5. Preparation of financial statements
A section of Accounting, 7707
Listing 10 of 227 questions
Fatima is a sole trader. She prepares her financial statements to the end of March each year. At 31 March 2022, Fatima’s ledger account balances included the following. $ Revenue 79 400 Sales returns 3 970 Purchases 36 500 Rent and rates 9 000 Wages 10 100 General expenses 1 287 Insurance 1 800 Discount received 1 095 Inventory at 1 April 2021 3 000 Fixtures and equipment at cost 80 000 Fixtures and equipment – provision for depreciation 39 040 Trade receivables 6 400 Trade payables 4 995 Provision for doubtful debts Cash drawings 8 580 Capital at 1 April 2021 59 000 The following information is also available. Inventory at 31 March 2022 was $3120. Fatima took goods for her own use from the business during the year ended 31 March 2022. These goods cost $1300. Depreciation on fixtures and equipment is to be charged at 20% per annum using the reducing balance method. Accrued wages at 31 March 2022 were $800. Rent includes a payment of $1500 for the 3 months from 1 March 2022 to 31 May 2022. An irrecoverable trade receivable of $200 is to be written off. The provision for doubtful debts is to be set at 3% of trade receivables. REQUIRED Prepare Fatima’s income statement for the year ended 31 March 2022. Fatima Income Statement for the year ended 31 March 2022 $ $ Prepare Fatima’s capital account for the year ended 31 March 2022. Balance the account and bring down the balance on 1 April 2022. Fatima Capital account Date Details $ Date Details $ Fatima would like to expand the business. She thinks that additional finance of $20 000 would be required for the equipment which she would need. Fatima’s bank have offered to lend her $20 000, to be repaid after four years at interest of 6% per annum. REQUIRED Advise Fatima whether or not to agree to the bank loan. Justify your answer.
7707_s22_qp_21
THEORY
2022
Paper 2, Variant 1
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On 31 July 2021 the following information was provided by KA Limited, a manufacturer of garden tools. $ Inventory 1 August 2020 Raw materials 5 820 Work in progress 1 750 Finished goods 12 360 Purchases Raw materials 34 200 Finished goods 3 900 Carriage on purchases Raw materials Finished goods Direct wages 67 200 Indirect factory wages 24 000 Factory machinery at cost 47 000 Provision for depreciation of factory machinery 11 000 Factory general overheads 16 400 Rates 5 300 Inventory 31 July 2021 Raw materials 6 030 Work in progress 2 780 Finished goods 10 340 Revenue 223 000 Additional information On 31 July 2021 rates, $500, were prepaid. Rates are to be apportioned 75% factory, 25% office. On 31 July 2021 factory general overheads, $230, were accrued. Factory machinery is to be depreciated at 20% per annum using the reducing balance method. REQUIRED Prepare the manufacturing account of KA Limited for the year ended 31 July 2021. Prepare the income statement (trading section) of KA Limited for the year ended 31 July 2021. KA Limited Income Statement (Trading section) for the year ended 31 July 2021 ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… ………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… DH Limited, a customer of KA Limited, has been declared bankrupt. A debt of $350 was owing to KA Limited. This is to be written off. REQUIRED Prepare the journal entry to record the irrecoverable debt. A narrative is not required. KA Limited Journal Details Debit $ Credit $ KA Limited maintains a provision for doubtful debts. REQUIRED Explain how maintaining a provision for doubtful debts is an application of each of the following accounting principles. Matching Prudence
7707_w21_qp_22
THEORY
2021
Paper 2, Variant 2
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Lionel started trading on 1 July 2022. He paid $15 000 of his own personal money into the business bank account. He did not keep full accounting records but has supplied the following information at 30 June 2023. 1. Cash sales of $90 000 were made and paid into the bank. No other money was received. Lionel marks up his goods by 50%. 2. Payments from the bank: $ Purchase of motor vehicle 8 000 Payments to credit suppliers 55 000 Wages 8 060 General expenses 1 140 Rent and insurance 5 585 Motor expenses 4 992 Cash drawn from bank 14 600 3. Purchases returns amounted to $3000. 4. Inventory at 30 June 2023 was valued at $4175. 5. One third of the motor expenses paid were for Lionel’s private car. 6. A full year’s depreciation at 25% is to be charged on the van using the reducing balance method. 7. Lionel withdrew $1000 each month from the business cash, for personal use. The remaining cash drawn from the bank was used to pay wages. REQUIRED Prepare Lionel’s income statement for the year ended 30 June 2023. Lionel Income Statement for the year ended 30 June 2023 …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… …………………………………………………………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… $ …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… …………… Prepare Lionel’s capital account for the year ended 30 June 2023. Balance the account and bring down the balance at 1 July 2023. Lionel Capital account Date Details $ Date Details $ State one reason why Lionel should keep double-entry bookkeeping records. Lionel currently makes cash sales only. He would like to start selling on credit and is considering whether to offer a 10% trade discount to regular customers or a 3% discount for payment within 21 days. REQUIRED Advise Lionel whether he should offer the 10% trade discount or the 3% cash discount. Justify your answer.
7707_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
227