CIE Accounting Paper-2: Specimen Questions 48 - 50 of 103

Passage

Daffy Ltd had a profit of £500000, after charging depreciation of £100000 on assets and transferring an amount of £150000 to general reserve. The Goodwill amortized was £35000, and a profit was gained on the sale of machinery amounting to £15000. Other changes in current assets and current liabilities was as follows:

(i) Increase in trade receivables £15000

(ii) Increase in trade payables £30000

(iii) Increase in prepaid expenses £1000

(iv) Decrease in outstanding expenses £10000

Question number: 48 (3 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

Calculate the Net profit before taxation of Daffy Ltd?

Explanation

The net profit before taxation of Daffy Ltd is £650000

Statement showing the net profit before taxation

Table of Statement showing the net profit before taxation

PARTICULARS

AMOUNT

Net Profit

500000

Add: Transfer to general reserve

150000

Net profit before Taxation

650000

Question number: 49 (4 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

State any two benefits of cash flow statement?

Explanation

The two benefits of preparing cash flow statement are as follows:

(i) Helps in comparing the operating performances of different enterprises; as it eliminates the effects of using different accounting treatments for the same transaction.

(ii) It enables the users to evaluate the changes in the structure of assets and liabilities of an enterprise, its liquidity and solvency position and its ability to generate cash based on the changing circumstances.

Question number: 50 (5 of 5 Based on Passage) Show Passage

Short Answer Question▾

Write in Short

What is meant by Operating activities? Give two examples of operating income and

Operating expenditure.

Explanation

In any business enterprise, the operating activities become the main source of revenue and expenditure. Hence it becomes essential to ascertain the cash flows into the business from such activities. Example of operating expenses is payment of taxes; Purchase of stock. Example of operating revenue is Receipts from royalties; Profit from sale of goods.

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