4. Accounting procedures
A section of Accounting, 7707
Listing 10 of 188 questions
Sariah owns a business selling ladies’ clothing. She maintains a system of double entry bookkeeping. The following occurred during September 2020. Purchased a motor vehicle on credit from Sharpe Motors $6350. Ruhee, a credit customer, was declared bankrupt owing Sariah $1200. The debt is to be written off. REQUIRED Prepare journal entries to record the above transactions. Narratives are not required. Sariah Journal Details Debit $ Credit $ Sariah is preparing her financial statements for the year ended 30 September 2020. She provides the following information for fixtures and fittings. October 1 Fixtures and fittings at cost $ 28 600 Provision for depreciation of fixtures and fittings 6 185 January 31 Sold fixtures and received a cheque The fixtures had been purchased on 1 February 2018 for $1500 1 150 March 31 Purchased new fixtures paying by cheque 3 500 Sariah’s policy is to provide depreciation on fixtures and fittings at 10% per annum using the reducing balance method. A full year’s depreciation is charged in the year of purchase but none in the year of disposal. REQUIRED Prepare the following accounts for the year ended 30 September 2020. Close the accounts by balancing or by making an appropriate year end transfer. Sariah Fixtures and fittings account Date Details $ Date Details $ Provision for depreciation of fixtures and fittings account Date Details $ Date Details $ Disposal account Date Details $ Date Details $ Sariah is considering forming a partnership with her friend Emy who runs a similar business. REQUIRED Advise Sariah whether or not she should form a partnership with Emy. Justify your answer with two advantages and two disadvantages of forming a partnership with Emy.
7707_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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Eniola compared her bank statement for July 2020 with the bank columns of her cash book. She provided the following information. $ Overdrawn balance shown in the cash book at 31 July 2020 Direct debit payment dated 25 July 2020, had not yet been entered in the cash book A cheque received from a customer on 12 July 2020 was dishonoured. This dishonoured cheque had not yet been recorded in the cash book Bank charges on the bank statement had not yet been entered in the cash book Unpresented cheques at 31 July 2020 Uncredited deposits at 31 July 2020 REQUIRED Calculate the corrected balance of the bank columns in the cash book at 31 July 2020. Prepare a bank reconciliation statement at 31 July 2020. Clearly identify the bank statement balance at that date. Eniola Bank Reconciliation Statement at 31 July 2020 Eniola is concerned that her bank balance has decreased significantly during the last year. She is considering how to improve her liquidity. REQUIRED Suggest one effect of each of the following proposals. Hire new non-current assets instead of purchasing them. Delay paying credit suppliers. Eniola’s financial year end is 31 July 2020. She provided the following information about the rent and rates of her business. On 1 August 2019, she owed two months’ rent totalling $900. On the same date, rates of $260 were prepaid up to 30 September 2019. During the year ended 31 July 2020 the following payments were made by credit transfer. $ August 1 Seven months’ rent October 1 Twelve months’ rates March 1 Six months’ rent REQUIRED Prepare the rent and rates account for the year ended 31 July 2020. Balance the account and bring down the balances on 1 August 2020. Eniola Rent and rates account Date Details $ Date Details $ Aug 1 Balance b/d Aug 1 Balance b/d Identify the sections of the statement of financial position at 31 July 2020 in which each of the balances on the rent and rates account would appear. Rent Rates Name one accounting principle Eniola would apply when recording the rent and rates in her financial statements. State how Eniola would apply the accounting principle named in .
7707_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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The directors of DW Limited provided the following information at 30 September 2020. $ 6% debentures (2028) 18 000 Bank overdraft 6 450 Dividend paid 2 000 General reserve at 1 October 2019 6 500 Inventory at 30 September 2020 26 300 Issued share capital at 1 October 2019 200 000 Non-current assets at 30 September 2020 Cost Provision for depreciation 462 000 106 000 Other payables 2 200 Other receivables 1 600 Provision for doubtful debts at 1 October 2019 Retained earnings 73 475 Trade payables 8 250 Trade receivables 14 500 Additional information A draft income statement for the year ended 30 September 2020 was prepared showing a profit of $84 900. The following errors were later discovered. Inventory of $26 300 included items valued at cost $5200 that needed repair. After repairs costing $600, the items could be sold for $5000. Operating expenses included insurance of $400 that was prepaid at 30 September 2020. The provision for doubtful debts should have been adjusted so that it equals 5% of trade receivables. The directors decided to transfer $5000 to general reserve. There was no change to the issued share capital during the year ended 30 September 2020. REQUIRED Calculate the correct value of inventory at 30 September 2020. Calculate the revised profit for the year ended 30 September 2020 after adjusting for errors 1–3. Prepare the statement of changes in equity for the year ended 30 September 2020. DW Limited Statement of Changes in Equity for the year ended 30 September 2020 Details Share capital $ General reserve $ Retained earnings $ Total $ On 1 October 2019 _________ _________ _________ _________ On 30 September 2020 _________ _________ _________ _________ Prepare the statement of financial position at 30 September 2020. DW Limited Statement of Financial Position at 30 September 2020 $ $ $
7707_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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Nazim owns a wholesale business and has prepared draft financial statements for the year ended 30 June 2020, his first year of trading. After the preparation of these financial statements, some errors were discovered. REQUIRED Complete the table to indicate the effect of each error on the profit for the year and on working capital at 30 June 2020. Write ‘understated’, ‘overstated’ or ‘no effect’. The first one has been completed as an example. Error Effect on profit for the year Effect on working capital Repairs to office equipment had been entered in the office equipment account. Overstated No effect No adjustment had been made for insurance prepaid. An irrecoverable debt had not been written off. No record had been made of additional capital introduced in cash. Closing inventory had been overstated. After correcting the errors, Nazim compared his results with those of his brother Aziz, who has a similar business. Nazim Aziz Current ratio 1.71:1 2.12:1 Liquid (acid test) ratio 0.77:1 1.28:1 Return on capital employed 13.65% 15.25% REQUIRED Suggest two reasons for the differences in each ratio. Current ratio Liquid (acid test) ratio Return on capital employed (ROCE) Nazim discovered that his rate of inventory turnover was also lower than that of Aziz. REQUIRED Suggest one reason for this difference. Nazim is concerned about the length of time his credit customers are taking to pay their accounts. He is considering operating a strict credit control policy requiring customers to pay within 30 days. REQUIRED Advise Nazim whether or not he should introduce this strict credit control policy. Justify your answer by providing two advantages and two disadvantages.
7707_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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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
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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
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Questions Discovered
188