State where the inventory at 31 december 2016 would be

Question

Part A - Multiple Choice Questions

Q1. Jasbir and Kenny Partnership sell printers to university students. They started the year with 30 printers in stock, each costing £105. The following is the movement in inventories during the year ended 31 December 2015.

Month	Number of printers bought	Unit price £
January	10	109
March	14	110
July	6	123
October	10	114

During the year they sold 60 printers at total sales revenue of £10,800.

Using the First In First Out (FIFO) method, calculate the cost of inventory to be shown in the Statement of Financial Position as at 31 December 2015.

a. £1140

b. £1090

c. £1050

d. £1230

Q2. Which ONE of the following is an intangible asset?

a. Plant and equipment

b. Shares in subsidiary companies

c. Patents and trade marks

 d. Office equipment

Q3. In recent decades, which ONE of the following has not resulted in the business environment becoming more turbulent and competitive?

a. Increasing pressure from owners for economic returns

b. Rapid changes in technology

c. Increasing sophistication of customers

d. Increasing regulation of domestic markets

Q4. A statement of financial position shows:

a. The assets available for use in the next financial period

b. The assets used during the period

c. The total assets generated in the period

d. The cash generated in the period

Q5. According to the IASB (International Accounting Standard Board)'s definition: an asset is a resource _____ by the entity.

 a. Owned and controlled

b. Controlled

c. Owned

d. Used

Q6. Which ONE of the following best describes an expense?

a. A trading event that causes a reduction in capital

b. Expenditure incurred in carrying out daily business operations

c. Expenditure that should be matched with receipts for the period

d. Cash paid out in order to generate revenue

Q7. Charlie paid £12282 cash for rent during the current financial year. At the beginning of the current financial year, €2366 had been brought forward from last year as prepayment for rent, and at the end of the current year £2477 had been prepaid for the next year.

How much would be shown as the expenses for rent in the income statement for the current financial period?

a. The rent expense is £17125

b. The rent expense is £12282

c. The rent expense is £7439

d. The rent expense is £12171

Q8. Which one of the following is NOT an enhancing quality that influences the usefulness of accounting information?

a. Understandability

b. Timeliness

c. Completeness

d. Comparability

Q9. The ________ convention in accounting underpins the requirement to report inventories at the lower of cost or net realisable value.

a. Going concern

b. Historical cost

c. Prudence

d. Dual aspect

Q10. Which ONE of the following statements is correct?

a. The quality of understandability means that accounting information should be capable of being understood by those who have not studied accounting.

b. Accounting information possessing only the quality of relevance will still be useful to users.

c. The threshold of materiality will vary from one business to the next.

d. Relevance cannot make accounting information useful.

Q11. Kat commenced business on 1 January 2015 with capital in cash of £20000 and a bank loan of £80000 (with 10% interest charge per annum). During the year ending on 31 December 2015 she paid £4316 for furniture, £71317 for purchasing goods for sale and £17803 for various operating expenses. She received £140220 from the sale of goods. By the year-end only £2500 of goods purchased during the year were not sold. What is Kat's profit for the year ending on 31 December 2015?

a. £53600

b. £45600

c. £41284

d. £43100

Q12. On 1 Jan 2012, a business purchased a machine for £30000. Using the reducing balance method the machine is depreciated at 10% per year. What is the net book value of the machine on 31 Dec 2014?

a. £21870

b. £9000

c. £24300

d. £6000

Q13. A company owns a van for delivery use in its business, which has an estimated life of eight years. When preparing its financial statements, which ONE of the following choices is prohibited by accounting rules?

 a. To either depreciate or not depreciate.

b. To report the equipment at either cost or at fair value.

c. To either hold the asset until the end of its useful life or to dispose of it before then.

d. To depreciate using either the straight line method or the reducing balance method.

Q14. Only ONE of the following statements correctly describes the effect of a transaction on the financial statements. Which one?

a. A trade receivable paid off the amount owing of £3,000. It results in a profit of £3,000 and decreases trade receivables by £3,000.

b. The owner of the business bought a motor vehicle of £5,000. It increases the equity by £5,000 and reduces cash by £5,000.

c. The purchase of land for £500,000 (paid in cash) will not affect the total assets.

d. Goods sold on credit £2,000 will increase trade payables by £2,000 and increase profits by £2,000.

Q15. Which ONE of the following is not one of the four sequential stages of an accounting information system?

a. Information correcting

b. Information identification

c. Information analysis

d. Information recording

Q16. The calculation of gross profit of a trader includes three of the following elements - but which is the one that is NOT included?

a. Opening inventory

b. Depreciation of office fittings

c. Purchases of goods

d. Revenue

Q17. AMC Co began operations on 1 March to supply olive oil to supermarkets. During the first month, the following transactions took place.

March		Litres	Cost per litre
7th	Purchased	20	£5
11th	Purchased	90	£6
18th	Purchased	30	£7

During the month they sold 110 litres of olive oil, at a selling price of £9 per litre.

The business employs the Last In, First Out (LIFO} method of inventories costing. What is the gross profit for March?

a. £340

b. £220

c. £320

d. £300

Q18. Liabilities are usually divided between 'current' and 'non-current'. Three of the following are current liabilities, but which one is a non-current liability?

 a. A loan repayable in 18 months' time

b. An invoice which has been unpaid by a customer for 10 months

c. A bank overdraft repayable on demand

d. Taxation due in nine months' time

Q19. A retail store would normally recognise revenue when:

a. The product is accepted by (and delivered to) the customer

b. An order is made

c. The product is produced

d. Cash is received

Q20. Which of the following statements is an appropriate example of applying the concept of prudence:

(i) Always follow the accounting method that gives the lowest valuation

(ii) Report all losses that arise in a financial year

(iii) Avoid overstatement of profit

a. (i), (ii) & (iii)

b. (iii) only

c. (ii) & (iii) only

d. (i) and (ii) only

Q21. The capital of a sole trader would change as a result of

a. Non-current assets being purchased on credit

b. Raw materials being purchased on credit

c. Owner's personal petrol being paid for out of the business's cash

d. A credit customer paving by cheque

Q22. Chris commenced business on 1 January 2014. During the year ending on 31 December 2014, he bought a large amount of wallets at a uniform cost and sold 5,000 of them at £60 each. An inventories check on 31 December 2014 established that he holds 770 unsold wallets. Chris's gross profit for the year was £200,000.

How much was the cost of each wallet?

a. £30

b. £20

c. £50

d. £40

Q23. ABC is a bad debtor of DEF Co. with an amount due of £3,100. When the debt is written off, the effect will be:

a. Sales revenue decreases and trade receivables decrease

b. Sales revenue decreases and expenses increase

c. Trade receivables decrease and expenses decrease

d. Trade receivables decrease and expenses increase

Q24. Clark clock shop reported the following data for 2015:

1) Shop assistants' salaries of £32428

2) Withdrawals of £16634 made by Mr Clark (the owner of the business)

3) Bought a new delivery van for £41702

4) Annual depreciation of £3432 on equipment

What will be the expenses for Clark clock shop to be shown in the income statement for 2015?

a. £35860

b. £32428

c. £94196

d. £77562

Q25. A firm buys a delivery van on 1 January 2014 for £86000. The estimated physical life is 10 years, but the firm has a policy of trading in all vans after 5 years, when the residual value is usually 16 per cent of the original cost. Using straight-line depreciation the expense for year 3 will be:

a. £7224

b. £8600

c. £17200

d. £14448

Q26. A gas accrual for £400 at the year end was treated as a prepayment in a business's income statement.

As a result the profit was:

a. Understated by £800

b. Overstated by £400

c. Overstated by £800

d. Understated by £400

Q27. Surrey Co produced a draft statement of financial position at the year-end, which showed the owner's equity as £557263. It was later discovered, however, that the following transactions, which all occurred on the last day of the financial year, had not been taken into account:

1. Inventories, which cost £34427, had been sold on credit for £71914.

2. The owner withdrew £45535 in cash.

3. A trade receivable paid the amount owing of £39436 in full.

What will be the revised figure for owner's equity after the above transactions are taken into account?

a. £583642

b. £594750

c. £588651

d. £549215

Q28. This is a list of balances from the accounts of Egham Ltd. as at 31 December 2015. What are the total current assets to be shown in the statement of financial position as at 31 December 2015?

	£
Bank overdraft	15000
Inventory (1 Jan 2015)	11000
Inventory (31 Dec 2015)	9735
Long-term investment	11514
Rent paid for January-March 2016	13218
Tax owing	14000
Trade payable	22609
Trade receivable	11952

a. £46419

b. £21687

c. £34905

d. £32344

Q29. Which ONE of the following cannot be an operating expense?

a. Depreciation

b. Bad debt

c. Loan interest

d. Salaries

Q30. Windsor plc intends to change its accounting policies regarding inventory valuation for the forthcoming year. It intends to switch from the AVCO (weighted average cost) method to the FIFO (first-in. first-out} method of inventory valuation It is expected that during the forthcoming year prices of goods purchased will rise. If this is the case, what will be the effect of the change in inventory valuation method?

a. An increase in profit and a decrease in the value of the closing inventories held.

b. A decrease in profit and a decrease in the value of the closing inventories held.

c. An increase in profit and an increase in the value of closing inventories held.

d. A decrease in profit and an increase in the value of the closing inventories held.

Part B - Workshop Questions

Workshop 1 - Questions

Question 1: Steve is 26 years old and has an office job in London. He is tired of working in a large office and frustrated by the future prospects offered by his current job. He always wanted to have his own business, following his dream, Steve decided to set up a market stall in Staines-Upon-Thames. Steve buys mobile phone accessories from a local supplier and sells them on his stall. 

Day 1: Steve started the business with £100 of his own money, in cash. On Thursday, Steve's first day on the stall, he bought mobile phone accessories for £50 and sold 70% of them for £60 cash. 

1)  What cash movements took place in Steve's business during Thursday?

2)  How much wealth (that is, profit) was generated by the business during Thursday?

3)  What is the accumulated wealth on Thursday evening and what form does it take?

Day 2: On Friday, Steve bought more mobile phone accessories for £31 cash. However, the weather was bad, the market was quiet and sales were slow. After Steve had sold half of his total inventories for £28. He decided to stop trading until Saturday morning.

Day 3: It is a very busy Saturday, hoping to make up for yesterday's slow sales; Steve bought more mobile phone accessories for £60. He managed to sell all of the new inventories and all of the earlier inventories, for a total of £112.

Required: Prepare the following financial statements for Steve's business for Friday and Saturday. 

1) Statement of cash flows

2) Income statement

3) Statement of financial position

Question 2: What accounting and other information would the managers of the following organisations require to assess their performance and financial position?

• A charity
• A secondary school
• A university
• A manufacturing business

WORKSHOP 2 - Questions

Question 1: Classify each of the items in the following list as: asset; liability; neither an asset nor a liability:

1. Loan from the bank

2. Letter from the bank promising an overdraft facility at any time in the next three months.

3. Trade receivables (a customer who has promised to pay later)

4. Trade receivables (a customer who has promised to pay later but has apparently disappeared without leaving a forwarding address)

5. Supplier of goods who has not yet received payment from the business 

6. Inventory of finished goods (fashion clothing stored ahead of the winter sales)

7. Inventory of finished goods (fashion clothing left over after the winter sales)

8. Investment in shares of another company where the share price is rising 

9. Investment in shares of another company where the share price is falling

10. Lender of five-year loan to the business 

11. Customer to whom the business has offered a 12-month warranty to repair goods free of charge

12. A motor vehicle rented by the business for 5 month. 

13. An office building owned by the business 

Question 2: Amy has the following information in her records. You are required to produce a statement of financial position as at 31 December 2016.

	£
Freehold shop	68,000
Capital (1 Jan 2016)	36,000
Equipment	22,000
Drawings	26,800
Money due from clients	3,700
Motor vehicles	18,000
Stationery inventory	1,400
Cash at bank	6,500
Bank loan (repayable 2024)	74,600
Trade payable	1,100
Capital introduced during the year	5,600
Profit for the year	27,800
Income taxation owing	1,300

Workshop 3 - Income Statement Questions

Question 1: The following information has been extracted from Laney's books of account for the year ended 31 December 2016:

	£
Purchases	45,000
Sales revenue	60,000
Inventory (at 1 Jan 2016)	3,000
Inventory (at 31 December 2016)	4,000

Required:

(a) Prepare Laney's trading account for the year ended 31 December 2016.

(b) State where the inventory at 31 December 2016 would be shown on the statement of financial position as at that date.

Question 2: The following is an extract from Penny's statement of financial position as at 31 December 2015:

Non-current assets	Cost	Accumulated depreciation
	£	£
Land	200,000	-
Properties	150,000	60,000
Plant	55,000	11,000
Equipment	45,000	28,800
	450,000	99,800

Penny's depreciation policy is as follows:

1) A full year's depreciation is charged in the year of acquisition, but none in the year of disposal.

2) No depreciation is charged on land.

3) Properties are depreciated at an annual rate of 2 per cent on cost.

4) Write off the cost of plant over 10 years in equal instalments.

5) Equipment are depreciated on a reducing balance basis at an annual rate of 40 per cent on the reduced balance, i.e. on the net book value as at the end of the previous year.

Additional information:

There were no additions to, or disposals of, any other non-current assets during the year ended 31 December 2016.

Required:

(a) Calculated the depreciation charge for each of the non-current asset item for the year ended 31 December 2016.

(b) Show how the non-current assets would appear in Penny's statement of financial position as at 31 December 2016. 

Question 3: White Ltd has paid electricity bills totalling £1,920 during its first year of trading, which the amount is shown in their account. However, this amount covers only electricity used up to 31 October 2016. The accountant estimates that the cost of electricity used during November and December 2016 will amount to £240 per month. The financial year ends on the 31 December 2016.

(a) What is the amount of accrual?

(b) What is the full cost of electricity consumed by White Ltd during the year ended 31 December 2016?

(c) If this figure (from (b) above) for electricity consumed is used in the income statement, what effect will this have on the profit for the year?

Question 4: Pure Active has paid insurance premiums totalling £1,750 during its first year of trading, which the amount is shown in their account as the year-end 31 December 2016. However, this amount provides insurance cover up to 31 March 2017. The accountant has calculated that the cost of insurance is £117 per month.

(a) How much of the £1,750 figure represents insurance cover that the business has not yet had the benefit of?  (In other words, what is the amount of the insurance prepayment?)

(b) What is the true cost of insurance cover provided for Pure Active during the year ended 31 December 2016?

(c) What effect will using this figure (from (b) above), instead of the £1,750, have on the profit for the year?

Workshop 4 - Income Statement and Statement of Financial Position Questions

Question 1: C&N Co. has been in operation for three years. The purchases and sales information in Table below represents the company's activities for these three years.

	2014	2015	2016
Sales (unit)	12,000 @ £50	20,000 @ £60	18,000 @ £65
Purchase (units)
March	4,000 @ £20	8,000 @ £35	7,000 @ £40
July	7,000 @ £20	4,000 @ £30	5,000 @ £35
November	8,000 @ £30	1,000 @ £40	8,000 @ £25

Required:

1) Calculate the value of the closing inventory for each year using First In, First Out (FIFO) and Last In, First Out (LIFO). 

2) Calculate the gross profit for 2014 using the Weighted Average Cost (AVCO).

Question 2: Amanda has been in business for some years. The following is a list of balances at 31 October 2016:

	£
Accumulated Depreciation (at 1 November 2015):
- Office equipment	14,000
- Vehicles	4,000
Bank balance	700
Drawings	12,300
Heating and lighting	3,000
Inventories	26,000
Land	50,000
Long-term loan	50,000
Office equipment, at cost	35,000
Office expenses	27,000
Purchases	240,000
Rent	12,000
Sales	350,000
Trade payables	21,000
Trade receivables	61,000
Vehicles at cost	16,000
Wages and salaries	47,000

Additional information (not taken into account when compiling the above list of balances):

1. The loan was interest-free for the first six months of the year, after which time interest was to be paid at the rate of 8% per annum. No interest was paid during the year.

2. Inventory at 1 November 2015: £20,000

3. Amount owing for heating and lighting at 31 October 2016: £1,500.

4. At 31 October 2016, £2,000 had been paid in advance for rent.

5. No depreciation is charged on Land. Depreciation is to be charged on the office equipment at a rate of 20 per cent on cost, and on the vehicles at a rate of 25 per cent using the reducing-balance method.

6. A specific bad debt of £700 is also to be written off at the year-end.

7. Capital at 1 November 2015: £85,000.

Required: Prepare Amanda's income statement for the year ended 31 October 2016 and a statement of financial position as at that date.