O-LevelAccountingPreparation of financial statements7707/21 · Oct/Nov 2014 · Q320 Marks

Wing Limited had the following balances in its books after the calculation of the profit for the year ended 30 September 2014. Profit from operations (before debenture interest) $78000 Issued and called up share capital: 50000 8% $1 Preference shares $50000 80000 $1 Ordinary shares $80000 6% Debentures (31 December 2025) $100000 Interim dividend paid 31 March 2014: Preference $2000 Ordinary $8000 General reserve $55000 Retained profit 1 October 2013 $35000 Additional information On 30 September 2014, the directors decided to: 1 increase the general reserve to $80000 2 pay the remaining preference dividend 3 pay a final ordinary share dividend of $0.25 per share. REQUIRED

(a)Prepare the appropriation account for Wing Limited for the year ended 30 September 2014. Wing Limited Appropriation account for the year ended 30 September 2014[10]
(b)Prepare an extract from the statement of financial position for the capital and reserves of Wing Limited at 30 September 2014.[6]
(c)State two differences between ordinary shares and debentures. 1 2[2]
(d)State one reason for maintaining a general reserve.[1]
(e)State one reason why International Accounting Standards are important when preparing the financial statements of a limited company.[1]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

[1] Profit for year (78000 – 6000)
[1] $72000
[1] Transfer to the general reserve $25000
[1] Interim dividends: Preference paid $2000
[1] Interim dividends: Ordinary paid $8000
[1] Final dividends: Preference paid $2000
[1] Final dividends: Ordinary paid $20000
[1w+f] Retained profit for the year $15000
[1w+f] Add Retained profit brought forward $35000
[1w+f] Retained profit carried forward $50000
[1] Issued share capital: 50000 8% $1 Preference shares $50000
[1] Issued share capital: 80000 $1 Ordinary shares $80000
[1] Total Issued and called up share capital $130000
[1] Reserves: General reserve $80000
[1of] Reserves: Retained profit $50000
[1of] Shareholders' funds/equity $260000
[1] Ordinary shares: Owners / Debentures: Creditors/providers of loans
[1] Ordinary shares: Paid dividend / Debentures: Paid interest
[1] Ordinary shares: No fixed dividend / Debentures: Fixed rate of interest
[1] Ordinary shares: No repayment date / Debentures: Repayment date
[1] To retain cash in the business
[1] To reinvest in assets to grow the business
[1] Enable a fair comparison of company financial statements in different countries.
[1] Improve reliability of financial statements produced in different countries.
[1] Improve understanding of financial statements produced in different countries.

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