Business Accounting

Appendix 1

674
9.1 J Bell 9.4 F Sorley
Trading and Profit and Loss Account for the year ended 30 April 20X7
Trading Account for the year ended 31 December 20X7

Sales 121,437 162,918 161,628 Sales 108,680 210,420 205,520
Less Returns in 840 1,290 110,257 Less Returns in 3,720 4,900 103,920
Less Cost of goods sold: Less Cost of goods sold: 9,410 101,600
120,597 51,371
Purchases 980 Opening stock 104,960 50,945
Less Returns out Add Purchases 840 50,655
Carriage inwards 121,577 Less Returns out
Less Closing stock 11,320 Carriage inwards 115,210
Gross profit Less Closing stock 11,290
Gross profit
9.3 G Still Less Expenses: 41,800
Salaries and wages 912
Trading and Profit and Loss Account for the year ending 30 September 20X9 Motor expenses
Rent 6,800
Sales 188,430 380,400 378,860 Carriage out 1,115
Less Returns in 3,410 1,540 185,540 Sundry expenses
Less Cost of goods sold: 193,320 Net profit 318
41,600
Opening stock 185,020 72,017 Fixed assets Balance Sheet as at 30 April 20X7 15,312
Add Purchases 121,303 Fixtures and fittings 912
Less Returns out 3,700 Motor vehicles 24,730
Carriage inwards 230,320 14,400 40,042
Less Closing stock 40,042
Gross profit 44,780 Current assets 11,290
Less Expenses: Stock 23,200
Salaries and wages 61,400 Debtors
Warehouse rent 3,700 Bank 4,100
Carriage out 2,100 Cash 240
Insurance 1,356 Less Current liabilities
Motor expenses 1,910 Creditors 38,830
Office expenses 412 14,100
Lighting and heating 894
General expenses 245
Net profit

Balance Sheet as at 30 September 20X9

Fixed assets 92,000 107,300 Capital 18,827
Premises 1,900 Balance as at 1.5.20X6 50,655
Fixtures and fittings Add Net profit 69,482
Motor vehicles 13,400 Less Drawings 29,440

Current assets 44,780 60,846
Stock 42,560 168,146
Debtors
Bank 5,106
Less Current liabilities 92,446
Creditors 31,600

Capital 68,843 168,146
Balance at 1.10.20X8 121,303
Add Net profit 190,146
Less Drawings
22,000

9.7 Capital Bank Balance Sheet as at 31 May

01.05 Bank 1,500 01.05 Capital 1,500 03.05 Fixtures 150 Fixed assets 150
01.05 Cash 31.05 Cash 2,000 30.05 Wages 450 Fixtures and fittings 2,000
500 500 Van 2,150
31.05 Drawings
215
Purchases C Dunn Current assets 500 1,935
Stock 125 2,000
02.05 C Dunn 1,750 02.05 Purchases 1,750 Debtors 2,400
Bank 625 435
06.05 E Farnham 115 Cash 3,650 2,435
3,865
Fixtures and fittings E Farnham 500
06.05 Purchases 115 1,935
03.05 Bank 150
Rent
Cash 300 Less: Current liabilities – Creditors

01.05 Capital 500 10.05 Rent 300 10.05 Cash
31.05 Sales 2,500 12.05 Stationery 75
31.05 Bank 2,000 Capital
Balance at 1 May
Stationery Sales Add: Net profit*
75 Less: Drawings
12.05 Cash 14.05 G. Harlem 125 *2,625 − (1,865 − 500) − (300 + 450 + 75) = 435
2,500
31.05 Cash

14.05 Sales G Harlem Van 9.9 Kingfire
31.05 Bank 125 20.05 I Jumpstart 2,000

I Jumpstart Wages Trading Profit and Loss Account for the year ending 30 June 20X3 35,800
20.05 Van 450
2,000 30.05 Bank Sales
Drawings Less Cost of sales
500 Purchases 14,525 11,525
Less Closing stock 3,000 24,275
Gross profit
A Baker
Trial Balance as at 31 May 2,000 Less 2,325
1,750 Salaries 9,300
Capital 2,400 Motor expenses 1,250
Bank 1,865 115 Rent and business rates 750
Purchases Insurance – Buildings 1,200
C Dunn 150 2,625 – Vehicles 14,825
Fixtures and fittings 625 2,000 9,450
E Farnham 300 7,490 Net profit
Answers to review questionsCash
Rent 75
675Stationery 125
Sales 2,000
G Harlem 450
Van 500
I Jumpstart 7,490
Wages
Drawings

9.9 (cont’d )
Fixed assets
Motor vehicles
Fixtures
Appendix 1Cash Book

676
Balance Sheet as at 30 June 20X3 13.1
(1) Capital
10,000 (3) G Broad (Loan) Cash Bank (2) Rent Cash Bank
17,500 (5) Sales 1,000 2,000 (4) J Fine 230 860
27,500 (7) F Love (9) A Moore
(11) Sales 190 34 (16) Bank ¢ 92 500
Current assets 3,000 4,225 (15) P Hood 151 (19) R Onions (Loan) 100 75
Stock 11,725 31,725 (16) Cash ¢ 96 (26) Motor expenses
Debtors 15,000 (22) Sales 100 (30) Cash ¢ 320 200
Cash 500 16,725 (30) Bank ¢ 200 122 (31) Wages 744 772
Less Current liabilities 15,225 16,725 1,486 (31) Balances c/d 1,486 2,407
Creditors 9,750 11,000 2,407
Bank 1,250
Less Loan
13.3 Cash Book

Disct Cash Bank Disct Cash Bank
(1) Balance b/d 620 7,142 (4) Rent 430
Capital (2) G Slick 13 247 (8) R White 18 702
Opening balance 19,275 (2) P Fish 16 304 (8) G Green 24 936
Net profit 9,450 (2) T Old 21 399 (8) L Flip 40 1,560
Less Drawings (6) F Black: loan 5,000 (10) Motor expenses 81
28,725 (12) J Pie 2 88 (15) Wages 580
12,000

10.1 (18) A Pony 27 513 (21) Cash 200 400
See text. (18) B Line & Son 35 665 (24) Drawings
(18) T Owen 26 494 (25) W Peat 5 155
(21) Bank 400 (29) Fixtures 720
10.2 (31) Commission 120 (31) Balances c/d 4 10,224
See text. 140 1,020 14,972 87 1,020 14,972

10.3 Discounts Received 87
See text. (31) Total for month

10.4 (31) Total for month Discounts Allowed
(a) See text. 140
(b) The historical cost convention does not make the going concern convention
13.5 Bank
unnecessary. Several instances illustrate this: Balance b/d
(i) Fixed assets are depreciated over the useful economic life of the assets. M Baldwin 1,000 Newton & Ridley 4,050
G Platt 2,000 J Duckworth 125
This presupposes that the business will continue to operate during the Balance c/d Balance b/d
years of the assets’ assumed useful economic life. 250 4,175
(ii) Prepayments also assume that the benefits available in the future will be M Baldwin 925 925
able to be claimed, because the business is expected to continue. 4,175
(iii) Stocks are valued also on the basis that they will be disposed of during the 500
future ordinary running of the business. Discounts Allowed
(iv) The accruals concept itself assumes that the business is to continue. 500 Balance c/d
All of this shows that the two complement each other.
(c) Shareholders want financial statements so that they can decide what to do with
their shareholdings, whether they should sell their shares or hold on to them.
To enable them to decide upon their actions, they would really like to know
what is going to happen in the future. To help them in this they also would like
information which shows them what happened in the past. Ideally, therefore,
they would like both types of report, those on the past and those on the future.
If they had a choice, the logical choice would be to receive a report on the
future provided that it could be relied on.

M Baldwin 14.3

Balance b/d 2,500 Cash 2,000 Workings of invoices:
2,500 Discount 500 (1) F Gray 3 rolls white tape × 10 = 30
5 sheets blue cotton × 6 = 30
2,500 1 dress length × 20 = 20 80
Less trade discount 25% 60 20 60
250 (4) A Gray 6 rolls white tape × 10 = 120 180 120
G Platt 450 30 metres green felt × 4 = 60
Balance b/d 250 Cash Less trade discount 331/3% 100 20
Balance c/d 900 (8) E Hines 1 dress length black silk × 20 = 36 240 180
Discount Received (20) M Allen 10 rolls white tape × 10 = 60 60 160
450 Newton and Ridly 4,500 6 sheets blue cotton × 6 = 44
4,500 240 720
A Roberts 3 dress lengths black silk × 20 = 120 80 1,088
900 Bad debts 900 11 metres green felt × 4 = 84
Less trade discount 25% 36 910
Balance b/d 125 (31) B Cooper 12 rolls white tape × 10 = 180
768
Newton and Ridley 14 sheets blue cotton × 6 =
9 metres green felt × 4 =
Less trade discount 331/3%
Cash 4,050 Balance b/d
Discount 450
A Roberts Sales Day Book Sales Ledger
4,500 (1) F Gray
(4) A Gray 60 F Gray
(8) E Hines 120 (1) Sales 60
Bad debts (20) M Allen 20
900 Balance c/d (31) B Cooper 180 (4) Sales A Gray
120
General Ledger 160
Cash J Duckworth Sales Account 540 (8) Sales E Hines
125 Balance b/d (31) Total for month 20

(20) Sales M Allen
540 180
(31) Sales
14.1 Sales Day Book Sales Ledger B Cooper
(1) B Hope 160
(3) T Fine 310 B Hope
(6) L Moore 285 (1) Sales 310 15.1
(10) Sales 74
(10) B Hope 38 Workings of purchases invoices
(17) H Tor 74 T Fine (1) D Pope 4 DVDs × 60 = 240
(19) J Young 534 (3) Sales 285 3 mini hi-fi units × 240 = 720 960
(27) T Most 92
(31) R Best 44 L Moore Less trade discount 25% 240
112 38 560
Answers to review questions1,489(6) Sales(3) F Lloyd2 washing machines × 280 =400
400 1,360
677 (17) Sales H Tor 5 vacuum cleaners × 80 =
534 2 dishwashers × 200 = 272
600
General Ledger (19) Sales J Young Less trade discount 20% 640 1,240
Sales Account 92 (15) B Sankey 1 hi-fi unit × 600 =
310
(31) Total for (27) Sales T Most 2 washing machines × 320 = 270
month 1,489 44 Less trade discount 25%
90
(31) Sales R Best (20) J Wilson 6 CD/radios × 45 960
112 Less trade discount 331/3% 192

(30) R Freer 4 dishwashers × 240
Less trade discount 20%

15.1 (cont’d)
Purchases Day Book

(1) D Pope
(3) F Lloyd
(15) J Sankey
(20) J Wilson
(30) R Freer

General Ledger
Purchases Account
(31) Total for month
Appendix 1

678
720 Purchases Ledger 720 Purchases Ledger 240
1,088 D Pope 1,088 C Clarke

910 (1) Purchases 910 May 9 Purchases
180 F lloyd 180
768 768 A Charles 160
3,646 (3) Purchases May 16 Purchases
3,646 J Sankey 72
(15) Purchases 240 M Nelson 50
May 31 Purchases
J Wilson 81
(20) Purchases 393 (c) Sales
R Freer May 31 Credit sales for the month 405
(30) Purchases 240
160
15.3 Purchases Day Book Sales Day Book May 31 Credit purchases for Purchases
(1) Smith Stores 90 (8) A Grantley 50 the month 450
105 (15) A Henry 450
(23) C Kelly 180 (24) D Sangster (d) See text.
(31) J Hamilton 375

Purchases Ledger Sales Ledger
A Grantley
Smith Stores 72
(1) Purchases 90 (8) Sales A Henry
240 16.1 Purchases Day Book Purchases Ledger
C Kelly (23) Purchases 105 (15) Sales D Sangster (1) F Bean 324 F Bean
81 (4) A Clerk 216 (7) Returns 56 (1) Purchases 324
J Hamilton (4) B Lock 322 A Clerk
(31) Purchases 180 (24) Sales (4) F Turner 64 (7) Returns 28 (4) Purchases 216

General Ledger (4) G Rill 130 B Lock
(10) B Lock 140 (25) Returns 34 (4) Purchases 322
Sales Account (18) J Top 230 (10) Purchases 140
(31) Total for
month 393
(18) I Gray 310 F Turner
Purchases Account (18) F Low 405 (4) Purchases 64
(31) Total for
month 375 (18) P Able 180 (31) Purchases 74
(31) F Turner 174
15.5(a) Sales Day Book Purchases Day Book (31) T Burns 230 G Rill
May 1 M Marshall 45 May 9 C Clarke 2,725 (4) Purchases 130
200 16 A Charles
1 R Richards 160 31 M Nelson J Top
23 T Young 405 (18) Purchases 230

Returns Outwards Day Book I Gray

(7) F Bean 56 (25) Returns 140 (18) Purchases 310
(7) A Clerk 28 F Low
Sales Ledger (25) I Gray 140 (18) Purchases 405
M Marshall (25) B Lock 34 P Able
(b) 258 (18) Purchases 180
May 1 Sales 45
(31) Total for month General Ledger T Burns
May 1 Sales R Richards Purchases (31) Purchases 230
200
May 23 Sales 2,725
T Young
160 Returns Outwards 258
(31) Total for month

16.3 Sales Day Book Purchases Day Book 17.1
(3) P Potter (a) Van
(1) T Thompson 56 (3) H Harris 144 (b) Bad debts Dr 5,395 : Deedon Garage Cr 5,395
(1) L Rodriguez 148 (3) B Spencer 25 (c) Timewas Ltd Dr 81 : P Knight Cr 81
(1) K Barton 145 (9) B Perkins 76 (d) (i) Bank Dr 610 : Office furniture Cr 610
(7) K Kelly (9) H Harris 24 Dr 51 : R Twig Cr 51
(7) N Mendes 89 (9) H Miles 58 (ii) Bad debts Dr 269 : R Twig Cr 269
(7) N Lee 78 (17) H Harris (e) Drawings Dr 22 : Purchases Cr 22
(24) K Mohammed 257 (17) B Perkins 123 (f ) Drawings Dr 62 : Insurance Cr 62
(24) K Kelly 57 (17) L Nixon 54 (g) Machinery Dr 1,260 : Electrotime Ltd Cr 1,260
(24) O Green 65 65
(31) N Lee 112 75
55 17.3 The Journal Purchases Day Book
1,062 644 34,000 (2) S Hood
(1) Premises (2) D Main 145
Van 5,125 (2) W Tone 206
Fixtures 810 (2) R Foot
Returns Inwards Day Book Returns Outwards Day Book 6,390 (22) L Mole 96
(22) W Wright 66
(14) T Thompson 5 (11) P Potter 12 Stock 183
(14) K Barton 11 (11) B Spencer 22 Debtors: P Mullen 140 Sales Day Book 191
(14) K Kelly 14 (20) B Spencer 14 F Lane 310 (3) J Wilson 887
(28) N Mendes 24 48 Bank 6,240 (3) T Cole 112
54 (3) F Syme 164
Cash 560 (3) J Allen 208
Creditors: S Hood 215 (3) P White 91
Sales Ledger Purchases Ledger J Brown 460 (3) F Lane 242
(9) T Cole 90
(1) Sales T Thompson P Potter Capital 52,900 (9) J Fox 68
56 (14) Returns 5 (11) Returns 12 (3) Purchases 144 131
53,575 53,575 1,106
L Rodriguez H Harris
(1) Sales 148 (3) Purchases 25
(9) Purchases 58
(1) Sales K Barton (17) Purchases 54 (14) Van 4,850
145 (14) Returns 11 Abel Motors 4,850

(7) Sales K Kelly B Spencer
89 (14) Returns 14 (11) Returns 22 (3) Purchases 76
(24) Sales 65 (20) Returns 14

N Mendes B Perkins Returns Inwards Day Book Returns Outwards Day Book
78 (28) Returns 24 (9) Purchases 24
(7) Sales (11) J Wilson 32 (19) R Foot 6
(17) Purchases 65 (11) F Syme 48
(7) Sales N Lee H Miles 80
(31) Sales 257
(9) Purchases 123
55

K Mohammed L Nixon
(24) Sales 57 (17) Purchases 75
Answers to review questions
(24) Sales O Green
679 112

General Ledger

Purchases Sales
(31) Total for (31) Total for
month 1,062
month 644

Returns Inwards Returns Outwards
(31) Total for (31) Total for
month 54 month 48

17.3 (cont’d )
Appendix 1

680
J Brown Motor Expenses
(24) Bank & (1) Balance b/d (4) Cash 47
Trial Balance as at 31 May 20X9 disct 460 460
D Main 206
W Wright
(22) Purchases 191 W Tone 96
L Mole 183 (7) Cash Drawings
P Mullen W Wright 191 150
(16) Bank &
(1) Balance 140 disct 140 T Cole 232 D Main Salaries
J Allen 91 (2) Purchases 206 (27) Bank 480

W Tone Business rates
P White 242 (2) Purchases 96 (30) Bank 132
F Lane J Fox 131
(1) Balance 310 (16) Bank &
(3) Sales 90 disct 400 Capital 52,900 (19) Returns R Foot Sales
400 400 Storage 40 (24) Bank & 6 (2) Purchases 66 (31) Total for
month 1,106
Motor expenses 47 disct 60
Drawings 150 66 Purchases
480 66 (31) Total for
Salaries month 887
(3) Sales J Wilson 132
112 (11) Returns 32 Business rates
1,106 Sales Ledger

(16) Bank & Sales 887 (3) Sales T Cole Returns Inwards
disct 80 Purchases 164 (31) Total for
112 112 Returns inwards 80 (9) Sales 68 month 80
Returns outwards 6
Premises 34,000 (3) Sales F Syme Returns Outwards
Vans 9,975 208 (11) Returns 48 (31) Total for
(16) Bank & month 6
L Mole
(22) Purchases 183 Fixtures 810 disct 160
Stock 6,390 Premises
208 208 (1) Bal b/d 34,000
Discounts allowed 39
Discounts received 47 J Allen Vans
Bank 646 (3) Sales 91 (1) Bal b/d 5,125
(3) Sales P White (14) Better
Cash 363 (9) Sales 242 Motors 4,850
54,735 54,735 J Fox
131 Fixtures
Cash Book (1) Bal b/d 810

Disct Cash Bank Disct Cash Bank Stock
(1) Balances b/d 560 6,240 (1) Storage 40 (1) Bal b/d 6,390
(16) P Mullen 7 133 (4) Motor expenses 47
(16) F Lane 20 380 (7) Drawings 150 Discounts Allowed
(16) J Wilson 4 76 (24) S Hood 18 342 (31) Total for
month 39
(16) F Syme 8 152 (24) J Brown 23 437
(24) R Foot 6 54 Discounts Received
(27) Salaries 480 (31) Total for
month 47
(30) Business rates 132
(31) Abel Motors 4,850 Abel Motors 4,850
(31) Balance c/d 363 646 (31) Bank 4,850 (14) Van
39 560 6,981 47 560 6,981

Purchases Ledger General Ledger

S Hood Capital
(24) Bank & (1) Bal b/d 215 (1) Bal b/d 52,900
disc 360 (2) Purchases 145
(1) Bank Storage
360 360 40

18.1 Total Petty Cash Book Postages Stationery Travelling (c) Post and Stationery
(a) – (c) Cleaning Motor 18 17 12 (30) Petty cash 9.20
9 25 (30) Petty cash
Receipts Expenses 5 8 (9) Petty cash Travel Expenses
13 26 11.72
300 (1) Balance b/d 15 45 Courtney Bishop
22 5
(2) Postages 18 41 2.35
18 Telephone
(3) Travelling 12
23 (23) Petty cash
(4) Cleaning 15 0.68
43
(7) Petrol 22 18
21
(8) Travelling 25 14 18.4 Oakhill Printing Cost Ltd
77 97
(9) Stationery 17

(11) Cleaning 18 Receipts Date Details Total Travel Stationery Postage Miscellaneous Repairs/
Replacement
(14) Postages 5

(15) Travelling 8 19.37 May 1 Balance b/d

(18) Stationery 9 60.63 ′′ 1 Cash

(18) Cleaning 23 ′′ 1 Bus fares 0.41 0.41
′′ 2 Stationery 2.35 2.35
(20) Postages 13 ′′ 4 Bus fares 0.30 0.30
1.29
(24) Motor ′′ 7 Postage 1.70 0.42 1.70
0.95
service 43 ′′ 7 Trade 0.95 0.38
journal 5.63 3.45
(26) Petrol 18 ′′ 8 Bus fares 0.64 0.64 1.14 2.00
0.75
(27) Cleaning 21 ′′ 11 Tippex 1.29 0.46 1.50

(29) Postages 5 ′′ 12 Typewriter 3.07
0.78
(30) Petrol 14 ribbons 5.42 0.61 5.42
′′ 14 Parcel 3.45 16.80
286 ′′ 15 Paper clips 0.42
13.66
286 (31) Cash ′′ 15 Newspaper 2.00

(31) Balance c/d 300 ′′ 16 Photocopier 16.80
repair
586 586 ′′ 19 Postage 1.50

(d) See text. ′′ 20 Drawing
pins 0.38
18.2 ′′ 21 Train fare 5.40 5.40
(a) Briefly: To keep detail out of cash book. ′′ 22 Photo-paper 5.63
′′ 23 Display
To reduce postings to expense accounts. decorations 3.07
To enable petty cash to be kept by someone other than main cashier. ′′ 23 Tippex 1.14
′′ 25 Wrapping
(b) Petty Cash Book paper 0.78
Receipts
1.13 Total Post and Travel Ledger ′′ 27 String 0.61
23.87 expenses accounts ′′ 27 Sellotape 0.75
stationery ′′ 27 Pens 0.46
0.68 (1) Balance b/d 8.50 1.72 2.35
Answers to review questions(2) Cash0.7010.00′′ 28 Typewriter
25.68 9.20 11.72 2.35 repairs 13.66
2.41681 (4) Postages 8.50 ′′ 30 Bus fares 2.09 2.09
′′ 31 Balance c/d 8.80
22.59 (9) Courtney Bishop 2.35
(11) Bus fares 1.72
(17) Envelopes 0.70 80.00 80.00 8.84 12.42 6.65 7.41 35.88

(23) Telephone reimbursed 8.80 June 1 Balance b/d
(26) 10.00 71.20 ′′ 1 Cash
23.27
(30) Balance c/d 2.41
25.68

(1) Balance b/d
(1) Cash

Sales Day Book
Appendix 1

682
19.1 £ 19.4 Net VAT
(a) Style of invoice will vary. 2,430 (1) A Bell 220 22
(4) D Player and Co 380 38
Calculations: 300 (16) D Player and Co
3 sets of Tiger Gold Golf Clubs × £810 1,080 (31) P Green 80 8
150 Rose golf balls at £20 per 10 balls 3,810 30 3
4 Daly golf bags at £270 1,270 710 71
2,540 VAT
Less trade discount 331/3% Purchases Day Book 51
254 27
Add VAT 10% 2,794 (10) F Loy and Partners Net 9
(10) R Dixon Ltd 510 14
(b) F Marr Ltd Ledger £ (14) G Melly 270 101
20X7 M Low & Son 2,794 (23) E Flynn
May 1 Sales £ Net VAT 90 561
2,794 210 21 140 297
19.3 430 43 1,010
20X9 M Low & Son Ledger 120 12 99
Aug 1 G Clark Ltd F Marr Ltd 60 6 Sales Ledger 154
20X7 820 82 710
′′ 8 P Main May 1 Purchases (1) Sales A Bell and Co
′′ 19 W Roy Ltd 242 71
′′ 31 F Job Sales Day Book 30
(4) Sales D Player and Co 101
(1) Sales Sales Ledger 418
(8) Sales G Clark Ltd (16) Sales 88
(19) Sales 231
(31) Sales (31) Sales P Green
P Main 33
473
W Roy Ltd Purchases Ledger
132
F Loy and Partners
F Job (10) Purchases
66
R Dixon Ltd
(10) Purchases

G Melly
(14) Purchases

E Flynn
(23) Purchases

General Ledger

Sales
(31) Credit sales for month

Purchases
(31) Credit purchases for month 1,010

Value Added Tax
(31) VAT content in Purchases (31) VAT content in Sales
Day Book 101 Day Book
(31) Balance c/d
101
General Ledger
Sales
(31) Credit sales for the month 820

Value Added Tax
(31) Sales Day Book: VAT content 82

19.6 Sales Day Book Value Added Tax 1,049
(a) 20X7
Name and Details List price less VAT Total Feb 28 Total for month
Date trade discount £p
57 60 M Long
20X9 £p 300 – £ p Feb 1 Sales 4,290
Mar 9 Neville’s Electrical 576 – 36 80 633 60 ′′ 7 ′′ 2,684
3,000 – 3,300
′′ 17 Maltby plc 368 – 404 – Feb 2 Sales F Ray
′′ 29 Neville’s Electrical 4,338 80 ′′ 7 ′′ 1,210
40 1,826
3,944 – 394 40 Feb 3 Sales
Feb 5 Sales M Tom
(b) Neville’s Electrical 1,078
20X9
Mar 9 Sales 633.60 T John
Mar 29 Sales 404.80 451
20X9
Mar 17 Sales Maltby plc 20.2 F Wayne Motor Stationery Carriage
Purchases Analysis Book Exps Inwards
(c) 3,300.00 20X6 Total Purchases Light 46
Neville’s Electrical Sales July 192 14 54
Maltby plc 20X9 & Heat 124 60 44
Sales Mar 31 Sales Day Book ′′ 98
Value Added Tax 3,944.00 ′′ 1 G Hope 560 560 91 104
20.1 Value Added Tax 394.40 ′′ 3 B Smith 420 420 88 420
20X7 20X9 Cr ′′ 4 Scottish Gas 373 18
Feb 1 M Long Mar 31 Sales Day Book ′′ 5 F Loy 91
′′ 2 F Ray 3,944.00 ′′ 6 Bright Body Shop 373 265 197
′′ 3 M Tom Trial Balance as at 31 March 20X9 394.40 ′′ 8 Light Letters 192 296
′′ 5 T John Dr ′′ 10 Pope Garage
′′ 7 F Ray 4,338.40 ′′ 12 Scottish Gas 46 218
′′ 7 M Long 1,038.40 ′′ 15 B Bill 124 2,132
3,300.00 ′′ 17 G Fyfe
′′ 18 T Tully 88
4,338.40 ′′ 19 Rapid Flight Ltd 265
′′ 21 K Frank
Columnar Sales Day Book ′′ 24 F Loy 18
27 Couriers Ltd 296
Inv Total VAT Music TV Kitchen 31 Pope Garage
Dept Dept 54
No Dept 3,900 14
403 4,290 390 410 218
404 1,210 110 1,100 980 410 44
1,660 104
6,540 Kitchen 2,907
410
Answers to review questions405 1,07898TV
6,540
683
406 451 41 20.3
407 1,826 166 General ledger: Purchases Dr 2,132; Lighting and heating Dr 197;
408 2,684 244 2,440
11,539 1,049 3,540 Motor expenses Dr 420; Stationery Dr 60;
Carriage inwards Dr 98.
Purchases ledger: Credits in personal accounts should be obvious.

General Ledger

Sales Music 21.1 200
20X7 Gross pay 27
Feb 28 Total Less: Income tax 16 43
for month 3,540
National Insurance 157
Net pay

Appendix 123.4
See text.
684
21.2 160 24.1
Gross pay 40 × 4 30 190 (a) Per text.
25 (b) Capital: (i), (ii), machine part of (v), (vi).
5×6 17 42
Less: Income tax* 148 Revenue: (iii), (iv), drinks part of (v).

National Insurance
Net pay

*190 − 80 = 110. First 50 × 20% = 10 + (60 × 25%) 15 = total 25.

21.3 200 24.3
Salary 600 Capital: (a), (c), (e), (g); Revenue: (b), (d ), (f )
Commission 800
Gross pay 85 24.5
Less: Income tax* 66 151 Capital: (a), (b), (e).
649
National Insurance 24.7
Net pay Capital: (a), (c), (d ), (f ), (j), (l); Revenue: (b), (e), (g), (h), (i), (k).

*800 − 450 = 350. First 50 × 20% = 10 + (300 × 25%) 75 = total 85. 24.9
(a) Per text.
21.4 2,000 (b) Microcomputer – acquisition cost 4,000
Salary 400 340
Bonus Basic cost
2,400 Installation and testing 4,340
Less 120 217
Superannuation 450 Less 5% discount
Income tax* 190 760 4,123
National Insurance Special wiring 110
1,640 Modifications 199
Staff training 990
*2,400 − 120 − 430 = 1,850. First 250 × 20% = 50 + (1,600 × 25%) 400 = 450. Total cost
5,422

22.1 (c) 1. Revenue. 2. Capital. 3. Capital. 4. Revenue. 5. Revenue.
See text. 6. Revenue. 7. Capital. 8. Revenue. 9. Capital. 10. Capital.

22.2 24.11 Wooden store shed 850
See text. Balance b/d 850 Wooden stove shed disposal
Balance b/d
22.3 Wages Office buildings
See text. Materials 179,500
Wages
23.1 Materials 109
See text. 109

23.2 Office buildings repairs
See text. 181
351
23.3
See text.

Wooden store shed disposal New store 25.1 Bad Debts 959
Materials 100 20X7 20X7 959
Wages 4,750 May 31 S Gill & Son 410
Direct expenses 3,510 Sep 30 H Black Ltd 340 Dec 31 Profit and loss
Nov 30 A Thom 463 14,010
85 156
959 680
320
Wooden store shed Wooden store shed disposal 180 Provision for doubtful debts 352
Bank 850 Bank 100 20X7 672
265 New store Dec 31 Profit and loss
16,128
24.12 Plant at Cost Bad debts Profit and Loss (extracts)
(a) Provision for doubtful debts 959 405
410 405
Balance 1 April 20X5 372,000 604
Add Acquisitions during year 96,000 Debtors Balance Sheet as at 31 December 20X7 (extract) 604
14,420
468,000 Less: Provision for doubtful debts 410
Less Disposals (36,000 + 4,000 + 4,400) 44,400 Bad debts
Balance 31 March 20X6
(b) Provision for Depreciation of Plant 423,600 25.2 Bad debts
Balance 1 April 20X5 205,400 (a) 20X8
Less Depreciation on disposals (W1) 20X8
25,200 Dec 31 Various 680 Dec 31 Profit and loss
Add Provision for year 20% × (423,600 − 180,200) 180,200 Provision for doubtful debts
Balance 31 March 20X6 (b)
48,680 Dec 31 Balance c/d 672 Jan 1 Balance b/d
Plant Sold 228,880 Dec 31 Profit and loss
Cost: year to 31 March 20X2 20%
Depreciation: year to 31 March 20X2 20% 40,000 672
8,000
Depreciation: year to 31 March 20X3 20% (c) Profit and Loss (extracts)
20% 32,000
Addition 6,400 Bad debts 680
Provision for doubtful debts 352
25,600
Depreciation: year to 31 March 20X4 4,400 (d ) Balance Sheet (extract)
Debtors
Depreciation: year to 31 March 20X5 30,000 Less provision for doubtful debts 16,800
6,000 672

24,000
4,800

19,200

(W1) Depreciation accumulated: 8,000 + 6,400 + 6,000 + 4,800 = 25,200. 25.3
(c) Sale of plant Answers to review questions13,700(i)Bad Debts
44,400 20X7 20X7
685 May 31 F Lamb
Less Cost (40,000 + 4,400) 25,200 Oct 31 A Clover 175 Dec 31 Profit and loss
Depreciation 230
Book value at date of sale 19,200 20X8 405
Loss on disposal 5,500 Jan 31 D Ray
Jun 30 P Clark 20X8
24.14 Oct 31 J Will 190 Dec 31 Profit and loss
Classifying something as a capital expense rather than a revenue expense increases
fixed assets, reduces expenses and so increases net profit (and so also increases 75
capital). This makes the business look more profitable than it should and also makes 339
it look in a better financial state than it should (as fixed assets have increased). 604
Misclassifying expenditure in this way is misleading to users of the financial
statements.

25.3 (cont’d )
20X7
Dec 31 Balance c/d
Appendix 1

686
Provision for Doubtful Debts 25.7
20X7
Dec 31 Profit and loss (a) Provision for Doubtful Debts
20X8 640 20X8 20X7
70 May 31 Profit and loss (W1) 1,390 Jun 1 Balance b/d 2,300
710 Dec 31 Profit and loss ′′ 31 Balance c/d 910 2,300
710 710 2,300
20X8 910
(ii) Balance Sheet (extracts) 20X8 Jun 1 Balance b/d
20X7 57,890 594
Debtors 52,400 58,600 (b) Provision for Discounts Allowed 2,300
Less Provision for doubtful debts 640 51,760 710 20X8
May 31 Profit and loss (W2) 910
1,390
25.5 Workings 23,760
20X7 (W1) Provision 1.6.20X7
Dec 31 Balance c/d Provision for Doubtful Debts Less Provision 31.5.20X8 1% × 24,000 240
20X7 2% × 10,000 200
20X8 400 4% × 8,000 320
Dec 31 Balance c/d 500 Jan 1 Balance b/d 100 5% × 3,000 150
Dec 31 Profit and loss 500
20X9 500 Reduction in Provision
Dec 31 Profit and loss 500 100
Dec 31 Balance c/d 20X8 600 (W2) Debtors liable for discounts 24,000
600 Less Provision for doubtful debts 240
600 Jan 1 Balance b/d 600 Provision for discounts allowed 21/2% × 23,760 = 594
Dec 31 Profit and loss
25.9 Bad Debts 1,400
600 (days and months omitted) 1,400 20X6 Profit and loss 2,200
20X9 (a) 2,200 20X7 Profit and loss 3,800
20X6 Debtors 3,800 20X8 Profit and loss
200 Jan 1 Balance b/d
400 20X7 Debtors
600
20X8 Debtors
Profit and Loss Account Extract for the year ending 31 December
20X7 xxx (b) Bad Debts Recovered 210
100 20X7 Profit and loss 210 20X7 J Sweeny 320
Gross profit 240 20X8 Profit and loss 320 20X8 Various debtors
Less Expenses xxx
100 (c) Provision for Doubtful Debts 2,600
Provision for doubtful debts 310 20X7 Balance c/d 20X6 Profit and loss 1,080
Bad debts xxx 20X8 Profit and loss 3,680
200 20X8 Balance c/d 3,680 20X7 Profit and loss 3,680
20X8 xxx 3,680
Gross profit 580 3,680
Less Expenses 80 20X8 Balance b/d
3,600
Provision for doubtful debts 3,680
Bad Debts
(d) Profit and Loss Account (extracts)
20X9 (20X6) Bad debts 1,400
Gross profit Provision for doubtful debts 2,600
Add Reduction in provision for doubtful debts (20X7) Bad debts 2,200 (20X7) Bad debt

Less Expenses
Bad Debts

Provision for doubtful debts 1,080 recovered 210
(20X8) Bad debts 3,800 (20X8) Reduction in provision 80
for doubtful debts
Bad debt recovered 320

25.10 Provision for Doubtful Debts 26.2 8,000 (b) Reducing Balance 8,000
(A) See text. 20X7 (a) Straight Line 1,120 Cost 1,600
(B) See text. Cost 6,880 Yr 1 Depn 20% of 8,000 6,400
(C) (1) (i) 33 Jan 1 Balance b/d Yr 1 Depreciation* 1,120 Yr 2 Depn 20% of 6,400 1,280
20X7 717** 5,760 Yr 3 Depn 20% of 5,120 5,120
Dec 31 Profit and loss 750 750* Yr 2 Depreciation 1,120 Yr 4 Depn 20% of 4,096 1,024
750 4,640 Yr 5 Depn 20% of 3,277 4,096
′′ ′′ Balance c/d 3,800 1,120
3,800 3,520 819
Yr 3 Depreciation 1,120 3,277
2,600 2,400
(ii) Bad Debts 1,170 Yr 4 Depreciation 655
20X7 1,430 2,622
900 Dec 31 Profit and loss Yr 5 Depreciation
? Debtors – A Stewart 2,300 644**
? Debtors 786 *8,000 − 2,400
Dec 31 Debtors – J Smith 600 354 5
3,800 432
194 = 1,120
238
(2) the net profit will increase by £33.

*3% 25,000 = 750; **3% 23,900 26.3
(a) Reducing Balance
26.1 2,600 Reducing Balance Cost 9,600 (b) Straight Line 9,600
Straight Line 600 Cost Yr 1 Depn 35% of 9,600 3,360 Cost 2,333
Cost Yr 1 Depn 45% of 2,600 6,240 Yr 1 Depreciation* 7,267
Yr 1 Depreciation* 2,000 Yr 2 Depn 45% of 1,430 Yr 2 Depn 35% of 6,240 2,184 Yr 2 Depreciation 2,333
Yr 2 Depreciation 600 Yr 3 Depn 45% of 786 4,056 Yr 3 Depreciation 4,934
Yr 3 Depreciation Yr 4 Depn 45% of 432 Yr 3 Depn 35% of 4,056 1,420 2,333
Yr 4 Depreciation 1,400 2,636 2,601
600 **rounded up from 643.5
*2,600 − 200 = 2,400 ÷ 4 = 600 800 *9,600 − 2,600 = 2,333
600 3
200

26.7 Machines
B
Bought 1.1.20X6 15% for 12 months A C
20X6 Depreciation 2,000 4,000
200 3,000
Bought 1.9.20X7 15% × 1,700 300 300
20X7 Depreciation 1,700 3,800
Answers to review questions2,700
255 570
687 1,445 3,230
′′ 15% for 4 months
217
Bought 1.4.20X8 15% × 1,445
20X8 Depreciation 15% × 3,800 1,662
15% for 8 months
′′
′′

20X8 Total depreciation provision 217 + 570 + 300 = 1,087

Motor Vehicle
12,000
Appendix 1

688
26.8 27.2 Machinery 1,400
20X6 (a) 20X3 3,600
Jan 1 Trucks Ltd 20X3
Jan 1 Bank 1,400 Dec 31 Balance c/d 3,600
Accumulated provision for depreciation on motor vehicles 20X4 20X4 3,600
20X6 20X6 Jan 1 Balance b/d 4,000
Dec 31 Balance c/d 3,000 Dec 31 Depreciation 3,000 Jul 1 Bank 1,400 Dec 31 Balance c/d 4,000
3,000 Oct 1 Bank 1,200
20X7 5,250 20X7 2,250 1,000
Dec 31 Balance c/d 5,250 Jan 1 Balance b/d 5,250 20X5 3,600
Dec 31 Depreciation Jan 1 Balance b/d
7,000 20X6 20X5
Jan 1 Balance b/d 3,600 Dec 31 Balance c/d
23,660 Apr 1 Bank
26.9 Ivor Innes 30,660 3,600 20X6
Balance Sheet as at 31 March 20X8 34,900 400 Dec 31 Balance c/d
Fixed Assets 18,000
Fixtures 52,900 4,000
Current Assets 22,240
Stock 19,000 30,660 (b) Provision for Depreciation: Machinery 140
Debtors 4,440 20X3 20X3 140
Bank 8,320 21,100 Dec 31 Balance c/d 225*
Cash 700 21,100 20X4 140 Dec 31 Profit and loss 365
4,200* Dec 31 Balance c/d 365
Less: Current liabilities–Creditors 32,460 20X4 360
8,800 20X5 365 Jan 1 Balance b/d 725
Dec 31 Balance c/d 725
Dec 31 Profit and loss 390**
20X6 365 1,115
Dec 31 Balance c/d
Capital 20X5
Balance at 1 April 20X7* 725 Jan 1 Balance b/d
Capital introduced
Less: Net loss Dec 31 Profit and loss
725
Drawings
10,840 1,115 20X6
11,400 1,115 Jan 1 Balance b/d
Dec 31 Profit and loss

*840 + 7,600 + 5,500 + 17,800 + 8,360 − 5,200 = 34,900 *1,400 × 10% = 140
1,200 × 10% × 1/2 = 60
27.1 1,000 × 10% × 1/4 = 25
20X5 225
Jan 1 Bank
Aug 1 Bank Vans **3,600 × 10% = 360
20X5 400 × 10% × 3/4 = 30
390
13,800 Dec 31 Balance c/d
7,200 (c) Balance Sheet Extracts

21,100

Provision for Depreciation: Vans 31 December 20X3 31 December 20X5
20X5 Machinery at cost 1,400 Machinery at cost 3,600
20X5 Less Depreciation 140 1,260 Less Depreciation to date 725 2,875
Dec 31 Balance c/d 4,200 Dec 31 Profit and loss 31 December 20X4 31 December 20X6 2,885

*13,800 × 25% = £3,450 Machinery at cost 3,600 Machinery at cost 4,000
7,200 × 25% × 5/12 = 750 Less Depreciation to date 365 3,235 Less Depreciation to date 1,115
4,200

27.4 Plant 4,700 Plant at cost Balance Sheets 20X5 20X6 20X7
20X4 20X4 4,700 Less depn to date 20X4 4,700 7,500 4,900
Jan 1 Bank 7,500 4,700 1,956 3,364 2,639
Oct 1 Bank 2,600 Dec 31 Balance c/d 7,500 781 2,744 4,136 2,261
2,100 2,600 3,919
20X6 4,700 4,900
Jan 1 Balance b/d 7,500
Jul 1 Bank 4,700 20X6 781* 27.5 Machinery
2,800 Dec 31 Balance c/d 20X9 20X9
20X7 7,500 781 Jan 1 Balance b/d
Jan 1 Balance b/d 1,175 Dec 31 Bank 94,500 Dec 31 Machinery disposals 1,600
20X7 1,956 16,000 ′′ 31 Balance c/d 108,900
7,500 Sep 30 Disposals 1,956 110,500 110,500
7,500 Dec 31 Balance c/d 1,408*
3,364 Office Furniture
20X4 Provision for Depreciation: Plant 20X9 20X9 3,660
Dec 31 Balance c/d 20X4 3,364 Jan 1 Balance b/d 3,660
1,658* Dec 31 Bank 3,200 Dec 31 Balance c/d
781 Dec 31 Profit and loss 5,022 460

2,383 3,660
810
2,600 × 25% = 650 Provision for Depreciation: Machinery
3,193 20X9 20X9
2,100 × 25% × 3/12 = 131.25 Dec 31 Machinery disposals 1,280 Jan 1 Balance b/d 28,350
781 21,780
′′ 31 Balance c/d 48,850 Dec 31 Profit and loss 50,130
20X5 20X5 50,130
Dec 31 Balance c/d 1,956 Jan 1 Balance b/d
1,956 Dec 31 Profit and loss
3,364 20X6 Provision for Depreciation: Office Furniture
3,364 Jan 1 Balance b/d 20X9 20X9
20X6 Dec 31 Profit and loss Dec 31 Balance c/d 1,646 Jan 1 Balance b/d 1,280
Dec 31 Balance c/d Dec 31 Profit and loss 366

1,646 1,646

*4,700 × 25% = 1,175 20X9 Machinery Disposals
20X9
2,800 × 25% × 4/12 = 233.33 Dec 31 Machinery 1,600 Dec 31 Provision for deprn 1,280
1,408 360
′′ 31 Profit and loss: Gain on sale 40 ′′ 31 Bank
1,640 1,640
20X7 2,383 20X7
Sep 30 Disposals 2,639 Jan 1 Balance b/d
Dec 31 Balance c/d 5,022 Dec 31 Profit and loss
Answers to review questions

689
Machinery at cost Balance Sheet as at 31 December 20X9 108,900

*2,600 × 25% × 8/12 = 433.33 Less Depreciation to date 48,850 60,050
2,100 × 25% = 525 2,014
2,800 × 25% = 700 Office furniture at cost 3,660
1,658 Less Depreciation to date 1,646

20X7 Plant Disposals 27.6
Sep 30 Plant 20X7 £2,500 and £8,500.
Dec 31 Profit and loss 2,600 Sep 30 Provn for depn

593 ′′ 30 Bank
3,193

Appendix 1

690
27.8 Asset Disposals 5,000
(a) (i) Time factor (ii) Economic factors (iii) Deterioration physically (iv) Depletion. Year 3 Fixed asset 10,000 Year 3 Bank 6,400
(b) (i) Depletion (ii) Physical deterioration (iii) Time (iv) Not usually subject to ′′ 3 Profit and loss 1,400 ′′ 3 Provision for depn. 11,400
11,400
depletion, but depends on circumstances (v) Economic factors, obsolescence for
example (vi) Time factor. (b) (i) The purpose of depreciation provisions is to apportion the cost of a fixed
asset over the useful years of its life to the organisation.
(c) Equipment 36,000 The matching concept concerns the matching of costs against the revenues
Balance b/d 135,620 Asset disposals 147,420 which those costs generate. If the benefit to be gained is equal in each year then
Bank 183,420 the straight line method is to be preferred. If the benefits are greatest in year
Balance b/d 47,800 Balance c/d 1 and then falling year by year, then the reducing balance method would be
183,420 preferred. The impact of maintenance costs of the fixed asset, if heavier in
147,420 later years, may also give credence to the reducing balance method.

Asset disposals Provision for Depreciation – Equipment 81,374 (ii) The net figure at the end of year 2 is the amount of original cost not yet
Balance c/d 28,224 Balance b/d 37,708 expensed against revenue.
90,858 Profit and loss 119,082
90,858 (c) The charge in year 1 should be nil in this case. The matching concept concerns
119,082 matching costs against revenues. There have been no revenues in year 1, therefore
Balance b/d there should be no costs.

Equipment Asset Disposals 28,224 27.12 Your letter should include the following:
36,000 Provision for depreciation 5,700 l depreciation is an expense
2,076 l it allows the expense of an asset to be spread over its useful economic life.
Bank l it is only a book figure and therefore ‘real’ money is not set aside when you
Profit and loss 36,000
36,000 depreciate an asset.
l it is not a reserve, and never can be as there are no assets of the business
27.10
underpinning it.
(a) (i) Straight line depreciation method

Fixed Asset
Year 1 Bank 10,000 Year 3 Asset disposals 10,000

Provision for Depreciation 2,000 27.14
Year 1 Profit and loss 2,000
Year 2 Balance c/d 4,000 (a) (a) 20X1 Machines Dr Cr
Year 3 Asset disposals 4,000 Year 2 Profit and loss 4,000 20X2 XY Manufacturing Co 15,000 15,000
4,000 20X3
4,000 Year 3 Balance b/d 5,000 Depreciation 2,000 2,000
4,000 Acc. provn for depn-m/c 2,000 2,000
Asset Disposals 1,000
Year 3 Fixed asset 10,000 Year 3 Bank 10,000 Depreciation 11,000
Acc. provn for depn-m/c
′′ 3 Provision for depn. 10,000 15,000
′′ 3 Profit and loss (b) Balance Sheet extract as 30 September 20X3
10,000 4,000 Machine
2,400
(ii) Reducing balance method 6,400 (b) (a) Machine
6,400 20X4 20X4
Year 1 Bank Fixed Asset Oct 1 Balance b/d
10,000 Year 3 Asset disposals 15,000 Oct 1 Machine disposal

Provision for Depreciation Accumulated Provision for Depreciation-Machine
Year 1 Profit and loss
Year 2 Balance c/d 6,400 ′′ 2 Profit and loss 20X4 20X4 6,000
Year 3 Asset disposals Oct 1 Machine disposal 6,000 Oct 1 Balance b/d
6,400

6,400 Year 3 Balance b/d

Machine Disposal 20X8 3,600 20X8 9,200
20X4 20X4 Feb 4 Machinery disposal 2,400 Jan 1 Balance b/d 4,800
Oct 1 Machine 15,000 Oct 1 Acc provision for 6,000 Oct 11 Machinery disposal 7,000 Dec 31 Depreciation 13,000
depreciation 7,500 Dec 31 Balance c/d 13,000
′′ 1 Cash
20X5
15,000 Sept 30 Profit and loss 1,500 Machinery Disposal
15,000
(b) 20X7 20X7
Oct 7 Machinery 10,000 Oct 7 Accumulated provision
Machine Account and Accumulated Provision for Depreciation Account are as in (a) 20X8 for depreciation 4,000
Feb 4 Machinery
Machine Disposal Oct 11 Machinery 7 Bank 5,500
20X4 20X4
Oct 1 Machine 15,000 Oct 1 Acc provision for Dec 31 Profit and loss (loss 500
on sale)
depreciation 6,000 10,000 10,000
′′ 1 Cash 12,000
20X5 20X8
Sept 30 Profit and loss 6,000 Feb 4 Accumulated provision
3,000 12,000 for depreciation 3,600
18,000 18,000 18,000
4 Bank 3,000
Oct 11 Accumulated provision
27.16 Machinery for depreciation 2,400
20X5 20X5 11 Machinery 7,000
Jan 1 Bank 16,000 Dec 31 Profit and loss (loss on
July 1 Bank 10,000 Dec 31 Balance c/d 16,000 disposal) 2,000
6,000
24,000 18,000
16,000 24,000

20X6 16,000 20X6 10,000 X Y Ltd
Jan 1 Balance b/d 8,000 Dec 31 Balance c/d 26,000
March 31 Bank 36,000 Balance Sheet extract as at 31 December
24,000 20X7
6,000
20X7 24,000 20X7 12,000 Machinery at cost 26,000
Jan 1 Balance b/d 12,000 Oct 7 Machinery disposal 24,000 Less: Accumulated depreciation 9,200
Nov 5 Bank 36,000 Dec 31 Balance c/d 42,000
16,800
Machinery at cost 20X8 24,000
Less: Accumulated depreciation
20X8 26,000 20X8 7,000
Jan 1 Balance b/d 9,000 Feb 4 Machinery disposal 17,000
Feb 6 Bank 7,000 Oct 11 Machinery disposal
Oct 11 Machinery disposal Dec 31 Balance c/d
42,000
Answers to review questions27.18
20X4
691 Jan 1 Balance b/d
20X5 Accumulated provision for depreciation Mar 1 Bank Plant and machinery 200,000
20X5 20X4 200,000
Dec 31 Balance c/d 3,200 Dec 31 Depreciation 3,200 20X5 200,000
3,200 Jan 1 Balance b/d 180,000 Dec 31 Balance c/d
4,800 20X6 20,000 20,000
8,000 Jan 1 Balance b/d 180,000
8,000 200,000 200,000
5,200
20X6 8,000 20X6 13,200 20X5
Dec 31 Balance c/d 8,000 Jan 1 Balance b/d 200,000 Dec 31 Balance c/d
Dec 31 Depreciation
20X6
20X7 4,000 20X7 200,000 Jan Plant and machinery
Oct 7 Machinery disposal 9,200 Jan 1 Balance b/d 200,000
Dec 31 Balance c/d 13,200 Dec 31 Depreciation disposal
Dec 31 Balance c/d

27.18 (cont’d ) (e)
20X4 20X6
Dec 31 Balance c/d Jan 1 Owing b/d
Appendix 1Dec 31 Profit and loss

692 28.3
Accumulated provision for depreciation 70,000 20X8 Rent Received 1,400
20X4 26,000 Jan 1 Balance b/d 20X6 185
96,000 Dec 31 Bank
96,000 Jan 1 Balance b/d 96,000 *1,920 × 3/12 = 480 175 Dec 31 Cash and bank 1,585
Dec 31 Depreciation 20,800 20X8 1,410 ′′ 31 Owing c/d 1,650
116,800 Jan 1 Balance b/d 1,585
96,000 116,800 Dec 31 Bank Business Rates 480*
13,800 2,130
20X5 116,800 20X5 130,600 ′′ 31 Owing c/d 20X8
Dec 31 Balance c/d 116,800 Jan 1 Balance b/d 210 Dec 31 Profit and loss 3,379
Dec 31 Depreciation 7,200 28.5 1,920 ′′ 31 Prepaid c/d 63
14,000 (a) 2,130
20X6 7,200 20X6 21,200 20X0 690
Jan Plant and machinery 123,400 Jan 1 Balance b/d Jan 1 Prepaid b/d Packing Materials 4,132
130,600 Dec 31 Depreciation* 913 Dec 31 Bank 20X8 1,236
disposal 913
Dec 31 Balance c/d 20X1 740 Dec 31 Profit and loss 345
68 Jan 1 Prepaid b/d 3,150 ′′ 31 Cash: Scrap 1,581
*180,000 − (116,800 − 7,200) − 30,000 = 41,400 ÷ 3 = 13,800 772 20X0
840 Dec 31 Cash 242 ′′ 31 Stock c/d 306
Plant and Machinery Disposal 4,132 15,113
20X6 20X6 ′′ 31 Accrued c/d 15,419
Jan Plant and machinery 20,000 Jan Acc provn for depn Insurance
Dec 31 Profit and loss 1,200 Bank 20X0 419
21,200 36
562 Dec 31 Profit and loss
28.1 Motor Expenses 110 20X0 1,019 ′′ 31 Prepaid c/d 2,600
(a) 20X6 505 Dec 31 Profit and loss 1,581 105
20X6 615
Dec 31 Cash and bank 819 Dec 31 Profit and loss 345 2,741
94 Wages
′′ 31 Owing c/d 120 20X1 20X0
(b) 913 1,674 Jan 1 Arrears b/d
20X6 Insurance 1,794 15,000 Jan 1 Accrued b/d
Dec 31 Cash and bank 419 Dec 31 Profit and loss
20X6
(c) 840 Dec 31 Prepaid c/d 15,419
20X6 20X1
Dec 31 Cash and bank ′′ 31 Profit and loss Jan 1 Accrued b/d
840
′′ 31 Owing c/d Stationery Rent Receivable
(d ) 20X0
20X6 20X6
Jan 1 Prepaid b/d 370 Jan 1 Owing b/d 2,741 Jan 1 In advance b/d
Dec 31 Cash and bank 245 Dec 31 Profit and loss Dec 31 Bank
615 ′′ 31 Arrears c/d
Business Rates
2,741
20X6 105
140 Dec 31 Prepaid c/d
1,654 ′′ 31 Profit and loss
1,794

(b) Profit and Loss (extract) Balance Sheet as at 28 February 20X7
Insurance 1,236
Wages Fixed assets 2,900 2,520
Rent receivable 15,113 Office furniture 380 2,500
( 2,741) Less Depreciation 5,020
Delivery van 3,750
(c) (i) Expenses accrued increases the amount charged as expense for that period. Less Depreciation 12,316 1,250 13,217
It reduces the recorded net profit. It shows as a current liability in the 496 2,400 18,237
balance sheet. Current assets 11,820 11,400
Stock 5,245 23,937
(ii) Income received in advance reduces the revenue to be recorded for that Debtors 412 230 35,337
period. It reduces the recorded net profit. It shows as a current liability in Less Provision for doubtful debts 4,100 17,100
the balance sheet. Prepaid expenses 18,237
Cash at bank 324
(d) (i) To match up expenses charged in the profit and loss account with the Cash in hand 18,874 4,800
expense cost used up in the period. 4,800
Less Current liabilities 5,657
(ii) To match up revenue credited to profit and loss with revenue earned for the Creditors 400
period. Expenses owing (340 + 72) 300
1,300
28.8 R Giggs Net current assets 1,600
Trading and Profit and Loss Account for the year ended 28 February 20X7

Sales 4,120 157,165 Financed by:
Less Cost of goods sold: 92,800 94,520 Capital
Opening stock 96,920 62,645
Add Purchases 160 Balance at 1.3.20X6
Less Closing stock 2,400 62,805 Add Net profit
Gross profit 31,740 Less Drawings
Add Discounts received
Less Expenses: 3,170 28.9 Rent
Wages and salaries (31,400 + 340) 820 Aug 31 Balance b/d 4,400 Aug 31 Profit and Loss
Rent (3,400 − 230) 687
Discounts allowed 730 ′′ 31 Accrual c/d 400
Van running costs (615 + 72) 91 4,800
Bad debts Aug 31 Balance b/d
Doubtful debt provision 380 1,630 38,868 Sept 1 Prepaid b/d Sept 1 Accrual b/d
Depreciation: 1,250 23,937
Rates
Office furniture 1,600 Aug 31 Prepaid c/d
Delivery van
Net profit ′′ 31 Profit and loss
1,600

300
Answers to review questions

693

28.9 (cont’d )
Appendix 1

694
28.11 John Brown

Trading Profit and Loss Account for the year ending 31 August 20X8 Trading and Profit and Loss Account for the year ended 31 December 20X7

Sales 40,900 Sales 400,000
Less Cost of goods sold Less Returns in 5,000
Opening stock 8,200 Less Cost of goods sold
Add Purchases 26,000 100,000 395,000
34,200 Stock at 1.1.20X7 343,800 323,800
Less Closing stock 9,100 Add Purchases 350,000 443,800
Gross profit 25,100 Less Returns out 6,200 120,000 71,200
Less Stock at 32.12.20X7
15,800 Gross profit 35,000 52,100
Less Wages 5,500 19,100
Less expenses: 4,800 Rates 1,220
Rent 1,300 Telephone 200
Business rates Bad debts 180
Sundry expenses 340 Provision for doubtful debts 4,000
Depreciation 1,800 Depreciation: Shop fittings 6,000

Net profit Balance Sheet as at 31 August 20X8 8,240 Van
Fixed Assets 7,560 Net profit
9,000
Motor vehicles 3,000 Balance Sheet as at 31 December 20X7
Less Depreciation 6,000
Current Assets 1,160 Fixed assets 40,000 36,000
Debtors 9,100 9,560 Shop fittings at cost 4,000 24,000
Stock 1,500 15,560 Less Depreciation 60,000
Bank Van at cost 30,000
Prepayment 300 Less Depreciation 6,000 120,100
Current Liabilities 12,060 180,100
Creditors 2,100 Current assets 9,800 120,000 179,000
Accrual 400 2,500 Stock 980 8,820
Debtors 500 19,100
Capital 19,700 Less Provision 7,000 3,000 198,100
Opening balance 7,560 Prepayments 5,220
Add Net profit Bank 132,320 18,000
Less: Drawings 27,260 180,100
11,700 Less Current liabilities 12,220
15,560 Creditors
Expenses accrued
Net current assets

Financed by:
Capital

Balance as at 1.1.20X7
Add Net profit
Less Drawings

28.13 Mr Chai 29.1

Trading and Profit and Loss Account for the year ended 30 April 20X7 (i) FIFO Closing Stock 190 × £19 = £3,610

Sales (259,870 − 5,624) 254,246 (ii) LIFO Received Issued Stock after each transaction
Less Cost of goods sold 132,007 Mar 100 × £16
122,239 100 × £16 1,600
Stock 1.5.20X6 15,654 Sept 220 × £19
Purchases (135,680 − 13,407) 122,273 1,750 100 × £16 1,600
Carriage inwards 123,989 Dec 130 × £24 220 × £19 4,180 5,780
Less Stock 30.4.20X7 11,830
Gross profit 149,757 99,872 100 × £16 1,600 3,310
Discounts received 24,117 90 × £19 1,710
Less Expenses 17,750
Salaries and wages 38,521 (iii) AVCO Received Issued Average cost per No. of units Total value
Rent, rates and insurances (25,973 − 1,120 − 5,435) 19,418 Mar 100 × £16 unit stock held in stock of stock
Heating and lighting (11,010 + 1,360) 12,370 Sept 220 × £19 100 £1,600
Carriage out Dec 130 £16 320 £5,780
Advertising 4,562 £18.0625 190 £3,432*
Postage, stationery and telephone 5,980 £18.0625
Bad debts 2,410
Provision for doubtful debts 2,008 *3,431.875 rounded to nearest £
Discounts allowed
Depreciation 223 29.2 Trading Account for the year ended 31 December 20X0
Net profit 2,306
12,074 Sales FIFO LIFO AVCO
Less Cost of sales 3,120 3,120 3,120
Balance Sheet as at 30 April 20X7 5,780 5,780 5,780
Purchases 3,610 3,310 3,432
Less Closing stock (2,170) (2,470) (2,348)
Gross profit
950 650 772

Fixed assets 120,740 29.5
Fixtures and fittings at cost 63,020
Less Depreciation to date 17,750 57,720 (a) (dates and calculations omitted)
23,765
Current assets 6,555 31,844 Loan: School fund Cash 51.36
Stock 4,440 89,564 200.00 Purchases
Debtors 534 83,887 Sales 53.50 53.50
24,500 53,044 24,117 5.44
Less Provision for doubtful debts 735 108,004 Purchases 1.80
Prepaid expenses 21,200 18,440 Cash 51.36 7.24
89,564
Bank Sales 53.50
Cash Cash 53.50

Answers to review questions(b) Stock valuation:34 Break × 16p =
15 Brunch × 12p =
Less Current liabilities695 19,840
Creditors 1,360 Stock
Expenses accrued 7.24
Trading account
Net current assets

Financed by: (c) Broadway School
Capital: Balance as at 1.5.20X6 Trading Account for the month of December 20X9

Add Net profit Purchases 51.36 Sales
Less Drawings Less Closing stock 7.24
Gross profit
44.12
9.38

53.50

29.5 (cont’d )
(d)

Purchases (units)
Less Sold
Stock should have been
Actual stock
Missing items
Appendix 130.1

696
Break Brunch Bank Reconciliation as on 31 December 20X6
240 108
200 90 Cash at bank as per cash book 730 2,910
18 Add Unpresented cheques 340 1,070
40 15 Credit transfers 3,980
34 3
Less Bank lodgements 560
6 Cash at bank as per bank statement 4,540

If there have been no arithmetical errors, one can only assume that someone has Note for students
stolen 6 Breaks and 3 Brunches. Both in theory and in practice you can start with the cash book balance working to
the bank statement balance, or you can reverse this method. Many teachers have
29.6 their preferences, but this is a personal matter only. Examiners sometimes ask for
(This is a brief answer showing main points to be covered. In the examination the them using one way, sometimes the other. Students should therefore be able to
answer should be in report form and elaborated.) tackle them both ways.

1 For Charles Gray 30.3 Cash Book 692
(i) The concept of prudence says that stock should be valued at lower of cost or (a) 4,129 20X9 (Totals so far) 47
net realisable value. As 50% of the retail price £375 is lower than cost £560, 20X9 (Totals so far)
then £375 will be taken as net realisable value and used for stock valuation. Dec 31 T Morris 93 Dec 31 Bank Charges 3,483
(ii) The sale has not taken place by 30 April 20X9. The prudence concept does not ′′ 31 Balance c/d 4,222
anticipate profits and therefore the sale will not be assumed. The gun should
therefore be included in stock, at cost price £560. 4,222

2 For Jean Kim (b) Bank Reconciliation Statement as on 31 December 20X9 3,483
It appears that it is doubtful if the business can still be treated as a going concern. Balance per cash book 209
If the final decision is that the business cannot continue, then the stock valu- Add Unpresented cheque
ation should be £510 each, as this is less than cost, with a further overall deduction 3,692
of auction fees and expenses £300. Less Bankings not yet on bank statement (319 + 246) 565
Balance per bank statement
3 For Peter Fox 3,127
Stock must be valued at the lower of cost or net realisable value in this case. or 3,127
The cost to be used is the cost for Peter Fox. It is quite irrelevant what the cost Bank Reconciliation Statement as on 31 December 20X9
may be for other distributors. Balance per bank statement 565
It would also be against the convention of consistency to adopt a different Add Bankings not yet on bank statement (319 + 246) 3,692
method. The consistency applies to Peter Fox, it is not a case of consistency with
other businesses. Using selling prices as a basis is not acceptable to the vast majority Less Unpresented cheque 209
of businesses. Balance per cash book 3,483

29.8 30.5
(a) In one respect the consistency convention is not applied, as at one year end the
(a) Cash Book (bank columns)
stock may be shown at cost whereas the next year end may see stock valued at 20X8 20X8
net realisable value. Dec 31 Balance b/d 1,500 Dec 31 Bank charges 30
Dec 31 Dividends 240 Dec 31 RAC 70
On the other hand, as it is prudent to take the lower of cost or net realisable Dec 31 Customs and Excise 260 Dec 31 Loan repayment 200
value, it can be said to be consistently prudent to consistently take the lower figure. Dec 31 Deposit account 1,400 Dec 31 Balance c/d 3,100
(b) Being prudent can be said to be an advantage. For instance, a shareholder can 3,400 3,400
know that stocks are not overvalued: if they were, it would give him a false
picture of his investment.

Someone to whom money is owed, such as a creditor, will know that the
stocks in the balance sheet are realisable at least at that figure.

It is this knowledge that profits are not recorded because of excessive values
placed on stocks that gives outside parties confidence to rely on reported profits.

(b) Bank Reconciliation Statement as on 31 December 20X8 3,100 31.3 Sales Ledger Control 11,487
Balance per cash book 540 20X9 20X9 629
Add Unpresented cheques (250 + 290) March 1 Balances b/d 82
3,640 March 31 Sales 12,271 March 31 Cash and bank
Less Bankings not entered on statement 690 March 31 Balances c/d 9,334 March 31 Discounts allowed 9,454
Balance per bank statement 47 March 31 Set-offs: 21,652
2,950 Purchases ledger
30.7 Cash Book 5,048 March 31 Balances c/d
20X6 (Totals so far) 853 20X6 (Totals so far)
Mar 31 G Frank 32 21,652
88 Mar 31 TYF 19
′′ 31 Balance c/d 4,158 ′′ 31 Bank charges 5,099 31.5 Purchases Ledger Control
5,099 4,158 Returns outwards 1,452 Balances b/d 19,420
192 Bank 205,419 Purchases Day Book 210,416
4,350 Petty cash 62
504 Discounts received 1,721 *229,836
Bank Reconciliation Statement as at 31 March 20X6 3,846 Set-offs against sales ledger 640 3,618
Overdraft per cash book Balances c/d 20,210
Add Bankings not yet in bank statement (416) *229,504 287,317
(970) 4,102
Less Unpresented cheques 112 *Difference between two sides 332 640
Overdraft per bank statement (858)
(1,353) Sales Ledger Control 38,374
30.9 (554) 762 Balances b/d 28,227 Returns inwards 334,051
(a) Balance per Cash Book at 31 October 136 (591) Sales Day Book
44 (267) 305,824 Bank and cash
Less: Bank charges 80 (858) Discounts allowed
Sundries cheque 150 Set-offs against
Cheque returned – Jones 6 826 Purchase ledger
Rates standing order 17,918 Balances c/d
Incorrect entry
312 334,051
18,358
Add Dividends received not entered 62 37,414 31.6 Debtors’ Ledger Control 245
Error in calculation of opening balance 50 Balance b/d 46,462 Balance b/d 455
Sales 1,253
Corrected Cash Book balance Cash 126,024 Contra 746
52 Bad debt 120,464
George Ltd Balance b/d Discount 49,375
(b) Bank Reconciliation Statement as at 31 October Cash 172,538
Balance c/d
Balance per Bank Statement*
Add Outstanding lodgements 172,538
49,375
Answers to review questions
Balance b/d Creditor’s Ledger Control 25,465
697 Returns 1,472 Balance b/d 76,474
Less Unpresented cheques Contra 2,154 Purchases
Balance per cash book Discount received 455 101,939
*This is the balancing figure. Cash 1,942 25,440
Balance c/d
31.1 Sales Ledger Control 70,476
Balances b/d 23,220 Returns inwards 25,440
Sales Day Book 14,194 Cheques and cash 101,939
Discounts allowed
Balances c/d Balance b/d
37,414

Appendix 1

698
31.9 Total Debtors Account 32.2
Balance b/d 26,555 Cash (600,570 − 344,890)
Credit sales 255,680 To economise on space, all narratives for journal entries are omitted.
268,187 Discounts allowed 5,520
Balances b/d Set-offs (Total debtors) 70 (a) T More Dr 412 : T Mone Cr 412
Cash (503,970 − 14,440) Bad debts 780 (b) Machinery Dr 619 : J Frank Cr 619
Discounts received Returns inwards 4,140 (c) Computer Dr 550 : Office expenses Cr 550
Set-offs (total creditors) Balances c/d (d) B Wood Dr 18 : Sales Cr
Returns outwards 28,552 (e) Sales Dr 164 : Commissions rec’d Cr 18
Balances c/d 294,742 294,742 (f ) Cash (needs double Cr 164
28,552 the amount) Dr 136 : T Blair Cr 136
43,450 (g) Purchases Dr 372 : Drawings Cr 372
Total Creditors Account 496,600 (h) Discounts allowed Dr 48 : Discounts received
489,530 Balances b/d 48
3,510 Credit purchases 540,050 32.4
70 45,460 (a) 100 units × £1.39 = £139 not £1,390. 5,000
1,480 (b) (i) Stock overstated by £1,251 (i.e. 1,390 − 139). 72
45,460
540,050 (ii) Cost of goods sold understated by £1,251. 191
Balances b/d (iii) Net profit overstated by £1,251. 180
(iv) Current Assets overstated by £1,251. 820
(v) Owner’s Capital overstated by £1,251. 120
195
31.10 32.5 Dr 5,000 : Capital Cr 100
(a) To ensure an arithmetical check on the accounting records. The agreement of (a) Sales Dr 72 : Sundry expenses Cr
(b) Drawings Dr 191 : Rent Cr 40
total of individual creditors balances with that of balance on control account (c) Drawings Dr 180 : Purchases Cr 40
provides that check. (d) D Pine Dr 820 : Cash Cr
(e) Bank Dr 120 : Cash Cr Cr
If control account and ledger are kept by separate personnel, then a check on (f ) Bank Dr 195 : G Will Cr 200
their work and honesty is provided. (g) T Young Dr 100 : Printer disposals Cr 610
(b) (i) Increase £198 (ii) Decrease £100 (iii) No effect (h) Office expenses
(iv) Decrease £400 (v) Decrease £120. 90
(c) A computer will automatically enter two figures in different directions and will 33.1 Suspense 100
then confirm it in total fashion. As such there may seem at first sight for there to (i) Purchases 20 Balance b/d 230
be no need for control accounts. (ii) Creditors
(iii) Sales 9
However, there is still the need to check on the accuracy of data input. It is 11
important that both the skill and the honesty of the programmer are checked. 40

Accordingly there will still be a need for control accounts.

31.11 33.2
(a) See Section 31.1. (a) The Journal (narratives omitted)
(b) See Section 31.5.
(i) Suspense
32.1 Sales Dr
(a) Error of omission – a credit purchase omitted from the books. 200
(b) Error of commission – a credit sale to J Briggs entered in the account of H Briggs. (ii) T Vantuira 610
(c) Error of principle – repairs debited to the asset account. T Ventura
(d) Compensating errors – prepayments £15 too high and accruals £15 too high. 90
(e) Errors of original entry – a credit purchase for £100 recorded in the books as (iii) Rent 100
Suspense 230
£10.
(f ) Complete reversal of entries – payment of advertising debited to bank and cred- (iv) Suspense
Discounts allowed
ited to advertising.
(g) Transposition error – sales invoice for £263 entered as £236 in both ledger (v) Sales
Computer disposals
accounts.

(b) Suspense Account 33.6
Sales 200 Balance b/d
Discounts allowed 100 Rent 210 (a) (i) The Journal Dr Cr
300 90 450 450
C Thomas 100 100
300 Thomasson Manufacturing Ltd 2,000 2,000
31,400 Suspense 390 390
(c) Net profit per financial statements 200 Telephone 1,500 1,500
Add (i) Sales undercast 100 300 Suspense 765 765
(iv) Discounts overcast 31,700 Sales account
90 47,240
Less (iii) Rent undercast 230 320 Machine repairs
(v) Reduction in sales 31,380 Machinery 3,600
Suspense 50,840
Corrected net profit Credit side exceeds Rent received*
debit side by 1,155
33.4 Purchases account 49,685
£188 P Brooks
Item £317
If no effect Debit side exceeds *Assumed not invoiced to Atlas Ltd
(i) state ‘No’ credit side by
(ii) (ii) Computation of Corrected Profit for year to 31 December 20X8
(iii) No £290
(iv) No Profit as originally reported 100
(v) No Add Telephone expense overstated 2,000
(vi) 1,500
(vii) No Sales understated
Rent received omitted

Less Machinery repairs understated 390
Purchases omitted 765

Corrected profit figure
(b) (i) Per text (ii) Per text

33.5 Trial Balance as at 31 January 20X3 33.8

Drawings Dr Cr (a) Difference on Trial Balance Suspense
19,500 7,845 Per trial balance 2,513 J Winters 198
Stock 8,410 6,575 2,963
Debtors (34,517 − 8) 34,509 127,600 Discounts received 324 Wages 3,161
Furniture (2,400 + 407) 1,419 Discounts allowed 324 24,760
2,807 143,439 3,161
Cash 836 3,815
Returns inwards 2,438 20,945
Business expenses 3,204 (b) Computation of Corrected Net Profit for year to 30 April 20X7

Purchases (72,100 − 407) 71,693 Net profit per draft accounts
(i) Discounts
(ii) Wages
(iv) Stationery stock
(vi) Remittance
Correct net profit
(iii) and (v) did not affect profit
Discounts allowed Answers to review questions42−+
Capital 2,963 648
Creditors (6,890 − 315)699 3,000
Sales (127,510 + 90) 5,963 1,500
Discounts received
143,439 2,148

(c) Per text

Appendix 133.14Workings

700
33.11 6,000 6,000 (i) Purchases 10
(a) (i) Van 250 250 Suspense 10
300 300 (ii) A Supplier
Motor vehicle expenses 750 750 Suspense 45
(ii) Fuel 720 720 (iii) Plant and Machinery 45
500 500 Repairs
Drawings (iv) Suspense 70
(iii) B Struton 6,000 23,120 S Kane 70
750 (v) Sales
B Burton Ltd 720 7,470 Plant and Machinery disposals 20
(iv) Drawings 30,590 (vi) Debtors 20
250 Suspense
Business rates 500 750 (vii) Suspense 300
(v) Drawings 29,840 B luckwood 300
(viii) Business rates
Wages Prepayments 60
(vi) Purchases (A) Suspense 60

K Jarman Balance 93 (i) Purchases 2
(b) Net profit per draft financial statements (iv) S Kane 20 (ii) A Supplier 2
(vii) B Luckwood
Add (i) 2 (vi) Debtors 45
(iv) 115 45
(v) 10
45
Less (ii) 60
(vi )
115

(B) (a) The suspense account is shown in the balance sheet, not the profit and loss
account. The following item increases net profit:
33.12 (iii) 70

(a) (i) Suspense 10 The following items reduce net profit:
Sales 10 (i) 10
(ii) Discount allowed 2
Suspense 2 (viii) 45 (55)

(iii) Discount allowed 140 Overall, net profit is increased by 15
Suspense 140
(iv) D Bird 10
Suspense 10 Note: (v) has no effect or net profit. Sales are reduced by 300 and the loss
(v) Suspense 3 on disposal of the plant and machinery is reduced by 300.
J Flyn 3
(b) The overall effect on the trial balance is that the following changes have been (b) The following items are changed in the balance sheet Dr Cr
made: Suspense 45 93
(ii) Creditors 70 45
(i) Sales Dr Cr (iii) Plant and Machinery 38 15
(ii) and (iii) Discount allowed 10 (iv), (vi), (vii) Debtors 153
(iv) and (v) Debtors (viii) Prepayments 153
(i) to (v) Suspense 142 Net profit
7
139

Answers to Scenario Questions SQ2
(a)
SQ1 (a) Picta Simpla Sleasy Cars
Fixed Assets Balance Sheet as at 31 December 20X6
Profit and Loss Account for the year ending 30 June 20X7 Land £ £
Offices ££ 500 5,000
Less Depreciation 100
Sales £ £ Truck 5,000 400
258,100 Less Depreciation 2,500 2,500
Less Cost of goods sold 19,250 154,950 7,900
Opening stock 185,850 103,150
Purchases 205,100
61,100
Less: Closing stock 50,150 42,050 Current Assets
Stock
Gross profit 14,500 Debtors and prepayments 21,000
Less Expenses 15,500 Cash 1,900
100
Wages 7,250
Advertising 12,000 23,000
Postage and packing
Rent 2,850 Current Liabilities 8,600 15,000
Insurance 3,400 Creditors and accruals 6,400
Electricity Bank overdraft
Depreciation 800 8,000
Stationery 1,350 Working capital 15,900
Telephone 3,450 Long-term Liability
3,000
Net profit 12,900

(b) Your note should explain that the business is a separate entity from him and so Capital 15,500 12,900
the cost of having a holiday has nothing to do with the business, but must be Opening balance* 8,400
treated as drawings. It should also explain that drawings represent the amount Add Net profit*
of business assets taken out of the business by the owner for the owner’s, not Less Drawings 23,900
the business’s use. Drawings are never an expense of the business. 11,000

*5,000 + 10,000 + 500 = 15,500
*23,500 − 500 − 100 − 3,000 − 2,500 − 500 − 2,000 − 400 − 5,000 − 1,500 + 400

= 8,400

Answers to review questions

701

SQ2 (cont’d ) Appendix 1
(b)
Office overvalued: Net profit702
Dr Cr Balance Sheet as at XXXX £ £
Office 500 500 £ 150,000
Office depreciation: Net profit 100 100
5,000 5,000 Fixed Assets 9,600 7,000 50,000
Depreciation–Office 3,000 3,000 Equipment 2,743 4,608 100,000
Land overvalued: Net profit 2,500 2,500 Less: Depreciation
500 500 366 200 781
Land 2,000 2,000 Current Assets 120 99,219
Provision for long-term liability: Net profit 400 400 Stock 11,928 43,353
400 400 Debtors 12,709 86,866
Long-Term liability 1,500 1,500 Prepayment 130,219
Depreciation on truck: Net profit Cash in hand 31,000
£ 99,219
Depreciation-Truck 430,000 Current Liabilities
Car overvalued: Net profit Creditors
307,120 Bank overdraft
Stock 122,880 Accrual
Bad debt: Net profit
36,014 Capital
Debtors 86,866 Balance
Accruals: Net profit Net profit
Less Drawings
Accruals
Prepayment: Prepayment

Net profit
Car overvalued: Net profit

Stock

SQ3 Mr Jones

Trading Profit and Loss Account for the year ending XXX

Sales £

Less Cost of goods sold 6,520 SQ4 Mr Try
Opening stock 305,500
Purchases (a) Trading and Profit and Loss Account for the year ending 30 June 20X7

Carriage in 2,100 ££
314,120 Sales 17,644
Less Expenses
Less Closing stock 7,000 Repairs 230
Miscellaneous 110
Gross profit Insurance (350 − 50) 300
Less: Expenses Accounting fees (250 − 250 + 275) 275
5,350 Postage and stationery 50
Rent 2,800 Depreciation 375
Business rates Doubtful debt provision 110
Insurance 400 Bank charges 45
Postage 250 1,495
Stationery 1,002 Net profit 16,149
Advertising 200
Salaries and wages 10,500
Bad debts 400
Provision for doubtful debts 112
Depreciation 15,000

Net profit

(b) Balance Sheet as at 30 June 20X7 £ (b) Balance Sheet as at 30 June 20X7
££ 750
375 Fixed Assets 400,000 285,000
Fixed Assets 375 Factory and Machinery 115,000
Ladders and equipment Less Depreciation 4,000 1,600
Less: Depreciation 5,520 Computer 286,600
5,895
Current Assets Less Depreciation 2,400
Cleaning materials and cloths 346
Debtors 3,400 16,149 Current Assets 650
Prepayments 110 16,495 Prepayments: 200
Bank 50 10,600 Insurance 600
Cash Telephone 1,450
2,345 5,895 Cash in hand
Current Liabilities 35
Creditors Current liabilities 3,500
Accruals 5,940 Creditors 2,450
100 Rates Accrual
320 Electricity Accrual 500
Loan from Mrs Baldwin 600
420

Capital 7,050
Balance at 1 July 20X6
Net profit 5,600
Less Drawings 281,000

(c) Your letter should explain that consumables are items purchased with the Capital 213,000*
intention of using them in the short-term, after which they will either have been Balance at 1 July 20X6 123,000
used up (e.g. printer ink) or no longer useable (e.g. carbon paper). The ladders Net profit ( 55,000)
do not fall into the category of consumables. They were purchased for use in Less Drawings 281,000
the long-term, in this case, more than one accounting period. As such, they are
fixed assets and must be depreciated. *balancing figure

SQ5 (a) B’s Casuals (c) You need to explain how the accrual system operates and why it is used (see
text Section 10.7). You also need to explain that drawings are assets withdrawn
Sales Profit and Loss Account for the year ending 30 June 20X7 260,040 from the business for the owner’s personal use, which is what his ‘wages’ and
72,700 his home cinema system purchase are. Drawings are never expenses of a
business.
187,340
Less: Cost of goods sold 21,500 34.1 G Flynn
Opening stock 68,500 64,340
Purchases 123,000 Trading Account for the year ended 31 December 20X7 155,880
Carriage in 5,200
Less: Closing stock 95,200 Sales
22,500 Less Cost of goods sold:
Stock 1.1.20X7
Add Purchases
Less Stock 32.12.20X7

Gross profit
Answers to review questions

703
Gross profit 24,500 19,400
Less: Expenses 9,950 (D) 137,100
2,000 (C) 156,500
Wages 1,040
Business rates 2,850 26,660
Bad debt 3,400 (B) 129,900
Advertising (A) 25,980
Insurance 15,800
Electricity 1,350 Missing figures found in the order (A) to (D).
Depreciation 3,450 (A) Mark-up is 20%. Therefore Margin is 16.67%. Sales are 155,880 so Margin is
Stationery
Telephone 16.67% or 1/6; 1/6 × 155,880 = 25,980 Gross Profit
(B) + (A) = 155,880. Therefore (B) + 25,980 = 155,880 and accordingly (B) is

129,900.
(C) − 26,660 = 129,900. Therefore (C) is 156,500.
(D) + 19,400 = 156,500. Therefore (D) is 137,100.

Appendix 1Van

704
34.3 Bank 3,500 Balance c/d 3,500
(a) We know that Balance b/d 3,500 3,500
A. Supplier 3,500
Cost of Goods Sold = Rate of Stock Turnover Balance b/d 2,500
Average Stock Returns 2,500
Balance c/d
Substituting x = 8 Purchases 2,500
16,240 Balance c/d 2,500
2,000
x = Cost of Goods Sold = 129,920. Sales 2,500 Balance c/d
Balance b/d 2,500 300
(b) If mark-up is 60%, gross profit is 60% of the cost of sales = 77,952. Balance c/d 2,500 1,000
(c) Turnover is (a) + (b) = 129,920 + 77,952 = 207,872. 1,300
(d) 70% × 77,952 = 54,566.40. Cash A. Supplier 1,300
(e) Gross Profit − Expenses = Net Profit = 23,385.60. Balance b/d
1,000
34.5 500 Purchases 1,000
(a) Sales = 230,000 + (20% × 46,000) = 276,000. 2,000 Balance b/d
(b) 41,000 − (9% × 271,400) = 16,574. 2,500 500
500
(c) 230,000 ÷ 2 = 230,000 = 6.13 Sales 500
(34,000 + 41,000) 37,500
50
(d) Gross profit is 25% × 260,000 = 65,000. 1,300 Cash 50
Sales are 260,000 + 65,000 = 325,000. 1,300 B. Safe
Expenses are 9% of sales = 29,250.
Net profit = 65,000 − 29,250 = 35,750. Balance b/d

34.7 Capital B. Safe
(a)
5,000 Bank 5,000 1,000 Balance c/d
Balance c/d 5,000 5,000 1,000
5,000 1,000
Balance b/d
300
Bank 3,500 Returns out

Capital 5,000 Cash 500 500 A Supplier
Balance b/d 5,000 Van 700 500
Rent 5,000
Balance c/d Balance b/d
50
700 500 Sundry Expenses

Bank Cash 50 50 Balance c/d
Sales 600 50
Balance b/d 300 Sundry Expenses 50
300 Drawings

Balance c/d
600

50

Rent (d) Balance Sheet as at 30 April
Fixed Assets
Bank 500 Balance c/d 500 Van 1,250 3,500
Balance b/d 500 500 Current Assets 1,000
500 500 Stock 1,000
500 Debtors 700 4,500
Cash Drawings Bank 50 5,000
Balance b/d 5,000 Cash
500 Balance c/d 2,000 3,000 500
500 1,300 Current Liabilities 2,000 4,500
500 Creditors
500
(b) L. Mann 700 8,800 Capital
Bank Trial Balance as at 30 April 50 1300 Less Drawings
Cash
Van 3,500 750 (e) (i) 550 = 42.3%
Purchases 2,500 550 1,300
Debtors 1,000 550
Sundry expenses (ii) 0 = 0%
Rent 50 0 5,000
Drawings 500
Capital 500 (f ) (i) As there has been neither a profit or a loss, the £500 drawings are eating
Creditors 8,800 into capital. This is not a good sign. Drawings must not exceed net profit
Sales in the long-term, or the business will fail.
Returns out
(ii) Working capital is £1,000. The current ratio is 1.5, which ought to be
adequate, though this would need to be confirmed by comparison with
other businesses operating in the same sector.

(c) Trading, Profit and Loss Account for the month ending 30 April 34.9 (a) 20X7 20X8 20X9
Sales Opening stock 10,000 21,000 25,000
Purchases 2,500 Purchases 70,000 86,000 77,000
– Returns out 500 Less Closing stock 80,000 107,000 102,000
– Closing stock 2,000 Cost of goods sold 21,000 25,000 23,000
1,250 Sales (59,000) (82,000) (79,000)
Gross profit 90,000 125,000 120,000
Cost of sales 31,000 43,000 41,000

Gross profit 50
Less Expenses
Sundry expenses Answers to review questions500
Rent (b) Gross profit/sales
705 (i) 20X7
Net profit
31,000 = 34%
90,000

20X8

43,000 = 34%
125,000

20X9

41,000 = 34%
120,000

34.9 (cont’d)
Appendix 135.2

706
(ii) Stock turnover = Cost goods sold 500 × 4 = 2,000 = Costs
Average stock ×5
= 10,000 = Fees
20X7 Fees 10,000

59,000 3.8 times Costs 2,000
(10,000 + 21,000) = Profit 8,000
÷ 2

20X8 35.4
Workings:
82,000 ÷ 2 = 3.5 times Purchases Bank 67,360 Sales Banked 91,190
(21,000 + 25,000) 4,940 Cash 17,400
Cash 108,590
20X9 72,300 − Debtors 31.12.20X1 21,200
− Creditors 31.12.20X1 12,700 + Debtors 31.12.20X2 87,390
79,000 ÷ 2 = 3.2 times 59,600 Sales for 20X2 19,800
(25,000 + 23,000) + Creditors 31.12.20X2 14,100 107,190
Purchases for 20X2 73,700
38,320
35.1 F Lee Opening Capital: Bank 4,100 13,090
Stock 10,800 25,230
Statement of Affairs as at 31 December 20X2 Debtors 21,200
Insurance prepaid
Fixed assets 6,400 4,800 Fixtures 420
Van at cost 1,600 Less Creditors 1,800
Less Depreciation 47,730 12,700
52,530 Rent owing
Current assets 6,200 35,000 390
Stock 15,200 20,870
Debtors
Prepaid expenses 310
Bank 33,490
Cash 270 Jane
55,470 Trading and Profit and Loss Account for the year ending 31 December 20X2
Less Current liabilities
Trade creditors 7,100 Sales 107,190
Expenses owing 640 7,740 Less Cost of goods sold: 72,300
Net current assets 34,890
Opening stock 10,800 17,080
Capital (C) Add Purchases 73,700 17,810
Cash introduced (B) Less Closing stock 84,500
Add Net profit (A) Gross profit 12,200
Less Drawings Less Expenses: 11,260
Wages
Missing figures (A), (B) and (C) deduced in that order. (A) to balance is 52,530, thus Rent (3,950 − 390) 3,560
(B) has to be 73,400 and (C) becomes 38,400. Insurance (1,470 + 420 − 440) 1,450
Sundry expenses
Depreciation: Fixtures 610
Net profit 200

Balance Sheet as at 31 December 20X2 35.8
(a)
Fixed assets 1,800 1,600 Bank Creditors Control 7,400
Fixtures at valuation 200 Cash 101,500 Balances b/d 600
Less Depreciation 12,040 Balances c/d
13,640 1,800 Drawings: Goods 104,200
Current assets 12,200 25,230 8,900 Purchases (difference) 112,200
Stock 19,800 17,810 112,200
Debtors 43,040
Prepayments 440 29,400
32,440 13,640 (b) Janet Lambert
Less Current liabilities Trading and Profit and Loss Account for the year ending 31 August 20X9
Trade creditors
Bank overdraft 14,100 20,400 Sales (deduced − as margin is 25% = 4 × gross profit) 8,600 128,000
Net current assets 6,300 Opening stock 104,200 96,000
Add Purchases 112,800 32,000
Capital Less Closing stock 17,080
Balance at 1.1.20X2 Cost of goods sold 16,800 14,920
Add Net profit Gross profit (331/3% of Cost of goods sold) 7,820
Less: Casual labour (1,200 + 6,620) 4,920
Less Drawings (1,200 + 28,200) 3,000
Rent (5,040 + 300 − 420) 1,340
Delivery costs
35.6 Jenny Barnes Electricity (1,390 + 160 − 210)
Trading and Profit and Loss Account for the year ending 30 April 20X9 Net profit

Sales* 9,500 102,908 Balance Sheet as at 31 August 20X9 16,800 23,500
Less: Opening stock 78,100 73,980 Current assets 4,300
87,600 28,928 420 9,060
Purchases 13,620 Stock 1,650 14,440
Less: Closing stock 10,460 Debtors 330
Gross profit 5,620 18,468 Prepayments 8,900 7,850
Less: Expenses 1,020 Bank 160 14,920
Sales assistants’ wages Cash 22,770
Vehicle running expenses 150 Less Current liabilities
Bad debts 1,370 Creditors 8,330
Miscellaneous expenses** Expenses owing 14,440
Light and heat 940
Depreiation: Equipment 720 Capital:
1,000 Balance as at 1 September 20X8 (Workings 1)
Vehicles Add Net profit
Net profit
Answers to review questions

707
Less Drawings (Workings 2)

*Sales 96,500 + takings in cash later spent 6,408 Workings:
(drawings 6,000 + expenses 408) (1) Capital as on 1.9.20X8. Stock 8,600 + Debtors 3,900 + Prepaid 300 + Bank
**Bank 962 + cash 408 = 1,370
2,300 + Cash 360 = 15,460 − Creditors 7,400 − Accruals 210 = 7,850.
(2) Cash drawings. Step (A) find cash received from sales. Debtors b/d 3,900 + Sales

128,000 − Debtors c/d 4,300 = 127,600 cash received.

35.8 (cont’d )
Step (B) find cash banked. Balance b/d 2,300 + cash received? − payments 117,550 =
balance c/d 1,650. Therefore cash banked? = 116,900. Step (C) draw up cash account:
Appendix 1

708
Balance Sheet as at 31 December 20X0

Fixed assets 6,500 Cost Depreciation
Lease 487 6,013
Equipment 4,800 960 3,840
Balance b/d 360 Labour 1,200 Vehicle 3,600 900 2,700
Sales receipts 127,600 Purchases 1,800 14,900 2,347 12,553
127,960 Banked 116,900
Drawings (difference) 7,730 Current assets 4,250 580
Balance c/d Stock 425 3,825
330 Debtors 714
127,960 Less Provision for doubtful debts 300 275
Prepaid expenses (75 + 200) 250 6,084
(c) Per text. Bank (see workings) 135
Cash 374 123
35.10 David Denton 10,887
Less Current liabilities
Profit and Loss Account for the year ending 31 December 20X0 Trade creditors
Work done: Credit accounts 29,863 Interest owing
For cash 3,418 33,281 Accountancy fee owing
Less Expenses: 20,354 Rates owing
Materials (9,600 − 580) 9,020 12,927 Electricity owing 1,773
Secretarial salary 3,000
Rent 225 Net current assets
Rates (180 − 45) 135 Less Loan 9,114
Insurance (800 − 200) 600 21,667
Electricity (1,122 + 374 estimated) 1,496
Motor expenses 912 4,000
General expenses (1,349 + 295) 1,644 17,667
Loan interest (4,000 × 10% × 3/4) 300
Provision for doubtful debts 425 Financed by: 10,100
Accounting fee 250 Capital 12,927
Amortisation of lease (650 × 3/4) 487 23,027
Depreciation: Equipment 960 Introduced (6,500 + 3,600)
900 1,860 Add Net profit 5,360
Van Less Drawings (4,680 + 280 + 400) 17,667

Net profit Workings:
Bank (6,500 + 25,613 + 2,600 + 4,000) = 38,713 − 4,680 − 280 − 6,500 − 300 −
3,000 − 8,886 − 4,800 − 1,122 − 912 − 1,349 − 800 = 6,084

35.11 J Duncan 8,000
(a) Capital Account on 1 January 20X8 300

Bank 2,400 4,100
Cash 5,000 12,600
Stock
Machinery 200
Rent prepaid 6,300
Debtors 31,500
7,400
Less: Creditors 24,100
Loan

(b) J Duncan 35.12 J Duncan
Trading and Profit and Loss Account for the year ending 31 December 20X8
Balance Sheet as at 31 December 20X8

Sales 4,100 40,450 Fixed Assets 12,600 15,900
Less: Sales returns 18,950 1,200 Machinery at 1 January 20X8 7,500
Less: Cost of Sales 23,050 8,000
Opening Stock at 1 January 20X8 39,250 Add: Additions 20,100 23,900
Add: Purchases 3,500 19,550 Less: Depreciation 4,200
Less: Withdrawn by the owner 19,700 5,000
Less: Closing stock at 31 December 20X8 300 1,850 Current assets 3,200 18,900
3,200 400 350 Stock 5,000 18,900
Gross profit 20,050 Debtors 2,600 124,620
Add: Discount received 6,100 15,450 Bank
Less: Expenses 1,450 Cash 50 980
Rent 4,600 10,850 123,640
Bad debts written off 400 Current liabilities 2,500
Wages 4,200 Creditors 100 176
Insurance Accrued charges 250 123,464
Loan interest 300 Loan interest 350
Depreciation 750 Rent 300
Repairs 2,850 123,164
Electricity
Net profit Less: Long-term liabilities 24,100 1,840
Bank loan 8% 4,600 125,004
Workings:
Sales 26,000 − 250 + 14,000 + 400 − 6,300 + 5,000 + 1,200 + 400 = 40,450 Capital Account 28,700
Purchases 18,500 − 2,400 + 2,500 + 350 = 18,950 Balance at 1 January 20X8 9,800
Depreciation = balancing figure. Add: Net profit
Less: Drawings

35.15
Stock value per stocktake on 3 May 20X5
Less Purchases (1,510 − 530)

Less Sales returns (222 @ 80%)

Less Obsolete stock

Add Stock sold (2,300 @ 80%)
Value of stock on 30 April 20X5
Answers to review questions

709

36.1 Downline Rugby Club (b) Balance Sheet as at 31 December 20X8
Fixed assets

Clubhouse buildings
Games equipment
Less Depreciation
Appendix 1

710
Income and Expenditure Account for the year ending 31 December 20X6
Income 20,500
Collections at matches 4,218 2,000 1,600
Profit on refreshments 5,520 400
9,738 22,100
Less Expenditure
Rent for pitch (1,600 − 400) 1,200 Current assets 900 1,220
Printing and stationery (104 + 25) 129 Snack bar stocks 700 23,320
Secretary’s expenses 220 Bank 1,600
Repairs to equipment 210 380 5,500
Groundsman’s wages 6,400 Less Current liabilities 17,820
Miscellaneous expenses 96 Subscriptions received in advance 17,820
Depreciation of equipment 476 8,731
Surplus of income over expenditure Less Loan from bank 975
1,007 38
65
Balance Sheet as at 31 December 20X6 Financed by:
Accumulated fund 210
Fixed assets 2,380 1,904 Balance 1.1.20X8 (see workings) 13,500 1,288
Equipment 476 Add surplus for year 4,320
Less Depreciation 400 2,543 68
4,447 Workings: 200 + 800 + 12,500 = 13,500 1,220
Current assets 2,168 3,440
Prepayment 2,568 1,007 36.5 10
Cash 4,447 (a) Accumulated fund 1 August 20X8 1,987
25 Equipment
Less Current liabilities Stocks of prizes 85
Expenses owing Arrears of subscriptions 2,082
Cash and bank
Net current assets 58
46
Financed by: Less Subscriptions in advance 10 272
Accumulated fund Prizes suppliers 58 376

Balance at 1.1.20X6 (2,000 + 1,440)
Add Surplus of income over expenditure

36.3 (b) Subscriptions
(a) The Happy Haddock Angling Club (i ) 65 In advance b/d
In arrears b/d 37 Cash
Income and Expenditure Account for the year ended 31 December 20X8 In advance c/d
Income and expenditure 1,980 In arrears c/d
Income: 1,500 3,500 (ii) 2,082
Subscriptions 240 650 Stocks b/d Competition prizes
Visitors’ fees 260 820 Cash
Competition fees 400 Creditors c/d 38 Creditors b/d
Snack bar profit (see workings) 1,750 270 Stock c/d
6,720
Less Expenditure: 2,400 68 Cost of prizes given
Rent and rates 4,320 376
Secretarial expenses
Loan interest
Depreciation on games equipment

Surplus of income over expenditure

Workings: Snack bar profit: 6,000 − (800 + 3,750 − 900) − 600 = 1,750

(c) Miniville Rotary Club 36.7 4,660
Income and expenditure account for the year ended 31 July 20X9 (a) Café operations:
1,930
Income 437 1,980 Takings 800 2,730
Subscriptions 272 165 Less Cost of supplies: 1,980 2,000
Ticket sales 177 2,780
Less Cost of prizes Opening stock 730
Donations received 2,322 Add purchases (1,900 + 80) 850 900
1,000
Less Expenditure 902 2,749 Less Closing stock 600
Rent (1,402 − 500) 1,275 427 500 300
Visiting speakers’ expenses Wages 1,500
Secretarial expenses 163 Profit
Stationery and printing 179 Sports equipment: 900
Donations to charities
Depreciation 35 Sales
Excess of expenditure over income 195 Less Cost of goods sold:

Balance sheet as at 31 July 20X9 Opening stock
Add Purchases (1,000 × 50%)

Less Closing stock (see note)
Profit

Fixed assets 1,420 780 Note: To find closing sports equipment stock: 900 is sales at 50% on cost profit so
Equipment at cost 640 cost of sales is 600. By arithmetical deduction closing stock is found to be 900.
Less Depreciation

Current assets (b) Subscriptions 120
Stocks of prizes Owing b/d 60 In advance b/d 40
Arrears of subscriptions 46 Income and expenditure Cash: 20X7
Less Current liabilities 85 In advance c/d 1,280 20X8 1,100
Creditors for prizes 131 20X9 80
Advance subscriptions Income and expenditure 80 Owing c/d 80
Bank overdraft (11 × 20) 1,420
Accumulated fund 68 1,420
Balance 1.8.20X8 37 Balance c/d
Less Excess of expenditure over income 13 118 13 Life Subscriptions 1,400
793 220 Balance b/d 200
Cash
1,220 1,600
427 1,380
793 1,600

(c) Happy Tickers & Social Club
Income and Expenditure Account for the year ended 31 December 20X8
Answers to review questions

711
Income: 1,200 1,500
Subscriptions (1,280 + 220) 600 730
Profit on café operations 225 300
Profit on sports equipment 486
100 2,530
Less Expenditure 2,611
Rent
Insurance 81
Repairs to roller (1/2 × 450)
Sports equipment depreciation (see note 1)
Depreciation of roller (1/2 × 200)

Excess of expenditure over income

36.7 (cont’d ) 20X8 20X8
Jan 1 Stock b/d 5,100 Dec 31 Manufacturing
Dec 31 Bank
1,820 ′′ 31 Stock
′′ 31 Wages 610
′′ 31 Materials 420
20X9
Jan 1 Stock 7,950
Dec 31 Bank 20X9
′′ 31 Wages
′′ 31 Materials b/d 5,940 Dec 31 Bank: Refund
2,760 ′′ 31 Manufacturing
230 ′′ 31 Stock
370
9,300
Appendix 1

712
Balance Sheet as at 31 December 20X8 2,010
c/d 5,940
Fixed assets 1,000
Share in motor roller at cost 500 7,950
Less Depreciation to date 500 142
Used sports equipment at valuation 700
1,200 3,168
Current assets 900 c/d 5,990
Stock of new sports equipment (see note 2) 850 2,999
Stock of café supplies 4,199 9,300
Subscriptions owing 80 1,380
Carefree Conveyancers: owing for expenses 225 2,819 37.2 Manufacturing and Trading Account for 20X3 202,283
Prepaid expenses 350 2,819 Sales 170,616
Cash and bank (note 3) 754 Less: Cost of goods sold
3,159 14 Opening stock of raw materials 13,500 31,667
Less Current liabilities 80 486 Purchases of raw materials 82,700
Café suppliers 80 160 700 Carriage in of raw materials
Advance subscriptions 1,200 Closing stock raw materials 4,430
Cost of materials consumed 100,630
Less Life subscriptions
14,100
Accumulated fund 2,900 86,530
Balance at 1.1.20X8 81
Less Excess of expenditure Direct expenses 52,974
Salaries and wages (75,674 − 22,700) 365
Notes: Used Sports Equipment Factory direct expenses
1 Stock b/d 700 Cash 139,869
Income and expenditure a/c Prime cost
Transferred from 500 Stock c/d
purchases Indirect expenses 22,700
1,200 Salaries and wages 1,200
Rent and rates 2,590
2 b/d 1,000 + bought (1,000 × 1/2) 500 = 1,500 − sold 600 = 900 Light and heat 1,527
3 b/d 1,210 + receipts 6,994 − paid 7,450 = 754 Repairs to machinery 2,700
Depreciation – machinery 440
Insurance – plant and machinery 171,026
(d) To most people probably the best description of the item would be ‘deferred Add Work in progress at 1 Jan 20X3
income’, i.e. income paid in advance for future benefits. Less Work in progress at 31 Dec 20X3 11,800
It could, however, be described as a liability of the club. The club in future Production cost of goods produced 182,826
will have to provide and finance amenities for life members, but they do not Add Opening stock of finished goods
have to pay any more money for it. This is therefore the liability of the future to Less Closing stock of finished goods 11,450
provide these services without further payment. 171,376

37.1 Loose Tools 13,400
20X7 20X7 184,776
Jan 1 Stock
Dec 31 Bank b/d 2,400 Dec 31 Manufacturing 14,160
3,800 ′′ 31 Stock
′′ 31 Wages 490 1,930 Gross profit
′′ 31 Materials 340 c/d 5,100
7,030
7,030

37.4 37.6 W Miller
Manufacturing, Trading and Profit and Loss Accounts
(a) (i) Straight line for the year ended 31 December 20X3
Cost £112,000 − trade-in £12,000 = £100,000
Per month £100,000 ÷ 48 = 2,083.33 Stock raw materials 1.1.20X3
20X6 9 months = 18,750 Add Purchases 25,400
20X7 12 months = 25,000 Add Carriage inwards 91,535
20X8 12 months = 25,000
20X9 12 months = 25,000 1,960
20X0 3 months = 6,250 100,000 Less Stock raw materials 31.12.20X3 118,895
(ii) Diminishing (Reducing) Balance: Cost of raw materials consumed
Cost 112,000 Direct labour 28,900
Depreciation 20X6 (40%) 44,800 Prime cost 89,995
67,200 Factory overhead expenses 84,208
Depreciation 20X7 26,880 Rent 3/4 3,900 174,203
40,320 Fuel and power 8,120 22,220
Depreciation 20X8 16,128 Depreciation: Machinery 10,200 196,423
31,100
24,192 Add Work in progress 1.1.20X3 227,523
Depreciation 20X9 9,677 24,600
14,515 202,923
Depreciation 20X0 5,806 Less Work in progress 31.12.20X3 318,622
8,709 Production cost of goods completed
(iii) Units of output (Total £100,000) Sales 197,343
20X6 4,000/20,000 = 20,000 Less Cost of goods sold 121,279
20X7 5,000/20,000 = 25,000 23,260
20X8 5,000/20,000 = 25,000 Stock finished goods 1.1.20X3 202,923 41,439
20X9 5,000/20,000 = 25,000 Add Production cost of goods completed 226,183 79,840
20X0 1,000/20,000 = 5,000
Less Stock finished goods 31.12.20X3 28,840
(b) (i) Machine 112,000 Gross profit 33,419
20X7 20X7 18,750 Less Expenses:
Jan 1 Balance b/d 12,500 1,300
112,000 Dec 31 Assets disposal 31,250 Office salaries 4,420
80,000 Rent 1/4 2,300
(ii ) Provision for Depreciation 31,250 Lighting and heating
20X7 20X7 750 Depreciation: Office equipment
Dec 31 Assets disposal Net profit
31,250 Jan 1 Balance b/d 112,000
Dec 31 Profit and loss

31,250

Answers to review questions(iii )
20X7
713Dec 31 Machine
Assets Disposals
20X7

112,000 Jun 30 Bank
Dec 31 Depreciation
′′ 31 Profit and loss

112,000

Appendix 1

714
37.7 2,990 37.10
Manufacturing and Trading Account for the six months 15,630
ended 30 September 20X5 E Wilson
126 Manufacturing Trading and Profit and Loss Account for the year ended
Raw materials 18,746
Opening stock 31 December 20X2
Purchases 4,200
Carriage in 14,546 Stock of raw materials 1.1.20X2 13,260
48,648 Add Purchases 57,210
Less Closing stock 7,048 63,194 7,220 70,470
(a) Cost of raw materials consumed 4,200 Less Stock of raw materials 31.12.20X2 8,100 14,510
2,100 13,348 Cost of raw materials consumed 6,100 55,960
Direct wages 16,542 Manufacturing wages (72,100 + 550) 3,000 72,650
(b) Prime cost of production Prime cost 128,610
3,900 Factory overhead expenses: 24,420
Indirect expenses 80,442 Factory lighting and heating 153,030
Factory general expenses General expenses: factory
Depreciation–Factory equipment 3,600 Rent of factory
Rent and business rates 76,842 Depreciation: Machinery
112,410 Production cost of goods completed

Add Opening work in progress 74,442 Sales 194,800
37,968 Less Cost of goods sold: 149,840
Less Closing work in progress 15,300 Stock of finished goods 1.1.20X2 41,300
(c) Production cost of finished goods 76,842 Add Production cost of goods completed 153,030 44,960
92,142 Less Stock of finished goods 31.12.20X2 194,330
Sales 17,700 Gross profit 38,978
Less Cost of goods sold Less Expenses: 44,490 5,982
Opening stock of finished goods 17,740
Add Production cost of finished goods Office salaries
General expenses: office 1,940
Less Closing stock of finished goods Office rent (2,700 − 140) 2,560
Office heating and lighting 1,490
Gross profit 37,968 Sales reps’ commission 11,688
112,410 Delivery van expenses 1,760
(d) Gross profit on sales = = 33.8% Depreciation: Office equipment
600
37.9 Van 1,200
(a) Reducing balance. Net profit
(b) Straight line.
(c) Straight line.
(d) Reducing balance (as it is likely to be more efficient in the early years of use).
(e) Machine hours.

Balance Sheet as at 31 December 20X2 37.11 Mendip Ltd
Raw materials Manufacturing, Trading, Profit and Loss Account
Fixed assets Cost Depreciation Net Opening stock
Machinery 40,000 14,400 25,600 Purchases for the year ending 30 June 20X2
Office Equipment 1,400
Van 9,000 1,800 7,600 Less Closing stock 3,000 20,000
Current Assets 6,800 17,600 5,000 Cost of raw materials consumed 6,500 130,100
Stocks: Finished goods 55,800 44,490 38,200 Direct wages (63,000 − 15,700) 15,700 150,100
9,400 14,510 Direct factory expenses 10,500
Raw materials 34,200 99,532 Prime cost of production 22,000
Debtors 550 140 137,732 Factory overheads 128,100
Prepaid expenses 16,142 155,950
Bank Rates 47,300
Less current liabilities 109,482 5,982 Heat and light 9,100
Creditors 161,932 Supervision
Expenses owing 9,950 Depreciation Plant and Machinery 184,500
Net current assets 24,200 Production cost of finished goods 35,700
137,732
220,200

Capital Sales 38,000 317,500
Balance 1.1.20X2 Less: Cost of goods sold 220,200 222,600
Add Net profit 258,200
Less Drawings Opening stock of finished goods 94,900
Production cost of finished goods 35,600 54,000
Less Closing stock of finished goods 40,900
Gross profit 36,300
Less: Office salaries 6,700
Directors fees
Selling expenses 11,000
Net profit

Note: The dividends are not charged against revenue in the calculation of net profit.
They are an appropriation of profit.

Answers to review questions

715

Appendix 137.13

716
(a) Jane Seymour 38.1 Fine’s Department Store
Manufacturing, Trading and Profit and Loss Account for Trading Account for the year ended 30 June 20X6

the year ended 31 July 20X6 43,000 Sales Carpet White Goods Music
Direct materials purchased 7,000 Less Cost of good sold: 62,400 151,300 94,820
Less Stock 31 July 20X6 Stock 1.7.20X5
Direct factory wages 36,000 Add Purchases 16,100 37,916 31,222
39,000 Less Stock 30.6.20X6 43,600 118,260 55,924
Prime cost 75,000 59,700 156,176 87,146
Factory overhead expenses: 18,410 40,216
Indirect factory wages 8,000 40,550 41,290 35,119 121,057 46,930
Machinery repairs 1,600 115,550 21,110 30,243 47,890
Rent and insurance (11,600 − 800) × 2/3 7,200
Light and power (5,000 + 1,000) × 2/3 4,000 12,300 38.2 J Horner
Loose tools (9,000 − 5,000) 4,000 103,250 Trading and Profit and Loss Account for the year ended 31 August 20X7
Motor vehicle running expenses (12,000 × 1/2) 6,000
Depreciation: Plant and machinery 6,000 95,000 Sales A B
3,750 8,250 Less Cost of goods sold: 75,000 50,000
Motor vehicles (7,500 × 1/2) Stock 1.9.20X6 38,108
170,000 Add Purchases 11,892
Less Work in progress 31 July 20X6 85,000 Less Stock 31.8.20X7 1,250 1,000
85,000 Gross profits 51,000 38,020 13,699
Transfer of goods manufactured to trading account Less Expenses: 52,250 50,840 39,020 ( 1,807)
Loss on manufacturing 68,350 24,160
Sales 16,650 Wages 1,410 912
Less Goods manufactured transferred Picture framing costs 6,800
95,000 8,250 General office salaries 7,200 17,166
Stock at 31 July 20X6 10,000 8,400 Fire insurance 300 6,994 –
Gross profit 31,000 Lighting and heating 5,280
Less Administrative staff salaries Repairs to premises 7,920
9,000 Internal telephone 144 216
Administrative expenses 13,000 Cleaning 248 372
Sales and distribution staff salaries Accountancy changes 70 105
Rent and insurance (11,600 − 800) × 1/3 3,600 General office expenses 12
Motor vehicle running expenses (12,000 × 1/2) 6,000 Net profits/(losses) 72 18
Light and power (5,000 + 1,000) × 1/3 2,000 894 108
Depreciation: Motors (7,500 × 1/2) 3,750 306 596
Net profit in trading 204
Loss on manufacturing
Overall net profit

(b) Conservatism. The valuation of stock or work in progress does not include any
element of expected future profit.
Matching. All of the prepayments and accruals adjusted for are examples of
matching expenses against the time period, as also are the depreciation
provisions.

Going Concern. When valuing stocks and work in progress, it has been assumed
that the business is going to carry on indefinitely, and that they will be sold in the
normal course of business rather than being sold because of cessation of activities.

39.1 (a) FRS1 F Black 39.3 (a) FRS1 Malcolm Phillips

Cash Flow Statement for the year ended 31 December 20X6 Cash Flow Statement for the year ended 30 April 20X9

Net cash flow from operating activities (note 1) 21,750 Net cash flow from operating activities (note 1) 6,600
Returns on investments and servicing of finance ( 6,000) Returns on investments and servicing of finance (3,000)
Payments to acquire tangible fixed assets Payments for fixed assets (6,000)
5,000 (2,400)
Financing 20,000 20,750 Financing 2,000
Loan received (15,000) 22,000 Capital introduced (8,000) 8,500
Drawings Drawings
4,650 Decrease in cash (1,900)
Increase in cash 300 6,600
Notes: Notes: 200 1,500
1 Reconciliation of net profit to net cash inflow: (10,400) 1 Reconciliation of net profit to net cash inflow: 200 (2,400)
5,200 (2,800) ( 900)
Net profit Net profit 500
Depreciation 21,750 Depreciation 8,500
Decrease in stock (13,650) Increase in creditors 200
Decrease in creditors 20,750 Increase in stock
Decrease in debtors Decrease in debtors 8,700
Net cash flow from operating activities 7,100
2 Analysis of changes in cash during the year: 2 Analysis of changes in cash during the year: (2,100)
Balance at 1 January 20X6 22,000 Balance at 1.5.20X8 6,600
Net cash inflow 4,650 Net cash outflow
Balance at 31 December 20X6 Balance at 30.4.20X9 –
26,650 6,600
(b) IAS 7 F Black (b) IAS 7 Malcolm Phillips (3,000)
( 4,900) Cash Flow Statement for the year ended 30 April 20X9
Cash Flow Statement for the year ended 31 December 20X6 21,750 (6,000)
(2,400)
Operating activities – Operating activities 1,500
Profit from operations 21,750 Profit from operations ( 900)
Adjustments for: Adjustments for: ( 900)
Depreciation (6,000)
Operating cash flows before movements in working capital Depreciation
Decrease in stock 300 5,000 Operating cash flows before movements in working capital
Decrease in debtors 5,200 20,750 (2,800)
Decrease in creditors (10,400) (13,650) Increase in stock 200
Increase in creditors 500
7,100 Decrease in debtors
7,100
Cash generated by operations – Cash generated by operations –
Tax paid – Tax paid –
Interest paid ( 6,000) Interest paid (3,000)
20,000 2,000
Net cash from operating activities (15,000) Net cash from operating activities (8,000)
Investing activities Investing activities

Payments to acquire tangible fixed assets Payments to acquire tangible fixed assets
Net cash used in investing activities Net cash used in investing activities
Financing activities Financing activities

Loan received Capital introduced
Drawings Drawings
Net cash from financing activities Net cash used in financing activities
Net increase in cash and cash equivalents Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year Cash and cash equivalents at beginning of year
Answers to review questions

717
Cash and cash equivalents at end of year Cash and cash equivalents at end of year
Bank balances and cash Bank balances and cash

39.3 (cont’d ) D Duncan
Appendix 1(b) IAS 7

718
7,500 100 22,500 22,500 Cash Flow Statement for the year ended 31 December 20X5
30,000 × 1 (3,100 + 5,900) ÷ 2 = 4,500
(c) (i) = 25% (ii) =5 Operating activities 23,240
Profit from operations
Adjustments for 1,380
Depreciation 1,800 24,620
Profit on sale of tangible fixed asset ( 620) ( 3,000)
39.4 (a) FRS1 D Duncan 21,620

Cash Flow Statement for the year ended 31 December 20X5 Increase in doubtful debt provision 200 –
21,620
Net cash flow from operating activities (note 1) 21,620 Operating cash flows before movements in working capital (5,400)
Returns on investments and servicing of finance 3,820 Increase in stock 1,100 3,820
Receipts from sale of fixed assets Decrease in debtors (8,800 − 7,700) 1,300
(25,130) Increase in creditors (25,130)
Financing 310 310
Loan repaid to J Fry (2,500) Cash generated by operations – 410
Drawings (22,630) 23,240 Tax paid – 720
Increase in cash 1,800 Interest paid 3,820 720
(620) ( 2,500)
Notes: 200 Net cash from operating activities (22,630)
1 Reconciliation of net profit to net cash inflow: (5,400) Investing activities
1,100
Net profit 1,300 Receipts from sale of tangible fixed assets
Depreciation Net cash from investing activities
Profit on sale of van 21,620 Financing activities
Increase in doubtful debt provision 410
Increase in stock 310 Loan repaid to J Fry
Decrease in debtors (8,800 − 7,700) 720 Drawings
Increase in creditors Net cash used in financing activities
Net increase in cash and cash equivalents
2 Analysis of changes in cash during the year: Cash and cash equivalents at beginning of year
Balance at 1 January 20X5
Net cash inflow Cash and cash equivalents at end of year
Balance at 31 December 20X5 Bank balances and cash

40.1 Stanley’s Books (dates ignored) 3,100
TVs Joint Venture with Barclay
Repairs 1,100 Sales 3,100
Profit on venture 840 1,092
Balance c/d 68
Cash to Barclay 1,092
3,100

1,092 Balance b/d

Office rental Barclay’s Books 1,092
Advertising Joint Venture with Stanley
Packaging materials 1,092
TV 300 Balance c/d 1,092
Profit on venture 90
Balance b/d 34

600
68

1,092

1,092 Cash from Stanley

TVs Memorandum Joint Venture Account 3,100 Rent Memorandum Joint Venture Account 2,916
Repairs 1,700 Sales 600 Sales
Office rental 840 3,100 Labour: Planting 260 2,916
Advertising 300 1,503 Labour: Fertilising 180 111,000
Packaging materials 90 Labour: Sundry 210
Profit on venture 34 1,503 Labour: Lifting 416 55,200
1,503 Fertiliser 74 55,800
Stanley 1/2 68 136 Motor expenses 49 55,800
Barclay 1/2 68 3,100 639 Plants 510 30,000
639 30,000
639 Sale expenses 318 38,000
2,916 Sundries 19
2,916 Profit shared: Bull 4/7 160 38,000
40.3 Bull Books 2,142 Craig 2/7 80 280
Rent Joint Venture with Craig and Finch 2,142 Finch 1/7 40
Labour: Planting
Labour: Fertilising 600 Balance c/d 2,916
Sundries 260
Labour 180 41.1 Black, Brown and Cook
Fertiliser Appropriation Account for the year ended 31 July 20X2
Share of profit 19
Balance c/d 210 Net profit b/d 30,000 48,000
Less Salaries: Brown 18,000
74 7,200
160 Cook 3,600 12,400
1,503 Interest on capitals: Black 2,400 18,600
1,200 24,800
1,503 Cash from Finch Brown
Cook
Plants Craig’s Books Balance of profits
Motor expenses Joint Venture with Bull and Finch Shared: Black 2/9
Share of profit Brown 1/3
Balance b/d 510 Balance c/d Cook 4/9
49
80 41.3 I Skip and U Jump
Profit and Loss Appropriation Account 20X4
639 Net profit
Profit shared
639 Cash from Finch

Lifting Finch’s Books I. Skip 15,000
Sale expenses Joint Venture with Bull and Craig U. Jump 15,000
Share of profit
Balance c/d 416 Sales
Cash to Bull 318
Cash to Craig
40
2,142
2,916
Answers to review questions

719
Net profit Profit and Loss Appropriation Account 20X5

1,503 Balance b/d Salaries I. Skip 10,000
639 Interest on capital U. Jump 14,000
Profit shared I. Skip
2,142 U. Jump 5,600
I. Skip 2,800
U. Jump 2,800
2,800

41.3 (cont’d )
Appendix 1

720
Balance Sheet as at 31 March 20X8 (extracts)

Net profit Profit and Loss Appropriation Account 20X6 29,000 Capital Accounts: Blair 100,000
29,000 Short 50,000
Salaries I. Skip 10,000 Steel 25,000 175,000
Interest on capital U. Jump 14,000
Loss shared I. Skip Current Accounts: Blair Short Steel
U. Jump 5,600 Balances 1.4.20X7 18,600 9,460 8,200
I. Skip 2,800 Add Interest on capital 2,000 1,500
U. Jump (1,700) 3,000 20,000 25,000
(1,700) Salaries 42,350 12,100 6,050
Share of profits 63,950 43,560 40,750
Current Account – I Skip Current Account – U Jump Less Interest on drawings
Drawings 400 300 200
20X4 20X4 20X4 20X4 39,000 27,100 16,800 64,460
Drawings 8,000 Profit share 15,000 Drawings 9,000 Profit share 15,000 24,550 16,160 23,750
Bal c/d 7,000 Bal c/d 6,000
15,000 15,000 15,000 15,000 41.8
20X5 13,000 20X5 17,000
Drawings 12,400 20X5 7,000 Drawings 8,600 20X5 6,000 Considerations
Bal c/d Bal b/d 10,000 Bal c/d Bal b/d 14,000 (a) Legal position re Partnership Act 1890: Partners can agree to anything. The
Salary Salary
main thing is that of mutual agreement. The agreement can either be very
Interest on 5,600 Interest on 2,800 formal in a partnership deed drawn up by a lawyer or else it can be evidenced
in other ways.
capital capital
Profit share 2,800 Profit share 2,800 The Act lays down the provisions for profit sharing if agreement has not
25,400 25,400 25,600 25,600 been reached, written or otherwise.
1,700 1,700 (b) As Bee is not taking active part in the running of the business he could be
20X6 12,000 20X6 12,400 20X6 20,000 20X6 8,600 registered as a limited partner under the 1907 Limited Partnership Act. This
Loss share 14,300 Bal b/d 10,000 Loss share 3,700 Bcl b/d 14,000 has the advantage that his liability is limited to the amount of capital invested
Drawings Salary Drawings Salary by him; he can lose that but his personal possessions cannot be taken to pay
Bal c/d Bal c/d any debts of the firm.
Interest on Interest on
As Bee is a ‘sleeping partner’ you will have to decide whether his reward
28,000 capital 5,600 25,400 capital 2,800 should be in the form of a fixed amount, or should vary according to the profits
28,000 25,400 made. In this context you should also bear in mind whether or not he would
suffer a share of losses if they occurred.
20X7 14,300 20X7 3,700
Bal b/d Bal b/d If he were to have a fixed amount, irrespective as to whether profits had
been made or not, then the question arises as to the amount required. This is
41.4 Blair, Short and Steel obviously a more risky investment than, say, government securities. He
Appropriation Account for the year ended 31 December 20X7 therefore would naturally expect to get a higher return.

Net profit b/d 400 111,100 Bee would probably feel aggrieved if the profits rose sharply, but he was still
Add Interest on drawings: Blair 300 900 limited to the amounts already described. There could be an arrangement for
200 extra payments if the profits exceeded a given figure.
Short 112,000
Steel Cee is the expert conducting the operations of the business. He will
51,500 consequently expect a major share of the profits.
Less Interest on Capitals: Blair 3,000 60,500
Short 2,000 60,500 One possibility would be to give him a salary, similar to his current salary,
Steel 1,500 6,500 before dividing whatever profits then remain.
Salaries: Short 20,000 45,000 (c) Dee is making himself available, as well as bringing in some capital. Because of
Steel 25,000 42,350 this active involvement he will affect the profits made. It would seem
Balance of Profits 12,100
Shared: Blair 70%
Short 20% 6,050
Steel 10%

appropriate to give him a salary commensurate with such work, plus a share of Balance Sheet as at 30 September 20X5
the profits.
(d) Interest on capital: Whatever is decided about profit-sharing, it would seem Fixed assets Cost Depn 155,000
appropriate for each of the partners to be given interest on their capitals before Buildings 210,000 55,000 3,400
sharing the balance of the profits. Fixtures
8,200 4,800 158,400
41.9 Frame and French Current assets 218,200 59,800
Trading and Profit and Loss Account for the year ended 30 September 20X5 Stock 112,965
Debtors 61,400 74,210 271,365
Sales 62,740 363,111 Less Provision for doubtful debts 1,250 60,150
Less Cost of goods sold: 210,000 Bank 65,000
Opening stock 272,740 198,530 26,590 6,130 206,365
Add Purchases 164,581 Less Current liabilities 935 140,490 175,000
74,210 Creditors
Less Closing stock 150 Expenses owing 27,525 31,365
Gross profit 58,529 164,731 Net current assets 206,365
Add Reduction in provision for doubtful debts 4,975
3,410 78,666 Less Loan from P Prince
620 86,065
Less Salaries and wages (57,809 + 720) 600 1,632 Financed by Frame 100,000
Office expenses (4,760 + 215) 5,000 3,900 1,500 Capital Accounts: Frame 4,100 75,000
Carriage outwards 5,600 87,565 5,000
Discounts allowed 900 38,750 French French
Bad debts 600 48,815 Current Accounts 30,000 1,200
Loan interest 48,815 29,289 3,750
Depreciation: Fixtures 8,750 Balance 1.10.20X4 68,389 –
Buildings 30,000 Add Interest on capital 31,800
29,289 19,526
Net profit 19,526 Salary 900 24,476
Add Interest on drawings: Frame Balance of profit 35,689 28,200

French Less Drawings 600
Interest on drawings ( 4,324)
Less Interest on capitals: Frame 5,000
French 3,750

Salary: Frame
Balance of Profits
Shared: Frame

French

Answers to review questions

721

Sage and Onion
Appendix 141.11

722
Balance Sheet as at 31 December 20X1

Profit and Loss Appropriation Account for the year ending 31 December 20X1 Fixed assets 50,000
Freehold – Cost 10,500
Sales (508,000 − 6,000) 75,000 502,000 Fixtures and fittings – Cost 15,000 60,500
Opening stock 383,000 – Depreciation 4,500
Purchases (380,000 + 3,000) 398,370 103,900
Carriage in 68,000 21,500 103,630 Current assets 68,000 164,400
Returns 1,130 479,500 Stock 50,000 150,000
Closing stock 1,000 Debtors (52,400 − 2,400) 31,600
Drawings (500 + 630) 12,000 104,630 Bank 37,200 14,400
Gross profit 467,500 Prepayments 8,700 200 164,400
Discounts received 65,500 149,800
69,130 39,130 Current liabilities
Expenses Creditors (33,310 + 3,900) 45,900
Salaries (42,000 + 900) 42,900 640 VAT
Office 7,500 30
Carriage out 3,000 Financed by Sage 100,000
Adverts 5,000 39,800 Capital Accounts 2,000 50,000
Discount allowed 1,200 27,600 5,000 Onion
Repairs and renewals (2,800 − 200) 2,600 12,200 Sage ( 600)
Bad debt 1,400 12,200 Onion 100 2,500
Depreciation – Fixtures and fittings 1,500 12,000
Provision for doubtful debts 400 Current Accounts (30)
Balance b/d 6,100 8,000
Net profit 7,500 Interest on capital (15,860) 6,100
Add Interest on drawings (360 + 280) 100 Interest on current (10,910)
account 9,340 5,060
Interest on current account 20,000 Salaries
Less Interest on capital (5,000 + 2,500) 6,100 Profit
6,100 Drawings/ Int / Goods
Interest on current account
Salaries (12,000 + 8,000)
Balance of Profits
Shared: Sage

Onion

41.13 Reid and Benson Balance Sheet as at 31 December 20X3
74,000
Profit and Loss Account for the year ending 31 December 20X3 Fixed assets 19,400
Fixtures and fittings
Sales 541,750 540,950 Less Depreciation 54,600
Less Returns 800 293,150
Purchases 247,800 Current assets 1,500 114,650
Less Returns 291,830 Stock 136,000 169,250
Carriage inwards 330 175,550 Debtors 125,000
Less Closing stock 72,250 Prepayments 150
Gross Profit 291,500 Cash 400 44,250
Less Expenses 3,150 138,050 169,250
Staff salaries Current liabilities 23,400
Rent 294,650 Creditors
Benson compensation 1,500
General expenses Financed by: Reid Benson
Bad debts 141,150 Capital Accounts 75,000 50,000
Doubtful debt provision 2,500
Depreciation Current Accounts 5,000 4,000
Insurance 10,000 Balance b/d 18,000 –
Net profit transferred to Appropriation Account 9,500 Salary ( 1,050)
1,150 Interest on Drawings (550)
1,150 Interest on capital a/c 3,750 2,500
7,400 Interest on current a/c 250
2,350 Profit 200
Drawings 29,490 19,660
Appropriation Account for the year ending 31 December 20X3 72,250 Balance c/d (17,000) (20,000)
Net profit 18,000 38,440
Less salary – Reed 54,250 5,810

Add Interest on Drawings – Reed 1050 1,600 42.1
– Benson 550 55,850 (a)
Goodwill
3,750 6,250 Other assets Balance Sheet as at 31 March 20X3 24,000
2,500 49,600 100,000
Less Interest on Capital – Reed 124,000
– Benson 450
49,150 37,200
Less Interest on Current a/c – Reed 250 49,150 Capitals: Vantuira (30,000 + 7,200) 24,800
– Benson 200 Aparecida (20,000 + 4,800) 62,000
Fraga (50,000 + 12,000) 124,000
Answers to review questionsBalance of Profits
Shared – Reed 29,490 (b) Goodwill Workings
723 19,660 Before
– Benson Vantuira
Aparecida
Fraga After Loss or Gain Action needed
3/10 7,200 1/2 12,000 Gain 4,800 Debit Vantuira 4,800
1/5 4,800 1/8 3,000 Loss 1,800 Credit Aparecida 1,800
1/2 12,000 3/8 9,000 Loss 3,000 Credit Fraga 3,000

24,000 24,000