2010 LCCI Level 3 Series 2 Question Paper (Code 3012)

Series 2 Examination 2010CERTIFICATE IN ACCOUNTING Level 3 Monday 12 April Subject Code: 3012 Time allowed: 3 hours INSTRUCTIONS FOR CANDIDATES Answer any 4 questions. There are no compulsory questions. All questions carry equal marks. Study the “REQUIRED” section of each question carefully and extract from the information supplied the data required for your answers. Write your answers in blue or black ink/ballpoint. Pencil may be used only for graphs, charts, diagrams etc. Begin your answer to each question on a new page. All answers must be correctly numbered, but need not be in numerical order. Workings must be shown. You may use a calculator, provided the calculator gives no printout, has no word display facilities, is silent and cordless. The provision of batteries and their condition is your responsibility. Marks may be lost through lack of neatness and poor presentation. 3012/2/10 Page 1 of 8 ASE 3012 2 10 1 This had not been recorded. Bad debts of £5. has balanced his trial balance at 31 December 2009. £000 241 121 98 41 14 REQUIRED (b) (c) (d) Prepare Journal entries (without narratives) to record the correction of the above errors. Extracts from this trial balance are as follows: Capital (less drawings) Fixed assets (net book value) Debtors (less provision) Creditors Stock The following errors have now been discovered: (1) (2) (3) (4) (5) (6) Kuyt paid himself a salary of £500 a month and charged it to wages. after preparing his profit and loss account for the year ended 31 December 2009.QUESTION 1 Some categories of accounting error do not cause trial balance totals to disagree. Fixed assets. Depreciation for the year had not been provided.000. Kuyt’s policy is to charge depreciation at 10% on the net book value of the fixed assets held at the year end. and give an example for each category. (4 marks) Calculate the revised balance on Kuyt’s Capital Account resulting from the correction of the errors. were taken by Kuyt for his personal use. a sole trader.000 should have been written off and the bad debt provision of 2% should have been provided at 5%. Closing stock included an item costing £800 which Kuyt believes can now only be sold for £300. (12 marks) Calculate the change to net profit resulting from the correction of the errors. Motor expenses of £820 had been recorded as selling expenses. with a net book value of £8. Selling costs of £20 would also have to be incurred. (6 marks) Kuyt. REQUIRED (a) Name three categories of accounting error which do not affect the balancing of a trial balance. (3 marks) (Total 25 marks) 3012/2/10 Page 2 of 8 . REQUIRED (e) Give four reasons why the partners might have wished to incorporate as a limited company.000 Ordinary Shares of £0. the share capital of the company would be 2.QUESTION 2 Basso and Carey are in partnership sharing profits/losses equally.000.000.50 each.000. also issued at a premium of £0. Basso and Carey would take shares. It was agreed to dissolve the partnership and transfer the business to a new company BCO Ltd.25 each. in settlement of their capital accounts.000 purchasing shares in the company. before trading commenced. which would be re-valued at £400. issued at a premium of £0. (2 marks) Prepare the Balance Sheet of BCO Ltd on 1 January 2010. (6 marks) (Total 25 marks) 3012/2/10 Page 3 of 8 . Orr has extensive knowledge of the toy industry. which would be written down by £32. At 31 December 2009 their Trial Balance was as follows: £000 DR Capital . and stock.Basso . Orr would spend £150.Carey Land and buildings – cost – accumulated depreciation Plant and machinery – cost – accumulated depreciation Stock Debtors Creditors Bank overdraft 300 60 120 65 90 140 650 50 42 650 £000 CR 242 191 The partnership sells toys and Orr has expressed an interest in joining Basso and Carey in business. (8 marks) Many small businesses find it advantageous to operate their businesses as limited companies.25 each. (2 marks) Calculate the number of shares in BCO Ltd received by: (i) (ii) (iii) (c) (d) Basso Carey Orr (7 marks) Calculate the number of shares in BCO Ltd remaining unissued. (2) (3) (4) REQUIRED (a) (b) State what is meant by the term “issued share capital”. on the following terms: (1) all assets and liabilities of the partnership to be taken over at book value except land and buildings. 856) (7.000 at 31 December 2009.714.000 22. which was expected to be sold for £900. Dividends paid were the final dividend for 2008 of £4. an increase of £1.800.100. A capitalisation (bonus) issue of 5.072* *Reconciliation of Net Operating Profit to the Net Cash Inflow from Operating Activities £ Net operating profit Depreciation Profit on disposal of fixed assets Increase in stock Increase in debtors Increase in creditors 10.600 9.800 were sold at a profit of £800.000 £1 shares was made.790) 5.000. Fixed assets are depreciated at 10% on cost with a full charge being made in the year of acquisition. 3012/2/10 Page 4 of 8 .157 on the previous year end. The final dividend proposed for 2009 was £5.678 10.QUESTION 3 The Cash Flow Statement for Cole Ltd for the year ended 31 December 2008 was as follows: £ Net cash inflow from operating activities Returns on investment and servicing of finance Interest paid Capital expenditure and financial investment Purchase of fixed assets Sale of fixed assets Equity dividends paid Net cash outflow before financing Issue of debenture Decrease in cash and cash equivalents (35. but a rights issue of shares raised £9.200.894) 32. Fixed assets with a net book value of £4.000) £ 9. Stock at the year end cost £12. However.400 (32.318) (6.600 11. Interest paid was the same as in 2008.678 (1. The total depreciation charge was £400 higher than for 2008.072 During the year ended 31 December 2009: (1) (2) (3) (4) (5) (6) (7) (8) The net operating profit increased by 15%. after allowing for writing down obsolete stock.900 and an interim dividend for 2009 of £2.256) 2. No debentures were issued or redeemed. included in the stock was obsolete stock costing £1.820 (840) (11. Fixed assets purchased had a net book value of £9. The creditors’ total has decreased. Creditors at 31 December 2009 were £12. in the format given. (4 marks) (Total 25 marks) 3012/2/10 Page 5 of 8 . (9 marks) Prepare.QUESTION 3 CONTINUED (9) (10) The debtors’ total has increased.750. the Cash Flow Statement of Cole Ltd for the year ended 31 December 2009. which is 20% lower than the total creditors at 31 December 2008. which was 85% of the total debtors at 31 December 2009. (12 marks) Cash flow statements report cash inflows and cash outflows during an accounting period REQUIRED (c) Give two advantages of a cash flow statement over the other accounting statements.000. Debtors at 31 December 2008 were £12. REQUIRED (a) (b) Reconcile the net operating profit for 2009 to the net cash inflow from operating activities. 000 at 30 September 2010. Each umbrella will be sold for £30. and fall to £4. he will employ Mikel to help him. Obi will do most of the work himself in his garage. Obi will purchase manufacturing machinery costing £4. a budgeted Trading and Profit and Loss Account for the year ended 30 June 2011. with each quarter consisting of 13 weeks. a quarterly cash budget. in columnar form for each of the four quarters to 30 June 2011. rise by 2% at 31 December 2010. (13 marks) (b) Prepare. This will be depreciated at 2% per quarter on cost. and decides to value them at £14 each. However. when he is required.000. Creditors for materials are expected to be £4. he is uncertain how to apply it. Obi intends to use the FIFO basis of stock valuation. for the 442 umbrellas he expects to be in stock at 30 June 2011.200 at 30 June 2011. He will provide £5.000. REQUIRED (a) Prepare. However. (10 marks) Give two reasons why Obi’s valuation of £14 per umbrella is unacceptable for external reporting purposes. showing the cash balance at the end of each quarter. in cash. The materials for each umbrella will cost £12 up to 31 December 2010 and £14 subsequently. Mikel will be paid a fixed wage of £60 per week. Obi is going to budget on a quarterly basis. Other variable costs (50% of which will relate to production) are expected to be £6 per umbrella and be paid weekly in cash. On 1 July 2010.QUESTION 4 Obi is planning to start a business on 1 July 2010. making and selling umbrellas. and materials are purchased as required. 75% of each quarter’s sales will be received in that quarter with the remaining 25% received in the following quarter. as his initial capital on 30 June 2010. when production exceeds 70 units per week. rise a further 10% on the 31 December 2010 figure at 31 March 2011. Production and sales are expected to be as follows: WEEKLY PRODUCTION UMBRELLAS Quarter 1 – ending 30 September 2010 Quarter 2 – ending 31 December 2010 Quarter 3 – ending 31 March 2011 Quarter 4 – ending 30 June 2011 70 90 90 40 WEEKLY SALES UMBRELLAS 60 86 94 16 There will not be any partly completed umbrellas at the end of each quarter. (2 marks) (Total 25 marks) (c) 3012/2/10 Page 6 of 8 . You should value closing stock on the basis of the £14 decided by Obi. 50 30 40% 65% REQUIRED (b) Calculate the following amounts in respect of Dunne plc at 31 December 2009: (i) (ii) (iii) debtors creditors stock (6 marks) (c) Calculate (to the nearest day) the stock turnover ratio of Dunne plc for 2009.000. for 2009: (i) (ii) (iii) (iv) earnings per share net profit cost of goods sold expenses (8 marks) The following information relates to Dunne plc. 2 days £730. in respect of Hart plc.000 80 days £511. for 2009: Number of £1 Ordinary Shares in issue Market price per share (31 December) Price/earnings ratio Net profit percentage Gross profit percentage REQUIRED (a) Calculate the following amounts. an investor.000 0. a car manufacturer.000. which makes cars.000 1.000 £1. is considering purchasing shares in either Hart plc or Dunne plc and has asked the following questions: (i) in difficult economic times is it safer to invest in Hart plc. stock and bank There were no liabilities due within one year other than creditors. (2 marks) Elano. a supermarket chain.QUESTION 5 The following information relates to Hart plc. or in Dunne plc. for 2009: Debtors’ collection period Sales Creditors’ settlement period Purchases Current ratio (31 December) Bank (balance in hand at 31 December) Opening stock was equal to closing stock There were no current assets other than debtors.000. which sells mainly food? 3012/2/10 Page 7 of 8 .5 : 1 £40.000. 5 : 1 a concern. as I have heard that a safe current ratio should be at least 1 : 1? does Hart plc’s high price/earnings ratio of 30 mean that it will take a long time to get my money back in dividends? Does this ratio also mean that the company is not highly rated by the stock market? REQUIRED (d) Answer each of Elano’s questions. in a way that a non-expert investor would understand.QUESTION 5 CONTINUED (ii) (iii) is Dunne plc’s current ratio of 0. (9 marks) (Total 25 marks) 3012/2/10 Page 8 of 8 © Education Development International plc 2010 .