7707_w23_qp_23 - revisedeck

1

Shakir started trading in the year ended 31 August 2023 but did not keep proper books of account. His assets and liabilities at 1 September 2023 are as follows. $ Motor vehicle 9 500 Inventory 1 240 Cash at bank 1 682 Trade payables: Latif Harrison REQUIRED Prepare the journal for Shakir’s opening entries at 1 September 2023. A narrative is not required. Shakir Journal Date Details Debit $ Credit $ State two advantages of maintaining double entry records. During September 2023, the following transactions took place. Sept 2 Paid rent, $420, by credit transfer Withdrew cash, $350, from the bank for business use Paid Latif, $194, by telephone transfer, in full settlement of the amount owing at 1 September 2023 Sold goods on credit, $195, to Sydney Paid $161, cash, for wages Cash sales, $290, were paid directly into the bank account Received a cheque, $100, from Sydney Paid $95 to Harrison, by electronic transfer, having deducted $5 cash discount from the amount due REQUIRED Prepare Shakir’s cash book on the page opposite. Balance the cash book and bring down the balances at 1 October 2023. Shakir received a bank statement dated 30 September 2023. The bank statement showed that Shakir had $763 in the bank account. On comparing the bank statement to his cash book, Shakir noted the following. Bank charges, $35, were charged by the bank in September. Cash Sales, $175, had been paid for by credit transfer but not recorded in the cash book. The cheque received from Sydney had not yet been cleared by the bank. The cash sales, $290, had been omitted from the bank statement in error. REQUIRED Calculate the corrected bank balance.

2. Sources and recording of data → 2.1. The double entry system of book-keeping

2. Sources and recording of data → 2.3. Books of prime entry

Open

2

Hilary owns a manufacturing business. She has provided the following information. $ Inventory at 1 August 2022 Raw materials 9 100 Work in progress 21 357 Finished goods 24 235 For the year ended 31 July 2023 Revenue 457 250 Purchases of raw materials 110 000 Purchases returns of raw materials 2 200 Purchases of finished goods 23 500 Purchases returns of finished goods 4 700 Wages of factory operatives 91 665 Wages of factory supervisor 29 000 Wages of office supervisor 28 000 Heat, light and power 11 600 Rates and insurance 8 250 Factory repairs and renewals 5 125 Factory equipment – at cost 124 000 Factory equipment – provision for depreciation 35 500 Additional information Inventory at 31 July 2023 Raw material 9 980 Work in progress 22 446 Finished goods 25 110 Heat, light and power is to be apportioned 4/5 to the factory and 1/5 to the office. Rates and insurance is to be apportioned 3/5 to the factory and 2/5 to the office. Insurance of $4440 has been paid for the year to 31 December 2023. At 31 July 2023, a factory repair, $644, was unpaid and no adjustment had been made. Factory equipment is depreciated at 25% per annum using the reducing balance method. REQUIRED Prepare Hilary’s manufacturing account for the year ended 31 July 2023. Hilary Manufacturing Account for the year ended 31 July 2023 $ $ Calculate Hilary’s gross profit for the year ended 31 July 2023. Hilary is considering stopping buying any finished goods for resale and instead increasing the production at her factory. REQUIRED Advise Hilary whether she should sell only production from her own factory and increase the amount produced. Justify your answer by providing arguments for and against selling only production from her own factory and increasing the amount produced.

5. Preparation of financial statements → 5.5. Manufacturing accounts

4. Accounting procedures → 4.5. Valuation of inventory

Open

3

Logan is a trader who sells goods on credit. His year end is 30 September. Logan has provided the following information. $ At 1 October 2022 Inventory 8 400 Trade receivables 7 500 Other receivables (rent prepaid) For the year ended 30 September 2023 Rent charge for the year 4 940 Bank payments for rent 1 December 2022 2 460 1 June 2023 2 490 At 30 September 2023 Inventory 8 675 Trade receivables 8 700 Other receivables ? Irrecoverable debts to be written off The provision for doubtful debts is to be maintained at 4% of trade receivables. REQUIRED Prepare the inventory account for the year ended 30 September 2023. Logan Inventory account Date Details $ Date Details $ Prepare the provision for doubtful debts account for the year ended 30 September 2023. Balance the account at 30 September 2023 and bring down the balance at 1 October 2023. Logan Provision for doubtful debts account Date Details $ Date Details $ Prepare the rent payable account for the year ended 30 September 2023. Balance the account at 30 September 2023 and bring down the balance at 1 October 2023. Logan Rent payable account Date Details $ Date Details $ State how: the prudence principle is applied to the valuation of Logan’s inventory the matching principle is applied when the rent payable account is prepared Logan is considering buying business premises instead of renting. He would request a long-term bank loan to finance the purchase of the premises. REQUIRED Advise Logan whether he should purchase business premises using a long-term bank loan. Justify your answer with advantages and disadvantages of purchasing business premises using a long-term bank loan.

4. Accounting procedures → 4.4. Irrecoverable debts and provision for doubtful debts

5. Preparation of financial statements → 5.1. Sole traders

Open

4

Asia is a trader. She prepared her trial balance at 31 August 2023. The credit side totalled $273 more than the debit side. Asia placed the difference in a suspense account. Asia later discovered the following errors. A credit purchase, $112, from Jacques, had been entered twice in the purchases journal. The wages account had been overcast by $300. Cash received, $75, from Savanah, a trade receivable, had only been entered in the cash book. The total of the sales returns journal for August 2023 of $198, had been credited to both the sales returns account and the purchases returns account. A payment to Sophie, $93, had been recorded as $39 in Sophie’s account. REQUIRED Prepare the journal entries to correct errors 1–5. Narratives are not required. Prepare the suspense account, including the original difference on the trial balance. Asia Suspense account Date Details $ Date Details $ REQUIRED Complete the following table by placing a tick (3) to show the effect of each error. The first one has been completed as an example. Error number Error Gross profit Profit for the year No effect + – + – A credit purchase, $112, from Jacques, had been debited twice to the purchases account. The wages account had been overcast by $300. Cash received, $75 from Savanah, a trade receivable, had only been entered in the cash book. The total of the sales returns journal for August 2023, $198, had been credited to both the sales returns account and the purchases returns account. A payment to Sophie, $93, had been recorded as $39 in Sophie’s account.

4. Accounting procedures → 4.1. Capital and revenue expenditure and receipts

3. Verification of accounting records → 3.2. Correction of errors

5. Preparation of financial statements → 5.6. Incomplete records

Open

5

B Limited provides cleaning services to client offices and factories. The clients provide their own cleaning materials. The trial balance of B Limited at 30 June 2023 was as follows. B Limited Trial Balance at 30 June 2023 Debit Credit $ $ Revenue 135 040 Wages and salaries 72 000 Motor expenses 9 820 Insurance 11 040 General expenses 12 780 Motor vehicles at cost 42 000 Provision for depreciation of motor vehicles 16 500 Equipment at cost 5 000 Provision for depreciation of equipment 2 000 Trade receivables 1 640 Bank 19 950 Ordinary share capital 10 000 General reserve 2 000 Retained earnings 13 490 Dividend paid on ordinary shares 4 800 179 030 179 030 Additional information Revenue of $9240 was received in advance. The insurance charge for the 12 months to 31 December 2022 was $7200 and for the 12 months to 31 December 2023 it is $7440. On 1 January 2023 insurance was paid in full for the 12 months to 31 December 2023. Accrued general expenses at 30 June 2023 were $186. Depreciation is to be charged on motor vehicles at 25% per annum using the reducing balance method. Depreciation on equipment is to be charged at 20% per annum using the straight line method. No dividends were outstanding at 30 June 2023. $1000 is to be transferred to the general reserve at 30 June 2023. REQUIRED Prepare the income statement for B Limited for the year ended 30 June 2023. B Limited Income Statement for the year ended 30 June 2023 $ $ Prepare the statement of changes in equity for B Limited for the year ended 30 June 2023. B Limited Statement of Changes in Equity for the year ended 30 June 2023 Details Ordinary Share capital $ General reserve $ Retained earnings $ Total $ On 1 July 2022 On 30 June 2023 Explain why: B Limited has no inventory B Limited does not require a provision for doubtful debts The directors of B Limited are also the shareholders. They plan to expand the company. They are considering whether to issue debentures or ordinary shares. REQUIRED Advise the directors whether they should issue debentures or ordinary shares. Justify your answer.

4. Accounting procedures → 4.1. Capital and revenue expenditure and receipts

5. Preparation of financial statements → 5.1. Sole traders

Open