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MGT132
MANAGEMENT SCHOOL Spring Semester 2021-2022
INTRODUCTION TO FINANCIAL ACCOUNTING 2 hours
There are two sections in this examination paper (section A and section B) and
four questions in total. You must answer THREE questions in total as follows:
Section A consists of ONE COMPULSORY question.
Section B consists of three questions and you must answer TWO of these
questions.
All workings must be shown clearly.
Unless you are told otherwise, you should work to the nearest ￡1.
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SECTION A
Question A1 (Compulsory question)
The trial balance of Aberdeen plc at 31 December 2021 is shown below:
￡000 ￡000
Ordinary share capital of ￡0.50 each 5,250
Share premium 1,500
Retained earnings at 1 January 2021 2,136
12% bank loan 3,000
Land at cost 1,875
Buildings at cost 7,500
Accumulated depreciation: building 900
Plant and equipment 1,890
Accumulated depreciation: plant and equipment 378
Cost of inventory at 31 December 2021 2,700
Trade and other payables 552
Trade and other receivables 1,672
Cash at bank 344
Sales 17,775
cost of sales 10,650
General distribution costs 3,105
General administrative costs 1,650
Interest on bank loan 330
Other income 225
31,716 31,716
The following information is relevant:
Aberdeen plc bought freehold land at ￡1,875,000 on 1 January 2016. It was
revalued at 31 December 2021 at a fair value of ￡2,100,000. Directors of
Aberdeen decided to apply revaluation model for lands for the year ended 31
December 2021.
Aberdeen plc depreciates all non-current assets using the straight-line method.
The buildings are depreciated by 2 percent per annum and the plant and
equipment are depreciated by 20 percent per annum. There is no residual value
for either the buildings or the plant and equipment.
The plant and equipment is used by the distribution function. Buildings are used
by the distribution and administrative functions in equal proportions.
The cost of sales was calculated based on the cost of inventory at 31 December
2021. At the year end, it was found that ￡300,000 of the inventory is obsolete
and has a net realisable value of ￡150,000.
The interests for bank loan are paying monthly and the interest for December
2021 has not been paid.
Corporation tax for the year is estimated at ￡477,000, which has not been paid.
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Dividends of 10p per share were declared on 15 December 2021 in respect of
the year ended 31 December 2021. Dividends have not been paid.
Required:
a) Prepare the income statement for the year ended 31 December 2021 and the
statement of financial position at 31 December 2021 for Aberdeen plc, in
accordance with International Financial Reporting Standards.
(28 marks)
b) Explain the distinction between accrual basis and cash basis and why this
distinction is important in financial accounting.
(12 marks)
(40 marks in total)
END OF SECTION A
