Oct/Nov 2020

Each year, a trader draws up financial statements. What do these help the trader to do?

Interested parties

What would not be recorded in a sales ledger control account?

Control accounts

A trader posted the expense of repairing office equipment to the office equipment account by debiting it. What impact did this mistake have on the financial statements?

Capital and revenue expenditure and receipts

A trader uses the reducing balance method of depreciation. What impact will this have over the life of the non-current asset?

Accounting for depreciation and disposal of non-current assets

At 31 December, Rashid gave the following details: - machinery at cost: $52\,000$ - provision for depreciation of machinery: $23\,000$ Depreciation for the year is worked out at $20\%$ on cost. After the statement of financial position had been prepared, it was discovered that machinery repairs costing $2000$ had been posted to the machinery account. What is the correct balance on the provision for the depreciation of machinery account?

Accounting for depreciation and disposal of non-current assets

At the close of his financial year on 31 August 2020, a trader had insurance paid in advance. How will this be shown in the insurance account and in the statement of financial position at 31 August 2020?

Other payables and other receivables

Hayley’s financial year finishes on 30 September 2020. The information below was given: - on 1 October 2019, rent receivable accrued: $480$ - for the year ended 30 September 2020, rent received: $6800$ - on 30 September 2020, rent received in advance: $720$ Which journal entry should be recorded on 30 September 2020?

Other payables and other receivables

On 1 July 2019, Jason’s accounting records showed these balances: - trade receivables: $64\,200$ - provision for doubtful debts: $1284$ By 30 June 2020, trade receivables amounted to $58\,500$, and $500$ of this total was to be written off as irrecoverable. Jason wishes to keep his provision for doubtful debts at $2\%$ of trade receivables. What was the change in the provision for doubtful debts at 30 June 2020?

Irrecoverable debts and provision for doubtful debts

Nirmal has two products, product G and product H. At the close of the financial year, the inventory information is as follows: - Product G: quantity of units $1000$, cost price for each unit $2.00$, net realisable value for each unit $2.50$ - Product H: quantity of units $800$, cost price for each unit $1.50$, net realisable value for each unit $1.20$ It was discovered that $100$ units of product G had been damaged and could not be sold. What was the total value of Nirmal’s inventory?

Valuation of inventory

Which items would not appear in an income statement prepared for a service business?

Sole traders

The following details were supplied by a trader: - capital on 1 October 2019: $52\,000$ - motor vehicle introduced into the business by the trader: $3500$ - personal expenses paid from the business bank account: $1500$ - cash drawings taken during the year: $500$ What was the capital on 30 September 2020?

Sole traders

The balances shown below were recorded in Hussein's books. What was the overall total of the liabilities?

The trial balance

John and Mark are partners in a partnership. Their profits and losses are divided in the ratio 3:2. John receives an annual salary of \$12. The profit for the year ending 31 August 2020 amounted to \$520. How much would be credited to the partners’ current accounts on 31 August 2020?

Partnerships

A partnership keeps both current accounts and capital accounts for every partner. A book-keeper with little experience drew up the account below, but it includes mistakes. Owen capital account: Debit: balance c/d $1350 Credit: balance b/d $1000; loan made to partnership $300; interest on capital $50 What figure should be shown as the closing balance on Owen’s capital account?

Partnerships

Z Limited supplied the following figures. 5% debentures: \$500 General reserve: \$250 Issued ordinary share capital: \$3000 Retained earnings: \$750 Short-term bank loan: \$100 What amount of equity was there?

Limited companies

Which statement concerning preference shares is incorrect?

Limited companies

A sports club was established on 1 September 2019. Which items might be included in the receipts and payments account for the year ending 31 August 2020?

Clubs and societies

A manufacturing firm gave the information shown below. Cost of raw materials: \$1860 Direct wages: \$750 Machinery depreciation: \$450 Factory supervisor’s salary: \$320 Factory rent: \$240 Machinery repairs: \$180 What is the prime cost of manufacturing?

Manufacturing accounts

At the beginning of the year, a manufacturer’s work in progress was valued at \$850. By the end of the year, this had risen to \$1000. What effect did this increase have on the cost of production and the cost of sales?

Manufacturing accounts

A trader produced the following predictions for the business for the next financial year. Average inventory: \$800 Rate of inventory turnover: 6 times Mark-up: 25% What are the predicted sales for the next financial year?

Calculation and understanding of accounting ratios

Kim’s trade payables turnover rose. What might have led to this?

Interpretation of accounting ratios

A company gave the following data on its rate of inventory turnover. year 1: 24 times year 2: 25 times year 3: 27 times What factors could account for the changes in the ratio?

Interpretation of accounting ratios

The account below was entered in Mary’s books. Which statement is correct?

Correction of errors

A company gave the following data for its current ratio. year 1: 2.3 : 1 year 2: 2.4 : 1 year 3: 2.5 : 1 What could account for the changes in the ratio?

Interpretation of accounting ratios

A trader wants to increase his gross margin. How can this be achieved?

Interpretation of accounting ratios

Zak has been charging depreciation on his machinery at $20\%$ per annum by the straight-line method. At $31$ December $2018$ the statement of financial position showed: - machinery at cost: $\$30000$ - depreciation to date: $\$12000$ - net book value: $\$18000$ On $31$ December $2019$ Zak was thinking about calculating the yearly depreciation at $20\%$ per annum on the net book value of the machinery. Which statement is true?

Accounting for depreciation and disposal of non-current assets

The financial statements of a business are drawn up on the assumption that it will continue operating for many years ahead. Which accounting principle is being used?

Accounting principles

When Marina started a business, she bought a stapler for the office. She entered this as office expenses instead of office equipment. Which accounting principle did Marina use?

Capital and revenue expenditure and receipts

What is not one of the aims of international accounting standards?

Accounting principles

Which business document is used to record standing order payments in the cash book?

Business documents

At $1$ March $2020$, the bank column of a cash book showed a credit balance of $\$290$. In March, cheques with a total value of $\$580$ were received, and cheques amounting to $\$610$ were paid to suppliers. Bank charges of $\$12$ that had been incurred in February were also recorded in the cash book. What was the balance on the bank column in the cash book at $1$ April $2020$?

Books of prime entry

Ziningi drew up a trial balance. The debit column total was $\$225\,750$ while the credit column total was $\$225\,250$. What might account for the discrepancy?

Correction of errors

Rental income paid by a tenant was entered on the debit side of the rent receivable account and on the credit side of the cash book. What kind of error has occurred?

Correction of errors

A computer system bought from Ace Computers for $\$1430$ was wrongly entered as $\$1340$ and posted to the stationery account rather than the office equipment account. Which journal entry would correct this mistake?

Correction of errors

Kate worked out her provisional profit for the year as $28\,400$. She then found these mistakes: 1. The rent prepaid by Kate had been underrecorded by $1000$. 2. Closing inventory had been underrecorded by $1500$. What should the profit for the year actually have been?

Valuation of inventory

A trader draws up financial statements every year. What do these help the trader to do?

Interested parties

Motor vehicle expenses, $\$50$, were entered in error in the motor vehicles account. Which journal entry would correct this mistake?

Correction of errors

Kate worked out her provisional profit for the year as $28\,400$. She then found the following mistakes: 1. Rent prepaid by Kate had been recorded too low by $1000$. 2. Closing inventory had been recorded too low by $1500$. What is the correct profit for the year?

Correction of errors

A trader’s bank statement recorded a credit balance of $2940$. The cash book had not yet included the following items: bank interest received $70$, credit transfer $280$. What was the debit balance in the cash book before it was updated?

Bank reconciliation

What is one purpose of preparing a sales ledger control account?

Control accounts

George is putting together his purchases ledger control account. Which information would he take from his general journal?

Control accounts

A trader entered the cost of repairing office equipment in the office equipment account on the debit side. What effect did this error have on the financial statements?

Capital and revenue expenditure and receipts

At 31 December, Rashid gave the following figures: machinery at cost $52\,000$, provision for depreciation of machinery $23\,000$. Depreciation for the year is worked out at $20\%$ on cost. Once the statement of financial position had been drawn up, it was discovered that machinery repairs costing $2000$ had been entered in the machinery account as a debit. What is the correct balance in the provision for the depreciation of machinery account?

Accounting for depreciation and disposal of non-current assets

A machine that had cost $32\,000$ was sold for $14\,000$. By the date it was disposed of, accumulated depreciation amounted to $15\,000$. What profit or loss arose on disposal?

Accounting for depreciation and disposal of non-current assets

Beena keeps a provision for doubtful debts equal to $3\%$ of trade receivables at the close of each financial year. On 1 September 2019, the provision for doubtful debts was $900$. By 31 August 2020, trade receivables had reached $42\,800$. Which journal entry was recorded by Beena on 31 August 2020?

Irrecoverable debts and provision for doubtful debts

Nirmal has two products in stock, product G and product H. The information below shows his inventory at the end of the financial year. Product G: 1000 units, cost price per unit $2.00$, net realisable value per unit $2.50$. Product H: 800 units, cost price per unit $1.50$, net realisable value per unit $1.20$. It was discovered that 100 units of product G had been damaged and could not be sold. What was the total value of Nirmal’s inventory?

Valuation of inventory

Which option is not an example of a book-keeping entry?

Books of prime entry

Which business is not a service business?

Manufacturing accounts

Peter’s financial year finishes on 30 September. On 1 August 2020, Peter was paid rent of $1000$. This payment related to the period from 1 July to 30 November 2020. What entry will be shown in Peter’s statement of financial position on 30 September 2020?

Other payables and other receivables

Besides a share of the profit, a partner receives interest on capital and a salary, and pays interest on drawings. In what way are these entered in the partner’s ledger accounts?

Partnerships

A sports club supplied the following figures: subscriptions for the year $26\,800$, profit on sale of refreshments $4200$, depreciation $1500$, rent and insurance $12\,600$, wages $3200$. What was the total income for the year?

Clubs and societies

A club came into existence on 1 July 2019. For the year ending 30 June 2020, subscriptions paid by members amounted to $2500. Of this total, $120 was received in advance for the following financial year. Subscriptions due but not yet paid on 30 June 2020 were $280. How much should subscriptions be shown at in the income and expenditure account for the year ended 30 June 2020?

Clubs and societies

Anthony does not maintain a full set of accounting records. He knows his opening and closing cash balances and wants to work out his cash sales. Which item does Anthony not require in order to work out his cash sales?

Incomplete records

A trader has not kept a complete set of accounting records. How can she work out the credit sales for the year?

Incomplete records

A trader prepared the following forecasts for the business for the coming financial year. average inventory: $80\,000 rate of inventory turnover: 6 times mark-up: 25% What sales are forecast for the coming financial year?

Calculation and understanding of accounting ratios

A company supplied the information below about its current ratio. year 1: $2.3 : 1$ year 2: $2.4 : 1$ year 3: $2.5 : 1$ What might account for the changes in this ratio?

Interpretation of accounting ratios

A trader aims to increase his gross margin. In what way could this be achieved?

Interpretation of accounting ratios

Hussein's books showed the following balances: fixtures $\$6000$, inventory $\$3300$, trade receivables $\$3000$, trade payables $\$4500$, other receivables $\$500$, other payables $\$300$, loan to Imran $\$1000$, bank overdraft $\$1400$. What was the total amount of the liabilities?

The trial balance

Meesha gave the following figures for her first year of trading. sales (1000 units at $10 each): $10\,000 cost of sales (1000 units at $4.50 each): $4\,500 gross profit: $5\,500 During her second year of trading, Meesha lowered the selling price and sold 1500 units. Her gross profit fell by $250. The cost per unit did not change. What was the total value of sales in the second year of trading?

Sole traders

AB Limited and CD Limited each began trading on 1 January 2019 with ordinary share capital of $100\,000. Neither firm had any debentures or loans. The two companies made the same profit in 2019. A dividend was paid only by AB Limited. Return on capital employed (ROCE) was worked out by using closing capital employed. Which statement correctly describes AB Limited’s ROCE in comparison with that of CD Limited?

Interpretation of accounting ratios

Which stakeholder uses a business’s financial statements to evaluate current performance and plan future activities?

Interested parties

The unique skills possessed by the employees are not shown in a business’s financial statements. Which accounting principle is being used?

Accounting principles

In what way can a business follow the accounting principle of prudence?

Accounting principles

Which of the following is not an aim of international accounting standards?

Accounting principles

What does the owner’s equity comprise?

Sole traders

Which journal entries did Sally make to record the following transaction? Rashid, a credit customer, returned damaged goods.

Books of prime entry

The account below was entered in Mary’s books (Paul account). Which statement is correct?

The trial balance

In which part of Zamir’s ledger should each of the following accounts be recorded? 1 sales account 2 the account of Harjit, a trade receivable

Control accounts

Sue gives a $2\%$ cash discount to credit customers who pay their account within $28$ days. Jane bought goods with a list price of $\$200$ on 10 September. She sent these goods back on 15 September. Which entry should Sue record on 15 September?

Books of prime entry

A transaction was entered into the incorrect account within the same class. What type of error was this?

Correction of errors

A trader prepares financial statements every year. What do these help the trader to do?

Interested parties

What would be excluded from a sales ledger control account?

Control accounts

A trader entered the cost of repairing office equipment in the office equipment account. What effect did this mistake have on the financial statements?

Capital and revenue expenditure and receipts

A trader applies the reducing balance method of depreciation. What impact will this have during the useful life of the non-current asset?

Accounting for depreciation and disposal of non-current assets

Rashid gave the following details at 31 December. Machinery recorded at cost: $\$52\,000$. Provision for depreciation of machinery: $\$23\,000$. Depreciation for the year is worked out at $20\%$ on cost. Once the statement of financial position had been prepared, it was discovered that machinery repairs costing $\$2000$ had been entered to the debit of the machinery account. What is the correct balance in the provision for the depreciation of machinery account?

Accounting for depreciation and disposal of non-current assets

At the close of his financial year on 31 August 2020, a trader had insurance prepaid. How would this be shown in the insurance account and in the statement of financial position at 31 August 2020?

Other payables and other receivables

Hayley’s financial year ends on 30 September 2020. She gave the following details. On 1 October 2019: accrued rent receivable $\$480$. For the year ended 30 September 2020: rent received $\$6800$. On 30 September 2020: rent received in advance $\$720$. Which journal entry should be recorded on 30 September 2020?

Other payables and other receivables

Jason’s book balances on 1 July 2019 contained the following items. Trade receivables amounted to $\$64\,200$. Provision for doubtful debts stood at $\$1284$. Trade receivables on 30 June 2020 were $\$58\,500$, and $\$500$ of this amount was to be written off as irrecoverable. Jason wishes to keep his provision for doubtful debts at $2\%$ of trade receivables. What was the adjustment in the provision for doubtful debts at 30 June 2020?

Irrecoverable debts and provision for doubtful debts

Nirmal trades in two items, product G and product H. The information below shows the inventory he held at the end of the financial year. Product G: number of units $1000$, cost price per unit $\$2.00$, net realisable value per unit $\$2.50$. Product H: number of units $800$, cost price per unit $\$1.50$, net realisable value per unit $\$1.20$. It was discovered that $100$ units of product G had been damaged and were unsaleable. What is the total value of Nirmal’s inventory?

Valuation of inventory

Which of the following items would not appear in an income statement prepared for a service business?

Sole traders

A trader supplied the following information. Capital as at 1 October 2019: $\$52\,000$. Motor vehicle introduced into the business by the trader: $\$3500$. Personal expenses settled from the business bank account: $\$1500$. Cash drawings taken during the year: $\$500$. What was the capital at 30 September 2020?

Sole traders

Hussein's books showed the following balances. Fixtures $6000$ Inventory $3300$ Trade receivables $3000$ Trade payables $4500$ Other receivables $500$ Other payables $300$ Loan to Imran $1000$ Bank overdraft $1400$ What is the total amount of liabilities?

The trial balance

John and Mark operate as partners. Their profits and losses are divided in the ratio $3:2$. John receives an annual salary of $\$12\,000$. The profit for the year ended 31 August 2020 was $\$52\,000$. What sum would be entered on the credit side of the partners’ current accounts on 31 August 2020?

Partnerships

For every partner, a partnership keeps both current accounts and capital accounts. A novice book-keeper drew up the account below, but it includes mistakes. Owen capital account shows: debit balance c/d $\$135\,000$; credit balance b/d $\$100\,000$; loan made to partnership $\$30\,000$; interest on capital $\$5\,000$. What closing balance should be shown on Owen’s capital account?

Partnerships

Z Limited supplied the following information: 5% debentures $\$50\,000$; general reserve $\$25\,000$; issued ordinary share capital $\$300\,000$; retained earnings $\$75\,000$; short-term bank loan $\$10\,000$. What amount of equity was there?

Limited companies

Which statement about preference shares is incorrect?

Limited companies

A sports club was set up on 1 September 2019. What items might be shown in the receipts and payments account for the year ended 31 August 2020?

Clubs and societies

A manufacturing company supplied the information below: cost of raw materials $\$186\,000$; direct wages $\$75\,000$; machinery depreciation $\$45\,000$; factory supervisor’s salary $\$32\,000$; factory rent $\$24\,000$; machinery repairs $\$18\,000$. What was the prime cost of production?

Manufacturing accounts

At the start of the year, a manufacturer’s work in progress had a value of $\$850$. By the end of the year, this had risen to $\$10\,200$. What effect did this rise have on the cost of production and the cost of sales?

Manufacturing accounts

A trader drew up the following forecasts for the business for the coming financial year: average inventory $\$80\,000$; rate of inventory turnover $6$ times; mark-up $25\%$. What are the predicted sales for the coming financial year?

Calculation and understanding of accounting ratios

Kim’s trade payables turnover rose. What might have caused this?

Interpretation of accounting ratios

A company gave the following data for its inventory turnover rate: year 1: $24$ times; year 2: $25$ times; year 3: $27$ times. What could account for the variation in this ratio?

Interpretation of accounting ratios

Mary's books included the account shown below. Paul's account Debit: April 1 balance b/d $90$ April 14 sales $150$ Credit: April 21 returns $25$ April 30 bank $88$ Discount $2$ Balance c/d $125$ Which of the statements below is correct?

Books of prime entry

A company gave the following details for its current ratio: year 1: $2.3:1$; year 2: $2.4:1$; year 3: $2.5:1$. What could account for the changes in the ratio?

Interpretation of accounting ratios

A trader wants to raise his gross margin. How might this be achieved?

Calculation and understanding of accounting ratios

Zak has charged depreciation on his machinery at 20% per annum by using the straight-line method. At 31 December 2018, the statement of financial position showed: - machinery at cost: $30000 - depreciation to date: $12000 - net book value: $18000 On 31 December 2019, Zak was thinking about working out the annual depreciation at 20% per annum based on the net book value of the machinery. Which statement is correct?

Accounting for depreciation and disposal of non-current assets

The financial statements of a business are drawn up on the assumption that it will keep operating for many years into the future. Which accounting principle is being applied?

Accounting principles

When Marina started a business, she bought a stapler for the office. She entered this under office expenses instead of office equipment. Which accounting principle did Marina use?

Capital and revenue expenditure and receipts

What is not one objective of international accounting standards?

Accounting principles

Which business document is used to record standing order payments in the cash book?

Business documents

On 1 March 2020, the bank column in a cash book showed a credit balance of $290$. In March, cheques with a total value of $580$ were received and cheques amounting to $610$ were paid to suppliers. Bank charges of $12$ that had been incurred in February were also entered in the cash book. What was the balance in the bank column of the cash book on 1 April 2020?

Books of prime entry

Ziningi drew up a trial balance. The total in the debit column was $225\,750$ while the total in the credit column was $225\,250$. What might account for the difference?

The trial balance

Rent collected from a tenant was entered on the debit side of the rent receivable account and on the credit side of the cash book. What type of error has been made?

Correction of errors

A computer system bought from Ace Computers for $1430$ was mistakenly entered as $1340$ and posted to the stationery account rather than the office equipment account. Which journal entry is needed to correct this mistake?

Correction of errors

Kate worked out her draft profit for the year as $\$28\,400$. She then found these mistakes. 1. The rent prepaid by Kate had been understated by $\$1000$. 2. The closing inventory had been understated by $\$1500$. What is the correct profit for the year?

Capital and revenue expenditure and receipts

Sariah owns a ladies’ clothing business and keeps her records using double entry bookkeeping. The following events took place in September 2020. 1 A motor vehicle was bought on credit from Sharpe Motors for $6350. 2 Ruhee, a credit customer, was declared bankrupt and still owed Sariah $1200. The debt is to be written off. Sariah is drawing up her financial statements for the year ended 30 September 2020. She gives the following details for fixtures and fittings. 2019 October 1 Fixtures and fittings at cost $28600 Provision for depreciation of fixtures and fittings $6185 2020 January 31 Fixtures were sold and a cheque for $1150 was received The fixtures had originally been bought on 1 February 2018 for $1500 March 31 New fixtures were purchased and paid for by cheque $3500 Sariah’s policy is to charge depreciation on fixtures and fittings at 10% per annum using the reducing balance method. Depreciation for a full year is charged in the year of purchase, but none is charged in the year of disposal.

Accounting for depreciation and disposal of non-current assets

Eniola matched her bank statement for July 2020 with the bank columns in her cash book and supplied the details below. Overdrawn balance shown in the cash book at 31 July 2020 $3420 Direct debit payment dated 25 July 2020, not yet entered in the cash book $350 A cheque received from a customer on 12 July 2020 was dishonoured. This dishonoured cheque had still not been recorded in the cash book $665 Bank charges appearing on the bank statement had not yet been entered in the cash book $45 Unpresented cheques at 31 July 2020 $1290 Uncredited deposits at 31 July 2020 $410 Eniola is worried that her bank balance has fallen sharply over the last year. She is considering ways to improve her liquidity. Eniola’s financial year end is 31 July 2020. She provided the following details about the rent and rates of her business. On 1 August 2019, she owed two months’ rent totalling $900. On the same date, rates of $260 were prepaid up to 30 September 2019. During the year ended 31 July 2020 the following payments were made by credit transfer. 2019 August 1 Seven months’ rent $3150 October 1 Twelve months’ rates $1860 2020 March 1 Six months’ rent $2700

Bank reconciliation

Haziq has not kept complete accounting records for his business. For the year ended 31 July 2020, Haziq supplied the information below. On 1 August 2019 / On 31 July 2020 Bank loan $6000 / $4500 Inventory $8400 / ? Non-current assets at net book value $35580 / $32450 Rent prepaid $240 / - Trade payables $6280 / $7460 Wages accrued - / $610 Bank account summary for the year ended 31 July 2020 Sales receipts $166000 Balance c/d $6600 Balance b/d $2150 Payments to credit suppliers $96220 Bank loan repayments $1500 Bank loan interest $300 Rent $2640 Wages $41400 General expenses $10890 Drawings $17500 Further information 1 Gross margin was 40%. 2 Every sale was for cash and every cash receipt was banked.

Incomplete records

On 30 September 2020, the directors of DW Limited supplied the following figures. 6% debentures (2028) $18000 Bank overdraft $6450 Dividend paid $2000 General reserve at 1 October 2019 $6500 Inventory at 30 September 2020 $26300 Issued share capital at 1 October 2019 $200000 Non-current assets at 30 September 2020: Cost $462000, Provision for depreciation $106000 Other payables $2200 Other receivables $1600 Provision for doubtful debts at 1 October 2019 $625 Retained earnings $73475 Trade payables $8250 Trade receivables $14500 Extra information A draft income statement for the year ended 30 September 2020 had been drawn up and showed a profit of $84900. The following mistakes were then found. 1 Inventory of $26300 included items valued at cost $5200 that required repairs. After repairs costing $600, those items could be sold for $5000. 2 Operating expenses contained insurance of $400 that had been prepaid at 30 September 2020. 3 The provision for doubtful debts should have been revised so that it is equal to 5% of trade receivables. The directors chose to transfer $5000 to general reserve. Issued share capital did not change during the year ended 30 September 2020.

Correction of errors

Nazim runs a wholesale enterprise and has drafted the financial statements for the year ended 30 June 2020, which is his first year of trade. Once these financial statements had been prepared, some mistakes were found.

Correction of errors

Dev operates a furniture-selling business. These transactions happened during August 2020. Transaction 1 Date August 9 Details Goods were sold on credit to Petra $675 Transaction 2 Date August 14 Details Petra sent damaged goods back to Dev $120 Transaction 3 Date August 23 Details Cash sales were banked $412 Transaction 4 Date August 29 Details Petra paid the amount still owing from 1 August by credit transfer after receiving a cash discount of 5%. On 1 August 2020, Petra’s sales ledger account had a debit balance of $940.

Books of prime entry

BH Sports Club offers sporting facilities and a café for members and guests to use. The club’s financial year finishes on 31 July. The information below is provided.

Clubs and societies

JP Limited’s accounting year finished on 30 September 2020. The balances below were available at that date.

Limited companies

Carlos runs a business that sells computer equipment. The information below was supplied for the year ending 31 July 2020.

Interpretation of accounting ratios

Razia’s financial year finishes on 30 September. On 30 September 2020, the trial balance totals did not match. The debit total was $10 450$ and the credit total was $10 250$. A suspense account was therefore opened. The errors below were then found.

Correction of errors

Sariah owns a ladies’ clothing business and keeps double entry bookkeeping records. The following events took place during September 2020. 1 A motor vehicle was bought on credit from Sharpe Motors $6350. 2 Ruhee, a credit customer, was declared bankrupt owing Sariah $1200. The debt is to be written off. Sariah is preparing her financial statements for the year ended 30 September 2020. She gives the following details for fixtures and fittings. 2019 October 1 Fixtures and fittings at cost $28600 Provision for depreciation of fixtures and fittings $6185 2020 January 31 Sold fixtures and received a cheque $1150 The fixtures had been purchased on 1 February 2018 for $1500 March 31 Bought new fixtures and paid by cheque $3500 Sariah’s depreciation policy for fixtures and fittings is 10% per annum using the reducing balance method. Depreciation is charged for a full year in the year of purchase, but none is charged in the year of disposal.

Accounting for depreciation and disposal of non-current assets

Eniola matched the July 2020 bank statement with the bank columns in her cash book and gave the following details. Overdrawn balance shown in the cash book at 31 July 2020 $3420 Direct debit payment dated 25 July 2020, had not yet been entered in the cash book $350 A cheque received from a customer on 12 July 2020 was dishonoured. This dishonoured cheque had not yet been recorded in the cash book $665 Bank charges on the bank statement had not yet been entered in the cash book $45 Unpresented cheques at 31 July 2020 $1290 Uncredited deposits at 31 July 2020 $410 Eniola is worried that her bank balance has fallen a great deal over the past year. She is thinking about ways to improve her liquidity. Eniola’s financial year end is 31 July 2020. She gave the following information about the rent and rates of her business. On 1 August 2019, she owed two months’ rent totalling $900. On the same date, rates of $260 were prepaid up to 30 September 2019. During the year ended 31 July 2020 the following payments were made by credit transfer. 2019 August 1 Seven months’ rent $3150 October 1 Twelve months’ rates $1860 2020 March 1 Six months’ rent $2700

Bank reconciliation

Haziq has not kept complete accounting records for his business. Haziq supplied the information below for the year ended 31 July 2020. Balances on 1 August 2019 and 31 July 2020: Bank loan $6000 / $4500 Inventory $8400 / ? Non-current assets at net book value $35580 / $32450 Rent prepaid $240 / - Trade payables $6280 / $7460 Wages accrued - / $610 Bank account summary for the year ended 31 July 2020: Sales receipts $166000 Balance c/d $6600 Payments to credit suppliers $96220 Bank loan repayments $1500 Bank loan interest $300 Rent $2640 Wages $41400 General expenses $10890 Drawings $17500 Additional information: 1 The gross margin was 40%. 2 All sales were for cash and all cash received was banked.

Incomplete records

The directors of DW Limited gave the following figures at 30 September 2020. 6% debentures (2028) $18000 Bank overdraft $6450 Dividend paid $2000 General reserve at 1 October 2019 $6500 Inventory at 30 September 2020 $26300 Issued share capital at 1 October 2019 $200000 Non-current assets at 30 September 2020: Cost $462000, Provision for depreciation $106000 Other payables $2200 Other receivables $1600 Provision for doubtful debts at 1 October 2019 $625 Retained earnings $73475 Trade payables $8250 Trade receivables $14500 Further information: A draft income statement for the year ended 30 September 2020 was drawn up and showed profit of $84900. Errors discovered: 1 Inventory of $26300 included items valued at cost $5200 that needed repair. After repairs costing $600, the items could be sold for $5000. 2 Operating expenses included insurance of $400 that was prepaid at 30 September 2020. 3 The provision for doubtful debts should have been adjusted so that it equals 5% of trade receivables. The directors resolved to transfer $5000 to general reserve. There was no alteration to the issued share capital during the year ended 30 September 2020.

Limited companies

Nazim runs a wholesale business and has drawn up draft financial statements for the year ended 30 June 2020, which was his first year of trading. Once these financial statements had been prepared, several mistakes were found. After the errors had been corrected, Nazim compared his results with those of his brother Aziz, whose business is similar.

Correction of errors