Studocu is not sponsored or endorsed by any college or university Cambridge International AS and A Level Accounting Coursebook Answer Section Management Accounting (Quaid-i-Azam University) Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Answers to activities, practice exercises and exam practice questions 1 Double-entry bookkeeping: cash transactions Practice exercises 1 Debit account Credit account 1 Noel pays a cheque into his business bank account as capital Bank Noel – Capital 2 Purchases some goods for resale and pays by cheque Purchases Bank 3 Sells some goods and banks the takings Bank Sales 4 Pays rent by cheque Rent payable Bank 5 Purchases shop fittings and pays by cheque Shop fittings Bank 6 Cashes cheque for personal expenses [1] Drawings Bank 7 Pays wages by cheque Wages Bank 8 Returns goods to supplier and banks refund Bank Purchases returns 9 Receives rent from tenant and banks cheque Bank Rent receivable 10 Refunds money to customer by cheque for goods returned [2] Sales returns Bank 11 Motor vehicle purchased and paid for by cheque Motor vehicles Bank 12 Pays for petrol for motor vehicle and pays by cheque [3] Motor expenses Bank 2 Bank account $ $ May 1 Martine – capital 300 May 3 Rent payable 100 May 2 Charline – loan 1 000 May 4 Shop fittings 400 May 5 Purchases returns 20 May 4 Purchases 300 May 6 Sales 40 May 7 Wages 60 May 8 Drawings 100 Martine capital account $ $ May 1 Bank 300 Charline – Loan account $ $ May 2 Bank 1 000 [3] The costs of running motor vehicles (petrol, licence, insurance, repairs, etc.) are not debited to the motor vehicles account. A new account, motor expenses, is opened to record them. [1] The cheque which Noel cashed was for his personal expenses. It is therefore debited to the Drawings account. This text has not been through the Cambridge endorsement process. All answers that appear in this publication have been written by the author. 2 [2] Following the principle of purchases returns, sales returns are always debited to their own account, never to the sales account. Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Rent payable account $ $ May 3 Bank 100 Shop fittings account $ $ May 4 Bank 400 Purchases account $ $ May 4 Bank 300 Purchases returns account $ $ May 5 Bank 20 Sales account $ $ May 6 Bank 40 Wages account $ $ May 7 Bank 60 Drawings account $ $ May 8 Bank 100 Notes: 1 The narrative must always contain the name of the account where the opposite entry can be made. 2 Purchases returns are always posted to their own account, never to the credit of the purchases account. 3 a Debit account Credit account July 1 Lee started business by paying $20 000 of his savings into a business bank account Bank Capital He also had $500 in cash which he decided to use to pay cash expenses for the business Cash Capital 2 Bought some goods for resale for $1300, paying by cheque Purchases Bank 3 Paid $2500 by cheque to rent some business premises Rent payable Bank 4 Bought some ofiice furniture by cheque for $750 Ofiice furniture Bank Bought ofiice stationery for $120, paying by cash Stationery Cash 6 Sold some goods for $1700 and paid the money into the bank Bank Sales Sold more goods for $180. He received cash for this sale Cash Sales 8 Retuned some faulty goods valued at $60 to the supplier and received a cheque refund Bank Purchases returns 9 A customer returned some faulty goods. Lee gave the customer a cash refund of $25 Sales returns Cash 10 Sold goods for $420. Lee received cash for the goods. He kept $200 as business cash and banked the rest Cash Bank Sales 11 Lee took cash drawings of $160 Drawings Cash 3 Answers to activities, practice exercises and exam practice questions: Chapter 1 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
b Bank account $ $ July 1 Capital 20 000 July 2 Purchases 1 300 July 6 Sales 1 700 July 3 Rent 2 500 July 8 Purchases returns 60 July 4 Ofiice furniture 750 July 10 Sales 220 Cash account $ $ July 1 Capital 500 July 4 Stationery 120 July 6 Sales 180 July 9 Sales returns 25 July 10 Sales 200 July 11 Drawings 160 Capital account $ $ July 1 Bank 20 000 Cash 500 Purchases account $ $ July 2 Bank 1 300 Sales account $ $ July 6 Bank 1 700 Cash 180 July 10 Bank 220 Cash 200 Purchases returns account $ $ July 8 Bank 60 Sales returns account $ $ July 9 Cash 25 Rent account $ $ July 3 Bank 2 500 Ofiice furniture account $ $ July 4 Bank 750 Cambridge International AS and A Level Accounting 4 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Stationery account $ $ July 4 Cash 120 Drawings account $ $ July 11 Cash 160 4 Debit account Credit account 1 Local taxes paid by cheque Taxes Bank 2 Bank pays interest to trader Bank Interest received 3 Other operating expenses paid by cheque Other operating expenses Bank 4 Postage and stationery paid by cheque Postage and stationery Bank 5 Telephone bill paid by cheque Telephone Bank 6 Carriage inwards paid by cheque Carriage inwards Bank 7 Carriage outwards paid by cheque Carriage outwards Bank 8 Interest paid by cheque to brother in respect of a loan received from him Interest payable Bank 9 Interest paid to bank Interest payable / bank interest Bank 5 Bank account $ $ June 1 Farook – capital 15 000 June 2 Premises 8 000 Amna – loan 5 000 June 3 Ofiice furniture 2 000 June 5 Sales 1 500 June 4 Purchases 5 000 June 10 Sales 2 400 June 6 Insurance 600 June 12 Purchase returns 900 June 7 Motor van 3 000 June 13 Insurance 100 June 8 Motor expenses 50 June 14 Ofiice furniture 800 June 9 Purchases 2 000 June 10 Wages 400 June 11 Sales returns 1 200 June 13 Drawings 200 June 15 Loan 1 000 Capital account $ $ June 1 Bank 15 000 Loan account $ $ June 15 Bank 1 000 June 1 Bank 5 000 Premises account $ $ June 2 Bank 8 000 Answers to activities, practice exercises and exam practice questions: Chapter 1 5 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Ofiice furniture account $ $ June 3 Bank 2 000 June 14 Bank 800 Purchases account $ $ June 4 Bank 5 000 June 9 Bank 2 000 Sales account $ $ June 5 Bank 1 500 June 10 Bank 2 400 Insurance account $ $ June 6 Bank 600 June 13 Bank 100 Motor van account $ $ June 7 Bank 3 000 Motor expenses account $ $ June 8 Bank 50 Wages account $ $ June 10 Bank 400 Sales returns account $ $ June 11 Bank 1 200 Purchases returns account $ $ June 12 Bank 900 Drawings account $ $ June 13 Bank 200 Exam practice questions Multiple-choice questions 1 B 2 B 3 D 4 B 6 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
2 Double-entry bookkeeping: credit transactions Practice exercises 1 Khor account $ $ June 10 Purchases returns [1] 180 June 1 Purchases 2 700 June 30 Bank 2 394 June 30 Discounts received 126 Lim account $ $ June 30 Bank 2 394 June 15 Purchases 2 520 June 30 Discounts received 126 Lai account $ $ June 5 Sales 600 June 25 Sales returns 180 June 30 Bank 399 June 30 Discounts allowed 21 Chin account $ $ June 20 Sales 1 300 June 30 Bank 1 235 June 30 Discounts allowed 65 Purchases account $ $ June 1 Khor 2 700 June 15 Lim 2 520 Purchases returns account $ $ June 10 Khor 180 Sales account $ $ June 5 Lai 600 June 20 Chin 1 300 Sales returns account $ $ June 25 Lai 180 [2] [1] The goods which Geraud returned to Khor will have had the trade discount deducted from them when they were purchased. This must be adjusted when the goods are returned. Their cost was $200 − 10% trade discount of $20 = 180. [2] The same is true for the goods returned by Lai, which had cost $200 but need to have the 10% trade discount deducted. 7 Answers to activities, practice exercises and exam practice questions: Chapter 2 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Bank account $ $ June 30 Lai 399 June 30 Khor 2 394 June 30 Chin 1 235 June 30 Lim 2 394 Discounts received account $ $ June 30 Khor 126 June 30 Lai 126 Discounts allowed account $ $ June 30 Lai 21 June 30 Chin 65 Note: Remember trade discount is never entered in the ledger. 2 In the books of Brian: Ken account $ $ April 1 Sales 1 500 April 2 Purchases 400 April 3 Sales 600 April 6 Purchases 720 April 12 Bank 380 April 10 Bank 1 455 Discount received 20 Discount allowed 45 Sales account $ $ April 1 Ken 1 500 April 3 Ken 600 Purchases account $ $ April 2 Ken 400 April 6 Ken 720 Bank account $ $ April 10 Ken 1 455 April 12 Ken 380 Discounts allowed account $ $ April 10 Ken 45 Discounts received account $ $ April 12 Ken 20 Cambridge International AS and A Level Accounting 8 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
In the books of Ken: Brian account $ $ April 2 Sales 400 April 1 Purchases 1 500 April 6 Sales 720 April 3 Purchases 600 April 10 Bank 1 455 April 12 Bank 380 Discount received 45 Discount allowed 20 Sales account $ $ April 2 Brian 400 April 6 Brian 720 Purchases account $ $ April 1 1 500 April 3 600 Bank account $ $ April 10 Brian 380 April 12 Brian 1 455 Discounts allowed account $ $ April 12 Brian 20 Discounts received account $ $ April 10 Brian 45 3 Adams account $ $ July 5 Purchases returns 510 July 1 Purchases 4 250 July 14 Bank 3 590 Discount received 150 Bond account $ $ July 14 Bank 2 160 July 4 Purchases 2 250 Discount received 90 Astle account $ $ July 9 Purchases returns 640 July 7 Purchases 5 600 July 14 Bank 4 712 Discount received 248 Answers to activities, practice exercises and exam practice questions: Chapter 2 9 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Cairns account $ $ July 14 Bank 3 591 July 10 Purchases 3 780 Discount received 189 Purchases account $ $ July 1 Adams 4 250 July 4 Bond 2 250 July 7 Astle 5 600 July 10 Cairns 3 780 Purchases returns account $ $ July 5 Adams 510 July 9 Astle 640 Bank account $ $ July 14 Adams 3 590 Bond 2 160 Astle 4 712 Cairns 3 591 Discount received account $ $ July 14 Adams 150 Bond 90 Astle 248 Cairns 189 4 Blignaut account $ $ March 1 Sales 2 250 March 15 Bank 2 160 Discount allowed 90 Ebrahim account $ $ March 4 Sales 3 400 March 6 Sales returns 170 March 15 Bank 3 069 Discount allowed 161 Friend account $ $ March 8 Sales 2 560 March 15 Bank 2 432 Discount allowed 128 Cambridge International AS and A Level Accounting 10 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Flower account $ $ March 12 Sales 1 800 March 14 Sales returns 315 March 15 Bank 1 426 Discount allowed 59 Sales account $ $ March 1 Blignaut 2 250 March 4 Ebrahim 3 400 March 8 Friend 2 560 March 12 Flower 1 800 Sale returns account $ $ March 6 Ebrahim 170 14 Flower 315 Bank account $ $ March 15 Blignaut 2 160 Ebrahim 3 069 Friend 2 432 Flower 1 426 Discount allowed account $ $ March 15 Blignaut 90 Ebrahim 161 Friend 128 Flower 59 Exam practice questions Multiple-choice questions 1 A 2 B 3 A Answers to activities, practice exercises and exam practice questions: Chapter 2 11 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
3 Books of prime entry Activities Activity 1 Purchases journal Sales journal $ $ March 1 Tikolo 8 000 March 4 Snyman 1 080 March 6 Walters 7 200 March 10 Karg 2 250 March 13 Burger 5 250 March 17 Kotze 2 700 March 18 Tikolo 4 800 March 25 Snyman 1 620 25 250 7 650 Purchases returns journal Sales returns journal $ $ March 12 Tikolo 400 March 11 Snyman 200 March 22 Burger 1 000 March 20 Karg 300 1 400 500 Cash book Discounts Bank Discounts Bank $ $ $ $ March 31 Snyman 100 2 400 March 31 Tikolo 620 11 870 March 31 Karg 78 1 872 March 31 Walters 360 6 840 March 31 Kotze 135 2 565 March 31 Burger 170 4 080 313 1150 Purchases account $ $ March 31 Purchases journal total 25 250 Purchases returns account $ $ March 31 Purchases returns journal total 1 400 Sales account $ $ March 31 Sales journal total 7 650 Sales returns account $ $ March 31 Sales returns journal total 500 Discounts allowed account $ $ March 31 Cash book total 313 12 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Discounts received account $ $ March 31 Cash book total 1 150 Tikolo account $ $ March 12 Purchases returns 400 March 1 Purchases 8 000 March 31 Bank 11 780 March 18 Purchases 4 800 March 31 Discounts received 620 Walters account $ $ March 31 Bank 6 840 March 6 Purchases 7 200 Discounts received 360 Burger account $ $ March 22 Purchases returns 1 000 March 13 Purchases 5 250 March 31 Bank 4 080 March 31 Discounts received 170 Snyman account $ $ March 4 Sales 1 080 March 11 Sales returns 200 March 25 Sales 1 620 March 31 Bank 2 400 March 31 Discounts allowed 100 Karg account $ $ March 10 Sales 2 250 March 20 Sales returns 300 March 31 Bank 1 872 March 31 Discounts allowed 78 Kotze account $ $ March 17 Sales 2 700 March 31 Bank 2 565 March 31 Discounts allowed 135 Activity 2 Cash book Disc Cash Bank Disc Cash Bank $ $ £ $ $ $ March 1 Sales 1 100 March 2 Electricity 130 March 3 Sales 900 March 4 Bank 1 700 March 4 Cash 1 700 March 5 Other operating expenses 25 March 6 Bank 800 March 6 Cash 800 March 7 Purchases 750 13 Answers to activities, practice exercises and exam practice questions: Chapter 3 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Activity 3 Accounts Dr Cr $ $ a A & Co. 120 A. Cotter 120 Correction of credit note no. 964 received from A and Co. Ltd. in the sum of $120 debited to A. Cotter in error. b Purchases 400 Hussain 400 Correction of invoice no. 104 in the sum of $400 received from Hussain omitted from the purchases journal. c Maya 45 Sales 45 Correction of posting error: invoice no. 6789 in the sum of $150 sent to Maya entered in the sales journal as $105. d Machinery 2 300 Purchases 2 300 Correction of purchase of machine posted in error to purchases account. e Sales returns 68 Hanif 68 Correction of omission of credit note no.23 for $68 and sent to Hanif, omitted from the sales returns journal. Practice exercises 1 a Purchases journal Purchases returns journal $ $ April 1 Bilal 2 400 April 8 Bilal [1] 100 April 3 Asad 1 040 April 21 Asma [1] 600 April 15 Asma 3 000 April 26 Bilal 3 200 9 640 700 Sales journal Sales returns journal $ $ April 2 Imran 720 April 13 Imran [1] 60 April 10 Raza 880 April 24 Amna [1] 300 April 16 Amna 1 200 April 17 Raza 1 280 4 080 360 Journal Accounts Dr Cr $ $ 5 April Motor vehicles/delivery van 6 000 Syed 6 000 Purchase of delivery van, from Syed, invoice no. 324. [1] It is assumed that the value of the goods returned were afier adjusting for the trade discount. Whether a returns amount given needs to be adjusted for the trade discount should be clear. 14 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
b Bank account Discount allowed Bank Discount received Bank $ $ $ $ April 30 Imran 33 627 April 30 Bilal 275 5 225 April 30 Raza 108 2 052 April 30 Asma 120 2 280 April 30 Amna 45 855 April 30 Asad 52 988 April 30 Syed 6 000 186 447 Bilal account $ $ April 8 Purchase returns 100 April 1 Purchases 2 400 April 30 Bank (5600 − 100 × 95%) 5 225 April 26 Purchases 3 200 Discount received 275 5 600 5 600 Asad account $ $ April 30 Bank (1040 × 95%) 988 April 3 Purchases 1 040 Discount received 52 1 040 1 040 Asma account $ $ April 21 Purchase returns 600 April 15 Purchases 3 000 April 30 Bank (3000 − 600 × 95%) 2 280 Discount received 120 3 000 3 000 Purchases account $ $ April 30 Purchases journal total 9 640 Purchases returns account $ $ April 30 Purchases returns journal total 700 Imran account $ $ April 2 Sales 720 April 13 Sales returns 60 April 30 Bank (720 − 60 × 95%) 627 Discount allowed 33 720 720 Answers to activities, practice exercises and exam practice questions: Chapter 3 15 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Raza account $ $ April 10 Sales 880 April 30 Bank (2160 × 95%) 2 052 April 17 Sales 1 280 Discount allowed 108 2 160 2 160 Amna account $ $ April 16 Sales 1 200 April 24 Sales returns 300 April 30 Bank (1200 − 300 × 95%) 855 Discount allowed 45 1 200 1 200 Sales account $ $ April 30 Sales journal total 4 080 Sales returns account $ $ April 30 Sales returns journal total 360 Discount allowed account $ $ April 30 Bank 176 Discount received account $ $ April 30 Bank 447 Syed account $ $ April 30 Bank 6 000 April 5 Del. Van (Inv 324) 6 000 Delivery van account $ $ April 5 Syed 6 000 Cambridge International AS and A Level Accounting 16 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
2 Date Accounts Dr Cr $ $ a March 3 Machinery 10 000 Mumtaz 10 000 Purchase of machinery on credit on invoice 506. b March 6 Sales 675 Wayne 675 Correction of invoice 495 entered twice in error. c March 7 Delivery van 4 250 Younas 4 250 Purchase of new delivery van from Younas on invoice 998. d March 10 Sales returns 190 Browne 190 Credit note 103 omitted from sales returns journal. e March 15 Geeta 1 300 Sandra 1 300 Transfer of invoice no. 854 from Sandra posted to Geeta’s account in error. Exam practice questions Multiple-choice questions 1 C 2 B 3 B 4 C Answers to activities, practice exercises and exam practice questions: Chapter 3 17 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
4 Balancing accounts Practice exercise 1 Three-column cash book Discounts allowed Cash Bank Discounts received Cash Bank $ $ $ $ $ $ March 1 Capital 10 000 March 2 Rent 1 000 March 3 Sales 550 March 7 Joe 190 3 610 March 7 Postages 20 March 7 Balance c/d 530 5 390 550 10 000 190 550 10 000 March 8 Balance b/d 530 5 390 Capital account $ $ March 7 Balance c/d 10 000 March 1 Bank 10 000 360 March 8 Balance b/d 10 000 Purchases account $ $ March 2 Joe 4 000 March 7 Balance c/d 4 000 March 8 Balance b/d 4 000 Joe account $ $ March 5 Purchases returns 200 March 2 Purchases 4 000 March 7 Bank ($4000 − $200 × 95%) 3 610 March 7 Discount received 190 4 000 4 000 Purchases returns account $ $ March 7 Balance c/d 200 March 5 Joe 200 March 8 Balance b/d 200 Barney account $ $ March 3 Sales 2 000 March 7 Balance c/d 2 000 March 8 Balances b/d 2 000 Cambridge International AS and A Level Accounting 18 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Sales account $ $ March 7 Balance c/d 2 550 March 3 Barney 2 000 March 3 Cash 550 2 550 2 550 March 8 Balance b/d 2 550 Rent account $ $ March 2 Bank 1 000 March 7 Balance c/d 1 000 March 8 Balance b/d 1 000 Postages account $ $ March 7 Cash 20 March 7 Balance c/d 20 March 8 Balance b/d 20 Answers to activities, practice exercises and exam practice questions: Chapter 4 19 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
5 The classification of accounts and division of the ledger Activities Activity 1 Account Personal Non-current asset Current asset Revenue or other income Expense Capital ✓ Sales returns ✓ Delivery vans ✓ Purchases ✓ Rent payable ✓ Trade receivables2 ✓ ✓ Inventory ✓ Discount allowed ✓ Drawings ✓ Bank1 ✓ Rent receivable ✓ Trade payables3 ✓ Computer ✓ Wages ✓ Discount received ✓ Notes: 1 The bank account would be a ‘current liability’ if it was overdrawn. 2 Trade payables is the International Accounting Standards terminology for the aggregate amount owing to suppliers. It is not literally a personal account but is a description given to the total of the credit balances on the supplier personal accounts. Trade payables are presented as a ‘current liability’ in the statement of financial position (see later chapters) at the end of an accounting period. 3 Trade receivables is the International Accounting Standards terminology for the aggregate amount receivable from customers. It is not literally a personal account but is a description given to the total of the debit balances on the customer personal accounts. Trade receivables are presented as a ‘current asset’ in the statement of financial position (see later chapters) at the end of an accounting period. 20 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Practice exercises 1 Statement True or false The purchase of a motor car is revenue expenditure False The payment of wages to employees is revenue expenditure True The accounts for customers are kept in the sales ledger True Repairs to the offlice windows is an example of capital expenditure False The purchase of offlice stationery is revenue expenditure True The sales account is a nominal account True The fixtures and fittings account is a real account True Suppliers’ accounts are kept in the nominal ledger False The day-to-day costs of running the business is an example of revenue expenditure True 2 a The sales account records the revenue of the business and is an example of a nominal account. b The purchase of a new machine is an example of capital expenditure and the account is an example of a real account c Small items of expenditure are recorded in the petty cash book. d A non- current asset is bought to keep in the business for a long period of time. 21 Answers to activities, practice exercises and exam practice questions: Chapter 5 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
6 The trial balance Activities Activity 1 The grocer’s trial balance at 31 December Account Dr Cr $ $ Premises 50 000 Motor vans 8 000 Ofiice furniture 2 000 Computer 3 000 Sales 60 000 Sales returns 700 Purchases 4 000 Purchases returns 500 Motor vehicle running expenses 4 200 Wages 1 800 Rent 2 000 Bank 1 650 Capital 20 000 Drawings 3 150 80 500 80 500 Activity 2 a Complete reversal of entries b Error of principle c Error of omission d Compensating errors e Error of commission f Error of original entry Practice exercises 1 Hassan’s trial balance at 31 December 2015 Account Dr Cr $ $ Sales 160 000 Sales returns 2 600 Purchases 84 000 Purchases returns 3 400 Wages 26 000 Heating and lighting 3 160 Rent payable 5 000 Rent receivable 1 000 Advertising 2 900 Postage and telephone 2 740 Discounts allowed 6 100 Discounts received 5 900 Plant and machinery 50 000 Delivery van 9 000 22 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
$ $ Bank 2 300 Trade receivables 7 400 Trade payables 3 700 Drawings 8 800 Capital 36 000 210 000 210 000 Notes: • Items in the debit column are mainly assets or expenses. • Items in the credit column are mainly income or liabilities. 2 Andrea’s corrected trial balance at 31 December 2015 Account Dr Cr $ $ Premises 70 000 Plant and machinery 30 000 Ofiice equipment 5 000 Wages 7 600 Rent payable 4 000 Heating and lighting 1 500 Other operating expenses 1 720 Sales 133 000 Purchases 57 000 Discounts allowed 2 450 Discounts received 1 070 Bank 2 910 Trade receivables 14 000 Trade payables 10 140 Purchases returns 2 400 Sales returns 3 150 Rent receivable 1 200 Capital 80 000 Drawings 28 480 227 810 227 810 Exam practice questions Multiple-choice questions 1 B 2 B 3 C 4 C 23 Answers to activities, practice exercises and exam practice questions: Chapter 6 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
7 Income statements for sole traders Activities Activity 1 Liz Trading section of the income statement for the year ended 31 March 2016 Debit Credit $ $ Purchases 68 000 Sales 150 000 Less: purchases returns 1 700 Less: sales returns 4 200 66 300 145 800 Activity 2 Rodney Trading section of the income statement for the year ended 30 September 2015 Debit Credit $ $ Purchases 84 000 Sales 140 000 Less: purchases returns 1 400 Less: sales returns 1 200 82 600 138 800 Less: closing inventory 4 900 Cost of sales 77 700 Gross profit 61 100 138 800 138 800 Activity 3 Sofia Income statement for the year ended 31 December 2015 $ $ Revenue 200 000 Less: sales returns 6 300 193 700 Cost of sales Purchases 86 500 Less: purchases returns 5 790 80 710 Less: inventory at 31 December 2015 10 000 70 710 Gross profit 122 990 Add: rent received 3 000 Add: discounts received 3 210 129 200 Less: Wages 61 050 Rent payable 12 000 Electricity 5 416 Insurance 2 290 Cambridge International AS and A Level Accounting 24 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Income statement for the year ended 31 December 2015 $ $ Motor van expenses 11 400 Discounts allowed 5 110 Other operating expenses 3 760 Loan interest 1 000 102 026 Profit for the year 27 174 Activity 4 Khor Extract from the income statement for the year ended 31 December 2015 $ $ $ Revenue 48 000 Less: sales returns 1 600 Less: cost of sales 46 400 Opening inventory 4 000 Purchases 21 000 Less: purchases returns 900 20 100 24 100 Less: closing inventory 7 500 16 600 Gross profit 29 800 Activity 5 Lamar Income statement for the year ended 31 March 2016 $ $ $ Revenue 104 000 Less: sales returns 3 700 100 300 Less: cost of sales Opening inventory 6 000 Purchases 59 000 Less: purchases returns 2 550 56 450 62 450 Less: closing inventory 10 000 52 450 Gross profit 47 850 Rent receivable 1 800 Discounts receivable 770 50 420 Less: Wages 13 000 Rent payable 2 000 Heating and lighting 2 700 Repairs to machinery 4 100 (cont.) Answers to activities, practice exercises and exam practice questions: Chapter 7 25 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Income statement for the year ended 31 March 2016 $ $ $ Discounts allowed 1 030 Loan interest 750 23 580 Profit for the year 26 840 Activity 6 Sara Income statement for the year ended 31 March 2016 $ $ $ Sales 40 000 Less: cost of sales Opening inventory 5 000 Purchases 20 500 Carriage inwards 1 320 21 820 26 820 Less: closing inventory 3 000 Cost of sales 23 820 Gross profit 16 180 Less: Wages 6 000 Rent 10 000 Electricity 2 600 Carriage outwards 1 080 Other operating expenses 1 250 20 930 Loss for the year (4 750) Practice exercises 1 Hadlee Income statement for the year ended 31 December 2015 $ $ $ Sales 72 800 Less: sales returns 1 600 71 200 Less: cost of sales Opening inventory 11 000 Purchases 28 540 Less: purchases returns 2 144 26 396 37 396 Less: closing inventory 9 000 28 396 Gross profit 42 804 Less: expenses Wages 3 100 Rent 4 000 Heating and lighting 5 120 26 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
$ $ $ Advertising 2 400 Other operating expenses 2 010 Loan interest 250 16 880 Profit for the year 25 924 2 Tikolo Income statement for the year ended 31 March 2016 $ $ $ Sales 204 000 Less: sales returns 3 600 200 400 Less: cost of sales Opening inventory 18 000 Purchases $(120 000 − 2 000) 118 000 Less: purchases returns 4 440 113 560 Add: carriage inwards 5 000 118 560 136 560 Less: closing inventory 20 000 116 560 Gross profit 83 840 Add: other income Discounts received 3 160 87 000 Less: expenses Wages 36 800 Rent 8 000 Heating and lighting 6 450 Discounts allowed 5 020 Carriage outwards 3 724 Other operating expenses 1 143 61 137 Profit for the year 25 863 Exam practice questions Multiple-choice questions 1 A 2 C 3 C 4 D 5 A Answers to activities, practice exercises and exam practice questions: Chapter 7 27 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
8 Statements of financial position for sole traders Practice exercises 1 Sofia Statement of financial position at 31 December 2015 $ Non-current assets Land and buildings 84 000 Plant and machinery 22 000 Motor vans 19 000 125 000 Current assets Inventory 10 000 Trade receivables 12 425 Cash and cash equivalents 5 065 27 490 Total assets 152 490 Capital and liabilities Capital at 1 January 2015 127 000 Add: profit for the year 27 174 154 174 Less: drawings 25 904 128 270 Non-current liability Loan 20 000 Current liabilities Trade payables 4 220 Total capital and liabilities 152 490 2 Lamar Statement of financial position at 31 March 2016 $ Non-current assets Premises 60 000 Plant and machinery 12 000 72 000 Current assets Inventory 10 000 Trade receivables 1 624 Cash and cash equivalents 5 000 16 624 Total assets 88 624 Cambridge International AS and A Level Accounting 28 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
$ Capital and liabilities Capital at 1 April 2016 55 000 Add: profit for the year 26 840 81 840 Less: drawings 10 096 71 744 Non-current liability Loan 15 000 Current liabilities Trade payables 1 880 Total capital and liabilities 88 624 3 Hadlee Statement of financial position at 31 December 2015 $ Non-current assets Plant and machinery 25 000 Ofiice furniture 6 000 31 000 Current assets Inventory 9 000 Trade receivables 4 740 Cash and cash equivalents 3 327 17 067 Total assets 48 067 Capital and liabilities Opening capital 20 000 Add: profit for the year 25 924 45 924 Less: drawings (4 833) 41 091 Non-current liabilities Loan 5 000 Current liabilities Trade payables 1 976 Total capital and liabilities 48 067 Answers to activities, practice exercises and exam practice questions: Chapter 8 29 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Tikolo Statement of financial position at 31 March 2016 $ Non-current assets Fixtures and fittings 9 000 Ofiice furniture 2 000 11 000 Current assets Inventory 20 000 Trade receivables 1 970 Cash and cash equivalents 2 496 24 466 Total assets 35 466 Capital and liabilities Opening capital 30 000 Add: profit for the year 25 863 55 863 Less: drawings $(20 527 + 2 000) (22 527) 33 336 Current liabilities Trade payables 2 130 Total capital and liabilities 35 466 Exam practice questions Multiple-choice questions 1 D 2 A 3 B 4 C Cambridge International AS and A Level Accounting 30 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
9 Accounting principles or concepts Exam practice questions Multiple-choice questions 1 B 2 A 3 A 4 B 5 B 6 D Answers to activities, practice exercises and exam practice questions: Chapter 9 31 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
10 Accruals and prepayments (the matching concept) Activities Activity 1 a b Alexander’s total telephone expense for the year is $3410. This is made up of calls $(1450 + 360) = $1810 + line rental $(2000 − 400) = $1600. c The amount of $360 for calls owing will appear under current liabilities. The figure of $400 will appear under current assets. Never net ofi the two amounts. Activity 2 Rent payable account 2015 2015 $ $ Dec 31 Bank 1 000 Dec 31 Income statement 800 Dec 31 Balance c/d (rent prepaid) 200 1 000 1 000 2016 Jan 1 Balance b/d 200 Electricity account 2015 2015 $ $ Dec 31 Bank 630 Dec 31 Income statement 810 Dec 31 Balance c/d (accrued expense) 180 810 810 2016 Jan 1 Balance b/d 180 Telephone account 2015 2015 $ $ Dec 31 Bank 1 450 Dec 31 Balance c/d (rental prepaid) 400 Dec 31 Bank 2 000 Dec 31 Income statement 3 410 Dec 31 Balance c/d (calls owing) 360 3 810 3 810 2016 2016 Jan 1 Balance b/d 400 Jan 1 Balance b/d 360 32 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Stationery account 2015 2015 $ $ Dec 31 Bank 420 Dec 31 Income statement 410 Dec 31 Balance c/d (amount owing) 130 Dec 31 Balance c/d (inventory) 140 550 550 2016 Jan 1 Balance b/d 140 Jan 1 Balance b/d 130 Rent receivable account 2015 2015 $ $ Dec 31 Income statement 400 Dec 31 Bank 300 Dec 31 Balance c/d (rent owing) 100 400 400 2016 Jan 1 Balance b/d 100 Activity 3 a Devram Income statement for the year ended 31 December 2015 $ $ Gross profit 30 000 Rent $(2 600 − 300) 2 300 Electricity $(926 + 242) 1 168 Stationery $(405 + 84 − 100) 389 Motor expenses $(725 + 160) 885 Interest on loan $(500 + 500) 1 000 5 742 Profit for the year 24 258 Note: Unpaid interest on the loan must be accrued although it is not mentioned in the question. b Devram Statement of financial position at 31 December 2015 $ $ Non-current assets 40 000 Current assets Inventory 7 000 Stationery inventory 100 7 100 Trade receivables 1 600 (cont.) 33 Answers to activities, practice exercises and exam practice questions: Chapter 10 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Statement of financial position at 31 December 2015 $ $ Other receivables: prepaid rent 300 Cash and cash equivalents 2 524 11 524 Total assets 51 524 Capital and liabilities Capital at 1 January 2015 20 000 Profit for the year 24 258 44 258 Less: drawings 5 120 39 138 Non-current liabilities Long-term loan 10 000 Current liabilities Trade payables 1 400 Other payables $(242 + 84 + 160 + 500) 986 2 386 Total capital and liabilities 51 524 Practice exercises 1 a Prudence; accruals b Antonia Income statement for the year ended 31 December 2015 $ $ $ Sales 120 000 Less: sales returns 7 300 112 700 Less: cost of sales Opening inventory 5 660 Purchases 62 400 Less: purchases returns 4 190 58 210 63 870 Less: closing inventory 8 000 55 870 Gross profit 56 830 Less: expenses Wages $(17 310 + 558) 17 868 Rent $(3 200 − 800) 2 400 Heating and lighting $(2 772 + 328) 3 100 Motor expenses 1 284 Loan interest $(500 + 250) 750 25 402 Profit for the year 31 428 34 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
c Antonia Statement of financial position at 31 December 2015 $ Non-current assets Premises 24 000 Motor vehicles 7 400 31 400 Current assets Inventory 8 000 Trade receivables 12 440 Other receivables: prepaid rent 800 Cash and cash equivalents 5 055 26 295 Total assets 57 695 Capital and liabilities Opening capital 16 000 Profit for the year 31 428 47 428 Less: drawings 7 036 40 392 Non-current liabilities Loan 10 000 Current liabilities Trade payables 6 167 Other payables $(558 + 328 + 250) 1 136 7 303 Total capital and liabilities 57 695 d The loan received is shown as a non-current liability as it is not due for repayment within 12 months from the date of the statement of financial position (31 December 2015). Any part of it which becomes due for repayment within 12 months will be shown as a current liability. 2 a Desmond Income statement for the year ended 31 March 2016 $ $ $ Sales 219 740 Less: sales returns 17 420 202 320 Less: cost of sales Opening inventory 9 000 Purchases 100 100 Less: purchases returns 8 777 91 323 Add: carriage inwards $(5 170 + 330) 5 500 96 823 105 823 Less: closing inventory 11 000 94 823 (cont.) Answers to activities, practice exercises and exam practice questions: Chapter 10 35 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Income statement for the year ended 31 March 2016 $ $ $ Gross profit 107 497 Add: other income Rent receivable $(2 600 − 200) 2 400 Interest receivable $(840 + 160) 1 000 Discounts received 1 040 111 937 Less: expenses Wages 67 000 Rent payable $(8 000 + 2 000) 10 000 Discounts allowed 2 826 Carriage outwards $(7920 + 280) 8 200 Stationery and other operating expenses $(1 963 − 200 − 120) 1 643 89 669 Profit for the year 22 268 b Desmond Statement of financial position at 31 March 2016 $ Non-current assets Plant and machinery 36 000 Motor vehicles 17 000 53 000 Current assets Inventory 11 000 Trade receivables 7 060 Other receivables (other operating expenses, stationery inventory and interest accrued) 480 Cash and cash equivalents 5 400 23 940 Total assets 76 940 Capital and liabilities Opening capital 70 000 Add: profit for the year 22 268 92 268 Less: drawings 22 088 70 180 Current liabilities Trade payables 3 950 Other payables $(2000 + 330 + 280 + 200) 2 810 6 760 Total capital and liabilities 76 940 Cambridge International AS and A Level Accounting 36 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
c Carriage inwards is the cost of bringing the goods from the supplier. It is regarded as part of the cost of the item bought and appears in the calculation of the cost of sales. Carriage outwards is the cost of delivering goods to the customer. It is regarded as a business expense and appears with other expenses in the income statement. 3 a The annual financial statements of a business are prepared using the accruals basis. Expenses of the period are matched with the income of the same period. It doesn’t matter whether or not the expenses have been paid. Therefore, any amounts owing but unpaid for in a particular year are brought into the financial statements for that year (accruals). Any amounts paid during the year, but relating to a future period (prepayments) are excluded from the financial statements for that year. b b Exam practice questions Multiple-choice questions 1 D 2 B 3 B 4 A Rent account 2015 2015 $ $ Jan 1 Balance b/d 2 000 Dec 31 Income statement $(2 000 + [3 × 2 500]) 9 500 Dec 31 Bank $(2500 × 4) 10 000 Dec 31 Balance c/d 2 500 12 000 12 000 2016 Jan 1 Balance b/d 2 500 Electricity account 2015 2015 $ $ Dec 31 Bank 1 800 Jan 1 Balance b/d 150 Balance c/d ($480 ÷ 3 × 2) 320 Dec 31 Income statement 1 970 2 120 2 120 2016 Jan 1 Balance b/d 320 Answers to activities, practice exercises and exam practice questions: Chapter 10 37 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
11 Provisions for the depreciation of non-current assets Activities Activity 1 a b Statement of financial position extracts Cost Depreciation Net book value $ $ $ Year 1: Motor vehicles 18 000 2 000 16 000 Year 2: Motor vehicles 18 000 4 000 14 000 Year 3: Motor vehicles 18 000 6 000 12 000 Year 4: Motor vehicles 18 000 8 000 10 000 Year 5: Motor vehicles 18 000 10 000 8 000 Year 6: Motor vehicles 18 000 12 000 6 000 Year 7: Motor vehicles 18 000 14 000 4 000 Activity 2 a Provision for depreciation of machinery account $ $ Year 1 Balance c/d 12 000 Year 1 Income statement 12 000 Year 2 Balance c/d 20 400 Year 2 Balance b/d 12 000 Income statement 8 400 20 400 20 400 Year 3 Balance c/d 26 280 Year 3 Balance b/d 20 400 Income statement 5 880 26 280 26 280 Cambridge International AS and A Level Accounting Provision for depreciation of motor vehicles account $ $ Year 1 Balance c/d 2 000 Year 1 Income statement 2 000 Year 2 Balance c/d 4 000 Year 2 Balance b/d 2 000 Income statement 2 000 4 000 4 000 Year 3 Balance c/d 6 000 Year 3 Balance b/d 4 000 Income statement 2 000 6 000 6 000 Year 4 Balance c/d 8 000 Year 4 Balance b/d 6 000 Income statement 2 000 8 000 8 000 Year 5 Balance c/d 10 000 Year 5 Balance b/d 8 000 Income statement 2 000 10 000 10 000 Year 6 Balance c/d 12 000 Year 6 Balance b/d 10 000 Income statement 2 000 12 000 12 000 Year 7 Balance c/d 14 000 Year 7 Balance b/d 12 000 Income statement 2 000 14 000 14 000 Year 8 Year 8 Balance b/d 14 000 38 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
$ $ Year 4 Balance c/d 30 396 Year 4 Balance b/d 26 280 Income statement 4 116 30 396 30 396 Year 5 Balance c/d 33 277 Year 5 Balance b/d 30 396 Income statement 2 881 33 277 33 277 Year 6 Year 6 Balance b/d 33 277 b Statement of financial position extracts Cost Depreciation Net book value $ $ $ Year 1: Machinery 40 000 12 000 28 000 Year 2: Machinery 40 000 20 400 19 600 Year 3: Machinery 40 000 26 280 13 720 Year 4: Machinery 40 000 30 396 9 604 Year 5: Machinery 40 000 33 277 6 723 Activity 3 a Machinery at cost account 2016 2016 $ $ Jan 1 Balance b/d 18 000 May 7 Disposal of machinery 6 000 Jun 3 Bank 7 000 Jun 3 Disposal of machinery 12 000 Disposal of machinery 3 000 Dec 31 Balance c/d 10 000 28 000 28 000 2017 Jan 1 Balance b/d 10 000 b Provision for depreciation of machinery account 2016 2016 $ $ May 7 Disposal of machinery 2 400 Jan 1 Balance b/d (2 400 + 7 200) 9 600 Jun 3 Disposal of machinery 7 200 Dec 31 Income statement 1 000 Dec 31 Balance c/d 1 000 10 600 10 600 2017 Jan 1 Balance b/d 1 000 Answers to activities, practice exercises and exam practice questions: Chapter 11 39 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
c Disposal of machinery account 2016 2016 $ $ May 7 Machinery at cost 6 000 May 7 Provision for depreciation of machinery 2 400 Bank 1 500 Income statement (loss) 2 100 June 3 Machinery at cost 12 000 June 3 Provision for depreciation of machinery 7 200 Machinery at cost – part exchange 3 000 Income statement (loss) 1 800 18 000 18 000 Practice exercises 1 a The straight-line method of depreciation is calculated by charging the rate of depreciation on the cost of the non-current asset. The reducing balance method of depreciation is calculated by charging the rate of depreciation on the cost of the non-current asset minus the accumulated depreciation to date before making the charge. b Piccolo Income statement for the year ended 31 May 2016 $ $ Sales 300 000 Less: cost of sales Opening inventory 30 000 Purchases $(190 000 − 4 000) 186 000 216 000 Less: closing inventory 42 000 174 000 Gross profit 126 000 Less: expenses Wages 56 000 Heating and lighting $(17 600 + 1 800) 19 400 Repairs to machinery 5 100 Advertising $(7 000 − 6 000) 1 000 Depreciation of freehold buildings ($80 000 × 4%) 3 200 Depreciation of plant and machinery ($76 000 − $32 000 × 25%) 11 000 95 700 Profit for the year 30 300 40 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Piccolo Statement of financial position at 31 May 2016 Cost Accumulated depreciation Net book value $ $ $ Non-current assets Freehold land and buildings 100 000 43 200 56 800 Plant and machinery 76 000 43 000 33 000 176 000 86 200 89 800 Current assets Inventory 42 000 Trade receivables 14 000 Other receivables (prepaid advertising) 6 000 Bank 5 500 67 500 Total assets 157 300 Capital and liabilities Opening capital 150 000 Add: net profit 30 300 180 300 Less: drawings $(27 100 + 4000) 31 100 149 200 Trade payables 6 300 Other payables (heat and light) 1 800 8 100 Total capital and liabilities 157 300 c Piccolo should not change his method of charging depreciation. To do so will go against the concept of consistency. There is no valid reason why a change should be made. 2 a Wilhelmina Income statement for the year ended 31 March 2016 $ $ Sales 80 600 Less: sales returns 1 590 79 010 Less: cost of sales Opening inventory 13 000 Purchases 50 914 Less: purchases returns 825 50 089 63 089 (cont.) Answers to activities, practice exercises and exam practice questions: Chapter 11 41 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Income statement for the year ended 31 March 2016 Cost Depreciation Net book value $ $ $ Less: closing inventory 16 000 47 089 Gross profit 31 921 Less: expenses Wages 13 017 Electricity $(1 012 + 300) 1 312 Repairs to machinery 643 Other operating expenses $(1 234 − 180) 1 054 Interest on loan and HP $(1 000 + 1 000 + 200) 2 200 Depreciation of leasehold property ($45 000 ÷ 15) 3 000 Depreciation of plant and machinery ($21 000 + $[30 000 − 6 000] - $9 200 × 25%) 8 950 Depreciation of ofiice equipment ($7 000 × 15%) 1 050 31 226 Profit for the year 695 b Wilhelmina Statement of financial position at 31 March 2016 Cost Accumulated depreciation Net book value $ $ $ Non-current assets Leasehold property 45 000 16 500 28 500 Plant and machinery 45 000 18 150 26 850 Ofiice equipment 7 000 3 450 3 550 97 000 38 100 58 900 Current assets Inventory 16 000 Trade receivables 1 526 Other receivables (other operating expenses) 180 Bank 1 964 19 670 Total assets 78 570 Capital and liabilities Opening capital 50 000 Add: net profit 695 50 695 Less: drawings 18 598 32 097 Cambridge International AS and A Level Accounting 42 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
$ $ $ Non-current liabilities Loan (repayable 2020) 20 000 Trade payables 973 Other payables (electricity and loan) 1 300 Loan for machinery (including accrued interest $200) 24 200 26 473 Total capital and liabilities 78 570 Notes: • Hire purchase is not on the syllabus. However, the amount due to the company from whom the machinery was bought is $24 000 $(30 000 − 6 000). This is added on to the cost of the machinery $(21 000 + 24 000). • Interest to be paid over the course of HP agreement is $800 (4 × $200) and as the agreement was for one year and began on 1 January 2016, three month’s interest, ( 3 12 or 1 4 × $800 = $200) must be accrued at 31 March 2016. • The entire loan for the machinery is repayable within 12 months from the date of the statement of financial position. This means that the whole of the amount is treated as a current liability. Exam practice questions Multiple-choice questions 1 D 2 C 3 A 4 A Structured question 1 a Businesses will use difierent methods of depreciation because non-current assets lose value at difierent rates during their working life. For example, a motor vehicle will depreciate more in the early years of its life. Thus, the reducing balance method of depreciation is best for this asset. On the other hand, something like ofiice furniture will lose its value evenly over its life and is depreciated using the straight-line method. b Asset disposal account 2016 2016 $ $ May 31 Motor vehicles at cost 8 000 May 31 Motor vehicles accumulated depreciation 4 000 Bank 3 000 Income statement 1 000 8 000 8 000 Answers to activities, practice exercises and exam practice questions: Chapter 11 43 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
c i Motor vehicles at cost $(28 000 − 8 000 + 12 000) = $32 000 ii Motor vehicles accumulated depreciation Beginning of year less vehicle sold $(12 000 − 4 000) = $8 000 Depreciation charge for the year $(32 000 − 8 000) × 25% = $6 000 (Add to get) Accumulated depreciation at end of year = $14 000 iii Ofiice equipment at cost $(20 000 + 2 000) = $22 000 iv Ofiice equipment accumulated depreciation Beginning of the year $8 000 Assets charged a full year of depreciation $20 000 × 10% = $2 000 Assets bought in year and held for only 3 months $2 000 × 10% × 1 4 = $50 (Add to get) Accumulated depreciation at end of year $10 050 Cambridge International AS and A Level Accounting 44 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
12 Irrecoverable and doubtful debts Activities Activity 1 a 2012: $(4 000 + 1 150) = $5 150 2013: $(6 400 + 1 375) = $7 775 2014: $(7 500 + 1 125) = $8 625 2015: $(3 000 + 1 250) = $4 250 2016: $(8 300 + 1 420) = $9 720 b Practice exercises 1 a Provision for doubtful debts account $ $ 2012 2012 Mar 31 Balance c/d 5 150 Mar 31 Income statement 5 150 Apr 1 Balance b/d 5 150 2013 2013 Mar 31 Balance c/d 7 775 Mar 31 Income statement 2 625 7 775 7 775 Apr 1 Balance b/d 7 775 2014 2014 Mar 31 8 625 Mar 31 Income statement 850 8 625 8 625 Apr 1 Balance b/d 8 625 2015 2015 Mar 31 Income statement 4 375 Balance c/d 4 250 8 625 8 625 Apr 1 Balance b/d 4 250 2016 2016 Mar 31 Balance c/d 9 720 Mar 31 Income statement 5 470 9 720 9 720 Apr 1 Balance b/d 9 720 David Income statement for the year ended 31 March 2016 $ $ $ Revenue $(210 000 − 4 000) 206 000 Less: sales returns 9 240 196 760 Less: cost of sales Opening inventory 4 000 Purchases 84 000 Less: purchases returns 5 112 78 888 Add: carriage inwards 1 840 80 728 84 728 Answers to activities, practice exercises and exam practice questions: Chapter 12 (cont.) 45 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
Income statement for the year ended 31 March 2016 $ $ $ Less: closing inventory $(5 000 + 3 000) 8 000 76 728 Gross profit 120 032 Add: other income Reduction in provision for doubtful debts |$(800 − 550) 250 Discounts received 2 480 122 762 Less: expenses Wages $(37 000 + 400) 37 400 Rent $(7 600 − 1600) 6 000 Telephone $(900 + 100) 1 000 Electricity $(1 027 + 360) 1 387 Postage and stationery 359 Carriage outwards 1 220 Discounts allowed 6 015 Irrecoverable debts $(3 100 +1 700) 4 800 Depreciation of leasehold premises ($70 000 × 5%) 3 500 Depreciation of delivery vans ($18 000 − $3 600 × 25%) 3 600 Depreciation of ofiice furniture ($3 000 × 10%) 300 65 581 Profit for the year 57 181 Notes: 1 The calculation for the adjustment is as follows: Trade receivables account $ $ Opening balance 19 800 Goods on sale or return 4 000 Specific irrecoverable debt 1 700 Specific provision 3 100 Balance 11 000 19 800 19 800 Provision required = 11 000 × 5% = $550 Existing provision $800 Reduction in provision $250 2 It would have been possible to combine the specific provision for the irrecoverable debt into the provision for doubtful debts account. This would be shown as: Provision for doubtful debts account $ $ Specific irrecoverable debt 3 100 Opening balance 800 Balance c/d 550 Income statement 2 850 3 650 3 650 Cambridge International AS and A Level Accounting 46 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
3 The net efiect on the income statement is the same. In the statement above there is a credit of $250, being the reduction in the provision, and expenses of $3100 included in the figure for irrecoverable debts. You can use either approach. In practice it is usual to keep irrecoverable debts and the provision for doubtful debts as two separate accounts. b Note: The total assets equal the total capital and liabilities, thus the statement of financial position balances. If you don’t get the two figures the same then look for the difierence, but don’t waste time. David Statement of financial position at 31 March 2016 Cost Accumulated depreciation Net book value $ $ $ Non-current assets Leasehold premises 70 000 8 500 61 500 Delivery vans 18 000 7 200 10 800 Ofiice furniture 3 000 1 800 1 200 91 000 17 500 73 500 Current assets Inventory 8 000 Trade receivables $(19 800 − 4 000 − 1 700 − 3 100) 11 000 Less: provision for doubtful receivables 550 10 450 Other receivables (rent prepaid) 1 600 Cash and cash equivalents 1 245 21 295 Total assets 94 795 Capital and liabilities Opening capital 50 000 Add: profit for the year 57 181 107 181 Less: drawings 20 446 86 735 Current liabilities Trade payables 7 200 Other Payables $(400 + 360 + 100) 860 8 060 Total capital and liabilities 94 795 Answers to activities, practice exercises and exam practice questions: Chapter 12 47 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
2 a Saul Income statement for the year ended 31 May 2016 $ $ $ Sales 700 000 Less: sales returns 6 670 693 330 Less: cost of sales Opening inventory 40 000 Purchases (410 890 − 2 400) 408 490 Less: purchases returns 3 112 405 378 445 378 Add: carriage inwards 4 240 449 618 Less: closing inventory 58 000 391 618 Gross profit 301 712 Add: other income Rent receivable $(1 020 + 280) 1 300 Discounts received 2 942 305 954 Less: expenses Wages 137 652 Rent payable $(10 000 − 2 000) 8 000 Heating and lighting $(4 720 + 400) 5 120 Telephone and postage 3 217 Stationery $(6195 + 220 − 450) 5 965 Repairs to machinery 17 600 Discounts allowed 3 220 Carriage outwards 1 819 Increase in provision for doubtful debts [($34 600 − $1 800) × 5%] − 1 200 440 Irrecoverable debt written ofi 1 800 Depreciation − Freehold property ($180 000 × 4%) 7 200 Depreciation − Plant and machinery ($97 000 × 15%) 14 550 Depreciation − Motor vehicles ($41 000 − 27 000 × 30%) 4 200 210 783 Profit for the year 95 171 Cambridge International AS and A Level Accounting 48 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
b Saul Statement of financial position at 31 May 2016 Cost Accumulated depreciation Net book value $ $ $ Non-current assets Freehold property 180 000 52 200 127 800 Plant and machinery 97 000 67 550 29 450 Motor vehicles 41 000 31 200 9 800 318 000 150 950 167 050 Current assets Inventory 58 000 Other operating inventory (stationery) 450 Trade receivables $(34 600 − 1 800) 32 800 Less: provision for doubtful debts $(1 200 + 440) 1 640 31 160 Other receivables $(280 + 2 000) 2 280 Cash and cash equivalents 11 374 103 264 Total assets 270 314 Capital and liabilities Opening capital 200 000 Add: profit for the year 95 171 295 171 Less: drawings $(28 797 + 2 400) 31 197 263 974 Current liabilities Trade payables 5 720 Other Payables $(400 + 220) 620 6 340 Total capital and liabilities 270 314 Exam practice questions Multiple-choice questions 1 C 2 B 3 D 4 B Answers to activities, practice exercises and exam practice questions: Chapter 12 49 Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737
13 Bank reconciliation statements Activities Activity 1 $475 Debit Activity 2 $540 Debit (overdrawn) Activity 3 a Revised cash book balance: $80 − $210 = $130 overdrawn b Bank reconciliation statement at 31 March 2016 $ Balance per bank statements $(650 + 220) 870 Less: cheque not sent (1 000) Balance per cash book (130) Note: Notice that the final figure is in brackets. This identifies that the balance in the cash book is overdrawn. Activity 4 Adjusted trial balance items: Debit Credit $ $ Trade receivables $(1 055 − 420 + 323) 958 Trade payables $(976 − 360) 616 Rent $(800 + 200) 1 000 Bank $(1 245 − 360 + 420 − 200 − 323) 782 Practice exercise 1 Changes Starting totals Calculation Revised totals Debit Credit Debit Credit $ $ $ $ $ Trade receivables 400 −78 322 Trade payables 380 −298 82 Rent receivable 750 +150 900 Interest receivable +10 10 Bank charges 100 +130 230 Bank 990 (+10 − 130 − 298 + 78 + 150) 800 Exam practice questions Multiple-choice questions 1 C 2 C 3 B 4 A 5 B 50 Cambridge International AS and A Level Accounting Downloaded by Nuraisyah Dahiyah Binti Hashim ([email protected]) lOMoARcPSD|20729737