4.1. Capital and revenue expenditure and receipts
A subsection of Accounting, 7707, through 4. Accounting procedures
Listing 10 of 85 questions
Jas owns a printing business and has recently incurred various expenditures relating to her premises. REQUIRED Complete the table by inserting a tick (3) to show how each item of expenditure should be classified. The first one has been completed as an example. Capital expenditure Revenue expenditure Building new extension to warehouse Rates on new extension Carriage costs for roof tiles for new extension Legal costs for new extension Repairs to office roof Jas’s business is expanding rapidly and she needs more warehousing space. Jas can rent an additional warehouse. The rent for the first six months would be $40 000. Alternatively, Jas can purchase a warehouse for $900 000. She can obtain a long-term loan of $700 000. REQUIRED Advise Jas whether she should rent or purchase a warehouse. Justify your answer. An extract from Jas’s statement of financial position at 31 December 2019 showed the following: Cost Accumulated Net book depreciation value $ $ $ Fixtures 115 000 77 625 37 375 During the year ended 31 December 2020 the following transactions took place. On 1 January 2020 fixtures, $30 000, were purchased by cheque. On 30 June 2020 fixtures were sold for $6000, which was received by cheque. These fixtures had originally been purchased on 1 January 2018 for $20 000. Jas depreciates fixtures on a straight-line basis. She assumes fixtures will have a useful life of four years, at which time the residual value will be 10% of original cost. Depreciation is charged for each part of the year for which the fixtures are owned. REQUIRED Prepare the following accounts for the year ended 31 December 2020. Balance each account and bring down the balance on 1 January 2021. Jas Fixtures account Date Details $ Date Details $ Jan 1 Balance b/d 115 000 Provision for depreciation of fixtures account Date Details $ Date Details $ Jan 1 Balance b/d 77 625 Prepare the fixtures disposal account for the year ended 31 December 2020. Jas Fixtures disposal account Date Details $ Date Details $ Workings:
7707_w21_qp_23
THEORY
2021
Paper 2, Variant 3
View
Karishma runs her own business. The balances in her books on 1 October 2020 included the following. $ Insurance account 1700 prepaid Electricity account 1800 owing During the financial year ended 30 September 2021 Karishma made the following payments by cheque. Insurance payments $ 7 February 2021 13 August 2021 Electricity payments $ 14 October 2020 24 January 2021 26 May 2021 A refund of $300 for insurance overpaid was received by bank transfer on 28 February 2021. The insurance paid on 13 August 2021 covered a period of five months to 31 December 2021. At 30 September 2021, an amount of $2000 was owing for electricity. REQUIRED Prepare the following accounts for the year ended 30 September 2021. Balance the accounts and bring down the balances on 1 October 2021. Karishma Insurance account Date Details $ Date Details $ Electricity account Date Details $ Date Details $ Karishma is considering changing her electricity supplier. The new supplier has offered Karishma a two-year contract at a fixed monthly amount of $450 payable by direct debit. REQUIRED Advise Karishma whether she should change to the new electricity supplier. Justify your answer with two advantages and two disadvantages of changing supplier. On 1 October 2020 Karishma decided to rent out part of her premises to Noor at an annual rent of $1965. During the financial year ended 30 September 2021 Noor made the following payments to Karishma by cheque. $ 1 October 2020 2 March 2021 8 August 2021 The amount received on 8 August 2021 included rent of $510 covering the period 1 October 2021 to 31 December 2021. REQUIRED Prepare the rent receivable account for the year ended 30 September 2021. Balance the account and bring down the balance on 1 October 2021. Karishma Rent receivable account Date Details $ Date Details $ Identify the section of the statement of financial position at 30 September 2021 in which the balance on the rent receivable account would appear.
7707_w21_qp_23
THEORY
2021
Paper 2, Variant 3
View
BC a sole trader prepared the following trial balance from his accounts on 31 August 2022. Dr Cr $ $ Purchases 120 000 Revenue 231 500 Sales returns 3 600 Inventory 1 September 2021 11 100 Capital 111 900 Bank 4 100 Non-current assets at cost Premises 98 000 Machinery 52 000 Provision for depreciation of non-current assets Machinery 28 400 Commission receivable 2 200 Trade receivables 19 200 Trade payables 7 300 Discount allowed Discount received 1 400 Insurance 9 600 Repairs 12 400 Salaries 53 900 Rates 6 000 Carriage inwards 386 800 386 800 Additional information The closing inventory at 31 August 2022 was valued at $12 000. Commission received of $800 was owing at 31 August 2022. The balance shown for salaries covers the 11 months to 31 July 2022. Salaries for August 2022 are due and unpaid. There have been no salary increases over the previous 12 months and an equal amount is paid each month. At 31 August 2022 rates were prepaid by $300. The insurance included $700 covering a private insurance premium for BC. The repairs included $4000 that related to a new attachment for machinery. Machinery is to be depreciated at the rate of 20% per annum by the reducing balance method. A full year’s depreciation is charged regardless of the date of any purchases. There were no disposals during the year. Premises are not depreciated. REQUIRED Prepare the income statement of BC for the year ended 31 August 2022 BC Income Statement for the year ended 31 August 2022 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Calculate the working capital at 31 August 2022. BC has been making future plans for the business and he needs to purchase $6000 of machinery immediately. There are two options to finance the purchase. Option 1 On credit with the full amount of $6000 payable in 60 days Option 2 Obtain a $6000 8% loan repayable in 5 years REQUIRED Advise BC on which option he should use. Justify your answer.
7707_w22_qp_22
THEORY
2022
Paper 2, Variant 2
View
The following balances have been taken from the accounts of RB, a trader. 1 April 2021 31 March 2022 $ $ Insurance 2500 prepaid 850 prepaid Commission receivable 700 owing 630 owing The following transactions relate to the year ended 31 March 2022. All receipts and payments were through the bank account. $ Insurance paid 15 300 Insurance refund Commission receivable 7 200 REQUIRED Prepare the following ledger accounts for the year ended 31 March 2022. Balance the accounts and bring down the balances on 1 April 2022. RB Insurance account Date Details $ Date Details $ Commission receivable account Date Details $ Date Details $ Prepare the entries for insurance and commission receivable in RB’s statement of financial position at 31 March 2022. RB Extract from statement of financial position at 31 March 2022 Explain why the matching principle is important in the preparation of RB’s income statement. RB has arranged with his suppliers to receive a 25% trade discount off list price and a 2% cash discount. The cash discount is only for payments made within 10 days. On 5 March 2022 RB received an invoice from JP for the supply of goods with a list price of $3000. The invoice was paid on 13 March 2022. REQUIRED Calculate each of the following: the trade discount the cash discount the amount paid to the supplier JP Complete the table below indicating with a tick (✓) the effect of each type of discount on gross profit and profit for the year. Discount allowed increase decrease no effect gross profit profit for the year Discount received increase decrease no effect gross profit profit for the year
7707_w22_qp_23
THEORY
2022
Paper 2, Variant 3
View
Questions Discovered
85