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sample exam question - FINANCIAL REPORTING FOR USERS Free essay! Download now

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sample exam question - FINANCIAL REPORTING FOR USERS

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Question 1



Part (a)



Primrose plc is engaged in operating a maintenance and refurbishment business for office and work premises. You have been employed to assist in the preparation of the financial statements for the year ended 31 December 2010.



A trial balance together with additional relevant information is shown below.



Primrose plc Trial Balance as at 31 December 2010


Debits
Credits


£’000
£’000

Revenue

848

Inventories at 31 December 2009
54


Purchases
400






General operating expenses
19


Insurance
3


Interest paid (debenture interest)
1


Motor vehicle expenses
12


Marketing and advertising expenses
7


Rent and rates
8


Wages and salaries
182


Directors’ remuneration
73






Goodwill
8


Freehold land – cost
200


Freehold buildings – cost
50


Freehold buildings-provision for depreciation at 31 December 2009

18

Office equipment – cost
72


Office equipment – provision for depreciation, 31 December 2009



15

Motor vehicles-cost
48


Motor vehicles-provision for depreciation at 31 December 2009

18

Provision for doubtful debts at 31 December 2009

3





Trade Receivables
50


Trade Payables

44





Bank and cash
8


Dividends paid (interim only)
18


Loan, repayable 2020

13

10% Debentures

10

Retained Earnings, 1 January 2009

120

Share capital (ordinary shares)

100

Share premium account
______
24


1,213
1,213


Question 1 Continued



Additional information:



Inventories at 31 December 2010 were £82,000.



An accrual should be made for staff bonuses of £25,000.



An accrual should be made for General operating expenses of £12,000.



Insurances of £1,000 have been prepaid at 31 December 2010.



An impairment test has been carried out on goodwill and the value for the Statement of Financial Position should be adjusted to £6,000.



Depreciation for the year should be charged at the following rates:

Buildings - 2% on Cost.

Office equipment, 10%, on Cost

Motor vehicles, 20%, reducing balance .



The provision for doubtful debts should be adjusted to 4% of Trade receivables at 31 December 2010.



A provision should be made for Corporation Tax of £30,000.



9. The directors propose to pay a final dividend of £25,000 (inaddition to the interim dividend)







Part (a)



Using this Trial Balance and above notes, prepare the Statement of Comprehensive Income, Statement of Financial Position and Statement of Changes in Equity for the year ended 31 December 2010.



Notes and comparative figures are not required. However, you must show all workings clearly.

(28 marks)





Statement of Changes in Equity for the year ended 31 December 2010




OSC
Share Premium
Retained Earnings
TOTAL








£'000
£'000
£'000
£'000

Balance B/FWD 1 Jan. 2010
100
24
120
244

NET PROFIT


90
90

Less DIVIDENDS
Interim


-18



Final


-25
- 43







Balance C/FWD 31 Dec. 2010
100
24
167
291



Primrose plc

Statement of Comprehensive Income for the year ended 31 December 2009




£'000
£'000

Revenue


848


less Cost of Sales


- 372


Gross Profit



476







Less Operating expenses



- 356

Net Profit before Tax



120

Less Taxation



- 30

Net Profit (after Tax)



90









WORKINGS:







COST OF SALES


£'000
£'000

Opening Stock


54


Add Purchases


400
454

Less Closing Stock



-82

Cost of Sales / Cost of Goods Sold



372













OPERATING EXPENSES :


£'000
£'000

GENERAL Operating Expenses


19


INSURANCE


3


INTEREST PAID


1


MOTOR Expenses


12


Marketing and Advertising Expenses


7


RENT AND RATES


8


WAGES AND SALARIES


182


DIRECTORS REMUNERATION


73
305







ACCRUAL - Staff Bonus


25


*ACCRUAL - General Expenses


12
37







PREPAYMENT: Insurance



-1







GOODWILL IMPAIRMENT


8 – 6
2







DEPRECIATION





BUILDINGS
20% X 250
=
50 X 2%
1

OFFICE EQUIPMENT


10% X 72
7.2

VEHICLE
20% X (48 - 18)
=
20% X 30
6







Provision for Doubtful Debts





Balance B/F


3


Balance C/F
4% X 50
=
2


DECREASE



- 1





356.2





Primrose plc

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010



Assets :

£'000
£'000
£'000

Non- Current Assets





Property, Plant & Equipment
SEE NOTE

305


GOODWILL


6
311







CURRENT ASSETS





INVENTORY


82


TRADE RECEIVABLES

(50 - 2)
48


PREPAYMENT


1


BANK AND CASH


8
139







TOTAL ASSETS



450







EQUITY AND LIABILITIES

£'000
£'000
£'000

EQUITY





ORDINARY SHARE CAPITAL


100


SHARE PREMIUM ACCOUNT


24


RETAINED EARNINGS


167
291







NON CURRENT LIABILITIES





10% DEBENTURES


10


LOAN - REPAYABLE 2020


13
23







CURRENT LIABILITIES





TRADE PAYABLES


44


ACCRUED EXPENSES


37


ACCRUAL - CORPORATION TAX

30


ACCRUAL - FINAL DIVIDEND


25
136







TOTAL EQUITY AND LIABILITIES



450














PROPERTY PLANT AND EQUIPMENT




LAND
Buildings
OFFICE
Motor
TOTAL




Equipment
Vehicles










£'000
£'000
£'000
£'000
£'000

COST B/F
200
50
72
48
370








Provision for Depreciation B/F

- 18
- 15
- 18
- 51








Depreciation for YEAR

- 1
- 7.2
- 6
- 14.2








NBV C/FWD
200
31
49.8
24
304.8

Part (b)



Primrose plc owns a large amount of freehold property (land). If the directors decide to revalue this to a current market value of £300,000, show how the financial statements should be revised.


Do not re-write all of the financial statements, but show only those figures that would be changed.
...

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