Financial Accounting
May 2015
1st Year Paper
Financial Accounting
1st Year Examination
May 2015
Solutions & Marking Scheme & Examiner’s Comments
Page 1 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
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.
Page 2 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Accounting Technicians Ireland
First Year Examination: Summer 2015
Paper:
FINANCIAL ACCOUNTING
Tuesday 12 May 2015
9.30 a.m. to 12.30 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.
Candidates may ignore any VAT implications to transactions throughout this paper unless the question
specifically instructs them to do otherwise.
Question 1 begins on Page 2 overleaf.
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.
Page 3 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
SECTION A
Answer ALL THREE QUESTIONS (Compulsory) in this Section
QUESTION 1 (Compulsory)
The following trial balance was extracted from the books of P. PKG a sole trader, on 31 December 2014:
€/£
€/£
Land and buildings
97,750
Accumulated depreciation on land and buildings
54,850
Computer equipment
41,170
Accumulated depreciation on computer equipment
9,170
Inventory as at 1/1/2014
17,910
Receivables
31,175
Payables
26,780
Bank and cash
29,150
VAT liability
4,140
Light and heat accrual
920
Sales and purchases
51,330
180,175
Returns outwards and returns inwards
3,000
2,220
Discounts
720
640
Carriage inwards
850
Light and heat
3,130
Telephone and internet
2,190
Business insurance
4,900
Rates and water charges
4,450
Wages and salaries
71,600
Employers PRSR/NIC
7,100
5% long term bank loan
64,120
Long term loan interest
3,206
Irrecoverable debts
450
Drawings
2,310
Accumulated profits/losses
35,789
Capital
65,165
408,180
408,180
The following information, which has not been accounted for above, is also available:
1.
The inventory count as at 31 December 2014 showed a closing inventory balance as follows:
Product
Alpha
Beta
Gamma
Quantity
in Units
2,210
4,010
5,000
Cost per unit
€/£
2.00
2.70
0.90
2.
In the year to 31 December 2014 P. PKG took €/£50 of inventory every week for his personal use.
3.
On 31 December 2014 P. PKG introduced €/£15,000 in new capital to aid expansion in 2015. These
funds were lodged to the business bank account.
4.
A closing allowance for irrecoverable debts of 5% (to the nearest whole number) is to be created.
Page 4 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 1 (Compulsory)
5.
On 1 December 2014 a new building was purchased costing €/£40,000. This was paid in cash.
6.
Allowance to be made for depreciation as follows:
Land and buildings
4% straight line
Computer equipment
15% reducing balance
The depreciation policy is to charge depreciation on a monthly basis from the month of purchase to the
month of sale/disposal. Depreciation should be calculated to the nearest whole number.
You are required to prepare:
a)
The Statement of Profit or Loss for the year ended 31 December 2014.
b)
The Statement of Financial Position as at that date.
11 Marks
9 Marks
Total 20 Marks
Page 5 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 2 (Compulsory)
Part A
Outline your understanding of the accruals concept and the importance of the concept to financial statement
preparation.
4 Marks
Part B
P. Murphy a sole trader was not able to secure a bank loan when she commenced in business – as a result P.
Murphy carries out her business in two rented properties. Details of rent in advance and rent in arrears at the
beginning and end of the year are as follows:
31 March 2015
31 March 2014
€/£
€/£
Rent paid in advance on property 1
2,250
?
Rent in arrears property 2
6,000
?
Property 1
Rent on property 1 is due to be paid monthly in advance on the last day of the preceding month – for example
rent for January 2015 is paid on 31 December 2014. The annual rent payable has remained constant for several
years at €/£2,250 per month. €/£27,000 was paid by P. Murphy in rent for the year ended 31 March 2015.
Property 2
Rent on property 2 is paid quarterly in arrears on the last day of the quarter. For example rent for the quarter
January to March 2014 is due for payment on 31 March 2014. During the year ended 31 March 2015 the rent on
property 2 was increased as follows:
 Rent payable for the year ended 30 June 2014 was €/£24,000;
 Rent payable for the year ended 30 June 2015 was increased to €/£36,000.
P. Murphy paid €/£30,000 in rent on property 2 in the year ended 31 March 2015.
You are required to:
(i)
Calculate the figure for rent payable for inclusion in the Statement of Profit or Loss of P. Murphy for the year to
31 March 2015
4 Marks
(ii)
Prepare the Rent Payable T account for P. Murphy for the year to 31 March 2015.
(Guidance: you can prepare individual T accounts for property 1 & 2 or one combined T account)
6 Marks
Part C
P. Murphy has now been in business for several years and has built up a good credit history with her bank. As a
result P. Murphy is in a position to secure a loan of €/£450,000 at an annual interest rate of 5.5%. This is
sufficient to construct a large premise for P. Murphy to carry out business in.
You are required to:
(i)
Assume that the loan is drawn down on 1 July 2015. Calculate, to the nearest whole number, the interest
expenses for inclusion in the Statement of Profit or Loss of P. Murphy for the year to 31 March 2016.
3 Marks
(ii)
Prepare the Loan T account for the year to 31 March 2016 assuming that €/£22,000 of principle is repaid during
the year.
3 Marks
Total 20 Marks
Page 6 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 3 (Compulsory)
Complete Any FOUR of the following SIX parts.
All Parts Carry Equal Marks
Part A
Prepare a note outlining your understanding of the term partnership business. The note should include two
advantages and one disadvantage of operating through the medium of a partnership business.
5 Marks
Part B
F. Final’s balance in his cash book is €/£2,120 overdrawn. She then discovered the following items:
i.
ii.
iii.
Bank charges of €/£310 on the bank statement have not been entered in the cash book.
In a prior period the bank credited F. Final bank account in error with €/£914 with belongs to another
customer. F. Final had reflected this is her cash book. In the current period the bank realised the error
and adjusted F. Final’s bank account
Cheques totalling €/£6,700 have been correctly entered on the debit of the cashbook but have not
appeared on the bank statement yet.
You are required to calculate the corrected balance as per F. Final cash book.
5 Marks
Part C
The following entries relate to VAT for B. Bud for the year ended 30 June 2014:
€/£
10,145
84,140
2,120
25,950
2,140
57,700
Opening VAT balance (refund position)
VAT on sales
VAT on sales returns
VAT on purchases
VAT on purchases returns
VAT payments
The opening VAT balance was refunded by the Revenue Authority on 1 August 2014.
You are required to prepare the VAT T account for the year ended 30 June 2014 and hence derive the closing
balance as at that date.
5 Marks
Part D
A business carried out an inventory count at the close of business on 30 June 2014. The value of its closing
inventory at cost was €/£19,900. Included in this valuation were three damaged items that had originally cost
€/£500. It will cost €/£60 to repair the items and they will then need repackaging at an additional cost of €/£5
after which they can be sold for €/£570.
You are required to:
i.
Calculate the appropriate value of closing inventory as at 30 June 2014
ii.
3 Marks
Prepare the appropriate journal to record closing inventory as at 30 June 2014 (journal narratives are
not required)
2 Marks
5 Marks
Page 7 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 3 (Compulsory)
Part E
B. Bob provides you with the following information as at 31 March 2015:
€/£145,650
€/£14,540
€/£7,120
5%
€/£24,750
Receivables (before any adjustments)
Irrecoverable debts to be written off
Specific allowances for irrecoverable debts
Closing general allowances to be
Opening allowances at 1 April 2014
You are required to calculate The Statement of Profit or Loss Account charge for irrecoverable debts and
allowances for receivables for the year ended 31 March 2015 and the receivable balance for inclusion in the
Statement of Financial Position as at the same date.
5 Marks
Part F
The following errors have been discovered in the records of S. Sam a sole trader:
i.
ii.
iii.
The rent payable account was credited with a payment of rent amounting to €/£7,120. The bank
account was correctly recorded.
Sales returns of €/£3,120 were not recorded in the books and records.
A payment to payables of €/£458 was correctly recorded in the bank account, but was credited in the
payables as €/£854.
You are required to prepare the suspense account for S. Sam and hence derive the original suspense account
figure before the above errors were discovered.
5 Marks
Total 20 Marks
Page 8 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
SECTION B
Answer any TWO of the three questions in this Section
QUESTION 4
Part A
Provide a brief definition of the terms ‘management accounting’ and ‘financial accounting’. You should include
an example of the information provided to the users of accounting information by management and financial
accounting.
5 Marks
Part B
List any four users of accounting information. Outline what information each user is interested in and why. State
whether management or financial accounting meets their informational needs.
(Guidance: one of the four users must be internal to the business)
8 Marks
Part C
(i)
Outline your understanding of the term accounting standard and provide an example of a body that issues
accounting standards.
3 Marks
(ii)
Outline your understanding of the term “true and fair view” as it relates to the preparation of financial
statements.
4 Marks
Total 20 Marks
Page 9 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 5
Part A
The following information relates to the receivables of Knits & Bits, a sole trader, for the year ended 31
December 2014:
Extract from the books as at 1 Jan 2014:
€/£
34,110 Dr
480 Cr
Receivables’ ledger debit balances
Receivables’ ledger credit balances
Transactions for the year ended 31 December 2014:
Credit sales
Cash sales
Sales returns all on credit
Contra entry between receivables and payables balances
Discounts allowed
Payments from receivables
€/£
120,500
1,450
4,650
3,050
970
102,350
You are required to prepare the receivables control account for the year ended 31 December 2014.
5 Marks
Part B
The monthly schedule of balances of individual supplier accounts from the payables ledger (payables listing)
showed a total of €/£49,045 as at 31 December 2014. The payables control account as at the same date showed a
balance of €/£45,170.
Upon an examination of the books and records the following was uncovered:
 The opening debit balance of €/£700 was omitted from the payables control account in error.
 Discounts received €/£1,240 were completely omitted from the books and records.
 €/£3,750 of cash paid to a supplier was correctly treated in the payables personal ledger but recorded as
€/£7,350 in the control account.
 A contra entry of €/£1,250 was correctly treated in the payables control account but omitted from the
payables personal ledger.
 Interest charged of €/£875 by a supplier on an outstanding balance owed was omitted from the control
account.
 Goods purchased costing €/£710, were recorded correctly in the payables control account but omitted
from the payables personal ledger.
 Goods returned to suppliers to the value of €/£2,750 were not reflected in the payables personal ledger
 A closing credit balance of €/£3,190 was omitted from the listing in error.
Required:
i.
ii.
iii.
Outline one reason why preparing a payables’ ledger reconciliation on a regular basis is important.
2 Marks
Prepare the restated balances of individual supplier accounts (payables listing) as at 31 December 2014
7 Marks
Prepare the restated payables control account as at 31 December 2014
6 Marks
Total 20 Marks
Page 10 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
QUESTION 6
A.
Able is a sole trader with a small business. The trial balance extracted as at 31 March 2015 failed to agree
balances are as follows:
Details
Sales
Sales returns
Purchases
Expenses
Non-current assets
Discounts allowed
VAT liability
Payables
Receivables
Bank overdraft
Capital as at 1 April 2014
i.
€/£
71,130
2,100
22,150
10,710
22,750
740
6,320
14,840
52,850
3,140
12,500
Required
Prepare the trial balance for A. Able as at the 31 March 2015 and hence derive the balance in the
suspense account as at that date.
4 Marks
A detailed examination of the books was undertaken and the following matters were uncovered:
1.
The total in the purchases day book was €42,150 - the figure used when posting to the purchases T account
was €22,150.
2.
An invoice from a supplier for goods to the value of €/£8,500 plus VAT at 10% was not recorded in the
books and records of A. Able.
3.
During the bank reconciliation process it came to light that €/£105.14 was earned in interest during the year
and has not been accounted for.
4.
Sales returns of €980 was treated correctly in the customer’s account and credited to the sales returns
account as €890.
5.
A review of the ledgers revealed that receivables were overcast by €/£25,240
6.
Cash drawings by A. Able of €2,170 were treated as cash sales in error.
You are required to:
ii.
Prepare the journal entries, with the appropriate narratives, necessary to correct the above errors.
iii.
Prepare a suspense account to clear the difference.
9 Marks
iv.
4 Marks
Prepare a working showing the effect on proprietor’s profit (if any) of correcting each of the above
errors.
3 Marks
Total 20 Marks
End of Paper
Page 11 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
1st Year Examination: May 2015
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.
Average Mark (%)
1
75%
2
57%
3
64%
4
48%
5
67%
6
57%
Nos. Attempting
1196
1183
1193
716
910
716
Statistical Analysis - Overall
71%
Pass Rate
62%
Average Mark
Range of Marks
Nos. of Students
0-39
236
40-49
108
50-59
147
60-69
206
70 and over
505
Total No. Sitting Exam
1201
Total Absent
295
Total Approved Absent
31
1527
Total No. Applied for Exam
General Comments:
The overall standard of answers was generally good. Most candidates are attempting the required number of
questions. Some candidates attempted more than four parts in question three and then appeared to run out of time
and not complete the required number of questions for the paper as a whole.
The general presentation of scripts was acceptable, though it did dis-improve when compared to previous sittings.
The majority of candidates are now filing question parts together, though some continue to scatter question parts
through-out the examination booklet. The main areas of weakness around presentation are as follows:

Poor and untidy handwriting

In theory questions some candidates are repeating themselves in multiple paragraphs. Where shorter
more concise answers would have scored the same marks

No workings presented for some questions

Workings presented all combined in the rough work section of the paper – despite the answer book
explicitly stating not to do this

Some candidates are not taking sufficient care in the writing of their student numbers

Cluttered answers – each new question should be attempted on a new page
Page 12 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Examiner’s Comments on Question One
This question was generally well answered.
Many candidates prepared correct calculations for inventory, bank, depreciation, capital and drawings.
Students are advised to study how to correctly adjust purchases for drawings. This has been a weakness for
several sittings. Some candidates did not appropriately treat Employers PRSI/NIC costs, including it as a current
liability in error. The light and heat accrual was a challenge for many candidates. Allowances for receivables was
reasonably well answered though some candidates readjusted for the irrecoverable debts in the TB in error.
Candidates also need to focus on titling the financial statements correctly. They are named correctly on the
examination paper.
Some candidates did not recognise that the accumulated profit and loss figure was an accumulated loss.
Weaker candidates are struggling with the presentation of the equity and liability section of the Statement of
Financial Position and presenting it as one combined section.
Solution One
P. PKG
Statement of Profit and loss for the year ended 31 December 2014
Ref to
Workings
0.25 Marks
€/£
€/£
€/£
Sales
Sales returns
Net sales
Cost of sales
Opening inventory
Purchases
Purchases returns
Carriage inwards
Less closing inventory
Cost of sales
Gross Profit
Discount received
Less Expenses
Depreciation land and buildings
Depreciation computer equipment
Business insurance
Rates and water charges
Wages and salaries
Employers PRSI/NIC Costs
Discount allowed
Telephone and internet
Increase in the allowance for receivables
Irrecoverable debts
Interest
Light and heat
Total expenses
180,175
(3,000)
177,175
Total
Marks
Allocated
0.5
0.5
17,910
1
2
48,730
(2,220)
0.25
1.5
0.5
0.25
46,510
850
65,270
(19,747)
0.25
(45,523)
131,652
640
3
4,043
4,800
4,900
4,450
71,600
7,100
720
2,190
1,559
450
3,206
3,130
1.5
1
0.25
0.25
0.25
0.5
0.5
0.25
1
0.5
0.25
0.25
(108,148)
Operating profit
24,144
Page 13 of 28
0.5
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Solution One (Cont’d)
P. PKG
Statement of financial position as at 31 December
0.25
2014
Non-current assets
Ref to
Workings
€/£
€/£
€/£
Land and buildings
137,750
-58,893
78,857
0.5
Computer equipment
41,170
-13,970
27,200
0.5
106,057
Current assets
Closing inventory
19,747
Receivables
Closing allowance
1.5
31,175
3
Cash and bank
-1,559
0.25
29,616
0.25
4,150
1.5
53,513
Total assets
159,570
Equity and Liabilities
Equity
Capital
80,165
0.75
Accumulated profit/loss
-35,789
0.5
Profits for 2014
24,144
0.5
Accumulated profits
68,520
Drawings
1
-4,910
1
63,610
64,120
Non-current liabilities
0.25
Current liabilities
Payables
26,780
Page 14 of 28
Fin.Acc S2015 (FA)
0.25
Financial Accounting
1st Year Paper
May 2015
L&H accrual
920
0.5
VAT liability
4,140
0.5
31,840
Total Equity and Liabilities
159,570
Page 15 of 28
Fin.Acc S2015 (FA)
20
Financial Accounting
May 2015
1st Year Paper
Working 1
€/£
2,310
2,600
4,910
Drawings as per TB
Drawings of inventory €/£50*52
Restated drawings
€/£
51,330
(2,600)
48,730
Purchases as per TB
Drawings
Restated purchases
Workings 2
Product
Alpha
Beta
Gamma
Quantity
in Units
2,210
4,010
5,000
Cost per unit
€/£
2.00
2.70
0.90
Total
€/£
4,420
10,827
4,500
19,747
Workings 3
Receivables
Closing allowance
€/£
31,175
5%
1,559
Workings 4
Land and buildings
Depreciation
Buildings
Depreciation
Annual
One month
Computer equipment
Accumulated depreciation
Deprecation
€/£
97,750
4%
3,910
€/£
40,000
4%
1,600
133
€/£
41,170
(9,170)
32,000
15%
4,800
Workings 5
Bank as per TB
Capital
New building
€/£
29,150
15,000
(40,000)
4,150
Page 16 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
Examiner’s Comments on Question Two
This question was reasonably well answered.
Many candidates did not score full marks on Part A. Where this was the case candidates tended to
describe accruals as opposed to the accruals concept and/or failed to discuss the importance of the
concept as required by the question.
In part B the calculation of the annual rent for property two proved a challenge with many candidates
using the incorrect number of months. The calculation of the closing accrual and prepayment figure
was also a challenge for some. Inability to distinguish between payments and P&L charges – there
was no narratives on many T accounts.
Part C was generally well answered. Some candidates incorrectly prorated the interest expense for the
period. Including the interest charge in the Loan T Account was also a challenge as was entries on the
correct side of the T Accounts.
Solution Two
Part A
The accruals concepts states that income is recognised in the financial statements as it is earned. Not when the
cash is received. Expenditure is recognised as it is incurred, not when it is paid for. When income is incurred
over time (e.g. rental/interest income) or expenditures are time-based (e.g. rent payments), the income and
expenditure recognised in the income statement should relate to the time period, not to the receipts and
payments of cash. For example the sale of a good is recognised in the financial statements when the rights and
rewards of ownership have passed from the seller to the purchaser not when the cash is received.
The concept ensures that the profit/loss reported in the Statement of Profit and Loss is what was earned during
the year.
Part B
(i)
Property 1: €/£2,250 * 12 = €/£27,000
Property 2:
€/£24,000 / 12 *3 = €/£6,000
€/£36,000 / 12 *9 = €/£27,000
€/£33,000
(ii)
Total
Marks
Allocated
0.5
1
1
1
Rent T Account
€/£
€/£
Balance b/d
Rent paid property 1
Rent paid property 2
2,250 Balance b/d
27,000 P&L Prop 1
30,000 P&L Prop 2
Total
Marks
Allocated
6,000
0.5
27,000
0.5
33,000
0.5
Balance c/d
9,000 Balance c/d
68,250
2,250 Balance b/d
2,250
68,250
9,000
Balance b/d
Page 17 of 28
1
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Part C
(i)
€/£450,000 * 5.5% = €/£24,750 /12 * 9 = €/£18,563
[3 Marks]
(ii)
Total
Marks
Allocated
1.5
Loan T Account
€/£
Loan repayment
Balance c/d
22,000 Loan draw down
428,000
450,000
Balance b/d
Page 18 of 28
€/£
Total
Marks
Allocated
450,000
1.5
450,000
428,000
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
Examiner’s Comments on Question Three
Answers here were mixed. Many candidates completed more than the required four parts. Candidates should
focus on completing the required number of question parts.
Part A – was generally well answered. Though some candidates claimed that partnerships have limited liability
Part B – was reasonable well answered. Some candidates included part iii in the cashbook in error
Part C – mixed in terms of popularity, though generally well answered by those who attempted it. Some
candidate treated the VAT payments incorrectly.
Part D – very poorly answered. Many candidates adjusted inventory despite cost being lower than NRV. Most
candidates could not give the appropriate journal adjustments for closing inventory
Part E – most candidates made a reasonable attempt at this question part. Some struggled to add the specific
allowance to the general allowance in order to calculate the total allowance and hence the movement.
Part F – was not a popular choice. Most candidates who attempted the question part scored very poorly on it.
Many candidates did not present a suspense account.
Solution Three
Part A
Partnerships
Partnerships are entities where ownership is divided between at least two people. Usually partnerships have no
more than twenty individual partners. Like sole traders partnerships tend to be small in size, exceptions to this
include accounting and solicitor partnerships, these often have more than twenty partners. A partnership is
normally set up using a Deed of Partnership. Partners in a partnership generally do not have limited liability.
Advantages of a Partnership Business (Any Two)
 The burden and risks of ownership are shared;
 Instead of having to offer a comprehensive range of services as a sole trader would, partners can
specialise.
 Partnerships can usually raise more capital than a sole trader, thereby facilitating expansion;
 A silent partner who does not take an active part in the running of the business can enjoy limited
liability;
 Like sole traders partnerships are set up with comparative ease – with few administrative burdens
imposed on a partnership by law, accounting standards or stock exchange regulations;
 The partners of a partnership are usually directly involved in the running of the business and will
therefore not have to spend resources finding a suitable management team to delegate the running of
the day-to-day activities of the business to;
 As owner/manager of the business partners in a partnership should be completely aware of how the
resources of the business are being managed. There is no division between management and
ownership.
Disadvantages of a Partnership (Any One)
 Have to share the profits.
 Less control of the business for the individual.
 Disputes over workload.
 Problems if partners disagree over the direction of the business.
 Do not generally enjoy limited liability
Part B
Cash Book Account
€/£
Total
Marks
Allocate
d
Balance c/d
Balance b/d
Bank charges
3,344 Bank error
3,344
Balance b/d
Page 19 of 28
€/£
Total
Marks
Allocated
2,120
1
310
1.5
914
1.5
3,344
3,344
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
(1 mark for lea v ing o ut cheques o f € /£ 6 , 70 0 )
5 Marks
Part C
Total
Marks
Allocated
0.5
1
1
0.5
VAT T Account
€/£
Balance b/d
VAT on sales returns
VAT on purchases
VAT Payments
Balance b/d
€/£
10,145 VAT on sales
2,120 VAT on purchases returns
25,950
57,700
Balance c/d
95,915
9,635
Total
Marks
Allocated
84,140
1
2,140
1
9,635
95,915
(5 Marks)
Page 20 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Solution Three
Part D
(i)
Value of inventory as per question
€/£19,900
Cost of damaged items
NRV of damaged items (570 − 60 − 5)
€/£500
€/£505
Inventory is valued at the lower of cost and NRV. As cost is less than NRV no adjustment to inventory is
required.
(3 Marks)
(ii)
Dr
Cr
Inventory Statement of Financial Position
Inventory Statement of Profit and Loss
Debit
Credit
€/£
19,900
€/£
Total
Marks
Allocated
1
1
2
5
19,900
Part E
€/£
145,650
(14,540)
131,110
(7,120)
123,990
Receivables (before any adjustments)
Irrecoverable debts to be written off
Revised receivables
Specific allowances
€/£
6,200
7,120
13,320
24,750
(11,430)
Closing general allowances to be 5% × 123,990
Specific allowance
Total allowances
Opening allowances
Decrease in allowances
Statement of Profit and Loss
€/£
(11,430)
14,450
3,110
Decrease in allowances
Irrecoverable debts to be written off
Statement of Financial Position
€/£
131,110
(13,320)
117,790
Revised receivables
Closing allowance
(5 Marks)
Page 21 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
Solution 3
Part F
Marks
Allocated
1
Suspense T Account
€/£
Balance b/d
€/£
15,552 Error 1
Error 2
Marks
Allocated
14,240
1.5
1,312
1.5
15,552
15,552
1 mark for
excluding
part (ii)
5 marks
Page 22 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
Examiner’s Comments on Question Four
A popular question with candidates
Answers for Part A tended to be good. Where marks where lost candidates tended not to provide an example of
the type of information provided by Financial Accounting and Management Accounting.
Answers for Part B again tended to be good. Marks were lost as candidates went through the various users the
stopped answering all question parts: User, information, why & FA or MA. Also some candidates gave auditors,
accountants as users of financial accounting in error. Other candidates tried to use shareholders, owners and
investors as separate users. There was some confusion over who has access to management accounts.
Answers for Part C were reasonable. In the main candidates could give a definition of an accounting standard
and were able to explain true and fair view. Where the challenges arose was that the detail was not sufficient in
the answers to score full marks. Many candidates had no idea of a body that issues accountant standards.
Solution Four
Part A
Financial Accounting
This is the process of summarising financial information in order to prepare the company’s financial statements.
The financial statements of an organisation are the Income Statement and the Statement of Financial Position
These statements are primarily of interest to external users of accounting information. Financial statements are
historical in nature in that they are prepared on a semi-annual/annual basis and are concerned primarily with the
financial performance and the financial position of the company.
(2.5 marks. 1.5 for explanation and 1 for example)
Management Accounting
This is the process of providing detailed information to management on current and planned events. This
information assists managers in their roles of planning, controlling and making decisions. Usually management
accounts are only available to internal users of accounting information. Management accounting will contain
information such as department budgets, product profitability, information on production costs etc.
(2.5 marks. 1.5 for explanation and 1 for example)
Part B
Lenders
Banks who lend money to a business require information that helps them determine whether loans and interest
will be paid when due. The key accounting information for lenders is therefore, cash flow and profitability of
the business. Financial Accounting
Payables
Suppliers and trade payables require information that helps them understand and assess the short-term
liquidity of a business. Is the business able to pay short-term debt when it falls due? The key accounting
information for payables is therefore cash flow and profitability. Financial Accounting
Receivables
Customers require information about the ability of the business to survive and prosper. As customers of the
company’s products, they have a long-term interest in the company’s range of products and services. They
may even be dependent on the business for certain products and services. The key accounting information for
receivables is therefore sales growth, new product development and investment decision. Financial
Accounting
Employees
Employees require information about the stability and continuing profitability of the business. They are
crucially interested in information about employment prospects and the maintenance of pension funding and
retirement benefits. They are also likely to be interested in the pay and benefits obtained by senior
Page 23 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
management. The key accounting information for employees is therefore revenue and profit growth, levels of
investment in the business and overall employment data (numbers employed, wages and salary costs).
Financial Accounting
Government
Many government agencies and departments are interested in accounting information. For many businesses
the most significant one is the Revenue commissioners. Revenue needs information on business profitability
in order to levy and collect corporation tax, accounting information on sales and purchases is needed to verify
Value Added Tax (VAT) returns. Financial Accounting
Analysts
Investment analysts require very detailed financial and other information in order to analyse the competitive
performance of a business and its sector (only applicable for Plcs). Much of this is provided by the detailed
accounting disclosures that are required by authorities such as the London Stock Exchange. Financial
Accounting
Public at large
Interest groups formed by various groups of individuals who have a specific interest in the activities and
performance of businesses, will also require accounting information such as the environmental policies of the
business. Financial Accounting
Owners
Use accounting information to assess how effectively the business is running and to make informed decisions
about future levels of risk and return. In addition, owners use accounting information to decide whether to
remain invested in the business or not. Owners are primarily interested in measuring current performance and
in forming expectations about future performance. Management Accounting
(2 marks each for any four users – broken down:
0.5 for naming user, 0.5 for information, 0.5 for why and 0.5 for management/financial accounting)
Part C
(i)
Accounting standards are a set of rules and guidelines, issued by a body(s) formed within the accounting
profession. Accounting standards govern the preparation and presentation of all financial statements that purport
to show a true and fair view. Examples of bodies that issue accounting standards are: the International
Accounting Standards Board (Internationally) or the Accounting Standards Board (UK/Ireland).
(2 marks for definition and 1 for the example)
(ii)
The overall aim of the regulatory environment is that the financial statements of an entity give a true and fair
view of the underlying financial performance and position of the entity. While there is no formal definition for
True and Fair view compliance with accounting standards and Company Law will normally be necessary for
financial statements to give a true and fair view. True and fair refers to the financial statements and that the
picture they portray of the underlying company performance (profitability) and position is in fact a true and
fair view representation. A recent example where the financial statements did not provided a true and fair
view of the underlying financial health of the company is Enron – here significant amounts of debt were
hidden from shareholders.
In order to ensure that the financial statements of a company are true and fair the financial statements must by
law be reviewed by an independent auditor.
The overall aim of all accounting regulation is thus to insure that the financial statements of a business represent
a true and fair view of the financial health of the business. This is crucial if the users of accounting information
are to rely and make decision based upon the information presented to them in the financial statements.
(4 marks)
Page 24 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Examiner’s Comments on Question Five
A popular question that was generally well answered
In the main candidates were very well prepared for this question. Many candidates scored full marks.
In Part A where challenges occurred they were around including cash sales in error and the discount allowed being
recorded on the incorrect side of the control account.
In Part B some candidates did not prepare a T account for the control account and then seemed to get confused as they
added and subtracted figures to the original balance in order to adjust it. Another common mistake was the rationale for
preparing payables ledger reconciliations with many candidates stating that it was due to monitoring cash flow.
Question Five
Part A
Total
Marks
Allocate
d 0.5
0.5
Receivables Control A/C
€/£
Opening balance b/d
Credit sales
Balance b/d
€/£
34,110 Opening balance b/d
120,500 Sales return
Contra
Discounts allowed
Payments from receivables
Balance c/d
480
4,650
3,050
970
102,350
43,110
154,610
43,110
154,610
Total
Marks
Allocate
d 0.5
0.75
0.75
0.75
0.75
(0.5 marks for excluding cash sales)
(5 Marks)
Part B
(i)
The payables control account records information in relation to payables in total. In the payables personal
ledgers the same information is recorded on a payable by payable basis. By reconciling the balance as per the
control account to the balance as per the payables personal ledger helps to demonstrate the accuracy of both.
Thus preparing a payables’ ledger reconciliation on a regular basis acts as an internal check, i.e. the person
posting entries to the control account acts as a check on a different person who posts amounts from the
daybooks to the personal ledgers. In modern computerised systems this point is reducing in importance.
(2 Marks)
(ii)
€/£
Balance as per payables listing
Discounts received
Contra entry
Purchases omitted
Purchases returns
Closing credit balance omitted
49,045
(1,240)
(1,250)
710
(2,750)
3,190
47,705
Total
Marks
Allocated
0.75
1.25
1.25
1.25
1.25
1.25
(7 Marks)
Page 25 of 28
Fin.Acc S2015 (FA)
Financial Accounting
May 2015
1st Year Paper
(iii)
Marks
Allocated
1.25
1.25
Payables Control A/C
€/£
Omitted balance
Discounts received
Balance c/d
700 Balance b/d
1,240 Error
47,705 Interest charged
49,645
Balance b/d
€/£
Marks
Allocated
45,170
1
3,600
1.25
875
1.25
49,645
47,705
6
20 marks
Page 26 of 28
Fin.Acc S2015 (FA)
Financial Accounting
1st Year Paper
May 2015
Examiner’s Comments on Question Six
Answers here were mixed
Most candidates made a reasonable effort to calculate the opening balance in the suspense account. Though many then
failed to use it later in the question. Some candidates placed discounts allowed on the credit side of the TB, having
correctly treated discounts allowed in Question 1. Some candidates placed the bank overdraft on the incorrect side of
the TB.
Most candidates are now writing narratives and thus scoring these marks. The journal entries were reasonably well
answered. Adjustment six proved the most challenging for candidates.
The final part of the question where candidates were asked to calculate the adjustment to proprietor’s profit was very
poorly answered and not attempted by many candidates.
Solution Six
Part A
Sales
Sales returns
Purchases
Expenses
Non-current assets
Discounts allowed
VAT liability
Payables
Receivables
Bank overdraft
Capital as at 1 April 2014
Suspense account
Debit
Credit
€/£
€/£
Total
Marks
Allocated
71,130
2,100
22,150
10,710
22,750
740
6,320
14,840
52,850
3,140
12,500
3,370
111,300
111,300
0.25
0.25
0.25
0.25
0.25
0.25
0.50
0.50
0.50
0.50
0.50
Part B
1.
Dr
Cr
2.
Dr
Dr
Cr
3.
Dr
Cr
4.
Dr
Cr
Purchases
Suspense
Being purchases T Account undercast
Debit
Credit
€/£
€/£
20,000
20,000
Purchases
VAT
Payables
Being the correction of an error of omission
8,500
850
Bank
Interest received
Being the correction of an error of omission
105.14
Sales returns
Suspense
9,350
105.14
1,870
1,870
Page 27 of 28
Fin.Acc S2015 (FA)
Total
Marks
Allocated
0.5
0.5
0.25
0.75
0.75
0.5
0.25
0.5
0.5
0.25
0.5
0.5
Financial Accounting
1st Year Paper
May 2015
Being sales returns inappropriately recorded
5.
Dr
Cr
6.
Dr
Cr
Dr
Cr
0.25
Suspense
Receivables
Being receivables overcast
25,240
25,240
Cash sales
Bank
2,170
Drawings
Bank
Being drawings treated as sales in error
2,170
2,170
2,170
Part C
Total
Marks
Allocated
Details
1
Error 5
Suspense Account
€/£ Details
25,240
€/£
Balance
Error 1
Error 4
3,370
20,000
1,870
25,240
25,240
Total
Marks
Allocated
1
1
1
Part D
€
Proprietor’s Profit
Error 1
Error 2
Error 3
Error 4
Error 5
Error 6
(20,000)
(8,500)
105.14
(1,870)
(2,170)
(32,434.86)
Total
Marks
Allocated
0.5
0.5
0.5
0.5
0.5
0.5
20
Page 28 of 28
Fin.Acc S2015 (FA)
0.5
0.5
0.25
0.5
0.25
0.5
0.25
0.25