Use clear, detailed, well-constructed, labelled and accurate layouts

1. a) Explain how a suspense account can be used as part of the book-keeping

error correction process.(4 marks)

b) The following are extracted balances from Harbhajan's business accounts along with other information relating to the business's year end on 30 April 2017.For some reason, the figure for Capital at the beginning of the year has not been supplied, although you have been given the year end net profit figure:

Capital as at 1 May 2016 unknown

Machinery at cost 100,000

Sales Revenue 59,000

Motor Vehicles at cost 50,000

Purchases 25,000

Trade Receivables 13,500

Trade Payables 12,500

Accumulated [provision for] depreciation: Machinery 10,000

HM Revenue and Customs: VAT (owing) 7,750

Net Profit as at 30 April 2017 7,105

Accumulated [provision for] depreciation: Motor Vehicles 5,000

Water and Utilities 4,500

Inventory as at 1 May 2016 3,500

Wages and Salaries 3,500

Rent 3,000

Bank (in funds) 1,800

Purchases Returns 1,355

Business Rates 1,250

Bad Debts written off 1,150

Sales Returns 1,250

Discounts Allowed 950

Cash in Hand 760

Drawings 750

Discounts Received 550

The Rent figure includes 600 relating to May, June and July 2017.

The Machinery still has to be depreciated at year end by 10% straight line.

There was unpaid Wages and Salaries at year end 30 April 2017 of 800.

Stocktake at year end 30 April 2017 valued Inventory at 5,000.

Motor Vehicles need year end depreciation (diminishing [reducing] balance at 10%).

TASK for part b)

Use the information given about Harbhajan's business as appropriate to prepare Statement of Financial Position for its year end, including the

missing figure for Capital.(12 marks)

c) Explain the problems from a working capital perspective for a business which has i) too many orders and ii) too few orders.(4 marks)

Total 20 marks

2. a) The double-entry ledger is conveniently divided so that accounts with similar characteristics are placed together.Identify each of the recognised ledger divisions and describe, with an example, the account types that each division contains.(4 marks) b) ABC Dealing is a business owned and run by Alan B Crick.Whilst the following events took place in the first few days of this month, ledger accounts have not yet been written up and that will become your task here.

01-Jun The business bank account is in funds by 1,500 and there is 2,000 cash in the business's office safe.Open accounts as relevant and simply show these as existing balances broughtforward.

01-Jun Bought new inventory on credit from N Joshi and received aninvoice for 1,800 inclusive of VAT.

01-Jun Sold goods to Joan's Phones on credit and sent an invoice for

3,500 plus VAT.

01-Jun Alan B Crick puts 2,500 into the business bank account and puts 2,500 into the office safe.This is all new money to hisbusiness.

02-Jun Purchased goods for resale in cash from MTC Wholesale andtheir cash invoice/receipt was 2,000 goods, plus VAT.

03-Jun Sold more goods for 2,700 including VAT and all customerspaid by cheque.

05-Jun Goods returned by Joan's Phones and ABC issued a credit notefor 250 plus VAT.

06-Jun Alan purchased a second-hand van solely for use within ABC Dealing from D Trotter in cash for 1,200 including VAT.

TASK for part b)

Opening ledger accounts as necessary and following recognised bookkeeping and accounting principles, correctly record each of the transactions stated

above.(12 marks)

c)Explain the principles and characteristics of Value Added Tax from a business

accounting perspective.(4 marks)

Total 20 marks

3. a) Describe the role and purpose of an internal auditor for a business.(4 marks)

b) Neha has drafted the ledger accounts and financial statements at year end for her promotions and marketing business and is pleased that Gross Profit is 74,500 and Net Profit is 14,500.However, on checking the details more closely, she identifies the following:

A.Rent from a client of 3,500 for the short-term use of an unwanted outbuilding for storage has been credited to the Land and Buildings account.

B.The cost of a colour photocopier for the business, 13,500 including installation costs, has been debited to the Purchases account.

C.A bill for 650 for repairing some office equipment has been debited to the Vehicle Expenses account.

D.The price of a motor vehicle for business use, namely 7,500, has been debited to the Vehicle Expenses account.

E.Carriage in of 80 has been entered to the Postage and Delivery account.

F.18,000 from the sale of the outbuilding has been credited to the Sales Revenue account.

TASK for part b)

i)Briefly explain the accounting concern in each of the six situations A to F given above.(6 marks)

ii)Ignoring depreciation and other adjustments, and starting with Neha's draft gross and net profit figures, briefly show the effect upon profit of correcting each issue and then give the revised Gross Profit and Net Profit figures after amendments have been made.(6 marks)

c) Explain the significance of a 'true and fair view' in relation to the accounts and financial statements of a company or other incorporated business.(4 marks)

Total 20 marks

4) a) Describe the major practical differences between a cash budget and other budgets within a business's budgetary control system.(4 marks)

b) The following information relates to Whyzee Limited in 2017 and comes from its various budgets, management decisions, activities and expectations during the year:

It has agreed to buy new machinery in July for 200,000 and a finance arrangement to pay for it in 5 equal monthly instalments, the first due on the date of purchase.

The machinery attracts a government grant worth 15% of its purchase price, on evidence that the machinery instalments are being made on time.This is expected in 3 equal monthly instalments from August.

Rent payable for their premises is 24,000 per year, payable quarterly in advance.The next payment is due in July.

Purchases of Raw Materials are budgeted to be 10,000 per month with a variety of payment terms, but averages out as 40% is paid in the current month and 60% in the month afterwards.

Other overheads and expenses are budgeted in each month, as follows: - Wages of 5,000, payable in the month earned

-Depreciation of 150 in July, and 450 in each following month, applied in the relevant month

-Electricity, Water and Gas usage of 1,350 each month settled monthly

-Administration costs of 5% of each months' receipts from sales, and paid in the following month.

Cash sales are treated as fully paid at the time of purchase and Whyzee Ltd.'s standard credit term for its customers is full payment by the end of the following month.The pattern of sales is expected to be:

May

June

July

August

September

October

Cash

Sales

12,000

14,000

16,000

18,000

20,000

22,000

Credit Sales

25,000

26,000

27,000

28,000

29,000

30,000

Monthly Sales

37,000

40,000

43,000

46,000

49,000

52,000

The bank balance on 30 June is budgeted to be 25,000 (in funds).An overdraft fee of 20 is charged when any end-of-month bank balance is overdrawn, and any end-of-month positive bank balance (that is, it is not overdrawn) attracts 1% interest.Bank fees and interest, where arising, are applied in the following month.

TASK for part b)

Using the information given above relating to Whyzee Limited, prepare their cash budget for the four months from July to October 2017.(12 marks)

c) Based upon the scenario and your cash budget in 4b) above, what conclusions can be drawn and therefore what recommendations can be given to Whyzee

Limited?(4 marks)

Total 20 marks

All calculations should be presented to the nearest whole

5. a) Explain the Accruals (or Matching) Concept in relation to the financial accounts and statements of a business.(4 marks)

b) A business information report has been obtained on Lucrative Prospects Ltd, a new sales lead.Your Sales Manager is naturally keen that credit terms can be agreed as soon as possible, and is very interested to learn what the data in the report means and how it helps with the account opening decision.

TASKS for part b)

Explain the usefulness of each of the following ratios in reviewing the performance of a business:

i) Current Ratio(2 marks) ii) Acid Test Ratio(2 marks) iii) Receivables Collection Period(2 marks) iv) Payables Settlement Period(2 marks)

v) Inventory Turnover Rate(2 marks)

c) The following data has been extracted from the business information report for Lucrative Prospects Ltd.Analyse the changes for each between 2015 and 2016, showing the potential impact upon Lucrative Prospects Ltd in general and making reference to its management of its working capital in particular.

(6 marks)

Business Information Report (extract) on Lucrative Prospects Limited

Ratio Calculated

2016

2015

Current Ratio

2.5:1

2.2:1

Acid Test Ratio

0.7:1

1.1:1

Receivables Collection Period

49.5 days

33.3 days

Payables Settlement Period

24.8 days

28.7 days

Inventory Turnover Rate

80.7 days

63.5 days

Total 20 marks