Financial Accounting

Sample Paper 2 Questions & Suggested Solutions

NOTES TO USERS ABOUT SAMPLE PAPERS

Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics.

There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2013 and may not be reproduced without permission of Accounting Technicians Ireland.

Accounting Technicians Ireland, 2013.

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Accounting Technicians Ireland

Year1

FINANCIALACCOUNTING SamplePaper2 EXAMDURATION:THREEHOURS

INSTRUCTIONTOCANDIDATES PLEASEREADCAREFULLY

In this examination paper the / symbol may be understood and used by candidates in Northern Ireland to indicate the UK pound sterling and by candidates in the Republic of Ireland to indicate the Euro. AnswerALLTHREEquestionsfromSectionA.AnswerANYTWOofthethreequestionsfrom Section B. If more than TWO questions are answered in section B, then only the first two questions,intheorderfiled,willbecorrected. Candidatesshouldallocatetheirtimecarefully. Allworkingsshouldbeshown. Allfiguresshouldbelabelledasappropriatee.g.s,unitsetc. Answersshouldbeillustratedwithexamples,whereappropriate.

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SECTION A Answer ALL THREE QUESTIONS (Compulsory) in this Section QUESTION 1 (Compulsory) a) Provide a definition of depreciation and explain why non current assets are depreciated over their useful economic life. 5 Marks b) The following information relates to the non current assets of Past Editions Limited. Fixtures & Fittings 290,000 70,000 Plant & Machinery 180,000 74,656

Cost at 1/1/2009 Accumulated depreciation as at 1/1/2009

Depreciation Policy Details are as follows: Past Editions Limited depreciates at the following rates: Fixtures and fittings at 10% per annum straight line; Plant and machinery at 20% per annum straight line. The depreciation policy of Past Editions Limited is to charge depreciation from the month of acquisition to the month of sale. During the year to 31 December 2009 the following transactions relating to non current assets occurred: Fixtures and Fittings An item of fixtures and fittings was purchased for 36,000 on 1 March 2009. Installation costs of 1,500 were incurred to bring the asset into working condition. The asset is to be depreciated in line with the companys depreciation policy for fixtures and fittings. Plant & Machinery An item of machinery that originally cost 24,000 and with accumulated depreciation of 11,600 as at 1 January 2009 was traded in on 30 June 2009 against a new machine that cost 32,000. A trade in of 8,400 was achieved.

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QUESTION 1 (Contd) Buildings Past Editions Limited constructed a new building and the following costs were incurred: Purchase of site 50,000; Site preparation 10,500; Raw material and labour costs 46,500; Architect fees 15,000. The building was completed and Past Editions moved into the building on 1 September 2009. It is estimated that the building will have a useful economic life of 50 years and a residual value of 20,000.

You are required to prepare the following nominal ledger accounts of Past Editions for the year ended 31 December 2009: i. ii. iii. iv. v. vi. vii. Buildings: cost account; Fixtures and fittings: cost account; Plant and machinery : cost account; Buildings: accumulated depreciation account; Fixtures and fittings: accumulated depreciation account; Plant and machinery : accumulated depreciation account; Disposal of plant and machinery account. 2 Marks 1 Mark 3 Marks 2 Marks 2 Marks 3 Marks 2 marks Total 20 Marks

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QUESTION 2 (Compulsory) The following information relates to the receivables and payables of John Forman, a sole trader, for the year ended 31 December 2009: Extract from the books as at 1 January 2009: Receivables ledger debit balances Receivables ledger credit balances Payables ledger credit balances Payables ledger debit balances 200,000 Dr 20,000 Cr 180,000 Cr 80,000 Dr

Transactions for the year ended 31 December 2009: Sales on credit Sales returns (all credit) Purchases on credit Purchases returns (all credit) Amounts received from receivables Discounts allowed to receivables Discounts allowed by payables Irrecoverable debts written off Interest charged by a payable for late payment of accounts Discount received subsequently disallowed Payments to payables Dishonoured cheque received from a receivable (included in the amounts received from receivables above) Cash sales Contra entry between receivable and payable balances Closing allowance for receivables 1,400,000 80,000 900,000 40,000 1,200,000 20,000 30,000 60,000 6,000 3,000 750,000 12,500 17,200 4,890 16,700

Additional Information A receivables balance 3,495 was omitted from the list of debit balances as at 1 January 2009. At 31 December 2009 the total of the credit balances in the Receivables ledger was 30,000 and the total of the debit balances in the Payables ledger was 12,000. You are required to: a) Prepare the receivables and payables control accounts for Mr. Forman for the year ended 31 December 2009. 16 Marks b) Explain why a company should prepare control accounts. 4 Marks Total 20 Marks

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QUESTION 3 (Compulsory) - Complete Any Four Parts Part A Write a note on your understanding of the terms financial accounting and management accounting. As part of your discussion you should provide an example of the type of information provided by financial and management accounting. 5 Marks Part B Several user groups of financial accounting information have been identified. Two of these are investors and lenders. Write a brief note on both of these users of financial accounting information including the key accounting information required by each user and why each user requires the information. 5 Marks Part C Outline your understanding of the term external audit and explain why carrying out an external audit annually is important for many companies. 5 Marks Part D The concept that the financial statements of an entity represent a true and fair view is fundamental to financial accounting. Outline your understanding of the term true and fair view as it relates to financial accounting. 5 Marks Part E Several characteristics of accounting information have been identified. Two of these are comparability and reliability. Write a brief explanation of these terms as they relate to financial accounting information. 5 Marks Part F Over time several accounting concepts and conventions have developed. With the aid of examples, where appropriate, write a note on any two of the following concepts/conventions: i ii iii Going concern; Prudence; Materiality. 5 Marks Total 20 Marks

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SECTION B Answer any TWO of the three questions in this Section QUESTION 4 The following trial balance was extracted from the books of T Higgins on 31 December 2009: Buildings at cost Accumulated depreciation on buildings Delivery vans at cost Accumulated depreciation on delivery vans Inventories as at 1/1/2009 Receivables and payables Bank Purchases and sales General expenses Discounts received Carriage inwards Insurance VAT Interest Wages and salaries Allowance for receivables 1/1/09 Irrecoverable debts Drawings Capital 132,000 25,000 25,800 18,700 293,000 6,375 3,600 3,900 1,300 41,000 700 12,300 563,675 1,050 99,685 563,675 38,000 8,000 36,200 3,150 374,790 350 2,450

The following information, which has not been accounted for above, is also available: 1. Inventory at 31 December 2009 at cost was 32,950. This figure includes damaged inventory items that cost 7,800 and that is now worth only 3,000. 2. During the year T. Higgins took inventory items for his personal use valued at 5,400. This has not been accounted for. 3. The bank figure in the trial balance, when compared to the bank statement, revealed that the following adjustment is required: A direct debit charge posted by the bank for 370 has not been entered in the books of T. Higgins. 4. An amount of 600 had been received in respect of a debt previously written off. This receipt has not been recorded in the books. 5. The allowance for receivables is to be adjusted to 4% of receivables

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QUESTION 4 (contd) 6. Depreciation is to be provided for as follows: i. ii. Buildings Delivery Vans 2% straight line 15% reducing balance

7. T. Higgins informs you that 750 of insurance is prepaid for 2010 and that an accrual for carriage inwards of 450 should be provided for. You are required to prepare: i. ii. The Statement of Profit & Loss for the year ended 31 December 2009; 13 Marks The statement of financial position as at that date. 7 Marks Total 20 Marks

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QUESTION 5 AA Rumble is an old fashioned business with a hand written set of books and records. A trial balance is extracted at the end of every month. This month (December 2009), however, the trial balance did not balance. The balance in the suspense account was 7,485 credit. The draft loss for the month of December 2009 was 12,540 before accounting for the transactions below. Upon inspection of the ledgers the following items were discovered: 1. An item of office machinery purchased during the month for 5,500 was credited to the machinery repairs account. The machinery was purchased on credit and the entry in the suppliers account was entered correctly. 2. The total of the receipts side of the cash book was overcast by 7,300. 3. A discount received from J Morgan for 175 had been treated as a discount allowed to J Moran in the personal accounts and in the nominal ledger. 4. An invoice for light and heat for the month for 1,420 was found in a filing tray. The invoice has not yet been accounted for, nor the supplier paid as at the month end. 5. A cheque received from Mr. Smith for 6,450 in payment for goods previously sold to him was treated correctly in the cash book. However in Mr. Smiths personal account it was treated as the sale of additional goods and posted to the incorrect side of the account. The sales account was not affected. 6. Due to a totting error the balance in the allowance for receivables account is under cast by 985; 7. Due to cash flow problems, AA Rumble introduced 14,700 in cash into the business. The transaction was entered correctly in the cash book but was credited the capital account as 17,400. (Ignore the affects of VAT and depreciation) You are required to: a) Prepare the journal entries necessary to correct the above errors. b) Prepare a Suspense Account to clear the difference 11 Marks 5 Marks c) State the effect on profits (if any) of correcting each of the above errors. 4 Marks Total 20 Marks

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QUESTION 6 The following information is available for All Lawns Tennis Club for the year to 31 December 2009. Receipts and Payments Account Details ??? 79,200 198,750 Light and heat Repairs of clubhouse Barperson salaries Insurance (30% relates to bar) Bar purchases Club secretary expenses Lawn maintenance Bar cleaning expenses Closing bank balance b/d

Details Balance c/d Subscriptions received: - Ordinary (annual) Bar takings

5,100 11,350 31,600 19,850 72,800 11,470 7,820 4,670 121,240 285,900

Opening balance b/d

285,900 121,240

Other assets and liabilities of the club are as follows: Clubhouse building at cost Bar inventories Bar purchases payables Subscriptions in advance Subscriptions in arrears Accruals light and heat Notes: 1. 1/1/09 110,200 9,700 7,540 1,540 3,560 650 31/12/09 110,200 10,200 6,310 2,300 5,560 540

No depreciation is charged on the clubhouse.

You are required to: a) Calculate the accumulated fund as at 1 January 2009. 6 Marks

b) Prepare a bar trading account for the year ended 31 December 2009. 5 Marks c) The clubs income and expenditure account for the year end 31 December 2009 and the statement of accumulated fund as at that date. 9 Marks Total 20 Marks

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Financial Accounting Sample Paper 2 Suggested Solutions

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Solution One Part A Depreciation has been defined as a measure of the cost of the economic benefits of the non current asset that have been consumed during the period. When an item of non current asset is purchased it will last for longer than one year. It is not purchased to be resold but is purchased to be used within the business to help the business generate profits. As such the purchase of an item of non current asset is an example of a capital item of expenditure. Such expenditure is not written off to the Statement of Profit & Loss in the year of purchase but is capitalised and written off to the Statement of Profit & Loss via depreciation over the useful economic life of the asset. Therefore depreciation is a method that allocates the cost of the non current asset to the accounting period that benefited from the use of the non current asset. If the full cost of the purchase of a non current asset was written off to the Statement of Profit & Loss in the year of purchase then one year would bear the full cost of the asset. This is clearly not a true and fair view when the asset is used within the business for several years. As such, depreciation is an example of the accruals concept whereby the cost of using the non current asset is matched to the profits generated by that asset over its useful economic life.

Part B Date 1/9/09 Details Addition Buildings Cost Account Date Details 122,000 31/12/09 122,000 1/1/2010 Balance 122,000 Balance 122,000 122,000

Note: all of the costs listed can be capitalised and included within the cost of the non current asset. Purchase of site Site preparation Raw material and labour costs Architect fees 50,000 10,500 46,500 15,000 122,000

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Solution One (contd) Date 31/12/09 Details Balance Building Accumulated Depreciation Account Date Details 680 680 1/1/2010 Buildings depreciation calculation: 122,000 20,000 = 2,040 50 Fixtures and Fittings Date 1/1/09 1/3/09 Details Balance b/d Additions Fixtures & Fittings Cost Account Date Details 290,000 37,500 327,500 327,500 31/12/09 Balance c/d 327,500 327,500 Balance 680 31/12/09 Statement Profit & Loss of 680 680 680

4/12

1/1/2010

Balance b/d

Date 31/12/09

Fixtures and Fittings Accumulated Depreciation Account Date Details Details Balance 102,125 102,125 1/1/09 31/12/09 1/1/2010 Balance b/d I/S charge Balance

70,000 32,125 102,125 102,125

Depreciation on additions 37,500 * 10% =

3,750

10/12

3,125

Deprecation on existing (continuing) non current assets 290,000 * 10% =

29,000

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Solution One (contd) Total depreciation Additions Existing assets Total depreciation 2009 Plant and Machinery Date 1/1/09 30/6/09 Details Balance b/d Additions

3,125 29,000 32,125

Plant and Machinery Cost Account Date Details 180,000 32,000 212,000 188,000 30/6/09 31/12/09 Disposal Balance c/d

24,000 188,000 212,000

1/1/2010

Balance b/d

Date 30/6/09 31/12/09

Plant and Machinery Accumulated Depreciation Account Date Details Details Disposal Balance 14,000 97,456 111,456 1/1/09 31/12/09 1/1/2010 Balance b/d I/S charge Balance

74,656 36,800 111,456 97,456

Depreciation on additions 32,000 * 20% = Depreciation on disposals 24,000 * 20% =

6,400

6/12

3,200

4,800

6/12

2,400

Deprecation on existing (continuing) non current assets 180,000 24,000 * 20% =

31,200

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Solution One (contd) Total depreciation Additions Disposals Existing assets Total depreciation 2009 3,200 2,400 31,200 36,800

Date 30/6/09

Details Cost

Plant and Machinery Disposal Account Date Details 24,000 30/6/09 30/6/09 30/6/09 24,000 Accumulated Depreciation Trade in I/S

14,000 8,400 1,600 24,000

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Solution Two Part A Date 1/1/09 Details Balance b/d Sales Dishonoured cheques Balance omitted Receivables Control Account Date Details 200,000 1,400,000 12,500 3,495 1/1/09 Balance b/d Sales returns Receipts from receivables Discounts allowed Irrecoverable debts Contra Balance c/d Balance b/d 20,000 80,000 1,200,000 20,000 60,000 4,890 261,105 1,645,995 30,000

31/12/09 1/1/2010

Balance c/d Balance b/d

30,000 1,645,995 261,105

31/12/09 1/1/2010

Note: both cash sales and the closing allowance for receivables do not appear in an individual receivables T account and therefore do not appear in the control account. Payables Control Account Date Details 80,000 40,000 30,000 750,000 4,890 196,110 1,101,000 12,000 31/12/09 1/1/2010 1/1/09 Balance b/d Purchases Interest Discounts disallowed Balance c/d Balance b/d

Date 1/1/09

Details Balance b/d Purchases returns Discounts received Payments to payables Contra Balance c/d Balance b/d

180,000 900,000 6,000 3,000 12,000 1,101,000 196,110

31/12/09 1/1/2010

Part B (Any two of the following points other relevant points accepted) Control accounts are prepared by businesses for the following reasons: 1. The purpose of the control account is to keep the nominal ledger free of details, yet have the correct balance for receivables and payables for the trial balance which in turn forms part of the financial statements.

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Solution Two (contd) 2. Control accounts are a means of proving the accuracy of the ledger accounts of receivables and payables. As a result this is a control mechanism to ensure accuracy of the receivables and payables personal ledgers. This control assists in the location of errors. 3. Control accounts can also act as an internal check, i.e. the person posting entries to the control account acts as a check on a different person who posts amounts from the daybooks to the personal ledgers.

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Solution Three Part A There are two broad types of accounting information: Financial accounting is based upon meeting the informational requirements of external users of accounting information for example payables, lenders and the government. Financial accounting is presented to external users in the form of financial statements. In order to facilitate comparison, financial accounts are prepared using accepted accounting conventions and standards. International Financial Reporting Standards (IFRSs) help to reduce the differences in the way companies prepare their financial statements. The financial statements are public documents. An example of the type of information provided by financial accounting is whether the business entity made a profit or loss during the financial period. This information is provided by the Statement of Profit and Loss. Management accounting is based upon meeting the informational needs of internal users of accounting information for example management. Management needs much more detailed and up-to-date information in order to control the business and plan for the future. They need to be able to cost products and assess profitability. In order to facilitate this, management accounts present information in any way that may be useful to management and in most cases to the specifications of management. Such information is only available within the company and usually is strategic in nature. An example of the type of information provided by management accounting is the financial budgets for the upcoming financial year. Part B Lenders Banks who lend money to a business require information initially to help the lender assess whether the bank should extend the credit to the business entity or not. Once the loan has been extended lenders require information that helps them determine whether loans and interest will be paid when due. The key accounting information for lenders is therefore, existing levels of debt and the cash flow of the business. Cash flow is probably the most important piece of information required by lenders as loans and interest are repaid out of the cash flow of the business entity. Investors Investors are fundamentally the owners of the business. Investors invest money in a business in return investors usually receive dividends from the business and may enjoy an increase in the market value of their investment. Thus investors are concerned about the risk and return in relation to their investment in the business. They require information to help them assess whether a business will be able to pay dividends and to measure the performance of the business. The key accounting information for investors is therefore information about business and sales growth, the profitability of the business and comparisons with other business entities. Comparisons with other business entities is important as investors can, in many cases, decide to sell their investment in one business entity and chose to invest in another business entity where rates are return are more attractive.

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Solution Three (contd) Part C Limited liability companies may have thousands of shareholders who are the owners of the company. These shareholders elect directors to run the company for them on their behalf. The directors run the company and report back to the shareholders on an annual basis on the companys performance, position and liquidity. Directors have complete access to all information about the companys performance, and are being rewarded based on how well the company performs. There is a bias for directors to portray the best financial picture possible in the financial statements and a danger that directors may act in their own private interests, rather than those of the shareholders. This scenario is referred to as an agency problem. The auditing process strives to provide a high level of assurance to users of financial accounting information by providing an independent examination of the companys books and financial statements. The auditor examines the books and financial statements of the company and forms an opinion expressed in the audit report as to whether the financial statements of the company gives a true and fair view of the state of affairs of the company at the end of the accounting year. The audit report gives shareholders an impression as to the extent to which they can rely upon the financial statements prepared and presented to them by the directors.

Part D The overall aim of the regulatory environment is that the financial statements of an entity give a true and fair view of the underlying financial performance and position of the entity. While there is no formal definition for True and Fair view compliance with accounting standards and Company Law will normally be necessary for financial statements to give a true and fair view. True and fair refers to the financial statements and that the picture they portray of the underlying company performance (profitability) and position is in fact a true and fair view representation. In order to ensure that the financial statements of a company are true and fair the financial statements, of many companies, must by law be reviewed by an independent auditor. The overall aim of all accounting regulation is thus to insure that the financial statements of a business represent a true and fair view of the financial health of the business. This is crucial if the users of accounting information are to rely and make decision based upon the information presented to them in the financial statements.

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Solution Three (contd) Part E Reliability Reliable information has the following five characteristics: 1. It can be depended upon by users of accounting information to faithfully represent what it either purports to represent or could reasonably be expected to represent that is that the information is not misrepresented or misleading. It is free from deliberate or systematic bias - that is it is neutral. It is free from material error. Users of accounting information can be reasonably assured that this is the case if the financial statements are accompanied by a clean (unqualified) audit report. It is complete within the bounds of materiality. Small assets may be excluded for example the companys stock of paper clips, as this omission would not have a material effect on the financial picture of the entity portrayed in the financial statements. In its preparation under conditions of uncertainty, a degree of caution that is prudence has been applied in exercising judgement and making the necessary estimates.

2. 3.

4.

Comparability By examining an entitys financial statements for one accounting year an individual would gain a relatively small amount of insight in terms of the financial performance and position of the company. In order for financial information to be useful it must be comparable with the financial information of the entity in previous accounting period and with other entities in the same industry. By comparing the financial information of the entity over time one can assess trends and by comparing the financial of the entity with other entities we can assess how the entity is performing compared to its competitors. To be truly useful financial information must be comparable.

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Solution Three (contd) Part F - Any two of the following Going Concern Going concern states that when preparing a set of financial statements accountants assume, unless there is evidence to the contrary, that a company is not going out of business and that it will continue in operational existence for the foreseeable future (twelve months from the date the financial statements are signed) and there is no intention to put the company into liquidation. This has important implications for the valuation of assets and liabilities, for example assets can be valued at their value in use to the business as opposed to the net realisable value. Financial statements have to be prepared in accordance with the going concern concept. Prudence In conditions of uncertainty, a cautious approach should be taken, so that gains and assets are not overstated and losses and liabilities are not understated. This means that sales and profit should not be included in the Statement of Profit & Loss until the cash has been received or there is reasonable certainty that the cash will be received. In contrast, losses should be recognised in the Statement of Profit & Loss as soon as they are foreseen and considered reasonably certain. Prudence is the exercise of sound judgement in practical affairs. For example: if post year end inventory items were sold for less than cost, prudence would dictate that year end value of the inventory was written down to the net realisable value of the inventory. Hence ensuring that the value of year end assets (inventory) was not overstated and that profits were not over stated (closing inventory forms part of the profit calculation in the cost of sales section). It is important to note that prudence need only be applied under conditions of uncertainty. Where there is no uncertainty there is no need to apply prudence. Materiality Materiality is an important convention. Information is material to the financial statements if its omission or misstatement could influence the economic decisions of users. Information can be material in terms of its size in relation to the financial statements as a whole or an item could be material by its nature, transaction involving directors are normally considered to be material by their nature. The understandability of financial statements is improved if only material items are included as separate line items within the financial statements. If immaterial information is included as separate line items within the financial statements users may not be able to interpret the picture given by the accounts as a whole.

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Solution Four T. Higgins Statement of Profit & Loss for the year ended 31 December 2009 Sales Cost of sales Opening inventory Purchases Carriage inwards Less closing inventory Cost of sales Gross Profit Discount received Less Expenses Debts previously written-off as recovered Bank charges Insurance Interest Wages and salaries General expenses Depreciation of buildings Depreciation of delivery vans Irrecoverable debts Decrease in allowance for receivables Total expenses Net Profit irrecoverable, (600) 370 3,150 1,300 41,000 6,375 2,640 2,550 700 (302) (57,183) 28,657 25,800 287,600 4,050 317,450 (28,150) (289,300) 85,490 350

374,790

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Solution Four (contd) T. Higgins Statement of Financial Position as at 31 December 2009 2009 Non current assets Buildings Delivery vans Current assets Closing inventory Receivables Prepayments Total Assets Equity and Liabilities Capital Capital Profit for 2009 Drawings Current liabilities Payables Bank overdraft VAT Accruals Total Equity and Liabilities 132,000 25,000 2009 (40,640) (10,550) 2009 91,360 14,450 105,810

28,150 17,952 750

46,852 152,662

99,685 28,657 128,342 (17,700) 110,642 36,200 2,920 2,450 450 42,020 152,662

Workings 1 Closing inventory as per question: Less write down of inventory 32,950 (4,800) 28,150

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Solution Four (contd) Workings 2 Purchases as per TB Drawings Drawings Drawings as per TB Drawings as per W2 Total drawings 293,000 (5,400) 287,600 12,300 5,400 17,700

Working 3 and 4 New expense of 370 in the Statement of Profit & Loss: 3,150 370 3,520 (600) 2,920

Bank as per TB O/D Bank charges not accounted for Irrecoverable debt recovered Restated bank balance (overdraft)

Workings 5 Receivables as per TB Allowance for receivables 4% Opening allowance for receivables Decrease in allowances for receivables Workings 6 Cost of buildings Depreciation 2% SL 132,000 2,640 18,700 748 1,050 302

Cost of delivery vans Accumulated depreciation NBV Depreciation 15% RBM

25,000 (8,000) 17,000 2,550

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Solution Four (contd) Workings 7 Insurance as per TB Insurance prepaid as per w7 3,900 (750) 3,150 3,600 450 4,050

Carriage inwards as per TB Carriage inwards accrued as per w7

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Solution Five Part A Debit 1. Dr Dr Cr 2. Dr Cr 3. Dr Dr Cr Cr Machinery repairs Machinery at cost Suspense Being an error of principle Suspense Bank/cash book Being the a correction of error cash book overcast 5,500 5,500 Credit

11,000

7,300

7,300

J Morgan 175 J Moran 175 Discount received Discount allowed Being the correction of error discount incorrectly treated in personal accounts and nominal Light and heat Other payables Being an error of omission 1,420

175 175

4. Dr Cr 5. Dr Cr 6. Dr Cr 7. Dr Cr

1,420

Suspense 12,900 Mr Smith Being cash receipts treated as additional sales in error Suspense 985 Allowance for receivables Being correction of error, allowance for receivables under cast Capital Suspense Being the correction of an error of transposition 2,700

12,900

985

2,700

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Solution Five (contd) Part B Details Journal 2 Journal 5 Journal 6 Suspense Account Details Opening balance Journal 1 Journal 7 7,485 11,000 2,700 21,185

7,300 12,900 985 21,185

Part C Draft loss for December 2009 Journal 1 Journal 2 Journal 3 Journal 4 Journal 5 Journal 6 Journal 7 Loss after adjustments (12,540) (5,500) 350 (1,420) (19,110)

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Solution Six Part A Calculate the opening cash balance: Details Balance c/d Subscriptions received: - Ordinary (annual) Bar takings Receipts and Payments Account Details 7,950 79,200 198,750 Light and heat Repairs of clubhouse Barperson salaries Insurance (30% relates to bar) Bar purchases Club secretary expenses Lawn maintenance Bar cleaning expenses Closing bank balance b/d 5,100 11,350 31,600 19,850 72,800 11,470 7,820 4,670 121,240 285,900

Opening balance b/d

285,900 121,240

Calculate opening accumulated funds: Assets Clubhouse Bar inventory Subs in arrears Cash/bank Liabilities Bar purchases payable Subs in advance Light and heat accruals Accumulated funds 1/1/09 110,200 9,700 3,560 7,950

131,410

7,540 1,540 650 (9,730) 121,680

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Solution Six (contd) Part B Details Cash paid for purchases Balance c/d Bar Payables Control Account Details 72,800 6,310 79,110 Balance b/d Purchases Balance b/d All Lawns Tennis Club Bar trading account for the year ended 31 December 2009 Bar sales Cost of sales Opening inventory Purchases Less closing inventory Cost of sales Gross Profit Less expenses Barpersons wages Insurance Bar cleaning Bar profits Part C Details Opening subs in arrears I/S value for subs Closing subs in advance 31,600 5,955 4,670 (42,225) 85,455 9,700 71,570 81,270 (10,200) (71,070) 127,680 7,540 71,570 79,110 6,310

198,750

Subscriptions Account Details 3,560 80,440 2,300 86,300 5,560 Opening subs in advance Cash received for subs Closing subs in arrears

1,540 79,200 5,560 86,300 2,300

Opening subs in arrears

Opening subs in advance

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Solution Six (contd) Income and expenditure account for the year to 31 December 2009 Income 80,440 Subscriptions 85,455 Bar profits 165,895 Expenditure Light and heat 4,990 Repairs 11,350 Insurance 13,895 Club secretary expenses 11,470 Lawn maintenance 7,820 (49,525) 116,370 Excess of income over expenses All Lawns Tennis Club Accumulated Fund Statement as at 31 December 2009 2009 Non current assets Buildings 110,200 Current assets Bar closing inventory Subs in arrears Bank Total Assets Equity and Liabilities Accumulated Fund/Capital Opening accumulated fund 1/1/09 Excess of income over expenditure 2009 Current liabilities Bar payables Subs in advance Accruals Total Equity and Liabilities

2009

2009 110,200

10,200 5,560 121,240

137,000 247,200

121,680 116,370 6,310 2,300 540

238,050

9,150 247,200

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