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CB1-12: Constructing accounts Page 13

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Chapter 12 Practice Questions

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All of the questions that follow are exam style.

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Exam style

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12.1 The following information has been extracted from the accounting records of Aztec plc:

Trial Balance at 31 July 20X5

£000 £000s
Administration costs 800
Marketing expenses 500
Bank 700
Trade receivables (debtors) 1,300
Factory – cost 23,300
Factory – depreciation 1,800
Factory running costs 1,200
Directors’ remuneration 600
Interim dividend paid 100
Interest 1,680
Long-term loans 12,000
Machinery – cost 15,000
Machinery – depreciation 8,000
Manufacturing wages 1,700
Purchases 1,600
Retained earnings at 31 July 20X4 980
Sales 13,000
Sales salaries 1,600
Share capital (50p shares) 13,000
Inventories at 31 July 20X4 700
Trade payables (creditors) 600
50,080 50,080

Notes:
(a) The corporation tax charge for the year has been estimated at £300,000.
(b) At the year-end the directors had the factory professionally revalued. The valuer’s report
estimates the value of the property at £25,000,000. This value is to be incorporated into
the statement of financial position.
(c) Depreciation for the year is charged at 1% of cost for the factory and at 20% of the
reducing balance for the machinery.
(d) Inventories at 31 July 20X5 were valued at £550,000.
(e) After the year-end, an invoice for £100,000 was received for marketing costs incurred in
the period 1 April  31 July 20X5.

Prepare Aztec plc’s statement of comprehensive income for the year ended 31 July 20X5 and the
statement of financial position as at that date. [20]

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Page 14 CB1-12: Constructing accounts

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12.2 At 31 December 20X0 the statement of financial position of TFLD Ltd was as follows:

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£ £

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ASSETS

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Non-current assets
Cost 300,000
less depreciation (90,000)
210,000
Current assets
Inventories 62,500
Trade receivables 10,650
Cash 12,825
85,975
Total assets 295,975

EQUITY AND LIABILITIES

Ordinary share capital 100,000
Reserves 39,350
Total equity 139,350
Non-current liabilities
12% Debenture loan 150,000
Current liabilities
Trade payables 6,625
Total liabilities 156,625
Total equity and liabilities 295,975

During 20X1 the following items appeared in the company’s accounting records:

£
Sales 190,750
Increase in cash 3,950
Increase in inventories 9,250
Increase in trade payables 2,250
Decrease in trade receivables 1,700
Rent of factory 30,000
Costs of raw materials 45,000
Salaries and wages 55,000
Miscellaneous expenses 2,750
Purchase of non-current assets 40,000

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CB1-12: Constructing accounts Page 15

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The non-current assets are being depreciated on a straight line basis over a period of ten years

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including the year of purchase.

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During 20X1 interest was paid on the debenture stock but no dividends were paid on the ordinary

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share capital.

Assume the rate of corporation tax is 20%, but the company did not pay its tax during 20X1.

Prepare the statement of profit or loss for 20X1 and the statement of financial position as at
31 December 20X1. [20]

12.3 At 31 July 20Y4 the statement of financial position of BOLD PLC was as follows:

(£000s)
ASSETS
Non-current assets
Freehold land and buildings 2,000
Other non-current assets 700
2,700
Current assets
Inventories 400
Trade receivables 300
Cash 120
820
Total assets 3,520

EQUITY AND LIABILITIES

Ordinary shares of 20p 1,200
Retained earnings 930
Total equity 2,130

Non-current liabilities
12% Mortgage 1,000
Current liabilities
Trade payables 190
Tax 200
390
Total liabilities 1,390

Total equity and liabilities 3,520

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Page 16 CB1-12: Constructing accounts

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The following information is available for the year to 31 July 20Y5:

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(£000s)

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Sales 1,000

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Decrease in cash 95
Increase in inventories 50
Decrease in trade receivables 130
Decrease in trade payables 90
Wages, rent etc 210
Cost of raw materials 395
Cost of building extension to freehold buildings 200
Depreciation of freehold land and buildings 32
Other depreciation 93
Tax paid 110
Payment of dividend declared for year ending 31 July 20Y4 100

Assuming a corporation tax rate of 20%, prepare:

(i) the statement of profit or loss for the year ending 31 July 20Y5 [7]

(ii) the statement of financial position as at 31 July 20Y5 [9]

(iii) the statement of changes in equity for the year ending 31 July 20Y5. [4]
[Total 20]

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CB1-12: Constructing accounts Page 17

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12.4 Shown below is the statement of financial position dated 31 December 20Z6 for Bodgit & Fixit, a

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manufacturing firm making tools and DIY equipment:

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£ £

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ASSETS
Non-current assets
Factory 675,000
Machinery 125,000
800,000
Current assets
Inventories 85,000
Trade receivables 25,000
Cash 40,000
150,000
Total assets 950,000

EQUITY AND LIABILITIES

Issued ordinary shares of 50p 250,000
Other reserves:
Share premium account 100,000
Revaluation reserve 80,000
180,000
Retained earnings 87,000
Total equity 517,000

Non-current liabilities
8% Convertible loan stock 200,000
10% Debentures 150,000
350,000
Current liabilities
Trade payables 34,000
Bank loan 30,000
Tax payable 19,000
83,000
Total liabilities 433,000

Total equity and liabilities 950,000

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Page 18 CB1-12: Constructing accounts

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During 20Z7, the following occurred:

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£

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Sales 555,000

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Increase in inventories 17,000
Purchases of raw materials 112,000
Staff costs 85,000
Electricity costs 91,000
Advertising & delivery costs 59,000
Cash payments received 447,000
Increase in trade payables 25,000
Dividends paid 12,000
Tax paid 13,000
Increase in cash 39,000

You are also given the following information:

(a) The company repaid its bank loan on 5 January 20Z7.

(b) The factory was originally purchased in December 20Z0. In 20Z6 it was revalued and its
remaining life estimated to be ten years at which time it would be worth zero. The annual
depreciation charge for 20Z6 was based on the revalued figure and the revaluation of the
factory was included in the 20Z6 revaluation reserve.

The machinery was purchased in 20Z6 for a price of £150,000. It is being depreciated to
zero over a period of six years.

(c) The first conversion date for the 8% convertible loan stock was 15 December 20Z7.
£100,000 nominal was converted. The conversion terms were two shares for every £5
nominal of convertible stock. Interest was paid before conversion took place.

(d) The directors were concerned about the level of trade receivables and decided to set up a
provision for bad debts equal to 10% of the trade receivables outstanding at the end of
the accounting year.

Assuming a tax rate of 20%, draw up the statement of profit or loss for 20Z7 and the statement of
financial position dated 31 December 20Z7 in a form suitable for publication. [20]

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CB1-12: Constructing accounts Page 19

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12.5 The following information has been extracted from the bookkeeping records of Perso plc:

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Trial balance as at 31 December 20T4

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£000 £000
Bank 12
Trade payables 187
Trade receivables 245
Land and buildings – cost 1,300
Land and buildings – depreciation 195
Interest 65
Loan 450
Plant and machinery – cost 800
Plant and machinery – depreciation 140
Retained earnings at 31 December 20T3 215
Raw materials purchased 502
Advertising 30
Directors’ remuneration 45
Sales 1,175
Share capital 700
Other reserves 180
Inventories at 31 December 20T3 6
Salaries – factory staff 112
Salaries – administration 125
3,242 3,242
Notes:

(1) Depreciation is to be charged on the following bases:

 Buildings on a straight line basis, assuming a residual value of £100,000 on
31 December 20T8. The book value on 31 December 20T3 was £555,000.
 Plant and machinery at 20% of reducing balance.

(2) No dividend was paid in relation to the 20T3 accounting year. There was no change in the
issued share capital during 20T4.

(3) The corporation tax charge has been estimated at £12,000 for the year. No tax was
payable in respect of the 20T3 accounting year.

(4) Inventories at 31 December 20T4 were £8,000.

(5) In the statement of financial position at 31 December 20T3, trade payables were
£131,000, trade receivables were £199,000, cash at bank was £6,000 and loans were
£750,000.

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Page 20 CB1-12: Constructing accounts

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(i) Prepare Perso’s statement of profit or loss for the year ended 31 December 20T4 and its

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statement of financial position as at that date.

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These should be in a form suitable for publication insofar as this is possible from the

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information provided. [14]

(ii) Prepare Perso’s cashflow statement for the year ended 31 December 20T4. [6]

The ability to construct a cashflow statement is not part of the CB1 syllabus, and hence
unlikely to be tested in the exam, but it might be useful to have the experience.
[Total 20]

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