Preparing basic financial statements

**Section A** A fire destroyed the warehouse of Phoenix Traders. The following information is available: Opening inventory: $20,000 Purchases up to the date of the fire: $80,000 Sales up to the date of the fire: $120,000 Phoenix Traders operates with a standard gross profit margin of 25%. What is the estimated cost of the inventory destroyed in the fire?

**Section A** A sole trader suspects an employee has been stealing cash from the till. Opening cash balance: $500 Cash sales for the period: $15,000 Cash banked: $12,000 Cash paid for expenses: $1,800 Closing cash balance in the till: $400 How much cash is missing? (Enter numbers only)

**Section A** Jupiter PLC issues 100,000 ordinary shares of $0.50 nominal value at a price of $1.20 per share. What is the correct double entry to record this issue?

**Section A** A company makes a 1 for 4 bonus issue of shares. Prior to the issue, the company had 200,000 $1 ordinary shares and a share premium account balance of $60,000. The company wishes to utilize the share premium account as much as possible. What is the impact of this bonus issue on the total equity of the company?

**Section A** Saturn PLC has 500,000 ordinary shares of $0.25 in issue. It makes a rights issue of 1 new share for every 5 existing shares at a price of $1.50 per share. All rights are taken up. What is the increase in the share premium account as a result of this rights issue? (Enter numbers only)

**Section A** When preparing a Statement of Cash Flows using the indirect method, how should an increase in trade receivables and a profit on disposal of a non-current asset be treated in the 'Cash flows from operating activities' section?

**Section A** During the year, a company sold a machine for cash. The machine originally cost $80,000 and had accumulated depreciation of $55,000. The company recorded a loss on disposal of $5,000 in the statement of profit or loss. What is the cash inflow from investing activities regarding this disposal? (Enter numbers only)

**Section A** Which TWO of the following are classified as adjusting events after the reporting period under IAS 10?

**Section A** A sole trader takes goods from inventory for personal use. The goods originally cost $400 and had a selling price of $600. What is the correct double entry to record this transaction?

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* Calculate the adjusted Net Profit for the year ended 31 December 20X8. (Enter numbers only)

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* Calculate the adjusted Gross Profit for the year ended 31 December 20X8. (Assume depreciation is an administrative expense). (Enter numbers only)

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* How will the adjustment for the insurance premium affect the Statement of Financial Position?

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* If the draft Current Assets figure was $800,000 before any adjustments, what is the revised Current Assets figure?

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* Which of the four adjustments will affect the Non-Current Assets figure in the Statement of Financial Position?

**Section B - Case 2: Single Entity Accounts & Ratio Analysis** *Scenario: Horizon Wind Farms Ltd has prepared draft financial statements for the year ended 31 December 20X8. The draft net profit is $850,000. Draft Revenue is $4,000,000 and Cost of Sales is $2,200,000. The following adjustments have not yet been processed: 1) Depreciation on new turbines of $50,000 was omitted. 2) An annual insurance premium of $12,000 paid on 1 July 20X8 was expensed in full. 3) Closing inventory was overvalued by $30,000. 4) An irrecoverable debt of $15,000 needs to be written off. Equity comprises Share capital $1,000,000 and Retained earnings $2,000,000. There is a long-term loan of $1,500,000.* How does the $50,000 depreciation adjustment affect the net cash flow from operating activities?

A business has incomplete records. Sales for the year were $120,000. The business operates with a uniform gross profit margin of 20%. Opening inventory was $15,000 and closing inventory was $18,000. What were the purchases for the year? (Enter numbers only)

A shopkeeper suspects cash has been stolen from the till. Opening cash balance was $200. Cash sales banked during the week were $4,500. Wages paid in cash from the till were $300. Closing cash balance is $150. Total cash sales recorded on the till roll were $5,000. How much cash is missing?

When preparing a statement of cash flows using the indirect method, how should an increase in trade receivables and a depreciation charge be treated in reconciling profit before tax to cash generated from operations?

A company's Property, Plant and Equipment (PPE) had a carrying amount of $500,000 at the start of the year and $620,000 at the end of the year. During the year, depreciation of $80,000 was charged, and a machine with a carrying amount of $40,000 was sold for $50,000. What was the cash paid to acquire new PPE during the year? (Enter numbers only)

Which of the following can the Share Premium account legally be used for?

A company declares a final dividend of 5 cents per share on 15 January 20X6. The company's year-end was 31 December 20X5. How should this dividend be treated in the financial statements for the year ended 31 December 20X5?

A sole trader takes goods from inventory for personal use. The goods cost $400 and have a selling price of $600. What is the correct double entry to record this?

Which of the following are considered 'adjusting events' under IAS 10 Events after the Reporting Period? (Select all that apply)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. Calculate the Cost of Sales for the year. (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. Calculate the Gross Profit for the year. (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. Calculate the total Operating Expenses for the year (comprising depreciation, receivables expense, and electricity). (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. Calculate the Operating Profit for the year. (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the total value of Current Assets at year-end? (Enter numbers only)

Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000. What is the total value of Current Liabilities at year-end? (Enter numbers only)

When preparing a Statement of Cash Flows using the indirect method, how should an increase in trade receivables and a decrease in trade payables be treated when reconciling profit before tax to cash generated from operations?

A company's property, plant and equipment had a carrying amount of $450,000 at the start of the year and $520,000 at the end of the year. During the year, depreciation of $60,000 was charged, and a machine with a carrying amount of $30,000 was sold for $35,000. What was the cash outflow for the purchase of new property, plant and equipment during the year? (Enter numbers only)

A sole trader's net assets were $120,000 at the beginning of the year and $145,000 at the end of the year. During the year, the trader introduced $10,000 of new capital and took drawings of $25,000. What was the net profit or loss for the year?

A business has a uniform gross profit mark-up of 25% on cost. During the year, sales were $250,000, opening inventory was $30,000, and closing inventory was $40,000. What were the purchases for the year? (Enter numbers only)

Which TWO of the following items are presented within the Equity section of a limited company's Statement of Financial Position?

Section A Apex Consulting's financial year ended on 31 December 20X5. On 15 February 20X6, before the financial statements were authorized for issue, a major client went into liquidation. The client owed Apex $40,000 as of 31 December 20X5. The liquidator confirmed that unsecured creditors will receive nothing. How should this event be treated in the financial statements for the year ended 31 December 20X5?

Section A A fire destroyed the warehouse of a sole trader. The following information is available: Opening inventory: $25,000 Sales: $150,000 Closing inventory (salvaged): $5,000 The trader applies a uniform mark-up of 25% on cost. What was the value of purchases during the period? (Enter the number only)

Section A Gamma PLC has 1,000,000 ordinary shares of $0.50 each in issue. The share premium account has a balance of $300,000. The company makes a 1-for-4 bonus issue, utilizing the share premium account. What is the balance on the share premium account immediately after the bonus issue?

Section A In preparing its statement of cash flows using the indirect method, a company starts with a profit before tax of $150,000. During the year, the company sold a machine for $30,000. The machine had a carrying amount of $22,000 at the date of disposal. What is the net adjustment required to the profit before tax in respect of this disposal to arrive at cash generated from operations? (Enter the number only. If it is a deduction, include a minus sign, e.g., -5000)

Section A During the year ended 31 December 20X9, a limited company paid an interim dividend of $20,000. On 15 January 20Y0, the directors proposed a final dividend of $30,000 for the year ended 31 December 20X9. How should these dividends be treated in the financial statements for the year ended 31 December 20X9?

Section A When preparing a Statement of Cash Flows in accordance with IAS 7, which TWO of the following items would be classified under 'Cash flows from investing activities'?

Section B - Case 2: Single Entity Accounts **Scenario: AquaHarvest Marine Farms** AquaHarvest prepares its financial statements for the year ended 30 September 20X6. The draft profit before adjustments is $120,000. Issue 1: A payment for marine insurance of $6,000 for the year ending 31 December 20X6 was recorded entirely as an expense in the P&L. Issue 2: Depreciation on harvesting equipment (Cost $80,000, Acc Dep $30,000) needs to be charged at 20% reducing balance. Issue 3: A customer went bankrupt owing $2,500. This needs to be written off. Issue 4: A suspense account has a $4,500 Credit balance because a cash receipt of $4,500 from a credit customer was only recorded in the cash book. How does the irrecoverable debt write-off affect the draft profit?

Section B - Case 2: Single Entity Accounts **Scenario: AquaHarvest Marine Farms** AquaHarvest prepares its financial statements for the year ended 30 September 20X6. The draft profit before adjustments is $120,000. Issue 1: A payment for marine insurance of $6,000 for the year ending 31 December 20X6 was recorded entirely as an expense in the P&L. Issue 2: Depreciation on harvesting equipment (Cost $80,000, Acc Dep $30,000) needs to be charged at 20% reducing balance. Issue 3: A customer went bankrupt owing $2,500. This needs to be written off. Issue 4: A suspense account has a $4,500 Credit balance because a cash receipt of $4,500 from a credit customer was only recorded in the cash book. Calculate the final adjusted profit for the year. (Enter the number only)

Section A Sarah runs a successful sole trader bakery. On 1 January 20X6, she incorporates the business into a limited company, Sarah's Bakes Ltd. She transfers all her business assets and liabilities to the new company in exchange for 100,000 ordinary shares of $1 each. The net assets transferred were valued at $150,000. What is the correct entry in the books of Sarah's Bakes Ltd to record the issue of shares?

Section A At 1 January 20X8, a mining company had an allowance for receivables of $15,000. During the year, a specific debt of $4,000 was written off as irrecoverable. At 31 December 20X8, the total trade receivables balance (after the write-off) was $400,000. The company policy is to maintain an allowance of 5% of trade receivables. What is the total charge to the statement of profit or loss for irrecoverable debts and allowance for receivables for the year ended 31 December 20X8?

Section A Which of the following is an example of an adjusting event after the reporting period under IAS 10?

Section A A company issues $1,000,000 of 5% loan notes at a discount of 2%. The issue costs are $10,000. What is the initial carrying amount of the financial liability recognized in the statement of financial position?

Section A Which TWO of the following are required to be disclosed in the Statement of Changes in Equity?

Section A Which of the following statements regarding the recognition of provisions under IAS 37 is correct?

Section B - Case 2 Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required: 1) A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata). 2) Closing inventory was undervalued by $15,000. 3) An allowance for receivables of $8,000 needs to be created. 4) Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed. What is the impact of creating the allowance for receivables (adjustment 3) on the draft profit? (State the amount and whether it is an increase or decrease, e.g., 'Decrease 8000').

Section B - Case 2 Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required: 1) A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata). 2) Closing inventory was undervalued by $15,000. 3) An allowance for receivables of $8,000 needs to be created. 4) Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed. Calculate the revised profit before tax after all four adjustments have been made (in $).

Section B - Case 2 Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required: 1) A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata). 2) Closing inventory was undervalued by $15,000. 3) An allowance for receivables of $8,000 needs to be created. 4) Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed. Draft Revenue is $2,000,000, Cost of Sales $1,200,000. Calculate the revised Cost of Sales figure (in $).

Section B - Case 2 Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required: 1) A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata). 2) Closing inventory was undervalued by $15,000. 3) An allowance for receivables of $8,000 needs to be created. 4) Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed. What is the total net increase in Total Assets as a result of all four adjustments? (in $)