Professional Documents
Culture Documents
f3 Becker Kit
f3 Becker Kit
PAPER F3/FFA
FINANCIAL ACCOUNTING
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (i)
This training material has been published and prepared by Becker Professional Development International
Limited
16 Elmtree Road
Teddington
TW11 8ST
United Kingdom.
All rights reserved. No part of this training material may be translated, reprinted or reproduced or utilised in any
form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented,
including photocopying and recording, or in any information storage and retrieval system. Request for
permission or further information should be addressed to the Permissions Department, DeVry/Becker Educational
Development Corp.
Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
(ii) ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
CONTENTS
FINANCIAL STATEMENTS
ACCOUNTING SYSTEMS
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
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (iii)
CONTENTS
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
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
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
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
(iv) ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (v)
CONTENTS
REGULATORY FRAMEWORK
CONCEPTUAL FRAMEWORK
IAS 2 INVENTORIES
IAS 18 REVENUE
(vi) ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
CONTENTS
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (vii)
(viii) ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
1.2 Which of the following more of a disadvantage of operating as a sole trader as compared
with a partnership?
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
1.5 Which of the following users of financial statements has least need of published financial
information?
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1
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)
The following information is available for Tomas Maxim’s business for the year ended 31 December.
He started his business on 1 January.
$
Trade payables 6,400
Trade receivables 5,060
Purchases 16,100
Sales revenue 28,400
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)
2 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
A Accrued expenses
B Bank overdraft
C Drawings
D Trade payables
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?
4.5 Which one of the following items of expenditure should be classified as capital
expenditure?
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 3
5.1 Which one of the following statements concerning an accounting system is correct?
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?
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.
Required:
(a) Show the accounting equation which results from EACH of these transactions.
4 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
7.2 Closing net assets can be found by using which of the following equations?
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 5
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
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.
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:
(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)
6 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Question 9 PETR
Petr commenced trading in his bakery on 5 April. All his transactions were on a cash basis, as follows:
Required:
(a) Write up, balance and close the relevant ledger accounts for the above transactions.
(8 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.
Required:
(a) Write up the ledger accounts for the above transactions, including dates, descriptions
and balances. (11 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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 7
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.
Required:
(a) Write up and balance the ledger accounts for EACH month. (9 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:
8 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
(b) Close the relevant ledger accounts as at 31 March writing up the income and
expenditure account. (5 marks)
(35 marks)
Question 13 BOHM
Required:
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 9
Question 15 VIKTOR
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:
10 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
(b) Write up the ledger accounts to reflect the double entries, recording credit transactions
in total accounts rather than individual accounts. (8 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
Required:
(a) Write up and balance the relevant ledger accounts for the above transactions. (11 marks)
(c) Prepare a statement of profit or loss for the month ended 30 November and a statement
of financial position at that date. (8 marks)
(23 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 11
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.
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.
Required:
(a) Write up the ledger accounts, recording credit transactions in the accounts of
individuals. (15 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
12 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
financial position at that date. (8 marks)
(30 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 13
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?
20.4 Which one of the following errors should be detected by the extraction of a trial
balance?
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.
(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.
14 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
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.
21 June Bought goods on credit for $4,500 from Andrew who offered a 2% quick
settlement discount.
24 June (i) Mandy bought goods worth $5,000 and was offered a 3% quick
settlement discount.
(ii) Claire took advantage of Ricardo’s discount and paid the net amount due
after taking the discount offered.
(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)
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
Cr Trade receivables
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 15
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
Cr Trade receivables
(6 marks)
Question 24 DINO
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.
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)
16 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
–––––– ––––––
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 17
At 31 March inventory was $700 and rent paid in advance amounted to $150.
Required:
(b) Prepare the statement of profit or loss for the period to 31 March and a statement of
financial position at that date. (7 marks)
(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
Motor vehicles 2,400
Fixtures and fittings 600
Trade receivables 4,577
Trade payables 3,045
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.
18 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 19
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:
Required:
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?
20 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 21
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?
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:
(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)
22 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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:
(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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 23
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
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.
Required:
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.
24 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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?
Machine 1 Machine 2
$ $
Cost 120,000 140,000
Selling price 90,000 80,000
Profit/(loss) on sale 30,000 (40,000)
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:
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 25
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?
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.
A $1,358
B $1,642
C $1,580
D $1,864
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
26 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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:
(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:
(6 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 27
Question 40 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
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:
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)
28 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
The trade receivables listing of Ink Products, as at 31 March 2015, has been analysed as follows:
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:
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 29
(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:
Required:
(8 marks)
Question 45 FREDERIK
Frederick, a wholesaler, has the following information relating to the year ended 31 March 2015:
(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.
30 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
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.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 31
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
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
32 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 33
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
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)
34 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 35
51.1 Which of the following statements is correct concerning inventory records for a
manufacturing company?
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?
51.3 Spain has incorrectly included closing inventory in its financial statements at $32,943 instead
of $37,642.
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.
36 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.)
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 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:
Required:
(16 marks)
Question 55 RUBENS
38 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
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
Closing inventory 100,142
Credit sales 148,580
Returns from customers 2,508
Discounts allowed 1,824
Discounts received 864
Cash paid to suppliers 56,546
Required:
Prepare the receivables ledger control account and the payables ledger control account for the
month.
(6 marks)
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 39
Required:
(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:
Question 59 RANKINE
Rankine has been in business for a number of years as a greengrocer making up his annual accounts to
31 March.
40 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
(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
13 February Drew cheque for wages 7
14 February Bought goods from W Martin 150
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
20 February Drew cheque for wages 7
21 February Sent cheque to H Wood 72
Discount allowed by him 3
22 February Sold goods to T Crown 130
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 41
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 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.
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
42 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Irrecoverable debts written off 10
Discounts allowed 9
Discounts received 5
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
Discounts received 8
Discounts allowed 10
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:
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 43
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
Cash paid to suppliers 258,100
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
44 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Non-current assets (carrying value) 20,000
Current assets
Trade receivables 40,000
Inventory 50,000
–––––– 90,000
_______
Total assets 110,000
_______
Capital and reserves 30,000
Current liabilities
Bank overdraft 40,000
Trade payables 40,000
–––––– 80,000
_______
Total capital and liabilities 110,000
_______
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 45
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
Discounts received 21,069
Cash sales 69,589
Cash from credit customers 795,373
Irrecoverable debts to be written off 9,550
Discounts allowed 12,956
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
$ $
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
_______ _______
46 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
(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:
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.
(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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 47
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.
(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:
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.
48 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
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.
(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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 49
(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.
(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.
(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.
(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)
50 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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:
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 51
(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)
69.1 An irrecoverable debt of $900 was written off an account in the receivables ledger, but not
recorded in the control account.
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.
52 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
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?
Question 70 TALANT
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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 53
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:
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:
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
54 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
(a) Show the appropriate adjustments required in the cash account of Gorbachev bringing
down the correct balance at 31 March. (5 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:
(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
______ ______
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 55
(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:
(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)
(15 marks)
56 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
______ ______
(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.
Required:
(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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 57
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:
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.
58 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
(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:
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:
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 59
(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
(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)
60 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Trade receivables 26,216
Drawings 8,260
Suspense account 3,830
Cash 700
______
57,832
_______
130,040
_______
Capital account 50,224
Loan – L Franks 12% 20,000
Trade payables 26,782
Bank overdraft 14,634
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.
(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)
(c) Draw up a revised statement of financial position at 31 December. Clearly show the
adjustments to profit. (7 marks)
(18 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 61
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
Suspense account 7,180
––––––– –––––––
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)
62 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 63
(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.
(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:
(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)
64 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Trade receivables 20,000
Cash 500
______
30,500
_______
Total assets 130,500
_______
EQUITY AND LIABILITIES
Capital and reserves
Capital 20,000
Profit for the year 53,600
Suspense account 44,900
______
118,500
Current liabilities
Trade payables 12,000
_______
130,500
_______
(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.
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 65
(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.
Required:
Question 88 CND
The bookkeeper has prepared a preliminary trial balance of CND for the year ended 31 December as
follows:
$ $
Capital account 110,000
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
Suspense account 1,030
––––––– –––––––
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:
66 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 67
89.1 The sales day book of a company is undercast by $500. The company does not maintain
control accounts.
A Dr Sales a/c
Cr Customer (receivable) a/c
B Dr Sales a/c
Cr Suspense a/c
D Single entry:
Cr Sales a/c
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
Discounts allowed 79
D Suspense a/c 176 Discounts allowed 79
Discounts received 97
68 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 69
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
Opening inventory 14,300
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 inwards 1,050
Closing inventory 15,200
Returns outwards 950
Rent 2,550
Salesmen’s salaries and commission 8,200
Interest on loan 250
Vehicle running expenses 3,650
Bank overdraft 21,100
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
Suspense account 7,400
Amortisation of leasehold for 2014 9,000
Depreciation of delivery vans for 2014 2,000
_______ _______
206,850 206,850
_______ _______
Required:
(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)
70 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
(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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 71
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
Motor expenses 3,790
Drawings 4,800
Allowance for receivables 1 January 2014 600
Loan 4,000
Trade receivables 9,240
Trade payables 10,040
Bank balance 2,190
_______ _______
110,960 110,960
_______ _______
(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%
Required:
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
financial position at that date.
(20 marks)
72 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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 256
Irrecoverable debts recovered 45
Trade receivables 20,280
Trade payables 10,056
Bank charges 120
Rent 2,000
Returns inwards 186
Returns outwards 135
Salaries 3,500
Wages 8,250
Travelling expenses 1,040
Carriage inwards 156
Trade discounts allowed 48
Trade discounts received 138
General expenses 2,056
Gas, electricity and water 2,560
Carriage outwards 546
Travellers’ salaries and commission 5,480
Printing and stationery 640
_______ _______
160,264 160,264
_______ _______
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 73
(5) Depreciation is to be charged at the following rates on the reducing balance basis:
(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
financial position at that date.
(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
Trade receivables 9,600
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
Trade payables 7,432
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
Delivery vans at cost 3,000
Discounts received 1,206
Salesmen’s wages and salaries 5,262
Lighting and heating 991
Accumulated depreciation on delivery vans to 1 January 2014 750
Irrecoverable debts written off 76
Audit and professional charges 43
Cash at bank and in hand 5,148
Postage, telephone, stationery and office expenses 479
(2) Depreciation is to be charged on cost at 10% per annum on furniture and equipment, and 25%
per annum on delivery vans.
74 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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:
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
financial position at that date.
(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
General expenses 815
Capital account – debit balance 1 January 2014 537
Receivables 1,324
Payables 3,370
Cash in hand 212
Drawings (cash) 1,820
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 75
Additional information
(1) The difference in the trial balance is the bank balance at 31 December 2014.
(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):
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
financial position at that date.
(20 marks)
76 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Sundry expenses 6,700
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
Trade receivables and payables 95,000 82,000
Loan 10,000
Loan repayments 6,400
Bank deposit account 15,000
Bank current account 26,500
________ ________
817,750 817,750
———— ————
There was also an unpaid invoice of $200 for packing materials received and consumed
during the year.
(ii) Prepayments:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 77
$
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.
Required:
(a) Prepare a statement of profit or loss for the year ended 30 June 2015. (12 marks)
(20 marks)
78 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Heat and light 8,000
Wages and salaries 19,000
Printing and stationery 6,000
Telephone and fax 6,000
Rent and insurances 4,000
Trade receivables and payables 35,000 33,000
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
Suspense account 3,000
_______ _______
443,000 443,000
_______ _______
(ii) Prepayments:
(iii) Accruals:
(v) Allowance for receivables to be amended to 5% of receivable balances, after adjusting for
irrecoverable debts written off.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 79
– 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:
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)
(25 marks)
(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:
80 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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:
(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
——— ———
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 81
Required:
Prepare Lamdin’s statement of profit or loss for the year ended 30 June 2015 and a statement of
financial position at that date.
(20 marks)
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:
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.
82 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
Prepare the statement of profit or loss and a statement of financial position at 31 December 2014.
(20 marks)
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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 83
Required:
Prepare a statement of profit or loss for the year ended 30 September 2014 and a statement of
financial position at that date.
(20 marks)
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 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:
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
financial position at that date.
(20 marks)
84 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
$ $
Balance 1 January 2014 150 Materials 4,790
Bankings 9,204 Van expenses 342
General expenses 110
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 85
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
Lighting and heating 210
General expenses 800
Loan interest 120
Drawings 900
Customers’ cheques dishonoured 180
Balance 31 December 2014 993
——— ———
35,170 35,170
——— ———
(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.
86 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Required:
Prepare:
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 87
$ $
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.
(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:
Prepare a statement of profit or loss for the year ended 31 December 2014 and a statement of
financial position at that date.
(20 marks)
88 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
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.
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
Irrecoverable debts written off 12
Discounts allowed 6
Cash sales 18
A $343,000
B $349,000
C $355,000
D $361,000
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 89
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
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
A $39,352
B $39,065
C $38,435
D $38,148
90 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
106.7 The following information relates to a business for the year ended 31 March 2015:
$000
Revenue 300
Purchases 230
Opening inventory 55
A $35,000
B $45,000
C $65,000
D $75,000
The goods sent out on sale or return were at cost price plus 25%.
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.
B Dr Discounts allowed
Cr Receivables ledger control a/c
D Dr Discounts received
Cr Payables ledger control a/c
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 91
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)
(a) State the objectives of the International Accounting Standards Board (IASB). (3 marks)
(c) Outline THREE steps taken by the IASB to ensure consistent interpretation of IFRSs.
(3 marks)
(10 marks)
108.1 Which body has sole responsibility and authority to issue an International Financial
Reporting Standard?
108.2 Which body provides guidance on financial reporting issues that are no specifically
address in IFRS?
92 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
(10 marks)
(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)
(17 marks)
Define the following accounting concepts and give for each one an example of its application:
Note: Your answer to (c) should include a brief explanation of the circumstances in which the
consistency concept should not be applied.
(14 marks)
111.1 What is the principal purpose of the IASB’s “Conceptual Framework for Financial
Reporting”?
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 93
111.2 Which of the following statements concerning the IASB’s “Framework” is correct?
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?
(1) Accuracy
(2) Completeness
(3) Materiality
(4) Neutrality
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?
94 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
IAS 1 Presentation of Financial Statements sets out overall considerations for the presentation of
financial statements.
Required:
(7 marks)
114.1 In which one of following circumstance can “fair presentation” in accordance with IFRS
be presumed?
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?
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 95
114.5 In which financial statements will dividends paid during the year be presented?
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
Trade receivables 470
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
(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.
96 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
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:
(12 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 97
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
Carriage outwards 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
Administrative expenses 30
Directors’ salaries 30
Rents receivable 16
Trade receivables 380
Cash at bank 110
Trade payables 60
______ ______
1,542 1,542
——— ———
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)
98 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
(3) Plant disposed of originally cost $32,000. Accumulated depreciation was $6,000.
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 99
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
Sales revenue 20,000
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
(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.
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)
100 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
The following information is available about the balances and transactions of Alpaca:
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 101
121.1 Which of the following would cause a company’s profit for the year to increase?
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
102 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
In addition to providing for the preferred dividend for a financial year, an ordinary dividend
of 2 cents per share is payable.
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
121.8 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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 103
A retailer has the following purchases and sales of a particular product line:
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:
(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.
104 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 105
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)
“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)
106 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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?
127.5 IAS 18 Revenue prescribes the accounting treatment for the following revenues:
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 107
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)
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
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:
(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.
108 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
Question 130 MCQs IAS 16
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 ...”.
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?
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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 109
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?
(c) An entity has incurred the following costs prior to commercial production of a new pollution
filter for use on commercial vehicles:
(d) Describe how and when development expenditure should be amortised. (6 marks)
(20 marks)
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)
110 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
133.1 IAS 38 provides examples of research and development activities, for example:
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
133.3 A company has incurred the following costs in operating a pilot plant for the manufacture of a
new product:
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 111
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)
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:
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.
112 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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)
“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:
(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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 113
(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?
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?
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).
114 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
How should this event be treated in Oberon’s financial statements for the year ended 31
December 2014?
138.1 Which of the following material events occurring after the end of the reporting period
are adjusting events?
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?
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 115
On what basis should Ramin’s financial statements for the year ended 31 December
2014 have been prepared?
The statements of financial position of Antipodean at the end of two consecutive financial years were:
116 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Profit for the year ended 31 December 2014 ($25,200) is after accounting for:
$
Depreciation
Premises 1,000
Equipment 3,000
Motor vehicles 3,000
Profit on disposal of equipment 430
Loss on disposal of motor vehicle 740
Interest payable 3,000
$
Equipment 5,200
Motor vehicles 2,010
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 117
$ $ $ $
EQUITY AND LIABILITIES
Capital and reserves
Equity capital 3,000 3,000
Retained earnings 16,200 3,800
——— ———
19,200 6,800
Non-current liabilities
Loan 6,000 10,000
Current liabilities
Operating overdraft 11,000 –
Trade payables 8,000 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
——— ———
Prepare a statement of cash flows, under the indirect method, for the year ended 30 June 2015.
(18 marks)
118 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
——— ———
Total assets 6,719 7,949
——— ———
Capital and reserves
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
——— ———
Total equity and liabilities 6,719 7,949
——— ———
Statement of profit or loss (extracts) for the year ended 31 December 2014
$000
Profit before taxation 1,381
Income tax expense (310)
———
Profit for the year 1,071
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 119
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)
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
______ ______
Total assets 1,470 1,040
——— ———
Equity and liabilities
Capital and reserves
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
______ ______
Total equity and liabilities 1,470 1,040
——— ———
120 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
The statements of profit or loss and statements of financial position of C3P0 for two consecutive
financial years are shown below:
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 121
Current liabilities
Trade payables 40,000 60,000
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)
122 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Depreciation (450) (300)
——— 900 ——— 600
Motor vehicles
Cost 750 600
Depreciation (360) (240)
——— 390 ——— 360
——— ———
3,270 2,310
Current assets
Inventory 262 161
Trade receivables 180 120
Cash and cash equivalents 115 60
—— ——
557 341
——— ———
Total assets 3,827 2,651
——— ———
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Ordinary shares of $1 each 2,100 1,500
Retained earnings 95 36
——— ———
2,195 1,536
Non-current liabilities
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
——— ———
Total equity and liabilities 3,827 2,651
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 123
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).
(4) The preferred shares were redeemed at the beginning of the year.
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?
A 1, 2 and 3 only
B 1, 2 and 4 only
C 1, 3 and 4 only
D 2, 3 and 4 only
124 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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?
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
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 125
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)
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
——— ———
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)
126 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
Happy Sad
$ $
Non-current assets
Tangible 135,000 60,000
Investment in Sad 30,000 –
———— ————
165,000 60,000
Current assets 57,000 46,000
———— ————
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 127
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:
(12 marks)
128 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
The following are summaries of the financial statements of Honey and its subsidiary, Sugar, for the
year ended 30 June 2014:
Statements of financial position
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
Current assets 25,000 12,000
——— ———
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 –
Retained earnings 9,000 14,000
——— ———
35,000 17,000
Non-current liabilities: 10% Debenture loan 12,000 –
Current liabilities 7,000 7,500
——— ———
54,000 24,500
——— ———
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.
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)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 129
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)
——– —–
Profit before tax 370 54
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
——— ———
Profit before tax 91,400 65,400
Income tax (46,200) (32,600)
——— ———
Profit for the year 45,200 32,800
——— ———
On 30 November 2014 Happy acquired 75% of the issued ordinary capital of Sleepy.
130 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
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.
Bingo Crosby
$000 $000
Revenue 9,600 3,900
Cost of sales (5,550) (2,175)
––––– –––––
Gross profit 4,050 1,725
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)
––––– –––––
Profit for the year 910 365
––––– –––––
(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:
(b) Prepare the consolidated statement of profit or loss for Bing for the year ended 31
October 2014. (6 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 131
(c) Define an “associate” relationship and give three examples that might demonstrate that
such a relationship exists. (4 marks)
(12 marks)
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.
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.
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
Retained earnings 90 70
Ignore goodwill.
132 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
A $435,000
B $425,000
C $381,250
D $379,500
(12 marks)
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 133
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.
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)
134 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
You are given summarised results of Solo, an electrical engineering business, as follows:
Current liabilities
Trade payables 23,050
______ 19,400
______
43,000 39,500
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 135
Required:
(20 marks)
The following are the summarised accounts for Darth for the year ending 30 September 2014, together
with comparative figures for the previous year:
Current liabilities
Trade payables 32,604 37,230
Income tax 2,473 3,260
Dividends payable 1,785 1,985
______ ______
36,862 42,475
______ ______
97,442 112,315
——— ———
136 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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)
157.1 Which of the following factors could cause a company’s gross profit percentage on sales
to fall below the expected level?
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 137
$m
Operating profit 88
Loan note interest (8)
–––
Profit for year 80
–––
$m
Ordinary share capital 200
Share premium account 80
Retained earnings 120
10% Loan notes 80
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
Opening inventory 12,000
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?
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4
138 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
157.5 Which of the following statements about accounting ratios and their interpretation are
correct?
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D All three statements are correct
(10 marks)
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 139
140 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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).
1.4 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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1001
$ $
Tangible non-current assets
Motor cars 2,800
Current assets
Inventory 3,000
Trade receivables 5,000
Cash in hand 100
———
8,100
———
Total assets 10,900
———
Capital account
Capital at 1 January 5,000
Retained earnings 4,700
———
9,700
Less: Drawings (2,000)
———
7,700
Current liabilities
Bank overdraft 1,200
Trade payables 2,000
———
3,200
———
Total capital and liabilities 10,900
———
$ $
Revenue 28,400
Less: Returns (200)
———
28,200
Purchases 16,100
Less: Closing inventory (2,050)
——— (14,050)
———
Gross profit 14,150
Less: Expenses
Salaries 4,162
Rent 2,130
Insurance 174
General expenses 1,596
——— (8,062)
———
Profit for the year 6,088
———
1002 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Tangible non-current assets
Motor van 1,700
Current assets
Inventory 2,050
Trade receivables 5,060
Cash (2,628 + 50) 2,678
———
9,788
———
Total assets 11,488
———
Capital account
Capital introduced 4,100
Retained earnings 6,088
———
10,188
Less: Drawings (5,100)
———
5,088
Current liabilities
Trade payables 6,400
———
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.
4.5 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).
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1003
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.
1004 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(9) Drawings
$ $
Non-current assets 200 Capital 10,000
Inventory 4,000 Profit 950
Cash 6,350 ———
10,950
Less: Drawings (400)
——— ———
10,550 10,550
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1005
$ $
Tangible non-current assets 200 Capital, 1 May 10,550
Inventory (Compaq and IBM) 9,600 Profit 700
Cash (W) 850 ———
11,250
Less: Drawings (600)
——— ———
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
———
$ $
Revenue $(4,500 + 1,800) 6,300
Opening inventory 4,000
Purchases $(5,500 + 5,600) 11,100
———
15,100
Less: Closing inventory (9,600)
——— (5,500)
———
Gross profit 800
Less: Telephone expense (100)
———
Profit for the period 700
———
1006 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Less: Drawings (700)
———
Closing net assets 7,000
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1007
Answer 8 ROMAN
$ $
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
——— ———
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
—— ——
1 Mar Balance b/d 300
1008 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
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
—— ——
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
—— —— ——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1009
(c) Statements of profit or loss for the months ended 31 January and 28 February
31 January 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
—— ——
31 January 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
$ $
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
1010 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
1 May Balance b/d 440
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
—— ——
1 May Balance b/d 50
$ $
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
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1011
Drawings a/c
$ $
30 Apr Bank a/c 60 30 Apr Capital a/c 60
— —
1012 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
——— ———
1 Feb Balance b/d 5,000
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1013
$ $
2 Jan Bank a/c 600 31 Jan Balance c/d 600
—— ——
1 Feb Balance b/d 600
Purchases a/c
$ $
3 Jan Bank a/c 1,300 31 Jan Balance c/d 1,300
——— ———
1 Feb Balance b/d 1,300
Loan a/c
$ $
27 Jan Bank a/c 350 4 Jan Bank a/c 1,000
31 Jan Balance c/d 650
——— ———
1,000 1,000
——— ———
$ $
10 Jan Bank a/c 200 31 Jan Balance c/d 200
—— ——
1 Feb Balance b/d 200
Revenue a/c
$ $
31 Jan Balance c/d 800 13 Jan Bank a/c 300
20 Jan Bank a/c 500
—— ——
800 800
—— ——
$ $
24 Jan Bank a/c 150 31 Jan Balance c/d 150
—— ——
1 Feb Balance b/d 150
1014 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Drawings a/c
$ $
30 Jan Bank a/c 175 31 Jan Balance c/d 175
—— ——
1 Feb Balance b/d 175
$ $
Revenue 800
Purchases 1,300
Less: Closing inventory (800)
———
Cost of goods sold (500)
——
Gross profit 300
Less: Expenses
Motor van expenses 200
Storage expenses 150
—— (350)
——
Loss for the period (50)
——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1015
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
—— ——
1016 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Capital a/c
$ $
31 Mar Balance c/d 525 2 Mar Bank a/c 525
—— ——
Loan a/c
$ $
30 Apr Balance c/d 450 6 Apr Bank a/c 450
—— ——
1 May Balance b/d 450
$ $
24 Mar Bank a/c 60 31 Mar Balance c/d 60
—— ——
Purchases a/c
$ $
16 Mar Bank a/c 300 31 Mar Balance c/d 300
—— ——
$ $
22 Apr Bank a/c 75 30 Apr Balance c/d 75
— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1017
Revenue a/c
$ $
31 Mar Balance c/d 450 29 Mar Bank a/c 450
—— ——
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)
——
Profit for the period 390
——
1018 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
31 Mar 30 Apr
$ $
Current assets
Cash 615 1,365
—— ———
Answer 12 PATEL
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1019
Capital a/c
$ $
31 Jan Balance c/d 10,000 1 Jan Bank a/c 10,000
——— ———
Loan a/c
$ $
31 Jan Balance c/d 4,000 2 Jan Bank a/c 4,000
———
$ $
3 Jan Bank a/c 900 31 Jan Balance c/d 900
—— ——
1020 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Purchases a/c
$ $
4 Jan Bank a/c $2,300 31 Jan Balance c/d $2,300
——— ——
Revenue a/c
$ $
31 Jan Balance c/d 3,000 5 Jan Bank a/c 3,000
——— ———
1 Feb Balance b/d 3,000
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
——— ———
$ $
6 Jan Bank a/c 250 31 Jan Balance c/d 250
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1021
Drawings a/c
$ $
2 Feb Bank a/c 300
6 Feb Purchases a/c 280 28 Feb Balance c/d 580
—— ——
580 580
—— ——
$ $
3 Feb Bank a/c 160 28 Feb Balance c/d 160
—— ——
Rent a/c
$ $
3 Mar Bank a/c 225 31 Mar I & E a/c 225
—— ——
$ $
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.
1022 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1023
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
Non-current liabilities
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
——— ———
1024 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Capital a/c
$ $
14 Jan Balance c/d 5,000 1 Jan Bank a/c 5,000
——— ———
$ $
5 Jan Bank a/c 2,000 14 Jan Balance c/d 2,000
——— ———
Purchases a/c
$ $
7 Jan Dvorak’s a/c 1,000 14 Jan Trading a/c 1,000
——— ———
$ $
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
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1025
$ $
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.
$ $
(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
——— ———
Capital a/c
$ $
Balance c/d 10,000 (1) Bank 10,000
——— ———
1026 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1027
Van a/c
$ $
(6) Petros’s a/c 4,000 Balance c/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
$ $
(11) Bank a/c 150 I & E a/c 150
—— ——
Drawings a/c
$ $
(13) Bank a/c 300 Balance c/d 300
—— ——
1028 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
——— ———
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
——— ———
Purchases a/c
$ $
(2) ABC 400 Trading a/c 400
—— ——
ABC a/c
$ $
Balance c/d 400 (2) Purchases a/c 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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1029
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
—— ——
$ $
(4) Bank a/c 200 Balance c/d 200
—— ——
XYZ a/c
$ $
(5) Sales a/c 350 Balance c/d 350
—— ——
Drawings a/c
$ $
(6) Bank a/c 60 Transfer to capital a/c 60
—— ——
1030 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Trading a/c
$ $
Purchases 400 Sales 770
Transfer I & E a/c (gross profit) 370
—— ——
770 770
—— ——
$ $
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1031
$ $
(10) Dr Telephone a/c 75
Cr Trade payables a/c 75
$ $
(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
1032 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
(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
$ $
(5) Cash 2,000 Balance c/d 2,000
_____ _____
2,000 2,000
_____ _____
Balance b/d 2,000
$ $
Balance c/d 100 (8) Cash 100
____ ____
100 100
____ ___
Transfer to I & E a/c 100 Balance b/d 100
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1033
$ $
(11) Sales 1,500 (13) Cash (Salvador) 600
(15) Cash (Quinn) 475
Balance c/d 425
_____ _____
1,500 1,500
_____ _____
Balance b/d 425
$ $
(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
$ $
Purchases 4,500 Sales 6,750
Rent expense 300 Rental income 100
Telephone 75
Balance (= Profit) 1,975
_____ _____
6,850 6,850
_____ _____
1034 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1035
Current assets
Trade receivables 425
Cash 4,750
______
5,175
———
Total assets 7,175
———
$
Capital 5,000
Profit for the year 1,975
_____
Proprietor’s interest 6,975
Current liabilities
Trade payables 200
———
Total equity and liabilities 7,175
———
Answer 17 STEFAN
$ $
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
——— ———
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
—— ——
1036 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1037
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
——— ———
$ $
Sales 900
Purchases 730
Less: Closing inventory (250)
—— (480)
——
Gross profit 420
——
1038 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Capital account
Capital introduced 3,000
Add: Profit for the month 420
———
3,420
Less: Drawings (120)
———
3,300
Current liabilities
Trade payables 50
———
Total capital and liabilities 3,350
———
Answer 18 R RYBIN
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1039
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
—— ——
1 Jan Balance b/d 100
Ergo’s a/c
$ $
14 Dec Sales a/c 800 31 Dec Balance c/d 800
—— ——
1 Jan Balance b/d 800
Electricity a/c
$ $
10 Dec Bank a/c 150 31 Dec Balance c/d 150
—— ——
1 Jan Balance b/d 150
1040 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
31 Dec Bank a/c 250 31 Dec Balance c/d 250
—— ——
1 Jan Balance b/d 250
$ $
1 Dec Bank a/c 1,000 31 Dec Balance c/d 1,000
——— ———
1 Jan Balance b/d 1,000
Fesan’s a/c
$ $
29 Dec Sales a/c 300 31 Dec Balance c/d 300
—— ——
1 Jan Balance b/d 300
$ $
10 Dec Bank a/c 1,500 31 Dec Balance c/d 1,500
——— ———
1 Dec Balance b/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
—— ——
1 Jan Balance b/d 840
Rent a/c
$ $
7 Dec Bank a/c 40 31 Dec Balance c/d 40
—— ——
1 Jan Balance b/d 40
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1041
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
——— –——
1 Jan Balance b/d 1,800
Stationery a/c
$ $
20 Dec Bank a/c 200 31 Dec Balance c/d 200
—— ——
1 Jan Balance b/d 200
Capital a/c
$ $
31 Dec Balance c/d 5,000 1 Dec Bank a/c 5,000
——— ———
1 Jan Balance b/d 5,000
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
——— ———
1042 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Capital account
Capital introduced 5,000
Profit for month 720
———
5,720
Less: Drawings (100)
———
5,620
Current liabilities
Trade payable 140
———
5,760
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1043
Answer 19 NIXON
$ $
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
31 Jan Balance c/d 323
—— ——
674 674
—— ——
Capital a/c
$ $
1 Jan Balance b/d 1,049
31 Jan Balance c/d 1,091 31 Jan I & E a/c 42
——— ———
1,091 1,091
——— ———
$ $
1 Jan Balance b/d 198
20 Jan Bank a/c 32 31 Jan Balance c/d 230
—— ——
230 230
—— ——
1044 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
$ $
23 Jan Bank a/c 3 31 Jan I & E a/c 3
— —
$ $
1 Jan Balance b/d 18 7 Jan Bank a/c 18
— —
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1045
$ $
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
—— ——
$ $
1 Jan Balance b/d 26 31 Jan Balance c/d 26
—– ——
$ $
15 Jan Bank a/c 162 1 Jan Balance b/d 12
5 Jan Purchases a/c 150
—— ——
162 162
—— ——
$ $
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
—— ——
1046 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(b) Trial balance (extracted before the ledger accounts were closed)
Dr Cr
$ $
Cash at bank 323
Capital 1,049
Fixtures and fittings 230
Sales 412
Wages 58
Purchases 225
Office expenses 3
Receivables
Harvey 138
Moon 26
Inventory 458
——— ———
1,461 1,461
——— ———
$ $
Revenue 412
Opening inventory 458
Purchases 225
——
683
Less: Closing inventory (374)
——
Cost of goods sold (309)
——
Gross profit 103
Less: Expenses
Wages 58
Office expenses 3
—— (61)
——
Profit for the period 42
——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1047
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
—— ——
1048 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
$ $
24 Jun Claire – receivable 375 27 Jun I & E a/c 375
—— ——
375 375
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1049
$ $
25 Jun Georgina – payable 840
27 Jun I & E a/c 930 27 Jun Andrew – payable 90
—— ——
930 930
—— ——
$ $
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
——— ———
$ $
14 Jun Sales a/c 9,000 25 Jun Cash a/c 9,000
——— ———
$ $
24 Jun Sales a/c 5,000 27 Jun Balance c/d 5,000
——— ———
Balance b/d 5,000
$ $
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
——— ———
$ $
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
——— ———
1050 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
WORKINGS
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1051
(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
—— ——
1 Jan Balance b/d 15
Rent a/c
$ $
31 Dec Balance per TB 900 31 Dec I & E a/c 1,200
31 Dec Balance c/d 300
——— ———
1,200 1,200
——— ———
Rates a/c
$ $
31 Dec Balance per TB 380 31 Dec I & E a/c 310
31 Dec Balance c/d 70
—— ——
380 380
—— ——
1 Jan Balance b/d 70
1052 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
31 Dec Balance per TB 590 31 Dec I & E a/c 605
31 Dec Balance c/d 15
—— ——
605 605
—— ——
1 Jan Balance b/d 15
Insurance a/c
$ $
31 Dec Balance per TB 260 31 Dec I & E a/c 190
31 Dec Balance c/d 70
—— ——
260 260
—— ——
1 Jan Balance b/d 70
$ $
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
—— ——
1 Jan Balance b/d 155
$ $
31 Dec Rent 300
31 Dec Balance c/d 315 31 Dec Light and heat 15
—— ——
315 315
—— ——
1 Jan Balance b/d 315
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1053
Answer 26 TOMASZ
$ $
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
Less: Closing inventory (700)
——— (1,300)
———
Gross profit 1,700
Less: Expenses
Motor running expenses 350
Rent (350 – 150) 200
——— (550)
———
Profit for the period 1,150
———
1054 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Capital account
At 1 January 5,000
Add: Profit for the period 1,150
———
6,150
Less: Drawings (500)
———
5,650
Current liabilities
Trade payables 200
———
Total capital and liabilities 5,850
———
Answer 27 PUSHKOVA
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1055
Capital account $
Opening capital 12,844
Add: Profit for year 2,681
———
15,525
Less: Drawings (2,050)
———
13,475
Current liabilities
Trade payables 3,045
Accrued expenses ($56 + $24 + $26) 106
——— 3,151
———
Total capital and liabilities 16,626
———
1056 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 28 SCORCESE
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
——— —— —— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1057
Answer 29 TOLSTOY
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
1 Jan Balance b/d 1,670
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
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 *.
1058 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
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
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.
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1059
$ $
Prepayment reversed 150 I & E a/c 675
Cash 350 Closing prepayment
Cash 350 (3/6 $350) 175
—— ——
850 850
—— ——
$ $
Prepayment reversed 180 I & E a/c 580
Cash 600 Closing prepayment (4/12 $600) 200
—— ——
780 780
—— ——
$ $
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
——— ———
$ $
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
——— ———
1060 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 32 ROOKIE
WORKING
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1061
Answer 33 ALEXANDER
800 70
=
4
Depreciation charge is
Answer 34 UDOT
2012 $ 2012 $
20 Jan Cash a/c 4,200 31 Dec Balance c/d 4,200
——— ———
2013 2013
1 Jan Balance b/d 4,200
17 Apr Cash a/c 5,000 31 Dec Balance c/d 9,200
——— ———
9,200 9,200
——— ———
2014 2014
1 Jan Balance b/d 9,200
11 Jul Cash a/c 3,500 31 Dec Balance c/d 12,700
——— ———
12,700 12,700
——— ———
2015
1 Jan Balance b/d 12,700
1062 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
2012 $ 2012 $
31 Dec Balance c/d 1,050 31 Dec Depreciation expense 1,050
——— a/c (W1) ———
2013 2013
1 Jan Balance b/d 1,050
31 Dec Balance c/d 3,337 31 Dec Depreciation expense 2,287
——— a/c (W2) ———
3,337 3,337
——— ———
2014 2014
1 Jan Balance b/d 3,337
31 Dec Balance c/d 6,203 31 Dec Depreciation expense 2,866
——— a/c (W3) ———
6,203 6,203
——— ———
2015
1 Jan Balance b/d 6,203
WORKINGS
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1063
Answer 35 POPOV
Plant a/c
2014 $ 2014 $
1 Jan Balance b/d 5,000 1 Jul Disposal a/c 2,000
31 Dec Balance c/d 3,000
——— ———
5,000 5,000
——— ———
2015
1 Jan Balance b/d 3,000
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
1 Jan Balance b/d 2,700
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
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).
1064 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Balance c/d 213,150 Depreciation a/c (25% $480,600) 120,150
———— ————
213,150 213,150
———— ————
2014 2014
Disposals 18,600 Balance b/d 213,150
Balance c/d 315,300 Depreciation a/c (25% $483,000) 120,750
———— ————
333,900 333,900
———— ————
2015 2015
Disposals 209,250 Balance b/d 315,300
Balance c/d 235,800 Depreciation a/c (25% $519,000) 129,750
———— ————
445,050 445,050
———— ————
2016
Balance b/d 235,800
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1065
Depreciation a/c
2012 $ 2012 $
Charge for depreciation 93,000 I & E a/c 93,000
——— ———
2013 2013
Charge for depreciation 120,150 I & E a/c 120,150
———— ————
2014 2014
Charge for depreciation 120,750 I & E a/c 120,750
———— ————
2015 2015
Charge for depreciation 129,750 I & E a/c 129,750
———— ————
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
1066 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$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)
$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
—— ——
$ $
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
———— ————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1067
Disposal a/c
$ $
Carrying value 160,000 Loss on disposal 107,000
Proceeds (al fig) 53,000
———— ————
160,000 160,000
———— ————
$ $
Balance b/d 110,000 Depreciation 30,000
Purchases 25,000 Disposals 15,000
Balance c/d 90,000
———— ————
135,000 135,000
———— ————
$ $
Asset cost 10,000 Asset – accumulated
depreciation 5,000
Trade-in (proceeds) 3,500
Underallowance for depreciation 1,500
——— ———
10,000 10,000
——— ———
$ $
Asset cost 3,000 Asset – accumulated
Overallowance 222 depreciation (W) 1,358
Sale proceeds (al fig) 1,864
——— ———
3,222 3,222
——— ———
1068 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
_______
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
_____
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1069
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
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
–––––– ––––––
1070 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 38 KROL
$ $
31 Dec Trade receivables a/c 115 31 Dec I & E a/c 165
31 Dec Allowance 50
—— ——
165 165
—— ——
$ $
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
$ $
31 Dec Balance c/d 2,840 31 Dec Debt expense 115
31 Dec Balance c/d 2,725
——— ———
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
$ $
31 Dec Trade receivables a/c 55 31 Dec Allowance a/c 87
31 Dec I & E a/c 32
—— ——
87 87
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1071
$ $
31 Dec Debts expense a/c 87 1 Jan Balance b/d 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
Year 2
1072 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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 $ $
1 Jan Balance b/d 860
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1073
Answer 41 PUSHKIN
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
1 Jan Balance b/d 9,000
31 Dec Balance c/d 15,750 31 Dec Debts expense a/c 6,750
——— ———
15,750 15,750
——— ———
2015
1 Jan Balance b/d 15,750
2012 $ 2012 $
31 Dec Trade receivables a/c 1,860 31 Dec Allowance 250
I & E a/c (al) 1,610
——— ———
1,860 1,860
——— ———
2013 2013
31 Dec Trade receivables a/c 1,020 31 Dec Allowance 750
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
——— ———
1074 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1075
$ $
(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
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.
1076 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 44 STRAK
$ $
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
———— ————
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
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1077
$ $
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
Answer 45 FREDERIK
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
———— ————
1 Apr Balance b/d 36,100
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
1 Apr Balance b/d 2,708
1078 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
——— ———
2015 $
31 Mar Sales a/c 87,800
Receivables a/c 192,300
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1079
$ $
Irrecoverable debt a/c 1,200 Balance b/d 2,000
Balance c/d ($16,000 5%) 800
——— ———
2,000 2,000
——— ———
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
$ $
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
——— ———
1080 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
I & E a/c 196 Allowance 196
—— ——
WORKING
Specific allowance = 1,600
General allowance = $(120,000 – 1,600) 1% = 1,184
——
2,784
——
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1081
$ $
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
————— —————
$ $
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
Opening inventory 3,150
Purchases (3,000 @ 6.30) 18,900
______
22,050
Closing inventory (1,250 @ 6.30) (7,875)
______
(14,175)
______
Gross profit 2,925
———
1082 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 48 OGAY
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
1 Jan Balance b/d 7,500
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1083
Answer 49 ALES
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
___
(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
—— ——
2015 2014
$ $
Less: Expenses
Gas 38 520
1084 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
$ $
Opening inventory 10,000 Sales 70,000
Purchases 58,000 Closing inventory 11,800
Gross profit c/d 13,800
——— ———
81,800 81,800
——— ———
$ $
Revenue 70,000
Cost of sales
Opening inventory 10,000
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).
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1085
(c) Felix
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
1086 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
——— ———
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1087
(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.
1088 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
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
1.1 Balance b/d 7,520
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
——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1089
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
1090 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
JOURNAL
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1091
$ $
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
—— ——
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
——— ———
1092 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 53 REBECCA
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1093
$ $
31 Jan Jan PDB 314
$ $
31 Jan Jan PRDB 18
Sales a/c
$ $
31 Jan Jan SDB 171
$ $
31 Jan Jan SRDB 20
Jones
$ $
31 Jan Balance c/d 37 2 Jan PDB 37
— —
Isaac
$ $
12 Jan PRDB 12 9 Jan PDB 73
31 Jan Balance c/d 61
— —
73 73
— —
Henry
$ $
31 Jan Balance c/d 61 17 Jan PDB 61
— —
1094 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Mary
$ $
21 Jan PRDB 6 19 Jan PDB 62
31 Jan Balance c/d 56
— —
62 62
— —
David
$ $
31 Jan Balance c/d 81 27 Jan PDB 81
— —
Smith
$ $
7 Jan SDB 40 12 Jan SRDB 7
21 Jan Balance c/d 33
— —
40 40
— —
Allan
$ $
11 Jan SDB 31 31 Jan Balance c/d 31
— —
Wood
$ $
13 Jan Sales SDB 43 17 Jan SRDB 13
31 Jan Balance c/d 30
— —
43 43
— —
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1095
Gilass
$ $
22 Jan SDB 20 31 Jan Balance c/d 20
— —
Wall
$ $
31 Jan SDB 37 31 Jan Balance c/d 37
— —
$ $
Jan PRDB 18 Jan PDB 314
31 Jan Balance c/d 296
—— ——
314 314
—— ——
$ $
Jan SDB 171 Jan SRDB 20
31 Jan Balance c/d 151
—— ——
171 171
—— ——
1096 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Receipts
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1097
Payments
(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
$ $
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
1098 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 56 ZONE
$ $
Balance b/d 14,968 Sales returns 2,508
Credit sales 148,580 Cash 110,568
Discounts allowed 1,824
Irrecoverable debts written off 224
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
Discounts received 864
Balance c/d 76,432
———— ————
154,268 154,268
———— ————
Balance b/d 76,432
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
Receivables ledger control a/c
(contra) 75
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1099
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
Payables ledger control a/c
(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 920 Cash received 7,350
Credit sales 7,500 Discounts allowed 140
Debts written off 90
Balance c/d 840
——— ———
8,420 8,420
——— ———
1100 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 59 RANKINE
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1101
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
—— ——
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
—— ——
1102 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
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
—— ——
$ $
7 Jun CPB 100 30 Jun I & E a/c 100
—— ——
Capital a/c
$ $
1 Apr Balance b/d 2,100
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
——— ———
$ $
30 Jun SDB 2,280 30 Jun SRDB 80
CRB 1,080
Balance c/d 1,120
——— ———
2,280 2,280
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1103
$ $
30 Jun CPB 1,550 30 Jun PDB 1,650
PRDB 50
Balance c/d 50
——— ———
1,650 1,650
——— ———
$ $
1 Apr Balance b/d 200 30 Jun CPB 2,625
30 Jun CRB 2,680 Balance c/d 255
——— ———
2,880 2,880
——— ———
Thrush a/c
$ $
4 Apr CPB 600 1 Apr PDB 700
Jun PRDB 50
30 Jun Balance c/d 50
—— ——
700 700
—— ——
1 Jul Balance b/d 50
Hawk a/c
$ $
5 May CPB 950 2 Apr PDB 950
—— ——
1104 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Wasp a/c
$ $
1 May SDB 850 5 Jun CRB 500
30 Jun Balance c/d 350
—— ——
850 850
—— ——
Ant a/c
$ $
2 May SDB 660 3 May CRB 580
6 Jun SDB 770 4 Jun SRDB 80
30 Jun Balance c/d 770
——— ———
1,430 1,430
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1105
(h) Statement of profit or loss for the three months ended 30 June
$ $ $
Sales revenue 2,880
Less: Sales revenue returns (80)
———
2,800
Opening inventory 1,500
Purchases 1,825
Less: Purchase returns (50)
——— 1,775
———
3,275
Less: Closing inventory (1,200)
Cost of goods sold ——— (2,075)
———
Gross profit 725
Less: Expenses
Rent 300
Light and heat 100
—— (400)
———
Profit for the period 325
———
Tutorial note: Separate disclosure of returns is NOT a requirement and it suffices to record
sales and purchases net of returns in financial accounts.
1106 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1107
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
—— —— —— —— —— —— —— —— —— ——
1108 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
1 Mar Balance b/d 500
Carriage a/c
$ $
Feb CPB 2 28 Feb Balance c/d 2
— —
1 Mar Balance b/d 2
Drawings a/c
$ $
Feb CPB 35 28 Feb Balance c/d 35
— —
1 Mar Balance b/d 35
$ $
Feb CRB 3 28 Feb Balance c/d 3
— —
1 Mar Balance b/d 3
$ $
28 Feb Balance c/d 8 Feb CPB 8
— —
1 Mar Balance b/d 8
Fixtures a/c
$ $
Feb CPB 40 28 Feb Balance c/d 40
— —
1 Mar Balance b/d 40
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1109
Lighting a/c
$ $
Feb CPB 5 28 Feb Balance c/d 5
— —
1 Mar Balance b/d 5
Purchases a/c
$ $
Feb CPB 143
PDB 845 28 Feb Balance c/d 988
—— ——
988 988
—— ——
1 Mar Balance b/d 988
Rent a/c
$ $
Feb CPB 8 28 Feb Balance c/d 8
— —
1 Mar Balance b/d 8
Sales a/c
$ $
Feb CRB 92
28 Feb Balance c/d 752 SDB 660
—— ——
752 752
—— ——
1 Mar Balance b/d 752
Wages a/c
$ $
Feb CPB 28 28 Feb Balance c/d 28
— —
1 Mar Balance b/d 28
1110 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Feb CPB 517 Feb PDB 845
Discounts received 8
28 Feb Balance c/d 320
—— ——
845 845
—— ——
$ $
Feb SDB 660 Feb CRB 377
Discounts allowed 3
28 Feb Balance c/d 280
—— ——
660 660
—— ——
$ $
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
28 Feb Balance c/d 30
—— ——
210 210
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1111
W Wilson
$ $
4 Feb SDB 100 17 Feb CRB 200
16 Feb SDB 180 28 Feb Balance c/d 80
—— ——
280 280
—— ——
L Robinson
$ $
W Martin
$ $
3 Feb CPB 150 1 Feb PDB 250
11 Feb CPB 95 14 Feb PDB 150
11 Feb Discount received 5 23 Feb PDB 240
25 Feb CPB 200
28 Feb Balance c/d 190
—— ——
640 640
—— ——
1 Mar Balance b/d 190
F Pearson
$ $
28 Feb Balance c/d 130 10 Feb PDB 130
—— ——
1 Mar Balance b/d 130
H Wood
$ $
21 Feb CPB 72 18 Feb PDB 75
Discount received 3
—— ——
75 75
—— ——
1112 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Revenue 752
Purchases 988
Less: Closing inventory (325)
—— (663)
——
Gross profit 89
Less: Expenses
Wages 28
Carriage 2
Lighting 5
Discounts (net) $(3 – 8) (5)
Rent 8
—— (38)
——
Profit for the period 51
——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1113
$
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
——
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
—— ——
1114 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
61.4 B Payables
$000 $000
Cash paid 490 Balance b/d 180
Credit notes 11 Credit purchases 530
Discounts received 8
Balance c/d 201
—— ——
710 710
—— ——
$ $
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
——— ———
$ $
Balance b/d 63,158 Sales returns 6,000
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
———— ————
$ $
Purchase returns 4,000 Balance b/d 32,000
Cash 258,100 Purchases 276,000
Discounts received 5,900
Contras 4,000
Balance c/d 36,000
———— ————
308,000 308,000
———— ————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1115
$ $
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
——— ———
$ $
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
——— ———
$ $
Balance b/d 40,000 Sales returns 3,000
Sales 36,000 Discounts 3,000
Cash 25,000
Irrecoverable debts 3,000
Balance c/d 42,000
——— ———
76,000 76,000
——— ———
$
Trade receivables 42,000
Less: Allowance (6,000)
———
Net receivables 36,000
———
1116 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
1.1 Balance b/fwd 289,376 Cash 795,373
Credit sales 626,575 Irrecoverable debt expense 9,550
Returns 7,000
Discounts allowed 12,956
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
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
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1117
$ $
$ $
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
1118 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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
(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
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1119
WORKINGS
$ $
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
$ $
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
$ $
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
1120 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 67 SHOWERS
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
——— ———
Answer 68 HUBERT
$ $
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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1121
$ $
(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
——— ———
Tutorial note: Adjustment to profit statements are covered in detail in the session on suspense a/cs.
1122 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1123
Answer 71 PRINGLE
$ $
Balance b/d 204 Standing order 35
Interest on deposit a/c 18 Bank charges 14
Balance c/d 173
—— ——
222 222
—— ——
1124 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 74 JOVANOVICH
$ $
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 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
——— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1125
Answer 76 DEALERS
$ $
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
1126 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 77 GENEVA
$ $
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
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1127
Answer 79 YULIA
A Harkal’s a/c 54
Suspense a/c 54
(2) Correction of posting to wrong side of personal a/c
Suspense a/c 30
Rent payable a/c 30
(6) Amount of accrued expense not brought forward on the a/c
1128 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
Telephone a/c 99
Suspense a/c 99
(2) Correction of posting to the wrong side of the telephone a/c
Bouncer’s a/c 55
Bank a/c 55
(6) Reversal of a cash receipt entry on dishonouring of the cheque
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1129
$ $
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
——— ———
Dr Cr
$ $
Discounts allowed 12
Customer a/c 12
(1) Agreed treatment of outstanding balance on customer’s a/c
Subscriptions 140
Cash at bank 140
(3(i)) Direct debit not previously posted
Suspense a/c 20
Customer a/c 20
(6) Correction of misposting of allowance to customer
1130 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKINGS
$ $
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
—— ——
(2) Correction of amount posted to purchases a/c arising from transposition error
(5) Correction of omission from the trial balance of fixtures and fittings (see tutorial note)
(6) Accrual for interest due on loan not yet provided for
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1131
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).
$ $
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
——— ———
Current liabilities
Bank overdraft 14,634
Trade payables 26,782
Accrued expenses 1,200
——— 42,616
———
Total capital and liabilities 119,960
———
1132 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
(2) Contra between the receivables & payables ledger control a/cs
(4) Posting to the receivables ledger control a/c of cash to clear a credit balance on the
receivables ledger
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1133
Dr Cr
$ $
Sales a/c (or I & E a/c) 250
Receivables ledger control a/c 250
1134 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Current assets
Inventory 16,000
Trade receivables (W) 16,500
———
32,500
———
Total assets 56,000
———
WORKING
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1135
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
——— ———
No Details Dr Cr
$ $
(1) Accrual for discount allowed to customers 72.13
Discount allowed 72.13
Prepayment of insurance
Electricity accrual
1136 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
No Details Dr Cr
$ $
(5) Cash 126.55
Unclaimed wages (liability) 126.55
$ $
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
———— ————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1137
$ $
(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
——— ———
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
1138 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1139
Current liabilities
Trade payables 22,000
———
100,500
———
WORKINGS
$ $
(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
——— ———
1140 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 88 CND
Marking
(a) Correcting entries Dr Cr guide
$ $
(1) Capital a/c 10,000
Loan a/c X 10,000 1
16
___
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1141
$ $
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
——— ——— ___
1142 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
89.4 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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1143
Answer 90 JOLANTA
1144 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(b) Statement of profit or loss for the year ended 31 December 2014
$ $ $
Revenue 93,200
Less: Returns inwards (1,050)
———
92,150
Opening inventory 14,300
Purchases (51,400 – 400) 51,000
Less: Returns outwards (950)
——— 50,050
Carriage inwards 2,150
———
66,500
Less: Closing inventory (15,200)
——— (51,300)
———
Gross profit 40,850
Less: Expenses
Establishment costs
Rent 2,550
Light and heat 1,300
Amortisation 9,000
——— 12,850
Administration and general costs
Accountancy and audit 1,600
General expenses 900
——— 2,500
Selling and distribution costs
Carriage outwards 350
Salesmen’s salaries and commission 8,200
Vehicle running expenses 3,650
Depreciation on vans 2,000
——— 14,200
Financial costs
Loan interest 250
Irrecoverable debts 50
——— 350
——— (29,850)
———
Profit for the year 11,000
———
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1145
Cost Depreciation
$ $ $
Tangible non-current assets
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
Trade receivables 35,700
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
Non-current liability
Loan from Joanna 4,100
Current liabilities
Bank overdraft 21,100
Trade payables 14,500
——— 35,600
———
Total capital and liabilities 80,700
———
1146 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 91 GANDALF
Capital account
Capital at 1 April 2014 20,000
Profit for the year 10,450
———
30,450
Less: Drawings (4,800)
———
25,650
Current liabilities
Trade payables 11,344
Accrued charge for electricity 340
Bonus owed 800
——— 12,484
———
38,134
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1147
WORKING
Answer 92 MARIA
1148 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Current assets
Inventory 7,330
Trade receivables 9,240
Less: Allowance for trade receivables (W) (462)
——— 8,778
Prepayments 250
Bank balance 2,190
———
18,548
———
29,193
———
Capital account
Capital at 1 January 2014 13,640
Add: Profit for year 6,113
———
19,753
Less: Drawings (4,800)
———
14,953
Current liabilities
Trade payables 10,040
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
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1149
Answer 93 FEDEROV
$ $ $ $
Revenue $(124,450 – 186 – 48) 124,216
Cost of goods sold
Opening inventory 8,000
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
Administration and general costs
Salaries (W2) 4,000
Wages 8,250
Printing and stationery 640
General expenses 2,056
——— 14,946
Selling and distribution expenses
Travellers’ salaries and commission 5,480
Travellers’ expenses 1,040
Carriage outwards 546
——— 7,066
Finance costs
Bank charges 120
Loan interest (W4) 100
Irrecoverable debts expense (W6) 79
——— 299
——— (27,321)
———
Profit for the year 10,516
———
1150 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$
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
Capital at 1 January 2014 20,000
Add: Profit for the year 10,516
———
30,516
Less: Drawings (W3) (1,250)
———
29,266
Non-current liabilities
Loan 2,000
Current liabilities
Trade payables 10,056
Loan interest/accrued expenses 100
——— 10,156
———
Total capital and liabilities 41,422
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1151
WORKINGS
$ $
Per TB 2,000 I & E a/c 1,875
Balance c/d (3/6 $250) 125
——— ———
2,000 2,000
——— ———
$ $
Per TB 3,500 I & E a/c 4,000
Drawings a/c (transfer) 500
——— ———
4,000 4,000
——— ——–
$ $
Per TB 1,750 Salaries a/c (transfer) 500
Balance c/d 1,250
——— ———
1,750 1,750
——— ———
$ $
Balance c/d (5% $2,000) 100 I & E a/c 100
—— ——
$ $
Irrecoverable debt expense 132 Balance b/d 740
Balance c/d (3% $20,280) 608
—— ——
740 740
—— ——
1152 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Written off (receivables) 256 Recovered 45
Decrease in allowance 132
I & E a/c 79
—— ——
256 256
—— ——
Answer 94 HEINZ
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1153
Capital account
Capital at 1 January 2014 23,521
Add: Profit for the year 3,996
———
27,517
Less: Drawings (2,500)
———
25,017
Current liabilities
Trade payables 7,432
Accrued expenses (100 + 27 + 39 + 105 + 28) 299
——— 7,731
———
Total capital and liabilities 32,748
———
WORKINGS
$ $
Balance per TB 1,440
Balance c/d 2,200 I & E a/c (10% $7,600) 760
——— ———
2,200 2,200
——— ———
1154 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Balance per TB 750
Balance c/d 1,500 I & E a/c (25% $3,000) 750
——— ———
1,500 1,500
——— ———
$ $
Per TB 838 I & E a/c 787
Rent prepayment 60
Rent accrual 100 Insurance prepayment 91
—— ——
938 938
—— ——
$ $
Per TB 416 I & E a/c 397
Repairs accrual 39 Insurance prepayment 58
—— ——
455 455
—— ——
$ $
Per TB 991 I & E a/c 801
Electricity accrual 27 Coke prepayment 217
——— ———
1,018 1,018
——— ———
$ $
Per TB 43 I & E a/c 148
Audit fee accrual 105
—— ——
148 148
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1155
$ $
Per TB 479 I & E a/c 409
Telephone accrual 28 Stationery prepayment 98
—— ——
507 507
—— ——
$ $
Per TB 58,677 Insurance company a/c 3,224
Trading a/c 55,453
——— ———
58,677 58,677
——— ———
$ $
Balance per TB 377
Balance c/d (5% $9,600) 480 I & E a/c 103
—— ——
480 480
—— ——
1156 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 95 GAMMON
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1157
Capital account
Capital at 1 January 2014 (537)
Add: Profit for the year 3,340
———
2,803
Less: Drawings $(1,820 + 128) (1,948)
———
855
Current liabilities
Bank overdraft (W1) 1,297
Trade payables 3,370
Accrued expenses $(46 + 24) 70
——— 4,737
———
Total capital and liabilities 5,592
———
1158 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKINGS
$ $
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
——— ———
$ $
Balance c/d (25% $764) 191 I & E a/c 191
—— ——
$ $
Motor van a/c 436 Bank a/cs (proceeds) 220
I & E a/c (depreciation
underallowance) 216
—— ——
436 436
—— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1159
Answer 96 STEWART
(a) Statement of profit or loss for the year ended 30 June 2015
$ $
Revenue (625,000 – 2,300) 622,700
1160 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKING
$ $ $
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
————
Current liabilities
Trade payables 82,000
Accruals (400 + 500 + 200) 1,100
Loan 4,400 87,500
______ ________
280,680
————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1161
Answer 97 BOWIE
Dr Cr
(i) Purchases 1,200
Office equipment 1,200
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
Opening inventory 31,000
Purchases (123,000 + 1,200) 124,200
_______
155,200
Closing inventory (53,000)
_______
Cost of sales (102,200)
________
Gross profit 91,800
1162 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $ $
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
————
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
Opening inventory 3,784
Purchases 38,632
———
42,416
Less Closing inventory (5,516)
(75) ——— (36,900)
—— ———
Gross profit 25 12,300
—— ———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1163
(b) Rival
% $
Sales revenue 125 50,100
100
Cost of goods sold ( $50,100 = $40,080) (100) (40,080)
125
—— ———
Gross profit 25 10,020
—— ———
100
Opening inventory ( $16,800) 13,440
125
Purchases (al fig) 171,174
————
184,614
Closing inventory (16,800)
————
Cost of goods sold 167,814
————
1164 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Answer 99 LAMDIN
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1165
$ $
Capital account
Capital introduced 5,000
Profit for the year 1,491
———
6,491
Drawings $(1,122 + 520) (1,642)
———
4,849
Non-current liability
Loan 1,000
Current liabilities
Trade payables 470
Accrued expenses $(30 + 50) 80
——— 550
———
Total capital and liabilities 6,399
———
1166 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
———
Total capital and liabilities 3,427
———
WORKINGS
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1167
$ $
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
——— ———
$ $
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
——— ———
(4) Expenses
$ $
Cash 584 Balance b/d 116
Bank 519 I & E a/c 1,090
Balance c/d 103
——— ———
1,206 1,206
——— ———
(5) Drawings
$ $
Purchases 100
Cash a/c 600
Bank a/c 400 Balance c/d (or trf capital) 1,100
——— ———
1,100 1,100
——— ———
1168 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Bad debt (w/off receivables) 30 I & E a/c 49
Allowance a/c
(5% $382) (increase) 19
—— ——
49 49
—— ——
(7) Depreciation
(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
Closing inventory (6,400)
————
Cost of sales (75) (107,138)
— ———
Gross profit 25 35,712
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
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1169
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
Trade receivables 10,350
Prepayment (W5) 258
Cash at bank 61,313
Cash in hand 250
———
78,571
———
Total assets 230,071
———
Capital account
Capital introduced 200,000
Add Profit 4,263
———
204,263
Less Drawings (W2) (4,274)
———
199,989
Current liabilities
Trade payables 29,957
Accrued expenses (W4) 125
——— 30,082
———
Total capital and liabilities 230,071
———
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
———— ————
1170 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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
——— ———
$ $
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
———— ————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1171
(7) Repairs
$ $
Bank 3,637 I & E a/c 4,022
Bank 385
——— ———
4,022 4,022
——— ———
$ $
Trading a/c (al fig) 142,850 Cash (W1) 132,500
Balance c/d 10,350
———— ————
142,850 142,850
———— ————
1172 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKINGS
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1173
$ $
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
——— ———
$ $
Cash 300 Balance b/f 110
Bank 13,600 Purchases 14,110
Discounts received 200
Balance c/d 120
——— ———
14,220 14,220
——— ———
$ $
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.
1174 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Current assets
Inventory 560
Trade receivables 1,200
Balance at bank 204
Cash in hand (W1) 10
——
1,974
———
Total assets 2,872
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1175
$ $
Capital account
Capital introduced 150
Add Profit for the year 3,186
———
3,336
Less Drawings $(832 + 65 + 342) (1,239)
———
2,097
Non-current liability
Loan account – Mother 400
Current liabilities
Trade creditors 149
Accrued expenses 36
Van instalments (5 38) 190
——— 375
———
2,872
———
WORKINGS
$ $
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
——— ———
$ $
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
——— ———
1176 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
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
——— ———
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.
——— 4
__
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1177
(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
__
1178 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Current assets
Inventories 5,800
Trade receivables 3,000 1
Prepayment 50
Cash (993 – 320 + 20) 693 1
———
9,543
———
Total assets 12,093
———
Current liabilities
Trade and other payables (2,200 + 190 + 70 + 30) 2,490 1
———
Total capital and liabilities 12,093
——— __
7
__
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1179
WORKINGS
Tutorial note: This working is not specifically required therefore no marks are awarded to it.
$ $
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
——— ———
$ $
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
——— ———
1180 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(a) Statement of profit or loss for the year ended 31 December 2014
$ $
Revenue (W1) 25,965
Opening inventory 1,600
Purchases $(15,346 (W2) + 165 – 104) 15,407
———
17,007
Less Closing inventory (2,360)
——— (14,647)
———
Gross profit 11,318
Expenses
Selling and distribution costs
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
General expenses 625
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)
———
Profit for the year 4,018
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1181
$ $
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
1182 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Bank 14,863 Credit purchases (al) 15,346
Bank (unpresented cheque) 125
Balance c/f 358
——— ———
15,346 15,346
——— ———
$ $
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
——— ———
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
————
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1183
$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
——
$ $
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
Opening inventory 33
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
———
1184 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
106.7 $
Opening inventory 55,000
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
———
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1185
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”.
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.
(i) the revision of IASs with all “alternative accounting treatments” having
now been eliminated; and
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).
1186 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Scope
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 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).
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1187
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 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.
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
____
(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.
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.
1188 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(c) Consistency
The presentation and classification of items in the financial statements should be retained
from one period to the next unless:
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.
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1189
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).
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).
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.
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
1190 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(e) Materiality
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.
10
___
Answer 113 CURRENT ASSETS AND LIABILITIES
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
__
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.
2
__
7
__
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1191
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).
1192 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Current liabilities
Trade and other payables 260
Operating overdraft 80
Income tax payable 54
Dividend (declared) 300
—— 694
———
Total equity and liabilities 1,710
———
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
Profit for the year 400 400
Dividends (300 + 120) (420) (420)
—— —— ——
Balance at 31 March 2015 600 220 820
—— —— ——
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1193
$ $
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
$ $
Ordinary share a/c 40,000 Cash (ordinary shares) 50,000
Balance c/f 10,000
——— ———
50,000 50,000
——— ———
1194 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
—— max 5½
__
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1195
—— max 5½
__
Notes to the accounts
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
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.
1196 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKING
Cost of sales Distribution Administrative
costs expenses
$000 $000 $000
Opening inventory 60
Purchases 540
Purchases returns (26)
Carriage outwards 28
Warehouse wages 80
Salespersons’ salaries 60
Administrative wages 40
Delivery vehicle hire 20
Distribution expenses 10
Administrative expenses 30
Directors’ salaries 10 20
Closing inventory (100)
Depreciation 22 10
____ ____ ____
474 230 100
—— —— ——
Answer 118 SIGMA
Current assets
Inventories 320
Trade receivables 200 1
Prepayments 160
Cash 180
––– 860
–––––
Total assets 1,175
–––––
Capital and reserves
Issued capital 400
Retained earnings (per statement of changes in equity) 235 ¼
––– 715 ½
Non-current liabilities
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
__
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1197
—— —— —— 3
__
Notes to the accounts
—— —— —— 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
——
1198 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(a) Statement of profit or loss for the year ended 31 March 2015
$000
Sales revenue 20,000
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)
______
Profit for the year 1,530
______
(b) Items in the statement of changes in equity
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1199
$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
––––––
EQUITY AND LIABILITIES
Capital and reserves
Issued capital 500
Share premium 50
Retained earnings (W1) 964
––––––
1,514
Non-current liabilities
10% Loan notes 200
Current liabilities
Payables 180
Interest accrued 10 190
–––––– ––––––
1,904
––––––
WORKING
1200 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1201
$ $
B/fwd 260,000 Disposal – cost 20,000
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.)
$ $
Paid (al) 27,800 B/fwd 25,300
C/fwd 29,500 I & E a/c 32,000
–––––– ––––––
57,300 57,300
–––––– ––––––
(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.
1202 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
NRV = selling price less selling and distribution costs = selling price 95%
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).
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
____
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1203
Inventories
Raw materials are valued at purchase cost including freight, duty and other charges 1
necessary to bring the inventory to the factory.
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
1204 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKING
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.
125.5 D As the cost of goods is increasing the average cost of the goods sold is higher than
under FIFO.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1205
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.
It is probable that economic benefits associated with the transaction will flow to 1
entity.
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
___
Answer 127 MCQs IAS 18
12
___
Item Answer Justification
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.
1206 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
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
__
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 __
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1207
$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
1208 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1209
Revaluation surplus
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.
1210 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
130.5 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).
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1211
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
Intangible assets with indefinite useful lives are not amortised but will be tested
annually for any impairment in their value.
When
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
___
1212 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Tutorial note: Note the letter style in this answer, which looks to apply the principles of IAS 38 rather
than simply regurgitate them.
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.
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).
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.
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1213
Procedures to be implemented
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;
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).
(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.
1214 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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).
(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
(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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1215
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)).
Provides additional evidence of doubts about financial position of customer (and therefore
recoverability of trade receivable) existing at the end of the reporting period.
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
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
1216 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1217
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.
1218 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKINGS
$ $
Bal b/d 17,600 Disposal 5,200
Depreciation 3,000
Additions () 36,400 Bal c/d 45,800
——– ——–
54,000 54,000
——– ——–
$ $
Bal b/d 4,080 Disposal 2,010
Depreciation 3,000
Additions () 19,860 Bal c/d 18,930
——– ——–
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
——– ——–
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1219
WORKINGS
$ $
Bal b/d 5,000 Disposal 1,000
Additions () 1,000 Bal c/d 5,000
——– ——–
6,000 6,000
——– ——–
1220 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$ $
Disposal 750 Bal b/d 2,000
Bal c/d 2,250 Depreciation charge for year () 1,000
——– ——–
3,000 3,000
——– ——–
$ $
Cost 1,000 Accumulated depreciation 750
Profit on sale 100 Proceeds 350
——– ——–
1,100 1,100
——– ——–
$ $
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
——– ——–
$ $
Cash paid () 500 Bal b/d 200
Bal c/d 700 Charge to profit or loss 1,000
——– ——–
1,200 1,200
——– ——–
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1221
WORKINGS
$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
——– ——–
1222 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$000 $000
P & E – carrying amount 184 Cash – proceeds 203
Depreciation – gain on disposal 19
—— ——
203 203
—— ——
$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
——– ——–
$000 $000
F + F – carrying amount 100 Cash – proceeds 95
Depreciation – loss on disposal 5
—— ——
100 100
—— ——
$000 $000
Bank – tax paid (al fig) 255 Balance b/f 257
Balance c/f 312 Profit or loss 310
—— ——
567 567
—— ——
$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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1223
Reference
to workings $000 $000
Cash flows from operating activities
Profit for the year 1 30
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 inventories (30)
Increase in trade receivables (70)
Increase in trade payables 10
___
Cash generated from operating activities 85
Interest paid 15
___
Net cash from operating activities 70
WORKINGS
$000
Profit from operations 45
1224 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$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
_____ _____
$ $ Presn 1
Cash flows from operating activities
Cash receipts from customers (W1) 190,000 1½
Cash paid to suppliers and employees (W2) (155,000) 3
_______
Cash generated from operations 35,000
Interest paid (13,000) ½
Dividends paid* (20,000) ½
______
Net cash from operating activities 2,000
Cash flows from investing activities
Purchase of property and plant (40,000 + 1,000) (41,000) 1½
Purchase of investments (30,000) ½
______
Net cash used in investing activities (71,000)
Cash flows from financing activities
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. ___
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1225
WORKINGS
$ $
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
$ $
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
———— ————
$ $
Opening inventory 55,000 Cost of sales 120,000
Purchases and wages 130,000 Closing inventory 65,000
________ ________
185,000 185,000
———— ————
1226 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1227
WORKINGS
$000 $000
Balance b/f 900 Disposals 250
Additions (bal) 700 Balance c/f 1,350
——– ——–
1,600 1,600
——– ——–
Accumulated depreciation
$000 $000
Disposals 180 Balance b/f 300
Balance c/f 450 Charge (bal) 330
—— ——
630 630
—— ——
$000 $000
Cash paid 90 Balance b/d 10
Balance c/d 20 Profit or loss 100
—— ——
110 110
—— ——
1228 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
$
Goodwill (W2) 2,000
Other assets (8,000 + 4,000) 12,000
———
14,000
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1229
WORKINGS
$
P as per question 6,000
Share of S post-acquisition (80% × 1,000) 800
———
6,800
———
1230 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Non-current assets $
Goodwill (W2) 8,000
Tangible (135,000 + 60,000) 195,000
————
203,000
(2) Goodwill
$
Fair value of consideration 30,000
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
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1231
Profit is 25% of cost price, $2,000 is the selling price, therefore profit is calculated as 25/125
(not 25%)
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
———
1232 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
WORKINGS
Faye
75%
Garbo
(3) Goodwill
$
Fair value of consideration 15,000
Fair value of non-controlling interest on acquisition 5,000
Less: Fair value of net assets acquired (100% (W2)) (13,500)
———
6,500
———
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1233
Assets $
Non-current assets
Tangible assets (27,000 + 12,500) 39,500
1234 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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 for the year 17,000
———
Profit attributable to:
Owners of Honey 13,667
Non-controlling interest (⅓ 10,000) 3,333
———
Profit for the year 17,000
———
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1235
$
P as per question 9,000
Share of S post-acquisition (2/3 × 14,000) 9,333
———
18,333
———
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)
——–
Profit for the year 222
——–
WORKINGS
Humphrey
80%
Stanley
1236 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(a) Consolidated statement of comprehensive income for the year ended 31 March 2015
$
Revenue 376,167
Cost of sales (177,867)
———–
Gross profit 198,300
Operating costs (88,300)
Investment income 3,200
———–
Profit before tax 113,200
Income tax (57,067)
———
Profit for the year 56,133
———
Attributable to:
Non-controlling interest (W3) 2,733
Shareholders of P 53,400
———
Profit 56,133
———
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1237
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
Happy
Sleepy
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
———
Tutorial note:
1238 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
$000 $000
Fair value of consideration 5,250
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)
–––––
Profit before tax 1,795
Income tax expense (600 + 120) (720)
–––––
Profit for the year 1,075
–––––
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:
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1239
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
Retained earnings 36
____
(236)
____
164
____
153.3 C
$000 $000
Cost of shares 177
Non-controlling interest on acquisition 52
___
229
Net assets acquired
Share capital 100
Retained earnings 50
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
—— ——
1240 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
Tutorial note: Mark-up is “on cost”. If cost is 100%, profit is 50% and sales
value 150%.
153.6 B
$000
Tomas’s receivables 300
Drew’s receivables 130
Less: Inter-company (due from Tomas) (5)
––––
425
––––
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1241
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.
Artur may have a sound business plan and ideas for expanding sales revenue 1
___
considerably in future years, leading to increased profitability.
4
___
(a) Ratios
2014 2013
(i) Current ratio 30,500: 23,050 = 1.3:1 28,500: 19,400 = 1.5 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
1242 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
(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:
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%.
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.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1243
(a) Ratios
= 2.5 = 2.3
= 1.4 = 1.2
= 37.4% = 37.4%
Long-term asset turnover =
= 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.
1244 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1245
1246 ©2014 DeVry/Becker Educational Development Corp. All rights reserved.