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					                               JUNE 2006 TEST

                      School of Business & Accountancy
                          (Diploma in Accountancy)


Level 1                                           Time Allowed: 1.5 Hours
Date: 3 June 2006 (Saturday)                      Total Marks: 40 (20%)




            FUNDAMENTALS OF FINANCIAL ACCOUNTING (FFA)
                             (005255)


INSTRUCTIONS TO CANDIDATES:


1.    Check carefully to ensure you are sitting for the correct paper.

2.    Answer all THREE questions. This paper carries 40 marks.

3.    Marks allocated are indicated in the question paper.

4.    Detach page 5 and attach it to your answer booklet.

5.    This paper consists of 5 pages including this cover page. Check carefully
      to make sure your set is complete.




FFA (ACC)                                                                         1
QUESTION 1         (15 Marks)

The Pets’ Station is a newly opened pet shop at Holland Village which just
commenced business on 1 October 2005 by its owner, Mr. Dee. As Mr. Dee has
no accounting knowledge, he has engaged you as the accounts assistant and
informed you that his initial cash contribution as at 1 October 2005 is $12,000.

The Pets’ Station’s cash receipts and payments journals as well as its bank
statement for the first month of operation, October 2005, are as follows:

               The Pets’ Station
 Cash Payments Journal (extract of October 2005)
       Cheque
Date   No.       Particulars           Bank S($)
Oct 4      1001 Jojo’s Pet Company          6,200
Oct 11     1002 Paws’ Enterprise            1,855
Oct 24     1003 Sky Products                  460
Oct 31     1004 BKM Supplies                3,928
                 Total                     12,443

                 The Pets’ Station
  Cash Receipts Journal (extract of October 2005)
       Receipt
Date   No.         Particulars           Bank S($)
Oct 5       4001 BTM                           2,375
Oct 16       CRS Cash Sales                    1,629
Oct 24      4002 Meyer Trading                 8,250
Oct 31       CRS Cash Sales                    4,632
                   Total                      16,886
                              The Pets’ Station
            ABN Bank Statement for the month of October 2005
                                 Withdrawals        Deposits    Balance
Date    Particulars              S($)               S($)        S($)
Oct 1   Balance                                                      12,000
Oct 6   Deposit                                          2,375       14,375
Oct 7   Returned Cheque                      2,375                   12,000
Oct 9   1001                                 6,200                    5,800
Oct 12  1002                                 1,855                    3,945
Oct 17  Deposit                                          1,269        5,214
Oct 25  Deposit                                          8,250       13,464
Oct 27  1003                                   460                   13,004
Oct 31  Interest                                             21      13,025


FFA (ACC)                                                                     2
Required:

a)    Prepare the Bank Reconciliation Statement and the Adjustment to Cash
      Account for The Pets’ Station for the month ended 31 October 2005. If
      there are any errors, assume that The Pets’ Station made them.
                                                                     (9 marks)

b)    Prepare the necessary journal entries as at 31 October 2005 to record any
      adjustments arising from the Adjustment to Cash Account in (a) above
      (narrations are not required).
                                                                      (6 marks)


QUESTION 2         (15 Marks)

The following balances are extracted from the books of Burke Co:

       Accounts                                             Balance ($)
       Accounts Receivable Control (31 Dec 2005)                24,870
       Accounts Payable Control (31 Dec 2005)                   16,230
       Provision for Doubtful Debts (1 Dec 2005)                   945

Upon reviewing the general ledger, the following adjustments were necessary as
at 31 Dec 2005:

1.    A cheque payment of $1,370 by debtor, Kedron was not recorded in
      the Accounts Receivable Control but entered in the debtors’
      subsidiary ledger only.

2.    Gordon’s balance of $3,450 in the debtors’ ledger was to be settled
      by contra.

3.    The debtor’s account of Xavier $2,679 was considered uncollectible
      and was to be written off as bad debts.

It was estimated that 10% of Accounts Receivable Control account balance as at
31 December 2005 would not be collectible and provision for doubtful debts
would be adjusted accordingly.

Required:

a)    Record the above journal entries (narrations are not required). Round all
      answers to the nearest dollar.
                                                                      (8 marks)




FFA (ACC)                                                                    3
b)    Show the Accounts Receivable Control, Accounts Payable Control,
      Provision for Doubtful Debts and Bad Debts Expense accounts,
      incorporating the adjustments in (a). Use the ledger accounts format given
      on page 5.
                                                                       (6 marks)

c)    At the end of the financial year, Burke Co decided to provide for doubtful
      debts at 10% of Accounts Receivable Control account balance. State the
      accounting principle applied by the company.
                                                                           (1 mark)
      Show all workings and attach page 5 to your answer booklet.


QUESTION 3          (10 Marks)

Case 1

Mr. Tan owns a medium-sized supermarket at Raffles Place for office workers to
shop for groceries during office hours. As his business has expanded and he
found that he could not manage it alone, he engaged the help of his best friend of
10 years, Johnny, as his store assistant. Owing to Mr. Tan’s frequent overseas
business traveling, Johnny had been tasked to handle purchases and receive the
products as well as to make payments for the supermarket’s products.

Due to a lack of space, some of the supermarket’s products are kept in boxes
and left at the side of the supermarket.

Case 2

To save staff costs, Supermix Manufacturing Company at Tuas employed Joey,
a full-time IT Diploma student, as their accounts assistant when its full-time
accounts clerk was on a 3-months’ maternity leave.

Required:

For each of the case above,

a)    State and explain the internal control principles being violated.
                                                                          (7 marks)

b)    Suggest an improvement to each principle violated.
                                                                          (3 marks)




FFA (ACC)                                                                        4
          PLEASE ATTACH THIS PAGE TO YOUR ANSWER BOOKLET

          Name:               ________________________

          Class:              ________________________

          Student No:         ________________________

          Question 2

          b) Ledger Accounts from 1 December 2005 to 31 December 2005

                       Accounts Receivable Control                                     Acc No.
                                                                                       Balance
Date                        Item              Folio    Debit ($)   Credit ($)   Debit ($) Credit ($)




                         Accounts Payable Control                                      Acc No.
                                                                                       Balance
   Date                     Item              Folio    Debit ($)   Credit ($)   Debit ($) Credit ($)




                        Provision for Doubtful Debts                                   Acc No.
                                                                                       Balance
   Date                     Item              Folio    Debit ($)   Credit ($)   Debit ($) Credit ($)




                            Bad Debts Expense                                        Acc No.
                                                                                     Balance
   Date                     Item              Folio     Debit       Credit       Debit    Credit




                                      ***END OF PAPER***


          FFA (ACC)                                                                       5
ANSWERS:
Question 1 (15 marks)

a)
                         The Pets’ Station
        Bank Reconciliation Statement as at 31 October 2005
                                                    S$              S$
Cash Balance per Bank Statement                                    13,025
     Add: Deposits-in-transit – 31 Oct 2005
                                                                   17,657
      Less:   Unpresented Cheque - 1004

Adjusted Cash Balance                                              13,729
           Adjustment to Cash Account as at 31 October 2005
                                                     S$             S$
Cash Balance per Business                                          16,443
(12,000 + 16,886 – 12,443)
      Add: Direct Bank Deposit - Interest Revenue                      21
                                                                   16,464
      Less: Business Errors - Deposit of $1,269
            wrongly recorded as $1,629                     360
            Dishonoured Cheque - BTM                                2,735
Adjusted Cash Balance                                              13,729

b)
31 October 2005   Cash at Bank
                        Interest Revenue                         $21

31 October 2005   Sales                           $360
                          Cash at Bank

31 October 2005   A/R Control – BTM               $2,375
                        Cash at Bank




FFA (ACC)                                                                   6
         Question 2 (15 marks)

         a) General Journal entries:
 Date          Account                                                 Debit (S$)      Credit (S$)

 31 Dec 2005    Cash at Bank
                      A/R Control – Kedron                                                  1,370

 31 Dec 2005    A/P Control - Gordon
                      A/R Control - Gordon                                                  3,450

 31 Dec 2005    Bad Debts Expense
                     A/R Control - Xavier                                                   2,679

 31 Dec 2005    Doubtful Debts Expense
                      Provision for Doubtful Debts                                            792


         b) Ledger Accounts from 1 January 2005 to 31 December 2005

                     Accounts Receivable Control                                   Acc No.
                                                                                   Balance
Date                       Item              Folio Debit ($)   Credit ($)   Debit ($) Credit ($)
31 Dec 2005    Balance                           √                           24,870
31 Dec 2005    Cash - Kedron                     √
31 Dec 2005    A/P Control - Gordon              √
31 Dec 2005    Bad Debt – Xavier                 √                 2,679      17,371

                       Accounts Payable Control                                    Acc No.
                                                                                   Balance
    Date                   Item              Folio Debit ($)   Credit ($)   Debit ($) Credit ($)
31 Dec 2005    Balance                           √                                         16,230
31 Dec 2005    A/R Control – Gordon              √   3,450                                 12,780

                      Provision for Doubtful Debts                               Acc No.
                                                                                 Balance
    Date                   Item              Folio Debit ($)   Credit ($) Debit ($) Credit ($)
1 Dec 2005     Balance                           √                                         945
 31 Dec 2005   Doubtful Debts Expense            √                   792                  1737




         FFA (ACC)                                                                      7
                          Bad Debts Expense                                        Acc No.
                                                                                   Balance
   Date                   Item               Folio     Debit      Credit       Debit    Credit
31 Dec 2005   A/R Control - Xavier               √      2,679                   2,679
31 Dec 2005   P/L Summary                        √                                   0


        c) The company has applied the prudence or conservatism principle as long as
           an adequate provision for doubtful debts has been made.


        Question 3 (10 marks)
        a)
        Case 1
        The 2 internal control principles being violated are that of segregation of duties
        and lack of physical controls. The functions of purchasing, receiving and payment
        for products should not be handled by just one person, that is, Johnny. He can
        effectively obtain personal benefits from the business (fraud may arise) without
        anyone knowing as all related activities are handled by him. The business also
        lacks physical controls too as the products are just left at the side of the
        supermarket without lock and keys and are subjected to risks of theft.

        Case 2

        The internal control principle being violated is that of trained and reliable
        personnel. Although Joey may be a reliable employee but she is not trained in
        accounting. Although she might try, but due to her lack of accounting knowledge
        and training, she is bound to make mistakes in her job.



        b)
        Case 1

        Segregate Johnny’s related duties. Perhaps Mr. Tan can take over receiving of
        products and engage another accounts assistant to take charge of payment for
        products. In addition, they should keep the products under lock and keys at
        night, perhaps by renting a shop space next door if there is no space in the
        present shop.

        Case 2

        Send Joey for accounting training or employ another person with accounting
        knowledge as the part-time accounts assistant.


        FFA (ACC)                                                                       8

				
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