Financial Accounting
1st Year Examination
August 2014
Exam Paper, Solutions & Examiner’s Report
Financial Accounting
August 2014
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 2014 and may not be reproduced without permission of Accounting
Technicians Ireland.
© Accounting Technicians Ireland, 2014.
2
Accounting Technicians Ireland
First Year Examination: Autumn 2014
Paper: FINANCIAL ACCOUNTING
Tuesday 12th August 2014 - 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 the € symbol 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 is 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 the language of International Accounting Standards (I.A.S). Examinees are permitted to
use either I.A.S or Financial Reporting Standards (F.R.S) terminology when preparing financial
statements but the use of the language of the International Accounting Standards (e.g. Receivables rather
than Debtors) is preferred.
Financial Accounting
August 2014
1st Year Paper
SECTION A
Answer ALL THREE QUESTIONS (Compulsory) in this Section
QUESTION 1 (Compulsory)
The following trial balance was extracted from the books of C. Cedar, a sole trader, on 31 December 2013:
€/£
€/£
Buildings
555,000
Accumulated depreciation on buildings
77,430
Fixtures and fittings
126,730
Accumulated depreciation on fixtures and fittings
41,520
Allowance for receivables 1/1/2013
3,150
Inventory as at 1/1/2013
26,540
Receivables and payables
105,580
102,000
Term loan
24,750
Bank
18,940
VAT liability
11,650
Sales & purchases
314,150
762,230
Returns
21,740
16,250
Discounts
4,110
7,330
Carriage inwards
7,740
Carriage outwards
3,100
Electricity
6,450
Bank interest and charges
200
Telephone, internet and media costs
12,030
Insurance
8,740
Rate charges
6,120
Wages and salaries
94,840
Employers PRSI/NIC costs
9,620
Irrecoverable debts
5,740
Drawings
8,130
Accumulated profits/losses
51,250
Capital
200,060
1,316,560
1,316,560
The following information, which has not been accounted for above, is also available:
1.
An inventory count took place on 31 December 2013. The value of closing inventory was €/£31,660.
2.
On 31 December 2013 C. Cedar received a cheque for €/£1,125 in relation to an irrecoverable debt
previously written off.
3.
It was decided that the closing allowance for receivables was to be 10% of the outstanding receivables
balance as at 31 December 2013.
4.
The term loan of €/£ 24,750 is due for repayment in full on 15 January 2014.
5.
On 1 December 2013 additional buildings of €/£50,000 was purchased. This was financed by a term
loan due for repayment in 2017.
Question 1 continues overleaf
4
Financial Accounting
August 2014
1st Year Paper
QUESTION 1 (Cont’d)
6.
Allowance to be made for depreciation as follows:
Buildings
2% straight line
Fixtures and fittings
10% 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.
7.
€/£7,080 of insurance in the trial balance above relates to the year from 1 July 2013 to 30 June 2014.
8.
€/£650 in rates charges are to be accrued as at 31 December 2013.
You are required to prepare:
a)
The Statement of Profit and Loss for the year ended 31 December 2013.
b)
The Statement of Financial Position as at 31 December 2013.
11 Marks
9 Marks
Total 20 Marks
5
Financial Accounting
August 2014
1st Year Paper
QUESTION 2 (Compulsory)
The following information was extracted from the books and records of E. Elm a sole trader as at 31 December
2013.
Details
Sales
Sales returns
Purchases
Expenses
Non-current assets
Discounts received
VAT liability
Payables
Receivables
Cash lodged at bank
Capital as at 1 January 2013
€/£
40,450
740
17,950
8,110
60,500
1,500
22,250
4,610
3,750
4,560
25,904
Required:
a) Prepare the trial balance for E. Elm as at the 31 December 2013 and hence derive the balance in the
suspense account as at that date.
4 Marks
Upon an examination of the books and records of E. Elm the following items were uncovered:
i.
ii.
iii.
iv.
v.
vi.
vii.
No entry was made in the books and records to record the payment of €/£15,000 of a VAT liability.
A credit sale of €/£1,000 was recorded as a sales returns of €/£1,157 in the books of original entry.
During the bank reconciliation process it came to light that €/£22.14 was earned in interest during the
year and has not been accounted for.
A review of the ledgers revealed that payables were overcast by €/£550.
A cheque payment of €/£780 was debited to the bank account as €/£870. The corresponding debit entry
was correctly posted.
Discounts allowed of €/£97 were credited to discounts received as €/£107. The entry in the receivable’s
personal account was correct.
The purchase of computer equipment during 2013, not for sale and for use within the business, was
recorded by debiting purchases and crediting bank with €/£4,250. The depreciation policy of E. Elm is
to charge a full year of depreciation in the year of purchase and none in the year of sale at a rate of 10%
straight line method for computer equipment.
Required:
b) Prepare the journal entries, with the appropriate narratives, necessary to correct the above errors.
11 Marks
c) Prepare a suspense account to clear the difference.
5 Marks
Total 20 Marks
6
Financial Accounting
1st Year Paper
August 2014
QUESTION 3 (Compulsory)
COMPLETE ANY FOUR PARTS
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
Outline your understanding of the term ‘sole trader’. Provide one advantage and one disadvantage of setting up
business as a sole trader entity.
5 Marks
Part C
For entities that sell goods on credit there are both advantages and disadvantages. Outline two advantages and
two disadvantages of selling goods on credit.
5 Marks
Part D
D. Darr a sole trader rents out a number of properties. The total rent received in the year ended 31 July 2014
was €/£102,400. The following amounts were received in advance or were in arrears at the dates shown:
1 August 2013
€/£
1,350
5,125
Rent received in advance
Rent in arrears (all subsequently received)
31 July 2014
€/£
750
4,980
What amount of rental income should appear in the Statement of Profit and Loss for the year ended 31 July
2014?
5 Marks
Part E
P. Simon, is a sole trader, provides the following information for the month of January:
Date
January 1
January 4
January 8
January 15
January 28
Units
Opening inventory
Purchases
Sales
Purchases
Sales
Price
€/£
3.10
3.75
50
700
600
850
310
3.25
What is the value of the closing inventory at the end of January if P. Simon adopts the first in first out (FIFO)
method of inventory valuation?
5 Marks
Part F
Outline your understanding of how the VAT system operates. Note: knowledge of VAT rates is not required.
5 Marks
Total 20 Marks
7
Financial Accounting
August 2014
1st Year Paper
SECTION B
Answer any TWO of the three questions in this Section
QUESTION 4
Part A
The following information relates to the payables of S. Sycamores, a sole trader, for the year ended 31
December 2013:
Extract from the books as at 1 January 2013:
€/£
102,750 Cr
1,120 Dr
Payables’ ledger credit balances
Payables’ ledger debit balances
Transactions for the year ended 31 December 2013:
Credit purchases
Cash purchases
Purchases returns all on credit
Contra entry between receivables and payables balances
Discounts received
Interest charged by a payable for the late payment of a balance due
Payments to payables
€/£
1,150,000
17,320
21,300
6,710
34,750
725
1,004,200
You are required to prepare the payables control account for the year ended 31 December 2013.
6 Marks
Part B
The monthly schedule of balances of individual customer accounts from the receivables ledger (receivables
listing) showed a total of €68,175 as at 31 December 2013. The receivables control account as at the same date
showed a balance of €81,250.
Upon an examination of the books and records the following was uncovered:
• A credit balance of €/£1,750 was omitted from the control account in error.
• Discounts allowed €/£2,150 were completely omitted from the books and records.
• €/£4,500 of cash received from a customer was correctly treated in the receivables personal ledger but
recorded as €/£5,400 in the control account.
• A contra entry of €/£700 was correctly treated in the receivables control account but omitted from the
receivables personal ledger.
• Irrecoverable debts of €/£2,100 were omitted from the control account.
• The closing allowance for receivables balance of €/£4,900 had been debited to the receivables control
account.
• When preparing the monthly schedule of balances of individual customer accounts a totting error
occurred. This resulted in the schedule being undercast by €/£5,175
• Goods costing €/£500, were recorded correctly in the receivables control account but omitted from the
receivables personal ledger. The sole trader has a standard mark-up of 50% on goods.
Required:
i.
ii.
iii.
Outline one reason why preparing a receivables’ ledger reconciliation on a regular basis is important.
2 Marks
Prepare the restated balances of individual customer accounts (receivables listing) as at 31 December
2013
5.5 Marks
Prepare the restated receivable control account as at 31 December 2013
6.5 Marks
Total 20 Marks
8
Financial Accounting
August 2014
1st Year Paper
QUESTION 5
Part A
A. Ash received his bank statement dated 31 December 2013, the balance as per the bank statement did not
agree with the balance on the nominal ledger account as at 31 December 2013 of €14,140 credit.
On investigation the following errors were noted:
1.
2.
3.
4.
5.
Bank charges of €/£210 for 2013 had not been accounted for in the nominal ledger.
Cash receipts from a credit customer of €/£1,120 had been debited twice in the nominal ledger.
A direct lodgement recorded by the bank on the 20 December 2013 for €4,125 was not accounted for in
the nominal ledger.
A cheque drawn for €/£225 was debited in error in the nominal ledger as €/£522.
A. Ash took cash drawings of €/£1,452 out of the business bank account during 2013. These were not
recorded in the nominal ledger.
Required:
Prepare the corrected cash book for A. Ash as at 31 December 2013.
8 Marks
Part B
The assets and liabilities of United Camogie Club as at 1 January 2013 and 31 December 2013 include the
following:
1 January 2013
31 December 2013
€/£
€/£
6% long term loan
90,000
?
Insurance prepaid
1,750
2,350
Light and heat in arrears
615
550
Annual subscriptions in arrears
9,750
10,950
Annual subscriptions in advance
6,110
4,780
The bank T account is as follows:
Members subscriptions (all annual)
Sundry fees from non-members
Balance b/d (1/1/14)
Bank Account
€/£
104,750 Balance b/d (1/1/2013)
5,750 Bank charges
General repairs and maintenance
Loan interest paid
Light and heat paid
Repayment of loan principle on 31/12/13
Insurance paid
Rental costs of club house and field
Sundry wages and expenses
Balance c/d
110,500
27,360
€/£
2,140
175
1,165
4,950
3,240
4,500
9,370
26,150
31,450
27,360
110,500
Additional Information
A life subscription fund is in place which relates to a once off deal that was offered to members in 2009. The
value of the life membership fund originally was €/£262,500 and is being credited to the income and
expenditure account over 15 years.
Required:
You are required to prepare the Income and Expenditure Account for the year ended 31 December 2013.
12 Marks
Total 20 Marks
9
Financial Accounting
August 2014
1st Year Paper
QUESTION 6
The following opening balances were extracted from the books of L. Lime on 1 December 2013:
Debit
Credit
€/£
€/£
Non-current assets
102,450
Receivables
16,120
Cash & bank
2,250
VAT
5,370
Payables
10,150
Expenses due
1,300
Long term loan
24,000
Capital
80,000
120,820
120,820
The following transaction took place for the month of December 2013:
Date
Description
December 2
Purchased goods on credit at a cost of €/£6,150 plus VAT of 10%;
December 5
Sold goods on credit for €/£4,700 plus VAT of 10%;
December 6
Receivables paid €/£2,700 by cheque. The payment was after a 10% discount had
been allowed;
December 13
Purchased goods at a cost of €/£800 plus VAT of 10%, paid for these by cheque;
December 16
Payables of €/£4,800 were paid by cheque. An additional discount of 5% was
received due to the prompt payment;
December 18
Paid wages and salaries of €/£2,700 by cheque;
December 19
The outstanding balance owed for expenses was paid by cheque;
December 20
L. Lime took €/£500 from the business bank account for personal use;
December 23
Sold goods for cash for €/£3,100 plus VAT of 10%;
You are required to:
a)
Enter the opening balances in T Accounts.
3 Marks
b)
Write up the original books of entry for December 2013 and post the balances to the ledger.
11 Marks
c)
Balance the ledger accounts as at 31 December 2013.
2 Marks
d)
Extract the trial balance as at 31 December 2013.
4 Marks
Total 20 Marks
10
Financial Accounting
1st Year Paper
August 2014
1st Year Examination: August 2014
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
62%
2
32%
3
71%
4
44%
5
44%
6
35%
Nos. Attempting
149
135
147
85
81
92
Statistical Analysis - Overall
Pass Rate
46%
Average Mark
Range of Marks
Nos. of Students
0-39
53
40-49
31
50-59
35
60-69
20
70 and over
11
Total No. Sitting Exam
150
65
Total Absent
12
Total Approved Absent
227
Total No. Applied for Exam
General Comments:
The standard of answers was mixed. Many candidates did not attempt the required number of questions,
making the achievement of an overall passing mark a challenge.Where questions offer a choice within
the question some candidates are completing all parts of the question and wasting time as a result. This
is most notable on question three.
Some candidates present T accounts when journals are requested in the question and vice versa. Thus
loosing marks.
The general presentation of scripts was acceptable. The majority of candidates are now filing question
parts together, though some still skatter them throughout the answer book. The main areas of weakness
around presentation are as follows:
• Poor and untidy handwriting
• No workings presented for some questions
• Some candidates are making calculation errors within workings and thus presenting an
incorrect figure in the solution, but all the elements of the working are correctly treated. It
would appear time and examination pressure could be a factor. Where the elements of the
calculation are clearly shown in the workings marks are not being deducted for this
11
Financial Accounting
1st Year Paper
August 2014
Examiner’s Comments on Question One
This question was generally reasonably well answered.
Many candidates prepared correct calculations for allowance for doubtful debts, irrecoverable debts,
depreciation of fixtures and fitting and rates.
A significant number of candidates did not correctly calculate the insurance prepayment and the
calculation of depreciation for the building purchased during the year proved challenging. The
treatment of the following items was poorly answered: Employers PRSI/NIC costs, treatment of the
loan due witin 12 months and loan due after 12 months.
Layout, presentation and workings continue to improve however some candidates are still not titling
the financial statements correctly. They are named correctly on the examination paper.
Solution One
C. Cedar
Statement of profit and loss for the year ended 31 December 2013
Ref to
€/£
Workings
Sales
Sales returns
Cost of sales
Opening inventory
Purchases
Purchases returns
Carriage inwards
€/£
762,230
(21,740)
740,490
26,540
314,150
(16,250)
Less closing inventory
Cost of sales
Gross Profit
Discount received
Less Expenses
Rates
Carriage outwards
Insurance
Electricity
Wages and salaries
Employers PRSI/NIC costs
Discount allowed
Telephone, internet and media costs
Depreciation of buildings
Depreciation of fixtures and fittings
Increase in the allowance
Irrecoverable debts recovered
Irrecoverable debts
Bank interest and charges
0.5 marks
€/£
0.25
0.5
0.5
0.5
297,900
7,740
332,180
(31,660)
0.5
(300,520)
439,970
7,330
5
6,770
3,100
5,200
6,450
94,840
9,620
4,110
12,030
11,183
8,521
7,408
(1,125)
5,740
200
4
3
3
2
1
0.5
0.5
0.5
0.5
0.25
0.25
0.5
0.5
0.25
1
0.5
0.5
0.5
0.5
0.5
Total expenses
(174,047)
Operating profit
273,253
12
Marks
Allocated
0.5
0.5
Financial Accounting
1st Year Paper
August 2014
Solution One (Cont’d)
C. Cedar
Statement of financial position as at 31 December 2013
0.5 marks
Ref to
Workings
€/£
Non-current assets
Buildings
Fixtures and fittings
3
3
605,000
126,730
Current assets
Closing inventory
Receivables
Closing allowance
Prepayments
2
2
4
105,580
(10,558)
€/£
(88,613)
(50,041)
€/£
Marks
Allocated
516,387
76,689
593,076
0.5
0.5
31,660
0.25
0.5
0.5
0.5
95,022
3,540
130,222
Total assets
723,298
Equity and Liabilities
Equity
Capital
Accumulated profits
Profits 2013
Accumulated profits
Drawings
200,060
51,250
273,253
524,563
(8,130)
0.5
0.5
0.5
0.5
516,433
Non-current liabilities
Term loan
Current liabilities
Payables
Loan due for repayment in 2014
Bank O/D
Accrual: rates
VAT Liability
50,000
102,000
24,750
17,815
650
11,650
1
5
0.5
0.75
0.75
0.5
0.5
156,865
Total Equity and Liabilities
723,298
Workings 1
Bank balance as per TB
Irrecoverable debts recovered
Restated bank
€/£
(18,940)
1,125
(17,815)
Solution One (Cont’d)
Workings 2
Receivables as per TB
Closing allowance 10%
Opening allowance
Increase in the allowance
€/£
105,580
10%
10,558
(3,150)
7,408
13
0.75
Financial Accounting
Workings 3
Buildings
Cost of buildings
Depreciation 2%
August 2014
€/£
555,000
11,100
Additional buildings
€/£
50,000
1,000
83
Cost of buildings
Depreciation 2% annual
Depreciation 2% one month
Fixtures and fittings
Cost
Accumulated depreciation
Deprecation
Annual depreciation
€/£
126,730
(41,520)
85,210
10%
8,521
Workings 4
€/£
8,740
(3,540)
5,200
Insurance as per TB
Prepayments
Restated insurance
€/£7,080 / 2 = €/£3,540
Workings 5
€/£
6,120
650
6,770
Rates as per TB
Accrual
Restated rates
14
1st Year Paper
Financial Accounting
1st Year Paper
August 2014
Examiner’s Comments on Question Two
This question was very poorly answered/not answered at all by candidates.
Some candidates appeared not to understand how the balance in the suspense account arises and
instead of preparing a trial balance prepared financial statements using the net profit figure/total
assets figure to open the suspense account.
Some candidates are still presenting T accounts where journals are required and many candidates are
not presenting narratives.
Errors 2, 3, 5 and 7 proved the most challenging for candidates.
Solution Two
Part A
Sales
Sales returns
Purchases
Expenses
Non-current assets
Discounts received
VAT liability
Payables
Receivables
Cash lodged at bank
Capital as at 1 January 2013
Suspense account
Debit
Credit
€/£
€/£
40,450
740
17,950
8,110
60,500
1,500
22,250
4,610
3,750
4,560
95,610
15
25,904
896
95,610
Marks
Allocated
0.25
0.25
0.25
0.25
0.25
0.5
0.5
0.5
0.5
0.25
0.5
Financial Accounting
1st Year Paper
August 2014
Solution Two (Cont’d)
Part B
1.
Dr
Cr
2.
Dr
Dr
Cr
Cr
3.
Dr
Cr
4.
Dr
Cr
5.
Dr
Cr
6.
Dr
Dr
Cr
7.
Dr
Dr
Cr
Cr
VAT liability
Bank
Being the correction of an error of omission
Debit
Credit
€/£
€/£
15,000
15,000
Receivables
Receivables
Sales returns
Sales
Being the correction of an error of original entry
1,157
1,000
Bank
Interest income
Being the correction of an error of omission
22.14
Payables
Suspense
Being correction of error payables overcast
550
1,157
1,000
Marks
Allocated
0.5
0.5
0.25
0.5
0.5
0.5
0.5
0.25
22.14
0.5
0.5
0.25
550
0.5
0.5
0.25
Suspense
1,650
Banks
1,650
Being the correction of error a cheque payment posted as a cash receipt/error of transposition
0.5
0.5
0.25
Discounts received
Discount allowed
Suspense
Being the correction of an error of single commission
0.5
0.5
0.25
0.25
107
97
204
Computer
4,250
Depreciation expense
425
Purchases
4,250
Accumulated depreciation
425
Being the correction of an error of principle and associated understatement of depreciation
0.5
0.5
0.5
0.5
0.25
Part C
Marks
Allocated
Details
1.5
Error 5
Suspense Account
€/£ Details
1,650
1,650
16
Balance
Error 4
Error 6
€/£
896
550
204
1,650
Marks
Allocated
0.5
1.5
1.5
Financial Accounting
August 2014
1st Year Paper
Examiner’s Comments on Question Three
This was generally candidates best question on the paper. Many candidates chose all theory questions
and scored well.
Parts A, B and E were the best answered question parts.
For part C candidates striggled to name a second advantage and disadvantage – with many scoring
half marks on the question.
For part D some candidates did not prepare a T account and got confused as to what figures should be
added/subtracted from each other.
For part F candidates generally knew what VAT was through some did not provide a detailed enough
answer to score full marks.
Solution Three
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 Statement of Profit and Loss 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 entity. An example of the information
provided by financial accounting is the entity’s profit or loss for the accounting period.
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. An example
of the information provided by management accounting is the budgeted cash flow of the entity for the upcoming
financial year.
5 marks
Part B
Sole Trader
The term sole trader relates to ownership, in that one person owns the business entity. This type of business
entity is often quite small. There are no formal procedures required to set up a sole trader business. In addition
the sole trader can decide how the business is going to be run and is free to dissolve or sell the business at any
time.
Both in the UK and Ireland the sole trader and the business are not recognised as separate legal entities. Because
of this sole traders have unlimited liability. Unlimited liability means that there is no distinction between the
sole trader’s personal wealth and that of the business.
Advantages of a Sole Trader Business (Any One)
- With one owner the sole trader does not have to worry about setting up in business with an unsuitable
partner;
- A sole trader is free to make decisions and run the business as he/she sees fit without having to take the
opinions of others on board;
- A sole trader does not have to split the rewards of the business with others;
17
Financial Accounting
August 2014
1st Year Paper
Solution Three (Cont’d)
-
-
-
The comparative ease with which the business is set up and run – there are few administrative burdens
imposed on sole traders by law, there is no requirement to produce final accounts, have them audited or
present them at an annual meeting;
Did not bear any of the cost associated with the transition to international accounting standards;
Because a sole trader is usually directly involved in the running of the business he/she will 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 a sole trader is completely aware of how the resources of the business
are being managed. There is no division between management and ownership. Not so with a limited
company where the financial statements are the shareholders prime source of information as to how the
assets of the company are being managed and how the company is performing.
Disadvantages of Being a Sole Trader (Any One)
- Unlimited Liability – A sole trader is liable for any debts that the business incurs. This means that any
money that the owner has put into the business could be lost, but most importantly, if the business
continues to incur further costs then the owner has to pay these as well. In some cases they may have to
sell some of their own possessions to pay suppliers, etc. Such a risk often puts potential sole traders off
setting up businesses, and also makes them consider the other forms of business structure.
- As a result of the sole trader and the business being the same legal form, the sole trader is taxed based on
income tax not corporation tax. Corporation rate tax rates are more favourable than income tax rates.
- Can be difficult to raise finance. Because they are small, banks may not lend large sums of money to sole
traders who may be unable to avail of other forms of long-term finance unless they change their ownership
status.
- Can be difficult to enjoy economies of scale, i.e. lower cost per unit due to higher levels of production. A
sole trader, for instance, may not be able to buy in bulk and enjoy the same discounts as larger businesses.
- There is a problem of continuity if the sole trader retires or dies – what happens to the business?
5 marks
Part C
Advantages of selling goods on credit (Any Two):
1. The business customer base may increase (increased sales).
2. It helps improve the business’s cash flow by increased sales, if the cash is collected on time from
receivables.
3. It helps build a relationship with the customer in the long run.
Disadvantages (Any Two):
1. It can be expensive due to the waiting period for settlement of the invoices.
2. It can directly affect the liquidity position of the business.
3. There is the possibility of some debts only being part-paid or not paid at all.
5 marks
18
Financial Accounting
1st Year Paper
August 2014
Solution Three (Cont’d)
Part D
Marks
Allocated
1
1
Rent Receivable T Account
€/£ Details
Details
Balance b/d
Statement of P&L
Balance c/d
5,125 Balance b/d
102,855 Rent received
750 Balance c/d
108,730
4,980 Balance b/d
Balance b/d
€/£
Marks
Allocated
1,350
102,400
4,980
108,730
750
1
1
1
Part E
Date
Units
January 1
January 4
Opening inventory
Purchases
50
700
Price
€/£
3.10
3.75
January 8
January 15
Sales
Purchases
600
850
3.25
January 28
Sales
310
Valuation of
remaining inventory
50*3.10
50*3.10
700*3.75
150*3.75
150*3.75
850*3.25
690*3.25
Marks
Allocated
1
1
1
1
1
Value of closing inventory is €/£2,242.50.
Part F
VAT or valued added tax is a tax levied on the sales of businesses. VAT is collected by businesses and remitted
to the Revenue Authority on a regular basis. A business must charge VAT on all vatable sales but is allowed to
reclaim VAT on purchases. Thus businesses only remit the balance to the Revenue Authority. Where the VAT
paid on purchases is greater than the VAT levied on sales a business can claim a refund of the difference
between VAT on purchases and VAT on sales from the Revenue Authority. Therefore in the year-end Statement
of Financial Position the VAT balance will usually be a liability representing funds owed to the Revenue
Authority but may also be a asset representing a refund due by the Revenue Authority to the business.
Where a business is registered for VAT, VAT should not appear in the Statement of Profit and Loss of the
business as it is neither income nor an expense of the business. The business is simply a collection vehicle for
the Revenue Authority.
5 marks
19
Financial Accounting
1st Year Paper
August 2014
Examiner’s Comments on Question Four
Many candidates made a reasonable attempt at question part A and then proceded not to answer
question part B
Those that did answer part B seemed confused as to what they were trying to achieve and answers
tended to be weak.
Solution Four
Part A
Marks
Allocated
0.5
0.75
0.75
0.75
0.75
Payables Control A/C
€/£
Opening balance b/d
Cheque payments book
Purchase returns
Discounts received
Contra
Balance c/d
Marks
Allocated
102,750
0.5
1,150,000
0.5
725
1
€/£
1,120 Opening balance b/d
1,004,200 Credit purchases
21,300 Interest
34,750
6,710
185,395
1,253,475
Balance b/d
1,253,475
185,395
0.5 marks for excluding cash purchases
Part B
(i)
The receivables control account records information in relation to receivables in total. In the receivables
personal ledgers the same information is recorded on a receivable by receivable basis. By reconciling the
balance as per the control account to the balance as per the receivables personal ledger helps to demonstrate the
accuracy of both. Thus preparing a receivables’ 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 receivables listing
Discounts allowed
Contra entry
Sales omitted
Omitted receivables balance from listing
20
68,175
(2,150)
(700)
750
5,175
71,250
Marks
Allocated
0.5
1.25
1.25
1.25
1.25
Financial Accounting
August 2014
1st Year Paper
Solution Four (Cont’d)
(iii)
Receivables Control A/C
€/£
Marks
Allocated
0.5
1.25
Balance b/d
Error in cash received
81,250 Omitted balance
900 Irrecoverable debts
Discounts allowed
Allowance for receivables error
Balance c/d
82,150
71,250
Balance b/d
€/£
1,750
2,100
2,150
4,900
Marks
Allocated
1
1.25
1.25
1.25
71,250
82,150
Examiner’s Comments on Question Five
Many candidates made a reasonable attempt at question part A and then proceded not to answer
question part B.
Those that answered part B struggled with the calculation of the subscription figure and the treatment
of the loan principle payment and repayment of loan interest.
The adjustment to light and heat and insurance were mixed.
Solution Five
Part A
Bank Account/Cash Book
Marks
Allocated
1.25
Error 3
Balance
€/£
4,125
Balance
Bank charges
Error 2
Error 4
Drawings
€/£
14,140
210
1,120
747
1,452
Balance
17,669
13,544
13,544
17,669
21
Marks
Allocated
1.25
1.25
1.25
1.50
1.50
Financial Accounting
1st Year Paper
August 2014
Solution Five (Cont’d)
Part B
United Camogie Club
Income and expenditure account for the year to 31 December 2013
€/£
Income
Subscriptions
Release of one year life subscriptions
Fees from non-members
€/£
Marks
Allocated
107,280
17,500
5,750
130,530
Expenditure
Light and heat
Bank charges
Wages and salaries
Insurance
Loan interest
General repairs and maintenance
Rent costs
3,175
175
31,450
8,770
5,400
1,165
26,150
2.5
2
1
1.5
0.5
0.5
1.5
1
0.5
0.5
(76,285)
54,245
Excess of income over expenses
0.5 marks for not including the repayment of principle
Workings
Marks above broken down as follows:
Marks
Allocated
0.5
0.5
Marks
Allocated
0.5
0.5
Details
Subscriptions Account
€/£ Details
Opening subs in arrears
I/E value for subs
Closing subs in advance
9,750
107,280
4,780
Opening subs in arrears
121,810
10,950
Details
Opening subs in advance
Cash received for subs
Closing subs in arrears
6,110
104,750
10,950
Opening subs in advance
121,810
4,780
Insurance Account
€/£ Details
Opening balance
Bank
1,750
9,370
Opening balance
11,120
2,350
€/£
Income and Exp A/C
Closing balance
€/£
8,770
2,350
11,120
22
Marks
Allocated
0.5
0.5
0.5
Marks
Allocated
0.5
Financial Accounting
August 2014
1st Year Paper
Solution Five (Cont’d)
Marks
Allocated
0.5
0.5
Light and Heat Account
€/£ Details
Details
Bank
Closing balance
3,240
550
€/£
Opening balance
Income and Exp A/C
615
3,175
Opening balance
3,790
550
3,790
Marks
Allocated
0.5
Loan Interest Working
Loan principle
Interest at 6%
Loan interest paid
Loan interest to be accrued
€/£
90,000
6%
5,400
4,950
450
Examiner’s Comments on Question Six
A popular question through the quality of answers were mixed. Many candidates did not prepare day
books and some candidates that did were confused as to the contents of each day book – with some
including cash sales for example within the sales day book.
The treatment of VAT in part C proved a challenge for many candidates.
Some candidates did not balance any T accounts and did not prepare a trial balance and therefore lost
easy marks as a result.
Part B
Purchases Book
Date
Analysis
Dec 2
Total
€/£
6,765
6,765
Goods for resale
Net
€/£
6,150
6,150
0.5 marks
Sales Book
Date
Analysis
Dec 5
Sale of goods
Total
€/£
5,170
5,170
Net
€/£
4,700
4,700
VAT
€/£
470
470
0.5 marks
23
VAT
€/£
615
615
Solution Six
Cheque Payments Book
Date
Analysis
Dec 13
Dec 16
Dec 18
Dec 19
Dec 20
Total
€/£
Goods for resale 880
Payables
4,800
Wages
2,700
Expenses
1,300
Drawings
500
10,180
Expenses
Purchases
Payables
Wages
VAT
Drawings
€/£
€/£
800
€/£
€/£
€/£
80
€/£
4,800
2,700
1,300
500
1,300
800
4,800
2,700
80
Total
Receivables
Sales
€/£
2,700
3,410
€/£
2,700
€/£
Dec 6
Dec 23
6,110
2,700
3,100
3,100
500
240
VAT Discount Allowed
Memo
€/£
€/£
300
310
310
Marks
Allocated
0.5
0.5
0.25
0.25
0.25
240
Cash Receipts & Lodgements book
Date
Analysis
Receivables
Sales
Discount
Received
Memo
€/£
300
Marks
Allocated
0.5
0.5
Financial Accounting
1st Year Paper
August 2014
Solution Six (Cont’d)
Part A and C
Marks
Allocated
Balance b/d
0.25
Non Current Assets A/C
€/£
€/£
102,450
Balance c/d
Balance b/d
Marks
Allocated
Balance b/d
0.25
Cash receipts book
0.5
Balance c/d
Marks
Allocated
Cheque payments book
0.5
Discount received
0.5
Balance c/d
Marks
Allocated
Balance b/d
0.25
Sales book
0.25
Balance b/d
Marks
Allocated
102,450
102,450
102,450
102,450
Bank A/C
€/£
€/£
2,250
6,110 Cheque payments book
1,820
10,180
Balance b/d
Payables
€/£
4,800 Balance b/d
240 Purchases book
11,875
16,915
Balance b/d
Receivables A/C
€/£
16,120 Cash receipts book
5,170 Discount allowed
Balance c/d
21,290
18,290
Capital A/C
€/£
Balance
Marks
Allocated
Purchases book
0.5
Cheque payments book
0.25
Balance c/d
Marks
Allocated
VAT
€/£
10,180
0.5
10,180
1,820
€/£
10,150
6,765
Marks
Allocated
0.25
0.25
16,915
11,875
€/£
2,700
300
18,290
21,290
€/£
80,000
€/£
615 Balance b/d
80 Sales book
5,455 Cash receipts
5,370
470
310
6,150
6,150
5,455
Balance b/d
Marks
Allocated
Marks
Allocated
0.5
0.5
Marks
Allocated
0.5
Marks
Allocated
0.5
0.5
0.25
Fin Accounting A2014 (FA)
Financial Accounting
1st Year Paper
August 2014
Solution Six (Cont’d)
Marks
Allocated
Cheque payments book
0.25
Marks
Allocated
Receivables
0.25
Balance b/d
Expenses Due
€/£
€/£
1,300 Balance b/d
1,300
1,300
1,300
Discount Allowed
€/£
€/£
300 Balance c/d
300
300
Balance c/d
Marks
Allocated
Cheque payments book
0.25
Balance b/d
2,700 Balance c/d
2,700
2,700
Sales Account
€/£
Marks
Allocated
Balance c/d
€/£
240 Payables
240
Balance b/d
Wages
€/£
7,800 Sales book
Sales for cash
7,800
Balance b/d
Purchases Account
Marks
€/£
Allocated
Purchases book
6,150 Balance c/d
0.25
Cheque payments book
800
0.25
6,950
Balance b/d
6,950
Marks
Allocated
300
300
Discount Received
€/£
Marks
Allocated
Marks
Allocated
0.5
240
240
240
Marks
Allocated
0.25
Marks
Allocated
€/£
2,700
2,700
€/£
4,700
3,100
7,800
7,800
€/£
Marks
Allocated
0.25
0.25
Marks
Allocated
6,950
6,950
Fin Accounting A2014 (FA)
Financial Accounting
1st Year Paper
August 2014
Solution Six (Cont’d)
Loan
€/£
Marks
Allocated
Balance c/d
Marks
Allocated
Bank
0.25
Balance b/d
€/£
24,000 Balance b/d
24,000
Balance b/d
24,000
24,000
24,000
Drawings
€/£
€/£
500 Balance c/d
500
500
Marks
Allocated
0.5
Marks
Allocated
500
500
Part D
Marks
Allocated
L. Lime
Trial Balance at 31 December 2013
Debit
€/£
Bank
Payables
Receivables
18,290
Non-current assets
102,450
Capital
VAT
Expenses due
Sales
Purchases
6,950
Discount allowed
300
Discount received
Wages
2,700
Drawings
500
Long term loan
131,190
Credit
€/£
1,820
11,875
80,000
5,455
7,800
240
24,000
0.25
0.25
0.25
0.25
0.25
0.5
0.25
0.25
0.25
0.25
0.25
0.25
0.5
0.25
131,190
2 marks for part c awarded where candidate demonstrates that they can balance a T account.
Not all T accounts must be balanced.
Fin Accounting A2014 (FA)