Paper T6 (UK)

Certified Accounting Technician Examination

Advanced Level

Drafting Financial
Statements
(UK Stream)
Monday 1 June 2009

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours
This paper is divided into two sections:
Section A – ALL 10 questions are compulsory and MUST
be attempted
Section B – ALL THREE questions are compulsory and MUST
be attempted
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

Section A – ALL 10 questions are compulsory and MUST be attempted

Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question in this section is worth 2 marks

1 Berino Ltd owns 70% of the shares in Muggie Ltd. Berino Ltd has creditors of £244,000. Muggie Ltd has creditors
of £40,000 of which £6,000 is owed to Berino Ltd. Berino Ltd has debtors of £360,000 and Muggie Ltd has debtors
of £150,000.

What amounts should be recorded for the consolidated creditors and debtors in the group accounts of Berino Ltd?
Creditors Debtors
£ £
A 278,000 504,000
B 194,600 352,800
C 284,000 510,000
D 290,000 516,000

2 During periods of general price inflation, what is the effect of using the historical cost concept on the value of a
company’s fixed assets and profits?
Fixed asset values Profit
A understated overstated
B understated understated
C overstated overstated
D overstated understated

3 Which of the following items could appear in a company’s cash flow statement?
(1) Surplus on revaluation of fixed assets
(2) Bonus issue of shares
(3) Proceeds of issue of shares
(4) Dividends received
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4

4 Scarfell Ltd has 10 million £1 issued ordinary shares. At 1 May 2009 Snowdon Ltd purchased 70% of Scarfell Ltd’s
£1 ordinary shares for £8,000,000. At that date Scarfell Ltd’s accumulated profits were £750,000.

What was the goodwill arising on this acquisition at 1 May 2009?

A £2,475,000
B £250,000
C £1,000,000
D £475,000

2
5 At 31 May 2009 the following items have not yet been included in a company’s financial statements:
(1) In June 2009 the company recorded a receipt of £3,000 rent from a tenant for the three months to 31 May
2009.
(2) The company recorded a payment for £6,000 buildings insurance on 1 December 2008, for the year to
30 November 2009.
(3) The accounts show the company made a loan of £10,000 to an employee, repayable on 1 June 2009. On the
due date the employee repaid the loan and paid interest due of £500 on the loan to that date.

What amounts should be recognised in respect of these items in the company’s balance sheet at 31 May 2009?
Current assets Current liabilities
£ £
A 13,500 3,000
B 6,500 nil
C 3,500 3,000
D 16,500 nil

6 Ross Ltd’s financial year end is 31 May. The rent for Ross Ltd’s premises is paid quarterly in advance on 1 February,
1 May, 1 August and 1 November each year. The annual rent was £72,000 per year until 31 July 2008. It was
increased from that date to £84,000 per year.

What rent expense and end of year prepayment should be included in the financial statements for the year ended
31 May 2009?
Expense Prepayment
A £82,000 £14,000
B £83,000 £7,000
C £83,000 £14,000
D £82,000 £7,000

7 Which of the following should appear in a company’s statement of total recognised gains and losses?
1 Amortisation of capitalised development costs
2 Dividends paid
3 Profit for the year
A 1, 2 and 3
B 1 and 3 only
C 1 and 2 only
D 2 and 3 only

8 Which of the following statements are correct?

(1) A cash flow statement prepared using the direct method produces a different figure for operating cash flow from
that produced if the indirect method is used.
(2) A surplus on revaluation of a fixed asset will appear as a cash flow in a cash flow statement.
(3) Rights issues of shares appear in the cash flow statement.
(4) A profit on the sale of a fixed asset will appear as an item under capital expenditure and financial investment in
a cash flow statement.
A 1 and 4
B 2 and 3
C 3 only
D 2 and 4

3 [P.T.O.
9 At 31 May 2008 Bootle Ltd had an allowance for debtors of £25,000. At 31 May 2009 its trade debtors totalled
£470,000. Bootle decided to write off debts totalling £24,000 and to adjust the allowance for debtors to 5% of the
remaining trade debtors.

What net figure should appear in the profit and loss account for the year ended 31 May 2009 for debtors?
A £46,300
B £21,300
C £22,300
D £22,500

10 Which of the following material events are adjusting in accordance with FRS 21 Events after the Balance Sheet
Date?
(1) Discovery of a fraud affecting the financial statements.
(2) Sale of stock held at the reporting date for less than cost.
(3) The insolvency of a customer with an outstanding debt owing at the reporting date.
A 1, 2 and 3
B 1 and 2 only
C 2 and 3 only
D 1 and 3 only

(20 marks)

4
 This is a blank page.
Section B begins on page 6.

5 [P.T.O.
Section B – ALL THREE questions are compulsory and MUST be attempted

1 You are presented with the following trial balance of Portsmere Ltd at 31 May 2009.
Dr Cr
£000 £000
Intangible assets 50
Plant at cost 176
Plant, accumulated depreciation, at 1 June 2008 88
Buildings at cost 592
Buildings, accumulated depreciation, at 1 June 2008 48
Land at cost 188
Bank balance 30
Accumulated profit and loss account, at 1 June 2008 104
10% Debentures 40
Debenture interest paid 4
Dividend paid 20
Sales 1,510
Returns inwards 28
Wages and salaries 144
Insurance 14
Energy expenses 70
Stock at 1 June 2008 128
Administrative expenses 64
Allowance for debtors, at 1 June 2008 8
Purchases 884
Discounts received 76
Trade creditors 200
Trade debtors 256
Director’s remuneration 56
£1 Ordinary shares 570
Share premium account 60
–––––– ––––––
2,704 2,704
––––––
–––––– ––––––
––––––
Additional information as at 31 May 2009
(i) Closing stock has been valued at £60,000.
(ii) Energy expenses of £12,000 for May 2009 have not been invoiced or recorded.
(iii) Insurance expenses include £2,000 for June and July 2009.
(iv) The allowance for debtors is to be increased to 5% of trade debtors. The increase should be charged to
administrative expenses.
(v) Plant is depreciated at 25% per annum using the reducing balance method. The entire charge is to be allocated
to cost of sales.
(vi) Buildings are depreciated at 5% per annum on their original cost, allocated 50% to cost of sales, 30% to
distribution costs and 20% to administrative expenses.
(vii) Land was revalued at 31 May 2009 to £200,000.
(viii) The intangible assets were purchased on 1 December 2008 and have useful life of five years from that date.
Amortisation is calculated on a monthly basis and charged to administrative expenses.
(ix) Tax has been calculated as £40,000 for the year.

6
(x) The expenses listed below should be apportioned as indicated:
Cost of Distribution Administrative
Sales Costs Expenses
Discounts received – – 100%
Insurance – 50% 50%
Energy expenses 50% 20% 30%
Wages and salaries 40% 35% 25%
Director’s remuneration – – 100%
(xi) The current share price of Portsmere Ltd is £1·10 per share.

Required:
(a) Prepare for external purposes, the following financial statements for Portsmere Ltd:
(i) the profit and loss account for the year ended 31 May 2009
Note: show clearly your workings for cost of sales, distribution costs and administrative expenses.
(20 marks)
(ii) the statement of total recognised gains and losses; (2 marks)
(iii) the balance sheet as at 31 May 2009 (15 marks)

(b) Calculate the following accounting ratios for Portsmere Ltd:

(i) Earnings per share
(ii) P.E. ratio
Note: show ratio formulas and workings. (3 marks)

(40 marks)

7 [P.T.O.
2 The balance sheets of two sole trader businesses are shown below:
Balance sheet as at 31 May 2009
Black Pool
Fixed Assets £ £ £ £
Property 32,500 –
Plant and machinery 16,200 20,800
Motor vehicle 2,000 9,100
––––––– –––––––
50,700 29,900
Current assets
Stock 5,000 5,200
Trade debtors 1,500 1,690
Cash at bank 1,000 3,900
––––––– –––––––
7,500 10,790
Current liabilities
Trade creditors (5,100) (10,400)
––––––– –––––––
Net current assets 2,400 390
Long-term liabilities
Loan from Peston (3,600) –
––––––– –––––––
49,500 30,290
–––––––
––––––– –––––––
–––––––
Capital accounts
Black 49,500 –
Pool – 30,290
––––––– –––––––
49,500 30,290
–––––––
––––––– –––––––
–––––––
On 31 May 2009 Black and Pool decided to amalgamate their existing businesses to form a partnership called
Blackpool. They agree a future profit sharing ratio as partners of 3:1 to Black and Pool respectively.
At the date of amalgamation:
(i) goodwill was agreed to be £14,000 for Black and £10,000 for Pool.
(ii) the property belonging to Black was revalued at £40,000.
(iii) Black’s motor vehicle was not transferred to Blackpool.
(iv) Pool’s stock was revalued at £4,200.
(v) Black’s plant and machinery was revalued at £15,000 and Pool’s revalued at £20,000.
(vi) the loan from Peston was taken over by Blackpool.
(vii) all the trade creditors and trade debtors were taken over by Blackpool at their book value.

Required:
(a) Prepare the following accounts for both Black and Pool as they would appear on the closing of their
respective businesses:
(i) Revaluation accounts (4 marks)
(ii) Capital accounts (4 marks)

(b) Prepare the balance sheet for Blackpool immediately following the formation of the partnership.
Note: goodwill is not to be recorded in the accounts of the partnership. (8 marks)

(c) Describe four of the main terms you would expect to be set out in a partnership agreement (4 marks)

(20 marks)

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3 The ASB’s Statement of Principles for Financial Reporting sets out the concepts that underlie the preparation and
presentation of financial statements for external users. The qualitative characteristics of financial information are
described in the Statement.

Required:

(a) Explain the purpose of an accounting conceptual framework. (3 marks)

(b) State and explain the four qualitative characteristics of financial information that are currently included in
the Statement of Principles. (8 marks)

(c) State the arguments for the accounting profession having agreed accounting standards as a basis for
preparing financial statements. (5 marks)

(d) Discuss whether it is ever acceptable to depart from an accounting standard. (4 marks)

(20 marks)

End of Question Paper