Section A
Answer ALL questions. This section carries 35 marks.
Question A1
The trial balance for Newport & Family, a successful trading business, for year ended 31st
December 2019 is set out below:
£ £
Non-current assets (cost):
Premises 250,000
Plant and equipment 350,000
Fixtures 50,000
Vehicles 75,000
Provision for depreciation (1-1-19):
Premises 60,000
Plant 140,000
Fixtures 30,000
Vehicles 45,000
Inventory (1-1-19) 71,250
Purchases 105,400
Sales revenue 230,700
Purchase returns 400
Carriage in 1,000
Wages and salaries 35,000
Electricity owing (1-1-19) 800
Electricity 5,500
Irrecoverable debts 1,800
Allowance for receivables 500
Recovered debts 200
Receivables 37,000
Payables 14,900
Vehicle expenses 4,100
Agent commission 1,700
Loan [5%] 250,000
Drawings 28,000
Bank 11,500
Capital 231,750
1,015,750 1,015,750
Notes:
1. Inventory at 31st December 2019 was valued at £82,900.
2. The salary bill for Newport is constant at £3,000 per month.
3. The family take the monthly equivalent of the salary bill in drawings. Anything less
than that will be withdrawn on 1st January 2020.
4. Premises are on a 50-year lease and are amortised (depreciated) accordingly.
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5. Plant is depreciated at 10% straight line and fixtures at 25% reducing balance.
6. Vehicles are depreciated at 20% straight line. However, on 1st November 2019
Newport disposed of a vehicle acquired in 2017 for £10,000. Sale proceeds were
£4,000. This transaction has not been recorded in the books. (Note, no
depreciation is charged on assets in the year of disposal)
7. Newport is due to pay the agent 1% on all sales for the year (rounded to nearest
hundred pounds).
8. Newport has engaged Providence Marketing at a monthly fee of £2,000 to develop
and run their marketing plan. Providence was hired on 1st September 2019 but
confusion in family responsibility has meant that this has yet to be accounted for.
9. Ageing receivables profile means that Newport believes the allowance on
receivables should be increased to £1,000.
10. Newport has a year-end electricity bill unpaid of £700.
Required:
(a) Prepare Newport & Family’s statement of profit or loss for year ended 31st
December 2019 and a statement of financial position as at that date.
[27]
(b) Going concern and accruals basis are central to preparing and presenting
financial statements.
Explain each term above giving an appropriate example of how they impact
on financial statements.
[ 8 ]
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Section B
Answer 2 questions only. This section carries 40 marks.
Question B1
(a) The electricity account payments for Z Ltd for the year to 30th June 2019
are shown below:
£
Opening balance for electricity accrued at 1-7-18 500
Payments made during the year:
1
st August 2018 for 3 months to 31-7-18 800
1
st October 2018 for 2 months to 30-9-18 600
1
st February 2019 for 4 months to 31 -1-19 1,000
30th June 2019 for 3 months to 30-4-19 900
1
st August 2019 for 3 months to 31–7-19 900
Required:
Complete the electricity account for year to 30th June 2019 and identify the
balance to be transferred to P&L.
Note: you can assume the final 3 months electricity charge is known with
reasonable certainty at the year-end.
[ 4 ]
(b) A garage P, among other activities, sells fuel and makes up its financial
statements to 31st August.
Fuel inventory at 1st September 2018 was £20,500 and outstanding invoices
to suppliers were £2,200. During the year to 31st August 2019 fuel invoices
of £92,300 have been paid and a delivery of £1,750 of fuel has yet to be
invoiced.
At 31st August 2019 fuel inventory was valued at £14,270.
Required:
Calculate the fuel expenditure to be included in P’s financial statements for
year to 31st August 2019.
[ 4 ]
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(c) JJ maintains his electricity and gas account payments under one account –
‘Utility Charges (Gas and Electricity)’.
The following information relates to the financial year ending 31st December
2019:
• On 1st January 2019 electricity prepaid amounted to £1,500.
• On 1st January 2019 gas charges of £700 were owing.
• During 2019 electricity charges of £7,000 were paid.
• During 2019 gas charges of £4,600 were paid.
• On 31st December 2019 electricity charges of £700 were owing.
• On 31st December 2019 gas charges of £300 had been prepaid.
Required:
Complete the Utility Charges account, identifying what the 2019 P&L
charges for gas and electricity should be (a separate account for each is
required).
[ 6 ]
(d) Distinguish clearly between capital and revenue expenditure, explaining
how each are treated in the financial statements.
[ 6 ]
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Question B2
(a) Cod Traders has the following transactions with a product Z over a two-year period.
2019 Opening inventory: Nil
– January: Buys 20 units at £400 per unit
– March: Buys 25 units at £300 per unit
– April: Sells 15 units at £600 per unit
– July: Buys 10 units at £250 per unit
– October: Sells 20 units at £600 per unit
2020
– February: Buys 20 units at £250 per unit
– May: Sells 10 units at £600 per unit
– September: Buys 25 units at £200 per unit
– November: Sells 55 units at £600 per unit
Cod values inventory on a FIFO basis.
Required:
Calculate for both 2019 and 2020, Cod Traders:
(i) Year-end inventory valuation. [ 8 ]
(ii) Net profit figures.
(It can be assumed that expenses will be 25% of gross profit).
[ 4 ]
(b) Outline what the impact on the profit figures over the two years would have
been in AVCO valuation had been employed. (no need for any calculation
unless you find it helpful in the explanation)
[ 3 ]
(c) Inventory is normally valued at cost.
Explain what cost means in the context of inventory valuation. [ 5 ]
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Question B3
(a) The books of account of Providence Co, at 31st December 2018 showed a receivables
ledger with a debit balance of £9,145 and a credit balance of £115, while the
payables ledger had a credit balance of £7,140 and a debit balance of £130.
For year ending 31st December 2019 the following information is relevant:
£
Sales 70,700
Purchases 41,650
Cash from trade receivables 59,384
Cash paid to trade payables 39,265
Discount received 1,510
Returns inwards 1,117
Returns outwards 490
Irrecoverable debts written off 296
Cash received related to debit balance in payables
ledger
130
Amounts due from customer in receivables ledger
offset against balances in payables ledger
470
Allowance to customers for goods damaged in transit 260
As at 31st December 2019 the credit balance in the receivables ledger had not been
cleared.
Required:
Record the above transactions, in the following control accounts, bringing down
closing balances at 31st December 2019.
(i) Receivables control account. [ 9 ]
(ii) Payables control account. [ 8 ]
(b) Identify three reasons why a business might maintain a control account. [ 3 ]
– This is the end of the exam –

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