test cove 02101020 FORM TP 2010123 MAY/JUNE 2010 CARIBBEAN EXAMINATIONS COUNCIL ADVANCED PROFICIENCY EXAMINATION ACCOUNTING UNIT I ~ PAPER 02 2% hours O7 MAN 010 1. This paper consists of THREE questions 2. EACH question is worth 35 marks 3. ALL questions are COMPULSORY. 4. Begin EACH answer on new page. 5, Silent non-programmable ealculators may be used, but ALL necessary working should be clearly shown, Copyright © 2009 Caribbean Examinations Council All Rights Reserved.1. (@)__The ELEVEN transactions listed (ito xi) below were completed by Oifice Cleaners Ine. ‘during the year 2009, @ «i i) ww o wi) win (viii) co) ©, oi) ‘The organizers paid in cash and in tur received 10 000 no-par shares. (Office Cleaners Ine. borrowed cash from the local bank. (Office Cleaners Inc. purchased a delivery truck, paid 75% in cash andthe balance is due in 6 months. Revenues eamed were collected cash in fll Expenses incured were pad cash in fall Revenues eamed, on credit (cash will be collected later Expenses were incured on credit (cash wil be pai later. _Acash dividend to shareolders was declared and paid All the eet amount in (vi) was pai. Aspare te was stolen from the company tuck which was not insured ‘tthe end of 2009, the truck was depreciated by a dolla amount (an expense). For EACH transaction above, make the appropriate entries om dhe answer shest provided. Enter in the table a D for debit and a C for credit to reflect the increases and decreases inthe assets, liabilities, owners’ equity, revenues, withdrawals and expenses. Separate accounts are given for owners’ equity ‘The first transaction, (), has been completed on the insert as an example, [10 marks} GO ON TO THE NEXT PAGEaS (©) “Acountry should develop its own accounting standards.” State whether you agree or disagree with this statement and outline FIVE reasons to support ‘your position [10 marks} (©) Stephanie Sealy has recently been hired as manager ofthe Big Banana Restaurant, wich ‘has stores located atthe seaport and airport of Any Island in the Caribbean. During her first month, she visits both locations and observes the following internal contro situations: 1, Each store has one cash register. In any one shift, the same employee takes the customer order, accepts payment and then prepares the orde. 2. Since only one employee uses the cash register, that employee is responsible for counting the cash atthe end of the shit and verifying thatthe cash in the ‘drawer corresponds to the amount of sales recorded by the cash register. 3. Stephanie sees an employee putting two cases ofbeerin is ear. Noto cause 1 scene, she simply says to him, “I dont think you are putting those cases ‘onthe right shelf. Don’t they belong inside the restaurant?” The employee returns the cases tothe stockroom, For EACH situation described above: (Outline the weakness in internal contol. [6 marks} Gi) Explain the changes that are required in order to strengthen internal control. [9 marks} ‘Total 38 marks GOON TO THE NEXT PAGE en101Mn1cAPR 20102% (a) _ Assume that you are the new Accountant at Carib Realty and you have been presented With the following Balance Sheet and Income Statement forthe company. Carib Realty Balance Sheet AAs at July 31, 2008 8 8 ASSETS Current assets Cash 10360 Accounts payable 13580 Supplies 3300 Prepaid insurance 9600 Land 120000 Total curent assets 157 040 Property, plant and equipment Building 313 400 Equipment 86 000 ‘Total property, plant and equipment 477240 “Toval assets 634 280 LIABILITIES Current liabilities ‘Accounts receivable 27500 ‘Accumulated depreciation building 173.400 ‘Accumilated depreciation — equipment 36960 [Net incame 50.000 “otal Liabilities 287 860 SHAREHOLDERS’ EQUITY ‘Wages payable 2680 Share capital 110 000 Retained earnings 233 740 Total Shareholders" Equity 346 420 ‘Tal labilities and shareholders’ equity 634280 GOON TO THE NEXT PAGE 21010201 APF 2010Carib Realty Income Statement For the year ended July 31, 2008 s s REVENUE ‘Uneamed revenue 39.000 Depreciation expense - buildings 24.000 Depreciation expense - equipment 4500 Insurance expense 8050 Rental fees 33150 108 700 EXPENSES. Advertsing 1.000 Utilities 9.000 Property tax 10.000 Salaries and wages 21000 Supplies 1700 Commissions income 11 000 Bank interest. 5.000 58700 NET INCOME 50 000 Both the Balance Sheet and Income Statement have errors (@) Prepare the corrected Balance Sheet in good form. [20 marks} Gi) Prepare the eorected Income Statement in good form. [10 marks} (©) Define EACH ofthe following terms: (i) Public company Gi) Statutory company Gi) Private company [S marks} ‘Total 38 marks GOON TO THE NEXT PAGE3. The firmof Hussein and Daughters is developing is annual financial report at September 30, 2008. ‘The statements below are complete except forthe Statement of Cash Flows. Balance Sheet Cash Inventory ‘Accounts receivable Investment (Shares in T Limited) Machinery and equipment (net) ‘Accounts payable Income taxes payable Long term note payable ‘Share capital (11 000 and 12 000 shares) Retained earnings Income Statement Revenue Cost of goods sold Depreciation expense Remaining operating expenses Income tax expense Gain on disposal of machine [Net income ‘The following additional information is available: Compa 2007 30000 79.000 45.000 53.000 15.000 12.000 20000 5000 75.000 ‘64.000 185 000 216000 16 000 13.000 5.000 12.000 45.000 30000 117 000 124000 2.000 37000 185 000 216000 180000 (89.000) (10.000) 2.000) (6 000) 3.000 “44 000 |. Machinery which had a book value of SS 000 was sold for $11 000 cash. 2 Long term investment (shares of T Lid.) was sold for $12,000 cash and the earying value ‘was $12 000, 3. Equipment was acquired for $7000. 4. Principal payment on debt was $15 000, 5. _A.cash dividend of $9 000 was declared and pad, (02101020/CAPE 2010 GO ON TO THE NEXT PAGE(a) Prepare the Statement of ash Flows for 208 in accordance with International Accounting Standards 7 LAS 7). {20 marks] (©) Calculate TWO liquidity and THREE profitability ratios for the company and comment onthe performance. {10 marks] (©) List FIVE limitations of financial statement ratio analysis. (5 marks} ‘Total 35 marks END OF TEST