International Foundation Diploma (Business) Introduction to - PDF document

International Foundation Diploma (Business) Introduction to Accounting - IFDB 108 May 2019 Practice paper Instructions to candidates You are allowed 3 hours to answer this question paper. You are strongly advised to read ALL question requirements carefully before attempting any question. The paper consists TWO (2) sections. Section A – Compulsory. Answer all questions. Section B – Answer any THREE (3) questions of your choice. Answers for all questions required should be written on the additional paper provided. Marks for each question are shown in brackets [ ]. Write your candidate number, full name and date in the space provided below. Candidate No. Candidate Name Date

SECTION A – 40 MARKS Answer ALL questions Question 1 1. “Recording assets based on purchasing cost” is referred by, A Income concept B Matching concept C Money measurement concept D Historical cost concept 2. What is not an enhancing qualitative characteristic of accounting information? A Understandability B Timeliness C Neutral D Verifiability 3. Which of the following term best describes the event of using the same accounting concept from period to period? A Accounting period concept B Consistency concept C Materiality concept D Relevant 4. What is the purpose of accounting? A to ensure the cash book balance agrees with the bank B to know how long trade receivables, take to pay C to prepare the financial statements of the business D to write up all the ledger accounts 5. Journal entry (prime entry) for credit purchase returns are entered in ___________ A Return inwards journal B Purchases journal C Purchases ledger D Return outwards journal 6. Which of the following users might be more interested in the liquidity position of the company? A Trade creditors and lenders B Tax authorities C Customers D Prospective investors

7. What would be the margin of safety in units if break-even point units are 1,200 units and expected sales are 1,450 units? A 1,200. B 1,450. C 250. D Not enough information to conclude. 8. Who is considered as the father of accounting? A Adam Smith B Albert Einstein C David Recardo D Luca Pacioli 9. Which one of the following is the most liquid asset? A Trade receivables B Inventory C Bank overdraft D Cash in hand 10. Equity consists of: I. Retained earnings II. Share capital III. Non-current assets IV. Non-current liabilities A I, II and III B I, III and IV C I and II D II only [Total 10 marks]

Question 2 (a) Tea Trail LTD is a value-added tea manufacturing organization pursuing tea exporting business. The following trial balance has been extracted for the year ended 31 March 2018. TEA TRAIL LTD TRIAL BALANCE AS AT 31 March 2018 DR CR $ $ Sales 138,078 Purchases 82,350 Carriage 5,144 Drawings 7,800 Rent, rates and insurance 6,622 Postage and stationery 3,001 Advertising 1,330 Salaries and wages 26,420 Bad debts 877 Provision for bad debts 130 Debtors 12,120 Creditors 6,471 Cash in hand 177 Cash in bank 1,002 Inventory as at 1 April 2017 11,927 Equipment: At cost 58,000 Accumulated depreciation 19,000 Capital 53,091 216,770 216,770 Additional information: 1. Rent is accrued by $210. 2. Rates have been prepaid by $880. 3. $2,211 of carriage represents carriage inwards on purchases. 4. Equipment is to be depreciated at 15% per annum using the straight-line method. 5. The provision for bad debts to be increased by $40. 6. Inventory as at 31st March 2018 has been valued at $13,551. Required: I. Prepare the Property, plant and equipment note. (2 marks) II. Prepare the income statement for the year ended 31 March 2018. (9 marks) III. Prepare the statement of financial position as at 31 March 2018. (10 marks)

(b) Ann Enterprises produces and s ells ‘ budget cereals ’ in packets. The following balances were extracted from their books of accounts on 30 September 2018. $ Opening stock: Raw materials at cost 12,000 Work in progress 6,600 Carriage inwards 2,500 Rent 60,000 Factory administration cost 70,000 Direct wages 350,000 Factory other overhead expenses 40,000 Purchase of raw material 620,000 Insurance cost of factory 10,000 Additional information: Raw Material closing stock is valued at cost: $10,000 and working progress closing stock is valued at $7,400. Required: I. Prepare the Manufacturing Account for the year ended 30 September 2018. (6 marks) II. Calculate the cost of a ‘packet of budget cereal’ , if the company manufactured 15,000 units during the year. (You have to show all the workings clearly) (1 mark) III. Calculate the selling price of a packet of budget cereal if Ann enterprises is keeping a margin of 10%. (2 marks) [Total 30 marks]

SECTION B – 60 MARKS Answer any THREE (3) questions of your choice. Question 3 Penguin Printers LTD, a printing press, commenced business during April 2018. The following information relates to Penguin Printers LTD’s first month of operations. April 1 Started business with $3,500 cash April 4 Deposited $2,800 of the cash into a bank account April 5 Bought goods for cash $150 April 8 Bought goods on credit from: CINE Graphics $360; Stationery PLC $110 April 10 Sold goods on credit to: BIM $90; Tryonics LTD $150; NLB LTD $160 April 15 Paid rent by cheque $55 April 21 Bought a machine on credit from Graphic Cooperation $480 April 23 Paid salaries in cash $420 April 28 Returned goods to: Stationery PLC $60 April 29 Goods returned to Penguin Printers LTD by BIM $20 Required: (a) Prepare all the relevant prime entry books. (5 marks) (b) Prepare all the ledger accounts. (9 marks) (c) Prepare the trial balance of Penguin Printers LTD as at 30 April 2018. (6 marks) [Total 20 marks]

Question 4 (a) The following information relates to Baker Friends Ltd , a single owner bakery. On 31st March 2018, the bank column of Baker Friends Ltd’s cash book showed a debit balance of $1,500. The monthly bank statement written up to 31st March 2018 showed a credit balance of $2,950. On reviewing the cash book with the bank statement, it was discovered that the following transactions had not been entered in the cash book: 1. Dividends of $240 had been paid directly to the bank. 2. A credit transfer – customs and excise VAT refund of $260 had been collected by the bank. 3. Bank charges $30. 4. A direct debit of $70 for the RAC subscription had been paid by the bank. 5. A standing order of $200 for Baker Friends Ltd’s loan repayment had been paid by the bank. 6. Baker Friends Ltd’s owner’s deposit account balance of $1,400 was transferred into the company ’ s current account. 7. The unpresented cheques and unrealised cheques values were $1,600 and $1,750 accordingly. Required: I. Prepare bank account with adjustments as at 31 March 2018. (6 marks) II. Prepare the bank reconciliation statement for the month of March 2018. (4 marks) (b) Martin runs a small business to produce and sell a hair gel called Smart Gel . This is an herbal based product with no added chemicals. Martin has the following cost structure: (per unit) Direct materials (herbs) $1.25 Direct labour $0.50 Direct expenses $0.25 (per annum) Distribution cost $30,000 Administration expenses $20,000

Mark has estimated that he would be able to sell 14,000 units at a selling price of $7 per unit during the year ended 31 December 2018. Required: I. Calculate break-even point in units and value. (3 marks) II. Calculate the margin of safety in units and in value. (2 marks) III. Calculate the profit for the year ended 31 December 2018. (3 marks) IV. Calculate the units required to earn a target profit of $25,000. (2 marks) [Total 20 marks] Question 5 (a) Explain two (2) differences between financial accounting and management accounting. [4 marks] (b) Identify the applicable accounting concept/ principle for following transactions and events. [5 marks] Transaction/ Event Applicable Concept/ Principle $500,000 revenue is reported in financial statements once it is earned not when it is received by cash. The company has no evidence that it will or will have to cease operations within foreseeable future. $4,000 worth cash withdrawal of the owner has reported separately as drawings. Transaction is not recorded in the books of accounts unless it is measurable in terms of money The life-span of a business can be divided into equal time periods (c) Describe three (3) users of financial statements and their interest. [6 marks] (d) Kazmina Company has started its operations in a land worth $3,500,000. By 31st December 2017, the company has delivery vehicle worth $1,500, 000 and inventory worth $500,000. Kazmina didn’t make full payment for th e inventory purchased and still