5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for theyear ended 31 December 2004.The following material matters are under discussion:(a) During the year the company has begun selling a produ

题目

5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for the

year ended 31 December 2004.

The following material matters are under discussion:

(a) During the year the company has begun selling a product with a one-year warranty under which manufacturing

defects are remedied without charge. Some claims have already arisen under the warranty. (2 marks)

Required:

Advise the directors on the correct treatment of these matters, stating the relevant accounting standard which

justifies your answer in each case.

NOTE: The mark allocation is shown against each of the three matters

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(iv) Tyre recently undertook a sales campaign whereby customers can obtain free car accessories, by presenting acoupon, which has been included in an advertisement in a national newspaper, on the purchase of a vehicle.The offer is valid for a limited time period from 1 January 2006 until 31 July 2006. The management are unsureas to how to treat this offer in the financial statements for the year ended 31 May 2006.(5 marks)Required:Advise the directors of Tyre on how to treat the above items in the financial statements for the year ended31 May 2006.(The mark allocation is shown against each of the above items)

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3 (a) Leigh, a public limited company, purchased the whole of the share capital of Hash, a limited company, on 1 June2006. The whole of the share capital of Hash was formerly owned by the five directors of Hash and under theterms of the purchase agreement, the five directors were to receive a total of three million ordinary shares of $1of Leigh on 1 June 2006 (market value $6 million) and a further 5,000 shares per director on 31 May 2007,if they were still employed by Leigh on that date. All of the directors were still employed by Leigh at 31 May2007.Leigh granted and issued fully paid shares to its own employees on 31 May 2007. Normally share options issuedto employees would vest over a three year period, but these shares were given as a bonus because of thecompany’s exceptional performance over the period. The shares in Leigh had a market value of $3 million(one million ordinary shares of $1 at $3 per share) on 31 May 2007 and an average fair value of$2·5 million (one million ordinary shares of $1 at $2·50 per share) for the year ended 31 May 2007. It isexpected that Leigh’s share price will rise to $6 per share over the next three years. (10 marks)Required:Discuss with suitable computations how the above share based transactions should be accounted for in thefinancial statements of Leigh for the year ended 31 May 2007.

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4 (a) Router, a public limited company operates in the entertainment industry. It recently agreed with a televisioncompany to make a film which will be broadcast on the television company’s network. The fee agreed for thefilm was $5 million with a further $100,000 to be paid every time the film is shown on the television company’schannels. It is hoped that it will be shown on four occasions. The film was completed at a cost of $4 million anddelivered to the television company on 1 April 2007. The television company paid the fee of $5 million on30 April 2007 but indicated that the film needed substantial editing before they were prepared to broadcast it,the costs of which would be deducted from any future payments to Router. The directors of Router wish torecognise the anticipated future income of $400,000 in the financial statements for the year ended 31 May2007. (5 marks)Required:Discuss how the above items should be dealt with in the group financial statements of Router for the year ended31 May 2007.

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(d) Additionally Router purchased 60% of the ordinary shares of a radio station, Playtime, a public limited company,on 31 May 2007. The remaining 40% of the ordinary shares are owned by a competitor company who owns asubstantial number of warrants issued by Playtime which are currently exercisable. If these warrants areexercised, they will result in Router only owning 35% of the voting shares of Playtime. (4 marks)Required:Discuss how the above items should be dealt with in the group financial statements of Router for the year ended31 May 2007.

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The following information is relevant for questions 9 and 10A company’s draft financial statements for 2005 showed a profit of $630,000. However, the trial balance did not agree,and a suspense account appeared in the company’s draft balance sheet.Subsequent checking revealed the following errors:(1) The cost of an item of plant $48,000 had been entered in the cash book and in the plant account as $4,800.Depreciation at the rate of 10% per year ($480) had been charged.(2) Bank charges of $440 appeared in the bank statement in December 2005 but had not been entered in thecompany’s records.(3) One of the directors of the company paid $800 due to a supplier in the company’s payables ledger by a personalcheque. The bookkeeper recorded a debit in the supplier’s ledger account but did not complete the double entryfor the transaction. (The company does not maintain a payables ledger control account).(4) The payments side of the cash book had been understated by $10,000.9 Which of the above items would require an entry to the suspense account in correcting them?A All four itemsB 3 and 4 onlyC 2 and 3 onlyD 1, 2 and 4 only

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13 At 1 January 2005 a company had an allowance for receivables of $18,000At 31 December 2005 the company’s trade receivables were $458,000.It was decided:(a) To write off debts totalling $28,000 as irrecoverable;(b) To adjust the allowance for receivables to the equivalent of 5% of the remaining receivables based on pastexperience.What figure should appear in the company’s income statement for the total of debts written off as irrecoverableand the movement in the allowance for receivables for the year ended 31 December 2005?A $49,500B $31,500C $32,900D $50,900

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2 The draft financial statements of Rampion, a limited liability company, for the year ended 31 December 2005included the following figures:$Profit 684,000Closing inventory 116,800Trade receivables 248,000Allowance for receivables 10,000No adjustments have yet been made for the following matters:(1) The company’s inventory count was carried out on 3 January 2006 leading to the figure shown above. Salesbetween the close of business on 31 December 2005 and the inventory count totalled $36,000. There were nodeliveries from suppliers in that period. The company fixes selling prices to produce a 40% gross profit on sales.The $36,000 sales were included in the sales records in January 2006.(2) $10,000 of goods supplied on sale or return terms in December 2005 have been included as sales andreceivables. They had cost $6,000. On 10 January 2006 the customer returned the goods in good condition.(3) Goods included in inventory at cost $18,000 were sold in January 2006 for $13,500. Selling expenses were$500.(4) $8,000 of trade receivables are to be written off.(5) The allowance for receivables is to be adjusted to the equivalent of 5% of the trade receivables after allowing forthe above matters, based on past experience.Required:(a) Prepare a statement showing the effect of the adjustments on the company’s net profit for the year ended31 December 2005. (5 marks)

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5 The directors of Quapaw, a limited liability company, are reviewing the company’s draft financial statements for theyear ended 31 December 2004.The following material matters are under discussion:(a) During the year the company has begun selling a produ

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