Answers

ACCA Certified Accounting Technician Examination – Paper T6 (INT) December 2008 Answers
Drafting Financial Statements (International Stream) and Marking Scheme

Marks
1 (a) Screeth
Statement of comprehensive income for the year ended 31 October 2008 0·5
$000
Revenue 9,261 1·5 ($9,427 – $166)
Cost of sales (W1) (6,770) 3·5
––––––
Gross profit 2,491
Distribution costs (W1) (955) 3·0
Administrative expenses (W1) (1,228) 5·0
Finance costs (58) 0·5
––––––
Profit before tax 250 0·5
Income tax expense (120) 0·5
––––––
Profit for the year 130 0·5
––––––
Other comprehensive income:
Gains on property revaluation 1,267 1·0 ($3,150 – $1,883)
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Total comprehensive income for the year 1,397 0·5
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17·0
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(b) Screeth
Statement of financial position as at 31 October 2008 0·5
Assets $000 $000
Non-current assets
Property, plant and equipment (W3) 4,960 4·5
Current assets
Inventory 480 0·5
Trade receivables 1,615 1·5 ($1,700 – $85)
Prepayments 10 1·0
Cash in hand 27 2,132 0·5
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Total assets 7,092 0·5
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Equity and Liabilities
Capital and reserves
$1 Ordinary shares 2,850 0·5
Share premium account 350 0·5
Revaluation reserve 1,267 1·0
Retained earnings ($875 + $130 – $200) 805 2·5
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5,272
Non-current liabilities
7% Loan notes 822 1·0
Current liabilities
Trade payables 507 0·5
Tax 120 0·5
Accruals 60 1·0
Bank overdraft 311 1·0
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Total liabilities 998
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Total equity and liabilities 7,092 0·5
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18·0
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 Marks
Workings
W1 Cost of Distribution Administrative
Sales Cost Expenses
$000 $000 $000
Distribution costs 250
Administrative expenses 126
Salaries (1,180 + 60) (25:35:40) 310 434 496
Discounts received (1 mark) (88)
Property expenses (20:30:50) 58 87 145
Insurance (130 – 10) (20:40:40) 24 48 48
Purchases 6,248
Opening inventory 610
Depreciation – buildings 132 (W2) (0:50:50) 66 66
Depreciation – motor vehicles (W2) 70
Depreciation – furniture and equipment (W2) 160
Closing inventory (1 mark) (480)
Receivables expense (W4) (1 mark) 275
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6,770 955 1,228
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(3·5 marks) (3 marks) (5 marks)
W2 Depreciation on non-current assets
Motor Furniture
Buildings vehicles & equipment
$000 $000 $000
Cost 2,640 420 800
Depreciation b/f (625) (140) (335)
Current year’s depreciation:
Buildings 2,640 x 5% (132)
Motor vehicles (420 – 140) x 25% (70)
Furniture and equipment 800 x 20% (160)
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1,883 210 305
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W3 Non-current assets as at 31 October 2008 $000
Land (from TB) 1,295 0·5
Buildings revalued at 31 October 2008 3,150 1·0
Motor vehicles (W2) 210 1·5
Furniture and equipment (W2) 305 1·5
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Total Property, Plant & Equipment 4,960 4·5
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Working Papers
W4 Receivables Expense
$ $
Balance as per TB 260,000 Income statement 275,000
Allowance for receivables 15,000
–––––––– ––––––––
275,000 275,000
––––––––
–––––––– ––––––––
––––––––
Allowance for Receivables
$ $
Balance c/f ($1,700,000 x 5%) 85,000 Balance as per TB 70,000
Receivables expenses 15,000
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85,000 85,000
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 Marks Workings ($000)
2 (a) Goodwill on acquisition of Bruce
$000 $000
Cost of investment 8,800 1·0
Share capital ($9,260,000 x 70%) 6,482 1·0
Retained earnings ($750,000 x 70%) 525 (7,007) 1·0
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Parent’s goodwill 1,793
Non-controlling interest’s goodwill 600 1·0
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Total goodwill 2,393
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Total 4·0
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(b) (i) Wallace

Consolidated income statement for the year ended 31 October 2008
$000
Revenue 72,400 1·0 50,000 + 27,400 – 5,000
Cost of sales (33,200) 2·0 26,000 + 11,000 – 5,000 + 1,200*
––––––––
Gross profit 39,200
Distribution costs (5,000) 0·5
Administrative expenses (9,792) 0·5 7,000 + 2,792
Finance costs (2) 1·0 8–6
––––––––
Profit before tax 24,406
Income tax expense (6,800) 0·5 3,700 + 3,100
––––––––
Profit for the year 17,606
––––––––
––––––––
Profit attributable to:
Owners of the parent 15,506 0·5
Non-controlling interest 2,100 2·0 30% x (8,200 – 1,200)
––––––––
17,606
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Total 8·0
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(ii) Wallace
Consolidated statement of financial position as at 31 October 2008
Assets $000 $000
Non-current assets
Tangible assets, net book value 44,895 0·5 (30,000 + 14,895)
Intangible – goodwill 2,393 0·5
–––––––
47,288
Current assets
Inventory, at cost 4,365 1·5 (3,900 + 1,665 – 1,200*)
Receivables 10,774 3·5 (6,850 + 4,530 – 600** – 6***)
Cash and cash equivalents 1,762 16,901 0·5 (1,260 + 502)
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Total assets 64,189
–––––––
–––––––
Equity and Liabilities
Capital and Reserves
$1 Ordinary shares 26,000 1·0
Retained earnings (W1) 16,945 3·0
–––––––
42,945
Non-controlling interest (W2) 4,803 3·0
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Total equity 47,748
Non-current liabilities
10% Loan note 20 1·0 (80 – 60)
Current liabilities
Payables 9,839 2·5 (6,645 + 3,800 – 600** – 6***)
Tax 6,582 1·0 4,080 + 2,502
–––––––
Total current liabilities 16,421
–––––––
Total equity and liabilities 64,189
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––––––– ––––
Total 18·0
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15
 Marks
Notes:
* Exclusion of unrealised profit held in inventory (($5,000,000 – $3,000,000) x 60% = $1,200,000)
** Intra-company indebtedness ($600,000)
*** Exclusion of intragroup interest ($6,000)
Workings
W1 Retained earnings as at 31 October 2008
$000 $000
Wallace as per statement of financial position 14,145 0·5
Bruce:
Retained earnings 5,950
Pre-acquisition reserves (750)
Unrealised profit (1,200)
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4,000
Group share (70% x $4,000) 2,800 2·5
–––––––
16,945
–––––––
––––––– ––––
3·0
––––
––––
W2 Non-controlling interest as at 31 October 2008
$000
Net assets of Bruce at 31 October 2008 15,210 0·5
Less unrealised profit (1,200) 0·5
–––––––
14,010
–––––––
Non-controlling interest share (30% x $14,010) 4,203 1·0
Goodwill attributable to non-controlling interest 600 1·0
––––––– ––––
Total non-controlling interest 4,803 3·0
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3 (a) Realisation Account

$ $
Property 100,000 Loan a/c 10,000 0·5 0·5
Furniture & fittings (NBV) 30,000 Payables 32,520 0·5 0·5
Motor vehicles (NBV) 20,000 0·5
Inventory 20,000 0·5
Receivables 49,000 0·5
Cash and bank: Cash and bank:
Loan 10,000 Property 110,000 0·5 0·5
Payables 29,350 Furniture and fittings 26,800 0·5 0·5
Dissolution expenses 2,100 Motor vehicles 22,300 0·5 0·5
Profit on realisation: Melanie –12 4,360 Inventory 21,650 1·0 0·5
Vicky –14 2,180 Receivables 45,900 1·0 0·5
Lucy –14 2,180 0·5
–––––––– –––––––– ––––
269,170 269,170 Total 10·0
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–––––––– ––––––––
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(b) Cash and Bank

$ $
Balance b/f 5,000 Realisation A/c:
Realisation a/c Loan 10,000 0·5
Property 110,000 Payables 29,350 0·5 0·5
Furniture and fittings 26,800 Dissolution expenses 2,100 0·5 1·0
Motor vehicles 22,300 Partners a/c: Melanie 92,040 0·5 0·5
Inventory 21,650 Vicky 40,680 0·5 0·5
Receivables 45,900 Lucy 57,480 0·5 0·5
–––––––– –––––––– ––––
231,650 231,650 Total 6·0
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–––––––– ––––––––
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 Marks
(c) Partners’ Accounts
Melanie Vicky Lucy Melanie Vicky Lucy
$ $ $ $ $ $
Cash 92,040 40,680 57,480 Capital a/cs 80,000 30,000 50,000 2·0
Current a/cs 7,680 8,500 5,300 1·0
Realisation a/c 4,360 2,180 2,180 1·0
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92,040 40,680 57,480 92,040 40,680 57,480
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Total 4·0
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4 (a) Ratio Formula Campbell Giddens

Calculation Ratio Calculation Ratio
Current assets 303 274
Current ratio –––––––––––––– :1 –––– 4·3:1 –––– 1·8:1
Current liabilities 70 151
Current assets – inventory 165 107
Quick ratio –––––––––––––––––––––– :1 –––– 2·4:1 –––– 0·7:1
Current liabilities 70 151
Receivables 69 98
Rec’bles collection period –––––––––– x 365 –––– x 365 42 days –––– x 365 53 days
Sales 596 678
PBIT 99 32
Return on capital employed ––––––––––––––––––––––––– x 100 –––– x 100 18·3% ––––– x 100 3·1%
S. Cap + Res + Non curr lia. 540 1,049
Gross profit 202 152
Gross profit percentage –––––––––– x 100 –––– x 100 33·9% –––– x 100 22·4%
Sales 596 678
Net profit 99 24
Net profit percentage –––––––– x 100 –––– x 100 16·6% –––– x 100 3·5%
Sales 596 678
Marking scheme: 1/2 mark for correctly stating the formula and 1/2 mark for each correct ratio

(b) Relevant comments could include:

– The current ratios indicate that both companies have sufficient current assets to meet their current liabilities. Campbell’s
current ratio is very healthy due mainly to the relatively lower level of liabilities.
– The quick ratio shows that Giddens may have some liquidity problems; it is less than 1:1 and therefore the company
may not be able to pay its debts as they become due. The high level of payables relative to current assets may indicate
some difficulty in paying suppliers. Giddens’ bank balance when compared to Campbell’s is also low.
– The receivables collection period for Giddens is longer than for Campbell. This may indicate poor credit control in
Giddens and may have an adverse effect on company liquidity.
– Campbell is making a very good return on capital employed (18%) compared to Giddens (3·1%). Campbell should be
an attractive investment to potential investors with this level of return.
– Campbell has a higher gross profit percentage than Giddens. It may be that Campbell is able to source its supplies more
cheaply than Giddens or benefit from discounts. Alternatively, it may have some other advantage such as its location
which enables it to charge higher prices.
– The net profit percentage for Giddens is very low compared with Campbell, suggesting that it is not controlling its
expenses as carefully as it should.
Marking scheme
1 mark for each relevant comment up to a maximum of 6 marks.

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