Oct/Nov 2022

Ahmed works as a trader. Why should he draw up financial statements?

Interested parties

Saddique’s trial balance did not balance. The debit total was $12250 and the credit total was $12200. The errors set out below were found. No record had been entered for cash sales, $150. The balance on the discount received account, $50, had been left out of the trial balance. What were the totals of the trial balance after the errors had been corrected?

The trial balance

Jacob acquired a motor vehicle for business purposes on credit from Waheed for $20000. It had not been entered in Jacob’s accounting records. Which journal entry would rectify this mistake in Jacob’s accounting records?

Correction of errors

Once her income statement had been prepared, Emma found the following mistakes. A debt of $1500 ought to have been written off as irrecoverable. No adjustment had been recorded for Emma’s prepaid rent of $2800. The draft profit for the year came to $35. What was the corrected profit for the year?

Irrecoverable debts and provision for doubtful debts

On 1 September 2022, Jamal’s bank statement recorded a bank overdraft of $1460. On that date, the unpresented cheques totalled $385 and the uncredited deposits totalled $255. What was the balance shown in the cash book on 1 September 2022?

Bank reconciliation

A sales ledger control account contained the items below. 1 discount allowed 2 dishonoured cheques 3 interest charged on overdue accounts 4 irrecoverable debts Which of these items had information taken from the general journal?

Control accounts

A sales ledger control account showed a debit balance of $4000 on 1 August. In August, total credit sales amounted to $50\,000, sales returns from credit customers were $600 and discounts allowed came to $400. On 1 September, the sales ledger control account had a debit balance of $6000. What total amount was received from credit customers in August?

Control accounts

Manjit records depreciation of $1000 for her motor vehicles at the end of each financial year. Which journal entry would Manjit record at the end of each financial year?

Accounting for depreciation and disposal of non-current assets

At the beginning of his financial year, Jason bought a new machine for $20\,000$. At that time, the book value of his old machine was $6000$. Jason received $4500$ for the old machine as part exchange. He settled the remaining amount by cheque. Machinery is depreciated by $20\%$ each year. What amount should be debited to Jason's income statement for the year?

Accounting for depreciation and disposal of non-current assets

A trader gave the following details about his inventory at the end of his financial year. total number of units: 500 cost price of each unit: $4 net realisable value of each unit: $6 80 units had been damaged and could only be sold for $3 per unit. What is the value of the closing inventory?

Valuation of inventory

For what purposes would a trader use his income statement and statement of financial position? 1 to allow decisions to be taken about the business's performance 2 to show the balance on the business bank account at a specific date 3 to present the financial position of the business on a given date 4 to indicate whether the business made a profit or a loss in the financial year

Interested parties

Which transaction will raise both assets and capital by the same amount?

Sole traders

What items might be included in a partnership appropriation account?

Partnerships

Anne and Paul run a partnership. In the partnership ledger accounts, how would interest on Anne’s capital be recorded?

Partnerships

Which statement regarding the members of a limited company is correct?

Limited companies

A limited company gave the following figures. non-current assets $35\,000 ordinary share capital $40\,000 $5\%$ debentures $10\,000 net current assets $30\,000 What amount of retained earnings was there?

Limited companies

A limited company obtained finance by selling ordinary shares, preference shares and debentures. Which of the following statements are true? 1 Debentures form part of loan capital. 2 Ordinary shares belong to the equity. 3 Ordinary dividend is paid before debenture interest is paid. 4 Preference shares provide a fixed rate of dividend.

Limited companies

A club’s financial year finishes on 30 September. In the year ending 30 September 2022, the club obtained an interest-free loan from one of its members. In which of the club’s financial statements would this be shown?

Clubs and societies

A cricket club gave the information below. On 1 August 2021: balance at bank $950 For the year ended 31 July 2022: net receipts from competition $1050; subscriptions received $2500; general expenses paid $1020; insurance paid $500; rent paid $1800 On 31 July 2022: subscriptions owing by members $120; insurance prepaid $20; depreciation of equipment $260 What was the bank balance on 31 July 2022?

Clubs and societies

At the beginning of the year, a club’s accumulated fund was $18\,000$, and by the end of the year it had fallen to $16\,200$. During the year, new equipment costing $1\,100$ was purchased. The year’s total expenses amounted to $9\,550$. Subscriptions were the club’s only source of income. What was the amount of subscriptions for the year?

Clubs and societies

A food processing factory puts vegetables into cans. The cans are then sold to shops. Which wages count as direct labour costs for the factory?

Manufacturing accounts

Thembi produces wooden toys. She gave the following data for the financial year ending 31 August 2022. prime cost: $35\,000$ factory overheads: $17\,000$ work in progress: opening inventory: $1\,400$ closing inventory: $2\,300$ What was the cost of production of finished goods?

Manufacturing accounts

Pradip settled Amal’s account by credit transfer and was granted a cash discount for paying promptly. How was this discount recorded by Pradip?

Books of prime entry

Chan supplied the information below. On 1 October 2021 and 30 September 2022, respectively: non-current assets: $10\,000$, $12\,000$ inventory: $2\,500$, $2\,000$ trade receivables: $1\,500$, $1\,300$ bank overdraft: $800$, $900$ trade payables: $1\,000$, $1\,900$ What was Chan’s profit or loss for the year?

Incomplete records

Thabo supplied the information shown here. revenue: $250\,000$ gross margin: $20\%$ rate of inventory turnover: $5$ times What was the average inventory for the year?

Calculation and understanding of accounting ratios

How may a trader raise her current ratio?

Calculation and understanding of accounting ratios

Which accounting principle, when applied, makes it simpler to compare financial statements from one year to the next?

Accounting principles

What is ensured by the prudence principle?

Accounting principles

Which statement is not correct concerning the reasons for adopting international accounting standards?

Accounting principles

Morgan entered the following double entry in his ledgers. debit sales returns account credit Sally account Which transaction was being recorded?

Books of prime entry

Abdul sells goods to Rekha on credit. Some of the goods were damaged while being transported. Which document should Rekha send to Abdul?

Business documents

Which business documents are used to supply the information needed to prepare the sales journal and the sales returns journal?

Books of prime entry

On 1 September, Peter issued a cheque to John, his credit supplier. John entered this correctly in his books. On 10 September, the cheque was returned unpaid because there were insufficient funds. What entries ought to be made in John’s books on 10 September?

Bank reconciliation

What would not be entered in a business’s ledgers?

Business documents

Which mistakes would be exposed when a trial balance is prepared?

The trial balance

Which transaction will raise both assets and capital by an equal amount?

Sole traders

Insurance paid by credit transfer was recorded in the accounting records as $86 instead of $68. Which double entry would rectify this error?

Correction of errors

When her income statement had been completed, Emma identified the following errors. A debt of \$1500 ought to have been written off as irrecoverable. No adjustment had been recorded for rent prepaid by Emma of \$2800. The draft profit for the year was \$35000. What was the corrected profit for the year?

Irrecoverable debts and provision for doubtful debts

Hamid bought a motor vehicle from a motor manufacturer overseas. Which cost connected with the motor vehicle is capital expenditure?

Capital and revenue expenditure and receipts

Wentile bought a motor vehicle for \$35000. He expected it to remain in use for five years before being sold for \$5000. Wentile calculated depreciation on the motor vehicle using the straight-line method at a rate of $20\%$ per annum. What was the accumulated depreciation on this motor vehicle at the end of year 2?

Accounting for depreciation and disposal of non-current assets

At the start of his financial year, Jason bought a new machine for $20000. On that date, the book value of his old machine was $6000. Jason received $4500 in part exchange for the old machine. He settled the remaining amount by cheque. Machinery is depreciated at 20% per annum. How much should be charged to Jason's income statement for the year?

Accounting for depreciation and disposal of non-current assets

Martha lets out a section of her business premises. On 1 September 2021, rent owing to her amounted to $1500, and by 31 August 2022 this had risen to $1800. Over the year ended 31 August 2022, Martha collected rent of $6000. What amount was transferred to Martha’s income statement for the year ended 31 August 2022?

Other payables and other receivables

Parker received cash from Alexi in settlement of a debt that had been written off as irrecoverable. How should Parker enter this in his accounts?

Irrecoverable debts and provision for doubtful debts

Why is inventory valued at the lower of cost and net realisable value?

Valuation of inventory

In what sequence would current assets be shown if they are ordered from highest to lowest liquidity?

Accounting principles

Over the course of the year, Sam incurred advertising expenses, and part of these costs related to the next financial year. When he prepared his financial statements for the current year, Sam made an adjustment for this. What effect did making this adjustment have on Sam’s financial statements?

Other payables and other receivables

At 1 June 2021, Sue’s capital account showed a credit balance of \$120000. Over the year ending 31 May 2022, she took goods with a cost of \$1800. The loss for that year was \$14200. What credit balance did Sue’s capital account have at 1 June 2022?

Sole traders

The members of a limited company are only liable up to the amount of the company’s debts they have agreed to cover. What is meant by this?

Limited companies

The following figures were given for a limited company. non-current assets $35000 ordinary share capital $40000 5% debentures $10000 net current assets $30000 What amount of retained earnings was there?

Limited companies

What does the equity of a limited company consist of?

Limited companies

A club’s financial year finishes on 30 September. In the year ending 30 September 2022, the club obtained an interest-free loan from one of its members. In which of the club’s financial statements would this be shown?

Clubs and societies

At the start of the year, a club’s accumulated fund was $18000, and by the end of the year it had fallen to $16200. During the year, new equipment costing $1100 was purchased. The year’s total expenses came to $9550. Subscriptions were the only source of income. What was the amount of subscriptions for the year?

Clubs and societies

Dan produces t-shirts that are decorated with a design by using fabric paint. He supplied the information shown below. fabric for t-shirts $10000 factory heating and lighting $5000 fabric paint $4000 factory rent $8000 wages of machine operators $16000 What is the total of the direct costs?

Manufacturing accounts

In a manufacturing account, carriage on raw materials was wrongly recorded as a factory overhead. What effect did this mistake have on prime cost and on the cost of production?

Manufacturing accounts

Chan gave the information below. 1 October 2021 / 30 September 2022 non-current assets: $10000 / $12000 inventory: $2500 / $2000 trade receivables: $1500 / $1300 bank overdraft: $800 / $900 trade payables: $1000 / $1900 What was Chan’s profit or loss for the year?

Incomplete records

Aruna does not keep a complete set of double entry records. She gave the following figures: trade payables at 1 August 2021: 23 450 trade payables at 31 July 2022: 27 290 cash purchases during the year: 16 000 payments to credit suppliers: 168 000 What was the cost of her purchases for the year ended 31 July 2022?

Incomplete records

Thabo gave the information below: revenue: 250 000 gross margin: 20% rate of inventory turnover: 5 times What was the average inventory for the year?

Calculation and understanding of accounting ratios

Bilal bought goods on credit from Asim. In which book should Asim enter this transaction? 1 cash book 2 nominal (general) ledger 3 purchases ledger 4 sales ledger

Books of prime entry

Naeema gave the following figures: revenue: 28 000 gross profit: 11 900 profit for the year: 3 500 What profit margin did she achieve?

Calculation and understanding of accounting ratios

When calculating the liquid (acid test) ratio, what are the liquid assets compared with?

Calculation and understanding of accounting ratios

A trader gave the information below: year 1 versus year 2 gross profit: 40 000 / 75 000 gross margin: 35% / 35% profit margin: 11% / 22% What might account for these changes?

Interpretation of accounting ratios

A business had an insurance policy renewed. The full payment was recorded as an expense in the income statement for the year, although one half belonged to the following financial year. Which accounting principle has not been applied?

Accounting principles

What does the business entity principle mean?

Accounting principles

Which statement is not correct about the reasons for adopting international accounting standards?

Accounting principles

Abdul sells goods to Rekha on credit. A number of the goods were damaged during transport. Which document would Rekha send to Abdul?

Business documents

What information does an invoice not show?

Business documents

On 1 September, Peter issued a cheque to his credit supplier, John. John recorded this transaction correctly in his own books. On 10 September, the cheque was sent back unpaid because there were insufficient funds. Which entries ought to be recorded in John’s books on 10 September?

Bank reconciliation

What entries are needed to post the monthly totals from the discount allowed and discount received columns of the cash book?

Books of prime entry

Jasvinder keeps a petty cash book under the imprest system. The monthly imprest of \$100 is topped up on the first day of every month. In September, the petty cash book recorded the following: total expenses \$83; total receipts \$7. How much cash did Jasvinder have to provide to restore the imprest on 1 October?

Books of prime entry

Saddique’s trial balance did not balance. The debit side amounted to \$12250 and the credit side amounted to \$12200. The following mistakes were identified. Cash sales of \$150 had not been entered. The total for the discount received account, \$50, had been left out of the trial balance. What would the totals of the trial balance be after these errors had been corrected?

The trial balance

Ahmed works as a trader. Why ought he to prepare financial statements?

Interested parties

Saddique’s trial balance did not balance. The debit column added up to $12250, while the credit column came to $12200. The following errors were found. No record had been entered for cash sales, $150. The balance on the discount received account, $50, had been left out of the trial balance. What were the totals of the trial balance after the errors had been corrected?

Correction of errors

Jacob bought a motor vehicle for business purposes on credit from Waheed for $20000. This was not entered in Jacob’s records. Which journal entry would correct this error in Jacob’s records?

Books of prime entry

Once Emma had prepared her income statement, she identified these errors. A debt of $1500 ought to have been written off as irrecoverable. No adjustment had been recorded for Emma's prepaid rent of $2800. The draft profit for the year amounted to $35000. What was the corrected profit for the year?

Irrecoverable debts and provision for doubtful debts

On 1 September 2022, Jamal’s bank statement showed a bank overdraft of $1460. At that time, cheques worth $385 had not yet been presented and deposits of $255 had not yet been credited. What was the cash book bank balance on 1 September 2022?

Bank reconciliation

A sales ledger control account contained the items below. 1 discount allowed 2 dishonoured cheques 3 interest on overdue accounts 4 irrecoverable debts Which of these items would have been identified from the general journal?

Control accounts

On 1 August, a sales ledger control account showed a debit balance of $4000. Over August, total credit sales amounted to $50000, sales returns from credit customers came to $600, and discounts allowed were $400. At 1 September, the sales ledger control account had a debit balance of $6000. What total was received from credit customers during August?

Control accounts

Manjit charges depreciation on her motor vehicles by $1000 at the end of every financial year. Which journal entry should Manjit record at the end of each financial year?

Accounting for depreciation and disposal of non-current assets

At the beginning of his financial year, Jason bought a new machine costing $20000. On that date, the book value of his old machine was $6000. Jason received an allowance of $4500 for the old machine as part exchange. He settled the remaining amount by cheque. Machinery is depreciated at $20\%$ per annum. What amount should be charged to Jason's income statement for the year?

Accounting for depreciation and disposal of non-current assets

A trader supplied the following details about inventory at the end of his financial year. total number of units: $500$ cost price of each unit: $4$ net realisable value of each unit: $6$ $80$ units had been damaged and could only be sold for $3$ per unit. What was the value of the closing inventory?

Valuation of inventory

What purposes would a trader use his income statement and statement of financial position for? 1 to assist decisions about the business's performance 2 to display the balance on the business bank account at a particular date 3 to present the business's financial position on a particular date 4 to indicate whether the business made a profit or a loss in the financial year

Interested parties

Which transaction will cause both assets and capital to rise by the same amount?

Accounting principles

What items can be shown in a partnership appropriation account?

Partnerships

Anne and Paul are partners in a partnership. In the partnership’s ledger accounts, how would interest on Anne’s capital be entered?

Partnerships

Which statement concerning the members of a limited company is correct?

Limited companies

A limited company supplied the following figures. non-current assets $35000$ ordinary share capital $40000$ $5\%$ debentures $10000$ net current assets $30000$ How much were the retained earnings?

Limited companies

A limited company obtained finance by issuing ordinary shares, preference shares and debentures. Which of the following statements are correct? 1 Debentures belong to loan capital. 2 Ordinary shares are part of equity. 3 Ordinary dividend is paid before debenture interest. 4 Preference shares have a fixed dividend rate.

Limited companies

A club’s financial year finishes on 30 September. In the year ending 30 September 2022, the club obtained an interest-free loan from one of its members. In which of the club’s financial statements would this be shown?

Clubs and societies

The following figures relate to a cricket club. On $1$ August $2021$: bank balance $950$ For the year ended $31$ July $2022$: net receipts from competition $1050$ subscriptions received $2500$ general expenses paid $1020$ insurance paid $500$ rent paid $1800$ On $31$ July $2022$: subscriptions owing by members $120$ insurance prepaid $20$ depreciation of equipment $260$ What amount was held at the bank on $31$ July $2022$?

Clubs and societies

At the beginning of the year, a club had an accumulated fund of $18000, and by the end of the year this had fallen to $16200. During the year, new equipment costing $1100 was purchased. The total expenses for the year amounted to $9550. The only source of income was subscriptions. What was the amount of subscriptions for the year?

Clubs and societies

A food processing factory packs vegetables into cans. The finished cans are then supplied to shops. Which wages count as direct labour costs for the factory?

Manufacturing accounts

Thembi makes wooden toys. She gave the following details for the financial year ending 31 August 2022. Prime cost was $35000, factory overheads were $17000, opening work in progress inventory was $1400 and closing inventory was $2300. What was the cost of production of finished goods?

Manufacturing accounts

Pradip paid Amal’s account by credit transfer and was allowed a cash discount for paying promptly. In what way did Pradip enter this discount in the accounts?

Books of prime entry

Chan gave the information below for non-current assets, inventory, trade receivables, bank overdraft and trade payables at 1 October 2021 and 30 September 2022. What was Chan’s profit or loss for the year?

Incomplete records

Thabo supplied the following data: revenue amounting to $250000, a gross margin of $20\% and an inventory turnover rate of 5 times. What was the average inventory for the year?

Valuation of inventory

In what ways can a trader raise her current ratio?

Calculation and understanding of accounting ratios

Which accounting principle, when applied, makes year-on-year comparison of financial statements easier?

Accounting principles

What does the principle of prudence make sure of?

Accounting principles

Which statement is not correct regarding the reasons for adopting international accounting standards?

Accounting principles

Morgan entered the following double entry in his ledgers. debit sales returns account credit Sally account Which transaction was this recording?

Books of prime entry

Abdul supplies goods to Rekha on credit. A few of the goods were damaged while being transported. Which document would Rekha send to Abdul?

Business documents

Which business documents are used to provide the information needed to complete the sales journal and the sales returns journal?

Business documents

On 1 September, Peter issued a cheque to his credit supplier, John. John recorded this accurately in his books. On 10 September, the cheque was sent back unpaid because there were insufficient funds. Which entries need to be made in John’s books on 10 September?

Bank reconciliation

Which item would not be entered in the ledgers of a business?

Books of prime entry

Which errors would be detected when a trial balance is prepared?

The trial balance

Anika owns property that she lets to university students. She has achieved a steady profit in every year she has traded. Her trial balance at 31 August 2022 was as follows. Additional information: 1. On 31 August 2022, rent received of $8100 had been received in advance. 2. On 31 August 2022, general expenses of $1300 had been paid in advance and rates of $3400 were still payable. 3. The insurance figure includes $1800 paid for the 15 month period ending 30 November 2022. 4. $9000 spent on new fittings has been entered under repairs. 5. Depreciation is to be charged as follows: Premises: in equal annual instalments on cost over a 50 year period. Fittings: 20% per annum using the reducing balance method. A full year's depreciation is charged on fittings in the year they are bought.

Sole traders

Rasheed set up a business on 1 October 2021 and keeps a petty cash book in the business. A monthly imprest of $100$ is replenished on the first day of every month. Rasheed’s petty cash transactions for September 2022 were: September 2 Taxi fare paid $12 September 7 Purchases ledger account of Crystal paid $16 September 13 Postage stamps bought $10 September 18 Purchases ledger account of Kalpa paid $15 September 25 Bus fare paid $5 September 29 Cleaner paid $28

Books of prime entry

The balances below were drawn from RB’s accounts, with RB acting as a trader. 1 April 2021: Insurance $2500 prepaid; Commission receivable $700 owing. 31 March 2022: Insurance $850 prepaid; Commission receivable $630 owing. The transactions for the year ended 31 March 2022 are listed below. Every receipt and every payment went through the bank account. Insurance paid $15300 Insurance refund $600 Commission receivable $7200

Other payables and other receivables

The information below is taken from C Limited’s statement of financial position at 1 September 2021. 5% Debentures (2024) $60000 Equity: Ordinary share capital ($0.50) $240000; General reserve $36000; Retained earnings $22000. For the year ended 31 August 2022: A final dividend of $12000 was paid for the year ended 31 August 2021. An interim dividend of $0.02 per share was paid for the year ended 31 August 2022. $11000 was transferred to general reserve. At 31 August 2022 the company proposed a final dividend of $10000 for the year ended 31 August 2022. Revenue for the year ended 31 August 2022 was $310000 and profit (before debenture interest) was $23000.

Limited companies

NT began trading on 1 September 2020. Every sale is made on credit, and customers have to settle within 25 days. On 5 May 2021, LW, a trade receivable, was declared bankrupt and $600 was written off as irrecoverable at that time.

Irrecoverable debts and provision for doubtful debts

BC, a sole trader, drew up the trial balance from his accounting records on 31 August 2022. Extra information: 1 The inventory left on hand at 31 August 2022 had a value of $12000. 2 Commission received of $800 was still outstanding at 31 August 2022. 3 The salaries balance covers the 11 months up to 31 July 2022. Salaries for August 2022 are due but unpaid. There have been no pay rises during the previous 12 months and the same amount is paid every month. 4 At 31 August 2022, rates were prepaid by $300. 5 The insurance figure included $700 for a private insurance premium for BC. 6 Included in repairs was $4000 connected to a new attachment for machinery. 7 Machinery is to be depreciated at 20% per annum by the reducing balance method. A full year’s depreciation is charged whatever the purchase date. There were no disposals during the year. Premises are not depreciated.

Sole traders

MC is a trader who keeps a complete set of accounting records and, at the end of each month, prepares control accounts. MC has supplied the following details for July 2022. On 1 July 2022: Purchases ledger control account credit balance b/d $21400 Purchases ledger control account debit balance b/d $130 Monthly totals: Credit purchases $259600 Credit purchases returns $9800 Cash purchases $240 Cheques paid to credit suppliers $228200 Discount received $12900 Cash paid to credit suppliers $500 Interest charges by credit suppliers $150 Contra sales ledger $2260 At 31 July 2022 the purchases ledger control account showed a credit balance c/d of $180.

Control accounts

MG has operated as a furniture manufacturer for several years. On 31 August 2022, the bank column in his cash book showed that the business had $25600 in the bank account. The bank statement on that date showed a credit balance of $24815. The only transactions recorded in the cash book were: Cheque paid to JW $680 Cheque received from TH $910 In addition, an error had been found. A standing order for rates of $205 had been entered in the cash book as $255. The only transactions appearing on the bank statement were: Dishonoured cheque received from RJ $420 Insurance paid by direct debit $110 Bank charges $75

Bank reconciliation

PG is a trader in electrical components. She has supplied the following information for the year ended 31 July 2022. Sales journal $360000 Sales returns journal $13300 Trade receivables at 1 August 2021 $28500 Provision for doubtful debts at 1 August 2021 $1140 Cash book summary of totals for the year ended 31 July 2022: Discount allowed: Trade receivables $6500 Cash: Sales $17000 Bank: Trade receivables $335100 Bank: Trade receivables (dishonoured cheques) $4000 Further information: 1 $900 of trade receivables were written off as irrecoverable debts on 31 July 2022. No other irrecoverable debts arose during the year. 2 The provision for doubtful debts is to be fixed at 4% of trade receivables at 31 July 2022.

Irrecoverable debts and provision for doubtful debts

Sian and Tom are partners and divide profits and losses in line with the capital each has invested. Their partnership agreement sets out the following: 1 Capital is to earn interest at 6% per annum. 2 Sian is to receive a salary of $20000 per annum. 3 Drawings are charged interest at 3% per annum, calculated for each fraction of the year. The profit for the year before appropriation for the year ended 31 March 2022 was $59190. Drawings made during the year were: 1 April 2021: Sian $8000, Tom $10000 1 October 2021: Sian $6000, Tom $12000 The capital account balances on 1 April 2021 were: Sian $150000 Tom $100000 The current account balances on 1 April 2021 were: Sian $3000 credit Tom $7000 debit

Partnerships

Anika owns property that she lets to university students. She has earned a profit in every year since she started trading. Her trial balance at 31 August 2022 was as follows. Additional information 1 At 31 August 2022, rent received of $8100 was paid in advance. 2 At 31 August 2022, general expenses of $1300 were paid in advance and rates of $3400 were owing. 3 The insurance includes $1800 paid for the 15 month period ending 30 November 2022. 4 Expenditure of $9000 for new fittings has been recorded in repairs. 5 Depreciation is to be provided as follows: Premises by equal instalments on cost each year over a 50 year period. Fittings 20% per annum by the reducing balance method. A full year’s depreciation is charged on fittings during the year of purchase.

Sole traders

Rasheed began trading on 1 October 2021. In the business, he keeps a petty cash book. At the start of each month, the imprest is replenished to $100. The petty cash transactions for September 2022 were: September 2 Settled taxi fare $12 September 7 Paid purchases ledger account of Crystal $16 September 13 Purchased postage stamps $10 September 18 Paid purchases ledger account of Kalpa $15 September 25 Settled bus fare $5 September 29 Paid cleaner $28

Books of prime entry

The balances below were extracted from RB’s accounts, where RB is a trader. 1 April 2021 / 31 March 2022 Insurance: $2500 prepaid / $850 prepaid Commission receivable: $700 owing / $630 owing For the year ended 31 March 2022, the following transactions occurred. Every receipt and payment passed through the bank account. Insurance paid $15300 Insurance refund $600 Commission receivable $7200 RB has agreed with suppliers to a 25% trade discount from list price and a 2% cash discount. The cash discount applies only when payment is made within 10 days. On 5 March 2022 RB received an invoice from JP for the supply of goods with a list price of $3000. The invoice was settled on 13 March 2022.

Other payables and other receivables

The information below is drawn from the statement of financial position of C Limited at 1 September 2021. 5% Debentures (2024) $60000 Equity: Ordinary share capital ($0.50) $240000 General reserve $36000 Retained earnings $22000 In the year ended 31 August 2022: A final dividend payment of $12000 was made for the year ended 31 August 2021. An interim dividend payment of $0.02 per share was made for the year ended 31 August 2022. A transfer of $11000 was made to general reserve. At 31 August 2022 the company proposed a final dividend of $10000 for the year ended 31 August 2022. The revenue for the year ended 31 August 2022 was $310000 and the profit (before debenture interest) was $23000.

Limited companies

NT began trading on 1 September 2020. Every sale is made on credit, and customers must pay within 25 days. On 5 May 2021, LW, a trade receivable, was declared bankrupt and $600 was written off as irrecoverable on that date. Besides the irrecoverable debt from LW, further irrecoverable debts of $4100 were written off in the year ended 31 August 2021. Trade receivables at 31 August 2021 were $91500 and NT chose to set up a provision for doubtful debts at 5% of trade receivables. In the financial year ended 31 August 2022, PB, a trade receivable owing $7000, had been declared bankrupt. On 17 July 2022, NT received a cheque for $2500 in full settlement of the debt. The rest of the debt was written off as irrecoverable. Other irrecoverable debts of $8400 were written off at 31 August 2022. The remaining trade receivables at 31 August 2022 were $110000 and NT decided to keep the provision for doubtful debts at 5% of trade receivables. NT is worried about the rise in irrecoverable debts in the second year of trading. To cut irrecoverable debts, he plans to adopt one of the two options below. Option 1: To charge interest on all debts not paid within his standard terms of payment of 25 days. Option 2: To stop supplies to all customers who do not pay within his standard terms of payment of 25 days.

Irrecoverable debts and provision for doubtful debts