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Test 1 CAC 4101

QUESTION ONE

ABC Ltd is a training organisation which provides public courses and specialised in-
house training for a number of clients.

An extract from the ABC’s nominal ledger at 31 December 2012 is as follows:

Administrative expenses 37,000


Other operating expenses 11,000
Ordinary share capital ($1 shares) 150,000
8% Debentures (issued and redeemable at par) 500,000
Trade receivable 60,000
Cash and cash equivalent 7,300
Land and buildings
-cost including land $800,000) 1,800,000
Accumulated depreciation at 1 January 2012 270,000
Fixture and fittings –Cost 53,000
-accumulated depreciation at 1 January 2012 15,000
Retained earnings at 1 January 2012 370,300
Trade and other payables 8,000
Revenue 1,245,000
Purchases 415,000
Inventories at 1 January 2012 175,000

The following additional information is available:


(1) The cost of Land is $800,000. Due to rising price of land in the area the company
has decided to change its accounting policy to one of revaluation. At 31 December 2012
the land was valued at $1,200,000. There was no material change in the value of
buildings.
The depreciation charge for the year for buildings has been correctly as $40,000 and
should be include in administrative expenses.
2. On 1 January 2012 ABC entered into a three year lease for a number of office
computers, at a cost of $5,000 per annum payable in advance. The computers are
expected to be scrapped at the end of the three year period. The computers had a fair
value of $14,250 at the inception of the lease. ABC is responsible for the insurance and
pays an outside contractor to service the computers.

The interest rate implicit in the lease is 7% per annum and the present value of the
lease payments at the inception of the lease was $14,040. The only accounting entries
made in respect of the lease was to debit the cost of fixtures and fittings with first
payment made of $5,000 and credit cash.

The depreciation charge for the year for the fixtures and fittings has been correctly
calculated as $10,600 based on the figures in the nominal ledger and should be
presented in administrative expenses.

3. Revenue consists of tuition fees and book sales. Courses are run throughout the
year, with fees due one month prior to commencement of the course. At the year end,
fees of $25,000 had been received, and included in revenue, in respect of a course that
was delivered in January 2013.
4. The closing inventory was valued at $155,000. However, included in the year- end
inventory count was $5,000 in relation to training material for which a new edition was
published shortly after year end. The 2012 materials cannot be used in 2013.
5. On 18 January 2013 ABC was notified that one of its customers, for which it provides
in-house training, was declared bankrupt and ceased trading. At the year end, the
customer owed $9,500 to ABC. Course notes costing $2,000 had recently been
prepared and printed for a specially designed course that ABC was due to deliver in late
March 2013. These materials were included in inventory at year end.

6. The debentures were issued in 2010 and redeemable in 2015. The 2012 interest on
the debentures remains unpaid at the year end. No accounting journals have been
made for this.
7. The income tax liability for the year ended 31 December 2012 has been estimated at
$180,000.
Required
Prepare the Statement of Profit or Loss and other Comprehensive Income for the year
ended 31 December 2012, Statement of Financial Position as at 31 December 2012
and the Notes to the financial Statements as at 31 December 2012 in accordance with
IFRS. [25]

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