1.4.

1
Adjustments
to financial
statements
Answers to End-of-chapter questions
1 B
3 Debit Rent and rates $1 100
Debit Electricity charges $630
Credit Accruals $1 730

5 Debit Provision for doubtful debts (income statement) $2 530.50

Credit Provision for doubtful debts (statement of financial position) $2 530.50

7 Adele
Income statement for the year ended 31 December 2014
$ $ $
Revenue 354 440
Less: returns inwards (1 459)
352 981
Cost of sales
Opening inventory 47 200
Purchases 137 604
Less: returns outwards (1 337)
136 267
Add: carriage inwards 914 137 181
184 381
Less: closing inventory (43 450) (140 931)
Gross profit 212 050
Less: expenses
Advertising 4 563
Discounts allowed 2 194
Legal expenses 2 310
Light and heat 13 552
Motor expenses 11 380
Office expenses 12 275
Printing and stationery 1 849
Property rental 41 600
Wages 55 817
Workshop expenses 5 116
Depreciation 12 454
Increase in provision for doubtful receivables 244 (163 354)
Profit for the year 48 696

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 Adele
Statement of financial position as at 31 December 2014
$ $ $
Non-current assets
Motor vehicles at cost 64 200
Less: provision for depreciation 32 310 31 890
Plant and equipment at cost 18 240
Less: provision for depreciation 8 304 9 936
41 826
Current assets
Inventory 43 450
Trade receivables 42 300
Less: provision for doubtful receivables (1 269) 41 031
Other receivables 6 980
91 461
Total assets 133 287
Capital account
Balance brought forward 90 283
Add: profit for the year 48 696
138 979
Less: drawings (52 496)
86 483
Non-current liabilities
Bank loan (repayable 2016) 18 370

Current liabilities
Trade payables 15 807
Other payables 600
Bank overdraft 12 027
28 434
Total equity and liabilities 133 287

7 Adjustments:
uuInventory: debit balance sheet, credit income statement.
uuDebit prepayments, credit advertising $580.
uuDebit prepayments, credit property rental $6400.
uuDebit light and heat, credit accruals $600.
uuDepreciation motor vehicles
$64 200 $21 680 = $42 520 25% = $10 630
Depreciation plant and equipment $18 240 10% = $1824
Debit depreciation (income statement), credit provisions for depreciation
(statement of financial position).
uuProvision for doubtful receivables $42 300 3% = $1269
Original provision $1025, new provision $1269, so increase in provision
is $244.
Debit income statement, credit trade receivables (statement of
financial position).
2

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 Sole traders:
1.4.2A preparation
of accounts
Answers to End-of-chapter questions
1 D
3 Richard
Extract from Income Statement for the year ended 28 February 2015
$ $ $
Revenue 165 442
Less: returns inwards (1 602)
163 840
Cost of sales
Opening inventory 23 240
Purchases 89 378
Less: returns outwards (1 006)
88 372
Add: carriage inwards 914 89 286
112 526
Less: closing inventory (24 100) (88 426)
Gross profit 75 414

5 David
Income statement for the year ended 31 December 2014
$ $ $
Revenue 289 446
Less: returns inwards 1 557
287 889
Cost of sales
Opening inventory 52 800
Purchases 127 385
Less: returns outwards 904
126 481
Add: carriage inwards 815 127 296
180 196
Less: closing inventory 54 350 125 746
Gross profit 162 143
Add: discount received 1 901
164 044
Less: expenses
Carriage inwards 1 227
Cleaning expenses 548

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 David
Income statement for the year ended 31 December 2014
$ $ $
Depreciation 1 500
Discount allowed 1 282
Motor expenses 5 350
Rent and rates 26 057
Stationery and advertising 1 559
Sundry expenses 7 715
Wages and salaries 42 161 87 399
Profit for the year 76 645

7 Majid
Income statement for the year ended 30 November 2014
$ $ $
Revenue 235 358
Less: returns inwards 2 060
233 298
Cost of sales
Opening inventory 42 300
Purchases 92 330
Less: returns outwards 1 593 90 737
133 037
Less: closing inventory 39 240 93 797
Gross profit 139 501
Less: expenses
Carriage outwards 2 154
Depreciation 3 200
Discounts allowed 1 508
Motor expenses 5 527
Rent and rates 12 850
Repairs and maintenance 2 207
Stationery and advertising 4 852
Sundry expenses 2 920
Wages and salaries 24 117 59 335
Profit for the year 80 166

Majid
Statement of financial position as at 30 November 2014
$ $
Non-current assets
Computers at cost 8 420
Motor vehicles at cost 18 610
Less: provision for depreciation (4 000) 14 610
Plant and machinery at cost 42 745
Less: provision for depreciation (8 200) 34 545
57 575
69 775

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 Current assets
Inventory 39 240
Trade receivables 27 075
Balance at bank 14 225
80 540
138 115
Capital account
Balance brought forward 70 833
Add: profit for the year 80 166
150 999
Less: drawings (34 116)
116 883
Non-current liabilities
Bank loan (repayable 2015) 5 880

Trade payables 15 352

Current liabilities 138 115

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 Final
1.4.2B accounts from
incomplete
records
Answers to End-of-chapter questions
1 Statement of affairs at 1 April 2015
$ $
Assets
Premises NBV 258 000
Vehicles NBV 14 600
Machinery NBV 26 800
Inventory 66 000
Trade receivables 19 000
Other receivables 12 800
Bank 6 500
403 700
Liabilities
Other payables 11 200
Loan 60 000
Trade payables 62 400
(133 600)
Capital 270 100
3 Statement of affairs at 1June2013
$ $
Assets
Premises 260 000
Vehicles 24 000
Machinery 24 100
Inventory 38 300
Trade receivables 39 500
Other receivables 3 700
Bank 10 600
400 200
Liabilities
Other payables 6 900
Loan 11 200
Trade payables 13 400
(31 500)
Capital 368 700

Statement of affairs at 31May2014

$ $
Assets
Premises 225 200
Vehicles 20 400
Machinery 26 600

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 Inventory 28 800
Trade receivables 36 000
Other receivables 4 000
341 000
Liabilities
Other payables 5 100
Bank overdraft 5 700
Loan 29 300
Trade payables 44 500
(84 600)
Capital 256 400

$
Opening capital 368 700
Less: closing capital 256 400
112 300
Additional capital 20 000
132 300
Drawings 30 800
Loss for year 101 500

5 D
7 C
9 C
11 Income statement for the year ended
30 November 2014
$ $
Revenue: 150 000
Less: cost of sales
Opening inventory 3 200
Purchases 121 600
124 800
Closing inventory (4 800)
(120 000)
Gross profit 30 000

Cost of sales/(3200 + 4800/2) = 30 times

13 a Dr Trade payables account Cr
Bank: payments 42 200 Opening balance 9 200
Closing balance 8 400 Purchases 41 400
50 600 50 600
b Income statement for the year
ended 30 October 2014
$ $
Revenue: 53 250
less Cost of sales
Opening inventory 14 600
Purchases 41 400
56 000
Closing inventory (13 400)
(42 600)
Gross profit 10 650

Gross profit margin is 20 per cent. It is possible to convert this to mark up:
start with revenue as 100, so gross profit is 20, and so cost of sales is 80.
Gross profit is 20/80 of cost of sales, i.e. 25 per cent.
Therefore cash stolen is $53 250 - $50 600 = $2650
2

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15 aStolen cash:

Dr Cash Cr
Cash takings 41 850 Cash banked 32 100
Wages 4 800
Drawings 3 600
Missing cash 1 350
41 840 41 850

b Calculation of credit sales:

Dr Sales ledger control account Cr
Opening balance 11 300 Bank: receipts 168 500
Credit sales 165 600 Closing balance 8 400
176 900 176 900

c Calculation of credit purchases:

Dr Purchases ledger control account Cr
Bank: payments 132 800 Opening balance 6 200
Closing balance 5 900 Purchases 132 500
138 700 138 700

Calculation of opening capital:

$ $
Assets
Premises 264 000
Vehicles 28 000
Fixtures etc. 36 100
Inventory 10 500
Receivables 11 300
Prepayments 300
Bank 2 100
352 300
Liabilities
Accruals 400
Payables 6 200
(6 600)
Capital 345 700

Insurance charge for the year:

$
Paid 1 200
add opening prepayment 300
1 500
less closing prepayment (700)
800

Wages expense for the year:

$
Paid from bank 45 000
Paid in cash (12 $400) 4 800
less opening accrual (400)
49 400
add closing accrual 200
49 600

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 Depreciation charges:
Premises: $264 000 less $260 000 = $4000
Vehicles: $28 000 less $22 200 = $5800
Fixtures and fittings: $36 100 add $6000 ($42 100)
less $38 200 = $3900
Income statement for the year ended 31March2015
$ $
Revenue: credit sales 165 600
cash sales 41 850
207 450
less Opening inventory 10 500
Purchases 132 500
143 000
Closing inventory (9 700)
Cost of sales (133 300)
Gross profit 74 150
less Business expenses 21 300
Wages 49 600
Insurance 800
Cash stolen 1 350
Depreciation:
premises 4 000
vehicles 5 800
fixtures 3 900
(86 750)
Loss for year 12 600

Statement of financial position at

31March2015
$ $
Non-current assets
Premises 260 000
Fixtures and fittings 38 200
Vehicles 22 200
320 400
Current assets
Inventory 9 700
Trade receivables 8 400
Other receivables 700
18 800
339 200
Capital
Opening balance 345 700
less Loss (12 600)
333 100
less Drawings (3 600)
329 500
Current liabilities
Trade payables 5 900
Bank overdraft 3 600
Other payable 200
9 700
Total capital and liabilities 339 200
17 C
19 B
21 D
4

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 Partnerships:
1.4.3A preparation of
accounts
Answers to End-of-chapter questions
1 a $28 000 each.
b $50 400 for Jennifer, $25 200 for Kim and $8400 for Lewis.
c $14 000 for Jennifer, $21 000 for Kim and $49 000 for Lewis.
3 Profit for the year 274 000
Salary (Fitz) (34 000)
Profit available for partners 240 000
Cindy (3/8) 90 000
David (3/8) 90 000
Fitz (2/8) 60 000

5 a Capital account
Jackie $ Kerri $ Jackie $ Kerri $
Bank 360 000 600 000

b Jackie and Kerri

Appropriation account
for the year ended 31 March 2015
$ $
Profit for the year 216 000
add: interest on drawings
Jackie 4 620
Kerri 7 020
11 640
227 640
Less: interest on capitals
Jackie 36 000
Kerri 60 000
(96 000)
131 640
Less: salary
Jackie (60 000)
71 640
Less: shares of residual profit
Jackie 42 984
Kerri 28 656
(71 640)

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 Dr Drawings accounts Cr
Jackie Kerri Jackie Kerri

Bank 38 500 58 500 Current accounts 38 500 58 500

c
Current accounts
Jackie Kerri Jackie Kerri
$ $ $ $
Interest on drawings 4 620 7 020 Interest on capital 36 000 60 000
Drawings 38 500 58 500 Salaries 60 000
bal c/d 95 864 23 136 Profit share 42 984 28 656
138 984 88 656 138 984 88 656
Balances b/d 95 864 23 136

7 Calculations of interest on drawings:

Ryan $
8 months (2/3 yr) $24 000 12% 1 920
4 months (1/3 yr) $39 000 12% 1 560
Total 3 480

Sonya $
7 months (7/12 yr) $51 000 12% 3 570
2 months (1/6 yr) $36 000 12% 720
Total 4 290

Tara $
6 months (0.5 yr) $39 000 12% 2 340
1 month (1/12 yr) $39 000 12% 390
Total 2 730

Ryan, Sonya and Tara

Appropriation account
for the year ended 31 July 2014
$ $
Profit for the year 87 390
add: interest on drawings
Ryan 3 480
Sonya 4 290
Tara 2 730
10 500
97 890
Less: interest on capitals
Ryan 52 800
Sonya 43 200
Tara 24 000
(120 000)
(22 110)
Less: salaries
Ryan 33 000
Tara 15 000
(48 000)
(70 110)

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 Less: shares of residual
loss
Ryan 23 370
Sonya 23 370
Tara 23 370
70 110

Dr Capital accounts Cr
Ryan Sonya Tara Ryan Sonya Tara
Balances 660 000 540 000 300 000

Dr Drawings accounts Cr
Ryan Sonya Tara Ryan Sonya Tara
Bank 24 000 51 000 39 000 Current accounts 63 000 87 000 78 000
Bank 39 000 36 000 39 000
63 000 87 000 78 000 63 000 87 000 78 000

Dr Current accounts Cr
Ryan Sonya Tara Ryan Sonya Tara
Opening balances 5 300 2 700 Opening balance 8 100
Drawings 63 000 87 000 78 000 Interest on capitals 52 800 43 200 24 000
Interest on drawings 3 480 4 290 2 730 Salaries 33 000 15 000
Share of loss 23 370 23 370 23 370 Balances c/d 9 350 63 360 67 800
95 150 114 660 106 800 95 150 114 660 106 800

Balances b/d 9 350 63 360 67 800

9 Statement of profit shares for the year ended

31December2014
$ $
Profit for the year (before interest on loan) 135 000
Less interest on Bryans loan of $80 000 (4 000)
Profit after interest on loan 131 000
Less interest on capital at 5%
Bryan 10 000
Stacey 7 500
(17 500)
Less salaries:
Bryan 20 000
Stacey 30 000
(50 000)
63 500
Less shares of residual profit:
Bryan 31 750
Stacey 31 750
(63 500)

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11 a and b
Ishaka and Joshua
Income statement for the year ended 30 September 2014
$ $
Gross profit 237 000
Interest on loan (Ishaka) (10% $40 000) 4 000
Operating expenses ($68 000 + $5 000) 73 000
Depreciation (20% $480 000) 96 000
Provision for doubtful debts (5% $20 000) 1 000
(174 000)
Profit 63 000

Appropriation account for the year ended 30 September 2014

$ $
Profit for the year 63 000
Add: interest on drawings
Ishaka 6 000
Joshua 4 000
10 000
73 000
Less: salary (Joshua) (28 000)
45 000
Less: shares of residual profits
Ishaka 27 000
Joshua 18 000
(45 000)

c Dr Current accounts Cr
Ishaka Joshua Ishaka Joshua
$ $ $ $
Oct 1 Balance 4 000 Oct 1 Balance 7 000
Sept 30 Drawings 47 000 35 000 Sept 30 Loan interest 4 000
30 Interest on 30 Salary 28 000
drawings 6 000 4 000 30 Residual 27 000 18 000
profit
30 Balance c/d 14 000 30 Balance b/d 26 000
57 000 53 000 57 000 53 000
Oct 1 Balance b/d 26 000 Oct 1 Balance b/d 14 000

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 d Statement of financial position at 30 September 2014
$ $ $
Non-current assets Cost Deprcn Net
820 000 436 000 384 000
Current assets
Inventory 63 000
Trade receivables 20 000
Less: provision for doubtful debts 1 000
19 000
Cash at bank 31 000
113 000
497 000
Capital accounts Ishaka Joshua
240 000 200 000 440 000

Current accounts (26 000) 14 000 (12 000)

428 000
Non-current liability
Loan from Ishaka 40 000
Less: current liabilities
Trade payables 24 000
Other payables 5 000
29 000
497 000

13 a Dr Capital accounts Cr
Ron Stan Frank Ron Stan Frank
Mar 31 Goodwill 15 000 15 000 Mar 31 Balances b/f 150 000 150 000 150 000
31 Current account 5 000 Goodwill 10 000 10 000 10 000
31 Loan 155 000
31 Balances c/d 145 000 145 000
160 000 160 000 160 000 160 000 160 000 160 000
April 1 Balances b/d 145 000 145 000

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 b Ron and Stan
Statement of financial position at 1 April 2014
$ $
Non-current assets 470 000
Current assets 50 000
520 000
Capital accounts
Ron 145 000
Stan 145 000
290 000
Current accounts
Ron 40 000
Stan 15 000
55 000
Non-current liability
Loan: Frank 155 000

Current liabilities 20 000

520 000

15 C
17 D
19 C
21 C

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 1.4.3B Dissolution of
partnerships

Answers to End-of-chapter questions

1 The balance in the partnership bank will be shared out according to the
balances on the closing capital and current accounts. This balance is affected
by the amount of drawings, etc. that a partner has taken, which will vary year
to year and may mean that Tapiwa will not have 80 per cent of the bank
balance due to him. It should also be noted that any assets taken over by a partner as
part of the dissolution will also affect the amount due.
3 Realisation account
$ $
Non-current assets 180 000 Trade payables 27 700
Inventory 24 500 Non-current assets capital acc Tracey 210 000
Trade receivables 42 600 Inventory capital acc Tracey 23 000
Trade payables 26 000 Trade receivables 41 000
Costs of dissolution 4 400
Profit on dissolution: Sara 12 100
Profit on dissolution: Tracey 12 100
301 700 301 700

Capital accounts
Sara Tracey Sara Tracey
$ $ $ $
Non-current assets 210 000 Balance b/d 110 000 114 000
Inventory 23 000 Profit on dissolution 12 100 12 100
Cash and cash 122 100 Cash and cash 106 900
equivalents equivalents
122 100 233 000 122 100 233 000

Cash and cash equivalents

$ $
Balance b/d 4 600 Trade payables 26 000
Trade receivables 41 000 Costs of dissolution 4 400
Capital account: Tracey 106 900 Capital account: Sara 122 100
152 500 152 500

5 C

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 Limited
1.4.4A companies:
structure and
accounting for
share issues
Answers to End-of-chapter questions
1 Ordinary shares (300 000 0.05) = $15 000
Preference shares ($200 000 6%) = $12 000
Total dividends paid $27 000
3 Journal
Details Dr Cr
$ $
Bank 130 000
ordinary share capital 100 000
share premium 30 000
being the issue of ordinary shares

5 Journal
Details Dr Cr
$ $
bank 75 000
ordinary share capital 50 000
share premium 25 000
being issue of ordinary shares at $1.50 each
dividend paid 2 500
bank 2 500
being the payment of a dividend at $0.05 per share

7 B
9 D
11 B
13 A
15 B

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 Limited
1.4.4B companies:
financial
statements
Answers to End-of-chapter questions
1 B
3 A
5 B
7 B
9 Owen Ltd
Income statement for the year ended 31 March 2015
$ $
Revenue 75 100
Cost of sales (41 650)
Gross profit 33 450
Distribution costs 3 710
Administration expenses (3 660 120) 3 540 (7 250)
Profit from operations 26 200
Finance costs (1 340)
Profit for the year 24 860

Owen Ltd
Statement of changes in equity for the year ended 31 March 2015
Total Ordinary Preference Share General Retained
shares shares premium reserve earnings
Balance at 186 120 150 000 5 000 12 500 6 000 12 620
1 April 2014
Transfer to reserve 2 000 (2 000)
Equity dividends paid (1 500) (1 500)
Profit for the year 24 860 24 860
209 480 150 000 5 000 12 500 8 000 33 980

11 Ramteet Ltd
Statement of financial position as at 31 December 2014
$000 $000
Non-current assets
Premises 410.0
Fixtures and fittings 82.0
492.0
Current assets
Inventory 44.9
Trade and other receivables 47.2 92.1
Total assets 584.1

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 Ramteet Ltd
Statement of financial position as at 31 December 2012
$000 $000
Equity
Ordinary shares of $1 each 200.0
8% preference shares of $2 each 160.0
Share premium 40.0
General reserve 40.0
Retained earnings 63.9
503.9
Non-current liabilities
10% debenture (20122022) 30
Current liabilities
Trade payables 32.1
Cash and cash equivalents 18.1
50.2
584.1

13 Tiger plc
Income statement for the year ended 31 January 2015
$ $
Revenue 1 527 000
Cost of sales (102 + 615 + 12 110) (619 000)
Gross profit 908 000
Distribution costs 38 000
Administration expenses (68 + 30) 98 000 (136 000)
Profit from operations 772 000
Finance costs (115 + 2.4 + 2) (119 400)
Profit for the year 652 600

15 Robins plc
Income statement for the year ended 31 March 2015
$000 $000
Revenue 3 790
Cost of sales (110 + 1636 125 + 41) (1 662)
Gross profit 2 128
Distribution costs (662 + 56) (718)
Administration expenses (438 4 + 15) (463) (1 181)
Profit from operations 947
Finance costs (810 + 17 + 6) (833)
Profit before tax 114

Robins plc
Statement of changes in equity for the year ended 31 March 2015
Share Share Retained
Total capital premium earnings
Balance at 1 April 2014 1 309 400 40 869
Profit for the year 114 114
Equity dividends paid (70) (70)
1 353 400 40 913

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 Robins plc
Statement of financial position as at 31 March 2015
$000 $000
Non-current assets
Freehold property (750 150) 600
Plant and machinery (410 328) 82
Motor vehicles (350 126) 224
906
Current assets
Inventory 125
Trade and other receivables 523
Cash and cash equivalents 427
1 075
Total assets 1 981
Equity
Issued ordinary shares of $0.25 each 400
Share premium 40
Retained earnings 913
1 353
Non-current liabilities
10% debenture (20202023) 340
Current liabilities
Trade and other payables 288
Total equity and liabilities 1 981

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