Cork Institute of Technology
Bachelor of Business (F/T, ACCS, BBUSE) – Stage 2
(BBUSS_7_Y2) (BBUSE_6_Y2) (BBUSA_6_Y2)
(Time: 3 Hours)
Instructions Examiners: Mr. A. Murphy
Answer ALL questions. Ms. N. Murphy
Ms. M. Duggan
Q1. The following multi-choice question consists of 10 parts, each of which is followed by
four possible answers. There is only one correct answer to each part. You are required
to indicate in your exam book the correct answer to each part. Each correct answer gets
1. Frequently, when there is a change in a partnership, assets are re-valued because
(a) the law insists upon it
(b) it helps prevent injustice to some partners
(c) inflation affects all values
(d) none of the above
2. Any loss arising on the revaluation of partnership assets is
(a) credited to the old partners in the old profit sharing ratio
(b) credited to the new partners in the new profit sharing ratios
(c) debited to the old partners in the old profit sharing ratios
(d) debited to the new partners in the new profit sharing ratios
3. Joe is buying a firm whose assets are valued as follows….. Buildings €50,000, Vehicles
€15,000, Fixtures €5,000 and Inventory €40,000. The firm does not have any Liabilities
or any other Assets. He is to pay €140,000 for the firm. This means that:
(a) He is paying €40,000 for goodwill
(b) Buildings are costing him €30,000 more than they are worth
(c) He is paying €30,000 for goodwill
(d) He has made an arithmetical mistake
4. A company’s authorised share capital is
(a) the amount of share capital the company has issued
(b) the amount of share capital which the directors intend to issue
(c) the amount of share capital stated in the company’s original Memorandum of
(d) the maximum of share capital the company currently has the power to issue.
5. In the accounts of a company, goodwill…………….
(a) is always a debit balance
(b) is always a credit balance
(c) can be either a debit or a credit balance
(d) cannot exist
6. In a cash flow statement, which of the following would appear as an outflow of cash
(a) a decrease in Trade Receivables
(b) cash received as a result of issuing new shares
(c) an increase in Inventory
(d) none of the above.
7. One disadvantage of a limited company, relative to other forms of business organisations,
(a) the fact that the company’s liability is limited
(b) the fact that the company is a legal entity separate and distinct from its
(c) greater regulation
(d) none of the above
8. The declaration of a preference dividend by a company
(a) reduces the company’s assets
(b) increases the company’s liabilities
(c) increases the shareholders’ funds in the company
(d) does not effect the shareholders’ funds in the company
9. John & Mary, the only two partners in a firm, invested capital of €40,000 and €60,000
respectively and agreed their entitlements to be:
Annual salary €14,000 €20,000
Interest on capital (per annum) 10% 10%
If the profit for the year was €80,000, how much, in total, would John receive?
10. Which of the following is not normally found in the Equity section of a company’s
(a) Share Premium
(b) Profit & Loss a/c balance
(c) Dividends payable
(d) Ordinary Share Capital (Total 20 Marks)
Q2. Blackberry Ltd has an authorised share capital of 4,000,000 ordinary shares of 25cent
each and €400,000 of 6% preference shares of €1 each.
The following trial balance was extracted from the books at 31st December 2007.
Ordinary share capital 800,000
6% preference share capital 200,000
4% debenture stock (2010/20120) 250,000
General reserve 80,000
Retained profits at 1 January 2007 126,000
Freehold premises 1,220,000
Freehold premises: acc. depreciation 82,000
Plant and machinery 640,000
Plant and machinery: acc. depreciation 144,000
Motor vehicles 60,000
Motor vehicles: acc. depreciation 34,000
Inventory at 31 December 2006 140,000
Long term investments 120,000
Bank overdraft 206,000
Sales returns 40,000
Purchases returns 16,000
Administration expenses 410,000
Distribution expenses 326,600
Bank interest paid 16,000
Investment income 3,600
Debenture interest paid 5,000
Interim dividend paid
Revenue grant received 10,000
1. Goods costing €25,000 were sold on credit on 29th December 2007 for €28,000. This
sale was not accounted for at all by 31st December 2007.
2. Closing stock, as per the physical stock count, was €189,000. The goods sold at (1)
above are included in this figure as they had not been delivered to customer at the time of
the physical count.
3. The revenue grant received is in respect of training costs incurred in 2007. These
training costs are part of the administration expenses in the above trial balance.
4. The long-term investments, owned since 2001, earn an annual fixed rate of interest of 6%
5. Depreciation is to be charged as follows:
Freehold premises: 4% on cost
Plant and machinery: 10% on cost
Motor vehicles: 20% on reducing balance method
Depreciation of freehold premises should be included as an administration expense and
depreciation of plant and machinery and motor vehicles should be included as
6. There is accrued administration expenses of €24,000 and prepaid distribution expenses of
€1,800 at 31st December 2007.
7. The charge for corporation tax for the year ended 31st December 2007 is estimated at
8. The directors are proposing to pay the second half year’s debenture interest and
preference dividend. They also propose to pay a final dividend to the ordinary
shareholders of 2 cent per share.
Prepare, in a form suitable for publication, the Income Statement for Blackberry Ltd, for
the year ended 31st December 2007 in as far as the information provided permits.
N.B. You are NOT required to prepare a balance sheet of notes to the accounts. You are
required to prepare workings to show the makeup of the figures in the Income Statement.
Marks will be awarded for presentation. (25 marks)
Q3. The following is the Income Statement, Balance Sheet and additional information to the
accounts of New Home Furniture Ltd., for the year ended 31st December, 2007 (with
comparative figures for the year ended 31st December 2006).
Income Statement for the year ended 31st December
Less: cost of goods sold……………. (1,814)
Gross profit………………………… 739
Distribution expenses………………. (125)
Administration expenses…………… (264)
Operating profit 350
Interest received…………………… 25
Interest paid (75)
Profit before taxation……………… 300
Profit for the period 160
Balance sheet as at 31st December
€’000 €’000 €’000 €’000
Property, plant and equipment 380 305
Intangible assets 250 200
Investments NIL 25
Inventories 150 102
Trade receivables 390 315
Short-term investments 50 NIL
Bank 2 592 1 418
Total Assets 1,222 948
Equity and liabilities
Capital and reserves
Ordinary shares (€1 ordinary shares) 200 150
Share Premium Account 160 150
Revaluation reserve 100 91
Retained earnings 160 100
Loan 170 50
Trade payables 127 119
Bank overdraft 85 98
Taxation 120 110
Dividends 100 432 80 407
Total Equity and Liabilities 1,222 948
The following information is available.
(a) The proceeds of the sale of non-current asset investments amounted to €30,000.
(b) Fixtures and fittings, with an original cost of €85,000 and a net book value of €45,000,
were sold for €32,000 during the year.
(c) The following information relates to property, plant and equipment.
Cost 720 595
Accumulated depreciation 340 290
Net book value 380 305
(d) 50,000 €1 ordinary shares were issued during the year at a premium of 20c per share.
(e) Dividends for 2007 were declared before the balance sheet date. No payment has yet
Prepare the cash flow statement for New Home Furniture Ltd for the year to 31
December, 2007 using the format laid out in IAS 7. (20 marks)
Q4. Sarah and Amy were in partnership sharing profits in the ratio 3 : 2. The balance sheet of
the partnership as at 31st December 2007 was as follows:
Balance sheet as at 31st December, 2007
Freehold premises 1,200
Plant and machinery 75
Furniture and fittings 45
Motor vehicles 35
Prepaid expenses 15 195
Total Assets: 1,550
Capital and liabilities
Amy 505 1,105
Amy 44 100
Long term bank loan 250
Trade and other payables 55
Bank overdraft 26
Accrued expenses 14 95
Total capital and liabilities 1,550
1. On 1st January 2008, Dolly was admitted as a partner on payment of a capital
contribution of €500,000.
In addition, it was agreed that Dolly would loan €100,000 to the partnership on that date
(to be refunded in July 2008).
2. The following assets and liabilities were valued on 1st January 2008 at the values stated
below. The new values are to be incorporated into the books:
Freehold premises 1,300
Plant and machinery 66
Furniture and fittings 37
Motor vehicles 46
The value of prepaid expenses and accrued expenses remain unchanged.
3. Goodwill was valued at €200,000 at 1st January 2008 and is not to be brought into the
4. It was agreed that in addition to the money to introduced by Dolly she would also
introduce the following assets into the partnership.
(a) A machine valued at €120,000.
(b) A bank of computers with related software valued at €60,000.
5. On admission of Dolly the partners agreed to share profits in the ratio Sarah 4, Amy 3,
You are required to prepare:
(a) The revaluation account.
(b) The capital accounts of the partners to give effect to the admission of Dolly into the
(c) The revised balance sheet of the partnership after giving effect to the admission of Dolly
into the partnership. (20 marks)
Q5. On 1st January 2006, Fast Track Ltd bought a machine costing €40,000 on hire purchase.
A deposit of €12,000 was paid on 1st January 2006, and it was also agreed to pay two
annual instalments of €11,661 on 31st December, 2007 and 31st December 2008.
The implied rate of interest is 12%. This rate of interest is to be applied to the amount
outstanding as at the beginning on the year.
The machine is to be depreciated on a straight line basis over 5 years.
You are required to:
1. Write up the following accounts for each of the years to 31st December 2006,
2007, 2008 respectively:
a. Machine account
b. Provision for depreciation on machine account
c. Hire purchase loan account.
2. Show the balance sheet extracts as at 31st December 2006, 2007
and 2008. (15 marks)