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Accounting Help

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    Could someone please verify my answers for this accounting paper?

    http://www.thestudentroom.co.uk/atta...4&d=1327689460


    1b. 100000+400=£100400
    2b. You add capital and minus drawings?
    3b. 53%
    3c. Could someone explain this please?
    3e. Do you just talk about the advs and disadvs of both options?
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    1b)
    Purchase of computers (120 000 – 20 000) 100 000
    Wages (84 860 – 8 400) 76 460
    Training costs 6 840
    Insurance 400 as 2400-2000
    Total being 183 700

    2b)
    Capital introduced 21 000
    Add profit for the year 19 262
    Less drawings (22 560)
    Less goods for own use (3 895) (this could be added to drawings above)
    Capital at 30 September 2011 13 807
    Ensure correct layout used.

    3b) Depending on method answer ranges from 57% to 133% if you use equity on the bottonm

    However in this question given that it was NOT clear in the question if the profit for the year was included in the capital balance you could also work it out my adding the 2million to the denominator again to each formulae giving gearing of 54% and 117%.

    Was your answer of 53% just a rounding error?

    3c) I have been meaning to do another podcast on issue of shares. So far there is a basic one on Youtube. See if it is useful.

    For this question you need to work out how capital changes (increaes) from the issue of ordinary shares. The fact shares are sold at a premium means you must "apportion" the premium of the sale and show this. The ordinary share amount only increases by the cost (i.e. face, nominal or par) of the share. All premium is seperate.

    So:
    Calculations:
    Ordinary shares: 40m x 20p = 8m + 10m
    Share premium: 40m x 30 = 12m + 2.5m = 14.5m

    Layout:
    Ordinary shares 18 000 000
    Share premium 14 500 000
    Revaluation reserve 585 000
    Retained earnings 2 002 595
    Total capital being 35 087 595

    Ok?

    3e) Essentially yes but you must be focused on the "impact on liquidity" and then "impact on profitability".

    e.g. for Debentures:
    Impact on liquidity: in the short run there will be an initial improvement as the debentures will raise £20m – assuming they are fully subscribed.

    impact on profitability:
    funds generated from a debenture issue do not affect profit.

    Share issue
    Impact on liquidity
    improve liquidity in the short run as the share issue will raise £20m if fully subscribed

    Impact on profitability
    the issue of shares does not affect profit

    etc

    This ok?
    Were the rest of the questions ok?
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    (Original post by A.A.T.)
    1b)
    Purchase of computers (120 000 – 20 000) 100 000
    Wages (84 860 – 8 400) 76 460
    Training costs 6 840
    Insurance 400 as 2400-2000
    Total being 183 700

    2b)
    Capital introduced 21 000
    Add profit for the year 19 262
    Less drawings (22 560)
    Less goods for own use (3 895) (this could be added to drawings above)
    Capital at 30 September 2011 13 807
    Ensure correct layout used.

    3b) Depending on method answer ranges from 57% to 133% if you use equity on the bottonm

    However in this question given that it was NOT clear in the question if the profit for the year was included in the capital balance you could also work it out my adding the 2million to the denominator again to each formulae giving gearing of 54% and 117%.

    Was your answer of 53% just a rounding error?

    3c) I have been meaning to do another podcast on issue of shares. So far there is a basic one on Youtube. See if it is useful.

    For this question you need to work out how capital changes (increaes) from the issue of ordinary shares. The fact shares are sold at a premium means you must "apportion" the premium of the sale and show this. The ordinary share amount only increases by the cost (i.e. face, nominal or par) of the share. All premium is seperate.

    So:
    Calculations:
    Ordinary shares: 40m x 20p = 8m + 10m
    Share premium: 40m x 30 = 12m + 2.5m = 14.5m

    Layout:
    Ordinary shares 18 000 000
    Share premium 14 500 000
    Revaluation reserve 585 000
    Retained earnings 2 002 595
    Total capital being 35 087 595

    Ok?

    3e) Essentially yes but you must be focused on the "impact on liquidity" and then "impact on profitability".

    e.g. for Debentures:
    Impact on liquidity: in the short run there will be an initial improvement as the debentures will raise £20m – assuming they are fully subscribed.

    impact on profitability:
    funds generated from a debenture issue do not affect profit.

    Share issue
    Impact on liquidity
    improve liquidity in the short run as the share issue will raise £20m if fully subscribed

    Impact on profitability
    the issue of shares does not affect profit

    etc

    This ok?
    Were the rest of the questions ok?

    Thanks. I am having trouble with another question on another paper, if you could help me again it would be greatly appreciated. For question 3a, could you please explain why in the fourth row the concept is cost and the effect on profit is +750 and -75?
    http://store.aqa.org.uk/qual/gce/pdf...W-QP-JAN10.PDF
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    (Original post by ArsenalWenger)
    Thanks. I am having trouble with another question on another paper, if you could help me again it would be greatly appreciated. For question 3a, could you please explain why in the fourth row the concept is cost and the effect on profit is +750 and -75?
    http://store.aqa.org.uk/qual/gce/pdf...W-QP-JAN10.PDF
    Narrative reads:
    "TeeGreen Ltd purchased new fixtures and fittings costing £27 500 during the year. These have been included in fixed assets (non-current assets) and have been depreciated at a rate of 10% per annum using the straight-line method. The suppliers charged £750 for delivery of the fixtures and fittings and this has been added to carriage inwards."


    3a asks "Complete the table below. For each item, state a relevant accounting concept and the effect any adjustment would have on the net profit. The first item has been completed for you."


    My comments:
    So you have to answer the question choosing the most appropriate concept in the situation. Since this is about "what" value to use for Non-Current Assets this would be the "Historical Cost" concept, typically shortened to just "cost" concept. This states to avoid subjectivity all long term assets are valued at the price paid (cost) as this stated on a receipt or invoice. It avoids any arbitry (random / subjective) valuation on assets.

    So obviously Cost. Adopting the cost concept means the business is being prudent however saying prudent for no. 4 would be viewed as being vague.

    The calculations: Effect on Net Profit.

    £27,000 is the correct cost of the assets affecting the balance sheet, so nothing to do with the profit and loss account (i.e. no effect on revenue income or revenue expenses). Note the purchase of a non-current asset is an expense but is a capital expense NOT a revenue expense. A revenue expense belongs in the profit and loss account (yes under expenses) and capital expenses are "capitalised" in the balance sheet under the heading "Non-current Assets" (Tangible stated at higher accounting levels).

    £750 was added to carriage inwards which is an incorrect treatment of a capital expense since the delivery relates to the non-current asset (NCA) is is also capitalised i.e. added to the non-current asset (£27500+£750). While this would NOT affect profit, the need to remove the £750 from carriage inwards would. Carriage inwards to be decreased (in the trading account) by £750, reducing cost of sales, increasing gross profit, thus net profit too.

    Given that there was a need to capitalise the £750 to the balance sheet this would increase the cost of the NCA so the amount of depreciation for the period should also reflect this. Given depreciation is calculated using the straight line method i.e. (% of cost) we can just take 10% of £750 to get £75. This is "extra" depreciation which should of been charged to the profit and loss (i.e. added to expenses) which now results in profit reducing by £75 when correcting the error.

    Summary: So answer for number 4 is +750 - 75 which is best to show both values or you could show the overall affect, netting off the two values i.e. +750-75 = +675 to net profit. Best to show both values in my opinion.

    This useful?
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    Thanks again, really helpful.

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