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AS
ACCOUNTING
Paper 1 Financial and Management Accounting

Specimen Time allowed: 3 hours

Materials
For this paper you must have:
• a calculator.

Instructions
• Use black ink or black ball-point pen.
• Fill in the boxes at the top of this page.
• Answer all questions.
• You must answer the questions in the spaces provided. Do not write outside the box around each
page or on blank pages.
• Do all rough work in this answer book. Cross through any work you do not want to be marked.

Advice
• The marks for each question are shown in brackets.
• The maximum marks for this paper is 120.
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Section A

Answer all questions in this section

0 1 A business has received a credit note.

What entries should be made in the business’s ledger accounts?

Account debited Account credited

A Purchases returns Trade payable
B Sales returns Trade receivable
C Trade payable Purchases returns
D Trade receivable Sales returns

[1 mark]

0 2 The owner of a business paid for his family’s holiday from the business bank
account and recorded the payment as drawings.

Which accounting concept is being applied?

A Accruals

B Business entity

C Going concern

D Prudence

[1 mark]

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0 3 The owner of a business has decided to create a provision for doubtful debts.
Which two accounting concepts are being applied?

A Accruals and going concern

B Accruals and prudence

C Consistency and business entity

D Consistency and prudence

[1 mark]

0 4 Eric, Fiona and Gary are proposing to set up a limited company with a share
capital of £180 000. They will be the only shareholders and originally planned to
invest in the share capital using Ratio 1 below. However, circumstances have
changed and they have to use Ratio 2.

Eric Fiona Gary

Ratio 1 1 2 1
Ratio 2 2 9 4

What difference will it make to Eric’s investment when Ratio 2 is chosen?

A Invests £21 000 less

B Invests £21 000 more

C Invests £24 000 less

D Invests £24 000 more

[1 mark]

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0 5 How will the recovery of a debt, previously written off, affect the profit, current
assets and capital of a business?

Profit Current assets Capital

A Decrease Decrease Decrease
B Increase Decrease No effect
C Increase Increase Increase
D No effect Increase Increase

[1 mark]

0 6 The purchase of a non-current asset was debited to the purchases account.

What is this type of error called?

A Commission

B Omission

C Original entry

D Principle

[1 mark]

0 7 Which of the following current assets should be ignored when calculating the liquid
capital ratio?

A Cash and cash equivalents

B Inventory

C Other receivables

D Trade receivables

[1 mark]

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0 8 What does the abbreviation ‘Ltd’ indicate in the name of a company?

A The amount of debentures that can be issued is limited

B The company’s capital is limited to a fixed account

C The shareholder’s liability for the company’s debts is limited

D The shareholder’s liability for the company’s debts is

unlimited

[1 mark]

0 9 Which is the correct formula for calculating contribution?

A Fixed costs divided by variable costs

B Fixed costs less variable costs

C Sales revenue divided by variable costs

D Sales revenue minus variable costs

[1 mark]

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1 0 A business has forecast its telephone expense for the year to be £1800. This consists
of a fixed element for line rental which is 1/ 3 of the total cost; the remaining 2/ 3 are
variable based on the telephone calls made. The business has been informed that
the cost of the line rental will be reduced by ¼. However, the cost of calls will
increase by 20%.

How much will the revised forecast telephone expense be, assuming the number of
calls does not change?

A £1845

B £1890

C £1917

D £2040

[1 mark]

1 1 Closing inventory that cost £12 600 has been damaged. It can be repaired at a
cost of £2000 and could then be sold for £13 880.

1 1 . 1 Identify the accounting concept that should be applied to the

valuation of inventory.
[1 mark]

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1 1 . 2 State how the concept identified in question 11.1 is applied to the valuation of
closing inventory that has been damaged.
[2 marks]

1 1 . 3 Calculate the value of closing inventory.

[1 mark]

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1 2 The following balances have been extracted from the books of account for the
year ended 31 December 2015.

£
Closing inventory 22 000
Opening inventory 18 000
Purchases 204 000
Revenue 280 000

1 2 . 1 State the formula for the mark-up percentage.

[1 mark]

1 2 . 2 Calculate the mark-up percentage

[1 mark]

1 2 . 3 State the formula to calculate the rate of inventory turnover.

[1 mark]

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1 2 . 4 Calculate the rate of inventory turnover.

[2 marks]

1 3 Explain, using examples, the differences between the role of the accountant and
the role of the bookkeeper in the preparation of the financial statements.
[6 marks]

End of Section A

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Section B

Answer all questions in this section.

1 4 Jane Halford owns a retail business. Her bookkeeper has been preparing the
business’s accounting records for the last week of June 2016, but the following
information has not yet been recorded.

Date Source Details

document
June 25 Sales invoice H Williams for goods with a list price of £3600 less a
trade discount of 25%.
26 Paying-in slip Cash £840
counterfoil
27 Bank Credit transfer: H Williams settled the amount due on
statement 24 June less a 5% cash discount.

28 Credit note Sent to H Williams as one-quarter of the goods sold

on 25 June had not been as ordered.
29 Email from An error was made when interest of £48 was charged
Jane Halford to the account of K Williams Ltd in May. The interest
to bookkeeper should have been charged to the account of H
Williams.

The receivables ledger showed the following amounts due on 24 June:

£
H Williams 1300
K Williams Ltd 994

Cash book balances on 24 June were:

£
Cash in hand 1830
Bank (overdrawn) 2840

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1 4 . 1 Prepare the books of prime entry to record the information for the last week of
June 2016. (It is not necessary to balance the cash book on 30 June).
[7 marks]

CASH BOOK
Dr Cr
Discounts Cash Bank Discounts Cash Bank
£ £ £ £ £ £

SALES JOURNAL
£

SALES RETURNS JOURNAL

£

GENERAL JOURNAL
Dr Cr
£ £

Question 14 continues on the next page

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ANSWER IN THE SPACES PROVIDED

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1 4 . 2 Prepare the accounts of the trade receivables for the last week of June 2016.
Balance the accounts on 30 June 2016.
[8 marks]

RECEIVABLES LEDGER

Dr H WILLIAMS Account Cr
£ £

Dr K WILLIAMS LTD Account Cr

£ £

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1 5 Jamal owns the Drop in Café. On 31 May 2016 the business’s cash book for the
month of May was as follows:

Cash Book (bank columns)

Dr Cr
£ £
May 1 Balance b/f 730 May 4 Rent (SO) 450
8 Sales 694 7 Catering supplies
17 Sales 1031 (cheque 372141) 559
29 Sales 427 14 Regional Utilities plc (DD) 186
21 Drawings
(cheque 372142) 165
23 Business rates (DD) 274
25 Catering supplies
(cheque 372143) 671
31 Balance c/d 577
2882 2882
June 1 Balance b/d 577

The business’s bank statement for the same period was as follows.

Bank Statement
Debit Credit Balance
£ £ £
May 1 Balance 990 Cr
3 372140 260 730 Cr
4 SO Wilford Properties 450 280 Cr
11 Sundries 694 974 Cr
12 372141 559 415 Cr
14 DD Regional Utilities plc 186 229 Cr
17 Credit transfer: Investment interest 72 301 Cr
18 DD Excelsior Finance plc 1200 899 Dr
20 Sundries 1031 132 Cr
23 DD Business rates 274 142 Dr
26 372142 156 298 Dr
29 Charges 85 383 Dr

Additional information:
Jamal realises he made an error in recording the amount for cheque 372142 in his cash book.

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1 5 . 1 Prepare an updated cash book on 31 May 2016.

[6 marks]

Cash Book (bank columns)

Dr Cr
£ £

1 5 . 2 Prepare a bank reconciliation statement on 31 May 2016.

[4 marks]

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1 6 The trading section of the income statement for Brogia Ltd for the year ended 30
April 2016 has been completed. It showed a gross profit of £171 360.

The following balances remained in the books of account of Brogia Ltd at April
2016:

£
Bank loan repayable 2025 60 000
Cash at bank 6 840
Inventory 98 240
Loan interest 1 800
Non-current assets 147 800
Operating expenses 84 090
Ordinary shares of 20p each 120 000
Provision for depreciation at 1 May 2015 48 800
Retained earnings 48 560
Share premium 20 000
Trade payables 89 309
Trade receivables 23 800

Additional information
(1) It is the company policy to depreciate non-current assets using
the reducing balance method at the rate of 331/ 3 % per annum.

(2) The bank loan was taken out in 2005 and interest is payable at
the rate of 5% per annum.

(3) The directors have been advised that there should be a provision
for corporation tax for the year ended 30 April 2016. It is estimated
that this should be 20% of the profit before tax.

(4) On 25 April 2016 the directors paid a dividend of 4p per share.

This has not been recorded in the books of account.

(5) On 29 April 2016 the directors issued 200 000 new ordinary
shares at a price of 35p per share. The issue was fully subscribed,
but has not been entered in the books of account.

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1 6 . 1 Complete the income statement for Brogia Ltd for the year ended 30 April 2016.

[6 marks]

Brogia Ltd
Income statement for the year ended 30 April 2016

£ £

Gross profit

Workings:

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1 6 . 2 Prepare the statement of changes in equity for the year ended 30 April 2016. A
total column is not required.
Brogia Ltd [9 marks]
Statement of changes in equity for the year ended 30 April 2016

£ £ £

Workings:

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1 7 Andy Givens is a sole trader and sells a single product online to customers in the
UK. The actual results for the year ended 30 June 2016 were as follows:

Andy Givens
Income statement for the year ended 30 June 2016

£ £
Revenue (6000 units) 300 000
Less: Cost of sales
Opening inventory (125 units) 2 500
Purchases (6500 units) 143 000
Closing inventory (625 units) (13 750) (131 750)
Gross profit 168 250

less: Expenses
Wages 40 000
General expenses 38 000
Rent 15 000
Carriage out (average £3.50 per unit) 21 000 (114 000)
Profit for the year 54 250

Andy is in the process of preparing the budgeted income statement for the year
ending 30 June 2017 and has identified the following changes compared to the
actual results for the year ended 30 June 2016:

Impact compared to the year ended

Change
30 June 2016
Online advertising campaign to The unit selling price to customers will
stimulate demand from new and be reduced by 2.8% and the volume of
existing customers. units sold will increase by 18.75%.
The campaign will cost £18 000.
The product is sourced from a large Unit purchase price will increase by
international firm which has just 12.5%.
announced the purchase price will be
increasing from 1 July 2016.
Inventory levels to be lowered by The number of units of closing
controlling purchases. inventory to be reduced by 13.6%.
Wage increase for staff to be limited to Wages to increase by 2.5%.
the general level of inflation.
General expenses to be reduced by General expenses to fall by 3.1%.
efficiency measures.
Rent was fixed for a period of 7 years No change.
in August 2014.
A new courier service will be used to The average cost of delivery will fall by
deliver orders to customers. £0.50 per unit.

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1 7 . 1 Prepare the budgeted income statement for Andy Givens for the year ending
30 June 2017 taking into account the changes identified.
[15 marks]
Andy Givens
Budgeted Income Statement for the year ending 30 June 2017

£ £

Workings:

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End of Section B

Turn over for Section C

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Section C

Answer all questions in this section.

1 8 HP DAK Ltd is a small company which manufactures a single niche product for the
UK catering market. The company is looking for opportunities to grow the
business but due to a lack of consumer confidence the existing market for its
product is relatively static. The current forecast is to sell 7 000 units this year at an
average selling price of £150 per unit.

The variable costs of a unit of output is as follows:

£
Material X – 2 kilos at £6.00 per kilo 12.00
Material Y – 0.5 litres at £10.00 per litre 5.00
Labour: Skilled – 3 hours at £15.00 per hour 45.00
Labour: Semi-skilled – 4 hours at £8.00 per hour 32.00
Total variable cost 94.00

The company has just received an approach from a potential overseas customer
who is prepared to place an order for 1 500 units if a total sales price of £187 500
is agreed and delivery takes place within 3 months. The overseas customer is
prepared to pay in full before the order is shipped but HP DAK Ltd will have to pay
the shipping and insurance costs of £16 500. If the delivery terms and quality
standards are met then the overseas customer will look to place future orders
totalling in the region of 5 000 units per annum.

(1) Budgeted fixed overheads for the current year are £280 600 and it is
anticipated the profit for the year will be £111 400.

(2) It is forecast for the current year skilled labour will be under-utilised by 2 040
hours but the decision has been taken to retain the existing 12 skilled
employees and pay them for a 40 hour week even though they may not be
producing any output. All non-productive wages are included within fixed
overheads.

(3) Any shortfall in skilled labour hours would be worked as overtime at a

premium of £5.00 hour.

(4) Obtaining extra supplies of materials and semi-skilled employees at the

current rates is not considered to be a problem.

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1 8 . 1 Evaluate the financial and non-financial implications of the proposed order from
the overseas customer. Your answer should include a justified recommendation
as to whether to accept or reject the order.
[20 marks]

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Extra Space

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1 9 Wyro Ltd is a company that makes wire products such as supermarket shopping
trolleys and baskets.

The company has an authorised share capital of 200 000 ordinary shares of £1
each. The issued share capital of £80 000 is owned by the three directors.

The directors are concerned about two issues:

1 the short term liquidity of the business

2 raising finance to purchase the premises currently rented by Wyro Ltd.

Issue 1
The directors have prepared a forecast balance sheet statement of financial
position for the next three months ending 31 August 2017. This shows an
overdrawn bank balance of £30 000.

The directors believe this is a short-term problem caused by falling sales. In

response to this they have secured a contract to supply goods to a customer in
India. This contract will commence on 31 October 2017 and the customer will be
given a 90 day credit period.

The directors are considering a number of alternative solutions to the problem

including:

An overdraft The directors would negotiate a £30 000 overdraft facility

with the bank until 31 October 2017. The facility would be
available for the three months ending on this date and be
fully utilised. The bank would charge 9% per annum
interest on the overdraft.
A short-term loan The company would borrow £30 000 for a year, repayable
in full on 1 June 2018. The bank would charge 5% per
annum interest on the loan.

Issue 2
The current owner of the premises is in financial difficulties and has offered to sell
the premises to Wyro Ltd for £600 000, provided the sale is completed by the end
of September 2017. The directors want to buy the premises to secure the long-
term future of the business and to save the rental payment of £1000 per month.

1 9 . 1 Evaluate potential sources of finance to:

(a) solve the short-term cash flow problems;

(b) finance the purchase of the premises.

In your answer you must advise the directors which sources of finance you would
recommend.
[20 marks]

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