PALASH KUMAR KUNDU

Senior Teacher, Greenherald

Contact: 0172-0502206

Q-1.Kehly is in business installing computer networks for two customers: TB Internet and super
Broadband. The following balances were extracted from Kehlys books on 31 December 2008.

sales 300000
Purchases of materials 62500
Wages of network installers 84000
Management salaries 31500
Vehicle running expenses 11250
Vehicles at cost 35000
Vehicles provision for depreciation 14000
Office rent and expenses 43400
Office equipment at cost 18000
Office equipment provision for depreciation 6000
Stock of materials at 1 Jan 2008 7850
Debtors 90000
Creditors 47950
10% Bank loan repayable 31 Dec 2011 30000
Interest on bank lone 1500
Bank overdraft 9150
Provision for doubtful debts 2500
capital 25000
Drawings 49600

Additional information at 31 December 2008:

(i) Stock of materials 10350.
(ii) office rent and includes a payment of 7200 for the 3 months to 31 Jan 2009.
(iii) Depreciation is changed at the rate of 10% on vehicle using the straight line method and
20% on office equipment using the reducing balance method.
(iv) kehly has the credit control policy of issuing invoices immediately after jobs are
completed submitting monthly statement s to debtors ;and telephoning debtors when debts are 3
months old . A schedule of outstanding debts is as follows:

Age of debt 0-3 months 3-6 months Over 6 months

TB internet 22000 18000 17000
Super broadband 27000 6000 nil

(v) A provision for doubtful debts is to be maintained at 31 Dec 2008 at the following rate:
Age of debt 0-3 months 3-6 months Over 6 months
Rate 3% 6% 10%

Required :
(a) Prepare for kehly the:
An Income Statement for the year ended 31 Dec 2008
Statement of Financial Position as at 31 Dec 2008
2. Rasheed is in business as a travel agent selling holidays and air flights.
The following balances were extracted from the accounts on 31 December 2006.

Commission received:
holiday sales 120 000
air flights 45 000
Sales staff wages 54 000
Management salaries 31 000
Rent and rates 7 900
Heat and light 8 750
Insurance 2 900
Advertising 20 260
Creditors 1 850
Debtors 19 500
Capital at 1 January 2006 20 000
Lease to 31 December 2013 48 000
Fixtures (cost 18 000) 12 600
Computer equipment (cost 40 000) 20 000
8% Loan repayable 31 December 2010 50 000
Loan interest 2 000
Drawings 12 000
Bank 4 500
Provision for doubtful debts at 1 January 2006 1 000
Additional information at 31 December 2006:
(i) Commission is received on holiday sales at the rate of 10% of the holiday value, and on air flights
at the rate of 6% of the flight value.
(ii) Rent and rates of 90 was prepaid and insurance of 230 was owing.
(iii) Depreciation is charged on fixtures at 15% and computer equipment at 25%, both using the
straight line method.
(iv) An appropriate amount is to be depreciated from the lease.
(v) The 8% loan was obtained on 1 April 2006.
(vi) The only debtors are those for commission to be received. It is believed that commission to be
received from one debtor for air flights with a sales value of 25 000, will not be received and
should be considered a bad debt. A provision for doubtful debts of 5% should be maintained
against all remaining debtors.
(vii) On further investigation, and before preparing the profit and loss account, the following errors
were discovered in the above balances. No entries had been made in the accounts to correct these
errors.
* Management salaries includes a sum of 750 paid to Rasheed.
* A payment to a creditor of 1 500 was recorded correctly in the account of the creditor but
was debited to the bank account as 5 100.
* A holiday with a retail value of 1 300 was given free to a customer by Rasheed, as a prize
in a competition. Rasheed negotiated a 20% trade discount on the holiday. The invoice has
been entered in the creditors account but no other entry has been made in the accounts.
Rasheed considers this to be an advertising expense.
Required:
(a) Prepare the journal entries correcting the errors in (vii) above. [5]
(b) Prepare for Rasheed the:
(i) Income Statement for the year ended 31 December 2006.
(ii) Statement of Financial as at 31 December 2006. [15]