2008年ACCAF4-F9真题

2008年ACCA F4-F9真题
1.In relation to the English legal system explain the following sources of law:
(a)Common law;
(b) Legislation.
2.Chaff Co processes and sells brown rice.It buys unprocessed rice seeds and then, using a relatively simple process,
removes the outer husk of the rice to produce the brown rice.This means that there is substantial loss of weight in
the process.The market for the purchase of seeds and the sales of brown rice has been, and is expected to be, stable.
Chaff Co uses a variance analysis system to monitor its performance.
There has been some concern about the interpretation of the variances that have been calculated in month 1.
1.The purchasing manager is adamant, despite criticism from the production director, that he has purchased wisely
and saved the company thousands of dollars in purchase costs by buying the required quantity of cheaper seeds
from a new supplier.
2.The production director is upset at being criticised for increasing the wage rates for month 1; he feels the decision
was the right one, considering all the implications of the increase.Morale was poor and he felt he had to do
something about it.
3.The maintenance manager feels that saving $8,000 on fixed overhead has helped the profitability of the
business.He argues that the machines’ annual maintenance can wait for another month without a problem as
the machines have been running well.
The variances for month 1 are as follows:
$
Material price 48,000 (Fav)
Material usage 52,000 (Adv)
Labour rate 15,000 (Adv)
Labour efficiency 18,000 (Fav)
Labour idle time 12,000 (Fav)
Variable overhead expenditure 18,000 (Adv)
Variable overhead efficiency 30,000 (Fav)
Fixed overhead expenditure 8,000 (Fav)
Sales price 85,000 (Adv)
Sales volume 21,000 (Adv)
Fav = Favourable, Adv = Adverse
Chaff Co uses labour hours to absorb the variable overhead.
Required:
(a) Comment on the performance of the purchasing manager, the production director and the maintenance manager using the variances and other information above and reach a conclusion as to whether or not they
have each performed well.
In month 2 the following data applies:
Standard costs for 1 tonne of brown rice
– 1.4 tonnes of rice seeds are needed at a cost of $60 per tonne
– It takes 2 labour hours of work to produce 1 tonne of brown rice and labour is normally paid $18 per hour.Idle
time is expected to be 10% of hours paid; this is not reflected in the rate of $18 above.
– 2 hours of variable overhead at a cost of $30 per hour
– The standard selling price is $240 per tonne
– The standard contribution per tonne is $56 per tonne
Budget information for month 2 is
– Fixed costs were budgeted at $210,000 for the month
– Budgeted production and sales were 8,400 tonnes
The actual results for month 2 were as follows:
Actual production and sales were 8,000 tonnes
– 12,000 tonnes of rice seeds were bought and used, costing $660,000
– 15,800 labour hours were paid for, costing $303,360
– 15,000 labour hours were worked
– Variable production overhead cost $480,000
– Fixed costs were $200,000
– Sales revenue achieved was $1,800,000
Required:
(b) Calculate the variances for month 2 in as much detail as the information allows and reconcile the budget
profit to the actual profit using marginal costing principles.You are not required to comment on the
performance of the business or its managers for their performance in month 2.
3.Sam and Kim White are a married couple.Sam is aged 36 and Kim is aged 38.The following information is available
for the tax year 2007–08:
Sam White
(1) Sam is self-employed running a retail clothing shop.His profit and loss account for the year ended 5 April 2008
is as follows:
Note £ £
Gross profit 140,300
Depreciation 7,600
Motor expenses 2 8,800
Patent royalties 3 700
Professional fees 4 1,860
Other expenses 5 71,340
–––––––
(90,300)
––––––––
Net profit 50,000
––––––––
(2) During the year ended 5 April 2008 Sam drove a total of 25,000 miles, of which 5,000 miles were driven when
he visited his suppliers in Europe.The balance of the mileage is 25% for private journeys and 75% for business
journeys in the United Kingdom.
(3) During the year ended 5 April 2008 Sam paid patent royalties of £700 (gross) in respect of specialised
technology that he uses when altering clothes for customers.
(4) The figure for professional fees consists of £1,050 for legal fees in connection with an action brought against a
supplier for breach of contract and £810 for accountancy.Included in the figure for accountancy is £320 in
respect of personal capital gains tax advice for the tax year 2006–07.
(5) The figure for other expenses of £71,340 includes £560 for gifts to customers of food hampers costing £35 each
and £420 for gifts to customers of pens carrying an advertisement for the clothing shop costing £60 each.
(6) Sam uses one of the eight rooms in the couple’s private house as an office for when he works at home.The total
running costs of the house for the year ended 5 April 2008 were £5,120.This cost is not included in the profit
and loss account expenses of £90,300.
(7) Sam uses his private telephone to make business telephone calls.The total cost of the private telephone for the
year ended 5 April 2008 was £1,600, and 25% of this related to business telephone calls.The cost of the private
telephone is not included in the profit and loss account expenses of £90,300.
(8) During the year ended 5 April 2008 Sam took goods out of the clothing shop for his personal use without paying
for them and no entry has been made in the accounts to record this.The goods cost £820, and had a selling
price of £1,480.
(9) The tax written down values for capital allowance purposes at 6 April 2007 were as follows: £
General pool 14,800
Expensive motor car 20,200
The expensive motor car is used by Sam.
Kim White
(1) Kim is employed as a sales person by Sharp-Suit plc, a clothing manufacturing company.During the tax year
2007–08 she was paid a gross annual salary of £21,600.
(2) On 1 June 2007 Sharp-Suit plc provided Kim with an interest free loan of £12,000 so that she could purchase
a new motor car.
(3) During the period from 1 June 2007 to 5 April 2008 Kim used her private motor car for business and private
purposes.She received no reimbursement from Sharp-Suit plc for any of the expenditure incurred.Kim’s mileage
during this period included the following:
Miles Normal daily travel between home and permanent workplace 3,400 Travel between permanent workplace and Sharp-Suit plc’s customers 11,200 Travel between home and a temporary workplace for a period of one month 1,300 (4) During the tax year 2007–08 Kim paid interest of £140 (gross) on a personal loan taken out on 1 January 2007
to purchase a laptop computer for use in her employment with Sharp-Suit plc.
Joint income – Building society deposit account
The couple have savings of £25,000 in a building society deposit account which is in their joint names.
During the tax year 2007–08 Sam and Kim received building society interest totalling £1,200 from this joint account.
This was the actual cash amount received.
Required:
(a) Calculate Sam’s tax adjusted trading profit for the year ended 5 April 2008.
(b) Calculate Sam and Kim’s respective income tax liabilities for the tax year 2007–08. Note: you should ignore any capital allowances that Kim might be entitled to.
(c) Explain to Sam and Kim how their overall income tax liability could be reduced if they were to either:
(i) transfer their joint building society deposit account into individual savings accounts (ISAs); or
(ii) transfer their joint building society deposit account into Kim’s sole name.
4.On 1 August 2007 Patronic purchased 18 million of a total of 24 million equity shares in Sardonic.The acquisition
was through a share exchange of two shares in Patronic for every three shares in Sardonic.Both
companies have
shares with a par value of $1 each.The market price of Patronic’s shares at 1 August 2007 was $5.75 per share.
Patronic will also pay in cash on 31 July 2009 (two years after acquisition) $2.42 per acquired share of Sardonic.
Patronic’s cost of capital is 10% per annum.The reserves of Sardonic on 1 April 2007 were $69 million.
Patronic has held an investment of 30% of the equity shares in Acerbic for many years.
The summarised income statements for the three companies for the year ended 31 March 2008 are: Patronic Sardonic Acerbic
$’000 $’000 $’000
Revenue 150,000 78,000 80,000
Cost of sales (94,000) (51,000) (60,000)
–––––––– ––––––– –––––––
Gross profit 56,000 27,000 20,000
Distribution costs (7,400) (3,000) (3,500)
Administrative expenses (12,500) (6,000) (6,500)
Finance costs (note (ii)) (2,000) (900) nil
–––––––– ––––––– –––––––
Profit before tax 34,100 17,100 10,000
Income tax expense (10,400) (3,600) (4,000)
–––––––– ––––––– –––––––
Profit for the period 23,700 13,500 6,000
–––––––– ––––––– –––––––
The following information is relevant:
(i) The fair values of the net assets of Sardonic at the date of acquisition were equal to their carrying amounts with
the exception of property and plant.Property and plant had fair values of $4.1 million and $2.4 million
respectively in excess of their carrying amounts.The increase in the fair value of the property would create
additional depreciation of $200,000 in the consolidated financial statements in the post acquisition period to
31 March 2008 and the plant had a remaining life of four years (straight-line depreciation) at
the date of
acquisition of Sardonic.All depreciation is treated as part of cost of sales.
The fair values have not been reflected in Sardonic’s financial statements.
No fair value adjustments were required on the acquisition of Acerbic.
(ii) The finance costs of Patronic do not include the finance cost on the deferred consideration. (iii) Prior to its acquisition, Sardonic had been a good customer of Patronic.In the year to 31 March 2008, Patronic
sold goods at a selling price of $1.25 million per month to Sardonic both before and after its acquisition.Patronic
made a profit of 20% on the cost of these sales.At 31 March 2008 Sardonic still held inventory of $3 million
(at cost to Sardonic) of goods purchased in the post acquisition period from Patronic.
(iv) An impairment test on the goodwill of Sardonic conducted on 31 March 2008 concluded that it should be written
down by $2 million.The value of the investment in Acerbic was not impaired.
(v) All items in the above income statements are deemed to accrue evenly over the year.
(vi) Ignore deferred tax.
Required:
(a) Calculate the goodwill arising on the acquisition of Sardonic at 1 August 2007.
(b) Prepare the consolidated income statement for the Patronic Group for the year ended 31 March 2008.
Note: assume that the investment in Acerbic has been accounted for using the equity method since its
acquisition.
(c) At 31 March 2008 the other equity shares (70%) in Acerbic were owned by many separate investors.Shortly
after this date Spekulate (a company unrelated to Patronic) accumulated a 60% interest in Acerbic by buying
shares from the other shareholders.In May 2008 a meeting of the board of directors of Acerbic was held at which
Patronic lost its seat on Acerbic’s board.
Required:
Explain, with reasons, the accounting treatment Patronic should adopt for its investment in Acerbic when it prepares its financial statements for the year ending 31 March 2009.
5.Introduction – audit firm
You are an audit senior in Brennon & Co, a firm providing audit and assurance services.At the request of an audit
partner, you are preparing the audit programme for the income and receivables systems of Seeley Co.
Audit documentation is available from the previous year’s audit, including internal control questionnaires and audit
programmes for the despatch and sales system.The audit approach last year did not involve the use of computerassisted audit techniques (CAATs); the same approach will be taken this year.As far as you are aware, Seeley’s system of internal control has not changed in the last year. Client background – sales system
Seeley Co is a wholesaler of electrical goods such as kettles, televisions, MP3 players, etc.The company maintains one large warehouse in a major city.The customers of Seeley are always owners of small retail shops, where electrical goods are sold to members of the public.Seeley only sells to authorised customers; following appropriate credit checks, each customer is given a Seeley identification card to confirm their status.The card must be used to obtain goods from the warehouse. Despatch and sales system
The despatch and sales system operates as follows:
1.Customers visit Seeley’s warehouse and load the goods they require into their vans after showing their Seeley identification card to the despatch staff.
2.A pre-numbered goods despatch note (GDN) is produced and signed by the customer and a member of Seeley’s despatch staff confirming goods taken.
3.One copy of the GDN is sent to the accounts department, the second copy is retained in the despatch department.
4.Accounts staff enter goods despatch information onto the computerised sales system.The GDN is signed.
5.The computer system produces the sales invoice, with reference to the inventory master file for product details and prices, maintains the sales day book and also the receivables ledger.The receivables control account is balanced by the computer.
6.Invoices are printed out and sent to each customer in the post with paper copies maintained in the accounts department.Invoices are compared to GDNs by accounts staff and signed.
7.Paper copies of the receivables ledger control account and list of aged receivables are also available.
8.Error reports are produced showing breaks in the GDN sequence.
Information on receivables
The chief accountant has informed you that receivables days have increased from 45 to 60 days over the last year.
The aged receivables report produced by the computer is shown below:
Required:
(a) Explain the steps necessary to check the accuracy of the previous year’s internal control questionnaires.
(b) Using information from the scenario, list SIX tests of control that an auditor would normally carry out on the
despatch and sales system at Seeley Co and explain the reason for each test.
(c) State and explain the meaning of FOUR assertions that relate to the direct confirmation of receivables.
(d) (i) Describe the procedures up to despatch of letters to individual receivables in relation to a direct
confirmation of receivables.(ii) Discuss which particular categories of receivables might be chosen for the sample.
6.Burse Co wishes to calculate its weighted average cost of capital and the following information relates to the company
at the current time:
Number of ordinary shares 20 million
Book value of 7% convertible debt $29 million
Book value of 8% bank loan $2 million
Market price of ordinary shares $5.50 per share
Market value of convertible debt $107.11 per $100 bond
Equity beta of Burse Co 1.2
Risk-free rate of return 4.7%
Equity risk premium 6.5%
Rate of taxation 30%
Burse Co expects share prices to rise in the future at an average rate of 6% per year.The convertible debt can be
redeemed at par in eight years’ time, or converted in six years’ time into 15 shares of Burse Co per $100 bond.
Required:
(a) Calculate the market value weighted average cost of capital of Burse Co.State clearly any assumptions that
you make.
(b) Discuss the circumstances under which the weighted average cost of capital can be used in investment
appraisal.
(c) Discuss whether the dividend growth model or the capital asset pricing model offers the better estimate of
the cost of equity of a company.
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