Week 1 - Assignment

INTERNATIONAL ADVANCED LEVEL
ACCOUNTING
WORKSHEET
- ACCOUNTING SYSTEM -
Question 1
The trial balance of Eden on 31 August 2020 showed a difference which was posted to a
suspense account. Upon inspection of the books and draft financial statement, the below
errors were discovered:
(1) The Sales Day Book had been undercast by £3 250
(2) Purchases on credit from Godak of £850, had been recorded in the ledger
account of Godak
(3) On 31 August 2020, one page from the inventory count for a total £900, had
been omitted
(4) Discount allowed of £280 had been credited to Discount Allowed Account.
(5) Rent of £6 000 had been paid for the period 1 May – 31 October 202. The full
amount had been charged to the Statement of Profit or Loss and Other
Comprehensive Income.
(6) Telephone expenses of £750 had been correctly recorded in the Bank Account
but had been recorded in the Telephone Expenses Account as £570.
(7) The purchase of new computer, £5 000, had been recorded in the Computer
Expenses Account. Depreciation was charged on computers at the rate of 25 per
cent per annum the straight line method.
Required:
(a) Identify which of the above errors could be corrected by using the Suspense
Account. (3 marks)
(b) Record the correction of all the errors (1-7) with journal entries. Narrative are
not required. (16 marks)
(c) Prepare a Suspense Account after the correction of all error, with the opening
balance demonstrated. (5 marks)
1
ACCOUNTING
On the 31 August 2020, the following balances were recorded in the ledger before the
correction of errors:
£
Inventory 41 600
Discount Allowed 1 320
Computer Expense 12 300
Required:
(d) Prepare the following corrected ledger accounts:
(i) Inventory Account (3 marks)

(ii) Discount Allowed Account (3 marks)
(iii) Computer Expenses Account (3 marks)
Despite the failure to balance of the trial balance, Eden prepared draft financial
statements that showed a draft profit for the year of £23 350
(e) Computerise the revised profit or loss for the year after the correction of all
errors by completing the table. (10
marks)
£
Draft profit for the year 23 350
Increase Decrease
Error No changed
£ £
(1) ▢
(2) ▢
(3) ▢
(4) ▢
(5) ▢
(6) ▢
(7) ▢
Sub-total ▢
Revised profit for the year
(f) Evaluate the usefulness of preparing draft financial statements when it is known
that there are errors in the books. (12 marks)
2
ACCOUNTING
Question 2
Benny and Sammy have been in partnership for several years. On 1 September 2021,
Jenny was admitted to the partnership.
The following information is available as the deed of partnership:
Benny and Sammy Benny, Sammy and Jenny

Partnership Partnership
Interest on capital 6% 4%
Annual salary
Sammy £24 600 £24 600
Profit and loss sharing ratio
Benny 50% 35%
Sammy 50% 40%
Jenny - 25%
Additional information:
(1) The financial year ends on 31 January.
(2) At 1 February 2021, the balance brought down on Benny and Sammy’s capital
accounts was £45 000 and £84 000 respectively.
(3) On 1 September 2021, Benny paid additional capital into the partnership bank
account of £25 000.
(4) On admission to the partnership, Jenny made a capital investment of £21 000.
(5) Goodwill has been agreed at a valuation of £54 000. It has been agreed that
goodwill will not be maintained in the books of account.
(6) The profit for the year ended 31 January 2022 was £100 500. Profits accrue
evenly throughout the year.
(7) At 31 January 2022, the drawings of the partners for the year were:
Benny £26 000

Sammy £35 000
Jenny £10 000
3
ACCOUNTING
Required:
(a) (i) Define the term goodwill. (2 marks)
(ii) State two examples of goodwill. (2 marks)
(iv) State two reasons why goodwill is not normally recorded in the books.
(2 marks)
(v) State the effect on each of the following if goodwill is retained in the
books:
 profit/loss for the year
 bank overdraft (2 marks)
(b) Prepare the partnership appropriation account for the year ended 31 January
2022, showing clearly all the relevant figures for the seven months before Jenny
joined and the five months later. (12 marks)
(c) On joining the partnership, Jenny notice Benny and Sammy maintain separate
capital and current accounts. Jenny would like to change this so that each partner
has a combined capital and current account.
Evaluate whether the partnership should make this change. (10 marks)
4
ACCOUNTING
Question 3 (2017 May Q4)

Staunton is operating a store buying and selling organic food on credit. He summarised
the Statement of Financial Position at 1 May 2020 as follows:
Assets £
Non-current assets 30 000
Inventory 40 000
Trade receivables 25 000
Bank 5 000
------------
100 000
=======
Capital and Liabilities
Capital 85 000
Trade payables 15 000
-----------
100 000
=======
Required:
(a) (i) Explain why inventory is omitted from the acid test ratio?
(2 marks)
(ii) Explain the importance of liquidity to a business.
(4 marks)
(b) Calculate for Staunton, at 1 May 2020, the:
(i) current ratio (2 marks)

(ii) liquid ratio (or acid test ratio). (2 marks)
The following information related to the financial year ended 30 April 2020:
 Sales of £135 000 were all made on credit.
 Purchases of £72 000 were all made on credit.
 The average inventory for the year was £32 500.
 Cheque receipts from trade receivables were £123 000.
 Cheque payments to trade payables were £80 000.
 Expenses of £33 000 were paid by cheque.
 Depreciation on non-current assets for the year was £4 500.
5
ACCOUNTING
Required:
(c) Prepare a statement of profit and loss (and other comprehensive income) and
statement of the financial position for the year ended 30 April 2020.
(10 marks)
(d) Calculate, for the year ended 30 April 2020:
(i) inventory turnover (2 marks)

(ii) trade receivables collection period. (2 marks)
(e) Evaluate the liquidity position of Staunton at 30 April 2020. (4 marks)
(8)
6
ACCOUNTING
Question 2
7
ACCOUNTING
Solution:
Q1
8
ACCOUNTING
Q2
9
ACCOUNTING
10
ACCOUNTING
Arguments for
 Additional work is required to complete both ledger accounts which is time
consuming and more prone to misposting.
 Inexperienced partners may believe that the current account is the amount that
they have available in the business bank current account.
Arguments against
 Capital injections and share of profits kept separate which enables more accurate
calculations for the appropriation account.
 Capital account fixed – only alters if capital increases enabling easier calculation
of interest on capital (if included in the partnership agreement).
 Current account is fluctuating or working account. This makes it easier for the
partners to know what their annual earnings were for a financial year.
 Some partners may wish to show the excess or surplus of their share of profit
which has not been withdrawn
11
ACCOUNTING
Q3
(a) (i) Stock is omitted as it is considered to be relatively illiquid, because it depends
upon prevailing and future market forces and may be impossible to convert to
cash in a relatively short time.
12
ACCOUNTING
13
ACCOUNTING
14
ACCOUNTING
15
ACCOUNTING
Question 3
The director of Misha Ltd have provided the following information for the year ended
31 March 2017.
Ledger accounts £
10% bank loan 100 000
Allowance for doubtful debts 5 000
Bank loan interest 7 500
Carriage inwards 12 500
Discount received 7 850
General administrative expenses 25 000
General distribution costs 55 000
Insurance 9 000
Inventory at 1 April 2016 45 000
Office equipment accumulated depreciation 35 000
Office equipment at cost 105 000
Purchases 487 500
Revenue 755 250
Tax payable 25 000
Wages and salaries 54 780
(1) The following transactions relating to non-current assets have not yet been
recorded.
 On 1 January 2017, office equipment with a carrying value of £12 800 was
sold for £9 880
 The depreciation policy is to charge a full year’s depreciation in the year of

acquisition and none in the year of disposal.
 The depreciation on office equipment is to be charged at 20% per annum on

areducing (diminishing) balance basis.
(2) Bank loan interest was outstanding for the quarter ended 31 March 2017.
16
ACCOUNTING
(3) Irrecoverable debts of £1 500 were to be written off.
(4) On March 2017
 Insurance paid included £750 for April 2017.
 Wages and salaries of £5 520 for March 2017 were outstanding. The wages
and salaries are distributed in the ratio of 3:2 between administration
expenses and distribution costs.
 Inventory was valued at $47 500. It included damaged inventory costing

£5 000. The damaged inventory can be sold for £3 250 after repairs at a cost
of £750
 Allowance for doubtful debts were to be reduced to £4 000
Required:
Prepare the statement of profit and loss for the year ended 31 March 2017.
17
ACCOUNTING
Question 4 (FW33.4)
The trial balance at 31 December 2017 showed a difference of £77, being a shortage on
the debit side.
A suspense account is opened, and the difference of £77 is entered on the debit side of
the account.
On 28 February 2018, with the books inspected, all the errors from the previous year
were found:
(A) A cheque of £150 paid to M Williams had been correctly entered into the Cash
Book but had not been entered into Williams’s account.
(B) The purchase account had been undercast by £20.
(C) A cheque of £93 received from K Rowland had been correctly entered in the
Cash Book, but had not been entered in Rowland’s account.
These three errors resulted in a net error of £77, shown by debit of £77 on the debit
side of the suspense account.
Required:
Show the requisite journal entries to correct the errors.
18
ACCOUNTING
Question 5
M Santos is a wholesaler who buys and sells port wine. Below is a set of financial
statements in which errors have been made.
M Santos
Statement of profit or loss for the year ended 31 December 2015
£ £
Revenue 180 000
Less Cost of sales
Opening inventory 15 000
Add Purchases 92 000
107 000
Less Closing inventory (18 000)
Cost of sales (89 000)
Gross Profit 91 000
Other Income
Discount received 1 4 00
92 400
Less Expenses
Rent 8 400
Insurance 1 850
Lighting 1 920
Depreciation 28 200 (40 370)
Profit for the year 52 030
19
ACCOUNTING
M Santos
Statement of financial position at 31 December 2015
£ £
Non-current assets
Equipment at cost 62 000
Less Depreciation to date (41 500)
20 500
Current assets
Inventory 18 000
Bank 19 000
Suspense 80
60 080
80 580
Capital and liability

Opening capital 46 250
98 280
Less Drawing (31 700)
Closing capital 66 580
Current liability
Trade payables 14 000
80580
Required:
20
ACCOUNTING
Question 6 (FW32.5)
Required:
Give the journal entries needed to record the corrections of the following. Narratives
are not required.
(a) Extra capital of £5 000 paid into the bank had been credited to Sales account.
(b) Goods taken for own use of £72 had been debited to Sundry Expenses.
(c) Private rent £191 had been debited to the Rent account.
(d) A purchase of goods from A Kong £246 had been entered in the books as £426.
(e) Cash banked £410 had been credited to bank column and debited to the cash
column in the cash book.
Question 7 (FW33.2)
Your bookkeeper extracted a trial balance on 31 December 2021 which failed to agree
by £210, a shortage on the credit side of the trial balance. A suspense account was
opened for the difference.
In January 2022 the following errors made in 2021 were found:
(1) Sales day book had been undercast by £200.

(2) Sales of £610 to T Venti bad been debited to error to T Vanti’s account.
(3) Rent account had been undercast by £90.
(4) Discount Allowed account had been overcast by £100.
(5) The sale of a iPad at carrying value had been credited in error to the Sales
account £230.
Required:
(a) Show the journal entries necessary to correct the errors.
(b) Draw up the suspense account after the errors described have been corrected.
(c) If the net profit had previously been calculated at £31 400 for the year ended
2021, show the calculations of the corrected net profit.
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ACCOUNTING
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ACCOUNTING
WEEK 1
IN-SESSIONAL PRACTICE
Question 1
(a) FW1 301
(b) FW1 301
(c) Prudence concept does not take profits into account until they have been
realised. An increase in value, without sale, does not represent realisation
Question 3
23
ACCOUNTING
Question 3
24
ACCOUNTING
DEPRECIATION OF TANGIBLE NON-CURRENT ASSETS
VAN (COST)
2020 £ 2020 £
Jan 1 Bank X
Dec 31 Bal c/d X
X X
2021 2021
Jan 1 Bal b/d X
Dec 31 Bal c/d X
X X
2022 2022
Jan 1 Bal b/d X
PROVISION FOR DEPRECIATION - VAN

2020 £ 2020 £
Dec 31 Bal c/d X Dec 31 P/L X
VAN (COST)
2020 £ 2020 £
Jan 1 Bank X
Dec 31 Bal c/d X
X X
2021 2021
Jan 1 Bal b/d X
Dec 31 Bal c/d X
X X
2022 2022
Jan 1 Bal b/d X
25
ACCOUNTING
Depreciation
DR Depreciation (Statement of P/L)
CR Provision for depreciation
ASSET (COST)
2018 £ 2018 £
Jan 1 Bank X
Dec 31 Bal c/d X
K Davis
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2015
DR CR
£ £
Revenue 180 000
Less Cost of sales
107 000
(89 000)
26
ACCOUNTING
K Davis
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2015
DR CR
£ £
Revenue 180 000
Less Cost of sales
107 000
Cost of sales (89 000)
Gross Profit 91 000
Other Income
Discount received 14 000
92 400
Less Expenses
Rent 8 400
Insurance 1 850
Lighting 1 920
Depreciation 28 200 (40 370)
27

Week 1 - Assignment

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Week 1 - Assignment

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INTERNATIONAL ADVANCED LEVEL

(1) The Sales Day Book had been undercast by £3 250

(d) Prepare the following corrected ledger accounts:

(i) Inventory Account (3 marks)

The following information is available as the deed of partnership:

Benny and Sammy Benny, Sammy and Jenny

(1) The financial year ends on 31 January.

Benny £26 000

(a) (i) Define the term goodwill. (2 marks)

(ii) State two examples of goodwill. (2 marks)

Question 3 (2017 May Q4)

(b) Calculate for Staunton, at 1 May 2020, the:

(i) current ratio (2 marks)

(d) Calculate, for the year ended 30 April 2020:

(i) inventory turnover (2 marks)

(e) Evaluate the liquidity position of Staunton at 30 April 2020. (4 marks)

 The depreciation policy is to charge a full year’s depreciation in the year of

 The depreciation on office equipment is to be charged at 20% per annum on

(3) Irrecoverable debts of £1 500 were to be written off.

(4) On March 2017

 Insurance paid included £750 for April 2017.

 Inventory was valued at $47 500. It included damaged inventory costing

 Allowance for doubtful debts were to be reduced to £4 000

(B) The purchase account had been undercast by £20.

Capital and liability

In January 2022 the following errors made in 2021 were found:

(1) Sales day book had been undercast by £200.

DEPRECIATION OF TANGIBLE NON-CURRENT ASSETS

PROVISION FOR DEPRECIATION - VAN

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