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Paper T6 (INT)

Certified Accounting Technician Examination


Advanced Level

Drafting Financial
Statements
(International Stream)
Monday 1 December 2008

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FOUR questions are compulsory and MUST be attempted.

Do NOT open this paper until instructed by the supervisor.


During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants


ALL FOUR questions are compulsory and MUST be attempted

1 Screeth is a limited liability company with the following trial balance as at 31 October 2008.
Dr Cr
$000 $000
Distribution costs 250
Administrative expenses 126
Salaries 1,180
Discounts received 88
Sales 9,427
Property expenses 290
Returns inward 166
Cash 27
Insurance 130
Purchases 6,248
Inventory at 1 November 2007 610
Bank 311
Loan note interest 58
Share premium account 350
Retained earnings at 1 November 2007 875
Allowance for receivables at 1 November 2007 70
Trade payables 507
Trade receivables 1,700
7% Loan notes 822
Receivables expense 260
$1 Ordinary shares 2,850
Dividends paid: Final for year ended 31 October 2007 200
Land at cost 1,295
Buildings at cost 2,640
Motor vehicles at cost 420
Furniture and equipment at cost 800
Accumulated depreciation at 1 November 2007
Buildings 625
Motor vehicles 140
Furniture and equipment 335
––––––– –––––––
16,400 16,400
–––––––
––––––– –––––––
–––––––
Further information relating to Screeth:
1 The insurance includes $10,000 which relates to November 2008.
2 Buildings are depreciated at 5% of cost. Building depreciation during the year is allocated 50% to distribution
costs and 50% to administrative expenses.
3 At 31 October 2008 the buildings were professionally valued at $3,150,000 and the directors wish this
valuation to be incorporated into the accounts.
4 Depreciation is to be charged as follows:
(i) Motor vehicles at 25% of written down value, allocated to distribution costs
(ii) Furniture and equipment at 20% of cost, allocated to administrative expenses.
5 Inventory at 31 October 2008 was valued at $480,000 based on its original cost.
6 Based on past experience the allowance for receivables is to be increased to 5% of trade receivables and allocated
to administrative expenses.
7 There are salaries outstanding of $60,000 for the year ended 31 October 2008.

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8 The items listed below should be apportioned as indicated:
Cost of Distribution Administrative
Sales Costs Expenses
Property expenses 20% 30% 50%
Insurance 20% 40% 40%
Salaries 25% 35% 40%
Discounts received 100%
9 Tax of $120,000 is to be provided for the year.

Required:
Prepare, the following financial statements for Screeth:
(a) the statement of comprehensive income for the year ended 31 October 2008. (17 marks)

(b) the statement of financial position as at 31 October 2008. (18 marks)

(35 marks)

3 [P.T.O.
2 You are presented with the following information for Wallace, a limited liability company, and its subsidiary Bruce:
Income statements for the year ended 31 October 2008
Wallace Bruce
$000 $000
Revenue 50,000 27,400
Cost of sales (26,000) (11,000)
–––––––– ––––––––
Gross profit 24,000 16,400
Distribution costs (2,700) (2,300)
Administrative expenses (7,000) (2,792)
Finance costs – (8)
Income from Bruce: Loan note interest 6 –
Dividends 2,100 –
–––––––– ––––––––
Profit before tax 16,406 11,300
Income tax expense (3,700) (3,100)
–––––––– ––––––––
Profit for the year 12,706 8,200
–––––––– ––––––––
Statements of financial position as at 31 October 2008
Wallace Bruce
Assets $000 $000 $000 $000
Non-current assets
Tangible assets 30,000 14,895
Investments:
$1 ordinary shares in Bruce at cost 8,800 –
Bruce loan notes 60 –
––––––– –––––––
38,860 14,895
Current assets
Inventory, at cost 3,900 1,665
Receivables 6,850 4,530
Cash and cash equivalents 1,260 12,010 502 6,697
––––––– ––––––– ––––––– –––––––
Total assets 50,870 21,592
–––––––
––––––– –––––––
–––––––
Equity and liabilities
Capital and Reserves
$1 Ordinary shares 26,000 9,260
Retained earnings 14,145 5,950
––––––– –––––––
Total equity 40,145 15,210

Non-current liabilities
10% Loan note – 80
Current liabilities
Payables 6,645 3,800
Tax 4,080 2,502
Total liabilities ––––––– 10,725 ––––––– 6,302
––––––– –––––––
Total equity and liabilities 50,870 21,592
–––––––
––––––– –––––––
–––––––
The following information is also available:
(i) Wallace purchased 70% of the $1 ordinary shares in Bruce on 1 November 2007. At that date Bruce’s retained
earnings were $750,000.
(ii) It is group policy to value the non-controlling interest at fair value. For this purpose, the fair value of the goodwill
attributable to the non-controlling interest of Bruce is $600,000. Consolidated goodwill was not impaired at
31 October 2008.

4
(iii) Wallace owns $60,000 of Bruce’s loan notes. The interest is paid annually in arrears. Interest for the year ended
31 October 2008 is included in Bruce’s payables. Wallace has also accrued the interest in its receivables.
(iv) During the year ended 31 October 2008 Bruce sold goods which originally cost $3,000,000 to Wallace for
$5,000,000. Wallace has only been able to sell 40% of these goods by 31 October 2008.
(v) At 31 October 2008 Wallace owed Bruce $600,000 for some of the goods that Bruce supplied during the year.
(vi) All Bruce’s dividends were paid in the financial year ended 31 October 2008.

Required:
(a) Calculate the goodwill arising on the acquisition of Bruce as at 1 November 2007. (4 marks)

(b) Prepare the following financial statements for Wallace:


(i) the consolidated income statement for the year ended 31 October 2008; (8 marks)
(ii) the consolidated statement of financial position as at 31 October 2008.
Note: A working should be included for the retained earnings. Disclosure notes are not required. (18 marks)

(30 marks)

5 [P.T.O.
3 Melanie, Vicky and Lucy have had a business partnership for a number of years and share profits and losses in the
ratio 2:1:1. The partnership was dissolved on 1 December 2008. The statement of financial position for the
partnership as at 30 November 2008 was as follows:
Melanie, Vicky and Lucy
Statement of financial position as at 30 November 2008
Assets $ $
Non-current assets
Property 100,000
Furniture and fittings 30,000
Motor vehicles 20,000
––––––––
150,000
Current assets
Inventory 20,000
Receivables 49,000
Bank 5,000 74,000
–––––––– ––––––––
Total assets 224,000
––––––––
––––––––
Capital and liabilities
Partners’ capital accounts
Melanie 80,000
Vicky 30,000
Lucy 50,000
––––––––
160,000
Partners’ current accounts
Melanie 7,680
Vicky 8,500
Lucy 5,300
––––––––
21,480
Non-current liabilities
Loan 10,000

Current liabilities
Payables 32,520
––––––––
Total capital and liabilities 224,000
––––––––
––––––––
Additional information
(a) The property was sold for $110,000 and the furniture and fittings were sold for $26,800.
(b) The motor vehicles were all sold for $22,300.
(c) Only $45,900 of outstanding receivables were recovered.
(d) The payables were settled for $29,350.
(e) The inventory was sold for $21,650.
(f) The loan was repaid in full on 1 December 2008.
(g) There were no outstanding interest payments on the loan.
(h) There were expenses incurred in dissolving the partnership of $2,100.

6
Required:
Prepare the following accounts on dissolution:
(a) Realisation account. (10 marks)

(b) Cash and bank account. (6 marks)

(c) Partners’ accounts. (4 marks)

(20 marks)

7 [P.T.O.
4 An investor is considering the purchase of shares in either Campbell or Giddens. Both companies are in the same line
of business and their accounts are summarised below:
Statements of financial position as at 31 October 2008
Campbell Giddens
Assets $000 $000 $000 $000
Non-current assets
At cost 420 1,070
Accumulated depreciation (113) (144)
––––– ––––––
307 926
Current assets
Inventory 138 167
Receivables 69 98
Cash and cash equivalents 96 303 9 274
––––– ––––– –––––– ––––––
610 1,200
–––––
––––– ––––––
––––––
Equity and liabilities
Share capital and reserves
Share capital 370 900
Retained earnings 170 69
––––– ––––––
540 969

Non-current liabilities
10% Loan note – 80

Current liabilities
Trade payables 60 120
Interest payable – 1
Income tax 10 70 30 151
––––– ––––– –––––– ––––––
Total equity and liabilities 610 1,200
–––––
––––– ––––––
––––––
Income statements for the year ended 31 October 2008
Campbell Giddens
$000 $000 $000 $000
Sales revenue 596 678
Cost of sales (394) (526)
––––– ––––––
Gross profit 202 152
Expenses:
Administrative (36) (45)
Selling and distribution (53) (56)
Depreciation (14) (19)
Loan note interest – (8)
––––– ––––––
(103) (128)
––––– ––––––
Net profit 99 24
–––––
––––– ––––––
––––––

8
Required:
(a) Calculate the following six ratios for both companies, clearly showing the ratio formulae and figures used.
(i) Current ratio;
(ii) Quick ratio (acid test ratio);
(iii) Receivables collection period;
(iv) Return on capital employed;
(v) Gross profit percentage;
(vi) Net profit percentage. (9 marks)

(b) Prepare, for the investor, comments on the performance and position of Campbell and Giddens using the
ratios calculated in part (a). (6 marks)

(15 marks)

End of Question Paper

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