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Most sales have been for cash. Where sales have been on credit these have been recorded and
invoiced.
(ii) Payments were made in cash in each of the 52 weeks of the year from the cash till;
Receipts
Cheque to open the account
Cash sales
Credit sales banked
Payments
Rent and rates
General expenses
Suppliers of goods
Electricity
Telephone
Computer equipment
1 500
83 000
7 000
7
4
65
3
500
000
000
600
800
2 000
(iv) During the year Ravindra received discount of 1 000 from suppliers for prompt payment.
(v) On 30 April 2005:
Depreciation w as charged on fixtures at 10% and computer equipment at 30% using the
straight line method.
Ravindra had taken goods with a cost price of 2 750 for his personal use during the year.
A debtor has informed Ravindra that he is unable to pay his debt of 350. A provision i s
to be made for the doubtful debt.
Required:
(a) Prepare for Ravindra the:
(i) Income Statement for the year ended 30 April 2005.
(8)
(8)
(3)
(c) Evaluate the advantages and disadvantages of keeping a full set of double entry accounts rather
than the system currently in use by Ravindra.
(4)
(Total 23 marks)
2.
The following trial balance was prepared for the business of Kassam on 30 April 2005. The trial
balance was prepared by an inexperienced bookkeeper and contains both errors in drafting and
errors of double entry.
Debit
Sales
Purchases
Stock at 1 May 2004
Purchase returns
Salaries and trade expenses
Telephone charges
Capital
Bank overdraft
Fixtures (at cost)
Fixtures provision for depreciation
Debtors
Creditors
Provision for doubtful debts
Credit
96 450
42 000
5 700
800
45 200
l540
15 000
1 600
40 000
l 800
12 920
15 050
600
Goods purchased on credit valued at 200 were returned on 28 April 2005 but no entries had
been made in the books to record the return.
(ii) New fixtures costing 1 500 had been posted to the purchases account.
(iii) Goods sold to a customer for 8 000 had been debited to both the sales account and the
customers account.
(iv) Telephone charges of 60 had been paid by cheque and correctly recorded in the telephone
charges account, but no other entries had been made.
Required:
(a) Prepare for Kassam:
(i) Journal entries to correct the errors. Narrations are not required.
(4)
(2)
(b) Draft the revised trial balance following the correction of all errors.
(7)
(c) A trial balance is a checking device. Identify one other checking device used in accounting and
evaluate its benefits.
(3)
(Total 16 marks)
Non-current assets
Premises
Office fixtures
Staff skill
180 000
100
30 000
210100
Current assets
Stock
Debtors
Bank
15 000
19 000
5 900
39 900
less
Current liabilities
Creditors
16 000
234 000
Financed by:
Capital
Net profit
160 000
81 000
Drawings
241 000
7 000
234 000
Paul had not received any formal financial training before preparing the balance sheet. The
following information is available:
(i) The value of the premises was increased by 20 000 to take account of the increased market value
in the year. This was considered as a profit for the year.
(ii) Office fixtures had a book value of 4 000 on 1 May 2004. The usual depreciation rate of 20%
was not applied for the year ending 30 April 2005. For that year Paul had charged depreciation
'writing the asset down' to its scrap value at the end of the year. The asset will continue to be used
in the business for several years.
(iii) Paul Bain valued the skill of bis staff at 30 000 and had placed this sum in the balance sheet and
the profit and loss account.
(iv) The closing stock was valued at resale value. The business uses a 50% mark up on goods.
Required:
(a) Identify, for each of (i), (ii), (iii) and (iv) above, the accepted accounting concept or
convention, other than prudence, which should have been complied with.
(4)
(b) Calculate the revised net profit after applying the correct interpretation of the accepted
accounting concepts and conventions.
(5)
(c) Prepare a revised balance sheet as at 30 April 2005 which complies with accepted accounting
concepts and conventions.
(5)
(d) Evaluate the role played in accounting by accepted accounting concepts and conventions.
(2)
(Total 16 marks)