Revision questions:

These are from past exam papers so are of the style and standard you
will get in January.
Question 1 Preparing financial statements from the TB
The trial balance of Blazer Ltd at 31 December 2020 was as follows:

£’000 £’000
Retained earnings at 1 January 2020 49
Land at cost 127
Buildings at cost 125
- Accumulated depreciation at 1 January 2020 55
Motor vehicles at cost 90
Accumulated depreciation at 1 January 2020 50
Purchases 550
Inventories at 1 January 2020 75
Carriage outwards 18
Carriage inwards 12
Salaries 138
Office expenses 60
Insurance 54
Rent 78
Bad debts 15
Telephone expenses 9
Gas and electricity 45
Trade receivables 290
Bank overdraft 61
Trade payables 143
Cash at bank 7
Sales 1,205
£1 ordinary shares 100
Share premium 25
Ordinary dividends paid 20
10% debentures 20
Provision for doubtful debts at 1 January 2020 5
1,713 1,713

Additional information:
 Inventories at 31 December 2020 were £86,000.
 Depreciation is to be provided for the year as follows:
o Buildings - 10% on cost.
 o Motor vehicles - 25% using the reducing balance method.
 Debenture interest has not yet been accounted for.
 Insurance has been prepaid by £5,000.
 Corporation tax due for the year is £16,000.
 To be prudent the directors wish to increase the provision for
doubtful debts to £8,000.

Required:
(a) Prepare an income statement and a statement of changes in
equity for the company for the year ended 31 December 2020. (20
marks)

(b) Prepare a balance sheet as at 31 December 2020. (16 marks)

(c) Explain what you understand by the term “prudence” in

accounting. Use a suitable example to illustrate your answer. (6
marks)

(d) Explain the difference between carriage in and carriage out and
how each should be treated in the income statement. (4
marks)

(e) Explain what you understand by the terms “money measurement

concept” in accounting and give an example to illustrate your answer.
(4 marks)

(Total 50 marks)