Financial Accounting (For Exams From February 2014 To August 2015) - SQB

ACCA
PAPER F3/FFA
FINANCIAL ACCOUNTING
STUDY QUESTION BANK
For Examinations to August 2015
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Ali Niaz - ali.niaz298@gmail.com

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Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
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STUDY QUESTION BANK – FINANCIAL ACCOUNTING (F3/FFA)
CONTENTS
Question Page Answer Marks Date worked
CONTEXT OF FINANCIAL REPORTING
1 MCQs Context of financial reporting 1 1001 10
FINANCIAL STATEMENTS
2 Jan Bartok 2 1001 8

3 Tomas Maxim 2 1002 9
4 MCQs Financial statements 3 1003 12
ACCOUNTING SYSTEMS
5 MCQs Accounting systems 4 1004 8
DOUBLE ENTRY BOOKKEEPING PRINCIPLES
6 Victor Borissov 4 1004 22

7 MCQs Double entry bookkeeping principles 5 1007 10
LEDGER ACCOUNTING AND THE TRIAL BALANCE
8 Roman 6 1008 22
9 Petr 7 1010 21
10 Grigory 7 1013 24
11 Dana 8 1016 23
12 A Patel 8 1019 35
13 Bohm 9 1024 10
14 Ivan Tombs 9 1026 14
15 Viktor 10 1029 7
16 Angelo 10 1031 40
17 Stefan 11 1036 23
18 R Rybin 12 1039 27
19 Nixon 12 1044 30
20 MCQs Ledger accounting 13 1048 10
CREDIT TRANSACTIONS
21 Damien 14 1048 5
22 Ricardo 15 1049 15
23 MCQs Credit transactions 15 1051 6
ACCRUALS AND PREPAYMENTS
24 Dino 16 1051 10
25 A Crew 17 1052 8
26 Tomasz 17 1054 12
27 Pushkova 18 1055 15
28 Scorcese 19 1057 17
29 Tolstoy 19 1058 6
30 Haertel 20 1059 8
31 MCQs Accruals and prepayments 20 1059 16
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FINANCIAL ACCOUNTING (F3/FFA) – STUDY QUESTION BANK
CONTENTS
DEPRECIATION AND DISPOSAL OF NON-CURRENT ASSETS
32 Rookie 22 1061 10
33 Alexander 23 1062 6
34 Udot 23 1062 7
35 Popov 23 1064 6
36 Reuther 24 1065 10
37 MCQs Depreciation and disposals 24 1067 20
RECEIVABLES AND PAYABLES
38 Krol 27 1071 6
39 Hyundai 27 1071 6
40 Dinul 28 1072 7
41 Pushkin 28 1074 9
42 Ink Products 29 1075 8
43 Adam 29 1075 10
44 Strak 30 1077 8
45 Frederik 30 1078 10
46 MCQs Receivables and payables 31 1079 16
INVENTORY
47 C3P0 33 1082 10
48 Ogay 33 1083 8
49 Ales 34 1084 4
50 Period-end adjustments 34 1084 40
51 MCQs Inventory 36 1090 8
BOOKS OF PRIME ENTRY AND CONTROL ACCOUNTS
52 A Smit 37 1090 30
53 Rebecca 37 1093 20
54 Wooden Tops 38 1097 16
55 Rubens 38 1098 3
56 Zone 39 1099 6
57 Hastings & Co 39 1099 18
58 Zenkerova 40 1100 11
59 Rankine 40 1101 40
60 Henry Williams 41 1107 40
61 MCQs Books of prime entry 42 1114 22
CONTROL ACCOUNT RECONCILIATIONS
62 Brabantia 46 1117 9
63 Tartufo 47 1117 10
64 Racy 47 1118 15
65 Teletubby 48 1119 16
66 Robin & Co 49 1120 15
67 Showers 50 1121 15
68 Hubert 51 1121 22
69 MCQs Control account reconciliations 52 1123 8
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CONTENTS
BANK RECONCILIATIONS
70 Talant 53 1123 8
71 Pringle 54 1124 5
72 White 54 1124 6
73 Gorbachev 54 1124 8
74 Jovanovich 55 1125 8
75 North Star Company 55 1125 12
76 Dealers 56 1126 15
77 Geneva 57 1127 15
78 MCQs Bank reconciliations 57 1127 8
SUSPENSE ACCOUNTS
79 Yulia 58 1128 10
80 Ogre 59 1129 8
81 Groan 59 1129 15
82 Blackwater Transport 60 1130 15
83 Smetena Newsagents 61 1131 18
84 Alpha 62 1133 20
85 Cosy Comforts 63 1136 20
86 Rafal Jaffa 63 1137 20
87 XYZ 65 1139 18
88 CND 66 1141 26
89 MCQs Suspense accounts 68 1143 10
BASIC ACCOUNTS PREPARATION
90 Jolanta 70 1144 20
91 Gandalf 71 1147 18
92 Maria 72 1148 20
93 Federov 73 1150 20
94 Heinz 74 1153 20
95 Gammon 75 1157 20
96 Stewart 77 1160 20
97 Bowie 79 1162 25
INCOMPLETE RECORDS
98 Cost structures 80 1163 9

99 Lamdin 81 1165 20
100 Leonardo 82 1166 20
101 Deltic 83 1169 20
102 Waldorf 84 1172 20
103 Slate 85 1175 20
104 Bennett 86 1177 20
105 Botham 87 1181 20
106 MCQs Incomplete records 89 1183 20
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CONTENTS
REGULATORY FRAMEWORK
107 IASB 92 1185 10

108 MCQs Regulatory framework 92 1186 10
CONCEPTUAL FRAMEWORK
109 Financial statements 93 1187 17

110 Accounting concepts (ACCA J00) 93 1188 14
111 MCQs Conceptual framework 93 1189 12
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS
112 Overall considerations 95 1190 10

113 Current assets and liabilities 95 1191 7
114 MCQs IAS 1 95 1192 10
CAPITAL STRUCTURE AND FINANCE COSTS
115 Beta 96 1192 20

116 Logo 97 1194 12
117 Gamma 98 1195 18
118 Sigma 99 1197 12
119 Lark (ACCA J00) 100 1199 20
120 Alpaca (ACCA J02) 101 1200 11
121 MCQs Capital structure and finance costs 102 1201 14
IAS 2 INVENTORIES
122 Retail inventory 104 1202 12

123 Measurement of inventories 104 1203 12
124 Bilda 104 1204 12
125 MCQs IAS 2 105 1205 10
IAS 18 REVENUE
126 Sale of goods and leisure facilities 106 1206 12

127 MCQs IAS 18 106 1206 10
IAS 16 PROPERTY PLANT AND EQUIPMENT
128 Depreciation and revaluation 108 1207 20

129 Diamond (IAS 16) (ACCA J97) 108 1208 16
130 MCQs IAS 16 109 1211 10
IAS 38 INTANGIBLE ASSETS
131 Research and development 110 1211 20

132 Defer 110 1213 10
133 MCQs IAS 38 111 1214 10
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CONTENTS
IAS 37 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

AND IAS 10 EVENTS AFTER THE REPORTING PERIOD
134 Eternity 112 1214 12

135 Accounting treatments 112 1215 12
136 Four events 113 1216 20
137 MCQs IAS 37 114 1217 8
138 MCQs IAS 10 115 1217 8
IAS 7 STATEMENT OF CASH FLOWS
139 Antipodean 116 1218 14

140 R2D2 117 1220 18
141 Momi 119 1222 16
142 Jane 120 1224 20
143 C3P0 121 1225 11
144 Tivoli 123 1227 15
145 MCQs IAS 7 124 1229 10
CONSOLIDATED FINANCIAL STATEMENTS
146 P&S 126 1229 10

147 Happy and Sad 127 1231 12
148 Faye 128 1232 12
149 Honey 129 1234 12
150 Humphrey 130 1236 10
151 Happy 130 1237 10
152 Bing and Crosby (ACCA D10) 131 1239 12
153 MCQs Consolidated financial statements 132 1240 12
INTERPRETATION OF FINANCIAL STATEMENTS
154 Alex 133 1241 12

155 Solo 135 1242 20
156 Darth 136 1244 12
157 MCQs Interpretation of financial statements 137 1245 10
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Question 1 MCQs CONTEXT OF FINANCIAL REPORTING
1.1 Which of the following are features of any partnership?
A Owner-management, joint liability

B Limited liability, owner-management
C Separate legal entity, limited liability
D Joint liability, separate legal entity
1.2 Which of the following more of a disadvantage of operating as a sole trader as compared
with a partnership?
A Risk of personal bankruptcy

B Limited access to finance
C Responsibility for all liabilities
D Requirements to keep accounting records
1.3 Which of the following distinguishes financial reporting from financial accounting?
A Making year-end adjustments to determine the financial results for the year
B Collecting, analysing and summarising financial transactions
C Recording actual transactions in monetary terms
D Disclosure of transactions and events
1.4 Which of the following is NOT a component of financial statements?
A A statement of comprehensive income

B A statement of changes in equity
C A cash flow forecast
D Accounting policies and explanatory notes
1.5 Which of the following users of financial statements has least need of published financial
information?
A Potential investors and their advisers

B Directors and management
C Employees and their representatives
D Customers and suppliers
(10 marks)
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Question 2 JAN BARTOK
The following information is available for Jan Bartok’s business for the year ended 31 December:
$
Bank overdraft 1,200
Trade receivables 5,000
Opening inventory 1,500
Motor vehicles 2,800
Sales revenue 25,000
Drawings 2,000
Opening capital 5,000
Purchases 20,000
Trade payables 2,000
Closing inventory 3,000
Cash in hand 100
Administration expenses 1,000
Wages 800
Required:
Prepare a statement of profit or loss for the year ended 31 December and a statement of financial
position at that date.
(8 marks)
Question 3 TOMAS MAXIM
The following information is available for Tomas Maxim’s business for the year ended 31 December.
He started his business on 1 January.
$
Purchases 16,100
Motor van 1,700
Drawings 5,100
Insurance 174
General expenses 1,596
Rent 2,130
Salaries 4,162
Inventory at 31 December 2,050
Sales returns 200
Cash at bank 2,628
Cash in hand 50
Capital introduced 4,100
Required:
Prepare a statement of profit or loss for the year ended 31 December and a statement of financial
position at that date.
(9 marks)
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Question 4 MCQs FINANCIAL STATEMENTS
4.1 Which of the following statements is correct?
A A non-current asset is a tangible asset

B A non-current asset is initially recorded at cost
C A non-current asset is depreciated annually
D A non-current asset is owned
4.2 Which one of the following is NOT a liability?
A Accrued expenses
B Bank overdraft
C Drawings
D Trade payables
4.3 Which one of the following is an example of an intangible asset?
A A lease of land
B A registered trademark
C Royalty receipts
D An investment in a listed company
4.4 Which one of the following represents cost of goods sold in a statement of profit or loss?
A Purchases – closing inventory + opening inventory

B Purchases – opening inventory + closing inventory
C Opening inventory + purchases + closing inventory
D Closing inventory + purchases – opening inventory
4.5 Which one of the following items of expenditure should be classified as capital
expenditure?
A Service agreement costs for computer equipment

B Installation costs for an air-conditioning system
C Cost of a three-year manufacturer’s warranty
D Purchases of cars for resale
4.6 Which one of the following items could properly be included in non-current tangible
assets in the statement of financial position of a manufacturing business?
A $55,000 representing the use of the business’s own labour and material costs
incurred in constructing an extension to the warehouse
B $45,000 representing the salary and occupancy costs of a manager whose main
function is to prepare, control and implement capital expenditure budgets
C $25,000 spent in tracing and rectifying a serious fault in operating a production line
to restore it to normal efficiency
D $35,000 incurred in an extensive market survey, the recommendations of which
may be implemented next year
(12 marks)

Question 5 MCQs ACCOUNTING SYSTEMS
5.1 Which one of the following statements concerning an accounting system is correct?
A It includes informal as well as formal procedures

B It ensures efficient operations
C Its objective is to prevent and detect fraud and error
D It maintains computerised records
5.2 Which one of the following is an organisational objective?
A To ensure that all assets are recorded in a register

B To safeguard assets
C To ensure that asset disposals are authorised
D To ensure that access to assets is restricted
5.3 Which one of the following is a book of prime entry?
A Asset register
B Inventory records
C Receivables ledger
D Journal
5.4 Which of the following documents will all be found in a typical sales system?
A Standing order, goods despatch note, customer statement

B Sales order, goods received note, remittance advice
C Sales invoice, goods despatch note, remittance advice
D Sales invoice, goods received note, customer statement
(8 marks)
Question 6 VICTOR BORISSOV
Victor Borissov won $10,000 in a national lottery and decided to set himself up as a computer
distributor, starting to trade on 1 April.
During April he made the following transactions:
(1) Paid the $10,000 into a business bank account

(2) Bought an Atari for $1,000 cash
(3) Bought an Amstrad for $2,500 cash
(4) Sold the Atari for $1,500 cash
(5) Paid rent for his premises of $300 cash.
(6) Bought an office desk and chair for $200 cash
(7) Bought a Compaq for $4,000 cash
(8) Sold the Amstrad for $3,250 cash
(9) Drew $400 in cash from the business.
Required:
(a) Show the accounting equation which results from EACH of these transactions.
(Note: Each transaction follows on from the one before.) (9 marks)

(b) The following transactions were entered into during May:
(1) Bought for cash a Legend ($3,000) and an Apple Mac ($2,500)
(2) Sold the Legend for $4,500 cash
(3) Received a telephone bill for $100 which he paid
(4) Sold the Apple Mac for $1,800 cash
(5) Drew $600 in cash from the business
(6) Bought an IBM for $5,600 cash.
Required:
Show the accounting equation at 31 May after ALL the above transactions. (6 marks)
(c) Assuming the same transactions as in (b), prepare a statement of profit or loss for the
month ended 31 May and a statement of financial position at that date for Victor
Borissov’s business. (7 marks)
(22 marks)
Question 7 MCQs DOUBLE ENTRY BOOKKEEPING PRINCIPLES
7.1 Which of the following principles underlie double entry bookkeeping?
A Accounting equation, separate legal entity concept, duality concept

B Accruals concept, accounting equation, business entity concept
C Accounting equation, business entity concept, duality concept
D Accruals concept, business entity concept, duality concept
7.2 Closing net assets can be found by using which of the following equations?
A Opening capital + Profit + Drawings + Capital introduced

B Opening capital + Profit – Drawings + Capital introduced
C Opening capital – Profit + Drawings + Capital introduced
D Opening capital – Profit – Drawings + Capital introduced
The following information relates to items 7.3 and 7.4:
A trader had the following items in his statement of financial position on 31 December 2013 and 2014:
2013 2014
$ $
Land 2,000 2,000
Cars 1,000 –
Payables 500 2,000
Receivables 2,000 2,000
Cash 500 –
Closing inventory – 6,000
Accrued expenses – 1,000
During the period the trader made drawings of $700.

7.3 What was the trader’s profit for the year ended 31 December 2014?
A $1,300
B $2,700
C $6,700
D $7,700
7.4 What was the change in the above trader’s investment (in net assets) between 2013 and
2014?
A $2,000
B $2,700
C $3,000
D $4,000
7.5 Which ONE of the following is NOT an appropriation of profit?
A Goods taken from a business by a sole trader for personal use

B Interest payments to providers of finance
C Dividends paid to shareholders
D Salaries paid to partners
(10 marks)
Question 8 ROMAN
The following information relates to the first two months’ trading of Roman, who is in business as a
greengrocer. All transactions are on a cash basis.
1 January Roman paid $350 into the business

15 January Bought goods for $200
23 January Paid motor expenses of $40
31 January Sold goods for $300
5 February Received $300 from Denis as a loan repayable in two years’ time
7 February Purchased goods for $200
8 February Sold goods for $150
21 February Paid rent of $50
28 February Sold goods for $300.
Required:
For EACH month:
(a) Write up and close the relevant ledger accounts for the above transactions; (9 marks)
(b) Extract a list of account balances; (4 marks)
(c) Prepare a statement of profit or loss; (5 marks)
(d) Draft a statement of financial position. (4 marks)
(22 marks)

Question 9 PETR
Petr commenced trading in his bakery on 5 April. All his transactions were on a cash basis, as follows:
5 April Introduced cash into the business of $300

7 April Purchased goods for $200
8 April Received loan from Tatiana of $250 repayable within twelve months
15 April Purchased a motor van for $150
20 April Sold goods for $350
28 April Paid rent of $50
29 April Repaid part of the loan $200
30 April Drew cash from the business $60.
At 30 April Petr had $100 goods in hand.
Required:
(a) Write up, balance and close the relevant ledger accounts for the above transactions.
(8 marks)
(b) Prepare the list of account balances at 30 April. (4 marks)
(c) Prepare the statement of profit or loss for the month ended 30 April and a statement of
financial position at that date. (9 marks)
(21 marks)
Question 10 GRIGORY
You are given the following information on the first month’s trading of Grigory, who is in business as a
second-hand furniture dealer. All transactions are on a cash basis.
1 January Grigory paid $5,000 into the business

2 January Bought a motor van for $600
3 January Bought goods for $1,300
4 January Received a loan from Sergei $1,000 repayable within twelve months
10 January Paid expenses on the motor van of $200
24 January Paid storage expenses $150
27 January Repaid Sergei part of his loan $350
30 January Withdrew cash from the business $175
31 January Closing inventory was $800.
Required:
(a) Write up the ledger accounts for the above transactions, including dates, descriptions
and balances. (11 marks)
(b) Prepare the trial balance at 31 January. (4 marks)
(c) Prepare the statement of profit or loss for the month ended 31 January and a statement
of financial position at that date. (9 marks)
(24 marks)

Question 11 DANA
The following information relates to the first two months’ trading of Dana, who is in business as a
hairdresser. All transactions are on a cash basis.
2 March Dana paid $525 into the business

16 March Purchased supplies for $300
24 March Paid miscellaneous expenses $60
29 March Cash from customers $450
6 April Received $450 from Radok as a loan repayable in two year’ time
8 April Purchased supplies $300
9 April Receipts from customers $225
22 April Paid establishment costs $75
30 April Receipts from customers $450.
Dana held no inventory at 30 April.
Required:
(a) Write up and balance the ledger accounts for EACH month. (9 marks)
(b) Extract a trial balance for EACH month. (4 marks)
(c) Prepare a statement of profit or loss for the TWO months to 30 April. (3 marks)
(d) Prepare a statement of financial position at the end of EACH month. (7 marks)
(23 marks)
Question 12 A PATEL
A Patel started business on 1 January and had the following monthly transactions:
1 January Started the business with $10,000 in cash

2 January Borrowed a sum of $4,000 in cash from C Sladek, $200 of which is
repayable on the first of every other month starting 1 February
3 January Bought a motor van for cash $900
4 January Bought goods for cash $2,300
5 January Sold his entire inventory for $3,000 cash
6 January Paid cash for motor running expenses of $250
1 February Repaid $200 in cash to C Sladek

2 February Withdrew $300 cash from the business for his own use
3 February Bought a typewriter for $160 cash
4 February Bought goods for cash $3,500
5 February Sold goods for $3,200 cash
6 February Took for his own consumption goods which had cost $280
28 February Closing inventory was $720
1 March Bought goods for cash $2,900

2 March Sold goods for $2,625 cash
3 March Paid cash for rent of premises $225
31 March Closing inventory was $1,170.

Required:
(a) Prepare for EACH month:

(i) the ledger accounts showing descriptions and balances;
(ii) a trial balance;
(iii) a statement of profit or loss for the year to date;
(iv) a statement of financial position. (30 marks)
(b) Close the relevant ledger accounts as at 31 March writing up the income and
expenditure account. (5 marks)
(35 marks)
Question 13 BOHM
Bohm’s transactions were as follows:

$
1 January Introduced cash 5,000
5 January Purchased fixtures and fittings 2,000
7 January Purchased goods on credit from Dvorak 1,000
9 January Some goods returned damaged to Dvorak 100
10 January Paid Dvorak amount due
11 January Sold goods on credit to Jovanovich 300
12 January Jovanovich returned unsuitable goods 50
13 January Sold goods for cash 300
14 January Jovanovich settled his account.
Required:
Write up and close the relevant ledger accounts. (10 marks)
Question 14 IVAN TOMBS
The following information is available for the business of Ivan Tombs, a bookseller:
January
(1) Started business with $10,000 in business bank account
(2) Made purchases for $200 cash
(3) Further purchases for $400 on credit from Moore
(4) Paid rent of $1,000 cash
(5) Bought stationery for $60 cash
(6) Bought an old van for $4,000 from Petros promising to pay later
(7) Sold rare books to Greene for $1,000 cash
(8) Paid Moore $140 cash
(9) Sold book on credit to Doyle for $140
(10) Bought more stationery for $40 cash
(11) Paid cash of $150 for motor expenses
(12) Paid Petros $1,000
(13) Took $300 from the business to pay for living expenses
(14) Received $100 from Doyle.
Required:
Show how these transactions would be recorded in the ledger accounts. Close the relevant
accounts.
(14 marks)

Question 15 VIKTOR
Viktor had the following transactions during January:
(1) Introduced $1,000 cash as capital

(2) Purchased goods on credit from ABC for $400
(3) Paid monthly rent $40 and electricity $100
(4) Purchased car for cash $200
(5) Sold half of goods on credit to XYZ for $350
(6) Drew $60 for his own expenses
(7) Sold remainder of goods for cash $420.
Required:
Write up and close the relevant ledger accounts, including trading account and income and
expenditure account, necessary to record the above transactions.
(7 marks)
Question 16 ANGELO
The transactions described below concern the business of Angelo which retails biographies of famous
painters:
(1) Invest $5,000 capital in business

(2) Pay $300 cash for shop rent
(3) Pay cash for 100 biographies of Cézanne @ $20 each
(4) Sell 30 copies @ $30 each for cash
(5) Buy a second hand van for $2,000
(6) Pay $1,500 cash for 50 biographies of Dali
(7) Sell, for cash, 30 copies of each title for $30 and $45 respectively
(8) Receive $100 cash for sub-letting storage space
(9) Purchase, on credit from The Bookworm, 40 biographies of El Greco @ $25 each
(10) Receive, but do not pay, a telephone bill for $75
(11) Sell:
10 copies of Cézanne @ $30 each, for cash
20 copies of Dali @ $45 each, on credit to Mr Salvador
15 copies of El Greco @ $40 each, on credit to Mr Quinn
(12) Pay $500 to The Bookworm
(13) Receive $600 from Mr Salvador
(14) Pay the telephone bill
(15) Receive $475 from Mr Quinn
(16) Pay $300 to The Bookworm
(17) Sell all remaining inventory for $1,800 cash to facilitate a move to bigger premises.

Required:
(a) Present each transaction in the form: $ $

Dr Name of a/c X
Cr Name of a/c X (15 marks)
(b) Write up the ledger accounts to reflect the double entries, recording credit transactions
in total accounts rather than individual accounts. (8 marks)
(c) Balance all the accounts. (4 marks)
(d) Extract a list of account balances (i.e. trial balance). (4 marks)
(e) Close the relevant accounts to an income and expenditure account in the general ledger.
(3 marks)
(f) Draft a statement of profit or loss and statement of financial position. (6 marks)
(40 marks)
Question 17 STEFAN
Stefan commenced trading on 1 November as a wine merchant. The following transactions relate to
November:
$
1 November Paid cash into the business 3,000
3 November Purchased goods from X on credit 400
5 November Purchased goods from Y on credit 350
7 November Purchased fixtures and fittings for cash 560
8 November Sold goods to A on credit 500
12 November Sold goods for cash 400
23 November Withdrew cash from the business 100
25 November Paid cash to Y 300
28 November Paid cash to X 400
29 November Received cash from A 400
30 November Withdrew goods for own consumption (at cost) 20
Closing inventory amounted to $250.
Required:
(a) Write up and balance the relevant ledger accounts for the above transactions. (11 marks)
(b) Prepare the trial balance at 30 November. (4 marks)
(c) Prepare a statement of profit or loss for the month ended 30 November and a statement
(23 marks)

Question 18 R RYBIN
On 1 December R Rybin started business with $5,000 in cash. He purchased fixtures and fittings for
$1,000 cash.
His purchases on credit during the month were:

$
9 December A Agladze 400
13 December B Buczak 300
20 December C Coke 140
His sales on credit during the month were:

$
10 December D Didnko 600
14 December E Ergo 800
29 December F Fesan 300
Cash sales for the month were $100. Other payments were:
$
7 December Rent 40
10 December Electricity 150
Motor van 1,500
20 December Stationery 200
On 31 December D Didnko settled his account in full, and Rybin paid Agladze and Buczak. On the
same date Rybin also bought a second-hand computer for $250 for use in the business, and withdrew
$100 from the business.
Inventory in hand at 31 December was $150.
Required:
(a) Write up the ledger accounts, recording credit transactions in the accounts of
individuals. (15 marks)
(b) Prepare the trial balance at 31 December. (4 marks)
(c) Prepare the statement of profit or loss for the month ended 31 December and a
statement of financial position at that date. (8 marks)
(27 marks)
Question 19 NIXON
Nixon is a retailer and on 1 January his assets were:

$
Cash in hand 343
Inventory 458
Furniture and fittings 198
Receivables
Smith 18
Harvey 39
Moon 26

His liabilities were to the following suppliers:

$
Rich 12
Max 21
His transactions during January were:

$
2 January Goods sold to Harvey on credit 124
5 January Paid wages 12
Bought goods on credit from Rich 150
7 January Smith settled his account
9 January Paid the amount owing to Max
11 January Cash sales 64
Bought goods for cash 75
15 January Paid Rich for balance owing on his account
20 January Bought for cash a new office desk 32
Cash sales 110
23 January Paid office expenses 3
Harvey paid on account 25
Paid wages 15
Inventory at cost was 374
Required:
(a) Write up and close the relevant ledger accounts. (18 marks)
(b) Extract a trial balance at 31 January. (4 marks)
(c) Prepare a statement of profit or loss for the month ended 31 January and a statement of
(30 marks)
Question 20 MCQs LEDGER ACCOUNTING
20.1 Which of the following is correct?
A A debit entry will increase non-current assets

A debit entry will decrease drawings
A credit entry will increase payables
B A debit entry will increase bank overdraft

A debit entry will decrease payables
A credit entry will increase profit
C A credit entry will decrease drawings

A credit entry will increase profit
A credit entry will decrease non-current assets
D A debit entry will increase profit

A credit entry will decrease drawings
A credit entry will increase bank overdraft

20.2 Which of the following is the correct double entry for goods taken by a sole trader for
personal use?
A Dr Drawings
Cr Purchases
B Dr Drawings
Cr Sales
C Dr Drawings
Cr Inventory
D Dr Purchases
Cr Drawings
20.3 At the end of the year when ledger accounts have been closed, which one of the following
may have a credit balance?
A Sales revenue account

B Bank account
C Inventory account
D Income and expenditure account
20.4 Which one of the following errors should be detected by the extraction of a trial
balance?
A An error of original entry

B An error of omission
C An error of principle
D A transposition error
20.5 Which one of the following statements is correct?
A A trial balance can only be extracted at the end of a reporting period

B A trial balance does not prove that all transactions have been recorded
C A trial balance proves the arithmetic accuracy of the books of account
D Financial statements can be prepared directly from a trial balance
(10 marks)
Question 21 DAMIEN
Damien is a pet food wholesaler. His policy is to allow his credit customers a settlement discount of
3%. He receives from his suppliers, a discount of 5% if he settles their invoices within 30 days of
receipt and also occasionally receives a trade discount.
During March the following takes place:
(i) Purchased goods on credit costing $260.
(ii) Sold goods on credit for $500 to Felix.
(iii) Was informed by his suppliers that he was eligible for a trade discount of 10%.
(iv) Received cash from Felix, who took advantage of the discount offered.
(v) Sent cash, in respect of the credit purchases made in March, to suppliers taking advantage of
the 5% discount offered.

Required:
Write up a discounts ledger account. (5 marks)
Question 22 RICARDO
Ricardo, a sole trader, had the following transactions for the month of June:
2 June Sold goods to Claire for $8,500 on credit; offered a 5% quick settlement
discount.
13 June Bought goods from Georgina for $12,000 on credit; Georgina offered a 7% quick
settlement discount.
14 June Sold goods to Hywel for $9,000 after a 5% trade discount.
20 June Sold goods to Jane for $6,000 cash.
21 June Bought goods on credit for $4,500 from Andrew who offered a 2% quick
22 June Claire returned goods sold of $1,000.
24 June (i) Mandy bought goods worth $5,000 and was offered a 3% quick
(ii) Claire took advantage of Ricardo’s discount and paid the net amount due
after taking the discount offered.
25 June (i) Hywel settled the amount due in full.
(ii) Ricardo paid Georgina the amount due after deducting the discount
offered.
27 June Ricardo paid Andrew in full, after deducting the discount offered.
Required:
Prepare the relevant ledger accounts to record the above transactions, extract a trial balance at
27 June and close the relevant ledger accounts.
Your answer should clearly show transactions with individual customers and suppliers.
(15 marks)
Question 23 MCQs CREDIT TRANSACTIONS
23.1 Which of the following is the correct double entry for making a credit sale?
A Dr Cash
Cr Sales
B Dr Sales
Cr Trade receivables
C Dr Trade receivables
Cr Sales
D Dr Cash

A When a settlement discount is offered a sale is recorded at its full value

B A settlement discount is also called a trade discount
C A settlement discount allowed is recognised as income
D When a trade discount is offered a sale is recorded at is full value
23.3 A purchase has been recorded on the receipt of goods obtained on credit terms.
Which of the following is the correct double entry to record the subsequent return to the
supplier of these goods?
A Dr Trade payables
Cr Purchases
B Dr Trade payables
Cr Sales returns
C Dr Cash
Cr Trade payables
D Dr Purchases
(6 marks)
Question 24 DINO
Dino started a business on 1 January 2014.
In the accounting year to 31 December 2014:
A new warehouse was acquired on 31 March 2014. On 21 April 2014, Dino received a water
usage demand for $1,000 for the 12 months to 31 March 2015. Payment was made, in full, on
30 April 2014.
In the accounting year to 31 December 2015:
An office extension was built. The water usage demand for the 12 months to 31 March 2016
was $1,600. Dino paid the full amount on 1 June 2015.
Required:
(a) Write up the water usage ledger account for EACH of the two accounting years.
(6 marks)
(b) Assuming now that payments were made annually in arrears (i.e. $1,000 on 31 March
2015 and $1,600 on 31 March 2016), write up the water usage ledger account for each of
the two accounting years. (4 marks)
(10 marks)

Question 25 A CREW
The following is an extract from the trial balance of A Crew at 31 December 2014:
Dr Cr
$ $
Stationery 560
Rent 900
Rates (local property tax) 380
Lighting and heating 590
Insurance 260
Wages and salaries 2,970
There was stationery still in hand at 31 December 2014 which had cost $15.
Rent of $300 for the last three months of 2014 had not been paid and no entry has been made in the
books at all for it.
Of the rates, $280 was for the year ended 31 March 2015. The remaining $100 was for the three
months ended 31 March 2014.
Fuel had been delivered on 18 December 2014 at a cost of $15 and had been consumed before the end
of 2014. No invoice had been received for the $15 fuel in 2014 and no entry has been made in the
records of the business.
$70 of the insurance paid was in respect of insurance cover for the year 2015.
Nothing was owing to employees for wages and salaries at the close of 2014.
Required:
Record the above information in the relevant accounts for the year ended 31 December 2014.
Close the accounts.
(8 marks)
Question 26 TOMASZ
Tomasz is in business as an antique dealer. The trial balance of his business at 1 January was as
follows:
Dr Cr
$ $
Capital 5,000
Cash 4,200
Motor van 600
Trade payable – A 200
Trade receivable – B 300
Rent prepaid 100
–––––– ––––––
5,200 5,200
–––––– ––––––

Cash transactions during the three months to 31 March were:

$
Purchases 2,000
Revenue 3,000
Drawings 500
Motor running expenses 350
Rent 250
At 31 March inventory was $700 and rent paid in advance amounted to $150.
Required:
(a) Prepare the trial balance at 31 March. (5 marks)
(b) Prepare the statement of profit or loss for the period to 31 March and a statement of
(12 marks)
Question 27 PUSHKOVA
The following list of account balances was extracted from the books of Pushkova at 30 April 2014:
Dr Cr
$ $
Revenue 18,955
Purchases 12,556
Inventory 1 May 2013 3,776
Salaries and wages 2,447
Motor expenses 664
Rent 456
Rates (local property tax) 120
Insurances 146
Packing expenses 276
Lighting and heating expenses 665
Sundry expenses 115
Fixtures and fittings 600
Cash at bank 3,876
Cash in hand 120
Drawings 2,050
Capital 12,844
–––––– ––––––
34,844 34,844
–––––– ––––––
Notes at 30 April
(1) Expenses which have been prepaid – Rates $20; Insurance $35.
(2) Expenses which are owing – Motor expenses $56; Rent $24; Sundry expenses $26.
(3) Inventory $4,998.

Required:
From the list of balances and the notes prepare Pushkova’s statement of profit or loss for the year
ended 30 April 2014 and a statement of financial position at that date.
(15 marks)
Question 28 SCORCESE
A guest house makes up its accounts to 30 April annually. The proprietor, Mr Scorcese, informs you
that he has paid the following amounts during the year to 30 April 2014:
$
Wholesaler 3,945
Butcher 4,261
Building supplies (repairs) 814
Electricity 935
Gas 566
Wages 1,150
He also informs you that he has received $37,550 in cash from guests, of which $4,300 relates to
deposits paid in advance for holidays to be taken after 1 May 2014.
You discover on further investigation that invoices for April 2014 from the butcher and wholesaler,
amounting to $431 and $292, were received on 15 May. The electricity bill for the quarter ended 31
May 2014 totals $220 and the chambermaid is paid a week in arrears at $42 per week. Gas cylinders are
purchased in advance at $17 each and two remain unused at 30 April.
Required:
(a) Calculate the amounts to be included in the statement of profit or loss for each of the
above items for the year ended 30 April 2014. (12 marks)
(b) Calculate the relevant amounts for the statement of financial position at 30 April 2014.
(5 marks)
(17 marks)
Question 29 TOLSTOY
Tolstoy owns a removal business and runs a small fleet of vans. He prepares his accounts to 31
December each year. The following transactions occur in relation to road tax and insurance for the year
2014:
1 January The amount prepaid for road tax and insurance was $1,140.
1 April He paid $840 road tax for the year ended 31 March 2015 on six of the vans.
1 May He paid $3,540 insurance for all ten vans for the year ended 30 April 2015.
1 July He paid $560 road tax for the other four vans for the year ended 30 June 2015.
Required:
Write up the account for “road tax and insurance” for the year ended 31 December 2014.
(6 marks)

Question 30 HAERTEL
Haertel owns various properties which he rents; some tenants pay in advance, some in arrears.
Similarly with his various borrowings the interest is paid in arrears and in advance.
During 2014 rent collected was $229,500 and interest charged to the income and expenditure account
was $52,500. Rents receivable and paid in advance together with amounts of interest prepaid and
payable at the ends of the reporting periods were as follows:
31 December 2014 2013

$ $
Rents owed by tenants 40,500 34,200
Rents prepaid by tenants 15,300 20,700
Prepaid interest 5,600 3,500
Interest payable 7,000 9,800
Required:
Write up, for the year ended 31 December 2014:

(a) the rental income account;
(b) interest expense account. (8 marks)
Question 31 MCQs ACCRUALS AND PREPAYMENTS
The following information relates to items 31.1 – 31.3:
The rent, rates (local property tax) and insurance account in the books of Mahler for the year ended 30
June 2015 was as follows:
$
Opening balances at 1 July 2014
Rent accrued 200
Rates prepaid 150
Insurance prepaid 180
Payments made during the year ended 30 June 2015 were as follows:
$
10 August 2014 Rent, three months to 31 July 2014 300
26 October 2014 Insurance, one year to 31 October 2015 600
2 November 2014 Rates, six months to 31 March 2015 350
12 December 2014 Rent, four months to 30 November 2014 400
17 April 2015 Rent, four months to 31 March 2015 400
9 May 2015 Rates, six months to 30 September 2015 350
31.1 Which of the following is the correct treatment for Mahler’s rent?
Prepaid/(accrued) Transfer to income and expenditure

at 30 June 2015 account for year to 30 June 2015
$ $
A (200) 400
B (300) 1,200
C 200 1,200
D 300 800

31.2 Which of the following is a correct treatment for Mahler’s rates?

$ $
A (175) 850
B (150) 700
C 150 850
D 175 675
31.3 Which of the following is a correct treatment for Mahler’s insurance?

$ $
A 200 580
B 180 780
C (200) 600
D (800) 580
31.4 You are given the following extract from an electricity account for the year ended 30 June
2014:
Electricity a/c
$ $
Balance b/d (standing charge) 74 Balance b/d (metred usage) 375
Bank 394
Bank 427
Bank 507
Bank 670
The last bill received and paid was for $670, comprising a standing charge of $180 for the
three months to 31 August 2014 and metered charges for the three months to 31 May 2014.
The charge for usage in June is expected to be $307, whilst the standing charge is to be
increased to $240 per quarter on all successive bills.
What is the charge for electricity in the income and expenditure account for the year
ended 30 June 2014?
A $1,577
B $1,844
C $1,884
D $1,944
31.5 In the year to 31 July 2014 Twiddle received $36,900 rental income. The amounts of rent
received in advance and due in arrears were as follows:
31 July 2014 31 July 2013

Rent received in advance $1,800 $1,950
Rent due in arrears $1,350 $1,050

What figure for rental income should be recorded in the income and expenditure
account for the year ended 31 July 2014?
A $36,450
B $36,750
C $37,050
D $37,350
31.6 On 5 May 2014 Tomas pays a rent bill of $3,600 for the 18 months ended 30 June 2015.
What is the charge to the income and expenditure account and the amount to be carried
in the statement of financial position in respect of rent for the year ended 31 March
2015?
A $2,400 with prepayment of $600

B $2,400 with accrual of $1,200
C $3,000 with accrual of $600
D $3,000 with prepayment of $600

A company owns three properties which it rents out. Rent amounts to $600 per quarter per property
due on 31 January, 30 April, 31 July and 31 October. The properties have been occupied throughout
the year to 31 December 2014. Two tenants pay in advance and one in arrears.
31.7 What are the balances for rent receivable at 31 December 2014?
Deferred income Accrued income
A $1,200 $600
B $600 $1,200
C $400 $400
D $200 $800
31.8 What amount for rent receivable should be included in the income and expenditure
account for the year to 31 December 2014?
A $1,800
B $2,400
C $6,600
D $7,200
(16 marks)
Question 32 ROOKIE
Rookie bought a machine for $10,000 on 1 January 2014. He estimates a useful life of eight years and
a residual value of $800. Depreciation is to be calculated on a straight line basis.
Required:
(a) Write up for 2014 and 2015 the:

(i) Machinery account;
(ii) Accumulated depreciation account;
(iii) Depreciation expense account. (6 marks)
(b) Show how the machine would be presented in the statements of financial position as at
31 December 2014 and 31 December 2015. (4 marks)
(10 marks)

Question 33 ALEXANDER
Alexander purchased a van for $800 cash. He estimates that in four years it will have a scrap value of
$70.
Required:
Calculate the annual depreciation charge on:
(a) the straight line method; and (2 marks)

(b) the reducing balance method at the rate of 45%. (4 marks)
(6 marks)
Question 34 UDOT
Since he commenced business on 1 January 2012 Mr Udot has purchased for cash the following three
machines for his various manufacturing processes:
Date of purchase Cost Rate of depreciation
$
Machine 1 20 January 2012 4,200 25%
Machine 2 17 April 2013 5,000 30%
Machine 3 11 July 2014 3,500 35%
Udot’s policy is to charge a full year’s depreciation in the year of purchase irrespective of the date of
purchase. The reducing balance method is used to calculate depreciation.
Accounts are prepared to 31 December each year.
Required:
(a) Prepare the machinery account and accumulated depreciation account showing the
charge to the depreciation account for each year. (4 marks)
(b) Show the extracts relevant to the statement of financial position for each year. (3 marks)
(7 marks)
Question 35 POPOV
Popov allows for depreciation on plant at 10% per annum on cost at the year end on a straight-line
basis. On 1 January 2014 plant at cost was $5,000; accumulated depreciation to date was $3,000. On 1
July 2014 he sold a machine for $1,500 which had cost $2,000 on 1 July 2011.
Required:
Prepare relevant ledger accounts for the year to 31 December 2014. (6 marks)

Question 36 REUTHER
Reuther leases second-hand German sports cars, generally a standard model. He started business on 1
January 2012 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at
the year-end. During the years 2012 to 2015 the following purchases and sales of cars took place:
2012 Acquired 20 Porsche 924 Turbos at a cost of $18,600 each
2013 Purchased 6 Porsches for a total cost of $108,600
2014 Traded-in two of the cars acquired in 2012 and received an allowance of $9,000
each which was set against the purchase of a further two cars costing $19,800 each
2015 Replaced 15 cars purchased in 2012 with another 15, each of which cost $21,000.
A trade-in allowance totalling $48,000 was received.
Reuther prepares accounts to 31 December each year.
Required:
Prepare a vehicle account, an accumulated depreciation account, a depreciation expense account

and a disposals account for the years 2012 to 2015.
(10 marks)
Question 37 MCQs DEPRECIATION AND DISPOSALS
37.1 A company acquired a new minicomputer system for $50,000 on 1 November 2014. The
computer’s estimated useful life is five years, at the end of which it is expected to have a
scrap value of $4,550.
The company’s financial year ends on 31 March and straight-line depreciation is applied on a
time-apportioned basis.
What is the depreciation charge on the computer in profit or loss for the year to 31
March 2015?
A $3,788
B $4,167
C $9,090
D $10,000
37.2 The following information has been extracted from a company’s statements of financial
position:
31 December 2014 31 December 2013
Cost Depreciation Cost Depreciation
$000 $000 $000 $000
Plant and equipment 176 34 143 21
During the year ended 31 December 2014 equipment which had an original cost of $16,000
and accumulated depreciation of $10,000 was sold.

What amounts should be shown for depreciation expense and purchase of plant and
equipment in the financial statements for the year ended 31 December 2014?
Depreciation Purchase of plant

expense and equipment
$000 $000
A 3 17
B 3 49
C 23 17
D 23 49
37.3 The following information relates to the disposal of two machines:
Machine 1 Machine 2
$ $
Cost 120,000 140,000
Selling price 90,000 80,000
Profit/(loss) on sale 30,000 (40,000)
What was the total carrying value of the machines sold?
A $100,000
B $160,000
C $180,000
D $240,000
37.4 The following information was disclosed in the financial statements of a company for the year
ended 31 December 2014:
2014 2013
$ $
Plant and equipment, cost 735,000 576,000
Less: accumulated depreciation 265,000 315,000
––––––– –––––––
Carrying amount 470,000 261,000
––––––– –––––––
During 2014:
Expenditure on plant and equipment was $512,000

Loss on the disposal of old plant was $107,000
Depreciation charge on plant and equipment was $143,000
What were the sales proceeds received on the disposal of the old plant?
A $53,000
B $153,000
C $246,000
D $267,000
37.5 The following items have been extracted from the accounts of a company for the year ended
31 December 2014:
$
Depreciation charge 30,000
Profit on sale of tangible non-current assets 5,000
Proceeds from sale of tangible non-current assets 20,000
Purchase of tangible non-current assets 25,000

If the carrying amount of tangible non-current assets was $110,000 on 31 December

2013, what was it on 31 December 2014?
A $70,000
B $80,000
C $85,000
D $90,000
37.6 Artur bought a car on 1 January 2012 for $10,000. On 1 July 2014 he accepted $3,500 trade-
in allowance on a new car. The new car cost $12,000. Artur depreciates all non-current
assets at a rate of 25% per annum on cost at the year end. He prepares accounts to 31
December each year.
What is the resulting under/over allowance for depreciation on the sale of the first car?
A Under allowance of $1,500

B Over allowance of $1,500
C Under allowance of $5,000
D Over allowance of $5,000
37.7 In Bryn’s accounts for the year ended 31 December 2014 there is a gain of $222 on the
disposal of a machine. This machine had been purchased on 1 October 2011 at a cost of
$3,000.
Bryn had sold the machine for cash on 30 June 2014 and his stated policy is to depreciate
plant and equipment on the reducing balance method at the rate of 20% per annum on a
monthly basis.
How much were the sale proceeds for the car?
A $1,358
B $1,642
C $1,580
D $1,864
The following information relates to questions 37.8 and 37.9:
On 1 January 2014 a company had plant and equipment with a cost of $150,000 and accumulated
depreciation thereon of $60,000. During the year ended 31 December 2014 the cost of plant additions
was $30,000 and plant was disposed of with a cost of $20,000 for $18,000. This plant was bought on
30 September 2012.
The depreciation policy is to make an allowance of 25% per annum on the reducing balance with a full
charge in the year of acquisition and none in the year of disposal.
37.8 What is the depreciation charge for the year ended 31 December 2014?
A $27,188
B $27,500
C $27,891
D $28,750

37.9 What is profit or loss on disposal of the plant?
A $6,750
B $8,000
C $9,563
D $13,000
37.10 A company has a number of items of equipment, which are depreciated at 25% per annum on
a reducing balance basis, with a full year’s charge in the year of acquisition and none in the
year of disposal.
On 1 June 2014 the equipment had a carrying amount of $10,951, and $6,929 on 31 May
2015. During the year, equipment with a cost of $5,000, bought on 1 July 2012, was sold.
What was the cost of new equipment during the year ended 31 May 2015?
A $698
B $978
C $1,100
D $3,013
(20 marks)
Question 38 KROL
The allowance for trade receivables brought forward on 1 January in the books of Krol was $86. Trade
receivables at 31 December amounted to $2,840 and irrecoverable debts to be written off totalled $115.
Krol wishes to carry forward an allowance of 5% of accounts receivable.
Required:
Write up:
(a) the irrecoverable debts expense account; and (3 marks)

(b) the allowance for receivables account. (3 marks)
(6 marks)
Question 39 HYUNDAI
The books of Hyundai reveal a receivables allowance of $206 brought forward on 1 January. Trade
receivables at 31 December amount to $2,440 and irrecoverable debts to be written off total $55. An
allowance amounting to 5% of trade receivables is required to be carried forward.
Required:
Write up the following accounts:
(a) the irrecoverable debts expense account; and (3 marks)

(b) the receivables allowance account. (3 marks)
(6 marks)

Question 40 DINUL
The following information is available for Dinul:
Year 1
(1) 1 January: Receivables allowance for doubtful debts of $860 standing in the books.
(2) Irrecoverable debts written off during the year amounted to $1,000.
(3) 31 December: Trade receivables amount to $15,000.
(4) An allowance of 7.5% of trade receivables is required.
Year 2
(1) 31 December: Trade receivables, before adjustments are $13,700.

(2) Irrecoverable debts to be written off are $1,100.
(3) An allowance of 7.5% of debts due is still considered necessary.
Required:
Show the journal entries to record the above and the irrecoverable debt and receivables
allowance ledger accounts.
(7 marks)
Question 41 PUSHKIN
Pushkin makes allowance for trade receivables at varying percentages based on an aged-debt analysis
and an assessment of general economic circumstances. The result of this policy for the last three years
is as follows:
Year to 31 December 2012 2013 2014

$ $ $
Trade receivables at the year end (before
adjusting for any irrecoverable debts) 196,860 151,020 216,020
Estimated irrecoverable debts 1,860 1,020 6,020
Allowance 5% 6% 7.5%
The allowance for trade receivables at 1 January 2012 was $10,000.
Required:
(a) Write up the irrecoverable debts expense account and allowance for trade receivables
account for each of the three years. (6 marks)
(b) Show the extracts relevant to the statement of financial position for each of the three
years. (3 marks)
(9 marks)

Question 42 INK PRODUCTS
The trade receivables listing of Ink Products, as at 31 March 2015, has been analysed as follows:
Age of account Amount

$
0 – 30 days 85,000
31 – 60 days 40,000
61 – 90 days 20,000
Over 90 days 15,000
Previous experience shows that, on average, the following proportions of debts will not be recovered:
31 – 60 days 2%
61 – 90 days 5%
Over 90 days 10%
Required:
(a) Calculate the balance required on the trade receivables allowance account. (5 marks)
(b) Write up the trade receivables allowance account for the year to 31 March 2015
assuming a balance brought down of $1,100 as at 1 April 2014. (3 marks)
(8 marks)
Question 43 ADAM
Adam commenced trading on 1 April 2012. He extracted the following list of balances from his sales
ledger as at 31 March 2013:
$
Forsythe 200
Ludlum 400
Others 6,300
––––––
6,900
––––––
In the year to 31 March 2013:
(1) Forsythe emigrated leaving numerous debts.
(2) Ludlum is disputing certain invoices, amounting to $100, which have been
outstanding for more than six months. Adam estimates that Ludlum will eventually
pay half the disputed amount.
The sales ledger listing as at 31 March 2014 is as follows:

$
Collins 240
Le Carré 400
Ludlum 60
Others 6,600
––––––
7,300
––––––

(1) Collins has been declared bankrupt and his debt is to be written off.
(2) Le Carré is experiencing cash flow difficulties. Adam considers a 50% allowance
to be appropriate.
(3) Adam is no longer supplying goods to Ludlum. The balance, which is in respect of
last year’s disputed invoices, is to be written off.
(1) Total receivables per the sales ledger listing are $7,500 as at 31 March 2015.
(2) There are no debts requiring specific allowance.
(3) $50 has been received from Collins.
Required:
Assuming that Adam requires a general allowance of 5%, write up the irrecoverable debt expense
and allowance accounts for the three years to 31 March 2015.
(10 marks)
Question 44 STRAK
At 30 June 2013 Strak’s trade receivables were $50,000. He decided to make an allowance based on
5% of account balances at the end of the reporting period. He made the first allowance at 30 June 2013.
The following relates to the years ended 30 June 2014 and 30 June 2015:
Year ended 30 June

2014 2015
$ $
Credit sales 480,000 550,000
Cash received from customers 432,000 560,600
Irrecoverable debts written off 6,000 2,000
Cash received in respect of an irrecoverable debt written off in
year ended 2014 (included in the cash received figure above) 600
Required:
Write up the following accounts:
(a) the receivables account; (2 marks)

(b) trade receivables allowance account; and (3 marks)
(c) the irrecoverable debts expense account. (2 marks)
(8 marks)
Question 45 FREDERIK
Frederick, a wholesaler, has the following information relating to the year ended 31 March 2015:
(a) Sales are made on both cash and credit terms.
(b) At 1 April 2014 trade receivable were $40,000 and the receivables allowance was 7.5% of
this amount.
(c) Included in opening receivable was an amount of $4,000 relating to Lean which went into
liquidation on 2 January 2015.
(d) Credit sales during the year were $195,600 and cash sales $87,800.

(e) Cash received from trade receivables amounted to $192,300.
(f) Apart from Lean’s debt, $3,200 of other debts were found to be irrecoverable during the year.
(g) The receivables allowance at the end of the year is to be 7.5% of year end trade receivables.
Required:
(a) Write up the ledger accounts for the above transactions. (7 marks)
(b) Show the extracts relevant to the statement of financial position at 31 March 2015.
(3 marks)
(10 marks)
Question 46 MCQs RECEIVABLES AND PAYABLES
46.1 On 1 January 2014 a small company had a receivables allowance of $1,000. During 2014
debts of $600 were written off and $80 was paid by the liquidator of a company whose debts
had been written off completely in 2013. At the end of 2014 it was decided to adjust the
receivables allowance to $900.
What is the total expense for irrecoverable debts that should be included in profit or loss
for 2014?
A $420
B $580
C $620
D $780
46.2 A company has trade receivables totalling $16,000 after writing off irrecoverable debts of
$500, and an allowance brought forward of $2,000. The company wishes to carry forward an
allowance equal to 5% of trade receivables.
What will be the effect on profit of adjusting the allowance?
A $700 decrease
B $700 increase
C $1,200 decrease
D $1,200 increase
46.3 Pearl has trade receivables at the year end amounting to $150,000. An irrecoverable debt of
$3,500 is to be written off. Pearl has an opening allowance of $1,000 and wishes to maintain
an allowance of 5% of year-end accounts receivable.
What is the balance carried down on the receivables allowance account after dealing
with the above items?
A $3,825
B $6,325
C $7,325
D $10,825

46.4 The trial balance of Offenbach showed year-end trade receivables of $122,000 at 31 March
2015, an opening general allowance of $2,980 and an opening specific allowance of $2,000.
After the extraction of the trial balance, it was decided to carry forward at 31 March 2015 a
specific allowance of 100% on an irrecoverable debt of $1,600 and a general allowance of 1%
of remaining accounts receivable. It was also decided to write off the debts amounting to
$2,000 which had been fully allowed for at 1 April 2014.
What is the total charge/(credit) to profit or loss in respect of irrecoverable debts for the
year ended 31 March 2015?
A ($176)
B ($196)
C $1,184
D $1,600
46.5 On 1 January 2014 Tipton’s accounts receivable were $10,000. The following relates to the
year ended 31 December 2014:
$
Sales 100,000
Cash receipts 90,000
Discounts allowed 1,800
Discounts received 1,700
Cash receipts include $2,000 in respect of a debt previously written off.
What is the carrying amount of trade receivables at 31 December 2014?
A $18,200
B $20,200
C $20,300
D $20,900
46.6 During the year ended 31 December 2014 Chocolate decreased its receivables allowance by
$600. An irrecoverable debt written off in the previous year amounting to $300 was
recovered in 2014.
If the profit of the year after accounting for the above items was $5,000, what would
have been the profit before accounting for the above items?
A $4,100
B $4,700
C $5,300
D $5,900
46.7 A company has an opening trade receivable allowance of $8,620 and opening trade
receivables of $463,271. You are given the following details as regards the year ended 31
August 2014:
Sales $5,943,271
Receipts from credit customers $5,217,000 (including $4,262 in respect of a debt
previously written off as irrecoverable)
Irrecoverable debts written off $8,563
Discounts allowed $3,271
A closing receivables allowance of 3% of year-end trade receivables is required.

What is the total charge to the income and expenditure account for the year to 31
August 2014 in respect of irrecoverable debts?
A $26,839
B $31,140
C $39,664
D $39,760
46.8 On 1 January 2014 Pierre’s accounts receivable were $5,000. The following relates to the
year ended 31 December 2014:
$
Revenue 100,000
Cash receipts 70,000
Discounts allowed 800
Discounts received 700
Irrecoverable debts 500
Cash receipts include $1,000 in respect of a debt previously written off.
What amount for accounts receivable should be shown in the statement of financial
position at 31 December 2014?
A $33,700
B $34,200
C $34,700
D $34,800
(16 marks)
Question 47 C3P0
The following information has been extracted from the inventory record for item C3P0:
Quantity
1 Jan Balance 500 Cost $3,150
31 Jan Received 1,000 @ $6.30
18 Feb Received 1,000 @ $6.30
25 Mar Received 1,000 @ $6.30
15 Apr Sold 1,500 @ $7.40
20 May Sold 750 @ $8.00
Required:
Prepare a trading account for the six months to 30 June. (10 marks)
Question 48 OGAY
Ogay started business on 1 January 2013. At the end of his first year of trading he had closing
inventory of $5,000. During 2014 he traded continuously and at 31 December 2014 he had inventory
amounting to $7,500.
Sales for 2013 and 2014 were $120,000 and $155,000 respectively and purchases were $75,000 and
$110,000 respectively.

Required:
(a) Write up the inventory account, purchases account and revenue account for the two
years. (4 marks)
(b) Prepare the trading account for EACH of the two years. (4 marks)
(8 marks)
Question 49 ALES
At 31 December Ales had the following items of inventory:

Estimated
Total Realisable cost of
Product Quantity cost value realisation
$ $ $
ABC 20 80 200 20
DEF 10 150 120 10
GHI 6 6 7 2
JKL 12 36 12 1
Required:
Calculate the carrying value of inventory as it should appear in the statement of financial position
of Ales at 31 December.
(4 marks)
Question 50 PERIOD-END ADJUSTMENTS
(a) Artur owns a small refuse collection business. To 31 October 2014 he had paid $420 for gas.
On 31 December 2014 he realised that he had not yet received his gas bill for the quarter to 31
January 2015. He estimates that the bill will be for $150 and makes an appropriate accrual.
On 21 January 2015 he decides that he could heat his business more cheaply using electricity,
and cancels his gas supply. He receives a final gas bill for the period to 21 January for $138.
Required:
Show the relevant ledger accounts and income and expenditure account extracts for
2014 and 2015. (6 marks)
(b) A company carries out a physical count on 31 December 2013 and counts inventory in its
warehouse that cost $10,000.
During the year ended 31 December 2014 the company makes $70,000 of sales and buys
$58,000 of supplies.
The company carries out a physical count for the year ended 31 December 2014 on 7 January
2015 and finds goods costing $15,000. In the six day intervening period there were sales of
$6,000 and deliveries of goods costing $8,000. The company operates with a gross profit
margin of 20%.
Required:
Record inventory in the relevant ledger accounts and prepare the trading account for
inclusion in the statement of profit or loss for the year ended 31 December 2014.
(8 marks)

(c) Felix bought a car four years ago for $50,000 and estimated its life to be five years. He now
buys a new car paying $50,000 in cash and receiving a part-exchange allowance of $15,000
on the old car which he trades in.
Required:
Show the individual journal entries for this transaction together with a disposals
account. (6 marks)
(d) Hnychuk commenced business on 1 January 2014.

On 1 January 2014 he bought three Peugeot cars for his salesmen at a cost of $80,000 each.
On 30 June 2014 one of the cars was written off in an accident. The insurance company paid
$65,000 in full and final settlement of the accident damage claim.
On 1 July 2014 he purchased a Fiat for $60,000.
On 1 January 2015 he decided to replace the vehicles. He part-exchanged the two remaining
Peugeots for new models, being allowed $50,000 each as part exchange and paying an
additional $40,000 each. He sold the Fiat for $50,000 and bought an Audi for $80,000 cash.
On 31 December 2015 the business went into liquidation and the cars were sold for a total of
$150,000.
Hnychuk had allowed depreciation at 25% on cost of assets at the year end (which is 31
December).
Required:
Show the depreciation expense, accumulated depreciation, cost and disposals accounts
for the two years. (10 marks)
(e) In his first year of trading to 31 December 2013 Lopez made credit sales of $200,000 and
received $150,000 from his credit customers.
At the end of the year he decided to write off Ludmila’s debt of $8,000, make a specific
allowance for Jozef’s debt totalling $3,500 and create a general allowance of 5% of remaining
trade receivables.
During his second year of trading he made sales on credit of $300,000 and received cash of
$280,000 including $4,000 from Ludmila. At 31 December 2014, he decided to write off
Jozef’s debt, and create a specific allowance against 50% of Chokin’s total debt of $6,000.
He decided that his general allowance should now be 8% of remaining accounts receivable.
In the year to 31 December 2015 Lopez made credit sales of $500,000 and received cash of
$400,000. Separate from this he also received a cheque from Chokin for $6,000.
At the year end he decided to create a specific allowance against Paulo’s debt of $50,000 and
maintain his general allowance at 8%.
Required:
For each of the above years show the trade receivables account, irrecoverable debt
expense account and receivables allowance account, and the statement of financial
position extracts for each year end. (10 marks)
(40 marks)

Question 51 MCQs INVENTORY
51.1 Which of the following statements is correct concerning inventory records for a
manufacturing company?
A Inventory records must be kept showing all receipts and issues

B It is possible that a full physical count may not be required at any time
C All inventory must be physically counted at the end of the financial year
D Stock-checking is not required where continuous inventory records are kept
51.2 After the profit and loss of Santa had been prepared, some inventory was found at the back of
the warehouse which had been excluded from the physical count. The inventory had a value
of $100.
How does the necessary adjustment affect gross profit and assets?
Gross profit Assets

A Increase Decrease
B Decrease Decrease
C Increase Increase
D Decrease Increase
51.3 Spain has incorrectly included closing inventory in its financial statements at $32,943 instead
of $37,642.
What is the result of the error and the necessary correction?
A Profit is understated by $4,699

To correct: Dr Inventory $4,699, Cr Trading account $4,699
B Profit is overstated by $4,699

To correct: Dr Inventory $4,699, Cr Trading account $4,699
C Profit is overstated by $4,699

To correct: Dr Trading account $4,699, Cr Inventory $4,699
D Profit is understated by $4,699

To correct: Dr Trading account $4,699, Cr Inventory $4,699
51.4 At the end of its accounting period a business erroneously excluded goods bought on credit
from its closing inventory. It also failed to record the purchase of those goods in its
accounting records.
The effect of these omissions is to understate which of the following?
A Cost of sales and current assets

B Gross profit and current liabilities
C Current assets only
D Current assets and current liabilities
(8 marks)

Question 52 A SMIT
A Smit commenced business on 1 July with capital of $4,000 cash. On 3 July he rented an office and
warehouse for a quarterly rent of $200. Rent is payable half yearly on 31 March and 30 September. On
8 July he purchased a van for $2,600 cash. The following transactions subsequently took place.
(Assume they are for cash unless otherwise stated.)
10 July Purchased goods on credit from Dijon $700

17 July Paid wages $40
21 July Purchased goods for $360
23 July Sold goods on credit to Daulton $420
4 Aug Sold goods on credit to Dewberry $150

5 Aug Paid Dijon $670, allowing for $30 cash discount
10 Aug Received $400 from Daulton, allowing $20 cash discount
14 Aug Paid wages $60
18 Aug Purchased goods on credit from Noir $2,200
25 Aug Sold goods for $120
26 Aug Received $120 from Dewberry
27 Aug Paid wages $60
5 Sept Sold goods on credit to Daulton $700

12 Sept Paid wages $60
14 Sept Received payment from Daulton $400
16 Sept Sold goods for $310
18 Sept Daulton paid $265 in full settlement of his account to date
19 Sept Received loan from Blanche $1,000
20 Sept Sold goods on credit to Daulton for $1,350
26 Sept Paid wages $60
26 Sept Paid Noir $2,040 in full settlement
28 Sept Wrote off the remainder of Dewberry’s debt
30 Sept Paid rent $400.
Required:
(a) Write up the books of prime entry for the three months to 30 September. Monthly
totals are NOT required. (20 marks)
(b) Write up the accounts in the accounts receivable and accounts payable ledgers for the
three months to 30 September. (10 marks)
(30 marks)
Question 53 REBECCA
Rebecca made the following transactions during January:
Credit purchases $ Purchases returns $

2 Jan Jones 37 12 Jan Isaac 12
9 Jan Isaac 73 21 Jan Mary 6
17 Jan Henry 61
19 Jan Mary 62
27 Jan David 81

Credit sales $ Sales returns $

7 Jan Smith 40 12 Jan Smith 7
11 Jan Allan 31 17 Jan Wood 13
13 Jan Wood 43
22 Jan Gilass 20
31 Jan Wall 37
Required:
(a) Enter the above transactions in the relevant day books. (4 marks)
(b) Write up the relevant entries in the purchases, sales, purchase returns and sales returns
accounts. (4 marks)
(c) Show the personal accounts in the receivables and payables ledgers for each supplier
and customer. (7 marks)
(d) Write up the receivables and payables ledger control accounts. (5 marks)
(20 marks)
Question 54 WOODEN TOPS
The following transactions were carried out by Wooden Tops during March:
1 March Credit sales S Collins $280 A Hogg $740 P Rob $724

3 March Credit purchases C Tiny $720 V Micks $124 D Green $380
6 March Receipts from debtors A Hogg $400 P Rob $600
7 March Credit sales P Plod $444 T Mop $390 D Jip $1,284
9 March Credit purchases R Top $120 V Micks $290 R Ede $614
14 March Payments to suppliers V Micks $124 R Ede $400
17 March Credit purchases V Micks $270 R Top $324 P Fish $560
24 March Credit sales P May $284 P Park $324 S Wood $560
29 March Receipts from debtors P Plod $444 P Rob $124
Required:
(a) Write up the sales day book. (4 marks)

(b) Write up the purchases day book. (4 marks)
(c) Write up the cash book. (4 marks)
(d) Explain the postings which will be made from these day books at the end of March.
(4 marks)
(16 marks)
Question 55 RUBENS
The following information is extracted from the books of Rubens:

$
Cash paid to suppliers 3,716
Purchase returns 198
Purchases on credit 3,028
Opening payables ledger balances 7,470
Closing payables ledger balances 6,415

Required:
Write up the payables ledger control account. (3 marks)
Question 56 ZONE
The following information is extracted from the books of Zone for the month of January:
$
Credit purchases 100,258
Cash received from customers 110,568
Returns to suppliers 20,426
Irrecoverable debts written off 224
Receivable ledger balances 1 January 14,968
Payables ledger balances 1 January 54,010
Credit sales 148,580
Returns from customers 2,508
Required:
Prepare the receivables ledger control account and the payables ledger control account for the
month.
(6 marks)
Question 57 HASTINGS & CO
The following totals are taken from the books of Hastings & Co:
$
1 January 2014 Credit balance on payables ledger control account 5,926
Credit balance on receivables ledger control account 134
Debit balance on payables ledger control account 56
Debit balance on receivables ledger control account 10,268
31 December 2014 Credit sales 71,504

Cash received from credit customers 69,872
Receivables ledger balances written off as irrecoverable 96
Sales returns 358
Payables ledger credit balances transferred to receivables ledger 75
Legal expenses charged to credit customers 28
Credit balance on receivables ledger control account 101
Debit balance on payables ledger control account 67
Allowances to customers for damaged goods retained 90

Required:
(a) Prepare the payables ledger control account. (9 marks)
(b) Prepare the receivables ledger control account. (9 marks)
(18 marks)
Question 58 ZENKEROVA
The following information relates to Zenkerova’s business for the month of January:
$ $
Opening cash balance 200 Opening receivables 920
Closing cash balance 100 Closing receivables 840
Cash expenses 1,500 Irrecoverable debts written off 90
Bankings 8,000 Discounts allowed 140
Drawings 2,450
Cash sales 4,500
Credit sales per invoices 7,500
Required:
Prepare a cash account and a receivables control account. (11 marks)
Question 59 RANKINE
Rankine has been in business for a number of years as a greengrocer making up his annual accounts to
31 March.
At 1 April assets amounted to:
Fixtures and fittings $400

Inventory at cost $1,500
Cash in hand $200
Transactions for the three months beginning 1 April were as follows:
1 April Bought goods on credit from Thrush for $700

2 April Bought goods on credit from Hawk for $950
3 April Made cash sales of $600
4 April Paid $600 cash to Thrush
5 April Closing inventory at cost was $2,750
1 May Sold goods on credit to Wasp for $850

2 May Sold goods on credit to Ant for $660
3 May Received $580 cash from Ant
4 May Introduced fresh capital in cash $1,000
5 May Paid Hawk $950 cash
6 May Closing inventory at cost was $1,650

1 June Returned goods to Thrush and received $50 credit

2 June Paid $300 cash for rent of premises
3 June Withdrew $500 cash for his own use
4 June Issued a credit note for $80 to Ant for goods returned
5 June Received $500 on account from Wasp
6 June Sold further goods on credit to Ant for $770
7 June Paid $100 cash for light and heat
8 June Paid cash for goods supplied $175
9 June Closing inventory at cost was $1,200.
Required:
Prepare the following for the three months ended 30 June:
(a) Purchases and sales day books and returns day books; (4 marks)
(b) Cash receipts and payments books; (4 marks)
(c) General ledger accounts, including those for purchases and sales; (7 marks)
(d) Payables and receivables ledger control accounts; (4 marks)
(e) Cash control account; (2 marks)
(f) Individual accounts in the payables and receivables ledgers; (5 marks)
(g) A trial balance at 30 June; (4 marks)
(h) A statement of profit or loss for the period; and (5 marks)
(i) A statement of financial position at that date. (5 marks)
(40 marks)
Question 60 HENRY WILLIAMS
Henry Williams commenced business on 1 February with cash at bank of $500. The following
transactions took place during the month:
$
1 February Bought goods from W Martin 250
Purchased warehouse fittings for cash 40
2 February Sold goods to T Crown 80
Drew cheque for personal cash 20
3 February Paid W Martin on account 150
4 February Sold goods to W Wilson 100
5 February Received cheque from T Crown 77
Allowed him discount 3
6 February Drew cheque for wages 7
8 February Bought goods for cash 30
9 February Sold goods to L Robinson 170
10 February Purchased goods from F Pearson 130
11 February Paid W Martin in settlement 95
Discount allowed by him 5
12 February Paid carriage on goods sold 2
Bought goods for cash 40
16 February Sold goods to W Wilson 180
17 February W Wilson paid on account 200
18 February Purchased goods from H Wood 75
19 February Sold goods for cash 92
21 February Sent cheque to H Wood 72
Discount allowed by him 3
22 February Sold goods to T Crown 130


24 February Bought goods for cash 73
25 February Sent cheque on account to W Martin 200
26 February Received from T Crown on account 100
28 February Paid electric lighting account 5
Paid rent 8
Williams drew for personal use 15
Inventory at cost at the end of the month amounted to $325. All cash received was paid into the bank
and all payments were made by cheque.
Required:
(a) Write up the cash receipts and payments books. (8 marks)

(b) Write up the sales and purchases day books. (8 marks)
(c) Record the above transactions in the general ledger, payables ledger and receivables
ledger. You are NOT required to close the accounts. (8 marks)
(d) Extract a list of account at 28 February. (4 marks)
(e) Prepare a statement of profit or loss for the month ended 28 February and a statement
(40 marks)
Question 61 MCQs BOOKS OF PRIME ENTRY AND CONTROL ACCOUNTS
61.1 Which of the following is NOT a book of prime entry?
A Journal
B Sales day book
C Receivables ledger
D Cash book
61.2 An invoice to Radula has been entered in the sales day book as $350, when in fact the correct
amount was $530. The sales day book totals have been posted for the month and the
receivables ledger entries made.
Which of the following procedures should be adopted to correct the position?
A Dr Receivables $180
Cr Sales $180
and reduce the balance shown as owing from Radula
B Dr Sales $180
Cr Receivables $180
and reduce the balance shown as owing from Radula
C Dr Receivables $180
Cr Sales $180
and increase the balance shown as owing from Radula
D Dr Receivables $180
Cr Sales $180
and do not adjust the balance shown in Radula’s account

61.3 You are provided with the following information relating to a firm:
$000
Accounts receivable opening balance 84
Cash received from credit customers 380
Cash sales 16
Credit sales 432
Discounts allowed 9
What is the closing balance for accounts receivable?
A $101,000
B $117,000
C $122,000
D $127,000
61.4 You are provided with the following information relating to a business:
$000
Accounts payable opening balance 180
Cash paid to credit suppliers 490
Cash purchases 19
Credit purchases 530
Credit notes received from suppliers 11
What is the closing balance for accounts payables ?
A $199,000
B $201,000
C $208,000
D $212,000
61.5 The following amounts have been extracted from the books of Feidor in respect of the year to
30 September 2014:
Receivables ledger control at October 2013 $100,000

Discounts received $1,000
Discounts allowed $404
Cash receipts from credit customers $212,050
Cash receipts from cash sales $8,256
Sales on credit $402,010
Dishonoured cheques $75
Sales returns $20,401
What should the balance on the receivables ledger control account at 30 September 2014
be?
A $260,974
B $268,634
C $269,050
D $269,230

The following information relates to 61.6 to 61.8:
The following balances on account appeared in Midget’s general ledger at 31 October 2013:
$
Receivables ledger control account 63,158
Payables ledger control account 32,000
Allowance for trade receivables account 3,158
During the year to 30 September 2014 the following summarised transactions occurred:
$
Sales on credit 550,000
Purchases on credit 276,000
Sales returns 6,000
Purchases returns 4,000
Cash received from customers
(excluding an irrecoverable debt recovered) 514,268
Discount allowed to customers 12,790
Discount received from suppliers 5,900
Irrecoverable debts written off 4,100
Amount recovered from customer whose debt had been written
off as irrecoverable in previous year 542
Customer and supplier accounts settled by setting off one against the other 4,000
The firm’s policy is to make a general allowance for trade receivables amounting to 5% of year-end
accounts receivable.
61.6 What is the balance on the receivable ledger control account at 30 September 2014?
A $71,958
B $72,000
C $72,542
D $76,000
61.7 What is the balance on the payables ledger control account at 30 September 2014?
A $36,000
B $40,000
C $41,900
D $45,900
61.8 What is the total charge to profit or loss for the year to 30 September in respect of
irrecoverable debts?
A $4,000
B $4,100
C $4,542
D $7,158

The following information relates to questions 61.9 and 61.10:
The summarised statement of financial position of a company on 31 December 2014 is as follows:
$ $
Non-current assets (carrying value) 20,000
Current assets
Inventory 50,000
–––––– 90,000
_______
Total assets 110,000
_______
Capital and reserves 30,000
Current liabilities
–––––– 80,000
_______
Total capital and liabilities 110,000
_______
During the month of January 2015 transactions were as follows:

$
Sales 36,000
Purchases 20,000
Sales returns 3,000
Settlement discount allowed 3,000
Irrecoverable debts written off 3,000
Sale of plant 20,000
All trading sales and purchases are on credit. On 31 January 2015 the company set up an allowance for
trade receivables of $6,000.
61.9 What is the balance in the company’s cash book on 31 January 2015?
A $10,000 credit
B $10,000 debit
C $70,000 credit
D $70,000 debit
61.10 What are the company’s net trade receivables that should be carried in its statement of
financial position at 31 January 2015?
A $36,000
B $39,000
C $42,000
D $45,000

61.11 The following information relates to a business for the year ended 31 December 2014:
$
Trade receivables at 1 January 2014 289,376
Trade payables at 1 January 2014 301,972
Cash sales 69,589
Cash from credit customers 795,373
Irrecoverable debts to be written off 9,550
Returns inwards 7,000
Amounts paid to suppliers 475,353
Returns outwards 3,525
Credit sales 626,575
Receivables to be allowed for
(additional to those to be written off) 9,527
What is the balance on the trade receivables ledger control account at 31 December
2014?
A $81,545
B $91,072
C $104,028
D $101,501
(22 marks)
Question 62 BRABANTIA
The payables ledger control account of Brabantia is as follows:
$ $
Purchase returns 13,418 1.1 Balance b/d 84,346
Cash book 525,938 Purchases (purchases
31.12 Balance c/d 97,186 day book) 552,196
_______ _______
636,542 636,542
_______ _______
Balances extracted from the payables ledger totalled $96,238.
The following errors have been discovered:

(1) The purchases day book was undercast by $6,000.
(2) A cash account total of $10,858 was posted to the control account as $9,058.
(3) A credit balance of $1,386 on the suppliers’ ledger had been set off against a customer’s
ledger debit balance but no entry had been made in the control accounts.
(4) A debit balance of $40 in the list of individual supplier’s ledger balances had been extracted
as a credit balance.
(5) A credit balance of $3,842 had been omitted from the list of balances.

Required:
(a) Correct the control account. (5 marks)
(b) Reconcile the sum of the balances extracted with the adjusted control account balance.
(4 marks)
(9 marks)
Question 63 TARTUFO
The following balances were extracted from the general ledger of Tartufo trial balance on 30 June:
Receivables ledger control account $30,434

Payables ledger control account $18,740
Neither of the control account balances agree with the lists of individual balances extracted from the
receivables and payables ledgers. The following errors were discovered:
(1) Credit balances of $1,314 and debit balances of $72 in the payables ledger had been omitted
from the list of balances.
(2) The sales day book had been overcast by $3,950.
(3) A discount allowed to Chas of $40 had been posted to the credit of his account in the payables
ledger.
(4) A transfer of $620 from Wilhelm’s account in the receivables ledger to the debit of his
account in the payables ledger had been made in April. No further entries had been made.
(5) A page total in the purchases day book of $3,685 had been carried forward as $3,865.
(6) Jenga had been debited for goods returned to him, totalling $340, but no other entries had been
made.
On correction of these errors the control accounts agreed with the lists of individual balances.
Required:
(a) Write up the control accounts with any necessary adjustments. (6 marks)
(b) Prepare a reconciliation of the totals of the individual balances to determine the totals
originally extracted from the ledgers. (4 marks)
(10 marks)
Question 64 RACY
The following information related to Racy for the year to 30 June 2015:
Extract from the payables ledger control account at 30 June 2015

$
Trade payables at 1 July 2014 30,000
Payments made to suppliers in respect of credit purchases 322,000

The bookkeeper has extracted a list of credit balances totalling $39,800. The listing included no debit
balances. When the accountant checked the ledger control account and suppliers’ listing the following
errors were found:
(1) Purchases of goods totalling $1,500 were omitted from Roy’s account.
(2) Discounts allowed of $500 had been debited to Joe’s account.
(3) David’s account had been omitted from the list of balances; it totalled $2,000.
(4) Discounts received of $3,500 had been entered in the control account but not in any of the
payables ledger accounts.
(5) Cash of $50 paid to Freddie had been credited to his account, and a cheque paid to James for
$250 had been omitted from his ledger account.
(6) During the year Racy had bought a typewriter for cash from one of its suppliers, Piax, which
went into liquidation. The cash paid of $50 had been entered in Piax’s account in the
payables ledger, even though the item was not a credit transaction.
Required:
(a) Prepare the payables ledger control account for the year ended 30 June 2015. (9 marks)
(b) Prepare a statement reconciling the total per the list of individual supplier’s balances to
the balance per the control account. (6 marks)
(15 marks)
Question 65 TELETUBBY
Teletubby had the following balances on its control accounts at 30 September 2014:
Receivables ledger control account $38,076

Payables ledger control account $30,887
Also on 30 September 2014 the net totals of the balances extracted from the receivables ledger were
$22,620 and from the payables ledger $21,805.
During the company’s audit the following errors were discovered to have occurred during the year to
September:
(1) The sales returns of $7,164 and the purchases returns of $5,328 for June 2014 had been
posted to the credit side of the payables ledger control account and to the debit side of the
receivables ledger control account respectively.
(2) In August 2014 the receivables ledger column of the debit side of the cash book had been
undercast by $1,000.
(3) In January 2014 a contra for $681 had been credited to the receivables ledger control account
and debited to the payables ledger control account but no entries had been made in the
appropriate personal accounts.
(4) On the listing of accounts receivable a credit balance of $316 had been listed as a debit
balance. A credit balance of $96 had been listed as $69 on the accounts payable listing.

(5) A cheque for $527 from a customer paid into the bank on 25 September 2014 was
dishonoured on 28 September 2014. It was re-presented and cleared on 4 October 2014. No
entry had been made in the accounting records for this item since 25 September 2014.
(6) In March 2014 the total of cash receipts from credit customers, amounting to $27,342, was
posted to the debit of the payables ledger control account. At the same time the total of cash
paid to suppliers, amounting to $24,586, was posted to the credit of the receivables ledger
control account.
(7) In extracting the balances from the receivables ledger a debit balance of $521 had been
overlooked.
Required:
Prepare statements
(a) Reconciling the receivables ledger listing with the corrected receivables ledger control
account balance at 30 September 2014. (8 marks)
(b) Reconciling the payables ledger listing with the corrected payables ledger control
account balance at 30 September 2014. (8 marks)
(16 marks)
Question 66 ROBIN & CO
The balance on the receivables ledger control account of Robin & Co on 30 September amounted to
$3,800 which did not agree with the net total of the list of receivables ledger balances at that date.
Errors were found and the appropriate adjustments, when made, balanced the books.
The items were as follows:
(1) Debit balances in the receivables ledger, amounting to $103, had been omitted from the list of
balances.
(2) An irrecoverable debt amounting to $400 had been written off in the receivables ledger but
had not been posted to the irrecoverable debts expense account or entered in the control
account.
(3) An item of goods sold to Sparrow, $250, had been entered once in the sales day book but
posted to his account twice.
(4) $25 discount allowed to Wren had been correctly recorded and posted in the books. This sum
had been subsequently disallowed, debited to Wren’s account, and entered in the discount
received column of the cash book.
(5) No entry had been made in the control account in respect of the transfer of a debit of $70 from
Quail’s account in the receivables ledger to his account in the payables ledger.
(6) The discount allowed column in the cash account had been undercast by $140.
Required:
(a) Make the necessary adjustments in the receivable ledger control account and bring
down the corrected balance. (8 marks)

(b) Show the adjustments to the net total of the original list of balances to reconcile with the
amended balance on the receivables ledger control account. (7 marks)
(15 marks)
Question 67 SHOWERS
Showers sells bathroom fittings on credit to most of its customers. In order to control its debt collection
system, the company maintains a trade receivables ledger control account. In preparing the accounts
for the year to 30 October 2014 the accountant discovers that the total of all the personal accounts in the
trade receivables ledger amounts to $12,802, whereas the control account balance discloses a balance of
$12,550.
Upon investigation the following errors were discovered:
(1) Sales for the week ending 27 March 2014 amounting to $850 had been omitted from the
control account.
(2) An account balance of $300 had not been included in the list of balances.
(3) Cash received of $750 had been entered in a personal account as $570.
(4) Discounts allowed totalling $100 had not been entered in the control account.
(5) A personal account balance had been undercast by $200.
(6) A contra item of $400 with the trade payables ledger had not been entered in the control
account.
(7) An irrecoverable debt of $500 had not been entered in the control account.
(8) Cash received of $250 had been debited to a personal account.
(9) Discounts received of $50 had been debited to a customer’s ledger account.
(10) Returns inwards valued at $200 had not been included in the control account.
(11) Cash received of $80 had been credited to a personal account as $8.
(12) A cheque for $300 received from a customer had been dishonoured by the bank, but no
adjustment had been made in the control account.
Required:
(a) Prepare a corrected trade receivables control account, bringing down the amended
balance at 31 October 2014.
(b) Prepare a statement showing the adjustments that are necessary to the list of personal
account balances so that it reconciles with the amended control account balance.
(15 marks)

Question 68 HUBERT
Hubert maintains his accounts on a fully integrated computerised accounting system which produces
control accounts as an integral part of the double entry system. At the end of each month individual
sales and purchase ledger balances are reconciled automatically to the respective control accounts as a
pre-programmed control check.
Unfortunately Hubert was taken ill in the middle of August and his assistant input a number of entries
without the correct integration codes. Consequently the system has been unable to reconcile the control
accounts at the end of that month. The assistant has manually extracted the individual ledger balances,
and the net totals at 31 August are as follows:
Purchase ledger $3,556

Sales ledger $9,617
The assistant has also manually produced draft accounts for the six months to 31 August and provides
you with the following abridged trial balance:
$ $
Sales ledger control account 9,650
Purchase ledger control account 7,496
Profit per draft accounts 4,322
Sundry balances (net) 2,168
–––––– ––––––
11,818 11,818
–––––– ––––––
You have checked through the accounting records and discovered the following discrepancies:
(1) The total for the purchases day book input total for August has been incorrectly shown as
$6,241 following a manual override. The total should have been $2,641.
(2) An old debit balance of $28 in the purchase ledger had been written off during August as
irrecoverable. You discover that no entry had been input other than in the individual
supplier’s ledger account.
(3) Discounts allowed for the month of August amounted to $671. An uncoded entry of these had
been made in the discount allowed column of the cash account but no other entry had been
made.
(4) A payment of $260 on 14 August relating to the payment of a July purchases invoice had
been wrongly input in the cash account as wages.
(5) During the month of August there had been a mix-up over goods supplied to a customer,
Dougal. The goods were invoiced for $62, despatched to Dougal and correctly entered in the
system on 5 August. Several items turned out to be defective and were returned by Dougal on
28 August. These goods, originally costing $14, were included in the original invoice of $62
at an amount of $17. No entry was made in the books as a result of the return of the goods
but they were manually input into the inventory account at $17. Owing to their damaged state
their net realisable value is estimated to be $5.
(6) Hubert has received discounts during the month amounting to $280. However, these have
only been manually input to the individual suppliers’ accounts.

(7) Certain discrepancies in the print-out of balances at 31 August have come to light, suggesting
a software error might also have occurred. You discover that:
(i) debit balances on the sales ledger of $54 and $69 respectively had been completely
omitted from the listing;
(ii) a credit balance on the purchase ledger of $71 had been listed as a debit balance of
$17;
(iii) the total of debit entries on Hoppo’s account in the sales ledger had been overcast
by $90.
Required:
(a) Manually adjust the sales and purchase ledger control accounts and show the
reconciliation of the closing balances with the aggregate of the individual balances
extracted from the purchase and sales ledgers. (15 marks)
(b) Compute a revised profit for the six month period to 31 August. (7 marks)
(22 marks)
Question 69 MCQs CONTROL ACCOUNT RECONCILIATIONS
The following information relates to questions 69.1 to 69.3:
A company maintains control accounts in its general ledger.
69.1 An irrecoverable debt of $900 was written off an account in the receivables ledger, but not
recorded in the control account.
What corrective action is required?
Receivables ledger List of balances

control account
A None Reduce total by $900
B Dr $900 None
C None Increase total by $900
D Cr $900 None
69.2 $479 was recovered from a customer. A 95% specific allowance had been made against this
account last year. Total cash received has been entered in the control account, but no entry
has been made in the customer’s account in the receivables ledger.
What is the correcting action?
Receivables ledger List of balances

control account
A Dr $455 Decrease total by $455
B Cr $479 None
C Cr $455 Increase total by $455
D None Decrease total by $479

69.3 The total figure for trade payables extracted from the suppliers’ ledger is $19,579.
The figure does not agree with the balance on the payables ledger control account. The
following errors have been identified:
(i) A contra entry of $5,100 between a customer and a supplier has not been recorded
in the general ledger
(ii) Discounts received of $3,110 had been recorded in the general ledger only.
What is the correct balance on the payables ledger control account?
A $11,369
B $14,479
C $16,469
D $21,569
69.4 On checking a list of balances of suppliers’ ledger accounts, it is found that the total is $2,250
more than the balance on the payables ledger control account.
Which of the following errors could, by itself, account for this difference?
A The total of contra entries against receivables accounts is overstated by $1,125

B Purchases day book has been overcast by $2,250
C A credit note for $1,125 has been omitted from a supplier’s ledger account
D A supplier’s ledger account with a debit balance of $1,125 has been treated as a
credit balance
(8 marks)
Question 70 TALANT
Talent’s cash book, for the month of October, was as follows:
Cash book
$ $
1 Oct Balance 2,250 2 Oct Grenadine 476
10 Oct Ambrosia 508 14 Oct Holly 285
17 Oct Bertram 616 19 Oct Ivan 367
28 Oct Crisp 735
The statement received from the bank on 5 November showed the following:
Date Details Withdrawals Deposits Balance ($)

1 OCT Balance from sheet no. 42 2,250
2 OCT GRENADINE 476 1,774
4 OCT RICHMOND DC (D/D) 370 1,404
12 OCT AMBROSIA 508 1,912
16 OCT HOLLY 285 1,627
17 OCT CHARGES (SEPT) 52 1,575
17 OCT BERTRAM 626 2,201
28 OCT PPI PLC (DIVIDEND) 126 2,327
28 OCT BUILDING SOCIETY (S/O) 280 2,047
31 OCT Balance to sheet no. 44 2,047

The bank does not make mistakes.
Required:
Adjust the cash book and prepare a bank reconciliation statement as at 31 October.
(8 marks)
Question 71 PRINGLE
On 30 June the cash account of Pringle’s business showed a balance at bank of $1,500. The bank
statements showed that cheques for $70, $90 and $100 had not been presented for payment and that
deposits totalling $210 had not been cleared. The balance on the bank statement at 30 June was $1,550.
Required:
Prepare a bank reconciliation statement. (5 marks)
Question 72 WHITE
On 30 November the bank account of White, according to the cash account, was overdrawn to the
extent of $16. On the same date the bank statement showed a balance in favour of White of $6.
An examination of the cash account and bank statement reveals the following:
(1) Two cheques paid into the bank on 30 November were not recorded on the bank statement
until 1 December.
Black $40
Green $60
(2) Three cheques issued prior to 30 November were not presented to the bank for payment until
after that date.
002404 $20
002407 $32
002408 $70
Required:
Prepare a bank reconciliation statement at 30 November. (6 marks)
Question 73 GORBACHEV
The cash account of Gorbachev showed a debit balance of $204 on 31 March. A comparison with the
bank statements revealed the following:
$
(1) Cheques drawn but not presented 3,168
(2) Amounts paid into the bank but not credited 723
(3) Entries in the bank statements not recorded in the cash account
(i) Standing order 35
(ii) Interest on bank deposit account 18
(iii) Bank charges 14
(4) Balance on the bank statement at 31 March 2,618

Required:
(a) Show the appropriate adjustments required in the cash account of Gorbachev bringing
down the correct balance at 31 March. (5 marks)
(b) Prepare a bank reconciliation statement at that date. (3 marks)
(8 marks)
Question 74 JOVANOVICH
The balance in Jovanovich’s cash account at 30 June showed an asset of $1,660; his bank statement
showed a balance of $450 but he was unable to determine from the statement whether the balance was
in hand or overdrawn. On reconciling the cash account he discovers the following:
(1) The debit side of the cash account had been undercast by $200.
(2) A total on the receipts side of the cash account of $2,475 had been brought forward as $4,275.
(3) A cheque received by Jovanovich for $220 had been dishonoured (i.e. refused by the paying
bank).
(4) Bank charges of $24 and standing orders totalling $160 had been omitted from the cash
account.
(5) Unpresented cheques totalled $520 and uncleared deposits $626.
Required:
(a) Write up an adjusted cash account. (5 marks)

(b) Prepare a bank reconciliation statement at 30 June. (3 marks)
(8 marks)
Question 75 NORTH STAR COMPANY
The following is a summary from the cash account of the North Star Company:
Cash account
$ $
Opening balance b/d 2,814 Payments 31,040
Receipts 30,146 Closing balance c/d 1,920
______ ______
32,960 32,960
______ ______
On investigation you discover the following:

(1) Bank charges of $70 shown on the bank statement have not been entered in the cash account.
(2) A cheque drawn for $94 has been entered in error as a receipt in the cash account.
(3) A cheque for $36 has been returned by the bank marked “refer to drawer” but it has not been
written back in the cash account.
(4) An error has occurred in that the opening balance in the cash account should have been
carried down as $2,940.

(5) Three cheques paid to suppliers for $428, $740 and $60 have not yet been presented to the
bank.
(6) The final entry in the paying-in book shows $3,084 being paid in which has not yet been
credited to the account by the bank .
(7) The bank has debited a cheque for $144 in error to the company’s account.
(8) The bank statement shows an overdrawn balance of $248.
Required:
(a) Show the adjustments required in the cash account. (7 marks)
(b) Prepare a bank reconciliation statement. (5 marks)
(12 marks)
Question 76 DEALERS
On 30 April 2015 the bank account of Dealers, according to the cash account, was overdrawn to the
extent of $1,062. On the same date the bank statement showed a balance in favour of Dealers of
$2,149.
An examination of the cash account and bank statements reveals the following:
(1) In carrying forward the page totals in the cash account, the total of the credit side on one page
amounting to $10,502 has been carried forward at $10,052.
(2) A bank deposit of $698 made on 30 April 2015 was not recorded on the bank statement until
1 May 2015.
(3) A hire purchase payment of $91 made by standing order had not been entered in the cash
account.
(4) A cheque payment of $94 had been entered twice in the cash account.
(5) Bank charges amounting to $57 had not been entered in the cash account.
(6) On 29 April 2015 the bank credited an amount of $341 received by trader’s credit, but the
advice was not received by Dealers until 1 May 2015.
(7) On 15 April 2015 the bank credited the sum of $1,560 to Dealers in error.
(8) A receipt paid into the bank by Dealers on 20 April 2015 was dishonoured on 28 April 2015,
but no entry has been made in the books of Dealers. The sum involved was $100.
(9) Certain cheques issued prior to 30 April 2015 were not presented to the bank for payment
until after that date.
Required:
(a) Show the appropriate adjustments required in the cash account of Dealers, bringing
down the correct balance on 30 April 2015. (9 marks)
(b) Prepare a bank reconciliation statement at that date. (6 marks)
(15 marks)

Question 77 GENEVA
The following is a summary of the cash account of Geneva for the month of December:
Cash account
$ $
Receipts 1,469 Balance b/f 761
Balance c/f 554 Payments 1,262
______ ______
2,023 2,023
______ ______
All receipts are banked and payments made by cheque.
On investigation you discover the following:
(1) Bank charges of $136 entered on the bank statement had been omitted from the cash account.
(2) Cheques drawn amounting to $267 had not been presented to the bank for payment.
(3) Cheques received totalling $762 had been entered in the cash account and paid into the bank,
but had not been credited by the bank until January.
(4) A cheque for $22 had been entered as a receipt in the cash account instead of as a payment.
(5) A cheque for $25 had been debited by the bank in error.
(6) A cheque received for $80 had been returned by the bank and marked “No funds available”;
no adjustment had been made in the cash account.
(7) All dividends receivable are credited directly to the bank account; during December amounts
totalling $62 were credited by the bank and no entries made in the cash account.
(8) A cheque drawn for $6 had been incorrectly entered in the cash account as $66.
(9) The balance brought forward should have been $711, not $761.
(10) The bank statement at 31 December showed an overdraft of $1,162.
Required:
(a) Show the adjustments required in the cash account. (9 marks)

(b) Prepare a bank reconciliation statement at 31 December. (6 marks)
(15 marks)
Question 78 MCQs BANK RECONCILIATIONS
78.1 Which one of the following would create a timing difference to be recognised in the
preparation of a bank reconciliations?
A Unpresented cheques
B Cash book errors
C Standing orders
D Bank charges

78.2 Which one of the following would NOT be an adjustment to the cash book in carrying
out a bank reconciliation?
A Outstanding lodgements
B Credit transfers
C Direct debits
D Bank interest
A company is preparing its bank reconciliation at 31 December 2014. The following receipts and
payments have been entered into the cash account:
Date of cash book entry Date entered on Amount

bank statement $
Receipts
31 December 2014 2 January 2015 17,432
30 December 2014 31 December 2014 18,243
2 January 2015 31 December 2015 24,241
2 January 2015 4 January 2015 25,489
Payments
28 December 2014 30 December 2014 10,947
31 December 2014 2 January 2015 8,976
6 January 2015 9 January 2015 24,742
5 January 2015 29 December 2014 7,489
78.3 What amount will appear on the bank reconciliation as uncleared deposits?
A $85,405
B $41,673
C $35,675
D $17,432
78.4 What amount will appear on the bank reconciliation as unpresented cheques?
A $8,976
B $16,474
C $32,008
D $52,163
(8 marks)
Question 79 YULIA
The difference on the trial balance of Yulia’s business whereby the debit column exceeded the credit by
$56 has been transferred to a suspense account. The following errors had been made:
(1) Purchase of goods from A Malkov for $120 had been credited to the account of H Malkov.
(2) Sale of goods to A Harkal for $27 had been credited to his account.
(3) Sale of plant for $190 had been credited to sales.
(4) Sale of goods to D Herman entered in day book as $120, but debited to his account as $12.
(5) Sales day book undercast by $200.
(6) A balance for rent payable accrued as $30 in previous period has not been brought forward in
the current period.

(7) Petty cash balance, $12, omitted from the list of account balances.
The company does not maintain control accounts in respect of its receivables and payables ledgers.
Required:
(a) Prepare the journal entries necessary to correct errors (1) to (7) above. (7 marks)
(b) Write up and clear the suspense account. (3 marks)
(10 marks)
Question 80 OGRE
Ogre does not maintain separate control accounts for its receivables and payables ledgers, keeping
individual supplier and customer accounts in the general ledger, but posting day book totals to the
various income and expense accounts.
The credit column of the computerised trial balance of Ogre exceeded the debit column by $940 and a
suspense account was automatically opened to record the difference together with an error report. The
following errors were subsequently discovered and after these were corrected the books balanced:
(1) The manual sales returns day book was undercast by $90 and input into the system.
(2) Goods sold for $120 in respect of account no. 10591 were input to account no. 10951 in the
receivables ledger.
(3) Light and heat of $420 accrued due at the end of the previous year had been manually
reversed in the current year as a debit balance in the expense account.
(4) A sales invoice of $350 had been correctly input in the sales day book account but a software
error led to its posting to the customer’s account as $530.
(5) The discounts column in the manual discounts allowed book totalled $980 and this total was
input as a credit to the discounts received account as $890.
Required:
Write up the suspense account. (8 marks)
Question 81 GROAN
The list of account balances of Groan at 31 December did not balance and a suspense account was
opened to record the difference. On a subsequent examination of the books the following errors were
found, and after their correction the books balanced:
(1) The purchases day book was overcast by $200.
(2) A prepayment for telephone rental of $45 at the end of the previous year had been reversed as
a credit balance of $54 in the current year in the expense account.
(3) The discounts column in the cash payments book totalled $620 and had been posted to the
debit of discounts account.
(4) Titus had supplied goods to the company amounting to $430. He had also been supplied with
goods by Groan totalling $310. It was decided that the latter amount be set against the
balance due to Titus on the payables ledger, but the transfer had in fact been made to Trite’s
account in the payables ledger.

(5) A payment for salaries and wages in the cash account for $740 had been posted to the credit
of salaries account in the nominal ledger as $470.
(6) A cheque for $55 received from a customer, Bouncer, had been correctly entered in the
relevant accounts and duly paid into the bank, but was dishonoured on presentation. No
entries had been made in the books of Groan to record the dishonoured cheque. (The cheque
was subsequently honoured on re-presentation on 10 January.)
The company does not maintain control accounts in respect of its payables and receivables ledgers.
Required:
(a) Prepare the journal entries necessary to correct errors (1) to (6) above. (9 marks)
(b) Write up the entries in the suspense account to determine the original difference.
(6 marks)
(15 marks)
Question 82 BLACKWATER TRANSPORT
At the end of January a trial balance extracted from the books of Blackwater Transport did not balance
and a suspense account was opened with a debit balance of $294. The following matters were
discovered:
(1) $468 had been received during January from a customer who owed $480. No entry had been
made for the $12 outstanding but it had been decided to treat it as a cash discount.
(2) Returns to suppliers in January were posted correctly to individual accounts but were
incorrectly totalled. The total was overstated by $200 and was posted to the returns account.
(3) A bank statement drawn up to 31 January showed a credit balance of $240; the cash account
in the trial balance showed an overdraft of $174. The difference comprised the following:
(i) A direct debit of $140 (for subscriptions) not entered in the books of account
(ii) A payment to a supplier in the cash book showing as $240 instead of $420; the
amount was also entered as $240 in the supplier’s account
(iii) Unpresented cheques of $654
(iv) An addition error in the cash account for the rest of the difference.
(4) A cheque for $326 was received from a previously written-off debt. It was correctly entered
in the cash account but not posted elsewhere.
(5) An account receivable with a balance of $360 was not included when the trial balance was
extracted.
(6) A credit note for $10 sent to a customer had been posted to the wrong side of the customer’s
account receivable.
The individual trade accounts receivable and payable form part of the double entry.
Required:
Show the correcting journal entries necessary. Include a bank reconciliation in your workings.
(15 marks)

Question 83 SMETENA NEWSAGENTS
The bookkeeper has produced the following statement of financial position at 31 December for
Smetena Newsagents:
$ $
Non-current assets 72,208
Current assets
Inventory 18,826
Drawings 8,260
Suspense account 3,830
Cash 700
______
57,832
_______
130,040
_______
Capital account 50,224
Loan – L Franks 12% 20,000
Profit for year 18,400
_______
130,040
_______
Jan Smetena, the proprietor, is unhappy with the draft statement of financial position and asks you to
revise it. You discover the following:
(1) The suspense account balance represents the difference on the trial balance.
(2) The purchases day book total for October of $4,130 was posted to the purchases account as
$4,310 although the correct entry was made to the payables ledger control account.
(3) Inventory sheets were overcast by $2,000.
(4) Cash should be $110.
(5) Fixtures and fittings account balance of $4,600 has been omitted from the trial balance.
(6) Interest for a half year on the loan account has not been paid and no allowance has been made
for it.
Required:
(a) Show the journal entries to correct the above errors. (6 marks)
(b) Write up the suspense account. (5 marks)
(c) Draw up a revised statement of financial position at 31 December. Clearly show the
adjustments to profit. (7 marks)
(18 marks)

Question 84 ALPHA
After completing a draft statement of profit or loss for the year ended 30 June 2015 of Alpha, the
following balances remained and a suspense account entry was required for the difference which had
arisen:
Dr Cr
$ $
Non-current assets at cost 70,000
Accumulated depreciation 46,500
Share capital 40,000
Retained earnings 15,000
Inventory at cost 16,000
Receivables ledger control account 13,780
Payables ledger control account 7,200
Balance at bank 1,740
––––––– –––––––
108,700 108,700
––––––– –––––––
During the audit the following errors were found:
(1) A rent payment in April of $500 had been debited to the receivables ledger control account.
(2) A contra of $1,500 between the receivable and payables ledger control accounts had not been
made.
(3) Discounts allowed of $750 had not been recorded by the company.
(4) A cheque for $3,220 was sent to a customer in February. This was a refund to the customer
for faulty goods that the customer had paid for. The refund had been entered in the cash book
but no other entry made. Correct entries to the sales returns and receivables control accounts
were made when the goods were originally returned to Alpha.
(5) A payment of $1,460 for telephone expenses had not been posted to the ledger account
although cash had been credited.
(6) The sales day book had been overcast in September 2014 by $250.
(7) A payment from Sigma for $2,500 for cash sales had been credited to the control account as
well as the sales account.
(8) No entries had been made for bank charges of $2,120 incurred by the company which
appeared on its bank statement.
Required:
Prepare:
(a) the necessary journal entries for the above transactions; (8 marks)
(b) a statement of adjusted retained earnings; (4 marks)
(c) a corrected list of account balances at 30 June 2015; and (4 marks)
(d) a statement of financial position at 30 June 2015. (4 marks)
(20 marks)

Question 85 COSY COMFORTS
While you are preparing the annual accounts of Cosy Comforts for the year 2014, the following matters
have to be taken into account at 31 December:
(1) The accrual for discounts allowed to customers, which at present has a balance of $229.53,
needs to be reduced to $157.40.
(2) Debts totalling $64.80 are now known to be irrecoverable and must be written off. However,
an amount of $21.44 written off as an irrecoverable debt in the previous year has now been
recovered in full, but the cheque has just been paid into the bank but not posted to the
accounts.
(3) Due to an oversight a discount has been allowed to a credit customer on the gross invoiced
amount of $80 at the rate of 10%. A rate of 6% should have been used.
(4) Electricity accrued amounts to $36.71 while insurance premiums of $22.45 have been
prepaid.
(5) In October 2014 the employees of the business received a general wages increase backdated
to July 2014. There are now amounts of wages arrears, totalling $126.55, payable to former
employees who left shortly before the wages award was announced and who have not yet
been traced. It has been decided that the wage packets will be opened and the cash paid back
into the bank until those ex-employees can be found.
(6) Amounts earned by employees in the last week of December 2014 but not due to be paid until
January 2015, comprise wages $464.12 and salaries $301.70.
(7) During 2014 the exterior of the warehouse was repainted at a cost of $5,000. The whole of
this amount was wrongly debited to premises account. It is the policy of Cosy Comforts to
charge depreciation on the closing balances of non-current assets and this has already been
done. The annual rate of depreciation on premises is 2%, calculated on the straight-line basis
and assuming no residual value.
(8) In December 2014 Cosy Comforts had bought goods on credit from Conbrec for $452.10 and
sold goods on credit to that same company for $163.04. These sums have been correctly
posted to their respective accounts. These accounts are to be settled in contra at 31 December
2014 and remaining balance by cheque in January 2015.
Required:
Prepare suitable entries in the journal of Cosy Comforts to record each of the above matters at 31
December 2014.
(20 marks)
Question 86 RAFAL JAFFA
The trial balance of Rafal Jaffa, as produced by his bookkeeper, includes the following:
$
Sales ledger control account 110,172
Purchase ledger control account 78,266
Suspense account (debit balance) 2,315

You have been given the following information:
(a) The sales ledger debit balances total $111,111 and the credit balances total $1,234.
(b) The purchase ledger credit balances total $77,777 and the debit balances total $1,111.
(c) The sales ledger includes a debit balance of $700 for business X, and the purchase ledger
includes a credit balance of $800 relating to the same business X. Only the net amount will
eventually be paid.
(d) Included in the credit balance on the sales ledger is a balance of $600 in the name of H Patel.
This arose because a sales invoice for $600 had earlier been posted in error from the sales day
book to the debit of the account of M Patel in the purchase ledger.
(e) An allowance of $300 against some damaged goods had been omitted from the appropriate
account in the sales ledger. This allowance had been included in the control account.
(f) An invoice for $456 had been entered in the purchase day book as $654.
(g) A cash receipt from a credit customer for $345 had been entered in the cash book as $245.
(h) The purchase day book had been overcast by $1,000.
(i) The bank balance of $1,200 had been included in the trial balance, in error, as an overdraft.
(j) The bookkeeper had been instructed to write off $500 from customer Y’s account as an
irrecoverable debt, and to reduce the trade receivables allowance by $700. By mistake,
however, he had written off $700 from customer Y’s account and increased the allowance by
$500.
(k) The debit balance on the insurance account in the general ledger of $3,456 had been included
in the trial balance as $3,546.
Required:
(a) Record corrections in the control and suspense accounts. (8 marks)
(b) Reconcile, as far as the information permits, the sales ledger control account with the
sales ledger balances, and the purchase ledger control account with the purchase ledger
balances. (9 marks)
(c) Comment on your findings and any action you now recommend. (3 marks)
(20 marks)

Question 87 XYZ
You are presented with the following draft financial statement of position for XYZ at 30 September
2014:
Cost Depreciation Carrying
amount
$ $ $
ASSETS
Non-current assets
Plant 150,000 60,000 90,000
Vehicles 20,000 10,000 10,000
_______ ______ _______
170,000 70,000 100,000
_______ ______
Current assets
Inventories 10,000
Cash 500
______
30,500
_______
_______
EQUITY AND LIABILITIES
Capital and reserves
Capital 20,000
Profit for the year 53,600
______
118,500
Current liabilities
_______
130,500
_______
Upon investigation you discover the following errors:
(1) The balance on the trade receivables allowance account at 1 October 2013 had been credited
to profit or loss. The balance of the account at that date was $1,800.
(2) The allowance against trade receivables should have been made equal to 10% of trade
receivables at 30 September 2014.
(3) Depreciation is charged on plant at a rate of 20% per annum on cost, and on vehicles at a rate
of 50% per annum on the reduced balance. The depreciation for the year to 30 September
2014 has been correctly charged to profit for that year, but no adjustments have been made
elsewhere.
(4) The closing inventories amounted to $12,000, but the amount shown on the statement of
financial position was the opening inventories.
(5) A transposition error had understated sales by $900.
(6) A new motor vehicle costing $5,000 had been included in motor expenses. It is the
company’s policy not to charge any depreciation in the year of acquisition.
(7) Drawings amounting to $10,000 had been debited to profit or loss.

(8) Discounts allowed of $1,000 had been credited to the profit or loss and discounts received
amounting to $1,500 had been debited to the profit or loss.
(9) A loan of $5,000 had been credited to profit or loss.
(10) Trade payables had been understated by $10,000.
Required:
Prepare XYZ’s corrected statement of financial position at 30 September 2014. A working

showing how the suspense account is cleared should be included.
Note XYZ does not maintain control accounts. (18 marks)
Question 88 CND
The bookkeeper has prepared a preliminary trial balance of CND for the year ended 31 December as
follows:
$ $
Retained earnings at 1 January 50,000
Bank loan 30,458
Trade receivables and payables 77,240 60,260
Cash in hand and bank overdraft 1,000 5,036
Inventories at 1 January 108,000
Non-current assets at cost and accumulated depreciation
at 31 December 161,879 60,943
Depreciation for the year 15,000
Purchases and revenues 300,297 400,000
Returns 4,370 4,630
Discounts allowed and received 9,760 6,740
Wages and salaries (net) 15,146
Payments of tax on wages and salaries 5,988
Payments of social security contributions 1,766
Tax on wages and salaries payable at 1 January 900
Proceeds of sale of non-current assets 2,000
Rent and insurance 18,036
Postage, telephone and stationery 3,009
Repairs and maintenance 2,124
Advertising 4,876
Packing materials 924
Motor expenses 2,000
Sundry expenses 1,000
Loan interest 4,000
Accrued expenses 6,478
––––––– –––––––
737,445 737,445
––––––– –––––––
When the bookkeeper discovered that the preliminary trial balance did not balance he made it do so by
opening a suspense account and entering the required amount on the appropriate side. A subsequent
investigation shows the following mistakes have been made:

(1) A loan to the business of $10,000 from the owner’s brother, X, has been added to capital.
(2) Accrued interest on the bank loan of $458 has been credited to the bank loan account instead
of being treated as a current liability.
(3) Bank charges of $1,000 have been completely omitted from the books.
(4) Non-current assets with an original cost of $11,879 and accumulated depreciation of $10,943
have been sold for $2,000. This amount is shown as a separate item in the trial balance, and
no entries have been made in the asset or accumulated depreciation accounts. Any surplus or
deficit on sale should be shown in a separate account.
(5) Deductions of $6,088 for personal tax and $1,766 for social security contributions, retirement
benefits, etc, were made from employees’ wages and salaries during the year. No entries have
been made for these items.
(6) In addition to allowing discount of $240 and receiving discount of $260, various customers’
and suppliers’ accounts amounting to $10,000 were set off by contra. No entries whatever
have been made in respect of these items.
(7) Trade receivables amounting to $2,000 are irrecoverable and need to be written off.
(8) A debt of $1,000 written off as irrecoverable in a previous year has been recovered in full.
The amount has been credited to the personal account and deducted from the trade receivables
ledger control account.
(9) Goods returned from a customer of $630 have been correctly entered into the personal
account, but by mistake were entered in the returns outwards journal.
(10) A payment for stationery of $234 was correctly entered in the cash book but debited in the
ledger as $243.
(11) A payment of $76 for packing materials has been correctly entered in the cash book, but no
other entry has been made.
(12) A payment of $124 for advertising has been debited to repairs and maintenance.
(13) A cheque payment of $26 for insurance has been recorded in all accounts as $62.
(14) A page in the purchase account correctly totalled $125,124 was carried forward to the top of
the next page as $125,421.
All entries other than those given above are to be assumed to have been made correctly.
Required:
(a) Show the correcting entries in journal form (i.e. showing accounts and amounts debited
and credited but no supporting narrative is required) in respect of each of the mistakes
mentioned above. (16 marks)
(b) Show the trial balance of the company at 31 December after these corrections have been
made. A working showing how the suspense account is cleared should be included.
(10 marks)
Note Control accounts are not maintained.
(26 marks)

Question 89 MCQs SUSPENSE ACCOUNTS
89.1 The sales day book of a company is undercast by $500. The company does not maintain
control accounts.
What journal entry is required to correct the error?
A Dr Sales a/c
Cr Customer (receivable) a/c
B Dr Sales a/c
Cr Suspense a/c
C Dr Customer (receivable) a/c

Cr Sales a/c
D Single entry:
Cr Sales a/c
The following information relates to items 89.2 to 89.5:
The trial balance of Bishopsgate does not balance. The bookkeeper has entered the difference in a
suspense account, and then discovers several errors. Bishopsgate does not maintain control accounts.
For each of items 89.2 to 89.5 select the entry which corrects the error.
89.2 A cheque paid to Knight for $100 had been entered on the credit side of his account payable.
Debit $ Credit $
A Knight a/c 100 Suspense a/c 100
B Suspense a/c 100 Knight a/c 100
C Knight a/c 200 Suspense a/c 200
D Suspense a/c 200 Knight a/c 200
89.3 Discounts allowed to a customer of $79 had been correctly entered in the personal account,
but had been credited to the discounts received account as $97.
Debit $ Credit $
A Discounts allowed 176 Suspense a/c 176
B Suspense a/c 176 Discounts allowed 176
C Discounts received 97 Suspense a/c 176
D Suspense a/c 176 Discounts allowed 79

89.4 $52 owed by K Chess had been correctly written off in the irrecoverable debts expense
account, but had been credited against K Checke’s account payable as $25.
Debit $ Credit $
A K Checke 25 K Chess 52
Suspense a/c 27
B K Chess 52 K Checke 25
Suspense a/c 27
C K Checke 25 Suspense a/c 77
K Chess 52
D Suspense a/c 77 K Checke 25
K Chess 52
89.5 The purchase for $1,666 of a car for use in the business had been debited to the sales account.
Debit $ Credit $
A Car a/c 1,666 Sales a/c 1,666
B Car a/c 1,666 Suspense a/c 1,666
C Car a/c 1,666 Suspense a/c 3,332
Sales a/c 1,666
D Car a/c 1,666 Sales a/c 3,332
Suspense a/c 1,666
(10 marks)

Question 90 JOLANTA
The following list of account balances was extracted from the books of Jolanta, a retailer, at
31 December 2014:
$ $
Due to suppliers 14,500
Allowance for trade receivables 1,200
Revenue 93,200
Leasehold premises at cost 45,000
Accumulated amortisation of premises to 31 December 2014 9,000
Delivery vans at cost 21,600
Accumulated depreciation of vans to 31 December 2014 15,600
Purchases 51,400
Carriage outwards 350
Due from customers 35,700
Loan advanced by Joanna 4,100
Returns outwards 950
Rent 2,550
Salesmen’s salaries and commission 8,200
Interest on loan 250
Vehicle running expenses 3,650
Carriage inwards 2,150
Accountancy and audit 1,600
Trade discounts received 400
Light and heat 1,300
General expenses 900
Jolanta – Capital account 30,000
Irrecoverable debts account 50
Amortisation of leasehold for 2014 9,000
Depreciation of delivery vans for 2014 2,000
_______ _______
206,850 206,850
_______ _______
Required:
(a) Redraft the list of account balances. (8 marks)
(b) Prepare a statement of financial position at 31 December 2014 together with a statement
of profit or loss for the period ended on that date. (12 marks)
(20 marks)

Question 91 GANDALF
On 1 April 2014 Gandalf started a business with capital of $20,000 which he paid into a business
account.
The following is a summary of the cash transactions for the first year:
$
Amounts from customers 34,628
Salary of assistant 4,000
Cash paid to suppliers for purchases 20,700
Purchase of motor van on 31 March 2015 8,000
Gandalf’s drawings during the year 4,800
Electricity payments 1,120
Rent for the year 2,200
Postage and stationery 700
The following further information is relevant:
(1) At the end of the year Gandalf was owed $8,512 by his customers and owed $11,344 to his
suppliers.
(2) Gandalf promised his assistant a bonus of $800. At 31 March 2015 this had not been paid.
(3) At 31 March 2015 there was inventory of $8,514 and Gandalf owed $340 for electricity for
the last quarter of the year.
(4) As the van was acquired in the last day of March, Gandalf has decided not to charge any
depreciation for the year.
Required:
Prepare a statement of profit or loss for the year ended 31 March 2015 and a statement of
financial position at that date.
(18 marks)

Question 92 MARIA
The following information relates to the business of Maria for the year ended 31 December 2014:
$ $
Capital account, 1 January 2014 13,640
Freehold properties at cost 7,500
Furniture and fittings at cost 2,000
Motor cars at cost 6,300
Accumulated depreciation to 1 January 2014
Freehold properties 450
Furniture and fittings 800
Motor cars 2,370
Inventory 1 January 2014 6,740
Purchases 54,520
Sales 79,060
Salaries 8,760
Rent 1,170
Office expenses 3,950
Drawings 4,800
Allowance for receivables 1 January 2014 600
Loan 4,000
Bank balance 2,190
_______ _______
110,960 110,960
_______ _______
You are also supplied with the following information:
(1) Inventory at 31 December 2014 was $7,330.
(2) Rent paid in advance at 31 December 2014 amounted to $250.
(3) Allowance for trade receivables is to be made equal to 5% of accounts receivable at

31 December 2014.
(4) Depreciation is to be charged for the year at the following annual rates calculated on cost at
the year end:
Freehold properties 1%
Furniture and fittings 10%
Motor cars 20%
(5) Interest on the loan at 5% per annum is to be provided.
Required:
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
(20 marks)

Question 93 FEDEROV
The following is the trial balance extracted from the books of Federov at 31 December 2014:
$ $
Capital 20,000
Loan account 2,000
Drawings 1,750
Freehold premises 8,000
Furniture and fittings – cost and accumulated
depreciation at 1 January 700 200
Plant and machinery – cost and accumulated
depreciation at 1 January 8,000 2,500
Inventory at 1 January 8,000
Cash at bank 650
Allowance for trade receivables 740
Purchases 86,046
Revenue 124,450
Irrecoverable debts recovered 45
Bank charges 120
Rent 2,000
Returns inwards 186
Salaries 3,500
Wages 8,250
Travelling expenses 1,040
Carriage inwards 156
Trade discounts allowed 48
Gas, electricity and water 2,560
Travellers’ salaries and commission 5,480
Printing and stationery 640
_______ _______
160,264 160,264
_______ _______
The following matters should be taken into account:
(1) Inventory at 31 December 2014 was $7,550.
(2) Federov’s son works in the business, receiving an annual salary of $500, which had been
included in the drawings.
(3) Interest on the loan at 5% per annum had not been paid at 31 December 2014.
(4) Rent includes $250 for premises paid in advance for the half year to 31 March 2015.

(5) Depreciation is to be charged at the following rates on the reducing balance basis:
Plant and equipment by 10% per annum

Furniture and fittings by 5% per annum
(6) The allowance for receivables is to be maintained at 3% of trade account receivable balances.
Required:
Prepare the statement of profit or loss for the year ended 31 December 2015 and the statement of
(20 marks)
Question 94 HEINZ
Heinz is a master builder. His trial balance at 31 December 2014 was as follows:
$
Capital account at 1 January 2014 23,521
Rents and insurance (excluding van insurance) 838
Aggregate depreciation on furniture and equipment to 1 January 2014 1,440
Purchases of goods for resale 58,677
Drawings by owner 2,500
Allowance for receivables 377
Inventory (goods for resale) at 1 January 2014 6,934
Running costs of delivery vans 416
Furniture and equipment at cost 7,600
Revenue 68,213
Advertising 1,375
Salesmen’s wages and salaries 5,262
Accumulated depreciation on delivery vans to 1 January 2014 750
Audit and professional charges 43
Cash at bank and in hand 5,148
Postage, telephone, stationery and office expenses 479
The following adjustments are to be made:
(1) Inventory (goods for resale) at 31 December 2014 amounted to $7,832.
(2) Depreciation is to be charged on cost at 10% per annum on furniture and equipment, and 25%
per annum on delivery vans.
(3) Prepayments at 31 December 2014 were:

$
Rent 60
Insurance 91
Delivery van insurance 58

(4) Accrued expenses at 31 December 2014 were:

$
Rent 100
Electricity 27
Repairs to delivery vans 39
Audit fee 105
Telephone 28
(5) Other inventories at 31 December 2014 were:

$
Coke for heating purposes 217
Stationery 98
(6) During the year goods for resale costing $3,224 were destroyed by fire and his claim had been
agreed with the insurance company, although it had not been paid at the year end or entered in
Heinz’s books. These goods were not included in inventory in (1) above.
(7) The allowance for receivables is to be made equal to 5% of trade receivables, excluding the
amount from the insurance company.
Required:
(20 marks)
Question 95 GAMMON
The following is a list of balances taken from the books of Gammon, a butcher, at 31 December 2014:
$
Revenue 34,468
Insurance 480
Plant repairs 210
Rent 1,478
Motor van 980
Plant 1,560
Purchases 22,321
Wages 3,467
Inventory at 1 January 2014 1,655
Discount allowed to customers 437
Motor van expenses 819
Shop fittings 1,020
Capital account – debit balance 1 January 2014 537
Receivables 1,324
Payables 3,370
Cash in hand 212
Drawings (cash) 1,820

Additional information
(1) The difference in the trial balance is the bank balance at 31 December 2014.
(2) Inventory at 31 December 2014 amounted to $1,123.
(3) During the year the motor van, which at 1 January 2014 had a written-down value of $436,
was sold for $220 and a new van purchased for $764.
(4) Depreciation is to be charged on the reducing balance method at the following rates (a full
year’s depreciation being charged on assets purchased during the year):
Motor van 25%

Plant 15%
Shop fittings 5%
(5) Goods taken by Gammon for personal use cost $128.
(6) Adjustments are to be made for
Insurance prepaid $65

Motor expenses accrued $46
Plant repairs accrued $24
(7) The motor van account is analysed as follows:

$
Written-down value of van at 1 January 436
Less Sale proceeds from sale of van (220)
___
216
Add Cost of new motor van 764
___
980
___
Required:
(20 marks)

Question 96 STEWART
Stewart is a sole trader, supplying building materials to local builders. He prepares his accounts to 30
June each year. At 30 June 2015, his trial balance was as follows:
Dr Cr
$ $
Capital at 1 July 2014 55,550
Purchases and sales 324,500 625,000
Returns 2,300 1,700
Discounts 1,500 2,500
Building materials at 1 July 2014 98,200
Packing materials purchased 12,900
Distribution costs 17,000
Rent and insurance 5,100
Telephone 3,200
Car expenses 2,400
Wages 71,700
Allowance for receivables at 1 July 2014 1,000
Heat and light 1,850
Delivery vehicles – cost 112,500
Delivery vehicles – depreciation at 1 July 2014 35,000
Equipment – cost 15,000
Equipment – depreciation at 1 July 2014 5,000
Loan 10,000
Loan repayments 6,400
Bank deposit account 15,000
Bank current account 26,500
________ ________
817,750 817,750
———— ————
The following additional information at 30 June 2015 is available:
(i) Inventory of building materials $75,300

Inventory of packing materials $700
There was also an unpaid invoice of $200 for packing materials received and consumed
during the year.
(ii) Prepayments:
– rent and insurance $450
(iii) Accrued expenses:
– heat and light $400

– telephone $500
(iv) Wages include $23,800 cash withdrawn by Stewart.

(v) Trade receivables have been analysed as follows:
$
Current month 60,000
30 to 60 days 20,000
60 to 90 days 12,000
over 90 days 3,000
and allowance is to be made for trade receivables as follows:
30 to 60 days 1%
60 to 90 days 2.5%
over 90 days 5% (after writing off $600)
(vi) Sundry expenses include $3,500 for Stewart’s personal tax bill.
(vii) The loan was taken out some years ago, the final payment is due on 31 March 2016. The
figure shown in the trial balance for “loan repayments” includes interest of $800 for the year.
(viii) The bank deposit account was opened on 1 January 2015 as a short-term investment; interest
is credited at 31 December annually; the average rate of interest since opening the account has
been 6% per annum.
(ix) At 1 July 2014, Stewart decided to bring one of his family cars, valued at $8,000, into the
business. No entries have been made in the business books for its introduction.
(x) Depreciation is to be charged as follows:
– 20% on cost for delivery vehicles

– 25% on the reducing balance for the car
– 25% on the reducing balance for the equipment
Required:
(a) Prepare a statement of profit or loss for the year ended 30 June 2015. (12 marks)
(b) Prepare a statement of financial position at 30 June 2015. (8 marks)
(20 marks)

Question 97 BOWIE
Mr Bowie is a sole trader and prepares his accounts to 30 September each year. At 30 September 2014,
his trial balance is as follows:
Dr Cr
$ $
Plant and machinery
– cost 125,000
– depreciation at 1 October 2013 28,000
Office equipment
– cost 45,000
– depreciation at 1 October 2013 15,000
Inventory at 1 October 2013 31,000
Purchases and sales 123,000 194,000
Selling expenses 12,000
Wages and salaries 19,000
Printing and stationery 6,000
Telephone and fax 6,000
Rent and insurances 4,000
Allowance for receivables at 1 October 2013 4,000
Bank 3,000
Petty cash 1,000
Drawings 22,000
Capital at 1 October 2013 169,000
_______ _______
443,000 443,000
_______ _______
The following additional information at 30 September 2014 is available:
(i) Closing Inventory goods for resale $53,000
(ii) Prepayments:
– telephone and fax rental $1,000

– rent and insurance $1,000
(iii) Accruals:
– wages and salaries $5,000
(iv) Specific irrecoverable debts to be written off amount to $3,000.
(v) Allowance for receivables to be amended to 5% of receivable balances, after adjusting for
irrecoverable debts written off.

(vi) The following book-keeping errors are discovered:
– the purchase of an item of inventory has been debited to the office equipment
account, cost $1,200.
– the payment of $1,300 to a trade payable has been recorded by debiting the bank
account and crediting the trade payables account
– a payment of rent of $1,500 has been credited to the bank and credited to the rent
account.
(vii) The figure in the trial balance for the bank balance is the balance appearing in the cash book,
prior to the reconciliation with the bank statement. Upon reconciliation, it is discovered that:
– unpresented cheques amount to $3,000; and

– bank charges not entered in the ledgers amount to $4,000.
(viii) Depreciation on non-current assets is to be charged as follows:
– plant and machinery 10% on cost

– office equipment 331/3 % on the reducing balance at the end of the year.
Required:
(a) Show the journal entries and suspense account to correct the bookkeeping errors
identified in note (vi). (Narrative descriptions are not required) (5 marks)
(b) Prepare a statement of profit or loss for the year ended 30 September 2014. (12 marks)
(c) Prepare a statement of financial position at 30 September 2014. (8 marks)
(25 marks)
Question 98 COST STRUCTURES
(a) A greengrocer made sales during the year of $49,200. Opening inventory amounted to
$3,784 and year-end inventory was $5,516. During the year he purchased for cash goods
which cost $38,632.
Required:
Determine the gross profit and calculate the gross profit percentage as a percentage of
sales value. (3 marks)
(b) A rival has made sales of $50,100 at a fixed mark-up of 25%. Closing inventory was valued at
$5,438 and he purchased goods during the year amounting to $38,326.
Required:
Determine the value of the opening inventory. (3 marks)

(c) A local store makes sales at a fixed gross profit of 10% on sales value. Sales during the year
amounted to $186,460; closing inventory was $16,800 and represents an increase of 25% over
the value of the opening inventory.
Required:
Determine the cost of purchases during the year. (3 marks)
(9 marks)
Question 99 LAMDIN
Lamdin retired from his employment abroad and returned to this country, where he purchased a small
kiosk.
He took over the business on 1 July 2014, acquiring the existing inventory at a valuation of $1,142; the
rest of the purchase price was apportioned as to $1,500 for fixtures and fittings and the balance for
goodwill.
The following day he acquired a second-hand computer and accounts package at a knock-down price of
$80. Unfortunately it failed to live up to expectations and crashed during the print-out of his year-end
accounts, having only printed a summary listing of payments from the till. Other than this, the only
records available were his bank statements and a number of vouchers. Surplus cash was banked during
the year.
A summary of his bank account for the year ended 30 June 2015 shows the following:
$ $
Cash introduced 5,000 Purchase of business 3,192
Bankings from shop 16,427 Purchase of accounts computer 80
Loan from mother (long-term) Rent (15 months to
(interest at 5% pa) 1,000 30 September 2015) 500
Rent (9 months to
31 March 2015) 84
Electricity 92
Purchases for resale 14,700
Private cheques 1,122
Balance 30 June 2015 2,657
______ ______
22,427 22,427
——— ———
The computer print-out was as follows:

$
Cash purchases for resale 1,606
Staff wages 742
Sundry shop expenses 156
Cash drawings 520
On 30 June 2015 inventory, measured at cost, amounted to $1,542, amounts due from customers $74,
and cash in hand amounted to $54. Depreciation is to be allowed on fixtures and fittings at a rate of
10%.
Accounts outstanding on 30 June 2015 were purchases $470, and rent of $120 for the year ended 31
March 2016.

Required:
Prepare Lamdin’s statement of profit or loss for the year ended 30 June 2015 and a statement of
(20 marks)
Question 100 LEONARDO
Leonardo is in business but does not keep proper books of account. In order to prepare his income and
expenditure account for the year ended 31 December 2014 you are given the following information:
1 Jan 2014 31 Dec 2014

$ $
Inventory on hand 1,310 1,623
Receivables 268 412
Payables for goods 712 914
Payables for expenses 116 103
In addition you are able to prepare the following summary of his cash and bank transactions for the
year:
Cash account
$ $
Balance 1 January 62 Payments into bank 3,050
Shop takings 4,317 Purchases 316
Cheques cashed 200 Expenses 584
Drawings 600
Balance 31 December 29
______ ______
4,579 4,579
——— ———
Bank account
$ $
Balance 1 January 840 Cash withdrawn 200
Cheques from customers 1,416 Purchases 2,715
Cash paid in 3,050 Expenses 519
Drawings 400
Delivery van (purchased
1 September) 900
Balance 31 December 572
______ ______
5,306 5,306
——— ———
In addition Leonardo says that he had taken goods for personal consumption and estimates that those
goods cost $100.
In considering accounts receivable Leonardo suggests that an allowance be made of 5% of amounts due
after writing off a specific irrecoverable debt of $30.
Depreciation on the delivery van is to be allowed at 20% per annum.

Required:
Prepare the statement of profit or loss and a statement of financial position at 31 December 2014.
(20 marks)
Question 101 DELTIC
You are approached by a new client, Deltic, who is coming to the end of his first year’s trading. He has
not kept proper books and records but, after discussing matters with him, the following information
comes to light concerning the year ended 30 September 2014:
(1) He set up in business when he won $200,000 on the national lottery. He invested the money
in the bank and set up in business as a retailer of lingerie.
(2) He banks his takings periodically after payment of the following amounts:
Wages $75 per week

Cleaning $10 per week
Sundries $15 per week
Personal expenses $25 per week
Cash in hand at the end of the year was $250.
(3) A summary of his bank statements reveals the following:

$ $
Capital introduced 200,000 Purchase of leasehold premises 150,000
Bankings 125,750 Purchase of vans 6,000
Telephone 896
Rent 1,682
Payments to suppliers 86,232
Wages 15,282
Repairs 3,637
Personal expenses 323
Balance c/d 61,698
________ ________
325,750 325,750
———— ————
An unpresented cheque of $385 for repairs was still outstanding.

(4) Other assets and liabilities at 30 September 2014 were as follows:
$
Inventory 6,400
Accrued expense – telephone 125
Prepaid expense– rent 258
(5) Depreciation is to be allowed on the van at 25% of its cost. The leasehold is for 50 years.
(6) Deltic estimates that his gross profit percentage is 25%, and also informs you that he does not
keep a record of the goods he took for his own use.

Required:
Prepare a statement of profit or loss for the year ended 30 September 2014 and a statement of
(20 marks)
Question 102 WALDORF
Waldorf had retired from the army some years ago to run a grocery business in the country. On 1
October 2014 his assistant failed to report for work and it was later discovered that he had disappeared
taking the contents of the cash till with him.
An analysis of Waldorf’s bank statements for the year ended 31 December 2014 revealed the following:
Receipts $ Payments $
Balance b/f 280 Suppliers 13,600
Personal tax refund 1,000 Rent 800
Bankings 16,720 Car maintenance 400
Insurance 200
Drawings 2,500
Bank charges 100
Balance c/f 400
______ ______
18,000 18,000
——— ———
A statement of affairs produced by Waldorf comprised the following:

31 December
2014 2013
$ $
Motor car (Carrying amount) 3,200 3,600
Fixtures (Carrying amount) 3,400 4,000
Inventory 1,200 900
Trade receivables 150 90
Rent prepaid 30 20
Cash Nil 380
Trade payable 120 110
A rough cash book kept by Waldorf showed the following:

$
Assistant’s wages 1,800
Sundry expenses 250
Cash purchases 300
Drawings 2,400
A footnote recorded that discounts received and discounts allowed were $200 and $300 respectively.
The insurance company agreed to admit the claim for loss of cash upon production of a full set of
accounts.
Required:
(20 marks)

Question 103 SLATE
Slate, who has been in business as a builder since 1 January 2014, received a request from the tax
authorities for his first year’s accounts.
He had not kept proper records of his business transactions, but was able to supply the following
information:
(1) All cheques received for work done had been paid into the bank, whilst cash receipts had been
used for paying cash expenses.
(2) From bundles of receipts and a wages notebook some of the cash expenses for the year
appeared to have been as follows:
$
Wages and social insurance 3,346
Materials 1,400
Electricity 56
General expenses 14
(3) Drawings were estimated at $18 per week, out of which Slate had paid the rent of his
builder’s yard of $2 per week. His own social insurance contributions had been included in
wages and social insurance and totalled $65 for the year.
(4) On 1 April he purchased a van for $856. His mother lent him $400 for the deposit, and the
balance was payable by twelve monthly instalments of $38 each commencing on 1 June. The
loan from his mother had not been repaid at the end of the year.
(5) A summary of his bank account showed the following:
$ $
Balance 1 January 2014 150 Materials 4,790
Bankings 9,204 Van expenses 342
Cheques drawn for cash 3,100
Cement mixer 200
Van instalments 266
Private cheques 342
Balance 31 December 2014 204
______ ______
9,354 9,354
——— ———
(6) On 31 December 2014 inventory (materials) amounted to $560, cash in hand $10, trade
receivables $1,200, trade payables for materials $149, and outstanding van expenses $36.
There was no work in progress on 31 December 2014.
(7) Depreciation of $108 is to be allowed on the van and $50 on the cement mixer.
Required:
Prepare Slate’s statement of profit or loss for the year ended 31 December 2014 and a statement
of financial position at that date.
(20 marks)

Question 104 BENNETT
Bennett is a grocer who had not kept a full set of books. The following was a summary of his bank
statements for the year ended 31 December 2014:
$ $
Amounts credited by bank 35,170 Balance 1 January 2014 892
Payments for trade payables 30,500
Rent 475
Fixtures 100
Loan interest 120
Drawings 900
Customers’ cheques dishonoured 180
Balance 31 December 2014 993
——— ———
35,170 35,170
——— ———
You are given the following information:
(1) Trading receipts consisted partly of cash and partly of cheques. During the year Bennett paid
$2,950 for wages and $140 for sundry expenses out of his cash takings,. He kept $3 a week
and maintained a balance of $20 in the till for change. The balance of his takings was paid
into the bank.
(2) Cheques drawn payable to trade payables, but not presented at 1 January 2014, amounted to
$280, and at 31 December 2014 to $320.
(3) All dishonoured cheques were re-presented and honoured during the year.
(4) The loan interest was paid to Brough who had lent Bennett $4,000 some years ago at a rate of
interest of 3% per annum. The interest was duly paid half-yearly on 31 March and 30
September, and the loan was still outstanding at the end of the year.
(5) Discounts allowed by suppliers amounted to $480 and those allowed to customers were $520.
(6) Account balances: 1 Jan 2014 31 Dec 2013

$ $
Inventories 4,500 5,800
Trade receivables 2,800 3,200 (including $200 to be
written off as irrecoverable)
Accrued general expenses 240 190
Rent paid in advance 40 50
Fixtures valued at 2,800 2,550 (including those
purchased during year)
Trade payables 1,800 2,200
Amounts due for lighting and heating 80 70

Required:
Prepare:
(a) a statement of Bennett’s capital at 1 January 2014; (4 marks)

(b) a statement of profit or loss for the year ended 31 December 2014; and (9 marks)
(c) a statement of financial position at that date. (7 marks)
(20 marks)
Question 105 BOTHAM
Botham received a legacy of $20,000 on 1 January 2014 and on that date purchased a small retail
business. The completion statement from the solicitor revealed the following:
$
Freehold shop property 10,000
Goodwill 2,000
Inventories 1,600
Trade receivables 400
Shop fixtures 2,600
Insurance in advance to 31 March 2014 100
______
16,700
———
The legacy was used to discharge the amount due on completion and the balance was paid into a newly
opened business bank account.
Botham had not kept proper records of his business transactions but was able to supply the following
information:
(1) A summary of the cash till rolls showed his shop takings for the year to be $25,505; this
includes all cash received from customers including those at 1 January 2014.
(2) The takings had been paid periodically into the bank after payment of the following cash
expenses:
$
Wrapping materials 525
Staff wages 3,423
Purchases for resale 165
Petrol and oil 236
(3) Personal cash drawings were estimated at $20 per week and goods taken for own use at $2 per
week.

(4) A summary of the bank statements showed the following:
$ $
Legacy – residual balance 3,300 Purchases for resale 14,863
Sale of fixtures purchased at Motor expenses 728
1 January 2014 but not Delivery van (cost –1 April 2014) 1,200
required (cost $200; General expenses 625
depreciation Nil) 130 Loan interest (six months to
Loan from Robin at 10% pa 2,000 30 September) 100
Cash banked 19,900 Private cheques 1,329
Electricity 228
Insurance (year to 31 March 2015) 500
Balance per statement at
31 December 2014 5,757
______ ______
25,330 25,330
——— ———
A cheque drawn on 28 December 2014 of $125 for goods purchased was presented to the
bank on 4 January 2015.
(5) During the year $223 of irrecoverable debts arose. The trade receivables at 31 December
2014 amounted to $637, in respect of which a $100 allowance should be made.
(6) At 31 December 2014 there were:

$
Inventories 2,360
Store of wrapping materials 53
Trade payables – purchases 358
Electricity accrued 50
Accountancy fees accrued 100
Cash float in till 180
(7) The difference arising on the cash account was discussed with Botham but remained
unexplained and was dealt with in an appropriate manner.
(8) Depreciation is to be allowed at the rate of 10% per annum on the fixtures and at the rate of
20% on the van.
Required:
(20 marks)

Question 106 MCQs INCOMPLETE RECORDS
106.1 A company’s physical inventory counting took place on 25 March 2015 and the inventory
was measured at $175,260. The company’s year end is 31 March 2015. In the intervening
period goods valued at $5,952 were received and returns to suppliers were valued at $2,520.
Sales in the period amounted to $17,500 and a gross profit percentage on sales of 20% is
always obtained. You discover that goods out on sale or return, at a sale price of $15,000,
have been omitted from the physical count.
What value should be placed on inventory at 31 March 2015?
A $164,692
B $176,192
C $176,692
D $178,692
106.2 The draft statement of financial position of a company at 31 May 2015 includes current assets
as follows:
Inventory $50,000
Trade receivables $130,000
Trade receivables include goods sent on sale or return at selling price of $15,000 (cost
$12,000). These remained unsold at 31 May 2015.
What amount should appear in the financial statements as at 31 May 2015?
Inventory Trade receivables

A $62,000 $115,000
B $62,000 $118,000
C $65,000 $115,000
D $65,000 $118,000
106.3 You are provided with the following information relating to a business:
$000
Receivables opening balance 120
Receivables closing balance 84
Cash received from credit customers 361
Discounts allowed 6
Cash sales 18
What was total revenue for the period?
A $343,000
B $349,000
C $355,000
D $361,000

106.4 The following information relates to a company for the year ended 31 December 2014:
$
Cash received from credit customers 22,490
Contra with supplier who is also a
customer on payables ledger 910
Increase in allowance for receivables 600
Receivables at 1 January 2014 7,290
Receivables at 31 December 2014 7,870
What figure for revenue should be recorded in the income and expenditure account for
the year ended 31 December 2014?
A $24,580
B $23,980
C $22,760
D $22,160
106.5 The following information relates to a business for the year ended 30 June:
$000
Revenue 180
Purchases 132
Opening inventory 33
Sales were all made at a uniform gross profit margin of 20%.
What is the cost of closing inventory?
A $15,000
B $21,000
C $30,000
D $45,000
106.6 A company’s annual physical inventory count took place on 6 January 2015. Inventory value
on this date was $38,750. During the period from 31 December 2014 to 6 January 2015 the
following events occurred:
$
Sales 5,740
Purchases 3,990
The mark-up is 25% on cost.
What is the cost of the company’s inventory on 31 December 2014?
A $39,352
B $39,065
C $38,435
D $38,148

106.7 The following information relates to a business for the year ended 31 March 2015:
$000
Revenue 300
Purchases 230
The business achieves a gross profit percentage of 20% on all sales.
What is the cost of closing inventory?
A $35,000
B $45,000
C $65,000
D $75,000
106.8 The following information relates to a wholesale business:

$
Inventory at cost 31 December 2014
(excluding goods on sale or return) 27,500
Revenue (including $8,000 goods on sale or return
of which half have been sold by the retailer by
31 December 2014) 95,000
The goods sent out on sale or return were at cost price plus 25%.
What amounts should be shown in the financial statements at 31 December 2014?
Revenue Inventory
A $87,000 $33,500
B $87,000 $33,900
C $91,000 $30,500
D $91,000 $30,700
106.9 The memorandum discounts column in the cash receipts book has been undercast by $270.
What correcting entry is required?
A Dr Receivables ledger control a/c

Cr Discounts allowed
B Dr Discounts allowed
Cr Receivables ledger control a/c
C Dr Payables ledger control a/c

Cr Discounts received
D Dr Discounts received
Cr Payables ledger control a/c

106.10 On 30 June 2015 a business had net assets of $74,000 compared with $62,000 on 1 July 2014.
During the year ended 30 June 2015 the proprietor drew $11,000 out of the business and the
business paid his annual subscription to the proprietor sports club of $2,000.
What was the profit made by the business for the year ended 30 June 2015?
A $1,000
B $12,000
C $25,000
D $27,000
(20 marks)
Question 107 IASB
(a) State the objectives of the International Accounting Standards Board (IASB). (3 marks)
(b) Distinguish between a “Discussion Paper” and an “Exposure Draft” of an International

Financial Reporting Standard (IFRS). (4 marks)
(c) Outline THREE steps taken by the IASB to ensure consistent interpretation of IFRSs.
(3 marks)
(10 marks)
Question 108 MCQs REGULATORY FRAMEWORK
108.1 Which body has sole responsibility and authority to issue an International Financial
Reporting Standard?
A the International Financial Reporting Standards Foundation

B the International Financial Reporting Standards Interpretations Committee
C the International Accounting Standards Board
D the IFRS Advisory Council
108.2 Which body provides guidance on financial reporting issues that are no specifically
address in IFRS?
A the International Financial Reporting Standards Foundation

B the International Financial Reporting Standards Interpretations Committee
C the International Accounting Standards Board
D the IFRS Advisory Council
108.3 What is the objective of the International Accounting Standards Board?
A To harmonise International Financial Reporting Standards with national accounting

standards
B To create accounting standards which meet the needs of emerging economies
C To develop, in the public interest, a single set of high quality, understandable global
accounting standards
D To provide a forum for participation by other interested parties that require
transparent and comparable information

108.4 Which one of the following is the responsibility of an audit committee?
A To monitor the integrity of the financial statements

B To present a balanced and understandable assessment of the company’s position
C To maintain a sound system of internal control (including risk management)
D To ensure that adequate accounting records are kept for the preparation of financial
statements
108.5 The board of directors is collectively responsible for ensuring that:
(1) financial statements are prepared in accordance with local GAAP;

(2) adequate accounting records are kept;
(3) financial statements are filed according to law.
Which of these responsibilities can be delegated to the finance director?
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
(10 marks)
Question 109 FINANCIAL STATEMENTS
(a) Briefly describe the scope and application of the International Accounting Standard
Board’s “Framework”. (5 marks)
(b) Identify FOUR users of financial statements and their information needs. (6 marks)
(c) State the objective of financial statements. (2 marks)
(17 marks)
Question 110 ACCOUNTING CONCEPTS
Define the following accounting concepts and give for each one an example of its application:
(a) Accruals; (3 marks)

(b) Substance over form; (3 marks)
(c) Consistency (see note below); (3 marks)
(d) Duality; (2 marks)
(e) Prudence. (3 marks)
Note: Your answer to (c) should include a brief explanation of the circumstances in which the
consistency concept should not be applied.
(14 marks)
Question 111 MCQs CONCEPTUAL FRAMEWORK
111.1 What is the principal purpose of the IASB’s “Conceptual Framework for Financial
Reporting”?
A To assist users in interpreting information contained in financial statements

B To assist preparers of financial statements in applying standards
C To assist national standard setting bodies in developing national standards
D To assist the Board of the IASB in developing and reviewing standards

111.2 Which of the following statements concerning the IASB’s “Framework” is correct?
A It is an International Accounting Standard

B It does not define elements of financial statements
C It specifies criteria for recognising items in financial statements
D It specifies standards for measurement and disclosure of items in financial statements
111.3 What is the underlying assumption for the preparation of general purpose financial
statements?
A Accrual accounting
B Going concern
C Materiality
D Prudence
111.4 Which of the following are the fundamental qualitative characteristics that make
information provided in financial statements useful to users?
A Comparability and Faithful represesentation

B Faithful represesentation and Relevance
C Relevance and Understandability
D Understandability and Comparability
111.5 Some qualities of useful information in financial statements are:
(1) Accuracy
(2) Completeness
(3) Materiality
(4) Neutrality
Which of these qualities contribute to the attribute of faithful representation?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
111.6 Which one of the following statements concerning the recognition of an item in financial
statements is correct?
A An item must be recognised if it meets the definition of an element

B An item can be recognised even if can only be depicted in words
C Disclosure in the notes may be used as an alternative to recognition
D An item can only be recognised if its value can be measured reliably
(12 marks)

Question 112 OVERALL CONSIDERATIONS
IAS 1 Presentation of Financial Statements sets out overall considerations for the presentation of
financial statements.
Required:
Explain what you understand by the following terms:
(a) Fair presentation;

(b) Accounting policies;
(c) Going concern;
(d) Accruals accounting;
(e) Materiality. (10 marks)
Question 113 CURRENT ASSETS AND LIABILITIES
(a) Explain why inventories are classified as current assets. (2 marks)

(b) List six items which would be classified as current liabilities. (3 marks)
(c) State the circumstances in which current assets and liabilities should be offset. (2 marks)
(7 marks)
Question 114 MCQs IAS 1
114.1 In which one of following circumstance can “fair presentation” in accordance with IFRS
be presumed?
A the financial statements comply with IFRS

B IFRS has been appropriately applied with additional disclosures where necessary
C IFRS has been applied in so far that it does not conflict with local GAAP
D the financial statements provide relevant, reliable, comparable and understandable
information
114.2 The management of ZiZi intends to liquidate the company in the last quarter of 2015.
On what basis should the financial statements for the year ended 30 June 2014 be
prepared?
A Going concern with no specific disclosure of material uncertainties

B Going concern with specific disclosure of material uncertainties
C On a basis other than going concern with disclosure of that fact
D On a basis other than going concern with disclosure of that fact and reasons
A Materiality depends on the size of an omission or misstatement

B Material items may be aggregated with similar items in the financial statements
C Immaterial items need not be presented separately
D Immaterial items can be aggregated in the financial statements but not in the notes

114.4 What comparative information must be disclosed in accordance with IAS 1

“Presentation of Financial Statements”?
A All numerical and narrative information for the previous period

B All numerical information only
C Previous period narrative which is relevant to the current period
D Previous period statement of financial position and statement of comprehensive
income only
114.5 In which financial statements will dividends paid during the year be presented?
A Cash flow statement and statement of comprehensive income

B Cash flow statement and statement of changes in equity
C Statement of financial position and statement of changes in equity
D Statement of comprehensive income and statement of financial position
(10 marks)
Question 115 BETA
The following trial balance has been extracted from the books of account of Beta at 31 March 2015:
$000 $000
Administrative expenses 210
Called up share capital (ordinary shares of $1 fully paid) 600
Bank overdraft 80
Income tax (overprovision in previous year) 25
Provision for retirement benefit costs 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
Plant and equipment
At cost 750
Accumulated depreciation (at 31 March 2015) 220
Retained earnings (at 1 April 2014) 240
Purchases 960
Inventories (at 1 April 2014) 140
Trade payables 260
Revenue 1,950
Interim dividend paid 120
——— ———
3,630 3,630
——— ———
Additional information
(1) Inventories at 31 March 2015 were valued at $150,000.
(2) Depreciation charges for the year amounting to $27,000 and $5,000 have been included in
distribution costs and administrative expenses, respectively,
(3) The income tax rate is 33%.
(4) The income tax expense based on the profit is estimated to be $54,000.
(5) The provision for retirement benefit costs is to be increased by $16,000. The increase should
be charged to administrative expenses. No retirement benefits are expected to be paid for the
foreseeable future.

(6) The company’s authorised share capital consists of 1,000,000 ordinary shares of $1 each.
(7) A final dividend of $0.50 per share was declared on 31 March 2015.
(8) There were no purchases or disposals of any non-current assets during the year.
Required:
Insofar as the information permits, prepare the company’s statement of profit or loss for the year
to 31 March 2015, a statement of financial position at that date and a statement of changes in
equity. Include additional information on the nature of expenses, classes of tangible assets and
share capital in suitable notes.
An accounting policies note is not required. (20 marks)
Question 116 LOGO
Logo, a public company, has an authorised share capital of 500,000 $1 ordinary shares. At 1 January
2014 the issued share capital was 100,000 $1 ordinary shares. On 31 March 2014 the company issues a
further 100,000 ordinary shares at $1.50 each.
On 30 September 2014 there is a bonus issue of 1 ordinary share for every 5 held.
Required:
(a) Record the above transactions in the books of Logo. (5 marks)

(b) Show extracts relevant to the statement of financial position at 31 December 2014 (and
notes thereto) and the statement of changes in equity. (7 marks)
(12 marks)

Question 117 GAMMA
The list of balances of Gamma shows the following balances at 31 December 2014:
Dr Cr
$000 $000
Issued share capital (600,000 shares) 300
Share premium 20
General reserve 20
Retained earnings 1 January 2014 50
Inventory (goods for resale) at 1 January 2014 60
Revenue 1,000
Purchases 540
Purchases returns 26
Sales returns 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation – 1 January 2014 50
Delivery vehicle hire 20
Distribution expenses 10
Directors’ salaries 30
Rents receivable 16
Cash at bank 110
Trade payables 60
______ ______
1,542 1,542
——— ———
You are informed that
– Inventory (goods for resale) at 31 December 2014 amounted to $100,000.

– There were no additions to non-current assets during the year.
– Annual depreciation $22,000 on warehouse plant and equipment should be allowed and
$10,000 for administrative equipment.
– Income tax for 2014 should be taken as $50,000.
– There is one sales director, a finance director and an administration director who earn equal
salaries.
– A dividend of 10 cents per share is proposed on 31 December 2014.
Required:
Prepare the statement of financial position and statement of profit or loss for the year ended 31
December 2014, with notes, in accordance with IAS 1 “Presentation of Financial Statements”.
Your answer should be as complete and informative as possible within the limits of the
information given to you. An accounting policy note is NOT required.
(18 marks)

Question 118 SIGMA
Sigma is a quoted company with an authorised share capital of 500,000 participating shares of $1. The
company prepares its accounts as at 31 March each year and the list of balances, before final
adjustments, extracted on 31 March 2015 showed:
$000 $000
Share capital, issued and fully paid $1 ordinary 400
Retained earnings as on 1 April 2014 122
6% Loan debentures (secured on factory) 120
Factory Cost at 1 April 2014 400
Accumulated depreciation 1 April 2014 152
Plant and equipment Cost at 1 April 2014 160
Accumulated depreciation 1 April 2014 60
Additions in year 20
Payables and accrued expenses 340
Inventory as on 31 March 2015 320
Receivables 200
Prepayments 160
Balance at bank 180
Profit for the year (subject to the following information) 222
_
Proceeds from sale of plant 24
______ ______
1,440 1,440
——— ———
You are given the following information in relation to the financial statements for the year to 31 March
2015:
(1) The loan debentures are repayable at par in six equal annual instalments commencing 31
December 2015.
(2) Annual depreciation is calculated as follows:

Factory – 2% on cost
Plant and equipment – 20% reducing balance
A full year’s depreciation is charged in the year of acquisition, none in the year of disposal.
(3) Plant disposed of originally cost $32,000. Accumulated depreciation was $6,000.
(4) A dividend of 20 cents was declared on 31 March 2015.
Required:
Prepare the statement of financial position and statement of changes in equity as at 31 March
2015 to comply with IAS 1 “Presentation of Financial Statements”. The tangible assets note
ONLY is required. (Note: All calculations should be made to the nearest $000.)
(12 marks)

Question 119 LARK
Lark is a manufacturing business compiling its financial statements for the year to 31 March each year.
An extract from the company’s list of account balances at 31 March 2015 is given below:
$000 $000
Inventory at 1 April 2014
Raw materials 1,060
Work in progress 590
Finished goods 2,180
Purchases – raw materials 7,100
Staff costs 5,170
Other expenses 4,290
Interest expense 500
Property – cost 4,000
– accumulated depreciation, 1 April 2014 1,800
Plant and equipment – cost 2,900
– accumulated depreciation, 1 April 2014 700
The following further information is available:
(1) Inventory at 31 March 2015

$000
Raw materials 1,150
Work in progress 650
Finished goods 2,090
(2) During the year, the company constructed plant for use in its own factory at a cost of
$400,000. The plant was brought into use on 1 October 2014. No entry has yet been made to
record this.
(3) Depreciation is to be allowed as follows:
Buildings 2% per year on cost

Plant and equipment 15% per year on the reducing balance basis
Proportionate depreciation is charged on new non-current assets acquired during the year.
(4) The income tax expense for the year is estimated to be $360,000. The tax rate applicable to
the company is 30%.
Prepayments Accruals
(5) Accruals and prepayments at 31 March 2015 $000 $000
Staff costs 810
Insurance 20
Miscellaneous expenses 280
Required:
(a) Prepare the company’s statement of profit or loss for the year ended 31 March 2015,
using the classification of expenses by nature method as in IAS 1 “Presentation of
Financial Statements”. (16 marks)

(b) IAS 1 requires a company to produce, as a separate component of its financial statements, a
statement of changes in equity.
State FOUR items which could appear in the statement of changes in equity. (4 marks)
(20 marks)
Question 120 ALPACA
The following information is available about the balances and transactions of Alpaca:
Balances at 30 April 2015 $000

Non-current assets – cost 1,000
– accumulated depreciation 230
Inventories 410
Receivables 380
Cash at bank 87
Payables 219
Issued share capital – ordinary shares of $1 each 400
Retained earnings 818
10% Loan notes 200
Loan note interest owing 10
Transactions during year ended 30 April 2015 $000

Sales revenue 4,006
Purchases 2,120
Expenses 1,640
Interest on loan notes paid during year 20
Issue of 100,000 $1 ordinary shares at a premium of 50c per share.
There were no purchases or sales of non-current assets during the year.
Adjustments at 30 April 2015:
(1) Depreciation of $100,000 is to be allowed for.

(2) Receivables totalling $20,000 are to be written off.
Balances at 30 April 2015:

$000
(1) Inventory 450
(2) Receivables (before writing off debts shown above) 690
(3) Cash at bank 114
(4) Trade payables 180
Required:
Prepare the statement of financial position of Alpaca as at 30 April 2015 using the format in
IAS 1 “Presentation of Financial Statements” as far as the information available allows.
Note: A formal statement of profit or loss is not required, but your answer should include a
working showing your computation of the retained earnings figure in the statement of financial
position. (This working carries 4 of the 11 marks available in all.)
(11 marks)

Question 121 MCQs CAPITAL STRUCTURE AND FINANCE COSTS
121.1 Which of the following would cause a company’s profit for the year to increase?
A Issue of 100,000 ordinary shares at a premium of 2%

B Revaluation of a freehold property from $70,000 to $100,000
C Disposal of a fork lift truck which originally cost $15,000 and has a carrying
amount of $9,250 for $8,500
D Receipt of $25 from a customer previously written off as irrecoverable
121.2 A company’s assets and liabilities at the beginning and end of a year were:
1 January 31 December
$ $
Non-current assets (Carrying amount) 100,000 150,000
Current assets 120,000 110,000
Payables and accrued expenses 30,000 40,000
Liability for taxation 20,000 18,000
Issued equity shares of $1 100,000 125,000
Share premium 5,000 10,000
Reserves 50,000 ?
Dividends payable 15,000 20,000
During the year the company issued a further 25,000 shares at $1.20 whilst cash payments of
$20,000 for dividends and $22,000 for taxation were made.
What was the company’s profit before taxation for the year?
A $36,000
B $39,000
C $42,000
D $48,000
121.3 A company has 50,000 $1 cumulative 8% preferred shares and 100,000 50 cent ordinary
shares. As at 1 January 2014 its preferred shareholders have not received any dividend for the
previous five years, and only half their entitlement in the year preceding that. For the year
ended 31 December 2014, the company wishes to pay a dividend of $20,000 to its ordinary
shareholders.
What will be the total amount of dividends declared for the year?
A $26,000
B $40,000
C $42,000
D $46,000

121.4 The following share capital information is available for a company:

Authorised Issued share
$ $
25 cent ordinary shares 2,000,000 1,000,000
6% 50 cent preferred shares 500,000 250,000
In addition to providing for the preferred dividend for a financial year, an ordinary dividend
of 2 cents per share is payable.
What is the total amount of dividends for the year?

A $35,000
B $95,000
C $110,000
D $190,000
121.5 Which of the following is NOT a category of cash flow identified in IAS 7 “Statement of
Cash Flows”?
A Servicing activities
B Investing activities
C Financing activities
D Operating activities
121.6 The carrying amount of non-current assets of a company at 1 July 2014 was $260,000 and at
30 June 2015 was $281,000. During the year ended 30 June 2015 assets, which had cost
$20,000 on 31 December 2013, were sold for $9,000.
Non-current assets are depreciated at 10% per annum on the reducing balance basis, with no
charge in the year of acquisition and a full year’s charge in the year of disposal.
What was the cost of non-current assets acquired during the year to June 2015?
A $23,000
B $63,000
C $65,000
D $67,000
121.7 Which of the following would result in an increase in cash flow?

A Issue of bonus shares
B Depreciation charge
C Revaluation of an asset
D Rights issue
121.8 On 31 December 2014 the income tax liability of a company was $29,500 (2013: $25,300).
The tax charge for the year ended 31 December 2014 was $32,000.
What figure for taxation should be included in the statement of cash flows for the year
ended 31 December 2014?
A $27,800
B $29,500
C $32,000
D $36,200
(14 marks)

Question 122 RETAIL INVENTORY
A retailer has the following purchases and sales of a particular product line:
Units Purchase Units Selling

purchased price per unit sold price per unit
$ $
2 December 100 500 60 530
16 December 60 503 80 528
30 December 70 506 50 526
14 January 50 509 70 524
28 January 80 512 50 522
11 February 40 515 40 520
At 31 December the physical inventory was 150 units. The cost of inventories is determined on a FIFO
basis. Selling and distribution costs amount to 5% of selling price and general administration expenses
amount to 7% of selling price.
Required:
(a) State THREE reasons why the net realisable value of inventory may be less than cost.
(3 marks)
(b) Calculate to the nearest $ the value of inventory at 31 December:
(i) at cost;
(ii) at net realisable value;
(iii) at the amount to be included in the financial statements in accordance with
IAS 2 “Inventories”. (9 marks)
(12 marks)
Question 123 MEASUREMENT OF INVENTORIES
IAS 2 Inventories prescribes the accounting treatment for inventories under the historical cost system.
Required:
(a) Briefly explain how IAS 2 requires the following to be dealt with:
(i) fixed production overheads;

(ii) the determination of the lower of cost and net realisable value;
(iii) the identification of costs when there are large numbers of items which are
ordinarily interchangeable. (8 marks)
(b) State FOUR disclosure requirements of IAS 2 in respect of inventories. (4 marks)
(12 marks)
Question 124 BILDA
Bilda processes and sells a single product. Purchases of raw material during the year were made at a
regular rate of 1,000 tonnes at the beginning of each week. The price was $100 per tonne on 1 January
2014 and was increased to $150 per tonne on 1 July 2014, remaining constant from then until the end of
the year, 31 December 2014. In addition to this price a customs duty of $10 per tonne was paid
throughout the year, and transport from the docks to the factory cost $20 per tonne.
Variable costs of processing were $25 per tonne and the fixed production costs were $30,000 per week.
One tonne of raw material is processed into one tonne of finished product and sold at a delivered price
of $240 per tonne. Average delivery costs to customers were $7.50 per tonne.

At the beginning of the year there were no inventories and at the end of the year there were 5,000
tonnes of raw material and 2,000 tonnes of finished product. It is expected that the costs and prices
current at 31 December 2014 will continue during 2015.
Required:
(a) Draft an accounting policy statement on inventories for the company to include in its
annual accounts. (4 marks)
(b) Calculate the value of inventories at 31 December 2014 using the FIFO basis under
IAS 2. (8 marks)
(12 marks)
A Carriage inwards and outwards are both expenses which can be validly included in
establishing the cost of inventory
B Carriage inwards is an expense but carriage outwards is sundry income so only
carriage inwards can be included in the valuation of inventory
C Carriage inwards and outwards are both expenses, but only carriage inwards can be
validly included where appropriate in the valuation of inventory
D Carriage inwards and outwards are both expenses, but only carriage outwards can
be validly included where appropriate in the valuation of inventory
125.2 On 1 January 2014 Uba acquired goods for sale in the ordinary course of business for
$105,000, including $5,000 refundable purchase taxes. The supplier usually sells goods on
30 days’ interest-free credit. However, as a special promotion, the purchase agreement for
these goods provided for payment to be made in full on 31 December 2014. In acquiring the
goods carriage costs of $2,000 were incurred: these were due on 31 January 2014. Uba’s cost
of capital is 10% per annum.
At what amount should Uba measure the cost of these goods (to the nearest $00)?
A $92,900
B $92,700
C $92,000
D $90,900
125.3 Bumi had 120 units of an item in inventory which were purchased some time ago at a cost of
$1,200. Immediately before the end of the financial year 20 units were sold for $180. Shortly
after the year end a further 20 units were sold for $170 with $20 being incurred in delivering
the items to the customer.
At what amount should the items in inventory at the end of the financial year be
included in the financial statements?
A $750
B $800
C $850
D $900

On 1 January Mobi purchased 100 units of goods for resale for $100,000. On 1 March 20 further units
were bought for $20,400. On 1 August 30 units were sold for $33,000.
125.4 What is the cost of the remaining inventory using the first-in, first-out (FIFO) formula?
A $91,800
B $90,400
C $90,000
D $87,400
125.5 If Mobi used the average cost method instead of FIFO what would be the effect on inventory
valuation and reported profit?
Inventory valuation Reported profit
A Increased Increased
B Increased Decreased
C Decreased Increased
D Decreased Decreased
(10 marks)
Question 126 SALE OF GOODS AND LEISURE FACILITIES
“Revenue is the gross inflow of economic benefits arising in the course of ordinary activities when
those inflows result in increases is equity, other than increases relating to contributions from equity
participants.”
IAS 18 Revenue should be applied to revenue arising from the sale of goods, the rendering of services
and the use by others of entity assets.
Required:
(a) State the criteria which must be met before revenue is recognised in respect of the sale of
goods. (5 marks)
(b) An entity provides sports and leisure facilities. It charges a fixed annual subscription, payable
in advance, which entitles members to use most of the facilities of the entity (e.g. gym,
swimming pool). Additional fees are payable for specific activities (e.g. sauna, squash courts)
as used.
Describe how the entity should recognise revenue from membership subscriptions and
additional activities. (7 marks)
(12 marks)
127.1 A company receives income from:
(1) the sale of non-current assets;

(2) the provision of services to clients;
(3) surplus cash funds placed on deposit;
(4) property rentals.

From which of these sources must revenue be recognised under IAS 18 “Revenue”?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
127.2 To which source of revenue should the percentage of completion method be applied?
A Sale of goods
B Rendering of services
C Interest
D Royalties
127.3 Bara sold 10 items of merchandise with a list price of $100 each to a customer on normal
credit terms of 30 days interest-free credit. Bara offers a 20% trade discount on all such sales.
10 days after the sale the customer paid Bara $750, which was accepted in full and final
settlement of the amount due. $40 of the amount received is in respect of sales tax collected
by Bara on behalf of the tax authority.
At what amount should Bara measure revenue from the sale of these items?
A $710
B $750
C $760
D $800
127.4 Which one of the following conditions must be met for revenue from the sale of goods to
be recognised?
A The amount of revenue is fixed

B All associated costs have been incurred
C It is certain that the goods will be paid for
D Significant risks and rewards of ownership have been transferred
127.5 IAS 18 Revenue prescribes the accounting treatment for the following revenues:
(1) Royalty income

(2) Dividend income
(3) Revenue from the sale of goods
(4) Revenue from the rendering of services
Which of these revenues can be recognised on an accrual basis in accordance with

IFRS?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
(10 marks)

Question 128 DEPRECIATION AND REVALUATION
An entity has a head office and two warehouses, from which it conducts its business. The head office
building and gardens are maintained to a high standard. During the year one of the warehouses was
extended to provide additional storage space at a cost of $120,000 and $67,000 was spent on repairing
storm damage to the roof of the other warehouse.
The directors are considering including one of the warehouses in the statement of financial position at
market value, which is substantially in excess of cost.
Required:
(a) Explain the factors to be taken into account when calculating depreciation on the head
office. (5 marks)
(b) Explain how the amounts spent on the warehouses during the year should be treated.
(4 marks)
(c) Comment on the acceptability of the directors’ proposal that the warehouse should be
included at market value. (6 marks)
(d) State the specific disclosures necessary when items of property, plant and equipment are
stated at revalued amounts. (5 marks)
(20 marks)
Question 129 DIAMOND (IAS 16)
Diamond is a trading company making up its accounts regularly to 31 December each year. At 1
January 2013 the following balances existed in the records of Diamond:
$000
Land – cost 1,000
Buildings – cost 500
Aggregate depreciation charged on buildings to 31 December 2012 210
Office equipment – cost 40
Aggregate depreciation charged on office equipment to 31 December 2012 24
The company’s depreciation policies are as follows:

Land – no depreciation
Buildings – depreciation charged at 2% per annum on cost on the straight line basis.
Office equipment – depreciation charged at 12½% per annum on the straight line basis.
A full year’s depreciation is charged in the year of acquisition of all assets and none in the year of
disposal.
During the two years to 31 December 2014 the following transactions took place:
(1) Year ended 31 December 2013:
(i) 10 June Office equipment purchased for $16,000. This equipment was to
replace some old items which were given in part exchange. Their
agreed part exchange value was $4,000. They had originally cost
$8,000 and their carrying value was $1,000. The company paid the
balance of $12,000 in cash.
(ii) 8 October An extension was made to the building at a cost of $50,000.

(2) Year ended 31 December 2014:
1 March Office equipment which had cost $8,000 and with a written-down value
of $2,000 was sold for $3,000.
In preparing financial statements at 31 December 2014 it was decided to revalue the land upwards by
$200,000 to reflect a recent survey.
Required:
(a) Write up the necessary ledger accounts to record these transactions for the TWO years
ended 31 December 2014. (Separate cost (or valuation) and aggregate depreciation
accounts are required; do not combine cost and depreciation in a single account.)
(11 marks)
(b) Explain the purpose of depreciation according to IAS 16 “Property, Plant and
Equipment”, and the factors that should be taken into account in assessing the amount
of depreciation required each year. (5 marks)
(16 marks)
130.1 IAS 16 “Property, Plant and Equipment” defines a number of terms with the meaning
specified. For example, “the amount at which an asset is recognised after deducting any
accumulated depreciation ...”.
Which term does this define?
A Carrying amount
B Depreciable amount
C Recoverable amount
D Residual value
130.2 At what amount is a revalued asset included in the statement of financial position in
accordance with IAS 16?
A Fair value
B Market value
C Replacement value
D Revalued amount
130.3 Which of the following statements concerning the revaluation of property, plant and
equipment is correct?
A If any asset is revalued all assets must be revalued

B Revalued assets must be revalued annually
C Revaluations must be carried out by an independent valuer
D Fair value may be estimated if a market value cannot be determined
On 1 January 2014 Amco acquired a building for $1,000,000. At 31 December 2014 management
made the following assessments about the building as at that date:
 its useful life is 40 years from the date of acquisition;

 its residual value is expected to be $200,000;
 its fair value is $1,300,000.

130.4 What is the carrying amount of the building at 31 December 2014 under the cost model?
A $1,000,000
B $980,000
C $975,000
D $780,000
130.5 What is the carrying amount of the building at 31 December 2014 and the depreciation
charge for the year to 31 December under the revaluation model?
Carrying amount Depreciation charge

A $1,300,000 $Nil
B $1,300,000 $20,000
C $1,272,500 $27,500
D $1,267,500 $32,500
(10 marks)
Question 131 RESEARCH AND DEVELOPMENT
“Expenditure on research costs should be recognised as an expense when it is incurred … An

intangible asset arising from development is recognised if, and only, if, an entity can demonstrate all of
the following …”
IAS 38 Intangible assets
Required:
(a) Explain why expenditure on research is treated differently from expenditure on

development. (4 marks)
(b) State the criteria to be demonstrated for expenditure on development to be recognised

as an intangible asset. (6 marks)
(c) An entity has incurred the following costs prior to commercial production of a new pollution
filter for use on commercial vehicles:
Marketing awareness campaign $50,000

Patent royalty payable to inventor of filter $12,000
Salaries of staff testing filter prototypes $38,500
State, with reasons, which costs should be included in the internally-generated

intangible asset. (4 marks)
(d) Describe how and when development expenditure should be amortised. (6 marks)
(20 marks)
Question 132 DEFER
Your client, a limited liability company, wishes to defer expenditure on development activities where
possible and for as long as possible. The finance director has asked for your advice on what procedures
to set up in order to identify relevant expenditure and comply with best accounting practice.
Required:
Draft the contents of a letter to the finance director of the company which addresses his concerns.
(10 marks)

133.1 IAS 38 provides examples of research and development activities, for example:
(1) formulating new products;

(2) testing pre-production prototypes;
(3) designing tools involving new technology;
(4) constructing a pilot plant.
Which of these examples are development activities?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
133.2 In what circumstance should straight-line amortisation be applied to an intangible

asset?
A If a pattern of consumption cannot be determined reliably

B If its residual value is assumed to be zero
C If the amortisation expense will be included in the carrying amount of another asset
D If its useful life depends on the useful life of other assets which are amortised or
depreciated on a straight-line basis
133.3 A company has incurred the following costs in operating a pilot plant for the manufacture of a
new product:
(1) amortisation of a licence granted to manufacture the product

(2) expenditure on material consumed in the operation of the plant
(3) costs incurred in training staff to operate equipment in the plant;
(4) depreciation of equipment in the pilot plant.
Which of these examples are development activities?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
133.4 Which ONE of the following statements concerning the accounting treatment of
research and development expenditure is true, according to IAS 38 “Intangible Assets”?
A Development costs which have been recognised as an asset must be amortised over
a period not exceeding five years.
B Expenditure on development projects that has been capitalised must be amortised on
a straight-line basis.
C To decide whether development costs qualify for asset recognition, it is necessary to
consider only technical feasibility and commercial viability.
D Research expenditure, other than capital expenditure on research facilities, should
be recognised as an expense in the period in which it is incurred.

133.5 Agar commenced a research and development project in 2011. $20,000 was expensed in
2011 and a further $30,000 in 2012. In 2013 the project was completed after incurring further
expenditure of $40,000. The intangible asset created is a formula for a medical cure which
was patented on 31 December 2013 for 10 years at an additional cost of $10,000.
Management is of the opinion that the useful life of the formula is five years and that the
patent could be sold now for an amount in excess of $100,000.
What is the maximum amount at which the intangible asset can be carried in Agar’s
statement of financial position for the year ended 31 December 2014?
A $40,000
B $45,000
C $80,000
D $100,000
(10 marks)
Question 134 ETERNITY
Eternity is finalising its accounts for the year ended 31 December 2014. The following events have
arisen since the year end and the financial director has asked you to comment on the final accounts:
(1) At 31 December 2014 trade receivables included a figure of $250,000 in respect of Wico. On
8 March 2015, when the current debt was $200,000, Wico went into receivership. Recent
correspondence with the receiver indicates that no amounts will be paid to unsecured creditors.
(2) On 15 March 2015 Eternity sold its former head office building for $2.7 million. At the year
end the building was unoccupied and carried at a value of $3.1 million.
(3) Inventories at the year end included $650,000 of a new electric tricycle. In January 2015 the
EC declared the tricycle to be unsafe and prohibited it from sale. An alternative market, in
Bolivia, is being investigated, although the current price is expected to be cost less 30%.
(4) Future, an overseas subsidiary was nationalised in February 2015. The overseas authorities
have refused to pay any compensation. The net assets of Future have been valued at
$200,000 at the year end.
(5) Freak floods caused $150,000 damage to a branch of Eternity in January 2015. The branch
was fully insured.
(6) On 1 April 2015 Eternity announced a 1 for 1 rights issue aiming to raise $15 million.
Required:
Comment on the accounting treatment of the matters described above.

(12 marks)
Question 135 ACCOUNTING TREATMENTS
You have been asked to advise on the appropriate accounting treatment for the following situations
arising in the books of various companies. The year end in each case can be taken as 31 December
2014 and you should assume that the amounts involved are material in each case.
(1) At the year end there was a debit balance in the books of a company for $15,000, representing
an estimate of the amount receivable from an insurance company for an accident claim. In
February 2015, before the directors had agreed the final draft of the published accounts, the
amount of the claim was finally settled as $18,600.

(2) A company has an item of equipment which cost $400,000 in 2011 and was expected to last
for 10 years. At the beginning of the 2014 financial year the carrying amount was $280,000.
It is now thought that the company will soon cease to make the product for which the
equipment was specifically purchased. Its recoverable amount is only $80,000 at 31
December 2014.
(3) On 30 November an entity entered into a legal action defending a claim for supplying faulty
equipment. The company’s solicitors advise that there is a 20% probability that the claim will
succeed. The amount of the claim is $500,000.
(4) An item has been produced at a manufacturing cost of $1,800 against a customer’s order at an
agreed price of $2,300. The item was in inventories at the year end awaiting delivery
instructions. In January 2015 the customer was declared bankrupt and the most reasonable
course of action seems to be to make a modification to the unit, costing approximately $300,
which is expected to make it marketable with other customers at a price of about $1,900.
(5) At 31 December a company has a total potential liability of $1 million for warranty work on
contracts. Past experience shows that 10% of these costs are likely to be incurred, that 30%
may possibly be incurred but that the remaining 60% is highly unlikely to be incurred.
Required:
For each of the above situations outline the accounting treatment you would recommend and give
the reasoning of principles involved. The accounting treatment should refer to entries in the
books and/or the year-end financial statements as appropriate.
(12 marks)
Question 136 FOUR EVENTS
“An entity should adjust the amounts recognised in its financial statements to reflect adjusting events
after the reporting period.
“An entity should not prepare its financial statements on a going concern basis if management
determined after the balances sheet date either that it intends to liquidate the entity or to cease trading,
or that it has no realistic alternative but to do so.”
(a) State, with reasons, which of the following events occurring after the reporting period
provide additional evidence of conditions existing at the end of the reporting period:
 bankruptcy of a customer who owed money to the entity at year end;

 flood damaging inventories held at year end;
 receipt of long term loan from bank;
 issue of credit note for goods sold before year end. (6 marks)
(b) On 18 July, a company discovers that significant inventories stored at a remote warehouse
have never been included in the financial statements due to a repeated oversight.
Required:
Advise how these inventories should be treated and disclosed in the financial statements
at 30 June. (5 marks)
(c) Distinguish between an event after the reporting period and a contingent liability.
(4 marks)

(d) State the details to be disclosed in respect of contingent liabilities. (3 marks)
(e) State the TWO circumstances in which IAS 1 “Presentation of Financial Statements”
requires certain additional disclosures in respect of going concern. (2 marks)
(20 marks)
137.1 Which of the following defines a provision in accordance with IAS 37?
A A liability of uncertain timing or amount

B A possible obligation arising from past events that is of uncertain timing or amount
C An adjustment to the carrying amount of assets
D A present obligation which is not recognised
137.2 An entity is required to measure a provision at the best estimate of the amount required to
settle the obligation at the reporting date.
Which one of the following estimates will give a best estimate when a provision involves
a large population of items?
A One which weights all possible outcomes according to their probabilities

B The mid-point of a discrete range of possible values
C The individual most likely outcome
D An amount higher or lower than the individual most likely outcome if other possible
outcomes are mostly higher or lower
137.3 Inspire is the defendant in a patent infringement lawsuit. Inspire’s lawyers believe the there is
a 30% chance that the court will dismiss the case and Inspire will not have to make any pay-
out. However, if the court rules in favour of the claimant, they believe that there is a 20%
chance that Inspire will be required to pay damages of $200,000 (the amount sought by the
claimant) and an 80% chance that damages will be $100,000 (the amount that was recently
awarded by the same judge in a similar case). The court is expected to rule sometime in 2013
and there is no indication that the claimant will settle out of court.
What is the best estimate of the provision for the lawsuit that should be recognised in
Inspire’s statement of financial position at 31 December 2014 in accordance with
IAS 37?
A $Nil
B $100,000
C $120,000
D $200,000
137.4 At 31 December 2014 Oberon is pursuing a claim against an insurance company through legal
processes. The court is expected to rule later in 2015. At the reporting date Oberon’s legal
advisers believe there is a 70% chance that Oberon will win the case. Furthermore, they
believe that there is a 20% chance that Oberon will be awarded $200,000 (the amount it is
seeking) and an 80% chance of an award of $100,000 (the amount that was recently awarded
by the same judge in a similar case).

How should this event be treated in Oberon’s financial statements for the year ended 31
December 2014?
A As an asset measured at $200,000

B As an asset measured at $100,000
C As a contingent asset
D It should not be included in the financial statements
(8 marks)
138.1 Which of the following material events occurring after the end of the reporting period
are adjusting events?
(1) Sales of inventory for less than cost

(2) Payment received from a customer whose debt had been written off
(3) Sale of a subsidiary company
(4) A flood in the warehouse destroying inventory
A 1 and 2
B 2 and 3
C 3 and 4
D 1 and 4
138.2 On 15 March 2015 Fumi authorised for issue its financial statements for the year ended 31
December 2014. On 10 March 2015 the entity’s factory and several items of equipment were
damaged in an earthquake. The damage is estimated to cost $700,000 of which $450,000 is
expected to be covered under insurance policies.
How should this material event have been included in Fumi’s financial statements for
the year ended 31 December 2014?
A As a provision of $700,000
B As a provision of $250,000
C As a contingent liability of $700,000 and a contingent asset of $250,000
D As a note disclosure of the event
138.3 Which of the following events between the balance sheet date and the date the financial
statements are authorised for issue must be adjusted in the financial statements?
A Declaration of ordinary dividends

B Decline in market value of investments
C Discovery of a fraud revealing that inventory had been stolen
D Announcement of a major restructuring
138.4 On 15 March 2015 Ramin authorised for issue its annual financial statements for the year
ended 31 December 2014. On 10 March 2015 Ramin’s factory, equipment and inventory
were damaged in an earthquake. The damage is uninsured and management has determined
that Ramin is unable to continue trading.

On what basis should Ramin’s financial statements for the year ended 31 December
2014 have been prepared?
A On a going concern basis with a note disclosing the earthquake as a non-adjusting

event
B On a basis other than going concern with a statement of that fact and a note
disclosing the earthquake as the reason
C On a going concern basis with adjustments for the damage including write-downs of
the assets
D On a going concern basis with no reference to the earthquake as it is not an
adjusting event
(8 marks)
Question 139 ANTIPODEAN
The statements of financial position of Antipodean at the end of two consecutive financial years were:

$ $ $ $
Non-current assets (carrying amount)
Premises 37,000 38,000
Equipment 45,800 17,600
______ 4,080
______
101,730 59,680
Investments 25,000
_______ 17,000
______
126,730 76,680
Current assets
Inventory 19,670 27,500
Trade receivables and prepayments 11,960 14,410
Short-term investments 4,800 3,600
Cash and bank balances 700
______ 1,800
______
37,130
________ 47,310
________
Total assets 163,860 123,990
———— ————

Opening capital 75,040 67,940
Capital introduced/(withdrawn) (6,500) 4,000
Profit/(loss) for year 25,200 15,300
Drawings (15,130)
______ (12,200)
______
Closing capital 78,610 75,040
Non-current liabilities
Interest-bearing borrowings 25,000 28,000
Current liabilities
Trade payables and accrued expenses 32,050 20,950
______ –
______
60,250
________ 20,950
________
163,860 123,990
———— ————

Profit for the year ended 31 December 2014 ($25,200) is after accounting for:
$
Depreciation
Premises 1,000
Equipment 3,000
Profit on disposal of equipment 430
Loss on disposal of motor vehicle 740
Interest payable 3,000
The carrying amounts of the assets at the date of disposal were:
$
Equipment 5,200
Interest accrued at 31 December 2014 is $400.
Required:
Prepare a statement of cash flows for the year ended 31 December 2014 in accordance with IAS 7
“Statement of Cash Flows”. Assume that short-term investments are cash equivalents.
(14 marks)
Question 140 R2D2
The financial statements of R2D2 at 30 June were as follows:

2015 2014
$ $ $ $
ASSETS
Non-current assets
Property cost 22,000 12,000
Depreciation (4,000) (1,000)
——— 18,000 ——— 11,000
Plant and equipment
Cost 5,000 5,000
Depreciation (2,250) (2,000)
——— 2,750 ——— 3,000
——— ———
20,750 14,000
Current assets
Trade receivables 9,950 2,700
Cash and cash equivalents – 1,300
——— 25,950 ——— 15,000
——— ———
Total assets 46,700 29,000
——— ———

$ $ $ $
Equity capital 3,000 3,000
Retained earnings 16,200 3,800
——— ———
19,200 6,800
Loan 6,000 10,000
Current liabilities
Operating overdraft 11,000 –
Income tax payable 1,800 1,000
Accrued interest 700 200
——— 21,500 ——— 12,200
——— ———
Total equity and liabilities 46,700 29,000
——— ———
Statements of profit or loss (extracts)

2015 2014
$ $
Operating profit 15,400 5,900
Financing cost (Interest) (1,000) (1,400)
——— ———
Profit before tax 14,400 4,500
Income tax expense (2,000) (1,500)
——— ———
Profit for the year 12,400 3,000
——— ———
Equipment with a carrying amount $250 was sold at the beginning of 2015 for $350. This equipment
had originally cost $1,000.
In recent years, no dividends have been paid.
Required:
Prepare a statement of cash flows, under the indirect method, for the year ended 30 June 2015.
(18 marks)

Question 141 MOMI
The following are the summarised accounts of Momi at 31 December 2013 and 2014 respectively:
2013 2014
$000 $000 $000 $000
Non-current assets
Plant and equipment 2,086 2,103
Fixtures and fittings 1,381 1,296
——— ———
3,467 3,399
Current assets
Inventory 1,292 1,952
Trade receivables 713 1,486
Short term investment 1,050 600
Cash 197 512
——— 3,252 ——— 4,550
——— ———
——— ———
Equity capital 4,200 4,500
Share premium 800 900
Retained earnings (Note) 431 1,180
——— ———
5,431 6,580
Current liabilities
Income tax payable 257 312
Trade payables 899 903
Dividends payable 132 154
——— 1,288 ——— 1,369
——— ———
——— ———
Statement of profit or loss (extracts) for the year ended 31 December 2014
$000
Profit before taxation 1,381
Income tax expense (310)
———
———
Note: Retained earnings

$000 $000
Balance at 1 January 431
Profit for period 1,071
Dividends – paid 168
– payable 154
—— (322)
———
Balance at 31 December 1,180
———

You are informed that:

(1) plant and equipment with a carrying amount of $184,000 was disposed of for $203,000,
whilst a new item of plant was purchased for $312,000;
(2) fixtures and fittings with a carrying amount of $100,000 were disposed of for $95,000;
depreciation on fixtures and fittings amounted to $351,000.
Required:
Prepare a statement of cash flows for the year ended 31 December 2014 in accordance with IAS 7
“Statement of Cash Flows”.
(16 marks)
Question 142 JANE
The statements of financial position of Jane at 31 December 2014 and 2013 were as follows:
Reference Year ended 31 December
to notes 2014 2013
Assets $000 $000
Non-current assets
Property, plant and equipment 1 1,100 730
Investments at cost 2 50 100
_____ _____
1,150 830
_____ _____
Current assets
Inventory 110 80
Trade and other receivables 180 110
Cash 30 20
_____ _____
320 210
______ ______
——— ———
Equity and liabilities
Issued capital 3 380 300
Share premium 300 200
Revaluation surplus 4 200 100
Retained earnings 190 200
_____ _____
1,070 800
_____ _____
Non-current liabilities: 10% Loan notes 5 150 100
Current liabilities
Trade and other payables 80 70
Bank overdraft 130 40
Dividends payable 6 40 30
_____ _____
250 140
______ ______
——— ———

Notes:
(1) Property, plant and equipment: During the year property, plant and equipment with a
carrying amount of $80,000 were sold for $60,000. The depreciation charge for the year on
all property, plant and equipment held at the end of the year was $100,000.
(2) Investments which cost $50,000 were sold during the year for $40,000.
(3) Issued capital: Jane’s issued capital at 31 December 2013 consisted of 300,000 ordinary
shares of $1 each. Another 80,000 shares were issued during 2014 at a price of $2·25 per
share.
(4) Revaluation surplus: Jane’s property was revalued upwards by $100,000 during the year.
(5) 10% Loan notes: $50,000 of 10% loan notes was issued on 1 January 2014. All interest to 31
December 2014 has been paid.
(6) Dividends: The dividends payable are on Jane’s equity share capital. No other dividends
were paid.
Required:
Prepare Jane’s statement of cash flows for the year ended 31 December 2014 complying with
IAS 7 “Statement of Cash Flows” as far as possible. Ignore taxation.
(20 marks)
Question 143 C3P0
The statements of profit or loss and statements of financial position of C3P0 for two consecutive
financial years are shown below:
Statements of profit or loss 2013 2014

$ $
Revenue 200,000 200,000
Cost of sales (100,000) (120,000)
––––––– –––––––
Gross profit 100,000 80,000
Distribution and administration expenses (50,000) (47,000)
––––––– –––––––
50,000 33,000
Interest (10,000) (13,000)
––––––– –––––––
––––––– –––––––
Only one dividend is declared each year which is paid in the following year. No sales of non-current
assets have occurred during the relevant period. Ignore taxation.

Statements of financial position

Cost Accumulated Carrying Cost Accumulated Carrying
depreciation amount depreciation amount
$ $ $ $ $ $
Non-current assets
Land 43,000 – 43,000 63,000 – 63,000
Buildings 50,000 10,000 40,000 90,000 11,000 79,000
Plant 10,000 4,000 6,000 11,000 5,000 6,000
_______ ______ ______ _______ ______ _______
103,000 14,000 89,000 164,000 16,000 148,000
_______ ______ _______ ______
Investments 50,000 80,000
Current assets
Bank 3,000 –
______ ______
98,000 115,000
________ ________
237,000 343,000
———— ————
Capital
Issued shares of $1 each 40,000 50,000
Revaluation surplus (land) – 20,000
______ ______
77,000 109,000
10% loan borrowings 100,000 150,000
Current liabilities
Bank overdraft – 4,000
Dividend payable 20,000 20,000
______ ______
60,000 84,000
________ ________
237,000 343,000
———— ————
Required:
Prepare a statement of cash flows for the year ended 31 December 2014 using the direct method of
IAS 7 “Statement of Cash Flows”.
(11 marks)

Question 144 TIVOLI
Tivoli manufactures brass tubas. You have been asked by a client to investigate the company with a
view to a possible takeover and replacement of the product with plastic electronic tubas.
You have managed to obtain copies of the last two years’ accounts (for the years ended 31 December
2014 and 2013). The statements of financial position and profit or loss for these years are set out
below:
Statements of financial position 2014 2013
ASSETS $000 $000 $000 $000
Non-current assets
Land and buildings
Cost 2,160 1,500
Depreciation (180) (150)
——— 1,980 ——— 1,350
Plant and equipment
Cost 1,350 900
——— 900 ——— 600
Motor vehicles
Cost 750 600
——— 390 ——— 360
——— ———
3,270 2,310
Current assets
Inventory 262 161
Trade receivables 180 120
Cash and cash equivalents 115 60
—— ——
557 341
——— ———
——— ———
Share capital
Ordinary shares of $1 each 2,100 1,500
——— ———
2,195 1,536
10% debentures 900 450
8% redeemable preferred shares of $1 each 240 360
Current liabilities
Operating overdraft 138 78
Trade payables 63 36
Income tax payable 175 111
Dividends payable 116 80
—— ——
492 305
——— ———
——— ———

Statements of profit or loss 2014 2013

$000 $000 $000 $000
Revenue 4,500 3,750
Cost of sales (1,800) (1,200)
——— ———
Distribution costs 900 900
Administrative expenses 1,350 1,335
——— (2,250) ——— (2,235)
——— ———
Operating profit 450 315
Financing cost (interest) (100) (80)
——— ———
Profit before tax 350 235
Income tax expense (175) (111)
——— ———
Profit after tax 175 124
——— ———
Notes
(1) During 2014 some plant, which had cost $250,000 and had been depreciated by $180,000,
was sold for $100,000.
(2) Included in trade payables is a closing accrual for interest of $20,000 ($10,000 in 2013).
(3) Included in trade payables is a supplier for plant purchases of $10,000.
(4) The preferred shares were redeemed at the beginning of the year.
(5) The company does not pay interim dividends.
Required:
Prepare a statement of cash flows for the year ended 31 December 2014 using the indirect
method. Your answer should comply as far as possible with the requirements of IAS 7
“Statement of Cash Flows”. Notes are not required.
(15 marks)
145.1 Which of the following items might appear in a company’s cash flow statement?
(1) Disposal proceeds from the sale of a director’s car

(2) The theft of items of inventory
(3) Recovery of a debt previously written off
(4) Dividends received
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only

145.2 Which one of the following would be classified under investing activities in a statement
of cash flows prepared in accordance with IAS 7?
A Repayment of a loan made to another company
B Repayment of a loan from a bank
C Proceeds from a new issue of shares
D Dividend payments to shareholders
145.3 Which of the following items might appear in a company’s statement of cash flows?
(1) Proposed dividends

(2) Rights issue of shares
(3) Bonus issue of shares
(4) Repayment of loan
A 1 and 3
B 2 and 4
C 1 and 4
D 2 and 3
145.4 An extract from a cash flow statement prepared by a trainee accountant is shown below.
$m
Net profit before taxation 31
Adjustment for: Interest expense (6)
–––
Operating profit before working capital changes 25
Decrease in inventories 4
Increase in receivables (5)
Increase in payables (7)
–––
Cash generated from operations 17
–––
Another trainee has criticised it on the following grounds:
(1) Interest expense should have been added, not deducted
(2) Decrease in inventories should have been deducted, not added.
(3) Increase in receivables should have been added, not deducted.
(4) Increase in payables should have been added, not deducted
Which of the criticisms are correct?

A 2 and 4
B 2 and 3
C 1 and 3
D 1 and 4
145.5 A draft cash flow statement contains the following calculation of net cash inflow from
operating activities:
$m
Operating profit 38
Depreciation 6
Decrease in inventories (9)
Decrease in trade and other receivables 15
Decrease in trade payables 12
–––
Net cash inflow from operating activities 62

Assuming the narratives to be correct, what should be the net cash inflow from
operating activities after correcting errors in the draft cash flow statement?
A $20 m
B $26 m
C $50 m
D $56 m
(10 marks)
Question 146 P & S
P acquired 80% of the capital of S on 1 January 2014. At the year end 31 December 2014 the two
companies have the following statements of financial position:
P S
$ $ $ $
Investment in S 4,000
Other assets 8,000 4,000
——— ———
12,000 4,000
——— ———
Share capital 6,000 1,000

Share premium – 500
Retained earnings
1 January 2014 4,000 1,500
Profit for year 2014 2,000 1,000
——— ———
6,000 2,500
——— ———
12,000 4,000
——— ———
Notes
1. Non-controlling interest is valued at fair value on acquisition, which was $1,000 on 1 January
2014.
2. There has been no change in S’s share capital during the year.
Required:
Prepare the consolidated statement of financial position of the P group as at 31 December 2014.
(10 marks)

Question 147 HAPPY AND SAD
Happy acquired 90% of the share capital of Sad on 1 January 2011 when the balance on retained
earnings was $10,000 and there was no revaluation surplus.
Their respective statements of financial position as at 31 December 2014 are as follows:
Happy Sad
$ $
Non-current assets
Tangible 135,000 60,000
Investment in Sad 30,000 –
———— ————
165,000 60,000
———— ————
222,000 106,000
———— ————
Share capital ($1 ordinary shares) 50,000 15,000

Revaluation surplus 50,000 15,000
———— ————
190,000 80,000
Current liabilities 32,000 26,000
———— ————
222,000 106,000
———— ————
Non-controlling interest is valued at fair value on acquisition. The market price of Sad’s shares are a
good indicator of fair value. On 1 January 2011 the market price of Sad’s shares was $2.00.
At the year end Sad is holding $2,000 of inventory purchased from Happy. Happy sells goods at cost
plus 25%.
Required:
Prepare the consolidated statement of financial position of the Happy group as at 31 December
2014.
(12 marks)

Question 148 FAYE
Statements of financial position at 31 December 2014

Faye Garbo
$ $
Assets
Long-term assets
Tangible assets 33,000 20,000
Investments: Shares in Garbo at cost 15,000 –

——— ———
53,000 35,000
——— ———
Called up share capital ($1 ordinary shares) 12,000 4,000
Share premium account 5,000 –
——— ———
24,000 16,000
Long-term liabilities
8% Debenture loans 20,000 9,000
——— ———
53,000 35,000
——— ———
On 1 January 2012 Faye acquired 3,000 shares in Garbo. At that date the balance on Garbo’s retained
earnings was $8,000.
The fair value of Garbo’s land on 1 January 2012 was $1,500 higher than its carrying value.
Non-controlling interest is valued at fair value. On 1 January 2012 the fair value was measured at
$5,000.
Required:
Prepare the consolidated statement of financial position of Faye as at 31 December 2014.
(12 marks)

Question 149 HONEY
The following are summaries of the financial statements of Honey and its subsidiary, Sugar, for the
year ended 30 June 2014:
Honey Sugar
Assets $ $
Non-current assets
Tangible assets 27,000 12,500
Investments: 2,000 ordinary shares in Sugar at cost 2,000
——— ———
29,000 12,500
——— ———
54,000 24,500
——— ———
Shareholders’ equity and liabilities
Shareholders’ equity
Called up share capital ($1 ordinary share) 20,000 3,000
Share premium account 6,000 –
——— ———
35,000 17,000
Non-current liabilities: 10% Debenture loan 12,000 –
——— ———
54,000 24,500
——— ———
The fair value of non-controlling interest on acquisition was $1,000.
Honey acquired its shares in Sugar more than five years ago when the balance on the retained earnings
was $nil. There was no goodwill on acquisition.
Statements of comprehensive income

Honey Sugar
$ $
Revenue 24,000 30,000
Cost of sales (9,000) (11,000)
——— ———
Distribution costs (2,300) (1,300)
Administrative expenses (1,500) (2,700)
Interest payable and similar charges (1,200) –
——— ———
Profit before taxation 10,000 15,000
Income tax expense (3,000) (5,000)
——— ———
——— ———
Required:
Prepare the consolidated statement of comprehensive income and the consolidated statement of
financial position of Honey for the year ended 30 June 2014.
(12 marks)

Question 150 HUMPHREY
The following are the statements of comprehensive income for the year ended 30 September 2014 of
Humphrey and its subsidiary Stanley:
Humphrey Stanley
$000 $000
Sales 1,100 400
Cost of sales (600) (240)
——– —–
Gross profit 500 160
Distribution costs (60) (50)
Administration costs (65) (55)
Investment income 20 5
Interest (25) (6)
——– —–
Taxation (160) (24)
——– —–
Profit for the year 210 30
——– —–
The following information is relevant:
(1) Humphrey acquired 80% of Stanley many years ago, when the reserves of that company
were $5,000.
(2) Total intra-group sales in the year amounted to $100,000, Humphrey selling to Stanley.
(3) At the year end the statement of financial position of Stanley included inventory purchased
from Humphrey. Humphrey had taken a profit of $2,000 on this inventory.
(4) The investment income of Humphrey includes $16,000 in respect of a dividend paid by
Stanley during the year.
Required:
Prepare a consolidated statement of comprehensive income for the year ended 30 September
2014.
(10 marks)
Question 151 HAPPY
The following statements of comprehensive income were prepared for the year ended 31 March 2015
for Happy and its subsidiary, Sleepy:
Happy Sleepy
$ $
Revenue 303,600 217,700
Cost of sales (143,800) (102,200)
———– ———–
Gross profit 159,800 115,500
Operating expenses (71,200) (51,300)
Other income: Dividends receivable from quoted investments 2,800 1,200
——— ———
Income tax (46,200) (32,600)
——— ———
——— ———
On 30 November 2014 Happy acquired 75% of the issued ordinary capital of Sleepy.

Profits of both companies are deemed to accrue evenly over the year.
Required:
(a) Prepare the consolidated statement of comprehensive income for the year ended 31
March 2015. (7 marks)
(b) Explain the extent to which Sleepy’s results should be included in the consolidated
statement of comprehensive income. (3 marks)
(10 marks)
Question 152 BING AND CROSBY
The summarised statements of profit or loss of Bing and Crosby, for the year ended 31 October 2014,
are provided below. Bing acquired 3,600,000 ordinary shares in Crosby for $5,250,000 on 1 November
2013 when the retained earnings of Crosby were $300,000. On the same date, Bing also acquired 40%
of Crosby’s loan notes of $400,000.
Statements of profit or loss for the year ended 31 October 2014
Bingo Crosby
$000 $000
Revenue 9,600 3,900
Cost of sales (5,550) (2,175)
––––– –––––
Distribution costs (1,050) (480)
Administrative expenses (1,650) (735)
Finance costs – (25)
Income from Crosby: Loan note interest 10 –
Dividends 150 –
––––– –––––
Profit before tax 1,510 485
Income tax expense (600) (120)
––––– –––––
––––– –––––
The following information is also available:
(1) Crosby’s total share capital consists of 6,000,000 ordinary shares of $1 each.
(2) It is group policy to value the non-controlling interest at fair value. The fair value of the non-
controlling interest at the acquisition date was $3,200,000.
(3) During the year ended 31 October 2014, Bing sold goods costing $200,000 to Crosby for
$300,000. At 31 October 2014, 50% of these goods remained in Crosby’s inventory.
Required:
(a) Calculate the goodwill arising on the acquisition of Crosby. (2 marks)
(b) Prepare the consolidated statement of profit or loss for Bing for the year ended 31
October 2014. (6 marks)

(c) Define an “associate” relationship and give three examples that might demonstrate that
such a relationship exists. (4 marks)
(12 marks)
Question 153 MCQs CONSOLIDATED FINANCIAL STATEMENTS
153.1 X has a 40% shareholding in each of the following three companies:
P: X has the right to appoint or remove a majority of the directors of P.

Q: X has significant influence over the affairs of Q.
R: X has the power to govern the financial and operating policies of R.
Which of these companies are subsidiaries of X for financial reporting purposes?
A P and R only
B Q and R only
C P and Q only
D P, Q and R
153.2 Holder acquired 150,000 $1 ordinary shares in Sub on 1 March 2014 at a cost of $300,000.
Sub’s retained earnings at 1 March 2014 were $36,000 and its issued ordinary share capital
was $200,000. Non-controlling interest is valued at fair value on acquisition, which was
$100,000. Sub’s retained earnings today have increased to $60,000.
How much goodwill arises on consolidation?
A $99,000
B $123,000
C $140,000
D $164,000
153.3 Wolf acquired 80,000 $1 ordinary shares in Fox on 1 April 2014 at a cost of $177,000. Fox’s
retained earnings at that date were $50,000 and its issued ordinary share capital was
$100,000. Fair value of non-controlling interest on acquisition was $52,000 and the fair value
of Fox’s land on acquisition was $10,000 higher than its carrying value.
How much goodwill arises on consolidation?
A $57,000
B $67,000
C $69,000
D $79,000
153.4 Vaynor an incorporated entity acquired 40,000 ordinary shares in Yarlet some years ago.
Extracts from the statements of financial position of the two companies as on 30 April 2015
were:
Vaynor Yarlet
$000 $000
Ordinary shares of $1 each 500 50
At acquisition Yarlet had retained earnings of $30,000.
Ignore goodwill.

What are the consolidated retained earnings of Vaynor on 30 April 2015?
A $90,000
B $122,000
C $146,000
D $160,000
153.5 During the year Frodo sold goods for a sales price of $168,000 to its wholly-owned
subsidiary Bilbo. These goods were sold by Frodo at a mark-up of 50% on cost. On 31
December Bilbo still had $36,000 worth of these goods in inventory.
What adjustment for unrealised profit should be made in Frodo’s consolidated financial
statements?
A $12,000
B $18,000
C $24,000
D $36,000
153.6 Tomas owns 65% of the shares in Drew. Drew owes Tomas $5,000. Tomas has receivables
of $300,000 and Drew has receivables of $130,000.
What are the consolidated receivables for Tomas?
A $435,000
B $425,000
C $381,250
D $379,500
(12 marks)
Question 154 ALEX
Artur has provided his son, Alex, with all the capital required in the setting up of a business on 1 April
2013 and its subsequent development. Alex has now produced the following summarised accounts as a
basis for discussing the progress of the business with his father.
Statements of profit or loss

Year ended 31 March
2014 2015
$000 $000
Revenue 100 140
Cost of sales (60) (90)
—— ——
Gross profit 40 50
Less Expenses (32) (51)
—— ——
Profit/(loss) 8 (1)
—— ——


At 1 April At 31 March At 31 March
2013 2014 2015
$000 $000 $000
Non-current assets 70 70 80
—— —— ——
Net current assets
Inventory 5 7 8
Trade receivables – 11 24
Bank balance/(overdraft) 13 2 (4)
Less Trade payables (3) (5) (8)
—— —— ——
15 15 20
—— —— ——
Capital employed 85 85 100

—— —— ——
Alex is keen for his father to increase the capital employed in the business and has drawn his father’s
attention to the following matters revealed in the accounts.
(1) A $15,000 increase in net capital employed can be linked with a $40,000 increase in revenue
during the past year.
(2) The rate of inventory turnover during the past year has been 12 as compared with 10 in the
previous year.
(3) The increase in fixed overheads last year is due to the renting of larger premises. However,
these new premises would be adequate for a turnover of $200,000.
Artur is not pleased with the results of his son’s business.
Alex can easily obtain employment offering a salary of $10,000 per annum and Artur can obtain 10%
from a bank deposit account.
Required:
(a) Calculate for each of the years ended 31 March 2014 and 2015 FOUR financial ratios
which draw attention to matters which could give Artur cause for concern. State clearly
the formula or basis for each ratio used. (8 marks)
(b) Outline THREE reasons for closing the business and ONE reason in favour of its
continuance. (4 marks)
(12 marks)

Question 155 SOLO
You are given summarised results of Solo, an electrical engineering business, as follows:
Statements of profit or loss
Year ended 31 December

2014 2013
$000 $000
Revenue 60,000 50,000
Cost of sales 42,000 34,000
––––––– –––––––
Distribution and administration expenses 15,500 13,000
––––––– –––––––
2,500 3,000
Finance costs 2,200 1,300
––––––– –––––––
Profit before tax 300 1,700
Income tax expense 350 600
––––––– –––––––
(Loss)/profit after tax (50) 1,100
––––––– –––––––

$000 $000 $000 $000
Non-current assets
Property, plant and equipment 12,000 11,000
Intangible 500
______ –
______
12,500 11,000
Current assets
Cash 500
______ 500
______
30,500
______ 28,500
______
43,000 39,500
——— ———
Equity
Issued capital 1,900 1,900
Revaluation surplus 2,000 2,000
______ 8,400
______
13,950 14,600
Interest-bearing borrowings 6,000 5,500
Current liabilities
______ 19,400
______
43,000 39,500
——— ———

Required:
(a) Calculate the following ratios for both years

(i) current ratio OR quick ratio;
(ii) inventory turnover (days);
(iii) receivables turnover (days);
(iv) payables turnover (days);
(v) gross profit % OR net profit % (before taxation);
(vi) return on equity;
(vi) return on capital employed (ROCE)
(vii) leverage (equity to assets). (14 marks)
(b) Comment on the liquidity and profitability of the company. (6 marks)
(20 marks)
Question 156 DARTH
The following are the summarised accounts for Darth for the year ending 30 September 2014, together
with comparative figures for the previous year:

2013 2014
$000 $000 $000 $000
Tangible non-current assets
– at cost less depreciation 4,995 12,700
Current assets:
Cash at bank 12,092 5,790
______ ______
92,447 99,615
______ ______
97,442 112,315
——— ———
Equity
Issued capital 9,920 9,920
______ ______
40,740 50,000
Non-current liabilities: 10% debentures 19,840 19,840
Current liabilities
Income tax 2,473 3,260
Dividends payable 1,785 1,985
______ ______
36,862 42,475
______ ______
97,442 112,315
——— ———

Summarised statements of profit or loss

2013 2014
$000 $000
Revenue 486,300 583,900
––––––– –––––––
Operating profit 17,238 20,670
Finance costs 1,984 1,984
––––––– –––––––
Income tax 5,734 7,026
––––––– –––––––
Profit after tax 9,520 11,660
––––––– –––––––
Required:
(a) Calculate, for each year, TWO ratios for each of the following user groups, which are of
particular significance to them:
(i) suppliers;
(ii) internal management. (8 marks)
(b) Comment briefly on the changes, between the two years, in the ratios calculated in (a)
above. (4 marks)
(12 marks)
Question 157 MCQs INTERPRETATION OF FINANCIAL STATEMENTS
157.1 Which of the following factors could cause a company’s gross profit percentage on sales
to fall below the expected level?
(1) Overstatement of the opening inventory valuation.

(2) The incorrect inclusion in purchases of invoices relating to goods received from
suppliers in the following period.
(3) The incorrect inclusion in sales of invoices relating to goods despatched to
customers in the following period.
(4) Increased discounts received from suppliers.
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4

157.2 A company’s statement of profit or loss for the year showed:
$m
Operating profit 88
Loan note interest (8)
–––
Profit for year 80
–––
The company’s capital structure at the year end is:
$m
Ordinary share capital 200
Share premium account 80
10% Loan notes 80
What is the company’s return on capital employed?
A 16⅔%
B 18⅓%
C 20%
D 22%
157.3 The following is an extract from the statement of profit or loss of a business for the ended 30
September 2014:
$000 $000
Revenue 54,000
Purchases 36,000
less: Closing inventory 8,000 40,000
–––––– ––––––
Gross profit 14,000
––––––
To the nearest day, how many days’ sales are held in the closing inventory?
A 54
B 61
C 73
D 81
157.4 Which of the following factors would cause a company’s gearing ratio to fall?
(1) A 1 for 1 bonus issue of ordinary shares.

(2) A 1 for 2 rights issue of ordinary shares.
(3) An issue of loan notes.
(4) An upward revaluation of land and buildings.
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4

157.5 Which of the following statements about accounting ratios and their interpretation are
correct?
(1) A highly-geared company is less able to survive a downturn in profit than an

ungeared company.
(2) A high price earnings ratio usually indicates that the market expects the company’s
profits to rise.
(3) All companies should try to achieve a current ratio of 2:1.
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D All three statements are correct
(10 marks)


Answer 1 MCQs CONTEXT OF FINANCIAL REPORTING
Item Answer Justification
1.1 A Although some types of partnership may have a separate legal entity status in certain
jurisdictions this is not a general feature.
1.2 B A partnership can usually raise more money than an individual. Risk of personal
bankruptcy also arises in a partnership and all partners are jointly liable for all
liabilities. There are few requirements for record-keeping for a sole trader (e.g. for
tax purposes) and this is less onerous than would be needed in partnership (e.g. to
determine profit share).
1.3 D Financial reporting concerns the presentation of financial statements including

disclosure in accordance with a financial reporting framework. It is wider than
accounting for transactions.
1.4 C Although a statement of cash flows is a financial statement (i.e. a report of historic
cash flow activities) a cash flow forecast is a management tool (e.g. to project future
finance requirements).
1.5 B Directors and management will have access to more information and on a timelier
basis than is published.
Answer 2 JAN BARTOK
Statement of profit or loss for the year ended 31 December

$ $
Revenue 25,000
Cost of sales
Purchases 20,000
———
21,500
Less: Closing inventory (3,000)
——— (18,500)
———
Gross profit 6,500
Less: Expenses
Administration 1,000
Wages 800
——— (1,800)
———
———

Statement of financial position at 31 December
$ $
Motor cars 2,800
Current assets
Inventory 3,000
Cash in hand 100
———
8,100
———
Total assets 10,900
———
Capital account
Capital at 1 January 5,000
———
9,700
Less: Drawings (2,000)
———
7,700
Current liabilities
———
3,200
———
———
Answer 3 TOMAS MAXIM
Statement of profit or loss for the year ended 31 December
$ $
Revenue 28,400
Less: Returns (200)
———
28,200
Purchases 16,100
——— (14,050)
———
Gross profit 14,150
Less: Expenses
Salaries 4,162
Rent 2,130
Insurance 174
——— (8,062)
———
———

$ $
Motor van 1,700
Current assets
Inventory 2,050
Cash (2,628 + 50) 2,678
———
9,788
———
Total assets 11,488
———
Capital account
———
10,188
———
5,088
Current liabilities
———
11,488
———
Answer 4 MCQs FINANCIAL STATEMENTS
4.1 B A non-current assets may be intangible. Land is not generally depreciable. An asset
by definition must be controlled (which does not necessitate ownership).
4.2 C Drawings are an appropriation of profit – they are not a financial obligation.
4.3 B Leased land and investments are tangible assets. Royalty receipts are income.
4.4 A Closing inventory is not sold and so reduces cost of sales.
4.5 B Installation costs are incurred in putting the asset into first use. Servicing costs are
revenue in nature. A manufacturer’s warranty is not a capital cost of an asset
acquired (but rather a prepayment for future possible repair costs). As the cars are
purchased for resale they are inventory items (i.e. revenue expenditure).
4.6 A Self-constructed assets are capitalised in the same way as if they had been purchased.
The manager’s salary, etc is clearly a revenue expense (relating to day-to-day
operations). Costs of repairs are expensed also. A market survey is a research cost
which must be expensed when incurred because of the uncertainty of future economic
benefits (more on this later).

Answer 5 MCQs ACCOUNTING SYSTEMS
5.1 A Not all procedures will be formal. An accounting system of itself does not ensure
efficient operations (although a sound accounting system will be necessary to this
objective). The prevention and detection of fraud and error is just one management
objective (and so not the sole objective of a sound accounting system). Accounting
records are just one aspect of an accounting system and may be manual.
5.2 B This is the objective concerning assets at an organisation level. (The other objectives
are subsidiary internal control objectives which contribute to the organisational
objective.)
5.3 D Whereas the journal is a book of original entry, ledgers and registers are additional,
subsidiary records.
5.4 C A standing order is an instruction to a bank to make regular payments of fixed

amount. A goods received note is found in a purchases system. A remittance advice
may accompany a receipt from a customer or a payment to a supplier. A sales order,
sales invoice, goods despatch note and customer statement are all relevant to a sales
system.
Answer 6 VICTOR BORISSOV
(a) April transactions
(1) Introduction of capital

$ $
Cash 10,000 Capital 10,000
——— ———
(2) Purchase of Atari
$ $
Inventory 1,000 Capital 10,000
Cash 9,000
——— ———
10,000 10,000
——— ———
(3) Purchase of Amstrad
$ $
Cash 6,500
——— ———
10,000 10,000
——— ———
(4) Sale of Atari
$ $
Cash 8,000 Profit 500
——— ———
10,500 10,500
––—— ———

(5) Rent payment

$ $
Cash 7,700 Profit 200
——— ———
10,200 10,200
——— ———
(6) Purchase of desk

$ $
Tangible non-current assets 200 Capital 10,000
Inventory 2,500 Profit 200
Cash 7,500
——— ———
10,200 10,200
——— ———
(7) Purchase of Compaq
$ $
Tangible non-current assets 200 Capital 10,000
Cash 3,500
——— ———
10,200 10,200
——— ———
(8) Sale of Amstrad

$ $
Non-current assets 200 Capital 10,000
Cash 6,750
——— ———
10,950 10,950
——— ———
(9) Drawings
$ $
Non-current assets 200 Capital 10,000
Cash 6,350 ———
10,950
Less: Drawings (400)
——— ———
10,550 10,550
——— ———

(b) Accounting equation at 31 May
$ $
Tangible non-current assets 200 Capital, 1 May 10,550
Inventory (Compaq and IBM) 9,600 Profit 700
Cash (W) 850 ———
11,250
——— ———
10,650 10,650
——— ———
WORKING
Cash
$
Balance at 1 May 6,350
Cash receipts $(4,500 + 1,800) 6,300
———
12,650
Less: Cash payments $(3,000 + 2,500 + 100 + 600 + 5,600) (11,800)
———
Balance at 31 May 850
———
(c) Statement of profit or loss for the month ended 31 May
$ $
Revenue $(4,500 + 1,800) 6,300
Purchases $(5,500 + 5,600) 11,100
———
15,100
——— (5,500)
———
Gross profit 800
Less: Telephone expense (100)
———
Profit for the period 700
———

Statement of financial position at 31 May

$ $
Tangible non-current assets 200
Current assets
Inventory 9,600
Cash 850
——— 10,450
———
Total assets 10,650
———
Capital account
Capital at 1 May 10,550
Add: Profit for the period 700
———
11,250
———
Total capital 10,650
———
Answer 7 MCQs DOUBLE ENTRY BOOKKEEPING PRINCIPLES
7.1 C Accruals concept underlies the basis of preparation of financial statements, not double
entry bookkeeping principles. Bookkeeping is based on the concept of a separate
business entity which may not be a separate legal entity (e.g. sole trader).
7.2 B Net assets are increased by the introduction of capital and making profit. Drawings
are an appropriation of profit which reduce net assets.
7.3 B $
Opening net assets 5,000
Add: Profit (al fig) 2,700
———
Closing net assets 7,000
———
7.4 A Either 7,000 – 5,000 = 2,000 or 2,700 – 700 = 2,000
7.5 B Payments to owners of a business in their capacity as owners are appropriations

(including salaries of partners). Drawings by sole traders are an appropriation of
profit whether money or “in-kind” (e.g. goods). Interest payments are a finance cost
to the business (i.e. an expense). (Interest paid to a partner for a loan to a partnership
is also an expense as the partner receives it in the capacity of a finance provider.)

Answer 8 ROMAN
(a) Ledger accounts

Cash a/c
$ $
1 Jan Capital a/c 350 15 Jan Purchases a/c 200
31 Jan Sales a/c 300 23 Jan Motor expenses a/c 40
31 Jan Balance c/d 410
—— ——
650 650
—— ——
1 Feb Balance b/d 410 7 Feb Purchases a/c 200
5 Feb Loan a/c (Denis) 300 21 Feb Rent a/c 50
8 Feb Sales a/c 150
28 Feb Sales a/c 300 28 Feb Balance c/d 910
——— ———
1,160 1,160
——— ———
1 Mar Balance b/d 910
Capital a/c
$ $
1 Jan Cash a/c 350
31 Jan Balance c/d 410 31 Jan I & E a/c 60
—— ——
410 410
—— ——
1 Feb Balance b/d 410
28 Feb Balance c/d 610 28 Feb I & E a/c 200
—— ——
610 610
—— ——
Loan a/c
$ $
28 Feb Balance c/d 300 5 Feb Cash a/c 300
—— ——

Motor expenses a/c
$ $
23 Jan Cash a/c 40 31 Jan I & E a/c 40
— —
Purchases a/c
$ $
15 Jan Cash a/c 200 31 Jan Trading (or I & E) a/c 200
—— ——
7 Feb Cash a/c 200 28 Feb Trading (or I & E) a/c 200
—— ——
Rent a/c
$ $
21 Feb Cash a/c 50 28 Feb I & E a/c 50
— —
Sales a/c
$ $
31 Jan Trading (or I & E) a/c 300 31 Jan Cash a/c 300
—— ——
28 Feb Trading (or I & E) a/c 450 8 Feb Cash a/c 150
28 Feb Cash a/c 300
—— ——
450 450
—— ——
(b) List of account balances at 31 January and 28 February
31 January 28 February
Dr Cr Dr Cr
$ $ $ $
Cash 410 910
Capital 350 410
Loan – 300
Motor expenses 40 –
Purchases 200 200
Rent – 50
Revenue 300 450
—— —— ——— ———
650 650 1,160 1,160
—— —— ——— ———

(c) Statements of profit or loss for the months ended 31 January and 28 February
$ $
Revenue 300 450
Less: Purchases (200) (200)
—— ——
Gross profit 100 250
Less: Expenses
Motor expenses (40)
Rent (50)
—— ——
Profit for the period 60 200
—— ——
(d) Statements of financial position as at 31 January and 28 February
$ $
Current asset
Cash 410 910
—— ——
Capital
Capital b/f – 410
Introduced 350 –
Add: Profit for month 60 200
—— ——
Capital c/f 410 610
Non-current liability
Loan – 300
—— ——
410 910
—— ——
Answer 9 PETR
(a) Cash at bank a/c
$ $
5 Apr Capital a/c 300 7 Apr Purchases a/c 200
8 Apr Loan a/c 250 15 Apr Motor van a/c 150
20 Apr Revenue a/c 350 28 Apr Rent a/c 50
29 Apr Loan a/c 200
30 Apr Drawings a/c 60
30 Apr Balance c/d 240
—— ——
900 900
—— ——
1 May Balance b/d 240

Capital a/c
$ $
30 Apr Drawings a/c 60 5 Apr Bank a/c 300
30 Apr Balance c/d 440 30 Apr I & E a/c (profit) 200
—— ——
500 500
—— ——
Tutorial note: Because Petr is a sole trader there is no requirement to distinguish a fixed
amount of capital introduced and retained earnings. However, separate accounts could be
kept.
Purchases a/c
$ $
7 Apr Bank a/c 200 30 Apr Trading a/c 200
—— ——
Loan a/c
$ $
29 Apr Bank a/c 200 8 Apr Bank a/c 250
30 Apr Balance c/d 50
—— ——
250 250
—— ——
Motor van a/c
$ $
15 Apr Bank a/c 150 30 Apr Balance c/d 150
—— ——
Rent a/c
$ $
28 Apr Bank a/c 50 30 Apr I & E a/c 50
— —
Revenue a/c
$ $
30 Apr Trading a/c 350 20 Apr Bank a/c 350
—— ——

Drawings a/c
$ $
30 Apr Bank a/c 60 30 Apr Capital a/c 60
— —
(b) List of account balances at 30 April

Dr Cr
$ $
Cash at bank 240
Capital 300
Purchases 200
Loan 50
Motor van 150
Rent 50
Revenue 350
Drawings 60
—— ——
700 700
—— ——
(c) Statement of profit or loss for the month ended 30 April

$ $
Revenue 350
Purchases 200
Less: Closing inventory (see note) (100)
——
Cost of sales (100)
——
Gross profit 250
Less: Expenses
Rent (50)
——
——
Tutorial note: It should be noted that there is a final adjustment to the list of balances at this
stage in respect of closing inventory. The double entry is a credit to cost of sales and a debit to
the inventory account. The balance on the inventory account will then appear in the statement
of financial position.

Statement of financial position as at 30 April

$ $
Motor van 150
Current assets
Inventory 100
Cash 240
——
340
——
Total assets 490
——
Capital account
Introduced 300
——
500
Less: Drawings (60)
——
440
Current liabilities
Loan 50
——
Total capital and liabilities 490
——
Answer 10 GRIGORY
$ $
1 Jan Capital a/c 5,000 2 Jan Motor van a/c 600
4 Jan Loan a/c (Sergei) 1,000 3 Jan Purchases a/c 1,300
13 Jan Revenue a/c 300 10 Jan Motor expenses a/c 200
20 Jan Revenue a/c 500 24 Jan Storage expenses a/c 150
27 Jan Loan a/c 350
30 Jan Drawings a/c 175
31 Jan Balance c/d 4,025
——— ———
6,800 6,800
——— ———
1 Feb Balance b/d 4,025
Capital a/c
$ $
31 Jan Balance c/d 5,000 1 Jan Bank a/c 5,000
——— ———
5,000 5,000
——— ———

Motor van a/c
$ $
2 Jan Bank a/c 600 31 Jan Balance c/d 600
—— ——
Purchases a/c
$ $
3 Jan Bank a/c 1,300 31 Jan Balance c/d 1,300
——— ———
Loan a/c
$ $
27 Jan Bank a/c 350 4 Jan Bank a/c 1,000
——— ———
1,000 1,000
——— ———
Motor van expenses a/c
$ $
—— ——
Revenue a/c
$ $
31 Jan Balance c/d 800 13 Jan Bank a/c 300
20 Jan Bank a/c 500
—— ——
800 800
—— ——
Storage expenses a/c
$ $
—— ——

Drawings a/c
$ $
—— ——
(b) Trial balance at 31 January

Dr Cr
$ $
Cash at bank 4,025
Capital 5,000
Motor van 600
Purchases 1,300
Loan 650
Revenue 800
Storage expenses 150
Drawings 175
——— ———
6,450 6,450
——— ———
(c) Statement of profit or loss for the month ended 31 January
$ $
Revenue 800
Purchases 1,300
Less: Closing inventory (800)
———
Cost of goods sold (500)
——
Gross profit 300
Less: Expenses
Storage expenses 150
—— (350)
——
Loss for the period (50)
——

Statement of financial position as at 31 January

$ $
Motor van 600
Current assets
Inventory 800
Cash 4,025
———
4,825
———
Total assets 5,425
———
Capital account
At 1 January 5,000
Less: Loss for the period (50)
———
4,950
———
4,775
Current liability
Loan 650
———
———
Answer 11 DANA
$ $
2 Mar Capital a/c 525 16 Mar Purchases a/c 300
29 Mar Revenue a/c 450 24 Mar Sundry expenses a/c 60
31 Mar Balance c/d 615
—— ——
975 975
—— ——
1 Apr Balance b/d 615 8 Apr Purchases a/c 300

6 Apr Loan a/c (Radok) 450 22 Apr Establishment costs a/c 75
9 Apr Revenue a/c 225 30 Apr Balance c/d 1,365
30 Apr Revenue a/c 450
——— ———
1,740 1,740
——— ———
1 May Balance b/d 1,365

Capital a/c
$ $
31 Mar Balance c/d 525 2 Mar Bank a/c 525
—— ——
30 Apr Balance c/d 525 1 Apr Balance b/d 525

—— ——
Loan a/c
$ $
30 Apr Balance c/d 450 6 Apr Bank a/c 450
—— ——
Sundry expenses a/c
$ $
24 Mar Bank a/c 60 31 Mar Balance c/d 60
—— ——
1 Mar Balance b/d 60 30 Apr Balance c/d 60

—— ——
1 May Balance c/d 60
Purchases a/c
$ $
16 Mar Bank a/c 300 31 Mar Balance c/d 300
—— ——
1 Apr Balance b/d 300

—— ——
600 600
—— ——
Establishment costs a/c
$ $
— ——

Revenue a/c
$ $
31 Mar Balance c/d 450 29 Mar Bank a/c 450
—— ——

9 Apr Bank a/c 225
30 Apr Balance c/d 1,125 30 Apr Bank a/c 450
——— ———
1,125 1,125
——— ———
1 May Balance c/d 1,125
(b) Trial balances at 31 March and 30 April
31 Mar 30 Apr
$ $ $ $
Cash at bank 615 1,365
Capital 525 525
Loan – 450
Sundry expenses 60 60
Purchases 300 600
Establishment costs – 75
Revenue 450 1,125
—— —— ——— ———
975 975 2,100 2,100
—— —— ——— ———
(c) Statement of profit or loss for the two months ended 30 April
$ $
Sales 1,125
Less: Purchases (600)
——
Gross profit 525
Less: Expenses
Miscellaneous expenses 60
Establishment costs 75
——
(135)
——
——

(d) Statements of financial position as at 31 March and 30 April
31 Mar 30 Apr
$ $
Current assets
Cash 615 1,365
—— ———
Capital introduced 525 –

Capital b/f – 615
Add: Profit for month 90 300
—— ———
615 915
Loan – 450
—— ———
615 1,365
—— ———
Answer 12 PATEL
(a)(i) and (b) Cash at bank a/c
$ $
1 Jan Capital a/c 10,000 3 Jan Motor van a/c 900
2 Jan Loan a/c 4,000 4 Jan Purchases a/c 2,300
5 Jan Revenue a/c 3,000 6 Jan Motor expenses a/c 250
31 Jan Balance c/d 13,550
——— ———
17,000 17,000
——— ———
1 Feb Balance b/d 13,550 1 Feb Loan a/c 200

5 Feb Revenue a/c 3,200 2 Feb Drawings a/c 300
3 Feb Office equipment a/c 160
4 Feb Purchases a/c 3,500
28 Feb Balance c/d 12,590
——— ———
16,750 16,750
——— ———
1 Mar Balance b/d 12,590 1 Mar Purchases a/c 2,900

2 Mar Revenue a/c 2,625 2 Mar Rent a/c 225
31 Mar Balance c/d 12,090
——— ———
15,215 15,215
——— ———
1 Apr Balance b/d 12,090

Capital a/c
$ $
——— ———
28 Feb Balance c/d 10,000 1 Feb Balance b/d 10,000

——— ———
31 Mar Drawings a/c 580 1 Mar Balance b/d 10,000

31 Mar Balance c/d 10,520 31 Mar I & E a/c 1,100
——— ———
11,100 11,100
——— ———
1 Apr Balance c/d 10,520
Loan a/c
$ $
———
1 Feb Bank a/c 200

——— ———
4,000 4,000
——— ———
31 Mar Balance c/d 3,800 1 Mar Balance b/d 3,800

——— ———
Motor van a/c
$ $
—— ——
1 Feb Balance b/d 900 28 Feb Balance c/d 900

—— ——
1 Mar Balance b/d 900 31 Mar Balance c/d 900

—— ——

Purchases a/c
$ $
4 Jan Bank a/c $2,300 31 Jan Balance c/d $2,300
——— ——

4 Feb Bank a/c 3,500 6 Feb Drawings a/c 280
——— ———
5,800 5,800
——— ———
1 Mar Balance b/d 5,520

1 Mar Bank a/c 2,900 31 Mar I & E a/c 8,420
——— ———
8,420 8,420
——— ———
Revenue a/c
$ $
——— ———
28 Feb Balance c/d 6,200 5 Feb Bank a/c 3,200
——— ———
6,200 6,200
——— ———
1 Mar Balance b/d 6,200
31 Mar I & E a/c 8,825 2 Mar Bank a/c 2,625
——— ———
8,825 8,825
——— ———
Motor expenses a/c
$ $
—— ——
1 Feb Balance b/d 250 28 Feb Balance c/d 250

—— ——
1 Mar Balance b/d 250 31 Mar I & E a/c 250

—— ——

Drawings a/c
$ $
2 Feb Bank a/c 300
6 Feb Purchases a/c 280 28 Feb Balance c/d 580
—— ——
580 580
—— ——
1 Mar Balance b/d 580 31 Mar Capital a/c 580

—— ——
Office equipment a/c
$ $
3 Feb Bank a/c 160 28 Feb Balance c/d 160
—— ——
1 Mar Balance b/d 160 31 Mar Balance c/d 160

—— ——
Rent a/c
$ $
3 Mar Bank a/c 225 31 Mar I & E a/c 225
—— ——
(Trading and) Income and expenditure a/c
$ $
31 Mar Purchases a/c 8,420 † 31 Mar Revenue a/c 8,825 †
31 Mar Balance c/d (gross profit) 1,575 * 31 Mar Transfer inventory 1,170 †
——— ———
9,995 9,995
——— ———
31 Mar Motor expenses a/c 250 31 Mar Balance b/d 1,575 *
31 Mar Rent a/c 225
31 Mar Transfer capital a/c
(profit) 1,100
——— ———
1,575 1,575
——— ———
† Alternatively may be recorded in a separate trading a/c and the gross profit transferred to the I
& E a/c.
* Balancing here can be omitted.

Inventory a/c
$ $
31 Mar Transfer I & E a/c 1,170 31 Mar Balance c/d 1,170
——— ———
Tutorial note: Inventory only needs to be brought into the ledger a/cs at a period end when I
& E a/cs are closed and profit for the period is determined. It was not specifically asked for but
is shown for completeness.
(ii) Trial balances

31 March*
Dr Cr Dr Dr Cr Cr
$ $ $ $ $ $
Cash at bank 13,550 12,590
12,090
Capital 10,000 10,00010,000
Loan 4,000 3,800 3,800
Motor van 900 900 900
Purchases 2,300 5,5208,420
Sales 3,000 6,200 8,825
Motor expenses 250 250 250
Drawings 580 580
Office equipment 160 160
Rent 225
——— ——— ——— ——— ——— ———
17,000 17,000 20,000 20,000 22,625 22,625
——— ——— ——— ——— ——— ———
* Extracted before ledger a/cs closed.
(iii) Statements of profit or loss (cumulative) for the months ended
31 January 28 February 31 March

$ $ $ $ $ $
Revenue 3,000 6,200 8,825
Opening inventory – – –
Purchases 2,300 5,520 8,420
Less: Closing inventory – (720) (1,170)
——— (2,300) ——— (4,800) ——— (7,250)
——— ——— ———
Gross profit 700 1,400 1,575
Less: Expenses
Motor expenses (250) (250) (250)
Rent – – (225)
——— ——— ———
Profit/(loss) 450 1,150 1,100
——— ——— ———

(iv) Statements of financial position
31 January 28 February 31 March

$ $ $ $ $ $
Motor van 900 900 900
Office equipment – 160 160
——— ——— ———
900 1,060 1,060
Current assets
Inventory – 720 1,170
Bank 13,550 12,590 12,090
——— ——— ———
13,550 13,310 13,260
——— ——— ———
Total assets 14,450 14,370 14,320
——— ——— ———
Capital account
At start of month 10,000 10,000 10,000
Add: Retained earnings 450 1,150 1,100
——— ——— ———
10,450 11,150 11,100
Less: Drawings – (580) (580)
——— ——— ———
10,450 10,570 10,520
Loan 2,800 2,600 2,600
Current liabilities
Loan 1,200 1,200 1,200
——— ——— ———
14,450 14,370 14,320
——— ——— ———
Tutorial note: With the exception of inventory (and retained earnings) all the amounts are as
per the trial balance.
Answer 13 BOHM
Bank a/c
$ $
1 Jan Capital a/c 5,000 5 Jan Fixtures and fittings a/c 2,000
13 Jan Sales a/c 300 10 Jan Dvorak’s a/c 900
14 Jan Jovanovich’s a/c 250 14 Jan Balance c/d 2,650
——— ———
5,550 5,550
——— ———
Balance b/d 2,650

———

Capital a/c
$ $
——— ———
Balance b/d 5,000
Fixtures and fittings a/c
$ $
5 Jan Bank a/c 2,000 14 Jan Balance c/d 2,000
——— ———
Balance b/d 2,000
Purchases a/c
$ $
7 Jan Dvorak’s a/c 1,000 14 Jan Trading a/c 1,000
——— ———
Purchases returns a/c
$ $
14 Jan Trading a/c 100 9 Jan Dvorak’s a/c 100
—— ——
Tutorial note: Purchases returns may alternatively be credited to the purchases account and the net
amount transferred to the trading a/c.
Dvorak’s a/c
$ $
9 Jan Purchases returns a/c 100 7 Jan Purchases a/c 1,000
10 Jan Bank a/c 900
——— ———
1,000 1,000
——— ———
Sales a/c
$ $
14 Jan Trading a/c 600 11 Jan Jovanovich’s a/c 300
13 Jan Bank a/c 300
—— ——
600 600
—— ——

Sales returns a/c
$ $
12 Jan Jovanovich’s a/c 50 14 Jan Trading a/c 50
—— ——
Jovanovich’s a/c
$ $
11 Jan Sales a/c 300 12 Jan Sales returns a/c 50
14 Jan Bank a/c 250
—— ——
300 300
—— ——
Tutorial note: Sales returns may alternatively be debited to the sales revenue a/c and the net amount
transferred to the trading a/c.
Answer 14 IVAN TOMBS

Bank a/c
$ $
(1) Capital a/c 10,000 (2) Purchases a/c 200
(7) Sales a/c (cash sale to Greene) 1,000 (4) Rent a/c 1,000
(14) Doyle’s a/c 100 (5) Stationery a/c 60
(8) Moore’s a/c 140
(10) Stationery a/c 40
(11) Motor expenses 150
(12) Petros’s a/c 1,000
(13) Drawings 300
Balance c/d 8,210
——— ———
11,100 11,100
——— ———
Balance b/d 8,210
Capital a/c
$ $
Balance c/d 10,000 (1) Bank 10,000
——— ———
Balance b/d 10,000

Purchases a/c
$ $
(2) Bank a/c 200 Trading a/c 600
(3) Moore’s a/c 400
—— ——
600 600
—— ——
Moore’s a/c
$ $
(8) Bank a/c 140 (3) Purchases a/c 400
Balance c/d 260
—— ——
400 400
—— ——
Balance b/d 260
Rent a/c
$ $
(4) Bank a/c 1,000 I & E a/c 1,000
——— ———
Stationery a/c
$ $
(5) Bank a/c 60 I & E a/c 100
(10) Bank a/c 40
—— ——
100 100
–— ——
Petros’ a/c
$ $
(12) Bank a/c 1,000 (6) Van a/c 4,000
Balance c/d 3,000
——— ———
4,000 4,000
——— ———
Balance b/d 3,000

Van a/c
$ $
(6) Petros’s a/c 4,000 Balance c/d 4,000
——— ———
Balance b/d 4,000
Sales a/c
$ $
Trading a/c 1,140 (7) Bank a/c 1,000
(9) Doyle’s a/c 140
——— ———
1,140 1,140
——— ———
Doyle’s a/c
$ $
(9) Sales a/c 140 (14) Bank a/c 100
Balance c/d 40
—— ——
140 140
–— ——
Balance b/d 40
Motor expenses a/c
$ $
(11) Bank a/c 150 I & E a/c 150
—— ——
Drawings a/c
$ $
(13) Bank a/c 300 Balance c/d 300
—— ——
Balance b/d 300

Answer 15 VIKTOR
Bank a/c
$ $
(1) Capital a/c 1,000 (5) Rent a/c 40
(7) Sales a/c 420 (3) Electricity 100
(4) Motor car a/c 200
(6) Drawings 60
Balance c/d 1,020
——— ———
1,420 1,420
——— ———
Balance b/d 1,020
Capital a/c
$ $
Drawings a/c 60 Bank a/c 1,000
Balance c/d 1,170 Transfer I & E a/c (profit) 230
——— ———
1,230 1,230
——— ———
Balance b/d 1,170
Purchases a/c
$ $
(2) ABC 400 Trading a/c 400
—— ——
ABC a/c
$ $
Balance c/d 400 (2) Purchases a/c 400
—— ——
Balance b/d 400
Tutorial note: Alternatively profit can be carried down in the I & E a/c or transferred to retained
earnings or other “accumulated profit” a/c.

Sales a/c
$ $
Trading a/c 770 (5) XYZ 350
(7) Bank a/c 420
—— ——
770 770
—— ——
Electricity a/c
$ $
(3) Bank a/c 100 I & E a/c 100
—— ——
Rent a/c
$ $
(3) Bank a/c 40 I & E a/c 40
—— ——
Motor car a/c
$ $
(4) Bank a/c 200 Balance c/d 200
—— ——
XYZ a/c
$ $
(5) Sales a/c 350 Balance c/d 350
—— ——
Balance b/d 350
Drawings a/c
$ $
(6) Bank a/c 60 Transfer to capital a/c 60
—— ——

Trading a/c
$ $
Purchases 400 Sales 770
Transfer I & E a/c (gross profit) 370
—— ——
770 770
—— ——
Income & expenditure a/c
$ $
Electricity 100 Transfer trading a/c 370
Rent 40
Transfer capital a/c (profit) 230
—— ——
370 370
—— ——
Tutorial note: Requirement specified the accounts rather than the statement of profit or loss.
Answer 16 ANGELO
(a) Double entries

$ $
(1) Dr Cash a/c 5,000
Cr Capital a/c 5,000
(2) Dr Rent expense a/c 300

Cr Cash a/c 300
(3) Dr Purchases a/c 2,000

Cr Cash a/c 2,000
(4) Dr Cash a/c 900

Cr Sales a/c 900
(5) Dr Motor vehicle a/c 2,000

Cr Cash a/c 2,000

Cr Cash a/c 1,500
(7) Dr Cash a/c 2,250

Cr Sales a/c 2,250
(8) Dr Cash a/c 100

Cr Rental income a/c 100

Cr Trade payables a/c 1,000

$ $
(10) Dr Telephone a/c 75
Cr Trade payables a/c 75
(11) Dr Cash a/c 300

Dr Trade receivables a/c 1,500
Cr Sales a/c 1,800
(12) Dr Trade payables a/c 500

Cr Cash a/c 500

Cr Trade receivables a/c 600

Cr Cash a/c 75

Cr Trade receivables a/c 475

Cr Cash a/c 300
(17) Dr Cash a/c 1,800

Cr Sales a/c 1,800
(b), (c) & (e) Ledger accounts

Cash a/c
$ $
(1) Capital 5,000 (2) Rent expense 300
(4) Sales 900 (3) Purchases (Cézanne) 2,000
(7) Sales 2,250 (5) Motor vehicle 2,000
(8) Rental income 100 (6) Purchases (Dali) 1,500
(11) Sales 300 (12) Payables (Bookworm) 500
(13) Receivables (Salvador) 600 (14) Payables (telephone) 75
(15) Receivables (Quinn) 475 (16) Payables (Bookworm) 300
(17) Sales 1,800 Balance c/d 4,750
______ ______
11,425 11,425
______ ______
Balance b/d 4,750
Capital a/c
$ $
Balance c/d 5,000 (1) Cash 5,000
_____ _____
5,000 5,000
_____ _____
Balance b/d 5,000

Rent expense a/c
$ $
(2) Cash 300 Balance c/d 300
____ ____
300 300
____ ____
Balance b/d 300 Transfer to I & E a/c 300
Purchases a/c
$ $
(3) Cash (Cézanne) 2,000
(6) Cash (Dali) 1,500
(9) Payables (Bookworm) 1,000 Balance c/d 4,500
_____ _____
4,500 4,500
_____ _____
Balance b/d 4,500 Transfer to I & E a/c 4,500
Sales a/c
$ $
(4) Cash 900
(7) Cash 2,250
(11) Cash/Receivables 1,800
Balance c/d 6,750 (17) Cash 1,800
_____ _____
6,750 6,750
_____ _____
Transfer to I & E a/c 6,750 Balance b/d 6,750
Non-current asset (Van) a/c
$ $
(5) Cash 2,000 Balance c/d 2,000
_____ _____
2,000 2,000
_____ _____
Balance b/d 2,000
Rental income a/c
$ $
Balance c/d 100 (8) Cash 100
____ ____
100 100
____ ___
Transfer to I & E a/c 100 Balance b/d 100

Trade receivables (total) a/c
$ $
(11) Sales 1,500 (13) Cash (Salvador) 600
(15) Cash (Quinn) 475
Balance c/d 425
_____ _____
1,500 1,500
_____ _____
Balance b/d 425
Trade payables (total) a/c
$ $
(12) Cash (Bookworm) 500 (9) Purchases (El Greco) 1,000
(14) Cash (Telephone) 75 (10) Telephone 75
(16) Cash (Bookworm) 300
Balance c/d 200
_____ _____
1,075 1,075
_____ _____
Balance b/d 200
Telephone a/c
$ $
(10) Trade payables 75 Balance c/d 75
___ ___
75 75
___ ___
Balance b/d 75 Transfer to I & E a/c 75
(Trading and) Income and expenditure a/c
$ $
Purchases 4,500 Sales 6,750
Rent expense 300 Rental income 100
Telephone 75
Balance (= Profit) 1,975
_____ _____
6,850 6,850
_____ _____

(d) List of account balances

Dr Cr
$ $
Cash 4,750
Capital 5,000
Rent expense 300
Purchases 4,500
Sales (Revenue) 6,750
Non-current asset 2,000
Rental income 100
Trade payables 200
Telephone 75
______ ______
12,050 12,050
——— ———
(f) Statement of profit or loss

$
Sales 6,750
Less: Cost of goods sold
Purchases 4,500
______
Gross profit 2,250
Sundry income 100
_____
2,350
Less: Other expenses
Rent 300
Telephone 75
____
375
———
Profit for the period 1,975
———

Statement of financial position

$ $
Non-current assets
Van 2,000
Current assets
Cash 4,750
______
5,175
———
Total assets 7,175
———
$
Capital 5,000
_____
Proprietor’s interest 6,975
Current liabilities
Trade payables 200
———
Total equity and liabilities 7,175
———
Answer 17 STEFAN
(a) Bank a/c
$ $
1 Nov Capital a/c 3,000 7 Nov Fixtures and fittings a/c 560
12 Nov Sales a/c 400 23 Nov Drawings a/c 100
29 Nov A’s a/c 400 25 Nov Y’s a/c 300
28 Nov X’s a/c 400
30 Nov Balance c/d 2,440
——— ———
3,800 3,800
——— ———
1 Dec Balance b/d 2,440
Purchases a/c
$ $
3 Nov X’s a/c 400 30 Nov Drawings a/c 20
5 Nov Y’s a/c 350 30 Nov Balance c/d 730
—— ——
750 750
—— ——
1 Dec Balance b/d 730

X’s a/c
$ $
28 Nov Bank a/c 400 3 Nov Purchases a/c 400
—— ——
Y’s a/c
$ $
25 Nov Bank a/c 300 5 Nov Purchases a/c 350
30 Nov Balance c/d 50
—— ——
350 350
—— ——
$ $
7 Nov Bank a/c 560 30 Nov Balance c/d 560
—— ——
Sales a/c
$ $
8 Nov A’s a/c 500
30 Nov Balance c/d 900 12 Nov Bank a/c 400
—— ——
900 900
—— ——
A’s a/c
$ $
8 Nov Sales a/c 500 29 Nov Bank a/c 400
30 Nov Balance c/d 100
—— ——
500 500
—— ——

Drawings a/c
$ $
23 Nov Bank a/c 100
30 Nov Purchases a/c 20 30 Nov Balance c/d 120
—— ——
120 120
—— ——
Capital a/c
$ $
1 Nov Bank a/c 3,000
30 Nov Balance c/d 3,000
——— ———
3,000 3,000
——— ———
(b) Trial balance at 30 November

Dr Cr
$ $
Cash at bank 2,440
Capital 3,000
Purchases 730
Trade payables (Y) 50
Sales 900
Trade receivables (A) 100
Drawings 120
——— ———
3,950 3,950
——— ———
(c) Statement of profit or loss for the month ended 30 November
$ $
Sales 900
Purchases 730
—— (480)
——
Gross profit 420
——

Statement of financial position at 30 November

$ $
Non-current assets
Current assets
Inventory 250
Cash 2,440
———
2,790
———
Total assets 3,350
———
Capital account
Add: Profit for the month 420
———
3,420
———
3,300
Current liabilities
Trade payables 50
———
———
Answer 18 R RYBIN
(a) Bank a/c
$ $
1 Dec Capital a/c 5,000 1 Dec Fixtures and fittings a/c 1,000
31 Dec Didnko’s a/c 600 7 Dec Rent a/c 40
31 Dec Sales a/c 100 10 Dec Electricity 150
10 Dec Motor van a/c 1,500
20 Dec Stationery a/c 200
31 Dec Agladze’ a/c 400
31 Dec Buczak’s a/c 300
31 Dec Office equipment a/c 250
31 Dec Drawings a/c 100
31 Dec Balance c/d 1,760
——— ———
5,700 5,700
——— ———
1 Jan Balance b/d 1,760

Agladze’s a/c
$ $
31 Dec Bank a/c 400 9 Dec Purchases a/c 400
—— ——
Buczak’s a/c
$ $
31 Dec Bank a/c 300 13 Dec Purchases a/c 300
—— ——
Coke’s a/c
$ $
31 Dec Balance c/d 140 20 Dec Purchases a/c 140
—— ——
1 Jan Balance b/d 140
Didnko’s a/c
$ $
10 Dec Sales a/c 600 31 Dec Bank a/c 600
—— ——
Drawings a/c
$ $
31 Dec Bank a/c 100 31 Dec Balance c/d 100
—— ——
Ergo’s a/c
$ $
14 Dec Sales a/c 800 31 Dec Balance c/d 800
—— ——
Electricity a/c
$ $
—— ——

Office equipment a/c
$ $
—— ——
$ $
1 Dec Bank a/c 1,000 31 Dec Balance c/d 1,000
——— ———
Fesan’s a/c
$ $
29 Dec Sales a/c 300 31 Dec Balance c/d 300
—— ——
Motor van a/c
$ $
10 Dec Bank a/c 1,500 31 Dec Balance c/d 1,500
——— ———
Purchases a/c
$ $
9 Dec Agladze’s a/c 400
13 Dec Buczak’s a/c 300
20 Dec Coke’s a/c 140 31 Dec Balance c/d 840
—— ——
840 840
—— ——
Rent a/c
$ $
—— ——

Sales a/c
$ $
10 Dec Didnko’s a/c 600
14 Dec Ergo’s a/c 800
29 Dec Fesan’s a/c 300
31 Dec Balance c/d 1,800 31 Dec Bank a/c 100
——— ———
1,800 1,800
——— –——
Stationery a/c
$ $
—— ——
Capital a/c
$ $
31 Dec Balance c/d 5,000 1 Dec Bank a/c 5,000
——— ———
(b) Trial balance at 31 December
Dr Cr
$ $
Cash at bank 1,760
Capital 5,000
Drawings 100
Coke 140
Ergo 800
Electricity 150
Office equipment 250
Fixtures and fittings 1,000
Fesan 300
Motor van 1,500
Purchases 840
Rent 40
Sales 1,800
Stationery 200
——— ———
6,940 6,940
——— ———

(c) Statement of profit or loss for the month ended 31 December

$ $
Revenue 1,800
Purchases 840
——
Cost of sales (690)
———
Gross profit 1,110
Less: Expenses
Electricity 150
Rent 40
Stationery 200
—— (390)
———
———

$ $
Non-current assets
Fixtures and fittings 1,000
Office equipment 250
Motor van 1,500
———
2,750
Current assets
Inventory 150
Trade receivables (800 + 300) 1,100
Cash in hand 1,760
———
3,010
———
Total assets 5,760
———
Capital account
Profit for month 720
———
5,720
———
5,620
Current liabilities
Trade payable 140
———
5,760
———

Answer 19 NIXON
(a) Bank a/c
$ $
1 Jan Balance b/d 343 5 Jan Wages a/c 12
7 Jan Smith’s a/c 18 9 Jan Max’s a/c 21
11 Jan Sales a/c 64 14 Jan Wages a/c 14
21 Jan Sales a/c 110 14 Jan Purchases a/c 75
23 Jan Harvey’s a/c 25 15 Jan Rich’s a/c 162
28 Jan Sales a/c 84 20 Jan Fixtures and fittings a/c 32
31 Jan Sales a/c 30 21 Jan Wages a/c 17
23 Jan Office expenses a/c 3
28 Jan Wages a/c 15
—— ——
674 674
—— ——
Capital a/c
$ $
31 Jan Balance c/d 1,091 31 Jan I & E a/c 42
——— ———
1,091 1,091
——— ———
$ $
—— ——
230 230
—— ——

Sales a/c
$ $
31 Jan Trading a/c 412 2 Jan Harvey’s a/c 124
11 Jan Bank a/c 64
21 Jan Bank a/c 110
28 Jan Bank a/c 84
31 Jan Bank a/c 30
—— ——
412 412
—— ——
Wages a/c
$ $
5 Jan Bank a/c 12 31 Jan I & E a/c 58
14 Jan Bank a/c 14
21 Jan Bank a/c 17
28 Jan Bank a/c 15
—— ——
58 58
—— ——
Purchases a/c
$ $
5 Jan Rich’s a/c 150 31 Jan Trading a/c 225
14 Jan Bank a/c 75
—— ——
225 225
—— ——
Office expenses a/c
$ $
23 Jan Bank a/c 3 31 Jan I & E a/c 3
— —
Receivables – Smith’s a/c
$ $
1 Jan Balance b/d 18 7 Jan Bank a/c 18
— —

Receivables – Harvey’s a/c
$ $
1 Jan Balance b/d 39 23 Jan Bank a/c 25
2 Jan Sales a/c 124 31 Jan Balance c/d 138
—— ——
163 163
—— ——
Receivables – Moon’s a/c
$ $
1 Jan Balance b/d 26 31 Jan Balance c/d 26
—– ——
Payables – Rich’s a/c
$ $
15 Jan Bank a/c 162 1 Jan Balance b/d 12
5 Jan Purchases a/c 150
—— ——
162 162
—— ——
Payables – Max’s a/c
$ $
9 Jan Bank a/c 21 1 Jan Balance b/d 21
—— ——
Inventory a/c
$ $
1 Jan Balance b/d 458 31 Jan Trading a/c 458
—— ——
31 Jan Trading a/c 374 31 Jan Balance c/d 374

—— ——

(b) Trial balance (extracted before the ledger accounts were closed)
Dr Cr
$ $
Cash at bank 323
Capital 1,049
Sales 412
Wages 58
Purchases 225
Office expenses 3
Receivables
Harvey 138
Moon 26
Inventory 458
——— ———
1,461 1,461
——— ———
(c) Statement of profit or loss for the month ended 31 January
$ $
Revenue 412
Purchases 225
——
683
——
Cost of goods sold (309)
——
Gross profit 103
Less: Expenses
Wages 58
Office expenses 3
—— (61)
——
——

Statement of financial position at 31 January

$ $
Non-current assets
Current assets
Inventory 374
Trade receivables (138 + 26) 164
Cash 323
—— 861
———
1,091
———
Capital account
At 1 January 1,049
———
1,091
———
Answer 20 MCQs LEDGER ACCOUNTING
20.1 C
20.2 A Purchases will be reduced to reflect the removal of goods (at cost). No sale is
recognised. Double-entries are not made to the inventory account for transactions
involving goods. Inventory is effectively unsold purchases and dealt with as a period-
end adjustment (see later).
20.3 B A bank account may be overdrawn and hence a liability. Sales revenue is an income
item which is closed to the income and expenditure account (so does not have a
balance) which in turn is closed with a transfer to retained earnings (so does not have
a balance). The balance on the inventory account at the end of the year must
represent an asset (i.e. debit balance).
20.4 D Of the errors suggested only a transposition error will create a difference between
credit and debit entries.
20.5 B Errors of omission are not detected by the trial balance. It can be extracted at any
time. It does not prove the arithmetic accuracy of the books (e.g. as well as omissions
there could be compensating errors). Financial statements cannot be prepared directly
from a trial balance as further adjustments will be required.
Answer 21 DAMIEN
Discounts a/c
$ $
Discount allowed to Felix Discount received from suppliers
(3%  $500) 15 (5%  $260 – settlement only) 13
I & E a/c 2
—— ——
15 15
—— ——
Tutorial note: Total net expense to I & E as result of discounts = $2.

Answer 22 RICARDO
Revenue a/c
$ $
2 Jun Claire – receivable a/c 8,500
14 Jun Hywel – receivable a/c 9,000
20 Jun Cash a/c 6,000
27 Jun Trading a/c 28,500 24 Jun Mandy – receivable a/c 5,000
——— ———
28,500 28,500
——— ———
Sales returns
$ $
22 Jun Claire – receivable 1,000 27 Jun Trading a/c 1,000
——— ———
Tutorial note: Sales returns may alternatively be debited to the sales revenue a/c.
Purchases a/c
$ $
13 Jun Georgina – payable a/c 12,000
21 Jun Andrew – payable a/c 4,500 27 Jun Trading a/c 16,500
——— ———
16,500 16,500
——— ———
Cash a/c
$ $
20 Jun Sales a/c 6,000 25 Jun Georgina – payable 11,160
24 Jun Claire – receivable 7,125 27 Jun Andrew – payable 4,410
25 Jun Hywel – receivable 9,000 27 Jun Balance c/d 6,555
——— ———
22,125 22,125
——— ———
Bal b/d 6,555
Discounts allowed a/c
$ $
24 Jun Claire – receivable 375 27 Jun I & E a/c 375
—— ——
375 375
—— ——

Discounts received a/c
$ $
25 Jun Georgina – payable 840
27 Jun I & E a/c 930 27 Jun Andrew – payable 90
—— ——
930 930
—— ——
Claire – receivable a/c
$ $
2 Jun Sales a/c 8,500 22 Jun Sales returns 1,000
24 Jun Cash a/c 7,125
24 Jun Discounts allowed a/c 375
——— ———
8,500 8,500
——— ———
Hywel – receivable a/c
$ $
14 Jun Sales a/c 9,000 25 Jun Cash a/c 9,000
——— ———
Mandy – receivable a/c
$ $
24 Jun Sales a/c 5,000 27 Jun Balance c/d 5,000
——— ———
Balance b/d 5,000
Georgina – payable a/c
$ $
25 Jun Cash a/c 11,160 13 Jun Purchases a/c 12,000
25 Jun Discounts received a/c 840
——— ———
12,000 12,000
——— ———
Andrew – payable a/c
$ $
27 Jun Cash a/c 4,410 21 Jun Purchases a/c 4,500
27 Jun Discounts received a/c 90
——— ———
4,500 4,500
——— ———

Trial balance at 27 June

Dr Cr
$ $
Revenue 28,500
Purchases 16,500
Cash 6,555
Sales returns 1,000
Mandy – receivable 5,000
——— ———
29,430 29,430
——— ———
Answer 23 MCQs CREDIT TRANSACTIONS
23.1 C
23.2 A A settlement discount is given for prompt payment so it is not recognised until
payment is received (when the discount allowed is recognised as expense). When a
trade discount is given a sale is recorded at the net amount.
23.3 A Both purchases and trade payables will be reduced initially. Only if the goods had
been paid for will there be a subsequent recording of a cash refund received (or a
subsequent payment to the same supplier may be reduced accordingly).
Answer 24 DINO
(a) Water usage a/c

$ $
30.4.2014 Cash 1,000 I & E a/c (W1) 750
31.12.2014 Balance c/d 250 
_____ _____
1,000 1,000
_____ _____
1.1.2015 Balance b/d 250 I & E a/c 1450 
1.6.2015 Cash 1,600 31.1.2015 Balance c/d (W2) 400
_____ _____
1,850 1,850
_____ _____
1.1.2016 Balance b/d 400
 denotes balancing figure.
WORKINGS
(1) Expense for period 1.4 – 31.12.2014: 9/12  1,000 = $750

(2) 3 months prepaid: 3/12  1,600 = $400

(b)
Water usage a/c
$ $
31.12.2014 Balance c/d 750  I & E a/c 750 †
_____ _____
750 750
_____ _____
31.3.2015 Cash 1,000 1.1.2015 Balance b/d 750
31.12.2015 Balance c/d 1,200 I & E a/c 1,450 †
_____ _____
2,200 2,200
_____ _____
1.1.2016 Balance b/d 1,200
† Tutorial note: The I & E a/c charges must be the same as determined in (a)!
Answer 25 A CREW
Stationery a/c
$ $
31 Dec Balance per TB 560 31 Dec I & E a/c 545
31 Dec Balance c/d 15
—— ——
560 560
—— ——
Rent a/c
$ $
31 Dec Balance per TB 900 31 Dec I & E a/c 1,200
——— ———
1,200 1,200
——— ———
Rates a/c
$ $
—— ——
380 380
—— ——

Lighting and heating a/c
$ $
—— ——
605 605
—— ——
Insurance a/c
$ $
—— ——
260 260
—— ——
Wages and salaries a/c
$ $
31 Dec Balance per TB 2,970 31 Dec I & E a/c 2,970
——— ———
Tutorial note: As an alternative to c/d on the individual expense a/cs they may be transferred to
prepayment & accrued expense ledger a/cs as follows:
Prepayments a/c
$ $
31 Dec Stationery 15
31 Dec Rates 70
31 Dec Insurance 70 31 Dec Balance c/d 155
—— ——
155 155
—— ——
Accrued expenses a/c
$ $
31 Dec Rent 300
31 Dec Balance c/d 315 31 Dec Light and heat 15
—— ——
315 315
—— ——

Answer 26 TOMASZ
(a) Trial balance at 31 March

Dr Cr
$ $
Capital 5,000
Cash at bank (W) 4,100
Motor van 600
Trade payable A 200
Trade receivable B 300
Rent 350
Purchases 2,000
Revenue 3,000
Drawings 500
——— ———
8,200 8,200
——— ———
WORKING
Bank a/c
$ $
Balance b/d 4,200 Purchases a/c 2,000
Revenue a/c 3,000 Drawings a/c 500
Motor running expenses a/c 350
Rent a/c 250
Balance c/d 4,100
——— ———
7,200 7,200
——— ———
(b) Statement of profit or loss for the three months ended 31 March
$ $
Revenue 3,000
Purchases 2,000
——— (1,300)
———
Gross profit 1,700
Less: Expenses
Rent (350 – 150) 200
——— (550)
———
———

Statement of financial position at 31 March

$ $
Non-current assets
Motor van 600
Current assets
Inventory 700
Prepayment 150
Cash 4,100
———
5,250
———
Total assets 5,850
———
Capital account
At 1 January 5,000
Add: Profit for the period 1,150
———
6,150
———
5,650
Current liabilities
Trade payables 200
———
———
Answer 27 PUSHKOVA
Statement of profit or loss for the year ended 30 April 2014

$ $
Revenue 18,955
Purchases 12,556
———
16,332
———
Cost of sales (11,334)
———
Gross profit 7,621
Less: Expenses
Insurance 111
Motor expenses 720
Packing expenses 276
Rates 100
Rent 480
Salaries 2,447
Sundry expenses 141
——— (4,940)
———
———

Statement of financial position at 30 April 2014

$ $
Non-current assets
———
3,000
Current assets
Inventory 4,998
Prepayments ($20 + $35) 55
Bank 3,876
Cash 120
———
13,626
———
Total assets 16,626
———
Capital account $
Add: Profit for year 2,681
———
15,525
———
13,475
Current liabilities
Accrued expenses ($56 + $24 + $26) 106
——— 3,151
———
———

Answer 28 SCORCESE
Profit or loss Statement of financial position

Prepaid Accrued Deferred
expense expense income
$ $ $ $ $
Income Per question 37,550
Less: Received in advance (4,300) 4,300
——— 33,250
———
Expenses
Wholesaler
Per question 3,945
Add: Accrual 292 292
——— 4,237
Butcher
Per question 4,261
Add: Accrual 431 431
——— 4,692
Building supplier
Per question 814
Electricity
Per question 935
Add: Accrual (2/3  220) 147 147
——— 1,082
Gas
Per question 566
Less: Prepayment (34) 34
——— 532
Wages
Per question 1,150
Add: Accrual 42 42
——— 1,192
——— —— —— ———
12,549 34 912 4,300
——— —— —— ———

Answer 29 TOLSTOY
Road tax and insurance a/c
2014 $ 2014 $
1 Jan Balance b/d 1,140 I & E a/c 4,410 (al)
1 Apr Bank a/c 840 31 Dec Balance c/d (W1) 1,670
1 May Bank a/c 3,540
1 Jul Bank a/c 560
——— ———
6,080 6,080
——— ———
2015
Prepayment a/c *
2014 $ 2014 $
31 Dec Road tax & insurance 1,670 31 Dec Balance c/d 1,670
——— ———
2015 2015
1 Jan Balance b/d 1,670 1 Jan Road tax & insurance
(reversal of prepayment) 1,670
WORKINGS
(1) Prepayment at the end of the year

$
Motor tax on six vans paid 1 April (3/12  $840) 210
Insurance of ten vans paid 1 May (4/12  $3,540) 1,180
Motor tax on four vans paid 1 July (6/12  $560) 280
———
1,670
———
PROOF (not necessary)
Charge for the year

$
Prepayment 1,140
Motor tax (9/12  $840) 630
Insurance (8/12  $3,540) 2,360
Motor tax (6/12  $560) 280
———
4,410
———
Tutorial note: Alternative the balance c/d and balance b/d can be shown as a transfer to and from a
prepayment a/c which would be presented as *.

Answer 30 HAERTEL
Tutorial note: Although daunting there is only one missing figure for each a/c. As long as the amounts
given are posted to the correct sides, the right answer will follow. This principle, of using T a/cs to
determine missing information, will be encountered frequently in your studies.
(a) Rental income a/c
2014 $ 2014 $
1 JanAccrued income reversal 34,200 1 Jan
Deferred income reversal 20,700
I & E a/c (al fig) 241,200 Cash a/c 229,500
31 Dec Transfer Deferred income 15,300 31 Dec Transfer Accrued income 40,500
———— ————
290,700 290,700
———— ————
2015 2015
1 Jan Accrued income reversal 40,500 1 Jan Deferred income reversal 15,300
(b) Interest expense a/c
2014 $ 2014 $
1 JanPrepayment reversal 3,500 1 Jan
Accrual reversal 9,800
Bank a/c (al fig) 57,400 I & E a/c 52,500
31 Dec Transfer Accrued 31 Dec Transfer Prepayments 5,600
expenses 7,000
——— ———
67,900 67,900
——— ———
2015 2015
1 Jan Prepayment reversal 5,600 1 Jan Accrual reversal 7,000
Tutorial note: The other side of the entries that are reversals and transfers would be to
accruals/prepayments accounts. These are not shown as they are not asked for and
unnecessary to arrive at a solution. Consider that under the “traditional” method, where
separate accounts for the accruals/prepayments are not required, the entries that are shown in
this solution as “reversals” and “transfers” would simply be the balances brought forward and
carried forward, respectively.
Answer 31 MCQs ACCRUALS AND PREPAYMENTS
31.1 B Rent a/c
$ $
Cash 300 Accrual reversed 200
Cash 400 I & E a/c 1,200
Cash 400
Closing accrual (3 months  $100) 300
——— ———
1,400 1,400
——— ———

31.2 D Rates a/c
$ $
Prepayment reversed 150 I & E a/c 675
Cash 350 Closing prepayment
Cash 350 (3/6  $350) 175
—— ——
850 850
—— ——
31.3 A Insurance a/c
$ $
Prepayment reversed 180 I & E a/c 580
Cash 600 Closing prepayment (4/12  $600) 200
—— ——
780 780
—— ——
31.4 C Electricity a/c
$ $
Debits (per Q) 2,072 Credits (per Q) 375
Closing accrual 307 I & E a/c 1,884
Closing prepayment (2/3  $180) 120
——— ———
2,379 2,379
——— ———
31.5 D Rental income
$ $
Accrued income reversed (or b/d) 1,050 Deferred income reversed (or b/d) 1,950
I & E a/c (al fig) 37,350 Cash received 36,900
Deferred income (or c/d) 1,800 Accrued income (or c/d) 1,350
——— ———
40,200 40,200
——— ———
31.6 A I & E a/c = 12/18  $3,600 = $2,400 3

/18  $3,600 = $600 prepaid
31.7 C 2  $600 received 31 October in advance for 3 months to 31 January  2  $200 =

$400 deferred income (income received “belonging” to the next accounting period).
$600 received 31 January in arrears for 3 months to 31 January  $400 accrued

income (earned but not received) at 31 December.
31.8 D $600  3  4 = $7,200

Answer 32 ROOKIE
(a)(i) Machinery a/c

$ $
1.1.2014 Cash (or payable) 10,000 31.12.2014 Balance c/d 10,000
______ _____
1.1.2015 Balance b/d 10,000 31.12.2015 Balance c/d 10,000
_____ _____
1.1.2016 Balance b/d 10,000
(ii) Accumulated depreciation a/c

$ $
31.12.2014 Balance c/d 1,150 (W1) Depreciation expense 1,150
_____ _____
1.1.2015 Balance b/d 1,150
31.12.2015 Balance c/d 2,300 Depreciation expense 1,150
_____ _____
2,300 2,300
_____ _____
1.1.2016 Balance b/d 2,300
(iii) Depreciation expense a/c

$ $
Accumulated depreciation a/c 1,150 31.12 2014 To I & E a/c 1,150
_____ _____
Accumulated depreciation a/c 1,150 31.12 2015 To I & E a/c 1,150
_____ _____
WORKING
$[10,000 – 800] ÷ 8 = $1,150
(b) Presentation in statements of financial position
End of reporting Cost Depreciation Carrying value

period $ $ $
31.12.2014 10,000 (1,150) 8,850
31.12.2015 10,000 (2,300) 7,700

Answer 33 ALEXANDER
(a) Straight line method

Cost of asset - Scrap value
Depreciation charge per annum =
Estimated useful life
800  70
=
4
= $182.50, i.e. $183
Tutorial note: Depreciation is an accounting estimate therefore rounding is acceptable.

Greater accuracy is unnecessary and should be avoided.
(b) Reducing balance method
Depreciation charge is
Year 1 $800  45% = $360

Year 2 $(800 – 360)  45% = $198
Year 3 $(800 – (360 + 198))  45% = $109
Year 4 $(800 – (360 + 198 + 109))  45% = $60
Answer 34 UDOT
(a) Machinery a/c
2012 $ 2012 $
20 Jan Cash a/c 4,200 31 Dec Balance c/d 4,200
——— ———
2013 2013
17 Apr Cash a/c 5,000 31 Dec Balance c/d 9,200
——— ———
9,200 9,200
——— ———
2014 2014
11 Jul Cash a/c 3,500 31 Dec Balance c/d 12,700
——— ———
12,700 12,700
——— ———
2015

Accumulated depreciation a/c
2012 $ 2012 $
31 Dec Balance c/d 1,050 31 Dec Depreciation expense 1,050
——— a/c (W1) ———
2013 2013
——— a/c (W2) ———
3,337 3,337
——— ———
2014 2014
——— a/c (W3) ———
6,203 6,203
——— ———
2015
(b) Statement of financial position at 31 December (extracts)

value
$ $ $
2012
Machinery 4,200 1,050 3,150
_____ _____ _____
2013
Machinery 9,200 3,337 5,863
_____ _____ _____
2014
Machinery 12,700 6,203 6,497
_____ _____ _____
WORKINGS
(1) 2012 depreciation
$4,200  25% $1,050

———

$
$5,000  30% 1,500
$(4,200 – 1,050)  25% 787
———
2,287
———


$
$3,500  35% 1,225
$(5,000 – 1,500)  30% 1,050
$(4,200 – 1,050 – 787)  25% 591
———
2,866
———
Answer 35 POPOV
Plant a/c
2014 $ 2014 $
1 Jan Balance b/d 5,000 1 Jul Disposal a/c 2,000
——— ———
5,000 5,000
——— ———
2015
2014 $ 2014 $
31 Dec Disposal a/c 600 1 Jan Balance b/d 3,000
Balance c/d 2,700 31 Dec I & E a/c (charge for year) 300
——— ———
3,300 3,300
——— ———
2015
Disposal a/c
2014 $ 2014 $
1 Jul Plant a/c 2,000 1 Jul Bank a/c 1,500
31 Dec I & E a/c (profit on disposal) 100 31 Dec Depreciation a/c (W) 600
——— ———
2,100 2,100
——— ———
WORKING
Three years’ depreciation: 3 × 10% × $2,000 = $600
Tutorial note: In the statement of profit or loss the profit on disposal may be off-set against the
depreciation expense (as it represents a previous over allowance).

Answer 36 REUTHER
Vehicle a/c
2012 $ 2012 $
Cash 372,000 Balance c/d 372,000
———— ————
2013 2013
Balance b/d 372,000
Cash 108,600 Balance c/d 480,600
———— ————
480,600 480,600
———— ————
2014 2014
Balance b/d 480,600 Disposals 37,200
Disposals (allowance) 18,000
Cash (al fig) 21,600 Balance c/d 483,000
———— ————
520,200 520,200
———— ————
2015 2015
Balance b/d 483,000 Disposals 279,000
Disposals (allowance) 48,000
Cash (al fig) 267,000 Balance c/d 519,000
———— ————
798,000 798,000
———— ————
2016
Balance b/d 519,000
2012 $ 2012 $
Balance c/d 93,000 Depreciation a/c (25%  $372,000) 93,000
———— ————
2013 2013
Balance b/d 93,000
———— ————
213,150 213,150
———— ————
2014 2014
Disposals 18,600 Balance b/d 213,150
———— ————
333,900 333,900
———— ————
2015 2015
Disposals 209,250 Balance b/d 315,300
———— ————
445,050 445,050
———— ————
2016
Balance b/d 235,800

Depreciation a/c
2012 $ 2012 $
Charge for depreciation 93,000 I & E a/c 93,000
——— ———
2013 2013
———— ————
2014 2014
———— ————
2015 2015
———— ————
Disposals a/c
2014 $ 2014 $
Vehicle a/c 37,200 Accumulated depreciation (W1) 18,600
Vehicle a/c (allowance against car) 18,000
Loss on disposal 600
——— ———
37,200 37,200
——— ———
2015 2015
Vehicle a/c 279,000 Accumulated depreciation (W2) 209,250
Vehicle a/c (allowance) 48,000
Loss on disposal 21,750
———— ————
279,000 279,000
———— ————
WORKINGS
(1) Depreciation on 2014 disposals
2 years @ 25%  $37,200 = $18,600
(2) Depreciation on 2015 disposals
3 years @ 25%  $279,000 = $209,250

Answer 37 MCQs DEPRECIATION AND DISPOSALS
$50,000  $4,550
37.1 A Annual depreciation (straight line) = = $9,090
5
Time apportioned charge (rounded) = 5/12  $9,090 = $3,788 (rounded)
37.2 D Non-current asset cost a/c
$000 $000
Balance b/d 143 Disposals 16
Purchase (al fig) 49 Balance c/d 176
—— ——
192 192
—— ——
$000 $000
Disposals 10 Balance b/d 21
Balance c/d 34 Depreciation (al fig) 23
—— ——
44 44
—— ——
37.3 C Machine 1 Machine 2 Total

$ $ $
Selling price 90,000 80,000
Carrying value (al fig) 60,000 120,000 180,000
——— ———
Profit/(loss) on sale 30,000 (40,000)
——— ———
37.4 A Plant a/c (at carrying amount)
$ $
Balance b/d 261,000 Disposals (al fig) 160,000
Additions 512,000 Depreciation charge 143,000
Balance c/d 470,000
———— ————
773,000 773,000
———— ————

Disposal a/c
$ $
Carrying value 160,000 Loss on disposal 107,000
Proceeds (al fig) 53,000
———— ————
160,000 160,000
———— ————
37.5 D Non-current assets (at carrying amount)
$ $
Balance b/d 110,000 Depreciation 30,000
Purchases 25,000 Disposals 15,000
Balance c/d 90,000
———— ————
135,000 135,000
———— ————
37.6 A Disposals a/c
$ $
Asset cost 10,000 Asset – accumulated
depreciation 5,000
Trade-in (proceeds) 3,500
Underallowance for depreciation 1,500
——— ———
10,000 10,000
——— ———
37.7 D Disposals a/c
$ $
Asset cost 3,000 Asset – accumulated
Overallowance 222 depreciation (W) 1,358
Sale proceeds (al fig) 1,864
——— ———
3,222 3,222
——— ———

Accumulated
depreciation
$ $
Asset cost – 1 October 2011 3,000
Depreciation three months to 31 December 2011 (150) 150
———
2,850
Depreciation 1 January to 31 December 2012 (570) 570
———
2,280
Depreciation 1 January to 31 December 2013 (456) 456
———
1,824
Depreciation six months 1 January to 30 June 2014 (182) 182
——— ———
Carrying value at 30 June 2014 1,642 1,358
——— ———
37.8 A $
Cost b/fwd 150,000
Accumulated depreciation b/fwd (60,000)
Cost of additions 30,000
Cost of disposals (20,000)
Depreciation eliminated on disposals (W) 8,750
_______
108,750
_______
25%  $108,750 = 27,188

______
WORKING
Depreciation
$ $
Cost 20,000
Depreciation 2012  25% (5,000) 5,000
______
15,000
2013  25% (3,750) 3,750
______
11,250
______ _____
2014 – none as year of disposal 8,750
_____

37.9 A $
Cost 20,000
Less: Accumulated depreciation (8,750)
______
Carrying amount 11,250
Less: Proceeds (18,000)
______
Profit/(loss) on sale 6,750
______
37.10 C Plant and equipment (carrying value)
$ $
Bal b/fwd 10,951 Cost of assets disposed of 5,000
Depreciation on assets Depreciation on assets

disposed of (W1) 2,188 b/fwd (W2) 2,035
Additions (al fig) Depreciation on additions

($825  100/75) 1,100 ($1,100 – $825) 275
Bal c/fwd 6,929
–––––– ––––––
14,239 14,239
–––––– ––––––
WORKINGS
Depreciation
$ $
(1) Cost 5,000
Depreciation 31 May 2013 (1,250) 1,250
––––––
3,750
31 May 2014 (938) 938
–––––– ––––––
2,812 2,188
–––––– ––––––
(2) Depreciation on assets b/fwd at 1 June 2014
Carrying amount b/fwd 10,951

Less: Carrying amount of assets sold (2,812)
––––––
8,139  25% 2,035
–––––– ––––––

Answer 38 KROL
(a) Irrecoverable debts expense a/c
$ $
31 Dec Trade receivables a/c 115 31 Dec I & E a/c 165
31 Dec Allowance 50
—— ——
165 165
—— ——
(b) Allowance for receivables a/c
$ $
31 Dec Balance c/d 1 Jan Balance b/d 86
2,725 (W)  5% 136 31 Dec Debts expense a/c 50
—— ——
136 136
—— ——
WORKING
Trade receivables a/c
$ $
31 Dec Balance c/d 2,840 31 Dec Debt expense 115
——— ———
2,840 2,840
——— ———
Tutorial note: Although a “T” a/c looks excessive as a working it is a good technique to remember the
double entries and to deal with complicated questions.
Answer 39 HYUNDAI
(a) Irrecoverable debts expense a/c
$ $
31 Dec Trade receivables a/c 55 31 Dec Allowance a/c 87
31 Dec I & E a/c 32
—— ——
87 87
—— ——

(b) Allowance for receivables a/c
$ $
31 Dec Debts expense a/c 87 1 Jan Balance b/d 206
31 Dec Balance c/d

$(2,440 – 55)  5% 119
—— ——
206 206
—— ——
Tutorial note: Remember that the irrecoverable debt expense for a year can be “negative”; in
the event of a reduction in the allowance required (as illustrated here), or if there is a
significant recovery of amounts previously written off or allowed for.
Answer 40 DINUL
Journal
Dr Cr
Year 1 $ $
Irrecoverable debts expense a/c 1,000
Trade receivables a/c 1,000
Irrecoverable debts written off during the year
Irrecoverable debts expense a/c 265

Allowance for trade receivables a/c 265
Increase in allowance (to 7.5% of $15,000)
I & E a/c 1,265

Write off of irrecoverable debts expense
Year 2

Irrecoverable debts written off at 31 December
Allowance for trade receivables a/c 180

Reduction in allowance (to 7.5% of $12,600)
I & E a/c 920

Debts written off to I & E

Irrecoverable debts expense a/c
Year 1 $ $
Debts written off 1,000 31 Dec I & E a/c (al) 1,265
31 Dec Allowance 265
——— ———
1,265 1,265
——— ———
Year 2
31 Dec Trade receivables a/c 1,100 31 Dec Allowance 180
31 Dec I & E a/c (al) 920
——— ———
1,100 1,100
——— ———
Allowance a/c
Year 1 $ $
31 Dec Balance c/d ($15,000  7.5%) 1,125 31 Dec Debts expense a/c (al) 265
——— ———
1,125 1,125
——— ———
Year 2
31 Dec Debts expense a/c (al) 180 1 Jan Balance b/d 1,125
31 Dec Balance c/d
$(13,700 – 1,100)  7.5% 945
——— ———
1,125 1,125
——— ———
Tutorial note: See how the “T” a/cs work out the charge to I & E by incorporating the movement on the
allowance account.

Answer 41 PUSHKIN
(a) Allowance for trade receivables a/c
2012 $ 2012 $
31 Dec Debts expense (al) 250 1 Jan Balance b/d 10,000
Balance c/d 9,750
——— ———
10,000 10,000
——— ———
2013 2013
31 Dec Debts expense a/c 750 1 Jan Balance b/d 9,750
Balance c/d 9,000
——— ———
9,750 9,750
——— ———
2014 2014
31 Dec Balance c/d 15,750 31 Dec Debts expense a/c 6,750
——— ———
15,750 15,750
——— ———
2015
2012 $ 2012 $
I & E a/c (al) 1,610
——— ———
1,860 1,860
——— ———
2013 2013
I & E a/c (al) 270
——— ———
1,020 1,020
——— ———
2014 2014
31 Dec Trade receivables a/c 6,020
Allowance 6,750 31 Dec I & E a/c (al) 12,770
——— ———
12,770 12,770
——— ———

(b) Statement of financial position at 31 December (extracts)

2012 2013 2014
$ $ $
Current assets
Trade receivables 195,000 150,000 210,000
Less: Allowance for trade receivables 9,750 9,000 15,750
———— ———— ————
185,250 141,000 194,250
———— ———— ————
Answer 42 INK PRODUCTS
(a) Allowance required

$
$40,000 @ 2% = 800
$20,000 @ 5% = 1,000
$15,000 @ 10% = 1,500
––––––
3,300
––––––
(b) Trade receivables allowance a/c
$ $
1.4.2014 Balance b/d 1,100
31.3.2015 Balance c/d 3,300 (2) Debts expense (al) 2,200
_____ _____
3,300 3,300
_____ _____
1.4.2015 Balance b/d (per (a)) 3,300
Answer 43 ADAM
Allowance for trade receivables a/c
$ $
31.3.2013 Balance c/d (W1) 365 (2) Debts expense 365 ()
___ ___
365 365
___ ___
1.4.2013 Balance b/d 365
31.3.2014 Balance c/d (W2) 530 (2) Debts expense 165 ()
___ ___
530 530
___ ___
(2) Debt expense 155 () 1.4.2014 Balance b/d 530
31.3.2015 Balance c/d (W3) 375
___ ___
530 530
___ ___
1.4.2015 Balance b/d 375

Irrecoverable debt expense a/c
$ $
(1) Write off – Forsythe 200 31.3.2013 To I & E a/c 565
(2) Allowance a/c 365
____ ____
565 565
____ ____
(1) Write off – Collins 240
(3) Write off – Ludlum 60
(2) Allowance a/c 165 31.3.2014 To I & E a/c 465
____ ____
465 465
____ ____
(3) Collins (CB receipt) 50
31.3.2015 To I & E a/c 205 (2) Allowance a/c 155
____ ____
205 205
____ ____
Tutorial note: When Adam receives $50 from Collins there will be no balance on Collins’ a/c against
which to allocate it so it has been credited to the expense a/c. Alternatively, if Adam credited the $50 to
the trade receivables a/c the debt would have to be reinstated i.e:
Dr Trade receivables
Cr Irrecoverable debt expense
WORKINGS
(1) Allowance required 31.3.2013

$
Specific allowance (Ludlum): ½ × $100 = 50
General allowance: 5% × $6,300 = 315
___
365
___

$
Specific allowance (Le Carré) ½ × $400 = 200
___
530
___

$
___
Tutorial note: The Q does not expressly state what happened to Le Carré. However, since “there are
no debts requiring specific allowance”, presumably Le Carré’s debt (if any) is considered good.

Answer 44 STRAK
(a) Trade receivables a/c
$ $
1 Jul 2013 Balance b/d 50,000 Cash 432,000
Sales 480,000 Irrecoverable debts 6,000
30 Jun 2014 Balance c/d 92,000
———— ————
530,000 530,000
———— ————
1 Jul 2014 Balance b/d 92,000 Cash 560,600

Sales 550,000 Irrecoverable debts 2,000
Debt “reinstated” 600 30 Jun 2015 Balance c/d 80,000
———— ————
642,600 642,600
———— ————
1 Jul 2015 Balance b/d 80,000
Tutorial note: If cash received in 2014/15 had not included the debt recovered (i.e. if the
recovery had been recognised when it was received) the double entry would be:
Dr Cash
Cr Irrecoverable debt expense
(b) Trade receivables allowance a/c
$ $
1 Jul 2013 Balance b/d (W1) 2,500
30 Jun 2014 Balance c/d (W2) 4,600 30 Jun 2014 Debts expense (al) 2,100
——— ———
4,600 4,600
——— ———
30 Jun 2015 Debts expense (al) 600 1 Jul 2014 Balance b/d 4,600
30 Jun 2015 Balance c/d (W3) 4,000
——— ———
4,600 4,600
——— ———
1 Jul 2015 Balance b/d 4,000

(c) Irrecoverable debts expense a/c
$ $
Trade receivables 30 Jun 2014 I & E a/c 8,100
(write off) 6,000
30 Jun 2014 Allowance
(increase) 2,100
——— ———
8,100 8,100
——— ———
Trade receivables Trade receivables
(write off) 2,000 recovery 600
30 Jun 2015 Allowance
(reduction) 600
30 Jun 2015 I & E a/c 800
——— ———
2,000 2,000
——— ———
WORKINGS
(1) Allowance at 30 June 2013 = 5%  $50,000 = $2,500

Answer 45 FREDERIK
(a) Trade receivables a/c
2014 $ 2014 $
1 Apr Balance b/d 40,000 2 Jan Irrecoverable debts
2015 (Lean) 4,000
31 Mar Sales a/c 195,600 31 Mar Bank a/c 192,300
Debts expense 3,200
Balance c/d 36,100
———— ————
235,600 235,600
———— ————
Allowance a/c
2014 $ 2014 $
31 Mar Irrecoverable debts 292 1 Apr Balance b/d 3,000
Balance c/d (7½%  $40,000)
(7½%  $36,100) 2,708
——— ———
3,000 3,000
——— ———
2015

Tutorial note: In this case the allowance is simply a percentage of the balance on the trade
receivables a/c (i.e. a general allowance).
2015 $ 2015 $
2 Jan Receivables a/c (Lean) 4,000 31 Mar Allowance a/c 292
31 Mar Receivables a/c 3,200 I & E a/c 6,908
——— ———
7,200 7,200
——— ———
Sales a/c
2015 $ 2015 $
31 Mar Trading a/c 283,400 31 Mar Receivables a/c 195,600
Bank a/c 87,800
——— ———
283,400 283,400
——— ———
Bank a/c (extract)
2015 $
31 Mar Sales a/c 87,800
Receivables a/c 192,300
(b) Statement of financial position at 31 March 2015 (extract)

$ $
Current assets
Less: Allowance (2,708)
——— 33,392
Answer 46 MCQs RECEIVABLES AND PAYABLES
46.1 A Charges to I & E account

$
Irrecoverable debts written off in year 600
Irrecoverable debt recovered (80)
Decrease in allowance $(1,000 – 900) (100)
——
420
——

46.2 D Allowance for receivables
$ $
Irrecoverable debt a/c 1,200 Balance b/d 2,000
Balance c/d ($16,000  5%) 800
——— ———
2,000 2,000
——— ———
Therefore $1,200 increase in profit.
46.3 C Receivables
$ $
Balance b/d 150,000 Irrecoverable debt expense 3,500
Balance c/d 146,500
———— ————
150,000 150,000
———— ————
Balance b/d 146,500
Allowance for receivables
$ $
Balance b/d 1,000
Balance c/d (5%  146,500) 7,325 Irrecoverable debt expense 6,325
——— ———
7,325 7,325
——— ———
Balance b/d 7,325
46.4 B Receivables
$ $
Per TB 122,000 Debt write off 2,000
Balance c/d 120,000
———— ————
122,000 122,000
–——— ————
Receivables allowance
$ $
Receivables 2,000 Balance b/d (2,000 + 2,980) 4,980
Irrecoverable debt expense 196
Balance c/d (W) 2,784
——— ———
4,980 4,980
——— ———

Irrecoverable debt expense
$ $
I & E a/c 196 Allowance 196
—— ——
WORKING
Specific allowance = 1,600
General allowance = $(120,000 – 1,600)  1% = 1,184
——
2,784
——
46.5 B Receivables a/c
$ $
Balance b/d 10,000 Receipts 90,000
Sales 100,000 Discounts allowed 1,800
Debt reinstated 2,000 Balance c/f 20,200
———— ————
112,000 112,000
———— ————
46.6 A Irrecoverable debts a/c
$ $
I & E a/c 900 Decrease in allowance 600
Irrecoverable debt recovered 300
—— ——
900 900
—— ——
$
Profit (after irrecoverable debts) 5,000
Irrecoverable debts – increase profit (900)
———
Profit (before irrecoverable debts) 4,100
———
46.7 B Irrecoverable debts a/c
$ $
Written off 8,563 Irrecoverable debts recovered 4,262
Increase in allowance 26,839 I & E a/c (balancing amount) 31,140
——— ———
35,402 35,402
——— ———

Allowance for receivables a/c
$ $
Balance b/d 8,620
Balance c/d (3%  $1,181,970) 35,459 Irrecoverable debts a/c (al) 26,839
——— ———
35,459 35,459
——— ———
Receivables a/c
$ $
Balance b/d 463,271 Cash 5,217,000
Sales 5,943,271 Irrecoverable debts written off 8,563
Irrecoverable debt recovered 4,262 Discounts allowed 3,271
Balance c/d 1,181,970
————— —————
6,410,804 6,410,804
————— —————
46.8 C Receivable ledger control a/c
$ $
Balance b/d 5,000 Receipts 70,000
Revenue 100,000 Discounts allowed 800
Irrecoverable debts recovered 1,000 Irrecoverable debts (w/o) 500
Balance c/d 34,700
———— ————
106,000 106,000
———— ————
Answer 47 C3P0
Trading account
For the six months to 30 June
$ $
Revenue ((1,500 @ 7.40) + (750 @ 8.00)) 17,100
Purchases (3,000 @ 6.30) 18,900
______
22,050
Closing inventory (1,250 @ 6.30) (7,875)
______
(14,175)
______
Gross profit 2,925
———

Answer 48 OGAY
(a) Inventory a/c
2013 $ 2013 $
31 Dec Trading a/c 5,000 31 Dec Balance c/d 5,000
——— ———
2014 2014
1 Jan Balance b/d 5,000 31 Dec Trading a/c 5,000
31 Dec Trading a/c 7,500 31 Dec Balance c/d 7,500
——— ———
12,500 12,500
——— ———
2015
Purchases a/c
2013 $ 2013 $
Cash/Payables 75,000 31 Dec Trading a/c 75,000
——— ———
2014 2014
Cash/Payables 110,000 31 Dec Trading a/c 110,000
——— ———
Revenue a/c
2013 $ 2013 $
31 Dec Trading a/c 120,000 Cash/receivables 120,000
——— ———
2014 2014
31 Dec Trading a/c 155,000 Cash/receivables 155,000
——— ———
(b) Trading accounts for the year ended

$ $ $ $
Revenue 120,000 155,000
Opening inventory – 5,000

Purchases 75,000 110,000
______ _______
75,000 115,000
Less: Closing inventory (5,000) 7,500
______ _______
Cost of goods sold 70,000 107,500
______ ______
——— ———

Answer 49 ALES
Stock valuation at 31 December
All items must be valued at the lower of cost or net realisable value (NRV).
$
ABC (at cost) 80
DEF (at NRV) 110
GHI (at NRV) 5
JKL (at NRV) 11
___
Carrying value at 31 December 206
___
Answer 50 PERIOD-END ADJUSTMENTS
(a) Artur
Gas a/c
$ $
Cash 420
31.12.2014 Accrued expense a/c 100 31.12.2014 I & E a/c 520
—— ——
520 520
—— ——
1.1.2015 Accrued expense
(“reversal”) 100
Cash 138 31.12.2015 I & E a/c 38
—— ——
138 138
—— ——
Tutorial note: Alternatively the accrual can simply be c/d and b/d on the expense a/c – in
which case the liability account for the statement of financial position which follows is not
required.
Accrued expenses a/c
$ $
31.12.2014 Balance c/d 100 31.12.2014 Gas a/c 100
—— ——
1.1.2015 Gas a/c

(“reversal”) 100 1.1.2015 Balance b/d 100
—— ——
Income and expenditure account extracts
2015 2014
$ $
Less: Expenses
Gas 38 520

(b) Physical count

Inventory a/c
2014 $ 2014 $
1.1 Balance b/d 10,000 To trading a/c 10,000
31.12 From trading a/c 11,800 31.12 Balance c/d (W) 11,800
——— ———
21,800 21,800
——— ———
2015
1.1 Balance b/d 11,800
Trading (and income and expenditure) a/c
$ $
Opening inventory 10,000 Sales 70,000
Purchases 58,000 Closing inventory 11,800
Gross profit c/d 13,800
——— ———
81,800 81,800
——— ———
Trading account for the year ended 31 December 2014
$ $
Revenue 70,000
Cost of sales
Purchases 58,000
Closing inventory (W) (11,800)
——— (56,200)
———
Gross profit 13,800
———
WORKING
$
Inventory at 7 January 2015 15,000
Less: Deliveries (8,000)
Add back Sales at cost ($6,000  80%) 4,800
———
Inventory at 31 December 2014 11,800
———
Tutorial note: Closing inventory must be valued based on actual physical inventory. In this case it is
“rolled-back” from a physical count after the reporting period. It is inappropriate to calculate gross profit
based on the profit margin and calculate closing inventory as the balancing figure. Actual inventory will
be less because it is subject to physical loss that is not counted (e.g. due to damage or theft).

(c) Felix
Annual depreciation = $10,000 ($50,000 ÷ 5)

Therefore, four years’ accumulated depreciation = $40,000.
Journals
$ $
Dr Disposals a/c 50,000 
Cr Cost a/c 50,000  Carrying value
 of old car
Dr Accumulated depreciation a/c 40,000 
Cr Disposals a/c 40,000 
Dr Cost of new car 15,000
Cr Disposals a/c 15,000 Deemed proceeds
Dr Cost of new car 50,000
Cr Cash 50,000
Dr Disposals a/c 5,000
Cr I & E a/c 5,000 Profit on disposal
Disposals a/c
$ $
Cost 50,000 Accumulated depreciation 40,000
I & E a/c (profit) 5,000 Cost of new car 15,000
——— ———
55,000 55,000
——— ———
(d) Hnychuk
Motor vehicle cost a/c
2014 $ 2014 $
1.1 Cash (Peugeots) 240,000 Disposals (crash) 80,000
1.7 Cash 60,000 31.12 Balance c/d 220,000
——— ———
300,000 300,000
——— ———
2015 2015
1.1. Balance b/d 220,000 Disposals 220,000
Part exchange (Peugeots) 100,000 Disposals 260,000

Cash (Peugeots) 80,000
Cash (Audi) 80,000
——— ———
480,000 480,000
——— ———

Accumulated depreciation
$ $
2014 2014 Depreciation
31.12 Balance c/d 55,000 (25%  $220,000) 55,000
——— ———
55,000 55,000
——— ———
2015 2015
Disposals 55,000 1.1 Balance b/d 55,000
——— ———
55,000 55,000
——— ———
Depreciation expense a/c
2014 (same for 2015) $ 2014 $

Accumulated depreciation 55,000 I & E a/c 55,000
——— ———
55,000 55,000
——— ———
Disposals a/c
$ $
2014 Cost (Peugeot) 80,000 2014 Cash (insurance) 65,000
31.12 I & E a/c (loss) 15,000
——— ———
80,000 80,000
——— ———
2015 Cost 220,000 2015 Account depreciation 55,000

Part exchange
(Peugeots) 100,000
Cash (Felix) 50,000
Cost 260,000 Cash 150,000
Loss on disposals 125,000
——— ———
480,000 480,000
——— ———

(e) Lopez
Trade receivables
$ $
2013 2013
Sales revenue 200,000 Cash receipts 150,000
Debt expense (w/o) 8,000
31.12 Balance c/d 42,000
———— ————
200,000 200,000
———— ————
2014 2014
1.1 Balance b/d 42,000 Cash receipts 280,000
Sales revenue 300,000 Debt expense (w/o) 3,500 (2)
Debt expense 4,000 31.12 Balance c/d 62,500
(Ludmila) ———— ————
346,000 346,000
———— ————
2015 2015
1.1 Balance b/d 62,500 Cash receipts 400,000
Sales revenue 500,000 Cash (Chokin) 6,000 (3)
31.12 Balance c/d 156,500
———— ————
562,500 562,500
———— ————
2016
1.1 Balance b/d 156,500
Tutorial notes:
(1) If the receipt from Ludmila was not included in the $280,000 but had been recognised
as a receipt from a customer with whom Lopez is no longer trading, it could have
been credited directly to the irrecoverable debt expense a/c (as a recovery).
(2) It is unnecessary to adjust the write-off of Jozef’s balance against the allowance a/c
just because it had previously been allowed for. The allowance previously made is
effectively “released” to the expense a/c because it is no longer required.
(3) Because Chokin’s debt has only been allowed for but not written off it would be
wrong to make a “reinstatement” adjustment.

Irrecoverable debt expense a/c
$ $
2013 2013
Trade receivables (Ludmila) 8,000
Allowance 5,425 31.12 I & E a/c 13,425
——— ———
13,425 13,425
——— ———
2014 2014
Trade receivables (Jozef) 3,500 Trade receivables (Ludmila) 4,000
Allowance 2,095 31.12 I & E a/c 1,595
——— ———
5,595 5,595
——— ———
2015 2015
Allowance 51,000 31.12 I & E a/c 51,000
——— ———
Allowance a/c
$ $
2013 2013
31.12 Balance c/d (W1) 5,425 Irrecoverable debt expense 5,425
——— ———
2014 2014
31.12 Balance c/d (W2) 7,520 1.1 Balance b/d 5,425
Irrecoverable debt expense 2,095
——— ———
7,520 7,520
——— ———
2015 2015
31.12 Balance c/d (W3) 58,520 Irrecoverable debt expense 51,000
——— ———
58,520 58,520
——— ———
WORKINGS
(1) Allowances year 1 $
Specific (Jozef) 3,500
General 5%  $(42,000 – 3,500) 1,925
——
5,425
——
(2) Allowances year 2
Specific (Chokin) (50%  6,000) 3,000
General 8%  $(62,500 – 6,000) 4,520
——
7,520
——

(3) Allowances year 3 $

Specific (Paulo) 50,000
General 8%  ($156,500 – 50,000) 8,520
———
58,520
———
Statement of financial position (extracts)
31 December
2013 2014 2015
$ $ $
Trade receivables 42,000 62,500 156,500
Less: Allowance for trade receivables (5,425) (7,520) (58,520)
——— ——— ——–
36,575 54,980 97,980
——— ——— ——–
Answer 51 MCQs INVENTORY
51.1 B A full physical count may only be necessary where a stock-checking system is not
effective.
51.2 C Inventory found increases assets. Profit must be increased also (as cost of goods sold
is reduced).
51.3 A Closing inventory has been undervalued therefore Dr Inventory (asset in the
statement of financial position). Understating inventory overstates cost of goods sold
and therefore understates profit.
51.4 D
Purchases understated  No net effect on
Closing inventory (trading account) understated  cost of sales and profit
Trade payables understated
Inventory (asset) understated
Answer 52 A SMIT
(a) Books of prime entry
CASH BOOK RECEIPTS

Receivables Cash Discounts
Date Narrative Total ledger sales Capital Loan allowed
$ $ $ $ $ $
1.7 Smit 4,000 4,000
10.8 Daulton 400 400 20
25.8 Cash 120 120
26.8 Dewberry 120 120
14.9 Daulton 400 400
16.9 Cash 310 310
18.9 Daulton 265 265 35
19.9 Blanche 1,000 1,000
____ ____ ____ ____ ____ ___
6,615 1,185 430 4,000 1,000 55
—— —— —— —— —— ——

CASH BOOK PAYMENTS
Date Narrative Total Payable Cash Wages Non-current Rent Discounts

ledger purchases asset received
$ $ $ $ $ $ $
8.7 Van 2,600 2,600
17.7 Wages 40 40
21.7 Purchases 360 360
24.7 Wages 48 48
31.7 Wages 40 40
5.8 Dijon 670 670 30
14.8 Wages 60 60
27.8 Wages 60 60
12.9 Wages 60 60
26.9 Wages 60 60
26.9 Noir 2,040 2,040 160
30.9 Rent 400 400
____ ____ ____ ____ ____ ___ ___
Total 6,438 2,710 360 368 2,600 400 190
—— —— —— —— —— —— ——
SALES DAY BOOK
Date Customer Invoice

$
23.7 Daulton 420
4.8 Dewberry 150
5.9 Daulton 700
20.9 Daulton 1,350
____
2,620
——
PURCHASES DAY BOOK
Date Supplier Invoice

$
10.7 Dijon 700
18.8 Noir 2,200
____
2,900
——
JOURNAL
Dr Irrecoverable debt expense a/c $30

Cr Trade receivables ledger control a/c $30
Being Dewberry’s irrecoverable debt written off.

(b) Memorandum ledgers
Receivables ledger accounts

Daulton
$ $
23.7 SDB 420 10.8 CB receipt 400
5.9 SDB 700 Discount allowed 20
20.9 SDB 1,350 14.9 CB receipt 400
18.9 CB receipt 265
Discount allowed 35
30.9 Balance c/d 1,350
–––––– ––––––
2,470 2,470
——— ———
Dewberry
$ $
4.8 SDB 150 26.8 CB receipt 120
28.9 Irrecoverable debt write-off 30
–––– ––––
150 150
—— ——
Payables ledger accounts
Dijon
$ $
5.8 CB payment 670 10.7 PDB 700
Discount received 30
–––– ––––
700 700
—— ——
Noir
$ $
26.9 CB payment 2,040 18.8 PDB 2,200
Discount received 160
–––––– ––––––
2,200 2,200
——— ———

Answer 53 REBECCA
(a) Purchases day book (PDB)
Date Narrative Invoice no Total

$
2 Jan Jones 37
9 Jan Isaac 73
17 Jan Henry 61
19 Jan Mary 62
27 Jan David 81
——
314
——
Purchases returns day book (PRDB)
Date Narrative Credit note no Total

$
12 Jan Isaac 12
21 Jan Mary 6
—
18
—
Sales day book (SDB)
Date Narrative Invoice no Total

$
7 Jan Smith 40
11 Jan Allan 31
13 Jan Wood 43
22 Jan Gilass 20
31 Jan Wall 37
——
171
——
Sales returns day book (SRDB)
Date Narrative Credit note no Total

$
12 Jan Smith 7
17 Jan Wood 13
——
20
——

(b) Purchases a/c
$ $
31 Jan Jan PDB 314
$ $
31 Jan Jan PRDB 18
Sales a/c
$ $
31 Jan Jan SDB 171
Sales returns a/c
$ $
31 Jan Jan SRDB 20
(c) Payables ledger (memorandum)
Jones
$ $
31 Jan Balance c/d 37 2 Jan PDB 37
— —
Isaac
$ $
12 Jan PRDB 12 9 Jan PDB 73
— —
73 73
— —
Henry
$ $
— —

Mary
$ $
21 Jan PRDB 6 19 Jan PDB 62
— —
62 62
— —
David
$ $
— —
Receivables ledger (memorandum)
Smith
$ $
7 Jan SDB 40 12 Jan SRDB 7
— —
40 40
— —
Allan
$ $
11 Jan SDB 31 31 Jan Balance c/d 31
— —
Wood
$ $
13 Jan Sales SDB 43 17 Jan SRDB 13
— —
43 43
— —

Gilass
$ $
— —
Wall
$ $
— —
(d) Payables ledger control a/c
$ $
Jan PRDB 18 Jan PDB 314
—— ——
314 314
—— ——
Receivables ledger control a/c
$ $
Jan SDB 171 Jan SRDB 20
—— ——
171 171
—— ——

Answer 54 WOODEN TOPS
(a) Sales day book
Date Particulars Invoice no Total

$
1 Mar Collins 280
Hogg 740
Rob 724
7 Mar Plod 444
Mop 390
Jip 1,284
24 Mar May 284
Park 324
Wood 560
———
5,030
———
(b) Purchases day book
Date Particulars Invoice no Total

$
3 Mar Tiny 720
Micks 124
Greene 380
9 Mar Top 120
Micks 290
Ede 614
17 Mar Micks 270
Top 324
Fish 560
———
3,402
———
(c) Cash book
Receipts
Date Particulars Total Receipts from debtors

$ $
6 Mar A Hogg 400 400
P Rob 600 600
29 Mar P Plodd 444 444
P Rob 124 124
——— ———
1,568 1,568
——— ———

Payments
Date Particulars Total Payments to suppliers

$ $
14 Mar V Micks 124 124
R Ede 400 400
—— ——
524 524
—— ——
(d) At the end of March total purchases of $3,402 will be debited to the purchases a/c and credited
to the payables ledger control a/c in the general ledger. The individual invoices will be credited
to the individual supplier’s accounts.
Total sales of $5,030 will be credited to the sales a/c and debited to the receivables ledger
control a/c in the general ledger. The individual sales invoices will be debited to the individual
customer’s accounts.
Total payments of $524 will be credited to the cash a/c and debited to the payables ledger
control a/c. The individual payments will be debited to the individual supplier’s accounts.
Total receipts of $1,568 will be debited to the cash a/c and credited to the receivables ledger
control a/c. The individual receipts will be credited to the individual customer’s accounts.
Answer 55 RUBENS
Payables ledger control a/c
$ $
Purchase returns (PRDB total) 198 Balance b/d 7,470
Discounts received (total of Purchases (PDB total) 3,028
discount column in CPB) 169
Cash 3,716
Balance c/d 6,415
——— ———
10,498 10,498
——— ———
Balance b/d 6,415

Answer 56 ZONE
$ $
Balance b/d 14,968 Sales returns 2,508
Credit sales 148,580 Cash 110,568
Balance c/d 48,424
———— ————
163,548 163,548
———— ————
Balance b/d 48,424
$ $
Purchases returns 20,426 Balance b/d 54,010
Cash 56,546 Purchases 100,258
Balance c/d 76,432
———— ————
154,268 154,268
———— ————
Balance b/d 76,432
Answer 57 HASTINGS & CO
(a) Payables ledger control a/c
2014 $ 2014 $
1.1 Balance b/d 56 1.1 Balance b/d 5,926
Cash 47,028 Purchases a/c
Purchases returns a/c 202 (PDB total) 47,713
Discounts received a/c 867
(contra) 75
31.12 Balance c/d (al fig) 5,478 31.12 Balance c/d 67

——— ———
53,706 53,706
——— ———
2015 2015
1.1 Balance b/d 67 1.1 Balance b/d 5,478

(b) Receivables ledger control a/c
2014 $ 2014 $
1.1 Balance b/d 10,268 1.1 Balance b/d 134
Sales a/c (total from SDB) 71,504 Bank a/c 69,872
Legal expenses a/c 28 Irrecoverable debts a/c 96
Sales returns a/c
(SRDB total) 358
Discounts allowed a/c (total of
discount column in CB) 1,435
(contra) 75
Allowances a/c 90
31.12 Balance c/d 101 31.12 Balance c/d (al fig) 9,841
——— ———
81,901 81,901
——— ———
2015 2015
1.1 Balance b/d 9,841 1.1 Balance b/d 101
Answer 58 ZENKEROVA
Cash a/c
$ $
Balance b/d 200 Expenses 1,500
Sales – cash 4,500 Bankings 8,000
Cash re credit sales (al fig) 7,350 Drawings 2,450
Balance c/d 100
——— ———
12,050 12,050
——— ———
Balance b/d 100
Receivables control a/c
$ $
Balance b/d 920 Cash received 7,350
Credit sales 7,500 Discounts allowed 140
Debts written off 90
Balance c/d 840
——— ———
8,420 8,420
——— ———
Balance b/d 840

Answer 59 RANKINE
(a) Purchases day book

Date Description Invoice no Total
$
1 Apr Thrush 700
2 Apr Hawk 950
———
1,650
———
Sales day book
Date Description Invoice no Total
$
1 May Wasp 850
2 May Ant 660
6 Jun Ant 770
———
2,280
———
Purchases returns day book
Date Description Credit note no Total
1 Jun Thrush $50
——
Sales returns day book
Date Description Credit note no Total
4 Jun Ant $80
——
(b) Cash receipts book

Date Details Bank Receivables Cash Sundry
ledger sales
$ $ $ $
3 Apr Cash sales 600 600
3 May Ant 580 580
4 May Capital 1,000 1,000
5 Jun Wasp 500 500
——— ——— —— ———
2,680 1,080 600 1,000
——— ——— —— ———

Cash payments book

Date Details Bank Payables Cash Rent Drawings Light
ledger purchases and heat
$ $ $ $ $ $
4 Apr Thrush 600 600
5 May Hawk 950 950
2 Jun Rent 300 300
3 Jun Drawings 500 500
7 Jun Light and heat 100 100
8 Jun Cash purchases 175 175
——— ——— —— —— —— ——
2,625 1,550 175 300 500 100
——— ——— —— —— —— ——
(c) General ledger
Tutorial note: For completeness these accounts have been closed at the end of the period. The
trial balance in (g) is extracted before the accounts are closed.
$ $
1 Apr Balance b/d 400 30 Jun Balance c/d 400
—— ——
1 Jul Balance b/d 400
Sales a/c
$ $
3 Apr Cash sales 600
30 Jun Trading a/c 2,880 30 Jun Sales (SDB) 2,280
——— ———
2,880 2,880
——— ———
Purchases a/c
$ $
8 Jun Cash purchases 175
30 Jun Purchases (PDB) 1,650 30 Jun Trading a/c 1,825
——— ———
1,825 1,825
——— ———
$ $
30 Jun Credit purchases
30 Jun Trading a/c 50 returns (PRDB) 50
—— ——

Sales returns a/c
$ $
30 Jun Credit sales returns
(SRDB) 80 30 Jun Trading a/c 80
— —
Rent a/c
$ $
2 Jun CPB 300 30 Jun I & E a/c 300
—— ——
Drawings a/c
$ $
3 Jun CPB 500 30 Jun Capital a/c 500
—— ——
Light and heat a/c
$ $
7 Jun CPB 100 30 Jun I & E a/c 100
—— ——
Capital a/c
$ $
30 Jun Drawings a/c 500 4 Apr Cash 1,000
30 Jun Balance c/d 2,925 30 Jun I & E a/c * 325
——— ———
3,425 3,425
——— ———
1 Jul Balance b/d 2,925

* from completed statement of profit or loss (part (h)).
(d) Receivables ledger control a/c
$ $
30 Jun SDB 2,280 30 Jun SRDB 80
CRB 1,080
Balance c/d 1,120
——— ———
2,280 2,280
——— ———
1 Jul Balance b/d 1,120

$ $
30 Jun CPB 1,550 30 Jun PDB 1,650
PRDB 50
Balance c/d 50
——— ———
1,650 1,650
——— ———
(e) Cash control a/c
$ $
1 Apr Balance b/d 200 30 Jun CPB 2,625
30 Jun CRB 2,680 Balance c/d 255
——— ———
2,880 2,880
——— ———
(f) Payables ledger (memorandum)
Thrush a/c
$ $
4 Apr CPB 600 1 Apr PDB 700
Jun PRDB 50
30 Jun Balance c/d 50
—— ——
700 700
—— ——
Hawk a/c
$ $
5 May CPB 950 2 Apr PDB 950
—— ——

Wasp a/c
$ $
1 May SDB 850 5 Jun CRB 500
—— ——
850 850
—— ——
Ant a/c
$ $
2 May SDB 660 3 May CRB 580
6 Jun SDB 770 4 Jun SRDB 80
——— ———
1,430 1,430
——— ———
(g) Trial balance at 30 June

Dr Cr
$ $
Cash 255
Inventory 1,500
Capital 3,100
Sales 2,880
Purchases 1,825
Purchases returns 50
Sales returns 80
Rent 300
Drawings 500
Light and heat 100
Trade payables 50
——— ———
6,080 6,080
——— ———

(h) Statement of profit or loss for the three months ended 30 June
$ $ $
Sales revenue 2,880
Less: Sales revenue returns (80)
———
2,800
Purchases 1,825
Less: Purchase returns (50)
——— 1,775
———
3,275
Cost of goods sold ——— (2,075)
———
Gross profit 725
Less: Expenses
Rent 300
Light and heat 100
—— (400)
———
———
Tutorial note: Separate disclosure of returns is NOT a requirement and it suffices to record
sales and purchases net of returns in financial accounts.
(i) Statement of financial position at 30 June

$ $
Non-current assets: Fixtures and fittings 400
Current assets
Inventory 1,200
Cash 255
——— 2,575
———
2,975
———
Capital account
Capital at 1 April 2,100
Add: Cash introduced 1,000
———
3,425
———
2,925
Current liabilities: Trade payables 50
———
———

Answer 60 HENRY WILLIAMS
(a) Cash receipts and payments books
Receipts Discount Bank Capital Cash sales Receivables

ledger
$ $ $ $ $
Feb
1 Capital introduced 500 500
5 T Crown 3 77 77
17 W Wilson 200 200
19 Cash sales 92 92
26 T Crown 100 100
—— —— —— —— ——
3 969 500 92 377
—— —— —— —— ——
Payments – see next page
(b) Sales day book
Date Details Invoice no Total

$
2 Feb T Crown 80
4 Feb W Wilson 100
9 Feb L Robinson 170
16 Feb W Wilson 180
22 Feb T Crown 130
——
660
——
Purchases day book
Date Details Invoice no Total

$
1 Feb W Martin 250
10 Feb F Pearson 130
14 Feb W Martin 150
18 Feb H Wood 75
23 Feb W Martin 240
——
845
——

Discounts Bank Purchases Wages Carriage Lighting Rent Payables Fixtures Drawings
Payments ledger
Feb $ $ $ $ $ $ $ $ $ $
1 Fittings 40 40
2 Drawings 20 20
3 W Martin 150 150
6 Wages 7 7
8 Purchases 30 30
11 W Martin 5 95 95
12 Carriage 2 2
13 Wages 7 7
14 Purchases 40 40
20 Wages 7 7
21 H Wood 3 72 72
24 Purchases 73 73
25 W Martin 200 200
27 Wages 7 7
28 Lighting 5 5
28 Rent 8 8
28 Drawings 15 15
—— —— —— —— —— —— —— —— —— ——
8 778 143 28 2 5 8 517 40 35
—— —— —— —— —— —— —— —— —— ——

(c) General ledger
Tutorial note: As the question specifically stated that the accounts were not to be closed,
they have merely been balanced
Capital a/c
$ $
28 Feb Balance c/d 500 Feb CRB 500
—— ——
Carriage a/c
$ $
Feb CPB 2 28 Feb Balance c/d 2
— —
1 Mar Balance b/d 2
Drawings a/c
$ $
— —
Discounts allowed a/c
$ $
Feb CRB 3 28 Feb Balance c/d 3
— —
1 Mar Balance b/d 3
Discounts received a/c
$ $
28 Feb Balance c/d 8 Feb CPB 8
— —
1 Mar Balance b/d 8
Fixtures a/c
$ $
— —

Lighting a/c
$ $
— —
1 Mar Balance b/d 5
Purchases a/c
$ $
Feb CPB 143
PDB 845 28 Feb Balance c/d 988
—— ——
988 988
—— ——
Rent a/c
$ $
— —
1 Mar Balance b/d 8
Sales a/c
$ $
Feb CRB 92
28 Feb Balance c/d 752 SDB 660
—— ——
752 752
—— ——
Wages a/c
$ $
— —

$ $
Feb CPB 517 Feb PDB 845
28 Feb Balance c/d 320
—— ——
845 845
—— ——
$ $
Feb SDB 660 Feb CRB 377
Discounts allowed 3
—— ——
660 660
—— ——
Cash control a/c
$ $
28 Feb Receipts 969 28 Feb Payments 778
Balance c/d 191
—— ——
969 969
—— ——
T Crown
$ $
2 Feb SDB 80 5 Feb CRB 77
22 Feb SDB 130 5 Feb Discount allowed 3
26 Feb CRB 100
—— ——
210 210
—— ——

W Wilson
$ $
4 Feb SDB 100 17 Feb CRB 200
16 Feb SDB 180 28 Feb Balance c/d 80
—— ——
280 280
—— ——
L Robinson
$ $
9 Feb SDB 170 28 Feb Balance c/d 170

—— ——
Payables ledger (memorandum)
W Martin
$ $
3 Feb CPB 150 1 Feb PDB 250
11 Feb Discount received 5 23 Feb PDB 240
25 Feb CPB 200
—— ——
640 640
—— ——
F Pearson
$ $
28 Feb Balance c/d 130 10 Feb PDB 130
—— ——
H Wood
$ $
Discount received 3
—— ——
75 75
—— ——

(d) List of general ledger account balance at 28 February

Dr Cr
$ $
Capital 500
Carriage 2
Drawings 35
Discounts allowed 3
Fixtures 40
Lighting 5
Purchases 988
Rent 8
Sales 752
Wages 28
Trade payables 320
Cash at bank 191
——— ———
1,580 1,580
——— ———
Receivables ledger balances Payables ledger balances

$ $
T Crown 30 W Martin 190
W Wilson 80 F Pearson 130
L Robinson 170 H Wood –
—— ——
280 320
—— ——
(e) Statement of profit or loss for the month ended 28 February
$ $
Revenue 752
Purchases 988
—— (663)
——
Gross profit 89
Less: Expenses
Wages 28
Carriage 2
Lighting 5
Discounts (net) $(3 – 8) (5)
Rent 8
—— (38)
——
——

Statement of financial position at 28 February

$ $
Non-current assets: Fixtures 40
Current assets
Inventory 325
Cash at bank 191
—— 796
——
Total assets 836
——
$
Capital account
Capital introduced 500
Add: Profit for month 51
——
551
Less: Drawings (35)
——
516
Current liabilities: Trade payables 320
——
Total capital and liabilities 836
——
Answer 61 MCQs BOOKS OF PRIME ENTRY AND CONTROL ACCOUNTS
61.1 C
61.2 C Both the personal account in the receivables ledger plus the double entry posted
from the totals must be corrected.
61.3 B Receivables
$000 $000
Balance b/d 84 Cash received 380
Credit sales 432 Irrecoverable debts written off 10
Discounts allowed 9
Balance c/d 117
—— ——
516 516
—— ——

61.4 B Payables
$000 $000
Cash paid 490 Balance b/d 180
Credit notes 11 Credit purchases 530
Balance c/d 201
—— ——
710 710
—— ——
61.5 D Receivables ledger control a/c
$ $
Balance b/f 100,000 Discounts allowed 404
Sales 402,010 Cash 212,050
Dishonoured cheques 75 Sales returns 20,401
Balance c/f 269,230
——— ———
502,085 502,085
——— ———
61.6 B Receivables ledger control a/c
$ $
Sales 550,000 Cash 514,268
Irrecoverable debt recovered 542 Discount allowed 12,790
Debts written off 4,100
Cash 542
Contras 4,000
Balance c/d 72,000
———— ————
613,700 613,700
———— ————
61.7 A Payables ledger control a/c
$ $
Purchase returns 4,000 Balance b/d 32,000
Cash 258,100 Purchases 276,000
Contras 4,000
Balance c/d 36,000
———— ————
308,000 308,000
———— ————

61.8 A Allowance a/c
$ $
Balance b/d 3,158
Balance c/d (5%  $72,000) 3,600 Irrecoverable debt a/c 442
——— ———
3,600 3,600
——— ———
$ $
Receivables (w/o) 4,100 Irrecoverable debt recovered 542
Allowance 442 I & E a/c 4,000
——— ———
4,542 4,542
——— ———
61.9 A Cash book
$ $
Receivables 25,000 Balance b/d 40,000
Plant sale proceeds 20,000 Payables 15,000
Balance c/d 10,000
——— ———
55,000 55,000
——— ———
61.10 A Receivables a/c
$ $
Sales 36,000 Discounts 3,000
Cash 25,000
Irrecoverable debts 3,000
Balance c/d 42,000
——— ———
76,000 76,000
——— ———
$
———
Net receivables 36,000
———

61.11 B Receivables ledger control a/c
$ $
1.1 Balance b/fwd 289,376 Cash 795,373
Credit sales 626,575 Irrecoverable debt expense 9,550
Returns 7,000
31.12. Balance c/fwd 91,072
_______ _______
915,951 915,951
_______ _______
Answer 62 BRABANTIA
$ $
Cash (2) 1,800 31.12 Balance b/d 97,186
Contra – receivables ledger (3) 1,386 PDB undercast (1) 6,000
31.12 Balance c/d 100,000
———— ————
103,186 103,186
———— ————
1.1 Balance b/d 100,000
(b) Reconciliation with list of balances

$
Total per list of balances 96,238
Debit balance extracted as a credit (4) (2  40) (80)
Balance omitted (5) 3,842
———
Adjusted balance per control account 100,000
———
Tutorial note: It is always very reassuring in an exam to be able to see that you have got the right
answer. However, you may not always be given the total of the list of balances – see the next question!
Answer 63 TARTUFO
(a) Receivables ledger control a/c
$ $
Balance b/d 30,434 SDB overcast (2) 3,950
Contra with payables ledger (4) 620
Balance c/d 25,864
——— ———
30,434 30,434
——— ———
Balance b/d 25,864

$ $
Contra with receivables ledger (4) 620 Balance b/d 18,740

Transposition error (5) 180
Purchases returns (6) 340
Balance c/d 17,600
——— ———
18,740 18,740
——— ———
Balance b/d 17,600
(b) Individual balances

$
Receivables ledger (extracted total) (al fig) 25,904
Discount allowed (3) (40)
———
Corrected balance (as per control account) 25,864
———
$ $
Payables ledger (extracted total) (al fig) 16,398
Add: Credit balances omitted (1) 1,314
Less: Debit balance omitted (1) 72
Discount allowed (3) 40
—— (112)
———
Corrected balance (as per control account) 17,600
———
Answer 64 RACY
$ $
30.6.2015 Cash 322,000 1.7.2014 Balance b/d 30,000
Discounts received 8,000 Purchases 340,000
Balance c/d 40,000
———— ————
370,000 370,000
———— ————
1.7.2015 Balance b/d 40,000

(b) Statement reconciling the balance per the list of balances to the ledger control
account balance
$ $
Total per suppliers listing 39,800
Add: Goods omitted from Roy’s account (1) 1,500
Discounts allowed debited to payables’ ledger not
credited to debtors’ ledger (2) 500
David’s account omitted (3) 2,000
Error in posting to Piax account (6) 50
——— 4,050
———
43,850
Less: Discounts received omitted (4) 3,500
Cash paid to Freddie’s account posted to wrong side ($50  2) (5) 100
Cheque paid to James omitted (5) 250
——— (3,850)
———
Balance per payables ledger control account 40,000
———
Answer 65 TELETUBBY
(a) Statement reconciling the receivables ledger listing to the corrected receivable ledger
control account balance
$ $
Balance per receivables ledger listing 22,620
Add: Debt reinstated due to dishonoured cheque (5) 527
Customer balance omitted (7) 521
—— 1,048
Less: Payables ledger contra (3) 681

Credit balance listed as a debit balance ($316  2) (4) 632
—— (1,313)
———
Balance per receivables ledger control account (W1) 22,355
———
(b) Statement reconciling the payables ledger listing to the corrected payables ledger
control account balance
$
Balance per payables ledger listing 21,805
Add: Credit balance wrongly listed $(96 – 69) (4) 27
Less: Receivables ledger contra (3) (681)
———
Balance per payables ledger control account (W2) 21,151
———

WORKINGS
(1) Receivables ledger control a/c
$ $
Balance b/d 38,076 Sales returns a/c (1) 7,164
Cash (dishonoured cheque) (5) 527 Purchase returns a/c (1) 5,328
Cash (payments) (6) 24,586 Cash (undercasting) (2) 1,000
Cash (receipts) (6) 27,342
Balance c/d 22,355
——— ———
63,189 63,189
——— ———
Balance b/d 22,355
(2) Payables ledger control a/c
$ $
Sales returns a/c (1) 7,164 Balance b/d 30,887
Purchase returns a/c (1) 5,328 Cash (receipts) (6) 27,342
Cash (payments) (6) 24,586
Balance c/d 21,151
——— ———
58,229 58,229
——— ———
Balance b/d 21,151
Answer 66 ROBIN & CO
(a) Receivables ledger control a/c
$ $
30 Sep Balance b/d 3,800 30 Sep Irrecoverable debts a/c (2) 400
Discounts allowed (4) Payables ledger control a/c (5) 70
(Wren) 25 Discount allowed (6) 140
Balance c/d 3,215
——— ———
3,825 3,825
——— ———
1 Oct Balance b/d 3,215
(b) List of receivables ledger balances

$
Original total (al fig) 3,362
Add: Debit balances previously omitted (1) 103
———
3,465
Less: Item posted twice to Sparrow’s account (3) (250)
———
Amended total per receivables ledger control account 3,215
———

Answer 67 SHOWERS
(a) Trade receivables ledger control a/c
2014 $ 2014 $
31 Oct 31 Oct
Balance as originally extracted 12,550 Omission of discounts allowed (4) 100
Omission of sales (1) 850 Contra with payables ledger (6) 400
Cheque dishonoured (12) 300 Irrecoverable debt (7) 500
Returns inwards omitted (10) 200
Balance c/f 12,500
——— ———
13,700 13,700
——— ———
1 Nov Balance b/f 12,500
(b) Trade receivables ledger – Balances at 31 October 2014

$ $
Total as originally extracted 12,802
Add Balance omitted (2) 300
Undercasting of balance (5) 200
—— 500
———
13,302
Less Cash received – correction of transposition (3) 180
Cash received – incorrectly debited ( 2) (8) 500
Discounts received – entered in a customer’s account (9) 50
Error in crediting cash received $(80 – 8) 72
—— (802)
———
Amended trade receivables ledger account balance at 31 October 2014 12,500
———
Answer 68 HUBERT
(a) Sales ledger control a/c
$ $
Balance per trial balance 9,650 (3) Discount allowed 671
(5) Credit note outstanding 17
Corrected balance c/d 8,962
——— ———
9,650 9,650
——— ———

Purchase ledger control a/c
$ $
(1) Overstatement of purchases Balances per trial balance 7,496
day book input total 3,600 (2) Debit balance written off 28
(4) Payment mis-input 260
(6) Discounts received 280
Corrected balance c/d 3,384
——— ———
7,524 7,524
——— ———
List out of individual ledger balances
Sales ledger Purchase ledger

$ $ $ $
– + – +
Balances as originally extracted 9,617 3,556
(3) Discount allowed 671
(4) Payment mis-classified 260
(5) Credit note outstanding 17
(7i) Balance omitted 54
(7i) Balance omitted 69
(7ii) Balance wrongly extracted 88
(7iii) Overcast on Hoppo’s a/c 90
—— ——— —— ———
778 9,740 260 3,644
(778) (260)
——— ———
Totals as amended (agreeing with control accounts) 8,962 3,384
——— ———
(b) Amendments to profit for the six months to 31 August

$ $
– +
Profit (per manual draft accounts) 4,322
(1) Overstatement of PDB total 3,600
(2) Debit balance written off 28
(3) Discount allowed – August 671
(4) Payment mis-classified 260
(5) Credit note due 17
(5) Write-down of inventory 12
(6) Discount received 280
—— ———
728 8,462
(728)
———
Profit as revised 7,734
———
Tutorial note: Adjustment to profit statements are covered in detail in the session on suspense a/cs.

Answer 69 MCQs CONTROL ACCOUNT RECONCILIATIONS
69.1 D Credit receivables ledger control account $900 to reduce amounts due so the figure is
in line with the list of balances.
69.2 D As an allowance does not reduce receivables, crediting receivables with all cash
received, including that from debts against which an allowance has already been made,
is correct.
69.3 C $
Balance per purchase ledger 19,579
Less: Discounts received
(not recorded in the purchase ledger) (3,110)
______
16,469
______
There is no need to adjust for the contra entry as that has already been deducted in
the payables ledger.
69.4 D Option A could partially explain the difference, but is insufficient, in itself, at $1,125.
Option B increases the size of the difference and is, therefore, incorrect. Option C will
narrow the difference but, again, cannot account for it in itself. Option D provides a
full explanation by reducing the list of balances by $2,250 through correcting the
treatment of a debit balance of $1,125.
Answer 70 TALANT
Cash book
$ $
1 Oct Balance b/d 2,250 2 Oct Grenadine 476
10 Oct Ambrosia 508 14 Oct Holly 285
17 Oct Bertram 626 19 Oct Ivan 367
28 Oct Crisp 735 28 Oct Charges 52
28 Oct Dividend (PPI) 126 28 Oct Richmond DC 370
28 Oct Building Society 280
31 Oct Balance c/d 2,415
____ ____
4,245 4,245
—— ——
31 Oct Balance b/d 2,415
Bank statement reconciliation

(as at 31 October)
$
Balance per bank statement 2,047
Add: (1) Outstanding deposit 735
Less: (2) Unpresented cheque (367)
____
Revised balance per the cash book 2,415
——

Answer 71 PRINGLE
Bank reconciliation statement at 30 June

$
Add: Uncleared deposits 210
———
1,760
Less: Unpresented cheques (70 + 90 + 100) (260)
———
Balance per cash account 1,500
———
Answer 72 WHITE
Bank reconciliation statement at 30 November

$
Balance per bank statement 6
Add: Uncleared deposits (40 + 60) 100
——
106
Less: Unpresented cheques (20 + 32 + 70) (122)
——
Balance per cash account (16) o/d
——
Answer 73 GORBACHEV
(a) Cash a/c
$ $
Balance b/d 204 Standing order 35
Interest on deposit a/c 18 Bank charges 14
Balance c/d 173
—— ——
222 222
—— ——
Balance b/d 173
(b) Bank reconciliation statement at 31 March

$
Add: Outstanding deposits 723
———
3,341
Less: Unpresented cheques (3,168)
———
Balance per cash account 173
———

Answer 74 JOVANOVICH
(a) Cash a/c
$ $
Balance b/d 1,660 Transposition error 1,800
Undercast cash a/c 200 Dishonoured cheque 220
Bank charges 24
Balance c/d 344 Standing orders 160
——— ———
2,204 2,204
——— ———
Balance b/d 344
(b) Bank reconciliation statement at 30 June

$
Balance per bank statement (450)
Add : Uncleared deposits 626
——
176
Less: Unpresented cheques (520)
——
——
Answer 75 NORTH STAR CO
(a) Cash a/c
$ $
Balance b/d 1,920 Bank charges 70
Error in b/d balance 126 Cheque drawn – shown as receipt 188
Cheque “refer to drawer” 36
Balance c/d 1,752
——— ———
2,046 2,046
——— ———
Balance b/d 1,752

(b) Bank reconciliation statement

$ $
Balance per bank statement (248)
Add: Uncleared deposits 3,084
Bank error 144
——— 3,228
———
2,980
Less: Unpresented cheques 428
740
60
—— (1,228)
———
Balance per cash account 1,752
———
Answer 76 DEALERS
(a) Cash a/c
$ $
Cheque entered twice 94 Balance b/d 1,062
Traders’ credits 341 Undercast error in page c/f 450
Standing order 91
Bank charges 57
Balance c/d 1,325 Dishonoured cheque 100
——— ———
1,760 1,760
——— ———
Balance b/d 1,325
(b) Bank reconciliation statement at 30 April 2015

$
Add: Uncleared deposits 698
———
2,847
Less: Cheque credited in error by bank (1,560)
———
1,287
Less: Unpresented cheques (al fig) (2,612)
———
Balance per cash account (overdraft) (1,325)
———

Answer 77 GENEVA
(a) Cash a/c
$ $
Dividends received 62 Balance b/d 554
Cheque drawn correction (66 – 6) 60 Bank charges 136
Overstatement of opening balance 50 Cheque receipt correction (2 × 22) 44
Balance c/d 642 Dishonoured cheque 80
—— ——
814 814
—— ——
Balance b/d 642
(b) Bank reconciliation statement at 31 December

$ $
Balance per bank statement (1,162)
Add: Uncleared deposits/lodgements 762
Cheque debited in error by bank 25
—— 787
———
(375)
Less: Unpresented cheques (267)
———
Balance per cash account (overdraft) (642)
———
Answer 78 MCQs BANK RECONCILIATIONS
78.1 A There are only two items which create timing difference between when they are
recorded in the cash book and when they are recorded by the bank – unpresented
cheques and outstanding lodgements.
78.2 A Only timing differences and bank errors are reconciling items. The cash book must
be adjusted for all other items.
78.3 D Receipts paid in to the bank before the year end, clearing the bank after the year end.
78.4 A Cheque payments drawn before the year end, clearing the bank after the year end.

Answer 79 YULIA
(a) Journal entries

Dr Cr
$ $
H Malkov’s a/c 120
A Malkov’s a/c 120
(1) Correction of posting to incorrect personal a/c
A Harkal’s a/c 54
Suspense a/c 54
(2) Correction of posting to wrong side of personal a/c
Revenue a/c 190

Disposal a/c 190
(3) Correction of error of principle – sales proceeds of plant previously posted to revenue
a/c
D Herman’s a/c 108

Suspense a/c 108
(4) Correction of posting $12 rather than $120
Suspense a/c 200

Revenue a/c 200
(5) Correction of undercast of sales day book
Suspense a/c 30
Rent payable a/c 30
(6) Amount of accrued expense not brought forward on the a/c
Petty cash a/c (not posted) 12

Suspense a/c 12
(7) Balance omitted from trial balance
(b) Suspense a/c

$ $
Revenue a/c (5) 200 Difference on TB 56
Rent payable a/c (6) 30 A Harkal’s a/c (2) 54
D Herman’s a/c (4) 108
Petty cash a/c (7) 12
—— ——
230 230
—— ——

Answer 80 OGRE
Suspense a/c
$ $
Balance b/d 940 Sales returns a/c (1) 90
Light and heat a/c (3) 840 Discounts received a/c (5) 890
Customer’s a/c (4) 180 Discounts allowed a/c (5) 980
——— ———
1,960 1,960
——— ———
Answer 81 GROAN
(a) Journal entries

Dr Cr
$ $
Suspense a/c 200
Purchases a/c 200
(1) Correction of overcast of purchase day book
Telephone a/c 99
Suspense a/c 99
(2) Correction of posting to the wrong side of the telephone a/c
Suspense a/c 1,240

Discounts a/c 1,240
(3) Correction of posting to the wrong side of the discounts a/c
Titus’s a/c 310

Trite’s a/c 310
(4) Correction of posting to incorrect personal a/c
Salaries a/c 1,210

Suspense a/c 1,210
(5) Correction of posting to the wrong side of the salaries a/c
Bouncer’s a/c 55
Bank a/c 55
(6) Reversal of a cash receipt entry on dishonouring of the cheque

(b) Suspense a/c
$ $
Purchases a/c (1) 200 Telephone a/c (2) 99
Discounts a/c (3) 1,240 Salaries a/c (5) 1,210
Original difference (al fig) 131
——— ———
1,440 1,440
——— ———
Answer 82 BLACKWATER TRANSPORT
Dr Cr
$ $
Customer a/c 12
(1) Agreed treatment of outstanding balance on customer’s a/c

Suspense a/c 200
(2) Correction of overstatement of total returns
Subscriptions 140
Cash at bank 140
(3(i)) Direct debit not previously posted
Supplier a/c 180

Cash at bank 180
(3 (ii)) Correction of transposition error
Cash at bank (W2) 80

Suspense a/c 80
(3 (iv)) Correction of addition error in the cash a/c
Suspense a/c 326

(4) Posting of irrecoverable debt recovered only entered in the cash book
Receivables per trial balance 360

Suspense a/c 360
(5) Inclusion of account receivable balance omitted when trial balance taken
Suspense a/c 20
Customer a/c 20
(6) Correction of misposting of allowance to customer

WORKINGS
(1) Bank reconciliation at 31 January

$
Balance per bank statement 240
Less: Unpresented cheques (3 (iii)) (654)
——
——
(2) Cash a/c
$ $
Addition error (al fig) 80 Balance per trial balance 174
Subscriptions a/c (3(i)) 140
Adjusted balance c/d (W1) 414 Supplier’s a/c (3(ii)) 180
—— ——
494 494
—— ——
Answer 83 SMETENA NEWSAGENTS
(a) Journal entries

Dr Cr
$ $
Suspense a/c 180
Purchases a/c 180
(2) Correction of amount posted to purchases a/c arising from transposition error
Income & expenditure a/c (closing inventory) 2,000

Inventory per statement of financial position 2,000
(3) Correction of overcasting of inventory-sheets
Suspense a/c 590

Cash a/c 590
(4) Correction of overstatement of cash in hand
Fixtures and fittings a/c 4,600

Suspense a/c 4,600
(5) Correction of omission from the trial balance of fixtures and fittings (see tutorial note)
Interest a/c (I& E) 1,200

Accrued expenses a/c 1,200
(6) Accrual for interest due on loan not yet provided for

Tutorial note: There is no double-entry correction to be made in the fixtures and fitting
account itself – only in correcting the trial balance (which has omitted the balance). An
alternative approach is to say that there is no double entry and instead to present the
suspense a/c with the “correct” difference on the suspense a/c which would be $770 Dr (i.e.
$3,830 Cr – $4,600 Dr).
(b) Suspense a/c
$ $
Difference in TB 3,830 Fixtures and fittings omitted
Purchases (2) 180 from TB (5) 4,600
Cash in TB (4) 590
——— ———
4,600 4,600
——— ———
(c) Statement of financial position at 31 December

$ $ $
Non-current assets 76,808
Current assets
Inventory 16,826
Cash 110
———
43,152
———
———

Add: Profit (W) 15,380
———
65,604
———
57,344
Loan – L Franks 20,000
Current liabilities
Accrued expenses 1,200
——— 42,616
———
———

WORKING
Adjustment to profit
$ $ $
+ –
Profit per draft statement of financial position 18,400
Less: Overstated closing inventory (3) 2,000
Interest on loan a/c (6) 1,200
———
3,200
Add: Overstated purchases (2) 180
—— (3,020)
———
15,380
———
Answer 84 ALPHA
(a) Journal entries

Dr Cr
$ $
Rent a/c (or I & E a/c) 500
Receivables ledger control a/c 500
(1) Correction of posting to the receivables ledger control a/c
Payables ledger control a/c 1,500

Receivables ledger control a/c 1,500
(2) Contra between the receivables & payables ledger control a/cs
Discounts allowed a/c (or I & E a/c) 750

(3) Inclusion of discounts allowed in the a/cs

Suspense a/c 3,220
(4) Posting to the receivables ledger control a/c of cash to clear a credit balance on the
receivables ledger
Telephone a/c (or I & E a/c) 1,460

Suspense a/c 1,460
(5) Posting of a payment to the telephone a/c

Dr Cr
$ $
Sales a/c (or I & E a/c) 250
(6) Correction of the overcast of the sales day book

Suspense a/c 2,500
(7) Correction of a double posting of cash sales
Bank charges a/c (or I & E a/c) 2,120

Bank a/c 2,120
(8) Inclusion of bank charges in the a/cs
(b) Statement of adjusted retained earnings

$ $
Per trial balance 15,000
Less: Rent 500
Telephone 1,460
Sales revenue 250
Bank charges 2,120
——— (5,080)
———
Adjusted retained earnings 9,920
———
(c) Corrected list of account balances

Dr Cr
$ $
Non-current assets at cost 70,000
Accumulated depreciation 46,500
Retained earnings (part (b)) 9,920
Inventory at cost 16,000
Receivables (W) 16,500
Payables $(7,200 – 1,500) 5,700
Balance at bank $(1,740– 2,120) 380
———— ————
102,500 102,500
———— ————

(d) Statement of financial position at 30 June 2015

Cost Depreciation
$ $ $
Tangible non-current assets 70,000 46,500 23,500
——— ———
Current assets
Inventory 16,000
Trade receivables (W) 16,500
———
32,500
———
Total assets 56,000
———

———
49,920
Current liabilities
Bank overdraft 380
——— 6,080
———
———
WORKING
Receivables ledger control account

$ $
Per list of balances 13,780
Less: Rent 500
Contra 1,500
SDB overcast 250
——— (3,000)
———
10,780
Add: Cheque 3,220
Cash sales 2,500
——— 5,720
———
16,500
———

The suspense a/c is shown below for completeness.
Suspense a/c
$ $
TB difference 7,180 RLCa/c (4) 3,220
Telephone expense 1,460
RLCa/c (7) 2,500
——— ———
7,180 7,180
——— ———
Answer 85 COSY COMFORTS
No Details Dr Cr
$ $
(1) Accrual for discount allowed to customers 72.13
Discount allowed 72.13
Reduction in accrual for discount
(2(i)) Irrecoverable debts 64.80

Trade receivables 64.80
Irrecoverable debts written off
(2(ii)) Bank 21.44

Irrecoverable debts 21.44
Receipt of debt previously written off as irrecoverable
(3) Trade receivables 3.20

Discount allowed 3.20
Correction of amount of discount allowed to customer (4%  80)
(4(i)) Prepayments 22.45

Insurance 22.45
Prepayment of insurance
(4(ii)) Electricity 36.71

Accrued expenses 36.71
Electricity accrual

No Details Dr Cr
$ $
(5) Cash 126.55
Unclaimed wages (liability) 126.55
Unclaimed wage arrears to be banked
(6) Wages 464.12

Salaries 301.70
Accrued expenses 765.82
Wages and salaries accrued
(7(i)) Repairs and renewals 5,000.00

Premises 5,000.00
Repairs incorrectly capitalised
(7(ii)) Accumulated depreciation 100.00

Depreciation (I & E a/c) 100.00
Elimination of depreciation charged on incorrectly capitalised repairs
(8) Trade payables 163.04

Trade receivables 163.04
Purchase ledger contra with sales ledger
Answer 86 RAFAL JAFFA
(a) Control and suspense accounts
Sales ledger control
$ $
Per trial balance 110,172 (c) Contra purchase ledger 700
(j) Y – excess amount written off 200 (g) Cash book error 100
Balance c/d 109,572
———— ————
110,372 110,372
———— ————
Balance c/d 109,572

Purchase ledger control
$ $
(c) Contra sales ledger 700 Per trial balance 78,266
(g) PDB invoice error 198
(h) PDB overcast 1,000
Balance c/d 76,368
——— ———
78,266 78,266
——— ———
Balance b/d 76,368
Suspense
$ $
Per trial balance 2,315 (i) Bank balance 2,400
(k) Insurance 90 Balance c/d 5
——— ———
2,405 2,405
——— ———
Balance b/d 5
(b) Ledger reconciliations
Sales ledger list of balances

Dr Cr
$ $
Per listing 111,111 1,234
(c) Contra purchase ledger X 700
(d) H Patel – correction 600
(e) Allowance 300
(g) Cash book error 100
(j) Customer Y – excess amount written off 200
———— ———
111,911 2,334
(2,334)
————
Revised net total 109,577
Per control account (109,572)
———
Difference 5
———

Purchase ledger list of balances

Dr Cr
$ $
Per listing 1,111 77,777
(c) Contra sales ledger X 700
(d) M Patel – error 600
(e) PDB invoice error 198
——— ———
2,009 78,377
(2,009)
———
Revised net total 76,368
Per control account (76,368)
———
Difference Nil
———
(c) Comment
The purchase ledger control account now reconciles to the list of balances. However, there is
a difference of $5 between the balance on the sales ledger control account and the revised net
balances extracted from the sales ledger. There is also a $5 balance remaining on suspense
account. This would suggest that the remaining trial balance error is to be found in the sales
ledger control account. The entries in this account should be rechecked.
Answer 87 XYZ
Corrected statement of financial position at 30 September 2014

value
$ $ $
ASSETS
Non-current assets
Plant 150,000 90,000 60,000
Vehicles 25,000 15,000 10,000
———– ———– ———
175,000 105,000 70,000
———– ———–
Current assets
Inventories 12,000
——— 18,000
Cash 500
———
30,500
———
———

CAPITAL AND LIABILITIES

Capital and reserves $
Capital 20,000
Profit for the year (W1) 63,500
———
83,500
———
73,500
Loan 5,000
Current liabilities
———
100,500
———
WORKINGS
(1) Adjustment to profit for the year

$ $
Balance per draft statement of financial position 53,600
Add (5) Understatement of sales owing to transposition error 900
(6) Motor vehicle debited in error 5,000
(7) Drawings incorrectly debited 10,000
(8) Discounts received debited instead of being credited ( 2) 3,000
——— 18,900
———
72,500
Less (1) Receivables allowance incorrectly credited to net profit 1,800
(2) Increase in the receivables allowance (10% of trade
debtors at 30 September 2014) 200
(8) Discounts allowed credited instead of being debited ( 2) 2,000
(9) Loan incorrectly credited 5,000
——— (9,000)
———
Adjusted profit for the year 63,500
———
(2) Suspense a/c
$ $
(3) Depreciation omitted Original balance 44,900
$(5,000 + 30,000) 35,000 (4) Inventories omitted 2,000
(5) Sales omitted 900 (8) Discounts allowed 2,000
(8) Discounts received 3,000
(10) Trade payables omitted 10,000
——— ———
48,900 48,900
——— ———

Answer 88 CND
Marking
(a) Correcting entries Dr Cr guide
$ $
(1) Capital a/c 10,000
Loan a/c X 10,000 1
(2) Bank loan a/c 458

Accrued expenses a/c 458 1
(3) Bank charges a/c 1,000

Bank overdraft a/c 1,000 1
(4) Depreciation of non-current assets a/c 10,943

Disposals a/c 936
Non-current assets a/c 11,879
Disposals a/c 1,064
Gain on sale a/c 1,064 1
(5) Wages and salaries a/c (6,088 + 1,766) 7,854

Payments of personal tax a/c 5,988
Payments of social security a/c, etc 1,766 1½
Taxation & social security payable a/c 100
(6) Trade payables a/c 10,260
Discounts allowed a/c 240
Discount received a/c 260 1½
(7) Irrecoverable debts a/c 2,000

Trade receivables a/c 2,000 1
(8) Trade receivables a/c 1,000

Irrecoverable debts recovered a/c 1,000 1
(9) Sales returns a/c 630

Purchases returns a/c 630
Suspense a/c 1,260 1
(10) Suspense a/c 9

Postage, telephone and stationery a/c 9 1
(11) Packing materials a/c 76

Suspense a/c 76 1
(12) Advertising a/c 124

Repairs and maintenance a/c 124 1
(13) Bank overdraft a/c 36

Insurance a/c 36 1
(14) Suspense a/c 297

Purchases a/c 297 1
___
16
___

(b) Trial balance at 31 December

Dr Cr
$ $
Capital account $(110 – 10) 100,000
Retained earnings at 1 January 50,000
Bank loan $(30,458 – 458) 30,000
Loan account – X 10,000
Trade receivables$ (77,240 – 10,240 – 2,000 + 1,000) 66,000
Trade payables $(60,260 – 10,260) 50,000
Cash in hand 1,000
Bank overdraft $(5,036 + 1,000 – 36) 6,000
Inventories at 1 January 108,000
Non-current assets at cost $(161,879 – 11,879) 150,000
Accumulated depreciation at 31 December 50,000
Depreciation for the year 15,000
Purchases $(300,297 – 297) 300,000
Revenues 400,000
Returns 5,000 4,000
Discounts allowed $(9,760 + 240) 10,000 ¼ each
Discounts received $(6,740 + 260) 7,000 Dr/Cr
Wages and salaries (gross) $(15,146 + 7,854) 23,000
Taxation on wages and salares payable $(900 + 100) 1,000
Rent and insurance $(18,036 – 36) 18,000
Postage, telephone and stationery $(3,009 – 9) 3,000
Repairs and maintenance $(2,124 – 124) 2,000 max 8
Advertising $(4,876 + 124) 5,000
Packing materials $(924 + 76) 1,000
Debenture interest 4,000
Bank charges 1,000
Irrecoverable debts 2,000
Irrecoverable debts recovered 1,000
Accrued expenses $(6,478 + 458) 6,936
Surplus on asset disposal $(2,000 – (11,879 – 10,943)) 1,064
———– ———–
717,000 717,000
———– ———–
WORKING
Suspense a/c
$ $
Original balance 1,030 (9) Goods returned ½ each
(10) Stationery transposition misposting 1,260 Dr/Cr
error 9 (11) Materials payment entry
(14) Purchases transposition omitted 76
error 297 max 2
——— ——— ___
1,336 1,336 10
——— ——— ___

Answer 89 MCQs SUSPENSE ACCOUNTS
89.1 D Because the company does not maintain control accounts the individual customers’
accounts have been debited with $500 more than has been credited to sales.
Therefore sales must be credited with $500. As there is no option offered to debit a
suspense a/c also it must be assumed that the error has been discovered before
creating a suspense a/c.
89.2 C Knight’s a/c should have been debited $100 so debit now 2  $100 = $200 to
correct.
89.3 C Reversal of incorrect posting to discounts received.
89.4 A K Chess’s a/c has not yet been credited (A or D). K Checker’s a/c should not have
been credited therefore debit.
89.5 A This is simply a mis-posting of the right amount to the wrong a/c so has no bearing
on the suspense a/c.
Tutorial note: As there is no mention of the credit side of the entry it should be
assumed that it has been correctly posted to payables/cash.

Answer 90 JOLANTA
(a) List of account balances at 31 December 2014

Dr Cr
$ $
Allowance for irrecoverable trade receivables 1,200
Revenue 93,200
Leasehold premises at cost 45,000
Accumulated amortisation to 31 December 2014 (9,000 + 9,000) 18,000
Accumulated depreciation to 31 December 2014 (15,600 + 2,000) 17,600
Purchases 51,400
Loan advanced by Joanna 4,100
Rent 2,550
Interest on loan 250
Irrecoverable debts account 50
Amortisation of leasehold for 2014 9,000
Depreciation of delivery vans for 2014 2,000
——–— ——–—
201,050 201,050
——–— ———–

(b) Statement of profit or loss for the year ended 31 December 2014
$ $ $
Revenue 93,200
Less: Returns inwards (1,050)
———
92,150
Purchases (51,400 – 400) 51,000
Less: Returns outwards (950)
——— 50,050
———
66,500
——— (51,300)
———
Gross profit 40,850
Less: Expenses
Establishment costs
Rent 2,550
Amortisation 9,000
——— 12,850
Administration and general costs
——— 2,500
Selling and distribution costs
Depreciation on vans 2,000
——— 14,200
Financial costs
Loan interest 250
——— 350
——— (29,850)
———
———
Tutorial note: It is worth noting that in relation to the “function of expense” method IAS 1
states “this method can provide more relevant information to users … but allocating costs to
functions may require arbitrary allocations and involve considerable judgement”. For
example, although irrecoverable debts here have been attributed to finance costs (i.e. the
responsibility of the finance department for not having been able to recover) they could just
as well be allocated to distribution (as in selling and distribution) or administration.
Discounts received in this question are specified as “trade” and therefore adjusted against
purchases. However, prompt payment discounts are an aspect of financing and so could be
allocated to finance costs.

Statement of financial position at 31 December 2014
Cost Depreciation
$ $ $
Leasehold premises 45,000 18,000 27,000
Delivery vans 21,600 17,600 4,000
——— ——— ———
66,600 35,600 31,000
——— ———
Current assets
Inventory 15,200
Less: Allowance for trade receivables 1,200
——— 34,500
———
49,700
———
Total assets 80,700
———
$
Capital account
Capital at 1 January 2014 30,000
Add: Profit for the year 11,000
———
41,000
Loan from Joanna 4,100
Current liabilities
——— 35,600
———
———

Answer 91 GANDALF
Statement of profit or loss for the year ended 31 March 2015

$ $
Revenue (34,628 + 8,512) 43,140
Less: Cost of goods sold
Purchases (20,700 + 11,344) 32,044
Closing inventory (8,514)
——— (23,530)
———
Gross profit 19,610
Less: Expenses
Assistant’s salary (including bonus) 4,800
Electricity (1,120 + 340) 1,460
Rent 2,200
Postage and stationery 700
——— (9,160)
———
———
Statement of financial position at 31 March 2015

$ $
Non-current assets – motor van 8,000
Current assets
Inventory 8,514
Cash (W) 13,108
———
30,134
———
38,134
———
Capital account
Capital at 1 April 2014 20,000
———
30,450
———
25,650
Current liabilities
Accrued charge for electricity 340
Bonus owed 800
——— 12,484
———
38,134
———

WORKING
Cash balance at 31 March 2015

$ $
From customers 34,628
———
54,628
Less: Paid to suppliers 20,700
Salary 4,000
Motor van 8,000
Drawings 4,800
Electricity 1,120
Rent 2,200
Postage 700
——— (41,520)
———
13,108
———
Answer 92 MARIA
Statement of profit or loss for the year to 31 December 2014

$ $ $
Revenue 79,060
Cost of sales
Purchases 54,520
———
61,260
——— (53,930)
———
Gross profit 25,130
Less: Expenses
Salaries 8,760
Rent $(1,170 – 250) 920
Office expenses 3,950
Trade receivables allowance written back (W) (138)
Loan interest (5%  $4,000) 200
Depreciation
Freehold properties 75
Motor vans 1,260
——— 1,535
——— (19,017)
———
———


Cost Depreciation
$ $ $
Freehold properties 7,500 525 6,975
Furniture and fittings 2,000 1,000 1,000
Motor vans 6,300 3,630 2,670
——— ——— ———
15,800 5,155 10,645
——— ———
Current assets
Inventory 7,330
Less: Allowance for trade receivables (W) (462)
——— 8,778
Prepayments 250
Bank balance 2,190
———
18,548
———
29,193
———
Capital account
Add: Profit for year 6,113
———
19,753
———
14,953
Non-current liabilities: Loan 4,000
Current liabilities
Accrued expenses 200
——— 10,240
———
29,193
———
WORKING
Allowance for trade receivables a/c
$ $
I & E a/c (allowance no longer Balance b/d 600
required) 138
Balance c/d (5%  $9,240) 462
—— ——
600 600
—— ——

Answer 93 FEDEROV
Statement of profit or loss for the year ended 31 December 2014
$ $ $ $
Revenue $(124,450 – 186 – 48) 124,216
Cost of goods sold
Purchases $(86,046 – 135 – 138) 85,773
———
93,773
Carriage inwards 156
———
93,929
Less: Closing inventory 7,550
——— (86,379)
———
Gross profit 37,837
Less: Expenses
Establishment costs
Rent (W1) 1,875
Gas, electricity and water 2,560
Depreciation
Plant and equipment 10%  $(8,000 – 2,500) 550
Furniture and fittings 5%  $(700 – 200) 25
—— 575
——— 5,010
Salaries (W2) 4,000
Wages 8,250
Printing and stationery 640
——— 14,946
Selling and distribution expenses
Travellers’ salaries and commission 5,480
Travellers’ expenses 1,040
——— 7,066
Finance costs
Bank charges 120
Loan interest (W4) 100
Irrecoverable debts expense (W6) 79
——— 299
——— (27,321)
———
———


Cost Depreciation
$ $ $
Non-current assets
Freehold premises 8,000 – 8,000
Plant and equipment 8,000 3,050 4,950
Fixtures and fittings 700 225 475
——— ——— ———
16,700 3,275 13,425
——— ———
$
Current assets
Inventory 7,550
Trade receivables (net)
$(20,280 – 608) (W5) 19,672
Prepayments 125
Cash at bank 650
———
27,997
———
Total assets 41,422
———
Capital account
———
30,516
Less: Drawings (W3) (1,250)
———
29,266
Loan 2,000
Current liabilities
Loan interest/accrued expenses 100
——— 10,156
———
———

WORKINGS
(1) Rent a/c
$ $
Per TB 2,000 I & E a/c 1,875
Balance c/d (3/6  $250) 125
——— ———
2,000 2,000
——— ———
(2) Salaries a/c
$ $
Per TB 3,500 I & E a/c 4,000
Drawings a/c (transfer) 500
——— ———
4,000 4,000
——— ——–
(3) Drawings a/c
$ $
Per TB 1,750 Salaries a/c (transfer) 500
Balance c/d 1,250
——— ———
1,750 1,750
——— ———
(4) Loan interest a/c
$ $
Balance c/d (5%  $2,000) 100 I & E a/c 100
—— ——
(5) Allowance for trade receivables
$ $
Irrecoverable debt expense 132 Balance b/d 740
Balance c/d (3%  $20,280) 608
—— ——
740 740
—— ——

(6) Irrecoverable debts expense
$ $
Written off (receivables) 256 Recovered 45
Decrease in allowance 132
I & E a/c 79
—— ——
256 256
—— ——
Answer 94 HEINZ

$ $ $
Revenue 68,213
Cost of goods sold
Purchases (W8) 55,453
———
62,387
——— (54,555)
———
Gross profit 13,658
Less: Expenses
Establishment costs
Rents and insurance (W3) 787
Lighting and heating (W5) 801
——— 1,588
Postages, telephone, stationery and office expenses (W7) 409
Audit and professional charges (W6) 148
Depreciation on fixtures (W1) 760
——— 1,317
Running costs of delivery van (W4) 397
Depreciation on vans (W2) 750
Advertising 1,375
Salesmen’s wages and salaries 5,262
——— 7,784
Financial costs
Allowance for trade receivables (W9) 103
Discounts received (1,206)
——— (1,027)
——— (9,662)
———
———


Cost Depreciation (W1/2)
$ $ $
Furniture and equipment 7,600 2,200 5,400
Delivery vans 3,000 1,500 1,500
——— ——— ———
10,600 3,700 6,900
——— ———
Current assets
Inventory 7,832
Less: Allowance for receivables (W9) (480)
——— 9,120
Insurance claim 3,224
Prepayments and sundry receivables (60+91+58+217+98) 524
Cash at bank and in hand 5,148
———
25,848
———
Total assets 32,748
———
Capital account
———
27,517
———
25,017
Current liabilities
Accrued expenses (100 + 27 + 39 + 105 + 28) 299
——— 7,731
———
———
WORKINGS
(1) Depreciation a/c – furniture and equipment
$ $
Balance per TB 1,440
Balance c/d 2,200 I & E a/c (10%  $7,600) 760
——— ———
2,200 2,200
——— ———

(2) Depreciation a/c – delivery vans
$ $
Balance per TB 750
Balance c/d 1,500 I & E a/c (25%  $3,000) 750
——— ———
1,500 1,500
——— ———
(3) Rents and insurance a/c
$ $
Per TB 838 I & E a/c 787
Rent prepayment 60
Rent accrual 100 Insurance prepayment 91
—— ——
938 938
—— ——
(4) Delivery van running costs a/c
$ $
Per TB 416 I & E a/c 397
Repairs accrual 39 Insurance prepayment 58
—— ——
455 455
—— ——
(5) Lighting and heating a/c
$ $
Per TB 991 I & E a/c 801
Electricity accrual 27 Coke prepayment 217
——— ———
1,018 1,018
——— ———
(6) Audit & professional charges a/c
$ $
Per TB 43 I & E a/c 148
Audit fee accrual 105
—— ——
148 148
—— ——

(7) Postage, telephone, stationery and office expenses a/c
$ $
Per TB 479 I & E a/c 409
Telephone accrual 28 Stationery prepayment 98
—— ——
507 507
—— ——
(8) Purchases a/c
$ $
Per TB 58,677 Insurance company a/c 3,224
Trading a/c 55,453
——— ———
58,677 58,677
——— ———
(9) Allowance for trade receivables a/c
$ $
Balance per TB 377
Balance c/d (5%  $9,600) 480 I & E a/c 103
—— ——
480 480
—— ——

Answer 95 GAMMON

$ $ $
Revenue 34,468
Cost of sales
Purchases (22,321 – 128) 22,193
———
23,848
——— (22,725)
———
Gross profit 11,743
Less: Expenses
Insurance $(480 – 65) 415
Plant repairs $(210 + 24) 234
Rent 1,478
Wages 3,467
Discount allowed 437
Motor van expenses $(819 + 46) 865
Depreciation
Motor van (W2) 191
Plant ($1,560  15%) 234
Shop fittings ($1,020  5%) 51
—— 476
Loss on disposal/depreciation underallowed (W3) 216
——— (8,403)
———
———


$ $
Non-current assets
Plant (1,560 – 234) 1,326
Shop fittings (1,020 – 51) 969
Motor van (764 – 191) 573
———
2,868
Current assets
Inventory 1,123
Prepayments 65
Cash in hand 212
——— 2,724
———
Total assets 5,592
———
Capital account
Capital at 1 January 2014 (537)
———
2,803
Less: Drawings $(1,820 + 128) (1,948)
———
855
Current liabilities
Bank overdraft (W1) 1,297
Accrued expenses $(46 + 24) 70
——— 4,737
———
———

WORKINGS
(1) Trial balance at 31 December 2014

$ $
Revenue 34,468
Insurance 480
Plant repairs 210
Rent 1,478
Motor van 980
Plant 1,560
Purchases 22,321
Wages 3,467
Inventory at 1 January 1,655
Van expenses 819
Shop fittings 1,020
Capital account 537
Receivables 1,324
Payables 3,370
Cash in hand 212
Drawings 1,820
Bank overdraft (difference) 1,297
——— ———
39,135 39,135
——— ———
(2) Motor van a/c (at carrying value)
$ $
Per TB 980 Disposal a/c (book value – van sold) 436
Disposal a/c (proceeds of van sold) 220 Balance c/d 764
——— ———
1,200 1,200
——— ———
(3) Motor van depreciation a/c
$ $
Balance c/d (25%  $764) 191 I & E a/c 191
—— ——
(4) Motor van disposal a/c
$ $
Motor van a/c 436 Bank a/cs (proceeds) 220
I & E a/c (depreciation
underallowance) 216
—— ——
436 436
—— ——

Answer 96 STEWART
(a) Statement of profit or loss for the year ended 30 June 2015
$ $
Revenue (625,000 – 2,300) 622,700

Purchases (24,500 –1,700) 421,000
_______
________
Gross profit 277,000
Discount received 2,500
Bank interest (15,000 × 6% × 6/12) 450
________
279,950
Packing materials (12,900 – 700 + 200) 12,400
Discount allowed 1,500
Distribution costs 17,000
Rents and insurances (5100 – 450) 4,650
Telephone (3,200 + 500) 3,700
Car expenses 2,400
Wages (71,700 – 23,800) 47,900
Heat and light (1,850 + 400) 2,250
Sundry expenses (6,700 – 3,500) 3,200
Irrecoverable debt 600
Decrease in trade receivables allowance (W1) (380)
Loan interest 800
Depreciation
– Delivery vehicle (112,500 × 20%) 22,500
– Car (8,000 × 25%) 2,000
– Equipment (15,000 – 5,000) × 25% 2,500 (123,020)
_______ ________
————

WORKING
Trade receivables allowance
Age Amount % Allowance

30 – 60 20,000 1 200
60 – 90 12,000 2.5 300
90 + 3,000 – 600 5 120
Closing allowance 620
Opening allowance 1,000
Decrease in allowance 380
(b) Statement of financial position as at 30 June 2015
$ $ $
Non-current assets
Delivery vehicles 112,500 57,500 55,000
Car 8,000 2,000 6,000
Equipment 15,000 7,500 7,500
_______ ______ ______
135,500 67,000 68,500
_______ ______
Current assets
Inventory 75,300
Packing materials 700
Trade receivables (94,400 – 620) 93,780
Prepayments 450
Interest receivable 450
Bank deposit 15,000
Bank current 26,500 212,180
______ ________
280,680
————

Drawings (23,800 + 3,500) (27,300)
_______
Closing capital 193,180
Current liabilities
Accruals (400 + 500 + 200) 1,100
Loan 4,400 87,500
______ ________
280,680
————

Answer 97 BOWIE
(a) Journal entries
Dr Cr
(i) Purchases 1,200
Office equipment 1,200
(ii) Trade payable 2,600

Bank 2,600
(iii) Rent 3,000

Suspense 3,000
Suspense a/c
$ $
Bal b/d 3,000 Rent 3,000
(b) Statement of profit or loss for the year ended 30 September 2014
$ $
Revenue 194,000
Purchases (123,000 + 1,200) 124,200
_______
155,200
_______
________
Gross profit 91,800
Selling expenses 12,000

Wages and salaries (19,000 + 5,000) 24,000
Printing and stationary 6,000
Telephone and fax (6,000 – 1,000) 5,000
Rents and insurances (4,000 + 3,000 – 1,000) 6,000
Irrecoverable debt 3,000
Decrease in allowance for irrecoverable debts
[(4,000 – (32,000 × 5%)] (2,400)
Bank charges 4,000
Depreciation
– Plant and machinery (125,000 × 10%) 12,500
– Office equipment (45,000 – 1,200 – 15,000) × 1/3 9,600 (87,700)
______ ______
———

(c) Statement of financial position as at 30 September 2014
$ $ $
Non-current assets
Plant and machinery 125,000 40,500 84,500
Office equipment 43,800 24,600 19,200
_______ _______
168,800 65,100 103,700
_______ _______
Current assets
Inventory 53,000
Trade receivables [(35,000 – 3,000) – 1,600] 30,400
Prepayments 2,000
Cash 1,000 86,400
_______ ________
190,100
————

Drawings (22,000)
_______
Closing capital 151,100
Current liabilities
Trade payables (33,000 – 2,600) 30,400
Accruals 5,000
Bank overdraft (3,000 – 2,600 – 4,000) 3,600 39,000
_______ ________
190,100
————
Answer 98 COST STRUCTURES
(a) Greengrocer
% $ $
Sales revenue 100 49,200
Less Cost of goods sold
Purchases 38,632
———
42,416
Less Closing inventory (5,516)
(75) ——— (36,900)
—— ———
Gross profit 25 12,300
—— ———

(b) Rival
% $
100
Cost of goods sold (  $50,100 = $40,080) (100) (40,080)
125
—— ———
—— ———
Opening inventory (al fig) 7,192

Purchases 38,326
———
45,518
———
Cost of goods sold 40,080
———
(c) Local store
% $
Cost of goods sold (90) (167,814)
—— ———
Gross profit (10%  $186,460) 10 18,646
—— ———
100
Opening inventory (  $16,800) 13,440
125
Purchases (al fig) 171,174
————
184,614
————
Cost of goods sold 167,814
————

Answer 99 LAMDIN
Statement of profit or loss for the year ended 30 June 2015

$ $
Revenue $(74 + 16,427 + 3,024 + 54) 19,579
Purchases $(14,700 + 1,606 + 470) 16,776
———
17,918
——— (16,376)
———
Gross profit 3,203
Less Expenses
Rent $(500 – 100) 400
Rent $(84 + 30) 114
Electricity 92
Wages 742
Sundry expenses 156
Depreciation (10%  $1,580) 158
Loan interest (5%  $1,000) 50
——— (1,712)
———
Profit 1,491
———
Statement of financial position at 30 June 2015

$ $
Non-current assets
Intangible – Goodwill 550
Tangible – Fixtures and fittings $(1,500 + 80 – 158) 1,422
———
1,972
Current assets
Inventory 1,542
Receivables 74
Prepayments 100
Bank 2,657
Cash in hand 54
———
4,427
———
6,399
———

$ $
Capital account
———
6,491
Drawings $(1,122 + 520) (1,642)
———
4,849
Loan 1,000
Current liabilities
Trade payables 470
Accrued expenses $(30 + 50) 80
——— 550
———
———
Answer 100 LEONARDO

$ $
Revenue (W2) 5,877
Add Purchases (W3) 3,133
———
4,443
——— (2,820)
———
Gross profit 3,057
Expenses (W4) 1,090
Irrecoverable debts (W6) 49
Depreciation (W7) 60
——— (1,199)
———
Profit 1,858
———


$ $ $
Non-current asset
Delivery van, at cost 900
Less Depreciation (W7) (60)
———
840
Current assets
Inventory 1,623
Receivables 382
Less Allowance for receivables (W6) (19)
—— 363
Cash at bank 572
Cash in hand 29
———
2,587
———
Total assets 3,427
———
Capital account
At 1 January 2014 (W1) 1,652
Add Profit for year 1,858
———
3,510
Less Drawings (W5) (1,100)
———
2,410
Current liabilities
Trade payables 914
Accrued expenses 103
—— 1,017
———
———
WORKINGS
(1) Opening statement of affairs

$
Inventory 1,310
Receivables 268
Cash 62
Bank 840
———
2,480
Less Payables $(712 + 116) (828)
———
———

(2) Total sales (receivables) a/c
$ $
Balance b/d 268 Cheques receipts from customers 1,416
Revenue for year (al fig) 5,877 Irrecoverable debt written off 30
Cash takings 4,317
Debtors c/d (412 – 30) 382
——— ———
6,145 6,145
——— ———
Balance b/d 382
(3) Total purchases (payables) a/c
$ $
Cash 316 Balance b/d 712
Bank 2,715 Drawings 100
Balance c/d 914 Purchases for year (al fig) 3,133
——— ———
3,945 3,945
——— ———
Balance b/d 914
(4) Expenses
$ $
Cash 584 Balance b/d 116
Bank 519 I & E a/c 1,090
Balance c/d 103
——— ———
1,206 1,206
——— ———
Balance b/d 103
(5) Drawings
$ $
Purchases 100
Cash a/c 600
Bank a/c 400 Balance c/d (or trf capital) 1,100
——— ———
1,100 1,100
——— ———

(6) Irrecoverable debts a/c
$ $
Bad debt (w/off receivables) 30 I & E a/c 49
Allowance a/c
(5%  $382) (increase) 19
—— ——
49 49
—— ——
(7) Depreciation
20%  $900  4/12 = $60
Answer 101 DELTIC
(a) Statement of profit or loss for the year ended 30 September 2014
% $ $
Revenue (W8) 100 142,850
Opening inventory –
Purchases (al fig) 113,538
————
Cost of sales (75) (107,138)
— ———
Expenses —
Cleaning 520
Sundries 780
Depreciation
Van 1,500
Leasehold premises 3,000
Telephone (W4) 1,021
Wages (W3) 19,182
Rent (W5) 1,424
Repairs (W7) 4,022
——— (31,449)
———
Profit 4,263
———

(b) Statement of financial position at 30 September 2014
Cost Depn
$ $ $
Non-current assets
Leasehold premises 150,000 3,000 147,000
Van 6,000 1,500 4,500
——— ——— ———
156,000 4,500 151,500
——— ———
Current assets
Inventory 6,400
Prepayment (W5) 258
Cash at bank 61,313
Cash in hand 250
———
78,571
———
———
Capital account
Add Profit 4,263
———
204,263
Less Drawings (W2) (4,274)
———
199,989
Current liabilities
Accrued expenses (W4) 125
——— 30,082
———
———
WORKINGS
(1) Cash
$ $
Balance b/d Nil Wages ($75  52) 3,900
Total cash receipts (al fig) 132,500 Cleaning ($10  52) 520
Sundries ($15  52) 780
Drawings ($25  52) 1,300
Bank 125,750
Balance c/d 250
———— ————
132,500 132,500
———— ————

(2) Drawings
$ $
Cash 1,300 Balance c/d (or trf capital) 4,274
Bank 323
Total purchases (W6) 2,651
——— ———
4,274 4,274
——— ———
(3) Wages
$ $
Cash 3,900 I & E a/c 19,182
Bank 15,282
——— ———
19,182 19,182
——— ———
(4) Telephone
$ $
Bank 896 I & E a/c 1,021
Balance c/d 125
——— ———
1,021 1,021
——— ———
(5) Rent
$ $
Bank 1,682 I & E a/c 1,424
Balance c/d 258
——— ———
1,682 1,682
——— ———
(6) Total purchases (payables)
$ $
Bank 86,232 Trading a/c 113,538
Balance c/d 29,957 Goods for own use (al fig) 2,651
———— ————
116,189 116,189
———— ————

(7) Repairs
$ $
Bank 3,637 I & E a/c 4,022
Bank 385
——— ———
4,022 4,022
——— ———
(8) Total sales (receivables)
$ $
Trading a/c (al fig) 142,850 Cash (W1) 132,500
Balance c/d 10,350
———— ————
142,850 142,850
———— ————
Answer 102 WALDORF

$ $
Revenue (W4) 21,910
Cost of sales
Purchases (W3) 14,110
———
15,010
——— (13,810)
———
Gross profit 8,100
Less Expenditure
Rent $(800 + 20 – 30) 790
Car maintenace 400
Insurance 200
Bank charges 100
Assistant’s wages 1,800
Discounts (net) $(300 – 200) 100
Sundry expenses 250
Depreciation
Car 400
Fixtures 600
——— (4,640)
———
Profit 3,460
———


$ $
Non-current assets
Motor car 3,200
Fixtures 3,400
———
6,600
Current assets
Inventory 1,200
Trade receivables and prepayments $(150 + 30) 180
Insurance company claim (W2) 460
Bank 400
———
2,240
———
Total assets 8,840
———
Capital account b/f (W1) 9,160

Add Capital introduced (see Tutorial note) 1,000
———
10,160
———
13,620
Less Drawings $(2,500 + 2,400) (4,900)
———
8,720
Current liabilities
Trade payables 120
———
———
WORKINGS
(1) Statement of affairs as at 31 December 2013

$
Motor car 3,600
Fixtures 4,000
Inventory 900
Receivables 90
Prepayments 20
Bank 280
Cash 380
———
9,270
Less Trade payables (110)
———
9,160
———

(2) Cash a/c
$ $
Balance b/f 380 Wages 1,800
Customers’ receipts 21,550 Sundry expenses 250
Purchases 300
Drawings 2,400
Bankings 16,720
Defalcation (theft!) 460
——— ———
21,930 21,930
——— ———
(3) Total purchases (payables)
$ $
Cash 300 Balance b/f 110
Bank 13,600 Purchases 14,110
Balance c/d 120
——— ———
14,220 14,220
——— ———
(4) Total sales (receivables)
$ $
Balance b/f 90 Receipts 21,550
Sales 21,910 Discounts allowed 300
Balance c/f 150
——— ———
22,000 22,000
——— ———
Tutorial note: Waldorf is a sole trader – thus he will be taxed on his earnings. This is one of the
differences between sole traders (and partnerships) and limited liability companies. A limited liability
company is a separate legal entity that is subject to tax which is expensed in profit or loss (and included
in liabilities if unpaid). In this question the tax refund is Waldorf’s and by paying it into his business’s
bank account he is effectively introducing capital.

Answer 103 SLATE

$ $ $
Work done (= Revenue) (W3) 13,066
Direct expenses
Materials (W2) 5,779
Wages and social insurance $(3,346 – 65) 3,281
——— 9,060
Van expenses
Running costs $(342 + 36) 378
Depreciation 108
——— 486
Miscellaneous expenses
Electricity 56
Depreciation of cement mixer 50
Rent 104
General expenses $(14 + 110) 124
——— 334
——— (9,880)
———
———

Cost Depn
$ $ $
Fixed asssets
Van 856 108 748
Cement mixer 200 50 150
——— —— ———
1,056 158 898
——— ——
Current assets
Inventory 560
Balance at bank 204
Cash in hand (W1) 10
——
1,974
———
Total assets 2,872
———

$ $
Capital account
Capital introduced 150
Add Profit for the year 3,186
———
3,336
Less Drawings $(832 + 65 + 342) (1,239)
———
2,097
Loan account – Mother 400
Current liabilities
Trade creditors 149
Accrued expenses 36
Van instalments (5  38) 190
——— 375
———
2,872
———
WORKINGS
(1) Cash a/c
$ $
Bank a/c (cash from bank) 3,100 Wages a/c (3,346 – 65) 3,281
Work done a/c (al fig = Drawing a/c (private SSC) 65
takings) 2,662 Materials a/c 1,400
Electricity a/c 56
General expenses a/c 14
Drawings a/c 52 @ $16 832
Rent a/c c 52 @ $2 104
Balance c/d (cash in hand) 10
——— ———
5,762 5,762
——— ———
(2) Materials a/c
$ $
Cash a/c 1,400
Bank a/c 4,790 I & E a/c 5,779
Balance c/d (liability) 149 Balance c/d (inventory) 560
——— ———
6,339 6,339
——— ———

(3) Work done a/c
$ $
I & E a/c 13,066 Bank a/c (bankings) 9,204
Cash a/c 2,662
Balance c/d 1,200
——— ———
13,066 13,066
——— ———
Answer 104 BENNETT
Tutorial note: Incomplete records can be mastered if you adopt a systematic approach, as explained in
the Study System. To get sales and purchases, start with the cash account and then move on to the total
accounts. Many incomplete records questions require the use of these “collection” accounts to find
missing balances.
(a) Capital at 1 January 2014 Marking

Assets Liabilities guide
$ $
Operating overdraft 1,172 †
Cash in till 20 †
Inventories 4,500 * * for all 2
Trade receivables 2,800 *
Brough’s loan
Principal 4,000 †
† ½ each
Accrued interest 30 †
2
Accrued general expenses 240
Rent in advance 40 *
Fixtures 2,800 *
Trade payables 1,800 *
Accrued light and heat 80*
——— ———
10,160 7,322
———
(7,322)
———
Net assets – Capital account 2,838 __
——— 4
__

(b) Statement of profit or loss for the year ended 31 December 2014
Presn 1/2
$ $ $
Revenue (W2) 39,156 21/2
Opening inventory 4,500 1
/3
Purchases (W3) 31,420 1
1 /2
———
35,920
Less Closing inventory (5,800) 1
/3
——— (30,120)
———
Gross profit 9,036
Establishment costs
Rent (475 + 40 – 50) 465 1
/2
Light and heat (210 – 80 + 70) 200 1
/2
——— 665
Administrative expenses
Wages 2,950 1
/3
Depreciation of fixtures (2,880 + 100 – 2,550) 350 1
/2
Sundry expenses (140 + 800 – 240 + 190) 890 1
——— 4,190
Financing costs
Loan interest 120 1
/3
Irrecoverable debt 200 1
/3
Discounts (net) (520 – 480) 40 1
/3
——— 360
——— (5,215)
———
Profit for the year 3,821 __
——— 9
__

(c) Statement of financial position at 31 December 2014

$ $ Presn 1
ASSETS
Non-current assets
Tangible assets at cost less depreciation
Fixtures 2,550 ½
Current assets
Inventories 5,800 
Trade receivables 3,000  1
Prepayment 50 
Cash (993 – 320 + 20) 693 1
———
9,543
———
Total assets 12,093
———
CAPITAL AND LIABILITIES

Capital account
At 1 January 2014 (per (a)) 2,838 ½
Add Profit for the year (per (b)) 3,821 ½
———
6,659
Less Drawings (156 + 900) (1,056) 1
———
5,603
Loan – Brough 4,000 ½
Current liabilities
Trade and other payables (2,200 + 190 + 70 + 30) 2,490 1
———
——— __
7
__

WORKINGS
(1) Cash and bank a/cs
Cash Bank Cash Bank

$ $ $ $
Balance b/f 20 Balance b/f (892 + 280) 1,172
Cash (bankings) 35,170 Purchases
Sales (cash takings) 38,416 (30,500 – 280 + 320) 30,540
Rent 475
Fixtures 100
Light and heat 210
General expenses 140 800
Loan interest 120
Drawings (52  $3) 156 900
Sales (dishonoured
cheques) 180
Wages 2,950
Bankings 35,170
Balance c/f 20
Balance c/f (993 – 320) 673
——— ——— ——— ———
38,436 35,170 38,436 35,170
——— ——— ——— ———
Tutorial note: This working is not specifically required therefore no marks are awarded to it.
Marks for workings are NOT to

be double counted
(2) Sales (or total receivables) a/c
$ $
Balance b/f 2,800 Cash a/c (takings) (W1) 38,416
Bank a/c Discounts allowed a/c 520 ½ each
(dishonoured cheques) 180 Irrecoverable debts a/c 200 Dr/Cr
Trading a/c (al fig) 39,156 Balance c/f 3,000 (excl bals)
——— ———  2½
42,136 42,136
——— ———
(3) Purchases (or total payables) a/c
$ $
Bank a/c 30,540 Balance b/f 1,800
Discounts received a/c 480 Trading a/c (al fig) 31,420 ½ each
Balance c/f 2,200 Dr/Cr
——— ——— (excl bals)
33,220 33,220  1½
——— ———

Answer 105 BOTHAM
(a) Statement of profit or loss for the year ended 31 December 2014
$ $
Revenue (W1) 25,965
Purchases $(15,346 (W2) + 165 – 104) 15,407
———
17,007
——— (14,647)
———
Gross profit 11,318
Expenses
Wages 3,423
Wrapping materials $(525 – 53) 472
Motor expenses $(728 + 236) 964
Irrecoverable debts $(223 + 100) 323
Depreciation of van ($1,200  20%  9/12) 180
——— (5,362)
Administrative expenses
Insurance $(500 – 125 + 100) 475
Electricity $(228 + 50) 278
Depreciation of fixtures $(2,600 – 200)  10% 240
Loss on disposal of fixtures $(200 – 130) 70
Loan interest $(100 + 50) 150
Accountancy costs 100
——— (1,938)
———
———

(b) Statement of financial position at 31 December 2014

Cost Depn
ASSETS $ $ $
Non-current assets
Intangible
Goodwill 2,000 – 2,000
Tangible
Freehold property 10,000 – 10,000
Fixtures $(2,600 – 200) 2,400 240 2,160
Delivery van 1,200 180 1,020
——— —— ———
15,600 420 15,180
——— ——
Current assets
Inventories 2,360
Trade receivables $(637 – 100) 537
Prepayments $(125 + 53) 178
Cash $(5,757 – 125) + 180 5,812
———
8,887
———
Total assets 24,067
———
CAPITAL AND LIABILITIES $ $
Capital
———
24,018
Drawings $(1,040 + 104 + 1,329 + 36 (W3)) (2,509)
———
21,509
Loan 2,000
Current liabilities
Trade and other payables (358 + (50 + 50 + 100)) 558
———
———
WORKINGS
(1) Trade receivables control a/c
$ $
Balance b/f 400 Cash received 25,505
Sales (al) 25,965 Irrecoverable debt 223
Balance c/f 637
——— ———
26,365 26,365
——— ———
Balance b/f 637

(2) Trade payables control a/c
$ $
Bank 14,863 Credit purchases (al) 15,346
Bank (unpresented cheque) 125
Balance c/f 358
——— ———
15,346 15,346
——— ———
Balance b/f 358
(3) Cash a/c
$ $
Cash received 25,505 Wrapping materials 525
Staff wages 3,423
Purchases for resale 165
Petrol and oil 236
Drawings ($20  52) 1,040
Cash banked 19,900
Balance c/f 180
Difference (drawings) (al) 36
——— ———
25,505 25,505
——— ———
Answer 106 MCQs INCOMPLETE RECORDS
106.1 C 106.6 A
106.2 A 106.7 B
106.3 D 106.8 D
106.4 B 106.9 B
106.5 B 106.10 C
WORKINGS
106.1 $ $
+ –
Inventory as at 25 March 175,260
Purchases 5,952
Returns 2,520
Sales ($17,500  80%) 14,000
Goods on sale or return ($15,000  80%) 12,000
———— ———
193,212 16,520
(16,520)
————
176,692
————

106.2 Inventory Trade receivables

$ $
Per draft statement of financial position 50,000 130,000
Adjustment for goods on sale or return 12,000 (15,000)
——— ————
Per financial statements 62,000 115,000
——— ————
106.3 Receivables control a/c
$000 $000
Balance b/d 120 Cash 361
Credit sales (al fig) 343 Irrecoverable debts 12
Discounts allowed 6
Balance c/d 84
—— ——
463 463
—— ——
$000
Credit sales 343
Cash sales 18
——
Total sales 361
——
106.4 Receivables control a/c
$ $
Balance b/d 7,290 Cash 22,490
Sales (al fig) 23,980 Contra 910
Balance c/d 7,870
——— ———
31,270 31,270
——— ———
106.5 $000
Purchases 132
Closing inventory (al fig) (21)
——
80
Cost of sales ($180,000  ) 144
100
——
106.6 $
Inventory value on 6 January 2015 38,750
Add Sales ($5,740  100/125) 4,592
Less Purchases (3,990)
———
Inventory value on 31 December 2014 39,352
———

106.7 $
Purchases 230,000
Closing inventory (al fig) (45,000)
————
Cost of sales ($300,000  80/100) 240,000
————
106.8 $
Revenue
Per question 95,000
Less Goods not sold ($8,000  50%) (4,000)
———
91,000
———
Inventory
Per question 27,500
Add Goods not sold ($4,000  100/125) 3,200
———
30,700
———
106.9 Discounts in the cash receipts book are discount allowed (to customers).
106.10 $
Net assets 1 July 2014 62,000
Profit (al fig) 25,000
Less Drawings
Cash (11,000)
Subscription (2,000)
———
Net assets 30 June 2015 74,000
———
Answer 107 IASB
(a) Objectives of IASB
 To develop, in the public interest, a single set of high quality, understandable and
enforceable global accounting standards that require high quality, transparent and
comparable information in financial statements to help users make economic
decisions.
 To promote the use and rigorous application of those standards.
 To promote and facilitate adoption of International Financial Reporting Standards

(IFRSs), through the convergence of national accounting standards and IFRSs

(b) Discussion Paper v Exposure Draft (ED) of an IFRS
 The publication of a discussion paper (or “discussion document”) is not a

mandatory step in the IASB’s due process. An exposure draft is mandatory.
 The purpose of a discussion paper is to set out a comprehensive overview of the

issue and preliminary views. Thus an ED supersedes the discussion paper.
 The discussion paper discusses the alternative solutions considered and invites
comment on their acceptance or rejection. An ED summarises the IASB’s
considerations in issuing it, in a “basis for conclusions”.
 A discussion paper is published following approval by a simple majority vote of the

IASB. An ED requires the approval of at least 10 of the board’s 16 members.
 The exposure period (i.e. period during which comments are invited) for a draft
statement is usually120 days. The comment period of an ED is also generally 120
days however this may be reduced to 30 days on urgent matters.
(c) Steps taken by IASB
To ensure consistent interpretation of IASs
 On-going comparability and improvements projects – resulting in:
(i) the revision of IASs with all “alternative accounting treatments” having
now been eliminated; and
(ii) disclosure requirements being reviewed in the context of the “Conceptual

Framework”.
 Publication of a “statement of principles” and discussion papers – to make IASB’s

intentions clear.
 Issue of a newsletter “Insight” – provides regular updates and explains technical

decisions.
 Issue of interpretations by the International Financial Reporting Interpretations

Committee (IFR IC).
Answer 108 MCQs REGULATORY FRAMEWORK
108.1 C
108.2 B
108.3 C It is the IFRS Advisory Council which provides a forum and the other objectives are
rather a by-product of the IASB’s main objective. (Although IASB takes account of
the needs of emerging economies – it is not a specific objective to meet such needs.)
108.4 A An audit committee’s responsibilities fulfil a monitoring and review function. The
other responsibilities are those of the board of the directors.
108.5 D All these responsibilities may be delegated (with oversight by the audit committee).

Answer 109 FINANCIAL STATEMENTS
(a) Conceptual Framework
Scope
The Conceptual Framework for Financial Reporting deals with:
 the objective of financial statements;
 the qualitative characteristics that determine usefulness of information in financial 1 each

statements;
 the definition, recognition and measurement of elements from which financial

statements are constructed;
 concepts of capital and capital maintenance.
Application
 The framework applies to the financial statements of all commercial, industrial and 1
business reporting entities, whether public or private.
 A reporting entity is an entity for which there are users who rely on financial 1
__
statements as their major source of financial information about it.
max 5
__
(b) Users and their information needs
Investors
 Providers of capital (and their advisers) are concerned with the risk and return of
their investment. They need information:
 for decision-making (buy, hold or sell?);
 to assess the entity’s ability to pay dividends.
Employees ½ each
user + 1
 Employees (and their representative groups) are interested in information about the each
stability and profitability of their employers. user’s
needs
 They are also interested in information to assess the entity’s ability to provide 4
remuneration, retirement benefits and employment opportunities.  6
Lenders
 Lenders need information to determine whether loans and interest will be paid when
due.
Suppliers and other trade creditors
 Suppliers are interested in determining whether amounts owing to them will be paid
when due. The interest of trade creditors is likely to be over a shorter period than
lenders (unless dependent upon the continuation of the entity as a major customer).

Customers
 Customers are interested in the continuance of an entity, especially when they have
a long-term involvement with, or are dependent on, the entity.
Governments and their agencies, regulatory authorities
 Governments and their agencies are interested in the allocation of resources and,
therefore, the activities of entities. They require information to regulate activities,
determine taxation policies and as the basis for national income and similar
statistics.
Public
 The public may be interested in an entity’s contribution to the local economy, recent
developments in its prosperity and range of activities.
(c) The objective of financial statements
The objective of financial statements is to provide information about the financial position, 2
performance and changes in financial position of an entity that is useful to a wide range of
users in making economic decisions.
Financial statements also show the results of management’s stewardship (i.e. management’s 1
__
accountability for the resources entrusted to it).
max 2
__
____
13
____
Answer 110 ACCOUNTING CONCEPTS
(a) Accruals
The accruals concept is that revenue and costs are recognised as they are earned or incurred,
not as money is received or paid. It also means that expenses are recognised in profit or loss
on the basis of a direct association between the costs incurred and the earning of specific
items of income (matching).
Example: Rent due but not paid is recognised as an expense of the period to which it relates
and set against revenue for the same period.
(b) Substance over form
When there is a difference between the real effect of a transaction (substance) and its legal
form (form), the real effect should be recognised in the financial statements rather than the
legal form provided this is legally possible.
Example: An asset being acquired on hire purchase terms will be recognised as an asset with
an associated liability despite the fact that the legal ownership of the asset does not pass until
the last instalment due under the agreement is paid.

(c) Consistency
The presentation and classification of items in the financial statements should be retained
from one period to the next unless:
 there is a significant change in the nature of the operations;

 a change will result in a more appropriate presentation of events or transactions;
 a change is required by a new accounting standard.
Example: Depreciation rates should remain the same from period to period unless there is
clear evidence that changed circumstances require them to be changed.
(d) Duality
The recording of every transaction must reflect the fact that two accounts are affected by that
transaction.
Example: The receipt of cash from a credit customer requires the recording of an increase in
cash and an equal decrease in the customer’s receivables ledger balance.
(e) Prudence
In preparing financial statements, allowance is made for all known liabilities, including those
based on estimates because exact information is not available. Prudence also means that
revenue and profits are not included in profit or loss until their realisation is reasonably
certain.
Example: An allowance for doubtful debts should be created out of profits whenever the
realisation of all trade receivables in full is uncertain.
Answer 111 MCQs CONCEPTUAL FRAMEWORK
111.1 D This is the principal purpose.
111.2 C The Framework is not a standard. It does define elements and specifies recognition
criteria.
111.3 B Going concern is the only “underlying assumption” according to The Conceptual
Framework for Financial Reporting (i.e. going concern can always be assumed
without being explicitly stated).
111.4 B Faithful representation and relevance are the two fundamental qualitative
characteristics. Comparability and understandability are two enhancing
characteristics.
111.5 B Materiality is an aspect of relevance based on the nature and/or magnitude of items
of information in a financial report.
111.6 D An item must meet the recognition criteria (which include reliable measurement) as
well as the definition of an element. Disclosure is never an alternative to
recognition.

Answer 112 OVERALL CONSIDERATIONS
(a) Fair presentation
 IAS 1 Presentation of Financial Statements requires that general purpose financial

statements should “present fairly” the financial position, financial performance and
cash flows of an entity.
 Fair presentation is achieved by: max 2
 selecting and applying appropriate IFRSs;

 presenting information, including accounting policies, in a manner which
provides relevant, reliable, comparable and understandable information;
 providing such additional disclosures as necessary.
(b) Accounting policies
 Accounting policies are the specific principles, bases, conventions, rules and
practices adopted by an entity in preparing and presenting financial statements.
 Accounting policies should be selected and applied so that financial statements max 2
comply with IFRSs (where applicable).
 In the absence of a specific IFRS management should develop an accounting policy

that provides the most useful information to users.
(c) Going concern
 The going concern basis assumes that an entity will continue in operation for the
foreseeable future (i.e. at least, but not limited to, 12 months from the end of the
reporting period).
 Management is responsible for: max 2
 assessing the entity’s ability to continue as a going concern and preparing

financial statements on a going concern basis;
 disclosing material uncertainties which may affect the going concern
concept.
 When financial statements are not prepared on a going concern basis, that fact
should be disclosed, together with the basis on which the financial statements are
prepared and the reason for departing from the going concern concept.
(d) Accrual accounting
 An entity should prepare its general purpose financial statements (except statements
of cash flows) under the accrual basis of accounting.
 Under this basis assets, liabilities, equity, income and expenses are: max 2
 recognised when they occur (not as cash or its equivalent is received or

paid); and
 recorded in the accounting records and reported in the financial statements
of the periods to which they relate.

(e) Materiality
 A material is “material” if its non-disclosure could influence the economic decisions

of users taken on the basis of financial statements.
 Material items require separate presentation in financial statements. max 2
 Immaterial amounts are aggregated with amounts of a similar nature or function (on
face of financial statements or in notes) and need not be presented separately.
 IFRSs apply only to material items.

___
10
___
Answer 113 CURRENT ASSETS AND LIABILITIES
(a) Inventories classified as current assets
 An asset is classified as “current” when it is: 1
 expected to be realised, or is intended for sale or consumption, in the

normal course of the operating cycle; or
 held primarily for trading purposes; or
 expected to be realised within 12 months after the reporting period; or
 cash or a cash equivalent which is not restricted in use.
Inventories are usually included in current assets in their entirety although they may include
items that are not expected to be realised within one year. 1
__
(b) Items classified as current liabilities max 2

__
 Banks overdrafts
 The current portion of interest-bearing liabilities
 Trade payables ½ each
 Provision for income taxes payable (and other current tax liabilities)
 Deferred revenues and advances from customers
 Provisions falling due within 12 months __
 Accrued expenses
max 3
__
(c) Circumstances for offset
 Assets and liabilities should not be offset except when required or permitted by an 1
IFRS.
 Off-setting must represent the expectation of the realisation of the asset. 1

__
2
__
7
__

Answer 114 MCQs IAS 1
114.1 B Additional disclosure must be provided when compliance with a specific

requirement in IFRS is insufficient for users to understand the impact of a particular
transaction or event.
114.2 D Reasons as well as the fact must be stated. The period for assessing going concern
is not limited to 12 months.
114.3 C Materiality depends also on nature. Material items are presented separately.
Immaterial items may be aggregated in the notes also.
114.4 C Previous period numerical information is not required if permitted by an IFRS (e.g.
the reconciliation of non-current assets movements is not required to be restated
under IAS 16). Financial statements for the two previous periods is a minimum and
some comparative disclosure in the notes will be required.
114.5 B As the dividend is paid it will be included in the statement of cash flows. As an
appropriation of profit it is included in the statement of changes in equity (never in
the statement of comprehensive income).
Answer 115 BETA
Statement of profit or loss for the year ended 31 March 2015

Notes $000
Revenue 1,950
Cost of sales $(140 + 960 – 150) (950)
———
Gross profit 1,000
Other income 75
Distribution costs (420)
Administrative expenses $(210 + 16) (226)
———
Income tax expense 4 (29)
———
Profit for the year 400
———
Statement of financial position at 31 March 2015
Notes $000 $000
ASSETS
Non-current assets
Property, plant and equipment 2 530
Investments 560
———
1,090
Current assets
Inventories 150
—— 620
———
Total assets 1,710
———


Issued capital 3 600
———
820
Retirement benefit obligations 196
Current liabilities
Trade and other payables 260
Operating overdraft 80
Income tax payable 54
Dividend (declared) 300
—— 694
———
———
Statement of changes in equity for the year ended 31 March 2015
Share Retained
capital earnings Total
$000 $000 $000
Balance at 31 March 2014 600 240 840
Dividends (300 + 120) (420) (420)
—— —— ——
Balance at 31 March 2015 600 220 820
—— —— ——
Notes to the financial statements for the year to 31 March 2015
(1) Operating expenses

Profit is stated after charging
$000
Depreciation 32
Retirement benefit costs 16
——
(2) Tangible assets $000
Plant and equipment
Cost at 1 April 2014 and 31 March 2015 750
——
At 31 March 2014 188
Charge for the year 32
——
At 31 March 2015 220
——
Carrying amount at 31 March 2015 530
——
Carrying amount at 31 March 2014 562
——

(3) Share capital

Number of authorised shares of nominal value $1 each 1,000,000
————
Number of shares issued and fully paid 600,000

————
(4) Taxation expense

$000
Estimated income tax charge for current year 54
Less: Overprovision in previous year (25)
———
Charge for year 29
———
Answer 116 LOGO
(a) Ordinary share a/c
$ $
Balance b/f 100,000
Cash 100,000
Balance c/f 240,000 Share premium a/c (bonus issue) 40,000
———– ———–
240,000 240,000
———– ———–
Balance b/f 240,000
Share premium a/c
$ $
Ordinary share a/c 40,000 Cash (ordinary shares) 50,000
Balance c/f 10,000
——— ———
50,000 50,000
——— ———
Balance b/f 10,000
(b) Statement of financial position extracts at 31 December 2014

$
Issued shares 240,000
Reserves (share premium) 10,000

Statement of changes in equity for the year ended 31 December 2014
Share Share Total

capital premium
$ $ $
Balance at 1 January 2014 100,000 100,000
Issue of ordinary shares 100,000 50,000 150,000
Bonus issue (capitalisation) 40,000 (40,000) –
——— ——— ———
Balance at 31 December 2014 240,000 10,000 250,000
——— ——— ———
Notes to the accounts
2014 2013
Share capital
Number of authorised shares – ordinary $1 each 500,000 500,000
Number of shares issued and fully paid – ordinary 240,000 100,000
Answer 117 GAMMA

Statement of financial position as at 31 December 2014 Presn 1
Notes $000 $000

Non-current assets
Plant and equipment $(126 – 50 – 32) 1 44 ½
Current assets
Inventories (goods for resale) 100 
Trade receivables 380  1½
Cash 110 
___
590
____
634
——
Issued capital 3 300 
Share premium 20  1½
General reserve 20 
Retained earnings (50 + 134) 184 1
___
524
Current liabilities
Trade payables 60
Income tax 50 1
__
110
____
634 __
—— max 5½
__

Note $000 Presn 1

Revenue (1,000 – 28) 972 ½
Cost of sales (W) (474) 1½
___
Gross profit 498
Other operating income 16 ½
Distribution costs (W) (230) 1½
Administrative expenses (W) (100) 1
____
Income tax expense (50) ½
____
Profit after tax 134 __
—— max 5½
__
(1) Plant and equipment

2014 2013
$000 $000
Cost 126 126
___ ___
1 January 50 x max 3
Annual depreciation 32 x
__ __
31 December 82 50
__ __
Carrying amount 44 x
— —
(2) Share capital
2014 2013 1
Number of 50 cent shares issued and fully paid 600,000 600,000
——— ———
(3) Dividends
Proposed dividend of $60,000 1

Proposed dividend per share 10 cents ½
Tutorial note: As the dividend is merely proposed at the end of the reporting period it cannot
be accounted for as a liability, but must be disclosed in accordance with IAS 1.
(4) Profit before taxation
Profit is stated after charging the following items: 2014

$000
Depreciation of tangible assets 32 1½
Staff costs $(80 + 60 + 40) 180
Directors’ remuneration 30 max 18
____

WORKING
Cost of sales Distribution Administrative
costs expenses
$000 $000 $000
Purchases 540
Purchases returns (26)
Warehouse wages 80
Salespersons’ salaries 60
Administrative wages 40
Delivery vehicle hire 20
Distribution expenses 10
Directors’ salaries 10 20
Closing inventory (100)
Depreciation 22 10
____ ____ ____
474 230 100
—— —— ——
Answer 118 SIGMA
Statement of financial position as at 31 March 2015 Presn ½
Note $000 $000

Non-current assets
Property, plant and equipment (W1) 1 315 1
Current assets
Inventories 320 
Trade receivables 200  1
Prepayments 160 
Cash 180 
––– 860
–––––
Total assets 1,175
–––––
Issued capital 400
Retained earnings (per statement of changes in equity) 235 ¼
––– 715 ½
Loan debentures (5/6  $120,000) 100 ½
Current liabilities
Trade payables and accrued expenses 340 ¼
Loan debentures (1/6  $120,000) 20 ½
Dividend payable 80 ½
––– 360
–––––
Total equity and liabilities 1,175 __
––––– 5
__

Statement of changes in equity for the year ended 31 March 2015

Share Retained
capital earnings Total Presn ½
$000 $000 $000
Balance at 1 April 2014 400 122 522 ½
Profit for the year (W2) 193 193 1½
Dividends (20%  $400,000) (80) (80) ½
____ ____ ____
Balance at 31 March 2015 400 235 635 __
—— —— —— 3
__
(1) Tangible assets

Land and Plant and Presn ½
buildings equipment Total
$000 $000 $000
Cost
At 1 April 2014 400 160 560
Additions – 20 20 1½
Disposals – (32) (32)
___ ___ ___
At 31 March 2015 400 148 548
___ ___ ___
At 1 April 2014 152 60 212
Eliminated on disposals (6) (6) 2
Charge for the year (W1) 8 19 27
___ __ ___
At 31 March 2015 160 73 233
___ __ ___
Carrying amount at 31 March 2015 240 75 315 ___
—— —— —— 4
___
WORKINGS 12
___
(1) Depreciation
$000
Factory 2% of $400,000 8
Plant and equipment (20%  (148 – (60 – 6)) = 18.8  19 (to nearest 000)
__
27
—
(2) Profit for the period
$000 $000
Per list of balances 222
Less: Depreciation (W1) 27
Loss on sale (W3) 2
–– 29
____
193
——

(3) Disposal of plant

$000 $000
Proceeds 24
Cost 32
Less: Depreciation 6
__
26
__
Loss on sale 2
__
Answer 119 LARK
(a) Statement of profit or loss for the year ended 31 March 2015
$000
Changes in inventories of finished goods and work in progress (30)
Work performed by the enterprise and capitalised 400
Raw materials used (7,100 + 1,060 – 1,150) (7,010)
Staff costs (5,170 + 810) (5,980)
Depreciation expenses (80 + 330 + 30) (440)
Other expenses (4,290 + 280 – 20) (4,550)
______
Profit from operations 2,390
Finance cost (500)
______
Profit before tax 1,890
Income tax expense (360)
______
______
(b) Items in the statement of changes in equity
 Profit for the year;

 Dividends (distributions of profit);
 Revaluation surplus;
 Issue of share capital;
 Share premium;
 Changes in accounting policy.

Answer 120 ALPACA
Statement of financial position as at 30 April 2015
$000 $000
ASSETS
Non-current assets: cost 1,000
accumulated depreciation 330 670
––––––
Current assets:
Inventories 450
Receivables 670
Cash at bank 114
–––––– 1,234
––––––
1,904
––––––
Issued capital 500
Share premium 50
Retained earnings (W1) 964
––––––
1,514
10% Loan notes 200
Current liabilities
Payables 180
Interest accrued 10 190
–––––– ––––––
1,904
––––––
WORKING
(1) Retained earnings

$000 $000
Balance at 30 April 2014 818
Sales revenue 4,006
Purchases 2,120
Expenses 1,640
Opening inventories 410
Closing inventories 450
Interest payable 20
Depreciation 100
–––––– ––––––
4,310 5,274
4,310
––––––
Balance at 30 April 2015 964
––––––

Answer 121 MCQs CAPITAL STRUCTURE AND FINANCE COSTS
121.1 D The premium on the issue of shares must be put to share premium account. The gain on
revaluation of the property must be recognised in other comprehensive income and
accumulated in a revaluation surplus (in the statement of changes in equity). The
disposal of the truck results in a reduction in profit.
121.2 C $
Opening net assets
$(100,000 + 120,000 – 30,000 – 20,000 – 15,000) 155,000
Closing net assets
$(150,000 + 110,000 – 40,000 – 18,000 – 20,000) 182,000
–––––––
Increase 27,000
Add: Dividends appropriated (20 – 15 + 20) 25,000
Tax charge (22 – 20 + 18) 20,000
–––––––
72,000
Less: Proceeds of share issue 30,000
–––––––
42,000
–––––––
121.3 D $
Preferred dividend
Annual (50,000  8% = 4,000
6.5  4,000) 26,000
Ordinary dividend 20,000
–––––––
46,000
–––––––
121.4 B $
Preferred dividend (250,000  6%) 15,000
Ordinary dividend (1m  4  0.02) 80,000
–––––––
95,000
–––––––
121.5 A

121.6 C Non-current assets (at carrying amount)
$ $
B/fwd 260,000 Disposal – cost 20,000
Disposal – depreciation Depreciation charge for year

(10%  $20,000) 2,000 (10%  $260,000) 26,000
Additions (al) 65,000 C/fwd 281,000

––––––– –––––––
327,000 327,000
––––––– –––––––
121.7 D This is because a rights issue of shares requires shares to be purchased for
consideration, by shareholders.
(A is not a cash flow as a bonus issue is the issue of shares for no consideration. B is
not a cash flow as depreciation is a charge, on profits, for accounting purposes, but not
an actual flow of cash from the business. C is not a cash flow, because the revaluation
of a non-current asset does not require the receipt or expenditure of cash. It is an
accounting device.)
121.8 A The figure required is that of tax paid.

Income tax
$ $
Paid (al) 27,800 B/fwd 25,300
C/fwd 29,500 I & E a/c 32,000
–––––– ––––––
57,300 57,300
–––––– ––––––
Answer 122 RETAIL INVENTORY
(a) Reasons why net realisable value may be less than cost
 Damage
 Obsolescence (wholly or in part) 1 each
 Declining selling prices max 3
___
 Increasing cost of completion/costs of making sale.
(b)(i) Cost on a FIFO basis
Date purchased Units Per unit Cost

$ $
30 December 70 506 35,420 1
16 December 60 503 30,180 1
2 December 20 500 10,000 1½
_________

75,600 3½
———

(ii) Net realisable value (NRV)
NRV = selling price less selling and distribution costs = selling price  95%
Date sold Units Per unit NRV

$ $
14 January 70 497.80 34,846 1½
28 January 50 495.90 24,795 1½
11 February 30 494.00 14,820 1½
_________

74,461 4½
———
(c) Amount to be include in financial statements
Lower of cost and net realisable value $74,461 1

___
9
____
Answer 123 MEASUREMENT OF INVENTORIES
12
____
(a) IAS 2 “Inventories” requirements
Overheads
The Standard requires inventories to be measured at the lower of cost and net realisable value.
The term “cost” includes “cost of conversion” (where appropriate). “Cost of conversion”
includes “the systematic allocation of fixed and variable production overheads”. Fixed
production overheads are indirect costs of production that remain relatively constant max 3
regardless of the volume of production (e.g. depreciation and maintenance of factory
buildings and equipment, and the cost of factory management and administration).
Lower of cost and net realisable value (NRV)
Inventories are usually written down to NRV on an item by item basis. In some max 2
circumstances it may be appropriate to group similar or related items.
Identification of costs
Specific identification of costs is inappropriate where there are large numbers of items which
are ordinarily interchangeable (e.g. indistinguishable components). The cost of such
inventories should be assigned by using the first-in, first-out (FIFO) or weighted average cost max 3
__
formulas.
8
__
(b) Disclosure requirements of IAS 2
 Accounting policies used in measuring inventories including the cost formula used.
 The total carrying amount and the carrying amount in appropriate classifications. 1 each
 The carrying amount of inventories carried at net realisable value.
 The carrying amount of inventories pledged as security for liabilities. ___
4
___
12
____

Answer 124 BILDA CO
(a) Accounting policies extract
Inventories
 Raw materials are valued at purchase cost including freight, duty and other charges 1
necessary to bring the inventory to the factory.
 Production cost includes direct production costs and an appropriate proportion of 1

production overheads and factory depreciation.
 Movements in raw materials inventory are accounted for using the FIFO (first-in, 1
first-out) method.
 An allowance is established when the net realisable value (i.e. estimated realisable 1
___
value less costs to sell) of inventory items is lower than the values calculated above.
4
___
(b) Calculation of inventory valuation at 31 December 2014
First-in, first-out (FIFO) basis Price Inventory

per tonne value
(i) Raw material $ $
Purchase price – latest 150.00
Carriage inwards 20.00
Customs duty 10.00
———
5,000 units @ 180.00 = 900,000 3
———
(Assuming net realisable value is higher)
(i) Inventroy value b/fwd 900,000

(ii) Finished goods
Cost per tonne $
Raw material price 180.00
Variable processing costs 25.00
Fixed production cost (W) 33.19
———
238.19
———
Net realisable value
Selling price per tonne 240.00
Less: Delivery costs (7.50)
———
232.50
———
2,000 tonnes at lower amount 232.50 465,000 3

————
1,365,000
————

WORKING
Production costs per tonne
(i) Normal level of production Tonnes

Total purchases 52  1,000 52,000
Less Raw materials inventory (5,000)
———
Total production for 2014 47,000
———
Normal activity level (assuming even production
throughout the year) 1/52  47,000 tonnes/week 903.846
(ii) Fixed production costs per tonne

Total production costs per week $30,000 2
___
Normal weekly production (30,000 ÷ 903.846 tonnes) $33.19 per tonne
8
___
Tutorial note 12
____
An alternative assumption would be that purchases of 1,000 tonnes per week represent the anticipated
normal activity level, in which case the fixed production cost would be
$30,000
= $30 per tonne
1,000 tones
Tutorial note: It would not be appropriate to allocate these costs based on operating capacity (i.e.
1,500 tonnes) since, based on the facts given, the normal level of purchases is constant at 1,000 tonnes
each week.
125.1 C Carriage costs are delivery/couriering/postage costs, etc. Inwards means on goods
received; outwards means on goods dispatched. Both are an expense. Costs of
dispatch to customers and a distribution cost and not an inventory cost.
125.2 A Cost net of tax is $100,000. Since this is not paid for a year this is equivalent to
$100,000 ÷ 1.1 = $90,909. The carriage costs would not be discounted for 30 days
credit. So total cost is $92,909.
125.3 A There are 100 units in inventory at the end of the year. The net realisable value of
20 units is $150 ($170 - $20). Therefore the total inventory value is $750.
125.4 B 70 units @ $1,000 and 20 units @ $1,020 remain = $90,400
125.5 D As the cost of goods is increasing the average cost of the goods sold is higher than
under FIFO.

Answer 126 SALE OF GOODS AND LEISURE FACILITIES
(a) Criteria for revenue recognition
 The significant risks and rewards of ownership have been transferred to the buyer.
This usually coincides with transfer of legal title or passing of possession. 2
 Neither continuing managerial involvement nor effective control over goods sold is 1
retained.
 The amount of revenue can be measured reliably. 1
 It is probable that economic benefits associated with the transaction will flow to 1
entity.
 Costs incurred (or to be incurred) in respect of the transaction can be measured 1

__
reliably.
max 5
__
(b) Revenue recognition
Membership subscriptions
The entity is performing a contractually agreed task (providing sports and leisure facilities) 2
over an agreed period of time (one year). As the outcome of the transaction can be reliably
estimated (fixed subscription), revenue should be recognised by reference to the state of 2
completion of the transaction at the end of the reporting period.
The state of completion of the transaction must be assessed for each member. For example, if 1
a member joined 5 months before the entity’s year end, 5/12 of that member’s subscription 1
should be regarded as revenue of the period.
Additional activities
Revenue should be recognised for all transactions completed by year end. For example, 1
charges for squash courts used before year end should be recorded as revenue of the period. 1
___
max 7
___
12
___
127.1 D Disposal proceeds are income but not revenue.
127.2 B
127.3 C Revenue measurement takes into account trade discounts (and volume rebates).
Bara expected to receive $800 of which $40 is not an economic benefit to Bara (the
sales tax). The prompt payment discount allowed to the customer is an expense, not
a reduction in revenue recognised.
127.4 D Revenue does not have to be fixed to be “measured reliably”. Costs must also be
measured reliably but may still be to be incurred. Economic benefits (payment from
customer) must be probable rather than guaranteed.
127.5 C A dividend is recognised in full when the right to receive it is established.

Answer 128 DEPRECIATION AND REVALUATION
(a) Factors to consider then calculating depreciation on head office
 The property comprises land and buildings. These are separable assets and are 1
accounted for separately even where they are acquired together.
 Land normally has an unlimited life and therefore is not depreciated. 1
 Buildings have a limited life and are therefore depreciable assets. 1
 As each accounting period can be expected to benefit equally from the use of the
building, straight line depreciation will be appropriate. 1
 As the property is maintained to a high standard, its useful life and/or residual value
will be extended, reducing the charge for depreciation each period. 1
__
(b) Warehouse expenditure 5

__
The costs of extending the warehouse ($120,000) should be added to the carrying amount of 1
the property. This is because future economic benefits associated with the extension would 1
be expected to be received by the entity.
The costs of repairing the roof ($67,000) should be charged as an expense of the period. 1
These costs merely maintain future benefits and do not increase the economic benefits. 1
__
4
(c) Warehouse valuation __
IAS 16 Property, Plant and Equipment allows property (also plant and equipment) to be 1
carried at a revalued amount, being fair value at the date of the revaluation less any 1
subsequent accumulated depreciation. For property, fair value is market value for existing 1
use and this is normally estimated by professionally qualified valuers. 1
However, the entire class of asset to which the warehouse belongs is required to be revalued 1
(e.g. both warehouses or all land and buildings). It would therefore not be acceptable to 1
selectively revalue just one of the warehouses.
Once revalued, the directors will be obliged to keep any revaluations up to date so that the 1
carrying amount does not differ materially from fair value. The frequency of future
revaluations will therefore depend on movements in the property market and could range
from annually to once every three to five years. 1
__
max 6
(d) Disclosure requirements for items stated at revalued amounts __
 The basis used to revalue the asset(s). 1

 The effective date of the revaluation. 1
 Whether an independent valuer was involved. 1
 The nature of any indices used to determine replacement cost. 1
 The carrying amount of each class of asset that would have been included in the 1
financial statements had the assets been carried at cost less depreciation.
 The revaluation surplus, indicating the movement for the period and any restrictions 2
___
on the distribution of the balance to shareholders.
max 5
___

Answer 129 DIAMOND (IAS 16)
(a) Ledger accounts

Land – Cost or valuation
$000 $000
2013 2013
1 Jan Balance 1,000 31 Dec Balance 1,000
_____ _____
2014 2014
1 Jan Balance 1,000
31 Dec Revaluation gain 200 31 Dec Balance 1,200
_____ _____
1,200 1,200
_____ _____
2015
1 Jan Balance 1,200
Buildings - cost
$000 $000
2013 2013
1 Jan Balance 500 31 Dec Balance 550
8 Oct Cash 50
___ ___
550 550
___ ___
2014 2014
1 Jan Balance 550 31 Dec Balance 550
___ ___
2015
1 Jan Balance 550

Buildings - depreciation
$000 $000
2013 2013
31 Dec Balance 221 1 Jan Balance 210
31 Dec Profit or loss 11
___ ___
221 221
___ ___
2014 2014
31 Dec Balance 232 1 Jan Balance 221
31 Dec Profit or loss 11
___ ___
232 232
___ ___
2015
1 Jan Balance 232
Office equipment – cost
2013 $000 2013 $000

1 Jan Balance 40 10 June Disposal 8
10 June Cash 12 31 Dec Balance 48
Disposal 4
___ ___
56 56
___ ___
2014 2014
1 Jan Balance 48 1 Mar Disposal 8
31 Dec Balance 40
___ ___
48 48
___ ___
2015
1 Jan Balance 40

Office equipment – depreciation
2013 $000 2013 $000

10 June Disposal 7 1 Jan Balance 24
31 Dec Balance 23 31 Dec Profit or loss 6
___ ___
30 30
___ ___
2014 2014
1 Mar Disposal 6 1 Jan Balance 23
31 Dec Balance 22 31 Dec Profit or loss 5
___ ___
28 28
___ ___
2015
1 Jan Balance 22
Office equipment – disposal
2013 $000 2013 $000

10 Jun Cost 8 10 June Depreciation. 7
31 Dec Profit or loss 3 Cost 4
___ ___
11 11
___ ___
2014 2014
1 Mar Cost 8 1 Mar Depreciation 6
31 Dec Profit or loss 1 Cash – proceeds of sale 3
___ ___
9 9
___ ___
Revaluation surplus
$000 2014 $000

31 Dec Land 200
(b) Purpose of depreciation
In order for the financial statements to reflect properly all the costs of the entity for the period,
it is necessary for there to be a charge against income in respect of the use of all non-current
assets which have finite useful economic lives. The purpose of depreciation is thus mainly to
ensure that the cost or valuation of a non-current asset is spread fairly over the years
benefiting from its use and charged to profit or loss as with any other period costs such as
labour and materials.
The following factors should be taken into account when assessing depreciation:
 the carrying amount of the asset (cost or valuation);
 the expected useful economic life to the business, having due regard to the
incidence of obsolescence;
 the estimated residual value of the net asset at the end of its useful economic life in
the business.

130.1 A
130.2 D Revalued amount is the fair value at the date of the revaluation less any subsequent
accumulated depreciation (and impairment losses).
130.3 D Only assets in the same class are required to be revalued. Revaluations should be
sufficiently regular but frequency is not stipulated in IAS 16. There is no
requirement for valuations to be undertaken independently (though this will be
disclosed if applicable). Depreciated replacement cost and income approaches are
methods of estimating fair value.
130.4 B Depreciable amount is $800,000 ($1,000,000 – $200,000). Annual depreciation is

$20,000. Therefore carrying amount is $980,000 ($1,000,000 – $200,000).
130.5 A The carrying amount will be fair value as at the reporting date. The depreciation
charge will be based on carrying amount in the first year (i.e. cost).
Answer 131 RESEARCH AND DEVELOPMENT
(a) Why different treatment
 For research (or the research phase of an internal project) it is not possible to
demonstrate that an intangible asset exists that will generate probable future 1
economic benefits. Therefore expenditure is always recognised as an expense when
it is incurred. 1
 For development (or the development phase of an internal project), in some

instances, it can be demonstrated that an intangible asset exists that will generate 1
probable future economic benefits. This is because development is further 1
advanced than research.
 Development costs are therefore recognised as an intangible asset from the point in
time when they meet certain criteria that indicate that future economic benefits are 1
probable.
 If research cannot be distinguished from development, expenditure is treated as
research. 1
__
(b) Criteria for asset recognition max 4

__
ALL of the following must be DEMONSTRATED: 1
 Technical feasibility of completing the intangible asset. 1
 Intention to complete the intangible asset and use or sell it. 1
 Ability to use or sell it. 1
 The existence of a market for the output of the intangible asset. 1
 Availability of adequate technical, financial and other resources to complete the 1

development and use or sell the intangible asset.

 Ability to measure reliably the attributable expenditure during development. 1

__
(c) Development costs max 6

__
Marketing awareness campaign

Exclude – selling costs cannot be directly attributed or allocated on a reasonable basis to ½+1
development activities.
Patent royalty payable to inventor of filter

Include – expenditure represents a direct cost of a service consumed in development ½+1
activities.
Salaries of staff testing filter prototypes

Include – expenditure on testing pre-production prototypes is a typical development activity. ½+1
__
(d) Amortisation max 4

__
How
 The depreciable amount (e.g. cost) of an intangible with a finite useful life shall be
allocated on a systematic basis over its useful life. 1
 The method used should reflect the pattern in which the related economic benefits 1
are consumed. If that pattern cannot be determined reliably, the straight-line
method should be used. 1
 The determination of useful life will depend on such factors as

 typical produce life cycles for the asset; and 1
 technological obsolescence.
 Intangible assets with indefinite useful lives are not amortised but will be tested
annually for any impairment in their value.
When
 Amortisation commences when the asset is available for use. 1
 Amortisation (period and method) should be reviewed at least at each financial year 1
end, and changed if useful life or the pattern of consumption of economic benefits is 1
significantly changed.
1
___
max 6
___
20
___

Answer 132 DEFER
Tutorial note: Note the letter style in this answer, which looks to apply the principles of IAS 38 rather
than simply regurgitate them.
Deferred development expenditure
Thank you for your enquiry in which you requested advice concerning the procedures which should be
introduced in order to identify the cost of an intangible asset arising from development and ensure
compliance with best accounting practice. My recommendations are based on IAS 38 Intangible Assets.
IAS 38 requires that development expenditure be recognised as an asset if, and only if, certain criteria
are demonstrated. Research costs, and development costs which do not meet all the criteria should be
recognised as an expense when they are incurred. Accordingly my recommendations are as follows.
Guidelines to distinguish research based activities from development activities
IAS 38 defines development as the application of research findings (or other knowledge) to a plan or
design to produce new or substantially improved materials, products, processes, etc. On the other hand,
research is work undertaken to gain new scientific or technical knowledge and understanding.
IAS 38 criteria for asset recognition to be satisfied for identified development costs
These criteria, which must be demonstrated, are set out in the Standard. For example, there must be an
intention to complete and use or sell the intangible asset. If any of the criteria are not satisfied you must
write off the expenditure.
If, however, all the criteria are demonstrated, then the expenditure must be deferred (i.e. capitalised).
Amortisation period and method for development expenditure recognised as an asset
IAS 38 requires that an intangible asset with a finite life must be amortised on a systematic basis over
its useful life. In determining useful life, reference should be made to such factors as expected usage of
the asset, typical product life cycles, technical obsolescence and expected competition. Where there are
rapid changes in technology (e.g. computer software) useful life is likely to be very short.
The straight-line method should be used unless another method better reflects the pattern in which the
asset’s economic benefits are consumed.
If the asset has an indefinite useful life then the intangible is not amortised, instead it is tested annually
for impairment with any fall in value being charged to profit or loss.
IAS 38 disclosure requirements
IAS 38 requires that the financial statements disclose:
 useful lives or amortisation rates and amortisation methods;
 gross carrying amount and accumulated amortisation at beginning and end of period;
 a reconciliation of the carrying amount at the beginning and end of the period showing
additions, etc;
 the aggregate amount of research and development expenditure recognised as an expense
during the period.

Procedures to be implemented
These might include:
 using a chart of accounts to allocate staff costs, overheads, equipment, outside services, etc, to
projects;
 formal notification by project managers to the finance department when a development phase
takes over from a research phase;
 undertaking feasibility studies to determine the economic viability of planned or actually

development expenditure;
 keeping a history of projections of useful lives against actual useful lives to justify using long
lives;
 establishing criteria for impairment testing including monitoring of actual economic benefits
against projections/
133.1 D
133.2 A Residual value (if any) will affect the amount to be amortised but not the method.
The useful life of other assets may affect the useful life an intangible asset but not
the amortisation method applied to it. Whether or not the amount amortised is
expenses or capitalised in another asset it irrelevant to the method.
133.3 B Staff training costs can never be recognised as an intangible asset (as the control
criteria are not met).
133.4 D IAS 38 does not specify any period of amortisation so not A. Other bases are
permitted (e.g. unit of production) so not B. Additional criteria must be considered
(e.g. adequate finance and management’s intentions) so not C.
133.5 A The amounts previously expensed cannot be reinstated at a later date. The only
costs which can be capitalised are $40,000 (maximum) and $10,000. Thus $50,000
would be amortised on a straight-line basis (in the absence of further information).
Answer 134 ETERNITY CO
(1) This event requires adjustment under IAS 10 Events After the Reporting Period as it clarifies
the situation of the trade receivable at the year end. Consequently trade receivables should be
written down by $200,000 either by writing off the irrecoverable debt or making an allowance
for non-recovery of this amount.
Tutorial note: Just because some cash has been received after the reporting period does not
mean that as at the end of the reporting period a customer was not in financial difficulties.
The point that is being illustrated here is that the amount to be allowed or written-off is the
unrecoverable portion. It is assumed here, because the question does not specify, that all of
the $200,000 relates to amounts owing at the reporting date. If, for example, Wico had
settled the $250,000 but then been sold another $200,000 of goods, no allowance or write-off
could be made.

(2) Although accounts would not normally be amended to reflect disposals of non-current assets
after the reporting period, the event should be disclosed in the notes. However, in this case
the sale price is evidence of a permanent fall in the value of the building at the year end and,
unless it can be shown that the fall in value arose from post year end circumstances, the
accounts should be adjusted to $2.7 million.
(3) This event provides further evidence as to the net realisable value of the electric tricycles at
the year end, and should be adjusted for. The remaining unsold year end inventories should
be written down to net realisable value, which should include allowance for all anticipated
costs of transporting the tricycles to Bolivia. Prudence may dictate a write down to scrap
value if the Bolivia option appears unlikely to arise.
(4) Government actions, such as a nationalisation, after the reporting period should not be
adjusted for but disclosed in the notes to the financial statements. Full provision for the loss
arising from the nationalisation would only be made in the 31 December 2014 accounts if the
going concern assumption was not appropriate.
(5) The flood could be disclosed in the notes. However, as the branch is fully insured, it is
unlikely that a material loss will arise. Therefore, as non-disclosure may not affect the users
of financial statements, disclosure of the flood may be considered unnecessary.
(6) Under IAS 10 the share issue should not be adjusted for but disclosed in the notes to the
financial statements. Non-disclosure would clearly affect the ability of users to make proper
evaluations and decisions, since, for example, the rights issue affects earnings per share (and
market value).
Answer 135 ACCOUNTING TREATMENTS
(1) Trade and other receivables would be increased to $18,600 for inclusion in the published
accounts. Though the final figure was not known until after 31 December, the event provides
further evidence of a condition that existed at the end of the reporting period.
(2) Reduce the asset to its “recoverable amount” as at 31 December 2014. The impairment in
value must be charged to profit and loss and may be disclosed separately as it is a material
amount.
(3) The existence of a possible obligation depends on a future event – the legal outcome. In
accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, such a
contingent liability should not be recognised (i.e. cannot be provided). A 20% chance of
success indicates a possibility that the claim will succeed (i.e. less than probable). A note to
the financial statements should disclose the contingent liability, stating
 the nature of the contingency

 an estimate of the financial effect, i.e. $500,000 loss (less expected tax relief)
 the uncertain factors affecting the future outcome
 the possibility of any reimbursement (e.g. recourse to manufactures or insurance).
(4) Include the item in inventories at the net realisable value of $1,600 ($1,900 – $300) as this is
less than cost. The net realisable value allows for anticipated extra costs and assumes that no
profit or loss will be made on eventual disposal.
(5) The company should make a provision for $100,000 (i.e. should recognise 10% as a liability).
However, the possible obligation (30%) is a contingent liability which should not be
recognised but disclosed (IAS 37). The disclosure is as in (3) except that the financial effect is
$300,000 (30%  $1 million). The remaining 60% should be ignored as the likelihood of
liability is remote.

Tutorial note: In (3) above it is not appropriate to provide for 20%  $500,000 (i.e. $100,000). An
expected value is only appropriate where there are a number of similar obligations (as with product
warranties (5)).
Answer 136 FOUR EVENTS
(a) Additional evidence
Bankruptcy of a customer who owed money to the entity at year end
Provides additional evidence of doubts about financial position of customer (and therefore
recoverability of trade receivable) existing at the end of the reporting period.
Flood damaging inventories held at year end ½ for each

Y/N to
This does not provide additional evidence of the physical state of inventory (and additional
recoverability of its cost) as at the end of the reporting period. evidence
1 for
identifying
Receipt of long term loan from bank condition
4
This does not provide additional evidence. The asset (cash) and liability (loan) did not __
exist at the end of the reporting period. 6
__
Issue of credit note for goods sold before year end
This provides additional evidence of a cancellation of a sale and corresponding trade

receivable existing at the end of the reporting period.
(b) Omission of significant inventories
The oversight constitutes an error (i.e. the financial statements of one or more prior periods 1
can no longer be considered reliable at the date of their issue).
The opening balance of retained earnings should be adjusted for the prior year effect and the 1
comparative information restated (unless it is impracticable to do so). 1
1
Disclosure
 The nature of the error 1

 The amount of correction for current period and prior period(s) 1
 The fact that comparative info has been restated (or impracticable). 1
___
max 5
___
(c) Event after the reporting period
 Event occurs (and final outcome is known) before the date on which the financial 1
statements are approved.
 Event may relate to conditions which existed at the end of the reporting period 1
(“adjusting event”) or may relate to conditions which did not exist at that date
(“non-adjusting event”).
Contingent liability
 A possible obligation arising from past events whose existence will be confirmed
only by the occurrence or not-occurrence of one or more uncertain future events; or 1

 A present obligation which is not recognised because an outflow of resources is not 1

__
probable, or cannot be measured with sufficient reliability.
4
__
(d) Disclosure of contingent liabilities
 The nature of the contingent liability. 1

 A best estimate of the financial effect 1
 Uncertainties that may affect the future outcome (amount or timing of cash flow). 1
 The possibility of any reimbursement. 1
__
(e) Circumstances for going concern disclosure per IAS 1 3

___
 The financial statements are not prepared on a going concern basis. 1
 Management is aware of material uncertainties related to events or conditions that may 1

cast significant doubt upon the entity’s ability to continue as a going concern. __
2
__
20
Answer 137 MCQs IAS 37 ___
137.1 A An allowance which adjusts the carrying amount of an asset is not a provision
within the meaning of IAS 37. The other statements concern contingent liabilities.
137.2 A This expected value is the best estimate for a large population of items (e.g.
warranties). The mid-point would only be suitable for a continuous range of
possible outcomes where each outcome is equally likely (i.e. as an approximation to
the expected value). The other estimates are suitable when measuring a single
obligation.
137.3 B As it is more likely than not than some payout will be made (70% chance) a
provision must be made. This is a single obligation for which $100,000 is (by far)
the most likely outcome. (An expected value does not provide a suitable best
estimate in this case.)
137.4 C 70% is probable but not virtually certain, so an asset cannot be recognised in the
statement of financial position but disclosed as a contingent asset. (It is not
necessary to specify a best estimate for this disclosure as the possible outcomes and
their relative probabilities can be described.)
138.1 A Sales proceeds at less than cost of inventory provide evidence that inventory should
be written down. Recovery of a debt written off means that it was not bad and so
should be instated. The subsidiary existed at the year end and its subsequent sale
does not change that fact. The damage caused by the flood did not exist at the end
of the reporting period.
138.2 D The condition (quake damage) did not exist at the end of the reporting period.
There is no liability (actual or contingent) to be included in the 2014 financial
statements.

138.3 C The discovery of the fraud has revealed that inventory does not exist and so should
be adjusted (written off).
138.4 B Although the earthquake is non-adjusting the going concern basis is no longer
appropriate.
Answer 139 ANTIPODEAN
Statement of cash flows for the year ended 31 December 2014

$ $ Presn 1
Cash flows from operating activities
Profit before taxation 25,200 1
Adjustments for
Depreciation 7,000 1
Net loss on disposals 310 1
Interest expense 3,000 1
______
Operating profit before working capital changes 35,510
Decrease in trade receivables 2,450 ½
Decrease in inventories 7,830 ½
Increase in trade payables 10,700 ½
______
Cash generated from operations 56,490
Interest paid $(3,000 – 400) (2,600) 1
______
Net cash from operating activities 53,890
Cash flows from investing activities

Purchase of long-term investments $(25,000 – 17,000) (8,000) 1
Purchase of equipment and cars $(36,400 (W1) + 19,860 (W2)) (56,260) 4
Proceeds from sale of equipment and cars (W3) 6,900 2
______
Net cash used in investing activities (57,360)
Cash flows from financing activities

Capital and other drawings (21,630) 1
Borrowings repayment (3,000) 1
______
Net cash used in financing activities (24,630)
______
Net decrease in cash and cash equivalents (28,100) 

Cash and cash equivalents at beginning of period $(3,600 + 1,800) 5,400
______  1½

 ___
Cash and cash equivalents at end of period $(4,800 + 700 – 28,200) (22,700)
———  18
___

WORKINGS
(1) Equipment (carrying amount)
$ $
Bal b/d 17,600 Disposal 5,200
Depreciation 3,000
Additions () 36,400 Bal c/d 45,800
——– ——–
54,000 54,000
——– ——–
(2) Motor vehicles (carrying amount)
$ $
Depreciation 3,000
——– ——–
23,940 23,940
——– ——–
(3) Disposals
$ $
Equipment 5,200
Motor vehicle 2,010 Loss on disposal (vehicles) 740
Profit on disposal (equipment) 430 Proceeds () 6,900
——– ——–
7,640 7,640
——– ——–
Tutorial note: Alternatively, consider 2 separate disposal a/cs.

Answer 140 R2D2 CO
Statement of cash flows for the year ended 30 June 2015

$ $
Adjustments for
Depreciation $(3,000 + 1,000) 4,000
Profit on sale of fixed assets (W3) (100)
Interest expense 1,000
———
Operating profit before working capital adjustments 19,300
Increase in inventories (5,000)
Increase in trade receivables (7,250)
Decrease in trade payables (3,000)
———
Interest paid (W5) (500)
Income taxes paid (W4) (1,200)
———

Purchase of property (10,000)
Purchase of plant and equipment (W1) (1,000)
Proceeds from sale of plant and equipment (W3) 350
———

Part repayment of loan (4,000)
———
Net cash used in financing activities (4,000)
———
Net decrease in cash and cash equivalents (12,300)
Cash and cash equivalents at beginning of year 1,300

———
Cash and cash equivalents at end of period (11,000)
———
WORKINGS
(1) Plant and equipment – Cost
$ $
——– ——–
6,000 6,000
——– ——–

(2) Plant and equipment – Accumulated depreciation
$ $
Disposal 750 Bal b/d 2,000
Bal c/d 2,250 Depreciation charge for year () 1,000
——– ——–
3,000 3,000
——– ——–
(3) Plant and equipment – Disposals
$ $
Cost 1,000 Accumulated depreciation 750
Profit on sale 100 Proceeds 350
——– ——–
1,100 1,100
——– ——–
(4) Tax payable
$ $
Cash paid () 1,200 Bal b/d 1,000
Bal c/d 1,800 Charge to profit or loss 2,000
——– ——–
3,000 3,000
——– ——–
(5) Interest payable
$ $
Cash paid () 500 Bal b/d 200
Bal c/d 700 Charge to profit or loss 1,000
——– ——–
1,200 1,200
——– ——–

Answer 141 MOMI CO

$000 $000
Cash flow from operating activities
Adjustments for
Depreciation charges $(111 + 351) (W1, W2) 462
Profit on sale of equipment (W1) (19)
Loss on sale of fixtures (W2) 5
———
Operating profit before working capital adjustments 1,829
Increase in inventories (660)
Increase in trade receivables (773)
Increase in trade payables 4
——
Income tax paid (W3) (255)
——
Net cash from operating activities 145

Purchase of plant and equipment $(312 + 366) (W1, W2) (678)
Proceeds from sale of plant and equipment $(203 + 95) (W1, W2) 298
——
Net cash used in investing activities (380)

Equity dividends paid (W4) (300)
Proceeds from issuance of ordinary share capital 400
——
100
———
Net decrease in cash and cash equivalents (135)
Cash and cash equivalents at beginning of year $(1,050 + 197) 1,247

———
Cash and cash equivalents at end of year $(600 + 512) 1,112
———
WORKINGS
(1) Plant and equipment (at carrying amount)
$000 $000
Balance b/f 2,086 P & E – disposal 184
Bank – purchase 312 Depreciation (al fig) 111
Balance c/f 2,103
——– ——–
2,398 2,398
——– ——–

Plant and equipment – Disposal
$000 $000
P & E – carrying amount 184 Cash – proceeds 203
Depreciation – gain on disposal 19
—— ——
203 203
—— ——
(2) Fixtures and fittings (at carrying amount)
$000 $000
Balance b/f 1,381 F + F – disposal 100
Bank – purchase (al fig) 366 Depreciation 351
Balance c/f 1,296
——– ——–
1,747 1,747
——– ——–
Fixtures and fittings – Disposal
$000 $000
F + F – carrying amount 100 Cash – proceeds 95
Depreciation – loss on disposal 5
—— ——
100 100
—— ——
(3) Tax payable
$000 $000
Bank – tax paid (al fig) 255 Balance b/f 257
Balance c/f 312 Profit or loss 310
—— ——
567 567
—— ——
(4) Dividends payable
$000 $000
Bank – dividends paid (al fig) 300 Balance b/f 132
Balance c/f 154 Profit or loss 322
—— ——
454 454
—— ——
Tutorial note: The principles of incomplete records questions and sound logic should assist you in
producing the necessary workings to determine the missing information.

Answer 142 JANE
Reference
to workings $000 $000
Adjustments for:
Depreciation 100
Loss on sale of plant 20
Loss on sale of investments 10
Interest expense 1 15
___
Operating profit before working capital changes 175
Increase in trade payables 10
___
Cash generated from operating activities 85
Interest paid 15
___

Purchase of property, plant and equipment 2 (450)
Proceeds of sale:
property, plant and equipment 60
investment 40
____
Net cash used in investing activities (350)

Proceeds from issuance of share capital 180
Proceeds from issuance of loan notes 50
Dividends paid (30)
___
Net cash from financing activities 200
––––
Net decrease in cash 3 (80)
––––
WORKINGS
(1) Calculation of profit for the year
$000
Profit from operations 45
Interest paid (10% × 150,000) (15)

––––
Dividends (40)
––––
Retained profit for year (200 – 190) (10)
––––

(2) Property, plant and equipment account
$000 $000
Balance 730 Depreciation 100
Revaluation surplus 100 Carrying amount of items sold 80
Assets purchased 450
Balance 1,100
_____ _____
1,280 1,280
_____ _____
(3) Movement on cash
Balance at 1 January 2014 (20 – 40) (20)

Balance at 31 December 2014 (30 – 130) (100)
____
Movement for year (80)
____
Answer 143 C3P0
$ $ Presn 1
Cash receipts from customers (W1) 190,000 1½
Cash paid to suppliers and employees (W2) (155,000) 3
_______
Interest paid (13,000) ½
Dividends paid* (20,000) ½
______
Purchase of property and plant (40,000 + 1,000) (41,000) 1½
Purchase of investments (30,000) ½
______
Proceeds from issued shares (10,000 + 2,000) 12,000 1
Proceeds from long-term borrowings 50,000 ½
______
Net cash from financing activities 62,000
______
Net decrease in cash and cash equivalents (7,000) 
Cash and cash equivalents at 1 January 2014 3,000
______ 
 1
Cash and cash equivalents at 31 December 2014 (4,000) 
———  ___
11
* Could be shown as a financing cash flow. ___

WORKINGS
(1) Receipts from sales

Receivables control
$ $
Balance b/d 40,000 Cash receipts (al fig) 190,000
Sales 200,000 Balance c/d 50,000
_______ ________
240,000 240,000
———— ————
(2) Payments
Payables and wage control
$ $
Cash paid (al fig) 155,000 Balance b/d 40,000
Depreciation * 2,000 Purchases re cost of sales (W3) 130,000
Balance c/d 60,000 Expenses 47,000
________ ________
217,000 217,000
———— ————
(3) Cost of sales
$ $
Opening inventory 55,000 Cost of sales 120,000
Purchases and wages 130,000 Closing inventory 65,000
________ ________
185,000 185,000
———— ————
* Alternatively, depreciation could be adjusted against cost of sales.

Answer 144 TIVOLI
Cash flows from operating activities $000 $000

Adjustments for profit before tax 350
Depreciation charges (W1) 480
Profit on sale of plant (30)
Interest expense 100
——
Operating profit before working capital adjustments 900
Increase in trade and other payables (W3) 7
——
Interest paid (W2) (90)
Income taxes paid (111)
——
Purchase of property, plant and equipment (W1) (1,500)
Proceeds from sale of plant 100
——–
Cash flow from financing activities
Equity dividends paid $(80 – 19) (61)
Preferred dividend paid (8%  $240) (19)
Proceeds from issuance of share capital 600
Proceeds from long-term borrowings 450
Redemption of preferred shares (120)
——–
Net cash inflow from financing activities 850
——
Net decrease in cash and cash equivalents (5)
Cash and cash equivalents at beginning of year $(60 – 78) (18)
——
Cash and cash equivalents at end of year $(138 – 115) (23)
——

WORKINGS
(1) Non-current assets and depreciation
Plant and equipment
$000 $000
Balance b/f 900 Disposals 250
Additions (bal) 700 Balance c/f 1,350
——– ——–
1,600 1,600
——– ——–
Additions for year $000

Plant and equipment $(700 – 10) 690
Land and buildings $(2,160 – 1,500) 660
Motor vehicles $(750 – 600) 150
——–
1,500
——–
$000 $000
Disposals 180 Balance b/f 300
Balance c/f 450 Charge (bal) 330
—— ——
630 630
—— ——
Charge for year $000

Plant and equipment (as above) 330
Land and buildings $(180 – 150) 30
Motor vehicles $(360 – 240) 120
——
480
——
(2) Interest paid

Interest expense
$000 $000
Cash paid 90 Balance b/d 10
Balance c/d 20 Profit or loss 100
—— ——
110 110
—— ——

(3) Trade and other payables

2014 2013
$ $
Per question 63,000 36,000
Less Interest accrual (20,000) (10,000)
Plant creditor (10,000) –
——— ———
33,000 26,000
——— ———
Movement = $7,000 increase
145.1 C
145.2 A Dividends received may be classified as investing (or operating) but dividends paid
are financing (or operating). Repayment of a bank loan and proceeds from a share
issue are financing cash flows.
145.3 B The proposing of dividends and issuing of bonus shares are not cash flow
transactions.
145.4 D
145.5 D $m
Per draft 62
Decrease in inventories should be added, not deducted (2 × 9) 18
Decrease in payables should be deducted, not added (2 × 12) (24)
–––
56
Answer 146 P & S
Consolidated statement of financial position as at 31 December 2014
$
Goodwill (W2) 2,000
Other assets (8,000 + 4,000) 12,000
———
14,000
———
Share capital 6,000

Retained earnings (W4) 6,800
———
12,800
Non-controlling interest (W3) 1,200
———
14,000
———

WORKINGS
(1) S net assets

Reporting Acquisition Post-
date acquisition
$ $ $
Share capital 1,000 1,000 –
Share premium 500 500 –
Retained earnings 2,500 1,500 1,000
——— ——— ———
4,000 3,000 1,000
——— ——— ———
(2) Goodwill
$
Fair value of consideration 4,000
Fair value of non-controlling interest on acquisition 1,000
Less: Fair value of net assets on acquisition (3,000)
———
2,000
———
(3) Non-controlling interest

$
Fair value on acquisition 1,000
Share of post-acquisition profits (1,000 × 20%) 200
———
1,200
———
$
P as per question 6,000
Share of S post-acquisition (80% × 1,000) 800
———
6,800
———

Answer 147 HAPPY AND SAD
Non-current assets $
Goodwill (W2) 8,000
Tangible (135,000 + 60,000) 195,000
————
203,000
Current assets (57,000 + 46,000 – 400) 102,600

————
305,600
————

Revaluation surplus 63,500
————
239,100
Non-controlling interest 8,500
————
Total equity 247,600
Current liabilities (32,000 + 26,000) 58,000
————
305,600
————
WORKINGS
(1) S net assets

date acquisition
$ $ $
Revaluation surplus 15,000 – 15,000
——— ——— ———
80,000 25,000 55,000
——— ——— ———
(2) Goodwill
$
Fair value of non-controlling interest on acquisition (15,000 × 10% × $2) 3,000
Less: Fair value of net assets of subsidiary on acquisition (25,000)
———
8,000
———

Fair value on acquisition (W2) 3,000

Share of post-acquisition profits (55,000 × 10%) 5,500
———
8,500
———
(4) Unrealised profit

$
Profit in goods sold ($2,000 × 25/125) 400
Profit is 25% of cost price, $2,000 is the selling price, therefore profit is calculated as 25/125
(not 25%)
(5) Revaluation surplus

$
Happy as per question 50,000
Share of Sad post-acquisition (90% × 15,000) 13,500
———
63,500
———

$
Happy as per question 90,000
Unrealised profit (W4) (400)
Share of Sad post-acquisition (90% × 40,000) 36,000
———
125,600
———
Answer 148 FAYE
Assets $
Long-term assets
Tangible assets (33,000 + 20,000 + 1,500) 54,500
Intangible assets – goodwill 6,500
———
61,000
Current assets (5,000 + 15,000) 20,000
———
81,000
———


Called up share capital 12,000
Share premium account 5,000
———
27,000
———
Total equity 33,000
8% Debenture loans (20,000 + 9,000) 29,000
Current liabilities (9,000 + 10,000) 19,000
———
81,000
———
WORKINGS
(1) Group structure
Faye
75%
Garbo
(2) Net assets of Garbo

date acquisition
$ $ $
Fair value land adjustment 1,500 1,500 –
——— ———
17,500 13,500
——— ———
(3) Goodwill
$
Less: Fair value of net assets acquired (100% (W2)) (13,500)
———
6,500
———


Garbo (25%  4,000 (W2)) 1,000
———
6,000
———
$
Faye 7,000
Garbo (75%  4,000 (W2)) 3,000
——–
10,000
——–
Answer 149 HONEY
Consolidated statement of financial position as at 30 June 2014
Assets $
Non-current assets
Tangible assets (27,000 + 12,500) 39,500
Current assets (25,000 + 12,000) 37,000

———
76,500
———
Shareholders’ equity
Called up share capital 20,000
Share premium account 6,000
———
44,333
———
50,000
Non-current liabilities 12,000
Current liabilities 14,500
———
76,500
———

Consolidated statement of comprehensive income for the year ended 30 June 2014
$
Revenue (24,000 + 30,000) 54,000
Cost of sales (9,000 + 11,000) (20,000)
———
Gross profit 34,000
Distribution costs (2,300 + 1,300) (3,600)
Administrative expenses (1,500 + 2,700) (4,200)
Interest payable and similar charges (1,200)
———
Profit before taxation 25,000
Income tax expense (3,000 + 5,000) (8,000)
———
———
Profit attributable to:
Owners of Honey 13,667
Non-controlling interest (⅓  10,000) 3,333
———
———
Extract from SOCIE
Retained earnings brought forward (2,000 + (⅔  4,000)) 4,666
Profit for the year attributable to owners of Honey 13,667
———
Retained earnings carried forward 18,333
———
WORKINGS
(1) S net assets

date acquisition
$ $ $
Retained earnings 14,000 – 14,000
——— ——— ———
17,000 3,000 14,000
——— ——— ———
(2) Goodwill
$
Less: Fair value of net assets on acquisition (3,000)
———
–
———

$
Share of post-acquisition profits (14,000 × 1/3) 4,667
———
5,667
———

$
P as per question 9,000
Share of S post-acquisition (2/3 × 14,000) 9,333
———
18,333
———
Answer 150 HUMPHREY
Consolidated statement of comprehensive income for the year ended 30 September 2014
$000
Revenue 1,400
Cost of sales (742)
——–
Gross profit 658
Distribution costs (110)
Administrative expenses (120)
Investment income 9
Interest (31)
——–
Profit before tax 406
Taxation (184)
——–
——–
Non-controlling interest (W3) 6

Owners of Humphrey 216
——–
222
——–
WORKINGS
(1) Group structure
Humphrey
80%
Stanley

(2) Consolidated statement of comprehensive income
Humphrey Stanley Adjust- Consol-

ment idated
$000 $000 $000 $000
Revenue 1,100 400 (100) 1,400
Cost of sales – per Q (600) (240) 100
– provision for unrealised profit (2) – – (742)
Distribution (60) (50) (110)
Administration (65) (55) (120)
Investment income (20 – 16) 4 5 9
Interest payable (25) (6) (31)
Tax (160) (24) (184)
—–
—–

$000
20%  30,000 (W2 or as per question) 6
——
Answer 151 HAPPY
(a) Consolidated statement of comprehensive income for the year ended 31 March 2015
$
Revenue 376,167
———–
Gross profit 198,300
Operating costs (88,300)
Investment income 3,200
———–
Income tax (57,067)
———
———
Attributable to:
Shareholders of P 53,400
———
Profit 56,133
———
(b) Time apportionment
The results of a subsidiary are included in the consolidated accounts from the date control is
achieved.
Happy acquired 75% of the issued ordinary capital of Sleepy on 30 November 2014. This is
the date on which control passed and hence the date from which the results of Sleepy should
be reflected in the consolidated statement of comprehensive income.

All reserves earned by Sleepy in the four months since that date are post-acquisition reserves.
The remaining previous eight months’ profit from 1 April to 30 November 2014 are all pre-
acquisition reserves and will be included in the calculation of goodwill on consolidation.
WORKINGS
(1) Group structure
Happy
75% (acquired 30 Nov 2010 so 4/12 in)
Sleepy
(2) Consolidation schedule

Happy Sleepy Adjust- Consolidated
ment
4
12
$ $ $ $
Sales revenue 303,600 72,567 – 376,167
Cost of sales (143,800) (34,067) – (177,867)
Operating costs (71,200) (17,100) (88,300)
Investment income 2,800 400 3,200
Tax (46,200) (10,867) (57,067)
———
Profit 10,933
———
25%  $10,933 2,733

——–
Tutorial note:
Alternative calculation for profit for Sleepy (W2)

4
Profit for the year per question 32,800  $10,933
12
———

Answer 152 BING AND CROSBY
(a) Goodwill on acquisition of Crosby
$000 $000
Fair value of non-controlling interest 3,200
Less: Fair value of assets at acquisition:
Share capital 6,000
Retained earnings 300 (6,300)
––––– –––––
Goodwill on acquisition 2,150
–––––
(b) Consolidated statement of profit or loss for the year ended 31 October 2014
$000
Revenue (9,600 + 3,900 – 300) 13,200
Cost of sales (5,550 + 2,175 – 300 + (50% × 100)) (7,475)
–––––
Gross profit 5,725
Distribution costs (1,050 + 480) (1,530)
Administrative expenses (1,650 + 735) (2,385)
Finance cost (25 – 10) (15)
–––––
Income tax expense (600 + 120) (720)
–––––
–––––
Profit attributable to:
Owners of the parent 929
Non-controlling interest (365 × 40%) 146
–––––
1,075
–––––
(c) Associates
An associate is defined as an entity over which the investor has significant influence and that
is not a subsidiary (nor an interest in a joint venture). Significant influence can be determined
by the holding of voting rights (usually shares) in the entity. If an investor holds 20% to 50%
of the voting power of the investee, then the investor will usually have significant influence
over the investee, unless it can be clearly demonstrated this is not the case.
The following are examples that might demonstrate the existence of significant influence:
 A representative of the investor on the board of directors of the investee.

 The participation by the investor in the policy making process of the investee.
 Material transactions between investee and investor.
 The interchange of management personnel between the two companies.
 The provision of essential technical information by the investor to the investee.

Answer 153 MCQs CONSOLIDATED FINANCIAL STATEMENTS
153.1 A X has control over both P (through control over directors) and R (through power
over operating and financial policies). X only has significant influence over Q
which would therefore be an associate of X not a subsidiary.
153.2 D
$000 $000
Cost of shares 300
Non-controlling interest on acquisition 100
____
400
Net assets acquired
Share capital 200
____
 (236)
____
164
____
153.3 C
$000 $000
Cost of shares 177
Non-controlling interest on acquisition 52
___
229
Net assets acquired
Share capital 100
Fair value adjustment (land) 10
___
 (160)
___
69
___
153.4 B
$000
Vaynor 90
Yarlet ((70 – 30) × 80%) 32
___
Consolidated retained earnings 122
___
153.5 A
$000 %
Sales value 168 150
Cost of sales 112 100
—— ——
Profit 56 50
—— ——

Tutorial note: Mark-up is “on cost”. If cost is 100%, profit is 50% and sales
value 150%.
Unrealised profit in inventory is $36,000 × 50/150 = $12,000
153.6 B
$000
Tomas’s receivables 300
Drew’s receivables 130
Less: Inter-company (due from Tomas) (5)
––––
425
––––
Answer 154 ALEX
(a) Four financial ratios

31 March
2014 2015
Gross profit percentage
Gross profit
 100 40% 35.7%
Sales revenue
Net profit percentage 2 each ratio

including
Net profit those not
 100 8% – 0.7%
Sales revenue given here
Return on capital employed

Profit before interest and tax
 100 9.4% – 1%
Capital employed
 8   1 
 100    100 
 85   100 
Average period of credit allowed to customers

Closing trade receivables $11,000 $24,000
 365  365
Credit sales revenue $100,000 $140,000
= 40 days = 63 days ___
8
___
(b) Reasons for closing the business
 Artur can obtain 10% per annum from a bank deposit account. This represents a
better return on capital than his son’s business, which earned 9.4% during the year 1½
ended 31 March 2014.
 Alex can obtain employment earning $10,000 per annum. His business does not
seem to be able to provide him with a salary at present. Therefore, it would benefit 1½
him financially to take up the offer of employment.
 The financial ratios calculated indicate that the results of the business are
deteriorating. Therefore, it may be better to close it down now. 1

 The financial ratios calculated show that the business has deteriorated considerably.
The gross profit percentage has decreased. Furthermore, the credit period allowed
to customers has risen from 40 days to 63 days, indicating that Alex needs to keep a 1½
tighter control on the business.
Reason in favour of its continuance
 Artur may have a sound business plan and ideas for expanding sales revenue 1
___
considerably in future years, leading to increased profitability.
4
___
Answer 155 SOLO 12

____
(a) Ratios
2014 2013
(i) Current ratio 30,500: 23,050 = 1.3:1 28,500: 19,400 = 1.5 1
OR Quick ratio 16,500: 23,050 = 0.7:1 15,500: 19,400 = 0.8:1
14,000 13,000
(ii) Inventory turnover (days)  365 = 122 days  365 = 140 days
42,000 34,000
16,000 15,000
(iii) Receivables turnover (days)  365 = 97 days  365 = 110 days
60,000 50,000
23,050 19,400
(iv) Payables turnover (days)  365 = 200 days  365 = 208 days
42,000 34,000
18,000 16,000
(v) Gross profit %  100 = 30%  100 = 32%
60,000 50,000
300 1,700
OR Net profit % (before tax)  100 = 0.5%  100 = 3.4%
60,000 50,000
(50) 1,100
(vi) Return on equity  100 = (0.4)%  100 = 7.5%
13,950 14,600
2,500 3,000
(vii) ROCE  100 = 12.5%  100 = 14.9%
13,950  6,000 14,600  5,500
6,000 5,500
(viii) Leverage (Debt/Equity)  100 = 43.0% = 37.7%
13,950 14,600

(b) Comments
 Liquidity (measured by current and quick ratios) has fallen slightly. Although, the
cash (asset) position has so far been maintained an overdraft facility may be needed.
 As inventories are not particularly slow-moving (being turned over approximately
three times a year) the fact that the quick ratio is half the current ratio is not a cause
for concern.
 Revenue has increased by 20% although investment in property, plant and
equipment has increased by only 9%. This suggests an increase in both volume and
prices. However, cost of sales has increased by more than sales (23.5%) so:
 gross profit has increased by 12½%;

 gross profit percentage has fallen (marginally).
 A major problem for Solo is its small net profit margin. Distribution and admin
expenses have increased by 19% (almost as much as the increase in revenue). The
small reduction in gross profit percentage and the increase in interest (70%) have
reduced net profit percentage to just ½%.
 Reduction in inventory turnover (by 18 days) is consistent with an increased volume

of sales.
 Credit control has improved suggesting that the increase in revenue has not been
generated by sales to risky (uncreditworthy) customers.
 Tightening of credit control has helped to maintain the cash at bank position.
 On average Solo is still taking twice the credit period (i.e. nearly 6 months) from
suppliers that it is granting to customers. However, suppliers are being paid slightly
earlier (by 8 days) in 2014 than in 2013.
 Although the return on capital employed has fallen only marginally (from 14.9% to
12.5%) return on equity is now negative. This is due to the significant increase in
finance costs.
Tutorial note: It goes beyond the scope of 6 marks to speculate why the finance costs should
be so much more in the current year. But, for example, the level of interest-bearing
borrowings might have been higher during the year than at the year end (and/or lower during
the previous year). And/or the company many have operated a bank overdraft facility during
the year which is not reflected in the year-end statements of financial position.

Answer 156 DARTH
(a) Ratios
(i) Supplier ratios

2013 2014
Current ratio =
= 2.5 = 2.3
Current assets - inventory 92,447  40,145 99,615  50,455

Quick ratio =
= 1.4 = 1.2
(ii) Management ratios
Return on capital employed =

 100%  100%
Issued capital and reserves 40,740 50,000
= 37.4% = 37.4%
Long-term asset turnover =
Revenue 486,300 583,900

Non - current assets 4,995 12,700
= 97 times = 46 times
(b) Comments
 The current ratio is decreasing but Darth is still “flush with funds”. The quick ratio
(measure of the company’s immediate liquidity) is also decreasing and at a faster
rate due to the increasing investment in inventory. The reduction in cash at bank
($6.3m) reflects the financing of long-term assets. This is an improvement on 2013
as $12m cash should not be earning as good a return (i.e. interest receivable) for
shareholders as investment in long-term assets and working capital (i.e. earning
profits).
 Return on capital employed has remained constant. The ratio of turnover to non-
current assets has halved due to the high investment ($7.7m) in non-current assets.
This investment should help increase turnover and profitability in future years.

Answer 157 MCQs INTERPRETATION OF FINANCIAL STATEMENTS
157.1 A The amount of the overstatement in opening inventory (1) will be an additional cost
in the current period, hence gross profit would fall. (2) will charge to profit costs
that relate to the next period. (Note that the goods are not in inventory at the period
end, hence cost of sales is overstated.) (3) would inflate sales and hence increase
profit. (4) would reduce costs of purchase and hence increase profit also.
88
157.2 B ROCE = = 181/3 %
200  80  120  80
8
157.3 C  365 = 73 days
40
157.4 C Gearing = Debt/Equity (or Debt/(Equity + Debt). (1) Bonus issue has no effect. (2)
increases equity. (3) The issue of debt increases financial leverage. (4) increases
equity.
157.5 A


Financial Accounting (For Exams From February 2014 To August 2015) - SQB

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ACCA

STUDY QUESTION BANK

For Examinations to August 2015

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Copyright ©2014 DeVry/Becker Educational Development Corp. All rights reserved.

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Question Page Answer Marks Date worked

CONTEXT OF FINANCIAL REPORTING

1 MCQs Context of financial reporting 1 1001 10

2 Jan Bartok 2 1001 8

5 MCQs Accounting systems 4 1004 8

DOUBLE ENTRY BOOKKEEPING PRINCIPLES

6 Victor Borissov 4 1004 22

LEDGER ACCOUNTING AND THE TRIAL BALANCE

ACCRUALS AND PREPAYMENTS

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Question Page Answer Marks Date worked

DEPRECIATION AND DISPOSAL OF NON-CURRENT ASSETS

RECEIVABLES AND PAYABLES

BOOKS OF PRIME ENTRY AND CONTROL ACCOUNTS

CONTROL ACCOUNT RECONCILIATIONS

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Question Page Answer Marks Date worked

BASIC ACCOUNTS PREPARATION

98 Cost structures 80 1163 9

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Question Page Answer Marks Date worked

107 IASB 92 1185 10

109 Financial statements 93 1187 17

IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

112 Overall considerations 95 1190 10

CAPITAL STRUCTURE AND FINANCE COSTS

115 Beta 96 1192 20

122 Retail inventory 104 1202 12

126 Sale of goods and leisure facilities 106 1206 12

IAS 16 PROPERTY PLANT AND EQUIPMENT

128 Depreciation and revaluation 108 1207 20

IAS 38 INTANGIBLE ASSETS

131 Research and development 110 1211 20

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Question Page Answer Marks Date worked

IAS 37 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

134 Eternity 112 1214 12

IAS 7 STATEMENT OF CASH FLOWS

139 Antipodean 116 1218 14

CONSOLIDATED FINANCIAL STATEMENTS

146 P&S 126 1229 10

INTERPRETATION OF FINANCIAL STATEMENTS

154 Alex 133 1241 12

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Question 1 MCQs CONTEXT OF FINANCIAL REPORTING

1.1 Which of the following are features of any partnership?

A Owner-management, joint liability

A Risk of personal bankruptcy

1.4 Which of the following is NOT a component of financial statements?

A A statement of comprehensive income

A Potential investors and their advisers

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Question 2 JAN BARTOK

Question 3 TOMAS MAXIM

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Question 4 MCQs FINANCIAL STATEMENTS