I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider



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516

 

(c) MARCIA 

BLANE 

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X2 



 

Cost 

Depreciation 

 Carrying 

value 

 

 $ 



 $ 

 $ 


Non-current assets 

 

 



Fixtures and fittings 

 42,200


 6,200 

 36,000 


Motor vehicles 

 45,730


 24,438 

 21,292 


 

 87,930


 30,638 

 57,292 


Current assets 

 

 



Inventory 

20,250 


 

Receivables 

 41,000 

 

Prepayments 



 450 

 

Cash in hand 



   2,802 

 

 



 

   64,502 

 

 

 121,794 



Capital 

 

 



 

Balance b/f 

 

 

 26,100 



Profit for year (balancing figure) 

 

 



 68,959 

 

 



 

 95,059 


Less drawings (27,585 + 800) 

 

 



 28,385 

 

 



 

 66,674 


Current liabilities 

 

 



 

Payables 

 

 34,500 


 

Accruals 

 

 520 


 

Bank overdraft 

 

 20,100 


 

 

 



 

   55,120 

 

 

 



 121,794 

Proof of profit for the year figure 

Revenue  

487,550 

Cost of sales (18,460 + 379,590 – 800 – 20,250) 

 377,000 

 

 110,550 



Discounts received 

 1,200 


Expenses  

 

   (6,100 + 3,250 +10,750 +9,475 + 520 – 450 + 13,146) 



 42,791 

Profit for the year 

 68,959 

68 


Remember the business equation: P = I + D – C

i

 

69 



(318,000 + 412,000 – 214,000) – (612,000 × 75%) = 57,000  

70 D 

 

    Total  



  

Ordinary 

 

   Sales to  

 

 

sales 

 

sales  

 

Harry 

 

 



 $      

 

 $      



 

$      


Cost of sales 

 

 342,000 



 

 334,700 

 

 7,300 


Mark-up: 

 

 



 

10% on cost 

 

 730 


 

 – 


 

 730 


20% on sales (= 25% on cost) 

 

   83,675 



 

   83,675 

 

           



Sales 

 

 426,405 



 

 418,375 

 

 8,030 


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PRACTICE ANSWER BANK 

 

517 

71 B   


 

 $     


 

 $     


Non-current assets 

 

 



 51,300 

Inventory 

 

 

 7,770 



Receivables   

 

 



  5,565 

 

 



 

 64,635 


Less 

 

 



Payables 

 

 3,994 



 

Overdraft 

 

 3,537 


 

Rent accrual 

 

    500 


 

 

 



 

 (8,031) 

Closing capital 

 

  



56,604 

72 


Purchases were payments made plus increase in suppliers' balances 

ie $141,324 + ($16,812 – $15,264)  = $142,872 

 $ 


Thus cost of sales 

Opening inventory 

6,359 

 Purchases  



142,872 

 149,231 

 

Less closing inventory 



    (4,919) 

 

 144,312 



73 

Dividends appear in the statement of changes in equity. 



74 D   

75 


Dividends are not included the statement of changes in equity until they are declared.  

76 



Number of shares = 45,000/0.5   



= 90,000 

Number of bonus shares issued    

= 90,000/3 × 2 = 60,000 

Nominal value of bonus shares issued 

= 60,000 × 0.5 = 30,000 

Therefore: 

Share capital = 45 + 30  = $75,000 

 

 



Share premium = 60 – 30 = $30,000 

77 


IAS 1 does require that some items must appear on the face of the statement of financial 

position; however, it allows companies to choose whether they present a combined 

statement of profit or loss and other comprehensive income or separate statement of profit 

or loss and statement of other comprehensive income.  

78 


Gains on property revaluations are shown in the 'other comprehensive income' section of 

the statement of profit or loss and other comprehensive income. They are also shown in 

the statement of changes in equity as the movement on the revaluation surplus. Dividends 

paid and a bonus issue of shares are shown in the statement of changes in equity.  

79 


There is no requirement in IAS 16 for the directors to disclose how certain they are that 

the valuation won't change in the next five years. 

 

80 (a) $139,948 



(b) $49,260 

(c) $49,750 

(d) A   

The overdraft is a current liability and must not be deducted from any cash balances; the 

bank loan is a non-current liability as it is not due for payment for more than 12 months 

from the reporting date. 

(e) 

A  


'Profit' on revaluation must be credited to a revaluation surplus, not to retained earnings          

for the year. 

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             PRACTICE ANSWER BANK 

 

518

 

(f) 

$44,260 

 

 



 

Profit before tax 



 

49,260 


 

Tax 


  (5,000) 

 

Retained earnings for the year 



 44,260 

Remember that dividends and transfers to reserves are part of the statement of changes in 

equity. 

81 B  Non-adjusting 

events. 

82 


The fraud is an adjusting event, as it took place during the year to 30 June, although it 

was not discovered until after the year end. The loan stock issue is a non-adjusting event 

but due to its materiality should be disclosed in the notes. 

83 



1 is an adjusting event, as it provides evidence of a condition that existed at the reporting 



date – ie that the customer's debt was irrecoverable. The debt should be written off, and 

therefore net profit is reduced by $150,000. (2) is non-adjusting, as it does not affect the 

situation at the reporting date and therefore has no impact on profit at the reporting date. 

This event should simply be disclosed in the financial statements.  

84 



Depreciation charges should have been added, not deducted. 



85  

 

(a) FLAIL 



CO 

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20X1 

 

 

$      



 

$      


Cash flows from operating activities  

 

 



Cash received from customers ($29,400 – $900) 

 

28,500 



 

Cash paid to suppliers ($19,500 – $2,550) 

 

 (16,950) 



 

Cash paid to and on behalf of employees ($10,500 – $750) 

 

 (9,750) 



 

Interest paid 

 

(2,100) 


 

Interest received 

 

       75 



 

Net cash flows from operating activities 

 

 



(225) 

Investing activities  

 

 



Purchase of non-current assets 

 

 



 (21,000) 

 

 



$      

 

$      



Financing activities

 

 



 

Issue of shares 

 

35,000 


 

Proceeds from medium-term loan 

 

21,000 


 

Repayment of medium-term loan 

 

 (5,250) 



 

Net cash flows from financing activities 

 

 



50,750 

Net increase in cash and cash equivalents 

 

 

29,525 



Cash and cash equivalents at 1 January 20X1 

 

 



         – 

Cash and cash equivalents at 31 December 20X1 

 

 

29,525 



Note that the dividend is only proposed and so there is no related cash flow in 20X1. 

(b) 


Items 1 and 3 do not involve movements of cash. 

86 



An increase in a bank loan will be classified under financing cash flows. A loss on the sale 



of a non-current asset will be added back to net profit to calculate operating cash flows 

using the indirect method.  

87 



Both investments are subsidiaries. In 1, Barracuda has more than 50% of the voting 



rights, as it owns more than 50% of the ordinary shares. In 2, Barracuda has the ability to 

control Major, as it can appoint more than half the board of directors of Major Inc. 

88 



None of the statements are correct. A 50% investment will usually mean that an 



investment is a subsidiary, however, if it can be shown that the investor does not have 

control over the investee company, it will not be classified as a subsidiary. Consolidated 

accounts are prepared to represent the substance and not the legal form of the 

relationship between parent and subsidiary. An associate is an entity in which an investor 

has significant influence.  

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PRACTICE ANSWER BANK 

 

519 

89 


Delta's share of profit after tax should be included as a single amount in the consolidated 

statement of profit or loss. 

90 


Current assets (250 + 100 – 6)  

 

91 C 


 

 $'000 


Consideration transferred 

 300 


Fair value of non-controlling interest at acquisition 

  100 


 

 400 


Less net assets acquired (200 + 36) 

 (236) 


 

 

 



164 

92 C 


 

 $'000 


Consideration transferred 

 500 


Fair value of non-controlling interest  

  125 


 

 625 


Less net assets acquired  

 (450) 


 

 

 



175 

93 B 


 

 $'000 


Vaynor Co 

 90 


Weeton Co (40 + 10) 

 50 


Yarlet Co (70 – 30) 

   40 


 

 180 


94 B 

 

 



$      

Spring 


 

200,000 


Summer 

 

160,000 



 

 

360,000 



Less intra-group sales 

 

(16,000) 



Add provision for unrealised profit (16,000 – 10,000) 

 

    6,000 



 

 

350,000 



95 

Reduce revenue by intra-group sales of $40,000. 



96 

Reduce consolidated profit by provision for unrealised profit. 



20,000 × 

25

125



 = $4,000 

97 C 


 

 

Sanderstead 

Co 

 

Croydon 

  Co 

Adj 

Consol 

 





Revenue 

 

600,000 



 

300,000 


 

(20,000) 

 

880,000 


Cost of sales 

 

(400,000) 



 

(200,000) 

 

20,000 


 

(580,000) 

Gross profit 

 

 



 

 

300,000 



98 

Example: suppose the entity purchases inventory worth $300,000: 



 

                            Current ratio      Quick ratio

 

Before  



1,500

1,000


 =  1.5   

400


1,000

 =  0.4 


After  

1,800


1,300

 =  1.4   

400

1,300


 =  0.3 

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             PRACTICE ANSWER BANK 

 

520

 

99 


Calculate the ratios relating to the new product: 

Operating profit margin: 

 

120



1,600

 = 7.5% (less than existing margin of 10%) 

ROCE:  

120


500

 = 24% (greater than existing ROCE of 20%) 

Existing ROCE is 10% × 2 = 20%. 

100  


(a) JESSICA 

GROUP 


CONSOLIDATED STATEMENT OF PROFIT OR LOSS  

FOR THE YEAR ENDED 31 DECEMBER 20X7 

 

 

$m 



Revenue (7,500 + 3,000 – 5) 

  

10,495 



Cost of sales (4,000 + 1,600 – 5 + 1) 

 5,596 


Gross profit 

  

4,899 



Operating expenses (2,000 + 500) 

  

2,500 



Profit before taxation 

  

2,399 



Income taxes (300 + 120) 

   420 


Profit for the year 

  

1,979 



 

 

Intra-group trading 

 

Selling price 



 5

 

Cost 



 3

 

Profit 



 2

 

Unrealised 50%  2m = 1m 



 

 

 



NCI share = 25%  1m = 0.25m 

 

(b) 



Profit attributable to: 

 

$m 



  Owners of the parent (bal. fig.) 

1,484.5 


  Non-controlling interest ((25%  1,979) – 0.25) 

  

   494.5 



 

  

1,979.0 



(c) 

Current ratio = current assets/current liabilities. If the ratio is less than 1, it could 



 

mean  that the company is unable to pay its debts on time.  

Therefore 1 is incorrect, because the ratio has gone up and is now above 1, it 

means the company is more likely to be able to pay its debts on time compared 

with before when the ratio was less than 1. 2 is correct, as an increase in revenue 

caused by an increase in price (as opposed to a change in volume) will lead to a 

larger receivables balance, hence a larger current assets balance compared to 

current liabilities. 3 is incorrect, as a higher supplier costs will result in a larger 

current liabilities balance, while current assets remain the same.  

(d) 


Control is the main factor to be taken into account when considering a parent-

 

subsidiary relationship. Control is deemed to exist if an investor owns more than 



 

50% of the ordinary  shares. Significant influence is used to decide whether an 

 

investment is an associate. 



 

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521 

 

 



Bibliography

 

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INDEX 

 

522

 

 

 



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BIBLIOGRAPHY 

 

523 

Bibliography 

International Financial Reporting Standards 

IFRS Foundation (2016) IFRS [Online]. Available at: http://eifrs.ifrs.org [Accessed October 2017]. 

UK Law 

Companies Act (2006) London: Stationery Office. 

www.nationalarchives.gov.uk/doc/open-government-licence/version/3/ 

Contains public sector information licensed under the Open Government Licence v3. 

Conceptual Framework 

IFRS Foundation (2018) Conceptual Framework for Financial Reporting 2018 [Online]. Available at: 

https://shop.ifrs.org [Accessed October 2018] 

 

 

 



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BIBLIOGRAPHY 

 

524

 

 

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525 

 

 



Index

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INDEX 

 

526

 

 

 



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INDEX 

 

 



527 

Note: Key Terms and their references are given in bold

A

ccounting records, 330 



Accruals182 

Accruals basis34 

Acid test ratio, 470 



Adjusting event376 

Aged receivables analysis, 210 



Allowance for receivables213 

Amortisation172 

Amortisation of development costs, 173 



Asset13171 

Asset register, 161 

Asset turnover, 464 

Associate410 

Authorised (or nominal) capital, 330 



AVCO (average cost)118 

 

B

alancing ledger accounts, 91 

Bank charges, 264 

Bank interest, 264 

Bank reconciliation264 

Bank statements, 53 

Bonus (capitalisation) issues, 338 

Books of prime entry49 

Business entity concept, 6, 63 

 

C

alled-up capital, 331 

Capital63 

Capital expenditure135 

Capital income, 136 

Capital transactions, 136 

Carriage inwards, 110 

Carriage outwards, 110 

Carrying amount138 

Cash384 

Cash and cash equivalents, 384 



Cash book52 

Cash cycle, 469 



Cash discount240 

Cash discounts allowed, 241, 242, 243 

Cash discounts received, 241 

Cash equivalents384 

Cash flow accounting 

advantages, 396 

Cash flow information 

benefits, 383 

Cash flows384 

Comparability37 

Compensating errors, 93, 276, 278 

Conceptual Framework for Financial Reporting, 

33 

Consistency, 38 



Consolidated financial statements408 

Contingent asset202 

Contingent liability201 

Continuous inventory records, 116 

Contra entries, 252 

Contract365 

Control408 

Control account238, 255 

Correction of errors, 80 



Cost138 

Credit71 

Credit note48 

Creditors, 73 

Cumulative weighted average costing, 121 

Current asset350 

Current liability350 

Current ratio, 470 

Current replacement cost, 116 

Customer365 

 

D



ebit71 

Debit note, 48 



Debt ratio466 

Depreciable amount141172 

Depreciation, 141, 162 

reducing balance method, 144 

straight line method, 143 

Development171 

Direct method, 385 

Disclosures, 347 

Discount, 239 



Dividends336, 378 

Double entry bookkeeping70 

Doubtful debt213 

Drawings64 

Duty of care, 12 

 

E

fficiency ratios, 471 

Entity concept, 38 

Equity14 

Equity method, 410 

Errors, 80 

Error of commission, 276, 277, 281 

Error of omission, 276, 277, 281 

Error of principle, 93, 276, 277 

Error of transposition, 276, 277 

Events after the reporting period376 

Expected value approach, 200 



Expenses15 

 

F



air value138 

Fair value of net assets, 425 



Faithful representation36 

FIFO (first in, first out)118, 125 

Financial accounts, 9 

Financial analysis, 459 

Financing activities384, 385 

Fixed production overheads124 

Framework for the preparation and presentation 

of Financial Statements, 10, 13 

G

earing ratio, 467 

General ledger, 61 

Going concern33 

Goods destroyed, 300 

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INDEX 

 

 



528

 

Goods received notes, 48 

Goods written off, 111 

Goodwill, 421 

Governance, 12 

Gross profit margin299, 465 

Group408 

 

H

istorical cost, 116 

 

I

AS 1 Presentation of financial statements

387 


IAS 2 Inventories, 117 

IAS 27 Separate financial statements, 408 

IAS 28 Investments in associates, 408 

IAS 38 Intangible assets, 171 

IFRS 3 Business combinations, 408 

IFRS 10 Consolidated financial statements

408 

IFRS 15 Revenue from Contracts with 



Customers, 364 

IFRS Advisory Council, 22 

IFRS Foundation, 22 

IFRSs, 23 

Impairment of development costs, 174 

Income15365 

Income tax, 353 

Incomplete records, 292 

Indirect method (cash flows), 386 



Input sales tax227 

Intangible asset171 

Interest cover, 467 

International Accounting Standards Board 

(IASB), 21 



Inventories123, 162 

costs of conversion, 124 

costs of purchase, 124 

Inventory destroyed, 302 

Inventory turnover period, 471 

Investing activities384, 385 

Invoice47 

Irrecoverable (or 'bad') debt211 

Issued capital, 331 

 

J

ournal, 49, 78 

Journal entries, 278 

 

L

edger accounts, 60 

Leverage, 467 

Liability14, 66, 198 

LIFO (last in, first out)118, 125 

Limited liability, 5, 329 

Limited liability companies5, 7 

Liquidity, 466, 468, 469, 470 

Loan stock bonds, 333 

Long-term solvency, 466 

 

M



anagement (or cost) accounting9 

Market value of shares, 333 



Mark-up299 

Materiality36 

 

N

et profit margin, 465 

Net realisable value, 111, 116, 123, 127 

Nominal ledger61 

Non-adjusting event377 

Non-controlling interest408428 

Non-current assets135 

disposal, 154 

Normal capacity, 124 

 

O

mission of a transaction, 93 

Operating activities384 

Operating cycle350 

Ordinary shares332 

Output sales tax227 

 

P

aid-up capital, 331 

Par value, 330 



Parent408 

Partnerships5 

Payable66 

Payables control account238 

Payables ledger83 

PBIT, profit before interest and tax, 462 



Performance obligation365 

Petty cash book54 

Power408 

Preference shares331 

Prepayments182 

Profit5 

Profit analysis, 465 

Profit margin, 464 

Profit or loss account, 94 

Profitability, 462 

Property, plant and equipment138 

Provisions198, 200, 338 

Prudence, 35 



Purchase day book50 

Purchase order, 46 



Purchase returns day book51 

 

Q

uick ratio, 470 

 

R



eceivable67 

Receivables collection period, 471 



Receivables control account238 

Receivables ledger82 

Recognition of property, plant and equipment, 

138 

Reconciling items, 248 



Relevance35 

Reporting period, 348 



Research171 

Research and development, 171 



Reserve, 334, 338 

Residual value141 

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INDEX 

 

529 

Return on capital employed (ROCE), 462 

Return on equity (ROE), 463 

Revaluation of non-current assets, 150 

Revaluation surplus, 336 

Revenue365 

Revenue expenditure135 

Revenue income, 136 

Rights issues, 339 

 

S



ales day book49 

Sales order, 47 



Sales returns day book51 

Sales tax, 226 

Secondary ratios, 464 

Settlement discount240 

Share premium account335 

Shareholders, 7 

Short-term solvency, 468 

Significant influence410 

Sole traders5 

Standard cost, 125 

Standard-setting process, 23 

Statement of changes in equity, 355 



Statement of financial position13 

Statement of profit or loss15 

Stolen goods, 300 



Subsidiary408 

Substance over form, 37 

Supplier statement reconciliations, 247 

Suspense account280, 282 

 

T

-accounts, 62 

Taxation, 353 

Time differences, 264 

Timeliness38 

Trade accounts receivable, 67 



Trade discount239, 240 

Trade investment408 

Transaction price365 

Transposition error, 256, 281 

Trend analysis, 459 

Trial balance90 

Two column cash book303 

 

U



nderstandability38 

Unlimited liability329 

Unpresented cheques, 265, 268 

Unrealised profits (PUP), 432 

Useful life141172 

Users of accounting information, 10 

 

V

ariable production overheads124 

VAT, 228 



Verifiability37 

 

W

eighted average cost, 125 

Working capital, 351 

 

 

 



 

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INDEX 

 

 



530

 

 

 



 

 

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NOTES 

 

 



 

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NOTES 

 

 

 

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FOUNDATIONS IN ACCOUNTANCY/ACCA FINANCIAL ACCOUNTING FFA/FA 

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BPP Tutor Toolkit Copy



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