Principles of Accounting

Assignment 1- 2022-COMPULSORY
STUDENT FULL NAME:______________________________________

CLASS : Tuesday 12.00 (L46)

MARK AWARDED :_______ _/ MAXIMUM 35____________

Instructions:
1) Due Date : 29 November 2022.

2)Total 7 pages (including this cover page). Answer all 6 questions.

Lecturer : Balwant Singh

MCQs Answer to be written here

Question Answer
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Multiple choice questions for 2 marks each.

Question 1

Which of the following are differences between sole traders and limited liability
companies?

i. A sole trader’s financial statements are private; a company’s financial

statements are sent to shareholders and may be publicly filed.

ii. Only companies have capital invested into the business.

iii. A sole trader is fully and personally liable for any losses that the business
might make; a company’s shareholders are not personally liable for any losses
that the company might make.

A, (i) and (ii) only

B. (ii) and (iii) only
C.(i) and (iii) only
D. (i), (ii) and (iii)

Question 2

Mary owns and runs a restaurant. The following describes some of the items on
her statement of financial position. Which ones are liabilities?

i. Restaurant tables and chairs at cost

ii. Wages owed to waiters
iii. Bank account containing £3000
iv. Tax bill due to Tax authorities
v. Restaurant premises at cost
vi. Loan from the bank to buy restaurant premises
vii. Food supplies in the refrigerator
viii. Amount due to the baker for bread supplied last month

A. All except (i),(iii) and (v)

B. All except (iv) and (viii)
C. All of them
D. All the even numbered items (ii), (iv), (vi), (viii).

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Question 3

At 31 March 2019, the cashbook of Company 2 showed a debit balance of £56.

An examination of the bank statements and the accounting records of the
company revealed the following:

On 30 March 2019, the bank wrote to Company 2 stating that a cheque of £360
received from a customer and banked on 25 March 2019 had bounced and had
been dishonoured. This letter was only received by Company 2 on 2 April 2019.
Bank charges of £460 appeared on the bank statement on 30 March 2019 but
the company was unaware of this transaction. Receipts of £9,215 banked on 31
March 2019 were not cleared through the banking system until April 2019, while
payments totalling £19,401, issued by the company in March 2019 were also not
cleared through the banking system until April 2019.

What was the balance appearing on the bank statement at 31 March 2019?

A £9,422
B £(10,950)
C £9,310
D £10,142

Question 4

On 1 February 2019,Company 4 had 50 units in inventory costing £26 each.

During the month, the following transactions occurred:

Date Buy/sell Units Price

2.2.19 Buy 74 £29
11.2.19 Sell 93 £61
13.2.19 Buy 65 £33
17.2.19 Buy 68 £27
25.2.19 Sell 100 £56

What is (i) the value of inventory at 28 February 2019 and (ii) the cost of goods
sold (COGS or COS) for the month of February 2019 using the LIFO basis of
accounting?
Inventory COGS
£ £
A 1,895 5,532
B 1,856 5,571
C 1,706 5,721
D 1,878 5,549

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Question 5

A refund from a supplier of £1,500 was entered in the cash book as a receipt and
treated as a receipt from a customer in the sales (receivables) ledger control
account.

Which of the following accounting entries is needed to correct this?

Sales (receivables) Control Payables (suppliers) Control Bank

account account account
A Cr: £1,500 Dr: £1,500
B Dr: £1,500 Cr: £1,500
C Cr: £1,500 Dr: £1,500
D No adjustment is needed

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QUESTION 6

Singh Private Limited ended their last financial year on the 31 December 2021.

The following unadjusted trial balance was prepared for Singh Private Limited as
at 31 December 2021:
Debit Credit
$ $
Long Term Investment 400,000
Delivery Vans:
Cost 160,000
Accumulated Depreciation as at 1 January
2021 64,000
Shop Fittings:
Cost 30,000
Accumulated Depreciation as at 1 January
2021 3,000
Inventory as at 1st January 2021 144,600
Trade Receivable 330,720
Provision for Doubtful Debts 1 Jan 2021 9,500
Bad Debts 10,000
Bank Overdraft 50,000
Trade Payable 120,190
Retained Profit as at 1 January 2021 135,040
Term Loan –Due June 2025 40,000
Loan Interest 2,000
Taxes 5,000
Rent Expense 120,000
Business Insurance expense 39,000
Telephone expense 6,100
Salary expense 85,000
Utilities expense 17,600
Advertising expense 10,500
Sales 1,766,590
Directors Remuneration 52,000
Purchases 997,700
Equity Dividends paid 20,000
Preference shares @$1.00 par 100,000
Share capital @ $1.00 par 50,000
Share Premium 43,000
General Reserves 50,000
Suspense Account 1,100
Total 2,431,320 2,431,320

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The following additional information was available:

1. The following should be noted regarding the bank balance.

I. Bank charges for $2,000 debited to the bank statement remain

unrecorded at year-end.

II. A cheque for $2,500 for December salary was recorded in the
books only in January 2022.

III. $20,000 received from a receivable account had been entered

twice in the books.

2. The inventory was valued at $200,000 as at 31 December 2021 at

sales value. Included in the closing stock were some damaged goods
costing $5,000. These goods were subsequently sold in January 2022
for $4,000. Transportation cost of $500 was incurred. The company
profit margin is 50%.

3. The business insurance accounts reflects insurance premium paid for

twelve months starting from 1st March 2021.

4. A Bad Debt of $5,000 is to be written off and a provision of 1 % against

the remaining trade receivable as at 31 December 2021 should be
reflected at year-end.

5. The unpaid interest on the loan was paid only on 1 January 2022.
Interest rate on the loan is 10% per annum.

6. A delivery van, the cost of which is $20,000 and accumulated

depreciation of $8,000 was sold in December 2022, the sales proceeds
of $20,000 being credited to the sales account. No other entries have
been made for this disposal. No depreciation is charged in the year of
sale.

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 7. Depreciation is to be provided at the following rates per annum using
the method as indicated.
Shop fittings -10% using reducing balance Method.
Delivery Vans- On cost using the straight line method. The entire
fleet of delivery vans was purchased on the 1st January 2019.

Assume zero residual values.

8. The utility expense for the month of December 2021 of $1,500 was
unpaid as at 31 December 2021.

9. Taxation expense is estimated at $20,000 for the year ended 31

December 2021.The taxation balance in the trial balance represents an
under-estimate of the taxes paid for the year ended 31 December
2020.

10. Provision is to be made for unpaid audit fees of $10,000 for the year-
ended 31 December 2021.

11. Director’s remuneration of $4,000 remains unpaid at year-end.

12. During the year, 20,000 ordinary shares were issued at $1.50 per
share, the sales proceeds of which were credited to the sales account.

13. $5,000 from the retained profit is to be transferred to the general

reserves.

14. The preference shares are redeemable on the 31 December 2025 and
carry a fixed dividend rate of 5% per annum.

15. The suspense account created was due to the following errors.

a. A cheque written for $1,000 was recorded in the telephone

expense account as $100.

b. Director’s remuneration paid for $2,000 was not recorded in

the director remuneration account.

c. A sales invoice of $2,000 was recorded in the sale account at

$200.
Required:
a) Prepare an Income Statement, a Statement of Changes in Equity for
the year-ended 31 December 2021 and a Statement of Financial Position
as at that date in a form suitable for presentation to the directors of the
company. (25 marks)
THE END