CAP1 Financial Accounting Sessions 1-5 DEBK Questions

CAP1 Financial Accounting, Academic Year 2011 / 2012 ver 1.
0
Chartered Accountants Ireland

CAP1 FINANCIAL ACCOUNTING

SESSION 1-5 DOUBLE ENTRY BOOKKEEPING

QUESTIONS

CAP1 Financial Accounting, Academic Year 2011 / 2012

Contents
Double Entry General Questions
QUESTION 1- DOUBLE ENTRY................................................................................ 4
QUESTION 2 DOUBLE ENTRY .............................................................................. 5
QUESTION 3 DOUBLE ENTRY ............................................................................... 6
QUESTION 4 - DOUBLE ENTRY .............................................................................. 7
QUESTION 5 CAPITAL vS REVENUE EXPENDITURE ........................................ 8
QUESTION 6 INVENTORY ..................................................................................... 9
QUESTION 7 - BAD DEBTS AND BED DEBT PROVISIONS ................................... 9
QUESTION 8 - ACCRUALS/PREPAYMENTS ......................................................... 10
QUESTION 9 - NON CURRENT ASSETS ............................................................... 10
QUESTION 10 VAT ............................................................................................... 11
QUESTION 11 - WAGES AND SALARIES .............................................................. 12
OTHER RELAVANT QUESTIONS
SUMMER 2008 Q2 - REID (BAD DEBTS AND BAD DEBT PROVISIONS)
Control Accounts and Bank Reconciliations
QUESTION 1 - CONTROL ACCOUNT RECONCILIATIONS .................................. 13
QUESTION 2 MURRAY (CONTROL ACCOUNTS) PILOT PAPER Q2 ................ 14
QUESTION 3 BROWN (CONTROL ACCOUNTS) ................................................ 15
QUESTION 4 SPANNER (BANK RECONCILIATION) .......................................... 16
QUESTION 5 - DARCY (BANK RECONCILIATION) AUTUMN 2008 Q2 ................ 17
QUESTION 6 PAPER PRODUCTS (BANK RECONCILIATION) .......................... 18
SUMMER 2011 Q6 - RAYMOND (BANK RECONCILIATION)
AUTUMN 2010 Q6 - FITZ LTD (CONTROL ACCOUNT RECONCILIATION)
AUTUMN 2009 Q6 - CARROLL (CONTROL ACCOUNT RECONCILIATION)
Suspense Accounts/Trial Balance Corrections
QUESTION 1- TRIAL BALANCE ............................................................................. 20
QUESTION 2 DALY SUMMER 2009 Q6 ............................................................ 21
QUESTION 3 COX &Co. ........................................................................................ 22
QUESTION 4 MARTIN - SUMMER 2008 Q7 ........................................................ 24
QUESTION 5 HARPER - AUTUMN 2007 Q1 ....................................................... 25
QUESTION 6 JONES 1 ......................................................................................... 28
QUESTION 7 JONES 2 ......................................................................................... 29
QUESTION 8 - DOYLE ............................................................................................ 30
SUMMER 2010 Q2 - PETRA (SUSPENSE ACCOUNTS)


DOUBLE ENTRY GENERAL
QUESTIONS

QUESTION 1- DOUBLE ENTRY
You are required to open the asset and liability and capital accounts and record the
following transactions for June 19x4 in the records of C. Williams

June 1 Started business with /2,000 in cash
June 2 Paid /1,800 of the opening cash into a bank a/c for the
business
June5 Bought office furniture on credit from Betta Built for /E120
June 8 Bought a motor van paying by cheque /950
June 12 Bought works machinery from Evans on credit /560
June 18 Returned faulty office furniture costing /62 to Betta Built
June 25 Sold some of the works machinery for /75 cash
June 26 Paid amount owing to Betta Built /58 by cheque
June 28 Took /100 out of the bank and put it in the cash till
June 30 J. Smith lent us /500- giving us the money by cheque


QUESTION 2 DOUBLE ENTRY

You are to enter the following transactions, completing double entry in the books for
the books for the month of May 19x7:

May 1 Started business with /2,000 in the bank
May 2 Purchased goods /175 on credit from M Mills
May 3 Bought fixtures and fittings /150 paying by cheque
May 5 Sold goods for cash /275
May 6 Bought goods on credit /114 from S Waites
May 10 Paid rent by cash /15
May 12 Bought stationery /27, paying by cash
May 18 Goods returned to M Mills/23
May 21 Let off part of the premises receiving rent by cheque /5
May 23 Sold goods on credit to U Henry /77
May 24 Bought a motor van paying by cheque /300
May 30 Paid the months wages by cash /117
May 31 The proprietor took cash for himself /44


QUESTION 3 DOUBLE ENTRY

Enter the following in the necessary personal accounts. Do not write up the other
accounts. Balance each personal account at the end of the month 19x9

Aug 1 Sales on credit to L. Sterling /445, L. Lindo /445, R. Spencer /221
Aug 4 Goods returned to us by L. Sterling /15, R. Spencer /33
Aug 8 Sales on credit to L. Lindo /66, R. Spencer /129, L. Banks /465
Aug 9 We received a cheque for /430 from L. Sterling
Aug 12 Sales on credit to R. Spencer /235, L. Banks /777
Aug 19 Goods returned to us by L. Banks E21, R. Spencer /25
Aug 22 We received cheques as follows: R. Spencer /300, L. Lindo /414
Aug 31 Sales on credit to L. Lindo /887, L. Banks /442


QUESTION 4 - DOUBLE ENTRY

Record the following details for the month of November 19x9 and extract a trial
balance as at 30 November
Nov 1 Started with /5000 in the bank
Nov 3 Bought goods on credit from T. Henriques /160, J. Smith /230, W.
Rogers /400, P. Boone /310
Nov 5 Cash sales /240
Nov 6 Paid rent by cheque /20
Nov 7 Paid rates by cheque /190
Nov 11 Sold goods on credit to : L. Matthews /48, K. Allen /32, R. Hall /1,170
Nov 17 Paid wages by cash /40
Nov 18 We returned goods to T. Henriques /14, P. Boone /20
Nov 19 Bought goods on credit from P. Boone /80, W. Rogers /270, D. Diaz
/130
Nov 20 Goods were returned to us K. Allen /2, L. Matthews /4
Nov 21 Bought motor van on credit from U.Z Motors /500
Nov 23 We paid the following by cheque T. Henriques /146, J. Smith /230, W.
Rogers /300
Nov 25 Bought another motor van paying by cheque immediately /700
Nov 26 Received a loan of /400 cash from A. Williams
Nov 28 Received cheques from L. Matthews /44, K. Allen /30
Nov 30 Proprietor brings a further /300 into the business , by a payment into the
business bank account


QUESTION 5 CAPITAL vS REVENUE EXPENDITURE

For the business of T. Brooks, a food merchant, classify the following between
Capital and Revenue expenditure:
a) Repairs to meat slicer
b) New tyre for van
c) Additional shop counter
d) Renewing signwriting on shop
e) Fitting partitions in shop
f) Roof repairs
g) Installing thief detection equipment
h) Wages of shop assistant
i) New cash register
j) Repairs to office safe
k) Installing extra toilet


QUESTION 6 INVENTORY

1. A trader starts in business and by the end of his first year, he has purchased
goods costing /21,000 and he has made sales totalling /25,000. Goods
which cost him /3,000 have not been sold by the end of the year.
Required:
What profit has he made in the year?
2. During the second year, he purchased goods costing /35,000. His sales for
the year were /50,000. Goods which cost /6,000 remain unsold at the
year end.
Required:
What profit was made in the second year?

QUESTION 7 - BAD DEBTS AND BED DEBT PROVISIONS

J. Thorpe commenced business on 1 January 19x7 and prepares his accounts to 31
December every year. For the year ended 31December 19x7, bad debts written off
amounted to /1200. It was also found necessary to create a provision for doubtful
debts of /2000.
In 19x8, debts amounting to /1600 proved bad and were written off. Mrs P. Iles
whose debt of /350 was written off as bad in 19x7 settled her account in full on 30
November 19x8. As at 31 December total debts outstanding were /56,000. It was
decided to bring the provision up to 5% of this figure on that date.
Required:
Complete for 19x7 and 19x8

(i) bad debts account
(ii) bad debts recovered account
(iii) provision for bad debts account

(iv) extract from the Income Statement

QUESTION 8 - ACCRUALS/PREPAYMENTS

The financial year of H. Saunders ended on 31 December 19x6. Show the ledger
accounts for the following items including the transfers to the final accounts.
a) Motor expenses: paid in 19x6 /744, owing at 31 December 19x6 /28
b) Insurance: paid in 19x6 /420, prepaid as at 31 December 19x6 /35
c) Stationary: paid in 19x6 /1,800, owing as at 31 December 19x5 /250,
owing as at 31 December 19x6 /490
d) Rent: paid during 19x6 E950, prepaid as at 31 December 19x5 /220,
prepaid as at 31 December 19x6 /290
e) Saunders sub-lets part of the premises. Receives /550 during the year
ended 31 December 19x6. Tenant owed Saunders /180 on 31 December
19x5 and /210 on 31 December 19x6

QUESTION 9 - NON CURRENT ASSETS

a) On 1 January 19x1 a business purchased a laser printer costing E1800. The
printer has an estimated life of 4 years after which it will have no residual
value
Required:
Calculate the annual depreciation charges for 19x1, 19x2, 19x3 and 19x4 on the
laser printer on the following bases:
(i) The straight line basis
(ii) The reducing balance method at 60%

b) Suppose that in 19x4 the laser printer were to be sold on 1 July for E200 and
that the business had chosen to depreciate it using the straight line basis on
a month by month basis

Required:
(i) Reconstruct the following accounts for 19x4 only:
(ii) The laser printer account
(iii) The provision for depreciation account

(iv) The disposal account

QUESTION 10 VAT

1. Jane Kelly purchases a machine on credit terms for /15,000 plus VAT at
15%. The business is registered for VAT.

Show the journal entries to record the above transaction.

2. Seamus Webb who is registered for VAT , bought furniture on credit terms at
a cost of/8,000 plus VAT of E1,200.

What is the correct journal entry to reflect this transaction?

3. Amy Kehoe sold fireplaces for /1,000 net of VAT at 20% to John Barron for
cash. She is registered for VAT.

Make the appropriate entries to account for this sale.

4. Charlie Kelly (a shopkeeper) purchased the following items from ABC Cash &
Carry on credit: purchases for resale /325, washing machine for his house
/199 and Fax machine for the office /67. Chris is not registered for VAT.

Show the journal entries to record the above transactions.


QUESTION 11 - WAGES AND SALARIES

1. Emily ONeill runs a small shop and has 4 staff in total. She uses the services
of a payroll bureau to complete the wages calculations each month. She then
pays these wages the following month. For September, Emily receives the
following information from the payroll bureau:
PAYE etc due to Tax Authorities 1,326
Net wages due to staff 2,873
Make the appropriate journal to account for the wages for September, on the basis
that Emily will not pay these wages until October.

2. Adrian Barron has five staff working for his telesales firm. At the end of each
month he pays them salaries plus commission earned. In October his financial
assistant gives him the following information:
Total wages charges (before commission) 5,500
PAYE etc due to Tax Authorities 1,225
Wages due to staff 4,275
Commission due to staff 650
Make the appropriate accounting entries to account for the above , assuming that
these amounts will be paid the following month.

3. Ger OLeary is a garage owner with a staff of 8 employees. In July, he paid
the following amounts:
Net salaries for July after tax and national insurance /28,000
Tax and employees national insurance for June /10,000
Employers national insurance for June /2,800
He owes the following amounts in respect of tax and national insurance for July:
Tax and employees national insurance /12,000
Employers national insurance /3,000

What is the correct expense for employee costs to be shown in the income
statement for July?

CONTROL ACCOUNTS AND BANK
RECONCILIATIONS
QUESTION 1 - CONTROL ACCOUNT RECONCILIATIONS

The receivables control account of C Ltd is shown below:
Receivables Control Account
/ /
Balance b/d 70,814.16 Balance b/d 1,198.73
Sales 54,738.36 Sales returns 2,344.39
Dishonoured cheque 607.15 Payments received 68,708.27
Debt collection fees 108.81 Contra 378.82
Bad debts written off 474.16
Balance c/d 1,194.26 Balance c/d 54,358.37
127,462.74 127,462.74

A listing of the individual customer balances in the sales ledger gives the following
totals:
Debits /55,136.65
Credits / 1,194.26 (used above)
The following facts have been discovered:
1) No entries have been made in the sales ledger for the debt collection charges
or bad debts written off
2) A credit balance of /673.46 has been taken as a debit balance in the listing
of the customer balances
3) The sales day book has been over added by /500
4) The account of the customer who settled by contra was debited with
/378.82
5) A balance on a customers account of debit /347.58 has been entered on
the listing of balances as debit /374.85
6) The sales return day book had been under added by /10
7) The dishonoured cheque had been entered in the sales ledger as credit
/601.75

Required:
Correct the receivables control A/C (commencing with the closing balances given)
and reconcile the listing of the individual balances to the new receivables control
account balances
QUESTION 2 MURRAY (CONTROL ACCOUNTS) PILOT PAPER Q2
/
Debit balance on the receivables control account as at 1 December. 2006 110,125
Credit balances on the receivables ledger at 31 December. 2006 1,360
Credit balances on payables control account as at 1 December 2006 54,100

Transactions for the month of December 2006
Discount allowed 15,610
Credit sales 720,250
Returns inwards 8,125
Contra payables/receivables ledger 14,050
Payments received from customers 685,575
Cheques received from customers dishonoured 4,630
Carriage in 5,685
Carriage out 6,450
Bad debts written off 2,280
Bad debt provision 4,825
Discounts received 6,705
Bad debts recovered (not included in cash from customers) 370
Returns outwards 8,625
Purchases invoices 324,100
Cheques paid to suppliers 301,325
Refund cheques paid to customers, who have overpaid accounts 825

Requirement

a) Prepare the payables control account and the receivables control account for the
month of December 2006 10 marks

b) Explain why any items listed above were excluded from the control accounts 5 marks


QUESTION 3 BROWN (CONTROL ACCOUNTS)

Mr.Brown hasextracted a list of payable balances at 31 December 2006 totalling /
99,850.

The transactions for the year were as follows:
/

Opening balance on payables control account 103,125
Purchases .............................................. 120,580
Discount received ................................... 3,190
Purchases returns .................................. 675
Cheques paid to suppliers ...................... 115,575

The following items have come to light since the list was extracted:

(1) Mr. Johnson was paid / 15 out of petty cash. Mr Johnsons account has
been adjusted accordingly.
(2) The credit side of Mr. Bees account has been under cast by / 35.
(3) Mr. Drums account of / 600 was been included in the list as / 660.
(4) Discounts of / 25 have been posted to the wrong side of Mr. Allens
account.
(5) Returns to suppliers of / 40 have been omitted from the accounting
records.
(6) Mr. Tullys account of / 4,475 has been omitted from the list.

Requirement

(i) Prepare the payables control account for the year ended 31
st
December
2006.5 Marks
(ii) Prepare adjustments to the list of balances to reconcile to the control
account.4 Marks


QUESTION 4 SPANNER (BANK RECONCILIATION)

The following is a summary from the cash book of Spanners Limited for the month of
October:

/ /
Balanace b/d 1,407 Payments 15,520
Receipts 15,073 Balance c/d 960
16,480 16,480

On investigation you discover that:

(a) Bank charges of /35 shown on the bank statement have not been entered
inthe cash book
(b) A cheque drawn for /47 has been entered in error as a receipt
(c) A cheque for /18 has been returned by the bank marked refer to drawer,
but it has not been written back in the cash book
(d) The balance brought forward should have been /1,470
(e) Three cheques paid to suppliers for /214, /370 and /30 have not yet
been presented to the bank
(f) Takings of /1,542 were placed in a night safe deposit on 31 October but
were not credited by the bank until 3 November
(g) The bank charged a cheque for /72 in error to the companys account
(h) The bank statement shows an overdraft of /124

You are required

(a) to show what adjustments you would make in the cash book (5 marks)
(b) to prepare the bank reconciliation statement as at 31 October (5 marks)
(c) The CEO of Spanner Limited would like to treat the returned cheque referred
to in note (3) of the question as an outstanding lodgement. You are required
to explain briefly if this proposed treatment is acceptable (5 marks)


QUESTION 5 - DARCY (BANK RECONCILIATION) AUTUMN 2008 Q2

Mr Darcy is in business as a sole trader. His draft income statement for the year
ended 31
st
December 2007 shows a net profit of / 74,430. The balance sheet at
31
st
December 2007 contains a bank overdraft, as per the cash book, of / 6,060.

On comparing the bank statements supplied by the bank, with the cash book, the
following differences have been identified:

1) Cheques received amounting to / 4,220 were entered in the cash book on
30
th
December 2007 and paid into the bank but these were not credited on the
bank statement until 3
rd
January 2008.
2) Cheques paid totalling / 9,350 were entered in the cash book in December
2007 but were not presented for payment until January 2008.
3) There are bank charges of / 400 on the bank statement but these have not
been entered in the cash book.
4) Dividends received electronically of / 720 are shown on the bank statement
but have not been entered in the cash book.
5) A cheque for / 800 received from a customer was entered in the cash book
and paid into the bank on 10
th
December 2007. However, the bank statement
to 31
st
December shows that this was dishonoured as there were not
sufficient funds. / 800 was debited on the bank statement on 23
rd

December 2007 and the cheque was returned unpaid but not received by Mr
Darcy until January 2008 due to postal delays. Mr Darcy now considers that
this is a bad debt as the customer cannot be contacted at the address given.
Not entry has been recorded in the books.
6) A cheque for / 1,200 drawn in respect of purchases has been debited in the
cash book and credited to the sales account.
Requirement

a) Show the corrections that should be made to bank in the cash book (4 marks)
b) Prepare a bank reconciliation statement as at 31
st
December 2007 (5 Marks)

c) Prepare a statement showing the corrections needed to arrive at the net profit
for the year ended 31
st
December 2007 (5 marks)
Presentation mark 1 mark
Total 15 marks

QUESTION 6 PAPER PRODUCTS (BANK RECONCILIATION)

The bank account for the month of March 2007 for Paper products ltd. Was as
follows:
Bank Account

March Receipts March Payments Cheque
1 Balance b/d 243 4 M Mulcahy 205 27
1 R Moloney 57 5 J Kearney 206 29
1 Garden
Suppliers Ltd
65 8 Cahill & Co. Ltd 207 119
12 Hardware Ltd 1,668 10 J ODonnell 208 1,382
18 John Ryan 2,397 14 KL Distributers plc 209 12
18 M Caplice 210 653
22 Acme Consultants DD 35
25 P Walsh 211 87
26 ABC plc SO 132
27 Salaries transfers 956
29 XYZ Ltd 212 7
_____ 31 Balance cd 1,001
4,440 4,440
April Balance b/d 1,001


The bank statement for March 2007 was as follows:
ACCOUNT STATEMENT
BANK OF BREFFNI plc
95 Main Street
Dundalk
Account Holder:
Paper Products Ltd.
Date of Statement: 1 April 2007
March Description Debit Credit Balance

1 Balance 645
2 204 84 561
4 203 102 459
9 205 27 432
12 DD Electricity 25 407
12 Credit 1,686 2,093
14 207 119 1,974
16 208 1,382 592
17 206 29 563
18 Credit 2,397 2,960
23 DD Acme Consultants 35 2,925
24 209 21 2,904
26 Standing Order 132 2,772
27 Transfer 956 1,816
28 Interest (Loan Account) 13 1,803

31 Bank Charges 9 1,794
31 210 653 1,141
31 Balance 1,141

REQUIRED:
Prepare the bank reconciliation statement for Paper Products ltd. As at 31 March
2007. Total: 20 marks
SUSPENSE ACCOUNTS/TRIAL
BALLANCE CORRECTIONS

QUESTION 1- TRIAL BALANCE

A trial balance has an excess of debits over credits of /14,000 and a suspense
account has been opened to make it balance. It is later discovered that

(a) The discounts allowed balance of /3,000 and the discounts received
balance of /7,000 have both been entered on the wrong side of the trial
balance
(b) The payables control account balance of /233,786 had been included in the
trial balance as /237,386
(c) An item of /500 had been completely omitted from the sales records (ie
from the sales day book)
(d) The balance on the current account with the senior partners wife had been
omitted from the trial balance. This item, when corrected, removes the
suspense account altogether.
Required

Open the suspense account and record the necessary corrections in it. Show in the
account the double entry for each item entered


QUESTION 2 DALY SUMMER 2009 Q6

K. Daly signed a property agreement with a landlord in 2005 renting a building at /
57,000 per annum. He utilises the ground floor himself as retail premises. He sub-
lets the first floor to E. Reilly for / 19,000 per annum and the second floor to M.
Flaherty for / 9,000 per annum.

The following was the position on 1
st
January 2008
/
Rent paid in advance by K. Daly to landlord 14,500
Rent owed to K. Daly by E. Reilly 4,750
Rent paid in advance to K. Daly by M. Flaherty 2,500

During the year ended 31
st
December 2008, the following transactions took place:

/
Rent paid by K. Daly to landlord 28,500
Rent received by K. Daly from E. Reilly 23,000
Rent received by K. Daly from M. Flaherty 5,000

K. Daly also pays rates on these premises. Rates are payable in advance on 1
st

April each year.

At 1
st
January 2008 K. Daly had paid rates in advance of / 6,000.

K. Daly paid / 24,000 for rates on 6
th
April 2008. No other payments were made in
the year ended 31
st
December 2008

K. Daly has been informed by the rates office that the rates on the premises will be
/ 36,000 per annum from 1
st
April 2008 due to improvements made to the
premises.

Requirement

(a) Show in T-account format the entries in the rent payable account, rates payable
account and the rent receivable account for the year ended 31
st
December
2008.

10 Marks

(b) Show the relevant entries in the income statement and the balance sheet of K.
Daly for the year ended 31
st
December 2008.
4 Marks
Presentation mark 1 Mark
Total 15 Marks

QUESTION 3 COX &Co.

You are the accountant of Cox & Co and have been presented with the following trial
balance as at 30 November Year 11
/ /
Dr Cr
Inventory (cost)as at 1 December Year 10 270,183
Inventory (provision) 9,654
Income account 63,760
Accumulated depreciation
Buildings 35,000
Plant and machinery 107,326
Fixtures and fittings 41,054
Motor vehicles 57,800
Provision for doubtful debts 7,245
Prepayments 9,810
Accruals 14,100
Receivables ledger control account 404,549
Payables ledger control account 325,137
Buildings 550,000
Plant and machinery 175,685
Fixtures and fittings 86,547
Motor vehicles 101,250
Cash at bank 672,525
Capital account Paul Cox 779,586
Draft profit for the year 438,877
Disposal of fixed assets 38,990
Suspense account __ 1,911,192
3,050,135 3,050,135

You are also given the following information:

(1) An inventory count on 1 December Year 11 ("Inventory count") has identified that the
original cost of the Inventory held at that date was /320,654. A review of the
Inventory records has subsequently identified that a provision of /11,675
("Inventory provision") is required to ensure that this Inventory is recorded at the
appropriate value.


(2) The original cost of the firms buildings ("Buildings") (none of which was purchased
during the current year) was /200,000. These were revalued by /350,000 on 1
December Year 10; the only entry made in respect of this revaluation was a debit of
the revalued amount to the buildings account.

(3) During the year the following non current asset disposals ("Disposals") were made:

Original Accumulated Proceeds
cost depreciation
as at
1 December Year 10

Plant and machinery 78,325 56,100 29,109
Fixtures and fittings 21,987 17,372 6,781
Motor vehicles 16,458 10,132 3,100
Total 38,990

The balance on the disposal of non current assets account represents the proceeds
(which were also incorrectly credited to cash at bank) arising on these disposals no
other entries have been made in respect of the disposals.

(4) The firm depreciates its non current assets ("Depreciation") fully on a straight line
basis over the following useful economic lives:

Buildings 25 years
Plant and machinery 10 years
Fixtures and fittings 6 years
Motor vehicles 4 years
No depreciation is charged in the year of disposal but a full year's charge is
made in the year of acquisition. No entries have yet been made in respect of the
current year's depreciation.

(5) The prepayment and accrual balances ("Prepayments and accruals") as at 30
November Year 11 are 12,679 and 17,300 respectively.

(6) On 1 July 20X1 Capital introduced amounted to 80,000. The only entry made in
respect of this transaction was to debit correctly the amount introduced to cash.

Required


Using the information above, prepare

a) a suspense account showing entries to clear the suspense account to zero
(6 marks)
b) an adjustment of profits statement for internal use. (14 marks)
Total marks 20

QUESTION 4 MARTIN SUMMER 2008 Q7

Mr. Martin is a plumber who operates his business as a sole trader. He employs a
number of plumbers, a bookkeeper and receptionist. Mr. Martins bookkeeper has
prepared the draft financial statements to 31 December 2007 which show a profit of
/ 80,000. The following errors have come to light following the preparation of the
draft financial statements and you have been asked to correct these errors:

1. Mr. Martin wrote a cheque for / 8,700 to MAC GARAGE Ltd., which the
bookkeeper entered in the motor expense account. This cheque was the
balancing payment for the purchase of a new van. A vehicle which had
originally cost / 8,000 and which had a net book value at 1 January 2007 of
/ 3,700, was traded in as part exchange. Assume no gain or loss arose on
the trade in.

2. Mr. Martin charges depreciation on motor vehicles at 25% per annum with a full
years depreciation charged in the year of acquisition, and none in the year of
disposal. No account was taken of the error in 1.above when calculating
depreciation for the year to 31 December 2007.

3. An invoice for / 1,560 was entered in the purchases day book as / 1,650.

4. Discounts allowed of / 2,890 were debited to the discount received account in
error.

5. Mr. Martin purchased goods for the business costing / 1,500 plus VAT at
20%, using his private credit card. No entry has been made in the business
records for this transaction.

6. A cash refund of / 1,600 to Mr. M. Murphy, a credit customer, was recorded
as a payment to a supplier of the same name.

7. Part of the office was sub let. Rent received of / 2,400 for subletting was
collected by Mr. Martins wife and used to pay domestic bills.

8. No adjustment has been made for rates prepaid at 31 December 2007 of /
1,800.

Requirement

(a) Prepare the journal entries to correct the errors listed in 1. 8.above.
Narratives for the journals are required.
10 Marks

(b) Show the adjusted profit for the errors corrected in (a) above.
4 Marks

Presentation mark 1 Mark
Total 15 Marks

QUESTION 5 HARPER AUTUMN 2007 Q1

You are the Accountant for HARPER Ltd. (HARPER) and are currently preparing
final accounts for the year ended 31
st
December 2006. The work is not yet complete
but the following list of balances has been extracted from thebooks by your
bookkeeper.
/

Land .............................................................................. 54,000
Buildings ........................................................................ 114,000
Plant and machinery...................................................... 66,000
Provision for depreciation of buildings
at 31
st
December 2005 .................................................. 18,000
Provision for depreciation of plant and machinery
at 31
st
December 2005 .................................................. 20,000
Ordinary share capital ................................................... 100,000
Accumulated reserves 1
st
January 2006 ....................... 10,500
Trade receivables .......................................................... 37,800
Trade payables ............................................................. 18,500
Inventory at 31
st
December 2006 .................................. 42,750
Draft profit before adjustment for the year
ended 31
st
December 2006 ........................................... 29,550
8% debentures .............................................................. 80,000
Provision for doubtful debts ........................................... 6,000
Cash at bank ................................................................. 8,000
Share premium account ................................................ 40,000

ADDITIONAL INFORMATION

(1) A receipt from a customer of / 12,000 together with bank charges of /
2,000 have been completely omitted from the records, as the bank statement
was not received until after the balances had been extracted.

(2) The provision for doubtful debts is to be adjusted to 10% of receivables (after
adjusting for any other relevant items).

(3) The debentures were issued on 1
st
July 2006. No entry has been made in the
books regarding interest on debentures.

(4) Inventory at 31
st
December 2006 has been understated by / 4,500.

(5) No adjustment has been made for insurances paid on 1
st
November 2006 of /
6,000 for the year ended 31
st
October 2007.

(6) Depreciation is to be provided at 5% on buildings using the straight line basis,
and 20% on plant and machinery using the reducing balance basis.

(7) You have become aware that a customer has been declared bankrupt. It has
been agreed that HARPER is unlikely to receive any payment and the entire
balance of / 4,000 is to be written off.

Requirement

(a) Prepare the journal entries to correct the above.
7 Marks
(b) Prepare T accounts for all accounts identified in (a) above. No other T
accounts are required.
6 Marks
(c) Prepare the balance sheet of HARPER as at 31
st
December 2006.
5 Marks
Presentation Marks 2 Marks
Total 20 Marks


QUESTION 6 JONES 1

JONES, having been unable to balance his trial balance at 31 December, opened up
a suspense account and entered in it the amount he was out of balance. The debits
had exceeded the credits by /736.

The following errors were subsequently discovered:

(a) an allowance of /265 to a receivable, TWIG, was entered in his
account as /256
(b) the total of the discount received column in the cash book for the
month of December of /237 had not been posted
(c) /500,representing the sales proceeds of a machine scrapped, had
been passed through the sales account
(d) A balance of /268, owing by a receivable, LEAF, had been omitted
from the trial balance at 31 December
(e) The bank overdraft of /313 had been entered in the trial balance as
/331
(f) Sale of goods for /1000 to STONE on credit had been completely
omitted from the books
(g) Discount received balance of /379 had been entered in the trial
balance as /397 (debit balance)

You are required to show the suspense account after the rectification of all errors
and to state the journal entries to be made to correct the errors which do not pass
through the suspense account

(15 marks)

QUESTION 7 JONES 2

JONES Ltd. (JONES) has prepared a trial balance, but it does not balance. A
suspense account was set up with the difference on the trial balance /29,350
credited to it

The following has come to light since the prepareation of the trail balance:

1. The electricty expense account has been incorrectly extracted as /1,500 instead of
/150
2. JONES issued 20,000 / 1 shares at /1.50 during the year. The bookkeeper was
unsure how to treat this entry so she debited the bank and credited the suspense
account
3. A payment made to a supplier for /1,000 has been entered in the cash book, but
no entry has been made in the suppliers account.
4. A cheque for /10,000 received from a customer was correctly entered in the cash
book but posted to the cusomers account as /11,000
5. /4,500 paid for motor repairs has been credited, in error, to the motor vehicle asset
account. The debit is correct.
6. The receipt of /10,000 from a credit customer has been completly omitted from the
accounting records.
7. Telephone expenses of /2,500 were debited in error to rent payable account.
Requirement

i. Prepare the journal entries for items (1) to (7) above
ii. Prepare the suspense account

QUESTION 8 - DOYLE

An inexperienced book-keeper has drawn up a trial balance for the year ended 30
June 2005 as follows:
Dr Cr

Capital 4,591
Provision for doubtful debts 200
Bank overdraft 1,654
Trade accounts payable 1,637
Trade accounts receivable 2,983
Discount received 252
Discount allowed 733
Drawings 1,200
Office furniture 2,155
General expenses 829
Purchases 10,923
Returns inwards 330
Rent and rates 314
Salaries 2,520
Sales 16,882
Inventory 2,418
Provision for depreciation of furniture 364

24,983 25,002
REQUIRED:
(a) Draw up a corrected trail balance debiting or crediting any residual error to a
suspense account. (5 marks)
(b) Further investigation of the suspense account ascertained in (a) above, reveals
the following errors:
(i) Goods bought from S O Neill amounted to 13 had been posted to his
account as 33.
(ii) Furniture which had cost 173 had been debited to the general expense
account.
(iii) An invoice from D Walsh Ltd for 370 had been omitted from the
purchase account, but credited to D Walshs account.
(iv) Sales on credit to K Brophy for 450 had been posted to the sales, but not
to the trade accounts and receivable ledger.
(v) The balance on the capital account had been incorrectly brought forward
in the ledger, and should have been 4,291.
(vi) An amount of 86 received from J McGrath, a debtor, in settlement of his
account had been treated as a cash sale.
(vii) Discount allowed has been undercast by 35.
Prepare journal entries correcting each of the above errors and write up the
suspense account. (12 marks)
(c) There are several types of error which will not affect the balancing of a trail
balance; these include errors of omission, commission and principle.
Explain what is meant by these terms and give an example of each. (3 marks)
(Total 20 marks)

CAP1 Financial Accounting Sessions 1-5 DEBK Questions

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CAP1 Financial Accounting, Academic Year 2011 / 2012 ver 1.

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