Elton makes up his accounts to 31 Dec each year.

His balance sheet at 31 Dec 20X8 showed the following position:

Non-current assets: $ $
Shop 17,600
Current assets:
Inventory 5,343
Accounts receivable 4,504
Cash 2,801
12,648
30,248

Capital Account:
Balance at 1 Jan 20X8 16,730
Net profit for 20X8 4,708
21,438
Drawing 4,620
16,818
Non-current liabilities:
10% Loan 8,000
Current Liabilities:
Accounts Payable 5,430
30,248
Notes:
(A) Accounts receivable consist of : (B) Accounts payable consist of :
E 2,600
F 987 M 2,840
G 536 N 1,990
H 381 O 600
4,504 5,430

The following transactions took place during Jan 20X9:

3 G settled his account in full
5 Paid $847 to N
8 R returned as faulty, goods with an invoice value of $264 and paid off the balance owing
12 Sold goods to G, invoice value $706
18 Purchased goods on credit from P, invoice value $746
19 E paid his account subject to a discount of 2% for prompt payment
24 Paid O subject to 1.5% discount for early settlement
28 Bought goods on credit from O with invoice value $203
31 Returned goods to P, invoice value $76

You are required to prepare:

(A) Ledger accounts relating to all the above matters
(B) trial balance at 31 Jan 20X9
Elton Trial balance at 31 Jan 20X9
$ $
1 Capital 16818
2 Loan 8000
3 Shop 17600
4 Inventory 5343
5 Cash 5170
6 Sales revenue 706
7 Sales return 264
8 Purchases 949
9 Purchases returns 76
10 Discount allowed 52
11 Discount received 9
12 E
13 F
14 G 706
15 H 381
16 M 2840
17 N 1143
18 O 203
19 P 670
30,465 30,465 TRUE

Continue with the example of Elton above and prepare his income statement in vertical format
and the balance sheet at the end of January. Assume that the inventory remaining at 31 Jan 20X9
totalled $6,100.

GraceTrial balance as at 30 June 20X9

$ $
Cash at bank 750
Car 4500
Capital 9500
Purchases 4050
Sales Revenue 4400
Fixture 900
Trevor - Account receivable 300
Wages 400
Guy - Loan 1000
Premises 4000
14,900 14,900
GRACEcommenced business on 1 June 20X9 with cash of $5,000 and she introduced a car
valued at $4,500. The following transactions took place:
June
1 Purchased goods for $1,000 cash
2 Purchased fixtures and fittings $900
3 Purchased goods on credit from Eileen $1,500
4 Sold goods for $1,200
5 Sold goods on credit to Tom for $900
8 Paid wages $100 in cash
9 Bought goods from Eric for $850 on credit
10 Sold goods to Trevor $800
11 Sold goods on credit to Tom for $1,000
12 Paid Eileen all that was owed to her
15 Tom paid in full
16 Purchased $700 goods for cash
17 Sold $500 goods for cash
18 Trevor paid $500 on account
19 Paid wages $150
22 Paid Eric in full
24 Loan received from Guy $1,000
25 Purchased premises $4,000
26 Paid wages $150

You are required to prepare:

(A) Ledger accounts (ignore dates) relating to all the above matters
(B) trial balance at 30 Jun 20X9

CLOSING INVENTORY
Example 1:
A trader starts in busness an by the end of his first year he has purchased goods costing $33,000
and he has made sales totalling $40,000. Goods which cost him 9,000 have not been sold by the
end of the year.
What profit has he made in the year?

Example 2:
A wholesaler buys goods from a manufacturer at $2 per unit and sells them on credit terms to
various retailers at $3 per unit. He has summarised his transactions for 20X8 as follows:
Unit
Opening inventory (1 Jan 20X8) 500
Purchases 6200
6700
Sales Revenue 5900
Closing inventory (31 Dec 20X9) 800
How is the Gross Profit to be calculated?
 Hillman extracted the trial balance below from his ledger on 31 March 20X9
Dr Cr
$ $
Light and heat 100
Sales revenue 6000
Accounts receivable 2000
Wages 600
Drawings 2100
Rent 400
Postage and stationery 200
Capital at 1 April 20X8 5500
Purchases 2800
Inventory 400
Accounts payable 800
Fixture and fittings 3500
Cash 200
12,300 12,300
Inventory at 31 March 20X9 is valued at 300.
Prepare the financial statements of Hillman, using vertical format.

rtical format
at 31 Jan 20X9
troduced a car

oods costing $33,000

not been sold by the

on credit terms to
8 as follows:
rch 20X9
ExampleCalculation of inventory and cost of sales under these methods
A business is commenced on 1 Jan and purchases are made as follows:

Month No. of unitsUnit Price $ Value $

Jan 380 2.00 760.00
Feb 400 2.50 1,000.00
Mar 350 2.50 875.00
Apr 420 2.75 1,155.00
May 430 3.00 1,290.00
Jun 440 3.25 1,430.00
2,420 6,510.00

In June 1420 articles were sold for $7,000.

(a) Compute the cost of inventory on hand at 30 June using the following methods:
1 FIFO
2 LIFO
3 Weighted Average Method

(b) Show the effect of each method on the trading results for the six months!

Q.1. B'worth extracted the list of account balances below from his ledger on 31 Mar 20X
Dr Cr
$ $
Light and heat 100
Trade Receivable 8,250
Sales revenue 25,375
Wages 8,237
Drawings by proprietor 3,500
Rent 500
Postage and stationary 727
Capital at 1 April 20X8 18,250
Purchases 17,280
Inventory 4,100
Trade Payables 7,247
Fixtures and fittings 2,100
Cash 6,078
50,872 50,872
Inventory at 31 March 20X7 is valued at $5,200.
You are required to prepare the income statement and balance sheet of B'worth,
using the vertical format.
Q.2. Alpha
Using the following balances and additional information given below, You are
required to PREPARE the income statement for the year ended 31 Dec and
a balance sheet as at that date:
Dr Cr
$ $ $
Sales revenue 39,468 39,468
Bank balance ?
Insurance 580 580
Plant repairs 110 110
Rent 1,782 1,782
Motor van 980 980
Plant 2,380 2,380
Purchases 27,321 27,321
Inventory at 1 Jan(opening) 3,655 3,655
Wages 3,563 3,563
Discount allowed to customers 437 437
Motor van expenses 1,019 1,019
Shop fittings 1,020 1,020
General expenses 522 522
Capital account -balance 1 Jan (opening)
2,463 2,463
Receivables (Debtors) 3,324 3,324
Payables (Creditors) 4,370 4,370
Cash on hand 212 212
Personal Drawings by proprietor 2,820 2,820
96,026 49,725 46,301
Bank balance ? 3,424
49,725 49,725
Additional information:
1 The diference in the list of balances is the bank balance at 31 Dec.
2 Inventory at 31 December amounted to $3,123
3 Adjust for cost of goods taken by Alpha for personal use amounting to $220.
methods:

ger on 31 Mar 20X9.

low, You are
1 Dec and

ng to $220.
Accruals
Calculate the appropriate expense for the accounting period in the following examples:
(a) For the year to 30 September 2005 a business paid heating bills of $2,700.
At 30 Sept 2005, the year end, there was an unpaid bill outstanding of $600 for the
3 months to 30 Nov 2005.

(b) A business paid its rent for the six months to 31 Mach 2003 $1,200, for the six months
to 30 Sept 2003 $1,800 and for the six months to 31 Mar 2004 $1,800. If the business's
year end is 31 Dec 2003, what is the rent expense for that accounting period

DUNDEE ENGINEERING
DE has a number of motor vehicles that are used within the business. The expenses of running
these vehicles are recorded in the Motor expenses and insurance account. At 1 May 2007 there
were garage bills accrued of $478 and insurance that had been prepaid of $290. During the
year to 30 Apr 2008 the transactions shown below took place.
$
30 Jun 2007 paid garage bills 698
1 Sep 2007 paid insurance for half of the motor vehicles
for the year to 30 Aug 2008 3480
1 Dec 2007 paid insurance for remaining motor vehicles
for the year to 30 Nov 2008 3900

At 30 Apr 2008 there were garage bills unpaid totalling $356.

You are required to write up the Motor Expenses and insurance account for the year ended
###

Heilbronn Properties
Interest payble and prepaid and rental due and received in advance at the beginning and
end of Heilbonn Prop's accounting year are as follows:
31-Jul-04 31-Jul-05
$ $
Interest payable 12,000 14,500
Interest receivable 8,000 6,400
Rental due from tenants 15,000 19,000
Rental received in advanced from tenants 3,000 2,500

During the year to 31 Jul 2005 the amount of interest payable charged to the income statement
was $56,000 and the cash collected from rental tenants was $116,000.
You are required to write up the Interest payable account and the Rental income account
for the year ended 31 Jul 2005.
g examples:

$600 for the

the six months

If the business's

xpenses of running
At 1 May 2007 there
$290. During the

t for the year ended

the beginning and

to the income statement

al income account
Harry Evans
HE set up in business on 1 Jan 2000 as a violin maker. At the end of his first year
of trading, 31 Dec 2000, the amounts owing to him from customers totalled
$6,570. After some consideration, Harry decided that of these debts a total of
$370 was unlikely ever to be received and should be written off as bad. Of the
remaining balances he decided to be prudent and allow against 4%.

By 31 Dec 2001 Harry's receivables had increased to $8,400 and of these

$1,500 were considered to be bad. Harry decided that his allowance for
doubtful debts could be reduced to 2% of the remaining receivables.

At 31 Dec 2002 Harry's receivables totalled $6,250. There were no debts that
were considered bad but a specific allowance was to be made against one
debt of $350 and a general allowance of 2% was to be continued on the
remaining receivables.

You are required :

To write up the allowance for doubtful debts account and the bad debt
expense account fot the years ended 31 Dec 2000, 2001 and 2002
(12 Marks)
NON-CURRENT ASSETS AND DEPRECIATION
(FIXED ASSETS)

MCQ Type
B acquired a lorry on 1 May 2006 at a cost of $30,000. The lorry has a estimated useful life
of four years, and an estimated resale value at the end of that time of $6,000. B charges
depreciation on the straight line basis, with a proportionate charge in the period of
acquisition.
What will the depreciation charge for the lorry be in B's ten month accounting period to
30 Sept 2006?
A $3,000
B $2,500
C $2,000
D $5,000

Essay Type
Explain the purpose of providing for depreciation and give details of one method of
computing the annual depreciation on an asset. (10 Marks)

George
George has been trading for many years, making up his accounts to 31 December.
On 1 July 2005 he purchased a van for $2,400. He estimates that its useful life is five
years, with residual value of $300. He provides depreciation on a straight line basis
on all his non-current assets.
George sold the van on 1 April 2007 for proceeds of $1,800.

You are required to enter the above transactions in the relevant ledger accounts and to
show the effect on the financial statements for each year. (15 Marks)

Depreciation 2
A firm has the following transactions with motor cars:
1-Jan-2004 Purchased car for $8,000 (Car 'A')
1-Jul-2004 Purchased additional car for $12,000 (Car 'B')
1-Jul-2005 Sold Car 'A' for $6,000
The firm's accounting year ends on 31 Dec in each year, and the following amounts of
Depreciation have been calculated as being relevant to those years.
y/e 31 Dec 2004 Car 'A' $1,600
y/e 31 Dec 2004 Car 'B' $1,200
y/e 31 Dec 2005 Car 'A' $800
y/e 31 Dec 2005 Car 'B' $2,400
y/e 31 Dec 2006 Car 'B' $2,400
You are required to show the motor cars accounts for each of the three years, together wi
the entry for motor cars in the balance sheet at 31 Dec 2005.
(15 Marks)
method of

ecember.
ul life is five
t line basis

ccounts and to

g amounts of

ears, together with

Trial Balance Type Questions
The trial balance of Tyndall at 31 May 2006
Dr Cr
$ $
Capital account 15,258
Drawings by proprietor 5,970
Purchases 73,010
Returns inwards 1,076
Returns outwards 3,720
Discounts 1,870 965
Credit Sales 96,520
Cash sales 30,296
Customs Duty 11,760
Carriage inwards 2,930
Carriage outwards 1,762
Salesman's commission 711
Salesman's salary 3,970
Office salaries 7,207
Bank charges 980
Loan interest 450
Light and heat 2,653
Sundry expenses 2,100
Rent 3,315
Insurance 4,000
Printing and postage 2,103
Advertising 1,044
Bad Debts 1,791
Doubtful Debt allowance 437
Inventory 7,650
Receivables 10,760
Payables 7,411
Cash at Bank 2,634
Cash in Hand 75
New delivery van (less trade-in) 2,200
Motor expenses 986
Furniture and equipment 2,400
Cost 8,000
Depreciation at 1 Jun 2005 1,000
New delivery van 5,000
Cost 2,000
Depreciation at 1 Jun 2005
Loan account at 9% (repayable in 5 Years)
163,007 163,007
You ascertain the following information:
1. Closing inventory has been valued for accounts purposes at $8,490.
2. The motor van was sold on 31 Aug 2005 and added in against the cost of a new van.
The trade-in price was $1,400 and the cost of the new van was 3,600. No entries have yet
been made for this transaction apart from debiting the $2,200 cash paid to New delivery
van account.
3. Depreciation on the straight line basis to be provided at the following annual rates:
Motor vans 25%
Furniture and equipment 10%
4. 5% of the closing receivables total is estimated to be doubtful
5. An accrual of $372 is required in respect of light and heat
6. A quarter's rent to 30 June 2006 amounting to $900 was paid on 2 April 2006. Insurance for
the year to 31 March 2007 amounting to $1,680 was paid on 16 April 2006.

You are required to prepare:

1. Income Statement for the year ended 31 May 2006
2. A balance sheet as at 31 May 2006
Trial Balance Type Questions
The trial balance of Delta at 31 Dec 2008
Dr Cr
$ $
Capital account as at 1 Jan 2009 20,000
Loan account, Omega 2,000
Drawings 1,750
Premises 8,000
Furintures and fittings 500
Plant and machinery 5,500
Inventory at 1 Jan 8,000
Cash at Bank 650
Allowance for doubtful debts 740
Purchases 86,046
Sales revenue 124,450
Bad Debts 256
Bad Debts recovered 45
Trade receivables 20,280
Trade payables 10,056
Bank charges 120
Rent 2,000
Returns inwards 186
Returns outwards 135
Salaries 3,500
Wages 8,250
Travelling expenses 1,040
Carriage inwards 156
Discounts allowed 48
Discounts received 138
General expenses 2,056
Gas, electricity and water 2,560
Carriage outwards 546
Travellers salaries and commission 5,480
Printing and stationery 640
157,564 157,564

You ascertain the following information:

1. Closing inventory has been valued for accounts purposes at $7,550.
2. Interest on loan at 5% p.a. had not been paid at 31 Dec
3. Depreciation on the straight line basis to be provided at the following annual rates:
Plant and Machinery 10% p.a.
Furniture and fittings 5% p.a.
4. Rent includes $250 for premises paid in advance to 31 March next year.
5. Show wages as part of cost of sale.
6. 10% of the closing receivables total is estimated to be doubtful
 You are required to prepare:
st of a new van. 1. Income Statement for the year ended 31 Dec 2008
0. No entries have yet
2. A balance sheet as at 31 Dec 2008
aid to New delivery

annual rates:

ril 2006. Insurance for

e following annual rates:

ch next year.