Abdul Kadir

P5
Miss Iyengar
Business Accounting

1. Why is it important for a business to measure their financial performance?

Performance measurement and target-setting are important to the growth process. While many
small businesses can run themselves quite comfortably without much formal measurement or
target-setting, for growing businesses the control these processes offer can be indispensable.

The benefits of performance measurement

Knowing how the different areas of your business are performing is valuable information in its own
right, but a good measurement system will also let you examine the triggers for any changes in
performance. This puts you in a better position to manage your performance proactively.

2. What do we mean by the term ‘liquidity’?

3. Outline your understanding of the accruals concept and the importance of the concept to
financial statement preparation. 4 Marks
4. Prepare a note outlining your understanding of the term partnership business. The note should include
two advantages and one disadvantage of operating through the medium of a partnership business.
5 Marks
5. List any four users of accounting information. Outline what information each user is
interested in and why. State whether management or financial accounting meets their
informational needs.
Abdul Kadir
P5
Miss Iyengar
Able is a sole trader with a small business. The trial balance extracted as at 31 March 2015 failed to agree
balances are as follows:
Details €/£
Sales 71,130
Sales returns 2,100
Purchases 22,150
Expenses 10,710
Non-current assets 22,750
Discounts allowed 740
VAT liability 6,320
Payables 14,840
Receivables 52,850
Bank overdraft 3,140
Capital as at 1 April 2014 12,500
Required
i. Prepare the trial balance for A. Able as at the 31 March 2015 and hence derive the balance in the suspense
account as at that date.
4 Marks
A detailed examination of the books was undertaken and the following matters were uncovered:
1. The total in the purchases day book was €42,150 - the figure used when posting to the purchases T account
was €22,150.
2. An invoice from a supplier for goods to the value of €/£8,500 plus VAT at 10% was not recorded in the
books and records of A. Able.
3. During the bank reconciliation process it came to light that €/£105.14 was earned in interest during the year
and has not been accounted for.
4. Sales returns of €980 was treated correctly in the customer’s account and credited to the sales returns
account as €890.
5. A review of the ledgers revealed that receivables were overcast by €/£25,240
6. Cash drawings by A. Able of €2,170 were treated as cash sales in error.
You are required to:
ii. Prepare the journal entries, with the appropriate narratives, necessary to correct the above errors.
iii. Prepare a suspense account to clear the difference.
9 Marks
4 Marks
iv. Prepare a working showing the effect on proprietor’s profit (if any) of correcting each of the above
errors.
3 Marks
Total 20 Mar