376      1/1/09    Land and Buildings        64,800
                                                               Prov. for Depreciation    29,760
                                                     1/1/10    Land and Buildings       109,200
                                                               Prov. for Depreciation     5,016
                                        356,376                                         356,376
                                            Topic 5  Asset Disposal Revaluation Solution   77


                                       Land	&	Buildings
                                         €                                          €
   1/1/06    Bal. b/d                 570,000      31/12/06 Bal. c/d             660,000
   1/1/06    Reval. Reserve            90,000
                                      660,000                                    660,000
   1/1/07    Bal. b/d                 660,000      1/1/07   Disposal             240,000
                                                   31/12/07 Bal. c/d             420,000
                                      660,000                                    660,000
   1/1/08    Bal. b/d                 420,000
             Bank                     150,000
             Bank.                     54,000
             Wages                     24,000      31/12/08 Bal. c/d             648,000
                                      648,000                                    648,000
   1/1/09    Bal. b/d                 648,000
             Reval. Res.               64,800      31/12/09 Bal. b/d             712,800
                                      712,800                                    712,800
   1/1/10    Bal. b/d                 712,800      1/1/10    Disposal            462,000
             Reval. Res.              109,200                Bal. c/d            360,000
                                      822,000                                    822,000
   1/1/11    Bal. b/d                 360,000

(b)	Balance	Sheet	extract	31/12/10
                               €          €          €
   Fixed Assets              Cost       Depc.      NBV
      land & Buildings      360,000     7,200     352,800
   Capital and Reserves
      Revaluation Reserve                         356,376
78   Graded Accounting Questions – Solutions



9  una Cullen Solution
                                     Land	and	Buildings	a/c
 Date        Details                     €         Date        Details                 €
 1/1/2005    Balance b/d               868,000
 1/1/2005    Revaluation Reserve       196,000     31/12/2005 Balance c/d           1,064,000
                                     1,064,000                                      1,064,000
 1/1/2006    Balance b/d             1,064,000     1/2/2006   Disposal                308,000
                                                   31/12/2006 Balance c/d             756,000
                                     1,064,000                                      1,064,000
 1/1/2007    Balance b/d               756,000
             Bank                      504,000
             Bank                      406,000
             Wages                      84,000     31/12/2007 Balance c/d           1,750,000
                                     1,750,000                                      1,750,000
 1/1/2008    Balance b/d             1,750,000
 1/1/2008    Revaluation Reserve       175,000     31/12/2008 Balance c/d           1,925,000
                                     1,925,000                                      1,925,000
 1/1/2009    Balance b/d             1,925,000     1/2/2009   Disposal                831,600
 1/1/2009    Revaluation Reserve        96,600     31/12/2009 Balance c/d           1,190,000
                                     2,021,600                                      2,021,600
 1/1/2010    Balance b/d             1,190,000

                           Provision	for	Depreciation	on	Buildings	a/c
 Date       Details                      €         Date       Details                   €
 1/1/2005   Revaluation Reserve        80,640      1/1/2005   Balance b/d             80,640
 31/12/2005 Balance c/d                15,120      31/12/2005 Profit and Loss a/c     15,120
                                       95,760                                         95,760
                                                   1/1/2006   Balance b/d             15,120
 31/12/2006 Balance c/d                30,240      31/12/2006 Profit and Loss a/c     15,120
                                       30,240                                         30,240
                                                   1/1/2007   Balance b/d             30,240
 31/12/2007 Balance c/d                65,240      31/12/2007 Profit and Loss a/c     35,000
                                       65,240                                         65,240
 1/1/2008   Revaluation Reserve        65,240      1/1/2008   Balance b/d             65,240
 31/12/2008 Balance c/d                38,500      31/12/2008 Profit and Loss a/c     38,500
                                      103,740                                        103,740
 1/1/2009   Disposal                   16,632      1/1/2009   Balance b/d             38,500
 1/1/2009   Revaluation Reserve        21,868      31/12/2009 Profit and Loss a/c     23,800
 31/12/2009 Balance c/d                23,800
                                       62,300                                         62,300
                                                   1/1/2010    Balance b/d            23,800
                                         Topic 5  Asset Disposal Revaluation Solution   79


                                  Disposal	of	land
                                   €                                             €
   1/1/06    Land               308,000         1/1/06    Bank                392,000
             Profit              84,000
                                392,000                                       392,000

                                Disposal	of	Building
                                   €                                             €
   1/1/09    Building           831,600         1/1/09    Bank                952,000
             Profit             137,032                   Depreciation         16,632
                                968,632                                       968,632

                                Revaluation	Reserve
                                     €                                           €
                                                1/1/05    Land & Building     196,000
                                                          Prov. Depc.          80,640
                                                1/1/08    Land & Building     175,000
                                                          Prov. Depc.          65,240
   31/12/09 Balance c/d         635,348         1/1/09    Land & Building      96,600
                                635,348                   Prov. & Depc.        21,868
                                                                              635,348

(b)	Balance	Sheet	Extract	31/12/09
   Fixed Asset                 Cost            Depc.         NBV
      Land and Building     €1,190,000         23,800      1,166,200
   Capital and Reserves
      Revaluation Reserve                                   €635,348
  80       Graded Accounting Questions – Solutions



10  Stuart trainor Solution
(a)	                                Land	and	Building	Account
                                          €                                         €
       1/1/06    Balance b/d           250,000
       1/1/06    Revaluation Res.      230,000     31/12/06     Balance c/d       480,000
                                       480,000                                    480,000
       1/1/07    Balance b/d           480,000     1/1/07       Disposal          120,000
                                                   31/12/02     Balance c/d       360,000
                                       480,000                                    480,000
       1/1/08    Balance b/d           360,000     31/12/08     Balance c/d       560,000
       1/1/08    Bank                  150,000
                 Bank                   30,000
                 Wages                  20,000
                                       560,000                                    560,000
       1/1/09    Balance b/d           560,000     31/12/09     Balance c/d       700,000
       1/1/09    Revaluation Res.      140,000
                                       700,000                                    700,000
       1/1/10    Balance b/d           700,000                  Disposal          450,000
       1/1/10    Revaluation Res.       50,000     31/12/08     Balance c/d       300,000
                                       750,000                                    750,000

                        Provision	for	Depreciation	on	Building	Account
                                          €                                          €
       1/1/06   Revaluation Res.        32,000     1/1/06       Balance b/d        32,000
       31/12/06 Balance c/d              7,200     31/12/06     Profit and Loss     7,200
                                        39,200                                     39,200
                                                   1/1/07       Balance b/d         7,200
       31/12/07 Balance c/d             14,400     31/12/07     Profit and Loss     7,200
                                        14,400                                     14,400
                                                   1/1/08       Balance b/d        14,400
       31/12/08 Balance c/d             25,600     31/12/08     Profit and Loss    11,200
                                        25,600                                     25,600
       1/1/09   Reval Res.              25,600     1/1/09       Balance c/d        25,600
       31/12/09 Balance c/d             14,000     31/12/09     Profit and Loss    14,000
                                        39,600                                     39,600
       1/1/10   Disposal                 9,000     1/1/10       Balance b/d        14,000
       1/1/10   Revaluation Res.         5,000     31/12/10     Profit and Loss     6,000
       31/12/10 Balance c/d              6,000
                                        20,000                                     20,000
                                                   1/1/12       Balance b/d         6,000
                                             Topic 5  Asset Disposal Revaluation Solution    81


                                Disposal	of	Land	Account
                                      €                                              €
   1/1/07   Land                   120,000
   31/12/07 P & L (Profit)          20,000           1/1/07   Bank                 140,000
                                   140,000                                         140,000

                              Disposal	of	Building	Account
                                      €                                               €
   1/1/09   Building               450,000           1/1/09   Depreciation           9,000
   31/12/09 P & L (Profit)          69,000           1/1/09   Bank                 510,000
                                   519,000                                         519,000

                              Revaluation	Reserve	Account
                                        €                                             €
                                                     1/1/07   Land and Building    230,000
                                                              Provision for Dep.    32,000
   31/12/10 Bal. c/o               482,600           1/1/09   Land and Building    140,000
                                                              Provision for Dep.    25,600
                                                     1/1/10   Land and Building     50,000
                                                              Provision for Dep.     5,000
                                   482,600                                         482,600

(b)	Balance	Sheet	Extract	2010
                               Cost          Depc.       NBV
   Fixed Asset               €300,000       €6,000     €294,000
      Land and Building
   Capital and Reserves
      Revaluation Reserve                               €482,600
                        Topic


                         6
            Tabular Statements
                       Solution
2    Mercantile
3    Nordic
4    Othello
5    Polar
6    Remus
7    Sonata
8    Tertius
9    Qualter
 2  Mercantile Solution
                      1/1/2012      Jan       Feb      Mar      May       Jun       Jul     Dec       Dec      31/12/2012
Land & Buildings      252,000     128,000    90,000                                                               470,000
Depreciation           (15,000)    15,000                                                            (7,250)       (7,250)
Vehicles                70,000               45,000                                         8,000                 123,000
Depreciation           (28,000)                                                             7,200   (17,000)      (37,800)
Stock                   68,400                        (2,000)                                                      66,400
Debtors                 53,000                                                      400                            53,400
Goodwill                                      5,000                                                                 5,000
Insurance Prepaid         600                                   1,680                                (1,580)          700
                      401,000     143,000   140,000   (2,000)   1,680     —         400    15,200   (25,830)      673,450

Ordinary Shares       250,000               100,000                                                              350,000
Share Premium          25,000                25,000                                                               50,000
P & L Balance          75,000                           (160)           (17,500)   1,000     700    (25,830)      33,210
Creditors              29,000                15,000   (1,840)                                                     42,160
Expenses due            2,500                                                                                      2,500
Revaluation Reserve               143,000                                                                        143,000
Bank                   19,500                                   1,680   17,500     (600)   14,500                 52,580
                      401,000     143,000   140,000   (2,000)   1,680     —        (400)   15,200   (25,830)     673,450
                                                                                                                             Topic 6  Tabular Statements Solution
                                                                                                                             83
                                                                                                                                                           84

 3  nordic Solution
(a)
                           1/1/2012      Jan         Feb         Mar      April    May      June      Aug        Oct      Nov       Dec      31/12/2012
Land and Buildings         300,000     110,000     140,000                                                                                      550,000
Depreciation                (24,000)                24,000                                                                        (10,000)      (10,000)
Equipment                    48,000                                                         (800)                                                47,200
Depreciation                (18,000)                                                         500                                                (17,500)
Stock                        78,000                                        600                                                                   78,600
Debtors                      96,000     15,000                   600      (648)                                           (600)                 110,352
Bad debts provision          (4,800)                                                                                                             (4,800)
Goodwill                                10,000                                                                                                   10,000
Insurance a/c. (prepaid)                                                          1,800                                            (1,350)          450
                           475,200     135,000     164,000       600       (48)   1,800     (300)     —          —        (600)   (11,350)      764,302

Ordinary Shares         336,000         80,000                                                                 34,000                           450,000
Share Premium            14,400         20,000                                                                 11,000                            45,400
                                                                                                                                                           Graded Accounting Questions – Solutions




Profit and loss balance 26,400                                  1,500      (48)             100     (16,640)                      (10,000)        3,162
                                                                                                                                   (1,350)
                                                                                                                                    3,200

Creditors                   70,800      35,000                                              (400)                                               105,400
Bank                        25,200                               (900)            (3,600)           16,640     (45,000)   (600)                  (6,460)
Expenses due                 2,400                                                 1,800                                                          2,400
Revaluation Reserve                                164,000                                                                                      164,000
Rent Receivable                                                                   3,600                                            (3,200)          400
                           475,200     135,000     164,000       600       (48)   1,800     (300)     —          —        (600)   (11,350)      764,302

(b) Name 3 groups of people who could be interested in a company’s financial affairs and identify the main reason why.
      •   Banks — To meet interest & Repayments
      •   Creditors — for liquidity, ease of getting paid
      •   Shareholders — for Receipt of dividends & share price changes
      •   Revenue — for levying of Taxation.
 4  othello Solution
                        1/1/12       Jan       Feb     Mar     Apr     May      June       Aug        Sep       Oct       Nov        Dec        31/12/12
Land & Buildings       590,000      85,000   180,000                                                                                             855,000
Acc. Depc.             (35,000)     35,000                                                                                         (15,700)      (15,700)
Del. van                88,000                                                 (16,000)               4,000                                       76,000
Acc. Depc.             (28,000)                                                  5,200                6,500                        (16,800)      (33,100)
Stock                   36,000                                 (900)                                                                              35,100
Debtors                 75,000                18,000    600                                                              (2,500)                  91,100
Bad Debts Provision      (3,000)                                                                                                                  (3,000)
Insurance prepaid           800                                        6,600                                                         (4,650)       2,750
Goodwill                                       7,000                                                                                               7,000
Total Assets           723,800     120,000   205,000    600    (900)   6,600   (10,800)     —        10,500     —        (2,500)    37,150     1,015,150

Creditors               65,000                23,000           (810)           (12,000)                                                           75,190
Bank                    22,400                         (900)           3,900              48,300      9,000   (13,500)    (750)                   68,450
Expenses Due             1,800                                                                                                                     1,800
Ordinary Shares        560,000               130,000                                                          10,000                             700,000
Share Premium           37,000                52,000                                                           3,500                              92,500
P&L a/c.                37,600                         1,500    (90)            1,200     (48,300)    1,500              (1,750)   *(34,750)     (43,090)
Reval. Reserve.                    120,000                                                                                                       120,000
Rent Rec. prepaid.                                                     2,700                                                        (2,400)          300
Total liabs.           723,800     120,000   205,000    600    (900)   6,600   (10,800)     —        10,500     —        (2,500)    37,150     1,015,150

*P&L 34,750 5 (15,700) 1 (16,800) 1 (4,650) 1 2,400
                                                                                                                                                            Topic 6  Tabular Statements Solution
                                                                                                                                                            85
                                                                                                                                                                        86

 5  Polar Solution
(a)
                                    1/1/2012         Jan         Mar          Apr       May         Jun         Aug           Oct       Nov       Dec      31/12/2012
Land & Buildings                    160,000         80,000                                                                                       60,000       300,000
Depreciation                          (8,000)                                                                                                     8,000
                                                                                                                                                 (5,000)      (5,000)
Equipment                             76,000                                                        (700)                                                     75,300
Depreciation                         (22,000)                                                        460                                                     (21,540)
Goodwill                              25,000         2,000                                                                                                    27,000
Stock                                 61,000                                  500                                                                             61,500
Debtors                               60,000        18,000       1,920       (540)                                                     (1,920)                77,460
Bad Debts Provision                   (3,000)                                                                                                                 (3,000)
Insurance                                                                              1,200                                                       (900)         300
                                     349,000      100,000        1,920         (40)    1,200        (240)        —            —        (1,920)   62,100      512,020

Ordinary Shares                      180,000        60,000                                                                  20,000                           260,000
                                                                                                                                                                        Graded Accounting Questions – Solutions




Share Premium                         35,000        15,000                                                                   5,000                            55,000
P & L Balance                         51,000                     2,400         (40)                  160      (12,000)                           (5,180)      36,340
Creditors                             61,000        25,000                                          (400)                                                     85,600
Bank                                  19,000                       (480)                 390                   12,000       (25,000)   (1,920)                 3,990
Expenses due                           3,000                                                                                                                   3,000
Revaluation Reserve                                                                                                                              68,000       68,000
Rent Rec.                                                                                810                                                       (720)          90
                                     349,000      100,000       1,920          (40)    1,200        (240)        —            —        (1,920)   62,100      512,020
P & L for dec.                         2900         1720       25,000 5                           (5,180)

(b) Explain, with the aid of an example, how the principle of double entry works.
      Double Entry works on the principle that there are two sides to every transaction, a giving and a receiving aspect.
      The debit side is for receiving with the credit side for the giving.
      Example: Purchased goods on credit: Debit the purchases account as we are receiving the goods
                                             Credit the creditors account as they are giving the goods
 6  reMuS Solution
(a)
                             1/1/2012       Jan        Feb        Mar        Apr       May        Jun      Jul      Aug         Oct      Nov       Dec      31/12/2012
Land & Buildings             364,000      168,000    238,000                                                                                                   770,000
Depreciation                  (35,000)                35,000                                                                                     (11,200)      (11,200)
Equipment                      70,000                                                                    (1,260)                                                68,740
Depreciation                  (28,000)                                                                      700                                  (13,580)      (40,880)
Goodwill                                    5,600                                                                                                                5,600
Stock                         98,000                                          896                                                                               98,896
Debtors                      126,000       14,000                          (1,008)                378                                    (378)                 138,992
Bad Debts Provision           (6,300)                            (2,100)                                                                                        (8,400)
Insurance                                                                             2,800                                                       (2,100)          700
                             588,700      187,600    273,000     (2,100)     (112)    2,800       378     (560)      —          —        (378)   (26,880)    1,022,448

Ordinary Shares              406,000      112,000                                                                             42,000                           560,000
Share Premium                 19,600       22,400                                                                             14,000                            56,000
P & L Balance                 40,600                             (2,100)     (112)              1,260      140     (25,900)                      (21,504)       (7,616)
Creditors                     85,400       53,200                                                         (700)                                                137,900
Bank                          32,200                                                  (3,920)    (882)             25,900     (56,000)   (378)                  (3,080)
Expenses due                   4,900                                                                                                                             4,900
Revaluation Reserve                                  273,000                                                                                                   273,000
Rent Rec.                                                                              6,720                                                      (5,376)        1,344
                             588,700      187,600    273,000     (2,100)     (112)     2,800      378     (560)      —          —        (378)   (26,880)    1,022,448

(b) What is meant by overtrading? How can it be corrected?
      Overtrading means that the firm is trying to finance too much sales from too little resources.
      The firm has too many debtors and not enough cash.
      Overtrading is identified by a worsening liquidity situation.
Solutions include
                                                                                                                                                                          Topic 6  Tabular Statements Solution




    1. Sell off Investments
    2. Sale and lease back
                                                                                                                                                                          87




    3. Restrict credit
    4. Improve stock control
                                                                                                                                                                     88

 7  Sonata Solution
(a)
                    1/1/2012         Jan        Feb       Mar         Apr         May       Jun        Jul        Aug       Oct      Nov       Dec     31/12/2012
Land & Building     290,000        190,000                                                                                                   120,000      600,000
Depreciation         (24,000)                                                                                                                  9,600**    (14,400)
Equipment             20,000                                                                                               (800)     8,000                 27,200
Depreciation         (10,000)                                                                                               300      7,200    (2,470)      (4,970)
Goodwill              40,000         2,000                                                                                                                 42,000
Stock                 86,000                   25,000                            1,200                                                                    112,200
Debtors               90,000        24,000                2,400                 (1,350)              (2,400)                                              112,650
Bad Debts Provision   (4,500)                                                                                                                 (3,386)      (7,886)
Insurance                                                                                   1,400                                             (1,050)         350
                    487,500        216,000     25,000     2,400       —           (150)     1,400    (2,400)      —        (500)   15,200    122,694      867,144

Ordinary Shares       350,000      160,000                          90,000                                                                                600,000
Share Premium          20,000       40,000                           6,000                                                                                 66,000
                                                                                                                                                                     Graded Accounting Questions – Solutions




P & L Balance          43,000                             3,000                   (150)                        (48,000)     100        700   (19,706)*    (21,056)
Creditors              19,000       16,000     25,000                                                                      (600)                           59,400
Bank                   54,000                              (600)   (96,000)                  (400)   (2,400)    48,000             14,500                  17,100
Expenses due            1,500                                                                                                                               1,500
Revaluation Reserve                                                                                                                          144,000      144,000
Rent Rec.                                                                                  1,800                                              (1,600)         200
                    487,500       216,000     25,000     2,400       —            (150)    1,400     (2,400)      —        (500)   15,200    122,694      867,144
P & L Dec           214,400        22,470     21,050    23,386     11,600 5           *   19,706
Acc. Buildings Depc. 24,000       214,400                                 5          **    9,600

(b) Name and explain 3 fundamental accounting concepts.
Accruals Concept — All expenses incurred in a particular period must be included in that period paid or not, similarly income earned.
Going Conern     — Business continues to trade as an entity i.e continuity of existence
Prudence Concept — Err on the side of caution i.e conservative accounting figures used such as stock valued at the lower of cost and net book value
 8  tertiuS Solution
(a)
                       1/1/2012       Jan        Feb        Mar       April      June      July        Aug      Sept      Oct    Nov      Dec       31/12/2012
Land and Blgs.           82,500      17,500     30,000                                                                                                 130,000
Acc. Depc.              (10,000)     10,000                                                                                              (1,850)        (1,850)
Vehicles                 24,500                   7,500                                                                          5,500                  37,500
Acc. Depc.               (4,500)                                                                                                   600   (1,125)        (5,025)
Goodwill                 10,000                                                                                                                         10,000
Closing Stock            32,500                   1,750              (4,000)                            300                                             30,550
Debtors                  27,500                                       5,280                (600)       (376)             1,000                          32,804
Prov. for B/Ds           (1,100)                            (275)                                                                                       (1,375)
Insurance P. P.             600                                                  3,000                                                   (2,850)           750

                        162,000      27,500     39,250      (275)     1,280      3,000     (600)        (76)     —       1,000   6,100   (5,825)      233,354

Creditors                22,550                   3,250                                                                                                25,800
VAT                       1,750                                         480                             (36)                                            2,194
Bank                     14,750                              375                 2,250     (525)               7,800     (250)   6,500                 30,900
Expense Due                 375                             (375)                                                                                          —
Share Capital           100,000                 30,000                                                                                                130,000
Share Premium            12,500                  6,000                                                                                                 18,500
P. & L.                  10,075                             (275)       800        750      (75)        (40)   (7,800)   1,250   (400)   (5,825)*      (1,540)
Revaluation Res.                     27,500                          —                                                                                 27,500
                        162,000      27,500     39,250      (275)    1,280       3,000     (600)        (76)     —       1,000   6,100   (5,825)      233,354

                                     *Profit and Loss. 5,825 5 1,125 1 1,850 1 2,850


(b) Has Tertius got liquidity problems?
      (b) Current ratio on 31/12/12 62,729 : 58,894 is 1.065:1 considerably worse than last yrs 1.5;
                                                                                                                                                                  Topic 6  Tabular Statements Solution




      •	 Tertius is barely solvent, has cash flow problems
      •	 Care taken to avoid possibility of receiver appointed.
                                                                                                                                                                  89
                                                                                                                                                                         90

 9  Qualter Solution
(a)
                         1/1/2012      Jan        Feb          Mar     April      May       June       July      Aug       Sept      Nov       Dec        31/12/20/12
Goodwill                   50,000     14,200                                                                                                                   64,200
Land and Blgs.           160,000     170,000     70,000                                    56,500                                                             456,500
Acc. Depc.                (16,000)               16,000                                                                                        (8,130)         (8,130)
Equipment                  91,000                                                                     (2,520)                       15,000                    103,480
Acc. Depc.                (21,000)                                                                     1,400                         4,500    (14,500)        (29,600)
Stock                      48,000                                         896              (10,000)             (6,400)                                        32,496
Debtors                    60,000      10,000                          (1,008)   2,000                          12,000    (2,000)                              80,992
Provision                  (3,000)                         (1,200)                                                                                             (4,200)
Insurance                   2,000                                                5,600                                                         (6,200)          1,400

                         371,000     194,200     86,000    (1,200)      (112)    7,600     46,500     1,120      5,600    (2,000)   19,500    (28,830)       697,138

Creditors                 22,000       26,200                                                         (1,600)                                                 46,600
                                                                                                                                                                         Graded Accounting Questions – Solutions




Bank                      47,000                                                 (2,550)   31,500                         (1,900)   21,000                    95,050
VAT                        5,600                                                                                 2,400                                         8,000
Rent Rec.                  4,000                                                 8,000                                                        (10,400)         1,600
Share Capital            200,000     140,000                                                                                                                 340,000
Share Premium             50,000      28,000                                                                                                                  78,000
P&L a/c                   42,400                           (1,200)      (112)    2,150     15,000       480      3,200     (100)    (1,500)   (18,430)*       41,888
Reval. Res.                                      86,000                                                                                                       86,000
                         371,000     194,200     86,000    (1,200)      (112)    7,600     46,500     1,120      5,600    (2,000)   19,500    (28,830)       697,138
                         * Bank 5 (8,000) 1 5,600 1 350 2 500 5 (2,550)                               P&L (14,500) 1 (8,130) 1 (6,200) 1 10,400 5 (18,430)

(b) What is meant by leaning on the Trade?
      •	 Using creditors to finance your business
      •	 Postponing the payment of creditors until the very last day
      Dangers
      •	 Creditors may demand payment immediately
      •	 Creditors may seek to appoint Receiver.
      •	 Your credit rating will disimprove.
      •	 Cannot avail of better buying price, discounts etc.
                      Topic


                       7
                    Club a/c’s
2    Athlone
3    Bray
4    Clara
5    Dunshaughlin
6    Elphin
7    Ferbane
8    Galway
 92     Graded Accounting Questions – Solutions



 2  Athlone Athletics solution
(a)	Accumulated	Fund	on	1/1/2012
                                          €             €
   Assets:
   Clubhouse & Grounds                              850,000
   Equipment                                         54,000
   Bar Stock                                          4,600
   Bar Debtors                                          900
   Investment Income due                                150
   7½ Government Investments                         38,000
   Levies due                                         1,250
                                                    948,900
   Liabilities:
   Life Membership                      30,000
   Bar Creditors                         2,650
   Subs. in Advance                      2,000
   Levy Reserve Fund                    24,000
   Wages due                             1,600
   Bank Current Account                  1,560
   Loan                                 35,000
   Loan Interest due                     2,700      (99,510)
   Accumulated Fund in 1/1/07                      €849,390


(b)	Income	and	Expenditure	Account	for	year	ending	31/12/12
                                                    €             €
   Income:
   Investment Income                       (W)                   2,850
   Catering Profit                         (W)                   1,550
   Bar Profit                              (W)                  40,090
   Subscriptions                           (W)                 184,170
   Entrance Fees                                                17,600
   Annual Sponsorship                                           40,000
   Life Membership                         (W)                   4,500
                                                               290,760
   Expenditure:
   Sundry Expenses                         (W)    96,000
   Loan interest                           (W)     1,080
   Depr. of Equipment                      (W)     1,000
   Depr. of Clubhouse                      (W)    25,500       123,580
   Surplus of Income over Expenditure                          167,180
                                                                                 Topic 7    Club a/c’s       93


(c)	Balance	Sheet	as	on	31/12/2012
                                                             €                  €                    €
Fixed Assets:                                               Cost	              Depr.               N.B.V.
Clubhouse & Grounds                                      1,200,000                               1,200,000
Equipment                                                   86,000              1,000               85,000
                                                         1,286,000                               1,285,000
Investments:
7½% Government Investments                                                                          38,000
Building Society                                                                                   100,000
                                                                                                 1,423,000
Current Assets:
Bar Stock                                                                       5,200
Debtors                                                                           430
Bank                                                                          108,710
Less Creditors: Amounts falling due within 1 year.                            114,340
Bar Creditors                                                3,270
Subs. prepaid                                                2,500              (5,770)            108,570
                                                                                                 1,531,570
Financed by:
Creditors: Amounts falling due after 1 year.
Life membership (50,000 2 5,000)                                               40,500
Levy Reserve Fund (24,000 1 75,000)                                            99,000
Revaluation Reserve                                                           375,500              515,000
Accumulated Fund 1/1/2012                                                     849,390
1 Excess Income                                                               167,180            1,016,570
Capital Employed                                                                                 1,531,570

Notes	to	Accounts:
(1) Bar. Sales            115,780   2      900   1    430                          5 115,310
          Purs.            75,200   2    2,650   1  3,270                          5 75,820
          Trading           4,600   1   75,820   2  5,200 5 75,220 2 115,310       5 40,090
(2) Subs.                 275,920   1    2,000   2 15,000 2 2,500 2 75,000 2 1,250 5 184,170
(3) life subs.             35,000   1   15,000   2  5,000                          5 45,000
(4) Investment Interest     3,000   2      150                                     5   2,850
(5) loan Interest          38,780   2   35,000   5 3,780 2 1,080                   5   2,700
(6) Depc. of Equip.        54,000   1   32,000   2 85,000                          5   1,000
(7) Revaluation Reserve   350,000   1   25,500                                     5 375,500

(d)	The	purchase	of	land	costing	€250,000	could	be	funded	as	follows:
    •   Sell Investments 5 €38,000.
    •   Use Building Society A/c 5 €70,000.
    •   Apply for funding from National Lottery.
    •   Use the Levy Reserve Funding.
    •   Increase Life Membership Fee, or membership numbers.
    •   A Term Loan over five years should be easily granted as the Club is profitable and has adequate security
        in the form of Clubhouse & Grounds.
 94     Graded Accounting Questions – Solutions



 3  BrAy Boxing solution
(a)	Accumulated	Fund	on	1/1/2012
                                         Assets       Liabilities
                                           €              €
   Clubhouse                            340,000
   Land                                 180,000
   Machinery                             34,000
   Accumulated Deprec. Machinery                         13,600
   Bar Stock                             10,700
   Bar Debtors                              700
   Subscriptions due                        750
   8% Investments                        12,000
   Investment interest due                  250
   Bank current account                   2,400
   Levies due                               420
   Bar Creditors                                          1,780
   Life Membership                                        6,000
   Levy Reserve Fund                                     13,000
   Loan Interest due                                      1,200
   Loan                                                  20,000
   Accumulated Fund 1/1/2012                            525,640
                                        581,220         581,220

(b)	Income	and	Expenditure	Account	for	year	ending	31/12/2012
                                                             €          €
   Income
   Bar Gross Profit                               W                   18,330
   Subscriptions                                  W                   62,950
   Life Membership                                W                    5,200
   Catering Profit                                                    13,160
   Investment Int.                                W                      960
   Investment Bonds Int.                          W                      625
                                                                     101,225
   Expenditure
   Sundry Expenses                                         61,420
   Loss on Sale of Machinery                      W         2,100
   Interest on Loan                               W         2,400
   Depreciation on Machinery (20% of €60,000)              12,000
   Depreciation on Buildings (2% of €340,000)               6,800    (84,720)
   Excess of Income over Expenditure                                  16,505

(c)	Balance	Sheet	as	at	31/12/2012
   Fixed Assets                               €             €          €
   Land                                    180,000                  180,000
   Clubhouse                               340,000        6,800     333,200
   Machinery                                60,000       22,400      37,600
                                           580,000       29,200     550,800
   Investments (12,000 1 25,000)                                     37,000
                                                                    587,800
                                                                                Topic 7     Club a/c’s     95


    Current Assets
    Bar Stock                                                     12,800
    Interest on Investments/Bonds                                    875
      due (€625 1 €250)
    Bar Debtors                                                      850
                                                                  14,525
    Current Liabilities
    Bank Overdraft                                 3,600
    Bar Creditors                                  3,900
    Subscriptions Prepaid                            880          (8,380)           6,145
    Net Current Assets                                                            593,945
    Financed By
    Accumulated Fund 1/1/2012                                                     525,640
    Excess of Income over Expenditure                                              16,505
    Life Membership                           W                                    20,800
    Levy Reserve Fund (13,000 1 18,000)                                            31,000
                                                                                  593,945

Notes	to	Accounts
    (1) Bar Profit
        Sales             109,000 1     850 2    700                                     5     109,150
        Purs.              90,800 2 1,780 1 3,900                                        5      92,920
        Trading            10,700 1 92,920 2 12,800          5 90,820    2 109,150       5      18,330
    (2) Subs.             103,000 2 20,000 2     880         2 18,000    2     420 2 750 5      62,950
    (3) life subs.          6,000 1 20,000 2 5,200                                       5      20,800
    (4) loan interest      23,600 2 20,000 5 3,600           2 2,400                     5       1,200
    (5) 8% Investment income 960 1      250 2    960                                     5         250
    (6) 5% Bonds 5% of 25,000 for 6 months                                               5         625
    (7) Disposal            8,000 2 3,200 (2 years)          5 4,800     2	 6,900        5 (2,100)	loss
    (8) Acc. Depreciation  13,600 2 3,200 1 12,000                                       5      22,400
    (9) Machinery          34,000 1 34,000 2 8,000                                       5      60,000

    Th
(d)		 e	Club	intends	to	undertake	Capital	Expenditure	of	€80,000	in	the	year	2012.	
    Would	you	anticipate	any	difficulties	in	the	funding	of	such	a	project?
    Funding for a Capital Expenditure Programme can be sourced as follows:
                                                €
    Realisation/Sale	of	Investments:          37,000
    Term	Loan                                 43,000
    Capital	Required:                         80,000

    The Club should have no difficulty in obtaining the required funding for the following reasons:
	   1. Investment can be sold realising €37,000.
	   2. A Term Loan (€43,000), possibly over 3/5 years, should be easily obtained from any financial institution,
        as Club is a profitable concern with excellent security in the form of its Land and Clubhouse.
	   3. Based on the financial results for the year 2012, the Club had a Profit/Excess of Income of €16,505.
        When this is added to the Depreciation €18,800, a non-cash item, it would indicate a Cash Inflow
        from Operating Activities in the region of €35,305. This shows that the Club, based on existing
        performance, is even capable of repaying the Term Loan within 2 years.
 96         Graded Accounting Questions – Solutions



 4  clArA curling solution
(a)	Accumulated	Fund	on	1/1/2012
   Assets            Clubhouse                 290,000
                     Equipment                  15,000
                     Bar Stock                   4,100
                     Bar Debtors                   260
                     8% Gov. Investments        16,000
                     Interest Due                  420
                     Levies Due                  1,000     326,780
   liabilities       life subs.                 36,000
                     Subs. prepaid               1,050
                     Bar Creditors               1,450
                     Wages due                     200
                     Bank Current                1,850
                         loan                   16,000
                         Interest Due              800
                     levy Fund                  40,000     (97,350)
                     Accumulated Fund                      229,430

(b)	Income	&	Expenditure	for	year	ending	31/12/2012
   Income            Bar Profit                  2,950
                     Subs.                      26,450
                     life membership             4,200
                     Catering profit             1,700
                     Sponsorship                 4,800
                     Entrance fees                 700
                     Investment Income           1,280      42,080
   Expenditure       Coaching (2200)             1,400
                     loan interest                 400
                     Depreciation Equipment      2,300
                     Depreciation Clubhouse      5,800      (9,900)
                     Surplus 1/E                            32,180

(c)	Balance	Sheet	on	31/12/2012
                                                    €           €          €
   Fixed Assets          Clubhouse               450,000          —     450,000
                         Equipment                23,000       2,300     20,700
                         8% Investment                                   16,000
                                                                        486,700
   Current Assets        Bank                     19,620
                         Bar Stock                 2,800
                         Bar Debtors                 140      22,560
   CRS falling Due       Bar Creditors               250
                         Subs. Prepaid             1,800      (2,050)    20,510
   Financed by                                                          507,210
                         Accumulated Fund                    229,430
                         Surplus 1/E                          32,180
                         Revaluation Reserve                 165,800
                         life membership                      37,800
                         Levy Reserve Fund                    42,000    507,210
                                                                    Topic 7   Club a/c’s   97


Notes	to	Accounts:
   Subs.                       36,200 1 1,050 2 6,000 2 1,800 2 2,000 2 1,000     5   26,450
   life Subs.                  36,000 1 6,000 2 4,200                             5   37,800
   • Bar Sales                 12,400 1     140 2     260                         5   12,280*
   • Bar Purchases              9,230 1     250 2 1,450                           5    8,030*
   Bar Trading                *12,2802 (4,100 1	*8,030 2 2,800)                   5    2,950
   Investment income            1,700 2     420 5 1,280/8 3 100 Investment 100%   5   16,000
   loan interest                1,200 2 400 this yr/800 due 1/1/
   Equipment Depc.             15,000 1 8,000/10                                  5 2,300	p.a.
   Revaluations Reserve       160,000 1 5,800                                     5 165,800

    I
(d)		 ndicate	the	points	you,	as	treasurer,	would	made	to	a	proposal	to	reduce	subscriptions	
    by	10%
   •   If subs. were reduced by 10% 2 loss of €2,645 income
   •   Surplus of €32,180 indicates club could afford reduction
   •   Investments €16,000 available to compensate
   •   Bank a/c €19,620 shows further available funds.
   •   Capital life subs. €37,800 available for current use.
 98     Graded Accounting Questions – Solutions



 5  DunshAughlin DrAughts solution
(a)	Accumulated	fund	on	1/1/2012
                                                   €                     €
                                                   Dr                    Cr
   Clubhouse & Land                              560,000
   Equipment                                      36,000
   Provision for Deprec. on Equipment                                    20,000
   Bar Stocks                                     29,000
   Life Membership                                                       40,000
   Bar Creditors                                                          7,700
   Bar Debtors                                         100
   Levy Reserve Fund                                                      8,000
   Insurance prepaid                                    400
   Catering Stock                                     1,000
   Bank Balance                                                           1,300
   Investment interest due                           250
   Levy due                                          200
   Investment                                     20,000
   Loan                                                                  12,000
   Stock of Heating Oil                                400
   Accumulated Fund                                                   558,350
                                                €647,350             €647,350

Notes	to	Accounts
   (1) Bar Profit
        Sales                 98,700   1      300 2      100   1 1,200                5    100,100
        Purs.                 64,700   1    6,100 2    7,700                          5     63,100
        Trading               29,000   1   63,100 2   22,000   5 70,100 2 100,100     5     30,000
   (2) Subs.                  49,200   2    8,000 2      200   2 1,000                5     40,000
   (3) 7.5% Investment         1,750   2      250 5    1,500   5 7½%/100%             5     20,000
   (4) Interest on loan        1,150   1      230                                     5      1,380
   (5) Equipment              36,000   2   10,000 1   14,000                          5     40,000
   (6) Acc. Depc. on Equip.   20,000   1    3,800 2    5,000                          5     18,800
   (7) Catering                1,000   1    1,500 2      700 5 1,800 2        4,500   5      2,700
   (8) Insurance               2,200   1      400 2      200                          5      2,400
   (9) Depc. Equip.            2,600   1      500 1      700                          5      3,800
   (10) Disposal              10,000   2    5,000 2    4,000                          5 1,000	(loss)
   (11) Light & heat           5,400   1      400 2      600 1   700                  5      5,900
                                                                    Topic 7       Club a/c’s   99


(b)	Income	and	Expenditure	account	for	year	ending	31/12/2012
                                                €          €
   Income                                       Dr        Cr
   Gross Profit on Bar                    W              30,000
   Interest                               W               1,500
   Subscriptions                          W              40,000
   Disco Profit (40,400 2	14,100)                        26,300
   Catering Profit                        W               2,700
   Annual Grant                                           3,000
                                                        103,500
   Less Expenditure
   Light and Heat                         W    5,900
   Insurance                              W    2,400
   Interest on Loan                       W    1,380
   Depreciation                           W    3,800
   Loss on Sale of Equipment              W    1,000    (14,480)
                                                         89,020

(c)	Dunshaughlin	Draughts	Balance	Sheet	on	31/12/12
                                                 €          €                 €
   Fixed Assets
   Clubhouse                                                            640,000
   Equipment                                   40,000     18,800         21,200
   Financial Assets                                                     661,200
   Investment                                  20,000
       Prize Bonds                             20,000                     40,000
   Current Assets
       Bar Stock                               22,000
       Catering Stock                             700
       Oil Stock                                  600
       Bar Debtors                                300
       Insurance prepaid                          200     23,800
   Creditors falling due less than 1 yr
       Bank                                     1,600
       Bar Creditors                            6,100
       Subs. prepaid.                           1,000
       Electricity Due                            700
       Loan Interest Due                          230     (9,630)        14,170
       Financed by                                                      715,370
   Creditors falling due for more than 1 yr.
       Acc. Fund                                                        558,350
   	 1 Surplus                                                           89,020
       loan                                    12,000
   life subs.                                  40,000
   Levy Fund                                   16,000                    68,000
                                                                        715,370
 100      Graded Accounting Questions – Solutions


(d)	What	are	the	main	differences	between	a	levy	and	a	subscription?
   Levy              2	Non Regular income
                     2	Not part of ordinary activity
                     2	Appears in Balance sheet
                     2	Example of capital income
   Subscription      2	Annual & Regular
                     2	Used for normal expenditure
                     2	Appears in Income & Expenditure

(e)	Treasurer
   •   Looks after finances i.e. has control over receipts and payments
   •   Maintains proper records
   •   Prepares accounts
   •   Presents financial report to A.G.M.
                                                                   Topic 7   Club a/c’s   101



 6  elphin equestriAn solution
(a)	Accumulated	Fund,	on	1/1/2012
                                      Assets       Liabilities
                                        €              €
   Clubhouse                         350,000
   Land/Stables                      400,000
   Machinery                          44,000
   Bar Stock                          11,700
   Bar Debtors                         1,250
   Subscriptions due                   1,200
   8% Investments                     20,000
   Investment interest due               620
   Levies due                            300
   Bank current account                                4,400
   Bar Creditors                                       5,550
   Life Membership                                    16,000
   Levy Reserve Fund                                  20,000
   Loan Interest due                                     880
   Loan                                               24,000
   Accumulated Fund 1/1/2012                         758,240
                                     829,070         829,070

(b)	Income	and	Expenditure	account	for	year	ended	31/12/2012
                                                             €          €
   Income
     Bar Gross Profit                          W                      51,340
     Subscriptions                             W                     103,260
     Life Membership (25%)                     W                       5,000
     Annual Grant                                                     17,500
     Catering Profit                                                  10,000
     Investment Interest                       W                       1,600
     Investment Bonds Interest                                           375
                                                                     189,075
   Expenditure
     Sundry Expenses                                      85,900
     Loss on Sale of Machinery                             7,000
     Interest on Loan (12 months)              W           2,640
     Deprec. on Machinery (20% of € 85,000)               17,000
     Deprec. on Buildings (2% of € 350,000)                7,000    (119,540)
     Excess of Income over Expenditure                                69,535
 102    Graded Accounting Questions – Solutions


(c)	Balance	Sheet	as	at	Club	31/12/2012
                                                                      Cost              Acc.	Dep.            N	B	V
   Fixed Assets:                                                        €                   €                  €
   Land & Stables                                                    400,000                                400,000
   Clubhouse                                                         350,000               7,000            343,000
   Machinery (€64,000 2 9,000 1	30,000)                               85,000              17,000             68,000
                                                                     835,000              24,000            811,000
   Investments (€20,000 1 €25,000)                                                                           45,000
                                                                                                            856,000
   Current Assets
   Bar Stock                                                                               9,700
   Interest on Investments/Bonds due                   (W)                                 1,395
   Bar Debtors                                                                             1,540
   Cash at Bank                                                                           18,580
                                                                                          31,215
   Current Liabilities
   Bar Creditors                                                        8,800
   Subscriptions Prepaid                                                  640             (9,440)
   Net Current Assets                                                                                        21,775
      Net Assets                                                                                            877,775
   Financed By:
   Accumulated fund 1/1/2012                                                                                758,240
   Excess if Income over Expenditure                                                                         69,535
   Life Membership                                     (W)                                                   15,000
   Levy Reserve fund (€20,000 1 €15,000)                                                                     35,000
                                                                                                            877,775

Notes	to	Accounts:
   (1) Bar Profit
       Sales                     127,500 1 1,540 2             1,250                                    5 127,790*
       Purchases                  71,200 1 8,800 2             5,550                                    5 74,450*
       Bar Trading                11,700 1	74,450* 2           9,700 5 76,450 2127,790*                 5 51,340
   (2) Machinery                  44,000 1 50,000 2            9,000                                    5 85,000
   (3) life subs.                 16,000 1 4,000 2             5,000                                    5 15,000
   (4) loan interest           12 months 5 2,640 2             3,520                                    5     880
   (5) Investment income 8%        1,200 2    620 1            1,020                                    5 1,600
   (6) Subs.                     124,400 2 1,200 2               640 2 4,000 2 15,000 2 300             5 103,260
   (7) Investment Interest Due       375 1 1,020                                                        5 1,395

(d)	Special	Purpose	P&L	a/c.
   Sometimes nonprofit making organization such as a club prepare a Profit and Loss account for activities
   that are carried out to make a profit e.g. running a club lottery, dances, bar, restaurants etc. All expenses and
   revenues relating to that particular activities are entered in a special profit and loss account and the profit is
   than transferred to the income and expenditure account.

(e)	What	is	the	difference	between	annual	subscriptions	and	levy	reserve	fund?
   Annual subcriptions collected yearly for Revenue purposes i.e. to pay expenses & Run club for the year.
   Levy Reserve fund is collected over a number of years for a one off capital project such as grounds development.
                                                                  Topic 7   Club a/c’s   103



7  FerBAne Fencing solution
(a)	Accumulated	fund	on	1/1/2012
   Assets                       €                  €
   7% Investment              15,000
   Clubhouse                 194,000
   Bar Stock                   6,700
   Equipment                  18,600
   Debtors                       240
   Current a/c.                3,400
   Debtors a/c                15,000
   Interest due (3)            1,050
   Levy due                      600            254,590
   Liabilities
   Life subs.                 20,000
   Creditors                   5,280
   Levy reserve                6,840
   Depreciation                5,000
   Loan                       12,000
   Loan interest (6)           1,500            (50,620)
   Acc fund                                     203,970

(b)	Income	&	Expenditure	for	year	ending	31/12/2012
   Income                                €                 	€
   Bar profit (1)                      29,550
     Subs. (2)                         31,000
   Interest on Deposit                    750
   Interest on 7% Inv. (3)              1,050
   Interest on 8% Inv. (4)              2,400
   Disco. Profit                       24,600
   Profit on Equipment (5)                100          89,450
   Expenditure
   Sundry Exps.                        19,840
   Int. on Loan (6)                       500
   Depreciation (7)                     2,000          (22,340)
   Surplus 1/E                                          67,110
 104       Graded Accounting Questions – Solutions


(c)	Balance	Sheet	as	at	31/12/2012
                                                            €            €         €
   Fixed                   Clubhouse                                            194,000
                           Equipment (10)              20,000          5,400     14,600
   Financial               7% Investments              15,000
                           8% Investments              60,000                    75,000

   Current                 Deposit a/c                 15,000                   283,600
                           Deposit interest due           250
                           Current a/c                  3,600
                           Stock                        5,300
                           Debtors                        510
                           8% interest due              2,400         27,060
   Illegible due
                           Creditors                       4,900
                           Subscriptions                     340      (5,240)    21,820
                           T.N.A                                                305,420
   Financed by
                           Accumulated fund                                     203,970
                           1 Surplus                                             67,110
                           1 levy fund                                           13,840
                           1	life subs.                                          20,500
                                                                                305,420

Notes	to	Accounts
   (1) Bar
        Sales            84,900 1      510 2         240                             5    85,170
        Purs.            42,100 1 4,900 1          5,280                             5    41,720
        Trading             6,700 1 41,720 1      12,500 2 5,300 5 55,620 2 85,170   5    29,550
   (2) Subs.             39,440 2      500 2         600 2 7,000 2    340            5    31,000
   (3) 7% 3 2 5 2,100 i.e. 1,050 Per annum                                           5     1,050
   (4) 8% of 60,000 for ½ yr                                                         5     2,400
   (5) Sale of Equipment 1,100 2 1,000                                               5       100	profit
   (6) Loan interest     14,000 2 12,000 5        2,000 i i.e. 500 this yr           5       500
   (7) Equipment         18,600 2 2,600 1         4,000 5 20,000 @ 10%               5     2,000
   (8) Levy fund            6,840 1 7,000                                            5    13,840
   (9) life subs.        20,000 1      500                                           5    20,500
   (10) Provision for Depc. 5,000 2 1,600 1        2,000                             5     5,400

    Th
(d)		 e	club	intends	to	undertake	capital	expenditure	of	€60,000	in	2013.	What	advice	
    would	you	give	for	the	handling	of	such	a	project?
   Funds are available to finance this project through:
   • Surplus of €67,110
   • Bank deposit €15,000, Current €3,600
   • Investments €15,000 & €60,000
   • Loan repaid so club is ideal client for further borrowing
   • Levy fund €13,840
   • Bank deposit 1 investment 5 €90,000
   No problem in Covering €60,000 Capital expenditure
                                                               Topic 7   Club a/c’s   105



 8  gAlwAy solution
(a)	Accumulated	Fund	on	1/1/2012
                                              €                €
   Assets   Clubhouse                      300,000
            Stock                            6,000
            Equipment                       20,000
            Acc. Depc.                     (12,000)
            Debtors                            566
            Subs. Due                          750
            Investment interest Due            400
            Investment                      24,000
            Bank                             2,000
            Levy Due                           450          342,166
   Liabs.   Life Subs.                      35,000
            Creditors                        6,500
            Levy Fund                       40,000
            Wages Due                        3,500
            Loan                            30,000
            Loan interest due            W   2,400          (117,400)
            Acc. Fund                                        224,766

(b)	Income	and	Expenditure	a/c	for	year	ending	31/12/2012
   Income     Bar profit                 W    25,862
              Inv. interest 5%                 1,200
              Inv. interest 6%                 1,050
              Catering                        24,672
              Subs.                      W    67,450
              Life subs.                 W     5,500
              Disposal profit            W       860        126,594
   Exp.       Sundry Expenses                 41,500
              Loan interest              W     1,200
              Depc. Equipment            W     8,480
              Depc. Clubhouse                  6,000        (57,180)
              Surplus 1/E                                    69,414
 106    Graded Accounting Questions – Solutions


(c)	Balance	Sheet	on	31/12/2012
   Fixed Assets                      Clubhouse                            300,000     6,000       294,000
                                     Equipment                     W       42,400   (14,720)       27,680
                                                                                                  321,680
   Financial                         5% Investments                W       24,000
                                     6% Investments                        30,000                  54,000
   Current Assets
                                     Stock                                  5,600
                                     Debtors                                  348
                                     Bank                                  25,842
                                     6% interest due                        1,050   32,840
   Crs. falling Due less than 1 yr
                                     Creditors                              7,890
                                     Subs. prepaid                            950    (8,840)       24,000
                                                                                                  399,680
   Financed by
                                     Crs falling Due more than 1 yr.
                                     Life Subs.                      W                             49,500
                                     Levy Fund                                                     56,000
                                     Acc. Fund                                                    224,766
                                     Surplus 1/E                                                   69,414
                                                                                                  399,680

Notes	to	Accounts
   Investment:     1,600 2     400 5 1,200 5 5%/100% 5 Investment                   5    24,000
   Loan interest   3,600 5 2,400 for 12m Acc. Fund/1,200 6m 1/E.                    5     1,200
   Bar Sales      99,652 2 (Cost O/S 6,000 1 Purchases 73,390 2 c/s 5,600)          5    25,862
   Disposal        9,600 2 5,760 5 3,840 2 4,700                                    5       860
   Subs.         105,600 2 20,000 2 950 2 16,000 2 450 2 750                        5    67,450
   Life Subs.     35,000 1 20,000 2 5,500                                           5    49,500
   Equipment      20,000 1 32,000 2 9,600 5 42,400 @ 20%                            5     8,480
   Acc. Depc.     12,000 2 5,760 1 8,480                                            5    14,720

    Th
(d)		 e	club	intends	to	undertake	capital	expenditure	of	€120,000	in	2012.	What	advice	
    would	you	give	for	the	funding	of	such	a	project?
   There would be no problem funding this project due to the following:
   • Surplus of €69,414 more half of Expenditure planned
   • Bank a/c €25,842 5 20% of payment
   • Loan Repaid so new borrowing would not be a problem
   • Sell investments €54,000 almost 50% of expenditure
   • Use levy fund €56,000, even life subs. €49,500.
                               Topic


                               8
            Service Firm a/c’s of
                       Solutions
  2    Anderson
  3    Beautiful Body
  4    Overweight
  5    Weight Watchers
  6    Fat Freddies
  7    Live Longer.
  8    Jumping Up’n Down
  9    Mick & Maggie McGuire
10     Donal Power
 108    Graded Accounting Questions – Solutions



 2  Anderson CliniC solution
(a)	Profit	and	loss	a/c	for	year	ending	31/12/2012
                                                   €         €
   Income
     Investment income                     W                9,600
     Medical insurance scheme              W               47,100
     Profit on sale on equipment           W                1,600
     Receipts from patients                W               94,680
                                                          152,980
   Expenses
     Interest on mortgage                  W    14,400
     Medical supplies                      W    24,400
     Car expenses                                5,200
     Light and heat (25,128)                     7,692
     Stationery                                  3,980
     Salaries & wages                           15,200
     Sub. Physiotherapy wages (1900)             2,700
     Insurance                             W     7,020
     Sponsorship                                 3,100
     Dep.: Surgery                               5,600
       Equipment                                 7,800
       Vehicle                                   4,400    (101,492)
   Net Profit                                               51,488

(b)	Balance	Sheet	as	at	31/12/2012
                                                   €	        €          €
                                                  Cost      Dep.       NBV
   Fixed Assets
     Surgery                                   280,000      16,800    263,200
     Equipment                                  52,000      23,400     28,600
                                                22,000      13,200      8,800
                                               354,000      53,400    300,600
   Financial Assets
     Investments (120,000 1 25,000)                                   145,000
                                                                      445,600
   Current Assets
     Investment income due                                   5,600
     Medical insurance scheme due                            4,100
     Stock of medical supplies 31/12/12                      5,200
     Bank                                  W                19,520
     Fees from patients due                W                   560
                                                            34,980
   Less Creditors: amounts falling due 
   within one year
     Interest due                                 3,400
     Wages due                                      900      4,300     30,680
                                                                      476,280
   Financed by Creditors: amount falling                                      
   due after more than 1 year
     Mortgage                                                         100,000
     Capital                                              368,600
     Add Net Profit                                        51,488
   Less Drawings                           W              (43,808)    376,280
                                                                      476,280
                                                  Topic 8   Service Firm a/c’s of Solutions      109


Notes	to	Accounts
   Loan Interest            9% of 160,000 5 14,400 2 11,000                5    3,400 (Due)
   Patients Receipts                94,300 2  180 1  380         1  180    5   94,680
   Investment income        8% of 120,000 5  9,600 2  4,000                5    5,600 (Due)
   Medical Insurance                46,800 2  3,800 1  4,100               5   47,100
   Purchase of supplies               4,600 1 26,400 2  1,400    2 5,200   5   24,400
   Equipment Disposal               18,000 2  5,400 2 14,200               5    1,600 (Profit)
   Bank                             20,000 2  300 2  180                   5   19,520
   Drawings                 35,800 2 1,800) 5 34,000 1  5,128 
                          (                                      1 4,680   5   43,808
   Insurance                        11,400 1	 300 5 11,700       2 4,680   5    7,020
 110    Graded Accounting Questions – Solutions



 3  BeAutiful Body solution
(a)	Reserves	on	1/1/2012
                                                      €             €
   Assets
     Buildings & grounds (€420,000 2 €25,200)                   394,800
     Equipment (€80,000 2 €48,000)                               32,000
     Furniture (€90,000 2 €54,000)                               36,000
     Investments                                                 30,000
     Stock - health foods for resale                              2,400
     Stock - oil                                                    540
     Contract cleaning prepaid                                      480
     Cash at bank                                                 4,200
                                                                500,420
   Less Liabilities
     Creditors fore supplies                          3,680
     Clienta’ Fees in Advance                         5,400
     Loan                                            40,000
     Interest on loan W                               2,200
     Issued Capital                                 400,000     (451,280)
   Reserves                                                       49,140

(b)	Profit	and	Loss	Account	of	shop	for	year	ending	31/12/2012
                                                                €              €
   Shop Receipts/Sales                                                       68,400
   Less Expenses
   Cost of Goods sold (€2,400 1 €39,600 2 €3,200)             38,800
   Light and heat                                     W          330
   Insurance                                                     900
   Telephone                                                     200
   Wages and Salaries                                 W        7,200         (47,430)
                                                                              20,970

(c)	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                                €              €
   Income
     Interest received                                                        4,250
     Profit on health shop                                                   20,970
     Customer’s Fees                                  W                     221,870
                                                                            247,090
   Less Expenses
     Wages and Salaries                               W       84,200
     Insurance                                        W        6,900
     Light and heat                                   W        3,370
     Purchases–supplies                               W       41,320
     Loan Interest                                    W          800
     Laundry                                                   2,300
     Postage and Telephone                                     2,200
     Depreciation:
       Buildings                                               9,800
       Equipment                                              18,400
       Furniture                                              18,000
     Contract Cleaning                                W        4,580        (191,870)
   Net Profit for year                                                        55,220
   Add Reserves 1/1/2012                                                      49,140
   Profit and Loss balance 31/12/2012                                        104,360
                                                         Topic 8   Service Firm a/c’s of Solutions     111


(d)	Balance	Sheet	as	at	31/12/2012
                                                                     €               €                 €
                                                                    Cost            Dep.              NBV
    Fixed Assets
      Buildings & Grounds                              W           650,000              —            650,000
      Equipment                                        W            92,000          66,400            25,600
      Furniture                                                     90,000          72,000            18,000
                                                                   832,000         138,400           693,600
    Financial Assets
      Investments                                                                                     30,000
                                                                                                     723,600
    Current Assets
      Closing Stock - shop goods                                                     3,200
                  - oil                                                                720
      Cleaning prepaid 31/12/2012                                                      700
      Customers Fees due 31/12/2012              (1110 cheque)                         780
                                                                                     5,400
    Less Creditors: amounts falling due 
    within 1 year 
      Bank Overdraft                             (1110 cheque)      21,760
      Electricity due 31/12/2012                                       480
      Advance deposits                                               5,200
      Creditors for supplies                                         2,200         (29,640)          (24,240)
                                                                                                     699,360
    Financed by Share Capital and Reserves                          Auth’d          Issued
      Ordinary Shares                                              600,000         400,000
      Revaluation Reserve                                                          195,000
      Profit and Loss balance 31/12/2012                                           104,360           699,360
                                                                                                     699,360

Notes	to	Accounts
                                                                                              €
      1 Loan interest               3,000  2  2,200                                 5       800
      2 Fees                        21,000  1  5,400  2  5,200  1  670
                                  2                                                 5   221,870
      3 Wages                       91,400  2  7,200                                5    84,200
      4 Insurance                   7,800  2  900                                   5     6,900
      5 Light & heat                   540  1  3,400  2      720  2  330  1  480    5     3,370
      6 Purchases Supplies          42,800  1  2,200  2  3,680                      5    41,320	
      7 Buildings                   20,000  1  70,000  1 160,000
                                  4                                                 5   650,000
      8 Revaluation Reserve         60,000  1  35,000
                                  1                                                 5   195,000
      9 Depc. of Blgs.              25,200  1  9,800  2  35,000                     5        nil
    10 Contract Cleaning            4,800  1  480  2         700                    5     4,580

(e)	Explain	the	purpose	of	preparing	service	Firm	accounts.
    •	   For Revenue (tax) requirements
    •	   Requirement for bank loan and overdraft facilities
    •    For valuation and comparison purposes
    •    For analysis with different departments
    •    Required as a member of an affiliated associated
 112        Graded Accounting Questions – Solutions



 4  overweight heAlth solution
(a)	Reserves	on	1/1/2012
                                                         €         €
   Assets         Builders (200,000 2 8000)           192,000
                  Equipment (100,000 2 40,000)         60,000
                  Furniture (50,000 2 20,000)          30,000
                  Contract clearing                       500
                  Stock oil                               580
                  5% Investment                        75,000
                  Investment interest Due                 500
                  Fees Due                              3,000
                  Stock shop.                           1,000
                  Bank                                  7,450   370,030
   Liabilities.   Creditors supplies                    4,500
                  Fees prepaid                          5,800
                  Capital                             200,000
                  Loan                                 30,000
                  Interest Due                          4,000   244,300
                    Reserves 1/1/12                             125,730

(b)	Profit	and	Loss	a/c	of	Shop	for	year	ending	31/12/2012
                                                        €          €
   Receipts                                                      15,400
   2 Cost (1,000 1 400 Due. 1 14,350 2 1,730)                    14,020
     Gross Profit                                                 1,380
   2 Wages                                               400
     Insurance                                           425
     Telephone                                           145       (970)
     Profit                                                         410

(c)	Profit	&	loss	a/c	for	y/r	31/12/2012
                                                         €        €
   Income         Profit from Shop          (w)           410
                  Members fees              (w)       121,350
                  Investment income         (w)         4,150   125,910
   Exps.          Wages & salaries                    110,850
                  Insurance (2425)                      3,825
                  Cleaning                  (w)         3,600
                  light & heat              (w)         1,330
                  Telephone (2145)                      1,305
                  loan interest                         2,000
                  Bank Changers                           100
                  Depreciation Buildings                4,400
                    Equipment                          20,500
                    Furniture                          10,000
                  Purchases solution                    6,300   164,210
                    Net loss for year                           (38,300)
                  	 2Reserves 1/1/12                            125,730
                  P & L 31/12/12                                 87,430
                                                         Topic 8       Service Firm a/c’s of Solutions      113


(d)	Balance	sheet	as	at	31/12/2012
                                                €                  €                 €
    Fixed
      Buildings                                                                  350,000
      Equipment                             110,000            60,500             49,500
      Furniture                              50,000            30,000             20,000
                                                                                 419,500
      Investments 5%                          75,000
                4%                            20,000                              95,000
      Current Stocks Shop                      1,730
        Oil                                      200
        Supplies                               1,100
      Fees Due (800 1 200)                     1,000
      Cleaning prepaid                           250
      Investment interest due.                 4,050             8,330
    	 2CRS falling Due less then 1yr
      Creditors centre                           650
        Shop                                     400
        Bank                                  89,700
        Fees Prepaid                           2,250          (93,000)           (84,670)
                                                                                 489,830
        Fixed
          CRS falling due more then 1yr                        Auth.              Issued
          Share capital                                       400,000            200,000
          Revaluation Reserve                                                    142,400
    	   	 1 P & L                                                                 87,430
                                                                                 429,830

Notes	to	Accounts
    Fees                   20,000  2  3,000  1 5,800  1  800  2 2,250
                         1                                                  5 121,350
    Inv. income               5%  1  4%  5 3,750  1  400                    5   4,150
    Inv interest due       3,750  1  400  5 4,150  1  500  2  600           5   4,050
    Cleaning               3,350  1  500  2  250                            5   3,600
    light & heat              950  1  580  2  200                           5   1,330
    loan Interest        6,000 / 6 m P & L 2,000 / 12 m Res. 4,000
    Purs. Supplies         11,250  2  4,500  1  650  2 1,100                5     6,300
    Depc. Equip.           20,000  1 3 m @ 20% of 10,000 5 500
                                                                            5    20,500
    Reval. Res.            30,000  1  8,000  1 4,400
                         1                                                  5   142,400
    Bank O/D               89,400  1  200  1  100                           5    89,700
    Wages and Salaries     11,250  2  400
                         1                                                  5   110,850

(e)	Explain	what	is	meant	by	enterprise	analysis	account
    E
      nterprise analysis accounts are prepared by service providers who wish to break down Activities / Profit 
    between the different sections of their business e.g. health shop & health centre.
 114    Graded Accounting Questions – Solutions



 5  weight wAtChers solution
(a)	Reserves	on	1/1/2012
   Assets                                                 €          €
     Buildings (240,000 2 14,400)                                 225,600
     Equipment (30,000 2 18,000)                                   12,000
     Furniture (12,000 2 5,400)                                     6,600
     Investments                                                   40,000
     Opening Stock - health foods for resale                        3,100
                 - heating oil                                        240
     Contract cleaning prepaid                                        640
     Bank 1/1/2012                                                 10,600
                                                                  298,780
   Less Liabilities
     Creditors for supplies                            3,450
     Clients’ Fees prepaid                             1,800
     Loan                                             12,500
     Interest on loan due                      (W)     1,688
     Issued Capital                                  270,000      (289,438)
   Reserves                                                          9,342

(b)	Profit	and	Loss	Account	of	shop	for	year	ending	31/12/2012
                                                          €          €
   Shop Receipts/Sales                                             38,150
   Less Expenses
     Cost of Goods sold                                  19,450
     Telephone (3,100 1 20,050 2 3,700)                     320
     Wages and Salaries                        (W)        5,600
     Insurance                                 (W)          450
     Light and Heat                            (W)          600   (26,420)
                                                                   11,730

(c)	Profit	and	Loss	Account	for	year	ending	31/12/2012
   Income
     Investment Income                         W                    1,600
     Profit on health shop                     W                   11,730
     Clients’ Fees                             W                   92,275
                                                                  105,605
   Less Expenses
     Wages and Salaries                        W      45,325
     Insurance                                 W       5,950
     Light and Heat                            W       2,650
     Purchases – supplies                      W       7,250
     Interest on loan                          W         187
     Laundry                                           2,600
     Postage and Telephone                     W       1,520
     Depreciation:
       Buildings                                         5,200
       Equipment                                         6,900
       Furniture                                         1,800
     Contract Cleaning                         W         7,250     86,632
   Net Profit for year                                             18,973
   Add Reserves 1/1/2012                                            9,342
   Profit and Loss balance 31/12/2012                              28,315
                                                         Topic 8       Service Firm a/c’s of Solutions     115


(d)	Balance	Sheet	as	at	31/12/2012
                                                                             €               €             €
                                                                            Cost            Dep.          NBV
    Fixed Assets
      Building                                                 W           290,000            –          290,000
      Equipment                                                W            34,500          24,900         9,600
      Furniture                                                             12,000           7,200         4,800
                                                                           336,500          32,100       304,400
    Financial Assets                                                                                      40,000
      Investments                                                                                        344,400
    Current Assets Bank.                                                                     4,090
      Closing Stock - shop goods                                                             3,700
                   - heating oil                                                               180
      Cleaning prepaid 31/12/2012                                                              700
      Clients’ Fees due 31/12/2012 5 (475 1 110)                                               585
                                                                                             9,255
    Less Creditors: amounts falling due within 1 year
      Electricity due 31/12/20                                                  90
      Clients’ Fees prepaid                                                  2,400
      Creditors for supplies                                                 3,250          (5,740)        3,515
                                                                                                         347,915
    Financed by
    Share Capital and Reserves                                             Auth’d.          Issued
      Ordinary Share                                                       325,000         270,000
      Revaluation Reserve                                      W                            49,600       319,600
      Profit and Loss balance 31/12/2012                                                                  28,315
                                                                                                         347,915

Notes	to	Accounts
                                                                                            €
    Loan interest                   1,875  2  1,688                                  5       187
    Fees                            92,400  1  1,800  1  475  2 2,400                5    92,275
    Wages                           50,925  2  5,600                                 5    45,325
    Insurance                       6,400  2  450                                    5     5,950
    light & heat                    3,100  1  240  1        90  2  180  2 600        5     2,650
    Purchases                       7,450  1  3,250  2  3,450                        5     7,250
    Postage & Telephone             1,840  2  320                                    5     1,520
    Buildings                       40,000  1 20,000  1 30,000
                                  2                                                  5   290,000
    Revaluation Reserve             30,000  1  5,200  1 14,400                       5    49,600
    Contract Cleaning               7,310  1  640  2  700                            5     7,250
    Bank                            4,200  2  110                                    5     4,090

    W
(e)		 hat	factors	would	a	bank	manger	consider	before	granting	or	not	granting	a		
    €50,000	loan	to	the	business	for	refurbishing	of	existing	premises?
    •    Overdraft of €4,210 currently exists
    •    Profit for year only €18,972, poor return.
    •    Has buildings €290,000 as security
    •    Investments of €40,000 could be used to pay off loan
    •    Will this increased expenditure improve business prospects.
 116    Graded Accounting Questions – Solutions



 6  fAt freddies solution
(a)	Reserves	on	1/1/12
   Assets:                             €              €
   Buildings (600,000 2 24,000)     576,000
   Equipment (300,000 2 120,000)    180,000
   Furniture (150,000 2 60,000)      90,000
   Stock                              3,000
   Oil                                1,740
   Cleaning prepaid                   1,500
   5 % Investments                  225,000
   Investment interest due            1,500
   Bank                              22,350
   Fees due                           9,000       1,110,090
   Liabilities:
   Clients prepaid                   17,400
   Creditors                         13,500
   Loan                              90,000
   Loan Interest due                 12,000
   Capital                          600,000       (732,900)
                                                   377,190

(b)	Profit	and	Loss	Account	of	Shop	for	year	ending	31/12/2012
                                       €              €
   Receipts                                         146,200
   Less cost of sales
   Opening Stock                      3,000
   Purchases                         42,750
   Add due                              400
   Less closing stock                (1,730)         44,420
   Gross Profit                                     101,780
   Less Wages                         8,000
   Insurance                          1,260
   Telephone                            480           9,740
   Profit on shop                                    92,040

(c)	Profit	and	Loss	account	for	year	ending	31/12/2012
   Income
   Shop Profit                       92,040
   Annual Grant                      10,000
   Investment interest               11,850
   Clients Fees                     354,050         467,940
   Less	Expenditure
   Bank charges                         100
   Insurance (90 %)                  11,340
   Telephone (90 %)                   4,320
   Wages (280,000)                  145,750
   Loan Interest                      6,000
   Cleaning                           6,150
   Light and Heat                     4,100
   Purchases of supplies             26,830
   Depreciation - Buildings          13,300
   Depreciation - equipment          61,000
   Depreciation - Furniture          30,000         308,890
   Profit                                           159,050
   Add Reserves 1/1/2012                            377,190
   Profit and Loss 31/12/2012                       536,240
                                                      Topic 8    Service Firm a/c’s of Solutions   117


(d)	Balance	Sheet	as	at	31/12/2012
    Fixed	Assets                                  Cost             Depc.            Value
    Buildings                                    850,000                            850,000
    Equipment                                    320,000           181,000          139,000
    Furniture                                    150,000            90,000           60,000
    Financial
    4% Bonds                                                                         30,000
    5% Investments                                                                  225,000
                                                                                  1,304,000
    Current	Assets
    Closing stock (1,730/200)                      1,930
    Supplies                                       1,100
    Cleaning prepaid                                 550
    Bank                                          53,520
    Clients fees due                               5,350
    Interest due                                  11,550            74,000
    Creditors	falling	due	for	less	than	I	year
    Creditors shop                                   400
    Creditors centre                               9,560
    Fees prepaid                                   9,500           (19,460)
                                                                                     54,540
    Total	Net	Assets                                                              1,358,540
    Financed	by:
                                                                 Authorised         Issued
    Share Capital                                                  900,000          600,000
    Profit and Loss balance                                                         536,240
    Revenue Reserve                                                                 222,300
                                                                                  1,358,540

Notes	to	Accounts
    Loan Interest            18,000 5           12,000                 1 6,000 5 18,000
    Fees                    350,000 2 9,000 1 17,400         2   9,500 1 5,150 5 354,050
    Investment interest   5% 11,250 1 4% 600 2 1,800         2   1,500         5 11,550	due
    Cleaning                  5,200 1 1,500 2      550                         5 6,150
    Light and Heat            2,560 1 1,740                  2     200         5 4,100
    Purchases of supplies    31,870 2 13,500 1 9,560         2   1,100         5 26,830
    Bank                     53,820 2     100 2    200                         5 53,520
    Depc. of Equipment       60,000 1 1,000                                    5 61,000
    Revaluation Reserve     185,000  1 13,300 1 24,000                         5 222,300

    W
(e)		 ould	a	bank	loan	€100,000	for	Capital	investment	to	Fat	Freddies	based	on	your	
    accounts?	Give	reasons	for	your	answer.
    Yes based on the following:
    •  Profit in shop €92,040
    •  Total Profit of centre €159,050 1 Reserves €377,190
    •  Investments & Bonds valued €225,000 1 €30,000
    •  Buildings as security worth €850,000
    •  Current Asset Ratio of 3.8:1
    •  No existing debt.
 118   Graded Accounting Questions – Solutions



 7  live longer solution
Note:	Account	year	ending	30/9/2011
(a)	Reserves	on	1/10/2010	
   Assets                                           €        €
   Buildings and Grounds (€350,000 2 €14,000)    336,000
   Equipment (€80,000 2 €32,000)                  48,000
   Furniture (€30,000 2 €12,000)                  18,000
   Investments                                    60,000
   Investment interest due                           600
   Stock—Health Food (shop)                        2,800
   Stock—Oil                                         800
   Contract cleaning prepaid                         400
   Fees owed by members                            2,600
   Bank balance                                   25,000
   Less Liabilities
   Creditors for supplies                                    8,800
   Advance fees from members                                 8,300
   Loan                                                     50,000
   Interest on loan (6 months)                               2,000
   Issued Capital                                          180,000
   Reserves 1/10/2010                                      245,100
                                                 494,200   494,200

(b)	Profit	and	Loss	Account	for	Shop	year	end	30/09/2011
                                                   €          €
   Shop Receipts—Sales                                      28,300
   Cost of goods sold
     Stock 1/10/2010                               2,800
     Purchases – shop (€14,700 1 €900)            15,600
                                                  18,400
     Stock 30/9/2011                               3,700    14,700
   Gross Profit                                             13,600
     Wages                                         6,000
     Insurance                                       850
     Telephone and Postage                           290     7,140
   Profit from Health Shop                                   6,460
                                                    Topic 8    Service Firm a/c’s of Solutions       119


(c)	Profit	and	Loss	account	for	year	ending	30/9/2011
   Income                                               €                €
     Profit from Health Shop                    W      6,460
     Members Fees                               W    245,300
     Investment Income                          W      3,600         255,360
   Less Expenses
     Wages and Salaries                         W     98,500
     Insurance (2850)                                  7,650
     Contract Cleaning                          W      6,600
     Light and Heat                             W      2,300
     Telephone and Postage                             2,610
     Purchases – health supplies                W     12,800
     Bank Charges                                        360
     Depreciation – Buildings                          7,000
                – Equipment                           16,000
                – Furniture                            6,000
     Loan Interest                              W      4,000         163,820
   Net Profit for the year                                            91,540
     Add Reserves 1/10/2010                                          245,100
   Profit and Loss Balance 30/9/2011                                 336,640

(d)	Balance	Sheet	at	30/9/2011
                                                          €                      €           €
                                                         Cost                Acc.	Dep.      Net
   Fixed Assets
   Buildings                                    W   500,000                                500,000
   Equipment (€80,000 1 €20,000)                    100,000                   48,000        52,000
   Furniture                                         30,000                   18,000        12,000
                                                    630,000                   66,000       564,000
   Investments (€60,000 1 €40,000)                                                         100,000
                                                                                           664,000
   Current Assets
   Stocks – Shop                                      3,700
          – Heating Oil                                 400
          – Health Supplies                           2,200                    6,300
   Member’s Fees due                                 (1,600	1 480)             2,080
   Investment Income due                                                       3,000
   Loan to Staff Member                                                       18,000
   Contract cleaning prepaid                                                     500
     Bank                                                                        460
                                                                              30,340
   Less Creditors, amount due within one year
   Creditors – Health Centre                          1,300
             – Shop                                     900
   Members Advanced Deposit                           4,500                    (6,700)
   Net Current Assets                                                                       23,640

   Net Assets                                                                              687,640
   Financed by                                                               Authorised     Issued
                                                                             										€       €
     Share Capital                                                             400,000     180,000
     Revaluation Reserve                        W                                          171,000
     Profit & Loss balance 30/9/11                                                         336,640
                                                                                           687,640
 120    Graded Accounting Questions – Solutions


Notes	to	Accounts
                                                                                        €
Fees                 242,500  1  8,300  1  1,600  2  2,600  2  4,500 5            245,300
Inv. income 
1 Bond interest
                       2,400  1  600  2  1,200
                                                                          }
                                                                     5 1,800 Due
                                                                     5 1,200
Total interest         2,400  1  1,200                               5             3,600
Wages/Salaries       122,500  2  6,000  2  18,000                    5            98,500
Cleaning               6,700  1  400  2  500                         5             6,600
Light and Heat         1,900  1  800  2  400                         5             2,300
Purs. supplies        22,500  1  1,300  2  8,800  2  2,200           5            12,800
loan interest          6,000  2  2,000                               5             4,000	this	yr
Revaluation Reserve  150,000  1  14,000  1  7,000                    5           171,000
Buildings            350,000  1  50,000
                               1                                     5           500,000
Bank                   1,300  2  360  2  480                         5               460
                                               Topic 8     Service Firm a/c’s of Solutions   121



 8  Jumping up’n down exerCise Centre solution
(a)	Reserves	on	1/1/2012
   Assets:                             €                   €
   Buildings (239,600)              620,400
   Equipment (224,300)               29,700
   Vehicle (236,000)                 24,000
     Stock                            3,960
     Oil                              1,920
     Cleaning prepaid                   240
     5% Investments                  36,000
     Bank                             9,900              726,120
   Liabilities:
   Clients prepaid                    4,800
   Creditors                          1,200
   Loan                              48,000
   Loan Interest due            W     7,560
   Capital                          384,000          (445,560)
   Accumulated Fund                                   280,560


(b)	Profit	and	Loss	Account	of	Shop	for	year	ending	31/12/2012
                            €          €
   Receipts                          48,000
   Less cost of sales     3,960
   Opening stock         33,600
   Purchases             (1,800)    (35,760)
   Less closing stock                12,240
   Gross Profit
   Less Wages              8,640
   Insurance                 960
   Light and Heat            300
   Telephone                 420     10,320
   Profit on shop                     1,920
 122    Graded Accounting Questions – Solutions


(c)	Profit	and	Loss	account	for	year	ending	31/12/2012
                                                       €                 €
   Income
   Shop Profit                                     1,920
   Investment interest                W            1,800
   Clients Fees                       W          407,400             411,120
   Less	Expenditure
   Laundry                                             2,400
   Insurance (2960)                                    6,720
   Telephone (2420)                                    1,500
   Wages (28,640)                                     93,960
   Loan Interest                                       2,160
   Cleaning                           W                3,960
   Bad Debt                                              720
   Light and Heat                     W                5,364
   Purchases of supplies              W               44,040
   Depreciation – Buildings                           18,000
   Depreciation – Equipment           W               10,800
   Depreciation – Vehicle             W               11,040
   Loss on sale of vehicle            W                9,600         210,264
   Profit                                                            200,856
   Add Reserves 1/1/2012                                             280,560
   Profit and Loss 31/12/2012                                        481,416

(d)	Balance	Sheet	on	31/12/2012
                                            €                   €                  €
   Fixed	Assets                            Cost                Depc.             Value
   Buildings                            1,080,000                              1,080,000
   Equipment                               72,000               35,100            36,900
   Vehicle                                 50,400                5,040            45,360
   Financial                            1,202,400               40,140         1,162,260
   5% Investments                                                                 36,000
                                                                               1,198,260
   Current	Assets
   Closing stock (1,800 1 360)                2,160
   Cleaning prepaid                             480
   Clients fees due                             600
   Interests due                                600              3,840
   Creditors	falling	due	for	less	than	1	year
   Creditors                                  2,160
   Fees prepaid                               6,000
   Bank Overdraft                           90,540
   Electricity due                              384             99,084          (95,244)
   Total	Net	Assets                                                            1,103,016

   Financed	by:                                                 Auth.            Issued
   Share Capital                                               540,000           384,000
   Profit and Loss balance                                                       481,416
   Revaluation Reserve                                                           237,600
                                                                               1,103,016
                                                        Topic 8    Service Firm a/c’s of Solutions         123


Notes	to	Accounts
                                                                                                 €
    Loan to Interest                9,720   2   7,560                                    5       2,160
    Fees                          408,000   1   4,800   2    6,000  1  600               5     407,400
    Investment interest due         1,800   2   1,200                                    5         600
    Cleaning                        4,200   1     240   2      480                       5       3,960
    Light and Heat                  1,920   1   3,720   2      360 2     300 1 384       5       5,364
    Purchase of supplies           43,080   2   1,200   1    2,160                       5      44,040
    Vehicle                        42,000   1   8,400                                    5      50,400
    Accumulated Depreciation                                                             5       5,040
    Disposal                        60,000 2 36,000 2 6,000 2 8,400                      5       9,600
    Depreciation this year           6,000 1 5,040                                       5      11,040
    Revaluation                     39,600 1 18,000 1 180,000                            5     237,600
    Depc of Equipment                                                                    5      10,800

(e)	Comment	on	the	liquidity	position	of	the	centre
    S
      erious liquidity problem as current rate is 0.04:1 with the business being entirely financed & dependent 
    on bank O/D facilities. O/D currently over 90,000, so surplus of 200,000 must be used immediately to 
    alleviate cash flow problems. Repayment of O/D should solve liquidity problems and reduce accumulated 
    interest on this loan.
    124    Graded Accounting Questions – Solutions



    9  mCguire solution
(a)	
	      Statement	of	Capital	1/1/2012
       Assets                         €                €
         Land & Buildings          560,000
         Machinery                 100,000
         Investments                40,000
         Milk cheque due             4,400
         Cattle                    112,000
         Sheep                      34,000
         Fuel                        1,400
         Bank                        5,000          856,800
       Liabilities
         Electricity due                  700
         Bank Loan                     30,000
         Loan Interest due              2,400        33,100
       Capital                                      823,700

(b)	
       Enterprise	Analysis	Account	–	Cattle	and	Milk
       Income                                                €        €
         Sales – Milk                                      53,500
              – Cattle & Calves (22,000 1 11,600)          33,600
         Beef premium                                       4,600
         Increase in stock                                  2,000
         Drawings by family                                 1,320   95,020
       Expenditure
         Purchases – cattle                                30,000
         Dairy wages                                        3,400
         General farm expenses (60%)                       17,760
         Fertiliser                                         3,840
         Vet fees (2 VH1 3 60%)                             1,260   56,260
         Gross profit                                               38,760

       Enterprise	Analysis	Account	–	Sheep
       Income                                                €         €
         Sales – Sheep & Lambs (42,000 1 24,800)           66,800
         Ewe premium                                        7,600
         Wool                                               2,800
         Increase in stock                                  4,000
         Drawings family                                      500   81,700
       Expenditure
         Purchases – sheep                                 36,000
         General farm expenses (40%)                       11,840
         Fertiliser                                         2,560
         Veterinary Fees (2 VH1 3 40%)                        840   51,240
         Gross profit                                               30,460
                                                           Topic 8     Service Firm a/c’s of Solutions   125


(c)	
       General	Profit	and	Loss	Account	for	year	ending	31/12/2012
       Income                                     €                €
         Gross profit – Cattle and milk         38,760
                    – Sheep                     30,460
         Interest                                3,200
         Forestry premium                        3,600          76,020
       Expenditure
         Light, heat and fuel (80%)              5,040
         Repairs (80%)                           9,760
         Machinery Depreciation                 16,000
         Loan interest                             480          31,280
       Net Profit                                               44,740

Notes	to	Accounts
       1.    Interest	Payable                                          €          €
             15 months interest 5 8% 3 1.25 years 5 10%
             110% 5 33,000
             10% 5 3,300
             Interest due for last yr. 2,400
             Interest for year 2012                                     600
             Less Drawings                                             (120) 5    480
       2.    Milk	sales
             Add due 31/12                                         54,000
             Less due 1/1                                           3,900
             Enterprise Account                                    (4,400) 5 53,500
       3.    Veterinary	fees                                        3,300
             Less VHI                                              (1,200)    2,100
       4.    Interest	Receivable                                    1,600
             Add Interest due                                       1,600     3,200
       5.    Light	Heat	and	Fuel                                    6,700
             Add Stock 1/1                                          1,400
             Less due 1/1                                            (700)
             Less Stock 31/12                                      (1,100)
             Less Drawings (20% of 6,300)                          (1,260)
             Profit and Loss                                               5 5,040

(d)
	      1.	 Which	account,	other	than	drawings,	is	affected	by	farm	produce	used	by	the	family?
       Drawings         Debited
       Sales            Credited
       (Sales are credited instead of Purchases as farm produce is produced rather than Purchased)
       2.	 Prepare	McGuire’s	drawings	account.
       Drawings a/c                         €               €
       Cattle & Milk                       1,320
         Sheep                               500
       Interest                              120
       Vet fees                            1,200
       Heat & light                        1,260
       Prepairs                            2,440
       Cash                               15,400
       Depreciation of Machinery           4,000          26,240
    126     Graded Accounting Questions – Solutions



10  donAl power solution
(a)
	     (i)	 Enterprise	analysis	a/c	Cattle	and	Milk	for	year	ending	31/12/2012
                                          €               €
      Sales of Cattle                                  180,000
      Sales to Creamery                                 58,000
      EU Subsidy                                         5,000
      Drawings by family                                 3,200
                                                       246,200
      Less Cost of Sales
      Stock of Cattle 1/1/              50,000
      1 Purchases                       88,000
      1 Vet’s Expenses                   4,400
      1 Fertilisers                      6,000
      1 Feedstuffs                       3,600
                                       152,000
      2 Closing Stock Cattle           (58,000)        (94,000)
      Profit on Cattle 1 Milk                          152,200

	     (ii)	 Enterprise	analysis	a/c	Sheep	for	year	ending	31/12/2012
      Sales — sheep                                     26,400
      EU Subsidy                                         2,400
                                                        28,800
      Less Cost of Sales
      Stock 1/1/12                      24,000
      1 Purchases                           —
      1 Vet’s Expenses                   2,200
      1 Fertilisers                      6,000
      1 Feedstuffs                       5,400
                                        37,600
      2 Closing Stock                   (8,400)        (29,200)
      Gross Loss on Sheep                                 (400)

	     (iii)	Enterprise	analysis	a/c	Bedding	Plants	for	year	ending	31/12/2012
      Sales                                               54,000
      Drawings by Family                                   1,600
                                                          55,600
      Less Cost of Sales
      Opening Stock                               —
      1 Purchases                             11,000
      1 Fertilisers                            2,000
                                              13,000
      2 Closing Stock                             —       (13,000)
      Gross Profit on Bedding Plants                       42,600
                                                  Topic 8    Service Firm a/c’s of Solutions   127


(b)	Trading	and	Profit	and	Loss	a/c	for	year	ending	31/12/2012
   Profit on Cattle & Milk                        152,200
   Loss on Poultry                                   (400)
   Profit on Strawberries                          42,600
   Overall Gross Profit                           194,400
   1 Income
       Rent Receivable                             12,000
                                                  206,400
   2 Expenses
       Wages                           14,400
       Rates                            8,200
       Insurance                       10,200
       Repairs                          3,800
       Debenture Interest               4,000
       Bank Charges                       400
       Deprec. — Buildings             25,600
               — Machinery             75,000    (141,600)
       Net Profit                                  64,800
   2 Taxation                                     (24,000)
   Retained Profit                                 40,800

(c)	Balance	Sheet	as	at	31/12/2012
                                                    €                €                 €
   Fixed Assets                                    Cost             Dep.              Net
   Land 1 Buildings                             1,400,000               —          1,400,000
   Machinery                                      300,000          235,000            65,000
                                                1,700,000          235,000         1,465,000
   Current Assets
   Stocks 31/12 — Cattle                                            58,000
                  — Fertilisers                                     10,000
                  — Poultry                                          8,400
                  — Feedstuffs                                       4,600
   Rent Receivable due                                               1,800
   Milk Cheque due                                                   6,000
   EU Subsidy due                                                    7,400
   Bank                                                            171,480
                                                                   267,680
   Less Creditors falling due less than 1yr
     Creditors                                    43,080
     Debent. Interest due                          4,000
     Taxation due                                 24,000            71,080           196,600
   Taxation Assets less Current Liabilities                                        1,661,600
   Financed By
   Capital 1/1                                                   1,180,000
   1 Revaluation Reserve                                           245,600
   1 Retained Profit                                                40,800
   2 Drawings                                                       (4,800)        1,461,600
   Debentures                                                                        200,000
                                                                                   1,661,600
    128   Graded Accounting Questions – Solutions


(d)	How	might	power	improve	the	overall	profitability	of	the	farm?
     The sheep operation should be ceased and the five acres transferred to the other two enterprises.
       e Bedding Plants seems to be the most profitable, yielding a profit of €42,600 from only 35 acres. The 
     Th
     cattle and milk enterprise is profitable, yielding €152,200 but from 260 acres.
     Th
       e farmer, Donal Power, should investigate the possibility of expanding his bedding plant operation 
     contracting his cattle and milk operation. He might also consider agri-tourism for the five acres presently 
     used in sheep production.

(e)	Write	a	brief	comment	on	the	profitability	of	this	business.
     Th
       e Return on Capital employed is not very high (i.e. the profit as a % of the resources invested in the 
     business.)
                                    Net Profit 1 Interest
                                                             3 100
                                      Capital Employed
                                      (64,800 1 4,000)
                                                             3 100
                                          1,661,600
                                                             5 4.14%.
     This is much too low as risk free investment in the bank would yield a similar return.
                   Topic


                    9
     Cash Flow Statements
                  Solution
2    Mary T
3    Mags
4    Nash
5    Pinnacle
6    On line
7    Quigley
8    Relihan
 130    Graded Accounting Questions – Solutions



 2  Mary T. SoluTion
(a)	Reconciliation	of	Operating	Profit	to	Net	Cash	Flow	Operating	Activities
   Operating Profit                                          164,400
   Depreciation for year                                      49,200
   Profit on sale of fixed assets                            (43,200)
   Increases in stock                                        (19,200)
   Increases in Debtors                                      (16,800)
   Decrease in Creditors                                     (19,200)
   Net cash flow from operating active                       115,200

   Cash	Flow	Statement	of	Mary	T.	Plc	for	the	year	ended	31/12/2013
                                                                €                €
   Operating	Activities
   Net cash flow from operating activities                                   115,200
   Return	on	Investment	and	Servicing	of	Finance
   Interest paid                                                              (14,400)
   Taxation
   Tax paid                                                                   (73,200)
   Capital	Expenditure	and	Financial	Investment
   Sale of fixed assets                                       74,400
   Purchase of fixed assets                                  (54,000)
   Purchase of investments                                   (15,600)           4,800
   Equity	Dividends
   Dividends paid                                                             (67,200)
   Net cash flow before liquid resources and financing                        (34,800)
   Financing
   Repayment of Debentures                                   (36,000)
   Issue of ordinary shares                                   72,000
   Share Premium                                              18,000           54,000
                                                                               19,200

   Reconciliation	of	Net	Cash	to	Movement	in	Net	Debt
   Increase in cash                                           19,200
   1 Cash received from Debentures                            36,000
   Changes in net debt                                        55,200
   Net Debt at 1/1/2012                                      (57,600)
   Net Debt at 31/12/2012                                      (2,400)

Workings
                                                                              Total
   Tax                           58,800    1   64,800    2   50,400      5   73,200
   Depreciation on Buildings     85,200    1   21,600    2   90,000      5   16,800
   Dividends                     48,000    2   16,800    2   74,400      5   43,200
   Dividends                     45,600    1   62,400    2   40,800      5   67,200
   Net Debt 1/1                 144,000    2   86,400                    5   57,600
                                                       Topic 9    Cash Flow Statements Solution   131


(b)	
	   1.	 Outline	the	benefit	of	preparing	a	cash	flow	statement.
    • They highlight chief sources of inflow and outflow of cash
    • Predict possible future flows of cash
    • As part of financial planning
    • They assess the liquidity of the business
    • They show the difference between cash and profit
    • They are a requirement according to company legislation

	   2.	 Distinguish	between	a	cash	expense	and	a	non	cash	expense.
    The following items affect profit but do not affect cash, called non-cash items
    • Credit sales
    • Credit purchases
    • Depreciation
    • Discounts
    • Provision for bad debts
    The following affect cash but not profit
    • Purchase and sale of fixed assets
    • Repayment of loans and other liabilities
    • Receipt of capital/debenture loan
    Cash is the amount of money available/left over at year end
    Profit is the difference between the revenue earned and the cost of those goods
           i.e the money made after all costs are deducted
 132    Graded Accounting Questions – Solutions



 3  MagS SoluTion
(a)	Reconciliation	of	Operating	Profit	to	Net	Cash	Flow	Operating	Activities
                                                           €
   Operating Profit                                    210,000
   Depreciation for year                               112,500
   Profit on sale of fixed assets                        (4,500)
   Increase in stock                                    (22,500)
   Increase in Debtors                                  (15,000)
   Increase in Creditors                                 33,000
   Net cash flow from operating activ.                 313,500

   Cash	Flow	Statement	of	Mags	Plc.	for	the	year	ended	31/12/2012
                                                           €           €
   Operating	Activities
   Net cash flow from operating activities                          313,500
   Return	on	Investment	and	Servicing	of	Finance
   Interest paid                                                    (10,200)
   Taxation
   Tax paid                                                         (57,000)
   Capital	Expenditure	and	Financial	Investment
   Sale of fixed assets                                   52,500
   Purchases of fixed assets                           (112,500)
   Purchase of investments                               (45,000)   (105,000)
   Equity	Dividends
   Dividends paid                                                    (82,500)
   Nat cash flow before liquid resources and financing                58,800
   Management	of	Liquid	Resources
   Purchase of Government Securities                                 (18,000)
   Financing
   Repayment of Debentures                              (157,500)
   Issue of ordinary shares                               60,000
   Share Premium                                          33,000     (64,500)
   Change in Cash                                                    (23,700)

   Reconciliation	of	Net	Cash	to	Movement	in	Net	Debt
   Change in cash                                       (23,700)
   Government Securities                                 18,000
   2 Cash received from Debentures                      157,500
   Change in net debt                                   151,800
   Net Debt at 1/1/2012                               (253,500)
   Net Debt at 31/12/2012                              (101,700)
                                                         Topic 9    Cash Flow Statements Solution      133


Workings
                                                                                    Total
      Tax                                64,500    1   67,500   2 75,000 5          57,000
      Depreciation on Machinery         270,000    1   90,000   2 303,000 5         57,000
      Disposal Profit                   105,000    2   57,000   2 52,500 5           4,500
      Dividends                          51,000    1   99,000   2 67,500 5          82,500
      Net Debt 1/1/2012                 270,000    2   16,500             5        253,500
      Interest                           12,000    2    1,800             5         10,200

(b)
	     1.	 Explain	the	term	solvency.
	     	 Solvency
      • Describes when an organization has sufficient cash available to meet it outstanding debts
      • If Current Assets are greater than creditors falling due with the year then they are solvent
	     2.	 Identify	a	non-cash	expense	and	a	non-cash	gain.
	     	 Non-cash	Expense
          Depreciation
          Loss on sale of Assets
	     	 Non-cash	gain
          Profit on sale of Assets
          Discount Received
 134    Graded Accounting Questions – Solutions



 4  naSh SoluTion
(a)	Reconciliation	of	Operating	Profit	to	Net	Cash	Flow	from	Operating	Activities
                                                                 €
   Operating profit                                           168,000
   Depreciation charges for the year     (72,000 1 18,000)     90,000
   Profit on sale of machinery                                 (3,600)
   Increases in stock                                         (18,000)
   Increases in debtors                                       (12,000)
   Increases in creditors                                      26,400
   Net cash inflow from operating activities                  250,800

   Cash	Flow	Statement	of	Nash	Plc	for	the	year	ended	31/12/2012
                                                                   €        €
   Operating	Activities
     Net cash inflow from operating activities                           250,800
   Returns	on	investment	and	servicing	of	finance
     Interest paid                                                         (8,160)
   Taxation
     Corporation tax paid                                                 (45,600)
   Capital	expenditure	and	financial	investment
     Investment                                               (36,000)
     Payments to acquire tangible fixed assets                (90,000)
     Receipts from sale of fixed assets                        42,000     (84,000)
   Equity	dividends	paid
     Dividends paid during the year                                       (66,000)
     Net cash inflow before liquid resources and financing                 47,040
   Management	of	Liquid	Resources
     Purchase of Government securities                                    (14,400)
   Financing
     Repayment of debentures                                 (126,000)
     Receipts from issue of share                              48,000
     Receipts from share premium                               26,400     (51,600)
     Decrease in cash                                                     (18,960)
   Reconciliation	of	Net	Cash	to	Movement	in	Net	Debt
     Decrease in cash during period                                       (18,960)
     Cash used to purchase Government securities                           14,400
     Cash used to purchase debentures                                     126,000
     Net debt at 1/1/2012 (216,000 2 13,200)                              121,440
     Net debt at 31/12/2012                                              (202,800)
                                                                          (81,360)
                                                        Topic 9   Cash Flow Statements Solution               135


(b)
	     1.	 Explain	the	term	Accounting	Standard
          This is a method of preparing financial information which is acceptable to the accountancy bodies
	     2.	 Identify	two	Accounting	Bodies
         S.S.A.P.            Statement of Standard Accounting Practice
         A.S.B.              Accounting Standards Board
         F.R.C.              Financial Reporting Council (oversees implementation of acc. standards)

Workings
                                                                           €
      Interest                     9,600   2    1,440                  5 8,160
      Tax                         51,600   1   54,000   2 60,000       5 45,600
      Dividends                   40,800   1   79,200   2 54,000       5 66,000
      Machinery Depreciation     216,000   1   72,000   2 242,400      5 45,600
      Disposal                    84,000   2   45,600   2 42,000       5 3,600
    136    Graded Accounting Questions – Solutions



    5  on line SoluTion
(a)
	     1.	 Abridged Profit and Loss for year ending 31/12/2012
                                                        €
      Operating Profit                               184,000
      2 Interest                                     (80,000)
      5 Profit before Tax                            104,000
      2 Tax                                          (46,000)
      Profit after Tax                                58,000
      2 Dividends                                    (48,000)
      5 Profits for year                              10,000
      1 P& L 1/1/2012                                610,000
      5 P & L 31/12/2012                             620,000

      Reconciliation of Operating Profit to Net Cash Flow
                                                        €
      Operating Profit                               184,000
      1 Stock decrease                                84,000
      1 Debtors decrease                              62,000
      1 Creditors increase                            60,000
      1 Depreciation                        (W)      120,000
      1 Patents written off                           20,000
      2 Profit on Disposal                           (14,000)
      Cash flow from Operating Activities            516,000

	         C
      2.	 	 ash	flow	Statement	for	the	year	ended	31/12/2012	
	     Cash	flow	statement
                                                                €          €
      Operating	Activities
      Net Cash flow                                                     516,000
      Ret.	on	Investment
      Interest Paid                                (W)                   (82,000)
      Taxation
      Tax paid                                                           (30,000)
      Capital Expenditure
      Sale of Fixed Assets                                   100,000
      Pur. of Fixed Assets.                        (W)      (480,000)
      Pur. of Inv.                                          (240,000)   (620,000)
      Equity Dividends
      Dividends paid                                                     (42,000)
      Net cash before liquid resources & financing                      (258,000)
      Management of Liquid Resources
      Pur. of Gov Securities                                             (20,000)
      Financing
      Share capital                                          80,000
      Debentures                                            200,000     280,000
      Change in cash                                                      2,000
                                                       Topic 9   Cash Flow Statements Solution   137


      Reconciliation of Net Cash to movement in Net Debt
      Change in cash                  2,000
      1 Pur. of Gov Securities       20,000
      2 Debentures                 (200,000)
      5 Change in net Debt         (178,000)
      2 Net Debt 1/1/2012          (590,000)
      5 Net Debt 31/12/2012        (768,000)

(b)
	     1.	 What	do	the	letters	ASB	and	FRC	stand	for?
      ASB    Accounting Standards Board
      FRC    Financial Reporting Council (oversees implementation of acc. standards)

	     2.	 Name	two	other	agencies	that	regulate	company	accounts.
      • The Government
      • EU directives
      • Accounting bodies
      • Stock Exchange
      • Company Acts

Workings:
      Depreciation                    70,000 2 54,000 2 136,000 5 120,000
      Interest                        20,000 1 80,000 2     18,000 5 82,000
      Buildings                    1,620,000 2 140,000 2 1,960,000 5 480,000
    138    Graded Accounting Questions – Solutions



    6  relihan SoluTion
(a)
	     1.	 Abridged	Profit	and	Loss	for	year	ending	31/12/2012
                                                                €
      Operating Profit                                       135,200
      Less Interest                                          (13,600)
      Profit before tax                                      121,600
      Taxation                                               (48,000)
      Profit after tax                                        73,600
      Dividends for year                                     (43,200)
      Retained Profit                                         30,400
      Profit and Loss balance 1/1/2012                       361,600
      Profit and Loss balance 31/12/2012                     392,000

      Reconciliation	on	Operating	Profit	to	Net	Cash	Flow	from	Operating	Activities
                                                                €
      Operating Profit                                      135,200
      Depreciation for year                                 120,000
      Profit on sale of fixed assets                          (8,000)
      Increase in stock                                      (86,400)
      Increase on Debtors                                    (48,000)
      Decrease in Creditors                                  (26,400)
      Net cash flow from operating activities                 86,400

	     2.	 Cash	Flow	Statement	of	Relihan	Plc	for	year	ended	31/12/2012
                                                                €           €
      Operating	Activities
      Net cash flow from operating activities                             86,400
      Return	on	Investment	and	Servicing	of	Finance
      Interest paid                                                      (13,600)
      Taxation
      Tax paid                                                           (40,800)
      Capital	Expenditure	and	Financial	Investment
      Sale of fixed assets                                    32,000
      Purchase of fixed assets                              (152,000)
      Sale of investments                                     80,000     (40,000)
      Equity	Dividends
      Dividends paid                                                     (43,200)
      Net cash flow before liquid resources and financing                (51,200)
      Management	of	Liquid	Resources
      Government securities                                              (56,000)
      Financing
      Issue of Debentures                                     40,000
      Issue of ordinary shares                                48,000
      Share Premium                                           14,400     102,400
      Change in cash                                                      (4,800)
                                                       Topic 9   Cash Flow Statements Solution           139



      Reconciliation	of	Net	Cash	to	Movement	in	Net	Debt
                                                       €
      Decrease in cash                               (4,800)
      1 Cash used to purchase liquid resources       56,000
      2 Cash received from Debentures              (40,000)
      Change in net debt                             11,200
      Net Debt at 1/1/2012                         (67,200)
      Net Debt at 31/12/2012                       (56,000)

Workings
                                                                    Total
      Tax                        31,200   1   48,000   2 38,400 5 40,800
      Depreciation               80,000   2   24,000   2 176,000 5 120,000
      Disposal Profit            48,000   2   24,000   2 32,000 5    8,000
      Purchase of fixed asset   392,000   2   48,000   2 496,000 5 152,000
      Net Debt 1/1/2012          96,000   2   56,000   1 27,200 5 67,200

(b)
	     1.	 Explain	why	earning	profit	does	not	always	result	in	a	corresponding	increase	in	cash	balances.
          Credit sales/purchases affect profit but do not affect cash.
          Non cash losses and gains affect profit but not cash
          Purchase and sale of fixed assets by cash affect cash but not profit
          Introduction or withdrawal of capital in cash affect cash but not profit.
	     2.	 Write	a	note	on	the	Accounting	Standards	Board.
          The Accounting Standards Board issues new accounting standards called FRS ie. Financial Reporting
          Standards.
          FRS requires large companies to prepare Cash Flow Statements for each activity period and that
          individual cash flows be entered under the standard headings (ORTCEMF) according to the activity that
          gives rise to them.
    140     Graded Accounting Questions – Solutions



    7  Pinnacle SoluTion
(a)	
	      1.	 Abridged Profit & Loss Account for year ending 31/12/2012
                                                            €
       Operating Profit                                  325,360
       Interest for the year                             (14,560)
       Profit before Taxation                            310,800
       Taxation for year                                (229,600)
       Profit after Taxation                              81,200
       Dividends                                         (56,000)
       Retained profit for the year                       25,200
       Retained profit on 1/1/                           275,800
       Retained profit on 31/12/                         301,000

(b)	Reconciliation of Operating Profit to Net Cash Flow from Operating Activities
                                                            €
       Operating Profit                                  325,360
       Depreciation for year                              63,000
       Profit on disposal of fixed assets                (35,000)
       *Increase in Prepayments                           (1,400)
       Stock increases                                   (14,000)
       Debtors decreases                                  19,600
       Creditors decreases                               (28,000)
       Patent amortised                                   14,000
       Net Cash inflow from operating activities         343,560

	      2.	 Cash Flow Statement of Pinnacle plc, for year ended 31/12/2012
                                                            €                €
       Operating Activities
       Net Cash Inflow from operating activities                        343,560
       Return on Investment & Servicing of Finance
       Interest Paid                                                    (10,360)
       Taxation	
       Corporation Tax Paid                                            (210,000)
       Capital Expenditure & Financial Investment
       Sale of Buildings                                  98,000
       Purchase of Building                              (63,000)
       Purchase of Equipment                            (112,000)       (77,000)
       Equity Dividends Paid	
       Dividends Paid                                                   (77,000)
       Net cash outflow before liquid resources and                     (30,800)
          financing
       Management of liquid resources
       Purchase of Government Securities                                (21,000)
       Financing
       Issue of Ordinary Shares                          140,000
       Share Premium                                      14,000
       Repayment of Debenture Loan                       (84,000)           70,000
       Increase in Cash                                                     18,200
                                                     Topic 9     Cash Flow Statements Solution   141


      Reconciliation	of	net	cash	flow	to	movement	in	net	debt.
      Increase in cash                            18,200
      Cash used to increase liquid resources      21,000
      Cash used to repay debentures               84,000
      Change in net debt                         123,200
      Net debt at 1/1/2012                      (163 800)
      Net debt at 31/12/2012                     (40,600)

Workings
      Depreciation             63,000 2 (119,000     2 98,000 5 21,000) 5		 42,000	(Blgs.)
      Buildings Depc.        140,000 1 42,000        2 112,000           5		 70,000	(Disposal)
      Buildings              616,000 2 (98,000       1 35,000) 2 546,000 5		 63,000	(Purchase)
      Disposal               133,000 2 70,000        2 98,000            5		 35,000	(Profit)
      Interest                (10,080 1 4,480)       5 14,560 2 4,200 5		 10,360	(Paid)
      Tax                    210,000 1 229,600       2 229,600           5	210,000	(Paid)
      Dividends                77,000 1 56,000       2 56,000            5		 77,000	(Paid)
      Net Debt 5 Deb 2 cash 2 Gov. Sec.

(b)
	     1.		What	is	the	purpose	of	preparing	Cash	Flow	Statements?
      • They highlight chief sources of inflow and outflow of cash
      • Predict possible future flows of cash
      • As part of financial planning
      • They assess the liquidity of the business
      • They show the difference between cash and profit
      • They are a requirement according to company legislation
	     2.	 Explain	the	learn	non-cash	items	and	give	two	examples.
      Non-cash items affect Profit but do not affect cash
      The following affect cash but not profit
      • Purchase and sale of fixed assets
      • Repayment of loans and other liabilities
      • Receipt of capital / debenture loan
    142    Graded Accounting Questions – Solutions



    8  Quigley SoluTion
(a)
	     1.	 Abridged	Profit	&	Loss	Account	for	year	ending	31/12/2012
                                                             €
      Operating Profit                                     208,512
      Interest Payable                                     (29,440)      (12,800 1 16,640)
      Profit before Tax                                    179,072
      Tax payable                                         (104,000)
      Profit after Tax                                      75,072
      Dividends                                            (72,000)
      Retained Profit                                        3,072
      Profit & Loss @ 1/1/2012                              56,608
      Profit & Loss @ 31/1/2012                             59,680

	     2.	 Reconciliation	of	Operating	Profit	to	Net	Cash	Flow	from	Operating	Activities
                                                              €
      Operating Profit                                     208,512
      1 Depreciation                                        83,200       (72,000 1 11,200)
      2 Profit on Disposal                                 (22,400)
      1 Amortisation of Patent                              19,200
      2 Increase in Prepayments                             (1,600)
      1 Increase in Bad Debt Provision                         128
      2 Drs. increase                                       (3,200)
      2 Stock increase                                     (27,200)
      2 Crs decrease                                        (9,600)
      Net	Cash	inflow	from	Operating	Activities            247,040

      Cash	Flow	Statement	of	Quigley	Plc.	for	ended	31/12/2012
                                                              €              €
      Operating	Activities
      Net Cash inflow from Operating Activities                           247,040
      Returns	on	Investment	and	Servicing	of	Finance
      Interest paid                                                        (26,240)
      Taxation
      Tax paid                                                             (84,800)
      Capital	Expenditure	and	Financial	Investment
      Purchase of Equipment                               (168,000)
      Cost of Extension                                    (40,000)
      Sale of Equipment                                     88,000
      Sale of Quoted Investments                            16,000        (104,000)
      Equity	Dividends
      Dividends paid                                                       (48,000)
      Net Cash Outflow before Management of Liquid                         (16,000)
      Resources and Financing
      Management	of	Liquid	Resources
      Purchase of Government Securities                                    (16,000)
      Financing
      Issue of Shares                                      160,000
      Repayment of Debenture                               (96,000)         64,000
      Decrease	in	Cash                                                      32,000
                                                      Topic 9     Cash Flow Statements Solution   143


       Change	in	Cash          2011                    2012
       Cash                   1,600                   3,200
       Bank                 (20,800)                  9,600
                            (19,200)                 12,800
                                       5 32,000

   Reconciliation	of	Net	Cash	Flow	to	Movement	in	Net	Debt
                                           €
   Increase in Cash                      32,000
   Repayment of Debenture                96,000
   Purchase of Govt. Securities          16,000
   Change in Net Debt                   144,000
   Net Debt @ 1/1/2012                 (403,200)
   Net Debt @ 31/12/2012               (259,200)

   Net Debt @                    01/01/2012      31/12/2012
   • Cash/Bank                      (19,200)         12,800
   • Debentures                    (416,000)       (320,000)
   • Government                      32,000          48,000
                                    403,200         259,200

Workings
                      Interest          Tax         Dividends
   Due 1/1/12         22,400           84,800         48,000
   1 this yr          29,440          104,000         72,000
   Due 31/12/12      (25,600)        (104,000)       (72,000)
   5 Paid             26,240           84,800         48,000

                    Equipment       Acc. Depc.           L & Blgs.                Disposal
   1/1/12             360,000        57,600              600,000                  112,000
   Disposal          (112,000)      (46,400)              80,000                  (46,400)
   * Purchase         168,000*       72,000* Depc.        40,000* extension.      (88,000)
   5 31/12/12         416,000        83,200              720,000                    22,400

    E
(b)		 xplain	why	earning	Profit	does	not	always	result	in	a	corresponding	increase	in	cost	
    balances.
   •    Credit sales and purchases affect profit but not cash
   •    Non cash losses and gains affect profit but not cash
   •    Purchase and sale of fixed assets by cash affect cash but not profit
   •    Introduction or withdrawl of capital in cash affect cash but not profit
                   Topic


                   10
      Correction of Errors
(Suspense a/c’s) Solutions
 2    O’Brien
 3    O’Connell
 4    O’Driscoll
 5    O’Farrell
 6    O’Grady
 7    O’Halloran
 8    O’Leary
                                       Topic 10  Correction of Errors (Suspense a/c’s) Solutions               145



    2  O’Brien SOlutiOn
(a)	Journal
                                                                                                      Dr.      Cr.
     (i)     Equipment                                                                                  75
               Purchases                                                                                         83
             Sales Returns                                                                             825
               Debtors                                                                                          825
             Suspense                                                                                    8
             (Being car parts returned by a customer entered incorrectly in the books)
     (ii)    Creditors                                                                               15,450
                Purchases Returns                                                                              1,050
                Suspense                                                                                      14,400
             (Being correction of incorrect recording of returns and recording of a charge for 
             transport costs)
     (iii)   Equipment                                                                                1,800
             Purchases                                                                               18,000
                Creditors                                                                                     36,000
             Suspense                                                                                16,200
             (Being correction of incorrect recording of the purchase of a motor car on credit)
     (iv)    Drawings                                                                                 1,448
             Discount Allowed                                                                            52
             Debtors                                                                                           1,500
             (Being recording of an offset of a private debt owed by Tobin against debt owed by a 
             customer to the firm)
     (v)     Sales Commission                                                                         4,500
             Creditors                                                                                5,100
             Capital                                                                                           9,000
             Disc. Received                                                                                      600
             (Being recording of capital introduced used for the purpose of clearing a debt and 
             payment of commission)

(b)	                              Suspense	Account
     Purchases                     8        Creditors                   14,400
     Creditors                16,200        Original difference          1,808
                              16,208                                    16,208


(c)	O’Brien	Net	Profit
     Statement of corrected net profit
     Original profit as per Profit and Loss account                          78,000
     Add         Purchases returns                                            1,050
                 Purchases                                                       83
                 Disc. received                                                 600
                                                                             79,733
     Less       Discount Allowed                                   52
                Commission                                      4,500
                Sales Returns                                     825
                Purchases                                      18,000       (23,377)
     Correct	Net	Profit                                                      56,356
    146   Graded Accounting Questions – Solutions


(d)	Balance	Sheet	as	at	31	December	2012
     Fixed Assets
        Premises                                                                   270,000
        Equipment (1 75 1 1,800)                                                   100,875
                                                                                   370,875
     Current Assets
       Stock (1 1,808)                                        132,308
       Debtors (2 825 2 1,500)                                 89,175
                                                              221,483
     less Creditors falling due less than 1 yr
        Creditors (1 36,000 2 5,100 2 15,450)                 133,950
        Bank                                                   52,500
                                                             (186,450)              35,033
                                                                                   405,908
     Financed by
       Capital (1 9,000)                                      369,000
       Add Net Profit                                          56,356
       Less Drawings (1 1,448)                                (19,448)             405,908
                                                                                   405,908


(e)	Explain	with	examples:
     1.  Error	of	commission: Correct amount hosted to incorrect a/c e. g.. T. Allen instead of C. Allen
     2.    riginal	Entry: Entered in wrong catagory of a/c as the error was made in book of original entry e.g. 
         O
         Vehicle entered in Purchases a/c.
                                    Topic 10  Correction of Errors (Suspense a/c’s) Solutions   147



 3  O’COnnell SOlutiOn
(a)
                                                               €              €
        (i)  Suspense                                         1,400
            Bank                                                            1,400
             (Overdraft brought down on incorrect side)
       (ii)  Sales                                            4,900
             Cash                                                           4,900
             Debtors                                          4,900
             Capital                                                        4,900
             (Private sale treated as business sale)
      (iii)  Debtor                                           1,050         1,050
             Bank                                                             963
             Discount allowed disallowed                                       87
             Bad Debts                                        1,050
             (Record of dishonoured cheque and bad debt)
      (iv)  Suspense                                         14,000
             Bank                                                          14,000
             Vehicle                                         21,000
             Capital                                                       21,000
             (Capital introduced)
       (v)  Creditors                                           455
             Vehicles                                           455
             Suspense                                                         910
             Repairs                                            280
             Drawings                                           175
             Bank                                                             455
             (Repairs and drawings omitted)


(b) 	                      Suspense	a/c
                        Dr.                                      Cr.
      Bank              1,400
      Bank             14,000
                                       Creditors                  910
                                       Original difference     14,490
                       15,400                                  15,400
    148     Graded Accounting Questions – Solutions



(c) O’Connell	Net	Profit
                                      Statement	of	corrected	net	profit
     Original Net Profit                                        26,250
     Add Discount disallowed                                        87
                                                                26,337
     Less      Sales                  4,900
               Bad Debts              1,050
               Repairs                  280                     (6,230)
               Corrected Net Profit                             20,107

(d) Corrected	Balance	Sheet
     Fixed	Assets                                            €               €                    €
     Premises                                                             700,000
     Motor Vehicles (121,000 1 455)                                        56,455
     Furniture and Equipment                                               28,000             784,455
     Current	Assets
     Stock                                                                  29,750
     Debtors (14,900 1 1,050 2 1,050)                                       14,700
     Cash (24,900)                                                             700
                                                                            45,150
     Less	Creditors	falling	due	within	1	year
     Creditors (2455 2 14,490)                           6,405
     Bank (11,400 1 963 1 14,000 1 455)                 26,618             (33,023)
     Net	Current	Assets                                                                        12,127
                                                                                              796,582
     Financed	by
     Capital (14,900 1 21,000)                                            797,650
     Add Net Profit                                                        20,107
                                                                          817,757
     Less Drawings (1175)                                                 (21,175)            796,582
                                                                                              796,582


(e)	What	is	a	suspense	account	and	why	does	it	arise?
        Suspense a/c is used when you make a mistake in the accounts that prevent the Trial Balance from 
     A
     balancing.
     This difference is left in the Suspense a/c until these errors are discovered.
     Errors are corrected through the Suspense a/c.
                                   Topic 10  Correction of Errors (Suspense a/c’s) Solutions          149



 4  O’DriSCOll SOlutiOn
(a)	Journal
                                                                                            Dr.	€    Cr.	€
         R
   (i)    epairs a/c                                                                        3,800
         Drawings a/c                                                                       1,920
         Premises a/c                                                                       5,720
           Suspense a/c
         (
       Being cancellation of entry in premises account and recording of payments                     11,440
         in drawings and repairs account.)
         C
   (ii)    reditors a/c                                                                     55,040
         Purchases Returns a/c                                                               1,360
           Suspense a/c                                                                              56,400
         (Being corrections of incorrect recording of a credit note and recording of a 
         charge for returns.)
         C
   (iii)   reditors a/c                                                                     10,320
           Purchase Returns a/c                                                                         216
           Suspense a/c                                                                              10,104
         (Being a credit note received entered incorrectly in the creditors and purchase 
         returns accounts.)
         D
   (iv)   ebtors a/c                                                                         5,200
           Bank a/c                                                                                   4,800
           Discount disallowed a/c                                                                      400
         Bad Debt a/c                                                                        5,200
           Debtors a/c                                                                                5,200
         (Being recording of dishonouring a cheque and recording of a bed debt.)
         S
   (v)    ales a/c                                                                          25,200
           Debtors a/c                                                                               25,200
         Cash a/c Bank                                                                      25,200
           Capital a/c                                                                               25,200
         (Being recording of Capital introduced and cancellation of incorrect entries 
         in sales and debtors accounts.)

(b)	O’Driscoll	net	profit	Statement	of	Corrected	Net	Profit
                                                €                €
   Original Net Profit as per books                           116,000
   Add
      Purchase Returns                          216
      Discount disallowed                       400               616
   Less
      Repairs                                 3,800
      Purchases Returns                       1,360
      Bad debt                                5,200
      Sales                                  25,200           (35,560)
   Corrected Net Profit                                        81,056
    150       Graded Accounting Questions – Solutions



(c)                                           Suspense	Account
       Date             Details                €              Date     	 Details                    €
                   Original Difference       77,944                     Premises                  11,440
                                                                       C
                                                                         reditors                 56,400
                                                                       C
                                                                         reditors                 10,104
                                             77,944                                               77,944

(d)	Corrected	Balance	Sheet
       Fixed Assets                                                         €               €                  €
          Premises (15,720)                                                             1,045,720
          Fixtures and fittings                                                           170,000
                                                                                                           1,215,720
       Current Assets
         Stock (277,944)                                                                   66,856
         Debtors (15,200 2 5,200 2 25,200)                                                 65,200
         Cash                                                                              16,200
                                                                                          148,256
       Less: Current Liabilities amounts falling due within one year
          Creditors (255,040 2 10,320)                                   62,040
          Bank (225,200 1 4,800)                                         43,600          (105,640)            42,616
                                                                                                           1,258,336
       Financed by:
          Capital (125,200)                                                             1,215,200
          Add Net Profit                                                                   81,056
          Less Drawings (11,920)                                                          (37,920)
                                                                                                           1,258,336

(e)	
       1.	 Why	do	all	errors	not	affect	the	suspense	account?
       O
         nly errors revealed by the Trial Balance affect suspense such as mathematical errors, Dr. entry but no Cr. & 
       different amounts entered.
       2.	 Identify	2	errors	that	do	not	affect	the	suspense	account.
         •  Errors of original entry (€80 entered as €800 on both sides)
         •  Errors of omission (Cash sales €400 not entered in accounts)
         •  Errors of Commission (Correct amount poster to incorrect a/c e.g. Cullen instead of Carty)
         •  Errors of Principle (Purchase of vehicle entered in Purchases)
                                      Topic 10  Correction of Errors (Suspense a/c’s) Solutions                151



 5  O’Farrell SOlutiOn
   (a)	Journal
                                                                                                  Dr.	€       Cr.	€
        (i)     Creditors a/c                                                                     6,550
                Captial a/c                                                                                    3,150
                  Suspense a/c                                                                                 3,400
                (
                  Being correction of incorrect recording of a private debt off set against a 
                business debt.)
       (ii)     Creditors a/c                                                                     17,540
                  Purchase Returns a/c                                                               340
                  Suspense a/c                                                                                17,880
                (
                  Being corrections of incorrect recording of a private debt off set against  
                a business debt.)
       (iii)    Sales Commission a/c                                                                  2,250
                Creditors a/c                                                                         2,700
                  Capital a/c                                                                                  4,500
                  Discount Received a/c                                                                          450
                (
                  Being recording of capital introduced and used for the purpose of  
                clearing a debt and payment of commission.)
       (iv)     Repairs a/c                                                                             800
                Drawings a/c                                                                            480
                Premises a/c                                                                          1,280
                  Suspense a/c                                                                                 2,560
                (
                  Being correction of incorrect recording of payment of repairs and drawings.)
        (v)     Bank a/c                                                                               780
                Discount Disallowed a/c                                                                 40
                  Creditors a/c                                                                                 820
                Creditors a/c                                                                          400
                  Cash a/c                                                                                      400
                  Being recording of dishonoured cheque and subsequent payment in cash.)
                (

(b)	                                       Suspense	Account
         Details                            €                       Details                    €
   Original Difference                    23,840          Creditors/Returns                  17,880
                                                          Creditors/Capital                   3,400
                                                          Repairs/Drawing/Premises            2,560
                                          23,840                                             23,840

(c)	O’Farrell	net	profit	Statement	of	Corrected	Net	Profit
                                                 €           €
   Original Net Profit as per books                        46,500
   Add
     Discount received                           450          450
                                                           46,950
   Less
     Purchase Returns                            340
     Sales Commission                          2,250
     Repairs                                     800
     Discount disallowed                          40       (3,430)
   Corrected Net Profit                                    43,520
    152   Graded Accounting Questions – Solutions


(d)	Corrected	Balance	Sheet
                                                                        Acc.	
                                                           Cost        Depc.          Net
     Fixed	Assets                                           €            €             €
     Premises (11,280)                                                171,280
     Furniture and Equipment                                           40,000
                                                                      211,280                  211,280
     Currents	Assets
     Stock (including suspense) (223,840)                              10,160
     Debtors                                                           16,000
                                                                                     26,160
     Less	Creditors	falling	due	within	1	year
     Creditors (217,540 2 6,550 2 2,700 1 820 2 400)                     3,630
     Bank (2780 1 400)                                                   3,120
     Net	Current	Assets                                                              (6,750)    19,410
                                                                                               230,690
     Financed	by
     Capital (13,150 1 4,500)                                         196,150
     Add Net Profit                                                    43,520
     Less Drawings (1480)                                              (8,980)                 230,690
                                                                                               230,690

(e)	Name	4	different	types	of	Error	that	do	not	affect	the	Trial	Balance
     1.  Omission of transaction from the books
     2.  Reversal of Entries i.e. DR sales CR Debtors
     3.  Error of oirginal Entry 2 €150 entered in books instead of €1,500
     4.  Error of Principle 2 Purchase of fixed asset entered as purchase of stock
     5.  Error of Commission 2 correct amount posted to incorrect a/c.
                                        Topic 10  Correction of Errors (Suspense a/c’s) Solutions   153


 6  O’GraDy SOlutiOn
(a)	Journal
                                                  Dr.         Cr.
        (i)    Bank O/D                            930
               Creditors                                       990
               Discount Received                    60
               Cash                                            450
               Creditors                           450
               (Dishonored cheque)
       (ii)    Bank O/D                                      33,750
               Capital                                       45,000
               Drawings                          33,750
               Vehicles                          45,000      33,750
               Suspense                          33,750
               (Vehicle introduced)
       (iii)   Capital                                        7,875
               Hire of labour                     1,575
               Prepaid                            6,300
               (Consultancy contract work)
       (iv)    Creditors                           675
               Vehicle                             675
               Repairs                             675
               Suspense                                       2,025
               (Repairs to Equipment)
        (v) Purs. Rets.                           1,800
            Creditors                            20,700
            Suspense                                         22,500
            (Purchases Returns)

(b)	                      Suspense	a/c
                                  Original Bal       9,225
   Vehicles           33,750      Repairs            2,025
                                  Returns           22,500
                      33,750                        33,750

(c)	Statement	of	corrected	net	profit
   Net Profit                         121,800
     2 Disc. Rec.                         (60)
     2 contract work                   (1,575)
     2 Repairs                           (675)
     2 Purs. Pets                      (1,800)
   5 Corrected Profit                 117,690
    154   Graded Accounting Questions – Solutions


(d)	Corrected	Balance	Sheet
     Fixed Assets
     Premises                                                            900,000
     Equipment                                                            45,000
     Vehicles (145,000 2 33,750 1 675)                                   101,925
                                                                                        1,046,925
     Current Assets prepaid                                 6,300
       Stock (19,225)                                     282,825
       Debtors                                             57,300
       Cash (2450)                                          1,050        347,475
     Less Crs. falling Due
     Creditors (1990 2 450 2 675 2 20,700)
                                                            63,165
     Bank (2930 1 33,750)                                   79,320       (142,485)        204,990
                                                                                        1,251,915
     Finby.
       Capital (17,875 1 45,000)                                                        1,177,875
       1 Net Profit                                                                       117,690
                                                                                          (43,650)
       2 Drawings (133,750)                                                             1,251,915

(e)	What	are	the	limitations	of	Final	Accounts	as	a	means	of	presentation?
        B
     •    ased on historical costs rather than current market value. Only monetary aspects displayed 
        e.g. Goodwill often omitted.
     •  Shows external situation but does not show profit from different departments etc.
        E
     •    mphasis on past results and present position changes by the time accounts are prepared. Different 
        methods of Asset valuation, finance structure etc.
        A
     •    ccounts can be shown to be unrepresentative of usual position, window dress balance sheet, create 
        secret reserves thereby reducing Net Profit.
                                       Topic 10  Correction of Errors (Suspense a/c’s) Solutions   155


 7  O’HallOran SOlutiOn JOurnal
(a)	Journal
                                                                  Dr.         Cr.
        (i)   Bank a/c                                                        1,200
              Suspense a/c                                        1,200
              (Overdraft on incorrect side)
       (ii)   Creditors                                                      22,000
              Equipment                                           1,100
              Equipment                                          11,000
              Suspense a/c                                        9,900
              (Purchase of Equipment)
     (iii)    P. Rets.                                            5,000
              Crs.                                                5,100
              Suspense                                                       10,100
              (Restocking charge error)
       (iv)   Equipment                                             30
              Purchases                                                         23
              S. Rets                                              230
              Debtors                                                          230
              Suspense                                                           7
              (S.Rets incorrectly entered)
       (v)    Capital                                                         1,200
              Cash                                                1,400
              Disposal                                                         200
              (Private asset introduced for cash)
       (vi)   Debtors                                                          250
              Drawings                                             220
              Discount All                                          30
              (Private Debt offset business debt)
       (vi)   Wages                                                560
              Accruals due                                                     560
              (Wages due not Recorded)
       (vi)   Sales                                              15,600
              Drs.                                                           15,600
              Capital                                                        15,600
              Bank                                               15,600
              (Capital Introduced)
  
(b)	                           Suspence	a/c
                                          P.Rets
     Bank                   1,200         Pur.Rets                  10,100
     Purs                   9,900         S Rets                         7
                                           Original difference         993
                           11,100                                   11,100
 156     Graded Accounting Questions – Solutions


(c)	Corrected	Net	Profit
   Net Profit                490,000
   2 Rets.                    (5,000)
   1 Purs.                        23
   2 S. Rets.                   (230)
   1 Disposal.                   200
   1 Discount Allowed            (30)
   2 Wages                      (560)
   2 Sales                   (15,600)
   Corrected Profit          468,803

(d)	Corrected	Balance	Sheet
   Fixed Assets
   Premises                                                         1,580,000
   Equip (11,100 1 30 1 111,000)                                    1,012,130
                                                                    2,592,130

   Current Assets
   Stock (940,000 1 993)                      940,993
   Drs. (2 230 2 15,600 2 250)                243,920
   Cash 1 1400                                 11,400
                                                        1,196,313

   Creditors falling due for less than 1 yr
   Crs. (122,000 2 5,100)                     476,900
   Bank (11,200 2 15,600)                     295,600
   Accruals                                       560   (773,060)     423,253
                                                                    3,015,383

   Financed by:
   Capital (115,600 1 1,200)                                        2,676,800
   1 Net Profit                                                       468,803
   2 Drawings (1220)                                                 (130,220)
                                                                    3,015,383
                                       Topic 10  Correction of Errors (Suspense a/c’s) Solutions   157


 8  O’leary SOlutiOn JOurnal
(a)	Journal
        (i)    Creditors                                       500   1,550
               Bank O/D                                      1,550     500
               (Payment omitted)
       (ii)    Purchase                                      5,000
               Creditors                                             5,000
               Closing Stock                                 5,000   5,000
               (Goods in transit)
       (iii)   Creditors                                      320
               Capital                                                320
               (Private Debt offset business debt)
       (iv)    Wages due                                              210
               Wages                                          210
               Bank                                           480
               Rent Receivable prepaid                                480
               (Wages & Rent omitted)
        (v)    Sales Returns                                 5,700
               Debtors                                               5,700
               Closing Stock                                 5,000   5,000
               (Restocking charge)
       (vi)    Creditors                                             1,500
               Repairs                                         350
               Drawings                                      1,200
               Suspense                                                50
               (Repairs incorrectly entered)
   (vii)       Purchases                                             2,300
               Creditors                                       400
               Equipment                                     7,300   3,200
               P & L/Disposal                                  400
               Debtors                                       2,800
               Hire Purchase                                         7,300
               Suspense                                      1,900
               (Sale of Equipment)

(b)	                      Suspense	a/c
   Equipment             1,900       Repairs            50
                                     * Balance       1,850
 158       Graded Accounting Questions – Solutions


(c)
      Corrected	Net	Profit          100,000
      2 Purchases                    (5,000)
      1 Closing Stock                 5,000
      2 Wages                          (210)
      2 Returns                      (5,000)
      2 Restocking                     (700)
      1 Closing Stock                 5,000
      2 Repairs                        (350)
      1 Purchases                     2,300
      2 Disposal                       (400)
                                    100,640

(d)	Balance	Sheet
      Fixed Assets
        Premises                                                              440,000
        Furniture & Equip (17,300 2 3,200)                                     44,100
      Current Assets
        Stock (11,850 1 5,000 1 5,000)                    43,850
        Debtors (25,700 1 2,800)                          21,100
        Cash                                                 200    65,150
      Creditors falling due less than 1 yr
        Crs. (2500 1 1,550 1 5,000 2 320 1 1,500 2 400)   46,830
        Bank (1 500 2 1,550 2 480)                         6,670
        Accruals (210 1 480)                                 690   (54,190)    10,960
                                                                              495,060
      Financed by:
        Capital (1320)                                             400,320
        1 Net Profit                                               100,640
        2 Drawings (11,200)                                        (13,200)   487,760
        1 Loan                                                                  7,300
                                                                              495,060
                     Topic


                    11
      Interpretation of a/c’s
                   Solutions
2    Artisan
3    Bocason
4    Condor
5    Delgado
6    Eliza
7    Fulcum
8    Gable
    160     Graded Accounting Questions – Solutions



    2  ArtisAn solution
(a)
	     1.	 Cash	Purchases
          Credit​purchases
          ______________​ 8​times
          ​       ​ ​ ​5   ​
             Creditors
          Credit​purchases 5 8​times​creditors​5​434,000
          Total​purchases 5 Cost​of​sales​2​Opening​stock​2​Closing​stock
                           5 670,000​2​42,000​1​37,000​5​665,000
                           5 665,000​2​434,000                            5 €231,000

	     2.	 Ordinary	dividend	cover
                    Net​Profit​2​Preference​dividend ​
                    ​          ​        ​ ​
                                         ​              50,000​2​8,000 ​​ ​
          ​​​​​​​​​ __________________________​_____________​ ​ ​ 5​1.6	times
                                                        ​
                                                     ​5​​      ​​      ​
                          Ordinary​dividend                 26,250
	     3.	 Dividend	Yield
	     																									(DPS​5​26,250/350,000​5​7.5​c)​
​                                                   7.5​3​100 ​ ​
      ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​DPS​3​100​_________​ ​ ​ ​ ​ ​ ​ ​ 5​2.9%
                                     ___________​ 5​​
                                     ​            ​ ​      ​ ​
                                     Market​price      260
	     4.	 Interest	Cover
​                          Net​Profit​1​interest ​ ​
      ​​​​​​​​​​​​​​​​​​​​​​
                           ​         ​​   ​         50,000​1​14,000 ​ ​
                           _________________​ ______________​ ​ ​ ​ ​ 5​4.57	times
                                                 ​5​​       ​​      ​
                                 interest                14,000
	     5.	 Earnings	per	share
                Net​Profit​2​preference​dividend 50,000​2​8,000
                __________________________​_____________​
​               ​          ​​        ​ ​
                                       ​        ​5​​
                                                ​​      ​ ​ ​   ​                5​12	c
                     No.​of​ordinary​shares          350,000
	     	 Period	to	recoup	share
                                                Market​price     260
                                              _______________​ 5​​ ​​ ​ ​ ​ ​ ​ ​ 5​21.66	times
​     ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
                                              ​      ​ ​ ​ ​ ____​
                                                                 ​ ​
                                              Earnings​per​share  12
(b)
	     Profitability
​        R
      •​ ​ OCE​for​2012​is​8.8%​which​is​3​to​4​times​the​return​from​risk​free​investment​in​the​bank.​However​
         this​profitability​has​disimproved​from​10%​last​year​which​shows​a​less​efficient​use​of​resources.
​        G
      •​ ​ ross​margin​has​also​fallen​from​28%​to​24.7%​which​is​also​a​poor​indicator.
​        W
      •​ ​ hile​Artison​is​a​profitable​business​able​to​generate​profits​for​interest​payments​the​trend​of​profits​
         declining​by​12%​would​certainly​worry​debenture​holders.

	     Dividend	Policy
​        D
      •​ ​ PS​for​2012​is​7.5​c​up​50%​from​last​years​5​c​together​with​a​real​rate​of​return​of​4.64%​would​not​
         please​debenture​holders.
​        Th
      •​ ​ e​dividend​cover​is​only​1.6​times​which​indicates​that​two​thirds​of​the​profits​generated​by​the​
         company​have​been​distributed​to​the​ordinary​shareholders​with​little​or​no​provision​for​the​repayment​
         of​debentures.
                                                       Topic 11     Interpretation of a/c’s Solutions           161


	     Liquidity
​        A
      •​ ​ rtisan​is​insolvent​as​the​Current​ratio​of​.96​(down​from​1.2)​indicates​the​co.​is​unable​to​pay​its​
         debts​for​the​year.​This​ratio​is​well​down​the​recommended​fig​of​2:1.
​        Th
      •​ ​ e​Acid​test​shows​the​company​is​illiquid​and​has​only​54​c​in​every​€1​available​to​pay​short​term​
         debts.​This​is​significantly​down​from​.75​of​last​year.
​     •​ Artisan​has​serious​cash​flow​problems​with​the​ability​to​pay​interest​a​very​immediate​worry.

	     Gearing
​     •​ Company​is​lowly​geared​at​41.3%,​improved​from​44%​which​would​please​debenture​holders.
​     •​ Interest​cover​has​also​fallen​from​6​times​last​year​to​4.57​times​this​year.
​        G
      •​ ​ earing/interest​cover​is​satisfactory​though​not​exceptional​and​debenture​holders​would​be​concerned​
         that​not​enough​funds​are​being​generated​to​provide​for​redemption​of​their​loan.

	     Share	Price/Stock	exchange	performance
​        M
      •​ ​ arket​price​has​fallen​from​€2.8​to​€2.6​showing​a​lack​of​confidence​in​the​company​by​the​market.​
         When​you​factor​in​other​indicators​such​as​EPS​falling​from​14​c​to​12​c​this​year​and​a​very​poor​P/E​
         ratio​of​21.66​years​prospects​and​market​sentiment​for​Artisan​are​not​positive.

	     Sector
​     Competition​from​large​multinational​distributors​will​make​for​difficult​market​conditions​in​this​sector.

	     Security
​     F
      ​ ixed​assets​of​570,000​provide​adequate​security​for​the​debentures​in​the​event​of​liquidation​although​
      one​would​question​the​real​value​of​the​fixed​asset,​as​no​depreciation​has​been​written​off.​The​fact​that​
      Artisan​only​has​€76,500​in​Reserves​available​to​pay​back​debentures​in​2​years’​time​is​a​major​worry.

(c)
	     1.	 A	rising	liquidity	ratio	is	not	always	a	sign	of	good	management.
​         H
      ​ ​ igh​liquidity​indicates​that​it​is​easier​to​pay​short​term​debts​on​time​and​avail​of​cash​discounts.​
          However​high​liquidity​means​too​much​cash​is​tied​up​in​liquid​assets​when​they​could​be​earning​
          more​profits.​Extra​cash​could​be​invested​wisely​to​gain​a​return.

	     2.	   Possible	reasons	for	declining	Gross	Profit	%
​     ​     •​ Unrecorded​cash​sales.
​     ​     •​ Closing​stock​undervalued/opening​stock​overvalued.
​     ​     •​ Price​reduction.
​     ​     •​ Increase​in​purchase​price.
​     ​     •​ More​favourable​terms​offered​to​debtors​e.g.​increased​cash​discount.
​     ​     •​ Stock​deterioration,​pilferage,​breakage​etc.
    162     Graded Accounting Questions – Solutions



    3  BocAsAn solution
(a)
	     1.	 Credit	Purchases

           Credit​purchases
           ______________​
           ​       ​ ​ ​ 5​8​times
                            ​
              Creditors
           Credit​purchases 5​8​times​creditors​5​296,000
           Total​purchases 5​Cost​of​sales​2​Closing​stock​1​Opening​stock
                            5​350,000​2​40,000​1​32,000​5​342,000
                            5​342,000​2​296,000                                     5​€46,000

	     2.	 Ordinary	dividend	cover

​     ​​                   Net​Profit​2​Preference​dividend ​
           ​​​​​​​​​​​​​​​​​
                           ​          ​        ​ ​
                                                ​              73,000​2​12,000 ​
                           __________________________​______________​
                                                               ​
                                                            ​5​​       ​​      ​    5​2.9	times
                                 Ordinary​dividend                  21,000

	     3.	 Dividend	Yield

​     ​    ​​​​​​​​​​​​​​​DPS​3​100​
                         ___________​ (DPS​5​21,000/300,000​5​7​c)​5​​
                         ​            ​
                                                                     7.0​3​100 ​ 5​2.46%
                                                                     _________​
                                                                     ​       ​ ​
                         Market​price                                   2.85

	     4.	 Interest	Cover

                                                 Net​Profit​1​interest​ ​
                                                 _________________​
                                                 ​
           ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​          ​​   ​      ​
                                                       ​interest
                                                    73,000​1​18,000​ ​
                                                    _______________​
                                                    ​
           ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​        ​​      ​              5	5.05	times
                                                         ​18,000

	     5.	 Period	to	recoup	share

                                        Market​price     285
                                      _______________​ 5 ____​
                                            ​        ​   ​ ​​                       5​40.7	years
                                      Dividend​per​share            7

(b)
	     Profitability
​        R
      •​ ​ OCE​for​2012​increased​from​10.5%​to​11.2%​which​is​3​to​4​times​the​return​from​risk​free​
         investment​in​the​bank.​This​shows​a​more​efficient​use​of​resources​in​2012.
​        R
      •​ ​ eturn​on​Equity​also​increased​from​12%​to​14%​in​2012.
​        B
      •​ ​ ocasan​is​a​profitable​business​able​to​generate​profits​for​interest​payments​the​trend​of​profits​
         increasing​would​certainly​please​the​bank.​It​is​generating​sufficient​profit​to​meet​interest​payments​
         from​the​bank.

	     Security
​        F
      •​ ​ ixed​assets​of​€495,000​(€310,000​after​secured​debentures)​are​available​as​security​for​the​loan​
         although​the​real​value​of​these​assets​must​be​questioned​as​no​depreciation​has​been​written​off.​
         However​Intangible​assets​of​€285,000​although​not​realizable​are​a​good​sign​of​extra​security.

	     Liquidity
​        C
      •​ ​ urrent​ratio​of​1.27​(down​form​1.3)​indicates​the​co.​is​solvent​and​able​to​pay​its​debts​for​the​year.​
         This​ratio​of​well​down​the​recommended​fig​of​2:1.
​        Th
      •​ ​ e​Acid​test​has​also​fallen​form​.9​to​.83​and​shows​the​company​is​illiquid​and​has​only​83​c​in​every​
         €1​available​to​pay​short​term​debts.
​        B
      •​ ​ ocasan​has​cash​flow​problems​with​the​ability​to​pay​interest​a​very​immediate​worry,​notwithstanding​
         their​ability​to​meet​the​extra​€20,000​interest​on​the​new​loan.
                                                     Topic 11     Interpretation of a/c’s Solutions           163


	   Gearing
​      G
    •​ ​ earing​has​improved​from​49%​to​47%​this​year​which​shows​the​company​is​lowly​geared.​This​would​
       increase​to​57%​after​the​loan​and​make​Bocasan​highly​geared.
​      I
    •​ ​ nterest​cover​has​increased​from​4.8​times​to​4.9​but​this​would​fall​to​only​3​times​after​loan​is​granted.
​      G
    •​ ​ earing/interest​cover​is​satisfactory​though​not​exceptional​and​the​bank​would​be​concerned​that​these​
       fig​are​not​strong​enough​to​warrant​granting​the​loan.

	   Share	Price/Stock	exchange	performance
​   Th
    ​ e​share​price​increased​from​€2.60​to​€2.85​this​year​and​with​EPS​of​20​c​shows​market​confidence​in​
    the​company​even​though​it​has​a​poor​PE​ratio​of​40​years.

	   Sector
​   Th
    ​ e​tourist​industry​is​going​through​difficulties​at​the​moment​as​Ireland​is​perceived​as​being​expensive.
​   The​increased​value​of​the​€​has​also​worsened​Ireland’s​competitiveness.

	   Redemption
​   ​ ebentures​will​be​redeemed​in​2015​and​there​is​no​Debenture​Redemption​Reserve​set​aside​for​this​
    D
    purpose.
​   Because​of​poor​gearing,​profitability​and​liquidity​a​bank​loan​would​not​be​recommended.

	   (c)	What	action	would	you	advise	Bocasan	to	take?
​   ​       I
        1.​ ​ ssue​further​ordinary​shares​to​raise​finance​rather​than​borrow​from​bank.​(200,000​ordinary​shares​
            available).
​   ​   2.​ Reduce​dividend​on​order​to​improve​liquidity.
​   ​   3.​ Improve​gross​profit​%​by​reducing​cost​of​sales​or​increasing​selling​price.
​   ​   4.​ Sale​and​leaseback​of​fixed​assets​to​raise​finance.​This​could​possibly​generate​over​€400,000.
    164      Graded Accounting Questions – Solutions



    4  condor solution
(a)
	     1.	 Cash	Sales

            Credit​sales ​
            __________​
            ​         ​ ​5​8​times
             Debtors
            Credit​sales​​5​8​times​ Debtors​5​360,000
            Cash​Sales​​​5​1,250,000​2​360,000                           5​€890,000

	     2.	 Ordinary	dividend	cover

                            Net​Profit​2​Preference​dividend​ ​
                            ___________________________​
                            ​          ​        ​ ​
                                                  ​           ​
                                     ​Ordinary​dividend
                                     90,000​2 12,000​ ​
                                     _______________​
                                     ​       ​​       ​                  5​2.8	times
                                         ​27,500

	     3.	 Dividend	Yield

                 ​DPS​3​100​​
                 ___________​ (DPS​5​27,500/450,000​5​6.1​c)
                       ​       ​
                 ​Market​price
                                       6.1​3​100​ ​
                                       _________​
                                       ​      ​ ​                        5​1.69%
                                          ​360

	     4.	 Stock	Turnover

                                        Cost​ ​
                                   ____________​
                                   ​      ​
                                   ​Average​stock
                                       880,000
                                       _______​
                                       ​     ​​                          5​12.6	times
                                       70,000

	     5.	 Earing	per	share

                 Net​Profit​2​preference​dividend 90,000​2​12,000
                 __________________________​______________​
                 ​
            ​​​​​​          ​​        ​ ​​       ​5
                                                 ​​      ​ ​      ​5​17.3	c
                                                                  ​
                      No.​of​ordinary​share           450,000
            Period​to​recoup​share
                               Market​price
                           _______________​ 5​​360​
                           ​       ​​ ​ ​ ____​
                                              ​    ​                     5​20.8	times
                           Dividend​per​share 17.3
            ​​​​​​​

(b)	
	 Profitability
​     •​   ROCE​for​2012​at​10.3%​is​3​times​the​return​from​risk​free​investment​in​the​bank.​​
​     ​    Profitability​has​disimproved​from​12%​last​year-less​efficient​use​of​resources.
​     •​   Gross​margin​fallen​from​32.5​to​29.7%​which​is​also​a​poor​indicator.
​     •​   W
           ​ hile​condor​is​a​profitable​business​able​to​generate​profit​to​meet​dividends​the​trend​of​profits​
           declining​by​14%​would​certainly​worry​ordinary​shareholders.

	     Dividend	Policy
​        D
      •​ ​ PS​of​6.1​for​2012​up​from​last​years​5​c​shows​a​generous​dividend​policy​as​markets​now​paying​less​
         than​3​c​per​share.
​        Th
      •​ ​ e​Dividend​cover​of​2.8​times​with​the​dividend​yield​of​1.69%​and​real​of​return​4.7%​represent​
         good​practice.
​        D
      •​ ​ ividend​policy​is​generous​but​would​be​questioned​as​they​have​serious​liquidity​problems.
                                                      Topic 11      Interpretation of a/c’s Solutions            165


	   Liquidity
​      C
    •​ ​ ondor​is​insolvent​as​the​Current​ratio​of​.6​indicates​the​co.​is​unable​to​pay​its​debts​for​the​year.​The​
       ratio​is​well​down​the​rec.​fig​of​2:1.
​      Th
    •​ ​ e​Acid​test​show​the​company​is​illiquid​and​has​only​26​c​every​€1​available​to​pay​short​term​debts.
​      C
    •​ ​ ondor​has​serious​cash​flow​problems​and​could​face​liquidation​if​creditors​€135,000​apply​to​have​
       debts​paid​immediately.​With​a​further​€39,500​due​in​dividends​it​is​difficult​to​know​it​is​going​to​get​
       the​cash​from​keep​the​business​operating.
​   ​ Creditors​could​demand​a​receiver​be​appointed.

	   Sector
​   A
    ​ ny​business​currently​supplying​the​construction​sector​is​struggling​at​present​with​the​severe​downturn​
    in​this​industry​through​oversupply​and​overpricing.

	   Gearing
​      C
    •​ ​ ompany​was​lowly​geared​at​44%​last​year​but​has​risen​to​50%​i.e.​capital​employed​from​outside​
       sources​this​year.
​      I
    •​ ​ nterest​cover,​i.e.​ability​to​meet​debt​charges,​excellent​at​7​times​although​down​on​last​year’s​figure​of​
       8.8​times.
​      Th
    •​ ​ e​company​is​close​to​being​highly​geared​which​adds​to​liquidity​problems​of​too​much​outside​debt​
       and​the​cost​of​service.
​   ​ It​also​increases​the​likelihood​of​a​receiver​being​appointed.

	   Share	Price	Stock	exchange	performance
​   S
    ​ hare​price​has​not​increased​from​€3.60​even​through​EPS​went​up​13​c​to​17​c​and​DPS​5​c​to​6.1​c.​
    Together​with​a​poor​P.E.​ratio​of​20.7​shows​lack​of​market​confidence​in​this​company​on​the​stock​market.

    A
(c)		 dvise	the	bank	manager	as	to	whether	a	loan	of	€150,000	at	10%	interest	should	be	
    granted	to	Condor	for	further	expansion.
​      D
    •​ ​ ebentures​of​€300,000​are​due​to​be​repaid​within​3​to​4​year​and​Condor​will​struggle​to​find​this​
       cash​for​redemption​of​Debentures.
​      S
    •​ ​ ecurity​of​fixed​assets​€830,000​after​Debentures​€530,000​seems​sufficient​although​one​would​
       question​the​accuracy​of​these​figures​as​no​depreciation​has​been​provided​on​these.
​      C
    •​ ​ ompany​will​be​highly​geared​after​the​loan​at​56%​which​carries​many​risk​also​interest​cover​will​fall​
       to​4​times.
​      L
    •​ ​ iquidity​ratio​.26​will​worsen​further​as​a​result​of​extra​interest​of​€15,000​p.a.
​   •​ Purpose​for​which​loan​is​required​had​to​be​income​generating.
​      C
    •​ ​ onstruction​industry​is​possibly​the​worse​area​to​be​involved​in​at​the​present​as​prices​are​falling​due​
       to​oversupply​of​units.
​   ​ Recommendation:
​   ​ Refuse​loan​application.
    166    Graded Accounting Questions – Solutions



    5  delgAdo solution
(a)
	     1.	 Cash	Sales

                                    Credit​Sales ​5​6
                                    __________​
                                              ​
                                   Debtors
                            6​DRS​5​390,000​5​CR​Sales
          Total​Sales                                                  975,000
          2​Credit​Sales                                               390,000
          5 Cash​Sales                                                                                   5​€585,000

	     2.	 Ordinary	dividend	cover

                   Net​Profit​2​Preference​Dividend 	5 117,500​2​16,000 	
                 5 _______________________​_____________​
                              ​          ​​                    ​​ 	                                      5​2.8	times
                         Ordinary​Dividend                  36,000
	     3.	 Earnings	per	ordinary	share	in
                  Net​Profit​2​Preference​Dividend ​5​​
                5 ___________________________​_______________​
                             ​ ​        ​​     ​      117,500​2​16,000 ​
                                                      ​       ​​   ​   ​                                 5​16.9	c
                     Number​of​Ordinary​Share              600,000

	     4.	 Dividend	yield	on	ordinary	shares
                                 Dividend​per​share    100 6.21​3​100 ​
                                                    ​ ____​5​​
                             5 __________________​ 3​​ ​ ​ __________​
                                          ​            ​ ​ ​       ​ ​
                                Market​Price​per​Share  1      145
          (DPS​5​36,000/580,000​5​6.21)                                                                  5 4.3%

	         H
      5.	 	 ow	long	it	would	take	one	ordinary	share	to	recoup	(recover)	its	2012	market	price	(assume	
          current	performance	is	maintained)
                                            Market​Price​    1.45​
                                        5 ______________​ 5 _____​
                                                 ​
                                          Earning​per​share 0.169
          Length​of​time                                                                                 5​8.58	years


(b)	
	 Profitability
​        R
      •​ ​ OCE​has​fallen​from​13.4%​last​year​to​11.46%​this​year​which​is​still​3​to​4​times​the​return​from​
         risk​free​investment​in​the​bank.​However​this​profitability​has​disimproved​from​10%​last​year​which​
         shows​a​less​efficient​use​of​resources.
​        R
      •​ ​ eturn​on​Equity​also​down​from​15.6%​to​15%​although​higher​than​Pref.​8%​1​Debentures​9%.
​        W
      •​ ​ hile​Artison​is​a​profitable​business​able​to​generate​profits​for​interest​payments​the​trend​of​profits​
         declining​by​12%​would​certainly​worry​ordinary​shareholders.

	     Dividend	Policy
​     •​ DPS​for​2012​is​6​c​down​from​12.2c​in​2011,​a​major​disimprovement.
​        Th
      •​ ​ e​dividend​cover​is​2.76​times​which​indicates​that​one​third​of​the​profits​generated​by​the​company​
         have​been​distributed​to​the​ordinary​shareholders.
​     •​ Dividend​yield​is​4.3​%​and​real​rate​of​return​is​12%,​both​of​which​are​very​favourable​returns.
                                                   Topic 11    Interpretation of a/c’s Solutions          167


	   Liquidity
​      C
    •​ ​ urrent​ratio​has​fallen​from​1.45​to​1.16​shows​the​business​to​be​barely​solvent​and​well​down​on​
       recommended​fig​of​2:1.
​      Th
    •​ ​ e​Acid​test​shows​the​company​is​illiquid​and​has​only​55​c​in​every​€1​available​to​pay​short​term​
       debts.​This​is​significantly​down​from​1.1​of​last​year.
​      D
    •​ ​ elgado​has​serious​cash​flow​problems​in​the​short​term​with​the​ability​to​pay​creditors​a​very​
       immediate​worry.​With​the​risk​of​a​receiver​being​appointed​if​creditors​demand​immediate​payment.

	   Gearing
​   •​ Company​is​lowly​geared​at​34%,​not​overly​committed​to​outside​finance.
​   •​ Interest​cover​is​9.56​times​showing​Delgado​is​able​to​meet​its​debt​charges​very​easily.
​   •​ Gearing/interest​cover​are​both​very​healthy​with​little​outside​debt​commitments​and​charges.

	   Share	Price/Stock	exchange	performance
​      M
    •​ ​ arket​price​has​fallen​from​€1.58​to​€1.45​showing​a​lack​of​confidence​in​the​company​by​the​market.​
       Although​EPS​of​17​c​and​PE​of​8.5​are​very​good​and​may​reassure​investors​on​the​stock​market.

	   Investments
​   Th
    ​ ese​are​now​only​worth​€115,000,​a​drop​of​12%​from​cost​price​of​€131,000.​This​indicates​poor​
    management​decision.

    Th
(c)		 e	Net	Profit	percentage	was	12.5%	in	2010.	Calculate	the	percentage	figure	for	Net	
                      117,500	3	100
                      _____________	
                      	
    Profit	percentage		      	 	 	  	5	12.05%,	and	give	3	reasons	for	any	change.
                         975,000
​   1.​ Cash/stock​losses
​   2.​ Mark​down​of​prices​e.g.​sale
​   3.​ Incorrect​stock​valuation
​   4.​ Increase​in​expenses
​   5.​ Change​in​sales​mix

	   How	can	a	falling	net	profit	percentage	be	corrected?
​   1.​ Record​all​cash​transactions
​   2.​ Control​expenses
​   3.​ No​Price​reductions
    168    Graded Accounting Questions – Solutions



    6  elizA solution
(a)
	     1.	 Cash	Purchases
          Credit​purchases
          ______________​
          ​       ​ ​ ​ 5​5​times
                           ​
             Creditors
          Credit​purchases 5​5​times​creditors​5​510,000
          Total​purchases 5​Cost​of​sales​2​Opening​stock​1​Closing​stock
                           5​675,000​2​55,000​1​60,000​5​680,000                           €
          Cash​Purchases ​ 510,000​2​680,000                                           5​170,000

	     2.	 Interest	Cover
                             Net​Profit​1​interest ​ ​
                             ​         ​​  ​          38,000​1​27,000 ​
                             _________________​ ______________​
                                                   ​5​​      ​​       ​                5​2.4	times
                                    interest                 27,000

	     3.	 Dividend	Yield

                        ​DPS​3​100​
                        ___________​ (DPS​5​10,200/340,000​5​3​c)
                                   ​
                        Market​price
                                               3.0​3​100 ​
                                               _________​
                                               ​     ​ ​                               5​2.5%
                                                 120

	     4.	 Period	to	recoup	share
                                     Market​price     120
                                   _______________​ 5​​ ​ ​                            5​40	years
                                         ​ ​ ​ ​ ____​​ ​
                                   Dividend​per​share        3

	     5.	 Projected	value	of	share
                                P.E.​Ratio​3​E.P.S.​5​24​3​4​c                         5​96	c

(b)	
	 Profitability
​        R
      •​ ​ OCE​for​2012​is​7%​which​is​almost​twice​the​return​from​risk​free​investment​in​the​bank.​However​
         the​projected​profitability​of​8.9%​for​next​year​shows​a​more​efficient​use​of​resources.
​        R
      •​ ​ eturn​on​Equity​is​a​very​poor​4.5%​which​compares​unfavourably​with​Debentures​return​of​8%.
​     •​ Ordinary​shareholders​would​be​unhappy​with​current​but​encouraged​by​projected​profitability.

	     Dividend	Policy
​     •​ DPS​for​2012​is​3​c​and​expected​to​decrease​to​2.4​c​for​next​year.
​        Th
      •​ ​ e​dividend​cover​is​only​1.12​times​which​indicates​that​two​thirds​of​the​profits​generated​by​the​
         company​have​been​distributed​to​the​ordinary​shareholders​and​a​very​small​%​of​profits​are​being​
         retained.
​     •​ Dividend​yield​is​a​disappointing​2.5%​less​than​the​3​to​4%​available​in​the​banks.

	     Liquidity
​        E
      •​ ​ liza​is​solvent​with​a​Current​ratio​of​1.41​indicates​the​co.​is​able​to​pay​its​debts​for​the​year.​This​
         ratio​is​well​down​the​recommended​fig​of​2:1.
​        Th
      •​ ​ e​Acid​test​shows​the​company​is​barely​liquid​and​has​95​c​in​every​€1​available​to​pay​short​term​
         debts.​Projected​cash​flow​problems​ahead​for​Eliza​as​Acid​test​is​to​fall​to​0.8​for​next​year.
                                                    Topic 11    Interpretation of a/c’s Solutions          169


​   Gearing
​      C
    •​ ​ ompany​is​highly​geared​at​58%​which​would​worry​ordinary​shareholders​especially​as​it​will​only​
       worsen​to​66%​for​next​year.
​   •​ Interest​cover​due​to​disimprove​from​2.4​to​1.4​times​which​is​a​major​worry.
​      Th
    •​ ​ e​trend​in​Gearing​is​unsatisfactory​as​ordinary​shareholders​will​be​concerned​with​the​dilution​of​
       control​and​the​burden​of​high​debt.

	   Share	Price/Stock	exchange	performance
​   •​ Market​price​is​€1.20​but​projected​to​fall​by​over​20%​to​96​c​next​year.
​      M
    •​ ​ arket​confidence​in​Eliza​is​weak​as​EPS​is​projected​to​go​down​from​5​to​4.​c​and​PE​Ratio​very​poor​
       showing​company​profits​taking​40​years​to​accumulate​the​worth​of​the​share.

	   Sector
​   Competition​from​large​multinational​distributors​will​make​for​difficult​market​conditions​in​this​sector.

	   Investments
​   Shareholders​would​be​disappointed​with​the​loss​on​investments​down​from​€168,000​to​€130,000.

(c)	Limitations	of	Final	Accounts	as	a	means	of	presentation
​       B
    1.​ ​ ased​on​historical​costs​rather​than​current​market​value.​Only​monetary​aspects​displayed​e.g.​
        Goodwill​often​omitted.
​       S
    2.​ ​ hows​external​situation​but​does​not​show​profit​from​different​departments​etc.
​       E
    3.​ ​ mphasis​on​past​results​and​present​position​changes​by​the​time​accounts​are​prepared.​Different​
        methods​of​Asset​valuation,​finance​structure​etc.
​       A
    4.​ ​ ccounts​can​be​shown​to​be​unrepresentative​of​usual​position.​Eliza​can​window​dress​the​balance​
        sheet​and​create​secret​reserves​thereby​reducing​Net​Profit.
    170    Graded Accounting Questions – Solutions



    7  Fulcum solution
(a)
	     1.	 Cash	Purchases
          Credit​Purchases ​5​8​times​per​year
          ______________​
                  ​ ​
              Creditors
          Credit​purchases​​5​280,000
          Total​Purchases​​​​5​274,000​1​60,000​2​9,000​5​325,000
          ​ ​ ​ ​ ​ ​ ​ ​​​(Cost​1​closing​2​Opening)​2​280,000 5​€45,000

	     2.	 Return	non	Capital	Employed	
                Net​Profit​1​Interest​@​100 91,500​1​22,500
                ______________________​ ______________​ 5​11.19%
                ​        ​ ​      ​           ​
                                         ​ ​5​​
                                           ​        ​ ​ ​
                                                      ​     ​
                  Total​Capital​Employed        1,019,000

	     3.	 Earnings	per	share
                  Net​Profit​2​Preference​Dividend ​ ​
                  ​          ​​         ​ ​
                                          ​
                                                      91,500​2​20,000 ​5​14.3	c
                  ___________________________​______________​
                                                   ​5​​      ​ ​      ​
                       No.​of​ordinary​shares              500,000

	     4.	 Interest	Cover
                        Net​Profit​1​Interest ​ ​
                        ​          ​​ ​          91,500​1​22,500 ​
                        _________________​______________​
                                              ​5​​      ​​       ​ 5​5.07	times
                              Interest               22,500

	     5.	 Price	Earnings	Ratio
                         Market​price​of​share ____
                         _________________​​ ​​   155
                                   ​​        ​ ​5​​ ​
                          Dividend​per​share       9.4
                                                                 5​16.5	years
              (
              DPS​5​​
          ​ ​ ​
                      __________________​ 5​​ 47,000​
                      ​
                        ordinary​dividend
                                ​​        ​ _______​ 5​9.4​c ​​​
                                            ​​
                      No.​of​ordinary​shares 500,000
                                                       ​
                                                                     )
(b)
	     Liquidity
​     •​ Current​Ratio​1.67,​solvent,​able​to​pay​debts​for​year​but​down​on​recommended​ratio​of​2:1
​     •​ Acid​increased​.9​to​1.1,​liquid​in​short​term,​able​to​pay​€1.09​in​every​€1​owed.
​        N
      •​ ​ o​cash​flow​problems,​new​shareholders​confident​they​will​receive​dividends​and​be​able​to​pay​debts​
         when​they​fall​due.

	     Profitability
​        R
      •​ ​ eturn​on​Investment​9.2%​last​year​up​to​11.2%​this​year.​This​is​approx​4​times​the​return​on​risk​free​
         investment​available​in​banks​of​2–3%.​Real​rate​of​return​is​also​a​very​acceptable​9%.
​        R
      •​ ​ eturn​on​Equity​8%​last​year​up​to​12.5%​this​year​compares​very​favourably​with​a​Debenture​return​
         of​9%​and​Preference​return​of​10%​in​this​company.
​        Th
      •​ ​ ese​very​satisfactory​returns​will​ensure​shareholders​of​the​company’s​ability​to​pay​dividends​at​year​
         end.

	     Dividend	Policy
​        D
      •​ ​ PS​increased​9.4​c​which​is​way​above​industrial​average​of​2–3​cent​per​share.
​        D
      •​ ​ ividend​cover​3.6​shows​ability​to​pay​dividends​and​also​sufficient​retained​earnings​to​create​reserves.
​        G
      •​ ​ enerous​dividend​policy​would​encourage​prospective​shareholders​to​buy​these​shares​as​would​
         dividend​yield​of​6%​Real​Rate​of​Return​of​21.8%.
                                                     Topic 11     Interpretation of a/c’s Solutions           171


	   Gearing
​      L
    •​ ​ owly​geared​44.2%​a​slight​improvement​from​last​year​45%​shows​less​dilution​of​control.
​      A
    •​ ​ ​7.7​times​interest​cover​(10​last​year)​shows​Fulcum’s​ability​to​take​on​more​debt​if​desired.
​      L
    •​ ​ ow​interest​charges​would​reassure​shareholders​of​high​dividends,​low​debt​service​charges​and​greater​
       control​of​the​company.

	   Performance/Share	price
​      S
    •​ ​ hare​price​€1.55​up​from​€1.20​last​year,​EPS​14.3​c​and​PE​10.8​are​all​excellent​stock​exchange​
       indicators​which​will​enhance​share​price​though​increased​demand.

	   Sector
​      T
    •​ ​ ourism​in​Ireland​is​still​very​strong​and​this​provides​the​opportunity​to​prospective​shareholders​of​
       getting​involved​in​a​very​vibrant​industry.​However​one​would​be​concerned​with​(i)​Ireland​being​
       described​as​expensive​also​(ii)​a​growing​no.​of​Irish​holiday​abroad​(iii)​a​strong​€makes​Ireland​less​
       attractive.

	   Return
​      2
    •​ ​ 00,000​shares​@​20​c​5​€40,000​profit​gross​would​be​made​if​shares​bought​are​disposed​of​
       immediately.
​      2
    •​ ​ 00,000​shares​represents​a​29%​ownership​in​Fulcum​which​could​yield​control​and​a​possible​
       directorship​if​shareholder​decides​to​hold​shares.
​   ​ I	would	recommend	the	purchase	of	shares.

(c)	Dangers	associated	with	High	Gearing
​   1.​ Dilution​of​control​away​from​the​ordinary​shareholders
​   2.​ High​debt​charges​i.e.​interest​on​debentures​and​preference​dividend​which​must​be​paid
​   3.​ Poor​credit​rating​in​the​event​of​a​loan​application
    172       Graded Accounting Questions – Solutions


    8  gABle solution
(a)
	     1.	 Opening	Stock
​     ​​​​​​​​​​​​​​​​​​​​​​​Stock​T/O 5​​
      ​                                        Cost​of​Sales ​5​10
                                               ___________​
                                               ​          ​ ​
                                                 Av.​Stock
​ ​ ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​10​Av.​stock​5​Cost​of​Sales
​ ​ ​​​​​​​​​​​​​​​​​​​​​​​​​​​Av.​stock​5 440,000/10​5​44,000
​ ​ ​​​​​​​​​​​​​​​​​​​​​Stock​Total​88,000​2​74,000​(closing​stock)​ ​ ​ ​ 5	14,000
	 2.​ Div.	yield​5​​DPS​3​100​
                           ___________​
                           ​                ​
                           Market​price

                       
​ ​ ​​​​​​​​​​​​​​​​​​​ DPS​5​​ Ord.​dividend​ ​ ​5​​ 32,000​
                                    __________________​ _______​ 510.5​ ​
                                    ​           ​ ​
                                    No.​of​ordinary​shares
                                                                 ​
                                                                 304,000
                                                                         ​
                                                                               
​​​ ​ ​​​​​​​​​​​​​​​​​Yield​5​​  10.5​3​100 ​​
                                  __________​ ​
                                  ​           ​ ​         ​ ​ ​ ​ ​ ​ ​ ​ 5​5.1%
                                        ​2.05
	 3.	 ROCE​5​​        Net​Profit​1​Interest​3​100 ​ 5​​
                      _______________________​ ​
                      ​            ​         ​​  ​
                                                              146,000​1​14,000​3​100 ​
                                                              _____________________​
                                                                         ​​​         ​​ 5​23.3%
                                      T​C​E                           686,000
	 4.	 Real	Return​5 Dividend​yield​3​Div​cover
​ ​ ​​​​(Div​cover​5 146,000​2​12,000/32,000​5​4.1875)
​ ​ ​​​​​​​​​​​​​​​​​​​​​5​5.1%​3​4.1875​​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5​21.35%

	                 Market​Price ​
      5.	 P/E​5 ___________​
                           ​ ​
                       EPS
​     ​   (EPS​5​​ 146,000212,000 ​5​44c
                   ______________​
                   ​        ​ ​
                        304,000
                                  ​           )
​     ​ ​​​​​​​​​5​​2.05​ ​ ​ ​ ​ ​ ​
                   _____​
                   ​     ​                           ​    ​   ​   ​    ​   ​       ​   ​   5	4.66	Times
                   0.44​
(b)	Debenture	holders
	     1.	 Liquidity
​     ​ •​ Current​Ratio​1.5​shows​Gable​is​solvent​&​able​to​pay​debts​for​year​but​down​on​Rec.​fig​of​2:1.
​             A
      ​ •​ ​ dd​Test​shows​business​is​illiquid​and​only​able​to​pay​69​c​in​every​€​owed​&​expected​to​worsen​to​         ​
              59​c​for​next​year.
​     ​ •​ Debenture​holders​worried​they​will​not​receive​their​interest​as​business​has​cash​flow​problems.
	     2.	 Profitability
​             R
      ​ •​ ​ eturn​or​capital​employed​23%​is​excellent​but​expected​to​fall​to​18.9%​next​year.​Still​5–6​times​
              return​you​would​get​on​risk​free​investment​in​bank.
​     ​ •​ Gross​Profit​%​to​fall​from​60%​to​40%​next​year​is​of​major​concern​to​debenture​holders.
​             P
      ​ •​ ​ rojected​profit​decreases​are​a​worry​even​in​a​depressed​economic​climate​as​it​limits​Gable’s​ablility​
              to​meet​debt​payments.
	         G
      3.	 	 earing​stands​at​38%​i.e.​lowly​geared.​Very​positive​sign​although​to​increase​to​44%​still​makes​co.​a​
          low​risk​especially​as​if​is​able​to​cover​interest​8​times​for​next​year.
	     4.	 Reserves.
          C
      ​ ​ o.​has​set​aside​40,000​in​reserves​to​pay​back​Debentures​in​3/4​yrs​times.​Although​this​is​reassuring,​
          it​is​only​28%​of​total​Debentures.
	     5.	 Sector.
          T
      ​ ​ ransport​haulage​is​a​very​competitive​&​increasingly​expensive​business​to​run​with​the​spiralling​costs​
          of​diesel​&​oil​rising.
	     6.	 	 erformance​ on​ stock​ exchange​ is​ excellent​ with​ EPS​ 44,​ P/E​ 4.6​ although​ market​ confidence​ set​ to​
          P
          decline​as​share​price​&​EPS​projected​to​fall​to​€1.90​&​36​c.​respectively.
	         D
      7.	 	 ividend	Policy​is​generous​to​ordinary​shareholder​with​DPS​10.5​(8.2.​next​year)​Div​Cover​3.3​times​
          and​a​Real​Rate​of​Return​an​excellent​21.35%.
(c)	When	is	a	company	highly	geared?
​     1.​ Co.​is​highly​geared​when​Debt​as​a​%​of​Total​capital​employed​is​greater​than​50%
​     2.​ What​are​the​associated​problems?
​     ​ •​ Dilution​of​ownership​&​control.
​     ​ •​ High​debt​charges​must​be​paid.
​     ​ •​ Greater​Risk​of​liquidation​as​creditors​demand​payment.
​     ​ •​ Redemption​of​Debt​&​provision​made​thereon.
​     ​ •​ Poor​Credit​Rating​for​bank​loan.
                   Topic


                   12
Published a/c’s Solutions
2    Annexe
3    Boycie
4    Kim Clavin 
5    Duracell
6    Dragon
7    Equinox
 174     Graded Accounting Questions – Solutions



 2  Annexe Solution
Annexe Published Accounts
(a) Profit and Loss for year ended 31/12/2012
                                                              €           €
   Turnover                                                            896,000
   Less Cost of Sales                                 W               (557,000)
   Gross Profit                                                        339,000
   Less Distribution Cost                             W      45,400
   Less Admin, Expenses                               W     258,500   (303,900)
                                                                        35,100
   Other Operating Income
     Discount                                                            8,400
   Operating Profit                                                     43,500
   Profit on Sale of land                                               62,000
   Investment Income                                  W                 14,400
                                                                       119,900
   Interest payable                                   W                (15,600)
   Profit on Operating Act. before taxation                            104,300
   Less Taxation                                                       (24,000)
      Profit on Operating Activities after taxation                     80,300
   Less Dividends paid                                                 (33,000)
   Profit retained for year                                             47,300
   Profit brought forward at 1/1/2012                                   36,300
   Profit carried forward at 31/12/2012                                 83,600
   * Accept correct figure only.

Balance Sheet as at 31/12/2012
   Fixed Assets
   Intangible Patents                                                   32,000
   Tangible Fixed                                     (w)              768,100
   Financial                                                           180,000
                                                                                   980,100
   Current Assets
     Closing Stock                                           79,000
   Debtors                                            (w)   109,300    188,300
   Creditors falling due less than 1yr.
     Trade creditors                                         68,000
   Other Creditors                                    (w)    51,550
     Taxation                                         (w)    35,250   (154,800)      33,500
                                                                                  1,013,600

   fin by:
   Creditors falling Due for more than 1yr.
      8% Debentures                                                                225,000
   Capital & Reserves
      Share Capital                                                    465,000
      Revaluation Reserve                                              240,000
      P & L 31/12/2012                                                  83,600      788,600
                                                                                  1,013,600
                                                               Topic 12     Published a/c’s Solutions         175


Workings
      Cost of sales                 544,000    1   84,000    2 79,000 1          8,000   5                557,000
      Distribution                   19,000    1   26,400                                5                 45,400
      Admin Expenses                136,000    1   27,000    1 11,500 1 73,000 1 11,000 5                 258,500
      Investment income       8% of 180,000    5   14,400    2 11,100                    5                  3,300
      Debenture interest             10,800    1    4,800                                5                 15,600
      Tangible Fixed                132,000    2   86,000    2 26,400 1 760,000 2 11,500 5                768,100
      Debtors                       106,000    1    3,300                                5                109,300
      Other Creditors                11,000    1   15,600    1 24,950                    5                 51,550
      Taxation                       11,250    1   24,000                                5                 35,250

      1. Notes to the Accounts
      	 Accounting	Policy	Notes
         Tangible fixed assets:
         – Depreciation is calculated in order to write off the value or cost of tangible fixed assets over their
             estimated useful economic life, as follows:
         – Buildings: 2% per annum – straight line basis
         – Delivery vans: 20% of cost
         – Stocks: stocks are valued on a first in first out basis at the lower of cost and net realizable value.
      2. Interest payable
         – Interest payable on Debenture repayable during 2015              15,600
      3. Operating profit
         – The operating profit is arrived at after charging:
             Depreciation on tangible fixed assets                          37,900
             Patent amortised                                                8,000
             Directors’ remuneration                                        73,000
             Auditor’s remuneration                                         11,000
      4. Profit on sale of property
         – The company sold land for €140,000 greater than it cost. Cost was €78,000.
(b)
      1. Explain the purpose of an audit and the duties of an auditor.
         Audit
         Examination of company accounts by independent accountants appointed by the directors to protect
         the shareholders.
         Purpose of Audit
         To show and prove that accounts show a ‘true and fair view’ of the Profit & Loss and Statement of
         Affairs of a company.
      2. What is the difference between a Qualified and Unqualified audit?
         An unqualified auditor’s report is often referred to as a clean report. A report is unqualified when the
         auditors when the auditor in his/her opinion is	satisfied that the following apply:
          • the financial statement give a true and fair view of the state of affairs of the company at the
              company at the end of the year and of it’s profit and loss account for the year.
          • the financial statements are prepared in accordance with the Companies Acts.
          • all the information given by the directors is consistent with the financial statements
          • the net assets are more than 50% of the called up capital.
         A qualified auditor’s report is when an auditor in his/her opinion is not	satisfied or is unable to
         conclude that all or any of the above apply:
         The report will state the elements of the accounts or of the director’s report that are unsatisfactory.
 176    Graded Accounting Questions – Solutions



 3  Boycie Solution
(a) Published Profit and Loss account for year ended 31/12/2012
                                                         €           €
   Turnover                                                       740,000
   Cost of Sales                                   w             (483,600)
   Gross Profit                                                   256,400
   Distribution costs                                   18,700
   Administration expenses                         w   244,200   (262,900)
                                                                   (6,500)
   Other operating income
   Discount received                                               14,200
   Operating Profit                                                 7,700
   Profit on sale of land                                          40,000
   Investment income                               w                4,320
                                                                   52,020
   Interest payable                                                (6,000)
   Profit on ordinary activities before taxation                   46,020
   Taxation                                                       (26,000)
                                                                   20,020
   Dividends – paid                                               (13,250)
   Loss retained for the year                                       6,770
   Profit brought forward at 1/1/2012                              51,600
   Profit carried forward at 31/12/2012                            58,370

Balance Sheet as at 31/12/2012
                                                         €          €          €          €
   Fixed assets
   Intangible assets                                                          22,500
   Tangible fixed assets                           w                         900,000
   9% investments                                                             48,000   970,500
   Current Assets
   Stock                                                24,400
   Trade debtors
   (20,000 2 € 1,250)                                   18,750
   Other debtors                                        13,820     56,970
   Creditor Amounts due in less a year
   Trade creditors                                      43,500
   Other creditors                                      18,200
   Taxation                                             26,000
   Bank                                                 15,600   (103,300)
   Net current assets                                                                  (46,330)
   Total assets less current liabilities
                                                                                       924,170
   Financed By
   Creditors amounts due after falling 1 year                                           90,000
   Capital and Reserves
   Called up capital                                   500,000
   Revaluation reserve                             w   275,800
   P & L Balance 31/12/12                               58,370                         834,170
                                                                                       924,170
                                                             Topic 12    Published a/c’s Solutions          177


Notes to the Accounts
   1. Accounting policy note for tangible fixed assets and stock
      Buildings were revalued at the end of 31/12/12 and have been included in the accounts at their
      revalued amount. Depreciation is calculated in order to write off the cost of value of tangible fixed
      assets over their estimated useful economic life as follows.
      Buildings – 2% per annum – straight line basis. Stocks are valued on a first in first out basis at the lower
      of cost or net realisable value.
   2. Operating Profit
      The operating profit is arrived at after charging:
                                                     €
      Depreciation on Buildings                   13,800
      Amortisation of Patents                      4,500
      Directors fees                              10,000
      Auditors fees                                6,200
   3. Interest Payable
      Interest payable on 8% debentures (2015) including €20,000 received on 30/09/2012 5 €6,000
   4. Debentures
      Debentures are secured by a floating charge on the cost fixed Assets. Redeemable in 2015.
   5. Tangible Fixed Assets
                                        €              €
      Cost 01/01/12                  760,000
      Disposal                       (70,000)
      Transfer to revaluation        210,000       900,000
      Depreciation 01/01/12            52,000
      Change for year                  13,800
      Transfer to revaluation        (65,800)        Nil
      Net value at 01/01/12 €708,000 (€760,000 2 €52,000)
      Net value at 31/12/12 €900,000
Workings:
   Cost of Sales            23,500   1    480,000 2 24,400 1 4,500                   5 483,600
   Administration           13,800   1     65,000 1 140,000 1 9,200 1 10,000 1 6,200 5 244,200
   Investment income        48,000   3 9% 5 4,320 2 3,500                            5     820
   Other Debtors            13,000   1        820                                    5 13,820
   Other Creditors          10,000   1      6,200 1 2,000                            5 18,200
   Buildings               690,000   1    210,000                                    5 900,000
   Revaluation Reserve     210,000   1     52,000 1 13,800                           5 275,800
(b) State and explain four important accounting concepts
   1.	 Going	concern
       – means the firm is being kept in its present trading use. i.e. continuity.
          i.e. accounts are prepared on this basis.
   2. Accruals
       – income/expenses that should have been received/paid. Dues and prepaids.
   3. Consistency
       – using the same accounting systems, standard presentation.
   4. Prudence
       – the firm should overstate its losses and understate its gains, conservative accounting.
   Other concepts
   5. Entity
       – the business is separate from the person.
   6. Money measurement
       – monetary transactions only are included in the account.
   7. Realisation
       – when a sale occurs is important and not when we are paid.
   8. Double entry
       – assets 5 liabilities 1 capital.
   9. Objectivity
       – accountant should not use personal bias.
 178    Graded Accounting Questions – Solutions



 4  Kim clAvin Solution
Profit and Loss account for year ended 31/12/2012
                                                          €
   Turnover                                           8,100,000
   Cost of Sales                               (w)   (6,320,000)
   Gross Profit                                       1,780,000
   Distribution Costs                          (w)     (478,890)
                                                      1,301,110
   Administration expenses                     (w)     (675,960)
                                                        625,150
   Other Operating Income                      (w)      145,000
   Operating Profit                                     770,150
   Investment Income                           (w)       67,200
   Profit on sale of land                                85,000
                                                        922,350
   Interest Payable                            (w)      (24,000)
   Profit on ordinary activities before tax             898,350
   Taxation                                            (235,000)
   Profit on ordinary activities after tax              663,350
   Dividends paid                              (w)      (30,000)
   Profit retained for year                             633,350
   Profit brought forward at 1/1/2012                   226,000
   Profit carried forward at 31/12/2012                 859,350

Balance Sheet as on 31/12/2012
                                                                     €          €           €
   Fixed assets
      Intangible Assets                                                                    240,000
      Tangible Assets                                                                    1,011,950
      Financial Assets                                                                     560,000
   Current Assets                                                                        1,811,950
      Stock                                                        720,000
      Debtors                                              (W)     317,200
      Bank                                                          24,000   1,061,200
   Creditors: amounts falling due within 1 year
      Trade creditors                                              382,000
      Taxation                                             (W)     281,000
      Other Creditors                                      (W)     150,000   (813,000)
   Net Current Assets                                                                      248,200
   Total Net assets                                                                      2,060,150
   Creditors: amounts falling due after more than 1 year
      12% Debentures                                                                      200,000
   Capital and Reserves
      Issued Shares(Ord. 1 Pref.)                                             600,000
      Revaluation Reserve                                  (W)                400,800
      Profit carried forward                                                  859,350    1,860,150
                                                                                         2,060,150
                                                                    Topic 12      Published a/c’s Solutions            179


Workings:
                                                                                               Total
      Cost                              660,000     1 6,300,000 2 720,000 1 80,000         5 6,320,000
      Dist                              450,000     1    25,050 1 3,840                    5 478,890
      Admin.                            504,000     1    12,000 1 126,000 1 8,960 1 25,000 5 675,960
      Other income                      120,000     1    25,000                            5 145,000
      Investment income          12% of 560,000                                            5    67,200
      Interest Payable           12% of 200,000                                            5    24,000
      Tangible Fixed                    900,000     1 167,000 2 30,000 2 25,050            5 1,011,950
      Intangible                        320,000     2    80,000                            5 240,000
      Drs.                              300,000     1    17,200                            5 317,200
      Other Crs.                        126,000     1    12,000 1 12,000                   5 150,000
      Reval. Res.                       260,000     1 128,000 1 12,800                     5 400,800

      1. Accounting Policy for Stock and Fixed Assets
         Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2%
         on cost and were revalued at year end. Vehicles are depreciated @ 15% Depreciation calculated to write
         all asset in full over useful economic life.
      2. Operating Profit
         Operating profit is arrived at after charging the following
            Depreciation of fixed assets          12,800 1 25,050
            Patents amortised                                 80,000
            Directors remuneration                           126,000
            Auditors remuneration                             12,000
         1 Royalties received                                 25,000
      3. Interest Payable
         Debenture €200,000 carry a 12% interest rate i.e. €24,000 p.a.
      4. Debentures
         12% Debentures 2013/2014 €200,000
         Redeemable between the years 2013 and 2014
         Carry an interest rate of 12% p.a.
      5. Tangible Fixed Assets
                                         Land & Buildings           Vehicles
                                         Cost       Depc.       Cost       Depc.
         Cost 1/1                     730,000      128,000     167,000 30,000
         Disposal/Depreciation (90,000)              12,800               25,050
         Revaluation                  260,000 (140,800)
         5NBV 31/12                   900,000         nil      167,000 55,050
(b)
      1. Criteria for determining company size
         This is determined by meeting 2 of the following for 2 consecutive years.
                                Small             Medium Large
         Employees              Less than 50      50 – 250 More than 250
         Balance Sheet Total    Less than €2 m €2 – 6 m More than €6 m
         Annual Turnover        Less than €3 m €3 – 12 m More than €12 m
      2. What is a Qualified Audit?
         Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high to
         ignore.
         Directors have responsibility to detect fraud although auditors usually discover fraud initially.
 180    Graded Accounting Questions – Solutions



 5  DurAcell Solution
(a) Trading Profit & loss a/c for y/r 31/12/2012
   Turnover                                           950,200
   2 Cost                                      (W)   (524,000)
   Cross Profit                                       426,200
   2 Distribution                              (W)    (91,440)
   2 Admin                                     (W)   (301,160)
                                                       33,600
   1 other operating Income                    (W)     15,500
   Operating Profit                                    49,100
   1 Profit on sale of land                            65,000
   1 Investment income                                 12,000
   2 Debenture Interest                        (W)    (16,200)
   Net Profit                                         109,900
   2 Tax                                              (54,000)
                                                       55,900
   2 Divs. Paid                                       (37,500)
   Profit for year                                     18,400
   1 P & L 1/1/12                                      84,000
   P & L 31/12/12                                     102,400

Fixed Assets Balance Sheet on 31/12/2012
   Intangible Patents                                                           36,000
   Tangible                                    (W)                           1,254,400
   Financial                                                                   150,000
                                                                             1,440,400
   Current Assets Stock                                           48,000
   Drs.                                        (W)                79,500
   Creditors falling due for less than 1 yr.                     127,500
   Creditors                                           58,000
   Other Crs.                                  (W)     31,900
   Taxation                                    (W)     66,400    (156,300)
                                                                               (28,800)
                                                                             1,411,600

   Financed by
   Crs. Falling due for more more than 1yr.
   Debentures                                                                 220,000
   Capital & Reserves Share Capital                               650,000
     1 Profit & loss 31/12/12                                     102,400      752,400
     Revaluation Reserve                    (W)                                439,200
                                                                             1,411,600
                                                                  Topic 12      Published a/c’s Solutions           181


Workings:
      Cost of Sales        35,000 1 525,000 2 48,000 1   12,000                  5 524,000
      Distribution         36,000 1 32,000 1   6,000 1   13,600 1 3,840          5    91,440
      Admin                49,000 1 76,000 1 139,000 1   15,360 1 9,800 1 12,000 5 301,160
      Other Income          9,500 1   6,000                                      5    15,500
      Debenture Interest    3,600 1 12,600                                       5    16,200
      Tangible fixed       96,000 2 28,000 2 13,600 1 1,200,000                  5 1,254,400
      Debtors              76,500 1   3,000                                      5    79,500
      Other Creditors       9,800 1 16,200 1   5,900                             5    31,900
      Taxation             12,400 1 54,000                                       5    66,400
      Revaluation Reserve 240,000 1 180,000 1 19,200                             5   439,200

Notes of Accounts
      1. Accounting Policy for Stock and Fixed Assets
         Stocks are valued on FIFO basis at the lower of cost and net book value Buildings are depreciated at 2%
         on cost and were revalued at year end. Vehicles are depreciated @ 20% on cost. Depreciation calculated
         to write off asset in full over useful economic life.
      2. Operating Profit
         Operating profit is arrived at after charging the following
            Depreciation of fixed assets                     13,600 1 19,200
            Patents amortised                                12,000
            Auditors remuneration                              9,800
         1 Rental income                                       6,000

      3. Debenture Costing €220,000 carry a 9% interest Rate are Redeemable in 2013
      4. Tangible Fixed Assets
                                                  Buildings                             Vehicles
                                            Cost             Depc.                 Cost          Depc.
          Cost 1/1                       1,030,000          180,000               96,000         28,000
          Disposal/Depreciation            (70,000)          19,200                              13,600
          Revaluation                      240,000         (199,200)
          5NBV 31/12                     1,200,000            nil                 96,000           41,600

(b)
      (i) Unqualified Audit
           A clean audit
           Qualified Audit
           Uncertainty in audit e.g. possibility of fraud, conflict of figures, omissions, materiality of errors too high
           to ignore.
           Directors have responsibility to detect fraud although auditors usually discover fraud initially.
      (ii) Directors Responsibilities:
           Keep proper records
           Safeguard all assets
           Select suitable acc. Standards
           Recommend a dividend
           Decide on reserves
           Reports on any proposed changes or capital expenditure
           Give a review on yearly activities.
 182    Graded Accounting Questions – Solutions



 6  DrAgon Solution
(a) Profit and Loss for Year ended 31/12/2012
   Turnover                                           1,203,000
   Less Cost of sales                           W      (807,600)
   Gross profit                                         395,400
   Less Distribution costs                      W      (156,528)
   Less Administration costs                    W      (172,032)
                                                          66,840
   Other Operating income                       W         45,600
   Operating Profit                                     112,440
   Investment income                                      13,440
   Profit on sale of land                                 43,200
                                                        169,080
   Interest payable                                      (10,800)
   Profit on ordinary activities before tax             158,280
   Taxation                                              (37,200)
                                                        121,080
   Dividends paid                                        (43,200)
                                                          77,880
   Profit brought forward at 1/1/2012                     50,400
   Profit carried forward at 31/12/2012                 128,280

Balance Sheet as at 31/12/2012
   Fixed Assets
   Intangible Assets                                                              8,400
   Tangible Fixed Assets                        W                               637,200
   Financial Fixed                                                              192,000
                                                                                837,600
   Current Assets
   Stock                                           53,400
   Debtors                                      W 147,180
   Bank                                            37,740           238,320
   Creditors falling due within one year
   Trade Creditors                                114,600
   Taxation                                     W 76,800
   Other Creditors                              W 30,240            (221,640)    16,680
                                                                                854,280
   Creditors falling due after more than one year
   6% Debentures                                                                180,000
   Capital and Reserves
   Issued shares                                                    450,000
   Revaluation Reserve                            W                  96,000
   Profit carried forward                                           128,280     674,280
                                                                                854,280
                                                                  Topic 12    Published a/c’s Solutions           183


Workings
      Cost of Sales                       48,600   1    804,000   1  8,400 2 53,400         5 807,600
      Distribution costs                 118,800   1      4,128   1 33,600                  5 156,528
      Administration expenses            127,200   1      4,440   1 24,000 1 6,192 1 10,200 5 172,032
      Other operating income              28,800   1      6,600   1 10,200                  5 45,600
      Tangible Fixed assets              570,000   1    168,000   2 67,200 2 33,600         5 637,200
      Debtors                            145,800   2      8,700   1 10,080                  5 147,180
      Other Creditors                      4,440   1     24,000   1  1,800                  5 30,240
      Taxation                            37,200   1     39,600                             5 76,800
      Revaluation Reserve                 54,000   1     31,680   1 10,320                  5 96,000

Notes to Accounts Dragon
      1. Accounting policy on Tangible Fixed Assets and Stock
         Depreciation is calculated to write off tangible fixed assets in full over its useful economic life as follows;
         Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012.
         Vehicles depreciated @ 20% on cost.
         Stocks are valued on a FIFO basis at the lower of cost and book value.
      2. Operating Profit is arrived at after charging:
         Depreciation on Tangible Assets             43,920
         Patents amortised                             8,400
         Auditors fees                                 4,440
         Directors remuneration                      24,000
         1 Rental Income                             10,200
      3. Interest Payable on Debenture @ 6% (repayable by 2013/2014) 10,800
      4. Tangible Fixed Assets          Land/Blgs.             Vehicles
         1/1 2012                         552,000              168,000
         Disposal                          (36,000)
         Revaluation                        54,000
         Value 31/12/2012                 570,000              168,000

          Accumulated Depreciation
          Depreciation on 1/1                 31,680               67,200
          This year                           10,320               33,600
          Revaluation                        (42,000)
                                               Nil                100,800
          Net Book Value 1/1                520,320               100,800
          Net Book Value 31/12              570,000                67,200

(b)
      1. Contingent liability is a potential debt which may have to be paid if certain conditions or
         circumstances arise. It has not happened, may not occur and provision is not made in the books for
         such unless specifically agreed upon. A note relating to its existence is made as an addendum to the
         accounts.
      2. The main objectives of Financial Accounting are:
         1. To provide information useful for various users for assessing and decision making
         2. To prepare financial statements that conform to accounting regulatory bodies
         3. To conform to conditions according to the Company’s Acts and Stock exchange regulations if public co.
         4. Financial Accounting should be relevant, reliable comparable and understandable
         5. Financial Accounting should conform to the fundamental concepts.
 184    Graded Accounting Questions – Solutions



 7  equinox Solution
(a) Profit and Loss for Year ended 31/12/2012
                                                      €
   Turnover                                      2,305,750
   Less Cost of sales                     W     (1,547,900)
   Gross Profit                                    757,850
   Less Distribution costs                W       (300,012)
   Less Administration costs              W       (329,728)
                                                   128,110
   Other Operating income                   W        87,400
   Operating Profit                                215,510
   Investment income                                 25,760
   Profit on sale of land                            82,800
   Interest payable                                 (20,700)
   Profit on ordinary activities before tax        303,370
   Taxation                                         (71,300)
                                                   232,070
   Dividends paid                                   (82,800)
                                                   149,270
   Profit brought forward at 1/1/2012                96,600
   Profit carried forward at 31/12/2012            245,870

Balance Sheet as at 31/12/2012
   Fixed Assets
   Intangible Assets              16,100
   Tangible Fixed Assets     W 1,221,300
   Financial Fixed               368,000                       1,605,400
   Current Assets
       Stock                     102,350
       Debtors              W 282,095
       Bank                        72,335            456,780
   Creditors falling due within one year
       Trade Creditors           219,650
       Taxation             W 147,200
       Other Creditors      W     57,960           (424,810)      31,970
                                                               1,637,370
   Creditors falling due after more than one year
      6% Debentures                                              345,000
      Capital and Reserves
      Issued shares               862,500
      Revaluation Reserve W                       184,000
      Profit carried forward      245,870                      1,292,370
                                                               1,637,370
                                                               Topic 12    Published a/c’s Solutions         185


Workings
      Cost of Sales                     93,150   1 1,541,000 1 16,100 2 102,350         5 1,547,900
      Distribution costs               227,700   1     7,912 1 64,400                   5   300,012
      Administration expenses          243,800   1     8,510 1 46,000 1 11,868 1 19,550 5   329,728
      Other operating income            19,550   1    12,650 1 55,200                   5    87,400
      Tangible Fixed assets          1,092,500   1 322,000 2 64,400 2 128,800           5 1,221,300
      Debtors                          279,450   2    16,675 1 19,320                   5   282,095
      Other Creditors                    8,510   1    46,000 1 3,450                    5    57,960
      Taxation                          75,900   1    71,300                            5   147,200
      Revaluation Reserve              103,500   1    60,720 1 7,912 1 11,868           5   184,000

Notes to Accounts Equinox
      1. Accounting policy on Tangible Fixed Assets and Stock
         Depreciation is calculated in order to write off the value of tangible fixed assets over their estimated
         economic life as follows: Buildings are depreciated @ 2% p.a. on cost and revalued at the end of 2012
         Vehicles depreciated @ 20% on cost.
         Stocks are valued on a FIFO basis at the lower of cost and book value.
      2. Operating Profit is arrived at after charging:
         Depreciation on Tangible Assets             84,180
         Patents amortised                           16,100
         Auditors fees                                8,510
         Directors remuneration                      46,000
         1 Royalties                                 19,550
      3. Proposed Capital Expenditure
         (i) Preliminary capital project agreement entered into for €500,000
         (ii) Further capital improvements to existing buildings €150,000
      4. Tangible Fixed Assets             Land/Blgs.             Vehicles
         1/1/2012                           1,058,000             322,000
         Disposal                              (69,000)
         Revaluation                          103,500
         Value 31/12/2012                   1,092,500             322,000
          Accumulated Depreciation
          Depreciation on 1/1                   60,720          128,800
          This year                             19,780           64,400
          Revaluation                          (80,500)
                                                 Nil            193,200


          Net Book Value 1/1                  997,280            193,200
          Net Book Value 31/12              1,092,500            128,800

(b)
      1. Material Item is any item whose cost is regarded as considerable and cannot be either ignored or
         included in general administration. Most accountants would regard an item of more than 5% of profit
         to be a material item. The materiality concept of accounting covers this principle.
      2. Concepts are principles accountants use when preparing accounting information such as entity concept
         materiality concept, realization concept going concern concept.
         Bases are methods for dealing with certain items in the accounts such as stock valuation and
         depreciation over number of years.
         Policies are the systems of valuation such as FIFO and depreciation policy used such as 2% on cost.
                         Topic


                         13
             Incomplete Records
                      Solutions
  2    Archer
  3    Brophy
  4    Casey
  5    Dunican
  6    Edwards
  7    Fowler
  8    Geraghty
  9    Henshaw
10     Jennifer Ann
11     Ann O’Loughlin
12     Breda Connolly 
                                                 Topic 13  Incomplete Records Solutions     187



 2  Archer Solution
(a)	Trading	and	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                           €               €
   Sales                                 W                              204,200
   Less Cost of sales
     Stock at 1 January 2012                            15,600
     Add Purchases                       W              65,040
                                                        80,640
   Less Stock 31 December 2012                          (16,700)        (63,940)
                                                                        140,260
   Gross Profit
   Less Expenses
     General expenses                    W              25,500
     Covenant                                            2,600
     Insurance                           W               3,540
     Interest                            W               2,240
     Light and heat                      W               4,650          (38,530)
                                                                        101,730
   Add income from investment fund                                           55
   Net Profit                                                           101,785

(b)	Balance	Sheet	as	at	31/12/2012
                                                                 €                €         €
   Intangible Fixed Assets                        W
     Goodwill                                                                              26,960
   Tangible Fixed Assets
     Buildings (160,000)                                                                  220,000
     Delivery vans                                                                         29,200
     Furniture (25,000)                                                                    10,000
     Investments (500 3 4 1 55)                                                             2,055
   Current Assets                                                                         288,215
     Stock at 31 December 2012
     Trade Debtors                                                           16,700
     Bank                                                                    19,500
     Cash                                         W                          48,900
     Prepayment (Insurance)                                                     400
                                                                                900
   Creditors amounts falling due within 1 year                               86,400
     Trade Creditors
     Interest due                                              12,800
     Electricity due                                            1,400
   Working Capital                                                600       (14,800)       71,600
   Total Net Assets                                                                       359,815
 188     Graded Accounting Questions – Solutions


   Financed by
   Creditors amounts falling after more than 1 year
     Loan
   Capital                                                                                 70,000
     Balance at 1/1/2012
     Add Capital introduced                                    200,000
     Add Net Profit                                              1,900
     Less Drawings                                       W     101,785
   Capital Employed                                            (13,870)                   289,815
                                                                                          359,815
Notes	to	Accounts
   •                   Sales
                       Payment by debtors                                       38,000
                       Amount owed by debtors 31/12/2012                        19,500
                                                                                57,500
                       Less amount owed on 1/1/2012                            (18,000)
                       Credit Sales                                             39,500
                       1 Cash Sales (89,600 1 26,900 1 45,200 1 400 1 2,600)   164,700    204,200
   •                   Purchases
                       Payment to creditors                                     31,200
                       Creditors at 31/12/2012                                  12,800
                                                                                44,000
                       Less Creditors at 1/1/2012                              (20,000)
                       Credit Purchases                                         24,000
                       Cash Purchases                                           45,200
                       Total Purchases                                          69,200
                       Less Drawings-Goods                                      (4,160)    65,040
   •                   General Expenses
                       Amount paid                                             26,900
                       Less Wages due 1/1/2012                                 (1,400)     25,500
   •                   Insurance
                       Amount paid                                              3,600
                       Add insurance prepaid 1/1/2012                             840
                       Less insurance prepaid 31/12/2012                         (900)      3,540
   •                   Interest for year (4/12 3 €8,400)                        1,400
                       Interest paid                                            1,400
   •                   Interest due 31/12/2012                                  2,800
                                                                                 (560)      2,240
                      Less Drawings (1/5)
   •                  Light and Heat
                      Amount paid                                                5,600
                      Add electricity due 31/12/2012                               600
                      Less Drawings (1/3)                                       (1,550)     4,650
   • Bank             129,500 1 70,000 2 60,000 2 88,600 2 2,000                     5     48,900
   • Drawings         1,550 1 560 1 4,160 1 2,600 1 5,000                            5     13,870
(c)	Double	Entry	benefits
   •   Facilitates balancing of accounts to ensure accuracy
   •   Allows Final a/c preparation
   •   Requirement for Revenue purposes
   •   Requirement for bank loan application
   •   Comparison to other years & other firms.
                                                Topic 13  Incomplete Records Solutions       189



 3  Brophy Solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                       €                   €
   Sales                                   W                             297,540
   Less	Cost	of	Sales
   Opening Stock                                     36,300
   Purchases                               W        141,390
   Less Closing stock                               (39,600)            (138,090)
                                                                         159,450
   Gross Profit
   Less Expenses
   General Expenses                        W         47,775
   Insurance                               W          5,670
   Interest                                W          8,640
   Light and Heat                          W          9,562
   Covenant                                           5,250              (76,897)
   Add Income from Investment income                                         195
   Net Profit                                                             82,748


(b)	Balance	Sheet	as	at	31/12/2012
   Intangible	Fixed                                             €                   €         €
   Goodwill                                                                                 11,895
   Tangible	Fixed
   Buildings (330,000 1 135,000)                                               465,000
   Equipment                                                                    40,200
   Furniture (24,000 2 6,000)                                                   18,000     523,200
   Financial	Assets
   Investment Fund                                                                          12,345
                                                                                           547,440
   Current	Assets
   Stock                                                                        39,600
   Debtors                                                                      57,150
   Bank                                                                         25,530
   Cash                                                                          1,050
   Insurance prepaid                            W                                1,530
   Creditors	falling	due	within	1	year                                         124,860
   Creditors                                                   37,800
   Interest due                                 W               3,300
   Electricity                                                    450           (41,550)    83,310
                                                                                           630,750
   Financed	By
   Creditors	falling	due	for	more	than	1	year
   Loan                                                                                    180,000
   Capital                                                    390,000
   Add capital introduced                                      12,750
   Net Profit                                                  82,748
   Less Drawings                                W             (34,748)                     450,750
                                                                                           630,750
 190      Graded Accounting Questions – Solutions


Workings
    1.	 	Expenses            General       L	&	H         Insurance       Interest
         Paid                49,200        12,300            6,120        7,500
         Adjustments          (1,425)         450            1,080        3,300
                                                            (1,530)
        Cost / Used                        12,750                         10,800
        Less Drawings                      (3,188)                        (2,160)
                             47,775         9,562             5,670        8,640

    2.	 	Drawings      (Cash 1 goods 1 Expenses 1 Asset)
                       14,040 1 9,360 1 3,188 1 2,160 1 6,000                          5	34,748
    3.	 	Goodwill      (Cost 2 Value)
                       390,000 2 378,105                                               5	11,895
    4.	 	Sales         Credit (Pay 1 Bal. 31/12 2 Bal. 1/1)
                       68,100 1 57,150 2 54,600                           5 70,650
                       Cash (Pay 1 Drawings 1 Bal. 31/12 2 Bal. 1/1)
                       211,800 1 14,040 1 1,050                           5 226,890 5	297,540
    5.	 	Purchases     Credit (Pay 1 Bal. 31/12 2 Bal. 1/1)
                       54,300 1 37,800 2 42,450                           5 49,650
                       Credit 1 cash 2 drawings of goods
                       49,650 1 101,100 2 9,360                                        5	141,390
    6.	 	Bank          (Payments 1 Fund 1 Asset-Lodge-Loan)
                       149,670 1 12,150 1 135,000 2 142,350 2 180,000                  5	25,530

(c)	Name	4	fundamental	accounting	Concepts	and	explain	one	using	an	example
     • Accruals
     • Going concern
     • Consultancy
     • Prudence
Accruals concept states that each year is accountable for its own expenses and gains i.e. amounts due but unpaid
are added, amounts prepaid are subtracted from amount paid.
                                                     Topic 13  Incomplete Records Solutions   191



 4  cArey Solution
(a)	Trading,	Profit	and	Loss	Account	of	Carey	for	year	ending	31/12/2012
                                                      €            €
   Sales                              (W)                       344,000
   Less Cost of Sales
     Opening Stock                                  18,600
     Purchases                        (W)
         (141,400 2 4,320)                         137,080
                                                   155,680
     Less Closing Stock                            (22,400)
   Cost of Goods Sold                                           133,280
   Gross Profit                                                 210,720
   Less Expenses
     General Expenses                 (W)           46,500
     Insurance                        (W)            3,800
     Light and Heat                   (W)            6,360
     Interest                         (W)            3,600
     Covenant                                        3,500
   Total Expenses                                               (63,760)
                                                                146,960
   Investment Interest Rec.                                        2400
   Net Profit                                                   149,360

(b)	Balance	sheet	as	at	31//12/2012
                                                                  €              €
   Intangible Fixed Asset
      Goodwill                                       (W)                        4,500
   Tangible Fixed Assets
      Premises (1 115,000)                                      355,000
      Vehicles                                                   12,000
      Machinery (24,500)                                         13,500       380,500
   Financial Fixed Assets
   8% Investments                                                              30,000
                                                                              415,000
   Current Assets
   Closing Stock                                                 22,400
   Insurance prepaid                                 (W)          1,320
   Investments Interest due                                         900
   Debtors                                                       27,700
   Cash                                                             980
   Bank                                              (W)        122,540
                                                                175,840
   Creditors: Amounts falling due less than 1 yr
   loan installments due                                         22,500
   Light and Heat                                                   240
   Interest due                                      (W)          1,300
   Creditors                                                     16,100
                                                                (40,140)      135,700
                                                                              550,700
192     Graded Accounting Questions – Solutions


  Financed by
    Creditors: Amounts falling due after 1 year
    Loan                                                                        112,500
  Capital
    Balance 1/1/2012                                                 300,000
    Add Capital Introduced                                             3,200
    Add Net Profit                                                   149,360
    Less Drawings                                      (W)           (14,360)   438,200
                                                                                550,700

Workings:
 1.
      Expenses                      Workings
                          L1H          Ins.          Interest
      Paid                8,400       3,960           3,200
                           (160)      1,160
      1/2 Adj.              240      (1,320)         1,300
                          8,480                      4,500
      2 Drawings         (2,120)                      (900)
                          6,360        3,800         3,600

 2. Drawings 4,320 1 2,520 1 4,500 1 2,120 1 900 5 14,360
 3. Goodwill 310,000 2 290,500                5 19,500
 4. Sales
                               Cash	a/c
                                        Purchases           78,800
                                        General Exp.        46,500
                                        Lodgements         128,000
      Cash	Sales       256,800          Drawing              2,520
                                        Balance c/d            980
                       256,800                             256,800
      Balance b/d          980
      Credit Sales
                       Debtors	Control	a/c
      Balance b/d       24,800         Bank             84,300
      Credit	Sales      87,200         Balance c/d      27,700
                       112,000                         112,000
      Balance b/d       27,700

      Sales   CR       256,800
              Cash      87,200
              Total    344,000
                                                     Topic 13  Incomplete Records Solutions   193


  	5. Purchases
       Credit Purchases
                          Creditors	Control	a/c
       Bank               65,400         Balance b/d      18,900
       Balance b/d        16,100         Credit Purchases 62,600
                          81,500                          81,500
                                         Balance c/d      16,100
       Total Purchases
         Cash Purchases         78,800
         Credit Purchases       62,600
                               141,400

  	6.	 Bank	Total
                               Bank
       Lodgements    217,000           Premises     115,000
       loan          135,000           Payments     114,460
                                       Bal. c/d     122,540
                     352,000                        352,000

(c)	How	to	finance	a	proposed	update	of	new	computer	systems:
   •   Sell Investments will release € 25,000
   •   Bank balance of €118,060 more than 3 items the amount required
   •   Profit of €148,805 Carey has no problem in financing this purchase through profits.
   •   Bank loan would be granted as current ratio is a massive 10:1.
 194    Graded Accounting Questions – Solutions



 5  DunicAn Solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                                         €                    €
   Sales                                                                   224,880
   Less	Cost	of	Sales
   Opening stock                                       11,400
   Purchases                               (W)         89,040
   Less Closing stock                                  (9,840)             (90,600)
   Gross Profit                                                            134,280
   Less Expenses
   General Expenses                        (W)         42,720
   Insurance                               (W)          4,020
   Interest                                (W)          1,440
   Light and Heat                          (W)          2,646              (50,826)
                                                                            83,454
   Add Income from Investment income                                            15
                                                                            83,469


(b)	Balance	Sheet	on	31/12/2012
   Intangible	Fixed                                               €                     €          €
   Goodwill                                      (W)                                             10,800
   Tangible	Fixed
   Buildings                                                    429,000
   Delivery Vans                                                 17,040
   Furniture                                                      6,300                         452,340
   Financial	Assets
   Investment Fund                                                                                2,895
                                                                                                466,035
   Current	Assets
   Stock                                                          9,840
   Debtors                                                       12,120
   Bank                                          (W)             62,730
   Cash                                                             240
   Insurance prepaid                             (W)              1,020               85,950
   Creditors	falling	due	within	1	year
   Creditors                                                     18,240
   Interest due                                  (W)                450
   Electricity                                                      288              (18,978)    66,972
                                                                                                533,007
   Financed	By
   Creditors	falling	due	for	more	than	1	year
   Loan                                                                                         108,000
   Capital                                                      354,000
   Capital Introduced                                             1,800
   Net Profit                                                    83,469
   Less Drawings                                 (W)            (14,262)                        425,007
                                                                                                533,007
                                                        Topic 13  Incomplete Records Solutions               195


Notes	to	Accounts
      Expenses                             General     Light/Heat      Insurance    Interest
      Paid                                  44,280        3,240          4,080       1,350
      Adjustments                          21,560           288            960
                                                                       21,020          450
      Cost / Used                                         3,528                      1,800
      Less Drawings                                       2882                         360
                                            42,720        2,646          4,020       1,440

      Drawings
      	               (Cash 1 Goods 1 Expenses)
                      4,680 1 6,240 1 882 1 360 1 2,100                                                   5 14,262
      Goodwill        (Cost 2 value)
                      354,000 2 343,200                                                                   5 10,800
      Sales	2				 	   Credit (Pay 1 Bal. 31/12-1/1)
                      36,600 1 12,120 2 7,200                                                 5 41,520
             2        Cash (Pay 1 Drawing 1 Bal. 31/12- 1/1)
                      177,000 1 6,240 1 240 2 120                                            5 183,360 5 224,880
      Purchases       Credit (Pay 1 Bal. 31/12 2 1/1)
                      23,280 1 18,240 210,920                                                  5	30,600
                      Credit 1 cash 2 drawings of goods
                      30,600 1 63,120 2 4,680                                                             5 89,040
      Bank            (Payments 1 Fund 1 Asset 2 Lodge 2 Loan)
                      57,390 1 2,880 1 93,000 2 108,000 2 108,000                                         5 62,730

(c)
	     1.	 Why	are	the	records	kept	by	Dunican	unsatisfactory?	
           Figures are estimated/calculated or not backed up with Double entry Records.
	          W
      2.		 	 hat	additional	information	would	be	available	if	the	firm’s	accounts	were	prepared	using	the	
           double-entry	system?
           Figures for Sales, Purchases or all expenses would be available. These figures would correspond with
           alternative Dr. or Cr. entry in other ledger a/c’s.
           A Trial Balance would authenticate the accuracy of these figures.
 196    Graded Accounting Questions – Solutions



 6  eDwArDS Solution
(a)	Trading	Profit	and	Loss	Account	for	year	ending	31/12/2012
                                               €             €
   Sales                    (W)                            425,300
   Less	Cost	of	Sales
   Opening stock                           30,400
   Purchases                (W)           156,200
   Less Closing stock                     (34,000)         (152,600)
   Gross Profit                                             272,700
   Less Exp. Rent           (W)               800
   General Expenses         (W)            44,000
   Insurance                (W)            10,720
   Interest                 (W)             8,400
   Light and Heat           (W)             9,952
   Charity Donation                         6,400          (80,272)
   Net Profit                                              192,428

(b)	Balance	Sheet	on	31/12/20012
                                           €           €               €
   Intangible	Fixed
   Goodwill                 (W)                       406,80
   Tangible	Fixed
   Buildings                         464,000
   Delivery Vans                      52,000
   Furniture/Equipment                44,000         560,000
                                                                 600,680
   Current	Assets
   Rent prepaid             (W)           2,400
   Stock                                 34,600
   Debtors                               36,200
   Bank                     (W)          93,950
   Cash                                   1,300
   Insurance prepaid        (W)           3,000      171,450
   Creditors	falling	due	within	1	year
   Creditors                             31,000
   Interest due             (W)           3,750
   Electricity                            1,440
   loan repayment due                    14,000      (50,190)     121,260
                                                                  721,940
   Creditors	falling	due	for	more	than	1	year
   Loan                              154,000
   Capital                           390,000
   Add capital introduced              7,600
   Net Profit                        192,428
   Less Drawings                     (22,088)                    721,940
                                                                 721,940
                                                      Topic 13  Incomplete Records Solutions               197


Notes	to	Accounts
     1. Sales
          Credit Sales 68,000 1 36,200 2 34,000                               5 70,200
          Cash sales 345,400 1 1,300 1 8,400                                  5 355,100
          Total Sales                                                          425,300

     2. Purchases
          Credit purchases 66,200 1 31,000 2 37,400                            5 59,800
          Cash purchases                                                        106,000
          Total purchases                                                       165,800
          Less drawings of stock                                                  (9,600)
          Total purchases                                                       156,200

     3.   Loan	interest     4,650 1 3,750                                      5 8,400
     4.   General	Exp.     47,400 2 3,400                                      5 44,000
     5.   Light	&	Heat     11,600 1 1,440 2       600 5 12,440 2 2,488         5 9,952
     6.   Insurance        12,000 1 1,720 2 3,000                              5 10,720
     7.   Rent              4,800 2 2,400 2 1,600                              5    800
     8.   Drawings          9,600 1 8,400 1 1,600 1 2,488                      5 22,088
     9.   Goodwill        390,000 2 347,932                                    5 42,068
    10.   Bank            267,600 1 168,000 2 201,650 2 140,000                5 93,950

(c)	Explain	the	term	Accounting	Concept	
    These are the accounting practices or rules that are applied by accountants in the preparation of
    financial statements.
	   Name	2	fundamental	accounting	concepts–
    The Accruals Concept and The Prudence Concept.
	   Illustrate	an	accounting	concept–
    The accruals concept states that all expenses incurred in a particular period are recorded in that period
    regardless of whether they are paid or not. All incomes earned must be included in the accounts of that
    period whether received or not. For example in the year ending 31 Dec 2012 rent due of 8,700 must be
    recorded in the accounts of 2012 even though it wont be paid until 2013.
 198    Graded Accounting Questions – Solutions



 7  Fowler Solution
(a)	Balance	Sheet	of	Fowler	as	at	31/12/2012
                                                                           €          €
   Intangible Fixed Assets
      Goodwill                                                (W)                   26,544
   Tangible Fixed Assets
      Buildings (1294,000)                                                         616,000
      Equipment (24,480)                                                            17,920
   Financial Assets
      Investments                                             (W)                   14,679
                                                                                              675,143
   Current Assets
     Closing Stock 31/12/2012                                          33,740
     Debtors                                                           54,180
     Bank                                                             115,360
     Rates prepaid                                            (W)         630
                                                                                   203,910
   Less Creditors: Amounts falling due within 1 year
     Creditors                                                            38,500
     Interest due                                             (W)          1,260
     Electricity due 31/12/2012                               (W)            420
                                                                                   (40,180)   163,730
                                                                                              838,873
   Financed by Creditors: Amounts falling due after 1 year
     Loan                                                                          336,000
   Capital
     Balance 1/1/2012                                                 448,000
     Add Capital Introduced                                             4,480
     Less Drawings                                            (W)     (27,776)     424,704
                                                                                   760,704
   Add	Net	Profit                                                                   78,169
   Capital Employed                                                                838,873

(b)	Trading	and	Profit	and	Loss	Account	of	Fowler	for	year	ended	31/12/2012
                                                       €         €
   Sales                                                       437,080
   Less Cost of Sales
     Opening Stock 1/1/2012                         36,960
     Purchases (268,492 2 9,464)                   259,028
     Less Closing Stock 31/12/12                   (33,740)
   Cost of Sales                                              (262,248)
   Gross Profit                                                174,832
     Add Investment Income                                         119
                                                               174,951
   Less Expenses
     Wages & Gen. Expenses              (W)         71,610
     Light and Heat                     (W)         17,360
     Rates                              (W)          2,436
     Interest                           (W)          5,376     (96,782)
   Net Profit                                                    78,169
                                                  Topic 13  Incomplete Records Solutions          199


Notes	to	Accounts
   1. Expenses
                        General       L	1	H        Rates      Interest
      Paid              63,560        21,280       2,520       5,460
      Adj.                (770)          420         546       1,260
                         8,820                      (630)
      used/Payable                   21,700                    6,720
      2Drawings                       (4,340)                 (1,344)
      5 PLC.            71,610       17,360        2,436       5,376
   2. Drawings
      3,780      1 4,480 1 9,464 1 4,368 1 4,340 1 1,344                 5 27,776
      College      Equip.  Stock   Cash    L1H     Interest

   3. Goodwill        413,000 2 386,456                                 5 26,544
   4. Investment	Fund       43     3,640 1 119                          5 14,679

(c)	Advice	you	would	give	to	Fowler:
   – Keep a detailed cash	book	and	general	ledger supported by appropriate subsidiary day books;
   – Would enable Fowler to prepare an accurate	Trading,	Profit	and	Loss	Account	and	Balance	Sheet;
   – Avoid reliance on estimates.
 200    Graded Accounting Questions – Solutions



 8  GerAGhty Solution
(a)	Balance	Sheet	as	31/12/2012
                                                €           €            €                €
   Intangible Assets
     Goodwill                                                                             7,500
   Tangible Fixed Assets
     Premises (350,400 1 180,000)            530,400                   530,400
     Equipment (24,000 1 18,000)              42,000       3,300        38,700
     Delivery Vans                            36,000       1,800        34,200         603,300
                                             608,400       5,100
   Financial	Assets                                                                     60,000
     5% Investments                                                                    670,800
   Current	Assets
     Closing stock                                         24,240
     Stock of heating oil                                     360
     Debtors                                    40,800
     Less Provision for bad debts               (1,224)    39,576
     Rates Prepaid                    W                     2,100       66,276
   Less	Creditors:	amounts	falling	due	within	one	year.
     Creditors                                   42,480
     Bank Overdraft                               6,480
     Loan instalments due                        14,400
     Interest due                     W           1,200
     Electricity due                                552                (65,112)          1,164
     Financed	by                                                                       671,964
   Creditors:	amounts	falling	due	after	more	than	one	year
     Loan                                                 129,600
   Capital 2 Balance 1/1/2012                480,000
     Capital introduced                        43,200
     Net	Profit                                42,470
     Less Drawings                    W       (23,306)    542,364
                                                          671,964

(b)	Trading	and	Profit	and	Loss	Account	for	the	year	ending	31/12/2012
                                                                                   €                 €
   Sales
   Less Cost of Sales                                                                             761,400
   Opening stock                                                                 43,200
   Purchases                                                595,152
   Less drawings                                    W        (4,992)         590,160
   Less closing stock                                                        (24,240)             (609,120)
   Gross Profit                                                                                    152,280
   Add Investment interest                                                                           3,000
   Less Expenses                                                                                   155,280
     Rates                                          W                             5,472
     Light and heat                                 W                             7,354
     Interest                                       W                             2,700
                                                        Topic 13  Incomplete Records Solutions                201


        Wages and general expenses                      W                              90,960
        Bad debts provision                                                             1,224
        Depreciation Equipment                                                          3,300
        Depreciation Vans                                                               1,800          (112,810)
      Net Profit                                                                                         42,470

Workings
      Rates	                     8,400 1    540 2 2,100 2 1,368                    5   5,472
      Interest                   2,400 1 1,200 2      900                          5   2,700
      Wages	&	General	 	 96,000 2 1,440 2 3,600                                    5 90,960
      Light	&	Heat		 	 	 	 	 	 9,000 1      552 2     360 2 1,838                  5   7,354
      Drawings		 	 	 	 	 	 	 	 	 4,992 1 10,608 1 3,600 1 1,838 1 1,368 1 900      5 23,306
      Purchases		 	 	 	 	 	 	 609,120 1 24,240 2 43,200                            5 590,160
      Goodwill                480,000 2 472,500                                    5   7,500
      Depc of Equipment                210% of 24,000 for 12 months 2,400
                                       110% of 18,000 for 6 months 900             5      3,300
      Depc of Vehicles 15% of 36,000 for 4 m.                                      5      1,800
      Loan installment 144,000/20 i.e. 7,200 3 2                                   5     14,400
      Capital introduced 36,000 1 7,200                                            5     43,200


(c)
                                Cost      609,120
      1. Stock T/o         5            5         5 18 Times
                              Av. Stock    33,720
                                Sales     761,400
      2. Cr. to Debtors     5           5         5 19 Times
                              Debtors      39,576
                                Purs.     595,152
      3. Cr. from Creditors 5           5         5 14 Times
                              Creditors    42,480

(d)	Write	a	brief	comment	on	the	cash	flow	of	this	business.
      Geraghty is selling his stock one and a half times her month, getting paid in less than 1 month & not
      leaning on trade credit. He has no cash flow problems.
 202    Graded Accounting Questions – Solutions



 9  henShAw Solution
(a)	Balance	Sheet	as	at	31/12/2012
                                                                                 €          €
   Intangible	Fixed	Assets                                                                24,500
   Goodwill                                                (W)
   Tangible Fixed Assets
   Buildings (1 135,000)                                                      335,000
   Equipment (2 4500)                                                          18,000    353,000
   Financial	Assets
   Investment Fund                                                              4,585
   10% Investments                                                             45,000     49,585
                                                                                         427,085
   Current	Assets
   Closing Stock                                                                7,350
   Investment Income Due                                   (W)                  3,750
   Rates Prepaid                                           (W)                  1,275
   Debtors                                                                     23,000
   Bank                                                                        13,250
                                                                               48,625
   Less	Creditors:	Amounts	falling	due	within	1	year
   Interest due                                            (W)        1,275
   Creditors                                                         10,750
   Electricity Due                                                      115   (12,140)    36,485
                                                                                         463,570
   Financed	By
   Creditors: Amounts falling due after 1 year
   Loan                                                                                  150,000
   Capital                                                                    325,000
   Less Drawings                                           (W)                (12,918)
   Add	Net	Profit                                                               1,488
                                                                                         313,570
                                                                                         463,570
(b)	Trading,	Profit	and	Loss	Account
                                                       €            €
   Sales                                                         145,500
   Less Cost of Sales
   Opening Stock 1/1/2012                        14,800
   Purchases (82,200 2 2,340)                    79,880
   Less Closing Stock 31/12/2012                 (7,350)
   Cost of Sales                                                  87,330
   Gross Profit                                                   58,220
   Add Investment Income                                              85
   Add 9% Investment Income                                        4,500
                                                                  62,805
   Less Expenses
   Rates                               (W)        5,025
   Interest                            (W)        2,700
   Light and Heat                      (W)        4,012
   Wages and General Expenses          (W)       49,580           61,317
   Net Profit                                                      1,488
                                                       Topic 13  Incomplete Records Solutions                  203


Workings:
   Goodwill                 275,000 2 250,500                                         5   24,500
   Investment	fund                3 3 1,500 1 85                                      5    4,585
   Rates                      5,100 1 1,200 2 1,275                                   5    5,025
   Interest                   2,100 1 1,275 5 3,375 2 675                             5    2,700
   Light	&	heat               4,900 1     115 2 1,003                                 5    4,012
   Wages	&	General           50,500 2 1,600 1 680                                     5   49,580
   Drawings                   2,340 1 3,380 1 1,003 1 4,500 1 675 1 1,020             5   12,918
   Investment	Income         45,000 3    10% 5 4,500 2 750                            5    3,750

(c)	Assess	the	performance	of	Henshaw	under	the	following	headings:
   (i) Liquidity
   (ii) Probability

   Liquidity
   A current ratio of 4:1 shows Henshaw is easily capable of paying debts for the year. He is also able to pay
   debts 3.4 times (Acid Test) in the short run, so Henshaw has no cash flow problems so liquidity/solvency is
   very solid.

   Profitability
   A gross profit margin of 40% initially looks promising but the net profit % is only 1% which indicates a
   problem with expenses, wages & general expenses of €49,580 in particular. The return on capital employed
   is a very poor 0.3% but consideration must be given to the fact that this is his first year of trading and returns
   are generally poor in the initial years.
 204    Graded Accounting Questions – Solutions



10  JenniFer Ann Solution
(a)	Balance	Sheet	as	at	31/12/2012
                                                                               €           €
   Intangible	Fixed	Assets
   Goodwill                                                 (W)                           20,880
   Tangible	Fixed	Assets
   Buildings (1 306,000)                                                                 900,000
   Equipment (41,400 2 8,280)                                                             33,120
   Financial	Assets
   Investment Fund                                          (W)                            10,962
   9% Investments                                                                         108,000
   Current	Assets                                                                       1,072,962
   Closing Stock                                                              33,480
   Investment Income Due                                    (W)                5,220
   Rates Prepaid                                            (W)                4,320
   Debtors                                                                    70,200
   Bank                                                                      177,620
                                                                             290,840
   Less	Creditors:	Amounts	falling	due	within	1	year
   Interest due                                             (W)      2,700
   Creditors                                                        33,300
   Electricity Due                                                   1,008   (37,008)     253,832
                                                                                        1,326,794
   Financed By
   Creditors:	Amounts	falling	due	after	1	year
   Loan                                                                                  450,000
   Capital
   Balance 1/1/2012                                                          810,000
   Less Drawings                                            (W)              (36,598)
   Add Net Profit                                                            103,392      876,794
                                                                                        1,326,794
(b)	Trading,	Profit	and	Loss	Account
                                                   €            €
   Sales                                                     742,851
   Less Cost of Sales
   Opening Stock 1/1/2012                         28,080
   Purchases (458,599 2 7,488)                   451,111
   Less Closing Stock 31/12/2012                 (33,480)    (445,711)

   Gross Profit                                              297,140
   Add Investment Income                                       9,720
   Add 9% Investment Income          (W)                         162
                                     (W)                     307,022
   Less Expenses
   Rates                             (W)          16,740
   Interest                          (W)           7,200
   Light and Heat                    (W)          11,750
   Wages and General Expenses        (W)         167,940     (203,630)
   Net Profit                                                 103,392
                                                        Topic 13  Incomplete Records Solutions                 205


Workings:
   Goodwill                       738,000   2 717,120                        5 20,880
   Investment	Fund                      3   3 3,600     1 162                5 10,962
   General	Expenses               172,800   2 8,100     1 3,240              5 167,940
   Light	&	Heat                    13,680   1 1,008     5 14,688 2 2,938     5 11,750
   Rates                           17,280   1 3,780     2 4,320              5 16,740
   Interest                         6,300   1 2,700     5 9,000 2 1,800      5 7,200
   9%	Investment	Interest           9,720   2 4,500                          5 5,220	 (Due)

(c)	Advice	in	relation	to	management	of	funds
   •   Current Ratio 5.15 shows too much funds tied up in current Assets.
   •   Bank fig € 177,620 particularly high, earning little or no return so should be used more effectively.
   •   Firm carrying very high Debtors fig € 70,000 which could be very risky for bad debts.
   •   Reduce loan fig of € 450,000 to decrease interest payments.
 206    Graded Accounting Questions – Solutions



11  Ann o’louGhlin Solution
(a)	Balance	Sheet	as	at	31/12/2012
                              €             €                 €
   Fixed Assets
                            200,000        30,000        170,000
   Closed Assets
   Stock                                   21,000
     Debtors                               36,000
     Cash                                   6,000
                                           63,000
   Current Liabilities
     Creditors               14,000
        Bank                  7,000       (21,000)        42,000
                                                         212,000
   Financed by
     Capital                              218,000
     1 Net	Profit                           9,000
     2 Drawings                           (15,000)       212,000

(b)	Trading	Profit	and	Loss	account	for	year	ending	31/12/2012
       Sales                                                           315,000
       Stock 1/1/12                                     —
       1Purchases              275,500
       2Drawings of stock       (2,500)          273,000
                                                 273,000
       Stock 31/12/12                            (21,000)              252,000
       Gross Profit                                                     63,000
       Depreciation                                  30,000
       Sundry Exp.                                   24,000             (54,000)
       Net Profit                                                         9,000

(c)	Would	you	recommend	a	loan	of	€50,000	to	Ann	O’Loughlin?
   Yes, based on the following:
   • No borrowing exists i.e. gearing is zero
   • No cash flow problems as Current Ratio of 3:1 & Acid Test 2:1 are very strong & with extra interest of
      €5000 would only reduce these marginally
   • Security of fixed Assets € 170,000 covers the loan over 3 times
   • Return on capital is low at 4.1% but this is understandable in the first year of trading
   • Loan to be given for expansion / purchase of fixed Assets & not for current expenditure.
                                                  Topic 13  Incomplete Records Solutions     207



12  BreDA connolly
(a)	Balance	Sheet	on	31/12/2012
                                                                      €         €            €
   Intangible	Assets
     Goodwill                                                                               55,060

   Tangible	Fixed	Assets
     Premises (190,000 1 115,000)                 W                                        305,000
     Equipment                                    W                 27,000     2,100        24,900
     Delivery Vans                                                  24,000     1,600        22,400
                                                                                           407,360
   Financial	Assets                                                                         30,000
     4% Investments                                                                        437,360

   Current	Assets
     Closing stock                                W                 16,000
     Stock of heating oil                                              200
     Debtors                                              29,000
     Less Provision for bad debts                         (1,450)   27,550
     Insurance prepaid                            W                  1,250    45,000

   Less	Creditors:	amounts	falling	due	within	one	year.
     Creditors                                                      31,200
     Bank overdraft                                                  3,400
     Loan installments due                                           9,000
     Interest due                                                      375
     Electricity due                              W                    310   (44,285)          715
                                                                                           438,075
   Financed	by

   Creditors:	amounts	falling	due	after	more	than	one	year.
     Loan                                                                                   81,000
   Capital – Balance 1/1/2012                                                300,000
              Capital introduced                                              30,000
              Net	Profit                                                      41,681

             Less Drawings                        W                          (14,606)      357,075
   Capital Employed                                                                        438,075
 208    Graded Accounting Questions – Solutions


(b)	Trading	Profit	and	Loss	a/c	for	y/e	21/12/2012
                                                                    €             €
   Sales                               W                                       563,000
   Less Cost of Sales
   Opening stock                                                 20,000
   Purchases (2Drawings)               (449,520 2 3,120)        446,400

   Less closing stock                  W                         (16,000)      450,400
   Gross Profit                                                                112,600
   Add Investment interest                                                       1,200

   Less	Expenses
     Insurance                         W                          3,681
     Light and heat                    W                          4,888
     Interest                          W                          1,500
     Wages and general expenses        W                         56,900
     Bad debts provision                                          1,450
     Depreciation Equipment                                       2,100
     Depreciation Vans                                            1,600        (72,119)
   Net	Profit                          W                                        41,681

   Workings
   Wages/General	Expenses          60,000 2     900 2 2,200                   5              56,900
   Light	and	Heat                   6,000 2     200 1 310 2 1,222             5               4,888
   Interest                         1,500 1     375 2 375                     5               1,500
   Insurance                        5,000 1     340 2 1,250 5 4,090 2 409     5               3,681
   Drawings                         2,200 1 1,222 1 375 1 409 1 3,120 1 7,280 5              14,606
   Goodwill                       300,000 2 244,940                           5              55,060
   Equipment	Depreciation           1,500 1     600                           5               2,100
   Capital	Introduced              25,000 1 5,000                             5              30,000

    P
(c)		 rovide	a	summary	of	the	advice	you	would	give	to	Breda	Connolly	after	her	first	year	
    of	trading.
   Breda Connolly should keep a detailed cash book and general ledger supported by appropriate subsidiary
   day books. This would enable Breda to prepare an accurate Trading and Profit and Loss Account, and
   therefore avoid reliance on estimates.
                 Topic


                14
Cash Budgeting Solutions
 2    Lagan
 3    Corrib
 4    Lifley
 5    Silver
 6    Suir
 7    Nore
 8    Brosma
 9    Camcor
 210       Graded Accounting Questions – Solutions



 2  Lagan SoLution
(a)
      Receipts                            July      August       Sept       Octr       Nov       Dec
      Sales-Cash (30% less 5% disc)     209,475    234,612      245,784    251,370   262,542   268,128
         Credit 1 month (35%)                      257,250      288,120    301,840   308,700   322,420
         Credit 2 month (35%)                                   257,250    288,120   301,840   308,700
      Total Receipts                    209,475    491,862      791,154    841,330   873,082   899,248
      Payments
      Purchases-1m (50% 2 20%)                     205,800      230,496    241,472   246,960   257,936
      2 months (50%)                                            210,000    235,200   246,400   252,000
      Wages                            63,000       63,000       63,000     63,000    63,000    63,000
      Equipment                        67,200
      Variable overheads              105,000      117,600      123,200    126,000   131,600   134,400
      Fixed overheads                  71,680       71,680       71,680     71,680    71,680    71,680
      Interest                            584          584          584        584       584       584
      Total Payments                  307,464      458,664      698,960    737,936   760,224   779,600

      Net Cash                          (97,989)    33,198       92,194    103,394   112,858   119,648
      Opening cash                                 (27,989)       5,209     97,403   200,797   313,655
      Borrowing                          70,000
      Closing cash                      (27,989)        5,209    97,403    200,797   313,655   433,303

(b)	Budgeted	Profit	and	Loss	account
      Sales                                 5,164,600
      Less purchases                        2,951,200
      Gross Profit                          2,213,400
      Less Expenses
      Wages                   378,000
      Variable overheads      737,800
      Fixed overheads         430,080
      Interest                  3,504
      Depreciation              6,720
      Discount allowed         77,469      (1,633,573)    (5,164,600 3 30% 3 5%)
      Discount received                        24,136     (2,951,200 2 537,600 3 50% 3 2%)*
      Net Profit                              603,963
                                                         Topic 14   Cash Budgeting Solutions    211



 3  Corrib SoLution
(a)
      Total	Sales                   615,000   645,000        840,000    870,000     915,000  945,000
      Receipts                        July    August        September   October    November December
      Sales-Cash (30% less 5%)      175,275   183,825        239,400    247,950     260,775  269,325
      Credit 1 month (60% of 70%)             258,300        270,900    352,800     365,400  384,300
      Credit 2 month (40% of 70%)                            172,200    180,600     235,200  243,600
      Total Receipts                175,275   442,125        682,500    781,350     861,375  897,225
      Payments
      Purchases-1 month (50% less 2%)         139,650       154,350     176,400    183,750   242,550
      2 months (50%)                                        142,500     157,500    180,000   187,500
      Wages                          60,000     60,000       60,000      60,000     60,000    60,000
      Equipment                      72,000
      Variable overheads            153,750   161,250       210,000     217,500    228,750   236,250
      Fixed overheads                66,300    66,300        66,300      66,300     66,300    66,300
      Interest                          495       495           495         495        495       495
      Total Payments                352,545   427,695       633,645     678,195    719,295   793,095

      Net Cash                    (177,270)     14,430        48,855    103,155    142,080   104,130
      Opening cash                            (111,270)      (96,840)   (47,985)    55,170   197,250
      Borrowing                     66,000
      Closing cash                (111,270)    (96,840)      (47,985)    55,170    197,250   301,380

(b)	Budgeted	Profit	and	Loss	account
      Sales                              4,830,000
      Less purchases                     2,406,000
      Gross Profit                       2,424,000
      Less Expense
      Wages                   360,000
      Variable overheads    1,207,500
      Fixed overheads         397,800
      Interest                  2,970
      Depreciation              7,200
      Discount allowed         72,450   (2,047,920)   (4,830,000 3 30% 3 5%)
      Discount received                     18,300    (2,406,000 2 576,000 3 50% 3 2%)
      Net	Profit                          (394,380)
 212       Graded Accounting Questions – Solutions



 4  Liffey
(a)
                                         July       Aug.     Sept.      Oct.      Nov.     Dec.
      Receipt                             €          €         €          €        €        €
      Cash Sales receipt (70%)          67,200     70,700    72,100     69,300   66,500   63,700
      Credit Sales receipt (1 month)    19,500     28,800    30,300     30,900   29,700   28,500
      Total                             86,700     99,500   102,400    100,200   96,200   92,200
      Payments
      Purchases                         80,800     82,400    79,200     76,000   72,800   72,000
      Machine                           20,000       —        —          —         —        —
      Rent                               9,500      9,500     9,500      9,500    9,500    9,500
      Wages                              2,600      2,600     2,600      2,600    2,600    2,600
      Delivery van                        —          —       40,000      —         —        —
      Insurance                           —          —        —          —        3,420     —
      Loan Repayment & Interest (W1)      —          —        —          —         —       6,200
      Total                            112,900     94,500   131,300     88,100   88,320   90,300
      Net Monthly Cash Flow            (26,200)     5,000   (28,900)    12,100    7,880    1,900
      Bank Loan Financing (3)           18,000               24,000
      Opening balance                   11,250      3,050     8,050      3,150   15,250   23,130
      Closing balance                    3,050      8,050     3,150     15,250   23,130   25,030

(b)	Budgeted	Income	Statement	for	the	six	months	ended	30/12/2012
                                                               €          €
      Sales                                                            585,000
      Less Cost of sales
        Opening Stock                                         56,800
        Purchases                                           463,200
                                                            520,000
      Less Closing Stock (80% of Jan. sales)                (72,000)   448,000
      Gross Profit                                                     137,000
      Less Expenses
        Rent                                                 57,000
        Wages                                                15,600
        Insurance                                             2,160
        Interest                                              1,080
        Depreciation-Machinery (20,000 3 20% 3 6/12)          2,000
        Depreciation-Delivery van (40,000 3 15% 3 4/12)       2,000     79,840
      Profit                                                            57,160
                                                          Topic 14    Cash Budgeting Solutions           213


	   Notes
                                                                                    €
    W Loan repayment (1/3 of €18,000)                                             6,000
      Interest (6,000 3 8% 3 5/12)                                                  200
                                                                                  6,200
    W Interest
      18,000 3 8% 3 5/12                                                            600
      24,000 3 8% 3 3/12                                                            480
                                                                                  1,080
        Insurance Paid                                                   3,420
            1 Prepaid             1/1/2012                               1,400
            2 Prepaid             31/12/2012                            (2,660)
                                                                         2,160

(c)	Objectives	of	budgeting
	   1.	 	 ontrol	– The budget provides a system of control by which actual result can be compared with
        C
        planned results and corrective can be taken on area where variances occur.
	   2.	 	 ecision	Making	– The budget provides a basis foe decision making e.g. forecasting sales provides a
        D
        basis for deciding on the amount be hired and so on.
	   3.	 	 ommunication	– Though the budget all the objectives of the company are communicate and are in
        C
        achieving the objectives of the company and so on.
	   4.	 Planning	– Helps to organize business for the future.
 214       Graded Accounting Questions – Solutions



 5  Silver Solution
Note: (xi) should read 1/4 of money borrowed on 31st July repaid on 31st Dec.
(a)
                                      July          Aug          Sept         Oct         Nov         Dec
      Receipts: Cash Sales           22,040        26,220       33,820      30,400       37,240      34,200
        Credit Sales                 32,400        34,800       41,400      53,400       48,000      58,800
        Total                        54,440        61,020       75,220      83,800       85,240      93,000
      Payment: Purchases             51,750        66,750       60,000      73,500       67,500      54,750
        Machine                                    20,000
        Rent                                                                  4,800
        Wages                          3,100        6,500        6,000        6,700       5,400       6,500
        Computer                                                20,000
        Loan Repayment                                                                                1,313 (W)
        Total Payment                54,850        93,250       86,000      85,000       72,900      62,563
        Net Cash                       (410)      (32,230)     (10,780)     (1,200)      12,340      30,437
        Borrowing                     5,000        32,000       11,000       1,000         —           —
        Opening Cash                    200         4,790        4,560       4,780        4,580      16,920
        Closing Cash                  4,790         4,560        4,780       4,580       16,920      47,357

(b) Budgeted Profit & Loss
      Sales                                                    484,000
      2 Cost of Sales opening Stock                40,000
        1 Purchases                               374,250
        2 Closing Stock                           (54,750)    (359,500)
      5 Gross Profit                                           124,500
      2 Expenses Wages                          37,400
            Discount Allowed                (W)  9,680
            Rent (4,800 1 900 2 3,600)           2,100
            Interest                        (W) 1,880
            Depreciation                         1,000         (52,060)
            Net Profit                                          72,440

      Workings
         • Interest                                  5,000 3 5 m (months)    5      250
                                                    32,000 3 4 m (months)    5    1,280
                                                    11,000 3 3 m (months)    5      330
                                                     1,000 3 2 m (months)    5       20
                                                                                  1,880
          • Discount                                 5% of 40% of 484,000 5       9,680
          • Loan 1 Interest Repaid        1/4 of 5,000 at 12% for 5 months 5 63 1 1,250
                                                                           5      1,313

(c)
      1. Define a cash budget
         A cash budget is a forecast of cash inflows and cash outflows over a certain period.
      2. Describe its advantages
         • It helps to give advance warning of a possible cash shortfall so that an overdraft can be arranged.
         • It helps to predict future cash surpluses so that short-term investments can be made
         • It highlights whether enough cash will be available to meet future needs.
                                                            Topic 14    Cash Budgeting Solutions           215



    6  Suir SoLution
(a)
      Sales	Months        15,000     20,000   25,000     30,000   30,000   25,000    30,000    25,000     10,000
                           Nov        Dec      Jan        Feb      Mar      Apr       May       June       July
                            €          €        €          €        €        €         €          €         €
      Cash                 1,425      1,900    2,375      2,850    2,850    2,375     2,850     2,375        950
      1 Months credit                 6,750    9,000     11,250   13,500   13,500    11,250    13,250     11,250
      2 month credits                          6,750      9,000   11,250   13,500    13,500    11,250     13,500
      Total                1,425      8,650   18,125     23,100   27,600   29,375    27,600    27,125

(b)	Schedule	of	monthly	payments	for	the	same	period.
      Purchases	budget             Nov    Dec     Jan    Feb   Mar     Apr   May    June   July
                                     €      €      €      €      €      €      €      €     €
      Sales requirement            7,500 10,000 12,500 15,000 15,000 12,500 15,000 12,500 5,000
        cost (50%)
      add Closing stock          2,500 3,125 3,750 3,750 3,125 3,750 3,125 1,250
                                10,000 13,125 16,250 18,750 18,125 16,250 18,125 13,750
      less Opening stock        (1,875) (2,500) (3,125) (3,750) (3,750) (3,125) (3,750) (3,125) 1,250
         (25% of cost)
      Purchases requirement        8,125 10,625 13,125 15,000 14,375 13,125 14,375 10,625

(c)	Cash	budget	for	the	same	period
                                    Jan        Feb          Mar          Apr         May         June
      Cash budget
                                     €          €            €            €            €           €
      Sales receipts               18,125     23,100       27,600       29,375      27,600      27,125
      Total                        18,125     23,100       27,600       29,375      27,600      27,125

      Purchases                  10,625       13,125       15,000       14,375      13,125      14,375
      Equipment                  22,000
      Expenses                   10,000         7,000        7,000       7,000       7,000       7,000
                                 42,625        20,125       22,000      21,375      20,125      21,375
      Net Cash                  (24,500)        2,975        5,600       8,000       7,475       5,750
      Opening Cash                 —          (24,500)     (21,525)    (15,925)     (7,925)       (450)
      Closing Cash              (24,500)      (21,525)     (15,925)     (7,925)       (450)      5,300

(d)	The	Principal	Budget	Factor
      In every organisation there is some factor that limits output and therefore prevents the company from
      expanding continuously. The PBF could be sales demand, capacity of the factory and availability of raw
      materials or labour.
	     W
      	 hat	factors	might	a	company	take	into	account	when	forecasting	likely	sales?
      Last year’s sales; Market Research; The opinion of the sales reps, customers and the general public.
    216     Graded Accounting Questions – Solutions



    7  nore SoLution
(a)
                                         Mar           Apr          May          June
      Schedule of Receipts
        Cash Sales                      26,600       30,400        34,200       32,300
        1m Credit Sales                 60,000       56,000        64,000       72,000
        2m Credit Sales                 68,000       60,000        56,000       64,000
                                       154,600      146,400       154,200      168,300

(b)	Schedule of Payments
                                         Feb           Mar           April         May           June          July
      Cost                              90,000        84,000        96,000       108,000       102,000       114,000
      1 Closing Stock                   16,800        19,200        21,600        20,400        22,800
      2 Opening Stock                  (18,000)      (16,800)      (19,200)      (21,600)      (20,400)       (22,800)
      5 Purchases                       88,800        86,400        98,400       106,800       104,400

(c)	Cash Budget
                                        Mar          April         May          June
      Receipts                         154,600      146,400       154,200      168,300
      Payments
        Purchases                       88,800       86,400        98,400      106,800
        Expenses                        21,000       24,000        27,000       25,500
                                       109,800      110,400       125,400      132,300
          5 Net cash                    44,800       36,000        28,800       36,000
          Opening Cash                  24,000       68,800       104,800      133,600
          Closing Cash                  68,800      104,800       133,600      169,600

(d)	Why	do	firm	prepaid	budgets?
	     (i)	 Objectives	of	Budgeting
            1. Control: The budget provides a system of control which actual result can be compared with planned
               result and corrective action can be taken in areas where variances occur.
            2. Decision-Making: The budget provides a basis for decision-making e.g. forecasting sales provides a
               basis for deciding on the amount of materials that need to be bought, how much labour needs to be
               hired and so on.
            3. Communication: Through the budget all the objectives of the company are communicated
               downwards to staff at all level. Departments communicate and are in harmony in achieving the
               objective of the company and so on.
            4. Planning for the future.
	     (ii)	 Advantages	of	Budgeting
            1. The budget acts as a motivator to staff at all levels to achieve their targets. The budget should not be
               imposed and should be agreed by all and be realistic.
            2. Budgeting ensures that the organisation’s resources are used as efficiently as possible and that strict
               control of cost are achieved.
            3. The budget defines areas of responsibility and people work much better in a company where each
               individual knows exactly what they are responsible for.
            4. Budgeting ensures that planning takes place and that there is good communication between all
               sections of the company.
                                                         Topic 14      Cash Budgeting Solutions           217



    8  broSna SoLution
                           Jan        Feb         Mar        April         May	      June
(a)	Total Sales          (38,000)   (50,000)    (54,000)    (48,000)     (56,000)   (72,000)   (76,000)
     Cash sales           14,440     19,000      20,520      18,240       21,280     27,300
     Credit sales         30,000     22,800      30,000      32,400       28,800     33,600
                          44,440     41,800      50,520      50,640       50,080     60,960

(b)Cost                   28,500    37,500      40,500      36,000       42,000      54,000    57,000
     1 Closing Stock       7,500     8,100       7,200       8,400       10,800      11,400
     2Opening Stock       (7,120)   (7,500)     (8,100)     (7,200)      (8,400)    (10,800)
     5 Purchases          28,880    38,100      39,600      37,200       44,400      54,600

(c) Sales                 44,440    41,800      50,520      50,640       50,080     60,960
     Loan                 26,000
                          70,440    41,800      50,520      50,640       50,080     60,960
     Purs. Cash           13,718    18,098      18,810      17,670       21,090     25,935
           Credit         22,313    14,440      19,050      19,800       18,600     22,200
     Vehicle              37,500
     Insurance                                               2,500
     Wages                 5,620     5,000       7,600       8,400        7,800       8,000
     Loan Repayment                                                                   5,200
     Interest                                                                         1,560
                          79,151    37,538      45,460      48,370       47,490     62,895
     Net cash             (8,711)    4,262       5,060       2,270        2,590     (1,935)
     Cash 1/1/12           9,625       914       5,176      10,236       12,506     15,096
     Cash 31/12/12           914     5,176      10,236      12,506       15,096     13,161

(d)	Trading
     Sales                                                 318,000
     2 Cost of Sales
     Opening Stock                             7,120
     1 Purchases                             242,780
     2 Closing Stock                         (11,400)      238,500
     Gross Profit                                           79,500

	    Profit	&	loss	a/c.
       Gross Profit                                                      79,500
     Expenses
       Discount Allowed
       (5% of 40% of sales of 318,000)          6,360
     Depreciation                               3,750
       Insurance (2,500 1 1,500 2 1,250)        2,750
       Wages                                   45,800
       Interest                                 1,560                   (60,220)
     1 Discount Received
       (5% of 50% of 242,780)                                             6,070
     Net	Profit                                                          25,350
 218       Graded Accounting Questions – Solutions



 9  CamCor SoLution
                                      Jan          Feb          Mar          April         May          June
   Sales                             57,000       90,000       90,000        72,000       84,000       108,000
(a)	Schedule of Receipts
   Cash Sales                        21,660       34,200       34,200        27,360       31,920        41,040
   Credit Sales                      45,000       34,200       54,000        54,000       43,200        50,400
                                     66,660       68,400       88,200        81,360       75,120        91,440
(b)	Schedule of Payment
   Cost                              42,750       67,500       67,500        54,000       63,000        81,000
   1 Closing stock                   13,500       13,500       10,800        12,600       16,200        17,100
   2 Opening stock                    (8550)     (13,500)     (13,500)      (10,800)     (12,600)      (16,200)
   5 Purchases                       47,700       67,500       64,800        55,800       66,600        81,900
(c)	Cash Budget
   Rec. Sales                        66,660       68,400       88,200        81,360       75,120        91,440
   Payments
     Purchases cash                  22,658       32,063       30,780        26,505       31,635        38,903
     Purchases credit                26,775       23,850       33,750        32,400       27,900        33,300
     Equipment                       45,000
     Rent                                                                     3,000
     Wages                             6750         9750       10,500        11,700       10,050        10,800
     loan Repayment                                                                                     24,000
     Interest                                                                                            1,440
   5 Total Payment                   10,183       65,663       75,030        73,605       69,585       108,443
   Net cash                         (34,523)       2,737       13,170         7,755        5,535       (17,003)
   1 opening cash                    11,550        1,027        3,764        16,934       24,689        30,224
   Borrowing                         24,000
   Closing cost                       1,027        3,764       16,934        24,689       30,224        13,221

(d)	Trading	Profit	&	loss
   Sales                                                                    501,000
   2 Cost of Sales
      Opening Stock                                             8,550
      1 Purchases                                             384,300
      2 Closing Stock                                         (17,100)      375,750
      5 Gross Profit                                                        125,250
   less Expenses
      Deprecation                                              10,500
      Rent (3,000 1 1,800 2 1,500)                              3,300
      Wages                                                    65,550
      Interest                                                  1,440
   Discount Allowed                              (w)           10,020       (90,810)
   1 Discount Received                           (w)                          9,608
      Net Profit                                                             44,048
   (w)     Discount Allowed    501,000 3 40% 3 5% 5 10,020
   (w)     Discount Received   384,300 3 50% 3 5% 5 9,608

(e)	Explain	what	is	meant	by	the	accruals	principle	in	accounting.
   Each year is responsible its own expenses whether paid for or not and also for its own gains whether actually
   Received or not i.e. add amounts due 31/12/12. All revenue earned by the year’s activities is to be included
   also even if not received until next year.
   Expenses due at the end of the year are added on while expenses prepaid at year end are subtracted as they
   have been paid this year but relate to next year. Gains/Profits are treated similarly.
                          Topic


                         15
               Production Budget
                        Solutions
2    Morris
3    Wilkinson
4    Pezula
5    Jess Kelliher
6    Kate O’Brien
7    Tymon
8    Swift
9    Muldoon 
    220   Graded Accounting Questions – Solutions



    2  Morris solution
(a)	Production	Budget
                                                        Basic         Luxury
     Required by sales                                  15,000         6,300
     Closing stock (80% of opening)                        720           540
     Less Opening stock                                   (900)         (675)
     Budged production in units                         14,820         6,165

(b)	Raw	Materials	Purchases	Budget
                                                     Mat.	X	in	kg   Mat.	Y	in	kg
     Basic (14,820 3 7 kg)(14,820 3 6 kg)              103,740         88,920
     Luxury (6,165 3 5 kg)(6,165 3 8 kg)                30,825         49,320
                                                       134,565       138,240
       Add Closing stock                                  6,000          3,600
     Less Opening stock                                  (7,500)       (4,500)
     Required purchases in kgs.                        133,065       137,340
     Purchase price                                          €3             €5
     Purchase cost                                    €399,195      €686,700

(c)	Production	Cost	Budget
     Opening stock of raw materials           €           €              €
     Basic                                  18,750
     Luxury                                 20,250       39,000
     Purchases (399,195 1 (686,700)                   1,085,895
                                                      1,124,895
     Closing Stock of raw materials
     Basic (6,000 @ €3)                     18,000
     Luxury (3,600 @ €5)                    18,000      (36,000)
                                                      1,088,895

	    Labour
     Basic (14,820 3 7 @ €13)                         1,348,620
     Luxury (6,165 3 8 @ €13)                           641,160      1,989,780
     Variable	overheads
     Basic (14,820 3 7 @ €4)                            414,960
     Luxury (6,165 3 8 @ €4)                            197,280        612,240
     Fixed	overheads                                                   306,120
     Cost of Manufacture                                             3,997,035
                                              Topic 15    Production Budget Solutions   221


(d)	Budgeting	Trading	account
                                                €                  €            €
   Sales of finished Goods                15,000 3 €220                     4,938,000
                                           6,300 3 €260
   Opening stock of finished goods
   Basic                                        108,000
   Luxury                                        94,500          202,500
   Cost of manufacture                                         3,997,035
   Less Closing stock of finished goods
   Basic (720 @ €200)                           144,000
   Luxury (540 @ €250)                          135,000        (279,000)    3,920,535
   Gross Profit                                                             1,017,465

(e)	Factors	taken	into	account	in	arriving	at	expected	sales
   Last year’s sales
   Market research
   Trends
   Price to be charged
   Competition
   Type and elasticity of product
 222       Graded Accounting Questions – Solutions



 3  Wilkinson solution
(a)	Production	Budget	
                                             Stain             Silk
   Required for Sales                        6,000            7,500
   Closing Stock (80% of Opening Stock)        360              200
                                             6,360            7,700
   Less Opening Stock                         (450)            (250)
                                             5,910            7,450

(b)	Raw	Materials	Usage	Budget
                                           Materials	A    Materials	B
   Basic (5,910 3 7)                          41,370         29,550     (5,910 3 5)
   Classic (7,450 3 5)                        37,250         44,700     (7,450 3 6)
                                              78,620         74,250

   Raw Materials Purchase Budget
                                           Material	A      Material	B
   Required for Production                   78,620         74,250
   Add Closing Stock (80% of Opening)          5,200          4,000
                                             83,820         78,250
   Less Opening Stocks                        (6,500)        (5,000)
                                             77,320         73,250
                                                3€4            3€5
                                            309,280        366,250
   Total                                   €675,530

(c)	Budget	Production/Manufacuring	Account
   Direct Materials                            €             €
   Opening Stock of Raw Materials
     A Material (6,500 3 3.00) 5                             19,500
     B Material (5,000 3 4.50) 5                             22,500
                                                             42,000
   Add Purchases of Raw Materials                           675,530
                                                            717,530
   Less Closing Stock of Raw Materials
      A Material (5,200 3 4)                  20,800
      B Material (4,000 3 5)                  20,000        (40,800)
   Cost of Raw Materials Consumed                           676,730
      Add Direct Labour
   Satin (12 3 7 3 5,910)                    496,440
   Silk (12 3 8 3 7,450)                     715,200      1,211,640
                                                          1,888,370
   Variable Overheads
     Satin (5,910 3 7 3 4)                   165,480
     Silk (7,450 3 8 3 4)                    238,400        403,880
        Fixed Overheads                                     201,940
        Total Cost of Production                         €2,494,190
                                                       Topic 15   Production Budget Solutions      223


(d)	Budged	Trading	Account	for	Year	Ended	31/12/2012
                                                                        €                €
   Sales (6,000 3 200) (7,500 3 290)                                                 3,375,000
   Opening Stock Satin (450 3 180)                                     81,000
   Silk (250 3 210)                                                    52,500
                                                                      133,500
   Add Production                                                   2,494,190
                                                                    2,627,690
   Less Closing Stock
   *(w)     (360 3 179 1 200 3 194)                                  (103,240)       (2,524,450)
            Gross Profit                                                              €850,550

Working
                        Satin                   Silk
   Mat. A           734 5        28        534 5        20
   Mat. B           535 5        25        635 5        30
   Labour           7 3 12 5     84        8 3 12 5     96
   Variable         734 5        28        834 5        32
   Fixed            732 5        14        832 5        16
                                179                    194

                                          201,940
   Fixed Overhead               5 ______________________
                                   (5910 3 7) 1 (7450 3 8)
                                      201,940
                                5 ______________
                                  41,370 1 59,600
                                  201,940
                                5 _______ 5 €2.0
                                  100,970
   Closing Stock 360 3 179 5 64,440
                 200 3 194 5 38,800 5 103,240
 224    Graded Accounting Questions – Solutions



 4  Pezula solution
(a)	Production	Budget
                                                Silver      Gold
                                                Units       Units
   Required for Sales                          10,000       7,500
   1 Closing Stock (80% of opening stock)         640         480
                                               10,640       7,980
   2 Opening stock                               (800)       (600)
   Budgeted Production in units                 9,840       7,380

(b)	Materials	Purchases	Budget
                                                          Material	I                    Material	II
                                                            kgs                            kgs
   Required by Production
   2 Silver                                 (9,840 3 5)    49,200         (9,840 3 6)     59,040
   2 Gold                                   (7,380 3 7)    51,660         (7,380 3 8)     59,040
                                                          100,860                        118,080
   1 Closing stock
     (80% of opening stock)                                  4,800                          3,200
                                                          105,660                        121,280
   2 Opening stock                                          (6,000)                        (4,000)
   Required purchases of R.M. in kgs                       99,660                        117,280
   Purchase price                                               €4                             €5
   Purchase	Cost                                          398,640                       €586,400

(c)	Budgeted	Manufacturing	Account	for	Year	Ended	31/12/2012
                                                  €               €
   Direct	Materials
   Opening Stock of Raw Materials
     (6,000 3 3 1 4,000 3 4)                                    34,000
   1 Purchases of Raw Materials
     (398,640 1 586,400)                                       985,040
                                                             1,019,040
   Closing Stock of Raw Materials
     (4,800 3 4 1 3,200 3 5)                                   (35,200)
                                                               983,840
   Direct	Labour
   Silver (9,840 3 8 3 €12)                    944,640
   Gold (7,380 3 10 3 €12)                     885,600       1,830,240
   Variable	Overheads
   Silver (9,840 3 8 3 €5.50)                  432,960
   Gold (7,380 3 10 3 €5.50)                   405,900         838,860
   Fixed	Overheads                                             457,560
   Total	Production	Cost                                     4,110,500
                                                   Topic 15    Production Budget Solutions   225


(d)	Budgeted	Trading	Account	for	Year	Ended	31/12/2012
                                                           €                  €
   Sales
     (10,000 3 200) 1 (7,500 3 400)
   Less cost of sales:                                                     5,000,000
   Opening stock
     (800 3 200) 1 (600 3 250)                            310,000
   1 cost of manufacture                                4,111,500
   2 Closing stock
     (640 3 214) 1 (480 3 273)      (W)                 (268,000)
   Cost of Sales                                                          (4,152,500)
   Gross	Profit                                                            €847,500

Workings
1	 Fixed	overhead	Per	Hour
          9,840 3 8               5       78,720
          7,380 3 10              5       73,800
                                         152,520
          €457,000
   P.U. 5 ________ units
           152,520
                                  5           €3

   Silver                              €
   Material I        5 3 €4       5     20
   Material II       6 3 €5       5     30
   Labour            8 3 €12      5     96
   Variable O/H      8 3 €5.50    5     44
   Fixed O/H         8 3 €3       5     24
                                      €214


   Gold                                €
   Material I        7 3 €4       5     28
   Material II       8 3 €5       5     40
   Labour            10 3 €12     5    120
   Variable O/H      10 3 €5.50   5     55
   Fixed O/H         10 3 €3      5     30
                                      €273

(e)	The	factors	that	companies	look	for	when	deciding	sales
   They look at the following things:
   • Last year’s sales as an indicator.
   • The opinion of Sales manager and Sales Reps.
   • The state of the economy.
   • Competition from other companies.
   • Trends in the market.
   • Market research.
   • Prices to be charged.
   • Whether the goods are luxury or necessity goods.
 226     Graded Accounting Questions – Solutions



 5  Jess kelliher solution
(a)	Production	Budget
                                                 Regular         Superior
                                                  Units           Units
   Required by sales                              5,000           4,000
   Closing stock (80% of opening stock)             320             240
                                                  5,320           4,240
   Opening stock                                   (400)           (300)
   Budged production in units                    4,920            3,940

(b)	Raw	Materials	Purchases	Budget
                                                       Material	A               Material	B
                                                          kg                        kg
   Required by production Regular (4.920 3 5)            24,600             (4,920 3 6)29,520
                          Superior (3.940 3 4)           15,760             (3.940 3 7)27,580
                                                         40,360                        57,100
   Add closing stock (80% of opening stock)               4,800                         4,000
                                                         45,160                        61,100
   Less opening stock                                    (6,000)                       (5,000)
   Required Purchases of raw materials in kg             39,160                        56,100
   Purchase price                                         €3.00                         €4.00
   Purchase	cost                                       €117,480                     €224,400

(c)	Budged	Manufacturing	Account	For	year	ending	31/12/2012
   Direct	Materials                                                               €                €
     Opening stock of raw materials (6,000 3 €2.50 1 5,000 3 €3.50)                               32,500
     Purchase of raw materials (117,480 1 224,400)                                               341,880
                                                                                                 374,380
       Less Closing stock of materials (4,800 3 3 1 4,000 3 4)                                   (30,400)
                                                                                                 343,980
   Direct	labour
     Regular (4.920 3 8 hrs 3 10)                                               393,600
     Superior (3,940 3 9 hrs 3 10)                                              354,600          748,200
   Variable	overheads:
     Regular (4,920 3 8 hrs 3 4)                                                157,440
     Superior (3,940 3 9 hrs 3 4)                                               141,840        299,280
   Fixed	overheads                                                                             187,050
   Total	Production	Cost                                                                    €1,578,510

(d)	Budged	Trading	Account	for	year	ending	31/12/2012
                                                                                   €
   Sales (5,000 3 180) 1 (4,000 3 220)                                         1,780,000
   Less Cost of sales
   Opening stock (400 3 €140) 1 (300 3 €160)                   104,000
   Add Cost of manufacture                                   1,578,510
   (W) Less Closing stock (171 3 320 1 188.5 3 240)            (99,960)       (1,582,550)
   Gross Profit                                                                €197,450
                                                           Topic 15     Production Budget Solutions              227


(w)	Workings
                   Regular                                   Superior
      Mat. A        533        5      15       Mat. A         433        5 12
      Mat. B        634        5      24       Mat. B         734        5 28
      Variable      834        5      32       Variable       934        5 36
      Labour        8 3 10     5      80       Labour         9 3 10     5 90
      *Fixed        8 3 2.5    5      20       *Fixed         9 3 2.5    5 22.5
                               5     171                                 5 188.5

                          187,050
      * Fixed 5                             5 €2.5
                  (4,920 3 8) 1 (3,940 3 9)

(e)
	     1.	 	 apital	Budget:	This budget deals with any planned capital expenditure e.g. purchase of fixed assets and
          C
          planned capital receipts such as the sale of the fixed assets. Decision relating to these items would be the
          responsibility of the board of directors. The carrying out of the capital budget is the responsibility of the
          financial controller.
	     2.	 	 ontrollable	Costs:	Are costs that can be controlled by the manager of a cost centre. She/he will make
          C
          the decision about the amount of the cost or if the cost should be incurred and can be held responsible
          for variances in these costs. E.g.- all variable costs are controllable.
	     	 	 ncontrollable	Costs:	Are costs over which the manager of a cost centre has no control and
          U
          therefore cannot be held responsible for variances in these costs. E.g.- rates to the local authority are
          uncontrollable.
 228    Graded Accounting Questions – Solutions



 6  o’Brien solution
(a)	Production	Budget
                                          Ruby       Diamond
   Required by sales                      Units       Units
   Closing stock (80% of opening)         7,500       6,000
   Less Opening stock                       660         495
   Budged production in units              (600)       (450)
                                          7,560       6,045

(b)	Raw	Materials	Purchases	Budget
                                                    Timber         Metal
   Ruby (7,560 3 5)(7,560 3 6)                       37,800        45,360
   Diamond (6,045 3 4) (6,045 3 7)                   24,180        42,315
                                                     61,980        87,675
   Add Closing stock                                  9,900         8,250
   Less Opening stock                                (9,000)       (7,500)
   Required purchases in kgs.                        62,880        88,425
   Purchase price                                        €3            €4
   Purchase cost                                   €188,640      €353,700

(c)	Production	Cost	Budget
   Opening stock of raw materials                                    €           €
                              Ruby                                 18,000
                              Diamond                              22,500      40,500
   Purchases                               (188,640 1 353,700)                542,340
                                                                              582,840
   Closing Stock of raw materials
                               Ruby        9,900 @ €3              29,700
                               Diamond     8,250 @ €4              33,000     (62,700)
                                                                              520,140
   Labour                       Ruby       7,560 @ 8 @ €12        725,760
                                Diamond    6,045 @ 9 @ €12        652,860    1,378,620
   Variable overheads           Ruby       7,560 @ 8 @ €5         302,400
                                Diamond    6,045 @ 9 @ €5         272,025      574,425
   Fixed overheads                                                             229,770
   Cost of Manufacture                                                       2,702,955
                                                    Topic 15       Production Budget Solutions       229


(d)	Budgeting	Trading	account
                                                   €                       €                €
   Sales of finished goods                   (7,500 @ 270)     1     (6,000 @ 330)      4,005,000
   Opening stock of finished goods
      Ruby (600 3 €140)                            84,000
      Diamond (450 3 €160)                         72,000                 156,000
   Cost of manufacture                                                  2,702,955
   Less closing stock of finished goods
      (W) Ruby (660 @ 191)                        126,060
      (W) Diamond (495 @ 211)                     104,445                (230,505)     (2,628,450)
   Gross Profit                                                                         1,376,550
   Less Expenses
   Selling                                    13,500 @ €2                 27,000
   Administration                                                         30,000          (57,000)
   Net Profit                                                                           1,319,550

(W)	Workings
                      Ruby                    Diamond
   TR1           53 3 5          15        43 3 5      12
   TR2           63 4 5          24        73 4 5      28
   Var.          83 5 5          40        93 5 5      45
   Labour        8 3 12 5        96        9 3 12 5 108
   *Fixed        83 2 5          16       *9 3 2 5     18
                               €191                  €211

                      229,770           229,770
   *Fixed5                            5         5 €2.0
             (7,560 3 8) 1 (6,045 3 9) 114,885
                60,480       54,405
 230        Graded Accounting Questions – Solutions



 7  tyMon solution
(a)	
       Production                   July           Aug             Sept                Oct             Nov
       Sales                       12,000         12,750          15,000             16,500           17,250
       1 Closing Stock (60%)        7,650          9,000           9,900             10,350            9,450
       2 Opening Stock               —            (7,650)         (9,000)            (9,900)         (10,350)
       5 Production                19,650         14,100          15,900             16,950           16,350

(b)	Purchases
       Production units          19,650           14,100                15,900                16,950   16,350
       3 Kgs                          6                6                     6                     6        6
       5 Kg Prod                117,900           84,600                95,400              101,700    98,100
       1 C/s (10%)                8,460            9,540                10,170                 9,810
       2 O/s                         —            (8460)                (9540)              (10,170)    9,810
       5 Kgs                    126,360           85,680                96,030              101,340
       3 Price                    €1.50            €1.50                 €1.50                 €1.50
       5 Purs.                 €189,540         €128,520              €144,045             €152,010 5 614,115

(c)
                                       July                   Aug                 Sept              Oct
       Receipts                          €                     €                    €                €
         Cash sales received          108,000               114,750              135,000          148,500
         Credit Sales one month                             126,000              133,875          157,500
         Credit Sales two month                                                  126,000          133,875
                                      108,000               240,750              394,875          439,875
       Payments
         Purchases                                          189,540              128,520          144,045
         Wages                          30,000               30,000               30,000           30,000
         Variable Overhead              98,250               70,500               79,500           84,750
         Fixed overhead                 42,750               42,750               42,750           42,750
         Equipment                      45,000
         Interest                          300               300                  300                 300
                                       216,300           333,090              281,070             301,845
       Net	Monthly	Cash	Flow          (108,300)          (92,340)             113,805             138,030
       Bank Loan                        36,000             —                    —                   —
       Opening Balance                   —               (72,300)            (164,640)            (50,835)
       Closing Balance                 (72,300)         (164,640)             (50,835)             87,195
                                                    Topic 15    Production Budget Solutions   231


(d)	Budgeted	Trading	and	Profit	and	Loss	Account	for	the	4	months	ending	31/4/2012
                                                            €              €              €
   Sales                                                                              1,687,500
   Less Cost of Sales
     Opening stock                                                        —
     Purchases                                                          614,115
     Closing stock 2 Finished goods (10,350 3 30)        310,500
                      Raw materials (9,810 3 1.5)         14,715       (323,215)       (290,900)
   Gross Profit                                                                       1,396,600
   Less	Expenses
     Wages                                                              120,000
     Variable overheads                                                 333,000
     Fixed overhead                                                     171,000
     Depreciation 2 Equipment                                             3,000        (627,000)
     Operating Profit                                                                   769,600
     Less interest                                                                       (1,200)
   Net	Profit                                                                           768,400

    A
(e)		 dverse	variance	occurs	when	Actual	expenditure	is	greater	than	budgeted	expenditure	
   Causes
   • Raw material Price increase
   • Raw material use greater than planned
   • Labour cost increase due to overtime
   • Greater no. of workers needed for job or poor production
 232    Graded Accounting Questions – Solutions



 8  sWift solution
                                   July             Aug              Sept            Oct             Nov
(a)	Production	Budget
   Quantity                       13,500           14,250           16,500          18,000          18,750
   1 Closing Stock                 8,550            9,900           10,800          11,250          10,350
   2 Opening Stock                (7,200)          (8,550)          (9,900)        (10,800)        (11,250)
   5 Production total             14,850           15,600           17,400          18,450          17,850

(b)	Purchases	Budget
   Quantity                       14,850           15,600          17,400           18,450          17,850
   @ 6Kg’s                        89,100           93,600         104,400          110,700         107,100
   1 Closing Stock                 9,360           10,440          11,070           10,710          10,350
   2 Opening Stock                (1,800)          (9,360)        (10,440)         (11,070)        (10,710)
   2 Total in units               96,660           94,680         105,030          110,340         106,740
   @ €1.80 per unit             €173,988         €170,424         189,054          198,612         192,132

(c)	Cash	Budget
   Total Sales                   243,000          256,500         297,000          324,000
   Cash Sales                     97,200          102,600         118,800          129,600
   Credit Sales 2                117,000          145,800         153,900          178,200
   Total income                  214,200          248,400         272,700          307,800

Expenditure
   Purchases                     100,500          173,988         170,424          189,054
   Labour                         18,000           18,000          18,000           18,000
   Overheads 2                    40,500           42,750          49,500           54,000
                                 159,000          234,738         237,924          261,054
   Net Cash                       55,200           13,662          34,776           46,746
   Cash 1/1 2                      8,700           63,900          77,562          112,338
   Cash 31/12                     63,900           77,562         112,338          159,084

(d)	Budgeted	Trading	P	&	L	o/c
                                                                       €
     Sales (62,250 @ €18)                                          1,120,500
   2 Cost of Sales
     Opening Stock (7,200 @ €15)                108,000
     1 Purchases                                732,078
     2 Closing Stock (10,710 @ €15)            (160,650)            (679,428)
     Gross Profit                                                    441,072
   2 Expenses
     Wages                                       72,000
   Variable O/Hs                                186,750             (258,750)
     Net Profit                                                      182,322

(e)	Budgetary	Control
   • limits placed on quantities used in production & cash actually share in advance of job completion
   • Budgetary Targets are set with actual use being compared to or kept in line with plan
   • Variances are calculated to show effectiveness of budgetary control
                                                         Topic 15   Production Budget Solutions          233



    9  Muldoon solution
(a)	Production	Budget
                                  July          Aug           Sep           Oct              Nov         Dec
     Sales                       12,000        14,500       15,500        17,000            19,500      20,000
     Add Closing Stock            4,350         4,650        5,100         5,850             6,000
                                 16,350        19,150       20,600        22,850            25,500
     Less Opening Stock          (3,800)       (4,350)      (4,650)       (5,100)           (5,850)
                                 12,550        14,800       15,950        17,750            19,650

(b)	Material	Purchases	Budget	(in	units	and	€’s)
                                       July            Aug               Sep                Oct          Nov
     Units of Production               12,550          14,800           15,950             17,750       19,650
     Materials per unit (7 kg)            37              37               37                 37           37
     Required for production           87,850         103,600          111,650            124,250      137,550
     Add Closing Stock                 20,720          22,330           24,850             27,510
                                      108,570         125,930          136,500            151,760
     Less Opening Stock               (19,100)        (20,720)         (22,330)           (24,850)
     Received for purchases            89,470         105,210          114,170            126,910
     Purchase price in €               3 3.50          3 3.50           3 3.50             3 3.50
     Price of raw materials          €313,145        €368,235         €399,595           €444,185

(c)	Cash	Budget
                          €                    €            €             €                 €             €
                        May                  June          July          Aug.             Sept.         Oct.
     Sales             224,000             289,000       336,000       406,000           434,000       476,000
     Receipts       Cash Sales               (40%)       134,400       162,400           173,600       190,400
                    1 Month Sales           (36%)*       104,040       120,960           146,160       156,240
                    2 Month Sales          (24%)**        53,760        69,360            80,640        97,440
                                                         292,200       352,720           400,400       444,080
     Payments       Purchases                             93,100       297,488           349,823       379,615
                    Wages                                 12,000        12,000            12,000        12,000
                    Variable Overheads                    36,000        43,500            46,500        51,000
                                                         141,100       352,988           408,323       442,615
                    Net Cash                             151,100          (268)           (7,923)        1,465
                    Cash 1/1/2012                         42,000       193,100           192,832       184,909
                    Closing Cash                         193,100       192,832           184,909       186,374

	    *60%	of	60%	of	sales	on	credit	collected	after	1	month	i.e.	36%
	    **40%	of	60%	of	sales	on	credit	collected	after	2	months	i.e.	24%

(d)	Would	you	grant	overdraft	facilities	to	Muldoon	based	on	her	budgets?
     Yes, based on the following.
     • Sales volume increasing monthly.
     • Credit collection within 2 months.
     • Cash balance of €50,925 event of problems.
     • However cost of purchases increase is worrying also security would be required.

(e)	Explain	the	term	Master	Budget.
     Master Budget is an overall budget projection for next year. It would include Cash Budget, Production
     Budget, Purchases, Labour Overhead Budget, Production Cost, Sales, Capital & Budgeted final a/cs.
                         Topic


                         16
Product Costing Solutions
 2    Foodies
 3    Lockie
 4    Ben and Nevis
 5    Miah
 6    Troy and Nathan 
 7    Wynnie 
 8    Gary John
 9    Conor Daniel
                                                            Topic 16  Product Costing Solutions     235



    2  Foodies solution
(a)
    	   •	 The fixed overhead absorption rates for each department. (Per direct labour hour.)
	          Department
               Monthly	fixed	overhead
           _______________________	         €1,500 	        €3,000 	              €2,200 	
	          	         		 	            	 ______	
                                       	 	          		      ______	
                                                            	       		            ______	
                                                                                  	       	 	
           Monthly	direct	labour	hours      1,000             2,500                   800
	          	                               5	€1.50	        5	€1.20	            5	€2.75
        • The labour rate per department.
           Department
                 Monthly	wages’	bill
             _______________________	           €6,000
                                                ______	        €13,750 	
                                                               _______	             €7,200 	
                                                                                    ______	
             	        	  	 	 		                 	       		     	       		           	      	 	
             	Monthly	direct	labour	hours         1,000          2,500                 800
                                                 5	€6         5	€5.50               5	€9
	       • Variable rate per department 	2,200	
                                           _____	 5	€2.2       3,500	 5	€1.4
                                                               _____	
                                                               	                1,320 	5
                                                                                _____	 €1.65
                                                                                	       	
                                           1,000               2,500              800

(b) The administration overhead absorption rate.
        General	administration	overhead 	
        __________________________	
        	         		         	 	
                               	        	            €34,400 	
                                                     _______	
                                                     	        		
              Monthly	labour	hours                     4,300
                                            5	€8	per	direct	labour	hour

(c) The selling price of job
                                                                               €            €
        Materials                                                                          800.00
        Labour
                                       Prep           Dept.	50	3	€6          300.00
                                       Cooking        Dept.	20	3	€5.50       110.00
                                       Finishing      Dept.	16	3	€9          144.00        554.00
        Overheads         Variable                    Variable
                                       Prep           Dept.	50	3	€2.20       110.00
                                       Cooking        Dept.	20	3	€1.40        28.00
                                       Finishing      Dept.	16	3	€1.65        26.40        164.40
                          Fixed                       Fixed
                                       Prep           Dept.	50	3	€1.50        75.00
                                       Cooking        Dept.	20	3	€1.20        24.00
                                       Finishing      Dept.	16	3	€2.75        44.00        143.00
        General	administration                        86	3	€8                              688.00
        Total	cost                                    75%	of	s.p.                        2,349.40
        Profit	(€2,349.40	÷	0.75)                     25%	s.p.                             783.13
        Selling	price                                                                    3,132.53
    236   Graded Accounting Questions – Solutions


(d) Step-Fixed Costs
	    	 ixed	costs	remain	the	same	but	only	up	to	the	point	of	maximum	production	from	a	particular	factory	
     F
     size.	If	the	company	wishes	to	increase	production	beyond	this	level	it	must	hire	extra	factory	space	so	the	
     fixed	costs	step	upwards	and	so	on.
                      30,000



                      20,000                                     	   example:
             € Cost




                                                                 	   Rent	for	factory	space	to	produce
                      12,000                                     	   •	 5,000	units	is	€12,000	p.a.,
                                                                 	   •	 10,000	units	is	€20,000	p.a.,
                                                                 	   •	 15,000	units	is	€30,000	p.a.
                               0   5,000           10,000   15,000
                                           Units


(e) Marginal Absorption Costing
	    There	is	a	different	profit	figure	because	closing	stock	is	valued	differently.
	    M
     	 arginal	costing	does	not	include	fixed	costs	when	costing	a	product	whereas	absorption	costing	does	
     include	the	fixed	costs.
	    	 erefore	closing	stock	under	marginal	costing	is	valued	lower	than	under	absorption	costing	because	
     Th
     a	share	of	fixed	costs	is	included	in	the	value	of	stock	under	absorption	costing	but	not	included	under	
     marginal	costing.
	    (e.g.)
	    Under	absorption	costing,	closing	stock	is	valued	at	a	¼	of	e.g.	production	cost	of	17,400.
	    Under	marginal	costing,	closing	stock	is	valued	at	¼	of	e.g.	production	cost	of	14,400.
     Closing stock	–	Absorption	costing        4,350
     Closing stock	–	Marginal	costing         (3,600)
     Difference                                  750
     The	profit	difference	is	22,950	2	22,200 5	750
	    A
     	 bsorption	costing	should	be	used	a	it	agrees	with	standard	accounting	practice	and	concepts	and	matches	
     costs	with	revenues.
                                                            Topic 16  Product Costing Solutions             237



 3  lockie solution
(a) Overhead Analysis
                                Basis                 Total          Manufacturing      packaging     Polishing
                                                        €                 €                 €             €
      Indirect	Materials        Given                288,000           136,000            80,000        72,000
      Indirect	Labour           Given                400,000           240,000            96,000        64,000
      Machine	Maintenance       Machine	Hours         22,400            11,200             8,400         2,800
      Plant	Depreciation        Plant	Valuation       64,000            38,400            19,200         6,400
      Light	and	Heat            Volume                56,000            32,000            16,000         8,000
      Rent	and	Rates            Floor	Space           51,200            25,600            16,000         9,600
      Factory	Canteen           %	of	Employees        40,000            24,000            12,000         4,000
                                                     921,600           507,200           247,600       166,800

(b) Overhead Absorption Rate
                                           Manufacturing          Packing             Polishing
                                           Machine	Hrs          Labour	Hrs.          Labour	Hrs.
      Budgeted	overheads
      ________________	                       507,200	
                                              _______		              247,600	
                                                                     _______		        166,800	
                                                                                      _______		
      	        	        	 	
                                              	                      	                	
         Budgeted	hours                        	32,000                	28,000          	20,000
      Overhead	rate	per	Machine	hr.           €15.85
      Absorption	rate	per	labour	hour                                 €8.84            €8.34

(c) Selling price of Job No. 45 A
                                                              €
      Materials            8,000 1 1,920              5          	
                                                           9,920		
      Labour               1,600 1 3,680 1        640 5    5,920
      Overheads
      Manufacturing          48	 3            15.85 5    760.80
      Packaging              72	 3             8.84 5    636.48
      Polishing              10 3              8.34 5     83.40
      Production	cost                               5 17,320.68
      Profit                         (75%)          5 5,773.56
      Selling	Price                  (25%)          5 23,090.24

(d)
      1. Direct Costs      Are	directly	linked	to	that	product	or	service	Raw	materials,	direct	labour	
                           and	direct	expense.
          Indirect Costs   Overheads	not	directly	linked	to	the	product	or	service	but	included	as	
                           part	of	the	cost.
                           Rent,	depreciation	of	equipment,	supervisors	salary.
      2. Cost Centre       A	location	where	costs	are	shared.	A	person	has	authority	and	
                           responsibility	for	expenditure	in	a	cost	centre	e.g.	Manufacturing.
    238     Graded Accounting Questions – Solutions



    4  Ben and nevis solution
1. Ben
   (a)
                                                                       Production                Service
           Overhead                  Basis               Total         1        2             A          B
                                                          €            €        €             €          €
           Dep.	of	Equipment         Book	value         24,000        9,000    6,000         3,000      6,000
           Dep.	of	Factory           Floor	area         30,000        9,000 12,000           6,000      3,000
           Factory	heating           Volume             14,400        3,600    7,200         2,400      1,200
           Factory	cleaning          Floor	area          3,000          900    1,200           600        300
           Canteen                   No.	employees      16,200        5,400    5,400         2,700      2,700
                                                        87,600       27,900 31,800          14,700     13,200
     (b)
                                                    Production                  Service
                                                    1        2                A           B
                                                    €        €                €           €
           Total	Cost                             27,900 31,800             14,700      13,200
           Apportion	Dept.	A	to	Production        11,025    3,675          (14,700)
           Apportion	Dept.	B	to	Production         9,900    3,300                     (13,200)
                                                  48,825 38,775

     (c) Machine hour absorption rate
     	      Dept.	1	     48,825 	 5	
                         ______	 €10.85 Per machine hour.
                         	    		
                           4,500
     	      Dept.	2	     38,775	 €25.85 Per machine hour.
                         ______	 5	
                         	       		
                           1,500
     (d) Re-apportionment:
           Th
         	 	 is	is	the	term	used	where	Service	Department	costs	are	re-apportioned	between	production	departments	
           because	overheads	can	only	be	recovered	by	being	included	as	part	of	the	cost	of	production.

2. Nevis
	    N
     	 evis	estimates	its	fixed	Production	overhead	costs	next	year	will	be	€18,000	and	that	it	will	produce	3,000	
     tables	incurring	4,000	Direct	Labour/hours	and	800	Machine/hours.

	    (a)	 Per	Unit:	 	Total	Overheads 	 5		
                      _____________	 	
                             	 	
                               	
                                          €18,000 	
                                          _______		 	5	€6 per Unit
                        No	of	Units         3,000
	    	 	              	                 	
	         Per	Direct	Labour 		
          _______________	
     (b)	 	        	 	       	
                                          €18,000 	
                                          _______	
                                          	
                                        5		       	 	5	€4.50 per Labour/hr
                  hr                        4,000

	         Per	Machine 		
          __________	
     (c)	 	       	    	
                                       €18,000 	
                                       _______	
                                       	
                                     5		       	 	5	€22.50 per Machine/hr
                hr                       800
	    	 	            	
	    	 hat	happens	if	we	produce	more	or	less	of	the	product	and	the	Production	Overheads	are	more	or	less	
     W
     than	planned.
       ake the above example:	What	happens	if	the	actual	overhead	incurred	was	€16,200	and	the	number	of	
     T
     Units	produced	was	(a)	2,800	Units	(b)	3,000	Units	(c)	3,400	Units	(d)	1,900	Units.
     Units                                         2,800           3,000        3,400        1,900
     Fixed	Production	Overheads               €   16,200          16,200       16,200       16,200
     Overhead	Absorbed	(Unit	3	Rates)         € W 16,800          18,000       20,400       11,400
     Under/Over	Absorbed                      €      600           1,800        4,200       (4,800)
     Workings            16,800	5	2,800	3	6
        	              	 18,000	5	3,000	3	6
        	              	 20,400	5	3,400	3	6
        	              	 11,400	5	1,900	3	6
                                                          Topic 16  Product Costing Solutions   239



    5  Miah solution
(a) Departmental overhead Absorption Rate (use dominant activity)
               Budgeted	Manufacturing	overheads 270,000
               ____________________________	_______		5	€4 per mach/hr
               	
     Cutting	5		         		         	 	
                                      	        		
                                               	5		        	
                                                           	
                   Budgeted	Machine	hours          	67,500

               Budgeted	Manufacturing	overheads
               	
     Fitting	5		         		         	 	
                                      	         	5		69,000 	 5	€1.15 per lab/hr
               ____________________________	_______	
                                                		         	
                    Budgeted	Labour	hours          	60,000

(b) Under/overhead Absorption by Dept. and in Total
                                  Cutting         Fitting        Total
                                     €               €             €
     Actual	overhead	incurred     210,000         69,000        279,000
     Absorbed	overhead	(W1)       300,000     (W2)60,375        360,375
     Over(under)	Absorption        90,000         (8,625)        81,375

	    Overall	effect:	Profits	increased	by	€81,375	 														Actual	3	Absorbed	Rate
	    (W1)	Overhead	Absorbed	5	No.	of	Machine	hours	3	Absorption	Rule	(75,000	3	4	5	300,000)
	    (W2)	Overhead	Absorbed	5	No.	of	Labour	hours	3	Absorption	Rate	(52,500	3	1.15	5	60,375)

(c) Total Production cost of Job No 789 B.
     Direct	Material                (110	1	50)           5 160.00
     Direct	Wages                   (100	1	70)           5 170.00
     Prime	Cost                                                             330
     Overhead	Absorbed
                                    30	hrs	3	4           5 €120.00
                                    25	hrs	3	1.15        5 28.75          148.75
     Total	production	cost	80%                                            478.75
                                    Profit	20%                            119.69
                                    Selling	Price	100%                    598.44

(d) Explain with examples: controllable and uncontrollable costs.
     Controllable	costs    The	manager	has	the	power	to	incur	these	costs.	They	can	
                           make	a	decision	about	the	amount	to	be	incurred	e.g.	raw	
                           materials,	labour.
     Uncontrollable	cost   A	cost	over	which	the	manager	of	a	cost	centre	has	no	
                           control	e.g.	rates	and	taxes,	interest	rules.
    240    Graded Accounting Questions – Solutions



    6  troy and nathan solution
(i) Troy
	    Valuation	of	Closing	Stock
     (a) Value of the Closing Stock using first in first out (FIFO) method
            Purchases in Units            Cost Price       Purchases at Cost
                                              €                   €
                 2,300             @        14.00      5        32,200
                 2,500             @        17.00      5        42,500
                 2,950             @        17.00      5        50,150
                 3,100             @        19.00      5        58,900
                10,850                                         183,750


              Sales in Units              Cost Price          Sales Value
                                              €                   €
                 3,210             @        19.00      5        60,990
                 2,200             @        21.00      5        46,200
                 4,050             @        22.00      5        89,100
                10,400                                         196,290

                Closing	Stock	in	units	
                Opening	Stock                                     6580
                Add	Purchases                                   10,850
                                                                17,430
                Less Sales                                      (9,460)
                Closing	Stock                                    7,970
                Closing	Stock	in	€
                3,100	units	@	€19.00                            58,900
                2,950	units	@	€17.00                            50,150
                1,920	units	@	€17.00                            32,640
                                                               141,690


     (b) Trading Account for the year ending 31/12/2012
                                          €          €
          Sales                                   196,290
          Less	Cost	of	Sales
          	 Opening	Stock            78,960
          	 Purchases               183,750
                                    262,710
            Less	Closing	Stock      141,690       121,020
          Gross	Profit                             75,270
                                                            Topic 16  Product Costing Solutions      241


(ii) Nathan
     (a) Selling Price of job 2345 if the profit is set at 35% of selling price
                                                                             €              €
             Direct	Materials                                                           14,800.00
             Direct Wages
                Alpha                            (35	hours	3	€17.00)       595.00
                Beta                             (25	hours	3	€22.00)       550.00
                Gamma                            (60	hours	3	€19.00)     1,140.00         2,285.00
             Variable Overheads
                Alpha                            (35	hours	3	€5.00)        175.00
                Beta                             (25	hours	3	€12.00)       300.00
                Gamma                            (60	hours	3	€7.00)        420.00           895.00
             Fixed Overheads
                Alpha                            (35	hours	3	€3.50)        122.50
                Beta                             (25	hours	3	€6.00)        150.00
                Gamma                            (60	hours	3	€11.50)       690.00          962.50
             General	Administration	Overheads
             120	hours	3	€4.50                                                             540
             Total	Cost	5	80%	of	selling	price                                          19,482.5
             Profit	5	20%	of	selling	price                                               4,870.63
             Selling	Price	5	100%                                                       24,353.13

(iii) Enda May
      (a)
             Rates:	Machine	hour	 32,000/1,000 5 €32
                  :	Labour	hour	 	 32,000/5,000 5	€6.4
                  :	Per	Unit	hour	 32,000/4,000 5	€8.0

       (b)
                         Per Unit        Labour hrs     Machine hrs
             Actual       32,000           32,000        32,000
             Absorbed (W) 36,000           35,200        28,800
             Over/under    4,000            3,200        (3,200)

       (c)
   	     Explain	the	difference	between	allocation	and	apportionment	of	costs.
   	     Allocation
   	     –	this	is	where	direct	costs	can	be	linked	directly	to	the	item	being	costed.
   	     Apportionment
   	     –	indirect	costs	are	divided	between	cost	centres	using	suitable	bases	of	appointment.

(W)      Workings
         36,000	5	4,500	PU	@	€8
         35,200	5	5,500	Labour	hrs	@	€6.4
         28,800	5	900	Machine	hrs	@	€32
 242    Graded Accounting Questions – Solutions



 7  Wynnie solution
(i) Valuation of Closing Stock
    (a) Value of the Closing Stock using first in first out (FIFO) method.
       Purchases in Units                     Cost Price         Purchases at Cost
           6,300                    @           8.00       5          50,400
           5,800                    @           9.00       5          52,200
           5,750                    @           9.00       5          51,750
           6,200                    @          11.00       5          68,200
         24,050                                                      222,550
       Sales in Units                         Cost Price           Sales Value
           5,700                    @          11.00     5            62,700
           9,150                    @          12.00     5           109,800
           8,250                    @          13.00     5           107,250
         23,100                                                      279,750
       Closing Stock in units
       Opening	Stock                                                     6,700
       Add	Purchases                                                    24,050
                                                                        30,750
       Less	Sales                                                     (23,100)
       Closing	Stock                                                     7,650
       Closing Stock in €
       6,200	units	@	€11.00                                            68,200
       1,450	units	@	€9.00                                             13,050
                                                                       81,250
   (b) Trading Account for the year ending 31/12/2012
                                                                 €             €
       Sales                                                                279,750
       Less	Cost	of	Sales
       Opening	Stock	(6,700	units	3	€8.00)                  53,600
                                                           222,550
                                                           276,150
       Less	Closing	Stock                                  (81,250)        (194,900)
       Gross	Profit                                                          84,850
(ii) Budgeted Overheads
     (a)
       Cutting Department                 Variable                 Fixed
       Budgeted	overhead	costs                €9,600                  €3,300
       Budgeted	Hours                             600                     600
       Overhead	Absorption	Rates         €16	per	hour          €5.50	per	hour
       Welding Department                    Variable             Fixed
       Budgeted	overhead	costs                  €12,600               €2,100
       Budgeted	Hours                             1,400                1,400
       Overhead	Absorption	Rates               €9	per	hr         €1.50	per	hr

       Finishing Department               Variable                 Fixed
       Budgeted	overhead	costs                €4,400                    €900
       Budgeted	Hours                             400                     400
       Overhead	Absorption	Rates         €11	per	hour          €2.25	per	hour
                                                      Topic 16  Product Costing Solutions            243


    (b)
      General Administration Overhead
                                             General	Administration	Overhead €6,000
      Overhead	Absorption	Rate	per	hour 5                                   5
                                                  Total	Budgeted	Hours         2,400
                                                                            5	€2.50

    (c) Calculation of Product Cost and Selling price
                                                                    €                    €
        Direct	Materials                                                                           1,250.00
        Direct wages:
        Cutting	Department	                                 (75	hours	@	€9)               675
        Welding	Department	                                 (150	hours	@	€8)            1,200
        Finishing	Department	                               (24	hours	@	€10)              240      2,115.00
        Variable overheads
        Cutting	Department	                                 (75	hours	@	€16)         1,200.00
        Welding	Department	                                 (150	hours	@	€9)         1,350.00
        Finishing	Department	                               (24	hours	@	€11)           264.00      2,814.00
        Fixed overheads
        Cutting	Department	                                 (75	hours	@	€5.50)         412.50
        Welding	Department	                                 (150	hours	@	€1.50)        225.00
        Finishing	Department	                               (24	hours	@	€2.25)          54.00        691.50

        General	Administration	overheads	(249	hours	@	€2.50)                                         622.50
        Total	Cost                               5	80%	of	selling	price                            7,493.00
        Profit                                   5	20%	of	selling	price                            1,873.25
        Selling	Price                            5	100%                                            9,366.25


(iii) Curley Meats
     *(Machine Hours)           *(Labour Hours)       *(Labour Hours)
         Cutting                   Weighing               Packing
          50,400                    12,960                14,400
          12,600                    16,200                 7,200
         5	€4.0                      €0.80                  €2.0
    *(Using dominant activity)
                       Cutting       Weighing     Packing     Total
    Actual             55,800         10,800       16,200     82,800
    *Absorbed	(W)      57,600         10,656       18,000     86,256
    Over/under           1,800         (144)        1,800      3,456

(W) Cutting                 14,400	@	€4.0                   5	57,600
    Wages                   13,320	@	€0.80                  5	10,656
    Packing                 		9,000	@	€2.0                  5	18,000

    (c) Overall Effect on Profit
        	 utting	costs	incurred	were	1,800	less	than	expected/budgeted	and	therefore	profits	are	1,800	
        C
        greater	than	expected.	Weighing	costs	incurred	were	144	more	than	expected/budgeted	and	therefore	
        profits	are	144	less	than	expected	Packing	costs	incurred	were	1,800	less	than	expected/budgeted	
        and	therefore	profits	are	1,800	greater	than	expected.	Overall	costs	incurred	were	3,456	less	than	
        expected/budgeted	and	therefore	profits	are	3,456	greater	than	expected.
    244    Graded Accounting Questions – Solutions



    8  Gary John solution
(a)
                                                       €           €          €           €            €
                             Basis                     Total     Prod.	1   Prod.	2    Service	A    Service	B
      Factory	L	&	H          Volume                  16,000      10,000     3,000        2,000        1,000
      Machinery              Valuation               19,000      10,000     9,000

      Material	handling      D.	Materials            10,000       6,000      4,000
      Canteen	Costs          Employees               54,000      18,000     13,500      12,000       10,500
      Supervisor             Employees               45,000      15,000     11,250      10,000        8,750
      General	Repairs        Machines                15,000      10,000      5,000
      Cleaning               Floor                    9,000       5,400      1,800       1,200          600
                                                    168,000      74,400     47,550      25,200       20,850
      Re	Apportioned         (machine	hour)                      16,800      8,400    (25,200)
                                                                 13,900      6,950                 (20,850)
                                                    168,000     105,100     62,900           —           —

(b)
                          105,100
      Production	1                5	€1.31
                           80,000
                           62,900
      Production	2                5	€1.57
                           40,000

(c)
      Job no 72B per unit
      Materials	€5.4             5 5.40
      Labour	€4.8                5 4.80
      Production	1	€1.31	3	6     5 7.86
      Production	2	€1.57	3	7     5 10.99
      Cost	per	unit	5	80%        5 29.05
      Profit	5	20%               5 7.26
      Selling	price	5	100%       5 36.31

(d)
      Actual                                           142,400
      Absorbed
      Prod.	I	70,000	@	€1.31         5	€91,700
      Prod.	II	41,400	@	€1.57        5	€64,998        (156,698)
      Under	absorbed                                    14,298
      Profit	Reduced	by                €14,298

(e) What are the main differences between direct and indirect costs?
	     D
      	 irect Costs –	are	direct	linked	to	that	product	or	service	e.g.	Raw	Materials,	Direct	labour	&	direct	
      expenses.
	     I
      	 ndirect Costs –	Overheads	not	directly	linked	to	the	product	or	service	but	included	as	part	of	the	cost	e.g.	
      Rent	depreciation	of	equipment.
                                                              Topic 16  Product Costing Solutions   245



 9  conor daniel solution
(i)
       (a)
                                           Units       Price               €
             Purchases                      6,000      @	€8			         5 48,000
                                            4,400      @	€12	          5 52,800
                                            3,000      @	€14	          5 42,000      €142,800
                                           13,400
             Sales                          1,800      @	€18           5    32,400
                                            4,600      @	€20		         5    92,000
                                            2,400      @	€22	          5    52,800
                                            2,600      @	€24           5    62,400
                                            2,400      @	€26           5    62,400   €302,000
                                           13,800
                                            Units
             Opening	Stock                  8,000
               1	Purchases                 13,400
               2	Sales                    (13,800)                            €
             5	Closing	Stock                7,600      3,000	@	€14     5    42,000
                                                       4,400	@	€12     5    52,800
                                                       200				@	€8     5     1,600
             5	Closing	stock	(Value)                                   5   €96,400


       (b)
             Trading	a/c.                                     €
             Sales                                         302,000
               2	Cost	&	Sales
                   Opening	Stock            64,000
               1	Purchases                 142,800
               2	Closing	Stock             (96,400)        (110,400)
               5	Gross	Profit                               191,600

(ii)
       (a)
             Variable	 Dept.	1.	   7,200/600     5	€12
                       Dept.	2.	   15,000/1000   5	€15
                       Dept.	3.	   4,500/500     5	€9
             Fixed	 	 Dept.	1.	    6,900/600     5	€11.5
                       Dept.	2.	   13,000/1000   5	€13
                       Dept.	3.	   2,500/500     5	€5
 246        Graded Accounting Questions – Solutions


    (b)
           Administration	 18,900/2,100 5	€9

    (c)
           Job TR. 78                                            €
           Materials                                          2,350
           Variable	O/Hs
           Dept.	1.	 40	 @	 €12               5 480
           Dept.	2.	 70	 @	 €15               5 1,050
           Dept.	3.	 30	 @	 €9                5 270           1,800
           Fixed	O/Hs
           Dept.	1.	 40	 @	 €11.5             5   460
           Dept.	2.	 70	 @	 €13               5   910
           Dept.	3.	 30	 @	 €5                5   150         1,520
           Wages
           Dept.	1.	 40	 @	 €17               5 680
           Dept.	2.	 70	 @	 €21               5 1,470
           Dept.	3.	 30	 @	 €19               5 570           2,720
           General	Administration
           140	@	€9                                           1,260
           Cost                               5 80%           9,650
           Profit                             5 20%           2,412.50
           Selling	Price                      5 100%         12,062.50

(iii)
     (a)
           Perfect Pork
                               €280,000	 	
                          _________________	
                          	     		
           Cutting                           5 €4
                          70,000(Machine	hrs)

           Boning          	 €72,000	 	 5 €8
                           ______________	
                                  	
                           9000(labour	hrs)
                              €80,000	 	
                          _______________	
                          	    		
           Dispatch                        5 €2
                        40,000(labour	hrs)
                      (use	dominant	activity)

    (b)
                                      Cutting       Boning       Dispatch      Total
           Actual                      310,000      60,000        90,000      460,000
           2	Absorbed	(w)             *320,000      59,200       100,000      479,200
           Over/Under	Absorbed          10,000       (800)        10,000       19,200

           *(w)	Absorbed	working
           Cutting                      80,000      Machine	hrs		@	€4	 5     320,000
           Boning                         7400      Labour	hrs				@	€8		 5    59,200
           Dispatch                     50,000      Labour	hrs				@	€2	 5    100,000
                                 Topic


                                 17
Marginal Costing Solution
(with Flexible Budgeting)
    2    McCanney
    3    Zalon
    4    Orion
    5    Gazza and Jen
    6    Remus
    7    Tom and Jones
    8    Marge and Bart 
    9    Red and Bull
  10     John, Paul and George
    248     Graded Accounting Questions – Solutions



    2  Mccanney Solution
                                   Total                Per unit
                                      €                    €
       Sales (60,000)             900,000           15                          SP
       2 VC (w)                  (351,000)           5.85 (5.10 1 .75)          VCPU
       5 Cont.                    549,000            9.15                     5 CPU
       2 FC (w)                  (277,000)
       5 Profit                   272,000

(a) 
                         FC     277,000
                        _____ 5 _______
       Break Even                                            5 30,274 unit
                        CPU      9.15
       Margin           60,000 2 30,274                      5 29,726 unit
(b) 
  Units                 FC 1 Profit 277,000 1 312,800
                        __________ 5 ________________        5 64,460 unit
                           CPU               9.15

(c)                  €
       SP.        13
       2VCPU 25.75 (5.10 1 .65)
                   7.25 3 75,000 5 543,750
       2 FC                        327,000
       5 Profit                                              5 € 216,750
(d)                                                             
       Sales                       14.94 5 95%/100%          5 €15.73
       2 VC.                       (5.10)
       5 Cont.       590,550        9.84
       2 FC.        (318,550)
       5 Profit      272,000
(e)
            FC          277,000
       ____________ 5 __________                             5 29,626 units
        CPU 2 10%     11.05 2 1.7
       (CPU 5 17 2 (5.1 1 85) 5 11.05)
                           Topic 17        Marginal Costing Solution (with Flexible Budgeting)   249


(f ) 
                               Break Even Chart
                1,000                                               Total revenue
                                                                    (910,000)
                                                              fit   Total costs
                                                          Pro       (787,750)
                               Break even point
        € 000




                 500


                        Loss
                                                                    Fixed costs
                                                                    (234,600)
                 100

                                            42,773             65,000
                                   Units



(w) Working
                                  FC                   VC
        Materials                   —                160,000
        Labour                      —                 98,000
        Factory O/Hs            32,000                48,000
        Admin                  140,000                    —
        Selling                105,000                45,000
                               277,000               351,000
 250        Graded Accounting Questions – Solutions



 3  Zalon Solution
                                                                                   Total           P.U.
                          FC.            VC.             Sales (65,000)           910,000        14
      Mats.                            312,250           2 VC                    (553,150)        8.51 (7.81)
      labour                           152,500           5 Conf.                  356,850         5.49
      O/H’s            100,100          42,900           2 FC                    (234,600)
      Selling           34,500          45,500           5 Profit                 122,250
      Admin.           100,000
                       234,600         553,150

(a)
                   FC                    234,600
      B/E       5 _____                5 _______                5 42,733 units
                  CPU                      5.49
      Margin 5 Sales 2 B/E 5 65,000 2 42,733                    5 22,267 units
(b)
      FC 1 Profit  234,600 1 146,700
      __________ 5 ________________ (1 20%)                     5 69,454 units
         CPU                    5.49
(c)
             FC            234,600
      _________________ 5 _________                             5 €197,143 units
       CPU 2 20% of s.p.   3.59 2 2.4
      (CPU 5 12 2 (7.81 1 0.6) 5 3.59)
(d)
      Sales                   78,000 3 12                       5 936,000        12
      2 VC                    78,000 3 (7.81 1 0.6)             5 (655,980)       8.41
      5 Contribution         (78,000 3 3.59)                    5 280,020         3.59
      2 FC                                                        (264,600)
      5 Profit                                                    € 15,420
(e)
                             Total                          P.U.
      Sales                                       13.12 5 95% of s.p.
      2 VC                                          7.81 (VCPU excl. comm.)
      5 Contribution          345,120               5.31
      2 FC                   (222,870)
      5 Profit                122,250
                                                  SP 5 €13.81
(f ) Explain what is meant by sensitivity analysis. 
      Sensitivity Analysis is a technique used by management to examine the effect on profit brought on by a
      change in:
      • Selling price
      • Overheads
      • Material costs.
      It is the ‘What if ’ situation.
                                Topic 17     Marginal Costing Solution (with Flexible Budgeting)   251



 4  orion Solution
                                                  €           Per unit
                Sales (96,000)            1,152,000          12
      (w)       2 Variable (V C)            (811,200) (w)     8.45 (7.85)
                5 Contribution               340,800          3.55 CPU
      (w)       2 Fixed (F.C)               (221,520)
                5 Profit                     119,280
(a)
      Break even      FC     221,520
                     _____ 5 _______                        5 62,400 units
                      CPU        3.55
      Margin         96,000 2 62,400                        5 33,600 units
(b)
      FC 1 Profit  221,520 1 143,136
      __________ 5 ________________                         5 102,720 units
            CPU                    3.55
(c)
                       €
      Sales          11 P.U.
      2 V.C            8.4 (7.85 1 0.55)
      5 Contribution 2.6 3 110,400 5 287,040
      2 FC                               (239,520)
      5 Profit                                     5 €47,520
(d)
      Sales                               11.72 5 95%
      2 VC                                 7.85
      5 Contribution         371,813       3.87
      2 FC                  (252,533)
      5 Profit               119,280                100%    5 €12.34
(e)
          FC
      ___________           5       221,520
                                   ________                 5 69,225 units
      CPU 2 10%            4.5 2 1.3
      (CPU 5 13 2 (7.85 1 0.65) 5 4.5)

Working 
                           V.C                F.C
      Mats.              492,000
      labour             222,720
      O/H s               38,880             47,520
      Admin                                 124,800
      Selling             57,600             49,200
                         811,200            221,520
 252          Graded Accounting Questions – Solutions


(f ) 
            1,200                                        Total revenue
                                                         (1,152,000)

                                                    it   Total costs
                                                  of
            1,000                               Pr       (1,032,720)
    € 000




             500


                    Loss
                                                         Fixed costs
                                                         (221,520)
             100

                                       62,400      96,000
                               Units
                                       Topic 17     Marginal Costing Solution (with Flexible Budgeting)         253



 5  GaZZa & Jen Solution
1.  Gazza
(a)
                                                                         € Total          € Per unit
       Sales (20,000)                                                  1,120,000              56
       Variable Costs
       Materials                   240,000
       Wages                       280,000
       Overheads                    60,000
       Administration               99,000                             (679,000)               33.95
       5 Contribution                                                   441,000                22.05
       2 Fixed Costs
       2 Overheads                 120,000
       2 Administration            125,000                             (245,000)
       5 Profit                                                         196,000
       Fixed Costs 245,000
       __________ 5 _______ 5 11,112 units
          C.P.U       22.05
       Margin 20,000 2 11,112 5   8,888 units
(b) 
                        1,200                                           Total revenue
                                                                        (1,120,000)

                        1,000
                                                                  it    Total costs
                                                                of
                                                              Pr        (924,000)
      € Costs Revenue




                                       Break even

                         500


                                Loss                                     Fixed costs
                                                                         (245,000)

                         100

                                               11,112
                                                Units

(c)
       Sales                                 53.2
       2 Variable                           (33.95)
       5 Contribution                       19.25@ 30,000 units 5 577,500
       2 Fixed                                                   (265,000)
       5 Profit                                                                   5 €312,500
(d)
           Fixed Costs              245,000             245,000
       __________________ 5 _______________________ 5 ___________                              5 40,496 units
        C.P.U. 2 20% of S.P.              [50 2 33.95] 2 [20% of 50]           16.05 2 10.0
(e)
       Sales          €60.00
       2 Variable      37.95 (33.95 1 1.0 1 3.0)
       5 Contribution 22.05 @ 25,000 units 5 551,250
       2 Fixed                             2245,000
       5 Profit                                                                                5 €306,250
 254    Graded Accounting Questions – Solutions


2.  Jen PLC
(a) 
   Level                              Units      Production    Other
                                                      €          €
   High                               7,200        13,640      8,760
   Low                                4,800        10,760      6,840
   Difference                         2,400         2,880      1,920
                                                    2,880
                                                   _____       1,920
                                                               _____
   Variable per unit                                2,400      2,400
   Fixed element                                    €1.2        €0.8
   (High 7,200 @ €1.2 2 13,640)                    €5,000
   (High 7,200 @ €0.8 2 8,760)                                 €3,000

(b) Flexible Budget for 85% (6,800 units) in Marginal Costing format
                                             €                €
   Sales                                                    80,800
   Variable costs
   (W) Materials    6,800 @ €3             20,400
   (W) Wages        6,800 @ €2             13,600
   Production       6,800 @ €1.2            8,160
   Other            6,800 @ €0.8            5,440           47,600
   Contribution                                             33,200
   Fixed Costs
   Administration                           5,000
   Production                               5,000
   Other                                    3,000           13,000
   Profit                                                   20,200
   (V.C. 47,600 1 F.C. 13,000 5 T.C. 60,600 5 75% of sales)

   (W) Materials                           14,400
                                                      5    €3 P.U.
                                            4,800

   (W) Wages                                  9,600
                                                      5    €2 P.U.
                                              4,800
                            Topic 17    Marginal Costing Solution (with Flexible Budgeting)   255



 6  reMuS Solution
(a) 
                                       €                  €                       €
                                                                              Per Unit
       Sales (200,000 units)                           1,200,000          6
       Variable Costs
       Manufacturing (60%)           288,000
       Production (200,000 3.6)      120,000
       Other (50%)                    30,000
       Selling (15% of 1,200,000)    180,000            618,000           3.09 (2.19)
       Contribution                                     582,000           2.91 (CPU)
       Fixed Costs
       Manufacturing                 192,000
       Production                     60,000
       Selling & Distribution         64,500
       Other                          30,000            346,500
       5 Profit                                         235,500

       Production O/Hs
                                         Units             €
       High                             120,000         132,000
       Low                               90,000         114,000
                                         30,000          18,000
       1 unit 5 €0.6 per unit
       Fixed (90,000 3 €0.6 2 114,000) 5 60,000

(b)
                     FC     346,500
       Break Even 5 _____ 5 _______                     5 119,073 unit
                    CPU       2.91

                  5 119,073 @ €6                        5 €714,438
(c)
       Units            FC         346,500
                  5 ___________ 5 _________             5 245,745 units
                    CPU 2 25% 2.91 2 1.5
(d)
       Sales          5.4
       2VC            3.0 (2.19 1 .81)
       5 Contribution 2.4 3 250,000 5 600,000
       2FC                           2 346,500          5 €253,500
       5 Profit
(e)
       FC 1 Profit 256,500 1 330,000 586,500
       __________ 5 ________________ 5 _______ 5 220,904 units
          CPU                2.655             2.655
       (CPU 5 5.7 2 (2.19 1 .855) 5 2.665)
 256           Graded Accounting Questions – Solutions


(f ) 
        Step fixed cost is a cost that is fixed for a limited Range of output. Then raises to a different level for a
        further Range.
             30,000




             20,000
    € Rent




             15,000




              6,000



                      0           25,000 35,000 45,000 55,000
                                   Output
                             Topic 17      Marginal Costing Solution (with Flexible Budgeting)   257



 7  toM and JoneS Solution
Tom Ltd
                               U.C.              F.C.
      Materials               115,200
      labour                   57,600
      Factory O/Hs              8,160           12,240
      Admin Exps.                               38,400
      Selling                  14,400           12,800
                              195,360           63,440

                               € Total           € Per Unit
      Sales (60,000)           288,000          4.8
      2V.C.                   (195,360)         3.256 (3.016)
      5 Contribution             92,640         1.544 (CPU)
      2F.C.                     (63,440)
      5 Profile                  29,200
(a)
      Break Even        FC     63,440
                       _____ 5 ______                         5 41,088 units
                       CPU     1.544
      Margin          60,000 2 41,088                         5 18,912 units

(b)
      S.P  5.2
      2V.C 3.276 (3.016 1 0.26)
           1.924

                    FC            63,440
      Units 5 ______________ 5 ___________                    5 45,186 units
              CPU 2 10% SP     1.924 2 0.52
(c)
      S.P          4.4
      2V.C.        3.236 (3.016 1 0.22)
      Contribution 1.164 3 82.000                5 95.448
      2FC                                         (67,110)
      5 Profit                                                    €28,008

Jones Ltd
(a)
      Marginal Costing                                    €              €
      Sales                                                            96,000
      2 Variable Costs
      Materials (15,000 @ 50c)                           7,500
      Labour (15,000 @ 80c)                             12,000
      Variable O/Hs (15,000 @ 90 c)                     13,500
      Contribution                                      33,000
      2 Closing Stock (1/5 of 33,000)                   (6,600)       (26,400)
                                                                       69,600
      2 Fixed Costs                                                   (17,500)
      Profit                                                           52,100
 258    Graded Accounting Questions – Solutions


   Abortion Costing                                   €               €
   Sales                                                            96,000
   2 Variable Costs
   Materials                                        7,500
   Labour                                          12,000
   Variable O/Hs                                   13,500
                                                   33,000
   1 Fixed costs                                   17,500
   Production Cost                                 50,500
   2 Closing Stock (1/5 of 50,500)                (10,100)         (40,400)
   Profit                                                           55,600

    O
(b)   utline the differences between marginal and absorption costing. Indicate which 
    method should be used for financial accounting purposes and why.
   There is a different profit figure because closing stock is valued differently.
   Marginal costing does not include fixed costs when costing a product whereas absorption costing does
   include the fixed costs.
   Therefore closing stock under marginal costing is valued lower than under absorption costing because
   a share of fixed costs is included in the value of stock under absorption costing but not included under
   marginal costing.
   Under absorption costing, closing stock is valued at a 1/5 of the production cost of 50,500.
   Under marginal costing, closing stock is valued at 1/5 of the production cost of 33,000.
   Closing stock – Absorption costing        10,100
   Closing stock – Marginal costing           6,600
   Difference                                 3,500
   The profit difference is 55,600 2 52,100 5 €3,500
   Absorption costing should be used as it agrees with standard accounting practice and concepts and matches
   costs with revenues.
                           Topic 17    Marginal Costing Solution (with Flexible Budgeting)           259



 8  MarGe and Bart Solution
Marge Ltd
                                                           €                P.u.
      Sales (70,000 units)                             1,960,000            28
      2 Variable (VC) Materials       650,000
      labour                          560,000
      40% Overheads                    60,000
      Sales Commission                 98,000          (1,368,000)          19.54 (18.14)
      5 Contribution                                      592,000            8.46
      2 Fixed Costs (FC)
      60% Overheads                    90,000
      Admin Exps.                     192,000
      Selling                          90,000           (372,000)
      Profit                                             220,000

(a)
      Break Even        FC     372,000
                       _____ 5 _______   5       43,972 units
                       CPU      8.46
      Margin         70,000 2 43,972     5       26,028 units

(b)
      Sales                                             27.13 5 95%
      2 VC                                             (18.14)
      5 Contribution               629,200               8.99
      2 FC                        (409,200)
      5 Profit                     220,000
                                                      100%      5 € 28.56
(c)
                             € P.U.
      Sales                  24
      2 VC                   19.34 (18.14 1 1.2)
      5 Contribution          4.66 3 85,000      5 396,100
      2 FC                                        (422,000)
      5 Profit/loss                                              (€25,900)

(d)   ontribution to Sales Ratio is an alternative way of finding break even if not all figures 
    C
    are given especially variable costs.
      FC              372,000           €1,231,221(Approx.)
      ____ 5 ________________________ 5 _________________
      C/S      0.30404 (592,000/1,960,000)             €28

                                             5 43,972 units (approx. equal to B/E point in part a)
 260    Graded Accounting Questions – Solutions


Bart Ltd
(a)
   Absorption     Sales (4,800 3 €4.80)                                            23,040
                  Less Costs Materials (5,400 3 0.36)              1,944
                  Labour (5,400 3 0.54)                            2,916
                  Variable (5,400 3 0.42)                          2,268
                  Fixed Costs                                      2,700
                                                                   9,828
                  2 Closing Stock (1/9 of 9,828)                  (1,092)          (8,736)
                  Profit                                                          14,304

   Marginal       Sales                                                            23,040
                  2 Costs Materials                                1,944
                  labour                                           2,916
                  Variable                                         2,268
                                                                   7,128
                  2 Closing Stock (1/9 of 7,128)                     792           (6,336)
                  Contribution                                                    16,704
                  2 Fixed Costs                                                    (2,700)
                  Profit                                                          14,004

     (i) Fixed Costs: Remain the same where output level changes e.g. Rent i.e. fixed costs are independent of
         the level of production.
           ariable Costs: The amount of the cost changes directly with the level of production e.q. raw
         V
         materials i.e. variable costs vary with the level of production.
    (ii) Direct Costs: Are costs that are directly linked to a product/service e.g. raw materials, direct lab direct
         expenses e.g. hire of special equipment. Total direct costs are also known as PRIME COST.
           ndirect Costs: Not directly linked to product/service, but must be included as part of the cost e
         I
         factory rent and rates, factory light and heat, production supervisors salary.
   (iii) Controllable Costs: Costs that can be controlled by a manager in a Centre. The manager can make
         a decision about the amount of the cost and can be held responsible if a variance occurs e.g. raw
         materials.
           ncontrollable Costs: Costs over which a manager has no control and cannot be held responsible for
         U
         variances in these costs e.g. rates to the local authority.
   (iv)
   1. Cost Allocation:                     When a cost can be charged in total to a cost centre without
                                           being dividend into smaller parts, it is said to be allocated.
   2. Cost Absorption:                     Means that the fixed overhead costs are absorbed into the
                                           cost of the Product. 3 Methods of doing this:
                                           (1) Amount per Unit
                                           (2) Amount per direct Labour hour
                                           (3) Rate per direct Machine Hour.
                         Topic 17     Marginal Costing Solution (with Flexible Budgeting)                                261



 9  red and Bull Solution
Red
(a)
                                    Variable                    Fixed
    Materials                          €11                          —
    Labour                               €8                         —
    Production of O/Hs                   €4                    €21,000
    Other of O/Hs                        —                     €22,000
    Admin.                           €1.25                     €11,000
(b) High low method

                     Units           Production              Administration
    High             8,000             53,000                   21,000
    Low              4,000             37,000                   16,000
                     4,000            €16,000                   €5,000
                     VCPU                €4                      €1.25
                     Fixed            €21,000                  €11,000
(c) Sales (90% 5 9000 units)
                                                  €                   €
    2 Variable Costs                                              340,312.50
    Material 9,000 @ 11                 5      99,000
    Labour 9,000 @ 8                    5      72,000
    Production 9,000 @ 4                5      36,000
    Administration 9,000 @ 1.25         5      11,250               (218,250)
    5 Contribution                                                122,062.50
    2 Fixed Costs
    Production                                 21,000
    Other                                      22,000
    Admin                                      11,000                 (54,000)
    5 Profit                                                        68,062.50
    (VC 1 FC 5 80 % of sales)

Bull
Break-even point in units and value
    Variable costs                Materials                                                                 140,000
                                  Labour                                                                     84,000
                                  Factory overheads                                                          14,400
                                  Selling and Distribution (40,000 3 €1)                                     40,000    278,400
    Fixed Costs                   Factory overheads                                                          57,600
                                  Selling and Distribution                                                   55,000
                                  Administration (48,000 3 75%)                                              46,000    158,600

    Marginal Costing Statement                                                                         €    Per unit
     Sales (40,000 units)                                                                        480,000     €12.00
     Less: Variable Costs                                                                        278,400      €6.96       5.96
     Contribution                                                                                201,600      €5.04
     Less Fixed Costs                                                                           (158,600)
     Net Profit                                                                                    43,000
 262       Graded Accounting Questions – Solutions


(a) Break-Even
      Break Even                            FC     158,600
                                           _____ 5 _______     5 31,469 units
                                           CPU        5.04
      Margin                               40,000 2 31,469     5 8,531 units

      Contribution to Sales Ratio          201,600
                                           _______             5 0.42
                                           480,000

        FC    
      ________                             158,600 €377,619
                                           _______ 5 ________ 5 31,469 units
      CS Ratio                               0.42        €12
(b)
                                     €                € P.U.
      Selling Price   Sales                           12.4
                      2 VC                             6.96
                      5 Contribution 217,460
                                                     2 5.44
                      2 F. C.        (174,460)
                      5 Profit         43,000
                      S.P.      5      €12.40

(c)
                      €
      SP              11
      VCPU            6.96
                      ____
      5 CPU           4.04
                          FC
      No of units 5 ______________
                    CPU 2 % of SP
                     158,600
                  5 _________      5 53,946 Units
                    4.04 2 1.1
                                Topic 17       Marginal Costing Solution (with Flexible Budgeting)   263



10  John, Paul and GeorGe Solution
(i)  John
                                   V.C.       F.C. (in thousands)
       Mats.                        30
       labour                       24
       Factory O/Hs                 62         6
       Other O/Hs                   24        15
       Selling                      10         4
                                   150        25

                                   €                      €
                                 Total                    P.U.
       Sales (40,000)           200,000                   5
       2 VC.                   (150,000)                  3.75(3.5)
       5 Cont.                   50,000                   1.25
       2 FC.                    (25,000)
       5 Profit                  25,000
(a) High/low Method
                     Units             Factory                Other
       High         55,000             91,250                48,000
       Low          30,000             52,500                33,000
                    25,000             €38,750               €15,000
                    VCPU                €1.55                  €0.6
                       FC               €6,000               €15,000
(b)
              FC       25,000
                     5 ______
       B/E 5 _____                          5 20,000 Units
             CPU         1.25
             €50,000        25,000 €100,000
       C/S 5 _______ 5 .25 ______ 5 ________ 5 20,000 units
             200,000          .25      €5

(c) 
          225,000
                                                                    Total revenue
          200,000                                                   (200,000)

                                                               it   Total costs
                                                             of
                                                           Pr       (175,000)
          150,000
      €




                        Break even point
          100,000




           50,000
                          ss
                        Lo                       Margin             Fixed costs
                                                                    (25,000)

                                     20,000                   40,000
                                      Units
 264        Graded Accounting Questions – Solutions


(d)
           FC         25,000
       __________ 5 __________ 5 25,000 units
       CPU 2 %          1.25 2 .25
(e)
       Sales                 5
       2 VC                  2.25 (3.75 2 1.5)
       5 Contribution        2.75 3 45,000     5 123,750
       2 FC                  (115,000)           240,000
       5 Profit                                  €83,750
(f )
     Sales                            4.8125 5 95%/100% 5 €5.07
     2 VC                             3.5
     5 Contribution          52,500 2 1.3125
     2FC                     27,500
     5 Profit                25,000
(ii) Paul
(a)
                                        €              €                                  €               €
       Absorption                                                                      Marginal
       Sales (8,000 units)                           64,000      Sales (8,000 units)                    64,000
       2 Production Costs            (10,000 units)              2 Prod. costs          (10,000 units)
       Mats.                           6,000                     Mats.                    6,000
       labour                          9,000                     labour                   9,000
       Variable O/Hs                   7,000                     Var O/Hs                 7,000
       Fixed O/Hs                      5,000                                             22,000
                                      27,000                     2C/S 1/5                (4,400)        (17,600)
       2Closing Stock 1/5              5,400         (21,600)    Contribution                            46,400
       Profit                                       €42,400      2 Fixed Costs                           (5,000)
                                                                 Profit                                €41,400
(iii) George
(a)
                          FC.                 V.C                Total
                           €                   €                  €
       Wages             12,000              7,650              19,650
       Salaries           9,000                                  9,000
       Rent               3,500                                  3,500
       Maint.             4,000              1,360               5,360
       Var O/H                               2,550               2,550
       Other O/H             300             1,785               2,085
                                                                42,145

				
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