1 Correct Answer

$15,800

Under IAS 2 Inventories, any inventory must be stated at the lower of cost and net
realisable value. The clock has a cost of $15,800 and a net realisable value of $25,300
(26,000 - 700).

Therefore it should be included at $15,800.

2 Correct Answer
True
Sales can be calculated by referencing both sales and sales returns general
ledger accounts
The detailed listing of suppliers includes individual supplier accounts and their
balances

False:
The bank general ledger account includes all cash transactions and, in addition,
cash amounts owed to/ from other parties
A non-current asset register includes only the cost element of non-current assets

3 Correct Answer
$1,175

$
Balance per bank statement 3,732
Unpresented cheques (5,729)
Outstanding lodgement 822
Overdraft balance to be (1,175)
reported

Note that the bank charges will already have been deducted from the bank statement
balance. Caleb will have to enter them into his ledger in order to complete the
reconciliation.

4 Correct Answer
Bank and trade receivables
Purchases and sales would be relevant for cash transactions in this context. Trade
payables relates to suppliers

5 Correct Answer
A charge of $290

$
Balance on trade receivables ledger account 88,463
less: Irrecoverable debt (563)
87,900

Allowance at 30 April 20X9 (87,900 x 2%) 1,758

less: Allowance at 1 May 20X8 (1,468)
Increase in allowance 290

This will be charged as an expense.

6 Correct Answer
Both 1 and 2

A trial balance is prepared to provide a basic check on the accuracy of bookkeeping

entries and to summarise the balances prior to the preparation of the final accounts.

7 Correct Answer
Faithful representation

Accounting information is faithfully represented if it is neutral and free from material

error.

8 Correct Answer
Current liabilities $9,281 and Non-current liabilities $11,200

Current liabilities are those due to be settled within 12 months. An overdraft is always a
current liability because it is due to be settled on demand and to this we can add the
repayment of $5,600 due on 1 April 20X4. This gives a total for current liabilities of
$9,281. The balance is a non-current liability of $11,200 (16,800 - 5,600).
9 Correct Answer
$1,414

The corrected account looks as follows:

$ $
Drawings 1,240 Balance b/f 54
Interest of 560
capital
Salary 300
Balance c/f 1,414 Net profit 1,740
2,654 2,654

Therefore the corrected balance on the account is a credit balance of $1,414.

10 Correct Answer
An employee raised legal action on 4 December 20X7 against the Provision
business and it is probable that the employee will win the case, which
is expected to be concluded in March 20X8
An invoice was received on 6 January 20X8 and related to rental Accrual
charges for the previous three months

Provision:

An employee raised legal action on 28 December 20X7 against the business and it is
probable that the employee will win the case alongside the subsequent compensation
This is a liability of uncertain timing and amount (the end date is an expectation and
legal fees and other monetary amounts are connected to the length of time taken).
There is a (legal) obligation because of a past event (legal action raised) which is
probable (employee likely to win) to lead to an outflow of economic resource (e.g., legal
fees, compensation and/ or fines).

Accrual:

An invoice has been received on 6 January 20X8 relating to rental charges for the
previous three months
This is an accrual as there is certainty over the timing and amount but the invoice was
not recognised in the year ended 31 December 20X7.

11 Correct Answer
$58,000 + $22,000 + $41,000 - $18,000 = $103,000
12 Correct Answer
Capital introduced - Drawings + Profit + Opening capital

Capital is increased by profits and by any further capital introduced and reduced by
drawings. So the correct formula for closing capital is:

Capital introduced - Drawings + Profit + Opening capital

13 Correct Answer
Dr Trade payables and Cr Purchase returns

When Wilson bought these goods the entry he posted would have been to debit
purchases and credit trade payables. As he is returning the goods he will reverse these
entries:

Dr Trade payables / Cr Purchase return

14 Correct Answer
$131,103

Lim's trade payables ledger will show the following:

Dr ($) Cr ($)
Payments to suppliers 131,740 Balance b/f 17,822
Contra 800
Balance c/f 16,385 Purchases 131,103
(balance)
148,925 148,925

15 Correct Answer
1 and 2 only

The closing balance of the (sole) trade payable is presented in the statement of financial
position and the balance is carried forward to the next period. As there is a sole
supplier, this will also be reconciled to the supplier statement.

16 Correct Answer
Correct:
The sale is recognised in both the sales and trade receivables general ledger
accounts

The detailed listing of customer accounts is updated automatically

Incorrect:
The associated cost of goods sold is recognised in the cost of sales and
inventories general ledger accounts

The detailed listing of supplier accounts is updated automatically

Only sales and purchases are integrated with the accounting system – not inventories.
Supplier accounts relate to purchases and not sales.

17 Correct Answer
Loss on disposal of property, plant and equipment:
Dr Bank
Dr Operating expenses
Cr Property, plant and equipment

The receivables allowance is posted to the statement of financial position as a

deduction from trade receivables. Trade receivables is an asset account (debit) so the
allowance is a credit posting. Any increase or decrease in the allowance will go to the
statement of profit or loss.

Incorrect answers:

Equipment withdrawn for owner's personal use: - Debit and credit are transposed
Returns from customers - Purchases returns
Repaymnent of loan liability - Debt and credit are transposed

18 Correct Answer
$553 cash at bank

$
Overdrawn balance per general (422)
ledger
Cheque not on bank statement 822
Interest received 153
Balance per bank statement 553 cash at
bank
19 Correct Answer
$400 cash paid into the business by Candy from her personal bank account and A
van worth $350 bought by Candy for the business using her personal bank
account

The capital section of the statement of financial position shows capital injected into the
business by its owner. Therefore the $400 cash paid into the business by Candy along
with the $350 paid by Candy for the van should be included in the capital section of
Candy's statement of financial position.

Capital injected by third parties, such as the loan from the bank and the loan from
Candy's friend Jim, are classified as liabilities in the statement of financial position.

20 Correct Answer
$116,700

$
Purchase value of sales (142,200 x 118,500
100 / 120)
Add: Closing inventory 3,600
Less: Opening inventory (5,400)
Purchases 116,700

21 Correct Answer
Financial statements must always be prepared on the going concern basis No
If a business is not considered to be a going concern, financial statements No
should not be prepared

Financial statements are normally prepared under the assumption that the business is a
going concern. If the business is not a going concern this should be disclosed in the
financial statements and this will affect some aspects of the financial statements such
as the valuation of assets. Therefore neither statement is correct.

22 Correct Answer
Dr Depreciation charge
Cr Property, plant and equipment

Incorrect answers:
Dr Depreciation charge
Cr Bank
Depreciation is not a cash expense

Dr Bank
Cr Depreciation charge
Depreciation is not cash income

Dr Property, plant and equipment

Cr Depreciation charge
Debit and credit transposed

23 Correct Answer
$170

Cost = (80% x $200) + $10 = $170

We cannot calculate the net realisable value of raw materials. However, raw materials
do not need to be written down below cost if they will be used in a finished good which
is profitable ($360 - $170 - $20 - $30 = $140 profit).

24 Correct Answer
$11,017

$
Draft profit 11,855
Accrual treated as prepayment (398 (796)
x 2)
Prepayment overstated (522 - 480) (42)
Correct profit 11,017

Note that an accrual is an expense and a prepayment is a deduction from expense. So

if an accrual is treated as a prepayment profit is overstated by twice the amount of the
accrual.

25 Correct Answer
$51
 $
Irrecoverable balance written off 178
Reduction in allowance for irrecoverable debts (127)
(1,284 - 1,157)
Irrecoverable debt expense 51

26 Correct Answer
$36,140

$
Cost of closing inventory 38,750
less: Cost of damaged items (3,660)
add: Net realisable value of damaged 1,050
items
Value of closing inventory 36,140

27 Correct Answer
A manual journal entry for a $2,000 cash receipt from a credit customer was
debited correctly to bank but credited to trade receivables with only $1,000 in the
general ledger

The impact of this error is as follows:

Dr Bank $2,000 (manually posted)

Cr Trade receivables $1,000 (manually posted)
Cr Suspense account $1,000 (automatically posted)

28 Correct Answer
Debit Bank $1,200
Credit Rental Income $1,200

Boris receives the rent by electronic bank transfer so he will debit bank and credit rental
income.

29 Correct Answer
$51,708
 $
Partnership profit 144,890
less: Interest on capital (11,450 + (21,220)
9,770)
add: Interest on drawings (70,000 x 5,600
8%)
Residual profit 129,270

Paulo's share (129,270 x 2 / 5) 51,708

30 Correct Answer
1 and 3 only

Costs which can be capitalised in respect of the machine include those incurred in
bringing it to the location and condition necessary for it to operate. This includes the
costs of installation and testing.

Routine maintenance will be treated as an expense.

31 Correct Answer
$1,000

Laura has received goods for $12,000 and only paid $11,000. Therefore her trade
payables balance is $1,000.

She has not received the additional goods for $13,000. So has no payables balance in
respect of them.

32 Correct Answer
1, 2 and 3

A non-current asset register carries information on the details, location and carrying
amount of each asset so it will record 1, 2 and 3.

33 Correct Answer
Overstated by $6,300

Lui has capitalised these repairs and charged $700 as depreciation. He should have
charged the whole amount as an expense. The amount not charged against profit was
therefore $7,000 - $700 = $6,300. His profit is overstated by this amount.
34 Correct Answer
A debit entry in the partners' current accounts

The cash account will have been credited with the payment made for partners' drawings
and the corresponding debit entries will be to the partners' current accounts. The
current accounts are credited with amounts due to them from the business and debited
when they receive cash.

35 Correct Answer
$1026

As Marcus is expected to take advantage of the settlement discount, it should be

deducted when calculating sales revenue.

The sales price is 1,200 - (1,200 x 10%) = $1,080

- (1,080 x 5%) = $1,026

36 Correct Answer
As a current liability in the statement of financial position

Trade payables are presented within current liabilities. It is highly unlikely that a trade
payable amount would ever be a non-current liability (over 12 months’ due)

37 Correct Answer
$2700

$2,100 + $3,600 - $2,700 - $300 = $2,700

38

39. Correct Answer

$25,000

When Jana joins the partnership the goodwill needs to be debited to the capital
accounts (because the partners have decided not to maintain the goodwill in the
accounts) in the new profit sharing ratio of 1:1:1.

Therefore, a debit of $25,000 (75,000 / 3) needs to be made to each partner's capital

account. To have an opening balance of nil in her capital account Jana will therefore
have to contribute $25,000 to the partnership which will be recorded as a credit in her
capital account.
40 Correct Answer
$63,380

Andrew's current assets will be:

$
Trade receivables less allowance (42,650 - 1,570) 41,080
Inventory at 31 October 20X7 22,300
63,380

41 Correct Answer
Credit $8,500 and Debit $678

Jenny's bank loan is a liability to the bank so it will have a credit balance. The amount
of $678 in her current account is an asset and will be a debit balance.

42 Correct Answer
Profit for the year: $23,718
Net assets: $92,488

Increase in closing inventories = $76,980 - $69,780 = $7,200

Profit for the year = $16,518 + $7,200 = $23,718
Net assets = $85,288 + $7,200 = $92,488

Incorrect answers:

Profit for the year: $9,318, Net assets: $92,488 - Correct net assets but reduced profit
for the year by $7,200
Profit for the year: $23,718, Net assets: $78,088 - Correct profit for the year but reduced
net assets by $7,200
Profit for the year: $9,318, Net assets: $78,088 - Reduced both profit for the year and
net assets by $7,200

43 Correct Answer
$300

As Sanjay is registered for sales tax he can reclaim input sales tax on his
purchases. Sales tax is therefore not an expense to Sanjay's business and so
purchases are recorded net of sales tax.

The net purchase price is calculated as:

$360 x 100 / 120 = $300.

44 Correct Answer
Dr Sales 2,970
Cr Trade receivables 2,970

Decrease in sales = $3,300 - $330 = $2,970

Incorrect answers:
Dr Sales 3,630
Cr Trade receivables 3,630
Correct journal but with incorrect amount (added $330 instead of deducting)

Dr Trade receivables 2,970

Cr Sales 2,970
Correct amount but with debits and credits transposed

Dr Trade receivables 3,630

Cr Sales 3,630
Incorrect amount (added $330 instead of deducting) and with debits and credits
transposed

45 Correct Answer
To report the assets, liabilities and capital of the business at a particular date

A statement of financial position reports on the assets, liabilities and capital of the
business at the year end date.

It does not provide information about trading during the year (this is done by the
statement of profit or loss) and does not provide information for valuation purposes or
report on share prices.

46 Correct Answer
$388

An accrual is a current liability and a prepayment is a current asset. Current assets are
therefore understated by $388.
47 Correct Answer
A loss of $5,000

$
Purchase price 80,000
Depreciation 20X5 - 20X7 ((80,000 x 15%) x 3) (36,000)
Carrying amount prior to disposal 44,000
Sale proceeds (39,000)
Loss on disposal 5,000

48 Correct Answer
Assets: Liabilities: Capital: Unchanged
Increased Increased

Amanda has acquired goods for resale (inventory). This is an asset.

She also now has a payable for the cost of these goods. This is a liability.

So assets and liabilities have increased and capital is unchanged.

49. Correct Answer

$4,921

Her bank statement will show an overdrawn balance of $4,921:

$
Balance per general 4,782
ledger
Bank charges 365
Unpresented cheques (1,745)
Outstanding lodgement 1,519
Overdrawn balance 4,921
50. Correct Answer
Understated by $6,990
Susan's revenue should have been credited with $3,450. Instead it would have been
debited with $3,540. The net effect of this is that revenue, and therefore profit, was
understated by $6,990 (3,450 + 3,540).