Edexcel IGCSE Accounting Student's Book Answers

Answers Chapter 1: Introduction to accounting principles 1.1

Good financial control is important to ensure the continued profitability and success of the business. Also to control costs and cash flow.

1.2X Profit is obtained by selling goods for more than the purchase price less expenses incurred in selling the goods. 1.3

(a) Trading and Profit and Loss Account (b) Balance Sheet

1.4X A sole trader may incur the following drawbacks whilst trading alone: • Liable for all the debts of the business • If a loss is made he/she bears all the losses • May lack expertise in certain areas • Often has to work long hours Positive outcomes: • Independent and responsible for all decision making • If successful and a profit is made they keep all the profits • Able to offer personal service to customers

1.5

The rules which lay down the way in which the activities of a business are recorded and the financial statements, i.e. Trading and Profit and Loss Account and Balance Sheet prepared.

1.6

(a) Going concern concept – when a business is assumed to continue for a long time. (b) Accrual concept – where profit is the difference between revenues and expenses in a specific period and not the difference between cash received and cash paid. (c) Consistency concept – applying the same method of accounting when dealing with specific items such as depreciation and in stock valuation. (d) Prudence concept – an accountant is always very careful not to over value specific assets such as stock or machinery etc., and to identify any potential liabilities. It is their duty to prepare the accounts as accurately as possible to give a fair figure of profit.

1.7X (a) (b) (c) (d) 1.8

Accounting

(Any one from the above would be acceptable as an answer)

Materiality Business entity Money measurement Prudence

Employees would be interested in their employer’s financial results for the following reasons: • The ability to pay wages and salaries • Secure employment with the opportunity to progress within the business • Continued profitability • Sound cash flow position • Sales maintained and increasing • Business viable for the forthcoming period • Healthy customer base (Any three of the above would be acceptable as an answer)

© Pearson Education Ltd 2010

1

Answers Chapter 2: Double entry for cash transactions 2.1

(a) (b) (c) (d) (e) (f)

Purchases Office equipment Bank loan Cash in hand Motor vehicle Loan from financial company

2.2X Wrong:

2.3

Assets Money owing to bank

Account to be Debited

Accounting

asset asset liability asset asset liability Liabilities Motor van Stock of goods

Account to be Credited

(a) Cash

Capital

(b) Bank

Cash

(c) Purchases

Cash

(d) Office Machinery

Bank

(e) Stationery

Cash

2.4X Account to be debited (a) Bank (b) Purchases (c) Motor car (d) Cash (e) Motor expenses (f) Computer equipment 2.5

-

Account to be credited Capital Cash Bank Uncle Joe loan Cash Cash

Max Morgan Bank Account

Jan-01 Jan-15

Capital Sales

30,000 500

Jan-05 Jan-07 Jan-27 Jan-30

Purchases S/H Van Computer Equipment Purchases

2,770 4,800 2,100 1,090

Capital Account Jan-01

Bank

30,000

Purchases Account Jan-05 Jan-30

Bank Bank

2,770 1,090

Jan-07

Bank

4,800

Van Account Cash Account Jan-09 Jan-29

2


Sales Sales

680 325

Jan-10 Jan-22

Office Furniture Motor Expenses

110 92

Sales Account Jan-09 Jan-15 Jan-29

Cash Bank Cash

680 500 325

Office Furniture Account Jan-10

Cash

110 Motor Expenses Account

Jan-22

Cash

Jan-27

Bank

92 Computer Equipment Account 2,100

2.6X Jane Mellor Cash Account May 1 May 20

Capital Sales

22,000 328

May 3 May 22

Bank Stationery

20,000 72

Cash

22,000

Capital Account May-01 Bank Account May 3 May 25

Cash Sales

20,000 560

May 7 May 10

Rent Purchases

May 15

Display units

May 23

Purchases

May 31

S/H Van

500 1,700 400 400 3,000

May 7

Bank

May 10 May 23

Bank Bank

Accounting

Rent Account 500 Purchases Account 1,700 400 Display Units Account May 15

Bank

400 Sales Account May 20

Cash

328

May 25

Bank

560

Stationery Account May 22

Cash

72 Van Account

May 31

Bank

3,000


3

Answers Chapter 3: Double entry for credit transactions 3.1

Account to be Debited

P. Hart

(b) Cash

Sales

(c) Motor Car

Morgan Motors

(d) Purchases

Cohens Ltd

(e) P. Hart

Purchase Returns

(f) H. Perkins

Sales

(g) Bank

Sales

(h) Cash

Office Furniture

3.2X Account to be debited (a) Computer equipment (b) Stationery (c) Purchases (d) Daswami & Co (e) Purchases (f) Sales returns (g) Cash (h) J. Leung 3.3

Account to be Credited

(a) Purchases

Account to be credited J. Kershaw Cash J. Leung Sales Bank Daswani & Co Sales Purchase Returns

Kendrick Products Cash Account

Accounting

Jan-01

Capital

20,000

Jan-05 Jan-24

Bank Stationery

18,000 45

Cash

20,000

Capital Account Jan-01 Purchases Account Jan-02 Jan-07 Jan-09

T. Peters J. Leigh Bank

2,543 349 592

Jan-18

Purchase Returns

Jan-26

Bank

2,383

Jan-05

Cash

18,000

T. Peters Account 160

Jan-02

Purchases

2,543

Purchases T. Peters

592 2,383

Purchases

349

P. Lamond D. Gurkan

210 1,008

Bank Account Jan-09 Jan-26

J. Leighs Account Jan-07 Sales Account Jan-16 Jan-26 P. Lamond Acccount Jan-16

Sales

210

Jan-30

Sales Returns

60

Purchase Returns Account Jan-18 4


T. Peters

160

Stationery Account Jan-24

Cash

45 D. Gurkan Account

Jan-26

Sales

1,008 Sales Returns Account

Jan-30

P. Lamond

60 Motor Van Account

Jan-31

Harper Motors Ltd

5,250 Harper Motors Ltd Account Jan-31

Motor Van

5,250

Apr 14 Apr 28

Purchases C. Chang

2,300 950

Apr 30

Ash Car Sales

5,400

3.4X Mark & Co Bank Account Apr 1

Capital

40,000

Capital Account Apr 01

Bank

40,000

Purchases Account Apr 3 Apr 5 Apr 14

E. Shah C. Chang Bank

Apr 20

E. Shah

845 950 2,300 920 E. Shah Account

Apr 16

Purchase returns

72

Apr 03

Purchases

845

Apr 20

Purchases

920

Purchases

950

Bank

950

Apr 05

Accounting

C. Chang Account Apr 28

Motor Van Account Apr 09

Ash Car Sales

Apr 30

Bank

10,400 Ash Car Sales Account 5,400

Apr 09

Motor Van

10,400

Sales Account Apr 12

Naik Bros

147

Apr 23

Cash

369

Apr 29

Curtis & Co

420

Naik Bros Account Apr 12

Sales

147 Purchase Returns Accounts Apr 16

E. Shah

72

Motor Expenses

40

Cash Account Apr 23

Sales

Apr 29

Sales

369

Apr 26

Curtis & Co Account 420 Motor Expenses Account Apr 26

Cash

40


5

Answers Chapter 4: Balancing of accounts and preparation of a Trial Balance 4.1 Capital May-01

Bank

2,500

K Gibson D Ellis C Mendez Balance c/d

76 370 87 2,367 2,900

Rent Stationery Rent Balance c/d

120 60 120 200 500

Balance c/d

240

Bank May-01 May-09 May-10

Capital C Bailey H Spencer

2,500 250 150

May-12 May-12 May-31 May-31

2,900 Jun-01

Balance b/d

2,367 Cash

May-06

Sales

500

Jun-01

Balance b/d

200

May-08 May-19

Cash Cash

120 120 240

Jun-01

Balance b/d

240

May-08 May-15 May-19 May-31

500

Accounting

Rent May-31

240

Stationery May-15

Cash

60 Purchases

May-02 May-02 May-02 May-18 May-18

D Ellis C Mendez K Gibson D Ellis C Mendez

540 87 76 145 234 1,082

Jun-01

Balance b/d

1,082

May-31

Balance c/d

1,496

May-31

Balance c/d

1,082

1,082

Sales May-04 May-04 May-04 May-06 May-25 May-25 May-25

C Bailey B Hughes H Spencer Cash C Bailey B Hughes H Spencer

430 62 176 500 90 110 128 1,496

Jun-01

Balance b/d

1,496

1,496

6


H Spencer May-04 May-25

Sales Sales

176 128 304

Jun-01

Balance b/d

154

May-12 May-31

Bank Balance c/d

370 315 685

May-10 May-31

Bank Balance c/d

150 154 304

May-02 May-18

Purchases Purchases

540 145 685

Jun-01

Balance b/d

315

May-02 May-18

Purchases C Mendez

Jun-01

Balance b/d

87 234 234 234

D Ellis

C Mendez May-31 May-31

Bank Balance c/d

87 234 234

K Gibson May-12

Bank

76

May-02

Purchases

76

C Bailey May-04 May-25

Sales Sales

430 90 520

Jun-01

Balance b/d

270

May-09 May-31

Bank Balance c/d

250 270 520

Balance c/d

172

B Hughes

Jun-01

Sales Sales Balance b/d

62 110 172

May-31

172

172

Accounting

May-04 May-25

Trial Balance as at 31 May 2010 Dr

Cr £

Capital Bank Cash Rent Stationery Purchases Sales H Spencer D Ellis C Mendez C Bailey B Hughes

£ 2,500

2,367 200 240 60 1,082 1,496 154 315 234 270 172 4,545

4,545


7

4.2X (a) Bank Account August 1 August 14 August 20

Capital Sales Sales

August 28

Sales

22,000 980 1,300

August 1 August 7 August 7

Rent Shop fittings Purchases

1,800 3,230 5,000

2,000

August 9

Cash

1,000

August 30

Salaries

2,100

August 30

Balance c/d

26,280 Sept 1

Balance b/d

13,150 26,280

13,150

Cash Account August 9

Bank

1,000

Sept 1

Balance b/d

1,000 809

August 30

Balance c/d

4,280


Stationery Sundry expenses Balance c/d

163 28 809 1,000


Bank Bank Bank

980 1,300 2,000 4,280

Sept 1

Balance b/d

4,280

Balance c/d

10,700

Sales Account

4,280 Purchases Account

Accounting

August 7 August 10 August 25 September 1

Bank Book Supplies Delta Books balance b/d

5,000 4,200 1,500 10,700

August 30

10,700

10,700 Shop Fittings Account

August 7

Bank

3,230 Capital Account August 1

Bank

22,000

Rent Account August 1

Bank

1,800 Stationery Account

August 9

Cash

August 16

Cash

April 30

Bank

163 Sundry Expenses Account 28 Salaries Account 2,100 Book Supplies Accounts August 10

Purchases

4,200

Purchases

1,500

Delta Books Account August 25

8


4.2X (b) Jenny Moore Trial Balance as at 31 August 2010 Dr

Cr

£ 13,150 809

Bank Cash Sales Purchases Shop Fittings Capital Rent Stationery Sundry expenses Salaries Book Supplies Delta Books

10,700 3,230 1,800 163 28 2,100

31,980

£ 4,280 22,000

4,200 1,500 31,980

4.3 Bank Capital L Clark K Allen

(1)

Balance b/d

15,000 440 76

(9) (11) (27) (27) (27) (28) (30) (30)

Rent Rates Bowman Furnishers Howe Homes W Hunt Motor Vehicles Bates Motors Balance c/d

15,516

500 190 532 460 2,070 3,000 5,000 3,764

Accounting

(1) (30) (30)

15,516

3,764 Capital

(30)

Balance c/d

15,000

(1)

Bank

15,000

(1)

Balance b/d

15,000

Howe Homes (27)

Bank

460

(3)

Purchases

460

(3) (20)

Purchases Purchases

620 220 840

(1)

Balance b/d

780

Balance c/d

500

Sales returns Bank

40 440 480

J Bond (17) (30)

Purchases returns Balance c/d

60 780 840

Rent (9)

Bank

500

(1)

Balance b/d

500

(12)

Sales

480

(30)

L Clark

480

(23) (30)


9

R Gee (12)

Sales

1,170

(1)

Balance b/d

1,170

(30)

Balance c/d

1,170

Purchses Returns (30)

Balance c/d

88 88

(17) (17)

Bowman Furnishers J Bond

28 60 88

(1)

Balance b/d

88

Balance c/d

8,000

Motor Vehicles (25) (28)

Bates Motors Bank

5,000 3,000 8,000

(30)

Balance b/d

8,000

(30)

8,000

Stationery (29)

Cash

(30)

Balance b/d

56

(30)

Balance c/d

56

Balance c/d

3,930

56 Purchases

(3) (3) (3) (3) (20) (20) (20)

Bowman Furnishers Howe Homes W Hunt J Bond J Bond W Hunt Bowman

(1)

Balance b/d

(17) (27)

Purchases returns Bank

320 460 1,800 620 220 270 240 3,930

(30)

3,930

3,930

Accounting

Bowman Furnishers 28 532 560

(3) (20)

Purchases Purchases

320 240 560

Purchases Purchases

1,800 270 2,070

(7) (12) (12) (12) (26)

Cash L Clark K Allen R Gee Cash

(1)

Balance b/d

480 480 96 1,170 175 2,401 2,401

Balance c/d

190

W Hunt (27)

Bank

2,070

(3) (20)

2,070 Sales (30)

Balance c/d

2,401

2,401 Rates

10


(11)

Bank

190

(1)

Balance b/d

190

(30)

K Allen (12)

Sales

96

(23) (30)

Sales returns Bank

20 76 96

Balance c/d

400

Balance c/d

60

96 Wages (14)

Cash

400

(1)

Balance b/d

400

(23) (23)

K Allen L Clark

(30)

Balance b/d

(30)

Bank

5,000

(7) (26)

Sales Sales

480 175

(1)

Balance b/d

(30)

Sales Returns 20 40 60

(30)

60

60 Bates Motors (25)

Motor vehicles

5,000

Cash (14) (29) (30)

Wages Stationery Balance c/d

655

400 56 199 655

199

Trial Balance as at 30 April 2010 £ 3,764 3,930

Bank Purchases Capital J Bond Sales Rent Rates R Gee Wages Purchases returns Sales returns Motor vehicles Stationery Cash

Cr £

Accounting

Dr

15,000 780 2,401 500 190 1,170 400 88 60 8,000 56 199 18,269

18,269

4.4

(a) Capital

–

credit

(b) Sales

–

credit

(c) Stationary

–

debit

(d) Cash

–

debit

(e) T Khan (creditor)

–

credit

(f) Machinery

–

debit

(g) Rent

–

debit © Pearson Education Ltd 2010

11

(h) D Allen (debtor)

–

debit

(i) Bank loan

–

credit

( j) Purchases

–

debit

4.5

Trial Balance of P Brown as at 31 May 2010 Dr

Cr £

Capital Drawings General expenses Sales Purchases Debtors Creditors Bank Cash Plant and equipment Heating and lighting Rent

7,000 500 29,000 6,800 15,100 200 5,000 1,500 2,400 67,500

4.6

£ 20,000

38,500

9,000

67,500

Trial Balance of S Higton as at 30 June 2010 Dr

Cr £

Accounting

Capital Sales Stationery General expenses Motor expenses Cash at the bank Stock 1 July 2009 Wages and salaries Rent and rates Office equipment Purchases Heating and lighting Rent received Debtors Drawings Creditors Motor vehicle Interest received Insurance

12


1,200 2,745 4,476 1,950 7,668 9,492 10,500 6,000 81,753 2,208 10,353 4,200 7,500 3,444 153,489

£ 19,956 119,439

2,139

10,230 1,725 153,489

4.7X

Trial Balance of Ms Anita Hall as at 31 December 2010 Dr Plant and machinery Motor vehicles Premises Wages Purchases Sales Rent received Telephone, printing and stationery Creditors Debtors Bank overdraft Capital Drawings General Expenses Lighting and heating Motor expenses Motor vehicle

£ 21,450 26,000 80,000 42,840 119,856

Cr £

179,744 3,360 3,600 27,200 30,440 2,216 131,250 10,680 3,584 2,960 2,360 343,770

343,770

(b) Error of commission

(c) Error of omission

(d) Error of original entry

(e) Complete reversal of entries

(f) Error of principle

Accounting

4.8X (a) Error of principle


13

Answers Chapter 5: Value Added Tax 5.1 (a)

C Black Curzon Road Stockport To: J Booth 89 Andrew Lane Stockport

INVOICE No 947T

Date: 1 March 2011 Your Order No. 1697 £

20,000 coils sealing tape x £4.70 per 1,000

94.00

40,000 sheets A5 paper x £4.50 per 1,000

180.00

30,000 sheets A4 paper x £4.20 per 1,000

126.00 400.00 70.00 470.00

VAT at 17.5% VAT Reg No. 542 4483 95

(b)

J Booth's Books C Black 2011 01-Mar C Black's Books J Booth

Accounting 14

Purchases

2011 01-Mar

Sales

470

5.2X (a) & (b) & (c)


2010

Name of Customer

Jan 2 Jan 6 Jan 7

D Woolham & Co C Crawford S Brocklehurst

Jan 9 Jan 13 Jan 18 Jan 21 Jan 24 Jan 29 Jan 31

L Price & Partners D Woolham & Co L Price & Partners C Crawford C Crawford S Brocklehurst L Price & Partners

Net

VAT

Total

£ 230.00 348.00 1,980.00

£ 40.25 60.90 346.50

£ 270.25 408.90 2,326.50

520.00 56.00 200.00 340.00 44.00 846.00 722.00 5,286.00

91.00 9.80 35.00 59.50 7.70 148.05 126.35 925.05

611.00 65.80 235.00 399.50 51.70 994.05 848.35 6,211.05

470

5.3 (a) Cost of 22 reams of paper at £3.75 Input VAT is 17.5% Customer Charged Amount before VAT is added,

100 £235  ______ 117.5

Therefore, output VAT is Amount of VAT due to HMRC, £35.00  £14.44 (b) Net Amount £40.00 £ 2.00 £53.28 £ 3.20

VAT £7.00 £0.35 £9.32 £0.56

£82.50 £14.44 £96.94 £235.00 including VAT £200.00

17.5 £82.50  ____ 100



£35.00 £20.56

Total £47.00 £ 2.35 £62.60 £ 3.76

5.4 (a) Ivy & Co VAT Account

2010 Apr-30 May-31 Jun-30 Jun-30

Purchases Day Book Purchases Day Book Purchases Day Book Balances c/d

8,750 7,350 9,625 2,380 28,105

Cr

2010 Apr-30 May-31 Jun-30

Sales Day Book Sales Day Book Sales Day Book

Jul-01

Balance b/d

9,205 8,400 10,500 28,105 2,380

Accounting

Dr

(b) The outstanding balance of £2,380 is the amount of VAT due to HMRC for the quarter ending 30th June 2010. When Ivy & Co pays this amount to HMRC this will clear the amount in the VAT account.

5.5X VAT Account

Dr 2010 Oct 31 Nov 30 Dec 31 Dec 31

Purchases Day Book Purchases Day Book Purchases Day Book Balances c/d

6,580 6,895 9,100 13,300 35,875

2010 Oct 31 Nov 30 Dec 31

Cr Sales Day Book Sales Day Book Sales Day Book

13,125 10,850 11,900 35,875

Jan 01

Balance b/d

13,300

(b) All business records must be kept for 6 years.


15

Answers Chapter 6: Business documentation 6.1

(a) Remittance advice – a document which accompanies payments by cheque or via BACS and gives details of the payment made. (b) Statement – this is normally sent to purchasers at the end of each month and it states the amount owing to the supplier at the end of that particular month. (c) Credit note - a document sent to a customer showing allowance given by supplier in respect of unsatisfactory goods. Usually printed in red to distinguish it from an invoice. (d) Invoice – a document prepared by the seller and sent to the purchaser whenever a business buys goods or services on credit. It gives details of the supplier and the customer, the goods purchased and their price.

6.2

(a) Purchase order (b) Invoice (c) Statement (d) Remittance advice

6.3X

Statement of Account to John Ashley Ltd Dr

Cr £

Accounting

May 1 May 2 May 8 May 17 May 23 May 28

Balance b/forward Invoice No. 7821 Invoice No. 7955 Credit Note No. 304 Invoice No. 8204 Cheque

£

43.75 35.00 10.20 74.50 51.50

Balance £ 101.50 145.25 180.25 170.05 244.55 193.05

The amount outstanding by John Ashley Ltd is £193.05 6.4X (a) Contents of an invoice - refer to text section 6.3 Contents of a credit note - refer to text section 6.4 (b) An invoice is used when a supplier has provided goods and/or services to a customer and wishes to inform them how much is owed. A credit note is issued by the supplier to 'credit' the buyer in respect of unsatisfactory goods returned.

16


Answers Chapter 7: Capital and revenue expenditure 7.1

Newton Data Systems Type of expenditure

Reason

(a) Revenue

Use up in the short term

(b) Capital

Adds to value of computer equipment

(c) Revenue

Used up in the short term

(d) Revenue


(e) Capital

Adds to the value of the computer

(f) Question is not clear (1) If spent on improving building Construction  Capital (2) If spent on extra wages for Security guards  Revenue

Adds to the value of fixed assets

7.2


Capital (a) (b) (c) (d) (e)

New stationery and brochures New pickup truck New lathe Delivery costs Electricity

(f) Wages

- lathe - wiring - electricity costs - Re: Improvements - Other

£ 18,000 5,200 200 1,800 20,000 -

Revenue £ 411 2,100 45,000

45,200

47,511

Accounting

Cairns Engineering Co

Brief description of capital and revenue expenditure - see text 7.3X (a) (i) Capital (ii) Capital (iii) Capital (iv) Revenue (b) (i) Expenses would be too high and net profit too low (ii) The value of the fixed assets in the balance sheet would be too low.


17

7.4

(a) (i) Capital expenditure

(ii) Capital expenditure

(iii) Revenue expenditure

(iv) Capital receipt

(v) Revenue expenditure

(vi) Revenue receipt

(vii) Revenue expenditure

(b) It is important to distinguish between capital and revenue expenditure because incorrect treatment of expenditure would result in profits being affected and the balance sheet position becoming distorted.

If capital expenditure is incorrectly treated as revenue expenditure then the net profit will be understated and the assets in the balance sheet undervalued. If revenue expenditure is incorrectly treated as capital expenditure then the net profit would be overstated and the balance sheet position would be overvalued. 7.5X Capital (a), (c), (f)

Accounting

18


Revenue (b), (d), (e), (g)

Answers Chapter 8: Books of original entry and ledgers – Sales day book and sales ledger including VAT 8.1

(a) (b) (c) (d) (e) (f)

Sales day book / sales ledger / personal account Cash book / general ledger / nominal account Purchases day book / purchases ledger / personal account Cash book / general ledger / nominal account Sales returns day book / sales ledger / personal account Purchases returns day book / purchases ledger / personal account

8.2X (a) (i) Purchase day book: purchase invoices (ii) Sales returns day book: sales credit notes (iii) Cash book: cheques received, cheques paid out, cash receipts and cash payments (iv) Sales day book: sales invoices (v) Purchase returns day book: purchase credit notes (b) Personal accounts: contain the accounts of businesses and people i.e. debtors and creditors. Impersonal accounts: contain the other accounts, divided between real and nominal accounts. Real accounts: are accounts in which fixed assets and stock are recorded, such as machinery, property, fixtures and fittings.

8.3 Date 2010 Nov-02 Nov-03 Nov-09 Nov-11 Nov-13 Nov-18 Nov-23 Nov-30

Details T Bates D Cope F Chan T Bates B Ho D Cope M Saka & Sons F Chan

Sales Day Book Folio

Goods £ 186.00 166.00 12.00 54.00 66.00 32.00 20.00 320.00 856.00

VAT £ 32.55 29.05 2.10 9.45 11.55 5.60 3.50 56.00 149.80

Accounting

Nominal accounts: record expenses, income and capital.

Total £ 218.55 195.05 14.10 63.45 77.55 37.60 23.50 376.00 1005.80


19

Sales Ledger Cr

T Bates Account

Dr Nov-02 Nov-11 Dr Nov-03 Nov-18 Dr Nov-09 Nov-30 Dr Nov-13 Dr Nov-23

Sales Sales

218.55 63.45 D Cope Account 195.05 37.60 F Chan Account 14.10 376.00 B Mo Account 77.55 M Saka & Sons Account 23.50

Sales Sales Sales Sales Sales Sales

Cr

Cr

Cr Cr

General Ledger Dr Dr

8.4X

Accounting

Date 2011 Jul 1 Jul 5 Jul 8 Jul 14 Jul 19 Jul 26 Jul 28 Jul 31

Details

Sales Account Nov-30

Credit sales for the month

Cr 856.00

VAT Account Nov-30

Sales day book: VAT

149.80

Cr

Sales Day Book Folio Goods

Hall Products Ash & Co K. Meakin A. Ballearic Hall Products G. Huang A. Ballearic J. Stead

520.00 62.00 18.00 110.00 880.00 126.00 42.00 98.00 1,856.00

VAT 91.00 10.85 3.15 19.25 154.00 22.05 7.35 17.15 324.80

Total 611.00 72.85 21.15 129.25 1,034.00 148.05 49.35 115.15 2,180.80

Sales Ledger Hall Products Account

Dr Jul 1 Jul 19 Dr Jul 5 Dr Jul 8 Dr Jul 14 Jul 28

20


Sales Sales Sales Sales Sales Sales

611.00 1,034.00 Ash & Co Account 72.85 K. Meakin Account 21.15 A. Ballearic Account 129.25 49.35

Cr

Cr Cr Cr

Dr Jul 26 Dr Jul 31

Sales Sales

G. Huang Account 148.05 J Stead Account 115.15

Cr Cr

General Ledger Dr

Sales Account Jul 31 Credit sales for the month

Dr

VAT Account Jul 31 Sales day book : VAT

Cr 324.80

It is important to check sales invoices prior to sending them out to customers for the following reasons: • To ensure the customer’s order number or reference is shown. • To check that the correct quantity of goods has been invoiced. • To ensure the goods/services are invoiced at the right place. • To check all the calculations and extensions.

Accounting

8.5

Cr 1,856.00


21

Answers Chapter 9: Purchases day book and purchase ledger including VAT 9.1

White Bros Purchases Day Book

Date 2010 May-01 May-07 May-16 May-23 May-26 May-28 May-31

Details Bould & Co Harlow & Brown J Adams Ltd Bould & Co J H Products Harlow & Brown P Yeung Ltd

Goods £ 104.00 48.00 234.00 170.00 320.00 62.00 446.00

VAT £ 18.20 8.40 40.95 29.75 56.00 10.85 78.05

Total £ 122.20 56.40 274.95 199.75 376.00 72.85 524.05

1384.00

242.20

1626.20

Purchase Ledger Dr

Bould & Co Account May-01 May-23

Dr

Purchases Purchases

Harlow and Brown Account May-07 May-28

Accounting

Cr

Dr

Cr Purchases Purchases

56.40 72.85

Purchases

274.95

J Adam Ltd Account May-16

Dr

Cr

J H Products Account May-26

Dr

Cr Purchases

376.00

Purchases

524.05

P Yeung Account May-31

122.20 199.75

Cr

General Ledger Dr May-31

Purchases Account Credit purchases for the month

Dr May-31

22


1384.00 VAT Account

Purchases Day Book : VAT

Cr

242.20

Cr

9.2

Bakers Electrical Co Purchases Day Book

Date 2010 Jul-03 Jul-08 Jul-12 Jul-17 Jul-21 Jul-23 Jul-25 Jul-30

Details Peak Electrical Leigh Electrics Thomas Motors Naik & Sons Peak Electrical W D Services Leighs Electrics Naik & Sons

Goods £ 722.00 84.00 274.00 160.00 158.00 46.00 210.00 178.00

VAT £ 126.35 14.70 47.95 28.00 27.65 8.05 36.75 31.15

Total £ 848.35 98.70 321.95 188.00 185.65 54.05 246.75 209.15

1832.00

320.60

2152.60

Purchases Ledger Peak Electrical Ltd Account Jul-03 Jul-21 Dr


Leigh Electrics Account Jul-08 Jul-25

Dr


98.70 246.75

Purchases

321.95

Thomas Motors Account Jul-12

Dr

Cr

Naik & Sons Account Jul-17 Jul-30

Dr


188.00 209.15

Purchases

54.05

W D Services Account Jul-23

848.35 185.65

Accounting

Dr

Cr

General Ledger Dr Jul-31


Dr Jul-31

1832.00 VAT Account

Purchases Day Book : VAT

Cr

Cr

320.60


23

9.3X Tasty Foods Purchases Day Book Date 2010 Aug 1 Aug 6 Aug 10 Aug 14 Aug 22 Aug 27 Aug 29 Aug 30

Details

Goods £ 62.00 48.00 224.00 136.00 98.00 166.00 84.00 366.00 1,184.00

Barker Foods Ltd Fern Bros Ash Catering Co Barker Foods Ltd Farm Produce Fern Bros Leigh & Sons Ash Catering Co

VAT £ 10.85 8.40 39.20 23.80 17.15 29.05 14.70 64.05 207.20

Total £ 72.85 56.40 263.20 159.80 115.15 195.05 98.70 430.05 1,391.20

Purchases Ledger Dr

Barker Foods Ltd Account Aug 1 Aug 14

Dr

Purchases Purchases

72.85 159.80

Purchases Purchases

56.40 195.05

Fern Bros Account Aug 6 Aug 27

Dr

Cr

Ash Catering Co Account

Cr

Aug 10

Purchases

263.20

Aug 30

Purchases

430.05

Dr

Farm Products Account

Dr

Leigh & Sons Account

Aug 22

Accounting

Cr

Aug 29

Cr Purchases

Cr Purchases

98.70

General Ledger Dr Aug 31


Dr Aug 31

VAT Account Purchases Day Book : VAT


Cr

1,184.00

207.20

9.4X It is important to check invoices prior to payment to ensure: • The goods invoices match the order specification • The goods have been received • They have been charged correctly • The calculations are accurate • The invoice has been passed for payment

24

115.15

Cr

Answers Chapter 10: Sales returns day book and purchase returns day book 10.1 Sales Day Book Date 2010 Jun-01 Jun-01 Jun-09 Jun-09 Jun-23 Jun-30

Goods £ 180.00 60.00 140.00 330.00 780.00 440.00 1930.00

Details J Alcock P Twigg Bell Products Travis Ltd B Seddon P Twigg

(Page 7) VAT £ 31.50 10.50 24.50 57.75 136.50 77.00 337.75

Total £ 211.50 70.50 164.50 387.75 916.50 517.00 2267.75

VAT £ 2.10 8.75 10.85

Total £ 14.10 58.75 72.85

Sales Returns Day Book Date 2010 Jun-12 Jun-28

Details

Goods £ 12.00 50.00 62.00

J Alcock Travis Ltd

Dr Jun-01

J Alcock Account Sales

Dr Jun-01 Jun-30

Sales

70.50 517.00 Cr

164.50 387.75

Jun-28

Cr Sales returns

B Seddon Account Sales

14.10 Cr

Travis Ltd Account Sales

Dr Jun-23

Sales returns

Bell Products Account

Dr Jun-09

Jun-12

Cr

P Twigg Account Sales Sales

Dr Jun-09

211.50

Accounting

Sales Ledger

58.75 Cr

916.50 General Ledger

Dr

Sales Account Jun-30

Dr Jun-30

Sales Returns Account Total SRDB

Dr Jun-30

Cr Total SDB

Cr

62.00 VAT Account

Total SRDB

1930.00

10.85

Jun-30

Cr Total SDB

337.75 © Pearson Education Ltd 2010

25

10.2 Purchases Day Book Date 2010 May-01 May-05 May-05 May-14 May-19 May-19 May-19 May-31 May-31

Details

Goods £ 120.00 80.00 220.00 60.00 300.00 280.00 80.00 56.00 172.00 1368.00

J Yau Ltd S Wager Ash Bros J Yau Ltd D Wong Rughani & Co Ash Bros A Davies Rughani & Co

VAT £ 21.00 14.00 38.50 10.50 52.50 49.00 14.00 9.80 30.10 239.40

Total £ 141.00 94.00 258.50 70.50 352.50 329.00 94.00 65.80 202.10 1607.40

VAT £ 5.25 7.35 12.60

Total £ 35.25 49.35 84.60

Purchase Returns Day Book Date 2010 May-09 May-27

Details

Goods £ 30.00 42.00 72.00

J Yau Ltd D Wong

Purchase Ledger Dr

Accounting

May-09

J Yau Ltd Account Purchase returns

Dr

35.25

May-01 May-14

Purchases Purchases

S Wager Account May-05

Dr

Dr

Purchases

94.00

Purchases Purchases

258.50 94.00

Cr

D Wong Account Purchase returns

Dr

49.35

May-19

Cr Purchases

352.50

Purchases Purchases

329.00 202.10

Purchases

65.80

Rughani & Co Account May-19 May-31

Dr

Cr

A Davies Account May-31

141.00 70.50 Cr

Ash Bros. Account May-05 May-19

May-27

Cr

Cr

General Ledger Dr May-31

Purchases Account Total PDB

Dr

Purchase Returns Account May-31

Dr May-31 26


Cr

1368.00 Cr Total PRDB

72.00

Total PRDB

12.60

VAT Account Total PDB

239.40

May-31

Cr

10.3X Anderson's Ltd (b) Purchases Day Book Date 2010 Jan 2 Jan 5 Jan 19

Details Naylor's Ltd Roberts & Sons R. James & Co

Goods

VAT

Total

1,300.00 668.00 1,512.00 3,480.00

227.50 116.90 264.60 609.00

1,527.50 784.90 1,776.60 4,089.00

Purchase Returns Day Book Date 2010 Jan 13 Jan 30

Details

Goods

VAT

Total

Naylor's Ltd R. James & Co

84.00 400.00 484.00

14.70 70.00 84.70

98.70 470.00 568.70

Sales Day Book Date 2010 Jan 12 Jan 26 Jan 26 Jan 28 Jan 28

Details

Goods

VAT

Total

Marlow (Fancy Gifts) J. Jeynes Birch Bros F & J Shah Marlow (Fancy Gifts)

656.00

114.80

770.80

2,468.00 340.00 5,000.00 380.00

431.90 59.50 875.00 66.50

2,899.90 399.50 5,875.00 446.50

8,844.00

1,547.70

10,391.70

Goods

VAT

Total

60.00

10.50

70.50

60.00

10.50

70.50

Details Marlow (Fancy Gifts)

Jan 30

Accounting

Sales Returns Day Book Date 2010

10.3X (a) (c) (e) Sales Ledger J. Jeynes Account Jan-01 Jan-26 Feb-01

Balance b/d Sales Balance b/d

1,490.00 2,899.90 4,389.90

Jan-31

Balance c/d

4,389.90 4,389.90

4,389.90 Marlow (Fancy Goods) Account

Jan-01 Jan-12 Jan-28

Balance b/d Sales Sales

552.00 770.80 446.50 1,769.30

Feb-01

Balance b/d

1,698.80

Jan-01 Jan-28

Balance b/d Sales

780.00 5,875.00 6,655.00

Feb-01

Balance b/d

6,655.00

Jan-26

Sales

Jan-30 Jan-31

Sales Returns Balance c/d

70.50 1,698.80 1,769.30

F & J Shah Account Jan-31

Balance c/d

6,655.00 6,655.00

Birch Bros Ltd Account 399.50 © Pearson Education Ltd 2010

27

10.3X (a) (c) (e) Purchase Ledger R. James & Co. Account Jan-30 Jan-31

Purchase Returns Balance c/d

470.00 2,906.60 3,376.60

Jan-01 Jan-19

Balance b/d Purchases

1,600.00 1,776.60 3,376.60

Feb-01

Balance b/d

2,906.60

Jan-01 Jan-02


900.00 1,527.50 2,427.50

Feb-01

Balance b/d

2,328.80

Jan-01 Jan-05


490.00 784.90 1,274.90

Feb-01

Balance b/d

1,274.90

Naylor's Ltd Account Jan-13 Jan-31

Purchase Returns Balance c/d

98.70 2,328.80 2,427.50

Roberts & Sons Account Jan-31

Balance c/d

1,274.90 1,274.90

10.3X (d) General Ledger Dr

Cr

Sales Account Jan-31

Dr

Total Sales for January

Cr

Sales Returns Account

Jan-31

Total SRDB

Jan-31

Total Purchases for January

60.00

Accounting

Purchases Account 3,480.00 Purchases Return Account Jan-31 Dr Jan-31 Jan-31 Jan-31

Total PRDB

484.00

Jan-31 Jan-31

Total PRDB Total SDB

84.70 1,547.70

*Feb-01

Balance b/d

1,632.40 1,012.90

Cr

VAT Account Total PDB Total SRDB Balance c/d

609.00 10.50 1,012.90 1,632.40

* The balance on the VAT account shows that Anderson's Ltd owe £1,012.90 to HMRC

10.4

28

8,844.00


Perris Design Company Reconciliation of ledger accounts with supplier's statements (a) Bennetts Ltd as at 31 July 2010 £ Balance per our Purchase Ledger 760.28 Add Purchases not received by us 121.50 Add Returns not received by supplier 63.50 Balance per Supplier's Statement 945.28

(b) Kirkhams Products Ltd as at 31 July 2010 Balance per our Purchase Ledger Add Purchases not received by us Add Returns not received by supplier Balance per Supplier's Statement

1,387.68 68.42 54.62 1,510.72

Answers Chapter 11: Cash books 11.1 Cash Book Cash (1) (4) (6) (8) (10) (14) (15) (30) (31) (1)

Capital Sales T Thomas Sales J King J Walters (Loan) Bank J Scott Sales Balances b/d

Bank 4,000

Cash (2) (4) (12) (15) (20)

Fixtures Rent Wages Cash Stationery

500

(22)

J French

277

(28) (31)

Drawings Balances c/d

225 188 308 300

200 66 791

5,273

216

4,247

Bank 660

140 275 200 60 166 100 216

4,247

791

5,273

11.2X Cash Book

2010

Cash

Bank

76.32

Cr

2010

Cash

Bank

Feb 1

Balance b/d

2,376.50

Feb 2

Electricity

Feb 6

D Hill

300.00

Feb 4

Motor expenses

15.00

156.00

Feb 6

A Jackson

275.00

Feb 7

Stationery

3.70

Feb 6

H Wardle

93.20

Feb 12

Palmer & Sons - purchases

723.50

Feb 10

Sales

Feb 14

500.00

Feb 16

217.00 53.00

Feb 17 Feb 17

Wright Brothers Drawings Post office re:

86.20

Feb 22 Feb 26

D Whitman loan J Smith Sales

Feb 28

Balance c/d

590.60

Accounting

Dr

57.10

50.00

Telephone a/c

140.60

Mr S Jepson

133.42 Mar-01

Balances b/d

43.72

Feb 23

Petrol

Feb 27

Brownsons of M/cr

Feb 28

Salaries

Feb 28

Balance c/d

4,405.30

21.00 899.00 2,400.00 43.72 133.42

Mar-01

Balances b/d

4,405.30 590.60


29

11.3 Cash Book Disct (1) (3) (5) (9)

Capital Sales N Morgan S Cooper

(14) (20) (31)

L Curtis P Exeter Sales

Cash

Bank 6,000

407 10 20

210 380

2 32

407

115 78 88 6,871

Disct (1) (2) (4) (7) (12) (16) (31)

Fixtures Purchases Rent S Thompson & Co Rates M Monroe Calances c/d

Cash

Bank 950 1,240

200 4

76 410

6 10

114 93 407

4,195 6,871

General Ledger Discounts Allowed (31)

Cash Book

32 Discounts Received (31)

Cash Book

10

11.4X M Pinero Cash Book

Dr

Accounting

Disct (1) (2)

Balance b/d Capital

(4) (5) (8) (15) (18)

Sales Cash Sales Bank L Graham

(18) (18) (22) (28) (30)

B Crenshaw H Green T Weiskopf Cash Balance c/d

Cash 58

Bank 1,000

220 200 500 400 4

76

7 11

133 209 204 755 6,049

22

1,382

Disct (1) (3) (5) (6) (6) (6) (12) (15) (16) (20) (26) (28) (31) (31)

8,422

Dr


Cash Book

Discounts Allowed Account Cash Book

22

Cash

Bank 1,470 780

200 2 6 10

78 234 390 77 400 120 210 150 755 4,920

18

(31)

30

Balance b/d Office fixtures Bank B Barnes T Horton T Jackin Motor Expenses Cash Drawings Wages Insurance Bank Motor Van Balance c/d

General Ledger Discounts Received Account

Dr

(31)

Cr

20 1,382

8,422

Cr 18 Cr

Answers Chapter 12: Petty cash and the imprest system 12.1

£

Date

Details

2.00

Total £

Jun 01 Jun 01 Jun 01 Jun 03 Jun 04 Jun 06 Jun 10 Jun 14 Jun 16 Jun 19 Jun 21 Jun 23 Jun 27 Jun 29

Balance b/d Cash Window cleaner Postage stamps Petrol Stationery Jean Ford stamps Office cleaner Parcel postage Magazine Computer disks Petrol Refreshments Office cleaner

p

10.00 7.60 37.60 9.75

32 33 34 35 8 36 37 38 39 40 41 42

20.00 1.35 3.00 7.95 14.10 4.20 20.00 135.55

Jun 30

Balance c/d

Jul 01

Balance b/d

Jul 01

Cash

152.00 16.45 133.55

VAT

Postage

Cleaning

Number

p

2010 18.52 131.48

Voucher

£

p

£

p

£

p

Motor Expenses £ p

Stationery £

p

Sundry Expenses £ p

10.00 7.60 5.60 1.45

32.00 8.30 20.00 1.35 3.00

1.05 2.10

6.90 12.00

4.20

20.00 10.20

8.95

50.00

44.00

15.20

7.20

16.45 152.00

Amount required to restore imprest = Float required

Accounting

Receipts

£ 150.00

Less Cash in hand 16.45 Amount required 133.55


31

Singh's Estate Agents - Petty Cash book

12.2X Receipts

Date

Voucher

Details

Total

VAT

Postage

Cleaning

£

£

£

£

11.66 7.40 8.60 20.00 4.23

1.66

£ 23.40 76.60

3.50

2010 15 Oct 15 Oct 16 Oct 17 Oct 18 Oct 20 Oct 20 Oct 23 Oct 23 Oct 25 Oct 27 Oct 28 Oct

Balance Cash Envelopes and files Tea, Coffee and milk Special delivery Office cleaner Cleaning materials M Lloyd Stationery Postage stamps Travel expenses Flowers Photocopy paper

80 81 82 83 84 78 85 86 87 88

31 Oct Balance

c/d

01 Nov Balance

b/d

Accounting

7.00

4.43

Less Cash in hand

13.80

Amount required

86.20

20.00 3.60

0.63

89.70 13.80 103.50

10.00 7.40

0.74 1.40

01 Nov Cash


£

Sundry Expenses £

8.60

7.00 16.42 4.99 9.40

Amount required to restore the imprest = Float required 100.00

32

Stationery

b/d

103.50 13.80 86.20

Travel Expenses £

16.42 4.25 8.00 15.60

23.60

16.42

18.00

11.65

Answers Chapter 13: Bank reconciliation statements Note: Both in theory and in practice you can start with the cash book balance working to the bank statement balance, or you can reverse this method. Many teachers and lecturers have their preferences, but this is a personal matter only. Examiners sometimes ask for them using one way, sometimes the other. Students should therefore be able to tackle them both ways. 13.1 (a) Cash Book 2010 Dec-31

(Totals so far) J Walters

2,328 54

2010 Dec-31 Dec-31

(Totals so far) Bank charges Balance c/d

2,382

497 22 1,863 2,382

(b) Bank Reconciliation Statement as at 31 December 2010 Balance per cash book Add Unpresented cheque Less Bankings not yet on bank statement (249 1 178)

1,863 115 1,978 427

Balance per bank statement

1,551

Accounting

OR Bank Reconciliation Statement as at 31 December 2010 Balance per bank statement Add Bankings not yer on bank statement (249 1 178) Less Unpresented cheque

1,551 427 1,978 115

Balance per cash book

1,863

13.2X (a) Preston & Co Cash Book

Dr Dec 31 Dec 31

Balance b/d BGC: P Todd

9,155 270 9,425

Jan 1

Balance b/d

Dec 31 Dec 31

Cr Bank charges Balance c/d

110 9,315 9,425

9,315


33

(b) Preston & Co Bank Reconciliation Statement as at 31 December 2010 £ 9,315 575

Balance as per cash book Add Unpresented cheque

9,890 Less Bankings not yet on bank statement ( 945 1 300 1 890)

2,135


7,755

OR Preston & Co Bank Reconciliation Statement as at 31 December 2010 £ 7,755 2,135

Balance as per bank statement Add Bankings not yet on bank statement ( 945 1 300 1 890)

9,890 Less Unpresented cheque

575

Balance per cash book

9,315

13.3 (a) Cash Book - James Baxter

Accounting

2010 Mar-31 Mar-31

BGC - A May Balance c/d

£ 929 2,003

2010 Mar-31 Mar-31 Mar-31

£ 2,804 100

Balance b/d Standing order - Oak plc Bank charges

28 2,932

2,932

(b) James Baxter Bank Reconciliation Statement as at 31 March 2010 £ 2,003 160

Bank overdraft per cash book Add Banking not entered on bank statement

2,163 Less Unpresented cheque

490

Bank overdraft per bank statement

1,673

OR James Baxter Bank Reconciliation Statement as at 31 March 2010

34


Balance per bank statement Less Banking not entered on bank statement

£ 1,673 160 1,513 490

O/D

Add Unpresented cheque Balance per cash book

2,003

O/D

O/D

13.4X (a) E Flynn Cash Book 2010 Dec-06 Dec-20 Dec-31 Dec-31 Dec-31

J Hallworth C Walters P Miller K Saunders Balance c/d

155 189 211 180 4,007

2010 Dec-01 Dec-10 Dec-19 Dec-29 Dec-30 Dec-31

Balance b/d P Wood M Roberts P Phillips s/o Mercantile Bank charges

3,872 206 315 84 200 65

4,742

4,742

(b) E Flynn Bank Reconciliation Statement as at 31 December 2010 Bank overdraft per cash book Add Bank lodgements not yet entered on bank statement

4,007 211 4,218

Less Unpresented cheque

84

Bank overdraft per bank statement

4,134

13.5 (a) A cheque that the bank refuses to pay due to insufficent funds in the debtor's account. Apr-01 Apr-07 Apr-13 Apr-20 Apr-30 Apr-22

Narrative Balance b/d Sales banked Sales banked Sales banked Sales banked CT - M Bell

£ 8,000 800 550 650 750 1,230

Date Apr-02 Apr-08 Apr-15 Apr-15 Apr-20 Apr-28 Apr-30 Apr-30

Narrative F Bashir (10123) M Tyler (10124) H Joshi (10125) DD / MTC DD / Pre. Ins Bank charges Dishonoured cheque Balance c/d

11,980 May-01

Balance b/d

£ 1,200 1,300 1,250 250 80 120 280 7,500

Accounting

(b) Date

11,980

7,500

(c) Real Kitchen Suppliers Bank Reconciliation Statement as at 30 April 2010 Balance as per cash book Add: Unpresented cheque - 10125

£

£ 7,500 1,250

Less: cash not yet credited

8,750 750


8,000


35

Answers Chapter 14: The journal 14.1 The Journal Date 2010 Jan-01 Jan-05 Jan-08 Jan-15 Jan-29

Details

Dr £ 4,000

Computer Equipment Data Systems Ltd Drawings Purchases Bad debts J Oddy Motor vehicle Bank

Cr £ 4,000

120 120 220 220 15,500 15,500

Office furniture and fittings

250

J Street

250

Accounting

14.2X (a) Fixtures (b) Drawings

Dr Dr

1,809 500

(c) Drawings

Dr

(d) Office equipment

Purchases

Cr Cr

1,809 500

100

Cash

Cr

100

Dr

500

K Lamb

Cr

500

(e) J Harper

Dr

65

Fixtures

Cr

65

(f)

Dr

68

J Brown

Cr

68

Dr

2,190

Super Offices

Cr

2,190

(a) J Harkness (b) Machinery

Dr Dr

678 4,390

J Harker L Pearson

Cr Cr

678 4,390

(c) Motor Van

Dr

10,800

Motor expenses

Cr

10,800

Bad debts

(g) Office equipment

J Harper

14.3

(d) E Fletcher

Dr

9

(e) Sales

Dr

257

Dr Dr

699 189

Sales

Cr

9

Commissions received

Cr

257

K Webb Bank

Cr Cr

699 189

14.4X (a) H Weld (b) Cash (c) B Maxim

Dr

443

(d) K Innes

Dr

10

(e) H Mersey*

Dr

178

B Gunn

Cr

443

Purchases

Cr

10

Cash

Cr

178

*Needs double the amount to first cancel out the error and then replace it with the correct amount. 36


14.5X (a) Journal Sep 30

Sep 30

Dr 750

Drawings Purchases Bring correction of error of omission L Patel A Patek

Cr 750

500 500

Being correction of your error of commission

(b) Dr Sep 30 Sep 30

Suspense Account Balance b/d Farmer & Co

340 170 510

Sep 30 Sep 30

Cr Sales Pointer Bros

240 270 510

(c) Before discovery of the errors in the Trial Balance the debit side was deficient by £340.

Accounting

(d) The trial balance has its limitations since certain errors can occur and not be revealed, such as:• Error of omission • Error of commission • Error of principle • Error of original entry • Compensating errors • Complete reversal of entries One from the above list.


37

Answers Chapter 15: Sales ledger and purchase ledger control accounts 15.1 Dr

Sales Ledger Control Account

2010 Oct-01 Oct-31

Balance b/d SDB

Nov-01

Balance b/d

12,340 124,790

2010 Oct-31 Oct-31 Oct-31 Oct-31

SRDB Bank & cash Discount allowed Balance c/d

137,130

Cr 2,847 116,225 3,638 14,420 137,130

14,420

15.2X Dr 2010 Feb 1 Feb 28 Feb 28

Sales Ledger Control Account Balance b/d SDB Bank : dishonoured cheques

33,950 347,480 791

2010 Feb 28 Feb 28 Feb 28 Feb 28 Feb 28

Accounting

Feb 28

Bad Debts Purchase ledger set offs Balance c/d

382,221 Mar 1

Balance b/d

332,920 4,497 11,095 977 1,400 31,332 382,221

31,332

15.3 Dr 2010 Jul-31 Jul-31 Jul-31 Jul-31

Purchase Ledger Control Account PRDB Bank Discount received Balance c/d

1,575 26,150 550 19,375 47,650

2010 Jul-01 Jul-31


Balance b/d PDB

Cr 19,450 28,200

47,650 Aug-01

38

Bank & cash Discount allowed SRDB

Cr

Balance b/d

19,375

15.4X Dr 2010 Jan 31 Jan 31 Jan 31 Jan 31 Jan 31

Purchase Ledger Control Account PRDB Bank Discount received Sales ledger set offs Balance c/d

2,835 45,070 990 2,000 34,875 85,770

2010 Jan 31 Jan 31

Balance b/d PDB

Cr 35,010 50,760

85,770 Feb 1

Balance b/d

34,875

15.5X (a) Dr 2009 Jan 1 Dec 31 Dec 31

Sales Ledger Control Account Balance b/d SDB Returned cheque

65,000 453,900 750

2009 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31

519,650

Cr RIDB Bank Discount All Bad Debts Purchase ledger set offs Balance c/d

6,430 432,000 7,540 650 1,650 71,380 519,650

Accounting

(b) Ravi believes there may be errors in his sales ledger because the sales ledger shows £78.540 total debtors at the end of December 2009. Having constructed the control account the total debtors outstanding amounts to £71,380. Therefore there is a discrepancy of £78,540  £71,380  £7,160 which will require investigation. (c) The closing balance of the sales ledger control account would appear under current assets in the balance sheet.


39

Answers Chapter 16: Trading account and profit and loss account of a sole trader 16.1

Lucy Chan Trading and Profit and Loss Account for the year ending 31 December 2010 £ Sales Less cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent Wages and salaries Printing and stationery Electricity expenses General expenses

84,665 15,085

4,595 28,865 2,940 2,485 1,295

Net Profit

16.2X

Accounting

40,180

Charles Drew Trading and Profit and Loss Account for the year ending 31 December 2010 Sales Less cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Wages Rent Office expenses Motor expenses Electricity expenses Net Profit


69,580 64,190

24,010

£

40

£ 133,770

96,547 18,495

11,229 5,330 1,620 922 1,350

£ 128,452

78,052 50,400

20,451 29,949

G Singh Trading and Profit and Loss Account for the year ended 31 December 2010 £ Sales Less Cost of goods sold: Purchases Less Closing stock Gross Profit Less Expenses Wages Motor expenses Rates Insurance General expenses

58,516 10,192

14,224 11,300

R Cairns Trading and Profit and Loss Account for the year ended 30 June 2010 £ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Wages Rates Printing and Stationery Electricity Insurance Sundry Expenses Motor expenses

71,409 11,498

9,492 2,000 562 1,266 605 1,518 3,109

Net Profit

16.5X

48,324 25,524

8,600 2,080 2,680 444 420

Net Profit

16.4X

£ 73,848

£ 99,082

59,911 39,171

Accounting

16.3

18,552 20,619

J Leung Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent and rates Insurance Electricity expenses Motor expenses Salaries and wages General expenses Net Profit

133,171 42,828

6,708 1,312 2,219 2,429 26,855 3,466

£ 153,080

90,343 62,737

42,989 19,748


41

Answers Chapter 17: The Balance Sheet 17.1

G Singh Balance Sheet as at 31 December 2010 £ Fixed Assets Buildings Motor vehicle Current Assets Stock Debtors Cash at bank Cash in hand Less Current Liabilities Creditors

£

£

20,000 12,000

20,000 12,000

32,000

32,000

10,192 7,800 6,616 160

24,768

6,418

6,418

Net current assets

18,350 50,350

Financed by Cash introduced

48,000 11,300

Add Net profit for the year

59,300 8,950

Less Drawings

50,350

Accounting

17.2X

R Cairns Balance Sheet as at 30 June 2010 Fixed assets Premises Computer equipment Motor vehicle Current assets Stock Debtors Cash at bank Cash in hand Less Current liabilities Creditors Net current assets Financed by: Capital introduced Add Net profit for the year Less Drawings

£

£

£

145,000 8,000

-

145,000 8,000

16,500

-

16,500

169,500

-

169,500

11,498 9,498 6,541 -

27,537

3,618

3,618 23,919 193,419 185,000 20,619 205,619 12,200 193,419

42


17.3

J Leung Balance Sheet as at 31 March 2010 £ Fixed Assets Buildings Equipment Motor van

£

£

120,400 17,028 15,050

120,400 17,028 15,050

152,478

152,478

Current Assets Stock Debtors Cash at bank

42,828 29,283 4,876

76,987

Less Current Liabilities Creditors

13,975

13,975

Working Capital

63,012 215,490

Financed by Capital Net profit

212,736 19,748 232,484 16,994

Less Drawings

215,490

17.4X

Sarah Joshi Trading and Profit and Loss Account for the year ended 31 May 2010

Net Profit

85,691 14,998

3,000 822 3,473 605 12,465 1,319 578

£ 103,658

Accounting

£ Sales Less Cost of goods sold Purchases Less closing stock Gross Profit Less Expenses Rent General expenses Motor expenses Printing and stationery Wages and salaries Heating and lighting Insurance

70,693 32,965

22,262 10,703


43

Balance Sheet as at 31 May 2010 Fixed Assets Buildings Computer equipment Motor vehicle Current Assets Stock Debtors Cash at bank Less Current Liabilities Creditors Net current assets / working capital Less Long-term liabilities Financed By: Capital Add Net profit Less Drawings

£

£

£

180,000 3,600

-

180,000 3,600

19,800

-

19,800

203,400

-

203,400

14,998 11,398 13,850

40,246

4,343

4,343 35,903 239,303 237,240 10,703 247,943 8,640

Accounting

239,303

44


Answers Chapter 18: Financial statements: other considerations 18.1

K Jepson Trading account for the year ended 31-Dec-10 £ Sales Less cost of goods sold Opening stock Add purchases Add carriage inwards

12,463 47,536 1,206

Less closing stock

61,205 13,480

Gross profit

47,725 22,011

Jane Li Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of Goods Sold Opening Stock Add Purchases Add Carriage Inwards

29,686 66,429 2,020

Less Closing Stock

98,135 33,307

Gross profit

£ 98,280

Accounting

18.2X

£ 69,736

64,828 33,452


45

18.3

J Mann Trading and Profit and Loss Account for the year ended 31 July 2010 £ Sales Less sales returns Less cost of goods sold Opening stock Add Purchases Add carriage inwards Less purchase returns Less Closing stock Gross Profit Less Expenses Salaries and wages Rent Motor Expenses General expenses Carriage outwards

11,949 65,100 3,570 80,619 1,176 79,443 8,883

10,521 3,066 6,552 882 1,659

Emily Hart Trading and Profit and Loss Account for the year ended 31 December 2010 £

Accounting

Less Cost of Goods Sold Opening Stock Add Purchases Add Carriage Inwards Less Purchase Returns Less Closing Stock Gross Profit Less Expenses Wages Rent and rates General expenses Carriage outwards Printing and stationery Net Profit


22,680 16,590

Sales Less sales returns

46

70,560 39,270

Net Profit

18.4X

£ 110,859 1,029 109,830

34,732 122,683 400 157,815 3,000 154,815 32,984

£ 189,050 2,850 186,200

121,831 64,369

21,875 2,800 684 931 525

26,815 37,554

S Shah Trading and Profit and Loss Account for the year ended 30 June 2010 £

£ 178,560 1,968 176,592

Sales Less sales returns Less cost of goods sold Opening stock Add Purchases Add carriage inwards

22,733 113,990 2,976 139,699 3,091 136,608 28,320

Less purchase returns Less Closing stock Gross Profit Less Expenses Salaries and wages Rent and rates Insurance Motor Expenses Telephone and internet Electricity Carriage outwards General expenses

108,288 68,304

37,075 2,918 749 4,250 4,198 1,594 1,920 3,014

55,718

Net Profit

12,586

Balance Sheet as at 30 June 2010 £ Fixed Assets Buildings Computer equipment Motor vehicles Current Assets Stock Debtors Cash at bank Less Current Liabilities Creditors Net Current Assets (Working Capital) Less long-term liabilities Long-term loans Financed by Capital account Balance b/f Add net profit for the year Less Drawings

£

80,000 3,360 17,280 100,640

£

Accounting

18.5

80,000 3,360 17,280 100,640

28,320 37,402 4,627

70,349

32,618

32,618 37,731 138,371 Nil 138,371

137,305 12,586 149,891 11,520 138,371 © Pearson Education Ltd 2010

47

18.6X

J Collins Trading and Profit and Loss Account for the year ended 31 March 2010 £ Sales Less Cost of sales Opening stock Add Purchases Carriage inwards

£

15,104 46,224 936 62,264 19,992

Less Closing stock Gross Profit Less Expenses Salaries and wages Carriage outwards Rent Rates Printing and stationery Travel expenses Telephone Sundry expenses

11,788 1,304 1,824 1,080 810 490 756 2,808

Net Profit

£ 74,400

42,272 32,128

20,860 11,268

Balance Sheet as at 31 March 2010 £ Fixed Assets Fixtures and fittings Computer equipment

Accounting

Current Assets Stock Debtors Cash at bank Cash in hand Less Current Liabilities Creditors Net Current assets Financed by: Capital Add net profit

48


Less Drawings

£

2,400 9,600 12,000

£ 2,400 9,600 12,000

19,992 18,308 15,504 480

54,284

12,180

12,180 42,104 54,104 51,376 11,268 62,644 8,540 54,104

Answers Chapter 19: The concept of depreciation of fixed assets 19.1 J Chen (a) Straight Line

(b) Reducing Balance

Cost Year 1

Depreciation*

£

£

6,000

6,000

1,250

Year 1

Depreciation 40% 3 £6,000

3,600

4,750 Year 2

Depreciation

1,250

Year 2


3,500 Year 3

Depreciation

1,250

Depreciation

1,250

1,440 2,160

Year 3


2,250 Year 4

2,400

864 1,296

Year 4


1,000

519 777

6,000 2 1, 000

Accounting

*Depreciation 5 _____________ 5 £1,250 4 19.2 Machine (a) Straight Line

(b) Reducing Balance

Cost Year 1

Depreciation*

£

£

75,000

75,000

11,070

Year 1


63,930 Year 2

Depreciation

11,070

60,000 Year 2


52,860 Year 3

Depreciation

11,070

Depreciation

11,070 30,720

12,000 48,000

Year 3


41,790 Year 4

15,000

9,600 38,400

Year 4


7,680 30,720

75,000 2 30,720

*Depreciation 5 _______________ 5 £11,070 4


49

19.3X (a) Reducing Balance Cost Year 1 Year 2 Year 3 Year 4

£ 19,200 9,600 9,600 4,800 4,800 2,400 2,400 1,200 1,200

Depreciation 50% of 19,200 Depreciation 50% of 9,600 Depreciation 50% of 4,800 Depreciation 50% of 2,400

(b) Straight Line Cost Year 1 Year 2 Year 3 Year 4

£ 19,200 4,500 14,700 4,500 10,200 4,500 5,700 4,500 1,200

Depreciation Depreciation Depreciation Depreciation

Accounting

19,200 2 1,200 5 18,000 4 4 5 4,500

19.4X Computer Equipment (a) Straight Line Cost Year 1

Depreciation

Year 2

Depreciation

3,600 1,000

Year 2

Year 3

Depreciation

2,600 1,000

Year 3

Year 4

Depreciation

1,600 1,000

Year 4

Depreciation  4,600 2 600  £1,000 *___________________________________            4

50


(b) Reducing Balance £ 4,600 * 1,000

600

Cost Year 1

Depreciation 25% 3 4,600 Depreciation 25% 3 3,450 Depreciation 25% 3 2,588 Depreciation 25% 3 1,941

£ 4,600 1,150 3,450 862 2,588 647 1,941 485 1,456

19.5X (a) Reducing Balance £ Cost Year 1

72,900 Depreciation 33 __13 % of 72,900

24,300

Year 2

48,600 Depreciation 33 __13 % of 48,600

16,200

Year 3

32,400 Depreciation 33 __13 % of 32,400

10,800

Year 4

21,600 Depreciation 33 __13 % of 21,600

7,200

Year 5

14,400 Depreciation 33 __13 % of 14,400

4,800

9,600

(b) Straight Line £ Cost

72,900 Depreciation

Year 2

60,240 Depreciation

Year 3

12,660 12,660 47,580

Depreciation

12,660

Accounting

Year 1

34,920

Year 4

Depreciation

Year 5

Depreciation

12,660 22,260

12,660 9,600

72,900 2 9,600 5 63,300 4 5 5 12,660


51

19.6 Dumper (a) Reducing Balance

(b) Straight Line £

Cost Year 1

18,000 Depreciation 40% 3 £18,000

Year 2 Year 3

Year 1

Depreciation

Year 2

13,000 Depreciation

Year 3

Depreciation

3,888

19.7X (a) Machinery has straight line depreciation; fixtures has reducing balance. (b) Machinery: 4,800 2 1,600 2 1,600  1,600 Fixtures: 2,025 2 506 2 380  1,139 (c) Machinery: 8,000 2 2,000 2 1,500 2 1,125 2 844 5 2,531 (Depreciation rate is 25% p.a.)

Accounting

5,000

2,592

18,000 2 3,000


5,000 8,000

Depreciation  ______________           £5,000 3

52

5,000

4,320 6,480


18,000

7,200 10,800


£

3,000

Answers Chapter 20: Double entry for depreciation and disposal of a fixed asset 20.1 (a) Motor Car Account

Dr 2001 Jan-01

Cr

£ 12,500

Bank

£

(b) 2001 Dec-31 2002 Dec-31

Provision for Depreciation - Motor Car Account

Cr

Balance c/d

£ 2,500

2001 Dec-31

Profit and loss a/c

Balance c/d

4,500

2002 Jan-01 Dec-31

Balance b/d Profit and loss a/c

2,500 2,000 4,500

2003 Jan-01 Dec-31


4,500 1,600 6,100

2004 Jan-01

Balance b/d

6,100

4,500 2003 Dec-31

Balance c/d

6,100 6,100

£ 2,500

Accounting

Dr

(c) Profit and Loss Account (extracts) for the year ended 31 December 2001

Depreciation

£ 2,500

2002

Depreciation

2,000

2003

Depreciation

1,600

(d) Balance Sheet (extracts) as at 31 December 2001 Motor Car

Cost £ 12,500

Total Depreciation £ 2,500

Net book value £ 10,000

2002 Motor Car

12,500

4,500

8,000

2003 Motor Car

12,500

6,100

6,400


53

20.2X (a)

Straight Line Method

Dr

Machinery Account

2001 Nov 01

Bank

Dr

Balance c/d

2004 Oct 31

Accounting

2004 Oct 31

(c)

5,400 5,400

2002 Oct 31

Cr

Profit and loss a/c

£ 1,800

Nov 1 2003 Oct 31

Balance b/d

1,800

Profit and loss a/c

1,800 3,600

Nov 1

Balance b/d

3,600

2004 Oct 31

Profit and loss a/c

1,800 5,400

Nov 1

Balance b/d

5,400

Reducing Balance Method Machinery Account

2001 Nov 01

2003 Oct 31

3,600 3,600

Balance c/d

Dr

2002 Oct 31

£ 1,800

Balance c/d

2003 Oct 31

Dr

£

Provision for Depreciation - Machinery Account

2002 Oct 31

(b)

Cr

£ 18,000

Cr

£ 18,000

Bank

£

Provision for Depreciation - Machinery Account Balance c/d

Balance c/d

Balance c/d

£ 1,800

3,420 3,420

4,878 4,878

2002 Oct 31

Cr

Profit and loss a/c

£ 1,800

Nov 1 2003 Oct 31

Balance b/d

1,800

Profit and loss a/c

1,620 3,420

Nov 1

Balance b/d

3,420

2004 Oct 31

Profit and loss a/c

1,458 4,878

Nov 1

Balance b/d

4,878

Straight Line Method Profit and Loss Account (extracts) for the year ended 31 October

54


2002

Depreciation - Machinery

£ 1,800

2003


1,800

2004


1,800

Balance Sheet (extracts) as at 31 October 2002 Machinery

Cost £ 18,000


Net Book Value £ 16,200

2003 Machinery

18,000

3,600

14,400

2004 Machinery

18,000

5,400

12,600

(d)

Reducing Balance Method Profit and Loss Account (extracts) for the year ended 31 October

2002


£ 1,800

2003


1,620

2004


1,458

Balance Sheet (extracts) as at 31 October 2002 Machinery

Cost £ 18,000


Net Book Value £ 16,200

2003 Machinery

18,000

3,420

14,580

2004 Machinery

18,000

4,878

13,122

Computer equipment disposals

9,500

Accounting

20.3 (a) Computer Equipment Account 2001 Jan-01

Balance b/d

9,500

2004 Jan-01

(b) Provision for Depreciation : Computer Equipment Account 2001

2001 Computer equipment

Dec-31

Balance c/d

1,900

Jan-01

2002 Dec-31

Balance c/d

3,800

2002 Jan-01 Dec-31

Balance b/d Profit and loss

1,900 1,900 3,800

2003 Jan-01 Dec-31

Balance b/d Profit and loss

3,800 1,900 5,700

2004 Jan-01

Balance b/d

5,700

3,800 2003 Dec-31

Balance c/d

5,700 5,700

2004 Jan-01

Computer equipment disposals

5,700

1,900


55

(c) Computer Equipment Disposals Account 2004 Jan-01 Dec-31

Computer Profit and loss

2004 Jan-01 Jan-01

9,500 450 9,950

Depreciaiton Bank

5,700 4,250 9,950

(d) Profit and Loss Account (extracts) for the year ended 31 December 2001

Depreciation - Computer Equipment

£ 1,900

2002


1,900

2003


1,900

(e) Balance Sheet (extracts) as at 31 December 2001 Computer Equipment

Cost £ 9,500


Net book value £ 7,600

2002 Computer Equipment

9,500

3,800

5,700

2003 Computer Equipment

9,500

5,700

3,800

Provision for depreciation

9,700

Bank

1,850

20.4X

Accounting

(a) Motor Van Disposals Account Motor Van

12,000

Profit and loss : loss on sale 12,000

450 12,000

(b) Machinery Disposals Account Machinery Profit and loss : profit on sale

27,900

2,770


19,400

Bank

11,270

30,670

30,670

(c) Fixtures Disposals Account Fixtures

8,420

Provision for depreciation Bank Profit and loss : loss on sale

8,420 56


7,135 50 1,235 8,420

(d) Buildings Disposals Account Buildings

200,000

Profit and loss : profit on sale

59,000


110,000

Bank

149,000

259,000

259,000

20.5 (a)

Straight Line Method

  _________________        No. of Years

35,000 2 11,000       £6,000 per annum   ______________

Cost 2 Scrap Value

4

(b) Provision for Depreciation - Vehicles Account

2005 Mar-31 2006 Mar-31

Balance c/d

Balance c/d

£ 7,000

12,600 12,600

2005 Mar-31

Profit and loss

7,000

Balance b/d

7,000

Apr-01 2006 Mar-31

Profit and loss

5,600 12,600

Apr-01

Balance b/d

12,600

WORKINGS

Year ended 31/03/05 20% 3 35,000  £7,000 per annum

Year ended 31/03/06 20% 3 (35,000 2 7,000)  £5,600 per annum

(c)

Any two from: Wear and tear, obsolence, time factors, inadequacy, depletion.

Cr

Accounting

Dr

20.6X (a) RIALTO TRADERS Plant and Machinery Account 2007 May 1

Balance b/d

500,000

2007 Dec 31 2008 Apr 30

500,000 2008 May 1

Balance b/d

Plant and machinery disposals

200,000

Balance c/d

300,000 500,000

300,000


57

(b) Motor Vehicles Account 2007 May 1 2008 Feb 1 May 1

Balance b/d

200,000

Bank

100,000 300,000

Balance b/d

300,000

2008 Apr 30

Balance c/d

300,000 300,000

(c) Provision for Depreciation - Plant and Machinery Account 2007 Dec 31 2008 Apr 30

Plant and MachineryDisposals

150,000

Balance c/d

80,000 230,000

2007 May 1

Balance b/d

200,000

2008 Apr 30

Profit and Loss

30,000 230,000

May 1

Balance b/d

80,000

(d) Plant and Machinery - Disposal Account 2007 Dec 31

Plant and Machinery

200,000

2007 Dec 31 Dec 31 Dec 31

Accounting

200,000

58

Provision for Depreciation Bank Profit and Loss

150,000 40,000 10,000 200,000

(e) (i) Concept 1 – Consistency Concept 2 – Accruals


(ii) It is important to apply the consistency concept so that comparisons can be made between different years. Therefore in the above example depreciation is changed at 10% using the straight line method, the company needs to be consistent in using this method and the rate of depreciation in future final accounts. In applying the accruals concept the benefit that a fixed asset provides over its useful life is matched with the depreciation for the same period.

Answers Chapter 21: Bad debts and provision for doubtful debts (a)

Hart & Partners Dr

Bad Debts Account

2009 May-16 Jul-31 Nov-09

S Bayley J Carter T Roche

2009 Dec-31

550 223 467 1,240

Dr

Profit & loss

Provision For Doubtful Debts Account

Cr

Profit & loss

520

Profit and Loss Account for the year ended 31 December 2009 (extracts) Gross profit Less Expenses Bad debts written off Provision for doubtful debts

(c)

1,240 520

1,760

26,000 520

25,480

Balance Sheet as at 31 December 2009 (extract) Current Assets Debtors Less Provision for doubtful debts

21.2

1,240

1,240 2009 Dec-31

(b)

Cr

Date 31-Dec 2007 2008 2009 2010

Total debtors 7,000 8,000 6,000 7,000

Profit and loss 70 10 20 10

Dr/Cr Dr Dr Cr Dr

Accounting

21.1

Final figure for balance sheet 6,930 (net) 7,920 (net) 5,940 (net) 6,930 (net)


59

21.3X Bad Debts 2007 31 Dec 2008 31 Dec

Debtors Debtors

298

2007 31 Dec

Profit and loss a/c

298

386

2008 31 Dec

Profit and loss a/c

386

Profit and loss a/c

344

Profit and loss a/c

477

2009 31 Dec

Debtors

344

2009 31 Dec

2010 31 Dec

Debtors

477

2010 31 Dec

Provision for Doubtful Debts 2007 31 Dec 2008 31 Dec

100

Balance c/d Balance c/d

130

2007 31 Dec

Profit and loss a/c

100

2008 1 Jan 31 Dec


100 30 130

2009 1 Jan

Balance b/d

130

130 2009 31 Dec 31 Dec

Profit and loss a/c Balance c/d

15 115

130

130 2010 31 Dec

Balance c/d

150

2010 1 Jan 31 Dec


115 35 150

2011 1 Jan

Balance b/d

150

Accounting

150

60

Profit and Loss Accounts for the years ended 31 December (extracts) 2007 Bad debts Provision for doubtful debts 2008 Bad debts Provision for doubtful debts 2009 Bad debts 2010 Bad debts Provision for doubtful debts


£ 298 100

£

386 30 344 477 35

2009 Provision for doubtful debts

15

Balance Sheet as at 31 Decemeber (extracts) Debtors Less Provision for doubtful debts

£ 12,000 100

11,900

2008

Debtors Less Provision for doubtful debts

15,000 130

14,870

2009


14,000 115

13,885

2010


18,000 150

17,850

2007

£

21.4X (a) The Journal Date Apr 30

Bad Debts A. Carter Being bad debt written off

Debit

Credit

£ 500

£ 500

(b) Double entry for the creation of a Provision for Doubtful Debts Debit: Profit and Loss Account Credit: Provision for Doubtful Debts Account

Accounting

(c) The prudence concept requires that the financial statements provide a ‘true and fair’ view of the business at the date of the balance sheet. In addition profits should also reveal a correct and true figure. Therefore any anticipated losses need to be accounted for in the profit and loss account. Providing for a ‘provision for doubtful debts’ anticipates any potential loss should a debtor fail to pay. By deducting the provision from the debtors in the balance sheet a more accurate figure of debtors is given.


61

Answers Chapter 22: Accruals, prepayments and other adjustments for financial statements 22.1 (a)

C Homer Rent Account 2008 Dec-31 Dec-31

Bank Owing c/d

1,600 400 2,000

2008 Dec-31

Owing b/d

400

Profit and loss Prepaid c/d

635 265 900

Profit and loss

7,381

Insurance Account 2008 Dec-31

Bank

900

2008 Dec-31 Dec-31

900 2009 Jan-01

Prepaid b/d

(c) 2008 Dec-31 Dec-31

Accounting

265

Motor Expenses Account Bank Owing c/d

7,215 166 7,381

2008 Dec-31

7,381 2009 Jan-01

(d)

Owing b/d

Bank

Jul-01

Bank

2009 Jan-01

Prepaid b/d

(e)

750

2008 Dec-31

Profit and loss

1,125

Dec-31

Prepaid c/d

1,500 375 1,875

375

Rents Receivable Account 2008 Dec-31 Dec-31


166

Rates Account 2008 Jan-01

1,875

62

2,000 2,000

2009 Jan-01

(b)

Profit and loss

Profit and loss In advance c/d

4,800 1,600 6,400

2008 Apr-15 Dec-15

Bank Bank

2,000 4,400 6,400

2009 Jan-01

In advance b/d

1,600

22.2 (a)

T Norton General Expenses Account 2009 Dec-31 Dec-31

Bank Owing c/d

615 56 671

2009 Dec-31

671 671

2010 Jan-01

(b)

Profit and loss

Owing b/d

56

Telephone Account 2009 Dec-31 Dec-31

Bank Owing c/d

980 117 1,097

2009 Dec-31

1,097 1,097

2010 Jan-01

(c)

Profit and loss

Owing b/d

117

Bank Owing c/d

3,056 175 3,231

Commission Received Account Profit and loss

3,231

2009 Dec-31 Dec-31

3,231 2010 Jan-01

Owing b/d

(d)

175

Accounting

2009 Dec-31

Carriage Outwards Account 2009 Dec-31 Dec-31

Bank Owing c/d

666 122 788

2009 Dec-31

788 788

2010 Jan-01

(e)

Profit and loss

Owing b/d

122

Insurance Account 2009 Jan-01 Oct-01

Bank Bank

2010 Jan-01

Prepaid b/d

1,080 1,080 2,160

2009 Dec-31 Dec-31

Profit and loss Prepaid c/d

1,440 720 2,160

720


63

22.3X (a)

T Dale Stationery Account 2008 01 Jul 2009 30 Jun

Stock b/d Cash and bank

(b)

290 855 1,145

2009 30 Jun 2009 30 Jun

Profit and loss Stock c/d

Cash and bank Owing c/d

(c)

590 90 680

2008 01 Jul 2009 30 Jun

Owing b/d Profit and loss

616

Rent and Rates Account

2009 30 Jun 30 Jun

Cash and bank Owing c/d

3,890 360

2009 30 Jun 30 Jun

Owing b/d: Rent Rates Profit and loss Rent prepaid and c/d

4,250

Accounting

64

680

2008 01 Jul

(d)

160 205 3,635 250 4,250

Motor Expenses Account

2009 30 Jun

Cash and bank

4,750

30 Jun

Owing c/d

375 5,125

(e)

2008 01 Jul

Owing b/d

2009 30 Jun

Profit and loss

180 4,945 5,125

Commission Receivable Account 2008 01 Jul 2009 30 Jun

Owing b/d Profit and loss

80 915 995


345 1,145

General Expenses Account

2009 30 Jun 30 Jun

64

800

2009 30 Jun 30 Jun

Cash and bank Owin c/d

850 145 995

C Cainen Trading and Profit and Loss Account for the year ended 31 December 2009 £ Sales Less cost of goods sold Opening stock Add Purchases Less Closing stock Gross Profit Less Expenses Rent (640 2 160) Wages and salaries (2,140 1 290) Insurance (590 2 190) Bad debts Telephone (300 1 110) General Expenses Net Profit

22.5

£ 18,590

2,050 11,170 13,220 3,910 9,310 9,280 480 2,430 400 270 410 180

4,170 5,110

K Tyler Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Sales returns Less cost of goods sold Opening stock Add Purchases Less Closing stock Gross Profit Less Expenses Wages and salaries (£4,960 1 £510) Motor expenses Rent and rates (£1,200 2 £160) Discounts allowed Lighting expenses (£580 1 £170) Computer running expenses (£1,210 2 £140) General expenses Depreciation : Motor vehicles Net Profit

£ 54,190 200 8,620 30,560 39,180 12,120

5,470 2,120 1,040 290 750 1,070 360 700

£ 53,990

Accounting

22.4

27,060 26,930

11,800 15,130


65

22.6X

J Sears Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Sales returns

80,000 1,000 79,000

Less Cost of goods sold: Opening stock Add Purchases Less Purchase returns Less Closing stock Gross Profit Less Expenses Wages and salaries (7,200 1 450) Telephone (200 2 20) Bad debts Provision for doubtful debts (1,960 3 10% 2 160) Depreciation: Store fittings Motor van Net Profit

20,000 70,000 90,000 1,240 88,760 24,000

64,760 14,240

7,650 180 40 36 800 1,200

9,906 4,334

J Sears Balance Sheet as at 31 December 2010

Accounting

Cost Fixed Assets Store fittings Motor van Current Assets Stock Debtors Less Provision for doubtful debts Prepaid expenses Bank

1,960 196

Less Current Liabilities Creditors Expenses owing Net current assets

1,400 450

Financed by: Capital Balance 1.1.2010 Add Net profit Less Drawings

66


8,000 6,000 14,000

Depreciation

Net Book Value

800 1,200 2,000

7,200 4,800 12,000

24,000 1,764 20 600 26,384

1,850 24,534 36,534

35,800 4,334 40,134 3,600 36,534

Answers Chapter 23: Incomplete records 23.1 (a)

Total Debtors Balances b/d Sales (difference)

2,760 14,940 17,700

Cash Balances c/d

14,610 3,090 17,700

Total Creditors Cash Balances c/d

(b)

9,390 1,320 10,710

Balances b/d Purchases (difference)

1,080 9,630 10,710

K Rogers Trading Account for the year ended 31 October 2009 £ Sales Less Cost of Goods sold Opening Stock Add Purchases

2,010 9,630 11,640 2,160

Less Closing Stock Gross Profit

23.2X

£ 14,940

9,480 5,460

2008 1 Jun 2009 31 May

Balance b/d Sales

5,670 45,550 51,220

2009 31 May

Bank

45,112

31 May

Balance c/d

6,108 51,220

Balances b/d

3,410

Accounting

Total Debtors

Total Creditors

2009 31 May 31 May

Bank Balances c/d

29,375 4,126 33,501

2008 1 Jun 2009 31 May

Purchases

30,091 33,501

Trading Account for the year ended 31 May 2009 £ Sales Less Cost Of Goods Sold Opening Stock Add Purchases Less Closing Stock Gross Profit

11,590 30,091 41,681 13,425

£ 45,550

28,256 17,294 © Pearson Education Ltd 2010

67

23.3 (a) Capital is £62,550 (b)

D Lewinski Balance Sheet as at 30 June 2009 £ Fixed assets Plant Fixtures

£ 36,000 3,600 39,600

Current assets Stock Debtors Bank Cash

13,500 9,300 6,000 1,350 30,150

Less Current Liabilities Creditors Net current assets

7,200 22,950 62,550

Financed by: Capital Cash introduction Add Net profit

60,000 18,550 78,550 16,000

Less Drawings

62,550

23.4

J Marcano Statement of Affairs as at 31 August 2009

Accounting

£ Fixed assets Fixtures Motor Van Current assets Stock Debtors Bank Cash

£ 3,500 3,500 7,000

16,740 11,890 2,209 115 30,954

Less Current liabilities Creditors

9,952

21,002 28,002

68


Statement of Affairs as at 31 August 2009 £ Fixed assets Fixtures Less Depreciation Motor Van Less Depreciation

£ 5,500 300 3,500 700

Current assets Stock Debtors Bank Cash

£

5,200 2,800 8,000

24,891 15,821 72 84 40,868

Less Current liabilities Trade creditors Expenses owing Bank overdraft Net current assets

6,002 236 165

6,403 34,465 42,465

Capital Balance as at 31/08/2009 Add Cash introduced Add Net profit

(C) (B)

Less Drawings

28,002 12,800 9,223 50,025 7,560

(A)

Found as the figure to make balance sheet totals agree 42,465.

(B)

Less 7,560 5 (A) 42,465, therefore (B) is 50,025.

(C)

Missing figure to total 50,025 5 9,223.

42,465

Accounting

(A)

23.5X (a)

Total Debtors Account

Dr 2008 1 Apr 2009 31 Mar

Balances b/d

Cr

2,980

Sales

11,520

2009 31 Mar 31 Mar

Cash Balances (difference) c/d

14,500

Dr

2009 31 Mar 31 Mar

14,500

Total Creditors Account

Cash Balance (difference) c/d

7,780 2,220 10,000

10,820 3,680

2008 1 Apr 2009 31 Mar

Cr Balance b/d

1,880

Purchases

8,120

10,000 © Pearson Education Ltd 2010

69

(b)

A Hanson Calculation of Capital as at 31 March 2008 and 31 March 2009 31.3.2008 £ 1,460 600 2,320 60 2,980 7,420 1,880 5,540

Bank Office furniture Stock Cash Debtors Less Creditors Capital

(c) Capital as at 31 March 2008 Add Net profit

(B) (A)

31.3.2009 £ 1,740 500 2,620 80 3,680 8,620 2,220 6,400

£ 5,540 3,400 8,940

Less Drawings

2,540

Capital as at 31 March 2009

6,400

Note: By arithmetical deduction, (A) is £8,940. Thus £5,540 1 (B) 5 £8,940, i.e (B) is £3,400.

23.6X (a) (i)

Total Debtors Account

Accounting

Dec-01

Balances b/d Sales

450 7,628 8,078

Calculation of Sales Credit Sales Cash Sales Drawings 12 3 £1,500

£ 7,628 200,552 18,000 226,180

70


Nov 30 Nov 30

Bank Balance c/d

7,500 578 8,078

(ii)

Rent Account Dec 01 Nov 30

Balance b/d Bank

Nov 30 Nov 30

Bank Balance c/d

(iii)

Nov 30 Nov 30

Profit and loss Balance c/d

8,760 490 9,250

Nov 30

Profit and loss

700

Dec 1

Balance b/d

700 100

Loan Interest Account 600 100 700

he loan interest needs adjusting so that the amount incurred for the year is T ultimately charged to the profit and loss account i.e 7% 3 £10,000 5 £700. According to the records only £600 has been paid, therefore the difference between the amount due and paid (£700 2 £600 5 £100. £100 needs to be accrued. The whole of the interest i.e. £700 is charged to the profit and loss account. The interest owing £100 is shown as a current liability so giving a true balance sheet. Without the adjustment the profit would be inaccurate.

Accounting

(b)

350 8,900 9,250


71

Answers Chapter 24: Accounting for non-profit making organisations 24.1

(a) A receipts and payments account is a summary of the cash book that shows the sources and uses of money for a non-profit making organisation. An income and expenditure account is the same as a business's proft and loss account. However, any surplus is not classed as profit but is called 'surplus of income over expenditure' any loss incurred is stated as 'excess of expenditure over income'. (b) Capital - is the total resources invested in a business by the owner(s) and is represented by assets - liabilities. Accumulated fund - this is in effect the same as the capital account in that it is the difference between an organisation's assets and liabilities. (c) Profit is the difference between the selling price of goods and their cost less any expenses incurred in running the business. A surplus of income over expenditure is the equivalent of a business's profit for a non-profit making organisation.

24.2 (a) Horton Hockey Club Receipts and Payments Account for the year ended 30 June 2009

Accounting

Receipts Bank balance b/f Subscriptions Donations Receipts from raffles

2,715 8,570 1,500 3,816

Payments Teams' travel expenses Groundsman wages Postage and stationery Rent of pitches and club house

1,598 3,891 392 4,800

General expenses

419

Prizes for raffles

624

Bank balance c/f

4,877

16,601

16,601

(b) Horton Hockey Club Income and Expenditure Account for the year ended 30 June 2009 Income: Subscriptions (8,570 1 160) Donations Profit on raffles (3,816 2 624) Less Expenditure: Teams' travel expenses Groundsman's wages (3,891 1 75) Postage and stationery Rent of pitches and club house (4,800 1 400) General expenses Surplus of income over expenditure 72


8,730 1,500 3,192 13,422 1,598 3,966 392 5,200 419

11,575 1,847

24.3X (a) Superball Football Club Receipts and Payments Account for the year ended 31 May 2009 Receipts Cash & bank balnces b/d Subscriptions Disco receipts Collections at matches Prize money

905 8,124 3,149 5,090 1,000

Payments Hire of transport Ground maintenance costs Groundsman's wages Committee expenses Costs of disco

3,710 1,156 5,214 906 1,112

Rent of ground

2,450

General expenses

814

Cash & bank balances c/d 18,268

2,906 18,268

(b) Superball Football Club Income and Expenditure Account for the year ended 31 May 2009 Income: Subscriptions (8,124 2 160 1 94) Profit on disco (3,149 2 1,112) Collections at matches Prize money received

8,058 2,037 5,090 1,000 16,185

Hire of transport (3,710 1 90)

3,800

Ground maintenance costs

1,156

Groundsman's wages

5,214

Committee expenses (906 1 170)

1,076

Rent of ground (2,450 2 200)

2,250

General expenses Surplus of income over expenditure

814

Accounting

Less Expenditure:

14,310 1,875


73

24.4 (a) Accumulated fund as at 1 June 2007:

£

Bar Stocks

88

Equipment

340

Bank Balance

286 714

(b) Down Town Sports and Social Club Bar Trading Account Year Ended 31 May 2008 £ Bar Takings Less Cost of goods sold Opening stock

£ 463

88

Add Purchases

397 485

Less Closing Stock

101

384 79

Gross Profit

(c) Down Town Sports and Social Club Income and Expenditure Account Year Ended 31 May 2008 £

Accounting

Income Subscriptions (135 1 14) Net proceeds of jumble sale Net proceeds of dance

149 91 122

Gross profit from bar

79 441

Less Expenditure Wages


198

Hire of rooms

64

Loss on sale of equipment (92 2 80)

12

Depreciation : equipment

30

Surplus of income over expenditure

74

£

304 137

24.5X (a) Sevenoaks College Drama Society Trading Account Year Ended 31 December 2010 £ Sale of refreshments Less cost of goods sold Opening stock

100

Add Purchases

845

£ 1,200

945 Less Closing Stock

165

780 420

Gross Profit

(b) Income and Expenditure Account Year Ended 31 December 2010 Income Subscriptions Profit on sale of refreshments Ticket sales

£

£ 1,600 420 4,000 6,020

Expenditure 850

Rent of theatre

750

Administrative expenses

440

*Depreciation of scenery

2,000

4,040

Surplus of income over expenditure

Accounting

Hire of costumes (1,500 - 650)

1,980

(c) Balance Sheet as at 31 December 2010 £ Fixed Assets Scenery (at valuation) Current Assets Stock of refreshments Less Current Liabilities Subscriptions in advance Bank Overdraft

£

£ 12,500

165 90 595

685 (520) 11,980

Represented by Accumulated Fund Add Surplus of income over expenditure

* Workings - Scenery - Balance as at 1 January 2010 Add Purchase of new scenery Less Value as at 31 December 2010 Depreciation

10,000 1,980 11,980 7,500 7,000 14,500 14,000 2,000 © Pearson Education Ltd 2010

75

Accounting

24.6X (a) Accumulated fund – this is a form of capital account for a non-profit making organisation and represents the net worth of club. It can be found by deducting liabilities from the assets. A surplus is the amount that income exceeds expenditure and is the same as the profit made by a business. (b) In the balance sheet subscriptions in arrears would appear under Current Assets and rent of cricket pitch accrued under Current Liabilities. (c) (i) Receipts and payments account – is a summary of the cash book for a club or society and details all cash received and payments made. (ii) Current Assets. (iii) Payment for the purchase of a fixed asset. (iv) Depreciation of a fixed asset. (d) Since the donation is a substantial amount it would be added to the accumulated fund in the balance sheet. The reason for this is that the donation is not a regular income but a one off receipt and as such should not be shown on the income expenditure account.

76


Answers Chapter 25: Manufacturing accounts 25.1

E Smith Manufacturing and Trading Account for the year ended 31 March 2009 £ Stock of raw material 1.4.2008 Add Purchases Carriage inwards Less Stock of raw materials 31.3.2009 Cost of raw materials consumed Manufacturing wages Prime cost Add factory overhead expenses Rent and rates Power

2,300 6,220

Other expenses

1,430

£ 2,400 21,340 321 24,061 2,620 21,441 13,280 34,721

Less Work in progress 31.3.2009

9,950 44,671 955 45,626 870

Production cost of goods completed c/d

44,756

Sales

69,830

Add Work in progress 1.4.2008

Less Stock finished goods 31.3.2009 Gross profit

6,724 44,756 51,480 7,230

Accounting

Less Cost of goods sold Stock finished goods 1.4.2008 Add Production cost of goods completed b/d

44,250 25,580


77

25.2X

P Lucas Manufacturing, Trading and Profit and Loss Account for the year ended 30 September 2009 £

£

Stock of raw materials 1.10.2008 Add Purchases Carriage inwards

38,720 2,720

Less Stock of raw materials 30.9.2009 Cost of raw materials consumed Manufacturing wages Prime cost Factory Overhead Expenses Power Factory expenses Depreciation: Plant and machinery

6,120 12,650 7,560

Add Work-in-progress 1.10.2008 Less Work-in-progress 30.9.2009 Production cost of goods completed c/d Sales

86,840 99,220 14,570

Accounting

Less Stock of finished goods 30.9.2009 Gross profit c/d Less Expenses: Salesmen's salaries and expenses

26,420

Office and administration expenses

25,910

Net Profit

78


26,330 86,230 3,070 89,300 2,460 86,840

12,380

Add Production cost of goods completed b/d

Office equipment

41,440 49,900 10,970 38,930 20,970 59,900

174,610

Less Cost of goods sold: Stock of finished goods 1.10.2008

Delivery van expenses Advertising Depreciation: Delivery van expenses

£ 8,460

84,650 89,960

5,890 5,080 3,040 807

3,847

67,147 22,813

25.3X (a) Joey Peterson Manufacturing Account for the year ended 30 June 2010 £ Stock of raw materials 1.7.2009 Add Purchases Less Stock of raw material 30.6.2010 Cost of raw materials consumed Direct Wages (450,000 1 8,900) Direct factory power Prime cost Add Indirect manufacturing cost Factory rent and rates Indirect factory wages General expenses

96,000 98,600 14,400

Insurance (66,900 2 6,900) 3 __ 13 

20,000

Depreciation : Plant and Machinery

50,000

Add Work in progress 1.7.2009 Less Work in progress 30.6.2010

£ 81,600 314,000 395,600 94,500 301,100 458,900 40,000 800,000

279,000 1,079,000 125,300 1,204,300 154,300

Production Cost

1,050,000

(b) Trading Account for the year ended 30 June 2010

Less Stock of furnished goods 30.6.2010

2,000,000

Accounting

Sales Less Cost of goods sold Stock of finished goods 1.7.2009 Add Production Cost

115,440 1,050,000 1,165,440 85,440

Gross Profit

1,080,000 920,000

25.4X (a) (i) Cost of raw materials consumed £560,000 (ii) Prime cost £1,280,000 (iii) Total factory overheads £740,000 (iv) Value of closing stock of work in progress £80,000 £3,000,000

(b) (i) Selling price of one engine 1 £2,000,000 1 50% 5 _____________  1,000 engines     5 £3,000 (ii) Total gross profit 5 750 engines 3 £1,000 5 £750,000 (iii) Value of closing stock of finished goods based on factory cost of production : 250 engines 3 £2,000 5 £500,000


79

Answers Chapter 26: Partnership accounts 26.1

(a) Stead and Jackson Appropriation Account for the year ended 31 December 2010 £ 45,000 5,000 40,000

Net profit Less Salary: Jackson Balance of profits shared: 1 __ Stead 2 Jackson

20,000

1 __

20,000

2

40,000

(b) Capital Accounts Stead

Jackson 2010 Dec 31 Balance b/d

Stead

Jackson

24,000

16,000

Stead

Jackson

2,300 20,000 22,300

3,500 5,000 20,000 28,500

7,300

9,500

(c) Current Accounts

Accounting

2010 Dec 31 Drawings Dec 31 Balances c/d

Stead

Jackson

15,000 7,300

19,000 9,500

22,300

28,500

2010 Dec 31 Balance b/d Dec 31 Salary Dec 31 Share of profits 2011 Jan 1 Balance b/d

26.2X (a) Wain, Brown and Cairns Appropriation Account for the year ended 31 March 2010 £ Net profit Less: Salaries Wain

10,000

Brown

8,000

Balance of profits shared: Wain 50%

80


£ 60,000

18,000 42,000

21,000

Brown 30%

12,600

Cairns 20%

8,400

42,000

(b) Capital Accounts Wain

Brown

Cairns 2010 Mar 31 Balance b/d

Wain

Brown

Cairns

30,000

50,000

70,000

Wain

Brown

Cairns

2,400

3,100

5,700

10,000

8,000

—

21,000

12,600

8,400

Current Accounts Wain 2010 Mar 31 Drawings Mar 31 Balances c/d

Brown

Cairns

12,000

15,050

14,980

21,400

8,650

—

2010 Mar 31 Balance b/d Mar 31 Salaries Mar 31 Share of profits Mar 31 Balances c/d

33,400 2010 Apr 1 Balance b/d

—

23,700 —

14,980 880

2010 Apr 1 Balance b/d

880 33,400

23,700

14,980

21,400

8,650

—

26.3 Simpson and Young Tradign and Profit and Loss Appropriation Account for the year ended 30 June 2010

Opening stock

18,000

Add Purchases

184,980 202,980 19,000

Less Closing stock Gross profit Less Expenses: Wages and salaries (32,700  500) Rent, Rates and insurance (3,550  250) Electricity Stationery and printing Motor expenses General office expenses Depreciation: Motor van (20% of 16,000) Office equipment (10% of 5,600) Net profit Less interest on capital: Simpson (10% of 50,000) Young (10% of 20,000) Share of profits: Simpson 3/5ths Young 2/5ths

33,200 3,300 980 420 3,480 1,700 3,200 560

5,000 2,000

10,020 6,680

£ 254,520

Accounting

£ Sales Less Cost of sales:

183,980 70,540

46,840 23,700

7,000 16,700

16,700 © Pearson Education Ltd 2010

81

Simpson and Young Balance Sheet as at 30 June 2010 Cost

Fixed assets Buildings Office equipment Motor vans Current assests Stock Debtors Prepayments Cash at bank Less Current liabilites Creditors Accruals Net current assets Financed by: Capital accounts Balance b/f

Accounting

Current accounts Balance b/f Add Share fo profit Add Interest on capital Less Drawings

£

Accumulated Depreciation £

28,000 8,400 16,000 52,400

3,360 8,200 11,560

19,000 28,000 250 7,250

54,500

15,200 500

15,700

Young 20,000

Total 70,000

640 10,020 5,000 15,660 10,000 5,660

300 6,680 2,000 8,980 5,000 3,980

9,640 79,640

8,400  5,600  560  3,360

(W2) Provision for depreciation on motor vans:

82


28,000 5,040 7,800 40,840

Simpson 50,000

(W1) Provision for depreciation on office equipment:

(W1) (W2)

38,800 79,640

Net Book Value £

16,000  11,000  3,200  8,200

26.4X (a) Michael and Morgan Profit and Loss Account (Including Appropriation) for the year ended 30 September 2009 £

£ 385,000 15,000 400,000

Gross Profit Add Discounts Received Less Expenses Administrative Expenses Advertising (7,375  125) Rent and rates (12,000 2 1,500) Wages and salaries (135,000  5,000) Depreciation - Shop fittings * Net Profit Less Salary - Michael

6,790 7,500 10,500 140,000 12,000

Share of profits: Michael 2/5ths Morgan 3/5ths

176,790 223,210 30,000 193,210

77,284 115,926 193,210 2

(b) Balance b/d Drawings Balance c/d

1,500 9,650 96,259 107,409

Sep 30 Sep 30 Sep 30

Salary Profit share Advertising

30,000 77,284 125 107,409

Oct 01

Balance b/d

96,259

Accounting

Michael — Current Account Oct 01 Sep 30 Sep 30

(c) Michael and Morgan Balance Sheet Extract as at 30 September 2009 Michael 50,000

Morgan 40,000

(1,500)

2,000

Add Share of Profits

77,284

115,926

Add Salary

30,000

2

Capital Accounts Balance Current Accounts Balance

Add Advertising Less Drawings

125

2

105,909

117,926

9,650

8,200

96,259

109,726

Total 90,000

205,985 295,985

* Workings Shop fittings : Cost Less : Depreciation to date

£ 76,000 28,000 48,000

Reducing Balance Method 5 25% 3 £48,000 5 £12,000 © Pearson Education Ltd 2010

83

Answers Chapter 27: Limited company accounts 27.1 (a)

C Blake Ltd Appropriation Account for the year ended 31 December 2009 £ Net profit b/d Less Appropriations Transfer to General Reserve Dividends payable:

£ 11,340

1,500 1,000 7,500

Preference dividend 10% (£10,000 3 10%) Ordinary dividend 12.5% (£60,000 3 12.5%)

10,000 1,340

Retained profits carried forward to next year C Blake Ltd Balance Sheet as at 31 December 2009

(b)

Fixed Assets Buildings at cost Equipment at cost Less Accumulated depreciation

£

£ 45,000 4,500

£ 50,000 40,500 90,500

Accounting

Current Assets Stock Debtors Less Provision for doubtful debts

8,800 4,120 350

Bank (balancing figure) Cash

3,770 9,660 2,160 24,390

Less Creditors: amounts falling due within one year Creditors Dividends payable (£1,000 1 £7,500)

3,550 8,500

12,050

12,340 102,840

Less Creditors: amounts due after more than one year 30,000

Debentures

72,840 Financed by: Share Capital Called-up share capital 60,000 ordinary £1 shares 10,000 preference £1 shares Revenue reserves General reserve Profit and loss account

60,000 10,000 1,500 1,340

70,000

2,840 72,840

Note: The Authorised Share Capital is 90,000 £1 ordinary shares and 10,000 - 10% preference shares.

84


27.2X (a) Reynolds Ltd Profit and Loss Appropriation Account for the year ended 30 September 2010 £ Net profit Add Retained profits b/f from last year Less Appropriations: General reserve Dividends payable: Ordinary shares — (150,000 3 6p) Paid — (150,000 3 14p) Proposed Preference shares — (7% 3 50,000) Proposed Retained profits carried to next year

£ 70,000 30,000 100,000

8,000 9,000 21,000 3,500

41,500 58,500

(b) Reynolds Ltd Balance Sheet as at 30 September 2010 (Extract) £ Financed by: Called-up share capital Preference shares Ordinary shares

50,000 150,000 200,000 53,000 58,500

111,500 311,500

Accounting

Revenue Reserves General Reserve (45,000 1 8,000) Profit and loss account

£

Note: The Authorised Share Capital is 200,000 £1 ordinary shares and 50,000 - 7% preference shares.


85

27.3

Chang Ltd Trading and Profit and Loss Account for the year ended 31 December 2010 Sales Less Cost of goods sold: Opening stock Add Purchases

316,810 25,689 201,698

Less Closing stock

227,387 29,142

Gross profit Less Expenses Wages and salaries (54,207 1 581) Rent (4,300 2 300) Lighting expenses Bad debts Provision for doubtful debts (938 2 861) General expenses Deprecation: Machinery (55,000 3 10%)

198,245 118,565

54,788 4,000 1,549 748 77 32,168 5,500

98,830

Net profit Add Retained profits b/f from last year

19,735 34,280

Less Proposed dividend Retained profits c/f to next year

54,015 10,000 44,015

Balance Sheet as at 31 December 2010

Accounting

Fixed Assets Premises Machinery Less Aggregated depreciation (15,800 1 5,500) Current Assets Stock Debtors Less Provision for doubtful debts

65,000 55,000 21,300

33,700 98,700

29,142 21,784 938

Prepayments Bank

20,846 300 23,101 73,389

Less Creditors falling due wihtin one year Dividend payable Creditors Expenses owing Net current assets

10,000 17,493 581

28,074 45,315 144,015

Financed by: Capital and reserves Called -up share capital Revenue reserves Profit and loss account

100,000 44,015 144,015

86


27.4X (a) Wayland Limited Appreciation Account for the year ended 31 December 2010 £ '000's Net profit Add Profit and Loss Balance 1st January 2010 Less Appropriations Transfer to general reserve Preference dividend (6% 3 250,000) Ordinary dividend 2 (Interim Dividend) 2 (8% 3 750,000) Retained profits carried forward

25 15 20 60

£ '000's 250 195 445

120 325

(b) Wayland Limited Balance Sheet as at 31 December 2010 Cost

Motor vehicles Current Assets Stock Debtors Bank Current Liabilities Creditors Value added tax Dvidends Payable: Preference shares Ordinary shares Working capital

£ '000's

Net Book Value £ '000's

1,500 50

— 10

1,500 40

85

15

70

1,635

25

1,610

165 103 107

375

Accounting

Fixed Assets Land and buildings Fixtures and fittings

Aggregate Depreciation £ '000's

135 25 15 60

235 140 1,750

Creditors: amounts falling due after one year 5% debentures

250 1,500

Capital and Reserves Called up capital Ordinary shares 6% Preference shares Capital reserves Share premium Revenue Reserves General reserve Profit and loss account shareholders' funds

750 250

1,000 100

75 325

400 1,500 © Pearson Education Ltd 2010

87

Answers Chapter 28: Analysis and interpretation of financial statements N Ltd

28.1 (a) M Ltd (i) Current ratio £200,000 ________ 4:1 £50,000

£130,000 ________ 2:1 £65,000

(ii) Acid test ratio £200,000 2 £100,000 ___________________ 2:1 £50,000

£130,000 2 £64,000 __________________ 1:1 £65,000

(iii) Stockturn £288,000 ______________________  2.6 times £120,000 1 £100,000 4 2

£187,500 ____________________  3.0 times £60,000 1 £64,000 4 2

(iv) Debtors : Sales ratio £60,000 ________  12 months  2 months £360,000

£62,500 ________  12 months  3 months £250,000

(v) Creditors : Purchases ratio £50,000 ________  12 months  2.2 months £268,000

£65,000 ________  12 months  4 months £191,500

(vi) Gross profit % £72,000 ________  100%  20%

Accounting

£360,000

£62,500 ________  100%  25% £250,000

(vii) Net profit % £43,200 ________  100%  12% £360,000

£35,000 ________  100%  14% £250,000

(viii) Rate of return on shareholders' sunds £43,200 ________  100%  12.3 % £350,000

£35,000 ________  100%  13.7% £255,000

(b) Briefly N Ltd gives a better return to shareholders because of (viii) above. Reasons include: • M Ltd's current ratio is higher. This indicates that M Ltd is in a better liquidity position. • N Ltd’s stock turnover is higher than that of M Ltd. This shows that N Ltd manages its sales performance more effectively. • The gross profit percentage of N Ltd is 5% higher than that of M Ltd. This is due to better purchasing and selling prices. Net profit margins differ by a smaller margin of 2% suggesting, that M Ltd has tighter control of its overhead expenses when compared with its sales volume (8% compared with 11%)

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(a) Cruise Furnishings

Holmes Supplies

(i) Gross profit margin

600 _____  100  33 __1 %

600 _____  100  25%

(ii) Net profit margin

150 _____  100  8.33% 1,800

160 _____  100  6.67%

(iii) Current ratio

210 ____  3.18 : 1 66

180 ____ 3:1

1,800

3

2,400 2,400 60

(b) Rate of stock tunover for Cruise Furnishings 1200 _____  10 Times a year 120

(c) Profitability Both businesses are making good net profits, Cruise £150,000 and Holmes £160,000. However, both the gross profit percentage and net profit percentage for Cruise is better than Holmes, with the net profit percentage being 8.33% for Cruise against Holmes 6.67%. This could be due to Cruise selling goods at a higher price and their cost of sales being lower. Liquidity The current ratio for both Cruise and Holmes are very similiar with Cruise being slightly higher at 3.18 : 1 against Holmes 3 : 1. If we calculate the acid test, i.e, we remove stock from the calculation, Cruise 210 2 111 __________  1.5 : 1 66

Holmes 180 2 120 __________ 1:1 60

then Cruise is in a stronger position since it could raise £1.50 for every £1 owed compared to Holmes who could raise £1 for every £1 of debt. Conclusion

Accounting

28.2

Whilst Holmes has a greater turnover than Cruise the company is not as profitable. In terms of liquidity again Cruise is in a stronger position which may in part be due to Holmes long term liabilities of £2,070,000.


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28.3X (a) Year Ended 28.02.2009

29.02.2010

Net Profit Margin Net profit 16,000 26,000 _________    35,000    ____  100     45.71%  ______     ____  100     50%        ____  100     ______ 52,000 Sales

1

1

1

(b) Mark — up 21,600 35,500 ____________   Gross Profit      ____  100     _______         100  161.19%  ________      100  215.15% Cost of Sales

1

*13,400

*2,900 1 14,500 2 4,000 5 13,400

**16,500

**4,000 1 19.500 2 7,000 5 16,500

(c) Rate of stock turnover 13,400

16,500

Cost of sales  _____________         ________________         _________________        2,900 1 4,000 4 2 4,000 1 7,000 4 2 Average Stock

 3.88 times  3 times

(d)

Accounting

Overall the profitability of the business is improving with the Net Profit % increasing from 45.71% to 50%. Mark-up has also increased considerably from 161.19% to 215.15%. However, the stock is taking longer to sell/turnover a decrease from 3.88 to 3 times a year. This is possibly due to the business stock in hand increasing from £2,900 at the beginning of the first financial year to £7,000 at the end of February 2010?

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Answers Chapter 29: Computers and accounting systems 29.1

To: From: Date: Re:

Director of Finance Administrative Assistant June 2010 Proposed Integrated Computerised Accounting System

Points in favour of the new system: • Faster data input and automatic processing. • Greater accuracy especially via automatic processing. • Documentation such as invoices, credit notes, statements, remittance advices produced automatically. • Up-to-date information on customers’ accounts, etc. is readily available. • Provides management information. • The system may be linked to the internet to allow for transactions such as ordering goods to be carried out electronically. • Provides access to the organisation’s bank account via the internet. • More efficient and makes better use of resources.

29.2

Accounting

Arguments against the new system • The cost of the installation plus ongoing costs of maintenance and updating software. • Training costs of staff. • Staff resentment of new system. • System downtime may be disruptive. • Fraudulent access can seriously affect business operation and profitability. • Security measures that are necessary. • Health and safety issues associated with using computers. Measures a medium-sized company may adopt to safeguard the security of its financial data and records would include: • All company’s financial information should be regarded as confidential except where legislation states otherwise. Staff should be made aware of this requirement in the company’s code of conduct. • Staff should be allocated passwords to monitor accessibility to specific areas of work. • Passwords need to be changed frequently. • Installation of anti-virus computer packages to prevent the threat of fraud. • Ensure data is saved and backed up regularly. • Store back-up data in an off-site location if deemed necessary.

29.3X Refer to text, Sections 29.3 and 29.4.


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29.4X (a) Benefits to a small business when it has the use of internet facilities would include: • access to web sites to obtain further information in many areas including competitors, product ranges, location of customers/suppliers etc • transactions such as ordering, purchasing, selling, making payments to customers and staff, receiving monies etc., can all be carried out online • the use of email for correspondence is quick, efficient and cost effective.

(b) A web designer would bring many benefits to a business as follows: • development of initial user-friendly web site • maintain an up-to-date web site • develop online facilities for business to offer online ordering and purchasing from suppliers and sales to customers • promote a range of company products/services over a wider area which could lead to increased sales and ultimately greater profits • advertising and marketing benefits to a larger consumer market.

(c) The disadvantages of offering a web site service: • keeping the web site up-to-date • the cost of maintaining the web site • ensuring that the web site is user friendly with appropriate easy to navigate links.

29.5X Benefits of investing in a computerised accounting system would include: • quick and easy to install • capital outlays reasonable since packages are now much cheaper • less time to carry out book-keeping/accounting transactions • easier/less onerous work • more financial information available for management • greater accuracy • can process documents, e.g. invoices, credit notes, statements, payslips etc

Accounting

Adverse effects: • cost and disruption on installation • training • reluctance to change by staff • security issues • health risks • problems if the system goes down.

29.6 Other business uses for a computerised accounting system would be: • Payroll • Book-keeping • Budgeting • Preparation of financial statements • Cash management.

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Edexcel IGCSE Accounting Student's Book Answers

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