A-Level Principles of Accounts
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Transcript of A-Level Principles of Accounts
A-Level Principles of Accounts
• Paper 1, 2008 - Examination review
• By Mr. Patrick Ng
• Lecturer, Department of Business Administration
• Institute of Vocational Education (Chai Wan)
PAST PAPER (PAPER 1) – QUESTIONS DISTRIBUTION
2004 2005 2006 2007
Consolidated B/S – Goodwill, Minority interest
18 c 14 c 10 c 10 c
Consolidated I/S 6 c 11 c 10 c 10 c
Statement of cash flows – Indirect method
26 c 23 c 20
Accounting ratio analysis – Short-term liquidity
7 c 10 c
Theory – Consolidated F/S 6 c 5 c
Incomplete records – Sole trader 17 16 c
Partnership – Appropriation, Revaluation, Changes
20 10 c
Incomplete records – Partnership 20 c
Partnership – conversion to limited company 20 20
PAST PAPER (PAPER 1) – QUESTIONS DISTRIBUTION
2004
2005
2006
2007
Control accounts 8 c
Statement of changes in equity 6 c
Theory – Use of financial statements 6 c
Theory – Development costs 4 c
True and fair 4 c
Correction of errors/Suspense (journal entry)
20 20
Theory – Items in Published accounts: Prior Period Adjustment, EPS
20c
Income & expenditure a/c & B/S 18 20
Valuation of fixed assets, depreciation 20
Valuation of inventory & perpetual inventory system
20
Bank reconciliation statement 2 3
Paper 1 (2008) – A Review
Section A: Compulsory (60%)• Q. 1 – CB/S + Accounting ratios • Q. 2 – Statement of cash flows (Direct method)
Section B: Answer any Two (40%) • Q. 3 – Partnership: Admission of partners,
trading & profit & loss appropriation a/c, & B/S• Q. 4 – Incomplete records & Club’s I&E, & B/S• Q. 5 – Correction of errors & Computation of
revised profit
Paper 1 (2008) – Q. 1 (CB/S)
• Hearty Ltd acquired 60% of the ordinary shares of Sweety Ltd, which sells similar products as Hearty Ltd, on 1 January 2007 for $3,000,000.
• The purchase consideration was fully settled by the issuance of ordinary shares of Hearty Ltd at $2.50 per share.
• However, no accounting entries had been made for this acquisition.
Paper 1 (2008) – Q. 1 (CB/S)
• The capital and reserves of Sweety Ltd at 1 January 2007 are as follows:
$
$1 ordinary shares 3,000,000
Share premium 300,000 Retained profits 450,000
3,750,000
Paper 1 (2008) – Q. 1 (CB/S)
• At the date of acquisition, the fair values of Sweety Ltd’s buildings and plant and machinery were $400,000 and $100,000 in excess of their carrying amounts respectively.
• The fair values of other assets and liabilities were the same as their carrying amounts.
Required:(c) Prepare the cost of control a/c to ca
lculate the amount of goodwill arising on consolidation. (5 marks)
Paper 1 (2008) – Ans. Q. 1(c) Cost of Control (60%)
$000 $000Investment in S 3,000 Ordinary shares (S) 1,800
($3,000 x Share premium (S) 180 ($300 x Retained Profits (S) 270
(Pre-acquisition, $450 x Fair value adjustment
- Buildings ($400 x 240 - Plant & Mach. ($100 x 60
Goodwill 450 ____ ____ 3,000 3,000
Paper 1 (2008) – Q. 1 (CB/S)
Alternative Questions:
(a) Prepare the journal entries to record the fair value adjustment of the subsidiary’s assets at date of acquisition.
(b) Explain the rationale behind the journal entries.
Paper 1 (2008) – Q. 1 (CB/S) Hearty Sweety $000 $000
AssetsNon-current assetsBuildings, net 6,200 1,200 Plant & Machinery, net
Current AssetsInventory Trade receivables Cash at bank
Current LiabilitiesTrade payables
Accrued expenses
Paper 1 (2008) – Q. 1 (CB/S) Hearty Sweety $000 $000
Capital and reserves$1 ordinary shares 8,000 3,000 Share premium 1,500 300General reserve 600 -Retained profits 2,080 1,200
______ ______ 12,180 4,500
==== ====
Paper 1 (2008) – Q. 1 (CB/S)
The following information relates to the year ended
31 December 2007:
(1) During the year, Hearty Ltd sold goods amounting to $400,000 at invoiced price to Sweety Ltd and this amount was still not yet settled at 31 December 2007. Half of these goods remained unsold by Sweety Ltd at the year end. It is the group’s policy to charge intra-group sales at a mark-up of 25% on cost. Any unrealised profit is to be eliminated in full against the group profit only.
Paper 1 (2008) – Q. 1 (CB/S) (2) The books of Sweety Ltd had not taken into account the fair value
s of its non-current assets at the date of acquisition. Apportionment is to be made to minority interest regarding any depreciation adjustment arising from this revaluation.
(3) Hearty Ltd, Sweety Ltd and the group adopt the following depreciation policies:
Buildings – 4% per annum on a straight-line basis Plant and machinery – 15% per annum using the reducing
balance method
(4) At 31 December 2007, there was an impairment loss of $100,000 in the value of goodwill arising on consolidation.
REQUIRED:Prepare the consolidated balance sheet of Hearty Ltd group as at31 December 2007. (15 marks)
Paper 1 (2008) – Ans. 1(d) Analysis – (1):
(1) Hearty (Note: Parent) sold goods, $400,000 at invoiced price to Sweety Half of these – unsold by Sweety (mark-up, 25%)
Amount – not yet settled at year end
Unrealised profit - eliminated in full against group profit only
Paper 1 (2008) – Ans. 1(d)
Analysis – (1): $000
W1 Retained profits Hearty 2,080 Sweety ($1,200 – $450 (c)) x 60% 450 Unrealised profit – Inventory (40)
[($400 x ½) x 25/125]
Paper 1 (2008) – Ans. 1(d) Analysis (2) & (3):
(2) Sweety – had not taken fair values of its non-current assets at date of acquisition
Apportionment is to be made to minority interest regarding any depreciation adjustment arising from this revaluation.
(3) Depreciation policies:
Buildings – 4% p.a. on straight-line basis Plant & mach. – 15% p.a. using reducing balance
method
Analysis – (2) & (3): $000
W1 Retained profits Hearty 2,080 Sweety 450 Unrealised profit – Inventory (40)
[($400 x ½) x 25/125] Depreciation adjustment
– Buildings ($400 x 4%) x 60% (9.6) – Plant & Mach. ($100 x 15%) x 60% (9)
W2 Minority interests (40%) Ordinary shares ($3,000 x 1,200
Share premium ($300 x 120 Fair value adjustment
– Buildings ($400 x 160 – Plant & Mach. ($100 x 40
Retained profit ($1,200 – $16 – $15) x 40% 467.6
Paper 1 (2008) – Ans. 1(d)
Analysis – (4):
(4) At 31/12/2007 – impairment loss of $100,000 of goodwill
Analysis – (4): $000
W1 Retained profits Hearty 2,080 Sweety 450 Unrealised profit – Inventory (40)
[($400 x ½) x 25/125] Depreciation adjustment
– Buildings ($400 x 4%) x 60% (9.6) – Plant & Mach. ($100 x 15%) x 60% (9)
Goodwill impairment loss (100)
2,371.4
W2 Minority interests (40%) Ordinary shares ($3,000 x 1,200
Share premium ($300 x 120 Fair value adjustment
– Buildings ($400 x 160 – Plant & Mach. ($100 x 40
Retained profit ($1,200 – $16 – $15) x 40% 467.61,987.6
Paper 1 (2008) – Ans. 1(d) Hearty Group – CB/S at 31/12/2007
$000
AssetsNon-current assetsBuildings, net [( + ) + (2) $400 – (2) $16
Plant & Machinery, net ( + ) + (2) $100 – (2) $15Goodwill ($450 (c) – $100 (4)
Current AssetsInventory [( + ) – (1) $40 Trade receivables [( + ) – (1) $400 Cash at bank
Current LiabilitiesTrade payables [( + ) – (1) $400
Accrued expenses
Paper 1 (2008) – Ans. 1(d)
$000
EQUITYEquity attributable to owners of the parent$1 ordinary shares ($8,000 + $1,200 (c) Share premium ($1,500 + $1,200 x ($2.5 - $1) (c) General reserve 600Retained profits (W1) 2,371.4
15,471.4
Minority interests (W2) 1,987.6Total equity 17,459
For issues relating to accounting/ financial reporting, you may contact me
(Mr. Patrick Ng) by [email protected], 2595 2525.
Thank you!