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ACC201e Examination - January Semester 2015 Financial Accounting Friday, 15 May 2015 10:00 am - 12:00 pm ____________________________________________________________________________________ Time allowed: 2 hours ____________________________________________________________________________________ INSTRUCTIONS TO STUDENTS: 1. This examination contains SIX (6) questions and comprises NINE (9) printed pages (including cover page). 2. You must answer ALL questions. 3. This is a closed book examination. 4. All answers must be written in the answer book. 5. Included as an Appendix on Pages 8 to 9 is the Formula Sheet that you may use. At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided. THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS. ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 1 of 9 Question 1 (a) The following were transactions of BL Enterprises Pte Ltd for the month of June: (i) On 3 June, a walk-in customer paid the company $300 for goods to be collected the next month. (ii) On 5 June, the company determined that it could not collect $325 from a customer as the customer had disappeared and effort to contact the customer was unsuccessful. The company had previously made adequate provision under the allowance method. (iii) The accountant had determined that the depreciation for the furniture & fixtures (F&F) was $2,100 for the month of June. (iv) As of 30 June, the company owed the employees one week of salaries that would be paid on 2 July. The gross salaries for that week were $3,240. Required: Analyse the above and applying accrual accounting concepts, provide the journal entries, with narratives, for BL Enterprises for the above transactions for the month of June. (8 marks) (b) Explain why the consistency principle is important in the preparation and presentation of financial statements. (5 marks) ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 2 of 9 Question 2 (a) Hiat Bee Development Pte Ltd purchased a piece of land. The following were the details of the transaction: Cash down-payment Note payable Delinquent property tax Cost of title deed Removal of old shack Levelling of land Adding of soil for foundation of building Construction of office building Fence around the land Company sign at the entrance Lighting and walkway $ 525,000 570,000 10,500 9,000 15,000 12,000 70,800 1,950,000 66,000 16,800 9,600 Required: Determine the cost of the land and explain your answer. (8 marks) (b) BB Catering bought a used delivery van on 2 January 20X0 for $20,500. The van was expected to be in service for 4 years and the residual value was estimated to be $4,300. Determine the depreciation expense and the net book value of the assets for the 4 years using the straight-line method. (7 marks) Question 3 The following information revealed the transactions of XYZ Pte Ltd for the month of June: Date Transactions Units Purchased (Sold) Unit Cost June 1 Beginning Inventory 300 $10.00 June 3 Purchase 300 $11.00 June 8 Sale (200) June 16 Purchase 400 $11.50 June 22 Sale (200) ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 3 of 9 Required: Using the perpetual system, determine the costs of goods sold and ending inventory under the following methods: (a) FIFO. (8 marks) (b) Weighted average. (7 marks) Question 4 (a) Explain what are the advantages and disadvantages of organising a company as a corporation limited by shares. (10 marks) (b) Briefly explain the two kinds of reserves commonly found in the statement of financial position. (5 marks) Question 5 The unadjusted trial balance of New Sun Pte Ltd at 31 December 20X0 is given below: New Sun Pte Ltd Trial Balance 31 December 20X0 Account Title Cash Accounts receivable Inventory Purchase Prepaid insurance Building Accumulated depreciation - building Machinery Accumulated depreciation - machinery Share capital Retained earnings Bank Loan Revenue Unearned revenue Accounts payable ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Debit $ 45,500 40,600 1,000 120,000 4,800 2,500,000 Credit $ 560,000 200,000 50,000 1,800,000 7,600 80,000 582,100 1,800 12,040 Page 4 of 9 Utilities expense Depreciation expense Salary expense Interest expense Transport Expense General expense Income tax expense 10,400 22,000 131,660 1,900 1,700 980 13,000 3,093,540 3,093,540 The firm uses the periodic inventory system. The inventory count for inventory done on 31 December 20X0 yielded ending inventory of $3,500. The additional information below is given for your consideration: (i) As of 31 December, salaries of $3,320 had been earned by employees but will not be paid until 2 January 20X1. (ii) The prepaid insurance was bought on 1 January to cover the office for two years. (iii) On 23 December, the credit department had been informed that one of its customers had gone bankrupt. The customer owed the company $2,900. The company had not provided any allowance for bad debt. (iv) On 28 December, a walk-in customer paid $2,000 for goods to be delivered the next year. The accounts clerk entered it as debit Cash $2,000 and credit Revenue $2,000. Required: (a) Prepare the statement of comprehensive income for New Sun Pte Ltd for the year ending 31 December 20X0. (20 marks) (b) Compute the gross profit percentage for New Sun Pte Ltd for the year ending 31 December 20X0. (2 marks) ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 5 of 9 Question 6 An extract of the income statement and the statement of financial position for BK Engineering Pte Ltd are given as follows: BK Engineering Pte Ltd Income Statement (extract) For the year ended 31st December 20X2 $ Sales revenue Cost of goods sold Gross Profit Interest revenue Loss on sale of fixed assets Total revenue and loss Less expenses: Depreciation expense Other operating expense Total expense Profit before tax Income tax expense Profit after tax $ 325,000 98,500 226,500 1,800 (2,000) 226,300 10,400 89,000 99,400 126,900 (5,500) 121,400 BK Engineering Pte Ltd Statement of Financial Position As at 31st December 20X2 Assets Current Assets Cash Accounts receivable Inventories Prepaid expenses Non-current Assets Land Equipment, net Total assets ACC201e Copyright 2015 SIM University Examination - January Semester 2015 20X2 $ 20X1 $ 24,300 22,300 6,100 2,300 16,700 15,500 10,500 7,000 1,000,000 60,000 1,115,000 660,000 80,000 789,700 Page 6 of 9 Liabilities and Shareholders' Equity Current Liabilities Accounts payable Salary payable Utilities payable Non-current Liabilities Long Term loan Shareholders' equity Share capital Retained earnings Total liabilities & Shareholders' Equity 9,700 9,000 8,800 11,500 6,600 7,200 290,000 40,000 700,000 97,500 1,115,000 700,000 24,400 789,700 Required: Prepare a statement of cash flow for BK Engineering Pte Ltd for the year ended 31 December 20X2 using the indirect method. (20 marks) ----- END OF PAPER ----- ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 7 of 9 APPENDIX: FORMULA SHEET Measuring Ability to Sell Inventory and Collect Cash 1. Inventory turnover = Cost of goods sold Average inventory 2. Accounts receivable turnover = Sales revenue credit sales Average net accounts receivable 3. Payable turnover = Cost of goods sold Average accounts payable 4. Cash conversion cycle = Receivable collection period + Inventory resident period Payable outstanding period 5. Receivable collection period = 365 Accounts receivable turnover 6. Inventory resident period = 365 Inventory turnover 7. Payable outstanding period = 365 Accounts payable turnover Measuring Ability to Pay Current Liabilities 8. Current ratio = Current assests Current liabilities 9. Acid-test (quick) ratio = Cash + Short-term investments + Net current receivables Current liabilities Measuring Ability to Pay Long-Term Debt 10. Debt ratio 11. Times-interestearned ratio = Total liabilities Total assests = Income from operations Interest expense ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 8 of 9 Measuring Profitability 12. Gross or Operating or Net profit Gross/Operating/Net = 1 Profit margin Net sales 13. Asset turnover = Net sales Average assests Return on total assets (ROA) = Net income Average total assests Return on ordinary 15. shareholders' equity (ROE) = Net income Preference dividends Average ordinary shareholders' equity 14. Analysing Cash Flows 16. Free cash flow 17. Cash realisation ratio = Net cash provided by operating activities - Cash payments for investments in PPE = Net cash provided by operating activities Net Profit Analysing Shares as an Investment Earnings per 18. ordinary share (EPS) = Net income Preference dividends Weighted-average number of ordinary shares outstanding Price/earnings (P/E) ratio = Market price per ordinary share Earnings per share 20. Dividend yield = Dividend per ordinary share (or preference) Market price per ordinary share (or preference) Book value per ordinary share = Total shareholder' s equity Preference equity Number of ordinary shares outstanding 19. 21. 1 Also called the Gross/Operating/Net Profit percentage. ACC201e Copyright 2015 SIM University Examination - January Semester 2015 Page 9 of 9 ACC201e Examination - July Semester 2015 Financial Accounting Friday, 13 November 2015 10:00 am - 12:00 pm ____________________________________________________________________________________ Time allowed: 2 hours ____________________________________________________________________________________ INSTRUCTIONS TO STUDENTS: 1. This examination contains SIX (6) questions and comprises NINE (9) printed pages (including cover page). 2. You must answer ALL questions. 3. This is a closed book examination. 4. All answers must be written in the answer book. 5. Included as an Appendix on Pages 8 to 9 is the Formula Sheet. At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided. THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS. ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 1 of 9 Question 1 The unadjusted trial balance of QP Pte Ltd for the financial year ending 31 December 20X1 is as follows: Account Title Cash Accounts receivable Prepaid advertising Prepaid rental Inventory Purchases PPE Accumulated depreciation - PPE Accounts payable Bonds (Long term) Unearned sales revenue Share capital Retained earnings Sales Utilities expense Salaries expense Transport expense Depreciation expense Interest expense Income tax expense Sales discount Debit $ 804,000 863,200 30,000 124,000 2,462,000 1,090,000 3,000,000 Credit $ 900,000 78,200 1,200,000 143,000 2,000,000 514,100 5,820,000 103,940 1,040,200 727,400 300,000 36,000 31,560 43,000 10,655,300 10,655,300 The firm uses a periodic inventory system. A stock count was made and the inventory at 31 December 20X1 was $183,000. Additional information: (i) The prepaid advertising was for a series of 10 advertisements to appear on the English channel programme. As at 31 December 20X1, 7 of the advertisements have been screened. (ii) On 1 July, the company made a rental payment of $124,000 for 2 years' rent. (iii) The long term bonds, issued at par, carry an annual interest of 6%. Interest payments will be made every 1 January and 1 July. (iv) On 28 December 20X1, the company delivered half of the outstanding sales order for customers who have already paid up fully for their goods a month ago. ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 2 of 9 (v) As at 31 December 20X1, workers' salaries amounting to $6,900 has yet to be paid. (vi) The PPE has already been depreciated for 20X1. Required: Prepare the statement of comprehensive income of QP Pte Ltd for the year ending 31 December 20X1, incorporating all the necessary adjustments as given in the additional information. (You do not need to provide the adjusting journal entries). (15 marks) Question 2 (a) On 1 January 20X1, Abbot Engineering (Abbot) purchased a piece of machinery for $140,000. The machinery has a 5 year expected useful life and a $7,200 expected residual value. Initially, Abbot used double-declining balance depreciation. On 1 January 20X3, Abbot changed to straight line depreciation. The expected useful life and residual value are unchanged. Illustrate the accounting for depreciation by calculating the depreciation expense and the net book value of the assets for the 5 years. (10 marks) (b) Explain why there is a need for non-current assets to be depreciated. (5 marks) Question 3 Beng Supplies Pte Ltd began 20X1 with 600 units of its principle product. The cost of each unit was $20.00. The company uses the periodic inventory system. Transactions for the month of January 20X1 are as follows: Purchases Date Units 12 Jan 19 Jan Total 300 950 1,250 Unit cost $ 19.00 18.00 Sales Date 5 Jan 18 Jan 22 Jan Total Units 400 700 460 1,560 ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 3 of 9 Required: Illustrate the accounting for inventory-related transactions by computing the ending inventory and cost of goods sold for the month of January using the following methods: (i) LIFO; (5 marks) (ii) FIFO; and (5 marks) (iii) Weighted average. (5 marks) Question 4 (a) Differentiate and explain the reasons for favouring the use of accrual basis of accounting over the cash basis? (4 marks) (b) On 1 July 20X1, OFC Pte Ltd (\"OFC\") sold 2 office desks and 10 arm chairs to B2B Enterprise Solutions, for $2,000 with credit terms of 30 days. On 10 July 20X1, B2B Enterprise Solutions paid up half of the outstanding amount and was given a 2% discount due to early payment. 31 July 20X1 is OFC's financial year end. On 3 August 20X1, OFC was informed that B2B Enterprise Solutions was ordered by the court to be wound up. OFC practises the direct write off method for bad debt accounting. Required: (i) Prepare the journal entries for each of the transactions. Journal narratives are not required. (7 marks) (ii) Explain to OFC why the direct method of accounting for bad debts is not ideal. (4 marks) ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 4 of 9 Question 5 Extracts of the financial statements of RAL Pte Ltd for the years ended 31 December 20X2 and 20X3 are as follow: RAL Pte Ltd Comparative Income Statement (extract) Years Ended 31 December 20X2 and 20X3 20X2 $ $ Sales Revenue Cash Credit Cost of goods sold Beginning inventory Purchases ( all on credit ) Less: Ending inventory COGS Gross profit Less expense Profit before tax Less Income tax expense Profit after tax 20X3 $ 288,000 96,000 2,688,000 2,976,000 3,552,000 3,648,000 345,600 1,996,800 2,342,400 518,400 518,400 2,476,800 2,995,200 691,200 1,824,000 1,152,000 864,000 288,000 57,600 230,400 RAL Pte Ltd Comparative Statement of Financial Position As at 31 December 20X2 and 20X3 20X2 $ $ Current assets Cash Inventory Account receivables, net Non-current assets Property, plant and machinery, net Total assets Current liabilities Account payables Bank loan (6 months) Long term liabilities Bonds (5 years @5%) ACC201e Copyright 2015 SIM University Examination - July Semester 2015 $ 38,400 518,400 393,600 2,304,000 1,344,000 1,056,000 288,000 57,600 230,400 20X3 $ 67,200 691,200 950,400 604,800 1,363,200 96,000 1,046,400 393,600 19,200 $ 96,000 1,459,200 662,400 412,800 182,400 844,800 153,600 134,400 Page 5 of 9 Shareholders' equity Ordinary shares Total liabilities and shareholders' equity 480,000 1,046,400 480,000 1,459,200 Additional information: The accounts receivable as at 31 December 20X1 was $182,400. Required: (a) Compute the following ratios for the two years: (i) Current ratio; (ii) Quick ratio; (iii) Inventory resident period; (iv) Receivable collection period; and (12 marks) (b) Using the ratios you have computed, explain on the changes in the position of the company as revealed by the changes in these ratios. (8 marks) Question 6 The following financial information for UL Engineering Pte Ltd is as given below: UL Engineering Pte Ltd Comparative Statement of Financial Position As at 31 December 20X1 and 20X2 20X1 Assets Current Cash Inventories Account receivable Non-current Property, Plant & Equipment, net Total Assets Liabilities Current Accounts payable Income tax payable Non-current Bank loan ACC201e Copyright 2015 SIM University Examination - July Semester 2015 20X2 145,600 624,000 302,900 137,800 533,000 526,500 2,730,000 3,802,500 3,900,000 5,097,300 292,500 117,000 234,000 156,000 117,000 0 Page 6 of 9 Shareholders' equity Share capital Retained earnings Total equity and liabilities 3,022,500 253,500 3,802,500 4,095,000 612,300 5,097,300 Additional information: (i) The profit before tax for 31 December 20X2 was $546,000. (ii) Depreciation of $162,000 was charged for the year ending 31 December 20X2. (iii) An item of PPE with a net book value of $240,000 was sold at a gain of $60,000. (iv) Interest paid was $18,000 during the year ending 31 December 20X2. (v) There was no over or under provision of tax for the year ending 31 December 20X1. (vi) Dividends were declared and paid during the year ending 31 December 20X2. Required: Prepare a statement of cash flows for UL Engineering Pte Ltd for the year ending 31 December 20X2 using the indirect method. (20 marks) ----- END OF PAPER ----- ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 7 of 9 Appendix: Formula Sheet Measuring Ability to Sell Inventory and Collect Cash 1. Inventory turnover = Cost of goods sold Average inventory 2. Accounts receivable turnover = Sales revenue credit sales Average net accounts receivable 3. Payable turnover = Cost of goods sold Average accounts payable 4. Cash conversion cycle = Receivable collection period + Inventory resident period Payable outstanding period 5. Receivable collection period = 365 Accounts receivable turnover 6. Inventory resident period = 365 Inventory turnover 7. Payable outstanding period = 365 Accounts payable turnover Measuring Ability to Pay Current Liabilities 8. Current ratio = Current assests Current liabilities 9. Acid-test (quick) ratio = Cash + Short-term investments + Net current receivables Current liabilities Measuring Ability to Pay Long-Term Debt 10. Debt ratio 11. Times-interestearned ratio = Total liabilities Total assests = Income from operations Interest expense ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 8 of 9 Measuring Profitability 12. Gross or Operating or Net profit Gross/Operating/Net = 1 Profit margin Net sales 13. Asset turnover = Net sales Average assests Return on total assets (ROA) = Net income Average total assests Return on ordinary 15. shareholders' equity (ROE) = Net income Preference dividends Average ordinary shareholders' equity 14. Analysing Cash Flows 16. Free cash flow 17. Cash realisation ratio = Net cash provided by operating activities - Cash payments for investments in PPE = Net cash provided by operating activities Net Profit Analysing Shares as an Investment Earnings per 18. ordinary share (EPS) = Net income Preference dividends Weighted-average number of ordinary shares outstanding Price/earnings (P/E) ratio = Market price per ordinary share Earnings per share 20. Dividend yield = Dividend per ordinary share (or preference) Market price per ordinary share (or preference) Book value per ordinary share = Total shareholder' s equity Preference equity Number of ordinary shares outstanding 19. 21. 1 Also called the Gross/Operating/Net Profit percentage. ACC201e Copyright 2015 SIM University Examination - July Semester 2015 Page 9 of 9