Level 12 Text Update June 20211

U Win Bo Myint Book-Keeping and Accounts Level – I & II
Chapter – 1
Double Entry for Assets, Liability and Capital
Question – 1
Complete the gaps in the following table:
Assets Liabilities Capital
$ $ $
(a) 55,000 16,900 ?
(b) ? 17,200 34,400
(c) 36,100 ? 28,500
(d) 119,500 15,400 ?
(e) 88,000 ? 62,000
(f) ? 49,000 110,000
Question – 2
Classify the following items into liabilities and assets.
(i) Motor vehicles
(ii) Premises
(iii) Accounts payable for inventory
(iv) Inventory
(v) Accounts receivable
(vi) Owing to bank
(vii) Cash in hand
(viii) Loan from D. Jones
(ix) Machinery
Question – 3
State the double entry following transactions in the books of C Walsh with the asset, capital and liabilities.
2020 June1; Started business with $5,000 in the bank.
2; Bought motor van paying by cheque $1,200.
5; Bought office fixtures $400 on credit from Young Ltd.
8; Bought motor van on credit from Super Motors $800.
12; Took $100 out of the bank and put it into the cash till.
15; Bought office fixtures paying by cash $60.
19; Paid Super Motors a cheque for $800
21; A loan of $1,000 cash is received from J Jarvis.
25; Paid $800 of the cash in hand into the bank account.
30; Bought more office fixtures paying by cheque $300
1
Question – 4
State the double entry following transactions with the asset, capital and liabilities.
2020 March 1; Started with $1,000 cash.
2; Received a loan of $5,000 from M Chow by cheque, a bank account being opened and the
cheque paid into it.
3; Bought machinery for cash $60.
5; Bought display equipment on credit from Betterview Machines $550
8; Took $300 out of the bank and put it into the cash till.
15; Repaid parts of M Chow’s loan by cheque $800.
17; Paid amount owing to Betterview Machines $550 by cheques.
24; Repaid part of M Chow’s loan by cash $100.
31; Bought additional machinery, this time on credit from D Smith for $500.
Question – 5
Write up the asset, capital and liability accounts in the books of G Powell to record the following transactions;
2020 July 1; Started business with $2,500 in the bank
2; Bought office furniture by cheque $150.
3; Bought machinery $750 on credit from Planers Ltd.
5; Bought a motor van paying by cheque $600.
8; Sold some the office furniture – not suitable for the firm for $60 on credit to JWalkSons.
15; Paid the amount owing to Planers Ltd $750 by cheque.
23; Received the amount due from J WalkSons $60 in cash.
31; Bought more machinery by cheque $280.
2
Chapter – 2
Double Entry for Purchase, Sale & Returns
Question – 1
State the double entry following transactions in the books of J Graham.
Oct 2 Bought goods on credit $370 from W shit
5 Sold goods for cash $96
8 Bought delivery vehicle (for use in the business) by cheque $3,100
14 Returned goods to W Shit $30
20 Sold goods on credit $490 to B hat
27 B hat returned goods $35
Question – 2
Write up the appropriate accounts in the books of R Webster to record the following transactions.
Mar 1 Commenced business with $10,000 in the bank
3 Bought office furniture by cheque $460
5 Bought goods on credit $375 from T ton
8 Returned goods to T ton $55
12 Sold goods on credit $156 to B Bon
15 Bought motor vehicle on credit from Star Motors $3,600
19 B Bon returned goods $26
23 Sent cheque for $3,600 to Star Motors
26 Sent cheque to T ton in settlement of account
30 Received cheque $70 from B Bon
Question – 3
State the double entry following transactions.
July 1 Start business with $5,000 cash.
3 Bought goods for cash $1,000.
7 Bought goods on credit $2,300 from G Morgan.
10 Sold goods for cash $420.
14 Returned goods to G Morgan $280.
18 Bought goods on credit $980 from A Moses.
21 Returned goods to A Moses $190
24 Sold goods to K night $550 on credit.
25 Paid G Morgan’s account by cash $880.
31 K night paid us his account in cash $550.
3
Question – 4
Aug 1 Started business with $1,000 cash.
2 Paid $900 of the opening cash into the bank.
4 Bought goods on credit $78 from S Holmes.
5 Bought a motor van by cheque $500.
7 Bought goods for cash $55.
10 Sold goods on credit $98 to D Moore.
12 Returned goods to S Holmes $18.
22 Bought fixtures on credit from Khingston Equipment Co $150.
24 D Watson lent us $100 paying the money by cheque.
29 We paid S Holmes his account by cheque $60
4
Chapter – 3
Double Entry for Expenses, Incomes
Question – 1
Apr 1 started in business with $15,000 in the bank
3 Bought good for $370 by cheque
5 Paid travelling expense by cheque $26
8 Purchased goods on credit $200 from A A
11 Returned goods to A A $35
14 Drew from cash for office bank $130
15 Paid wages by cheque $300
18 Sold goods on credit to R R $175
21 Bought stationery by cheque $120
24 Sold goods for cheque $850
27 Paid by cheque the office cleaning expense $20.
Question – 2
Aug 1 Started in business with $5,000 in the bank
2 Paid rent by cheque $580
5 Purchased goods on credit $250 from R R
8 Paid motor expense in cash $40.
12 Returned goods to R R $50
15 Sold goods on credit to D D $650
19 Owner withdrew from bank for private use $160
22 D D returned goods $30
24 Paid RR in cheque $200.
26 Paid insurance in cash $50.
28 Received cheque $100 on a account from D Langford
30 Paid wages in cash $160
31 Bought office equipment by cheque $215
5
Question – 3
May 1 Started business with $2,000 in the bank
2 Purchased goods $175 on credit from M Mills.
3 Bought fixtures and fittings $150 paying by cheque.
6 Bought goods on credit $114 from S Waites.
10 Paid rent by cash $15.
12 Bought stationery $27, paying in cash.
18 Goods returned to M Mills $23.
23 Sold goods on credit to U Henry for $77.
24 Bought a motor van paying by cheque $300.
30 Paid the month’s wages by cash $117.
31 The proprietor took cash for himself $44.
Question – 4
State the double entry following transactions in the books of L Thompson.
March 1 Started business with cash $1,500.
2 Bought goods on credit from A Hanson $296.
4 Paid $1,000 of the cash of the firm into a bank account.
5 Sold goods on credit to E Linton $54.
7 Bought stationery $15 paying by cheque.
11 Cash sales $49.
14 Goods returned by us to A Hanson $17.
17 Sold goods on credit to S Morgan $29.
20 Paid for repairs to the building by cash $18.
22 E Linton returned goods to us $14.
27 Paid Hanson by cheque $279.
28 Cash purchases $125.
30 Paid motor expenses in cash $15.
6
Chapter – 4
Trial Balance
Question – 1
You are to enter up the necessary amounts for the month of May from the follow details, and then balance of the
accounts and extract a trial balance as at 31 May 2021.
May 1 Started firm with capital in cash of $2,500.
2 Bought goods on credit from the following persons: D Ellis $540, C Mendez $500, K Gibson $250,
D Booth $760, L Lowe $640.
4 Sold goods on credit to Biley $430, B Hughes $620, H Spencer $176.
9 Biley paid us his account by cheque $430.
10 H Spencer paid us $150 by cheque.
12 We paid the following by cheque K Gibson $250, D Ellis $540.
15 Paid carriage by cash $100.
18 Bought goods on credit from C Mendez $430, D Booth $110.
21 Sold goods on credit to B Hughes $670.
31 Paid rent by cheque $180.
Question – 2
Enter up the books from the following details for the month of March, and extract trial balance as at 31 March
2021.
March 1 Started business with $8000 in the bank.
2 Bought goods on credit from the following persons: K Heriques $760, T Braham $560.
5 Cash sales $870.
7 Sold goods on credit to H Ellist $350, L Lane $420, J Carlton $720.
9 Bought goods for cash $460.
12 Paid wages in cash $140.
13 Sold goods on credit to L Lane $ 320, J Carlton $230.
15 Bought shop fixtures on credit from Betta Ltd $500.
18 We returned goods to T Braham $200.
21 Paid Betta Ltd a cheque $240.
24 J Carlton paid us his account by cheque $950.
27 We returned goods to K Henriques $240.
30 J Khing lent us $600 by cash.
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Question – 3
The following balance of accounts are extracted in the books D make’s ledger as at 31 Dec, 2021.
Capital 500,000
Land 150,000
Furniture 50,000
Trade Receivable 30,000
Trade Payable 25,000
Cash at Bank 200,000
Purchase 200,000
Sale Returns 1,500
Freight-in 2,170
Freight-out 2,200
Purchase Returns 4,500
Revenue 350,000
Inventory (1-1-21) 20,000
Insurance 2,000
Office Salaries 5,000
Advertising 1,500
Heating and Lighting 2,500
Discount Received 900
Discount allowed 5,900
Investment 200,000
Bank interest received 20,000
Drawings 27,630
Required
Write up the trial balance as at 31 Dec 2021.
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Chapter – 5
Preparation of Final Account
Question – 1
From the following trial balance of G Powell draw up a Statement of profit or loss for the year ended 30
September 2021, and as Statement of financial positions at that date.
Dr Cr
$ $
Inventory 1 October 2020 2,368
Carriage outwards 200
Carriage inwards 310
Returns Inwards 205
Returns Outwards 322
Purchases 11,874
Revenue 18,600
Salaries and wages 3,862
Rent 304
Insurance 78
Motor expenses 64
Office expenses 216
Lighting and heating expenses 166
General expenses 314
Premises 5,000
Motor vehicles 1,800
Fixtures and Fittings 350
Trade Payable 1,731
Cash at bank 482
Drawings 1,800
Capital 12,636
33,289 33,289
Inventory at 30 September 2021 was $2,946.
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Question – 2
The following trial balance was extracted from the books of U Henrry on 30 April 2021 From it, and the note are
stock, prepare his Statement of profit or loss for the year ended 30 April 2021, and Statement of financial
positions as at that date.
Dr Cr
$ $
Revenue 18,600
Purchases 11,556
Inventory 1 May 2020 3,776
Returns inwards 440
Returns outwards 355
Salaries and wages 2,447
Motor expenses 664
Rent 576
Sundry expenses 1,202
Fixtures and fittings 600
Trade Payable 3,045
Cash at bank 3,876
Cash in hand 120
Drawings 2,050
Capital 12,844
34,844 34,844
Inventory at 30 April 2021 was $4,998.
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Question – 3
L louris drew up the following trial balance as at 30 September 2021.
Dr Cr
$ $
Capital 30,955
Drawings 8,420
Cash at bank 3,115
Cash in hand 295
Trade Payable 9,370
Inventory 30 September 2020 23,910
Motor van 4,100
Office equipment 6,250
Revenue 130,900
Purchases 92,100
Returns inwards 550
Motor expenses 1,630
Rent 2,970
Telephone charges 405
Wages and salaries 12,810
Insurance 492
Office expenses 1,377
Sundry expenses 284
171,532 171,532
Inventory at 30 September 2021 was $27,475.

You are to draft Statement of profit or loss for the year to 30 September 2021 and Statement of financial
positions as at that date.
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Chapter – 6
Cash Book
Question – 1
Prepare a two-column cash book from the following transaction, balancing at the end of month.
Year – 2021
Nov 1 F Mills started in business with $3,000 in cash
2 Banked $2,800 of the cash
4 Paid rent by cheque $140
7 Bought goods by cheque $370
10 Bought stationery for cash $46
12 Paid wages in cash $120
14 Withdrew from bank for office cash $160
17 Cash sales paid direct into the bank $230
20 Paid carriage in cash $34
23 Cash sales $220
26 F Mills withdrew $60 in cash for private use
28 Banked $200 of cash
30 Bought goods by cheque $430
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Question – 2
Enter the following in three-column cash book. Balance of the cash book at the end of the month.
2021
June 1 Balances brought forward: Cash $97, Bank $2,186
2 The following paid us by cheque in each case deducting a 5 per cent cash discount: R Harris
$1,000; C White $280; P Peers $180; O Hardy $600
3 Cash sales paid direct into the bank $134

5 Paid rent by cash $88
6 We paid the following accounts by cheque, in each case deducting 2.5 per cent cash discount: J
Charlton $400, H Sobers $640; D Shallcross $200
8 Withdrew cash from the bank for business use $250
10 Cash sales $206
12 D Deeds paid us their account of $89 by cheque less $2 cash discount
14 Paid wages by cash $250
16 We paid the following accounts by cheque L Lucas $117 less cash discount $6, D Fisher $206 less
cash discount $8
20 Bought fixtures by cheque $8,000
24 Bought motor lorry paying by cheque $7,166
29 Received $169 cheque from D Steel
30 Cash sales $116
30 Bought stationery paying by cash $60
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Chapter – 7
Petty Cash Book
Question – 1
The following is a summary of the petty cash transactions of Jockfield Ltd for May 2021
May 1 Received from Cashier $300 as petty cash float
$
2 Postages 18
3 Travelling 12
4 Cleaning 15
7 Petrol for delivery van 22
8 Travelling 25
9 Stationery 17
11 Cleaning 18
14 Postage 5
15 Travelling 8
18 Stationery 9
18 Cleaning 23
20 Postage 13
24 Delivery van 5,000-mile service 43
26 Petrol 18
27 Cleaning 21
29 Postage 5
30 Petrol 14
You are required to:

(a) Rule up a suitable petty cash book with analysis column for expenditure on cleaning, motor expenses,
postage, stationery, travelling.
(b) Enter the month’s transactions.
(c) Enter the receipts of the amount necessary to restore the imprest and carry down the balance for the
commencement of the following month.
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Chapter – 8
Irrecoverable Debt and Allowance for Doubtful Debt
Question – 1
The following information is available from the books of H and L ltd for the three year to 31 March 2001. The year
ended 31 March 1999 was the first year of trading
Year 31.3.99 31.3.00 31.3.01
Trade Receivable 250,000 280,000 320,000
Bad debt written off in year 800 1,000 1,200
Bad debt at year end 700 900 1,600
Required:
Prepare the three year ended 31 March 1999, 2000, 2001 for;
(a) Irrecoverable debt account
(b) Extract Statement of profit or loss
(c) Extract Statement of financial position.
Question – 2
A business had always made an allowance for doubtful debts at the rate of 2 per cent of accounts receivable. On
1 January 2021, the amount of allowance for doubtful debt is $400.
Year ended to 31 December 2021 the bad debts has to be written – off amounted to $700
On 31 December 2021 the accounts receivable balance was $17,000 and the usual allowance for doubtful debt
is to be made.
You are to show:

(a) The Allowance for Doubtful Debt Account for the year.
(b) Extract Statement of Profit or Loss for the year
(c) The relevant extract Statement of Financial Position as at 31 December 2021.
Question – 3
A business, which started trading on 1 January 2020, adjusted its allowance for doubtful debt at the end of each
year on a percentage basis, but each year the percentage rate is adjusted.
In accordance with the current ‘economic climate. The following details are available for the three years ended 31
December 2020, 2021 and 2022.
Irrecoverable debts Trade receivables at 31 Percentage allowance for

written off year to 31 December after irrecoverable doubtful debts
December debts written-off
$ $ %
2020 1,240 41,000 4
2021 2,608 76,000 6
2022 5,424 88,000 5
Required:
(a) Show the irrecoverable debts accounts for each of the three years.
(b) Show the allowance for doubtful debts accounts for each of the three years.
(c) Show the statement of financial position extracts as at 31 December 2020, 2021 and 2022.
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Question – 4
In a new business, allowance for doubtful debt is $350 at 1 January 2013. During the year ended 31 December
2013 the following debts are found to be bad, and are written off on the dates shown:
31 May S Gill & Son $600
30 September H Black Ltd $400
30 November A Thom $200
On 31 December 2013 the schedule of remaining accounts receivable totaling $ 15,000 is examined and it is
decided to make an allowance for doubtful debts of $500.
You are required to show:
(a) The Irrecoverable Debt Account and the Allowance for Doubtful Debt Account.
(b) The Statement of Profit or Loss
(c) The relevant extracts from the Statement of Financial Position as at 31 December 2013.
Question – 5
On 31 December 2001, trade receivable balance is $165,600 and allowance for doubtful debt is 2.25% of
receivable at that date.
During the year, bad debts are written off $735 on 30 September 2001 and $175 of these bad debts recovered
on 3 December 2001.
The balance on the allowance for doubtful debt on 1 January 2001 is $4,001.
Required:
Draw up irrecoverable debt account, allowance for doubtful account.
Question – 6
On 31 December 2000, trade receivable balance is $145,600 and allowance for doubtful debt is 2.75% of
receivable at that date.
During the year, bad debts are written off $375 on 30 September 2000 and bad debt $400 that written off in 1999
had recovered on 1 February 2000.
The balance on the allowance for doubtful debt on 1 January 2000 is $3,195.
Required:
Draw up irrecoverable debt account; allowance for doubtful account and bad debt recovered account.
Question – 7
Dara has an Allowance for Doubtful Debts Account. The balance at 1 April 2015 was $2,100.
The total trade receivable at 31 March 2016 were $40,120. A bad debt of $390, which was included in this total,
is to be written off.
Of the remaining trade receivables:
 a specific provision for doubtful debts is to be made for $730
 a general provision for doubtful debts of 3% of the remaining debtors is to be made.
Required:
(a) Calculate the increase or decrease (changes) in Dara’s Allowance for Doubtful Debts Account 31 March
2016.
(b) Prepare Dara’s Allowance for Doubtful Debts Account at 31 March 2016.
(c) Prepare Dara’s Statement of Financial Position extract at 31 March 2016 to show the net trade receivables.
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Question – 8
Tentib Ltd maintains an allowance for doubtful debts of 5% of trade receivables.
The following information was provided for the year ended 31 October 2017.
1 November 2016 31 October 2017

Trade receivables $46,900 $38,200
Required:
(a) Calculate the amount of the allowance for doubtful debts for the year ended 31 October 2017 to be shown in
the:
(i) statement of profit or loss
(ii) statement of financial position
(b) Explain the effect of the change in the allowance for doubtful debts on the profit for the year ended 31
October 2017.
Question – 9
Michelle is a sole trader. During the year ended 31 December 2015, she wrote off an irrecoverable debt of
$2,000 which was owed by Mabelle.
Required
(a) Prepare the irrecoverable debts account.
On 31 December 2015 Michelle created an allowance for doubtful debts of 3%. Trade receivables were $94,000
Required
(b) Prepare the allowance for doubtful debts account.
Question – 10
Tatek provided the following information at 1 January 2017.
Trade receivables 17,750
Allowance for doubtful debt 355
Trade receivables owed $16,400 at the end of the year.
Tatek increased his allowance for doubtful debts to 3% of trade receivables.
Required
(a) Calculate the change in the allowance for doubtful debts for the year ended 31 December 2017.
(b) Prepare the allowance for doubtful debts account for the year ended 31 December 2017, showing the
transfer to the financial statements. Balance the account on this date and bring the balance down on 1
January 2018.
Question – 11
On 30 June 2018 Rachmat received a cheque for $280 from a trade receivable whose debt had been written off
as irrecoverable in 2017.
Required
Prepare journal entries to record the transaction showing the year end transfer to the financial statements.
Narratives are required.
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Short Questions
Question – 1
State two reasons why an allowance for doubtful debts account is maintained.
- To comply with the prudence concept.
- To prevent trade receivables being overstated in the statement of financial positon.
Question – 2
(i) Explain how the profitability has been affected by the writing off of this irrecoverable debt.
- Profitability will be reduced because the irrecoverable debt is an expense.
(ii) Explain how the liquidity has been affected by the writing off of this irrecoverable debts.
- Liquidity will be reduced because the cash will not be received.
Question – 3
(i) Identify the section of the statement of financial position where the allowance for doubtful debts would be
shown.
A. Current assets
B. Current liabilities
C. Non-current assets
D. Non-current liabilities
(ii) Identify the double entry to record the writing off of an irrecoverable debt.
Debit Credit
A Allowance for doubtful debts Irrecoverable debts
B Irrecoverable debts Allowance for doubtful debts
C Irrecoverable debts Trade receivables ledger control account
D Trade receivables ledger control account Irrecoverable debts
Question – 4
Explain how the statement of financial position would be affected by the writing off of an irrecoverable debt.
- Total assets will be reduced because current assets will be reduced.
- Equity will be reduced, because profit will be reduced.
Question – 5
Identify the effect on a business’s profitability of an increase in the allowance for doubtful debts.
A. Gross profit decrease
B. Gross profit increase
C. Profit for the year decrease
D. Profit for the year increase
Question – 6
Identify where an irrecoverable debt recovered would be shown.
A. Statement of financial position
B. Statement of profit or loss
C. Trade payables ledger control account
D. Trade receivables ledger control account
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Question – 7
Identify when a business would create an allowance for doubtful debts.
A. Decrease in cash purchases
B. Decrease in cash sales
C. Increase in credit purchases
D. Increase in credit sales
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Chapter – 9
Depreciation and Accumulated Depreciation
Question – 1
A machine costs $8,000. It will be kept for five year, and then sold for an estimated figure of $2,400. Show the
calculations of the figures for depreciation (to nearest $) for each of the five years using (a) the straight line
method, (b) the reducing balance method, for this method using a depreciation rate of 20 per cent.
Prepare the following account.
(i) Machine account
(ii) Depreciation expense account
(iii) Accumulated depreciation account
Question – 2
Stella provided the following information at 1 October 2016, Tools at valuation $3,620.
During the year, Stella purchased tools costing $264, paying by cheque. Tools are depreciated using the
revaluation method. At 30 September 2017 tools were valued at $3,310.
Required
Calculate the depreciation charge for tools for the year ended 30 September 2017.
Question – 3
Alpha sells machine B for $50,000 cash. Machine B cost $100,000 when it was purchased and has a carrying
amount of $65,000 and accumulated depreciation is 35,000 at that date of disposal. You are required to draw up
machine B cost account, accumulated depreciation account and disposal account.
Question – 4
A non-current asset (cost $15,000, depreciation $10,000) is given in part exchange for a new asset costing
$20,500. The agreed trade-in value was $5,500. You are required to draw up non-current asset cost account,
accumulated depreciation account and disposal account.
Question – 5
On 31 December 2016, Logan James purchased a new motor vehicle costing $9,000
 He received a trade in allowance (part exchange) for his old vehicle of $2,500
This vehicle had originally cost $6,000 on 1 January 2012.
 Logan James paid the remaining balance for the new vehicle by cheque.
 Motor vehicles are depreciated at the rate of 25% per annum using the reducing (diminishing) balance
method.
 A full year’s depreciation is charged in the year of acquisition but none in the year of disposal.
Required:
Prepare the accounts to record the acquisition and disposal of the motor vehicle. Balance off the appropriate
accounts at the year ended 31 December 2016.
(a) Motor Vehicle Account (opening balance - $6,000)
(b) Accumulated Depreciation Account (opening balance - $4,102)
(c) Bank Account (opening balance – $8,920)
(d) Disposal Account
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Question – 6
(a) A company depreciates its plant at the rate of 25% per annum, straight line method for each month of
ownership. From the following details draw up the plant account and the accumulated depreciation account
for each of the years 2010, 2011, 2012 and 2013. You are also required to draw up the disposal.
2010 Bought plant coating $2,600 on 1 January
Bought plant costing $2,100 on 1 October
2012 Bought plant costing $2,800 on 1September.
2013 Sold plant which had been bought for $2,600 on 1January 2010 for the sum of $810 on 31 August
2013.
If depreciation policy is the rate of 25% per annum using the reducing (diminishing) balance method. A full year’s
depreciation is charged in the year of acquisition but none in the year of disposal.
(b) Prepare the accumulated depreciation account for each of the years 2010, 2011, 2012 and 2013. You are
also required to draw up the disposal.
Question – 7
Willow depreciates machinery at a rate of 25% per annum on a reducing (diminishing) balance basis, with a full
year’s depreciation charged in the year of acquisition and none in the year of disposal.
On 1 April 2016 the total cost of machinery was $188,500 with accumulated depreciation of $36,150. This
included a machine, purchased on 1 July 2015 costing $8,600, which was sold on 1 March 2017 for $6,500
On 1 February 2017 new machinery was purchased costing $3,200.
All purchases and sales of non-current assets were made by cheque.
Required:
(a) Prepare the following ledger accounts for the year ended 31 March 2017, showing any transfers to the
income statement. Balance the accounts on that date and bring the balances down on 1 April 2017.
(i) Machinery Cost Account
(ii) Machinery Disposal Account
(iii) Machinery Accumulated Depreciation Account
(b) Calculate the carrying value of machinery at 31 March 2017.
Question – 8
On 1 July 2005, Daessa purchased a computer for use in her business. The list price of the computer was
$100,000 less 10% trade discount. At the same time, Daessa paid the following additional expenses relating to
the computer:
$
Delivery 6,000
Insurance premium for the ending 30 June 2006 3,750
Installation 14,000
Computer stationery 2,750
Required:
(a) Calculate the total amount that should have been debited to the Computer Asset.
Daessa decided to provide for depreciation using the reducing balance method at 20% per annum. A full
year’s depreciation is provided in the year of purchase but no depreciation is provided in the year of sale.
Daessa’s financial year-end is 31 December.
21
(b) Write up the Computer Accumulated Depreciation Account for each of the three years ended 31 December
2005, 2006 and 2007.
On 1 January 2008, Daessa sold the computer, on credit to Cheung, for $57,500.
(c) Prepare the Computer Asset Disposal Account to record the sale of the computer, showing clearly Statement
of profit or loss.
Question – 9
The Strand Social Club provided the following information for the year ended 31 October 2018
1 November 31 October
2017 2018
Equipment- cost 31,200 31,440
Equipment- accumulated depreciation 11,950 15,040
During the year ended 31 October 2018:

- the club sold equipment that had cost $1,128, with a carrying value of $418, at a loss of $68.
Required
Prepare the following accounts for the year ended 31 October 2018. Balance the accounts on that date and
bring the balances down on 1 November 2018.
(a) Equipment - Cost Account
(b) Equipment - Accumulated Depreciation Account
Question – 10
Monow Manufacturing provided the following information at 1 June 2017.
Machinery - Cost $18,100
- Accumulated depreciation $8,350
On 1 January 2018 a machine was sold for $3,000 cash. The machine was purchased on 1 September 2015 for
$6,600. On 1 March 2018 a new machine costing $9,900 was purchased.
Depreciation is charged for each month of ownership at 20% per annum on a straight line basis.
Required
(a) Calculate for the machine disposed of:
(i) the total amount of depreciation charged
(ii) the profit or loss on disposal.
(b) Calculate the total depreciation charge on machinery for the year ended 31 May 2018.
(c) Prepare an extract of the statement of financial position at 31 May 2018 showing machinery only.
22
Short Questions
Question – 1
State two reasons why Frazier should depreciate his factory machinery.
- To comply with the accruals/ matching concept
- Wear and tear/ usage
- Obsolescence
Question – 2
Zhang uses the straight line method of depreciation. State two other methods of depreciation.
- Reducing (diminishing) balance method
- Revaluation method
Question – 3
Explain why Morgan should use the reducing (diminishing) balance method to depreciate his motor vehicles.
- Motor vehicles will lose most of their value in the early years therefore, less depreciation will be charged in
later years.
Question – 4
Identify which one of the following costs will be classified as revenue expenditure if a business purchases a new
motor vehicle.
A. Cost of delivery
B. Cost of fuel
C. Cost of motor vehicle
D. Cost of satellite navigation system
Question – 5
Explain one reason why Stella needs to account for depreciation on her non-current assets.
- To comply with the accruals/matching concept to match the benefits generated with the cost of the asset.
Question – 6
Identify which one of the following is capital expenditure.
A. Bank loan to acquire premises
B. Interest on bank loan
C. Purchases of premises
D. Repairs to premises
Question – 7
Identify the effect of a payment for motor insurance being treated as capital expenditure.
A. Gross profit overstated
B. Gross profit understated
C. Profit for the year overstated
D. Profit for the year understated
23
Question – 8
Identify the double entry to record the purchase of a delivery vehicle on credit from Tai
Account to be debited Account to be credited
A. Motor vehicle Tai
B Tai Motor vehicle
C Purchase Tai
D Tai Purchase
Question – 9
Assess the effect on cashflow and profitability of the change in the method of depreciation.
- Cash flow
There would be no effect on cashflow as depreciation is a non-cash expense.
- Profitability
There would be a reduction in profit because the depreciation charge/ expenses/ costs would be higher.
Question – 10
Explain, referring to an appropriate accounting concept, why Monow Manufacturing may not change the method
of depreciation of machinery.
- Concept
Consistency
- Explanation
Monow Manufacturing should use the same method of depreciation so that reliable comparisons may be
made to previous years’ financial statements.
Question – 11
State, indicating with a tick (√ ), whether each item is capital expenditure or revenue expenditure for the new
minibus.
Capital expenditure Revenue expenditure
Driver’s wages
Fuel
Installation of air conditioning
Insurance
Purchase of minibus
Sign writing
Question – 12
Identify which cost is classified as capital expenditure.
A. Delivery of machine
B. Machinery insurance
C. Machinery repairs
D. Wages for machine operator
24
Question – 13
Identify which of the following is capital expenditure.
A. Bank loan to acquire motor vehicle
B. Delivery cost for motor vehicle
C. Fuel for motor vehicle
D. Interest on bank loan
Question – 14
Identify the book of original entry used to record depreciation expense.
A. Cash book
B. Journal
C. Purchases day book
D. Purchases returns day book
Question – 15
State the most suitable depreciation method for each non-current asset.
Non-current assets Depreciation method
20-year lease on a building
Loose tools
Motor vehicles
25
Chapter – 10
Accrual and Prepayments
Question – 1
W.Hope’s year ended on 30 June 2021. Write up the ledger accounts, showing the transfers to the financial
statement and the balances carried down to the next year for the following:
a. Stationery: Paid for the year to 30 June 2021 $240; Inventory of stationery at 30 June 2020 $60; at 30 June
2021 $95
b. General expense: Paid for the year to 30 June 2021 $470; owing at 30 June 2020 $32; Owing at 30 June
2021 $60.
c. Rent and business rates (combined account): Paid in the year to 30 June 2021 $5,410; Rent owing at 30
June 2020 $220; Rent paid in advance at 30 June 2021 $370; Business rates owing 30 June 2020 $191;
Business rates owing 30 June 2021 $393.
d. Motor expenses: Paid in the year to 30 June 2021 $1,410; Owing as at 30 June 2020 $92; Owing as at 30
June 2021 $67.
e. Hope earns commission from the sales of one item. Received for the year to 30 June 2021 $1,100; Owing at
30 June 2020 $50; Owing at 30 June 2021 $82.
Question – 2
The financial year of M Hussey on 31 December 2009. Show the ledger accounts for the following items
including the balance transferred to the necessary part of the financial statements, also the balances carried
down to 2010.
a. Motor expenses: Paid in 2009 $800: Owing at 31 December 2009 $100.
b. Insurance: Paid in 2009 $900: Prepaid as at 31 December 2009 $70.
c. Stationery: Paid during 2009 $400: Owing as at 31 December 2008 $200: Owing as at 31 December 2009
$300.
d. Business rates: Paid during $2,000: Prepaid as at 31 December 2008 $180: Prepaid as at 31 December
2009 $160.
e. Hussey sublet part of the premises. He receives $1,600 during the year ended 31 December 2009.Wills, the
tenant, owed Hussey $190 on 31 December 2008 and $210 on 31 December 2009.
Question – 3
Three of the accounts in the ledger of Charlotte Williams indicated the following balances at 1 January 2021:
Insurance paid in advance $562:
Wages outstanding $306:
Rent receivable, received in advance $36.
During 2021 Charlotte:
Paid for insurance $1,019, by bank standing order
Paid $15,000 wages, in cash:
Received $2,600 rent, by cheque, from the tenant.
At 31 December 2021, insurance prepaid was $345. On the same day rent receivable in arrears was $105 and
wages accrued amounted to $419.
(a) Prepare the insurance, wages and rent receivable accounts for the year ended 31 December 2021, showing
the year-end transfers and the balances brought down.
(b) Prepare the statement of profit or loss extract showing clearly the amounts transferred from each of the
above accounts for the year ending 31 December 2021.
26
Question – 4
Ash prepares his accounts annually to 31 December and maintains a single expense account for Rent, Rates
and Insurance.
On 1 January 2006, the opening accruals and prepayments on this ledger account were a rent accruals of $500,
a rates prepayment of $400 and an insurance prepayment of $250. The following transactions occurred during
the year to 31 December 2006.
1. Rent of $500 was paid on 15 January 2006; $650 on 1 March 2006, 1 June 2006 and 1 September 2006.
The amount of $650 due on 1 December was not paid until 10 January 2007.
2. Insurance totaling $550 was paid on 30 June 2006 for the year to 30 June 2007.
3. Rates of $1,700 were paid on 1 April 2006 for the year to 31 March 2007.
Required:
Prepare the Rent, Rates and Insurance account for the year ended 31 December 2006, clearly showing the
charge to the Statement of profit or loss.
Question – 5
During the year Precious made the following payments by cheque for power.
Date paid Amount 3 month period ending
$
1 July 2016 3,300 30 June 2016
1 October 2016 3,080 30 September 2016
1 January 2017 4,320 31 December 2016
1 May 2017 4,080 31 March 2017
1 July 2017 3,960 30 June 2017
Required:
Calculate the amount of power accrued at:
(a) 31 May 2016
(b) 31 May 2017
(c) Prepare the power account for the year ended 31 May 2017. Balance the account on this date and bring the
balance down on 1 June 2017.
Question – 6
A company pays rent quarterly in arrears on 1 January, 1 April, 1 July and 1 October each year. The rent was
increased from $90,000 per year to $120,000 per year as from 1 October 2002.
What rent expense and accrual should be included in the company's financial statements for the year ended 31
January 2003?
Question – 7
A business compiling its financial statements for the year to 31 July each year pays rent quarterly in advance on
1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from $60,000 per year to
$72,000 per year as from 1 October 2003.
What figure should appear for rent expense in the business’s financial statement for the year ended 31 July
2004?
27
Question – 8
1 March 2017 28 February 2018 Payments
$ $ $
Rent 300 prepaid 420 accrued 3,000
Rates 160 accrued 135 prepaid 1,750
Required
Prepare the rent and rates account for the year ended 28 February 2018. Balance the account on this date and
bring the balances down on 1 March 2018.
Question – 9
1 July 2016 30 June 2017
$ $
Rent received prepaid 200 250
Rent received 2,700
Required
Prepare the rent received account for the year ended 30 June 2017. Balance the account at that date and bring
the balance down on 1 July 2017.
Question – 10
Kraigg paid rent for 12 months on the following dates.
Date $
1 January 2018 8,040
1 January 2019 9,720
He prepares financial statements to 31 May 2019.
Required
(a) Calculate the amount of rent paid in advance on:
(i) 1 June 2018
(ii) 1 June 2019
(b) Prepare the rent account for the year ended 31 May 2019. Balance the account on this date and bring the
28
Short Questions.
Question – 1
Identify in which account debenture interest owing at the year-end will be recorded.
A. Accrued expenses
B. Accrued income
C. Prepaid expenses
D. Prepaid income
Question – 2
Explain, with reference to the accruals concept, why Tamas adjusted the payment for general expense.
- To ensure that the general expense in the statement of profit or loss is the amount incurred in the year.
- To ensure that the accounts show a true and fair view.
Question – 3
Complete the following table by indicating with a tick( ) the section of the statement of financial position where
each balance will be show.
Current Assets Current liabilities
Insurance prepaid
Light and heat accrued
Rent received prepaid
Question – 4
Identify which one of the following would always have a debit balance at the year end.
A. Bank interest received
B. Rental income received
C. Rental income accrued
D. Rental income prepaid
Question – 5
Identify where in the statement of financial position rental income owing is shown.
A. Current assets
B. Non-current assets
C. Current liabilities
Question – 6
Identify where other receivables are shown in the statement of financial position.
A. Current assets
B. Non-current assets
C. Current liabilities
29
Question – 7
Identify where the rental income account will appear.
A. General journal
B. General ledger
C. Trade payables ledger
D. Trade receivables ledger
Question – 8
Identify where rent received in advance is shown in the statement of financial position.
A. Current assets
30
Chapter – 11
Sole Trader
Statement of Profit or Loss for the year ended ---

$ $
Revenue xx
(-) Sale return/return inwards (xx)
xx
(-) Cost of sales
Opening inventory xx
(+) Purchase xx
(-) Purchase return/return outwards (xx)
(+) Carriage inwards xx
(-) Closing inventory (xx)
(xx)
Gross profit xx
(+) Other income
- Discount received xx
(-) Expense
- Carriage outwards xx
- Wages xx
- Rent xx
- General expense xx
- Depreciation for the year xx
- Discount allowed xx
(xx)
Profit / (Loss) for the year xx
31
Statement of Financial Position as at ---

$ $
Non-current assets
Land and building xx
Furniture & fittings xx
xx
Current assets
Inventory (closing) xx
Trade receivables xx
Other receivable – Prepaid expense / Accrued income xx
Cash at bank xx
Cash in hand xx
xx
Total assets xx
Capital (Equity) and Liabilities
Capital
Opening capital xx
(+) Additional capital xx
(+/-) Profit or loss for the year xx
(-) Drawing (xx)
xx
Liabilities
Non-current liabilities
Bank loan xx
Current liabilities
Trade payable xx
Other payable – Accrued expense / Prepaid income xx
Bank overdraft xx
xx
Total Capital and Liabilities xx
32
Question – 1
T Morgan, a sole Trader extracted the following trial balance from his books at the close of business on 31 March
1999.
$ $
Purchases & Revenue 22,860 41,970
Inventory at 1 April 1998 5,160
Capital 1 April 1998 7,200
Bank overdraft 4,350
Cash 90
Discounts 1,440 930
Returns inwards 810
Carriage outwards 2,160
Rent and insurance 1,740
Allowance for doubtful debts 660
Fixtures and fittings 1,200
Delivery van 2,100
Trade Receivable and Trade Payables 11,910 6,060
Drawings 2,880
General office expenses 450
61,740 61,740
Notes;
(1) Inventory 31 March 1999 $4,290.
(2) Wages and salaries accrued at 31 March 1999 $210; office expenses owing $20.
(3) Rent prepaid 31 March 1999 $180.
(4) Increase allowance for doubtful debts by $150 to $810.
(5) Provide for depreciation as follows fixtures and fittings $120; delivery van $300.
Required;
Prepare the Statement of profit or loss for the year ended 31 March 1999 and Statement of financial position at
that date.
33
Question – 2
Li Hong owns a wholesale business.
Trial Balance at 31 December 2009
$ $
Opening inventory 21,000
Rent 2,600
Heat and light 2,210
Discount received 350
Discount allowed 260
Commission received 3,000
Revenue 87,100
Purchases 44,200
Returns inwards 400
Carriage inwards 1,200
Wages 19,700
General expenses 8,120
Capital 43,640
Drawing 7,500
Bank 1,620
Cash 140
Accumulated depreciation; Motor vehicles 9,800
Allowance for doubtful debt 500
172,040 172,040
34
Additional information at 31 December 2009;

1. Closing inventory $22,700.
2. Commission receivable owing $1,700.
3. Rent payable is $200 per month in advance.
4. A bad debt of $400 has to be written off and allowance for doubtful debt is to be maintained at 3% of the
remaining trade receivable.
5. Depreciation is to be charged as follows; Motor vehicles 25 % reducing balance
Fixtures and fittings 10% on Cost
Required;
Prepare the;
(a) Statement of profit or loss for the year ended 31 December 2009.
(b) Statement of financial position at 31 December 2009.
Question – 3
M Leng prepares final accounts at 31 December. The following information is available at 31 December 2007;
$
Revenue 282,000
Purchases 184,000
Carriage in 2,400
Rent received 26,000
Wages 35,000
Discount received 800
Administration expenses 5,800
Light and heat 8,200
Other operating expense 5,500
Premises 250,000
Plant and machinery (cost) 80,000
Accumulated depreciation at 1 January 2007 16,000
Inventory at 1 January 2007 22,060
Trade Payable 9,200
Cash 200
Bank 4,400 Dr
Capital 213,600
Drawings 34,400
Long term loan 100,000
35
Additional information is available as follows;

1. Inventory at 31 December 2007 was $24,320.
2. No interest has yet been provided on the loan, which was taken out on 1 July 2007. Interest is payable at
12% per annum.
3. A part of Leng’s premises is let to a tenant, who pays $24,000 per annum. At the year end, one month’s rent
was prepaid.
4. Allowance for Doubtful debts are provided for at 3%.
5. Light and heat $ 900 was outstanding.
6. Depreciation is provided on plant and machinery at 10% per annum on cost.
Required:
Prepare the;
(a) Statement of profit or loss for the year ended 31 December 2007.
(b) Statement of financial positions at 31 December 2007.
36
Chapter – 12
Company Final Account
Question – 1
The directors of Mamxing Ltd provided the following information, in addition to the statement of changes in equity
shown at 31 May 2018.
$
8% Debentures (2018) 22,000
10% Debentures (2028) 25,000
Bank 350
Inventory 63,200
Property, plant and equipment (carrying value) 186,222
Trade payables 24,034
During the year ended 31 May 2018:

 the profit for the year was $78,200
 a full year’s interest on both debentures had not been accounted
 dividends of $32,000 were paid.
Required
(a) Complete the statement of changes in equity for the year ended 31 May 2018.
Mamxing Ltd
Statement of changes in equity for the year ended 31 May 2018
Ordinary Share Retained Total
Shares capital premium earnings
$ $ $ $
Balance at 1 June 2017 50,000 25,000 69,600
Profit for the year
Dividend
Balance at 31 May 2018
(b) Calculate the total amount of debenture interest owing.

(c) Prepare the statement of financial position at 31 May 2018.
37
Question – 2
Standard Ltd provided the following balances at 30 June 2017.
$
6% debentures 2022 20,000
Cash at bank 1,290 Cr
Cash in hand 200
Inventory 18,235
Other payables 1,115
Other receivables 1,775
Property, plant and equipment – carrying value 214,400
Share capital
Ordinary shares at $1 each 90,000
7% Preference shares at $1 each 45,000
Share premium 30,000
Additional information
- At 1 July 2016 retained earnings were $18,260
- Profit for the year ended 30 June 2017 was $62,330
- On 30 June 2017 the directors paid by cheque:
 Preference dividend in full
 Ordinary dividend of $0.25 per share.
Required:
(a) Calculate, for the year ended 30June 2017, the amount of dividend paid to:
(i) Preference shareholders
(ii) Ordinary shareholders
(b) State one difference between ordinary shares and preference shares.
(c) Prepare the statement of financial position at 30 June 2017.
Question – 3
Viva Ltd provided the following information on 30 November 2017,
 Issue share capital:
- 40,000 7.5% preference shares at $0.50 each
- 50,000 ordinary shares at $1 each.
 Profit for the year after tax was $21,500.
 Preference dividend was paid in full.
 Ordinary dividend was paid from the remaining profit for the year.
Required:
(a) (i) Calculate the total amount of preference dividend paid.
(ii) Calculate the amount of ordinary dividend paid per share.
38
(b) Complete the statements of changes in equity for the year ended 30 November 2017.
Viva Ltd
Statement of changes in equity for the year ended 30 November 2017.
Share capitals Retains Earnings Totals
$ $ $
Balance at 1 December 2016 70,000 33,200
Profit for the year
Dividend
Balance at 30 November 2017
(c) The directors of Butland Ltd provided the following information in addition to the statement of changes in
equity for the year ended 30 November 2017.
At 1 October 2017, the ordinary share capital is $60,000. During the year ended 30 September 2018, the
amount of $17,500 was received from an issue of ordinary shares of $0.25 each at a premium of $0.10.
Required
Calculate the number of ordinary shares issued.
Question – 4
Danzip Ltd provided the following information at 30 September 2017, after preparation of the statement of profit
or loss.
$
6% Debentures (2025) 20,000
Cash at bank 6,000 Cr
Cash in hand 5,000
Inventory 24,000
Property plant and equipment – carrying value To be calculated
Trades receivables 19,000
 Profit for the year ended 30 September 2017 was $113,375.
 A dividend of $0.50 per share was paid on the 45,000 ordinary $1 shares
 There was a transfer to the general reserve of $15,000.
Required:
(a) Complete the statement of changes in equity for the year ended
Danzip
Statement of changes in equity for the year ended 30 September 2017
Shares General Retained Total
capital reserve earnings
$ $ $ $
Balance at 1 October 2016 45,000 25,000 58,690 128,690
Profit for the year
Transfer to general reserve
Dividend
Balance at 30 September 2017
(b) Prepare the statement of financial position at 30 September 2017.
39
Question – 5
Select Ltd is registered with an authorized capital of 300,000 ordinary shares of $1. The following trial balance
was extracted from the books of the company on 31 March 2002, after the preparation of the trading account:
Dr Cr
$ $
Ordinary share capital , fully paid 200,000
Property at cost 170,000
Sundry trade receivables 38,300
Furniture and fittings cost 80,000
Cash 3,800
Sundry trade payables 25,000
Inventory at 31 March 2002 42,000
Bank 12,000
Trading account: gross profit 98,050
Office salaries and expenses 25,000
Accumulated depreciation on furniture and fittings 32,000
Share premium account 20,000
Advertising and selling expenses 5,000
Irrecoverable debts 250
Retained earnings at 1 April 2001 12,000
Directors' fees 11,300
387,650 387,650
Required:
Prepare the statement of profit or loss and a statement of changes in equity of the company for the year ending
31 March 2002, and statement of financial position as at that date, after taking into account the following
adjustments.
(i) The allowance for doubtful trade receivables is to be adjusted to $700.
(ii) Depreciation is to be provided in respect of furniture and fittings at 10 per cent per annum on cost.
(iii) $25,000 is to be transferred from the retained earnings to general reserve.
Present the statement of financial position in a form which shows the share holders' equity and the working
capital.
40
Question – 6
The trial balance extracted from the books of Tailor Times Ltd at 31 December 2002 was as follows:
$ $
Share capital 200,000
Retained earnings 31 December 2001 27,500
Freehold premises at cost 271,000
Accumulated depreciation on freehold premises at 31 December 2001 54,000
Machinery at cost 84,000
Accumulated depreciation on machinery account as at 31 December 2001 21,000
Purchases 563,700
Sales 925,300
Business rates 6,100
Electricity 4,800
Irrecoverable debts 1,400
Allowance for doubtful debts at 31 December 2001 1,200
Inventory at 31 December 2001 81,900
Bank balance 16,200
1,297,300 1,297,300
You are given the following additional information:

(i) The authorized and issued share capital is divided into 400,000 ordinary shares of 50 cents each.
(ii) Inventory at 31 December 2002, $94,300
(iii) Wages and salaries due at 31 December 2002 amounted to $1,800
(iv) Business rates paid in advance at 31 December 2002 amounted to $700.
(v) The allowance for doubtful debts is to be increased to $1,500
(vi) A depreciation charge is to be made on freehold premises of $25,000 and machinery at the rate of 25 per
cent annum on cost.
Required:
Prepare the statement of profit or loss for 2002 and a statement of financial position as at 31 December 2002.
41
Short Questions
Question – 1
Explain the term limited liability.
- Limited liability means that the shareholders are not personally liable for the company debts meaning the
most shareholders could lose is the amount they invested.
Question – 2
State one difference between ordinary shares and preference shares.
- Ordinary shareholders have voting rights/ preference shareholders do not have voting rights.
- Ordinary shareholders receive a variable dividend/ preference shareholders receive a fixed dividend.
Question – 3
Explain why it may be better for a shareholder to hold preference shares rather than ordinary shares when profits
are falling.
- Preference shareholders receive their dividends before ordinary shareholders who may not receive any
dividend when profits are falling.
Question – 4
Explain one reason why a company would choose to issue ordinary shares rather than debentures.
- Ordinary shares do not require dividends to be paid when profit is low which means that when the business
has limited cash resources no payment has to be made unlike debentures where interest must be paid from
cash resources.
Question – 5
Identify what is meant by the term 2018 in 8% debentures (2018).
A. Annual interest
B. Total interest
C. Year debenture was issued
D. Year debenture was redeemed
Question – 6
Identify which one of the following is a capital reserve.
A. Loan stock
B. Retained earnings
C. Share capital
D. Share premium
Question – 7
(i) State what is meant by 10% in the term ‘10% debentures (2030)’.
A. Interest of 10% is payable every year
B. Interest of 10% is payable only in 2030
C. Interest of 10% is receivable every year
D. Interest of 10% is receivable only in 2030
42
(ii) Explain why shareholders would be concerned if Co; Ltd increased the amount of loan capital.
- Payment of interest will have an adverse effect on the profit for the year which could affect the amount
of money available for dividends.
Question – 8
Danzip Ltd is considering two options to purchase new machinery costing $100,000;
 Option 1; Issue of 5% Debentures (2030)
 Option 2; Issue of ordinary shares
- If debenture are issued the profit for the year would decrease due to interest whereas dividends on ordinary
shares are appropriation of profit, so will not impact profit for the year and dividends are not compulsory
- The issue of debentures would need to be repaid whereas the issue of share capital would not require
repayment.
Question – 9
(i) Explain one reason why Nazeu Ltd choose to issue ordinary shares instead of preference shares.
- They chose to issue ordinary shares as the dividend payable is variable therefore in years of low profit
the dividend can be reduced.
(ii) On 1 December 2016 the company issued 5% debentures (2025). State what is meant by 2025.
- The loan is repayable in this year.
Question – 10
(i) Explain one reason why Tixreb Ltd received more than the nominal value for each share issued.
- The company received more than the nominal value as the share was issued at a premium. This may
have been due to the market price being higher than the nominal value.
(ii) Explain one reason why Tixreb Ltd has issued both debentures and shares.
- The issue of both shares and debentures would generate cash for the business however shareholders
would receive dividends whereas debenture holders receive interest.
- The income for shares is received from shareholders whereas the funds from debentures are received
from an external source, who would therefore have no voting rights.
43
Chapter – 13
Manufacture Account
Manufacturing Account for the year ended ---

$ $
Direct raw material
Opening raw material xx
(+) Purchase of raw material xx
(-) Closing raw material (xx)
Cost of raw material consumed xx
Direct Labour
- Factory wages/ Direct wages/ Manufacturing wages xx
Direct expense
- Royalties xx
Prime Cost xx
(+) Production overhead
- Supervisor salaries xx
- Other factory expense xx
- Depreciation expense for factory’s non-current assets xx
xx
xx
(+) Opening work in progress xx
(-) Closing work in progress (xx)
Production cost of finished goods xx
44
Statement of Profit or Loss for the year ended ---

$ $
Revenue xx
(-) Sale return/return inwards (xx)
xx
(-) Cost of sales
Opening finished goods (ထုတ္+ှယ္) xx
(+) Production cost of finished goods

(+) Purchase of finished goods xx
(-) Closing finished goods (ထုတ္+ှယ္) (xx)
(xx)
Gross profit xx
(+) Other income
- Discount received xx
(-) Expense
- Carriage outwards xx
- Other office/Admin expense xx
- Depreciation expense for office/Admin’s non-current assets xx
(xx)
Profit / (Loss) for the year xx
45
Statement of Financial Position as at ---

$ $
Non-current assets
Land and building xx
Furniture & fittings xx
xx
Current assets
Inventory (closing) – (RM + WIP + FG) xx
Trade receivables xx
Other receivable – Prepaid expense / Accrued income xx
Cash at bank xx
Cash in hand xx
xx
Total assets xx
Capital (Equity) and Liabilities
Capital
Opening capital xx
(+) Additional capital xx
(+/-) Profit or loss for the year xx
(-) Drawing (xx)
xx
Liabilities
Bank loan xx
Current liabilities
Trade payable xx
Other payable – Accrued expense / Prepaid income xx
Bank overdraft xx
xx
Total Capital and Liabilities xx
46
Question – 1
Aung, a manufacture, provide the following information at 30 November 2017.
$
Carriages inwards 3,500
Depreciation charge 16,800
Direct labour 364,988
Purchases of raw material 225,330
Rent 21,400
Returns inwards 5,500
Returns outwards 7,800
Revenue 1,250,000
Royalties 4,000
Salaries 130,000
Inventories at 30 November 2016
Raw material 36,600
Works in progress 57,460
Finished goods 58,400
Inventories at 30 November 2017
Raw materials 29,910
Works in progress 39,400
Expenses Allocated to
Manufacturing % Administration %
Depreciation charge 75 25
General expenses 60 40
Rent 60 40
Salaries 50 50
Required:
(a) Prepare the manufacturing account for the year ended 30 November 2017.
(b) Prepare the statement of profit or loss for the year ended 30 November 2017.
47
Question – 2
The trial balance has been extracted from the books of J Jarvis, Toy manufacturer, as at 31 December 2000.
J. Jarvis
Trial Balance as at 31 December 2000.
Dr Cr
Inventory of Raw Materials 1.1.2000 21,000
Inventory of finished goods 1.1.2000 38,900
Work- in -progress 1.1.2000 13,500
Wages ( direct $180,000; factory indirect $ 145,000) 325,000
Royalties 7,000
Carriages inward (on raw materials) 3,500
Purchase of raw materials 370,000
Productive machinery (cost $280,000) 230,000
Administration computers (cost $20,000) 12,000
General factory expenses 31,000
Lighting 7,500
Factory power 13,700
Administration salaries 44,000
Sales reps’ salaries 30,000
Commission on sales 11,500
Rent 12,000
Insurance 4,200
General administration expenses 13,400
Bank charges 2,300
Discounts allowed 4,800
Sales 1,000,000
Trade receivable and payables 142,300 64,000
Bank 16,800
Cash 1,500
Drawings 60,000
Capital as at 1.1.2000 357,800
1,421,800 1,421,800
Notes:
1. Inventory at 31 December 2000; raw materials $24,000; finished goods $40,000; work –in-progress $15,000.
2. Lighting, rent and insurance are to be apportioned; factory 5/6, administration 1/6.
3. Depreciation on productive machinery and administration computers at 10 per cent per annum on cost.
Required:
(a) Manufacturing account and trading profit or loss account for the year ended 31 December 20X0.
(b) Statement of financial position as at 31 December 20X0.
48
Question – 3
Hai manufactures goods and also buys in additional goods for resale.
On 1 July 2016 Hai’s finished goods inventory was;
 Manufactured goods $11,936
 Bought in goods $1,694
The following balances were extracted from the books at 30 June 2017 after the preparation of the manufacturing
account.
$
Bank 1,962 Cr
Cash 150
Inventories
Raw materials 7,925
Work in progress 14,110
Finished goods
 Manufactured goods 13,116
 Bought in goods 1,354
Production cost 78,945
Purchases- bought in goods 20,420
Returns outwards- bought in goods 740
Revenue 206,500
Wages-administration staff 24,240
At 30 June 2017:
 Administration staff wages owing were $350
 General expenses prepaid were $620.
Required:
(a) Prepare the statement of profit or loss for the year ended 30 June 2017.
(b) Prepare an extract of the statement of financial position at 30 June 2017, showing the current assets section
only.
(c) Prepare an extract of the statement of financial position at 30 June 2017, showing the current liabilities
section only.
49
Question – 4
The financial year-ended of Mendip Limited is 30 June. At 30 June 2003, the following balances are available.
$
Freehold property at cost 143,000
Plan and machinery at cost 105,000
Accumulated depreciation on plant and machinery 23,000
Purchase of Raw materials 130,100
Sales 317,500
Factory rates 3,000
Factory heat and light 6,500
Wages ( including $15,700 for supervision) 63,000
Direct Factory expenses 9,100
Selling expenses 11,000
Office salaries and general expenses 43,000
Bank 24,500
General reserve 30,000
Retains profits 18,000
Inventory 1 July 2002: Raw Materials 20,000
Dividends paid: Preference shares 840
Ordinary shares 20,000
Notes:
(i) The inventory at 30 June 2003 was: raw materials $ 22,000; finished goods $ 35,600.
(ii) Salaries include $ 6,700 for directors’ fees.
(iii) Depreciation is to be charged at 10 per cent on cost of plant and machinery.
Required:
Prepare a manufacturing account and statement of profit or loss for the year ending 30 June 2003.
50
Question – 5
From the following information, draw up a manufacturing account and the trading account section of the
statement of profit or loss for the six months ending 30 September 2003. You should show clearly:
(a) Cost of raw materials consumed
(b) Prime cost of production
(c) Production cost of finished goods
(d) Gross profit on sales
$
Inventory, 1 April 2003:
Raw materials 2,990
Work-in-progress 3,900
Inventory, 30 September 2003:
Raw materials 4,200
Work-in-progress 3,600
Purchases of raw materials 15,630
Carriage on raw materials 126
Direct wages 48,648
Factory general expenses 7,048
Office salaries 22,200
Depreciation of office furniture 420
Advertising 1,472
Irrecoverable debts 200
Sales less returns 112,410
Sales of scrap 1,317
Discounts received 188
Depreciation of factory equipment 4,200
Rent and business rates (factory ¾, office ¼ ) 2,800
Question – 6
From the following figures prepare a manufacturing account and the trading account section of the statement of
profit or loss so as to show:
(a) Cost of raw materials used in production
(b) Prime cost
(c) Production cost of finished goods produce
(d) Cost of sales
(e) Gross profit
$
Inventory at 1 January 2003
Inventory at 31 March 2003:
Expenditure during quarter
Factory wages: direct 72,600
Indirect 13,900
51
Carriage on purchases of raw materials 700

Rent and business rates of the factory 1,200
Power 2,000
Depreciation of machinery 3,900
Repairs to factory buildings 1,300
Sundry factory expenses 900
Sales during the quarter 160,400
Question – 7
E. Wilson is a manufacturer. His trial balance at 31 December 2003 is as follows:
$ $
Delivery van expenses 1,760
Lighting and heating : Factory 7,220
Office 1,490
Manufacturing wages 72,100
General expenses: Factory 8,100
Office 1,940
Sales reps: commission 11,688
Purchase of raw materials 57,210
Rent: Factory 6,100
Office 2,700
Machinery (cost $40,000) 28,600
Office equipment (cost $9,000) 8,200
Office salaries 17,740
Trade payables 9,400 9,40
Bank 16,142
Sales 194,800
Van (cost $6,800) 6,200
Inventory at 31 December 2002:
Drawings 24,200
Capital 155,950
360,150 360,150
Prepare the manufacturing account and statement of profit or loss for the year ending 31 December 2003 and a
statement of financial position as at that date. Give effect to the following adjustments;
1. Inventory at 31 December 2003: raw materials $14,510; finished goods $44,490. There is no work-in-progress.
2. Depreciation machinery $3,000; office equipment $600; van $1,200.
3. Manufacturing wages due but unpaid at 31 December 2003 $550; office rent prepaid $140.
52
Question – 8
Precious is a manufacturer of furniture.
She apportions general expenses and power 50% each to the factory and administration department.
During the year Precious made the following payments by cheque for power.
Date paid Amount 3 month period ending

$
1 July 2016 3,300 30 June 2016
1 October 2016 3,080 30 September 2016
1 January 2017 4,320 31 December 2016
1 May 2017 4,080 31 March 2017
1 July 2017 3,960 30 June 2017
The following balances were extracted from her books at 31 May 2017.
$
Direct labour 172,648
Purchase returns 1,684
Royalties 42,424
Inventories 1 June 2016 31 May 2017

$ $
Finished goods 58,800 63,724
Raw materials 43,244 47,882
Work in progress 12,790 17,800
Required:
(a) Calculate the amount of power accrued at 31 May 2016.
(b) Calculate the amount of power accrued at 31 May 2017.
(c) Prepare the power account for the years ended 31 May 2017. Balance the account on this date and bring
the balance down on 1 June 2017.
(d) Prepare the manufacturing account for the year ended 31 May 2017.
53
Short Questions
Question – 1
State one difference between:
(i) Direct cost and indirect cost
- Direct costs are those that can be traced to the unit of production, indirect costs cannot be traced to the
unit.
(ii) Prime cost and production cost
- Prime cost includes only direct costs, production cost includes direct costs and overheads.
Question – 2
Identify which one of the following is an indirect cost.
A. Carriage inwards of raw materials
B. Factory supervisor wages
C. Inventory of raw materials
D. Production staff wages
Question – 3
(i) Which calculation can be made in a manufacturing account?
A. Cost of sales
B. Cost of production
C. Gross profit
D. Profit for the year
(ii) Identify the prime cost.
A. Direct materials + Direct labour + Direct expenses
B. Direct materials + Direct labour + Factory overheads
C. Total direct costs + Factory overheads
D. Total direct costs + Total indirect costs
Question – 4
(i) Explain one reason why a business prepares a manufacturing account.
- To calculate the production cost which is then used to calculate the gross profit.
(ii) Complete the table with a tick (√ ) to show where in the financial statements of a manufacturer each item of
expenditure would be shown.
Manufacturing Statement of
account profit or loss
Carriage inwards
Carriage outwards
Closing inventory – finished goods
Closing inventory – raw materials
Irrecoverable debt written off
Returns outwards
54
(iii) Identify which of the following is included in prime cost.

A. Factory supervisor wages
B. Inventory finished goods
C. Inventory work in progress
D. Production staff wages
Question – 5
Complete the table, indicating with a tick (√ ) where in the financial statements Rose would show the following
items of expenditure.
Manufacturing Statement of
account profit or loss
Depreciation on tools
Factory rent
Profit/loss on disposal of delivery vehicle
Rental income
Question – 6
Hai apportions its general expenses between its production department and administration department. Explain
why general expenses are apportioned.
- To ensure the correct apportionment of general expenses incurred by each department.

- If these are not correct, then the costs for each department will be understated/ overstated.
Question – 7
During the year, Joe purchased finished goods in order to meet excess demand for his product. These
purchases have not yet been recorded. Identify the effect on the financial statements.
A. Production cost overstated
B. Production cost understated
Question – 8
Explain one reason why a business calculates the production cost.
- To calculate the gross profit in the statement of profit or loss as the production cost is part of cost of sales.
55
Chapter – 14
Interpretation of Accounting Ratio
I. Profitability Ratio
II. Liquidity Ratio
III. Financing Ratio
SOPOL
$
Sale xx
(-) Cost of sale (xx)
Gross profit xx
(+) Other income xx
(-) Expense (xx)
Profit for the year xx
SOFP
$ $
Non-current assets xx
Current assets xx
Total Assets xx
Equity and Liabilities

Equity xx
Non-current liabilities xx
Current liabilities xx
Total equity and liabilities xx
56
I. Profitability Ratio
1. Return on capital employed (ROCE)
ROCE % သည္ မ်ားမွ ေကာင္းသည္။

Note
Total Capital employed = Total assets – Current liabilities
(or)
= Equity + Non-current liabilities
2. Sale to capital employed (Net Asset turnover)
Net asset turnover အေရာင္းလည္ပတ္ႏႈန္းသည္ မ်ားမွ ေကာင္းသည္။
3. Net Profit margin/Net profit to revenue/Net profit as a % of revenue
Net profit margin % သည္ မ်ားမွေကာင္းသည္။
Relationship
ROCE = Net Asset turnover × Net Profit margin
4. Gross Profit margin/Gross profit to revenue/Gross profit as a % revenue
Gross profit margin % သည္ မ်ားမွ ေကာင္းသည္။
57
5. Gross profit mark-up/ G.P to cost of sale / G.P as a % of cost of Sales
Gross profit mark-up % သည္ မ်ားမွ ေကာင္းသည္။
II. Liquidity Ratio

1. Current ratio/Working capital ratio
( )
2. Quick ratio / Acid Test ratio / Liquidity ratio
( )
3. Inventory Turnover period (days, months, weeks)
× 12 = months
× 52 = weeks
Inventory turnover day သည္ နည္းမွ ေကာင္းသည္။
Rate of Inventory turnover (times)
Rate of inventory turnover အႀကိမ္ေရ မ်ားမွ ေကာင္းသည္။
Note
Average inventory=
(ပုစာၦထဲတြင္ Closing inventory ပဲ ေပးထားရင္ average inventory တြက္စရာမလိုပါ။ Closing

inventory ပဲ ထည့္ရမည္။)
58
4. Account receivable collection period (days)
Trade receivable collection period သည္ နည္းမွ ေကာင္းသည္။
5. Account payable payment period (days)
( )
Trade payable settlement period သည္ ပံမ

ု န
ွ အ
္ ားျဖင့္ မ်ားရင္ေကာင္းသည္။
59
Question – 1
The Final Accounts for Doug Ltd for the year to 30 June Year 3 are set out below:
Doug Ltd
Trading and Profit or Loss Account for the year to 30 June Year 3
$’000 $’000
Revenue 9,317
Less: Cost of sales
Opening Inventory 461
Purchases 5,120
Closing Inventory (631) (4,950)
Gross profit 4,367
Administration expenses (3,850)
Profit for the year 517
Doug Ltd
Statement of financial position as at 30 June Year 3
$’000 $’000
Non-current assets 390
Current assets
Inventory 631
Trade receivable 817
Bank 410
1,858
Total assets 2,248
Called up Share Capital

Ordinary Shares $1 each, full paid 800
Retained profit 758
1,558
Current liabilities
Trade payable 690
Total equity and liabilities 2,248
60
Calculate the following Ratios for Year 3 to one decimal place. Marks will be given for the formula and details of
the.
(a) Net profit margin
(b) Gross profit margin
(c) Gross profit mark-up
(d) ROCE
(e) Sale to capital employed (Net asset turnover)
(f) Current ratio
(g) Quick ratio
(h) Inventory turnover (days)
(i) Inventory turnover (times)
(j) Account receivable collection period (days)
(k) Account payable payment period (days)
Question – 2
John Toon’s summary final accounts for the year ended 31 March 2010 were as follows;
Trading and Profit or Loss Account for the year ended 31 March 2010
$’000 $’000
Revenue 89,560
Less : Cost of sales (45,750)
Gross profit 43,810
Less : wages 16,650
Rent 8,300
general expenses 9,700 (34,650)
Profit for the year 9,160
Statement of financial position at 31 March 2010

$’000 $’000
Non-current assets (NBV) 63,000
Current assets
Inventory 9,000
Trade receivable 11,250
Cash 500
20,750
Total assets 83,750
Capital
Balance 1 April 2009 59,200
Less : drawings (5,660)
62,700
Bank loan 12,500
Current liabilities
Bank 1,800
Total capital and liabilities 83,750
The inventory at 1 April 2009 was $8,300.
61
Required:
Calculate the following ratios to one decimal place.
(1) Return on total capital employed
(2) Gross profit margin %
(3) Net profit margin %
(4) Sales to capital employed
(5) Current ratio (working capital)
(6) Acid test ratio (liquidity)
(7) Inventory turnover (in times)
(8) Account receivable collection period (days)
(9) Account payable payment period ratio (days)
Question – 3
The following information has been provided for the year ended 29 February 2016.
$
Cost of sales 72,000
Current assets 46,500
Current liabilities 16,500
Equity 52,000
Non-current assets 30,000
Non-current liabilities 8,000
Overheads 31,000
Revenue 120,000
(a) Complete the following table.

Ratio Formula Calculation
Return on capital employed
Current ratio
Gross profit as a percentage of revenue
On 29 February 2016 the following additional information was provided.

1 March 2015 29 February 2016
Accounts receivables collection period 84 days To be calculated
Accounts payables payment period 72 days To be calculated
Trade receivables $32,000 $26,000
Trade payables $18,000 $12,000
(b) Complete the following table.

Ratio Formula Calculation 29 February 2016
Account receivables collection period
Account payable payment period
62
Question – 4
The directors of Decjan Ltd provided the following information.
2016 2017
Gross profit as a percentage of revenue (margin) 27.3% 26.4%
Net profit as a percentage of revenue 5.8% 6.4%
Assess the change in profitability over the past 12 months.

- Profit for the year as a percentage of revenue has improved which could have been caused by better control
of overhead expenditure.
- This is despite a deterioration in the gross profit margin which could have decreased due to cost of sales
rising without an equivalent rise in selling price of products.
Question – 5
2017 2018
Days Days
Accounts receivables collection period 30 27
Accounts payables payment period 20 15
Assess the effect on cash flow of the change in the accounts receivable collection period and the accounts
payable payment period over the two years.
- Customers are paying 3 days quicker than in 2017 which improves cash flow and reduces the risk of
irrecoverable debts.
- The business is paying their suppliers 5 days quicker than in 2017 which would negatively affect cash flow
however it may mean a better relationship with suppliers.
Question – 6
The following figures were available at 30 June 2018.
$
Current assets 112,000
Current liabilities 35,000
Inventory 84,000
(i) Calculate the ratios at 30 June 2018.

Ratio 30 June 2018 30 June 2017
Current (working capital) 2.1:1
Liquid (acid test) 1.1:1
(ii) Assess the change in these two ratios.

- The current (working capital) ratio has increased this year, which indicates that they are more able to
pay off the current liabilities. However this may indicate that the company are holding too much
inventory.
- The liquid (acid test) ratio has worsened this year, which indicates that credit suppliers may be
concerned about receiving payment as they cannot pay their short term debts without selling inventory.
(iii) Explain one reason why the acid test ratio may be a better measure of liquidity than the current ratio.
- Because this ratio does not include inventory which is not considered to be liquid as it is difficult to
convert into cash.
63
Question – 7
The following information at 31 August 2018.
$
7% debentures (2018) 40,000
8% debentures (2026) 25,000
Bank overdraft 1,220
Inventory 16,300
(i) Assess the liquidity of Wellsopp Ltd.

- The company has poor liquidity which is evidenced by:
 They are running on an overdraft at the bank
 Trade payables exceed trade receivables
 The company has to repay $40,000 of debentures in the next four months
 Current liabilities are greater than current assets
 Cannot pay off debts
(ii) Explain one way in which working capital can be improved.
- Taking a long-term loan improves working capital because this would increase the cash which is a
current asset without any corresponding increase in current liabilities
- Pay trade receivables promptly to receive discounts which improves working capital because current
assets reduce by less than current liabilities.
64
Short Questions
Question – 1
Michelle’s accounts receivables collection period for this year was 28 days and last year was 36 days. Identify
which one of these statements is correct.
A. Cash customers paid faster this year
B. Credit customers paid faster this year
C. Cash customers paid faster last year
D. Credit customers paid faster last year
Question – 2
Identify the effect of a business purchasing inventory for cash on the current ratio and the acid test(quick) ratio.
Current ratio Acid test(quick)ratio

A. Decrease Decrease
B. Decrease Increase
C. No change Decrease
D. No change Increase
Question – 3
(i) State, indicating with a tick (√ ), the effect on the working capital of the following transactions.
Increase Decrease No effect
Sale of machinery for cash
Purchase of machinery on credit
Purchase of inventory on credit
(ii) Explain the effect on the liquid (acid test) ratio of the purchase of inventory on credit.
(iv) The acid test ratio will decrease due to an increase in the current liabilities.
Question – 4
State the ratio used to measure the efficiency of inventory control.
- Inventory turnover ratio
Question – 5
Identify the indicator used to measure the ability of a business to pay its short-term debts.
A. Acid test ratio
B. Current ratio
C. Return on capital employed
D. Trade payables collection period
Question – 6
State two ways of reducing the accounts receivables collection period.
- Make cash sales only
- Improve credit control
- Reduce credit period
- Offer early settlement discount
- Regular statements of account
65
Chapter – 15
Error and Suspense
Types of Error
(1) Error of omission-where a transaction is completely omitted from the books

Eg .
a. A sale of $59 worth of goods to E.George has been completely omitted from the books.
b. Completely omitted from the books is a payment of Motor Expenses by cheque $37.
c. The purchase of a machine on credit from J.Frank for $619 had been completely omitted from our book.
(2) Error of commission-this type of error occurs when the correct amount is entered but in the wrong accountD
Eg.
a. A purchase of $44 worth of goods from C.Simons on 4 September was entered in error C.Simpson's
account
b. Rent received $430 had been credited to the Commissions received account.
c. Bank charges $34 have been debited to a business rates account
(3) Error of principle-where an item is entered in the wrong class of account

Eg.
a. The purchase of a machine for $200 is debited to the purchase account instead of being debited to a
machinery account
b. Loan interest of $400 has been debited to the Van account
c. A purchase of a fax machine $242 has been entered in the Purchase account
(4) Compensating error-where errors cancel each other out.

Eg.
a. In the cash book, the amount of cash transferred to the sales account was overstated by $20 and the
amount transferred to the wages account was also overstated by $20
b. In the cash book, the amount of cash transferred to the purchase account was overstated by $20 and
the amount transferred to the discount received account was also overstated by $20
c. In the cash book, the amount of cash transferred to the sales account was understated by $20 and the
amount transferred to the selling expense account was also understated by $20
(5) Error of original entry-where the original figure is incorrect, yet double entry is correctly done using the
incorrect figure.
Eg.
a. A sale of $38 to A.Smiles was entered in the books as $28.
b. Purchase of goods on credit L.Hand $819 entered in the correct accounts in error as $891
c. A sale of $120 to B.Wood had been entered in error in the books both debit and credit as $102
(6) Complete reversal of entries-where the correct accounts are used but each item is shown on the wrong side
of the account.
Eg.
a. On the 16 August 20X5, a payment of cash of $16 to M.Diskson was entered on the receipts side of the
cash book in error and credited to M.Dickson's account.
b. A receipt of cash from J.Blair $68 had been entered on the credit side of the cash book and the debit
side of J.Blair's account.
c. Cash book to G.Boyd $64 entered on the debit side of the cash book and the credit side of G.Boyd's
account
66
Question – 1
Give the journal entries needed to record the corrections of the following. Narratives are not required.
(a) The purchases of a computer for $550 had been entered in error in the Office Expenses account.
(b) Commission received $164 had been entered in error in the Sales account.
(c) A purchase of goods for $372 had been entered in error on the debit side of the Drawings account.
(d) Discounts Allowed $48 had been entered in error on the debit side of the Discounts Received account.
(e) Extra capital of $5,000 paid into the bank had been credited to Sales account.
(f) Goods taken for own use $72 had been debited to Other Operating Expenses.
(g) A purchase of goods from D. Pine $246 had been entered in the books as $426.
(h) Cash banked $410 had been credited to the bank column and debited to the cash column in the cash book.
(i) Cash drawings of $120 had been credited to the bank column of the cash book.
(j) A sale of a printer for $100 had been credited to Office Expenses.
Question – 2
Show the journal entries needed to correct the following errors and show which type of error in each sentence.
(a) Purchases $1,410 on credit from A. Ray had been entered in B. Roy’s account.
(b) A cheque of $94 paid for printing had been in the cash column of the cash book instead of in the bank
column.
(c) Sale of goods $734 on credit to D. Rolls had been entered in error in D. Rollo’s account.
(d) Purchase of goods on credit L. Hand $819 entered in the correct accounts in error as $891.
(e) Cash paid to G.Boyd $64 entered on the debit side of the cash book and the credit side of G.Boyd’s account.
(f) A sale of fitting $320 had been entered in the Sales account.
(g) Cash withdrawn from bank $200 had been entered in the cash column on the credit side of the cash book,
and in the bank column on the debit side.
(h) Purchase of goods $1,182 has been entered in error in the Furnishing account.
Question – 3
A trial balance was extracted from the books of D. Wilson, and it found that the debit side exceeded the credit
side by $100. This amount was entered in the suspense account. The following errors were later discovered and
corrected:
(i) Purchases were over-summed by $40.
(ii) An amount paid to R. Took was debited to the control account as $87 instead of $78.
(iii) Sales were under-summed by $51.
Question – 4
On 31 May 2017 Zhang’s draft accounts showed a profit for the year of $81,650
An investigation revealed the following errors.
1. Discount received of $78 had been entered twice in the discount received account.
2. A payment, $176, for general expenses, had been correctly entered in the cash book, but was entered as
$167 in the general expenses account.
3. A payment, $50, for repairs and renewals, had been entered in the cash book. The other entry had not been
made.
4. On 1 December 2016 a payment of $5,000 for plant and equipment had been entered in the general
expenses account. Depreciation is charged for each month of ownership at 20% per annum on a straight
line basis.
67
Required:
(a) Prepare journal entries to correct all the errors. Narratives are not required.
(b) Prepare the suspense account.
(c) Identify the type of error made in error 4.
A. Commission
B. Compensation
C. Original entry
D. Principle
(d) State in which book of original entry the purchase of a non-current asset on credit should be entered.
Zhang uses the straight line method of depreciation.
(e) Prepare the accumulated depreciation account for the year ended 31 May 2017. Balance the account on this
date and bring the balance down on 1 June 2017.
(f) Calculate the adjusted profit for the year.
Question – 5
On 31 August 2017 Morgan discovered the following error.
1. Carriage inwards of $160 had been credited to carriage outwards account.
2. Purchases included $1,650 of good purchased for Morgan’s own use.
3. The purchase day book had been overcast by $1,000.
4. The purchase of a new machine on 1 September 2016, costing $8,300, had been posted to the repairs
account. The machinery is expected to have a useful life of five years when it will be sold for $300.
5. Morgan depreciates his non-current assets using the straight line method.
Required:
(a) Calculate the amount of depreciation that should have been charged on the new machinery for the year
ended 31 August 2107.
(b) Prepare Morgan’s Journal entries to correct the errors, Narrative are not required.
Morgan’s draft statement of profit or loss for the year ended 31 August 2017 showed a gross profit of
$77,374.
(c) Calculate the adjusted gross profit.
Question – 6
At the end of the year Sacha’s trial balance did not balance and the following errors were identified.
1. Credit sales of $180 to Young had not been entered in the accounts.
2. A payment by cheque, $125, to Buxton, a trade payable, had been entered in the account of Burton.
3. A payment for $98 from Longden, a trade receivable, had been omitted from his account.
4. The purchase of a new motor vehicle, cost $10,000, had been entered in the vehicle expense account.
5. Postage of $65 paid by cheque had been correctly entered in the cash book. No other entries had been
made.
6. Purchase returns had been understated by $150.
Required:
(a)
(i) Identify, from the list above, one error that would affect the balancing of the trial balance.
(ii) Identify, from the list above, one error that would not affect the balancing of the trial balance.
(b) Prepare journal entries to correct all the errors. Narratives are required.
68
Question – 7
On 31 October 2019 Manu’s trial balance did not balance. The difference was posted to a suspense account.
He identified the following errors:
 Goods costing $440, returned to a credit supplier, had been entered correctly in the purchase returns
account but had been credited to the trade payables ledger control account.
 A cheque payment of $910 for wages had been entered correctly in the wages account but had been
entered in the bank account as $190
 Additional capital of $7 500 had been entered correctly in the bank account. No other entry had been made.
 Goods sold on credit, $3 280, had been entered correctly in the sales account. No other entry had been
made.
Manu provided the following information, after the preparation of the statement of profit or loss for the year ended
31 October 2019, before adjusting for the errors identified.
$
Bank loan (2024) 22,000
Cash at bank 340
Drawings 31,200
Equity 1 November 2018 74,900
Inventory 18,340
Petty cash 250
Plant and equipment
– cost 87,700
– accumulated depreciation 39,400
Trade payables ledger control 18,110
Trade receivables ledger control 31,330
Required
(a) Prepare the suspense account.
(b) Prepare the statement of financial position at 31 October 2019.
69
Short Questions
Question – 1
A sales invoice of $86 has been entered as $168. Identify the type of error made.
A. Commission
B. Compensating
C. Omission
D. Original entry
Question – 2
A payment of $5,000 for plant and equipment had been entered in the general expanses account. Identify the
type of error made.
A. Commission
B. Compensating
C. Original entry
D. Principle
Question – 3
State two types of error that do not effect the balancing of the trial balance.
- Commission
- Omission
- Principle
- Compensating
- Original entry
- Reversal
Question – 4
State two purposes of a suspense account.
- Correction of errors
- To balance the trial balance
- The preparation of the financial statements
Question – 5
State two uses of the journal other than the transfer of period end balances to the financial statements.
- Open or close a set of books
- Purchase or sale of a non-current asset
- Internal transfer of balances
Question – 6
A cash sale had been debited to the sales account and credited to the cash account. Identify the type of error
made.
A. Commission
B. Complete reversal
C. Omission
D. Principle
70
Question – 7
Identify the type of error made if a cash sale of $14 was recorded as $41.
A. Commission
B. Compensating
C. Omission
D. Original entry
Question – 8
(i) State the name of the account that is opened when a trial balance does not balance.
- Suspense
(ii) Explain one reason why it may be necessary to open this account when a trial balance does not balance.
- A suspense account can be opened in order to prepare the financial statements and the reason for the
difference can then be investigated and the errors corrected.
Question – 9
Identify which one of the following is an error of principle.
A. Payment for motor expenses entered in general expenses
B. Payment for motor expenses entered in motor vehicles
C. Payment for motor expenses not entered in the cash book
D. Payment for motor expenses entered in the cash book twice
71
Chapter – 16
Control Account
Question – 1
You are required to prepare a sales ledger control from the following information for the month November.
2010 $
Nov 1 Sales ledger balances 24,000
Total for November
Sales day book 14,000
Return inwards day book 1,000
Cheques and cash received from customer 18,000
Discount allowed 500
30 Sales ledger balances ?
Question – 2
You are required to prepare a purchases ledger control account from the following information for the month of
April. The balance of account is to be taken as the amount of accounts payable as on 30 April.
2011 $
Apr 1 Purchases ledger balances 11,241
Total for April:
Purchases day book 6,100
Returns outwards day book 246
Cheques paid to suppliers 8,300
Discounts received from supplier 749
30 Purchases ledger balances ?
Question – 3
The trial balance of Outsize Books Ltd was decided to prepare trade payables and trade receivables ledger
control accounts.
From the following information prepare the control accounts.
2021 $
Jan 1 Trade payables ledger balances 19,420
Trade receivables balances 28,227
Totals for the year 2021
Purchases journal 210,416
Sales journal 305,824
Returns outwards journal 1,452
Returns inwards journal 3,618
Cheques paid to trade payables 205,419
Petty cash paid to trade payables 62
Cheques and cash received from customers 287,317
Discounts allowed 4,102
Discounts received 1,721
Balances on the trade receivables ledger set off against 640
balances in the trade payables ledger
72
Question – 4
The financial year of the Better Company ended on 30 November 2020. You have been asked to prepare a
Trade Receivables Ledger Control Account and a Trade Payables Ledger Control Account in order to produce
end-of-year figures for Trade Receivables and Trade Payables for the draft financial statements.
According to the audited financial statements for the previous year trade receivables and payables as at 1
December 2019 were $26,555 and $43,450 respectively.
You are able to obtain the following information for the financial year from the books of original entry:
$
Sales - cash 344,890
- credit 268,187
Purchases – cash 14,440
- credit 496,600
Total receipts from customers 600,570
Total payments to suppliers 503,970
Discounts allowed (all to credit customers) 5,520
Discounts received (all from credit trade payables) 3,510
Refunds given to cash customers 5,070
Balance in the trade receivables ledger set off against balance in the trade 70
payables ledger
Irrecoverable debts written off 780
Increase in the allowance for doubtful debts 90
Credit notes issued to credit customers 4,140
Credit notes received from credit trade payables 1,480
Question – 5
Asha maintains a full set of accounting records, including controls accounts.
On 31 December 2015, Asha produced the following incorrect trade payables control account.
Date Details $ Date Details $
1 Jan 15 Balance b/d 22,600 31 Dec 15 Trade payables payments 21,250
31 Dec 15 Discounts received 725 Contra 125
Returns inwards 1,245 Returns outwards 2,955
Interest charged by 142 Discounts allowed 350
trade payables
Credits purchase 37,900 Balance c/d 37,932
62,612 62,612
1 Jan 16 Balance b/d 37,932
Required
Prepare the corrected trade payables control account at 31 December 2015. Balance the account on that date
and bring the balance down to 1 January 2016.
73
Question – 6
An inexperienced bookkeeper has drawn up the following receivables ledger control account:
RECEIVABLES LEDGER CONTROL ACCOUNT
$ $
Opening balance 180,000 Credit sales 190,000
Cash from credit customers 228,000 Irrecoverable debts written off 1,500
Sales returns 8,000 Contras against payables 2,400
Cash refunds to credit customers 3,300 Closing balance (balancing figure) 229,600
Discount allowed 4,200
423,500 423,500
Required
What should the closing balance be after correcting the errors made in preparing the account?
Question – 7
The following control account has been prepared by a trainee accountant:
RECEIVABLES LEDGER CONTROL ACCOUNT
$ $
Opening balance 308,600 Cash received from credit 147,200
Customers
Credit sales 154,200 Discounts allowed to credit customers 1,400
Cash sales 88,100 Interest charged on overdue accounts 2,400
Contras against credit balances in 4,600 Irrecoverable debts written off 4,900
payables ledger
Allowance for receivables 2,800
Closing balance 396,800
555,500 555,500
Required:
What should the closing balance be when all the errors made in preparing the receivables ledger control account
have been corrected?
Question – 8
Cheng prepared the following incorrect trade payables ledger control account for the year ended 31 July 2018.
Trade Payables Ledger Control Account
Date Details $ Date Details $
1 August 2017 Balance b/d 8,240 31 July 2018 Credit purchases 75,386
31 July 2018 Cash book 74,114 Cash book/discount received 814
Purchase returns day book 1,424
Balance c/d 4,730
82,354 82,354
Required
Prepare a corrected trade payables ledger control account for the year ended 31 July 2018. Balance the account
on that date and bring the balance down on 1 August 2018.
74
Question – 9
Holly, a manufacturer, provided the following information for the year ended 31 December 2018.
Required
Prepare the following accounts:
(i) Trade Receivables Ledger Control Account
(ii) Allowance for Doubtful Debts Account
(iii) Calculate the allowance for doubtful debts if Holly changed the allowance to 3% of trade receivables.
75
Short Questions
Question – 1
(i) Performing regular reconciliations is one purpose of maintaining a trade receivables ledger control account.
Explain one other purpose.
- To find the total trade receivables which will assist in the preparation of the financial statements.
(ii) Explain why Roberto should reconcile his trade receivables ledger with his trade receivables ledger control
account.
- To identify errors as the balance on the control account should be equal to the sum of the balances in
the trade receivables ledger.
Question – 2
(i) Identify which item would be recorded on the debit side of the trade receivables ledger control account.
A. Cash purchases
B. Cash sales
C. Credit purchases
D. Credit sales
(ii) State two reasons for maintaining a trade receivables ledger control account.
- To prevent fraud
- To find the total trade receivables
- To assist in the preparation of financial statements
- To check the arithmetical accuracy of the receivables ledger
Question – 3
(i) Identify the section of the statement of financial position where the balance of the trade receivables ledger
control account is normally shown.
A. Current assets
(ii) Identify the section of the statement of financial position where the balance of the trade payable ledger
control account is normally shown.
A. Current assets
Question – 4
Identify, indicating with a tick (✓), where in the trade receivables ledger control account each would be entered.
Debit side Credit side Not entered
Opening balance – minority balance
Irrecoverable debt written off
Interest charged on overdue account
Cash sales
Credit sales
76
Chapter – 17
Incomplete Record
Question – 1
The following is a summary of Jane's bank account for the year ended 31 December 2002:
$ $
Balance 1.1.2002 4,100 Payments to trade payables for goods 67,360
Receipts from trade receivables 91,190 Rent 3,950
Balance 31.12.2002 6,300 Insurance 1,470
Other operating expenses 610
Drawings 28,200
101,590 101,590
All of the business takings have been paid into the bank with the exception of $17,400. Out of this, Jane has paid
wages of $11,260, drawings of $1,200 and purchase of goods $4,940.
The following additional information is available:
31.12.2001 31.12.2002
Inventory 10,800 12,200
Trade payables for goods 12,700 14,100
Trade receivables for goods 21,200 19,800
Insurance prepaid 420 440
Rent owing 390 -
Fixtures at valuation 1,800 1,600
Required:
You are to draw up a set of financial statements for the year ended 31 December 2002. Show all of your
workings.
Question – 2
Bill Smithson runs a second-hand furniture business from a shop which he rents. He does not keep complete
accounting records, but is able to provide you with the following information about his financial position at 1 April
2001; Inventory of furniture $3,210; trade receivables $2,643; Trade payables $1,598; Motor vehicle $5,100;
Shop fittings $4,200; Motor vehicle expenses owing $432.
He has also provided the following summary of his bank account for the year ended 31 March 2002:
$ $
Balance at 1 April 2001 2,420 Payments of trade payables 22,177
Cheques received from trade receivables 44,846 Electricity 1.090
Cash sales 3.921 Telephone 360
Rent 2,000
Advertising 1,430
Shop fittings 2,550
Insurance 946
Motor vehicle expense 2,116
Drawings 16,743
Balance at 31 March 2002 1,775
51,187 51,187
All cash and cheques received were paid into the bank account immediately
77
You find that the following must also be taken into accounts:
 Depreciation is to be written-off the motor vehicle at 20 per cent and off the shop fittings at 10 per cent,
calculated on the book values at 1 April 2001 plus additions during the year.
 At 31 March 2002 motor vehicle expenses owing were $291 and insurance paid in advance was $177.
 Included in the amount paid for shop fitting were:
- a table bought for $300, which Smithson resold during the year at cost;
- some wooden shelving (cost $250), which Smithson used in the building an extension to his house.
Other balance at 31 March 2002 was:

$
Inventory of furniture 4,063
Required:
(a) For the year ended 31 March 2002
(i) Calculate Smithson's sales and purchases,
(ii) Prepare his income statement
(b) Prepare Smithson's statement of financial position as at 31 March 2002.
Question – 3
Cash Bank
$ $
Cash paid into the bank during the year 35,500
Receipt from trade receivables 47,250 46,800
Paid to trade payables 1,320 44,930
Drawing during the year ? -
Expenses paid 150 3,900
Balance at 1.1.2000 235 11,200
Balances at 31.12.2000 250 44,670
Required:
Calculate the Drawing during the year?
Question – 4
A business has compiled the following information for the year ended 31 October 2002.
$
Opening inventory 386,200
Purchases 989,000
Closing inventory 422,700
The gross profit as a percentage of sales is always 40%. What is the sales revenue for the year?
78
Question – 5
A sole trader fixes his price to achieve a gross profit percentage on sale revenue of 40%. All his sales are for
cash. He suspects that one of his sales assistants is stealing cash from sales revenue.
His trading account for the month of June 2003 is as follow:
$
Recorded sales revenue 181,600
Costs of sales 114,000
Gross profit 67,600
Assuming that the cost of sales figure is correct, how much cash could the sales assistant have taken?
Question – 6
Aluki fixes prices to make a standard gross profit percentage on sales of 20%.
The following information for the year ended 31 January 2003 is available to compute her sales total for the year.
$
Inventory: 1 February 2002 243,000
31 January 2003 261,700
Purchases 595,400
Purchases returns 41,200
What is the sales figure for the year ended 31 January 2003?
Question – 7
Jessie does not maintain full accounting records. She provided the following information for the year ended 31
July 2018.
1 August 2017 31 July 2018
$ $
Allowance for doubtful debts 321 To be calculated
Cash 200 250
Inventory 6,400 To be calculated
Other payables – wages 1, 250
Other receivables – general expenses 110
Trade receivables 16,050 18,000
Cash banked 42,240
Cheques received from credit customers 101,600
General expenses paid by cash 12,100
Irrecoverable debts written off 750
Purchases paid by cheque 80,245
Wages paid by cheque 16,240
79
 All purchases were paid by cheque.
 Sales were made on a credit and cash basis.
 The allowance for doubtful debts was to be maintained at 2% of trade receivables.
 Gross profit as a percentage of revenue (margin) was 50%.
Required
(a) Prepare the cash account for the year ended 31 July 2018. Balance the account on this date and bring the
balance down on 1 August 2018.
(b) Calculate the credit sales for the year ended 31 July 2018.
(c) Prepare the statement of profit or loss for the year ended 31 July 2018.
Question – 8
Adil started in business on 1 January 2018. He provided the following information for the year ended 31
December 2018.
$
Inventory 28,380
Other receivables – light and heat 310
Bank summary
Receipts $ Payments $
Trade receivables 166,610 Trade payables 99,935
Cash banked 18,860 Rent 9,900
Machinery 18,000
On 1 February 2018 Adil started renting premises at $9,900 per annum.
Cash sales were banked after deducting the following payments.
$
Drawings 5,000
Cash purchases 11,640
Machinery 2,000
Machinery is depreciated at 20% per annum using the straight line method. A full year’s depreciation is charged
in the year of acquisition.
Required
(a) Calculate for the year ended 31 December 2018:
(i) cash sales
(ii) credit sales
(iii) credit purchases
(b) Prepare the statement of profit or loss for the year ended 31 December 2018.
80
Question – 9
Hope provided the following information for the year ended 31 May 2019.
1 June 2018 31 May 2019
$ $
Cash 150 200
Fixtures and fittings – carrying value 29,320 24,720
Inventory 3,000 3,000
Other receivables – general expenses 180 225
Trade and other payables 19,125 14,220
Profit for the year ended 31 May 2019 was $41 730
Bank summary
Details $ Details $
Opening balance 3,450 Trade payables 31,620
Cash banked 91,730 Rent 6,400
Drawings 20,000
Closing balance 18,980
95,180 95,180
Sales of $98,390 were banked after deducting general expenses of $810 and cash drawings.
Required
(a) Prepare the cash account for the year ended 31 May 2019. Balance the account on this date and bring the
(b) Calculate the equity at:
(i) 1 June 2018
(ii) 31 May 2019
(iii) Prepare the equity account for the year ended 31 May 2019. Balance the account on this date and bring
the balance down on 1 June 2019.
81
Question – 10
(a) Complete Chen’s trial balance at 31 December 2019.
Trial balance at 31 December 2019
Account Balance Debit $ Credit $
Bank 450 450
Carriage inwards 970 970
Cash 800 800
Drawings 20,300 20,300
Equity at 1 January 2019 185,090 185,090
General expenses 31,800 3,800
Inventory at 1 January 2019 23,700 23,700
Property, plant and equipment
–– cost 225,000 225,000
–– accumulated depreciation 48,400 48,400
Purchases 63,280 63,280
Revenue 138,500 138,500
Returns inwards 3,210
Returns outwards 1,560
Trade payables ledger control 19,460
Trade receivables ledger control 24,500
Suspense
Total
After preparing the trial balance Chen identified the following errors. Chen makes a gross profit margin of 40%.
 Returns outwards, $1 080, had been entered correctly in the returns outwards account. No other entries had
been made.
 The sale of goods on credit, $2 140, had been entered correctly in the sales account but entered in the trade
receivables ledger control account as $4 120
 Cash of $100, taken by Chen for his own use, had been debited to the cash account. No other entries had
been made.
Required
(b) Prepare journal entries to correct the three errors. Narratives are not required.
(c) Prepare the statement of profit or loss for the year ended 31 December 2019 showing the trading section
only.
82
Short Questions
Question – 1
Identify the term used to describe gross profit as a percentage of cost of goods sold.
A. Inventory turnover
B. Margin
C. Mark up
D. Return on capital employed
Question – 2
(i) State the accounting equation.
(ii) State two reasons why a sole trader’s capital may decrease.
- Business had made a loss for the year.
- Profit for the year is less than drawings.
Question – 3
Identify the effect on the statement of profit or loss of not including carriage outwards.
A. Gross profit overstated
B. Gross profit understated
83
Chapter – 18
Non- Trading (Non-Profit Organization)
Question – 1
The Mount Rugby Club provided the following information.
1 May 2016 30 April 2017
$ $
Subscriptions owing 770 600
Subscriptions in advance 480 585
During the year ended 30 April 2017.

- $11,935 was received from members. This included $550 from those in arrears at 1 May 2016, the
remaining balance of $220 is to be written off.
- Payments made to suppliers by cheque $29,375
- Cash purchases $1,490
- Discount received $225
- The shop made a 20% gross profit margin.
Required:
(a) Prepare the subscriptions account for the year ended 30 April 2017. Balance the account on this date and
bring the balance down on 1 May 2017.
(b) Prepare the trade payables ledger control account for the year ended 30 April 2017. Balance the account on
this date and bring the balance down on 1 May 2017.
(c) Calculate the total purchases for the year ended 30 April 2017.
(d) Prepare the trading section of the income statement for the year ended 30 April 2017.
Question – 2
Corsa Sports Club provided the following information for the year ended 30 September 2017.
1 October 2016 30 September 2017
$ $
Cash at bank 4,930 715 Cr
Equipment – carrying value 106,200 110,350
Insurance paid in advance - 240
Premises 394,500 394,500
Subscription in advance 210 375
Subscription in arrears 520 280
Wages owing - 860
During the year ended 30 September 2017, $16,165 was received by cheque from members for subscriptions.
This included $390 from those in arrears at 1 October 2016. The remaining balance was written off.
Required:
(a) Prepare the subscriptions account for the year ended 30 September 2017. Balance the account at the date
and bring the balance down on 1 October 2017.
(b) Calculate the accumulated fund at 1 October 2016.
(c) Prepare the statement of financial position at 30 September 2017.
84
Question – 3
The Rock Cricket Club provided the following information for the year ended 31 December 2016.
1 January 2016 31 December 2016
$ $
Subscription in arrears 160 595
Subscription paid in advance 425 360
During the year ended 31 December 2016, the club received a total of $ 13,365 from members for subscriptions.
(a) Prepare the subscriptions account for the year ended 31 December 2016. Balance the account on this date
and bring the balance down on 1 January 2017.
On 31 December 2016 the club receipts and payment account show debit balance of $2,162. On 31 December
2016 the bank statement showed that the following transactions had not been recorded in the receipt and
payments account.
$
Banks charges 19
Bank interest received 12
Electricity direct debit 110
(b) Calculate the updated closing balance of the receipt and payments account at 31 December 2016.
The bank statement showed a balance at 31 December 2016 of $2,236. All banking in the bank account had
cleared the bank statement.
(c) Calculate the value of the cheques not yet presented at 31 December 2016.
Question – 4
Read the following and answer the questions below.
On 1 January 2001 the Happy Haddock Angling Club had the following assets:
$
Cash at bank 200
Snack bar inventory 800
Club house buildings 12,500
During the year to 31 December 2001 the Club received and paid the following amounts:
Subscription 2001 3,500 Rent and rates 1,500
Subscription 2002 380 Extension to club house 8,000
Snack bar income 6,000 Snack bar purchases 3,750
Visitors' fees 650 Secretarial expenses 240
Loan from bank 5,500 Interest on loan 260
Competition fees 820 Snack bar expenses 600
Games equipment 2,000
Notes: the snack bar inventory on 31 December 2001 was $900. The games equipment should be depreciated
by 20 per cent.
Required:
(a) Prepare an income and expenditure account for the year ending 31 December 2001. Show, either in this
account or separately, the snack bar profit or loss.
(b) Prepare a statement of financial position as at 31 December 2001.
85
Question – 5
The treasurer of the Plumpton Leisure Centre has produced the following receipts and payments account for the
year ended 31 December 2003:
Balance at bank 1 January 2003 3,900 Refreshment supplies bought 4,320
Subscriptions received 45,060 Wages of attendants and cleaners 31,400
Profits from dances 4,116 Rent of building 8,700
Profit on exhibition 890 New equipment bought 18,200
Refreshment takings 16,290 Travelling expenses of teams 1,900
Sale of equipment 340 Balance at bank 31 December 2003 6,076
70,596 70,596
Notes:
(1) Refreshment inventory was valued: 31 December 2002 $680; 31 December 2003 $920. There was nothing
owing for refreshment inventory on either of these dates.
(2) On 1 January 2003 the club's equipment was valued at $32,400. Included in this figure, valued at $420, was
the equipment sold during the year for $340.
(3) The amount to be charged for depreciation of equipment for the year is $5,200. This is in addition to the loss
on equipment sold during the year.
(4) Subscription owing by members at 31 December 2002 nil: at 31 December 2003 $860.
Required:
(a) Draw up the refreshment trading account for the year ending 31 December 2003. For this purpose $4,680 of
the wages is to be charged to this account: the remainder is to be charged in the income and expenditure
account
(b) Calculate the accumulated fund as at 1 January 2003.
(c) Draw up the income and expenditure account for the year ending 31 December 2003, and a statement of
financial position as at 31 December 2003.
Question – 6
Restormel Golf Club provided the following information for the year ended 31 January 2017.
1 Feb 2016 31 Jan 2017
$ $
Accounts payable - clubhouse supplies 5,920 6,150
Clubhouse inventory 18,160 16,450
Light and heat owing 590 710
Equipment – cost 86,500 91,300
Equipment – accumulated depreciation 27,300 To be calculated
Property 900,000 900,000
Subscriptions - in arrears 4,200 3,850
Subscriptions - in advance 4,950 2,300
86
Receipts and Payments Account

Date Receipts $ Date Payments $
1 Feb16 Balance b/d 4,860 31 Jan 17 Clubhouse purchases 68,400
31 Jan 17 Clubhouse income 103,824 General expense 61,415
Equipment sold 1,300 Light and heat expenses 3,840
Subscriptions 124,550 Purchase of mowing 9,300
equipment
Wages- clubhouse staff 21,195
Wages – grounds man 2,424
Balance c/d 46,144
234,534 234,534
1 Feb 17 Balance b/d 46,144
 Equipment is to be depreciated at a rate of 20% on a reducing (diminishing) balance basis.

 The equipment sold during the year cost $4,500 and had a carrying value of $2,120.
Required:
(a) Prepare the clubhouse income statement for the year ended 31 January 2017.
(b) Prepare the subscriptions account for the year ended 31 January 2017. Balance the account on 31 January
2017 and bring the balance down on 1 February 2017.
(c) Prepare the income and expenditure account for the year ended 31 January 2017.
(d) Explain how subscriptions in advance and subscriptions in arrears are shown in the statement of financial
position.
Question – 7
The Noc Social Club provided the following information for the year ended 31 March 2019.
1 April 2018 31 March 2019
$ $
Cash at bank 8,294 To be
calculated
Equipment – cost 16,920 19,950
Subscriptions in advance 160 630
Subscriptions in arrears 375 400
During the year ended 31 March 2019:

 equipment that had cost $2 360 was sold for $1,150
 purchases of goods on credit $3,943
 general expenses paid by cheque $1,225
 Members paid $7,580 for subscriptions. This included $300 of the arrears at 1 April 2018, the balance was to
be written off as irrecoverable.
87
Required;
(a) Calculate the:
(i) cost of new equipment purchased
(ii) total amount paid to credit suppliers.
(b) Prepare the receipts and payments account.
(c) Prepare the subscriptions account.
Short Questions
Question – 1
Which of the following would be included in the receipts and payments account.
A. Bank balance
B. Depreciation
C. Subscriptions owing
D. Subscriptions written off
Question – 2
(i) State the double entry to record the receipt by cheque of a life subscription.
- Debit – Bank/ receipts and payments
- Credit – Life subscriptions
(ii) Identify the section of the statement of financial position where the balance of the life subscriptions account
would be shown.
A. Current assets
(iii) Identify which one of the following items would appear in the receipts and payments account of a club.
A. Depreciation on club equipment
B. Loss on disposal of club equipment
C. Payment to acquire club equipment
D. Profit on disposal of club equipment
(iv) Complete the following table to identify the correct term. The first one has been completed for you.
Trading organization Non-profit making organization
Statement of financial position Statement of affairs
Cashbook/Bank Receipts and payments account
Statement of profit or loss Income and expenditure account
Profit for the year Surplus of income over expenditure
Capital Accumulated fund
88
Question – 3
Identify which one of the following would appear in the receipts and payments account.
A. Subscriptions in advance
B. Subscriptions in arrears
C. Subscriptions received
Question – 4
Identify which one of the following would appear in the income and expenditure account.
A. Subscriptions in advance
B. Subscriptions in arrears
Question – 5
(i) Identify which one of the following is the equivalent of a business’s equity for a club.
A. Accumulated fund
B. Surplus for the year
C. Deficit for the year
D. Income and expenditure account
(ii) Identify which one of the following is a revenue receipt for a club.
A. Loan repayment
B. Loan to purchase club equipment
Question – 6
Explain two reasons why the balance on a receipts and payments account is different from the balance on an
income and expenditure account.
- The receipts and payments account is prepared on the basis of cash paid/ received whereas the income and
expenditure account is prepared using the accruals concept so an amount paid in advance for next year
would not be included in the income and expenditure account.
- The receipts and payments account includes both capital expenditure (purchase of non-current assets) and
revenue expenditure whereas the income and expenditure account includes only revenue expenditure with a
charge for depreciation only being included in the income and expenditure account.
Question – 7
Explain one reason why Sixovers Cricket Club made an adjustment for subscriptions received in advance.
- The Sixovers Cricket Club members have paid for a service which they have not yet received. In order to
ensure that the club’s income and expenditure account is accurate this amount must be deducted from the
amount received for subscriptions.
Question – 8
Explain one reason why the club wrote off the subscriptions owing as an irrecoverable debt.
- As it is unlikely that the member is going to pay their subscriptions this amount is written off in order not to
overstate the surplus for the year / or the assets of the club.
89
Chapter – 19
Partnership Final Account
Question – 1
Black, Brown and Cook are partners. They share profits and losses in the ratios of 2/9, 1/3 and 4/9 respectively.
For the year ending 31 July 2002, their capital accounts remained fixed at the following amounts:
$
Black 60,000
Brown 40,000
Cook 20,000
They have agreed to give each other 6 per cent interest per annum on their capital accounts. In addition to the
above, partnership salaries of $30,000 for Brown and $18,000 for Cook are to be charged. The profit for the year
of the partnership, before taking any of the above into account was $111,000.
Required:
Draw up the appropriation account of the partnership for the year ending 31 July 2002
Question – 2
Draw up a profit and loss appropriation accounts for the year ending 31 December 2003 and statement of
financial position extract at that date, from the following:
(i) Profit for the year $111,100.
(ii) Interest to be charged on capital: Blair $3,000; Short $2,000; Steel $1,500.
(iii) Interest to be charged on drawing: Blair $400; Short $300; Steel $200.
(iv) Salaries to be credited: Short $20,000; Steel $25,000.
(v) Profit to be shared: Blair 70 per cent; Short 20 per cent; Steel 10 per cent.
(vi) Current accounts: balances b/d Blair $18,600; Short $9,460; Steel $8,200.
(vii) Capital accounts: balances b/d Blair $100,000; Short $50,000; Steel $25,000.
(viii) Drawing: Blairs$39,000; Short $27,100; Steel$16,800.
Question – 3
A and B are in partnership sharing profits and losses 3:2. Under the terms of the partnership agreement, the
partnership are entitled to interest on capital at 5 per cent per annum and B is entitled to a salary of $4,500.
Interest is charged on drawing at 5 per cent per annum and the amounts of interest are given below. No interest
is charged or allowed on current accounts.
The partners' capital at 1 July 2002 were: A $30,000 and B $10,000.
The net trading profit of the firm before dealing with partners' interest or B's salary for the year ended 30 June
2003 was $25,800. Interest on drawing for the year amounted to A $400, B $300.
At 1 July 2002, there was a credit balance of $1,280 on B's current account, while A's current account balance
was a debit of $500. Drawing for the year to 30 June 2003 amounted to $12,000 for A and $15,000 for B.
Required:
Prepare, for the year to 30 June 2003:
(a) The profit and losses appropriation account
(b) The partners' current account
90
Question – 4
Ash and Beech are in partnership sharing profits and losses equally. A Trading Account for the year ended 31
December Year 10 was prepared, after which the following Trial Balance was produced:
Trial Balance at 31 December Year 10
$ $
Capital Accounts (1 January Year 10)

Ash 300,000
Beech 200,000
Current Accounts (1 January Year 10)

Ash 1,040
Beech 2,900
Drawings
Ash 30,000
Beech 34,000
Freehold premises 423,000
Motor vehicles at cost 64,000
Provision for depreciation of motor vehicles
(1 January Year 10) 28,000
Rates 2,000
Provision for depreciation of fixtures and fittings
(1 January Year 10) 36,000
Bad debts 550
Motor vehicle expenses 4,200
Postage and telephone 2,100
Trade Receivable and Trade Payable 12,000 9,540
Repairs to buildings 3,200
Insurance 900
Printing and stationery 1,410
Discounts allowed and received 600 801
Bank 14,351
Cash 64
Gross Profit 251,124
Inventory (31 December Year 10) 16,280
830,005 830,005
The following additional information is available at 31 December Year 10:

(1) Rates prepaid $300
(2) Light and heat accrued due $170
(3) Depreciation to be provided:
Motor vehicles 20% per annum on cost
Fixtures and fittings 10% per annum on cost
(4) Allowance for doubtful debts to be 4% of trade receivable.
91
(5) The partnership agreement provided as follows:

Interest on capital at 5% per annum
Interest at 5% per annum allowed or charged on Partners’ Current Account balances at 1 January Year 10.
Interest charged at 5% on drawings was calculated and agreed as follows:
Ash $1,200
Beech $1,500
Partners’ salaries per annum:
Ash $17,500
Beech $25,250
Required:
For the partnership of Ash and Beech, prepare:
(a) Statement of profit or loss and Appropriation Account for the year ended 31 December Year 10
(b) Partners’ Current Accounts in columnar form
(c) Statement of financial position at 31 December Year
Question – 5
Ali, Bob and Charlie have been in partnership for many years.
For the year ending 28 February 2017 the draft profit was $128,370
This was before adjusting for:
1. electricity owing, $450
2. insurance, $240, paid on 10 January 2017 for the three months to 31 March 2017
3. closing inventory which was overvalued by $3,000
4. depreciation charge of $5,000
5. profit on disposal of non-current asset $1,200
Required:
(a) Calculate the adjusted profit for the year ended 28 February 2017.
The partnership agreement provides for:
 sharing profits in the ratio 3:2:1
 partners’ annual salaries:
- Ali $22,500
- Bob $15,000
- Charlie $7,500
 Interest on capital of 4% per annum paid on the opening balance of $30,000 each
 Interest on drawings of 6% per annum charged on the total drawings for the year.
During the year ended 28 February 2017

Partners’ drawings:
 Ali $16,000
 Bob $14,000
 Charlie $10,000
(b) Calculate the profit available to each partner after accounting for the appropriations.
92
Question – 6
Stokes, Morgan and Ruhee are in partnership.
(a) Explain two benefits of forming a partnership.
Their partnership agreement states:
Stokes Morgan Ruhee
Profit and losses are shared 40% 40% 20%
Annual salaries $32,000 $24,000
Annual interest
 Capital is paid at 5% interest on the opening balance.
 Drawings are charged at 5% interest on closing balance.
 The loan to the partnership is paid at 7% interest per annum
On 31 March 2017 the following information was provided.

Stokes Morgan Ruhee
$ $ $
1April 2016
Capital account 65,000 65,000 65,000
Current account 18,200 11,360 17,640
Loan to partnership 45,000
For the year ended 31 March 2017
Drawings 36,500 38,200 28,600
 Profit for the year before interest was $194,235

 No loan repayments were made in the year
(b) Prepare the appropriation account for the year ended 31 March 2017.
(c) Prepare Ruhee’s current account for the year ended 31 March 2017. Balance the account on 31 March 2017
and bring the balance down on 1 April 2017.
(d) State the provision of the partnership Act 1890 that apply in the absence of a partnership agreement.
- No interest allowed on capital
- No interest charged on drawings
- No salaries
- Profits/losses shared equally
- Loan/advances, beyond original capital invested, and entitled to interest of 5% per annum.
93
Short Questions
Question – 1
(i) State how profits and losses should be accounted for in the absence of a partnership agreement.
- Share equally
(ii) Identify which would be a debit entry in the partner’s current account.
A. Interest on capital
B. Interest on drawings
C. Salary
D. Share of profit
Question – 2
State how each of the following would be accounted for in the absence of a partnership agreement.
Share of profit/loss
- Profit and losses are shared equally
Interest on capital
- Interest on capital is not payable
Interest on partner’s loan
- Interest on loan from partner payable at 5% per annum.
Question – 3
Identify the double entry to record the share of losses made by a partnership.
Accounted to debited Accounted to be credited
A Appropriation Capital
B Capital Appropriation
C Appropriation Current
D Current Appropriation
Question – 4
Identify which statement is correct in the absence of a partnership agreement.
A 0% interest on capital 0% interest on loan
B 0% interest on capital 5% interest on loan
C 5% interest on capital 0% interest on loan
D 5% interest on capital 5% interest on loan
Question – 5
Identify where interest on partners’ drawings is shown.
A. Debit appropriation account
B. Credit appropriation account
C. Debit capital account
D. Credit capital account
94
Question – 6
Explain one reason why a partnership maintains separate capital accounts and current accounts.
- By maintaining separate capital account we can easily calculate interest on capital which can then be
transferred to the current account for withdrawal by the partner.
Question – 7
Identity which applies in the absence of a formal partnership agreement.
A. Partners receive interest on capital
B. Partners receive interest on drawings
C. Profits and losses are shared equally
D. No interest is payable on partners’ loans
95
Chapter – 20
Revaluation Account
Question – 1
Amanda and Barry are in partnership. They do not have a partnership agreement.
The following balances were extracted on 31 January 2017.
$
Capital account – Amanda 50,000

Capital account – Barry 70,000
Current account – Amanda 15,840
Current account – Barry 16,910
Cash at bank 14,119
Inventory 18,963
Property, plant and equipment - carrying value 143,060
On 1 February 2017
 Charles joined the partnership and a partnership agreement was drawn up. It was agreed that profits and
losses would be shared between Amanda, Barry and Charles in the ratio 2:2:1
 Assets and liabilities were revalued at:
Property, plant and equipment $195,000
Inventory $17,463
 An amount of $650, owed by a trade receivable was irrecoverable.
 The partners agreed that goodwill was to be valued at $40,000. This was not to be kept in the accounts of
the partnership.
Charles:
 paid a cheque into the business bank account for his share of the goodwill
 introduced a motor vehicle valued at $14,300
 Paid a further $30,000 into the business bank account.
Required:
(a) Prepare the revaluation account. Dates are not required.
(b) Prepare the capital accounts to show the introduction of Charles into the partnership on 1 February 2017.
Balance the accounts on that date and bring the balances down on 2 February 2017.
(c) Prepare the statement of financial position at 1 February 2017.
(d) State three provisions of the Partnership Act 1890 that apply in the absence of a partnership agreement.
96
Question – 2
Harry, Irina and Juris are in partnership sharing profits and losses in the ratio of 2:2:1
The following balances were extracted at 30 April 2017.
$
Cash at bank 8,360
Capital account
Harry 60,000
Irina 30,000
Juris 60,000
Inventory 63,620
Motor vehicle – carrying value 16,200
Plant and equipment – carrying value 111,500
On 1 May 2017 Juris retired from the partnership.

 Plant and equipment was revalued to $169,000
 Inventory was revalued to $61,800
 Juris agreed to take over the motor vehicle at a value of $12,500
 A credit customer’s debt of $840 was irrecoverable.
 It was agreed that the balance due to Juris on her retirement will be treated as a loan to the partnership.
Required:
(a) State how profits and losses should be accounted for in the absence of a partnership agreement.
(b) Prepare the revaluation account at 1 May 2017.
On 1 May 2017 goodwill was valued at $60,000. Goodwill was not to be maintained in the books.
(c) Explain why the partnership has chosen to value goodwill at this time.
(d) Prepare an extract of the statement of financial position at 1 May 2017, showing the assets section only.
(e) Calculate the value of Juris’ loan.
Question – 3
John lion and Brian Tiger were in partnership. It was agreed that profits and losses are to be shared in the ratio
2:1.
The Statement of financial position of the partnership at 31 March 2000 showed;
Non-Current Assets $ $
Goodwill 30,000
Premises 180,000
Motor Vehicles 30,000
Fixtures and Fittings 15,000 255,000
Current Assets
Cash at Bank 9,500
97,100
(-) Current liabilities
Trade payable (31,000) 66,100
Working Capital 321,100
Capitals
Lion 210,000
Tiger 95,000
Current Accounts
Lion 8,000
Tiger 8,100 16,100
321,100
97
At 31 March, Goodwill was revalued at $41,000 and premises were revalued at $175,000. Revaluation took place
before Tiger retried.
At 31 March, Tiger retried and withdrew his investment from the business. Lion decided to admit Ron Leopard to
the partnership on 1 April 2000. It was agreed that Lion and Leopard would share profit and losses in the ratio
3:1.
On April, Leopard introduced the following Assets;
Goodwill (Intangible) 9,000
Cash 85,000
Required:
(a) Revaluation Account
(b) Capital Account
(c) Bank Account
(d) Opening Statement of financial position at 1 April 2000
Question – 4
Adira and Pudian are in partnership, sharing profit and losses in the ration 3:1 respectively. The following Trial
Balance was extracted from the books at 31 December 2007, following completion of the final accounts;
Dr Cr
Capital Accounts; Adira 225,000
Pudian 75,000
Office equipment – net book value 100,000
Motor vehicle – net book value 116,000
Inventory 80,600
Bank 5,500
Current Account ; Adira 28,250
Pudian 12,500
Following two very poor trading years, Adira retired on 1 January 2008 and the following matters were agreed;
(1) The goodwill of the old partnership was valued at $150,000 although no goodwill account was opened in the
books. Other assets were revalued as follows;
Office equipment $90,000
Motor vehicles $125,000
At the time of revaluing assets, it was discovered that stock at 31 December 2007 had been undervalued by
$15,000.
(2) The current account balances of Adira and Pudian were transferred to their capital accounts on 1 January
2008.
(3) The amount owing to Adira on his retirement is to be retained as a long term loan to the new partnership,
except for $69,750 which was taken in cash on 1 January 2008.
(4) Ghani become a partner on 1 January 2008, sharing profits and losses equally with Pudian.
(5) Ghani introduced $100,000 cash into the partnership together with a motor vehicle valued $28,500.
Required:
(a) The revaluation account of Adira and Pudian
(b) The Capital accounts for each partner
(c) The opening Balance Sheet of Pudian and Ghani
98
Short Questions
Question – 1
Explain why the partnership has chosen to value goodwill at partner retired from the partnership.
- To reward for his/her share of goodwill that arose whilst a partner to ensure he/she receives his/her
entitlement for his/her efforts.
Question – 2
Explain why the partners created goodwill on the admission of partner.
- The existing partners should be rewarded for their work in creating a successful business.
Question – 3
Identify the section of the statement of financial position where goodwill is shown.
A. Current assets
Question – 4
Identify the double entry to record the creation of goodwill in a partnership.
Accounted to debited Accounted to be credited
A Capital Goodwill
B Goodwill Capital
C Current Goodwill
D Goodwill Current
99
Chapter – 21
Partnership Dissolution Account
Question – 1
Alan and Brenda agreed to dissolve their partnership on 28 February 2009. At that date, the partnership had the
following assets and liabilities.
$
Machinery 36,000
Vehicles at valuation 28,000
Inventory 430
Trade Payable 340
Bank balance 1,167 (Dr)
There were no balances on the partner’s current accounts, as these had been transferred to their capital
accounts prior to dissolution.
On 28 February 2009, the Capital account balances were;
$
Alan 51,319 Cr
Brenda 15,188 Cr
The following information is also available;
1. The machinery was sold on credit to CD Ltd for $20,000.
2. The amount was settled by the issue of $20,000 ordinary share of $1 each in CD ltd. The partners received
half of the shares each.
3. A vehicle with a net book value of $12,000 was taken over by Brenda for $9,000.
4. The remaining vehicles were sold for $15,000 cash.
5. All inventories were sold for $380 cash.
6. Trade Payable is paid in full.
7. Trade Receivable paid $1,150 in full settlements. ** Trade receivable settled after taking a discount of $100**
8. The costs of dissolution totalled $2,485
9. Profits and losses are to be shared in the ratio of 2:1 for Alan and Brenda respectively.
Required:
Prepare the following at 28 February 2009.
(a) Dissolution Account.
(b) Capital accounts for Alan and Brenda
(c) Bank account.
100
Question – 2
Barnes, Hasset and Lindwall were partners sharing profit and losses in the ratio 2:2:1 Their Balance sheet at 31
March 2001 was as follows.
$ $ $
Freehold property 240,000
Fixtures and Fittings 41,000
Motor Vehicles 21,000 302,000
Current Assets
Inventory 20,000
Less, allowance for bad debt 600 24,600
Bank 7,700
52,300
Current liabilities
Trade Payable (12,400)
Net Current asset 39,900
Working capital 341,900
Financed by
Capital account : Barnes 140,000
Hasset 110,000
Lindwall 70,000 320,000
Current account : Barnes 8,500
Hasset 7,440
Lindwall 5,960 21,900
341,900
On Apirl 2001, the partner sold the business to Dexter Ltd for $400,000.
On the same date,
Lindwall took over his partnership motor vehicle at its book value of $5,000.
All other assets except the bank were takeover, by Dexter Ltd at their book value.
The creditors were taken over, at book value by Dexter Ltd.
The purchases price for the business was settled by Dexter Ltd by the issue of 200,000 Ordinary shares of $1 at
$1.75 each, and balance was paid by cheque.
The partners divided the shares between them in the partnership profit sharing ratio. The remaining balances on
their capital account were settled form the bank account.
The current account balances are transferred to the Capital account before making any adjustments.
Required:
In the books of the partnership show the following
(a) The realization accounts
(b) The capital accounts of partners
(c) Dexter Ltd account
(d) Bank accounts
101
Question – 3
Yolande and Zanda are in partnership sharing profits and losses in the ratio 3:2.
On 31 August 2017 they provided the following information.
$
Bank 47,705
Capital account
Yolanda 25,000
Zanda 15,000
Current account
Yolanda 8,695
Zanda 11,310
Motor vehicle 8,520
Trade payable ledger control 19,675
Trade receivable ledger control 23,455
On 1 September 2017 it was agreed to dissolve the partnership. The motor vehicle was taken over by Zanda at a
valuation of $9,500.
- Dissolution expense paid were $1,630
- Trade payables of $18,830 were paid in full settlement. **Trade payable were paid by cheque after taking
discount $845**
- Trade receivables of $22,040 were received in full settlement.
All monies were received and paid through the bank account.
Required:
(a) Prepare the realisation Account
(b) Prepare the capitals for Yolande and Zanda at 1 September 2017 to dissolve the partnership.
(c) Prepare the bank account at 1 September 2017.
102
Chapter – 22
Source of Document
Role of source documents
Business transactions are recorded on source documents. Examples include sales and purchase orders,
invoices and credit notes.
Types of source documents

(a) Purchase order. A document of the company that details goods or services which the company wishes to
purchase from another company.
(b) Sales order. A document of the company that details an order placed by a customer for goods or services.
(c) Goods received note. A document of the company that lists the goods that a business has received from a
supplier.
(d) Goods despatched note. A document of the company that lists the goods that the company has sent out to
a customer.
(e) Credit note. A document sent by a supplier to a customer in respect of goods returned or overpayments
made by the customer.
(f) Debit note. A document sent by a customer to a supplier in respect of goods returned or an overpayment
made.
The table to show the source document and book of original entry used for each of the following transactions.
Transaction Source document Book of original entry
Goods sold on credit Sales invoice Sale day book
Goods returned to a credit supplier (credit Credit note Purchase return day book
note received from credit supplier)
Payment sent in the post to a credit supplier Cheque Cash book
Rent paid by direct debit Bank statement Cash book
Payment from a trade receivable Cheque Cash book
Purchase of a motor vehicle on credit Purchase invoice Journal
Types of ledger
(a) Sale ledger
(b) Purchase ledger
(c) General ledger
Books of prime entry
The mains cash book of prime entry are as follows
1. Sale day book
2. Purchase day book
3. Sale returns day book
4. Purchase returns day book
5. Cash book
6. Petty cash book
7. Journal
103
Short Questions
Question – 1
On 31 January 2016 Lunar sent the following document to Saturn Trading, a customer.
Lunar
23 Sun Court
Blackheath
Customer: Saturn Trading Date: 31 January 2016
Date Details Debits($) Credit($) Balance($)
1 Jan Balance b/f 850 (Dr)
10 Jan Sales 1,340 2,190 (Dr)
16 Jan Returns 250 1,940 (Dr)
21 Jan Payment received 816 1,124 (Dr)
21 Jan Discount 34 1,090 (Dr)
Required:
(a) State the name of this document.
(b) Complete the following table to show the document and book of original entry for each transaction.
Transaction date Document Book of original entry

10 January 2016
16 January 2016
Question – 2
State in which book of original entry each of the following totals would be found.
Total Book of original entry
Discounts received
Credits purchases
Receivables ledger contra
Interest charged by trade payables
Question – 3
State in which book of original entry the purchase of a non-current asset on credit should be entered.
- Journal
104
Question – 4
Identify where the sales account will appear.
A. General Journal
B. General ledger
C. Sales Journal
D. Sales ledger
Question – 5
State the book of original entry that would be used to record the profit or loss on the disposal of a motor vehicle.
- Journal
Question – 6
Identify the double entry to record the goods taken for personal use by the owner.
A Drawings Purchases
B Purchases Drawing
C Drawings Inventory
D Inventory Drawing
Question – 7
Identify the double entry to record the total returns to credit supplier.
A Return inwards Trade Receivables ledger control
B Return outwards Trade Payables ledger control
C Trade payables ledger control Return outwards
D Trade receivables ledger control Returns inwards
Question – 8
Identify where credit notes issued to customer will be recorded.
A. Purchase day book
B. Returns inwards day book
C. Returns outwards day book
D. Sales day book
Question – 9
Identify where the purchase account will appear in a business maintaining a full set of books of account.
A. General journal
B. General ledger
C. Trade payable ledger
D. Trade receivable ledger
Question – 10
Explain why cash purchases are recorded in the cashbook and not in the purchase day book.
- The purchases day book is only used to record credit purchases whereas purchases made by cash do not
require to be entered in the payables account.
105
Question – 11
Identify where the revenue account will appear in a business maintaining a full set of books of account.
A. General journal
B. General ledger
C. Trade payable ledger
D. Trade receivable ledger
Question – 12
Identify the book of original entry where cash sales are recorded.
A. Cash book
B. Petty cash book
C. Purchases day book
D. Sales day book
Question – 13
Explain what a credit balance in a bank account indicates.
- The bank is a creditor to the business as the business is overdrawn.
Question – 14
Identify, indicating with a tick (✓), the effect on the balances of each omission.
You may only tick one box for each omission.
Omission Trade receivables ledger Trade payables ledger
control account balance control account balance
Overstated Understated Overstated Understated
Invoice received
Credit note issued
Interest charged by supplier
Irrecoverable debt
106
Chapter – 23
Accounting Concept
Going concern
The financial statements are normally prepared on the assumption that going concern and will continue in
operation for the foreseeable future.
Accrual basis
The effects of transactions and other events are recognizing when they occur and periods to which they relate
e.g (sales /purchase / expenses and income which presented in income statement).
Consistency
In order to consistency, the presentation and classifying of items in financial statements should stay the same
from one period to the next, except as
 Significant change in the nature of operations indicates a more appropriate presentation
 Change in presentation as required by IFRS
Substance over form

Faithfull representation is accounted to substance over form
Prudence concept
Assets and income are never overstated. Expense and Liabilities are never understated.
Materiality
Information is material if omitting it or misstating it could influence decisions that users make on the basis of
financial information about a specific reporting entity.
Business entity concept

Financial statements always treat the business as a separate to treats entity from its owners
107
Short Questions
Question – 1
Frazier purchased tools for $35. The purchase was treated as non-current asset in the financial statements.
Identify the accounting concept Frazier has not complied with.
A. Accruals
B. Consistency
C. Going concern
D. Materiality
Question – 2
Frazier withdraws cash for his own use from the business. Identify the accounting concept Frazier must comply
with.
A. Accruals
B. Business entity
C. Prudence
D. Realisation
Question – 3
Identify the accounting concept being applied when a business continues to use the same method of
depreciation each year.
A. Accruals
B. Consistency
C. Going concern
D. Prudence
Question – 4
State the account concept being applied in each situation.
Situation Accounting concept

Accounts are prepared on the basis that the business Going concern
will continue for the foreseeable future
A business always uses the straight line method of Consistency
depreciation for all non-current assets
Revenue is recognized on raising a sales invoice Realization/ Accruals
Question – 5
(i) Kane treats expenditure on non-current assets over $500 as capital expenditure. Identify the accounting
concept being applied.
A. Accruals
B. Business entity
C. Consistency
D. Materiality
108
(ii) Kane always uses the straight line method to depreciate his motor vehicles. Identify the accounting concept
being applied.
A. Accruals
B. Business entity
C. Consistency
D. Materiality
Question – 6
Mita had a credit balance on her rent received account. Explain, referring to an appropriate accounting concept,
the meaning of this balance.
- Accruals/matching
- A credit balance indicates a liability, this will be for rent received this year that relates to the next financial
year.
Question – 7
Identify the accounting concept Takek is applying in maintaining an allowance for doubtful debts.
A. Accruals
B. Going concern
C. Materiality
D. Realisation
Question – 8
State one accounting concept being applied when writing off an irrecoverable debt.
- Prudence/ Accruals
Question – 9
Identify the accounting concept that Glynis should comply with when withdrawing cash for her own use from the
business.
A. Accruals
B. Business entity
C. Consistency
D. Prudence
Question – 10
Identify which one of the following concepts assumes that the business will continue for the foreseeable future.
A. Going concern
B. Materiality
C. Prudence
D. Realisation
Question – 11
Identify the accounting concept that Hatton has not complied with by withdrawing wages from the business.
A. Accruals
B. Business entity
C. Consistency
D. Materiality
109
Question – 12
Identify how profit for the year is calculated.
A. Receipts less expenses
B. Receipts less payments
C. Revenue less expenses
D. Revenue less payments
Question – 13
Identity the accounting concept Adil must comply with if cash is taken from the business for his own use.
A. Accruals
B. Business entity
C. Prudence
D. Realisation
Question – 14
State which accounting concept is being described.
Accounting concept
Accounts are prepared on the basis that the business Going concern
will continue for the foreseeable future.
Income is recognized when an invoice is raised Accruals/matching
Question – 15
Subscriptions for life memberships are transferred to the income and expenditure account over a period of 25
years. Identify which accounting concept is being applied.
A. Accruals
B. Going concern
C. Prudence
D. Realisation
Question – 16
Identify which one of the following concepts assumes that the business will continue for the foreseeable future.
A. Accruals
B. Business entity
C. Consistency
D. Going concern
110

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U Win Bo Myint Book-Keeping and Accounts Level – I & II

Inventory at 30 September 2021 was $2,946.

Inventory at 30 April 2021 was $4,998.

Inventory at 30 September 2021 was $27,475.

3 Cash sales paid direct into the bank $134

You are required to:

You are to show:

Irrecoverable debts Trade receivables at 31 Percentage allowance for

1 November 2016 31 October 2017

During the year ended 31 October 2018:

Statement of Profit or Loss for the year ended ---

Statement of Financial Position as at ---

Additional information at 31 December 2009;

Additional information is available as follows;

During the year ended 31 May 2018:

(b) Calculate the total amount of debenture interest owing.

(b) Prepare the statement of financial position at 30 September 2017.

You are given the following additional information:

Manufacturing Account for the year ended ---

Statement of Profit or Loss for the year ended ---

(+) Production cost of finished goods

Statement of Financial Position as at ---

Carriage on purchases of raw materials 700

Date paid Amount 3 month period ending

Inventories 1 June 2016 31 May 2017

(iii) Identify which of the following is included in prime cost.

- To ensure the correct apportionment of general expenses incurred by each department.

Equity and Liabilities

ROCE % သည္ မ်ားမွ ေကာင္းသည္။

2. Sale to capital employed (Net Asset turnover)

Net asset turnover အေရာင္းလည္ပတ္ႏႈန္းသည္ မ်ားမွ ေကာင္းသည္။

3. Net Profit margin/Net profit to revenue/Net profit as a % of revenue

Net profit margin % သည္ မ်ားမွေကာင္းသည္။

ROCE = Net Asset turnover × Net Profit margin

4. Gross Profit margin/Gross profit to revenue/Gross profit as a % revenue

Gross profit margin % သည္ မ်ားမွ ေကာင္းသည္။

5. Gross profit mark-up/ G.P to cost of sale / G.P as a % of cost of Sales

Gross profit mark-up % သည္ မ်ားမွ ေကာင္းသည္။

II. Liquidity Ratio

2. Quick ratio / Acid Test ratio / Liquidity ratio

3. Inventory Turnover period (days, months, weeks)

Inventory turnover day သည္ နည္းမွ ေကာင္းသည္။

Rate of Inventory turnover (times)

Rate of inventory turnover အႀကိမ္ေရ မ်ားမွ ေကာင္းသည္။

(ပုစာၦထဲတြင္ Closing inventory ပဲ ေပးထားရင္ average inventory တြက္စရာမလိုပါ။ Closing

4. Account receivable collection period (days)

Trade receivable collection period သည္ နည္းမွ ေကာင္းသည္။

5. Account payable payment period (days)

Trade payable settlement period သည္ ပံမ

Called up Share Capital

Statement of financial position at 31 March 2010

(a) Complete the following table.

Return on capital employed

Gross profit as a percentage of revenue

On 29 February 2016 the following additional information was provided.

Trade payables $18,000 $12,000

(b) Complete the following table.

Assess the change in profitability over the past 12 months.

(i) Calculate the ratios at 30 June 2018.

(ii) Assess the change in these two ratios.

(i) Assess the liquidity of Wellsopp Ltd.

Current ratio Acid test(quick)ratio

(1) Error of omission-where a transaction is completely omitted from the books

(3) Error of principle-where an item is entered in the wrong class of account