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Adv. Financial Accounting August 2015 2nd
Year Paper
Page 1 of 25 Adv. Financial Acc. A2015 (AFA)
Advanced Financial Accounting 2
nd Year Examination
August 2015
Solutions & Marking Scheme & Examiner’s Comments
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 2 of 25 Adv. Financial Acc. A2015 (AFA)
NOTES TO USERS ABOUT THESE SOLUTIONS
The solutions in this document are published by Accounting Technicians Ireland. They are intended to provide
guidance to students and their teachers regarding possible answers to questions in our examinations.
Although they are published by us, we do not necessarily endorse these solutions or agree with the views expressed
by their authors.
There are often many possible approaches to the solution of questions in professional examinations. It should not be
assumed that the approach adopted in these solutions is the ideal or the one preferred by us. Alternative answers will
be marked on their own merits.
This publication is intended to serve as an educational aid. For this reason, the published solutions will often be
significantly longer than would be expected of a candidate in an examination. This will be particularly the case
where discursive answers are involved.
This publication is copyright 2015 and may not be reproduced without permission of Accounting Technicians
Ireland.
© Accounting Technicians Ireland, 2015.
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 3 of 25 Adv. Financial Acc. A2015 (AFA)
Accounting Technicians Ireland
2nd
Year Examination: Autumn 2015
Paper: Advanced Financial Accounting
Monday 10 August 2015
2.30 p.m. to 5.30 p.m.
INSTRUCTIONS TO CANDIDATES
PLEASE READ CAREFULLY
Candidates must indicate clearly whether they are answering the paper in accordance with the law and
practice of Northern Ireland or the Republic of Ireland.
In this examination paper the €/£ symbol may be understood and used by candidates in Northern Ireland to
indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate the Euro.
Answer ALL THREE questions in Section A and TWO of the THREE questions in Section B. If more than
TWO questions are answered in Section B, then only the first TWO questions, in the order filed, will be
corrected.
Candidates should allocate their time carefully.
All workings should be shown.
All figures should be labelled, as appropriate, e.g. €’s, £’s, units etc.
Answers should be illustrated with examples, where appropriate.
Question 1 begins on Page 2 overleaf.
Adv. Financial Accounting August 2015 2nd
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Page 4 of 25 Adv. Financial Acc. A2015 (AFA)
Note:
This paper uses both the language of International Accounting Standards (I.A.S’s) and Financial Reporting
Standards (F.R.S’s) where appropriate (e.g. Receivables/Debtors). Examinees are permitted to use either
terminology when preparing financial statements but the use of the language of the International Accounting
Standards (e.g. Receivables rather than Debtors) is preferred.
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 5 of 25 Adv. Financial Acc. A2015 (AFA)
SECTION A
Answer ALL THREE Questions in this Section
QUESTION 1
(a) When an individual chooses to set up a business, that business can typically be carried on through the medium
of a sole trader business, a partnership or a limited company. Outline the key characteristics of each.
12 marks
(b) Outline the key difference between a limited and an unlimited company and outline a scenario where an
unlimited structure might be the preferred medium.
3 marks
(c) Outline a key difference between a private limited company and a public limited company
2 marks
(d) What do you understand by the term “limited by guarantee”? Outline when this type of company structure
might be appropriate.
3 marks
Total 20marks
QUESTION 2
The following multiple choice question consists of TEN parts, each of which is followed by FOUR possible
answers. There is ONLY ONE right answer in each part.
Each part carries 1 ½ marks.
Requirement
Indicate the right answer to each of the following ten parts.
Total: 15 marks
Candidates should answer this question by ticking the appropriate boxes on the special answer sheet which is
contained within the answer booklet.
Adv. Financial Accounting August 2015 2nd
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Page 6 of 25 Adv. Financial Acc. A2015 (AFA)
1. Under the terms of IAS 8, where the effect of a change in estimate is material to the financial statements;
(a) the nature and monetary effect of the change on the financial statements must be disclosed.
(b) the change in estimate must be applied retrospectively.
(c) the change in estimate should be applied retrospectively where it is deemed necessary to provide more
reliable information.
(d) the nature and monetary effect of the change on the financial statements must be disclosed only where it is
necessary to provide more reliable information.
2. The following information relates to Job Ltd;
€/£
Trade payables at 1/1/2014 96,000
Transactions for the year ended 31 December 2014
Payments to suppliers 468,000
Discount allowed 7,500
Discount received 5,940
Payables at 31 December 2014 97,500
What is the total for credit purchases for the year ended 31 December 2014?
(a) €/£475,440
(b) €/£467,940
(c) €/£473,880
(d) €/£472,440
3. Which of the following costs would be considered an attributable cost in bringing an asset into working condition
for its intended use in accordance with IAS 16 Property, Plant and Equipment?
(a) Maintenance
(b) The cost of site preparation
(c) General administration
(d) Costs relating to production delays.
4. The following information relates to the closing inventory of Clarke Ltd as at 31 December 2014;
Sales Price per unit €/£75.00
Selling costs per unit €/£1.50
Distribution costs per unit €/£1.00
Production costs per unit €/£56.00
The NRV of each unit of inventory is:
(a) €/£75.00
(b) €/£72.50
(c) €/£73.50
(d) €/£56.00
Adv. Financial Accounting August 2015 2nd
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Page 7 of 25 Adv. Financial Acc. A2015 (AFA)
5. Based on the information contained in question 4, the value to be included for each item of inventory in the
financial statements of Clarke Ltd for the year ended 31 December 2014 is;
(a) €/£75.00
(b) €/£72.50
(c) €/£73.50
(d) €/£56.00
6. Which of the following best reflects a provision?
(a) A possible obligation that arises from a past event whose existence will be confirmed at some stage in the
future.
(b) A probable obligation that arises from a past event whose existence will be confirmed at some stage in the
future.
(c) A present obligation that arises from a past event the settlement of which is expected to result in an outflow
of economic benefits.
(d) A liability which has already been settled.
7. Which of the following statements is true in accordance with IAS 10 Events after the Reporting period?
(a) Events occurring after the reporting period are never relevant to the financial statements of that reporting
period.
(b) Events occurring after the reporting period that provide additional information on conditions existing at the
reporting date should be reflected in the financial statements of that reporting period.
(c) Events occurring after the reporting period are always relevant and the financial statements of that reporting
period must be adjusted.
(d) Events occurring after the reporting period only lead to adjustment of the financial statements if
they involve the non- current assets of the company.
8. If the Statements of Financial Position at 1/1/ 2014 and 31/12/2014 show a liability for tax of €/£14,000 and
€/£24,000 respectively, and the charge for taxation in the Income Statement for the year ended 31 December 2014 is
€/£38,000, then the figure which will appear in the Statement of Cash Flows for the year as “Taxation paid” will be;
(a) €/£38,000
(b) €/£28,000
(c) €/£48,000
(d) €/£18,000
9. The trade payable days ratio is calculated as follows;
(a) Payables/Credit purchases *365
(b) Payables /Total purchases *365
(c) Purchases/Payables
(d) Purchases/Sales
10. An internal control within an organisation to ensure that staff do not use the company jet for private purposes,
would be regarded as;
(a) an operational control
(b) a Turnbull control
(c) a legislative control
(d) an external audit control
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 8 of 25 Adv. Financial Acc. A2015 (AFA)
QUESTION 3
Trial Balance of Better Tiles Ltd as at 31st December, 2014
€/£’000 €/£’000
Buildings (cost €/£2,400,000) 1,500
Plant and machinery (cost €/£1,100,000) 860
Bank 20
Trade receivables and Payables 480 360
Inventory at 31 December, 2014 140
Share capital 900
Share premium 100
Revenue reserves, 31 December, 2013 1,040
Profit for year ended 31 December, 2014 540
Prepayments and accruals 40 60
3,020 3,020
You are given the following additional information:
1. A defect was found in one particular brand of floor tiles in January 2015. These tiles had been produced in
December 2014, and were included in the inventory figure in the trial balance at their original cost of
€/£30,000. The sales director believes that these tiles can only be sold for €/£10,000. The remaining
inventory has a net realisable value of €/£300,000 and a replacement cost of €/£360,000.
2. During 2014, a sales rep, visiting the company premises, fell on the factory floor and suffered neck and
back injuries. The rep. is suing the company for €/£300,000 in damages. Better Tiles Ltd’s lawyers are still
putting the case file together and as yet are not in a position to quantify what level of damages may be
ultimately agreed on and to what extent the company’s insurance policies will cover the pay-out.
3. The following items were not recorded in arriving at the figure of profit for the year in the trial balance :
(i) Training grant approved but not received of €/£80,000
(ii) Capital grant application, lodged but not yet approved of €/£1,000,000
(iii) Depreciation;
Buildings - 2% straight line
Plant and machinery - 20% straight line
A full year’s depreciation is charged in the year of acquisition and none in the year of disposal.
(iv) Corporation tax - €/£120,000
Required
Prepare the following financial statements for Better Tiles Ltd. in accordance with the requirements of international
standards:
Adv. Financial Accounting August 2015 2nd
Year Paper
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(a) A Statement of the corrected net profit after tax of Better Tiles Ltd for the year to 31 December 2014.
7 marks (b) A Statement of Changes in Equity for the year to 31 December 2014. 4 marks
(c) A Statement of Financial Position as at 31 December 2014. 7 marks
(d) The accompanying disclosure notes to the Financial Statements in relation to Inventories.
5 marks
Presentation: 2 marks
Total: 25 marks
SECTION B
Answer TWO of the THREE questions in this Section
QUESTION 4
Trial Balance (extract) of “Build a Brick” Ltd for year ended 31 December 2014.
€/£ €/£
Sales revenue 850,250
Returns In 4,500
Purchase of raw materials 425,651
Returns out 7,200
Carriage out 15,230
Carriage in 13,300
Inventories at 1 January 2014
Raw material 90,500
Work in progress 32,070
Finished Goods 27,250
Direct factory wages 60,790
Factory supervisors salary 37,560
Employer’s PAYE/PRSI(all factory related) 10,570
Machinery at cost 132,000
Repairs to machinery 9,700
Power( 60% production, 40% administration) 24,300
Insurance 15,000
Other admin expenses 73,500
The additional information is also available;
Adv. Financial Accounting August 2015 2nd
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1. Inventory at 31 December 2014;
Raw Material - €/£96,000
Work in Progress - €/£32,320
Finished Goods - €/£24,050
2. Machinery is to be depreciated by 10% using the straight line method.
3. 40% of insurance relates to production, the remainder to distribution.
Requirement:
(a) Prepare a statement showing the factory cost of goods produced for the year ended 31 December 2014.
10 marks
(b) Calculate the gross profit for the year ended 31 December 2014.
4 marks
(c) Calculate the net profit for the year ended 31 December 2014.
4 marks
Presentation: 2 marks
Total: 20 marks
QUESTION 5
The following are the accounts of two businesses that sell sporting goods.
Income Statement
J J K K
€/£ €/£ €/£ €/£
Revenue 80,000 120,000
Less Cost of Sales
Opening inventory 25,000 22,500
Add purchases 50,000 91,000
75,000 113,500
Less closing Inventory (15,000) (60,000) (17,500) (96,000)
Gross profit 20,000 24,000
Less expenses
Depreciation 1,000 3,000
Other expenses 9,000 (10,000) 6,000 (9,000)
Net profit 10,000 15,000
Statement of Financial Position
J J K K
Non – current assets €/£ €/£ €/£ €/£
Equipment 10,000 20,000
Less depreciation to date (8,000) 2,000 (6,000) 14,000
Current assets
Inventory 15,000 17,500
Receivables 25,000 20,000
Bank 5,000 45,000 2,500 40,000
Total assets 47,000 54,000
Adv. Financial Accounting August 2015 2nd
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Financed by
Capital
Balance at start of year 38,000 36,000
Add net profit 10,000 15,000
Less drawings (6,000) 42,000 (7,000) 44,000
Current Liabilities
Payables 5,000 10000
47,000 54,000
Requirement;
(a) Calculate the following ratios for each business;
i. Gross profit percentage
ii. Net profit percentage
iii. ROCE
iv. Current ratio
v. Receivable days
vi. Payable days 8 marks
(b) Comment on the relative performance of each company, based on the ratios you have calculated in (a) above.
6 marks
(c) Based on the ratios you have calculated, which business would be more attractive to a potential investor wishing
to invest in a sports business and why? 4 marks
Presentation: 2 marks
Total: 20 marks
QUESTION 6
TRAILERS Ltd., manufactures horse boxes. During the year ended 31st December 2014, TRAILERS Ltd.,
commenced manufacturing a new “double” horse box and purchased machinery costing €/£500,000, to be used for
the manufacture of the new horse box.
It is anticipated that the new machinery will have an expected useful life of ten years and will have no residual value
at that date. Depreciation is therefore to be 10% per annum using the straight line method.
During the year ended 31st December 2014, Trailers Ltd. received government grants as follows:
€/£
Training grants .............................................................................................. ... 40,000
(to assist in covering training costs of staff in the use of new machinery)
Grants related to assets …………………………………………….............................. 120,000
(to assist in covering the costs of the new machinery set out above)
Total Grants received…………………………………………………………………... 160,000
Requirement:
(a) Explain your understanding of each of the following terms in accordance with IAS 20 “Accounting for
Government Grants”.
Adv. Financial Accounting August 2015 2nd
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Revenue based Grants
Capital based Grants
4 marks
(b) Outline the two possible treatments of revenue based grants and the two possible treatments of capital based
grants, allowed by IAS 20.
6 marks
(c) Prepare journal entries to show how the above transactions should be dealt with in the accounts of Trailers Ltd
for the year ended 31st December 2014 in accordance with International Accounting Standards.
8 marks
Presentation: 2 marks
Total: 20 marks
Adv. Financial Accounting August 2015 2nd
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Page 13 of 25 Adv. Financial Acc. A2015 (AFA)
2nd Year Examination: August 2015
Advanced Financial Accounting
Suggested Solutions
and
Examiner’s Comments
Students please note: These are suggested solutions only; alternative answers may also be deemed to be correct and
will be marked on their own merits.
Statistical Analysis – By Question
Question No. 1 2 3 4 5 6
Average Mark (%) 59 65 48 56 69 47
Nos. Attempting 111 112 111 81 90 52
Statistical Analysis - Overall
Pass Rate 75%
Average Mark 57%
Range of Marks Nos. of Students
0-39 14
40-49 14
50-59 30
60-69 30
70 and over 24
Total No. Sitting Exam 112
Total Absent 26
Total Approved Absent 6
Total No. Applied for Exam 140
General Comments:
In general, the paper was well answered. No question on the paper seemed to pose particular difficulty
and most students who attempted question 5 on ratios scored very well on it.
Adv. Financial Accounting August 2015 2nd
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Page 14 of 25 Adv. Financial Acc. A2015 (AFA)
Examiner’s Comments on Question One
Question 1.
(a)
Sole Trader
A sole trader operation is a business owned by one person only. The sole trader is ultimately solely responsible for
the running and management of the business and bears all the risks of the business and is entitled to all the profit
from the business. The sole trader has unlimited liability with regard to the debts of the business. The sole trader s’
business is not regarded as a distinct legal entity. The sole trader is taxed in full on the profits of the business
regardless of whether he withdraws any or all of the profit from the business.
Marks Allocated
4 marks
Partnership
A partnership is a business which is owned by two or more individuals. Like sole traders, most partners will have
unlimited liability with regard to the debts of the partnership. However in certain partnership arrangements some but
not all of the partners will have limited liability. The profits of the partnership are typically divided between the
partners in accordance with the terms of the partnership profit sharing agreement and each partner is taxable on
his/her share of the partnership profit.
Marks Allocated
4 marks
Limited company.
A limited company is regarded as a separate legal entity, distinct from its owners. It can therefore conduct business
in its own right and be sued or sue in its own right. The liability of the owners of a limited company – its
shareholders is limited to the amount they have invested in the company. The company is managed and controlled
on a day to day basis by its board of directors which may not necessarily consist of shareholders. The company is
taxed on any taxable profit it makes. It distributes the after tax profit to shareholders typically in the form of a
dividend.
Marks Allocated
4 marks
Most students were comfortable with part (a), but parts (b) and (c) proved trickier in many cases.
Adv. Financial Accounting August 2015 2nd
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(b)
A limited company is a company where the liability of the shareholders is limited to their investment in the
company.
An unlimited company is one where the liability of the shareholders for the debts of the company is unlimited.
An unlimited structure might be used by a large corporate group to facilitate return of capital to its members.
Marks Allocated
1 mark for each of the above points
(c)
The shares in a private limited company are not available for sale to the general public. A public limited company
can sell its shares to the public.
Marks Allocated
1 mark for each point
(d)
A company limited by guarantee is a company where the liability of the members is limited to a guaranteed amount-
this is the amount the members agree to pay in the event of the company going into liquidation. This structure is
commonly used for clubs and non – trading organisations.
Marks Allocated
1.5 marks for each point.
Adv. Financial Accounting August 2015 2nd
Year Paper
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Examiner’s Comments on Question Two
Question 2
Total
Marks
Allocated
1
(a) 1.5
2
(a) 1.5
3
(b) 1.5
4
(b) 1.5
5
(d) 1.5
6
(c) 1.5
7
(b) 1.5
8
(b) 1.5
9
(a) 1.5
10
(a) 1.5
No significant difficulties generally with this question.
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 17 of 25 Adv. Financial Acc. A2015 (AFA)
Examiner’s Comments on Question Three
Question 3
(a)
Total
marks
Allocated
Statement of corrected net profit
Unadjusted profit 540000
Inventory adjustment -20000 30000-10000 1
Sales rep claim
0
Criteria necessary to
require provision is
not satisfied.
1
Training grant 80000 1
Capital grant app 0 1
Depreciation - blds -48000 2,400,000 *2% 1
Depreciation - plant -220000 1,100,000*20% 1
Corporation tax -120000 1
Adjusted profit after tax 212000
Note; No provision made for capital grant as it has not yet been
approved. (IAS 20)
Some students had difficulty with the Statement of corrected net profit and most students were not
familiar with the disclosure note requirements of part (d).
Adv. Financial Accounting August 2015 2nd
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(b)
Total Marks
Allocated
A statement of changes in Equity for the year ended 31 December 2014
Equity Share Retained
Total
share Premium Earnings
Capital
Balance at 1/1/2014
900000 100000 1040000
2040000
Profit for the year
212,000
212000
Balance at 31/12/2014 900000 100000 1252000
2252000
1mark 1mark 1mark
1mark
(c )
Statement of Financial position as at 31 December 2014.
Assets
2014 2013
Non-current assets
Land and Buildings
1452000
1,500,000-48000
Plant
640000
860,000-220000
2092000
3.5 marks
Current assets
for total assets
Inventories
120000
140000-20000
Receivables
600000
720000
Total Assets
2812000
Equity and liabilities
Equity and reserves
Issued share capital
900000
3.5 marks
Share Premium
100000
for equity
Retained earnings
1252000
And
2252000
liabilities
Current liabilities
Trade and other Payables
540000
360000+60000+120000)
Bank Overdraft
20000
560000
0
Total equity and liabilities
2812000
Adv. Financial Accounting August 2015 2nd
Year Paper
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(d)
Disclosure notes
Accounting Policy note
Inventories
Inventories are stated at lower of cost and net realisable value.
3 marks
Cost represents invoice price and the cost of carriage in.
NRV represents selling price less any costs of marketing selling and completion.
Note to the Financial Statements
Inventories
Raw material 0
2 marks
Work in Progress 0
Finished goods 120000
2 marks for presentation
Adv. Financial Accounting August 2015 2nd
Year Paper
Page 20 of 25 Adv. Financial Acc. A2015 (AFA)
Examiner’s Comments on Question Four
Question 4
(a)Manufacturing Account of Build a Brick ltd for the year ended 31 December 2014
Total
Marks
Allocated
Cost of raw materials consumed
Opening stock of raw materials
90,500
Purchases of raw materials
425651
Carriage In
13300
less returns
-7200
431751
3 marks
for cost
of R.M.
522,251
Less closing stock of raw material
-96000
Cost of raw material consumed
426,251
Direct expenses
Production wages
60790
2 marks
for
prime
cist
Paye/Prsi
6533
Machine repairs
9700
Power
14580
91603
Prime cost
517,854
Overheads
Factory insurance
6000
Factory supervisor's salary
37560
4 marks
for o/h
Employers PRSI/PAYE
4037
Depreciation of factory machinery* 13200
60797
578,651
The answer below includes power and repairs in direct expenses. The relevant marks were awarded in
full if students included power and repairs in factory overheads rather than direct expenses as text
books have differed on the treatment.
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Add opening inventory of work in progress
32070 ½ mark
Less closing inventory of work in progress
-32320 ½ mark
Factory cost of goods produced
578,401
(b)
Statement of Gross Profit for the year ended 31 December 2014
Revenue
850250
Less returns
-4500
1 mark
845750
Opening inventory of finished goods 27250
Add factory cost of goods produced 578,401
605651
3 marks
Less closing inventory of finished goods -24050
581601
Gross Profit
264149
(c)
Statement of Net Profit for the year ended 31 December 2014
Gross profit
264149
Less
Insurance
9000
15000*60% 1 mark
Carriage out
15230
1 mark
Admin expenses
73500
1 mark
Power
9720
1 mark
107450
Net profit
156699
2 marks for presentation
Adv. Financial Accounting August 2015 2nd
Year Paper
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Examiner’s Comments on Question Five
Question 5
(a)
Gross Profit Margin = Gross Profit / Sales x 100
Total
Marks
Allocated
J
K
= 20,000 / 80,000 x
100
= 24,000 / 120,000 x
100
= 25 %
= 20 %
2 marks
Net Profit Margin = Net Profit before tax / Sales x 100
J
K
= 10,000 / 80,000 x
100
= 15,000 / 120,000 x
100
= 12.5 %
= 12.5 %
1 mark
ROCE = Net Profit before int & tax/ Capital Employed x 100
J
K
= 10,000 / 40,000 x
100
= 15,000 / 40,000 x
100
= 25 %
= 35 %
2 marks
Current ratio = Current assets / current liabilities
This question produced consistently strong results across all examination centres.
In calculating the ROCE ratio, marks were awarded if the capital employed figure was taken as the
opening figure, the closing figure or an average of the two figures.
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J K
= 45,000 / 5,000
= 40,000 / 10,000
09:01
04:01
1 mark
Receivables Days = Receivables / Sales x
365
J
K
= 25,000 / 80,000 x
365
= 20,000 / 120,000 x
365
= 114.06 Days
= 60.8 Days
1 mark
Payables Days = Payables / Purchases x
365
J
K
= 5,000 / 50,000 x
365
= 10,000 / 91,000 x
365
= 36.5 Days
= 40.1 Days
1 mark
(b)
Business K is more profitable, both in terms of actual net profits and return
on capital employed. K has achieved a return of €35 for every
€100 invested. J has achieved a lower return of €25 for every €100 invested.
A review of the current ratios of both businesses suggests that
K has achieved greater working capital efficiency than J. However both
businesses would appear to have credit control difficulties with receivable days
far greater than payable days.
Unchecked this could result in overtrading and cash flow difficulties.
Both businesses should strive for a current ratio of 2:1 and a quick ratio of 1:1
K has a higher investment in non current assets which may account for the higher
expense levels in J, e.g. on leasing of equipment.
2 marks for each of three valid points
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(c)
Given its relatively higher return of capital employed and it's more efficient working capital management
business K would be more attractive to a potential wishing to invest in a sports business.
Marks Allocated
2 marks for choice, 2 marks for reason.
2 marks for Presentation
Examiner’s Comments on Question Six
Question 6
(a)
Revenue based grants are grants received to subsidise the cost of revenue expenditure incurred by a business.
Examples include grants towards the costs of salaries and wages or staff training. Revenue grants reduce the cost of
the item of expenditure to the firm or business.
Capital based grants are grants received towards the cost of non -current assets. Examples include grants received in
respect of the cost of buildings or machinery. Capital grants reduce the net cost of the non – current asset to the firm
or business.
Marks Allocated
2 marks each.
(b)
The two possible treatments of revenue based grants are;
The Grants may be included as “other” income in the Income Statement and if material, as a separate line item, or
the grant can be deducted from the related expenditure in the Income Statement.
The two possible treatments of capital based grants are;
The grant may be deferred and released to the Income Statement as the related capital expenditure is depreciated.
Alternatively the proceeds of the grant can be netted against the cost of the related asset and the balance depreciated
over the useful life of the asset.
All of the above apply the matching concept to the expenditure and the related grant.
Marks Allocated
3 marks for revenue grants ( 1.5 marks for each possible treatment). Ditto for capital grants
This question was not a popular question, but those who answered it generally scored well.
Adv. Financial Accounting August 2015 2nd
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(c)
€ €
Journal s to reflect capital expenditure and related grant
Dr Cr
(1) Machinery cost account ..................... 500,000
Bank (or creditors) account 500,000
(2) Depreciation – Income Statement 50,000
Provision for depreciation account ...... 50,000
(3) Bank account ................................... 120,000
Government grants account (deferred credit).. 120,000
(4) Government Grants account .(deferred credit).. 12,000
Income Statement (grant released) 12,000
Narrative;
Being purchase of machinery at cost of €500,000, capital grant received of €120,000. Depreciation and
grant amortisation charged/credited at 10%’
Or
(1) Machinery cost account ..................... 500,000
Bank (or creditors) account 500,000
(2) Bank account ................................... 120,000
Machinery cost account . 120,000
(3) Depreciation – Income Statement 38,000
Provision for depreciation account ...... 38,000
Narrative; Being purchase of machinery at cost of €500,000, capital grant received of €120,000.
Depreciation on net cost, charged at 10%’
Journal s to reflect revenue grant
(1) Bank 40,000
Sundry Income account 40,000
Narrative:
Being grant received in respect of training costs incurred.
Or
(2) Bank 40,000
Training costs account 40,000
Narrative:
Being grant received in respect of training costs incurred.
Marks Allocated
5 marks for journals re capital expenditure and grant. 3 marks for revenue grant.
2 marks for presentation.
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